诺贝尔学术资源网_History_of_Economic_Thought-A_Reader.pdf 681页

TheHistoryofEconomicThought:AReaderFromtheancientstothemoderns,questionsofeconomictheoryandpolicyhavebeenanimportantpartofintellectualandpublicdebate,engagingtheattentionofsomeofhistory’sgreatestminds.Thiscollectionofreadingscoversthemajorthemesthathavepreoccupiedeconomicthinkersthroughouttheages,includingpricedeterminationandtheunderpinningsofthemarketsystem,monetarytheoryandpolicy,internationaltradeandfinance,incomedistribution,andtheappropriateroleforgovernmentwithintheeconomicsystem.Theseideasunfold,develop,andchangecourseovertimeatthehandsofscholarssuchasAristotle,FrançoisQuesnay,DavidHume,AdamSmith,DavidRicardo,KarlMarx,AlfredMarshall,andJohnMaynardKeynes.Eachreadinghasbeenselectedwithaviewtobothenlighteningthereaderastothemajorcontributionsoftheauthorinquestionandtogivingthereaderabroadviewofthedevelopmentofeconomicthoughtandanalysisovertime.TheHistoryofEconomicThought:AReadercanbeusedasacoretextbookorasasupplementarytextoncoursesineconomicthoughtandphilosophy.Itwillprovidereaderswithagoodfoundationinthedifferentschoolsofthoughtthatrunthrougheconomics.StevenG.MedemaisProfessorofEconomicsattheUniversityofColoradoatDenver,USA.HealsoservesaseditoroftheJournaloftheHistoryofEconomicThought.WarrenJ.SamuelsisProfessorEmeritusofEconomicsatMichiganStateUniversity.Heisco-editoroftheannualResearchintheHistoryofEconomicThoughtandMethodology. TheHistoryofEconomicThought:AReaderEditedbyStevenG.MedemaandWarrenJ.Samuels Firstpublished2003byRoutledge11NewFetterLane,LondonEC4P4EESimultaneouslypublishedintheUSAandCanadabyRoutledge29West35thStreet,NewYork,NY10001RoutledgeisanimprintoftheTaylor&FrancisGroupThiseditionpublishedintheTaylor&Francise-Library,2004.©2003Selectionandeditorialmatter,StevenG.MedemaandWarrenJ.Samuels;individualchapters,theauthorsAllrightsreserved.Nopartofthisbookmaybereprintedorreproducedorutilisedinanyformorbyanyelectronic,mechanical,orothermeans,nowknownorhereafterinvented,includingphotocopyingandrecording,orinanyinformationstorageorretrievalsystem,withoutpermissioninwritingfromthepublishers.BritishLibraryCataloguinginPublicationDataAcataloguerecordforthisbookisavailablefromtheBritishLibraryLibraryofCongressCataloginginPublicationDataAcatalogrecordforthisbookhasbeenrequestedISBN0-203-38029-0Mastere-bookISBNISBN0-203-38646-9(AdobeeReaderFormat)ISBN0–415–20551–4(hbk)ISBN0–415–20550–6(pbk) ForAlexandChristopher,andforMichelle,inthehopethatthey,too,willcometolovetheworldofideas ContentsPrefacexAcknowledgmentsxiiPART1Pre-ClassicalThought1Aristotle(384–322BC)3Politics5NichomacheanEthics(350BC)14StThomasAquinas(1225–1274)16SummaTheologica(1267–1273)18ThomasMun(1571–1641)30England’sTreasurebyForraignTradeortheBallanceofourForraignTradeistheRuleofourTreasure(1664)32WilliamPetty(1623–1687)45ATreatiseofTaxesandContributions(1662)47JohnLocke(1632–1704)57OfCivilGovernment(1690)59SomeConsiderationsoftheConsequencesoftheLoweringofInterest,andRaisingtheValueofMoney(1691)63RichardCantillon(1680?–1734)78EssayontheNatureofCommerceinGeneral(1755)79FrançoisQuesnay(1694–1774)95TableauÉconomique97AnneRobertJacquesTurgot(1727–1781)103ReflectionsontheFormationandDistributionofWealth(1770)104BernardMandeville(1670–1733)119TheGrumblingHive:or,KnavesTurn’dHonest120 viiiContentsPART2TheClassicalSchool131DavidHume(1711–1776)133PoliticalDiscources(1752)135AdamSmith(1723–1790)153AnInquiryintotheNatureandCausesoftheWealthofNations(1776)156JeremyBentham(1748–1832)180AnIntroductiontothePrinciplesofMoralsandLegislation(1789)183AManualofPoliticalEconomy(1795)186AnarchicalFallacies(1795)188PrinciplesoftheCivilCode(1802)192ThomasRobertMalthus(1766–1834)193AnEssayonthePrincipleofPopulation(1798)196WilliamGodwin(1756–1836)208OfPopulation(1820)210HenryThornton(1760–1815)220AnEnquiryintotheNatureandEffectsofthePaperCreditofGreatBritain(1802)222DavidRicardo(1772–1823)235TheHighPriceofBullion(1810)237Jean-BaptisteSay(1767–1832)245ATreatiseonPoliticalEconomy248DavidRicardo(1772–1823)256OnthePrinciplesofPoliticalEconomyandTaxation(1817)259ThomasRobertMalthus(1766–1834)291PrinciplesofPoliticalEconomy(1820)293JamesMill(1773–1836)312ElementsofPoliticalEconomy(1821)313NassauW.Senior(1790–1864)317AnOutlineoftheScienceofPoliticalEconomy(1836)319JohnStuartMill(1806–1873)333PrinciplesofPoliticalEconomy(1848)335PART3TheMarxianChallenge369KarlMarx375AContributiontotheCritiqueofPoliticalEconomy(1859)375DasKapital(1867)378 ContentsixPART4TheMarginalRevolution409WilliamStanleyJevons(1835–1882)413TheTheoryofPoliticalEconomy(1871)415CarlMenger(1840–1921)443PrinciplesofEconomics(1871)445LeonWalras(1834–1910)462ElementsofPureEconomics(1874)464FrancisYsidroEdgeworth(1845–1926)477MathematicalPsychics(1881)479AlfredMarshall(1842–1924)501PrinciplesofEconomics(1890)504EugenvonBöhm-Bawerk(1851–1914)522ThePositiveTheoryofCapital(1888)524PART5TheDevelopmentofMacroeconomics553KnutWicksell(1851–1926)555“TheInfluenceoftheRateofInterestonPrices”(1907)557IrvingFisher(1867–1947)562ThePurchasingPowerofMoneyandItsDeterminationandRelationtoCreditInterestandCrises(1911)564JohnMaynardKeynes(1883–1946)588“TheEndofLaissez-Faire”(1926)592“TheGeneralTheoryofEmployment”(1937)596TheGeneralTheoryofEmployment,InterestandMoney(1936)603PART6InstitutionalEconomics609ThorsteinB.Veblen(1857–1929)611TheTheoryoftheLeisureClass(1899)613JohnR.Commons(1862–1945)646“InstitutionalEconomics”(1931)648Index655 PrefaceThefollowingpagescontainsomeofthegreatliteratureinthehistoryofeconomicideas.Thetaskofputtingtogetherareadersuchasthisislikeconfrontinganendlesssmorgasbordofdelightswhenonahighlyrestrictivediet–somanygoodthingstosampleandsolittleroomtoactuallyindulge.Itshouldbeobviousthatreadingtheselectionscontainedhereinisnosubstituteforreadingtheoriginalworksintheirentirety.However,wehopethatthereaderwillfindourselectionssufficienttoprovideausefuloverviewofsomeofthemajorthemesinthehistoryofeconomicthoughtastheyweredevelopedinthehandsofthegiantsinthefield.No“reader”canpretendtobecomprehensiveinitscoverage.Thescholarschosenforinclu-sion,andthepassagesexcerptedfromtheirworks,willnodoubtpleasesomegreatlyanddisappointothers.Forthelatter,weapologize.Inputtingtogetherthisreader,wehavereliedonabroadsurveyofcoursereadinglistsinthefield,conversationswithvariouscolleagues,andourowninstinctsandintuitionregardingtopicsusuallycoveredincoursesonhistoryofeconomicthought.Wehavetriedbothtopresentthecentralideasofeachepochwithineconomicthoughtandtoavoidoverlapacrosswriters.Indoingso,wehavealsopaidattentiontothefactthatcer-tainoftheseclassicworks(e.g.AdamSmith’sTheWealthofNations)arereadilyavailableininex-pensivepaperbackeditionsshouldthereaderwishtoexaminethemfurther.Thus,thelengthoftheexcerptsfrom,forexample,SmithandKeynesreprintedhereareperhapsrathermorebriefthanwhattheirstatureinthehistoryofeconomicideaswouldsuggest.Wehavealsoendeavoredtoprovidesufficientintroductorymaterial1foreachsectionandeachentrytoprovideabitofbackgroundandplentyofsuggestionsforadditionalreading.Therearemanywaysofdoinghis-tory,andmanywaysofteachingthehistoryofeconomicthought.Wehavetriedtobesensitivetothisinthepreparationofthisvolume,andwearehopefulthatallreaders/students/scholarswithinterestinthehistoryofeconomicideaswillfindusefulthingstotakefromthisvolume.Whileweanticipatethattheprimarymarketforthisbookwillbestudentsinhistoryofeconomicthoughtcourses,someofyoumaybereadingthisbooksimplybecauseyouhaveaninterestinthehistoryofideas–economicorotherwise.Forthosewhoarenewtothehistoryofeconomicthoughtandwishtosupplementtheirreadingwithsecondaryanalysis,wereferyoutoRogerBackhouse’sTheOrdinaryBusinessofLife(ThePenguinHistoryofEconomicsintheUK),RobertHeilbroner’sTheWorldlyPhilosophers,ortheexcellenttextbooksinthefieldbyMarkBlaug,RobertEkelundandRobertHébert,HarryLandrethandDavidColander,HenrySpiegel,andIngridRima.Ifyouwouldliketo“sitacourseoflectures”inthefieldfromyoureasychair,youmayconsultLionelRobbins’AHistoryofEconomicThought:TheLSELectures.1WewouldliketoacknowledgethefactthatwehavedrawnheavilyonMarkBlaug’sGreatEconomistsBeforeKeynesforthebiographicalinformationcontainedintheseintroductorymaterials. PrefacexiForvariousreasons,thisprojecthashadaratherlonggestationprocess.WearemostgratefultoAlanJarvis,AllisonKirk,and,especially,RobertLanghamofRoutledgefortheirstronginter-estinthisprojectandtheirpatienceinseeingitthroughtocompletion.Wewouldalsoliketothankallthosewhogaveusadvicealongtheway,includingRogerBackhouse,BillBarber,andseveralanonymousreviewersofthisproposal,aswellasMattPowers,whoprovidedinvaluableresearchassistance,andBrianDuncanfortechnicalassistance.Finally,wewouldliketothankthevariouspublisherswhohavegraciouslyallowedustoreprinttheworksincludedinthisvolume.StevenG.MedemaWarrenJ.Samuels AcknowledgmentsTheauthorsandpublisherswouldliketothankthefollowingforgrantingpermissiontoreproducematerialinthiswork.TheNationalPortraitGallery,LondonforpermissiontoreproduceimagesofSirWilliamPetty,JohnLocke,JohnMaynardKeynes,WilliamGodwin,HenryThornton,JeremyBentham,AlfredMarshall,andFrancisYsidroEdgeworth.CorbisforpermissiontoreproduceimagesofAristotleandPlato,StThomasAquinas,andThorsteinVeblen.ManuscriptsandArchives,YaleUniversityLibraryforpermissiontoreproducetheimageofIrvingFisher.Everyefforthasbeenmadetocontactcopyrightholdersfortheirpermissiontoreprintmaterialinthisbook.Thepublisherswouldbegratefultohearfromanycopyrightholderwhoisnothereacknowledgedandwillundertaketorectifyanyerrorsoromissionsinfutureeditionsofthisbook. Part1Pre-ClassicalThoughtIntroductionItisawidelyheld,andprobablysubstantiallycorrect,viewthattheemergenceanddevelopmentofmoderneconomicthoughtwascorrelativewiththeemergenceofacommercial,eventuallyindus-trial,capitalistmarketeconomy.Itisthiseconomicsystem,especiallyasitaroseinWesternEuropeintheeighteenthcentury,thateconomicsattemptstodescribe,interpret,andexplain,aswellastojustify.Thiseconomicthoughtwasbothpositiveandnormative,thatis,itcombinedeffortstoobjectivelydescribeandexplainwiththosetojustifyand/ortoprescribe(suchaspolicy).Asapositive,scientificdiscipline,itcombinedtwomodesofthought:(1)empiricalobservation,dependentuponsomemoreorlessimplicittheoreticalorinterpretiveschema,and(2)logicalanalysisoftherelationshipsbetweenvariables,dependentuponsomemoreorlessconsciousgeneralizationofinterpretedobservations.Priortothistime,speakinggenerally,thereweremarketsandmarketrelationshipsbutnotmar-keteconomiesasthelattercametobeunderstoodafterroughlytheeighteenthcentury.Whilemod-erneconomictheorydidnotexist,thinkersofvarioustypesdidspeculateaboutasetofmoreorlessclearlyidentified“economic”topics,suchastrade,value,money,production,andsoon.Thesespeculationsarefoundindocumentsemanatingfromtheancientcivilizations,suchasSumeria,Babylonia,Assyria,Egypt,Persia,Israel,andtheHittiteempire.Someofthesedocumentsarelit-eraryorhistorical;othersarelegal;stillothersaroseoutofbusinessandfamilymatters;andothersinvolvedspeculationaboutcurrentand/orperennialeventsandproblems.Itisclearthateconomicactivity,especiallythathavingtodowithtrade,bothlocalandbetweendistantlands,wasengagedinbyhouseholdsandspecializedenterprises,andgaverisetovariousformsofeconomic“analysis.”Thesedocumentsseemnottohavecontainedanythinglikewhatwenowrecognizeastheoret-icalorempiricaleconomics.Buttheydoindicateseveralimportantconcerns,centeringonthegeneralproblemoftheorganizationandcontrolofeconomicactivity:problemsofclassandofhierarchyversusequality,problemsofcontinuityversuschangeofexistingarrangements,prob-lemsofreconcilinginterpersonalconflictsofinterest,problemsofthenatureandplaceoftheinstitutionofprivatepropertyinthesocialstructure,problemsofthedistributionsofincomeandtaxes,andsoon,allinterrelated.Muchofthespeculationrelatedtocurrentissuesratherthantoabstractgeneralizations,butthelatterarenotabsent.Earlyeconomicthoughthadtwoothercharacteristics:Onewasthemythopoeicnatureofdescrip-tionandexplanation:explicationthroughthecreationofstoriesinvolvingeitherthegodsor,eventu-ally,God,orananthropomorphiccharacterizationofnatureasinvolvingspiritsandtranscendentalforces.Theotherwasthesubordinationofeconomicthinkingtotheologyandorganizedreligionand,especially,thesuperimpositionofasystemofmoralsuponeconomic(andotherformsof)activity.Theformerremainsintheformoftheconceptofthe“invisiblehand;”thelatter,inthefeltneedforthesocialcontrolofbothindividualeconomicactivityandtheorganizationofmarkets.“Modern”philosophyintheWesttracesbacktotheGreeksduringthefifthandfourthcen-turiesBC.Mythopoetrydoesnotdisappearbut,onemightsense,reachesitshighestlevelsofsophistication,and,especially,existingalongsideofself-consciousandself-reflectivephilosophical inquiry,thelatterbecomingincreasinglyindependent–thoughnotwithouttensionandconflict.Thedevelopmentofphilosophyisfacilitatedandmotivatedby(1)thepostulationoftheexis-tenceofprinciplesofanintellectualorderintheuniverse(innatureandinsociety),(2)thegrow-ingbeliefintheopportunityaccordedbyGodtostudythenatureofthingswithoutsuchactivitybeingdeemedanintrusionuponthedomainofGod,andinteralia(3)thedevelopmentofprinci-plesofobservation,logic,andepistemology.IntheeighthcenturyBC,Hesiodwroteseveralworks,oneofwhich,OdetoWork(orWorksandDays),identifiedtheroleofhard,honestlaborinproductionandthestudiedapproachtohus-bandryandfarming,thelattercouchedintermsofproceedinginthemannerdesiredbydeifiedforcesofnature,includingtheseasons.ThisworkwascitedthreecenturieslaterbyPlatoandAristotle.OneoftheircontemporarieswasXenophon(430–355BC),whoseOeconomicusdealtwithhouseholdmanagement(mostproductionwasundertakenbyhouseholds)andwithanalysesofthedivisionoflabor,money,andtheresponsibilitiesofthewealthy.Xenophon’sRevenueofAthenswasabrilliantanalysisofthemeansthatcouldbeemployedbytheorganizedcity-statetoincreaseboththeprosperityofthepeopleandtherevenuesoftheirgovernment,ananalysiscombinedwiththeinjunction,oncetheprogramofmeasuresofeconomicdevelopmenthadbeenworkedout,tocon-sulttheoraclesofDodonaandDelphiifsuchaprogramwasindeedgoingtobeadvantageous.ButitiswithPlato(427–347BC),notablyinhisRepublicandTheLaws,andwithAristotle(384–322BC),inhisPoliticsandNichomacheanEthics,thatmoreelaborateandmoresophisticatedeconomicanalysistakesplace.BothPlatoandAristotlewereconcernedwith(1)aspectsoftherelationofknowledgetosocialaction;(2)topicsofpoliticaleconomy,suchasthenatureandimpli-cationsof“justice”fortheorganizationandcontroloftheeconomy,includingissuesofprivatepropertyversuscommunismand/oritssocialcontrol;and(3)moretechnicaltopicsofeconomics,suchasself-sufficiencyversustrade,theconsequencesofspecializationanddivisionoflabor(includingtheirrelationtotrade),thedesirable-necessarylocationofthecity-state,thenatureandroleofexchange,therolesofmoneyandmoneydemand,interestonloans,thequestionofpopu-lation,pricesandpricelevels,andthemeaningandsourceof“value.”Theirdiscussionsofthesetopicsreflectthesocial(read:class)organizationofAthens,thedeepphilosophicalpositionstheyheldonavarietyoftopics,theeconomicdevelopmentofAthensanditstradingpartners,andhowtheyworkedoutsolutionstoserious,perennialproblemsofsocialorder.IntermsofthecanonofWesterneconomicthinking,economicanalysislargelydisappearedforroughlyamille-nium-and-a-halfsubsequenttothedeathofAristotle,nottoreappearinasignificantwayuntilthescholasticwritersbeginninginthethirteenthcenturyAD.ThereadingsthatfollowinthisparttracethedevelopmentofeconomicthoughtfromtheGreeksthroughthelateeighteenthcentury.Alongtheway,thereaderwillbeintroducedtoclassicwritingsinscholasticism,mercantilism,andphysiocracy,aswellasworksthatmarkaturnineconomicthinkingtowardamoresystematic,andsomewouldsayscientific,methodofanalysis.Whileeconomics,throughoutthisperiod,wasprimarilyconsideredtobe,andanalyzedfromtheperspectiveof,largersystemsofsocialandphilosophicalthought,theeconomicsystemincreasinglycametoberecognizedasaspherethatembodieditsownparticularsetoflaws,worthyofanalysisinitsownright.Thereaderwillalsonoticeanincreasingrecognitionoverthisperiodoftheinterdependentnatureofeconomicphenomenaandthusthetendencyoftheauthorstoincreasinglytreattheeconomicsystemasaninter-relatedwholeasopposedtoengaginginpiecemealanalysisofparticularaspectsofeconomicactivity.ReferencesandfurtherreadingBlaug,Mark,ed.(1991)PreclassicalEconomists,Aldershot:EdwardElgarPublishing.Hutchison,Terence(1988)BeforeAdamSmith:TheEmergenceofPoliticalEconomy,1662–1776,Oxford:BasilBlackwell.Letwin,William(1964)TheOriginsofScientificEconomics,GardenCity,NY:Doubleday&Co.Lowry,S.Todd,ed.(1987)Pre-ClassicalEconomicThought:FromtheGreekstotheScottishEnlightenment,Boston:Kluwer.Rothbard,Murray(1995)EconomicThoughtBeforeAdamSmith,Aldershot:EdwardElgarPublishing.Spengler,JosephJ.(1980)OriginsofEconomicThoughtandJustice,Carbondale:SouthernIllinoisUniversityPress. ARISTOTLE(384–322BC)AristotlewasborninStagiraandspentsometwentyyearsstudyingunderthetutelageofPlatoinAthens.AfteranumberofyearsoftravelandservingastutortotheyoungmanwhowouldlaterbecomeAlexandertheGreat,AristotlereturnedtoAthensandestablishedhisownschool,theLyceum,in335BC.TheworksofAristotlespanvirtuallytheentirebreadthofhumanknowledge–logic,epistemology,metaphysics,ethics,thenaturalsciences,rhetoric,politics,andaes-thetics.Whileonlyasmallfractionofhiswritingsdealwitheconomics,hedidseematterseconomicasanimportantaspectofthesocialfabricandthusasnecessaryelementsofalargersocial-philosophicalsystemofthought.Aristotle’swritingshadaprofoundinfluenceonAquinasand,throughAquinas,onsubsequentscholasticthinking.Indeed,Aristotle’sinfluencecontinuestobepresentinmoderneco-nomictheory.AristotlewithPlato,bycourtesyofCorbis,www.corbis.com.IntheexcerptsfromAristotle’sPoliticsandNichomacheanEthicsprovidednext,weareintroducedtohistheoriesofthenaturaldivisionoflaborwithinsociety,householdmanagement(œconomicus)andwealthacquisition(chrematistics),privatepropertyversuscommunalproperty,andoftheexchangeprocess.Thereadermaywishtotakeparticularnoteofthe“reciprocalneeds”basisofAristotle’sdivisionoflabor,hisviewthatwealthacquisitionis“unnatural”becauseitknowsnonaturallimits,hisstrongdefenseofprivateproperty(asagainsthisteacher,Plato),andhistheoryofreciprocityinexchange.ReferencesandfurtherreadingFinley,M.I.(1970)“AristotleandEconomicAnalysis,”PastandPresent47(May):3–25.——(1973)TheAncientEconomy,Berkeley:UniversityofCaliforniaPress.——(1987)“Aristotle,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.1,London:Macmillan,112–13. 4Pre-ClassicalThoughtGordon,Barry(1975)EconomicAnalysisBeforeAdamSmith:HesiodtoLessius,NewYork:BarnesandNoble.Laistner,M.L.W.(1923)GreekEconomics:IntroductionandTranslation,NewYork:E.P.Dutton&Co.Langholm,Odd(1979)PriceandValueTheoryintheAristotelianTradition,Bergen:Universitetsforlaget.——(1983)WealthandMoneyintheAristotelianTradition,Bergen:Universitetsforlaget.——(1984)TheAristotelianAnalysisofUsury,Bergen:Universitetsforlaget.Lowry,S.Todd(1969)“Aristotle’sMathematicalAnalysisofExchange,”HistoryofPoliticalEconomy1(Spring):44–66.——(1979)“RecentLiteratureonAncientGreekEconomicThought,”JournalofEconomicLiterature17:65–86.——(1987)TheArchaeologyofEconomicIdeas:TheGreekClassicalTradition,Durham,NC:DukeUniversityPress.Soudek,Josef(1952)“Aristotle’sTheoryofExchange:AnEnquiryintotheOriginofEconomicAnalysis,”ProceedingsoftheAmericanPhilosophicalSociety96:45–75.Spengler,JosephJ.(1955)“AristotleonEconomicImputationandRelatedMatters,”SouthernEconomicJournal21(April):371–89.——(1980)OriginsofEconomicThoughtandJustice,Carbondale,IL:SouthernIllinoisUniversityPress.Worland,StephenT.(1984)“AristotleandtheNeoclassicalTradition:TheShiftingGroundofComplementarity,”HistoryofPoliticalEconomy16:107–34. Politics*BookIPartIEverystateisacommunityofsomekind,andeverycommunityisestablishedwithaviewtosomegood;formankindalwaysactinordertoobtainthatwhichtheythinkgood.But,ifallcommuni-tiesaimatsomegood,thestateorpoliticalcommunity,whichisthehighestofall,andwhichembracesalltherest,aimsatgoodinagreaterdegreethananyother,andatthehighestgood.Somepeoplethinkthatthequalificationsofastatesman,king,householder,andmasterarethesame,andthattheydiffer,notinkind,butonlyinthenumberoftheirsubjects.Forexample,theruleroverafewiscalledamaster;overmore,themanagerofahousehold;overastilllargernumber,astatesmanorking,asiftherewerenodifferencebetweenagreathouseholdandasmallstate.Thedistinctionwhichismadebetweenthekingandthestatesmanisasfollows:Whenthegovernmentispersonal,therulerisaking;when,accordingtotherulesofthepoliti-calscience,thecitizensruleandareruledinturn,thenheiscalledastatesman.Butallthisisamistake;forgovernmentsdifferinkind,aswillbeevidenttoanyonewhocon-sidersthematteraccordingtothemethodwhichhashithertoguidedus.Asinotherdepartmentsofscience,soinpolitics,thecompoundshouldalwaysberesolvedintothesimpleelementsorleastpartsofthewhole.Wemust,therefore,lookattheelementsofwhichthestateiscomposed,inorderthatwemayseeinwhatthedifferentkindsofruledifferfromoneanother,andwhetheranyscientificresultcanbeattainedabouteachoneofthem.PartIIHewhothusconsidersthingsintheirfirstgrowthandorigin,whetherastateoranythingelse,willobtaintheclearestviewofthem.Inthefirstplacetheremustbeaunionofthosewhocan-notexistwithouteachother;namelyofmaleandfemale,thattheracemaycontinue(andthisisaunionwhichisformed,notofdeliberatepurpose,butbecause,incommonwithotheranimalsandwithplants,mankindhaveanaturaldesiretoleavebehindthemanimageofthemselves),andofnaturalrulerandsubject,thatbothmaybepreserved.Forthatwhichcanforeseebytheexerciseofmindisbynatureintendedtobelordandmaster,andthatwhichcanwithitsbodygiveeffecttosuchforesightisasubject,andbynatureaslave;hencemasterandslavehavethesameinterest.Nownaturehasdistinguishedbetweenthefemaleandtheslave.Forsheisnotnig-gardly,likethesmithwhofashionstheDelphianknifeformanyuses;shemakeseachthingforasingleuse,andeveryinstrumentisbestmadewhenintendedforoneandnotformanyuses.*TranslatedbyBenjaminJowett. 6Pre-ClassicalThoughtButamongbarbariansnodistinctionismadebetweenwomenandslaves,becausethereisnonat-uralruleramongthem:theyareacommunityofslaves,maleandfemale.Whereforethepoetssay,“ItismeetthatHellenesshouldruleoverbarbarians;”asiftheythoughtthatthebarbarianandtheslavewerebynatureone.Outofthesetworelationshipsbetweenmanandwoman,masterandslave,thefirstthingtoariseisthefamily,andHesiodisrightwhenhesays,“Firsthouseandwifeandanoxfortheplow”fortheoxisthepoorman’sslave.Thefamilyistheassociationestablishedbynatureforthesup-plyofmen’severydaywants,andthemembersofitarecalledbyCharondas“companionsofthecupboard,”andbyEpimenidestheCretan,“companionsofthemanger.”Butwhenseveralfam-iliesareunited,andtheassociationaimsatsomethingmorethanthesupplyofdailyneeds,thefirstsocietytobeformedisthevillage.Andthemostnaturalformofthevillageappearstobethatofacolonyfromthefamily,composedofthechildrenandgrandchildren,whoaresaidtobesuckled“withthesamemilk.”AndthisisthereasonwhyHellenicstateswereoriginallygovernedbykings;becausetheHelleneswereunderroyalrulebeforetheycametogether,asthebarbariansstillare.Everyfamilyisruledbytheeldest,andthereforeinthecoloniesofthefamilythekinglyformofgovernmentprevailedbecausetheywereofthesameblood.AsHomersays:“Eachonegiveslawtohischildrenandtohiswives.”Fortheyliveddispersedly,aswasthemannerinancienttimes.WhereforemensaythattheGodshaveaking,becausetheythemselveseitherareorwereinancienttimesundertheruleofaking.Fortheyimagine,notonlytheformsoftheGods,buttheirwaysoflifetobeliketheirown.Whenseveralvillagesareunitedinasinglecompletecommunity,largeenoughtobenearlyorquiteself-sufficing,thestatecomesintoexistence,originatinginthebareneedsoflife,andcon-tinuinginexistenceforthesakeofagoodlife.Andtherefore,iftheearlierformsofsocietyarenatural,soisthestate,foritistheendofthem,andthenatureofathingisitsend.Forwhateachthingiswhenfullydeveloped,wecallitsnature,whetherwearespeakingofaman,ahorse,orafamily.Besides,thefinalcauseandendofathingisthebest,andtobeself-sufficingistheendandthebest.…Further,thestateisbynatureclearlypriortothefamilyandtotheindividual,sincethewholeisofnecessitypriortothepart;forexample,ifthewholebodybedestroyed,therewillbenofootorhand,exceptinanequivocalsense,aswemightspeakofastonehand;forwhendestroyedthehandwillbenobetterthanthat.Butthingsaredefinedbytheirworkingandpower;andweoughtnottosaythattheyarethesamewhentheynolongerhavetheirproperquality,butonlythattheyhavethesamename.Theproofthatthestateisacreationofnatureandpriortotheindividualisthattheindividual,whenisolated,isnotself-sufficing;andthereforeheislikeapartinrelationtothewhole.Buthewhoisunabletoliveinsociety,orwhohasnoneedbecauseheissufficientforhimself,mustbeeitherabeastoraGod:heisnopartofastate.Asocialinstinctisimplantedinallmenbynature,andyethewhofirstfoundedthestatewasthegreatestofbene-factors.Forman,whenperfected,isthebestofanimals,but,whenseparatedfromlawandjus-tice,heistheworstofall;sincearmedinjusticeismoredangerous,andheisequippedatbirthwitharms,meanttobeusedbyintelligenceandvirtue,whichhemayusefortheworstends.Wherefore,ifhehavenotvirtue,heisthemostunholyandthemostsavageofanimals,andthemostfulloflustandgluttony.Butjusticeisthebondofmeninstates,fortheadministrationofjustice,whichisthedeterminationofwhatisjust,istheprincipleoforderinpoliticalsociety.PartIIISeeingthenthatthestateismadeupofhouseholds,beforespeakingofthestatewemustspeakofthemanagementofthehousehold.Thepartsofhouseholdmanagementcorrespondtothe Aristotle:Politics7personswhocomposethehousehold,andacompletehouseholdconsistsofslavesandfreemen.Nowweshouldbeginbyexaminingeverythinginitsfewestpossibleelements;andthefirstandfewestpossiblepartsofafamilyaremasterandslave,husbandandwife,fatherandchildren.Wehave,therefore,toconsiderwhateachofthesethreerelationsisandoughttobe:Imeantherela-tionofmasterandservant,themarriagerelation(theconjunctionofmanandwifehasnonameofitsown),andthird,theprocreativerelation(thisalsohasnopropername).Andthereisanotherelementofahousehold,theso-calledartofgettingwealth,which,accordingtosome,isidenticalwithhouseholdmanagement,accordingtoothers,aprincipalpartofit;thenatureofthisartwillalsohavetobeconsideredbyus.Letusfirstspeakofmasterandslave,lookingtotheneedsofpracticallifeandalsoseekingtoattainsomebettertheoryoftheirrelationthanexistsatpresent.Forsomeareoftheopinionthattheruleofamasterisascience,andthatthemanagementofahousehold,andthemastershipofslaves,andthepoliticalandroyalrule,asIwassayingattheoutset,areallthesame.Othersaffirmthattheruleofamasteroverslavesiscontrarytonature,andthatthedistinctionbetweenslaveandfreemanexistsbylawonly,andnotbynature;andbeinganinterferencewithnatureis,therefore,unjust.PartIVPropertyisapartofthehousehold,andtheartofacquiringpropertyisapartoftheartofman-agingthehousehold;fornomancanlivewell,orindeedliveatall,unlesshebeprovidedwithnecessaries.Andasintheartswhichhaveadefinitespheretheworkersmusthavetheirownproperinstrumentsfortheaccomplishmentoftheirwork,soitisinthemanagementofahouse-hold.Nowinstrumentsareofvarioussorts;someareliving,otherslifeless;intherudderthepilotofashiphasalifelessinstrument,inthelook-outman,alivinginstrument;forintheartstheser-vantisakindofinstrument.Thus,too,apossessionisaninstrumentformaintaininglife.Andso,inthearrangementofthefamily,aslaveisalivingpossession,andpropertyanumberofsuchinstruments;andtheservantishimselfaninstrumentwhichtakesprecedenceofallotherinstru-ments.Forifeveryinstrumentcouldaccomplishitsownwork,obeyingoranticipatingthewillofothers,likethestatuesofDaedalus,orthetripodsofHephaestus,which,saysthepoet,“oftheirownaccordenteredtheassemblyoftheGods;”if,inlikemanner,theshuttlewouldweaveandtheplectrumtouchthelyrewithoutahandtoguidethem,chiefworkmenwouldnotwantser-vants,normastersslaves.Here,however,anotherdistinctionmustbedrawn;theinstruments,commonlysocalled,areinstrumentsofproduction,whilstapossessionisaninstrumentofaction.Theshuttle,forexample,isnotonlyofuse;butsomethingelseismadebyit,whereasofagarmentorofabedthereisonlytheuse.Further,asproductionandactionaredifferentinkind,andbothrequireinstruments,theinstrumentswhichtheyemploymustlikewisedifferinkind.Butlifeisactionandnotproduction,andthereforetheslaveistheministerofaction.Again,apossessionisspokenofasapartisspokenof;forthepartisnotonlyapartofsomethingelse,butwhollybelongstoit;andthisisalsotrueofapossession.Themasterisonlythemasteroftheslave;hedoesnotbelongtohim,whereastheslaveisnotonlytheslaveofhismaster,butwhollybelongstohim.Hence,weseewhatisthenatureandofficeofaslave;hewhoisbynaturenothisownbutanother’sman,isbynatureaslave;andhemaybesaidtobeanother’smanwho,beingahumanbeing,isalsoapossession.Andapossessionmaybedefinedasaninstrumentofaction,separablefromthepossessor.PartVIIILetusnowinquireintopropertygenerally,andintotheartofgettingwealth,inaccordancewithourusualmethod,foraslavehasbeenshowntobeapartofproperty.Thefirstquestionis 8Pre-ClassicalThoughtwhethertheartofgettingwealthisthesamewiththeartofmanagingahouseholdorapartofit,orinstrumentaltoit;andifthelast,whetherinthewaythattheartofmakingshuttlesisinstrumentaltotheartofweaving,orinthewaythatthecastingofbronzeisinstrumentaltotheartofthestatuary,fortheyarenotinstrumentalinthesameway,buttheoneprovidestoolsandtheothermaterial;andbymaterialImeanthesubstratumoutofwhichanyworkismade;thus,woolisthematerialoftheweaver,bronzeofthestatuary.Nowitiseasytoseethattheartofhouseholdmanagementisnotidenticalwiththeartofgettingwealth,fortheoneusesthemate-rialwhichtheotherprovides.Fortheartwhichuseshouseholdstorescanbenootherthantheartofhouseholdmanagement.Thereis,however,adoubtwhethertheartofgettingwealthisapartofhouseholdmanagementoradistinctart.Ifthegetterofwealthhastoconsiderwhencewealthandpropertycanbeprocured,buttherearemanysortsofpropertyandriches,thenarehus-bandry,andthecareandprovisionoffoodingeneral,partsofthewealth-gettingartordistinctarts?Again,therearemanysortsoffood,andthereforetherearemanykindsoflivesbothofani-malsandmen;theymustallhavefood,andthedifferencesintheirfoodhavemadedifferencesintheirwaysoflife.Forofbeasts,somearegregarious,othersaresolitary;theyliveinthewaywhichisbestadaptedtosustainthem,accordinglyastheyarecarnivorousorherbivorousoromnivorous:andtheirhabitsaredeterminedforthembynatureinsuchamannerthattheymayobtainwithgreaterfacilitythefoodoftheirchoice.But,asdifferentspecieshavedifferenttastes,thesamethingsarenotnaturallypleasanttoallofthem;andthereforethelivesofcarnivorousorherbivorousanimalsfurtherdifferamongthemselves.Inthelivesofmentoothereisagreatdif-ference.Thelaziestareshepherds,wholeadanidlelife,andgettheirsubsistencewithouttroublefromtameanimals;theirflockshavingtowanderfromplacetoplaceinsearchofpasture,theyarecompelledtofollowthem,cultivatingasortoflivingfarm.Otherssupportthemselvesbyhunting,whichisofdifferentkinds.Some,forexample,arebrigands,others,whodwellnearlakesormarshesorriversoraseainwhichtherearefish,arefishermen,andotherslivebythepursuitofbirdsorwildbeasts.Thegreaternumberobtainalivingfromthecultivatedfruitsofthesoil.Sucharethemodesofsubsistencewhichprevailamongthosewhoseindustryspringsupofitself,andwhosefoodisnotacquiredbyexchangeandretailtrade–thereistheshepherd,thehusbandman,thebrigand,thefisherman,thehunter.Somegainacomfortablemaintenanceoutoftwoemployments,ekingoutthedeficienciesofoneofthembyanother:thus,thelifeofashepherdmaybecombinedwiththatofabrigand,thelifeofafarmerwiththatofahunter.Othermodesoflifearesimilarlycombinedinanywaywhichtheneedsofmenmayrequire.Property,inthesenseofabarelivelihood,seemstobegivenbynatureherselftoall,bothwhentheyarefirstborn,andwhentheyaregrownup.Forsomeanimalsbringforth,togetherwiththeiroffspring,somuchfoodaswilllastuntiltheyareabletosupplythemselves;ofthisthever-miparousoroviparousanimalsareaninstance;andtheviviparousanimalshaveuptoacertaintimeasupplyoffoodfortheiryounginthemselves,whichiscalledmilk.Inlikemannerwemayinferthat,afterthebirthofanimals,plantsexistfortheirsake,andthattheotheranimalsexistforthesakeofman,thetameforuseandfood,thewild,ifnotallatleastthegreaterpartofthem,forfood,andfortheprovisionofclothingandvariousinstruments.Nowifnaturemakesnothingincomplete,andnothinginvain,theinferencemustbethatshehasmadeallanimalsforthesakeofman.Andso,inonepointofview,theartofwarisanaturalartofacquisition,fortheartofacquisitionincludeshunting,anartwhichweoughttopracticeagainstwildbeasts,andagainstmenwho,thoughintendedbynaturetobegoverned,willnotsubmit;forwarofsuchakindisnaturallyjust.Oftheartofacquisitionthenthereisonekindwhichbynatureisapartofthemanagementofahousehold,insofarastheartofhouseholdmanagementmusteitherfindreadytohand,oritselfprovide,suchthingsnecessarytolife,andusefulforthecommunityofthefamilyorstate,ascanbestored.Theyaretheelementsoftrueriches;fortheamountofpropertywhichisneeded Aristotle:Politics9foragoodlifeisnotunlimited,althoughSoloninoneofhispoemssaysthat“Noboundtoricheshasbeenfixedforman.”Butthereisaboundaryfixed,justasthereisintheotherarts;fortheinstrumentsofanyartareneverunlimited,eitherinnumberorsize,andrichesmaybedefinedasanumberofinstrumentstobeusedinahouseholdorinastate.Andsoweseethatthereisanaturalartofacquisitionwhichispracticedbymanagersofhouseholdsandbystatesmen,andwhatisthereasonofthis.PartIXThereisanothervarietyoftheartofacquisitionwhichiscommonlyandrightlycalledanartofwealth-getting,andhasinfactsuggestedthenotionthatrichesandpropertyhavenolimit.Beingnearlyconnectedwiththepreceding,itisoftenidentifiedwithit.Butthoughtheyarenotverydifferent,neitheraretheythesame.Thekindalreadydescribedisgivenbynature,theotherisgainedbyexperienceandart.Letusbeginourdiscussionofthequestionwiththefollowingconsiderations:Ofeverythingwhichwepossesstherearetwouses:bothbelongtothethingassuch,butnotinthesameman-ner,foroneistheproper,andtheothertheimproperorsecondaryuseofit.Forexample,ashoeisusedforwear,andisusedforexchange;bothareusesoftheshoe.Hewhogivesashoeinexchangeformoneyorfoodtohimwhowantsone,doesindeedusetheshoeasashoe,butthisisnotitsproperorprimarypurpose,forashoeisnotmadetobeanobjectofbarter.Thesamemaybesaidofallpossessions,fortheartofexchangeextendstoallofthem,anditarisesatfirstfromwhatisnatural,fromthecircumstancethatsomehavetoolittle,otherstoomuch.Hence,wemayinferthatretailtradeisnotanaturalpartoftheartofgettingwealth;haditbeenso,menwouldhaveceasedtoexchangewhentheyhadenough.Inthefirstcommunity,indeed,whichisthefamily,thisartisobviouslyofnouse,butitbeginstobeusefulwhenthesocietyincreases.Forthemembersofthefamilyoriginallyhadallthingsincommon;later,whenthefamilydividedintoparts,thepartssharedinmanythings,anddifferentpartsindifferentthings,whichtheyhadtogiveinexchangeforwhattheywanted,akindofbarterwhichisstillpracticedamongbarbarousnationswhoexchangewithoneanotherthenecessariesoflifeandnothingmore;givingandreceivingwine,forexample,inexchangeforcoin,andthelike.Thissortofbarterisnotpartofthewealth-gettingartandisnotcontrarytonature,butisneededforthesatisfactionofmen’snaturalwants.Theotherormorecomplexformofexchangegrew,asmighthavebeeninferred,outofthesimpler.Whentheinhabitantsofonecountrybecamemoredependentonthoseofanother,andtheyimportedwhattheyneeded,andexportedwhattheyhadtoomuchof,moneynecessarilycameintouse.Forthevariousnecessariesoflifearenoteasilycarriedabout,andhencemenagreedtoemployintheirdealingswitheachothersomethingwhichwasintrinsicallyusefulandeasilyapplicabletothepurposesoflife,forexample,iron,silver,andthelike.Ofthisthevaluewasatfirstmeasuredsimplybysizeandweight,butinprocessoftimetheyputastampuponit,tosavethetroubleofweighingandtomarkthevalue.Whentheuseofcoinhadoncebeendiscovered,outofthebarterofnecessaryarticlesarosetheotherartofwealth-getting,namelyretailtrade;whichwasatfirstprobablyasimplematter,butbecamemorecomplicatedassoonasmenlearnedbyexperiencewhenceandbywhatexchangesthegreatestprofitmightbemade.Originatingintheuseofcoin,theartofgettingwealthisgenerallythoughttobechieflyconcernedwithit,andtobetheartwhichproducesrichesandwealth;havingtoconsiderhowtheymaybeaccumulated.Indeed,richesisassumedbymanytobeonlyaquantityofcoin,becausetheartsofgettingwealthandretailtradearecon-cernedwithcoin.Othersmaintainthatcoinedmoneyisameresham,athingnotnatural,butconventionalonly,because,iftheuserssubstituteanothercommodityforit,itisworthless,andbecauseitisnotusefulasameanstoanyofthenecessitiesoflife,and,indeed,hewhoisrichin 10Pre-ClassicalThoughtcoinmayoftenbeinwantofnecessaryfood.Buthowcanthatbewealthofwhichamanmayhaveagreatabundanceandyetperishwithhunger,likeMidasinthefable,whoseinsatiableprayerturnedeverythingthatwassetbeforehimintogold?Hence,menseekafterabetternotionofrichesandoftheartofgettingwealththanthemereacquisitionofcoin,andtheyareright.Fornaturalrichesandthenaturalartofwealth-gettingareadifferentthing;intheirtrueformtheyarepartofthemanagementofahousehold;whereasretailtradeistheartofproducingwealth,notineveryway,butbyexchange.Anditisthoughttobeconcernedwithcoin;forcoinistheunitofexchangeandthemeasureorlimitofit.Andthereisnoboundtothericheswhichspringfromthisartofwealth-getting.Asintheartofmedicinethereisnolimittothepursuitofhealth,andasintheotherartsthereisnolimittothepursuitoftheirseveralends,fortheyaimataccomplishingtheirendstotheuttermost(butofthemeansthereisalimit,fortheendisalwaysthelimit),so,too,inthisartofwealth-gettingthereisnolimitoftheend,whichisrichesofthespuriouskind,andtheacquisitionofwealth.Buttheartofwealth-gettingwhichconsistsinhouseholdmanagement,ontheotherhand,hasalimit;theunlimitedacquisitionofwealthisnotitsbusiness.And,therefore,inonepointofview,allrichesmusthavealimit;nevertheless,asamatteroffact,wefindtheoppositetobethecase;forallget-tersofwealthincreasetheirhoardofcoinwithoutlimit.Thesourceoftheconfusionisthenearconnectionbetweenthetwokindsofwealth-getting;ineither,theinstrumentisthesame,althoughtheuseisdifferent,andsotheypassintooneanother;foreachisauseofthesameproperty,butwithadifference:accumulationistheendinonecase,butthereisafurtherendintheother.Hence,somepersonsareledtobelievethatgettingwealthistheobjectofhouseholdmanagement,andthewholeideaoftheirlivesisthattheyoughteithertoincreasetheirmoneywithoutlimit,oratanyratenottoloseit.Theoriginofthisdispositioninmenisthattheyareintentuponlivingonly,andnotuponlivingwell;andastheirdesiresareunlimitedtheyalsodesirethatthemeansofgratifyingthemshouldbewithoutlimit.Thosewhodoaimatagoodlifeseekthemeansofobtainingbodilypleasures;and,sincetheenjoymentoftheseappearstodependonproperty,theyareabsorbedingettingwealth:andsotherearisesthesecondspeciesofwealth-getting.For,astheirenjoymentisinexcess,theyseekanartwhichproducestheexcessofenjoyment;and,iftheyarenotabletosupplytheirpleasuresbytheartofgettingwealth,theytryotherarts,usinginturneveryfacultyinamannercontrarytonature.Thequalityofcourage,forexample,isnotintendedtomakewealth,buttoinspireconfidence;neitheristhistheaimofthegeneral’sorofthephysician’sart;buttheoneaimsatvictoryandtheotherathealth.Nevertheless,somementurneveryqualityorartintoameansofgettingwealth;thistheyconceivetobetheend,andtothepromotionoftheendtheythinkallthingsmustcontribute.Thus,then,wehaveconsideredtheartofwealth-gettingwhichisunnecessary,andwhymenwantit;andalsothenecessaryartofwealth-getting,whichwehaveseentobedifferentfromtheother,andtobeanaturalpartoftheartofmanagingahousehold,concernedwiththeprovisionoffood,not,however,liketheformerkind,unlimited,buthavingalimit.PartXAndwehavefoundtheanswertoouroriginalquestion,whethertheartofgettingwealthisthebusinessofthemanagerofahouseholdandofthestatesmanornottheirbusiness?Namelythatwealthispresupposedbythem.Foraspoliticalsciencedoesnotmakemen,buttakesthemfromnatureandusesthem,sotoonatureprovidesthemwithearthorsea,orthelikeasasourceoffood.Atthisstagebeginsthedutyofthemanagerofahousehold,whohastoorderthethingswhichnaturesupplies;hemaybecomparedtotheweaverwhohasnottomakebuttousewool,andtoknow,too,whatsortofwoolisgoodandserviceableorbadandunserviceable.Werethisotherwise,itwouldbedifficulttoseewhytheartofgettingwealthisapartofthemanagement Aristotle:Politics11ofahouseholdandtheartofmedicinenot;forsurelythemembersofahouseholdmusthavehealthjustastheymusthavelifeoranyothernecessary.Theansweristhatasfromonepointofviewthemasterofthehouseandtherulerofthestatehavetoconsiderabouthealth,fromanotherpointofviewnottheybutthephysician;soinonewaytheartofhouseholdmanage-ment,inanotherwaythesubordinateart,hastoconsideraboutwealth.But,strictlyspeaking,asIhavealreadysaid,themeansoflifemustbeprovidedbeforehandbynature;forthebusinessofnatureistofurnishfoodtothatwhichisborn,andthefoodoftheoffspringisalwayswhatremainsoverofthatfromwhichitisproduced.Whereforetheartofgettingwealthoutoffruitsandanimalsisalwaysnatural.Therearetwosortsofwealth-getting,asIhavesaid;oneisapartofhouseholdmanagement,theotherisretailtrade:theformernecessaryandhonorable,whilethatwhichconsistsinexchangeisjustlycensured;foritisunnatural,andamodebywhichmengainfromoneanother.Themosthatedsort,andwiththegreatestreason,isusury,whichmakesagainoutofmoneyitself,andnotfromthenaturalobjectofit.Formoneywasintendedtobeusedinexchange,butnottoincreaseatinterest.Andthisterminterest,whichmeansthebirthofmoneyfrommoney,isappliedtothebreedingofmoneybecausetheoffspringresemblestheparent.Whereforeofallmodesofgettingwealththisisthemostunnatural.PartXIEnoughhasbeensaidaboutthetheoryofwealth-getting;wewillnowproceedtothepracticalpart.Thediscussionofsuchmattersisnotunworthyofphilosophy,buttobeengagedinthempracticallyisilliberalandirksome.Theusefulpartsofwealth-gettingare,first,theknowledgeoflivestock–whicharemostprofitable,andwhere,andhow–as,forexample,whatsortofhorsesorsheeporoxenoranyotheranimalsaremostlikelytogiveareturn.Amanoughttoknowwhichofthesepaybetterthanothers,andwhichpaybestinparticularplaces,forsomedobetterinoneplaceandsomeinanother.Second,husbandry,whichmaybeeithertillageorplanting,andthekeepingofbeesandoffish,orfowl,orofanyanimalwhichmaybeusefultoman.Thesearethedivisionsofthetrueorproperartofwealth-gettingandcomefirst.Oftheother,whichconsistsinexchange,thefirstandmostimportantdivisioniscommerce(ofwhichtherearethreekinds–theprovisionofaship,theconveyanceofgoods,exposureforsale–theseagaindifferingastheyaresaferormoreprofitable),thesecondisusury,thethird,serviceforhire–ofthis,onekindisemployedinthemechanicalarts,theotherinunskilledandbodilylabor.Thereisstillathirdsortofwealth-getting,intermediatebetweenthisandthefirstornaturalmodewhichispartlynatural,butisalsoconcernedwithexchange,namelytheindustriesthatmaketheirprofitfromtheearth,andfromthingsgrowingfromtheearthwhich,althoughtheybearnofruit,areneverthelessprofitable;forexample,thecuttingoftimberandallmining.Theartofmining,bywhichmineralsareobtained,itselfhasmanybranches,fortherearevariouskindsofthingsdugoutoftheearth.Oftheseveraldivisionsofwealth-gettingInowspeakgenerally;aminutecon-siderationofthemmightbeusefulinpractice,butitwouldbetiresometodwelluponthematgreaterlengthnow.Thoseoccupationsaremosttrulyartsinwhichthereistheleastelementofchance;theyarethemeanestinwhichthebodyismostdeteriorated,themostservileinwhichthereisthegreatestuseofthebody,andthemostilliberalinwhichthereistheleastneedofexcellence.Workshavebeenwrittenuponthesesubjectsbyvariouspersons;forexample,byCharestheParian,andApollodorustheLemnian,whohavetreatedofTillageandPlanting,whileothershavetreatedofotherbranches;anyonewhocaresforsuchmattersmayrefertotheirwritings.Itwouldbewellalsotocollectthescatteredstoriesofthewaysinwhichindividualshavesucceededinamassingafortune;forallthisisusefultopersonswhovaluetheartofgettingwealth.Thereis 12Pre-ClassicalThoughttheanecdoteofThalestheMilesianandhisfinancialdevice,whichinvolvesaprincipleofuni-versalapplication,butisattributedtohimonaccountofhisreputationforwisdom.Hewasreproachedforhispoverty,whichwassupposedtoshowthatphilosophywasofnouse.Accordingtothestory,heknewbyhisskillinthestarswhileitwasyetwinterthattherewouldbeagreatharvestofolivesinthecomingyear;so,havingalittlemoney,hegavedepositsfortheuseofalltheolive-pressesinChiosandMiletus,whichhehiredatalowpricebecausenoonebidagainsthim.Whentheharvest-timecame,andmanywerewantedallatonceandofasudden,heletthemoutatanyratewhichhepleased,andmadeaquantityofmoney.Thus,heshowedtheworldthatphilosopherscaneasilyberichiftheylike,butthattheirambitionisofanothersort.Heissupposedtohavegivenastrikingproofofhiswisdom,but,asIwassaying,hisdeviceforgettingwealthisofuniversalapplication,andisnothingbutthecreationofamonopoly.Itisanartoftenpracticedbycitieswhentheyarewantofmoney;theymakeamonopolyofprovisions.TherewasamanofSicily,who,havingmoneydepositedwithhim,boughtupantheironfromtheironmines;afterwards,whenthemerchantsfromtheirvariousmarketscametobuy,hewastheonlyseller,andwithoutmuchincreasingthepricehegained200percent.WhichwhenDionysiusheard,hetoldhimthathemighttakeawayhismoney,butthathemustnotremainatSyracuse,forhethoughtthatthemanhaddiscoveredawayofmakingmoneywhichwasinjuri-oustohisowninterests.HemadethesamediscoveryasThales;theybothcontrivedtocreateamonopolyforthemselves.Andstatesmenaswelloughttoknowthesethings;forastateisoftenasmuchinwantofmoneyandofsuchdevicesforobtainingitasahousehold,orevenmoreso;hencesomepublicmendevotethemselvesentirelytofinance.BookIIPartVNextletusconsiderwhatshouldbeourarrangementsaboutproperty:shouldthecitizensoftheperfectstatehavetheirpossessionsincommonornot?Thisquestionmaybediscussedseparatelyfromtheenactmentsaboutwomenandchildren.Evensupposingthatthewomenandchildrenbelongtoindividuals,accordingtothecustomwhichisatpresentuniversal,maytherenotbeanadvantageinhavingandusingpossessionsincommon?Threecasesarepossible:(1)thesoilmaybeappropriated,buttheproducemaybethrownforconsumptionintothecommonstock;andthisisthepracticeofsomenations.Or(2),thesoilmaybecommon,andmaybecultivatedincommon,buttheproducedividedamongindividualsfortheirprivateuse;thisisaformofcom-monpropertywhichissaidtoexistamongcertainbarbarians.Or(3),thesoilandtheproducemaybealikecommon.Whenthehusbandmenarenottheowners,thecasewillbedifferentandeasiertodealwith;butwhentheytillthegroundforthemselvesthequestionofownershipwillgiveaworldoftrou-ble.Iftheydonotshareequallyenjoymentsandtoils,thosewholabormuchandgetlittlewillnecessarilycomplainofthosewholaborlittleandreceiveorconsumemuch.Butindeedthereisalwaysadifficultyinmenlivingtogetherandhavingallhumanrelationsincommon,butespe-ciallyintheirhavingcommonproperty.Thepartnershipsoffellow-travelersareanexampletothepoint;fortheygenerallyfalloutovereverydaymattersandquarrelaboutanytriflewhichturnsup.Sowithservants:wearemostabletotakeoffenseatthosewithwhomwemostfrequentlycomeintocontactindailylife.Theseareonlysomeofthedisadvantageswhichattendthecommunityofproperty;thepresentarrangement,ifimprovedasitmightbebygoodcustomsandlaws,wouldbefarbetter,andwouldhavetheadvantagesofbothsystems.Propertyshouldbeinacertainsensecommon, Aristotle:Politics13but,asageneralrule,private;for,wheneveryonehasadistinctinterest,menwillnotcomplainofoneanother,andtheywillmakemoreprogress,becauseeveryonewillbeattendingtohisownbusiness.Andyetbyreasonofgoodness,andinrespectofuse,“Friends,”astheproverbsays,“willhaveallthingscommon.”Evennowtherearetracesofsuchaprinciple,showingthatitisnotimpracticable,but,inwell-orderedstates,existsalreadytoacertainextentandmaybecarriedfurther.For,althougheverymanhashisownproperty,somethingshewillplaceatthedisposalofhisfriends,whileofothershesharestheusewiththem.TheLacedaemonians,forexample,useoneanother’sslaves,andhorses,anddogs,asiftheyweretheirown;andwhentheylackprovisionsonajourney,theyappropriatewhattheyfindinthefieldsthroughoutthecountry.Itisclearlybetterthatpropertyshouldbeprivate,buttheuseofitcommon;andthespecialbusi-nessofthelegislatoristocreateinmenthisbenevolentdisposition.Again,howimmeasurablygreateristhepleasure,whenamanfeelsathingtobehisown;forsurelytheloveofselfisafeelingimplantedbynatureandnotgiveninvain,althoughselfishnessisrightlycensured;this,however,isnotthemereloveofself,buttheloveofselfinexcess,likethemiser’sloveofmoney;forall,oralmostall,menlovemoneyandothersuchobjectsinameasure.Andfurther,thereisthegreatestpleasureindoingakindnessorservicetofriendsorguestsorcompanions,whichcanonlyberenderedwhenamanhasprivateproperty.Theseadvantagesarelostbyexcessiveunifi-cationofthestate.Theexhibitionoftwovirtues,besides,isvisiblyannihilatedinsuchastate:first,temperancetowardswomen(foritisanhonorableactiontoabstainfromanother’swifefortemperance’sake);second,liberalityinthematterofproperty.Noone,whenmenhaveallthingsincommon,willanylongersetanexampleofliberalityordoanyliberalaction;forliberalityconsistsintheusewhichismadeofproperty.Suchlegislationmayhaveaspeciousappearanceofbenevolence;menreadilylistentoit,andareeasilyinducedtobelievethatinsomewonderfulmannereverybodywillbecomeeverybody’sfriend,especiallywhensomeoneishearddenouncingtheevilsnowexistinginstates,suitsaboutcontracts,convictionsforperjury,flatteriesofrichmenandthelike,whicharesaidtoariseoutofthepossessionofprivateproperty.Theseevils,however,areduetoaverydifferentcause–thewickednessofhumannature.Indeed,weseethatthereismuchmorequarrelingamongthosewhohaveallthingsincommon,thoughtherearenotmanyofthemwhencomparedwiththevastnumberswhohaveprivateproperty. NichomacheanEthics(350BC)*BookVPart5Somethinkthatreciprocityiswithoutqualificationjust,asthePythagoreanssaid;fortheydefinedjusticewithoutqualificationasreciprocity.Now‘reciprocity’fitsneitherdistributivenorrectificatoryjustice–yetpeoplewanteventhejusticeofRhadamanthustomeanthis:Shouldamansufferwhathedid,rightjusticewouldbedone–forinmanycasesreciprocityandrectifica-toryjusticearenotinaccord;forexample,(1)ifanofficialhasinflictedawound,heshouldnotbewoundedinreturn,andifsomeonehaswoundedanofficial,heoughtnottobewoundedonlybutpunishedinaddition.Further(2)thereisagreatdifferencebetweenavoluntaryandaninvoluntaryact.Butinassociationsforexchangethissortofjusticedoesholdmentogether–reciprocityinaccordancewithaproportionandnotonthebasisofpreciselyequalreturn.Foritisbyproportionaterequitalthatthecityholdstogether.Menseektoreturneitherevilforevil–andiftheycannotdoso,thinktheirpositionmereslavery–orgoodforgood–andiftheycannotdosothereisnoexchange,butitisbyexchangethattheyholdtogether.ThisiswhytheygiveaprominentplacetothetempleoftheGraces–topromotetherequitalofservices;forthisischaracteristicofgrace–weshouldserveinreturnonewhohasshowngracetous,andshouldanothertimetaketheinitiativeinshowingit.Nowproportionatereturnissecuredbycross-conjunction.LetAbeabuilder,Bashoemaker,Cahouse,Dashoe.Thebuilder,then,mustgetfromtheshoemakerthelatter’swork,andmusthimselfgivehiminreturnhisown.If,then,firstthereisproportionateequalityofgoods,andthenreciprocalactiontakesplace,theresultwementionwillbeeffected.Ifnot,thebargainisnotequal,anddoesnothold;forthereisnothingtopreventtheworkoftheonebeingbetterthanthatoftheother;theymustthereforebeequated.(Andthisistrueoftheotherartsalso;fortheywouldhavebeendestroyedifwhatthepatientsufferedhadnotbeenjustwhattheagentdid,andofthesameamountandkind.)Foritisnottwodoctorsthatassociateforexchange,butadoctorandafarmer,oringeneralpeoplewhoaredifferentandunequal;butthesemustbeequated.Thisiswhyallthingsthatareexchangedmustbesomehowcomparable.Itisforthisendthatmoneyhasbeenintroduced,anditbecomesinasenseanintermediate;foritmeasuresallthings,andthereforetheexcessandthedefect–howmanyshoesareequaltoahouseortoagivenamountoffood.Thenumberofshoesexchangedforahouse(orforagivenamountoffood)mustthereforecorrespondtotheratioofbuildertoshoemaker.Forifthisbenotso,therewillbenoexchangeandnointercourse.Andthisproportionwillnotbeeffectedunlessthegoodsare*TranslatedbyW.D.Ross. Aristotle:NichomacheanEthics15somehowequal.Allgoodsmustthereforebemeasuredbysomeonething,aswesaidbefore.Nowthisunitisintruthdemand,whichholdsallthingstogether(forifmendidnotneedoneanother’sgoodsatall,ordidnotneedthemequally,therewouldbeeithernoexchangeornotthesameexchange);butmoneyhasbecomebyconventionasortofrepresentativeofdemand;andthisiswhyithasthename‘money’(nomisma)–becauseitexistsnotbynaturebutbylaw(nomos)anditisinourpowertochangeitandmakeituseless.Therewill,then,bereciprocitywhenthetermshavebeenequatedsothatasfarmeristoshoemaker,theamountoftheshoemaker’sworkistothatofthefarmer’sworkforwhichitexchanges.Butwemustnotbringthemintoafigureofproportionwhentheyhavealreadyexchanged(otherwiseoneextremewillhavebothexcesses),butwhentheystillhavetheirowngoods.Thus,theyareequalsandassociatesjustbecausethisequalitycanbeeffectedintheircase.LetAbeafarmer,Cfood,Bashoemaker,DhisproductequatedtoC.Ifithadnotbeenpossibleforreciprocitytobethuseffected,therewouldhavebeennoassociationoftheparties.Thatdemandholdsthingstogetherasasingleunitisshownbythefactthatwhenmendonotneedoneanother,thatis,whenneitherneedstheotheroronedoesnotneedtheother,theydonotexchange,aswedowhensomeonewantswhatonehasone-self,forexample,whenpeoplepermittheexportationofcorninexchangeforwine.Thisequa-tionthereforemustbeestablished.Andforthefutureexchange–thatifwedonotneedathingnowweshallhaveitifeverwedoneedit–moneyisasitwereoursurety;foritmustbepossibleforustogetwhatwewantbybringingthemoney.Nowthesamethinghappenstomoneyitselfastogoods–itisnotalwaysworththesame;yetittendstobesteadier.Thisiswhyallgoodsmusthaveapricesetonthem;forthentherewillalwaysbeexchange,andifso,associationofmanwithman.Money,then,actingasameasure,makesgoodscommensurateandequatesthem;forneitherwouldtherehavebeenassociationiftherewerenotexchange,norexchangeiftherewerenotequality,norequalityiftherewerenotcommensurability.Nowintruthitisimpossiblethatthingsdifferingsomuchshouldbecomecommensurate,butwithreferencetodemandtheymaybecomesosufficiently.Theremust,then,beaunit,andthatfixedbyagreement(forwhichreasonitiscalledmoney);foritisthisthatmakesallthingscommensurate,sinceallthingsaremeasuredbymoney.LetAbeahouse,Btenminae,Cabed.AishalfofB,ifthehouseisworthfiveminaeorequaltothem;thebed,C,isatenthofB;itisplain,then,howmanybedsareequaltoahouse,namelyfive.Thatexchangetookplacethusbeforetherewasmoneyisplain;foritmakesnodifferencewhetheritisfivebedsthatexchangeforahouse,orthemoneyvalueoffivebeds. STTHOMASAQUINAS(1225–1274)Bythethirteenthcentury,theRomanCatholicchurch–forourpurposestheScholasticwriters–hadachievedconsid-erableifnotessentiallycompletehege-monyinWesternEurope.ThefundamentalpremisesofCatholicsocio-economicthoughtwerethenecessityofsuperimpos-ingasystemofvalues–deemedmoreorlessfinal–uponeconomiclifeandthesubordinationofeconomicactivitytothedomaindeemedmoreimportantbytheChurch,namelysalvationofsouls.Thepracticaleffectofthisintellectualactivitywastoconstructtheframeworkofasystemofthoughtwithinwhicheconomiccon-cepts,relations,issuesandproblemsmightbediscussedandworkedout.Thissystemofthoughthaspersistedtothepresentday.Althoughitoftenpostulatedastablesocialorder,andthemaintenanceofstablesocialstructuresasaChristianduty,thestructureStThomasAquinas,bycourtesyofCorbis,www.corbis.com.ofbothmediaevalorganizedlifeandthatsystemofthought,wenowknowinabundance,exhibited–thenandnow–considerablediversity,conflictandchange.TheleadingfigureofthescholasticperiodwasStThomasAquinas(1225–1274).AquinaswasamemberoftheDominicanorder,studiedunderAlbertusMagnus,andspentmuchofhislifeteachingandwritingatvariousinstitutionsofhigherlearning.Hiswritingsareincrediblyextensive,andattempttointegrateandreconciletheteachingsoftheScriptures,thechurchfathers,andtherecentlyrediscoveredAristotle.Aquinas,liketheGreeksbeforehim,didnotconstructacohesivebodyofeconomictheory.Rather,hiseconomicswasjustonefacetofhislargermoralphilosophy.Asrelationsbetweenmanandman(includingthoseeconomic),andthejusticethereof,areanaspectoftherelationshipbetweenmanandGod,economicmattersnaturallyenterintoAquinas’stheology.Hismajorwork,SummaTheologica,isacomprehensiveexpositionofChristiantheologyandphilosophy,andthis,alongwithAquinas’svariousotherwritings,setthetoneofdiscussionanddebateforsubsequentcenturiesofscholasticthoughtandanalysis. StThomasAquinas17AquinasandtheScholasticswereoverwhelminglyconcernedwithquestionsoftheorganizationandcontrolofeconomiclife–inregardtowhichtheyadoptedlawsandprincipleswhichseverelyrestrictedentrepreneurialactivity.Theywerealsonecessarilyconcernedwithtwogreatissues:the“justprice”andinterestonloans,thetwotopicsofanalysisintheexcerptsfromAquinas’sSummaTheologicaarereprintedhere.Theapproachestakentothejustpricebyciviland,especially,canonicalcourtsincludedemphases,respectively,ontheintrinsicnatureorqualityofagood,itsscarcity,itscostofproduc-tion,subjectivetastesandprotectionofsocialstructure.Inasmuchaslitigationinvolvesdisputedtransactionsinparticularsocialcontexts,itislikelythatthepriceindisputewouldbecomparedbyacourtwithprevalentpricesforthegoodinthearea.Itisalsolikelythatoverthecenturies,withthefurtherextensionofmarketsandoftrade,thatthepriceinquestionincreasinglybecamethatofthe“competitivemarket,”whateverthatmighthavemeantinpractice.Still,whilesomemodernhistoriansofthoughthaveemphasizedtheincreasingsecularizationofChurchdoctrinalpractice,othershavearguedthatChurchfigureshadnomeaningfulideaofaself-regulatingmarketsystemandweredeeplyinfluencedbythen-traditionalmodesoftheologicalreasoning.Thechargingofinterestonloans–usuryperse–wasconspicuouslyforbiddenbytheChurch,whichwasdrivenbysuchideasastheimportance,indeedtheobligation,ofChristiancharityandthesterilityofmoney.Intime,however,distinctionswereeffectivelymadebetweenloansforconsumptionandloansforbusinesspurposesandbetweenconsumptionloansduetonecessityandconsumptionloansforconveniencesandluxuries.Andintime,itwasheldnotonlythatsomejustificationforthechargingandpayingofinterestlikelyexistedinthecaseoftypicalloans,butthatadministratorsofChurchmonieswereobligatedtoinvestthem(atinterest).Buthowinterest,andprices,weretreatedduringthemediaevalperiodbylocalcanonicalandothertribunalsremainsunknown.ReferencesandfurtherreadingBaldwin,JohnW.(1959)“TheMedievalTheoriesofJustPrice,”TransactionsoftheAmericanPhilosophicalSocietyNS49(4):15–92.DeRoover,Raymond(1955)“ScholasticEconomics:SurvivalandLastingInfluencefromtheSixteenthCenturytoAdamSmith,”QuarterlyJournalofEconomics69(May):161–90.——(1958)“TheConceptoftheJustPrice:TheoryandEconomicPolicy,”JournalofEconomicHistory18(December):418–34.——(1967)SanBernardinoofSienaandSant’AntoninoofFlorence:TheTwoGreatEconomicThinkersoftheMiddleAges,Boston:BakerLibrary,HarvardGraduateSchoolofBusinessAdministration.Gordon,Barry(1975)EconomicAnalysisBeforeAdamSmith:HesiodtoLessius,NewYork:BarnesandNoble.——(1987)“Aquinas,St.Thomas,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.1,London:Macmillan,99–100.Grice-Hutchison,M.(1978)EarlyEconomicThoughtinSpain,1177–1740,London:Allen&Unwin.Hollander,Samuel(1965)“OntheInterpretationoftheJustPrice,”Kyklos18(4):615–34.Langholm,Odd(1979)PriceandValueTheoryintheAristotelianTradition,Bergen:Universitetsforlaget.——(1983)WealthandMoneyintheAristotelianTradition,Bergen:Universitetsforlaget.——(1984)TheAristotelianAnalysisofUsury,Bergen:Universitetsforlaget.——(1998)TheLegacyofScholasticisminEconomicThought:AntecedentsofChoiceandPower,Cambridge:CambridgeUniversityPress.Lapidus,André(1997)“Metal,Money,andthePrince:JohnBuridanandNicholasOresmeafterThomasAquinas,”HistoryofPoliticalEconomy29(Spring):21–53.Noonan,J.T.(1957)TheScholasticAnalysisofUsury,Cambridge,MA:HarvardUniversityPress.Spiegel,HenryW.(1987)“ScholasticEconomicThought,”inJohnEatwell,MurrayMilgateandPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.4,London:Macmillan,259–61.Viner,Jacob(1978)ReligiousThoughtandEconomicSociety,Durham,NC:DukeUniversityPress.Worland,StephenT.(1967)ScholasticismandWelfareEconomics,NotreDame,IN:UniversityofNotreDamePress. SummaTheologica(1267–1273)*Secondpartofthesecondpart(D)Bysinscommittedinbuyingandselling(Question[77])Ofcheating,whichiscommittedinbuyingandselling(fourarticles)Wemustnowconsiderthosesinswhichrelatetovoluntarycommutations.First,weshallconsidercheating,whichiscommittedinbuyingandselling:second,weshallconsiderusury,whichoccursinloans.Inconnectionwiththeothervoluntarycommutationsnospecialkindofsinistobefounddistinctfromrapineandtheft.Underthefirstheadtherearefourpointsofinquiry:1Ofunjustsalesasregardstheprice;namelywhetheritislawfultosellathingformorethanitsworth?2Ofunjustsalesonthepartofthethingsold;3Whetherthesellerisboundtorevealafaultinthethingsold?4Whetheritislawfulintradingtosellathingatahigherpricethanwaspaidforit?Article1:Whetheritislawfultosellathingformorethanitsworth?Objection1:Itwouldseemthatitislawfultosellathingformorethanitsworth.Inthecom-mutationsofhumanlife,civillawsdeterminethatwhichisjust.Nowaccordingtotheselawsitisjustforbuyerandsellertodeceiveoneanother(Cod.IV,xliv,DeRescind.Vend.8,15):andthisoccursbythesellersellingathingformorethanitsworth,andthebuyerbuyingathingforlessthanitsworth.Therefore,itislawfultosellathingformorethanitsworth.Objection2:Further,thatwhichiscommontoallwouldseemtobenaturalandnotsinful.NowAugustinerelatesthatthesayingofacertainjesterwasacceptedbyall,“Youwishtobuyforasongandtosellatapremium,”whichagreeswiththesayingofProv.20:14,“Itisnaught,itisnaught,saitheverybuyer:andwhenheisgoneaway,thenhewillboast.”Therefore,itislawfultosellathingformorethanitsworth.Objection3:Further,itdoesnotseemunlawfulifthatwhichhonestydemandsbedonebymutualagreement.Now,accordingtothePhilosopher(Ethic.viii,13),inthefriendshipwhichisbasedonutility,theamountoftherecompenseforafavorreceivedshoulddependontheutilityaccruingtothereceiver:andthisutilitysometimesisworthmorethanthethinggiven,forinstanceifthereceiverbeingreatneedofthatthing,whetherforthepurposeofavoidingadanger,orofderivingsomeparticularbenefit.Therefore,incontractsofbuyingandselling,itislawfultogiveathinginreturnformorethanitsworth.*BenzigerBros.edition,1947.TranslatedbyFathersoftheEnglishDominicanProvince. Aquinas:SummaTheologica19Onthecontrary,itiswritten(Mt.7:12):“Allthings…whatsoeveryouwouldthatmenshoulddotoyou,doyoualsotothem.”Butnomanwishestobuyathingformorethanitsworth.Therefore,nomanshouldsellathingtoanothermanformorethanitsworth.Ianswerthat,Itisaltogethersinfultohaverecoursetodeceitinordertosellathingformorethanitsjustprice,becausethisistodeceiveone’sneighborsoastoinjurehim.Hence,Tullysays(DeOffic.iii,15):“Contractsshouldbeentirelyfreefromdouble-dealing:thesellermustnotimposeuponthebidder,northebuyerupononethatbidsagainsthim.”But,apartfromfraud,wemayspeakofbuyingandsellingintwoways.First,asconsideredinthemselves,andfromthispointofview,buyingandsellingseemtobeestablishedforthecommonadvantageofbothparties,oneofwhomrequiresthatwhichbelongstotheother,andviceversa,asthePhilosopherstates(Polit.i,3).Nowwhateverisestablishedforthecommonadvantage,shouldnotbemoreofaburdentoonepartythantoanother,andconsequentlyallcontractsbetweenthemshouldobserveequalityofthingandthing.Again,thequalityofathingthatcomesintohumanuseismeasuredbythepricegivenforit,forwhichpurposemoneywasinvented,asstatedinEthic.v,5.Thereforeifeitherthepriceexceedthequantityofthething’sworth,or,conversely,thethingexceedtheprice,thereisnolongertheequalityofjustice:andconsequently,tosellathingformorethanitsworth,ortobuyitforlessthanitsworth,isinitselfunjustandunlawful.Secondwemayspeakofbuyingandselling,consideredasaccidentallytendingtotheadvan-tageofoneparty,andtothedisadvantageoftheother:forinstance,whenamanhasgreatneedofacertainthing,whileanothermanwillsufferifhebewithoutit.Insuchacasethejustpricewilldependnotonlyonthethingsold,butonthelosswhichthesalebringsontheseller.Andthusitwillbelawfultosellathingformorethanitisworthinitself,thoughthepricepaidbenotmorethanitisworthtotheowner.Yet,iftheonemanderiveagreatadvantagebybecomingpossessedoftheotherman’sproperty,andthesellerbenotatalossthroughbeingwithoutthatthing,thelatteroughtnottoraisetheprice,becausetheadvantageaccruingtothebuyer,isnotduetotheseller,buttoacircumstanceaffectingthebuyer.Nownomanshouldsellwhatisnothis,thoughhemaychargeforthelosshesuffers.Ontheotherhand,ifamanfindthathederivesgreatadvantagefromsomethinghehasbought,hemay,ofhisownaccord,paythesellersomethingoverandabove:andthispertainstohishonesty.ReplytoObjection1:Asstatedabove(FS,Question[96],Article[2])humanlawisgiventothepeopleamongwhomtherearemanylackingvirtue,anditisnotgiventothevirtuousalone.Hence,humanlawwasunabletoforbidallthatiscontrarytovirtue;anditsufficesforittopro-hibitwhateverisdestructiveofhumanintercourse,whileittreatsothermattersasthoughtheywerelawful,notbyapprovingofthem,butbynotpunishingthem.Accordingly,ifwithoutemployingdeceitthesellerdisposesofhisgoodsformorethantheirworth,orthebuyerobtainthemforlessthantheirworth,thelawlooksuponthisaslicit,andprovidesnopunishmentforsodoing,unlesstheexcessbetoogreat,becausethenevenhumanlawdemandsrestitutiontobemade,forinstanceifamanbedeceivedinregardtomorethanhalftheamountofthejustpriceofathing[*Cod.IV,xliv,DeRescind.Vend.2,8].Ontheotherhand,theDivinelawleavesnothingunpunishedthatiscontrarytovirtue.Hence,accordingtotheDivinelaw,itisreckonedunlawfuliftheequalityofjusticebenotobservedinbuyingandselling:andhewhohasreceivedmorethanheoughtmustmakecom-pensationtohimthathassufferedloss,ifthelossbeconsiderable.Iaddthiscondition,becausethejustpriceofthingsisnotfixedwithmathematicalprecision,butdependsonakindofesti-mate,sothataslightadditionorsubtractionwouldnotseemtodestroytheequalityofjustice.ReplytoObjection2:AsAugustinesays“thisjester,eitherbylookingintohimselforbyhisexperienceofothers,thoughtthatallmenareinclinedtowishtobuyforasongandsellatapremium.Butsinceinrealitythisiswicked,itisineveryman’spowertoacquirethatjusticewherebyhemayresistandovercomethisinclination.”Andthenhegivestheexampleofaman 20Pre-ClassicalThoughtwhogavethejustpriceforabooktoamanwhothroughignoranceaskedalowpriceforit.Hence,itisevidentthatthiscommondesireisnotfromnaturebutfromvice,whereforeitiscommontomanywhowalkalongthebroadroadofsin.ReplytoObjection3:Incommutativejusticeweconsiderchieflyrealequality.Ontheotherhand,infriendshipbasedonutilityweconsiderequalityofusefulness,sothattherecompenseshoulddependontheusefulnessaccruing,whereasinbuyingitshouldbeequaltothethingbought.Article2:Whetherasaleisrenderedunlawfulthroughafaultinthethingsold?Objection1:Itwouldseemthatasaleisnotrenderedunjustandunlawfulthroughafaultinthethingsold.Forlessaccountshouldbetakenoftheotherpartsofathingthanofwhatbelongstoitssubstance.Yet,thesaleofathingdoesnotseemtoberenderedunlawfulthroughafaultinitssubstance:forinstance,ifamansellinsteadoftherealmetal,silverorgoldproducedbysomechemicalprocess,whichisadaptedtoallthehumanusesforwhichsilverandgoldarenecessary,forinstanceinthemakingofvesselsandthelike.Muchlessthereforewillitbeanunlawfulsaleifthethingbedefectiveinotherways.Objection2:Further,anyfaultinthething,affectingthequantity,wouldseemchieflytobeopposedtojusticewhichconsistsinequality.Nowquantityisknownbybeingmeasured:andthemeasuresofthingsthatcomeintohumanusearenotfixed,butinsomeplacesaregreater,inothersless,asthePhilosopherstates(Ethic.v,7).Thereforejustasitisimpossibletoavoiddefectsonthepartofthethingsold,itseemsthatasaleisnotrenderedunlawfulthroughthethingsoldbeingdefective.Objection3:Further,thethingsoldisrendereddefectivebylackingafittingquality.Butinordertoknowthequalityofathing,muchknowledgeisrequiredthatislackinginmostbuyers.Therefore,asaleisnotrenderedunlawfulbyafault(inthethingsold).Onthecontrary,Ambrosesays(DeOffic.iii,11):“Itismanifestlyaruleofjusticethatagoodmanshouldnotdepartfromthetruth,norinflictanunjustinjuryonanyone,norhaveanyconnectionwithfraud.”Ianswerthat,athreefoldfaultmaybefoundpertainingtothethingwhichissold.One,inrespectofthething’ssubstance:andifthesellerbeawareofafaultinthethingheisselling,heisguiltyofafraudulentsale,sothatthesaleisrenderedunlawful.Hence,wefinditwrittenagainstcertainpeople(Is.1:22),“Thysilveristurnedintodross,thywineismingledwithwater”:becausethatwhichismixedisdefectiveinitssubstance.Anotherdefectisinrespectofquantitywhichisknownbybeingmeasured:whereforeifany-oneknowinglymakeuseofafaultymeasureinselling,heisguiltyoffraud,andthesaleisillicit.Hence,itiswritten(Dt.25:13,14):“Thoushaltnothavediversweightsinthybag,agreaterandaless:neithershalltherebeinthyhouseagreaterbushelandaless,”andfurtheron(Dt.25:16):“FortheLord…abhorrethhimthatdoththesethings,andHehatethallinjustice.”Athirddefectisonthepartofthequality,forinstance,ifamansellanunhealthyanimalasbeingahealthyone:andifanyonedothisknowinglyheisguiltyofafraudulentsale,andthesale,inconsequence,isillicit.Inallthesecasesnotonlyisthemanguiltyofafraudulentsale,butheisalsoboundtorestitution.Butifanyoftheforegoingdefectsbeinthethingsold,andheknowsnothingaboutthis,thesellerdoesnotsin,becausehedoesthatwhichisunjustmaterially,norishisdeedunjust,asshownabove(Question[59],Article[2]).Nevertheless,heisboundtocompensatethebuyer,whenthedefectcomestohisknowledge.Moreoverwhathasbeensaidofthesellerappliesequallytothebuyer.Forsometimesithappensthatthesellerthinkshisgoodstobespecificallyoflowervalue,aswhenamansellsgoldinsteadofcopper,andthenifthebuyerbeawareofthis,hebuysitunjustlyandisboundtorestitution:andthesameappliestoadefectinquantityastoadefectinquality. Aquinas:SummaTheologica21ReplytoObjection1:Goldandsilverarecostlynotonlyonaccountoftheusefulnessoftheves-selsandotherlikethingsmadefromthem,butalsoonaccountoftheexcellenceandpurityoftheirsubstance.Hence,ifthegoldorsilverproducedbyalchemistshasnotthetruespecificnatureofgoldandsilver,thesalethereofisfraudulentandunjust,especiallyasrealgoldandsil-vercanproducecertainresultsbytheirnaturalaction,whichthecounterfeitgoldandsilverofalchemistscannotproduce.Thus,thetruemetalhasthepropertyofmakingpeoplejoyful,andishelpfulmedicinallyagainstcertainmaladies.Moreover,realgoldcanbeemployedmorefre-quently,andlastslongerinitsconditionofpuritythancounterfeitgold.If,however,realgoldweretobeproducedbyalchemy,itwouldnotbeunlawfultosellitforthegenuinearticle,fornothingpreventsartfromemployingcertainnaturalcausesfortheproductionofnaturalandtrueeffects,asAugustinesays(DeTrin.iii,8)ofthingsproducedbytheartofthedemons.ReplytoObjection2:Themeasuresofsalablecommoditiesmustneedsbedifferentindifferentplaces,onaccountofthedifferenceofsupply:becausewherethereisgreaterabundance,themeasuresarewonttobelarger.However,ineachplacethosewhogovernthestatemustdeterminethejustmeasuresofthingssalable,withdueconsiderationfortheconditionsofplaceandtime.Hence,itisnotlawfultodisregardsuchmeasuresasareestablishedbypublicauthorityorcustom.ReplytoObjection3:AsAugustinesays(DeCiv.Deixi,16)thepriceofthingssalabledoesnotdependontheirdegreeofnature,sinceattimesahorsefetchesahigherpricethanaslave;butitdependsontheirusefulnesstoman.Hence,itisnotnecessaryforthesellerorbuyertobecognizantofthehiddenqualitiesofthethingsold,butonlyofsuchasrenderthethingadaptedtoman’suse,forinstance,thatthehorsebestrong,runwellandsoforth.Suchqualitiesthesellerandbuyercaneasilydiscover.Article3:Whetherthesellerisboundtostatethedefectsofthethingsold?Objection1:Itwouldseemthatthesellerisnotboundtostatethedefectsofthethingsold.Sincethesellerdoesnotbindthebuyertobuy,hewouldseemtoleaveittohimtojudgeofthegoodsofferedforsale.Nowjudgmentaboutathingandknowledgeofthatthingbelongtothesameperson.Therefore,itdoesnotseemimputabletothesellerifthebuyerbedeceivedinhisjudg-ment,andbehurriedintobuyingathingwithoutcarefullyinquiringintoitscondition.Objection2:Further,itseemsfoolishforanyonetodowhatpreventshimcarryingouthiswork.Butifamanstatesthedefectsofthegoodshehasforsale,hepreventstheirsale:whereforeTully(DeOffic.iii,13)picturesamanassaying:“Couldanythingbemoreabsurdthanforapubliccrier,instructedbytheowner,tocry:‘Iofferthisunhealthyhorseforsale?’”Therefore,thesellerisnotboundtostatethedefectsofthethingsold.Objection3:Further,manneedsmoretoknowtheroadofvirtuethantoknowthefaultsofthingsofferedforsale.Nowoneisnotboundtoofferadvicetoallortotellthemthetruthaboutmatterspertainingtovirtue,thoughoneshouldnottellanyonewhatisfalse.Muchlessthereforeisasellerboundtotellthefaultsofwhatheoffersforsale,asthoughhewerecounselingthebuyer.Objection4:Further,ifonewereboundtotellthefaultsofwhatoneoffersforsale,thiswouldonlybeinordertolowertheprice.Nowsometimesthepricewouldbeloweredforsomeotherreason,withoutanydefectinthethingsold:forinstance,ifthesellercarrywheattoaplacewherewheatfetchesahighprice,knowingthatmanywillcomeafterhimcarryingwheat;becauseifthebuyersknewthistheywouldgivealowerprice.Butapparentlythesellerneednotgivethebuyerthisinfor-mation.Therefore,inlikemanner,neitherneedhetellhimthefaultsofthegoodsheisselling.Onthecontrary,Ambrosesays(DeOffic.iii,10):“Inallcontractsthedefectsofthesalablecommoditymustbestated;andunlessthesellermakethemknown,althoughthebuyerhasalreadyacquiredarighttothem,thecontractisvoidedonaccountofthefraudulentaction.” 22Pre-ClassicalThoughtIanswerthat,Itisalwaysunlawfultogiveanyoneanoccasionofdangerorloss,althoughamanneednotalwaysgiveanotherthehelporcounselwhichwouldbeforhisadvantageinanyway;butonlyincertainfixedcases,forinstance,whensomeoneissubjecttohim,orwhenheistheonlyonewhocanassisthim.Nowthesellerwhooffersgoodsforsale,givesthebuyeranocca-sionoflossordanger,bytheveryfactthatheoffershimdefectivegoods,ifsuchdefectmayocca-sionlossordangertothebuyer–loss,if,byreasonofthisdefect,thegoodsareoflessvalue,andhetakesnothingoffthepriceonthataccount–danger,ifthisdefecteitherhindertheuseofthegoodsorrenderithurtful,forinstance,ifamansellsalameforafleethorse,atotteringhouseforasafeone,rottenorpoisonousfoodforwholesome.Whereforeifsuchlikedefectsbehidden,andthesellerdoesnotmakethemknown,thesalewillbeillicitandfraudulent,andthesellerwillbeboundtocompensationforthelossincurred.Ontheotherhand,ifthedefectbemanifest,forinstanceifahorsehavebutoneeye,orifthegoodsthoughuselesstothebuyer,beusefultosomeoneelse,providedthesellertakeasmuchasheoughtfromtheprice,heisnotboundtostatethedefectofthegoods,sinceperhapsonaccountofthatdefectthebuyermightwanthimtoallowagreaterrebatethanheneed.Whereforethesellermaylooktohisownindemnity,bywithholdingthedefectofthegoods.ReplytoObjection1:Judgmentcannotbepronouncedsaveonwhatismanifest:for“amanjudgesofwhatheknows”(Ethic.i,3).Hence,ifthedefectsofthegoodsofferedforsalebehid-den,judgmentofthemisnotsufficientlyleftwiththebuyerunlesssuchdefectsbemadeknowntohim.Thecasewouldbedifferentifthedefectsweremanifest.ReplytoObjection2:Thereisnoneedtopublishbeforehandbythepubliccrierthedefectsofthegoodsoneisofferingforsale,becauseifheweretobeginbyannouncingitsdefects,thebidderswouldbefrightenedtobuy,throughignoranceofotherqualitiesthatmightrenderthethinggoodandserviceable.Suchdefectoughttobestatedtoeachindividualthatofferstobuy:andthenhewillbeabletocomparethevariouspoints,onewiththeother,thegoodwiththebad:fornothingpreventsthatwhichisdefectiveinonerespectbeingusefulinmanyothers.ReplytoObjection3:Althoughamanisnotboundstrictlyspeakingtotelleveryonethetruthaboutmatterspertainingtovirtue,yetheissoboundinacasewhen,unlesshetellsthetruth,hisconductwouldendangeranothermanindetrimenttovirtue:andsoitisinthiscase.ReplytoObjection4:Thedefectinathingmakesitoflessvaluenowthanitseemstobe:butinthecasecited,thegoodsareexpectedtobeoflessvalueatafuturetime,onaccountofthearrivalofothermerchants,whichwasnotforeseenbythebuyers.Whereforetheseller,sincehesellshisgoodsatthepriceactuallyofferedhim,doesnotseemtoactcontrarytojusticethroughnotstatingwhatisgoingtohappen.Ifhoweverheweretodoso,orifheloweredhisprice,itwouldbeexceedinglyvirtuousonhispart:althoughhedoesnotseemtobeboundtodothisasadebtofjustice.Article4:Whether,intrading,itislawfultosellathingatahigherpricethanwhatwaspaidforit?Objection1:Itwouldseemthatitisnotlawful,intrading,tosellathingforahigherpricethanwepaidforit.ForChrysostom[*Hom.xxxviiiintheOpusImperfectum,falselyascribedtoStJohnChrysostom]saysonMt.21:12:“Hethatbuysathinginorderthathemaysellit,entireandunchanged,ataprofit,isthetraderwhoiscastoutofGod’stemple.”CassiodorusspeaksinthesamesenseinhiscommentaryonPs.70:15,“BecauseIhavenotknownlearning,ortrading”accordingtoanotherversion[*TheSeptuagint]:“Whatistrade,”sayshe,“butbuyingatacheappricewiththepurposeofretailingatahigherprice?”andheadds:“SuchwerethetradesmenwhomOurLordcastoutofthetemple.”Nownomaniscastoutofthetempleexceptforasin.Therefore,suchliketradingissinful.Objection2:Further,itiscontrarytojusticetosellgoodsatahigherpricethantheirworth,ortobuythemforlessthantheirvalue,asshownabove(Article[1]).Nowifyousellathingfora Aquinas:SummaTheologica23higherpricethanyoupaidforit,youmusteitherhaveboughtitforlessthanitsvalue,orsellitformorethanitsvalue.Therefore,thiscannotbedonewithoutsin.Objection3:Further,Jeromesays(Ep.adNepot.lii):“Shun,asyouwouldtheplague,aclericwhofrombeingpoorhasbecomewealthy,orwho,frombeinganobodyhasbecomeacelebrity.”Nowtradingwouldnetseemtobeforbiddentoclericsexceptonaccountofitssinfulness.Therefore,itisasinintrading,tobuyatalowpriceandtosellatahigherprice.Onthecontrary,AugustinecommentingonPs.70:15,“BecauseIhavenotknownlearning,”[*Cf.OBJ1]says:“Thegreedytradesmanblasphemesoverhislosses;heliesandperjureshim-selfoverthepriceofhiswares.Butthesearevicesoftheman,notofthecraft,whichcanbeexercisedwithoutthesevices.”Therefore,tradingisnotinitselfunlawful.Ianswerthat,atradesmanisonewhosebusinessconsistsintheexchangeofthings.AccordingtothePhilosopher(Polit.i,3),exchangeofthingsistwofold;one,naturalasitwere,andnecessary,wherebyonecommodityisexchangedforanother,ormoneytakeninexchangeforacommodity,inordertosatisfytheneedsoflife.Suchliketrading,properlyspeaking,doesnotbelongtotradesmen,butrathertohousekeepersorcivilservantswhohavetoprovidethehouseholdorthestatewiththenecessariesoflife.Theotherkindofexchangeiseitherthatofmoneyformoney,orofanycommodityformoney,notonaccountofthenecessitiesoflife,butforprofit,andthiskindofexchange,properlyspeaking,regardstradesmen,accordingtothePhilosopher(Polit.i,3).Theformerkindofexchangeiscommendablebecauseitsuppliesanat-uralneed:butthelatterisjustlydeservingofblame,because,consideredinitself,itsatisfiesthegreedforgain,whichknowsnolimitandtendstoinfinity.Hence,trading,consideredinitself,hasacertaindebasementattachingthereto,insofaras,byitsverynature,itdoesnotimplyavirtuousornecessaryend.Nevertheless,gainwhichistheendoftrading,thoughnotimplying,byitsnature,anythingvirtuousornecessary,doesnot,initself,connoteanythingsinfulorcontrarytovirtue:whereforenothingpreventsgainfrombeingdirectedtosomenecessaryorevenvirtuousend,andthustradingbecomeslawful.Thus,forinstance,amanmayintendthemoderategainwhichheseekstoacquirebytradingfortheupkeepofhishousehold,orfortheassistanceoftheneedy:oragain,amanmaytaketotradeforsomepublicadvantage,forinstance,lesthiscountrylackthenecessariesoflife,andseekgain,notasanend,butaspaymentforhislabor.ReplytoObjection1:ThesayingofChrysostomreferstothetradingwhichseeksgainasalastend.Thisisespeciallythecasewhereamansellssomethingatahigherpricewithoutitsundergo-inganychange.Forifhesellsatahigherpricesomethingthathaschangedforthebetter,hewouldseemtoreceivetherewardofhislabor.Nevertheless,thegainitselfmaybelawfullyintended,notasalastend,butforthesakeofsomeotherendwhichisnecessaryorvirtuous,asstatedabove.ReplytoObjection2:Noteveryonethatsellsatahigherpricethanheboughtisatradesman,butonlyhewhobuysthathemaysellataprofit.If,onthecontrary,hebuysnotforsalebutforpossession,andafterwards,forsomereasonwishestosell,itisnotatradetransactionevenifhesellataprofit.Forhemaylawfullydothis,eitherbecausehehasbetteredthething,orbecausethevalueofthethinghaschangedwiththechangeofplaceortime,oronaccountofthedangerheincursintransferringthethingfromoneplacetoanother,oragaininhavingitcarriedbyanother.Inthissenseneitherbuyingnorsellingisunjust.ReplytoObjection3:Clericsshouldabstainnotonlyfromthingsthatareevilinthemselves,butevenfromthosethathaveanappearanceofevil.Thishappensintrading,bothbecauseitisdirectedtoworldlygain,whichclericsshoulddespise,andbecausetradingisopentosomanyvices,since“amerchantishardlyfreefromsinsofthelips”[*‘Amerchantishardlyfreefromneg-ligence,andahuckstershallnotbejustifiedfromthesinsofthelips’](Ecclus.26:28).Thereisalsoanotherreason,becausetradingengagesthemindtoomuchwithworldlycares,andconsequently 24Pre-ClassicalThoughtwithdrawsitfromspiritualcares;whereforetheApostlesays(2Tim.2:4):“Nomanbeingasol-diertoGodentanglethhimselfwithsecularbusinesses.”Nevertheless,itislawfulforclericstoengageinthefirstmentionedkindofexchange,whichisdirectedtosupplythenecessariesoflife,eitherbybuyingorbyselling.(E)Bysinscommittedinloans(Question[78])Ofthesinofusury(fourarticles)Wemustnowconsiderthesinofusury,whichiscommittedinloans:andunderthisheadtherearefourpointsofinquiry:1Whetheritisasintotakemoneyasapriceformoneylent,whichistoreceiveusury?2Whetheritislawfultolendmoneyforanyotherkindofconsideration,bywayofpaymentfortheloan?3Whetheramanisboundtorestorejustgainsderivedfrommoneytakeninusury?4Whetheritislawfultoborrowmoneyunderaconditionofusury?Article1:Whetheritisasintotakeusuryformoneylent?Objection1:Itwouldseemthatitisnotasintotakeusuryformoneylent.FornomansinsthroughfollowingtheexampleofChrist.ButOurLordsaidofHimself(Lk.19:23):“AtMycomingImighthaveexactedit,”thatis,themoneylent,“withusury.”Therefore,itisnotasintotakeusuryforlendingmoney.Objection2:Further,accordingtoPs.18:8,“ThelawoftheLordisunspotted,”because,towit,itforbidssin.NowusuryofakindisallowedintheDivinelaw,accordingtoDt.23:19,20:“Thoushaltnotfeneratetothybrothermoney,norcorn,noranyotherthing,buttothestranger”:naymore,itisevenpromisedasarewardfortheobservanceoftheLaw,accordingtoDt.28:12:“Thoushaltfenerate*tomanynations,andshaltnotborrowofanyone.”[*“Faeneraberis”–“Thoushaltlenduponusury.”TheDouayversionhassimply“lend.”Theobjectionlaysstressontheword“faenera-beris”:hencethenecessityofrenderingitby“fenerate.”]Therefore,itisnotasintotakeusury.Objection3:Further,inhumanaffairsjusticeisdeterminedbycivillaws.Nowcivillawallowsusurytobetaken.Therefore,itseemstobelawful.Objection4:Further,thecounselsarenotbindingundersin.But,amongothercounselswefind(Lk.6:35):“Lend,hopingfornothingthereby.”Therefore,itisnotasintotakeusury.Objection5:Further,itdoesnotseemtobeinitselfsinfultoacceptapricefordoingwhatoneisnotboundtodo.Butonewhohasmoneyisnotboundineverycasetolendittohisneighbor.Therefore,itislawfulforhimsometimestoacceptapriceforlendingit.Objection6:Further,silvermadeintocoinsdoesnotdifferspecificallyfromsilvermadeintoavessel.Butitislawfultoacceptapricefortheloanofasilvervessel.Therefore,itisalsolawfultoacceptapricefortheloanofasilvercoin.Therefore,usuryisnotinitselfasin.Objection7:Further,anyonemaylawfullyacceptathingwhichitsownerfreelygiveshim.Nowhewhoacceptstheloan,freelygivestheusury.Therefore,hewholendsmaylawfullytaketheusury.Onthecontrary,Itiswritten(Ex.22:25):“Ifthoulendmoneytoanyofthypeoplethatispoor,thatdwellethwiththee,thoushaltnotbeharduponthemasanextortioner,noroppressthemwithusuries.”Ianswerthat,totakeusuryformoneylentisunjustinitself,becausethisistosellwhatdoesnotexist,andthisevidentlyleadstoinequalitywhichiscontrarytojustice.Inordertomakethisevi-dent,wemustobservethattherearecertainthingstheuseofwhichconsistsintheirconsumption:thusweconsumewinewhenweuseitfordrinkandweconsumewheatwhenweuseitforfood.Whereforeinsuchlikethingstheuseofthethingmustnotbereckonedapartfromthethingitself, Aquinas:SummaTheologica25andwhoeverisgrantedtheuseofthething,isgrantedthethingitselfandforthisreason,tolendthingsofthiskindistotransfertheownership.Accordinglyifamanwantedtosellwineseparatelyfromtheuseofthewine,hewouldbesellingthesamethingtwice,orhewouldbesellingwhatdoesnotexist,whereforehewouldevidentlycommitasinofinjustice.Inlikemannerhecommitsaninjusticewholendswineorwheat,andasksfordoublepayment,namelyone,thereturnofthethinginequalmeasure,theother,thepriceoftheuse,whichiscalledusury.Ontheotherhand,therearethingstheuseofwhichdoesnotconsistintheirconsumption:thustouseahouseistodwellinit,nottodestroyit.Whereforeinsuchthingsbothmaybegranted:forinstance,onemanmayhandovertoanothertheownershipofhishousewhilereservingtohimselftheuseofitforatime,orviceversa,hemaygranttheuseofthehouse,whileretainingtheownership.Forthisreasonamanmaylawfullymakeachargefortheuseofhishouse,and,besidesthis,revendicatethehousefromthepersontowhomhehasgranteditsuse,ashappensinrentingandlettingahouse.Nowmoney,accordingtothePhilosopher(Ethic.v,5;Polit.i,3)wasinventedchieflyforthepurposeofexchange:andconsequentlytheproperandprincipaluseofmoneyisitsconsump-tionoralienationwherebyitissunkinexchange.Hence,itisbyitsverynatureunlawfultotakepaymentfortheuseofmoneylent,whichpaymentisknownasusury:andjustasamanisboundtorestoreotherill-gottengoods,soisheboundtorestorethemoneywhichhehastakeninusury.ReplytoObjection1:InthispassageusurymustbetakenfigurativelyfortheincreaseofspiritualgoodswhichGodexactsfromus,forHewishesusevertoadvanceinthegoodswhichwereceivefromHim:andthisisforourownprofitnotforHis.ReplytoObjection2:TheJewswereforbiddentotakeusuryfromtheirbrethren,thatis,fromotherJews.Bythiswearegiventounderstandthattotakeusuryfromanymanisevilsimply,becauseweoughttotreateverymanasourneighborandbrother,especiallyinthestateoftheGospel,wheretoallarecalled.Hence,itissaidwithoutanydistinctioninPs.14:5:“Hethathathnotputouthismoneytousury,”and(Ezech.18:8):“Whohathnottakenusury[*Vulg.:‘Ifaman…hathnotlentuponmoney,nortakenanyincrease…heisjust.’].”Theywerepermitted,however,totakeusuryfromforeigners,notasthoughitwerelawful,butinordertoavoidagreaterevil,lest,towit,throughavaricetowhichtheywereproneaccordingtoIs.56:11,theyshouldtakeusuryfromtheJewswhowereworshippersofGod.Wherewefinditpromisedtothemasareward,“Thoushaltfeneratetomanynations,”etc.,feneratingistobetakeninabroadsenseforlending,asinEcclus.29:10,whereweread:“Manyhaverefusedtofenerate,notoutofwickedness,”thatis,theywouldnotlend.AccordinglytheJewsarepromisedinrewardanabundanceofwealth,sothattheywouldbeabletolendtoothers.ReplytoObjection3:Humanlawsleavecertainthingsunpunished,onaccountoftheconditionofthosewhoareimperfect,andwhowouldbedeprivedofmanyadvantages,ifallsinswerestrictlyforbiddenandpunishmentsappointedforthem.Whereforehumanlawhaspermittedusury,notthatitlooksuponusuryasharmonizingwithjustice,butlesttheadvantageofmanyshouldbehindered.Hence,itisthatincivillaw[*Inst.II,iv,deUsufructu]itisstatedthat“thosethingsaccordingtonaturalreasonandcivillawwhichareconsumedbybeingused,donotadmitofusufruct,”andthat“thesenatedidnot(norcouldit)appointausufructtosuchthings,butestablishedaquasi-usufruct,”namelybypermittingusury.MoreoverthePhilosopher,ledbynaturalreason,says(Polit.i,3)that“tomakemoneybyusuryisexceedinglyunnatural.”ReplytoObjection4:Amanisnotalwaysboundtolend,andforthisreasonitisplacedamongthecounsels.Yet,itisamatterofpreceptnottoseekprofitbylending:althoughitmaybecalledamatterofcounselincomparisonwiththemaximsofthePharisees,whodeemedsomekindsofusurytobelawful,justasloveofone’senemiesisamatterofcounsel.Oragain,Hespeaksherenotofthehopeofusuriousgain,butofthehopewhichisputinman.Forweoughtnottolendordoanygooddeedthroughhopeinman,butonlythroughhopeinGod. 26Pre-ClassicalThoughtReplytoObjection5:Hethatisnotboundtolend,mayacceptrepaymentforwhathehasdonebuthemustnotexactmore.Nowheisrepaidaccordingtoequalityofjusticeifheisrepaidasmuchashelent.Whereforeifheexactsmorefortheusufructofathingwhichhasnootherusebutthecon-sumptionofitssubstance,heexactsapriceofsomethingnon-existent:andsohisexactionisunjust.ReplytoObjection6:Theprincipaluseofasilvervesselisnotitsconsumption,andsoonemaylaw-fullysellitsusewhileretainingone’sownershipofit.Ontheotherhand,theprincipaluseofsilvermoneyissinkingitinexchange,sothatitisnotlawfultosellitsuseandatthesametimeexpecttherestitutionoftheamountlent.Itmustbeobserved,however,thatthesecondaryuseofsilvervesselsmaybeanexchange,andsuchusemaynotbelawfullysold.Inlikemannertheremaybesomesec-ondaryuseofsilvermoney;forinstance,amanmightlendcoinsforshow,ortobeusedassecurity.ReplytoObjection7:Hewhogivesusurydoesnotgiveitvoluntarilysimply,butunderacertainnecessity,insofarasheneedstoborrowmoneywhichtheownerisunwillingtolendwithoutusury.Article2:Whetheritislawfultoaskforanyotherkindofconsiderationformoneylent?Objection1:Itwouldseemthatonemayaskforsomeotherkindofconsiderationformoneylent.Foreveryonemaylawfullyseektoindemnifyhimself.Nowsometimesamansufferslossthroughlendingmoney.Therefore,hemaylawfullyaskfororevenexactsomethingelsebesidesthemoneylent.Objection2:Further,asstatedinEthic.v,5,oneisindutyboundbyapointofhonor,torepayanyonewhohasdoneusafavor.Nowtolendmoneytoonewhoisinstraitsistodohimafavorforwhichheshouldbegrateful.Therefore,therecipientofaloan,isboundbyanaturaldebttorepaysomething.Nowitdoesnotseemunlawfultobindoneselftoanobligationofthenaturallaw.Therefore,itisnotunlawful,inlendingmoneytoanyone,todemandsomesortofcompen-sationasconditionoftheloan.Objection3:Further,justasthereisrealremuneration,soisthereverbalremuneration,andremunerationbyservice,asaglosssaysonIs.33:15,“Blessedishethatshakethhishandsfromallbribes[*Vulg.:‘Whichofyoushalldwellwitheverlastingburnings?…Hethatshakethhishandsfromallbribes.’].”Nowitislawfultoacceptserviceorpraisefromonetowhomonehaslentmoney.Therefore,inlikemanneritislawfultoacceptanyotherkindofremuneration.Objection4:Further,seeminglytherelationofgifttogiftisthesameasofloantoloan.Butitislawfultoacceptmoneyformoneygiven.Therefore,itislawfultoacceptrepaymentbyloaninreturnforaloangranted.Objection5:Further,thelender,bytransferringhisownershipofasumofmoneyremovesthemoneyfurtherfromhimselfthanhewhoentrustsittoamerchantorcraftsman.Nowitislawfultoreceiveinterestformoneyentrustedtoamerchantorcraftsman.Therefore,itisalsolawfultoreceiveinterestformoneylent.Objection6:Further,amanmayacceptapledgeformoneylent,theuseofwhichpledgehemightsellforaprice:aswhenamanmortgageshislandorthehousewhereinhedwells.Therefore,itislawfultoreceiveinterestformoneylent.Objection7:Further,itsometimeshappensthatamanraisesthepriceofhisgoodsunderguiseofloan,orbuysanother’sgoodsatalowfigure;orraiseshispricethroughdelayinbeingpaid,andlowershispricethathemaybepaidthesooner.Nowinallthesecasesthereseemstobepay-mentforaloanofmoney:nordoesitappeartobemanifestlyillicit.Therefore,itseemstobelawfultoexpectorexactsomeconsiderationformoneylent.Onthecontrary,amongotherconditionsrequisiteinajustmanitisstated(Ezech.18:17)thathe“hathnottakenusuryandincrease.”Ianswerthat,accordingtothePhilosopher(Ethic.iv,1),athingisreckonedasmoney“ifitsvaluecanbemeasuredbymoney.”Consequently,justasitisasinagainstjustice,totakemoney,bytacitor Aquinas:SummaTheologica27expressagreement,inreturnforlendingmoneyoranythingelsethatisconsumedbybeingused,soalsoisitalikesin,bytacitorexpressagreementtoreceiveanythingwhosepricecanbemeasuredbymoney.Yet,therewouldbenosininreceivingsomethingofthekind,notasexactingit,noryetasthoughitweredueonaccountofsomeagreementtacitorexpressed,butasagratuity:since,evenbeforelendingthemoney,onecouldacceptagratuity,norisoneinaworseconditionthroughlending.Ontheotherhand,itislawfultoexactcompensationforaloan,inrespectofsuchthingsasarenotappreciatedbyameasureofmoney,forinstance,benevolence,andloveforthelender,andsoforth.ReplytoObjection1:Alendermaywithoutsinenteranagreementwiththeborrowerforcompen-sationforthelossheincursofsomethingheoughttohave,forthisisnottoselltheuseofmoneybuttoavoidaloss.Itmayalsohappenthattheborroweravoidsagreaterlossthanthelenderincurs,whereforetheborrowermayrepaythelenderwithwhathehasgained.Butthelendercannotenteranagreementforcompensation,throughthefactthathemakesnoprofitoutofhismoney:becausehemustnotsellthatwhichhehasnotyetandmaybepreventedinmanywaysfromhaving.ReplytoObjection2:Repaymentforafavormaybemadeintwoways.Inoneway,asadebtofjustice;andtosuchadebtamanmaybeboundbyafixedcontract;anditsamountismeasuredaccordingtothefavorreceived.Whereforetheborrowerofmoneyoranysuchthingtheuseofwhichisitsconsumptionisnotboundtorepaymorethanhereceivedinloan:andconsequentlyitisagainstjusticeifhebeobligedtopaybackmore.Inanotherwayaman’sobligationtorepay-mentforfavorreceivedisbasedonadebtoffriendship,andthenatureofthisdebtdependsmoreonthefeelingwithwhichthefavorwasconferredthanonthegreatnessofthefavoritself.Thisdebtdoesnotcarrywithitacivilobligation,involvingakindofnecessitythatwouldexcludethespontaneousnatureofsucharepayment.ReplytoObjection3:Ifamanwere,inreturnformoneylent,asthoughtherehadbeenanagree-menttacitorexpressed,toexpectorexactrepaymentintheshapeofsomeremunerationofser-viceorwords,itwouldbethesameasifheexpectedorexactedsomerealremuneration,becausebothcanbepricedatamoneyvalue,asmaybeseeninthecaseofthosewhoofferforhirethelaborwhichtheyexercisebyworkorbytongue.Ifontheotherhand,theremunerationbyserviceorwordsbegivennotasanobligation,butasafavor,whichisnottobeappreciatedatamoneyvalue,itislawfultotake,exact,andexpectit.ReplytoObjection4:Moneycannotbesoldforagreatersumthantheamountlent,whichhastobepaidback:norshouldtheloanbemadewithademandorexpectationofaughtelsebutofafeelingofbenevolencewhichcannotbepricedatapecuniaryvalue,andwhichcanbethebasisofaspontaneousloan.Nowtheobligationtolendinreturnatsomefuturetimeisrepugnanttosuchafeeling,becauseagainanobligationofthiskindhasitspecuniaryvalue.Consequentlyitislawfulforthelendertoborrowsomethingelseatthesametime,butitisunlawfulforhimtobindtheborrowertogranthimaloanatsomefuturetime.ReplytoObjection5:Hewholendsmoneytransferstheownershipofthemoneytotheborrower.Hence,theborrowerholdsthemoneyathisownriskandisboundtopayitallback:whereforethelendermustnotexactmore.Ontheotherhand,hethatentrustshismoneytoamerchantorcraftsmansoastoformakindofsociety,doesnottransfertheownershipofhismoneytothem,foritremainshis,sothatathisriskthemerchantspeculateswithit,orthecraftsmanusesitforhiscraft,andconsequentlyhemaylawfullydemandassomethingbelongingtohim,partoftheprofitsderivedfromhismoney.ReplytoObjection6:Ifamaninreturnformoneylenttohimpledgessomethingthatcanbeval-uedataprice,thelendermustallowfortheuseofthatthingtowardstherepaymentoftheloan.Elseifhewishesthegratuitoususeofthatthinginadditiontorepayment,itisthesameasifhetookmoneyforlending,andthatisusury,unlessperhapsitweresuchathingasfriendsarewonttolendtooneanothergratis,asinthecaseoftheloanofabook. 28Pre-ClassicalThoughtReplytoObjection7:Ifamanwishtosellhisgoodsatahigherpricethanthatwhichisjust,sothathemaywaitforthebuyertopay,itismanifestlyacaseofusury:becausethiswaitingforthepaymentofthepricehasthecharacterofaloan,sothatwhateverhedemandsbeyondthejustpriceinconsiderationofthisdelay,islikeapriceforaloan,whichpertainstousury.Inlikeman-nerifabuyerwishestobuygoodsatalowerpricethanwhatisjust,forthereasonthathepaysforthegoodsbeforetheycanbedelivered,itisasinofusury;becauseagainthisanticipatedpay-mentofmoneyhasthecharacterofaloan,thepriceofwhichistherebateonthejustpriceofthegoodssold.Ontheotherhand,ifamanwishestoallowarebateonthejustpriceinorderthathemayhavehismoneysooner,heisnotguiltyofthesinofusury.Article3:Whetheramanisboundtorestorewhateverprofitshehasmadeoutofmoneygottenbyusury?Objection1:Itwouldseemthatamanisboundtorestorewhateverprofitshehasmadeoutofmoneygottenbyusury.FortheApostlesays(Rm.11:16):“Iftherootbeholy,soarethebranches.”Therefore,likewiseiftherootberottensoarethebranches.Buttherootwasinfectedwithusury.Therefore,whateverprofitismadetherefromisinfectedwithusury.Therefore,heisboundtorestoreit.Objection2:Further,itislaiddown(Extra,DeUsuris,intheDecretal:‘Cumtusicutasseris’):“Propertyaccruingfromusurymustbesold,andthepricerepaidtothepersonsfromwhomtheusurywasextorted.”Therefore,likewise,whateverelseisacquiredfromusuriousmoneymustberestored.Objection3:Further,thatwhichamanbuyswiththeproceedsofusuryisduetohimbyreasonofthemoneyhepaidforit.Therefore,hehasnomorerighttothethingpurchasedthantothemoneyhepaid.Buthewasboundtorestorethemoneygainedthroughusury.Therefore,heisalsoboundtorestorewhatheacquiredwithit.Onthecontrary,amanmaylawfullyholdwhathehaslawfullyacquired.Nowthatwhichisacquiredbytheproceedsofusuryissometimeslawfullyacquired.Therefore,itmaybelawfullyretained.Ianswerthat,asstatedabove(Article[1]),therearecertainthingswhoseuseistheirconsump-tion,andwhichdonotadmitofusufruct,accordingtolaw(ibid.,ad3).Whereforeifsuchlikethingsbeextortedbymeansofusury,forinstancemoney,wheat,wineandsoforth,thelenderisnotboundtorestoremorethanhereceived(sincewhatisacquiredbysuchthingsisthefruitnotofthethingbutofhumanindustry),unlessindeedtheotherpartybylosingsomeofhisowngoodsbeinjuredthroughthelenderretainingthem:forthenheisboundtomakegoodtheloss.Ontheotherhand,therearecertainthingswhoseuseisnottheirconsumption:suchthingsadmitofusufruct,forinstance,houseorlandpropertyandsoforth.Whereforeifamanhasbyusuryextortedfromanotherhishouseorland,heisboundtorestorenotonlythehouseorlandbutalsothefruitsaccruingtohimtherefrom,sincetheyarethefruitsofthingsownedbyanothermanandconsequentlyareduetohim.ReplytoObjection1:Theroothasnotonlythecharacterofmatter,asmoneymadebyusuryhas;buthasalsosomewhatthecharacterofanactivecause,insofarasitadministersnourishment.Hence,thecomparisonfails.ReplytoObjection2:Further,propertyacquiredfromusurydoesnotbelongtothepersonwhopaidusury,buttothepersonwhoboughtit.Yet,hethatpaidusuryhasacertainclaimonthatpropertyjustashehasontheothergoodsoftheusurer.Hence,itisnotprescribedthatsuchpropertyshouldbeassignedtothepersonswhopaidusury,sincethepropertyisperhapsworthmorethanwhattheypaidinusury,butitiscommandedthatthepropertybesold,andthepriceberestored,ofcourseaccordingtotheamounttakeninusury.ReplytoObjection3:Theproceedsofmoneytakeninusuryareduetothepersonwhoacquiredthemnotbyreasonoftheusuriousmoneyasinstrumentalcause,butonaccountofhisown Aquinas:SummaTheologica29industryasprincipalcause.Whereforehehasmorerighttothegoodsacquiredwithusuriousmoneythantotheusuriousmoneyitself.Article4:Whetheritislawfultoborrowmoneyunderaconditionofusury?Objection1:Itwouldseemthatitisnotlawfultoborrowmoneyunderaconditionofusury.FortheApostlesays(Rm.1:32)thatthey“areworthyofdeath…notonlytheythatdo”thesesins,“buttheyalsothatconsenttothemthatdothem.”Nowhethatborrowsmoneyunderaconditionofusuryconsentsinthesinoftheusurer,andgiveshimanoccasionofsin.Therefore,hesinsalso.Objection2:Further,fornotemporaladvantageoughtonetogiveanotheranoccasionofcom-mittingasin:forthispertainstoactivescandal,whichisalwayssinful,asstatedabove(Question[43],Article[2]).Nowhethatseekstoborrowfromausurergiveshimanoccasionofsin.Therefore,heisnottobeexcusedonaccountofanytemporaladvantage.Objection3:Further,itseemsnolessnecessarysometimestodepositone’smoneywithausurerthantoborrowfromhim.Nowitseemsaltogetherunlawfultodepositone’smoneywithausurer,evenasitwouldbeunlawfultodepositone’sswordwithamadman,amaidenwithalibertine,orfoodwithaglutton.Neither,therefore,isitlawfultoborrowfromausurer.Onthecontrary,hethatsuffersinjurydoesnotsin,accordingtothePhilosopher(Ethic.v,11),whereforejusticeisnotameanbetweentwovices,asstatedinthesamebook(ch.5).Nowausurersinsbydoinganinjurytothepersonwhoborrowsfromhimunderaconditionofusury.Therefore,hethatacceptsaloanunderaconditionofusurydoesnotsin.Ianswerthat,itisbynomeanslawfultoinduceamantosin,yetitislawfultomakeuseofanother’ssinforagoodend,sinceevenGodusesallsinforsomegood,sinceHedrawssomegoodfromeveryevilasstatedintheEnchiridion(xi).Hence,whenPublicolaaskedwhetheritwerelawfultomakeuseofanoathtakenbyamanswearingbyfalsegods(whichisamanifestsin,forhegivesDivinehonortothem)Augustine(Ep.xlvii)answeredthathewhouses,notforabadbutforagoodpurpose,theoathofamanthatswearsbyfalsegods,isaparty,nottohissinofswearingbydemons,buttohisgoodcompactwherebyhekepthisword.If,however,heweretoinducehimtoswearbyfalsegods,hewouldsin.Accordingly,wemustalsoanswertothequestioninpointthatitisbynomeanslawfultoinduceamantolendunderaconditionofusury:yetitislawfultoborrowforusuryfromamanwhoisreadytodosoandisausurerbyprofession;providedtheborrowerhaveagoodendinview,suchasthereliefofhisownoranother’sneed.Thustooitislawfulforamanwhohasfallenamongthievestopointouthispropertytothem(whichtheysinintaking)inordertosavehislife,aftertheexam-pleofthetenmenwhosaidtoIsmahel(Jer.41:8):“Killusnot:forwehavestoresinthefield.”ReplytoObjection1:Hewhoborrowsforusurydoesnotconsenttotheusurer’ssinbutmakesuseofit.Norisittheusurer’sacceptanceofusurythatpleaseshim,buthislending,whichisgood.ReplytoObjection2:Hewhoborrowsforusurygivestheusureranoccasion,notfortakingusury,butforlending;itistheusurerwhofindsanoccasionofsininthemaliceofhisheart.Hence,thereispas-sivescandalonhispart,whilethereisnoactivescandalonthepartofthepersonwhoseekstoborrow.Noristhispassivescandalareasonwhytheotherpersonshoulddesistfromborrowingifheisinneed,sincethispassivescandalarisesnotfromweaknessorignorancebutfrommalice.ReplytoObjection3:Ifoneweretoentrustone’smoneytoausurerlackingothermeansofprac-tisingusury;orwiththeintentionofmakingagreaterprofitfromhismoneybyreasonoftheusury,onewouldbegivingasinnermatterforsin,sothatonewouldbeaparticipatorinhisguilt.If,ontheotherhand,theusurertowhomoneentrustsone’smoneyhasothermeansofpractis-ingusury,thereisnosininentrustingittohimthatitmaybeinsaferkeeping,sincethisistouseasinnerforagoodpurpose. THOMASMUN(1571–1641)Bytheseventeenthcenturythespreadofproductionformarket,theextensionofmarkets,andthegrowthofcommercethroughoutEuropehadacceleratedfromancient,ifgradual,beginningsandfromtheirmarkedestablishmentbetweenthethirteenthandfifteenthcenturies.Organizedreli-gion–stillwidelyCatholiconthemainlandbuteventuallyAnglicaninEnglandandalsoProtestantinvariousareasafterthemid-sixteenthcentury)–remainedstrong.Butnewvalueswerecomingtodominatelife,includingspiritualapprovalofworkandtheaccumulationofwealth,altogetherapreoccupationwithpersonalmaterialsuccessinthisworld.OneresultwasasetofpracticesandanassociatedbeliefsystemnowcalledMercantilism.Mercantilismwasacomplexattitudeofmindandpracticewhichhadseveralelementscenteringontheexerciseofgovernmentauthority,nowdoingonthenationallevelwhatlocalgovernmentshadlongbeenundertakingamongandagainsteachother,topromoteinternaleconomicinterestsbyadoptingpoliciesaimedatgeneratingafavorablebalanceofpayments,forthepurposesofbusi-nessprofit,royalrevenue,andeconomicprosperity.Themeansincludedtariffprotectionagainstimports;selectivesubsidiesofproductionandexports;theacquisitionofcolonies,whichprovidedrawmaterialsandaworkforceofsettlersandnativepeoplesatlowcost,amarketforthemothercountry’sfinishedgoods,amonopolyofcolonialtradeandshipping,andadirectcontributiontothepowerandprestigeofempire;thedevelopmentofnavalpower;andmeasurestominimizethecostofmaintainingthedomesticpopulation,suchaslowagriculturalprices,lowwages,fisheriesforcheapfood,andsoon.Doctrinalemphasesontheutilityofpovertyandontheimportanceofgoldholdingsservedinstrumentalpurposesforthoseseekingpowerandprofit.Theseideasareeasilylambasted;forexample,competitiveprotectionismisabasisforneitherworldordernoreconomicgrowth.ButthevarietyofMercantilistauthorsandpamphleteersconstitutedthefirstmajorgroupofeconomicthinkers,thefirstgrouptoenvisionanincreaseofwealthaseitheragoodinitselforameanstoarelatedend,andtodevelopacorpusofanalysisonthatbasis.Theirswas,giventheirfeltinterests,ahighlevelofanalysisofbothprocessesandmeans–endsrelations.Theygenerallyunderstoodboththerelationshipofthequantityofmoneytothelevelofpricesandthe(related)workingofthespecie-flowmechanismbetweencountries,theirunderstandingadjusted,asitwere,totheirpointofview.Allofthiswascorrelativewiththegrowthofcommerceand,especially,amoneyeconomy.Mercantilism,orthecommercialsystem,wasthefirststageofthemoderneconomyandwasthepolicyofearlymodernstates.ThomasMun(1571–1641)wasawealthymerchantandadirectoroftheEastIndiaCompany,andhisEngland’sTreasurebyForraignTradewasoneofthemostsophisticatedworksaffirmingMercantilistpolicy.TheEastIndiaCompany’sactivitieswerecontroversialbecausetheirpurchasesofgoodsfromtheEastIndiesresultedinoutflowsofbullion–contrarytomercantilistprecepts.Mun’semphasisonthenetinflowofspeciethatresultedfromthelargerbodyofinter-nationaltradesethimapartfrommanyothermercantilistwriterswhosawabanonbullionexportsasakeytothepromotionofnationalwelfare–and,inthehandsofsome,nationalwealth.Inthe ThomasMun31excerptsfromEngland’sTreasureprovidedhere,weseesomeoftheclassicmercantilistthemes:theissueoftherelationshipbetweennationalwealthandbullion(“treasure”),themaxi-mizationofnetexports,thevirtuesofthere-exporttradeandtheimplicationsforbullionexportrestrictions,therationaleforbullionaccumulationbythecrown,andthemeasurementofthegainsfromtrade.ReferencesandfurtherreadingAllen,WilliamR.(1987)“Mercantilism,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,445–49.Beer,Max(1938)EarlyBritishEconomics,London:GeorgeAllen&Unwin.Coleman,D.C.,ed.(1969)RevisionsinMercantilism,London:Methuen.Eltis,Walter(1987)“Mun,Thomas,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,576–77.Grampp,W.D.(1952)“TheLiberalElementsinEnglishMercantilism,”QuarterlyJournalofEconomics66(November):465–502.Heckscher,EliF.(1935)Mercantilism,London:GeorgeAllen&Unwin.ReprintedwithanewintroductionbyLarsMagnusson,London:Routledge,1994.Letwin,William(1964)TheOriginsofScientificEconomics,GardenCity,NewYork:Doubleday&Co.Magnusson,Lars(1993a)Mercantilism:TheShapingofEconomicLanguage,London:Routledge.——ed.(1993b)MercantilistEconomics,Boston:Kluwer.Malynes,Gerrardde(1601)ATreatiseoftheCankerofEngland’sCommonWealth,London.——(1622)Consuetudo,vel,LexMercatoria,London.——(1623)TheCenteroftheCircleofCommerce,London.Misselden,Edward(1623)TheCircleofCommerce,London.Schmoller,Gustav(1897)TheMercantileSystem,NewYork:Macmillan.Viner,Jacob(1930)“EnglishTheoriesofForeignTradeBeforeAdamSmith,”JournalofPoliticalEconomy38:249–310,404–57.Reprintedaschapts.IandIIinStudiesintheTheoryofInternationalTrade,NewYork:Harper&Row,1937. England’sTreasurebyForraignTradeortheBallanceofourForraignTradeistheRuleofourTreasure(1664)*Chapter2:TheMeanstoenrichthisKingdom,andtoencreaseourTreasureAlthoughaKingdommaybeenrichedbygiftsreceived,orbypurchasetakenfromsomeotherNations,yetthesearethingsuncertainandofsmallconsiderationwhentheyhappen.Theordi-narymeansthereforetoencreaseourwealthandtreasureisbyForraignTrade,whereinweemusteverobservethisrule;tosellmoretostrangersyearlythanweeconsumeoftheirsinvalue.ForsupposethatwhenthisKingdomisplentifullyservedwiththeCloth,Lead,Tinn,Iron,Fishandothernativecommodities,wedoeyearlyexporttheoverplustoforraignCountriestothevalueoftwentytwohundredthousandpounds;bywhichmeansweareenabledbeyondtheSeastobuyandbringinforraignwaresforouruseandConsumption,tothevalueoftwentyhundredthousandpounds;Bythisorderdulykeptinourtrading,wemayrestassuredthattheKingdomshallbeenrichedyearlytwohundredthousandpounds,whichmustbebroughttousinsomuchTreasure;becausethatpartofourstockwhichisnotreturnedtousinwaresmustnecessarilybebroughthomeintreasure.ForinthiscaseitcomethtopassinthestockofaKingdom,asintheestateofaprivateman;whoissupposedtohaveonethousandpoundsyearlyrevenueandtwothousandpoundsofreadymoneyinhisChest:Ifsuchamanthroughexcessshallspendonethousandfivehundredpoundsperannum,allhisreadymonywillbegoneinfouryears;andintheliketimehissaidmoneywillbedoubledifhetakeaFrugalcoursetospendbutfivehundredpoundsperannum;whichruleneverfailethlikewiseintheCommonwealth,butinsomecases(ofnogreatmoment)whichIwillhereafterdeclare,whenIshallshewbywhomandinwhatmannerthisballanceoftheKingdomsaccountoughttobedrawnupyearly,orsooftenasitshallpleasetheStatetodiscoverhowmuchwegainorlosebytradewithforraignNations.ButfirstIwillsaysomethingconcerningthosewaysandmeanswhichwillencreaseourexportationsanddiminishourimportationsofwares;whichbeingdone,Iwillthensetdownsomeotherargumentsbothaffirmativeandnegativetostrengthenthatwhichisheredeclared,andtherebytoshewthatalltheothermeanswhicharecommonlysupposedtoenrichtheKingdomwithTreasurearealtogetherinsufficientandmeerfallacies.Chapter3:Theparticularwaysandmeanstoencreasetheexportationofourcommodities,andtodecreaseourConsumptionofforraignwaresTherevenueorstockofaKingdombywhichitisprovidedofforraignwaresiseitherNaturalorArtificial.TheNaturalwealthissomuchonlyascanbesparedfromourownuseandnecessities*WrittenbyThomasMunofLond.Merchant,andnowpublishedfortheCommongoodbyhissonJohnMunofBearstedintheCountyofKent,Esquire.London,PrintedbyJ.G.forThomasClark,andaretobesoldathisShopattheSouthentranceoftheRoyalExchange,1664. Mun:England’sTreasurebyForraignTrade33tobeexporteduntostrangers.TheArtificialconsistsinourmanufacturesandindustrioustradingwithforraigncommodities,concerningwhichIwillsetdownsuchparticularsasmayserveforthecausewehaveinhand.1.First,althoughthisRealmbealreadyexceedingrichbynature,yetmightitbemuchencreasedbylayingthewastegrounds(whichareinfinite)intosuchemploymentsasshouldnowayhinderthepresentrevenuesofothermanufacturedlands,butherebytosupplyourselvesandpreventtheimportationsofHemp,Flax,Cordage,Tobacco,anddiversotherthingswhichnowwefetchfromstrangerstoourgreatimpoverishing.2.Wemaylikewisediminishourimportations,ifwewouldsoberlyrefrainfromexcessivecon-sumptionofforraignwaresinourdietandrayment,withsuchoftenchangeoffashionsasisused,somuchthemoretoencreasethewasteandcharge;whichvicesatthispresentaremorenotoriousamongstusthaninformerages.YetmighttheyeasilybeamendedbyenforcingtheobservationofsuchgoodlawsasarestrictlypractisedinotherCountreyagainstthesaidexcesses;wherelikewisebycommandingtheirownmanufacturestobeused,theypreventthecominginofothers,withoutprohibition,oroffencetostrangersintheirmutualcommerce.3.Inourexportationswemustnotonlyregardourownsuperfluities,butalsowemustconsiderourneighboursnecessities,thatsouponthewareswhichtheycannotwant,noryetbefurnishedthereofelsewhere,wemay(besidestheventoftheMaterials)gainsomuchoftheman-ufactureaswecan,andalsoendeavourtosellthemdear,sofarforthasthehighpricecausenotalessventinthequantity.Butthesuperfluityofourcommoditieswhichstrangersuse,andmayalsohavethesamefromotherNations,ormayabatetheirventbytheuseofsomesuchlikewaresfromotherplaces,andwithlittleinconvenience;wemustinthiscasestrivetosellascheapaspossiblewecan,ratherthantolosetheutteranceofsuchwares.Forwehavefoundoflateyearsbygoodexpe-rience,thatbeingabletosellourClothcheapinTurkey,wehavegreatlyencreasedtheventthereof,andtheVenetianshavelostasmuchintheutteranceoftheirsinthoseCountreys,becauseitisdearer.Andontheotherside,afewyearspast,whenbyexcessivepriceofWoolsourClothwasexceedingdear,welostattheleasthalfourclothingforforraignparts,whichsinceisnooth-erwise(wellneer)recoveredagainthanbythegreatfallofpriceforWoolsandCloth.WefindthattwentyfiveinthehundredlessinthepriceoftheseandsomeotherWares,tothelossofprivatemensrevenues,mayraiseabovefiftyuponthehundredinthequantityventedtothebenefitofthepublique.ForwhenClothisdear,otherNationsdoepresentlypractiseclothing,andweknowtheywantneitherartnormaterialstothisperformance.Butwhenbycheapnesswedrivethemfromthisemployment,andsointimeobtainourdearpriceagain,thendotheyalsousetheirformerremedy.Sothatbythesealterationswelearn,thatitisinvaintoexpectagreaterrevenueofourwaresthantheirconditionwillafford,butratheritconcernsustoapplyourendeavourstothetimeswithcareanddiligencetohelpourselvesthebestwemay,bymakingourclothandothermanufactureswithoutdeceit,whichwillencreasetheirestimationanduse.4.ThevalueofourexportationslikewisemaybemuchadvancedwhenweperformitourselvesinourownShips,forthenwegetonlynotthepriceofourwaresastheyareworthhere,butalsotheMerchantsgains,thechangesofensurance,andfraighttocarrythembeyondtheseas.Asforexample,iftheItalianMerchantsshouldcomehitherintheirownshippingtofetchourCorn,ourredHerringsorthelike,inthecasetheKingdomshouldhaveordinarilybuttwenty-fiveshillingsforaquarterofWheat,andtwentyshillingsforabarrelofredherrings,whereasifwecarrythesewaresourselvesintoItalyuponthesaidrates,itislikelythatweeshallobtainfiftyshillingsforthefirst,andfortyshillingsforthelast,whichisagreatdifferenceintheutteranceorventoftheKingdomsstock.Andalthoughitistruethatthecommerceoughttobefreetostrangerstobringinandcarryoutattheirpleasure,yetneverthelessinmanyplacestheexportationofvictualsandmunitionareeitherprohibited,oratleastlimitedtobedoneonelybythepeopleandShippingofthoseplaceswheretheyabound. 34Pre-ClassicalThought5.Thefrugalexpendinglikewiseofourownnaturalwealthmightadvancemuchyearlytobeexporteduntostrangers;andifinourraymentwewillbeprodigal,yetletthisbedonewithourownmaterialsandmanufactures,asCloth,Lace,Imbroderies,Cutworksandthelike,wheretheexcessoftherichmaybetheemploymentofthepoor,whoselaboursnotwithstandingofthiskind,wouldbemoreprofitablefortheCommonwealth,iftheyweredonetotheuseofstrangers.6.TheFishinginhisMajestiesseasofEngland,ScotlandandIrelandisournaturalwealth,andwouldcostnothingbutlabour,whichtheDutchbestowwillingly,andtherebydrawyearlyaverygreatprofittothemselvesbyservingmanyplacesofChristendomwithourFish,forwhichtheyreturnandsupplytheirwantsbothofforraignWaresandMony,besidesthemultitudeofMarinersandShipping,whichherebyaremaintain’d,whereofalongdiscoursemightbemadetoshewtheparticularmanageofthisimportantbusiness.OurFishingplantationlikewiseinNewEngland,Virginia,Groenland,theSummerIslandsandtheNew-found-land,areofthelikenature,affordingmuchwealthandemploymentstomaintainagreatnumberofpoor,andtoencreaseourdecayingtrade.7.AStapleorMagazinforforraignCorn,Indico,Spices,Raw-silks,Cottonwooloranyothercommoditywhatsoever,tobeimportedwillencreaseShipping,Trade,Treasure,andtheKingscustomes,byexportingthemagainwhereneedshallrequire,whichcourseofTrading,hathbeenthechiefmeanstoraiseVenice,Genoa,thelow-Countreys,withsomeothers;andforsuchapurposeEnglandstandsmostcommodiously,wantingnothingtothisperformancebutourowndiligenceandendeavour.8.AlsoweeoughttoesteemandcherishthosetradeswhichwehaveinremoteorfarCountreys,forbesidestheencreaseofShippingandMarinersthereby,thewaresalsosentthitherandreceiv’dfromthencearefarmoreprofitableuntothekingdomthanbyourtradesneerathand:Asforexample;supposePeppertobeworthheretwoShillingsthepoundconstantly,ifthenitbebroughtfromtheDutchatAmsterdam,theMerchantmaygivetheretwentypencethepound,andgainwellbythebargain;butifhefetchthisPepperfromtheEast-Indies,hemustnotgiveabovethreepencethepoundatthemost,whichisamightyadvantage,notonlyinthatpartwhichservethforourownuse,butalsoforthatgreatquantitywhich(fromhence)wetransportyearlyuntodiversotherNationstobesoldatahigherprice:wherebyitisplain,thatwemakeafargreaterstockbygainupontheseIndianCommodities,thanthoseNationsdoewheretheygrow,andtowhomtheyproperlyappertain,beingthenaturalwealthoftheirCountrey.Butforthebetterunderstandingofthisparticular,wemusteverdistinguishbetweenthegainoftheKingdom,andtheprofitoftheMerchant;foralthoughtheKingdompayethnomoreforthisPepperthanisbeforesupposed,norforanyothercommodityboughtinforraignpartsmorethanthestrangerreceivethfromusforthesame,yettheMerchantpayethnotonlythatprice,butalsothefraight,ensurance,customesandotherchargeswhichareexceedinggreatintheselongvoy-ages;butyetalltheseintheKingdomsaccomptarebutcommutationsamongourselves,andnoPrivationoftheKingdomsstock,whichbeingdulyconsidered,togetherwiththesupportalsoofourothertradesinourbestShippingtoItaly,France,Turkey,andEastCountreysandotherplaces,bytransportingandventingthewareswhichwebringyearlyfromtheEastIndies;Itmaywellstirupourutmostendeavourstomaintainandenlargethisgreatandnoblebusiness,somuchimportingthePubliquewealth,Strength,andHappiness.Neitheristherelesshonourandjudg-mentbygrowingrich(inthismanner)uponthestockofotherNations,thanbyanindustriousencreaseofourownmeans,especiallywhenthislaterisadvancedbythebenefitoftheformer,aswehavefoundintheEastIndiesbysaleofmuchofourTin,Cloth,Lead,andotherCommodities,theventwhereofdothdailyencreaseinthoseCountreyswhichformerlyhadnouseofourwares. Mun:England’sTreasurebyForraignTrade359.Itwouldbeverybeneficialtoexportmoneyaswellaswares,beingdoneintradeonly,itwouldencreaseourTreasure;butofthisIwritemorelargelyinthenextchaptertoproveitplainly.10.ItwerepolicieandprofitfortheStatetosuffermanufacturesmadeofforraignMaterialstobeexportedcustome-free,asVelvetsandallotherwroughtSilks,Fustians,thrownSilksandthelike,itwouldemployverymanypoorpeople,andmuchencreasethevalueofourstockyearlyissuedintootherCountreys,anditwould(forthispurpose)causethemoreforraignMaterialstobebroughtin,totheimprovementofHisMajestiesCustomes.IwillhererememberanotableencreaseinourmanufactureofwindingandtwistingonlyofforraignrawSilk,whichwithin35yearstomyknowledgedidnotemploymorethan300peopleintheCityandsuburbsofLondon,whereatthispresenttimeitdothsetonworkabovefourteenthousandsouls,asupondiligentenquiryhathbeencrediblyreporteduntoHisMajestiesCommissionersforTrade.anditiscertain,thatiftheraidforraignCommoditiesmightbeexportedfromhence,freeofcustome,thismanufacturewouldyetencreaseverymuch,anddecreaseasfastinItalyandintheNetherlands.ButifanymanallegetheDutchproverb,Liveandletotherslive;Ianswer,thattheDutchmennotwithstandingtheirownProverb,doenotonelyintheseKingdoms,encroachuponourlivings,butalsoinotherforraignpartsofourtrade(wheretheyhavepower)theydohinderanddestroyusinourlawfulcourseofliving,herebytakingthebreadoutofourmouth,whichweshallneverpreventbypluckingthepotfromtheirnose,asoflateyearstoomanyofusdopractisetothegreathurtanddishonourofthisfamousNation;WeoughtrathertoimitateformertimesintakingsoberandworthycoursesmorepleasingtoGodandsuitabletoourancientreputation.11.Itisneedfulalsonottochargethenativecommoditieswithtoogreatcustomes,lestbyindearingthemtothestrangersuse,ithindertheirvent.Andespeciallyforraignwaresbroughtintobetransportedagainshouldbefavoured,forotherwisethatmanneroftrading(somuchimport-ingthegoodoftheCommonwealth)cannotprospernorsubsist.ButtheConsumptionofsuchforraignwaresintheRealmmaybethemorecharged,whichwillturntotheprofitofthekingdomintheBallanceoftheTrade,andtherebyalsoenabletheKingtolayupthemoreTreasureoutofhisyearlyincomes,asofthisparticularIintendtowritemorefullyinhisproperplace,whereIshallshewhowmuchmoneyaPrincemayconvenientlylayupwithoutthehurtofhissubjects.12.Lastly,inallthingswemustendeavourtomakethemostwecanofourown,whetheritbeNaturalorArtificial,AndforasmuchasthepeoplewhichlivebytheArtsarefarmoreinnumberthantheywhoaremastersofthefruits,weoughtthemorecarefullytomaintainthoseendeav-oursofthemultitude,inwhomdothconsistthegreateststrengthandrichesbothoftheKingandKingdom:forwherethepeoplearemany,andtheartsgood,therethetraffiquemustbegreat,andtheCountreyrich.TheItaliansemployagreaternumberofpeople;andgetmoremoneybytheirindustryandmanufacturesoftherawSilksoftheKingdomofCicilia,thantheKingofSpainandhisSubjectshavebytherevenueofthisrichcommodity.Butwhatneedwefetchtheexamplesofar,whenweknowthatourownnaturalwaresdoenotyeildussomuchprofitasourindustry?ForIronoarintheMinesisofnogreatworth,whenitiscomparedwiththeemploymentandadvantageityieldsbeingdigged,tried,transported,brought,sold,castintoOrdnance,Muskets,andmanyotherinstrumentsofwarforoffenceanddefence,wroughtintoAnchors,bolts,spikes,naylesandthelike,fortheuseofShips,Houses,Carts,Coaches,Ploughs,andotherinstrumentsforTillage.CompareourFleece-woolswithourCloth,whichrequiresshearing,washing,carding,spinning,Weaving,fulling,dying,dressingandothertrimmings,andweshallfindtheseArtsmoreprofitablethanthenaturalwealth,whereofImightinstanceotherexamples,butIwillnotbemoretedious,forifIwouldamplifyuponthisandtheotherparticu-larsbeforewritten,Imightfindmattersufficienttomakealargevolume,butmydesireinallisonlytoprovewhatIpropoundwithbreviityandplainness. 36Pre-ClassicalThoughtChapter4:TheExportationofourMoneysinTradeofMerchandizeisameanstoencreaseourTreasureThisPositionissocontrarytothecommonopinion,thatitwillrequiremanyandstrongargumentstoproveitbeforeitcanbeacceptedoftheMultitude,whobitterlyexclaimwhentheyseeanymoniescarriedoutoftheRealm;affirmingthereuponthatweehaveabsolutelylostsomuchTreasure,andthatthisisanactdirectlyagainstthelongcontinuedlawsmadeandconfirmedbythewisdomofthisKingdomintheHighCourtofParliament,andthatmanyplaces,naySpainitselfwhichistheFountainofMony,forbidstheexportationthereof,somecasesonlyexcepted.ToallwhichImightanswer,thatVenice,Florence,Genoa,theLowCountreysanddiversotherplacespermitit,theirpeopleapplaudit,andfindgreatbenefitbyit;butallthismakesanoiseandprovesnothing,wemustthereforecometothosereasonswhichconcernthebusinessinquestion.First,Iwilltakethatforgrantedwhichnomanofjudgmentwilldeny,thatwehavenoothermeanstogetTreasurebutbyforraigntrade,forMinesweehavenonewhichdoaffordit,andhowthismonyisgotteninthemanagingofoursaidTradeIhavealreadyshewed,thatitisdonebymakingourcommoditieswhichareexportedyearlytooverballanceinvaluetheforraignwareswhichweconsume;sothatitrestethonlytoshewhowourmonyesmaybeaddedtoourcommodities,andbeingjointlyexportedmaysomuchthemoreencreaseourTreasure.Wehavealreadysupposedouryearlyconsumptionofforraignwarestobeforthevalueoftwentyhundredthousandpounds,andourexportationstoexceedthattwohundredthousandpounds,whichsumweehavethereuponaffirmedisbroughttousintreasuretoballanceaccompt.Butnowifweaddthreethousandpoundsmorinreadymonyuntoourformerexportationsinwares,whatprofitcanwehave(willsomemensay)althoughbythismeansweshouldbringinsomuchreadymonymorethanweedidbefore,seeingthatweehavecarriedoutthelikevalue.Tothistheansweris,thatwhenweehavepreparedourexportationsofwares,andsentoutasmuchofeverythingasweecanspareorventabroad:Itisnotthereforesaidthatthenweshouldaddourmoneythereuntotofetchinthemoremonyimmediately,butratherfirsttoenlargeourtradebyenablingustobringinmoreforraignwares,whichbeingsentoutagainwillinduetimemuchencreaseourTreasure.ForalthoughinthismannerweedoyearlymultiplyourimportationtothemaintenanceofmoreShippingandMariners,improvementofHisMajestiesCustomsandotherbenefits:yetourconsumptionofthoseforraignwaresisnomorethanitwasbefore;sothatallthesaidencreaseofcommoditiesbroughtinbythemeansofourreadymonysentoutasisaforewritten,dothintheendbecomeanexportationuntousofafargreatervaluethanoursaidmoneyswere,whichisprovedbythreeseveralexamplesfollowing.1.ForIsupposethathundredthousandlivresbeingsentinourShippingtotheEastCountreys,willbuythereonehundredthousandquartersofwheatcleeraboardtheShips,whichbeingafterbroughtintoEnglandandhoused,toexportthesameatthebesttimeforventthereofinSpainorItaly,itcannotyieldlessinthosepartsthantwohundredthousandpoundstomaketheMerchantbutasaver,yetbythisreckningweeseetheKingdomhathdoubledthatTreasure.2.AgainthisprofitwillbefargreaterwhenweetradethusinremoteCountreys,asforexam-ple,ifweesendonehundredthousandpoundsintotheEast-IndiestobuyPepperthere,andbringithither,andfromhencesenditforItalyorTurkey,itmustyieldsevenhundredthousandpoundsatleastinthoseplaces,inregardoftheexcessivechargewhichtheMerchantdisbursethinthoselongvoyagesinShipping,Wages,Victuals,Insurance,Interest,Customes,Imposts,andthelike,allwhichnotwithstandingtheKingandtheKingdomgets.3.Butwherethevoyagesareshortandthewaresrich,whichthereforewillnotemploymuchShipping,theprofitwillbefarless.Aswhenanotherhundredthousandpoundsshallbeemployed Mun:England’sTreasurebyForraignTrade37inTurkeyinrawSilks,andbroughthithertobeaftertransportedfromhenceintoFrance,theLowCountreys,orGermany,theMerchantshallhavegoodgain,althoughhesellittherebutforonehundredandfiftythousandpounds:andthustakethevoyagesaltogetherintheirMedium,themoneysexportedwillbereturneduntousmorethanTrebled.Butifanymanwillyetobject,thatthesereturnscometousinwares,andnotreallyinmonyastheywereissuedout.Theansweris(keepingourfirstground)thatifourconsumptionofforraignwaresbenomoreyearlythanisalreadysupposed,andthatourexportationsbesomightlyencreasedbythismannerofTradingwithreadymoneyasisbeforedeclared:Itisnotthenpossiblebutthatalltheover-ballanceordifferenceshouldreturneitherinmonyorinsuchwaresaswemustexportagain,which,asisalreadyplainlyshewedwillbestillagreatermeanstoencreaseourTreasure.ForitisinthestockoftheKingdomasintheestatesofprivatemen,whohavingstoreofwares,doenotthereforesaythattheywillnotventureoutortradewiththeirmony(forthiswereridiculous)butdoalsoturnthatintowares,wherebytheymultiplytheirMony,andsobyacon-tinualandorderlychangeofoneintotheothergrowrich,andwhentheypleaseturnalltheirestatesintoTreasure;fortheythathaveWarescannotwantmony.NeithrisitsaidthatMonyistheLifeofTrade,asifitcouldnotsubsistwithoutthesame;forweeknowthattherewasgreattradingbywayofcommutationorbartrwhentherewaslittlemonystirringintheworld.TheItaliansandsomeotherNationshavesuchremediesagainstthiswant,thatitcanneitherdecaynorhindertheirtrade,fortheytransferbillsofdebt,andhaveBanksbothpublickandprivate,whereintheydoassigntheircreditsfromonetoanotherdailyforverygreatsumswitheaseandsatisfactionbywritingsonly,whilstinthemeantimetheMassofTreasurewhichgavefoundationtothesecreditsisemployedinForraignTradeasaMerchandize,andbythesaidmeanstheyhavelittleotheruseofmoneyinthosecountrerysmorethanfortheirordinaryexpences.ItisnotthereforethekeepingofourmonyintheKingdom,butthenecessityanduseofourwaresinforraignCountrey,andourwantoftheircommoditiesthatcauseththeventandconsumptiononallsides,whichmakesaquickandampleTrade.Ifweewereoncepoor,andnowhavinggainedsomestoreofmonybytradewithresolutiontokeepitstillintheRealm;shallthiscauseotherNationstospendmoreofourcommoditiesthanformerlytheyhavedone,wherebywemightsaythatourtradeisQuicknedandEnlarged?Noverily,itwillproducenosuchgoodeffect:butratheraccordingtothealterationoftimesbytheirtruecauseswemayexpectthecontrary;forallmendoconsentthatplentyofmonyinaKingdomdothmakethenativecommoditiesdearer,whichasitistotheprofitofsomeprivatemenintheirrevenues,soisitdirectlyagainstthebenefitofthePubliqueinthequantityofthetrade;forasplentyofmonymakeswaresdearer,sodearwaresdeclinetheiruseandconsumption,ashathbeenalreadyplainlyshewedinthelastchapteruponthatparticularofourcloth;andalthoughthisisaveryhardles-sonforsomegreatlandedmentolearn,yetIamsureitisatruelessonforallthelandtoobserve,lestwhenweehavegainedsomestoreofmonybytrade,weeloseitagainbynottradingwithourmony.IknowaPrinceinItaly(offamousmemory)Ferdinandothefirst,greatDukeofTuscanie,whobeingveryrichinTreasure,endevouredtherewithtoenlargehistradebyissuingouttohisMerchantsgreatsumsofmoneyforverysmallprofit;Imyselfhadfortythousandcrownsofhimgratisforawholeyear,althoughheknewthatIwouldpresentlysenditawayinSpecieforthepartsofTurkeytobeemployedinwaresforhisCountries,hebeingwellassuredthatinthiscourseoftradeitwouldreturnagain(accordingtotheoldsaying)withaDuckinthemouth.ThisnobleandindustriousPrincebyhiscareanddiligencetocountenanceandfavourMerchantsintheiraffairs,didsoencreasethepracticethereof,thatthereisscarceaNoblemanorGentlemaninallhisdominionsthatdothnotMerchandizeeithrbyhimselforinpartnershipwithothers,wherebywithinthesethirtyyearsthetradetohisportofLeghornissomuchencreased,thatofapoorlittletown(asImyselfknewit)itisnowbecomeafairandstrongCity, 38Pre-ClassicalThoughtbeingoneofthemostfamousplacesfortradeinallChristendom.Andyetitisworthyourobser-vation,thatthemultitudeofShipsandwareswhichcomethitherfromEngland,theLowCountreys,andotherplaces,havelittleornomeanstomaketheirreturnsfromthencebutonlyinreadymony,whichtheymayanddocarryawayfreelyatalltimes,totheincredibleadvantageofthesaidgreatDukeofTuscanieandhissubjects,whoaremuchenrichedbythecontinualgreatconcourseofMerchantsfromalltheStatesoftheneighbourPrinces,bringingthemplentyofmonydailytosupplytheirwantsofthesaidwares.AndthusweseethatthecurrentofMerchandizewhichcarriesawaytheirTreasure,becomesaflowingstreamtofillthemagaininagreatermeasurewithmony.Thereisyetanobjectionortwoasweakasalltherest:thatis,ifweetradewithourMonyweeshallissueoutthelesswares;asifamanshouldsay,thoseCountreyswhichheretoforehadocca-siontoconsumeourCloth,Lead,Tin,Iron,Fish,andthelike,shallnowmakeuseofourmoniesintheplaceofthosenecessaries,whichweremostabsurdtoaffirm,orthattheMerchanthadnotrathercarryourwaresbywhichthereiseversomegainsexpected,thantoexportmonywhichisstillbutthesamewithoutanyencrease.ButonthecontrarytherearemanyCountreyswhichmayyieldusveryprofitabletradeforourmony,whichotherwiseaffordusnotradeatall,becausetheyhavenouseofourwares,asnamelytheEast-Indiesforoneinthefirstbeginningthereof,althoughsincebyindustryinourcommercewiththoseNationswehavebroughtthemintotheuseofmuchofourLead,Cloth,Tin,andotherthings,whichisagoodadditiontotheformerventofourcommodities.Again,somemenhaveallegedthatthoseCountreywhichpermitmonytobecarriedout,doitbecausetheyhavefewornowarestotradewithall:butweehavegreatstoreofcommodities,andthereforetheiractionoughtnottobeourexample.Tothistheanswerisbriefly,thatifwehavesuchaquantityofwaresasdothfullyprovidedusofallthingsneedfulfrombeyondtheseas:whyshouldwethendoubtthatourmonyssentoutintrade,mustnotnecessarilycomebackagainintreasure;togetherwiththegreatgainswhichitmayprocureinsuchmannerasisbeforesetdown?Andontheotherside,ifthoseNationswhichsendouttheirmoniesdoitbecausetheyhavebutfewwaresoftheirown,howcometheythentohavesomuchTreasureasweeverseeinthoseplaceswhichsufferitfreelytobeexportedatalltimesandbywhomsoever?Ianswer,EvenbytradingwiththeirMoneys;forbywhatothermeanscantheygetit,havingnoMinesofGoldorSilver?Thusmayweplainlysee,thatwhenthisweightybusinessisdulyconsideredinhisend,asallourhumaneactionsoughtwelltobeweighed,itisfoundmuchcontrarytothatwhichmostmenesteemthereof,becausetheysearchnofurtherthanthebeginningofthework,whichmis-informstheirjudgments,andleadsthemintoerror:Forifweonlybeholdtheactionsofthehusbandmanintheseed-timewhenhecastethawaymuchgoodcornintotheground,wewillrathraccompthimamadmanthanahusbandman:butwhenweconsiderhislaboursintheharvestwhichistheendofhisendeavours,wefindtheworthandplentifulencreaseofhisactions.Chapter10:TheobservationoftheStatuteofImploymentstobemadebystrangers,cannotencrease,noryetpreserveourTreasureTokeepourmonyintheKingdomisaworkofnolessskillanddifficultythantoaugmentourtreasure:forthecausesoftheirpreservationandproductionarethesameinnature.Thestatuteforemploymentofstrangerswaresintoourcommoditiesseemethatthefirsttobeagoodandalawfulwayleadingtothoseends;butupontheexaminationoftheparticulars,weshallfindthatitcannotproducesuchgoodeffects.ForastheuseofforraigntradeisalikeuntoallNations,somayweeasilyperceivewhatwillbedonethereinbystrangers,whenwedobutobserveourownproceedingsinthiswaightybusiness, Mun:England’sTreasurebyForraignTrade39bywhichwedonotonlyseekwiththeventofourowncommoditiestosupplyourwantsoffor-raignwares,butalsotoenrichourselveswithtreasure:allwhichisdonebyadifferentmanneroftradingaccordingtoourownoccasionsandthenatureoftheplaceswhereuntowedotrade;asnamelyinsomeCountreyswesellourcommoditiesandbringawaytheirwares,orpartinmony;inotherCountreyswesellourgoodsandtaketheirmony,becausetheyhavelittleornowaresthatfitsourturns:againinsomeplaceswehaveneedoftheircommodities,buttheyhavelittleuseofours;sotheytakeourmonywhichwegetinotherCountreys:Andthusbyacourseoftraffick(whichchangethaccordingtotheaccurrentsoftime)theparticularmembersdoaccom-modateeachother,andallaccomplishthewholebodyofthetrade,whichwilleverlanguishiftheharmonyofherhealthbedistemperedbythediseasesofexcessathome,violenceabroad,charges,andrestrictionsathomeorabroad:butinthisplaceIhaveoccasiontospeakonlyofrestriction,whichIwillperformbriefly.TherearethreewaysbywhichaMerchantmaymakethereturnsofhiswaresfrombeyondtheSeas,thatistosayinmony,incommodities,orbyExchange.ButtheStatuteofemploymentdothnotonlyrestrainmony(inwhichthereisaseemingprovidenceandJustice)butalsotheuseoftheExchangebybills,whichdothviolatetheLawofCommerce,andisindeedanActwithoutexampleinanyplaceoftheworldwherewehavetrade,andthereforetobeconsidered,thatwhatsoever(inthiskind)weshallimposeuponstrangershere,willpresentlybemadeaLawforusintheirCountreys,expeciallywherewehaveourgreatesttradewithourvigilantneighbours,whoomitnocarenoroccasiontosupporttheirtraffiqueinequalprivilegeswithotherNations.AndthusinthefirstplaceweshouldbedeprivedofthatfreedomandmeanswhichnowwehavetobringTreasureintotheKingdom,andtherewithlikewiseweshouldlosetheventofmuchwareswhichwecarrytodiversplaces,wherebyourtradeandourTreasurewoulddecaytogether.Second,ifbythesaidStatutewethrusttheexportationofourwares(morethanordinary)uponthestranger,wemustthentakeitfromtheEnglish,whichwereinjurioustoourMerchants,MarrinersandShipping,besidesthehurttotheCommonwealthinventingtheKingdomsstocktothestrangeratfarlowerratesherethanwemustdoifwesoldittothemintheirownCountreys,asisprovedinthethirdchapter.Third,whereaswehavealreadysufficientlyshewed,thatifourcommoditiesbeoverballanceinvaluebyforraignwares,ourmonymustbecarriedout.HowisitpossibletopreventthisbytyingtheStrangers’hands,andleavingtheEnglishloose?Shallnotthesamereasonandadvan-tagecausethattobedonebythemnow,thatwasdonebytheotherbefore?Orifwewillmakeastatute(withoutexample)topreventbothalike,shallwenotthenoverthrowallatonce?TheKinginhiscustomesandtheKingdominherprofits;forsucharestrictionmustofnecessitydestroymuchtrade,becausethediversityofoccasionsandplaceswhichmakeanampletraderequirethatsomemenshouldbothexportandimportwares;someexportonly,othersimport,somedeliverouttheirmoniesbyexchange,otherstakeitup;somecarryoutmony,othersbringitin,andthisinagreaterorlesserquantityaccordingtothegoodhusbandryorexcessintheKingdom,overwhichonlyifwekeepastrictlaw,itwillrulealltherest,andwithoutthisallotherStatutesarenoruleseithertokeeporprocureusTreasure.Lastly,toleavenoObjectionunanswereed,ifitshouldbesaidthataStatutecomprehendingtheEnglishaswellasthestrangermustneedskeepourmoneyintheKingdom.Whatshallwegetbythis,ifithinderthecominginofmoneybythedecayofthatampleTradewhichweenjoyedinthefreedomthereof?IsnottheRemedyfarworsethanthedisease?ShallwenotlifemorelikeIrishmenthanEnglishmen,whentheKingsrevenues,ourMerchants,Mariners,Shipping,Arts,Lands,Riches,andalldecaytogetherwithourTrade?Yeabut,saysomemen,wehavebetterhopesthanso;forth’intentoftheStatuteis,thatasalltheforraignwareswhicharebroughtinshallbeimployedinourcommodities,therebytokeepourmoneyintheKingdom:Sowedoubtnotbutsendoutasufficientquantityofourownwaresoverandabovetobringinthevaluethereofinreadymoney. 40Pre-ClassicalThoughtAlthoughthisisabsolutelydeniedbythereasonsaforewritten,yetnowwewillgrantit,becausewedesiretoendthedispute:Forifthisbetrue,thatotherNationswillventmoreofourcommoditiesthanweconsumeoftheirsinvalue,thenIaffirmthattheoverplusmustnecessarilyreturnuntousintreasurewithouttheuseoftheStatute,whichisthereforenotonelyfruitlessbuthurtful,assomeotherlikerestrictionsarefoundtobewhentheyarefullydiscovered.Chapter11:ItwillnotincreaseourtreasuretoenjoyntheMerchantthatexportethFish,Corn,orMunition,toreturnallorpartofthevalueinMoneyVictualsandMunitionforwararesopretiousinaCommonwealth,thateitheritseemethnecesarytorestraintheexportationaltogether,or(iftheplentypermitsit)torequirethereturnthereofinsomuchtreasure;whichappearethtobereasonableandwithoutdifficulty,becauseSpainandotherCountriesdowillinglypartwiththeirmoneyforsuchwares,althoughinotheroccasionsoftradetheystraightlyprohibittheexportationthereof:allwhichIgranttobetrue,yetnotwithstandingwemustconsiderthatallthewaysandmeanswhich(incourseoftrade)forcetreasureintotheKingdom,donotthereforemakeitours:forthiscanbedoneonelybyalawfulgain,andthisgainisnowaytobeaccomplishedbutbytheoverballanceofourtrade,andthisoverballanceismadelessbyrestrictions:thereforesuchrestrictionsdohindertheincreaseofourtreasure.TheArgumentisplain,andneedsnootherreasonstostrengthenit,exceptanymanbesovaintothinkthatrestrictionswouldnotcausethelesswarestobeexported.Butifthislikewiseshouldbegranted,yettoenjoyntheMerchanttobringinmoneyforVictualsandMunitioncarriedout,willnotcauseustohaveonepenythemoreintheKingdomattheyearsend;forwhatsoeverisforcedinonewaymustoutagainanotherway:becauseonelysomuchwillremainandabidewithusasisgainedandincorporatedintotheestateoftheKingdombytheoverballanceofthetrade.ThismaybemadeplainbyanexampletakenfromanEnglishman,whohadoccasiontobuyandconsumethewaresofdiversstrangersforthevalueofsixhundredpounds,andhavingwaresofhisownforthevalueofonethousandpounds,hesoldthemtothesaidstrangers,andpresentlyforcedallthemonyfromthemintohisownpower;yetuponcleeringofthereckoningbetweenthemthereremainedonelyfourhundredpoundstothesaidEnglishmanforoverbal-lanceofthewaresboughtandsold;sotherestwhichhehadreceivedwasreturnedbackfromwhenceheforcedit.AndthisshallsufficetoshewthatwhatsoevercourseswetaketoforcemoneyintotheKingdom,yetsomuchonelywillremainwithusasweshallgainbytheballanceofourtrade.Chapter17:WhetheritbenecessaryforgreatPrincestolayupstoreofTreasureBeforewesetdownthequantityofTreasurewhichPrincesmayconvenientlylayupyearlywithouthurtingtheCommon-wealth,itwillbefittoexaminewhethertheactitselfofTreasuringbenecessary:forincommonconferenceweeverfindsomemenwhodosomuchdoteorhopeupontheLiberalityofPrinces,thattheytermitbaseness,andconceiveitneedlessforthemtolayupstoreofTreasure,accountingthehonourandsafetyofgreatPrincestoconsistmoreintheirBounty,thanintheirMoney,whichtheylabourtoconfirmbytheexamplesofCaesar,Alexander,andothers,whohatingcovetousness,atchievedmanyactsandvictoriesbylavishgiftsandliberalexpences.UntowhichtheyaddalsothelittlefruitwhichcamebythatgreatsummofmoneywhichKingDavidlaidupandlefttohissonSolomon,whonotwithstandingthis,andallhisotherrichPresentsandwealthyTraffiqueinaquietreign,consumedallwith Mun:England’sTreasurebyForraignTrade41pompandvaindelights,exceptingonlythatwhichwasspentinbuildingoftheTemple.Whereupon(saythey)ifsomuchtreasuregatheredbysojustaKing,effectsolittle,whatshallwehopeforbytheendeavoursofthiskindinotherPrinces?Sardanapaluslefttenmillionsofpoundstothemthatslewhim.DariuslefttwentymillionsofpoundstoAlexanderthattookhim;Nerobeingleftrich,andextoringmuchfromhisbestSubjects,gaveawayabovetwelvemillionsofpoundstohisbaseflatterersandsuchunworthypersons,whichcausedGalbaafterhimtorevokethosegifts.APrincewhohathstoreofmonyhatespeace,despiseththefriendshipofhisNeighboursandAllies,entersnotonlyintounnecessary,butalsointodangerousWars,totheruinandover-throw(sometimes)ofhisownestate:Allwhich,withdiversotherweakargumentsofthiskind,(whichforbrevityIomit)makenothingagainstthelawfulgatheringandmassingupofTreasurebywiseandprovidentPrinces,iftheyberightlyunderstood.Forfirst,concerningthoseworthieswhohaveobtainedtothehighesttopofhonouranddignity,bytheirgreatgiftsandexpences,whoknownotthatthishathbeendoneratheruponthespoilsoftheirEnemiesthanoutoftheirownCofers,whichisindeedaBountythatcausethnei-therlossnorperil?Whereasonthecountrary,thosePrinceswhichdonotprovidentlylayupTreasure,ordoimoderatelyconsumethesamewhentheyhaveit,willsodainlycometowantandmisery;forthereisnothingdothsosoondecayasExcessiveBounty,inusingwhereoftheywantthemeanstouseit.AndthiswasKingSolomon’scase,notwithstanding,hisinfiniteTreasure,whichmadehimoverburthenhisSubjectsinsuchamanner,that(forthiscause)manyofthemrebelledagainsthisSonRehoboam,whotherebylostagreatpartofhisdominions,beingsogroslymis-ledbyhisyoungCounsellors.ThereforeaPrincethatwillnotoppresshispeople,andyetbeabletomaintainhisEstate,anddefendhisRight,thatwillnotrunhimselfintoPoverty,Contempt,Hate,andDanger,mustlayuptreasure,andbethrifty,forfurtherproofwhereofImightyetproducesomeotherexamples,whichhereIdoomitasneedless.OnlyIwilladdthisasanecessaryruletobeobserved,thatwhenmoretreasuremustberaisedthancanbereceivedbytheordinarytaxes,itoughtevertobedonewithequalitytoavoidthehateofthepeople,whoareneverpleasedexcepttheircontributionsbegrantedbygeneralcon-sent:ForwhichpurposetheinventionofParliamentsisanexcellentpolicieofGovernment,tokeepasweetconcordbetweenaKingandhisSubjects,byrestrainingtheInsolencyoftheNobility,andredressingtheInjuriesoftheCommons,withoutengagingaPrincetoadheretoeitherparty,butindifferentlytofavourboth.Therecouldnothingbedevisedwithmorejudge-mentforthecommonquietofaKingdom,orwithgreatercareforthesafetyofaKing,whoherebyhathalsogoodmeanstodispatchthosethingsbyothers,whichwillmoveenvy,andtoexecutethathimselfwhichwillmeritthanks.Chapter18:HowmuchTreasureaPrincemayconvenientlylayupyearlyThusfarwehaveshewedtheordinaryandextraordinaryincomesofPrinces,theconveniencythereof,andtowhomonlyitdothnecessarilyandjustlybelong,totaketheextraordinarycontri-butionsoftheirSubjects.ItrestethnowtoexaminewhatproportionoftreasureeachparticularPrincemayconvenientlylayupyearly.Thisbusinessdothseematthefirsttobeveryplainandeasy,forifaPrincehavetwomillionsyearlyrevenue,andspendbutone,whyshouldhenotlayuptheother?IndeedImustconfessthatthiscourseisordinaryinthemeansandgettingsofpri-vatemen,butintheaffairsofPrincesitisfardifferent,thereareothercircumstancestobecon-sidered;foralthoughtherevenueofaKingshouldbeverygreat,yetifthegainoftheKingdombebutsmall,thislattermustevergiveruleandproportiontothatTreasure,whichmayconve-nientlybelaidupyearly,forifheshouldmassupmoremonythanisgainedbytheover-ballanceofhisForraignTrade,heshallnotFleece,butFleahisSubjects,andsowiththeirruinoverthrow 42Pre-ClassicalThoughthimselfforwantoffuturesheerings.Tomakethisplain,supposeaKingdomtobesorichbynatureandart,thatitmaysupplyitselfofforraignwaresbytrade,andyetadvanceyearlytwohundredthousandlivresinreadymony:NextsupposealltheKingsrevenuestobeninehundredthousandlivresandhisexpencesbutfourhundredthousandlivreswherebyhemaylayupthirtythousandlivresmoreinhisCoffersyearlythanthewholeKingdomgainsfromstrangersbyfor-raigntrade;whoseesnotthenthatallthemonyinsuchaState,wouldsuddenlybedrawnintothePrincestreasure,wherebythelifeoflandsandartsmustfailandfalltotheruinbothofthepublickandprivatewealth?SothataKingwhodesirestolayupmuchmonymustendeavourbyallgoodmeanstomaintainandencreasehisforraigntrade,becauseitisthesolewaynotonlytoleadhimtohisownends,butalsotoenrichhisSubjectstohisfartherbenefit:foraPrinceisesteemednolesspowerfulbyhavingmanyrichandwellaffectedSubjects,thanbypossessingmuchtreasureinhisCoffers.ButherewemustmeetwithanObjection,whichperadventuremaybemadeconcerningsuchStates(whereofIhaveformerlyspoken)whichareofnogreatextent,andyetborderinguponmightyPrinces,arethereforeconstrainedtolayextraordinarytaxesupontheirsubjects,wherebytheyprocuretothemselvesverygreatincomesyearly,andarerichlyprovidedagainstanyForraignInvasions;yethavetheynosuchgreattradewithStrangers,asthattheoverbalanceorgainofthesamemaysufficetolayuptheonehalfofthatwhichtheyadvanceyearly,besidestheirownexpences.Tothisansweris,thatstilthegainoftheirForraignTrademustbetheruleoflayinguptheirtreasure,thewhichalthoughitshouldnotbemuchyearly,yetinthetimeofalongcontinuedpeace,andbeingwellmanagedtoadvantage,itwilbecomeagreatsummeofmony,abletomakealongdefence,whichmayendordivertthewar.NeitherarealltheadvancesofPrincesstrictlytiedtobemassedupintreasure,fortheyhaveothernolessnecessaryandprofitablewayestomakethemrichandpowerfull,byissuingoutcontinuallyagreatpartofthemonyoftheiryearlyIncomestotheirsubjectsfromwhomitwasfirsttaken;asnamely,byemployingthemtomakeShipsofWar,withalltheprovisionsthereuntobelonging,tobuildandrepairForts,tobuyandstoreupCornintheGranariesofeachProvinceforayearsuse(atleast)aforehand,toserveinoccasionofDearth,whichcannotbeneglectedbyaStatebutwithgreatdanger,toerectBankswiththeirmoneyfortheencreaseoftheirsubjectstrade,tomaintainintheirpay,Collonels,Captains,Souldiers,Commanders,Mariners,andothers,bothbySeaandLand,withgooddis-cipline,tofilltheirStore-houses(insundrystrongplaces)andtoaboundinGunpowder,Brimstone,Saltpeter,Shot,Ordnance,Musquets,Swords,Pikes,Armours,Horses,andinmanyothersuchlikeProvisionsfittingWar;allwhichwillmakethemtobefearedabroad,andlovedathome,especiallyifcarebetakenthatall(asneeraspossible)bemadeoutoftheMatterandManufactureoftheirownsubjects,whichbeartheburdenoftheyearlyContributions;foraPrince(inthiscase)islikethestomachinthebody,whichifitceasetodigestanddistributetotheothermembers,itdothnosoonercorruptthem,butitdestroyesitself.ThuswehaveseenthatasmallStatemaylayupagreatwealthinnecessaryprovisions,whicharePrincesJewels,nolesspreciousthantheirTreasure,forintimeofneedtheyareready,andcannototherwisebehad(insomeplaces)onthesuddain,wherebyaStatemaybelost,whilstMunitionisinproviding:sothatwemayaccountthatPrinceaspoorwhocanhavenowarestobuyathisneed,ashethathathnomoneytobuywares;foralthoughTreasureissaidtobethesinewsoftheWar,yetthisissobecauseitdothprovide,unite,andmovethepowerofmen,vict-uals,andmunitionwhereandwhenthecausedothrequire;butifthesethingsbewantinginduetime,whatshallwethendowithourmony?Theconsiderationofthis,dothcausediverswell-governedStatestobeexceedingprovidentandwellfurnishedofsuchprovisions,especiallythoseGranariesandStorehouseswiththatfamousArsenaloftheVenetians,aretobeadmiredforthemagnificenceofthebuildings,thequantityoftheMunitionsandStoresbothforSeaand Mun:England’sTreasurebyForraignTrade43Land,themultitudeoftheworkmen,thediversityandexcellencyoftheArts,withtheorderofthegovernment.TheyarerareandworthythingsforPrincestobeholdandimitate;forMajestywithoutprovidenceofcompetentforce,andabilityofnecessaryprovisionsisunassured.Chapter20:TheorderandmeanswherebywemaydrawuptheballanceofourForraignTradeNow,thatwehavesufficientlyprovedtheBallanceofourForraignTradetobethetrueruleofourTreasure;Itresteththatweshewbywhomandinwhatmannerthesaidballancemaybedrawnupatalltimes,whenitshallpleasetheStatetodiscoverhowweprosperordeclineinthisgreatandweightybusiness,whereintheOfficersofhisMajestiesCustomesaretheonelyAgentstobeemployed,becausetheyhavetheaccountsofallthewareswhichareissuedoutorbroughtintotheKingdome;andalthough(itistrue)theycannotexactlysetdownthecostandchargesofothermensgoodsboughthereorbeyondtheseas;yetnevertheless,iftheygroundthemselvesuponthebookofRates,theyshallbeabletomakesuchanestimateasmaywellsatisfiethisenquiry:foritisnotexpectedthatsuchanaccountcanpossiblebedrawnuptoajustballance,itwillsufficeonelythatthedifferencebenotovergreat.Firsttherefore,concerningourExportations,whenwehavevaluedtheirfirstcost,wemustadd25percentthereuntoforthechargeshere,forfraightofShips,ensuranceoftheAdventure,andtheMerchantsGains;andforourFishingTrades,whichpaynoCustomstohisMajesty,thevalueofsuchExportationsmaybeeasilyesteem’dbygoodobservationswhichhavebeenmade,andmaycontinuallybemade,accordingtotheincreaseordecreaseofthoseaffairs,thepresentestateofthiscommoditybeingvaluedatonehundredandfortythousandpoundsissuedyearly.AlsowemustaddtoourExportationsallthemoneyswhicharecarriedoutinTradebylicensefromhisMajesty.Secondly,forourImportationsofForraignWares,theCustome-booksserveonelytodirectusconcerningthequantity,forwemustnotvaluethemastheyareratedhere,butastheycostuswithallchargesladenintoourShipsbeyondtheSeas,intherespectiveplaceswheretheyarebought:fortheMerchantsgain,thechargesofInsurance,FraightofShips,Customes,Imposts,andotherDutieshere,whichdoegreatlyindearthemuntoouruseandconsumption,arenotwithstandingbutCommutationsamongstourselves,fortheStrangerhathnopartthereof:whereforeoursaidImportationsoughttobevaluedat25percentlessthantheyareratedtobeworthhere.AndalthoughthismayseemtobetoogreatallowanceuponmanyrichCommodities,whichcomebutfromtheLowCountreysandotherplacesneerhand,yetwillitbefoundreasonable,whenweconsideritingrossCommodities,anduponWaresladeninremoteCountreys,asourPepper,whichcostus,withcharges,butfourpencethepound:sothatwhenallisbroughtintoamedium,thevaluationoughttobemadeasafore-written.Andtherefore,theorderwhichhathbeenusedtomultiplythefullratesuponwaresinwardsbytwenty,wouldpro-duceaverygreaterrourintheBallance,forinthismannerthetenthousandbagsofPepper,whichthisyearwehavebroughthitherfromtheEastIndies,shouldbevaluedatveryneartwohundredandfiftythousandpounds,whereasallthisPepperintheKingdomesaccompt,costnotabovefiftythousandpounds,becausetheIndianshavehadnomoreofus,althoughwepaidthemextraordinarydearpricesforthesame.Alltheothercharges(asIhavesaidbefore)isbutachargeofeffectsamongstourselves,andfromtheSubjecttotheKing,whichcannotimpoverishtheCommon-wealth.Butitistrue,thatwhereasninethousandbagsofthesaidPepperarealreadyshippedoutfordiversforraignparts;TheseandallotherWares,forraignordomestick,whicharethustransportedOutwards,oughttobecastupbytheratesofhisMajestiesCustome-money,multiplyedbytwenty,orratherbytwentyfive(asIconceive)whichwillcomeneererthereckoning,whenweconsiderallourTradestobringthemintoamedium. 44Pre-ClassicalThoughtThirdly,wemustremember,thatallWaresexportedorimportedbyStrangers(intheirship-ping)beesteemedbythemselves,forwhattheycarryout,theKingdomhathonlythefirstcostandthecustom:Andwhattheybringin,wemustrateitasitisworthhere,theCustom,Impost,andpettychargesonlydeducted.Lastly,theremustbegoodnoticetakeofallthegreatlosseswhichwereceiveatSeainourShippingeitheroutwardorhomewardbound:forthevalueoftheoneistobedeductedfromourExportations,andthevalueoftheotheristobeaddedtoourImportations:fortoloseandtoconsumedothproduceoneandthesamereckoning.LikewiseifithappenthatHisMajestydothmakeoveranygreatsumsofmonybyExchangetomaintainaforraignwar,wherewedonotfeedandclothetheSouldiers,andProvidethearmies,wemustdeductallthischargeoutofourExportationsoraddittoourImportations;forthisexpencedotheithercarryoutorhinderthecominginofsomuchTreasure.AndherewemustrememberthegreatcollectionsofmonywhicharesupposedtobemadethroughouttheRealmyearlyfromourRecusantsbyPriestsandJesuits,whosecretlyconveythesameuntotheirColleges,Cloysters,andNunneriesbeyondtheSeas,fromwhenceitneverreturnstousagaininanykind;thereforeifthismischiefcannotbeprevented,yetitmustbeesteemedandsetdownasacleerlosstotheKingdome,except(toballancethis)wewillimaginethatasgreatavaluemayperhapscomeinfromforraignPrincestotheirPensionershereforFavoursorIntelligence,whichsomeStatesaccountgoodPolicy,topurchasewithgreatLiberality;thereceiptwhereofnotwithstandingisplainTreachery.ThereareyetsomeotherpettythingswhichseemtohavereferencetothisBallance,ofwhichthesaidOfficersofHisMajestiesCustomscantakenonotice,tobringthemintotheaccompt.Asnamelytheexpencesoftravailers,thegiftstoAmbassadorsandStrangers,thefraudofsomerichgoodsnotentredintotheCustom-house,thegainwhichismadeherebyStrangersbychangeandre-change,Interestofmony,ensuranceuponEnglishmensgoodsandtheirlives:whichcanbelittlewhenthechargesoftheirlivinghereisdeducted;besidesthattheverylikeadvantagesareasamplyministreduntotheEnglishinforraignCountreys,whichdothcounter-poizeallthesethings,andthereforetheyarenotconsiderableinthedrawingupofthesaidBallance. WILLIAMPETTY(1623–1687)SirWilliamPettywaseducatedinmedicineandanatomyand,afterholdingpositionsofProfessorofAnatomyatOxfordandProfessorofMusicatGreshamCollege,London,wasappointedchiefmedicalofficertotheCromwell’sarmyinIrelandin1651.Here,hewasresponsibleforoverseeingasurveyofIrishlands(1655–1658)thatwouldbeturnedovertoCromwell’ssoldiersandfinanciersascompensationfortheireffortsand,intheprocess,becameamajorlandholderhim-self.Muchoftheremainderofhislifewasspentinmanagementofandlitigationoverhisvariouslandholdings.PettywassubstantiallyinfluencedbytheBaconianempiricalapproachtoscience,andhewaspartofagroup,includingmanyoftheleadingscientistsoftheday,thatfoundedtheRoyalSocietyfortheImprovingofNaturalKnowledgein1662.TheRoyalSocietychampionedtheSirWilliamPetty,Artist:IssacFuller(1606–1672),bycourtesyofBaconianmethod,bothwithinandwithouttheNationalPortraitGallery,London.thenaturalsciences.TheinfluenceofthismethodologyisevidencedthroughoutPetty’swritings,butperhapsnowherebetterthanintheprefacetohisPoliticalArithmetick,wherehestatesthat“insteadofusingonlycomparativeandsuperlativeWords,andintellectualArguments,Ihavetakenthecourse…toexpressmyselfinTermsofNumber,WeightorMeasure;touseonlyArgumentsofSense,andtoconsideronlysuchCauses,ashavevisibleFoundationsinNature;leavingthosethatdependuponthemutableMinds,Opinions,AppetitesandPassionsofparticularmen,totheconsiderationofothers…”Pettywroteonnumeroussubjects,includingmedicine,fortifications,andreligion,butisbestknownasafatherofstatisticsforhisquantitativeempiricalemphasisonnumber,weight,andmeasure.Hewrotewidelyoneconomicsubjects,includingthedivisionoflabor,thetheoryofvalue,anddistributiontheory.Hewasalsoanimperialistmercantilist.Petty’sATreatiseofTaxesandContributionsisreallythefirsttreatiseonpublicfinanceintheeconomicsliterature.Althoughwrittenwithaviewtoillustratinghowthecrownmightmost 46Pre-ClassicalThoughteffectivelyfinanceitsoperations,theTreatisealsocontainsanumberoffundamentaladvancesineconomicanalysis.Intheexcerptsreprintedhere,wefindPettylayingouthisviewoftheappro-priateroleforthestate,hiscommentaryonthesystemoftaxation,hisintroductionintoeconomicanalysisofthenotionofrents–whichlaterplayedacentralroleinphysiocraticandclassicalthinking–andthevaluationofthesefortaxpurposes,andhisdefenseofusury.Inhisanalysisofrentsandhisdefenseofusury,weseeaclearpremonitionoftheideathatratesofreturnwillequalizeacrosssectors,aswithhisvaluationoflandrentsandhisbeliefthattherateofinterestwillapproximatetherateofreturnonlandoveragiventimeperiod.ReferencesandfurtherreadingAspromourgos,Tony(1988)“TheLifeofWilliamPettyinRelationtoHisEconomics:ATercentenaryInterpretation,”HistoryofPoliticalEconomy20(Fall):337–56.——(1996)OntheOriginsofClassicalEconomics:DistributionandValuefromWilliamPettytoAdamSmith,London:Routledge.Fitzmaurice,LordEdmond(1895)LifeofSirWilliamPetty,London:JohnMurray.Hutchison,Terence(1988)BeforeAdamSmith:TheEmergenceofPoliticalEconomy,1662–1776,Oxford:BasilBlackwell.Letwin,William(1964)TheOriginsofScientificEconomics,GardenCity,NY:Doubleday&Co.Petty,William(1899)TheEconomicWritingsofSirWilliamPetty,editedbyCharlesHenryHull,Cambridge:CambridgeUniversityPress.Roncaglia,Alessandro(1985)Petty:TheOriginsofPoliticalEconomy,NewYork:M.E.Sharpe.——(1987)“Petty,William,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,853–55. ATreatiseofTaxesandContributions(1662)Chapter1:OftheseveralsortsofPublickChargesThePublickChargesofaState,are,thatofitsDefencebyLandandSea,ofitsPeaceathomeandabroad,asalsoofitshonourablevindicationfromtheinjuriesofotherStates;allwhichwemaycalltheChargeoftheMilitia,whichcommonlyisinordinaryasgreatasanyotherBranchofthewhole;butextraordinary(i.e.intimeofWar,orfearofWar)ismuchthegreatest.2.AnotherbranchofthePublickChargeis,theMaintenanceoftheGovernours,ChiefandSubordinate;Imean,suchnotonelyasspendtheirwholetimeintheExecutionoftheirrespec-tiveOffices,butalsowhospentmuchinfittingthemselvesaswellwithabilitiestothatend,asinbegettinganopinionintheirSuperiorsofsuchtheirabilityandtrustworthiness.3.WhichMaintenanceoftheGovernoursistobeinsuchadegreeofplentyandsplendour,asprivateEndeavoursandCallingsseldomreachunto:Totheend,thatsuchGovernoursmayhavethenaturalaswellastheartificialCausesofPowertoactwith.4.ForifagreatmultitudeofmenshouldcalloneoftheirnumberKing,unlessthisinstitutedPrince,appearingreatervisiblesplendourthenothers,canrewardthosethatobeyandpleasehim,anddothecontrarytoothers;hisInstitutionsignifieslittle,evenalthoughhechancetohavegreatercorporalormentalfaculties,thananyotherofthenumber.5.TherebeOfficeswhicharebut
´,asSheriffs,JusticesofthePeace,Constables,Churchwardens,etc.whichmenmayattendwithoutmuchprejudicetotheirordinarywayesoflivelihood,andforwhichthehonourofbeingtrusted,andthepleasureofbeingfeared,hathbeenthoughtacompetentReward.6.Untothishead,theChargeoftheadministringjusticemaybereferred,aswellbetweenmanandman,asbetweenthewholeStateorCommonaltyandparticularlymembersofit;aswellthatofrightingandpunishingpastinjuriesandcrimes,asofpreventingthesameintimetocome.7.AthirdbranchofthePublickChargeis,thatofthePastorageofmensSouls,andtheguid-anceoftheirConsciences;which,onewouldthink(becauseitrespectsanotherworld,andbuttheparticularinterestofeachmanthere)shouldnotbeapublickChargeinthis:Nevertheless,ifweconsiderhoweasieitistoeludetheLawsofman,tocommitunproveablecrimes,tocorruptanddivertTestimonies,towrestthesenseandmeaningoftheLaws,etc.therefollowsanecessityofcontributingtowardsapublickCharge,wherewithtohavemeninstructedintheLawsofGod,thattakenoticeofevilthoughtsanddesigns,andmuchmoreofsecretdeeds,andthatpunishetheternallyinanotherworld,whatmancanbutslightlychastiseinthis.8.NowthosewholabourinthispublickService,mustalsobemaintainedinaproportionablesplendour;andmustwithallhavethemeanstoalluremenwithsomekindeofreward,eveninthislife;forasmuch,asmanyheretoforefollowedevenChristhimself,butfortheLoaveshegavethem.9.Anotherbranchis,theChargeofSchoolsandUniversities,especiallyforsomuchastheyteachaboveReading,WritingandArithmetick;thesebeingofparticularusetoeveryman,as 48Pre-ClassicalThoughtbeinghelpsandsubstitutesofMemoryandReason,Reckoningbeingofthelatter,asWritingandReadingareoftheformer;forwhetherDivinity,etc.oughttobemadeaprivateTrade,istomeaquestion.10.‘Tistrue,thatSchoolsandColledgesarenowforthemostpartbuttheDonationsofpar-ticularmen,orplaceswhereparticularmenspendtheirmoneyandtimeupontheirownprivateaccounts;butnodoubtitwerenotamiss,iftheendofthemweretofurnishallimaginablehelpsuntothehighestandfinestNaturalWits,towardsthediscoveryofNatureinallitsoperations;inwhichsensetheyoughttobeapublickCharge:ThewhichWitsshouldnotbeselectedforthatwork,accordingtothefondconceitsoftheirownParentsandFriends,(CrowsthatthinktheirownBirdseverfairest)butratherbytheapprobationofothersmoreimpartial;suchastheyare,whopickfromoutoftheChristiansChildrentheablestInstrumentsandSupportoftheTurkishGovernments.OfwhichSelectionsmorehereafter.11.Anotherbranch,isthatoftheMaintenanceofOrphans,foundandexposedChildren,whichalsoareOrphans;asalsoofImpotentsofallsorts,andmoreoversuchaswantemployment.12.ForthepermittingofanytobegisamorechargeablewayofmaintainingthemwhomthelawofNaturewillnotsuffertostarve,wherefoodmaypossiblybehad:Besides,itisunjusttoletanystarve,whenwethinkitjusttolimitthewagesofthepoor,soastheycanlayupnothingagainstthetimeoftheirimpotencyandwantofwork.13.AlastBranchmaybe,theChargeofHigh-wayes,NavigableRivers,Aquaeducts,Bridges,Havens,andotherthingsofuniversalgoodandconcernment.14.OtherBranchesmaybethoughton,whichletothermeneitherreferuntothese,oraddeoverandabove.Foritsufficesformypurposetohaveforthepresentsetdownthesethechiefandmostobviousofalltherest.Chapter3:HowthecausesoftheunquietbearingoftaxesmaybelessenedWehaveslightlygonethroughallthesixbranchesofthePublickCharge,andhave(thoughimperfectlyandinhaste)shewnwhatwouldencrease,andwhatwouldabatethem.WecomenexttotakeawaysomeofthegeneralCausesoftheunquietbearingofTaxes,andyieldingtoContributions,namely2.1.Thatthepeoplethink,theSovereignaskesmorethenheneeds.Towhichweanswer,1.ThatiftheSovereignweresuretohavewhathewantedinduetime,itwerehisowngreatdammagetodrawawaythemoneyoutofhisSubjectshands,whobytradeincreaseit,andtohoarditupinhisownCoffers,where‘tisofnouseeventohimself,butlyabletobebeggedorvainlyexpended.3.2.LettheTaxbeneversogreat,ifitbeproportionableuntoall,thennomansuffersthelossofanyRichesbyit.Formen(aswesaidbutnow)iftheEstatesofthemallwereeitherhalfedordoubled,wouldinbothcasesremainequallyrich.Fortheywouldeachmanhavehisformerstate,dignityanddegree;andmoreover,theMoneyleaviednotgoingoutoftheNation,thesamealsowouldremainasrichincomparisonofanyotherNation;onleytheRichesofthePrinceandPeoplewoulddifferforalittlewhile,namelyuntilthemoneyleaviedfromsome,wereagainrefundeduponthesame,orotherpersonsthatpaidit:Inwhichcaseeverymanalsoshouldhavehischangeandopportunitytobemadethebetterorworsebythenewdistribution;orifhelostbyone,yettogainbyanother.4.3.Nowthatwhichangersmenmost,istobetaxedabovetheirNeighbours.TowhichIanswer,thatmanytimesthesesurmizesaremistakes,manytimestheyarechances,whichinthenextTaxmayrunmorefavourable;andiftheybebydesign,yetitcannotbeimagined,thatit Petty:ATreatiseofTaxesandContributions49wasbydesignoftheSovereign,butofsometemporaryAssessor,whoseturnitmaybetoreceivetheTaliouponthenextoccasionfromtheverymanhehaswronged.5.4.Menrepinemuch,iftheythinkthemoneyleavyedwillbeexpendedonEntertainments,magnificentShews,triumphalArches,etc.TowhichIanswer,thatthesameisarefundingofsaidmoneystotheTradesmenwhoworkuponthosethings;whichTradesthoughtheyseemvainandonelyoforniment,yettheyrefundpresentlytothemostuseful;namelytoBrewers,Bakers,Taylours,Shoemakers,etc.Moreover,thePrincehathnomorepleasureintheseShewsandEntertainmentsthan100,000othersofhismeanestSubjectshave,whom,foralltheirgrumbling,weseetotravelmanymilestobespectatorsofthesemistakenanddistastedvanities.6.5.Thepeopleoftencomplain,thattheKingbestowsthemoneyheraisesfromthepeopleuponhisFavourites:Towhichweanswer;thatwhatisgiventoFavourites,mayatthenextsteportransmigration,comeintoourownhands,ortheirsuntowhomwewishwell,andthinkdodeserveit.7.Second,asthismanisaFavouritetoday,soanother,orourselves,maybehereafter;favourbeingofaveryslipperyandmoveablenature,andnotsuchathingasweneedmuchtoenvy;forthesamewaythat–leadsupahill,leadsalsodownthesame.BesidesthereisnothingintheLawesorCustomesofEngland,whichexcludesanythemeanestmansChilde,fromarrivingtothehighestOfficesinthethisKingdom,muchlessdebarshimfromthePersonallkindnessofhisPrince.8.Alltheseimaginations(whereuntothevulgarheadsaresubject)docauseabackwardnesstopay,andthatnecessitatesthePrincetoseverity.Nowthislightinguponsomepoor,thoughstub-born,stiffneckedRefuser,chargedwithWifeandChildren,givesthecredulousgreatoccasiontocomplainofOppression,andbreedsillbloodastoallothermatters;feedingtheillhumoursalreadyinbeing.9.6.IgnoranceoftheNumber,Trade,andWealthofthepeople,isoftenthereasonwhythesaidpeopleareneedleslytroubled,namelywiththedoublechargeandvexationoftwo,ormanyLevies,whenonemighthaveserved:ExampleswhereofhavebeenseeninlatePoll-moneys;inwhich(byreasonofnotknowingthestateofthepeople,namelyhowmanytherewereofeachTaxablesort,andthewantofsensiblemarkeswherebytoratemen,andtheconfoundingofEstateswithTitlesandOffices)greatmistakeswerecommitted.10.Besides,fornotknowingtheWealthofthepeople,thePrinceknowsnotwhattheycanbear;andfornotknowingtheTrade,hecanmakenoJudgmentoftheproperseasonwhentodemandhisExhibitions.11.7.Obscuritiesanddoubts,abouttherightofimposing,hathbeenthecauseofgreatanduglyReluctanciesinthepeople,andofInvoluntarySeveritiesinthePrince;aneminentExamplewhereofwastheShip-money,nosmallcauseoftwentyyearscalamitytothewholeKingdom.12.8.Fewnessofpeople,isrealpoverty;andaNationwhereinareEightMillionsofpeople,aremorethantwiceasrichasthesamescopeofLandwhereinarebutFour;ForthesameGovernourswhicharethegreatcharge,mayservenearaswell,forthegreater,asthelessernumber.13.Secondly,Ifthepeoplebesofew,asthattheycanlive,ExsponteCreatis,orwithlittlelabour,suchasisGrazing,etc.theybecomewhollywithoutArt.Nomanthatwillnotexercisehishands,beingabletoendurethetorturesofthemind,whichmuchthoughtfullnessdothoccasion.14.9.Scarcityofmoney,isanothercauseofthebadpaymentofTaxes;forifweconsider,thatofallthewealthofthisNation,namelyLands,Housing,Shipping,Commodities,Furniture,Plate,andMoney,thatscarceonepartofanhundredisCoin;andthatperhapsthereisscarcesixmillionsofPoundsnowinEngland,thatisbuttwentyshillingsaheadforeveryheadintheNation.Wemayeasilyjudge,howdifficultitisformenofcompetentestates,topayaSummeofmoneyonasudden;whichiftheycannotcompass,Severities,andChargesensue;andthatwithreason,thoughunluckieenough,itbeingmoretolerabletoundoeoneparticularMember,then 50Pre-ClassicalThoughttoendangerthewhole,nothwithstandingindeeditbemoretolerableforoneparticularMembertobeundonewiththewhole,thenalone.15.10.Itseemssomewhathard,thatallTaxesshouldbepaidinmoney,thatis,(whentheKinghathoccasiontoVictualhisShipsatPortsmouth)thatFatOxen,andCornshouldnotbereceivedinkind,butthatFarmersmustfirstcarrytheircornperhapstenMilestosell,andturnintomoney;whichbeingpaidtotheKing,isagainreconvertedintoCorn,fetchtmanymilesfurther.16.Moreover,theFarmerforhasteisforcetoundersellhisCorn,andtheKingforhastelike-wise,isforcedtoover-buyhisprovisions.Whereasthepayinginkinde,ProHic&Nunc,wouldlessenaconsiderablegrievancetothepoorpeople.17.Thenextconsiderationshallbeoftheconsequences,andeffectsoftoogreataTax,notinrespectofparticularmen,ofwhichwehavespokenbefore,buttothewholepeopleingeneral:TowhichIsay,thatthereisacertainmeasure,andproportionofmoneyrequisitetodrivethetradeofaNation,moreorlessthenwhichwouldprejudicethesame.JustasthereisacertainproportionofFarthingsnecessaryinasmallretailTrade,tochangesilvermoney,andtoevensuchreckonings,ascannotbeadjustedwiththesmallestsilverpieces.Formoney,(madeofGoldandsilver)istothe´´(i.e.tothematterofourFoodandCovering)butasFarthings,andotherlocalextrinsickmoney,istotheGoldandSilverspecies.18.NowastheproportionofthenumberofFarthingsrequisiteincomerseistobetakenfromthenumberofpeople,thefrequencyoftheirexchanges;asalso,andprincipallyfromthevalueofthesmallestsilverpiecesofmoney;soinlikemaner,theproportionofmoneyrequisitetoourTrade,istobelikewisetakenfromthefrequencyofcommutations,andfromthebignessofthepayments,thatarebylaworcustomeusuallymadeotherwise.Fromwhenceitfollows,thatwherethereareRegistersofLands,wherebythejustvalueofeachman’sinterestinthemmaybewellknown;andwherethereareDepositoriesofthe´´,asofMetals,Cloth,Linnen,Leather,andotherUsefuls;andwherethereareBanksofmoneyalso,therelessmoneyisnecessarytodrivetheTrade.ForifallthegreatestpaymentsbemadeinLands,andtheotherperhapsdowntotenpound,ortwentypoundbemadebycreditinLombarsorMoney-Banks:Itfollows,thatthereneedsonlymoneytopaysumslessthanthoseaforementioned;justasfewerFarthingsarerequisiteforchange,wheretherebeplentyofsilvertwoPences,thenwheretheleastsilverpieceissixPence.19.Toapplyallthis,Isay,thatiftherebetoomuchmoneyinaNation,itweregoodfortheCommonalty,aswellastheKing,andnoharmeventoparticularmen,iftheKinghadinhisCoffers,allthatissuperfluos,nomorethanifmenwerepermittedtopaytheirTaxesinanythingtheycouldbestspare.20.Ontheotherside,ifthelargenessofapublickExhibitionshouldleavelessmoneythanisnecessarytodrivethenationsTrade,thenthemischiefthereofwouldbethedoingoflesswork,whichisthesameaslesseningthepeople,ortheirArtandIndustry;forahundredpoundpassingahundredhandsforWages,causesa10,000livresworthofCommoditiestobeproduced,whichhandswouldhavebeenidleanduseless,hadtherenotbeenthiscontinualmotivetotheiremployment.21.TaxesiftheybepresentlyexpendeduponourowndomestickCommodities,seemtome,todolittleharmtothewholeBodyofthepeople,onelytheyworkachangeintheRichesandFortunesofparticularmen;andparticularybytransferringthesamefromtheLandedandLazy,totheCraftyandIndustrious.Asforexample,ifaGentlemanhavelethisLandstoFarmforahundredpoundperannum,forseveralyearsorlives,andhebetaxedtwentypoundperannum,tomaintainaNavy;thentheeffecthereofwillbe,thatthisGentlemanstwentypoundsperannum,willbedistributedamongstSeamen,Ship-Carpenters,andotherTradesrelatingtoNavalmatters;butiftheGentlemanhadhisLandinhisownhands,thenbeingtaxed Petty:ATreatiseofTaxesandContributions51aFifthpart,hewouldraisehisRentsnearthesameproportionuponhisunderTenants,orwouldsellhisCattle,CornandWoollaFifthpartdearer;thelikealsowouldallothersubdependentsonhimdo;andtherebyrecoverinsomemeasure,whathepaid.Last,butifallthemoneyleviedwerethrownintotheSea,thentheultimateeffectwouldonelybe,thateverymanmustworkafifthparttheharder,orretrenchafifthpartofhisconsumptions,namelytheformer,ifforreignTradebeimproveable,andthelatter,ifitbenot.22.This,Iconceive,weretheworstofTaxesinawellpolicyedState;butinotherStates,whereisnotacertainpreventionofBeggaryandTheevery,thatisasurelivelihoodformen,wantingimployment;there,Iconfess,anexcessiveTaxe,causesexcessiveandinsuperablewant,evenofnaturalnecessities,andthatonasudden,soasignorantparticularpersons,cannotfindeoutwhatwaytosubsistby;andthis,bythelawofNature,mustcausesuddeneffectstorelieveitself,thatis,Rapines,Frauds;andthisagainmustbringDeath,Mutilations,andImprisonments,accordingtothepresentLawswhichareMischiefs,andPunishments,aswelluntotheState,astotheparticularsufferersofthem.Chapter4:OftheSeveralwayesofTaxe,andfirst,ofsettingapart,aproportionofthewholeTerritoryforPublickuses,inthenatureofCrownLands;andsecondly,bywayofAssessement,orLand-taxeButsupposing,thattheseveralcausesofPublickChargearelessened,asmuchasmaybe,andthatthepeoplebewellsatisfied,andcontentedtopaytheirjustsharesofwhatisneedfullfortheirGovernmentandProtection,asalsofortheHonouroftheirPrinceandCountrey:Itfollowsnowtoproposetheseveralwayes,andexpedients,howthesamemaybemosteasily,speedily,andinsensiblycollected.ThewhichIshalldo,byexposingtheconveniencesandinconveniencesofsomeoftheprincipalwayesofLevyings,usedoflateryearswithintheseveralStatesofEurope:untowhichothersofsmallerandmorerareusemaybereferred.2.Imaginethen,anumberofpeople,plantedinaTerritory,whohaduponComputationcon-cluded,thattwoMillionsofpoundsperannum,isnecessarytothepublickcharges.Orrather,whogoingmorewiselytowork,hadcomputedatwenty-fifthpartoftheproceedofalltheirLandsandLabours,weretobetheExcisium,ortheparttobecutout,andlaidasideforpublickuses.WhichproportionsperhapsarefitenoughtotheaffairsofEngland,butofthathereafter.3.Nowthequestionis,howtheoneortheothershallberaised.Thefirstwaywepropose,is,toExcizetheveryLanditselfinkinde;thatis,tocutoutofthewholetwentyfiveMillions,whicharesaidtobeinEnglandandWales,asmuchLandinspecie,aswhereoftheRack-rentwouldbetwoMillions,namelyaboutfourMillionsofAcres,whichisaboutasixthpartofthewhole;mak-ingthesaidfourMillionstobeCrownLands,andasthefourCountiesintendedtobereservedinIrelandupontheforfeitureswere.Orelsetoexcizeasixthpartoftherentofthewhole,whichisabouttheproportion,thattheAdventurersandSouldiersinIrelandretributetotheKing,asQuitRents.Ofwhichtwowayes,thelatterismanifestlythebetter,theKinghavingmoresecu-rity,andmoreobliges;providedthetroubleandchargeofthisuniversalCollection,exceednotthatoftheotheradvantageconsiderably.4.ThiswayinanewStatewouldbegood,beingagreedupon,asitwasinIreland,beforemenhadeventhepossessionofanyLandatall;whereforewhosoeverbuyesLandinIrelandhereafter,isnomoreconcernedwiththeQuitRentswherewiththeyarecharged,theniftheAcresweresomuchthefewer;orthenmenare,whobuyLand,outofwhichtheyknowTythesaretobepaid.AndtrulythatCountreyishappy,inwhichbyOriginalAccord,suchaRentisreserved,aswherebythePublickChargemaybeborn,withoutcontingent,sudden,superadditions,inwhichliestheveryRatiooftheburthenofallContributionsandExactions.Forinsuchcases,aswas 52Pre-ClassicalThoughtsaidbefore,itisnotonelytheLandlordpayes,buteverymanwhoeatsbutanEgg,oranOnionofthegrowthofhisLands;orwhouseththehelpofanyArtisan,whichfeedethonthesame.5.ButifthesamewerepropoundedinEngland,namelyifanaliquotpartofeveryLandlordsRentwereexcindedorretrenched,thenthosewhoseRentsweresettled,anddeterminedforlongtimestocome,wouldchieflybeartheburthenofsuchanImposition,andothershaveabenefitthereby.ForsupposeA,andB,haveeachofthemaparcelofLand,ofequalgoodnessandvalue;supposealsothatAhathlethisparcelfortwentyoneyearsattwentypoundperannum,butthatBisfree;nowtherecomesoutaTaxeofafifthpart;hereuponBwillnotletunder25livresthathisremaindermaybetwenty,whereasAmustbecontentedwithsixteenneat;neverthelesstheTenantsofAwillselltheproceedoftheirbargainatthesamerate,thattheTenantsofBshalldo.Theeffectofallthisis;First,thattheKingsfifthpartofBhisFarmshallbegreaterthenbefore.Second,thattheFarmertoBshallgainmorethenbeforetheTaxe.Third,thattheTenantorFarmerofAshallgainasmuchastheKingandTenanttoBboth.Fourth,theTaxedothultimatelylightupontheLandlordAandtheConsumptioners.Fromwhenceitfollows,thataLand-taxeresolvesintoanirregularExcizeuponconsumptions,thatthose,bearitmost,wholeastcomplain.Andlastly,thatsome.Landlordsmaygain,andonelysuchwhoseRentsarepre-determinedshallloose;andthatdoubly,namelyonewaybytheraisingoftheirrevenues,andtheotherbyexhaustingthepricesofprovisionsuponthem.6.AnotherwayisanExcisumoutoftheRentofHouseing,whichismuchmoreuncertainthenthatofLand.ForanHouseisofadoublenature,namelyone,whereinitisawayandmeansofexpence;theother,as’tisanInstrumentandToolofgain:foraShopinLondonoflesscapacityandlesschargeinbuildingthenafairDining-roominthesameHouseuntowhichbothdobelong,shallneverthelessbeofthegreatervalue;soalsoshallaDungeon,Sellar,thenapleas-antChamber;becausetheoneisexpence,theotherprofit.NowthewayLand-taxerateshous-ing,asofthelatternature,buttheExcize,asoftheformer.7.Wemightsometimesaddehereunto,thathousingissometimesdisproportionatelytaxedtodiscourageBuilding,especiallyuponnewFoundations,therebytopreventthegrowthofaCity;supposeLondon,suchexcessiveandovergrownCitiesbeingdangeroustoMonarchy,thoughthemoresecurewhenthesupremacyisinCitizensofsuchplacesthemselves,asinVenice.8.Butwesay,thatsuchcheckingofnewBuildingssignifiesnothingtothispurpose;forasmuchasBuildingsdonotencrease,untilthePeoplealreadyhaveincreased:buttheremedyoftheabovementioneddangersistobesoughtinthecausesoftheencreaseofPeople,thewhichiftheycanbenipt,theotherworkwillnecessarilybedone.Butwhatthenisthetrueeffectofforbiddingtobuilduponnewfoundations?IanswertokeepandfastentheCitytoitsoldseatandground-plot,thewhichencouragementfornewBuildingswillremove,asitcomestopassalmostinallgreatCities,thoughinsensibly,andnotundermanyyearsprogression.9.Thereasonwhereofis,becausemenareunwillingtobuildnewhousesatthechargeofpullingdowntheirold,whereboththeoldhouseitself,andthegrounditstandsupondomakeamuchdearerground-plotforanewhouse,andyetfarlessfreeandconvenient;whereforemenbuilduponnewfreefoundations,andcobbleupoldhouses,untiltheybecomefundamentallyirreparable,atwhichtimetheybecomeeitherthedwellingoftheRascality,orinprocessoftimereturntowasteandGardensagain,exampleswhereofaremanyevenaboutLondon.NowifgreatCitiesarenaturallyapttoremovetheirSeats,Iaskwhichway?Isay,inthecaseofLondon,itmustbeWestward,becausetheWindesblowingnear3/4oftheyearfromtheWest,thedwellingsoftheWestendaresomuchthemorefreefromthefumes,steams,andstinksofthewholeEasterlyPyle;whichwhereSeacoalisburntisagreatmatter.Nowifitfollowfromhence,thatthePallacesofthegreatestmenwillremoveWestward,itwillalsonaturallyfollow,thatthedwellingsofotherswhodependuponthemwillcreepafterthem.Thisweseein Petty:ATreatiseofTaxesandContributions53London,wheretheNoblemen’sancienthousesarenotbecomeHallsforCompanies,orturnedintoTenements,andallthePallacesaregottenWestward;Insomuch,asIdonotdoubtbutthatfivehundredyearshence,theKing’sPallacewillbenearChelsey,andtheoldbuildingofWhitehallconvertedtousesmoreanswerabletotheirquality.FortobuildanewRoyalPallaceuponthesamegroundwillbetoogreataconfinement,inrespectofGardensandothermagnif-icencies,andwithalladisaccommodationinthetimeofthework;butitratherseemstome,thatthenextPallacewillbebuildtfromthewholepresentcontignationofhousesatsuchadistanceastheoldPallaceofWestminsterwasfromtheCityofLondon,whentheArchersbegantobendtheirbowesjustwithoutLudgate,andwhenallthespacebetweentheThames,Fleet-Street,andHolbornwasasFinsbury-Fieldsarenow.10.ThisdigressionIconfesstobebothimpertinenttothebusinessofTaxes,andinitselfalmostneedless;forwhyshouldwetroubleourselveswhatshallbefivehundredyearshence,notknowingwhatadaymaybringforth;andsince’tisnotunlikely,butthatbeforethattimewemaybealltransplantedfromhenceintoAmerica,theseCountreysbeingoverrunwithTurks,andmadewaste,astheSeatsofthefamousEasternEmpiresatthisdayare.11.OnelyIthink’tiscertain,thatwhileevertherearepeopleinEngland,thegreatestcohabita-tionofthemwillbeabouttheplacewhichisnowLondon,theThamesbeingthemostcommodi-ousRiverofthisIsland,andtheseatofLondonthemostcommodiouspartoftheThames;somuchdoththemeansoffacilitatingCarriagegreatenaCity,whichmayputusinmindeofemploy-ingouridlehandsaboutmendingtheHigh-wayes,makingBridges,Cawseys,andRiversnavigable:WhichconsiderationsbringsmebackroundintomywayofTaxes,fromwhenceIdigrest.12.ButbeforewetalktoomuchofRents,weshouldendeavourtoexplainthemysteriousnatureofthem,withreferenceaswelltoMoney,therentofwhichwecallusury;astothatofLandsandHouses,afore-mentioned.13.SupposeamancouldwithhisownhandsplantacertainscopeofLandwithCorn,thatis,couldDigg,orPlough,Harrow,Weed,Reap,Carryhome,Tresh,andWinnowsomuchastheHusbandryofthisLandrequires;andhadwithalSeedwherewithtosowethesame.Isay,thatwhenthismanhathsubductedhisseedoutoftheproceedofhisHarvest,andalso,whathimselfhathbotheatenandgiventoothersinexchangeforClothes,andotherNaturalnecessaries;thattheremainderofCornisthenaturalandtrueRentoftheLandforthatyear;andthemediumofsevenyears,orratherofsomanyyearsasmakesuptheCycle,withinwhichDearthsandPlentiesmaketheirrevolution,dothgivetheordinaryRentofLandinCorn.14.Butafurther,thoughcollateralquestionmaybe,howmuchEnglishmoneythisCornorRentisworth?Ianswer,somuchasthemoney,whichanothersinglemancansave,withinthesametime,overandabovehisexpence,ifheimployedhimselfwhollytoproduceandmakeit;namelyletanothermangotravelintoaCountreywhereisSilver,thereDigit,Refineit,bringittothesameplacewheretheothermanplantedhisCorn;Coyneit,etc.thesameperson,allthewhileofhisworkingforSilver,gatheringalsofoodforhisnecessarylivelihood,andprocuringhimselfcovering,etc.Isay,theSilveroftheone,mustbeesteemedofequalvaluewiththeCornoftheother:theonebeingperhapstwentyOuncesandtheothertwentyBushels.Fromwhenceitfollows,thatthepriceofaBushelofthisCorntobeanOunceofSilver.15.AndforasmuchaspossibletheremaybemoreArtandHazzardinworkingabouttheSilver,thenabouttheCorn,yetallcomestothesamepass;forletahundredmenworktenyearsuponCorn,andthesamenumberofmen,thesametime,uponSilver;Isay,thattheneatpro-ceedoftheSilveristhepriceofthewholeneatproceedoftheCorn,andlikepartsoftheone,thepriceoflikepartsoftheother.AlthoughnotsomanyofthosewhowroughtinSilver,learnedtheArtofrefiningandcoining,orout-livedthedangersanddiseasesofworkingintheMines.Andthisalsoisthewayofpitchingthetrueproportion,betweenthevaluesofGoldandSilver,whichmanytimesissetbutbypopularerrour,sometimesmore,sometimesless,diffusedinthe 54Pre-ClassicalThoughtworld;whicherrour(bytheway)isthecauseofourhavingbeenpestredwithtoomuchGoldheretofore,andwantingitnow.16.This,Isay,tobethefoundationofequallizingandballancingofvalues;yetinthesuper-structuresandpracticeshereupon,Iconfessthereismuchvariety,andintricacy;ofwhichhereafter.17.TheworldmeasuresthingsbyGoldandSilver,butprincipallythelatter;fortheremaynotbetwomeasures,andconsequentlythebetterofmanymustbetheonelyofall;thatis,byfinesilverofacertainweight:butnowifitbehardtomeasuretheweightandfinenessofsilver,asbythedifferentreportsoftheablestSaymastersIhaveknownittobe;andifsilvergrantedtobeofthesamefinenessandweight,riseandfallinitsprice,andbemoreworthatoneplacethananother,notonelyforbeingfatherfromtheMines,butforotheraccidents,andmaybemoreworthatpresent,thenamonethorothersmalltimehence;andifitdifferinitsproportionuntotheseveralthingsvaluedbyit,inseveralagesupontheincreaseanddiminutionthereof,weshallendeavourtoexaminesomeothernaturalStandardsandMeasures,withoutderogatingfromtheexcellentuseofthese.18.OurSilverandGoldwecallbyseverallnames,asinEnglandbypounds,shillings,andpence,allwhichmaybecalledandunderstoodbyeitherofthethree.ButthatwhichIwouldsayuponthismatteris,thatallthingsoughttobevaluedbytwonaturalDenominations,whichisLandandLabour;thatis,weoughttosay,aShiporgarmentisworthsuchameasureofLand,withsuchanothermeasureofLabour;forasmuchasbothShipsandGarmentswerethecrea-turesofLandsandmen’sLaboursthereupon;Thisbeingtrue,weshouldbegladtofindeoutanaturalParbetweenLandandLabour,soaswemightexpressthevaluebyeitherofthemaloneaswellorbetterthenbyboth,andreducepenceintopounds.WhereforewewouldbegladtofindethenaturalvaluesoftheFeesimpleofLand,thoughbutnobetterthenwehavedonethatoftheususfructusabove-mentioned,whichweattemptasfolloweth.19.HavingfoundtheRentorvalueoftheususfructusperannum,thequestionis,howmanyyearspurchase(asweusuallysay)istheFeesimplenaturallyworth?Ifwesayaninfinitenumber,thenanAcreofLandwouldbeequalinvaluetoathousandAcresofthesameLand;whichisabsurd,aninfinityofunitesbeingequaltoaninfinityofthousands.Whereforewemustpitchuponsomelimitednumber,andthatIapprehendtobethenumberofyears,whichIconceiveonemanoffiftyyearsold,anotheroftwentyeight,andanotherofsevenyearsold,allbeingalivetogethermaybethoughttolive;thatistosay,ofaGrandfather,Father,andChilde;fewmenhav-ingreasontotakecareofmoreremotePosterity:forifamanbeagreatGrandfather,hehimselfissomuchthenearerhisend,soastherearebutthreeinacontinuallineofdescentusuallyco-existingtogether;andassomeareGrandfathersatfortyyears,yetasmanyarenottillabovesixty,andsicdeeteteris.20.WhereforeIpitchthenumberofyearspurchase,thatanyLandisnaturallyworth,tobetheordinaryextentofthreesuchpersonstheirlives.NowinEnglandweesteemthreelivesequaltooneandtwentyyears,andconsequentlythevalueofLand,tobeaboutthesamenumberofyearspurchase.Possiblyiftheythoughtthemselvesmistakenintheone,(astheobservatorontheBillsofMortalitythinkstheyare)theywouldalterintheother,unlesstheconsiderationoftheforceofpopularerrouranddependanceofthingsalreadyconcatenated,didhinderthem.21.ThisIesteemtobethenumberofyearspurchasewhereTitlesaregood,andwherethereisamoralcertaintyofenjoyingthepurchase.ButinotherCountreysLandsareworthnearerthirtyyearspurchase,byreasonofthebetterTitles,morepeople,andperhapstrueropinionofthevalueanddurationofthreelives.22.Andinsomeplaces,Landsareworthyetmoreyearspurchasebyreasonofsomespecialhonour,pleasures,priviledgeorjurisdictionannexeduntothem. Petty:ATreatiseofTaxesandContributions5523.Ontheotherhand,Landsareworthfeweryearspurchase(asinIreland)forthefollowingreasons,whichIhaveheresetdown,asuntothelikewhereofthecauseofthelikecheapnessinanyotherplacemaybeimputed.First,InIreland,byreasonofthefrequentRebellions,(inwhichifyouareconquered,allislost;orifyouconquer,yetyouaresubjecttoswarmsofthievesandrobbers)andtheenvywhichprecedentmissionsofEnglishhaveagainstthesubsequent,perpetuityitselfisbutfortyyearslong,aswithinwhichtimesomeuglydisturbancehathhithertohappenedalmosteversincethefirstcomingoftheEnglishthither.24.2.TheClaimsuponClaimswhicheachhathtotheothersEstates,andthefacilityofmak-inggoodanypretencewhatsoeverbythefavourofsomeoneorotherofthemanyGovernoursandMinisterswhichwithinfortyyearsshallbeinpowerthere;asalsobythefrequencyoffalsetestimonies,andabuseofsolemnOaths.25.3.ThepaucityofInhabitants,therebeingnotabovethe1/5thpartsomanyastheTerritorywouldmaintain,andofthosebutasmallpartdoworkatall,andyetasmallerworksomuchasinotherCountreys.26.4.ThatagreatpartoftheEstates,bothrealandpersonalinIreland,areownedbyAbsentees,andsuchasdrawovertheprofitsraisedoutofIrelandrefundingnothing;soasIrelandexportingmorethenitimportsdothyetgrowpoorertoaparadox.27.5.Thedifficultyofexecutingjustice,somanyofthoseinpowerbeingthemselvesprotectedbyOffices,andprotectingothers.Moreover,thenumberofcriminousandindebtedpersonsbeinggreat,theyfavourtheirlikeinJuries,Offices,andwheresoevertheycan:Besides,theCountreyisseldomenoughtogivedueencouragementtoprofoundJudgesandLawyers,whichmakesjudgementsverycasual;ignorantmenbeingmoreboldtobeaptandarbitrary,thensuchasunderstandthedangersofit.Butallthiswithalittlecareindueseasonmightremedy,soastobringIrelandinafewyearstothesamelevelofvalueswithotherplaces;butofthisalsoelsewheremoreatlarge,forinthenextplaceweshallcometoUsury.Chapter5:OfUsuryWhatreasonthereisfortakingorgivingInterestorUsuryforanythingwhichwemaycertainlyhaveagainwhensoeverwecallforit,Iseenot;norwhyUsuryshouldbescrupled,wheremoneyorothernecessariesvaluedbyit,islenttobepaidatsuchatimeandplaceastheBorrowerchuseth,soastheLendercannothavehismoneypaidhimbackwhereandwhenhimselfpleaseth,Ialsoseenot.Whereforewhenamangivethouthismoneyuponconditionthathemaynotdemanditbackuntilacertaintimetocome,whatsoeverhisownnecessitiesshallbeinthemeantime,hecertainlymaytakeacompensationforthisinconveniencewhichheadmitsagainsthimself:AndthisallowanceisthatwecommonlycallUsury.2.Andwhenonemanfurnishethanotherwithmoneyatsomedistantplace,andengagesundergreatPenaltiestopayhimthere,andatacertaindaybesides;theconsiderationforthis,isthatwecallExchangeorlocalUsury.Asforexample,ifamanwantingmoneyatCarlisleintheheatofthelateCivilWars,whenthewaywasfullofSouldiersandRobbers,andthepassagebySeaverylongtroublesome,anddangerous,andseldompassed;whymightnotanothertakemuchmorethanan100livresatLondonforwarrantingthelikeSummetobepaidatCarlisleonacertainday?3.NowtheQuestionsarisinghenceare;whatarethenaturalStandardsofUsuryandExchange?AsforUsury,theleastthatcanbe,istheRentofsomuchLandasthemoneylentwillbuy,wherethesecurityisundoubted;butwherethesecurityiscasual,thenakindeofensurancemustbeenterwovenwiththesimplenaturalInterest,whichmayadvancetheUsuryvery 56Pre-ClassicalThoughtconscionablyuntoanyheightbelowthePrincipalitself.NowifthingsaresoinEngland,thatreallythereisnosuchsecurityasabovementioned,butthatallaremoreorlesshazardous,trou-blesome,orchargeabletomake,IseenoreasonforendouveringtolimitUsuryupontime,anymorethanthatuponplace,whichthepracticeoftheworlddothnot,unlessitbethatthosewhomakesuchLawswereratherBorrowersthenLenders:Butofthevanityandfruitlessnessofmak-ingCivilPositiveLawsagainsttheLawsofNature,Ihavespokenelsewhere,andinstancedinseveralparticulars.4.AsforthenaturalmeasuresofExchange,Isay,thatintimesofPeace,thegreatestExchangecanbebutthelabourofcarryingthemoneyinspecie,butwherearehazardsemer-gentusesformoneyinoneplacethenanother,etc.oropinionsofthesetrueorfalse,theExchangewillbegovernedbythem.5.Paralleluntothis,issomethingwhichweomitconcerningthepriceofLand;forasgreatneedofmoneyheightensExchange,sodothgreatneedofCornraisethepriceofthatlikewise,andconsequentlyoftheRentoftheLandthatbearsCorn,andlastlyoftheLanditself;asforexample,iftheCornwhichfeedethLondon,oranArmy,bebroughtfortymilesthither,thentheCorngrowingwithinamileofLondon,orthequartersofsuchArmy,shallhaveaddeduntoitsnaturalprice,somuchasthechargeofbringingitthirtymilesdothamountunto:AnduntoperishableCommodities,asfreshfish,fruits,etc.theensuranceuponthehazardofcorrupting,etc.shallbeaddedalso;andfinally,untohimthateatsthesethingsthere(supposeinTaverns)shallbeaddedthechargeofallthecircumstancialappurtenancesofHouse-rent,Furniture,Attendance,andtheCooksskillaswellashislabourtoaccompanythesame.6.Henceitcomestopass,thatLandsintrinsicallyalikenearpopulousplaces,suchaswheretheperimeteroftheAreathatfeedsthemisgreat,willnotonelyyieldmoreRentfortheseReasons,butalsomoreyearspurchasetheninremoteplaces,byreasonofthepleasureandhonourextraordinaryofhavingLandsthere;for–Omnetulitpenctumquimiscuitutiledulci. JOHNLOCKE(1632–1704)JohnLockewaseducatedatOxford,wherehefirststudiedtheclassicsandlater,likePetty,medicine.HebecamethepersonalphysiciantoAnthonyAshleyCooper,wholaterbecamethefirstEarlofShaftsburyand,from1672to1674,servedasChancelloroftheExchequer.LockeservedasShaftsbury’ssecretaryandassistantattheExchequer,anditwasthroughthisconnection,andsubsequentworkassecretarytotheCouncilofTradeandPlantations(1673–1674)andlaterasaCommissionerforTrade,thathedevel-opedaninterestineconomicissues.Lockewasamajorphilosopher,notonlythroughhistheoriesofpropertyandgov-ernment,ofmodernWesterncivilization,butofempiricism,psychology,andutilitari-anism.Hedevelopedalabortheoryofpropertyandofvalueandwasaforemostarticulatorofthequantitytheoryofmoneyinitsmostsophisticatedform,allthewhileJohnLocke,Artist:Unknown,bycourtesyoftheNationalPortraitGallery,London.supportingmercantilistpolicies.Histheo-riesofpropertyandgovernmentmadehimthepremierphilosopherofnon-landedproperty,governmentasresponsivetothefeltinterestsofthemiddleclass,andofthecentralroleofthelegislaturedominatedbypropertyowners.TheexcerptsfromLocke’swritingsreprintedherearetakenfromhisOfCivilGovernmentandSomeConsiderationsoftheConsequencesoftheLoweringofInterest,andRaisingtheValueofMoney.IntheformerwefindLocke’sdefenseofprivatepropertybasedontheapplicationoflaboreffort,anideathat,amongotherthings,servedtogroundlaterwriters’attemptstoputforthalabortheoryofvalue.InConsiderations,Locketreatsthequestionofwhethertherateofinterestcanberegulatedbygovernmentalauthoritiesandoffersadefenseofthepropositionthatitcannotbe,becausetheforcesofthemarketaremorepowerfulthanthoseofthelaw.Lockeappliesbasicnotionsofsupplyanddemandtoillustratethatthepriceofmoney(interest)isdeterminedinamannerakintothepricesofothergoods–makingtherateofinterestafunctionoftheoverallprof-itabilityofinvestmentratherthansomethingthatcanbefixedbylaw.Lockethenproceeds 58Pre-ClassicalThoughttoarguethatthevalueofmoney,oritspurchasingpower,isafunctionofthequantityofmoneyincirculation–anidealatertobeknownasthequantitytheoryofmoney–andtoapplythistheorytotheinternationalmonetaryarena.ReferencesandfurtherreadingEltis,Walter(1995)“JohnLocke,theQuantityTheoryofMoneyandtheEstablismentofaSoundCurrency,”inMarkBlaugetal.(eds),TheQuantityTheoryofMoney:FromLocketoKeynesandFriedman,Aldershot:EdwardElgar.Hutchison,Terence(1988)BeforeAdamSmith:TheEmergenceofPoliticalEconomy,1662–1776,Oxford:BasilBlackwell.Laslett,P.(1957)“JohnLocke,theGreatRecoinage,andtheOriginsoftheBoardofTrade,”WilliamandMaryQuarterly14(July):370–92.Leigh,A.H.(1974)“JohnLockeandtheQuantityTheoryofMoney,”HistoryofPoliticalEconomy6(Summer):200–19.Letwin,William(1964)TheOriginsofScientificEconomics,GardenCity,NY:Doubleday&Co.Locke,John(1823)TheWorksofJohnLocke,London:ThomasTegg.Vaughn,KarenI.(1980)JohnLocke:EconomistandSocialScientist,Chicago:UniversityofChicagoPress.——(1987)“Locke,John,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,229–30. OfCivilGovernment(1690)*ChapterV:Ofproperty25.Whetherweconsidernaturalreason,whichtellsus,thatmen,beingonceborn,havearighttotheirpreservation,andconsequentlytomeatanddrink,andsuchotherthingsasnatureaffordsfortheirsubsistence;orrevelation,whichgivesusanaccountofthosegrantsGodmadeoftheworldtoAdam,andtoNoah,andhissons;itisveryclear,thatGod,askingDavidsays,Psal.cxv.16,‘hasgiventheearthtothechildrenofmen’;givenittomankindincommon.Butthisbeingsupposed,itseemstosomeaverygreatdifficultyhowanyoneshouldevercometohaveapropertyinanything:Iwillnotcontentmyselftoanswer,thatifitbedifficulttomakeoutproperty,uponasuppositionthatGodgavetheworldtoAdamandhisposterityincommon,itisimpossiblethatanyman,butoneuniversalmonarch,shouldhaveanyproperty,uponasupposi-tionthatGodgavetheworldtoAdam,andhisheirsinsuccession,exclusiveofalltherestofhisposterity.ButIshallendeavourtoshowhowmenmightcometohaveapropertyinseveralpartsofthatwhichGodgavetomankindincommon,andthatwithoutanyexpresscompactofallthecommoners.26.God,whohathgiventheworldtomenincommon,hathalsogiventhemreasontomakeuseofittothebestadvantageoflifeandconvenience.Theearth,andallthatistherein,isgiventomenforthesupportandcomfortoftheirbeing.Andthoughallthefruitsitnaturallyproduces,andbeastsitfeeds,belongtomankindincommon,astheyareproducedbythespontaneoushandofnature;andnobodyhasoriginallyaprivatedominion,exclusiveoftherestofmankind,inanyofthem,astheyarethusintheirnaturalstate:yetbeinggivenfortheuseofmen,theremustofnecessitybeameanstoappropriatethemsomewayorotherbeforetheycanbeofanyuse,oratallbeneficialtoanyparticularman.Thefruit,orvenison,whichnourishesthewildIndian,whoknowsnoenclosure,andisstillatenantincommon,mustbehis,andsohis,thatis,apartofhim,thatanothercannolongerhaveanyrighttoit,beforeitcandohimanygoodforthesupportofhislife.27.Thoughtheearth,andallinferiorcreatures,becommontoallmen,yeteverymanhasapropertyinhisownperson:thisnobodyhasanyrighttobuthimself.Thelabourofhisbody,andtheworkofhishands,wemaysay,areproperlyhis.Whatsoeverthenheremovesoutofthestatethatnaturehathprovided,andleftitin,hehathmixedhislabourwith,andjoinedtoitsomethingthatishisown,andtherebymakesithisproperty.Itbeingbyhimremovedfromthecommonstatenaturehathplaceditin,ithathbythislaboursomethingannexedtoitthatexcludesthecommonrightofothermen.Forthislabourbeingtheunquestionablepropertyof*TwoTreatisesofGovernment.London,1764.Takenfrom:TheWorksofJohnLocke,ANewEdition,Corrected,Vol.V.London:PrintedforThmasTegg;W.SharpeandSon;G.Offor;G.andJ.Robinson;J.EvansandCo.:AlsoR.GriffinandCo.Glasgow;andJ.Cumming,Dublin.1823.Pp.207–485.ReprintedGermany:ScientiaVerlagAalen,1963. 60Pre-ClassicalThoughtthelabourer,nomanbuthecanhavearighttowhatthatisoncejoinedto,atleastwherethereisenough,andasgood,leftincommonforothers.28.Hethatisnourishedbytheacornshepickedupunderanoak,ortheappleshegatheredfromthetreesinthewood,hascertainlyappropriatedthemtohimself.Nobodycandenybutthenourishmentishis.Iaskthen,whendidtheybegintobehis?Whenhedigested?Orwhenheate?Orwhenheboiled?Orwhenhebroughtthemhome?Orwhenhepickedthemup?Anditisplain,ifthefirstgatheringmadethemnothis,nothingelsecould.Thatlabourputadistinctionbetweenthemandcommon:thataddedsomethingtothemmorethannature,thecommonmotherofall,haddone;andsotheybecamehisprivateright.Andwillanyonesay,hehadnorighttothoseacornsorappleshethusappropriated,becausehehadnottheconsentofallmankindtomakethemhis?Wasitarobberythustoassumetohimselfwhatbelongedtoallincommon?Ifsuchaconsentasthatwasnecessary,manhadstarved,notwithstandingtheplentyGodhadgivenhim.Weseeincommons,whichremainsobycompact,thatitisthetakinganypartofwhatiscommon,andremovingitoutofthestatenatureleavesitin,whichbeginstheproperty;withoutwhichthecommonisofnouse.Andthetakingofthisorthatpartdoesnotdependontheexpressconsentofallthecommoners.Thusthegrassmyhorsehasbit;theturfsmyservanthascut;andtheoreIhavediggedinanyplace,whereIhavearighttothemincommonwithothers;becomemyproperty,withouttheassignationorconsentofanybody.Thelabourthatwasmine,removingthemoutofthatcommonstatetheywerein,hathfixedmypropertyinthem.29.Bymakinganexplicitconsentofeverycommonernecessarytoanyone’sappropriatingtohimselfanypartofwhatisgivenincommon,childrenorservantscouldnotcutthemeat,whichtheirfatherormasterhadprovidedforthemincommon,withoutassigningtoeveryonehispeculiarpart.Thoughthewaterrunninginthefountainbeeveryone’s,yetwhocandoubtbutthatinthepitcherishisonlywhodrewitout?Hislabourhathtakenitoutofthehandsofnature,whereitwascommon,andbelongedequallytoallherchildren,andhaththerebyappropriatedittohimself.…31.Itwillperhapsbeobjectedtothis,that‘ifgatheringtheacorns,orotherfruitsoftheearth,&c.makesarighttothem,thenanyonemayengrossasmuchashewill’.TowhichIanswer,Notso.Thesamelawofnature,thatdoesbythismeansgiveusproperty,doesalsoboundthatpropertytoo.‘Godhasgivenusallthingsrichly’,ITim.vi.17,isthevoiceofreasonconfirmedbyinspi-ration.Buthowfarhashegivenitus?Toenjoy.Asmuchasanyonecanmakeuseoftoanyadvantageoflifebeforeitspoils,somuchhemaybyhislabourfixapropertyin:whateverisbeyondthis,ismorethanhisshare,andbelongstoothers.NothingwasmadebyGodformantospoilordestroy.Andthus,consideringtheplentyofnaturalprovisionstherewasalongtimeintheworld,andthefewspenders;andtohowsmallapartofthatprovisiontheindustryofonemancouldextenditself,andengrossittotheprejudiceofothers;especiallykeepingwithinthebounds,setbyreason,ofwhatmightserveforhisuse;therecouldbethenlittleroomforquarrelsorcontentionsaboutpropertysoestablished.32.Butthechiefmatterofpropertybeingnownotthefruitsoftheearth,andthebeaststhatsubsistonit,buttheearthitself;asthatwhichtakesin,andcarrieswithitalltherest;Ithinkitisplain,thatpropertyinthattooisacquiredastheformer.Asmuchlandasamantills,plants,improves,cultivates,andcanusetheproductof,somuchishisproperty.Hebyhislabourdoes,asitwere,encloseitfromthecommon.Norwillitinvalidatehisright,tosayeverybodyelsehasanequaltitletoit,andthereforehecannotappropriate,hecannotenclose,withouttheconsentofallhisfellow-commoners,allmankind.God,whenhegavetheworldincommontoallmankind,commandedmanalsotolabour,andthepenuryofhisconditionrequireditofhim.Godandhisreasoncommandedhimtosubduetheearth,thatis,improveitforthebenefitoflife, Locke:OfCivilGovernment61andthereinlayoutsomethinguponitthatwashisown,hislabour.Hethat,inobediencetothiscommandofGod,subdued,tilled,andsowedanypartofit,therebyannexedtoitsomethingthatwashisproperty,whichanotherhadnotitleto,norcouldwithoutinjurytakefromhim.33.Norwasthisappropriationofanyparcelofland,byimprovingit,anyprejudicetoanyotherman,sincetherewasstillenough,andasgoodleft;andmorethantheyetunprovidedcoulduse.Sothat,ineffect,therewasneverthelessleftforothersbecauseofhisenclosureforhimself:forhethatleavesasmuchasanothercanmakeuseof,doesasgoodastakenothingatall.Nobodycouldthinkhimselfinjuredbythedrinkingofanotherman,thoughhetookagooddraught,whohadawholeriverofthesamewaterlefthimtoquenchhisthirst;andthecaseoflandandwater,wherethereisenoughofboth,isperfectlythesame.34.Godgavetheworldtomenincommon;butsincehegaveitthemfortheirbenefit,andthegreatestconvenienciesoflifetheywerecapabletodrawfromit,itcannotbesupposedhemeantitshouldalwaysremaincommonanduncultivated.Hegaveittotheuseoftheindustriousandrational(andlabourwastobehistitletoit),nottothefancyorcovetousnessofthequarrelsomeandcontentious.Hethathadasgoodleftforhisimprovementaswasalreadytakenup,needednotcomplain,oughtnottomeddlewithwhatwasalreadyimprovedbyanother’slabour:ifhedid,itisplainhedesiredthebenefitofanother’spains,whichhehadnorightto,andnotthegroundwhichGodhadgivenhimincommonwithotherstolabouron,andwhereoftherewasasgoodleftasthatalreadypossessed,andmorethanheknewwhattodowith,orhisindustrycouldreachto.…37.Thisiscertain,thatinthebeginning,beforethedesireofhavingmorethanmanneededhadalteredtheintrinsicvalueofthings,whichdependsonlyontheirusefulnesstothelifeofman;orhadagreed,thatalittlepieceofyellowmetal,whichwouldkeepwithoutwastingordecay,shouldbeworthagreatpieceofflesh,orawholeheapofcorn;thoughmenhadarighttoappropriate,bytheirlabour,eachonetohimself,asmuchofthethingsofnatureashecoulduse:yetthiscouldnotbemuch,nortotheprejudiceofothers,wherethesameplentywasstilllefttothosewhowouldusethesameindustry.Towhichletmeadd,thathewhoappropriateslandtohimselfbyhislabour,doesnotlessen,butincreasethecommonstockofmankind:fortheprovi-sionsservingtothesupportofhumanlife,producedbyoneacreofenclosedandcultivatedland,are(tospeakmuchwithincompass)tentimesmorethanthosewhichareyieldedbyanacreoflandofanequalrichnesslyingwasteincommon.Andthereforehethatenclosesland,andhasagreaterplentyoftheconvenienciesoflifefromtenacres,thanhecouldhavefromanhundredlefttonature,maytrulybesaidtogiveninetyacrestomankind:forhislabournowsupplieshimwithprovisionsoutoftenacres,whichwerebytheproductofanhundredlyingincommon.Ihavehereratedtheimprovedlandverylow,inmakingitsproductbutastentoone,whenitismuchneareranhundredtoone:forIask,whetherinthewildwoodsanduncultivatedwasteofAmerica,lefttonature,withoutanyimprovement,tillage,orhusbandry,athousandacresyieldtheneedyandwretchedinhabitantsasmanyconvenienciesoflifeastenacresequallyfertilelanddoinDevonshire,wheretheyarewellcultivated?Beforetheappropriationofland,hewhogatheredasmuchofthewildfruit,killed,caught,ortamed,asmanyofthebeasts,ashecould;hethatsoemployedhispainsaboutanyofthespontaneousproductsofnature,asanywaytoalterthemfromthestatewhichnatureputthemin,byplacinganyofhislabouronthem,didtherebyacquireaproprietyinthem:butiftheyper-ished,inhispossession,withouttheirdueuse;ifthefruitsrotted,orthevenisonputrefied,beforehecouldspendit,heoffendedagainstthecommonlawofnature,andwasliabletobepunished;heinvadedhisneighbour’sshare,forhehadnoright,fartherthanhisusecalledforanyofthem,andtheymightservetoaffordhimconvenienciesoflife.… 62Pre-ClassicalThought40.Norisitsostrange,asperhapsbeforeconsiderationitmayappear,thatthepropertyoflabourshouldbeabletooverbalancethecommunityofland:foritislabourindeedthatputthedifferenceofvalueoneverything;andletanyoneconsiderwhatthedifferenceisbetweenanacreoflandplantedwithtobaccoorsugar,sownwithwheatorbarley,andanacreofthesamelandlyingincommon,withoutanyhusbandryuponit,andhewillfind,thattheimprovementoflabourmakesthefargreaterpartofthevalue.Ithinkitwillbebutaverymodestcomputationtosay,thatoftheproductsoftheearthusefultothelifeofman,nine-tenthsaretheeffectsoflabour:nay,ifwewillrightlyestimatethingsastheycometoouruse,andcastuptheseveralexpensesaboutthem,whatinthemispurelyowingtonature,andwhattolabour,weshallfind,thatinmostofthemninety-nine-hundredthsarewhollytobeputontheaccountoflabour.41.Therecannotbeaclearerdemonstrationofanything,thanseveralnationsoftheAmericansareofthis,whoarerichinland,andpoorinallthecomfortsoflife;whomnaturehavingfurnishedasliberallyasanyotherpeoplewiththematerialsofplenty,thatis,afruitfulsoil,apttoproduceinabundancewhatmightserveforfood,raiment,anddelight;yet,forwantofimprovingitbylabour,havenotone-hundredthpartoftheconvenienciesweenjoy:andakingofalargeandfruitfulterritorytherefeeds,lodges,andiscladworsethanaday-labourerinEngland.42.Tomakethisalittleclear,letusbuttracesomeoftheordinaryprovisionsoflife,throughtheirseveralprogresses,beforetheycometoouruse,andseehowmuchoftheirvaluetheyreceivefromhumanindustry.Bread,wine,andcloth,arethingsofdailyuse,andgreatplenty;yetnotwithstanding,acorns,water,andleaves,orskins,mustbeourbread,drink,andclothing,didnotlabourfurnishuswiththesemoreusefulcommodities:forwhateverbreadismoreworththanacorns,winethanwater,andclothorsilkthanleaves,skins,ormoss,thatiswhollyowingtolabourandindustry;theoneofthesebeingthefoodandraimentwhichunassistednaturefur-nishesuswith;theother,provisionswhichourindustryandpainsprepareforus;which,howmuchtheyexceedtheotherinvalue,whenanyonehathcomputed,hewillthenseehowmuchlabourmakesthefargreatestpartofthevalueofthingsweenjoyinthisworld:andthegroundwhichproducesthematerialsisscarcetobereckonedinasany,or,atmost,butaverysmallpartofit;solittle,thatevenamongstus,landthatisleftwhollytonature,thathathnoimprovementofpasturage,tillage,orplanting,iscalled,asindeeditis,waste;andweshallfindthebenefitofitamounttolittlemorethannothing. SomeConsiderationsoftheConsequencesoftheLoweringofInterest,andRaisingtheValueofMoney(1691)*Sir,Ihavesolittleconcerninpayingorreceivingof‘interest’,thatwereIinnomoredangertobemisledbyinabilityandignorance,thanIamtobebiassedbyinterestandinclination,Imighthopetogiveyouaveryperfectandclearaccountoftheconsequencesofalawtoreduceinterestto4percent.But,sinceyouarepleasedtoaskmyopinion,Ishallendeavourfairlytostatethismatterofuse,withthebestofmyskill.Thefirstthingtobeconsideredis,‘Whetherthepriceofthehireofmoneycanberegulatedbylaw?’AndtothatIthink,generallyspeaking,onemaysay,itismanifestitcannot.Forsinceitisimpossibletomakealaw,thatshallhinderamanfromgivingawayhismoneyorestatetowhomhepleases,itwillbeimpossible,byanycontrivanceoflaw,tohindermen,skilledinthepowertheyhaveovertheirowngoods,andthewaysofconveyingthemtoothers,topurchasemoneytobelentthem,atwhatratesoevertheiroccasionsshallmakeitnecessaryforthemtohaveit;foritistoberemembered,thatnomanborrowsmoney,orpaysuse,outofmereplea-sure:itisthewantofmoneydrivesmentothattroubleandchargeofborrowing;andpropor-tionablytothiswant,sowilleveryonehaveit,whateverpriceitcosthim.Whereintheskilful,Isay,willalwayssomanageit,astoavoidtheprohibitionofyourlaw,andkeepoutofitspenalty,dowhatyoucan.Whatthenwillbetheunavoidableconsequencesofsuchalaw?1.Itwillmakethedifficultyofborrowingandlendingmuchgreater,wherebytrade(thefoundationofriches)willbeobstructed.2.Itwillbeaprejudicetonone,butthosewhomostneedassistanceandhelp;Imeanwidowsandorphans,andothersuninstructedintheartsandmanagementofmoreskilfulmen,whoseestateslyinginmoney,theywillbesure,especiallyorphans,tohavenomoreprofitoftheirmoney,thanwhatinterestthelawbarelyallows.3.Itwillmightilyincreasetheadvantageofbankersandscriveners,andothersuchexpertbrokers,who,skilledintheartsofputtingoutmoney,accordingtothetrueandnaturalvalue,whichthepresentstateoftrade,money,anddebts,shallalwaysraiseinterestto,theywillinfalli-blygetwhatthetruevalueofinterestshallbeabovethelegal;formen,findingtheconvenienceoflodgingtheirmoneyinhands,wheretheycanbesureofit,atshortwarning,theignorantandlazywillbeforwardesttoputitintothesemen’shands,whoareknownwillinglytoreceiveit,andwheretheycan,readilyhavethewhole,orpart,uponanysuddenoccasion,thatmaycallforit.*SomeConsiderationsoftheConsequencesoftheLoweringofInterestandRaisingtheValueofMoney.InalettersenttoaMemberofParliament,1691LondonPrintedforAwnshamandJohnChurchill,attheBlackSwaninPater-Noster-Row.Takenfrom:TheWorksofJohnLocke,ANewEdition,Corrected,Vol.V.London:PrintedforThmasTegg;W.SharpeandSon;G.Offor;G.andJ.Robinson;J.EvansandCo.:AlsoR.GriffinandCo.Glasgow;andJ.Cumming,Dublin.1823.Pp.3–130.ReprintedGermany:ScientiaVerlagAalen,1963. 64Pre-ClassicalThought4.IfearImayreckonitasoneoftheprobableconsequencesofsuchalaw,thatitislikelytocausegreatperjuryinthenation;acrime,thanwhichnothingismorecarefullytobepreventedbylaw-makers,notonlybypenalties,thatshallattendapparentandprovedperjury,butbyavoid-ingandlessening,asmuchasmaybe,thetemptationstoit;forwherethosearestrong(astheyare,wheremenshallswearfortheirownadvantage)therethefearofpenaltiestofollowwillhavelittlerestraint,especiallyifthecrimebehardtobeproved;allwhich,Isuppose,willhappeninthiscase,wherewayswillbefoundouttoreceivemoneyuponotherpretencesthanforuse,toevadetheruleandrigourofthelaw:andtherewillbesecrettrustsandcollusionsamongstmen,thatthoughtheymaybesuspected,canneverbeproved,withouttheirownconfession.…Butthatlawcannotkeepmenfromtakingmoreusethanyouset(thewantofmoneybeingthatalonewhichregulatesitsprice)willperhapsappear,ifweconsiderhowharditistosetapriceuponwine,orsilks,orotherunnecessarycommodities:buthowimpossibleitistosetarateuponvictuals,inatimeoffamine;formoneybeingauniversalcommodity,andasnecessarytotradeasfoodistolife,everybodymusthaveit,atwhatratetheycangetit;andunavoidablypaydear,whenitisscarce;anddebts,nolessthantrade,havemadeborrowinginfashion.Thebankersareaclearinstanceofthis:forsomeyearssince,thescarcityofmoneyhavingmadeitinEnglandworthreallymorethan6percent,mostofthosethathadnottheskilltoletitformorethan6percent,andsecurethemselvesfromthepenaltyofthelaw,putitinthebankers’hands,whereitwasreadyattheircall,whentheyhadanopportunityofgreaterimprovement;sothattherateyouset,profitsnotthelenders;andveryfewoftheborrowers,whoarefaintopaythepriceformoney,thatcommoditywouldbear,wereitleftfree;andthegainisonlytothebanker:andshouldyoulessentheuseto4percent,themerchantortradesmanthatborrowswouldnothaveitonejotcheaperthanhehasnow;butprobablythesetwoilleffectswouldfollow:first,thathewouldpaydearer;and,second,thattherewouldbelessmoneyleftinthecountrytodrivethetrade:forthebankers,payingatmostbut4percentandreceivingfrom6–10percentormore,atthatlowratecouldbecontenttohavemoremoneyliedeadbythem,thannow,whenitishigher;bywhichmeanstherewouldbelessmoneystirringintrade,andagreaterscarcity,whichwouldraiseitupontheborrowerbythismonoply;andwhatapartofourtreasuretheirskillandmanagement,joinedwithothers’laziness,orwantofskill,isapttodrawintotheirhands,istobeknownbythosevastsumsofmoneytheywerefoundtoowe,atshuttingupoftheExchequer:andthoughitbeverytrue,yetitisalmostbeyondbelief,thatoneprivategoldsmithofLondonshouldhavecredit,uponhissinglesecurity(beingusuallynothingbutanote,underoneofhisservants’hands)foraboveelevenhundredthousandpoundsatonce.Thesamereasons,Isup-pose,willstillkeeponthesametrade;andwhenyouhavetakenitdownbylawtothatrate,nobodywillthinkofhavingmorethan4percentofthebanker;thoughthosewhohaveneedofmoney,toemployitintrade,willnotthen,anymorethannow,getitunder5or6,orassomepay,7or8.Andiftheyhadthen,whenthelawpermittedmentomakemoreprofitoftheirmoney,solargeaproportionofthecashofthenationintheirhands,whocanthinkbutthat,bythislaw,itshouldbemoredrivenintoLombard-streetnow?Therebeingmanynow,wholendthemat4or5percentwhowouldnotlendtoothersat6.Itwouldtherefore,perhaps,bringdowntherateofmoneytotheborrower,andcertainlydistributeitbettertotheadvantageoftradeinthecountry,ifthelegalusewerekeptprettyneartothenatural;(bynaturaluse,Imeanthatrateofmoney,whichthepresentscarcityofitmakesitnaturallyat,uponanequaldistribu-tionofit)forthenmen,beinglicensedbythelawtotakenearthefullnaturaluse,willnotbefor-wardtocarryittoLondon,toputitintothebanker’shands;butwilllendittotheirneighboursinthecountry,whereitisconvenientfortradeitshouldbe.But,ifyoulessentherateofuse,thelender,whoseinterestitistokeepuptherateofmoney,willratherlendittothebanker,atthelegalinterest,thantothetradesman,orgentleman,who,whenthelawisbroken,shallbesureto Locke:SomeConsiderationsofInterest65paythefullnaturalinterest,ormore;becauseoftheengrossingbythebanker,aswellastherisqueintransgressingthelaw:whereas,werethenaturaluse,suppose7percentandthelegal6;first,theownerwouldnotventurethepenaltyofthelaw,forthegaining1in7,thatbeingtheutmosthismoneywouldyield:norwouldthebankerventuretoborrow,wherehisgainswouldbebut1percent,northemoneyedmanlendhimwhathecouldmakebetterprofitoflegallyathome.Allthedangerliesinthis;thatyourtradeshouldsuffer,ifyourbeingbehindhandhasmadethenaturalusesohigh,thatyourtradesmancannotliveuponhislabour,butthatyourrichneighbourswillsoundersellyou,thatthereturnyoumakewillnotamounttopaytheuse,andaffordalivelihood.Thereisnowaytorecoverfromthis,butbyageneralfrugalityandindustry;orbybeingmastersofthetradeofsomecommodity,whichtheworldmusthavefromyouatyourrate,becauseitcannotbeotherwheresupplied.Now,Ithink,thenaturalinterestofmoneyisraisedtwoways:first,whenthemoneyofacountryisbutlittle,inproportiontothedebtsoftheinhabitants,oneamongstanother.For,sup-posetenthousandpoundsweresufficienttomanagethetradeofBermudas,andthatthetenfirstplanterscarriedovertwentythousandpounds,whichtheylenttotheseveraltradesmenandinhabitantsofthecountry,wholivingabovetheirgains,hadspenttenthousandpoundsofthismoney,anditweregoneoutoftheisland;itisevident,that,shouldallthecreditorsatoncecallintheirmoney,therewouldbeagreatscarcityofmoney,whenthat,employedintrade,mustbetakenoutofthetradesmen’shandstopaydebts;orelsethedebtorswantmoney,andbeexposedtotheircreditors,andsointerestwillbehigh.Butthisseldomhappening,thatall,orthegreatestpart,ofthecreditorsdoatoncecallfortheirmoney,unlessitbeinsomegreatandgeneraldan-ger,islessandseldomerfeltthanthefollowing,unlesswherethedebtsofthepeoplearegrowntoagreaterproportion;forthat,constantlycausingmoreborrowersthantherecanbelenders,willmakemoneyscarce,andconsequentlyinteresthigh.Second,that,whichconstantlyraisesthenaturalinterestofmoney,is,whenmoneyislittle,inproportiontothetradeofacountry.Forintradeeverybodycallsformoney,accordingashewantsit,andthisdisproportionisalwaysfelt.For,ifEnglishmenowedinallbutonemillion,andthereweremillionsofmoneyinEngland,themoneywouldbewellenoughproportionedtothedebts:but,iftwomillionswerenecessarytocarryonthetrade,therewouldbeamillionwanting,andthepriceofmoneywouldberaised,asitisofanyothercommodityinamarket,wherethemerchandizewillnotservehalfthecustomers,andtherearetwobuyersforoneseller.Itisinvain,therefore,togoabouteffectuallytoreducethepriceofinterestbyalaw;andyoumayasrationallyhopetosetafixedrateuponthehireofhouses,orships,asofmoney.Hethatwantsavessel,ratherthanlosehismarket,willnotsticktohaveitatthemarket-rate,andfindwaystodoitwithsecuritytotheowner,thoughtheratewerelimitedbylaw:andhethatwantsmoney,ratherthanlosehisvoyage,orhistrade,willpaythenaturalinterestforit;andsubmittosuchwaysofconveyance,asshallkeepthelenderoutofthereachofthelaw.Sothatyouract,atbest,willserveonlytoincreasetheartsoflending,butnotatalllessenthechargeofthebor-rower:he,itislikely,shall,withmoretrouble,andgoingfartherabout,payalsothemoreforhismoney;unlessyouintendtobreakinonlyuponmortgagesandcontractsalreadymade,and(whichisnottobesupposed)bylaw,postfactum,voidbargainslawfullymade,andgivetoRichardwhatisPeter’sdue,fornootherreason,butbecauseonewasborrower,andtheotherlender.But,supposingthelawreachedtheintentionofthepromotersofit;andthatthisactbesocontrived,thatitfixedthenaturalpriceofmoney,andhindereditsbeing,byanybody,lentatahigherusethan4percent,whichisplainitcannot:letus,inthenextplace,seewhatwillbetheconsequencesofit.1.Itwillbealosstowidows,orphans,andallthosewhohavetheirestatesinmoney,one-thirdoftheirestates;whichwillbeaveryhardcaseuponagreatnumberofpeople:anditis 66Pre-ClassicalThoughtwarilytobeconsidered,bythewisdomofthenation,whethertheywillthus,atoneblow,fineandimpoverishagreatandinnocentpartofthepeople,whohavingtheirestatesinmoney,haveasmuchrighttomakeasmuchofthemoneyasitisworth(formoretheycannot)asthelandlordhastolethislandforasmuchasitwillyield.Tofinemenone-thirdoftheirestates,withoutanycrime,oroffencecommitted,seemsveryhard.2.Asitwillbeaconsiderablelossandinjurytothemoneyedman,soitwillbenoadvantageatalltothekingdom.For,sotradebenotcramped,andexportationofournativecommoditiesandmanufacturesnothindered,itwillbenomattertothekingdom,whoamongstourselvesgetsorloses:onlycommoncharityteaches,thatthoseshouldbemosttakencareofbythelaw,whoareleastcapableoftakingcareforthemselves.3.Itwillbeagaintotheborrowingmerchant.Forifheborrowat4percent,andhisreturnsbe12percent,hewillhave8percent,andthelender4;whereasnowtheydividetheprofitequallyat6percent.Butthisneithergets,norloses,tothekingdom,inyourtrade,supposingthemerchantandlendertobebothEnglishmen;onlyitwill,asIhavesaid,transferathirdpartofthemoneyedman’sestate,whohadnothingelsetoliveon,intothemerchant’spocket;andthatwithoutanymeritintheone,ortransgressionintheother.Privatemen’sinterestsoughtnotthustobeneglected,norsacrificedtoanything,butthemanifestadvantageofthepublic.But,inthiscase,itwillbequitethecontrary.Thislosstothemoneyedmenwillbeaprejudicetotrade:sinceitwilldiscouragelendingatsuchadisproportionofprofittorisque;asweshallseemorebyandby,whenwecometoconsiderofwhatconsequenceitistoencouragelending,thatsononeofthemoneyofthenationmayliedead,andtherebyprejudicetrade.4.Itwillhindertrade.For,therebeingacertainproportionofmoneynecessaryfordrivingsuchaproportionoftrade,somuchmoneyofthisasliesstill,lessenssomuchofthetrade.Nowitcannotberationallyexpected,butthat,wheretheventureisgreatandthegainssmall,(asitisinlendinginEngland,uponlowinterest)manywillchooserathertohoarduptheirmoney,thanventureitabroad,onsuchterms.Thiswillbealosstothekingdom,andsuchaloss,as,hereinEngland,oughtchieflytobelookedafter:for,wehavingnomines,noranyotherwayofgetting,orkeepingofrichesamongstus,butbytrade;somuchofourtradeasislost,somuchofourrichesmustnecessar-ilygowithit;andtheover-balancingoftrade,betweenusandourneighbours,mustinevitablycarryawayourmoney,andquicklyleaveuspoorandexposed.Goldandsilver,thoughtheyserveforfew,yettheycommandalltheconvenienciesoflife,andthereforeinaplentyofthemconsistriches.…Inacountrynotfurnishedwithmines,therearebuttwowaysofgrowingrich,eitherconquestorcommerce.BythefirsttheRomansmadethemselvesmastersoftherichesoftheworld;butIthinkthat,inourpresentcircumstances,nobodyisvainenoughtoentertainathoughtofourreapingtheprofitsoftheworldwithourswords,andmakingthespoilandtributeofvanquishednationsthefundforthesupplyofthechargesofthegovernment,withanoverplusforthewants,andequallycravingluxury,andfashionablevanityofthepeople.Commerce,therefore,istheonlywaylefttous,eitherforriches,orsubsistence:forthistheadvantagesofoursituationaswellastheindustryandinclinationofourpeople,boldandskilfulatsea,donaturallyfitus:bythisthenationofEnglandhasbeenhithertosupported,andtradeleftalmosttoitself,andassistedonlybythenaturaladvantagesabove-mentioned,broughtusinplentyofriches,andalwayssetthiskingdominarankequal,ifnotsuperiortoanyofitsneigh-bours;andwouldnodoubt,withoutanydifficulty,havecontinueditso,ifthemoreenlargedandbetterunderstoodinterestoftrade,sincetheimprovementofnavigation,hadnotraisedusmanyrivals;andtheamazingpoliticsofsomelatereignsletinothercompetitorswithusforthesea,whowillbesuretoseizetothemselveswhateverpartsoftradeourmismanagement,orwantofmoney,shallletslipoutofourhands:andwhenitisoncelost,itwillbetoolatetohope,byamistimedcare,easilytoretrieveitagain.Forthecurrentsoftrade,likethoseofwaters,make Locke:SomeConsiderationsofInterest67themselveschannels,outofwhichtheyareafterwardsashardtobediverted,asriversthathavewornthemselvesdeepwithintheirbanks.Trade,then,isnecessarytotheproducingofriches,andmoneynecessarytothecarryingonoftrade.Thisisprincipallytobelookedafter,andtakencareof.Forifthisbeneglected,weshallinvainbycontrivancesamongstourselves,andshufflingthelittlemoneywehave,fromoneanother’shands,endeavourtopreventourwants:decayoftradewillquicklywastealltheremainder;andthenthelanded-man,whothinks,perhaps,bythefallofinteresttoraisethevalueofhisland,willfindhimselfcruellymistaken;whenthemoneybeinggone,(asitwillbe,ifourtradebenotkeptup)hecangetneitherfarmertorent,norpurchasertobuyhisland.Whatsoever,therefore,bindersthelendingofmoney,injurestrade;andsothereducingofmoneyto4percent,whichwilldiscouragemenfromlending,willbealosstothekingdom,instoppingsomuchofthecurrentmoney,whichturnsthewheelsoftrade.Butallthisuponasupposition,thatthelenderandborrowerarebothEnglishmen.…Thenecessityofacertainproportionofmoneytotrade(Iconceive)liesinthis,thatmoney,initscirculation,drivingtheseveralwheelsoftrade,whilstitkeepsinthatchannel(forsomeofitwillunavoidablybedrainedintostandingpools)isallsharedbetweenthelandholder,whoselandaffordsthematerials;thelabourer,whoworksthem;thebroker,thatis,themerchantandshop-keeper,whodistributesthemtothosethatwantthem;andtheconsumerwhospendsthem.Nowmoneyisnecessarytoallthesesortsofmen,asservingbothforcountersandforpledges’andsocarryingwithitevenreckoning,andsecurity,thathethatreceivesitshallhavethesamevalueforitagain,ofotherthingsthathewants,wheneverhepleases.Theoneoftheseitdoesbyitsstampanddenomination;theotherbyitsintrinsicvalue,whichisitsquantity.Formankind,havingconsentedtoputanimaginaryvalueupongoldandsilver,byreasonoftheirdurableness,scarcity,andnotbeingveryliabletobecounterfeited,havemadethem,bygeneralconsent,thecommonpledges,wherebymenareassured,inexchangeforthem,toreceiveequallyvaluablethings,tothosetheypartedwith,foranyquantityofthesemetals;bywhichmeansitcomestopass,thattheintrinsicvalue,regardedinthesemetals,madethecom-monbarter,isnothingbutthequantitywhichmengiveorreceiveofthem;fortheyhaving,asmoney,noothervalue,butaspledgestoprocurewhatonewantsordesires,andtheyprocuringwhatwewantordesireonlybytheirquantity,itisevidentthattheintrinsicvalueofsilverandgold,usedincommerce,isnothingbuttheirquantity.…Toreturntothebusinessinhand,andshowthenecessityofaproportionofmoneytotrade.Everymanmusthaveatleastsomuchmoney,orsotimelyrecruits,asmayinhand,orinashortdis-tanceoftime,satisfyhiscreditorwhosupplieshimwiththenecessariesoflife,orofhistrade.Fornobodyhasanylongerthesenecessarysuppliesthanhehasmoney,orcredit,whichisnothingelsebutanassuranceofmoney,insomeshorttime.Sothatitisrequisitetotrade,thatthereshouldbesomuchmoneyastokeepupthelandholder’s,labourer’s,andbroker’s,credit:andthereforereadymoneymustbeconstantlyexchangedforwaresandlabour,orfollowwithinashorttimeafter.Thisshowsthenecessityofsomeproportionofmoneytotrade:butwhatproportionthatis,ishardtodetermine;becauseitdependsnotbarelyonthequantityofmoney,butthequicknessofitscirculation.Theverysameshillingmay,atonetime,paytwentymenintwentydays:atanother,restinthesamehandsonehundreddaystogether.Thismakesitimpossibleexactlytoestimatethequantityofmoneyneedfulintrade;but,tomakesomeprobableguess,wearetoconsiderhowmuchmoneyitisnecessarytosupposemustrestconstantlyineachman’shands,asrequisitetothecarryingonoftrade.… 68Pre-ClassicalThoughtThereisanotherseemingconsequenceofthereducingofmoneytoalowprice,whichatfirstsighthassuchanappearanceoftruthinit,thatIhaveknownittoimposeuponveryablemen,andIguessithasnosmallinfluence,atthistime,inpromotingthisalteration;andthatis,thattheloweringofinterestwillraisethevalueofallotherthingsinproportion.Formoneybeingthecounter-balancetoallotherthingspurchaseablebyit,andlying,asitwere,intheoppositescaleofcommerce,itlookslikeanaturalconsequence,thatasmuchasyoutakeofffromthevalueofmoney,somuchyouaddtothepriceofotherthingswhichareexchangedforit;theraisingofthepriceofanythingbeingnomorebuttheadditiontoitsvalueinrespectofmoney,or,whichisallone,lesseningthevalueofmoney.Forexample:shouldthevalueofgoldbebroughtdowntothatofsilver,onehundredguineaswouldpurchaselittlemorecorn,wool,orland,thanonehundredshillings;andso,thevalueofmoneybeingbroughtlower,saythey,thepriceofotherthingswillrise,andthefallingofinterestfromsixpoundstofourpoundspercentistakingawaysomuchofthepriceofmoney,andsoconsequentlythelesseningitsvalue.Themistakeofthisplausiblewayofreasoningwillbeeasilydiscovered,whenweconsiderthatthemeasureofthevalueofmoney,inproportiontoanythingpurchaseablebyit,isthequantityofthereadymoneywehaveincomparisonwiththequantityofthatthing,anditsvent;or,whichamountstothesamething,thepriceofanycommodityrisesorfalls,bytheproportionofthenumberofbuyersandsellers:thisruleholdsuniversallyinallthingsthataretobeboughtandsold,batingnowandthenanextravagantfancyofsomeparticularperson,whichneveramountstosoconsiderableapartoftrade,astomakeanythingintheaccountworthytobethoughtanexceptiontothisrule.Theventofanythingdependsuponitsnecessityorusefulness;asconvenience,oropinion,guidedbyfancy,orfashion,shalldetermine.Theventofanycommoditycomestobeincreased,ordecreased,asagreaterpartoftherun-ningcashofthenationisdesignedtobelaidout,byseveralpeopleatthesametime,ratherinthatthananother;asweseeinthechangeoffashions.Ishallbeginfirstwiththenecessaries,orconvenienciesoflife,andtheconsumablecommodi-tiessubservientthereunto;andshow,thatthevalueofmoney,inrespectofthose,dependsonlyontheplentyorscarcityofmoney,inproportiontotheplentyandscarcityofthosethings;andnotonwhatinterestshall,bynecessity,law,orcontract,beatthattimelaidontheborrowingofmoney;andthenafterwardsIshallshowthatthesameholdsinland.Thereisnothingmoreconfirmed,bydailyexperience,thanthatmengiveanyportionofmoney,forwhatsoeverisabsolutelynecessary,ratherthangowithoutit.Andinsuchthings,thescarcityofthemalonemakestheirprices.Asforexample:letussupposehalfanounceofsilver,orhalfacrownnowinEngland,isworthabushelofwheat:butshouldtherebenextyearagreatscarcityofwheatinEngland,andaproportionablewantofallotherfood,fiveouncesofsilverwould,perhaps,inexchangepurchasebutonebushelofwheat:sothatmoneywouldbethennine-tenthslessworthinrespectoffood,thoughatthesamevalueitwasbefore,inrespectofotherthings,thatkepttheirformerproportion,intheirquantityandconsumption.…Thefall,therefore,orriseofinterest,maltingimmediately,byitschange,neithermorenorlessland,money,oranysortofcommodityinEngland,thantherewasbefore,altersnotatallthevalueofmoney,inreferencetocommodities.Becausethemeasureofthatisonlythequantityandvent,whicharenotimmediatelychangedbythechangeofinterest.Sofarasthechangeofinterestconduces,intrade,tothebringingin,orcarryingoutmoney,orcommodities,andsointimetothevaryingtheirproportionshereinEngland,fromwhatitwasbefore;sofarthechangeofinterest,asallotherthingsthatpromoteorhindertrade,mayalterthevalueofmoney,inreferencetocommodities.Butthatisnotinthisplacetobeconsidered.… Locke:SomeConsiderationsofInterest692.Moneyhasavalue,asitiscapable,byexchange,toprocureusthenecessariesorconve-nienciesoflife,andinthisithasthenatureofacommodity;onlywiththisdifference,thatitservesuscommonlybyitsexchange,neveralmostbyitsconsumption.Butthoughtheusemenmakeofmoneybenotinitsconsumption,yetithasnotatallamorestanding,settledvalue,inexchangewithanyotherthing,thananyothercommodityhas;butamoreknownone,andbetterfixedbyname,number,andweight,toenableustoreckonwhattheproportionofscarcityandventofonecommodityistoanother.Forsupposing,asbefore,thathalfanounceofsilverwouldlastyearexchangeforonebushelofwheat,orfor15lbweightoflead;ifthisyearwheatbetentimesscarcer,andleadinthesamequantitytoitsventasitwas,isitnotevident,thathalfanounceofsilverwillstillexchangefor15lboflead,thoughitwillexchangebutforone-tenthofabushelofwheat?Andhethathasuseofleadwillassoontake15lbweightofleadashalfanounceofsilver,forone-tenthofabushelofwheat,andnomore.Sothatifyousay,thatmoneynowisnine-tenthslessworththanitwastheformeryear,youmustsaysoofleadtoo,andallotherthings,thatkeepthesameproportiontomoneywhichtheyhadbefore.Thevariation,indeed,isfirstandmosttakennoticeofinmoney:becausethatistheuniversalmeasurebywhichpeoplereckon,andusedbyeverybodyinthevaluingofallthings.Forcallingthathalfanounceofsilverhalfacrown,theyspeakproperly,andarereadilyunderstood,whentheysay,halfacrown,ortwoshillingsandsix-pence,willnowbuyone-tenthofabushelofwheat,butdonotsay,that15lbofleadwillnowbuyone-tenthofabushelofwheat,becauseitisnotgenerallyusedtothissortofreckoning;nordotheysay,leadislessworththanitwas,though,inrespectofwheat,leadbenine-tenthsworsethanitwas,aswellassilver;onlybythetaleofshillingswearebetterenabledtojudgeofit:becausethesearemeasures,whoseideasbyconstantusearesettledineveryEnglishman’smind.This,Isuppose,isthetruevalueofmoney,whenitpassesfromonetoanother,inbuyingandselling;whereitrunsthesamechangesofhigher,orlower,asanyothercommoditydoth:foroneequalquantitywhereofyoushallreceiveinexchangemoreorlessofanothercommodity,atonetime,thanyoudoatanother.Forafarmerthatcarriesabushelofwheattomarket,andalabourerthatcarrieshalfacrown,shallfindthatthemoneyofone,aswellascornoftheother,shallatsometimespurchasehimmoreorlessleather,orsalt,accordingastheyareingreaterplenty,andscarcity,onetoanother.Sothatinexchangingcoinedsilverforanyothercommodity,(whichisbuyingandselling)thesamemeasuregovernstheproportionyoureceive,asifyouexchangedlead,orwheat,oranyothercommodity.Thatwhichregulatestheprice,thatis,thequantitygivenformoney(whichiscalledbuyingandselling)foranothercommodity(whichiscalledbartering)isnothingelsebuttheirquantityinproportiontotheirvent.Ifthenloweringofusemakesnotyoursilvermoreinspecie,oryourwheatorothercommoditiesless,itwillnothaveanyinfluenceatalltomakeitexchangeforlessofwheatoranyothercommodity,thanitwillhaveonlead,tomakeitexchangeforlesswheat,oranyothercommodity.…Hethatwilljustlyestimatethevalueofanything,mustconsideritsquantityinproportiontoitsvent,forthisaloneregulatestheprice.Thevalueofanything,comparedwithitselforwithastandingmeasure,isgreater,asitsquantityislessinproportiontoitsvent:but,incomparingit,orexchangingitwithanyotherthing,thequantityandventofthatthingtoomustbeallowedfor,inthecomputationoftheirvalue.But,becausethedesireofmoneyisconstantlyalmosteverywherethesame,itsventvariesverylittle,butasitsgreaterscarcityenhancesitsprice,andincreasesthescramble:therebeingnothingelsethatdoeseasilysupplythewantofit:thelessen-ingitsquantity,therefore,alwaysincreasesitsprice,andmakesanequalportionofitexchangeforagreaterofanyotherthing.Thusitcomestopass,thatthereisnomannerofsettledpropor-tionbetweenthevalueofanounceofsilverandanyothercommodity:for,eithervaryingits 70Pre-ClassicalThoughtquantityinthatcountry,orthecommoditychangingitsquantityinproportiontoitsvent,theirrespectivevalueschange,thatis,lessofonewillbarterformoreoftheother:though,intheordi-narywayofspeaking,itisonlysaid,thatthepriceofthecommodity,notofthemoney,ischanged.Forexample,halfanounceofsilverinEnglandwillexchangesometimesforawholebushelofwheat,sometimesforhalf,sometimesbutaquarter,andthisitdoesequally,whetherbyuseitbeapttobringintotheownersixinthehundredofitsownweightperannum,ornothingatall:itbeingonlythechangeofthequantityofwheattoitsvent,supposingwehavestillthesamesumofmoneyinthekingdom;orelsethechangeofthequantityofourmoneyintheking-dom,supposingthequantityofwheat,inrespecttoitsvent,bethesametoo,thatmakesthechangeinthepriceofwheat.Forifyoualterthequantity,orvent,oneitherside,youpresentlyaltertheprice,butnootherwayintheworld.…Ihavemetwithpatronsof4percentwho(amongstmanyotherfinethingstheytellusof)affirm,‘Thatifinterestwerereducedtofourpercent.thensomemenwouldborrowmoneyatthislowrate,andpaytheirdebts;otherswouldborrowmorethantheynowdo,andimprovetheirland;otherswouldborrowmore,andemployitintradeandmanufacture’.Gildedwordsindeed,werethereanythingsubstantialinthem!Thesementalkasiftheymeanttoshowusnotonlythewisdom,buttherichesofSolomon,andwouldmakegoldandsilverascommonasstonesinthestreet:butatlast,Ifear,itwillbebutwitwithoutmoney,andIwishitamounttothat.Itiswithoutquestion,thatcouldthecountrymanandthetradesmantakeupmoneycheaperthannowtheydo,everymanwouldbeforwardtoborrow,anddesirethathemighthaveothermen’smoneytoemploytohisadvantage.Iconfess,thosewhocontendfor4percenthavefoundoutawaytosetmen’smouthsawateringformoneyatthatrate,andtoincreasethenum-berofborrowersinEngland,ifanybodycanimagineitwouldbeanadvantagetoincreasethem.Buttoansweralltheirfineprojects,Ihavebutthisoneshortquestiontoaskthem:Will4percentincreasethenumberofthelenders?Ifitwillnot,asanymanattheveryfirsthearingwillshrewdlysuspectitwillnot,thenalltheplentyofmoney,theseconjurersbestowuponus,forimprovementofland,payingofdebts,andadvancementoftrade,isbutlikethegoldandsilverwhicholdwomenbelieveotherconjurersbestowsometimes,bywholelapfuls,onpoorcredulousgirls,which,whentheybringtothelight,isfoundtobenothingbutwitheredleaves;andthepos-sessorsofitarestillasmuchinwantofmoneyasever.Indeed,IgrantitwouldbewellforEngland,andIwishitwereso,thattheplentyofmoneyweresogreatamongstus,thateverymancouldborrowasmuchashecoulduseintradefor4percent;nay,thatmencouldborrowasmuchastheycouldemployfor6percent.Butevenatthatrate,theborrowersalreadyarefarmorethanthelenders.Whyelsedoththemerchant,uponoccasion,pay6percentandoftenabovethatrate,forbrokerage?Andwhydoththecountrygen-tlemanof1000l.perannumfinditsodifficult,withallthesecurityhecanbring,totakeup1000?Allwhichproceedsfromthescarcityofmoneyandbadsecurity;twocauseswhichwillnotbelesspowerfultohinderborrowing,aftertheloweringofinterest;andIdonotseehowanyonecanimaginethatreducinguseto4percentshouldabatetheirforce,orhowlesseningtherewardofthelender,withoutdiminishinghisrisk,shouldmakehimmoreforwardandreadytolend.Sothatthesemen,whilsttheytalkthatat4percentmenwouldtakeupandemploymoremoneytothepublicadvantage,dobutpretendtomultiplythenumberofborrowersamongus,ofwhichitiscertainwehavetoomanyalready.Whiletheythussetmenalongingforthegoldendaysof4percent,methinkstheyusethepoorindigentdebtor,andneedytradesman,asIhaveseenprat-ingjackdawsdosometimestheiryoung,who,kawingandflutteringaboutthenest,setalltheiryoungonesagaping,but,havingnothingintheiremptymouthsbutnoiseandair,leavethemashungryasbefore. Locke:SomeConsiderationsofInterest71Itistruethesemenhavefoundoutbyacunningprojecthow,bytherestraintofalaw,tomakethepriceofmoneyone-thirdcheaper,andthentheytellJohnaNokesthatheshallhave10,000lofittoemployinmerchandize,orclothing;andJohnaStilesshallhave20,000lmoretopayhisdebts;andsodistributethismoneyasfreelyasDiegodidhislegacies,whichtheyaretohave,evenwheretheycangetthem.Buttillthesemencaninstructtheforwardborrowerswheretheyshallbefurnished,theyhaveperhapsdonesomethingtoincreasemen’sdesire,butnotmademoneyonejoteasiertocomeby;and,tilltheydothat,allthissweetjinglingofmoney,intheirdiscourses,goesjusttothetuneof‘Ifalltheworldwereoatmeal’.Methinkstheseundertakers,whilsttheyhaveputmeninhopesofborrowingmoreplentifully,ateasierrates,forthesupplyoftheirwantsandtrades,haddonebettertohavebethoughtthemselvesofawayhowmenneednotborrowuponuseatall:forthiswouldbemuchmoreadvantageous,andaltogetherasfeasible.Itisaseasytodistributetwentypairofshoesamongstthirtymen,iftheypaynothingforthematall,asiftheypaid4sapair;tenofthem(notwithstandingthestatute-rateshouldbereducedfrom6sto4sapair)willbenecessitatedtositstillbarefoot,asmuchasiftheyweretopaynothingforshoesatall.Justsoitisinacountrythatwantsmoneyinproportiontotrade.Itisaseasytocontrivehoweverymanshallbesuppliedwithwhatmoneyheneeds(i.e.canemployinimprovementofland,payinghisdebts,andreturnsofhistrade)fornothing,asfor4percent.Eitherwehavealreadymoremoneythantheownerswilllend,orwehavenot.Ifpartofthemoney,whichisnowinEngland,willnotbeletattherateinterestisatpresentat,willmenbemorereadytolend,andborrowersbefurnishedforallthosebravepurposesmoreplentifully,whenmoneyisbroughtto4percent?Ifpeopledoalreadylendallthemoneytheyhave,abovetheirownoccasions,whencearethosewhowillborrowmoreat4percenttobesupplied?Oristheresuchplentyofmoney,andscarcityofborrowers,thatthereneedsthereducingofinterestto4percenttobringmentotakeit?…OfraisingourcoinBeingnowupontheconsiderationofinterestandmoney,givemeleavetosayonewordmoreonthisoccasion,whichmaynotbewhollyunseasonableatthistime.Ihearatalkupanddownofrais-ingourmoney,asameanstoretainourwealth,andkeepourmoneyfrombeingcarriedaway.Iwishthosethatusethephraseofraisingourmoneyhadsomeclearnotionannexedtoit;andthatthentheywouldexamine,‘Whether,thatbeingtrue,itwouldatallservetothoseendsforwhichitisproposed?’Theraisingofmoney,then,signifiesoneofthesetwothings;eitherraisingthevalueofourmoney,orraisingthedenominationofourcoin.Theraisingthevalueofmoney,oranythingelse,isnothingbutthemakingalessquantityofitexchangeforanyotherthingthanwouldhavebeentakenforitbefore;forexample,If5s.willexchangefor,or(aswecallit)buyabushelofwheat;ifyoucanmake4s.buyanotherbushelofthesamewheat,itisplainthevalueofyourmoneyisraised,inrespectofwheat,one-fifth.Butthusnothingcanraiseorfallthevalueofyourmoney,buttheproportionofitsplenty,orscarcity,inproportiontotheplenty,scarcity,orventofanyothercommoditywithwhichyoucompareit,orforwhichyouwouldexchangeit.Andthussilver,whichmakestheintrinsicvalueofmoney,comparedwithitself,underanystampordenominationofthesameordifferentcountries,can-notberaised.Foranounceofsilver,whetherinpence,groats,orcrown-pieces,stivers,orduca-toons,orinbullion,is,andalwayseternallywillbe,ofequalvaluetoanyotherounceofsilver,underwhatstampordenominationsoever;unlessitcanbeshownthatanystampcanaddanyneworbetterqualitiestooneparcelofsilver,whichanotherparcelofsilverwants.Silver,therefore,beingalwaysofequalvaluetosilver,thevalueofcoin,comparedwithcoin,isgreater,less,orequal,onlyasithasmore,less,orequalsilverinit:andinthisrespect,youcanbynomannerofwayraiseorfallyourmoney.… 72Pre-ClassicalThoughtAllthenthatcanbedoneinthisgreatmysteryofraisingmoney,isonlytoalterthedenomination,andcallthatacrownnow,whichbefore,bythelaw,wasbutapartofacrown.Forexample:suppos-ing,accordingtothestandardofourlaw,5s.oracrown,weretoweighanounce(asitdoesnow,wantingabout16grains)whereofone-twelfthwerecopper,andeleven-twelfthssilver(forthere-aboutsitis)itisplainhere,itisthequantityofsilvergivesthevaluetoit.Forletanotherpiecebecoinedofthesameweight,whereinhalfthesilveristakenout,andcopper,orotheralloy,putintotheplace,everyoneknowsitwillbeworthbuthalfasmuch.Forthevalueofthealloyissoinconsider-ableasnottobereckoned.Thiscrownnowmustberaised,andfromhenceforthourcrown-piecescoinedone-twentiethlighter;whichisnothingbutchangingthedenomination,callingthatacrownnow,whichyesterdaywasbutapart,namelynineteen-twentiethsofacrown;wherebyyouhaveonlyraised19partstothedenominationformerlygivento20.ForIthinknobodycanbesosenselessastoimaginethat19grainsorouncesofsilvercanberaisedtothevalueof20;orthat19grainsorouncesofsilvershallatthesametimeexchangefor,orbuyasmuchcorn,oil,orwine,as20;whichistoraiseittothevalueof20.Forif19ouncesofsilvercanbeworth20ouncesofsilver,orpayforasmuchofanyothercommodity,then18,10,or1ouncemaydothesame.Foriftheabatingone-twentiethofthequantityofthesilverofanycoin,doesnotlessenitsvalue,theabatingnineteen-twentiethsofthequantityofthesilverofanycoinwillnotabateitsvalue.Andsoasinglethreepence,orasinglepenny,beingcalledacrown,willbuyasmuchspice,orsilk,oranyothercommodity,asacrown-piece,whichcontains20or60timesasmuchsilver;whichisanabsurditysogreat,thatIthinknobodywillwanteyestosee,andsensetodisown.Nowthisraisingyourmoney,orgivingalessquantityofsilverthestampanddenominationofagreater,maybedonetwoways.1Byraisingonespeciesofyourmoney.2Byraisingallyoursilvercoin,atonceproportionably;whichisthething,Isuppose,nowproposed.1.Theraisingofonespeciesofyourcoin,beyonditsintrinsicvalue,isdonebycoininganyonespecies(whichinaccountbearssuchaproportiontotheotherspeciesofyourcoin)withlesssilverinitthanisrequiredbythatvalueitbearsinyourmoney.Forexample:acrownwithusgoesfor60pence,ashillingfor12pence,atesterfor6pence,andagroatfor4pence;andaccordingly,theproportionofsilverineachofthem,oughttobeas60,12,6,and4.Now,ifinthemintthereshouldbecoinedgroats,ortesters,that,beingofthesamealloywithourothermoney,hadbuttwo-thirdsoftheweightthatthosespeciesarecoinedatnow;orelse,beingofthesameweight,weresoalloyed,astohaveone-thirdofthesilver,requiredbythepresentstandard,changedintocopper,andshouldthus,bylaw,bemadecurrent;(therestofyoursilvermoneybeingkepttothepresentstandardinweightandfineness)itisplain,thosespecieswouldberaisedone-thirdpart;thatpassingfor6d.whichhadbutthesilverof4d.init;andwouldbeallone,asifagroatshouldbylawbemadecurrentfor6d.andevery6d.inpaymentpassfor9d.Thisistrulyraisingthesespecies:butisnomoreineffect,thanifthemintshouldcoinclippedmoney;andhas,besidesthecheatthatisputbysuchbase,orlightmoney,oneveryparticularmanthatreceivesit,thathewantsone-thirdofthatrealvalue,whichthepublicoughttosecurehim,inthemoneyitobligeshimtoreceive,aslawfulandcurrent.Ithas,Isay,thisgreatandunavoidableinconveniencetothepublic,that,besidestheopportunityitgivestodomesticcoinerstocheatyouwithlawfulmoney,itputsitintothehandsofforeignerstofetchawayyourmoney,withoutanycommoditiesforit.Foriftheyfindthattwo-pennyweightofsil-ver,markedwithacertainimpression,shallhereinEnglandbeequivalentto3d.weight,markedwithanotherimpression,theywillnotfailtostamppiecesofthatfashion;andsoimportingthatbaseandlowcoin,willhereinEngland,receive3d.for2d.andquicklycarryawayyoursilverinexchangeforcopper,orbarelythechargeofcoinage.… Locke:SomeConsiderationsofInterest73Thequantityofsilver,thatisineachpiece,orspeciesofcoin,beingthatwhichmakesitsrealandintrinsicvalue,thedueproportionsofsilveroughttobekeptineachspecies,accordingtotherespectiverate,setoneachofthembylaw.And,whenthisisevervariedfrom,itisbutatricktoservesomepresentoccasion;butisalwayswithlosstothecountrywherethetrickisplayed.2.Theotherwayofraisingmoneyisbyraisingallyoursilvercoinatonce,theproportionofacrown,ashilling,andapenny,inreferencetooneanother,beingstillkept(namelythatashillingshallweighone-fifthofacrown-piece,andapenny-weightone-twelfthofashilling,instandardsilver)butoutofeveryoneoftheseyouabateone-twentiethofthesilvertheywerewonttohaveinthem.Ifallthespeciesofmoneybe,asitiscalled,raised,bymakingeachofthemtohaveone-twentiethlessofsilverinthemthanformerly,andsoyourwholemoneybelighterthanitwas;thesefollowingwillbesomeoftheconsequencesofit.1.Itwillroballcreditorsofone-twentieth(or5percent)oftheirdebts,andalllandlordsone-twentiethoftheirquit-rentsforever;andinallotherrents,asfarastheirformercontractsreach,(of5percent)oftheiryearlyincome;andthiswithoutanyadvantagetothedebtor,orfarmer.Forhe,receivingnomorepoundssterlingforhisland,orcommodities,inthisnewlightercoin,thanheshouldhavedoneofyouroldandweightiermoney,getsnothingbyit.Ifyousay,yes,hewillreceivemorecrown,half-crown,andshillingpieces,forwhathenowsellsfornewmoney,thanheshouldhavedone,ifthemoneyoftheoldstandardhadcontinued;youconfessyourmoneyisnotraisedinvalue,butindenomination:sincewhatyournewpieceswantinweightmustnowbemadeupintheirnumber.But,whichwaysoeverthisfalls,itiscertainthepublic(whichmostmenthinkoughttobetheonlyreasonofchangingasettledlaw,anddisturbingthecommoncurrentcourseofthings)receivesnottheleastprofitbyit.Nay,asweshallseebyandby,itwillbeagreatchargeandlosstothekingdom.Butthis,atfirstsight,isvisible.Thatinallpaymentstobereceiveduponprecedentcontracts,ifyourmoneybeineffectraised,thereceiverwilllose5percent.Formoneyhavingbeenlent,andleasesandotherbargainsmade,whenmoneywasofthesameweightandfinenessthatitisnow,uponconfidencethatunderthesamenamesofpounds,shillings,andpence,theyshouldreceivethesamevalue,thatis,thesamequan-tityofsilver,bygivingthedenominationnowtolessquantitiesofsilverbyone-twentieth,youtakefromthem5percentoftheirdue.Whenmengotomarket,tobuyanyothercommoditieswiththeirnew,butlightermoney,theywillfind20s.oftheirnewmoneywillbuynomoreofanycommoditythan19wouldbefore.Foritnotbeingthedenomination,butthequantityofsilver,thatgivesthevaluetoanycoin,19grains,orparts,ofsilver,howeverdenominatedormarked,willnomorebeworth,orpassfor,orbuysomuchofanyothercommodity,as20grainsofsilverwill,than19s.willpassfor20s.Ifanyonethinksashilling,oracrowninname,hasitsvaluefromthedenomination,andnotfromthequantityofsilverinit,letitbetried;andhereafterletapennybecalledashilling,orashillingbecalledacrown.Ibelievenobodywouldbecontenttoreceivehisdebtsorrentsinsuchmoney:which,thoughthelawshouldraisethus,yetheforeseesheshouldloseeleven-twelfthsbytheone,andbytheotherfour-fifthsofthevaluehereceived;andwouldfindhisnewshilling,whichhadnomoresilverinitthanone-twelfthofwhatashillinghadbefore,wouldbuyhimofcorn,cloth,orwine,butone-twelfthofwhatanoldshillingwould.Thisisasplainlysointheraising,asyoucallit,yourcrownto5s.and3d.or(whichisthesamething)makingyourcrownone-twentiethlighterinsilver.Theonlydifferenceis,thatthelossissogreat(itbeingeleven-twelfths)thateverybodysees,andabhorsitatfirstproposal;but,intheother(itbeingbutone-twentieth,andcov-eredwiththedeceitfulnameofraisingourmoney)peopledonotreadilyobserveit.Ifitbegoodtoraisethecrown-piecethiswayone-twentieththisweek,Isupposeitwillbeasgoodandprof-itabletoraiseitasmuchagainthenextweek.Forthereisnoreason,whyitwillnotbeasgood,toraiseitagain,anotherone-twentieth,thenextweek,andsoon;wherein,ifyouproceedbutten 74Pre-ClassicalThoughtweekssuccessively,youwill,bynew-year’sdaynext,haveeveryhalf-crownraisedtoacrown,tothelossofone-halfofpeople’sdebtsandrents,andtheking’srevenue,besidestheconfusionofallyouraffairs:and,ifyoupleasetogooninthisbeneficialwayofraisingyourmoney,youmay,bythesameart,bringapenny-weightofsilvertobeacrown.Silver,thatis,thequantityofpuresilver,separablefromthealloy,makestherealvalueofmoney.Ifitdoesnot,coincopperwiththesamestampanddenomination,andseewhetheritwillbeofthesamevalue.IsuspectyourstampwillmakeitofnomoreworththanthecoppermoneyofIrelandis,whichisitsweightincopper,andnomore.ThatmoneylostsomuchtoIrelandasitpassedforabovetherateofcopper.ButyetIthinknobodysufferedsomuchbyitashebywhoseauthorityitwasmadecurrent.Ifsilvergivethevalue,youwillsay,whatneedistherethenofthechargeofcoinage?Maynotmenexchangesilverbyweightforotherthings;maketheirbargainsandkeeptheiraccountsinsilverbyweight?Thismightbedone,butithastheseinconveniencies:1.Theweighingofsilvertoeveryonewehadoccasiontopayittowouldbeverytrouble-some,foreveryonemostcarryaboutscalesinhispocket.2.Scaleswouldnotdothebusiness;for,inthenextplace,everyonecannotdistinguishbetweenfineandmixedsilver:sothatthoughhereceivedthefullweight,hewasnotsurehereceivedthefullweightofsilver,sincetheremightbeamixtureofsomeofthebasermetals,whichhewasnotabletodiscern.Thosewhohavehadthecareandgovernmentofpoliticsoci-etiesintroducedcoinage,asaremedytothosetwoinconveniencies.Thestampwasawarrantyofthepublic,that,undersuchadenomination,theyshouldreceiveapieceofsuchaweight,andsuchafineness;thatis,theyshouldreceivesomuchsilver.Andthisisthereasonwhythecoun-terfeitingthestampismadethehighestcrime,andhastheweightoftreasonlaiduponit:becausethestampisthepublicvoucheroftheintrinsicvalue.Theroyalauthoritygivesthestamp,thelawallowsandconfirmsthedenomination,andbothtogethergive,asitwere,thepublicfaith,asasecurity,thatsumsofmoneycontractedforundersuchdenominationsshallbeofsuchavalue,thatis,shallhaveinthemsomuchsilver;foritissilver,andnotnames,thatpaysdebts,andpur-chasescommodities.IfthereforeIhavecontractedfortwentycrowns,andthelawthenhasrequiredthateachofthosecrownsshouldhaveanounceofsilver;itiscertainmybargainisnotmadegood;Iamdefrauded(andwhetherthepublicfaithbenotbrokenwithme,Ileavetobeconsidered)if,payingmetwentycrowns,thelawallotsthemtobesuchashavebutnineteen-twentiethsofthesilvertheyoughttohave,andreallyhadinthem,whenImademycontract.[3.]Itdiminishesalltheking’srevenue5percent.Forthoughthesamenumberofpounds,shillings,andpencearepaidintotheexchequeraswerewont,yetthesenamesbeinggiventocointhathaveeachofthemone-twentiethlessofsilverinthem;andthatbeingnotasecretcon-cealedfromstrangers,nomorethanfromhisownsubjects;theywillsellthekingnomorepitch,tar,orhemp,for20s.,aftertheraisingyourmoney,thantheywouldbeforefor19;or,tospeakintheordinaryphrase,theywillraisetheircommodities5percentasyouhaveraisedyourmoney5percent.Anditiswelliftheystopthere.Forusuallyinsuchchange,anoutcrybeingmadeofyou,lesseningyourcoin,those,whohavetodealwithyourtakingtheadvantage,ofthealarm,tosecurethemselvesfromanylossbyyournewtrick,raisetheirpriceevenbeyondtheparofyourlesseningyourcoin.…Itwillpossiblybehereobjectedtome,Thatwesee100l.ofclippedmoney,above5percentlighterthanthestandard,willbuyasmuchcorn,cloth,orwine,as100l.inmilledmoney,whichisaboveone-twentiethheavier:wherebyitisevidentthatmyrulefails,andthatitisnotthequan-tityofsilverthatgivesthevaluetomoney,butitsstampanddenomination.TowhichIanswer, Locke:SomeConsiderationsofInterest75thatmenmaketheirestimateandcontractsaccordingtothestandard,uponsuppositiontheyshallreceivegoodandlawfulmoney,whichisthatoffullweight:andsoineffecttheydo,whilsttheyreceivethecurrentmoneyofthecountry.Forsince100l.ofclippedmoneywillpayadebtof100l.aswellastheweightiestmilledmoney;andanewcrownoutofthemintwillpayfornomoreflesh,fruit,orcloth,thanfiveclippedshillings;itisevidentthattheyareequivalentastothepurchaseofanythinghereathome,whilstnobodyscruplestotakefiveclippedshillingsinexchangeforaweightymilledcrown.Butthiswillbequiteotherwiseassoonasyouchangeyourcoin,and(toraiseitasyoucallit)makeyourmoneyone-twentiethlighterinthemint;forthennobodywillanymoregiveanoldcrownoftheformerstandardforoneofthenew,thanhewillnowgiveyou5s.and3d.foracrown:forsomuchthenhisoldcrownwillyieldhimatthemint.Clippedandunclippedmoneywillalwaysbuyanequalquantityofanythingelse,aslongastheywillwithoutscruplechangeoneforanother.Andthismakesthattheforeignmerchant,whocomestosellhisgoodstoyou,alwayscountsuponthevalueofyourmoney,bythesilverthatisinit,andestimatesthequantityofsilverbythestandardofyourmint;thoughperhapsbyreasonofclippedorwornmoneyamongstit,anysumthatisordinarilyreceivedismuchlighterthanthestandard,andsohaslesssilverinitthanwhatisinalikesum,newcoinedinthemint.Butwhilstclippedandweightymoneywillequallychangeoneforanother,itisallonetohim,whetherhereceiveshismoneyinclippedmoneyorno,soitbebutcurrent.Forifhebuyothercommoditiesherewithhismoney,whateversumhecontractsfor,clippedaswellasweightymoneyequallypaysforit.Ifhewouldcarryawaythepriceofhiscommodityinreadycash,itiseasilychangedintoweightymoney:andthenhehasnotonlythesumintalethathecontractedfor,butthequantityofsilverheexpected,forhiscommodities,accordingtothestandardofourmint.Ifthequantityofyourclippedmoneybeoncegrownsogreat,thattheforeignmerchantcannot(ifhehasamindtoit)easilygetweightymoneyforit,buthavingsoldhismerchandize,andreceivedclippedmoney,findsadifficultytoprocurewhatisweightforit;hewill,insellinghisgoods,eithercontracttobepaidinweightymoney,orelseraisethepriceofhiscommodity,accordingtothediminishedquantityofsilverinyourcurrentcoin.…Bythisexample,inaneighbourcountry,wemayseehowournewmilledmoneygoesaway.Whenforeigntradeimportsmorethanourcommoditieswillpayfor,itiscertainwemustcon-tractdebtsbeyondsea,andthosemustbepaidwithmoney,wheneitherwecannotfurnish,ortheywillnottakeourgoodstodischargethem.Tohavemoneybeyondseatopayourdebts,whenourcommoditiesdonotraiseit,thereisnootherwaybuttosenditthither.Andsinceaweightycrowncostsnomoreherethanalightone,andourcoinbeyondseaisvaluednootherwisethanaccordingtothequantityofsilverithasinit,whetherwesenditinspecie,orwhetherwemeltitdownheretosenditinbullion(whichisthesafestway,asnotbeingprohibited)theweight-iestissuretogo.Butwhensogreataquantityofyourmoneyisclipped,orsogreatapartofyourweightymoneyiscarriedaway,thattheforeignmerchant,orhisfactorhere,cannothavehispricepaidinweightymoney,orsuchaswilleasilybechangedintoit,theneveryonewillsee(whenmenwillnolongertakefiveclippedshillingsforamilledorweightycrown)thatitisthequantityofsilverthatbuyscommoditiesandpaysdebts,andnotthestampanddenominationwhichisputuponit.Andthentooitwillbeseenwhatarobberyiscommittedonthepublicbyclipping.Everygraindiminishedfromthejustweightofourmoneyissomuchlosstothenation,whichwillonetimeorotherbesensiblyfelt;andwhich,ifitbenottakencareof,andspeedilystopped,will,inthatenormouscourseitisnowin,quickly,Ifear,breakoutintoopenilleffects,andatoneblowdepriveusofagreatpart(perhapsnearone-fourth)ofourmoney.Forthatwillbereallythecase,whentheincreaseofclippedmoneymakesithardtogetweighty:whenmen 76Pre-ClassicalThoughtbegintoputadifferenceofvaluebetweenthatwhichisweightyandlightmoney;andwillnotselltheircommodities,butformoneythatisweight,andwillmaketheirbargainsaccordingly.…Hithertowehaveonlyconsideredtheraisingofsilvercoin,andthathasbeenonlybycoiningitwithlesssilverinit,underthesamedenomination.Thereisanotherwayyetofraisingmoney,whichhassomethingmoreofreality,thoughaslittlegoodinitastheformer.Thistoo,nowthatweareuponthechapterofraisingmoney,itmaynotbeunseasonabletoopenalittle.TheraisingImeanis,wheneitherofthetworichermetals(whichmoneyisusuallymadeof)isbylawraisedaboveitsnaturalvalue,inrespectoftheother.Goldandsilverhave,inalmostallagesandpartsoftheworld(wheremoneywasused)generallybeenthoughtthefittestmaterialstomakeitof.Buttherebeingagreatdisproportionintheplentyofthesemetalsintheworld,onehasalwaysbeenvaluedmuchhigherthantheother;sothatoneounceofgoldhasexchangedforseveralouncesofsilver……Theeffectindeed,andillconsequenceofraisingeitherofthesetwometals,inrespectoftheother,ismoreeasilyobserved,andsoonerfoundinraisinggoldthansilvercoin:becauseyouraccountsbeingkept,andyourreckoningsallmadeinpounds,shillings,andpence,whicharedenominationsofsilvercoins,ornumbersofthem;ifgoldbemadecurrentatarateabovethefreeandmarketvalueofthosetwometals,everyonewilleasilyperceivetheinconvenience.Buttherebeingalawforit,youcannotrefusethegoldinpaymentforsomuch.Andallthemoney,orbullion,peoplewillcarrybeyondseafromyou,willbeinsilver;andthemoney,orbullion,broughtin,willbeingold.Andjustthesamewillhappen,whenyoursilverisraisedandgolddebased,inrespectofoneanother,beyondtheirtrueandnaturalproportion:(naturalproportionorvalueIcallthatrespectiveratetheyfind,anywhere,withouttheprescriptionoflaw).Forthensilverwillbethatwhichisbroughtin,andgoldwillbecarriedout;andthatstillwithlosstothekingdom,answerabletotheover-valuesetbythelaw.Onlyassoonasthemischiefisfelt,peoplewill(dowhatyoucan)raisethegoldtoitsnaturalvalue.Foryouraccountsandbargainsbeingmadeinthedenominationofsilvermoney,if,whengoldisraisedaboveitsproportion,bythelaw,youcannotrefuseitinpayment(asifthelawshouldmakeaguineacurrentat22s.6d.)youareboundtotakeitatthatrateinpayment.Butifthelawshouldmakeguineascurrentat20s.,hethathasthemisnotboundtopaythemawayatthatrate,butmaykeepthem,ifhepleases,orgetmoreforthem,ifhecan;yet,fromsuchalaw,oneofthesethingswillfollow.Either,first,thelawforcesthemtogoat20s.andthenbeingfoundpassingatthatrate,foreignersmaketheiradvantageofit:Or,second,peoplekeepthemup,andwillnotpartwiththematthelegalrate,understandingthemreallytobeworthmore,andthenallyourgoldliesdead,andisofnomoreusetotradethanifitwereallgoneoutofthekingdom:Or,third,itpassesformorethanthelawallows,andthenyourlawsignifiesnothing,andhadbeenbetterletalone.Whichwaysoeveritsucceeds,itproveseitherprejudicialorineffectual.Ifthedesignofyourlawtakesplace,thekingdomlosesbyit:iftheinconveniencebefeltandavoided,yourlawiseluded.Moneyisthemeasureofcommerce,andoftherateofeverything,andthereforeoughttobekept(asallothermeasures)assteadyandinvariableasmaybe.Butthiscannotbe,ifyourmoneybemadeoftwometals,whoseproportion,and,consequently,whoseprice,constantlyvariesinrespecttooneanother.Silver,formanyreasons,isthefittestofallmetalstobethismeasure;andthereforegenerallymadeuseofformoney.Butthenitisveryunfitandinconvenientthatgold,oranyothermetal,shouldbemadecurrent,legalmoney,atastanding,settledrate.Thisistosetarateuponthevaryingvalueofthingsbylaw,whichjustlycannotbedone;andis,asIhaveshowed,asfarasitprevails,aconstantdamageandprejudicetothecountry,whereitispractised.… Locke:SomeConsiderationsofInterest77Whatthen!(willyoubereadytosay)WouldyouhavegoldkeptoutofEngland?Or,beinghere,wouldyouhaveituselesstotrade;andmusttherebenomoneymadeofit?Ianswer,quitethecontrary.Itisfitthekingdomshouldmakeuseofthetreasureithas.Itisnecessaryyourgoldshouldbecoined,andhavetheking’sstampuponit,tosecuremeninreceivingit,thatthereissomuchgoldineachpiece.Butitisnotnecessarythatitshouldhaveafixedvaluesetonitbypublicauthority:itisnotconvenientthatitshouldinitsvaryingproportion,haveasettledprice.Letgold,asothercommodities,finditsownrate.Andwhen,bytheking’simageandinscription,itcarrieswithitapublicassuranceofitsweightandfineness;thegoldmoney,socoined,willneverfailtopassattheknownmarketrates,asreadilyasanyotherspeciesofyourmoney.Twentyguineas,thoughdesignedatfirstfor20l.,gonowascurrentfor21l.10s.asanyothermoney,andsometimesformore,astheratevaries.Thevalue,orprice,ofanything,beingonlytherespectiveestimateitbearstosomeother,whichitcomesincompetitionwith,canonlybeknownbythequantityoftheonewhichwillexchangeforacertainquantityoftheother.Therebeingnotwothingsinnaturewhoseproportionandusedoesnotvary,itisimpossibletosetastanding,regularpricebetweenthem.Thegrowingplenty,orscarcity,ofeitherinthemarket(wherebyImeantheordinaryplacewheretheyaretobehadintraffic)ortherealuse,orchang-ingfashionoftheplace,bringingeitherofthemmoreintodemandthanformerly,presentlyvariestherespectivevalueofanytwothings.Youwillasfruitlesslyendeavourtokeeptwodiffer-entthingssteadilyatthesamepriceonewithanother,astokeeptwothingsinanequilibrium,wheretheirvaryingweightsdependondifferentcauses.Putapieceofspongeinonescale,andanexactcounterpoiseofsilverintheother;youwillbemightilymistakenifyouimagine,thatbecausetheyareto-dayequal,theyshallalwaysremainso.Theweightofthespongevaryingwitheverychangeofmoistureintheair,thesilver,intheoppositescale,willsometimesriseandsometimesfall.Thisisjustthestateofsilverandgold,inregardoftheirmutualvalue.Theirpro-portion,oruse,may,nayconstantlydoesvary,andwithittheirprice,For,beingestimatedoneinreferencetotheother,theyare,asitwere,putinoppositescales;andastheonerisestheotherfalls,andsoonthecontrary.Farthings,madeofabasermetal,mayonthisaccounttoodeserveyourconsideration.Forwhatsoevercoinyoumakecurrent,abovetheintrinsicvalue,willalwaysbedamagetothepublic,whoevergetbyit.ButofthisIshallnot,atpresent,enterintoamoreparticularinquiry;onlythisIwillconfidentlyaffirm,thatitistheinterestofeverycountry,thatallthecurrentmoneyofitshouldheofoneandthesamemetal;thattheseveralspeciesshouldbeofthesamealloy,andnoneofabasermixture:andthatthestandard,oncethussettled,shouldbeinviolablyandimmutablykepttoperpetuity.Forwheneverthatisaltered,uponwhatpretencesoever,thepublicwilllosebyit.… RICHARDCANTILLON(1680?–1734)RichardCantillon(wasanIrishmanwhospentmostofhislifeinParisasasuccessfulmerchantbankerandspeculatorincommoditiesandforeignexchange.HisEssayontheNatureofCommerceinGeneralwasoneof,ifnotthemostsophisticatedtreatisesineconomicsintheeigh-teenthcentury.HewasconsideredbyWilliamStanleyJevonstohavebeenthe“firsteconomist,”andbyJosephJ.Spenglertohavebeentheprincipalforerunnerofboththeclassicalandneo-classicalschools.Cantillonprovidedageneralmodelofamarketeconomy,emphasizinggeneralinterdependence,thecirculationofmoneyincome,aself-adjustingequilibriumsysteminclusiveofbothdomesticandforeigntrade,andthecriticalrolesofboththepricemechanismandtheentre-preneurialclass.Heworkedouttheoriesofmoney,pricelevels,valueandprice,anddistribution.He,too,wassomethingofaMercantilistbutemphasizedtheroleofanexportsurplusinpromot-ingprosperity,nottheaccumulationofgold,recognizingtheroleofthespecie-flowmechanismingoverningrelativepricelevelsbetweencountriesthroughtheequationofexchange-quantitytheoryofmoney.Healsowasconcernedaboutover-population.TheexcerptsfromCantillon’sEssaireprintedheredealwithCantillon’sgoods-baseddefinitionofwealth,hisinput-cost-basedtheoryofwhathecalls“intrinsicvalue”andthedistinctionbetweenthisandthesupply-and-demand-determinedmarketprice,theroleofriskinpricedetermination,Cantillon’selaborationandqualificationofLocke’slinkagebetweenthemoneystockandthepricelevel,andhissupply-and-demand-basedtheoryofinterestratedetermination.ReferencesandfurtherreadingAspromourgos,Tony(1996)OntheOriginsofClassicalEconomics:DistributionandValuefromWilliamPettytoAdamSmith,London:Routledge.Bordo,MichaelDavid(1983)“SomeAspectsoftheMonetaryEconomicsofRichardCantillon,”JournalofMonetaryEconomics12(August):235–58.Brewer,Anthony(1988)“CantillonandMercantilism,”HistoryofPoliticalEconomy20(Fall):447–60.——(1992a)“PettyandCantillon,”HistoryofPoliticalEconomy24(Fall):711–28.——(1992b)RichardCantillon:APioneerofEconomicTheory,London:Routledge.Hutchison,Terence(1988)BeforeAdamSmith:TheEmergenceofPoliticalEconomy,1662–1776,Oxford:BasilBlackwell.Jevons,W.S.(1881)“RichardCantillonandtheNationalityofPoliticalEconomy,”reprintedinRichardCantillon,Essaisurlanatureducommerceengénéral,editedbyHenryHiggs,London:Macmillan,1931.Murphy,AntoinE.(1984)“RichardCantillon–AnIrishBankerinParis,”inAntoinE.Murphy(ed.),EconomistsandtheIrishEconomyfromtheEighteenthCenturytothePresentDay,Dublin:IrishAcademicPressinAssociationwithHermathena,TrinityCollege,Dublin,45–74.Spengler,JosephJ.(1954)“RichardCantillon:FirstoftheModerns,”JournalofPoliticalEconomy62(AugustandOctober):281–95,406–24.Walsh,Vivian(1987)“Cantillon,Richard,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.1,London:Macmillan,317–20. EssayontheNatureofCommerceinGeneral(1755)PartoneChapterone:OnwealthThelandisthesourceormatterfromwhenceallwealthisproduced.Thelabourofmanistheformwhichproducesit:andwealthinitselfisnothingbutthemaintenance,convenienciesandsuperfluitiesoflife.Landproducesherbage,roots,corn,flax,cotton,hemp,shrubsandtimberofseveralkinds,withdiverssortsoffruits,barkandfoliagelikethatofthemulberry-treeforsilkworms;itsuppliesminesandminerals.Toallthisthelabourofmangivestheformofwealth.Riversandseassupplyfishforthefoodofman,andmanyotherthingsforhisenjoyment.Buttheseseasandriversbelongtotheadjacentlandsorarecommontoall,andthelabourofmanextractsfromthemthefishandotheradvantages.Chapternine:Thenumberoflabourers,handicraftsmenandothers,whoworkinastateisnaturallyproportionedtothedemandforthemIfallthelabourersinavillagebreedupseveralsonstothesameworktherewillbetoomanylabourerstocultivatethelandsbelongingtothevillage,andthesurplusadultsmustgotoseekalivelihoodelsewhere,whichtheygenerallydoincities:ifsomeremainwiththeirfathers,astheywillnotallfindsufficientemploymenttheywillliveingreatpovertyandwillnotmarryforlackofmeanstobringupchildren,oriftheymarry,thechildrenwhocomewillsoondieofstarvationwiththeirparents,asweseeeverydayinFrance.Thereforeifthevillagecontinueinthesamesituationasregardsemployment,andderivesitslivingfromcultivatingthesameportionofland,itwillnotincreaseinpopulationinathousandyears.Thewomenandgirlsofthisvillagecan,itistrue,whentheyarenotworkinginthefields,busythemselvesinspinning,knittingorotherworkwhichcanbesoldinthecities;butthisrarelysufficestobringuptheextrachildren,wholeavethevillagetoseektheirfortuneelsewhere.Thesamemaybesaidofthetradesmenofavillage.Ifatailormakesalltheclothsthereandbreedsupthreesonstothesametrade,asthereisbutworkenoughforonesuccessortohimthetwoothersmustgotoseektheirlivelihoodelsewhere:iftheydonotfindenoughemploymentintheneighbouringtowntheymustgofurtherafieldorchangetheiroccupationstogetalivingandbecomelackeys,soldiers,sailors,etc.Bythesameprocessofreasoningitiseasytoconceivethatthelabourers,handicraftsmenandotherswhogaintheirlivingbywork,mustproportionthemselvesinnumbertotheemploymentanddemandfortheminmarkettownsandcities. 80Pre-ClassicalThoughtButiffourtailorsareenoughtomakealltheclothsforatownandafiftharriveshemayattractsomecustomattheexpenseoftheotherfour;soiftheworkisdividedbetweenthefivetailorsnoneofthemwillhaveenoughemployment,andeachonewilllivemorepoorly.Itoftenhappensthatlabourersandhandicraftsmenhavenotenoughemploymentwhentherearetoomanyofthemtosharethebusiness.Ithappensalsothattheyaredeprivedofworkbyaccidentsandbyvariationsindemand,orthattheyareoverburdenedwithworkaccordingtocircumstances.Bethatasitmay,whentheyhavenoworktheyquitthevillages,townsorcitieswheretheyliveinsuchnumbersthatthosewhoremainarealwaysproportionedtotheemploy-mentwhichsufficestomaintainthem;whenthereisacontinuousincreaseofworkthereisgaintobemadeandenoughothersarrivetoshareinit.FromthisitiseasytounderstandthattheCharitySchoolsinEnglandandtheproposalsinFrancetoincreasethenumberofhandicraftsmen,areuseless.IftheKingofFrancesent100,000ofhissubjectsathisexpenseintoHollandtolearnseafaring,theywouldbeofnouseontheirreturnifnomorevesselsweresenttoseathanbefore.Itistruethatitwouldbeagreatadvantagetoastatetoteachitssubjectstoproducethemanufactureswhicharecustomarilydrawnfromabroad,andalltheotherarticlesboughtthere,butIamconsideringonlyatpresentastateinrelationtoitself.Asthehandicraftsmenearnmorethanthelabourerstheyarebetterabletobringuptheirchildrentocrafts;andtherewillneverbealackofcraftsmeninastatewhenthereisenoughworkfortheirconstantemployment.Chapterten:ThepriceandintrinsicvalueofathingingeneralisthemeasureofthelandandlabourwhichenterintoitsproductionOneacreoflandproducesmorecornorfeedsmoresheepthananother.Theworkofonemanisdearerthanthatofanother,asIhavealreadyexplained,accordingtothesuperiorskillandoccurrencesofthetimes.If2acresoflandareofequalgoodness,onewillfeedasmanysheepandproduceasmuchwoolastheother,supposingthelabourtobethesame,andthewoolproducedby1acrewillbethesame,andthewoolproducedby1acrewillsellatthesamepriceasthatproducedbytheother.Ifthewoolofthe1acreismadeintoasuitofcoarseclothandthewooloftheotherintoasuitoffinecloth,asthelatterwillrequiremoreworkanddearerworkmanshipitwillbesometimestentimesdearer,thoughbothcontainthesamequantityandqualityofwool.Thequantityoftheproduceofthelandandthequantityaswellasthequalityofthelabour,willofnecessityenterintotheprice.ApoundofflaxwroughtintofineBrusselslacerequiresthelabourof14personsforayearorofonepersonfor14years,asmaybeseenfromacalculationofthedifferentprocessesinthesupple-ment,wherewealsoseethatthepriceobtainedforthelacesufficestopayforthemaintenanceofonepersonfor14yearsaswellastheprofitsofalltheundertakersandmerchantsconcerned.ThefinesteelspringwhichregulatesanEnglishwatchisgenerallysoldatapricewhichmakestheproportionofmaterialtolabour,orofsteeltospring,onetoonemillionsothatinthiscaselabourmakesupnearlyallthevalueofthespring.Seethecalculationinthesupplement.Ontheotherhand,thepriceofthehayinafield,onthespot,orawoodwhichitisproposedtocutdown,isfixedbythematterorproduceoftheland,accordingtoitsgoodness.ThepriceofapitcherofSeinewaterisnothing,becausethereisanimmensesupplywhichdoesnotdryup;butinthestreetsofParispeoplegiveasolforit–thepriceormeasureofthelabourofthewatercarrier.Bytheseexamplesandinductionsitwill,Ithink,beunderstoodthatthepriceorintrinsicvalueofathingisthemeasureofthequantityoflandandoflabourenteringintoitsproduction,havingregardtothefertilityorproduceofthelandandtothequalityofthelabour. Cantillon:EssayontheNatureofCommerceinGeneral81Butitoftenhappensthatmanythingswhichhaveactuallythisintrinsicvaluearenotsoldinthemarketaccordingtothatvalue:thatwilldependonthehumoursandfanciesofmenandontheirconsumption.Ifagentlemancutscanalsanderectsterracesinhisgarden,theirintrinsicvaluewillbeproportionabletothelandandlabour;butthepriceinrealitywillnotalwaysfollowthispropor-tion.Ifheofferstosellthegardenpossiblynoonewillgivehimhalftheexpensehehasincurred.Itisalsopossiblethatifseveralpersonsdesireithemaybegivendoubletheintrinsicvalue,thatistwicethevalueofthelandandtheexpensehehasincurred.Ifthefarmersinastatesowmorecornthanusual,muchmorethanisneededfortheyear’sconsumption,therealandintrinsicvalueofthecornwillcorrespondtothelandandlabourwhichenterintoitsproduction;butasthereistoogreatanabundanceofitandtherearemoresellersthanbuyersthemarketpriceofthecornwillnecessarilyfallbelowtheintrinsicpriceorvalue.If,onthecontrary,thefarmerssowlesscornthanisneededforconsumptiontherewillbemorebuyersthansellersandthemarketpriceofcornwillriseaboveitsintrinsicvalue.Thereisneveravariationinintrinsicvalues,buttheimpossibilityofproportioningtheproduc-tionofmerchandiseandproduceinastatetotheirconsumptioncausesadailyvariation,andaper-petualebbandflowinmarketprices.However,inwell-organizedsocietiesthemarketpricesofarticleswhoseconsumptionistolerablyconstantanduniformdonotvarymuchfromtheintrinsicvalue;andwhentherearenoyearsoftooscantyortooabundantproductionthemagistratesofthecityareabletofixthemarketpricesofmanythings,likebreadandmeat,withoutanyonehavingcausetocomplain.Landisthematterandlabourtheformofallproduceandmerchandise,andasthosewholabourmustsubsistontheproduceofthelanditseemsthatsomerelationmightbefoundbetweenthevalueoflabourandthatoftheproduceoftheland:thiswillformthesubjectofthenextchapter.Chaptereleven:OftheparorrelationbetweenthevalueoflandandlabourItdoesnotappearthatProvidencehasgiventherightofthepossessionoflandtoonemanpreferablytoanother:themostancienttitlesarefoundedonviolenceandconquest.ThelandsofMexiconowbelongtotheSpaniardsandthoseatJerusalemtotheTurks.Buthowsoeverpeoplecometothepropertyandpossessionoflandwehavealreadyobservedthatitalwaysfallsintothehandsofafewinproportiontothetotalinhabitants.Iftheproprietorofagreatestatekeepsitinhisownhandshewillemployslavesorfreementoworkuponit.Ifhehasmanyslaveshemusthaveoverseerstokeepthematwork:hemustlike-wisehaveslavecraftsmentosupplytheneedsandconvenienciesoflifeforhimselfandhisworkers,andmusthavetradestaughttoothersinordertocarryonthework.Inthiseconomyhemustallowhislabouringslavestheirsubsistenceandwherewithaltobringuptheirchildren.Theoverseersmustallowadvantagesproportionabletotheconfidenceandauthoritywhichhegivesthem.Theslaveswhohavebeentaughtacraftmustbemaintainedwithoutanyreturnduringthetimeoftheirapprenticeshipandtheartisanslavesandtheirover-seerswhoshouldbecompetentinthecraftsmusthaveabettersubsistencethanthelabouringslaves,etc.sincethelossofanartisanwouldbegreaterthanthatofalabourerandmorecaremustbetakenofhimhavingregardtotheexpenseoftraininganothertotakehisplace.Onthisassumptionthelabourofanadultslaveofthelowestclassisworthatleastasmuchasthequantityoflandwhichtheproprietorisobligedtoallotforhisfoodandnecessariesandalsotodoublethelandwhichservestobreedachilduptillheisofagefitforlabour,seeinghalfthechildrenthatareborndiebeforetheageof17,accordingtothecalculationsandobservationsofthecelebratedDrHalley.Sothattwochildrenmustbereareduptokeeponeofthemtillworkingageanditwouldseemthateventhiswouldnotbeenoughtoensureacontinuanceoflaboursinceadultmendieatallages. 82Pre-ClassicalThoughtItistruethattheone-halfofthechildrenwhodiebefore17diefasterinthefirstyearsafterbirththaninthefollowing,sinceagoodthirdofthosewhoareborndieintheirfirstyear.Thisseemstodiminishthecostofraisingachildtoworkingage,butasthemotherslosemuchtimeinnursingtheirchildreninillnessandinfancyandthedaughtersevenwhengrownuparenottheequalsofthemalesinworkandbarelyearntheirliving,itseemsthattokeeponeoftwochildrentomanhoodorworkingageasmuchlandmustbeemployedasforthesubsistenceofanadultslave,whethertheproprietorraisesthemhimselfinhishouseorhasthechildrenraisedthereorthatthefatherbringsthemupinahouseorhamletapart.Thus,Iconcludethatthedailylabourofthemeanestslavecorrespondsinvaluetodoubletheproduceofthelandrequiredtomaintainhim,whethertheproprietorgiveithimforhissubsistenceandthatofhisfamilyorprovideshimandhisfamilysubsistenceinhisownhouse.Itdoesnotadmitofexactcalculation,andexactitudeisnotverynecessary;itsufficestobenearenoughtothetruth.Iftheproprietoremploythelabourofvassalsorfreepeasantshewillprobablymaintainthemuponabetterfootthanslavesaccordingtothecustomoftheplacehelivesin,yetinthiscasealsothelabourofafreelaboureroughttocorrespondinvaluetodoubletheproduceoflandneededforhismaintenance.Butitwillalwaysbemoreprofitabletotheproprietortokeepslavesthantokeepfreepeasants,becausewhenhehasbroughtupanumbertoolargeforhisrequirementshecansellthesurplusslavesashedoeshiscattleandobtainforthemapriceproportionabletowhathehasspentinrearingthemtomanhoodorworkingage,exceptincasesofoldageorinfirmity.Inthesamewayonemayappraisethelabourofslavecraftsmenattwicetheproduceofthelandwhichtheyconsume.Overseerslikewise,allowingforthefavoursandprivilegesgiventothemabovethosewhoworkunderthem.Whentheartisansorlabourershavetheirdoubleportionattheirowndisposaltheyemployonepartofitfortheirownupkeepiftheyaremarriedandtheotherfortheirchildren.Iftheyareunmar-riedtheysetasidealittleoftheirdoubleportiontoenablethemtomarryandtomakealittlestoreforhousekeeping;butmostofthemwillconsumethedoubleportionfortheirownmaintenance.Forexamplethemarriedlabourerwillcontenthimselfwithbread,cheese,vegetables,etc.,willrarelyeatmeat,willdrinklittlewineorbeer,andwillhaveonlyoldandshabbyclotheswhichhewillwearaslongashecan.Thesurplusofhisdoubleportionhewillemployinraisingandkeep-inghischildren,whiletheunmarriedlabourerwilleatmeatasoftenashecan,willtreathimselftonewclothes,etc.andemployhisdoubleportiononhisownrequirements.Thus,hewillconsumetwiceasmuchpersonallyoftheproduceofthelandasthemarriedman.Idonotheretakeintoaccounttheexpenseofthewife.Isupposethatherlabourbarelysufficestopayforherownliving,andwhenoneseesalargenumberoflittlechildreninoneofthesepoorfamiliesIsupposethatcharitablepersonscontributesomewhattotheirmaintenance,otherwisetheparentsmustdeprivethemselvesofsomeoftheirnecessariestoprovidealivingfortheirchildren.Forthebetterunderstandingofthisitistobeobservedthatapoorlabourermaymaintainhimself,atthelowestcomputation,upontheproduceofanacreandahalfoflandifhelivesonbreadandvegetables,wearshempengarments,woodenshoes,etc.,whileifhecanallowhimselfwine,meat,woollenclothes,etc.hemaywithoutdrunkennessorgluttonyorexcessofanykindconsumetheproduceof4–10acresoflandofordinarygoodness,suchasmostofthelandinEuropetakingpartwithanother.Ihavecausedsomefigurestobedrawnupwhichwillbefoundinthesupplement,todeterminetheamountoflandofwhichonemancanconsumetheproduceundereachheadoffood,clothingandothernecessariesoflifeinasingleyear,accordingtothemodeoflivinginEuropewherethepeasantsofdiverscountriesareoftennourishedandmain-tainedverydifferently.ForthisreasonIhavenotdeterminedtohowmuchlandthelabourofthemeanestpeasantcorrespondsinvaluewhenIlaiddownthatitisworthdoubletheproduceofthelandwhich Cantillon:EssayontheNatureofCommerceinGeneral83servestomaintainhim:becausethisvariesaccordingtothemodeoflivingindifferentcountries.InsomeprovincesofFrancethepeasantkeepshimselfontheproduceof1acreandahalfoflandandthevalueofhislabourmaybereckonedequaltotheproductof3acres.ButinthecountyofMiddlesexthepeasantusuallyspendstheproduceof5–8acresoflandandhislabourmaybevaluedattwiceasmuchasthis.InthecountryoftheIroquoiswheretheinhabitantsdonotploughthelandandliveentirelybyhunting,themeanesthuntermayconsumetheproduceof50acresoflandsinceitprobablyrequiressomuchtosupporttheanimalsheeatsinoneyear,especiallyasthesesavageshavenottheindustrytogrowgrassbycuttingdownthetreesbutleaveeverythingtonature.Thelabourofthishuntermaythenbereckonedequalinvaluetotheproductof100acresofland.InthesouthernprovincesofChinathelandyieldsriceuptothreecropsinoneyearandahundredtimesasmuchasissown,owingtothegreatcarewhichtheyhaveofagricultureandthefertilityofthesoilwhichisneverfallow.Thepeasantswhoworktherealmostnakedliveonlyonriceanddrinkonlyricewater,anditappearsthat1acrewillsupporttheremorethan10peasants.Itisnotsurprising,therefore,thatthepopulationisprodigiousinnumber.Inanycaseitseemsfromtheseexamplesthatnatureisaltogetherindifferentwhetherthatearthproducegrass,trees,orgrainormaintainsalargeorsmallnumberofvegetables,animals,ormen.FarmersinEuropeseemtocorrespondtooverseersoflabouringslavesinothercountries,andthemastertradesmenwhoemployseveraljourneymentotheoverseersofartisanslaves.Thesemastersknowprettywellhowmuchworkajourneymanartisancandoinadayineachcraft,andoftenpaytheminproportiontotheworktheydo,sothatthejourneymenworkfortheirowninterestashardastheycanwithoutfurtherinspection.AsthefarmersandmastersofcraftsinEuropeareallundertakersworkingatarisk,somegetrichandgainmorethanadoublesubsistence,othersareruinedandbecomebankrupt,aswillbeexplainedmoreindetailintreatingofundertakers;butthemajoritysupportthemselvesandtheirfamiliesfromdaytoday,andtheirlabourorsuperintendencemaybevaluedataboutthricetheproduceofthelandwhichservesfortheirmaintenance.Evidentlythesefarmersandmastercraftsmen,iftheysuperintendthelabourof10labourersorjourneymen,wouldbeequallycapableofsuperintendingthelabouroftwenty,accordingtothesizeoftheirfarmsorthenumberoftheircustomers,andthisrendersuncertainthevalueoftheirlabourorsuperintendence.Bytheseexamplesandotherswhichmightbeaddedinthesamesense,itisseenthatthevalueoftheday’sworkhasarelationtotheproduceofthesoil,andthattheintrinsicvalueofanythingmaybemeasuredbythequantityoflandusedinitsproductionandthequantityoflabourwhichentersintoit,inotherwordsbythequantityoflandofwhichtheproduceisallottedtothosewhohaveworkeduponit;andasallthelandbelongstotheprinceandthelandownersallthingswhichhavethisintrinsicvaluehaveitonlyattheirexpense.Themoneyorcoinwhichfindstheproportionofvaluesinexchangeisthemostcertainmea-sureforjudgingoftheparbetweenlandandlabourandtherelationofonetotheotherindif-ferentcountrieswherethisparvariesaccordingtothegreaterorlessproduceofthelandallottedtothosewholabour.If,forexample,onemanearnanounceofsilvereverydaybyhiswork,andanotherinthesameplaceearnonlyhalfanounce,onecanconcludethatthefirsthasasmuchagainoftheproduceofthelandtodisposeofasthesecond.SirWilliamPetty,inalittlemanuscriptoftheyear1685,considersthispar,orequationbetweenlandandlabour,asthemostimportantconsiderationinpoliticalarithmetic,buttheresearchwhichhehasmadeintoitinpassingisfancifulandremotefromnaturallaws,becausehehasattachedhimselfnottocausesandprinciplesbutonlytoeffects,asMrLocke,MrDavenantandalltheotherEnglishauthorswhohavewrittenonthissubjecthavedoneafterhim. 84Pre-ClassicalThoughtChapterthirteen:ThecirculationandexchangeofgoodsandmerchandiseaswellastheirproductionarecarriedoninEuropebyUndertakers,andatariskThefarmerisanundertakerwhopromisestopaytothelandowner,forhisfarmorland,afixedsumofmoney(generallysupposedtobeequalinvaluetothethirdoftheproduce)withoutassur-anceoftheprofithewillderivefromthisenterprise.Heemployspartofthelandtofeedflocks,producecorn,wine,hay,etc.accordingtohisjudgementwithoutbeingabletoforeseewhichofthesewillpaybest.Thepriceoftheseproductswilldependpartlyontheweather,partlyonthedemand;ifcornisabundantrelativelytoconsumptionitwillbedirtcheap,ifthereisscarcityitwillbedear.Whocanforeseetheincreaseorreductionofexpensewhichmaycomeaboutinthefamilies?Andyetthepriceofthefarmer’sproducedependsnaturallyupontheseunforeseencircumstances,andconsequentlyheconductstheenterpriseofhisfarmatanuncertainty.Thecityconsumesmorethanhalfthefarmer’sproduce.Hecarriesittomarketthereorsellsitinthemarketofthenearesttown,orperhapsafewindividualssetupascarriersthemselves.Thesebindthemselvestopaythefarmerafixedpriceforhisproduce,thatofthemarketpriceoftheday,togetinthecityanuncertainpricewhichshouldhoweverdefraythecostofcarriageandleavethemaprofit.Butthedailyvariationinthepriceofproduceinthecity,thoughnotconsid-erable,makestheirprofituncertain.Theundertakerormerchantwhocarriestheproductsofthecountrytothecitycannotstaytheretosellretailastheyareconsumed.Nocityfamilywillburdenitselfwiththepurchaseallatonceoftheproduceitmayneed,eachfamilybeingsusceptibleofincreaseordecreaseinnumberandinconsumptionoratleastvaryinginthechoiceofproduceitwillconsume.Wineisalmosttheonlyarticleofconsumptionstockedinafamily.Inanycasethemajorityofcitizenswholivefromdaytodayandyetarethelargestconsumerscannotlayinastockofcountryproduce.Forthisreasonmanypeoplesetupinacityasmerchantsorundertakers,tobuythecountrypro-ducefromthosewhobringitortoorderittobebroughtontheiraccount.Theypayacertainpricefollowingthatoftheplacewheretheypurchaseit,toresellwholesaleorretailatanuncertainprice.Suchundertakersarethewholesalersinwoolandcorn,bakers,butchers,manufacturersandmerchantsofallkindswhobuycountryproduceandmaterialstoworkthemupandresellthemgraduallyastheinhabitantsrequirethem.Theseundertakerscanneverknowhowgreatwillbethedemandintheircity,norhowlongtheircustomerswillbuyofthemsincetheirrivalswilltryallsortsofmeanstoattractcustomersfromthem.Allthiscausessomuchuncertaintyamongtheseundertakersthateverydayoneseessomeofthembecomebankrupt.Themanufacturerwhohasboughtwoolfromthemerchantordirectfromthefarmercannotforetelltheprofithewillmakeinsellinghisclothsandstuffstothemerchanttailor.Ifthelatterhavenotareasonablesalehewillnotloadhimselfwiththeclothsandstuffsofthemanufacturer,especiallyifthosestuffsceasetobeinthefashion.Thedraperisanundertakerwhobuysclothsandstuffsfromthemanufactureratacertainpricetosellthemagainatanuncertainprice,becausehecannotforeseetheextentofthedemand.Hecanofcoursefixapriceandstandoutagainstsellingunlesshegetsit,butifhiscustomersleavehimtobuycheaperfromanother,hewillbeeatenupbyexpenseswhilewaitingtosellatthepricehedemands,andthatwillruinhimassoonasorsoonerthanifhesoldwithoutprofit.Shopkeepersandretailersofeverykindareundertakerswhobuyatacertainpriceandsellintheirshopsorthemarketsatanuncertainprice.Whatencouragesandmaintainstheseunder-takersinastateisthattheconsumerswhoaretheircustomerspreferpayingalittlemoretogetwhattheywantreadytohandinsmallquantitiesratherthanlayinastockandthatmostofthemhavenotthemeanstolayinsuchastockbybuyingatfirsthand.Alltheseundertakersbecomeconsumersandcustomersoneinregardtotheother,thedraperofthewinemerchantandviceversa.Theyproportionthemselvesinastatetothecustomersor Cantillon:EssayontheNatureofCommerceinGeneral85consumption.Iftherearetoomanyhattersinacityorinastreetforthenumberofpeoplewhobuyhatsthere,somewhoareleastpatronisedmustbecomebankrupt:iftheybetoofewitwillbeaprofitableundertakingwhichwillencouragenewhatterstoopenshopsthereandsoitisthattheundertakersofallkindsadjustthemselvestorisksinastate.Alltheotherundertakerslikethosewhotakechargeofmines,theatres,building,etc.,themerchantsbyseaandland,etc.,cook-shopkeepers,pastrycooks,innkeepers,etc.aswellastheundertakersoftheirownlabourwhoneednocapitaltoestablishthemselves,likejourneymenarti-sans,coppersmiths,needlewomen,chimneysweeps,watercarriers,liveatuncertaintyandpropor-tionthemselvestotheircustomers.Mastercraftsmenlikeshoemakers,tailors,carpenters,wigmakers,etc.whoemployjourneymenaccordingtotheworktheyhave,liveatthesameuncertaintysincetheircustomersmayforesakethemfromonedaytoanother:theundertakersoftheirownlabourinartandscience,likepainters,physicians,lawyers,etc.liveinthelikeuncertainty.Ifoneattorneyorbar-ristersearn5000poundssterlingyearlyintheserviceofhisclientsorinhispracticeandanotherearnonly500theymaybeconsideredashavingsomuchuncertainwagesfromthosewhoemploythem.Itmayperhapsbeurgedthatundertakersseektosnatchalltheycanintheircallingandtogetthebetteroftheircustomers,butthisisoutsidemysubject.Byalltheseinductionsandmanyotherswhichmightbemadeinatopicrelatingtoalltheinhab-itantsofastate,itmaybelaiddownthatexcepttheprinceandtheproprietorsofland,alltheinhab-itantsofastatearedependent;thattheycanbedividedintotwoclasses,undertakersandhiredpeople;andthatalltheundertakersareasitwereonunfixedwagesandtheothersonwagesfixedsolongastheyreceivethemthoughtheirfunctionsandranksmaybeveryunequal.Thegeneralwhohashispay,thecourtierhispensionandthedomesticservantwhohaswagesallfallintothislastclass.Alltherestareundertakers,whethertheysetupwithacapitaltoconducttheirenterprise,orareundertakersoftheirownlabourwithoutcapital,andtheymayberegardedaslivingatuncertainty;thebeggarsevenandtherobbersareundertakersofthisclass.Finallyalltheinhabitantsofastatederivetheirlivingandtheiradvantagesfromthepropertyofthelandownersandaredependent.Itistrue,however,thatifsomepersononhighwagesorsomelargeundertakerhassavedcapitalorwealth,thatis,ifhehavestoresofcorn,wool,copper,gold,silverorsomeproduceormerchandiseinconstantuseorventinastate,havinganintrinsicorarealvalue,hemaybejustlyconsideredindependentsofarasthiscapitalgoes.Hemaydisposeofittoacquireamortgage,andinterestfromlandandfrompublicloanssecureduponland:hemaylivestillbetterthanthesmalllandownersandevenbuythepropertyofsomeofthem.Butproduceandmerchandise,evengoldandsilver,aremuchmoresubjecttoaccidentandlossthantheownershipofland;andhoweveronemayhavegainedorsavedthemtheyarealwaysderivedfromthelandofactualproprietorseitherbygainorbysavingofthewagesdes-tinedforone’ssubsistence.Thenumberofproprietorsofmoneyinalargestateisoftenconsiderableenough;andthoughthevalueofallthemoneywhichcirculatesinthestatebarelyexceedstheninthortenthpartofthevalueoftheproducedrawnfromthesoilyet,astheproprietorsofmoneylendconsiderableamountsforwhichtheyreceiveinteresteitherbymortgageortheproduceandmerchandiseofthestate,thesumsduetothemusuallyexceedallthemoneyinthestate,andtheyoftenbecomesopowerfulabodythattheycouldincertaincasesrivaltheproprietorsoflandsiftheselastwerenotoftenequallyproprietorsofmoney,andiftheownersoflargesumsofmoneydidnotalwaysseektobecomelandownersthemselves.Itisneverthelessalwaystruethatallthesumsgainedorsavedhavebeendrawnfromthelandoftheactualproprietors;butasmanyoftheseruinthemselvesdailyinastateandtheotherswhoacquirethepropertyoftheirlandtaketheirplace,theindependencegivenbytheownershipoflandappliesonlytothosewhokeepthepossessionofit;andasalllandhasalwaysanactualMasterorOwner,Ipresumethatitisfromtheirpropertythatalltheinhabitantsofthestatederivetheirlivingandalltheirwealth.Iftheseproprietorsconfinedthemselvestolivingontheirrentsitwould 86Pre-ClassicalThoughtbebeyondquestion,andinthatcaseitwouldbemuchmoredifficultfortheotherinhabitantstoenrichthemselvesattheirexpense.Iwillthenlayitdownasaprinciplethattheproprietorsoflandalonearenaturallyindepen-dentinastate:thatalltheotherclassesaredependentwhetherundertakersorhired,andthatalltheexchangeandcirculationofthestateisconductedbythemediumoftheseundertakers.ParttwoChapterone:OfbarterInPartoneanattemptwasmadetoprovethattherealvalueofeverythingusedbymanispro-portionatetothequantityoflandusedforitsproductionandfortheupkeepofthosewhohavefashionedit.Inthissecondpart,aftersummingupthedifferentdegreesoffertilityofthelandinseveralcountriesandthedifferentkindsofproduceitcanbringforthwithgreaterabundanceaccordingtoitsintrinsicquality,andassumingtheestablishmentoftownsandtheirmarketstofacilitatethesaleoftheseproducts,itwillbeshewnbycomparingexchangeswhichmaybemade,wineforcloth,cornforshoes,hats,etc.andbythedifficultywhichthetransportofthesedifferentproductsormerchandiseswouldinvolve,thatitwasimpossibletofixtheirrespectiveintrinsicvalue,andtherewasabsolutenecessityformantofindasubstanceeasilytransportable,notperishable,andhavingbyweightaproportionorvalueequaltothedifferentproductsandmerchandises,necessaryorconvenient.Thencearosethechoiceofgoldandsilverforlargebusi-nessandofcopperforsmalltraffic.Thesemetalsarenotonlydurableandeasilytransportedbutcorrespondtotheemploymentofalargeareaoflandfortheirproduction,whichgivesthemtherealvaluedesirableinexchange.MrLockewho,likealltheEnglishwritersonthissubject,haslookedonlytomarketprices,laysdownthatthevalueofallthingsisproportionabletotheirabundanceorscarcity,andtheabundanceorscarcityofthesilverforwhichtheyareexchanged.ItisgenerallyknownthatthepricesofproduceandmerchandisehavebeenraisedinEuropesincesogreataquantityofsilverhasbeenbroughtthitherfromtheWestIndies.ButIconsiderthatwemustnotsupposeasageneralrulethatthemarketpricesofthingsshouldbeproportionabletotheirquantityandtothatofthesilveractuallycirculatinginoneplace,becausetheproductsandmerchandisesentawaytobesoldelsewheredonotinfluencethepriceofthosewhichremain.If,forexample,inamarkettownwherethereistwiceasmuchcornasisconsumedthere,wecomparedthewholequantityofcorntothatofsilver,thecornwouldbemoreabundantinproportionthanthesilverdestinedforitspurchase;themarketprice,how-ever,willbemaintainedjustasiftherewereonlyhalfthequantityofcorn,sincetheotherhalfcanbeandevenmustbe,sentintothecity,andthecostoftransportwillbeincludedinthecitypricewhichisalwayshigherthanthatofthetown.Butapartfromthecaseofhopingtosellinanothermarket,IconsiderthatMrLocke’sideaiscorrectinthesenseofthefollowingchapter,andnototherwise.Chaptertwo:OfmarketpricesSupposethebutchersononesideandthebuyersontheother.Thepriceofmeatwillbesettledaftersomealtercations,andapoundofbeefwillbeinvaluetoapieceofsilverprettynearlyasthewholebeefofferedforsaleinthemarketistoallthesilverbroughttheretobuybeef.Thisproportioniscomeatbybargaining.Thebutcherkeepsuphispriceaccordingtothenumberofbuyershesees;thebuyers,ontheirside,offerlessaccordingastheythinkthebutcherwillhavelesssale:thepricesetbysomeisusuallyfollowedbyothers.Somearemorecleverinpuffinguptheirwares,otherinrunningthemdown.Thoughthismethodoffixingmarketprices Cantillon:EssayontheNatureofCommerceinGeneral87hasnoexactorgeometricalfoundation,sinceitoftendependsupontheeagernessoreasytem-peramentofafewbuyersorsellers,itdoesnotseemthatitcouldbedoneinanymoreconvenientway.Itisclearthatthequantityofproduceorofmerchandiseofferedforsale,inproportiontothedemandornumberofbuyers,isthebasisonwhichisfixedoralwayssupposedtobefixedtheactualmarketprices;andthatingeneralthesepricesdonotvarymuchfromtheintrinsicvalue.Letustakeanothercase.Severalmaîtred’hôtelshavebeentoldtobuygreenpeaswhentheyfirstcomein.Onemasterhasorderedthepurchaseof10litronsfor60livres,another10litronsfor50livres,athird10for40livresandafourth10litronsfor30livres.Iftheseordersaretobecar-riedouttheremustbe40litronsofgreenpeasinthemarket.Supposethereareonly20.Thevendors,seeingmanybuyers,willkeepuptheirprices,andthebuyerswillcomeuptothepricesprescribedtothem:sothatthosewhooffer60livresfor10litronswillbethefirstserved.Thesell-ers,seeinglaterthatnoonewillgoabove50,willlettheother10litronsgoatthatprice.Thosewhohadordersnottoexceed40and30livreswillgoawayempty.Ifinsteadof40litronstherewere400,notonlywouldthemaîtred’hôtelsgetthenewpeasmuchbelowthesumslaiddownforthem,butthesellersinordertobepreferredonetotheotherbythefewbuyerswilllowertheirnewpeasalmosttotheirintrinsicvalue,andinthatcasemanymaîtresd’hôtelswhohadnoorderswillbuysome.Itoftenhappensthatsellerswhoaretooobstinateinkeepinguptheirpriceinthemarket,misstheopportunityofsellingtheirproduceormerchandisetoadvantageandarelosersthereby.Italsohappensthatbystickingtotheirpricestheymaybeabletosellmoreprofitablyanotherday.Distantmarketsmayalwayseffectthepricesofthemarketwhereoneis:ifcornisextremelydearinFranceitwillgoupinEnglandandinotherneighbouringcountries.Chaptersix:OftheincreaseanddecreaseinthequantityofhardmoneyinastateIfminesofgoldorsilverbefoundinastateandconsiderablequantitiesofmineralsdrawnfromthem,theproprietorsofthesemines,theundertaker,andallthosewhoworkthere,willnotfailtoincreasetheirexpensesinproportiontothewealthandprofittheymake:theywillalsolendatinterestthesumsofmoneywhichtheyhaveoverandabovewhattheyneedtospend.Allthismoney,whetherlentorspent,willenterintocirculationandwillnotfailtoraisethepriceofproductsandmerchandiseinallthechannelsofcirculationwhichitenters.Increasedmoneywillbringaboutincreasedexpenditureandthiswillcauseanincreaseofmarketpricesinthehighestyearsofexchangeandgraduallyinthelowest.Everybodyagreesthattheabundanceofmoneyoritsincreaseinexchange,raisesthepriceofeverything.ThequantityofmoneybroughtfromAmericatoEuropeforthelasttwocenturiesjustifiesthistruthbyexperience.MrLockelaysitdownasafundamentalmaximthatthequantityofproduceandmerchandiseinproportiontothequantityofmoneyservesastheregulatorofmarketprice.Ihavetriedtoelucidatehisideaintheprecedingchapters:hehasclearlyseenthattheabundanceofmoneymakeseverythingdear,buthehasnotconsideredhowitdoesso.Thegreatdifficultyofthisquestionconsistsinknowinginwhatwayandinwhatproportiontheincreaseofmoneyraisesprices.Ihavealreadyremarkedthatanaccelerationorgreaterrapidityincirculationofmoneyinexchange,isequivalenttoanincreaseofactualmoneyuptoapoint.Ihavealsoobservedthattheincreaseordecreaseofpricesinadistantmarket,homeorforeign,influencestheactualmarketprices.Ontheotherhand,moneyflowsindetailthroughsomanychannelsthatitseemsimpossiblenottolosesightofitseeingthathavingbeenamassedtomakelargesumsitisdistributedinlittlerillsofexchange,andthengraduallyaccumulatedagaintomakelargepayments.Fortheseopera-tionsitisconstantlynecessarytochangecoinsofgold,silverandcopperaccordingtotheactivityof 88Pre-ClassicalThoughtexchange.Itisalsousuallythecasethattheincreaseordecreaseofactualmoneyinastateisnotperceivedbecauseitflowsabroad,orisbroughtintothestate,bysuchimperceptiblemeansandproportionsthatitisimpossibletoknowexactlythequantitywhichentersorleavesthestate.However,alltheseoperationspassunderoureyesandeverybodytakespartinthem.Imaythereforeventuretoofferafewobservationsonthesubject,eventhoughImaynotbeabletogiveanaccountwhichisexactandprecise.Iconsideringeneralthatanincreaseofactualmoneycausesinastateacorrespondingincreaseofconsumptionwhichgraduallybringsaboutincreasedprices.Iftheincreaseofactualmoneycomesfromminesofgoldorsilverinthestatetheownerofthesemines,theadventurers,thesmelters,refinersandalltheotherworkerswillincreasetheirexpensesinproportiontotheirgains.Theywillconsumeintheirhouseholdsmoremeat,wineorbeerthanbefore,willaccustomthemselvestowearbettercloaths,finerlinen,tohavebetterfurnishedhousesandotherchoicercommodities.Theywillconsequentlygiveemploymenttoseveralmechanicswhohadnotsomuchtodobeforeandwhoforthesamereasonwillincreasetheirexpenses:allthisincreaseofexpenseinmeat,wine,wool,etc.diminishesofnecessitytheshareoftheotherinhabitantsofthestatewhodonotparticipateatfirstinthewealthoftheminesinquestion.Thealtercationsofthemarket,orthedemandformeat,wine,wool,etc.beingmoreintensethanusual,willnotfailtoraisetheirprices.Thesehighpriceswilldeterminethefarmerstoemploymorelandtoproducetheminanotheryear:thesesamefarmerswillprofitbythisriseofpricesandwillincreasetheexpenditureoftheirfamiliesliketheothers.Thosethenwhowillsufferfromthisdearnessandincreasedconsumptionwillbefirstofallthelandowners,duringthetermoftheirleases,thentheirdomesticservantsandalltheworkmenorfixedwage-earnerswhosupporttheirfamiliesontheirwages.Allthesemustdiminishtheirexpenditureinproportiontothenewconsumption,whichwillcompelalargenumberofthemtoemigratetoseekalivingelsewhere.Thelandownerswilldismissmanyofthem,andtherestwilldemandanincreaseofwagestoenablethemtoliveasbefore.Itisthus,approximately,thataconsiderableincreaseofmoneyfromtheminesincreasesconsumption,andbydiminishingthenumberofinhabitantsentailsagreaterexpenseamongthosewhoremain.Ifmoremoneycontinuestobedrawnfromtheminesallpriceswillowingtothisabundancerisetosuchapointthatnotonlywillthelandownersraisetheirrentsconsiderablywhentheleasesexpireandresumetheiroldstyleofliving,increasingproportionablythewagestheirservants,butthemechanicsandworkmenwillraisethepricesoftheirarticlessohighthattherewillbeaconsiderableprofitinbuyingthemfromtheforeignerwhomakesthemmuchmorecheaply.Thiswillnaturallyinduceseveralpeopletoimportmanyarticlesmadeinforeigncountries,wheretheywillbefoundverycheap:thiswillgraduallyruinthemechanicsandmanufacturersofthestatewhowillnotbeabletomaintainthemselvestherebyworkingatsuchlowpricesowingtothedearnessofliving.WhentheexcessiveabundanceofmoneyfromtheMineshasdiminishedtheinhabitantsofastate,accustomedthosewhoremaintoatoolargeexpenditure,raisedproduceofthelandandthelabourofworkmentoexcessiveprices,ruinedthemanufacturesofthestatebyuseofforeignproductionsonthepartoflandlordsandmineworkers,themoneyproducedbythemineswillnecessarilygoabroadtopayfortheimports:thiswillgraduallyimpoverishthestateandrenderitinsomesortdependentontheForeignertowhomitisobligedtosendmoneyeveryyearasitisdrawnfromthemines.Thegreatcirculationofmoney,whichwasgeneralatthebeginning,ceases:povertyandmiseryfollowandthelabouroftheminesappearstobeonlytotheadvan-tageofthoseemployeduponthemandtheForeignerswhoprofitthereby.ThisisapproximatelywhathashappenedtoSpainsincethediscoveryoftheIndies.AstothePortuguese,sincethediscoveryofthegoldminesofBrazil,theyhavenearlyalwaysmadeuseofforeignarticlesandmanufactures;anditseemsthattheyworkattheminesonlyfortheaccountandadvantageofforeigners.Allthegoldandsilverwhichthesetwostatesextractfromthemines Cantillon:EssayontheNatureofCommerceinGeneral89doesnotsupplythemincirculationwithmorepreciousmetalthanothers.EnglandandFrancehaveevenmoreasarule.Nowiftheincreaseofmoneyinthestateproceedsfromabalanceofforeigntrade(i.e.fromsendingabroadarticlesandmanufacturesingreatervalueandquantitythanisimportedandcon-sequentlyreceivingthesurplusinmoney)thisannualincreaseofmoneywillenrichagreatnumberofmerchantsandUndertakersinthestate,andwillgiveemploymenttonumerousmechanicsandworkmenwhofurnishthecommoditiessenttotheForeignerfromwhomthemoneyisdrawn.Thiswillincreasegraduallytheconsumptionoftheseindustrialinhabitantsandwillraisethepriceoflandandlabour.Buttheindustriouswhoareeagertoacquirepropertywillnotatfirstincreasetheirexpense:theywillwaittilltheyhaveaccumulatedagoodsumfromwhichtheycandrawanassuredinterest,independentlyoftheirtrade.Whenalargenumberoftheinhabitantshaveacquiredcon-siderablefortunesfromthismoney,whichentersthestateregularlyandannually,theywill,withoutfail,increasetheirconsumptionandraisethepriceofeverything.Thoughthisdearnessinvolvestheminagreaterexpensethantheyatfirstcontemplatedtheywillforthemostpartcontinuesolongastheircapitallasts;fornothingiseasierormoreagreeablethantoincreasethefamilyexpenses,nothingmoredifficultordisagreeablethantoretrenchthem.Ifanannualandcontinuousbalancehasbroughtaboutinastateaconsiderableincreaseofmoneyitwillnotfailtoincreaseconsumption,toraisethepriceofeverythingandeventodimin-ishthenumberofinhabitantsunlessadditionalproduceisdrawnfromabroadproportionabletotheincreasedconsumption.Moreover,itisusualinstateswhichhaveacquiredaconsiderableabundanceofmoneytodrawmanythingsfromneighbouringcountrieswheremoneyisrareandconsequentlyeverythingischeap:butasmoneymustbesentforthisthebalanceoftradewillbecomesmaller.Thecheapnessoflandandlabourintheforeigncountrieswheremoneyisrarewillnaturallycausetheerectionofmanufactoriesandworkssimilartothoseofthestate,butwhichwillnotatfirstbesoperfectnorsohighlyvalued.Inthissituationthestatemaysubsistinabundanceofmoney,consumeallitsownproduceandalsomuchforeignproduceandoverandaboveallthismaintainasmallbalanceoftradeagainsttheForeigneroratleastkeepthebalancelevelformanyyears,thatisimportinexchangeforitsworkandmanufacturesasmuchmoneyfromtheseforeigncountriesasithastosendthemforthecommoditiesorproductsofthelandittakesfromthem.Ifthestateisamaritimestatethefacilityandcheapnessofitsshippingforthetransportofitsworkandmanufacturesintoforeigncoun-triesmaycompensateinsomesortthehighpriceoflabourcausedbythetoogreatabun-danceofmoney;sothattheworkandmanufacturesofthisstate,dearthoughtheybe,willsellinforeigncountriescheapersometimesthanthemanufacturesofanotherstatewherelabourislesshighlypaid.Thecostoftransportincreasesagooddealthepricesofthingssenttodistantcountries;butthesecostsareverymoderateinmaritimestates,wherethereisregularshippingtoallforeignportssothatShipsarenearlyalwaysfoundtherereadytosailwhichtakeonboardallcargoesconfidedtothemataveryreasonablefreight.ItisnotsoinstateswherenavigationdoesnotNourish.Thereitisnecessarytobuildshipsexpresslyforthecarryingtradeandthissometimesabsorbsalltheprofit;andnavigationthereisalwaysveryexpensive,whichentirelydiscouragestrade.Englandtodayconsumesnotonlythegreatestpartofitsownsmallproducebutalsomuchfor-eignproduce,suchasSilks,Wines,Fruit,Lineningreatquantity,etc.whileshesendsabroadonlytheproduceofhermines,herworkandmanufacturesforthemostpart,anddearthoughlabourbeowingtotheabundanceofmoney,shedoesnotfailtosellherarticlesindistantcountries,owingtotheadvantageofhershipping,atpricesasreasonableasinFrancewherethesesamearticlesaremuchcheaper.Theincreasedquantityofmoneyincirculationinastatemayalsobecaused,withoutbalanceoftrade,bysubsidiespaidtothisstatebyforeignpowers,bytheexpensesofseveralambassadors, 90Pre-ClassicalThoughtoroftravellerswhompoliticalreasonsorcuriosityorpleasuremayinducetoresidethereforsometime,bythetransferofthepropertyandfortuneofsomeFamilieswhofrommotivesofreligiouslibertyorothercausesquittheirowncountrytosettledowninthisstate.Inallthesecasesthesumswhichcomeintothestatealwayscauseanincreasedexpenseandconsumptionthereandconse-quentlyraisethepricesofallthingsinthechannelsofexchangeintowhichmoneyenters.Supposeaquarteroftheinhabitantsofthestateconsumedailymeat,wine,beer,etc.andsupplythemselvesfrequentlywithcloaths,linen,etc.beforetheincreaseinmoney,butthataftertheincreaseathirdorhalfoftheinhabitantsconsumethesesamethings,thepricesofthemwillnotfailtorise,andthedearnessofmeatwillinduceseveralofthosewhoformedaquarterofthestatetoconsumelessofitthanusual.Amanwhoeatsthreepoundsofmeatadaywillmanagewithtwopounds,buthefeelsthereduction,whiletheotherhalfoftheinhabitantswhoatehardlyanymeatwillnotfeelthereduction.Breadwillintruthgoupgraduallybecauseofthisincreasedconsumption,asIhaveoftensuggested,butitwillbelessdearinproportionthanmeat.Theincreasedpriceofmeatcausesdiminishedconsumptiononthepartofasmallsectionofthepeople,andsoisfelt;buttheincreasedpriceofbreaddiminishestheshareofalltheinhabitants,andsoislessfelt.If100,000extrapeoplecometoliveinastateof10millionsofinhabitants,theirextraconsumptionofbreadwillamounttoonly1poundin100whichmustbesubtractedfromtheoldinhabitants;butwhenamaninsteadof100poundsofbreadconsumes99forhissubsistencehehardlyfeelsthisreduction.Whentheconsumptionofmeatincreasesthefarmersaddtotheirpasturestogetmoremeat,andthisdiminishesthearablelandandconsequentlytheamountofcorn.ButwhatgenerallycausesmeattobecomedearerinproportionthanBreadisthatordinarilythefreeimportofforeigncornispermittedwhiletheimportofCattleisabsolutelyforbidden,asinEngland,orheavyimportdutiesareimposedasinotherstates.ThisisthereasonwhytherentsofmeadowsandpasturesgoupinEngland,intheabundanceofmoney,tothreetimesmorethantherentsofarableland.ThereisnodoubtthatAmbassadors,Travellers,andFamilieswhocometosettleinthestate,increaseconsumptionthereandthatpricesriseinallthechannelsofexchangewheremoneyisintroduced.Astosubsidieswhichthestatehasreceivedfromforeignpowers,eithertheyarehoardedforstatenecessitiesorareputintocirculation.IfwesupposethemhoardedtheydonotconcernmyargumentforIamconsideringonlymoneyincirculation.Hoardedmoney,plate,Churchtrea-sures,etc.arewealthwhichthestateturnstoserviceinextremity,butareofnopresentutility.Ifthestateputsintocirculationthesubsidiesinquestionitcanonlybebyspendingthemandthiswillverycertainlyincreaseconsumptionandsendupallprices.Whoeverreceivesthismoneywillsetitinmotionintheprincipalaffairoflife,whichisthefood,eitherofhimselforofsomeother,sincetothiseverythingcorrespondsdirectlyorindirectly.Chapterseven:ContinuationofthesamesubjectAsgold,silverandcopperhaveanintrinsicvalueproportionabletothelandandlabourwhichenterintotheirproductionattheminesaddedtothecostoftheirimportationorintroductionintostateswhichhavenomines,thequantityofmoney,asofallothercommodities,determinesitsvalueinthebargainingofthemarketagainstotherthings.IfEnglandbeginsforthefirsttimetomakeuseofgold,silverandcopperinexchanges,moneywillbevaluedaccordingtothequantityofitincirculationproportionablytoitspowerofexchangeagainstallothermerchandiseandproduce,andtheirvaluewillbearrivedatroughlybythealtercationsofthemarkets.OnthefootingofthisestimationthelandownersandUndertakerswillfixthewagesoftheirDomesticServantsandWorkmenatsomuchadayorayear,sothattheyandtheirfamiliesmaybeabletoliveonthewagestheyreceive.SupposenowthattheresidenceofAmbassadorsandforeigntravellersinEnglandhaveintro-ducedasmuchmoneyintothecirculationthereastherewasbefore;thismoneywillatfirstpass Cantillon:EssayontheNatureofCommerceinGeneral91intothehandsofvariousmechanics,DomesticServants,Undertakersandotherswhohavehadashareinprovidingtheequipages,amusements,etc.oftheseForeigners;themanufacturers,farmers,andotherUndertakerswillfeeltheeffectofthisincreaseofmoneywhichwillhabituateagreatnumberofpeopletoalargerexpensethanbefore,andthiswillinconsequencesendupmarketprices.EventhechildrenoftheseUndertakersandmechanicswillembarkuponnewexpense:inthisabundanceofmoneytheirFatherswillgivethemalittlemoneyfortheirpettypleasures,andwiththistheywillbuycakesandpatties,andthisnewquantityofmoneywillspreaditselfinsuchawaythatmanywholivedwithouthandlingmoneywillnowhavesome.Manypurchaseswhichusedtobemadeoncreditwillnowbemadeforcash,andtherewillthere-forebegreaterrapidityinthecirculationofmoneyinEnglandthantherewasbefore.FromallthisIconcludethatbydoublingthequantityofmoneyinastatethepricesofproductsandmerchandisearenotalwaysdoubled.ARiverwhichrunsandwindsaboutinitsbedwillnotflowwithdoublethespeedwhentheamountofitswaterisdoubled.Theproportionofthedearnesswhichtheincreasedquantityofmoneybringsaboutinthestatewilldependontheturnwhichthismoneywillimparttoconsumptionandcirculation.Throughwhateverhandsthemoneywhichisintroducedmaypassitwillnaturallyincreasetheconsumption;butthisconsumptionwillbemoreorlessgreataccordingtocircumstances.Itwillbedirectedmoreorlesstocertainkindsofproductsormerchandiseaccordingtotheideaofthosewhoacquirethemoney.Marketpriceswillrisemoreforcertainthingsthanforothershow-everabundantthemoneymaybe.InEnglandthepriceofmeatmightbetripledwhilethepriceofcornwentuponlyone-fourth.InEnglanditisalwayspermittedtobringincornfromforeigncountries,butnotcattle.ForthisreasonhowevergreattheincreaseofhardmoneymaybeinEnglandthepriceofcorncanonlyberaisedabovethepriceinothercountrieswheremoneyisscarcebythecostandrisksofimportingcornfromtheseforeigncountries.ItisnotthesamewiththepriceofCattle,whichwillnecessarilybeproportionedtothequantityofmoneyofferedformeatinproportiontothequantityofmeatandthenumberofCattlebredthere.Anoxweighing800poundssellsinPolandandHungaryfortwoorthreeouncesofsilver,butcommonlysellsintheLondonmarketformorethan40.Yet,thebushelofflourdoesnotsellinLondonfordoublethepriceinPolandandHungary.Increaseofmoneyonlyincreasesthepriceofproductsandmerchandisebythedifferenceofthecostoftransport,whenthistransportisallowed.Butinmanycasesthecarriagewouldcostmorethanthethingisworth,andsotimberisuselessinmanyplaces.Thiscostofcarriageisthereasonwhymilk,freshbutter,salads,game,etc.arealmostgivenawayintheprovincesdistantfromthecapital.Iconcludethatanincreaseofmoneycirculatinginastatealwayscausesthereanincreaseofconsumptionandahigherstandardofexpense.Butthedearnesscausedbythismoneydoesnotaffectequallyallthekindsofproductsandmerchandise,proportionablytothequantityofmoney,unlesswhatisaddedcontinuesinthesamecirculationasthemoneybefore,thatistosayunlessthosewhoofferinthemarketoneounceofsilverbethesameandonlyoneswhonowoffertwoounceswhentheamountofmoneyincirculationisdoubledinquantity,andthatishardlyeverthecase.Iconceivethatwhenalargesurplusofmoneyisbroughtintoastatethenewmoneygivesanewturntoconsumptionandevenanewspeedtocirculation.Butitisnotpossi-bletosayexactlytowhatextent.Chapternine:OftheinterestofmoneyanditscausesJustasthepricesofthingsarefixedinthealtercationsofthemarketbythequantityofthingsofferedforsaleinproportiontothequantityofmoneyofferedforthem,or,whatcomestothesamething,bytheproportionatenumberofsellersandbuyers,sointhesamewaytheinterestofmoneyinastateissettledbytheproportionatenumberoflendersandborrowers. 92Pre-ClassicalThoughtThoughmoneypassesforapledgeinexchangeitdoesnotmultiplyitselforbegetaninterestinsimplecirculation.Theneedsofmanseemtohaveintroducedtheusageofinterest.Amanwholendshismoneyongoodsecurityoronmortgagerunsatleasttheriskoftheillwilloftheborrower,orofexpenses,lawsuitsandlosses.Butwhenhelendswithoutsecurityherunstheriskoflosingeverything.Forthisreasonneedymenmustinthebeginninghavetemptedlendersbythebaitofaprofit.Andthisprofitmusthavebeenproportionatetotheneedsoftheborrowersandthefearandavariceofthelenders.Thisseemstometheoriginofinterest.ButitsconstantusageinstatesseemsbasedupontheprofitswhichtheUndertakerscanmakeoutofit.Thelandnaturallyproduces,aidedbyhumanlabour,4,10,20,50,100,150timestheamountofcornsownuponit,accordingtothefertilityofthesoilandtheindustryoftheinhabitants.Itmultipliesfruitsandcattle.Thefarmerwhoconductstheworkingofithasgenerallytwo-thirdsoftheproduce,one-thirdpayshisexpensesandupkeep,theotherremainsfortheprofitofhisenterprise.Ifthefarmerhaveenoughcapitaltocarryonhisenterprise,ifhehavetheneedfultoolsandinstruments,horsesforploughing,cattletomakethelandpay,etc.hewilltakeforhimselfafterpayingallexpensesathirdoftheproduceofhisfarm.Butifacompetentlabourerwholivesfromdaytodayonhiswagesandhasnocapital,canfindsomeonewillingtolendhimlandormoneytobuysome,hewillbeabletogivethelenderallthethirdrent,orthirdpartofthepro-duceofafarmofwhichhewillbecomethefarmerorUndertaker.However,hewillthinkhispositionimprovedsincehewillfindinthesecondrentandwillbecomemasterinsteadman.Ifbygreateconomyandpinchinghimselfsomewhatofhisnecessitieshecangraduallyaccumulatesomelittlecapital,hewillhaveeveryyearlesstoborrow,andwillatlastarriveatkeepingthewholeofhisthirdrent.IfthisnewUndertakerfindsmeanstobuycornorcattleoncredit,tobepaidoffatalongdatewhenhecanmakemoneybythesaleofhisfarmproduce,hewillgladlypaymorethanthemar-ketpriceforreadymoney.Theresultwillbethesameasifheborrowedcashtobuycornforreadymoney,payingasinterestthedifferencebetweenthecashpriceandthepricepayableatafuturedate.Butwhetherheborrowcashorgoodstheremustbeenoughlefttohimforupkeeporhewillbecomebankrupt.Theriskofthisisthereasonwhyhewillberequiredtopay20or30percentprofitorinterestontheamountofmoneyorvalueoftheproduceormerchandiselenttohim.Again,amasterhatterwhohascapitaltocarryonhismanufactureofhats,eithertorentahouse,buybeaver,wool,dye,etc.ortopayforthesubsistenceofhisworkmeneveryweek,oughtnotonlytofindhisupkeepinthisenterprise,butalsoaprofitlikethatofthefarmerwhohashisthirdpartforhimself.Thisupkeepandtheprofitshouldcomefromthesaleofthehatswhosepriceoughttocovernotonlythematerialsbutalsotheupkeepofthehatterandhisworkmenandalsotheprofitinquestion.Butacapablejourneymanhatterwithnocapitalmayundertakethesamemanufacturebyborrowingmoneyandmaterialsandabandoningtheprofittoanybodywhoiswillingtolendhimthemoneyorentrusthimwiththebeaver,wool,etc.forwhichhewillpayonlysometimelaterwhenhehassoldhishats.Ifwhenhisbillsareduethelenderrequireshiscapitalback,orifthewoolmerchantandotherlenderswillnotgranthimfurthercreditbemustgiveuphisbusiness,inwhichcasehemayprefertogobankrupt.Butifheisprudentandindustrioushemaybeabletoprovetohiscreditorsthathehasincashorinhatsaboutthevalueofwhathehasborrowedandtheywillprobablychoosetocontinuetogivehimcreditandbesatisfiedforthepresentwiththeirinterestorprofit.Inthiswayhewillcarryonandwillperhapsgraduallysavesomecapitalbyretrenchingalittleuponhisnecessities.Withtheaidofthishewillhaveeveryyearlesstoborrow,andwhenhehascollectedacapitalsufficienttoconducthismanufacture,whichwillalwaysbeproportionabletohissales,theprofitwillremaintohimentirelyandhewillgrowrichifhedoesnotincreasehisexpenditure. Cantillon:EssayontheNatureofCommerceinGeneral93Itiswelltoobservethattheupkeepofsuchamanufacturerissmallcomparedwiththesumsheborrowsinhistradeorwiththematerialsentrustedtohim,andthereforethelendersrunnogreatriskoflosingtheircapitalifheisrespectableandhardworking:butasitisquitepossiblethatheisnotsothelendersalwaysrequirefromhimaprofitorinterestof20–30percentofthevalueoftheirloan.Eventhenonlythosewhohaveagoodopinionofhimwilltrusthim.Thesameinductionsmaybemadewithregardtoallthemasters,artisans,manufacturersandotherUndertakersinthestatewhocarryonenterprisesinwhichthecapitalconsiderablyexceedsthevalueoftheirannualupkeep.Butifawater-carrierinParissetsupastheUndertakerofhisownwork,allthecapitalheneedswillbethepriceoftwobucketswhichhecanbuyforanounceofsilverandthenallhisgainsareprofit.Ifbyhislabourhegains50ouncesofsilverayear,theamountofhiscapitalorborrowingwillbetothatofhisprofitas1–50.Thatishewillgain5000percentwhilethehatterwillgainonly50percentandwillalsohavetopay20or30percenttothelender.Nevertheless,amoneylenderwillprefertolend1000ouncesofsilvertoahatmakerat20percentinterestratherthantolend1000ouncesto1000watercarriersat500percentinterest.Thewatercarrierswillquicklyspendontheirmaintenancenotonlythemoneytheygainbytheirdailylabourbutallthatwhichislenttothem.Thesecapitalslenttothemaresmallcomparedwithwhattheyneedfortheirmaintenance:whethertheybemuchorlittleemployedtheycaneasilyspendalltheyearn.Therefore,itishardlypossibletoarriveattheprofitsoftheselittleUndertakers.Itmightwellbethatawatercarriergains5000percentofthevalueofthebucketswhichserveashiscapital,even10,000percentifbyhardworkhegains100ouncesofsilverayear.Butashemayspendonhisliving100ouncesjustaswellas50,itisonlybyknowingwhathedevotestohisupkeepthatwecanfindhowmuchhehasofclearprofit.ThesubsistenceandupkeepofUndertakersmustalwaysbedeductedbeforearrivingattheirprofit.Wehavedonethisintheexampleofthefarmerandofthehatmaker,butitcanhardlybedeter-minedinthecaseofthepettyUndertakers,whoareforthemostpartinsolventwhentheyareindebt.ItiscustomaryfortheLondonbrewerstolendafewbarrelsofbeertothekeepersofale-houses,andwhenthesepayforthefirstbarrelstocontinuetolendthemmore.Iftheseale-housesdoabriskbusinessthebrewerssometimesmakeaprofitof500percentperannum;andIhaveheardthatthebigbrewersgrowrichwhennomorethanhalftheale-housesgobankruptupontheminthecourseoftheyear.Allthemerchantsinastateareinthehabitoflendingmerchandiseorproduceforatimetoretailers,andproportiontherateoftheirprofitorinteresttothatoftheirrisk.Thisriskisalwaysgreatbecauseofthehighproportionoftheborrower’supkeeptotheloan.Foriftheborrowerorretailerhavenotaquickturnoverinsmallbusinesshewillquicklygotoruinandwillspendallhehasborrowedonhisownsubsistenceandwillthereforebeforcedintobankruptcy.Thefishwives,whobuyfishatBillingsgateinLondontosellagainintheotherquartersoftheCity,generallypayunderacontractmadebyanexpertscrivener,1shillingperguinea,or2shillings,interestperweek,whichamountsto260percentperannum.Themarket-womenatParis,whosebusinessissmaller,pay5solsfortheweek’sinterestonanécuof3livres,whichexceeds430percentperannum.Andyettherearefewlenderswhomakeafortunefromsuchhighinterest.Thesehighratesofinterestarenotonlypermittedbutareinawayusefulandnecessaryinastate.Thosewhobuyfishinthestreetspaythesehighinterestchargesintheincreasedprice.Itsuitsthemandtheydonotfeelit.Inlikemanneranartisanwhodrinksapotofbeerandpaysforitapricewhichenablesthebrewertogethis500percentprofit,issatisfiedwiththisconvenienceanddoesnotfeelthelossinsosmalladetail.TheCasuists,whoseemhardlysuitablepeopletojudgethenatureofinterestandofmattersoftrade,haveinventedaterm,damnumemergens,bywhoseaidtheyconsenttotoleratethesehighratesofinterest;andratherthanupsetthecustomandconvenienceofsociety,theyhaveagreed 94Pre-ClassicalThoughtandallowedtothosewholendatgreatrisktoexactinproportionahighrateofinterest:andthiswithoutlimit,fortheywouldbehardputtoittofindanycertainlimitsincethebusinessdependsinrealityonthefearsofthelendersandtheneedsoftheborrowers.MaritimemerchantsarepraisedwhentheycanmakeaprofitontheirAdventures,eventhoughitbe10,000percent;andwhateverprofitwholesalemerchantsmaymakeorstipulateforinSellingonlongcreditproduceormerchandisetosmallerretailmerchants,IhavenotheardthattheCasuistsmakeitacrime.Theyareorseemtobealittlemorescrupulousaboutloansinhardcashthoughitisessentiallythesamething.Yet,theytolerateeventheseloansbyadistinc-tion,lucrumcessans,whichtheyhaveinvented.Iunderstandthistomeanthatamanwhohasbeeninthehabitofmakinghismoneybringin500percentinhistrademaydemandthisprofitwhenhelendsittoanother.Nothingismoreamusingthanthemultitudeoflawsandcanonsmadeineveryageonthesubjectoftheinterestofmoney,alwaysbywiseacreswhowerehardlyacquaintedwithtradeandalwayswithouteffect.Fromtheseexamplesandinductionsitseemsthatthereareinastatemanyclassesandchan-nelsofinterestorprofit,thatinthelowestclassesinterestisalwayshighestinproportiontothegreaterrisk,andthatitdiminishesfromclasstoclassuptothehighestwhichisthatofmerchantswhoarerichandreputedsolvent.Theinterestdemandedinthisclassiscalledthecurrentrateofinterestinthestateanddifferslittlefrominterestonthemortgageofland.Thebillofasolventandsolidmerchantisasmuchesteemed,atleastforashortdate,asalienuponland,becausethepossibilityofalawsuitoradisputeonthislastmakesupforthepossibilityofthebankruptcyofthemerchant.IftherewereinastatenoUndertakerswhocouldmakeaprofitonthemoneyorgoodswhichtheyborrow,theuseofinterestwouldprobablybelessfrequentthanitis.Onlyextravagantandprodigalpeoplewouldcontractloans.ButaccustomedaseveryoneistomakeuseofUndertakersthereisaconstantsourceforLoansandthereforeforinterest.TheyaretheUndertakerswhocultivatethelandandsupplybread,meat,clothes,etc.toalltheinhabitantsofacity.ThosewhoworkonwagesfortheseUndertakersseekalsotosetthemselvesupasUndertakers,inemulationofeachother.ThemultitudeofUndertakersismuchgreateramongtheChinese,andastheyallhavelivelyintelligence,ageniusforenterprise,andgreatpersever-anceincarryingitout,thereareamongthemmanyUndertakerswhoareamonguspeopleonfixedwages.Theysupplylabourerswithmeals,eveninthefields.ItisperhapsthismultitudeofsmallUndertakersandothers,fromclasstoclass,whofindingthemeanstogainagooddealbyministeringtoconsumptionwithoutitsbeingfeltbytheconsumers,keepuptherateofinterestinthehighestclassat30percentwhileithardlyexceeds5percentinourEurope.AtAthensinthetimeofSoloninterestwasat18percent.IntheRomanRepublicitwasmostcommonly12percent,buthasbeenknowntobe48,20,8,6andatthelowest4percent.ItwasneversolowinthefreemarketastowardstheendoftheRepublicandunderAugustusaftertheconquestofEgypt.TheEmperorAntoninusandAlexanderSeverusonlyreducedinterestto4percentbylendingpublicmoneyonthemortgageofland. FRANÇOISQUESNAY(1694–1774)LikeWilliamPettyandLocke,FrançoisQuesnay(1694–1774)wasalsoaphysi-cian,intheFrenchcourtunderLouisXV,andthedrivingforcebehindthePhysio-craticschoolofeconomicthoughtandanalysis.Hisdoctrinesemphasizedboththeapplicationofcapitalistmethodsandthededicationofgovernmentpolicytothepromotionofagriculture,asagainstthemercantilistpoliciesoftheFrenchfinanceminister,Colbert.Quesnayarguedthatagri-culturealoneproducedasurplus(inphysio-craticterms,anetproduct)overandaboveitsinputs;manufacturingwassaidtobesterile.Alltaxationultimatelywaspaidfromthissurplus,whichshouldbetaxeddirectly.Maximizationofthesurplusrequiredade-quateinvestmentinagriculture,large-scalefarming,andhighpricesforagriculturalgoods,whichinturnrequiredanappropri-atelevelandstructureofspending.Giventheextentofthemercantilistpoliciespro-motingmanufacturingattheexpenseofagricultureandtheantiquatednatureofagriculturalproductioninFranceduringthisperiod,thephysiocratsprogramofreformrepresentedasubstantialdeparturefromthestatusquo.FrançoisQuesnay,bycourtesyofTheWarrenJ.SamuelsPortraitCollectionatDukeUniversity.Adefiningfeatureofthelargerbodyofphysiocraticthoughtisitsidentificationwiththenaturalorder.Physiocracymeanttheruleofnature–tobepromotedbyagovernmentthatfollowedQuesnay’sprinciples,theoptimalformofwhich,accordingtoQuesnay,wasmonarchy.AlthoughQuesnaydidnotusetheterm,thetoneofhisworkisthatoflaissezfaire,butitmeansnotsomenotionofminimalgovernmentbut,rather,governmentpolicyfollowingthenaturallawsofthenaturalorder;whichinpracticemeansactivistgovernmentpromotionofanagriculturalkingdom.Interestingly,Quesnaywasoneoftheearliestwriterstoidentifythepossibilityofeconomicinstability,whichheattributedtoan 96Pre-ClassicalThoughtinadequatelevelandanimproperstructureofspending,andcalledforgovernmentalpolicytopromotestability.Quesnay’sTableauÉconomiqueoffersahypotheticaldiagrammaticrepresentationofhisideas.Societyisdividedintothreeclasses;onlyagriculturecreatesanetproduct;andacircularflowofspendingandincome,andtherebyreproduction,takesplace.QuesnayofferedmanyversionsandrevisionsoftheTableauovertime,usingittoillustrateavarietyofissuesoftheoryandpolicy.ReprintedhereisthethirdeditionoftheTableau,alongwithQuesnay’sexplanatorynotes.ReferencesandfurtherreadingBeer,Max(1939)AnInquiryintoPhysiocracy,London:Allen&Unwin.Eltis,WalterA.(1975)“FrançoisQuesnay:Reinterpretation1,TheTableauEconomique,”OxfordEconomicPapers27(July):167–200.——(1975)“FrançoisQuesnay:Reinterpretation2,TheTheoryofEconomicGrowth,”OxfordEconomicPapers27(November):327–51.Eltis,Walteretal.(2002)“Mini-SymposiumonPhysiocracy,”JournaloftheHistoryofEconomicThought24(March):39–110.Fox-Genovese,E.(1976)TheOriginsofPhysiocracy:EconomicRevolutionandSocialOrderinEighteenthCenturyFrance,Ithaca:CornellUniversityPress.Higgs,Henry(1897)ThePhysiocrats,London:Macmillan.Kuczynski,M.andMeek,R.L.(1972)Quesnay’sTableauÉconomique,London:Macmillan.Meek,R.L.(1962)TheEconomicsofPhysiocracy:EssaysandTranslations,London:GeorgeAllen&Unwin.Mirabeau,V.R.(1758–60)L’amidesHommes,ouTraitédelaPopulation,Aalen:ScientiaVerlag,1970.——(1760)Theoriedel’impôt,Aalen:ScientiaVerlag,1972.——(1764)PhilosophieRurale,Aalen:ScientiaVerlag,1972.Phillips,A.(1955)“TheTableauEconomiqueasaSimpleLeontiefModel,”QuarterlyJournalofEconomics69(February):137–44.Samuels,WarrenJ.(1962)“ThePhysiocraticTheoryofEconomicPolicy,”QuarterlyJournalofEconomics76(February):145–62.Vaggi,G.(1987a)“Physiocrats,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,869–75.——(1987b)“Quesnay,François,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.4,London:Macmillan,22–9.——(1987c)TheEconomicsofFrançoisQuesnay,London:Macmillan. TableauÉconomique*Objectstobeconsidered:(1)threekindsofexpenditure;(2)theirsource;(3)theiradvances;(4)theirdistribution;(5)theireffects;(6)theirreproduction;(7)theirrelationswithoneanother;(8)theirrelationswiththepopulation;(9)withagriculture;(10)withindustry;(11)withtrade;(12)withthetotalwealthofanation.ProductiveexpenditureExpenditureoftherevenueSterileexpenditureRelativetoagriculture,etc.Afterdeductionoftaxes,isRelativetoindustry,etc.dividedbetweenproductiveexpenditureandsterileexpenditureAnnualadvancesrequiredtoAnnualrevenueAnnualadvancesfortheworksproducearevenueof600lare600lofsterileexpenditureareTotalreproduced600lofrevenue;inaddition,theannualcostsof600landtheinterestontheoriginaladvancesofthehusbandmanamountingto300l,whichthelandrestores.Thusthereproductionis1500l,includingtherevenueof600lwhichformsthebaseofthecalculation,abstractionbeingmadeofthetaxesdeductedandoftheadvanceswhichtheirannualreproductionentails,etc.SeetheExplanationonthefollowingpage.*The‘ThirdEdition’oftheTABLEAUÉCONOMIQUEFacsimileReproductionandEnglishTranslation,inQuesnay’sTableauÉconomique,edited,withnewmaterial,translationsandnotesbyMargueriteKuczynskiandRonaldL.Meek.London:MacmillanandNewYork:AugustusM.KelleyforTheRoyalEconomicSocietyandTheAmericanEconomicAssociation,1972. 98Pre-ClassicalThoughtExplanationofthetableauéconomiqueProductiveexpenditureisemployedinagriculture,grasslands,pastures,forests,mines,fishing,etc.,inordertoperpetuatewealthintheformofcorn,drink,wood,livestock,rawmaterialsformanu-facturedgoods,etc.Sterileexpenditureisonmanufacturedcommodities,house-room,clothing,interestonmoney,servants,commercialcosts,foreignproduce,etc.Thesaleofthenetproductwhichthecultivatorhasgeneratedinthepreviousyear,bymeansoftheannualadvancesof600livresemployedincultivationbythefarmer,resultsinthepaymenttotheproprietorofarevenueof600livres.Theannualadvancesofthesterileexpenditureclass,amountingto300livres,areemployedforthecapitalandcostsoftrade,forthepurchaseofrawmaterialsformanufacturedgoods,andforthesubsistenceandotherneedsoftheartisanuntilhehascompletedandsoldhiswork.Ofthe600livresofrevenue,one-halfisspentbytheproprietorinpurchasingbread,wine,meat,etc.,fromtheproductiveexpenditureclass,andtheotherhalfinpurchasingclothing,furnish-ings,utensils,etc.,fromthesterileexpenditureclass.Thisexpendituremaygomoreorlesstoonesideortheother,accordingasthemanwhoengagesinitgoesinmoreorlessforluxuryinthewayofsubsistenceorforluxuryinthewayofornamentation.Weassumehereamediumsituationinwhichthereproductiveexpenditurerenewsthesamerevenuefromyeartoyear.Butitiseasytoestimatethechangeswhichwouldtakeplaceintheannualreproductionofrevenue,accordingassterileexpenditureorproductiveexpenditurepreponderatedtoagreaterorlesserdegree.Itiseasytoestimatethem,Isay,simplyfromthechangeswhichwouldoccurintheorderofthetableau.Suppose,forexample,thatluxuryinthewayofornamentationincreasedbyone-sixthinthecaseoftheproprietor,byone-sixthinthecaseoftheartisan,andbyone-sixthinthecaseofthecultivator.Thentherevenuereproduced,whichisnow600livres,wouldbereducedto400livres.1Suppose,ontheotherhand,thatanincreaseofthesamedegreetookplaceinexpenditureontheconsumptionorexportofrawproduce.Thentherevenuereproducedwouldincreasefrom600to800livres,2andsooninprogression.Thus,itcanbeseenthatanopulentnationwhichindulgesinexcessiveluxuryinthewayofornamentationcanveryquicklybeoverwhelmedbyitssumptuousness.The300livresofrevenuewhichaccordingtotheorderofthetableauhavepassedintothehandsoftheclassofproductiveexpenditure,returntothisclassitsadvancesintheformofmoney.Theseadvancesreproduce300livresnet,whichrepresentsthereproductionofpartofthepro-prietor’srevenue;anditisbymeansoftheremainderofthedistributionofthesumsofmoneywhicharereturnedtothissameclassthatthetotalrevenueisreproducedeachyear.These300livres,Isay,whicharereturnedatthebeginningoftheprocesstotheproductiveexpenditureclass,bymeansofthesaleoftheproductswhichtheproprietorbuysfromit,arespentbythefarmer,one-halfintheconsumptionofproductsprovidedbythisclassitself,andtheotherhalfinkeepingitselfinclothing,utensils,implements,etc.,forwhichitmakespaymenttothesterileexpenditureclass.Andthe300livresareregeneratedwiththenetproduct.The300livresoftheproprietor’srevenuewhichhavepassedintothehandsofthesterileexpenditureclassarespentbytheartisan,astoone-half,inthepurchaseofproductsforhissub-sistence,forrawmaterialsforhiswork,andforforeigntrade,fromtheproductiveexpenditureclass;andtheotherhalfisdistributedamongthesterileexpenditureclassitselfforitsmainte-nanceandfortherestitutionofitsadvances.Thiscirculationandmutualdistributionarecontin-uedinthesamewaybymeansofsub-divisionsdowntothelastpennyofthesumsofmoneywhichmutuallypassfromthehandsofoneexpenditureclassintothoseoftheother.Circulationbrings600livrestothesterileexpenditureclass,fromwhich300livreshavetobekeptbackfortheannualadvances,whichleaves300livresforwages.Thesewagesareequaltothe300livreswhichthisclassreceivesfromtheproductiveexpenditureclass,andtheadvancesareequaltothe300livresofrevenuewhichpassintothehandsofthissamesterileexpenditureclass. Quesnay:TableauÉconomique99Theproductsoftheotherclassamountto1200livres,abstractingfromtaxes,tithesandinter-estonthehusbandman’sadvances,whichwillbeconsideredseparatelyinordernottocompli-catetheorderofexpendituretoomuch.The1200livres’worthofproductaredisposedofasfollows:Theproprietoroftherevenuebuys300livres’worthofthem.Threehundredlivres’worthpassesintothehandsofthesterileexpenditureclass,ofwhichone-half,amountingto150livres,isconsumedforsubsistencewithinthisclass,andtheotherhalf,amountingto150livres,istakenforexternaltrade,whichisincludedinthissameclass.Finally,300livres’wortharecon-sumedwithintheproductiveexpenditureclassbythemenwhocausethemtobegenerated;and300livres’worthareusedforthefeedingandmaintenanceoflivestock.Thus,ofthe1200livres’worthofproduct,600areconsumedbythisclass,anditsadvancesof600livresarereturnedtoitintheformofmoneythroughthesaleswhichitmakestotheproprietorandtothesterileexpen-ditureclass.One-eighthofthetotalofthisproductentersintoexternaltrade,eitherasexportsorasrawmaterialsandsubsistenceforthecountry’sworkerswhoselltheirgoodstoothernations.Thesalesofthemerchantcounterbalancethepurchasesofthecommoditiesandbullionwhichareobtainedfromabroad.Suchistheorderofthedistributionandconsumptionofrawproduceasbetweenthedifferentclassesofcitizens;andsuchistheviewwhichweoughttotakeoftheuseandextentofexternaltradeinaflourishingagriculturalnation.Mutualsalesfromoneexpenditureclasstotheotherdistributetherevenueof600livrestobothsides,giving300livrestoeach,inadditiontotheadvanceswhicharemaintainedintact.Theproprietorsubsistsbymeansofthe600livreswhichhespends.The300livresdistributedtoeachexpenditureclass,togetherwiththeproductofthetaxes,thetithes,etc.,whichisaddedtothem,cansupportonemanineach:thus600livresofrevenuetogetherwiththeappurtenantsumscanenablethreeheadsoffamiliestosubsist.Onthisbasis600millionsofrevenuecanenable3millionfamiliestosubsist,estimatedatfourpersonsofallagesperfamily.Thecostsprovidedforbytheannualadvancesoftheproductiveexpenditureclass,whicharealsoregeneratedeachyear,andofwhichone-halfisspentonthefeedingoflivestockandtheotherhalfinpayingwagestothemenengagedintheworkcarriedonbythisclass,add300millionsofexpendituretothetotal;andthis,togetherwiththeshareoftheotherproductswhichareaddedtothem,canenableanother1millionheadsoffamiliestosubsist.Thus,these900millions,which,abstractingfromtaxes,tithes,andinterestontheannualadvancesandoriginaladvancesofthehusbandman,wouldbeannuallyregeneratedfromlandedproperty,couldenable16millionpeopleofallagestosubsistaccordingtothisorderofcircula-tionanddistributionoftheannualrevenue.Bycirculationisheremeantthepurchasesatfirsthand,paidforbytherevenuewhichissharedoutamongallclassesofmen,abstractingfromtrade,whichmultipliessalesandpurchaseswithoutmultiplyingthings,andwhichrepresentsnothingbutanadditiontosterileexpenditure.Thewealthoftheproductiveexpenditureclass,inanationwheretheproprietorsoflandregularlyreceivearevenueof600millions,canbeworkedoutasfollows:Arevenueof600millionsfortheproprietorspresupposesanextra300millionsfortaxes;and150millionsfortithesontheannualproduct,allchargesincluded,whichareleviedonthetithablebranchesofcultivation.Thismakesatotalof1050millions,includingtherevenue.Addtothesethereproductionof1050millionsofannualadvances,and110millionsofinterestontheseadvancesat10percent,andthegrandtotalbecomes2,210,000,000livres.Inakingdomwithmanyvineyards,forests,meadows,etc.,onlyabouttwo-thirdsofthese2210millionswouldbeobtainedbymeansofploughing.Assumingasatisfactorystateofaffairsinwhichlarge-scalecultivationwasbeingcarriedonwiththeaidofhorses,thisportionwouldrequiretheemploymentof333,334ploughsat120arpentsoflandperplough;333,334mentodrivethem;and40millionarpentsofland. 100Pre-ClassicalThoughtWithadvancesamountingtofiveorsixmilliards,itwouldbepossibleforthistypeofcultiva-tiontobeextendedinFrancetomorethan60millionarpents.Wearenotspeakinghereofsmall-scalecultivationcarriedonwiththeaidofoxen,inwhichmorethanamillionploughsandabout2millionmenwouldberequiredtowork40millionarpentsofland,andwhichwouldbringinonlytwo-fifthsoftheproductyieldedbylarge-scalecultivation.Thissmall-scalecultivation,towhichcultivatorsarereducedowingtotheirlackofthewealthnecessarytomaketheoriginaladvances,andinwhichthelandislargelyemployedmerelytocoverthecosts,iscarriedonattheexpenseoflandedpropertyitself,andinvolvesanexcessiveannualexpenditureforthesubsistenceofthegreatnumbersofmenengagedinthistypeofcultivation,whichabsorbsalmostthewholeoftheproduct.Thisthanklesstypeofcultivation,whichrevealsthepovertyandruinofthosenationsinwhichitpredominates,hasnoconnectionwiththeorderofthetableau,whichisworkedoutonthebasisofhalftheemploymentofaploughofland,wheretheannualadvancesareable,withtheaidofthefundoforiginaladvances,toproduce100percent.Thefulltotaloftheoriginaladvancesrequiredforputtingaploughoflandunderlarge-scalecultivation,forthefirstfundofexpenditureonlivestock,implements,seed,food,upkeep,wages,etc.,inthecourseoftwoyears’labourpriortothefirstharvest,isestimatedat10,000livres.Thus,thetotalfor333,334ploughsis3,333,340,000livres.(SeethearticlesFarm,Farmers,CornintheEncyclopedia.)Theinterestontheseadvancesoughttoamountto10percentatleast,sincetheproductsofagriculturearesubjecttodisastrousaccidentswhich,overaperiodoftenyears,destroyatleastthevalueofoneyear’sharvest.Moreover,theseadvancesrequireagreatdealofupkeepandrenewal.Thus,thetotalinterestontheoriginaladvancesrequiredforsettingupthehus-bandmenis333,322,000livres.Meadows,vineyards,ponds,forests,etc.,donotrequireverygreatoriginaladvancesonthepartofthefarmers.Thevalueoftheseadvances,includinginthemtheoriginalexpenditureonplantationsandotherworkcarriedoutattheexpenseoftheproprietors,canbereducedto1,000,000,000livres.Butvineyardsandgardensrequirelargeannualadvanceswhich,takentogetherwiththoseoftheotherbranches,mayontheaveragebeincludedinthetotalofannualadvancessetoutabove.Thetotalannualreproductionofnetproduct,ofannualadvanceswiththeinterestthereon,andofinterestontheoriginaladvances,workedoutinaccordancewiththeorderofthetableau,is2,543,322,000livres.TheterritoryofFrance,givenadvancesandmarkets,couldproduceasmuchasthisandevenagreatdealmore.Ofthissumof2,543,322,000livres,525millionsconstitutesthathalfofthereproductionoftheannualadvanceswhichisemployedinfeedinglivestock.Thereremains(ifthewholeofthetaxesgobackintocirculation,andiftheydonotencroachupontheadvancesofthehusbandmen)2,018,322,000livres.Thatmakes,formen’sexpenditure,504,580,500livresontheaverageforeachmillionheadsoffamilies,or562livresforeachindividualheadoffamily,whichaccidentsreducetoabout530livres.Onthisbasisastateisstrongintaxablecapacityandresources,anditspeopleliveineasycircumstances.Thestockoflandwhichannuallyproducesforthebenefitofmen2,018,322,000livres,ofwhich1,050,000,000taketheformofnetproduct,whenevaluatedattherateof1in30,consti-tutesfromthispointofviewwealthamountingto33,455,000,000livres,towhichmustbeaddedtheoriginaladvancesof4,333,340,000livres,makingatotalof36,788,340,000.Addingtothisthe2,543,322,000livresofannualproduct,thetotal,costsincluded,ofthewealthoftheproductiveexpenditureclasswillbe40,331,662,000livres. Quesnay:TableauÉconomique101Thevalueandtheproductoflivestockhavenotbeenseparatelycalculated,sincetheyhavebeenincludedintheadvancesofthefarmersandinthetotaloftheannualproduct.Weincludethelandherebecause,relativelytoitsmarketvalue,itcanbeconsideredinsomethingthesamewayasmovableproperty,sinceitspriceisdependentuponchangesintheotheritemsofwealthrequiredforcultivation.Forlanddeteriorates,andtheproprietorsloseonthemarketvalueoftheirlandedproperty,totheextentthatthewealthoftheirfarmersiswastedaway.Thewealthofthesterileexpenditureclassconsistsof:1.Thetotaloftheannualsterileadvances525,000,000livres.2.Theoriginaladvancesofthisclassforsettingupmanufactures,fortools,machines,mills,forges,andotherworks,etc.2,000,000,000livres.3.Thecoinedmoneyormoneystockofanopulentagriculturalnationisaboutequaltothenetproductwhichitobtainsannuallyfromitslandedpropertythroughthemediumoftrade.Thus,itis1,000,000,000livres.4.Thecapitalvalueof4millionhousesordwelling-placesfor4millionfamilies,eachhousebeingvaluedontheaverageat1500livres,comesto6,000,000,000livres.5.Thevalueofthefurnishingsandutensilsof4millionhouses,estimatedontheaverageatabout1year’srevenueorgainof4millionheadsoffamilies,comesto3,000,000,000livres.6.Thevalueofsilverplate,jewellery,preciousstones,mirrors,pictures,books,andotherdurablemanufacturedproducts,whicharepurchasedorinherited,mayinawealthynationamountto3,000,000,000livres.7.Thevalueofmerchantandmilitaryshipping,andtheirappurtenances,inthecaseofamaritimenation;inaddition,theartillery,weapons,andotherdurableproductsrequiredforlandwarfare;thebuildings,ornamentalstructures,andotherdurablepublicworks:allthesethingstakentogethercanbevaluedat2,000,000,000livres.Wedonottakeaccounthereofthemanufacturedcommoditiesandproducewhichareexportedandimported,andwhicharestoredintheshopsandwarehousesofthemerchantsanddestinedforannualuseorconsumption,sincetheyareincludedandtakenaccountofinthefiguresofannualproductandexpenditure,inconformitywiththeordersetoutinthetableau.Thetotalofthewealthofthesterileexpenditureclassmayamounttoabout18,000,000,000livres.Grandtotal59,000,000,000livres.Thatis,assumingapossibleerrorofone-twentietheitherway55–60,000,000,000livres.Wearespeakinghereofanopulentnationwithaterritoryandadvanceswhichyielditannuallyandwithoutanyabatementanetproductof1050millions.Butalltheseitemsofwealth,whicharesuccessivelymaintainedbythisannualproduct,maybedestroyedorlosetheirvalueifanagriculturalnationfallsintoastateofdecline,simplythroughthewastingawayoftheadvancesrequiredforproductiveexpenditure.Thiswastingawaycanmakeconsiderablehead-wayinashorttimeforeightprincipalreasons:1Abadsystemoftax-assessment,whichencroachesuponthecultivators’advances.Nolimetangere–thatisthemottofortheseadvances.2Anextraburdenoftaxationduetothecostsofcollection.3Anexcessofluxuryinthewayofornamentation.4Excessiveexpenditureonlitigation.5Alackofexternaltradeintheproductsoflandedproperty.6Alackoffreedomofinternaltradeinrawproduce,andincultivation.7Thepersonalharassmentoftheinhabitantsofthecountryside.8Failureoftheannualnetproducttoreturntotheproductiveexpenditureclass. 102Pre-ClassicalThoughtNotes1Erratum:for‘400livres’read‘500livres’.2Erratum:for‘800livres’read‘700livres’. ANNEROBERTJACQUESTURGOT(1727–1781)AnneRobertJacquesTurgot,aFrenchmanandprominentphysiocrat,waseducatedforthechurchbuteventuallydecidedtoentergovernmentservice.HeservedasaprovincialadministratorunderLouisXVandasMinisterofFinanceunderLouisXVI.EchoingsomeofQuesnay’sideas,Turgotattemptedtoreformboththeadministrationoftaxationandwelfarepro-grams.Becauseheengenderedopposi-tionfromadverselyaffectedinterests,histenureasMinisterofFinancewasshort-lived.ItiswidelyfeltthatifthemonarchyhadadoptedthetoneandsubstanceofTurgot’sreformprogram,theFrenchRevolutionmighthavebeenaverted,thoughthatishighlyproblematic.HisReflectionsontheFormationandDistributionofWealthranksinimpor-tancealmostashighasCantillon’sEssayasapre-AdamSmithtreatiseonpoliticaleconomy.Inmanyways,thestructureofReflectionsparallelsthatofSmith’sAnneRobertJacquesTurgot,bycourtesyofTheWarrenWealthofNations.WhilefarlessgrandJ.SamuelsPortraitCollectionatDukeUniversity.andsweepinginhisanalysis,Turgot’sworkisperhapsnolessinsightfulthanSmith’s,andhistheoryofcapital,containedintheexcerptsreprintedhere,representedalandmarkadvanceinthatarea.ReferencesandfurtherreadingBrewer,Anthony(1987)“Turgot:FounderofClassicalEconomics,”Economica54(November):417–28.Groenewegen,PeterD.(1977)TheEconomicsofA.R.J.Turgot,TheHague:MartinusNijhoff.——(1987)“Turgot,AnneRobertJacques,BarondeL’Aulne,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.4,London:Macmillan,707–12.Hutchison,Terence(1988)BeforeAdamSmith:TheEmergenceofPoliticalEconomy,1662–1776,Oxford:BasilBlackwell.Meek,RonaldL.(1973)TurgotonProgress,SociologyandEconomics,NewYork:CambridgeUniversityPress.Rothschild,Emma(1992)“CommerceandtheState:Turgot,CondorcetandSmith,”EconomicJournal102(September):1197–210. ReflectionsontheFormationandDistributionofWealth(1770)*Section49Oftheexcessofannualproduceaccumulatedtoformcapitals.Assoonasmenarefound,whosepropertyinlandassuresthemanannualrevenuemorethansufficienttosatisfyalltheirwants,amongthemtherearesome,who,eitheruneasyrespectingthefuture,or,perhaps,onlyprovident,laybyaportionofwhattheygathereveryyear,eitherwithaviewtoguardagainstpossibleaccidents,ortoaugmenttheirenjoyments.Whenthecommodi-tiestheyhavegatheredaredifficulttopreserve,theyoughttoprocurethemselvesinexchange,suchobjectsofamoredurablenature,andsuchaswillnotdecreaseintheirvaluebytime,orthosethatmaybeemployedinsuchamanner,astoprocuresuchprofitsaswillmakegoodthedecreasewithadvantage.Section50Personalproperty,accumulationofmoney.Thisspeciesofpossession,resultingfromtheaccumulationofannualproduce,notconsumed,isknownbythenameofpersonalproperty.Householdgoods,houses,merchandiseinstore,uten-silsoftrade,andcattleareunderthisdenomination.Itisevidentmenmusthavetoiledhardtoprocurethemselvesasmuchastheycouldofthiskindofwealth,beforetheybecameacquainted,butitisnotlessevidentthat,aswiththeuseofmoney,soonasitwasknown,thatitwastheleastliabletoalterationofalltheobjectsofcommerceandthemosteasytopreservewithouttrouble,itwouldbeprincipallysoughtafterbywhoeverwishedtoaccumulate.Itwasnotonlythepropri-etorsoflandwhothusaccumulatedtheirsuperfluity.Althoughtheprofitsofindustryarenot,liketherevenueoflands,agiftofnature;andtheindustriousmandrawsfromhislabouronlythepricewhichisgivenhimbythepersonswhopayhimhiswages;althoughthelatterisasfrugalashecanofhissalary,andthatacompetitionobligesanindustriousmantocontenthimselfwithalesspricethanheotherwisewoulddo,itisyetcertainthatthesecompetitionshaveneitherbeensonumerousorstronginanyspeciesoflabour,butthatamanmoreexpert,moreactive,andwhopractisesmoreœconomythanothersinhispersonalexpences,hasbeenable,atalltimes,togainalittlemorethansufficienttosupporthimandhisfamily,andreservehissurplustoformalittlehoard.*ReflectionsontheFormationandDistributionofWealthbyM.Turgot,ComptrollerGeneraloftheFinancesofFrance,in1774,1775and1776.TranslatedfromtheFrench.London:PrintedbyE.Spragg,ForJ.Good,Bookseller,No.159,NewBondStreet;JohnAnderson,No.62,HolbornHill;andW.Richardson,RoyalExchange.1793. Turgot:ReflectionsonWealth105Section51Circulatingwealthisanindispensiblerequisiteforalllucrativeworks.Itisevennecessary,thatineverytradetheworkmen,orthosewhoemploythem,possessacertainquantityofcirculatingwealth,collectedbeforehand.Wehereagainareobligedtogobacktoaretrospectofmanythingswhichhavebeenasyetonlyhintedat,afterwehavespokenofthedivi-sionofdifferentprofessions,andofthedifferentmethodsbywhichtheproprietorsofcapitalsmayrenderthemofvalue;because,otherwise,weshouldnotbeabletoexplainthemproperly,withoutinterruptingtheconnectionofourideas.Section52Necessityofadvancesforcultivation.Everyspeciesoflabour,ofcultivation,ofindustry,orofcommerce,requireadvances.Whenpeoplecultivatetheground,itisnecessarytosowbeforetheycanreap;theymustalsosupportthemselvesuntilaftertheharvest.Themorecultivationisbroughttoperfectionandenlivened,themoreconsiderabletheseadvancesare.Cattle,utensilsforfarming,buildingstoholdthecattle,tostoretheproductions,anumberofpersons,inproportiontotheextentoftheunder-taking,mustbepaidandsubsisteduntiltheharvest.Itisonlybymeansofconsiderableadvances,thatweobtainrichharvests,andthatlandsproducealargerevenue.Inwhateverbusinesstheyengage,theworkmanmustbeprovidedwithtools,musthaveasufficientquantityofsuchmate-rialsastheobjectofhislabourrequires;andhemustsubsistuntilthesaleofhisgoods.Section53Firstadvancefurnishedbythelandalthoughuncultivated.Theearthwaseverthefirstandtheonlysourceofallriches;itisthatwhichbycultivationpro-ducesallrevenue;itisthatwhichhasaffordedthefirstfundforadvances,anteriortoallcultiva-tion.Thefirstcultivatorhastakenthegrainhehassownfromsuchproductionsasthelandhadspontaneouslyproduced;whilewaitingfortheharvest,hehassupportedhimselfbyhunting,byfishing,oruponwildfruits.Histoolshavebeenthebranchesoftrees,procuredintheforests,andcutwithstonessharpeneduponotherstones;theanimalswanderinginthewoodshehastakeninthechace,caughttheminhistraps,orhassubduedthemunawares.Atfirsthehasmadeuseofthemforfood,afterwardstohelphiminhislabours.Thesefirstfundsorcapitalhaveincreasedbydegrees.Cattlewereinearlytimesthemostsoughtafterofallcirculatingproperty;andwerealsotheeasiesttoaccumulate;theyperish,buttheyalsobreed,andthissortofrichesisinsomerespectsunperishable.Thiscapitalaugmentsbygenerationalone,andaffordsanannualpro-duce,eitherinmilk,wool,leather,andothermaterials,which,withwoodtakenintheforest,haveeffectedthefirstfoundationsforworksofindustry.Section54Cattle–acirculatingwealth,evenbeforethecultivationoftheearth.Intimeswhentherewasyetalargequantityofuncultivatedland,andwhichdidnotbelongtoanyindividual,cattlemightbemaintainedwithouthavingapropertyinland.Itisevenprobable,thatmankindhavealmosteverywherebegantocollectflocksandherds,andtoliveonwhatthey 106Pre-ClassicalThoughtproduced,beforetheyemployedthemselvesinthemorelaboriousoccupationofcultivatingtheground.Itseemsthatthosenationswhofirstcultivatedtheearth,arethosewhofoundintheircoun-trysuchsortsofanimalsaswerethemostsusceptibleofbeingtamed,andthattheyhavebythisbeendrawnfromthewanderingandrestlesslifeofhuntersandfishers,tothemoretranquilenjoymentofpastoralpursuits.Pastoralliferequiresalongerresidenceinthesameplace,affordsmoreleisure,moreopportunitiestostudythedifferenceoflands,toobservethewaysofnatureintheproductionofsuchplantsasserveforthesupportofcattle.PerhapsitisforthisreasonthattheAsiaticnationshavefirstcultivatedtheearth,andthattheinhabitantsofAmericahaveremainedsolonginasavagestate.Section55Anotherspeciesofcirculatingwealth,andadvancesnecessaryforcultivation,slaves.Theslaveswereanotherkindofpersonalproperty,whichatfirstwereprocuredbyviolence,andafterwardsbywayofcommerceandexchange.Thosethathadmany,employedthemnotonlyinthecultureofland,butinvariousotherchannelsoflabour.Thefacilityofaccumulating,almostwithoutmeasure,thosetwosourcesofriches,andofmakinguseofthemabstractedlyfromtheland,causedthelanditselftobeestimated,andthevaluecomparedtomoveableriches.Section56Personalpropertyhasanexchangeablevalue,evenforlanditself.Amanthatwouldhavebeenpossessedofaquantityoflandswithoutcattleorslaves,wouldundoubtedlyhavemadeanadvantageousbargain,inyieldingapartofhisland,toapersonthatwouldhaveofferedhiminexchange,cattleandslavestocultivatetherest.Itischieflybythisprin-ciplethatpropertyinlandenteredlikewiseintocommerce,andhadacomparativevaluewiththatofalltheothergoods.Iffourbushelsofcorn,thenetproduceofanacreofland,wasworthsixsheep,theacreitselfthatfeedsthemcouldhavebeengivenforacertainvalue,greaterindeed,butalwayseasytosettlebythesameway,asthepriceofotherwares.Namely,atfirstbydebatesamongthetwocontractors,next,bythecurrentpriceestablishedbytheagreementofthosewhoexchangelandforcattle,orthecontrary.Itisbythescaleofthiscurrentspeciethatlandsareappraised,whenadebtorisprosecutedbyhiscreditor,andisconstrainedtoyielduphisproperty.Section57Valuationsoflandsbytheproportionoftheirrevenue,withthesumofpersonalproperty,orthevalueforwhichtheyareexchanged:thisproportioniscalledthepriceoflands.Itisevidentthatiflandwhichproducesarevenueequivalenttosixsheep,canbesoldforacertainvalue,whichmayalwaysbeexpressedbyanumberofsheepequivalenttothatvalue;thisnumberwillbearafixedproportionwiththatofsix,andwillcontainitacertainnumberoftimes.Thusthepriceofanestateisnothingelsebutitsrevenuemultipliedacertainnumberoftimes;twentytimesifthepriceisahundredandtwentysheep;thirtytimesifonehundredandeightysheep.Andsothecurrentpriceoflandisreckonedbytheproportionofthevalueoftherevenue;andthenumberoftimes,thatthepriceofthesalecontainsthatoftherevenue,iscalledsomanyyearspurchaseoftheland.Theyaresoldatthepriceoftwenty,thirty,orfortyyearspurchase,whenonpurchasingthemwepaytwenty,thirty,orfortytimestheirrevenue.Itisalsonotlessevident,thatthispricemustvaryaccordingtothenumberofpurchasers,orsellersofland,inthesamemannerasothergoodsvaryinaratiotothedifferentproportionbetweentheofferandthedemand. Turgot:ReflectionsonWealth107Section58Allcapitalinmoney,andallamountsofvalue,areequivalenttolandproducingarevenueequaltosomeportionofthatcapitalorvalue.Firstemploymentofcapitals.Purchaseoflands.Letusnowgobacktothetimeaftertheintroductionofmoney.Thefacilityofaccumulatingithassoonrendereditthemostdesirablepartofpersonalproperty,andhasaffordedthemeansofaugmenting,byeconomy,thequantityofitwithoutlimits.Whoever,eitherbytherevenueofhislandorbythesalaryofhislabourorindustry,receiveseveryyearahigherincomethanheneedstospend,maylayuptheresidueandaccumulateit:theseaccumulatedvaluesarewhatwenameacapital.Thepusillanimousmiser,thatkeepshismoneywiththemereviewofsoothinghisimaginationagainstapprehensionofdistressintheuncertaintyoffuturity,keepshismoneyinahoard.Ifthedangershehadforeseenshouldeventuallytakeplace,andheinhispovertybereducedtoliveeveryyearuponthetreasure,oraprodigalsuccessorlavishitbydegrees,thistrea-surewouldsoonbeexhausted,andthecapitaltotallylosttothepossessor.Thelattercandrawafargreateradvantagefromit;foranestateinlandofacertainrevenue,beingbutanequivalentofasumofvalueequaltotherevenue,takenacertainnumberoftimes,itfollows,thatanysumwhatsoeverofvalueisequivalenttoanestateinland,producingarevenueequaltoafixedpro-portionofthatsum.Itisperfectlythesamewhethertheamountofthiscapitalconsistsinamassofmetal,oranyothermatter,sincemoneyrepresentsallkindsofvalue,aswellasallkindsofvaluerepresentmoney.Bythesemeansthepossessorofacapitalmayatfirstemployitinthepurchaseoflands;butheisnotwithoutotherresources.Section59Anotheremploymentformoneyinadvancesforenterprizesofmanufactureorindustry.Ihavealreadyobserved,thatallkindsoflabour,eitherofcultivationorindustry,requiredadvances.AndIhaveshewnhowtheearth,bythefruitsandherbagesitspontaneouslyproducesforthenourishmentofmenandanimals,andbythetrees,ofwhichmanhasfirstformedhisutensils,hadfurnishedthefirstadvancesforcultivation;andevenofthefirstmanualworksamancanperformforhisownservice.Forinstance,itistheearththatprovidesthestone,clay,andwood,ofwhichthefirsthouseswerebuilt;and,beforethedivisionofprofessions,whenthesamemanthatcultivatedtheearthprovidedalsoforhisotherwantsbyhisownlabour,therewasnoneedofotheradvances.Butwhenagreatpartofsocietybegantohavenoresourcebutintheirhands,itwasnecessarythatthosewholivedthusuponsalaries,shouldhavesomewhatbeforehand,thattheymighteitherprocurethemselvesthematerialsonwhichtheylaboured,orsubsistduringthetimetheywerewaitingfortheirsalary.Section60Explanationoftheuseoftheadvancesofcapitalsinenterprizesofindustry;ontheirreturnsandtheprofitstheyoughttoproduce.Inearlytimes,hethatemployedlabouringpeopleunderhim,furnishedthematerialshimself,andpaidfromdaytodaythesalariesoftheworkmen.Itwasthecultivatorortheownerhimselfthatgavetothespinnerthehemphehadgathered,andhemaintainedherduringthetimeofherworking.Thencehepassedtheyarntoaweaver,towhomhegaveeverydaythesalaryagreedupon.Butthoseslightdailyadvancescanonlytakeplaceinthecoarsestworks.Avastnumberof 108Pre-ClassicalThoughtarts,andevenofthoseartsindispensablefortheuseofthemostindigentmembersofsociety,requirethatthesamematerialsshouldpassthroughmanydifferenthands,andundergo,duringaconsiderablespaceoftime,difficultandvariousoperations.Ihavealreadymentionedthepreparationofleather,ofwhichshoesaremade.Whoeverhasseentheworkhouseofatanner,cannothelpfeelingtheabsoluteimpossibilityofone,orevenseveralindigentpersonsprovidingthemselveswithleather,lime,tan,utensils,andsoon,andcausingtherequisitebuildingstobeerectedtoputthetanhousetowork,andoftheirlivingduringacertainspaceoftime,tilltheirleathercanbesold.Inthisart,andmanyothers,mustnotthosethatworkonithavelearnedthecraftbeforetheypresumetotouchthematerials,lesttheyshouldwastethemintheirfirsttrials?Herethenisanotherabsolutenecessityofadvances.Whoshallnowcollectthematerialsforthemanufactory,theingredients,therequisiteutensilsfortheirpreparation?Whoistoconstructcanals,markets,andbuildingsofeverydenomination?Howshallthatmultitudeofworkmensubsisttillthetimeoftheirleatherbeingsold,andofwhomnoneindividuallywouldbeabletoprepareasingleskin;andwheretheemolumentofthesaleofasingleskincouldnotaffordsub-sistencetoanyoneofthem?Whoshalldefraytheexpencesfortheinstructionofthepupilsandapprentices?Whoshallmaintainthemuntiltheyaresufficientlyinstructed,guidingthemgradu-allyfromaneasylabourproportionatetotheirage,toworksthatdemandmorevigourandabil-ity?Itmustthenbeoneofthoseproprietorsofcapitals,ormoveableaccumulatedpropertythatmustemploythem,supplyingthemwithadvancesinpartfortheconstructionandpurchaseofmaterials,andpartlyforthedailysalariesoftheworkmenthatarepreparingthem.Itishethatmustexpectthesaleoftheleather,whichistoreturnhimnotonlyhisadvances,butalsoanemolumentsufficienttoindemnifyhimforwhathismoneywouldhaveprocuredhim,hadheturnedittotheacquisitionoflands,andmoreoverofthesalaryduetohistroublesandcare,tohisrisque,andeventohisskill;forsurely,uponequalprofits,hewouldhavepreferredlivingwith-outsolicitude,ontherevenueofland,whichhecouldhavepurchasedwiththesamecapital.Inproportionasthiscapitalreturnstohimbythesaleofhisworks,heemploysitinnewpurchasesforsupportinghisfamilyandmaintaininghismanufactory;bythiscontinualcirculation,helivesonhisprofits,andlaysbyinstorewhathecansparetoincreasehisstock,andtoadvancehisenterprizebyaugmentingthemassofhiscapital,inorderproportionablytoaugmenthisprofits.Section61Subdivisionsoftheindustriousstipendiaryclass,inundertakingcapitalistsandsimpleworkmen.Thusthewholeclassemployedinsupplyingthedifferentwantsofsociety,withanimmensevari-etyofworksofindustry,is,ifImayspeakthus,subdividedintotwoclasses.Theone,oftheundertakers,manufacturersandmasters,allproprietorsoflargecapitals,whichtheyavailthem-selvesof,byfurnishingworktotheotherclass,composedofartificers,destituteofanypropertybuttheirhands,whoadvanceonlytheirdailylabour,andreceivenoprofitsbuttheirsalaries.Section62Anotheremploymentofcapitals,inadvancestowardsundertakingsofagriculture.Observationsontheuse,andindispensableprofitsofcapitalsinundertakingsofagriculture.Inspeakingfirstoftheplacingofcapitalsinmanufacturingenterprizes,Ihadinviewtoadduceamorestrikingexample,ofthenecessityandeffectoflargeadvances,andofthecourseoftheircirculation.ButIhavereversedthenaturalorder,whichseemedtorequirethatIshouldrather Turgot:ReflectionsonWealth109begintospeakofenterprizesofagriculture,whichalsocanneitherbeperformed,norextended,noraffordanyprofit,butbymeansofconsiderableadvances.Itistheproprietorsofgreatcapi-tals,who,inordertomakethemproductiveinundertakingsofagriculture,takeleasesoflands,andpaytotheownerslargerents,takingonthemselvesthewholeburthenofadvances.Theircasemustnecessarilybethesameasthatoftheundertakersofmanufactures.Likethem,theyareobligedtomakethefirstadvancestowardstheundertaking,toprovidethemselveswithcattle,horses,utensilsofhusbandry,topurchasethefirstseeds;likethemtheymustmaintainandnour-ishtheircarters,reapers,threshers,servants,andlabourers,ofeverydenomination,whosubsistonlybytheirhands,whoadvanceonlytheirlabour,andreaponlytheirsalaries.Likethem,theyoughttohavenotonlytheircapital,Imean,alltheirpriorandannualadvancesreturned,but,first,aprofitequaltotherevenuetheycouldhaveacquiredwiththeircapital,exclusiveofanyfatigue;second,thesalary,andthepriceoftheirowntrouble,oftheirrisk,andtheirindustry;third,anemolumenttoenablethemtoreplacetheeffectsemployedintheirenterprize,andthelossbywaste,cattledying,andutensilswearingout,andsoon,allwhichoughttobefirstchargedontheproductsoftheearth.Theoverpluswillservethecultivatortopaytotheproprietor,forthepermissionhehasgivenhimtomakeuseofhisfieldintheaccomplishingofhisenterprize;thatis,thepriceoftheleasehold,therentoftheproprietorandtheclearproduct:forallthatthelandproduces,untilreimbursementoftheadvances,andprofitsofeverykindtohimthathasmadetheseadvances,cannotbelookeduponasarevenue,butonlyasareimbursementoftheexpencesofthecultivation,sinceifthecultivatorcouldnotobtainthem,hewouldbeloathtoriskhiswealthandtroubleincultivatingthefieldofanother.Section63Thecompetitionbetweenthecapitalists,undertakersofcultivation,fixesthecurrentpriceofleasesoflands.Thecompetitionbetweenrichundertakersofcultivationfixesthecurrentpriceofleases,inproportiontothefertilityofthesoil,andoftherateatwhichitsproductionsaresold,alwaysaccordingtothecalculationwhichfarmersmakebothoftheirexpenditures,andoftheprofitstheyoughttodrawfromtheiradvances.Theycannotgivetotheownersmorethantheoverplus.Butwhenthecompetitionamongthemhappenstobemoreanimated,theysometimesrenderhimthewholeoverplus,theproprietorleasinghislandtohimthatoffersthegreatestrent.Section64Thedefaultofcapitalists,undertakers,limitsthecultivationoflandstoasmallextent.When,onthecontrary,therearenorichmenthatpossesscapitalslargeenoughtoembarkinenterprizesofagriculture;when,throughthelowrateoftheproductionsoftheearth,oranyothercause,thecropsarenotsufficienttoensuretotheundertakers,besidesthereimbursementoftheircapital,emolumentsadequateatleasttothosetheywouldderivefromtheirmoney,byemployingitinsomeotherchannel;therearenofarmersthatoffertoleaselands,theproprietorsareconstrainedtohiremercenariesormetayers,whichareequallyunabletomakeanyadvances,ordulytocultivateit.Theproprietorhimselfmakesmoderateadvances,whichonlyproducehimanindifferentrevenue:ifthelandhappenstobelongtoanowner,poor,negligent,andindebt,toawidow,oraminor,itremainsunmanured;suchistheprincipleofthedifferenceIhaveobservedbetweenprovinces,wherethelandsarecultivatedbyopulentfarmers,asinNormandy 110Pre-ClassicalThoughtandtheIsledeFrance,andthosewheretheyarecultivatedonlybyindigentmercenaries,asinLimousin,Angoumois,Bourbonnois,andseveralothers.Section65Subdivisionsoftheclassofcultivatorsintoundertakers,orfarmers,andhiredpersons,servants,andday-labourers.Henceitfollows,thattheclassofcultivatorsmaybedivided,likethatofmanufacturers,intotwobranches,theoneofundertakersorcapitalists,whomaketheadvances,theotherofsimplestipendiaryworkmen.Itresultsalso,thatcapitalsalonecanformandsupportgreatenterprizesofagriculture,thatgivetothelandsanunvariablevalue,ifImayusetheexpression,andthatsecuretotheproprietorsarevenuealwaysequal,andthelargestpossible.Section66Fourthemploymentofcapitals,inadvancesforenterprizesofcommerce.Necessityoftheinterpositionofmerchants,properlysocalled,betweentheproducersofthecommoditiesandtheconsumers.Theundertakerseitherincultivationormanufacture,drawtheiradvancesandprofitsonlyfromthesaleofthefruitsoftheearth,orthecommoditiesfabricated.Itisalwaysthewantsandtheabilityoftheconsumerthatsetsthepriceonthesale;buttheconsumerdoesnotwanttheproducepreparedorfittedupatthemomentofthecrop,ortheperfectionofthework.However,theundertakerswanttheirstocksimmediatelyandregularlyreimbursed,toembarkinfreshenterprizes:themanur-ingandtheseedoughttosucceedthecropswithoutinterruption.Theworkmenofamanufactureareunceasinglytobeemployedinbeginningotherworks,inproportionasthefirstaredistributed,andtoreplacethematerialsinproportionastheyareconsumed.Itwouldnotbeadvisabletostopshortinanenterprizeonceputinexecution,norisittobepresumedthatitcanbebegunagainatanytime.Itisthenthestrictestinterestoftheundertaker,tohavehiscapitalquicklyreimbursedbythesaleofhiscroporcommodities.Ontheotherhand,itistheconsumersinteresttofind,whenandwherehewishesit,thethingshestandsinneedof;itwouldbeextremelyinconvenientforhimtobenecessitatedtomake,atthetimeofthecrop,hisprovisionforthewholecourseofayear.Amongtheobjectsofusualconsumption,therearemanythatrequirelongandexpensivelabours,laboursthatcannotbeundertakenwithprofit,exceptonalargequantityofmaterials,andonsuchastheconsumptionofasmallnumberofinhabitantsofalimiteddistrict,maynotbesufficientforeventhesaleoftheworkofasinglemanufactory.Undertakingsofthiskindmustthennecessarilybeinareducednumber,ataconsiderabledistancefromeachother,andconsequentlyverydistantfromthehabitationsofthegreaternumberofconsumers.Thereisnoman,notoppressedundertheextremestmisery,thatisnotinasituationtoconsumeseveralthings,whichareneithergatherednorfabricated,exceptinplacesconsiderablydistantfromhim,andnotlessdistantfromeachother.Apersonthatcouldnotprocurehimselftheobjectsofhisconsumptionbutinbuyingitdirectlyfromthehandofhimthatgathersorworksit,wouldbeeitherunprovidedwithmanycommodities,orpasshislifeinwanderingafterthem.Thisdoubleinterestwhichthepersonproducingandtheconsumerhave,theformertofindapurchaser,theothertofindwheretopurchase,andyetnottowasteusefultimeinexpectingapurchaser,orinfindingaseller,hasgiventheideatoathirdpersontostandbetweentheoneandtheother.Anditistheobjectofthemercantileprofession,whopurchasegoodsfromthehandsofthepersonwhoproducesthem,tostoretheminwarehouses,whithertheconsumercomesto Turgot:ReflectionsonWealth111makehispurchase.Bythesemeanstheundertaker,assuredofthesaleandthere-acquisitionofhisfunds,looksundisturbedandindefatigablyoutfornewproductions,andtheconsumerfindswithinhisreachandatonce,theobjectsofwhichheisinwant.Section67Differentordersofmerchants.Theyallhavethisincommon,thattheypurchasetosellagain;andthattheirtrafficissupportedbyadvanceswhicharetorevertwithaprofit,tobeengagedinnewenterprizes.Fromthegreen-womanwhoexposesherwareinamarket,tothemerchantsofNantzorCadiz,whotrafficeventoIndiaandAmerica,theprofessionofatrader,orwhatisproperlycalledcom-merce,dividesintoaninfinityofbranches,anditmaybesaidofdegrees.Onetraderconfineshimselftoprovideoneorseveralspeciesofcommoditieswhichhesellsinhisshoptothosewhochuse;anothergoeswithcertaincommoditiestoaplacewheretheyareindemand,tobringfromthenceinexchange,suchthingsasareproducedthere,andarewantedintheplacefromwhencehedeparted:onemakeshisexchangesinhisownneighbourhood,andbyhimself,anotherbymeansofcorrespondents,andbytheinterpositionofcarriers,whomhepays,employs,andsendsfromoneprovincetoanother,fromonekingdomtoanother,fromEuropetoAsia,andfromAsiabacktoEurope.Onesellshismerchandizebyretailtothosewhousethem,anotheronlysellsinlargeparcelsatatime,toothertraderswhoretailthemouttotheconsumers:butallhavethisincommonthattheybuytosellagain,andthattheirfirstpurchasesareadvanceswhicharereturnedtothemonlyincourseoftime.Theyoughttobereturnedtothem,likethoseofthecultivatorsandmanufacturers,notonlywithinacertaintime,tobeemployedagaininnewpurchases,butalso,(1)withanequalrevenuetowhattheycouldacquirewiththeircapitalwithoutanylabour;(2)withthevalueoftheirlabour,oftheirrisk,andoftheirindustry.Withoutbeingassuredofthisreturn,andoftheseindispensableprofits,notraderwouldenterintobusiness,norcouldanyonepossiblycontinuetherein:tisinthisviewhegovernshimselfinhispurchases,onacalculationhemakesofthequantityandthepriceofthethings,whichhecanhopetodisposeofinacertaintime:theretailerlearnsfromexperience,bythesuccessoflimitedtrialsmadewithprecaution,whatisnearlythewantsofthoseconsumerswhodealwithhim.Themerchantlearnsfromhiscorrespondents,oftheplentyorscarcity,andofthepriceofmerchandizeinthosedifferentcoun-triestowhichhiscommerceextends;hedirectshisspeculationsaccordingly,hesendshisgoodsfromthecountrywheretheybearalowpricetothosewheretheyaresolddearer,includingtheexpenceoftransportationinthecalculationoftheadvancesheoughttobereimbursed.Sincetradeisnecessary,anditisimpossibletoundertakeanycommercewithoutadvancesproportion-abletoitsextent,wehereseeanothermethodofemployingpersonalproperty,anewusethatthepossessorofaparcelofcommoditiesreservedandaccumulated,ofasumofmoney,inaword,ofacapital,maymakeofittoprocurehimselfsubsistence,andtoaugment,hisriches.Section68Thetrueideaofthecirculationofmoney.Weseebywhathasbeenjustnowsaid,howthecultivationoflands,manufacturesofallkinds,andallthebranchesoftrade,dependonamassofcapital,ortheaccumulationofpersonalproperty,which,havingbeenatfirstadvancedbytheundertakers,ineachofthesedifferentbranches,oughttoreturntothemagaineveryyearwitharegularprofit;thatis,thecapitaltobeagaininvested,andadvancedinthecontinuationofthesameenterprizes,andtheprofits 112Pre-ClassicalThoughtemployedforthegreaterorlesssubsistenceoftheundertakers.Itisthiscontinuedadvanceandreturnwhichconstituteswhatoughttobecalledthecirculationofmoney:thisusefulandfruitfulcirculation,whichanimatesallthelabourofsociety,whichsupportsallthemotion,andisthelifeofthebodypolitic,andwhichiswithgreatreasoncomparedtothecirculationofthebloodinthehumanbody.For,ifbyanydisorderinthecourseoftheexpensesofthedifferentordersofsociety,theundertakersceasetodrawbacktheiradvanceswithsuchprofitastheyhavearighttoexpect;itisevidenttheywillbeobligedtoreducetheirundertakings;thatthetotalofthelabour,oftheconsumptionofthefruitsoftheearth,oftheproductionsandoftherevenuewouldbeequallydiminished;thatpovertywillsucceedtoriches,andthatthecommonworkman,ceasingtofindemploy,willfallintothedeepestmisery.Section69Allextensiveundertakings,particularlythoseofmanufacturesandofcommerce,mustindispensiblyhavebeenveryconfined,beforetheintroductionofgoldandsilverintrade.Itisalmostunnecessarytoremark,thatundertakingsofallkinds,butespeciallythoseofmanu-factures,andaboveallthoseofcommerce,must,unavoidablybeveryconfined,beforetheintro-ductionofgoldandsilverintrade;sinceitwasalmostimpossibletoaccumulateconsiderablecapitals,andyetmoredifficult,tomultiplyanddividepaymentssomuchasisnecessary,tofacili-tateandincreasetheexchangestothatextent,whichaspiritedcommerceandcirculationrequire.Thecultivationofthelandonlymaysupportitselftoacertaindegree,becausethecattlearetheprincipalcauseoftheadvancesrequiredtherein,anditisveryprobable,thereisthennootheradventurerincultivationbuttheproprietor.Astoartsofallkinds,theymustnecessarilyhavebeeninthegreatestlanguorbeforetheintroductionofmoney;theywereconfinedtothecoarsestworks,forwhichtheproprietorssupportedtheadvances,bynourishingtheworkmen,andfurnishingthemwithmaterials,ortheycausedthemtobemadeintheirownhousesbytheirservants.Section70Capitalsbeingasnecessarytoallundertakingsaslabourandindustry,theindustriousmansharesvoluntarilytheprofitofhisenterprizewiththeownerofthecapitalwhofurnisheshimthefundsheisinneedof.Sincecapitalsaretheindispensablefoundationofalllucrativeenterprizes;sincewithmoneywecanfurnishmeansforculture,establishmanufactures,andraiseacommerce,theprofitsofwhichbeingaccumulatedandfrugallylaidup,willbecomeanewcapital:since,inaword,moneyistheprincipalmeanstobegetmoney;thosewhowithindustryandtheloveoflabouraredestituteofcapital,andhavenotsufficientfortheundertakingtheywishtoembarkin,havenodifficultyinresolvingtogiveuptotheproprietorsofsuchcapitalormoney,whoarewillingtotrustthem,aportionoftheprofitswhichtheyareinexpectationofgaining,overandabovetheiradvances.Section71Fifthemploymentofcapitals,lendingoninterest;natureofaloan.Thepossessorsofmoneybalancetherisktheircapitalmayrun,iftheenterprizedoesnotsuc-ceed,withtheadvantageofenjoyingaconstantprofitwithouttoil;andregulatethemselves Turgot:ReflectionsonWealth113thereby,torequiremoreorlessprofitorinterestfortheirmoney,ortoconsenttolenditforsuchaninterestastheborroweroffers.Hereanotheropportunityopenstothepossessorofmoney,namely,lendingoninterest,orthecommerceofmoney.Letnoonemistakemehere,lendingoninterestisonlyatrade,inwhichthelenderisamanwhosellstheuseofhismoney,andtheborroweronewhobuys;preciselythesameastheproprietorofanestate,orthepersonwhofarmsit,buysandsellsrespectivelytheuseofthehiredland.TheLatintermforaloanofmoneyorinterest,expressesitexactly,usurapecuniae,awordwhichadoptedintotheFrenchlanguageisbecomeodious,byaconsequenceoffalseideasbeingadoptedontheinterestofmoney.Section74Truefoundationofinterestofmoney.Amanthenmaylendhismoneyaslawfullyashemaysellit;andthepossessorofmoneymayeitherdooneortheother,notonlybecausemoneyisequivalenttoarevenue,andameanstoprocurearevenue:notonlybecausethelenderloses,duringthecontinuanceoftheloan,therevenuehemighthaveprocuredbyit;notonlybecauseheriskshiscapital;notonlybecausetheborrowercanemployitinadvantageousacquisitions,orinundertakingsfromwhencehewilldrawalargeprofit;theproprietorofmoneymaylawfullyreceivetheinterestofit,byamoregeneralanddecisiveprinciple.Evenifnoneofthesecircumstancesshouldtakeplace,hewillnothavethelessrighttorequireaninterestforhisloan,forthisreasononly,thathismoneyishisown.Sinceitishisown,hehasarighttokeepit,nothingcanimplyadutyinhimtolendit;ifthenhedoeslend,hemayannexsuchaconditiontotheloanashechuses,inthishedoesnoinjurytotheborrower,sincethelatteragreestotheconditions,andhasnosortofrightoverthesumlent.Theprofitwhichmoneycanprocuretheborrower,isdoubtlessoneofthemostpre-vailingmotivestodeterminehimtoborrowoninterest;itisoneofthemeanswhichfacilitateshispaymentoftheinterest,butthisisbynomeansthatwhichgivesarighttothelendertorequireit;itissufficientforhimthathismoneyishisown,andthisisarightinseparablefromproperty.Hewhobuysbread,doesitforhissupport,buttherightthebakerhastoexactapriceistotallyindependentoftheuseofbread;thesamerighthewouldpossessinthesaleofaparcelofstones,arightfoundedonthisprincipleonly,thatthebreadishisown,andnoonehasanyrighttoobligehimtogiveitupfornothing.Section76Therateofinterestoughttobefixed,asthepriceofeveryothermerchandize,bythecourseoftradealone.Ihavealreadysaid,thatthepriceofmoneyborrowed,isregulatedlikethepriceofallothermer-chandize,bytheproportionofthemoneyatmarketwiththedemandforit:thus,whentherearemanyborrowerswhoareinwantofmoney,theinterestofmoneyrises;whentherearemanypossessorswhoarereadytolend,itfalls.Itisthereforeanerrortobelievethattheinterestofmoneyintradeoughttobefixedbythelawsofprices.Ithasacurrentpricefixedlikethatofallothermerchandize.Thispricevariesalittle,accordingtothegreaterorlesssecuritywhichthelenderhas;butonequalsecurity,heoughttoraiseandfallhispriceinproportiontotheabun-danceofthedemand,andthelawnomoreoughttofixtheinterestofmoneythanitoughttoregulatethepriceofanyothermerchandizeswhichhaveacurrencyintrade. 114Pre-ClassicalThoughtSection80Thepriceofinterestdependsimmediatelyontheproportionofthedemandoftheborrowers,withtheofferofthelenders,andthisproportiondependsprincipallyonthequantityofpersonalproperty,accumulatedbyanexcessofrevenueandoftheannualproducetoformcapitals,whetherthesecapitalsexistinmoneyorinanyotherkindofeffectshavingavalueincommerce.Thepriceofsilverincirculationhasnoinfluencebutwithrespecttothequantityofthismetalemployedincommoncirculation;buttherateofinterestisgovernedbythequantityofpropertyaccumulatedandlaidbytoformacapital.Itisindifferentwhetherthispropertyisinmetalorothereffects,providedtheseeffects,areeasilyconvertibleintomoney.Itisfarfrombeingthecase,thatthemassofmetalexistinginastate,isaslargeastheamountofthepropertylentoninter-estinthecourseofayear;butallthecapitalsinfurniture,merchandize,tools,andcattle,supplytheplaceofsilverandrepresentit.Apapersignedbyaman,whoisknowntobeworth100,000livres,andwhopromisestopay100marksinacertaintimeisworththatsum;thewholepropertyofthemanwhohassignedthisnoteisanswerableforthepaymentofit,inwhateverthenatureoftheseeffectsconsists,providedtheyareinvalue100,000livres.Itisnotthereforethequantityofsilverexistingasmerchandizewhichcausestherateofinteresttoriseorfall,orwhichbringsmoremoneyinthemarkettobelent;itisonlythecapitalsexistingincommerce,thatistosay,theactualvalueofpersonalpropertyofeverykindaccumulated,successivelysavedoutoftherevenuesandprofitstobeemployedbythepossessorstoprocurethemnewrevenuesandnewprofits.Itistheseaccumulatedsavingswhichareofferedtotheborrowers,andthemorethereareofthem,thelowertheinterestofmoneywillbe,atleastifthenumberofborrowersisnotaugmentedinproportion.Section81Thespiritofoeconomycontinuallyaugmentstheamountofcapitals,luxurycontinuallytendstodestroythem.Thespiritofœconomyinanynationtendsincessantlytoaugmenttheamountofthecapitals,toincreasethenumberoflenders,andtodiminishthatoftheborrowers.Thehabitofluxuryhaspreciselyacontraryeffect,andbywhathasbeenalreadyremarkedontheuseofcapitalsinallundertakings,whetherofcultivation,manufacture,orcommerce,wemayjudgeifluxuryenrichesanation,orimpoverishesit.Section82TheloweringofinterestprovesthatinEuropeœconomyhasingeneralprevailedoverluxury.SincetheinterestofmoneyhasbeenconstantlydiminishinginEuropeforseveralcenturies,wemustconclude,thatthespiritofœconomyhasbeenmoregeneralthanthespiritofluxury.Itisonlypeopleoffortunewhorunintoluxury,andamongtherich,thesensiblepartofthemcon-finetheirexpenceswithintheirincomes,andpaygreatattentionnottotouchtheircapital.Thosewhowishtobecomericharefarmorenumerousinanationthanthosewhicharealreadyso.Now,inthepresentstateofthings,asallthelandisoccupied,thereisbutonewaytobecomerich;itiseithertopossess,ortoprocureinsomewayorother,arevenueoranannualprofit Turgot:ReflectionsonWealth115abovewhatisabsolutelynecessaryforsubsistence,andtolayupeveryyearinreservetoformacapital,bymeansofwhichtheymayobtainanincreaseofrevenueorannualprofit,whichwillagainproduceanothersaving,andbecomecapital.Thereareconsequentlyagreatnumberofmeninterestedandemployedinamassingcapitals.Section84Theinfluencewhichthedifferentmethodsofemployingmoneyhaveoneachother.Itisevidentthattheannualreturns,whichcapitals,placedindifferentemploys,willproduce,areproportionatetoeachother,andallhaverelationtotheactualrateoftheinterestofmoney.Section85Moneyinvestedinland,necessarilyproducestheleast.Thepersonwhoinvestshismoneyinlandlettoasolventtenant,procureshimselfarevenuewhichgiveshimverylittletroubleinreceiving,andwhichhemaydisposeofinthemostagreeablemanner,byindulgingallhisinclinations.Thereisagreateradvantageinthepurchaseofthisspeciesofproperty,thanofanyother,sincethepossessionofitismoreguardedagainstaccidents.Wemustthereforepurchasearevenueinlandatahigherprice,andmustcontentourselveswithalessrevenueforanequalcapital.Section86Moneyoninterestoughttobringalittlemoreincomethanlandpurchasedwithanequalcapital.Hewholendshismoneyoninterest,enjoysitstillmorepeaceablyandfreelythanthepossessorofland,buttheinsolvencyofhisdebtormayendangerthelossofhiscapital.Hewillnotthere-forecontenthimselfwithaninterestequaltotherevenueofthelandwhichhecouldbuywithanequalcapital.Theinterestofmoneylent,mustconsequentlybelargerthantherevenueofanestatepurchasedwiththesamecapital;foriftheproprietorcouldfindanestatetopurchaseofanequalincome,hewouldpreferthat.Section87Moneyemployedincultivation,manufactures,orcommerce,oughttoproducemorethantheinterestofmoneyonloan.Byalikereason,moneyemployedinagriculture,inmanufactures,orincommerce,oughttoproduceamoreconsiderableprofitthantherevenueofthesamecapitalemployedinthepur-chaseoflands,ortheinterestofmoneyonloan:fortheseundertakings,besidesthecapitaladvanced,requiremuchcareandlabour,andiftheywerenotmorelucrative,itwouldbemuchbettertosecureanequalrevenue,whichmightbeenjoyedwithoutlabour.Itisnecessarythen,that,besidestheinterestofthecapital,theundertakershoulddraweveryyearaprofittorecom-pencehimforhiscare,hislabour,histalents,therisqueheruns,andtoreplacethewearandtearofthatportionofhiscapitalwhichheisobligedtoinvestineffectscapableofreceivinginjury,andexposedtoallkindsofaccidents. 116Pre-ClassicalThoughtSection88Meantimethefreedomofthesevariousemploymentsarelimitedbyeachother,andmaintain,notwithstandingtheirinequality,aspeciesofequilibrium.Thedifferentusesofthecapitalsproduceveryunequalprofits;butthisinequalitydoesnotpreventthemfromhavingareciprocalinfluenceoneachother,norfromestablishingaspeciesofequilibriumamongthemselves,likethatbetweentwoliquorsofunequalgravity,andwhichcommunicatewitheachotherbymeansofareversedsyphon,thetwobranchesofwhichtheyfill;therecanbenoheighttowhichtheonecanriseorfall,buttheliquorintheotherbranchwillbeaffectedinthesamemanner.Iwillsuppose,thatonasudden,agreatnumberofproprietorsoflandsaredesirousofsellingthem.Itisevidentthatthepriceoflandswillfall,andthatwithalesssumwemayacquirealargerrevenue;thiscannotcometopasswithouttheinterestofmoneyrising,forthepossessorsofmoneywouldchuserathertobuylands,thantolendatalowerinterestthantherevenueofthelandstheycouldpurchase.If,then,theborrowerswanttohavemoney,theywillbecon-strainedtopayagreaterrate.Iftheinterestofthemoneyincreases,theywillpreferlendingit,tosettingoutinahazardousmanneronenterprizesofagriculture,industry,andcommerce:andtheywillbeawareofanyenterprizesbutthosethatproduce,besidestheretributionfortheirtrouble,anemolumentbyfargreaterthantherateofthelender’sproduce.Inaword,iftheprofits,springingfromanuseofmoney,augmentordiminish,thecapitalsareconvertedbywith-drawingthemfromotheremployments,orarewithdrawnbyconvertingthemtootherends,whichnecessarilyalters,ineachofthoseemployments,theproportionofprofitsonthecapitaltotheannualproduct.Generally,moneyconvertedintopropertyinland,doesnotbringinsomuchasmoneyoninterest;andmoneyoninterestbringslessthanmoneyusedinlaboriousenter-prizes:buttheproduceofmoneylaidoutinanywaywhatever,cannotaugmentordecreasewithoutimplyingaproportionateaugmentation,ordecreaseinotheremploymentsofmoney.Section89Thecurrentinterestofmoneyisthestandardbywhichtheabundanceorscarcityofcapitalsmaybejudged;itisthescaleonwhichtheextentofanation’scapacityforenterprizesinagriculture,manufactures,andcommerce,maybereckoned.Thusthecurrentinterestofmoneymaybeconsideredasastandardoftheabundanceorscarcityofcapitalsinanation,andoftheextentofenterprizesofeverydenomination,inwhichshemayembark:itismanifest,thatthelowertheinterestofmoneyis,themorevaluableistheland.Amanthathasanincomeof50,000livres,ifthelandissoldbutattherateof20yearspurchaseisanownerofonly1million;hehas2millions,ifthelandissoldattherateofforty.Iftheinterestisat5percentanylandtobebroughtintocultivationwouldcontinuefallow,if,besidestherecoveryoftheadvances,andtheretributionduetothecareofthecultivator,itsproducewouldnotafford5percent.Nomanufactory,nocommercecanexist,thatdoesnotbringin5percentexclusivelyofthesalaryandequivalentsfortherisqueandtroubleoftheundertaker.Ifthereisaneighbour-ingnationinwhichtheintereststandsonlyat2percentnotonlywillitengrossallthebranchesofcommerce,fromwhichthenationwhereaninterestat5percentisestablished,isexcluded,butitsmanufacturersandmerchants,enabledtosatisfythemselveswithalowerinterest,willalsoselltheirgoodsatamoremoderateprice,andwillattractthealmostexclusivecommerceofallarticles,whichtheyarenotpreventedtosellbyparticularcircumstancesofexcessivedearth,andexpencesofcarriages,fromthenationinwhichtheinterestbears5percent. Turgot:ReflectionsonWealth117Section90Influenceoftherateofinterestofmoneyonalllucrativeenterprizes.Thepriceoftheinterestmaybelookeduponasakindoflevel,underwhichalllabour,culture,industry,orcommerce,acts.Itislikeaseaexpandedoveravastcountry,thetopsofthemoun-tainsriseabovethesurfaceofthewater,andformfertileandcultivatedislands.Ifthisseahappenstogiveway,inproportionasitdescends,slopingground,thenplainsandvalliesappear,whichcoverthemselveswithproductionsofeverykind.Itwantsnomorethanafootelevation,orfalling,toinundateortorestoreculturetounmeasurabletractsofland.Itistheabundanceofcapitalsthatanimatesenterprize;andalowinterestofmoneyisatthesametimetheeffectandaproofoftheabundanceofcapitals.Section93Inwhichofthethreeclassesofsocietythelendersofmoneyaretoberanked.Letusseenow,howwhatwehavejustdiscussedaboutthedifferentwaysofemployingcapitals,agreeswithwhatwehavebeforeestablishedaboutthedivisionofallthemembersofsocietyintothreeclasses,theonetheproductiveclassofhusbandmen,theindustriousortradingclass,andthedisposingclass,ortheclassofproprietors.Section94Thelenderofmoneybelongs,astohispersons,tothedisposingclass.Wehaveseenthateveryrichmanisnecessarilyapossessoreitherofacapitalinmoveableriches,orfundsequivalenttoacapital.Anyestateinlandisofequalvaluewithacapital;consequentlyeveryproprietorisacapitalist,butnoteverycapitalistaproprietorofarealestate;andthepossessorofamoveablecapitalmaychusetoconferitonacquiringfunds,ortoimproveitinenterprizesofthecultivatingclass,oroftheindustriousclass.Thecapitalist,turnedanunder-takerincultureorindustry,isnomoreofthedisposingclass,thanthesimpleworkmeninthosetwolines;theyarebothtakenupinthecontinuationoftheirenterprizes.Thecapitalistwhokeepstothelendingmoney,lendsiteithertoaproprietorortoanundertaker.Ifhelendsittoaproprietor,heseemstobelongtotheclassofproprietors,andhebecomesco-partitionerintheproperty;theincomeofthelandisdestinedtothepaymentoftheinterestofhistrust;thevalueofthefundsisequaltothesecurityofhiscapital.Ifthemoney-lenderhaslenttoanundertaker,itiscertainthathispersonbelongstothedisposingclass;buthiscapitalcontinuesdestinedtotheadvancesoftheenterprizer,andcannotbewithdrawnwithouthurtingtheenterprize,orwithoutbeingreplacedbyacapitalofequalvalue.Section95Theusewhichthemoney-lendermakesofhisinterest.Indeed,theinteresthedrawsfromthatcapitalseemstomakehimofthedisposingclass,sincetheundertakerandtheenterprizemayshiftwithoutit.Itseemsalsowemayformaninference,thatintheprofitsofthetwolaboriousclasses,eitherinthecultureoftheearthorindustry,thereisadisposableportion,namely,thatwhichanswerstotheinterestoftheadvances,calculatedonthe 118Pre-ClassicalThoughtcurrentrateofinterestofmoneylent;itappearsalsothatthisconclusionseemstoagreewithwhatwehavesaid,thatthemereclassofproprietorshadarevenueproperlysocalled,adisposingrevenue,andthatallthemembersoftheotherclasseshadonlysalariesorprofits.Thismeritssomefutureinquiry.Ifweconsiderthe1000crownsthatamanreceivesannually,whohaslent60,000livres,toamerchant,inrespecttotheusehemaymakeofit,thereisnodoubtofthisbeingperfectlydisposable,sincetheenterprizemaysubsistwithoutit.Section96Theinterestofthemoneyisnotdisposableinonesense,namely,soasthestatemaybeauthorizedtoappropriate,withoutanyinconvenience,aparttosupplyitswants.Butitdoesnotensuethattheyareofthedisposingclassinsuchasense,thatthestatecanappro-priatetoitselfwithproprietyaportionforthepublicwants.Those1000crownsarenotaretri-bution,whichcultureorcommercebestowsgratuitouslyonhimthatmakestheadvance;itisthepriceandtheconditionofthisadvance,independentlyofwhichtheenterprizecouldnotsubsist.Ifthisretributionisdiminished,thecapitalistwillwithdrawhismoney,andtheundertakingwillcease.Thisretributionoughtthentobeinviolable,andenjoyanentireimmunity,becauseitisthepriceofanadvancemadefortheenterprize,withoutwhichtheenterprizecouldnotexist.Toencroachuponit,wouldcauseanaugmentationinthepriceofadvancesinallenterprizes,andconsequentlydiminishtheenterprizesthemselves,thatistosay,cultivation,industry,andcommerce.Thisanswershouldleadustoinfer,thatifwehavesaid,thatthecapitalistwhohadlentmoneytoaproprietor,seemedtobelongtotheclassofproprietors,thisappearancehadsomewhatequivocalinitwhichwantedtobeelucidated.Infact,itisstrictlytrue,thattheinterestofhismoneyisnotmoredisposable,thatis,itisnotmoresusceptibleofretrenchment,thanthatofmoneylenttotheundertakersinagricultureandcommerce.Buttheinterestisequallythepriceofthefreeagreement,andtheycannotretrenchanypartofitwithoutalteringorchangingthepriceoftheloan.Foritimportslittletowhomtheloanhasbeenmade:ifthepricedecreasesoraugmentsfortheproprietoroflands,itwillalsodecreaseandaugmentforthecultivator,themanufacturer,andthemerchant.Inaword,theproprietorwholendsmoneyoughttobeconsidered,asadealerinacommodityabsolutelynecessaryfortheproductionofriches,andwhichcannotbeattoolowaprice.Itisalsoasunreasonabletochargethiscommercewithdutiesasitwouldbetolayadutyonadunghillwhichservestomanuretheland.Letusconcludefromhence,thatthepersonwholendsmoneybelongsproperlytothedisposableclassastohisperson,becausehehasnothingtodo;butnotastothenatureofhisproperty,whethertheinterestofhismoneyispaidbytheproprietoroflandoutofaportionofhisincome,orwhetheritispaidbyanundertaker,outofapartofhisprofitsdesignedtopaytheinterestofhisadvances. BERNARDMANDEVILLE(1670–1733)BernardMandevillepracticedmedicineinHollandandbecameacelebratedliteraryfigureinEngland.HeisbestknownineconomicsforhisFableoftheBees,orPrivateVicesPublicBenefits,which,inliteraryform,arguesthatbehaviorhithertodeemedsinfulbyreligionisactuallyresponsiblefortheprosperitywhichpeoplearecomingtoenjoy.Hispositionobviouslyreflectsthechangeinmoralviewsandideologyasbetweenpre-marketandmarketeconomies.Mandevilleemphasizesindividualpsychology,especiallyself-love;autilitarianapproachtoethics;andthegrowingmaterialism,namely,theviewthatlivingstandards,notsalvationasprescribedbytheol-ogy,arethecentralfocusoflife.Egoismandspontaneous,individualactivityarebothdescribedandimplicitlylaudedasthebasisofthesocialsystem.MandevillecoupledhisegoismandindividualismwiththeMercantilismofhisday,howevermuchitmightseemtocompromisehisargumentthatpursuitofindividualmaterialself-interestconducestopubliceconomicwelfare.TheFablebeganwithMandeville’swritingofTheGrumblingHive:Or,KnavesTurn’dHonestin1714,uponwhichhepublishedagreatlyextendedcommentarysomeeightyearslater.Itisthisoriginalpoemthatisreprintedhere,andthereaderisencouragedtoconsultthelargerworkforMandeville’selaborationofitsbasiclessons.ReferencesandfurtherreadingChalk,A.(1966)“Mandeville’sFableoftheBees:AReappraisal,”SouthernEconomicJournal33(July):1–6.Hayek,FriedrichA.(1949)“Individualism:TrueandFalse,”inIndividualismandEconomicOrder,London:Routledge&KeganPaul.——(1978)“Dr.BernardMandeville,”inNewStudiesinPhilosophy,Politics,Economics,andtheHistoryofIdeas,Chicago:UniversityofChicagoPress.Hutchison,Terence(1988)BeforeAdamSmith:TheEmergenceofPoliticalEconomy,1662–1776,Oxford:BasilBlackwell.Landreth,Harry(1975)“TheEconomicThoughtofBernardMandeville,”HistoryofPoliticalEconomy7(Summer):193–208.Mandeville,Bernard(1732)TheFableoftheBees:Or,PrivateVices,PublicBenefits,reprintedintwovolumeswithcommentarybyF.B.Kaye,Oxford:OxfordUniversityPress,1924.Rosenberg,Nathan(1963)“MandevilleandLaissez-Faire,”JournaloftheHistoryofIdeas24(April–June):183–96.——(1987)“Mandeville,Bernard,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,297–8.Scott-Taggart,M.J.(1966)“Mandeville:CynicorFool,”PhilosophicalQuarterly16(July):221–32.Viner,Jacob(1953)“Introduction,”inBernardMandeville(ed.),ALettertoDion(1732),BerkeleyandLosAngeles:UniversityofCaliforniaandAugustanReprintSocietyPublication41.ReprintedinJacobViner(ed.),EssaysontheIntellectualHistoryofEconomics,Princeton:PrincetonUniversityPress,1991,176–88. TheGrumblingHive:or,KnavesTurn’dHonestASpaciousHivewellstocktwithBees,Thatliv’dinLuxuryandEase;Andyetasfam’dforLawsandArms,AsyieldinglargeandearlySwarms;WascountedthegreatNurseryOfSciencesandIndustry.NoBeeshadbettergovernment,MoreFickleness,orlessContent:TheywerenotSlavestoTyranny,Norrul’dbywildDemocracy;ButKings,thatcouldnotwrong,becauseTheirPowerwascircumscrib’dbyLaws.THESEInsectsliv’dlikeMen,andallOurActionstheyperform’dinsmall:Theydidwhatever’sdoneinTown,AndwhatbelongstoSwordorGown:Tho’th’Artfulworks,bynimbleSlightOfminuteLimbs,’scap’dHumanSight;Yetwe’venoEngines,Labourers,Ships,Castles,Arms,Artificers,Craft,Science,Shop,orInstrument,ButtheyhadanEquivalent:Which,sincetheirLanguageisunknown,Mustbecall’d,aswedoourown.Asgrant,thatamongotherThings,TheywantedDice,yettheyhadKings;AndthosehadGuards;fromwhencewemayJustlyconclude,theyhadsomePlay;UnlessaRegimentbeshewnOfSoldiers,thatmakeuseofnone.VASTNumbersthrong’dthefruitfulHive;YetthosevastNumbersmade’emthrive;MillionsendeavouringtosupplyEachother’sLustandVanity;WhileotherMillionswereemploy’d,ToseetheirHandy-worksdestroy’d; Mandeville:TheGrumblingHive121Theyfurnish’dhalftheUniverse;YethadmoreWorkthanLabourers.SomewithvastStocks,andlittlePains,Jump’dintoBusinessofgreatGains;Andsomeweredamn’dtoSythesandSpades,AndallthosehardlaboriousTrades;WherewillingWretchesdailysweat,AndwearoutStrengthandLimbstoeat:Whileothersfollow’dMysteries,TowhichfewFolksbind’Prentices;ThatwantnoStock,butthatofBrass,AndmaysetupwithoutaCross;AsSharpers,Parasites,Pimps,Players,Pick-pockets,Coiners,Quacks,Sooth-sayers,Andallthose,thatinEnmity,WithdownrightWorking,cunninglyConverttotheirownUsetheLabourOftheirgood-natur’dheedlessNeighbour.Thesewerecall’dKnaves,butbartheName,ThegraveIndustriouswerethesame:AllTradesandPlacesknewsomeCheat,NoCallingwaswithoutDeceit.THELawyers,ofwhoseArttheBasisWasraisingFeudsandsplittingCases,Oppos’dallRegisters,thatCheatsMightmakemoreWorkwithdiptEstates;Aswer’tunlawful,thatone’sown,WithoutaLaw-Suit,shouldbeknown.TheykeptoffHearingswilfully,TofingertherefreshingFee;AndtodefendawickedCause,Examin’dandsurvey’dtheLaws,AsBurglarsShopsandHousesdo,Tofindout,wherethey’dbestbreakthrough.PHYSICIANSvalu’dFameandWealthAbovethedroopingPatient’sHealth,OrtheirownSkill:ThegreatestPartStudy’d,insteadofRulesofArt,GravepensiveLooksanddullBehaviour,Togainth’Apothecary’sFavour;ThePraiseofMidwives,Priests,andallThatserv’datBirthorFuneral.Tobearwithth’ever-talkingTribe,AndhearmyLady’sAuntprescribe;WithformalSmile,andkindHowd’ye,TofawnonalltheFamily;And,whichofallthegreatestCurseis,T’endureth’ImpertinenceofNurses. 122Pre-ClassicalThoughtAMONGthemanyPriestsofJove,Hir’dtodrawBlessingsfromAbove,SomefewwereLearn’dandEloquent,ButthousandsHotandIgnorant:Yetallpass’dMusterthatcouldhideTheirSloth,Lust,AvariceandPride;Forwhichtheywereasfam’dasTailorsForCabbage,orforBrandySailors:Some,meagre-lookd,andmeanlyclad,WouldmysticallyprayforBread,MeaningbythatanampleStore,Yetlit’rallyreceivednomore;And,whiletheseholyDrudgesstarv’d,ThelazyOnes,forwhichtheyserv’d,Indulg’dtheirEase,withalltheGracesOfHealthandPlentyintheirFaces.THESoldiers,thatwereforc’dtofight,Iftheysurviv’d,gotHonourby’t;Tho’some,thatshunn’dthebloodyFray,HadLimbsshotoff,thatranaway:SomevaliantGen’ralsfoughttheFoe;OtherstookBribestoletthemgo:Someventur’dalwayswhere’twaswarm,LostnowaLeg,andthenanArm;Tillquitedisabled,andputby,Theyliv’donhalftheirSalaryWhileothersnevercameinPlay,AndstaidatHomefordoublePay.THEIRKingswereserv’d,butKnavishly,CheatedbytheirownMinistry;Many,thatfortheirWelfareslaved,RobbingtheveryCrowntheysaved:Pensionsweresmall,andtheyliv’dhigh,YetboastedoftheirHonesty.Calling,whene’ertheystrain’dtheirRight,Theslipp’ryTrickaPerquisite;AndwhenFolksunderstoodtheirCant,Theychang’dthatforEmolument;Unwillingtobeshortorplain,InanythingconcerningGain;FortherewasnotaBeebutwouldGetmore,Iwon’tsay,thanheshould;Butthanhedar’dtoletthemknow,Thatpay’dfor’t;asyourGamestersdo,That,tho’atfairPlay,ne’erwillownBeforetheLoserswhatthey’vewon. Mandeville:TheGrumblingHive123BUTwhocanalltheirFraudsrepeat?TheveryStuff,whichintheStreetTheysoldforDirtt’enrichtheGround,WasoftenbytheBuyersfoundSophisticatedwithaquarterOfgood-for-nothingStonesandMortarTho’FlailhadlittleCausetomutter,WhosoldtheotherSaltforButter.JUSTICEherself,fam’dforfairDealing,ByBlindnesshadnotlostherFeeling;HerLeftHand,whichtheScalesshouldhold,Hadoftendropt’em,brib’dwithGold;And,tho’sheseem’dImpartial,WherePunishmentwascorporal,Pretendedtoareg’larCourse,InMurther,andallCrimesofForce;Tho’some,firstpillory’dforCheating,Werehang’dinHempoftheirownbeating;Yet,itwasthought,theSwordsheboreCheck’dbuttheDesp’rateandthePoor;That,urg’dbymereNecessity,Werety’duptothewretchedTreeForCrimes,whichnotdeserv’dthatFate,ButtosecuretheRichandGreat.THUSeveryPartwasfullofVice,YetthewholeMassaParadise;Flatter’dinPeace,andfear’dinWars,Theywereth’EsteemofForeigners,AndlavishoftheirWealthandLives,TheBalanceofallotherHives.SuchweretheBlessingsofthatStateTheirCrimesconspir’dtomakethemGreatAndVirtue,whofromPoliticksHadlearn’daThousandCunningTricks,Was,bytheirhappyInfluence,MadeFriendswithVice:Andeversince,TheworstofalltheMultitudeDidsomethingfortheCommonGood.THISwastheState’sCraft,thatmaintain’dTheWholeofwhicheachPartcomplain’d:This,asinMusickHarmony,MadeJarringsinthemainagree;Partiesdirectlyopposite,Assisteachother,as’twereforSpight;AndTemp’rancewithSobriety,ServeDrunkennessandGluttony. 124Pre-ClassicalThoughtTHERootofEvil,Avarice,Thatdamn’dill-natur’dbanefulVice,WasSlavetoProdigality,ThatnobleSin;whilstLuxuryEmploy’daMillionofthePoor,AndodiousPrideaMillionmore:Envyitself,andVanity,WereMinistersofIndustry;TheirdarlingFolly,Fickleness,InDiet,FurnitureandDress,Thatstrangeridic’lousVice,wasmadeTheveryWheelthatturn’dtheTrade.TheirLawsandClotheswereequallyObjectsofMutability;For,whatwaswelldoneforatime,InhalfaYearbecameaCrime;Yetwhiletheyalter’dthustheirLaws,StillfindingandcorrectingFlaws,TheymendedbyInconstancyFaults,whichnoPrudencecouldforesee.THUSVicenurs’dIngenuity,Whichjoin’dwithTimeandIndustry,Hadcarry’dLife’sConveniencies,It’srealPleasures,Comforts,Ease,TosuchaHeight,theveryPoorLiv’dbetterthantheRichbefore,Andnothingcouldbeaddedmore.HOWVainisMortalHappiness!HadtheybutknowntheBoundsofBlissAndthatPerfectionherebelowIsmorethanGodscanwellbestow;TheGrumblingBruteshadbeencontentWithMinistersandGovernment.Butthey,ateveryillSuccess,LikeCreatureslostwithoutRedress,Curs’dPoliticians,Armies,Fleets;Whileeveryonecry’d,DamntheCheats,Andwould,tho’consciousofhisown,Inothersbarb’rouslybearnone.ONE,thathadgotaPrincelyStore,BycheatingMaster,KingandPoor,Dar’dcryaloud,TheLandmustsinkForallitsFraud;Andwhomd’yethinkTheSermonizingRascalchid?AGloverthatsoldLambforKid. Mandeville:TheGrumblingHive125THEleastthingwasnotdoneamiss,Orcross’dthePublickBusiness;ButalltheRoguescry’dbrazenly,GoodGods,HadwebutHonesty!Merc’rysmil’datth’Impudence,Andotherscall’ditwantofSense,Alwaystorailatwhattheylov’dButJovewithIndignationmov’d,AtlastinAngerswore,He’dridThebawlingHiveofFraud;anddid.TheveryMomentitdeparts,AndHonestyfillsalltheirHeartsThereshews‘em,liketh’InstructiveTree,ThoseCrimeswhichthey’reasham’dtosee;WhichnowinSilencetheyconfess,ByblushingattheirUgliness:LikeChildren,thatwouldhidetheirFaults,AndbytheirColourowntheirThoughts:Imag’ning,whenthey’relook’dupon,Thatothersseewhattheyhavedone.BUT,OhyeGods!WhatConsternation,Howvastandsuddenwasth’Alteration!InhalfanHour,theNationround,MeatfellaPennyinthePound.TheMaskHypocrisy’sflungdown,FromthegreatStatesmantotheClown:Andsomeinborrow’dLookswellknown,Appear’dlikeStrangersintheirown.TheBarwassilentfromthatDay;FornowthewillingDebtorspay,Ev’nwhat’sbyCreditorsforgot;Whoquittedthemthathaditnot.Those,thatwereintheWrong,stoodmute,Anddroptthepatch’dvexatiousSuit:Onwhichsincenothinglesscanthrive,ThanLawyersinanhonestHive,All,exceptthosethatgotenough,WithInkhornsbytheirsidestroop’doff.JUSTICEhang’dsome,setothersfree;AndafterGoaldelivery,HerPresencebeingnomorerequir’d,WithallherTrainandPompretir’d.Firstmarch’dsomeSmithswithLocksandGrates,Fetters,andDoorswithIronPlates:NextGoalers,TurnkeysandAssistants:BeforetheGoddess,atsomedistance,HerchiefandfaithfulMinister, 126Pre-ClassicalThought’SquireCATCH,theLaw’sgreatFinisher,Borenotth’imaginarySword,ButhisownTools,anAxandCord:ThenonaCloudtheHood-wink’dFair,JUSTICEherselfwaspush’dbyAirAboutherChariot,andbehind,WereSerjeants,Bumsofeverykind,Tip-staffs,andallthoseOfficers,ThatsqueezeaLivingoutofTears.THO’Physickliv’d,whileFolkswereill,Nonewouldprescribe,butBeesofskill,WhichthroughtheHivedispers’dsowide,Thatnoneofthemhadneedtoride;Wav’dvainDisputes,andstrovetofreeThePatientsoftheirMisery;LeftDrugsincheatingCountriesgrown,Andus’dtheProductoftheirown;KnowingtheGodssentnoDiseaseToNationswithoutRemedies.THEIRClergyrous’dfromLaziness,LaidnottheirChargeonJourney-Bees;Butserv’dthemselves,exemptfromVice,TheGodswithPray’randSacrifice;Allthose,thatwereunfit,orknewTheirServicemightbespar’d,withdrew:NorwasthereBusinessforsomany,(ifth’Honeststandinneedofany,)FewonlywiththeHigh-Prieststaid,TowhomtherestObediencepaid:Himselfemploy’dinHolyCares,Resign’dtoothersState-Affairs.Hechas’dnoStarv’lingfromhisDoor,Norpinch’dtheWagesofthePoor;ButathisHousetheHungry’sfed,TheHirelingfindsunmeasur’dBread,TheneedyTrav’lerBoardandBed.AMONGtheKing’sgreatMinisters,Andallth’inferiorOfficersTheChangewasgreat;forfrugallyTheynowliv’dontheirSalary:ThatapoorBeeshouldtentimescomeToaskhisDue,atriflingSum,Andbysomewell-hir’dClerkbemadeTogiveaCrown,orne’erbepaid,Wouldnowbecall’dadownrightCheat,Tho’formerlyaPerquisite. Mandeville:TheGrumblingHive127AllPlacesmanag’dfirstbyThree,Whowatch’deachother’sKnavery,AndoftenforaFellow-feeling,Promotedoneanother’sstealing,Arehappilysupply’dbyOne,Bywhichsomethousandsmorearegone.NOHonournowcouldbecontent,Toliveandoweforwhatwasspent;Liv’riesinBrokersShopsarehung,TheypartwithCoachesforaSong;SellstatelyHorsesbywholeSets;AndCountry-Houses,topayDebts.VAINCostisshunn’dasmuchasFraud;TheyhavenoForceskeptAbroad;Laughatth’EsteemofForeigners,AndemptyGlorygotbyWars;Theyfight,butfortheirCountry’ssake,WhenRightorLiberty’satStake.NOWmindthegloriousHive,andseeHowHonestyandTradeagree.TheShewisgone,itthinsapace;AndlookswithquiteanotherFace.For‘twasnotonlythatTheywent,BywhomvastSumswereYearlyspent;ButMultitudesthatliv’donthem,Weredailyforc’dtodothesame.InvaintootherTradesthey’dfly;Allwereo’er-stock’daccordingly.THEPriceofLandandHousesfalls;Mirac’lousPalaces,whoseWalls,LikethoseofThebes,wererais’dbyPlay,Aretobelet;whiletheoncegay,Well-seatedHousholdGodswouldbeMorepleas’dtoexpireinFlames,thanseeThemeanInscriptionontheDoorSmileattheloftyonestheybore.ThebuildingTradeisquitedestroy’d,Artificersarenotemploy’d;NoLimnerforhisArtisfam’d,Stone-cutters,Carversarenotnam’d.THOSE,thatremain’d,growntemp’rate,strive,Nothowtospend,buthowtolive,And,whentheypaidtheirTavernScore,Resolv’dtoenteritnomore: 128Pre-ClassicalThoughtNoVintner’sjiltinalltheHiveCouldwearnowClothofGold,andthrive;NorTorcolsuchvastSumsadvance,ForBurgundyandOrtelans;TheCourtier’sgone,thatwithhisMissSupp’dathisHouseonChristmasPeas;SpendingasmuchintwoHoursstay,AskeepsaTroopofHorseaDay.THEhaughtyChloe,toliveGreat,HadmadeherHusbandrobtheState:ButnowshesellsherFurniture,Whichth’Indieshadbeenransack’dfor;Contractsth’expensiveBillofFare,AndwearsherstrongSuitawholeYear:TheslightandfickleAgeispast;AndClothes,aswellasFashions,last.Weavers,thatjoin’drichSilkwithPlate,AndalltheTradessubordinate,Aregone.StillPeaceandPlentyreign,AndeveryThingischeap,tho’plain:KindNature,freefromGard’nersForce,AllowsallFruitsinherownCourse;ButRaritiescannotbehad,WherePainstogetthemarenotpaid.ASPrideandLuxurydecrease,SobydegreestheyleavetheSeas.NotMerchantsnow,butCompaniesRemovewholeManufactories.AllArtsandCraftsneglectedlie;Content,theBaneofIndustry,Makes’emadmiretheirhomelyStore,Andneitherseeknorcovetmore.SOfew,inthevastHiveremain,ThehundredthParttheycan’tmaintainAgainstth’InsultsofnumerousFoes;Whomyettheyvaliantlyoppose:’Tillsomewell-fenc’dRetreatisfound,AndheretheydieorstandtheirGround.NoHirelingintheirArmy’sknown;Butbravelyfightingfortheirown,TheirCourageandIntegrityAtlastwerecrown’dwithVictory.THEYtriumph’dnotwithouttheirCost,FormanyThousandBeeswerelost.Hard’nedwithToilsandExercise, Mandeville:TheGrumblingHive129TheycountedEaseitselfaVice;Whichsoimprov’dtheirTemperance;That,toavoidExtravagance,TheyflewintoahollowTree,BlestwithContentandHonesty.ThemoralTHENleaveComplaints:FoolsonlystriveTomakeaGreatanHonestHive.T’enjoytheWorld’sConveniencies,Befam’dinWar,yetliveinEase,WithoutgreatVices,isavainEUTOPIAseatedintheBrain.Fraud,LuxuryandPridemustlive,WhilewetheBenefitsreceive:Hunger’sadreadfulPlague,nodoubt,Yetwhodigestsorthriveswithout?DowenotowetheGrowthofWineTothedryshabbycrookedVine?Which,whileitsShootsneglectedstood,Chok’dotherPlants,andrantoWood;ButblestuswithitsnobleFruit,Assoonasitwasty’dandcut:SoViceisbeneficialfound,Whenit’sbyJusticeloptandbound;Nay,wherethePeoplewouldbegreat,AsnecessarytotheState,AsHungeristomake’emeat.BareVirtuecan’tmakeNationsliveInSplendor;they,thatwould,reviveAGoldenAge,mustbeasfree,ForAcorns,asforHonesty.Finis Part2TheClassicalSchoolIntroductionEnglishClassicalPoliticalEconomywasthedominantschoolofeconomicsfromthelateeighteenthcenturyuntilthelastquarterofthenineteenthcentury.ItsmajorfigureswereAdamSmith,DavidRicardo,ThomasRobertMalthus,JamesMill,JeremyBenthamandJohnStuartMill.TheEnglishClassicistswerethefirstmajorschooltoexplicateamodernmarket,capitalisteconomy.Twooftheirmostdistinctivedoctrines–Malthus’slawofpopulationandRicardo’sprincipleofdiminishingreturns–ledtotheportrayalofeconomicsasthe“dismalscience.”Becauseofthecentralityofthetwodoctrinestotheirsystemofthought,thatviewisnotaltogethererroneous.Buttheadverseportrayalwasalsoduetoboththeeconomists’treatmentofthesedoctrinesasontologicallygiven,transcendentandinescapable,andtheuseofthedoctrinestochal-lengeeconomicandpoliticalreforms.Asitturnedout,theclassicists’doctrineshadtobeunderstoodbothwithintheirlargersystemofthoughtandinthecontextoftheirapproachtoabstracttheory;thedoctrinesworkedoutthroughhumaninstitutions,theydidnotdictatehumanarrangements.ThecoreofEnglishClassicalPoliticalEconomyisderivedfromtheworldviewofamodernmarket,capitalisteconomy.Itsprogramwastopromotethefurtherdevelopmentofsuchaneconomy,inpartthroughpoliticalreformandtheadoptionofsuitablegovernmentpolicy.MostoftheClassicalEconomistsafterSmith,withthenotableexceptionofMalthus,supportedthetransformationofthecombinedEnglisheconomyandpolicyfromanagriculturalonedomi-natedbythelandowningclasstooneincreasinglybothrepresentativeofandpromotiveoftheinterestsandworldviewofthemiddleclass,thatis,ofbusinessmenofalltypes.Thecharacteris-tic,indeed,dominantissueinvolvedtheCornLaws,legislationwhichworkedtorestricttheimportationofagriculturalproducts,thuspromotingthehighpriceoffoodandthehighrentofthelandowningclass.Higheraggregaterentsmeantlessnationalincomewasavailableforthebusinessandwage-earningclasses;italsomeant“subsidization”ofthelandedrulingclass,inthesenseofgovernmentpolicyskewedtotheirinterests,theclasswhosepositiontherisingmiddleclasswasseekingtoeitherreplaceorjoininforminggovernmentpolicyandtherebytheinstitutionsthroughwhicheconomic“laws”operatedandworkedout.Thespecifictheoriesoftheclassicalschoolincluded,inadditiontothelawsofpopulationandofdiminishingreturns,thelabortheoryofvalue,thetheoryofRicardianrent,thedivisionoflabor,theroleofthemarketinpricedeterminationandresourceallocation,theRicardiantheoryofcomparativeadvantageexplaininginternationaltradeandcapitalflows,thequantitytheoryofmoney,andtheoriesofwagesandprofits.ThedominantRicardianmodelwasthelong-runperformanceoftheeconomicsystem,largelyintermsofdistribution:thetendencyofrenttoincrease,ofwagestogravitatetoasociallydeterminedminimumofsubsistence,andofprofitstofall–togetherunderscoringadismalfuture.Thenegativeimplicationsofthelawsofpopulation,diminishingreturnsandthefallingrateofprofit(largelydrivenbythefirsttwo)wereamatterofworkingoutthelogicalimplicationsof theClassicists’premises.Theiractualattitudewaslargelyanythingbutdismal.Theybothacceptedandlaudedtheindustrialmarketcapitalistsystemand,whiletheycouldhavehadamoredramaticplacefortechnologicalchangeintheiranalyses,theywerepersonallyoptimisticaboutthefuture.Thethreelawsweretothembothconstraintsuponoptimismandconditionsunderwhichinstitutionsoperated–andtheywereinsistentuponthepromulgationoftheinstitutionsofabusiness,ratherthanamediaevalagrarian,society.Thus,theyacceptedandlaudedthealloca-tionofresourcesthroughmarketsatthesametimetheyunderstoodtheimportanceofgovern-mentactioninprovidingthenecessaryframinginstitutionsofamarketeconomy,inexercisingsocialcontrol,andinservingasanagentofsocialchange–again,notlaissezfaireinthesenseofminimalandpassivegovernmentbutagovernmentpromotiveofandoperatingwithinamarketorbusinesseconomy.LikethePhysiocrats,theClassicalEconomiststooktheirdesiredsystemasgiven,andtheirprescribedeconomicroleofgovernmentwastailoredtoachievetheirsystem.Theentriesreprintedinthissectionhavebeenselectedwithaviewtogivingthereaderasenseforthesemajorthemes,asdiscussedbytheclassicalthinkersthemselves,alongwithsomesenseforthedifferencesofopinionsthatcharacterizedthetheoreticalandpolicydebateswithinclassicalpoliticaleconomy.ForfurtherreadingBharadwaj,Krishna(1987)“WagesinClassicalEconomics,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.4,London:Macmillan,843–6.Blaug,Mark(1987)“ClassicalEconomics,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.1,London:Macmillan,434–45.Cannan,Edwin(1917)AHistoryoftheTheoriesofProductionandDistributionfrom1776to1848,3rdedn,London:StaplesPress,1953.Dobb,Maurice(1973)TheoriesofValueandDistributionSinceAdamSmith:IdeologyandEconomicTheory,Cambridge:CambridgeUniversityPress.Eatwell,John(1987)“Competition:ClassicalConceptions,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.1,London:Macmillan,537–40.Eltis,Walter(1984)TheClassicalTheoryofEconomicGrowth,London:Macmillan.Gilibert,Giorgio(1987)“Production:ClassicalTheories,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,990–2.Green,Roy(1987)“ClassicalTheoryofMoney,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.1,London:Macmillan,449–51.Harris,DonaldJ.(1987)“ClassicalGrowthModels,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.1,London:Macmillan,445–9.Hollander,Samuel(1992)ClassicalEconomics,Toronto:UniversityofTorontoPress.Irwin,DouglasA.(1996)AgainsttheTide:AnIntellectualHistoryofFreeTrade,Princeton:PrincetonUniversityPress.Kurz,HeinzD.andSalvadori,Neri(1998)TheElgarCompaniontoClassicalEconomics,Cheltenham:EdwardElgarPublishing.O’Brien,D.P.(1975)TheClassicalEconomists,Oxford:OxfordUniversityPress.Pivetti,Massimo(1987)“DistributionTheories:Classical,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.1,London:Macmillan,872–6.Robbins,Lionel(1952)TheTheoryofEconomicPolicyinEnglishClassicalPoliticalEconomy,London:Macmillan.Samuels,WarrenJ.(1966)TheClassicalTheoryofEconomicPolicy,Cleveland,World.Samuelson,P.A.(1978)“TheCanonicalClassicalModelofPoliticalEconomy,”JournalofEconomicLiterature16(December):1415–34.Sowell,Thomas(1974)ClassicalEconomicsReconsidered,Princeton:PrincetonUniversityPress.Tucker,G.S.L.(1960)ProgressandProfitsinBritishEconomicThought,1650–1850,London:CambridgeUniversityPress.Viner,Jacob(1937)StudiesintheTheoryofInternationalTrade,NewYork:Harper&Row. DAVIDHUME(1711–1776)DavidHumewasoneofhistory’seminentphilosophers.HewasaScot,aclosefriendofAdamSmith,anddevotedthemajorityofhislifetostudyandwriting.Humewroteonquestionsofhumannature-psychologyandepistemology-theoryofknowledge.Liketheotherwriters,HumerepresentedthemodernEnlightenmentorientationwithitsemphasisonreason,secularism,individualism,materialism,politicization–allwiththeirpolicy-consciousemphasisontheroleofsocialchoiceinthesocialconstructionofreality,albeitwithintheconstraintsofphysicalnatureandofreceivedinstitutionsandsystems.Hiswillingnesstoconfrontthereceivedwisdomofhistime,particularlyonmattersrelatingtoreligion,engenderedconsiderableantipathyinsomequarters.Humealsowroteessaysonpoliticalphi-losophyandonincreasinglyconspicuoustopicsofeconomics:money,interest,trade,taxation,andpopulationgrowth.Inmanyoftheserespects,Humewaseithermoreadvancedand/ormorearticulatethanhisclosefriendAdamSmith.DavidHume,bycourtesyofTheWarrenJ.SamuelsPortraitReprintedhereareHume’sthreeclassicCollectionatDukeUniversity.essaysonmoney,interest,andthebal-anceoftrade.TheseessaysreflectHume’sadoptionofthequantitytheoryofmoneyandhisapplicationofittotheanalysisofthethendominantmercantilistideas.“OfMoney”examinestherelationshipbetweenthemoneysup-plyandeconomicgrowth,discussingconditionsunderwhichanincreaseinthemoneysupplycanstimulateeconomicactivity.“OfInterest”attemptstorefutethenotionthattherateofinterestisdeterminedbythemoneysupply,arguing,instead,thattheinterestrateisafunctionofthesupplyofrealcapital.Finally,“OftheBalanceofTrade”examinesthespecieflowmechanismandarguesthatrestrictionsontradetopromotespecieaccumulationwillbecounterproductivebecause 134TheClassicalSchoolbullioninflowswillraisedomesticpricesrelativetothoseabroad,therebyreducingexportsandincreasingimports–theneteffectofwhichisanoutflowofspecie.ReferencesandfurtherreadingArkin,Marcus(1956)“TheEconomicWritingsofDavidHume–AReassessment,”SouthAfricanJournalofEconomics24(September):204–20.ReprintedinJ.J.SpenglerandW.R.Allen(eds),EssaysinEconomicThought,Skokie,ILRandMcNally,1960,141–60.Hume,David(1955)WritingsonEconomics,editedbyEugeneRotwein,Madison:UniversityofWisconsinPress;London:Nelson.——(1987)EssaysMoral,Political,andLiterary,editedwithaForeword,Notes,andGlossarybyEugeneF.Miller,Revisededition,Indianapolis:LibertyClassics.Hutchison,Terence(1988)BeforeAdamSmith:TheEmergenceofPoliticalEconomy,1662–1776,Oxford:BasilBlackwell.Mayer,Thomas(1980)“DavidHumeandMonetarism,”QuarterlyJournalofEconomics95(August):89–101.Rotwein,Eugene(1987)“Hume,David,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.2,London:Macmillan,692–5.Skinner,AndrewS.(1996)“DavidHume:EconomicWritings,”inASystemofSocialScience:PapersRelatingtoAdamSmith,2ndedn,Oxford:ClarendonPress.Wood,GeoffreyE.(1995)“TheQuantityTheoryinthe1980s:Hume,Thornton,FriedmanandtheRelationBetweenMoneyandInflation,”inMarkBlaugetal.(eds),TheQuantityTheoryofMoney:FromLocketoKeynesandFriedman,Aldershot:EdwardElgarPublishing. PoliticalDiscources(1752)“OfMoney”Moneyisnot,properlyspeaking,oneofthesubjectsofcommerce;butonlytheinstrumentwhichmenhaveagreedupontofacilitatetheexchangeofonecommodityforanother.Itisnoneofthewheelsoftrade:Itistheoilwhichrendersthemotionofthewheelsmoresmoothandeasy.Ifweconsideranyonekingdombyitself,itisevident,thatthegreaterorlessplentyofmoneyisofnoconsequence;sincethepricesofcommoditiesarealwaysproportionedtotheplentyofmoney,andacrowninHarryVII’stimeservedthesamepurposeasapounddoesatpresent.Itisonlythepublicwhichdrawsanyadvantagefromthegreaterplentyofmoney;andthatonlyinitswarsandnegociationswithforeignstates.Andthisisthereason,whyallrichandtradingcountriesfromCarthagetoGreatBritainandHolland,haveemployedmercenarytroops,whichtheyhiredfromtheirpoorerneighbours.Weretheytomakeuseoftheirnativesubjects,theywouldfindlessadvantagefromtheirsuperiorriches,andfromtheirgreatplentyofgoldandsilver;sincethepayofalltheirservantsmustriseinproportiontothepublicopulence.Oursmallarmyof20,000menismaintainedatasgreatexpenceasaFrencharmytwiceasnumerous.TheEnglishfleet,duringthelatewar,requiredasmuchmoneytosupportitasalltheRomanlegions,whichkeptthewholeworldinsubjection,duringthetimeoftheemperors.Thegreaternumberofpeopleandtheirgreaterindustryareserviceableinallcases;athomeandabroad,inprivate,andinpublic.Butthegreaterplentyofmoney,isverylimitedinitsuse,andmayevensometimesbealosstoanationinitscommercewithforeigners.Thereseemstobeahappyconcurrenceofcausesinhumanaffairs,whichchecksthegrowthoftradeandriches,andhindersthemfrombeingconfinedentirelytoonepeople;asmightnaturallyatfirstbedreadedfromtheadvantagesofanestablishedcommerce.Whereonenationhasgottenthestartofanotherintrade,itisverydifficultforthelattertoregainthegroundithaslost;becauseofthesuperiorindustryandskilloftheformer,andthegreaterstocks,ofwhichitsmerchantsarepossessed,andwhichenablethemtotradeonsomuchsmallerprofits.Buttheseadvantagesarecompensated,insomemeasure,bythelowpriceoflabourineverynationwhichhasnotanextensivecommerce,anddoesnotmuchaboundingoldandsilver.Manufactures,thereforegraduallyshifttheirplaces,leavingthosecountriesandprovinceswhichtheyhavealreadyenriched,andflyingtoothers,whithertheyarealluredbythecheapnessofprovisionsandlabour;tilltheyhaveenrichedthesealso,andareagainbanishedbythesamecauses.And,ingeneral,wemayobserve,thatthedearnessofeverything,fromplentyofmoney,isadisadvan-tage,whichattendsanestablishedcommerce,andsetsboundstoitineverycountry,byenablingthepoorerstatestoundersellthericherinallforeignmarkets.Thishasmademeentertainadoubtconcerningthebenefitofbanksandpaper-credit,whicharesogenerallyesteemedadvantageoustoeverynation.Thatprovisionsandlabourshouldbecomedearbytheencreaseoftradeandmoney,is,inmanyrespects,aninconvenience;butaninconveniencethatisunavoidable,andtheeffectofthatpublicwealthandprosperitywhichare 136TheClassicalSchooltheendofallourwishes.Itiscompensatedbytheadvantages,whichwereapfromthepossessionofthesepreciousmetals,andtheweight,whichtheygivethenationinallforeignwarsandnego-ciations.Butthereappearsnoreasonforencreasingthatinconveniencebyacounterfeitmoney,whichforeignerswillnotacceptofinanypayment,andwhichanygreatdisorderinthestatewillreducetonothing.Thereare,itistrue,manypeopleineveryrichstate,whohavinglargesumsofmoney,wouldpreferpaperwithgoodsecurity;asbeingofmoreeasytransportandmoresafecustody.Ifthepublicprovidenotabank,privatebankerswilltakeadvantageofthiscircum-stance;asthegoldsmithsformerlydidinLondon,orasthebankersdoatpresentinDublin:Andthereforeitisbetter,itmaybethought,thatapubliccompanyshouldenjoythebenefitofthatpaper-credit,whichalwayswillhaveplaceineveryopulentkingdom.Buttoendeavourartifi-ciallytoencreasesuchacredit,canneverbetheinterestofanytradingnation;butmustlaythemunderdisadvantages,byencreasingmoneybeyonditsnaturalproportiontolabourandcom-modities,andtherebyheighteningtheirpricetothemerchantandmanufacturer.Andinthisview,itmustbeallowed,thatnobankcouldbemoreadvantageous,thansuchaoneaslockedupallthemoneyitreceived,andneveraugmentedthecirculatingcoin,asisusual,byreturningpartofitstreasureintocommerce.Apublicbank,bythisexpedient,mightcutoffmuchofthedeal-ingsofprivatebankersandmoney-jobbers;andthoughthestateborethechargeofsalariestothedirectorsandtellersofthisbank(for,accordingtotheprecedingsupposition,itwouldhavenoprofitfromitsdealings),thenationaladvantage,resultingfromthelowpriceoflabourandthedestructionofpaper-credit,wouldbeasufficientcompensation.Nottomention,thatsolargeasum,lyingreadyatcommand,wouldbeaconvenienceintimesofgreatpublicdangeranddistress;andwhatpartofitwasusedmightbereplacedatleisure,whenpeaceandtranquillitywasrestoredtothenation.Butofthissubjectofpaper-creditweshalltreatmorelargelyhereafter.AndIshallfinishthisessayonmoney,byproposingandexplainingtwoobservations,whichmay,perhaps,servetoemploythethoughtsofourspeculativepoliticians.I.ItwasashrewdobservationofAnacharsistheScythian,whohadneverseenmoneyinhisowncountry,thatgoldandsilverseemedtohimofnousetotheGreeks,buttoassisttheminnumera-tionandarithmetic.Itisindeedevident,thatmoneyisnothingbuttherepresentationoflabourandcommodities,andservesonlyasamethodofratingorestimatingthem.Wherecoinisingreaterplenty;asagreaterquantityofitisrequiredtorepresentthesamequantityofgoods;itcanhavenoeffect,eithergoodorbad,takinganationwithinitself;anymorethanitwouldmakeanalterationonamerchant’sbooks,if,insteadoftheArabianmethodofnotation,whichrequiresfewcharacters,heshouldmakeuseoftheRoman,whichrequiresagreatmany.Nay,thegreaterquantityofmoney,liketheRomancharacters,isratherinconvenient,andrequiresgreatertroublebothtokeepandtransportit.Butnotwithstandingthisconclusion,whichmustbeallowedjust,itiscertain,that,sincethediscoveryoftheminesinAmerica,industryhasencreasedinallthenationsofEurope,exceptinthepossessorsofthosemines;andthismayjustlybeascribed,amongstotherreasons,totheencreaseofgoldandsilver.Accordinglywefind,that,ineverykingdom,intowhichmoneybeginstoflowingreaterabundancethanformerly,everythingtakesanewface:labourandindustrygainlife;themerchantbecomesmoreenterprising,themanu-facturermorediligentandskilful,andeventhefarmerfollowshisploughwithgreateralacrityandattention.Thisisnoteasilytobeaccountedfor,ifweconsideronlytheinfluencewhichagreaterabundanceofcoinhasinthekingdomitself,byheighteningthepriceofCommodities,andobligingeveryonetopayagreaternumberoftheselittleyelloworwhitepiecesforeverythinghepurchases.Andastoforeigntrade,itappears,thatgreatplentyofmoneyisratherdisadvantageous,byraisingthepriceofeverykindoflabour.Toaccount,then,forthisphenomenon,wemustconsider,thatthoughthehighpriceofcommoditiesbeanecessaryconsequenceoftheencreaseofgoldandsilver,yetitfollowsnot Hume:“OfMoney”137immediatelyuponthatencrease;butsometimeisrequiredbeforethemoneycirculatesthroughthewholestate,andmakesitseffectbefeltonallranksofpeople.Atfirst,noalterationisperceived;bydegreesthepricerises,firstofonecommodity,thenofanother;tillthewholeatlastreachesajustproportionwiththenewquantityofspeciewhichisinthekingdom.Inmyopinion,itisonlyinthisintervalorintermediatesituation,betweentheacquisitionofmoneyandriseofprices,thattheencreasingquantityofgoldandsilverisfavourabletoindustry.Whenanyquan-tityofmoneyisimportedintoanation,itisnotatfirstdispersedintomanyhands;butisconfinedtothecoffersofafewpersons,whoimmediatelyseektoemployittoadvantage.Hereareasetofmanufacturersormerchants,weshallsuppose,whohavereceivedreturnsofgoldandsilverforgoodswhichtheysenttoCadiz.Theyaretherebyenabledtoemploymoreworkmenthanformerly,whoneverdreamofdemandinghigherwages,butaregladofemploymentfromsuchgoodpaymasters.Ifworkmenbecomescarce,themanufacturergiveshigherwages,butatfirstrequiresanencreaseoflabour;andthisiswillinglysubmittedtobytheartisan,whocannoweatanddrinkbetter,tocompensatehisadditionaltoilandfatigue.Hecarrieshismoneytomarket,wherehefindseverythingatthesamepriceasformerly,butreturnswithgreaterquantityandofbetterkinds,fortheuseofhisfamily.Thefarmerandgardener,finding,thatalltheircom-moditiesaretakenoff,applythemselveswithalacritytotheraisingmore;andatthesametimecanaffordtotakebetterandmoreclothsfromtheirtradesmen,whosepriceisthesameasfor-merly,andtheirindustryonlywhettedbysomuchnewgain.Itiseasytotracethemoneyinitsprogressthroughthewholecommonwealth;whereweshallfind,thatitmustfirstquickenthediligenceofeveryindividual,beforeitencreasethepriceoflabour.Andthatthespeciemayencreasetoaconsiderablepitch,beforeithavethislattereffect,appears,amongstotherinstances,fromthefrequentoperationsoftheFrenchkingonthemoney;whereitwasalwaysfound,thattheaugmentingofthenumeraryvaluedidnotproduceaproportionalriseoftheprices,atleastforsometime.InthelastyearofLouisXIV,moneywasraisedthree-sevenths,butpricesaugmentedonlyone.CorninFranceisnowsoldatthesameprice,orforthesamenumberoflivres,itwasin1683;thoughsilverwasthenat30livresthemark,andisnowat50.Nottomentionthegreatadditionofgoldandsilver,whichmayhavecomeintothatkingdomsincetheformerperiod.Fromthewholeofthisreasoningwemayconclude,thatitisofnomannerofconsequence,withregardtothedomestichappinessofastate,whethermoneybeinagreaterorlessquantity.Thegoodpolicyofthemagistrateconsistsonlyinkeepingit,ifpossible,stillencreasing;because,bythatmeans,hekeepsaliveaspiritofindustryinthenation,andencreasesthestockoflabour,inwhichconsistsallrealpowerandriches.Anation,whosemoneydecreases,isactually,atthattime,weakerandmoremiserablethananothernation,whichpossessesnomoremoney,butisontheencreasinghand.Thiswillbeeasilyaccountedfor,ifweconsider,thatthealterationsinthequantityofmoney,eitherononesideortheother,arenotimmediatelyattendedwithpropor-tionablealterationsinthepriceofcommodities.Thereisalwaysanintervalbeforemattersbeadjustedtotheirnewsituation;andthisintervalisaspernicioustoindustry,whengoldandsilverarediminishing,asitisadvantageouswhenthesemetalsareencreasing.Theworkmanhasnotthesameemploymentfromthemanufacturerandmerchant;thoughhepaysthesamepriceforeverythinginthemarket.Thefarmercannotdisposeofhiscornandcattle;thoughhemustpaythesamerenttohislandlord.Thepoverty,andbeggary,andsloth,whichmustensue,areeasilyforeseen.II.ThesecondobservationwhichIproposedtomakewithregardtomoney,maybeexplainedafterthefollowingmanner.Therearesomekingdoms,andmanyprovincesinEurope(andallofthemwereonceinthesamecondition)wheremoneyissoscarce,thatthelandlordcangetnoneatallfromhistenants;butisobligedtotakehisrentinkind,andeithertoconsumeithimself,ortransportittoplaceswherehemayfindamarket.Inthosecountries,theprincecanlevyfewor 138TheClassicalSchoolnotaxes,butinthesamemanner:Andashewillreceivesmallbenefitfromimpositionssopaid,itisevidentthatsuchakingdomhaslittleforceevenathome;andcannotmaintainfleetsandarmiestothesameextent,asifeverypartofitaboundedingoldandsilver.ThereissurelyagreaterdisproportionbetweentheforceofGermany,atpresent,andwhatitwasthreecenturiesago,thanthereisinitsindustry,people,andmanufactures.TheAustriandominionsintheempireareingeneralwellpeopledandwellcultivated,andareofgreatextent;buthavenotapropor-tionableweightinthebalanceofEurope;proceeding,asiscommonlysupposed,fromthescarcityofmoney.Howdoallthesefactsagreewiththatprincipleofreason,thatthequantityofgoldandsilverisinitselfaltogetherindifferent?Accordingtothatprinciplewhereverasovereignhasnumbersofsubjects,andthesehaveplentyofcommodities,heshouldofcoursebegreatandpowerful,andtheyrichandhappy,independentofthegreaterorlesserabundanceofthepreciousmetals.Theseadmitofdivisionsandsubdivisionstoagreatextent;andwherethepiecesmightbecomesosmallastobeindangerofbeinglost,itiseasytomixthegoldorsilverwithabasermetal,asispractisedinsomecountriesofEurope;andbythatmeansraisethepiecestoabulkmoresensibleandconvenient.Theystillservethesamepurposesofexchange,whatevertheirnumbermaybe,orwhatevercolourtheymaybesupposedtohave.TothesedifficultiesIanswer,thattheeffect,heresupposedtoflowfromscarcityofmoney,reallyarisesfromthemannersandcustomsofthepeople;andthatwemistake,asistoousual,acollateraleffectforacause.Thecontradictionisonlyapparent;butitrequiressomethoughtandreflectiontodiscovertheprinciples,bywhichwecanreconcilereasontoexperience.Itseemsamaximalmostself-evident,thatthepricesofeverythingdependontheproportionbetweencommoditiesandmoney,andthatanyconsiderablealterationoneitherhasthesameeffect,eitherofheighteningorloweringtheprice.Encreasethecommodities,theybecomecheaper;encreasethemoney,theyriseintheirvalue.As,ontheotherhand,adiminutionoftheformer,andthatofthelatter,havecontrarytendencies.Itisalsoevident,thatthepricesdonotsomuchdependontheabsolutequantityofcom-moditiesandthatofmoney,whichareinanation,asonthatofthecommodities,whichcomeormaycometomarket,andofthemoneywhichcirculates.Ifthecoinbelockedupinchests,itisthesamethingwithregardtoprices,asifitwereannihilated;ifthecommoditiesbehoardedinmagazinesandgranaries,alikeeffectfollows.Asthemoneyandcommodities,inthesecases,nevermeet,theycannotaffecteachother.Werewe,atanytime,toformconjecturesconcerningthepriceofprovisions,thecorn,whichthefarmermustreserveforseedandforthemaintenanceofhimselfandfamily,oughtnevertoenterintotheestimation.Itisonlytheoverplus,comparedtothedemand,thatdeterminesthevalue.Toapplytheseprinciples,wemustconsider,that,inthefirstandmoreuncultivatedagesofanystate,erefancyhasconfoundedherwantswiththoseofnature,men,contentwiththeproduceoftheirownfields,orwiththoserudeimprovementswhichtheythemselvescanworkuponthem,havelittleoccasionforexchange,atleastformoney,which,byagreement,isthecommonmea-sureofexchange.Thewoolofthefarmer’sownflock,spuninhisownfamily,andwroughtbyaneighbouringweaver,whoreceiveshispaymentincornorwool,sufficesforfurnitureandcloathing.Thecarpenter,thesmith,themason,thetailor,areretainedbywagesofalikenature;andthelandlordhimself,dwellingintheneighbourhood,iscontenttoreceivehisrentinthecommoditiesraisedbythefarmer.Thegreaterpartoftheseheconsumesathome,inrustichos-pitality:Therest,perhaps,hedisposesofformoneytotheneighbouringtown,whencehedrawsthefewmaterialsofhisexpenceandluxury.Butaftermenbegintorefineonalltheseenjoyments,andlivenotalwaysathome,norarecontentwithwhatcanberaisedintheirneighbourhood,thereismoreexchangeandcommerceofallkinds,andmoremoneyentersintothatexchange.Thetradesmenwillnotbepaidincorn;becausetheywantsomethingmorethanbarelytoeat.Thefarmergoesbeyondhisownparish Hume:“OfMoney”139forthecommoditieshepurchases,andcannotalwayscarryhiscommoditiestothemerchantwhosupplieshim.Thelandlordlivesinthecapital,orinaforeigncountry;anddemandshisrentingoldandsilver,whichcaneasilybetransportedtohim.Greatundertakers,andmanufacturers,andmerchants,ariseineverycommodity;andthesecanconvenientlydealinnothingbutinspecie.Andconsequently,inthissituationofsociety,thecoinentersintomanymorecontracts,andbythatmeansismuchmoreemployedthanintheformer.Thenecessaryeffectis,that,providedthemoneyencreasenotinthenation,everythingmustbecomemuchcheaperintimesofindustryandrefinement,thaninrude,uncultivatedages.Itistheproportionbetweenthecirculatingmoney,andthecommoditiesinthemarket,whichdeter-minestheprices.Goods,thatareconsumedathome,orexchangedwithothergoodsintheneighbourhood,nevercometomarket;theyaffectnotintheleastthecurrentspecie;withregardtoittheyareasiftotallyannihilated;andconsequentlythismethodofusingthemsinksthepro-portiononthesideofthecommodities,andencreasestheprices.Butaftermoneyentersintoallcontractsandsales,andiseverywherethemeasureofexchange,thesamenationalcashhasamuchgreatertasktoperform;allcommoditiesaretheninthemarket;thesphereofcirculationisenlarged;itisthesamecaseasifthatindividualsumweretoservealargerkingdom;andthere-fore,theproportionbeingherelessenedonthesideofthemoney,everythingmustbecomecheaper,andthepricesgraduallyfall.Bythemostexactcomputations,thathavebeenformedalloverEurope,aftermakingallowanceforthealterationinthenumeraryvalueorthedenomination,itisfound,thatthepricesofallthingshaveonlyrisenthree,oratmost,fourtimes,sincethediscoveryoftheWestIndies.Butwillanyoneassert,thatthereisnotmuchmorethanfourtimesthecoininEurope,thatwasinthefifteenthcentury,andthecenturiesprecedingit?TheSpaniardsandPortuguesefromtheirmines,theEnglish,French,andDutch,bytheirAfricantrade,andbytheirinterlopersintheWestIndies,bringhomeaboutsixmillionsayear,ofwhichnotaboveathirdgoestotheEast-Indies.Thissumalone,intenyears,wouldprobablydoubletheancientstockofmoneyinEurope.Andnoothersatisfactoryreasoncanbegiven,whyallpriceshavenotrisentoamuchmoreexorbitantheight,exceptthatwhichisderivedfromachangeofcustomsandmanners.Besidesthatmorecom-moditiesareproducedbyadditionalindustry,thesamecommoditiescomemoretomarket,aftermendepartfromtheirancientsimplicityofmanners.Andthoughthisencreasehasnotbeenequaltothatofmoney,ithas,however,beenconsiderable,andhaspreservedtheproportionbetweencoinandcommoditiesnearertheancientstandard.Werethequestionproposed,whichofthesemethodsoflivinginthepeople,thesimpleorrefined,isthemostadvantageoustothestateorpublic?Ishould,withoutmuchscruple,preferthelatter,inaviewtopoliticsatleast;andshouldproducethisasanadditionalreasonfortheencouragementoftradeandmanufactures.Whilemenliveintheancientsimplemanner,andsupplyalltheirnecessariesfromdomesticindustryorfromtheneighbourhood,thesovereigncanlevynotaxesinmoneyfromaconsider-ablepartofhissubjects;andifhewillimposeonthemanyburthens,hemusttakepaymentincommodities,withwhichalonetheyabound;amethodattendedwithsuchgreatandobviousinconveniencies,thattheyneednotherebeinsistedon.Allthemoneyhecanpretendtoraise,mustbefromhisprincipalcities,wherealoneitcirculates;andthese,itisevident,cannotaffordhimsomuchasthewholestatecould,didgoldandsilvercirculatethroughoutthewhole.Butbesidesthisobviousdiminutionoftherevenue,thereisanothercauseofthepovertyofthepublicinsuchasituation.Notonlythesovereignreceiveslessmoney,butthesamemoneygoesnotsofarasintimesofindustryandgeneralcommerce.Everythingisdearer,wherethegoldandsilveraresupposedequal;andthatbecausefewercommoditiescometomarket,andthewholecoinbearsahigherproportiontowhatistobepurchasedbyit;whencealonethepricesofeverythingarefixedanddetermined. 140TheClassicalSchoolHerethenwemaylearnthefallacyoftheremark,oftentobemetwithinhistorians,andevenincommonconversation,thatanyparticularstateisweak,thoughfertile,populous,andwellcultivated,merelybecauseitwantsmoney.Itappears,thatthewantofmoneycanneverinjureanystatewithinitself:Formenandcommoditiesaretherealstrengthofanycommunity.Itisthesimplemanneroflivingwhichherehurtsthepublic,byconfiningthegoldandsilvertofewhands,andpreventingitsuniversaldiffusionandcirculation.Onthecontrary,industryandrefinementsofallkindsincorporateitwiththewholestate,howeversmallitsquantitymaybe:Theydigestitintoeveryvein,sotospeak;andmakeitenterintoeverytransactionandcontract.Nohandisentirelyemptyofit.Andasthepricesofeverythingfallbythatmeans,thesovereignhasadoubleadvantage:Hemaydrawmoneybyhistaxesfromeverypartofthestate;andwhathereceives,goesfartherineverypurchaseandpayment.Wemayinfer,fromacomparisonofprices,thatmoneyisnotmoreplentifulinChina,thanitwasinEuropethreecenturiesago:Butwhatimmensepoweristhatempirepossessedof,ifwemayjudgebythecivilandmilitaryestablishmentmaintainedbyit?Polybiustellsus,thatprovisionsweresocheapinItalyduringhistime,thatinsomeplacesthestatedpriceforamealattheinnswasasemisahead,littlemorethanafarthing!YettheRomanpowerhadeventhensubduedthewholeknownworld.Aboutacenturybeforethatperiod,theCarthaginianambassadorsaid,bywayofraillery,thatnopeoplelivedmoresociablyamongstthemselvesthantheRomans;forthat,ineveryentertainment,which,asforeignministers,theyreceived,theystillobservedthesameplateateverytable.Theabsolutequantityofthepreciousmetalsisamatterofgreatindif-ference.Thereareonlytwocircumstancesofanyimportance,namely,theirgradualencrease,andtheirthoroughconcoctionandcirculationthroughthestate;andtheinfluenceofboththesecircumstanceshasherebeenexplained.Inthefollowingessayweshallseeaninstanceofalikefallacyasthatabovementioned;whereacollateraleffectistakenforacause,andwhereaconsequenceisascribedtotheplentyofmoney;thoughitbereallyowingtoachangeinthemannersandcustomsofthepeople.“OfInterest”Nothingisesteemedamorecertainsignoftheflourishingconditionofanynationthanthelownessofinterest:Andwithreason;thoughIbelievethecauseissomewhatdifferentfromwhatiscommonlyapprehended.Lownessofinterestisgenerallyascribedtoplentyofmoney.Butmoney,howeverplentiful,hasnoothereffect,iffixed,thantoraisethepriceoflabour.Silverismorecommonthangold;andthereforeyoureceiveagreaterquantityofitforthesamecom-modities.Butdoyoupaylessinterestforit?InterestinBataviaandJamaicaisat10percentinPortugalat6;thoughtheseplaces,aswemaylearnfromthepricesofeverything,aboundmoreingoldandsilverthaneitherLondonorAmsterdam.WereallthegoldinEnglandannihilatedatonce,andoneandtwentyshillingssubstitutedintheplaceofeveryguinea,wouldmoneybemoreplentifulorinterestlower?Nosurely:Weshouldonlyusesilverinsteadofgold.Weregoldrenderedascommonassilver,andsilverascommonascopper;wouldmoneybemoreplentifulorinterestlower?Wemayassuredlygivethesameanswer.Ourshillingswouldthenbeyellow,andourhalfpencewhite;andweshouldhavenoguineas.Nootherdifferencewouldeverbeobserved;noalterationoncommerce,manufactures,navigation,orinterest;unlessweimagine,thatthecolourofthemetalisofanyconsequence.Now,whatissovisibleinthesegreatervariationsofscarcityorabundanceinthepreciousmetals,mustholdinallinferiorchanges.Ifthemultiplyingofgoldandsilverfifteentimesmakesnodifference,muchlesscanthedoublingortriplingthem.Allaugmentationhasnoothereffectthantoheightenthepriceoflabourandcommodities;andeventhisvariationislittlemorethanthatofaname.Intheprogresstowardsthesechanges,theaugmentationmayhavesome Hume:“OfInterest”141influence,byexcitingindustry;butafterthepricesaresettled,suitablytothenewabundanceofgoldandsilver,ithasnomannerofinfluence.Aneffectalwaysholdsproportionwithitscause.PriceshaverisennearfourtimessincethediscoveryoftheIndies;anditisprobablegoldandsilverhavemultipliedmuchmore:Butinteresthasnotfallenmuchabovehalf.Therateofinterest,therefore,isnotderivedfromthequantityofthepreciousmetals.Moneyhavingchieflyafictitiousvalue,thegreaterorlessplentyofitisofnoconsequence,ifweconsideranationwithinitself;andthequantityofspecie,whenoncefixed,thougheversolarge,hasnoothereffect,thantoobligeeveryonetotelloutagreaternumberofthoseshiningbitsofmetal,forclothes,furnitureorequipage,withoutencreasinganyoneconvenienceoflife.Ifamanborrowmoneytobuildahouse,hethencarrieshomeagreaterload;becausethestone,timber,lead,glass,andsoonwiththelabourofthemasonsandcarpenters,arerepresentedbyagreaterquantityofgoldandsilver.Butasthesemetalsareconsideredchieflyasrepresentations,therecannoalterationarise,fromtheirbulkorquantity,theirweightorcolour,eitherupontheirrealvalueortheirinterest.Thesameinterest,inallcases,bearsthesameproportiontothesum.Andifyoulentmesomuchlabourandsomanycommodities;byreceivingfivepercentyoualwaysreceiveproportionallabourandcommodities,howeverrepresented,whetherbyyelloworwhitecoin,whetherbyapoundoranounce.Itisinvain,therefore,tolookforthecauseofthefallorriseofinterestinthegreaterorlessquantityofgoldandsilver,whichisfixedinanynation.Highinterestarisesfromthreecircumstances:Agreatdemandforborrowing;littlerichestosupplythatdemand;andgreatprofitsarisingfromcommerce:Andthesecircumstancesareaclearproofofthesmalladvanceofcommerceandindustry,notofthescarcityofgoldandsilver.Lowinterest,ontheotherhand,proceedsfromthethreeoppositecircumstances:Asmalldemandforborrowing;greatrichestosupplythatdemand;andsmallprofitsarisingfromcom-merce:Andthesecircumstancesareallconnectedtogether,andproceedfromtheencreaseofindustryandcommerce,notofgoldandsilver.Weshallendeavourtoprovethesepoints;andshallbeginwiththecausesandtheeffectsofagreatorsmalldemandforborrowing.Whenapeoplehaveemergedeversolittlefromasavagestate,andtheirnumbershaveencreasedbeyondtheoriginalmultitude,theremustimmediatelyariseaninequalityofproperty;andwhilesomepossesslargetractsofland,othersareconfinedwithinnarrowlimits,andsomeareentirelywithoutanylandedproperty.Thosewhopossessmorelandthantheycanlabour,employthosewhopossessnone,andagreetoreceiveadeterminatepartoftheproduct.Thusthelandedinterestisimmediatelyestablished;noristhereanysettledgovernment,howeverrude,inwhichaffairsarenotonthisfooting.Oftheseproprietorsofland,somemustpresentlydiscoverthemselvestobeofdifferenttempersfromothers;andwhileonewouldwillinglystoreuptheproduceofhislandforfuturity,anotherdesirestoconsumeatpresentwhatshouldsufficeformanyyears.Butasthespend-ingofasettledrevenueisawayoflifeentirelywithoutoccupation;menhavesomuchneedofsomewhattofixandengagethem,thatpleasures,suchastheyare,willbethepursuitofthegreaterpartofthelandholders,andtheprodigalsamongthemwillalwaysbemorenumerousthanthemisers.Inastate,therefore,wherethereisnothingbutalandedinterest,asthereislittlefrugality,theborrowersmustbeverynumerous,andtherateofinterestmustholdproportiontoit.Thediffer-encedependsnotonthequantityofmoney,butonthehabitsandmannerswhichprevail.Bythisalonethedemandforborrowingisencreasedordiminished.Weremoneysoplentifulastomakeaneggbesoldforsixpence;solongasthereareonlylandedgentryandpeasantsinthestate,theborrowersmustbenumerous,andinteresthigh.Therentforthesamefarmwouldbeheavierandmorebulky:Butthesameidlenessofthelandlord,withthehigherpriceofcommodities,woulddissipateitinthesametime,andproducethesamenecessityanddemandforborrowing.Noristhecasedifferentwithregardtothesecondcircumstancewhichweproposedtoconsider,namely,thegreatorlittlerichestosupplythedemand.Thiseffectalsodependsonthe 142TheClassicalSchoolhabitsandwayoflivingofthepeople,notonthequantityofgoldandsilver.Inordertohave,inanystate,agreatnumberoflenders,itisnotsufficientnorrequisite,thattherebegreatabun-danceofthepreciousmetals.Itisonlyrequisite,thatthepropertyorcommandofthatquantity,whichisinthestate,whethergreatorsmall,shouldbecollectedinparticularhands,soastoformconsiderablesums,orcomposeagreatmoniedinterest.Thisbegetsanumberoflenders,andsinkstherateofusury;andthisIshallventuretoaffirm,dependsnotonthequantityofspecie,butonparticularmannersandcustoms,whichmakethespeciegatherintoseparatesumsormassesofconsiderablevalue.Forsuppose,that,bymiracle,everymaninGreatBritainshouldhavefivepoundssliptintohispocketinonenight;thiswouldmuchmorethandoublethewholemoneythatisatpresentinthekingdom;yettherewouldnotnextday,norforsometime,beanymorelenders,noranyvari-ationintheinterest.Andweretherenothingbutlandlordsandpeasantsinthestate,thismoney,howeverabundant,couldnevergatherintosums;andwouldonlyservetoencreasethepricesofeverything,withoutanyfartherconsequence.Theprodigallandlorddissipatesit,asfastashereceivesit;andthebeggarlypeasanthasnomeans,norview,norambitionofobtainingaboveabarelivelihood.Theoverplusofborrowersabovethatoflenderscontinuingstillthesame,therewillfollownoreductionofinterest.Thatdependsuponanotherprinciple;andmustproceedfromanencreaseofindustryandfrugality,ofartsandcommerce.Everythingusefultothelifeofmanarisesfromtheground;butfewthingsariseinthatcondi-tionwhichisrequisitetorenderthemuseful.Theremust,therefore,besidethepeasantsandtheproprietorsofland,beanotherrankofmen,whoreceivingfromtheformertherudematerials,workthemintotheirproperform,andretainpartfortheirownuseandsubsistence.Intheinfancyofsociety,thesecontractsbetweentheartisansandthepeasants,andbetweenonespeciesofartisansandanotherarecommonlyenteredintoimmediatelybythepersonsthemselves,who,beingneighbours,areeasilyacquaintedwitheachother’snecessities,andcanlendtheirmutualassistancetosupplythem.Butwhenmen’sindustryencreases,andtheirviewsenlarge,itisfound,thatthemostremotepartsofthestatecanassisteachotheraswellasthemorecontiguous,andthatthisintercourseofgoodofficesmaybecarriedontothegreatestextentandintricacy.Hencetheoriginofmerchants,oneofthemostusefulracesofmen,whoserveasagentsbetweenthosepartsofthestate,thatarewhollyunacquainted,andareignorantofeachother’snecessities.Hereareinacityfiftyworkmeninsilkandlinen,andathousandcustomers;andthesetworanksofmen,sonecessarytoeachother,canneverrightlymeet,tillonemanerectsashop,towhichalltheworkmenandallthecustomersrepair.Inthisprovince,grassrisesinabun-dance:Theinhabitantsaboundincheese,andbutter,andcattle;butwantbreadandcorn,which,inaneighbouringprovince,areintoogreatabundancefortheuseoftheinhabitants.Onemandiscoversthis.Hebringscornfromtheoneprovinceandreturnswithcattle;andsupplyingthewantsofboth,heis,sofar,acommonbenefactor.Asthepeopleencreaseinnum-bersandindustry,thedifficultyoftheirintercourseencreases:Thebusinessoftheagencyormerchandizebecomesmoreintricate;anddivides,subdivides,compounds,andmixestoagreatervariety.Inallthesetransactions,itisnecessary,andreasonable,thataconsiderablepartofthecommoditiesandlabourshouldbelongtothemerchant,towhom,inagreatmeasure,theyareowing.Andthesecommoditieshewillsometimespreserveinkind,ormorecommonlycon-vertintomoney,whichistheircommonrepresentation.Ifgoldandsilverhaveencreasedinthestatetogetherwiththeindustry,itwillrequireagreatquantityofthesemetalstorepresentagreatquantityofcommoditiesandlabour.Ifindustryalonehasencreased,thepricesofeverythingmustsink,andasmallquantityofspeciewillserveasarepresentation.Thereisnocravingordemandofthehumanmindmoreconstantandinsatiablethanthatforexerciseandemployment;andthisdesireseemsthefoundationofmostofourpassionsandpur-suits.Depriveamanofallbusinessandseriousoccupation,herunsrestlessfromoneamusement Hume:“OfInterest”143toanother;andtheweightandoppression,whichhefeelsfromidleness,issogreat,thatheforgetstheruinwhichmustfollowhimfromhisimmoderateexpences.Givehimamoreharmlesswayofemployinghismindorbody,heissatisfied,andfeelsnolongerthatinsatiablethirstafterpleasure.Butiftheemploymentyougivehimbelucrative,especiallyiftheprofitbeattachedtoeveryparticularexertionofindustry,hehasgainsoofteninhiseye,thatheacquires,bydegrees,apassionforit,andknowsnosuchpleasureasthatofseeingthedailyencreaseofhisfortune.Andthisisthereasonwhytradeencreasesfrugality,andwhy,amongmerchants,thereisthesameoverplusofmisersaboveprodigals,as,amongthepossessorsofland,thereisthecontrary.Commerceencreasesindustry,byconveyingitreadilyfromonememberofthestatetoanother,andallowingnoneofittoperishorbecomeuseless.Itencreasesfrugality,bygivingoccupationtomen,andemployingthemintheartsofgain,whichsoonengagetheiraffection,andremoveallrelishforpleasureandexpence.Itisaninfallibleconsequenceofallindustriousprofessions,tobegetfrugality,andmaketheloveofgainprevailovertheloveofpleasure.Amonglawyersandphysicianswhohaveanypractice,therearemanymorewholivewithintheirincome,thanwhoexceedit,orevenliveuptoit.Butlawyersandphysiciansbegetnoindustry;anditisevenattheexpenceofotherstheyacquiretheirriches;sothattheyaresuretodiminishthepossessionsofsomeoftheirfellow-citizens,asfastastheyencreasetheirown.Merchants,onthecontrary,begetindustry,byservingascanalstoconveyitthrougheverycornerofthestate:Andatthesametime,bytheirfrugality,theyacquiregreatpoweroverthatindustry,andcollectalargepropertyinthelabourandcommodities,whichtheyarethechiefinstrumentsinproducing.Thereisnootherprofession,therefore,exceptmerchandize,whichcanmakethemoniedinterestconsiderable,or,inotherwords,canencreaseindustry,and,byalsoencreasingfrugality,giveagreatcommandofthatindustrytoparticularmembersofthesociety.Withoutcommerce,thestatemustconsistchieflyoflandedgentry,whoseprodigalityandexpencemakeacontinualdemandforborrowing;andofpeasants,whohavenosumstosupplythatdemand.Themoneynevergathersintolargestocksorsums,whichcanbelentatinterest.Itisdispersedintonumber-lesshands,whoeithersquanderitinidleshowandmagnificence,oremployitinthepurchaseofthecommonnecessariesoflife.Commercealoneassemblesitintoconsiderablesums;andthiseffectithasmerelyfromtheindustrywhichitbegets,andthefrugalitywhichitinspires,inde-pendentofthatparticularquantityofpreciousmetalwhichmaycirculateinthestate.Thusanencreaseofcommerce,byanecessaryconsequence,raisesagreatnumberoflenders,andbythatmeansproduceslownessofinterest.Wemustnowconsiderhowfarthisencreaseofcommercediminishestheprofitsarisingfromthatprofession,andgivesrisetothethirdcircumstancerequisitetoproducelownessofinterest.Itmaybepropertoobserveonthishead,thatlowinterestandlowprofitsofmerchandizearetwoevents,thatmutuallyforwardeachother,andarebothoriginallyderivedfromthatextensivecommerce,whichproducesopulentmerchants,andrendersthemoniedinterestconsiderable.Wheremerchantspossessgreatstocks,whetherrepresentedbyfewormanypiecesofmetal,itmustfrequentlyhappen,that,whentheyeitherbecometiredofbusiness,orleaveheirsunwillingorunfittoengageincommerce,agreatproportionoftheserichesnaturallyseeksanannualandsecurerevenue.Theplentydiminishestheprice,andmakesthelendersacceptofalowinterest.Thisconsiderationobligesmanytokeeptheirstockemployedintrade,andratherbecontentwithlowprofitsthandisposeoftheirmoneyatanundervalue.Ontheotherhand,whencom-mercehasbecomeextensive,andemployslargestocks,theremustariserivalshipsamongthemerchants,whichdiminishtheprofitsoftrade,atthesametimethattheyencreasethetradeitself.Thelowprofitsofmerchandizeinducethemerchantstoacceptmorewillinglyofalowinterest,whentheyleaveoffbusiness,andbegintoindulgethemselvesineaseandindolence.Itisneedless,therefore,toenquirewhichofthesecircumstances,towit,lowinterestorlowprof-its,isthecause,andwhichtheeffect?Theybotharisefromanextensivecommerce,andmutually 144TheClassicalSchoolforwardeachother.Nomanwillacceptoflowprofits,wherehecanhavehighinterest;andnomanwillacceptoflowinterest,wherehecanhavehighprofits.Anextensivecommerce,bypro-ducinglargestocks,diminishesbothinterestandprofits;andisalwaysassisted,initsdiminutionoftheone,bytheproportionalsinkingoftheother.Imayadd,that,aslowprofitsarisefromtheencreaseofcommerceandindustry,theyserveintheirturntoitsfartherencrease,byrenderingthecommoditiescheaper,encouragingtheconsumption,andheighteningtheindustry.Andthus,ifweconsiderthewholeconnexionofcausesandeffects,interestisthebarometerofthestate,anditslownessisasignalmostinfallibleoftheflourishingconditionofapeople.Itprovestheencreaseofindustry,anditspromptcirculationthroughthewholestate,littleinferiortoademonstration.Andthough,perhaps,itmaynotbeimpossiblebutasuddenandagreatchecktocommercemayhaveamomentaryeffectofthesamekind,bythrowingsomanystocksoutoftrade;itmustbeattendedwithsuchmiseryandwantofemploymentinthepoor,that,besidesitsshortduration,itwillnotbepossibletomistaketheonecasefortheother.Thosewhohaveasserted,thattheplentyofmoneywasthecauseoflowinterest,seemtohavetakenacollateraleffectforacause;sincethesameindustry,whichsinkstheinterest,commonlyacquiresgreatabundanceofthepreciousmetals.Avarietyoffinemanufactures,withvigilantenterprisingmerchants,willsoondrawmoneytoastate,ifitbeanywheretobefoundintheworld.Thesamecause,bymultiplyingtheconvenienciesoflife,andencreasingindustry,collectsgreatrichesintothehandsofpersons,whoarenotproprietorsofland,andproduces,bythatmeans,alownessofinterest.Butthoughboththeseeffects,plentyofmoneyandlowinterest,naturallyarisefromcommerceandindustry,theyarealtogetherindependentofeachother.ForsupposeanationremovedintothePacificocean,withoutanyforeigncommerce,oranyknowledgeofnavigation:Suppose,thatthisnationpossessesalwaysthesamestockofcoin,butiscontinuallyencreasinginitsnumbersandindustry:Itisevident,thatthepriceofeverycom-moditymustgraduallydiminishinthatkingdom;sinceitistheproportionbetweenmoneyandanyspeciesofgoods,whichfixestheirmutualvalue;and,uponthepresentsupposition,thecon-venienciesoflifebecomeeverydaymoreabundant,withoutanyalterationinthecurrentspecie.Alessquantityofmoney,therefore,amongthispeople,willmakearichman,duringthetimesofindustry,thanwouldsufficetothatpurpose,inignorantandslothfulages.Lessmoneywillbuildahouse,portionadaughter,buyanestate,supportamanufactory,ormaintainafamilyandequipage.Thesearetheusesforwhichmenborrowmoney;andtherefore,thegreaterorlessquantityofitinastatehasnoinfluenceontheinterest.Butitisevident,thatthegreaterorlessstockoflabourandcommoditiesmusthaveagreatinfluence;sincewereallyandineffectborrowthese,whenwetakemoneyuponinterest.Itistrue,whencommerceisextendedallovertheglobe,themostindustriousnationsalwaysaboundmostwiththepreciousmetals:Sothatlowinterestandplentyofmoneyareinfactalmostinseparable.Butstillitisofconsequencetoknowtheprinciplewhenceanyphenomenonarises,andtodistinguishbetweenacauseandaconcomitanteffect.Besidesthatthespeculationiscurious,itmayfrequentlybeofuseinthecon-ductofpublicaffairs.Atleast,itmustbeowned,thatnothingcanbeofmoreusethantoimprove,bypractice,themethodofreasoningonthesesubjects,whichofallothersarethemostimportant;thoughtheyarecommonlytreatedintheloosestandmostcarelessmanner.Anotherreasonofthispopularmistakewithregardtothecauseoflowinterest,seemstobetheinstanceofsomenations;where,afterasuddenacquisitionofmoneyorofthepreciousmetals,bymeansofforeignconquest,theinteresthasfallen,notonlyamongthem,butinalltheneighbouringstates,assoonasthatmoneywasdispersed,andhadinsinuateditselfintoeverycorner.Thus,interestinSpainfellnearahalfimmediatelyafterthediscoveryoftheWestIndies,asweareinformedbyGarcilassodelaVega:Andithasbeeneversincegraduallysinkingineveryking-domofEurope.InterestinRome,aftertheconquestofEgypt,fellfrom6to4percentaswelearnfromDion. Hume:“OftheBalanceofTrade”145Thecausesofthesinkingofinterest,uponsuchanevent,seemdifferentintheconqueringcountryandintheneighbouringstates;butinneitherofthemcanwejustlyascribethateffectmerelytotheencreaseofgoldandsilver.Intheconqueringcountry,itisnaturaltoimagine,thatthisnewacquisitionofmoneywillfallintoafewhands,andbegatheredintolargesums,whichseekasecurerevenue,eitherbythepurchaseoflandorbyinterest;andconsequentlythesameeffectfollows,foralittletime,asiftherehadbeenagreataccessionofindustryandcommerce.Theencreaseoflendersabovetheborrowerssinkstheinterest;andsomuchthefaster,ifthose,whohaveacquiredthoselargesums,findnoindustryorcommerceinthestate,andnomethodofemployingtheirmoneybutbylend-ingitatinterest.Butafterthisnewmassofgoldandsilverhasbeendigested,andhascirculatedthroughthewholestate,affairswillsoonreturntotheirformersituation;whilethelandlordsandnewmoney-holders,livingidly,squanderabovetheirincome;andtheformerdailycontractdebt,andthelatterencroachontheirstocktillitsfinalextinction.Thewholemoneymaystillbeinthestate,andmakeitselffeltbytheencreaseofprices:Butnotbeingnowcollectedintoanylargemassesorstocks,thedisproportionbetweentheborrowersandlendersisthesameasformerly,andconsequentlythehighinterestreturns.Accordinglywefind,inRome,that,soearlyasTiberius’stime,interesthadagainmountedto6percentthoughnoaccidenthadhappenedtodraintheempireofmoney.InTrajan’stime,moneylentonmortgagesinItaly,bore6percentoncommonsecuritiesinBithynia,12percent.AndifinterestinSpainhasnotrisentoitsoldpitch;thiscanbeascribedtonothingbutthecontinuanceofthesamecausethatsunkit,towit,thelargefortunescontinuallymadeintheIndies,whichcomeovertoSpainfromtimetotime,andsupplythedemandoftheborrowers.Bythisaccidentalandextraneouscause,moremoneyistobelentinSpain,thatis,moremoneyiscollectedintolargesumsthanwouldotherwisebefoundinastate,wheretherearesolittlecommerceandindustry.Astothereductionofinterest,whichhasfollowedinEngland,France,andotherkingdomsofEurope,thathavenomines,ithasbeengradual;andhasnotproceededfromtheencreaseofmoney,consideredmerelyinitself;butfromthatofindustry,whichisthenaturaleffectoftheformerencrease,inthatinterval,beforeitraisesthepriceoflabourandprovisions.Fortoreturntotheforegoingsupposition;iftheindustryofEnglandhadrisenasmuchfromothercauses(andthatrisemighteasilyhavehappened,thoughthestockofmoneyhadremainedthesame)mustnotallthesameconsequenceshavefollowed,whichweobserveatpresent?Thesamepeoplewould,inthatcase,befoundinthekingdom,thesamecommodities,thesameindustry,manu-factures,andcommerce;andconsequentlythesamemerchants,withthesamestocks,thatis,withthesamecommandoverlabourandcommodities,onlyrepresentedbyasmallernumberofwhiteoryellowpieces;whichbeingacircumstanceofnomoment,wouldonlyaffectthewaggoner,porter,andtrunk-maker.Luxury,therefore,manufactures,arts,industry,frugality,flourishingequallyasatpresent,itisevident,thatinterestmustalsohavebeenaslow;sincethatisthenecessaryresultofallthesecircumstances;sofarastheydeterminetheprofitsofcom-merce,andtheproportionbetweentheborrowersandlendersinanystate.“OftheBalanceofTrade”Itisveryusual,innationsignorantofthenatureofcommerce,toprohibittheexportationofcommodities,andtopreserveamongthemselveswhatevertheythinkvaluableanduseful.Theydonotconsider,that,inthisprohibition,theyactdirectlycontrarytotheirintention;andthatthemoreisexportedofanycommodity,themorewillberaisedathome,ofwhichtheythemselveswillalwayshavethefirstoffer.Itiswellknowntothelearned,thattheancientlawsofAthensrenderedtheexportationoffigscriminal;thatbeingsupposedaspeciesoffruitsoexcellentinAttica,thattheAtheniansdeemedit 146TheClassicalSchooltoodeliciousforthepalateofanyforeigner.Andinthisridiculousprohibitiontheyweresomuchinearnest,thatinformerswerethencecalledsycophantsamongthem,fromtwoGreekwords,whichsignifyfigsanddiscoverer.Thereareproofsinmanyoldactsofparliamentofthesameignoranceinthenatureofcommerce,particularlyinthereignofEdwardIII.Andtothisday,inFrance,theexportationofcornisalmostalwaysprohibited;inorder,astheysay,topreventfamines;thoughitisevident,thatnothingcontributesmoretothefrequentfamines,whichsomuchdistressthatfertilecountry.Thesamejealousfear,withregardtomoney,hasalsoprevailedamongseveralnations;anditrequiredbothreasonandexperiencetoconvinceanypeople,thattheseprohibitionsservetonootherpurposethantoraisetheexchangeagainstthem,andproduceastillgreaterexportation.Theseerrors,onemaysay,aregrossandpalpable:Buttherestillprevails,eveninnationswellacquaintedwithcommerce,astrongjealousywithregardtothebalanceoftrade,andafear,thatalltheirgoldandsilvermaybeleavingthem.Thisseemstome,almostineverycase,agroundlessapprehension;andIshouldassoondread,thatallourspringsandriversshouldbeexhausted,asthatmoneyshouldabandonakingdomwheretherearepeopleandindustry.Letuscarefullypre-servetheselatteradvantages;andweneedneverbeapprehensiveoflosingtheformer.Itiseasytoobserve,thatallcalculationsconcerningthebalanceoftradearefoundedonveryuncertainfactsandsuppositions.Thecustom-housebooksareallowedtobeaninsufficientgroundofreasoning;noristherateofexchangemuchbetter;unlessweconsideritwithallnations,andknowalsotheproportionsoftheseveralsumsremitted;whichonemaysafelypronounceimpossible.Everyman,whohaseverreasonedonthissubject,hasalwaysprovedhistheory,whateveritwas,byfactsandcalculations,andbyanenumerationofallthecommoditiessenttoallforeignkingdoms.ThewritingsofMrGeestruckthenationwithanuniversalpanic,whentheysawitplainlydemonstrated,byadetailofparticulars,thatthebalancewasagainstthemforsoconsiderableasumasmustleavethemwithoutasingleshillinginfiveorsixyears.Butluckily,twentyyearshavesinceelapsed,withanexpensiveforeignwar;yetisitcommonlysupposed,thatmoneyisstillmoreplentifulamongusthaninanyformerperiod.NothingcanbemoreentertainingonthisheadthanDrSwift;anauthorsoquickindiscerningthemistakesandabsurditiesofothers.Hesays,inhisshortviewofthestateofIreland,thatthewholecashofthatkingdomformerlyamountedbutto500,000livres;thatoutofthistheIrishremittedeveryyearaneatmilliontoEngland,andhadscarcelyanyothersourcefromwhichtheycouldcompensatethemselves,andlittleotherforeigntradethantheimportationofFrenchwines,forwhichtheypaidreadymoney.Theconsequenceofthissituation,whichmustbeownedtobedisadvantageous,was,that,inacourseofthreeyears,thecurrentmoneyofIreland,from500,000livreswasreducedtolessthantwo.Andatpresent,Isuppose,inacourseof30yearsitisabsolutelynothing.YetIknownothow,thatopinionoftheadvanceofrichesinIreland,whichgavetheDoctorsomuchindignation,seemsstilltocontinue,andgaingroundwitheverybody.Inshort,thisapprehensionofthewrongbalanceoftrade,appearsofsuchanature,thatitdiscoversitself,whereveroneisoutofhumourwiththeministry,orisinlowspirits;andasitcanneverberefutedbyaparticulardetailofalltheexports,whichcounterbalancetheimports,itmayherebepropertoformageneralargument,thatmayprovetheimpossibilityofthisevent,aslongaswepreserveourpeopleandourindustry.Supposefour-fifthsofallthemoneyinGreatBritaintobeannihilatedinonenight,andthenationreducedtothesamecondition,withregardtospecie,asinthereignsoftheHarrysandEdwards,whatwouldbetheconsequence?Mustnotthepriceofalllabourandcommoditiessinkinproportion,andeverythingbesoldascheapastheywereinthoseages?Whatnationcouldthendisputewithusinanyforeignmarket,orpretendtonavigateortosellmanufacturesatthesameprice,whichtouswouldaffordsufficientprofit?Inhowlittletime,therefore,mustthisbring Hume:“OftheBalanceofTrade”147backthemoneywhichwehadlost,andraiseustothelevelofalltheneighbouringnations?Where,afterwehavearrived,weimmediatelylosetheadvantageofthecheapnessoflabourandcommodities;andthefartherflowinginofmoneyisstoppedbyourfulnessandrepletion.Again,suppose,thatallthemoneyofGreatBritainweremultipliedfivefoldinanight,mustnotthecontraryeffectfollow?Mustnotalllabourandcommoditiesrisetosuchanexorbitantheight,thatnoneighbouringnationscouldaffordtobuyfromus;whiletheircommodities,ontheotherhand,becamecomparativelysocheap,that,inspiteofallthelawswhichcouldbeformed,theywouldberuninuponus,andourmoneyflowout;tillwefalltoalevelwithforeigners,andlosethatgreatsuperiorityofriches,whichhadlaidusundersuchdisadvantages?Now,itisevident,thatthesamecauses,whichwouldcorrecttheseexorbitantinequalities,weretheytohappenmiraculously,mustpreventtheirhappeninginthecommoncourseofnature,andmustforever,inallneighbouringnations,preservemoneynearlyproportionabletotheartandindustryofeachnation.Allwater,whereveritcommunicates,remainsalwaysatalevel.Asknaturaliststhereason;theytellyou,that,wereittoberaisedinanyoneplace,thesuperiorgravityofthatpartnotbeingbalanced,mustdepressit,tillitmeetacounterpoise;andthatthesamecause,whichredressestheinequalitywhenithappens,mustforeverpreventit,withoutsomeviolentexternaloperation.Canoneimagine,thatithadeverbeenpossible,byanylaws,orevenbyanyartorindustry,tohavekeptallthemoneyinSpain,whichthegalleonshavebroughtfromtheIndies?OrthatallcommoditiescouldbesoldinFranceforatenthofthepricewhichtheywouldyieldontheothersideofthePyrenees,withoutfindingtheirwaythither,anddrainingfromthatimmensetreasure?Whatotherreason,indeed,isthere,whyallnations,atpresent,gainintheirtradewithSpainandPortugal;butbecauseitisimpossibletoheapupmoney,morethananyfluid,beyonditsproperlevel?Thesovereignsofthesecountrieshaveshown,thattheywantednotinclinationtokeeptheirgoldandsilvertothemselves,haditbeeninanydegreepracticable.Butasanybodyofwatermayberaisedabovethelevelofthesurroundingelement,ifthefor-merhasnocommunicationwiththelatter;soinmoney,ifthecommunicationbecutoff,byanymaterialorphysicalimpediment(foralllawsaloneareineffectual)theremay,insuchacase,beaverygreatinequalityofmoney.ThustheimmensedistanceofChina,togetherwiththemono-poliesofourIndiacompanies,obstructingthecommunication,preserveinEuropethegoldandsilver,especiallythelatter,inmuchgreaterplentythantheyarefoundinthatkingdom.But,notwithstandingthisgreatobstruction,theforceofthecausesabovementionedisstillevident.TheskillandingenuityofEuropeingeneralsurpassesperhapsthatofChina,withregardtoman-ualartsandmanufactures;yetareweneverabletotradethitherwithoutgreatdisadvantage.Andwereitnotforthecontinualrecruits,whichwereceivefromAmerica,moneywouldsoonsinkinEurope,andriseinChina,tillitcamenearlytoalevelinbothplaces.Norcananyreasonablemandoubt,butthatindustriousnation,weretheyasnearusasPolandorBarbary,woulddrainusoftheoverplusofourspecie,anddrawtothemselvesalargershareoftheWestIndiantreasures.Weneednothaverecoursetoaphysicalattraction,inordertoexplainthenecessityofthisoperation.Thereisamoralattraction,arisingfromtheinterestsandpassionsofmen,whichisfullaspotentandinfallible.Howisthebalancekeptintheprovincesofeverykingdomamongthemselves,butbytheforceofthisprinciple,whichmakesitimpossibleformoneytoloseitslevel,andeithertoriseorsinkbeyondtheproportionofthelabourandcommoditieswhichareineachprovince?Didnotlongexperiencemakepeopleeasyonthishead,whatafundofgloomyreflectionsmightcalculationsaffordtoamelancholyYorkshireman,whilehecomputedandmagnifiedthesumsdrawntoLondonbytaxes,absentees,commodities,andfoundoncomparisontheoppositearticlessomuchinfe-rior?Andnodoubt,hadtheHeptarchysubsistedinEngland,thelegislatureofeachstatehadbeencontinuallyalarmedbythefearofawrongbalance;andasitisprobablethatthemutual 148TheClassicalSchoolhatredofthesestateswouldhavebeenextremelyviolentonaccountoftheircloseneighbour-hood,theywouldhaveloadedandoppressedallcommerce,byajealousandsuperfluouscaution.SincetheunionhasremovedthebarriersbetweenScotlandandEngland,whichofthesenationsgainsfromtheotherbythisfreecommerce?Oriftheformerkingdomhasreceivedanyencreaseofriches,canitreasonablybeaccountedforbyanythingbuttheencreaseofitsartandindustry?ItwasacommonapprehensioninEngland,beforetheunion,aswelearnfromL’AbbéduBos,thatScotlandwouldsoondrainthemoftheirtreasure,wereanopentradeallowed;andontheothersidetheTweedacontraryapprehensionprevailed:Withwhatjusticeinboth,timehasshown.Whathappensinsmallportionsofmankind,musttakeplaceingreater.TheprovincesoftheRomanempire,nodoubt,kepttheirbalancewitheachother,andwithItaly,independentofthelegislature;asmuchastheseveralcountiesofGreatBritain,ortheseveralparishesofeachcounty.AndanymanwhotravelsoverEuropeatthisday,maysee,bythepricesofcommodities,thatmoney,inspiteoftheabsurdjealousyofprincesandstates,hasbroughtitselfnearlytoalevel;andthatthedifferencebetweenonekingdomandanotherisnotgreaterinthisrespect,thanitisoftenbetweendifferentprovincesofthesamekingdom.Mennaturallyflocktocapitalcities,sea-ports,andnavigablerivers.Therewefindmoremen,moreindustry,morecommodities,andconsequentlymoremoney;butstillthelatterdifferenceholdsproportionwiththeformer,andthelevelispreserved.OurjealousyandourhatredofFrancearewithoutbounds;andtheformersentiment,atleast,mustbeacknowledgedreasonableandwell-grounded.Thesepassionshaveoccasionedinnumer-ablebarriersandobstructionsuponcommerce,whereweareaccusedofbeingcommonlytheaggressors.Butwhathavewegainedbythebargain?WelosttheFrenchmarketforourwoollenmanufactures,andtransferredthecommerceofwinetoSpainandPortugal,wherewebuyworseliquoratahigherprice.TherearefewEnglishmenwhowouldnotthinktheircountryabsolutelyruined,wereFrenchwinessoldinEnglandsocheapandinsuchabundanceastosupplant,insomemeasure,allale,andhome-brewedliquors:Butwouldwelayasideprejudice,itwouldnotbedifficulttoprove,thatnothingcouldbemoreinnocent,perhapsadvantageous.EachnewacreofvineyardplantedinFrance,inordertosupplyEnglandwithwine,wouldmakeitrequisitefortheFrenchtotaketheproduceofanEnglishacre,sowninwheatorbarley,inordertosubsistthem-selves;anditisevident,thatweshouldtherebygetcommandofthebettercommodity.TherearemanyedictsoftheFrenchking,prohibitingtheplantingofnewvineyards,andorder-ingallthosewhicharelatelyplantedtobegrubbedup:Sosensiblearethey,inthatcountry,ofthesuperiorvalueofcorn,aboveeveryotherproduct.MareschalVaubancomplainsoften,andwithreason,oftheabsurddutieswhichloadtheentryofthosewinesofLanguedoc,Guienne,andothersouthernprovinces,thatareimportedintoBritannyandNormandy.Heentertainednodoubtbuttheselatterprovincescouldpreservetheirbalance,notwithstandingtheopencommercewhichherecommends.Anditisevident,thatafewleaguesmorenavigationtoEnglandwouldmakenodifference;orifitdid,thatitmustoperatealikeonthecommoditiesofbothkingdoms.Thereisindeedoneexpedientbywhichitispossibletosink,andanotherbywhichwemayraisemoneybeyonditsnaturallevelinanykingdom;butthesecases,whenexamined,willbefoundtoresolveintoourgeneraltheory,andtobringadditionalauthoritytoit.Iscarcelyknowanymethodofsinkingmoneybelowitslevel,butthoseinstitutionsofbanks,funds,andpaper-credit,whicharesomuchpractisedinthiskingdom.Theserenderpaperequiv-alenttomoney,circulateitthroughoutthewholestate,makeitsupplytheplaceofgoldandsilver,raiseproportionablythepriceoflabourandcommodities,andbythatmeanseitherbanishagreatpartofthosepreciousmetals,orpreventtheirfartherencrease.Whatcanbemoreshort-sightedthanourreasoningsonthishead?Wefancy,becauseanindividualwouldbemuchricher,werehisstockofmoneydoubled,thatthesamegoodeffectwouldfollowwerethemoneyof Hume:“OftheBalanceofTrade”149everyoneencreased;notconsidering,thatthiswouldraiseasmuchthepriceofeverycommod-ity,andreduceeveryman,intime,tothesameconditionasbefore.Itisonlyinourpublicnego-ciationsandtransactionswithforeigners,thatagreaterstockofmoneyisadvantageous;andasourpaperisthereabsolutelyinsignificant,wefeel,byitsmeans,alltheilleffectsarisingfromagreatabundanceofmoney,withoutreapinganyoftheadvantages.Supposethatthereare12millionsofpaper,whichcirculateinthekingdomasmoney(forwearenottoimagine,thatallourenormousfundsareemployedinthatshape)andsupposetherealcashofthekingdomtobe18millions:Hereisastatewhichisfoundbyexperiencetobeabletoholdastockof30millions.Isay,ifitbeabletoholdit,itmustofnecessityhaveacquireditingoldandsilver,hadwenotobstructedtheentranceofthesemetalsbythisnewinventionofpaper.Whencewouldithaveacquiredthatsum?Fromallthekingdomsoftheworld.Butwhy?Because,ifyouremovethese12millions,moneyinthisstateisbelowitslevel,comparedwithourneighbours;andwemustimmediatelydrawfromallofthem,tillwebefullandsaturate,sotospeak,andcanholdnomore.Byourpresentpolitics,weareascarefultostuffthenationwiththisfinecommodityofbank-billsandchequer-notes,asifwewereafraidofbeingoverburthenedwiththepreciousmetals.Itisnottobedoubted,butthegreatplentyofbullioninFranceis,inagreatmeasure,owingtothewantofpaper-credit.TheFrenchhavenobanks:Merchantsbillsdonottherecirculateaswithus:Usuryorlendingoninterestisnotdirectlypermitted;sothatmanyhavelargesumsintheircoffers:Greatquantitiesofplateareusedinprivatehouses;andallthechurchesarefullofit.Bythismeans,provisionsandlabourstillremaincheaperamongthem,thaninnationsthatarenothalfsorichingoldandsilver.Theadvantagesofthissituation,inpointoftradeaswellasingreatpublicemergencies,aretooevidenttobedisputed.ThesamefashionafewyearsagoprevailedinGenoa,whichstillhasplaceinEnglandandHolland,ofusingservicesofChina-wareinsteadofplate;butthesenate,foreseeingtheconsequence,prohibitedtheuseofthatbrittlecommoditybeyondacertainextent;whiletheuseofsilverplatewasleftunlimited.AndIsuppose,intheirlatedistresses,theyfeltthegoodeffectofthisordinance.Ourtaxonplateis,perhaps,inthisview,somewhatimpolitic.Beforetheintroductionofpaper-moneyintoourcolonies,theyhadgoldandsilversufficientfortheircirculation.Sincetheintroductionofthatcommodity,theleastinconveniencythathasfollowedisthetotalbanishmentofthepreciousmetals.Andaftertheabolitionofpaper,canitbedoubtedbutmoneywillreturn,whilethesecoloniespossessmanufacturesandcommodities,theonlythingvaluableincommerce,andforwhosesakealoneallmendesiremoney.WhatpityLycurgusdidnotthinkofpaper-credit,whenhewantedtobanishgoldandsilverfromSparta!Itwouldhaveservedhispurposebetterthanthelumpsofironhemadeuseofasmoneyandwouldalsohavepreventedmoreeffectuallyallcommercewithstrangers,asbeingofsomuchlessrealandintrinsicvalue.Itmust,however,beconfessed,that,asallthesequestionsoftradeandmoneyareextremelycomplicated,therearecertainlights,inwhichthissubjectmaybeplaced,soastorepresenttheadvantagesofpaper-creditandbankstobesuperiortotheirdisadvantages.Thattheybanishspecieandbullionfromastateisundoubtedlytrue;andwhoeverlooksnofartherthanthiscircumstancedoeswelltocondemnthem;butspecieandbullionarenotofsogreatconsequenceasnottoadmitofacompensation,andevenanoverbalancefromtheencreaseofindustryandofcredit,whichmaybepromotedbytherightuseofpaper-money.Itiswellknownofwhatadvantageitistoamerchanttobeabletodiscounthisbillsuponoccasion;andeverythingthatfacilitatesthisspeciesoftrafficisfavourabletothegeneralcommerceofastate.Butprivatebankersareenabledtogivesuchcreditbythecredittheyreceivefromthedepositingofmoneyintheirshops;andthebankofEnglandinthesamemanner,fromthelibertyithastoissueitsnotesinallpayments.Therewasaninventionofthiskind,whichwasfallenuponsomeyearsago 150TheClassicalSchoolbythebanksofEdinburgh;andwhich,asitisoneofthemostingeniousideasthathasbeenexecutedincommerce,hasalsobeenthoughtadvantageoustoScotland.ItistherecalledaBank-Credit;andisofthisnature.Amangoestothebankandfindssuretytotheamount,weshallsup-pose,ofa1000pounds.Thismoney,oranypartofit,hehasthelibertyofdrawingoutwheneverhepleases,andhepaysonlytheordinaryinterestforit,whileitisinhishands.Hemay,whenhepleases,repayanysumsosmallas20pounds,andtheinterestisdiscountedfromtheverydayoftherepayment.Theadvantages,resultingfromthiscontrivance,aremanifold.Asamanmayfindsuretynearlytotheamountofhissubstance,andhisbank-creditisequivalenttoreadymoney,amerchantdoesherebyinamannercoinhishouses,hishouseholdfurniture,thegoodsinhiswarehouse,theforeigndebtsduetohim,hisshipsatsea;andcan,uponoccasion,employtheminallpayments,asiftheywerethecurrentmoneyofthecountry.Ifamanborrowa1000poundsfromaprivatehand,besidesthatitisnotalwaystobefoundwhenrequired,hepaysinterestforit,whetherhebeusingitornot:Hisbank-creditcostshimnothingexceptduringtheverymoment,inwhichitisofservicetohim:Andthiscircumstanceisofequaladvantageasifhehadborrowedmoneyatmuchlowerinterest.Merchants,likewise,fromthisinvention,acquireagreatfacilityinsupportingeachother’scredit,whichisaconsiderablesecurityagainstbank-ruptcies.Aman,whenhisownbank-creditisexhausted,goestoanyofhisneighbourswhoisnotinthesamecondition;andhegetsthemoney,whichhereplacesathisconvenience.AfterthispracticehadtakenplaceduringsomeyearsatEdinburgh,severalcompaniesofmer-chantsatGlasgowcarriedthematterfarther.Theyassociatedthemselvesintodifferentbanks,andissuednotessolowas10shillings,whichtheyusedinallpaymentsforgoods,manufactures,tradesmen’slabourofallkinds;andthesenotes,fromtheestablishedcreditofthecompanies,passedasmoneyinallpaymentsthroughoutthecountry.Bythismeans,astockof5000poundswasabletoperformthesameoperationsasifitwere6or7;andmerchantsweretherebyenabledtotradetoagreaterextent,andtorequirelessprofitinalltheirtransactions.Butwhateverotheradvantagesresultfromtheseinventions,itmuststillbeallowedthat,besidesgivingtoogreatfacil-itytocredit,whichisdangerous,theybanishthepreciousmetals;andnothingcanbeamoreevidentproofofit,thanacomparisonofthepastandpresentconditionofScotlandinthatpar-ticular.Itwasfound,upontherecoinagemadeaftertheunion,thattherewasnearamillionofspecieinthatcountry:Butnotwithstandingthegreatencreaseofriches,commerceandmanu-facturesofallkinds,itisthought,that,evenwherethereisnoextraordinarydrainmadebyEngland,thecurrentspeciewillnotnowamounttoathirdofthatsum.Butasourprojectsofpaper-creditarealmosttheonlyexpedient,bywhichwecansinkmoneybelowitslevel;so,inmyopinion,theonlyexpedient,bywhichwecanraisemoneyaboveit,isapracticewhichweshouldallexclaimagainstasdestructive,namely,thegatheringoflargesumsintoapublictreasure,lockingthemup,andabsolutelypreventingtheircirculation.Thefluid,notcommunicatingwiththeneighbouringelement,may,bysuchanartifice,beraisedtowhatheightweplease.Toprovethis,weneedonlyreturntoourfirstsupposition,ofannihilatingthehalforanypartofourcash;wherewefound,thattheimmediateconsequenceofsuchaneventwouldbetheattractionofanequalsumfromalltheneighbouringkingdoms.Nordoesthereseemtobeanynecessaryboundsset,bythenatureofthings,tothispracticeofhoarding.Asmallcity,likeGeneva,continuingthispolicyforages,mightengrossnine-tenthsofthemoneyofEurope.Thereseems,indeed,inthenatureofman,aninvincibleobstacletothatimmensegrowthofriches.Aweakstate,withanenormoustreasure,willsoonbecomeapreytosomeofitspoorer,butmorepowerfulneighbours.Agreatstatewoulddissipateitswealthindangerousandill-concertedprojects;andprobablydestroy,withit,whatismuchmorevaluable,theindustry,morals,andnumbersofitspeople.Thefluid,inthiscase,raisedtotoogreataheight,burstsanddestroysthevesselthatcontainsit;andmixingitselfwiththesurroundingelement,soonfallstoitsproperlevel. Hume:“OftheBalanceofTrade”151Solittlearewecommonlyacquaintedwiththisprinciple,that,thoughallhistoriansagreeinrelatinguniformlysorecentanevent,astheimmensetreasureamassedbyHarryVII(whichtheymakeamountto2,700,000pounds)weratherrejecttheirconcurringtestimony,thanadmitofafact,whichagreessoillwithourinveterateprejudices.Itisindeedprobable,thatthissummightbethree-fourthsofallthemoneyinEngland.Butwhereisthedifficultyinconceiving,thatsuchasummightbeamassedin20years,byacunning,rapacious,frugal,andalmostabsolutemonarch?Norisitprobable,thatthediminutionofcirculatingmoneywaseversensiblyfeltbythepeople,oreverdidthemanyprejudice.Thesinkingofthepricesofallcommoditieswouldimmediatelyreplaceit,bygivingEnglandtheadvantageinitscommercewiththeneighbouringkingdoms.Havewenotaninstance,inthesmallrepublicofAthenswithitsallies,who,inaboutfiftyyears,betweentheMedianandPeloponnesianwars,amassedasumnotmuchinferiortothatofHarryVII?ForalltheGreekhistoriansandoratorsagree,thattheAthenianscollectedinthecitadelmorethan10,000talents,whichtheyafterwardsdissipatedtotheirownruin,inrashandimprudententer-prizes.Butwhenthismoneywassetarunning,andbegantocommunicatewiththesurroundingfluid;whatwastheconsequence?Diditremaininthestate?No.Forwefind,bythememorablecensusmentionedbyDemosthenesandPolybius,that,inaboutfiftyyearsafterwards,thewholevalueoftherepublic,comprehendinglands,houses,commodities,slaves,andmoney,waslessthan6000talents.Whatanambitioushigh-spiritedpeoplewasthis,tocollectandkeepintheirtreasury,withaviewtoconquests,asum,whichitwaseverydayinthepowerofthecitizens,byasinglevote,todistributeamongthemselves,andwhichwouldhavegoneneartotripletherichesofeveryindividual!Forwemustobserve,thatthenumbersandprivaterichesoftheAtheniansaresaid,byancientwriters,tohavebeennogreateratthebeginningofthePeloponnesianwar,thanatthebeginningoftheMacedonian.MoneywaslittlemoreplentifulinGreeceduringtheageofPhilipandPerseus,thaninEnglandduringthatofHarryVII:YetthesetwomonarchsinthirtyyearscollectedfromthesmallkingdomofMacedon,alargertreasurethanthatoftheEnglishmonarch.PaulusAemiliusbroughttoRomeabout1,700,000poundsSterling.Plinysays,2,400,000.AndthatwasbutapartoftheMacedoniantreasure.TherestwasdissipatedbytheresistanceandflightofPerseus.WemaylearnfromStanian,thatthecantonofBernehad300,000poundslentatinterest,andhadabovesixtimesasmuchintheirtreasury.Herethenisasumhoardedof1,800,000poundsSterling,whichisatleastquadruplewhatshouldnaturallycirculateinsuchapettystate;andyetnoone,whotravelsinthePaisdeVaux,oranypartofthatcanton,observesanywantofmoneymorethancouldbesupposedinacountryofthatextent,soil,andsituation.Onthecontrary,therearescarceanyinlandprovincesinthecontinentofFranceorGermany,wheretheinhabitantsareatthistimesoopulent,thoughthatcantonhasvastlyencreaseditstreasuresince1714,thetimewhenStanianwrotehisjudiciousaccountofSwitzerland.TheaccountgivenbyAppianofthetreasureofthePtolemies,issoprodigious,thatonecannotadmitofit;andsomuchtheless,becausethehistoriansays,thattheothersuccessorsofAlexanderwerealsofrugal,andhadmanyofthemtreasuresnotmuchinferior.ForthissavinghumouroftheneighbouringprincesmustnecessarilyhavecheckedthefrugalityoftheEgyptianmonarchs,accordingtotheforegoingtheory.Thesumhementionsis740,000talents,or191,166,666pounds13shillingsand4pence,accordingtoDrArbuthnot’scomputation.AndyetAppiansays,thatheextractedhisaccountfromthepublicrecords;andhewashimselfanativeofAlexandria.Fromtheseprincipleswemaylearnwhatjudgmentweoughttoformofthosenumberlessbars,obstructions,andimposts,whichallnationsofEurope,andnonemorethanEngland,haveputupontrade;fromanexorbitantdesireofamassingmoney,whichneverwillheapupbeyonditslevel,whileitcirculates;orfromanill-groundedapprehensionoflosingtheirspecie,which 152TheClassicalSchoolneverwillsinkbelowit.Couldanythingscatterourriches,itwouldbesuchimpoliticcontrivances.Butthisgeneralilleffect,however,resultsfromthem,thattheydepriveneighbour-ingnationsofthatfreecommunicationandexchangewhichtheAuthoroftheworldhasintended,bygivingthemsoils,climates,andgeniuses,sodifferentfromeachother.Ourmodernpoliticsembracetheonlymethodofbanishingmoney,theusingofpaper-credit;theyrejecttheonlymethodofamassingit,thepracticeofhoarding;andtheyadoptahundredcontrivances,whichservetonopurposebuttocheckindustry,androbourselvesandourneigh-boursofthecommonbenefitsofartandnature.Alltaxes,however,uponforeigncommodities,arenottoberegardedasprejudicialoruseless,butthoseonlywhicharefoundedonthejealousyabovementioned.AtaxonGermanlinenencourageshomemanufactures,andtherebymultipliesourpeopleandindustry.Ataxonbrandyencreasesthesaleofrum,andsupportsoursoutherncolonies.Andasitisnecessary,thatimpostsshouldbelevied,forthesupportofgovernment,itmaybethoughtmoreconvenienttolaythemonforeigncommodities,whichcaneasilybeinterceptedattheport,andsubjectedtotheimpost.Weought,however,alwaystorememberthemaximofDrSwift,that,inthearithmeticofthecustoms,twoandtwomakenotfour,butoftenmakeonlyone.Itcanscarcelybedoubted,butifthedutiesonwinewereloweredtoathird,theywouldyieldmuchmoretothegovernmentthanatpresent:Ourpeoplemighttherebyaffordtodrinkcommonlyabetterandmorewholesomeliquor;andnoprejudicewouldensuetothebalanceoftrade,ofwhichwearesojealous.Themanufactureofalebeyondtheagricultureisbutinconsiderable,andgivesemploymenttofewhands.Thetransportofwineandcornwouldnotbemuchinferior.Butaretherenotfrequentinstances,youwillsay,ofstatesandkingdoms,whichwereformerlyrichandopulent,andarenowpoorandbeggarly?Hasnotthemoneyleftthem,withwhichtheyformerlyabounded?Ianswer,Iftheylosetheirtrade,industry,andpeople,theycannotexpecttokeeptheirgoldandsilver:Forthesepreciousmetalswillholdproportiontotheformeradvan-tages.WhenLisbonandAmsterdamgottheEast-IndiatradefromVeniceandGenoa,theyalsogottheprofitsandmoneywhicharosefromit.Wheretheseatofgovernmentistransferred,whereexpensivearmiesaremaintainedatadistance,wheregreatfundsarepossessedbyforeigners;therenaturallyfollowsfromthesecausesadiminutionofthespecie.Butthese,wemayobserve,areviolentandforciblemethodsofcarryingawaymoney,andareintimecommonlyattendedwiththetransportofpeopleandindustry.Butwheretheseremain,andthedrainisnotcontin-ued,themoneyalwaysfindsitswaybackagain,byahundredcanals,ofwhichwehavenonotionorsuspicion.Whatimmensetreasureshavebeenspent,bysomanynations,inFlanders,sincetherevolution,inthecourseofthreelongwars?MoremoneyperhapsthanthehalfofwhatisatpresentinEurope.Butwhathasnowbecomeofit?IsitinthenarrowcompassoftheAustrianprovinces?No,surely:Ithasmostofitreturnedtotheseveralcountrieswhenceitcame,andhasfollowedthatartandindustry,bywhichatfirstitwasacquired.Foraboveathousandyears,themoneyofEuropehasbeenflowingtoRome,byanopenandsensiblecurrent;butithasbeenemptiedbymanysecretandinsensiblecanals:AndthewantofindustryandcommercerendersatpresentthepapaldominionsthepoorestterritoryinallItaly.Inshort,agovernmenthasgreatreasontopreservewithcareitspeopleanditsmanufactures.Itsmoney,itmaysafelytrusttothecourseofhumanaffairs,withoutfearorjealousy.Orifitevergiveattentiontothislattercircumstance,itoughtonlytobesofarasitaffectstheformer. ADAMSMITH(1723–1790)AdamSmithwasborninthesmallfishingvillageofKircaldy,Scotland.HereceivedhisMAfromtheUniversityofGlasgowatage17andthenspentsixunhappyyearsatBalliolCollege,Oxford.HewaselectedtoaprofessorshipinLogicatGlasgowin1751andshortlythereafterwaselectedtothechairinMoralPhilosophy.In1763,heresignedhisprofessorshiptobecomeatutortotheDukeofBuccleuchandspentnearlythreeyearsaccompanyingtheyoungDukeonatourofEurope.SomeofthistimewasspentinFrance,whereSmithmadetheacquaintanceofleadingphysio-craticthinkers,includingQuesnayandTurgot.UponhisreturntoBritainin1766,SmithdevotedhiseffortstowritingTheWealthofNationsand,shortlyafteritspublicationin1776,hewasappointedCommissionerofCustomsforScotland.SmithdiedinEdinburghin1790.Smith’sInquiryintotheNatureandAdamSmith,bycourtesyofTheWarrenJ.SamuelsPortraitCausesoftheWealthofNationshasaCollectionatDukeUniversity.simpleargument.Wealthconsistsofgoodswhicheithercanbeconsumeddirectlyorusedintheproductionofsuchgoods.Theproductionofwealthispromotedbytakingadvantageofthedivisionoflabor,whichinturnisfacilitatedbythewideextentofthemarket,theuseofmoney,theaccumulationofcapital,andfreetradebothdomesticandinternational.AlongwiththiscentralargumentSmithpresentsanalysesofhowmarketsworkinallocatingresourcesthroughthepricemechanism,thelabortheoryofvalue,governmenttaxation,thepsychologicalfounda-tionsofeconomicactivity,competition,income,wealth,incomedistribution,thehistoryofBritisheconomicinstitutions,capital,andsoon.TherearealsocritiquesofbothMercantilismandthePhysiocrats’agriculturalsystem.ThetendencyacquiredfromlookingsolelyatTheWealthofNationsistothinkoftheeconomyasasystemuntoitself.ForSmith,however,hiseconomictheorywaspartofalarger,tripartitesystemofsocialscience.OnepartwaspresentedinhisTheoryofMoralSentiments,inwhichheexploredtheroles,first,ofsympathy,orfellowfeeling,inmotivatingbehaviorand,second, 154TheClassicalSchoolofmoralrulesinthesocialcontrolofthatbehavior.LikebothHumeandhisteacher,FrancesHutcheson,Smithenvisionedasecularprocessthroughwhichmoralrulesweregeneratedbyhumanbeings,drivenbypeople’stendencytoapproveordisapproveoftheactionsofboththemselvesandothers.Asecondpartwastheroleoflaw–ofgovernmentandjurisprudence–inworkingoutthelegalrelationsbetweenandamongpeople,includingthelegalinstitutionsservingasthefoundationsoftheeconomicsystem.Smithneverpublishedhisprojectedworkinthisarea,buttwosetsoflecturesonthesubjecthavebeenfoundandpublished.Thethirdishisanalysisoftheeconomy,withitsemphasisontheroleofself-interestinmarketbehaviortransactions.Accordingly,thetotalSmithiansystemcomprisessympathy,moralrules,self-interestedeconomicaction,markets,andlegalsocialcontrol.Thisishispictureofthemoderneconomicsystem,tobedistinguishedfromthatofthefeudalandpost-feudalsystem.Smith’stotalsystemofthoughtismadecomplicatedbyhisparticularcombinationofphilosophi-calpositions.Smithhadhisfeet,sotosay,inseveraldifferentparadigms:supernaturalism,natu-ralism,rationalism,materialism,empiricism,pragmatism,andindividualism.Dependinguponwhichoftheseelementsonechoosestoemphasize,thenuancesandoverallmeaningofSmithvariesamongwriters.Smith’s“simpleandobvioussystemofnaturalliberty”isthussimultane-ouslyarhetoricaldevicewithwhichtocritiquetheextraordinaryencouragementsandrestrictionsthatconstitutedMercantilism,aprojectionontonatureofhisnotionofanidealmarketeconomy,andaforerunnerofthetwentiethcenturymodelofatranscendentpureabstractconceptuala-institutionalmarketeconomy,eachtobedistinguishedfromtheactualworldofmarketswhichareformedandstructuredbyinstitutions,notablybutnotsolelylegalinstitutions,whichoperatethroughthemarketstheyhavebeenusedtocreate.Ontheonehand,onefindsnaturalism,perhapsevensupernaturalism,andpurerationalism;ontheother,secularism,empiricism,andpragmatism.TheexcerptsfromTheWealthofNationsreprintedherehighlightanumberofthemajorthemesinSmith’swork:thekeyroleplayedbythedivisionoflaborineconomicgrowth,histheoryofnatu-ral(cost-based)versusmarketprices,hisscathingcritiqueofmercantilisttradepolicy,andhisviewofthemarketasaself-adjustingmechanism,guidedbythe“invisiblehand,”thatwilltendtopromotethegreatestlevelofnationalwealth.ReferencesandfurtherreadingBlaug,Mark,ed.(1991)AdamSmith(1723–1790),Aldershot:EdwardElgarPublishing.Bloomfield,A.I.(1975)“AdamSmithandtheTheoryofInternationalTrade,”inA.S.SkinnerandT.Wilson(eds),EssaysonAdamSmith,Oxford:ClarendonPress.Clark,J.M.etal.(1928)AdamSmith,1776–1926:LecturestoCommemoratetheSesqui-CentennialofthePublicationofTheWealthofNations,Chicago:UniversityofChicagoPress.Hollander,Samuel(1973)TheEconomicsofAdamSmith,Toronto:UniversityofTorontoPress.Laidler,David(1981)“AdamSmithasaMonetaryEconomist,”CanadianJournalofEconomics14(May):187–200.Rae,John(1895)TheLifeofAdamSmith,London:Macmillan.Rosenberg,Nathan(1960)“SomeInstitutionalAspectsoftheWealthofNations,”JournalofPoliticalEconomy68:557–70.Ross,IanSimpson(1995)TheLifeofAdamSmith,Oxford:ClarendonPress.Rothschild,Emma(2001)EconomicSentiments:AdamSmith,Condorcet,andtheEnlightenment,Cambridge,MA:HarvardUniversityPress.Skinner,AndrewS.(1987)“Smith,Adam,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.4,London:Macmillan,357–75.Skinner,A.S.andWilson,T.(eds),EssaysonAdamSmith,Oxford:ClarendonPress.Smith,Adam(1759)TheTheoryofMoralSentiments,editedbyD.D.RaphaelandA.L.Macfie,Oxford:ClarendonPress,1976. AdamSmith155——(1776)AnInquiryintotheNatureandCausesoftheWealthofNations,editedbyR.H.Campbell,A.S.Skinner,andW.B.Todd,Oxford:ClarendonPress,1976.——(1977)CorrespondenceofAdamSmith,editedbyE.C.MossnerandI.S.Ross,Oxford:ClarendonPress.——(1978)LecturesonJurisprudence,editedbyR.L.Meek,P.G.Stein,andD.D.Raphael,Oxford:ClarendonPress.——(1980)EssaysonPhilosophicalSubjects,editedbyD.D.RaphaelandA.S.Skinner,Oxford:ClarendonPress.——(1983)LecturesonRhetoricandBellesLectures,editedbyJ.C.Bryce,generaleditorA.S.Skinner,Oxford:ClarendonPress.Stewart,Dugald(1793)BiographicalMemoirofAdamSmith.Edinburgh:ThomasConstable&Co.ReprintedbyAugustusM.Kelley,1966.Viner,Jacob(1928)“AdamSmithandLaissezFaire,”inDouglasA.Irwin(ed.),EssaysontheIntellectualHistoryofEconomics,Princeton:PrincetonUniversityPress,1991,85–113.West,E.G.(1964)“AdamSmith’sTwoViewsontheDivisionofLabor,”Economica31(February):23–32.——(1976)“AdamSmith’sEconomicsofPolitics,”HistoryofPoliticalEconomy8(Winter):515–39.Winch,Donald(1978)AdamSmith’sPolitics:AnEssayinHistoriographicRevision,Cambridge:CambridgeUniversityPress.Wood,JohnC.,ed.(1984)AdamSmith:CriticalAssessments,London:CroonHelm. AnInquiryintotheNatureandCausesoftheWealthofNations(1776)Bookone:Ofthecausesofimprovementintheproductivepowersoflabour,andoftheorderaccordingtowhichitsproduceisnaturallydistributedamongthedifferentranksofthepeopleChapterI:OfthedivisionoflabourThegreatestimprovementintheproductivepowersoflabour,andthegreaterpartoftheskill,dexterity,andjudgmentwithwhichitisanywheredirected,orapplied,seemtohavebeentheeffectsofthedivisionoflabour.Theeffectsofthedivisionoflabour,inthegeneralbusinessofsociety,willbemoreeasilyunderstoodbyconsideringinwhatmanneritoperatesinsomeparticularmanufactures.Itiscommonlysupposedtobecarriedfurthestinsomeverytriflingones;notperhapsthatitreallyiscarriedfurtherinthemthaninothersofmoreimportance:butinthosetriflingmanufactureswhicharedestinedtosupplythesmallwantsofbutasmallnumberofpeople,thewholenumberofworkmenmustnecessarilybesmall;andthoseemployedineverydifferentbranchoftheworkcanoftenbecollectedintothesameworkhouse,andplacedatonceundertheviewofthespec-tator.Inthosegreatmanufactures,onthecontrary,whicharedestinedtosupplythegreatwantsofthegreatbodyofthepeople,everydifferentbranchoftheworkemployssogreatanumberofworkmenthatitisimpossibletocollectthemallintothesameworkhouse.Wecanseldomseemore,atonetime,thanthoseemployedinonesinglebranch.Thoughinsuchmanufactures,therefore,theworkmayreallybedividedintoamuchgreaternumberofpartsthaninthoseofamoretriflingnature,thedivisionisnotnearsoobvious,andhasaccordinglybeenmuchlessobserved.Totakeanexample,therefore,fromaverytriflingmanufacture;butoneinwhichthedivisionoflabourhasbeenveryoftentakennoticeof,thetradeofthepin-maker;aworkmannotedu-catedtothisbusiness(whichthedivisionoflabourhasrenderedadistincttrade),noracquaintedwiththeuseofthemachineryemployedinit(totheinventionofwhichthesamedivisionoflabourhasprobablygivenoccasion),couldscarce,perhaps,withhisutmostindustry,makeonepininaday,andcertainlycouldnotmaketwenty.Butinthewayinwhichthisbusinessisnowcarriedon,notonlythewholeworkisapeculiartrade,butitisdividedintoanumberofbranches,ofwhichthegreaterpartarelikewisepeculiartrades.Onemandrawsoutthewire,anotherstraightsit,athirdcutsit,afourthpointsit,afifthgrindsitatthetopforreceiving,thehead;tomaketheheadrequirestwoorthreedistinctoperations;toputitonisapeculiarbusi-ness,towhitenthepinsisanother;itisevenatradebyitselftoputthemintothepaper;andtheimportantbusinessofmakingapinis,inthismanner,dividedintoabouteighteendistinctoper-ations,which,insomemanufactories,areallperformedbydistincthands,thoughinothersthesamemanwillsometimesperformtwoorthreeofthem.Ihaveseenasmallmanufactoryofthiskindwheretenmenonlywereemployed,andwheresomeofthemconsequentlyperformedtwo Smith:TheWealthofNations157orthreedistinctoperations.Butthoughtheywereverypoor,andthereforebutindifferentlyaccommodatedwiththenecessarymachinery,theycould,whentheyexertedthemselves,makeamongthemabouttwelvepoundsofpinsinaday.Thereareinapoundupwardsoffourthou-sandpinsofamiddlingsize.Thosetenpersons,therefore,couldmakeamongthemupwardsofforty-eightthousandpinsinaday.Eachperson,therefore,makingatenthpartofforty-eightthousandpins,mightbeconsideredasmakingfourthousandeighthundredpinsinaday.Butiftheyhadallwroughtseparatelyandindependently,andwithoutanyofthemhavingbeeneducatedtothispeculiarbusiness,theycertainlycouldnoteachofthemhavemadetwenty,per-hapsnotonepininaday;thatis,certainly,notthetwohundredandfortieth,perhapsnotthefourthousandeighthundredthpartofwhattheyareatpresentcapableofperforming,inconsequenceofaproperdivisionandcombinationoftheirdifferentoperations.Ineveryotherartandmanufacture,theeffectsofthedivisionoflabouraresimilartowhattheyareinthisverytriflingone;though,inmanyofthem,thelabourcanneitherbesomuchsubdivided,norreducedtosogreatasimplicityofoperation.Thedivisionoflabour,however,sofarasitcanbeintroduced,occasions,ineveryart,aproportionableincreaseoftheproductivepowersoflabour.Theseparationofdifferenttradesandemploymentsfromoneanotherseemstohavetakenplaceinconsequenceofthisadvantage.Thisseparation,too,isgenerallycalledfurthestinthosecountrieswhichenjoythehighestdegreeofindustryandimprovement;whatistheworkofonemaninarudestateofsocietybeinggenerallythatofseveralinanimprovedone.Ineveryimprovedsociety,thefarmerisgenerallynothingbutafarmer;themanufacturer,noth-ingbutamanufacturer.Thelabour,too,whichisnecessarytoproduceanyonecompletemanu-factureisalmostalwaysdividedamongagreatnumberofhands.Howmanydifferenttradesareemployedineachbranchofthelinenandwoollenmanufacturesfromthegrowersoftheflaxandthewool,tothebleachersandsmoothersofthelinen,ortothedyersanddressersofthecloth!Thenatureofagriculture,indeed,doesnotadmitofsomanysubdivisionsoflabour,norofsocompleteaseparationofonebusinessfromanother,asmanufactures.Itisimpossibletoseparatesoentirelythebusinessofthegrazierfromthatofthecorn-farmerasthetradeofthecarpenteriscommonlyseparatedfromthatofthesmith.Thespinnerisalmostalwaysadistinctpersonfromtheweaver;buttheploughman,theharrower,thesoweroftheseed,andthereaperofthecorn,areoftenthesame.Theoccasionsforthosedifferentsortsoflabourreturningwiththedifferentseasonsoftheyear,itisimpossiblethatonemanshouldbeconstantlyemployedinanyoneofthem.Thisimpossibilityofmakingsocompleteandentireaseparationofallthedif-ferentbranchesoflabouremployedinagricultureisperhapsthereasonwhytheimprovementoftheproductivepowersoflabourinthisartdoesnotalwayskeeppacewiththeirimprovementinmanufactures.Themostopulentnations,indeed,generallyexcelalltheirneighboursinagricul-tureaswellasinmanufactures;buttheyarecommonlymoredistinguishedbytheirsuperiorityinthelatterthanintheformer.Theirlandsareingeneralbettercultivated,andhavingmorelabourandexpensebestoweduponthem,producemoreinproportiontotheextentandnaturalfertilityoftheground.Butthissuperiorityofproduceisseldommuchmorethaninproportiontothesuperiorityoflabourandexpense.Inagriculture,thelabouroftherichcountryisnotalwaysmuchmoreproductivethanthatofthepoor;or,atleast,itisneversomuchmoreproductiveasitcommonlyisinmanufactures.Thecornoftherichcountry,therefore,willnotalways,inthesamedegreeofgoodness,comecheapertomarketthanthatofthepoor.…Thisgreatincreaseofthequantityofworkwhich,inconsequenceofthedivisionoflabour,thesamenumberofpeoplearecapableofperforming,isowingtothreedifferentcircumstances;first,totheincreaseofdexterityineveryparticularworkman;second,tothesavingofthetimewhichiscommonlylostinpassingfromonespeciesofworktoanother;andlastly,totheinven-tionofagreatnumberofmachineswhichfacilitateandabridgelabour,andenableonemantodotheworkofmany. 158TheClassicalSchoolFirst,theimprovementofthedexterityoftheworkmannecessarilyincreasesthequantityoftheworkhecanperform;andthedivisionoflabour,byreducingeveryman’sbusinesstosomeonesimpleoperation,andbymakingthisoperationthesoleemploymentofhislife,necessarilyincreasesverymuchdexterityoftheworkman.Acommonsmith,who,thoughaccustomedtohandlethehammer,hasneverbeenusedtomakenails,ifuponsomeparticularoccasionheisobligedtoattemptit,willscarce,Iamassured,beabletomakeabovetwoorthreehundrednailsinaday,andthosetooverybadones.Asmithwhohasbeenaccustomedtomakenails,butwhosesoleorprincipalbusinesshasnotbeenthatofanailer,canseldomwithhisutmostdiligencemakemorethaneighthundredorathousandnailsinaday.Ihaveseenseveralboysunder20yearsofagewhohadneverexercisedanyothertradebutthatofmakingnails,andwho,whentheyexertedthemselves,couldmake,eachofthem,upwardsoftwothousandthreehundrednailsinaday.Themakingofanail,however,isbynomeansoneofthesimplestoperations.Thesamepersonblowsthebellows,stirsormendsthefireasthereisoccasion,heatstheiron,andforgeseverypartofthenail:inforgingtheheadtooheisobligedtochangehistools.Thedifferentoperationsintowhichthemakingofapin,orofametalbutton,issubdivided,areallofthemmuchmoresimple,andthedexterityoftheperson,ofwhoselifeithasbeenthesolebusinesstoperformthem,isusuallymuchgreater.Therapiditywithwhichsomeoftheoperationsofthosemanufacturersareperformed,exceedswhatthehumanhandcould,bythosewhohadneverseenthem,besupposedcapableofacquiring.Second,theadvantagewhichisgainedbysavingthetimecommonlylostinpassingfromonesortofworktoanotherismuchgreaterthanweshouldatfirstviewbeapttoimagineit.Itisimpossibletopassveryquicklyfromonekindofworktoanotherthatiscarriedoninadifferentplaceandwithquitedifferenttools.Acountryweaver,whocultivatesasmallfarm,mustloseagooddealoftimeinpassingfromhisloomtothefield,andfromthefieldtohisloom.Whenthetwotradescanbecarriedoninthesameworkhouse,thelossoftimeisnodoubtmuchless.Itiseveninthiscase,however,veryconsiderable.Amancommonlysauntersalittleinturninghishandfromonesortofemploymenttoanother.Whenhefirstbeginsthenewworkheisseldomverykeenandhearty;hismind,astheysay,doesnotgotoit,andforsometimeherathertriflesthanappliestogoodpurpose.Thehabitofsaunteringandofindolentcarelessapplication,whichisnaturally,orrathernecessarilyacquiredbyeverycountryworkmanwhoisobligedtochangehisworkandhistoolseveryhalfhour,andtoapplyhishandintwentydifferentwaysalmosteverydayofhislife,rendershimalmostalwaysslothfulandlazy,andincapableofanyvigorousapplicationevenonthemostpressingoccasions.Independent,therefore,ofhisdeficiencyinpointofdexterity,thiscausealonemustalwaysreduceconsiderablythequantityofworkwhichheiscapableofperforming.Third,andlast,everybodymustbesensiblehowmuchlabourisfacilitatedandabridgedbytheapplicationofpropermachinery.Itisunnecessarytogiveanyexample.Ishallonlyobserve,therefore,thattheinventionofallthosemachinesbywhichlabourissomuchfacilitatedandabridgedseemstohavebeenoriginallyowingtothedivisionoflabour.Menaremuchmorelikelytodiscovereasierandreadiermethodsofattaininganyobjectwhenthewholeattentionoftheirmindsisdirectedtowardsthatsingleobjectthanwhenitisdissipatedamongagreatvarietyofthings.Butinconsequenceofthedivisionoflabour,thewholeofeveryman’sattentioncomesnaturallytobedirectedtowardssomeoneverysimpleobject.Itisnaturallytobeexpected,there-fore,thatsomeoneorotherofthosewhoareemployedineachparticularbranchoflabourshouldsoonfindouteasierandreadiermethodsofperformingtheirownparticularwork,wher-everthenatureofitadmitsofsuchimprovement.Agreatpartofthemachinesmadeuseofinthosemanufacturesinwhichlabourismostsubdivided,wereoriginallytheinventionsofcom-monworkmen,who,beingeachofthememployedinsomeverysimpleoperation,naturallyturnedtheirthoughtstowardsfindingouteasierandreadiermethodsofperformingit.Whoever Smith:TheWealthofNations159hasbeenmuchaccustomedtovisitsuchmanufacturesmustfrequentlyhavebeenshownveryprettymachines,whichweretheinventionsofsuchworkmeninordertofacilitateandquickentheirparticularpartofthework.…Alltheimprovementsinmachinery,however,havebynomeansbeentheinventionsofthosewhohadoccasiontousethemachines.Manyimprovementshavebeenmadebytheingenuityofthemakersofthemachines,whentomakethembecamethebusinessofapeculiartrade;andsomebythatofthosewhoarecalledphilosophersormenofspeculation,whosetradeitisnottodoanything,buttoobserveeverything;andwho,uponthataccount,areoftencapableofcom-biningtogetherthepowersofthemostdistantanddissimilarobjects.Intheprogressofsociety,philosophyorspeculationbecomes,likeeveryotheremployment,theprincipalorsoletradeandoccupationofaparticularclassofcitizens.Likeeveryotheremploymenttoo,itissubdividedintoagreatnumberofdifferentbranches,eachofwhichaffordsoccupationtoapeculiartribeorclassofphilosophers;andthissubdivisionofemploymentinphilosophy,aswellasineveryotherbusiness,improvesdexterity,andsavestime.Eachindividualbecomesmoreexpertinhisownpeculiarbranch,moreworkisdoneuponthewhole,andthequantityofscienceisconsiderablyincreasedbyit.Itisthegreatmultiplicationoftheproductionsofallthedifferentarts,inconsequenceofthedivisionoflabour,whichoccasions,inawell-governedsociety,thatuniversalopulencewhichextendsitselftothelowestranksofthepeople.Everyworkmanhasagreatquantityofhisownworktodisposeoffbeyondwhathehimselfhasoccasionfor;andeveryotherworkmanbeingexactlyinthesamesituation,heisenabledtoexchangeagreatquantityofhisowngoodsforagreatquantity,or,whatcomestothesamething,forthepriceofagreatquantityoftheirs.Hesuppliesthemabundantlywithwhattheyhaveoccasionfor,andtheyaccommodatehimasamplywithwhathehasoccasionfor,andageneralplentydiffusesitselfthroughallthedifferentranksofthesociety.…ChapterII:OftheprinciplewhichgivesoccasiontothedivisionoflabourThisdivisionoflabour,fromwhichsomanyadvantagesarederived,isnotoriginallytheeffectofanyhumanwisdom,whichforeseesandintendsthatgeneralopulencetowhichitgivesoccasion.Itisthenecessary,thoughveryslowandgradualconsequenceofacertainpropensityinhumannaturewhichhasinviewnosuchextensiveutility;thepropensitytotruck,barter,andexchangeonethingforanother.Whetherthispropensitybeoneofthoseoriginalprinciplesinhumannatureofwhichnofurtheraccountcanbegiven;orwhether,asseemsmoreprobable,itbethenecessaryconse-quenceofthefacultiesofreasonandspeech,itbelongsnottoourpresentsubjecttoinquire.Itiscommontoallmen,andtobefoundinnootherraceofanimals,whichseemtoknowneitherthisnoranyotherspeciesofcontracts.Twogreyhounds,inrunningdownthesamehare,havesometimestheappearanceofactinginsomesortofconcert.Eachturnshertowardshiscom-panion,orendeavourstointerceptherwhenhiscompanionturnshertowardshimself.This,however,isnottheeffectofanycontract,butoftheaccidentalconcurrenceoftheirpassionsinthesameobjectatthatparticulartime.Nobodyeversawadogmakeafairanddeliberateexchangeofoneboneforanotherwithanotherdog.Nobodyeversawoneanimalbyitsgesturesandnaturalcriessignifytoanother,thisismine,thatyours;Iamwillingtogivethisforthat.Whenananimalwantstoobtainsomethingeitherofamanorofanotheranimal,ithasnoothermeansofpersuasionbuttogainthefavourofthosewhoseserviceitrequires.Apuppyfawnsuponitsdam,andaspanielendeavoursbyathousandattractionstoengagetheattentionofitsmasterwhoisatdinner,whenitwantstobefedbyhim.Mansometimesusesthesameartswith 160TheClassicalSchoolhisbrethren,andwhenhehasnoothermeansofengagingthemtoactaccordingtohisinclina-tions,endeavoursbyeveryservileandfawningattentiontoobtaintheirgoodwill.Hehasnottime,however,todothisuponeveryoccasion.Incivilisedsocietyhestandsatalltimesinneedofthecooperationandassistanceofgreatmultitudes,whilehiswholelifeisscarcesufficienttogainthefriendshipofafewpersons.Inalmosteveryotherraceofanimalseachindividual,whenitisgrownuptomaturity,isentirelyindependent,andinitsnaturalstatehasoccasionfortheassistanceofnootherlivingcreature.Butmanhasalmostconstantoccasionforthehelpofhisbrethren,anditisinvainforhimtoexpectitfromtheirbenevolenceonly.Hewillbemorelikelytoprevailifhecaninteresttheirself-loveinhisfavour,andshowthemthatitisfortheirownadvantagetodoforhimwhatherequiresofthem.Whoeverofferstoanotherabargainofanykind,proposestodothis.GivemethatwhichIwant,andyoushallhavethiswhichyouwant,isthemeaningofeverysuchoffer;anditisinthismannerthatweobtainfromoneanotherthefargreaterpartofthosegoodofficeswhichwestandinneedof.Itisnotfromthebenevolenceofthebutcher,thebrewer,orthebakerthatweexpectourdinner,butfromtheirregardtotheirowninterest.Weaddressourselves,nottotheirhumanitybuttotheirself-love,andnevertalktothemofourownnecessitiesbutoftheiradvantages.Nobodybutabeggarchoosestodependchieflyuponthebenevolenceofhisfellow-citizens.Evenabeggardoesnotdependuponitentirely.Thecharityofwell-disposedpeople,indeed,supplieshimwiththewholefundofhissubsistence.Butthoughthisprincipleultimatelyprovideshimwithallthenecessariesoflifewhichhehasoccasionfor,itneitherdoesnorcanprovidehimwiththemashehasoccasionforthem.Thegreaterpartofhisoccasionalwantsaresuppliedinthesamemannerasthoseofotherpeople,bytreaty,bybarter,andbypurchase.Withthemoneywhichonemangiveshimhepurchasesfood.Theoldclotheswhichanotherbestowsuponhimheexchangesforotheroldclotheswhichsuithimbetter,orforlodging,orforfood,orformoney,withwhichhecanbuyeitherfood,clothes,orlodging,ashehasoccasion.Asitisbytreaty,bybarter,andbypurchasethatweobtainfromoneanotherthegreaterpartofthosemutualgoodofficeswhichwestandinneedof,soitisthissametruckingdispositionwhichoriginallygivesoccasiontothedivisionoflabour.Inatribeofhuntersorshepherdsapar-ticularpersonmakesbowsandarrows,forexample,withmorereadinessanddexteritythananyother.Hefrequentlyexchangesthemforcattleorforvenisonwithhiscompanions;andhefindsatlastthathecaninthismannergetmorecattleandvenisonthanifhehimselfwenttothefieldtocatchthem.Fromaregardtohisowninterest,therefore,themakingofbowsandarrowsgrowstobehischiefbusiness,andhebecomesasortofarmourer.Anotherexcelsinmakingtheframesandcoversoftheirlittlehutsormovablehouses.Heisaccustomedtobeofuseinthiswaytohisneighbours,whorewardhiminthesamemannerwithcattleandwithvenison,tillatlasthefindsithisinteresttodedicatehimselfentirelytothisemployment,andtobecomeasortofhouse-carpenter.Inthesamemannerathirdbecomesasmithorabrazier,afourthatannerordresserofhidesorskins,theprincipalpartofthenothingofsavages.Andthusthecertaintyofbeingabletoexchangeallthatsurpluspartoftheproduceofhisownlabour,whichisoverandabovehisownconsumption,forsuchpartsoftheproduceofothermen’slabourashemayhaveoccasionfor,encourageseverymantoapplyhimselftoaparticularoccupation,andtocultivateandbringtoperfectionwhatevertalentorgeniushemaypossessforthatparticularspeciesofbusiness.Thedifferenceofnaturaltalentsindifferentmenis,inreality,muchlessthanweareawareof;andtheverydifferentgeniuswhichappearstodistinguishmenofdifferentprofessions,whengrownuptomaturity,isnotuponmanyoccasionssomuchthecauseastheeffectofthedivisionoflabour.Thedifferencebetweenthemostdissimilarcharacters,betweenaphilosopherandacommonstreetporter,forexample,seemstoarisenotsomuchfromnatureasfromhabit,custom,andeducation.Whentheycameintotheworld,andforthefirst6or8yearsoftheir Smith:TheWealthofNations161existence,theywereperhapsverymuchalike,andneithertheirparentsnorplayfellowscouldperceiveanyremarkabledifference.Aboutthatage,orsoonafter,theycometobeemployedinverydifferentoccupations.Thedifferenceoftalentscomesthentobetakennoticeof,andwidensbydegrees,tillatlastthevanityofthephilosopheriswillingtoacknowledgescarceanyresem-blance.Butwithoutthedispositiontotruck,barter,andexchange,everymanmusthaveprocuredtohimselfeverynecessaryandconveniencyoflifewhichhewanted.Allmusthavehadthesamedutiestoperform,andthesameworktodo,andtherecouldhavebeennosuchdifferenceofemploymentascouldalonegiveoccasiontoanygreatdifferenceoftalents.…ChapterIII:ThatthedivisionoflabourislimitedbytheextentofthemarketAsitisthepowerofexchangingthatgivesoccasiontothedivisionoflabour,sotheextentofthisdivisionmustalwaysbelimitedbytheextentofthatpower,or,inotherwords,bytheextentofthemarket.Whenthemarketisverysmall,nopersoncanhaveanyencouragementtodedicatehimselfentirelytooneemployment,forwantofthepowertoexchangeallthatsurpluspartoftheproduceofhisownlabour,whichisoverandabovehisownconsumption,forsuchpartsoftheproduceofothermen’slabourashehasoccasionfor.Therearesomesortsofindustry,evenofthelowestkind,whichcanbecarriedonnowherebutinagreattown.Aporter,forexample,canfindemploymentandsubsistenceinnootherplace.Avillageisbymuchtoonarrowasphereforhim;evenanordinarymarkettownisscarcelargeenoughtoaffordhimconstantoccupation.InthelonehousesandverysmallvillageswhicharescatteredaboutinsodesertacountryastheHighlandsofScotland,everyfarmermustbebutcher,baker,andbrewerforhisownfamily.Insuchsituationswecanscarceexpecttofindevenasmith,acarpenter,oramason,withinlessthantwentymilesofanotherofthesametrade.Thescatteredfamiliesthatliveateightortenmilesdistancefromthenearestofthemmustlearntoperformthemselvesagreatnumberoflittlepiecesofwork,forwhich,inmorepopulouscountries,theywouldcallintheassistanceofthoseworkmen.Countryworkmenarealmosteverywhereobligedtoapplythemselvestoallthedifferentbranchesofindustrythathavesomuchaffinitytooneanotherastobeemployedaboutthesamesortofmaterials.Acountrycar-penterdealsineverysortofworkthatismadeofwood:acountrysmithineverysortofworkthatismadeofiron.Theformerisnotonlyacarpenter,butajoiner,acabinet-maker,andevenacarverinwood,aswellasawheel-wright,aplough-wright,acart,andwaggon-maker.Theemploymentsofthelatterarestillmorevarious.ItisimpossiblethereshouldbesuchatradeaseventhatofanailerintheremoteandinlandpartsoftheHighlandsofScotland.Suchawork-manattherateofa1000nailsaday,and300workingdaysintheyear,willmake300,000nailsintheyear.Butinsuchasituationitwouldbeimpossibletodisposeoff1000,thatis,ofoneday’sworkintheyear.Asbymeansofwater-carriageamoreextensivemarketisopenedtoeverysortofindustrythanwhatland-carriagealonecanaffordit,soitisuponthesea-coast,andalongthebanksofnavigableriversthatindustryofeverykindnaturallybeginstosubdivideandimproveitself,anditisfrequentlynottillalongtimeafterthatthoseimprovementsextendthemselvestotheinlandpartsofthecountry.…ChapterVI:OfthecomponentpartsofthepriceofcommoditiesInthatearlyandrudestateofsocietywhichprecedesboththeaccumulationofstockandtheappropriationofland,theproportionbetweenthequantitiesoflabournecessaryforacquiringdifferentobjectsseemstobetheonlycircumstancewhichcanaffordanyruleforexchanging 162TheClassicalSchoolthemforoneanother.Ifamonganationofhunters,forexample,itusuallycoststwicethelabourtokillabeaverwhichitdoestokilladeer,onebeavershouldnaturallyexchangefororbeworthtwodeer.Itisnaturalthatwhatisusuallytheproduceoftwodays’ortwohours’labour,shouldbeworthdoubleofwhatisusuallytheproduceofoneday’soronehour’slabour.Iftheonespeciesoflabourshouldbemoreseverethantheother,someallowancewillnatu-rallybemadeforthissuperiorhardship;andtheproduceofonehour’slabourintheonewaymayfrequentlyexchangeforthatoftwohours’labourintheother.Oriftheonespeciesoflabourrequiresanuncommondegreeofdexterityandingenuity,theesteemwhichmenhaveforsuchtalentswillnaturallygiveavaluetotheirproduce,superiortowhatwouldbeduetothetimeemployedaboutit.Suchtalentscanseldombeacquiredbutinconsequenceoflongapplication,andthesuperiorvalueoftheirproducemayfrequentlybenomorethanareasonablecompensationforthetimeandlabourwhichmustbespentinacquir-ingthem.Intheadvancedstateofsociety,allowancesofthiskind,forsuperiorhardshipandsuperiorskill,arecommonlymadeinthewagesoflabour;andsomethingofthesamekindmustprobablyhavetakenplaceinitsearliestandrudestperiod.Inthisstateofthings,thewholeproduceoflabourbelongstothelabourer;andthequantityoflabourcommonlyemployedinacquiringorproducinganycommodityistheonlycircumstancewhichcanregulatethequantityoflaborwhichitoughtcommonlytopurchase,command,orexchangefor.Assoonasstockhasaccumulatedinthehandsofparticularpersons,someofthemwillnatu-rallyemployitinsettingtoworkindustriouspeople,whomtheywillsupplywithmaterialsandsubsistence,inordertomakeaprofitbythesaleoftheirwork,orbywhattheirlabouraddstothevalueofthematerials.Inexchangingthecompletemanufactureeitherformoney,forlabour,orforothergoods,overandabovewhatmaybesufficienttopaythepriceofthematerials,andthewagesoftheworkmen,somethingmustbegivenfortheprofitsoftheundertakeroftheworkwhohazardshisstockinthisadventure.Thevaluewhichtheworkmenaddtothematerials,therefore,resolvesitselfinthiscaseintotwoparts,ofwhichtheonepaystheirwages,theothertheprofitsoftheiremployeruponthewholestockofmaterialsandwageswhichheadvanced.Hecouldhavenointeresttoemploythem,unlessheexpectedfromthesaleoftheirworksome-thingmorethanwhatwassufficienttoreplacehisstocktohim;andhecouldhavenointeresttoemployagreatstockratherthanasmallone,unlesshisprofitsweretobearsomeproportiontotheextentofhisstock.…Assoonasthelandofanycountryhasallbecomeprivateproperty,thelandlords,likeallothermen,lovetoreapwheretheyneversowed,anddemandarentevenforitsnaturalproduce.Thewoodoftheforest,thegrassofthefield,andallthenaturalfruitsoftheearth,which,whenlandwasincommon,costthelaboureronlythetroubleofgatheringthem,come,eventohim,tohaveanadditionalpricefixeduponthem.Hemustthenpayforthelicencetogatherthem;andmustgiveuptothelandlordaportionofwhathislaboureithercollectsorproduces.Thisportion,or,whatcomestothesamething,thepriceofthisportion,constitutestherentofland,andinthepriceofthegreaterpartofcommoditiesmakesathirdcomponentpart.Therealvalueofallthedifferentcomponentpartsofprice,itmustbeobserved,ismeasuredbythequantityoflabourwhichtheycan,eachofthem,purchaseorcommand.Labourmeasuresthevaluenotonlyofthatpartofpricewhichresolvesitselfintolabour,butofthatwhichresolvesitselfintorent,andofthatwhichresolvesitselfintoprofit.Ineverysocietythepriceofeverycommodityfinallyresolvesitselfintosomeoneorother,orallofthosethreeparts;andineveryimprovedsociety,allthethreeentermoreorless,ascomponentparts,intothepriceofthefargreaterpartofcommodities.… Smith:TheWealthofNations163Asthepriceorexchangeablevalueofeveryparticularcommodity,takenseparately,resolvesitselfintosomeoneorotherorallofthosethreeparts;sothatofallthecommoditieswhichcomposethewholeannualproduceofthelabourofeverycountry,takencomplexly,mustresolveitselfintothesamethreeparts,andbeparcelledoutamongdifferentinhabitantsofthecountry,eitherasthewagesoftheirlabour,theprofitsoftheirstock,ortherentoftheirland.Thewholeofwhatisannuallyeithercollectedorproducedbythelabourofeverysociety,orwhatcomestothesamething,thewholepriceofit,isinthismanneroriginallydistributedamongsomeofitsdifferentmembers.Wages,profit,andrent,arethethreeoriginalsourcesofallrevenueaswellasofallexchangeablevalue.Allotherrevenueisultimatelyderivedfromsomeoneorotherofthese.…ChapterVII:OfthenaturalandmarketpriceofcommoditiesThereisineverysocietyorneighbourhoodanordinaryoraverageratebothofwagesandprofitineverydifferentemploymentoflabourandstock.Thisrateisnaturallyregulated,asIshallshowhereafter,partlybythegeneralcircumstancesofthesociety,theirrichesorpoverty,theiradvanc-ing,stationary,ordecliningcondition;andpartlybytheparticularnatureofeachemployment.Thereislikewiseineverysocietyorneighbourhoodanordinaryoraveragerateofrent,whichisregulatedtoo,asIshallshowhereafter,partlybythegeneralcircumstancesofthesocietyorneigh-bourhoodinwhichthelandissituated,andpartlybythenaturalorimprovedfertilityoftheland.Theseordinaryoraverageratesmaybecalledthenaturalratesofwages,profit,andrent,atthetimeandplaceinwhichtheycommonlyprevail.Whenthepriceofanycommodityisneithermorenorlessthanwhatissufficienttopaytherentoftheland,thewagesofthelabour,andtheprofitsofthestockemployedinraising,prepar-ing,andbringingittomarket,accordingtotheirnaturalrates,thecommodityisthensoldforwhatmaybecalleditsnaturalprice.Thecommodityisthensoldpreciselyforwhatitisworth,orforwhatitreallycoststhepersonwhobringsittomarket;forthoughincommonlanguagewhatiscalledtheprimecostofanycommoditydoesnotcomprehendtheprofitofthepersonwhoistosellitagain,yetifhesellitatapricewhichdoesnotallowhimtheordinaryrateofprofitinhisneighbourhood,heisevidentlyaloserbythetrade;sincebyemployinghisstockinsomeotherwayhemighthavemadethatprofit.Hisprofit,besides,ishisrevenue,theproperfundofhissubsistence.As,whileheisprepar-ingandbringingthegoodstomarket,headvancestohisworkmentheirwages,ortheirsubsis-tence;soheadvancestohimself,inthesamemanner,hisownsubsistence,whichisgenerallysuitabletotheprofitwhichhemayreasonablyexpectfromthesaleofhisgoods.Unlesstheyyieldhimthisprofit,therefore,theydonotrepayhimwhattheymayveryproperlybesaidtohavereallycosthim.Thoughtheprice,therefore,whichleaveshimthisprofitisnotalwaysthelowestatwhichadealermaysometimessellhisgoods,itisthelowestatwhichheislikelytosellthemforanycon-siderabletime;atleastwherethereisperfectliberty,orwherehemaychangehistradeasoftenashepleases.Theactualpriceatwhichanycommodityiscommonlysoldiscalleditsmarketprice.Itmayeitherbeabove,orbelow,orexactlythesamewithitsnaturalprice.Themarketpriceofeveryparticularcommodityisregulatedbytheproportionbetweenthequantitywhichisactuallybroughttomarket,andthedemandofthosewhoarewillingtopaythenaturalpriceofthecommodity,orthewholevalueoftherent,labour,andprofit,whichmustbepaidinordertobringitthither.Suchpeoplemaybecalledtheeffectualdemanders,andtheirdemandtheeffectualdemand;sinceitmaybesufficienttoeffectuatethebringingofthecom-moditytomarket.Itisdifferentfromtheabsolutedemand.Averypoormanmaybesaidinsome 164TheClassicalSchoolsensetohaveademandforacoachandsix;hemightliketohaveit;buthisdemandisnotaneffectualdemand,asthecommoditycanneverbebroughttomarketinordertosatisfyit.Whenthequantityofanycommoditywhichisbroughttomarketfallsshortoftheeffectualdemand,allthosewhoarewillingtopaythewholevalueoftherent,wages,andprofit,whichmustbepaidinordertobringitthither,cannotbesuppliedwiththequantitywhichtheywant.Ratherthanwantitaltogether,someofthemwillbewillingtogivemore.Acompetitionwillimmediatelybeginamongthem,andthemarketpricewillrisemoreorlessabovethenaturalprice,accordingaseitherthegreatnessofthedeficiency,orthewealthandwantonluxuryofthecompetitors,happentoanimatemoreorlesstheeagernessofthecompetition.Amongcompetitorsofequalwealthandluxurythesamedeficiencywillgenerallyoccasionamoreorlesseagercompetition,accordingastheacquisitionofthecommodityhappenstobeofmoreorlessimportancetothem.Hence,theexor-bitantpriceofthenecessariesoflifeduringtheblockadeofatownorinafamine.Whenthequantitybroughttomarketexceedstheeffectualdemand,itcannotbeallsoldtothosewhoarewillingtopaythewholevalueoftherent,wages,andprofit,whichmustbepaidinordertobringitthither.Somepartmustbesoldtothosewhoarewillingtopayless,andthelowpricewhichtheygiveforitmustreducethepriceofthewhole.Themarketpricewillsinkmoreorlessbelowthenaturalprice,accordingasthegreatnessoftheexcessincreasesmoreorlessthecompetitionofthesellers,oraccordingasithappenstobemoreorlessimportanttothemtogetimmediatelyridofthecommodity.Thesameexcessintheimportationofperishable,willoccasionamuchgreatercompetitionthaninthatofdurablecommodities;intheimportationoforanges,forexample,thaninthatofoldiron.Whenthequantitybroughttomarketisjustsufficienttosupplytheeffectualdemand,andnomore,themarketpricenaturallycomestobeeitherexactly,orasnearlyascanbejudgedof,thesamewiththenaturalprice.Thewholequantityuponhandcanbedisposedofforthisprice,andcannotbedisposedofformore.Thecompetitionofthedifferentdealersobligesthemalltoacceptofthisprice,butdoesnotobligethemtoacceptofless.Thequantityofeverycommoditybroughttomarketnaturallysuitsitselftotheeffectualdemand.Itistheinterestofallthosewhoemploytheirland,labour,orstock,inbringinganycommoditytomarket,thatthequantitynevershouldexceedtheeffectualdemand;anditistheinterestofallotherpeoplethatitnevershouldfallshortofthatdemand.Ifatanytimeitexceedstheeffectualdemand,someofthecomponentpartsofitspricemustbepaidbelowtheirnaturalrate.Ifitisrent,theinterestofthelandlordswillimmediatelypromptthemtowithdrawapartoftheirland;andifitiswagesorprofit,theinterestofthelabourersintheonecase,andoftheiremployersintheother,willpromptthemtowithdrawapartoftheirlabourorstockfromthisemployment.Thequantitybroughttomarketwillsoonbenomorethansufficienttosupplytheeffectualdemand.Allthedifferentpartsofitspricewillrisetotheirnaturalrate,andthewholepricetoitsnaturalprice.If,onthecontrary,thequantitybroughttomarketshouldatanytimefallshortoftheeffectualdemand,someofthecomponentpartsofitspricemustriseabovetheirnaturalrate.Ifitisrent,theinterestofallotherlandlordswillnaturallypromptthemtopreparemorelandfortheraisingofthiscommodity;ifitiswagesorprofit,theinterestofallotherlabourersanddealerswillsoonpromptthemtoemploymorelabourandstockinpreparingandbringingittomarket.Thequantitybroughtthitherwillsoonbesufficienttosupplytheeffectualdemand.Allthedifferentpartsofitspricewillsoonsinktotheirnaturalrate,andthewholepricetoitsnaturalprice.Thenaturalprice,therefore,is,asitwere,thecentralprice,towhichthepricesofallcom-moditiesarecontinuallygravitating.Differentaccidentsmaysometimeskeepthemsuspendedagooddealaboveit,andsometimesforcethemdownevensomewhatbelowit.Butwhatevermaybetheobstacleswhichhinderthemfromsettlinginthiscentreofreposeandcontinuance,theyareconstantlytendingtowardsit. Smith:TheWealthofNations165Thewholequantityofindustryannuallyemployedinordertobringanycommoditytomarketnaturallysuitsitselfinthismannertotheeffectualdemand.Itnaturallyaimsatbringingalwaysthatprecisequantitythitherwhichmaybesufficienttosupply,andnomorethansupply,thatdemand.…Butthoughthemarketpriceofeveryparticularcommodityisinthismannercontinuallygravi-tating,ifonemaysayso,towardsthenaturalprice,yetsometimesparticularaccidents,some-timesnaturalcauses,andsometimesparticularregulationsofpolice,may,inmanycommodities,keepupthemarketprice,foralongtimetogether,agooddealabovethenaturalprice.…Themarketpriceofanyparticularcommodity,thoughitmaycontinuelongabove,canseldomcontinuelongbelowitsnaturalprice.Whateverpartofitwaspaidbelowthenaturalrate,thepersonswhoseinterestitaffectedwouldimmediatelyfeeltheloss,andwouldimmediatelywithdraweithersomuchland,orsomuchlabour,orsomuchstock,frombeingemployedaboutit,thatthequantitybroughttomarketwouldsoonbenomorethansufficienttosupplytheeffec-tualdemand.Itsmarketprice,therefore,wouldsoonrisetothenaturalprice.Thisatleastwouldbethecasewheretherewasperfectliberty.…Bookfour:OfsystemsofpoliticaleconomyIntroductionPoliticaleconomy,consideredasabranchofthescienceofastatesmanorlegislator,proposestwodistinctobjects:first,toprovideaplentifulrevenueorsubsistenceforthepeople,ormoreproperlytoenablethemtoprovidesucharevenueorsubsistenceforthemselves;andsecond,tosupplythestateorcommonwealthwitharevenuesufficientforthepublicservices.Itproposestoenrichboththepeopleandthesovereign.Thedifferentprogressofopulenceindifferentagesandnationshasgivenoccasiontotwodifferentsystemsofpoliticaleconomywithregardtoenrichingthepeople.Theonemaybecalledthesystemofcommerce,theotherthatofagriculture.IshallendeavourtoexplainbothasfullyanddistinctlyasIcan,andshallbeginwiththesystemofcommerce.Itisthemodernsystem,andisbestunderstoodinourowncountryandinourowntimes.ChapterII:OfrestraintsupontheimportationfromforeigncountriesofsuchgoodsascanbeproducedathomeByrestraining,eitherbyhighdutiesorbyabsoluteprohibitions,theimportationofsuchgoodsfromforeigncountriesascanbeproducedathome,themonopolyofthehomemarketismoreorlesssecuredtothedomesticindustryemployedinproducingthem.Thus,theprohibitionofimportingeitherlivecattleorsaltprovisionsfromforeigncountriessecurestothegraziersofGreatBritainthemonopolyofthehomemarketforbutcher’smeat.Thehighdutiesupontheimportationofcorn,whichintimesofmoderateplentyamounttoaprohibition,givealikeadvantagetothegrowersofthatcommodity.Theprohibitionoftheimportationofforeignwoollensisequallyfavourabletothewoollenmanufacturers.Thesilkmanufacture,thoughalto-getheremployeduponforeignmaterials,haslatelyobtainedthesameadvantage.Thelinenmanu-facturehasnotyetobtainedit,butismakinggreatstridestowardsit.Manyothersortsofmanufacturershave,inthesamemanner,obtainedinGreatBritain,eitheraltogetherorvery 166TheClassicalSchoolnearly,amonopolyagainsttheircountrymen.ThevarietyofgoodsofwhichtheimportationintoGreatBritainisprohibited,eitherabsolutely,orundercertaincircumstances,greatlyexceedswhatcaneasilybesuspectedbythosewhoarenotwellacquaintedwiththelawsofthecustoms.Thatthismonopolyofthehomemarketfrequentlygivesgreatencouragementtothatpartic-ularspeciesofindustrywhichenjoysit,andfrequentlyturnstowardsthatemploymentagreatershareofboththelabourandstockofthesocietythanwouldotherwisehavegonetoit,cannotbedoubted.Butwhetherittendseithertoincreasethegeneralindustryofthesociety,ortogiveitthemostadvantageousdirection,isnot,perhaps,altogethersoevident.Thegeneralindustryofthesocietynevercanexceedwhatthecapitalofthesocietycanemploy.Asthenumberofworkmenthatcanbekeptinemploymentbyanyparticularpersonmustbearacertainproportiontohiscapital,sothenumberofthosethatcanbecontinuallyemployedbyallthemembersofagreatsocietymustbearacertainproportiontothewholecapitalofthatsociety,andnevercanexceedthatproportion.Noregulationofcommercecanincreasethequantityofindustryinanysocietybeyondwhatitscapitalcanmaintain.Itcanonlydivertapartofitintoadirectionintowhichitmightnototherwisehavegone;anditisbynomeanscertainthatthisartificialdirectionislikelytobemoreadvantageoustothesocietythanthatintowhichitwouldhavegoneofitsownaccord.Everyindividualiscontinuallyexertinghimselftofindoutthemostadvantageousemploy-mentforwhatevercapitalhecancommand.Itishisownadvantage,indeed,andnotthatofthesociety,whichhehasinview.Butthestudyofhisownadvantagenaturally,orrathernecessarily,leadshimtopreferthatemploymentwhichismostadvantageoustothesociety.First,everyindi-vidualendeavourstoemployhiscapitalasnearhomeashecan,andconsequentlyasmuchashecaninthesupportofdomesticindustry;providedalwaysthathecantherebyobtaintheordinary,ornotagreatdeallessthantheordinaryprofitsofstock.Thus,uponequalornearlyequalprofits,everywholesalemerchantnaturallyprefersthehometradetotheforeigntradeofconsumption,andtheforeigntradeofconsumptiontothecarryingtrade.Inthehometradehiscapitalisneversolongoutofhissightasitfrequentlyisintheforeigntradeofconsumption.Hecanknowbetterthecharacterandsituationofthepersonswhomhetrusts,andifheshouldhappentobedeceived,heknowsbetterthelawsofthecountryfromwhichhemustseekredress.Inthecarryingtrade,thecapitalofthemerchantis,asitwere,dividedbetweentwoforeigncountries,andnopartofitisevernecessarilybroughthome,orplacedunderhisownimmediateviewandcommand.…Themerchant,inordertosaveasecondloadingandunloading,endeavoursalwaystosellinthehomemarketasmuchofthegoodsofallthosedifferentcountriesashecan,andthus,sofarashecan,toconverthiscarryingtradeintoaforeigntradeofconsumption.Amerchant,inthesamemanner,whoisengagedintheforeigntradeofconsumption,whenhecollectsgoodsforforeignmarkets,willalwaysbeglad,uponequalornearlyequalprofits,tosellasgreatapartofthemathomeashecan.Hesaveshimselftheriskandtroubleofexportation,when,sofarashecan,hethusconvertshisforeigntradeofconsumptionintoahometrade.Homeisinthismannerthecentre,ifImaysayso,roundwhichthecapitalsoftheinhabitantsofeverycountryarecontinuallycirculating,andtowardswhichtheyarealwaystending,thoughbyparticularcausestheymaysometimesbedrivenoffandrepelledfromittowardsmoredistantemployments.Butacapitalemployedinthehometrade,ithasalreadybeenshown,necessarilyputsintomotionagreaterquantityofdomesticindustry,andgivesrevenueandemploymenttoagreaternumberoftheinhabitantsofthecountry,thananequalcapitalemployedintheforeigntradeofconsumption:andoneemployedintheforeigntradeofconsumptionhasthesameadvantageoveranequalcapitalemployedinthecarryingtrade.Uponequal,oronlynearlyequalprofits,therefore,everyindividualnaturallyinclinestoemployhiscapitalinthemannerinwhichitislikelytoaffordthegreatestsupporttodomesticindustry,andtogiverevenueandemploymenttothegreatestnumberofpeopleofhisowncountry. Smith:TheWealthofNations167Second,everyindividualwhoemployshiscapitalinthesupportofdomesticindustry,neces-sarilyendeavourssotodirectthatindustrythatitsproducemaybeofthegreatestpossiblevalue.Theproduceofindustryiswhatitaddstothesubjectormaterialsuponwhichitisemployed.Inproportionasthevalueofthisproduceisgreatorsmall,sowilllikewisebetheprofitsoftheemployer.Butitisonlyforthesakeofprofitthatanymanemploysacapitalinthesupportofindustry;andhewillalways,therefore,endeavourtoemployitinthesupportofthatindustryofwhichtheproduceislikelytobeofthegreatestvalue,ortoexchangeforthegreatestquantityeitherofmoneyorofothergoods.Buttheannualrevenueofeverysocietyisalwayspreciselyequaltotheexchangeablevalueofthewholeannualproduceofitsindustry,orratherispreciselythesamethingwiththatexchange-ablevalue.Aseveryindividual,therefore,endeavoursasmuchashecanbothtoemployhiscapitalinthesupportofdomesticindustry,andsotodirectthatindustrythatitsproducemaybeofthegreatestvalue;everyindividualnecessarilylabourstorendertheannualrevenueofthesocietyasgreatashecan.Hegenerally,indeed,neitherintendstopromotethepublicinterest,norknowshowmuchheispromotingit.Bypreferringthesupportofdomestictothatofforeignindustry,heintendsonlyhisownsecurity;andbydirectingthatindustryinsuchamannerasitsproducemaybeofthegreatestvalue,heintendsonlyhisowngain,andheisinthis,asinmanyothercases,ledbyaninvisiblehandtopromoteanendwhichwasnopartofhisintention.Norisitalwaystheworseforthesocietythatitwasnopartofit.Bypursuinghisowninteresthefre-quentlypromotesthatofthesocietymoreeffectuallythanwhenhereallyintendstopromoteit.Ihaveneverknownmuchgooddonebythosewhoaffectedtotradeforthepublicgood.Itisanaffectation,indeed,notverycommonamongmerchants,andveryfewwordsneedbeemployedindissuadingthemfromit.Whatisthespeciesofdomesticindustrywhichhiscapitalcanemploy,andofwhichthepro-duceislikelytobeofthegreatestvalue,everyindividual,itisevident,can,inhislocalsituation,judgemuchbetterthananystatesmanorlawgivercandoforhim.Thestatesmanwhoshouldattempttodirectprivatepeopleinwhatmannertheyoughttoemploytheircapitalswouldnotonlyloadhimselfwithamostunnecessaryattention,butassumeanauthoritywhichcouldsafelybetrusted,notonlytonosingleperson,buttonocouncilorsenatewhatever,andwhichwouldnowherebesodangerousasinthehandsofamanwhohadfollyandpresumptionenoughtofancyhimselffittoexerciseit.Togivethemonopolyofthehomemarkettotheproduceofdomesticindustry,inanypartic-ularartormanufacture,isinsomemeasuretodirectprivatepeopleinwhatmannertheyoughttoemploytheircapitals,andmust,inalmostallcases,beeitherauselessorahurtfulregulation.Iftheproduceofdomesticcanbebroughtthereascheapasthatofforeignindustry,theregula-tionisevidentlyuseless.Ifitcannot,itmustgenerallybehurtful.Itisthemaximofeveryprudentmasterofafamilynevertoattempttomakeathomewhatitwillcosthimmoretomakethantobuy.Thetailordoesnotattempttomakehisownshoes,butbuysthemoftheshoemaker.Theshoemakerdoesnotattempttomakehisownclothes,butemploysatailor.Thefarmerattemptstomakeneithertheonenortheother,butemploysthosedifferentartificers.Allofthemfinditfortheirinteresttoemploytheirwholeindustryinawayinwhichtheyhavesomeadvantageovertheirneighbours,andtopurchasewithapartofitsproduce,orwhatisthesamething,withthepriceofapartofit,whateverelsetheyhaveoccasionfor.Whatisprudenceintheconductofeveryprivatefamilycanscarcebefollyinthatofagreatkingdom.Ifaforeigncountrycansupplyuswithacommoditycheaperthanweourselvescanmakeit,betterbuyitofthemwithsomepartoftheproduceofourownindustryemployedinawayinwhichwehavesomeadvantage.Thegeneralindustryofthecountry,beingalwaysinpro-portiontothecapitalwhichemploysit,willnottherebybediminished,nomorethanthatoftheabove-mentionedartificers;butonlylefttofindoutthewayinwhichitcanbeemployedwith 168TheClassicalSchoolthegreatestadvantage.Itiscertainlynotemployedtothegreatestadvantagewhenitisthusdirectedtowardsanobjectwhichitcanbuycheaperthanitcanmake.Thevalueofitsannualproduceiscertainlymoreorlessdiminishedwhenitisthusturnedawayfromproducingcom-moditiesevidentlyofmorevaluethanthecommoditywhichitisdirectedtoproduce.Accordingtothesupposition,thatcommoditycouldbepurchasedfromforeigncountriescheaperthanitcanbemadeathome.Itcould,therefore,havebeenpurchasedwithapartonlyofthecom-modities,or,whatisthesamething,withapartonlyofthepriceofthecommodities,whichtheindustryemployedbyanequalcapitalwouldhaveproducedathome,haditbeenlefttofollowitsnaturalcourse.Theindustryofthecountry,therefore,isthusturnedawayfromamoretoalessadvantageousemployment,andtheexchangeablevalueofitsannualproduce,insteadofbeingincreased,accordingtotheintentionofthelawgiver,mustnecessarilybediminishedbyeverysuchregulation.Bymeansofsuchregulations,indeed,aparticularmanufacturemaysometimesbeacquiredsoonerthanitcouldhavebeenotherwise,andafteracertaintimemaybemadeathomeascheaporcheaperthanintheforeigncountry.Butthoughtheindustryofthesocietymaybethuscarriedwithadvantageintoaparticularchannelsoonerthanitcouldhavebeenotherwise,itwillbynomeansfollowthatthesumtotal,eitherofitsindustry,orofitsrevenue,caneverbeaug-mentedbyanysuchregulation.Theindustryofthesocietycanaugmentonlyinproportionasitscapitalaugments,anditscapitalcanaugmentonlyinproportiontowhatcanbegraduallysavedoutofitsrevenue.Buttheimmediateeffectofeverysuchregulationistodiminishitsrevenue,andwhatdiminishesitsrevenueiscertainlynotverylikelytoaugmentitscapitalfasterthanitwouldhaveaugmentedofitsownaccordhadbothcapitalandindustrybeenlefttofindouttheirnaturalemployments.Thoughforwantofsuchregulationsthesocietyshouldneveracquiretheproposedmanufac-ture,itwouldnot,uponthataccount,necessarilybethepoorerinanyoneperiodofitsduration.Ineveryperiodofitsdurationitswholecapitalandindustrymightstillhavebeenemployed,thoughupondifferentobjects,inthemannerthatwasmostadvantageousatthetime.Ineveryperioditsrevenuemighthavebeenthegreatestwhichitscapitalcouldafford,andbothcapitalandrevenuemighthavebeenaugmentedwiththegreatestpossiblerapidity.Thenaturaladvantageswhichonecountryhasoveranotherinproducingparticularcom-moditiesaresometimessogreatthatitisacknowledgedbyalltheworldtobeinvaintostrugglewiththem.Bymeansofglasses,hotbeds,andhotwalls,verygoodgrapescanberaisedinScotland,andverygoodwinetoocanbemadeofthemataboutthirtytimestheexpenseforwhichatleastequallygoodcanbebroughtfromforeigncountries.WoulditbeareasonablelawtoprohibittheimportationofallforeignwinesmerelytoencouragethemakingofclaretandburgundyinScotland?Butiftherewouldbeamanifestabsurdityinturningtowardsanyemploymentthirtytimesmoreofthecapitalandindustryofthecountrythanwouldbeneces-sarytopurchasefromforeigncountriesanequalquantityofthecommoditieswanted,theremustbeanabsurdity,thoughnotaltogethersoglaring,yetexactlyofthesamekind,inturningtowardsanysuchemploymentathirtieth,orevenathree-hundredthpartmoreofeither.Whethertheadvantageswhichonecountryhasoveranotherbenaturaloracquiredisinthisrespectofnoconsequence.Aslongastheonecountryhasthoseadvantages,andtheotherwantsthem,itwillalwaysbemoreadvantageousforthelatterrathertobuyoftheformerthantomake.Itisanacquiredadvantageonly,whichoneartificerhasoverhisneighbour,whoexercisesanothertrade;andyettheybothfinditmoreadvantageoustobuyofoneanotherthantomakewhatdoesnotbelongtotheirparticulartrades.Merchantsandmanufacturersarethepeoplewhoderivethegreatestadvantagefromthismonopolyofthehomemarket.Theprohibitionoftheimportationofforeigncattle,andofsaltprovisions,togetherwiththehighdutiesuponforeigncorn,whichintimesofmoderateplenty Smith:TheWealthofNations169amounttoaprohibition,arenotnearsoadvantageoustothegraziersandfarmersofGreatBritainasotherregulationsofthesamekindaretoitsmerchantsandmanufacturers.Manufactures,thoseofthefinerkindespecially,aremoreeasilytransportedfromonecountrytoanotherthancornorcattle.Itisinthefetchingandcarryingmanufactures,accordingly,thatfor-eigntradeischieflyemployed.Inmanufactures,averysmalladvantagewillenableforeignerstoundersellourownworkmen,eveninthehomemarket.Itwillrequireaverygreatonetoenablethemtodosointherudeproduceofthesoil.Ifthefreeimportationofforeignmanufactureswerepermitted,severalofthehomemanufactureswouldprobablysuffer,andsomeofthem,perhaps,gotoruinaltogether,andaconsiderablepartofthestockandindustryatpresentemployedinthemwouldbeforcedtofindoutsomeotheremployment.Butthefreestimportationoftherudeproduceofthesoilcouldhavenosucheffectupontheagricultureofthecountry.…Countrygentlemenandfarmersare,totheirgreathonour,ofallpeople,theleastsubjecttothewretchedspiritofmonopoly.Theundertakerofagreatmanufactoryissometimesalarmedifanotherworkofthesamekindisestablishedwithintwentymilesofhim.TheDutchundertakerofthewoollenmanufactureatAbbevillestipulatedthatnoworkofthesamekindshouldbeestablishedwithinthirtyleaguesofthatcity.Farmersandcountrygentlemen,onthecontrary,aregenerallydisposedrathertopromotethantoobstructthecultivationandimprovementoftheirneighbours’farmsandestates.Theyhavenosecretssuchasthoseofthegreaterpartofmanufacturers,butaregenerallyratherfondofcommunicatingtotheirneighboursandofextendingasfaraspossibleanynewpracticewhichtheyhavefoundtobeadvantageous.PiusQuestus,saysoldCato,stabilissimusque,minimequeinvidiosus;minimequemalecogitantessunt,quiineostudiooccupatisunt.Countrygentlemenandfarmers,dispersedindifferentpartsofthecountry,cannotsoeasilycombineasmerchantsandmanufacturers,who,beingcollectedintotowns,andaccus-tomedtothatexclusivecorporationspiritwhichprevailsinthem,naturallyendeavourtoobtainagainstalltheircountrymenthesameexclusiveprivilegewhichtheygenerallypossessagainsttheinhabitantsoftheirrespectivetowns.Theyaccordinglyseemtohavebeentheoriginalinventorsofthoserestraintsupontheimportationofforeigngoodswhichsecuretothemthemonopolyofthehomemarket.Itwasprobablyinimitationofthem,andtoputthemselvesuponalevelwiththosewho,theyfound,weredisposedtooppressthem,thatthecountrygentlemenandfarmersofGreatBritaininsofarforgotthegenerositywhichisnaturaltotheirstationastodemandtheexclusiveprivilegeofsupplyingtheircountrymenwithcornandbutcher’smeat.Theydidnotperhapstaketimetoconsiderhowmuchlesstheirinterestcouldbeaffectedbythefreedomoftradethanthatofthepeoplewhoseexampletheyfollowed.Toprohibitbyaperpetuallawtheimportationofforeigncornandcattleisinrealitytoenactthatthepopulationandindustryofthecountryshallatnotimeexceedwhattherudeproduceofitsownsoilcanmaintain.Thereseem,however,tobetwocasesinwhichitwillgenerallybeadvantageoustolaysomeburdenuponforeignfortheencouragementofdomesticindustry.Thefirstis,whensomeparticularsortofindustryisnecessaryforthedefenceofthecountry.ThedefenceofGreatBritain,forexample,dependsverymuchuponthenumberofitssailorsandshipping.TheActofNavigation,therefore,veryproperlyendeavourstogivethesailorsandshippingofGreatBritainthemonopolyofthetradeoftheirowncountryinsomecasesbyabsoluteprohibitionsandinothersbyheavyburdensupontheshippingofforeigncountries.…Thesecondcase,inwhichitwillgenerallybeadvantageoustolaysomeburdenuponforeignfortheencouragementofdomesticindustryis,whensometaxisimposedathomeuponthepro-duceofthelatter.Inthiscase,itseemsreasonablethatanequaltaxshouldbeimposeduponthelikeproduceoftheformer.Thiswouldnotgivethemonopolyofthehomemarkettodomesticindustry,norturntowardsaparticularemploymentagreatershareofthestockandlabourofthe 170TheClassicalSchoolcountrythanwhatwouldnaturallygotoit.Itwouldonlyhinderanypartofwhatwouldnaturallygotoitfrombeingturnedawaybythetaxintoalessnaturaldirection,andwouldleavethecompetitionbetweenforeignanddomesticindustry,afterthetax,asnearlyaspossibleuponthesamefootingasbeforeit.InGreatBritain,whenanysuchtaxislaidupontheproduceofdomesticindustry,itisusualatthesametime,inordertostoptheclamorouscomplaintsofourmerchantsandmanufacturersthattheywillbeundersoldathome,tolayamuchheavierdutyupontheimportationofallforeigngoodsofthesamekind.Thissecondlimitationofthefreedomoftradeaccordingtosomepeopleshould,uponsomeoccasions,beextendedmuchfartherthantothepreciseforeigncommoditieswhichcouldcomeintocompetitionwiththosewhichhadbeentaxedathome.Whenthenecessariesoflifehavebeentaxedanycountry,itbecomesproper,theypretend,totaxnotonlythelikenecessariesoflifeimportedfromothercountries,butallsortsofforeigngoodswhichcancomeintocompeti-tionwithanythingthatistheproduceofdomesticindustry.Subsistence,theysay,becomesneces-sarilydearerinconsequenceofsuchtaxes;andthepriceoflabourmustalwaysrisewiththepriceofthelabourers’subsistence.Everycommodity,therefore,whichistheproduceofdomes-ticindustry,thoughnotimmediatelytaxeditself,becomesdearerinconsequenceofsuchtaxes,becausethelabourwhichproducesitbecomesso.Suchtaxes,therefore,arereallyequivalent,theysay,toataxuponeveryparticularcommodityproducedathome.Inordertoputdomesticuponthesamefootingwithforeignindustry,therefore,itbecomesnecessary,theythink,tolaysomedutyuponeveryforeigncommodityequaltothisenhancementofthepriceofthehomecommoditieswithwhichitcancomeintocompetition.Whethertaxesuponthenecessariesoflife,suchasthoseinGreatBritainuponsoap,salt,leather,candles,etc.,necessarilyraisethepriceoflabour,andconsequentlythatofallothercom-modities,IshallconsiderhereafterwhenIcometotreatoftaxes.Supposing,however,inthemeantime,thattheyhavethiseffect,andtheyhaveitundoubtedly,thisgeneralenhancementofthepriceofallcommodities,inconsequenceofthatoflabour,isacasewhichdiffersinthetwofollowingrespectsfromthatofaparticularcommodityofwhichthepricewasenhancedbyaparticulartaximmediatelyimposeduponit.First,itmightalwaysbeknownwithgreatexactnesshowfarthepriceofsuchacommoditycouldbeenhancedbysuchatax:buthowfarthegeneralenhancementofthepriceoflabourmightaffectthatofeverydifferentcommodityaboutwhichlabourwasemployedcouldneverbeknownwithanytolerableexactness.Itwouldbeimpossible,therefore,toproportionwithanytolerableexactnessthetaxuponeveryforeigntothisenhancementofthepriceofeveryhomecommodity.Second,taxesuponthenecessariesoflifehavenearlythesameeffectuponthecircumstancesofthepeopleasapoorsoilandabadclimate.Provisionsaretherebyrendereddearerinthesamemannerasifitrequiredextraordinarylabourandexpensetoraisethem.Asinthenaturalscarcityarisingfromsoilandclimateitwouldbeabsurdtodirectthepeopleinwhatmannertheyoughttoemploytheircapitalsandindustry,soisitlikewiseintheartificialscarcityarisingfromsuchtaxes.Tobelefttoaccommodate,aswellastheycould,theirindustrytotheirsituation,andtofindoutthoseemploymentsinwhich,notwithstandingtheirunfavourablecircumstances,theymighthavesomeadvantageeitherinthehomeorintheforeignmarket,iswhatinbothcaseswouldevidentlybemostfortheiradvantage.Tolayanewtaxuponthem,becausetheyarealreadyoverburdenedwithtaxes,andbecausetheyalreadypaytoodearforthenecessariesoflife,tomakethemlikewisepaytoodearforthegreaterpartofothercommodities,iscertainlyamostabsurdwayofmakingamends.Suchtaxes,whentheyhavegrownuptoacertainheight,areacurseequaltothebarrennessoftheearthandtheinclemencyoftheheavens;andyetitisintherichestandmostindustriouscountriesthattheyhavebeenmostgenerallyimposed.Noothercountrycouldsupportsogreatadisorder.Asthestrongestbodiesonlycanliveandenjoyhealthunderanunwholesomeregimen, Smith:TheWealthofNations171sothenationsonlythatineverysortofindustryhavethegreatestnaturalandacquiredadvantagescansubsistandprosperundersuchtaxes.HollandisthecountryinEuropeinwhichtheyaboundmost,andwhichfrompeculiarcircumstancescontinuestoprosper,notbymeansofthem,ashasbeenmostabsurdlysupposed,butinspiteofthem.Astherearetwocasesinwhichitwillgenerallybeadvantageoustolaysomeburdenuponforeignfortheencouragementofdomesticindustry,sotherearetwoothersinwhichitmaysometimesbeamatterofdeliberation;intheone,howfaritispropertocontinuethefreeimportationofcertainforeigngoods;andintheother,howfar,orinwhatmanner,itmaybepropertorestorethatfreeimportationafterithasbeenforsometimeinterrupted.Thecaseinwhichitmaysometimesbeamatterofdeliberationhowfaritispropertocontinuethefreeimportationofcertainforeigngoodsis,whensomeforeignnationrestrainsbyhighdutiesorprohibitionstheimportationofsomeofourmanufacturesintotheircountry.Revengeinthiscasenaturallydictatesretaliation,andthatweshouldimposethelikedutiesandprohibitionsupontheimportationofsomeoralloftheirmanufacturesintoours.Nations,accordingly,seldomfailtoretaliateinthismanner.…Theremaybegoodpolicyinretaliationsofthiskind,whenthereisaprobabilitythattheywillprocuretherepealofthehighdutiesorprohibitionscomplainedof.Therecoveryofagreatforeignmarketwillgenerallymorethancompensatethetransitoryinconveniencyofpayingdearerduringashorttimeforsomesortsofgoods.Tojudgewhethersuchretaliationsarelikelytoproducesuchaneffectdoesnot,perhaps,belongsomuchtothescienceofalegislator,whosedeliberationsoughttobegovernedbygeneralprincipleswhicharealwaysthesame,astotheskillofthatinsidiousandcraftyanimal,vulgarlycalledastatesmanorpolitician,whosecouncilsaredirectedbythemomentaryfluctuationsofaffairs.Whenthereisnoprobabilitythatanysuchrepealcanbeprocured,itseemsabadmethodofcompensatingtheinjurydonetocertainclassesofourpeopletodoanotherinjuryourselves,notonlytothoseclasses,buttoalmostalltheotherclassesofthem.Whenourneighboursprohibitsomemanufactureofours,wegenerallyprohibit,notonlythesame,forthatalonewouldseldomaffectthemconsiderably,butsomeothermanu-factureoftheirs.Thismaynodoubtgiveencouragementtosomeparticularclassofworkmenamongourselves,andbyexcludingsomeoftheirrivals,mayenablethemtoraisetheirpriceinthehomemarket.Thoseworkmen,however,whosufferedbyourneighbours’prohibitionwillnotbebenefitedbyours.Onthecontrary,theyandalmostalltheotherclassesofourcitizenswilltherebybeobligedtopaydearerthanbeforeforcertaingoods.Everysuchlaw,therefore,imposesarealtaxuponthewholecountry,notinfavourofthatparticularclassofworkmenwhowereinjuredbyourneighbours’prohibition,butofsomeotherclass.Thecaseinwhichitmaysometimesbeamatterofdeliberation,howfar,orinwhatmanner,itispropertorestorethefreeimportationofforeigngoods,afterithasbeenforsometimeinter-rupted,is,whenparticularmanufactures,bymeansofhighdutiesorprohibitionsuponallforeigngoodswhichcancomeintocompetitionwiththem,havebeensofarextendedastoemployagreatmultitudeofhands.Humanitymayinthiscaserequirethatthefreedomoftradeshouldberestoredonlybyslowgradations,andwithagooddealofreserveandcircumspection.Werethosehighdutiesandprohibitionstakenawayallatonce,cheaperforeigngoodsofthesamekindmightbepouredsofastintothehomemarketastodepriveallatoncemanythousandsofourpeopleoftheirordinaryemploymentandmeansofsubsistence.Thedisorderwhichthiswouldoccasionmightnodoubtbeveryconsiderable.Itwouldinallprobability,however,bemuchlessthaniscommonlyimagined,forthetwofollowingreasons:First,allthosemanufactures,ofwhichanypartiscommonlyexportedtootherEuropeancountrieswithoutabounty,couldbeverylittleaffectedbythefreestimportationofforeigngoods.Suchmanufacturesmustbesoldascheapabroadasanyotherforeigngoodsofthesamequalityandkind,andconsequentlymustbesoldcheaperathome.Theywouldstill,therefore, 172TheClassicalSchoolkeeppossessionofthehomemarket,andthoughacapriciousmanoffashionmightsometimespreferforeignwares,merelybecausetheywereforeign,tocheaperandbettergoodsofthesamekindthatweremadeathome,thisfollycould,fromthenatureofthings,extendtosofewthatitcouldmakenosensibleimpressionuponthegeneralemploymentofthepeople.Butagreatpartofallthedifferentbranchesofourwoollenmanufacture,ofourtannedleather,andofourhard-ware,areannuallyexportedtootherEuropeancountrieswithoutanybounty,andthesearethemanufactureswhichemploythegreatestnumberofhands.Thesilk,perhaps,isthemanufacturewhichwouldsufferthemostbythisfreedomoftrade,andafteritthelinen,thoughthelattermuchlessthantheformer.Second,thoughagreatnumberofpeopleshould,bythusrestoringthefreedomoftrade,bethrownallatonceoutoftheirordinaryemploymentandcommonmethodofsubsistence,itwouldbynomeansfollowthattheywouldtherebybedeprivedeitherofemploymentorsubsis-tence.Bythereductionofthearmyandnavyattheendofthelatewar,morethanahundredthousandsoldiersandseamen,anumberequaltowhatisemployedinthegreatestmanufactures,wereallatoncethrownoutoftheirordinaryemployment;but,thoughtheynodoubtsufferedsomeinconveniency,theywerenottherebydeprivedofallemploymentandsubsistence.Thegreaterpartoftheseamen,itisprobable,graduallybetookthemselvestothemerchant-serviceastheycouldfindoccasion,andinthemeantimeboththeyandthesoldierswereabsorbedinthegreatmassofthepeople,andemployedinagreatvarietyofoccupations.Notonlynogreatcon-vulsion,butnosensibledisorderarosefromsogreatachangeinthesituationofmorethanahundredthousandmen,allaccustomedtotheuseofarms,andmanyofthemtorapineandplunder.Thenumberofvagrantswasscarceanywheresensiblyincreasedbyit,eventhewagesoflabourwerenotreducedbyitinanyoccupation,sofarasIhavebeenabletolearn,exceptinthatofseameninthemerchantservice.Butifwecomparetogetherthehabitsofasoldierandofanysortofmanufacturer,weshallfindthatthoseofthelatterdonottendsomuchtodisqualifyhimfrombeingemployedinanewtrade,asthoseoftheformerfrombeingemployedinany.Themanufacturerhasalwaysbeenaccustomedtolookforhissubsistencefromhislabouronly:thesoldiertoexpectitfromhispay.Applicationandindustryhavebeenfamiliartotheone;idle-nessanddissipationtotheother.Butitissurelymucheasiertochangethedirectionofindustryfromonesortoflabourtoanotherthantoturnidlenessanddissipationtoany.Tothegreaterpartofmanufacturesbesides,ithasalreadybeenobserved,thereareothercollateralmanufac-turesofsosimilaranaturethataworkmancaneasilytransferhisindustryfromoneofthemtoanother.Thegreaterpartofsuchworkmentooareoccasionallyemployedincountrylabour.Thestockwhichemployedtheminaparticularmanufacturebeforewillstillremaininthecountrytoemployanequalnumberofpeopleinsomeotherway.Thecapitalofthecountryremainingthesame,thedemandforlabourwilllikewisebethesame,orverynearlythesame,thoughitmaybeexertedindifferentplacesandfordifferentoccupations.Soldiersandseamen,indeed,whendischargedfromtheking’sservice,areatlibertytoexerciseanytrade,withinanytownorplaceofGreatBritainorIreland.Letthesamenaturallibertyofexercisingwhatspeciesofindustrytheyplease,berestoredtoallhisMajesty’ssubjects,inthesamemannerastosoldiersandseamen;thatis,breakdowntheexclusiveprivilegesofcorporations,andrepealtheStatuteofApprenticeship,bothwhicharerealencroachmentsuponnaturalliberty,andaddtothesetherepealoftheLawofSettlements,sothatapoorworkman,whenthrownoutofemploymenteitherinonetradeorinoneplace,mayseekforitinanothertradeorinanotherplacewithoutthefeareitherofaprosecutionorofaremoval,andneitherthepublicnortheindividualswillsuffermuchmorefromtheoccasionaldisbandingofsomeparticularclassesofmanufacturersthanfromthatofsoldiers.Ourmanufacturershavenodoubtgreatmeritwiththeircountry,buttheycannothavemorethanthosewhodefenditwiththeirblood,nordeservetobetreatedwithmoredelicacy. Smith:TheWealthofNations173Toexpect,indeed,thatthefreedomoftradeshouldeverbeentirelyrestoredinGreatBritainisasabsurdastoexpectthatanOceanaorUtopiashouldeverbeestablishedinit.Notonlytheprejudicesofthepublic,butwhatismuchmoreunconquerable,theprivateinterestsofmanyindividuals,irresistiblyopposeit.Weretheofficersofthearmytoopposewiththesamezealandunanimityanyreductioninthenumbersofforceswithwhichmastermanufacturerssetthem-selvesagainsteverylawthatislikelytoincreasethenumberoftheirrivalsinthehomemarket;weretheformertoanimatetheirsoldiersinthesamemannerasthelatterenflametheirwork-mentoattackwithviolenceandoutragetheproposersofanysuchregulation,toattempttoreducethearmywouldbeasdangerousasithasnowbecometoattempttodiminishinanyrespectthemonopolywhichourmanufacturershaveobtainedagainstus.Thismonopolyhassomuchincreasedthenumberofsomeparticulartribesofthemthat,likeanovergrownstandingarmy,theyhavebecomeformidabletothegovernment,anduponmanyoccasionsintimidatethelegislature.TheMemberofParliamentwhosupportseveryproposalforstrengtheningthismonopolyissuretoacquirenotonlythereputationofunderstandingtrade,butgreatpopularityandinfluencewithanorderofmenwhosenumbersandwealthrenderthemofgreatimpor-tance.Ifheopposesthem,onthecontrary,andstillmoreifhehasauthorityenoughtobeabletothwartthem,neitherthemostacknowledgedprobity,northehighestrank,northegreatestpublicservicescanprotecthimfromthemostinfamousabuseanddetraction,frompersonalinsults,norsometimesfromrealdanger,arisingfromtheinsolentoutrageoffuriousanddisap-pointedmonopolists.Theundertakerofagreatmanufacture,who,bythehomemarketsbeingsuddenlylaidopentothecompetitionofforeigners,shouldbeobligedtoabandonhistrade,wouldnodoubtsufferveryconsiderably.Thatpartofhiscapitalwhichhadusuallybeenemployedinpurchasingmate-rialsandinpayinghisworkmenmight,withoutmuchdifficulty,perhaps,findanotheremploy-ment.Butthatpartofitwhichwasfixedinworkhouses,andintheinstrumentsoftrade,couldscarcebedisposedofwithoutconsiderableloss.Theequitableregard,therefore,tohisinterestrequiresthatchangesofthiskindshouldneverbeintroducedsuddenly,butslowly,gradually,andafteraverylongwarning.Thelegislature,wereitpossiblethatitsdeliberationscouldbealwaysdirected,notbytheclamorousimportunityofpartialinterests,butbyanextensiveviewofthegeneralgood,oughtuponthisveryaccount,perhaps,tobeparticularlycarefulneithertoestab-lishanynewmonopoliesofthiskind,nortoextendfurtherthosewhicharealreadyestablished.Everysuchregulationintroducessomedegreeofrealdisorderintotheconstitutionofthestate,whichitwillbedifficultafterwardstocurewithoutoccasioninganotherdisorder.Howfaritmaybepropertoimposetaxesupontheimportationofforeigngoods,inordernottopreventtheirimportationbuttoraisearevenueforgovernment,IshallconsiderhereafterwhenIcometotreatoftaxes.Taxesimposedwithaviewtoprevent,oreventodiminishimpor-tation,areevidentlyasdestructiveoftherevenueofthecustomsasofthefreedomoftrade.ChapterVIII:ConclusionofthemercantilesystemThelaudablemotiveofalltheseregulationsistoextendourownmanufactures,notbytheirownimprovement,butbythedepressionofthoseofallourneighbours,andbyputtinganend,asmuchaspossible,tothetroublesomecompetitionofsuchodiousanddisagreeablerivals.Ourmastermanufacturersthinkitreasonablethattheythemselvesshouldhavethemonopolyoftheingenuityofalltheircountrymen.Thoughbyrestraining,insometrades,thenumberofappren-ticeswhichcanbeemployedatonetime,andbyimposingthenecessityofalongapprenticeshipinalltrades,theyendeavour,allofthem,toconfinetheknowledgeoftheirrespectiveemploy-mentstoassmallanumberaspossible;theyareunwilling,however,thatanypartofthissmallnumbershouldgoabroadtoinstructforeigners. 174TheClassicalSchoolConsumptionisthesoleendandpurposeofallproduction;andtheinterestoftheproduceroughttobeattendedtoonlysofarasitmaybenecessaryforpromotingthatoftheconsumer.Themaximissoperfectlyselfevidentthatitwouldbeabsurdtoattempttoproveit.Butinthemercantilesystemtheinterestoftheconsumerisalmostconstantlysacrificedtothatofthepro-ducer;anditseemstoconsiderproduction,andnotconsumption,astheultimateendandobjectofallindustryandcommerce.Intherestraintsupontheimportationofallforeigncommoditieswhichcancomeintocompe-titionwiththoseofourowngrowthormanufacture,theinterestofthehomeconsumerisevi-dentlysacrificedtothatoftheproducer.Itisaltogetherforthebenefitofthelatterthattheformerisobligedtopaythatenhancementofpricewhichthismonopolyalmostalwaysoccasions.Itisaltogetherforthebenefitoftheproducerthatbountiesaregrantedupontheexportationofsomeofhisproductions.Thehomeconsumerisobligedtopay,first,thetaxwhichisnecessaryforpayingthebounty,andsecond,thestillgreatertaxwhichnecessarilyarisesfromtheenhance-mentofthepriceofthecommodityinthehomemarket.ChapterIX:Oftheagriculturalsystems,orofthosesystemsofpoliticaleconomywhichrepresenttheproduceoflandaseitherthesoleortheprincipalsourceoftherevenueandwealtheverycountryTheagriculturalsystemsofpoliticaleconomywillnotrequiresolonganexplanationasthatwhichIhavethoughtitnecessarytobestowuponthemercantileorcommercialsystem.Thatsystemwhichrepresentstheproduceoflandasthesolesourceoftherevenueandwealthofeverycountryhas,sofarasIknow,neverbeenadoptedbyanynation,anditatpresentexistsonlyinthespeculationsofafewmenofgreatlearningandingenuityinFrance.Itwouldnot,surely,beworthwhiletoexamineatgreatlengththeerrorsofasystemwhichneverhasdone,andprobablyneverwilldo,anyharminanypartoftheworld.Ishallendeavourtoexplain,how-ever,asdistinctlyasIcan,thegreatoutlinesofthisveryingenioussystem.MrColbert,thefamousministerofLouisXIV,wasamanofprobity,ofgreatindustryandknowledgeofdetail,ofgreatexperienceandacutenessintheexaminationofpublicaccounts,andofabilities,inshort,everywayfittedforintroducingmethodandgoodorderintothecollec-tionandexpenditureofthepublicrevenue.Thatministerhadunfortunatelyembracedalltheprejudicesofthemercantilesystem,initsnatureandessenceasystemofrestraintandregula-tion,andsuchascouldscarcefailtobeagreeabletoalaboriousandploddingmanofbusiness,whohadbeenaccustomedtoregulatethedifferentdepartmentsofpublicoffices,andtoestablishthenecessarychecksandcontrolsforconfiningeachtoitspropersphere.Theindustryandcom-merceofagreatcountryheendeavouredtoregulateuponthesamemodelasthedepartmentsofapublicoffice;andinsteadofallowingeverymantopursuehisowninterestinhisownway,upontheliberalplanofequality,liberty,andjustice,hebestoweduponcertainbranchesofindustryextraordinaryprivileges,whilehelaidothersunderasextraordinaryrestraints.Hewasnotonlydisposed,likeotherEuropeanministers,toencouragemoretheindustryofthetownsthanthatofthecountry;but,inordertosupporttheindustryofthetowns,hewaswillingeventodepressandkeepdownthatofthecountry.Inordertorenderprovisionscheaptotheinhabitantsofthetowns,andtherebytoencouragemanufacturesandforeigncommerce,heprohibitedaltogethertheexportationofcorn,andthusexcludedtheinhabitantsofthecountryfromeveryforeignmarketforbyfarthemostimportantpartoftheproduceoftheirindustry.Thisprohibition,joinedtotherestraintsimposedbytheancientprovinciallawsofFranceuponthetransportationofcornfromoneprovincetoanother,andtothearbitraryanddegradingtaxeswhicharelevieduponthecultivatorsinalmostalltheprovinces,discouragedandkeptdowntheagricultureofthatcountryverymuchbelowthestatetowhichitwouldnaturallyhaveriseninsoveryfertileasoilandsoveryhappyaclimate.Thisstateofdiscouragementanddepressionwasfeltmoreor Smith:TheWealthofNations175lessineverydifferentpartofthecountry,andmanydifferentinquiriesweresetonfootconcern-ingthecausesofit.Oneofthosecausesappearedtobethepreferencegiven,bytheinstitutionsofMrColbert,totheindustryofthetownsabovethatofthecountry.Iftherodbebenttoomuchoneway,saystheproverb,inordertomakeitstraightyoumustbenditasmuchtheother.TheFrenchphilosophers,whohaveproposedthesystemwhichrepre-sentsagricultureasthesolesourceoftherevenueandwealthofeverycountry,seemtohaveadoptedthisproverbialmaxim;andasintheplanofMrColberttheindustryofthetownswascertainlyovervaluedincomparisonwiththatofthecountry;sointheirsystemitseemstobeascertainlyundervalued.…Somespeculativephysiciansseemtohaveimaginedthatthehealthofthehumanbodycouldbepreservedonlybyacertainpreciseregimenofdietandexercise,ofwhichevery,thesmallest,violationnecessarilyoccasionedsomedegreeofdiseaseordisorderproportionedtothedegreeoftheviolation.Experience,however,wouldseemtoshowthatthehumanbodyfrequentlypre-serves,toallappearancesatleast,themostperfectstateofhealthunderavastvarietyofdiffer-entregimens;evenundersomewhicharegenerallybelievedtobeveryfarfrombeingperfectlywholesome.Butthehealthfulstateofthehumanbody,itwouldseem,containsinitselfsomeunknownprincipleofpreservation,capableeitherofpreventingorofcorrecting,inmanyrespects,thebadeffectsevenofaveryfaultyregimen.MrQuesnai,whowashimselfaphysician,andaveryspeculativephysician,seemstohaveentertainedanotionofthesamekindconcern-ingthepoliticalbody,andtohaveimaginedthatitwouldthriveandprosperonlyunderacertainpreciseregimen,theexactregimenofperfectlibertyandperfectjustice.Heseemsnottohaveconsideredthat,inthepoliticalbody,thenaturaleffortwhicheverymaniscontinuallymakingtobetterhisownconditionisaprincipleofpreservationcapableofpreventingandcorrecting,inmanyrespects,thebadeffectsofapoliticaleconomy,insomedegree,bothpartialandoppres-sive.Suchapoliticaleconomy,thoughitnodoubtretardsmoreorless,isnotalwayscapableofstoppingaltogetherthenaturalprogressofanationtowardswealthandprosperity,andstilllessofmakingitgobackwards.Ifanationcouldnotprosperwithouttheenjoymentofperfectlibertyandperfectjustice,thereisnotintheworldanationwhichcouldeverhaveprospered.Inthepoliticalbody,however,thewisdomofnaturehasfortunatelymadeampleprovisionforremedy-ingmanyofthebadeffectsofthefollyandinjusticeofman,inthesamemannerasithasdoneinthenaturalbodyforremedyingthoseofhisslothandintemperance.Thecapitalerrorofthissystem,however,seemstolieinitsrepresentingtheclassofartificers,manufacturers,andmerchantsasaltogetherbarrenandunproductive.Thefollowingobserva-tionsmayservetoshowtheimproprietyofthisrepresentation.First,thisclass,itisacknowledged,reproducesannuallythevalueofitsownannualconsump-tion,andcontinues,atleast,theexistenceofthestockorcapitalwhichmaintainsandemploysit.Butuponthisaccountalonethedenominationofbarrenorunproductiveshouldseemtobeveryimproperlyappliedtoit.Weshouldnotcallamarriagebarrenorunproductivethoughitproducedonlyasonandadaughter,toreplacethefatherandmother,andthoughitdidnotincreasethenumberofthehumanspecies,butonlycontinueditasitwasbefore.Farmersandcountrylabourers,indeed,overandabovethestockwhichmaintainsandemploysthem,repro-duceannuallyanetproduce,afreerenttothelandlord.Asamarriagewhichaffordsthreechil-dreniscertainlymoreproductivethanonewhichaffordsonlytwo;sothelabouroffarmersandcountrylabourersiscertainlymoreproductivethanthatofmerchants,artificers,andmanufac-turers.Thesuperiorproduceoftheoneclass,however,doesnotrendertheotherbarrenorunproductive.Second,itseems,uponthisaccount,altogetherimpropertoconsiderartificers,manufacturers,andmerchantsinthesamelightasmenialservants.Thelabourofmenialservantsdoesnot 176TheClassicalSchoolcontinuetheexistenceofthefundwhichmaintainsandemploysthem.Theirmaintenanceandemploymentisaltogetherattheexpenseoftheirmasters,andtheworkwhichtheyperformisnotofanaturetorepaythatexpense.Thatworkconsistsinserviceswhichperishgenerallyintheveryinstantoftheirperformance,anddoesnotfixorrealizeitselfinanyvendiblecommoditywhichcanreplacethevalueoftheirwagesandmaintenance.Thelabour,onthecontrary,ofartificers,manufacturers,andmerchantsnaturallydoesfixandrealizeitselfinsomesuchvendiblecommodity.Itisuponthisaccountthat,inthechapterinwhichItreatofproductiveandunproductivelabour,Ihaveclassedartificers,manufacturers,andmerchantsamongtheproductivelabourers,andmenialservantsamongthebarrenorunproductive.Third,itseemsuponeverysuppositionimpropertosaythatthelabourofartificers,manufac-turers,andmerchantsdoesnotincreasetherealrevenueofthesociety.Thoughweshouldsuppose,forexample,asitseemstobesupposedinthissystem,thatthevalueofthedaily,monthly,andyearlyconsumptionofthisclasswasexactlyequaltothatofitsdaily,monthly,andyearlyproduction,yetitwouldnotfromthencefollowthatitslabouraddednothingtotherealrevenue,totherealvalueoftheannualproduceofthelandandlabourofthesociety.Anartifi-cer,forexample,who,inthefirstsixmonthsafterharvest,executestenpounds’worthofwork,thoughheshouldinthesametimeconsumetenpounds’worthofcornandothernecessaries,yetreallyaddsthevalueoftenpoundstotheannualproduceofthelandandlabourofthesociety.Whilehehasbeenconsumingahalf-yearlyrevenueoftenpounds’worthofcornandothernecessaries,hehasproducedanequalvalueofworkcapableofpurchasing,eithertohimselforsomeotherperson,anequalhalf-yearlyrevenue.Thevalue,therefore,ofwhathasbeenconsumedandproducedduringthesesixmonthsisequal,nottoten,buttotwentypounds.Itispossible,indeed,thatnomorethantenpounds’worthofthisvaluemayeverhaveexistedatanyonemomentoftime.Butifthetenpounds’worthofcornandothernecessaties,whichwereconsumedbytheartificer,hadbeenconsumedbyasoldierorbyamenialservant,thevalueofthatpartoftheannualproducewhichexistedattheendofthesixmonthswouldhavebeentenpoundslessthanitactuallyisinconsequenceofthelabouroftheartificer.Thoughthevalueofwhattheartificerproduces,therefore,shouldnotatanyonemomentoftimebesupposedgreaterthanthevalueheconsumes,yetateverymomentoftimetheactuallyexistingvalueofgoodsinthemarketis,inconsequenceofwhatheproduces,greaterthanitotherwisewouldbe.Whenthepatronsofthissystemassertthattheconsumptionofartificers,manufacturers,andmerchantsisequaltothevalueofwhattheyproduce,theyprobablymeannomorethanthattheirrevenue,orthefunddestinedfortheirconsumption,isequaltoit.Butiftheyhadexpressedthemselvesmoreaccurately,andonlyassertedthattherevenueofthisclasswasequaltothevalueofwhattheyproduced,itmightreadilyhaveoccurredtothereaderthatwhatwouldnaturallybesavedoutofthisrevenuemustnecessarilyincreasemoreorlesstherealwealthofthesociety.Inorder,therefore,tomakeoutsomethinglikeanargument,itwasnecessarythattheyshouldexpressthemselvesastheyhavedone;andthisargument,evensupposingthingsactuallywereasitseemstopresumethemtobe,turnsouttobeaveryinconclusiveone.Fourth,farmersandcountrylabourerscannomoreaugment,withoutparsimony,therealrev-enue,theannualproduceofthelandandlabouroftheirsociety,thanartificers,manufacturers,andmerchants.Theannualproduceofthelandandlabourofanysocietycanbeaugmentedonlyintwoways;either,first,bysomeimprovementintheproductivepowersoftheusefullabouractuallymaintainedwithinit;or,second,bysomeincreaseinthequantityofthatlabour.Theimprovementintheproductivepowersofusefullabourdepend,first,upontheimprove-mentintheabilityoftheworkman;and,secondly,uponthatofthemachinerywithwhichheworks.Butthelabourofartificersandmanufacturers,asitiscapableofbeingmoresubdivided,andthelabourofeachworkmanreducedtoagreatersimplicityofoperationthanthatoffarm-ersandcountrylabourers,soitislikewisecapableofboththesesortsofimprovementsinamuch Smith:TheWealthofNations177higherdegree.Inthisrespect,therefore,theclassofcultivatorscanhavenosortofadvantageoverthatofartificersandmanufacturers.Theincreaseinthequantityofusefullabouractuallyemployedwithinanysocietymustdependaltogetherupontheincreaseofthecapitalwhichemploysit;andtheincreaseofthatcapitalagainmustbeexactlyequaltotheamountofthesavingsfromtherevenue,eitheroftheparticularpersonswhomanageanddirecttheemploymentofthatcapital,orofsomeotherper-sonswholendittothem.Ifmerchants,artificers,andmanufacturersare,asthissystemseemstosuppose,naturallymoreinclinedtoparsimonyandsavingthanproprietorsandcultivators,theyare,sofar,morelikelytoaugmentthequantityofusefullabouremployedwithintheirsociety,andconsequentlytoincreaseitsrealrevenue,theannualproduceofitslandandlabour.Fifthandlast,thoughtherevenueoftheinhabitantsofeverycountrywassupposedtoconsistaltogether,asthissystemseemstosuppose,inthequantityofsubsistencewhichtheirindustrycouldprocuretothem;yet,evenuponthissupposition,therevenueofatradingandmanufac-turingcountrymust,otherthingsbeingequal,alwaysbemuchgreaterthanthatofonewithouttradeormanufactures.Bymeansoftradeandmanufactures,agreaterquantityofsubsistencecanbeannuallyimportedintoaparticularcountrythanwhatitsownlands,intheactualstateoftheircultivation,couldafford.Theinhabitantsofatown,thoughtheyfrequentlypossessnolandsoftheirown,yetdrawtothemselvesbytheirindustrysuchaquantityoftherudeproduceofthelandsofotherpeopleassuppliesthem,notonlywiththematerialsoftheirwork,butwiththefundoftheirsubsistence.Whatatownalwaysiswithregardtothecountryinitsneighbour-hood,oneindependentstateorcountrymayfrequentlybewithregardtootherindependentstatesorcountries.ItisthusthatHollanddrawsagreatpartofitssubsistencefromothercoun-tries;livecattlefromHolsteinandJutland,andcornfromalmostallthedifferentcountriesofEurope.Asmallquantityofmanufacturedproducepurchasesagreatquantityofrudeproduce.Atradingandmanufacturingcountry,therefore,naturallypurchaseswithasmallpartofitsman-ufacturedproduceagreatpartoftherudeproduceofothercountries;while,onthecontrary,acountrywithouttradeandmanufacturesisgenerallyobligedtopurchase,attheexpenseofagreatpartofitsrudeproduce,averysmallpartofthemanufacturedproduceofothercountries.Theoneexportswhatcansubsistandaccommodatebutaveryfew,andimportsthesubsistenceandaccommodationofagreatnumber.Theotherexportstheaccommodationandsubsistenceofagreatnumber,andimportsthatofaveryfewonly.Theinhabitantsoftheonemustalwaysenjoyamuchgreaterquantityofsubsistencethanwhattheirownlands,intheactualstateoftheircultivation,couldafford.Theinhabitantsoftheothermustalwaysenjoyamuchsmallerquantity.Thissystem,however,withallitsimperfectionsis,perhaps,thenearestapproximationtothetruththathasyetbeenpublisheduponthesubjectofpoliticaleconomy,andisuponthataccountwellworththeconsiderationofeverymanwhowishestoexaminewithattentiontheprinciplesofthatveryimportantscience.Thoughinrepresentingthelabourwhichisemployeduponlandastheonlyproductivelabour,thenotionswhichitinculcatesareperhapstoonarrowandconfined;yetinrepresentingthewealthofnationsasconsisting,notintheunconsumablerichesofmoney,butintheconsumablegoodsannuallyreproducedbythelabourofthesociety,andinrepresent-ingperfectlibertyastheonlyeffectualexpedientforrenderingthisannualreproductionthegreatestpossible,itsdoctrineseemstobeineveryrespectasjustasitisgenerousandliberal.Itsfollowersareverynumerous;andasmenarefondofparadoxes,andofappearingtounderstandwhatsurpassesthecomprehensionofordinarypeople,theparadoxwhichitmaintains,concern-ingtheunproductivenatureofmanufacturinglabour,hasnotperhapscontributedalittletoincreasethenumberofitsadmirers.Theyhaveforsomeyearspastmadeaprettyconsiderablesect,distinguishedintheFrenchrepublicoflettersbythenameofTheEconomists.Theirworkshavecertainlybeenofsomeservicetotheircountry;notonlybybringingintogeneraldiscussion 178TheClassicalSchoolmanysubjectswhichhadneverbeenwellexaminedbefore,butbyinfluencinginsomemeasurethepublicadministrationinfavourofagriculture.Ithasbeeninconsequenceoftheirrepresen-tations,accordingly,thattheagricultureofFrancehasbeendeliveredfromseveraloftheoppres-sionswhichitbeforelabouredunder.Thetermduringwhichsuchaleasecanbegranted,aswillbevalidagainsteveryfuturepurchaserorproprietoroftheland,hasbeenprolongedfromninetotwenty-sevenyears.Theancientprovincialrestraintsuponthetransportationofcornfromoneprovinceofthekingdomtoanotherhavebeenentirelytakenaway,andthelibertyofexport-ingittoallforeigncountrieshasbeenestablishedasthecommonlawofthekingdominallordi-narycases.Thissect,intheirworks,whichareverynumerous,andwhichtreatnotonlyofwhatisproperlycalledPoliticalEconomy,orofthenatureandcausesofthewealthofnations,butofeveryotherbranchofthesystemofcivilgovernment,allfollowimplicitlyandwithoutanysensi-blevariation,thedoctrineofMrQuesnai.Thereisuponthisaccountlittlevarietyinthegreaterpartoftheirworks.ThemostdistinctandbestconnectedaccountofthisdoctrineistobefoundinalittlebookwrittenbyMrMercierdelaRiviere,sometimeintendantofMartinico,entitled,TheNaturalandEssentialOrderofPoliticalSocieties.Theadmirationofthiswholesectfortheirmaster,whowashimselfamanofthegreatestmodestyandsimplicity,isnotinferiortothatofanyoftheancientphilosophersforthefoundersoftheirrespectivesystems.‘Therehavebeen,sincetheworldbegan’,saysaverydiligentandrespectableauthor,theMarquisdeMirabeau,‘threegreatinventionswhichhaveprincipallygivenstabilitytopoliticalsocieties,independentofmanyotherinventionswhichhaveenrichedandadornedthem.Thefirstistheinventionofwriting,whichalonegiveshumannaturethepoweroftransmitting,withoutalteration,itslaws,itscontracts,itsannals,anditsdiscoveries.Thesecondistheinventionofmoney,whichbindstogetheralltherelationsbetweencivilisedsocieties.ThethirdistheEconomicalTable,theresultoftheothertwo,whichcompletesthembothbyperfectingtheirobject;thegreatdiscoveryofourage,butofwhichourposteritywillreapthebenefit’.…Thegreatestandmostimportantbranchofthecommerceofeverynation,ithasalreadybeenobserved,isthatwhichiscarriedonbetweentheinhabitantsofthetownandthoseofthecoun-try.Theinhabitantsofthetowndrawfromthecountrytherudeproducewhichconstitutesboththematerialsoftheirworkandthefundoftheirsubsistence;andtheypayforthisrudeproducebysendingbacktothecountryacertainportionofitmanufacturedandpreparedforimmediateuse.Thetradewhichiscarriedonbetweenthesetwodifferentsetsofpeopleconsistsultimatelyinacertainquantityofrudeproduceexchangedforacertainquantityofmanufacturedproduce.Thedearerthelatter,therefore,thecheapertheformer;andwhatevertendsinanycountrytoraisethepriceofmanufacturedproducetendstolowerthatoftherudeproduceoftheland,andtherebytodiscourageagriculture.Thesmallerthequantityofmanufacturedproducewhichanygivenquantityofrudeproduce,or,whatcomestothesamething,whichthepriceofanygivenquantityofrudeproduceiscapableofpurchasing,thesmallertheexchangeablevalueofthatgivenquantityofrudeproduce,thesmallertheencouragementwhicheitherthelandlordhastoincreaseitsquantitybyimprovingorthefarmerbycultivatingtheland.Whatever,besides,tendstodiminishinanycountrythenumberofartificersandmanufacturers,tendstodiminishthehomemarket,themostimportantofallmarketsfortherudeproduceoftheland,andtherebystillfurthertodiscourageagriculture.Thosesystems,therefore,which,preferringagriculturetoallotheremployments,inordertopromoteit,imposerestraintsuponmanufacturesandforeigntrade,actcontrarytotheveryendwhichtheypropose,andindirectlydiscouragethatveryspeciesofindustrywhichtheymeantopromote.Theyaresofar,perhaps,moreinconsistentthaneventhemercantilesystem.Thatsystem,byencouragingmanufacturesandforeigntrademorethanagriculture,turnsacertain Smith:TheWealthofNations179portionofthecapitalofthesocietyfromsupportingamoreadvantageous,tosupportalessadvantageousspeciesofindustry.Butstillitreallyandintheendencouragesthatspeciesofindustrywhichitmeanstopromote.Thoseagriculturalsystems,onthecontrary,reallyandintheenddiscouragetheirownfavouritespeciesofindustry.Itisthusthateverysystemwhichendeavours,eitherbyextraordinaryencouragementstodrawtowardsaparticularspeciesofindustryagreatershareofthecapitalofthesocietythanwhatwouldnaturallygotoit,or,byextraordinaryrestraints,forcefromaparticularspeciesofindus-trysomeshareofthecapitalwhichwouldotherwisebeemployedinit,isinrealitysubversiveofthegreatpurposewhichitmeanstopromote.Itretards,insteadofaccelerating,theprogressofthesocietytowardsrealwealthandgreatness;anddiminishes,insteadofincreasing,therealvalueoftheannualproduceofitslandandlabour.Allsystemseitherofpreferenceorofrestraint,therefore,beingthuscompletelytakenaway,theobviousandsimplesystemofnaturallibertyestablishesitselfofitsownaccord.Everyman,aslongashedoesnotviolatethelawsofjustice,isleftperfectlyfreetopursuehisowninteresthisownway,andtobringbothhisindustryandcapitalintocompetitionwiththoseofanyotherman,ororderofmen.Thesovereigniscompletelydischargedfromaduty,inattemptingtoperformwhichhemustalwaysbeexposedtoinnumerabledelusions,andfortheproperperfor-manceofwhichnohumanwisdomorknowledgecouldeverbesufficient;thedutyofsuperin-tendingtheindustryofprivatepeople,andofdirectingittowardstheemploymentsmostsuitabletotheinterestofthesociety.Accordingtothesystemofnaturalliberty,thesovereignhasonlythreedutiestoattendto;threedutiesofgreatimportance,indeed,butplainandintelligibletocommonunderstandings:first,thedutyofprotectingthesocietyfromviolenceandinvasionofotherindependentsocieties;second,thedutyofprotecting,asfaraspossible,everymemberofthesocietyfromtheinjusticeoroppressionofeveryothermemberofit,orthedutyofestablish-inganexactadministrationofjustice;and,third,thedutyoferectingandmaintainingcertainpublicworksandcertainpublicinstitutionswhichitcanneverbefortheinterestofanyindivid-ual,orsmallnumberofindividuals,toerectandmaintain;becausetheprofitcouldneverrepaytheexpensetoanyindividualorsmallnumberofindividuals,thoughitmayfrequentlydomuchmorethanrepayittoagreatsociety.… JEREMYBENTHAM(1748–1832)JeremyBenthamwasthemodeloftheEnlightenmentmind.Hewasindividualist,secularist,materialist,andpragmatic.Hebelievedthatwhilepeoplewereinfluencedbyreceivedmoralrulesandreligiousbeliefs,theserulesandbeliefs,nomatterwhatpeoplesaid,werefilteredthroughtheirdominantutilitarianapproachtolife.WhereasSmith’smodelofhumannaturewasbothmorecomplexandmorefinelytexturedandnuanced,Bentham’sapproachwasthatpeoplegenerallyrationallycalcu-latedtheirpleasuresandpains,moreinterestedintheconsequencesofactionfortheirself-intereststhaninobedientlyandblindlygivingeffecttoreceivedmoral-ity.Bentham’sutilitarianism,therefore,notonlyfinessedtheroleofreceivedmorality,subjugatingit–asanempiricalmatter,hebelieved–tocalculationsofadvantage,itendedupassomethingofatautology,atleastinsofarasitmightserveasanpredictivedevice.Buthisphilosophyofmethodologicalindividualismandthefeli-cificcalculusservedtogivecredibilitytoamoresecularandmorematerialistmodeofreasoning,effectivelyendorsinganJeremyBentham,Artist:ThomasFrye(1710–1762),bycourtesyofubiquitousbenefit–costmodeofdecisiontheNationalPortraitGallery,London.makinginbothprivateandpublicaffairs.Theotherelementofhisphilosophy,thegreatesthappinessprinciple,wasperhapsequallyrevolutionary–andevenmoreresentedbyestablishedpowers.ForBenthamarguedthatgovern-mentpolicyshouldbedrivennotbytheinterestsofeitheramonarchoranarrowrulingclassbutbytheinterestsofallpeople.Theproblemherewastobeseenashowmaximizationwastoweightheutilityofthoserelativelymostbenefitedagainsttheutilityofthoserelativelyleastbenefited,thatis,therelativeweightstobeassignedtotheintensiveandextensivemargins,whethertomaximizehappinessbymaximizingtheutility/welfareofthosemostbenefitedorofthenumberbenefited.Thisproblemofmeasuringandweighingtheelementsof“thegreatesthappinessfor JeremyBentham181thegreatestnumber”ledtotwograndtraditions:thebourgeoisandthesocialisttraditions,ortheBenthamiterightversustheBenthamiteleft.Ashistorytranspired,BenthamcouldmeaningfullybedeclaredthefatherofbothBritishindividualismandBritishcollectivism:ofBritishindividualisminsofarashe(and/orhisdisciples)promotedtheextensionoftherights,participationandbenefitsofcitizenshiptoever-increasingnumbersofpeople,ultimatelytoallpeople;andofBritishcollectivisminsofarasoncethemassesreceivedtherighttovotetheysoughttousegovernmentinanalyticallythesamewayastheupperclasseshaddone–thoughwithoutthedecorativerhetoricofidentifyingtheirsystemwiththenat-uralorderofthings,insteadtheagendabeinggiventhedesignationofcollectivismand/orwelfarestate,termslaudatorytosomeandmalodoroustoothers.Theuseofgovernmenttopromotemiddle-classinterestsbecamenineteenth-centuryliberalismandthattopromoteworkingclassandconsumerinterestsbecametwentieth-centuryliberalism.The“radicalism”ofthemiddleclasswasnowsupplantedbythe“radicalism”oftheworkingclass.Whichservestoindicatethatbythethirddecadeofthenineteenthcentury,orthereabouts,thehistoricconflictbetweenlandedpropertyandnonlandedproperty(capitalist)interestswouldberesolvedalongthefollowinggenerallines(epitomizedbytheReformActof1832):thelandedinterestsretainedtheirland,theirtitles(whererelevant),controlovertheHouseofLords,andthemonarchy;whereasthenonlandedinterestscametodominatetheHouseofCommonsandhadtheirdesiresenactedintolaw,astheeconomyproceededapacefromaruralandagriculturaltypetoanurban,commercialandindustrialtype.Notcoincidentally,itwasroughlyatthissametimethatthefirstmajororganizedstirringsoftheworkingclasswerebeingfelt,andincreasinglytheconflictoverthecontrolofgovernmentwaslessbetweentwodifferenttypesofactualandwould-bepropertyclaimantsandmorebetweenthosewhohadandthosewhodidnothaveproperty,thelatterofwhomincreasinglysoughttheadvancementoftheirinterestsalonglinesmoreorlessanalyticallyequivalenttoproperty,insocialandregulatorylegislation.SoBenthampromotedamoreclearcutandexplicit,consciousmakingofpersonalandcollec-tivepolicydecisions.Healso,byhisthreedoctrinesgavepoliticaleconomyaconfidencethataneconomicsciencecouldbebuiltonsecurephilosophicalfoundations.Hissecular,utilitarianapproachalsotended,butonlytended,toenablecollectivedecisionmaking–theeconomicroleofgovernment–tobetreatedrelativelyobjectivelyasamodeofsocialcontrol;butittrulyonlytendedtodoso,inasmuchasvariousformsofpolitical-economicideologycontinuedtofunction,andevenincreasedinmagnitudeandreason-disruptingdissimulation.Althoughhiswritingsarevoluminous,Benthamactuallypublishedverylittleofthismaterialduringhislifetime.Muchofhisinfluenceoncontemporaryandimmediatelysubsequenteconomicthinkingwaspersonal,andhisdisciplesincludedDavidRicardo,JamesMill,andJohnStuartMill.IntheexcerptsfromBentham’sworkreprintedhere,weseeshadesofseveralmajorthemesthatappearinthelargercorpusofinhishiswritings:utilitarianism,thegreatesthappinessprinci-ple,andtherelationshipbetweengovernmentandindividualrights.ReferencesandfurtherreadingBentham,Jeremy(1952)JeremyBentham’sEconomicWritings,3Vols,editedbyW.Stark,London:GeorgeAllenandUnwinforTheRoyalEconomicSociety.Blaug,Mark,ed.(1991)HenryThornton(1760–1815),JeremyBentham(1748–1832),JamesLauderdale(1759–1839),SimondedeSismondi(1773–1842),Aldershot:EdwardElgarPublishing.Harrison,Ross(1983)Bentham,London:RoutledgeandKeganPaul.——(1987)“Bentham,Jeremy,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.1,London:Macmillan,226–29.Halévy,Élie(1928)TheGrowthofPhilosophicalRadicalism,translatedbyMaryMorris,London:Faber&Faber. 182TheClassicalSchoolHutchison,T.W.(1956)“BenthamasEconomist,”EconomicJournal66(June):288–306.Petrella,F.1977)“BenthamismandtheDemiseofClassicalEconomicOrdnungsPolitik,”HistoryofPoliticalEconomy9(Summer):215–36.Robbins,Lionel(1964)“BenthamintheTwentiethCentury,”reprintedinLionelRobbins,TheEvolutionofModernEconomicTheoryandOtherPapersontheHistoryofEconomicThought,London:Macmillan,1970,73–84.Stark,W.(1941)“LibertyandEquality,orBenthamasanEconomist:I.Bentham’sDoctrine,”EconomicJournal51(April):56–79.——(1946)“LibertyandEquality,orBenthamasanEconomist:II.Bentham’sInfluence,”EconomicJournal56(December):583–608.Viner,Jacob(1949)“BenthamandJ.S.Mill:TheUtilitarianBackground,”AmericanEconomicReview39(March):360–82.Warke,Tom(2000)“MathematicalFitnessintheEvolutionoftheUtilityConceptfromBenthamtoJevonstoMarshall,”JournaloftheHistoryofEconomicThought22(March):5–27. AnIntroductiontothePrinciplesofMoralsandLegislation(1789)Chapter1:OftheprincipleofutilityNaturehasplacedmankindunderthegovernanceoftwosovereignmasters,painandpleasure.Itisforthemalonetopointoutwhatweoughttodo,aswellastodeterminewhatweshalldo.Ontheotherhand,thestandardofrightandwrong,ontheotherchainofcausesandeffects,arefastenedtotheirthrone.Theygovernusinallwedo,inallwesay,inallwethink:everyeffortwecanmaketothrowoffoursubjection,willservebuttodemonstrateandconfirmit.Inwordsamanmaypretendtoabjuretheirempire:butinrealityhewillremainsubjecttoitallthewhile.Theprincipleofutilityrecognisesthissubjection,andassumesitforthefoundationofthatsystem,theobjectofwhichistorearthefabricoffelicitybythehandsofreasonandoflaw.Systemswhichattempttoquestionit,dealinsoundsinsteadofsense,incapriceinsteadofreason,indarknessinsteadoflight.Butenoughofmetaphoranddeclamation:itisnotbysuchmeansthatmoralscienceistobeimproved.II.Theprincipleofutilityisthefoundationofthepresentwork:itwillbeproperthereforeattheoutsettogiveanexplicitanddeterminateaccountofwhatismeantbyit.Bytheprincipleofutilityismeantthatprinciplewhichapprovesordisapprovesofeveryactionwhatsoever,accord-ingtothetendencywhichitappearstohavetoaugmentordiminishthehappinessofthepartywhoseinterestisinquestion:or,whatisthesamethinginotherwords,topromoteortoopposethathappiness.Isayofeveryactionwhatsoever;andthereforenotonlyofeveryactionofaprivateindividual,butofeverymeasureofgovernment.III.Byutilityismeantthatpropertyinanyobject,wherebyittendstoproducebenefit,advantage,pleasure,good,orhappiness(allthisinthepresentcasecomestothesamething),or(whatcomesagaintothesamething)topreventthehappeningofmischief,pain,evil,orunhappinesstothepartywhoseinterestisconsidered:ifthatpartybethecommunityingeneral,thenthehappinessofthecommunity:ifaparticularindividual,thenthehappinessofthatindividual.IV.Theinterestofthecommunityisoneofthemostgeneralexpressionsthatcanoccurinthephraseologyofmorals:nowonderthatthemeaningofitisoftenlost.Whenithasameaning,itisthis.Thecommunityisafictitiousbody,composedoftheindividualpersonswhoareconsid-eredasconstitutingasitwereitsmembers.Theinterestofthecommunitythenis,what?–thesumoftheinterestoftheseveralmemberswhocomposeit.V.Itisinvaintotalkoftheinterestofthecommunity,withoutunderstandingwhatistheinterestoftheindividual.Athingissaidtopromotetheinterest,ortobefortheinterest,ofanindividual,whenittendstoaddtothesumtotalofhispleasures:or,whatcomestothesamething,todiminishthesumtotalofhispains. 184TheClassicalSchoolVI.Anactionthenmaybesaidtobeconformabletotheprincipleofutility,or,forshortnesssake,toutility(meaningwithrespecttothecommunityatlarge),whenthetendencyithastoaugmentthehappinessofthecommunityisgreaterthananyithastodiminishit.VII.Ameasureofgovernment(whichisbutaparticularkindofaction,performedbyapar-ticularpersonorpersons)maybesaidtobeconformabletoordictatedbytheprincipleofutility,wheninlikemannerthetendencywhichithastoaugmentthehappinessofthecommunityisgreaterthenanywhichithastodiminishit.VIII.Whenanaction,orinparticularameasureofgovernment,issupposedbyamantobeconformabletotheprincipleofutility,itmaybeconvenient,forthepurposesofdiscourse,toimagineakindoflawordictate,calledalawordictateofutility;andtospeakoftheactioninquestion,asbeingconformabletosuchlawordictate.IX.Amanmaybesaidtobeapartizanoftheprincipleofutility,whentheapprobationordisapprobationheannexestoanyaction,ortoanymeasure,isdeterminedbyandproportionedtothetendencywhichheconceivesittohavetoaugmentortodiminishthehappinessofthecom-munity:orinotherswords,toitsconformityorunconformitytothelawsordictatesofutility.X.Ofanactionthatisconformabletotheprincipleofutility,onemayalwayssayeitherthatitisonethatoughttobedone,oratleastthatitisnotonethatoughtnottobedone.Onemaysayalso,thatitisrightitshouldbedone;atleastthatitisnotwrongitshouldbedone:thatitisarightaction;atleastthatitisnotawrongaction.Whenthusinterpreted,thewordsought,andrightandwrong,andothersofthatstamp,haveameaning:whenotherwise,theyhavenone.XI.Hastherectitudeofthisprinciplebeeneverformallycontested?Itshouldseemthatithad,bythosewhohavenotknownwhattheyhavebeenmeaning.Isitsusceptibleofanydirectproof?Itshouldseemnot:forthatwhichisusedtoproveeverythingelse,cannotitselfbeproved:achainofproofsmusthavetheircommencementsomewhere.Togivesuchproofisasimpossibleasitisneedless.XII.Notthatthereisoreverhasbeenthathumancreaturebreathing,howeverstupidorper-verse,whohasnotonmany,perhapsonmostoccasionsofhislife,deferredtoit.Bythenaturalconstitutionofthehumanframe,onmostoccasionsoftheirlivesmeningeneralembracethisprinciple,withoutthinkingofit:ifnotfortheorderingoftheirownactions,yetforthetryingoftheirownactions,aswellasofthoseofothermen.Therehavebeen,atthesametime,notmany,perhaps,evenofthemostintelligent,whohavebeendisposedtoembraceitpurelyandwithoutreserve.Thereareevenfewwhohavenottakensomeoccasionorothertoquarrelwithit,eitheronaccountoftheirnotunderstandingalwayshowtoapplyit,oronaccountofsomeprejudiceorotherwhichtheywereofafraidtoexamineinto,orcouldnotbeartopartwith.Forsuchisthestuffthatmanismadeof:inprincipleandinpractice,inarighttrackandinawrongone,therarestofallhumanqualitiesisconsistency.XIII.Whenamanattemptstocombattheprincipleofutility,itiswithreasonsdrawn,with-outhisbeingawareofit,fromthatveryprincipleitself.Hisarguments,iftheyproveanything,provenotthattheprincipleiswrong,butthat,accordingtotheapplicationshesupposesistobemadeofit,itismisapplied.Isitpossibleforamantomovetheearth?Yes;buthemustfirstfindoutanotherearthtostandupon.XIV.Todisprovetheproprietyofitbyargumentsisimpossible;but,fromthecausesthathavebeenmentioned,orfromsomeconfusedorpartialviewofit,amanmayhappentobedisposednottorelishit.Wherethisisthecase,ifhethinksthesettlingofhisopinionsonsuchasubjectworththetrouble,lethimtakethefollowingsteps,andatlength,perhaps,hemaycometoreconcilehimselftoit.1.Lethimsettlewithhimself,whetherhewouldwishtodiscardthisprinciplealtogether;ifso,lethimconsiderwhatitisthatallhisreasonings(inmattersofpoliticsespecially)canamountto? Bentham:PrinciplesofMoralsandLegislation1852.Ifhewould,lethimsettlewithhimself,whetherhewouldjudgeandactwithoutanyprinciple,orwhetherthereisanyotherhewouldjudgeandactby?3.Iftherebe,lethimexamineandsatisfyhimselfwhethertheprinciplehethinkshehasfoundisreallyanyseparateintelligibleprinciple;orwhetheritbenotamereprincipleinwords,akindofphase,whichatbottomexpressesneithermoreorlessthanthemereavermentofhisownunfoundedsentiments;thatis,whatinanotherpersonhemightbeapttocallcaprice?4.Ifheisinclinedtothinkthathisownapprobationordisapprobation,annexedtotheideaofanact,withoutanyregardtoitsconsequences,isasufficientfoundationforhimtojudgeandactupon,lethimaskhimselfwhetherhissentimentistobeastandardofrightandwrong,withrespecttoeveryotherman,orwhethereveryman’ssentimenthasthesameprivilegeofbeingastandardtoitself?5.Inthefirstcase,lethimaskhimselfwhetherhisprincipleisnotdespotical,andhostiletoalltherestofhumanrace?6.Inthesecondcase,whetheritisnotanarchial,andwhetheratthisratetherearenotasmanydifferentstandardsofrightandwrongastherearemen?Andwhethereventothesameman,thesamething,whichisrightto-day,maynot(withouttheleastchangeinitsnature)bewrongto-morrow?Andwhetherthesamethingisnotrightandwronginthesameplaceatthesametime?Andineithercase,whetherallargumentisnotatanend?Andwhether,whentwomenhavesaid,‘Ilikethis,’and‘Idon’tlikeit,’theycan(uponsuchaprinciple)haveanythingmoretosay.7.Ifheshouldhavesaidtohimself,No:forthatthesentimentwhichheproposesasastan-dardmustbegroundedonreflection,lethimsayonwhatparticularsthereflectionistoturn?Ifonparticularshavingrelationtotheutilityoftheact,thenlethimsaywhetherthisisnotdesertinghisownprinciple,andborrowingassistancefromthatveryoneinoppositiontowhichhesetsitup:orifnotonthoseparticularsonwhatotherparticulars?8.Ifheshouldbeforcompoundingthematter,andadoptinghisownprincipleinpart,andtheprincipleofutilityinpart,lethimsayhowfarhewilladoptit?9.Whenhehassettledwithhimselfwherehewillstop,thenlethimaskhimselfhowhejusti-fiestohimselftheadoptingitsofar?Andwhyhewillnotadoptitanyfarther?10.Admittinganyotherprinciplethantheprincipleofutilitytobearightprinciple,aprinci-plethatitisrightforamantopursue;admitting(whatisnottrue)thatthewordrightcanhaveameaningwithoutreferencetoutilitylethimsaywhetherthereisanysuchthingasamotivethatamancanhavetopursuethedictatesofit:ifthereis,lethimsaywhatthatmotiveis,andhowitistobedistinguishedfromthosewhichenforcethedictatesofutility:ifnot,thenlastlylethimsaywhatitisthisotherprinciplecanbegoodfor? AManualofPoliticalEconomy(1795)ChapterI:IntroductionPoliticalEconomyisatonceascienceandanart.Thevalueofthesciencehasforitsefficientcauseandmeasure,itssubserviencytotheart.Accordingtotheprincipleofutilityineverybranchoftheartoflegislation,theobjectorendinviewshouldbetheproductionofthemaximumofhappinessinagiventimeinthecommu-nityinquestion.Intheinstanceofthisbranchoftheart,theobjectorendinviewshouldbetheproductionofthatmaximumofhappiness,insofarasthismoregeneralendispromotedbytheproductionofthemaximumofwealthandthemaximumofpopulation.Thepracticalquestions,therefore,are–Howfarthemeasuresrespectivelysuggestedbythesetwobranchesofthecommonendagree?–Howfartheydiffer,andwhichrequiresthepreference?–Howfartheendinviewisbestpromotedbyindividualsactingforthemselves?Andinwhatcasestheseendsmaybebestpromotedbythehandsofgovernment?Thosecasesinwhich,andthosemeasuresoroperationsbywhich,theendispromotedbyindividualsactingforthemselves,andwithoutanyspecialinterferenceexercisedwiththisspecialviewonthepartofgovernment,beyondthedistributionmadeandmaintained,andtheprotec-tionaffordedbythecivilandpenalbranchesofthelaw,maybesaidtoarisesponteacta.Whatthelegislatorandtheministeroftheinteriorhaveitintheirpowertodotowardsincreaseeitherofwealthorpopulation,isasnothingincomparisonwithwhatisdoneofcourse,andwithoutthinkingofit,bythejudge,andhisassistanttheministerofpolice.Thecasesinwhich,andthemeasuresbywhich,thecommonendmaybepromotedbythehandsofgovernment,maybetermedagenda.Withtheviewofcausinganincreasetotakeplaceinthemassofnationalwealth,orwithaviewtoincreaseofthemeanseitherofsubsistenceorenjoyment,withoutsomespecialreason,thegeneralruleis,thatnothingoughttobedoneorattemptedbygovernment.Themotto,orwatchwordofgovernment,ontheseoccasions,oughttobe–Bequiet.Forthisquietismtherearetwomainreasons:1.Generallyspeaking,anyinterferenceforthispurposeonthepartofgovernmentisneedless.Thewealthofthewholecommunityiscomposedofthewealthoftheseveralindividualsbelong-ingtoittakentogether.Buttoincreasehisparticularportionis,generallyspeaking,amongtheconstantobjectsofeachindividual’sexertionsandcare.Generallyspeaking,thereisnoonewhoknowswhatisforyourinterest,sowellasyourself–noonewhoisdisposedwithsomuchardourandconstancytopursueit.2.Generallyspeaking,itismoreoverlikelytobepernicious,namelybybeingunconducive,orevenobstructive,withreferencetotheattainmentoftheendinview.Eachindividualbestowingmoretimeandattentionuponthemeansofpreservingandincreasinghisportionofwealth, Bentham:ManualofPoliticalEconomy187thanisorcanbebestowedbygovernment,islikelytotakeamoreeffectualcoursethanwhat,inhisinstanceandonhisbehalf,wouldbetakenbygovernment.Itis,moreover,universallyandconstantlyperniciousinanotherway,bytherestraintorconstraintimposedonthefreeagencyoftheindividual.Painisthegeneralconcomitantofthesenseofsuchrestraint,whereveritisexperienced.Withoutbeingproductiveofsuchcoercion,andtherebyofsuch,pain–insuchawaymoreorlessdirect–moreorlessperceptible,withthisoranyotherview,theinterpositionofgovernmentcanhardlytakeplace.Ifthecoercionbenotappliedtotheveryindividualwhoseconductisendeavouredtobemadeimmediatelysubservienttothispurpose,itisatanyrateappliedtoothers–indeed,tothewholecommunitytakentogether.Incoercivemeasures,socalled,itisonlytotheindividualthatthecoercionisapplied.Inthecaseofmeasuresofencouragement,thefieldofcoercionisvastlymoreextensive.Encouragementsaregrantsofmoneyormoney’sworth,appliedinsomeshapeorothertothispurpose.Butforthis,anymorethananyotherpurpose,moneyisnotraisedbutbytaxes,andtaxesaretheproduceofcoercivelawsappliedtothemostcoercivepurpose.Thiswouldnotbethelesstrue,thoughtheindividualpiecesofmoneythusappliedhappenedtocomefromasourcewhichhadnotbeenfedbyanysuchmeans.Inallcommunities,byfarthegreatestshareofthemoneydisposedofbygovernmentbeingsuppliedbytaxes,whetherthisorthatparticularportionofmoneysoapplied,besuppliedfromthatparticularsource,makesnosortofdifference.Toestimatethegoodexpectedfromtheapplicationofanyparticularmassofgovernmentmoney,compareitalwayswiththemischiefproducedbytheextractionofanequalsumofmoneybythemostburthensomespeciesoftax;since,byforbearingtomakeapplicationofthatsumofmoney,youmightforbearlevyingtheamountofthatsamesumofmoneybythattax,andtherebyforbearimposingthemassofburthenthatresultsfromit. AnarchicalFallacies(1795)SpecimensofacriticismoftheFrenchdeclarationsofrightsArticleI–Men(allmen)arebornandremainfree,andequalinrespectofrights.Socialdistinctionscannotbefounded,butuponcommonutilityInthisarticlearecontained,grammaticallyspeaking,twodistinctsentences.Thefirstisfulloferror,theotherofambiguity.Inthefirstarecontainedfourdistinguishablepropositions,allofthemfalse–allofthemnotoriouslyandundeniablyfalse:1Thatallmenarebornfree.2Thatallmenremainfree.3Thatallmenarebornequalinrights.4Thatallmenremain(i.e.remainforever,forthepropositionisindefiniteandunlimited)equalinrights.Allmenarebornfree?Allmenremainfree?No,notasingleman:notasinglemanthateverwas,oris,orwillbe,Allmen,onthecontrary,areborninsubjection,andthemostabsolutesubjection–thesubjectionofahelplesschildtotheparentsonwhomhedependseverymomentforhisexistence.Inthissubjectioneverymanisborn–inthissubjectionhecontinuesforyears–foragreatnum-berofyears–andtheexistenceoftheindividualandofthespeciesdependsuponhissodoing.Whatisthestateofthingstowhichthesupposedexistenceofthesesupposedrightsismeanttobearreference?–astateofthingspriortotheexistenceofgovernment,orastateofthingssubsequenttotheexistenceofgovernment?Iftoastatepriortotheexistenceofgovernment,whatwouldtheexistenceofsuchrightsasthesebetothepurpose,evenifitweretrue,inanycountrywherethereissuchathingasgovernment?Iftoastateofthingssubsequenttothefor-mationofgovernment–ifinacountrywherethereisagovernment,inwhatsingleinstance–intheinstanceofwhatsinglegovernment,isittrue?Settingasidethecaseofparentandchild,letanymannamethatsinglegovernmentunderwhichanysuchequalityisrecognized.Allmenbornfree?Absurdandmiserablenonsense!Whenthegreatcomplaint–acomplaintmadeperhapsbytheverysamepeopleatthesametime,is–thatsomanymenarebornslaves.Oh!butwhenweacknowledgethemtobebornslaves,werefertothelawsinbeing;whichlawsbeingvoid,asbeingcontrarytothoselawsofnaturewhicharetheefficientcausesofthoserightsofmanthatwearedeclaring,themeninquestionarefreeinonesense,thoughslavesinanother;–slaves,andfree,atthesametime:freeinrespectofthelawsofnature–slavesinrespectofthepretendedhumanlaws,which,thoughcalledlaws,arenolawsatall,asbeingcontrarytothelawsofnature.Forsuchisthedifference–thegreatandperpetualdifference,betwixtthegood Bentham:AnarchicalFallacies189subject,therationalcensorofthelaws,andtheanarchist–betweenthemoderatemanandthemanofviolence.Therationalcensor,acknowledgingtheexistenceofthelawhedisapproves,proposestherepealofit:theanarchist,settinguphiswillandfancyforalawbeforewhichallmankindarecalledupontobowdownatthefirstword–theanarchist,tramplingontruthanddecency,deniesthevalidityofthelawinquestion,–deniestheexistenceofitinthecharacterofalaw,andcallsuponallmankindtoriseupinamass,andresisttheexecutionofit.…ArticleII–Theendinviewofeverypoliticalassociationisthepreservationofthenaturalandimprescriptiblerightsofman.Theserightsareliberty,property,security,andresistancetooppressionSentence1.Theendinviewofeverypoliticalassociation,isthepreservationofthenaturalandimprescriptiblerightsofman.Moreconfusion–morenonsense–andthenonsense,asusual,dangerousnonsense.Thewordscanscarcelybesaidtohaveameaning:butiftheyhave,orratheriftheyhadameaning,thesewouldbethepropositionseitherassertedorimplied:1.Thattherearesuchthingsasrightsanteriortotheestablishmentofgovernments:fornat-ural,asappliedtorights,ifitmeananything,ismeanttostandinoppositiontolegal–tosuchrightsasareacknowledgedtoowetheirexistencetogovernment,andareconsequentlyposteriorintheirdatetotheestablishmentofgovernment.2.Thattheserightscannotbeabrogatedbygovernment;forcannotisimpliedintheformofthewordimprescriptible,andthesenseitwearswhensoapplied,isthecut-throatsenseaboveexplained.3.Thatthegovernmentsthatexistderivetheiroriginfromformalassociations,orwhatarenowcalledconventions:associationsenteredintobyapartnershipcontract,withallthemembersforpartners,–enteredintoatadayprefixed,forapredeterminedpurpose,theformationofanewgovernmentwheretherewasnonebefore(forastoformalmeetingsholdenunderthecontrolofanexistinggovernment,theyareevidentlyoutofquestionhere)inwhichitseemsagaintobeimpliedinthewayofinference,thoughanecessaryandunavoidableinference,thatallgovernments(i.e.self-calledgovernments,knotsofpersonsexercisingthepowerofgovern-ment)thathavehadanyotheroriginthananassociationoftheabovedescription,areillegal,thatis,nogovernmentsatall;resistancetothem,andsubversionofthem,lawfulandcommendable;andsoon.Sucharethenotionsimpliedinthisfirstofthearticle.Howstandsthetruthofthings?Thattherearenosuchthingsasnaturalrights–nosuchthingsasrightsanteriortotheestablishmentofgovernment–nosuchthingsasnaturalrightsopposedto,incontradistinctionto,legal;thattheexpressionismerelyfigurative;thatwhenused,inthemomentyouattempttogiveitaliteralmeaning,itleadstoerror,andtothatsortoferrorthatleadstomischief–totheextremityofmischief.Weknowwhatitisformentolivewithoutgovernment–andlivingwithoutgovernment,tolivewithoutrights:weknowwhatitisformentolivewithoutgovernment,forweseeinstancesofsuchawayoflife–weseeitinmanysavagenations,orratherracesofmankind;forinstance,amongthesavagesofNewSouthWales,whosewayoflivingissowellknowntous;nohabitofobedience,andthencenogovernment–nogovernment,andthencenolaws–nolaws,and 190TheClassicalSchoolthencenosuchthingsasrights–nosecurity–noproperty:liberty,asagainstregularcontrol,thecontroloflawsandgovernment–perfectbutasagainstallirregularcontrol,themandatesofstrongerindividuals,none.Inthisstateatatimeearlierthanthecommencementofhistory–inthissamestate,judgingfromanalogy,we,theinhabitantsofthepartoftheglobewecallEurope,were;nogovernment,consequentlynorights:norights,consequentlynoproperty–nolegalsecurity–nolegalliberty:securitynotmorethanbelongstobeasts–forecastandsenseofinse-curitykeenerconsequentlyinpointofhappinessbelowthelevelofthebrutalrace.Inproportiontothewantofhappinessresultingfromthewantofrights,areasonexistsforwishingthatthereweresuchthingsasrights.Butreasonsforwishingthereweresuchthingsasrights,arenotrights:areasonforwishingthatacertainrightwereestablished,isnotthatright–wantisnotsupply–hungerisnotbread.Thatwhichhasnotexistencecannotbedestroyed–thatwhichcannotbedestroyedcannotrequireanythingtopreserveitfromdestruction.Naturalrightsissimplenonsense:naturalandimprescriptiblerights,rhetoricalnonsense–nonsenseuponstilts.Butthisrhetoricalnonsenseendsintheoldstrainofmischievousnonsense:forimmediatelyalistofthesepretendednaturalrightsisgiven,andthosearesoexpressedastopresenttoviewlegalrights.Andoftheserights,whatevertheyare,thereisnot,itseems,anyoneofwhichanygovernmentcan,uponanyocca-sionwhatever,abrogatethesmallestparticle.Somuchforterroristlanguage.Whatisthelanguageofreasonandplainsenseuponthissamesubject?Thatinproportionasitisrightorproper,thatis,advantageoustothesocietyinques-tion,thatthisorthatright–arighttothisorthateffect–shouldbeestablishedandmaintained,inthatsameproportionitiswrongthatisshouldbeabrogated:but,thatasthereisnoright,whichoughtnottobemaintainedsolongasitisuponthewholeadvantageoustosocietythatitshouldbemaintained,sothereisnorightwhich,whentheabolitionofitisadvantageoustosociety,shouldnotbeabolished.Toknowwhetheritwouldbemorefortheadvantageofsocietythatthisorthatrightshouldbemaintainedorabolished,thetimeatwhichthequestionaboutmaintain-ingorabolishingisproposed,mustbegiven,andthecircumstancesunderwhichitisproposedtomaintainorabolishit;therightitselfmustbespecificallydescribed,notjumbledwithanundis-tinguishableheapofothers,underanysuchvaguegeneraltermsasproperty,liberty,andthelike.Onething,inthemidstofallthisconfusion,isbuttooplain.Theyknownotofwhattheyaretalkingunderthenameofnaturalrights,andyettheywouldhavetheimprescriptible–proofagainstallthepowerofthelaws–pregnantwithoccasionssummoningthemembersofthecommunitytoriseupinresistanceagainstthoselaws.What,then,wastheirobjectindeclaringtheexistenceofimprescriptiblerights,andwithoutspecifyingasingleonebyanysuchmarkasitcouldbeknownby?This,andnoother–toexciteandkeepupaspiritofresistancetoalllaws–aspiritofinsurrectionagainstallgovernments–againstthegovernmentsofallothernationsinstantly–againstthegovernmentoftheirownnation–againstthegovernmenttheythemselveswerepretendingtoestablish–eventhat,assoonastheirownreignshouldbeatanend.Inusistheperfectionofvirtueandwisdom:inallmankindbesides,theextremityofwickednessandfolly.Ourwillshallconsequentlyreignwithoutcontrol,andforever:reignnow,weareliving–reignafterwearedead.Allnations–allfutureages–shallbe,fortheyarepredestinedtobe,ourslaves.Futuregovernmentswillnothavehonestyenoughtobetrustedwiththedeterminationofwhatrightsshallbemaintained,whatabrogated–whatlawskeptinforce,whatrepealed.Futuresubjects(Ishouldsayfuturecitizens,forFrenchgovernmentdoesnotadmitofsubjects)willnothavewitenoughtobetrustedwiththechoicewhethertosubmittothedeterminationofthegovernmentoftheirtime,ortoresistit.Governments,citizens–alltotheendoftime–allmustbekeptinchains. Bentham:AnarchicalFallacies191Sucharetheirmaxims–suchtheirpremises:foritisbysuchpremisesonlythatthedoctrineofimprescriptiblerightsandunrepealablelawscanbesupported.Whatistherealsourceoftheseimprescriptiblerights–theseunrepealablelaws?Powerturnedblindbylookingfromitsownheight:self-conceitandtyrannyexaltedintoinsanity.Nomanwastohaveanyothermanforaservant,yetallmenwereforevertobetheirslaves.Makinglawswithimpostureintheirmouths,underpretenceofdeclaringthem–givingforlawsanythingthatcameuppermost,andtheseunrepealableones,onpretenceoffindingthemreadymade.Madebywhat?NotbyGod–theyallowofnone;butbytheirgoddess,Nature.Theoriginationofgovernmentsfromacontractisapurefiction;or,inotherwords,afalsehood.Itneverhasbeenknowntobetrueinanyinstance;theallegationofitdoesmischief,byinvolvingthesubjectinerrorandconfusion,andisneithernecessarynorusefultoanygoodpurpose.Allgovernmentsthatwehaveanyaccountofhavebeengraduallyestablishedbyhabit,afterhavingformedbyforce;unlessintheinstanceofgovernmentsformedbyindividualswhohavebeenemancipated,orhaveemancipatedthemselvesfromgovernmentsalreadyformed,thegov-ernmentsunderwhichtheywereborn–ararecase,andfromwhichnothingfollowswithregardtotherest.Whatsignifiesithowgovernmentsareformed?Isitthelessproper–thelesscon-ducivetothehappinessofsociety–thatthehappinessofsocietyshouldbetheoneobjectkeptinviewbythemembersofthegovernmentinalltheirmeasures?Isitthelesstheinterestofmentobehappy–lesstobewishedthattheymaybeso–lessthemoraldutyoftheirgovernorstomakethemso,sofarastheycan,atMagadorethanatPhiladelphia?Whenceisit,butfromgovernment,thatcontractsderivetheirbindingforce?Contractscamefromgovernment,notgovernmentfromcontracts.Itisfromthehabitofenforcingcontracts,andseeingthemenforced,thatgovernmentsarechieflyindebtedforwhateverdispositiontheyhavetoobservethem. PrinciplesoftheCivilCode(1802)ChapterVI:Propositionsofpathologyuponwhichtheadvantageofequalityisfounded1Eachportionofwealthisconnectedwithacorrespondingportionofhappiness.2Oftwoindividuals,possessedofunequalfortunes,hewhopossessesthegreatestwealthwillpossessthegreatesthappiness.3Theexcessofhappinessonthepartofthemostwealthywillnotbesogreatastheexcessofhiswealth.4Forthesamereason,thegreaterthedisproportionbetweenthetwomassesofwealth,thelesstheprobabilitythatthereexistsanequallygreatdisproportionbetweenthemassesofhappiness.5Themorenearlytheactualproportionapproachestoequality,thegreaterwillbethetotalmassofhappiness. THOMASROBERTMALTHUS(1766–1834)ThomasRobertMalthusstudiedMathematicsatJesusCollege,Cambridge,graduatingin1788.HeenteredthechurchshortlyafterhisgraduationandheldtheofficeofMinisteroftheChurchofEnglandfortheremainderofhislife.In1805,Malthuswasappointed“ProfessorofGeneralHistory,Politics,CommerceandFinance,”whichlaterwaschangedto“ProfessorofHistoryandPoliticalEconomy”–thislattertitlemakinghimthefirstperson,inEnglandatleast,toholdthetitleof“ProfessorofPoliticalEconomy.”MalthusdiedinBathin1834andisburiedinBathAbbey.Theproblemofpopulationpressurehadbeenstressedforsometime,evenbytheancientGreekphilosophers–thoughnotbyallwriters,forsomesawingrowingpop-ulationmorehandsforthefarm,factoryandmilitary.In1798,MalthuspublishedhisEssayonthePrincipleofPopulation,AsItAffectstheFutureImprovementofSociety;WithRemarksontheSpeculationsofMrGodwin,M.Condorcet,andOtherThomasRobertMalthus,bycourtesyofTheWarrenJ.SamuelsWriters,inanattempttodispeltheutopianPortraitCollectionatDukeUniversity.idealsofGodwin,Condorcet,etc.Itprovedtobeamomentousevent,influencingoratleastframingdebateonavastvarietyofeconomicissuesandproposalsofsocialreformforoveracentury.AlthoughsometookMalthus’sargumentasapredictionofthefutureandotherssawitasbothamatterofconflictingtendenciesandasaconditionwithwhichhumanactionandgov-ernmentpolicywouldhavetodeal,andalthoughthetreatmentofmethodsofbirthcontrolwasmutedforoveracenturyandahalf,his“law”ofpopulation,oratleastthe“problem”ofpopulationbecameafocalconsiderationofClassicalPoliticalEconomy.Theimpactofandonpopulationbecameamatterofcentralinterestforalmosteverypublicissue.Conservativescouldpointtoover-reproductionamongthemassesasthecauseoftheirpoverty,andliberalscouldpointtoinstitutionswhichchanneledincometowardupperclasses,butthelogicofpopulationpressure,evenwithchangesininstitutions–whichwas,afterall,thepointatissue–wasverypowerful.Asitturnedout,inthetwocenturiesafter1798(1)realincomelevelsincreasedintheindustrializedcountriesand 194TheClassicalSchoolremainedlowinunderdevelopedcountries,thusdemonstratingthattheMalthusiantendencyneednotmaterialize,and(2)somepeopleremainedconcernedaboutglobalover-populationandothersdisputedthataseriousproblemexisted.Malthusarguedthatwhilepopulationincreasedinageometricratio,thefoodsupplycouldonlyincreaseatanarithmeticratio–thatis,thecapacitytoproducehumanbeingswasgreaterthanthecapacitytogrowfood,therebyplacingpressureonthestandardoflivingformostpeople.Forhim,populationwasnecessarilylimitedbythemeansofsubsistence,populationincreaseswhensubsistenceincreasesunlesschecked,andpopulationtendstoincreasefasterthantheincreaseinsubsistence.Averagepercapitaincomeswouldthusstronglytendtogravitatetowardtheminimum-of-subsistencelevel.Thepossiblecheckstopopulationgrowthwereoftwotypes,thepreventiveandthepositive.Thepreventivechecksencompassedvice(sexualrelationsoutsideofmarriage)andmoralrestraint(sexualabstinencewithinmarriage,foregoingmarriage,andperhapsbirthcontroldevices).Thepositivecheckinvolvesincreaseddeathratesduetofamineandepidemics,war,cannibalism,infanticide,andgeriatricide.Allofthisultimatelydevolvedto,asMalthusputit,“mis-eryandvice”–nottheutopianperfectibilityofGodwinandothers.Asitturnedout,whereasMalthusinitiallyseemedtostressthepositivechecks,adismalpictureindeed,helaterstressedmoralrestraint–ineffectrecognizingGodwin’sargumentabouttheroleoftheintellectvis-à-visthedesireforsex.Actually,Malthus’sanalysisstressedthreeconsequencesofpopulationpressure.Onewasdownwardpressureonlivingstandards.Theothertwowerenegativeeffectsonthequalityoflifeandtheneedtoresorttogreaterformal,thatis,legal,socialcontrol–bothduetogreatnumbersofpeople,greaterdensityofpopulation,andgreaterinteractionamongpeople.Malthus’slawofpopulationservedasabasisforthetheoryofrentdevelopedbyhimandseveralothers,notablyDavidRicardo.Rentwasthesumofthesupramarginalreturnsonlandthatwasmorefertileand/orbettersituated;itwasdrivenbypopulationgrowthandwasdifferentialasbetweenlandsofdifferentgrade.MalthusinvokedthetheoryofrentinsupportoftheCornLaws,reasoningthattheyservedtosupportthepoliticallyandsociallyimportantlandowningclass,withwhichheidentified.ThesametheoryofrentwasusedbyRicardotosupportdoingawaywiththeCornLaws,becausetheyservedtoraisethewagespaidbybusiness,theclasswithwhichheidentified.Thisepisodeinthehistoryofeconomicthoughtillustrateshowreadilyatheorycanbecombinedwithdifferentadditionalassumptionstogeneratedifferentanalyticalandpolicyimplica-tions.Themeaningofatheorydependsonitsuse,whichisoftenamatterofimplicitantecedentpremisesastowhoseinterestsaretocount.Malthus’sEssaywentthroughsixeditionsbetween1798and1827.Thefirstrevision,publishedin1803,wasgreatlyenlargedandreflectedMalthus’sobservationsmadeduringEuropeantravelsaswellasotherdataandinformationthathefeltsupportedhisargument.Thiseditionhadoneotherkeydifferencefromthefirst:theadditionofathirdrestraint–theprudentialcheck,meaningthedeferral(ratherthanforegoing)ofmarriage,which,hesaid,didnotinvolveeithermiseryorvice.ThepassagesfromMalthus’sEssayreprintedherearefromthefirsteditionof1798andpresentMalthus’scaseforthepopulationproblemandhisdiscussionofthepreventiveandpostivecheckstopopulationgrowth.Referencesandfurtherreading*Bonar,J.(1924)MalthusandHisWork,2ndedn,London:GeorgeAllenandUnwin.Eversley,D.E.C.(1959)SocialTheoriesofFertilityandtheMalthusianDebate,London:OxfordUniversityPress.*FurtherreferencestoMalthus’slifeandworkcanbefoundintheintroductiontothesubsequentreadingfromhisPrinciplesofPoliticalEconomy. ThomasRobertMalthus195James,Patricia(1979)PopulationMalthus:HisLifeandTimes,London:RoutledgeandKeganPaul.Keynes,J.M.(1933)“RobertMalthus,”inJ.M.Keynes(ed.),EssaysinBiography,London:Macmillan.McCleary,G.F.(1953)TheMalthusianPopulationTheory,London:Faber&Faber.Petersen,William(1964)ThePoliticsofPopulation,GardenCity,NY:Doubleday.Pullen,J.M.(1981)“Malthus’TheologicalIdeasandTheirInfluenceonHisPrincipleofPopulation,”HistoryofPoliticalEconomy13(Spring)39–54.——(1987)“Malthus,ThomasRobert,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,280–5.Simon,JulianL.(1998)TheEconomicsofPopulation:ClassicWritings,NewBrunswick,NJ:TransactionPublishers.Spengler,J.J.(1972)PopulationEconomics:SelectedEssays,Durham,NC:DukeUniversityPress.Stangeland,CharlesE.(1904)Pre-MalthusianDoctrinesofPopulation:AStudyintheHistoryofEconomicTheory,reprintedNewYork:AugustusM.Kelley,1966.Weir,D.R.(1987)“Malthus’sTheoryofPopulation,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,290–3. AnEssayonthePrincipleofPopulation(1798)*Chapter1Thegreatandunlookedfordiscoveriesthathavetakenplaceoflateyearsinnaturalphilosophy,theincreasingdiffusionofgeneralknowledgefromtheextensionoftheartofprinting,theardentandunshackledspiritofinquirythatprevailsthroughouttheletteredandevenunletteredworld,thenewandextraordinarylightsthathavebeenthrownonpoliticalsubjectswhichdazzleandastonishtheunderstanding,andparticularlythattremendousphenomenoninthepoliticalhorizon,theFrenchRevolution,which,likeablazingcomet,seemsdestinedeithertoinspirewithfreshlifeandvigour,ortoscorchupanddestroytheshrinkinginhabitantsoftheearth,haveallconcurredtoleadmanyablemenintotheopinionthatweweretouchingonaperiodbigwiththemostimportantchanges,changesthatwouldinsomemeasurebedecisiveofthefuturefateofmankind.Ithasbeensaidthatthegreatquestionisnowatissue,whethermanshallhenceforthstartforwardwithacceleratedvelocitytowardsillimitable,andhithertounconceivedimprovement,orbecondemnedtoaperpetualoscillationbetweenhappinessandmisery,andaftereveryeffortremainstillatanimmeasurabledistancefromthewished-forgoal.Yet,anxiouslyaseveryfriendofmankindmustlookforwardtotheterminationofthispainfulsuspense,andeagerlyastheinquiringmindwouldhaileveryrayoflightthatmightassistitsviewintofuturity,itismuchtobelamentedthatthewritersoneachsideofthismomentousquestionstillkeepfaralooffromeachother.Theirmutualargumentsdonotmeetwithacandidexami-nation.Thequestionisnotbroughttorestonfewerpoints,andevenintheoryscarcelyseemstobeapproachingtoadecision.Theadvocateforthepresentorderofthingsisapttotreatthesectofspeculativephilosopherseitherasasetofartfulanddesigningknaveswhopreachupardentbenevolenceanddrawcapti-vatingpicturesofahappierstateofsocietyonlythebettertoenablethemtodestroythepresentestablishmentsandtoforwardtheirowndeep-laidschemesofambition,oraswildandmad-headedenthusiastswhosesillyspeculationsandabsurdparadoxesarenotworthytheattentionofanyreasonableman.Theadvocatefortheperfectibilityofman,andofsociety,retortsonthedefenderofestablish-mentsamorethanequalcontempt.Hebrandshimastheslaveofthemostmiserableandnarrowprejudices;orasthedefenderoftheabusesofcivilsocietyonlybecauseheprofitsbythem.Hepaintshimeitherasacharacterwhoprostituteshisunderstandingtohisinterest,orasonewhosepowersofmindarenotofasizetograspanythinggreatandnoble,whocannotsee*AnEssayonthePrincipleofPopulation,AsItAffectstheFutureImprovementofSocietyWithRemarksontheSpeculationsofMrGodwin,M.Condorcet,andOtherWriters,London,PrintedforJohnson,J.inStPaul’sChurch-Yard,7June1798. Malthus:EssayonPopulation197abovefiveyardsbeforehim,andwhomustthereforebeutterlyunabletotakeintheviewsoftheenlightenedbenefactorofmankind.Inthisunamicablecontestthecauseoftruthcannotbutsuffer.Thereallygoodargumentsoneachsideofthequestionarenotallowedtohavetheirproperweight.Eachpursueshisownthe-ory,littlesolicitoustocorrectorimproveitbyanattentiontowhatisadvancedbyhisopponents.Thefriendofthepresentorderofthingscondemnsallpoliticalspeculationsinthegross.Hewillnotevencondescendtoexaminethegroundsfromwhichtheperfectibilityofsocietyisinferred.Muchlesswillhegivehimselfthetroubleinafairandcandidmannertoattemptanexpositionoftheirfallacy.Thespeculativephilosopherequallyoffendsagainstthecauseoftruth.Witheyesfixedonahappierstateofsociety,theblessingsofwhichhepaintsinthemostcaptivatingcolours,heallowshimselftoindulgeinthemostbitterinvectivesagainsteverypresentestablishment,withoutapplyinghistalentstoconsiderthebestandsafestmeansofremovingabusesandwithoutseem-ingtobeawareofthetremendousobstaclesthatthreaten,evenintheory,toopposetheprogressofmantowardsperfection.Itisanacknowledgedtruthinphilosophythatajusttheorywillalwaysbeconfirmedbyexper-iment.Yetsomuchfriction,andsomanyminutecircumstancesoccurinpractice,whichitisnexttoimpossibleforthemostenlargedandpenetratingmindtoforesee,thatonfewsubjectscananytheorybepronouncedjust,tillalltheargumentsagainstithavebeenmaturelyweighedandclearlyandconsistentlyrefuted.Ihavereadsomeofthespeculationsontheperfectibilityofmanandofsocietywithgreatpleasure.Ihavebeenwarmedanddelightedwiththeenchantingpicturewhichtheyholdforth.Iardentlywishforsuchhappyimprovements.ButIseegreat,and,tomyunderstanding,uncon-querabledifficultiesinthewaytothem.Thesedifficultiesitismypresentpurposetostate,declar-ing,atthesametime,thatsofarfromexultinginthem,asacauseoftriumphoverthefriendsofinnovation,nothingwouldgivemegreaterpleasurethantoseethemcompletelyremoved.ThemostimportantargumentthatIshalladduceiscertainlynotnew.TheprinciplesonwhichitdependshavebeenexplainedinpartbyHume,andmoreatlargebyDrAdamSmith.Ithasbeenadvancedandappliedtothepresentsubject,thoughnotwithitsproperweight,orinthemostforciblepointofview,byMrWallace,anditmayprobablyhavebeenstatedbymanywritersthatIhavenevermetwith.Ishouldcertainlythereforenotthinkofadvancingitagain,thoughImeantoplaceitinapointofviewinsomedegreedifferentfromanythatIhavehith-ertoseen,ifithadeverbeenfairlyandsatisfactorilyanswered.Thecauseofthisneglectonthepartoftheadvocatesfortheperfectibilityofmankindisnoteasilyaccountedfor.IcannotdoubtthetalentsofsuchmenasGodwinandCondorcet.Iamunwillingtodoubttheircandour.Tomyunderstanding,andprobablytothatofmostothers,thedifficultyappearsinsurmountable.Yetthesemenofacknowledgedabilityandpenetrationscarcelydeigntonoticeit,andholdontheircourseinsuchspeculationswithunabatedardourandundiminishedconfidence.Ihavecertainlynorighttosaythattheypurposelyshuttheireyestosucharguments.Ioughtrathertodoubtthevalidityofthem,whenneglectedbysuchmen,howeverforciblytheirtruthmaystrikemyownmind.Yet,inthisrespect,itmustbeacknowl-edgedthatweareallofustoopronetoerr.IfIsawaglassofwinerepeatedlypresentedtoaman,andhetooknonoticeofit,Ishouldbeapttothinkthathewasblindoruncivil.AjusterphilosophymightteachmerathertothinkthatmyeyesdeceivedmeandthattheofferwasnotreallywhatIconceivedittobe.InenteringupontheargumentImustpremisethatIputoutofthequestion,atpresent,allmereconjectures,thatis,allsuppositions,theprobablerealizationofwhichcannotbeinferreduponanyjustphilosophicalgrounds.Awritermaytellmethathethinksmanwillultimatelybecomeanostrich.Icannotproperlycontradicthim.Butbeforehecanexpecttobringany 198TheClassicalSchoolreasonablepersonovertohisopinion,heoughttoshewthatthenecksofmankindhavebeengraduallyelongating,thatthelipshavegrownharderandmoreprominent,thatthelegsandfeetaredailyalteringtheirshape,andthatthehairisbeginningtochangeintostubsoffeathers.Andtilltheprobabilityofsowonderfulaconversioncanbeshewn,itissurelylosttimeandlosteloquencetoexpatiateonthehappinessofmaninsuchastate;todescribehispowers,bothofrunningandflying,topainthiminaconditionwhereallnarrowluxurieswouldbecondemned,wherehewouldbeemployedonlyincollectingthenecessariesoflife,andwhere,consequently,eachman’sshareoflabourwouldbelight,andhisportionofleisureample.IthinkImayfairlymaketwopostulata.First,thatfoodisnecessarytotheexistenceofman.Second,thatthepassionbetweenthesexesisnecessaryandwillremainnearlyinitspresentstate.Thesetwolaws,eversincewehavehadanyknowledgeofmankind,appeartohavebeenfixedlawsofournature,and,aswehavenothithertoseenanyalterationinthem,wehavenorighttoconcludethattheywilleverceasetobewhattheynoware,withoutanimmediateactofpowerinthatBeingwhofirstarrangedthesystemoftheuniverse,andfortheadvantageofhiscreatures,stillexecutes,accordingtofixedlaws,allitsvariousoperations.Idonotknowthatanywriterhassupposedthatonthisearthmanwillultimatelybeabletolivewithoutfood.ButMrGodwinhasconjecturedthatthepassionbetweenthesexesmayintimebeextinguished.As,however,hecallsthispartofhisworkadeviationintothelandofconjecture,Iwillnotdwelllongeruponitatpresentthantosaythatthebestargumentsfortheperfectibilityofmanaredrawnfromacontemplationofthegreatprogressthathehasalreadymadefromthesavagestateandthedifficultyofsayingwhereheistostop.Buttowardstheextinctionofthepassionbetweenthesexes,noprogresswhateverhashithertobeenmade.Itappearstoexistinasmuchforceatpresentasitdidtwothousandorfourthousandyearsago.Thereareindividualexceptionsnowastherealwayshavebeen.But,astheseexceptionsdonotappeartoincreaseinnumber,itwouldsurelybeaveryunphilosophicalmodeofarguingtoinfer,merelyfromtheexistenceofanexception,thattheexceptionwould,intime,becometherule,andtheruletheexception.Assumingthenmypostulataasgranted,Isay,thatthepowerofpopulationisindefinitelygreaterthanthepowerintheearthtoproducesubsistenceforman.Population,whenunchecked,increasesinageometricalratio.Subsistenceincreasesonlyinanarithmeticalratio.Aslightacquaintancewithnumberswillshewtheimmensityofthefirstpowerincomparisonofthesecond.Bythatlawofournaturewhichmakesfoodnecessarytothelifeofman,theeffectsofthesetwounequalpowersmustbekeptequal.Thisimpliesastrongandconstantlyoperatingcheckonpopulationfromthedifficultyofsubsistence.Thisdifficultymustfallsomewhereandmustnecessarilybeseverelyfeltbyalargeportionofmankind.Throughtheanimalandvegetablekingdoms,naturehasscatteredtheseedsoflifeabroadwiththemostprofuseandliberalhand.Shehasbeencomparativelysparingintheroomandthenourishmentnecessarytorearthem.Thegermsofexistencecontainedinthisspotofearth,withamplefood,andampleroomtoexpandin,wouldfillmillionsofworldsinthecourseofafewthousandyears.Necessity,thatimperiousallpervadinglawofnature,restrainsthemwithintheprescribedbounds.Theraceofplantsandtheraceofanimalsshrinkunderthisgreatrestrictivelaw.Andtheraceofmancannot,byanyeffortsofreason,escapefromit.Amongplantsandani-malsitseffectsarewasteofseed,sickness,andprematuredeath.Amongmankind,miseryandvice.Theformer,misery,isanabsolutelynecessaryconsequenceofit.Viceisahighlyprobable Malthus:EssayonPopulation199consequence,andwethereforeseeitabundantlyprevail,butitoughtnot,perhaps,tobecalledanabsolutelynecessaryconsequence.Theordealofvirtueistoresistalltemptationtoevil.Thisnaturalinequalityofthetwopowersofpopulationandofproductionintheearth,andthatgreatlawofournaturewhichmustconstantlykeeptheireffectsequal,formthegreatdifficultythattomeappearsinsurmountableinthewaytotheperfectibilityofsociety.Allotherargumentsareofslightandsubordinateconsiderationincomparisonofthis.Iseenowaybywhichmancanescapefromtheweightofthislawwhichpervadesallanimatednature.Nofanciedequality,noagrarianregulationsintheirutmostextent,couldremovethepressureofitevenforasinglecentury.Anditappears,therefore,tobedecisiveagainstthepossibleexistenceofasociety,allthemembersofwhichshouldliveinease,happiness,andcomparativeleisure;andfeelnoanxietyaboutprovidingthemeansofsubsistenceforthemselvesandfamilies.Consequently,ifthepremisesarejust,theargumentisconclusiveagainsttheperfectibilityofthemassofmankind.Ihavethussketchedthegeneraloutlineoftheargument,butIwillexamineitmoreparticularly,andIthinkitwillbefoundthatexperience,thetruesourceandfoundationofallknowledge,invariablyconfirmsitstruth.Chapter2Isaidthatpopulation,whenunchecked,increasedinageometricalratio,andsubsistenceformaninanarithmeticalratio.Letusexaminewhetherthispositionbejust.Ithinkitwillbeallowed,thatnostatehashith-ertoexisted(atleastthatwehaveanyaccountof)wherethemannersweresopureandsimple,andthemeansofsubsistencesoabundant,thatnocheckwhateverhasexistedtoearlymarriages,amongthelowerclasses,fromafearofnotprovidingwellfortheirfamilies,oramongthehigherclasses,fromafearofloweringtheirconditioninlife.Consequentlyinnostatethatwehaveyetknownhasthepowerofpopulationbeenlefttoexertitselfwithperfectfreedom.Whetherthelawofmarriagebeinstitutedornot,thedictateofnatureandvirtueseemstobeanearlyattachmenttoonewoman.Supposingalibertyofchanginginthecaseofanunfortu-natechoice,thislibertywouldnotaffectpopulationtillitarosetoaheightgreatlyvicious;andwearenowsupposingtheexistenceofasocietywhereviceisscarcelyknown.Inastatethereforeofgreatequalityandvirtue,wherepureandsimplemannersprevailed,andwherethemeansofsubsistenceweresoabundantthatnopartofthesocietycouldhaveanyfearsaboutprovidingamplyforafamily,thepowerofpopulationbeinglefttoexertitselfunchecked,theincreaseofthehumanspecieswouldevidentlybemuchgreaterthananyincreasethathasbeenhithertoknown.IntheUnitedStatesofAmerica,wherethemeansofsubsistencehavebeenmoreample,themannersofthepeoplemorepure,andconsequentlythecheckstoearlymarriagesfewer,thaninanyofthemodernstatesofEurope,thepopulationhasbeenfoundtodoubleitselfintwenty-fiveyears.Thisratioofincrease,thoughshortoftheutmostpowerofpopulation,yetastheresultofactualexperience,wewilltakeasourrule,andsay,thatpopulation,whenunchecked,goesondoublingitselfeverytwenty-fiveyearsorincreasesinageometricalratio.Letusnowtakeanyspotofearth,thisIslandforinstance,andseeinwhatratiothesubsistenceitaffordscanbesupposedtoincrease.Wewillbeginwithitunderitspresentstateofcultivation.IfIallowthatbythebestpossiblepolicy,bybreakingupmorelandandbygreatencourage-mentstoagriculture,theproduceofthisIslandmaybedoubledinthefirsttwenty-fiveyears,Ithinkitwillbeallowingasmuchasanypersoncanwelldemand.Inthenexttwenty-fiveyears,itisimpossibletosupposethattheproducecouldbequadrupled.Itwouldbecontrarytoallourknowledgeofthequalitiesofland.Theveryutmostthatwecan 200TheClassicalSchoolconceive,is,thattheincreaseinthesecondtwenty-fiveyearsmightequalthepresentproduce.Letusthentakethisforourrule,thoughcertainlyfarbeyondthetruth,andallowthat,bygreatexertion,thewholeproduceoftheIslandmightbeincreasedeverytwenty-fiveyears,byaquan-tityofsubsistenceequaltowhatitatpresentproduces.Themostenthusiasticspeculatorcannotsupposeagreaterincreasethanthis.InafewcenturiesitwouldmakeeveryacreoflandintheIslandlikeagarden.Yet,thisratioofincreaseisevidentlyarithmetical.Itmaybefairlysaid,therefore,thatthemeansofsubsistenceincreaseinanarithmeticalratio.Letusnowbringtheeffectsofthesetworatiostogether.ThepopulationoftheIslandiscomputedtobeaboutsevenmillions,andwewillsupposethepresentproduceequaltothesupportofsuchanumber.Inthefirsttwenty-fiveyearsthepopula-tionwouldbefourteenmillions,andthefoodbeingalsodoubled,themeansofsubsistencewouldbeequaltothisincrease.Inthenexttwenty-fiveyearsthepopulationwouldbetwenty-eightmil-lions,andthemeansofsubsistenceonlyequaltothesupportoftwenty-onemillions.Inthenextperiod,thepopulationwouldbefifty-sixmillions,andthemeansofsubsistencejustsufficientforhalfthatnumber.Andattheconclusionofthefirstcenturythepopulationwouldbeonehundredandtwelvemillionsandthemeansofsubsistenceonlyequaltothesupportofthirty-fivemillions,whichwouldleaveapopulationofseventy-sevenmillionstotallyunprovidedfor.Agreatemigrationnecessarilyimpliesunhappinessofsomekindorotherinthecountrythatisdeserted.Forfewpersonswillleavetheirfamilies,connections,friends,andnativeland,toseekasettlementinuntriedforeignclimes,withoutsomestrongsubsistingcausesofuneasinesswheretheyare,orthehopeofsomegreatadvantagesintheplacetowhichtheyaregoing.Buttomaketheargumentmoregeneralandlessinterruptedbythepartialviewsofemigration,letustakethewholeearth,insteadofonespot,andsupposethattherestraintstopopulationwereuniversallyremoved.Ifthesubsistenceformanthattheearthaffordswastobeincreasedeverytwenty-fiveyearsbyaquantityequaltowhatthewholeworldatpresentproduces,thiswouldallowthepowerofproductionintheearthtobeabsolutelyunlimited,anditsratioofincreasemuchgreaterthanwecanconceivethatanypossibleexertionsofmankindcouldmakeit.Takingthepopulationoftheworldatanynumber,athousandmillions,forinstance,thehumanspecieswouldincreaseintheratioof–1,2,4,8,16,32,64,128,256,512,etc.andsub-sistenceas–1,2,3,4,5,6,7,8,9,10,etc.Intwocenturiesandaquarter,thepopulationwouldbetothemeansofsubsistenceas512to10:inthreecenturiesas4096to13,andintwothousandyearsthedifferencewouldbealmostincalculable,thoughtheproduceinthattimewouldhaveincreasedtoanimmenseextent.Nolimitswhateverareplacedtotheproductionsoftheearth;theymayincreaseforeverandbegreaterthananyassignablequantity.Yetstillthepowerofpopulationbeingapowerofasuperiororder,theincreaseofthehumanspeciescanonlybekeptcommensuratetotheincreaseofthemeansofsubsistencebytheconstantoperationofthestronglawofnecessityactingasacheckuponthegreaterpower.Theeffectsofthischeckremainnowtobeconsidered.Amongplantsandanimalstheviewofthesubjectissimple.Theyareallimpelledbyapower-fulinstincttotheincreaseoftheirspecies,andthisinstinctisinterruptedbynoreasoningordoubtsaboutprovidingfortheiroffspring.Whereverthereforethereisliberty,thepowerofincreaseisexerted,andthesuperabundanteffectsarerepressedafterwardsbywantofroomandnourishment,whichiscommontoanimalsandplants,andamonganimalsbybecomingthepreyofothers.Theeffectsofthischeckonmanaremorecomplicated.Impelledtotheincreaseofhisspeciesbyanequallypowerfulinstinct,reasoninterruptshiscareerandaskshimwhetherhemaynotbringbeingsintotheworldforwhomhecannotprovidethemeansofsubsistence.Inastateof Malthus:EssayonPopulation201equality,thiswouldbethesimplequestion.Inthepresentstateofsociety,otherconsiderationsoccur.Willhenotlowerhisrankinlife?Willhenotsubjecthimselftogreaterdifficultiesthanheatpresentfeels?Willhenotbeobligedtolabourharder?Andifhehasalargefamily,willhisutmostexertionsenablehimtosupportthem?Mayhenotseehisoffspringinragsandmisery,andclamouringforbreadthathecannotgivethem?Andmayhenotbereducedtothegratingnecessityofforfeitinghisindependence,andofbeingobligedtothesparinghandofcharityforsupport?Theseconsiderationsarecalculatedtoprevent,andcertainlydoprevent,averygreatnumberinallcivilizednationsfrompursuingthedictateofnatureinanearlyattachmenttoonewoman.Andthisrestraintalmostnecessarily,thoughnotabsolutelyso,producesvice.Yet,inallsocieties,eventhosethataremostvicious,thetendencytoavirtuousattachmentissostrongthatthereisaconstantefforttowardsanincreaseofpopulation.Thisconstanteffortasconstantlytendstosubjectthelowerclassesofthesocietytodistressandtopreventanygreatpermanentameliora-tionoftheircondition.Thewayinwhich,theseeffectsareproducedseemstobethis.Wewillsupposethemeansofsubsistenceinanycountryjustequaltotheeasysupportofitsinhabitants.Theconstantefforttowardspopulation,whichisfoundtoacteveninthemostvicioussocieties,increasesthenumberofpeoplebeforethemeansofsubsistenceareincreased.Thefoodthereforewhichbeforesup-portedsevenmillionsmustnowbedividedamongsevenmillionsandahalforeightmillions.Thepoorconsequentlymustlivemuchworse,andmanyofthembereducedtoseveredistress.Thenumberoflabourersalsobeingabovetheproportionoftheworkinthemarket,thepriceoflabourmusttendtowardsadecrease,whilethepriceofprovisionswouldatthesametimetendtorise.Thelabourerthereforemustworkhardertoearnthesameashedidbefore.Duringthisseasonofdistress,thediscouragementstomarriage,andthedifficultyofrearingafamilyaresogreatthatpopulationisatastand.Inthemeantimethecheapnessoflabour,theplentyoflabour-ers,andthenecessityofanincreasedindustryamongstthem,encouragecultivatorstoemploymorelabourupontheirland,toturnupfreshsoil,andtomanureandimprovemorecompletelywhatisalreadyintillage,tillultimatelythemeansofsubsistencebecomeinthesameproportiontothepopulationasattheperiodfromwhichwesetout.Thesituationofthelabourerbeingthenagaintolerablycomfortable,therestraintstopopulationareinsomedegreeloosened,andthesameretrogradeandprogressivemovementswithrespecttohappinessarerepeated.Thissortofoscillationwillnotberemarkedbysuperficialobservers,anditmaybedifficultevenforthemostpenetratingmindtocalculateitsperiods.Yetthatinalloldstatessomesuchvibrationdoesexist,thoughfromvarioustransversecauses,inamuchlessmarked,andinamuchmoreirregularmannerthanIhavedescribedit,noreflectingmanwhoconsidersthesubjectdeeplycanwelldoubt.…ThetheoryonwhichthetruthofthispositiondependsappearstomesoextremelyclearthatIfeelatalosstoconjecturewhatpartofitcanbedenied.Thatpopulationcannotincreasewithoutthemeansofsubsistenceisapropositionsoevidentthatitneedsnoillustration.Thatpopulationdoesinvariablyincreasewheretherearethemeansofsubsistence,thehistoryofeverypeoplethathaveeverexistedwillabundantlyprove.Andthatthesuperiorpowerofpopulationcannotbecheckedwithoutproducingmiseryorvice,theampleportionofthesetoobitteringredientsinthecupofhumanlifeandthecontinu-anceofthephysicalcausesthatseemtohaveproducedthembeartooconvincingatestimony.… 202TheClassicalSchoolChapter4Inexaminingthenextstateofmankindwithrelationtothequestionbeforeus,thestateofmixedpastureandtillage,inwhichwithsomevariationintheproportionsthemostcivilizednationsmustalwaysremain,weshallbeassistedinourreviewbywhatwedailyseearoundus,byactualexperience,byfactsthatcomewithinthescopeofeveryman’sobservation.……InexaminingtheprincipalstatesofmodernEurope,weshallfindthatthoughtheyhaveincreasedveryconsiderablyinpopulationsincetheywerenationsofshepherds,yetthatatpre-senttheirprogressisbutslow,andinsteadofdoublingtheirnumberseverytwenty-fiveyearstheyrequirethreeorfourhundredyears,ormore,forthatpurpose.Some,indeed,maybeabsolutelystationary,andothersevenretrograde.Thecauseofthisslowprogressinpopulationcannotbetracedtoadecayofthepassionbetweenthesexes.Wehavesufficientreasontothinkthatthisnaturalpropensityexistsstillinundiminishedvigour.Whythendonotitseffectsappearinarapidincreaseofthehumanspecies?AnintimateviewofthestateofsocietyinanyonecountryinEurope,whichmayserveequallyforall,willenableustoanswerthisquestion,andtosaythataforesightofthedifficultiesattendingtherearingofafamilyactsasapreventivecheck,andtheactualdistressesofsomeofthelowerclasses,bywhichtheyaredisabledfromgivingtheproperfoodandattentiontotheirchildren,actasapositivechecktothenaturalincreaseofpopulation.England,asoneofthemostflourishingstatesofEurope,maybefairlytakenforanexample,andtheobservationsmadewillapplywithbutlittlevariationtoanyothercountrywherethepopulationincreasesslowly.ThepreventivecheckappearstooperateinsomedegreethroughalltheranksofsocietyinEngland.Therearesomemen,eveninthehighestrank,whoarepreventedfrommarryingbytheideaoftheexpensesthattheymustretrench,andthefanciedpleasuresthattheymustdeprivethemselvesof,onthesuppositionofhavingafamily.Theseconsiderationsarecertainlytrivial,butapreventiveforesightofthiskindhasobjectsofmuchgreaterweightforitscontemplationaswegolower.Amanofliberaleducation,butwithanincomeonlyjustsufficienttoenablehimtoassociateintherankofgentlemen,mustfeelabsolutelycertainthatifhemarriesandhasafamilyheshallbeobliged,ifhemixesatallinsociety,torankhimselfwithmoderatefarmersandthelowerclassoftradesmen.Thewomanthatamanofeducationwouldnaturallymaketheobjectofhischoicewouldbeonebroughtupinthesametastesandsentimentswithhimselfandusedtothefamiliarintercourseofasocietytotallydifferentfromthattowhichshemustbereducedbymar-riage.Canamanconsenttoplacetheobjectofhisaffectioninasituationsodiscordant,proba-bly,tohertastesandinclinations?Twoorthreestepsofdescentinsociety,particularlyatthisroundoftheladder,whereeducationendsandignorancebegins,willnotbeconsideredbythegeneralityofpeopleasafanciedandchimerical,butarealandessentialevil.Ifsocietybehelddesirable,itsurelymustbefree,equal,andreciprocalsociety,wherebenefitsareconferredaswellasreceived,andnotsuchasthedependentfindswithhispatronorthepoorwiththerich.Theseconsiderationsundoubtedlypreventagreatnumberinthisrankoflifefromfollowingthebentoftheirinclinationsinanearlyattachment.Others,guidedeitherbyastrongerpassion,oraweakerjudgement,breakthroughtheserestraints,anditwouldbehardindeed,ifthegrati-ficationofsodelightfulapassionasvirtuouslove,didnot,sometimes,morethancounterbalanceallitsattendantevils.ButIfearitmustbeownedthatthemoregeneralconsequencesofsuchmarriagesarerathercalculatedtojustifythantorepresstheforebodingsoftheprudent.Thesonsoftradesmenandfarmersareexhortednottomarry,andgenerallyfinditnecessarytopursuethisadvicetilltheyaresettledinsomebusinessorfarmthatmayenablethemtosup-portafamily.Theseeventsmaynot,perhaps,occurtilltheyarefaradvancedinlife.Thescarcity Malthus:EssayonPopulation203offarmsisaverygeneralcomplaintinEngland.Andthecompetitionineverykindofbusinessissogreatthatitisnotpossiblethatallshouldbesuccessful.Thelabourerwhoearnseighteenpenceadayandliveswithsomedegreeofcomfortasasin-gleman,willhesitatealittlebeforehedividesthatpittanceamongfourorfive,whichseemstobebutjustsufficientforone.Harderfareandharderlabourhewouldsubmittoforthesakeoflivingwiththewomanthatheloves,buthemustfeelconscious,ifhethinksatall,thatshouldhehavealargefamily,andanyillluckwhatever,nodegreeoffrugality,nopossibleexertionofhismanualstrengthcouldpreservehimfromtheheart-rendingsensationofseeinghischildrenstarve,orofforfeitinghisindependence,andbeingobligedtotheparishfortheirsupport.Theloveofindependenceisasentimentthatsurelynonewouldwishtobeerasedfromthebreastofman,thoughtheparishlawofEngland,itmustbeconfessed,isasystemofallothersthemostcalculatedgraduallytoweakenthissentiment,andintheendmayeradicateitcompletely.Theservantswholiveingentlemen’sfamilieshaverestraintsthatareyetstrongertobreakthroughinventuringuponmarriage.Theypossessthenecessaries,andeventhecomfortsoflife,almostinasgreatplentyastheirmasters.Theirworkiseasyandtheirfoodluxuriouscomparedwiththeclassoflabourers.Andtheirsenseofdependenceisweakenedbytheconsciouspowerofchangingtheirmasters,iftheyfeelthemselvesoffended.Thuscomfortablysituatedatpresent,whataretheirprospectsinmarrying?Withoutknowledgeorcapital,eitherforbusiness,orfarm-ing,andunusedandthereforeunable,toearnasubsistencebydailylabour,theironlyrefugeseemstobeamiserablealehouse,whichcertainlyoffersnoveryenchantingprospectofahappyeveningtotheirlives.Bymuchthegreaterpart,therefore,deterredbythisuninvitingviewoftheirfuturesituation,contentthemselveswithremainingsinglewheretheyare.IfthissketchofthestateofsocietyinEnglandbenearthetruth,andIdonotconceivethatitisexaggerated,itwillbeallowedthatthepreventivechecktopopulationinthiscountryoperates,thoughwithvariedforce,throughalltheclassesofthecommunity.Thesameobservationwillholdtruewithregardtoalloldstates.Theeffects,indeed,oftheserestraintsuponmarriagearebuttooconspicuousintheconsequentvicesthatareproducedinalmosteverypartoftheworld,vicesthatarecontinuallyinvolvingbothsexesininextricableunhappiness.Chapter5Thepositivechecktopopulation,bywhichImeanthecheckthatrepressesanincreasewhichisalreadybegun,isconfinedchiefly,thoughnotperhapssolely,tothelowestordersofsociety.ThischeckisnotsoobvioustocommonviewastheotherIhavementioned,and,toprovedistinctlytheforceandextentofitsoperationwouldrequire,perhaps,moredatathanweareinpossessionof.ButIbelieveithasbeenverygenerallyremarkedbythosewhohaveattendedtobillsofmortalitythatofthenumberofchildrenwhodieannually,muchtoogreataproportionbelongstothosewhomaybesupposedunabletogivetheiroffspringproperfoodandattention,exposedastheyareoccasionallytoseveredistressandconfined,perhaps,tounwholesomehabi-tationsandhardlabour.Thismortalityamongthechildrenofthepoorhasbeenconstantlytakennoticeofinalltowns.Itcertainlydoesnotprevailinanequaldegreeinthecountry,butthesub-jecthasnothithertoreceivedsufficientattentiontoenableanyonetosaythattherearenotmoredeathsinproportionamongthechildrenofthepoor,eveninthecountry,thanamongthoseofthemiddlingandhigherclasses.Indeed,itseemsdifficulttosupposethatalabourer’swifewhohassixchildren,andwhoissometimesinabsolutewantofbread,shouldbeablealwaystogivethemthefoodandattentionnecessarytosupportlife.Thesonsanddaughtersofpeasantswillnotbefoundsuchrosycherubsinreallifeastheyaredescribedtobeinromances.Itcannotfailtoberemarkedbythosewholivemuchinthecountrythatthesonsoflabourersareveryapttobestuntedintheirgrowth,andarealongwhilearrivingatmaturity.Boysthatyouwouldguesstobefourteenorfifteenare,uponinquiry,frequentlyfoundtobeeighteenornineteen.Andthe 204TheClassicalSchoolladswhodriveplough,whichmustcertainlybeahealthyexercise,areveryrarelyseenwithanyappearanceofcalvestotheirlegs:acircumstancewhichcanonlybeattributedtoawanteitherofproperorofsufficientnourishment.Toremedythefrequentdistressesofthecommonpeople,thepoorlawsofEnglandhavebeeninstituted;butitistobefeared,thatthoughtheymayhavealleviatedalittletheintensityofindivid-ualmisfortune,theyhavespreadthegeneraleviloveramuchlargersurface.Itisasubjectoftenstartedinconversationandmentionedalwaysasamatterofgreatsurprisethat,notwithstandingtheimmensesumthatisannuallycollectedforthepoorinEngland,thereisstillsomuchdistressamongthem.Somethinkthatthemoneymustbeembezzled,othersthatthechurch-wardensandoverseersconsumethegreaterpartofitindinners.Allagreethatsomehoworotheritmustbeveryill-managed.Inshortthefactthatnearlythreemillionsarecollectedannuallyforthepoorandyetthattheirdistressesarenotremovedisthesubjectofcontinualastonishment.Butamanwhoseesalittlebelowthesurfaceofthingswouldbeverymuchmoreastonishedifthefactwereotherwisethanitisobservedtobe,orevenifacollectionuniversallyofeighteenshillingsinthepound,insteadoffour,weremateriallytoalterit.IwillstateacasewhichIhopewillelucidatemymeaning.Supposethatbyasubscriptionoftherichtheeighteenpenceadaywhichmenearnnowwasmadeupfiveshillings,itmightbeimagined,perhaps,thattheywouldthenbeabletolivecom-fortablyandhaveapieceofmeateverydayfortheirdinners.Butthiswouldbeaveryfalsecon-clusion.Thetransferofthreeshillingsandsixpenceadaytoeverylabourerwouldnotincreasethequantityofmeatinthecountry.Thereisnotatpresentenoughforalltohaveadecentshare.Whatwouldthenbetheconsequence?Thecompetitionamongthebuyersinthemarketofmeatwouldrapidlyraisethepricefromsixpenceorsevenpence,totwoorthreeshillingsinthepound,andthecommoditywouldnotbedividedamongmanymorethanitisatpresent.Whenanarticleisscarce,andcannotbedistributedtoall,hethatcanshewthemostvalidpatent,thatis,hethatoffersmostmoney,becomesthepossessor.Ifwecansupposethecompetitionamongthebuyersofmeattocontinuelongenoughforagreaternumberofcattletoberearedannually,thiscouldonlybedoneattheexpenseofthecorn,whichwouldbeaverydisadvantagousexchange,foritiswellknownthatthecountrycouldnotthensupportthesamepopulation,andwhensubsistenceisscarceinproportiontothenumberofpeople,itisoflittleconsequencewhetherthelowestmem-bersofthesocietypossesseighteenpenceorfiveshillings.Theymustatalleventsbereducedtoliveuponthehardestfareandinthesmallestquantity.Itwillbesaid,perhaps,thattheincreasednumberofpurchasersineveryarticlewouldgiveaspurtoproductiveindustryandthatthewholeproduceoftheislandwouldbeincreased.Thismightinsomedegreebethecase.Butthespurthatthesefanciedricheswouldgivetopopulationwouldmorethancounterbalanceit,andtheincreasedproducewouldbetobedividedamongamorethanproportionablyincreasednumberofpeople.AllthistimeIamsupposingthatthesamequantityofworkwouldbedoneasbefore.Butthiswouldnotreallytakeplace.Thereceiptoffiveshillingsaday,insteadofeighteenpence,wouldmakeeverymanfancyhimselfcompara-tivelyrichandabletoindulgehimselfinmanyhoursordaysofleisure.Thiswouldgiveastrongandimmediatechecktoproductiveindustry,and,inashorttime,notonlythenationwouldbepoorer,butthelowerclassesthemselveswouldbemuchmoredistressedthanwhentheyreceivedonlyeighteenpenceaday.Acollectionfromtherichofeighteenshillingsinthepound,evenifdistributedinthemostjudiciousmanner,wouldhavealittlethesameeffectasthatresultingfromthesuppositionIhavejustmade,andnopossiblecontributionsorsacrificesoftherich,particularlyinmoney,couldforanytimepreventtherecurrenceofdistressamongthelowermembersofsociety,whoevertheywere.Greatchangesmight,indeed,bemade.Therichmightbecomepoor,andsomeofthepoorrich,butapartofthesocietymustnecessarilyfeeladifficultyofliving,andthisdifficultywillnaturallyfallontheleastfortunatemembers. Malthus:EssayonPopulation205Itmayatfirstappearstrange,butIbelieveitistrue,thatIcannotbymeansofmoneyraiseapoormanandenablehimtolivemuchbetterthanhedidbefore,withoutproportionablydepressingothersinthesameclass.IfIretrenchthequantityoffoodconsumedinmyhouse,andgivehimwhatIhavecutoff,Ithenbenefithim,withoutdepressinganybutmyselfandfamily,who,perhaps,maybewellabletobearit.IfIturnupapieceofuncultivatedland,andgivehimtheproduce,Ithenbenefitbothhimandallthemembersofthesociety,becausewhathebeforeconsumedisthrownintothecommonstock,andprobablysomeofthenewproducewithit.ButifIonlygivehimmoney,supposingtheproduceofthecountrytoremainthesame,Igivehimatitletoalargershareofthatproducethanformerly,whichsharehecannotreceivewithoutdiminishingthesharesofothers.Itisevidentthatthiseffect,inindividualinstances,mustbesosmallastobetotallyimperceptible;butstillitmustexist,asmanyothereffectsdo,which,likesomeoftheinsectsthatpeopletheair,eludeourgrosserperceptions.Supposingthequantityoffoodinanycountrytoremainthesameformanyyearstogether,itisevidentthatthisfoodmustbedividedaccordingtothevalueofeachman’spatent,orthesumofmoneythathecanaffordtospendonthiscommoditysouniversallyinrequest.(MrGodwincallsthewealththatamanreceivesfromhisancestorsamouldypatent.Itmay,Ithink,veryproperlybetermedapatent,butIhardlyseetheproprietyofcallingitamouldyone,asitisanarticleinsuchconstantuse.)Itisademonstrativetruth,therefore,thatthepatentsofonesetofmencouldnotbeincreasedinvaluewithoutdiminishingthevalueofthepatentsofsomeothersetofmen.Iftherichweretosubscribeandgivefiveshillingsadaytofivehundredthousandmenwithoutretrenchingtheirowntables,nodoubtcanexist,thatasthesemenwouldnaturallylivemoreattheireaseandconsumeagreaterquantityofprovisions,therewouldbelessfoodremainingtodivideamongtherest,andconsequentlyeachman’spatentwouldbediminishedinvalueorthesamenumberofpiecesofsilverwouldpurchaseasmallerquantityofsubsistence.Anincreaseofpopulationwithoutaproportionalincreaseoffoodwillevidentlyhavethesameeffectinloweringthevalueofeachman’spatent.Thefoodmustnecessarilybedistributedinsmallerquantities,andconsequentlyaday’slabourwillpurchaseasmallerquantityofprovi-sions.Anincreaseinthepriceofprovisionswouldariseeitherfromanincreaseofpopulationfasterthanthemeansofsubsistence,orfromadifferentdistributionofthemoneyofthesociety.Thefoodofacountrythathasbeenlongoccupied,ifitbeincreasing,increasesslowlyandreg-ularlyandcannotbemadetoansweranysuddendemands,butvariationsinthedistributionofthemoneyofasocietyarenotinfrequentlyoccurring,andareundoubtedlyamongthecausesthatoccasionthecontinualvariationswhichweobserveinthepriceofprovisions.ThepoorlawsofEnglandtendtodepressthegeneralconditionofthepoorinthesetwoways.Theirfirstobvioustendencyistoincreasepopulationwithoutincreasingthefoodforitssupport.Apoormanmaymarrywithlittleornoprospectofbeingabletosupportafamilyinindepen-dence.Theymaybesaidthereforeinsomemeasuretocreatethepoorwhichtheymaintain,andastheprovisionsofthecountrymust,inconsequenceoftheincreasedpopulation,bedistributedtoeverymaninsmallerproportions,itisevidentthatthelabourofthosewhoarenotsupportedbyparishassistancewillpurchaseasmallerquantityofprovisionsthanbeforeandconsequentlymoreofthemmustbedriventoaskforsupport.Second,thequantityofprovisionsconsumedinworkhousesuponapartofthesocietythatcannotingeneralbeconsideredasthemostvaluablepartdiminishesthesharesthatwouldother-wisebelongtomoreindustriousandmoreworthymembers,andthusinthesamemannerforcesmoretobecomedependent.Ifthepoorintheworkhousesweretolivebetterthantheynowdo,thisnewdistributionofthemoneyofthesocietywouldtendmoreconspicuouslytodepresstheconditionofthoseoutoftheworkhousesbyoccasioningariseinthepriceofprovisions.FortunatelyforEngland,aspiritofindependencestillremainsamongthepeasantry.Thepoorlawsarestronglycalculatedtoeradicatethisspirit.Theyhavesucceededinpart,buthadthey 206TheClassicalSchoolsucceededascompletelyasmighthavebeenexpectedtheirpernicioustendencywouldnothavebeensolongconcealed.Hardasitmayappearinindividualinstances,dependentpovertyoughttobehelddisgraceful.Suchastimulusseemstobeabsolutelynecessarytopromotethehappinessofthegreatmassofmankind,andeverygeneralattempttoweakenthisstimulus,howeverbenevolentitsapparentintention,willalwaysdefeatitsownpurpose.Ifmenareinducedtomarryfromaprospectofparishprovision,withlittleornochanceofmaintainingtheirfamiliesinindependence,theyarenotonlyunjustlytemptedtobringunhappinessanddependenceuponthemselvesandchildren,buttheyaretempted,withoutknowingit,toinjureallinthesameclasswiththemselves.Alabourerwhomarrieswithoutbeingabletosupportafamilymayinsomerespectsbeconsideredasanenemytoallhisfellow-labourers.IfeelnodoubtwhateverthattheparishlawsofEnglandhavecontributedtoraisethepriceofprovisionsandtolowertherealpriceoflabour.Theyhavethereforecontributedtoimpoverishthatclassofpeoplewhoseonlypossessionistheirlabour.Itisalsodifficulttosupposethattheyhavenotpowerfullycontributedtogeneratethatcarelessnessandwantoffrugalityobservableamongthepoor,socontrarytothedispositionfrequentlytoberemarkedamongpettytradesmenandsmallfarmers.Thelabouringpoor,touseavulgarexpression,seemalwaystolivefromhandtomouth.Theirpresentwantsemploytheirwholeattention,andtheyseldomthinkofthefuture.Evenwhentheyhaveanopportunityofsavingtheyseldomexerciseit,butallthatisbeyondtheirpresentnecessitiesgoes,generallyspeaking,totheale-house.ThepoorlawsofEnglandmaythereforebesaidtodiminishboththepowerandthewilltosaveamongthecommonpeople,andthustoweakenoneofthestrongestincentivestosobrietyandindustry,andconsequentlytohappiness.…Toremovethewantsofthelowerclassesofsocietyisindeedanarduoustask.Thetruthisthatthepressureofdistressonthispartofacommunityisanevilsodeeplyseatedthatnohumaningenuitycanreachit.WereItoproposeapalliative,andpalliativesareallthatthenatureofthecasewilladmit,itshouldbe,inthefirstplace,thetotalabolitionofallthepresentparish-laws.ThiswouldatanyrategivelibertyandfreedomofactiontothepeasantryofEngland,whichtheycanhardlybesaidtopossessatpresent.Theywouldthenbeabletosettlewithoutinterrup-tion,wherevertherewasaprospectofagreaterplentyofworkandahigherpriceforlabour.Themarketoflabourwouldthenbefree,andthoseobstaclesremovedwhich,asthingsarenow,oftenforaconsiderabletimepreventthepricefromrisingaccordingtothedemand.Second,premiumsmightbegivenforturningupfreshland,andifpossibleencouragementsheldouttoagricultureabovemanufactures,andtotillageabovegrazing.Everyendeavourshouldbeusedtoweakenanddestroyallthoseinstitutionsrelatingtocorporations,apprenticeships,etc.,whichcausethelaboursofagriculturetobeworsepaidthanthelaboursoftradeandmanufac-tures.Foracountrycanneverproduceitsproperquantityoffoodwhilethesedistinctionsremaininfavourofartisans.Suchencouragementstoagriculturewouldtendtofurnishthemarketwithanincreasingquantityofhealthywork,andatthesametime,byaugmentingtheproduceofthecountry,wouldraisethecomparativepriceoflabourandamelioratetheconditionofthelabourer.Beingnowinbettercircumstances,andseeingnoprospectofparishassistance,hewouldbemoreable,aswellasmoreinclined,toenterintoassociationsforprovidingagainstthesicknessofhimselforfamily.Lastly,forcasesofextremedistress,countyworkhousesmightbeestablished,supportedbyratesuponthewholekingdom,andfreeforpersonsofallcounties,andindeedofallnations.Thefareshouldbehard,andthosethatwereableobligedtowork.Itwouldbedesirablethattheyshouldnotbeconsideredascomfortableasylumsinalldifficulties,butmerelyasplaceswhereseveredistressmightfindsomealleviation.Apartofthesehousesmightbeseparated,orothers Malthus:EssayonPopulation207builtforamostbeneficialpurpose,whichhasnotbeeninfrequentlytakennoticeof,thatofprovidingaplacewhereanyperson,whethernativeorforeigner,mightdoaday’sworkatalltimesandreceivethemarketpriceforit.Manycaseswouldundoubtedlybeleftfortheexertionofindividualbenevolence.Aplanofthiskind,thepreliminaryofwhichshouldbeanabolitionofallthepresentparishlaws,seemstobethebestcalculatedtoincreasethemassofhappinessamongthecommonpeopleofEngland.Topreventtherecurrenceofmisery,is,alas!beyondthepowerofman.Inthevainendeavourtoattainwhatinthenatureofthingsisimpossible,wenowsacrificenotonlypossiblebutcertainbenefits.Wetellthecommonpeoplethatiftheywillsubmittoacodeoftyrannicalregulations,theyshallneverbeinwant.Theydosubmittotheseregulations.Theyperformtheirpartofthecontract,butwedonot,naycannot,performours,andthusthepoorsacrificethevaluableblessingoflibertyandreceivenothingthatcanbecalledanequivalentinreturn.Notwithstanding,then,theinstitutionofthepoorlawsinEngland,Ithinkitwillbeallowedthatconsideringthestateofthelowerclassesaltogether,bothinthetownsandinthecountry,thedistresseswhichtheysufferfromthewantofproperandsufficientfood,fromhardlabourandunwholesomehabitations,mustoperateasaconstantchecktoincipientpopulation.Tothesetwogreatcheckstopopulation,inalllongoccupiedcountries,whichIhavecalledthepreventiveandthepositivechecks,maybeaddedviciouscustomswithrespecttowomen,greatcities,unwholesomemanufactures,luxury,pestilence,andwar.Allthesechecksmaybefairlyresolvedintomiseryandvice.AndthatthesearethetruecausesoftheslowincreaseofpopulationinallthestatesofmodernEurope,willappearsufficientlyevidentfromthecomparativelyrapidincreasethathasinvariablytakenplacewheneverthesecauseshavebeeninanyconsiderabledegreeremoved. WILLIAMGODWIN(1756–1836)WilliamGodwinwasineffectanadvocateofreformalongBenthamleft/collectivistlines.He,too,notunlikethePhilosophicalRadicalswhosemembershipincludedmanyoftheEnglishClassicaleconomists,soughtinstitutionalreformtoadvanceinterests,inhiscasetheinterestsofthemasses,asamatterofpoliticaljustice.Godwinrecognizedthatanincreaseinthestandardoflivingofthemasses,whichhehopedhissystemwouldengender,mightleadtoanincreaseofpopulationofsuchamagnitudeastoreducethatstandardtosomethinglikeaphysicalminimumofsubsistence.ThesolutionofGodwinandhisfollowerstothisproblemwastoprojectachangeinthestructureofhumanaction,ifnotofhumannature,specificallytheeclipsingofthedesireforsexbythedevel-opmentofintellectualpleasures.Godwinespousedalabortheoryofvalueandhisideascontaintheseedsofatheoryofexploitation.Hebelievedthatpropertyshouldbeheldincommon,advo-WilliamGodwin,Artist:JamesNorthcote(1746–1831),bycourtesycatedaneconomybasedonsmall-scaleoftheNationalPortraitGallery,London.production,andfeltthattechnologicaladvancewouldreduceproductiontimesufficientlytoallowpeopletofurtherdeveloptheirintellectualandmoralfaculties–allofthisculminatinginautopiansocietythatmightbestbedescribedas“voluntarycommunism.”HisworkinfluencedearlysocialistthinkerssuchasRobertOwenandThomasHodgskinandwasremarkeduponfavorablybyMarx.Asnotedintheintroductiontotheexcerptsfrom(and,ofcourse,thefulltitleof)Malthus’sEssayonPopulation,itwas,inpart,Godwin’sideas,firstexpressedinhisAnEnquiryConcerningPoliticalJusticeandItsInfluenceonGeneralVirtueandHappiness(1793),towhichMalthus’sEssayconstitutedaresponse.Godwin’sresponsetoMalthuswasOfPopulation:AnEnquiryConcerningthePowerofIncreaseintheNumbersofMankind,publishedin1820,anditisfromthisthatthefollowingexcerptsaretaken. WilliamGodwin209ReferencesandfurtherreadingClark,JohnP.(1977)ThePhilosophicalRadicalismofWilliamGodwin,Princeton:PrincetonUniversityPress.Godwin,William(1793)AnEnquiryConcerningPoliticalJusticeandItsInfluenceonGeneralVirtueandHappiness,London:Robinson.Locke,Don(1980)AFantasyofReason:TheLifeandThoughtofWilliamGodwin,London:Routledge&KeganPaul.Marshall,Peter(1987)“Godwin,William,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.2,London:Macmillan,534–5.Monro,D.H.(1953)Godwin’sMoralPhilosophy,London:OxfordUniversityPress.Simon,JulianL.(1998)TheEconomicsofPopulation:ClassicWritings,NewBrunswick,NJ:TransactionPublishers. OfPopulation(1820)*PrefaceIthappenstomensometimes,wheretheyhaditintheirthoughtstosetforwardandadvancesomemightybenefittotheirfellowcreatures,notmerelytofailingivingsubstanceandefficacytothesentimentthatanimatedthem,butalsotorealizeandbringonsomeinjurytothepartytheypurposedtoserve.Suchismycase,ifthespeculationsthathavenowbeencurrentfornearlytwentyyears,andwhichhadscarcelybeenheardofbefore,aretobehenceforthadmitted,asforminganessentialbranchofthescienceofpolitics.WhenIwrotemyEnquiryconcerningPoliticalJustice,IflatteredmyselfthattherewasnomeanprobabilitythatIshouldrenderanimportantservicetomankind.…ThebookIproducedseemedforsometimefullytoanswerinitseffectsthemostsanguineexpectationsIhadconceivedfromit.Icouldnotcomplainthatit‘felldead-bornfromthepress’,orthatitdidnotawakenaconsiderablecuriosityamongmycountrymen.Iwasneverweakenoughtosuppose,thatitwouldimmediatelysweepawayallerrorbeforeit,likeamightyinfluxofthewavesoftheocean.Ihailedtheoppositionitencountered,directandindirect,argumen-tativeandscurrilous,asasymptom(wewillsuppose,notaltogetherunequivocal)oftheresultIsoearnestlydesired.Amongotherphenomenaofthekind,IhailedtheattackofMrMalthus.Ibelieved,thattheEssayonPopulation,likeothererroneousandexaggeratedrepresentationsofthings,wouldsoonfinditsownlevel.InthisIhavebeenhithertodisappointed.Itwouldbeeasytoassignthecausesofmydisap-pointment;thedegreeinwhich,bythenecessityofthecase,thetheoryofthiswriterflatteredthevicesandcorruptionoftherichandgreat,andtheeagerpatronageitmightverynaturallybeexpectedtoobtainfromthem:butthismakesnopartofwhatitismypurposetosay.Findingtherefore,thatwhateverargumentshavebeenproducedagainstitbyothers,itstillholdsonitsprosperouscareer,andhasnotlongsinceappearedintheimpressivearrayofaFifthEdition,Icannotbecontentedtogooutoftheworld,withoutattemptingtoputintoapermanentformwhathasoccurredtomeonthesubject.Iwassometimesidleenoughtosuppose,thatIhaddonemypart,inproducingthebookthathadgivenoccasiontoMrMalthus’sEssay,andthatImightsafelyleavethecomparativelyeasytask,asitseemed,ofdemolishingthe‘PrincipleofPopulation’,tosomeoneofthemenwhohaverisentomaturitysinceIpro-ducedmymostconsiderableperformance.ButIcanrefrainnolonger.‘Iwillalsoanswermypart;Ilikewisewillshewmyopinion:forIamfullofmatter;andthespiritwithinmeconstrainethme’.*OfPopulation:AnEnquiryConcerningthePowerofIncreaseintheNumbersofMankind,BeinganAnswertoMrMalthus’sEssayonthatSubject,byWilliamGodwin.London:PrintedforLongman,Hurst,Rees,OrmeandBrown,PaternosterRow,1820. Godwin:OfPopulation211ThisisataskinwhichIamthemoreboundtoengage,because,asIhavesaid,ifthedogmaswhicharenowafloatonthesubjectofpopulationaretobecomepermanent,Ihave,insteadofcontributingasIdesiredtotheimprovementofsociety,become,veryunintentionally,theocca-sionofplacingabaruponallimprovementstocome,andbringingintodiscreditallimprove-mentsthatarepast.IfMrMalthus’swayofreasoningonlytendedtotheoverthrowofwhatmanywillcall‘thevisionaryspeculations’oftheEnquiryconcerningPoliticalJustice,thecasewouldhavebeendifferent.Imighthavegonetomygravewiththedisgrace,towhateverthatmightamount,ofhavingerectedcastlesintheair,forthebenefit,notofmyself,butofmyspecies,andofthenseeingthembatteredtopiecesbeforemyface.ButIcannotconsenttoclosemyeyesforever,withthejudgment,asthematternowseemstostand,recordedonmytomb,that,inattemptingonefurtheradvanceintherouteofimprovement,IshouldhavebroughtonthedestructionofallthatSolon,andPlato,andMontesquieu,andSidney,inancienttimes,andinaformerage,hadseemedtohaveeffectedfortheredemptionandtheelevationofmankind.Itisnotalittleextraordinary,thatMrMalthus’sbookshouldnowhavebeentwentyyearsbeforethepublic,withoutanyone,sofarasIknow,havingattemptedarefutationofhismainprinciple.Itwaseasyformenofageneroustempertoventtheirhorrorattherevoltingnatureofthecon-clusionshedrewfromhisprinciple;andthisisnearlyallthathasbeendone.Thatprincipleisdeliveredbyhiminthemostconciseandsummarymanner.Hesays,thathe‘considereditasestablishedinthefirstsixpages.TheAmericanincreasewasrelated[inthreelines];andthegeo-metricalratiowasproved’.Now,itstandsoutbroadlytothecommonsenseofmankind,thatthiswasprovingnothing.Population,andthedescent,andincreaseorotherwise,ofonegenerationofmankindafteranother,isnotasubjectofsuchwonderfulsimplicity,astobethusestablished.Itisinrealitythecomplexityandthorninessofthequestion,thathavehadtheeffectofsilencingMrMalthus’sadversariesrespectingit.Theyseemwithoneconsenttohaveshrunkfromatopic,whichrequiredsomuchpatientinvestigation.Inthemidstofthisgeneraldesertionofthepublicinterest,Ihaveventuredtoplacemyselfinthebreach.Withwhatsuccessitisforotherstojudge.…Ibegleavetorepeatonepassageherefromtheensuingvolume,ascontainingathoughtverypropertobepresentedtothereaderintheoutsetoftheenquiry.‘IfAmericahadneverbeendis-covered,thegeometricalratio,asappliedtothemultiplicationofmankind,wouldneverhavebeenknown.IftheBritishcolonieshadneverbeenplanted,MrMalthuswouldneverhavewritten.Thehumanspeciesmighthaveperishedofalongoldage,afatetowhichperhapsallsublunarythingsaresubjectatlast,withoutonestatesmanoronelegislator,throughmyriadsofcenturies,havingsuspectedthisdangeroustendencytoincrease,“incomparisonwithwhichhumaninstitutions,howevertheymayappeartobecausesofmuchmischieftosociety,aremerefeathers”’.InthefollowingpagesIconfinemyselfstrictlytoMrMalthus’sbook,andthequestionwhichhehasbroughtunderconsideration.MybitterestenemywillhardlybeabletofindinthisvolumetheauthoroftheEnquiryconcerningPoliticalJustice.Ihavescarcelyallowedmyselftorecollectthebeautifulvisions(iftheyshallturnouttobevisions),whichenchantedmysoul,andanimatedmypen,whilewritingthatwork.Iconceivedthatanydistinctreferencetowhatistheretreatedof,wouldbeforeigntothesubjectwhichisnowbeforeme.Theinvestigationofthepowerofincreaseinthenumbersofmankind,mustbeinterestingtoeveryonetowhomthehumanspeciesandhumansocietyappeartobemattersofseriousconcern:andIshouldhavethoughtthatIwasguiltyofasortoftreasonagainstthatinterest,ifIhadunnecessarilyobtrudedintothediscussionanythingthatcouldshocktheprejudices,orinsulttheviews,ofthosewhoseconceptionsofpoliticaltruthmightybemostdifferentfrommyown.… 212TheClassicalSchoolEnquiryconcerningpopulationBookI:OfthepopulationofEurope,Asia,Africa,andSouthAmerica,inancienttimesandmoderntimesChapterI:IntroductionMrMalthushaspublishedwhathecallsanEssayonthePrincipleofPopulation,bywhichheundertakestoannuleverythingthathadpreviouslybeenreceived,respectingtheviewsthatitisincumbentuponthosewhopresideoverpoliticalsocietytocherish,andthemeasuresthatmayconducetothehappinessofmankind.Histheoryisevidentlyfoundeduponnothing.Hesays,that‘population,whenunchecked,goesondoublingitselfeverytwenty-fiveyears,orincreasesinageometricalratio’.Ifweaskwhywearetobelievethis,heanswersthat,‘inthenorthernstatesofAmerica,thepopulationhasbeenfoundsotodoubleitselfforaboveacenturyandahalfsuccessively’.Allthishedeliversinanoraculousmanner.Heneitherprovesnorattemptstoprovewhatheasserts.IfMrMalthushastakenarightviewofthequestion,itistobehopedthatsomeauthorwillhereafterarise,whowillgointothesubjectandshewthatitisso.MrMalthushavinglaiddownatheoryinthisdogmaticalmanner,asortofproceedingwhollyunworthyofareflectingnationoranenlightenedage,itistimeinrealitythatsomeoneshouldsweepawaythishouseofcards,andendeavourtoascertainwhetheranythingiscertainlyknownonthesubject.Thisisthedesignandtheschemeofthepresentvolume.Ishallmakenodogmaticalassertions;or,atleastIamsureIwillmakenonerespectingthepropositionorpropositionswhichformthebasisofthesubject.Ishallcalluponmyreaderfornoimplicitfaith.Ishalllaydownnopositionsauthoritatively,andleavehimtoseekforevidence,elsewhere,andashecan,bywhichtheymaybeestablished.AllthatIdelivershallbeaccompaniedbyitsproofs.Mypurposeistoengageinatrainofpatientinvestigation,andtolaybeforeeveryonewhowillgoalongwithme,thefactswhichsatisfymymindonthesubject,andwhichIamdesirousshouldconveysimilarsatisfactiontothemindsofothers.…ThefirstpointthenthatIhavetoexamine,andwhichwillformthesubjectofThreeoftheSixBooksintowhichmytreatiseisdivided,isrespectingthePowerofIncreaseintheNumbersoftheHumanSpecies,andtheLimitationsofthatPower.…Theresultofourinvestigationsintothesubjectofpopulation,Ibelieve,willaffordsomepre-sumptionthatthereisintheconstitutionofthehumanspeciesapower,absolutelyspeaking,ofincreasingitsnumbers.MrMalthussaysthatthepowerisequaltothemultiplicationofmankindbyadoublingeverytwenty-fiveyears,thatis,toanincreaseforeverinageometricalseries,ofwhichtheexponentis2–amultiplication,whichitisdifficultforhumanimagination,or(asIshouldhavethought)forhumancredulitytofollow:andthereforehistheorymustdemandthemosttremendouschecks[theirnamesintheEssayonPopulationareviceandmisery]tokeepthepowerinthatstateofneutrality,inwhichitisperhapsinalmostallcasestobefoundinEurope.IthinkIshallbeabletomakeoutthatthepowerofincreaseinthenumbersofthehumanspeciesisextremelysmall.But,bethatasitmay,itmustbeexceedinglyinterestingtoassigntheCausesbywhichthisPowerisRestrainedfromproducinganyabsolutemultiplication,fromcenturytocentury,inthosemanycountrieswherepopulationappearstobeatastand:andIhaveaccordinglyendeavouredtotakethequestionoutoftheoccultandmysticalstateinwhichMrMalthushasleftit.… Godwin:OfPopulation213ChapterIII:GeneralviewsastotheallegedincreaseofmankindTotakeajustviewofanysubject,onerulethatisextremelyworthyofourattentionis,thatweshouldgettoaproperdistancefromit.ThestrangertowhomwewouldconveyanadequateimageofthecityofLondon,weimmediatelyleadtothetopofStPaul’sChurch.And,ifImayintroduceanallusiontotherecordsoftheChristianreligion,thedeviltookourSaviour‘upintoanexceedinghighmountain’,whenhewould‘shewhimallthekingdomsoftheworld,andthegloryofthem’.MrMalthushastakenhisstanduponthereportsofDrFranklin,andDrEzraStyles.HerepairswiththemtothenorthernpartsoftheUnitedStatesofAmerica,andtherehesees,orthinkshesees,‘thepopulationdoublingitself,foraboveacenturyandahalfsuccessively,inlessthantwenty-fiveyears’,andthat‘fromprocreationonly’.Hedoesnotdiscoveranamplepopula-tioneveninthis,hisfavouritecountry.Farfromit.ThereasonwhythepopulationgoesonsorapidlyinNorthAmericais,accordingtohim,becausethereis‘ampleroomandvergeenough’foralmostallthepopulationthatcanbepouredintoit.Hesees,inhispropheticconception,thatcountry,somecenturieshence,fullofhumaninhabitants,eventooverflowing,andgroaningunderthemultitudeofthetribesshalldwellinit.Woulditnothavebeenfairertohavetakenbeforehimtheglobeofearthatoneview,andfromthencetohavededucedthetrue‘PrincipleofPopulation’,andthepolicythatoughttodirectthemeasuresofthosewhogoverntheworld?Howlongtheraceofmanhassubsisted,unlesswederiveouropinionsonthesubjectfromthelightofrevelation,nomanknows.TheChinese,andthepeopleofIndostan,carrybacktheirchronologythroughmillionsofyears.EvenifwerefertotheBible,theHebrewtext,andtheSamaritanwhichisperhapsofequalauthority,differmostconsiderablyandfundamentallyfromeachother.ButMrMalthusisoftheopinion,that,inreasoningonsubjectsofpoliticaleconomy,weareboundtoregulateourideasbystatisticalreports,andtablesthathavebeenscientificallyformedbyproficientsinthatstudy,andhasaccordinglyconfinedhimselftothese.But,thoughweknownothowlongthehumanracehasexisted,norhowextensiveaperiodithashadtomultiplyitselfin,weareabletoformsomerudenotionsrespectingitspresentstate.IthasbysomepersonsbeenmadeanobjectiontotheChristianreligion,thatithasnotbecomeuniversal.Itwouldperhapsbefairer,tomakeitanobjectiontothe‘PrincipleofPopulation’,aslaiddownbyMrMalthus,thattheearthisnotpeopled.IfIweretosaythattheglobewouldmaintaintwentytimesitspresentinhabitants,or,inotherwords,thatforeveryhumancreaturenowcalledintoexistence,twentymightexistinastateofgreaterplentyandhappinessthanwithoursmallnumberwedoatpresent,Ishouldfindnoonetimidandsaturnineenoughtocontradictme.Infact,hemustbealiteralandmostuninven-tivespeculator,whowouldattempttosetboundstothephysicalpowersoftheearthtosupplythemeansofhumansubsistence.Thefirstthingthereforethatwouldoccurtohimwhoshouldsurvey‘allthekingdomsoftheearth’,andthestateoftheirpopulation,wouldbethethinnessoftheirnumbers,andthemulti-tudeandextentoftheirwasteanddesolateplaces.Ifhisheartaboundedwith‘themilkofhumankindness’,hewouldnotfailtocontrastthepresentstateoftheglobewithitspossiblestate;hewouldseehisspeciesasalittleremnantwidelyscatteredoverafruitfulandprolificsur-face,andwouldweeptothinkthatthekindlyandgraciousqualitiesofourmotherearthwereturnedtosolittleaccount.Ifheweremoreofasoberandreasoning,thanofatenderandpas-sionatetemper,perhapshewouldnotweep,butIshouldthinkhewouldsethimselfseriouslytoenquire,howthepopulousnessofnationsmightbeincreased,andthedifferentregionsoftheglobereplenishedwithanumerousandhappyrace.DrPaley’sobservationsonthisheadarepeculiarlytothepurpose.‘Thequantityofhappi-ness’,hesays,‘inanygivendistrict,althoughitispossibleitmaybeincreased,thenumberof 214TheClassicalSchoolinhabitantsremainingthesame,ischieflyandmostnaturallyaffectedbyalterationofthenumbers:consequently,thedecayofpopulationisthegreatestevilthatastatecansuffer;andtheimprove-mentofitistheobject,whichoughtinallcountriestobeaimedat,inpreferencetoeveryotherpoliticalpurposewhatsoever’.Suchhasbeenthedoctrine,Ibelieve,ofeveryenlightenedpoliticianandlegislatorsincetheworldbegan.ButMrMalthushasplacedthissubjectinanewlight.Hethinksthatthereisapossibilitythattheglobeofearthmayatsometimeorothercontainmorehumaninhabitantsthanitcansubsist;andhehasthereforewrittenabook,thedirecttendencyofwhichistokeepdownthenumbersofmankind.Hehasnoconsiderationforthemillionsandmillionsofmen,whomightbeconceivedascalledintoexistence,andmadejointpartakerswithusinsuchhappi-nessasasublunaryexistence,withlibertyandimprovement,mightimpart;but,forthesakeofafuturepossibility,wouldshutagainstthemonceforallthedoorofexistence.Hesaysindeed,‘Thedifficulty,sofarfrombeingremote,isimminentandimmediate.Ateveryperiodduringtheprogressofcultivation,fromthepresentmomenttothetimewhenthewholeearthwasbecomelikeagarden,thedistressforwantoffoodwouldbeconstantlypressingonallmankind’.Headdsitistrueinthisplace,‘iftheywereequal’.Butthesewordsareplainlyunnec-essary,sinceitisalmostthesolepurposeofhisbooktoshew,that,inalloldestablishedcountries,‘thepopulationisalwayspressinghardagainstthemeansofsubsistence’.Thishowever–Imeanthedistressthatmustalwaysaccompanyusineverystepofourprogress–issopalpablyuntrue,thatIamastonishedthatanymanshouldhavebeeninducedbytheloveofparadox,andthedesiretodivulgesomethingnew,tomaketheassertion.Thereisnoprinciplerespectingmanandsocietymorecertain,thanthateverymaninacivilizedstateisendowedwiththephysicalpowerofproducingmorethanshallsufficeforhisownsubsistence.Thisprincipleliesatthefoundationofallthehistoryofallmankind.Ifitwereotherwise,weshouldbeallcultivatorsoftheearth.Weshouldnoneofuseverknowthesweetsofleisure:andallhumansciencewouldbecontainedintheknowledgeofseed-timeandharvest.Butnosoonerhavemenassociatedintribesandnations,thanthisgreattruthcomestobeperceived,thatcom-parativelyaverysmallportionoflabouronthepartofthecommunity,willsubsistthewhole.Henceithappensthateventhefarmerandthehusbandmanhaveleisurefortheirreligion,theirsocialpleasures,andtheirsports;andhenceithappens,whichisofinfinitelymoreimportanceinthehistoryofthehumanmind,that,whileaminorityofthecommunityareemployedinthelaboursindispensablyconducivetothemeresubsistenceofthewhole,therestcandevotethem-selvestoart,toscience,toliterature,tocontemplation,andeventoallthewantonrefinementsofsensuality,luxury,andostentation.Whatisitthen,wearenaturallyledtoask,thatcausesanymantostarve,orpreventshimfromcultivatingtheearth,andsubsistinguponitsfruits,solongasthereisaportionofsoilinthecoun-tryinwhichhedwells,thathasnotbeenappliedtotheproducingasmuchofthemeansofhumansubsistence,asitiscapableofproducing?MrMalthussays,itis‘“theLawofNature”.AfterthepublicnoticewhichIhaveproposed,ifanymanchosetomarry,withoutaprospectofbeingabletosupportafamily,heshouldhavethemostperfectlibertytodoso.Thoughtomarry,inthiscase,isinmyopinionclearlyanimmoralact,yetitisnotonewhichsocietycanjustlytakeuponitselftopreventorpunish.TothepunishmentofNaturethereforeheshouldbeleft’.Andelsewhere,‘Amanwhoisbornintoaworldalreadypossessed,ifhecannotgetsubsistencefromhisparents,andifthesocietydonotwanthislabour,hasnoclaimofrighttothesmallestportionoffood,andinfacthasnobusinesstobewhereheis.AtNature’smightyfeastthereisnovacantcoverforhim.Shetellshimtobegone,andwillquicklyexecuteherownorders’.Neversurelywastheresoflagrantanabuseofterms,asinthisinstance.MrMalthusisspeakingofEngland,wheretherearemanythousandsofacreswhollyuncultivated,andperhapsasmanymorescarcelyemployedinanyeffectualmannertoincreasethemeansofhumansubsistence; Godwin:OfPopulation215forthesepassagesoccurinchaptersofhisEssaywhereheistreatingofourPoor-laws,andtheremediesthatmightbeappliedtothedefectsheimputestothem.Igranthimthen,thatitisLawwhichcondemnsthepersonshespeaksoftostarve.Sofarweareagreed.ThisLawMrMalthusmayaffirmtobejust,tobewise,tobenecessarytothestateofthingsaswefindthem.Allthiswouldbeopentofairenquiry.Greatandcogentnodoubtarethereasonsthathavegivensoexten-siveareigntothisextremeinequality.ButitisnottheLawofNature.ItistheLawofveryartificiallife.ItistheLawwhich‘heapsuponsomefewwithvastexcess’themeansofeverywantonexpenceandeveryluxury,whileothers,someofthemnotlessworthy,arecondemnedtopineinwant.ComparethisthenwithMrMalthus’sfavouriteposition,inoppositiontowhathecalls‘thegreaterrorunderwhichMr.Godwinlabours’,that‘politicalregulationsandtheestablishedadministrationofpropertyareinrealitylightandsuperficialcausesofmischieftosociety,incomparisonwiththosewhichresultfromtheLawsofNature’.Buttoreturn,andresumethepointwithwhichthischaptercommenced.IfMrMalthus’sdoc-trineistrue,whyistheglobenotpeopled?Ifthehumanspecieshassostrongatendencytoincrease,that,unlessthetendencywereviolentlyandcalamitouslycounteracted,theywouldeverywhere‘doubletheirnumbersinlessthantwenty-fiveyears’,andthatforever,howcomesitthattheworldisawilderness,awideanddesolateplace,wheremencrawlaboutinlittleherds,comfortless,unablefromthedangersoffree-booters,andthedangersofwildbeaststowanderfromclimatetoclimate,andwithoutthatmutualsupportandcheerfulnesswhichapopulousearthwouldmostnaturallyafford?ThemanonthetopofStPaul’swouldindeedformacon-ceptionofinnumerablemultitudes:buthewhoshouldsurvey‘allthekingdomsoftheworld’,wouldreceiveaverydifferentimpression.Onwhichsidethenliestheevidence?Dothenumbersofmankindactuallyandinfactincreaseordecrease?Ifmankindhassopowerfulandalarmingatendencytoincrease,howisitthatthistendencynowhereshewsitselfingeneralhistory?MrMalthusandhisfollowersarereducedtoconfessthebroadandglaringfactthatmankinddonotincrease,buthehasfoundoutacalculation,ageometricalratio,toshewthattheyoughttodoso,andthensitsdowntowritethreevolumes,assigningcertainobscure,vague,andundefinablecauses,whyhistheoryandthestreamofancientandmodernhistoryarecompletelyatvariancewitheachother.ChapterIV:GeneralviewoftheargumentsagainsttheincreaseofmankindMrMalthus’stheoryiscertainlyofapeculiarstructure,anditissomewhatdifficulttoaccountforthesuccessithasmetwith.Thesubjectispopulation.IthasbeenagreedamongthebestphilosophersinEurope,especiallyfromthetimeofLordBacontothepresentday,thattheproperbasisofallourknowledgerespectingmanandnature,respectingwhathasbeenintimesthatarepast,andwhatmaybeexpectedintimetocome,isexperiment.Thisstandardispeculiarlyapplicabletothesubjectofpopulation.MrMalthusseemsinonerespectfullytoconcurinthiswayofviewingthesubject.Therearetwomethodsofapproachingthequestion,thefirst,byderivingourideasrespectingitfromthevolumesofsacredwrit,andthesecond,byhavingrecoursetosuchenumerations,statisticaltables,andcalculations,astheindustryofmereuninspiredmenhascollected;andMrMalthushasmadehiselectionforthelatter.DrRobertWallace,anablewriteronthesesubjects,whoseworkshavelatelyengagedinaconsiderabledegreetheattentionofcuriousenquirers,hastakentheoppositeroad.Hebeginshis‘DissertationontheNumbersofMankindinAncientandModernTimes’,printedin1758,withthepositionthatthewholehumanraceisdescended‘fromasinglepair’,and,takingthatforthebasisofhistheory,proceedstocalculatetheperiodsofthemultiplicationofmankind. 216TheClassicalSchoolMrMalthus,onthecontraryreposesthroughouthisEssayonthepurebasisofhumanexperi-enceandunenlightenedhumanreason;andIhaveundertakentowritearefutationofhistheo-ries.Hehaschosenhisground;andIfollowhimtothecontest.HehadmadenoallusiontoAdamandEve,andhaswrittenjustasanyspeculatorinpoliticaleconomymighthavedone,towhomtherecordsoftheBiblewereunknown.Ifthereisanythingirreverendinthis,toMrMalthus,andnottome,theblameistobeimputed.Hehasconstructedhisargumentsuponcertaindata,andIhaveattemptednothingmorethanthedemolishingofthosearguments.Ifanyoneshallbeofopinionthatthewholequestionisinthejurisdictionofanothercourt,theTreatiseIamwritinghasnothingtodowiththis.Idesignnothingmorethananinvestigationofmerehumanauthorities,andanexaminationofthetheoriesoftheEssayonPopulation;andIleavethequestioninallotherrespectsasIfoundit.Toreturn.Itwillappear,Ithink,inthecourseofourdiscussion,thatpopulationisasubjectwithwhichmankindasyetareverylittleacquainted.Butletusfirstrecollectwhatitisthatwearesupposedtoknow.AndIwillfirststatethosethingswhichareadmittedbyMrMalthus,andwhichappeartomakeverylittleforthesupportofhissystem.TheglobeweinhabitmaybedividedintotheOldWorldandtheNew.OurknowledgeofthehistoryofEuropeandAsiaextendsbackwardsomethousandyears.WeknowalittleofthehistoryofAfrica.Americawasdiscoveredaboutthreehundredyearsago,buthasnotinmanyofitspartsbeenbyanymeanssolongaplaceofreceptionforEuropeancolonies.MrMalthusdoesnotventuretocarryhisappealonthesubjectofpopulationthere,fartherbackthanonehundredandfiftyyears.Wellthen,howstandsthequestionofpopulationintheOldWorld?MrMalthusfreelyandwithouthesitationadmits,thatonthissideoftheglobepopulationis,andhaslongbeen,atastand:hemightsafelyhaveaddedthatithasnotincreasedasfarbackasanyauthenticrecordsofprofanehistorywillcarryus.Hebringsforwardsomememorableexamplesofastrikingdepop-ulation:hemighthaveaddedmanymore:hewouldcertainlyhavefounditdifficulttoproduceanexampleequallyunequivocal,ofanincreaseofpopulation,inanyquarteroftheOldWorld.AstoSouthAmerica,andtheindigenousinhabitantsofNorthAmerica,itishardlytobedisputed,andMrMalthusisveryreadytoadmit,thattheyhavesustainedamelancholydiminu-tionsincethevoyageofColumbus.Suchthenis,sofar,thefoundationofourknowledge,asaffordedusbyexperience,onthesubjectofpopulation.MrMalthushasbroughtforwardanexceptiontoallthis,whichIshallhereaftertakeoccasionfullytoexamine,inacertaintractoftheglobe,nowknownbythenameoftheUnitedStatesofAmerica,andheaffirmsthisexceptiontospreaditselfoveraperiodofonehundredandfiftyyears.Theentirefoundationofhisworkliesinonesimplesentence:‘IntheNorthernStatesofAmerica,thepopulationhasbeenfoundtodoubleitselfforaboveacenturyandahalfsuccessively,inlessthantwenty-fiveyears’.ThepithofMrMalthus’sbooktherefore,andabolderdesignhasseldomenteredintothemindofman,istoturntheexceptionintotherule,andthewholestreamofexamplesineveryothercase,intoexceptions,thataretobeaccountedforwithoutdetractingfromtheauthorityoftherule.TheEssayonPopulationisthemostoddlyconstructed,ofanybook,pretendingtothecharacterofscience,thatwasperhapsevergiventotheworld.…ThestrengthofMrMalthus’swritingwhollydependsuponhisintrenchinghimselfingeneralstatements.Ifwehopeforanyvictoryoverhim,itmustbebydrawinghimoutofhisstronghold,andmeetinghimuponthefairgroundofrealities.ThehypothesisoftheEssayonPopulationisthis.ThehumanspeciesdoublesitselfintheUnitedStatesofAmericaeverytwenty-fiveyears:thereforeitmusthaveaninherenttendencyso Godwin:OfPopulation217todoubleitself:thereforeitwouldsodoubleitselfintheOldWorld,werenottheincreaseinter-ceptedbycauseswhichhavenotyetsufficientlyengagedtheattentionofpoliticalenquirers.Toclearupthispointletusconsiderhowmanychildrenmaybeallowedtoamarriage,uponthesuppositionthattheobjectisbarelytokeepthenumbersofthehumanspeciesuptotheirpresentstandard.Inthefirstplaceitisclear,thateverymarriedpairmaybeallowedtwouponanaverage,withoutanyincreasetothepopulation,nay,withthecertaintyofdiminutioniftheyfallshortofthis.Inthenextplaceitisunquestionable,thateverychildthatisborn,doesnotlivetoyearsofmaturity,soastobeabletopropagatethekind;forthisconditionisnecessary,thechil-drenwhodieintheirnonageplainlycontributingnothingtothekeepingupthenumbersofourspecies.Ishouldhavethoughttherefore,thatwemightsafelyallowofthreechildrentoeverymarriage,withoutdangerofoverstockingthecommunity.Itwillhereafterappearthatallpoliti-caleconomistsallowfour,itbeingtheresultofvariouscensusesandtablesofpopulation,thatone-halfoftheborndieunderyearsofmaturity.Tothisnumberofchildrentobeallowedtoeverymarriageuponanaverage,thepurposebeingbarelytokeepupthenumbersofourspeciestothepresentstandard,somethingmustbeadded,inconsiderationoftheknownfact,thateverymanandwomandonotmarry,andthusputthemselvesintheroadforcontinuingtheirspecies.WhenMrMalthusthereforerequiresustobelieveinthegeometricalratio,orthatthehumanspecieshasanaturaltendencytodoubleitselfeverytwenty-fiveyears,hedoesnothinglessinotherwords,thanrequireustobelievethateverymarriageamonghumancreaturesproducesuponanaverage,includingtheprolificmarriages,thoseinwhichthehusbandorwifedieinthevigouroftheirageorintheearlyyearsoftheirunion,thoseinwhichtheprolificpowerseemsparticularlylimited,andthemarriagesthataretotallybarren,eightchildren.AllthisMrMalthusrequiresustobelieve,becausehewillsit.Letitneveragainbemadeoneofthereproachesofthepresentday,thatwearefallenuponanageofincredulity.Iamsurenofalseprophet,inthedarkestagesofignorance,couldeverboastofagreaternumberofhood-winkedandimplicitdisciples,thanMrMalthusinthisenlightenedperiod.Howcomesit,thatneitherthisauthor,noranyoneforhim,haslookedintothisviewofthequestion?Therearesuchthingsasregistersofmarriagesandbirths.TotheseitwasnaturalforMrMalthustohaverecourseforacorrelativeargumenttosupporthishypothesis.ThewriteroftheEssayonPopulationhasresortedtocertainstatementsofthepopulationoftheUnitedStates,andfromthemhasinferredthatthenumberofitscitizenshavedoubledeverytwenty-fiveyears,andasheadds,‘byprocreationonly’:thatis,inotherwords,aswehaveshown,thateverymarriageinAmerica,andbyparityofreasoning,inallotherpartsoftheworld,producesuponanaverageeightchildren.ForthedifferencebetweentheUnitedStatesandtheOldWorlddoesnot,Ipresume,lieinthesuperiorfecundityoftheirwomen,butthatagreaternumberofchildrenarecutoffintheOldWorldinyearsofnonage,byviceandmisery.Wedoubleverysuccessfully(iftheydouble)inthefirstperiod;butwedonot,likethem,rearourchildren,todou-bleoveragaininthesecond.Naturallythereforehewouldhaveproducedastrongconfirmationofhishypothesis,byshewingfromtheregistersofdifferentpartsoftheworld,orofdifferentcountriesofEurope,thateverymarriagedoesuponanaverageproduceeightchildren:andifhehaddonethis,Ithinkhewouldhavesavedmethetroubleofwritingthisvolume.Somethinghoweverhasbeendoneinthewayofcollatingtheregistersofmarriagesandbirths;andofthisIshallmakefulluseinmySecondBook.Itmayhoweverbeobjected,thattherearetwowaysinwhichanincreaseofpopulationmaybeintercepted;eitherbythenumberofchildrenwhoshallperishintheirnonage,throughthepowerfulagency,asMrMalthusinformsus,ofviceandmisery;orbycertaincircumstanceswhichshallcauseasmallernumbertobeborn:itmaynotthereforebemerelybytheravagesofanextensivemortality,thatpopulationintheOldWorldiskeptdowntoitslevel.MrMalthushimselfhasfurnishedmewithacompleteanswertothisobjection.Inthefirsteditionofhisbookhesetsoutwithwhathecalled‘fairlymakingtwopostulata:first,thatfoodis 218TheClassicalSchoolnecessarytotheexistenceofman:secondly,thatthepassionbetweenthesexesisnecessary,andwillalwaysremainnearlyinitspresentstate’.Thisindeedisoneofthe‘passages,whichtheauthorhasexpungedinthelatereditionsofhisbook,thathemightnotinflictanunnecessaryviolenceuponthefeelingsofhisreaders’,or,ashehimselfexpressesit,isoneoftheplaces,inwhich,he‘hasendeavouredtosoftensomeoftheharshestconclusionsofhisfirstEssay–indoingwhichhehopeshehasnotviolatedtheprinci-plesofjustreasoning’.But,asMrMalthushasretainedtothelastalltheconclusionsdrawnfromthesepostudata,andashisargumentrespectingtheimpracticabilityofapermanentstateofequalityamonghumanbeings,foundedupontheparityofthesetwopropositions,standsintheFifthEditionverbatimasitstoodinthefirst,Icannotmyselfconsenttohiswithdrawinghispremises,atthesametimethatheretainstheinferencesbuiltuponthem.Again:incompliancewith‘thefeelingsofcertainreaders’,MrMalthushasaddedinhissub-sequenteditions,tothetwochecksuponpopulation,namelyviceandmisery,astheystoodinthefirst,athirdwhichhecallsmoralrestraint.Butthenheexpresslyqualifiesthisbysaying,‘theprincipleofmoralrestrainthasundoubtedlyinpastagesoperatedwithveryinconsiderableforce’;subjoiningatthesametimehisprotestagainst‘anyopinionrespectingtheprobableimprovementofsociety,inwhichwearenotborneoutbytheexperienceofthepast’.ItisclearlythereforeMrMalthus’sdoctrinethatpopulationiskeptdownintheOldWorld,notbyasmallernumberofchildrenbeingbornamongus,butbytheexcessivenumberofchildrenthatperishintheirnonagethroughtheinstrumentalityofviceandmisery.Letusthenproceedtoillustratethisproposition,initsapplicationtoourownbelovedcountryofEngland.Wewilltakeitspresentpopulationattenmillions.Ofthispopulationwewillsupposefivemillionstobeadults.Theremustthen,accordingtothestatementofDrFranklinandothercalculators,betenmillionsofchildren,bornandtobebornfromthesefivemillionsofadults,togiveusachanceofkeepinguptheraceofEnglishmen.Ofthesetenmillionsfivemil-lionsmustbeexpectedtodieintheirnonage,accordingtotheconstitutionandcourseofnature.Surelythis,togetherwiththeincessantuninterruptedmortalityofthemiddle-aged,andofthemoreancientmembersofsociety,mayberegardedassufficientlyrenderingtheglobeweinhabit‘auniverseofdeath’.ButMrMalthusdemandsfromus,byvirtueofhisgeometricalratio,tenmillionsofchildrenmorethanourunsuspectingancestorseverdreamedof,thatis,eightchildrenforeverypairofadults.Isayeight,because,ifincountrieswheretheyhaveroomandeveryfacilityforrearingtheirchildren,twoperishintheirnonageoutofthefirstfour,therecanbenoreasonthatIcanapprehend,whyasmanyshouldnotperishoutofthesecondfour.Thusitappearsthat,foreveryfivemillionsthatgrowuptotheestateofmanandwoman,twentymillionsofchildrenareborn,ofwhichfifteenmillions,everywhereintheOldWorld,perishintheirinfancy.Thefirstfivemil-lionsofthosewhodieinthismanner,constituteamortalitythatwemustbecontentedtowitness,sincesuch,itseems,istheconditionofourexistence.ButthenexttenmillionsIshouldcallasortofsuperfetationofalternatebirthsanddeaths,purelyforthebenefitofthegeometricalratio.Butwhereistherecordofallthis?Inmostcivilizedcountriessomesortofregisteriskeptofbirths,marriages,anddeaths.IbelievenotraceoftheseadditionalbirthswhichMrMalthushasintroducedtoouracquaintance,isanywheretobefound.Wereallthesechildrensentoutoftheworld,withoutsomuchastheceremoniesofbaptism?WeretheyexposedamongthewildsofMountTaygetus,orcastintotheBarathrum,orhurledfromtheTarpeianrock,orcarelesslythrownforth,asMrMalthussaystheChineseinfantsareinthestreetsofPeking?Formyownpart,Iamdisposedtorequiresomefurtherevidenceonthesubject,thanmerelytobetoldtheymusthavebeenbornandhavedied,indefianceofallreceivedevidenceonthesubject,becausesuchistheinferencethatfollowsfromtheprinciplesoftheEssayonPopulation. Godwin:OfPopulation219Inreality,ifIhadnottakenupthepenwiththeexpresspurposeofconfutingalltheerrorsofMrMalthus’sbook,andofendeavouringtointroduceotherprinciples,morecheering,morefavourabletothebestinterestsofmankind,andbetterpreparedtoresisttheinroadsofviceandmisery,Imightclosemyargumenthere,andlaydownthepenwiththisbriefremark,that,whenthisauthorshallhaveproducedfromanycountry,theUnitedStatesofNorthAmericanotexcepted,aregisterofmarriagesandbirths,fromwhichitshallappearthatthereareonanaverageeightbirthstoamarriage,then,andnottillthen,canIhaveanyjustreasontoadmithisdoctrineofthegeometricalratio. HENRYTHORNTON(1760–1815)HenryThorntonwasasuccessfulLondonbankerandaMemberofParliament,and,asMP,devotedagreatdealofefforttoBritishcurrencyandbankingissues,includ-ingthecontroversysurroundingtheBankofEngland’ssuspensionoftheconvertabilityofbanknotesintogoldasaresponsetothefinancialinstabilityresultingfromEngland’swarswithFranceinthelateeighteenthandearlynineteenthcenturies.Thorntonwas,alongwithDavidRicardo,asignificantplayerinthedebatethatwasknownas“thebullioncontroversy.”Thorntonwasonthe“bullionist”sideofthisdebate;thatis,hewasamongthegroupthatbelievedthattheinflationthatBritainwasexperiencingwascausedbymonetaryexpansion.TheBullionReportofaSelectCommitteeoftheHouseofCommons(1810),ofwhichCommitteeThorntonwasaprominentmember,camedownonthebullionistside,recommendingtheresumptionofgoldpaymentsbytheBankofEnglandtoslowtherateofmonetaryHenryThornton,engravingbyJamesWardafterJohnHoppner,byexpansion.courtesyoftheNationalPortraitGallery,London.Thorton’sInquiryIntotheNatureandEffectsofthePaperCreditofGreatBritainisregardedbysomeasthemostsignificantworkonmonetarytheorypriortoWicksell’sInterestandPrices(1898)and,attheveryleast,putshimonaparwithHumeintermsofinsightsintotheworkingsofthemonetarysystemduringtheclassicalperiod.Thornton’sbookanalyzesthehomeandinternationaleffectsofexpansionsandcontractionsinthemoneysupply,emphasizingthelinkfrommoneysupply,throughinterestrates,topricesaswellastheeffectofthevelocityofcirculationandhowthisvelocitydiffersacrosscreditinstruments.ReferencesandfurtherreadingBlaug,Mark,ed.(1991)HenryThornton(1760–1815),JeremyBentham(1748–1832),JamesLauderdale(1759–1839),SimondedeSismondi(1773–1842),Aldershot:EdwardElgarPublishing. HenryThornton221Cannan,Edwin,ed.(1919)ThePaperPoundof1797–1821:TheBullionReport,LondonP.S.King&Son.Corry,B.A.(1962)Money,SavingandInvestmentinBritishEconomics,1800–1850,NewYork:StMartin’sPress.Hicks,J.R.(1967)“Thornton’sPaperCredit,”inJ.R.Hicks(ed.),CriticalEssaysinMonetaryTheory,London:OxfordUniversityPress.Laidler,David(1987)“Thornton,Henry,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.4,London:Macmillan,633–5.Peake,CharlesF.(1978)“HenryThorntonandtheDevelopmentofRicardo’sEconomicThought,”HistoryofPoliticalEconomy10(Summer):193–212.Reisman,D.A.(1971)“HenryThorntonandClassicalMonetaryEconomics,”OxfordEconomicPapers23(March):70–89.Skaggs,NeilT.(1995)“HenryThorntonandtheDevelopmentofClassicalMonetaryEconomics,”CanadianJournalofEconomics28(November):1212–27.Viner,Jacob(1937)StudiesintheTheoryofInternationalTrade,NewYork:Harper&Row.Wood,GeoffreyE.(1995)“TheQuantityTheoryinthe1980s:Hume,Thornton,FriedmanandtheRelationBetweenMoneyandInflation,”inMarkBlaugetal.(eds),TheQuantityTheoryofMoney:FromLocketoKeynesandFriedman,Aldershot:EdwardElgarPublishing. AnEnquiryintotheNatureandEffectsofthePaperCreditofGreatBritain(1802)*ChapterIIIOfcirculatingPaper–ofBankNotes–ofBillsConsideredascirculatingPaper–differentDegreesofRapidityintheCirculationofdifferentSortsofcirculatingMedium,andofthesameSortofcirculatingMediumatdiffer-entTimes.–ErrorofDrA.Smith.–DifferenceintheQuantitieswantedforeffectingthePaymentsofaCountryinConsequenceofthisDifferenceofRapidity.–ProofofthistakenfromEventsof1793.–FallacyinvolvedintheSuppositionthatPaperCreditmightlieabolished.Weproceednexttospeakofcirculatingpaper,andfirstofNotespayabletoBeareronDemand,whetherissuedbyapublicbankorbyaprivatebanker.Whenconfidencerisestoacertainheightinacountry,itoccurstosomepersons,thatprofitmaybeobtainedbyissuingnotes,whichpurporttobeexchangeableformoney;andwhich,throughtheknownfacilityofthusexchangingthem,maycirculateinitsstead;apartonlyofthemoney,ofwhichthenotessupplytheplace,beingkeptinstoreasaprovisionforthecurrentpay-ments.Ontheremainderinterestisgained,andthisinterestconstitutestheprofitoftheissuer.Somepowerfulandwellaccreditedcompanywillprobablybethefirstissuersofpaperofthissort,thenumerousproprietorsofthecompanyexertingtheirinfluenceforthesakeofthedivi-dendswhichtheyexpect,ingivingcurrencytothenewpapercredit.Theestablishmentofagreatpublicbankhasatendencytopromotetheinstitutionofprivatebanks.Thepublicbank,obligedtoprovideitselflargelywithmoneyforitsownpayments,becomesareservoirofgoldtowhichprivatebanksmayresortwithlittledifficulty,expence,ordelay,forthesupplyoftheirseveralnecessities.DrA.Smith,inhischapteronPaperCredit,considersthenationalstockofmoneyinthesamelightwiththosemachinesandinstrumentsoftradewhichrequireacertainexpence,first,toerect,andafterwardstosupportthem.Andheproceedstoobserve,thatthesubstitutionofpaper,intheroomofgoldandsilvercoin,servestoreplaceaveryexpensiveinstrumentofcom-mercewithonemuchlesscostly,andsometimesequallyconvenient.‘Thus’,hesays,‘abanker,byissuing100,000l.innotes,keeping20,000l.inhandforhiscurrentpayments,causes20,000l.ingoldandsilvertoperformallthefunctionswhich100,000l.wouldotherwisehaveperformed;in*AnEnquiryIntotheNatureandEffectsofthePapercreditofGreatBritan,byHenryThornton.London:PrintedforJ.Hatchard,BooksellertotheQueen,Piccadilly;andMessrs.F.andC.Rivington,StPaul’sChurchYard,1802.ExtractedfromAnEnquiryIntotheNatureandEffectsofthePaperCreditofGreatBritain(1802)byHenryThornton,TogetherWithHisEvidenceGivenBeforetheCommitteesofSecrecyoftheTwoHousesofParliamentintheBankofEngland,MarchandApril,1797,SomeManuscriptNotes,andHisSpeechesontheBullionReport,May1811,EditedwithanIntroductionbyF.A.v.Hayek,London:GeorgeAllen&UnwinLtd.,1939.ReprintedNewYork:AugustusM.Kelley,1962. Thornton:PaperCredit223consequenceofwhich,80,000l.ofgoldandsilvercanbespared,whichwillnotfailtobeexchangedforforeigngoods,andbecomeanewfundforanewtrade,producingprofittothecountry.’DrSmith,althoughhediscussesatsomelengththesubjectofPaperCirculation,doesnotatalladverttothetendencyofbillsofexchangetosparetheuseofbankpaper,ortotheirfacultyofsupplyingitsplaceinmanycases.Intheformerchapteritwasshewnthatbills,thoughprofessedlydrawnforthepurposeofexchangingadebtduetoonepersonforadebtduetoanother,are,infact,createdratherforthesakeofservingasadiscountablearticle,andofformingaprovisionagainstcontingencies;andthat,bybeingatanytimeconvertibleintocash(i.e.intoeithermoneyorbanknotes)theyrenderthatsupplyofcashwhichisnecessarytobekeptinstoremuchlessconsiderable.Buttheynotonlysparetheuseofreadymoney;theyalsooccupyitsplaceinmanycases.Letusimagineafarmerinthecountrytodischargeadebtof10l.tohisneighbouringgrocer,bygiv-ingtohimabillforthatsum,drawnonhiscornfactorinLondonforgrainsoldinthemetropo-lis;andthegrocertotransmitthebill,hehavingpreviouslyindorsedit,toaneighbouringsugar-baker,indischargeofalikedebt;andthesugar-bakertosendit,whenagainindorsed,toaWestIndiamerchantinanoutport,andtheWestIndiamerchanttodeliverittohiscountrybanker,whoalsoindorsesit,andsendsitintofurthercirculation.Thebillinthiscasewillhaveeffectedfivepaymentsexactlyasifitwerea10l.notepayabletothebearerondemand.Itwill,however,havecirculatedinconsequencechieflyoftheconfidenceplacedbyeachreceiverofitinthelastindorser,hisowncorrespondentintrade;whereas,thecirculationofabanknoteisowingrathertothecircumstanceofthenameoftheissuerbeingsowellknownastogivetoitanuni-versalcredit.Amultitudeofbillspassbetweentraderandtraderinthecountryinthemannerwhichhasbeendescribed;andtheyevidentlyform,inthestrictestsense,apartofthecirculatingmediumofthekingdom.Bills,however,andespeciallythosewhicharedrawnforlargesums,maybeconsideredasingeneralcirculatingmoreslowlythaneithergoldorbanknotes,andforareasonwhichitismate-rialtoexplain.Banknotes,thoughtheyyieldaninteresttotheissuer,affordnonetothemanwhodetainstheminhispossession;theyaretohimasunproductiveasguineas.Thepossessorofabanknote,therefore,makeshastetopartwithit.Thepossessorofabillofexchangepossesses,onthecontrary,thatwhichisalwaysgrowingmorevaluable.Thebill,whenitisfirstdrawn,isworthsomethinglessthanabanknote,onaccountofitsnotbeingdueuntiladistantday;andthefirstreceiverofitmaybesupposedtoobtainacompensationfortheinferiorityofitsvalueinthepriceofthearticlewithwhichthebillispurchased.Whenhepartswithit,hemaybecon-sideredasgrantingtothenextreceiveralikecompensation,whichisproportionatetothetimewhichthebillhasstilltorun.Eachholderofabillhas,therefore,aninterestindetainingit.Bills,itistrue,generallypassamongtradersinthecountrywithouttherebeinganycalculationorregularallowanceofdiscount;thereasonofwhichcircumstanceis,thatthereisagenerallyunderstoodperiodoftimeforwhichthosebillsmayhavetorun,which,accordingtothecustomoftraders,areacceptedascurrentpayment.Ifanybillgiveninpaymenthasalongertimethanusualtorun,hewhoreceivesitisconsideredassofarfavouringthepersonfromwhomhetakesit;andthefavouredpersonhastocompensateforthisadvantage,not,perhaps,byarecompenceofthesamekindaccuratelycalculated,butinthegeneraladjustmentofthepecuniaryaffairsofthetwoparties.Thisqualityinbillsofexchange(anditmightbeaddedofinterestnotes,etc.)ofoccupyingtheplaceofbankpaper,andofalsothrowingtheinterestaccruingduringtheirdetentionintothepocketoftheholder,contributesgreatlytotheuseofthem.Thewholetradingworldmaybecon-sideredashavinganinterestinencouragingthem.Topossesssomearticlewhich,solongasitis 224TheClassicalSchooldetained,shallproducearegularinterest,whichshallbesubjecttonofluctuationsinprice,which,bythecustomofcommerce,shallpassincertaincasesasapayment,andshalllikewisebeconvertibleintoreadymoneybythesacrificeofasmalldiscount,isthetruepolicyofthemer-chant.Goodswillnotservethispurpose,becausetheydonotgrowmorevaluablebydetention;norstocks,because,thoughtheyyieldaninterest,theyfluctuatemuchinvalue,and,also,becausetheexpenceofbrokerageisincurredinsellingthem,nottomentiontheinconveniencesarisingfromthecircumstanceoftheirbeingtransferableonlyinthebooksoftheBankofEngland.Stocks,however,bybeingatalltimesasaleableandreadymoneyarticle,are,toacertaindegree,heldbypersonsinLondononthesameprincipleasbills,andserve,therefore,insomemeasure,likebills,ifweconsidertheseasadiscountablearticle,tosparetheuseofbanknotes.Exchequerbillswillnotfullyanswerthepurpose,becausethereisacommissiononthesaleofthese,asonthesaleofstocks;andbecause,nottospeakofsomeotherinferiorobjectionstothem,theyfluctuate,insomesmalldegree,inprice.Bills,sincetheycirculatechieflyamongthetradingworld,comelittleundertheobservationofthepublic.Theamountofbillsinexistencemayyet,perhaps,beatalltimesgreaterthantheamountofallthebanknotesofeverykind,andofallthecirculatingguineas.Theamountofwhatiscalledthecirculatingmediumofacountryhasbeensupposedbysometobeararegularproportiontothequantityoftradeandofpayments.Ithas,however,beenshewn,thatsuchpartofthecirculatingmediumasyieldsaninteresttotheholderwilleffectmuchfewerpayments,inproportiontoitsamount,thanthepartwhichyieldstotheholdernointerest.Anumberofcountrybanknotes,amountingto100l.,may,forinstance,effectonanaverageonepaymentinthreedays;whileabillof100l.may,throughthedispositionofeachholdertodetainit,effectonlyonepaymentinninedays.ThereisapassageintheworkofDrAdamSmithwhichservestoinculcatetheerrorofwhichIhavebeenspeaking;apassageonwhichitmaybeusefultocommentwithsomeparticularity.Hesays,‘Thewholepapermoneyofeverykindwhichcaneasilycirculateinanycountry,nevercanexceedthevalueofthegoldandsilverofwhichitsuppliestheplace,orwhich(thecommercebeingsupposedthesame)wouldcirculatethere,iftherewasnopapermoney.’DoesDrSmithmeantoinclude,inhisideaof‘thewholepapermoneyofeverykindwhichcaneasilycirculate’,allthebillsofexchangeofacountry,ordoeshenot?Anddoeshealsoincludeinterestnotes,exchequerbills,andIndiabonds,andthoseotherarticleswhichverymuchresem-blebillsofexchange?Inanearlierpartofhischapterhehasthisobservation–‘Therearedif-ferentsortsofpapermoney;butthecirculatingnotesofbanksandbankersarethespecieswhichisbestknown,andwhichseemsbestadaptedforthispurpose.’Weareledtojudgebythispas-sage,andalsobytheterm‘papermoneyofeverykind’inthepassagequotedbefore,thatitwashispurposetoincludebillsofexchange;ontheotherhand,ifallthebillsofexchangeofacountryaretobeaddedtothebanknoteswhichcirculate,itbecomesthensomanifest,thatthewholeofthepapermustbemorethanequaltotheamountofthemoneywhichwouldcirculateiftherewerenopaper,thatwefeelsurprisedthattheerroneousnessofthepositiondidnotstrikeDrSmithhimself.Heintroduces,indeed,thequalifyingword‘easily’;hespeaksof‘thewholepapermoneyofeverykindwhichcaneasilycirculate’.Butthisterm,asIapprehend,ismeantonlytorefertoaneasy,incontradistinctiontoaforced,papercirculation;foritisonthesubjectofaforcedcirculationthatagreatpartofhisobservationsturn.Heseems,ontheotherhand,tohavepaidnoregardtothedistinctiononwhichIhavedwelt,ofamoreslowandamorerapidcirculation;athingwhichisquitedifferentfromaneasyandadifficultcirculation.Heappears,inshort,notatalltohavereflectedhowfalsehismaximisrendered(iflaiddowninthetermswhichhehasused)bothbythedifferentdegreesofrapidityofcirculationwhichgenerallybelongtothetwodifferentclassesofpaperofwhichIhavespoken,andalsobythedifferentdegreesofrapiditywhichmaylikewisebelongtothecirculationofthesamekindsofpaper,andevenofthesameguineas,atdifferenttimes. Thornton:PaperCredit225TheerrorofDrSmith,then,isthis:–herepresentsthewholepaper,whichcaneasilycircu-latewhentherearenoguineas,tobethesameinquantitywiththeguineaswhichwouldcirculateiftherewerenopaper,whereas,itisthequantitynotof‘thethingwhichcirculates’,thatis,ofthethingwhichiscapableofcirculation,butoftheactualcirculationwhichshouldratherbespokenofasthesameinbothcases.Thequantityofcirculatingpaper,thatis,ofpapercapableofcir-culation,maybegreat,andyetthequantityofactualcirculationmaybesmall,orviceversa.Thesamenotemayeithereffecttenpaymentsinoneday,oronepaymentintendays,andonenote,therefore,willeffectthesamepaymentsintheonecase,whichitwouldrequireahundrednotestoeffectintheother.Ihavespokenofthedifferentdegreesofrapidityinthecirculationofdifferentkindsofpaper,andoftheconsequentdifferenceofthequantityofeachwhichiswantedinordertoeffectthesamepayments.Ishallspeaknextofthedifferentdegreesofrapidityinthecirculationofthesamemediumsatdifferenttimes:and,first,ofbanknotes.Thecauseswhichleadtoavariationintherapidityofthecirculationofbanknotesmaybeseveral.Ingeneral,itmaybeobserved,thatahighstateofconfidenceservestoquickentheircirculation,andthishappensuponaprinciplewhichshallbefullyexplained.Itmustbepremised,thatbythephraseamoreorlessquickcirculationofnoteswillbemeantamoreorlessquickcirculationofthewholeofthemonanaverage.Whateverencreasesthatreserve,forinstance,ofBankofEnglandnoteswhichremainsinthedraweroftheLondonbankerashisprovisionagainstcontingencies,contributestowhatwillherebetermedthelessquickcirculationofthewhole.Nowahighstateofconfidencecontributestomakemenprovidelessamplyagainstcontingencies.Atsuchatime,theytrust,thatifthedemanduponthemforapayment,whichisnowdoubtfulandcontingent,shouldactuallybemade,theyshallbeabletoprovideforitatthemoment;andtheyarelothtobeattheexpenceofsellinganarticle,orofgettingabilldis-counted,inordertomaketheprovisionmuchbeforetheperiodatwhichitshallbewanted.When,onthecontrary,aseasonofdistrustarises,prudencesuggests,thatthelossofinterestarisingfromadetentionofnotesforafewadditionaldaysshouldnotberegarded.Itiswellknownthatguineasarehoarded,intimesofalarm,onthisprinciple.Notes,itistrue,arenothoardedtothesameextent;partlybecausenotesarenotsupposedequallylikely,intheeventofanygeneralconfusion,tofindtheirvalue,andpartlybecausetheclassofpersonswhoaretheholdersofnotesislesssubjecttoweakandextravagantalarms.Indifficulttimes,however,thedispositiontohoard,orrathertobelargelyprovidedwithBankofEnglandnotes,will,perhaps,prevailinnoinconsiderabledegree.ThisremarkhasbeenappliedtoBankofEnglandnotes,becausethesearealwaysinhighcredit;anditought,perhaps,tobechieflyconfinedtothese.TheyconstitutethecoininwhichthegreatmercantilepaymentsinLondon,whicharepaymentsonaccountofthewholecountry,areeffected.If,therefore,adifficultyinconvertingbillsofexchangeintonotesisapprehended,theeffectbothonbankers,merchants,andtradesmen,issomewhatthesameastheeffectofanapprehensionentertainedbythelowerclassofadifficultyinconvertingBankofEnglandnotesorbankers’notesintoguineas.Theapprehensionoftheapproachingdifficultymakesmeneagertodothattoday,whichotherwisetheywoulddotomorrow.Thetruthofthisobservation,asappliedtoBankofEnglandnotes,aswellastheimportanceofattendingtoit,maybemademanifestbyadvertingtotheeventsoftheyear1793,when,throughthefailureofmanycountrybanks,muchgeneraldistrusttookplace.Thealarm,thefirstmaterialoneofthekindwhichhadforalongtimehappened,wasextremelygreat.ItdoesnotappearthattheBankofEnglandnotes,atthattimeincirculation,werefewerthanusual.Itiscertain,however,thattheexistingnumberbecame,attheperiodofapprehension,insufficientforgivingpunctualitytothepaymentsofthemetropolis,anditisnottobedoubted,thattheinsuffi-ciencymusthavearisen,insomemeasure,fromthatslownessinthecirculationofnotes,natu-rallyattendinganalarm,whichhasbeenjustdescribed.Everyonefearinglestheshouldnothave 226TheClassicalSchoolhisnotesreadywhenthedayofpaymentshouldcome,wouldendeavourtoprovidehimselfwiththemsomewhatbeforehand.Afewmerchants,fromanaturalthoughhurtfultimidity,wouldkeepintheirownhandssomeofthosenotes,which,inothertimes,theywouldhavelodgedwiththeirbankers;andtheeffectwouldbe,tocausethesamequantityofbankpapertotransactfewerpayments,or,inotherwords,tolessentherapidityofthecirculationofnotesonthewhole,andthustoencreasethenumberofnoteswanted.Probably,also,someBankofEnglandpaperwouldbeusedasasubstituteforcountrybanknotessuppressed.Thesuccessoftheremedywhichtheparliamentadministered,denoteswhatwasthenatureoftheevil.Aloanofexchequerbillswasdirectedtobemadetoasmanymercantilepersons,givingpropersecurity,asshouldapply.Itisafact,worthyofseriousattention,thatthefailuresabatedgreatly,andmercantilecreditbegantoberestored,notattheperiodwhentheexchequerbillswereactuallydelivered,butatatimeantecedenttothatæra.Italsodeservesnotice,thatthoughthefailureshadoriginatedinanextraordinarydemandforguineas,itwasnotanysupplyofgoldwhicheffectedthecure.Thatfearofnotbeingabletoobtainguineas,whicharoseinthecoun-try,led,initsconsequences,toanextraordinarydemandforbanknotesinLondon;andthewantofbanknotesinLondonbecame,afteratime,thechiefevil.Theveryexpectationofasupplyofexchequerbills,thatis,ofasupplyofanarticlewhichalmostanytradermightobtain,andwhichitwasknownthathemightthensell,andthusturnintobanknotes,andafterturningintobanknotesmightalsoconvertintoguineas,createdanideaofgeneralsolvency.Thisexpectationcured,inthefirstinstance,thedistressofLondon,anditthenlessenedthedemandforguineasinthecountry,throughthatpunctualityineffectingtheLondonpaymentswhichitproduced,andtheuniversalconfidencewhichitthusinspired.Thesumpermittedbyparliamenttobeadvancedinexchequerbillswasfivemillions,ofwhichnotonehalfwastaken.Ofthesumtaken,nopartwaslost.Onthecontrary,thesmallcompensation,orextrainterest,whichwaspaidtogovern-mentforlendingitscredit(foritwasmerecredit,andnoteithermoneyorbanknotesthatthegovernmentadvanced),amountedtosomethingmorethanwasnecessarytodefraythecharges,andasmallbalanceofprofitaccruedtothepublic.Forthisseasonableinterference,ameasureatfirstnotwellunderstoodandopposedatthetime,chieflyonthegroundofconstitutionaljeal-ousy,themercantileaswellasthemanufacturinginterestsofthecountrywerecertainlymuchindebtedtotheparliament,andtothegovernment.Thatastateofdistrustcausesaslownessinthecirculationofguineas,andthatatsuchatimeagreaterquantityofmoneywillbewantedinordertoeffectonlythesamemoneypayments,isapositionwhichscarcelyneedstobeproved.Someobservations,however,onthissubjectmaynotbeuseless.Whenaseasonofextraordinaryalarmarises,andthemoneyofthecountryinsomemeasuredisappears,theguineas,itiscommonlysaid,arehoarded.Inacertaindegreethisasser-tionmaybeliterallytrue.Butthescarcityofgoldprobablyresultschieflyfromthecircumstanceofaconsiderablevarietyofpersons,countrybankers,shopkeepers,andothers,augmenting,someinasmallerandsomeinamoreamplemeasure,thatsupplywhichithadbeencustomarytokeepbythem.Thestockthusenlargedisnotafundwhichitspossessorpurposes,innocase,todiminish,butafundwhich,ifhehasoccasiontolessenit,heendeavours,ashehasopportunity,toreplace.Itisthusthatamoreslowcirculationofguineasisoccasioned;andtheslowerthecirculation,thegreaterthequantitywanted,inordertoeffectthesamenumberofmoneypayments.Thus,then,itappears,thatthesentimentwhichDrSmithleadshisreaderstoentertain,namely,thatthereisineverycountryacertainfixedquantityofpaper,supplyingtheplaceofgold,whichisallthat‘caneasilycirculate’(orcirculatewithoutbeingforcedintocirculation),andwhichisall(forsuch,likewise,seemstobetheintendedinference)thatshouldeverbeallowedtobesentintocirculation,is,inavarietyofrespects,incorrect.Theexistenceofvarioushoardsofgoldinthecoffersofbankers,andoftheBankofEngland,whiletherearenocorrespondinghoardsofpaper,wouldofitselfforbidanythinglikeaccuratecomparisonbetweenthem.Many Thornton:PaperCredit227additional,thoughsmaller,circumstancesmightbementionedascontributingtopreventthequantityofnoteswhichwillcirculatefrombeingthesameasthequantityofgoldwhichwouldcirculateiftherewerenonotes;suchastheirsuperiorconvenienceinavarietyofrespects,thefacilityofsendingthembypost,thefacultywhichtheyhaveofbeingeitherusedasguineas,orofsupplyingtheplaceofbillsofexchange,andfurnishingaremittancetodistantplaces.ThereisafurtherobjectiontothesameremarkofDrSmith.Itwouldleadanuninformedpersontoconceive,thatthetradeofacountry,andofthiscountryinparticular,circumstancedasitnowis,mightbecarriedonaltogetherbyguineas,ifbanknotesofallkindswerebyanymeansannihilated.Itmayalreadyhaveoccurred,thatifbankpaperwereabolished,asubstituteforitwouldbelikelytobefound,toacertaindegree,inbillsofexchange;andthatthese,onaccountoftheirslowercirculation,must,inthatcase,bemuchlargerinamountthanthenotesofwhichtheywouldtaketheplace.Butfurther,ifbillsandbanknoteswereextinguished,othersubstitutesthangoldwouldunquestionablybefound.Recoursewouldbehadtodevicesofvari-ouskindsbywhichmenwouldsavethemselvesthetroubleofcounting,weighing,andtransport-ingguineas,inallthelargeroperationsofcommerce,sothattheamountofguineasbroughtintousewouldnotatallcorrespondwiththeamountofthebillsandnotessuppressed.Bankswouldbeinstituted,notofthedescriptionwhichnowexist,butofthatkindandnumberwhichshouldservebesttospareboththetroubleofgold,andtheexpenceincurredbythelossofinterestuponthequantityofitinpossession.Merelybythetransferofthedebtsofonemerchanttoanother,inthebooksofthebanker,alargeportionofwhataretermedcashpaymentsiseffectedatthistimewithouttheuseofanybankpaper,andamuchlargersumwouldbethustransferred,ifguineasweretheonlycirculatingmediumofthecountry.Creditwouldstillexist;creditinbooks,creditdependingonthetestimonyofwitnesses,oronthemereverbalpromiseofparties.Itmightnotbepapercredit;butstillitmightbesuchcreditaswouldspare,moreorless,theuseofguineas.Itmightbecreditofaworsekind,lessaccuratelydealtoutinproportiontothedesertofdifferentpersons,andtherefore,insomeinstances,atleast,stillmoreextended;itmightbecreditlesscontributingtopunctualityofpayments,andtotheduefulfillmentofengagements;lesscon-ducivetotheinterestsoftrade,andtothecheapeningofarticles;anditwould,perhaps,alsobecreditquiteasliabletointerruptionontheoccasionofanysuddenalarmormaterialchangeinthecommercialprospectsandcircumstancesofthecountry.ChapterVIIIOftheTendencyofatoogreatIssueofBankPapertoproduceanExcessoftheMarketPriceabovetheMintPriceofGold.–OftheMeansbywhichitcreatesthisExcess,namely,byitsOperationonthePriceofGoodsandontheCourseofExchange.–ErrorsofDrA.SmithontheSubjectofexcessivePaper.–OftheMannerinwhichtheLimitationoftheQuantityoftheBankofEnglandPaperservestolimittheQuantityandsustaintheValueofallthePaperoftheKingdom.Athirdobjectioncommonlymadetocountrybanks,is,theinfluencewhichtheirnotesaresupposedtohaveinraisingthepriceofarticles.Bytheprincipleswhichshallbelaiddowninthischapter,Iproposetoprove,that,thoughageneralencreaseofpaperhasthistendency,theobjection,whenappliedtothepaperofcountrybanks,isparticularlyillfounded.Itwillbenecessary,inthediscussionwhichisnowabouttotakeplace,tojointheconsiderationoftwosubjects,thatoftheinfluencewhichanenlargedemissionofpaperhasinliftingupthepriceofcommodities,andthatofitsinfluence,also,inproducinganexcessofthemarketpriceabovethemintpriceofgold,andinthusexposingthebanktofailure,andthecountrytoconsiderableincon-venience.ItisthroughthemediumoftheenhancedpriceofcommoditiesthatIconceivetheill 228TheClassicalSchooleffectonthemintpriceofgoldtobebroughtabout.Thediscussionofthesetopicswillbestbeintroducedbyastatementoftheprinciplewhichregulatesthevalueofallthearticlesoflife.Thepriceofcommoditiesinthemarketisformedbymeansofacertainstrugglewhichtakesplacebetweenthebuyersandthesellers.Itiscommonlysaid,thatthepriceofathingisregulatedbytheproportionbetweenthesupplyandthedemand.Thisis,undoubtedly,true,andforthefol-lowingreason.Ifthesupplyofanarticleorthedemandforitisgreat,itisalsoknowntobegreat,andifsmall,itisunderstoodtobesmall.When,therefore,thesupply,forexample,isknowntobelessthanthedemand,thesellersjudgethatthebuyersareinsomedegreeattheirmercy,andtheyinsistonasfavourableapriceastheirpoweroverthebuyersislikelytoenablethemtoobtain.Thepricepaidisnotatallgovernedbytheequityofthecase,butentirelybythedegreeofcommandwhichtheonepartyhasovertheother.Whenthedemandislessthanthesupply,thebuyers,intheirturn,insomedegree,commandthemarket,givingnotthatsumwhichiscalculatedtoindemnifytheselleragainstloss,butsomuchonlyastheythinkthatthesellerwillacceptratherthannotsellhisarticle.Thequestionofpriceis,therefore,inallcases,aquestionofpower,andofpoweronly.Itisobvious,thatariseinthepriceofascarcecommoditywillbemoreorlessconsiderableinproportionasthearticleisfelttobeoneofmoreorlessstrictnecessity.Theprinciplewhichhasbeenlaiddownasgoverningthepriceofgoods,mustbeconsideredasalsoregulatingthatofthepaperforwhichtheyaresold;foritmayasproperlybesaid,ontheoccasionofasaleofgoods,thatpaperissoldforgoods,asthatgoodsaresoldforpaper:thusthesaleofasinglecommodity,asitiscalled,isatwofoldtransaction,thoughnotcommonlyunder-stoodtobeso:Imean,thatthepriceatwhichtheexchange(orsale)takesplacedependsontwofacts;ontheproportionbetweenthesupplyoftheparticularcommodityandthedemandforit,whichisonequestion;andontheproportion,also,betweenthestateofthegeneralsupplyofthecirculatingmediumandthatofthedemandforit,whichisanother.Paper,moreover(ofwhichIshallherespeakasifitweretheonlycirculatingmedium,itbeingtheonlyoneusedinthelargerpayments),is,tosomepersons,somewhatinthesamemannerasbreadistoall,anarticleofnecessity.Itisnecessarytotraders,partlybecausetheyhavecomeunderengagementstomakepaymentswhichareonlytobeeffectedbymeansoftheirownpre-viousreceipts;andpartlybecausetheyholdgoodswhichmust,withinnolongtime,besoldformoney,thatistosay,forpaper,sinceacontinuallygrowinglossaccruesfromthedetentionofthem.Paper,therefore,mustbeboughtbythetrader;andifthereisadifficultyinobtainingit,thebuyerofitisbroughtunderthepoweroftheseller,and,inthatcase,moregoodsmustbegivenforit.Letus,now,tracecarefullythestepsbywhichanencreaseofpaperservestoliftupthepriceofarticles.Letussuppose,forexample,anencreasednumberofBankofEnglandnotestobeissued.Insuchcasethetradersinthemetropolisdiscoverthatthereisamorethanusualfacilityofobtainingnotesatthebankbygivingbillsforthem,andthattheymay,therefore,relyonfind-ingeasymeansofperforminganypecuniaryengagementsintowhichtheymayenter.Everytraderisencouragedbytheknowledgeofthisfacilityofborrowing,alittletoenlargehisspecu-lations;heisrendered,bytheplentyofmoney,somewhatmorereadytobuy,andratherlesseagertosell;heeithertruststhattherewillbeaparticularprofitonthearticlewhichistheobjectofhisspeculation,orelsehejudges,that,byextendinghisgeneralpurchases,heshallatleasthavehisshareoftheordinaryprofitofcommercialbusiness,aprofitwhichheconsiderstobeproportionedtothequantityofit.Theopinionofanencreasedfacilityofeffectingpaymentscausesothertraderstobecomegreaterbuyersforthesamereason,andatthesametime.Thusaninclinationtobuyiscreatedinallquarters,andanindispositiontosell.Now,sincethecostofarticlesdependsontheissueofthatgeneralconflictbetweenthebuyersandsellers,whichwasspokenof,itfollows,thatanycircumstancewhichservestocommunicateagreaterdegreeofeagernesstothemindoftheonepartythantothatoftheother,willhaveaninfluenceonprice. Thornton:PaperCredit229Itisnotnecessarytosupposeeitheramonopoly,oracombination,ortheleastunfairness,toexist,orevenlargeandimproperspeculations.Theencreaseintheeagernessofeachbuyermaybetrifling.Thezealtobuy,beinggenerallydiffused,may,nevertheless,haveasensibleoperationonprice.That,ontheotherhand,areductionofthequantityofpapercausesafallinthepriceofgoods,isscarcelynecessarytobeproved.Itmaybeuseful,however,insomedegree,toillustratethispointbyfacts.Iunderstand,thatatthetimeofthegreatfailureofpapercreditin1795,thepriceofcornfell,inafewplaces,nolessthan20or30percent.Thefallarosefromthenecessityofsellingcornunderwhichsomefarmerswereplaced,inordertocarryontheirpayments.Muchofthecirculatingmediumbeingwithdrawn,thedemandforitwasinthoseplacesfargreaterthanthesupply;andthefewpersons,therefore,whowereinpossessionofcash,orofwhatwouldpassascash,havingcommandofthemarket,obligedthefarmerstosellatapricethusgreatlyreduced.Itwasanewandsuddenscarcityofcash,notanynewplentyofcorn,whichcausedthepriceofcorntodrop.Ithasbeenalreadyobserved,thatsomefewdaysantecedenttothesuspensionofthecashpaymentsofthebank,exchequerbills,aswellasstocks,whensoldforreadymoney,thatistosay,forbanknotes,fellinprice.Notmanydaysafterwards,althoughnomaterialeventhadoccurredexceptthatofthestoppageofthebank,theyrose.Thisfallandriseinthepriceofgov-ernmentsecuritiesevidentlydidnotresultfromanycorrespondingfluctuationinthenationalcon-fidenceinthem;forthefalltookplacewhenthenationalcreditwouldnaturallybethehighest,namely,whenthebankwasasyetpayingincash,andtheapproachingstoppagewasnotknown;andtherisehappenedwhenthenationalcreditwouldbethelowest,namely,withinafewdaysafterthatdiscouragingevent.Thereasonforeachofthefluctuationsunquestionablywasthefluc-tuationinthequantityoftheBankofEnglandnotes,which,asithassinceappeared,were,dur-ingthedayortwowhichprecededthesuspension,aboutamillionlessthantheywereeitherashorttimebeforeorashorttimeafterwards.Thenotesbeingfewerduringthosefewdays,thepriceofthemwas,atthesametime,higher.Itwas,infact,therefore,thepriceofnoteswhichrose,ratherthanthatofstockswhichfell,onthedaysimmediatelyprecedingthesuspension;anditwasthepriceofnoteswhichafewdaysafterwardsfell,ratherthanthatofstockswhichrose.Ishall,forthepresent,considerthedoctrinewhichhasbeenlaiddown,asbeingsufficientlyestablished,namely,thatpaperfluctuatesinpriceonthesameprinciplesasanyotherarticle,itsvaluerisingasitsquantitysinks,andviceversa,or,inotherwords,thatanaugmentationofithasageneraltendencytoraise,andadiminishedissuetolower,thenominalcostofcommodities,although,partlyforreasonswhichhavebeenalreadytouchedupon,andpartlyforsomewhichshallbehereaftergiven,anexactcorrespondencebetweenthequantityofpaperandthepriceofcommoditiescanbynomeansbeexpectedalwaystosubsist.Thereaderpossiblymaythinkthat,intreatingofthissubject,Ihavebeenmistakingtheeffectforthecause,anencreasedissueofpaperbeing,inhisestimation,merelyaconsequencewhichfollowsariseinthepriceofgoods,andnotthecircumstancewhichproducesit.Thatanenlargedemissionofpapermayoftenfairlybeconsideredasonly,orchiefly,aneffectofhighprices,isnotmeanttobedenied.Itis,however,intendedtoinsist,that,unquestionably,insomecasesatleast,thegreaterquantityofpaperis,moreproperlyspeaking,thecause.Afullerexplanationofthisapparentlydifficultanddisputablepositionwillbegiveninthefurtherprogressofthiswork.Iproceed,inthenextplace,toshewinwhatmannerageneralriseinthecostofcommodities,whetherproceedingfromanextravagantissueofpaper,orfromanyothercircumstance,contributestoproduceanexcessofthemarketpriceabovethemintpriceofgold.Itisobvious,that,inproportionasgoodsarerendereddearinGreatBritain,theforeignerbecomesunwillingtobuythem,thecommoditiesofothercountrieswhichcomeintocompetitionwithoursobtainingapreferenceintheforeignmarket;and,therefore,thatinconsequenceof 230TheClassicalSchooladiminutionofordersfromabroad,ourexportswillbediminished;unlessweassume,asweshallfinditnecessarytodo,thatsomecompensationintheexchangeisgiventotheforeignerforthedisadvantageattendingthepurchaseofourarticles.Butnotonlywillourexportslesseninthecasesupposed;ourimportsalsowillencrease:forthehighBritishpriceofgoodswilltemptfor-eigncommoditiestocomeinnearlyinthesamedegreeinwhichitwilldiscourageBritisharticlesfromgoingout.Imeanonly,thatthesetwoeffects(thatofadiminishedexport,andthatofanencreasedimport)willfollow,providedthatwesuppose,whatisnotsupposable,namely,that,atthetimewhenthepriceofgoodsisgreatlyraisedinGreatBritain,thecourseofexchangesuffersnoalteration.Forthefollowingreason,Ihavesaidthatthisisnotsupposable.Underthecircum-stanceswhichhavebeendescribedofadiminishedexport,andanencreasedimport,thebalanceoftrademustunavoidablyturnagainstus;theconsequenceofwhichmustbe,thatthedrawersofbillsonGreatBritaininforeigncountrieswillbecomemoreinnumberthanthepersonshav-ingoccasiontoremitbills.Thisdisparitybetweenthenumberofindividualswantingtodraw,andofthosewantingtoremit,aswasremarkedinaformerchapter,mustproduceafallinthepriceatwhichtheoverabundantbillsonEnglandsellintheforeignmarket.Thefallinthesellingpriceabroadofbillspayablehere,willoperateasanadvantagetotheforeignbuyerofourcom-moditiesinthecomputationoftheexchangeablevalueofthatcirculatingmediumofhisowncountrywithwhichhedischargesthedebtinBritaincontractedbyhispurchase.Itwillthusobvi-atethedearnessofourarticles:itwillserveasacompensationtotheforeignerforthelosswhichhewouldotherwisesustainbybuyinginourmarket.Thefallofourexchangewill,therefore,pro-moteexportationandencourageimportation.Itwill,inagreatdegree,preventthehighpriceofgoodsinGreatBritainfromproducingthatunfavourablebalanceoftrade,which,forthesakeofillustratingthesubjectwassupposedtoexist.ThecompensationthusmadetotheforeignerforthehighBritishpriceofallarticlesisneces-saryasaninducementtohimtotakethem,somewhatinthesamemannerasadrawbackorbountyonexportationisthenecessaryinducementtotakethoseparticulargoodswhichhavebeenrenderedtoodearfortheforeignmarketbytaxeslaidontheminthiscountry.Ineachcase,theBritishconsumerpaysthehighprice,andtheforeignerisspared,becauseotherwisehewillnotacceptoutcommodities.Thefallinourexchangewasjustnowdefinedtobeanadvantagegainedinthecomputationoftheexchangeablevalueofthatforeigncirculatingmediumwithwhichtheforeignerdis-chargeshisdebtinGreatBritain,adebtpaidinthecirculatingmediumofthiscountry.Itimplies,therefore,ahighvaluationofhiscirculatingmedium,andalowvaluationofours;alowvaluation,thatistosay,bothofourpaperandofthecoinwhichisinterchangedwithit.Now,whencoinisthusrenderedcheap,itbynomeansfollowsthatbullionisrenderedcheapalso.Coinisrenderedcheapthroughitsconstitutingapartofourcirculatingmedium;butbul-liondoesnotconstituteapartofit.Bullionisacommodity,andnothingbutacommodity;anditrisesandfallsinvalueonthesameprincipleasallothercommodities.Itbecomes,likethem,dearinproportionasthecirculatingmediumforwhichitisexchangedisrenderedcheap,andcheapinproportionasthecirculatingmediumisrendereddear.Inthecase,therefore,whichhasnowbeensupposed,wearetoconsidercoinassinkingbelowitsproperandintrinsicworth,whilebullionmaintainsitsnaturalandaccustomedprice.Hencetherearisesthattemptation,whichwasformerlynoticed,eithertoconvertbackintobullionandthentoexport;or,whichisthesamething,toexportandthenconvertbackintobullion;or,whichisalsothesamething,toconvertbackintobullion,andthenselltothebank,atthepricewhichwouldbegainedbyexportation,thatgoldwhichthebankhaspurchased,andhasconvertedfrombullionintocoin.Inthismanneranencreaseofpaper,supposingittobesuchastoraisethepriceofcommodi-tiesinBritainabovethepriceatwhich,unlessthereissomeallowanceaffordedinthecourseof Thornton:PaperCredit231exchange,theywillbereceivedinforeigncountries,contributestoproduceanexcessofthemarketpriceabovethemintpriceofgold,andtoprevent,therefore,theintroductionofapropersupplyofitintotheBankofEngland,aswellastodrawoutofitscoffersthatcoinwhichthedirectorsofthebankwouldwishtokeepinthem.DrSmithappearstometohavetreatedtheimportantsubjectofthetendencyofanexcessivepapercirculationtosendgoldoutofacountry,andthustoembarrassitsbankingestablishments,inamannerwhichisparticularlydefectiveandunsatisfactory.Itistrue,thatheblamestheBankofEnglandforhavingcontributedtobringonitself,duringseveralsuccessiveyears,agreatexpenceinbuyinggoldthroughatoogreatcirculationofitspaper;andthathealsochargestheScotchbankswithhavinghad,throughtheirexcessiveissues,ashareinproducingthisevil.Thus,therefore,heseemstogivetohisreadersomeintimationofthetendencyofanexcessiveissueofpapertocreateanexcessofthemarketpriceabovethemintpriceofgold.Itappears,however,insomedegree,fromthepassageinquestion,thoughmuchmoreclearlyfromotherpartsofhiswork,thatheconsiderseverypermanentexcess,whetherofthemarketpriceabovethemintprice,orofthemintpriceabovethemarketpriceofgold,asentirelyreferableto‘somethinginthestateofthecoin’.Inoneplaceheremarks,thatahighpriceofbullionarisesfromthedifferencebetweentheweightofourmorelightandthatofourmoreheavyguineas;thevalueofthegoldintheheav-ierguineas,asherepresentsthecase,determiningthegeneralcurrentvalueofboththelighterandtheheavierpiecesofcoin;andthesuperiorquantityofgoldintheheavierguineasconsti-tuting,therefore,somuchprofitonthemeltingofthoseheavierpieces:asuppositionmanifestlyerroneous,andcontradictedbyexperience,foritimpliesthattheexcessofthemarketpriceabovethemintpriceofgoldbothneverisandnevercanbegreaterthantheexcessoftheweightoftheheavierabovethelighterguineas,and,also,thatthepriceofbullioncannotfluctuatewhilethestateofourcoinageremainsinallrespectsthesame.Wehavelatelyexperiencedfluctuationsinourexchange,andcorrespondentvariationsinthemarketprice,comparedwiththemintpriceofgold,amountingtonolessthan8or10percent,thestateofourcoinagecontinuing,inallrespects,thesame.DrSmithrecommendsaseignorage,astendingtoraisethevaluebothofthelighterandheav-iercoin;andthus,also,todiminish,ifnotdestroy,theexcessofthemarketpriceabovethemintpriceofgold.Itisremarkable,thatthisWriterdoesnot,inanydegree,adverteithertothatmoreimmediatecause(afallofourexchanges),fromwhichIhave,inthisaswellasinaformerchapter,describedtheexcessinquestion,as,inallcases,arising,ortothatmoreremoteoneonwhichIhavelatelydwelt,namely,atoohighpriceofgoods,whichproducesafallofourexchanges.DrSmithdoesnot,inanyofhisobservationsonthissubject,proceedsufficiently,asIcon-ceive,onthepracticalprincipleofshewinghowitisthroughthemediumofprices(ofthepricesofgoodsingeneral,andofbullioninparticular,comparedwiththepriceofthecurrentcircu-latingmedium),thattheoperationsofimportingandexportinggoldarebroughtabout.Hecon-sidersourcoinasgoingabroadsimplyinconsequenceofourcirculationathomebeingoverfull.Paymentincoin,accordingtohisdoctrine,isdemandedofeverybankforasmuchofitspaperasisexcessive,becausetheexcessivepapercanneitherbesentabroadnorturnedtoanyuseathome;whereas,whenitischangedintocoin,thecoinmaybetransmittedtoaforeignpart,andmaytherebeadvantageouslyemployed.Thereaderwillperceive,that,accordingtotheprinciplewhichIhaveendeavouredtoestablish,coindoesnotmerelyleavethecountrybecause,thecirculationbeingfull,nousecanbefoundathomeforadditionalcirculatingmedium;butthateveryencreaseofpaperhasbeenrepresentedasenhancingthepriceofgoods,whichadvancedpriceofgoodsaffordsemploymenttoalargerquantityofcirculatingmedium,sothatthecirculationcanneverbesaidtobeoverfull. 232TheClassicalSchoolThisadvancedpriceofgoodsisthesamethingasareducedpriceofcoin;thecoin,therefore,inconsequenceofitsreducedprice,iscarriedoutofthecountryforthesakeofobtainingforitabet-termarket.Theheavierpieces,undoubtedly,willbepreferred,ifthereisafacilityofobtainingandtransportingthem;butthelighterguineaswillalsobeexported,whenthestateoftheexchangeshallbesufficientlylowtoaffordaprofitonsuchatransaction.OneoftheconsequencesofDrSmith’smodeoftreatingthesubject,is,thatthereaderisledintotheerrorofthinking,thatwhen,throughanexcessiveissueofpaper,goldhasbeenmadetoflowawayfromus,theexpenceofrestoringitconsistsmerelyinthechargeofcollectingitandtransportingitfromtheplacetowhichitisgone.Itfollows,onthecontrary,fromtheprincipleswhichIhavelaiddown,that,inordertobringbackgold,theexpencenotonlyofimportingitmaybetobeincurred,butthatalsoofpurchasingitataloss,andatalosswhichmaybeeithermoreorlessconsiderable:acircum-stanceofgreatimportanceinthequestion.Ifthislossshouldeverbecomeextremelygreat,thedifficultiesofrestoringthevalueofourpapermightnoteasilybesurmounted,andacurrentdiscountordifferencebetweenthecoinandpaperofthecountrywouldscarcelybeavoidable.DrSmith,indeed,representstheexpenceofbringingbackgoldasconsiderable;butheseemstoimputethegreatnessofittothecircumstanceofitsrecurringagainandagain:andhedescribesitascontinuingtorecurinthecaseofeachindividualbank,whetherintownorcoun-try,whichpersistsinthefalsepolicyofissuingmorepaperthanissufficienttofillthecirculationoftheneighbouringdistrict.Ishallheretakeoccasiontonoticesomegreatinaccuraciesinonepartofhisreasoninguponthispoint.Hesays,‘Abankingcompanywhichissuesmorepaperthancanbeemployedinthecirculationofthecountry,andofwhichtheexcessiscontinuallyreturninguponthemforpayment,oughttoencreasethequantityofgoldandsilverwhichtheykeepatalltimesintheircoffers,notonlyinproportiontothisexcess,buttoamuchgreaterproportion.Suppose,forinstance,allthepaperofaparticularbank,whichthecirculationofthecountrycaneasilyabsorb,amountstofortythousandpounds,andthebankkeepsusuallytenthousandpoundsingoldandsilverforitsocca-sionaldemands.Ifthisbankshouldattempttocirculateforty-fourthousandpounds,theexcessoffourthousandpoundswillreturnasfastasitisissued.Fourteenthousandpoundsmustthenbekeptinsteadoftenthousandpounds,andthebankwillgainnothingbytheexcessivecirculation.Onthecontrary,itwilllosethewholeexpenceofcontinuallycollectingfourthousandpoundsingoldandsilver,whichwillbecontinuallygoingoutofitscoffersasfastastheyarebroughtin.’Hethenadds,‘Hadeveryparticularbankalwaysunderstoodandattendedtoitsowninterest,thecirculationwouldneverhavebeenoverstockedwithpapermoney.’Thereis,nodoubt,somesortofgroundforsayingthatanexcessofpaperwillcomebackuponthebankswhichissueit,andthat,incomingback,itwillinvolvetheissuingbanksinexpence.Muchexception,howevermightbetakenagainstDrSmith’smodeofestimatingtheexpencewhichthequantitywhichwouldcomebackwouldbringupontheissuingbanks.ButtheobjectionwhichIshallinthefirstplace,urgeagainsttheremarkofDrSmith,is,that,evengrant-ingittobejust,itcanbejustonlyinacasewhichcanscarcelyeveroccuramongthecountrybanksofthiskingdom.Imean,thatitcanapplysolelytothecaseofasinglebankofwhichthepapercirculatesexclusivelythroughasurroundingdistrict:itobviouslycannotholdinthecaseofmanybanks,thepaperofallofwhichcirculatesinthesamedistrict.Inordertoexplainthisclearly,letusmakethefollowingsupposition.Letusimaginethecircu-lationofcountrybankpaperwhichacertaindistrictwillbeartobeonehundredthousandpounds,andtenbankstobeinthatdistrict,eachusuallycirculatingandabletokeepincircula-tiontenthousandpounds.Letusalsosupposeanexcessiveissueoffourthousandpounds,andletusallowtheeffectofthisonthetenbankstobethatwhichDrSmithdescribes,apointwhichmightcertainlybedisputed,namely,thatanecessitywillariseforalwayskeeping(forthisiswhatDrSmith’slanguageimplies)anadditionalstockofgoldamountingtoexactlyfourthousandpounds,andalsothatareiteratedexpencewillbeincurred(DrSmithdoesnotsayhow Thornton:PaperCredit233frequentlyreiterated)incollectingandtransportingthesefourthousandpoundsofgold.Stillitmustbeobserved,thatwemaysupposetheissueofthefourthousandpoundsexcessivepapertobemadebysomeoneonlyofthetenbanks,whilethechargeincurredbysuchissuemaybedividedamongthemall.Itmay,therefore,onDrSmith’sownprinciples,answertooneofseveralbanksemittingpaperwhichcirculatesinthesameplace,toissuethepaperwhichisconsideredbyhimasexcessive,andthepracticeofdoingsomaybeowingtothecountrybanker’stoowellknowinghisowninterest,andnot,asDrSmithsupposes,tohistooillunderstandingit.ButthecasewhichIhavesupposedhasbeenputmerelybywayofillustration.Whenmanybanksissuenotescirculatingoverthesamedistrict,itisimpossibletosaywhosepaperconstitutestheexcess.Whatevertemptationtoexcessexists,mustbeageneralone.Itis,however,counter-actednotonlybythechargeoftransportinggold,onwhichaloneDrSmithdwells,butlikewisebyalltheothercharges,aswellasbyalltheriskstowhichcountrybanknotessubjecttheissuers;nottomentionthedifficultyoffindingachannelthroughwhichaquantityofpapermuchlargerthancommoncanbesentbythecountrybankintocirculation.DrSmithsupposes,inthepassagewhichhasjustbeenquoted,that,whenthereisanexcessivecirculationofcountrybankpaper,theexcessreturnsuponthebankstobeexchangedforgoldandsilver.Thefactis,thatitreturnstobeexchangednotforgoldandsilveronly,buteitherforgoldandsilver,orforbillsonLondon.AbillonLondonisanordertoreceiveinLondon,afteracertaininterval,eithergoldorBankofEnglandnotes.ThisorderimposesonthecountrybankerthetaskofprovidingafundinLondonsufficienttoanswerhisdraft:itserves,however,tosparethatexpenceoftransportinggold,aswellastolessenthatnecessityofmaintainingastockofguineas,whichDrSmithassumestobetheconsequenceofeveryexcessiveemissionofnotes,andtobethecertainmeans,ifbankersdobutunderstandtheirinterest,oflimitingtheirissue.Theremarkwhichhasjustbeenmadederivesparticularimportancefromthecircumstancesoftheperiodthroughwhichwehavepassed.For,iftheusualmeansofpreventinganexcessofcountrybanknoteswerenothingelsethantheliabilityoftheissuerstobecalleduponforamoneypaymentofthem,itmightfairlybeassumed,that,atatimewhenthemoneypaymentofthemhasbeensuspended,wemustnecessarilyhavebeenexposedtothegreatestinundationofcountrypaper,andtoaproportionatedepreciationofit.Theunboundedissueofcountrybanknoteshasbeenrestrainedbytheobligationunderwhichcountrybankershaveconsideredthem-selvestobeofgrantingbillsonLondon;thatistosay,orderstoreceiveinLondonBankofEnglandpaperinexchangefortheirnotes,ifrequiredtodoso:anditiscertainthattheywouldberequiredtodosowheneverthequantityoftheirnotesshouldbemuchgreaterinproportiontotheoccasionforthem,thanthequantityofthenotesoftheBankofEnglandinproportiontotheoccasionforthosenotes.Forthesakeofexplainingthis,letitbeadmitted,foramoment,thatacountrybankhasissuedaveryextraordinaryquantityofnotes.Wemustassumethesetobeemployedbytheholdersoftheminmakingpurchasesintheplaceinwhichalonethecountrybankpaperpasses,namely,inthesurroundingdistrict.Theeffectofsuchpurchases,accordingtotheprinciplesestablishedinthisChapter,mustbeagreatlocalriseinthepriceofarticles.Buttosupposeagreatandmerelylocalrise,istosupposethatwhichcanneverhappenorwhich,atleast,cannotlongcontinuetoexist,foreverypurchaserwilldiscoverthathecanbuycommoditieselsewhereatacheaperrate,andhewillnotfailtoprocuretheminthequarterinwhichtheyarecheap,andtotransportthemtothespotinwhichtheyaredear,forthesakeoftheprofitonthetransaction.Inorderthathemaybeenabledtodothis,hewilldemandtohavethenoteswhichpasscurrentintheplaceinwhichwehavesupposedgoodstohavebeenrendereddearbytheextraordinaryemissionofpaper,convertedintothecirculatingmediumoftheplaceinwhichgoodsarecheap:hewill,therefore,requiretohavehiscountrybanknoteturnedintoaBankofEnglandnote,orintoabillonLondon,whichisnearlythesamething,providedBankofEnglandnotesarefewerinpro-portiontotheoccasionforthemthanthecountrybanknotes;thatistosay,providedBankof 234TheClassicalSchoolEnglandnoteshavelessliftedupthepriceofgoodsinLondonthancountrybanknoteshaveliftedupthepriceofgoodsinthecountry.Thispointmaybestillmorefullyillustratedinthefollowingmanner.Letusimagineamer-cantilehousetoconsistoftwobranches,theoneplacedinthemetropolis,theotherinthecoun-try,andeachbranchtobeaccustomedtomakecertainpaymentsinthespotinwhichitissituated,each,however,tobeinthehabitofborrowingaslargelyasitisable,theoneofaneigh-bouringcountrybank,theotheroftheBankofEngland,andofapplyingtheseloanstothejointuseofthetradingconcern.Letusnextsupposeanextraordinaryfacilityofborrowingatthecountrybanktorise,whiletheopportunitiesofobtainingloansattheBankofEnglandremainthesame.Insuchcasethemercantilehouse,provideditsLondonpaymentscontinuetobearthesameproportionasbeforetoitscountrypayments,whichwillhardlyfailtobethecase,willexchangesomepartofitsencreasedloansinthecountry,consistingincountrybanknotes,forbillsonLondon,or,inotherwords,forBankofEnglandnotes.Itwillthusadjust,withthegreat-estnicety,thequantityofLondonandofcountrypapertotheamountofthepecuniarydemandsuponitineachquarter;and,indoingso,itwillcontributetopreventthesupplyofnotesineitherplacefrombecominggreaterinproportiontothedemandthanintheother.Whathasbeensupposedofonehouse,maybesupposedofmanysimilarones;andnotonlyofhousesoftheparticulardescriptionwhichhasbeenspokenof,butalsooftheseveralindependentestab-lishmentsinthetwodistantplaceswhichhavepecuniarytransactionstogether,andhaveaninter-estinaccommodatingeachother.Theirgeneraloperations,ofapecuniarykind,mustbesuchasalwaystocheckalocalriseinthepriceofcommoditiesineitherplace,whileitisasyetsosmallastobescarcelyperceptible.Inthismanner,therefore,theexchangeablenessofcountrypaperforLondonpaperwillneverfailverynearlytoequalizethevalueofthemboth.Itis,moreover,importantclearlytopointoutthattheirvaluewillbeequalized,ornearlyequalized,notbyaten-dencyintheLondonpapertopartakeinalowvaluewhichthecountrypaperhasacquiredinconsequenceofitsnotbeinglimitedbyanyvoluntaryactoftheissuers;norbyatendencyineachtoapproximateinvaluetotheother;butbyatendencyinthecountrypapertotakeexactlythehighvaluewhichtheLondonpaperbearsinconsequenceofitsbeingrestrictedbytheissuers.Thatthismustbethecaseisplain,fromtheremarkwhichhasjustbeenmade;forithasbeenshewn,thatthecountrypaper,howeveritmayfailtobelimitedinquantitybyanymoder-ationorprudenceoftheissuers,becomesnolesseffectuallylimitedthroughthecircumstanceoftheirbeingcompelledbytheholderstoexchangeasmuchofitasisexcessivefortheLondonpaperwhichislimited;whichislimited,Imean,inconsequenceofaprincipleoflimitationwhichthedirectorsoftheBankofEnglandhaveprescribedtothemselves.Thecountrypaper,letitthenbeobserved,doesnotaddanythingtothequantityoftheLondonpaper,fortheeffectuallimitationoftheLondonpaperisthegreatpoint,whichitmustbeborneinmind,thatwehaveassumed.Thecountrypaper,therefore,doesnotinanydegreediminishthepriceoftheLondonpaper;foritspricemustremainfixedsolongasitsquantitycontinuesfixed,supposing,aswedoinourpresentargument,thatthedemandforitisthesame.Ithasbeenproved,however,thatthecountrypaperisrendered,byitsexchangeablenesswiththeLondonpaper,almostexactlyequaltoitinvalue.Itis,then,renderedalmostexactlyequalinvaluetoapaperofwhichthevalueiscompletelysustained.Thus,therefore,thelimitationofthesupplyofthesinglearticleofLondonpaper,ofwhich,however,wearetakingforgrantedthatthedemandcontinuesthesame,isthemeansbothofsustainingthevalueofLondonpaper,andalsoofsustainingthevalueaswellaslimitingthequantityofthewholepaperofthecountry.Itis,however,necessaryheretopointouttothereader,that,intheimmediatelyprecedingobser-vations,wehaveassumedcertainfactstoexist,forthesakeofstatingclearlyageneralprinciple.Itwillbetheobjectofasucceedingchaptertoshewinwhatrespectsthecasewhichhasbeensupposeddiffersfromtheactualone. DAVIDRICARDO(1772–1823)DavidRicardowasborninLondonand,atage14,wenttoworkforhisfather,whowasamemberoftheLondonStockExchange.Afallingoutwithhisfamilyoverhismarriage,outsideofhisJewishfaith,toaQuakerwomanatage21causedhimtogointobusinessforhimself.Hissuccesswassuchthat,atage42,hewasabletoretirefromthebusinessworldandspendmuchoftheremainderofhislifeinstudyandwritingand,from1819,holdingaseatintheHouseofCommonsandparticipatingactivelyinparliamentarydebates.Ricardo’sinterestineconomicswasstimulatedbyhisreadingofSmith’sWealthofNationsin1799whilestayingforatimeattheBathspa.Adecadelater,hewasveryinvolvedinthebullioncontro-versy–includingpenninghisclassictractonTheHighPriceofBullion–and,later,inthedebateoverthecornlaws.Indeed,fromabout1815onward,hedevotedthelargestpartofhisefforttoworkingonDavidRicardo,bycourtesyofTheWarrenJ.SamuelsPortraitCollectionatDukeUniversity.issuesinpoliticaleconomy,culminatinginthepublicationofhisPrinciplesofPoliticalEconomyandTaxationin1817.ThereareimportantcommonalitiesbetweenRicardo’sTheHighPriceofBullionandThornton’sPaperCredit.Bothindividualstookabullionistapproachtothecontroversyoftheday,andtheirpositionswerevalidatedbythereportoftheCommittee.WhileThornton’sanalysisrepresentsamorenuancedviewofthecentralissuesofmonetarytheoryandpolicy,italsomoreorlessdis-appearedfromthescholarlydebatesforacentury.ItwasRicardo’sideasthatsetthetonefornineteenth-centurymonetarytheory. 236TheClassicalSchoolReferencesandfurtherreading*Cannan,Edwin,ed.(1919)ThePaperPoundof1797–1821:TheBullionReport,London:P.S.King&Son.Corry,B.A.(1962)Money,SavingandInvestmentinBritishEconomics,1800–1850,NewYork:StMartin’s.DeVivo,G.(1987)“Ricardo,David,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,183–98.Sayers,R.S.(1953)“Ricardo’sViewsonMonetaryQuestions,”QuarterlyJournalofEconomics67(February):30–49.Viner,Jacob(1937)StudiesintheTheoryofInternationalTrade,NewYork:Harper&Row.*FurtherreferencestoRicardo’slifeandworkcanbefoundintheintroductiontothesubsequentreadingfromhisPrinciplesofPoliticalEconomyandTaxation. TheHighPriceofBullion(1810)*Thepreciousmetalsemployedforcirculatingthecommoditiesoftheworld,previouslytotheestablishmentofbanks,havebeensupposedbythemostapprovedwritersonpoliticaleconomytohavebeendividedintocertainproportionsamongthedifferentcivilizednationsoftheearth,accordingtothestateoftheircommerceandwealth,andthereforeaccordingtothenumberandfrequencyofthepaymentswhichtheyhadtoperform.Whilesodividedtheypreservedevery-wherethesamevalue,andaseachcountryhadanequalnecessityforthequantityactuallyinuse,therecouldbenotemptationofferedtoeitherfortheirimportationorexportation.Goldandsilver,likeothercommodities,haveanintrinsicvalue,whichisnotarbitrary,butisdependentontheirscarcity,thequantityoflabourbestowedinprocuringthem,andthevalueofthecapitalemployedinthemineswhichproducethem.‘Thequalityofutility,beauty,andscarcity’,saysDrSmith,‘aretheoriginalfoundationofthehighpriceofthosemetals,orofthegreatquantityofothergoodsforwhichtheycaneverywherebeexchanged.Thisvaluewasantecedentto,andindependentoftheirbeingemployedascoin,andwasthequalitywhichfittedthemforthatemployment’.Ifthequantityofgoldandsilverintheworldemployedasmoneywereexceedinglysmall,orabundantlygreat,itwouldnotintheleastaffecttheproportionsinwhichtheywouldbedividedamongthedifferentnations–thevariationintheirquantitywouldhaveproducednoothereffectthantomakethecommoditiesforwhichtheywereexchangedcomparativelydearorcheap.Thesmallerquantityofmoneywouldperformthefunctionsofacirculatingmedium,aswellasthelarger.Tenmillionswouldbeaseffectualforthatpurposeasonehundredmillions.DrSmithobserves,‘thatthemostabundantminesofthepreciousmetalswouldaddlittletothewealthoftheworld.Aproduceofwhichthevalueisprincipallyderivedfromitsscarcityisnecessarilydegradedbyitsabundance’.Ifintheprogresstowardswealth,onenationadvancedmorerapidlythantheothers,thatnationwouldrequireandobtainagreaterproportionofthemoneyoftheworld.Itscommerce,itscommodities,anditspayments,wouldincrease,andthegeneralcurrencyoftheworldwouldbedividedaccordingtothenewproportions.Allcountriesthereforewouldcontributetheirsharetothiseffectualdemand.Inthesamemanner,ifanynationwastedpartofitswealth,orlostpartofitstrade,itcouldnotretainthesamequantityofcirculatingmediumwhichitbeforepossessed.Apartwouldbeexported,anddividedamongtheothernationstilltheusualproportionswerere-established.Whiletherelativesituationofcountriescontinuedunaltered,theymighthaveabundantcom-mercewitheachother,buttheirexportsandimportswouldonthewholebeequal.England*TheHighPriceofBullion,aProofoftheDepreciationofBankNotes,London:PrintedforJohnMurray,32,FleetStreet;AndSoldbyEveryOtherBooksellerinTownandCountry1810. 238TheClassicalSchoolmightpossiblyimportmoregoodsfrom,thanshewouldexportto,France,butshewouldinconsequenceexportmoretosomeothercountry,andFrancewouldimportmorefromthatcountry;sothattheexportsandimportsofallcountrieswouldbalanceeachother;billsofexchangewouldmakethenecessarypayments,butnomoneywouldpass,becauseitwouldhavethesamevalueinallcountries.Ifamineofgoldwerediscoveredineitherofthesecountries,thecurrencyofthatcountrywouldbeloweredinvalueinconsequenceoftheincreasedquantityofthepreciousmetalsbroughtintocirculation,andwouldthereforenolongerbeofthesamevalueasthatofothercountries.Goldandsilver,whetherincoinorinbullion,obeyingthelawwhichregulatesallothercommodities,wouldimmediatelybecomearticlesofexportation;theywouldleavethecountrywheretheywerecheap,forthosecountrieswheretheyweredear,andwouldcontinuetodoso,aslongasthemineshouldproveproductive,andtilltheproportionexistingbetweencapitalandmoneyineachcountrybeforethediscoveryofthemine,wereagainestablished,andgoldandsil-verrestoredeverywheretoonevalue.Inreturnforthegoldexported,commoditieswouldbeimported;andthoughwhatisusuallytermedthebalanceoftradewouldbeagainstthecountryexportingmoneyorbullion,itwouldbeevidentthatshewascarryingonamostadvantageoustrade,exportingthatwhichwasnowayusefultoher,forcommoditieswhichmightbeemployedintheextensionofhermanufactures,andtheincreaseofherwealth.Ifinsteadofaminebeingdiscoveredinanycountry,abankwereestablished,suchastheBankofEngland,withthepowerofissuingitsnotesforacirculatingmedium;afteralargeamounthadbeenissuedeitherbywayofloantomerchants,orbyadvancestogovernment,therebyaddingconsiderablytothesumofthecurrency,thesameeffectwouldfollowasinthecaseofthemine.Thecirculatingmediumwouldbeloweredinvalue,andgoodswouldexperienceaproportionaterise.Theequilibriumbetweenthatandothernationswouldonlyberestoredbytheexportationofpartofthecoin.TheestablishmentoftheBankandtheconsequentissueofitsnotestherefore,aswellasthediscoveryofthemine,operateasaninducementtotheexportationeitherofbullionorofcoin,andarebeneficialonlyinasfarasthatobjectmaybeaccomplished.TheBanksubstitutesacurrencyofnovalueforonemostcostly,andenablesustoturnthepreciousmetals(which,thoughaverynecessarypartofourcapital,yieldnorevenue)intoacapitalwhichwillyieldone.DrA.Smithcomparestheadvantagesattendingtheestablishmentofabanktothosewhichwouldbeobtainedbyconvertingourhighwaysintopasturesandcorn-fields,andprocuringaroadthroughtheair.Thehighways,likethecoin,arehighlyuseful,butneitheryieldanyrevenue.Somepeoplemightbealarmedatthespecieleavingthecountry,andmightconsiderthatasadisadvantageoustradewhichrequiredustopartwithit;indeedthelawsoconsidersitbyitsenactmentsagainsttheexportationofspecie;butaverylittlereflectionwillconvinceusthatitisourchoice,andnotournecessity,thatsendsitabroad;andthatitishighlybeneficialtoustoexchangethatcommoditywhichissuperfluous,forotherswhichmaybemadeproductive.Theexportationofthespeciemayatalltimesbesafelylefttothediscretionofindividuals;itwillnotbeexportedmorethananyothercommodity,unlessitsexportationshouldbeadvantageoustothecountry.Ifitbeadvantageoustoexportit,nolawscaneffectuallypreventitsexportation.Happilyinthiscase,aswellasinmostothersincommercewherethereisfreecompetition,theinterestsoftheindividualandthatofthecommunityareneveratvariance.…TheBankmightcontinuetoissuetheirnotes,andthespeciebeexportedwithadvantagetothecountry,whiletheirnoteswerepayableinspecieondemand,becausetheycouldneverissuemorenotesthanthevalueofthecoinwhichwouldhavecirculatedhadtherebeennobank. Ricardo:TheHighPriceofBullion239Iftheyattemptedtoexceedthisamount,theexcesswouldbeimmediatelyreturnedtothemforspecie;becauseourcurrency,beingtherebydiminishedinvalue,couldbeadvantageouslyexported,andcouldnotberetainedinourcirculation.Thesearethemeans,asIhavealreadyexplained,bywhichourcurrencyendeavourstoequalizeitselfwiththecurrenciesofothercoun-ties.Assoonasthisequalitywasattained,alladvantagearisingfromexportationwouldcease;butiftheBankassuming,thatbecauseagivenquantityofcirculatingmediumhadbeennecessarylastyear,thereforethesamequantitymustbenecessarythis,orforanyotherreason,continuedtore-issuethereturnednotes,thestimuluswhicharedundantcurrencyfirstgavetotheexporta-tionofthecoinwouldbeagainrenewedwithsimilareffects;goldwouldbeagaindemanded,theexchangewouldbecomeunfavourable,andgoldbullionwouldrise,inasmalldegree,aboveitsmintprice,becauseitislegaltoexportbullion,butillegaltoexportthecoin,andthedifferencewouldbeaboutequaltothefaircompensationfortherisk.InthismanneriftheBankpersistedinreturningtheirnotesintocirculation,everyguineamightbedrawnoutoftheircoffers.…TheBankwouldbeobligedthereforeultimatelytoadopttheonlyremedyintheirpowertoputastoptothedemandforguineas.Theywouldwithdrawpartoftheirnotesfromcirculation,tilltheyshouldhaveincreasedthevalueoftheremaindertothatofgoldbullion,andconsequentlytothevalueofthecurrenciesofothercountries.Alladvantagefromtheexportationofgoldbullionwouldthencease,andtherewouldbenotemptationtoexchangebank-notesforguineas.Inthisviewofthesubject,then,itappears,thatthetemptationtoexportmoneyinexchangeforgoods,orwhatistermedanunfavourablebalanceoftrade,neverarisesbutfromaredundantcurrency.ButMrThornton,whohasconsideredthissubjectverymuchatlarge,supposesthataveryunfavourablebalanceoftrademaybeoccasionedtothiscountrybyabadharvest,andtheconsequentimportationofcorn;andthattheremaybeatthesametimeanunwillingnessinthecountry,towhichweareindebted,toreceiveourgoodsinpayment;thebalanceduetothefor-eigncountrymustthereforebepaidoutofthatpartofourcurrency,consistingofcoin,andthathencearisesthedemandforgoldbullionanditsincreasedprice.HeconsiderstheBankasafford-ingconsiderableaccommodationtothemerchants,bysupplyingwiththeirnotesthevoidoccasionedbytheexportationofthespecie.…Itisevident,then,thatadepreciationofthecirculatingmediumisthenecessaryconsequenceofitsredundance;andthatinthecommonstateofthenationalcurrencythisdepreciationiscounteractedbytheexportationofthepreciousmetals.Such,then,appeartometobethelawsthatregulatethedistributionofthepreciousmetalsthroughouttheworld,andwhichcauseandlimittheircirculationfromonecountrytoanother,byregulatingtheirvalueineach.ButbeforeIproceedtoexamineontheseprinciplesthemainobjectofmyenquiry,itisnecessarythatIshouldshewwhatisthestandardmeasureofvalueinthiscountry,andofwhich,therefore,ourpapercurrencyoughttobetherepresentative,becauseitcanonlybebyacomparisontothisstandardthatitsregularity,oritsdepreciation,maybeestimated.Nopermanentmeasureofvaluecanbesaidtoexistinanynationwhilethecirculatingmediumconsistsoftwometals,becausetheyareconstantlysubjecttovariationinvaluewithrespecttoeachother.Howeverexacttheconductorsofthemintmaybe,inproportioningtherelativevalueofgoldtosilverinthecoins,atthetimewhentheyfixtheratio,theycannotpreventoneofthesemetalsfromrising,whiletheotherremainsstationary,orfallsinvalue.Wheneverthishappens,oneofthecoinswillbemeltedtobesoldfortheother.MrLocke,LordLiverpool, 240TheClassicalSchoolandmanyotherwriters,haveablyconsideredthissubject,andhaveallagreed,thattheonlyremedyfortheevilsinthecurrencyproceedingfromthissource,isthemakingofonlyoneofthemetalsthestandardmeasureofvalue.MrLockeconsideredsilverasthemostpropermetalforthispurpose,andproposedthatgoldcoinsshouldbelefttofindtheirownvalue,andpassforagreaterorlessernumberofshillings,asthemarketpriceofgoldmightvarywithrespecttosilver.LordLiverpool,onthecontrary,maintainedthatgoldwasnotonlythemostpropermetalforageneralmeasureofvalueinthiscountry,butthat,bythecommonconsentofthepeople,ithadbecomeso,wassoconsideredbyforeigners,andthatitwasbestsuitedtotheincreasedcommerceandwealthofEngland.…Whilethecirculatingmediumconsists,therefore,ofcoinundebased,orofpaper-moneyimmediatelyexchangeableforundebasedcoin,theexchangecanneverbemoreabove,ormorebelow,par,thantheexpencesattendingthetransportationofthepreciousmetals.Butwhenitconsistsofadepreciatedpaper-money,itnecessarilywillfallaccordingtothedegreeofthedepreciation.Theexchangewill,therefore,beatolerablyaccuratecriterionbywhichwemayjudgeofthedebasementofthecurrency,proceedingeitherfromaclippedcoinage,oradepreciatedpaper-money.ItisobservedbySirJamesStuart,‘ThatifthefootmeasurewasalteredatonceoverallEngland,byaddingtoit,ortakingfromit,anyproportionalpartofitsstandardlength,thealter-ationwouldbebestdiscovered,bycomparingthenewfootwiththatofParis,orofanyothercountry,whichhadsufferednoalteration’.‘Justso,ifthepoundsterling,whichistheEnglishunit,shallbefoundanyhowchanged;andifthevariationithasmetwithbedifficulttoascertain,becauseofacomplicationofcircumstances;thebestwaytodiscoveritwillbetocomparetheformerandthepresentvalueofit,withthemoneyofothernationswhichhassufferednovariation.Thistheexchangewillperformwiththegreatestexactness’.TheEdinburghreviewers,inspeakingofLordKing’spamphlet,observe,that‘itdoesnotfollowbecauseourimportsalwaysconsistpartlyofbullion,thatthebalanceoftradeisthere-forepermanentlyinourfavour.Bullion’,theysay,‘isacommodity,forwhich,asforeveryother,thereisavaryingdemand;andwhich,exactlylikeanyother,mayenterthecatalogueeitherofimportsorexports;andthisexportationorimportationofbullionwillnotaffectthecourseofexchangeinadifferentwayfromtheexportationorimportationofanyothercommodities’.Nopersoneverexportsorimportsbullionwithoutfirstconsideringtherateofexchange.Itisbytherateofexchangethathediscoverstherelativevalueofbullioninthetwocountriesbetweenwhichitisestimated.Itisthereforeconsultedbythebullion-merchantinthesamemannerastheprice-currentisbyothermerchants,beforetheydetermineontheexportationorimportationofothercommodities.IfelevenflorinsinHollandcontainanequalquantityofpuresilveras20stan-dardshillings,silverbullion,equalinweightto20standardshillings,canneverbeexportedfromLondontoAmsterdamwhilsttheexchangeisatpar,orunfavourabletoHolland.Someexpenceandriskmustattenditsexportation,andtheverytermparexpressesthataquantityofsilverbul-lion,equaltothatweightandpurity,istobeobtainedinHollandbythepurchaseofabillofexchange,freeofallexpence.WhowouldsendbulliontoHollandatanexpenceof3or4percentwhen,bythepurchaseofabillatpar,heinfactobtainsanorderforthedeliverytohiscorrespondentinHollandofthesameweightofbullionwhichhewasabouttoexport?Itwouldbeasreasonabletocontend,thatwhenthepriceofcornishigherinEnglandthanontheContinent,cornwouldbesent,notwithstandingallthechargesonitsexportation,tobesoldinthecheapermarket.… Ricardo:TheHighPriceofBullion241Wemaythereforefairlyconcludethatthisdifferenceintherelativevalue,or,inotherwords,thatthisdepreciationintheactualvalueofbank-noteshasbeencausedbythetooabundantquantitywhichtheBankhassentintocirculation.Thesamecausewhichhasproducedadiffer-enceoffrom15to20percentinbank-noteswhencomparedwithgoldbullion,mayincreaseitto50percent.Therecanbenolimittothedepreciationwhichmayarisefromaconstantlyincreasingquantityofpaper.Thestimuluswhicharedundantcurrencygivestotheexportationofthecoinhasacquirednewforce,butcannot,asformerly,relieveitself.Wehavepaper-moneyonlyincirculation,whichisnecessarilyconfinedtoourselves.Everyincreaseinitsquantitydegradesitbelowthevalueofgoldandsilverbullion,belowthevalueofthecurrenciesofothercounties.Theeffectisthesameasthatwhichwouldhavebeenproducedfromclippingourcoins.Ifone-fifthweretakenofffromeveryguinea,themarketpriceofgoldbullionwouldriseone-fifthabovethemintprice.Forty-fourguineasandahalf(thenumberofguineasweighingapound,andthereforecalledthemintprice),wouldnolongerweighapound,thereforeafifthmorethanthatquantity,orabout56l.wouldbethepriceofapoundofgold,andthedifferencebetweenthemarketandthemintprice,between56l.and46l.14s.6d.wouldmeasurethedepreciation.Ifsuchdebasedcoinweretocontinuetobecalledbythenameofguineas,andifthevalueofgoldbullionandallothercommoditieswereratedinthedebasedcoin,aguineafreshfromthemintwouldbesaidtobeworth11.5s.andthatsumwouldbegivenforitbytheillicittrader;butitwouldnotbethevalueofthenewguineawhichhadincreased,butthatofthedebasedguineaswhichhadfallen.Thiswouldimmediatelybeevident,ifaproclamationwereissued,prohibitingthedebasedguineasfrombeingcurrentbutbyweightatthemintpriceof3l.17s.101/2d.;thiswouldbeconstitutingthenewandheavyguineas,thestandardmeasureofvalue,inlieuoftheclippedanddebasedguineas.Thelatterwouldthenpassattheirtruevalue,andbecalled17or18shilling-pieces.Soifaproclamationtothesameeffectwerenowenforced,bank-noteswouldnotbelesscurrent,butwouldpassonlyforthevalueofthegoldbullionwhichtheywouldpur-chase.Aguineawouldthennolongerbesaidtobeworth1l.4s.butapoundnotewouldbecurrentonlyfor16or17shillings.Atpresentthegoldcoinisonlyacommodity,andbank-notesarethestandardmeasureofvalue,butinthatcasegoldcoinwouldbethatmeasure,andbank-noteswouldbethemarketablecommodity.‘Itis’,saysMrThornton,‘themaintenanceofourgeneralexchanges,or,inotherwords,itistheagreementofthemintpricewiththebullionpriceofgold,whichseemstobethetrueproofthatthecirculatingpaperisnotdepreciated’.…Itiscontended,thattherateofinterest,andnotthepriceofgoldorsilverbullion,isthecriterionbywhichwemay,alwaysjudgeoftheabundanceofpaper-money;thatifitweretooabundant,interestwouldfall,andifnotsufficientlyso,interestwouldrise.Itcan,Ithink,bemademanifest,thattherateofinterestisnotregulatedbytheabundanceorscarcityofmoney,butbytheabundanceorscarcityofthatpartofcapital,notconsistingofmoney.‘Money’,observesDrA.Smith,‘thegreatwheelofcirculation,thegreatinstrumentofcom-merce,likeallotherinstrumentsoftrade,thoughitmakesapart,andaveryvaluablepartofthecapital,makesnopartoftherevenueofthesocietytowhichitbelongs;andthoughthemetalpiecesofwhichitiscomposed,inthecourseoftheirannualcirculation,distributetoeverymantherevenuewhichproperlybelongstohim,theymakethemselvesnopartofthatrevenue’.‘Whenwecomputethequantityofindustrywhichthecirculatingcapitalofanysocietycanemploy,wemustalwayshaveregardtothosepartsofitonlywhichconsistinprovisions,materi-als,andfinishedwork:theother,whichconsistsinmoney,andwhichservesonlytocirculatethosethree,mustalwaysbededucted.Inordertoputindustryintomotion,threethingsarerequisite:materialstoworkupon,toolstoworkwith,andthewagesorrecompenseforthesakeofwhichtheworkisdone.Moneyisneitheramaterialtoworkupon,noratooltoworkwith;andthoughthewagesoftheworkmanarecommonlypaidtohiminmoney,hisrealrevenue,likethatofall 242TheClassicalSchoolothermen,consistsnotinmoney,butinmoney’sworth;notinthemetalpieces,butwhatcanbegotforthem.’Andinotherpartsofhiswork,itismaintained,thatthediscoveryoftheminesinAmerica,whichsogreatlyincreasedthequantityofmoney,didnotlessentheinterestfortheuseofit:therateofinterestbeingregulatedbytheprofitsontheemploymentofcapital,andnotbythenumberorqualityofthepiecesofmetal,whichareusedtocirculateitsproduce.MrHumehassupportedthesameopinion.Thevalueofthecirculatingmediumofeverycountrybearssomeproportiontothevalueofthecommoditieswhichitcirculates.Insomecountriesthisproportionismuchgreaterthaninothers,andvaries,onsomeoccasions,inthesamecountry.Itdependsupontherapidityofcirculation,uponthedegreeofconfidenceandcreditexistingbetweentraders,andaboveall,onthejudiciousoperationsofbanking.InEnglandsomanymeansofeconomizingtheuseofcirculatingmediumhavebeenadopted,thatitsvalue,comparedwiththevalueofthecommoditieswhichitcirculates,isprobably(duringaperiodofconfidence)reducedtoassmallaproportionasispracticable.Whatthatproportionmaybehasbeenvariouslyestimated.Noincreaseordecreaseofitsquantity,whetherconsistingofgold,silver,orpaper-money,canincreaseordecreaseitsvalueaboveorbelowthisproportion.Iftheminesceasetosupplytheannualconsumptionofthepre-ciousmetals,moneywillbecomemorevaluable,andasmallerquantitywillbeemployedasacir-culatingmedium.Thediminutioninthequantitywillbeproportionedtotheincreaseofitsvalue.Inlikemanner,ifnewminesbediscovered,thevalueofthepreciousmetalswillbereduced,andanincreasedquantityusedinthecirculation;sothatineithercasetherelativevalueofmoney,tothecommoditieswhichitcirculates,willcontinueasbefore.If,whilsttheBankpaidtheirnotesondemandinspecie,theyweretoincreasetheirquantity,theywouldproducelittlepermanenteffectonthevalueofthecurrency,becausenearlyanequalquantityofthecoinwouldbewithdrawnfromcirculationandexported.IftheBankwererestrictedfrompayingtheirnotesinspecie,andallthecoinhadbeenexported,anyexcessoftheirnoteswoulddepreciatethevalueofthecirculatingmediuminpro-portiontotheexcess.IftwentymillionshadbeenthecirculationofEnglandbeforetherestric-tion,andfourmillionswereaddedtoit,thetwenty-fourmillionswouldbeofnomorevaluethanthetwentywerebefore,providedcommoditieshadremainedthesame,andtherehadbeennocorrespondingexportationofcoins;andiftheBankweresuccessivelytoincreaseittofifty,orahundredmillions,theincreasedquantitywouldbeallabsorbedinthecirculationofEngland,butwouldbe,inallcases,depreciatedtothevalueofthetwentymillions.Idonotdispute,thatiftheBankweretobringalargeadditionalsumofnotesintothemar-ket,andofferthemonloan,butthattheywouldforatimeaffecttherateofinterest.Thesameeffectswouldfollowfromthediscoveryofahiddentreasureofgoldorsilvercoin.Iftheamountwerelarge,theBank,ortheownerofthetreasure,mightnotbeabletolendthenotesorthemoneyatfour,norperhaps,above3percent;buthavingdoneso,neitherthenotes,northemoney,wouldberetainedunemployedbytheborrowers;theywouldbesentintoeverymarket,andwouldeverywhereraisethepricesofcommodities,tilltheywereabsorbedinthegeneralcir-culation.ItisonlyduringtheintervaloftheissuesoftheBank,andtheireffectonprices,thatweshouldbesensibleofanabundanceofmoney;interestwould,duringthatinterval,beunderitsnaturallevel;butassoonastheadditionalsumofnotesorofmoneybecameabsorbedinthegeneralcirculation,therateofinterestwouldbeashigh,andnewloanswouldbedemandedwithasmucheagernessasbeforetheadditionalissues.Thecirculationcanneverbeover-full.Ifitbeoneofgoldandsilver,anyincreaseinitsquan-titywillbespreadovertheworld.Ifitbeoneofpaper,itwilldiffuseitselfonlyinthecountrywhereitisissued.Itseffectsonpriceswillthenbeonlylocalandnominal,asacompensationbymeansoftheexchangewillbemadetoforeignpurchasers. Ricardo:TheHighPriceofBullion243TosupposethatanyincreasedissuesoftheBankcanhavetheeffectofpermanentlyloweringtherateofinterest,andsatisfyingthedemandsofallborrowers,sothattherewillbenonetoapplyfornewloans,orthataproductivegoldorsilverminecanhavesuchaneffect,istoattributeapowertothecirculatingmediumwhichitcanneverpossess.Bankswould,ifthiswerepossible,becomepowerfulenginesindeed.Bycreatingpaper-money,andlendingitat3or2percentunderthepresentmarketrateofinterest,theBankwouldreducetheprofitsontradeinthesameproportion;andiftheyweresufficientlypatriotictolendtheirnotesataninterestnohigherthannecessarytopaytheexpencesoftheirestablishment,profitswouldbestillfurtherreduced;nonation,butbysimilarmeans,couldenterintocompetitionwithus,weshouldengrossthetradeoftheworld.Towhatabsurditieswouldnotsuchatheoryleadus!Profitscanonlybeloweredbyacompetitionofcapitalsnotconsistingofcirculatingmedium.Astheincreaseofbank-notesdoesnotaddtothisspeciesofcapital,asitneitherincreasesourexportablecommodities,ourmachinery,orourrawmaterials,itcannotaddtoourprofitsnorlowerinterest.Whenanyoneborrowsmoneyforthepurposeofenteringintotrade,heborrowsitasamediumbywhichhecanpossesshimselfof‘materials,provisions,etc.’tocarryonthattrade;anditcanbeoflittleconsequencetohim,providedheobtainthequantityofmaterials,etc.nec-essary,whetherhebeobligedtoborrowathousand,ortenthousandpiecesofmoney.Ifhebor-rowstenthousand,theproduceofhismanufacturewillbetentimesthenominalvalueofwhatitwouldhavebeen,hadonethousandbeensufficientforthesamepurpose.Thecapitalactuallyemployedinthecountryisnecessarilylimitedtotheamountofthe‘materials,provisions,etc.’andmightbemadeequallyproductive,thoughnotwithequalfacility,iftradewerecarriedonwhollybybarter.Thesuccessivepossessorsofthecirculatingmediumhavethecommandoverthiscapi-tal:buthoweverabundantmaybethequantityofmoneyorofbank-notes;thoughitmayincreasethenominalpricesofcommodities;thoughitmaydistributetheproductivecapitalindifferentproportions;thoughtheBank,byincreasingthequantityoftheirnotes,mayenableAtocarryonpartofthebusinessformerlyengrossedbyBandC,nothingwillbeaddedtotherealrevenueandwealthofthecountry.BandCmaybeinjured,andAandtheBankmaybegainers,buttheywillgainexactlywhatBandClose.Therewillbeaviolentandanunjusttrans-ferofproperty,butnobenefitwhateverwillbegainedbythecommunity.ForthesereasonsIamofopinionthatthefundsarenotindebtedfortheirhighpricetothedepreciationofourcurrency.Theirpricemustberegulatedbythegeneralrateofinterestgivenformoney.IfbeforethedepreciationIgavethirtyyears’purchaseforland,andtwenty-fiveforanannu-ityinthestocks,Icanafterthedepreciationgivealargersumforthepurchaseofland,withoutgiv-ingmoreyears’purchase,becausetheproduceofthelandwillsellforagreaternominalvalueinconsequenceofthedepreciation;butastheannuityinthefundsispaidinthedepreciatedmedium,therecanbenoreasonwhyIshouldgiveagreaternominalvalueforitafterthanbeforethedepreciation.Ifguineasweredegradedbyclippingtohalftheirpresentvalue,everycommodityaswellaslandwouldrisetodoubleitspresentnominalvalue;butastheinterestofthestockswouldbepaidinthedegradedguineas,theywould,onthataccount,experiencenorise.TheremedywhichIproposeforalltheevilsinourcurrency,isthattheBankshouldgraduallydecreasetheamountoftheirnotesincirculationuntiltheyshallhaverenderedtheremainderofequalvaluewiththecoinswhichtheyrepresent,or,inotherwords,tillthepricesofgoldandsilverbullionshallbebroughtdowntotheirmintprice.Iamwellawarethatthetotalfailureofpapercreditwouldbeattendedwiththemostdisastrousconsequencestothetradeandcom-merceofthecounty,andevenitssuddenlimitationwouldoccasionsomuchruinanddistress,thatitwouldbehighlyinexpedienttohaverecoursetoitasthemeansofrestoringourcurrencytoitsjustandequitablevalue.IftheBankwerepossessedofmoreguineasthantheyhadnotesincirculation,theycouldnot,withoutgreatinjurytothecountry,paytheirnotesinspecie,whilethepriceofgoldbullion 244TheClassicalSchoolcontinuedgreatlyabovethemintprice,andtheforeignexchangesunfavourabletous.TheexcessofourcurrencywouldbeexchangedforguineasattheBankandexported,andwouldbesud-denlywithdrawnfromcirculation.Beforethereforetheycansafelypayinspecie,theexcessofnotesmustbegraduallywithdrawnfromcirculation.Ifgraduallydone,littleinconveniencewouldbefelt;sothattheprinciplewerefairlyadmitted,itwouldbeforfutureconsiderationwhethertheobjectshouldbeaccomplishedinoneyearorinfive.Iamfullypersuadedthatweshallneverrestoreourcurrencytoitsequitablestate,butbythispreliminarystep,orbythetotaloverthrowofourpapercredit.IftheBankdirectorshadkepttheamountoftheirnoteswithinreasonablebounds;iftheyhadacteduptotheprinciplewhichtheyhaveavowedtohavebeenthatwhichregulatedtheirissueswhentheywereobligedtopaytheirnotesinspecie,namely,tolimittheirnotestothatamountwhichshouldpreventtheexcessofthemarketabovethemintpriceofgold,weshouldnothavebeennowexposedtoalltheevilsofadepreciated,andperpetuallyvaryingcurrency.…Whentheorderofcouncilforsuspendingthecashpaymentsbecamenecessaryin1797,therunupontheBankwas,inmyopinion,causedbypoliticalalarmalone,andnotbyasuperabun-dant,oradeficientquantity(assomehavesupposed)oftheirnotesincirculation.ThisisadangertowhichtheBank,fromthenatureofitsinstitution,isatalltimesliable.Noprudenceonthepartofthedirectorscouldperhapshaveavertedit:butiftheirloanstogovern-menthadbeenmorelimited;ifthesameamountofnoteshadbeenissuedtothepublicthroughthemediumofdiscounts;theywouldhavebeenable,inallprobability,tohavecontinuedtheirpaymentstillthealarmhadsubsided.Atanyrate,asthedebtorstotheBankwouldhavebeenobligedtodischargetheirdebtsinthespaceofsixtydays,thatbeingthelongestperiodforwhichanybilldiscountedbytheBankhastorun,thedirectorswouldinthattime,ifnecessary,havebeenenabledtoredeemeverynoteincirculation.Itwasthenowingtothetoointimateconnec-tionbetweentheBankandgovernmentthattherestrictionbecamenecessary;itistothatcausetoothatweoweitscontinuance.Topreventtheevilconsequenceswhichmayattendtheperseveranceinthissystem,wemustkeepoureyessteadilyfixedontherepealoftheRestrictionbill.TheonlylegitimatesecuritywhichthepubliccanpossessagainsttheindiscretionoftheBankistoobligethemtopaytheirnotesondemandinspecie;andthiscanonlybeeffectedbydimin-ishingtheamountofbank-notesincirculationtillthenominalpriceofgoldbeloweredtothemintprice.HereIwillconclude;happyifmyfeebleeffortsshouldawakenthepublicattentiontoadueconsiderationofthestateofourcirculatingmedium.IamwellawarethatIhavenotaddedtothestockofinformationwithwhichthepublichasbeenenlightenedbymanyablewritersonthesameimportantsubject.Ihavehadnosuchambition.Myaimhasbeentointroduceacalmanddispassionateenquiryintoaquestionofgreatimportancetothestate,andtheneglectofwhichmaybeattendedwithconsequenceswhicheveryfriendofhiscountrywoulddeplore. JEAN-BAPTISTESAY(1767–1832)Jean-BaptisteSaywasborntoamerchantfamilyinLyon,France.Muchofhiscareerwasspentintheprivateandpublicsectors,includingbanking,insurance,newspaperwork,andmanufacturing,anditwasnotuntil1815thathebegantolectureinpoliticaleconomy.Inhislateryearshewasappointedprofessorofindustrialeconomics,culminat-inghisappointmenttothefirstChairofPoliticalEconomyinFrance(attheCollègedeFrance,Paris)in1830.SaypublishedthefirsteditionofhisTreatiseonPoliticalEconomyin1803.TheTreatisebearsremarkablesimilaritiestoSmith’sWealthofNations(whichSayhadreadsomefifteenyearsearlier)anddidmuchtopopularizeSmith’sideasinparticu-larandclassicalpoliticaleconomyingeneralontheEuropeancontinentandintheUnitedStates.Sayisoftencreditedwithadvancingthetheoryoftheroleoftheentreprenuerwithineconomicactivity(althoughsomeofthiscreditwouldseemtobemisplaced,Jean-BaptisteSay,bycourtesyofTheWarrenJ.Samuelsgivenhisrelativelynarrowviewoftheentre-PortraitCollectionatDukeUniversity.preneurialfunction),andhewasanearlyandforcefuladvocateoftheroleofutilityanddemandinpricedetermination,asagainsttheBritishclassicalfocusoncostsofproduction.However,itis“Say’sLaw”ofmarketsforwhichheisbestknown.The“lawofthemarket”withwhichSayissocloselyassociatedactuallyseemstohavebeenformulatedfirstbyJamesMillinhisCommerceDefended(1808)butisbestknownintheformgivenbyandwiththenameofJean-BaptisteSay(1767–1832).Thelawhasbeengivenseveralformulations.Theconventionalstatementisthat(1)supplycreatesitsowndemand.Othersare(2)thepresenceofsupply/suppliersinthemarketperseexpressesademandforothergoods;(3)supplyintheaggregateisitsowndemand;(4)consumption,inthesenseoftotaluse,iscoex-tensivewithproduction;and(5)incomeequalsexpenditures,thatwhatisnotspentforconsump-tionisalsospent,oninvestment.Butinoneformoranother,Say’sLawliesattheheartofclassicalmacroeconomicsandwasthelaunchingpointforKeynes’scritiqueoftheclassicalviewinhisGeneralTheory(1936). 246TheClassicalSchoolThelawhasanumberofassumptions,includingthat(1)moneyisonlyamediumofexchange–which,iftrue,wouldmeanthatitcanonlybespent;(2)peoplehaveinsatiablewants,astobothcon-sumptionandinvestment–whichmeansthattherearenolimitstospending;(3)theinterestrateequatessavingandinvestment–whichmeansthatconsumptionplussavingfromoneyear’sincomeequalsconsumptionplusinvestmentgivingrisetothenextyear’sincome;and(4)allprices,includingthewagesoflabor,areflexible–whichmeansthatallmarketsclear,withoutunsolditems.Theimplicationsfromsuchaconstructionarethat(1)thereisneithergeneraloverproductionnorgeneralunemployment;(2)theeconomyalwaystendstoequilibriumatfullemployment;(3)thereisnosuchthingasabusinesscycle;and(4)anypartialover-andunderproductionoffseteachotherandaretemporary.Thereareseveralproblemswiththisconstruction;indeed,theassumptionsruleoutpreciselythewaysinwhichinstabilitycanarise.First,moneyisnotonlyamediumofexchange,itisastoreofvalue,suchthatpeoplecandeferspendingandholdmoney;suchholdingofmoneyisaleakagefromtheincomestream.Second,althoughthesubtletiesof“insatiablewants”leadtonocommonlyheldconclusion,itisabundantlyclearthatevenifpeoplehadinsatiablewants–towit,alusttocon-sumegoodsandtoaccumulatecapital–thereareconditionsinwhichpeoplewillcurrentlyrefrainfromconsumingmore(expectationoffallingprices,fearoflossofjob,greateruncertaintyastothefuture)orfrominvestingmore(inadequateexpectedreturns,foravarietyofpossiblereasons).Third,itisgenerallyagreedthatsavingandinvestmentareequatednotbytherateofinterestbutbychangesinincomeitself–theverycategorywhichthelawconcludeswillbestable.Andfourth,whileeconomistsdonotagreeaboutandseldomanalyzethemeaningof“flexible”and“inflexible”prices–whichmeansthatmostifnotallrelevantstatementsaremeaningless–someeconomistsbelievethatpricesarebasicallyflexible,somebelievetheyarebasicallyinflexible,andothersthatpricesarerelativelyflexibleupwardsandrelativelyinflexibledownwards.ThegeneralresultisthattheassumptionsofSay’sLawarenotcorrectanddonotdowhatthelawwouldhavethemdo.Furthermore,thestatementthatthereisnooverproductionisbothambiguousandmisleading.Theproblemisnotwhetherthereisnogeneraloverproductionand/ornogeneralunemployment(allpeopleoutofwork,orallindustriesindecline?)butwhetherthereisenoughunemployment,etc.toconstituteaproblem.Atypicalrecessionisidentifiedintermsof7–9percentunemploy-ment;adepression,intermsof10pluspercentunemployment.Moreover,thelawmisconstruesthenatureoftheincomemechanism,inpartbyneglectingtherolesofchangesinspendingandinincomeandinpartbyneglectingthefactorswhichcangen-eratechangesofspendingandtherebyofincome;inshort,thefactorswhichcanresultinwhatJohnMaynardKeynesacenturylatercalledequilibriumatlessthanfullemployment.Finally,theempiricalrecordamplydemonstratesahistoryofbusinesscycles.InthefollowingexceptsfromhisTreatise,weseeSaymakingthecaseforutilityinvaluedeter-minationandareintroducedtohisespousaloftheideasthatcametobeknownas“Say’sLaw.”ReferencesandfurtherreadingBaumol,WilliamJ.(1977)“Say’s(AtLeast)EightLaws,OrWhatSayandJamesMillMayReallyHaveMeant,”Economica44(May):145–62.Becker,GaryandBaumol,WilliamJ.(1960)“TheClassicalMonetaryTheory:TheOutcomeoftheDiscussion,”inJ.J.SpenglerandW.R.Allen(eds),EssaysinEconomicThought,Chicago:RandMcNally.Gordon,Barry(1965)“Say’sLaw,EffectiveDemand,andtheContemporaryBritishPeriodicals,”Economica32(November):438–46.Keynes,J.M.(1936)TheGeneralTheoryofEmployment,InterestandMoney,London:Macmillan.Lange,Oskar(1942)“Say’sLaw:ARestatementandCriticism,”inOskarLange,FrancisMcIntyre,andTheodore,O.Yntema(eds),StudiesinMathematicalEconomicsandEconometrics:InMemoryofHenrySchultz,Chicago:UniversityofChicagoPress,49–68. Jean-BaptisteSay247Sowell,Thomas(1972)Say’sLaw:AnHistoricalAnalysis,Princeton:PrincetonUniversityPress.——(1987)“Say,Jean-Baptiste,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.1,London:Macmillan,249.——(1987)“Say’sLaw,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.1,London:Macmillan,249–51.Spengler,J.J.(1960)“ThePhysiocratsandSay’sLawofMarkets,”inJ.J.SpenglerandW.R.Allen(eds),EssaysinEconomicThought,Chicago:RandMcNally. ATreatiseonPoliticalEconomyBookI:OftheproductionofwealthChapterI:Ofwhatistobeunderstoodbytheterm,productionIfwetakethepainstoinquirewhatthatis,whichmankindinasocialstateofexistencedenominatewealth,weshallfindthetermemployedtodesignateanindefinitequantityofobjectsbearinginher-entvalue,asofland,ofmetal,ofcoin,ofgrain,ofstuffs,ofcommoditiesofeverydescription.Whentheyfurtherextenditssignificationtolandedsecurities,bills,notesofhand,andthelike,itisevidentlysobecausetheycontainobligationstodeliverthingspossessedofinherentvalue.Inpointoffact,wealthcanonlyexistwheretherearethingspossessedofrealandintrinsicvalue.Wealthisproportionatetothequantumofthatvalue;great,whentheaggregateofcomponentvalueisgreat;small,whenthataggregateissmall.Thevalueofaspecificarticleisalwaysvagueandarbitrary,solongasitremainsunacknowledged.Itsownerisnotajotthericher,bysettingahigherratiouponitinhisownestimation.Butthemomentthatotherpersonsarewilling,forthepurposeofobtainingit,togiveinexchangeacertainquantityofotherarticles,likewisebearingvalue,theonemaythenbesaidtobeworth,ortobeofequalvaluewith,theother.Thequantityofmoney,whichisreadilypartedwithtoobtainathing,iscalleditsprice.Currentprice,atagiventimeandplace,isthatpricewhichtheownerissureofobtainingforathing,ifheisinclinedtopartwithit.1Theknowledgeoftherealnatureofwealth,thusdefined,ofthedifficultiesthatmustbesurmountedinitsattainment,ofthecourseandorderofitsdistributionamongstthemembersofsociety,oftheusestowhichitmaybeapplied,and,further,oftheconsequenceresultingrespec-tivelyfromtheseseveralcircumstances,constitutesthatbranchofsciencenowentitledPoliticalEconomy.Thevaluethatmankindattachtoobjectsoriginatesintheuseitcanmakeofthem.Someaffordsustenance;othersserveforclothing;somedefendthemfromtheinclemenciesofthesea-son,ashouses;othersgratifytheirtaste,or,atallevents,theirvanity,bothofwhicharespeciesofwants:ofthisclassareallmereornamentsanddecorations.Itisuniversallytrue,that,whenmenattributevaluetoanything,itisinconsiderationofitsusefulproperties;whatisgoodfornothingtheysetnopriceupon.2Tothisinherentfitnessorcapabilityofcertainthingstosatisfythevariouswantsofmankind,Ishalltakeleavetoaffixthenameofutility.AndIwillgoontosay,that,tocreateobjectswhichhaveanykindofutility,istocreatewealth;fortheutilityofthingsistheground-workoftheirvalue,andtheirvalueconstituteswealth.Objects,however,cannotbecreatedbyhumanmeans;noristhemassofmatter,ofwhichthisglobeconsists,capableofincreaseordiminution.Allthatmancandois,tore-produceexistingmaterialsunderanotherform,whichmaygivethemautilitytheydidnotbeforepossess,or Say:ATreatiseonPoliticalEconomy249merelyenlargeonetheymayhavebeforepresented.Sothat,infact,thereisacreation,notofmatter,butofutility;andthisIcallproductionofwealth.Inthissense,then,thewordproductionmustbeunderstoodinpoliticaleconomy,andthroughoutthewholecourseofthepresentwork.Productionisthecreation,notofmatter,butofutility.Itisnottobeestimatedbythelength,thebulk,ortheweightoftheproduct,butbytheutilityitpresents.Althoughpriceisthemeasureofthevalueofthings,andtheirvaluethemeasureoftheirutility,itwouldbeabsurdtodrawtheinference,that,byforciblyraisingtheirprice,theirutilitycanbeaugmented.Exchangeablevalue,orprice,isanindexoftherecognisedutilityofathing,solongonlyashumandealingsareexemptfromeveryinfluencebutthatoftheidenticalutility:inlikemannerasabarometerdenotestheweightoftheatmosphere,onlywhilethemercuryissubmittedtotheexclusiveactionofatmosphericgravity.Infact,whenonemansellsanyproducttoanother,hesellshimtheutilityvestedinthatprod-uct;thebuyerbuysitonlyforthesakeofitsutility,oftheusehecanmakeofit.If,byanycausewhatever,thebuyerisobligedtopaymorethanthevaluetohimselfofthatutility,hepaysforvaluethathasnoexistence,andconsequentlywhichhedoesnotreceive.3Thisispreciselythecase,whenauthoritygrantstoaparticularclassofmerchantstheexclusiveprivilegeofcarryingonacertainbranchoftrade,theIndiatradeforinstance;thepriceofIndianimportsistherebyraised,withoutanyaccessiontotheirutilityorintrinsicvalue.Thisexcessofpriceisnothingmoreorlessthansomuchmoneytransferredfromthepocketsoftheconsumersintothoseoftheprivilegedtraders,wherebythelatterareenrichedexactlyasmuchastheformerareunnecessarilyimpoverished.Inlikemanner,whenagovernmentimposesonwineatax,whichraisesto15centsthebottlewhatwouldotherwisebesoldfor10cents,whatdoesitelse,buttransfer5centsperbottlefromthehandsoftheproducersortheconsumersofwinetothoseofthetax-gatherer?4Theparticularcommodityishereonlythemeansresortedtoforgettingatthetax-payerwithmoreorlessconvenience;anditscurrentvalueiscomposedoftwoingredients,namely(1)itsrealvalueoriginatinginitsutility;(2)thevalueofthetaxthatthegovernmentthinksfittoexact,forpermittingitsmanufacture,transport,orconsumption.Wherefore,thereisnoactualproductionofwealth,withoutacreationoraugmentationofutility.Letusseeinwhatmannerthisutilityistobeproduced.ChapterXV:OfthedemandormarketforproductsItiscommontohearadventurersinthedifferentchannelsofindustryassert,thattheirdifficultyliesnotintheproduction,butinthedisposalofcommodities;thatproductswouldalwaysbeabundant,iftherewerebutareadydemand,ormarketforthem.Whenthedemandfortheircommoditiesisslow,difficult,andproductiveoflittleadvantage,theypronouncemoneytobescarce;thegrandobjectoftheirdesireis,aconsumptionbriskenoughtoquickensalesandkeepupprices.Butaskthemwhatpeculiarcausesandcircumstancesfacilitatethedemandfortheirproducts,andyouwillsoonperceivethatmostofthemhaveextremelyvaguenotionsofthesematters;thattheirobservationoffactsisimperfect,andtheirexplanationstillmoreso;thattheytreatdoubtfulpointsasmatterofcertainty,oftenprayforwhatisdirectlyoppositetotheirinter-ests,andimportunatelysolicitfromauthorityaprotectionofthemostmischievoustendency.Toenableustoformclearandcorrectpracticalnotionsinregardtomarketsfortheproductsofindustry,wemustcarefullyanalysethebestestablishedandmostcertainfacts,andapplytothemtheinferenceswehavealreadydeducedfromasimilarwayofproceeding;andthusperhapswemayarriveatnewandimportanttruths,thatmayservetoenlightentheviewsoftheagentsofindustry,andtogiveconfidencetothemeasuresofgovernmentsanxioustoaffordthemencouragement. 250TheClassicalSchoolAmanwhoapplieshislabourtotheinvestingofobjectswithvaluebythecreationofutilityofsomesort,cannotexpectsuchavaluetobeappreciatedandpaidfor,unlesswhereothermenhavethemeansofpurchasingit.Now,ofwhatdothesemeansconsist?Ofothervaluesofotherproducts,likewisethefruitsofindustry,capital,andland.Whichleadsustoaconclusionthatmayatfirstsightappearparadoxical,namelythatitisproductionwhichopensademandforproduct.Shouldatradesmansay,‘Idonotwantotherproductsformywoollens,Iwantmoney’,therecouldbelittledifficultyinconvincinghimthathiscustomerscouldnotpayhiminmoney,with-outhavingfirstprocureditbythesaleofsomeothercommoditiesoftheirown.‘Yonderfarmer’,hemaybetold,‘willbuyyourwoollens,ifhiscropsbegood,andwillbuymoreorlessaccordingtotheirabundanceorscantiness;hecanbuynoneatall,ifhiscropsfailaltogether.Neithercanyoubuyhiswoolnorhiscornyourself,unlessyoucontrivetogetwoollensorsomeotherarticle,tobuywithal.Yousay,youonlywantmoney;Isay,youwantothercommodities,andnotmoney.Forwhat,inpointoffact,doyouwantthemoney?Isitnotforthepurchaseofrawmaterialsorstockforyourtrade,orvictualsforyoursupport?5Wherefore,itisproductsthatyouwant,andnotmoney.Thesilvercoinyouwillhavereceivedonthesaleofyourownproducts,andgiveninthepurchaseofthoseofotherpeople,willthenextmomentexecutethesameofficebetweenothercontractingparties,andsofromonetoanothertoinfinity;justasapublicvehiclesucces-sivelytransportsobjectsoneafteranother.Ifyoucannotfindareadysaleforyourcommodity,willyousay,itismerelyforwantofavehicletotransportit?For,afterall,moneyisbuttheagentofthetransferofvalues.Itswholeutilityhasconsistedinconveyingtoyourhandsthevalueofthecommodities,whichyourcustomerhassold,forthepurposeofbuyingagainfromyou;andtheverynextpurchaseyoumake,itwillagainconveytoathirdpersonthevalueoftheproductsyoumayhavesoldtoothers.Sothatyouwillhavebought,andeverybodymustbuy,theobjectsofwantordesire,eachwiththevalueofhisrespectiveproductstransformedintomoneyforthemomentonly.Otherwise,howcoulditbepossiblethatthereshouldnowbeboughtandsoldinFrancefiveorsixtimesasanycommodities,asinthemiserablereignofCharlesVI?Isitnotobvious,thatfiveorsixtimesasmanycommoditiesmusthavebeenproduced,andthattheymusthaveservedtopurchaseoneortheother?’Thus,tosaythatsalesaredull,owingtothescarcityofmoneyistomistakethemeansforthecause,anerrorthatproceedsfromthecircumstance,thatalmostallproduceisinthefirstinstanceexchangedformoney,beforeitisultimatelyconvertedintootherproduce:andthecom-modity,whichrecurssorepeatedlyinuse,appearstovulgarapprehensionsthemostimportantofcommodities,andtheendandobjectofalltransactions,whereasitisonlythemedium.Salescannotbesaidtobedullbecausemoneyisscarce,butbecauseotherproductsareso.Thereisalwaysmoneyenoughtoconductthecirculationandmutualinterchangeofothervalues,whenthosevaluesreallyexist.Shouldtheincreaseoftrafficrequiremoremoneytofacilitateit,thewantiseasilysupplied,andisastrongindicationofprosperity–aproofthatagreatabundanceofvalueshasbeencreated,whichitiswishedtoexchangeforothervalues.Insuchcases,merchantsknowwellenoughhowtofindsubstitutesfortheproductservingasthemediumofexchangeormoney:6andmoneyitselfsoonpoursin,forthisreason,thatallproducenaturallygravitatestothatplacewhereitismostindemand.Itisagoodsignwhenthebusinessistoogreatforthemoney;justinthesamewayasitisagoodsignwhenthegoodsaretooplentifulforthewarehouses.Whenasuperabundantarticlecanfindnovent,thescarcityofmoneyhassolittletodowiththeobstructionofitssale,thatthesellerswouldgladlyreceiveitsvalueingoodsfortheirownconsumptionatthecurrentpriceoftheday:theywouldnotaskformoney,orhaveanyoccasionforthatproduct,sincetheonlyusetheycouldmakeofitwouldbetoconvertitforthwithintoarticlesoftheirownconsumption.7 Say:ATreatiseonPoliticalEconomy251Thisobservationisapplicabletoallcases,wherethereisasupplyofcommoditiesorofservicesinthemarket.Theywilluniversallyfindthemostextensivedemandinthoseplaces,wherethemostofvaluesareproduced;becauseinnootherplacesarethesolemeansofpur-chasecreated,thatis,values.Moneyperformsbutamonetaryfunctioninthisdoubleexchange;andwhenthetransactionisfinallyclosed,itwillalwaysbefound,thatonekindofcommodityhasbeenexchangedforanother.Itisworthwhiletoremark,thataproductisnosoonercreated,thanit,fromthatinstant,affordsamarketforotherproductstothefullextentofitsownvalue.Whentheproducerhasputthefinishinghandtohisproduct,heismostanxioustosellitimmediately,lestitsvalueshoulddiminishinhishands.Norishelessanxioustodisposeofthemoneybemaygetforit;forthevalueofmoneyisalsoperishable.Buttheonlywayofgettingridofmoneyisinthepurchaseofsomeproductorother.Thus,themerecircumstanceofthecreationofoneproductimmediatelyopensaventforotherproducts.Forthisreason,agoodharvestisfavourable,notonlytotheagriculturist,butlikewisetothedealersinallcommoditiesgenerally.Thegreaterthecrop,thelargerarethepurchasesofthegrowers.Abadharvest,onthecontrary,hurtsthesaleofcommoditiesatlarge.Andsoitisalsowiththeproductsofmanufactureandcommerce.Thesuccessofonebranchofcommercesuppliesmoreamplemeansofpurchase,andconsequentlyopensamarketfortheproductsofalltheotherbranches;ontheotherhand,thestagnationofonechannelofmanufacture,orofcommerce,isfeltinalltherest.Butitmaybeasked,ifthisbeso,howdoesithappen,thatthereisattimessogreataglutofcommoditiesinthemarket,andsomuchdifficultyinfindingaventforthem?Whycannotoneofthesesuper-abundantcommoditiesbeexchangedforanother?Ianswerthattheglutofapartic-ularcommodityarisesfromitshavingoutrunthetotaldemandforitinoneortwoways;eitherbecauseithasbeenproducedinexcessiveabundance,orbecausetheproductionofothercom-moditieshasfallenshort.Itisbecausetheproductionofsomecommoditieshasdeclined,thatothercommoditiesaresuperabundant.Touseamorehackneyedphrase,peoplehaveboughtless,becausetheyhavemadelessprofit;8andtheyhavemadelessprofitforoneortwocauses;eithertheyhavefounddifficultiesintheemploymentoftheirproductivemeans,orthesemeanshavethemselvesbeendeficient.Itisobservable,moreover,thatpreciselyatthesametimethatonecommoditymakesaloss,anothercommodityismakingexcessiveprofit.9And,sincesuchprofitsmustoperateasapowerfulstimulustothecultivationofthatparticularkindofproducts,theremustneedsbesomeviolentmeans,orsomeextraordinarycause,apoliticalornaturalconvulsion,ortheavariceorignoranceofauthority,toperpetuatethisscarcityontheonehand,andconsequentglutontheother.Nosooneristhecauseofthispoliticaldiseaseremoved,thanthemeansofproductionfeelanaturalimpulsetowardsthevacantchannels,thereplenishmentofwhichrestoresactivitytoalltheoth-ers.Onekindofproductionwouldseldomoutstripeveryother,anditsproductsbedisproportionatelycheapened,wereproductionleftentirelyfree.10Shouldaproducerimagine,thatmanyotherclasses,yieldingnomaterialproducts,arehiscus-tomersandconsumersequallywiththeclassesthatraisethemselvesaproductoftheirown;as,forexample,publicfunctionaries,physicians,lawyers,churchmen,etc.,andthenceinfer,thatthereisaclassofdemandotherthanthatoftheactualproducers,hewouldbutexposetheshallownessandsuperficialityofhisideas.Apriestgoestoashoptobuyagownorasurplice;hetakesthevalue,thatistomakethepurchase,intheformofmoney.Whencehadhethatmoney?Fromsometax-gathererwhohastakenitfromatax-payer.Butwhencedidthislatterderiveit?Fromthevaluehehashimselfproduced.Thisvalue,firstproducedbythetax-payer,andafterwardsturnedintomoney,andgiventothepriestforhissalary,hasenabledhimtomakethepurchase.Theprieststandsintheplaceoftheproducer,whomighthimselfhavelaidthevalueofhisproductonhis 252TheClassicalSchoolownaccount,inthepurchase,perhaps,notofagownorsurplice,butofsomeothermoreser-viceableproduct.Theconsumptionoftheparticularproduct,thegownorsurplice,hasbutsup-plantedthatofsomeotherproduct.Itisquiteimpossiblethatthepurchaseofoneproductcanbeaffected,otherwisethanbythevalueofanother.11Fromthisimportanttruthmaybededucedthefollowingimportantconclusions:1.That,ineverycommunitythemorenumerousaretheproducers,andthemorevarioustheirproductions,themoreprompt,numerous,andextensivearethemarketsforthoseproduc-tions;and,byanaturalconsequence,themoreprofitablearetheytotheproducers;forpriceriseswiththedemand–butthisadvantageistobederivedfromrealproductionalone,andnotfromaforcedcirculationofproducts;foravalueoncecreatedisnotaugmentedinitspassagefromonehandtoanother,norbybeingseizedandexpendedbythegovernment,insteadofbyanindividual.Theman,thatlivesupontheproductionsofotherpeople,originatesnodemandforthoseproductions;hemerelyputshimselfintheplaceoftheproducer,tothegreatinjuryofproduction,asweshallpresentlysee.2.Thateachindividualisinterestedinthegeneralprosperityofall,andthatthesuccessofonebranchofindustrypromotesthatofalltheothers.Infact,whateverprofessionorlineofbusinessamanmaydevotehimselfto,heisthebetterpaidandthemorereadilyfindsemploy-ment,inproportionasheseesothersthrivingequallyaroundhim.Amanoftalent,thatscarcelyvegetatesinaretrogradestateofsociety,wouldfindathousandwaysofturninghisfacultiestoaccountinathrivingcommunitythatcouldaffordtoemployandrewardhisability.Amerchantestablishedinarichandpopuloustown,sellstoamuchlargeramountthanonewhosetsupinapoordistrict,withapopulationsunkinindolenceandapathy.Whatcouldanactivemanufac-turer,oranintelligentmerchant,doinasmalldesertedandsemi-barbaroustowninaremotecornerofPolandorWestphalia?Thoughinnofearofacompetitor,hecouldsellbutlittle,becauselittlewasproduced;whilstatParis,Amsterdam,orLondon,inspiteofthecompetitionofahundreddealersinhisownline,hemightdobusinessonthelargestscale.Thereasonisobvious:heissurroundedwithpeoplewhoproducelargelyinaninfinityofways,andwhomakepurchases,eachwithhisrespectiveproducts,thatistosay,withthemoneyarisingfromthesaleofwhathemayhaveproduced.Thisisthetruesourceofthegainsmadebythetowns’peopleoutofthecountrypeople,andagainbythelatteroutoftheformer;bothofthemhavewherewithtobuymorelargely,themoreamplytheythemselvesproduce.Acity,standinginthecentreofarichsurroundingcountry,feelsnowantofrichandnumerouscustomersand,ontheotherhand,thevicinityofanopulentcitygivesadditionalvaluetotheproduceofthecountry.Thedivisionofnationsintoagricultural,manufacturing,andcommercial,isidleenough.Forthesuccessofapeopleinagricultureisastimulustoitsmanufacturingandcommercialprosperity;andtheflourishingconditionofitsmanufactureandcommercereflectsabenefituponitsagriculturealso.12Thepositionofanation,inrespectofitsneighbours,isanalogoustotherelationofoneofitsprovincestotheothers,orofthecountrytothetown;ithasaninterestintheirprosperity,beingsuretoprofitbytheiropulence.ThegovernmentoftheUnitedStates,therefore,actedmostwisely,intheirattempt,abouttheyear1802,tocivilizetheirsavageneighbours,theCreekIndians.Thedesignwastointroducehabitsofindustryamongstthem,andmakethemproduc-erscapableofcarryingonabartertradewiththeStatesoftheUnion;forthereisnothingtobegotbydealingwithapeoplethathavenothingtopay.Itisusefulandhonourabletomankind,thatonenationamongsomanyshouldconductitselfuniformlyuponliberalprinciples.Thebril-liantresultsofthisenlightenedpolicywilldemonstrate,thatthesystemsandtheoriesreallydestructiveandfallacious,aretheexclusiveandjealousmaximsacteduponbytheoldEuropean Say:ATreatiseonPoliticalEconomy253governments,andbythemmostimpudentlystyledpracticaltruths,fornootherreason,asitwouldseem,thanbecausetheyhavethemisfortunetoputtheminpractice.TheUnitedStateswillhavethehonourofprovingexperimentally,thattruepolicygoeshand-in-handwithmoderationandhumanity.133.Fromthisfruitfulprinciple,wemaydrawthisfurtherconclusion,thatitisnoinjurytotheinternalornationalindustryandproductiontobuyandimportcommoditiesfromabroad;fornothingcanbeboughtfromstrangers,exceptwithnativeproducts,whichfindaventinthisexternaltraffic.Shoulditbeobjected,thatthisforeignproducemayhavebeenboughtwithspecie,Ianswer,specieisnotalwaysanativeproduct,butmusthavebeenboughtitselfwiththeproductsofnativeindustry;sothat,whethertheforeignarticlesbepaidforinspecieorinhomeproducts,theventfornationalindustryisthesameinbothcases.144.Thesameprincipleleadstotheconclusion,thattheencouragementofmereconsumptionisnobenefittocommerce;forthedifficultyliesinsupplyingthemeans,notinstimulatingthedesireofconsumption;andwehaveseenthatproductionalone,furnishesthosemeans.Thus,itistheaimofgoodgovernmenttostimulateproduction,ofbadgovernmenttoencourageconsumption.Forthesamereasonthatthecreationofanewproductistheopeningofanewmarketforotherproducts,theconsumptionordestructionofaproductisthestoppageofaventforthem.Thisisnoevilwheretheendoftheproducthasbeenansweredbyitsdestruction,whichendisthesatisfyingofsomehumanwant,orthecreationofsomenewproductdesignedforsuchasat-isfaction.Indeed,ifthenationbeinathrivingcondition,thegrossnationalre-productionexceedsthegrossconsumption.Theconsumedproductshavefulfilledtheiroffice,asitisnaturalandfittingtheyshould;theconsumption,however,hasopenednonewmarket,butjustthereverse.15Havingoncearrivedattheclearconviction,thatthegeneraldemandforproductsisbriskinproportiontotheactivityofproduction,weneednottroubleourselvesmuchtoinquiretowardswhatchannelofindustryproductionmaybemostadvantageouslydirected.Theproductscreatedgiverisetovariousdegreesofdemand,accordingtothewants,themanners,thecom-parativecapital,industry,andnaturalresourcesofeachcountry;thearticlemostinrequest,owingtothecompetitionofbuyers,yieldsthebestinterestofmoneytothecapitalist,thelargestprofitstotheadventurer,andthebestwagestothelabourer;andtheagencyoftheirrespectiveservicesisnaturallyattractedbytheseadvantagestowardsthoseparticularchannels.Inacommunity,city,province,ornation,thatproducesabundantly,andaddseverymomenttothesumofitsproducts,almostallthebranchesofcommerce,manufacture,andgenerallyofindustry,yieldhandsomeprofits,becausethedemandisgreat,andbecausethereisalwaysalargequantityofproductsinthemarket,readytobidfornewproductiveservices.And,viceversa,wherever,byreasonoftheblundersofthenationoritsgovernment,productionisstationary,ordoesnotkeeppacewithconsumption,thedemandgraduallydeclines,thevalueoftheproductislessthanthechargesofitsproduction;noproductiveexertionisproperlyrewarded;profitsandwagesdecrease;theemploymentofcapitalbecomeslessadvantageousandmorehazardous;itisconsumedpiecemeal,notthroughextravagance,butthroughnecessity,andbecausethesourcesofprofitaredriedup.16Thelabouringclassesexperienceawantofwork;familiesbeforeintolerablecircumstances,aremorecrampedandconfined;andthosebeforeindifficultiesareleftaltogetherdestitute.Depopulation,misery,andreturningbarbarism,occupytheplaceofabun-danceandhappiness.Sucharetheconcomitantsofdecliningproduction,whichareonlytoberemediedbyfrugality,intelligence,activity,andfreedom. 254TheClassicalSchoolNotes1Thenumerousanddifficultpointsarisingoutoftheconfusionofpositiveandrelativevaluearediscussedindifferentpartsofthiswork;particularlyintheleadingchaptersofBookIL.Nottoperplextheatten-tionofthereader,Iconfinemyselfheretosomuchasisabsolutelynecessarytocomprehendthephenomenonoftheproductionofwealth.2Itwouldbeoutofplaceheretoexamine,whetherornothevaluemankindattachtoathingbealwaysproportionatetoitsactualutility.Theaccuracyoftheestimatemustdependuponthecomparativejudgment,intelligence,habits,andprejudicesofthosewhomakeit.Truemorality,andtheclearperceptionoftheirrealinterests,leadmankindtothejustappreciationofbenefits.Politicaleconomytakesthisappreciationasitfindsit–asoneofthedataofitsreasonings;leavingtothemoralistandthepracticalman,theseveraldutiesof’enlighteningandofguidingtheirfellow-creatures,aswellinthis,asinotherparticularsofhumanconduct.3Thispositionwillhereafterbefurtherillustrated.Forthepresentitisenoughtoknow,that,whateverbethestateofsociety,currentpricesapproximatetotherealvalueofthings,inproportiontothelibertyofproductionandmutualdealing.4ItwillbeshowninBookIIIofthiswork,whatproportionofthetaxispaidbytheproducer,andwhatbytheconsumer.5Evenwhenmoneyisobtainedwithaviewtohoardorburyit,theultimateobjectisalwaystoemployitinapurchaseofsomekind.Theheiroftheluckyfinderusesitinthatway,ifthemiserdonot;formoney,asmoney,hasnootherusethantobuywith.6Bybillsatsight,orafterdate,bank-notes,running-credits,write-offs,etc.asatLondonandAmsterdam.7Ispeakhereoftheiraggregateconsumption,whetherunproductiveanddesignedtosatisfythepersonalwantsofthemselvesandtheirfamilies,orexpendedinthesustenanceofreproductiveindustry.Thewoollenorcottonmanufactureroperatesatwo-foldconsumptionofwoolandcotton:(1)Forhispersonalwear;(2)forthesupplyofhismanufacture;but,bethepurposeofhisconsumptionwhatitmay,whetherpersonalgratificationorreproduction,hemustneedsbuywhatheconsumeswithwhatheproduces.8Individualprofitsmust,ineverydescriptionofproduction,fromthegeneralmerchanttothecommonartisan,bederivedfromtheparticipationinthevaluesproduced.TheratioofthatparticipationwillformthesubjectofBookII,infra.9Thereadermayeasilyapplythesemaximstoanytimeorcountryheisacquaintedwith.WehavehadastrikinginstanceinFranceduringtheyears1811,1812,and1813;whenthehighpricesofcolonialproduceofwheat,andotherarticles,wenthand-in-handwiththelowpriceofmanyothersthatcouldfindnoadvantageousmarket.10Theseconsiderationshavehithertobeenalmostwhollyoverlooked,thoughformingthebasisofcorrectconclusionsinmattersofcommerce,andofitsregulationbythenationalauthority.Therightcoursewhereithas,bygoodluck,beenpursued,appearstohavebeenselectedbyaccident,or,atmost,byaconfusedideaofitspropriety,withouteitherself-conviction,ortheabilitytoconvinceotherpeople.Sismondi,whoseemsnottohaveverywellunderstoodtheprincipleslaiddown,inthisandthethreefirstchaptersofBookIIofthiswork,instancestheimmensequantityofmanufacturedproductswithwhichEnglandhasoflateinundatedthemarketsofothernations,asaproof,thatitisimpossibleforindustrytobetooproductive.(Nouv.Prin.liv.iv.c.4.)ButtheglutthusoccasionedprovesnothingmorethanthefeeblenessofproductioninthosecountriesthathavebeenthusgluttedwithEnglishmanufac-tures.DidBrazilproducewherewithaltopurchasetheEnglishgoodsexportedthither,thosegoodswouldnotgluthermarket.WereEnglandtoadmittheimportoftheproductsofthe,UnitedStates,shewouldfindabettermarketforherowninthoseStates.TheEnglishgovernment,bytheexorbitanceofitstaxationuponimportandconsumption,virtuallyinterdictstoitssubjectsmanykindsofimportation,thusobligingthemerchanttooffertoforeigncountriesahigherpriceforthosearticles,whoseimportispracticable,assugar,coffee,gold,silver,etc.forthepriceofthepreciousmetalstothemisenhancedbythelowpriceoftheircommodities,whichaccounts,fortheruinousreturnsoftheircommerce.Iwouldnotbeunderstoodtomaintaininthischapter,thatoneproductcannotberaisedintoogreatabundance,inrelationtoallothers;butmerelythatnothingismorefavourabletothedemandofoneproduct,thanthesupplyofanother;thattheimportofEnglishmanufacturesintoBrazilwouldceasetobeexcessiveand,berapidlyabsorbed,didBrazilproduceonhersidereturnssufficientlyample;towhichenditwouldbenecessarythatthelegislativebodiesofeithercountryshouldconsent,theonetofreeproduction,theothertofreeimportation.InBrazileverythingisgraspedbymonopoly,andpropertyisnotexemptfromtheinvasionofthegovernment.InEngland,theheavydutiesareaseriousobstructiontotheforeigncommerceofthenation,inasmuchastheycircumscribethechoiceofreturns. Say:ATreatiseonPoliticalEconomy255Ihappenmyselftoknowofamostvaluableandscientificcollectionofnaturalhistory,whichcouldnotbeimportedfromBrazilintoEnglandbyreasonoftheexorbitantduties.(a)TheviewsofSismondi,inthisparticular,havebeensinceadoptedbyourownMalthus,andthoseofourauthorbyRicardo.ThisdifferenceofopinionhasgivenrisetoaninterestingdiscussionbetweenourauthorandMalthus,towhomhehasrecentlyaddressedacorrespondenceonthisandotherpartsofthescience.Wereanythingwantingtoconfirmtheargumentsofthischapter,itwouldbesuppliedbyareferencetohisLettre1,aMMalthus.SismondihasvainlyattemptedtoanswerRicardo,buthasmadenomentionofhisoriginalantagonist.VideAnnalesdeLegislation,No.1.art.3.Geneve,1820.T.11Thecapitalist,inspendingtheinterestofhiscapital,spendshisportionoftheproductsraisedbytheemploymentofthatcapital.ThegeneralrulesthatregulatetheratiohereceiveswillbeinvestigatedinBookII,infra.Shouldheeverspendtheprincipal,stillheconsumesproductsonly;forcapitalconsistsofproducts,devotedindeedtoreproductive,butsusceptibleofunproductiveconsumption;towhichitisinfactconsignedwheneveritiswastedordilapidated.12Aproductiveestablishmentonalargescaleissuretoanimatetheindustry–ofthewholeneighbourhood.‘InMexico’,saysHumboldt,‘thebestcultivatedtract,andthatwhichbringstotherecollectionofthetravellerthemostbeautifulpartofFrenchscenery,isthelevelcountryextendingfromSalamancaasfarasSilao,Guanaxuato,andVilladeLeon,andencirclingtherichestminesoftheknownworld.Wherevertheveinsofpreciousmetalhavebeendiscoveredandworked,eveninthemostdesertpartoftheCordilleras,andinthemostbarrenandinsulatedspots,theworkingofthemines,insteadofinterruptingthebusinessofsuperficialcultivation,hasgivenitmorethanusualactivity.Theopeningofaconsiderableveinissuretobefollowedbytheimmediateerectionofatown;farmingconcernsareestablishedinthevicinity;andthespotsolatelyinsulatedinthemidstofwildanddesertmountains,issoonbroughtintocontactwiththetractsbeforeintillage’.EssaipolsurlaNouvEspagne.13Itisonlybytherecentadvancesofpoliticaleconomy,thatthesemostimportanttruthshavebeenmademanifest,nottovulgarapprehensionalone,buteventothemostdistinguishedandenlightenedobservers.WereadinVoltairethat‘suchisthelotofhumanity,thatthepatrioticdesireforone’scoun-try’sgrandeur,isbutawishforthehumiliationofone’sneighbours;thatitisclearlyimpossibleforonecountrytogain,exceptbythelossofanother’.(Dict.Phil.Art.Patrie.)Byacontinuationofthesamefalsereasoning,hegoesontodeclare,thatathoroughcitizenoftheworldcannotwishhiscountrytobegreaterorless,richerorpoorer.Itistrue,thathewouldnotdesirehertoextendthelimitsofherdomin-ion,because,insodoing,shemightendangerherownwell-being;buthewilldesirehertoprogressinwealth,forherprogressiveprosperitypromotesthatofallothernations.14ThiseffecthasbeensensiblyexperiencedinBraziloflateyears.ThelargeimportsofEuropeancom-modities,whichthefreedomofnavigationdirectedtothemarketsofBrazil,hasbeensofavourabletoitsnativeproductionsandcommerce,thatBrazilianproductsneverfoundsogoodasale.Sothereisaninstanceofanationalbenefitarisingfromimportation.Bytheway,itmighthaveperhapsbeenbetterforBrazilifthepricesofherproductsandtheprofitsofherproducershadrisenmoreslowlyandgrad-ually;forexorbitantpricesneverleadtotheestablishmentofapermanentcommercialintercourse;itisbettertogainbythemultiplicationofone’sownproductsthanbytheirincreasedprice.15Ifthebarrenconsumptionofaproductbeofitselfadversetore-production,andadiminutionprotantooftheexistingdemandorventforproduce,howshallwedesignatethatdegreeofinsanity,whichwouldinduceagovernmentdeliberatelytoburnanddestroytheimportsofforeignproducts,andthustoannihilatethesoleadvantageaccruingfromunproductiveconsumption,thatistosaythegratificationofthewantsoftheconsumer?16Consumptionofthiskindgivesnoencouragementtofutureproduction,butdevoursproductsalreadyinexistence.Noadditionaldemandcanbecreateduntiltherebenewproductsraised;thereisonlyanexchangeofoneproductforanother.Neithercanonebranchofindustrysufferwithoutaffectingtherest. DAVIDRICARDO(1772–1823)DavidRicardowasthefirstgreatself-consciouseconomictheorist.Heusedthepremisesofthetheoriesofpopulationandrent,coupledwiththelanguageofthelabortheoryofvalue,togener-ateapictureoflong-runeconomicperformance.Thegrowthofpopulationmeantthattheshareofnationalincomegoingtothelandownersintheformofrentwouldincrease;thepercapitarealincomeoflaborwouldtendtothesocialminimumofsubsistance(thephysicalminimumadjustedbycustomandhabit);sothatthedecreasingproportionofnationalincomeleftafterrentwouldleaveafallingrateofprofit,aftertheincomeoftheworkingclass(increasedinnumber,timesthesocialminimumofsubsistence).Thiswas,indeed,adismalpicture–forallbutthelandowners.Classicaleconomictheorycanbeunderstoodasaparadigmfoundedontheconceptofcapital,bycapitalmeaningbothfixed(plantandequipment)andcirculating(advancestoworkersduringtheproductionprocess).FromSmithcomestheideathatthesourceofcapitalissaving;accumu-lationiscentral.ForalloftheClassicists,thedeploymentofcapitalbothgeneratesthesocialorga-nizationforproductionandsetslaborinmotion.Commoditiesareproducedbymeansofothercommodities:capitalgoodsandthewagegoodsineffectadvancedtolabor.Outputisafunctionofcapital;thecapitalstockisnecessarilyonhandpriortoproduction.Decisionsoverthealloca-tionofthetotalcapitalstockeffectivelygoverntheuseoftechnology,theallocationofresourcesbetweengoods,thesubstanceandrateofeconomicgrowth,andthedistributionofincome.Theprincipaldecisionoverallocationofcapitalisbetweenfixedandcirculatingcapital.Circulatingcapital,itwashypothesized,wentintothewagesfund,fromwhichlaborwaspaid:theaveragewageratedependeddirectlyuponthesizeofthewagesfundandinverselyuponthesizeofthelaborforce.Thecriticalsocioeconomicroleisnolongerthatofthelandownerbutofthecapitalist,whoorganizesproductionandprovidesthemeansofsubsistencetotheworkingclass.Itisclearthat,howeveraccurateorinaccurate,andhowevermeaningfulormeaningless,allthismaybe,theforegoingpicture(andtherelatedtheories)derivefromperceptionsofthenewurban,industrial,commercialcapitalistmarketeconomy.Agreatdealofcontroversyensued,especiallyinthetwentiethcentury,overthemeaningofRicardo’slabortheoryofvalue.Histheoryhadprettymuchallthetrappingsofalabortheory,buthemodifiedittotakeaccountof(1)variableratiosoffixedtocirculatingcapital,(2)varyingdura-bilityoffixedcapital,and(3)varyingratesofturnoverofcirculatingcapital.Ambiguityexistswithregardtowhetherhistheoryisatheoryofthemeasureorsourceofvalue,andwhether,afterhisadjustmentsweremade,hiswasanabsoluteorarelativelabortheoryofvalue.Ifoneconsiderscapitalassomuchstored-uplabor,theneverythingislabor,andtheadjustmentsaretechnicalandnotsubstantive.Atanyrate,formanylatereconomistsRicardo’slabortheoryofvaluebecametransformedintoacostofproductiontheoryofvalue.Alsorelevantistheviewthat,aswithSmith’slabortheoryofvalue,onecoulddistinguishvaluefromprice,andmarketpricewassubstantiallytoallthesepeopleamatterofdemandandsupply–thoughthiswasfrequentlyeclipsedbyfocusingonvalueassuch.Finally,inthelatetwentiethcentury,PieroSraffareformulatedRicardo’s DavidRicardo257(andMarx’s)labortheoryofvalueinsuchawaythat,amongotherthings,arguedthedependenceofvalueonthedistributionofincome.Sraffa’sanalysisreliedimplicitlyuponsomeconstructionofaninvariablemeasureofvalue–arecognitionwhichRicardohadmadeandonwhichhewasworkingattheendofhislife.Ricardodevelopedanumberofothertheories,someoriginal,andothersacontinuationofreceivedideas.Theseincludedthequantitytheoryofmoney(asevidencedintheearlierread-ingfromRicardo),thecomparative-advantagetheoryofinternationaltrade,andthetheoryofdiminishingreturnsinagriculture–aswellasthetheoryofrent.Ricardoalsobecameconcernedaboutwhatlatercametobecalledtechnologicalunemploy-ment,namely,unemploymentconsequenttotheintroductionofmachinery–asignificantconcernjuxtaposedtoJamesMillandJeanBaptisteSay’s“lawofthemarket,”whicharguedthattherecouldbenogeneraloverproductionorunemployment.Thistracesback,ineffect,toideasinSmith’sWealthofNations,whereinonefindsbothcapitalsettinglaborinmotionandcapitalsubstitutingforlabor.OnehastocomprehendRicardo’simpressiveaccomplishmentsasatheoristinthecontextofhispoliticalagenda.AlongwithmostoftheotherClassicaleconomists,Ricardowasseekingtorevisetheinstitutional,especiallythelegal,frameworkoftheeconomytofacilitatetheextensionofamodernmarketeconomy.Thisexplains,forexample,hisapproachtotheCornLaws,thatis,freetrade,monetaryandbankingreform,populationcontrol,andsoon.ThefollowingexcerptsfromRicardo’sPrinciplesofPoliticalEconomyandTaxationhighlightthemajorthemesinhisanalysis:thelabortheoryofvalue,rent,thetheoryofwages(withattendantcommentaryonthePoorLaws),thetendencytowardafallingrateofprofit,andthetheoryofcom-parativeadvantageininternationaltrade–allofwhichverymuchsetthetonefornineteenth-centuryclassicaleconomicthinking.Referencesandfurtherreading*Blaug,Mark(1958)RicardianEconomics,NewHaven,CT:YaleUniversityPress.——(1991)DavidRicardo(1772–1823),Aldershot:EdwardElgarPublishing.Bloomfield,A.I.(1981)“BritishThoughtontheInfluenceofForeignTradeandInvestmentonGrowth,”HistoryofPoliticalEconomy13(Spring):95–120.Fetter,FrankW.(1980)TheEconomistinParliament,Durham,NC:DukeUniversityPress.Gordon,Barry(1969)“CriticismofRicardianViewsonValueandDistributionintheBritishPeriodicals,”HistoryofPoliticalEconomy1(Fall):370–87.Henderson,JohnP.(1997)TheLifeandEconomicsofDavidRicardo,withsupplementalchaptersbyJohnB.Davis,editedbyWarrenJ.SamuelsandGilbertB.Davis,Boston:Kluwer.Hicks,J.R.andHollander,S.(1977)“Mr.RicardoandtheModerns,”QuarterlyJournalofEconomics91(August):351–69.Hollander,JacobH.(1910)DavidRicardo:ACentenaryEstimate,Baltimore,MD:JohnsHopkinsPress.Hollander,Samuel(1979)TheEconomicsofDavidRicardo,Toronto:UniversityofTorontoPress.Kurz,HeinzD.andSalvadori,Neri(1998)“Ricardo,David,”inHeinzD.KurzandNeriSalvadori(eds),TheElgarCompaniontoClassicalEconomics,Vol.2,Cheltenham:EdwardElgarPublishing,314–24.Meek,RonaldL.(1973)StudiesintheLabourTheoryofValue,2ndedn,London:Lawrence&Wishart.Ricardo,David(1951–1955)TheWorksandCorrespondenceofDavidRicardo,10Vols,editedbyPieroSraffawiththecollaborationofM.H.Dobb,London:CambridgeUniversityPress.Skourtos,MichalisS.(1998)“CornModel,”inHeinzD.KurzandNeriSalvadori(eds),TheElgarCompaniontoClassicalEconomics,Vol.1,Cheltenham:EdwardElgarPublishing,194–6.*FurtherreferencestoRicardo’slifeandworkcanbefoundintheintroductiontothepreviousreadingfromhisTheHighPriceofBullion. 258TheClassicalSchoolSraffa,Piero(1951)“Introduction,”inTheWorksandCorrespondenceofDavidRicardo,Vol.1,editedbyPieroSraffawiththecollaborationofM.H.Dobb,London:CambridgeUniversityPress,xiii–lxii.Stigler,GeorgeJ.(1952)“TheRicardianTheoryofValueandDistribution,”inGeorgeJ.Stigler,EssaysintheHistoryofEconomics,Chicago,UniversityofChicagoPress,1965.——(1958)“Ricardoandthe93PerCentLaborTheoryofValue,”inGeorgeJ.Stigler,EssaysintheHistoryofEconomics,Chicago:UniversityofChicagoPress,1965.Wood,JohnC.(1985)DavidRicardo:CriticalAssessments,London:CroomHelm.Viner,Jacob(1937)StudiesintheTheoryofInternationalTrade,NewYork:Harper&Row. OnthePrinciplesofPoliticalEconomyandTaxation(1817)*Chapter1:OnvalueThevalueofacommodity,orthequantityofanyothercommodityforwhichitwillexchange,dependsontherelativequantityoflabourwhichisnecessaryforitsproduction,andnotonthegreaterorlesscompensationwhichispaidforthatlabour.IthasbeenobservedbyAdamSmiththat‘thewordValuehastwodifferentmeanings,andsome-timesexpressestheutilityofsomeparticularobject,andsometimesthepowerofpurchasingothergoodswhichthepossessionofthatobjectconveys.Theonemaybecalledvalueinuse;theothervalueinexchange.Thethings’,hecontinues,‘whichhavethegreatestvalueinuse,havefrequentlylittleornovalueinexchange;and,onthecontrary,thosewhichhavethegreatestvalueinexchange,havelittleornovalueinuse’.Waterandairareabundantlyuseful;theyareindeedindispensabletoexistence,yet,underordinarycircumstances,nothingcanbeobtainedinexchangeforthem.Gold,onthecontrary,thoughoflittleusecomparedwithairorwater,willexchangeforagreatquantityofothergoods.Utilitythenisnotthemeasureofexchangeablevalue,althoughitisabsolutelyessentialtoit.Ifacommoditywereinnowayuseful–inotherwords,ifitcouldinnowaycontributetoourgrat-ification–itwouldbedestituteofexchangeablevalue,howeverscarceitmightbe,orwhateverquantityoflabourmightbenecessarytoprocureit.Possessingutility,commoditiesderivetheirexchangeablevaluefromtwosources:fromtheirscarcityandfromthequantityoflabourrequiredtoobtainthem.Therearesomecommodities,thevalueofwhichisdeterminedbytheirscarcityalone.Nolabourcanincreasethequantityofsuchgoods,andthereforetheirvaluecannotbeloweredbyanincreasedsupply.Somerarestatuesandpictures,scarcebooksandcoins,winesofapeculiarquality,whichcanbemadeonlyfromgrapesgrownonaparticularsoil,ofwhichthereisaverylimitedquantity,areallofthisdescription.Theirvalueiswhollyindependentofthequantityoflabouroriginallynecessarytoproducethem,andvarieswiththevaryingwealthandinclinationsofthosewhoaredesiroustopossessthem.Thesecommodities,however,formaverysmallpartofthemassofcommoditiesdailyexchangedinthemarket.Byfarthegreatestpartofthosegoodswhicharetheobjectsofdesire,areprocuredbylabour,andtheymaybemultiplied,notinonecountryalone,butinmany,almostwithoutanyassignablelimit,ifwearedisposedtobestowthelabournecessarytoobtainthem.Inspeakingthenofcommodities,oftheirexchangeablevalue,andofthelawswhichregulatetheirrelativeprices,wemeanalwayssuchcommoditiesonlyascanbeincreasedinquantitybytheexertionofhumanindustry,andontheproductionofwhichcompetitionoperateswithoutrestraint.*London:JohnMurray,Albemarle-Street,3rdedition,1821. 260TheClassicalSchoolIntheearlystagesofsociety,theexchangeablevalueofthesecommodities,ortherulewhichdetermineshowmuchofoneshallbegiveninexchangeforanother,dependsalmostexclusivelyonthecomparativequantityoflabourexpendedoneach.‘Therealpriceofeverything’,saysAdamSmith,‘whateverythingreallycoststothemanwhowantstoacquireit,isthetoilandtroubleofacquiringit.Whateverythingisreallyworthtoit,orthemanwhohasacquiredit,andwhowantstodisposeofit,orexchangeitforsomethingelse,isthetoilandtroublewhichitcansavetohimself,andwhichitcanimposeuponotherpeople’.‘Labourwasthefirstprice–theoriginalpurchase-moneythatwaspaidforallthings’.Again,‘inthatearlyandrudestateofsociety,whichprecedesboththeaccumulationofstockandtheappropriationofland,theproportionbetweenthequantitiesoflabournecessaryforacquir-ingdifferentobjectsseemstobetheonlycircumstancewhichcanaffordanyruleforexchangingthemforoneanother.Ifamonganationofhunters,forexample,itusuallycosttwicethelabourtokillabeaverwhichitdoestokilladeer,onebeavershouldnaturallyexchangefor,orbeworthtwodeer.Itisnaturalthatwhatisusuallytheproduceoftwodays’,ortwohours’labour,shouldbeworthdoubleofwhatisusuallytheproduceofoneday’s,oronehour’slabour’.Thatthisisreallythefoundationoftheexchangeablevalueofallthings,exceptingthosewhichcannotbeincreasedbyhumanindustry,isadoctrineoftheutmostimportanceinpoliticaleconomy;forfromnosourcedosomanyerrors,andsomuchdifferenceofopinioninthatscienceproceed,asfromthevagueideaswhichareattachedtothewordvalue.Ifthequantityoflabourrealizedincommodities,regulatetheirexchangeablevalue,everyincreaseofthequantityoflabourmustaugmentthevalueofthatcommodityonwhichitisexer-cised,aseverydiminutionmustlowerit.AdamSmith,whosoaccuratelydefinedtheoriginalsourceofexchangeablevalue,andwhowasboundinconsistencytomaintain,thatallthingsbecamemoreorlessvaluableinproportionasmoreorlesslabourwasbestowedontheirproduction,hashimselferectedanotherstandardmeasureofvalue,andspeaksofthingsbeingmoreorlessvaluable,inproportionastheywillexchangeformoreorlessofthisstandardmeasure.Sometimeshespeaksofcorn,atothertimesoflabour,asastandardmeasure;notthequantityoflabourbestowedontheproductionofanyobject,butthequantitywhichitcancommandinthemarket:asiftheseweretwoequivalentexpressions,andasifbecauseaman’slabourhadbecomedoublyefficient,andhecouldthere-foreproducetwicethequantityofacommodity,hewouldnecessarilyreceivetwicetheformerquantityinexchangeforit.Ifthisindeedweretrue,iftherewardofthelabourerwerealwaysinproportiontowhathepro-duced,thequantityoflabourbestowedonacommodity,andthequantityoflabourwhichthatcommoditywouldpurchase,wouldbeequal,andeithermightaccuratelymeasurethevariationsofotherthings:buttheyarenotequal;thefirstisundermanycircumstancesaninvariablestandard,indicatingcorrectlythevariationsofotherthings;thelatterissubjecttoasmanyfluctuationsasthecommoditiescomparedwithit.AdamSmith,aftermostablyshowingtheinsufficiencyofavariablemedium,suchasgoldandsilver,forthepurposeofdeterminingthevaryingvalueofotherthings,hashimself,byfixingoncornorlabour,chosenamediumnolessvariable.Goldandsilverarenodoubtsubjecttofluctuations,fromthediscoveryofnewandmoreabundantmines;butsuchdiscoveriesarerare,andtheireffects,thoughpowerful,arelimitedtoperiodsofcomparativelyshortduration.Theyaresubjectalsotofluctuation,fromimprove-mentsintheskillandmachinerywithwhichtheminesmaybeworked;asinconsequenceofsuchimprovements,agreaterquantitymaybeobtainedwiththesamelabour.Theyarefurthersub-jecttofluctuationfromthedecreasingproduceofthemines,aftertheyhaveyieldedasupplytotheworld,forasuccessionofages.Butfromwhichofthesesourcesoffluctuationiscornexempted?Doesnotthatalsovary,ononehand,fromimprovementsinagriculture,fromimprovedmachineryandimplementsusedinhusbandry,aswellasfromthediscoveryofnewtractsoffertileland,whichinothercountriesmaybetakenintocultivation,andwhichwill Ricardo:PrinciplesofPoliticalEconomy261affectthevalueofcornineverymarketwhereimportationisfree?Isitnotontheotherhandsubjecttobeenhancedinvaluefromprohibitionsofimportation,fromincreasingpopulationandwealth,andthegreaterdifficultyofobtainingtheincreasedsupplies,onaccountoftheaddi-tionalquantityoflabourwhichthecultivationofinferiorlandsrequires?Isnotthevalueoflabourequallyvariable;beingnotonlyaffected,asallotherthingsare,bytheproportionbetweenthesupplyanddemand,whichuniformlyvarieswitheverychangeintheconditionofthecommunity,butalsobythevaryingpriceoffoodandothernecessaries,onwhichthewagesoflabourareexpended?Inthesamecountrydoublethequantityoflabourmayberequiredtoproduceagivenquan-tityoffoodandnecessariesatonetime,thatmaybenecessaryatanother,andadistanttime;yetthelabourer’srewardmaypossiblybediminishedverylittle.Ifthelabourer’swagesattheformerperiod,wereacertainquantityoffoodandnecessaries,heprobablycouldnothavesubsistedifthatquantityhadbeenreduced.Foodandnecessariesinthiscasewillhaverisen100percentifestimatedbythequantityoflabournecessarytotheirproduction,whiletheywillscarcelyhaveincreasedinvalue,ifmeasuredbythequantityoflabourforwhichtheywillexchange.…Iftheshoesandclothingofthelabourer,could,byimprovementsinmachinery,beproducedbyone-fourthofthelabournownecessarytotheirproduction,theywouldprobablyfall75percent;butsofarisitfrombeingtrue,thatthelabourerwouldtherebybeenabledpermanentlytoconsumefourcoats,orfourpairofshoes,insteadofone,thatitisprobablehiswageswouldinnolongtimebeadjustedbytheeffectsofcompetition,andthestimulustopopulation,tothenewvalueofthenecessariesonwhichtheywereexpended.Iftheseimprovementsextendedtoalltheobjectsofthelabourer’sconsumption,weshouldfindhimprobablyattheendofaveryfewyears,inpossessionofonlyasmall,ifany,additiontohisenjoyments,althoughtheexchangeablevalueofthosecommodities,comparedwithanyothercommodity,inthemanufactureofwhichnosuchimprovementweremade,hadsustainedaveryconsiderablereduction;andthoughtheyweretheproduceofaveryconsiderablydiminishedquantityoflabour.Itcannotthenbecorrect,tosaywithAdamSmith,‘thataslabourmaysometimespurchaseagreater,andsometimesasmallerquantityofgoods,itistheirvaluewhichvaries,notthatofthelabourwhichpurchasesthem’;andtherefore,‘thatlabouralonenevervaryinginitsownvalue,isalonetheultimateandrealstandardbywhichthevalueofallcommoditiescanatalltimesandplacesbeestimatedandcompared’;butitiscorrecttosay,asAdamSmithhadsaidpreviously,‘thattheproportionbetweenthequantitiesoflabournecessaryforacquiringdifferentobjectsseemstobetheonlycircumstancewhichcanaffordanyruleforexchangingthemforoneanother’;orinotherwords,thatitisthecomparativequantityofcommoditieswhichlabourwillproduce,thatdeterminestheirpresentorpastrelativevalue,andnotthecomparativequantitiesofcommodities,whicharegiventothelabourerinexchangeforhislabour.Twocommoditiesvaryinrelativevalue,andwewishtoknowinwhichthevariationhasreallytakenplace.Ifwecomparethepresentvalueofone,withshoes,stockings,hats,iron,sugar,andallothercommodities,wefindthatitwillexchangeforpreciselythesamequantityofallthesethingsasbefore.Ifwecomparetheotherwiththesamecommodities,wefindithasvariedwithrespecttothemall:wemaythenwithgreatprobabilityinferthatthevariationhasbeeninthiscommodity,andnotinthecommoditieswithwhichwehavecomparedit.Ifonexaminingstillmoreparticularlyintoallthecircumstancesconnectedwiththeproductionofthesevariouscom-modities,wefindthatpreciselythesamequantityoflabourandcapitalarenecessarytothepro-ductionoftheshoes,stockings,hats,iron,sugar,andsoon;butthatthesamequantityasbeforeisnotnecessarytoproducethesinglecommoditywhoserelativevalueisaltered,probabilityischangedintocertainty,andwearesurethatthevariationisinthesinglecommodity.Wethendiscoveralsothecauseofitsvariation. 262TheClassicalSchoolIfIfoundthatanounceofgoldwouldexchangeforalesserquantityofallthecommoditiesenumeratedabove,andmanyothers;andif,moreover,Ifoundthatbythediscoveryofanewandmorefertilemine,orbytheemploymentofmachinerytogreatadvantage,agivenquantityofgoldcouldbeobtainedwithalessquantityoflabour,Ishouldbejustifiedinsayingthatthecauseofthealterationinthevalueofgold,relativetoothercommodities,wasthegreaterfacilityofitsproduction,orthesmallerquantityoflabournecessarytoobtainit.Inlikemanner,iflabourfellconsiderablyinvalue,relativetoallotherthings,andifIfoundthatitsfallwasincon-sequenceofanabundantsupply,encouragedbythegreatfacilitywithwhichcorn,andtheothernecessariesofthelabourer,wereproduced,itwould,Iapprehend,becorrectformetosaythatcornandnecessarieshadfalleninvalueinconsequenceoflessquantityoflabourbeingneces-sarytoproducethem,andthatthisfacilityofprovidingforthesupportofthelabourerhadbeenfollowedbyafallinthevalueoflabour.No,sayAdamSmithandMrMalthus,inthecaseofthegoldyouwerecorrectincallingitsvariationafallofitsvalue,becausecornandlabourhadnotthenvaried;andasgoldwouldcommandalessquantityofthem,aswellasofallotherthings,thanbefore,itwascorrecttosaythatallthingshadremainedstationary,andthatgoldonlyhadvaried;butwhencornandlabourfall,thingswhichwehaveselectedtobeourstandardmeasureofvalue,notwithstandingallthevariationstowhichweacknowledgetheyaresubject,itwouldbehighlyimpropertosayso;thecorrectlanguagewillbetosay,thatcornandlabourhaveremainedstationary,andallotherthingshaveriseninvalue.NowitisagainstthislanguagethatIprotest.Ifindthatprecisely,asinthecaseofthegold,thecauseofthevariationbetweencornandotherthings,isthesmallerquantityoflabournecessarytoproduceit,andtherefore,byalljustreasoning,Iamboundtocallthevariationofcornandlabourafallintheirvalue,andnotariseinthevalueofthethingswithwhichtheyarecompared.IfIhavetohirealabourerforaweek,andinsteadoftenshillingsIpayhimeight,novariationhavingtakenplaceinthevalueofmoney,thelabourercanprobablyobtainmorefoodandnec-essaries,withhiseightshillings,thanhebeforeobtainedforten:butthisisowing,nottoariseintherealvalueofhiswages,asstatedbyAdamSmith,andmorerecentlybyMrMalthus,buttoafallinthevalueofthethingsonwhichhiswagesareexpended,thingsperfectlydistinct;andyetforcallingthisafallintherealvalueofwages,IamtoldthatIadoptnewandunusuallanguage,notreconcileablewiththetrueprinciplesofthescience.Tomeitappearsthattheunusualand,indeed,inconsistentlanguage,isthatusedbymyopponents.Supposealabourertobepaidabushelofcornforaweek’swork,whenthepriceofcornis80s.perquarter,andthatheispaidabushelandaquarterwhenthepricefallsto40s.Suppose,too,thatheconsumeshalfabushelofcorninaweekinhisownfamily,andexchangestheremainderforotherthings,suchasfuel,soap,candles,tea,sugar,salt,andthelike;ifthethree-fourthsofabushelwhichwillremaintohim,inonecase,cannotprocurehimasmuchoftheabovecommoditiesashalfabusheldidintheother,whichitwillnot,willlabourhaverisenorfalleninvalue?Risen,AdamSmithmustsay,becausehisstandardiscorn,andthelabourerreceivesmorecornforaweek’slabour.Fallen,mustthesameAdamSmithsay,‘becausethevalueofathingdependsonthepowerofpurchasingothergoodswhichthepossessionofthatobjectconveys’,andlabourhaslesspowerofpurchasingsuchothergoods.SectionIILabourofdifferentqualitiesdifferentlyrewarded.Thisisnocauseofvariationintherelativevalueofcommodities.Inspeaking,however,oflabour,asbeingthefoundationofallvalue,andtherelativequantityoflabourasalmostexclusivelydeterminingtherelativevalueofcommodities,Imustnotbe Ricardo:PrinciplesofPoliticalEconomy263supposedtobeinattentivetothedifferentqualitiesoflabour,andthedifficultyofcomparinganhour’soraday’slabour,inoneemployment,withthesamedurationoflabourinanother.Theesti-mationinwhichdifferentqualitiesoflabourareheld,comessoontobeadjustedinthemarketwithsufficientprecisionforallpracticalpurposes,anddependsmuchonthecomparativeskillofthelabourer,andintensityofthelabourperformed.Thescale,whenonceformed,isliabletolittlevari-ation.Ifaday’slabourofaworkingjewellerbemorevaluablethanaday’slabourofacommonlabourer,ithaslongagobeenadjusted,andplacedinitsproperpositioninthescaleofvalue.Incomparingthereforethevalueofthesamecommodity,atdifferentperiodsoftime,thecon-siderationofthecomparativeskillandintensityoflabour,requiredforthatparticularcommod-ity,needsscarcelytobeattendedto,asitoperatesequallyatbothperiods.Onedescriptionoflabouratonetimeiscomparedwiththesamedescriptionoflabouratanother;ifatenth,afifth,orafourth,hasbeenaddedortakenaway,aneffectproportionedtothecausewillbeproducedontherelativevalueofthecommodity.Ifapieceofclothbenowofthevalueoftwopiecesoflinen,andif,intenyearshence,theordinaryvalueofapieceofclothshouldbefourpiecesoflinen,wemaysafelyconclude,thateithermorelabourisrequiredtomakethecloth,orlesstomakethelinen,orthatbothcauseshaveoperated.AstheinquirytowhichIwishtodrawthereader’sattention,relatestotheeffectofthevaria-tionsintherelativevalueofcommodities,andnotintheirabsolutevalue,itwillbeoflittleimportancetoexaminethecomparativedegreeofestimationinwhichthedifferentkindsofhumanlabourareheld.Wemayfairlyconclude,thatwhateverinequalitytheremightoriginallyhavebeeninthem,whatevertheingenuity,skill,ortimenecessaryfortheacquirementofonespeciesofmanualdexteritymorethananother,itcontinuesnearlythesamefromonegenerationtoanother;oratleast,thatthevariationisveryinconsiderablefromyeartoyear,andtherefore,canhavelittleeffect,forshortperiods,ontherelativevalueofcommodities.…SectionIIINotonlythelabourappliedimmediatelytocommoditiesaffecttheirvalue,butthelabouralsowhichisbestowedonthecomplements,tools,andbuildings,withwhichmuchlabourisassisted.EveninthatearlystatetowhichAdamSmithrefers,somecapital,thoughpossiblymadeandaccumulatedbythehunterhimself,wouldbenecessarytoenablehimtokillhisgame.Withoutsomeweapon,neitherthebeavernorthedeercouldbedestroyed,andthereforethevalueoftheseanimalswouldberegulated,notsolelybythetimeandlabournecessarytotheirdestruc-tion,butalsobythetimeandlabournecessaryforprovidingthehunter’scapital,theweapon,bytheaidofwhichtheirdestructionwaseffected.Supposetheweaponnecessarytokillthebeaver,wasconstructedwithmuchmorelabourthanthatnecessarytokillthedeer,onaccountofthegreaterdifficultyofapproachingnearthefor-meranimal,andtheconsequentnecessityofitsbeingmoretruetoitsmark;onebeaverwouldnaturallybeofmorevaluethantwodeer,andpreciselyforthisreason,thatmorelabourwould,onthewhole,benecessarytoitsdestruction.Orsupposethatthesamequantityoflabourwasnecessarytomakebothweapons,butthattheywereofveryunequaldurability;ofthedurableimplementonlyasmallportionofitsvaluewouldbetransferredtothecommodity,amuchgreaterportionofthevalueofthelessdurableimplementwouldberealizedinthecommoditywhichitcontributedtoproduce.Alltheimplementsnecessarytokillthebeaveranddeermightbelongtooneclassofmen,andthelabouremployedintheirdestructionmightbefurnishedbyanotherclass;still,theircomparative 264TheClassicalSchoolpriceswouldbeinproportiontotheactuallabourbestowed,bothontheformationofthecapi-tal,andonthedestructionoftheanimals.Underdifferentcircumstancesofplentyorscarcityofcapital,ascomparedwithlabour,underdifferentcircumstancesofplentyorscarcityofthefoodandnecessariesessentialtothesupportofmen,thosewhofurnishedanequalvalueofcapitalforeitheroneemploymentorfortheother,mighthaveahalf,afourth,oraneighthoftheproduceobtained,theremainderbeingpaidaswagestothosewhofurnishedthelabour;yetthisdivisioncouldnotaffecttherelativevalueofthesecommodities,sincewhethertheprofitsofcapitalweregreaterorless,whethertheywere50,20,or10percentorwhetherthewagesoflabourwerehighorlow,theywouldoperateequallyonbothemployments.Ifwesupposetheoccupationsofthesocietyextended,thatsomeprovidecanoesandtacklenecessaryforfishing,otherstheseedandrudemachineryfirstusedinagriculture,stillthesameprinciplewouldholdtrue,thattheexchangeablevalueofthecommoditiesproducedwouldbeinproportiontothelabourbestowedontheirproduction;notontheirimmediateproductiononly,butonallthoseimplementsormachinesrequiredtogiveeffecttotheparticularlabourtowhichtheywereapplied.Ifwelooktoastateofsocietyinwhichgreaterimprovementshavebeenmade,andinwhichartsandcommerceflourish,weshallstillfindthatcommoditiesvaryinvalueconformablywiththisprinciple:inestimatingtheexchangeablevalueofstockings,forexample,weshallfindthattheirvalue,comparedwithotherthings,dependsonthetotalquantityoflabournecessarytomanufacturethem,andbringthemtomarket.First,thereisthelabournecessarytocultivatethelandonwhichtherawcottonisgrown;second,thelabourofconveyingthecottontothecoun-trywherethestockingsaretobemanufactured,whichincludesaportionofthelabourbestowedinbuildingtheshipinwhichitisconveyed,andwhichischargedwiththefreightofthegoods;third,thelabourofthespinnerandweaver;fourth,aportionofthelabouroftheengineer,smith,andcarpenter,whoerectedthebuildingsandmachinery,bythehelpofwhichtheyaremade;fifth,thelabouroftheretaildealer,andofmanyothers,whomitisunnecessaryfurthertoparticularize.Theaggregatesumofthesevariouskindsoflabour,determinesthequantityofotherthingsforwhichthesestockingswillexchange,whilethesameconsiderationofthevariousquantitiesoflabourwhichhavebeenbestowedonthoseotherthings,willequallygoverntheportionofthemwhichwillbegivenforthestockings.Toconvinceourselvesthatthisistherealfoundationofexchangeablevalue,letussupposeanyimprovementtobemadeinthemeansofabridginglabourinanyoneofthevariousprocessesthroughwhichtherawcottonmustpass,beforethemanufacturedstockingscometothemarket,tobeexchangedforotherthings,andobservetheeffectswhichwillfollow.Iffewermenwererequiredtocultivatetherawcotton,oriffewersailorswereemployedinnavigating,orship-wrightsinconstructingtheship,inwhichitwasconveyedtous;iffewerhandswereemployedinraisingthebuildingsandmachinery,orifthese,whenraised,wererenderedmoreefficient,thestockingswouldinevitablyfallinvalue,andconsequentlycommandlessofotherthings.Theywouldfall,becausealesserquantityoflabourwasnecessarytotheirproduction,andwouldthereforeexchangeforasmallerquantityofthosethingsinwhichnosuchabridgmentoflabourhadbeenmade.Economyintheuseoflabourneverfailstoreducetherelativevalueofacommodity,whetherthesavingbeinthelabournecessarytothemanufactureofthecommodityitself,orinthatnec-essarytotheformationofthecapital,bytheaidofwhichitisproduced.Ineithercasethepriceofstockingswouldfall,whethertherewerefewermenemployedasbleachers,spinners,andweavers,personsimmediatelynecessarytotheirmanufacture;orassailors,carriers,engineers,andsmiths,personsmoreindirectlyconcerned.Intheonecase,thewholesavingoflabourwouldfallonthestockings,becausethatportionoflabourwaswhollyconfinedtothestockings;intheother,onlyaportionwouldfallonthestockings,theremainderbeingappliedtoallthose Ricardo:PrinciplesofPoliticalEconomy265othercommodities,totheproductionofwhichthebuildings,machinery,andcarriage,weresubservient.Supposethatintheearlystagesofsociety,thebowsandarrowsofthehunterwereofequalvalue,andofequaldurability,withthecanoeandimplementsofthefisherman,bothbeingtheproduceofthesamequantityoflabour.Undersuchcircumstancesthevalueofthedeer,thepro-duceofthehunter’sday’slabour,wouldbeexactlyequaltothevalueofthefish,theproduceofthefisherman’sday’slabour.Thecomparativevalueofthefishandthegame,wouldbeentirelyregulatedbythequantityoflabourrealizedineach;whatevermightbethequantityofproduc-tion,orhoweverhighorlowgeneralwagesorprofitsmightbe.Ifforexamplethecanoesandimplementsofthefishermanwereofthevalueof£100andwerecalculatedtolastfortenyears,andheemployedtenmen,whoseannuallabourcost£100andwhoinonedayobtainedbytheirlabourtwentysalmon:iftheweaponsemployedbythehunterwerealsoof£100valueandcal-culatedtolasttenyears,andifhealsoemployedtenmen,whoseannuallabourcost£100andwhoinonedayprocuredhimtendeer,thenthenaturalpriceofadeerwouldbetwosalmon,whethertheproportionofthewholeproducebestowedonthemenwhoobtainedit,werelargeorsmall.Theproportionwhichmightbepaidforwages,isoftheutmostimportanceintheques-tionofprofits;foritmustatoncebeseen,thatprofitswouldbehighorlow,exactlyinproportionaswageswereloworhigh;butitcouldnotintheleastaffecttherelativevalueoffishandgame,aswageswouldbehighorlowatthesametimeinbothoccupations.Ifthehunterurgedthepleaofhispayingalargeproportion,orthevalueofalargeproportionofhisgameforwages,asaninducementtothefishermantogivehimmorefishinexchangeforhisgame,thelatterwouldstatethathewasequallyaffectedbythesamecause;andthereforeunderallvariationsofwagesandprofits,underalltheeffectsofaccumulationofcapital,aslongastheycontinuedbyaday’slabourtoobtainrespectivelythesamequantityoffish,andthesamequantityofgame,thenaturalrateofexchangewouldbeonedeerfortwosalmon.Ifwiththesamequantityoflabouralessquantityoffish,oragreaterquantityofgamewereobtained,thevalueoffishwouldriseincomparisonwiththatofgame.If,onthecontrary,withthesamequantityoflabouralessquantityofgame,oragreaterquantityoffishwasobtained,gamewouldriseincomparisonwithfish.Iftherewasanyothercommoditywhichwasinvariableinitsvalue,weshouldbeabletoascer-tain,bycomparingthevalueoffishandgamewiththiscommodity,howmuchofthevariationwastobeattributedtoacausewhichaffectedthevalueoffish,andhowmuchtoacausewhichaffectedthevalueofgame.Supposemoneytobethatcommodity.Ifasalmonwereworth£1andadeer£2onedeerwouldbeworthtwosalmon.Butadeermightbecomeofthevalueofthreesalmon,formorelabourmightberequiredtoobtainthedeer,orlesstogetthesalmon,orboththesecausesmightoperateatthesametime.Ifwehadthisinvariablestandard,wemighteasilyascertaininwhatdegreeeitherofthesecausesoperated.Ifsalmoncontinuedtosellfor£1whilstdeerroseto£3wemightcon-cludethatmorelabourwasrequiredtoobtainthedeer.Ifdeercontinuedatthesamepriceof£2andsalmonsoldfor13s.4d.wemightthenbesurethatlesslabourwasrequiredtoobtainthesalmon;furtherifdeerroseto£210s.andsalmonfellto16s.8d.weshouldbeconvincedthatbothcauseshadoperatedinproducingthealterationoftherelativevalueofthesecommodities.Noalterationinthewagesoflabourcouldproduceanyalterationintherelativevalueofthesecommodities;forthemtorise,nogreaterquantityoflabourwouldberequiredinanyoftheseoccupations,butitwouldbepaidforatahigherprice,andthesamereasonswhichshouldmakethehunterandfishermanendeavourtoraisethevalueoftheirgameandfish,wouldcausetheowneroftheminetoraisethevalueofhisgold.Thisinducementactingwiththesameforceonallthesethreeoccupations,andtherelativesituationofthoseengagedinthembeingthesamebeforeandaftertheriseofwages,therelativevalueofgame,fish,andgold,wouldcontinueunaltered. 266TheClassicalSchoolWagesmightrise20percent,andprofitsconsequentlyfallinagreaterorlesserproportion,withoutoccasioningtheleastalterationintherelativevalueofthesecommodities.Nowsuppose,thatwiththesamelabourandfixedcapital,morefishcouldbeproduced,butnomoregoldorgame,therelativevalueoffishwouldfallincomparisonwithgoldorgame.If,insteadoftwentysalmon,twenty-fiveweretheproduceofoneday’slabour,thepriceofasalmonwouldbesixteenshillingsinsteadofapound,andtwosalmonandahalf,insteadoftwosalmon,wouldbegiveninexchangeforonedeer,butthepriceofdeerwouldcontinueat£2asbefore.Inthesamemanner,iffewerfishcouldbeobtainedwiththesamecapitalandlabour,fishwouldriseincomparativevalue.Fishthenwouldriseorfallinexchangeablevalue,onlybecausemoreorlesslabourwasrequiredtoobtainagivenquantity;anditnevercouldriseorfallbeyondtheproportionoftheincreasedordiminishedquantityoflabourrequired.Ifwehadthenaninvariablestandard,bywhichtomeasurethevariationinothercommodi-ties,weshouldfindthattheutmostlimittowhichtheycouldpermanentlyrise,ifproducedunderthecircumstancessupposed,wasproportionedtotheadditionalquantityoflabourrequiredfortheirproduction;andthatunlessmorelabourwererequiredfortheirproduction,theycouldnotriseinanydegreewhatever.Ariseinwageswouldnotraisetheirmoneyvalue,norrelativelytoanyothercommodities,theproductionofwhichrequirednoadditionalquantityoflabour,whichemployedthesameproportionoffixedandcirculatingcapital,andfixedcapitalofthesamedurability.Ifmoreorlesslabourwererequiredintheproductionoftheothercommodity,wehavealreadystatedthatthiswillimmediatelyoccasionanalterationinitsrelativevalue,butsuchalterationisowingtothealteredquantityofrequisitelabour,andnottotheriseinwages.SectionIVTheprinciplethatthequantityoflabourbestowedontheproductionofcommoditiesregulatestheirrelativevalue,considerablymodifiedbytheemploymentofmachineryandotherfixedanddurablecapital.Intheformersectionwehavesupposedtheimplementsandweaponsnecessarytokillthedeerandsalmon,tobeequallydurable,andtobetheresultofthesamequantityoflabour,andwehaveseenthatthevariationsintherelativevalueofdeerandsalmondependedsolelyonthevary-ingquantitiesoflabournecessarytoobtainthem–butineverystateofsociety,thetools,imple-ments,buildings,andmachineryemployedindifferenttradesmaybeofvariousdegreesofdurability,andmayrequiredifferentportionsoflabourtoproducethem.Theproportions,too,inwhichthecapitalthatistosupportlabour,andthecapitalthatisinvestedintools,machineryandbuildings,maybevariouslycombined.Thisdifferenceinthedegreeofdurabilityoffixedcapital,andthisvarietyintheproportionsinwhichthetwosortsofcapitalmaybecombined,introduceanothercause,besidesthegreaterorlesserquantityoflabournecessarytoproducecommodities,forthevariationsintheirrelativevalue–thiscauseistheriseorfallinthevalueoflabour.Thefoodandclothingconsumedbythelabourer,thebuildingsinwhichheworks,theimple-mentswithwhichhislabourisassisted,areallofaperishablenature.Thereishoweveravastdif-ferenceinthetimeforwhichthesedifferentcapitalswillendure:asteamenginewilllastlongerthanaship,ashipthantheclothingofthelabourer,andtheclothingofthelabourerlongerthanthefoodwhichheconsumes.Ascapitalisrapidlyperishable,andrequirestobefrequentlyreproduced,orisofslowcon-sumption,itisclassedundertheheadsofcirculating,oroffixedcapital.Abrewer,whosebuild-ingsandmachineryarevaluableanddurable,issaidtoemployalargeportionoffixedcapital;onthecontrary,ashoemaker,whosecapitalischieflyemployedinthepaymentofwages,whichareexpendedonfoodandclothing,commoditiesmoreperishablethanbuildingsandmachinery,issaidtoemployalargeproportionofhiscapitalascirculatingcapital. Ricardo:PrinciplesofPoliticalEconomy267Itisalsotobeobservedthatthecirculatingcapitalmaycirculate,orbereturnedtoitsemployer,inveryunequaltimes.Thewheatboughtbyafarmertosowisafixedcapitalcomparedtothewheatpurchasedbyabakertomakeintoloaves.Oneleavesitintheground,andcanobtainnoreturnforayear;theothercangetitgroundintoflour,sellitasbreadtohiscustomers,andhavehiscapitalfreetorenewthesame,orcommenceanyotheremploymentinaweek.Twotradesthenmayemploythesameamountofcapital;butitmaybeverydifferentlydividedwithrespecttotheportionwhichisfixed,andthatwhichiscirculating.Inonetradeverylittlecapitalmaybeemployedascirculatingcapital,thatistosayinthesup-portoflabour–itmaybeprincipallyinvestedinmachinery,implements,buildings,andthelike,thatiscapitalofacomparativelyfixedanddurablecharacter.Inanothertradethesameamountofcapitalmaybeused,butitmaybechieflyemployedinthesupportoflabour,andverylittlemaybeinvestedinimplements,machines,andbuildings.Ariseinthewagesoflabourcannotfailtoaffectunequallythecommoditiesproducedundersuchdifferentcircumstances.Againtwomanufacturersmayemploythesameamountoffixed,andthesameamountofcir-culatingcapital;butthedurabilityoftheirfixedcapitalsmaybeveryunequal.Onemayhavesteamenginesofthevalueof£10,000,theother,shipsofthesamevalue.Ifmenemployednomachineryinproductionbutlabouronly,andwereallthesamelengthoftimebeforetheybroughttheircommoditiestomarket,theexchangeablevalueoftheirgoodswouldbepreciselyinproportiontothequantityoflabouremployed.Iftheyemployedfixedcapitalofthesamevalueandofthesamedurability,then,too,thevalueofthecommoditiesproducedwouldbethesame,andtheywouldvarywiththegreaterorlesserquantityoflabouremployedintheirproduction.Butalthoughcommoditiesproducedundersimilarcircumstances,wouldnotvarywithrespecttoeachother,fromanycausebutanadditionordiminutionofthequantityoflabournecessarytoproduceoneorotherofthem,yetcomparedwithothersnotproducedwiththesamepropor-tionatequantityoffixedcapital,theywouldvaryfromtheothercausealsowhichIhavemen-tionedbefore,namely,ariseinthevalueoflabour,althoughneithermorenorlesslabourwasemployedintheproductionofeitherofthem.Barleyandoatswouldcontinuetobearthesamerelationtoeachotherunderanyvariationofwages.Cottongoodsandclothwoulddothesame,iftheyalsowereproducedundercircumstancespreciselysimilartoeachother,butyetwithariseorfallofwages,barleymightbemoreorlessvaluablecomparedwithcottongoods,andoatscomparedwithcloth.Supposetwomenemployonehundredmeneachforayearintheconstructionoftwomachines,andanothermanemploysthesamenumberofmenincultivatingcorn,eachofthemachinesattheendoftheyearwillbeofthesamevalueasthecorn,fortheywilleachbepro-ducedbythesamequantityoflabour.Supposeoneoftheownersofoneofthemachinestoemployit,withtheassistanceofonehundredmen,thefollowingyearinmakingcloth,andtheowneroftheothermachinetoemployhisalso,withtheassistancelikewiseofonehundredmen,inmakingcottongoods,whilethefarmercontinuestoemployonehundredmenasbeforeinthecultivationofcorn.Duringthesecondyeartheywillallhaveemployedthesamequantityoflabour,butthegoodsandmachinetogetheroftheclothier,andalsoofthecottonmanufacturer,willbetheresultofthelabouroftwohundredmen,employedforayear;or,rather,ofthelabourofonehundredmenfortwoyears;whereasthecornwillbeproducedbythelabourofonehun-dredmenforoneyear,consequentlyifthecornbeofthevalueof£500themachineandclothoftheclothiertogether,oughttobeofthevalueof£1,000andthemachineandcottongoodsofthecottonmanufactureroughttobealsooftwicethevalueofthecorn.Buttheywillbeofmorethantwicethevalueofthecorn,fortheprofitontheclothier’sandcottonmanufacturer’scapitalforthefirstyearhasbeenaddedtotheircapitals,whilethatofthefarmerhasbeenexpendedand 268TheClassicalSchoolenjoyed.Onaccountthenofthedifferentdegreesofdurabilityoftheircapitals,or,whichisthesamething,onaccountofthetimewhichmustelapsebeforeonesetofcommoditiescanbebroughttomarket,theywillbevaluable,notexactlyinproportiontothequantityoflabourbestowedonthem–theywillnotbeastwotoone,butsomethingmore,tocompensateforthegreaterlengthoftimewhichmustelapsebeforethemostvaluablecanbebroughttomarket.Supposethatforthelabourofeachworkman£50perannumwerepaid,orthat£5,000capitalwereemployedandprofitswere10percent,thevalueofeachofthemachinesaswellasofthecorn,attheendofthefirstyear,wouldbe£5,500.Thesecondyearthemanufacturersandfarmerwillagainemploy£5,000eachinthesupportoflabour,andwillthereforeagainselltheirgoodsfor£5,500,butthemenusingthemachines,tobeonaparwiththefarmer,mustnotonlyobtain£5,500,fortheequalcapitalsof£5,000employedonlabour,buttheymustobtainafurthersumof£550;fortheprofiton£5,500whichtheyhaveinvestedinmachinery,andcon-sequentlytheirgoodsmustsellfor£6,050.Herethenarecapitalistsemployingpreciselythesamequantityoflabourannuallyontheproductionoftheircommodities,andyetthegoodstheyproducedifferinvalueonaccountofthedifferentquantitiesoffixedcapital,oraccumulatedlabour,employedbyeachrespectively.Theclothandcottongoodsareofthesamevalue,becausetheyaretheproduceofequalquantitiesoflabour,andequalquantitiesoffixedcapital;butcornisnotofthesamevalueasthesecommodities,becauseitisproduced,asfarasregardsfixedcapital,underdifferentcircumstances.Buthowwilltheirrelativevaluebeaffectedbyariseinthevalueoflabour?Itisevidentthattherelativevaluesofclothandcottongoodswillundergonochange,forwhataffectsonemustequallyaffecttheother,underthecircumstancessupposed:neitherwilltherelativevaluesofwheatandbarleyundergoanychange,fortheyareproducedunderthesamecircumstancesasfarasfixedandcirculatingcapitalareconcerned;buttherelativevalueofcorntocloth,ortocottongoods,mustbealteredbyariseoflabour.Therecanbenoriseinthevalueoflabourwithoutafallofprofits.Ifthecornistobedividedbetweenthefarmerandthelabourer,thelargertheproportionthatisgiventothelatter,thelesserwillremainfortheformer.Soifclothorcottongoodsbedividedbetweentheworkmanandhisemployer,thelargertheproportiongiventotheformer,thelessremainsforthelatter.Supposethen,thatowingtoariseofwages,profitsfallfrom10to9percent,insteadofadding£550tothecommonpriceoftheirgoods(to£5,500)fortheprofitsontheirfixedcapital,themanufacturerswouldaddonly9percentonthatsum,or£495,consequentlythepricewouldbe£5,995insteadof£6,050.Asthecornwouldcontinuetosellfor£5,500,themanufacturedgoodsinwhichmorefixedcapitalwasemployed,wouldfallrelativelytocornortoanyothergoodsinwhichalessportionoffixedcapitalentered.Thedegreeofalterationintherelativevalueofgoods,onaccountofariseorfalloflabour,woulddependontheproportionwhichthefixedcapitalboretothewholecapitalemployed.Allcommoditieswhichareproducedbyveryvaluablemachinery,orinveryvaluablebuildings,orwhichrequireagreatlengthoftimebeforetheycanbebroughttomarket,wouldfallinrelativevalue,whileallthosewhichwerechieflyproducedbylabour,orwhichwouldbespeedilybroughttomarketwouldriseinrelativevalue.Thereader,however,shouldremark,thatthiscauseofthevariationofcommoditiesiscom-parativelyslightinitseffects.Withsuchariseofwagesasshouldoccasionafallof1percentinprofits,goodsproducedunderthecircumstancesIhavesupposed,varyinrelativevalueonly1percent:theyfallwithsogreatafallofprofitsfrom£6,050to£5,995.Thegreatesteffectswhichcouldbeproducedontherelativepricesofthesegoodsfromariseofwages,couldnotexceed6or7percent;forprofitscouldnot,probably,underanycircumstances,admitofagreatergeneralandpermanentdepressionthantothatamount.Notsowiththeothergreatcauseofthevariationinthevalueofcommodities,namely,theincreaseordiminutioninthequantityoflabournecessarytoproducethem.Iftoproduce Ricardo:PrinciplesofPoliticalEconomy269thecorn,eighty,insteadofonehundredmen,shouldberequired,thevalueofthecornwouldfall20percentorfrom£5,500to£4,400.Iftoproducethecloth,thelabourofeightyinsteadofonehundredmenwouldsuffice,clothwouldfallfrom£6,050to£4,950.Analterationinthepermanentrateofprofits,toanygreatamount,istheeffectofcauseswhichdonotoperatebutinthecourseofyears;whereasalterationsinthequantityoflabournecessarytoproducecommodities,areofdailyoccurrence.Everyimprovementinmachinery,intools,inbuildings,inraisingtherawmaterial,saveslabour,andenablesustoproducethecommoditytowhichtheimprovementisappliedwithmorefacility,andconsequentlyitsvaluealters.Inestimating,then,thecausesofthevariationsinthevalueofcommodities,althoughitwouldbewrongwhollytoomittheconsiderationoftheeffectproducedbyariseorfalloflabour,itwouldbeequallyincor-recttoattachmuchimportancetoit;andconsequently,inthesubsequentpartofthiswork,thoughIshalloccasionallyrefertothiscauseofvariation,Ishallconsiderallthegreatvariationswhichtakeplaceintherelativevalueofcommoditiestobeproducedbythegreaterorlesserquantityoflabourwhichmayberequiredfromtimetotimetoproducethem.Itishardlynecessarytosay,thatcommoditieswhichhavethesamequantityoflabourbestowedontheirproduction,willdifferinexchangeablevalue,iftheycannotbebroughttomarketinthesametime.SupposeIemploy20menatanexpenseof£1,000forayearintheproductionofacom-modity,andattheendoftheyearIemploytwentymenagainforanotheryear,atafurtherexpenseof£1,000infinishingorperfectingthesamecommodity,andthatIbringittomarketattheendoftwoyears,ifprofitsbe10percent,mycommoditymustsellfor£2,310;forIhaveemployed£1,000capitalforoneyear,and£2,100capitalforoneyearmore.Anothermanemployspreciselythesamequantityoflabour,butheemploysitallinthefirstyear;heemploysfortymenatanexpenseof£2,000,andattheendofthefirstyearhesellsitwith10percentprofit,orfor£2,200.Herethenaretwocommoditieshavingpreciselythesamequantityoflabourbestowedonthem,oneofwhichsellsfor£2,310–theotherfor£2,200.Thiscaseappearstodifferfromthelast,butis,infact,thesame.Inbothcasesthesuperiorpriceofonecommodityisowingtothegreaterlengthoftimewhichmustelapsebeforeitcanbebroughttomarket.Intheformercasethemachineryandclothweremorethandoublethevalueofthecorn,althoughonlydoublethequantityoflabourwasbestowedonthem.Inthesecondcase,onecommodityismorevaluablethantheother,althoughnomorelabourwasemployedonitsproduction.Thedifferenceinvaluearisesinbothcasesfromtheprofitsbeingaccumulatedascapital,andisonlyajustcompensationforthetimethattheprofitswerewithheld.Itappearsthenthatthedivisionofcapitalintodifferentproportionsoffixedandcirculatingcapital,employedindifferenttrades,introducesaconsiderablemodificationtotherule,whichisofuniversalapplicationwhenlabourisalmostexclusivelyemployedinproduction;namely,thatcommoditiesnevervaryinvalue,unlessagreaterorlesserquantityoflabourbebestowedontheirproduction,itbeingshowninthissectionthatwithoutanyvariationinthequantityoflabour,theriseofitsvaluemerelywilloccasionafallintheexchangeablevalueofthosegoods,intheproductionofwhichfixedcapitalisemployed;thelargertheamountoffixedcapital,thegreaterwillbethefall.SectionVTheprinciplethatvaluedoesnotvarywiththeriseorfallofwages,modifiedalsobytheunequaldurabilityofcapital,andbytheunequalrapiditywithwhichitisreturnedtoitsemployer.Inthelastsectionwehavesupposedthatoftwoequalcapitalsintwodifferentoccupations,theproportionsoffixedandcirculatingcapitalswereunequal,nowletussupposethemtobein 270TheClassicalSchoolthesameproportionbutofunequaldurability.Inproportionasfixedcapitalislessdurable,itapproachestothenatureofcirculatingcapital.Itwillbeconsumedanditsvaluereproducedinashortertime,inordertopreservethecapitalofthemanufacturer.Wehavejustseen,thatinproportionasfixedcapitalpreponderatesinamanufacture,whenwagesrise,thevalueofcom-moditiesproducedinthatmanufacture,isrelativelylowerthanthatofcommoditiesproducedinmanufactureswherecirculatingcapitalpreponderates.Inproportiontothelessdurabilityoffixedcapital,anditsapproachtothenatureofcirculatingcapital,thesameeffectwillbeproducedbythesamecause.…Itwillbeseen,then,thatintheearlystagesofsociety,beforemuchmachineryordurablecap-italisused,thecommoditiesproducedbyequalcapitalswillbenearlyofequalvalue,andwillriseorfallonlyrelativelytoeachotheronaccountofmoreorlesslabourbeingrequiredfortheirproduction;butaftertheintroductionoftheseexpensiveanddurableinstruments,thecom-moditiesproducedbytheemploymentofequalcapitalswillbeofveryunequalvalue;andalthoughtheywillstillbeliabletoriseorfallrelativelytoeachother,asmoreorlesslabourbecomesnecessarytotheirproduction,theywillbesubjecttoanother,thoughaminorvariation,also,fromtheriseorfallofwagesandprofits.Sincegoodswhichsellfor£5,000maybethepro-duceofacapitalequalinamounttothatfromwhichareproducedothergoodswhichsellfor£10,000,theprofitsontheirmanufacturewillbethesame;butthoseprofitswouldbeunequal,ifthepricesofthegoodsdidnotvarywithariseorfallintherateofprofits.Itappears,too,thatinproportiontothedurabilityofcapitalemployedinanykindofproduc-tion,therelativepricesofthosecommoditiesonwhichsuchdurablecapitalisemployed,willvaryinverselyaswages;theywillfallaswagesrise,andriseaswagesfall;and,onthecontrary,thosewhichareproducedchieflybylabourwithlessfixedcapital,orwithfixedcapitalofalessdurablecharacterthanthemediuminwhichpriceisestimated,willriseaswagesrise,andfallaswagesfall.SectionVIOnaninvariablemeasureofvalue.Whencommoditiesvariedinrelativevalue,itwouldbedesirabletohavethemeansofascertainingwhichofthemfellandwhichroseinrealvalue,andthiscouldbeeffectedonlybycomparingthemoneafteranotherwithsomeinvariablestandardmeasureofvalue,whichshoulditselfbesubjecttononeofthefluctuationstowhichothercommoditiesareexposed.Ofsuchameasureitisimpossibletobepossessed,becausethereisnocommoditywhichisnotitselfexposedtothesamevariationsasthethings,thevalueofwhichistobeascertained;thatis,thereisnonewhichisnotsubjecttorequiremoreorlesslabourforitsproduction.Butifthiscauseofvariationinthevalueofamediumcouldberemoved–ifitwerepossiblethatintheproductionofourmoneyforinstance,thesamequantityoflabourshouldatalltimesberequired,stillitwouldnotbeaperfectstandardorinvariablemeasureofvalue,because,asIhavealreadyendeavouredtoexplain,itwouldbesubjecttorelativevariationsfromariseorfallofwages,onaccountofthedifferentproportionsoffixedcapitalwhichmightbenecessarytoproduceit,andtoproducethoseothercommoditieswhosealterationofvaluewewishedtoascertain.Itmightbesubjecttovariationstoo,fromthesamecause,onaccountofthedifferentdegreesofdurabilityofthefixedcapitalemployedonit,andthecommoditiestobecomparedwithit–orthetimenecessarytobringtheonetomarket,mightbelongerorshorterthanthetimenecessarytobringtheothercommoditiestomarket,thevariationsofwhichweretobedetermined;allofwhich Ricardo:PrinciplesofPoliticalEconomy271circumstancesdisqualifyanycommoditythatcanbethoughtoffrombeingaperfectlyaccuratemeasureofvalue.If,forexample,weweretofixongoldasastandard,itisevidentthatitisbutacommodityobtainedunderthesamecontingenciesaseveryothercommodity,andrequiringlabourandfixedcapitaltoproduceit.Likeeveryothercommodity,improvementsinthesavingoflabourmightbeappliedtoitsproduction,andconsequentlyitmightfallinrelativevaluetootherthingsmerelyonaccountofthegreaterfacilityofproducingit.Ifwesupposethiscauseofvariationtoberemoved,andthesamequantityoflabourtobealwaysrequiredtoobtainthesamequantityofgold,stillgoldwouldnotbeaperfectmeasureofvalue,bywhichwecouldaccuratelyascertainthevariationsinallotherthings,becauseitwouldnotbeproducedwithpreciselythesamecombinationsoffixedandcirculatingcapitalasallotherthings;norwithfixedcapitalofthesamedurability;norwoulditrequirepreciselythesamelengthoftime,beforeitcouldbebroughttomarket.Itwouldbeaperfectmeasureofvalueforallthingsproducedunderthesamecircumstancespreciselyasitself,butfornoothers.If,forexample,itwereproducedunderthesamecircumstancesaswehavesupposednecessarytopro-duceclothandcottongoods,itwouldbeaperfectmeasureofvalueforthosethings,butnotsoforcorn,forcoals,andothercommoditiesproducedwitheitheralesseroragreaterproportionoffixedcapital,because,aswehaveshown,everyalterationinthepermanentrateofprofitswouldhavesomeeffectontherelativevalueofallthesegoods,independentlyofanyalterationinthequantityoflabouremployedontheirproduction.Ifgoldwereproducedunderthesamecircumstancesascorn,eveniftheyneverchanged,itwouldnot,forthesamereasons,beatalltimesaperfectmeasureofthevalueofclothandcottongoods.Neithergoldthen,noranyothercommodity,caneverbeaperfectmeasureofvalueforallthings;butIhavealreadyremarked,thattheeffectontherelativepricesofthings,fromavariationinprofits,iscomparativelyslight;thatbyfarthemostimportanteffectsareproducedbythevaryingquantitiesoflabourrequiredforproduction;andtherefore,ifwesupposethisimportantcauseofvariationremovedfromtheproductionofgold,weshallprobablypossessasnearanapproximationtoastandardmeasureofvalueascanbetheoreticallyconceived.Maynotgoldbeconsideredasacommodityproducedwithsuchproportionsofthetwokindsofcapitalasapproachnearesttothetheaveragequantityemployedintheproductionofmostcommodities?Maynottheseproportionsbesonearlyequallydistantfromthetwoextremes,theonewherelittlefixedcapitalisused,theotherwherelittlelabourisemployed,astoformajustmeanbetweenthem?If,then,Imaysupposemyselftobepossessedofastandardsonearlyapproachingtoaninvariableone,theadvantageis,thatIshallbeenabledtospeakofthevariationsofotherthings,withoutembarrassingmyselfoneveryoccasionwiththeconsiderationofthepossiblealterationinthevalueofthemediuminwhichpriceandvalueareestimated.Tofacilitate,then,theobjectofthisenquiry,althoughIfullyallowthatmoneymadeofgoldissubjecttomostofthevariationsofotherthings,Ishallsupposeittobeinvariable,andthereforeallalterationsinpricetobeoccasionedbysomealterationinthevalueofthecommodityofwhichImaybespeaking.BeforeIquitthissubject,itmaybepropertoobserve,thatAdamSmith,andallthewriterswhohavefollowedhim,have,withoutoneexceptionthatIknowof,maintainedthatariseinthepriceoflabourwouldbeuniformlyfollowedbyariseinthepriceofallcommodities.IhopeIhavesucceededinshowing,thattherearenogroundsforsuchanopinion,andthatonlythosecommoditieswouldrisewhichhadlessfixedcapitalemployeduponthemthanthemediuminwhichpricewasestimated,andthatallthosewhichhadmore,wouldpositivelyfallinpricewhenwagesrose.Onthecontrary,ifwagesfell,thosecommoditiesonlywouldfall,whichhadalessproportionoffixedcapitalemployedonthem,thanthemediuminwhichpricewasestimated;allthosewhichhadmore,wouldpositivelyriseinprice. 272TheClassicalSchoolItisnecessaryformealsotoremark,thatIhavenotsaid,becauseonecommodityhassomuchlabourbestoweduponitaswillcost£1,000andanothersomuchaswillcost£2,000thatthereforeonewouldbeofthevalueof£1,000andtheotherofthevalueof£2,000butIhavesaidthattheirvaluewillbetoeachotherastwotoone,andthatinthoseproportionstheywillbeexchanged.Itisofnoimportancetothetruthofthisdoctrine,whetheroneofthesecommodi-tiessellsfor£1,100andtheotherfor£2,200,oronefor£1,500andtheotherfor£3,000;intothatquestionIdonotatpresentenquire;Iaffirmonly,thattheirrelativevalueswillbegovernedbytherelativequantitiesoflabourbestowedontheirproduction.Chapter2:OnrentItremainshowevertobeconsidered,whethertheappropriationofland,andtheconsequentcreationofrent,willoccasionanyvariationintherelativevalueofcommodities,independentlyofthequantityoflabournecessarytoproduction.Inordertounderstandthispartofthesubject,wemustenquireintothenatureofrent,andthelawsbywhichitsriseorfallisregulated.Rentisthatportionoftheproduceoftheearth,whichispaidtothelandlordfortheuseoftheoriginalandindestructiblepowersofthesoil.Itisoften,however,confoundedwiththeinterestandprofitofcapital,and,inpopularlanguage,thetermisappliedtowhateverisannuallypaidbyafarmertohislandlord.If,oftwoadjoiningfarmsofthesameextent,andofthesamenat-uralfertility,onehadalltheconveniencesoffarmingbuildings,and,besides,wereproperlydrainedandmanured,andadvantageouslydividedbyhedges,fences,andwalls,whiletheotherhadnoneoftheseadvantages,moreremunerationwouldnaturallybepaidfortheuseofone,thanfortheuseoftheother;yetinbothcasesthisremunerationwouldbecalledrent.Butitisevident,thatonlyaportionofthemoneyannuallytobepaidfortheimprovedfarm,wouldbegivenfortheoriginalandindestructiblepowersofthesoil;theotherportionwouldbepaidfortheuseofthecapitalwhichhadbeenemployedinamelioratingthequalityoftheland,andinerectingsuchbuildingsaswerenecessarytosecureandpreservetheproduce.…Thisisadistinc-tionofgreatimportance,inanenquiryconcerningrentandprofits;foritisfound,thatthelawswhichregulatetheprogressofrent,arewidelydifferentfromthosewhichregulatetheprogressofprofits,andseldomoperateinthesamedirection.Inallimprovedcountries,thatwhichisannu-allypaidtothelandlord,partakingofbothcharacters,rent,andprofit,issometimeskeptsta-tionarybytheeffectsofopposingcauses;atothertimesadvancesorrecedes,asoneortheotherofthesecausespreponderates.Inthefuturepagesofthiswork,then,wheneverIspeakoftherentofland,Iwishtobeunderstoodasspeakingofthatcompensation,whichispaidtotheowneroflandfortheuseofitsoriginalandindestructiblepowers.Onthefirstsettlingofacountry,inwhichthereisanabundanceofrichandfertileland,averysmallproportionofwhichisrequiredtobecultivatedforthesupportoftheactualpopulation,orindeedcanbecultivatedwiththecapitalwhichthepopulationcancommand,therewillbenorent;fornoonewouldpayfortheuseofland,whentherewasanabundantquantitynotyetappropriated,and,therefore,atthedisposalofwhosoevermightchoosetocultivateit.Onthecommonprinciplesofsupplyanddemand,norentcouldbepaidforsuchland,forthereasonstatedwhynothingisgivenfortheuseofairandwater,orforanyotherofthegiftsofnaturewhichexistinboundlessquantity.Withagivenquantityofmaterials,andwiththeassis-tanceofthepressureoftheatmosphere,andtheelasticityofsteam,enginesmayperformwork,andabridgehumanlabourtoaverygreatextent;butnochargeismadefortheuseofthesenat-uralaids,becausetheyareinexhaustible,andateveryman’sdisposal.Inthesamemannerthebrewer,thedistiller,thedyer,makeincessantuseoftheairandwaterfortheproductionoftheircommodities;butasthesupplyisboundless,theybearnoprice.Ifalllandhadthesameproper-ties,ifitwereunlimitedinquantity,anduniforminquality,nochargecouldbemadeforitsuse, Ricardo:PrinciplesofPoliticalEconomy273unlesswhereitpossessedpeculiaradvantagesofsituation.Itisonly,then,becauselandisnotunlimitedinquantityanduniforminquality,andbecauseintheprogressofpopulation,landofaninferiorquality,orlessadvantageouslysituated,iscalledintocultivation,thatrentiseverpaidfortheuseofit.Whenintheprogressofsociety,landoftheseconddegreeoffertilityistakenintocultivation,rentimmediatelycommencesonthatofthefirstquality,andtheamountofthatrentwilldependonthedifferenceinthequalityofthesetwoportionsofland.Whenlandofthethirdqualityistakenintocultivation,rentimmediatelycommencesonthesecond,anditisregulatedasbefore,bythedifferenceintheirproductivepowers.Atthesametime,therentofthefirstqualitywillrise,forthatmustalwaysbeabovetherentofthesecond,bythedifferencebetweentheproducewhichtheyyieldwithagivenquantityofcapitalandlabour.Witheverystepintheprogressofpopulation,whichshallobligeacountrytohaverecoursetolandofaworsequality,toenableittoraiseitssupplyoffood,rent,onallthemorefertileland,willrise.Thussupposeland–No.1,2,3–toyield,withanequalemploymentofcapitalandlabour,anetproduceofhundred,ninety,andeightyquartersofcorn.Inanewcountry,wherethereisanabundanceoffertilelandcomparedwiththepopulation,andwherethereforeitisonlynecessarytocultivateNo.1,thewholenetproducewillbelongtothecultivator,andwillbetheprofitsofthestockwhichheadvances.AssoonaspopulationhadsofarincreasedastomakeitnecessarytocultivateNo.2,fromwhichninetyquartersonlycanbeobtainedaftersupportingthelabourers,rentwouldcommenceonNo.1;foreithertheremustbetworatesofprofitonagriculturalcapi-tal,ortenquarters,orthevalueoftenquartersmustbewithdrawnfromtheproduceofNo.1,forsomeotherpurpose.Whethertheproprietoroftheland,oranyotherperson,cultivatedNo.1,thesetenquarterswouldequallyconstituterent;forthecultivatorofNo.2wouldgetthesameresultwithhiscapital,whetherhecultivatedNo.1,payingtenquartersforrent,orcontinuedtocultivateNo.2,payingnorent.InthesamemanneritmightbeshownthatwhenNo.3isbroughtintocultivation,therentofNo.2mustbetenquarters,orthevalueoftenquarters,whilsttherentofNo.1wouldrisetotwentyquarters;forthecultivatorofNo.3wouldhavethesameprofitswhetherhepaidtwentyquartersfortherentofNo.1,tenquartersfortherentofNo.2,orcultivatedNo.3freeofallrent.…Themostfertile,andmostfavourablysituated,landwillbefirstcultivated,andtheexchange-ablevalueofitsproducewillbeadjustedinthesamemannerastheexchangeablevalueofallothercommodities,bythetotalquantityoflabournecessaryinvariousforms,fromfirsttolast,toproduceit,andbringittomarket.Whenlandofaninferiorqualityistakenintocultivation,theexchangeablevalueofrawproducewillrise,becausemorelabourisrequiredtoproduceit.Theexchangeablevalueofallcommodities,whethertheybemanufactured,ortheproduceofthemines,ortheproduceofland,isalwaysregulated,notbythelessquantityoflabourthatwillsufficefortheirproductionundercircumstanceshighlyfavourable,andexclusivelyenjoyedbythosewhohavepeculiarfacilitiesofproduction;butbythegreaterquantityoflabournecessarilybestowedontheirproductionbythosewhohavenosuchfacilities;bythosewhocontinuetopro-ducethemunderthemostunfavourablecircumstances;meaning–bythemostunfavourablecir-cumstances,themostunfavourableunderwhichthequantityofproducerequired,rendersitnecessarytocarryontheproduction.…Itistrue,thatonthebestland,thesameproducewouldstillbeobtainedwiththesamelabourasbefore,butitsvaluewouldbeenhancedinconsequenceofthediminishedreturnsobtainedbythosewhoemployedfreshlabourandstockonthelessfertileland.Notwithstanding,then,that 274TheClassicalSchooltheadvantagesoffertileoverinferiorlandsareinnocaselost,butonlytransferredfromthecultivator,orconsumer,tothelandlord,yet,sincemorelabourisrequiredontheinferiorlands,andsinceitisfromsuchlandonlythatweareenabledtofurnishourselveswiththeadditionalsupplyofrawproduce,thecomparativevalueofthatproducewillcontinuepermanentlyaboveitsformerlevel,andmakeitexchangeformorehats,cloth,shoes,andthelikeintheproductionofwhichnosuchadditionalquantityoflabourisrequired.Thereasonthen,whyrawproducerisesincomparativevalue,isbecausemorelabourisemployedintheproductionofthelastportionobtained,andnotbecausearentispaidtotheland-lord.Thevalueofcornisregulatedbythequantityoflabourbestowedonitsproductiononthatqualityofland,orwiththatportionofcapital,whichpaysnorent.Cornisnothighbecausearentispaid,butarentispaidbecausecornishigh;andithasbeenjustlyobserved,thatnoreductionwouldtakeplaceinthepriceofcorn,althoughlandlordsshouldforegothewholeoftheirrent.Suchameasurewouldonlyenablesomefarmerstolivelikegentlemen,butwouldnotdiminishthequantityoflabournecessarytoraiserawproduceontheleastproductivelandincultivation.Nothingismorecommonthantohearoftheadvantageswhichthelandpossessesovereveryothersourceofusefulproduce,onaccountofthesurpluswhichityieldsintheformofrent.Yetwhenlandismostabundant,whenmostproductive,andmostfertile,ityieldsnorent;anditisonlywhenitspowersdecay,andlessisyieldedinreturnforlabour,thatashareoftheoriginalproduceofthemorefertileportionsissetapartforrent.Itissingularthatthisqualityintheland,whichshouldhavebeennoticedasanimperfection,comparedwiththenaturalagentsbywhichmanufacturersareassisted,shouldhavebeenpointedoutasconstitutingitspeculiarpre-eminence.Ifair,water,theelasticityofsteam,andthepressureoftheatmosphere,wereofvariousqualities;iftheycouldbeappropriated,andeachqualityexistedonlyinmoderateabun-dance,they,aswellastheland,wouldaffordarent,asthesuccessivequalitieswerebroughtintouse.Witheveryworsequalityemployed,thevalueofthecommoditiesinthemanufactureofwhichtheywereused,wouldrise,becauseequalquantitiesoflabourwouldbelessproductive.Manwoulddomorebythesweatofhisbrow,andnatureperformless;andthelandwouldbenolongerpre-eminentforitslimitedpowers.…Theriseofrentisalwaystheeffectoftheincreasingwealthofthecountry,andofthediffi-cultyofprovidingfoodforitsaugmentedpopulation.Itisasymptom,butitisneveracauseofwealth;forwealthoftenincreasesmostrapidlywhilerentiseitherstationary,orevenfalling.Rentincreasesmostrapidly,asthedisposablelanddecreasesinitsproductivepowers.Wealthincreasesmostrapidlyinthosecountrieswherethedisposablelandismostfertile,whereimportationisleastrestricted,andwherethroughagriculturalimprovements,productionscanbemultipliedwithoutanyincreaseintheproportionalquantityoflabour,andwhereconsequentlytheprogressofrentisslow.Ifthehighpriceofcornweretheeffect,andnotthecauseofrent,pricewouldbeproportion-allyinfluencedasrentswerehighorlow,andrentwouldbeacomponentpartofprice.Butthatcornwhichisproducedbythegreatestquantityoflabouristheregulatorofthepriceofcorn;andrentdoesnotandcannotenterintheleastdegreeasacomponentpartofitsprice.AdamSmith,therefore,cannotbecorrectinsupposingthattheoriginalrulewhichregulatedtheexchangeablevalueofcommodities,namely,thecomparativequantityoflabourbywhichtheywereproduced,canbeatallalteredbytheappropriationoflandandthepaymentofrent.Rawmaterialentersintothecompositionofmostcommodities,butthevalueofthatrawmaterial,aswellascorn,isregulatedbytheproductivenessoftheportionofcapitallastemployedontheland,andpayingnorent;andthereforerentisnotacomponentpartofthepriceofcommodities.… Ricardo:PrinciplesofPoliticalEconomy275Withoutmultiplyinginstances,Ihopeenoughhasbeensaidtoshow,thatwhateverdiminishestheinequalityintheproduceobtainedfromsuccessiveportionsofcapitalemployedonthesameoronnewland,tendstolowerrent;andthatwhateverincreasesthatinequality,necessarilyproducesanoppositeeffect,andtendstoraiseit.Inspeakingoftherentofthelandlord,wehaveratherconsidereditastheproportionoftheproduce,obtainedwithagivencapitalonanygivenfarm,withoutanyreferencetoitsexchange-ablevalue;butsincethesamecause,thedifficultyofproduction,raisestheexchangeablevalueofrawproduce,andraisesalsotheproportionofrawproducepaidtothelandlordforrent,itisobviousthatthelandlordisdoublybenefitedbydifficultyofproduction.First,heobtainsagreatershare,andsecondthecommodityinwhichheispaidisofgreatervalue.Chapter5:OnwagesLabour,likeallotherthingswhicharepurchasedandsold,andwhichmaybeincreasedordimin-ishedinquantity,hasitsnaturalanditsmarketprice.Thenaturalpriceoflabouristhatpricewhichisnecessarytoenablethelabourers,onewithanother,tosubsistandtoperpetuatetheirrace,withouteitherincreaseordiminution.Thepowerofthelabourertosupporthimself,andthefamilywhichmaybenecessarytokeepupthenumberoflabourers,doesnotdependonthequantityofmoneywhichhemayreceiveforwages,butonthequantityoffood,necessaries,andconveniencesbecomeessentialtohimfromhabit,whichthatmoneywillpurchase.Thenaturalpriceoflabour,therefore,dependsonthepriceofthefood,necessaries,andconveniencesrequiredforthesupportofthelabourerandhisfamily.Withariseinthepriceoffoodandnecessaries,thenaturalpriceoflabourwillrise;withthefallintheirprice,thenaturalpriceoflabourwillfall.Withtheprogressofsocietythenaturalpriceoflabouralwayshasatendencytorise,becauseoneoftheprincipalcommoditiesbywhichitsnaturalpriceisregulated,hasatendencytobecomedearer,fromthegreaterdifficultyofproducingit.As,however,theimprovementsinagriculture,thediscoveryofnewmarkets,whenceprovisionsmaybeimported,mayforatimecounteractthetendencytoariseinthepriceofnecessaries,andmayevenoccasiontheirnaturalpricetofall,sowillthesamecausesproducethecorrespondenteffectsonthenaturalpriceoflabour.Thenaturalpriceofallcommodities,exceptingrawproduceandlabour,hasatendencytofall,intheprogressofwealthandpopulation;forthough,ononehand,theyareenhancedinrealvalue,fromtheriseinthenaturalpriceoftherawmaterialofwhichtheyaremade,thisismorethancounterbalancedbytheimprovementsinmachinery,bythebetterdivisionanddistributionoflabour,andbytheincreasingskill,bothinscienceandart,oftheproducers.Themarketpriceoflabouristhepricewhichisreallypaidforit,fromthenaturaloperationoftheproportionofthesupplytothedemand;labourisdearwhenitisscarce,andcheapwhenitisplentiful.Howevermuchthemarketpriceoflabourmaydeviatefromitsnaturalprice,ithas,likecommodities,atendencytoconformtoit.Itiswhenthemarketpriceoflabourexceedsitsnaturalprice,thattheconditionofthelabourerisflourishingandhappy,thathehasitinhispowertocommandagreaterproportionofthenecessariesandenjoymentsoflife,andthereforetorearahealthyandnumerousfamily.When,however,bytheencouragementwhichhighwagesgivetotheincreaseofpopulation,thenumberoflabourersisincreased,wagesagainfalltotheirnaturalprice,andindeedfromareactionsometimesfallbelowit.Whenthemarketpriceoflabourisbelowitsnaturalprice,theconditionofthelabourersismostwretched:thenpovertydeprivesthemofthosecomfortswhichcustomrendersabsolutenecessaries.Itisonlyaftertheirprivationshavereducedtheirnumber,orthedemandforlabourhasincreased,thatthemarketpriceoflabourwillrisetoitsnaturalprice,andthatthelabourerwillhavethemoderatecomfortswhichthenaturalrateofwageswillafford. 276TheClassicalSchoolNotwithstandingthetendencyofwagestoconformtotheirnaturalrate,theirmarketratemay,inanimprovingsociety,foranindefiniteperiod,beconstantlyaboveit;fornosoonermaytheimpulse,whichanincreasedcapitalgivestoanewdemandforlabourbeobeyed,thananotherincreaseofcapitalmayproducethesameeffect;andthus,iftheincreaseofcapitalbegradualandconstant,thedemandforlabourmaygiveacontinuedstimulustoanincreaseofpeople.…Thus,then,witheveryimprovementofsociety,witheveryincreaseinitscapital,themarketwagesoflabourwillrise;butthepermanenceoftheirrisewilldependonthequestion,whetherthenaturalpriceoflabourhasalsorisen;andthisagainwilldependontheriseinthenaturalpriceofthosenecessariesonwhichthewagesoflabourareexpended.Itisnottobeunderstoodthatthenaturalpriceoflabour,estimatedeveninfoodandneces-saries,isabsolutelyfixedandconstant.Itvariesatdifferenttimesinthesamecountry,andverymateriallydiffersindifferentcountries.Itessentiallydependsonthehabitsandcustomsofthepeople.AnEnglishlabourerwouldconsiderhiswagesundertheirnaturalrate,andtooscantytosupportafamily,iftheyenabledhimtopurchasenootherfoodthanpotatoes,andtoliveinnobetterhabitationthanamudcabin;yetthesemoderatedemandsofnatureareoftendeemedsuf-ficientincountrieswhere‘man’slifeischeap’,andhiswantseasilysatisfied.Manyoftheconve-niencesnowenjoyedinanEnglishcottage,wouldhavebeenthoughtluxuriesatanearlierperiodofourhistory.Frommanufacturedcommoditiesalwaysfalling,andrawproducealwaysrising,withtheprogressofsociety,suchadisproportionintheirrelativevalueisatlengthcreated,thatinrichcountriesalabourer,bythesacrificeofaverysmallquantityonlyofhisfood,isabletoprovideliberallyforallhisotherwants.Independentlyofthevariationsinthevalueofmoney,whichnecessarilyaffectmoneywages,butwhichwehaveheresupposedtohavenooperation,aswehaveconsideredmoneytobeuni-formlyofthesamevalue,itappearsthenthatwagesaresubjecttoariseorfallfromtwocauses:firstthesupplyanddemandoflabourers;andsecondthepriceofthecommoditiesonwhichthewagesoflabourareexpended.Indifferentstagesofsociety,theaccumulationofcapital,orofthemeansofemployinglabour,ismoreorlessrapid,andmustinallcasesdependontheproductivepowersoflabour.Theproductivepowersoflabouraregenerallygreatestwhenthereisanabundanceoffertileland:atsuchperiodsaccumulationisoftensorapid,thatlabourerscannotbesuppliedwiththesamerapidityascapital.Ithasbeencalculated,thatunderfavourablecircumstancespopulationmaybedoubledintwenty-fiveyears;butunderthesamefavourablecircumstances,thewholecapitalofacountrymightpossiblybedoubledinashorterperiod.Inthatcase,wagesduringthewholeperiodwouldhaveatendencytorise,becausethedemandforlabourwouldincreasestillfasterthanthesupply.Innewsettlements,wheretheartsandknowledgeofcountriesfaradvancedinrefinementareintroduced,itisprobablethatcapitalhasatendencytoincreasefasterthanmankind:andifthedeficiencyoflabourerswerenotsuppliedbymorepopulouscountries,thistendencywouldverymuchraisethepriceoflabour.Inproportionasthesecountriesbecomepopulous,andlandofaworsequalityistakenintocultivation,thetendencytoanincreaseofcapitaldiminishes;forthesurplusproduceremaining,aftersatisfyingthewantsoftheexistingpopulation,mustnecessarilybeinproportiontothefacilityofproduction,namelytothesmallernumberofpersonsemployedinproduction.Although,then,itisprobable,thatunderthemostfavourablecircumstances,thepowerofproductionisstillgreaterthanthatofpopulation,itwillnotlongcontinueso;forthelandbeinglimitedinquantity,anddifferinginquality,witheveryincreasedportionofcapital Ricardo:PrinciplesofPoliticalEconomy277employedonit,therewillbeadecreasedrateofproduction,whilstthepowerofpopulationcontinuesalwaysthesame.Inthosecountrieswherethereisabundanceoffertileland,butwhere,fromtheignorance,indolence,andbarbarismoftheinhabitants,theyareexposedtoalltheevilsofwantandfamine,andwhereithasbeensaidthatpopulationpressesagainstthemeansofsubsistence,averydif-ferentremedyshouldbeappliedfromthatwhichisnecessaryinlong-settledcountries,where,fromthediminishingrateofthesupplyofrawproduce,alltheevilsofacrowdedpopulationareexperienced.Intheonecase,theevilproceedsfrombadgovernment,fromtheinsecurityofproperty,andfromawantofeducationinallranksofthepeople.Tobemadehappiertheyrequireonlytobebettergovernedandinstructed,astheaugmentationofcapital,beyondtheaugmentationofpeople,wouldbetheinevitableresult.Noincreaseinthepopulationcanbetoogreat,asthepowersofproductionarestillgreater.Intheothercase,thepopulationincreasesfasterthanthefundsrequiredforitssupport.Everyexertionofindustry,unlessaccompaniedbyadiminishedrateofincreaseinthepopulation,willaddtotheevil,forproductioncannotkeeppacewithit.Withapopulationpressingagainstthemeansofsubsistence,theonlyremediesareeitherareductionofpeople,oramorerapidaccumulationofcapital.Inrichcountries,whereallthefer-tilelandisalreadycultivated,thelatterremedyisneitherverypracticablenorverydesirable,becauseitseffectwouldbe,ifpushedveryfar,torenderallclassesequallypoor.Butinpoorcoun-tries,wherethereareabundantmeansofproductioninstore,fromfertilelandnotyetbroughtintocultivation,itistheonlysafeandefficaciousmeansofremovingtheevil,particularlyasitseffectwouldbetoelevateallclassesofthepeople.Thefriendsofhumanitycannotbutwishthatinallcountriesthelabouringclassesshouldhaveatasteforcomfortsandenjoyments,andthattheyshouldbestimulatedbyalllegalmeansintheirexertionstoprocurethem.Therecannotbeabettersecurityagainstasuperabundantpopula-tion.Inthosecountries,wherethelabouringclasseshavethefewestwants,andarecontentedwiththecheapestfood,thepeopleareexposedtothegreatestvicissitudesandmiseries.Theyhavenoplaceofrefugefromcalamity;theycannotseeksafetyinalowerstation;theyarealreadysolow,thattheycanfallnolower.Onanydeficiencyofthechiefarticleoftheirsubsistence,therearefewsubstitutesofwhichtheycanavailthemselves,anddearthtothemisattendedwithalmostalltheevilsoffamine.Inthenaturaladvanceofsociety,thewagesoflabourwillhaveatendencytofall,asfarastheyareregulatedbysupplyanddemand;forthesupplyoflabourerswillcontinuetoincreaseatthesamerate,whilstthedemandforthemwillincreaseataslowerrate.If,forinstance,wageswereregulatedbyayearlyincreaseofcapital,attherateof2percent,theywouldfallwhenitaccu-mulatedonlyattherateof1.5percent.Theywouldfallstilllowerwhenitincreasedonlyattherateof1,or0.5percent,andwouldcontinuetodosountilthecapitalbecamestationary,whenwagesalsowouldbecomestationary,andbeonlysufficienttokeepupthenumbersoftheactualpopulation.Isaythat,underthesecircumstances,wageswouldfall,iftheywereregulatedonlybythesupplyanddemandoflabourers;butwemustnotforget,thatwagesarealsoregulatedbythepricesofthecommoditiesonwhichtheyareexpended.Aspopulationincreases,thesenecessarieswillbeconstantlyrisinginprice,becausemorelabourwillbenecessarytoproducethem.If,then,themoneywagesoflabourshouldfall,whilsteverycommodityonwhichthewagesoflabourwereexpendedrose,thelabourerwouldbedoublyaffected,andwouldbesoontotallydeprivedofsubsistence.Instead,therefore,ofthemoneywagesoflabourfalling,theywouldrise;buttheywouldnotrisesufficientlytoenablethelabourertopur-chaseasmanycomfortsandnecessariesashedidbeforetheriseinthepriceofthosecommodities.Ifhisannualwageswerebefore£24,orsixquartersofcornwhenthepricewas£4perquarter,hewouldprobablyreceiveonlythevalueoffivequarterswhencornroseto£5perquarter. 278TheClassicalSchoolButfivequarterswouldcost£25;hewouldthereforereceiveanadditioninhismoneywages,thoughwiththatadditionhewouldbeunabletofurnishhimselfwiththesamequantityofcornandothercommodities,whichhehadbeforeconsumedinhisfamily.Notwithstanding,then,thatthelabourerwouldbereallyworsepaid,yetthisincreaseinhiswageswouldnecessarilydiminishtheprofitsofthemanufacturer;forhisgoodswouldsellatnohigherprice,andyettheexpenseofproducingthemwouldbeincreased.This,however,willbeconsideredinourexaminationintotheprincipleswhichregulateprofits.Itappears,then,thatthesamecausewhichraisesrent,namely,theincreasingdifficultyofpro-vidinganadditionalquantityoffoodwiththesameproportionalquantityoflabour,willalsoraisewages;andthereforeifmoneybeofanunvaryingvalue,bothrentandwageswillhaveatendencytorisewiththeprogressofwealthandpopulation.Butthereisthisessentialdifferencebetweentheriseofrentandtheriseofwages.Theriseinthemoneyvalueofrentisaccompaniedbyanincreasedshareoftheproduce;notonlyisthelandlord’smoneyrentgreater,buthiscornrentalso;hewillhavemorecorn,andeachdefinedmeasureofthatcornwillexchangeforagreaterquantityofallothergoodswhichhavenotbeenraisedinvalue.Thefateofthelabourerwillbelesshappy;hewillreceivemoremoneywages,itistrue,buthiscornwageswillbereduced;andnotonlyhiscommandofcorn,buthisgeneralconditionwillbedeteriorated,byhisfindingitmoredifficulttomaintainthemarketrateofwagesabovetheirnaturalrate.Whilethepriceofcornrises10percent,wageswillalwaysriselessthan10percent,butrentwillalwaysrisemore;theconditionofthelabourerwillgenerallydecline,andthatofthelandlordwillalwaysbeimproved.…Inproportionascornbecamedear,hewouldreceivelesscornwages,buthismoneywageswouldalwaysincrease,whilsthisenjoyments,ontheabovesupposition,wouldbepreciselythesame.Butasothercommoditieswouldberaisedinpriceinproportionasrawproduceenteredintotheircomposition,hewouldhavemoretopayforsomeofthem.Althoughhistea,sugar,soap,candles,andhouserent,wouldprobablybenodearer,hewouldpaymoreforhisbacon,cheese,butter,linen,shoes,andcloth;andtherefore,evenwiththeaboveincreaseofwages,hissituationwouldbecomparativelyworse.ButitmaybesaidthatIhavebeenconsideringtheeffectofwagesonprice,onthesuppositionthatgold,orthemetalfromwhichmoneyismade,istheproduceofthecountryinwhichwagesvaried;andthattheconsequenceswhichIhavededucedagreelittlewiththeactualstateofthings,becausegoldisametalofforeignproduction.Thecircumstance,however,ofgoldbeingaforeignproduction,willnotinvalidatethetruthoftheargument,becauseitmaybeshewn,thatwhetheritwerefoundathome,orwereimportedfromabroad,theeffectsultimatelyand,indeed,immediatelywouldbethesame.…Thesethenarethelawsbywhichwagesareregulated,andbywhichthehappinessoffarthegreatestpartofeverycommunityisgoverned.Likeallothercontracts,wagesshouldbelefttothefairandfreecompetitionofthemarket,andshouldneverbecontrolledbytheinterferenceofthelegislature.Theclearanddirecttendencyofthepoorlaws,isindirectoppositiontotheseobviousprinci-ples:itisnot,asthelegislaturebenevolentlyintended,toamendtheconditionofthepoor,buttodeterioratetheconditionofbothpoorandrich;insteadofmakingthepoorrich,theyarecalcu-latedtomaketherichpoor;andwhilstthepresentlawsareinforce,itisquiteinthenaturalorderofthingsthatthefundforthemaintenanceofthepoorshouldprogressivelyincrease,tillithasabsorbedallthenetrevenueofthecountry,oratleastsomuchofitasthestateshallleavetous,aftersatisfyingitsownneverfailingdemandsforthepublicexpenditure. Ricardo:PrinciplesofPoliticalEconomy279Thispernicioustendencyoftheselawsisnolongeramystery,sinceithasbeenfullydevelopedbytheablehandofMrMalthus;andeveryfriendtothepoormustardentlywishfortheiraboli-tion.Unfortunately,however,theyhavebeensolongestablished,andthehabitsofthepoorhavebeensoformedupontheiroperation,thattoeradicatethemwithsafetyfromourpoliticalsys-tem,requiresthemostcautiousandskilfulmanagement.Itisagreedbyallwhoaremostfriendlytoarepealoftheselaws,thatifitbedesirabletopreventthemostoverwhelmingdistresstothoseforwhosebenefittheywereerroneouslyenacted,theirabolitionshouldbeeffectedbythemostgradualsteps.Itisatruthwhichadmitsnotadoubt,thatthecomfortsandwell-beingofthepoorcannotbepermanentlysecuredwithoutsomeregardontheirpart,orsomeeffortonthepartofthelegisla-ture,toregulatetheincreaseoftheirnumbers,andtorenderlessfrequentamongthemearlyandimprovidentmarriages.Theoperationofthesystemofpoorlawshasbeendirectlycontrarytothis.Theyhaverenderedrestraintsuperfluous,andhaveinvitedimprudence,byofferingitaportionofthewagesofprudenceandindustry.Thenatureoftheevilpointsouttheremedy.Bygraduallycontractingthesphereofthepoorlaws;byimpressingonthepoorthevalueofindependence,byteachingthemthattheymustlooknottosystematicorcasualcharity,buttotheirownexertionsforsupport,thatprudenceandfore-thoughtareneitherunnecessarynorunprofitablevirtues,weshallbydegreesapproachasounderandmorehealthfulstate.Noschemefortheamendmentofthepoorlawsmeritstheleastattention,whichhasnottheirabolitionforitsultimateobject;andheisthebestfriendtothepoor,andtothecauseofhumanity,whocanpointouthowthisendcanbeattainedwiththemostsecurity,andatthesametimewiththeleastviolence.Itisnotbyraisinginanymannerdifferentfromthepresent,thefundfromwhichthepooraresupported,thattheevilcanbemitigated.Itwouldnotonlybenoimprovement,butitwouldbeanaggravationofthedistresswhichwewishtoseeremoved,ifthefundwereincreasedinamount,orwereleviedaccordingtosomelateproposals,asageneralfundfromthecountryatlarge.Thepresentmodeofitscollectionandapplicationhasservedtomitigateitsperniciouseffects.Eachparishraisesaseparatefundforthesupportofitsownpoor.Henceitbecomesanobjectofmoreinterestandmorepracticabilitytokeeptherateslow,thanifonegeneralfundwereraisedforthereliefofthepoorofthewholekingdom.Aparishismuchmoreinterestedinaneconomicalcollectionoftherate,andasparingdistributionofrelief,whenthewholesavingwillbeforitsownbenefit,thanifhundredsofotherparishesweretopartakeofit.Itistothiscause,thatwemustascribethefactofthepoorlawsnothavingyetabsorbedallthenetrevenueofthecountry;itistotherigourwithwhichtheyareapplied,thatweareindebtedfortheirnothavingbecomeoverwhelminglyoppressive.Ifbylaweveryhumanbeingwantingsupportcouldbesuretoobtainit,andobtainitinsuchadegreeastomakelifetolerablycomfortable,theorywouldleadustoexpectthatallothertaxestogetherwouldbelightcomparedwiththesingleoneofpoorrates.Theprincipleofgravitationisnotmorecertainthanthetendencyofsuchlawstochangewealthandpowerintomiseryandweakness;tocallawaytheexertionsoflabourfromeveryobject,exceptthatofprovidingmeresubsistence;toconfoundallintellectualdistinction;tobusythemindcontinuallyinsupplyingthebody’swants;untilatlastallclassesshouldbeinfectedwiththeplagueofuniversalpoverty.Happilytheselawshavebeeninoperationduringaperiodofprogressiveprosperity,whenthefundsforthemaintenanceoflabourhaveregularlyincreased,andwhenanincreaseofpopulationwouldbenaturallycalledfor.Butifourprogressshouldbecomemoreslow;ifweshouldattainthestationarystate,fromwhichItrustweareyetfardistant,thenwilltheperniciousnatureoftheselawsbecomemoremanifestandalarming;andthen,too,willtheirremovalbeobstructedbymanyadditionaldifficulties. 280TheClassicalSchoolChapter6:OnprofitsTheprofitsofstock,indifferentemployments,havingbeenshewntobearaproportiontoeachother,andtohaveatendencytovaryallinthesamedegreeandinthesamedirection,itremainsforustoconsiderwhatisthecauseofthepermanentvariationsintherateofprofit,andtheconsequentpermanentalterationsintherateofinterest.Wehaveseenthatthepriceofcornisregulatedbythequantityoflabournecessarytoproduceit,withthatportionofcapitalwhichpaysnorent.Wehaveseen,too,thatallmanufacturedcom-moditiesriseandfallinprice,inproportionasmoreorlesslabourbecomesnecessarytotheirproduction.Neitherthefarmerwhocultivatesthatquantityofland,whichregulatesprice,northemanufacturer,whomanufacturesgoods,sacrificeanyportionoftheproduceforrent.Thewholevalueoftheircommoditiesisdividedintotwoportionsonly:oneconstitutestheprofitsofstock,theotherthewagesoflabour.Supposingcornandmanufacturedgoodsalwaystosellatthesameprice,profitswouldbehighorlowinproportionaswageswereloworhigh.Butsupposecorntoriseinpricebecausemorelabourisnecessarytoproduceit;thatcausewillnotraisethepriceofmanufacturedgoodsintheproductionofwhichnoadditionalquantityoflabourisrequired.If,then,wagescontinuedthesame,theprofitsofmanufacturerswouldremainthesame;butif,asisabsolutelycertain,wagesshouldrisewiththeriseofcorn,thentheirprofitswouldnecessarilyfall.Ifamanufactureralwayssoldhisgoodsforthesamemoney,for£1,000,forexample,hisprofitswoulddependonthepriceofthelabournecessarytomanufacturethosegoods.Hisprofitswouldbelesswhenwagesamountedto£800thanwhenhepaidonly£600.Inproportionthenaswagesrose,wouldprofitsfall.Butifthepriceofrawproducewouldincrease,itmaybeasked,whetherthefarmeratleastwouldnothavethesamerateofprofits,althoughheshouldpayanadditionalsumforwages?Certainlynot:forhewillnotonlyhavetopay,incommonwiththemanufacturer,anincreaseofwagestoeachlabourerheemploys,buthewillbeobligedeithertopayrent,ortoemployanadditionalnumberoflabourerstoobtainthesameproduce;andtheriseinthepriceofrawproducewillbeproportionedonlytothatrent,orthatadditionalnumber,andwillnotcompensatehimfortheriseofwages.Ifboththemanufacturerandfarmeremployedtenmen,onwagesrisingfrom£24to£25perannumperman,thewholesumpaidbyeachwouldbe£250insteadof£240.Thisis,however,thewholeadditionthatwouldbepaidbythemanufacturertoobtainthesamequantityofcommodities;butthefarmeronnewlandwouldprobablybeobligedtoemployanadditionalman,andthereforetopayanadditionalsumof£25forwages;andthefarmerontheoldlandwouldbeobligedtopaypreciselythesameadditionalsumof£25forrent;withoutwhichaddi-tionallabour,cornwouldnothaverisen,norrenthavebeenincreased.Onewillthereforehavetopay£275forwagesalone,theother,forwagesandrenttogether;each£25morethantheman-ufacturer:forthislatter£25thefarmeriscompensatedbytheadditiontothepriceofrawproduce,andthereforehisprofitsstillconformtotheprofitsofthemanufacturer.……Therearefewcommoditieswhicharenotmoreorlessaffectedintheirpricebytheriseofrawproduce,becausesomerawmaterialfromthelandentersintothecompositionofmostcom-modities.Cottongoods,linen,andcloth,willallriseinpricewiththeriseofwheat;buttheyriseonaccountofthegreaterquantityoflabourexpendedontherawmaterialfromwhichtheyaremade,andnotbecausemorewaspaidbythemanufacturertothelabourerswhomheemployedonthosecommodities.Inallcases,commoditiesrisebecausemorelabourisexpendedonthem,andnotbecausethelabourwhichisexpendedonthemisatahighervalue.Articlesofjewellery,ofiron,ofplate,and Ricardo:PrinciplesofPoliticalEconomy281ofcopper,wouldnotrise,becausenoneoftherawproducefromthesurfaceoftheearthentersintotheircomposition.ItmaybesaidthatIhavetakenitforgranted,thatmoneywageswouldrisewithariseinthepriceofrawproduce,butthatthisisbynomeansanecessaryconsequence,asthelabourermaybecontentedwithfewerenjoyments.Itistruethatthewagesoflabourmaypreviouslyhavebeenatahighlevel,andthattheymaybearsomereduction.Ifso,thefallofprofitswillbechecked;butitisimpossibletoconceivethatthemoneypriceofwagesshouldfall,orremainstationarywithagraduallyincreasingpriceofnecessaries;andthereforeitmaybetakenforgrantedthat,underordinarycircumstances,nopermanentrisetakesplaceinthepriceofnecessaries,withoutoccasioning,orhavingbeenprecededbyariseinwages.Theeffectsproducedonprofitswouldhavebeenthesame,ornearlythesame,iftherehadbeenanyriseinthepriceofthoseothernecessaries,besidesfood,onwhichthewagesoflabourareexpended.Thenecessityunderwhichthelabourerwouldbepayinganincreasedpriceforsuchnecessaries,wouldobligehimtodemandmorewages;andwhateverincreaseswages,neces-sarilyreducesprofits.Butsupposethepriceofsilks,velvets,furniture,andanyothercommodi-ties,notrequiredbythelabourer,toriseinconsequenceofmorelabourbeingexpendedonthem,wouldnotthataffectprofits?Certainlynot:fornothingcanaffectprofitsbutariseinwages;silksandvelvetsarenotconsumedbythelabourer,andthereforecannotraisewages.ItistobeunderstoodthatIamspeakingofprofitsgenerally.Ihavealreadyremarked,thatthemarketpriceofacommoditymayexceeditsnaturalornecessaryprice,asitmaybeproducedinlessabundancethanthenewdemandforitrequires.This,however,isbutatemporaryeffect.Thehighprofitsoncapitalemployedinproducingthatcommodity,willnaturallyattractcapitaltothattrade;andassoonastherequisitefundsaresupplied,andthequantityofthecommodityisdulyincreased,itspricewillfall,andtheprofitsofthetradewillconformtothegenerallevel.Afallinthegeneralrateofprofitsisbynomeansincompatiblewithapartialriseofprofitsinparticularemployments.Itisthroughtheinequalityofprofits,thatcapitalismovedfromoneemploymenttoanother.Whilstthengeneralprofitsarefalling,andgraduallysettingatalowerlevelinconsequenceoftheriseofwages,andtheincreasingdifficultyofsupplyingtheincreas-ingpopulationwithnecessaries,theprofitsofthefarmermay,foranintervalofsomelittledura-tion,beabovetheformerlevel.Anextraordinarystimulusmayalsobegivenforacertaintime,toaparticularbranchofforeignandcolonialtrade;buttheadmissionofthisfactbynomeansinvalidatesthetheory,thatprofitsdependonhighorlowwages,wagesonthepriceofneces-saries,andthepriceofnecessarieschieflyonthepriceoffood,becauseallotherrequisitesmaybeincreasedalmostwithoutlimit.Itshouldberecollectedthatpricesalwaysvaryinthemarket,andinthefirstinstance,throughthecomparativestateofdemandandsupply.Althoughclothcouldbefurnishedat40s.peryard,andgivetheusualprofitsofstock,itmayriseto60or80s.fromageneralchangeoffashion,orfromanyothercausewhichshouldsuddenlyandunexpectedlyincreasethedemand,ordiminishthesupplyofit.Themakersofclothwillforatimehaveunusualprofits,butcapitalwillnaturallyflowtothatmanufacture,tillthesupplyanddemandareagainattheirfairlevel,whenthepriceofclothwillagainsinkto40s.,itsnaturalornecessaryprice.Inthesamemanner,witheveryincreaseddemandforcorn,itmayrisesohighastoaffordmorethanthegeneralprofitstothefarmer.Iftherebeplentyoffertileland,thepriceofcornwillagainfalltoitsformerstandard,aftertherequisitequantityofcapitalhasbeenemployedinproducingit,andprofitswillbeasbefore;butiftherebenotplentyoffertileland,if,toproducethisadditionalquantity,morethantheusualquantityofcapitalandlabourberequired,cornwillnotfalltoitsformerlevel.Itsnat-uralpricewillberaised,andthefarmer,insteadofobtainingpermanentlylargerprofits,willfindhimselfobligedtobesatisfiedwiththediminishedratewhichistheinevitableconsequenceoftheriseofwages,producedbytheriseofnecessaries. 282TheClassicalSchoolThenaturaltendencyofprofitsthenistofall;forintheprogressofsocietyandwealth,theadditionalquantityoffoodrequiredisobtainedbythesacrificeofmoreandmorelabour.Thistendency,thisgravitationasitwereofprofits,ishappilycheckedatrepeatedintervalsbytheimprovementsinmachinery,connectedwiththeproductionofnecessaries,aswellasbydiscov-eriesinthescienceofagriculturewhichenableustorelinquishaportionoflabourbeforerequired,andthereforetolowerthepriceoftheprimenecessaryofthelabourer.Theriseinthepriceofnecessariesandinthewagesoflabourishoweverlimited;forassoonaswagesshouldbeequal(asinthecaseformerlystated)to£720,thewholereceiptsofthefarmer,theremustbeanendofaccumulation;fornocapitalcanthenyieldanyprofitwhatever,andnoadditionallabourcanbedemanded,andconsequentlypopulationwillhavereacheditshighestpoint.Longindeedbeforethisperiod,theverylowrateofprofitswillhavearrestedallaccumulation,andalmostthewholeproduceofthecountry,afterpayingthelabourers,willbethepropertyoftheownersoflandandthereceiversoftithesandtaxes.…Chapter7:OnforeigntradeNoextensionofforeigntradewillimmediatelyincreasetheamountofvalueinacountry,althoughitwillverypowerfullycontributetoincreasethemassofcommodities,andthereforethesumofenjoyments.Asthevalueofallforeigngoodsismeasuredbythequantityoftheproduceofourlandandlabour,whichisgiveninexchangeforthem,weshouldhavenogreatervalue,ifbythediscoveryofnewmarkets,weobtaineddoublethequantityofforeigngoodsinexchangeforagivenquantityofours.IfbythepurchaseofEnglishgoodstotheamountof£1,000,amerchantcanobtainaquantityofforeigngoods,whichhecansellintheEnglishmarketfor£1,200,hewillobtain20percentprofitbysuchanemploymentofhiscapital;butneitherhisgains,northevalueofthecommoditiesimported,willbeincreasedordiminishedbythegreaterorsmallerquantityofforeigngoodsobtained.Whether,forexample,heimportstwenty-fiveorfiftypipesofwine,hisinterestcanbenowayaffected,ifatonetimethetwenty-fivepipes,andatanotherthefiftypipes,equallysellfor£1,200.Ineithercasehisprofitwillbelimitedto£200,or20percentonhiscapital;andineithercasethesamevaluewillbeimportedintoEngland.Ifthefiftypipessoldformorethan£1,200,theprofitsofthisindividualmerchantwouldexceedthegeneralrateofprofits,andcapitalwouldnaturallyflowintothisadvantageoustrade,tillthefallofthepriceofwinehadbroughteverythingtotheformerlevel.Ithasindeedbeencontended,thatthegreatprofitswhicharesometimesmadebyparticularmerchantsinforeigntrade,willelevatethegeneralrateofprofitsinthecountry,andthattheabstractionofcapitalfromotheremployments,topartakeofthenewandbeneficialforeigncommerce,willraisepricesgenerally,andtherebyincreaseprofits.Ithasbeensaid,byhighauthority,thatlesscapitalbeingnecessarilydevotedtothegrowthofcorn,tothemanufactureofcloth,hats,shoes,andsoon,whilethedemandcontinuesthesame,thepriceofthesecommodi-tieswillbesoincreased,thatthefarmer,hatter,clothier,andshoemaker,willhaveanincreaseofprofits,aswellastheforeignmerchant.Theywhoholdthisargumentagreewithme,thattheprofitsofdifferentemploymentshaveatendencytoconformtooneanother;toadvanceandrecedetogether.Ourvarianceconsistsinthis:theycontend,thattheequalityofprofitswillbebroughtaboutbythegeneralriseofprofits;andIamofopinion,thattheprofitsofthefavouredtradewillspeedilysubsidetothegenerallevel.For,first,Idenythatlesscapitalwillnecessarilybedevotedtothegrowthofcorn,tothemanufactureofcloth,hats,shoes,andsoonunlessthedemandforthesecommoditiesbedimin-ished;andifso,theirpricewillnotrise.Inthepurchaseofforeigncommodities,eitherthesame,alarger,oralesserportionoftheproduceofthelandandlabourofEnglandwillbeemployed. Ricardo:PrinciplesofPoliticalEconomy283Ifthesameportionbesoemployed,thenwillthesamedemandexistforcloth,shoes,corn,andhats,asbefore,andthesameportionofcapitalwillbedevotedtotheirproduction.If,inconse-quenceofthepriceofforeigncommoditiesbeingcheaper,alesserportionoftheannualproduceofthelandandlabourofEnglandisemployedinthepurchaseofforeigncommodities,morewillremainforthepurchaseofotherthings.Iftherebeagreaterdemandforhats,shoes,corn,andthelikethanbefore,whichtheremaybe,theconsumersofforeigncommoditieshavinganaddi-tionalportionoftheirrevenuedisposable,thecapitalisalsodisposablewithwhichthegreatervalueofforeigncommoditieswaspurchasedbefore;sothatwiththeincreaseddemandforcorn,shoes,andsoonthereexistsalsothemeansofprocuringanincreasedsupply,andthereforeneitherpricesnorprofitscanpermanentlyrise.IfmoreoftheproduceofthelandandlabourofEnglandbeemployedinthepurchaseofforeigncommodities,lesscanbeemployedinthepurchaseofotherthings,andthereforefewerhats,shoes,andsoonwillberequired.Atthesametimethatcapitalisliberatedfromtheproductionofshoes,hats,andsoonmoremustbeemployedinmanu-facturingthosecommoditieswithwhichforeigncommoditiesarepurchased;andconsequentlyinallcasesthedemandforforeignandhomecommoditiestogether,asfarasregardsvalue,islimitedbytherevenueandcapitalofthecountry.Ifoneincreases,theothermustdiminish.Ifthequantityofwine,importedinexchangeforthesamequantityofEnglishcommodities,bedoubled,thepeo-pleofEnglandcaneitherconsumedoublethequantityofwinethattheydidbefore,orthesamequantityofwineandagreaterquantityofEnglishcommodities.Ifmyrevenuehadbeen£1,000,withwhichIpurchasedannuallyonepipeofwinefor£100andacertainquantityofEnglishcom-moditiesfor£900;whenwinefellto£50perpipe,Imightlayoutthe£50saved,eitherinthepur-chaseofanadditionalpipeofwine,orinthepurchaseofmoreEnglishcommodities.IfIboughtmorewine,andeverywinedrinkerdidthesame,theforeigntradewouldnotbeintheleastdis-turbed;thesamequantityofEnglishcommoditieswouldbeexportedinexchangeforwine,andweshouldreceivedoublethequantity,thoughnotdoublethevalueofwine.ButifI,andothers,con-tentedourselveswiththesamequantityofwineasbefore,fewerEnglishcommoditieswouldbeexported,andthewinedrinkersmighteitherconsumethecommoditieswhichwerebeforeexported,oranyothersforwhichtheyhadaninclination.Thecapitalrequiredfortheirproductionwouldbesuppliedbythecapitalliberatedfromtheforeigntrade.Therearetwowaysinwhichcapitalmaybeaccumulated:itmaybesavedeitherinconse-quenceofincreasedrevenue,orofdiminishedconsumption.Ifmyprofitsareraisedfrom£1,000to£1,200whilemyexpenditurecontinuesthesame,Iaccumulateannually£200morethanIdidbefore.IfIsave£200outofmyexpenditure,whilemyprofitscontinuethesame,thesameeffectwillbeproduced;£200perannumwillbeaddedtomycapital.Themerchantwhoimportedwineafterprofitshadbeenraisedfrom20to40percent,insteadofpurchasinghisEnglishgoodsfor£1,000mustpurchasethemfor£8572s.10d.,stillsellingthewinewhichheimportsinreturnforthosegoodsfor£1,200;or,ifhecontinuedtopurchasehisEnglishgoodsfor£1,000mustraisethepriceofhiswineto£1,400;hewouldthusobtain40insteadof20percentprofitonhiscapital;butif,inconsequenceofthecheapnessofallthecommoditiesonwhichhisrevenuewasexpended,heandallotherconsumerscouldsavethevalueof£200outofevery£1,000theyexpendedbefore,theywouldmoreeffectuallyaddtotherealwealthofthecountry;inonecase,thesavingswouldbemadeinconsequenceofanincreaseofrevenue,intheother,inconsequenceofdiminishedexpenditure.If,bytheintroductionofmachinery,thegeneralityofthecommoditiesonwhichrevenuewasexpendedfell20percentinvalue,Ishouldbeenabledtosaveaseffectuallyasifmyrevenuehadbeenraised20percent;butinonecasetherateofprofitsisstationary,intheotheritisraised20percent.If,bytheintroductionofcheapforeigngoods,Icansave20percentfrommyexpen-diture,theeffectwillbepreciselythesameasifmachineryhadloweredtheexpenseoftheirproduction,butprofitswouldnotberaised. 284TheClassicalSchoolItisnot,therefore,inconsequenceoftheextensionofthemarketthattherateofprofitisraised,althoughsuchextensionmaybeequallyefficaciousinincreasingthemassofcommodi-ties,andmaytherebyenableustoaugmentthefundsdestinedforthemaintenanceoflabour,andthematerialsonwhichlabourmaybeemployed.Itisquiteasimportanttothehappinessofmankind,thatourenjoymentsshouldbeincreasedbythebetterdistributionoflabour,byeachcountryproducingthosecommoditiesforwhichbyitssituation,itsclimate,anditsothernaturalorartificialadvantages,itisadapted,andbytheirexchangingthemforthecommoditiesofothercountries,astheyshouldbeaugmentedbyariseintherateofprofits.Ithasbeenmyendeavourtoshewthroughoutthiswork,thattherateofprofitscanneverbeincreasedbutbyafallinwages,andthattherecanbenopermanentfallofwagesbutinconse-quenceofafallofthenecessariesonwhichwagesareexpended.If,therefore,bytheextensionofforeigntrade,orbyimprovementsinmachinery,thefoodandnecessariesofthelabourercanbebroughttomarketatareducedprice,profitswillrise.If,insteadofgrowingourowncorn,ormanufacturingtheclothingandothernecessariesofthelabourer,wediscoveranewmarketfromwhichwecansupplyourselveswiththesecommoditiesatacheaperprice,wageswillfallandprof-itsrise;butifthecommoditiesobtainedatacheaperrate,bytheextensionofforeigncommerce,orbytheimprovementofmachinery,beexclusivelythecommoditiesconsumedbytherich,noalterationwilltakeplaceintherateofprofits.Therateofwageswouldnotbeaffected,althoughwine,velvets,silks,andotherexpensivecommoditiesshouldfall50percent,andconsequentlyprofitswouldcontinueunaltered.Foreigntrade,then,thoughhighlybeneficialtoacountry,asitincreasestheamountandvarietyoftheobjectsonwhichrevenuemaybeexpended,andaffords,bytheabundanceandcheapnessofcommodities,incentivestosaving,andtotheaccumulationofcapital,hasnotendencytoraisetheprofitsofstock,unlessthecommoditiesimportedbeofthatdescriptiononwhichthewagesoflabourareexpended.Theremarkswhichhavebeenmaderespectingforeigntrade,applyequallytohometrade.Therateofprofitsisneverincreasedbyabetterdistributionoflabour,bytheinventionofmachinery,bytheestablishmentofroadsandcanals,orbyanymeansofabridginglaboureitherinthemanufactureorintheconveyanceofgoods.Thesearecauseswhichoperateonprice,andneverfailtobehighlybeneficialtoconsumers;sincetheyenablethemwiththesamelabour,orwiththevalueoftheproduceofthesamelabour,toobtaininexchangeagreaterquantityofthecommoditytowhichtheimprovementisapplied;buttheyhavenoeffectwhateveronprofit.Ontheotherhand,everydiminutioninthewagesoflabourraisesprofits,butproducesnoeffectonthepriceofcommodities.Oneisadvantageoustoallclasses,forallclassesareconsumers;theotherisbeneficialonlytoproducers;theygainmore,buteverythingremainsatitsformerprice.Inthefirstcasetheygetthesameasbefore;buteverythingonwhichtheirgainsareexpended,isdiminishedinexchangeablevalue.Thesamerulewhichregulatestherelativevalueofcommoditiesinonecountry,doesnotregulatetherelativevalueofthecommoditiesexchangedbetweentwoormorecountries.Underasystemofperfectlyfreecommerce,eachcountrynaturallydevotesitscapitalandlabourtosuchemploymentsasaremostbeneficialtoeach.Thispursuitofindividualadvantageisadmirablyconnectedwiththeuniversalgoodofthewhole.Bystimulatingindustry,byreward-ingingenuity,andbyusingmostefficaciouslythepeculiarpowersbestowedbynature,itdistrib-uteslabourmosteffectivelyandmosteconomically;while,byincreasingthegeneralmassofproductions,itdiffusesgeneralbenefit,andbindstogetherbyonecommontieofinterestandintercourse,theuniversalsocietyofnationsthroughoutthecivilizedworld.ItisthisprinciplewhichdeterminesthatwineshallbemadeinFranceandPortugal,thatcornshallbegrowninAmericaandPoland,andthathardwareandothergoodsshallbemanufacturedinEngland.Inoneandthesamecountry,profitsare,generallyspeaking,alwaysonthesamelevel;ordifferonlyastheemploymentofcapitalmaybemoreorlesssecureandagreeable.Itisnotsobetween Ricardo:PrinciplesofPoliticalEconomy285differentcountries.IftheprofitsofcapitalemployedinYorkshire,shouldexceedthoseofcapitalemployedinLondon,capitalwouldspeedilymovefromLondontoYorkshire,andanequalityofprofitswouldbeeffected;butifinconsequenceofthediminishedrateofproductioninthelandsofEngland,fromtheincreaseofcapitalandpopulation,wagesshouldrise,andprofitsfall,itwouldnotfollowthatcapitalandpopulationwouldnecessarilymovefromEnglandtoHolland,orSpain,orRussia,whereprofitsmightbehigher.IfPortugalhadnocommercialconnexionwithothercountries,insteadofemployingagreatpartofhercapitalandindustryintheproductionofwines,withwhichshepurchasesforherownusetheclothandhardwareofothercountries,shewouldbeobligedtodevoteapartofthatcapitaltothemanufactureofthosecommodities,whichshewouldthusobtainprobablyinferiorinqualityaswellasquantity.ThequantityofwinewhichsheshallgiveinexchangefortheclothofEngland,isnotdeter-minedbytherespectivequantitiesoflabourdevotedtotheproductionofeach,asitwouldbe,ifbothcommoditiesweremanufacturedinEngland,orbothinPortugal.Englandmaybesocircumstanced,thattoproducetheclothmayrequirethelabourof100menforoneyear;andifsheattemptedtomakethewine,itmightrequirethelabourof120menforthesametime.Englandwouldthereforefinditherinteresttoimportwine,andtopurchaseitbytheexportationofcloth.ToproducethewineinPortugal,mightrequireonlythelabourof80menforoneyear,andtoproducetheclothinthesamecountry,mightrequirethelabourof90menforthesametime.Itwouldthereforebeadvantageousforhertoexportwineinexchangeforcloth.Thisexchangemighteventakeplace,notwithstandingthatthecommodityimportedbyPortugalcouldbeproducedtherewithlesslabourthaninEngland.Thoughshecouldmaketheclothwiththelabourof90men,shewouldimportitfromacountrywhereitrequiredthelabourof100mentoproduceit,becauseitwouldbeadvantageoustoherrathertoemployhercapitalintheproductionofwine,forwhichshewouldobtainmoreclothfromEngland,thanshecouldproducebydivertingaportionofhercapitalfromthecultivationofvinestothemanufactureofcloth.ThusEnglandwouldgivetheproduceofthelabourof100men,fortheproduceofthelabourof80.Suchanexchangecouldnottakeplacebetweentheindividualsofthesamecountry.ThelabourofonehundredEnglishmencannotbegivenforthatof80Englishmen,buttheproduceofthelabourof100Englishmenmaybegivenfortheproduceofthelabourof80Portuguese,60Russians,or120EastIndians.Thedifferenceinthisrespect,betweenasinglecountryandmany,iseasilyaccountedfor,byconsideringthedifficultywithwhichcapitalmovesfromonecountrytoanother,toseekamoreprofitableemployment,andtheactivitywithwhichitinvariablypassesfromoneprovincetoanotherinthesamecountry.ItwouldundoubtedlybeadvantageoustothecapitalistsofEngland,andtotheconsumersinbothcountries,thatundersuchcircumstances,thewineandtheclothshouldbothbemadeinPortugal,andthereforethatthecapitalandlabourofEnglandemployedinmakingcloth,shouldberemovedtoPortugalforthatpurpose.Inthatcase,therelativevalueofthesecommoditieswouldberegulatedbythesameprinciple,asifoneweretheproduceofYorkshire,andtheotherofLondon:andineveryothercase,ifcapitalfreelyflowedtowardsthosecountrieswhereitcouldbemostprofitablyemployed,therecouldbenodifferenceintherateofprofit,andnootherdifferenceintherealorlabourpriceofcommodities,thantheadditionalquantityoflabourrequiredtoconveythemtothevariousmarketswheretheyweretobesold.Experience,however,shews,thatthefanciedorrealinsecurityofcapital,whennotundertheimmediatecontrolofitsowner,togetherwiththenaturaldisinclinationwhicheverymanhastoquitthecountryofhisbirthandconnexions,andintrusthimselfwithallhishabitsfixed,toastrangegovernmentandnewlaws,checkstheemigrationofcapital.Thesefeelings,whichIshouldbesorrytoseeweakened,inducemostmenofpropertytobesatisfiedwithalowrateof 286TheClassicalSchoolprofitsintheirowncountry,ratherthanseekamoreadvantageousemploymentfortheirwealthinforeignnations.Goldandsilverhavingbeenchosenforthegeneralmediumofcirculation,theyare,bythecompetitionofcommerce,distributedinsuchproportionsamongstthedifferentcountriesoftheworld,astoaccommodatethemselvestothenaturaltrafficwhichwouldtakeplaceifnosuchmetalsexisted,andthetradebetweencountrieswerepurelyatradeofbarter.Thus,clothcannotbeimportedintoPortugal,unlessitsellthereformoregoldthanitcostinthecountryfromwhichitwasimported;andwinecannotbeimportedintoEngland,unlessitwillsellformoretherethanitcostinPortugal.Ifthetradewerepurelyatradeofbarter,itcouldonlycontinuewhilstEnglandcouldmakeclothsocheapastoobtainagreaterquantityofwinewithagivenquantityoflabour,bymanufacturingcloththanbygrowingvines;andalsowhilsttheindustryofPortugalwereattendedbythereverseeffects.NowsupposeEnglandtodiscoveraprocessformakingwine,sothatitshouldbecomeherinterestrathertogrowitthanimportit;shewouldnaturallydivertaportionofhercapitalfromtheforeigntradetothehometrade;shewouldceasetomanufactureclothforexportation,andwouldgrowwineforherself.Themoneypriceofthesecommoditieswouldberegulatedaccordingly;winewouldfallherewhileclothcon-tinuedatitsformerprice,andinPortugalnoalterationwouldtakeplaceinthepriceofeithercommodity.Clothwouldcontinueforsometimetobeexportedfromthiscountry,becauseitspricewouldcontinuetobehigherinPortugalthanhere;butmoneyinsteadofwinewouldbegiveninexchangeforit,tilltheaccumulationofmoneyhere,anditsdiminutionabroad,shouldsooperateontherelativevalueofclothinthetwocountries,thatitwouldceasetobeprofitabletoexportit.Iftheimprovementinmakingwinewereofaveryimportantdescription,itmightbecomeprofitableforthetwocountriestoexchangeemployments;forEnglandtomakeallthewine,andPortugalalltheclothconsumedbythem;butthiscouldbeeffectedonlybyanewdis-tributionofthepreciousmetals,whichshouldraisethepriceofclothinEngland,andloweritinPortugal.TherelativepriceofwinewouldfallinEnglandinconsequenceoftherealadvantagefromtheimprovementofitsmanufacture;thatistosay,itsnaturalpricewouldfall;therelativepriceofclothwouldrisetherefromtheaccumulationofmoney.Thus,supposebeforetheimprovementinmakingwineinEngland,thepriceofwineherewere£50perpipe,andthepriceofacertainquantityofclothwere£45,whilstinPortugalthepriceofthesamequantityofwinewas£45,andthatofthesamequantityofcloth£50;winewouldbeexportedfromPortugalwithaprofitof£5andclothfromEnglandwithaprofitofthesameamount.Supposethat,aftertheimprovement,winefallsto£45inEngland,theclothcontinuingatthesameprice.Everytransactionincommerceisanindependenttransaction.WhilstamerchantcanbuyclothinEnglandfor£45andsellitwiththeusualprofitinPortugal,hewillcontinuetoexportitfromEngland.HisbusinessissimplytopurchaseEnglishcloth,andtopayforitbyabillofexchange,whichhepurchaseswithPortuguesemoney.Itistohimofnoimportancewhatbecomesofthismoney,hehasdischargedhisdebtbytheremittanceofthebill.Histransactionisundoubtedlyregulatedbythetermsonwhichhecanobtainthisbill,buttheyareknowntohimatthetime;andthecauseswhichmayinfluencethemarketpriceofbills,ortherateofexchange,isnoconsiderationofhis.IfthemarketsbefavourablefortheexportationofwinefromPortugaltoEngland,theexporterofthewinewillbeasellerofabill,whichwillbepurchasedeitherbytheimporterofthecloth,orbythepersonwhosoldhimhisbill;andthuswithoutthenecessityofmoneypassingfromeithercountry,theexportersineachcountrywillbepaidfortheirgoods.Withouthavinganydirecttransactionwitheachother,themoneypaidinPortugalbytheimporterofclothwillbepaidtothePortugueseexporterofwine;andinEnglandbythenegotiationof Ricardo:PrinciplesofPoliticalEconomy287thesamebill,theexporteroftheclothwillbeauthorizedtoreceiveitsvaluefromtheimporterofwine.ButifthepricesofwineweresuchthatnowinecouldbeexportedtoEngland,theimporterofclothwouldequallypurchaseabill;butthepriceofthatbillwouldbehigher,fromtheknowledgewhichthesellerofitwouldpossess,thattherewasnocounterbillinthemarketbywhichhecouldultimatelysettlethetransactionsbetweenthetwocountries;hemightknowthatthegoldorsilvermoneywhichhereceivedinexchangeforhisbill,mustbeactuallyexportedtohiscorre-spondentinEngland,toenablehimtopaythedemandwhichhehadauthorizedtobemadeuponhim,andhemightthereforechargeinthepriceofhisbillalltheexpensestobeincurred,togetherwithhisfairandusualprofit.IfthenthispremiumforabillonEnglandshouldbeequaltotheprofitonimportingcloth,theimportationwouldofcoursecease;butifthepremiumonthebillwereonly2percent,iftobeenabledtopayadebtinEnglandof£100,£102shouldbepaidinPortugal,whilstclothwhichcost£45wouldsellfor£50,clothwouldbeimported,billswouldbebought,andmoneywouldbeexported,tillthediminutionofmoneyinPortugal,anditsaccumulationinEngland,hadproducedsuchastateofpricesaswouldmakeitnolongerprofitabletocontinuethesetransactions.Butthediminutionofmoneyinonecountry,anditsincreaseinanother,donotoperateonthepriceofonecommodityonly,butonthepricesofall,andthereforethepriceofbothwineandclothwillberaisedinEngland,andloweredinPortugal.Thepriceofcloth,frombeing£45inonecountryand£50intheother,wouldprobablyfallto£49or£48inPortugal,andriseto£46or£47inEngland,andnotaffordasufficientprofitafterpayingapremiumforabilltoinduceanymerchanttoimportthatcommodity.Itisthusthatthemoneyofeachcountryisapportionedtoitinsuchquantitiesonlyasmaybenecessarytoregulateaprofitabletradeofbarter.Englandexportedclothinexchangeforwine,because,bysodoingherindustrywasrenderedmoreproductivetoher;shehadmoreclothandwinethanifshehadmanufacturedbothforherself;andPortugalimportedclothandexportedwine,becausetheindustryofPortugalcouldbemorebeneficiallyemployedforbothcountriesinproducingwine.LettherebemoredifficultyinEnglandinproducingcloth,orinPortugalinproducingwine,orlettherebemorefacilityinEnglandinproducingwine,orinPortugalinproducingcloth,andthetrademustimmediatelycease.NochangewhatevertakesplaceinthecircumstancesofPortugal;butEnglandfindsthatshecanemployherlabourmoreproductivelyinthemanufactureofwine,andinstantlythetradeofbarterbetweenthetwocountrieschanges.NotonlyistheexportationofwinefromPortugalstopped,butanewdistributionofthepreciousmetalstakesplace,andherimportationofclothisalsoprevented.Bothcountrieswouldprobablyfindittheirinteresttomaketheirownwineandtheirowncloth;butthissingularresultwouldtakeplace:inEngland,thoughwinewouldbecheaper,clothwouldbeelevatedinprice,morewouldbepaidforitbytheconsumer;whileinPortugaltheconsumers,bothofclothandofwine,wouldbeabletopurchasethosecommoditiescheaper.Inthecountrywheretheimprovementwasmade,priceswouldbeenhanced;inthatwherenochangehadtakenplace,butwheretheyhadbeendeprivedofaprofitablebranchofforeigntrade,priceswouldfall.This,however,isonlyaseemingadvantagetoPortugal,forthequantityofclothandwinetogetherproducedinthatcountrywouldbediminished,whilethequantityproducedinEnglandwouldbeincreased.Moneywouldinsomedegreehavechangeditsvalueinthetwocountries,itwouldbeloweredinEnglandandraisedinPortugal.Estimatedinmoney,thewholerevenueofPortugalwouldbediminished;estimatedinthesamemedium,thewholerevenueofEnglandwouldbeincreased. 288TheClassicalSchoolThusthenitappears,thattheimprovementofamanufactureinanycountrytendstoalterthedistributionofthepreciousmetalsamongstthenationsoftheworld:ittendstoincreasethequantityofcommodities,atthesametimethatitraisesgeneralpricesinthecountrywheretheimprovementtakesplace.Tosimplifythequestion,Ihavebeensupposingthetradebetweentwocountriestobeconfinedtotwocommodities–towineandcloth;butitiswellknownthatmanyandvariousarticlesenterintothelistofexportsandimports.Bytheabstractionofmoneyfromonecountry,andtheaccu-mulationofitinanother,allcommoditiesareaffectedinprice,andconsequentlyencouragementisgiventotheexportationofmanymorecommoditiesbesidesmoney,whichwillthereforepreventsogreataneffectfromtakingplaceonthevalueofmoneyinthetwocountriesasmightotherwisebeexpected.Besidestheimprovementsinartsandmachinery,therearevariousothercauseswhicharecon-stantlyoperatingonthenaturalcourseoftrade,andwhichinterferewiththeequilibrium,andtherelativevalueofmoney.Bountiesonexportationorimportation,newtaxesoncommodities,sometimesbytheirdirect,andatothertimes,bytheirindirectoperation,disturbthenaturaltradeofbarter,andproduceaconsequentnecessityofimportingorexportingmoney,inorderthatpricesmaybeaccommodatedtothenaturalcourseofcommerce;andthiseffectisproducednotonlyinthecountrywherethedisturbingcausetakesplace,but,inagreaterorlessdegree,ineverycountryofthecommercialworld.Thiswillinsomemeasureaccountforthedifferentvalueofmoneyindifferentcountries;itwillexplaintouswhythepricesofhomecommodities,andthoseofgreatbulk,thoughofcompara-tivelysmallvalue,are,independentlyofothercauses,higherinthosecountrieswheremanufac-turesflourish.Oftwocountrieshavingpreciselythesamepopulation,andthesamequantityoflandofequalfertilityincultivation,withthesameknowledgetooofagriculture,thepricesofrawproducewillbehighestinthatwherethegreaterskill,andthebettermachineryisusedinthemanufactureofexportablecommodities.Therateofprofitswillprobablydifferbutlittle;forwages,ortherealrewardofthelabourer,maybethesameinboth;butthosewages,aswellasrawproduce,willberatedhigherinmoneyinthatcountry,intowhich,fromtheadvantagesattendingtheirskillandmachinery,anabundanceofmoneyisimportedinexchangefortheirgoods.Ofthesetwocountries,ifonehadtheadvantageinthemanufactureofgoodsofonequality,andtheotherinthemanufactureofgoodsofanotherquality,therewouldbenodecidedinfluxofthepreciousmetalsintoeither;butiftheadvantageveryheavilypreponderatedinfavourofeither,thateffectwouldbeinevitable.Intheformerpartofthiswork,wehaveassumed,forthepurposeofargument,thatmoneyalwayscontinuedofthesamevalue;wearenowendeavouringtoshewthatbesidestheordinaryvariationsinthevalueofmoney,andthosewhicharecommontothewholecommercialworld,therearealsopartialvariationstowhichmoneyissubjectinparticularcountries;andinfact,thatthevalueofmoneyisneverthesameinanytwocountries,dependingasitdoesonrelativetaxation,onmanufacturingskill,ontheadvantagesofclimate,naturalproductions,andmanyothercauses.Although,however,moneyissubjecttosuchperpetualvariations,andconsequentlythepricesofthecommoditieswhicharecommontomostcountries,arealsosubjecttoconsiderablediffer-ence,yetnoeffectwillbeproducedontherateofprofits,eitherfromtheinfluxoreffluxofmoney.Capitalwillnotbeincreased,becausethecirculatingmediumisaugmented.Iftherentpaidbythefarmertohislandlord,andthewagestohislabourers,be20percenthigherinonecountrythananother,andifatthesametimethenominalvalueofthefarmer’scapitalbe20percentmore,hewillreceivepreciselythesamerateofprofits,althoughheshouldsellhisrawproduce20percenthigher.Profits,itcannotberepeatedtoooften,dependonwages;notonnominal,butrealwages;notonthenumberofpoundsthatmaybeannuallypaidtothelabourer,butonthenumberofdays’work, Ricardo:PrinciplesofPoliticalEconomy289necessarytoobtainthosepounds.Wagesmaythereforebepreciselythesameintwocountries;theymaybeartoothesameproportiontorent,andtothewholeproduceobtainedfromtheland,althoughinoneofthosecountriesthelabourershouldreceive10s.perweek,andintheothertwelve.Intheearlystatesofsociety,whenmanufactureshavemadelittleprogress,andtheproduceofallcountriesisnearlysimilar,consistingofthebulkyandmostusefulcommodities,thevalueofmoneyindifferentcountrieswillbechieflyregulatedbytheirdistancefromthemineswhichsup-plythepreciousmetals;butastheartsandimprovementsofsocietyadvance,anddifferentnationsexcelinparticularmanufactures,althoughdistancewillstillenterintothecalculation,thevalueofthepreciousmetalswillbechieflyregulatedbythesuperiorityofthosemanufactures.Supposeallnationstoproducecorn,cattle,andcoarseclothingonly,andthatitwasbytheexportationofsuchcommoditiesthatgoldcouldbeobtainedfromthecountrieswhichproducedthem,orfromthosewhoheldtheminsubjection;goldwouldnaturallybeofgreaterexchange-ablevalueinPolandthaninEngland,onaccountofthegreaterexpenseofsendingsuchabulkycommodityascornthemoredistantvoyage,andalsothegreaterexpenseattendingtheconveyingofgoldtoPoland.Thisdifferenceinthevalueofgold,orwhichisthesamething,thisdifferenceinthepriceofcorninthetwocountries,wouldexist,althoughthefacilitiesofproducingcorninEnglandshouldfarexceedthoseofPoland,fromthegreaterfertilityoftheland,andthesuperiorityintheskillandimplementsofthelabourer.IfhoweverPolandshouldbethefirsttoimprovehermanufactures,ifsheshouldsucceedinmakingacommoditywhichwasgenerallydesirable,includinggreatvalueinlittlebulk,orifsheshouldbeexclusivelyblessedwithsomenaturalproduction,generallydesirable,andnotpos-sessedbyothercountries,shewouldobtainanadditionalquantityofgoldinexchangeforthiscommodity,whichwouldoperateonthepriceofhercorn,cattle,andcoarseclothing.Thedis-advantageofdistancewouldprobablybemorethancompensatedbytheadvantageofhavinganexportablecommodityofgreatvalue,andmoneywouldbepermanentlyoflowervalueinPolandthaninEngland.If,onthecontrary,theadvantageofskillandmachinerywerepossessedbyEngland,anotherreasonwouldbeaddedtothatwhichexistedbefore,whygoldshouldbelessvaluableinEnglandthaninPoland,andwhycorn,cattle,andclothing,shouldbeatahigherpriceintheformercountry.TheseIbelievetobetheonlytwocauseswhichregulatethecomparativevalueofmoneyinthedifferentcountriesoftheworld;foralthoughtaxationoccasionsadisturbanceoftheequilib-riumofmoney,itdoessobydeprivingthecountryinwhichitisimposedofsomeoftheadvan-tagesattendingskill,industry,andclimate.Ithasbeenmyendeavourtodistinguishcarefullybetweenalowvalueofmoney,andahighvalueofcorn,oranyothercommoditywithwhichmoneymaybecompared.Thesehavebeengenerallyconsideredasmeaningthesamething;butitisevident,thatwhencornrisesfrom5to10s.abushel,itmaybeowingeithertoafallinthevalueofmoney,ortoariseinthevalueofcorn.Thuswehaveseen,thatfromthenecessityofhavingrecoursesuccessivelytolandofaworseandworsequality,inordertofeedanincreasingpopulation,cornmustriseinrelativevaluetootherthings.Ifthereforemoneycontinuespermanentlyofthesamevalue,cornwillexchangeformoreofsuchmoney,thatistosay,itwillriseinprice.Thesameriseinthepriceofcornwillbeproducedbysuchimprovementofmachineryinmanufactures,asshallenableustomanufacturecommoditieswithpeculiaradvantages:fortheinfluxofmoneywillbetheconse-quence;itwillfallinvalue,andthereforeexchangeforlesscorn.Buttheeffectsresultingfromahighpriceofcornwhenproducedbytheriseinthevalueofcorn,andwhencausedbyafallinthevalueofmoney,aretotallydifferent.Inbothcasesthemoneypriceofwageswillrise,butifitbeinconsequenceofthefallinthevalueofmoney,notonlywagesandcorn,butallother 290TheClassicalSchoolcommoditieswillrise.Ifthemanufacturerhasmoretopayforwages,hewillreceivemoreforhismanufacturedgoods,andtherateofprofitswillremainunaffected.Butwhentheriseinthepriceofcornistheeffectofthedifficultyofproduction,profitswillfall;forthemanufacturerwillbeobligedtopaymorewages,andwillnotbeenabledtoremuneratehimselfbyraisingthepriceofhismanufacturedcommodity.… THOMASROBERTMALTHUS(1766–1834)MalthussawhimselfasadiscipleofAdamSmith,buthehadaveryclosefriendshipwithDavidRicardo,andtheirdebatesonthefundamentalquestionsofpoliticaleconomy,manyofwhicharereflectedintheirprivatecorrespondence,shedamostinterestinglightonthedevelopmentofeco-nomicideasinthefirstpartofthenineteenthcentury.OneaspectofthedebatebetweenMalthusandRicardowaswhatwenowknowasSay’sLaw.Malthusraisedseriousconcernsaboutthepossibilityofoverproduction,andtherebygluts,inthemarket,ineffectjoiningQuesnayinpointingtothepossibilityofinstabilityintheeconomyandinprovidingtheoreticalexplanationsforit.KeyneshailedMalthusasakindredspiritforthistheoryacenturylater,althoughaclosereadingofMalthusandKeynescallsintoquestiontheextenttowhichMalthusactuallyanticipatedcertainofKeynes’scentralideasonthisscore.MalthuswasalsodifferentfromRicardoinanotherimportantrespect:herejectedthelabortheoryofvalue,andeventheideaofatranscendent“value”towardwhichpricegravitated,andadoptedanessentiallydemandandsupplytheoryofprice.InthepassagesfromMalthus’sPrincipleofPoliticalEconomyexcerptedhere,wefindMalthusdefendinghisthesisaboutthepossibilityofageneraloverproductionbasedonadeficiencyofeffectivedemandandlayingoutpotentialprescriptionsfordealingwiththeseproblems.ReferencesandfurtherreadingBlaug,Mark(1991)ThomasRobertMalthus(1766–1834)andJohnStuartMill(1806–1873),Aldershot:EdwardElgarPublishing.Bleaney,MichaelF.(1976)UnderconsumptionTheories:AHistoryandCriticalAnalysis,NewYork:InternationalPublishers.Corry,B.A.(1958)“TheTheoryoftheEconomicEffectsofGovernmentinEnglishClassicalPoliticalEconomy,”Economica25(February):34–48.Eltis,Walter(1980)“Malthus’sTheoryofEffectiveDemandGrowth,”OxfordEconomicPapers32(March):19–56.Grampp,WilliamD.(1956)“MalthusonMoneyWagesandWelfare,”AmericanEconomicReview46(December):924–36.Hollander,Samuel(1997)TheEconomicsofThomasRobertMalthus,Toronto:UniversityofTorontoPress.Lambert,P.(1966)“Lauderdale,Malthus,andKeynes,”AnnalsofPublicandCooperativeEconomy37(January):3–23.Malthus,ThomasRobert(1815)AnInquiryintotheNatureandProgressofRent,London:JohnMurray.——(1827)DefinitionsinPoliticalEconomy,London:JohnMurray.Paglin,M.(1961)MalthusandLauderdale:TheAnti-RicardianTradition,NewYork:AugustusM.Kelley.Pullen,J.M.(1987)“Malthus,ThomasRobert,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,280–85.Rashid,Salim(1977)“Malthus’ModelofaGeneralGlut,”HistoryofPoliticalEconomy9(Fall):366–83. 292TheClassicalSchoolRashid,Salim(1987)“MalthusandClassicalEconomics,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,285–90.Rutherford,R.P.(1987)“MalthusandKeynes,”OxfordEconomicPapers39(March)175–89.Sowell,Thomas(1963)“TheGeneralGlutControversyReconsidered,”OxfordEconomicPapersNS15(November):193–203.Wood,JohnC.(1986)ThomasRobertMalthus:CriticalAssessments,London:CroonHelm. PrinciplesofPoliticalEconomy(1820)*ChapterVII:OntheimmediatecausesoftheprogressofwealthSectionI:StatementoftheparticularobjectofinquiryThereisscarcelyanyinquirymorecurious,or,fromitsimportance,moreworthyofattention,thanthatwhichtracesthecauseswhichpracticallychecktheprogressofwealthindifferentcountries,andstopit,ormakeitproceedveryslowly,whilethepowerofproductionremainscomparativelyundiminished,oratleastwouldfurnishthemeansofagreatandabundantincreaseofproduceandpopulation.InaformerworkIendeavouredtotracethecauseswhichpracticallykeepdownthepopula-tionofacountrytothelevelofitsactualsupplies.Itisnowmyobjecttoshewwhatarethecauseswhichchieflyinfluencethesesupplies,orcallforththepowersofproductionintotheshapeofincreasingwealth.Amongtheprimaryandmostimportantcauseswhichinfluencethewealthofnations,mustunquestionablybeplaced,thosewhichcomeundertheheadofpoliticsandmorals.Securityofproperty,withoutacertaindegreeofwhichtherecanbenoencouragementtoindividualindustry,dependsmainlyuponthepoliticalconstitutionofacountry,theexcellenceofitslawsandtheman-nerinwhichtheyareadministered.Andthosehabitswhicharethemostfavourabletoregularexer-tionsaswellastogeneralrectitudeofcharacter,andareconsequentlymostfavourabletotheproductionandmaintenanceofwealth,dependchieflyuponthesamecauses,combinedwithmoralandreligiousinstruction.Itisnothowevermyintentionatpresenttoenterfullyintothesecauses,importantandeffectiveastheyare;buttoconfinemyselfchieflytothemoreimmediateandproxi-matecausesofincreasingwealth,whethertheymayhavetheirorigininthesepoliticalandmoralsources,orinanyothersmorespecificallyanddirectlywithintheprovinceofpoliticaleconomy.Itisobviouslytruethattherearemanycountries,notessentiallydifferenteitherinthedegreeofsecuritywhichtheyaffordtoproperty,orinthemoralandreligiousinstructionreceivedbythepeople,whichyet,withnearlyequalnaturalcapabilities,makeaverydifferentprogressinwealth.Itistheprincipalobjectofthepresentinquirytoexplainthis;andtofurnishsomesolutionofcertainphenomenafrequentlyobtrudeduponourattention,wheneverwetakeaviewofthedifferentstatesofEurope,oroftheworld;namely,countrieswithgreatpowersofproductioncomparativelypoor,andcountrieswithsmallpowersofproductioncomparativelyrich.Iftheactualrichesofacountrynotsubjecttorepeatedviolencesandafrequentdestructionofproduce,benotafteracertainperiodinsomedegreeproportionedtoitspowerofproducingriches,thisdeficiencymusthavearisenfromthewantofanadequatestimulustocontinuedpro-duction.Thepracticalquestionthenforourconsiderationis,whatarethemostimmediateandeffectivestimulantstothecontinuedcreationandprogressofwealth.*PrinciplesofPoliticalEconomyConsideredwithaViewtoTheirPracticalApplication,London:JohnMurray1820. 294TheClassicalSchoolSectionII:OftheincreaseofpopulationconsideredasastimulustothecontinuedincreaseofwealthManywritershavebeenoftheopinionthatanincreaseofpopulationisthesolestimulusneces-sarytotheincreaseofwealth,becausepopulation,beingthegreatsourceofconsumption,mustintheiropinionnecessarilykeepupthedemandforanincreaseofproduce,whichwillnaturallybefollowedbyacontinuedincreaseofsupply.Thatapermanentincreaseofpopulationisapowerfulandnecessaryelementofincreasingdemand,willbemostreadilyallowed;butthattheincreaseofpopulationalone,or,moreprop-erlyspeaking,thepressureofthepopulationhardagainstthelimitsofsubsistence,doesnotfur-nishaneffectivestimulustothecontinuedincreaseofwealth,isnotonlyevidentintheory,butisconfirmedbyuniversalexperience.Ifwantalone,orthedesireofthelabouringclassestopossessthenecessariesandconveniencesoflife,wereasufficientstimulustoproduction,thereisnostateinEurope,orintheworld,thatwouldhavefoundanyotherpracticallimittoitswealththanitspowertoproduce;andtheearthwouldprobablybeforethisperiodhavecontained,attheveryleast,tentimesasmanyinhabitantsasaresupportedonitssurfaceatpresent.Butthosewhoareacquaintedwiththenatureofeffectivedemand,willbefullyawarethat,wheretherightofprivatepropertyisestablished,andthewantsofsocietyaresuppliedbyindus-tryandbarter,thedesireofanyindividualtopossessthenecessaryconveniencesandluxuriesoflife,howeverintense,willavailnothingtowardstheirproduction,iftherebenowherearecipro-caldemandforsomethingwhichhepossesses.Amanwhoseonlypossessionishislabourhas,orhasnot,aneffectivedemandforproduceaccordingashislabouris,orisnot,indemandbythosewhohavethedisposalofproduce.Andnoproductivelabourwilleverbeindemandunlesstheproducewhenobtainedisofgreatervaluethanthelabourwhichobtainedit.Nofreshhandscanbeemployedinanysortofindustrymerelyinconsequenceofthedemandforitsproduceocca-sionedbythepersonsemployed.Nofarmerwilltakethetroubleofsuperintendingthelabouroftenadditionalmenmerelybecausehiswholeproducewillthensellinthemarketatanadvancedpricejustequaltowhathehadpaidhisadditionallabourers.Theremustbesomethinginthepreviousstateofthedemandandsupplyofthecommodityinquestion,orinitsprice,antecedenttoandindependentlyofthedemandoccasionedbythenewlabourers,inordertowarranttheemploymentofanadditionalnumberofpeopleinitsproduction.Itwillbesaidperhapsthattheincreaseofpopulationwilllowerwages,and,bythusdiminish-ingthecostsofproduction,willincreasetheprofitsofthecapitalistsandtheencouragementtoproduce.Sometemporaryeffectofthiskindmaynodoubttakeplace,butitisevidentlyverystrictlylimited.Thefallofwagescannotgoonbeyondacertainpointwithoutnotonlystoppingtheprogressofthepopulationbutmakingitevenretrograde;andbeforethispointisreached,itwillprobablyhappenthattheincreaseofproduceoccasionedbythelabouroftheadditionalnumberofpersonswillhavesolowereditsvalue,asmorethantocounterbalancethefallofwages,andthustodiminishinsteadofincreasetheprofitsofthecapitalistsandthepowerandwilltoemploymorelabour.Itisobviousthenintheorythatanincreaseofpopulation,whenanadditionalquantityoflabourisnotwanted,willsoonbecheckedbywantofemployment,andthescantysupportofthoseemployed,andwillnotfurnishtherequiredstimulustoanincreaseofwealthproportionedtothepowerofproduction.But,ifanydoubtsshouldremainwithrespecttothetheoryonthesubject,theywillsurelybedissipatedbyareferencetoexperience.Itisscarcelypossibletocastoureyesonanynationoftheworldwithoutseeingastrikingconfirmationofwhathasbeenadvanced.Almostuniversally,theactualwealthofallthestateswithwhichweareacquaintedisveryfarshortoftheirpowersofproduction;andalmostuniversallyamongthosestates,theslowestprogressinwealthismadewherethestimulusarisingfrompopulationaloneisthegreatest,thatis,wherethepopulation Malthus:PrinciplesofPoliticalEconomy295pressesthehardestagainstthelimitsofsubsistence.Itisquiteevidentthattheonlyfairway,indeedtheonlyway,bywhichwecanjudgethepracticaleffectofpopulationaloneasastimulustowealth,istorefertothosecountrieswhere,fromtheexcessofpopulationabovethefundsappliedtothemaintenanceoflabour,thestimulusofwantisthegreatest.Andifinthesecountries,whichstillhavegreatpowersofproduction,theprogressofwealthisveryslow,wehavecertainlyalltheevidencewhichexperiencecanpossiblygiveus,thatpopulationalonecannotcreateaneffectivedemandforwealth.Tosupposeanactualandpermanentincreaseofpopulationistobegthequestion.Wemayaswellsupposeatonceanincreaseofwealth;becauseanactualandpermanentincreaseofpopu-lationcannottakeplacewithoutaproportionateornearlyproportionateincreaseofwealth.Thequestionreallyis,whetherencouragementstopopulation,oreventhenaturaltendencyofpopu-lationtoincreasebeyondthefundsforitsmaintenance,soastopresshardagainstthelimitsofsubsistence,will,orwillnot,alonefurnishanadequatestimulustotheincreaseofwealth.Andthisquestion,Spain,Portugal,Poland,Hungary,Turkey,andmanyothercountriesinEurope,togetherwithnearlythewholeofAsiaandAfrica,andthegreatestpartofAmerica,distinctlyanswerinthenegative.SectionIII:Ofaccumulation,orthesavingfromrevenuetoaddtocapital,consideredasastimulustotheincreaseofwealthThosewhorejectmerepopulationasanadequatestimulustotheincreaseofwealth,aregenerallydisposedtomakeeverythingdependuponaccumulation.Itiscertainlytruethatnopermanentandcontinuedincreaseofwealthcantakeplacewithoutacontinuedincreaseofcapital;andIcannotagreewithLordLauderdaleinthinkingthatthisincreasecanbeeffectedinanyotherwaythanbysavingfromthestockwhichmighthavebeendestinedforimmediateconsumption,andaddingittothatwhichistoyieldaprofit;orinotherwords,bytheconversionofrevenueintocapital.Butwehaveyettoinquirewhatisthestateofthingswhichgenerallydisposesanationtoaccu-mulate;andfurther,whatisthestateofthingswhichtendstomakethataccumulationthemosteffective,andleadtoafurtherandcontinuedincreaseofcapitalandwealth.Itisundoubtedlypossiblebyparsimonytodevoteatonceamuchlargersharethanusualoftheproduceofanycountrytothemaintenanceofproductivelabour;anditisquitetruethatthelabourerssoemployedareconsumersaswellasunproductivelabourers;andasfarasthelabour-ersareconcerned,therewouldbenodiminutionofconsumptionordemand.Butithasalreadybeenshewnthattheconsumptionanddemandoccasionedbythepersonsemployedinproduc-tivelabourcanneveralonefurnishamotivetotheaccumulationandemploymentofcapital;andwithregardtothecapitaliststhemselves,togetherwiththelandlordsandotherrichpersons,theyhave,bythesupposition,agreedtobeparsimonious,andbydeprivingthemselvesoftheirusualconveniencesandluxuriestosavefromtheirrevenueandaddtotheircapital.Underthesecir-cumstances,Iwouldask,howitispossibletosupposethattheincreasedquantityofcommodi-ties,obtainedbytheincreasednumberofproductivelabourers,shouldfindpurchasers,withoutsuchafallofpriceaswouldprobablysinktheirvaluebelowthecostsofproduction,or,atleast,verygreatlydiminishboththepowerandthewilltosave.Ithasbeenthoughtbysomeveryablewritersthatalthoughtheremayeasilybeaglutofparticularcommodities,therecannotpossiblybeaglutofcommoditiesingeneral;because,accordingtotheirviewofthesubject,commoditiesbeingalwaysexchangedforcommodities,one-halfwillfurnishamarketfortheotherhalf,andproductionbeingthusthesolesourceofdemand,anexcessinthesupplyofonearticlemerelyprovesadeficiencyinthesupplyofsomeother,andageneralexcessisimpossible.M.Say,inhisdistinguishedworkonpoliticaleconomy, 296TheClassicalSchoolhasindeedgonesofarastostatethattheconsumptionofacommoditybytakingitoutofthemarketdiminishesdemand,andtheproductionofacommodityproportionablyincreasesit.Thisdoctrine,however,totheextentinwhichithasbeenapplied,appearstometobeutterlyunfounded,andcompletelytocontradictthegreatprincipleswhichregulatesupplyanddemand.Itisbynomeanstrue,asamatteroffact,thatcommoditiesarealwaysexchangedforcom-modities.Thegreatmassofcommoditiesisexchangeddirectlyforlabour,eitherproductiveorunproductive;anditisquiteobviousthatthismassofcommodities,comparedwiththelabourwithwhichitistobeexchanged,mayfallinvaluefromaglutjustasanyonecommodityfallsinvaluefromanexcessofsupply,comparedeitherwithlabourormoney.Inthecasesupposedtherewouldevidentlybeanunusualquantityofcommoditiesofallkindsinthemarket,owingtotheunproductivelabourersofthecountryhavingbeenconverted,bytheaccumulationofcapital,intoproductivelabourers;whilethenumberoflabourersaltogetherbeingthesame,andthepowerandwilltopurchaseforconsumptionamonglandlordsandcapi-talistsbeingbysuppositiondiminished,commoditieswouldnecessarilyfallinvalue,comparedwithlabour,soastolowerprofitsalmosttonothing,andtocheckforatimefurtherproduction.Butthisispreciselywhatismeantbythetermglut,which,inthiscase,isevidentlygeneralnotpartial.M.Say,MrMill,andMrRicardo,theprincipalauthorsofthenewdoctrinesonprofits,appeartometohavefallenintosomefundamentalerrorsintheviewwhichtheyhavetakenofthissubject.Inthefirstplace,theyhaveconsideredcommoditiesasiftheyweresomanymathematicalfigures,orarithmeticalcharacters,therelationsofwhichweretobecompared,insteadofarticlesofconsumption,whichmustofcoursebereferredtothenumbersandwantsoftheconsumers.Ifcommoditieswereonlytobecomparedandexchangedwitheachother,thenindeeditwouldbetruethat,iftheywereallincreasedintheirproperproportionstoanyextent,theywouldcon-tinuetobearamongthemselvesthesamerelativevalue;but,ifwecomparethem,aswecertainlyoughttodo,withthenumbersandwantsoftheconsumers,thenagreatincreaseofproducewithcomparativelystationarynumbersandwithwantsdiminishedbyparsimony,mustnecessarilyoccasionagreatfallofvalueestimatedinlabour,sothatthesameproduce,thoughitmighthavecostthesamequantityoflabourasbefore,wouldnolongercommandthesamequantity;andboththepowerofaccumulationandthemotivetoaccumulatewouldbestronglychecked.Itisassertedthateffectualdemandisnothingmorethantheofferingofonecommodityinexchangeforanother.Butisthisallthatisnecessarytoeffectualdemand?Thougheachcom-moditymayhavecostthesamequantityoflabourandcapitalinitsproduction,andtheymaybeexactlyequivalenttoeachotherinexchange,yetwhymaynotbothbesoplentifulasnottocom-mandmorelabour,orverylittlemorethantheyhavecost;andinthiscase,wouldthedemandforthembeeffectual?Woulditbesuchastoencouragetheircontinuedproduction?Unquestionablynot.Theirrelationtoeachothermaynothavechanged;buttheirrelationtothewantsofthesociety,theirrelationtobullion,andtheirrelationtodomesticandforeignlabour,mayhaveexperiencedamostimportantchange.Itwillbereadilyallowedthatanewcommoditythrownintothemarket,which,inproportiontothelabouremployeduponit,isofhigherexchangeablevaluethanusual,ispreciselycalculatedtoincreasedemand;becauseitimplies,notamereincreaseofquantity,butabetteradaptationoftheproducetothetastes,wants,andconsumptionofthesociety.Buttofabricateorprocurecommoditiesofthiskindisthegranddifficulty;andtheycertainlydonotnaturallyandnecessarilyfollowanaccumulationofcapitalandincreaseofcommodities,mostparticularlywhensuchaccumulationandincreasehavebeenoccasionedbyeconomyofconsumption,oradiscouragementtotheindulgenceofthosetastesandwants,whicharetheveryelementsofdemand. Malthus:PrinciplesofPoliticalEconomy297MrRicardo,thoughhemaintainsasageneralpositionthatcapitalcannotberedundant,isobligedtomakethefollowingconcession.Hesays,‘Thereisonlyonecase,andthatwillbetem-porary,inwhichtheaccumulationofcapitalwithalowpriceoffoodmaybeattendedwithafallofprofits;andthatis,whenthefundsforthemaintenanceoflabourincreasemuchmorerapidlythanpopulation;–wageswillthenbehighandprofitslow.Ifeverymanweretoforegotheuseofluxuriesandbeintentonlyonaccumulation,aquantityofnecessariesmightbeproducedforwhichtherecouldnotbeanyimmediateconsumption.Ofcommoditiessolimitedinnumber,theremightundoubtedlybeanuniversalglut;andconsequentlytheremightneitherbedemandforanadditionalquantityofsuchcommodities,norprofitsontheemploymentofmorecapital.Ifmenceasedtoconsume,theywouldceasetoproduce’.MrRicardothenadds,‘Thisadmissiondoesnotimpugnthegeneralprinciple’.InthisremarkIcannotquiteagreewithhim.As,fromthenatureofpopulation,anincreaseoflabourerscannotbebroughtintothemarket,inconsequenceofaparticulardemand,tillafterthelapseofsixteenoreighteenyears,andtheconversionofrev-enueintocapitalmaytakeplacemuchmorerapidly;acountryisalwaysliabletoanincreaseofthefundsforthemaintenanceoflabourfasterthantheincreaseofpopulation.Butif,wheneverthisoccurs,theremaybeauniversalglutofcommodities,howcanitbemaintained,asageneralposition,thatcapitalisneverredundant;andthatbecausecommoditiesmayretainthesamerelativevalues,aglutcanonlybepartial,notgeneral?Anotherfundamentalerrorintowhichtheabove-mentionedwritersandtheirfollowersappeartohavefallenis,thenottakingintoconsiderationtheinfluenceofsogeneralandimportantaprin-cipleinhumannature,asindolenceortheloveofease.Ithasbeensupposedthat,ifacertainnumberoffarmersandacertainnumberofmanufac-turershadbeenexchangingtheirsurplusfoodandclothingwitheachother,andtheirpowersofproductionweresuddenlysoincreasedthatbothpartiescould,withthesamelabour,produceluxuriesinadditiontowhattheyhadbeforeobtained,therecouldbenosortofdifficultywithregardtodemand,aspartoftheluxurieswhichthefarmerproducedwouldbeexchangedagainstpartoftheluxuriesproducedbythemanufacturer;andtheonlyresultwouldbe,thehappyoneofbothpartiesbeingbettersuppliedandhavingmoreenjoyments.Butinthisintercourseofmutualgratifications,twothingsaretakenforgranted,whicharetheverypointsindispute.Itistakenforgrantedthatluxuriesarealwayspreferredtoindolence,andthattheprofitsofeachpartyareconsumedasrevenue.Whatwouldbetheeffectofadesiretosaveundersuchcircumstances,shallbeconsideredpresently.Theeffectofapreferenceofindolencetoluxurieswouldevidentlybetooccasionawantofdemandforthereturnsoftheincreasedpowersofproductionsupposed,andtothrowlabourersoutofemployment.Thecultivator,beingnowenabledtoobtainthenecessariesandconveniencestowhichhehadbeenaccustomed,withlesstoilandtrouble,andhistastes,forribands,lace,andvelvetnotbeingfullyformed,mightbeverylikelytoindulgehimselfinindolence,andemploylesslabourontheland;whilethemanufacturer,find-inghisvelvetsratherheavyofsale,wouldbeledtodiscontinuetheirmanufacture,andtofallalmostnecessarilyintothesameindolentsystemasthefarmer.Thatanefficienttasteforluxuries,thatis,suchatasteaswillproperlystimulateindustry,insteadofbeingreadytoappearatthemomentitisrequired,isaplantofslowgrowth,thehistoryofhumansocietysufficientlyshews;andthatitisamostimportanterrortotakeforgranted,thatmankindwillproduceandconsumeallthattheyhavethepowertoproduceandconsume,andwillneverpreferindolencetotherewardsofindustry,willsufficientlyappearfromaslightreviewofsomeofthenationswithwhichweareacquainted.ButIshallhaveoccasionforareviewofthiskindinthenextsection;andtothisIreferthereader.Athirdveryseriouserrorofthewritersreferredtoabove,andpracticallythemostimportantofthethree,consistsinsupposingthataccumulationensuresdemand;orthattheconsumptionofthelabourersemployedbythosewhoseobjectistosave,willcreatesuchaneffectualdemandforcommoditiesastoencourageacontinuedincreaseofproduce. 298TheClassicalSchoolMrRicardoobserves,that‘If10,000l.weregiventoamanhaving100,000l.perannum,hewouldnotlockitupinachest,butwouldeitherincreasehisexpensesby10,000l,employithim-selfproductively,orlendittosomeotherpersonforthatpurpose;ineithercasedemandwouldbeincreased,althoughitwouldbefordifferentobjects.Ifheincreasedhisexpenses,hiseffectualdemandmightprobablybeforbuildings,furniture,orsomesuchenjoyment.Ifheemployedhis10,000l.productively,hiseffectualdemandwouldbeforfood,clothing,andrawmaterials,whichmightsetnewlabourerstowork.Butstillitwouldbedemand’.Uponthisprincipleitissupposedthatifthericherportionofsocietyweretoforegotheiraccustomedconveniencesandluxurieswithaviewtoaccumulation,theonlyeffectwouldbeadirectionofnearlythewholecapitalofthecountrytotheproductionofnecessaries,whichwouldleadtoagreatincreaseofcultivationandpopulation.But,withoutsupposinganentirechangeintheusualmotivestoaccumulation,thiscouldnotpossiblyhappen.Theusualmotivesforaccumulationare,Iconceive,eitherthefuturewealthandenjoymentoftheindividualwhoaccumulates,orofthosetowhomhemeanstoleavehisproperty.Andwiththesemotivesitcouldneveranswertothepossessoroflandtoemploynearlyallthelabourwhichthesoilcouldsupportincultivation;asbysodoinghewouldnecessarilydestroyhisneatrent,andrenderitimpossibleforhim,withoutsubsequentlydismissingthegreatestpartofhisworkmenandoccasioningthemostdreadfuldistress,eithertogivehimselfthemeansofgreaterenjoymentatafuturedistantperiod,ortotransmitsuchmeanstohisposterity.Theverydefinitionoffertilelandis,landthatwillsupportamuchgreaternumberofpersonsthanarenecessarytocultivateit;andifthelandlord,insteadofspendingthissurplusinconve-niences,luxuries,andunproductiveconsumers,weretoemployitinsettingtoworkonthelandasmanylabourersashissavingscouldsupport,itisquiteobviousthat,insteadofbeingenriched,hewouldbeimpoverishedbysuchaproceeding,bothatfirstandinfuture.Nothingcouldjustifysuchaconductbutadifferentmotiveforaccumulation;thatis,adesiretoincreasethepopulation–nottheloveofwealthandenjoyment;andtillsuchachangetakesplaceinthepassionsandpropensitiesofmankind,wemaybequitesurethatthelandlordsandcultivatorswillnotgoonemployinglabourersinthisway.Whatthenwouldhappen?Assoonasthelandlordsandcultivatorsfoundthattheycouldnotrealizetheirincreasingproduceinsomewaywhichwouldgivethemacommandofwealthinfuture,theywouldceasetoemploymorelabourupontheland;andifthebusinessofthatpartofthesocietywhichwasnotengagedinraisingrawproduce,consistedmerelyinpreparingtheothersimplenecessariesoflife,thenumberrequiredforthispurposebeinginconsiderable,therestofthosewhomthesoilcouldsupportwouldbethrownoutofwork.Havingnomeansoflegallydemandingaportionoftherawproduce,howeverplentifulitmightbeatfirst,theywouldgraduallydecreaseinnumbers;andthefailureofeffectivedemandfortheproduceofthesoilwouldnecessarilydiminishcultivation,andthrowastillgreaternumberofpersonsoutofemployment.Thisactionandreactionwouldthusgoontillthebalanceofproduceandcon-sumptionwasrestoredinreferencetothenewtastesandhabitswhichwereestablished:anditisobviousthatwithoutanexpenditurewhichwillencouragecommerce,manufactures,andunpro-ductiveconsumers,oranAgrarianlawcalculatedtochangetheusualmotivesforaccumulation,thepossessorsoflandwouldhavenosufficientstimulustocultivatewell;andacountrysuchasourown,whichhadbeenrichandpopulous,would,withsuchparsimonioushabits,infalliblybecomepoor,andcomparativelyunpeopled.Thesamekindofreasoningwillobviouslyapplytothecasenoticedbefore.Whilethefarmersweredisposedtoconsumetheluxuriesproducedbythemanufacturers,andthemanufacturersthoseproducedbythefarmers,allwouldgoonsmoothly;butifeitheroneorbothofthepartiesweredisposedtosavewithaviewofbetteringtheircondition,andprovidingfortheirfamiliesinfuture,thestateofthingswouldbeverydifferent.Thefarmer,insteadofindulging Malthus:PrinciplesofPoliticalEconomy299himselfinribands,lace,andvelvets,wouldbedisposedtobesatisfiedwithmoresimpleclothing,butbythiseconomyhewoulddisablethemanufacturerfrompurchasingthesameamountofhisproduce;andforthereturnsofsomuchlabouremployedupontheland,andallgreatlyincreasedinproductivepower,therewouldevidentlybenomarket.Themanufacturer,inlikemanner,insteadofindulginghimselfinsugar,grapes,andtobacco,mightbedisposedtosavewithaviewtothefuture,butwouldbetotallyunabletodoso,owingtotheparsimonyofthefarmersandthewantofdemandformanufactures.Anaccumulation,toacertainextent,ofcommonfoodandcommonclothingmighttakeplaceonbothsides;buttheamountmustnecessarilybeextremelyconfined.Itwouldbeofnosortofusetothefarmertogooncultivatinghislandwithaviewmerelytogivefoodandclothingtohislabourers.Hewouldbedoingnothingeitherforhimselforfamily,ifheneitherconsumedthesurplusofwhattheyproducedhimself,norcouldrealizeitinashapethatmightbetransmittedtohisdescendants.Ifhewereatenant,suchadditionalcareandlabourwouldbeentirelythrownaway;andifhewerealandlord,andweredetermined,withoutreferencetomarkets,tocultivatehisestateinsuchawayastomakeityieldthegreatestneatsurpluswithaviewtothefuture,itisquitecertainthatthelargeportionofthissurpluswhichwasnotrequiredeitherforhisowncon-sumption,ortopurchaseclothingforhimselfandhislabourers,wouldbeabsolutelywasted.Ifhedidnotchoosetouseitinthepurchaseofluxuriesorthemaintenanceofunproductivelabourers,itmightaswellbethrownintothesea.Tosaveit,thatistouseitinemployingmorelabourersuponthelandwould,asIsaidbefore,betoimpoverishbothhimselfandhisfamily.Itwouldbestillmoreuselesstothemanufacturerstogoonproducingclothingbeyondwhatwaswantedbytheagriculturistsandthemselves.Theirnumbersindeedwouldentirelydependuponthedemandsoftheagriculturists,astheywouldhavenomeansofpurchasingsubsistence,butinproportionastherewasareciprocalwantoftheirmanufactures.Thepopulationrequiredtopro-videsimpleclothingforsuchasocietywiththeassistanceofgoodmachinerywouldbeinconsid-erable,andwouldabsorbbutasmallportionofthepropersurplusofrichandwellcultivatedland.Therewouldevidentlythereforebeageneralwantofdemand,bothforproduceandpopu-lation;andwhileitisquitecertainthatanadequatepassionforconsumptionmayfullykeepuptheproperproportionbetweensupplyanddemand,whatevermaybethepowersofproduction,itappearstobequiteascertainthatapassionforaccumulationmustinevitablyleadtoasupplyofcommoditiesbeyondwhatthestructureandhabitsofsuchasocietywillpermittobeconsumed.Butifthisbeso,surelyitisamostimportanterrortocouplethepassionforexpenditureandthepassionforaccumulationtogether,asiftheywereofthesamenature;andtoconsiderthedemandforthefoodandclothingofthelabourer,whoistobeemployedproductively,assecur-ingsuchageneraldemandforcommoditiesandsucharateofprofitsforthecapitalemployedinproducingthem,aswilladequatelycallforththepowersofthesoil,andtheingenuityofmaninprocuringthegreatestquantitybothofrawandmanufacturedproduce.PerhapsitmaybeaskedbythosewhohaveadoptedMrRicardo’sviewofprofits–whatbecomesofthedivisionofthatwhichisproduced,whenpopulationischeckedmerelybywantofdemand?Itisacknowledgedthatthepowersofproductionhavenotbeguntofail;yet,iflabourproduceslargelyandyetisillpaid,itwillbesaidthatprofitsmustbehigh.Ihavealreadystatedinaformerchapter,thatthevalueofthematerialsofcapitalveryfrequentlydonotfallinproportiontothefallinthevalueoftheproduceofcapital,andthisalonewilloftenaccountforlowprofits.Butindependentlyofthisconsideration,itisobviousthatintheproductionofanyothercommoditiesthannecessaries,thetheoryisperfectlysimple.Fromwantofdemand,suchcommoditiesmaybeverylowinprice,andalargeportionofthewholevalueproducedmaygotothelabourer,althoughinnecessarieshemaybeillpaid,andhiswages,bothwithregardtothequantityoffoodwhichhereceivesandthelabourrequiredtoproduceit,maybedecidedlylow. 300TheClassicalSchoolIfitbesaid,thatonaccountofthelargeportionofthevalueofmanufacturedproducewhichonthissuppositionisabsorbedbywages,itmaybeaffirmedthatthecauseofthefallofprofitsishighwages,Ishouldcertainlyprotestagainstsomanifestanabuseofwords.Theonlyjustifiablegroundforadoptinganewterm,orusinganoldoneinanewsense,is,toconveymorepreciseinformationtothereader;buttorefertohighwagesinthiscase,insteadoftoafallofcommodi-ties,wouldbetoproceedasifthespecificintentionofthewriterweretokeephisreaderasmuchaspossibleinthedarkastotherealstateofthings.Intheproductionofnecessarieshowever,itwillbeallowed,thattheanswertothequestionisnotquitesosimple,yetstillitmaybemadesufficientlyclear.MrRicardoacknowledgesthattheremaybealimittotheemploymentofcapitaluponthelandfromthelimitedwantsofsociety,independentlyoftheexhaustionofthesoil.Inthecasesupposed,thislimitmustnecessarilybeverynarrow,becausetherewouldbecomparativelynopopulationbesidestheagriculturiststomakeaneffectivedemandforproduce.Undersuchcircumstancescornmightbeproduced,whichwouldlosethecharacterandqualityofwealth;and,asIbeforeobservedinanote,allthepartsofthesameproducewouldnotbeofthesamevalue.Theactuallabourersemployedmightbetolerablywellfed,asisfrequentlythecase,practically,inthosecountrieswherethelabourersarefedbythefarmers,buttherewouldbelittleworkorfoodfortheirgrownupsons;andfromvaryingmarketsandvaryingcrops,theprofitsofthefarmermightbethelowestattheverytimewhen,accordingtothedivisionoftheproduce,itoughttobethehighest,thatis,whentherewasthegreatestproportionateexcessofproduceabovewhatwaspaidtothelabourer.Thewagesofthelabourercannotsinkbelowacertainpoint,butapartoftheproduce,fromexcessofsupply,mayforatimebeabsolutelyuseless,andpermanentlyitmaysofallfromcompetitionastoyieldonlythelowestprofits.Iwouldobservefurther,thatifinconsequenceofadiminisheddemandforcorn,thecultivatorsweretowithdrawtheircapitalssoasbettertoproportiontheirsuppliestothequantitythatcouldbeproperlypaidfor;yetiftheycouldnotemploythecapitaltheyhadwithdrawninanyotherway,which,accordingtotheprecedingsupposition,theycouldnot,itiscertainthat,thoughtheymightforatimemakefairprofitsofthesmallstockwhichtheystillcontinuedtoemployinagriculture,theconsequencestothemascultivatorswouldbe,toallintentsandpurposes,thesameasifageneralfallhadtakenplaceonalltheircapital.If,intheprocessofsaving,allthatwaslostbythecapitalistwasgainedbythelabourer,thechecktotheprogressofwealthwouldbebuttemporary,asstatedbyMrRicardo;andtheconse-quencesneednotbeapprehended.Butiftheconversionofrevenueintocapitalpushedbeyondacertainpointwill,bydiminishingtheeffectualdemandforproduce,throwthelabouringclassesoutofemployment,itisobviousthattheadoptionofparsimonioushabitsintoogreatadegreemaybeaccompaniedbythemostdistressingeffectsatfirst,andbyamarkeddepressionofwealthandpopulationpermanently.Itisnot,ofcourse,meanttobestatedthatparsimony,orevenatemporarydiminutionofconsumption,isnotofteninthehighestdegreeuseful,andsometimesabsolutelynecessarytotheprogressofwealth.Astatemaycertainlyberuinedbyextravagance;andadiminutionoftheactualexpendituremaynotonlybenecessaryonthisaccount,butwhenthecapitalofacountryisdeficient,comparedwiththedemandforitsproducts,atemporaryeconomyofconsumptionisrequired,inordertoprovidethatsupplyofcapitalwhichcanalonefurnishthemeansofanincreasedconsumptioninfuture.AllthatImeantosayis,thatnonationcanpossiblygrowrichbyanaccumulationofcapital,arisingfromapermanentdiminutionofconsumption;because,suchaccumulationbeinggreatlybeyondwhatiswanted,inordertosupplytheeffectivedemandforproduce,apartofitwouldverysoonlosebothitsuseanditsvalue,andceasetopossessthecharacterofwealth.Onthesuppositionindeedofagivenconsumption,theaccumulationofcapitalbeyondacertainpointmustappearatoncetobeperfectlyfutile.But,eventakingintoconsiderationthe Malthus:PrinciplesofPoliticalEconomy301increasedconsumptionlikelytoariseamongthelabouringclassesfromtheabundanceandcheapnessofcommodities,yetasthischeapnessmustbeattheexpenseofprofits,itisobviousthatthelimitstosuchanincreaseofcapitalfromparsimony,asshallnotbeattendedbyaveryrapiddiminutionofthemotivetoaccumulate,areverynarrow,andmayveryeasilybepassed.Thelawswhichregulatetherateofprofitsandtheprogressofcapital,bearaverystrikingandsingularresemblancetothelawswhichregulatetherateofwagesandtheprogressofpopulation.MrRicardohasveryclearlyshewnthattherateofprofitsmustdiminish,andtheprogressofaccumulationbefinallystopped,underthemostfavourablecircumstances,bytheincreasingdif-ficultyofprocuringthefoodofthelabourer.I,inlikemanner,endeavouredtoshewinmy‘EssayonthePrincipleofPopulation’that,undercircumstancesthemostfavourabletocultivationwhichcouldpossiblybesupposedtooperateintheactualstateoftheearth,thewagesofthelabourerwouldbecomemorescanty,andtheprogressofpopulationbefinallystoppedbytheincreasingdifficultyofprocuringthemeansofsubsistence.ButMrRicardohasnotbeensatisfiedwithprovingthepositionjuststated.Hehasnotbeensatisfiedwithshewingthatthedifficultyofprocuringthefoodofthelaboureristheonlyabsolutelynecessarycauseofthefallofprofits,inwhichIamreadyfullyandentirelytoagreewithhim:buthehasgoneontosay,thatthereisnoothercauseofthefallofprofitsintheactualstateofthingsthathasanydegreeofpermanence.InthislatterstatementheappearstometohavefallenintopreciselythesamekindoferrorasIshouldhavefalleninto,if,afterhavingshewnthattheunre-strictedpowerofpopulationwasbeyondcomparisongreaterthanthepoweroftheearthtopro-ducefoodunderthemostfavourablecircumstancespossible,Ihadallowedthatpopulationcouldnotberedundantunlessthepowersoftheearthtokeepupwiththeprogressofpopulationhadbeentriedtotheuttermost.ButIallalongsaid,thatpopulationmightberedundant,andgreatlyredundant,comparedwiththedemandforitandtheactualmeansofsupportingit,althoughitmightmostproperlybeconsideredasdeficient,andgreatlydeficient,comparedwiththeextentofterritory,andthepowersofsuchterritorytoproduceadditionalmeansofsubsistence;that,insuchcases,notwithstandingtheacknowledgeddeficiencyofpopulation,andtheobviousdesir-ablenessofhavingitgreatlyincreased,itwasuselessandfoolishdirectlytoencouragethebirthofmorechildren,astheeffectofsuchencouragement,withoutademandforlabourandthemeansofpayingitproperly,couldonlybeincreasedmiseryandmortalitywithlittleornofinalincreaseofpopulation.ThoughMrRicardohastakenaverydifferentcourse,Ithinkthatthesamekindofreasoningoughttobeappliedtotherateofprofitsandtheprogressofcapital.Fullyacknowledgingthatthereishardlyacountryinthefourquartersoftheglobewherecapitalisnotdeficient,andinmostofthemverygreatlydeficient,comparedwiththeterritoryandeventhenumberofpeople;andfullyallowingatthesametimetheextremedesirablenessofanincreaseofcapital,Ishouldsaythat,wherethedemandforcommoditieswasnotsuchastoaffordfairprofitstotheproducer,andthecapitalistswereatalosswhereandhowtoemploytheircapitalstoadvantage,thesavingfromrevenuetoaddstillmoretothesecapitalswouldonlytendprematurelytodiminishthemotivetoaccumulation,andstillfurthertodistressthecapitalists,withlittleincreaseofawholesomeandeffectivecapital.Thefirstthingwantedinboththesecasesofdeficientcapitalanddeficientpopulation,isaneffectivedemandforcommodities,thatis,ademandbythosewhoareableandwillingtopayanadequatepriceforthem;andthoughhighprofitsarenotfollowedbyanincreaseofcapital,socertainlyashighwagesarebyanincreaseofpopulation,yetIbelievethattheyaresofollowedmoregenerallythantheyappeartobe,because,inmanycountries,asIhavebeforeintimated,profitsareoftenthoughttobehigh,owingtothehighinterestofmoney,whentheyarereallylow;andbecause,universally,riskinemployingcapitalhaspreciselythesameeffectindiminish-ingthemotivetoaccumulateandtherewardofaccumulation,aslowprofits.Atthesametimeit 302TheClassicalSchoolwillbeallowedthatdeterminedextravagance,andadeterminedindispositiontosave,maykeepprofitspermanentlyhigh.Themostpowerfulstimulantsmay,underpeculiarcircumstances,beresisted;yetstillitwillnotceasetobetruethatthenaturalandlegitimateencouragementtotheincreaseofcapitalisthatincreaseofthepowerandwilltosavewhichisheldoutbyhighprofits;andundercircumstancesinanydegreesimilar,suchincreaseofpowerandwilltosavemustalmostalwaysbeaccompaniedbyaproportionateincreaseofcapital.Oneofthemoststrikinginstancesofthetruthofthisremark,andafurtherproofofasingu-larresemblanceinthelawsthatregulatetheincreaseofcapitalandofpopulation,istobefoundintherapiditywithwhichthelossofcapitalisrecoveredduringawarwhichdoesnotinterruptcommerce.Theloanstogovernmentconvertcapitalintorevenue,andincreasedemandatthesametimethattheyatfirstdiminishthemeansofsupply.Thenecessaryconsequencemustbeanincreaseofprofits.Thisnaturallyincreasesboththepowerandtherewardofaccumulation;andifonlythesamehabitsofsavingprevailamongthecapitalistsasbefore,therecoveryoftheloststockmustberapid,justforthesamekindofreasonthatthearecoveryofpopulationissorapidwhen,bysomecauseorother,ithasbeensuddenlydestroyed.Itisnowfullyacknowledgedthatitwouldbeagrosserrorinthelattercase,toimaginethat,withoutthepreviousdiminutionofthepopulation,thesamerateofincreasewouldstillhavetakenplacebecauseitispreciselythehighwagesoccasionedbythedemandforlabour,whichproducetheeffectofsorapidanincreaseofpopulation.Onthesameprincipleitappearstomeasgrossanerrortosupposethat,withoutthepreviouslossofcapitaloccasionedbytheexpendi-tureinquestion,capitalshouldbeasrapidlyaccumulated;becauseitispreciselythehighprofitsofstockoccasionedbythedemandforcommodities,andtheconsequentdemandforthemeansofproducingthem,whichatoncegivethepowerandthewilltoaccumulate.Thoughitmaybeallowedthereforethatthelawswhichregulatetheincreaseofcapitalarenotquitesodistinctasthosewhichregulatetheincreaseofpopulation,yettheyarecertainlyjustofthesamekind;anditisequallyvain,withaviewtothepermanentincreaseofwealth,tocon-tinueconvertingrevenueintocapital,whenthereisnoadequatedemandfortheproductsofsuchcapital,astocontinueencouragingmarriageandthebirthofchildrenwithoutademandforlabourandanincreaseofthefundsforitsmaintenance.SectionIX:Ofthedistributionoccasionedbyunproductiveconsumers,consideredasthemeantofincreasingtheexchangeablevalueofthewholeproduceThethirdmaincausewhichtendstokeepupandincreasethevalueofproducebyfavouringitsdistributionistheemploymentofunproductivelabour,orthemaintenanceofanadequateproportionofunproductiveconsumers.Ithasbeenalreadyshewnthat,underarapidaccumulationofcapital,or,moreproperlyspeaking,arapidconversionofunproductiveintoproductivelabour,thedemand,comparedwiththesupplyofmaterialproducts,wouldprematurelyfail,andthemotivetofurtheraccumu-lationbechecked,beforeitwascheckedbytheexhaustionoftheland.Itfollowsthat,withoutsupposingtheproductiveclassestoconsumemuchmorethantheyarefoundtodobyexperience,particularlywhentheyarerapidlysavingfromrevenuetoaddtotheircapitals,itisabsolutelynecessarythatacountrywithgreatpowersofproductionshouldpossessabodyofunproductiveconsumers.Inthefertilityofthesoil,inthepowersofmantoapplymachineryasasubstituteforlabour,andinthemotivestoexertionunderasystemofprivateproperty,thegreatlawsofnaturehaveprovidedfortheleisureofacertainportionofsociety;andifthisbeneficentofferbenotacceptedbyanadequatenumberofindividuals,notonlywillapositivegood,whichmighthave Malthus:PrinciplesofPoliticalEconomy303beensoattained,belost,buttherestofthesociety,sofarfrombeingbenefitedbysuchself-denial,willbedecidedlyinjuredbyit.Whattheproportionisbetweentheproductiveandunproductiveclassesofasociety,whichaffordsthegreatestencouragementtothecontinuedincreaseofwealth,ithasbeforebeensaidthattheresourcesofpoliticaleconomyareunequaltodetermine.Itmustdependuponagreatvarietyofcircumstances,particularlyuponfertilityofsoilandtheprogressofinventioninmachinery.Afertilesoilandaningeniouspeoplecannotonlysupportaconsiderableproportionofunproductiveconsumerswithoutinjury,butmayabsolutelyrequiresuchabodyofdeman-ders,inordertogiveeffecttotheirpowersofproduction.While,withapoorsoilandapeopleoflittleingenuity,anattempttosupportsuchabodywouldthrowlandoutofcultivation,andleadinfalliblytoimpoverishmentandruin.Anothercause,whichmakesitimpossibletosaywhatproportionoftheunproductivetotheproductiveclassesismostfavourabletotheincreaseofwealth,isthedifferenceinthedegreesofconsumptionwhichmayprevailamongtheproducersthemselves.Perhapsitwillbesaidthattherecanbenooccasionforunproductiveconsumers,ifaconsumptionsufficienttokeepupthevalueoftheproducetakesplaceamongthosewhoareengagedinproduction.Withregardtothecapitalistswhoaresoengaged,theyhavecertainlythepowerofconsumingtheirprofits,ortherevenuewhichtheymakebytheemploymentoftheircapitals;andiftheyweretoconsumeit,withtheexceptionofwhatcouldbebeneficiallyaddedtotheircapitals,soastoprovideinthebestwaybothforanincreasedproductionandincreasedconsumption,theremightbelittleoccasionforunproductiveconsumers.Butsuchconsumptionisnotconsistentwiththeactualhabitsofthegeneralityofcapitalists.Thegreatobjectoftheirlivesistosaveafortune,bothbecauseitistheirdutytomakeaprovisionfortheirfamilies,andbecausetheycannotspendanincomewithsomuchcomforttothemselves,whiletheyareobligedperhapstoattendacounting-houseforsevenoreighthoursaday.Ithasbeenlaiddownasasortofaxiomamongsomewritersthatthewantsofmankindmaybeconsideredasatalltimescommensuratewiththeirpowers;butthispositionisnotalwaystrue,eveninthosecaseswhereafortunecomeswithouttrouble;andinreferencetothegreatmassofcapitalists,itiscompletelycontradictedbyexperience.Almostallmerchantsandmanufacturerssave,inprosperoustimes,muchmorerapidlythanitwouldbepossibleforthenationalcapitaltoincrease,soastokeepupthevalueoftheproduce.Butifthisbetrueofthemasabody,takenonewithanother,itisquiteobviousthat,withtheiractualhabits,theycouldnotaffordanadequatemarkettoeachotherbyexchangingtheirseveralproducts.Theremustthereforebeaconsiderableclassofotherconsumers,orthemercantileclassescouldnotcontinueextendingtheirconcerns,andrealizingtheirprofits.Inthisclassthelandlordsnodoubtstandpre-eminent;butifthepowersofproductionamongcapitalistsareconsiderable,theconsumptionofthelandlords,inadditiontothatofthecapitaliststhemselvesandoftheirworkmen,maystillbeinsufficienttokeepupandincreasetheexchangeablevalueofthewholeproduce,thatis,tomaketheincreaseofquantitymorethancounterbalancethefallofprice.Andifthisbeso,thecapitalistscannotcontinuethesamehabitsofsaving.Theymusteithercon-sumemore,orproduceless;andwhenthemerepleasureofpresentexpenditure,withouttheaccompanimentsofanimprovedlocalsituationandanadvanceinrank,isputinoppositiontothecontinuedlabourofattendingtobusinessduringthegreatestpartoftheday,theprobabilityisthataconsiderablebodyofthemwillbeinducedtopreferthelatteralternative,andproduceless.Butif,inordertobalancethedemandandsupply,apermanentdiminutionofproductiontakesplace,ratherthananincreaseofconsumption,thewholeofthenationalwealth,whichcon-sistsofwhatisproducedandconsumed,andnotoftheexcessofproduceaboveconsumption,willbedecidedlydiminished. 304TheClassicalSchoolMrRicardofrequentlyspeaks,asifsavingwereanendinsteadofameans.Yetevenwithregardtoindividuals,wherethisviewofthesubjectisnearestthetruth,itmustbeallowedthatthefinalobjectinsavingisexpenditureandenjoyment.But,inreferencetonationalwealth,itcanneverbeconsideredeitherimmediatelyorpermanentlyinanyotherlightthanasameans.Itmaybetruethat,bythecheapnessofcommodities,andtheconsequentsavingofexpenditureinconsumption,thesamesurplusofproduceaboveconsumptionmaybeobtainedasbyagreatriseofprofitswithanundiminishedconsumption;and,ifsavingwereanend,thesameendwouldbeaccomplished.Butsavingisthemeansoffurnishinganincreasingsupplyfortheincreasingnationalwants.Ifhowevercommoditiesarealreadysoplentifulthatanadequateportionofthemisnotconsumed,thecapitalsosaved,theofficeofwhichisstillfurthertoincreasetheplentyofcommodities,andstillfurthertoloweralreadylowprofits,canbecomparativelyoflittleuse.Ontheotherhand,ifprofitsarehigh,itisasuresignthatcommoditiesarescarce,comparedwiththedemandforthem,thatthewantsofthesocietyareclamorousforasupply,andthatanincreaseinthemeansofproduction,bysavingaconsiderablepartofthenewrev-enuecreatedbythehighprofits,andaddingittocapital,willbespecificallyandpermanentlybeneficial.Nationalsaving,therefore,consideredasthemeansofincreasedproduction,isconfinedwithinmuchnarrowerlimitsthanindividualsaving.Whilesomeindividualscontinuetospend,otherindividualsmaycontinuetosavetoaverygreatextent;butthenationalsaving,orthebal-anceofproduceaboveconsumption,inreferencetothewholemassofproducersandconsumers,mustnecessarilybelimitedbytheamountwhichcanbeadvantageouslyemployedinsupplyingthedemandforproduce;andtocreatethisdemand,theremustbeanadequateconsumptioneitheramongtheproducersthemselves,orotherclassesofconsumers.AdamSmithhasobserved‘thatthedesireoffoodislimitedineverymanbythenarrowcapacityofthehumanstomach;butthedesireoftheconveniencesandornamentsofbuilding,dress,equipage,andhouseholdfurniture,seemstohavenolimitorcertainboundary’.Thatithasnocertainboundaryisunquestionablytrue;thatithasnolimitmustbeallowedtobetoostronganexpression,whenweconsiderhowitwillbepracticallylimitedbythecountervailingluxuryofindolence,orbythegeneraldesireofmankindtobettertheircondition,andmakeaprovisionforafamily;aprinciplewhich,asAdamSmithhimselfstates,isonthewholestrongerthantheprin-ciplewhichpromptstoexpense.Butsurelyitisaglaringmisapplicationofthisstatementinanysenseinwhichitcanbereasonablyunderstood,tosay,thatthereisnolimittothesavingandemploymentofcapitalexceptthedifficultyofprocuringfood.Itistofindadoctrineupontheunlimiteddesireofmankindtoconsume;thentosupposethisdesirelimitedinordertosavecap-ital,andthuscompletelyalterthepremises;andyetstilltomaintainthatthedoctrineistrue.Letasufficientconsumptionalwaystakeplace,whetherbytheproducersorothers,tokeepupandincreasemosteffectuallytheexchangeablevalueofthewholeproduce;andIamperfectlyreadytoallowthat,totheemploymentofanationalcapital,increasingonlyatsucharate,thereisnootherlimitthanthatwhichboundsthepowerofmaintainingpopulation.Butitappearstomeperfectlyclearintheory,anduniversallyconfirmedbyexperience,thattheemploymentofacap-ital,toorapidlyincreasedbyparsimonioushabits,mayfindalimit,anddoes,infact,oftenfindalimit,longbeforethereisanyrealdifficultyinprocuringthemeansofsubsistence;andthatbothcapitalandpopulationmaybeatthesametime,andforaperiodofgreatlength,redundant,comparedwiththeeffectivedemandforproduce.Ofthewantsofmankindingeneral,itmaybefurtherobserved,thatitisapartialandnarrowviewofthesubject,toconsideronlythepropensitytospendwhatisactuallypossessed.Itformsbutaverysmallpartofthequestiontodeterminethatifamanhasahundredthousandayear,hewillnotdeclinetheofferoftenthousandmore;ortolaydowngenerallythatmankindareneverdisposedtorefusethemeansofincreasedpowerandenjoyment.Themainpartofthe Malthus:PrinciplesofPoliticalEconomy305questionrespectingthewantsofmankind,relatestotheirpowerofcallingforththeexertionsnecessarytoacquirethemeansofexpenditure.Itisunquestionablytruethatwealthproduceswants;butitisastillmoreimportanttruth,thatwantsproducewealth.Eachcauseactsandreactsupontheother,buttheorder,bothofprecedenceandofimportance,iswiththewantswhichstimulatetoindustry;andwithregardtothese,itappearsthat,insteadofbeingalwaysreadytosecondthephysicalpowersofman,theyrequirefortheirdevelopment,‘allappliancesandmeanstoboot’.Thegreatestofalldifficultiesinconvertinguncivilizedandthinlypeopledcountriesintocivilizedandpopulousones,istoinspirethemwiththewantsbestcalculatedtoexcitetheirexertionsintheproductionofwealth.Oneofthegreatestbenefitswhichforeigncommerceconfers,andthereasonwhyithasalwaysappearedanalmostnecessaryingredientintheprogressofwealth,is,itstendencytoinspirenewwants,toformnewtastes,andtofurnishfreshmotivesforindustry.Evencivilizedandimprovedcountriescannotaffordtoloseanyofthesemotives.Itisnotthemostpleasantemploymenttospendeighthoursadayinacounting-house.Norwillitbesubmittedtoafterthecommonnecessariesandconveniencesoflifeareattained,unlessadequatemotivesarepresentedtothemindofthemanofbusiness.Amongthesemotivesisundoubtedlythedesireofadvancinghisrank,andcontendingwiththelandlordsintheenjoymentofleisure,aswellasofforeignanddomesticluxuries.Butthedesiretorealizeafortuneasapermanentprovisionforafamilyisperhapsthemostgeneralmotiveforthecontinuedexertionsofthosewhoseincomesdependupontheirownper-sonalskillandefforts.Whatevermaybesaidofthevirtueofparsimonyorsaving,asapublicduty,therecannotbeadoubtthatitis,innumberlesscases,amostsacredandbindingprivateduty;andwerethislegitimateandpraiseworthymotivetoperseveringindustryinanydegreeweakened,itisimpossiblethatthewealthandprosperityofthecountryshouldnotmostmateriallysuffer.Butif,fromthewantofotherconsumers,thecapitalistswereobligedtoconsumeallthatcouldnotbeadvantageouslyaddedtothenationalcapital,themotiveswhichsupportthemintheirdailytasksmustessentiallybeweakened,andthesamepowersofproductionwouldnotbecalledforth.Ithasappearedthenthat,intheordinarystateofsociety,themasterproducersandcapitalists,thoughtheymayhavethepower,havenotthewill,toconsumetothenecessaryextent.Andwithregardtotheirworkmen,itmustbeallowedthat,iftheypossessedthewill,theyhavenotthepower.Itisindeedmostimportanttoobservethatnopowerofconsumptiononthepartofthelabouringclassescanever,accordingtothecommonmotiveswhichinfluencemankind,alonefurnishanencouragementtotheemploymentofcapital.AsIhavesaidbefore,nobodywilleveremploycapi-talmerelyforthesakeofthedemandoccasionedbythosewhoworkforhim.Unlesstheyproduceanexcessofvalueabovewhattheyconsume,whichheeitherwantshimselfinkind,orwhichhecanadvantageouslyexchangeforsomethingwhichhedesires,eitherforpresentorfutureuse,itisquiteobviousthathiscapitalwillnotbeemployedinmaintainingthem.Whenindeedthisfurthervalueiscreatedandaffordsasufficientexcitementtothesavingandemploymentofstock,thencer-tainlythepowerofconsumptionpossessedbytheworkmenwillgreatlyaddtothewholenationaldemand,andmakeroomfortheemploymentofamuchgreatercapital.Itismostdesirablethatthelabouringclassesshouldbewellpaid,foramuchmoreimportantrea-sonthananythatcanrelatetowealth;namely,thehappinessofthegreatmassofsociety.Buttothosewhoareinclinedtosaythatunproductiveconsumerscannotbenecessaryasastimulustotheincreaseofwealth,iftheproductiveclassesdobutconsumeafairproportionofwhattheyproduce,Iwouldobservethatasagreatincreaseofconsumptionamongtheworkingclassesmustgreatlyincreasethecostofproduction,itmustlowerprofits,anddiminishordestroythemotivetoaccu-mulate,beforeagriculture,manufactures,andcommercehavereachedanyconsiderabledegreeofprosperity.Ifeachlabourerwasactuallytoconsumedoublethequantityofcornwhichhedoesatpresent,suchademand,insteadofgivingastimulustowealth,wouldprobablythrowagreatquantityoflandoutofcultivation,andgreatlydiminishbothinternalandexternalcommerce. 306TheClassicalSchoolThereiscertainlyhoweververylittledangerofadiminutionofwealthfromthiscause.Owingtotheprincipleofpopulation,allthetendenciesaretheotherway;andthereismuchmorereasontofearthattheworkingclasseswillconsumetoolittlefortheirownhappiness,thanthattheywillconsumetoomuchtoallowofanadequateincreaseofwealth.Ionlyadvertedtothecircumstancetoshewthat,supposingsoimpossibleacaseasaverygreatconsumptionamongtheworkingproducers,suchconsumptionwouldnotbeofthekindtopushthewealthofacountrytoitsgreatestextent.Itmaybesaid,perhaps,thatowingtothelawswhichregulatetheincreaseofpopulation,itisinnorespectprobablethatthecornwagesoflabourshouldcontinuepermanentlyveryhigh,yetthesameconsumptionwouldtakeplaceifthelabouringclassesdidnotworksomanyhoursintheday,anditwasnecessarytoemployagreaternumberineachoccupation.Ihavealwaysthoughtandfeltthatmanyamongthelabouringclassesinthiscountryworktoohardfortheirhealth,happiness,andintellectualimprovement;and,ifagreaterdegreeofrelaxationfromseveretoilcouldbegiventothemwithatolerablyfairprospectofitsbeingemployedininnocentamusementsandusefulinstruction,Ishouldconsideritasverycheaplypurchased,bythesacri-ficeofaportionofthenationalwealthandpopulousness.ButIseenoprobability,orevenpossi-bility,ofaccomplishingthisobject.Tointerferegenerallywithpersonswhohavearrivedatyearsofdiscretioninthecommandofthemainpropertywhichtheypossess,namelytheirlabour,wouldbeanactofgrossinjustice;andtheattempttolegislatedirectlyintheteethofoneofthemostgeneralprinciplesbywhichthebusinessofsocietyiscarriedon,namely,theprincipleofcompetition,mustinevitablyandnecessarilyfail.Itisquiteobviousthatnothingcouldbedoneinthisway,butbythelabouringclassesthemselves;andeveninthisquarterwemayperhapsmuchmorereasonablyexpectthatsuchadegreeofprudencewillprevailamongthemastokeeptheirwagespermanentlyhigh,thanthattheyshouldnotenterintoacompetitionwitheachotherinworking.Amanwhoisprudentbeforemarriage,andsavessomethingforafamily,reapstheben-efitofhisconduct,althoughothersdonotfollowhisexample;but,withoutasimultaneousreso-lutiononthepartofallthelabouringclassestoworkfewerhoursintheday,theindividualwhoshouldventuresotolimithisexertionswouldnecessarilyreducehimselftocomparativewantandwretchedness.Ifthesuppositionmadeherewereaccomplished,notbyasimultaneousreso-lution,whichisscarcelypossible,butbythosegeneralhabitsofindolenceandignorance,whichsofrequentlyprevailinthelessimprovedstagesofsociety,itiswellknownthatsuchleisurewouldbeoflittlevalue;andthatwhilethesehabitswouldprematurelychecktherateofprofitsandtheprogressofpopulation,theywouldbringwiththemnothingtocompensatetheloss.Itisclearthereforethat,withthesingleexceptionoftheincreaseddegreeofprudencetobeexpectedamongthelabouringclassesofsocietyfromtheprogressofeducationandgeneralimprovement,whichmayoccasionagreaterconsumptionamongtheworkingproducers,alltheothertendenciesarepreciselyinanoppositedirection;andthat,generally,allsuchincreasedconsumption,whetherdesirableornotonothergrounds,mustalwayshavethespecificeffectofpreventingthewealthandpopulationofacountry,underasystemofprivateproperty,frombeingpushedsofar,asitmighthavebeen,ifthecostsofproductionhadnotbeensoincreased.Itmaybethoughtperhapsthatthelandlordscouldnotfailtosupplyanydeficiencyofdemandandconsumptionamongtheproducers,andthatbetweenthemtherewouldbelittlechanceofanyapproachtowardsredundancyofcapital.Whatmightbetheresultofthemostfavourabledistributionoflandedpropertyitisnoteasytosayfromexperience;butexperiencecertainlytellsusthat,underthedistributionoflandwhichactuallytakesplaceinmostofthecountriesinEurope,thedemandsofthelandlords,addedtothoseoftheproducers,havenotalwaysbeenfoundsufficienttopreventanydifficultyintheemploymentofcapital.Intheinstancealludedtoinaformerchapter,whichoccurredinthiscountryinthemiddleofthelastcentury,theremusthavebeenconsiderabledifficultyinfindingemploymentforcapital,orthenationalcreditors Malthus:PrinciplesofPoliticalEconomy307wouldratherhavebeenpaidoffthanhavesubmittedtoareductionofinterestfrom4percentto3.5percent,andafterwardsto3.Andthatthisfallintherateofinterestandprofitsarosefromaredundancyofcapitalandawantofdemandforproduce,ratherthanfromthedifficultyofproductionontheland,isfullyevincedbythelowpriceofcornatthetime,andtheverydiffer-entstateofinterestandprofitswhichhasoccurredsince.AsimilarinstancetookplaceinItalyin1685,when,uponthePope’sreducingtheinterestofhisdebtsfrom4to3percent,thevalueoftheprincipalroseafterwardsto112,andyetthepope’sterritorieshaveatnotimebeensocultivatedastooccasionsuchalowrateofinterestandprofitsfromthedifficultyofprocuringthefoodofthelabourer.Underamorefavourabledistributionofproperty,therecannotbeadoubtthatsuchademandforproduce,agricultural,manufacturing,andmercantile,mighthavebeencreated,astohavepreventedformanymanyyearstheinterestofmoneyfromfallingbelow3percent.Inboththesecases,thedemandsofthelandlordswereaddedtothoseoftheproductiveclasses.Butifthemaster-producers,fromthelaudabledesiretheyfeelofbetteringtheircondition,andprovidingforafamily,donotconsumesufficientlytogiveanadequatestimulustotheincreaseofwealth;iftheworkingproducers,byincreasingtheirconsumption,supposingthemtohavethemeansofsodoing,wouldimpedethegrowthofwealthmorebydiminishingthepowerofproduction,thantheycouldencourageitbyincreasingthedemandforproduce;andiftheexpenditureofthelandlords,inadditiontotheexpenditureofthetwoprecedingclasses,befoundinsufficienttokeepupandincreasethevalueofthatwhichisproduced,wherearewetolookfortheconsumptionrequiredbutamongtheunproductivelabourersofAdamSmith?Everysocietymusthaveabodyofunproductivelabourers;aseverysociety,besidesthemenialservantsthatarerequired,musthavestatesmentogovernit,soldierstodefendit,judgesandlawyerstoadministerjusticeandprotecttherightsofindividuals,physiciansandsurgeonstocurediseasesandhealwounds,andabodyofclergytoinstructtheignorant,andadministertheconsolationsofreligion.Nocivilizedstatehaseverbeenknowntoexistwithoutacertainportionofalltheseclassesofsocietyinadditiontothosewhoaredirectlyemployedinproduction.Toacertainextentthereforetheyappeartobeabsolutelynecessary.Butitisperhapsoneofthemostimportantpracticalquestionsthatcanpossiblybebroughtunderourview,whether,howevernecessaryanddesirabletheymaybe,theymustbeconsideredasdetractingsomuchfromthematerialproductsofacountry,anditspowerofsupportinganextendedpopulation;orwhethertheyfurnishfreshmotivestoproduction,andtendtopushthewealthofacountryfartherthanitwouldgowithoutthem.Thesolutionofthisquestionevidentlydepends,first,uponthesolutionofthemainpracticalquestion,whetherthecapitalofacountrycanorcannotberedundant;thatis,whetherthemotivetoaccumulatemaybecheckedordestroyedbythewantofeffectivedemandlongbeforeitischeckedbythedifficultyofprocuringthesubsistenceofthelabourer.Andsecond,whether,allowingthepossibilityofsucharedundance,thereissufficientreasontobelievethat,undertheactualhabitsofmankind,itisaprobableoccurrence.InthechapteronProfits,butmoreparticularlyinthethirdsectionofthepresentchapter,whereIhaveconsideredtheeffectofaccumulationasastimulustotheincreaseofwealth,Itrustthatthefirstofthesequestionshasbeensatisfactorilyanswered.Andinthepresentsectionithasbeenshewnthattheactualhabitsandpracticeoftheproductiveclasses,inthemostimprovedsocieties,donotleadthemtoconsumesolargeaproportionofwhattheyproduce,eventhoughassistedbythelandlords,astopreventtheirfindingfrequentdifficultiesintheemploymentoftheircapitals.Wemayconcludetherefore,withlittledangeroferror,thatsuchabodyofpersonsasIhavedescribedisnotonlynecessarytothegovernment,protection,health,andinstructionofacountry,butisalsonecessarytocallforththoseexertionswhicharerequiredtogivefullplaytoitsphysicalresources. 308TheClassicalSchoolWithrespecttothepersonsconstitutingtheunproductiveclasses,andthemodesbywhichtheyshouldbesupported,itisprobablethatthosewhicharepaidvoluntarilybyindividuals,willbeallowedbyalltobethemostlikelytobeusefulinexcitingindustry,andtheleastlikelytobeprej-udicialbyinterferingwiththecostsofproduction.Itmaybepresumedthatapersonwillnottakeamenialservant,unlesshecanaffordtopayhim;andthatheisaslikelytobeexcitedtoindustrybytheprospectofthisindulgence,asbytheprospectofbuyingribandsandlaces.Yettoshewhowmuchthewealthofnationsdependsupontheproportionofparts,ratherthanonanyposi-tiverulesrespectingtheadvantagesofproductiveorunproductivelabourgenerally,itmaybeworthwhiletoremindthereaderthat,thoughtheemploymentofacertainnumberofpersonsinmenialserviceisineveryrespectdesirable,therecouldhardlybeatastemoreunfavourabletotheprogressofwealththanastrongpreferenceofmenialservicetomaterialproducts.Wemayhowever,forthemostpart,trusttotheinclinationsofindividualsinthisrespect;anditwillbeallowedgenerally,thatthereislittledifficultyinreferencetothoseclasseswhicharesupportedvoluntarily,thoughtheremaybemuchwithregardtothosewhichmustbesupportedbytaxation.Withregardtotheselatterclasses,suchasstatesmen,soldiers,sailors,andthosewholiveupontheinterestofanationaldebt,itcannotbedeniedthattheycontributepowerfullytodistributionanddemand;theyfrequentlyoccasionadivisionofpropertymorefavourabletotheprogressofwealththanwouldotherwisehavetakenplace;theyensurethatconsumptionwhichisnecessarytogivetheproperstimulustoproduction;andthedesiretopayatax,andyetenjoythesamemeansofgratification,mustoftenoperatetoexcitetheexertionsofindustryquiteaseffectuallyasthedesiretopayalawyerorphysician.Yettocounterbalancetheseadvantages,whichsofarareunquestionable,itmustbeacknowledgedthatinjudicioustaxationmightstoptheincreaseofwealthatalmostanyperiodofitsprogress,earlyorlate,andthatthemostjudicioustaxationmightultimatelybesoheavyastoclogallthechannelsofforeignanddomestictrade,andalmostpreventthepossibilityofaccumulation.Theeffectthereforeonnationalwealthofthoseclassesofunproductivelabourerswhicharesupportedbytaxation,mustbeveryvariousindifferentcountries,andmustdependentirelyuponthepowersofproduction,anduponthemannerinwhichthetaxesareraisedineachcoun-try.Asgreatpowersofproductionareneitherlikelytobecalledintoaction,or,whenonceinaction,keptinactivitywithoutgreatconsumption,Ifeelverylittledoubtthatinstanceshavepracticallyoccurredofnationalwealthbeinggreatlystimulatedbytheconsumptionofthosewhohavebeensupportedbytaxes.Yettaxationisastimulussoliableineverywaytoabuse,anditissoabsolutelynecessaryforthegeneralinterestsofsocietytoconsiderprivatepropertyassacred,thatoneshouldbeextremelycautiousoftrustingtoanygovernmentthemeansofmak-ingadifferentdistributionofwealth,withaviewtothegeneralgood.Butwhen,eitherfromnecessityorerror,adifferentdistributionhastakenplace,andtheevil,asfarasitregardsprivateproperty,hasactuallybeencommitted,itwouldsurelybemostunwisetoattempt,attheexpenseofagreattemporarysacrifice,areturntotheformerdistribution,withoutveryfullyconsideringwhether,ifitwereeffected,itwouldbereallyadvantageous;thatis,whether,intheactualcir-cumstancesofthecountry,withreferencetoitspowersofproduction,morewouldnotbelostbythewantofconsumptionthangainedbythediminutionoftaxation.Iftherecouldbenosortofdifficultyinfindingemploymentforcapital,providedthepriceoflabourweresufficientlylow,thewaytonationalwealth,thoughitmightnotalwaysbeeasy,wouldbequitestraight,andouronlyobjectneedbetosavefromrevenue,andrepressunpro-ductiveconsumers.But,ifithasappearedthatthegreatestpowersofproductionarerenderedcomparativelyunlesswithoutadequateconsumption,andthataproperdistributionofthepro-duceisasnecessarytothecontinuedincreaseofwealthasthemeansofproducingit,itfollowsthat,incasesofthiskind,thequestiondependsuponproportions;anditwouldbetheheightof Malthus:PrinciplesofPoliticalEconomy309rashnesstodetermine,underallcircumstances,thatthediminutionofanationaldebtandtheremovaloftaxationmustnecessarilytendtoincreasethenationalwealth,andprovideemploymentforthelabouringclasses.Ifweweretosupposethepowersofproductioninarichandwell-peopledcountrytobesoincreasedthatthewholeofwhatitproducedcouldbeobtainedbyone-thirdofthelabourbeforeapplied,cantherebeareasonabledoubtthattheprincipaldifficultywouldbetoeffectsuchadistributionoftheproduce,astocallforththesegreatpowersofproduction?Toconsiderthegiftofsuchpowersasanevilwouldindeedbemoststrange;buttheywouldbeanevil,andpracti-callyagreatandgrievousone,iftheeffectweretobeanincreaseoftheneatproduceattheexpenseofthegrossproduce,andofthepopulation.Butif,ontheotherhand,amorefavourabledistributionoftheabundantproduceweretotakeplace;ifthemoreintelligentamongthework-ingclasseswereraisedintooverseersofworks,clerksofvariouskinds,andretaildealers,whilemanywhohadbeeninthesesituationsbefore,togetherwithnumerousotherswhohadreceivedatolerableeducation,wereentitledtoanincomefromthegeneralproduce,andcouldlivenearlyatleisureupontheirmortgages;whatanimprovedstructureofsocietywouldthisstateofthingspresent;whilethevalueofthegrossproduce,andthenumbersofthepeoplewouldbeincreas-ingwithrapidity!AsIhavesaidbefore,itwouldnotbepossible,undertheprincipleofcompeti-tion,(whichcanneverbegotridof)tosecuremuchmoreleisuretothoseactuallyengagedinmanuallabour;buttheverygreatincreaseinthenumberofprizeswhichwouldthenbeattain-ablebyindustriousandintelligentexertion,wouldmostessentiallyimprovetheircondition;and,onthewhole,thesocietywouldhavegainedagreataccessionofcomfortandhappiness.Itisnotmeanttobestatedthatsuchadistributionoftheproducecouldbeeasilyeffected;butmerelythat,withsuchadistribution,thepowerssupposedwouldconferaprodigiousbenefitonthesoci-ety,andwithoutsuchadistribution,orsuchachangeoftastesaswouldsecureanequivalentconsumption,thepowerssupposedmightbeworsethanthrownaway.Nowthequestionis,whetherthiscountry,initsactualstate,withthegreatpowersofproductionwhichitunquestionablypossesses,doesnotbearsomeslightresemblancetothecasehereimagined;andwhether,withoutsuchabodyofunproductiveconsumersasthesewholiveupontheinterestofthenationaldebt,thesamestimuluswouldhavebeengiventoproduction,andthesamepowerswouldhavebeencalledforth.Undertheactualdivisionoflandedpropertywhichnowtakesplaceinthiscountry,Ifeelnosortofdoubtthattheincomeswhicharereceivedandspentbythenationalcreditorsaremorefavourabletothedemandforthegreatmassofmanufacturedproducts,andtendmuchmoretoincreasethehappinessandintelligenceofthewholesociety,thaniftheywerereturnedtothelandlords.Iamfar,however,frombeinginsensibletotheevilsofagreatnationaldebt.Though,inmanyrespects,itmaybeausefulinstrumentofdistribution,itmustbeallowedtobeaverycumber-someandverydangerousinstrument.Inthefirstplace,therevenuenecessarytopaytheinterestofsuchadebtcanonlyberaisedbytaxation;and,asthistaxation,ifpushedtoanyconsiderableextent,canhardlyfailofinterferingwiththepowersofproduction,thereisalwaysdangerofimpairingoneelementofwealth,whileweareimprovinganother.Asecondimportantobjectiontoalargenationaldebt,isthefeelingwhichprevailssoverygenerallyamongallthosenotimme-diatelyconcernedinit,andconsequentlyamongthegreatmassofthepopulation,thattheywouldbeimmediatelyandgreatlyrelievedbyitsextinction;and,whetherthisimpressionbewellfoundedornot,itcannotexistwithoutrenderingsuchrevenueinsomedegreeinsecure,andexposingacountrytotheriskofagreatconvulsionofproperty.Athirdobjectiontosuchadebtis,thatitgreatlyaggravatestheevilsarisingfromchangesinthevalueofmoney.Whenthecur-rencyfallsinvalue,theannuitants,asownersoffixedincomes,aremostunjustlydeprivedoftheirpropershareofthenationalproduce;whenthecurrencyrisesinvalue,thepressureofthetaxationnecessarytopaytheinterestofthedebt,maybecomesuddenlysoheavyasgreatlyto 310TheClassicalSchooldistresstheproductiveclasses;andthiskindofsuddenpressuremustverymuchenhancetheinsecurityofpropertyvestedinpublicfunds.Ontheseandotheraccountsitmightbedesirableslowlytodiminishthedebt,andtodiscouragethegrowthofitinfuture,eventhoughitwereallowedthatitspasteffectshadbeenfavourabletowealth,andthattheadvantageousdistributionofproducewhichithadoccasioned,had,undertheactualcircumstances,morethancounterbalancedtheobstructionswhichitmighthavegiventocommerce.Securitywithmoderatewealthisawiserchoice,andbettercalculatedforpeaceandhappinessthaninsecuritywithgreaterwealth.But,unfortunately,acountryaccustomedtoadistri-butionofproducewhichhasatonceexcitedandgivenfullplaytogreatpowersofproduction,cannotwithdrawintoalessambitiouspathwithoutpassingthroughaperiodofverygreatdistress.Itis,Iknow,generallythoughtthatallwouldbewell,ifwecouldbutberelievedfromtheheavyburdenofourdebt.AndyetIfeelperfectlyconvincedthat,ifaspungecouldbeappliedtoittomorrow,andwecouldputoutofourconsiderationthepovertyandmiseryofthepubliccreditors,bysupposingthemtobesupportedcomfortablyinsomeothercountry,therestofthesociety,asanation,insteadofbeingenriched,wouldbeimpoverished.Itisthegreatestmistaketosupposethatthelandlordsandcapitalistswouldeitheratonce,orinashorttime,bepreparedforsogreatanadditionalconsumptionassuchachangewouldrequire;andiftheyadoptedthealternativesuggestedbyMrRicardoinaformerinstance,ofsaving,andlendingtheirincreasedincomes,theevilwouldbeaggravatedtenfold.Thenewdistributionofproducewoulddiminishthedemandfortheresultsofproductivelabour;andif,inadditiontothis,morerevenuewereconvertedintocapital,profitswouldfalltonothing,andamuchgreaterquantityofcapitalwouldemigrate,orbedestroyedathome,andamuchgreaternumberofpersonswouldbestarvingforwantofemployment,thanbeforetheextinctionofthedebt.Itwouldsignifylittletobeabletoexportcheapgoods.Ifthedistributionofpropertyathomewerenotsuchastooccasionanade-quatepowerandwilltopurchaseandconsumethereturnsforthesegoods,thequantityofcapi-talwhichcouldbeemployedintheforeigntradeofconsumptionwouldbediminishedinsteadofincreased.OfthiswemaybeconvincedifwelooktoIndia,wherelowwagesappeartobeoflittleuseincommerce,whiletherearenomiddleclassesofsocietytoaffordamarketforanyconsiderablequantityofforeigngoods.Thelandlords,intheeventsupposed,notbeinginclinedtoanadequateconsumptionoftheresultsofproductivelabour,wouldprobablyemployagreaternumberofmenialservants;andperhaps,intheactualcircumstances,thiswouldbethebestthingthatcouldbedone,andindeedtheonlywayofpreventinggreatnumbersofthelabouringclassesfrombeingstarvedforwantofwork.Itisbynomeanslikely,however,thatitshouldsoontakeplacetoasufficientextent;butifitweredonecompletely,andthelandlordspaidasmuchinwagestomenialservantsastheyhadbeforepaidtothenationalcreditors,couldweforamomentcomparethestateofsocietywhichwouldensuetothatwhichhadbeendestroyed?Withregardtothecapitalists,thoughtheywouldberelievedfromagreatportionoftheirtaxes,yetthereiseveryprobabilitythattheirhabitsofsaving,combinedwiththediminutioninthenumberofeffectivedemanders,wouldoccasionsuchafallinthepricesofcommoditiesasgreatlytodiminishthatpartofthenationalincomewhichdependsuponprofits;andIfeelverylittledoubtthat,infiveyearsfromthedateofsuchanevent,notonlywouldtheexchangeablevalueofthewholeproduce,estimatedindomesticandforeignlabour,bedecidedlydiminished,butasmallerabsolutequantityofcornwouldbegrown,andfewermanufacturedandforeigncommoditieswouldbebroughttomarketthanbefore.Itisnotofcoursemeanttobesaidthatacountrywithalargequantityofland,labour,andcapital,hasnotthemeansofgraduallyrecoveringfromanyshock,howevergreat,whichitmayexperience;andaftersuchanevent,itmightcertainlyplaceitselfinasituationinwhichitsprop-ertywouldbemoresecurethanwithalargenationaldebt.AllthatImeantosayis,thatitwould Malthus:PrinciplesofPoliticalEconomy311passthroughaperiod,probablyofconsiderableduration,inwhichthediminutionofeffectivedemandfromanunfavourabledistributionoftheproducewouldmorethancounterbalancetheincreasedpowerofproductionoccasionedbytherelieffromtaxation;anditmayfairlybedoubtedwhetherfinallyitwouldattainagreatdegreeofwealth,orcallforth,asitought,agreatdegreeofskillinagriculture,manufactures,andcommerce,withoutpossessing,insomewayorother,alargebodyofunproductiveconsumers,orsupplyingthisdeficiencybyamuchgreatertendencytoconsumetheresultsofproductivelabourthanisgenerallyobservedtoprevailinsociety.Ithasbeenrepeatedlyconceded,thattheproductiveclasseshavethepowerofconsumingallthattheyproduce;and,ifthispowerwereadequatelyexercised,theremightbenooccasion,withaviewtowealth,forunproductiveconsumers.Butitisfoundbyexperiencethat,thoughtheremaybethepower,thereisnotthewill;anditistosupplythiswillthatabodyofunproductiveconsumersisnecessary.Theirspecificuseinencouragingwealthis,tomaintainsuchabalancebetweenproduceandconsumptionastogivethegreatestexchangeablevaluetotheresultsofthenationalindustry.Ifunproductivelabourweretopredominate,thecomparativelysmallquantityofmaterialproductsbroughttomarketwouldkeepdownthevalueofthewholeproduce,fromthedeficiencyofquantity.Iftheproductiveclasseswereinexcess,thevalueofthewholepro-ducewouldfallfromexcessofsupply.Itisobviouslyacertainproportionbetweenthetwowhichwillyieldthegreatestvalue,andcommandthegreatestquantityofdomesticandforeignlabour;andwemaysafelyconcludethat,amongthecausesnecessarytothatdistribution,whichwillkeepupandincreasetheexchangeablevalueofthewholeproduce,wemustplacethemainte-nanceofacertainbodyofunproductiveconsumers.Thisbody,tomakeiteffectualasastimulustowealth,andtopreventitfrombeingprejudicial,asaclogtoit,shouldvaryindifferentcoun-tries,andatdifferenttimes,accordingtothepowersofproduction;andthemostfavourableresultevidentlydependsupontheproportionbetweenproductiveandunproductiveconsumers,beingbestsuitedtothenaturalresourcesofthesoil,andtheacquiredtastesandhabitsofthepeople. JAMESMILL(1773–1836)JamesMillwasaprominentfollowerofbothJeremyBenthamandofDavidRicardo,whomheproddedintowritinghisPrinciplesofPoliticalEconomyandTaxationandwhoseeconomicshehelpedtopopularize.However,heisprobablybestknownasthefatherofJohnStuartMillandforhismostinterestingapproachtotheeducationofhisbrilliantson.EducatedattheUniversityofEdinburgh,Millenteredthe(Scottish)churchforatime,buteventuallymovedtoLondonwherehepursuedacareerinjournalism–focusinglargelyonpoliticalandeconomicissues.AsaleaderoftheBenthamitephilosophicalradicals,MillpushedforreformsofBritishinstitutionsalongthelinesofutilitarianthinking.HisHistoryofBritishIndia(1817)gavehimwideexposureandledtoanappointmentwiththeEastIndiaCompany(forwhichhissonalsolaterworked)from1819untilhisdeath.Mill’sCommerceDefended(1808)wasanattackonphysiocracyandcontainsthefirststrongstatementofwhatcametobeknownasSay’sLaw.HisElementsofPoliticalEconomyreflectstheinfluenceofRicardoonhisthinking.Itwasreallythefirst“textbook”ineconomics–Ricardoforeveryman,ifyouwill,andisessentiallyarecordoftheinstructioninpoliticaleconomythatJamesMillgavetohissoninhisearlyteens.Intheexcerptsreprintedhere,thereaderwillnotethesim-plified(andsomewouldsay,simplistic)treatmentoftheissuesathand–specificallyhere,thewagesfundtheoryandthecost-of-productiontheoryofvalue–reflectingthepopularnatureofthework.ReferencesandfurtherreadingBain,A.(1882)JamesMill:ABiography,London:Longmans.Barber,WilliamJ.(1969)“JamesMillandtheTheoryofEconomicPolicyinIndia,”HistoryofPoliticalEconomy1(Spring):85–100.DeMarchi,Neil(1983)“TheCaseforJamesMill,”inA.W.Coats(ed.)MethodologicalControversyinEconomics:HistoricalEssaysinHonorofT.W.Hutchison,Greenwich,CT:JAIPress.Thweatt,W.O.(1976)“JamesMillandtheEarlyDevelopmentofComparativeAdvantage,”HistoryofPoliticalEconomy8(Summer):207–34.Winch,Donald(1966)JamesMill:SelectedEconomicWritings,Edinburgh:Oliver&Boyd.——(1987)“Mill,James,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,465–6. ElementsofPoliticalEconomy(1821)*IntroductionThesubject–itslimits–anddivisionPoliticalEconomyistotheState,whatdomesticeconomyistothefamily.Thefamilyconsumes;and,inordertoconsume,itmustsupply.Domesticeconomyhas,therefore,twograndobjects;theconsumptionandsupplyofthefamily.Theconsumptionbeingaquantityalwaysindefinite,forthereisnoendtothedesireofenjoyment,thegrandconcernis,toincreasethesupply.Thosethings,whichareproduced,insufficientabundanceforthesatisfactionofall,withouttheinterventionofhumanlabour;asair,thelightofthesun,water,andsoon;arenotobjectsofcareorprovidence;andtherefore,accuratelyspeaking,donotformpartofthesubjectofdomes-ticeconomy.Theartofhim,whomanagesafamily,consistsinregulatingthesupplyandconsumptionofthosethings,whichcannotbeobtainedbutwithcost;inotherwords,withhumanlabour,‘theoriginalpurchasemoney,whichisgivenforeverything’.ThesameisthecasewithPoliticalEconomy.Italsohastwograndobjects,theConsumptionoftheCommunity,andthatSupplyuponwhichtheconsumptiondepends.Thosethings,whicharesuppliedwithouttheinterventionofhumanlabour,asnothingisrequiredinordertoobtainthem,neednotbetakenintoaccount.Hadeverything,desiredforconsumption,existedwithouthumanlabour,therewouldhavebeennoplaceforPoliticalEconomy.Scienceisnotimpliedinputtingforththehand,andusing.Butwhenlabouristobeemployed,andtheobjectsofdesirecanbemultipliedonlybyapreconcertedplanofoperations,itbecomesanobjectofimportancetoascertaincompletelythemeansofthatmultiplication,andtoframeasystemofrulesforapplyingthemwithgreatestadvantagetotheend.Itisnotpretended,thatwritersonPoliticalEconomyhavealwayslimitedtheirdisquisitionstothisobject.Itseems,however,importanttodetachthesciencefromallconsiderationsnotessen-tialtoit.TheReaderisthereforerequestedtoobservethat,inthefollowingpages,Ihaveitmerelyinview,toascertainthelaws,accordingtowhichtheproductionandconsumptionareregulatedofthosecommodities,whichtheinterventionofhumanlabourisnecessarytoprocure.TheScienceofPoliticalEconomy,thusdefined,dividesitselfintotwograndinquiries;thatwhichrelatestoProduction,andthatwhichrelatestoConsumption.But,afterthingsareproduced,itisevident,that,beforetheyareconsumed,theymustbedistributed.Thelawsofdistribution,therefore,constituteanintermediateinquiry.Whencommoditiesareproduced,anddistributed,itishighlyconvenient,forthesake,bothofreproductionandconsumption,thatportionsofthemshouldbeexchangedforoneanother.*Originallypublishedin1821.Theextractreprintedhereisfromthethirdeditionof1844,London:H.G.Bohn. 314TheClassicalSchoolToascertain,therefore,thelaws,accordingtowhichcommoditiesareexchangedforoneanother,isasecondinquiry,precedingthatwhichrelatestothelastgreattopicofPoliticalEconomy,Consumption.Itthusappears,thatfourinquiriesarecomprehendedinthisscience.First,whatarethelaws,whichregulatetheproductionofcommodities;second,whatarethelaws,accordingtowhichthecommodities,producedbythelabourofthecommunity,aredistribu-ted;third,whatarethelaws,accordingtowhichcommoditiesareexchangedforoneanother;fourth,whatarethelaws,whichregulateconsumption.Chapter2:DistributionSectionII:WagesProductionisperformedbylabour.Labour,however,receivestherawmaterialwhichitfashions,andthemachinerybywhichitisaided,fromcapital,ormoreproperlyspeaking,thesearticlesarethecapital.…Thattherateofwagesdependsontheproportionbetweenpopulation,andemployment,inotherwords,capitalWecomenowtothequestionastowhatdeterminestheshareofthelabourer,ortheproportioninwhichthecommodity,oritsworth,isdividedbetweenhimandthecapitalist.Whatevertheshareofthelabourer,suchistherateofwages;and,viceversawhatevertherateofwages,suchistheshareofthecommodity,orcommodity’sworth,whichthelabourerreceives.Itisveryevident,thattheshareofthetwopartiesisthesubjectofabargainbetweenthem;andifthereisabargain,itisnotdifficulttoseeonwhatthetermsofthebargainmustdepend.Allbargains,whenmadeinfreedom,aredeterminedbycompetition,andthetermsalteraccord-ingtothestateofsupplyanddemand.Letusbeginbysupposingthatthereisacertainnumberofcapitalists,withacertainquantityoffood,rawmaterial,andinstruments,ormachinery;thatthereisalsoacertainnumberoflabourers;andthattheproportion,inwhichthecommoditiesproducedaredividedbetweenthem,hasfixeditselfatsomeparticularpoint.Letusnextsuppose,thatthelabourershaveincreasedinnumberonehalf,withoutanyincreaseinthequantityofcapital.Thereisthesamequantityoftherequisitesfortheemploymentoflabour;thatis,offood,tools,andmaterial,astherewasbefore;butforevery100labourerstherearenow150.Therewillbe50men,therefore,indangerofbeingleftoutofemployment.Topreventtheirbeingleftoutofemploymenttheyhavebutoneresource;theymustendeavourtosupplantthosewhohaveforestalledtheemployment;thatis,theymustoffertoworkforasmallerreward.Wages,therefore,decline.Ifwesuppose,ontheotherhand,thatthequantityofcapitalhasincreased,whilethenumberoflabourersremainsthesame,theeffectwillbereversed.Thecapitalistshaveagreaterquantitythanbeforeofthemeansofemployment;ofcapital,inshort;fromwhichtheywishtoderiveadvantage.Toderivethisadvantagetheymusthavemorelabourers.Toobtainthem,theyalsohavebutoneresource,toofferhigherwages.Butthemastersbywhomthelabourersarenowemployedareinthesamepredicament,andwillofcourseofferhighertoinducethemtoremain.Thiscompetitionisunavoidable,andthenecessaryeffectofitisariseofwages.Itthusappears,that,ifpopulationincreases,withoutanincreaseofcapital,wagesfall;andthat,ifcapitalincreases,withoutanincreaseofpopulation,wagesrise.Itisevident,also,thatif Mill:ElementsofPoliticalEconomy315bothincrease,butonefasterthantheother,theeffectwillbethesameasiftheonehadnotincreasedatall,andtheotherhadmadeanincreaseequaltothedifference.Suppose,forexam-ple,thatpopulationhasincreasedone-eighth,andcapitalone-eighth;thisisthesamethingasiftheyhadstoodstill,withregardtotheeffectuponlabour.Butsupposethat,inadditiontotheabove-mentionedone-eighth,populationhadincreasedanothereighth,theeffect,inthatcase,uponwages,wouldbethesameasifcapitalhadnotincreasedatall,andpopulationhadincreasedone-eighth.Universally,then,wemayaffirm,that,otherthingsremainingthesame,iftheratiowhichcapitalandpopulationbeartooneanotherremainsthesame,wageswillremainthesame;iftheratiowhichcapitalbearstopopulationincreases,wageswillrise;iftheratiowhichpopulationbearstocapitalincreases,wageswillfall.Fromthislaw,clearlyunderstood,itiseasytotracethecircumstanceswhich,inanycountry,determinetheconditionofthegreatbodyofthepeople.Ifthatconditioniseasyandcomfort-able,allthatisnecessarytokeepitso,is,tomakecapitalincreaseasfastaspopulation;or,ontheotherhand,topreventpopulationfromincreasingfasterthancapital.Ifthatconditionisnoteasyandcomfortable,itcanonlybemadeso,byoneoftwomethods;eitherbyquickeningtherateatwhichcapitalincreases,orretardingtherateatwhichpopulationincreases;augmenting,inshort,theratiowhichthemeansofemployingthepeoplebeartothenumberofpeople.Ifitwerethenaturaltendencyofcapitaltoincreasefasterthanpopulation,therewouldbenodifficultyinpreservingaprosperousconditionofthepeople.If,ontheotherhand,itwerethenaturaltendencyofpopulationtoincreasefasterthancapital,thedifficultywouldbeverygreat.Therewouldbeaperpetualtendencyinwagestofall.Theprogressivefallofwageswouldpro-duceagreaterandagreaterdegreeofpovertyamongthepeople,attendedwithitsinevitableconsequences,miseryandvice.Aspoverty,anditsconsequentmiseryincreased,mortalitywouldalsoincrease.Ofanumerousfamilyborn,acertainnumberonly,fromwantofthemeansofwell-being,wouldbereared.Bywhateverproportionthepopulationtendedtoincreasefasterthancapital,suchaproportionofthosewhowerebornwoulddie:theratioofincreaseincapi-talandpopulationwouldthenremainthesame,andthefallofwageswouldproceednofarther.Thatpopulationhasatendencytoincreasefaster,than,inmostplaces,capitalhasactuallyincreased,isproved,incontestably,bytheconditionofthepopulationinmostpartsoftheglobe.Inalmostallcountries,theconditionofthegreatbodyofthepeopleispoorandmiserable.Thiswouldhavebeenimpossible,ifcapitalhadincreasedfasterthanpopulation.Inthatcasewagesmusthaverisen;andhighwageswouldhaveplacedthelabourerabovethemiseriesofwant.Thisgeneralmiseryofmankindisafact,whichcanbeaccountedfor,upononeonlyoftwosuppositions:eitherthatthereisanaturaltendencyinpopulationtoincreasefasterthancapital,orthatcapitalhas,bysomemeans,beenpreventedfromincreasingsofastasithasatendencytoincrease.This,therefore,isaninquiryofthehighestimportance.Chapter3:InterchangeSectionII:WhatdeterminesthequantityinwhichcommoditiesexchangeforoneanotherWhenacertainquantityofonecommodityisexchangedforacertainquantityofanothercom-modity;acertainquantityofcloth,forexample,foracertainquantityofcorn;thereissome-thingwhichdeterminestheowneroftheclothtoacceptforitsuchandsuchaquantityofcorn;and,inlikemanner,theownerofthecorntoacceptsuchandsuchaquantityofcloth.Thisis,evidently,theprincipleofdemandandsupply,inthefirstinstance.Ifagreatquantityofcorncomestomarkettobeexchangedforcloth,andonlyasmallquantityofclothtobe 316TheClassicalSchoolexchangedforcorn,agreatquantityofcornwillbegivenforasmallquantityofcloth.Ifthequantityofcloth,whichthuscomestomarket,isincreased,withoutanyincreaseinthequantityofcorn,thequantityofcornwhichisexchangedforagivenquantityofclothwillbepropor-tionallydiminished.Thisanswer,however,doesnotresolvethewholeofthequestion.Thequantityinwhichcommoditiesexchangeforoneanotherdependsupontheproportionofsupplytodemand.Itisevidentlythereforenecessarytoascertainuponwhatthatproportiondepends.Whatarethelawsaccordingtowhichsupplyisfurnishedtodemand,isoneofthemostimportantinquiriesinPoliticalEconomy.Demandcreates,andthelossofdemandannihilates,supply.Whenanincreaseddemandarisesforanycommodity,anincreaseofsupply,ifthesupplyiscapableofincrease,follows,asaregulareffect.Ifthedemandforanycommodityaltogetherceases,thecommodityisnolongerproduced.Theconnexionhere,orcausesandeffects,iseasilyexplained.Ifcornisbroughttomarket,thecostofbringingithasbeensomuch.Ifclothisbroughttomarket,thecostofbringingithasbeensomuch.Forthebenefitofsimplicity,thenumberofcommoditiesinthemarketisheresup-posedtobetwo:itisofnoconsequence,withregardtotheresult,whethertheyareunderstoodtobefewormany.Thecostofbringingthecorntomarkethasbeeneitherequaltothatofbringingthecloth,orunequal.Ifithasbeenequal,thereisnomotive,tothosewhobringtheclothorthecorn,foralteringthequantityofeither.Theycannotobtainmoreofthecommoditywhichtheyreceiveinexchange,bytransferringtheirlabourtoitsproduction.Ifthecosthasbeenunequal,thereimmediatelyarisesamotiveforalteringtheproportions.Supposethatthecostofbringing,thewholeofthecornhasbeengreaterthanthatofbringingthewholeofthecloth;andthatthewholeoftheoneisexchangedagainstthewholeoftheother,eitheratonce,orinparts:theper-sonswhobroughttheclothhaveinthatcasepossessedthemselvesofaquantityofcornatlesscost,thanthatatwhichitwasbroughttomarket,bythosewhoproducedit;those,ontheotherhand,whobroughtthecornhavepossessedthemselvesofaquantityofcloth,atagreatercostthanthatatwhichitcanbemadeandbroughttomarket.Heremotivesarise,todiminishthequantityofcorn,andincreasethequantityofcloth;becausethemenwhohavebeenproducingcorn,andpurchasingcloth,canobtainmorecloth,bytransferringtheirmeansofproductionfromtheonetotheother.Assoon,again,asnomoreclothcanbeobtainedbyapplyingthesameamountofmeanstotheproductionofcloth,thanbyapplyingthemtocorn,andexchangingitforcloth,allmotivetoalterthequantityoftheoneascomparedwiththatoftheotherisatanend.Nothingistobegainedbyproducingcornratherthancloth,orclothratherthancorn.Thecostofproductiononbothsidesisequal.Itthusappearsthattherelativevalueofcommodities,orinotherwords,thequantityofonewhichexchangesforagivenquantityofanother,dependsupondemandandsupply,inthefirstinstance;butuponcostofproduction,ultimately;andhence,inaccuratelanguage,uponcostofproduction,entirely.Anincreaseordiminutionofdemandorsupply,maytemporarilyincreaseordiminish,beyondthepointofproductivecost,thequantityofonecommoditywhichexchangesforagivenquantityofanother;butthelawofcompetition,whereveritisnotobstructed,tendsinvariablytobringittothatpoint,andtokeepitthere.Costofproduction,then,regulatestheexchangeablevalueofcommodities.Butcostofproductionisitselfinvolvedinsomeobscurity. NASSAUW.SENIOR(1790–1864)NassauWilliamSeniorwaseducatedatOxfordandatLincoln’sInnandspenthisearlycareerpracticinglawandwritingoneconomicsubjects.HewasappointedtotheDrummondChairofPoliticalEconomyatOxfordfrom1825–1830andagainfrom1847–1852,havingdevotedtheinterven-ingyearstopublicservice.Senior’sgreatestimpactwasnotacade-mic.Hewasthefirstpoliticaleconomisttoengageinextensiveserviceasapolicyadvisor,providingregularcounseltoWhigpoliticiansandservingonfourRoyalCommissions–thePoorLaws,theFactoryActs,DistressoftheHand-loomWeavers,andPopularEducation–between1834and1857.Hewasamajorfigureonthesecommissions,writingmostoralloftheirreportsandlobbyingextensivelyfortherecommendationsthesecommissionsout-lined.HeisperhapsbestknownonpolicyfrontforhisworkasprimaryarchitectofthereformofthePoorLaws,whichhadtheeffectofreplacingaidtotheable-bodiedNassauW.Senior,bycourtesyofTheWarrenJ.SamuelsPortraitwithanewschemethatprovidedrelieftoCollectionatDukeUniversity.thosewhoweresick,aged,andpoverty-stricken.Seniormadeanumberofimportantcontributionstopoliticaleconomy,includingexpandingtheRicardiannotionofrenttowhatmightbecalledanunearnedincrementaccruingtoanyfactorofproduction(thatis,notjustland)thatisinfixedsupply,sketchingtheprincipleofdiminishingmar-ginalutility,andprovidingusefulinsightsintotherelationshipbetweenthebalanceofpaymentsandrelativeinternationalwagesandprices.LikeSay,Seniordevotedmoreattentionthanmanyclassicalthinkerstotheinfluenceofdemandonprice,includingextendingtheroleofcostsofpro-ductioninpricedeterminationtothedemandside.Inhisview,theproducer’scostsofproductionsetthelowerboundonprice.However,hesaid,ifthepricerisessufficientlyhigh,itwillbemoreeconomicalforthebuyersofthegoodtoproduceitthemselves.Thus,costsofproductiontothebuyersettheupperboundonprice. 318TheClassicalSchoolSeniormaywellbebestknown,however,forhisabstinencetheoryofprofits,thenotionthatprof-itsarealegitimaterewardtothecapitalistforabstainingfromcurrentconsumptionduringthetimewhenhiscapitalisinvested.Thistheoryhadtheunfortunateeffectofstimulatingpeopletoquestionhowmuchpainwasenduredbythewealthyintheir‘abstinence’andprovidednicecannonfodderforMarx’slatercritiqueofwhathesawasclassicalapologiaforthebourgeoisclass.Senioralsodrewanimportantmethodologicaldistinctionbetweenthe‘science’ofpoliticaleconomyandthe‘art’ofpoliticaleconomy–whatwewouldnowcall‘positive’versus‘normative’economics.Senior’sapproachtovalueandpricedetermination,hisabstinencetheoryofprofits,andhisextensionofthenotionofrentaresetoutinthepassagesreprintedherefromhisOutlineoftheScienceofPoliticalEconomy(1836).ReferencesandfurtherreadingBowley,Marian(1937)NassauSeniorandClassicalEconomics,London:Allen&Unwin.DeMarchi,N.(1987)“Senior,NassauWilliam,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.4,London:Macmillan,303–5.Johnson,Orace(1969)“The‘LastHour’ofSeniorandMarx,”HistoryofPoliticalEconomy1(Fall):359–69.Pullen,JohnM.(1989)“InDefenceofSenior’sLastHour-And-Twenty-Five-Minutes,”HistoryofPoliticalEconomy21(Summer):299–312.Senior,NassauW.(1831)ThreeLecturesontheRateofWages,London:J.Murray.——(1928)IndustrialEfficiencyandSocialEconomy,inS.LeonLevy(ed.),NewYork:HenryHolt.——(1965)SelectedWritingsonEconomics:AVolumeofPamphlets,1827–1852,NewYork:AugustusM.Kelley.Stigler,GeorgeJ.(1950)“TheClassicalEconomists:AnAlternativeView,”inGeorgeJ.Stigler,FiveLecturesonEconomicProblems,NewYork:Macmillan,25–36. AnOutlineoftheScienceofPoliticalEconomy(1836)*NatureofwealthValueValuedefinedOurdefinitionofWealth,ascomprehendingallthosethings,andthosethingsonlywhichhaveValue,requiresustoexplainatsomelengththesignificationwhichweattributetothewordValue;especiallyasthemeaningofthatwordhasbeenthesubjectoflongandeagercontroversy.WehavealreadystatedthatweusethewordValueinitspopularacceptation,assignifyingthatqualityinanythingwhichfitsittobegivenandreceivedinExchange;or,inotherwords,tobelentorsold,hiredorpurchased.Sodefined,Valuedenotesarelationreciprocallyexistingbetweentwoobjects,andthepreciserelationwhichitdenotesisthequantityoftheonewhichcanbeobtainedinexchangeforagivenquantityoftheother.Itisimpossible,therefore,topredicatevalueofanyobject,withoutreferring;expresslyortacitly,tosomeotherobjectsinwhichitsvalueistobeestimated;or,inotherwords,ofwhichacertainquantitycanbeobtainedinexchangeforacertainquantityoftheobjectinquestion.Wehavealreadyobservedthatthesubstancewhichatpresentismostdesired,or,inotherwords,possessesthehighestdegreeofvalue,isthediamond.Bythiswemeanttoexpressthatthereisnosubstanceofwhichagivenquantitywillexchangeforsolargeaquantityofeveryothercommodity.WhenwewishedtostatethevalueofthekingofPersia’sbracelet,westatedfirsttheamountofgold,andafterwardsofEnglishlabour,whichitwouldcommandinexchange.Ifwehadattemptedtogiveaperfectaccountofitsvalue,wecouldhavedonesoonlybyenumeratingseparatelythequantityofeveryotherarticleofwealthwhichcouldbeobtainedinexchangeforit.Suchanenumeration,ifitcouldhavebeengiven,wouldhavebeenamostinstructivecommerciallesson;foritwouldhaveshownnotonlythevalueofthediamondinallothercommodities,butthereciprocalvalueofallothercommoditiesinoneanother.Ifwehadascertainedthatadia-mondweighinganouncewouldexchangeforonemillionfivehundredthousandtonsofHepburncoal,oronehundredthousandtonsofEssexwheat,ortwothousandfivehundredtonsofEnglishfoolscappaper,wemighthaveinferredthatthecoal,wheat,andpaperwouldmutuallyexchangeinthesameproportionsinwhichtheywereexchangeableforthediamond,andthatagivenweightofpaperwouldpurchasesixhundredtimesasmuchcoal,andfortytimesasmuchwheat.DemandandSupplyThecauseswhichdeterminethereciprocalvaluesofcommodities,or,inotherwords,whichdeterminethatagivenquantityofoneshallexchangeforagivenquantityofanother,mustbe*NassauW.Senior,AnOutlineoftheScienceofPoliticalEconomy,London:W.ClowesandSons,1836. 320TheClassicalSchooldividedintotwosets:thosewhichoccasiontheonetobelimitedinsupplyanduseful,(usingthatwordtoexpressthepowerofoccasioningpleasureandpreventingpain),andthosewhichocca-sionthoseattributestobelongtotheother.Inordinarylanguage,theforceofthecauseswhichgiveutilitytoacommodityisgenerallyindicatedbythewordDemand;andtheweaknessoftheobstacleswhichlimitthequantityofacommoditybythewordSupply.ThusthecommonstatementthatcommoditiesexchangeinproportiontotheDemandandSupplyofeach,meansthattheyexchangeinproportiontotheforceofweaknessofthecauseswhichgiveutilitytothemrespectively,andtotheweaknessorforceoftheobstaclesbywhichtheyarerespectivelylimitedinsupply.Unfortunately,however,thewordsDemandandSupplyhavenotbeenalwayssoused.Demandissometimesusedassynonymouswithconsumption,aswhenanincreasedproductionissaidtogenerateanincreaseddemand;sometimesitisusedtoexpressnotonlythedesiretoobtainacommodity,butthepowertogivetheholderofitsomethingwhichwillinducehimtopartwithit.‘ADemand’,saysMrMill(PoliticalEconomy,p.23,3rdedition)‘meansthewilltopur-chaseandthepowerofpurchasing’.MrMalthus(DefinitionsinPoliticalEconomy,p.244)statesthat‘Demandforcommoditieshastwodistinctmeanings:oneinregardtoitsextent,orthequantityofcommoditiespurchased;theotherinregardtoitsintensity,orthesacrificewhichthedemandersareableandwillingtomakeinordertosatisfytheirwants’.DemandNeitheroftheseexpressionsappearstobeconsistentwithcommonusage.ItmustbeadmittedthatthewordDemandisusedinitsordinarysensewhenwesaythatadeficientwheatharvestincreasestheDemandforoatsandbarley.ButthispropositionisnottrueifweusethewordDemandinanyothersensethanasexpressingtheincreasedutilityofoatsandbarley;or,inotherwords,theincreaseddesireofthecommunitytoobtainthem.Thedeficiencyofwheatwouldnotgivetotheconsumersofoatsandbarleyanyincreasedpowerofpurchasingthem,norwouldthequantitypurchasedorconsumedbeincreased.Themodeofconsumptionwouldbealtered;insteadofbeingappliedtothefeedingofhorses,ortothesupplyofstimulantliquids,acertainportionofthemwouldbeusedashumanfood.And,asthedesiretoeatismoreurgentthanthedesiretofeedhorses,ordrinkbeerorspirits,thedesiretoobtain,oatsandbarley,or,inotherwords,thepleasuregiven,orthepainaverted,bythepossesionofagivenquantityofthemor,inotherwords,theutilityofagivenquantityofthem,wouldincrease.Afact,which,inordinarylanguage,wouldbeexpressedbysaying,thatthedemandforthemwasincreased.ButthoughthevaguenesswithwhichthewordDemandhasbeenusedrendersitanobjec-tionableterm,itistoousefulandconcisetobegivenup;butweshallendeavournevertouseitinanyothersignificationthanasexpressingtheutilityofacommodity;or,whatisthesame,forwehaveseenthatallutilityisrelative,thedegreeinwhichitspossessionisdesired.SupplyWecannotcomplainofequalvaguenessintheuseofthewordSupply.Inordinarylanguage,aswellasinthewritingsofPoliticalEconomists,itisusedtosignifythequantityofacommodityactuallybroughttomarket.Thecomplaintis,notthatthewordSupplyhasbeenusedinthissense,butthat,whenusedinthissense,ithasbeenconsideredasacauseofvalue,exceptinafewcases,orforveryshortperiods.Wehaveshown,intheexamplesofcoatsandwaistcoats,andgoldandsilver,thatthereciprocalvalueofanytwocommoditiesdepends,notonthequantityofeachbroughttomarket,butonthecomparativeforceof,theobstacleswhichineachcaseopposeanyincreaseinthatquantity.When,therefore,werepresentincreaseordiminutionofsupplyasaffectingvalue,wemustbeunderstoodtomeannotamerepositiveincreaseordiminution,but Senior:OutlineofPoliticalEconomy321anincreaseordiminutionoccasionedbyadiminutionorincreaseoftheobstaclesbywhichthesupplyislimited.IntrinsicandextrinsiccausesoftheValueofacommodityToreverttoouroriginalproposition,thereciprocalValuesofanytwocommoditiesmustbedeterminedbytwosetsofcauses;thosewhichdeterminetheDemandandSupplyoftheone,andthosewhichdeterminetheDemandandSupplyoftheother.Thecauseswhichgiveutilitytoacommodityandlimititinsupplymaybecalledtheintrinsiccausesofitsvalue;thosewhichlimitthesupplyandoccasiontheutilityofthecommoditiesforwhichitistobeexchanged,maybecalledtheextrinsiccausesofitsvalue.GoldandsilverarenowexchangedforoneanotherinEuropeintheproportionofoneounceofgoldforaboutsixteenouncesofsilver.Thisproportionmustarisepartlyfromthecauseswhichgiveutilitytogoldandlimititssupply,andpartlyfromthosewhichcreatetheutilityandlimitthesupplyofsilver.Whentalkingofthevalueofgoldwemayconsiderthefirstsetofcausesaffectgoldonlysofarasitsaidtobeexchangedforsilver,whichmaybecalledoneofitsspecialvalues;theaggregateofitsspecificvaluesformingitsgeneralvalue.Ifwhilethecauseswhichgiveutilitytosilverandlimititinsupplywereunaltered,thosewhichaffectgoldshouldvary;if,forinstance,fashionshouldrequireeverywell-dressedmantohaveallhisbuttonsofpuregold,orthedisturbancesinSouthAmericashouldperma-nentlystopallthegoldworksofBrazilandColumbia,andthus(aswouldbethecase)interceptfive-sixthsofoursuppliesofgold,thereciprocalvaluesofgoldandsilverwouldintimebemate-riallyvaried.Thoughsilverwouldbeunalteredbothastoitsutilityandastoitslimitationinsupply,agivenquantityofitwouldexchangeforalessquantityofgold,intheproportionper-hapsoftwentytoone,insteadofsixteentoone.Asbetweenoneanothertheriseandfallofgoldandsilverwouldpreciselycorrespond,silverwouldfallandgoldwouldriseone-fourth.Butthefallofsilverwouldnotbegeneralbutspecific;thoughfallenasestimatedingold,itwouldcom-mandpreciselythesamequantitiesasbeforeofallothercommodities.Theriseofgoldwouldbemoregeneral;agivenquantityofitwouldcommandone-fourthmorenotonlyofsilver,butofallothercommodities.Theholderofagivenquantityofsilverwouldbejustasrichasbeforeforallpurposesexceptthepurchaseofgold;theholderofagivenquantityofgoldwouldbericherthanbeforeforallpurposes.Thecircumstancesbywhicheachdifferentclassofcommoditiesisinvestedwithutilityandlimitedinsupplyaresubjecttoperpetualvariation.Sometimesoneofthecausesalonevaries.Sometimestheybothvaryinthesamedirection;sometimesinoppositedirections.Inthelastcasetheoppositevariations,whollyorpartiallyneutralizeoneanother.TheeffectsofanincreasedDemandconcurrentwithincreasedobstaclestoSupply,andofdiminishedDemandconcurrentwithincreasedfacilityofSupply,arewellexemplifiedbyhemp.Itsaveragepricebeforetherevolutionarywar,exclusiveofduty,didnotexceed£30perton.TheincreasedDemand,occasionedbyamaritimewar,andthenaturalobstaclestoaproportionateincreaseofSupply,raisedit,intheyear1796,toabove£50aton;ataboutwhichpriceitcontinuedduringthenexttwelveyears.Butin1808,therupturebetweenEnglandandtheBalticpowers,theprincipalsourceofoursupplies,suddenlyraiseditto£118aton,beingnearlyfourtimestheaveragepriceinpeace.Atthecloseofthewar,boththeextraordinarydemandandtheextraor-dinaryobstaclestothesupplyceasedtogether,andthepricefelltoaboutitsformeraverage.Wehavealreadystatedthattheutilityofacommodity,inourextendedsenseofthetermutil-ity,or,inotherwords,thedemandforitasanobjectofpurchaseorhire,isprincipallydependentontheobstacleswhichlimititssupply.Buttherearemanycasesinwhich,whiletheexistingobstaclesremainunaltered,thedemandisaffectedbytheslightestsuspicionthattheirforcemayatafutureperiodbeincreasedordiminished.Thisoccurswithrespecttothosecommoditiesofwhichthesupplyisnotsusceptibleofaccurateregulation,butisaffordedeitherinuncertain 322TheClassicalSchoolquantitiesandatstatedperiods,betweenwhichitcannotbeincreasedordiminished–inthecaseforinstanceoftheannualproductsoftheearth–orisdependentonourrelationswithforeignCountries.Ifaharvestdeficientbyone-thirdshouldoccur,thatdeficiencymustlastforawholeyear,orbesuppliedfromabroadatanextravagantcost.IfweshouldgotowarwithRussia,theobstaclestothesupplyofhempwouldbeincreasedwhilethewarlasted.Ineithercasethehold-ersofcornorhempwouldobtaingreatprofits.InallrichCountries,andparticularlyinourown,thereisagreatnumberofpersonswhohavelargemassesofwealthcapableofbeingsuddenlyappliedtothepurchaseofanygivenobjects.Theinstantsuchpersonssuspectthattheobstaclestothesupplyofanyarticlearelikelytobeincreased,theyareanxioustobecomeholdersofit.Theyenterthemarketasnewdemanders;thepricerises,andthemerefactthatithasrisenisacauseofitsrisingfurther.Thedetailsofcommercearesonumerous,thedifficultyofobtainingearlyandaccurateinformationissogreat,andthefactsthemselvesaresoconstantlychanging,thatthemostcautiousmerchantsareoftenforcedtoactuponverydoubtfulpremises;andtheimprudent,dazzledbythechanceofanenormousgain,whichwillbetheirown,andlittlerestrainedbythefearofalosswhichmayprincipallyfallupontheircreditors,areoftenreadytoactuponscarcelyanypremisesatall.Theyseethatthepriceofsomearticlehasrisen,andtheysupposethattheremustbesomegoodcauseforit.Theyseethatiftheyhadpurchasedamonthago,theywouldhavebeengainersnow,andconcludethatiftheypurchasenowtheywillbegainersamonthhence.Sofaristhisreasoning,ifitcanbecalledreasoning,carried,thatariseinthepriceofanyoneimportantcommodityisgenerallyfoundtooccasionariseinthepriceofmanyothers.‘A’(thinksaspeculator)‘boughthempbeforethepricehadrisen,andhasresolditataprofit.Cottonhasnotyetrisen,nordoIseeclearlywhyitshouldrise,anymorethanIseewhyhempshouldhaverisen,butitprobablywillriselikehemp,thereforeIwillpurchase’.…WhenweconsiderthatthesupplyoflargeclassesofcommoditiesisdependentonouramicableorhostilerelationswithforeignStates,andonthecommercialandfinanciallegislationbothofthoseStatesandofourownCountry,andthatthesupplyofstilllargerclassesisdependentnotonlyonthosecontingencies,butontheaccidentsoftheseasons–andwhenweconsiderhowthedemandisaffectednotmerelybytheexisting,ortheanticipatedobstaclestothesupply,butoftenbyaspiritofspeculationasblindasthatofagamblerignorantoftheoddsandevenoftheprinciplesofhisgame–itisobviousthatthegeneralvalueofallcommodities,thequantityofeachwhichwillexchangeforagivenquantityofeveryother,canneverremainthesameforasingleday.EverydaytherewillbeavariationinthedemandorthesupplyofoneormoreoftheinnumerableclassesofcommoditieswhicharetheobjectsofexchangeinacommercialCountry.Agivenquantityofthecommoditywhichhasvariedwillconsequentlyexchangeforagreateroralessquantityofallothercommodities.Allothercommodities,therefore,willhavevariedinvalueasestimatedinthefirst-mentionedcommodity.Itisasimpossibleforonecommoditytoremainperfectlyunalteredinvaluewhileanyotherisaltered,asitwouldbeforalighthousetokeepatthesamedistancefromalltheshipsinaharbourwhileanyoneofthemshouldapproachitorrecede.SteadinessinValue,onwhatitdependsButitmaybeasked,whatdowemeanwhenwesaythatacommodityhas,foragivenperiod,remainedsteadyinvalue?Thequestionmustbeansweredbyreferringtothedifferenteffectsproducedonthevalueofacommoditybyanalterationintheintrinsic,oranalterationintheextrinsic,causesonwhichvaluedepends.Ifthecauseswhichgiveutilitytoacommodityandlimititssupply,andwhichwehavecalledtheintrinsiccausesofitsvalue,arealtered,theriseorfallinitsvaluewillbegeneral. Senior:OutlineofPoliticalEconomy323Agivenquantityofitwillexchangeforagreateroralessquantitythanbeforeofeveryothercommoditywhichhasnotalsovariedatthesametime,inthesamedirection,andinthesamedegree;acoincidencewhichrarelyoccurs.Everyothercommoditymustalsoriseorfallinvalueasestimatedinthefirst-mentionedcommodity,butnotgenerally.Thefluctuationsinvaluetowhichacommodityissubjectbyalternations,inwhatwehavecalledtheextrinsiccausesofitsvalue,or,inotherwords,byalterationsinthedemandorsupplyofothercommodities,haveatendency,likeallotherextensivecombinationsofchances,toneutralizeoneanother.Itmaybesaid,withoutimpropriety,therefore,toremainsteadyinvalue.Buttheriseorfallinvaluewhichacommodityexperiencesinconsequenceofanalterationinitsutility,orintheobstaclestoitssupply,is,infact,entirelyuncompensated.Itiscompensatedonlywithregardtothosecommoditiesofwhichtheutilityorthesupplyhasalsovariedatthesametimeandinthesamedirection.Andasquiteasmanyarelikelytoexperienceasimilarvariation,butinanoppositedirection,thereisreallynocompensation.Acommodity,therefore,whichisstrikinglysubjecttosuchvariations,isproperlysaidtobeunsteadyinvalue.Butwemaybeaskedtoaccountforanotherandnotunfrequentstatement,thatatparticularperiodsallcommoditieshavebeenobservedtoriseorfallinvalue.Literallytaken,thisstatementinvolvesacontradictioninterms,sinceitisimpossiblethatagivenquantityofeverycommodityshouldexchangeforagreateroralessquantityofeveryother.Whenthosewhomakethisstate-menthaveanymeaning,theyalwaystacitlyexcludesomeonecommodity,andestimateinthattheriseorfallofallothers.Theexcludedcommodityis,ingeneral,moneyorlabour.Estimatedinlabour,allcommodities,moneyincluded,havefalleninvalueinEnglandsincethesixteenthcentury.ItisscarcelypossibletomentiononeofwhichagivenquantitywillnotpurchaselesslabourthanitdidatthecloseofElizabeth’sreign;estimatedinmoney,almostallcommodities,labourincluded,havefalleninEnglandsincetheterminationofthelatewar.Thelastremarkwhichweshallnowmakeonvalueis,that,withaveryfewexceptions,itisstrictlylocal.AtonofcoalatthebottomofthepitnearNewcastleisperhapsworth2s.6d.,atthepit’smouthitisperhapsworth5s.,attenmilesoff7s.,atHull10s.BythetimethecollierhasreachedthePool,itscargoisseldomworthlessthan16s.aton;andtheinhabitantofGrosvenorSquaremayperhapsthinkhimselffortunateifhecanfillhiscoalcellarsat25s.aton.Atonofcoal,thoughphysicallyidentical,mustbeconsidered,foreconomicalpurposes,asadifferentcommodityatthebottomofthepitandatitsmouth,inHullandinGrosvenorSquare.Ateverydifferentstageofitsprogressitislimitedinsupplybydifferentobstacles,andconsequentlyexchangeablefordifferentthingsandindifferentproportions.SupposingthatatNewcastleatonofthebestwheatisnowworthabouttwentytonsofthebestcoal:thesamewheatandcoalatthewestendofLondonmayprobablyexchangeintheproportionsofaboutfourtonsofcoalforoneofwheat.AtOdessa,theymayperhapsexchangeaboutweightforweight.Whenever,therefore,wespeakofthevalueofacommodity,itisnecessarytostatethelocalitybothofthecommodityinquestion,andofthecommodityinwhichitsvalueisestimated.Andinmostcasesweshallfindtheirrespectiveproximitytotheplaceswheretheyarerespectivelytobemadeuseofoneoftheprincipalconstituentsoftheirrespectivevalues.Thepurchaserofthedistantcommodityhastoconsiderthelabouroftransportingittotheplaceofconsumption,thetimeforwhichthatlabourmustbepaidinadvance,andthetaxation,andtheriskofinjuryorlosstowhichitmaybesubjectinitstransit.Noristhisall.Hemustalsoconsiderthedangerthatitsqualitymaynotcorrespondwiththedescriptionorsamplewhichguidedhiminmakingthepurchase.ThewholeexpenseandriskattendingthetransportofadiamondfromEdinburghtoLondonarebuttrifling;butitsvalueissodependentonitsformandlustre,andthosearequali-tiesastowhichitissodifficulttosatisfyanypurchaserwhocannotascertainthembyinspection,thatitwouldbedifficulttoobtaininLondonafairpriceforadiamondinEdinburgh.Again,thoughagivenquantityofcoalfromagivenmineisgenerallyofanascertainedquality,yetthe 324TheClassicalSchoolexpense,lossoftime,risk,andtaxation,whichmustbeincurredinitstransportfromNewcastletoGrosvenorSquare,aresuch,thatatonofcoal,whenithasreachedGrosvenorSquare,maybeofnearlyfivetimesthevaluewhichitboreatNewcastle.StatementofthefourelementarypropositionsofthescienceofpoliticaleconomyInstrumentsofProductionHavingexplainedthenatureofProductionandConsumption,wenowproceedtoconsidertheAgentsbywhoseinterventionProductiontakesplace.I.LabourTheprimaryInstrumentsofProductionareLabour,andthoseAgentsofwhichnature,unaidedbyman,affordsustheassistance.Labouristhevoluntaryexertionofbodilyormentalfacultiesforthepurposeof,Production.Itmayappearunnecessarytodefineatermhavingameaningsopreciseandsogenerallyunder-stood.Peculiarnotionsrespectingthecausesofvaluehave,however,ledsomeEconomiststoemploythetermlabourinsensessodifferentfromitscommonacceptation,thatforsometimetocomeitwillbedangeroustousethewordwithoutexplanation.Wehavealreadyobservedthatmanyrecentwritershaveconsideredvalueassolelydependentonlabour.Whenpressedtoexplainhowwineinacellar,oranoakinitsprogressfromasaplingtoatree,could,onthisprin-ciple,increaseinvalue,theyrepliedthattheyconsideredtheimprovementofthewineandthegrowthofthetreeassomuchadditionallabourbestowedoneach.Wedonotquiteunderstandthemeaningofthisreply;butwehavegivenadefinitionoflabour,lestweshouldbesupposedtoincludeinittheunassistedoperationsofnature.Itmayalsobewelltoremindourreadersthatthisdefinitionexcludesallthoseexertionswhicharenotintended,immediatelyorthroughtheirproducts,tobemadethesubjectsofexchange.Ahiredmessengerandapersonwalkingforhisamusement,asportsmanandagamekeeper,theladiesatanEnglishballandacompanyofNatchgirlsinIndia,undergothesamefatigues;butordinarylanguagedoesnotallowustocon-siderthoseasundergoinglabourwhoexertthemselvesforthemerepurposeofamusement.II.NaturalAgentsUndertheterm‘theAgentsofferedtousbynature’,or,touseashorterexpression,‘NaturalAgents’,weincludeeveryproductiveagentsofarasitdoesnotderiveitspowersfromtheactofman.Theterm‘NaturalAgent’isfarfrombeingaconvenientdesignation,butwehaveadopteditpartlybecauseithasbeenalreadymadeuseofinthissensebyeminentwriters,andpartlybecausewehavenotbeenabletofindonelessobjectionable.Theprincipaloftheseagentsistheland,withitsmines,itsrivers,itsnaturalforestswiththeirwildinhabitants,and,inshort,allitsspontaneousproductions.Tothesemustbeaddedtheocean,theatmosphere,lightandheat,andeventhosephysicallaws,suchasgravitationandelectricity,bytheknowledgeofwhichweareabletovarythecombinationsofmatter.Alltheseproductiveagentshaveingeneral,bywhatappearstobeaninconvenientsynecdoche,beendesignatedbythetermland;partlybecausetheland,asasourceofprofit,isthemostimportantofthosewhicharesusceptibleofappropriation,butchieflybecauseitspossessiongenerallycarrieswithitthecommandovermostoftheothers.Anditistoberememberedthat,thoughthepowersofnaturearenecessarytoaffordasubstra-tumfortheotherinstrumentsofproductiontoworkupon,theyarenotofthemselves,whenuni-versallyaccessible,causesofvalue.Limitationinsupplyis,aswehaveseen,anecessaryconstituentofvalue;andwhatisuniversallyaccessibleispracticallyunlimitedinsupply. Senior:OutlineofPoliticalEconomy325III.AbstinenceButalthoughHumanLabour,andtheAgencyofNature,independentlyofthatofman,aretheprimaryProductivePowers,theyrequiretheconcurrenceofaThirdProductivePrincipletogivetothemcompleteefficiency.Themostlaboriouspopulation,inhabitingthemostfertileterritory,iftheydevotedalltheirlabourtotheproductionofimmediateresults,andconsumeditsproduceasitarose,wouldsoonfindtheirutmostexertionsinsufficienttoproduceeventhemerenecessariesofexistence.TotheThirdPrinciple,orInstrumentofProduction,withoutwhichthetwoothersareineffi-cient,weshallgivethenameofAbstinence:atermbywhichweexpresstheconductofapersonwhoeitherabstainsfromtheunproductiveuseofwhathecancommand,ordesignedlypreferstheproductionofremotetothatofimmediateresults.ItwastotheeffectsofthisThirdInstrumentofProductionthatweadvertedwhenwelaiddown,asthethirdofourelementarypropositions,thatthePowersofLabourandoftheotherInstrumentswhichproduceWealth,maybeindefinitelyincreasedbyusingtheirProductsasthemeansoffurtherProduction.Alloursubsequentremarksonabstinenceareadevelopmentandillustration,becauseitcanscarcelybesaidtorequireformalproof.ThedivisionoftheInstrumentsofProductionintothreegreatbrancheshaslongbeenfamil-iartoEconomists.ThosebranchestheyhavegenerallytermedLabour,Land,andCapital.Intheprincipleofthisdivisionweagree;thoughwehavesubstituteddifferentexpressionsforthesec-ondandthirdbranches.WehavepreferredthetermNaturalAgentstothatofLand,toavoiddesignatingawholegenusbythenameofoneofitsspeciesapracticewhichhasoccasionedtheothercognatespeciestobegenerallyslightedandoftenforgotten.WehavesubstitutedthetermAbstinenceforthatofCapitalondifferentgrounds.ThetermCapitalhasbeensovariouslydefinedthatitmaybedoubtfulwhetherithaveanygenerallyreceivedmeaning.Wethink,however,that,inpopularacceptation,andinthatofEconomiststhemselves,whentheyarenotremindedoftheirdefinitions,thatwordsignifiesanarticleofwealth,theresultofhumanexertion,employedintheproductionordistributionofwealth.Wesaytheresultofhumanexertion,inordertoexcludethoseproductiveinstrumentstowhichwehavegiventhenameofnaturalagents,andwhichaffordnotprofit,inthescientificsenseofthatword,butrent.ItisevidentthatCapital,thusdefined,isnotasimpleproductiveinstrument;itisinmostcasestheresultofallthethreeproductiveinstrumentscombined.Somenaturalagentmusthaveaffordedthematerial,somedelayofenjoymentmustingeneralhavereserveditfromun-productiveuse,andsomelabourmustingeneralhavebeenemployedtoprepareandpreserveit.BythewordAbstinence,wewishtoexpressthatagent,distinctfromlabourandtheagencyofnature,theconcur-renceofwhichisnecessarytotheexistenceofCapital,andwhichstandsinthesamerelationtoProfitasLabourdoestoWages.WeareawarethatweemploythewordAbstinenceinamoreextensivesensethaniswarrantedbycommonusage.Attentionisusuallydrawntoabstinenceonlywhenitisnotunitedwithlabour.Itisrecognizedinstantlyintheconductofamanwhoallowsatreeoradomesticanimaltoattainitsfullgrowth;butitislessobviouswhenheplantsthesaplingorsowstheseedcorn.Theobserver’sattentionisoccupiedbythelabour,andheomitstoconsidertheadditionalsacrificemadewhenlabourisundergoneforadistantobject.Thisadditionalsacrificewecom-prehendunderthetermAbstinence;notbecauseAbstinenceisanunobjectionableexpressionforit,butbecausewehavenotbeenabletofindonetowhichtherearenotstillgreaterobjections.Weoncethoughtofusing‘providence’;butprovidenceimpliesnoself-denial,andhasnoneces-saryconnectionwithprofit.Totakeoutanumbrellaisprovident,butnotintheusualsenseofthewordprofitable.Weafterwardsproposed‘frugality’,butfrugalityimpliessomecareandatten-tion,thatistosay,somelabour;andthoughinpracticeAbstinenceisalmostalwaysaccompaniedbysomedegreeoflabour,itisobviouslynecessarytokeepthemseparateinananalysisoftheinstrumentsofproduction. 326TheClassicalSchoolItmaybesaidthatpureAbstinence,beingamerenegation,cannotproducepositiveeffects;thesameremarkmightaswellbeappliedtointrepidity,oreventoliberty;butwhoeverobjectedtotheirbeingconsideredasequivalenttoactiveagents?Toabstainfromtheenjoymentwhichisinourpower,ortoseekdistantratherthanimmediateresults,areamongthemostpainfulexer-tionsofthehumanwill.Itistruethatsuchexertionsaremade,andindeedarefrequentineverystateofsociety,exceptperhapsintheverylowest,andhavebeenmadeintheverylowest,forsocietycouldnototherwisehaveimproved;butofallthemeansbywhichmancanberaisedinthescaleofbeing,abstinence,asitisperhapsthemosteffective,istheslowestinitsincrease,andtheleastgenerallydiffused.Amongnations,thosethataretheleastcivilized,andamongthedifferentclassesofthesamenationthosewhicharetheworsteducated,arealwaysthemostimprovident,andconsequentlytheleastabstinent.…DistributionofwealthSocietydividedintothreeclasses:Labourers,Capitalists,andProprietorsofNaturalAgentsAccordingtotheusuallanguageofPoliticalEconomists,Labour,Capital,andLandarethethreeInstrumentsofProduction;Labourers,Capitalists,andLandlordsarethethreeclassesofProducers;andthewholeProduceisdividedintoWages,Profits,andRent:thefirstdesignatingtheLabourer’sshare,thesecondthatoftheCapitalist,andthethirdthatoftheLandlord.Weapprove,onthewhole,oftheprinciplesonwhichthisclassificationisfounded,butwehavebeenforced,muchagainstourwill,tomakeconsiderablealterationsinthelanguageinwhichithasbeenusuallyexpressed;toaddsomenewterms,andtoenlargeorcontractthesignificationofsomeothers.Itappearstousthat,tohaveanomenclaturewhichshouldfullyandpreciselyindicatethefactsofthecase,notlessthantwelvedistincttermswouldbenecessary.ForeachclassthereoughttobeanamefortheInstrumentemployedorexercised,anamefortheClassofpersonswhoemployorexerciseit,anamefortheActofemployingorexercisingit,andanamefortheShareoftheproducebywhichthatactisremunerated.Ofthesetermswehavenotmuchmorethanhalf,aswillappearifweexamineeachclassseparately.Nomenclatureapplicabletothefirstclass,theLabourersForthefirstclasswehavetheterms‘toLabour’,‘aLabourer’,and‘Wages’.Noneofthesetermsexpressestheinstrumentsofproduction:thesubstantive‘labour’,andtheverb‘tolabour’,expressmerelyanact.‘Alabourer’isanagent,andwagesarearesult:butwhatisthethingemployed?Whatisitthatthelabourerexerts?Clearlyhismentalorbodilyfaculties.Withtheadditionofthistermthenomenclatureofthefirstclasswillbecomplete.ToLabouristoemploystrengthofbodyormindforthepurposeofProduction;thepersonwhodoessoisaLabourer,andWagesarehisremuneration.Nomenclatureapplicabletothesecondclass,theCapitalistsInthesecondclasswehavethewordsCapital,Capitalist,andProfit.Thesetermsexpresstheinstrument,thepersonwhoemploysorexercisesit,andhisremuneration;butthereisnofamil-iartermtoexpresstheact,theconductofwhichprofitisthereward,andwhichbearsthesamerelationtoprofitwhichlabourdoestowages.Tothisconductwehavealreadygiventhenameof Senior:OutlineofPoliticalEconomy327Abstinence.Theadditionofthistermwillcompletethenomenclatureofthesecondclass.Capitalisanarticleofwealth,theresultofhumanexertion,employedintheproductionordistributionofWealth.Abstinenceexpressesboththeactofabstainingfromtheunproductiveuseofcapital,andalsothesimilarconductofthemanwhodevoteshislabourtotheproductionofremoteratherthanofimmediateresults.ThepersonwhosoactsisaCapitalist,therewardofhisconductisProfit.Nomenclatureapplicabletothethirdclass,theProprietorsofNaturalAgentsThedefectivenessoftheestablishednomenclatureismorestrikingwhenwecometothethirdclass.Wagesandprofitsarethecreationofman.Theyaretherecompenseforthesacrificemadeintheonecase,ofease,intheother,ofimmediateenjoyment.Butaconsiderablepartoftheproduceofeverycountryistherecompenseofnosacrificewhatever;isreceivedbythosewhoneitherlabournorputby,butmerelyholdouttheirhandstoaccepttheofferingsoftherestofthecommunity.…OftheAgentsaffordedbynature,theprincipalistheLand,withitsRivers,Ports,andMines.Intherarecasesinwhichthequantityofusefullandispracticallyunlimited,astateofthingswhichoccursonlyintheearlystagesofcolonization,Landisanagentuniversallyaccessible,and,asnothingispaidforitsuse,thewholeproducebelongstothecultivators,andisdivided,underthenamesofwagesandprofit,betweenthecapitalistsandthelabourers,ofwhoseabstinenceandindustryitistheresult.ButinalloldCountries,andevenincolonieswithinaveryfewyearsaftertheirfoundation,certainLands,frompeculiaradvantagesofsoilorsituation,arefoundtomakemorethantheaveragereturntoagivenexpenditureofcapitalandindustry.Theproprietorofsuchlands,ifhecultivatethemhimself,receivesasurplusafterhavingpaidthewagesofhislabourersanddeductedtheprofittowhichheisentitledonhiscapital.Heofcoursereceivesthesamesurplusif,insteadofcultivatingthemhimself,heletsthemouttosomeothercapitalist.Thetenantreceivesthesameprofit,andthelabourersreceivethesamewagesasiftheywereemployedonlandpossessingmerelyaveragenaturaladvantages;thesurplusformstherentoftheproprietor,or,asweusuallytermhim,thelandlord.Thewholeproduce,insteadoftwo,isdividedintothreeshares–Rent,Profit,andWages.Iftheownerisalsothecapitalistorfarmer,hereceivestwooftheseshares,boththeprofitandtherent.Ifheallowittobecultivatedbythecapitalofanother,hereceivesonlyrent.Butrent,withorwithoutprofit,henecessarilyreceives.AndwhenthewholeofaCountryhasbeenappropriated,thoughitbetrue,aswillbeshownhereafter,thatsomeoftheproduceisraisedbytheapplicationofadditionalcapitalwithoutpaymentofaddi-tionalrent,andmaythereforebesaidtoberaisedrentfree,yetitisequallytruethatarentisreceivedfromeverycultivatedacre;arentrisingorfallingaccordingtotheaccidentsofsoilandsituation,butthenecessaryresultoflimitedextentandproductivepower.Itisobvious,however,aswehavealreadystated,thatland,thoughtheprincipal,isnottheonlynaturalagentthatcanbeappropriated.Themereknowledgeoftheoperationsofnature,aslongastheuseofthatknowledgecanbeconfinedeitherbysecrecyorbylaw,createsarevenuetoitspossessoranalogoustotherentofland.Theknowledgeoftheeffectonthefibresofcottonofrollersmovingwithdifferentvelocities,enabledavillagebarbertofoundinaveryfewyearsamorethanaristocraticfortune.StillgreaterwealthmightprobablyhavebeenacquiredbyDrJenner,ifhecouldhavebornesomewhattolimitthebenefitswhichhehasconferredonmankind.Whentheauthorofausefuldiscoveryputsithimselfinpractice,heislikeaproprietorfarminghisownproperty;theproduce,afterpayingaveragewagesforthelabour,andaverageprofitsfor 328TheClassicalSchoolthecapital,employed,affordsastillfurtherrevenue,theeffectnotofthatcapitalorofthatlabour,butofthediscovery,thecreationnotofmanbutofnature.If,insteadofusingithimself,heletouttoanothertheprivilegeofusingit,beobtainsarevenuesopreciselyresemblingtherentofland,thatitoftenreceivesthesamename.Thepaymentmadebyamanufacturertoapatenteefortheprivilegeofusingthepatentprocess,isusuallytermed,incommerciallanguage,aRent;andunderthesameheadmustberankedallthepeculiaradvantagesofsituationorconnection,andallextraordinaryqualitiesofbodyandmind.Thesurplusrevenuewhichtheyoccasionbeyondaveragewagesandprofitsisarevenueforwhichnoadditionalsacrificehasbeenmade.Theproprietoroftheseadvantagesdiffersfromalandlordonlyinthecircumstancethathecannotingeneralletthemouttobeusedbyanother,andmustconsequentlyeitherallowthemtobeuselessorturnthemtoaccounthimself.Heisforced,therefore,alwaystoemployonthemhisownindustry,andgenerallyhisowncapital,andreceivesnotonlyrent,butwagesandprofit.If,therefore,theestablisheddivisionisadheredto,andallthatisproducedistobedividedintorent,profit,andwages–andcertainlythatappearstobethemostconvenientclassification;andifwagesandprofitaretobeconsideredastherewardsofpeculiarsacrifices,theformertheremunerationforlabour,andthelatterforabstinencefromimmediateenjoyment,itisclearthatundertheterm‘rent’mustbeincludedallthatisobtainedwithoutanysacrifice;or,whichisthesamething,beyondtheremunerationforthatsacrifice;allthatnatureorfortunebestowseitherwithoutanyexertiononthepartoftherecipient,orinadditiontotheaverageremunerationfortheexerciseofindustryortheemploymentofcapital.Butthoughweseenoobjectiontothisextensionofthewordrent,thetermslandandlandlordaretooprecisetoadmitofbeingequallyextended.Itwouldbetoogreataninnovationtoincludeunderthetermlandeverynaturalagentwhichiscapableofappropriation,orunderthetermlandlordeveryproprietorofsuchanagent.Forthesetermswemustsubstitutethoseofnaturalagent,andproprietorofanaturalagent.Andthethirdclasswillthenhaveatermforthethirdinstru-mentofproductionatermfortheownerofthatinstrument,andatermforthesharewhichhereceivesoftheproduce:termscorrespondingwiththetermsfacultiesofbodyandmind,labourer,andwages,asappliedtothefirstclass,andwithcapital,capitalist,andprofit,asappliedtothesecond.Weshallstillwantatermcorrespondingwithlabourandabstinence–atermindi-catingtheconductwhichenablestheproprietorofanaturalagenttoreceivearent.Butasthisconductimpliesnosacrifice–asitconsistsmerelyinnotsufferingtheinstrumentofwhichheistheownertobeuseless,itperhapsdoesnotrequireadistinctdesignation.Whenamanpossessesanestate,wetakeitforgrantedthathedoesnotallowittoliewaste,buteitherusesithimself,orletsittoatenant.Inordinarylanguage,thereceiptofrentisincludedunderthetermownership.Therewillthereforebelittledangerofobscurityifweconsidertheword‘possess’,whenappliedtotheproprietorofanaturalagent,asimplyingthereceiptoftheadvantagesaffordedbythatagent,or,inotherwords,ofrent.Talents,indeed,oftenlieidle,butinthatcasetheymaybecon-sideredforeconomicalpurposesasnotpossessed.Infact,unaccompaniedbythewilltousethem,theyareuseless.…Inmostcasesaconsiderableintervalelapsesbetweentheperiodatwhichthenaturalagentandthelabourerarefirstemployed,andthecompletionoftheproduct.Inthisclimatethehar-vestisseldomreapeduntilnearlyayearafterithasbeensown;astilllongertimeisrequiredforthematurityofoxen;andlongerstillforthatofahorse;andsixtyorseventyyearsmaypassbetweenthecommencementofaplantation,andthetimeatwhichthetimberissaleable.Itisobviousthatneitherthelandlordnorthelabourer,assuch,canwaitduringallthisintervalfortheirremuneration.Thedoingsowould,infact,beanactofabstinence.Itwouldbetheemploymentoflandandlabourinordertoobtainremoteresults.Thissacrificeismadeby Senior:OutlineofPoliticalEconomy329thecapitalist,andheisrepaidforitbyhisappropriateremuneration,profit.Headvancestothelandlordandthelabourer,andinmostcasestosomepreviouscapitalist,thepriceoftheirrespec-tiveassistance;or,inotherwords,thehireofthelandandcapitalbelongingtoone,andofthementalandbodilypowersofanother,andbecomessolelyentitledtothewholeoftheproduct.Thesuccessofhisoperationsdependsontheproportionwhichthevalueofthatproduce,(or,incommerciallanguage,thevalueofhisreturns),bearstothevalueofhisadvances,takingintoconsiderationthetimeforwhichthoseadvanceshavebeenmade.Ifthevalueofthereturnisinferiortothatoftheadvance,heisobviouslyaloser;heisaloserifitbemerelyequal,ashehasincurredabstinencewithoutprofit,or,inordinarylanguage,haslosttheinterestonhiscapital.Heisaloserevenifthevalueofhisreturnsdonotexceedthatofhisadvancesbyanamountequaltothecurrentrateofprofitfortheperiodduringwhichtheadvancehasbeenmade.Inanyofthesecasestheproductissold,sofarasthecapitalistisconcerned,forlessthanthecostofitsproduction.Theemploymentofcapital,therefore,isnecessarilyaspeculation;itisthepurchaseofsomuchproductivepowerwhichmayormaynotoccasionaremunerativereturn.ThecommonlanguageofEconomists,therefore,whichdescribesthelandlord,thecapitalist,andthelabourerassharersoftheproduce,isafiction.Almostallthatisproducedisinthefirstinstancethepropertyofthecapitalist;hehaspurchaseditbyhavingpreviouslypaidtherentandwages,andincurredorpaidfortheabstinence,whichwerenecessarytoitsproduction.Aportionofit,butgenerallyasmallportion,heconsumeshimself,inthestateinwhichhereceivesit;theremainderhesells.Hemay,ifhethinkfit,employthepriceofallthathesellsinpurchasesforhisowngratification;buthecannotremainacapitalistunlessheconsenttoemploysomeportionofitinthehireofthelandandlabour,bytheassistanceofwhichtheprocessofproductionistobecontinuedorrecommenced.Hecannot,generallyspeaking,fullyretainhissituationasacapital-istunlessheemploysomeportionofitinthehireofthelandandlabour,bytheassistanceofwhichtheprocessofproductionistobecontinuedorrecommenced.Hecannot,generallyspeaking,fullyretainhissituationasacapitalistunlessheemployenoughtohireasmuchlandandlabourasbefore;andifhewishtoraisehimselfintheworld,hemust,generallyspeaking,notmerelykeepup,butincreasethesumwhichhedevotestothepurchaseofproductiveforce.…ExchangeHavingmadethisgeneralclassificationofthepartiesamongwhomtheresultsofthedifferentproductiveinstrumentsaredivided,wenowproceedtoconsiderthegenerallawswhichregulatetheproportionsinwhichthoseresultsareexchangedforoneanother.Toacertaindegreethisquestionwasconsideredwhenwetreatedofvalue;butnothavingatthattimeexplainedthewordsproduction,wages,profit,orrent,wewereunabletodomorethantostateandillustratethefollowingpropositions:First,thatallthosethings,andthosethingsonly,aresusceptibleofexchange,which,beingtransferable,arelimitedinsupply,andarecapable,directlyorindirectly,ofaffordingpleasureorpreventingpain;acapacitytowhichwehaveaffixedthenameofutility.Second,thattherecip-rocalvaluesofanytwothings,or,inotherwords,thequantityoftheonewhichwillexchangeforagivenquantityoftheother,dependontwosetsofcauses;thosewhichoccasiontheutilityandlimitthesupplyoftheone,andthosewhichlimitthesupplyandoccasiontheutilityoftheother.Thecauseswhichoccasiontheutilityandlimitthesupplyofanygivencommodityorservice,wedenominatetheintrinsiccausesofitsvalue.Thosewhichlimitthesupplyandoccasiontheutilityofthecommoditiesorservicesforwhichitiscapableofbeingexchanged,wedenominatetheextrinsiccausesofitsvalue.And,third,thatcomparativelimitationofsupply,or,tospeakmorefamiliarly,thoughlessphilosophically,comparativescarcity,thoughnotsufficient 330TheClassicalSchooltoconstitutevalue,isbyfaritsmostimportantelement;utility,or,inotherwords,demand,beingmainlydependentonit.Wehadnotthenshownthemeansbywhichsupplyiseffected.Havingdonethis,havingshownthathumanLabourandAbstinence,andthespontaneousagencyofNature,arethethreeinstrumentsofproduction,weareatlibertytoexplainwhataretheobstacleswhichlimitthesupplyofallthatisproduced,andthemodeinwhichthoseobstaclesaffecttherec-iprocalvaluesofthedifferentsubjectsofexchange.PriceInthefollowingdiscussion,however,weshallingeneralsubstitutepriceorvalueinmoneyforgeneralvalue.Thegeneralvalueofanycommodity,thatis,thequantityofalltheothersubjectsofexchangewhichmightbeobtainedinreturnforagivenquantityofit,isincapableofbeingascertained.Itsspecificvalueinanyothercommoditymaybeascertainedbytheexperimentofanexchange;theanxietyofeachpartyintheexchangetogiveaslittle,andobtainasmuchaspossible,leadinghimtoinvestigate,asaccuratelyashecan,theintrinsiccausesgivingvaluetoeachofthearticlestobeexchanged.Thisis,however,atroublesomeoperation,andmanyexpedientsareusedtodiminishitsfrequency.Themostobviousoneistoconsiderasingleexchange,orthemeanofafewexchanges,asamodelforsubsequentexchangesofasimilarnature.Byanextensionofthisexpedientitmaybecomeamodelforexchangesnotofasimilarnature.Ifgivenquantitiesoftwodifferentarticlesareeachfoundbyexperiencetoexchangeforagivenquantityofathirdarticle,theproportionatevalueofthetwofirst-mentionedarticlesmay,ofcourse,beinferred.Itismeasuredbythethird.Hencearisetheadvantagesofselecting,asoneofthesubjectsofeveryexchange,asinglecommodity,or,morecorrectly,aspeciesofcommoditiesconstitutedofindi-vidualsofpreciselysimilarqualities.Inthefirstplace,allpersonscanascertain,withtolerableaccuracy,theintrinsiccauseswhichgivevaluetotheselectedcommodity,sothatonehalfthetroubleofanexchangeisreadyperformed.And,second,ifanexchangeistobeeffectedbetweenanyothertwocommodities,thequantityofeachthatisusuallyexchangedforagivenquantityofthethirdcommodityisascertained,andtheirrelativevalueisinferred.Thecommoditythusselectedasthegeneralinstrumentofexchange,whateverbeitssubstance,whethersalt,asinAbyssinia,cowries,ontheCoastofGuinea,orthepreciousmetals,asinEurope,ismoney.Whentheuseofsuchacommodity,or,inotherwords,ofmoney,hasbecomeestablished,valueinmoney,orprice,istheonlyvaluefamiliarlycontemplated.Thescarcityanddurabilityofgoldandsilver(thesubstancesusedasmoneybyallcivilizednations)makethempeculiarlyunsuscep-tibleofalterationinvaluefromintrinsiccauses.Ontheseaccountswethinkitbetter,inthefollowingdiscussion,toreferrathertopricethantogeneralvalue,andtoconsiderthevalueofmoney,sofarasitdependsonintrinsiccauses,tobeunvarying.Wemustprefaceourexplanationoftheeffectonpriceofthecauseslimitingsupply,byaremarkwhichmayappearself-evident,butwhichmustalwaysbekeptinrecollection,namelythatWheretheonlynaturalagentsemployedarethosewhichareuniversallyaccessible,andthereforearepracticallyunlimitedinsupply,theutilityoftheproduce,or,inotherwords,itspower,directlyorindirectly,ofproducinggratification,orpreventingpain,mustbeinproportiontothesacrificesmadetoproduceit,unlesstheproducerhasmisappliedhisexertions;sincenomanwouldwillinglyemployagivenamountoflabourorabstinenceinproducingonecommodity,ifhecouldobtainmoregratificationbydevotingthemtotheproductionofanother.Wenowreverttothecauseswhichlimitsupply.Therearesomecommoditiestheresultsofagentsnolongerinexistence,oractingatremoteanduncertainperiods,thesupplyofwhichcannotbeincreased,orcannotbereckonedupon.Antiquesandrelicsbelongtothefirstclass,andalltheveryrareproductionsofNatureofArt,suchasdiamondsofextraordinarysize,orpictures,orstatuesofextraordinarybeauty,tothesec-ond.Thevaluesofsuchcommoditiesaresubjecttonodefiniterules,anddependaltogetheron Senior:OutlineofPoliticalEconomy331thewealthandtasteofthecommunity.Incommonlanguage,theyaresaidtobearafancyprice,thatis,apricedependingprincipallyonthecapriceorfashionoftheday.TheBoccaccio,whichafewyearsagosoldfor£2,000,andafterayearortwo’sintervalfor£700,may,perhaps,fiftyyearshence,bepurchasedforashilling.Relicswhich,intheninthcentury,werethoughttoovaluabletoadmitofadefiniteprice,wouldnowbethoughtequallyincapableofpriceinconsequenceoftheirutterworthlessness.Inthefollowingdiscussionweshallaltogetheromitsuchcommoditiesandconfineourattentiontothoseofwhichthesupplyiscapableofincrease,eitherregular,orsufficientlyapproachingtoregularity,toadmitofcalculation.Theobstacletothesupplyofthosecommoditieswhichareproducedbylabourandabstinence,withthatassistanceonlyfromnaturewhicheveryonecancommand,consistssolelyinthedifficultyoffindingpersonsreadytosubmittothelabourandabstinencenecessarytotheirproduction.Inotherwords,theirsupplyislimitedbythecostoftheirproduction.…CostofProductiondefinedByCostofProduction,then,wemeanthesumofthelabourandabstinencenecessarytoproduction.Butcostofproduction,thus,definedmustbedividedintothecostofproduction,onthepartoftheproducerorseller,andthecostofproductiononthepartoftheconsumerorpurchaser.Thefirstisofcoursetheamountoflabourandabstinencewhichmustbeundergonebyhimwhooffersforsaleagivenclassofcommoditiesorservicesinordertoenablehimtocontinuetopro-ducethem.Thesecondis,theamountofthelabourandabstinencewhichmustbeundergonebythosetowhomagivencommodityorserviceisofferedforsale,if,insteadofpurchasing,theythemselves,orsomeofthemonthebehalfofthemselvesandtheothers,weretoproduceit.Thefirstisequaltotheminimum,thesecondtothemaximum,ofprice.For,ontheonehand,nomanwouldcontinuetobuywhattheythemselves,orsomeofthemonbehalfofthemselvesandtheothers,couldproduceatlessexpense.Withrespecttothosecommodities,or,tospeakmoreaccu-rately,withrespecttothevalueofthosepartsorattributesofcommodities,whicharethesubjectsofequalcompetition,whichmaybeproducedbyallpersonswithequaladvantages,thecostofproductiontotheproducerandthecostofproductiontoconsumerarethesame.Theirprice,therefore,representstheaggregateamountofthelabourandabstinencenecessarytocontinuetheirproduction.Iftheirpriceshouldfalllower,thewagesortheprofitsofthoseemployedintheirproductionmustfallbelowtheaverageremunerationofthelabourandabstinencethatmustbeundergoneiftheirproductionistobecontinued.Intime,therefore,itisdiscontinuedordimin-ished,untilthevalueoftheproducthasbeenraisedbythediminutionofthesupply.Ifthepriceshouldrisebeyondthecostoftheirproduction,theproducersmustreceivemorethananaverageremunerationfortheirsacrifices.Assoonasthishasbeendiscovered,capitalandindustryflowtowardstheemploymentwhich,bythissupposition,offersextraordinaryadvantages.Thosewhoformerlywerepurchasers,orpersonsontheirbehalf,turnproducersthemselves,untiltheincreasedsupplyhasequalizedthepricewiththecostofproduction.SomeyearsagoLondondependedforwaterontheNewRiverCompany.Asthequantitywhichtheycansupplyislimited,thepricerosewiththeextensionofbuildings,untilitsofarexceededthecostofproductionastoinducesomeoftheconsumerstobecomeproducers.ThreenewWaterCompanieswereestablished,andthepricefellasthesupplyincreased,untilthesharesintheNewRiverCompanyfelltonearlyone-fourthoftheirformervalue;from£15,000to£4,000.Ifthemetropolisshouldcontinuetoincrease,thesetransactionswillrecur.Thepriceofwaterwillincreaseandexceedthecostatwhichitcouldbeafforded.NewCompanieswillarise,and,unlesstheadditionalsupplyischeckedbygreaternaturalobstaclesthanthosewhichtheexistingCompanieshavetosurmount,thepricewillagainfalltoitspresentlevel. 332TheClassicalSchoolButthough,underfreecompetition,costofproductionistheregulatorofprice,itsinfluenceissubjecttomuchoccasionalinterruption.Itsoperationcanbesupposedtobeperfectonlyifwesupposethattherearenodisturbingcauses,thatcapitalandlabourcanbeatoncetransferred,andwithoutloss,fromoneemploymenttoanother,andthateveryproducerhasfullinformationoftheprofittobederivedfromeverymodeofproduction.Butitisobviousthatthesesupposi-tionshavenoresemblancetothetruth.Alargeportionofthecapitalessentialtoproductioncon-sistsofbuildings,machinery,andotherimplements,theresultsofmuchtimeandlabour,andoflittleserviceforanyexcepttheirexistingpurposes.Astilllargerportionconsistsofknowledgeandofintellectualandbodilydexterity,applicableonlytotheprocessesinwhichthosequalitieswereoriginallyacquired.Again,theadvantagederivedfromanygivenbusinessdependssomuchuponthedexterityandthejudgmentwithwhichitismanaged,thatfewcapitalistscanestimate,exceptuponanaverageofsomeyears,theamountoftheirownprofits,andstillfewercanesti-matethoseoftheirneighbours.Establishedbusinesses,therefore,maysurvivethecausesinwhichtheyoriginated,andbecomegraduallyextinguishedastheircomparativeunprofitablenessisdiscovered,andthelabourersandcapitalengagedinthemwearawaywithoutbeingreplaced;and,ontheotherhand,otheremploymentsareInadequatelysuppliedwiththecapitalandindustrywhichtheycouldprofitablyabsorb.Duringtheinterval,theproductsoftheonesellforless,andthoseoftheothersformore,thantheircostofproduction.PoliticalEconomydoesnotdealwithparticularfactsbutwithgeneraltendencies,andwhenweassigntocostofproductionthepowerofregulatingpriceincasesofequalcompetition,wemeantodescribeitnotasapointtowhichpriceisattached,butasacentreofoscillationwhichitisalwaysendeavouringtoapproach.Wehaveseenthat,undercircumstancesofequalcompetition,or,inotherwords,whereallpersonscanbecomeproducers,andthatwithequaladvantages,thecostofproductiononthepartoftheproducerorseller,andthecostproductiononthepartoftheconsumerorpurchaser,arethesame,andthatthecommoditythusproducedsellsforitscostofproduction;or,inotherwords,atapriceequaltothesumofthelabourandabstinencewhichitsproductionrequires;or,touseamorefamiliarexpression,atapriceequaltotheamountofthewagesandprofitswhichmustbepaidtoinducetheproducerstocontinuetheirexertions.Ithaslatelybeenageneralopinionthatthebulkofcommoditiesisproducedundercircumstancesofequalcompetition.‘Byfarthegreaterpartofthosegoods’,saysMrRicardo(Principles,p.3)‘whicharetheobjectsofdesire,areproducedbylabour,andmaybemultipliedalmostwithoutanyassignablelimit,ifwearedisposedtobestowthelabournecessarytoobtainthem.Inspeakingthenofcommodities,oftheirexchangeablevalue,andofthelawswhichregulatetheirrelativeprices,wealwaysmeansuchcommoditiesonlyascanbeincreasedinquantitybytheexertionofhumanindustry,andintheproductionofwhichcompetitionoperateswithoutrestraint’.Nowitisclearthattheproductioninwhichnoappropriatednaturalagenthasconcurred,istheonlyproductionwhichhasbeenmadeundercircumstancesofperfectlyequalcompetition.Andhowfewarethecommoditiesofwhichtheproductionhasinnostagebeenassistedbypecu-liaradvantagesofsoil,orsituation,orbyextraordinarytalentofbodyormind,orbyprocessesgenerallyunknown,orprotectedbylawfromimitation.Wheretheassistanceoftheseagents,towhichwehavegiventhegeneralnameofnaturalagents,hasbeenobtained,theresultismorethantheresultofequallabourandabstinenceunassistedbysimilaraids.Acommoditythuspro-ducediscalledthesubjectofamonopoly;andthepersonwhohasappropriatedsuchanaturalagent,amonopolist. JOHNSTUARTMILL(1806–1873)JohnStuartMillwasachildprodigy.Educatedunderthestrictdirectionofhisfather,JamesMill,JohnStuartMillwasstudyingGreekatage3andhadpro-gressedthroughLatin,mathematics,liter-ature,history,thenaturalsciences,logic,andpoliticaleconomybyhisearlyteenyears.HeassumedapositionwiththeEastIndiaCompanyatage16andremainedthereforthirty-sixyears.Bythetimeofhisdeath,Mill,whohadbeenraisedtohavethebrightestandbest-trainedmindofhisgeneration,hadmadefundamentallyimportantcontributionstophilosophy,politics,andeconomics.Fromtheliteraryperspective,hisAutobiographyisaclassicofthatgenreandprovidesanexcellentdepictionofthechildhoodthatMillsaidwaslived“intheabsenceofloveandinthepresenceoffear.”Notsurprisingly,givenhisfather’sstrongBenthamiteleanings,J.S.Mill,too,becameadiscipleofBenthaminhisearlyJohnStuartMill,bycourtesyofTheWarrenJ.SamuelsPortraityears.However,anervousbreakdownCollectionatDukeUniversity.andsubsequentperiodofseveredepres-sion,followedbyanencounterwiththepoetryofWordsworthandColeridgeinhisearlytwenties,resultedinhisadoptionofamorecriti-calapproachtotheBenthamiteposition.Hecametobelievethatthecoolcalculusofutilitarianismneededtobetemperedbymoralandspiritualconcerns,recognizingthatthetypeandqualityofpleasurealsomatter.HisideasmixedtheBritishempiricalpositionwithelementsofFrenchhis-toricalthinkingalaSaint-SimonandAugustComte.HisrelationshipwithHarrietTaylor,whomhemetinhistwentiesandmarriedsometwentyyearslaterwhenshebecameawidow,hadasignif-icanteffectonhislife,includingpromptingsomethingofaflirtationwithsocialism.Millisunquestionablyoneofthe,ifnotthe,toweringintellectualfiguresofhisage.Hisseminalworksrangefrompoliticaleconomytophilosophyandlogictopoliticaltheory.HisASystemofLogicbecameaclassicinthefield,andhisOnLibertyhasbecomeoneofthedefinitivedefensesofthevirtuesofindividualfreedom.Mill’searlyforaysintopoliticaleconomycanbeseeninhisbook,EssaysonSomeUnsettledQuestionsofPoliticalEconomy,buthisthinkingreachesfull 334TheClassicalSchoolflowerinhisPrinciplesofPoliticalEconomy,WithSomeofTheirApplicationstoSocialPhilosophy(1848).ThePrinciples,whichwentthroughseveraleditionsduringMill’slifetime,evidencesboththefleshingoutofRicardianpoliticaleconomy,temperedbytheimportantinsightsofhisownandothersregardingcertainflawsinRicardo’sanalysis,andcloseattentiontohistoricalandcontem-poraryillustrations.ThePrincipleswasmorethanjustacrowningsummationofclassicalthinking;italsocontainedanumberoffundamentaltheoreticaladvances–forexample,indemandandsupplyanalysis,ininternationaltradeandfinance,andintheanalysisoflabormarkets.MillalsopresentedaviewoftheeconomicroleofgovernmentthatwasatoncecognizantofthebenefitsofindividuallibertyandrecognizedthatSmith’s“invisiblehand”didnotalwaysresultintheindividualpursuitofself-interestgeneratingamaximumofsocialwelfare.WhileastaunchadherentoftheMalthusianthe-oryofpopulation,Millwasalsoofthemindthatarrivalofthestationarystatewaslessproblematicthanpreviouslythought.Hisdistinctionbetweenthefixedlawsofproductionandthemalleablelawsofdistributionleftopenthedoorforgovernmentalpoliciesthatcoulddelaythearrivalofthestationarystateforaperiodoftimeandmakelifeinthestationarystatemuchmorepleasantthanthoughtbypreviouscommentators.InthefollowingexcerptsfromMill’sPrinciples,thereaderistreatedtohisattempttodistinguishbetweenthelawsofproductionanddistribution,hisdiscussionofthewagesfunddoctrineofwagedetermination,hisextensionofRicardo’sdoctrineofcomparativecostsininternationaltradetoincludetheeffectsofreciprocaldemandsonthetermsoftrade,ananalysisoflifeinthestationarystate,andhisviewoftheappropriateroleforgovernmentwithintheeconomicsystem.ReferencesandfurtherreadingAnschutz,R.P.(1953)ThePhilosophyofJ.S.Mill,London:OxfordUniversityPress.Bladen,V.W.(1949)“JohnStuartMill’sPrinciples:ACentenaryEstimate,”AmericanEconomicReview39(May):1–12.Blaug,Mark(1991)ThomasRobertMalthus(1766–1834)andJohnStuartMill(1806–1873),Aldershot:EdwardElgarPublishing.Breit,William(1967)“TheWagesFundControversy:ADiagrammaticExposition,”CanadianJournalofEconomics33(November):523–8.Chipman,JohnS.(1965)“ASurveyontheTheoryofInternationalTrade:Part1:TheClassicalTheory,”Econometrica33(July):477–519.Hollander,Samuel(1985)TheEconomicsofJohnStuartMill,Oxford:BasilBlackwell.——(1987)“Mill,JohnStuart,asEconomicTheorist,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,471–6.Mill,JohnStuart(1844)EssaysonSomeUnsettledQuestionsofPoliticalEconomy,London:Parker.——(1887)OnLiberty,London:Longmans,Green.——(1924)Autobiography,NewYork:ColumbiaUniversityPress.——(1963–85)TheCollectedWorksofJohnStuartMill,editedbyJ.M.Robson,Toronto:UniversityofTorontoPress.Ryan,Alan(1974)J.S.Mill,London:RoutledgeandKeganPaul.——(1987)“Mill,JohnStuart,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,466–71.Taussig,F.W.(1898)WagesandCapital:AnExaminationoftheWagesFundDoctrine,NewYork:D.AppletonandCompany.Viner,Jacob(1937)StudiesintheTheoryofInternationalTrade,NewYork:Harper&Row.——(1949)“BenthamandJ.S.Mill:TheUtilitarianBackground,”AmericanEconomicReview39(March):360–82.Wood,JohnC.(1987)JohnStuartMill:CriticalAssessments,London:CroomHelm. PrinciplesofPoliticalEconomy(1848)*BookII:DistributionChapterI:Ofproperty1.Theprincipleswhichhavebeensetforthinthefirstpartofthistreatise,are,incertainrespects,stronglydistinguishedfromthoseontheconsiderationofwhichwearenowabouttoenter.ThelawsandconditionsoftheProductionofwealthpartakeofthecharacterofphysicaltruths.Thereisnothingoptionalorarbitraryinthem.Whatevermankindproduce,mustbepro-ducedinthemodes,andundertheconditions,imposedbytheconstitutionofexternalthings,andbytheinherentpropertiesoftheirownbodilyandmentalstructure.Whethertheylikeitornot,theirproductionswillbelimitedbytheamountoftheirpreviousaccumulation,and,thatbeinggiven,itwillbeproportionaltotheirenergy,theirskill,theperfectionoftheirmachinery,andtheirjudicioususeoftheadvantagesofcombinedlabour.Whethertheylikeitornot,adou-blequantityoflabourwillnotraise,onthesameland,adoublequantityoffood,unlesssomeimprovementtakesplaceintheprocessesofcultivation.Whethertheylikeitornot,theunpro-ductiveexpenditureofindividualswillprotantotendtoimpoverishthecommunity,andonlytheirproductiveexpenditurewillenrichit.Theopinions,orthewishes,whichmayexistonthesedifferentmatters,donotcontrolthethingsthemselves.Wecannot,indeed,foreseetowhatextentthemodesofproductionmaybealtered,ortheproductivenessoflabourincreased,byfutureextensionsofourknowledgeofthelawsofnature,suggestingnewprocessesofindustryofwhichwehaveatpresentnoconception.Buthowsoeverwemaysucceed,inmakingforourselvesmorespacewithinthelimitssetbytheconstitutionofthings,weknowthattheremustbelimits.Wecannotaltertheultimatepropertieseitherofmatterormind,butcanonlyemploythosepropertiesmoreorlesssuccessfully,tobringabouttheeventsinwhichweareinterested.ItisnotsowiththeDistributionofwealth.Thatisamatterofhumaninstitutionsolely.Thethingsoncethere,mankind,individuallyorcollectively,candowiththemastheylike.Theycanplacethematthedisposalofwhomsoevertheyplease,andonwhateverterms.Further,inthesocialstate,ineverystateexcepttotalsolitude,anydisposalwhateverofthemcanonlytakeplacebytheconsentofsociety,orratherofthosewhodisposeofitsactiveforce.Evenwhatapersonhasproducedbyhisindividualtoil,unaidedbyanyone,hecannotkeep,unlessbythepermissionofsociety.Notonlycansocietytakeitfromhim,butindividualscouldandwouldtakeitfromhim,ifsocietyonlyremainedpassive;ifitdidnoteitherinterfereenmasse,oremployandpaypeopleforthepurposeofpreventinghimfrombeingdisturbedinthepossession.Thedistribu-tionofwealth,therefore,dependsonthelawsandcustomsofsociety.Therulesbywhichitis*PrinciplesofPoliticalEconomyWithSomeofTheirApplicationsofSocialPhilosophy,editedwithanintroductionbyW.J.Ashley,London:Longmans,Green,andCo.,1909. 336TheClassicalSchooldeterminedarewhattheopinionsandfeelingsoftherulingportionofthecommunitymakethem,andareverydifferentindifferentagesandcountries;andmightbestillmoredifferent,ifmankindsochose.Theopinionsandfeelingsofmankind,doubtless,arenotamatterofchance.Theyareconse-quencesofthefundamentallawsofhumannature,combinedwiththeexistingstateofknowl-edgeandexperience,andtheexistingconditionofsocialinstitutionsandintellectualandmoralculture.Butthelawsofthegenerationofhumanopinionsarenotwithinourpresentsubject.Theyarepartofthegeneraltheoryofhumanprogress,afarlargerandmoredifficultsubjectofinquirythanpoliticaleconomy.Wehaveheretoconsider,notthecauses,buttheconsequences,oftherulesaccordingtowhichwealthmaybedistributed.Those,atleast,areaslittlearbitrary,andhaveasmuchthecharacterofphysicallaws,asthelawsofproduction.Humanbeingscancontroltheirownacts,butnottheconsequencesoftheiractseithertothemselvesortoothers.Societycansubjectthedistributionofwealthtowhateverrulesitthinksbest:butwhatpracticalresultswillflowfromtheoperationofthoserulesmustbediscovered,likeanyotherphysicalormentaltruths,byobservationandreasoning.Weproceed,then,totheconsiderationofthedifferentmodesofdistributingtheproduceoflandandlabour,whichhavebeenadoptedinpractice,ormaybeconceivedintheory.Amongthese,ourattentionisfirstclaimedbythatprimaryandfundamentalinstitution,onwhich,unlessinsomeexceptionalandverylimitedcases,theeconomicalarrangementsofsocietyhavealwaysrested,thoughinitssecondaryfeaturesithasvaried,andisliabletovary.Imean,ofcourse,theinstitutionofindividualproperty.ChapterXI:Ofwages1.UndertheheadofWagesaretobeconsidered,first,thecauseswhichdetermineorinflu-encethewagesoflabourgenerally,andsecond,thedifferencesthatexistbetweenthewagesofdif-ferentemployments.Itisconvenienttokeepthesetwoclassesofconsiderationsseparate;andindiscussingthelawofwages,toproceedinthefirstinstanceasiftherewerenootherkindoflabourthancommonunskilledlabouroftheaveragedegreeofhardnessanddisagreeableness.Wages,likeotherthings,mayberegulatedeitherbycompetitionorbycustom.Inthiscountrytherearefewkindsoflabourofwhichtheremunerationwouldnotbelowerthanitis,iftheemployertookthefulladvantageofcompetition.Competition,however,mustberegarded,inthepresentstateofsociety,astheprincipalregulatorofwages,andcustomorindividualcharacteronlyasamodifyingcircumstance,andthatinacomparativelyslightdegree.Wages,then,dependmainlyuponthedemandandsupplyoflabour;or,asitisoftenexpressed,ontheproportionbetweenpopulationandcapital.Bypopulationisheremeantthenumberonlyofthelabouringclass,orratherofthosewhoworkforhire;andbycapitalonlycirculatingcapital,andnoteventhewholeofthat,butthepartwhichisexpendedinthedirectpurchaseoflabour.Tothis,however,mustbeaddedallfundswhich,withoutformingapartofcapital,arepaidinexchangeforlabour,suchasthewagesofsoldiers,domesticservants,andallotherunproductivelabourers.Thereisunfortunatelynomodeofexpressingbyonefamiliarterm,theaggregateofwhathasbeencalledthewages-fundofacountry:andasthewagesofproductivelabourformnearlythewholeofthatfund,itisusualtooverlookthesmallerandlessimportantpart,andtosaythatwagesdependonpopulationandcapital.Itwillbeconvenienttoemploythisexpression,remembering,however,toconsideritaselliptical,andnotasaliteralstatementoftheentiretruth.Withtheselimitationsoftheterms,wagesnotonlydependupontherelativeamountofcapi-talandpopulation,butcannot,undertheruleofcompetition,beaffectedbyanythingelse.Wages(meaning,ofcourse,thegeneralrate)cannotrise,butbyanincreaseoftheaggregate Mill:PrinciplesofPoliticalEconomy337fundsemployedinhiringlabourers,oradiminutioninthenumberofthecompetitorsforhire;norfall,excepteitherbyadiminutionofthefundsdevotedtopayinglabour,orbyanincreaseinthenumberoflabourerstobepaid.BookIII:ExchangeChapterXVIII:Ofinternationalvalues1.Thevaluesofcommoditiesproducedatthesameplace,orinplacessufficientlyadjacentforcapitaltomovefreelybetweenthem–letussay,forsimplicity,ofcommoditiesproducedinthesamecountry–depend(temporaryfluctuationsapart)upontheircostofproduction.Butthevalueofacommoditybroughtfromadistantplace,especiallyfromaforeigncountry,doesnotdependonitscostofproductionintheplacefromwhenceitcomes.Onwhat,then,doesitdepend?Thevalueofathinginanyplacedependsonthecostofitsacquisitioninthatplace;which,inthecaseofanimportedarticle,meansthecostofproductionofthethingwhichisexportedtopayforit.Sincealltradeisinrealitybarter,moneybeingamereinstrumentforexchangingthingsagainstoneanother,wewill,forsimplicity,beginbysupposingtheinternationaltradetobeinform,whatitalwaysisinreality,anactualtruckingofonecommodityagainstanother.Asfaraswehavehithertoproceeded,wehavefoundallthelawsofinterchangetobeessentiallythesame,whethermoneyisusedornot;moneynevergoverning,butalwaysobeying,thosegenerallaws.If,then,EnglandimportswinefromSpain,givingforeverypipeofwineabaleofcloth,theexchangevalueofapipeofwineinEnglandwillnotdependuponwhattheproductionofthewinemayhavecostinSpain,butuponwhattheproductionoftheclothhascostinEngland.ThoughthewinemayhavecostinSpaintheequivalentofonlytendays’labour,yet,iftheclothcostsinEnglandtwentydays’labour,thewine,whenbroughttoEngland,willexchangefortheproduceoftwentydays’Englishlabour,plusthecostofcarriage;includingtheusualprofitontheimporter’scapital,duringthetimeitislockedup,andwithheldfromotheremployment.Thevalue,then,inanycountry,ofaforeigncommodity,dependsonthequantityofhomeproducewhichmustbegiventotheforeigncountryinexchangeforit.Inotherwords,thevaluesofforeigncommoditiesdependonthetermsofinternationalexchange.What,then,dothesedependupon?Whatisitwhich,inthecasesupposed,causesapipeofwinefromSpaintobeexchangedwithEnglandforexactlythatquantityofcloth?Wehaveseenthatitisnottheircostofproduction.IftheclothandthewinewerebothmadeinSpain,theywouldexchangeattheircostofproductioninSpain;iftheywerebothmadeinEngland,theywouldexchangeattheircostofproductioninEngland:butalltheclothbeingmadeinEngland,andallthewineinSpain,theyareincircum-stancestowhichwehavealreadydeterminedthatthelawofcostofproductionisnotapplicable.Wemustaccordingly,aswehavedonebeforeinasimilarembarrassment,fallbackuponanantecedentlaw,thatofsupplyanddemand:andinthisweshallagainfindthesolutionofourdifficulty.IhavediscussedthisquestioninaseparateEssay,alreadyoncereferredto;andaquotationofpartoftheexpositionthengivenwillbethebestintroductiontomypresentviewofthesubject.Imustgivenoticethatwearenowintheregionofthemostcomplicatedquestionswhichpoliticaleconomyaffords;thatthesubjectisonewhichcannotpossiblybemadeelementary;andthatamorecontinuouseffortofattentionthanhasyetbeenrequiredwillbenecessarytofollowtheseriesofdeductions.Thethread,however,whichweareabouttotakeinhand,isinitselfverysim-pleandmanageable;theonlydifficultyisinfollowingitthroughthewindingsandentanglementsofcomplexinternationaltransactions.2.‘Whenthetradeisestablishedbetweenthetwocountries,thetwocommoditieswillexchangeforeachotheratthesamerateofinterchangeinbothcountries–batingthecostof 338TheClassicalSchoolcarriage,ofwhich,forthepresent,itwillbemoreconvenienttoomittheconsideration.Supposing,therefore,forthesakeofargument,thatthecarriageofthecommoditiesfromonecountrytotheothercouldbeeffectedwithoutlabourandwithoutcost,nosoonerwouldthetradebeopenedthanthevalueofthetwocommodities,estimatedineachother,wouldcometoalevelinbothcountries.‘Supposethat10yardsofbroadclothcostinEnglandasmuchlabouras15yardsoflinen,andinGermanyasmuchas20’.Incommonwithmostofmypredecessors,Ifinditadvisable,intheseintricateinvestigations,togivedistinctnessandfixitytotheconceptionbynumericalexam-ples.Theseexamplesmustsometimes,asinthepresentcase,bepurelysupposititious.Ishouldhavepreferredrealones;butallthatisessentialis,thatthenumbersshouldbesuchasadmitofbeingeasilyfollowedthroughthesubsequentcombinationsintowhichtheyenter.Thissuppositionthenbeingmade,itwouldbetheinterestofEnglandtoimportlinenfromGermany,andofGermanytoimportclothfromEngland.‘Wheneachcountryproducedbothcommoditiesforitself,10yardsofclothexchangedfor15yardsoflineninEngland,andfor20inGermany.Theywillnowexchangeforthesamenumberofyardsoflineninboth.Forwhatnumber?Iffor15yards,Englandwillbejustasshewas,andGermanywillgainall.Iffor20yards,Germanywillbeasbefore,andEnglandwillderivethewholeofthebenefit.Ifforanynumberintermediatebetween15and20,theadvantagewillbesharedbetweenthetwocoun-tries.If,forexample,10yardsofclothexchangefor18oflinen,Englandwillgainanadvantageof3yardsonevery15,Germanywillsave2outofevery20.Theproblemis,whatarethecauseswhichdeterminetheproportioninwhichtheclothofEnglandandthelinenofGermanywillexchangeforeachother.Asexchangevalue,inthiscaseasineveryother,isproverbiallyfluctuating,itdoesnotmatterwhatwesupposeittobewhenwebegin:weshallsoonseewhethertherebeanyfixedpointabovewhichitoscillates,whichithasatendencyalwaystoapproachto,andtoremainat.Letussup-pose,then,thatbytheeffectofwhatAdamSmithcallsthehigglingofthemarket,10yardsofclothinbothcountriesexchangefor17yardsoflinen.Thedemandforacommodity,thatis,thequantityofitwhichcanfindapurchaser,varies,aswehavebeforeremarked,accordingtotheprice.InGermanythepriceof10yardsofclothisnow17yardsoflinen,orwhateverquantityofmoneyisequivalentinGermanyto17yardsoflinen.Now,thatbeingtheprice,thereissomeparticularnumberofyardsofcloth,whichwillbeindemand,orwillfindpurchasers,atthatprice.Thereissomegivenquantityofcloth,morethanwhichcouldnotbedisposedofatthatprice;lessthanwhich,atthatprice,wouldnotfullysatisfythedemand.Letussupposethisquantitytobe1000times10yards.LetusnowturnourattentiontoEngland.There,thepriceof17yardsoflinenis10yardsofcloth,orwhateverquantityofmoneyisequivalentinEnglandto10yardsofcloth.Thereissomeparticularnumberofyardsoflinenwhich,atthatprice,willexactlysatisfythedemand,andnomore.Letussupposethatthisnumberis1000times17yards.As17yardsoflinenareto10yardsofcloth,soare1000times17yardsto1000times10yards.Attheexistingexchangevalue,thelinenwhichEnglandrequireswillexactlypayforthequantityofclothwhich,onthesametermsofinterchange,Germanyrequires.Thedemandoneachsideispreciselysufficienttocarryoffthesupplyontheother.Theconditionsrequiredbytheprincipleofdemandandsupplyarefulfilled,andthetwocommoditieswillcontinuetobeinterchanged,aswesupposedthemtobe,intheratioof17yardsoflinenfor10yardsofcloth.Butoursuppositionsmighthavebeendifferent.Supposethat,attheassumedrateofinter-change,Englandhasbeendisposedtoconsumenogreaterquantityoflinenthan800times17yards:itisevidentthat,attheratesupposed,thiswouldnothavesufficedtopayforthe1000times10yardsofclothwhichwehavesupposedGermanytorequireattheassumedvalue.Germanywouldbeabletoprocurenomorethan800times10yardsatthatprice.Toprocurethe Mill:PrinciplesofPoliticalEconomy339remaining200,whichshewouldhavenomeansofdoingbutbybiddinghigherforthem,shewouldoffermorethan17yardsoflineninexchangefor10yardsofcloth:letussupposehertooffer18.Atthisprice,perhaps,Englandwouldbeinclinedtopurchaseagreaterquantityoflinen.Shewouldconsume,possibly,atthatprice,900times18yards.Ontheotherhand,clothhavingriseninprice,thedemandofGermanyforitwouldprobablyhavediminished.If,insteadof1000times10yards,sheisnowcontentedwith900times10yards,thesewillexactlypayforthe900times18yardsoflinenwhichEnglandiswillingtotakeatthealteredprice:thedemandoneachsidewillagainexactlysufficetotakeoffthecorrespondingsupply;and10yardsfor18willbetherateatwhich,inbothcountries,clothwillexchangeforlinen.Theconverseofallthiswouldhavehappened,if,insteadof800times17yards,wehadsupposedthatEngland,attherateof10for17,wouldhavetaken1200times17yardsoflinen.Inthiscase,itisEnglandwhosedemandisnotfullysupplied;itisEnglandwho,bybiddingformorelinen,willaltertherateofinterchangetoherowndisadvantage;and10yardsofclothwillfall,inbothcountries,belowthevalueof17yardsoflinen.Bythisfallofcloth,or,whatisthesamething,thisriseoflinen,thedemandofGermanyforclothwillincrease,andthedemandofEnglandforlinenwilldiminish,tilltherateofinterchangehassoadjusteditselfthattheclothandthelinenwillexactlypayforoneanother;andwhenoncethispointisattained,valueswillremainwithoutfurtheralteration.Itmaybeconsidered,therefore,asestablished,thatwhentwocountriestradetogetherintwocommodities,theexchangevalueofthesecommoditiesrelativelytoeachotherwilladjustitselftotheinclinationsandcircumstancesoftheconsumersonbothsides,insuchmannerthatthequanti-tiesrequiredbyeachcountry,ofthearticleswhichitimportsfromitsneighbour,shallbeexactlysufficienttopayforoneanother.Astheinclinationsandcircumstancesofconsumerscannotbereducedtoanyrule,soneithercantheproportionsinwhichthetwocommoditieswillbeinter-changed.Weknowthatthelimits,withinwhichthevariationisconfined,aretheratiobetweentheircostsofproductionintheonecountry,andtheratiobetweentheircostsofproductionintheother.Tenyardsofclothcannotexchangeformorethan20yardsoflinen,norforlessthan15.Buttheymayexchangeforanyintermediatenumber.Theratios,therefore,inwhichtheadvantageofthetrademaybedividedbetweenthetwonationsarevarious.Thecircumstancesonwhichthepropor-tionateshareofeachcountrymoreremotelydepends,admitonlyofaverygeneralindication.Itisevenpossibletoconceiveanextremecase,inwhichthewholeoftheadvantageresultingfromtheinterchangewouldbereapedbyoneparty,theothercountrygainingnothingatall.Thereisnoabsurdityinthehypothesisthat,ofsomegivencommodity,acertainquantityisallthatiswantedatanyprice;andthat,whenthatquantityisobtained,nofallintheexchangevaluewouldinduceotherconsumerstocomeforward,orthosewhoarealreadysuppliedtotakemore.LetussupposethatthisisthecaseinGermanywithcloth.BeforehertradewithEnglandcom-menced,when10yardsofclothcostherasmuchlabouras20yardsoflinen,sheneverthelessconsumedasmuchclothasshewantedunderanycircumstances,and,ifshecouldobtainitattherateof10yardsofclothfor15oflinen,shewouldnotconsumemore.Letthisfixedquantitybe1000times10yards.Attherate,however,of10for20,Englandwouldwantmorelinenthanwouldbeequivalenttothisquantityofcloth.Shewould,consequently,offerahighervalueforlinen;or,whatisthesamething,shewouldofferherclothatacheaperrate.But,asbynolower-ingofthevaluecouldsheprevailonGermanytotakeagreaterquantityofcloth,therewouldbenolimittotheriseoflinenorfallofcloth,untilthedemandofEnglandforlinenwasreducedbytheriseofitsvalue,tothequantitywhich1000times10yardsofclothwouldpurchase.Itmightbe,thattoproducethisdiminutionofthedemandalessfallwouldnotsufficethanthatwhichwouldmake10yardsofclothexchangefor15oflinen.Germanywouldthengainthewholeoftheadvantage,andEnglandwouldbeexactlyasshewasbeforethetradecommenced.Itwouldbefortheinterest,however,ofGermanyherselftokeepherlinenalittlebelowthevalueat 340TheClassicalSchoolwhichitcouldbeproducedinEngland,inordertokeepherselffrombeingsupplantedbythehomeproducer.England,therefore,wouldalwaysbenefitinsomedegreebytheexistenceofthetrade,thoughitmightbeaverytriflingone.Inthisstatement,Iconceive,iscontainedthefirstelementaryprincipleofInternationalValues.Ihave,asisindispensableinsuchabstractandhypotheticalcases,supposedthecircumstancestobemuchlesscomplexthantheyreallyare:inthefirstplace,bysuppressingthecostofcarriage;next,bysupposingthatthereareonlytwocountriestradingtogether;andlastly,thattheytradeonlyintwocommodities.Torendertheexpositionoftheprinciplecompleteitisnecessarytorestorethevariouscircumstancesthustemporarilyleftouttosimplifytheargument.Thosewhoareaccustomedtoanykindofscientificinvestigationwillprobablysee,withoutformalproof,thattheintroductionofthesecircumstancescannotalterthetheoryofthesubject.Tradeamonganynumberofcountries,andinanynumberofcommodities,musttakeplaceonthesameessen-tialprinciplesastradebetweentwocountriesandintwocommodities.Introducingagreaternumberofagentspreciselysimilarcannotchangethelawoftheiraction,nomorethanputtingadditionalweightsintothetwoscalesofabalancealtersthelawofgravitation.Italtersnothingbutthenumericalresults.Formorecompletesatisfaction,however,wewillenterintothecomplexcaseswiththesameparticularitywithwhichwehavestatedthesimplerone.3.First,letusintroducetheelementofcostofcarriage.Thechiefdifferencewillthenbe,thattheclothandthelinenwillnolongerexchangeforeachotheratpreciselythesamerateinbothcountries.Linen,havingtobecarriedtoEngland,willbedearertherebyitscostofcarriage;andclothwillbedearerinGermanybythecostofcarryingitfromEngland.Linen,estimatedincloth,willbedearerinEnglandthaninGermany,bythecostofcarriageofbotharticles:andsowillclothinGermany,estimatedinlinen.Supposethatthecoatofcarriageofeachisequivalentto1yardoflinen;andsupposethat,iftheycouldhavebeencarriedwithoutcost,thetermsofinter-changewouldhavebeen10yardsofclothfor17oflinen.Itmayseematfirstthateachcountrywillpayitsowncostofcarriage;thatis,thecarriageofthearticleitimports;thatinGermany10yardsofclothwillexchangefor18oflinen,namelytheoriginal17,and1tocoverthecostofcarriageofthecloth;whileinEngland,10yardsofclothwillonlypurchase16oflinen,1yardbeingdeductedforthecostofcarriageofthelinen.This,however,cannotbeaffirmedwithcer-tainty;itwillonlybetrue,ifthelinenwhichtheEnglishconsumerswouldtakeatthepriceof10for16,exactlypaysfortheclothwhichtheGermanconsumerswouldtakeat10for18.Thevalues,whatevertheyare,mustestablishthisequilibrium.Noabsoluterule,therefore,canbelaiddownforthedivisionofthecost,nomorethanforthedivisionoftheadvantage:anditdoesnotfollowthatinwhateverratiotheoneisdivided,theotherwillbedividedinthesame.Itisimpossi-bletosay,ifthecostofcarriagecouldbeannihilated,whethertheproducingortheimportingcountrywouldbemostbenefited.Thiswoulddependontheplayofinternationaldemand.Costofcarriagehasoneeffectmore.Butforit,everycommoditywould(iftradebesupposedfree)beeitherregularlyimportedorregularlyexported.Acountrywouldmakenothingforitselfwhichitdidnotalsomakeforothercountries.Butinconsequenceofcostofcarriagetherearemanythings,especiallybulkyarticles,whichevery,oralmostevery,countryproduceswithinitself.Afterexportingthethingsinwhichitcanemployitselfmostadvantageously,andimportingthoseinwhichitisunderthegreatestdisadvantage,therearemanylyingbetween,ofwhichtherela-tivecostofproductioninthatandinothercountriesdifferssolittle,thatthecostofcarriagewouldabsorbmorethanthewholesavingincostofproductionwhichwouldbeobtainedbyimportingoneandexportinganother.Thisisthecasewithnumerouscommoditiesofcommonconsumption;includingthecoarserqualitiesofmanyarticlesoffoodandmanufacture,ofwhich,thefinerkindsarethesubjectofextensiveinternationaltraffic.4.Letusnowintroduceagreaternumberofcommoditiesthanthetwowehavehithertosupposed.Letclothandlinen,however,bestillthearticlesofwhichthecomparativecostof Mill:PrinciplesofPoliticalEconomy341productioninEnglandandinGermanydiffersthemost;sothat,iftheywereconfinedtotwocommodities,thesewouldbethetwowhichitwouldbemosttheirinteresttoexchange.Wewillnowagainomitcostofcarriage,which,havingbeenshownnottoaffecttheessentialsofthequestion,doesbutembarrassunnecessarilythestatementofit.Letussuppose,then,thatthedemandofEnglandforlineniseithersomuchgreaterthanthatofGermanyforcloth,orsomuchmoreextensiblebycheapness,thatifEnglandhadnocommoditybutclothwhichGermanywouldtake,thedemandofEnglandwouldforceupthetermsofinterchangeto10yardsofclothforonly16oflinen,sothatEnglandwouldgainonlythedifferencebetween15and16,Germanythedifferencebetween16and20.ButletusnowsupposethatEnglandhasalsoanothercommodity,sayiron,whichisindemandinGermany,andthatthequantityofironwhichisofequalvalueinEnglandwith10yardsofcloth(letuscallthisquantityahundred-weight)will,ifproducedinGermany,costasmuchlabouras18yardsoflinen,sothatifofferedbyEnglandfor17itwillunderselltheGermanproducer.Inthesecircumstances,linenwillnotbeforceduptotherateof16yardsfor10ofcloth,butwillstop,supposeat17;foralthough,atthatrateofinterchange,GermanywillnottakeenoughclothtopayforallthelinenrequiredbyEngland,shewilltakeironfortheremainder,anditisthesamethingtoEnglandwhethershegivesahundredweightofironor10yardsofcloth,bothbeingmadeatthesamecost.IfwenowsuperaddcoalsorcottonsonthesideofEngland,andwine,orcorn,ortimber,onthesideofGermany,itwillmakenodifferenceintheprinciple.Theexportsofeachcountrymustexactlypayfortheimports;meaningnowtheaggregateexportsandimports,notthoseofparticularcommoditiestakensingly.Theproduceoffiftydays’Englishlabour,whetherincloth,coals,iron,oranyotherexports,willexchangefortheproduceofforty,orfifty,orsixtydays’Germanlabour,inlinen,wine,corn,ortimber,accordingtotheinternationaldemand.Thereissomeproportionatwhichthedemandofthetwocountriesforeachother’sproductswillexactlycorrespond:sothatthethingssuppliedbyEnglandtoGermanywillbecompletelypaidfor,andnomore,bythosesuppliedbyGermanytoEngland.ThisaccordinglywillbetheratioinwhichtheproduceofEnglishandtheproduceofGermanlabourwillexchangeforoneanother.If,therefore,itbeaskedwhatcountrydrawstoitselfthegreatestshareoftheadvantageofanytradeitcarrieson,theansweris,thecountryforwhoseproductionsthereisinothercountriesthegreatestdemand,andademandthemostsusceptibleofincreasefromadditionalcheapness.Insofarastheproductionsofanycountrypossessthisproperty,thecountryobtainsallforeigncommoditiesatlesscost.Itgetsitsimportscheaper,thegreatertheintensityofthedemandinforeigncountriesforitsexports.Italsogetsitsimportscheaper,thelesstheextentandintensityofitsowndemandforthem.Themarketischeapesttothosewhosedemandissmall.Acountrywhichdesiresfewforeignproductions,andonlyalimitedquantityofthem,whileitsowncom-moditiesareingreatrequestinforeigncountries,willobtainitslimitedimportsatextremelysmallcost,thatis,inexchangefortheproduceofaverysmallquantityofitslabourandcapital.Lastly,havingintroducedmorethantheoriginaltwocommoditiesintothehypothesis,letusalsointroducemorethantheoriginaltwocountries.AfterthedemandofEnglandforthelinenofGermanyhasraisedtherateofinterchangeto10yardsofclothfor16oflinen,supposeatradeopenedbetweenEnglandandsomeothercountrywhichalsoexportslinen.Andletussup-posethat,ifEnglandhadnotradebutwiththethirdcountry,theplayofinternationaldemandwouldenablehertoobtainfromit,for10yardsofclothoritsequivalent,17yardsoflinen.SheevidentlywouldnotgoonbuyinglinenfromGermanyattheformerrate:Germanywouldbeundersold,andmustconsenttogive17yards,liketheothercountry.Inthiscase,thecircum-stancesofproductionandofdemandinthethirdcountryaresupposedtobeinthemselvesmoreadvantageoustoEnglandthanthecircumstancesofGermany;butthissuppositionisnotneces-sary:wemightsupposethatifthetradewithGermanydidnotexist,EnglandwouldbeobligedtogivetotheothercountrythesameadvantageoustermswhichshegivestoGermany;10yards 342TheClassicalSchoolofclothfor16,orevenlessthan16,oflinen.Evenso,theopeningofthethirdcountrymakesagreatdifferenceinfavourofEngland.ThereisnowadoublemarketforEnglishexport,whilethedemandofEnglandforlinenisonlywhatitwasbefore.ThisnecessarilyobtainsforEnglandmoreadvantageoustermsofinterchange.Thetwocountries,requiringmuchmoreofherpro-ducethanwasrequiredbyeitheralone,must,inordertoobtainit,forceanincreaseddemandfortheirexports,byofferingthematalowervalue.Itdeservesnotice,thatthiseffectinfavourofEnglandfromtheopeningofanothermarketforherexports,willequallybeproducedeventhoughthecountryfromwhichthedemandcomesshouldhavenothingtosellwhichEnglandiswillingtotake.Supposethatthethirdcountry,thoughrequiringclothorironfromEngland,producesnolinen,noranyotherarticlewhichisindemandthere.Shehoweverproducesexportablearticles,orshewouldhavenomeansofpayingforimports:herexports,thoughnotsuitabletotheEnglishconsumer,canfindamarketsome-where.Asweareonlysupposingthreecountries,wemustassumehertofindthismarketinGermany,andtopayforwhatsheimportsfromEnglandbyordersonherGermancustomers.Germany,therefore,besideshavingtopayforherownimports,nowowesadebttoEnglandonaccountofthethirdcountry,andthemeansforbothpurposesmustbederivedfromherexportableproduce.ShemustthereforetenderthatproducetoEnglandontermssufficientlyfavourabletoforceademandequivalenttothisdoubledebt.EverythingwilltakeplacepreciselyasifthethirdcountryhadboughtGermanproducewithherowngoods,andofferedthatpro-ducetoEnglandinexchangeforhers.ThereisanincreaseddemandforEnglishgoods,forwhichGermangoodshavetofurnishthepayment;andthiscanonlybedonebyforcinganincreaseddemandfortheminEngland,thatis,byloweringtheirvalue.Thus,anincreaseofdemandforacountry’sexportsinanyforeigncountryenableshertoobtainmorecheaplyeventhoseimportswhichsheprocuresfromotherquarters.Andconversely,anincreaseofherowndemandforanyforeigncommoditycompelsher,cæterisparibus,topaydearerforallforeigncommodities.Thelawwhichwehavenowillustrated,maybeappropriatelynamed,theEquationofInternationalDemand.Itmaybeconciselystatedasfollows.Theproduceofacountryexchangesfortheproduceofothercountries,atsuchvaluesasarerequiredinorderthatthewholeotherexportsmayexactlypayforthewholeofherimports.ThislawofInternationalValuesisbutanextensionofthemoregenerallawofValue,whichwecalledtheEquationofSupplyandDemand.Wehaveseenthatthevalueofacommodityalwayssoadjustsitselfastobringthedemandtotheexactlevelofthesupply,butalltrade,eitherbetweennationsorindividuals,isaninterchangeofcommodities,inwhichthethingsthattheyrespectivelyhavetosellconstitutealsotheirmeansofpurchase:thesupplybroughtbytheoneconstituteshisdemandforwhatisbroughtbytheother.Sothatsupplyanddemandarebutanotherexpressionforreciprocaldemand:andtosaythatvaluewilladjustitselfsoastoequalizedemandwithsupply,isinfacttosaythatitwilladjustitselfsoastoequalizethedemandononesidewiththedemandontheother.5.TotracetheconsequencesofthislawofInternationalValuesthroughtheirwideramifications,wouldoccupymorespacethancanbeheredevotedtosuchapurpose.Butthereisoneofitsappli-cationswhichIwillnotice,asbeinginitselfnotunimportant,asbearingonthequestionwhichwilloccupyusinthenextchapter,andespeciallyasconducingtothemorefullandclearunderstandingofthelawitself.Wehaveseenthatthevalueatwhichacountrypurchasesaforeigncommoditydoesnotcon-formtothecostofproductioninthecountryfromwhichthecommoditycomes.Supposenowachangeinthatcostofproduction;animprovement,forexample,intheprocessofmanufacture.Willthebenefitoftheimprovementbefullyparticipatedinbyothercountries?Willthecom-moditybesoldasmuchcheapertoforeigners,asitisproducedcheaperathome?Thisquestion,andtheconsiderationswhichmustbeenteredintoinordertoresolveit,arewelladaptedtotrytheworthofthetheory. Mill:PrinciplesofPoliticalEconomy343Letusfirstsuppose,thattheimprovementisofanaturetocreateanewbranchofexport:tomakeforeignersresorttothecountryforacommoditywhichtheyhadpreviouslyproducedathome.Onthissupposition,theforeigndemandfortheproductionsofthecountryisincreased;whichnecessarilyalterstheinternationalvaluestoitsadvantage,andtothedisadvantageoffor-eigncountries,who,therefore,thoughtheyparticipateinthebenefitofthenewproduct,mustpurchasethatbenefitbypayingforalltheotherproductionsofthecountryatadearerratethanbefore.Howmuchdearer,willdependonthedegreenecessaryforre-establishing,underthesenewconditions,theEquationofInternationalDemand.Theseconsequencesfollowinaveryobviousmannerfromthelawofinternationalvalues,andIshallnotoccupyspaceinillustratingthem,butshallpasstothemorefrequentcase,ofanimprovementwhichdoesnotcreateanewarticleofexport,butlowersthecostofproductionofsomethingwhichthecountryalreadyexported.Itbeingadvantageous,indiscussionsofthiscomplicatednature,toemploydefinitenumericalamounts,weshallreturntoouroriginalexample.Tenyardsofcloth,ifproducedinGermany,wouldrequirethesameamountoflabourandcapitalas20yardsoflinen;butbytheplayofinternationaldemand,theycanbeobtainedfromEnglandfor17.Supposenow,thatbyamechanicalimprovementmadeinGermany,andnotcapableofbeingtransferredtoEngland,thesamequantityoflabourandcapitalwhichproduced20yardsoflinen,isenabledtoproduce30.Linenfallsone-thirdinvalueintheGermanmarket,ascomparedwithothercommoditiespro-ducedinGermany.Willitalsofallone-thirdascomparedwithEnglishcloth,thusgivingtoEngland,incommonwithGermany,thefullbenefitoftheimprovement?Or(oughtwenotrathertosay),sincethecosttoEnglandofobtaininglinenwasnotregulatedbythecosttoGermanyofproducingit,andsinceEngland,accordingly,didnotgettheentirebenefitevenofthe20yardswhichGermanycouldhavegivenfor10yardsofcloth,butonlyobtained17–whyshouldshenowobtainmore,merelybecausethistheoreticallimitisremoved10degreesfurtheroff?Itisevidentthat,intheoutset,theimprovementwilllowerthevalueoflineninGermany,inrelationtoallothercommoditiesintheGermanmarket,including,amongtherest,eventheimportedcommodity,cloth.If10yardsofclothpreviouslyexchangedfor17yardsoflinen,theywillnowexchangeforhalfasmuchmore,or251/2yards.Butwhethertheywillcontinuetodosowilldependontheeffectwhichthisincreasedcheapnessoflinenproducesontheinternationaldemand.ThedemandforlineninEnglandcouldscarcelyfailtobeincreased.Butitmightbeincreasedeitherinproportiontothecheapness,orinagreaterproportionthanthecheapness,orinalessproportion.Ifthedemandwasincreasedinthesameproportionwiththecheapness,Englandwouldtakeasmanytimes251/2yardsoflinen,asthenumberoftimes17yardswhichshetookpreviously.Shewouldexpendinlinenexactlyasmuchofcloth,oroftheequivalentsofcloth,asmuchinshortofthecollectiveincomeofherpeople,asshedidbefore.Germany,onherpart,wouldprobablyrequire,atthatrateofinterchange,thesamequantityofclothasbefore,becauseitwouldinrealitycostherexactlyasmuch;251/2yardsoflinenbeingnowofthesamevalueinhermarketas17yardswerebefore.Inthiscase,therefore,10yardsofclothfor251/2oflinenistherateofinterchangewhichunderthesenewconditionswouldrestoretheequationofinterna-tionaldemand;andEnglandwouldobtainlinenone-thirdcheaperthanbefore,beingthesameadvantageaswasobtainedbyGermany.Itmighthappen,however,thatthisgreatcheapeningoflinenwouldincreasethedemandforitinEnglandinagreaterratiothantheincreaseofcheapness;andthat,ifshebeforewanted1000times17yards,shewouldnowrequiremorethan1000times251/2yardstosatisfyherdemand.Ifso,theequationofinternationaldemandcannotestablishitselfatthatrateofinter-change;topayforthelinenEnglandmustofferclothonmoreadvantageousterms;say,forexam-ple,10yardsfor21oflinen;sothatEnglandwillnothavethefullbenefitoftheimprovementin 344TheClassicalSchooltheproductionoflinen,whileGermany,inadditiontothatbenefit,willalsopaylessforcloth.Butagain,itispossiblethatEnglandmightnotdesiretoincreaseherconsumptionoflineninevensogreataproportionasthatoftheincreasedcheapness;shemightnotdesiresogreataquantityas1000times251/2yards:andinthatcaseGermanymustforceademandbyofferingmorethan251/2yardsoflinenfor10ofcloth;linenwillbecheapenedinEnglandinastillgreaterdegreethaninGermany;whileGermanywillobtainclothonmoreunfavourableterms;andatahigherexchangevaluethanbefore.Afterwhathasalreadybeensaid,itisnotnecessarytoparticularizethemannerinwhichtheseresultsmightbemodifiedbyintroducingintothehypothesisothercountriesandothercom-modities.Thereisafurthercircumstancebywhichtheymayalsobemodified.InthecasesupposedtheconsumersofGermanyhavehadapartoftheirincomessetatlibertybytheincreasedcheapnessoflinen,whichtheymayindeedexpendinincreasingtheirconsumptionofthatarticle,butwhichtheymaylikewiseexpendinotherarticles,andamongothers,inclothorotherimportedcommodities.Thiswouldbeanadditionalelementintheinternationaldemand,andwouldmodifymoreorlessthetermsofinterchange.Ofthethreepossiblevarietiesintheinfluenceofcheapnessondemand,whichisthemoreprobable–thatthedemandwouldbeincreasedmorethanthecheapness,asmuchasthecheap-ness,orlessthanthecheapness?Thisdependsonthenatureoftheparticularcommodity,andonthetastesofpurchasers.Whenthecommodityisoneingeneralrequest,andthefallofitspricebringsitwithinreachofamuchlargerclassofincomesthanbefore,thedemandisoftenincreasedinagreaterratiothanthefallofprice,andalargersumofmoneyisonthewholeexpendedinthearticle.Suchwasthecasewithcoffee,whenitspricewasloweredbysuccessivereductionsoftaxation;andsuchwouldprobablybethecasewithsugar,wine,andalargeclassofcommoditieswhich,thoughnotnecessaries,arelargelyconsumed,andinwhichmanycon-sumersindulgewhenthearticlesarecheapandeconomizewhentheyaredear.Butitmorefre-quentlyhappensthatwhenacommodityfallsinprice,lessmoneyisspentinitthanbefore:agreaterquantityisconsumed,butnotsogreatavalue.Theconsumerwhosavesmoneybythecheapnessofthearticle,willbelikelytoexpendpartofthesavinginincreasinghisconsumptionofotherthings:andunlessthelowpriceattractsalargeclassofnewpurchaserswhowereeithernotcustomersofthearticleatall,oronlyinsmallquantityandoccasionally,alessaggregatesumwillbeexpendedonit.Speakinggenerally,therefore,thethirdofourthreecasesisthemostprobable:andanimprovementinanexportablearticleislikelytobeasbeneficial(ifnotmorebeneficial)toforeigncountries,astothecountrywherethearticleisproduced.6.Thusfarhadthetheoryofinternationalvaluesbeencarriedinthefirstandsecondeditionsofthiswork.Butintelligentcriticisms(chieflythoseofmyfriendMrWilliamThornton),andsubsequentfurtherinvestigation,haveshownthatthedoctrinestatedintheprecedingpages,thoughcorrectasfarasitgoes,isnotyetthecompletetheoryofthesubjectmatter.Ithasbeenshownthattheexportsandimportsbetweenthetwocountries(or,ifwesupposemorethantwo,betweeneachcountryandtheworld)mustintheaggregatepayforeachother,andmustthereforebeexchangedforoneanotheratsuchvaluesaswillbecompatiblewiththeequationofinternationaldemand.Thatthis,however,doesnotfurnishthecompletelawofthephenomenon,appearsfromthefollowingconsideration:thatseveraldifferentratesofinterna-tionalvaluemayallequallyfulfiltheconditionsofthislaw.Thesuppositionwas,thatEnglandcouldproduce10yardsofclothwiththesamelabouras15oflinen,andGermanywiththesamelabouras20oflinen;thatatradewasopenedbetweenthetwocountries;thatEnglandthenceforthconfinedherproductiontocloth,andGermanytolinen;and,thatif10yardsofclothshouldthenceforthexchangefor17oflinen,EnglandandGermanywouldexactlysupplyeachother’sdemand:that,forinstance,ifEnglandwantedatthatprice17,000yardsoflinen,Germanywouldwantexactlythe10,000yardsofcloth,which, Mill:PrinciplesofPoliticalEconomy345atthatprice,Englandwouldberequiredtogiveforthelinen.Underthesesuppositionsitappeared,that10clothfor17linenwouldbe,inpointoffact,theinternationalvalues.Butitisquitepossiblethatsomeotherrate,suchas10clothfor18linen,mightalsofulfiltheconditionsoftheequationofinternationaldemand.Supposethat,atthislastrate,Englandwouldwantmorelinenthanattherateof10for17,butnotintheratioofthecheapness;thatshewouldnotwantthe18,000whichshecouldnowbuywith10,000yardsofcloth,butwouldbecontentwith17,500,forwhichshewouldpay(atthenewrateof10for18)9722yardsofcloth.Germany,again,havingtopaydearerforcloththanwhenitcouldbeboughtat10for17,wouldprobablyreduceherconsumptiontoanamountbelow10,000yards,perhapstotheverysamenumber,9722.UndertheseconditionstheEquationofInternationalDemandwouldstillexist.Thus,therateof10for17,andthatof10for18,wouldequallysatisfytheEquationofDemand:andmanyotherratesofinterchangemightsatisfyitinlikemanner.Itisconceivablethattheconditionsmightbeequallysatisfiedbyeverynumericalratewhichcouldbesupposed.Thereisstillthereforeaportionofindeterminatenessintherateatwhichtheinternationalvalueswouldadjustthemselves;showingthatthewholeoftheinfluencingcircumstancescannotyethavebeentakenintoaccount.7.Itwillbefoundthat,tosupplythisdeficiency,wemusttakeintoconsiderationnotonly,aswehavealreadydone,thequantitiesdemandedineachcountryoftheimportedcommodities;butalsotheextentofthemeansofsupplyingthatdemandwhicharesetatlibertyineachcountrybythechangeinthedirectionofitsindustry.Toillustratethispointitwillbenecessarytochoosemoreconvenientnumbersthanthosewhichwehavehithertoemployed.LetitbesupposedthatinEngland100yardsofcloth,previ-ouslytothetrade,exchangedfor100oflinen,butthatinGermany100ofclothexchangedfor200oflinen.Whenthetradewasopened,EnglandwouldsupplyclothtoGermany,GermanylinentoEngland,atanexchangevaluewhichwoulddependpartlyontheelementalreadydis-cussed,namelythecomparativedegreeinwhich,inthetwocountries,increasedcheapnessoper-atesinincreasingthedemand;andpartlyonsomeotherelementnotyettakenintoaccount.Inordertoisolatethisunknownelement,itwillbenecessarytomakesomedefiniteandinvariablesuppositioninregardtotheknownelement.Letusthereforeassume,thattheinfluenceofcheap-nessondemandconformstosomesimplelaw,commontobothcountriesandtobothcommodi-ties.Asthesimplestandmostconvenient,letussupposethatinbothcountriesanygivenincreaseofcheapnessproducesanexactlyproportionalincreaseofconsumption;or,inotherwords,thatthevalueexpendedinthecommodity,thecostincurredforthesakeofobtainingit,isalwaysthesame,whetherthatcostaffordsagreaterorasmallerquantityofthecommodity.LetusnowsupposethatEngland,previouslytothetrade,requiredamillionofyardsoflinen,whichwereworth,attheEnglishcostofproduction,amillionyardsofcloth.Byturningallthelabourandcapitalwithwhichthatlinenwasproducedtotheproductionofcloth,shewouldpro-duceforexportationamillionyardsofcloth.SupposethatthisistheexactquantitywhichGermanyisaccustomedtoconsume.EnglandcandisposeofallthisclothinGermanyattheGermanprice;shemustconsentindeedtotakealittlelessuntilshehasdriventheGermanpro-ducerfromthemarket,butassoonasthisiseffected,shecansellhermillionofclothfortwomil-lionsoflinen;beingthequantitythattheGermanclothiersareenabledtomakebytransferringtheirwholelabourandcapitalfromclothtolinen.Thus,Englandwouldgainthewholebenefitofthetrade,andGermanynothing.Thiswouldbeperfectlyconsistentwiththeequationofinternationaldemand:sinceEngland(accordingtothehypothesisintheprecedingparagraph)nowrequirestwomillionsoflinen(beingabletogetthematthesamecostatwhichsheprevi-ouslyobtainedonlyone),while,thepricesinGermanynotbeingaltered,Germanyrequiresasbeforeexactlyamillionofcloth,andcanobtainitbyemployingthelabourandcapitalsetatlibertyfromtheproductionofcloth,inproducingthetwomillionsoflinenrequiredbyEngland. 346TheClassicalSchoolThusfarwehavesupposedthattheadditionalclothwhichEnglandcouldmake,bytransfer-ringtocloththewholeofthecapitalpreviouslyemployedinmakinglinen,wasexactlysufficienttosupplythewholeofGermany’sexistingdemand.Butsupposenextthatitismorethansuffi-cient.SupposethatwhileEnglandcouldmakewithherliberatedcapitalamillionyardsofclothforexportation,theclothwhichGermanyhadheretoforerequiredwas800,000yardsonly,equivalentattheGermancostofproductionto1,600,000yardsoflinen.EnglandthereforecouldnotdisposeofawholemillionofclothinGermanyattheGermanprices.Yetshewants,whethercheapordear(byoursupposition),asmuchlinenascanbeboughtforamillionofcloth:andsincethiscanonlybeobtainedfromGermany,orbythemoreexpensiveprocessofproduc-tionathome,theholdersofthemillionofclothwillbeforcedbyeachother’scompetitiontoofferittoGermanyonanyterms(shortoftheEnglishcostofproduction)whichwillinduceGermanytotakethewhole.Whatthesetermswouldbe,thesuppositionwehavemadeenablesusexactlytodefine.The800,000yardsofclothwhichGermanyconsumed,costhertheequiva-lentof1,600,000linen,andthatinvariablecostiswhatsheiswillingtoexpendincloth,whetherthequantityitobtainsforherbemoreorless.Englandtherefore,toinduceGermanytotakeamillionofcloth,mustofferitfor1,600,000oflinen.Theinternationalvalueswillthusbe100clothfor160linen,intermediatebetweentheratioofthecostsofproductioninEngland,andthatofthecostsofproductioninGermany:andthetwocountrieswilldividethebenefitofthetrade,Englandgainingintheaggregate600,000yardsoflinen,andGermanybeingricherby200,000additionalyardsofcloth.Letusnowstretchthelastsuppositionstillfarther,andsupposethattheclothpreviouslycon-sumedbyGermany,wasnotonlylessthanthemillionyardswhichEnglandisenabledtofurnishbydiscontinuingherproductionoflinen,butlessinthefullproportionofEngland’sadvantageintheproduction,thatis,thatGermanyonlyrequiredhalfamillion.Inthiscase,byceasingalto-gethertoproducecloth,Germanycanaddamillion,butamilliononly,toherproductionoflinen;andthismillion,beingtheequivalentofwhatthehalfmillionpreviouslycosther,isallthatshecanbeinducedbyanydegreeofcheapnesstoexpendincloth.Englandwillbeforcedbyherowncompetitiontogiveawholemillionofclothforthismillionoflinen,justasshewasforcedintheprecedingcasetogiveitfor1,600,000.ButEnglandcouldhaveproducedatthesamecostamillionyardsoflinenforherself.Englandthereforederives,inthiscase,noadvantagefromtheinternationaltrade.Germanygainsthewhole;obtainingamillionofclothinsteadofhalfamil-lion,atwhatthehalfmillionpreviouslycosther.Germany,inshort,is,inthisthirdcase,exactlyinthesamesituationasEnglandwasinthefirstcase;whichmayeasilybeverifiedbyreversingthefigures.Asthegeneralresultofthethreecases,itmaybelaiddownasatheorem,thatunderthesuppositionwehavemadeofademandexactlyinproportiontothecheapness,thelawofinter-nationalvalueswillbeasfollows:ThewholeoftheclothwhichEnglandcanmakewiththecapitalpreviouslydevotedtolinen,willexchangeforthewholeofthelinenwhichGermanycanmakewiththecapitalpreviouslydevotedtocloth.Or,stillmoregenerally,thewholeofthecommoditieswhichthetwocountriescanrespectivelymakeforexportation,withthelabourandcapitalthrownoutofemploymentbyimportation,willexchangeagainstoneanother.Thislaw,andthethreedifferentpossibilitiesarisingfromitinrespecttothedivisionoftheadvantage,maybeconvenientlygeneralizedbymeansofalgebraicalsymbols,asfollows:LetthequantityofclothwhichEnglandcanmakewiththelabourandcapitalwithdrawnfromtheproductionoflinen,be
n.LettheclothpreviouslyrequiredbyGermany(attheGermancostofproduction)be
m.Thennofclothwillalwaysexchangeforexactly2moflinen. Mill:PrinciplesofPoliticalEconomy347Consequentlyifn
m,thewholeadvantagewillbeonthesideofEngland.Ifn
2m,thewholeadvantagewillbeonthesideofGermany.Ifnbegreaterthanm,butlessthan2m,thetwocountrieswillsharetheadvantage;Englandgetting2moflinenwhereshebeforegotonlyn;Germanygettingnofclothwhereshebeforegotonlym.Itisalmostsuperfluoustoobservethatthefigure‘2’standswhereitdoesonlybecauseitisthefigurewhichexpressestheadvantageofGermanyoverEnglandinlinenasestimatedincloth,and(whatisthesamething)ofEnglandoverGermanyinclothasestimatedinlinen.IfwehadsupposedthatinGermany,beforethetrade,100ofclothexchangedfor1000insteadof200oflinen,then(afterthetradecommenced)wouldhaveexchangedfor10minsteadof2m.Ifinsteadof1000or200wehadsupposedonly150,nwouldhaveexchangedforonly(3/2)m.If(infine)thecostvalueofcloth(asestimatedinlinen)inGermanyexceedsthecostvaluesimilarlyestimatedinEngland,intheratioofptoq,thenwilln,aftertheopeningofthetrade,exchangefor(p/q)m.8.WehavenowarrivedatwhatseemsalawofInternationalValuesofgreatsimplicityandgenerality.Butwehavedonesobysettingoutfromapurelyarbitraryhypothesisrespectingtherelationbetweendemandandcheapness.Wehaveassumedtheirrelationtobefixed,thoughitisessentiallyvariable.Wehavesupposedthateveryincreaseofcheapnessproducesanexactlyproportionalextensionofdemand;inotherwords,thatthesameinvariablevalueislaidoutinacommoditywhetheritbecheapordear;andthelawwhichwehaveinvestigatedholdsgoodonlyonthishypothesis,orsomeotherpracticallyequivalenttoit.Letusnow,therefore,combinethetwovariableelementsofthequestion,thevariationsofeachofwhichwehaveconsideredsepa-rately.Letussupposetherelationbetweendemandandcheapnesstovary,andtobecomesuchaswouldpreventtheruleofinterchangelaiddowninthelasttheoremfromsatisfyingtheconditionsoftheEquationofInternationalDemand.Letitbesupposed,forinstance,thatthedemandofEnglandforlinenisexactlyproportionaltothecheapness,butthatofGermanyforcloth,notpro-portional.Toreverttothesecondofourthreecases,thecaseinwhichEnglandbydiscontinuingtheproductionoflinencouldproduceforexportationamillionyardsofcloth,andGermanybyceasingtoproduceclothcouldproduceanadditional1,600,000yardsoflinen.Iftheoneofthesequantitiesexactlyexchangedfortheother,thedemandofEnglandwouldonourpresentsupposi-tionbeexactlysatisfied,forsherequiresallthelinenwhichcanbegotforamillionyardsofcloth:butGermanyperhaps,thoughsherequired800,000clothatacostequivalentto1,600,000linen,yetwhenshecangetamillionofclothatthesamecost,maynotrequirethewholemillion;ormayrequiremorethanamillion.First,lethernotrequiresomuch;butonlyasmuchasshecannowbuyfor1,500,000linen.Englandwillstillofferamillionforthese1,500,000;buteventhismaynotinduceGermanytotakesomuchasamillion;andifEnglandcontinuestoexpendexactlythesameaggregatecostonlinenwhateverbetheprice,shewillhavetosubmittotakeforhermillionofclothanyquantityoflinen(notlessthanamillion)whichmayberequisitetoinduceGermanytotakeamillionofcloth.Supposethistobe1,400,000yards.Englandhasnowreapedfromthetradeagainnotof600,000butonlyof400,000yards;whileGermany,besideshavingobtainedanextra200,000yardsofcloth,hasobtaineditwithonlyseven-eighthsofthelabourandcapitalwhichshepreviouslyexpendedinsupplyingherselfwithcloth,andmayexpendtheremainderinincreasingherownconsumptionoflinen,orofanyothercommodity.SupposeonthecontrarythatGermany,attherateofamillionclothfor1,600,000linen,requiresmorethanamillionyardsofcloth.Englandhavingonlyamillionwhichshecangivewithouttrenchinguponthequantityshepreviouslyreservedforherself,Germanymustbidfortheextraclothatahigherratethan160for100,untilshereachesarate(say170for100)whichwilleitherbringdownherowndemandforclothtothelimitofamillion,orelsetemptEnglandtopartwithsomeoftheclothshepreviouslyconsumedathome. 348TheClassicalSchoolLetusnextsupposethattheproportionalityofdemandtocheapness,insteadofholdinggoodinonecountrybutnotintheother,doesnotholdgoodineithercountry,andthatthedeviationisofthesamekindinboth;that,forinstance,neitherofthetwoincreasesitsdemandinadegreeequivalenttotheincreaseofcheapness.Onthissupposition,attherateofonemillionclothfor1,600,000linen,Englandwillnotwantsomuchas1,600,000linen,norGermanysomuchasamillioncloth:andiftheyfallshortofthatamountinexactlythesamedegree:ifEnglandonlywantslinentotheamountofnine-tenthsof1,600,000(1,440,000),andGermanyonly900,000ofcloth,theinterchangewillcontinuetotakeplaceatthesamerate.AndsoifEnglandwantsatenthmorethan1,600,000,andGermanyatenthmorethan1,000,000.Thiscoincidence(which,itistobeobserved,supposesdemandtoextendcheapnessinacorresponding,butnotinanequaldegree)evidentlycouldnotexistunlessbymereaccident:and,inanyothercase,theequationofinternationaldemandwouldrequireadifferentadjustmentofinternationalvalues.Theonlygenerallaw,then,whichcanbelaiddown,isthis.Thevaluesatwhichacountryexchangesitsproducewithforeigncountriesdependontwothings:first,ontheamountandextensibilityoftheirdemandforitscommodities,comparedwithitsdemandfortheirs;andsecond,onthecapitalwhichithastosparefromtheproductionofdomesticcommoditiesforitsownconsumption.Themoretheforeigndemandforitscommoditiesexceedsitsdemandforfor-eigncommodities,andthelesscapitalitcansparetoproduceforforeignmarkets,comparedwithwhatforeignerssparetoproduceforitsmarkets,themorefavourabletoitwillbethetermsofinterchange:thatis,themoreitwillobtainofforeigncommoditiesinreturnforagivenquantityofitsown.Butthesetwoinfluencingcircumstancesareinrealityreducibletoone:forthecapitalwhichacountryhastosparefromtheproductionofdomesticcommoditiesforitsownuseisinpropor-tiontoitsowndemandforforeigncommodities:whateverproportionofitscollectiveincomeitexpendsinpurchasesfromabroad,thatsameproportionofitscapitalisleftwithoutahomemar-ketforitsproductions.Thenewelement,therefore,whichforthesakeofscientificcorrectnesswehaveintroducedintothetheoryofinternationalvalues,doesnotseemtomakeanyverymaterialdifferenceinthepracticalresult.Itstillappears,thatthecountrieswhichcarryontheirforeigntradeonthemostadvantageousterms,arethosewhosecommoditiesaremostindemandbyfor-eigncountries,andwhichhavethemselvestheleastdemandforforeigncommodities.Fromwhich,amongotherconsequences,itfollows,thattherichestcountries,cæterisparibus,gaintheleastbyagivenamountofforeigncommerce:since,havingagreaterdemandforcommoditiesgenerally,theyarelikelytohaveagreaterdemandforforeigncommodities,andthusmodifythetermsofinterchangetotheirowndisadvantage.Theiraggregategainsbyforeigntrade,doubt-less,aregenerallygreaterthanthoseofpoorercountries,sincetheycarryonagreateramountofsuchtrade,andgainthebenefitofcheapnessonalargerconsumption:buttheirgainislessoneachindividualarticleconsumed.9.Wenowpasstoanotheressentialpartofthetheoryofthesubject.Therearetwosensesinwhichacountryobtainscommoditiescheaperbyforeigntrade;inthesenseofValue,andinthesenseofCost.Itgetsthemcheaperinthefirstsense,bytheirfallinginvaluerelativelytootherthings:thesamequantityofthemexchanging,inthecountry,forasmallerquantitythanbeforeoftheotherproduceofthecountry.Toreverttoouroriginalfigures;inEngland,allconsumersoflinenobtained,afterthetradewasopened,17orsomegreaternumberofyardsforthesamequantityofallotherthingsforwhichtheybeforeobtainedonly15.Thedegreeofcheapness,inthissenseoftheterm,dependsonthelawsofInternationalDemand,socopiouslyillustratedintheprecedingsections.Butintheothersense,thatofCost,acountrygetsacommoditycheaperwhenitobtainsagreaterquantityofthecommoditywiththesameexpenditureoflabour Mill:PrinciplesofPoliticalEconomy349andcapital.Inthissenseoftheterm,cheapnessinagreatmeasuredependsuponacauseofadifferentnature:acountrygetsitsimportscheaper,inproportiontothegeneralproductivenessofitsdomesticindustry;tothegeneralefficiencyofitslabour.Thelabourofonecountrymaybe,asawhole,muchmoreefficientthanthatofanother;allormostofthecommoditiescapableofbeingproducedinboth,maybeproducedinoneatlessabsolutecostthanintheother;which,aswehaveseen,willnotnecessarilypreventthetwocountriesfromexchangingcommodities.Thethingswhichthemorefavouredcountrywillimportfromothers,areofcoursethoseinwhichitisleastsuperior;butbyimportingthemitacquires,eveninthosecom-modities,thesameadvantagewhichitpossessesinthearticlesitgivesinexchangeforthem.Thus,thecountrieswhichobtaintheirownproductionsatleastcost,alsogettheirimportsatleastcost.Thiswillbemadestillmoreobviousifwesupposetwocompetingcountries.EnglandsendsclothtoGermany,andgives10yardsofitfor17yardsoflinen,orforsomethingelsewhichinGermanyistheequivalentofthose17yards.Anothercountry,asforexampleFrance,doesthesame.Theonegiving10yardsofclothforacertainquantityofGermancommodities,somusttheother:if,therefore,inEngland,these10yardsareproducedbyonlyhalfasmuchlabourasthatbywhichtheyareproducedinFrance,thelinenorothercommoditiesofGermanywillcosttoEnglandonlyhalftheamountoflabourwhichtheywillcosttoFrance.EnglandwouldthusobtainherimportsatlesscostthanFrance,intheratioofthegreaterefficiencyofherlabourintheproductionofcloth:whichmightbetaken,inthecasesupposed,asanapproximateestimateoftheefficiencyofherlabourgenerally;sinceFrance,aswellasEngland,byselectingclothasherarticleofexport,wouldhaveshownthatwithheralsoitwasthecommodityinwhichlabourwasrelativelythemostefficient.Itfollows,therefore,thateverycountrygetsitsimportsatlesscost,inproportiontothegeneralefficiencyofitslabour.ThispropositionwasfirstclearlyseenandexpoundedbyMrSenior,butonlyasapplicabletotheimportationofthepreciousmetals.Ithinkitimportanttopointoutthatthepropositionholdsequallytrueofallotherimportedcommodities;andfurther,thatitisonlyaportionofthetruth.For,inthecasesupposed,thecosttoEnglandofthelinenwhichshepaysforwith10yardsofcloth,doesnotdependsolelyuponthecosttoherselfof10yardsofcloth,butpartlyalsouponhowmanyyardsoflinensheobtainsinexchangeforthem.Whatherimportscosttoherisafunctionoftwovariables;thequantityofherowncommoditieswhichshegivesforthem,andthecostofthosecommodities.Ofthese,thelastalonedependsontheefficiencyofherlabour:thefirstdependsonthelawofinternationalvalues;thatis,ontheintensityandextensi-bilityoftheforeigndemandforhercommodities,comparedwithherdemandforforeigncommodities.Inthecasejustnowsupposed,ofacompetitionbetweenEnglandandFrance,thestateofinternationalvaluesaffectedbothcompetitorsalike,sincetheyweresupposedtotradewiththesamecountry,andtoexportandimportthesamecommodities.Thedifference,therefore,inwhattheirimportscostthem,dependedsolelyontheothercause,theunequalefficiencyoftheirlabour.Theygavethesamequantities;thedifferencecouldonlybeinthecostofproduction.ButifEnglandtradedtoGermanywithcloth,andFrancewithiron,thecomparativedemandinGermanyforthosetwocommoditieswouldbearashareindeterminingthecomparativecost,inlabourandcapital,withwhichEnglandandFrancewouldobtainGermanproducts.IfironweremoreindemandinGermanythancloth,Francewouldrecover,throughthatchannel,partofherdisadvantage;ifless,herdisadvantagewouldbeincreased.Theefficiency,therefore,ofacoun-try’slabour,isnottheonlythingwhichdetermineseventhecostatwhichthatcountryobtainsimportedcommodities–whileithasnosharewhateverindeterminingeithertheirexchangevalue,or,asweshallpresentlysee,theirprice. 350TheClassicalSchoolBookIV:InfluenceoftheprogressofsocietyonproductionanddistributionChapterVI:Ofthestationarystate1.Theprecedingchapterscomprisethegeneraltheoryoftheeconomicalprogressofsociety,inthesenseinwhichthosetermsarecommonlyunderstood;theprogressofcapital,ofpopula-tion,andoftheproductivearts.Butincontemplatinganyprogressivemovement,notinitsnatureunlimited,themindisnotsatisfiedwithmerelytracingthelawsofthemovement;itcan-notbutaskthefurtherquestion,towhatgoal?Towardswhatultimatepointissocietytendingbyitsindustrialprogress?Whentheprogressceases,inwhatconditionarewetoexpectthatitwillleavemankind?Itmustalwayshavebeenseen,moreorlessdistinctly,bypoliticaleconomists,thattheincreaseofwealthisnotboundless:thatattheendofwhattheytermtheprogressivestateliesthesta-tionarystate,thatallprogressinwealthisbutapostponementofthis,andthateachstepinadvanceisanapproachtoit.Wehavenowbeenledtorecognisethatthisultimategoalisatalltimesnearenoughtobefullyinview;thatwearealwaysonthevergeofit,andthatifwehavenotreacheditlongago,itisbecausethegoalitselffliesbeforeus.Therichestandthemostpros-perouscountrieswouldverysoonattainthestationarystate,ifnofurtherimprovementsweremadeintheproductivearts,andiftherewereasuspensionoftheoverflowofcapitalfromthosecountriesintotheuncultivatedorill-cultivatedregionsoftheearth.Thisimpossibilityofultimatelyavoidingthestationarystate–thisirresistiblenecessitythatthestreamofhumanindustryshouldfinallyspreaditselfoutintoanapparentlystagnantsea–musthavebeen,tothepoliticaleconomistsofthelasttwogenerations,anunpleasinganddiscourag-ingprospect;forthetoneandtendencyoftheirspeculationsgoescompletelytoidentifyallthatiseconomicallydesirablewiththeprogressivestate,andwiththatalone.WithMrMcCulloch,forexample,prosperitydoesnotmeanalargeproductionandagooddistributionofwealth,butarapidincreaseofit;histestofprosperityishighprofits;andasthetendencyofthatveryincreaseofwealth,whichhecallsprosperity,istowardslowprofits,economicalprogress,accordingtohim,musttendtotheextinctionofprosperity.AdamSmithalwaysassumesthattheconditionofthemassofthepeople,thoughitmaynotbepositivelydistressed,mustbepinchedandstintedinastationaryconditionofwealth,andcanonlybesatisfactoryinaprogressivestate.Thedoctrinethat,tohoweverdistantatimeincessantstrugglingmayputoffourdoom,theprogressofsoci-etymust‘endinshallowsandinmiseries’,farfrombeing,asmanypeoplestillbelieve,awickedinventionofMrMalthus,waseitherexpresslyortacitlyaffirmedbyhismostdistinguishedpre-decessors,andcanonlybesuccessfullycombatedonhisprinciples.Beforeattentionhadbeendirectedtotheprincipleofpopulationastheactiveforceindeterminingtheremunerationoflabour,theincreaseofmankindwasvirtuallytreatedasaconstantquantity;itwas,atallevents,assumedthatinthenaturalandnormalstateofhumanaffairspopulationmustconstantlyincrease,fromwhichitfollowedthataconstantincreaseofthemeansofsupportwasessentialtothephysicalcomfortofthemassofmankind.ThepublicationofMrMalthus’Essayistheerafromwhichbetterviewsofthissubjectmustbedated;andnotwithstandingtheacknowledgederrorsofhisfirstedition,fewwritershavedonemorethanhimself,inthesubsequenteditions,topromotethesejusterandmorehopefulanticipations.Eveninaprogressivestateofcapital,inoldcountries,aconscientiousorprudentialrestraintonpopulationisindispensable,topreventtheincreaseofnumbersfromoutstrippingtheincreaseofcapital,andtheconditionoftheclasseswhoareatthebottomofsocietyfrombeingdeterio-rated.Wherethereisnot,inthepeople,orinsomeverylargeproportionofthem,aresoluteresistancetothisdeterioration–adeterminationtopreserveanestablishedstandardofcomfort–theconditionofthepoorestclasssinks,eveninaprogressivestate,tothelowestpointwhich Mill:PrinciplesofPoliticalEconomy351theywillconsenttoendure.Thesamedeterminationwouldbeequallyeffectualtokeepuptheirconditioninthestationarystate,andwouldbequiteaslikelytoexist.Indeed,evennow,thecoun-triesinwhichthegreatestprudenceismanifestedintheregulatingofpopulationareoftenthoseinwhichcapitalincreasesleastrapidly.Wherethereisanindefiniteprospectofemploymentforincreasednumbers,thereisapttoappearlessnecessityforprudentialrestraint.Ifitwereevidentthatanewhandcouldnotobtainemploymentbutbydisplacing,orsucceedingto,onealreadyemployed,thecombinedinfluencesofprudenceandpublicopinionmightinsomemeasurebereliedonforrestrictingthecominggenerationwithinthenumbersnecessaryforreplacingthepresent.2.Icannot,therefore,regardthestationarystateofcapitalandwealthwiththeunaffectedaversionsogenerallymanifestedtowardsitbypoliticaleconomistsoftheoldschool.Iaminclinedtobelievethatitwouldbe,onthewhole,averyconsiderableimprovementonourpresentcondition.IconfessIamnotcharmedwiththeidealoflifeheldoutbythosewhothinkthatthenormalstateofhumanbeingsisthatofstrugglingtogeton;thatthetrampling,crush-ing,elbowing,andtreadingoneachother’sheels,whichformtheexistingtypeofsociallife,arethemostdesirablelotofhumankind,oranythingbutthedisagreeablesymptomsofoneofthephasesofindustrialprogress.Itmaybeanecessarystageintheprogressofcivilization,andthoseEuropeannationswhichhavehithertobeensofortunateastobepreservedfromit,mayhaveityettoundergo.Itisanincidentofgrowth,notamarkofdecline,foritisnotnecessarilydestruc-tiveofthehigheraspirationsandtheheroicvirtues;asAmerica,inhergreatcivilwar,hasprovedtotheworld,bothbyherconductasapeopleandbynumeroussplendidindividualexamples,andasEngland,itistobehoped,wouldalsoprove,onanequallytryingandexcitingoccasion.Butitisnotakindofsocialperfectionwhichphilanthropiststocomewillfeelanyveryeagerdesiretoassistinrealizing.Mostfitting,indeed,isit,thatwhilerichesarepower,andtogrowasrichaspossibletheuniversalobjectofambition,thepathtoitsattainmentshouldbeopentoall,withoutfavourorpartiality.Butthebeststateforhumannatureisthatinwhich,whilenooneispoor,noonedesirestobericher,norhasanyreasontofearbeingthrustbackbytheeffortsofotherstopushthemselvesforward.Thattheenergiesofmankindshouldbekeptinemploymentbythestruggleforriches,astheywereformerlybythestruggleofwar,untilthebettermindssucceedineducatingtheothersintobetterthings,isundoubtedlymoredesirablethanthattheyshouldrustandstagnate.Whilemindsarecoarsetheyrequirecoarsestimuli,andletthemhavethem.Inthemeantime,thosewhodonotacceptthepresentveryearlystageofhumanimprovementasitsultimatetype,maybeexcusedforbeingcomparativelyindifferenttothekindofeconomicalprogresswhichexcitesthecongratulationsofordinarypoliticians;themereincreaseofproductionandaccumulation.Forthesafetyofnationalindependenceitisessentialthatacountryshouldnotfallmuchbehinditsneighboursinthesethings.Butinthemselvestheyareoflittleimportance,solongaseithertheincreaseofpopulationoranythingelsepreventsthemassofthepeoplefromreapinganypartofthebenefitofthem.Iknownotwhyitshouldbeamatterofcongratulationthatpersonswhoarealreadyricherthananyoneneedstobe,shouldhavedoubledtheirmeansofconsumingthingswhichgivelittleornopleasureexceptasrepresentativeofwealth;orthatnumbersofindividualsshouldpassover,everyyear,fromthemiddleclassesintoaricherclass,orfromtheclassoftheoccupiedrichtothatoftheunoccupied.Itisonlyinthebackwardcountriesoftheworldthatincreasedproductionisstillanimportantobject:inthosemostadvanced,whatiseconomicallyneededisabetterdistribution,ofwhichoneindispensablemeansisastricterrestraintonpopula-tion.Levellinginstitutions,eitherofajustorofanunjustkind,cannotaloneaccomplishit;theymaylowertheheightsofsociety,buttheycannot,ofthemselves,permanentlyraisethedepths.Ontheotherhand,wemaysupposethisbetterdistributionofpropertyattained,bythejointeffectoftheprudenceandfrugalityofindividuals,andofasystemoflegislationfavouringequality 352TheClassicalSchooloffortunes,sofarasisconsistentwiththejustclaimoftheindividualtothefruits,whethergreatorsmall,ofhisorherownindustry.Wemaysuppose,forinstance(accordingtothesuggestionthrownoutinaformerchapter),alimitationofthesumwhichanyonepersonmayacquirebygiftorinheritancetotheamountsufficienttoconstituteamoderateindependence.Underthistwo-foldinfluencesocietywouldexhibittheseleadingfeatures:awell-paidandaffluentbodyoflabourers;noenormousfortunes,exceptwhatwereearnedandaccumulatedduringasinglelife-time;butamuchlargerbodyofpersonsthanatpresent,notonlyexemptfromthecoarsertoils,butwithsufficientleisure,bothphysicalandmental,frommechanicaldetails,tocultivatefreelythegracesoflife,andaffordexamplesofthemtotheclasseslessfavourablycircumstancedfortheirgrowth.Thisconditionofsociety,sogreatlypreferabletothepresent,isnotonlyperfectlycompatiblewiththestationarystate,but,itwouldseem,morenaturallyalliedwiththatstatethanwithanyother.Thereisroomintheworld,nodoubt,andeveninoldcountries,foragreatincreaseofpopu-lation,supposingtheartsoflifetogoonimproving,andcapitaltoincrease.Butevenifinnocu-ous,IconfessIseeverylittlereasonfordesiringit.Thedensityofpopulationnecessarytoenablemankindtoobtain,inthegreatestdegree,alltheadvantagesbothofco-operationandofsocialintercourse,has,inallthemostpopulouscountries,beenattained.Apopulationmaybetoocrowded,thoughallbeamplysuppliedwithfoodandraiment.Itisnotgoodformantobekeptperforceatalltimesinthepresenceofhisspecies.Aworldfromwhichsolitudeisextirpatedisaverypoorideal.Solitude,inthesenseofbeingoftenalone,isessentialtoanydepthofmeditationorofcharacter;andsolitudeinthepresenceofnaturalbeautyandgrandeur,isthecradleofthoughtsandaspirationswhicharenotonlygoodfortheindividual,butwhichsocietycouldilldowithout.Noristheremuchsatisfactionincontemplatingtheworldwithnothinglefttothespontaneousactivityofnature;witheveryroodoflandbroughtintocultivation,whichiscapableofgrowingfoodforhumanbeings;everyflowerywasteornaturalpastureploughedup,allquadrupedsorbirdswhicharenotdomesticatedforman’suseexterminatedashisrivalsforfood,everyhedgeroworsuperfluoustreerootedout,andscarcelyaplaceleftwhereawildshruborflowercouldgrowwithoutbeingeradicatedasaweedinthenameofimprovedagricul-ture.Iftheearthmustlosethatgreatportionofitspleasantnesswhichitowestothingsthattheunlimitedincreaseofwealthandpopulationwouldextirpatefromit,forthemerepurposeofenablingittosupportalarger,butnotabetterorahappierpopulation,Isincerelyhope,forthesakeofposterity,thattheywillbecontenttobestationary,longbeforenecessitycompelsthemtoit.Itisscarcelynecessarytoremarkthatastationaryconditionofcapitalandpopulationimpliesnostationarystateofhumanimprovement.Therewouldbeasmuchscopeaseverforallkindsofmentalculture,andmoralandsocialprogress;asmuchroomforimprovingtheArtofLiving,andmuchmorelikelihoodofitsbeingimproved,whenmindsceasedtobeengrossedbytheartofgettingon.Eventheindustrialartsmightbeasearnestlyandassuccessfullycultivated,withthissoledifference,thatinsteadofservingnopurposebuttheincreaseofwealth,industrialimprovementswouldproducetheirlegitimateeffect,thatofabridginglabour.Hitherto[1848]itisquestionableifallthemechanicalinventionsyetmadehavelightenedtheday’stoilofanyhumanbeing.Theyhaveenabledagreaterpopulationtolivethesamelifeofdrudgeryandimprisonment,andanincreasednumberofmanufacturersandotherstomakefortunes.Theyhaveincreasedthecomfortsofthemiddleclasses.Buttheyhavenotyetbeguntoeffectthosegreatchangesinhumandestiny,whichitisintheirnatureandintheirfuturitytoaccomplish.Onlywhen,inadditiontojustinstitutions,theincreaseofmankindshallbeunderthedeliberateguidanceofjudiciousforesight,cantheconquestsmadefromthepowersofnaturebytheintel-lectandenergyofscientificdiscoverersbecomethecommonpropertyofthespecies,andthemeansofimprovingandelevatingtheuniversallot. Mill:PrinciplesofPoliticalEconomy353BookV:OntheinfluenceofgovernmentChapterXI:Ofthegroundsandlimitsofthelaisser-faireornon-interferenceprinciple1.Wehavenowreachedthelastpartofourundertaking;thediscussion,sofarassuitedtothistreatise(i.e.sofarasitisaquestionofprinciple,notdetail),ofthelimitsoftheprovinceofgov-ernment:thequestion,towhatobjectsgovernmentalinterventionintheaffairsofsocietymayorshouldextend,overandabovethosewhichnecessarilyappertaintoit.Nosubjecthasbeenmorekeenlycontestedinthepresentage:thecontest,however,haschieflytakenplaceroundcertainselectpoints,withonlyflyingexcursionsintotherestofthefield.Thoseindeedwhohavedis-cussedanyparticularquestionofgovernmentinterference,suchasstateeducation(spiritualorsecular),regulationofhoursoflabour,apublicprovisionforthepoor,etc.,haveoftendealtlargelyingeneralarguments,faroutstretchingthespecialapplicationmadeofthem,andhaveshownasufficientlystrongbiaseitherinfavouroflettingthingsalone,orinfavourofmeddling;buthaveseldomdeclared,orapparentlydecidedintheirownminds,howfartheywouldcarryeitherprinciple.Thesupportersofinterferencehavebeencontentwithassertingageneralrightanddutyonthepartofgovernmenttointervene,whereveritsinterventionwouldbeuseful:andwhenthosewhohavebeencalledthelaisser-faireschoolhaveattemptedanydefinitelimitationoftheprovinceofgovernment,theyhaveusuallyrestrictedittotheprotectionofpersonandpropertyagainstforceandfraud;adefinitiontowhichneithertheynoranyoneelsecandeliber-atelyadhere,sinceitexcludes,ashasbeenshowninaprecedingchapter,someofthemostindispensableandunanimouslyrecognizedofthedutiesofgovernment.Withoutprofessingentirelytosupplythisdeficiencyofageneraltheory,onaquestion,whichdoesnot,asIconceive;admitofanyuniversalsolution,Ishallattempttoaffordsomelittleaidtowardstheresolutionofthisclassofquestionsastheyarise,byexamining,inthemostgeneralpointofviewinwhichthesubjectcanbeconsidered,whataretheadvantages,andwhattheevilsorinconveniences,ofgovernmentinterference.Wemustsetoutbydistinguishingbetweentwokindsofinterventionbythegovernment,which,thoughtheymayrelatetothesamesubject,differwidelyintheirnatureandeffects,andrequire,fortheirjustification,motivesofaverydifferentdegreeofurgency.Theinterventionmayextendtocontrollingthefreeagencyofindividuals.Governmentmayinterdictallpersonsfromdoingcertainthings;orfromdoingthemwithoutitsauthorization;ormayprescribetothemcertainthingstobedone,oracertainmannerofdoingthingswhichitisleftoptionalwiththemtodoortoabstainfrom.Thisistheauthoritativeinterferenceofgovernment.Thereisanotherkindofinterventionwhichisnotauthoritative:whenagovernment,insteadofissuingacommandandenforcingitbypenalties,adoptsthecoursesoseldomresortedtobygovernments,andofwhichsuchimportantusemightbemade,thatofgivingadvice,andpromulgatinginfor-mation;orwhen,leavingindividualsfreetousetheirownmeansofpursuinganyobjectofgen-eralinterest,thegovernment,notmeddlingwiththem,butnottrustingtheobjectsolelytotheircare,establishes,sidebysidewiththeirarrangements,anagencyofitsownforalikepurpose.Thus,itisonethingtomaintainaChurchEstablishment,andanothertorefusetolerationtootherreligions,ortopersonsprofessingnoreligion.Itisonethingtoprovideschoolsorcolleges,andanothertorequirethatnopersonshallactasaninstructorofyouthwithoutagovernmentlicence.Theremightbeanationalbank,oragovernmentmanufactory,withoutanymonopolyagainstprivatebanksandmanufactories.Theremightbeapost-office,withoutpenaltiesagainsttheconveyanceoflettersbyothermeans.Theremaybeacorpsofgovernmentengineersforcivilpurposes,whiletheprofessionofacivilengineerisfreetobeadoptedbyeveryone.Theremaybepublichospitals,withoutanyrestrictionuponprivatemedicalorsurgicalpractice. 354TheClassicalSchool2.Itisevident,evenatfirstsight,thattheauthoritativeformofgovernmentinterventionhasamuchmorelimitedsphereoflegitimateactionthantheother.Itrequiresamuchstrongernecessitytojustifyitinanycase;whiletherearelargedepartmentsofhumanlifefromwhichitmustbeunreservedlyandimperiouslyexcluded.Whatevertheoryweadoptrespectingthefoun-dationofthesocialunion,andunderwhateverpoliticalinstitutionswelive,thereisacirclearoundeveryindividualhumanbeingwhichnogovernment,beitthatofone,ofafew,orofthemany,oughttobepermittedtooverstep:thereisapartofthelifeofeverypersonwhohascometoyearsofdiscretion,withinwhichtheindividualityofthatpersonoughttoreignuncontrolledeitherbyanyotherindividualorbythepubliccollectively.Thatthereis,oroughttobe,somespaceinhumanexistencethusentrenchedaround,andsacredfromauthoritativeintrusion,noonewhoprofessesthesmallestregardtohumanfreedomordignitywillcallinquestion:thepointtobedeterminedis,wherethelimitshouldbeplaced;howlargeaprovinceofhumanlifethisreservedterritoryshouldinclude.Iapprehendthatitoughttoincludeallthatpartwhichcon-cernsonlythelife,whetherinwardoroutward,oftheindividual,anddoesnotaffecttheinterestsofothers,oraffectsthemonlythroughthemoralinfluenceofexample.Withrespecttothedomainoftheinwardconsciousness,thethoughtsandfeelings,andasmuchofexternalconductasispersonalonly,involvingnoconsequences,noneatleastofapainfulorinjuriouskind,tootherpeople;Iholdthatitisallowableinall,andinthemorethoughtfulandcultivatedoftenaduty,toassertandpromulgate,withalltheforcetheyarecapableof,theiropinionofwhatisgoodorbad,admirableorcontemptible,butnottocompelotherstoconformtothatopinion;whethertheforceusedisthatofextra-legalcoercion,orexertsitselfbymeansofthelaw.Eveninthoseportionsofconductwhichdoaffecttheinterestofothers,theonusofmakingoutacasealwaysliesonthedefendersoflegalprohibitions.Itisnotamerelyconstructiveorpre-sumptiveinjurytootherswhichwilljustifytheinterferenceoflawwithindividualfreedom.Tobepreventedfromdoingwhatoneisinclinedto,orfromactingaccordingtoone’sownjudgmentofwhatisdesirable,isnotonlyalwaysirksome,butalwaystends,protanto,tostarvethedevelopmentofsomeportionofthebodilyormentalfaculties,eithersensitiveoractive;andunlessthecon-scienceoftheindividualgoesfreelywiththelegalrestraint,itpartakes,eitherinagreatorinasmalldegree,ofthedegradationofslavery.Scarcelyanydegreeofutility,shortofabsolutenecessity,willjustifyaprohibitoryregulation,unlessitcanalsobemadetorecommenditselftothegeneralconscience;unlesspersonsofordinarygoodintentionseitherbelievealready,orcanbeinduced,tobelieve,thatthethingprohibitedisathingwhichtheyoughtnottowishtodo.Itisotherwisewithgovernmentalinterferenceswhichdonotrestrainindividualfreeagency.Whenagovernmentprovidesmeansforfulfillingacertainend,leavingindividualsfreetoavailthemselvesofdifferentmeansifintheiropinionpreferable,thereisnoinfringementofliberty,noirksomeordegradingrestraint.Oneoftheprincipalobjectionstogovernmentinterferenceisthenabsent.Thereis,however,inalmostallformsofgovernmentagency,onethingwhichiscompulsory;theprovisionofthepecuniarymeans.Thesearederivedfromtaxation;or,ifexist-ingintheformofanendowmentderivedfrompublicproperty,theyarestillthecauseofasmuchcompulsorytaxationasthesaleortheannualproceedsofthepropertywouldenabletobedispensedwith.Andtheobjectionnecessarilyattachingtocompulsorycontributions,isalmostalwaysgreatlyaggravatedbytheexpensiveprecautionsandonerousrestrictionswhichareindispensabletopreventevasionofacompulsorytax.3.Asecondgeneralobjectiontogovernmentagencyisthateveryincreaseofthefunctionsdevolvingonthegovernmentisanincreaseofitspower,bothintheformofauthority,andstillmore,intheindirectformofinfluence.Theimportanceofthisconsideration,inrespecttopolit-icalfreedom,hasingeneralbeenquitesufficientlyrecognized,atleastinEngland;butmany,inlattertimes,havebeenpronetothinkthatlimitationofthepowersofthegovernmentisonlyessentialwhenthegovernmentitselfisbadlyconstituted;whenitdoesnotrepresentthepeople, Mill:PrinciplesofPoliticalEconomy355butistheorganofaclass,orcoalitionofclasses:andthatagovernmentofsufficientlypopularconstitutionmightbetrustedwithanyamountofpoweroverthenation,sinceitspowerwouldbeonlythatofthenationoveritself.Thismightbetrue,ifthenation,insuchcases,didnotprac-ticallymeanameremajorityofthenation,andifminoritieswereonlycapableofoppressing,butnotofbeingoppressed.Experience,however,provesthatthedepositariesofpowerwhoaremeredelegatesofthepeople,thatisofamajority,arequiteasready(whentheythinktheycancountonpopularsupport)asanyorgansofoligarchytoassumearbitrarypower,andencroachundulyonthelibertyofprivatelife.Thepubliccollectivelyisabundantlyreadytoimpose,notonlyitsgenerallynarrowviewsofitsinterests,butitsabstractopinions,andevenitstastes,aslawsbindinguponindividuals.Andthepresentcivilizationtendssostronglytomakethepowerofpersonsactinginmassestheonlysubstantialpowerinsociety,thatthereneverwasmoreneces-sityforsurroundingindividualindependenceofthought,speech,andconduct,withthemostpowerfuldefences,inordertomaintainthatoriginalityofmindandindividualityofcharacter,whicharetheonlysourceofanyrealprogress,andofmostofthequalitieswhichmakethehumanracemuchsuperiortoanyherdofanimals.Hence,itisnolessimportantinademocra-ticthaninanyothergovernment,thatalltendencyonthepartofpublicauthoritiestostretchtheirinterference,andassumeapowerofanysortwhichcaneasilybedispensedwith,shouldberegardedwithunremittingjealousy.Perhapsthisisevenmoreimportantinademocracythaninanyotherformofpoliticalsociety;because,wherepublicopinionissovereign,anindividualwhoisoppressedbythesovereigndoesnot,asinmostotherstatesofthings,findarivalpowertowhichhecanappealforrelief,or,atallevents,forsympathy.4.Athirdgeneralobjectiontogovernmentagencyrestsontheprincipleofthedivisionoflabour.Everyadditionalfunctionundertakenbythegovernmentisafreshoccupationimposeduponabodyalreadyoverchargedwithduties.Anaturalconsequenceisthatmostthingsareilldone;muchnotdoneatall,becausethegovernmentisnotabletodoitwithoutdelayswhicharefataltoitspurpose;thatthemoretroublesome,andlessshowy,ofthefunctionsundertaken,arepostponedorneglected,andanexcuseisalwaysreadyfortheneglect;whiletheheadsoftheadministrationhavetheirmindssofullytakenupwithofficialdetails,inhoweverperfunctoryamannersuperintended,thattheyhavenotimeorthoughttospareforthegreatinterestsofthestate,andthepreparationofenlargedmeasuresofsocialimprovement.Buttheseinconveniences,thoughrealandserious,resultmuchmorefromthebadorganizationofgovernments,thanfromtheextentandvarietyofthedutiesundertakenbythem.Governmentisnotanameforsomeonefunctionary,ordefinitenumberoffunctionaries:theremaybealmostanyamountofdivisionoflabourwithintheadministrativebodyitself.TheevilinquestionisfeltingreatmagnitudeundersomeofthegovernmentsoftheContinent,wheresixoreightmen,livingatthecapitalandknownbythenameofministers,demandthatthewholepub-licbusinessofthecountryshallpass,orbesupposedtopass,undertheirindividualeye.Buttheinconveniencewouldbereducedtoaverymanageablecompass,inacountryinwhichtherewasaproperdistributionoffunctionsbetweenthecentralandlocalofficersofgovernment,andinwhichthecentralbodywasdividedintoasufficientnumberofdepartments.WhenParliamentthoughtitexpedienttoconferonthegovernmentaninspectingandpartiallycontrollingauthor-ityoverrailways,itdidnotaddrailwaystothedepartmentoftheHomeMinister,butcreatedaRailwayBoard.Whenitdeterminedtohaveacentralsuperintendingauthorityforpauperadministration,itestablishedthePoorLawCommission.Therearefewcountriesinwhichagreaternumberoffunctionsaredischargedbypublicofficers,thaninsomestatesoftheAmericanUnion,particularlytheNewEnglandStates:butthedivisionoflabourinpublicbusi-nessisextreme;mostoftheseofficersbeingnotevenamenabletoanycommonsuperior,butperformingtheirdutiesfreely,underthedoublecheckofelectionbytheirtownsmen,andcivilaswellascriminalresponsibilitytothetribunals. 356TheClassicalSchoolItis,nodoubt,indispensabletogoodgovernmentthatthechiefsoftheadministration,whetherpermanentortemporary,shouldextendacommanding,thoughgeneral,viewovertheensembleofalltheinterestsconfided,inanydegree,totheresponsibilityofthecentralpower.Butwithaskilfulinternalorganizationoftheadministrativemachine,leavingtosubordinates,andasfaraspossible,tolocalsubordinates,notonlytheexecution,buttoagreatdegreethecontrol,ofdetails;holdingthemaccountablefortheresultsoftheiractsratherthanfortheactsthemselves;exceptwherethesecomewithinthecognizanceofthetribunals;takingthemosteffectualsecuri-tiesforhonestandcapableappointments;openingabroadpathtopromotionfromtheinferiordegreesoftheadministrativescaletothesuperior;leaving,ateachstep,tothefunctionary,awiderrangeintheoriginationofmeasures,sothat,inthehighestgradeofall,deliberationmightbeconcentratedonthegreatcollectiveinterestsofthecountryineachdepartment;ifallthisweredone,thegovernmentwouldnotprobablybeover-burthenedbyanybusiness,inotherrespectsfittobeundertakenbyit;thoughtheover-burtheningwouldremain,asaseriousadditiontotheinconveniencesincurredbyitsundertakinganywhichwasunfit.5.Butthoughabetterorganizationofgovernmentswouldgreatlydiminishtheforceoftheobjectiontothemeremultiplicationoftheirduties,itwouldstillremaintruethatinallthemoreadvancedcommunitiesthegreatmajorityofthingsareworsedonebytheinterventionofgov-ernment,thantheindividualsmostinterestedinthematterwoulddothem,orcausethemtobedone,iflefttothemselves.Thegroundsofthistruthareexpressedwithtolerableexactnessinthepopulardictum,thatpeopleunderstandtheirownbusinessandtheirowninterestsbetter,andcareforthemmore,thanthegovernmentdoes,orcanbeexpectedtodo.Thismaximholdstruethroughoutthegreatestpartofthebusinessoflife,andwhereveritistrueweoughttocondemneverykindofgovernmentinterventionthatconflictswithit.Theinferiorityofgovernmentagency,forexample,inanyofthecommonoperationsofindustryorcommerce,isprovedbythefact,thatitishardlyeverabletomaintainitselfinequalcompetitionwithindividualagency,wheretheindividualspossesstherequisitedegreeofindustrialenterprise,andcancommandthenecessaryassemblageofmeans.Allthefacilitieswhichagovernmentenjoysofaccesstoinfor-mation;allthemeanswhichitpossessesofremunerating,andthereforeofcommanding,thebestavailabletalentinthemarket–arenotanequivalentfortheonegreatdisadvantageofaninferiorinterestintheresult.Itmustberemembered,besides,thatevenifagovernmentweresuperiorinintelligenceandknowledgetoanysingleindividualinthenation,itmustbeinferiortoalltheindividualsofthenationtakentogether.Itcanneitherpossessinitself,norenlistinitsservice,morethanaportionoftheacquirementsandcapacitieswhichthecountrycontains,applicabletoanygivenpurpose.Theremustbemanypersonsequallyqualifiedfortheworkwiththosewhomthegovernmentemploys,evenifitselectsitsinstrumentswithnoreferencetoanyconsiderationbuttheirfitness.Nowthesearetheverypersonsintowhosehands,inthecasesofmostcommonoccurrence,asystemofindividualagencynaturallytendstothrowthework,becausetheyarecapableofdoingitbetteroroncheapertermsthananyotherpersons.Sofarasthisisthecase,itisevidentthatgovernment,byexcludingorevenbysupersedingindividualagency,eithersubstitutesalessqual-ifiedinstrumentalityforonebetterqualified,oratanyratesubstitutesitsownmodeofaccom-plishingthework,forallthevarietyofmodeswhichwouldbetriedbyanumberofequallyqualifiedpersonsaimingatthesameend;acompetitionbymanydegreesmorepropitioustotheprogressofimprovementthananyuniformityofsystem.6.Ihavereservedforthelastplaceoneofthestrongestofthereasonsagainsttheextensionofgovernmentagency.Evenifthegovernmentcouldcomprehendwithinitself,ineachdepart-ment,allthemosteminentintellectualcapacityandactivetalentofthenation,itwouldnotbethelessdesirablethattheconductofalargeportionoftheaffairsofthesocietyshouldbeleftinthehandsofthepersonsimmediatelyinterestedinthem.Thebusinessoflifeisanessentialpart Mill:PrinciplesofPoliticalEconomy357ofthepracticaleducationofapeople;withoutwhich,bookandschoolinstruction,thoughmostnecessaryandsalutary,doesnotsufficetoqualifythemforconduct,andfortheadaptationofmeanstoends.Instructionisonlyoneofthedesiderataofmentalimprovement;another,almostasindispensable,isavigorousexerciseoftheactiveenergies;labour,contrivance,judgment,self-control:andthenaturalstimulustotheseisthedifficultiesoflife.Thisdoctrineisnottobecon-foundedwiththecomplacentoptimism,whichrepresentstheevilsoflifeasdesirablethings,becausetheycallforthqualitiesadaptedtocombatwithevils.Itisonlybecausethedifficultiesexist,thatthequalitieswhichcombatwiththemareofanyvalue.Aspracticalbeingsitisourbusinesstofreehumanlifefromasmanyaspossibleofitsdifficulties,andnottokeepupastockofthemashunterspreservegamefortheexerciseofpursuingit.Butsincetheneedofactivetal-entandpracticaljudgmentintheaffairsoflifecanonlybediminished,andnot,evenonthemostfavourablesupposition,doneawaywith,itisimportantthatthoseendowmentsshouldbecultivatednotmerelyinaselectfew,butinall,andthatthecultivationshouldbemorevariedandcompletethanmostpersonsareabletofindinthenarrowsphereoftheirmerelyindividualinter-ests.Apeopleamongwhomthereisnohabitofspontaneousactionforacollectiveinterest–wholookhabituallytotheirgovernmenttocommandorprompttheminallmattersofjointconcern–whoexpecttohaveeverythingdoneforthem,exceptwhatcanbemadeanaffairofmerehabitandroutine–havetheirfacultiesonlyhalfdeveloped;theireducationisdefectiveinoneofitsmostimportantbranches.Notonlyisthecultivationoftheactivefacultiesbyexercise,diffusedthroughthewholecom-munity,initselfoneofthemostvaluableofnationalpossessions:itisrendered,notless,butmorenecessary,whenahighdegreeofthatindispensablecultureissystematicallykeptupinthechiefsandfunctionariesofthestate.Therecannotbeacombinationofcircumstancesmoredangeroustohumanwelfare,thanthatinwhichintelligenceandtalentaremaintainedatahighstandardwithinagoverningcorporation,butstarvedanddiscouragedoutsidethepale.Suchasystem,morecompletelythananyother,embodiestheideaofdespotism,byarmingwithintellectualsuperiorityasanadditionalweaponthosewhohavealreadythelegalpower.Itapproachesasnearlyastheorganicdifferencebetweenhumanbeingsandotheranimalsadmits,tothegovern-mentofsheepbytheirshepherdwithoutanythinglikesostronganinterestastheshepherdhasinthethrivingconditionoftheflock.Theonlysecurityagainstpoliticalslaveryisthecheckmaintainedovergovernorsbythediffusionofintelligence,activity,andpublicspiritamongthegoverned.Experienceprovestheextremedifficultyofpermanentlykeepingupasufficientlyhighstandardofthosequalities;adifficultywhichincreases,astheadvanceofcivilizationandsecu-rityremovesoneafteranotherofthehardships,embarrassments,anddangersagainstwhichindividualshadformerlynoresourcebutintheirownstrength,skill,andcourage.Itisthereforeofsupremeimportancethatallclassesofthecommunity,downtothelowest,shouldhavemuchtodoforthemselves;thatasgreatademandshouldbemadeupontheirintelligenceandvirtueasitisinanyrespectequalto;thatthegovernmentshouldnotonlyleaveasfaraspossibletotheirownfacultiestheconductofwhateverconcernsthemselvesalone,butshouldsufferthem,orratherencouragethem,tomanageasmanyaspossibleoftheirjointconcernsbyvoluntaryco-operation;sincethisdiscussionandmanagementofcollectiveinterestsisthegreatschoolofthatpublicspirit,andthegreatsourceofthatintelligenceofpublicaffairs,whicharealwaysregardedasthedistinctivecharacterofthepublicoffreecountries.Ademocraticconstitution,notsupportedbydemocraticinstitutionsindetail,butconfinedtothecentralgovernment,notonlyisnotpoliticalfreedom,butoftencreatesaspiritpreciselythereverse,carryingdowntothelowestgradeinsocietythedesireandambitionofpoliticaldomi-nation.Insomecountriesthedesireofthepeopleisfornotbeingtyrannizedover,butinothersitismerelyforanequalchancetoeverybodyoftyrannizing.Unhappilythislaststateofthedesiresisfullyasnaturaltomankindastheformer,andinmanyoftheconditionsevenof 358TheClassicalSchoolcivilizedhumanityisfarmorelargelyexemplified.Inproportionasthepeopleareaccustomedtomanagetheiraffairsbytheirownactiveintervention,insteadofleavingthemtothegovernment,theirdesireswillturntorepellingtyranny,ratherthantotyrannizing:whileinproportionasallrealinitiativeanddirectionresidesinthegovernment,andindividualshabituallyfeelandactasunderitsperpetualtutelage,popularinstitutionsdevelopinthemnotthedesireoffreedom,butanunmeasuredappetiteforplaceandpower;divertingtheintelligenceandactivityofthecountryfromitsprincipalbusinesstoawretchedcompetitionfortheselfishprizesandthepettyvanitiesofoffice.7.Theprecedingaretheprincipalreasons,ofageneralcharacter,infavourofrestrictingtothenarrowestcompasstheinterventionofapublicauthorityinthebusinessofthecommunity:andfewwilldisputethemorethansufficiencyofthesereasons,tothrow,ineveryinstance,theburthenofmakingoutastrongcase,notonthosewhoresist,butonthosewhorecommend,gov-ernmentinterference.Laisser-faire,inshort,shouldbethegeneralpractice:everydeparturefromit,unlessrequiredbysomegreatgood,isacertainevil.Thedegreeinwhichthemaxim,eveninthecasestowhichitismostmanifestlyapplicable,hasheretoforebeeninfringedbygovernments,futureageswillprobablyhavedifficultyincrediting.………Butwemustnowturntothesecondpartofourtask,anddirectourattentiontocases,inwhichsomeofthosegeneralobjectionsarealtogetherabsent,whilethosewhichcanneverbegotridofentirelyareoverruledbycounter-considerationsofstillgreaterimportance.Wehaveobservedthat,asageneralrule,thebusinessoflifeisbetterperformedwhenthosewhohaveanimmediateinterestinitarelefttotaketheirowncourse,uncontrolledeitherbythemandateofthelaworbythemeddlingofanypublicfunctionary.Thepersons,orsomeofthepersons,whodothework,arelikelytobebetterjudgesthanthegovernment,ofthemeansofattainingtheparticularendatwhichtheyaim.Werewetosuppose,whatisnotveryprobable,thatthegovernmenthaspossesseditselfofthebestknowledgewhichhadbeenacquireduptoagiventimebythepersonsmostskilledintheoccupation;eventhentheindividualagentshavesomuchstrongerandmoredirectaninterestintheresult,thatthemeansarefarmorelikelytobeimprovedandperfectediflefttotheiruncontrolledchoice.Butiftheworkmanisgenerallythebestselectorofmeans,canitbeaffirmedwiththesameuniversality,thattheconsumer,orpersonserved,isthemostcompetentjudgeoftheend?Isthebuyeralwaysqualifiedtojudgeofthecommodity?Ifnot,thepresumptioninfavourofthecompetitionofthemarketdoesnotapplytothecase;andifthecommoditybeoneinthequalityofwhichsocietyhasmuchatstake,thebalanceofadvantagesmaybeinfavourofsomemodeanddegreeofinterventionbytheauthorizedrepresentativesofthecollectiveinterestofthestate.8.Now,thepropositionthattheconsumerisacompetentjudgeofthecommodity,canbeadmittedonlywithnumerousabatementsandexceptions.Heisgenerallythebestjudge(thougheventhisisnottrueuniversally)ofthematerialobjectsproducedforhisuse.Thesearedestinedtosupplysomephysicalwant,orgratifysometasteorinclination,respectingwhichwantsorinclinationsthereisnoappealfromthepersonwhofeelsthem;ortheyarethemeansandappli-ancesofsomeoccupation,fortheuseofthepersonsengagedinit,whomaybepresumedtobejudgesofthethingsrequiredintheirownhabitualemployment.Butthereareotherthings,oftheworthofwhichthedemandofthemarketisbynomeansatest;thingsofwhichtheutilitydoesnotconsistinministeringtoinclinations,norinservingthedailyusesoflife,andthewantofwhichisleastfeltwheretheneedisgreatest.Thisispeculiarlytrueofthosethingswhicharechieflyusefulastendingtoraisethecharacterofhumanbeings.Theuncultivatedcannotbecompetentjudgesofcultivation.Thosewhomostneedtobemadewiserandbetter,usuallydesireitleast,and,iftheydesiredit,wouldbeincapableoffindingthewaytoitbytheirown Mill:PrinciplesofPoliticalEconomy359lights.Itwillcontinuallyhappen,onthevoluntarysystem,that,theendnotbeingdesired,themeanswillnotbeprovidedatall,orthat,thepersonsrequiringimprovementhavinganimper-fectoraltogethererroneousconceptionofwhattheywant,thesupplycalledforthbythedemandofthemarketwillbeanythingbutwhatisreallyrequired.Nowanywell-intentionedandtolera-blycivilizedgovernmentmaythink,withoutpresumption,thatitdoesoroughttopossessadegreeofcultivationabovetheaverageofthecommunitywhichitrules,andthatitshouldthereforebecapableofofferingbettereducationandbetterinstructiontothepeople,thanthegreaternumberofthemwouldspontaneouslydemand.Education,therefore,isoneofthosethingswhichitisadmissibleinprinciplethatagovernmentshouldprovideforthepeople.Thecaseisonetowhichthereasonsofthenon-interferenceprincipledonotnecessarilyoruniversallyextend.…Onethingmustbestrenuouslyinsistedon;thatthegovernmentmustclaimnomonopolyforitseducation,eitherinthelowerorinthehigherbranches;mustexertneitherauthoritynorinflu-encetoinducethepeopletoresorttoitsteachersinpreferencetoothers,andmustconfernopeculiaradvantagesonthosewhohavebeeninstructedbythem.Thoughthegovernmentteach-erswillprobablybesuperiortotheaverageofprivateinstructors,theywillnotembodyalltheknowledgeandsagacitytobefoundinallinstructorstakentogether,anditisdesirabletoleaveopenasmanyroadsaspossibletothedesiredend.Itisnotendurablethatagovernmentshould,eitherdejureordefacto,haveacompletecontrolovertheeducationofthepeople.Topossesssuchacontrol,andactuallyexertit,istobedespotic.Agovernmentwhichcanmouldtheopinionsandsentimentsofthepeoplefromtheiryouthupwards,candowiththemwhateveritpleases.Thoughagovernment,therefore,may,andinmanycasesoughtto,establishschoolsandcolleges,itmustneithercompelnorbribeanypersontocometothem;noroughtthepowerofindividu-alstosetuprivalestablishmentstodependinanydegreeuponitsauthorization.Itwouldbejus-tifiedinrequiringfromallthepeoplethattheyshallpossessinstructionincertainthings,butnotinprescribingtothemhoworfromwhomtheyshallobtainit.9.Inthematterofeducation,theinterventionofgovernmentisjustifiable,becausethecaseisnotoneinwhichtheinterestandjudgmentoftheconsumerareasufficientsecurityforthegood-nessofthecommodity.Letusnowconsideranotherclassofcases,wherethereisnopersoninthesituationofaconsumer,andwheretheinterestandjudgmenttobereliedonarethoseoftheagenthimself;asintheconductofanybusinessinwhichheisexclusivelyinterested,orinenter-ingintoanycontractorengagementbywhichhehimselfistobebound.Thegroundofthepracticalprincipleofnon-interferencemustherebe,thatmostpersonstakeajusterandmoreintelligentviewoftheirowninterest,andofthemeansofpromotingit,thancaneitherbeprescribedtothembyageneralenactmentofthelegislature,orpointedoutintheparticularcasebyapublicfunctionary.Themaximisunquestionablysoundasageneralrule;butthereisnodifficultyinperceivingsomeverylargeandconspicuousexceptionstoit.Thesemaybeclassedunderseveralheads.First:Theindividualwhoispresumedtobethebestjudgeofhisowninterestsmaybeinca-pableofjudgingoractingforhimself;maybealunatic,anidiot,aninfant:orthoughnotwhollyincapable,maybeofimmatureyearsandjudgment.Inthiscasethefoundationofthelaisser-faireprinciplebreaksdownentirely.Thepersonmostinterestedisnotthebestjudgeofthematter,noracompetentjudgeatall.Insanepersonsareeverywhereregardedasproperobjectsofthecareofthestate.Inthecaseofchildrenandyoungpersons,itiscommontosay,thatthoughtheycannotjudgeforthemselves,theyhavetheirparentsorotherrelativestojudgeforthem.Butthisremovesthequestionintoadifferentcategory;makingitnolongeraquestionwhetherthegovernmentshouldinterferewithindividualsinthedirectionoftheirownconductandinterests,butwhether 360TheClassicalSchoolitshouldleaveabsolutelyintheirpowertheconductandinterestsofsomebodyelse.Parentalpowerisassusceptibleofabuseasanyotherpower,andis,asamatteroffact,constantlyabused.Iflawsdonotsucceedinpreventingparentsfrombrutallyill-treating,andevenfrommurderingtheirchildren,farlessoughtittobepresumedthattheinterestsofchildrenwillneverbesacri-ficed,inmorecommonplaceandlessrevoltingways,totheselfishnessortheignoranceoftheirparents.Whateveritcanbeclearlyseenthatparentsoughttodoorforbearfortheinterestsofchildren,thelawiswarranted,ifitisable,incompellingtobedoneorforborne,andisgenerallyboundtodoso.Totakeanexamplefromthepeculiarprovinceofpoliticaleconomy;itisrightthatchildrenandyoungpersonsnotyetarrivedatmaturityshouldbeprotected,sofarastheeyeandhandofthestatecanreach,frombeingover-worked.Labouringfortoomanyhoursintheday,oronworkbeyondtheirstrength,shouldnotbepermittedtothem,forifpermitteditmayalwaysbecompelled.Freedomofcontract,inthecaseofchildren,isbutanotherwordforfree-domofcoercion.Educationalso,thebestwhichcircumstancesadmitoftheirreceiving,isnotathingwhichparentsorrelatives,fromindifference,jealousy,oravarice,shouldhaveitintheirpowertowithhold.Thereasonsforlegalinterventioninfavourofchildren,applynotlessstronglytothecaseofthoseunfortunateslavesandvictimsofthemostbrutalpartofmankind,theloweranimals.Itisbythegrossestmisunderstandingoftheprinciplesofliberty,thattheinflictionofexemplarypunish-mentonruffianismpractisedtowardsthesedefencelesscreatureshasbeentreatedasameddlingbygovernmentwiththingsbeyonditsprovince;aninterferencewithdomesticlife.Thedomesticlifeofdomestictyrantsisoneofthethingswhichitisthemostimperativeonthelawtointerferewith;anditistoberegrettedthatmetaphysicalscruplesrespectingthenatureandsourceoftheauthorityofgovernmentshouldinducemanywarmsupportersoflawsagainstcrueltytoanimalstoseekforajustificationofsuchlawsintheincidentalconsequencesoftheindulgenceoffero-cioushabitstotheinterestsofhumanbeings,ratherthanintheintrinsicmeritsofthecaseitself.Whatitwouldbethedutyofahumanbeing,possessedoftherequisitephysicalstrength,topre-ventbyforceifattemptedinhispresence,itcannotbelessincumbentonsocietygenerallytorepress.TheexistinglawsofEnglandonthesubjectarechieflydefectiveinthetrifling,oftenalmostnominal,maximum,towhichthepenaltyevenintheworstcasesislimited.Amongthosemembersofthecommunitywhosefreedomofcontractoughttobecontrolledbythelegislaturefortheirownprotection,onaccount(itissaid)oftheirdependentposition,itisfrequentlyproposedtoincludewomen:andintheexistingFactoryActstheirlabour,incommonwiththatofyoungpersons,hasbeenplacedunderpeculiarrestrictions.Buttheclassingtogether,forthisandotherpurposes,ofwomenandchildren,appearstomebothindefensibleinprincipleandmischievousinpractice.Childrenbelowacertainagecannotjudgeoractforthemselves;uptoaconsiderablygreateragetheyareinevitablymoreorlessdisqualifiedfordoingso;butwomenareascapableasmenofappreciatingandmanagingtheirownconcerns,andtheonlyhindrancetotheirdoingsoarisesfromtheinjusticeoftheirpresentsocialposition.Whenthelawmakeseverythingwhichthewifeacquires,thepropertyofthehusband,whilebycompellinghertolivewithhimitforceshertosubmittoalmostanyamountofmoralandevenphysicaltyrannywhichhemaychoosetoinflict,thereissomegroundforregardingeveryactdonebyherasdoneundercoercion:butitisthegreaterrorofreformersandphilanthropistsinourtimetonibbleattheconsequencesofunjustpower,insteadofredressingtheinjusticeitself.Ifwomenhadasabsoluteacontrolasmenhave,overtheirownpersonsandtheirownpatrimonyoracquisitions,therewouldbenopleaforlimitingtheirhoursoflabouringforthemselves,inorderthattheymighthavetimetolabourforthehusband,inwhatiscalled,bytheadvocatesofrestriction,hishome.Womenemployedinfactoriesaretheonlywomeninthelabouringrankoflifewhosepositionisnotthatofslavesanddrudges;preciselybecausetheycannoteasilybecompelledtoworkandearnwagesinfactoriesagainsttheirwill.Forimprovingtheconditionofwomen,itshould,on Mill:PrinciplesofPoliticalEconomy361thecontrary,beanobjecttogivethemthereadiestaccesstoindependentindustrialemployment,insteadofclosing,eitherentirelyorpartially,thatwhichisalreadyopentothem.10.Asecondexceptiontothedoctrinethatindividualsarethebestjudgesoftheirowninterest,iswhenanindividualattemptstodecideirrevocablynowwhatwillbebestforhisinterestatsomefutureanddistanttime.Thepresumptioninfavourofindividualjudgmentisonlylegitimate,wherethejudgmentisgroundedonactual,andespeciallyonpresent,personalexperience;notwhereitisformedantecedentlytoexperience,andnotsufferedtobereversedevenafterexperiencehascon-demnedit.Whenpersonshaveboundthemselvesbyacontract,notsimplytodosomeonething,buttocontinuedoingsomethingforeverorforaprolongedperiod,withoutanypowerofrevokingtheengagement,thepresumptionwhichtheirperseveranceinthatcourseofconductwouldother-wiseraiseinfavourofitsbeingadvantageoustothem,doesnotexist;andanysuchpresumptionwhichcanbegroundedontheirhavingvoluntarilyenteredintothecontract,perhapsatanearlyage,andwithoutanyrealknowledgeofwhattheyundertook,iscommonlynexttonull.Theprac-ticalmaximofleavingcontractsfreeisnotapplicablewithoutgreatlimitationsincaseofengage-mentsinperpetuity;andthelawshouldbeextremelyjealousofsuchengagements;shouldrefuseitssanctiontothem,whentheobligationstheyimposearesuchasthecontractingpartycannotbeacompetentjudgeof;ifiteverdoessanctionthem,itshouldtakeeverypossiblesecurityfortheirbeingcontractedwithforesightanddeliberation;andincompensationfornotpermittingthepar-tiesthemselvestorevoketheirengagement,shouldgrantthemareleasefromit,onasufficientcasebeingmadeoutbeforeanimpartialauthority.Theseconsiderationsareeminentlyapplicabletomarriage,themostimportantofallcasesofengagementforlife.11.ThethirdexceptionwhichIshallnotice,tothedoctrinethatgovernmentcannotmanagetheaffairsofindividualsaswellastheindividualsthemselves,hasreferencetothegreatclassofcasesinwhichtheindividualscanonlymanagetheconcernbydelegatedagency,andinwhichtheso-calledprivatemanagementis,inpointoffact,hardlybetterentitledtobecalledmanage-mentbythepersonsinterestedthanadministrationbyapublicofficer.Whatever,iflefttospon-taneousagency,canonlybedonebyjoint-stockassociations,willoftenbeaswell,andsometimesbetterdone,asfarastheactualworkisconcerned,bythestate.Governmentmanagementis,indeed,proverbiallyjobbing,careless,andineffective,butsolikewisehasgenerallybeenjoint-stockmanagement.Thedirectorsofajoint-stockcompany,itistrue,arealwaysshareholders;butalsothemembersofagovernmentareinvariablytaxpayers;andinthecaseofdirectors,nomorethaninthatofgovernments,istheirproportionalshareofthebenefitsofgoodmanage-mentequaltotheinteresttheymaypossiblyhaveinmis-management,evenwithoutreckoningtheinterestoftheircase.Itmaybeobjected,thattheshareholders,intheircollectivecharacter,exerciseacertaincontroloverthedirectors,andhavealmostalwaysfullpowertoremovethemfromoffice.Practically,however,thedifficultyofexercisingthispowerisfoundtobesogreat,thatitishardlyeverexercisedexceptincasesofsuchflagrantlyunskilful,or,atleast,unsuccess-fulmanagement,aswouldgenerallyproducetheejectionfromofficeofmanagersappointedbythegovernment.Againsttheveryineffectualsecurityaffordedbymeetingsofshareholders,andbytheirindividualinspectionandinquiries,maybeplacedthegreaterpublicityandmoreactivediscussionandcomment,tobeexpectedinfreecountrieswithregardtoaffairsinwhichthegeneralgovernmenttakespart.Thedefects,therefore,ofgovernmentmanagementdonotseemtobenecessarilymuchgreater,ifnecessarilygreateratall,thanthoseofmanagementbyjoint-stock.Thetruereasonsinfavourofleavingtovoluntaryassociationsallsuchthingsastheyarecom-petenttoperformwouldexistinequalstrengthifitwerecertainthattheworkitselfwouldbeaswellorbetterdonebypublicofficers.Thesereasonshavebeenalreadypointedout:themischiefofoverloadingthechieffunctionariesofgovernmentwithdemandsontheirattention,anddivertingthemfromdutieswhichtheyalonecandischarge,toobjectswhichcanbesufficiently 362TheClassicalSchoolwellattainedwithoutthem;thedangerofunnecessarilyswellingthedirectpowerandindirectinfluenceofgovernment,andmultiplyingoccasionsofcollisionbetweenitsagentsandprivatecitizens;andtheinexpediencyofconcentratinginadominantbureaucracyalltheskillandexpe-rienceinthemanagementoflargeinterests,andallthepoweroforganizedaction,existinginthecommunity;apracticewhichkeepsthecitizensinarelationtothegovernmentlikethatofchildrentotheirguardians,andisamaincauseoftheinferiorcapacityforpoliticallifewhichhashithertocharacterizedtheover-governedcountriesoftheContinent,whetherwithorwithouttheformsofrepresentativegovernment.Butalthough,forthesereasons,mostthingswhicharelikelytobeeventolerablydonebyvoluntaryassociationsshould,generallyspeaking,belefttothem;itdoesnotfollowthattheman-nerinwhichthoseassociationsperformtheirworkshouldbeentirelyuncontrolledbythegovernment.Therearemanycasesinwhichtheagency,ofwhatevernature,bywhichaserviceisperformed,iscertain,fromthenatureofthecase,tobevirtuallysingle;inwhichapracticalmonopoly,withallthepoweritconfersoftaxingthecommunity,cannotbepreventedfromexist-ing.Ihavealreadymorethanonceadvertedtothecaseofthegasandwatercompanies,amongwhich,thoughperfectfreedomisallowedtocompetition,nonereallytakesplace,andpracticallytheyarefoundtobeevenmoreirresponsible,andunapproachablebyindividualcomplaints,thanthegovernment.Therearetheexpenseswithouttheadvantagesofpluralityofagency;andthechargemadeforserviceswhichcannotbedispensedwith,is,insubstance,quiteasmuchcompulsorytaxationasifimposedbylaw;therearefewhouseholderswhomakeanydistinctionbetweentheir‘water-rate’andtheirotherlocaltaxes.Inthecaseoftheseparticularservices,thereasonspreponderateinfavouroftheirbeingperformed,likethepavingandcleansingofthestreets,notcertainlybythegeneralgovernmentofthestate,butbythemunicipalauthoritiesofthetown,andtheexpensedefrayed,asevennowitinfactis,byalocalrate.Butinthemanyanalogouscaseswhichitisbesttoresigntovoluntaryagency,thecommunityneedssomeothersecurityforthefitperformanceoftheservicethantheinterestofthemanagers;anditisthepartofgovernment,eithertosubjectthebusinesstoreasonableconditionsforthegeneraladvantage,ortoretainsuchpoweroveritthattheprofitsofthemonopolymayatleastbeobtainedforthepublic.Thisappliestothecaseofaroad,acanal,orarailway.Thesearealways,inagreatdegree,practicalmonopolies;andagovernmentwhichconcedessuchmonopolyunreservedlytoaprivatecompanydoesmuchthesamethingasifitallowedanindividualoranassociationtolevyanytaxtheychose,fortheirownbenefit,onallthemaltproducedinthecountry,oronallthecottonimportedintoit.Tomaketheconcessionforalimitedtimeisgenerallyjustifiable,ontheprinciplewhichjustifiespatentsforinventions:butthestateshouldeitherreservetoitselfareversionarypropertyinsuchpublicworks,orshouldretain,andfreelyexercise,therightoffixingamaximumoffaresandcharges,and,fromtimetotime,varyingthatmaximum.Itisper-hapsnecessarytoremark,thatthestatemaybetheproprietorofcanalsorrailwayswithoutitselfworkingthem;andthattheywillalmostalwaysbebetterworkedbymeansofacompanyrentingtherailwayorcanalforalimitedperiodfromthestate.12.ToafourthcaseofexceptionImustrequestparticularattention,itbeingonetowhich,asitappearstome,theattentionofpoliticaleconomistshasnotyetbeensufficientlydrawn.Therearemattersinwhichtheinterferenceoflawisrequired,nottooverrulethejudgmentofindivid-ualsrespectingtheirowninterest,buttogiveeffecttothatjudgment:theybeingunabletogiveeffecttoitexceptbyconcert,whichconcertagaincannotbeeffectualunlessitreceivesvalidityandsanctionfromthelaw.Forillustration,andwithoutprejudgingtheparticularpoint,Imayadverttothequestionofdiminishingthehoursoflabour.Letussuppose,whatisatleastsup-posable,whetheritbethefactornot–thatageneralreductionofthehoursoffactorylabour,sayfromtentonine,wouldbefortheadvantageoftheworkpeople:thattheywouldreceiveashighwages,ornearlyashigh,forninehours’labourastheyreceiveforten.Ifthiswouldbethe Mill:PrinciplesofPoliticalEconomy363result,andiftheoperativesgenerallyareconvincedthatitwould,thelimitation,somemaysay,willbeadoptedspontaneously.Ianswer,thatitwillnotbeadoptedunlessthebodyofoperativesbindthemselvestooneanothertoabidebyit.Aworkmanwhorefusedtoworkmorethanninehourswhiletherewereotherswhoworkedten,wouldeithernotbeemployedatall,orifemployed,mustsubmittoloseone-tenthofhiswages.Howeverconvinced,therefore,hemaybethatitistheinterestoftheclasstoworkshorttime,itiscontrarytohisowninteresttosettheexample,unlessheiswellassuredthatallormostotherswillfollowit.Butsupposeageneralagreementofthewholeclass:mightnotthisbeeffectualwithoutthesanctionoflaw?Notunlessenforced,byopinion,witharigourpracticallyequaltothatoflaw.Forhoweverbeneficialtheobservanceoftheregulationmightbetotheclasscollectively,theimmediateinterestofeveryindividualwouldlieinviolatingit:andthemorenumerousthosewhoadheredtotherule,themorewouldindividualsgainbydepartingfromit.Ifnearlyallrestrictedthemselvestoninehours,thosewhochosetoworkfortenwouldgainalltheadvantagesoftherestriction,togetherwiththeprofitofinfringingit;theywouldgettenhours’wagesforninehours’work,andanhour’swagesbesides.Igrantthatifalargemajorityadheredtotheninehours,therewouldbenoharmdone:thebenefitwouldbe,inthemain,securedtotheclass,whilethoseindividualswhopre-ferredtoworkharderandearnmore,wouldhaveanopportunityofdoingso.Thiscertainlywouldbethestateofthingstobewishedfor;andassumingthatareductionofhourswithoutanydiminu-tionofwagescouldtakeplacewithoutexpellingthecommodityfromsomeofitsmarkets–whichisineveryparticularinstanceaquestionoffact,notofprinciple–themannerinwhichitwouldbemostdesirablethatthiseffectshouldbebroughtabout,wouldbebyaquietchangeinthegen-eralcustomofthetrade;shorthoursbecoming,byspontaneouschoice,thegeneralpractice,butthosewhochosetodeviatefromithavingthefullestlibertytodoso.Probably,however,somanywouldpreferthetenhours’workontheimprovedterms,thatthelimitationcouldnotbemain-tainedasageneralpractice:whatsomedidfromchoice,otherswouldsoonbeobligedtodofromnecessity,andthosewhohadchosenlonghoursforthesakeofincreasedwages,wouldbeforcedintheendtoworklonghoursfornogreaterwagesthanbefore.Assumingthenthatitreallywouldbetheinterestofeachtoworkonlyninehoursifhecouldbeassuredthatallotherswoulddothesame,theremightbenomeansoftheirattainingthisobjectbutbyconvertingtheirsup-posedmutualagreementintoanengagementunderpenalty,byconsentingtohaveitenforcedbylaw.Iamnotexpressinganyopinioninfavourofsuchanenactment,whichhasneverinthiscountrybeendemanded,andwhichIcertainlyshouldnot,inpresentcircumstances,recom-mend:butitservestoexemplifythemannerinwhichclassesofpersonsmayneedtheassistanceoflaw,togiveeffecttotheirdeliberatecollectiveopinionoftheirowninterest,byaffordingtoeveryindividualaguaranteethathiscompetitorswillpursuethesamecourse,withoutwhichhecannotsafelyadoptithimself.…13.Fifthly;theargumentagainstgovernmentinterferencegroundedonthemaximthatindi-vidualsarethebestjudgesoftheirowninterest,cannotapplytotheverylargeclassofcases,inwhichthoseactsofindividualswithwhichthegovernmentclaimstointerfere,arenotdonebythoseindividualsfortheirowninterest,butfortheinterestofotherpeople.Thisincludes,amongotherthings,theimportantandmuchagitatedsubjectofpubliccharity.Thoughindividualsshould,ingeneral,belefttodoforthemselveswhateveritcanreasonablybeexpectedthattheyshouldbecapableofdoing,yetwhentheyareatanyratenottobelefttothemselves,buttobehelpedbyotherpeople,thequestionariseswhetheritisbetterthattheyshouldreceivethishelpexclusivelyfromindividuals,andthereforeuncertainlyandcasually,orbysystematicarrangements,inwhichsocietyactsthroughitsorgan,thestate. 364TheClassicalSchoolThisbringsustothesubjectofPoorLaws;asubjectwhichwouldbeofveryminorimportanceifthehabitsofallclassesofthepeopleweretemperateandprudent,andthediffusionofpropertysatisfactory;butofthegreatestmomentinastateofthingssomuchthereverseofthis,inbothpoints,asthatwhichtheBritishIslandspresent.Apartfromanymetaphysicalconsiderationsrespectingthefoundationofmoralsorofthesocialunion,itwillbeadmittedtoberightthathumanbeingsshouldhelponeanother;andthemoreso,inproportiontotheurgencyoftheneed:andnoneneedshelpsourgentlyasonewhoisstarving.Theclaimtohelp,therefore,createdbydestitution,isoneofthestrongestwhichcanexist;andthereisprimâfacietheamplestreasonformakingthereliefofsoextremeanexigencyascertaintothosewhorequireitasbyanyarrangementsofsocietyitcanbemade.Ontheotherhand,inallcasesofhelping,therearetwosetsofconsequencestobeconsidered;theconsequencesoftheassistanceitself,andtheconsequencesofrelyingontheassistance.Theformeraregenerallybeneficial,butthelatter,forthemostpart,injurious;somuchso,inmanycases,asgreatlytooutweighthevalueofthebenefit.Andthisisnevermorelikelytohappenthanintheverycaseswheretheneedofhelpisthemostintense.Therearefewthingsforwhichitismoremischievousthatpeopleshouldrelyonthehabitualaidofothers,thanforthemeansofsubsistence,andunhappilythereisnolessonwhichtheymoreeasilylearn.Theproblemtobesolvedisthereforeoneofpeculiarnicetyaswellasimportance;howtogivethegreatestamountofneedfulhelp,withthesmallestencouragementtounduerelianceonit.Energyandself-dependenceare,however,liabletobeimpairedbytheabsenceofhelp,aswellasbyitsexcess.Itisevenmorefataltoexertiontohavenohopeofsucceedingbyit,thantobeassuredofsucceedingwithoutit.Whentheconditionofanyoneissodisastrousthathisenergiesareparalyzedbydiscouragement,assistanceisatonic,notasedative:itbracesinsteadofdead-eningtheactivefaculties:alwaysprovidedthattheassistanceisnotsuchastodispensewithself-help,bysubstitutingitselffortheperson’sownlabour,skill,andprudence,butislimitedtoaffordinghimabetterhopeofattainingsuccessbythoselegitimatemeans.Thisaccordinglyisatesttowhichallplansofphilanthropyandbenevolenceshouldbebrought,whetherintendedforthebenefitofindividualsorofclasses,andwhetherconductedonthevoluntaryoronthegovernmentprinciple.Insofarasthesubjectadmitsofanygeneraldoctrineormaxim,itwouldappeartobethis–thatifassistanceisgiveninsuchamannerthattheconditionofthepersonhelpedisasdesirableasthatofthepersonwhosucceedsindoingthesamethingwithouthelp,theassistance,ifcapableofbeingpreviouslycalculatedon,ismischievous:butif,whileavailabletoeverybody,itleavestoeveryoneastrongmotivetodowithoutitifhecan,itisthenforthemostpartbeneficial.Thisprinciple,appliedtoasystemofpubliccharity,isthatofthePoorLawof1834.Iftheconditionofapersonreceivingreliefismadeaseligibleasthatofthelabourerwhosupportshimselfbyhisownexertions,thesystemstrikesattherootofallindividualindustryandself-government;and,iffullyactedupto,wouldrequireasitssupplementanorganizedsystemofcompulsionforgovern-ingandsettingtoworklikecattlethosewhohadbeenremovedfromtheinfluenceofthemotivesthatactonhumanbeings.Butif,consistentlywithguaranteeingallpersonsagainstabsolutewant,theconditionofthosewhoaresupportedbylegalcharitycanbekeptconsiderablylessdesirablethantheconditionofthosewhofindsupportforthemselves,nonebutbeneficialconse-quencescanarisefromalawwhichrendersitimpossibleforanyperson,exceptbyhisownchoice,todiefrominsufficiencyoffood.ThatinEnglandatleastthissuppositioncanberealized,isprovedbytheexperienceofalongperiodprecedingthecloseofthelastcentury,aswellasbythatofmanyhighlypauperizeddistrictsinmorerecenttimes,whichhavebeendispauperizedbyadoptingstrictrulesofpoor-lawadministration,tothegreatandpermanentbenefitofthewholelabouringclass.Thereisprobablynocountryinwhich,byvaryingthemeanssuitablytothechar-acterofthepeople,alegalprovisionforthedestitutemightnotbemadecompatiblewiththeobservanceoftheconditionsnecessarytoitsbeinginnocuous. Mill:PrinciplesofPoliticalEconomy365Subjecttotheseconditions,Iconceiveittobehighlydesirablethatthecertaintyofsubsistenceshouldbeheldoutbylawtothedestituteable-bodied,ratherthanthattheirreliefshoulddependonvoluntarycharity.Inthefirstplace,charityalmostalwaysdoestoomuchortoolittle:itlavishesitsbountyinoneplace,andleavespeopletostarveinanother.Second,sincethestatemustnecessarilyprovidesubsistenceforthecriminalpoorwhileundergoingpunishment,nottodothesameforthepoorwhohavenotoffendedistogiveapremiumoncrime.Andlastly,ifthepoorarelefttoindividualcharity,avastamountofmendicityisinevitable.Whatthestatemayandshouldabandontoprivatecharity,isthetaskofdistinguishingbetweenonecaseofrealnecessityandanother.Privatecharitycangivemoretothemoredeserving.Thestatemustactbygeneralrules.Itcannotundertaketodiscriminatebetweenthedeservingandtheundeservingindigent.Itowesnomorethansubsistencetothefirst,andcangivenolesstothelast.Whatissaidabouttheinjusticeofalawwhichhasnobettertreatmentforthemerelyunfortunatepoorthanfortheill-conducted,isfoundedonamisconceptionoftheprovinceoflawandpublicauthority.Thedispensersofpublicreliefhavenobusinesstobeinquisitors.Guardiansandover-seersarenotfittobetrustedtogiveorwithholdotherpeople’smoneyaccordingtotheirverdictonthemoralityofthepersonsolicitingit;anditwouldshowmuchignoranceofthewaysofmankindtosupposethatsuchpersons,eveninthealmostimpossiblecaseoftheirbeingquali-fied,willtakethetroubleofascertainingandsiftingthepastconductofapersonindistress,soastoformarationaljudgmentonit.Privatecharitycanmakethesedistinctions;andinbestowingitsownmoney,isentitledtodosoaccordingtoitsownjudgment.Itshouldunderstandthatthisisitspeculiarandappropriateprovince,andthatitiscommendableonthecontrary,asitexer-cisesthefunctionwithmoreorlessdiscernment.Buttheadministratorsofapublicfundoughtnottoberequiredtodomoreforanybody,thanthatminimumwhichisdueeventotheworst.Iftheyare,theindulgenceveryspeedilybecomestherule,andrefusalthemoreorlesscapriciousortyrannicalexception.…15.Thesameprinciplewhichpointsoutcolonization,andthereliefoftheindigent,ascasestowhichtheprincipalobjectiontogovernmentinterferencedoesnotapply,extendsalsotoavarietyofcases,inwhichimportantpublicservicesaretobeperformed,whileyetthereisnoindividualspeciallyinterestedinperformingthem,norwouldanyadequateremunerationnatu-rallyorspontaneouslyattendtheirperformance.Takeforinstanceavoyageofgeographicalorscientificexploration.Theinformationsoughtmaybeofgreatpublicvalue,yetnoindividualwouldderiveanybenefitfromitwhichwouldrepaytheexpenseoffittingouttheexpedition;andthereisnomodeofinterceptingthebenefitonitswaytothosewhoprofitbyit,inordertolevyatollfortheremunerationofitsauthors.Suchvoyagesare,ormightbe,undertakenbyprivatesubscription;butthisisarareandprecariousresource.Instancesaremorefrequentinwhichtheexpensehasbeenbornebypubliccompaniesorphilanthropicassociations;butingeneralsuchenterpriseshavebeenconductedattheexpenseofgovernment,whichisthusenabledtoentrustthemtothepersonsinitsjudgmentbestqualifiedforthetask.Again,itisaproperofficeofgov-ernmenttobuildandmaintainlighthouses,establishbuoys,etc.,forthesecurityofnavigation:forsinceitisimpossiblethattheshipsatseawhicharebenefitedbyalighthouseshouldbemadetopayatollontheoccasionofitsuse,noonewouldbuildlighthousesfrommotivesofpersonalinterest,unlessindemnifiedandrewardedfromacompulsorylevymadebythestate.Therearemanyscientificresearches,ofgreatvaluetoanationandtomankind,requiringassiduousdevotionoftimeandlabour,andnotunfrequentlygreatexpense,bypersonswhocanobtainahighpricefortheirservicesinotherways.Ifthegovernmenthadnopowertograntindemnityforexpense,andremunerationfortimeandlabourthusemployed,suchresearchescouldonlybeundertakenbytheveryfewpersonswho,withanindependentfortune,unitetechnicalknowledge,laborioushabits,andeithergreatpublicspirit,oranardentdesireofscientificcelebrity. 366TheClassicalSchoolConnectedwiththissubjectisthequestionofprovidingbymeansofendowmentsorsalaries,forthemaintenanceofwhathasbeencalledalearnedclass.Thecultivationofspeculativeknowledge,thoughoneofthemostusefulofallemployments,isaservicerenderedtoacommu-nitycollectively,notindividually,andoneconsequentlyforwhichitis,primâfacie,reasonablethatthecommunitycollectivelyshouldpay;sinceitgivesnoclaimonanyindividualforapecuniaryremuneration;andunlessaprovisionismadeforsuchservicesfromsomepublicfund,thereisnotonlynoencouragementtothem,butthereisasmuchdiscouragementasisimpliedintheimpossibilityofgainingalivingbysuchpursuits,andthenecessityconsequentlyimposedonmostofthosewhowouldbecapableofthemtoemploythegreatestpartoftheirtimeingainingasubsistence.Theevil,however,isgreaterinappearancethaninreality.Thegreatestthings,ithasbeensaid,havegenerallybeendonebythosewhohadtheleasttimeattheirdisposal;andtheoccupationofsomehourseverydayinaroutineemployment,hasoftenbeenfoundcompatiblewiththemostbrilliantachievementsinliteratureandphilosophy.Yet,thereareinvestigationsandexperimentswhichrequirenotonlyalongbutacontinuousdevotionoftimeandattention:therearealsooccupationswhichsoengrossandfatiguethementalfaculties,astobeinconsistentwithanyvigorousemploymentofthemuponothersubjects,eveninintervalsofleisure.Itishighlydesirable,therefore,thatthereshouldbeamodeofinsuringtothepublictheservicesofscientificdiscoverers,andperhapsofsomeotherclassesofsavants,byaffordingthemthemeansofsup-portconsistentlywithdevotingasufficientportionoftimetotheirpeculiarpursuits.Thefellow-shipsoftheUniversitiesareaninstitutionexcellentlyadaptedforsuchapurpose;butarehardlyeverappliedtoit,beingbestowed,atthebest,asarewardforpastproficiency,incommittingtomemorywhathasbeendonebyothers,andnotasthesalaryoffuturelaboursintheadvance-mentofknowledge.Insomecountries,Academiesofscience,antiquities,history,etc.,havebeenformedwithemolumentsannexed.Themosteffectualplan,andatthesametimeleastliabletoabuse,seemstobethatofconferringProfessorships,withdutiesofinstructionattachedtothem.Theoccupationofteachingabranchofknowledge,atleastinitshigherdepartments,isahelpratherthananimpedimenttothesystematiccultivationofthesubjectitself.Thedutiesofapro-fessorshipalmostalwaysleavemuchtimefororiginalresearches;andthegreatestadvanceswhichhavebeenmadeinthevarioussciences,bothmoralandphysical,haveoriginatedwiththosewhowerepublicteachersofthem;fromPlatoandAristotletothegreatnamesoftheScotch,French,andGermanUniversities.IdonotmentiontheEnglish,becauseuntilverylatelytheirprofessor-shipshavebeen,asiswellknown,littlemorethannominal.Inthecase,too,ofalecturerinagreatinstitutionofeducation,thepublicatlargehasthemeansofjudging,ifnotthequalityoftheteaching,atleastthetalentsandindustryoftheteacher;anditismoredifficulttomisemploythepowerofappointmenttosuchanoffice,thantojobinpensionsandsalariestopersonsnotsodirectlybeforethepubliceye.Itmaybesaidgenerally,thatanythingwhichitisdesirableshouldbedoneforthegeneralinterestsofmankindoroffuturegenerations,orforthepresentinterestsofthosemembersofthecommunitywhorequireexternalaid,butwhichisnotofanaturetoremunerateindividualsorassociationsforundertakingit,isinitselfasuitablethingtobeundertakenbygovernment:though,beforemakingtheworktheirown,governmentsoughtalwaystoconsideriftherebeanyrationalprobabilityofitsbeingdoneonwhatiscalledthevoluntaryprinciple,andifso,whetheritislikelytobedoneinabetterormoreeffectualmannerbygovernmentagency,thanbythezealandliberalityofindividuals.16.Theprecedingheadscomprise,tothebestofmyjudgment,thewholeoftheexceptionstothepracticalmaxim,thatthebusinessofsocietycanbebestperformedbyprivateandvolun-taryagency.Itis,however,necessarytoadd,thattheinterventionofgovernmentcannotalwayspracticallystopshortatthelimitwhichdefinesthecasesintrinsicallysuitableforit.Inthepartic-ularcircumstancesofagivenageornation,thereisscarcelyanythingreallyimportanttothe Mill:PrinciplesofPoliticalEconomy367generalinterest,whichitmaynotbedesirable,orevennecessary,thatthegovernmentshouldtakeuponitself,notbecauseprivateindividualscannoteffectuallyperformit,butbecausetheywillnot.Atsometimesandplacestherewillbenoroads,docks,harbours,canals,worksofirri-gation,hospitals,schools,colleges,printing-presses,unlessthegovernmentestablishesthem;thepublicbeingeithertoopoortocommandthenecessaryresources,ortoolittleadvancedinintel-ligencetoappreciatetheends,ornotsufficientlypractisedinjointactiontobecapableofthemeans.Thisistrue,moreorless,ofallcountriesinuredtodespotism,andparticularlyofthoseinwhichthereisaverywidedistanceincivilizationbetweenthepeopleandthegovernment:asinthosewhichhavebeenconqueredandareretainedinsubjectionbyamoreenergeticandmorecultivatedpeople.Inmanypartsoftheworld,thepeoplecandonothingforthemselveswhichrequireslargemeansandcombinedaction:allsuchthingsareleftundone,unlessdonebythestate.Inthesecases,themodeinwhichthegovernmentcanmostsurelydemonstratethesincer-itywithwhichitintendsthegreatestgoodofitssubjects,isbydoingthethingswhicharemadeincumbentonitbythehelplessnessofthepublic,insuchamannerasshalltendnottoincreaseandperpetuate,buttocorrectthathelplessness.Agoodgovernmentwillgiveallitsaidinsuchashapeastoencourageandnurtureanyrudimentsitmayfindofaspiritofindividualexertion.Itwillbeassiduousinremovingobstaclesanddiscouragementstovoluntaryenterprise,andingiv-ingwhateverfacilitiesandwhateverdirectionandguidancemaybenecessary:itspecuniarymeanswillbeapplied,whenpracticable,inaidofprivateeffortsratherthaninsupercessionofthem,anditwillcallintoplayitsmachineryofrewardsandhonourstoelicitsuchefforts.Governmentaid,whengivenmerelyindefaultofprivateenterprise,shouldbesogivenastobeasfaraspossibleacourseofeducationforthepeopleintheartofaccomplishinggreatobjectsbyindividualenergyandvoluntaryco-operation.Ihavenotthoughtitnecessaryheretoinsistonthatpartofthefunctionsofgovernmentwhichalladmittobeindispensable,thefunctionofprohibitingandpunishingsuchconductonthepartofindividualsintheexerciseoftheirfreedomasisclearlyinjurioustootherpersons,whetherthecasebeoneofforce,fraud,ornegligenceEveninthebeststatewhichsocietyhasyetreached,itislamentabletothinkhowgreataproportionofalltheeffortsandtalentsintheworldareemployedinmerelyneutralizingoneanother.Itistheproperendofgovernmenttoreducethiswretchedwastetothesmallestpossibleamount,bytakingsuchmeasuresasshallcausetheener-giesnowspentbymankindininjuringoneanother,orinprotectingthemselvesagainstinjury,tobeturnedtothelegitimateemploymentofthehumanfaculties,thatofcompellingthepowersofnaturetobemoreandmoresubservienttophysicalandmoralgood. Part3TheMarxianChallengeIntroductionBythesecondquarterofthenineteenthcenturythemiddleclassofbusinessmenandotherswaswellalongthewaytocementingitstransformationofsociety,polity,andeconomy,inEnglandandelse-where,fromarural,agriculturaltoanurban,industrialsystem.Conceptionsoflife,morality,politics,andindeed,everyaspectofindividualandorganizedlivinghadundergoneandwerestillundergoingmoreorlessradicaltransformation.Whenthebusinessclassofferedjustifi-cationforitsprogram,theytendedtospeakandwriteinuniversalistterms:whatwasgoodforthelandedupperclasswasnotonlyalsogoodforthemiddleclassbutforallpeople,atleastallmen,inasmuchaswomenwereexcludedfromconsiderationbymostspokesmen.Intime,however,themiddleclasswrestedpowerfromthehithertorulingclass,com-ingtosharecontrolofgovernment,KarlMarx,bycourtesyofTheWarrenJ.SamuelsPortraitCollectionandofgovernmentpolicy,withtheatDukeUniversity.landedinterests.Theirrevolutionwassuccessful.Spokesmenfortheworkingclass,however,feltthatnotmuchhadchangedforthemasses.Thesocialorderwasstillinthehandsofasmallprivilegedminority,onlynowitcomprisedtheownersofbothlandedandnonlandedproperty.Whereasspecialprivilegehithertohadbeenbasedonbirth,nowitwasbasedonbothbirthandwealth.Anditseemedthatthehithertorevolutionarymiddleclass,nowensconcedinpower,waspreparedtofighttoconservethestatusquoagainstanychallengefrombelow,prettymuchasthelandedinterestshadsoughttodefendtheirorderfromthechallengebroughtbythemiddleclass.Onedifferencewasthattheoldsystemofrulershipbyennobledlordswasrelativelyclosed,whereasthenewsystemofrulershipbywealthwasrelativelyopen,sothatitsdefenderscouldappealtonotionsofself-helpandopportunity.Still,spokesmenforthenonpropertiedworkingclassunderstoodthatpowerwasimportant,thatgovernmentpowerwasespeciallyimportant,andsoughtaccesstoandparticipationingovernmentby representativesoftheworkingclasssothatgovernmentwouldbecomeresponsivetoitsinterestsasdefinedbythem.Forallpracticalpurposes,though“socialism”latercametomeanpublicownershipofthemajormeansofproduction,centralplanningofonetypeoranother,and,interalia,thewelfarestate,onecanbestcomprehendthehistoricmeaningofsocialismifoneseesitasamovementseekingtobringaboutbroadenedparticipationbythemassesinbotheconomyandgovernment,withbothgovernmentandeconomyconductedtowardbroaderobjectivesthanthoseofthelandedandnonlandedpropertiedclasses.Thesocialistshadseveralinterpretiveand/orstrategicproblems.Theseincluded(1)whethertoacceptindustrialismasadesirableandperhapsirreversibleprocessortorejectandreverseit;(2)whethertoacceptorrejectliberalism–thephilosophyandinstitutionsofpersonalfreedom–asavalueandasalimitationonpoliticalaction;and(3)whethertoacceptorrejectthenewlydevelopinglabormovement,achoicewhichturnedonone’sattitudetowardrevolutionaryversus“business”unionism,theformerseekingradicalandperhapsviolenttransformationofsociety,thelatterseekingtoimprovewagesandhoursandconditionsofworkforworkerswithintheexistingcapitalisteconomy.Accordingly,andnotsurprisingly,thesocialistmovementtookmanydifferentformswithavarietyofdesiredend-states–thoughallofthemcontemplatedagreatplaceinthesunfortheworkingclass.Inotherwords,theleadersoftheworkingclasstriedtodoforitwhattheleadersofthemiddleclasshadsucceededindoingforit,differingastomeans.Therewere,ofcourse,otherreactionstotheemergenceoftheneweconomicorder,thoughnoexcerptsfromthosewritingsareincludedhere.TheEnglishandGermanRomanticsrejectedthenewsystemonthegroundsthatitviolatedthevaluesoftheoldsystem.TheAnarchistsrejectsorganizedsociety,especiallytheconcentrationofeconomicandpoliticalpowerinthehandsofthewealthy,andsoughtthedestructionofreceivedinstitutions,generallyseekinganeworderwithpowerdiffusedatthelocallevel.Thegeneralsocialistmovementembracedanumberofeconomictheories,thespecificcon-tentofeachofwhichvariedamongauthors–andwereoftensharedbyanarchistwriters.Theseeconomictheoriesincluded:alabortheoryofvalue;anexploitationtheoryofproperty,state,class,andincomeandwealthdistributions;anunderconsumptiontheoryofthebusinesscycle;theviewthatcompetitionwasdestructiveofitselfandcorrosiveofhumanbeings;andsoon.Asfordistribution,somecriticsofthestatusquoarguedthatundercapitalismincomeisdistributedinsuchawayandwithsucharesultastobeinconsistentwithethicsandjustice,thatis,thatinsti-tutionallyproducedinequality–whichthesecriticsthoughtprevalent–isunjust,andthatpovertyisinherentlywrongandmorallyoffensiveinthefaceofgreatconcentratedwealth.Theseargumentsturnonatleastthreepoints:(1)whetherthewrongpeoplegetthelargerincomes;(2)whethertheshapeofthedistributioniswrong;and/or(3)whethertheprocessofdistributionitselfiswrong.TheprincipaltheoristofsocialismwasKarlMarx.MarxwasborninGermanyandeducatedattheUniversitiesofBonn,Berlin,andJena,receivinghisdoctorateinphilosophyfromJenaatage23.HisHegelianphilosophicaloutlook,andhisassociationwiththe“YoungHegelians”andtheirstridentsocialcritiques,keptMarxfrompursuinganacademiccareer.Heinsteadturnedhisenergiestojournalism,butthegovernmentoutlawedthenewspaperMarxwasedit-ing,andhewasforcedtoleaveGermanyandspendtherestofhislifeinexile.MarxeventuallysettledinLondonin1848,andhelivedthereuntilhisdeathin1883.IfitwasHegelwhoservedtodefineMarx’sintellectualperspective,itwashisfriendshipwithFriedrichEngelsthatsituateditspracticalapplication.EngelsencouragedMarxtoexplorepolit-icaleconomy,anditwasEngels’financialsupportthatsupplementedMarx’ssmalljournalismincomeandenabledhimtodevotehistimetoresearch,writing,andorganizingthosesympa-thetictocommunistideas.TheircollaborationontheCommunistManifesto(1848)givesaclearandconcisestatementofanumberofthecentralthemesthatwouldappearinMarx’slaterwritings. ItwasMarx’snameandideas–variouslyinterpreted–thatbecameamovementofworld-historicproportions.GivenMarx’semphasisonhistoryasadialecticalprocess,itiseitherironicorillustrativeofhisoverallpositionthattheSovietUnion,whichadoptedanideologyitidenti-fiedwithMarx,turnedouttobedestructiveofthevalueswhichMarxsupported;andthatMarx’sclaimthatsocialismand,eventually,communismcouldonlyariseinanadvancedcapitalistnationwascontradictedby(1)thefailureofsocialistrevolutionsinthosecountriestomaterialize,(2)theadoptionofMarxisminthelastessentiallyfeudalnationinEurope,and(3)theadoptionofMarxismasapparentlytheideologyofchoice,perhapstheonlyavailablerevolutionaryideol-ogy,inThirdWorldcountriesseekingtooverthroweithercolonialismand/orfeudal-likerulingclasses.Marx’sbasicdoctrinesareasfollows.Marxbelievedindialectical(orhistorical)materialism.Thedialecticalelementsignifiesthatdevelopmentinvolvesaninteraction/conflictbetweenandeventualsynthesisofopposites,withanysynthesiseventuallyengenderingitsownantithesis,leadingtoanewconflict,anewsynthesis,anewantithesis,andsoon.Thematerialistelementsignifiesthatthe,oramajor,drivingforceisthemodeofproduction,bywhichMarxmeant,inpresent-dayterms,technologyplusthesocialrelationsofproductionengenderedbytechnol-ogy.Theevolvingmodeofproduction,inhisview,wasthefoundationofsocietyandofhistory.Uponitwaserectedasuperstructureofcorrelativebeliefsystemsandinstitutions.Atanypointintimetherewasadominantmodeofproduction(foundation1,orF1)towhichcorrespondeditsderivativesuperstructure(superstructure1,orS1).Onefacetofthissituationisthehegemonyofaparticularrulingclass(class1,RC1).Butintime,saysMarx,themodeofproductionchangesandbecomesF2.Theoldsuperstructure,S1,withitsrulingclass,RC1,remaininpoweronlytocomeintoconflictwiththeburgeoningnewsuperstructurecorrespondingtothenewmodeofproduction,S2,withitspretendertorulingclassstatus,RC2.Whatismanifestlyvisibleinallthis,arguesMarx,istheconflictbetweenoldandnewrulingclasses,betweenRC1andRC2.History,hewrites,isthehistoryofclassstruggle.Butthisconflictisonlythevisiblemanifestationoftheunderlyingconflict,whichisbetweenF1andS2,ontheonehand,andF2andS2ontheother.Thisprocesscontinues,accordingtoMarx,withtheriseofF3andS3,andtheconflictbetweenRC2andRC3.ItisMarx’sview,however,thatcapitalismanditsimmediatesuccessorinhissystemarethelastsuchconflictualstages;communism,inhissystem,hasnoclasses,hencenoclassstruggle,and,sincethestateisdefinedasaninstrumentofclassdomina-tion,intheabsenceofbothclassandclassdomination,thereisnostate,onlyadministrativeapparatus.Inonegroupofwritings,Marxexplicatedthissituationintermsofatheoryofalienation,inwhichindividualsundercapitalism(andearlierformsofsociety)arealienatedfromeachother,fromtheproductstheyuse,andfromtheir“authentic”selves.SomeMarxistselevatethistheoryabovethetheoryfoundinanothergroupofwritings,writingsmuchbetterknown,suchasCapital,inwhichanexploitationparadigm–actuallyavastcorpusofeconomictheory–isadvanced.OtherMarxistspreferthelattertotheformer;andstillothersfeelthatthetwoarecomplementary,oratleastnotmutuallyexclusive.Marx’seconomictheory,hisexploitationparadigm,isdevelopedalongthefollowinglines.Thelabortheoryofvalue,asasource(notmeremeasure)ofvalue,isadoptedandstatedinaverysophisticatedform:commoditiesaresaidtoexchangeinproportiontotheaveragesociallynec-essaryabstractlaborpowerembodiedinthem.Criticaltohisfurthertheorizingarehisbeliefsthat(1)laborgetspaidthevalueofitslaborpower,thatis,thevalue,intermsoflabor,ofthecommoditiesnecessarytomaintainandreproducetheworkerandhisfamilyand(2)laborgetspaid,thereby,lessthanthevalueofwhatlaborproduces.Thecruxofthematter,therefore,isthatlaboriscoerced,byfearofunemploymentandstarvation,toworkanumberofhourseachdaylongerthanthenumberofhoursnecessarytorepaytheemployerforthevalueoflabor poweradvanced(paid)tolabor.Thevaluecreatedbylaborinthoseextrahoursandappropri-atedbytheemployer,Marxcallssurplusvalue.Surplusvalueisthesourceofallnonlaborincome(allthis,therefore,isthecoreofMarx’stheoryofincomedistribution).Itscreationandextrac-tionistheheartofcapitalismasanexploitativesystem.Itisaclassphenomenon,reflectiveofthepowerofthecapitalistclass,thatis,ofcapitalasasocialandnotmerelytechnicaleconomiccategory.Marxgoesfurtherthanthisinanattempttoputhisfingeronthe“lawsofmotion”ofcapital-ism.Herehefeelshehasidentifiedthefallingrateofprofitandtheinherentcontradictionsofcapitalism.Beforeexaminingthefallingrateofprofit,severalkeyrelationshipsidentifiedbyMarxmustbeseen.Marxidentifiesconstantcapital(C)asplantandequipment,whichcanonlytransfertotheirfinalproductsthevalueembodiedinthem;“constant”capitalinthesensethatitsvalueisconstant,andinvolvesnoaccretion.Labor,however,isdesignatedvariablecapital(V),capitalintheClassicists’generalsenseofadvancestoworkers(asabove),andvariableinthesensethatbecauseofthecoercedlengthoftheworkingday,laborcancreateavaluegreaterthanitsownvalue,somethingwhichconstantcapitalcannotdo.Thisaccretionissurplusvalue,orS.Now,sincesurplusvaluearisesonlyfromvariablecapital,SisafunctionofV,andonlyV.Thevalueofanycommodity(itsembodiedlabor,asabove)hasthesethreeparts:CplusVplusS.Marx’slawofthefallingrateofprofitderivesfromthequestforsuper-profits,whichleadsbusinessestoinnovate,thussubstitutingcapitalforlabor–or,inMarx’slanguage,constantcapi-talforvariablecapital.TheratioofCtoV(theorganiccompositionofcapital)rises.Butsurplusvaluederivesonlyfromvariablecapital;andasVfallsinrelationtoC,giventherateofexploita-tion(theratioofStoV),therateofprofitwillfall.Businessescantakeapparentcountermea-surestothefallingrateofprofit(e.g.increasingtherateofexploitationbylengtheningtheworkingday,depressingwagesbelowthevalueoflaborpower;thechargingofmonopolypricestoconsumers,thatis,pricesabovethelaborvalueofgoods;andexportingcapitaltocoloniestopracticetheforegoingagainstboththeindigenousandthecolonizingpopulations).Buttheseonlyexacerbatetheconflictswithintheeconomyanddonotseriouslyimpedethecontinueddeclineoftherateofprofitandtheturmoilitengendersinbusinesscircles.Thedynamicsofcapitalismalsoencompasses,forMarx,theseinherentcontradictionsofcap-italism,contradictionswhichhefeltengendereditsdoom.First,theconcentrationofcapitalandthecentralizationofproductionineverfewerhands,generatedbythequestforsuper-profitsifnotalsoforpower,meantforMarxthatcapitalismwassocializingitselffromwithin;therevolu-tionforwhichMarxcalledwouldonlytakeover–nationalizeandmakeresponsibletoall–analreadysocialistorganizationofproduction.Second,theincreasingmiseryoflaborthroughfallingwages,generatedbythesubstitutionofcapitalforlaborandthecreationofareservearmyoftheunemployed,wouldexacerbatetherelationsbetweenemployeesandemployersandtherebybetweenthenonpropertied,whohadonlytheirlabortosell,andthepropertied,whowereinapositiontoputlabortowork,butonlyontermspropitioustothemselves.Inthefaceofincreasingreallivingstandardsbytheendofthenineteenthcentury,Marxistsrevisedthistheoryofanabsolutefallinwagesintoarelativefallinwages,whereintheincreaseinrealwagesbylaborwasminorrelativetotheaccumulationofwealthbythepropertiedcapitalistandmoniedclasses.Third,Marxidentifiedeconomicinstabilityinthreeways:Hearguedthatbusinesscycles,orcrises,wereinherentincapitalism.Heidentifiedanarrayoftheoriesexplaininghowcapitalismwasunstable:forexample,anarchyofproduction,disproportionalitybetweenthegrowthofproductivecapacityandthebuyingpoweroftheconsumingmasses,andsoon.Hearguedthatbusinesscyclesandcrisesnotonlyexistedbutwerebecomingincreasinglysevere. Forallthesereasons,Marxbelievedthatcapitalism,itselfanadvance–intermsofitsabilitytogenerateoutput–overpreviouseconomicsystems,wasonlyatransitorystageinhumanhis-toryandthereforedoomedtoextinction.Thiswouldhappen,ontheonehand,ofitsownaccord,throughtheworkingofthelawsofmotionofcapitalism;and,ontheother,throughtimelyrevolutionaryactivityonthepartoftheenemiesofcapitalism.Theimmediateforegoingraisesaseriousproblem:Howmuchcapitalism’sextinctionisduetothelawsofmotionofhistory,andhowmuchtorevolutionaryactivity.ThisisthequestionofdeterminismwhicharisesinconnectionwithMarx’sentiresystem.Accordingly,twodifferentversionsofMarx’sfundamentalpositionhaveemerged,eachtraceabletohis,ortohisandFriedrichEngel’s,writings.Thedeterministicinterpretationholdsthatthedialecticalmaterialistprocessgeneratingtransformationofthemodeofproduction,superstructure,andclassstruggle,willinevitablyresultintheclasslesscommunistsociety.Thisinterpretationmakesevery-thingfollow,albeitwithlags,fromthechangingmodeofproduction.Theconditionisticinter-pretationholdsthatwhileMarxstressedthechangingmodeofproduction,suchstresswasbecauseofitsneglectbyothers;andthateventoarguethatthemodeofproductionistheultimatedeterminingfactorwouldnotmeanitwastheonlydeterminingfactor,thatis,thereisalsoaplaceforsuperstructureforcesandforhumanconsciousness(howevermuchultimatelyderivativeofmaterialconditions)andhumanaction.ThisbringstheaccountofMarx’sideastohistheoryofthestate.V.I.Lenin’s(1870–1924)laterexpositionseemstocrystallizewhatiseitherexplicitand/orimplicitinMarx’sownworks.Thetheoryhasfoursteps,orratherstages,toit.1Theclassdominationtheoryofthestateinwhichsocietyisdividedintoclassesandthestate,bydefinition,isaninstrumentofruling-classdomination,oppression,andexploitation.Incapitalism,thestateis,asitwere,theexecutivecommitteeformanagingthecommonaffairsofthebourgeoisie.Itservestoadminister,legitimize,andprotectruling-classhege-monyandtofacilitatetheaccumulationofcapital,throughexploitation,bythebourgeoisie.Eveninformallydemocraticsystems,thestateisaplutocraticregime,oneinwhichthewealthyruleindirectlybutallthemoresafelyandeffectivelythroughtheallianceofgovern-mentandbusiness,corruption,andthefinancingofpoliticalcareersandelectioncampaigns.2Whentheproductiveforceshavesufficientlymatured,thatis,whenthecontradictionsinher-entincapitalismhavecometofruitionandrevolutionaryvolitionhasmatured,revolutionoverthrowsthebourgeoisstate.Revolution,notreform,istheorderoftheday.Thepowerofthestateiscaptured,theold-state’smachineryeitherdestroyedortakenover.3Therevolutionreversestherespectivepowerpositionsofthebourgeoisieandtheproletariat:thedictatorshipofthebourgeoisieisreplacedwiththedictatorshipoftheproletariat.Thestateremainsaninstrumentofclassdomination,butnowthelociofdominatedanddomi-natorhavebeenturnedupsidedown.Thestaterepressesthebourgeoisie,preventingtheircounter-revolution;takesoverandeitherreplacesorrevisestheoldadministrativemachin-ery;andworkstoestablish“socialism,”thecentralizationoftheinstrumentsofproductioninthehandsofthestateandthepromotionoftheexpansionofproductiveforcesasrapidlyaspossible.4Gradually,astheforegoingisachieved,aclasslesssocietyemergesandthestateasaninstru-mentofdominationwithersaway,leavingonlyadministrativemachineryperformingonlyeconomic,andnotrepressive,functions.(Thestatewillcontinueasaninstitutionofsocialcontrol,forexample,resolvingconflicts,buttheseconflictswillbeinterpersonalandnotamatterofeconomicclass.) Lookedatsomewhatdifferently,theMarxiantheoryofthestateisonepartofwhatamountstohispoliticaltheory,meaningby“political”havingtodowithpower.First,thestateisindeedaninstrumentofarulingclass;undercapitalism,therulingclassisthepropertied,especiallythecapitalistclass.Second,theeconomyisasystemofnominallyprivatepowerundercapitalism.Capitalismisasystemofthewilltopowerviamoney,economicorganization,andeconomicrulership.Theproductionprocessisaprimefieldofpower,hencepolitical,relations.Thestateisonlyapartofthetotalsystemofpower.IntheexcerptsfromMarx’swritingreprintedhere,weseeanumberofthecentralthemesofhisthinking,includinghismaterialistconceptionofhistory,nicelyelaboratedinhisPrefacetotheCritiqueofPoliticalEconomy,aswellasthelabortheoryofvalue,hisassessmentofthecapitalistprocessandthelaborprocess,histheoryofexploitationandthecreationofsurplusvalue,andhisanalysisoftheaccumulationprocessassetforthinhismagnumopus,DasKapital.ReferencesandfurtherreadingArato,Andrew(1987)“Marxism,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,387–90.Berlin,Isaiah(1996)KarlMarx:HisLifeandEnvironment,4thedn,NewYork:OxfordUniversityPress.Böhm-Bawerk,Eugenvon(1949)KarlMarxandtheCloseofHisSystem,NewYork:AugustusM.Kelley.Bottomore,Tom,ed.(1983)ADictionaryofMarxistThought,Cambridge:HarvardUniversityPress.Brewer,Anthony(1984)AGuidetoMarx’sCapital,NewYork:CambridgeUniversityPress.Elster,Jon(1985)MakingSenseofMarx,Cambridge:CambridgeUniversityPress.Glyn,Andrew(1987)“MarxistEconomics,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,390–5.Hayek,F.A.von(1944)TheRoadtoSerfdom,Chicago:UniversityofChicagoPress.Horowitz,D.,ed.(1968)MarxandModernEconomists,London:MacGibbon&Kee.Howard,MichaelC.andKing,John(1975)ThePoliticalEconomyofKarlMarx,NewYork:Longman,Inc.Lange,O.andTaylor,F.M.(1938)OntheEconomicTheoryofSocialism,2vols.,Minneapolis:UniversityofMinnesotaPress.Mandel,Ernest(1968)MarxistEconomicTheory,2vols,translatedbyB.Pearce,London:MerlinPress.——(1987)“Marx,KarlHeinrich,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,367–83.——andFreeman,A.,eds(1984)Ricardo,Marx,Sraffa,London:Verso.Marx,Karl(1858)Grundrisse(FoundationsoftheCritiqueofPoliticalEconomy),London:Penguin,1973.——(1963)TheoriesofSurplusValue,Moscow:ProgressPublishers.Marx,KarlandEngels,Friedrich(1848)ManifestooftheCommunistParty,Chicago:C.H.Kerr,1947.Meek,RonaldL.(1973)StudiesintheLabourTheoryofValue,2ndedn,London:Lawrence&Wishart.Morishima,M.(1973)Marx’sEconomics,Cambridge:CambridgeUniversityPress.Popper,Karl(1945)TheOpenSocietyandItsEnemies,2vols,London:Routledge.Robinson,Joan(1966)AnEssayonMarxianEconomics,2ndedn,London:Macmillan.Roemer,J.E.(1987)“MarxianValueAnalysis,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,383–7.——(1988)FreetoLose:AnIntroductiontoMarxistEconomicPhilosophy,Cambridge:HarvardUniversityPress.Sraffa,Piero(1960)ProductionofCommoditiesbyMeansofCommodities,Cambridge:CambridgeUniversityPress.Steedman,Ian(1977)MarxAfterSraffa,London:NewLeftBooks.Tucker,RobertC.,ed.(1978)TheMarx–EngelsReader,2ndedn,NewYork:W.W.Norton. AContributiontotheCritiqueofPoliticalEconomy(1859)PrefaceIexaminethesystemofbourgeoiseconomyinthefollowingorder:capital,landedproperty,wage-labour;theState,foreigntrade,worldmarket.Theeconomicconditionsofexistenceofthethreegreatclassesintowhichmodernbourgeoissocietyisdividedareanalysedunderthefirstthreeheadings;theinterconnectionoftheotherthreeheadingsisself-evident.Thefirstpartofthefirstbook,dealingwithCapital,comprisesthefollowingchapters:1.Thecommodity;2.Moneyorsimplecirculation;3.Capitalingeneral.Thepresentpartconsistsofthefirsttwochapters.Theentirematerialliesbeforemeintheformofmonographs,whichwerewrittennotforpublicationbutforself-clarificationatwidelyseparatedperiods;theirremouldingintoanintegratedwholeaccordingtotheplanIhaveindicatedwilldependuponcircumstances.Ageneralintroduction,whichIhaddrafted,isomitted,sinceonfurtherconsiderationitseemstomeconfusingtoanticipateresultswhichstillhavetobesubstantiated,andthereaderwhoreallywishestofollowmewillhavetodecidetoadvancefromtheparticulartothegeneral.Afewbriefremarksregardingthecourseofmystudyofpoliticaleconomyareappropriatehere.AlthoughIstudiedjurisprudence,Ipursueditasasubjectsubordinatedtophilosophyandhis-tory.Intheyear1842–1843,aseditoroftheRheinischeZeitung,Ifirstfoundmyselfintheembar-rassingpositionofhavingtodiscusswhatisknownasmaterialinterests.ThedeliberationsoftheRhenishLandtagonforesttheftsandthedivisionoflandedproperty;theofficialspolemicstartedbyHerrvonSchaper,thenOberprasidentoftheRhineProvince,againsttheRheinischeZeitungabouttheconditionoftheMosellepeasantry,andfinallythedebatesonfreetradeandprotectivetariffscausedmeinthefirstinstancetoturnmyattentiontoeconomicquestions.Ontheotherhand,atthattimewhengoodintentions‘topushforward’oftentooktheplaceoffac-tualknowledge,anechoofFrenchsocialismandcommunism,slightlytingedbyphilosophy,wasnoticeableintheRheinischeZeitung.Iobjectedtothisdilettantism,butatthesametimefranklyadmittedinacontroversywiththeAllgemeineAugsburgerZeitungthatmypreviousstudiesdidnotallowmetoexpressanyopiniononthecontentoftheFrenchtheories.WhenthepublishersoftheRheinischeZeitungconceivedtheillusionthatbyamorecompliantpolicyonthepartofthepaperitmightbepossibletosecuretheabrogationofthedeathsentencepasseduponit,Ieagerlygraspedtheopportunitytowithdrawfromthepublicstagetomystudy.ThefirstworkwhichIundertooktodispelthedoubtsassailingmewasacriticalre-examinationoftheHegelianphilosophyoflaw;theintroductiontothisworkbeingpublishedintheDeutsch-FranzosischeJahrbucherissuedinParisin1844.Myinquiryledmetotheconclusionthatneitherlegalrelationsnorpoliticalformscouldbecomprehendedwhetherbythemselvesoronthebasisofaso-calledgeneraldevelopmentofthehumanmind,butthatonthecontrarytheyoriginateinthematerialconditionsoflife,thetotalityofwhichHegel,followingtheexampleofEnglishandFrenchthinkersoftheeighteenthcentury,embraceswithintheterm‘civilsociety’;thattheanatomyofthiscivilsociety,however,hastobesoughtinpoliticaleconomy.Thestudyof 376TheMarxianChallengethis,whichIbeganinParis,IcontinuedinBrussels,whereImovedowingtoanexpulsionorderissuedbyM.Guizot.ThegeneralconclusionatwhichIarrivedandwhich,oncereached,becametheguidingprincipleofmystudiescanbesummarizedasfollows.Inthesocialproduc-tionoftheirexistence,meninevitablyenterintodefiniterelations,whichareindependentoftheirwill,namelyrelationsofproductionappropriatetoagivenstageinthedevelopmentoftheirmaterialforcesofproduction.Thetotalityoftheserelationsofproductionconstitutestheeconomicstructureofsociety,therealfoundation,onwhicharisesalegalandpoliticalsuper-structureandtowhichcorresponddefiniteformsofsocialconsciousness.Themodeofproduc-tionofmateriallifeconditionsthegeneralprocessofsocial,politicalandintellectuallife.Itisnottheconsciousnessofmenthatdeterminestheirexistence,buttheirsocialexistencethatdeter-minestheirconsciousness.Atacertainstageofdevelopment,thematerialproductiveforcesofsocietycomeintoconflictwiththeexistingrelationsofproductionor–thismerelyexpressesthesamethinginlegalterms–withthepropertyrelationswithintheframeworkofwhichtheyhaveoperatedhitherto.Fromformsofdevelopmentoftheproductiveforcestheserelationsturnintotheirfetters.Thenbeginsaneraofsocialrevolution.Thechangesintheeconomicfoundationledsoonerorlatertothetransformationofthewholeimmensesuperstructure.Instudyingsuchtransformationsitisalwaysnecessarytodistinguishbetweenthematerialtransformationoftheeconomicconditionsofproduction,whichcanbedeterminedwiththeprecisionofnaturalsci-ence,andthelegal,political,religious,artisticorphilosophic–inshort,ideologicalformsinwhichmenbecomeconsciousofthisconflictandfightitout.Justasonedoesnotjudgeanindi-vidualbywhathethinksabouthimself,soonecannotjudgesuchaperiodoftransformationbyitsconsciousness,but,onthecontrary,thisconsciousnessmustbeexplainedfromthecontradic-tionsofmateriallife,fromtheconflictexistingbetweenthesocialforcesofproductionandtherelationsofproduction.Nosocialorderiseverdestroyedbeforealltheproductiveforcesforwhichitissufficienthavebeendeveloped,andnewsuperiorrelationsofproductionneverreplaceolderonesbeforethematerialconditionsfortheirexistencehavematuredwithintheframeworkoftheoldsociety.Mankindthusinevitablysetsitselfonlysuchtasksasitisabletosolve,sincecloserexaminationwillalwaysshowthattheproblemitselfarisesonlywhenthematerialconditionsforitssolutionarealreadypresentoratleastinthecourseofformation.Inbroadoutline,theAsiatic,ancient,feudalandmodernbourgeoismodesofproductionmaybedesignatedasepochsmarkingprogressintheeconomicdevelopmentofsociety.Thebourgeoismodeofproductionisthelastantagonisticformofthesocialprocessofproduction–antagonis-ticnotinthesenseofindividualantagonismbutofanantagonismthatemanatesfromtheindi-viduals’socialconditionsofexistence–buttheproductiveforcesdevelopingwithinbourgeoissocietycreatealsothematerialconditionsforasolutionofthisantagonism.Theprehistoryofhumansocietyaccordinglycloseswiththissocialformation.FrederickEngels,withwhomImaintainedaconstantexchangeofideasbycorrespondencesincethepublicationofhisbrilliantessayonthecritiqueofeconomiccategories,printedintheDeutsch-FranzosischeJahrbucher,arrivedbyanotherroad(comparehisLagederarbeitendenKlasseinEngland)atthesameresultasI,andwheninthespringof1845hetoocametoliveinBrussels,wedecidedtosetforthtogetherourconceptionasopposedtotheideologicaloneofGermanphilos-ophy,infacttosettleaccountswithourformerphilosophicalconscience.Theintentionwascarriedoutintheformofacritiqueofpost-Hegelianphilosophy.Themanuscript[TheGermanIdeology],twolargeoctavovolumes,hadlongagoreachedthepublishersinWestphaliawhenwewereinformedthatowingtochangedcircumstancesitcouldnotbeprinted.Weabandonedthemanuscripttothegnawingcriticismofthemiceallthemorewillinglysincewehadachievedourmainpurpose–self-clarification.Ofthescatteredworksinwhichatthattimewepresentedoneoranotheraspectofourviewstothepublic,IshallmentiononlytheManifestooftheCommunistParty,jointlywrittenbyEngelsandmyself,andaDiscourssurlelibreéchange,whichImyselfpublished. Marx:CritiqueofPoliticalEconomy377Thesalientpointsofourconceptionwerefirstoutlinedinanacademic,althoughpolemical,forminmyMisèredelaphilosophie…,thisbookwhichwasaimedatProudhonappearedin1847.ThepublicationofanessayonWage-Labour[Wage-LaborandCapital]writteninGermaninwhichIcombinedthelecturesIhadheldonthissubjectattheGermanWorkers’AssociationinBrussels,wasinterruptedbytheFebruaryRevolutionandmyforcibleremovalfromBelgiuminconsequence.ThepublicationoftheNeueRheinischeZeitungin1848and1849andsubsequenteventscutshortmyeconomicstudies,whichIcouldonlyresumeinLondonin1850.TheenormousamountofmaterialrelatingtothehistoryofpoliticaleconomyassembledintheBritishMuseum,thefactthatLondonisaconvenientvantagepointfortheobservationofbourgeoissociety,andfinallythenewstageofdevelopmentwhichthissocietyseemedtohaveenteredwiththediscoveryofgoldinCaliforniaandAustralia,inducedmetostartagainfromtheverybeginningandtoworkcarefullythroughthenewmaterial.ThesestudiesledpartlyoftheirownaccordtoapparentlyquiteremotesubjectsonwhichIhadtospendacertainamountoftime.Butitwasinparticulartheimperativenecessityofearningmylivingwhichreducedthetimeatmydisposal.Mycollab-oration,continuednowforeightyears,withtheNewYorkTribune,theleadingAnglo-Americannewspaper,necessitatedanexcessivefragmentationofmystudies,forIwroteonlyexceptionallynewspapercorrespondenceinthestrictsense.Sinceaconsiderablepartofmycontributionscon-sistedofarticlesdealingwithimportanteconomiceventsinBritainandonthecontinent,Iwascompelledtobecomeconversantwithpracticaldetailwhich,strictlyspeaking,lieoutsidethesphereofpoliticaleconomy.Thissketchofthecourseofmystudiesinthedomainofpoliticaleconomyisintendedmerelytoshowthatmyviews–nomatterhowtheymaybejudgedandhowlittletheyconformtotheinterestedprejudicesoftherulingclasses–aretheoutcomeofconscientiousresearchcarriedonovermanyyears.Attheentrancetoscience,asattheentrancetohell,thedemandmustbemade:QuisiconvienlasciareognisospettoOgniviltaconvienchequisiamorta.[FromDante,DivinaCommedia:Heremustalldistrustbeleft;Allcowardicemustherebedead.] DasKapital(1867)*PartI:CommoditiesandmoneyChapterI:CommoditiesSection1:Thetwofactorsofacommodity:use-valueandvalue(thesubstanceofvalueandthemagnitudeofvalue)Thewealthofthosesocietiesinwhichthecapitalistmodeofproductionprevails,presentsitselfas‘animmenseaccumulationofcommodities’,itsunitbeingasinglecommodity.Ourinvestiga-tionmustthereforebeginwiththeanalysisofacommodity.Acommodityis,inthefirstplace,anobjectoutsideus,athingthatbyitspropertiessatisfieshumanwantsofsomesortoranother.Thenatureofsuchwants,whether,forinstance,theyspringfromthestomachorfromfancy,makesnodifference.Neitherarewehereconcernedtoknowhowtheobjectsatisfiesthesewants,whetherdirectlyasmeansofsubsistence,orindirectlyasmeansofproduction.Everyusefulthing,asiron,paper,etc.,maybelookedatfromthetwopointsofviewofqual-ityandquantity.Itisanassemblageofmanyproperties,andmaythereforebeofuseinvariousways.Todiscoverthevarioususesofthingsistheworkofhistory.Soalsoistheestablishmentofsociallyrecognizedstandardsofmeasureforthequantitiesoftheseusefulobjects.Thediversityofthesemeasureshasitsoriginpartlyinthediversenatureoftheobjectstobemeasured,partlyinconvention.Theutilityofathingmakesitause-value.Butthisutilityisnotathingofair.Beinglimitedbythephysicalpropertiesofthecommodity,ithasnoexistenceapartfromthatcommodity.Acom-modity,suchasiron,corn,oradiamond,istherefore,sofarasitisamaterialthing,ause-value,somethinguseful.Thispropertyofacommodityisindependentoftheamountoflabourrequiredtoappropriateitsusefulqualities.Whentreatingofuse-value,wealwaysassumetobedealingwithdefinitequantities,suchasdozensofwatches,yardsoflinen,ortonsofiron.Theuse-valuesofcommoditiesfurnishthematerialforaspecialstudy,thatofthecommercialknowledgeofcom-modities.Use-valuesbecomearealityonlybyuseorconsumption:theyalsoconstitutethesub-stanceofallwealth,whatevermaybethesocialformofthatwealth.Intheformofsocietyweareabouttoconsider,theyare,inaddition,thematerialdepositoriesofexchange-value.Exchange-value,atfirstsight,presentsitselfasaquantitativerelation,astheproportioninwhichvaluesinuseofonesortareexchangedforthoseofanothersort,arelationconstantly*KarlMarx,Capital:ACritiqueofPoliticalEconomy.Volume1:TheProcessofCapitalistProduction,editedbyFrederickEngels,translatedfromthethirdGermaneditionbySamuelMooreandEdwardAveling.NewYork:InternationalPublishers,1967. Marx:DasKapital379changingwithtimeandplace.Henceexchange-valueappearstobesomethingaccidentalandpurelyrelative,andconsequentlyanintrinsicvalue,thatis,anexchange-valuethatisinseparablyconnectedwith,inherentincommodities,seemsacontradictioninterms.Letusconsiderthematteralittlemoreclosely.Agivencommodity,forexample,aquarterofwheatisexchangedforxblacking,ysilk,orzgold,etc.–inshort,forothercommoditiesinthemostdifferentproportions.Insteadofoneexchange-value,thewheathas,therefore,agreatmany.Butsincexblacking,ysilk,orzgoldetc.,eachrepresentstheexchange-valueofonequarterofwheat,xblacking,ysilk,zgold,etc.,must,asexchange-values,bereplaceablebyeachother,orequaltoeachother.Therefore,first:thevalidexchange-valuesofagivencommodityexpresssomethingequal;second,exchange-value,generally,isonlythemodeofexpression,thephenomenalform,ofsomethingcontainedinit,yetdistinguishablefromit.Letustaketwocommodities,forexample,cornandiron.Theproportionsinwhichtheyareexchangeable,whateverthoseproportionsmaybe,canalwaysberepresentedbyanequationinwhichagivenquantityofcornisequatedtosomequantityofiron:forexample,1quartercorn
xcwt.iron.Whatdoesthisequationtellus?Ittellsusthatintwodifferentthings–in1quarterofcornandxcwt.ofiron,thereexistsinequalquantitiessomethingcommontoboth.Thetwothingsmustthereforebeequaltoathird,whichinitselfisneithertheonenortheother.Eachofthem,sofarasitisexchange-value,mustthereforebereducibletothisthird.Asimplegeometricalillustrationwillmakethisclear.Inordertocalculateandcomparetheareasofrectilinearfigures,wedecomposethemintotriangles.Buttheareaofthetriangleitselfisexpressedbysomethingtotallydifferentfromitsvisiblefigure,namelybyhalftheproductofthebasemultipliedbythealtitude.Inthesamewaytheexchange-valuesofcommoditiesmustbecapableofbeingexpressedintermsofsomethingcommontothemall,ofwhichthingtheyrep-resentagreaterorlessquantity.Thiscommon‘something’cannotbeeitherageometrical,achemical,oranyothernaturalpropertyofcommodities.Suchpropertiesclaimourattentiononlyinsofarastheyaffecttheutil-ityofthosecommodities,makethemuse-values.Buttheexchangeofcommoditiesisevidentlyanactcharacterisedbyatotalabstractionfromuse-value.Thenoneuse-valueisjustasgoodasanother,providedonlyitbepresentinsufficientquantity.Or,asoldBarbonsays,‘onesortofwaresareasgoodasanother,ifthevaluesbeequal.Thereisnodifferenceordistinctioninthingsofequalvalue.…Anhundredpounds’worthofleadoriron,isofasgreatvalueasonehundredpounds’worthofsilverorgold’.Asuse-values,commoditiesare,aboveall,ofdifferentqualities,butasexchange-valuestheyaremerelydifferentquantities,andconsequentlydonotcontainanatomofuse-value.Ifthenweleaveoutofconsiderationtheuse-valueofcommodities,theyhaveonlyonecom-monpropertyleft,thatofbeingproductsoflabour.Buteventheproductoflabouritselfhasundergoneachangeinourhands.Ifwemakeabstractionfromitsuse-value,wemakeabstrac-tionatthesametimefromthematerialelementsandshapesthatmaketheproductause-value;weseeinitnolongeratable,ahouse,yarn,oranyotherusefulthing.Itsexistenceasamaterialthingisputoutofsight.Neithercanitanylongerberegardedastheproductofthelabourofthejoiner,themason,thespinner,orofanyotherdefinitekindofproductivelabour.Alongwiththeusefulqualitiesoftheproductsthemselves,weputoutofsightboththeusefulcharacterofthevariouskindsoflabourembodiedinthem,andtheconcreteformsofthatlabour;thereisnothingleftbutwhatiscommontothemall;allarereducedtooneandthesamesortoflabour,humanlabourintheabstract.Letusnowconsidertheresidueofeachoftheseproducts;itconsistsofthesameunsubstantialrealityineach,amerecongelationofhomogeneoushumanlabour,oflabour-powerexpendedwithoutregardtothemodeofitsexpenditure.Allthatthesethingsnowtellusis,thathuman 380TheMarxianChallengelabour-powerhasbeenexpendedintheirproduction,thathumanlabourisembodiedinthem.Whenlookedatascrystalsofthissocialsubstance,commontothemall,theyare–Values.Wehaveseenthatwhencommoditiesareexchanged,theirexchange-valuemanifestsitselfassomethingtotallyindependentoftheiruse-value.Butifweabstractfromtheiruse-value,thereremainstheirValueasdefinedabove.Therefore,thecommonsubstancethatmanifestsitselfintheexchange-valueofcommodities,whenevertheyareexchanged,istheirvalue.Theprogressofourinvestigationwillshowthatexchange-valueistheonlyforminwhichthevalueofcommodi-tiescanmanifestitselforbeexpressed.Forthepresent,however,wehavetoconsiderthenatureofvalueindependentlyofthis,itsform.Ause-value,orusefularticle,therefore,hasvalueonlybecausehumanlabourintheabstracthasbeenembodiedormaterialisedinit.How,then,isthemagnitudeofthisvaluetobemea-sured?Plainly,bythequantityofthevalue-creatingsubstance,thelabour,containedinthearti-cle.Thequantityoflabour,however,ismeasuredbyitsduration,andlabour-timeinitsturnfindsitsstandardinweeks,days,andhours.Somepeoplemightthinkthatifthevalueofacommodityisdeterminedbythequantityoflabourspentonit,themoreidleandunskilfulthelabourer,themorevaluablewouldhiscom-moditybe,becausemoretimewouldberequiredinitsproduction.Thelabour,however,thatformsthesubstanceofvalue,ishomogeneoushumanlabour,expenditureofoneuniformlabour-power.Thetotallabour-powerofsociety,whichisembodiedinthesumtotaloftheval-uesofallcommoditiesproducedbythatsociety,countshereasonehomogeneousmassofhumanlabour-power,composedthoughitbeofinnumerableindividualunits.Eachoftheseunitsisthesameasanyother,sofarasithasthecharacteroftheaveragelabour-powerofsoci-ety,andtakeseffectassuch;thatis,sofarasitrequiresforproducingacommodity,nomoretimethanisneededonanaverage,nomorethanissociallynecessary.Thelabour-timesociallyneces-saryisthatrequiredtoproduceanarticleunderthenormalconditionsofproduction,andwiththeaveragedegreeofskillandintensityprevalentatthetime.Theintroductionofpower-loomsintoEnglandprobablyreducedbyone-halfthelabourrequiredtoweaveagivenquantityofyarnintocloth.Thehand-loomweavers,asamatteroffact,continuedtorequirethesametimeasbefore;butforallthat,theproductofonehouroftheirlabourrepresentedafterthechangeonlyhalfanhour’ssociallabour,andconsequentlyfelltoone-halfitsformervalue.Weseethenthatthatwhichdeterminesthemagnitudeofthevalueofanyarticleistheamountoflaboursociallynecessary,orthelabour-timesociallynecessaryforitsproduction.Eachindivid-ualcommodity,inthisconnexion,istobeconsideredasanaveragesampleofitsclass.Commodities,therefore,inwhichequalquantitiesoflabourareembodied,orwhichcanbepro-ducedinthesametime,havethesamevalue.Thevalueofonecommodityistothevalueofanyother,asthelabour-timenecessaryfortheproductionoftheoneistothatnecessaryforthepro-ductionoftheother.‘Asvalues,allcommoditiesareonlydefinitemassesofcongealedlabour-time’.Thevalueofacommoditywouldthereforeremainconstant,ifthelabour-timerequiredforitsproductionalsoremainedconstant.Butthelatterchangeswitheveryvariationintheproductive-nessoflabour.Thisproductivenessisdeterminedbyvariouscircumstances,amongstothers,bytheaverageamountofskilloftheworkmen,thestateofscience,andthedegreeofitspracticalapplication,thesocialorganisationofproduction,theextentandcapabilitiesofthemeansofproduction,andbyphysicalconditions.Forexample,thesameamountoflabourinfavourableseasonsisembodiedin8bushelsofcorn,andinunfavourable,onlyin4.Thesamelabourextractsfromrichminesmoremetalthanfrompoormines.Diamondsareofveryrareoccur-renceontheearth’ssurface,andhencetheirdiscoverycosts,onanaverage,agreatdealoflabour-time.Consequentlymuchlabourisrepresentedinasmallcompass.Jacobdoubtswhethergoldhaseverbeenpaidforatitsfullvalue.Thisappliesstillmoretodiamonds.AccordingtoEschwege,thetotalproduceoftheBraziliandiamondminesfortheeightyyears,endingin1823, Marx:DasKapital381hadnotrealisedthepriceofoneand-a-halfyears’averageproduceofthesugarandcoffeeplan-tationsofthesamecountry,althoughthediamondscostmuchmorelabour,andthereforerepre-sentedmorevalue.Withrichermines,thesamequantityoflabourwouldembodyitselfinmorediamonds,andtheirvaluewouldfall.Ifwecouldsucceedatasmallexpenditureoflabour,inconvertingcarbonintodiamonds,theirvaluemightfallbelowthatofbricks.Ingeneral,thegreatertheproductivenessoflabour,thelessisthelabour-timerequiredfortheproductionofanarticle,thelessistheamountoflabourcrystallisedinthatarticle,andthelessisitsvalue;andviceversâ,thelesstheproductivenessoflabour,thegreateristhelabour-timerequiredforthepro-ductionofanarticle,andthegreaterisitsvalue.Thevalueofacommodity,therefore,variesdirectlyasthequantity,andinverselyastheproductiveness,ofthelabourincorporatedinit.Athingcanbeause-value,withouthavingvalue.Thisisthecasewheneveritsutilitytomanisnotduetolabour.Suchareair,virginsoil,naturalmeadows,etc.Athingcanbeuseful,andtheproductofhumanlabour,withoutbeingacommodity.Whoeverdirectlysatisfieshiswantswiththeproduceofhisownlabour,creates,indeed,use-values,butnotcommodities.Inordertopro-ducethelatter,hemustnotonlyproduceuse-values,butuse-valuesforothers,socialuse-values.(Andnotonlyforothers,withoutmore.Themediaevalpeasantproducedquit-rent-cornforhisfeudallordandtithe-cornforhisparson.Butneitherthequit-rent-cornnorthetithe-cornbecamecommoditiesbyreasonofthefactthattheyhadbeenproducedforothers.Tobecomeacommodityaproductmustbetransferredtoanother,whomitwillserveasause-value,bymeansofanexchange.)Lastlynothingcanhavevalue,withoutbeinganobjectofutility.Ifthethingisuseless,soisthelabourcontainedinit;thelabourdoesnotcountaslabour,andthereforecreatesnovalue.PartII:ThetransformationofmoneyintocapitalChapterIV:ThegeneralformulaforcapitalThecirculationofcommoditiesisthestarting-pointofcapital.Theproductionofcommodities,theircirculation,andthatmoredevelopedformoftheircirculationcalledcommerce,theseformthehistoricalground-workfromwhichitrises.Themodernhistoryofcapitaldatesfromthecre-ationinthesixteenthcenturyofaworld-embracingcommerceandaworld-embracingmarket.Ifweabstractfromthematerialsubstanceofthecirculationofcommodities,thatis,fromtheexchangeofthevarioususe-values,andconsideronlytheeconomicformsproducedbythisprocessofcirculation,wefinditsfinalresulttobemoney:thisfinalproductofthecirculationofcommoditiesisthefirstforminwhichcapitalappears.Asamatterofhistory,capital,asopposedtolandedproperty,invariablytakestheformatfirstofmoney;itappearsasmoneyedwealth,asthecapitalofthemerchantandoftheusurer.Butwehavenoneedtorefertotheoriginofcapitalinordertodiscoverthatthefirstformofappearanceofcapitalismoney.Wecanseeitdailyunderourveryeyes.Allnewcapital,tocommencewith,comesonthestage,thatis,onthemarket,whetherofcommodities,labour,ormoney,eveninourdays,intheshapeofmoneythatbyadefiniteprocesshastobetransformedintocapital.Thefirstdistinctionwenoticebetweenmoneythatismoneyonly,andmoneythatiscapital,isnothingmorethanadifferenceintheirformofcirculation.ThesimplestformofthecirculationofcommoditiesisC–M–C,thetransformationofcommoditiesintomoney,andthechangeofthemoneybackagainintocommodities;orsellinginordertobuy.Butalongsideofthisformwefindanotherspecificallydifferentform:M–C–M,thetransformationofmoneyintocommodi-ties,andthechangeofcommoditiesbackagainintomoney;orbuyinginordertosell.Moneythatcirculatesinthelattermanneristherebytransformedinto,becomescapital,andisalreadypotentiallycapital. 382TheMarxianChallengeNowletusexaminethecircuitM–C–Malittlecloser.Itconsists,liketheother,oftwoanti-theticalphases.Inthefirstphase,M–C,orthepurchase,themoneyischangedintoacommod-ity.Inthesecondphase,C–M,orthesale,thecommodityischangedbackagainintomoney.Thecombinationofthesetwophasesconstitutesthesinglemovementwherebymoneyisexchangedforacommodity,andthesamecommodityisagainexchangedformoney;wherebyacommodityisboughtinordertobesold,or,neglectingthedistinctioninformbetweenbuyingandselling,wherebyacommodityisboughtwithmoney,andthenmoneyisboughtwithacommodity.Theresult,inwhichthephasesoftheprocessvanish,istheexchangeofmoneyformoney,M–M.IfIpurchase2,000lbsofcottonfor£100,andresellthe2,000lbsofcottonfor£110,Ihave,infact,exchanged£100for£110,moneyformoney.NowitisevidentthatthecircuitM–C–Mwouldbeabsurdandwithoutmeaningiftheinten-tionweretoexchangebythismeanstwoequalsumsofmoney,£100for£100.Themiser’splanwouldbefarsimplerandsurer;hestickstohis£100insteadofexposingittothedangersofcir-culation.Andyet,whetherthemerchantwhohaspaid£100forhiscottonsellsitfor£110,orletsitgofor£100,oreven£50,hismoneyhas,atallevents,gonethroughacharacteristicandoriginalmovement,quitedifferentinkindfromthatwhichitgoesthroughinthehandsofthepeasantwhosellscorn,andwiththemoneythussetfreebuysclothes.Wehavethereforetoexam-inefirstthedistinguishingcharacteristicsoftheformsofthecircuitsM–C–MandC–M–C,andindoingthistherealdifferencethatunderliesthemeredifferenceofformwillrevealitself.Letussee,inthefirstplace,whatthetwoformshaveincommon.Bothcircuitsareresolvableintothesametwoantitheticalphases,C–M,asale,andM–C,apurchase.Ineachofthesephasesthesamematerialelements–acommodity,andmoney,andthesameeconomicdramatisper-sonae,abuyerandaseller–confrontoneanother.Eachcircuitistheunityofthesametwoanti-theticalphases,andineachcasethisunityisbroughtaboutbytheinterventionofthreecontractingparties,ofwhomoneonlysells,anotheronlybuys,whilethethirdbothbuysandsells.What,however,firstandforemostdistinguishesthecircuitC–M–CfromthecircuitM–C–M,istheinvertedorderofsuccessionofthetwophases.Thesimplecirculationofcommoditiesbeginswithasaleandendswithapurchase,whilethecirculationofmoneyascapitalbeginswithapurchaseandendswithasale.Intheonecaseboththestarting-pointandthegoalarecom-modities,intheothertheyaremoney.Inthefirstformthemovementisbroughtaboutbytheinterventionofmoney,inthesecondbythatofacommodity.InthecirculationC–M–C,themoneyisintheendconvertedintoacommodity,thatservesasause-value;itisspentonceforall.Intheinvertedform,M–C–M,onthecontrary,thebuyerlaysoutmoneyinorderthat,asaseller,hemayrecovermoney.Bythepurchaseofhiscommodityhethrowsmoneyintocirculation,inordertowithdrawitagainbythesaleofthesamecommodity.Heletsthemoneygo,butonlywiththeslyintentionofgettingitbackagain.Themoney,there-fore,isnotspent,itismerelyadvanced.InthecircuitC–M–C,thesamepieceofmoneychangesitsplacetwice.Thesellergetsitfromthebuyerandpaysitawaytoanotherseller.Thecompletecirculation,whichbeginswiththereceipt,concludeswiththepayment,ofmoneyforcommodities.Itistheverycontraryinthecir-cuitM–C–M.Hereitisnotthepieceofmoneythatchangesitsplacetwice,butthecommodity.Thebuyertakesitfromthehandsofthesellerandpassesitintothehandsofanotherbuyer.Justasinthesimplecirculationofcommoditiesthedoublechangeofplaceofthesamepieceofmoneyeffectsitspassagefromonehandintoanother,soherethedoublechangeofplaceofthesamecommoditybringsabouttherefluxofthemoneytoitspointofdeparture.Suchrefluxisnotdependentonthecommoditybeingsoldformorethanwaspaidforit.Thiscircumstanceinfluencesonlytheamountofthemoneythatcomesback.Therefluxitselftakesplace,sosoonasthepurchasedcommodityisresold,inotherwords,sosoonasthecircuit Marx:DasKapital383M–C–Miscompleted.Wehavehere,therefore,apalpabledifferencebetweenthecirculationofmoneyascapital,anditscirculationasmeremoney.ThecircuitC–M–Ccomescompletelytoanend,sosoonasthemoneybroughtinbythesaleofonecommodityisabstractedagainbythepurchaseofanother.If,nevertheless,therefollowsarefluxofmoneytoitsstarting-point,thiscanonlyhappenthrougharenewalorrepetitionoftheoperation.IfIsellaquarterofcornfor£3,andwiththis£3buyclothes,themoney,sofarasIamconcerned,isspentanddonewith.Itbelongstotheclothesmerchant.IfInowsellasecondquarterofcorn,moneyindeedflowsbacktome,nothoweverasasequeltothefirsttransaction,butinconsequenceofitsrepetition.Themoneyagainleavesme,sosoonasIcompletethissec-ondtransactionbyafreshpurchase.Therefore,inthecircuitC–M–C,theexpenditureofmoneyhasnothingtodowithitsreflux.Ontheotherhand,inM–C–M,therefluxofthemoneyiscon-ditionedbytheverymodeofitsexpenditure.Withoutthisreflux,theoperationfails,ortheprocessisinterruptedandincomplete,owingtotheabsenceofitscomplementaryandfinalphase,thesale.ThecircuitC–M–Cstartswithonecommodity,andfinisheswithanother,whichfallsoutofcirculationandintoconsumption.Consumption,thesatisfactionofwants,inoneword,use-value,isitsendandaim.ThecircuitM–C–M,onthecontrary,commenceswithmoneyandendswithmoney.Itsleadingmotive,andthegoalthatattractsit,isthereforemereexchange-value.Inthesimplecirculationofcommodities,thetwoextremesofthecircuithavethesameeco-nomicform.Theyarebothcommodities,andcommoditiesofequalvalue.Buttheyarealsouse-valuesdifferingintheirqualities,as,forexample,cornandclothes.Theexchangeofproducts,ofthedifferentmaterialsinwhichthelabourofsocietyisembodied,formsherethebasisofthemovement.ItisotherwiseinthecirculationM–C–M,whichatfirstsightappearspurposeless,becausetautological.Bothextremeshavethesameeconomicform.Theyarebothmoney,andthereforearenotqualitativelydifferentuse-values;formoneyisbuttheconvertedformofcom-modities,inwhichtheirparticularuse-valuesvanish.Toexchange£100forcotton,andthenthissamecottonagainfor£100,ismerelyaroundaboutwayofexchangingmoneyformoney,thesameforthesame,andappearstobeanoperationjustaspurposelessasitisabsurd.Onesumofmoneyisdistinguishablefromanotheronlybyitsamount.ThecharacterandtendencyoftheprocessM–C–M,isthereforenotduetoanyqualitativedifferencebetweenitsextremes,bothbeingmoney,butsolelytotheirquantitativedifference.Moremoneyiswithdrawnfromcircula-tionatthefinishthanwasthrownintoitatthestart.Thecottonthatwasboughtfor£100isper-hapsresoldfor£100£10or£110.TheexactformofthisprocessisthereforeM–C–M,whereM
MM
theoriginalsumadvanced,plusanincrement.ThisincrementorexcessovertheoriginalvalueIcall‘surplus-value’.Thevalueoriginallyadvanced,therefore,notonlyremainsintactwhileincirculation,butaddstoitselfasurplus-valueorexpandsitself.Itisthismovementthatconvertsitintocapital.Ofcourse,itisalsopossible,thatinC–M–C,thetwoextremesC–C,saycornandclothes,mayrepresentdifferentquantitiesofvalue.Thefarmermaysellhiscornaboveitsvalue,ormaybuytheclothesatlessthantheirvalue.Hemay,ontheotherhand,‘bedone’bytheclothesmer-chant.Yet,intheformofcirculationnowunderconsideration,suchdifferencesinvaluearepurelyaccidental.Thefactthatthecornandtheclothesareequivalents,doesnotdeprivetheprocessofallmeaning,asitdoesinM–C–M.Theequivalenceoftheirvaluesisratheraneces-saryconditiontoitsnormalcourse.Therepetitionorrenewaloftheactofsellinginordertobuy,iskeptwithinboundsbytheveryobjectitaimsat,namelyconsumptionorthesatisfactionofdefinitewants,anaimthatliesaltogetheroutsidethesphereofcirculation.Butwhenwebuyinordertosell,we,onthecontrary,beginandendwiththesamething,money,exchange-value;andtherebythemovementbecomesinterminable.Nodoubt,MbecomesMM,£100become£110.Butwhenviewedintheir 384TheMarxianChallengequalitativeaspectalone,£110arethesameas£100,namelymoney;andconsideredquantita-tively,£110is,like£100,asumofdefiniteandlimitedvalue.Ifnow,the£110bespentasmoney,theyceasetoplaytheirpart.Theyarenolongercapital.Withdrawnfromcirculation,theybecomepetrifiedintoahoard,andthoughtheyremainedinthatstatetilldoomsday,notasinglefarthingwouldaccruetothem.If,then,theexpansionofvalueisonceaimedat,thereisjustthesameinducementtoaugmentthevalueofthe£110asthatofthe£100;forbotharebutlimitedexpressionsforexchange-value,andthereforebothhavethesamevocationtoapproach,byquantitativeincrease,asnearaspossibletoabsolutewealth.Momentarily,indeed,thevalueoriginallyadvanced,the£100isdistinguishablefromthesurplus-valueof£10thatisannexedtoitduringcirculation;butthedistinctionvanishesimmediately.Attheendoftheprocess,wedonotreceivewithonehandtheoriginal£100,andwiththeother,thesurplus-valueof£10.Wesimplygetavalueof£110,whichisinexactlythesameconditionandfitnessforcommencingtheexpandingprocess,astheoriginal£100was.Moneyendsthemovementonlytobeginitagain.Therefore,thefinalresultofeveryseparatecircuit,inwhichapurchaseandconsequentsalearecompleted,formsofitselfthestarting-pointofanewcircuit.Thesimplecirculationofcommodities–sellinginordertobuy–isameansofcarryingoutapurposeunconnectedwithcirculation,namelytheappropriationofuse-values,thesatisfactionofwants.Thecirculationofmoneyascapitalis,onthecontrary,anendinitself,fortheexpansionofvaluetakesplaceonlywithinthisconstantlyrenewedmovement.Thecirculationofcapitalhasthereforenolimits.Astheconsciousrepresentativeofthismovement,thepossessorofmoneybecomesacapital-ist.Hisperson,orratherhispocket,isthepointfromwhichthemoneystartsandtowhichitreturns.Theexpansionofvalue,whichistheobjectivebasisormain-springofthecirculationM–C–M,becomeshissubjectiveaim,anditisonlyinsofarastheappropriationofevermoreandmorewealthintheabstractbecomesthesolemotiveofhisoperations,thathefunctionsasacapitalist,thatis,ascapitalpersonifiedandendowedwithconsciousnessandawill.Use-valuesmustthereforeneverbelookeduponastherealaimofthecapitalist;neithermusttheprofitonanysingletransaction.Therestlessnever-endingprocessofprofit-makingaloneiswhatheaimsat.Thisboundlessgreedafterriches,thispassionatechaseafterexchange-value,iscommontothecapitalistandthemiser;butwhilethemiserismerelyacapitalistgonemad,thecapitalistisarationalmiser.Thenever-endingaugmentationofexchange-value,whichthemiserstrivesafter,byseekingtosavehismoneyfromcirculation,isattainedbythemoreacutecapitalist,byconstantlythrowingitafreshintocirculation.Theindependentform,thatis,themoney-form,whichthevalueofcommoditiesassumesinthecaseofsimplecirculation,servesonlyonepurpose,namelytheirexchange,andvanishesinthefinalresultofthemovement.Ontheotherhand,inthecirculationM–C–M,boththemoneyandthecommodityrepresentonlydifferentmodesofexistenceofvalueitself,themoneyitsgen-eralmode,andthecommodityitsparticular,or,sotosay,disguisedmode.Itisconstantlychang-ingfromoneformtotheotherwithouttherebybecominglost,andthusassumesanautomaticallyactivecharacter.Ifnowwetakeinturneachofthetwodifferentformswhichself-expandingvaluesuccessivelyassumesinthecourseofitslife,wethenarriveatthesetwopropo-sitions:Capitalismoney:Capitaliscommodities.Intruth,however,valueisheretheactivefactorinaprocess,inwhich,whileconstantlyassumingtheforminturnofmoneyandcommodities,itatthesametimechangesinmagnitude,differentiatesitselfbythrowingoffsurplus-valuefromitself;theoriginalvalue,inotherwords,expandsspontaneously.Forthemovement,inthecourseofwhichitaddssurplus-value,isitsownmovement,itsexpansion,therefore,isautomaticexpan-sion.Becauseitisvalue,ithasacquiredtheoccultqualityofbeingabletoaddvaluetoitself.Itbringsforthlivingoffspring,or,attheleast,laysgoldeneggs.Value,therefore,beingtheactivefactorinsuchaprocess,andassumingatonetimetheformofmoney,atanotherthatofcommodities,butthroughallthesechangespreservingitselfand Marx:DasKapital385expanding,itrequiressomeindependentform,bymeansofwhichitsidentitymayatanytimebeestablished.Andthisformitpossessesonlyintheshapeofmoney.Itisundertheformofmoneythatvaluebeginsandends,andbeginsagain,everyactofitsownspontaneousgeneration.Itbeganbybeing£100,itisnow£110,andsoon.Butthemoneyitselfisonlyoneofthetwoformsofvalue.Unlessittakestheformofsomecommodity,itdoesnotbecomecapital.Thereisherenoantagonism,asinthecaseofhoarding,betweenthemoneyandcommodities.Thecapi-talistknowsthatallcommodities,howeverscurvytheymaylook,orhoweverbadlytheymaysmell,areinfaithandintruthmoney,inwardlycircumcisedJews,andwhatismore,awonderfulmeanswherebyoutofmoneytomakemoremoney.Insimplecirculation,C–M–C,thevalueofcommoditiesattainedatthemostaformindepen-dentoftheiruse-values,thatis,theformofmoney;butthatsamevaluenowinthecirculationM–C–M,orthecirculationofcapital,suddenlypresentsitselfasanindependentsubstance,endowedwithamotionofitsown,passingthroughalife-processofitsown,inwhichmoneyandcommoditiesaremereformswhichitassumesandcastsoffinturn.Nay,more:insteadofsimplyrepresentingtherelationsofcommodities,itentersnow,sotosay,intoprivaterelationswithitself.Itdifferentiatesitselfasoriginalvaluefromitselfassurplus-value;asthefatherdifferentiateshimselffromhimselfquâtheson,yetbothareoneandofoneage:foronlybythesurplus-valueof£10doesthe£100originallyadvancedbecomecapital,andsosoonasthistakesplace,sosoonastheson,andbytheson,thefather,isbegotten,sosoondoestheirdifferencevanish,andtheyagainbecomeone,£110.Valuethereforenowbecomesvalueinprocess,moneyinprocess,and,assuch,capital.Itcomesoutofcirculation,entersintoitagain,preservesandmultipliesitselfwithinitscircuit,comesbackoutofitwithexpandedbulk,andbeginsthesameroundeverafresh.M–M,moneywhichbegetsmoney,suchisthedescriptionofCapitalfromthemouthsofitsfirstinterpreters,theMercantilists.Buyinginordertosell,or,moreaccurately,buyinginordertoselldearer,M–C–M,appearscertainlytobeaformpeculiartoonekindofcapitalalone,namelymerchants’capital.Butindus-trialcapitaltooismoney,thatischangedintocommodities,andbythesaleofthesecommodities,isre-convertedintomoremoney.Theeventsthattakeplaceoutsidethesphereofcirculation,intheintervalbetweenthebuyingandselling,donotaffecttheformofthismovement.Lastly,inthecaseofinterest-bearingcapital,thecirculationM–C–Mappearsabridged.Wehaveitsresultwithouttheintermediatestage,intheformM–M,‘enstylelapidaire’sotosay,moneythatisworthmoremoney,valuethatisgreaterthanitself.M–C–Misthereforeinrealitythegeneralformulaofcapitalasitappearsprimafaciewithinthesphereofcirculation.PartIII:Theproductionofabsolutesurplus-valueChapterVII:Thelabour-processandtheprocessofproducingsurplus-valueSection1:Thelabour-processortheproductionofuse-valuesThecapitalistbuyslabour-powerinordertouseit;andlabour-powerinuseislabouritself.Thepurchaseroflabour-powerconsumesitbysettingthesellerofittowork.Byworking,thelatterbecomesactually,whatbeforeheonlywaspotentially,labour-powerinaction,alabourer.Inorderthathislabourmayre-appearinacommodity,hemust,beforeallthings,expenditonsomethinguseful,onsomethingcapableofsatisfyingawantofsomesort.Hence,whatthecapi-talistsetsthelabourertoproduce,isaparticularuse-value,aspecifiedarticle.Thefactthatthe 386TheMarxianChallengeproductionofuse-values,orgoods,iscarriedonunderthecontrolofacapitalistandonhisbehalf,doesnotalterthegeneralcharacterofthatproduction.Weshall,therefore,inthefirstplace,havetoconsiderthelabour-processindependentlyoftheparticularformitassumesundergivensocialconditions.Labouris,inthefirstplace,aprocessinwhichbothmanandNatureparticipate,andinwhichmanofhisownaccordstarts,regulates,andcontrolsthematerialre-actionsbetweenhimselfandNature.HeopposeshimselftoNatureasoneofherownforces,settinginmotionarmsandlegs,headandhands,thenaturalforcesofhisbody,inordertoappropriateNature’sproductionsinaformadaptedtohisownwants.Bythusactingontheexternalworldandchangingit,heatthesametimechangeshisownnature.Hedevelopshisslumberingpowersandcompelsthemtoactinobediencetohissway.Wearenotnowdealingwiththoseprimitiveinstinctiveformsoflabourthatremindusofthemereanimal.Animmeasurableintervaloftimeseparatesthestateofthingsinwhichamanbringshislabour-powertomarketforsaleasacommodity,fromthatstateinwhichhumanlabourwasstillinitsfirstinstinctivestage.Wepre-supposelabourinaformthatstampsitasexclusivelyhuman.Aspiderconductsoperationsthatresemblethoseofaweaver,andabeeputstoshamemanyanarchitectintheconstructionofhercells.Butwhatdistinguishestheworstarchitectfromthebestofbeesisthis,thatthearchitectraiseshisstructureinimagina-tionbeforeheerectsitinreality.Attheendofeverylabour-process,wegetaresultthatalreadyexistedintheimaginationofthelaboureratitscommencement.Henotonlyeffectsachangeofforminthematerialonwhichheworks,buthealsorealisesapurposeofhisownthatgivesthelawtohismodusoperandi,andtowhichhemustsubordinatehiswill.Andthissubordinationisnomeremomentaryact.Besidestheexertionofthebodilyorgans,theprocessdemandsthat,dur-ingthewholeoperation,theworkman’swillbesteadilyinconsonancewithhispurpose.Thismeanscloseattention.Thelessheisattractedbythenatureofthework,andthemodeinwhichitiscarriedon,andtheless,therefore,heenjoysitassomethingwhichgivesplaytohisbodilyandmentalpowers,themoreclosehisattentionisforcedtobe.Theelementaryfactorsofthelabour-processare(1)thepersonalactivityofman,thatis,workitself,(2)thesubjectofthatwork,and(3)itsinstruments.Thesoil(andthis,economicallyspeaking,includeswater)inthevirginstateinwhichitsuppliesmanwithnecessariesorthemeansofsubsistencereadytohand,existsinde-pendentlyofhim,andistheuniversalsubjectofhumanlabour.Allthosethingswhichlabourmerelyseparatesfromimmediateconnexionwiththeirenvironment,aresubjectsoflabourspon-taneouslyprovidedbyNature.Sucharefishwhichwecatchandtakefromtheirelement,water,timberwhichwefellinthevirginforest,andoreswhichweextractfromtheirveins.If,ontheotherhand,thesubjectoflabourhas,sotosay,beenfilteredthroughpreviouslabour,wecallitrawmaterial;suchisorealreadyextractedandreadyforwashing.Allrawmaterialisthesubjectoflabour,butnoteverysubjectoflabourisrawmaterial:itcanonlybecomeso,afterithasundergonesomealterationbymeansoflabour.Aninstrumentoflabourisathing,oracomplexofthings,whichthelabourerinterposesbetweenhimselfandthesubjectofhislabour,andwhichservesastheconductorofhisactivity.Hemakesuseofthemechanical,physical,andchemicalpropertiesofsomesubstancesinordertomakeothersubstancessubservienttohisaims.Leavingoutofconsiderationsuchready-mademeansofsubsistenceasfruits,ingatheringwhichaman’sownlimbsserveastheinstrumentsofhislabour,thefirstthingofwhichthelabourerpossesseshimselfisnotthesubjectoflabourbutitsinstrument.Thus,Naturebecomesoneoftheorgansofhisactivity,onethatheannexestohisownbodilyorgans,addingstaturetohimselfinspiteoftheBible.Astheearthishisoriginallarder,sotooitishisoriginaltoolhouse.Itsupplieshim,forinstance,withstonesforthrowing,grinding,pressing,cutting,etc.Theearthitselfisaninstrumentoflabour,butwhenusedassuchinagricultureimpliesawholeseriesofotherinstrumentsandacomparativelyhighdevelopmentoflabour.Nosoonerdoeslabourundergotheleastdevelopment,thanitrequiresspecially Marx:DasKapital387preparedinstruments.Thus,intheoldestcaveswefindstoneimplementsandweapons.Intheearliestperiodofhumanhistorydomesticatedanimals,thatis,animalswhichhavebeenbredforthepurpose,andhaveundergonemodificationsbymeansoflabour,playthechiefpartasinstru-mentsoflabouralongwithspeciallypreparedstones,wood,bones,andshells.Theuseandfabri-cationofinstrumentsoflabour,althoughexistinginthegermamongcertainspeciesofanimals,isspecificallycharacteristicofthehumanlabour-process,andFranklinthereforedefinesmanasatool-makinganimal.Relicsofbygoneinstrumentsoflabourpossessthesameimportancefortheinvestigationofextincteconomicformsofsociety,asdofossilbonesforthedeterminationofextinctspeciesofanimals.Itisnotthearticlesmade,buthowtheyaremade,andbywhatinstru-ments,thatenablesustodistinguishdifferenteconomicepochs.Instrumentsoflabournotonlysupplyastandardofthedegreeofdevelopmenttowhichhumanlabourhasattained,buttheyarealsoindicatorsofthesocialconditionsunderwhichthatlabouriscarriedon.Amongtheinstru-mentsoflabour,thoseofamechanicalnature,which,takenasawhole,wemaycalltheboneandmusclesofproduction,offermuchmoredecidedcharacteristicsofagivenepochofproduction,thanthosewhich,likepipes,tubs,baskets,jars,etc.,serveonlytoholdthematerialsforlabour,whichlatterclass,wemayinageneralway,callthevascularsystemofproduction.Thelatterfirstbeginstoplayanimportantpartinthechemicalindustries.Inawidersensewemayincludeamongtheinstrumentsoflabour,inadditiontothosethingsthatareusedfordirectlytransferringlabourtoitssubject,andwhichtherefore,inonewayoranother,serveasconductorsofactivity,allsuchobjectsasarenecessaryforcarryingonthelabour-process.Thesedonotenterdirectlyintotheprocess,butwithoutthemitiseitherimpossibleforittotakeplaceatall,orpossibleonlytoapartialextent.Oncemorewefindtheearthtobeauniversalinstrumentofthissort,foritfurnishesalocusstanditothelabourerandafieldofemploymentforhisactivity.Amonginstru-mentsthataretheresultofpreviouslabourandalsobelongtothisclass,wefindworkshops,canals,roads,andsoforth.Inthelabour-process,therefore,man’sactivity,withthehelpoftheinstrumentsoflabour,effectsanalteration,designedfromthecommencement,inthematerialworkedupon.Theprocessdisappearsintheproduct,thelatterisause-value,Nature’smaterialadaptedbyachangeofformtothewantsofman.Labourhasincorporateditselfwithitssubject:theformerismateri-alised,thelattertransformed.Thatwhichinthelabourerappearedasmovement,nowappearsintheproductasafixedqualitywithoutmotion.Theblacksmithforgesandtheproductisaforging.Ifweexaminethewholeprocessfromthepointofviewofitsresult,theproduct,itisplainthatboththeinstrumentsandthesubjectoflabour,aremeansofproduction,andthatthelabouritselfisproductivelabour.Thoughause-value,intheformofaproduct,issuesfromthelabour-process,yetotheruse-values,productsofpreviouslabour,enterintoitasmeansofproduction.Thesame-use-valueisboththeproductofapreviousprocess,andameansofproductioninalaterprocess.Productsarethereforenotonlyresults,butalsoessentialconditionsoflabour.Withtheexceptionoftheextractiveindustries,inwhichthematerialforlabourisprovidedimmediatelybyNature,suchasmining,hunting,fishing,andagriculture(sofarasthelatterisconfinedtobreakingupvirginsoil),allbranchesofindustrymanipulaterawmaterial,objectsalreadyfilteredthroughlabour,alreadyproductsoflabour.Suchisseedinagriculture.Animalsandplants,whichweareaccustomedtoconsiderasproductsofNature,areintheirpresentform,notonlyproductsof,saylastyear’slabour,buttheresultofagradualtransformation,con-tinuedthroughmanygenerations,underman’ssuperintendence,andbymeansofhislabour.Butinthegreatmajorityofcases,instrumentsoflabourshoweventothemostsuperficialobserver,tracesofthelabourofpastages.Rawmaterialmayeitherformtheprincipalsubstanceofaproduct,oritmayenterintoitsformationonlyasanaccessory.Anaccessorymaybeconsumedbytheinstrumentsoflabour,as 388TheMarxianChallengecoalunderaboiler,oilbyawheel,haybydraft-horses,oritmaybemixedwiththerawmaterialinordertoproducesomemodificationthereof,aschlorineintounbleachedlinen,coalwithiron,dye-stuffwithwool,oragain,itmayhelptocarryontheworkitself,asinthecaseofthematerialsusedforheatingandlightingworkshops.Thedistinctionbetweenprincipalsubstanceandaccessoryvanishesinthetruechemicalindustries,becausetherenoneoftherawmaterialre-appears,initsoriginalcomposition,inthesubstanceoftheproduct.Everyobjectpossessesvariousproperties,andisthuscapableofbeingappliedtodifferentuses.Oneandthesameproductmaythereforeserveasrawmaterialinverydifferentprocesses.Corn,forexample,isarawmaterialformillers,starch-manufacturers,distillers,andcattlebreeders.Italsoentersasrawmaterialintoitsownproductionintheshapeofseed;coal,too,isatthesametimetheproductof,andameansofproductionin,coal-mining.Again,aparticularproductmaybeusedinoneandthesameprocess,bothasaninstrumentoflabourandasrawmaterial.Take,forinstance,thefatteningofcattle,wheretheanimalistherawmaterial,andatthesametimeaninstrumentfortheproductionofmanure.Aproduct,thoughreadyforimmediateconsumption,mayyetserveasrawmaterialforafurtherproduct,asgrapeswhentheybecometherawmaterialforwine.Ontheotherhand,labourmaygiveusitsproductinsuchaform,thatwecanuseitonlyasrawmaterial,asisthecasewithcotton,thread,andyarn.Sucharawmaterial,thoughitselfaproduct,mayhavetogothroughawholeseriesofdifferentprocesses:ineachoftheseinturn,itserves,withconstantlyvaryingform,asrawmaterial,untilthelastprocessoftheseriesleavesitaperfectproduct,readyforindividualconsumption,orforuseasaninstrumentoflabour.Hencewesee,thatwhetherause-valueistoberegardedasrawmaterial,asinstrumentoflabour,orasproduct,thisisdeterminedentirelybyitsfunctioninthelabour-process,bytheposi-tionitthereoccupies:asthisvaries,sodoesitscharacter.Wheneverthereforeaproductentersasameansofproductionintoanewlabour-process,ittherebylosesitscharacterofproduct,andbecomesamerefactorintheprocess.Aspinnertreatsspindlesonlyasimplementsforspinning,andflaxonlyasthematerialthathespins.Ofcourseitisimpossibletospinwithoutmaterialandspindles;andthereforetheexistenceofthesethingsasproducts,atthecommencementofthespinningoperation,mustbepresumed:butintheprocessitself,thefactthattheyareproductsofpreviouslabour,isamatterofutterindifference;justasinthedigestiveprocess,itisofnoimportancewhatever,thatbreadistheproduceofthepreviouslabourofthefarmer,themiller,andthebaker.Onthecontrary,itisgenerallybytheirimperfec-tionsasproducts,thatthemeansofproductioninanyprocessassertthemselvesintheircharac-terofproducts.AbluntknifeorweakthreadforciblyremindusofMrA,thecutler,orMrB,thespinner.Inthefinishedproductthelabourbymeansofwhichithasacquireditsusefulqualitiesisnotpalpable,hasapparentlyvanished.Amachinewhichdoesnotservethepurposesoflabour,isuseless.Inaddition,itfallsapreytothedestructiveinfluenceofnaturalforces.Ironrustsandwoodrots.Yarnwithwhichweneitherweavenorknit,iscottonwasted.Livinglabourmustseizeuponthesethingsandrousethemfromtheirdeath-sleep,changethemfrommerepossibleuse-valuesintorealandeffectiveones.Bathedinthefireoflabour,appropriatedaspartandparceloflabour’sorganism,and,asitwere,madealivefortheperformanceoftheirfunctionsintheprocess,theyareintruthconsumed,butcon-sumedwithapurpose,aselementaryconstituentsofnewuse-values,ofnewproducts,everreadyasmeansofsubsistenceforindividualconsumption,orasmeansofproductionforsomenewlabour-process.Ifthen,ontheonehand,finishedproductsarenotonlyresults,butalsonecessaryconditions,ofthelabour-process,ontheotherhand,theirassumptionintothatprocess,theircontactwithlivinglabour,isthesolemeansbywhichtheycanbemadetoretaintheircharacterofuse-values,andbeutilised. Marx:DasKapital389Labourusesupitsmaterialfactors,itssubjectanditsinstruments,consumesthem,andisthere-foreaprocessofconsumption.Suchproductiveconsumptionisdistinguishedfromindividualconsumptionbythis,thatthelatterusesupproducts,asmeansofsubsistenceforthelivingindividual;theformer,asmeanswherebyalone,labour,thelabour-powerofthelivingindividual,isenabledtoact.Theproduct,therefore,ofindividualconsumption,istheconsumerhimself;theresultofproductiveconsumption,isaproductdistinctfromtheconsumer.Insofarthen,asitsinstrumentsandsubjectsarethemselvesproducts,labourconsumesproductsinordertocreateproducts,orinotherwords,consumesonesetofproductsbyturningthemintomeansofproductionforanotherset.But,justasinthebeginning,theonlyparticipa-torsinthelabour-processweremanandtheearth,whichlatterexistsindependentlyofman,soevennowwestillemployintheprocessmanymeansofproduction,provideddirectlybyNature,thatdonotrepresentanycombinationofnaturalsubstanceswithhumanlabour.Thelabour-process,resolvedasaboveintoitssimpleelementaryfactors,ishumanactionwithaviewtotheproductionofuse-values,appropriationofnaturalsubstancestohumanrequire-ments;itisthenecessaryconditionforeffectingexchangeofmatterbetweenmanandNature;itistheeverlastingNature-imposedconditionofhumanexistence,andthereforeisindependentofeverysocialphaseofthatexistence,orrather,iscommontoeverysuchphase.Itwas,therefore,notnecessarytorepresentourlabourerinconnexionwithotherlabourers;manandhislabourononeside,Natureanditsmaterialsontheother,sufficed.Asthetasteoftheporridgedoesnottellyouwhogrewtheoats,nomoredoesthissimpleprocesstellyouofitselfwhatarethesocialconditionsunderwhichitistakingplace,whetherundertheslave-owner’sbrutallash,ortheanx-iouseyeofthecapitalist,whetherCincinnatuscarriesitonintillinghismodestfarmorasavageinkillingwildanimalswithstones.Letusnowreturntoourwould-becapitalist.Welefthimjustafterhehadpurchased,intheopenmarket,allthenecessaryfactorsofthelabour-process–itsobjectivefactors,themeansofproduction,aswellasitssubjectivefactor,labour-power.Withthekeeneyeofanexpert,hehasselectedthemeansofproductionandthekindoflabour-powerbestadaptedtohisparticulartrade,beitspinning,bootmaking,oranyotherkind.Hethenproceedstoconsumethecommod-ity,thelabour-powerthathehasjustbought,bycausingthelabourer,theimpersonationofthatlabour-power,toconsumethemeansofproductionbyhislabour.Thegeneralcharacterofthelabour-processisevidentlynotchangedbythefact,thatthelabourerworksforthecapitalistinsteadofforhimself;moreover,theparticularmethodsandoperationsemployedinbootmakingorspinningarenotimmediatelychangedbytheinterventionofthecapitalist.Hemustbeginbytakingthelabour-powerashefindsitinthemarket,andconsequentlybesatisfiedwithlabourofsuchakindaswouldbefoundintheperiodimmediatelyprecedingtheriseofcapitalists.Changesinthemethodsofproductionbythesubordinationoflabourtocapital,cantakeplaceonlyatalaterperiod,andthereforewillhavetobetreatedofinalaterchapter.Thelabour-process,turnedintotheprocessbywhichthecapitalistconsumeslabour-power,exhibitstwocharacteristicphenomena.First,thelabourerworksunderthecontrolofthecapi-talisttowhomhislabourbelongs;thecapitalisttakinggoodcarethattheworkisdoneinapropermanner,andthatthemeansofproductionareusedwithintelligence,sothatthereisnounneces-sarywasteofrawmaterial,andnowearandtearoftheimplementsbeyondwhatisnecessarilycausedbythework.Second,theproductisthepropertyofthecapitalistandnotthatofthelabourer,itsimmedi-ateproducer.Supposethatacapitalistpaysforaday’slabour-poweratitsvalue;thentherighttousethatpowerforadaybelongstohim,justasmuchastherighttouseanyothercommodity,suchasahorsethathehashiredfortheday.Tothepurchaserofacommoditybelongsitsuse,andtheselleroflabour-power,bygivinghislabour,doesnomore,inreality,thanpartwiththeuse-valuethathehassold.Fromtheinstanthestepsintotheworkshop,theuse-valueofhis 390TheMarxianChallengelabour-power,andthereforealsoitsuse,whichislabour,belongstothecapitalist.Bythepurchaseoflabour-power,thecapitalistincorporateslabour,asalivingferment,withthelifelessconstituentsoftheproduct.Fromhispointofview,thelabour-processisnothingmorethantheconsumptionofthecommoditypurchased,thatis,oflabour-power;butthisconsumptioncannotbeeffectedexceptbysupplyingthelabour-powerwiththemeansofproduction.Thelabour-processisaprocessbetweenthingsthatthecapitalisthaspurchased,thingsthathavebecomehisproperty.Theproductofthisprocessbelongs,therefore,tohim,justasmuchasdoesthewinewhichistheproductofaprocessoffermentationcompletedinhiscellar.Section2:Theproductionofsurplus-valueTheproductappropriatedbythecapitalistisause-value,asyarn,forexample,orboots.But,althoughbootsare,inonesense,thebasisofallsocialprogress,andourcapitalistisadecided‘progressist’,yethedoesnotmanufacturebootsfortheirownsake.Use-valueis,bynomeans,thething‘qu’onaimepourlui-même’intheproductionofcommodities.Use-valuesareonlypro-ducedbycapitalists,because,andinsofaras,theyarethematerialsubstratum,thedepositoriesofexchange-value.Ourcapitalisthastwoobjectsinview:inthefirstplace,hewantstoproduceause-valuethathasavalueinexchange,thatistosay,anarticledestinedtobesold,acommod-ity;andsecond,hedesirestoproduceacommoditywhosevalueshallbegreaterthanthesumofthevaluesofthecommoditiesusedinitsproduction,thatis,ofthemeansofproductionandthelabour-power,thathepurchasedwithhisgoodmoneyintheopenmarket.Hisaimistoproducenotonlyause-value,butacommodityalso;notonlyuse-value,butvalue;notonlyvalue,butatthesametimesurplus-value.Itmustbeborneinmind,thatwearenowdealingwiththeproductionofcommodities,andthat,uptothispoint,wehaveonlyconsideredoneaspectoftheprocess.Justascommoditiesare,atthesametime,use-valuesandvalues,sotheprocessofproducingthemmustbealabour-process,andatthesametime,aprocessofcreatingvalue.Letusnowexamineproductionasacreationofvalue.Weknowthatthevalueofeachcommodityisdeterminedbythequantityoflabourexpendedonandmaterialisedinit,bytheworking-timenecessary,undergivensocialconditions,foritspro-duction.Thisrulealsoholdsgoodinthecaseoftheproductthataccruedtoourcapitalist,astheresultofthelabour-processcarriedonforhim.Assumingthisproducttobe10lbsofyarn,ourfirststepistocalculatethequantityoflabourrealisedinit.Forspinningtheyarn,rawmaterialisrequired;supposeinthiscase10lbsofcotton.Wehavenoneedatpresenttoinvestigatethevalueofthiscotton,forourcapitalisthas,wewillassume,boughtitatitsfullvalue,sayoftenshillings.Inthispricethelabourrequiredfortheproductionofthecottonisalreadyexpressedintermsoftheaveragelabourofsociety.Wewillfurtherassumethatthewearandtearofthespindle,which,forourpresentpurpose,mayrepresentallotherinstrumentsoflabouremployed,amountstothevalueoftwoshillings.If,then,twenty-fourhours’labour,ortwoworking-days,arerequiredtoproducethequantityofgoldrepresentedbytwelveshillings,wehavehere,tobeginwith,twodays’labouralreadyincorporatedintheyarn.Wemustnotletourselvesbemisledbythecircumstancethatthecottonhastakenanewshapewhilethesubstanceofthespindlehastoacertainextentbeenusedup.Bythegenerallawofvalue,ifthevalueof40lbsofyarn
thevalueof40lbsofcottonthevalueofawholespin-dle,thatis,ifthesameworking-timeisrequiredtoproducethecommoditiesoneithersideofthisequation,then10lbsofyarnareanequivalentfor10lbsofcotton,togetherwithone-fourthofaspindle.Inthecaseweareconsideringthesameworking-timeismaterialisedinthe10lbsofyarnontheonehand,andinthe10lbsofcottonandthefractionofaspindleontheother.Therefore,whethervalueappearsincotton,inaspindle,orinyarn,makesnodifferenceintheamountofthatvalue.Thespindleandcotton,insteadofrestingquietlysidebyside,jointogetherinthe Marx:DasKapital391process,theirformsarealtered,andtheyareturnedintoyarn;buttheirvalueisnomoreaffectedbythisfactthanitwouldbeiftheyhadbeensimplyexchangedfortheirequivalentinyarn.Thelabourrequiredfortheproductionofthecotton,therawmaterialoftheyarn,ispartofthelabournecessarytoproducetheyarn,andisthereforecontainedintheyarn.Thesameappliestothelabourembodiedinthespindle,withoutwhosewearandtearthecottoncouldnotbespun.Hence,indeterminingthevalueoftheyarn,orthelabour-timerequiredforitsproduction,allthespecialprocessescarriedonatvarioustimesandindifferentplaces,whichwerenecessary,firsttoproducethecottonandthewastedportionofthespindle,andthenwiththecottonandspindletospintheyarn,maytogetherbelookedonasdifferentandsuccessivephasesofoneandthesameprocess.Thewholeofthelabourintheyarnispastlabour;anditisamatterofnoimportancethattheoperationsnecessaryfortheproductionofitsconstituentelementswerecarriedonattimeswhich,referredtothepresent,aremoreremotethanthefinaloperationofspinning.Ifadefinitequantityoflabour,saythirtydays,isrequisitetobuildahouse,thetotalamountoflabourincorporatedinitisnotalteredbythefactthattheworkofthelastdayisdonetwenty-ninedayslaterthanthatofthefirst.Therefore,thelabourcontainedintherawmaterialandtheinstrumentsoflabourcanbetreatedjustasifitwerelabourexpendedinanearlierstageofthespinningprocess,beforethelabourofactualspinningcommenced.Thevaluesofthemeansofproduction,thatis,thecottonandthespindle,whichvaluesareexpressedinthepriceoftwelveshillings,arethereforeconstituentpartsofthevalueoftheyarn,or,inotherwords,ofthevalueoftheproduct.Twoconditionsmustneverthelessbefulfilled.First,thecottonandspindlemustconcurintheproductionofause-value;theymustinthepresentcasebecomeyarn.Valueisindependentoftheparticularuse-valuebywhichitisborne,butitmustbeembodiedinause-valueofsomekind.Second,thetimeoccupiedinthelabourofproductionmustnotexceedthetimereallynecessaryunderthegivensocialconditionsofthecase.Therefore,ifnomorethan1lbofcottonberequisitetospin11lbsofyarn,caremustbetakenthatnomorethanthisweightofcottonisconsumedintheproductionof11lbsofyarn;andsimilarlywithregardtothespindle.Thoughthecapitalisthaveahobby,anduseagoldinsteadofasteelspindle,yettheonlylabourthatcountsforanythinginthevalueoftheyarnisthatwhichwouldberequiredtoproduceasteelspindle,becausenomoreisnecessaryunderthegivensocialconditions.Wenowknowwhatportionofthevalueoftheyarnisowingtothecot-tonandthespindle.Itamountstotwelveshillingsorthevalueoftwodays’work.Thenextpointforourconsiderationis,whatportionofthevalueoftheyarnisaddedtothecottonbythelabourofthespinner.Wehavenowtoconsiderthislabourunderaverydifferentaspectfromthatwhichithadduringthelabour-process;there,wevieweditsolelyasthatparticularkindofhumanactivitywhichchangescottonintoyarn;there,themorethelabourwassuitedtothework,thebettertheyarn,othercircumstancesremainingthesame.Thelabourofthespinnerwasthenviewedasspecifi-callydifferentfromotherkindsofproductivelabour,differentontheonehandinitsspecialaim,namelyspinning,different,ontheotherhand,inthespecialcharacterofitsoperations,inthespe-cialnatureofitsmeansofproductionandinthespecialuse-valueofitsproduct.Fortheoperationofspinning,cottonandspindlesareanecessity,butformakingrifledcannontheywouldbeofnousewhatever.Here,onthecontrary,whereweconsiderthelabourofthespinneronlysofarasitisvalue-creating,thatis,asourceofvalue,hislabourdiffersinnorespectfromthelabourofthemanwhoborescannon,or(whatheremorenearlyconcernsus),fromthelabourofthecotton-planterandspindle-makerincorporatedinthemeansofproduction.Itissolelybyreasonofthisidentity,thatcottonplanting,spindlemaking,andspinning,arecapableofformingthecompo-nentpartsdifferingonlyquantitativelyfromeachother,ofonewhole,namelythevalueoftheyarn.Here,wehavenothingmoretodowiththequality,thenature,andthespecificcharacterof 392TheMarxianChallengethelabour,butmerelywithitsquantity.Andthissimplyrequirestobecalculated.Weproceedupontheassumptionthatspinningissimple,unskilledlabour,theaveragelabourofagivenstateofsociety.Hereafter,weshallseethatthecontraryassumptionwouldmakenodifference.Whilethelabourerisatwork,hislabourconstantlyundergoesatransformation:frombeingmotion,itbecomesanobjectwithoutmotion;frombeingthelabourerworking,itbecomesthethingproduced.Attheendofonehour’sspinning,thatactisrepresentedbyadefinitequantityofyarn;inotherwords,adefinitequantityoflabournamelythatofonehour,hasbecomeembodiedinthecotton.Wesaylabour,thatis,theexpenditureofhisvitalforcebythespinner,andnotspinninglabour,becausethespecialworkofspinningcountshere,onlysofarasitistheexpenditureoflabour-poweringeneral,andnotinsofarasitisthespecificworkofthespinner.Intheprocesswearenowconsideringitisofextremeimportance,thatnomoretimebecon-sumedintheworkoftransformingthecottonintoyarnthanisnecessaryunderthegivensocialconditions.Ifundernormal,thatis,averagesocialconditionsofproduction,albsofcottonoughttobemadeintoblbsofyarnbyonehour’slabour,thenaday’slabourdoesnotcountastwelvehours’labourunless12albsofcottonhavebeenmadeinto12blbsofyarn;forinthecreationofvalue,thetimethatissociallynecessaryalonecounts.Notonlythelabour,butalsotherawmaterialandtheproductnowappearinquiteanewlight,verydifferentfromthatinwhichweviewedtheminthelabour-processpureandsimple.Therawmaterialservesnowmerelyasanabsorbentofadefinitequantityoflabour.Bythisabsorptionitisinfactchangedintoyarn,becauseitisspun,becauselabour-powerintheformofspinningisaddedtoit;buttheproduct,theyarn,isnownothingmorethanameasureofthelabourabsorbedbythecotton.Ifinonehour12/3lbsofcottoncanbespuninto12/3lbsofyarn,then10lbsofyarnindicatetheabsorptionofsixhours’labour.Definitequantitiesofproduct,thesequantitiesbeingdeterminedbyexperience,nowrepresentnothingbutdefinitequantitiesoflabour,definitemassesofcrystallisedlabour-time.Theyarenothingmorethanthematerialisa-tionofsomanyhoursorsomanydaysofsociallabour.Weareherenomoreconcernedaboutthefacts,thatthelabouristhespecificworkofspinning,thatitssubjectiscottonanditsproductyarn,thanweareaboutthefactthatthesubjectitselfisalreadyaproductandthereforerawmaterial.Ifthespinner,insteadofspinning,wereworkinginacoalmine,thesubjectofhislabour,thecoal,wouldbesuppliedbyNature;nevertheless,adefinitequantityofextractedcoal,ahundredweightforexample,wouldrepresentadefinitequantityofabsorbedlabour.Weassumed,ontheoccasionofitssale,thatthevalueofaday’slabour-poweristhreeshillings,andthatsixhours’labourisincorporatedinthatsum;andconsequentlythatthisamountoflabourisrequisitetoproducethenecessariesoflifedailyrequiredonanaveragebythelabourer.Ifnowourspinnerbyworkingforonehour,canconvert12/3lbsofcottoninto12/3lbsofyarn,itfollowsthatinsixhourshewillconvert10lbsofcottoninto10lbsofyarn.Hence,duringthespinningprocess,thecottonabsorbssixhours’labour.Thesamequantityoflabourisalsoembodiedinapieceofgoldofthevalueofthreeshillings.Consequentlybythemerelabourofspinning,avalueofthreeshillingsisaddedtothecotton.Letusnowconsiderthetotalvalueoftheproduct,the10lbsofyarn.Twoandahalfdays’labourhasbeenembodiedinit,ofwhichtwodayswerecontainedinthecottonandinthesub-stanceofthespindlewornaway,andhalfadaywasabsorbedduringtheprocessofspinning.Thistwoandahalfdays’labourisalsorepresentedbyapieceofgoldofthevalueoffifteenshillings.Hence,fifteenshillingsisanadequatepriceforthe10lbsofyarn,orthepriceofonepoundiseighteenpence.Ourcapitaliststaresinastonishment.Thevalueoftheproductisexactlyequaltothevalueofthecapitaladvanced.Thevaluesoadvancedhasnotexpanded,nosurplus-valuehasbeencre-ated,andconsequentlymoneyhasnotbeenconvertedintocapital.Thepriceoftheyarnisfifteenshillings,andfifteenshillingswerespentintheopenmarketupontheconstituentelements Marx:DasKapital393oftheproduct,or,whatamountstothesamething,uponthefactorsofthelabour-process;tenshillingswerepaidforthecotton,twoshillingsforthesubstanceofthespindlewornaway,andthreeshillingsforthelabour-power.Theswollenvalueoftheyarnisofnoavail,foritismerelythesumofthevaluesformerlyexistinginthecotton,thespindle,andthelabour-power:outofsuchasimpleadditionofexistingvalues,nosurplus-valuecanpossiblyarise.Theseseparatevaluesarenowallconcentratedinonething;butsotheywerealsointhesumoffifteenshillings,beforeitwassplitupintothreeparts,bythepurchaseofthecommodities.Thereisinrealitynothingverystrangeinthisresult.Thevalueofonepoundofyarnbeingeighteenpence,ifourcapitalistbuys10lbsofyarninthemarket,hemustpayfifteenshillingsforthem.Itisclearthat,whetheramanbuyshishousereadybuilt,orgetsitbuiltforhim,inneithercasewillthemodeofacquisitionincreasetheamountofmoneylaidoutonthehouse.Ourcapitalist,whoisathomeinhisvulgareconomy,exclaims:‘Oh!butIadvancedmymoneyfortheexpresspurposeofmakingmoremoney.’ThewaytoHellispavedwithgoodintentions,andhemightjustaseasilyhaveintendedtomakemoney,withoutproducingatall.Hethreatensallsortsofthings.Hewon’tbecaughtnappingagain.Infuturehewillbuythecommoditiesinthemarket,insteadofmanufacturingthemhimself.Butifallhisbrothercapitalistsweretodothesame,wherewouldhefindhiscommoditiesinthemarket?Andhismoneyhecannoteat.Hetriespersuasion.‘Considermyabstinence;Imighthaveplayedducksanddrakeswiththe15shillings;butinsteadofthatIconsumeditproductively,andmadeyarnwithit’.Verywell,andbywayofrewardheisnowinpossessionofgoodyarninsteadofabadconscience;andasforplay-ingthepartofamiser,itwouldneverdoforhimtorelapseintosuchbadwaysasthat;wehaveseenbeforetowhatresultssuchasceticismleads.Besides,wherenothingis,thekinghaslosthisrights;whatevermaybethemeritofhisabstinence,thereisnothingwherewithspeciallytoremu-nerateit,becausethevalueoftheproductismerelythesumofthevaluesofthecommoditiesthatwerethrownintotheprocessofproduction.Lethimthereforeconsolehimselfwiththereflectionthatvirtueisitsownreward,Butno,hebecomesimportunate.Hesays:‘Theyarnisofnousetome:Iproduceditforsale’.Inthatcaselethimsellit,or,stillbetter,lethimforthefutureproduceonlythingsforsatisfyinghispersonalwants,aremedythathisphysicianMacCullochhasalreadyprescribedasinfallibleagainstanepidemicofover-production.Henowgetsobsti-nate.‘Canthelabourer’,heasks,‘merelywithhisarmsandlegs,producecommoditiesoutofnothing?DidInotsupplyhimwiththematerials,bymeansofwhich,andinwhichalone,hislabourcouldbeembodied?Andasthegreaterpartofsocietyconsistsofsuchne’er-do-wells,haveInotrenderedsocietyincalculableservicebymyinstrumentsofproduction,mycottonandmyspindle,andnotonlysociety,butthelaboureralso,whominadditionIhaveprovidedwiththenecessariesoflife?AndamItobeallowednothinginreturnforallthisservice?’Well,buthasnotthelabourerrenderedhimtheequivalentserviceofchanginghiscottonandspindleintoyarn?Moreover,thereisherenoquestionofservice.Aserviceisnothingmorethantheusefuleffectofause-value,beitofacommodity,orbeitoflabour.Butherewearedealingwithexchange-value.Thecapitalistpaidtothelaboureravalueofthreeshillings,andthelabourergavehimbackanexactequivalentinthevalueofthreeshillings,addedbyhimtothecotton:hegavehimvalueforvalue.Ourfriend,uptothistimesopurse-proud,suddenlyassumesthemod-estdemeanourofhisownworkman,andexclaims:‘HaveImyselfnotworked?HaveInotper-formedthelabourofsuperintendenceandofoverlookingthespinner?Anddoesnotthislabour,too,createvalue?’Hisoverlookerandhismanagertrytohidetheirsmiles.Meanwhile,afteraheartylaugh,here-assumeshisusualmien.Thoughhechantedtousthewholecreedoftheecon-omists,inreality,hesays,hewouldnotgiveabrassfarthingforit.HeleavesthisandallsuchlikesubterfugesandjugglingtrickstotheprofessorsofPoliticalEconomy,whoarepaidforit.Hehim-selfisapracticalman;andthoughhedoesnotalwaysconsiderwhathesaysoutsidehisbusiness,yetinhisbusinessheknowswhatheisabout. 394TheMarxianChallengeLetusexaminethemattermoreclosely.Thevalueofaday’slabour-poweramountstothreeshillings,becauseonourassumptionhalfaday’slabourisembodiedinthatquantityoflabour-power,thatis,becausethemeansofsubsistencethataredailyrequiredfortheproductionoflabour-power,costhalfaday’slabour.Butthepastlabourthatisembodiedinthelabour-power,andthelivinglabourthatitcancallintoaction;thedailycostofmaintainingit,anditsdailyexpenditureinwork,aretwototallydifferentthings.Theformerdeterminestheexchange-valueofthelabour-power,thelatterisitsuse-value.Thefactthathalfaday’slabourisnecessarytokeepthelaboureraliveduringtwenty-fourhours,doesnotinanywaypreventhimfromworkingawholeday.Therefore,thevalueoflabour-power,andthevaluewhichthatlabour-powercre-atesinthelabour-process,aretwoentirelydifferentmagnitudes;andthisdifferenceofthetwovalueswaswhatthecapitalisthadinview,whenhewaspurchasingthelabour-power.Theusefulqualitiesthatlabour-powerpossesses,andbyvirtueofwhichitmakesyarnorboots,weretohimnothingmorethanaconditiosinequanon;forinordertocreatevalue,labourmustbeexpendedinausefulmanner.Whatreallyinfluencedhimwasthespecificuse-valuewhichthiscommoditypossessesofbeingasourcenotonlyofvalue,butofmorevaluethanithasitself.Thisisthespecialservicethatthecapitalistexpectsfromlabour-power,andinthistransactionheactsinaccordancewiththe‘eternallaws’oftheexchangeofcommodities.Theselleroflabour-power,likethesellerofanyothercommodity,realisesitsexchange-value,andpartswithitsuse-value.Hecannottaketheonewithoutgivingtheother.Theuse-valueoflabour-power,orinotherwords,labour,belongsjustaslittletoitsseller,astheuse-valueofoilafterithasbeensoldbelongstothedealerwhohassoldit.Theownerofthemoneyhaspaidthevalueofaday’slabour-power;his,therefore,istheuseofitforaday;aday’slabourbelongstohim.Thecircum-stancethat,ontheonehand,thedailysustenanceoflabour-powercostsonlyhalfaday’slabour,while,ontheotherhand,theverysamelabour-powercanworkduringawholeday,thatconse-quentlythevaluewhichitsuseduringonedaycreates,isdoublewhathepaysforthatuse,thiscircumstanceis,withoutdoubt,apieceofgoodluckforthebuyer,butbynomeansaninjurytotheseller.Ourcapitalistforesawthisstateofthings,andthatwasthecauseofhislaughter.Thelabourerthereforefinds,intheworkshop,themeansofproductionnecessaryforworking,notonlyduringsix,butduringtwelvehours.Justasduringthesixhours’processour10lbsofcottonabsorbedsixhours’labour,andbecame10lbsofyarn,sonow,20lbsofcottonwillabsorbtwelvehours’labourandbechangedinto20lbsofyarn.Letusnowexaminetheproductofthisprolongedprocess.Thereisnowmaterialisedinthis20lbsofyarnthelabouroffivedays,ofwhichfourdaysareduetothecottonandtheloststeelofthespindle,theremainingdayhavingbeenabsorbedbythecottonduringthespinningprocess.Expressedingold,thelabouroffivedaysisthirtyshillings.Thisisthereforethepriceofthe20lbsofyarn,giving,asbefore,eighteenpenceasthepriceofapound.Butthesumofthevaluesofthecommoditiesthatenteredintotheprocessamountstotwenty-sevenshillings.Thevalueoftheyarnisthirtyshillings.Therefore,thevalueoftheproductisone-ninthgreaterthanthevalueadvancedforitsproduction;twenty-sevenshillingshavebeentransformedintothirtyshillings;asurplus-valueofthreeshillingshasbeencreated.Thetrickhasatlastsucceeded;moneyhasbeenconvertedintocapital.Everyconditionoftheproblemissatisfied,whilethelawsthatregulatetheexchangeofcom-modities,havebeeninnowayviolated.Equivalenthasbeenexchangedforequivalent.Forthecapitalistasbuyerpaidforeachcommodity,forthecotton,thespindleandthelabour-power,itsfullvalue.Hethendidwhatisdonebyeverypurchaserofcommodities;heconsumedtheiruse-value.Theconsumptionofthelabour-power,whichwasalsotheprocessofproducingcom-modities,resultedin20lbsofyarn,havingavalueofthirtyshillings.Thecapitalist,formerlyabuyer,nowreturnstomarketasaseller,ofcommodities.Hesellshisyarnateighteenpenceapound,whichisitsexactvalue.Yet,forallthathewithdrawsthreeshillingsmorefromcirculation Marx:DasKapital395thanheoriginallythrewintoit.Thismetamorphosis,thisconversionofmoneyintocapital,takesplacebothwithinthesphereofcirculationandalsooutsideit;withinthecirculation,becauseconditionedbythepurchaseofthelabour-powerinthemarket;outsidethecirculation,becausewhatisdonewithinitisonlyastepping-stonetotheproductionofsurplus-value,aprocesswhichisentirelyconfinedtothesphereofproduction.Thus,‘toutestpourlemieuxdanslemeflleurdesmondespossibles’.Byturninghismoneyintocommoditiesthatserveasthematerialelementsofanewproduct,andasfactorsinthelabour-process,byincorporatinglivinglabourwiththeirdeadsubstance,thecapitalistatthesametimeconvertsvalue,thatis,past,materialised,anddeadlabourintocapital,intovaluebigwithvalue,alivemonsterthatisfruitfulandmultiplies.Ifwenowcomparethetwoprocessesofproducingvalueandofcreatingsurplus-value,weseethatthelatterisnothingbutthecontinuationoftheformerbeyondadefinitepoint.If,ontheonehand,theprocessbenotcarriedbeyondthepoint,wherethevaluepaidbythecapitalistforthelabour-powerisreplacedbyanexactequivalent,itissimplyaprocessofproducingvalue;if,ontheotherhand,itbecontinuedbeyondthatpoint,itbecomesaprocessofcreatingsurplus-value.Ifweproceedfurther,andcomparetheprocessofproducingvaluewiththelabour-process,pureandsimple,wefindthatthelatterconsistsoftheusefullabour,thework,thatproducesuse-values.Herewecontemplatethelabourasproducingaparticulararticle;weviewitunderitsqualitativeaspectalone,withregardtoitsendandaim.Butviewedasavalue-creatingprocess,thesamelabour-processpresentsitselfunderitsquantitativeaspectalone.Hereitisaquestionmerelyofthetimeoccupiedbythelabourerindoingthework;oftheperiodduringwhichthelabour-powerisusefullyexpended.Here,thecommoditiesthattakepartintheprocess,donotcountanylongerasnecessaryadjunctsoflabour-powerintheproductionofadefinite,usefulobject.Theycountmerelyasdepositoriesofsomuchabsorbedormaterialisedlabour;thatlabour,whetherpreviouslyembodiedinthemeansofproduction,orincorporatedinthemforthefirsttimeduringtheprocessbytheactionoflabour-power,countsineithercaseonlyaccord-ingtoitsduration;itamountstosomanyhoursordaysasthecasemaybe.Moreover,onlysomuchofthetimespentintheproductionofanyarticleiscounted,as,underthegivensocialconditions,isnecessary.Theconsequencesofthisarevarious.Inthefirstplace,itbecomesnecessarythatthelabourshouldbecarriedonundernormalconditions.Ifaself-actingmuleistheimplementingeneraluseforspinning,itwouldbeabsurdtosupplythespinnerwithadistaffandspinningwheel.Thecottontoomustnotbesuchrubbishastocauseextrawasteinbeingworked,butmustbeofsuitablequality.Otherwisethespinnerwouldbefoundtospendmoretimeinproducingapoundofyarnthanissociallynecessary,inwhichcasetheexcessoftimewouldcreateneithervaluenormoney.Butwhetherthematerialfactorsoftheprocessareofnormalqualityornot,dependsnotuponthelabourer,butentirelyuponthecapitalist.Thenagain,thelabour-poweritselfmustbeofaverageefficacy.Inthetradeinwhichitisbeingemployed,itmustpossesstheaverageskill,handiness,andquicknessprevalentinthattrade,andourcapitalisttookgoodcaretobuylabour-powerofsuchnormalgoodness.Thispowermustbeappliedwiththeaverageamountofexertionandwiththeusualdegreeofintensity;andthecap-italistisascarefultoseethatthisisdone,asthathisworkmenarenotidleforasinglemoment.Hehasbought,theuseofthelabour-powerforadefiniteperiod,andheinsistsuponhisrights.Hehasnointentionofbeingrobbed.Lastly,andforthispurposeourfriendhasapenalcodeofhisown,allwastefulconsumptionofrawmaterialorinstrumentsoflabourisstrictlyforbidden,becausewhatissowasted,representslaboursuperfluouslyexpended,labourthatdoesnotcountintheproductorenterintoitsvalue.Wenowsee,thatthedifferencebetweenlabour,considered,ontheonehand,asproducingutilities,andontheotherhand,ascreatingvalue,adifferencewhichwediscoveredbyouranalysisofacommodity,resolvesitselfintoadistinctionbetweentwoaspectsoftheprocessofproduction. 396TheMarxianChallengeTheprocessofproduction,considered,ontheonehand,astheunityofthelabour-processandtheprocessofcreatingvalue,isproductionofcommodities;considered,ontheotherhand,astheunityofthelabour-processandtheprocessofproducingsurplus-value,itisthecapitalistprocessofproduction,orcapitalistproductionofcommodities.Westated,onapreviouspage,thatinthecreationofsurplus-valueitdoesnotintheleastmatter,whetherthelabourappropriatedbythecapitalistbesimpleunskilledlabourofaveragequalityormorecomplicatedskilledlabour.Alllabourofahigherormorecomplicatedcharacterthanaveragelabourisexpenditureoflabour-powerofamorecostlykind,labour-powerwhoseproductionhascostmoretimeandlabour,andwhichthereforehasahighervalue,thanunskilledorsimplelabour-power.Thispowerbeinghigher-value,itsconsumptionislabourofahigherclass,labourthatcreatesinequaltimesproportionallyhighervaluesthanunskilledlabourdoes.Whateverdifferenceinskilltheremaybebetweenthelabourofaspinnerandthatofajeweller,theportionofhislabourbywhichthejewellermerelyreplacesthevalueofhisownlabour-power,doesnotinanywaydifferinqualityfromtheadditionalportionbywhichhecreatessurplus-value.Inthemakingofjewellery,justasinspinning,thesurplus-valueresultsonlyfromaquantitativeexcessoflabour,fromalengthening-outofoneandthesamelabour-process,intheonecase,oftheprocessofmakingjewels,intheotheroftheprocessofmakingyarn.Butontheotherhand,ineveryprocessofcreatingvalue,thereductionofskilledlabourtoaveragesociallabour,forexample,onedayofskilledtosixdaysofunskilledlabour,isunavoidable.Wethere-foresaveourselvesasuperfluousoperation,andsimplifyouranalysis,bytheassumption,thatthelabouroftheworkmanemployedbythecapitalistisunskilledaveragelabour.PartVII:TheaccumulationofcapitalChapterXXV:ThegenerallawofcapitalistaccumulationSection1:Theincreaseddemandforlabour-powerthataccompaniesaccumulation,thecompositionofcapitalremainingthesameInthischapterweconsidertheinfluenceofthegrowthofcapitalonthelotofthelabouringclass.Themostimportantfactorinthisinquiryisthecompositionofcapitalandthechangesitundergoesinthecourseoftheprocessofaccumulation.Thecompositionofcapitalistobeunderstoodinatwo-foldsense.Onthesideofvalue,itisdeterminedbytheproportioninwhichitisdividedintoconstantcapitalorvalueofthemeansofproduction,andvariablecapitalorvalueoflabour-power,thesumtotalofwages.Onthesideofmaterial,asitfunctionsintheprocessofproduction,allcapitalisdividedintomeansofproduc-tionandlivinglabour-power.Thislattercompositionisdeterminedbytherelationbetweenthemassofthemeansofproductionemployed,ontheonehand,andthemassoflabournecessaryfortheiremploymentontheother.Icalltheformerthevalue-composition,thelatterthetechnicalcompositionofcapital.Betweenthetwothereisastrictcorrelation.Toexpressthis,Icallthevalue-compositionofcapital,insofarasitisdeterminedbyitstechnicalcompositionandmirrorsthechangesofthelatter,theorganiccompositionofcapital.WhereverIrefertothecompositionofcap-ital,withoutfurtherqualification,itsorganiccompositionisalwaysunderstood.Themanyindividualcapitalsinvestedinaparticularbranchofproductionhave,onewithanother,moreorlessdifferentcompositions.Theaverageoftheindividualcompositionsgivesusthecompositionofthetotalcapitalinthisbranchofproduction.Lastly,theaverageoftheseaverages,inallbranchesofproduction,givesusthecompositionofthetotalsocialcapitalofacountry,andwiththisalonearewe,inthelastresort,concernedinthefollowinginvestigation. Marx:DasKapital397Growthofcapitalinvolvesgrowthofitsvariableconstituentorofthepartinvestedinlabour-power.Apartofthesurplus-valueturnedintoadditionalcapitalmustalwaysbere-transformedintovariablecapital,oradditionallabour-fund.Ifwesupposethat,allothercircumstancesremainingthesame,thecompositionofcapitalalsoremainsconstant(i.e.thatadefinitemassofmeansofproductionconstantlyneedsthesamemassoflabour-powertosetitinmotion),thenthedemandsforlabourandthesubsistence-fundofthelabourersclearlyincreaseinthesameproportionasthecapital,andthemorerapidly,themorerapidlythecapitalincreases.Sincethecapitalproducesyearlyasurplus-value,ofwhichonepartisyearlyaddedtotheoriginalcapital;sincethisincrementitselfgrowsyearlyalongwiththeaugmentationofthecapitalalreadyfunc-tioning;sincelastly,underspecialstimulustoenrichment,suchastheopeningofnewmarkets,orofnewspheresfortheoutlayofcapitalinconsequenceofnewlydevelopedsocialwants,etc.,thescaleofaccumulationmaybesuddenlyextended,merelybyachangeinthedivisionofthesur-plus-valueorsurplus-productintocapitalandrevenue,therequirementsofaccumulatingcapitalmayexceedtheincreaseoflabour-powerorofthenumberoflabourers;thedemandforlabour-ersmayexceedthesupply,and,therefore,wagesmayrise.Thismust,indeed,ultimatelybethecaseiftheconditionssupposedabovecontinue.Forsinceineachyearmorelabourersareemployedthaninitspredecessor,soonerorlaterapointmustbereached,atwhichtherequire-mentsofaccumulationbegintosurpassthecustomarysupplyoflabour,and,therefore,ariseofwagestakesplace.AlamentationonthisscorewasheardinEnglandduringthewholeofthefif-teenth,andthefirsthalfoftheeighteenthcenturies.Themoreorlessfavourablecircumstancesinwhichthewage-workingclasssupportsandmultipliesitself,innowayalterthefundamentalcharacterofcapitalistproduction.Assimplereproductionconstantlyreproducesthecapital-rela-tionitself,thatis,therelationofcapitalistsontheonehand,andwage-workersontheother,soreproductiononaprogressivescale,thatis,accumulation,reproducesthecapital-relationonaprogressivescale,morecapitalistsorlargercapitalistsatthispole,morewage-workersatthat.Thereproductionofamassoflabour-power,whichmustincessantlyre-incorporateitselfwithcapitalforthatcapital’sself-expansion;whichcannotgetfreefromcapital,andwhoseenslave-menttocapitalisonlyconcealedbythevarietyofindividualcapitaliststowhomitsellsitself,thisreproductionoflabour-powerforms,infact,anessentialofthereproductionofcapitalitself.Accumulationofcapitalis,therefore,increaseoftheproletariat.…Thelawofcapitalistproduction,thatisatthebottomofthepretended‘naturallawofpopu-lation’,reducesitselfsimplytothis:Thecorrelationbetweenaccumulationofcapitalandrateofwagesisnothingelsethanthecorrelationbetweentheunpaidlabourtransformedintocapital,andtheadditionalpaidlabournecessaryforthesettinginmotionofthisadditionalcapital.Itisthereforeinnowayarelationbetweentwomagnitudes,independentoneoftheother:ontheonehand,themagnitudeofthecapital;ontheother,thenumberofthelabouringpopulation;itisrather,atbottom,onlytherelationbetweentheunpaidandthepaidlabourofthesamelabour-ingpopulation.Ifthequantityofunpaidlaboursuppliedbytheworkingclass,andaccumulatedbythecapitalistclass,increasessorapidlythatitsconversionintocapitalrequiresanextraordi-naryadditionofpaidlabour,thenwagesrise,and,allothercircumstancesremainingequal,theunpaidlabourdiminishesinproportion.Butassoonasthisdiminutiontouchesthepointatwhichthesurplus-labourthatnourishescapitalisnolongersuppliedinnormalquantity,areac-tionsetsin:asmallerpartofrevenueiscapitalised,accumulationlags,andthemovementofriseinwagesreceivesacheck.Theriseofwagesthereforeisconfinedwithinlimitsthatnotonlyleaveintactthefoundationsofthecapitalisticsystem,butalsosecureitsreproductiononaprogressivescale.Thelawofcapitalisticaccumulation,metamorphosedbyeconomistsintoapretendedlawofNature,inrealitymerelystatesthattheverynatureofaccumulationexcludeseverydiminution 398TheMarxianChallengeinthedegreeofexploitationoflabour,andeveryriseinthepriceoflabour,whichcouldseri-ouslyimperilthecontinualreproduction,onanever-enlargingscale,ofthecapitalisticrelation.Itcannotbeotherwiseinamodeofproductioninwhichthelabourerexiststosatisfytheneedsofself-expansionofexistingvalues,insteadof,onthecontrary,materialwealthexistingtosatisfytheneedsofdevelopmentonthepartofthelabourer.As,inreligion,manisgovernedbytheproductsofhisownbrain,soincapitalisticproduction,heisgovernedbytheproductsofhisownhand.Section3:Progressiveproductionofarelativesurplus-populationorindustrialreservearmyTheaccumulationofcapital,thoughoriginallyappearingasitsquantitativeextensiononly,iseffected,aswehaveseen,underaprogressivequalitativechangeinitscomposition,underacon-stantincreaseofitsconstant,attheexpenseofitsvariableconstituent.Thespecificallycapitalistmodeofproduction,thedevelopmentoftheproductivepoweroflabourcorrespondingtoit,andthechangethenceresultingintheorganiccompositionofcapi-tal,donotmerelykeeppacewiththeadvanceofaccumulation,orwiththegrowthofsocialwealth.Theydevelopatamuchquickerrate,becausemereaccumulation,theabsoluteincreaseofthetotalsocialcapital,isaccompaniedbythecentralisationoftheindividualcapitalsofwhichthattotalismadeup;andbecausethechangeinthetechnologicalcompositionoftheadditionalcapitalgoeshandinhandwithasimilarchangeinthetechnologicalcompositionoftheoriginalcapital.Withtheadvanceofaccumulation,therefore,theproportionofconstanttovariablecapitalchanges.Ifitwasoriginallysay1:1,itnowbecomessuccessively2:1,3:1,4:1,5:1,7:1,etc.,sothat,asthecapitalincreases,insteadof1/2ofitstotalvalue,only1/3,1/4,1/5,1/6,1/8,etc.,istransformedintolabour-power,and,ontheotherhand,2/3,3/4,4/5,5/6,7/8,intomeansofproduction.Sincethedemandforlabourisdeterminednotbytheamountofcapitalasawhole,butbyitsvariableconstituentalone,thatdemandfallsprogres-sivelywiththeincreaseofthetotalcapital,insteadof,aspreviouslyassumed,risinginproportiontoit.Itfallsrelativelytothemagnitudeofthetotalcapital,andatanacceleratedrate,asthismagnitudeincreases.Withthegrowthofthetotalcapital,itsvariableconstituentorthelabourincorporatedinit,alsodoesincrease,butinaconstantlydiminishingproportion.Theintermedi-atepausesareshortened,inwhichaccumulationworksassimpleextensionofproduction,onagiventechnicalbasis.Itisnotmerelythatanacceleratedaccumulationoftotalcapital,acceler-atedinaconstantlygrowingprogression,isneededtoabsorbanadditionalnumberoflabourers,oreven,onaccountoftheconstantmetamorphosisofoldcapital,tokeepemployedthosealreadyfunctioning.Initsturn,thisincreasingaccumulationandcentralisationbecomesasourceofnewchangesinthecompositionofcapital,ofamoreaccelerateddiminutionofitsvariable,ascomparedwithitsconstantconstituent.Thisacceleratedrelativediminutionofthevariableconstituent,thatgoesalongwiththeacceleratedincreaseofthetotalcapital,andmovesmorerapidlythanthisincrease,takestheinverseform,attheotherpole,ofanapparentlyabsoluteincreaseofthelabouringpopulation,anincreasealwaysmovingmorerapidlythanthatofthevariablecapitalorthemeansofemployment.Butinfact,itiscapitalisticaccumulationitselfthatconstantlyproduces,andproducesinthedirectratioofitsownenergyandextent,arelativelyredundantpopulationoflabourers,thatis,apopulationofgreaterextentthansufficesfortheaverageneedsoftheself-expansionofcapital,andthereforeasurplus-population.Consideringthesocialcapitalinitstotality,themovementofitsaccumulationnowcausesperiodicalchanges,affectingitmoreorlessasawhole,nowdistributesitsvariousphasessimulta-neouslyoverthedifferentspheresofproduction.Insomespheresachangeinthecompositionofcapitaloccurswithoutincreaseofitsabsolutemagnitude,asaconsequenceofsimplecentralisa-tion;inotherstheabsolutegrowthofcapitalisconnectedwithabsolutediminutionofits Marx:DasKapital399variableconstituent,orofthelabour-powerabsorbedbyit;inothersagain,capitalcontinuesgrowingforatimeonitsgiventechnicalbasis,andattractsadditionallabour-powerinproportiontoitsincrease,whileatothertimesitundergoesorganicchange,andlessensitsvariableconstituent;inallspheres,theincreaseofthevariablepartofcapital,andthereforeofthenumberoflabourersemployedbyit,isalwaysconnectedwithviolentfluctuationsandtransitoryproductionofsurplus-population,whetherthistakesthemorestrikingformoftherepulsionoflabourersalreadyemployed,orthelessevidentbutnotlessrealformofthemoredifficultabsorptionoftheadditionallabouringpopulationthroughtheusualchannels.Withthemagnitudeofsocialcapitalalreadyfunctioning,andthedegreeofitsincrease,withtheextensionofthescaleofproduction,andthemassofthelabourerssetinmotion,withthedevelopmentoftheproductivenessoftheirlabour,withthegreaterbreadthandfullnessofallsourcesofwealth,thereisalsoanextensionofthescaleonwhichgreaterattractionoflabourersbycapitalisaccompaniedbytheirgreaterrepul-sion;therapidityofthechangeintheorganiccompositionofcapital,andinitstechnicalformincreases,andanincreasingnumberofspheresofproductionbecomeinvolvedinthischange,nowsimultaneously,nowalternately.Thelabouringpopulationthereforeproduces,alongwiththeaccu-mulationofcapitalproducedbyit,themeansbywhichitselfismaderelativelysuperfluous,isturnedintoarelativesurplus-population;anditdoesthistoanalwaysincreasingextent.Thisisalawofpopulationpeculiartothecapitalistmodeofproduction;andinfacteveryspecialhistoricmodeofproductionhasitsownspeciallawsofpopulation,historicallyvalidwithinitslimitsalone.Anabstractlawofpopulationexistsforplantsandanimalsonly,andonlyinsofarasmanhasnotinterferedwiththem.Butifasurpluslabouringpopulationisanecessaryproductofaccumulationorofthedevel-opmentofwealthonacapitalistbasis,thissurplus-populationbecomes,conversely,theleverofcapitalisticaccumulation,nay,aconditionofexistenceofthecapitalistmodeofproduction.Itformsadisposableindustrialreservearmy,thatbelongstocapitalquiteasabsolutelyasifthelatterhadbreditatitsowncost.Independentlyofthelimitsoftheactualincreaseofpopulation,itcreates,forthechangingneedsoftheself-expansionofcapital,amassofhumanmaterialalwaysreadyforexploitation.Withaccumulation,andthedevelopmentoftheproductivenessoflabourthataccompaniesit,thepowerofsuddenexpansionofcapitalgrowsalso;itgrows,notmerelybecausetheelasticityofthecapitalalreadyfunctioningincreases,notmerelybecausetheabsolutewealthofsocietyexpands,ofwhichcapitalonlyformsanelasticpart,notmerelybecausecredit,undereveryspecialstimulus,atonceplacesanunusualpartofthiswealthatthedisposalofproductionintheformofadditionalcapital;itgrows,also,becausethetechnicalcon-ditionsoftheprocessofproductionthemselves–machinery,meansoftransport,etc.–nowadmitoftherapidesttransformationofmassesofsurplus-productintoadditionalmeansofproduction.Themassofsocialwealth,overflowingwiththeadvanceofaccumulation,andtransformableintoadditionalcapital,thrustsitselffranticallyintooldbranchesofproduction,whosemarketsuddenlyexpands,orintonewlyformedbranches,suchasrailways,etc.,theneedforwhichgrowsoutofthedevelopmentoftheoldones.Inallsuchcases,theremustbethepos-sibilityofthrowinggreatmassesofmensuddenlyonthedecisivepointswithoutinjurytothescaleofproductioninotherspheres.Over-populationsuppliesthesemasses.Thecoursecharac-teristicofmodernindustry,namelyadecennialcycle(interruptedbysmalleroscillations),ofperi-odsofaverageactivity,productionathighpressure,crisisandstagnation,dependsontheconstantformation,thegreaterorlessabsorption,andthere-formationoftheindustrialreservearmyorsurplus-population.Intheirturn,thevaryingphasesoftheindustrialcyclerecruitthesurplus-population,andbecomeoneofthemostenergeticagentsofitsreproduction.Thispecu-liarcourseofmodernindustry,whichoccursinnoearlierperiodofhumanhistory,wasalsoimpossibleinthechildhoodofcapitalistproduction.Thecompositionofcapitalchangedbutveryslowly.Withitsaccumulation,therefore,therekeptpace,onthewhole,acorrespondinggrowthin 400TheMarxianChallengethedemandforlabour.Slowaswastheadvanceofaccumulationcomparedwiththatofmoremoderntimes,itfoundacheckinthenaturallimitsoftheexploitablelabouringpopulation,limitswhichcouldonlybegotridofbyforciblemeanstobementionedlater.Theexpansionbyfitsandstartsofthescaleofproductionisthepreliminarytoitsequallysuddencontraction;thelatteragainevokestheformer,buttheformerisimpossiblewithoutdisposablehumanmaterial,withoutanincreaseinthenumberoflabourersindependentlyoftheabsolutegrowthofthepopulation.Thisincreaseiseffectedbythesimpleprocessthatconstantly‘setsfree’apartofthelabourers;bymethodswhichlessenthenumberoflabourersemployedinproportiontotheincreasedproduction.Thewholeformofthemovementofmodernindustrydepends,therefore,upontheconstanttransformationofapartofthelabouringpopulationintounemployedorhalf-employedhands.ThesuperficialityofPoliticalEconomyshowsitselfinthefactthatitlooksupontheexpansionandcontractionofcredit,whichisameresymptomoftheperiodicchangesoftheindustrialcycle,astheircause.Astheheavenlybodies,oncethrownintoacertaindefinitemotion,alwaysrepeatthis,soisitwithsocialproductionassoonasitisoncethrownintothismovementofalternateexpansionandcontraction.Effects,intheirturn,becomecauses,andthevaryingaccidentsofthewholeprocess,whichalwaysreproducesitsownconditions,takeontheformofperiodicity.Whenthisperiodicityisonceconsolidated,evenPoliticalEconomythenseesthattheproductionofarelativesurpluspopulation–thatis,surpluswithregardtotheaverageneedsoftheself-expansionofcapital–isanecessaryconditionofmodernindustry.…EvenMalthusrecognisesover-populationasanecessityofmodernindustry,though,afterhisnarrowfashion,heexplainsitbytheabsoluteover-growthofthelabouringpopulation,notbytheirbecomingrelativelysupernumerary.Hesays:‘Prudentialhabitswithregardtomarriage,carriedtoaconsiderableextentamongthelabouringclassofacountrymainlydependinguponmanufacturesandcommerce,mightinjureit.…Fromthenatureofapopulation,anincreaseoflabourerscannotbebroughtintomarketinconsequenceofaparticulardemandtillafterthelapseofsixteenoreighteenyears,andtheconversionofrevenueintocapital,bysaving,maytakeplacemuchmorerapidly;acountryisalwaysliabletoanincreaseinthequantityofthefundsforthemaintenanceoflabourfasterthantheincreaseofpopulation.’AfterPoliticalEconomyhasthusdemonstratedtheconstantproductionofarelativesurplus-populationoflabourerstobeanecessityofcapitalisticaccumulation,sheveryaptly,intheguiseofanoldmaid,putsinthemouthofher‘beauideal’ofacapitalistthefollowingwordsaddressedtothosesupernumerariesthrownonthestreetsbytheirowncreationofadditionalcapital:‘Wemanufacturersdowhatwecanforyou,whilstweareincreasingthatcapitalonwhichyoumustsubsist,andyoumustdotherestbyaccommodatingyournumberstothemeansofsubsistence’.Capitalistproductioncanbynomeanscontentitselfwiththequantityofdisposablelabour-powerwhichthenaturalincreaseofpopulationyields.Itrequiresforitsfreeplayanindustrialreservearmyindependentofthesenaturallimits.Uptothispointithasbeenassumedthattheincreaseordiminutionofthevariablecapitalcorrespondsrigidlywiththeincreaseordiminutionofthenumberoflabourersemployed.Thenumberoflabourerscommandedbycapitalmayremainthesame,orevenfall,whilethevariablecapitalincreases.Thisisthecaseiftheindividuallaboureryieldsmorelabour,andthereforehiswagesincrease,andthisalthoughthepriceoflabourremainsthesameorevenfalls,onlymoreslowlythanthemassoflabourrises.Increaseofvariablecapital,inthiscase,becomesanindexofmorelabour,butnotofmorelabourersemployed.Itistheabsoluteinterestofeverycapitalisttopressagivenquantityoflabouroutofasmaller,ratherthanagreaternumberoflabourers,ifthecostisaboutthesame.Inthelattercase,theoutlayofconstantcapitalincreasesinproportiontothemassoflaboursetinaction;intheformerthatincreaseismuchsmaller.Themoreextendedthescaleofproduction,thestrongerthismotive.Itsforceincreaseswiththeaccumulationofcapital. Marx:DasKapital401Wehaveseenthatthedevelopmentofthecapitalistmodeofproductionandoftheproductivepoweroflabour–atoncethecauseandeffectofaccumulation–enablesthecapitalist,withthesameoutlayofvariablecapital,tosetinactionmorelabourbygreaterexploitation(extensiveorintensive)ofeachindividuallabour-power.Wehavefurtherseenthatthecapitalistbuyswiththesamecapitalagreatermassoflabour-power,asheprogressivelyreplacesskilledlabourersbylessskilled,maturelabour-powerbyimmature,malebyfemale,thatofadultsbythatofyoungpersonsorchildren.Ontheonehand,therefore,withtheprogressofaccumulation,alargervariablecapitalsetsmorelabourinactionwithoutenlistingmorelabourers;ontheother,avariablecapitalofthesamemagnitudesetsinactionmorelabourwiththesamemassoflabour-power;andfinally,agreaternumberofinferiorlabour-powersbydisplacementofhigher.Theproductionofarelativesurplus-population,orthesettingfreeoflabourers,goesonthereforeyetmorerapidlythanthetechnicalrevolutionoftheprocessofproductionthataccom-panies,andisacceleratedby,theadvanceofaccumulation;andmorerapidlythanthecorre-spondingdiminutionofthevariablepartofcapitalascomparedwiththeconstant.Ifthemeansofproduction,astheyincreaseinextentandeffectivepower,becometoalessextentmeansofemploymentoflabourers,thisstateofthingsisagainmodifiedbythefactthatinproportionastheproductivenessoflabourincreases,capitalincreasesitssupplyoflabourmorequicklythanitsdemandforlabourers.Theoverworkoftheemployedpartoftheworkingclassswellstheranksofthereserve,whilstconverselythegreaterpressurethatthelatterbyitscompetitionexertsontheformer,forcesthesetosubmittoover-workandtosubjugationunderthedictatesofcapi-tal.Thecondemnationofonepartoftheworkingclasstoenforcedidlenessbytheover-workoftheotherpart,andtheconverse,becomesameansofenrichingtheindividualcapitalists,andacceleratesatthesametimetheproductionoftheindustrialreservearmyonascalecorrespond-ingwiththeadvanceofsocialaccumulation.Howimportantisthiselementintheformationoftherelativesurplus-population,isshownbytheexampleofEngland.Hertechnicalmeansforsavinglabourarecolossal.Nevertheless,ifto-morrowmorninglabourgenerallywerereducedtoarationalamount,andproportionedtothedifferentsectionsoftheworkingclassaccordingtoageandsex,theworkingpopulationtohandwouldbeabsolutelyinsufficientforthecarryingonofnationalproductiononitspresentscale.Thegreatmajorityofthelabourersnow‘unproductive’wouldhavetobeturnedinto‘productive’ones.Takingthemasawhole,thegeneralmovementsofwagesareexclusivelyregulatedbytheexpansionandcontractionoftheindustrialreservearmy,andtheseagaincorrespondtotheperi-odicchangesoftheindustrialcycle.Theyare,therefore,notdeterminedbythevariationsoftheabsolutenumberoftheworkingpopulation,butbythevaryingproportionsinwhichtheworkingclassisdividedintoactiveandreservearmy,bytheincreaseordiminutionintherelativeamountofthesurplus-population,bytheextenttowhichitisnowabsorbed,nowsetfree.ForModernIndustrywithitsdecennialcyclesandperiodicphases,which,moreover,asaccumulationadvances,arecomplicatedbyirregularoscillationsfollowingeachothermoreandmorequickly,thatwouldindeedbeabeautifullaw,whichpretendstomaketheactionofcapitaldependentontheabsolutevariationofthepopulation,insteadofregulatingthedemandandsupplyoflabourbythealternateexpansionandcontractionofcapital,thelabour-marketnowappearingrelativelyunder-full,becausecapitalisexpanding,nowagainover-full,becauseitiscontracting.Yet,thisisthedogmaoftheeconomists.Accordingtothem,wagesriseinconsequenceofaccu-mulationofcapital.Thehigherwagesstimulatetheworkingpopulationtomorerapidmultipli-cation,andthisgoesonuntilthelabour-marketbecomestoofull,andthereforecapital,relativelytothesupplyoflabour,becomesinsufficient.Wagesfall,andnowwehavethereverseofthemedal.Theworkingpopulationislittlebylittledecimatedastheresultofthefallinwages,sothatcapitalisagaininexcessrelativelytothem,or,asothersexplainit,fallingwagesandthe 402TheMarxianChallengecorrespondingincreaseintheexploitationofthelaboureragainacceleratesaccumulation,whilst,atthesametime,thelowerwagesholdtheincreaseoftheworkingclassincheck.Thencomesagainthetime,whenthesupplyoflabourislessthanthedemand,wagesrise,andsoon.Abeau-tifulmodeofmotionthisfordevelopedcapitalistproduction!Before,inconsequenceoftheriseofwages,anypositiveincreaseofthepopulationreallyfitforworkcouldoccur,thetimewouldhavebeenpassedagainandagain,duringwhichtheindustrialcampaignmusthavebeencarriedthrough,thebattlefoughtandwon.…Theindustrialreservearmy,duringtheperiodsofstagnationandaverageprosperity,weighsdowntheactivelabour-army;duringtheperiodsofover-productionandparoxysm,itholdsitspretensionsincheck.Relativesurplus-populationisthereforethepivotuponwhichthelawofdemandandsupplyoflabourworks.Itconfinesthefieldofactionofthislawwithinthelimitsabsolutelyconvenienttotheactivityofexploitationandtothedominationofcapital.Thisistheplacetoreturntooneofthegrandexploitsofeconomicapologetics.Itwillberememberedthatifthroughtheintroductionofnew,ortheextensionofold,machinery,aportionofvariablecapitalistransformedintoconstant,theeconomicapologistinterpretsthisoperationwhich‘fixes’capitalandbythatveryactsetslabourers‘free’,inexactlytheoppositeway,pretendingthatitsetsfreecapitalforthelabourers.Onlynowcanonefullyunderstandtheeffronteryoftheseapologists.Whataresetfreearenotonlythelabourersimmediatelyturnedoutbythemachines,butalsotheirfuturesubstitutesintherisinggeneration,andtheadditionalcontingent,thatwiththeusualextensionoftradeontheoldbasiswouldberegularlyabsorbed.Theyarenowall‘setfree’,andeverynewbitofcapitallookingoutforemploymentcandisposeofthem.Whetheritattractsthemorothers,theeffectonthegenerallabourdemandwillbenil,ifthiscapitalisjustsufficienttotakeoutofthemarketasmanylabourersasthemachinesthrewuponit.Ifitemploysasmallernumber,thatofthesupernumerariesincreases;ifitemploysagreater,thegeneraldemandforlabouronlyincreasestotheextentoftheexcessoftheemployedoverthose‘setfree’.Theimpulsethatadditionalcapital,seekinganoutlet,wouldotherwisehavegiventothegeneraldemandforlabour,isthereforeineverycaseneutralisedtotheextentofthelabourersthrownoutofemploymentbythemachine.Thatistosay,themechanismofcapitalis-ticproductionsomanagesmattersthattheabsoluteincreaseofcapitalisaccompaniedbynocorrespondingriseinthegeneraldemandforlabour.Andthistheapologistcallsacompensationforthemisery,thesufferings,thepossibledeathofthedisplacedlabourersduringthetransitionperiodthatbanishesthemintotheindustrialreservearmy!Thedemandforlabourisnotidenti-calwithincreaseofcapital,norsupplyoflabourwithincreaseoftheworkingclass.Itisnotacaseoftwoindependentforcesworkingononeanother.Lesdéssontpipes.Capitalworksonbothsidesatthesametime.Ifitsaccumulation,ontheonehand,increasesthedemandforlabour,itincreasesontheotherthesupplyoflabourersbythe‘settingfree’ofthem,whilstatthesametimethepressureoftheunemployedcompelsthosethatareemployedtofurnishmorelabour,andthereforemakesthesupplyoflabour,toacertainextent,independentofthesupplyoflabourers.Theactionofthelawofsupplyanddemandoflabouronthisbasiscompletesthedespotismofcapital.Assoon,therefore,asthelabourerslearnthesecret,howitcomestopassthatinthesamemeasureastheyworkmore,astheyproducemorewealthforothers,andastheproductivepoweroftheirlabourincreases,sointhesamemeasureeventheirfunctionasameansoftheself-expansionofcapitalbecomesmoreandmoreprecariousforthem;assoonastheydiscoverthatthedegreeofintensityofthecompetitionamongthemselvesdependswhollyonthepressureoftherelativesurplus-population;assoonas,byTrades’Unions,etc.,theytrytoorganizearegularco-operationbetweenemployedandunemployedinordertodestroyortoweakentheruinouseffectsofthisnaturallawofcapitalisticproductionontheir Marx:DasKapital403class,sosooncapitalanditssycophant,PoliticalEconomy,cryoutattheinfringementofthe‘eternal’andsotosay‘sacred’lawofsupplyanddemand.Everycombinationofemployedandunemployeddisturbsthe‘harmonious’actionofthislaw.But,ontheotherhand,assoonas(inthecolonies,forexample)adversecircumstancespreventthecreationofanindustrialreservearmyand,withit,theabsolutedependenceoftheworkingclassuponthecapitalistclass,capital,alongwithitscommonplaceSanchoPanza,rebelsagainstthe‘sacred’lawofsupplyanddemand,andtriestocheckitsinconvenientactionbyforciblemeansandStateinterference.Section4:Differentformsoftherelativesurplus-population–thegenerallawofcapitalisticaccumulation……Pauperismisthehospitaloftheactivelabour-armyandthedeadweightoftheindustrialreservearmy.Itsproductionisincludedinthatoftherelativesurplus-population,itsnecessityintheirs;alongwiththesurplus-population,pauperismformsaconditionofcapitalistproduction,andofthecapitalistdevelopmentofwealth.Itentersintothefauxfraisofcapitalistproduction;butcapitalknowshowtothrowthese,forthemostpart,fromitsownshouldersontothoseoftheworkingclassandthelowermiddleclass.Thegreaterthesocialwealth,thefunctioningcapital,theextentandenergyofitsgrowth,and,therefore,alsotheabsolutemassoftheproletariatandtheproductivenessofitslabour,thegreateristheindustrialreservearmy.Thesamecauseswhichdeveloptheexpansivepowerofcapital,developalsothelabour-poweratitsdisposal.Therelativemassoftheindustrialreservearmyincreasesthereforewiththepotentialenergyofwealth.Butthegreaterthisreservearmyinproportiontotheactivelabour-army,thegreateristhemassofaconsolidatedsurplus-population,whosemiseryisininverseratiotoitstormentoflabour.Themoreextensive,finally,thelazarus-layersoftheworkingclass,andtheindustrialreservearmy,thegreaterisofficialpauperism.Thisistheabsolutegenerallawofcapitalistaccumulation.Likeallotherlawsitismodifiedinitsworkingbymanycircumstances,theanalysisofwhichdoesnotconcernushere.Thefollyisnowpatentoftheeconomicwisdomthatpreachestothelabourerstheaccommo-dationoftheirnumbertotherequirementsofcapital.Themechanismofcapitalistproductionandaccumulationconstantlyeffectsthisadjustment.Thefirstwordofthisadaptationisthecreationofarelativesurplus-population,orindustrialreservearmy.Itslastwordisthemiseryofconstantlyextendingstrataoftheactivearmyoflabour,andthedeadweightofpauperism.Thelawbywhichaconstantlyincreasingquantityofmeansofproduction,thankstotheadvanceintheproductivenessofsociallabour,maybesetinmovementbyaprogressivelydimin-ishingexpenditureofhumanpower,thislaw,inacapitalistsociety–wherethelabourerdoesnotemploythemeansofproduction,butthemeansofproductionemploythelabourer–undergoesacompleteinversionandisexpressedthus:thehighertheproductivenessoflabour,thegreateristhepressureofthelabourersonthemeansofemployment,themoreprecarious,therefore,becomestheirconditionofexistence,namelythesaleoftheirownlabour-powerfortheincreas-ingofanother’swealth,orfortheself-expansionofcapital.Thefactthatthemeansofproduc-tion,andtheproductivenessoflabour,increasemorerapidlythantheproductivepopulation,expressesitself,therefore,capitalisticallyintheinverseformthatthelabouringpopulationalwaysincreasesmorerapidlythantheconditionsunderwhichcapitalcanemploythisincreaseforitsownself-expansion.WesawinPartIV,whenanalysingtheproductionofrelativesurplus-value:withinthecapitalistsystemallmethodsforraisingthesocialproductivenessoflabourarebroughtaboutatthecostoftheindividuallabourer;allmeansforthedevelopmentofproductiontransformthemselvesinto 404TheMarxianChallengemeansofdominationover,andexploitationof,theproducers;theymutilatethelabourerintoafragmentofaman,degradehimtothelevelofanappendageofamachine,destroyeveryremnantofcharminhisworkandturnitintoahatedtoil;theyestrangefromhimtheintellectualpotentialitiesofthelabour-processinthesameproportionasscienceisincorporatedinitasanindependentpower;theydistorttheconditionsunderwhichheworks,subjecthimduringthelabour-processtoadespotismthemorehatefulforitsmeanness;theytransformhislife-timeintoworking-time,anddraghiswifeandchildbeneaththewheelsoftheJuggernautofcapital.Butallmethodsfortheproductionofsurplus-valueareatthesametimemethodsofaccumulation;andeveryextensionofaccumulationbecomesagainameansforthedevelopmentofthosemeth-ods.Itfollowsthereforethatinproportionascapitalaccumulates,thelotofthelabourer,behispaymenthighorlow,mustgrowworse.Thelaw,finally,thatalwaysequilibratestherelativesurplus-population,orindustrialreservearmy,totheextentandenergyofaccumulation,thislawrivetsthelabourertocapitalmorefirmlythanthewedgesofVulcandidPrometheustotherock.Itestablishesanaccumulationofmisery,correspondingwithaccumulationofcapital.Accumulationofwealthatonepoleis,therefore,atthesametimeaccumulationofmisery,agonyoftoil,slavery,ignorance,brutality,mentaldegradation,attheoppositepole,thatis,onthesideoftheclassthatproducesitsownproductintheformofcapital.…PartVIII:Theso-calledprimitiveaccumulationChapterXXVI:ThesecretofprimitiveaccumulationWehaveseenhowmoneyischangedintocapital;howthroughcapitalsurplus-valueismade,andfromsurplus-valuemorecapital.Buttheaccumulationofcapitalpre-supposessurplus-value;surplus-valuepre-supposescapitalisticproduction;capitalisticproductionpre-supposesthepre-existenceofconsiderablemassesofcapitalandoflabour-powerinthehandsofproducersofcommodities.Thewholemovement,therefore,seemstoturninaviciouscircle,outofwhichwecanonlygetbysupposingaprimitiveaccumulation(previousaccumulationofAdamSmith)precedingcapitalisticaccumulation;anaccumulationnottheresultofthecapitalistmodeofproductionbutitsstartingpoint.ThisprimitiveaccumulationplaysinPoliticalEconomyaboutthesamepartasoriginalsinintheology.Adambittheapple,andthereuponsinfellonthehumanrace.Itsoriginissupposedtobeexplainedwhenitistoldasananecdoteofthepast.Intimeslonggonebythereweretwosortsofpeople;one,thediligent,intelligent,andaboveall,frugalelite;theother,lazyrascals,spendingtheirsubstance,andmore,inriotousliving.Thelegendoftheologicaloriginalsintellsuscertainlyhowmancametobecondemnedtoeathisbreadinthesweatofhisbrow;butthehistoryofeconomicoriginalsinrevealstousthattherearepeopletowhomthisisbynomeansessential.Nevermind!Thusitcametopassthattheformersortaccumulatedwealth,andthelat-tersorthadatlastnothingtosellexcepttheirownskins.Andfromthisoriginalsindatesthepovertyofthegreatmajoritythat,despiteallitslabour,hasuptonownothingtosellbutitself,andthewealthofthefewthatincreasesconstantlyalthoughtheyhavelongceasedtowork.Suchinsipidchildishnessiseverydaypreachedtousinthedefenceofproperty.M.Thiers,forexam-ple,hadtheassurancetorepeatitwithallthesolemnityofastatesman,totheFrenchpeople,oncesospirituel.Butassoonasthequestionofpropertycropsup,itbecomesasacreddutytoproclaimtheintellectualfoodoftheinfantastheonethingfitforallagesandforallstagesofdevelopment.Inactualhistoryitisnotoriousthatconquest,enslavement,robbery,murder,brieflyforce,playthegreatpart.InthetenderannalsofPoliticalEconomy,theidyllicreignsfromtimeimmemorial.Rightand‘labour’werefromalltimethesolemeansofenrichment,the Marx:DasKapital405presentyear,ofcourse,alwaysexcepted.Asamatteroffact,themethodsofprimitiveaccumu-lationareanythingbutidyllic.Inthemselvesmoneyandcommoditiesarenomorecapitalthanarethemeansofproductionandofsubsistence.Theywanttransformingintocapital.Butthistransformationitselfcanonlytakeplaceundercertaincircumstancesthatcentreinthis,namely,thattwoverydifferentkindsofcommodity-possessorsmustcomefacetofaceandintocontact;ontheonehand,theownersofmoney,meansofproduction,meansofsubsistence,whoareeagertoincreasethesumofvaluestheypossess,bybuyingotherpeople’slabour-power;ontheotherhand,freelabourers,thesellersoftheirownlabour-power,andthereforethesellersoflabour.Freelabourers,inthedoublesensethatneithertheythemselvesformpartandparcelofthemeansofproduction,asinthecaseofslaves,bondsmen,etc.,nordothemeansofproductionbelongtothem,asinthecaseofpeasant-proprietors;theyare,therefore,freefrom,unencumberedby,anymeansofproductionoftheirown.Withthispolarisationofthemarketforcommodities,thefundamentalconditionsofcapi-talistproductionaregiven.Thecapitalistsystempre-supposesthecompleteseparationofthelabourersfromallpropertyinthemeansbywhichtheycanrealisetheirlabour.Assoonascapi-talistproductionisonceonitsownlegs,itnotonlymaintainsthisseparation,butreproducesitonacontinuallyextendingscale.Theprocess,therefore,thatclearsthewayforthecapitalistsystem,canbenoneotherthantheprocesswhichtakesawayfromthelabourerthepossessionofhismeansofproduction;aprocessthattransforms,ontheonehand,thesocialmeansofsubsistenceandofproductionintocapital,ontheother,theimmediateproducersintowage-labourers.Theso-calledprimitiveaccumulation,therefore,isnothingelsethanthehistoricalprocessofdivorc-ingtheproducerfromthemeansofproduction.Itappearsasprimitive,becauseitformsthepre-historicstageofcapitalandofthemodeofproductioncorrespondingwithit.Theeconomicstructureofcapitalisticsocietyhasgrownoutoftheeconomicstructureoffeudalsociety.Thedissolutionofthelattersetfreetheelementsoftheformer.Theimmediateproducer,thelabourer,couldonlydisposeofhisownpersonafterhehadceasedtobeattachedtothesoilandceasedtobetheslave,serf,orbondmanofanother.Tobecomeafreeselleroflabour-power,whocarrieshiscommoditywhereverhefindsamarket,hemustfurtherhaveescapedfromtheregimeoftheguilds,theirrulesforapprenticesandjourney-men,andtheimpedimentsoftheirlabourregulations.Hence,thehistoricalmovementwhichchangestheproducersintowage-workers,appears,ontheonehand,astheiremancipationfromserfdomandfromthefettersoftheguilds,andthissidealoneexistsforourbourgeoishistorians.But,ontheotherhand,thesenewfreedmenbecamesellersofthemselvesonlyaftertheyhadbeenrobbedofalltheirownmeansofproduction,andofalltheguaranteesofexistenceaffordedbytheoldfeudalarrangements.Andthehistoryofthis,theirexpropriation,iswrittenintheannalsofmankindinlettersofbloodandfire.Theindustrialcapitalists,thesenewpotentates,hadontheirpartnotonlytodisplacetheguildmastersofhandicrafts,butalsothefeudallords,thepossessorsofthesourcesofwealth.Inthisrespecttheirconquestofsocialpowerappearsasthefruitofavictoriousstrugglebothagainstfeudallordshipanditsrevoltingprerogatives,andagainsttheguildsandthefetterstheylaidonthefreedevelopmentofproductionandthefreeexploitationofmanbyman.Thechevaliersd’industrie,however,onlysucceededinsupplantingthechevaliersoftheswordbymakinguseofeventsofwhichtheythemselveswerewhollyinnocent.TheyhaverisenbymeansasvileasthosebywhichtheRomanfreedmanonceonatimemadehimselfthemasterofhispatronus.Thestarting-pointofthedevelopmentthatgaverisetothewage-laboureraswellastothecapitalist,wastheservitudeofthelabourer.Theadvanceconsistedinachangeofformofthisservitude,inthetransformationoffeudalexploitationintocapitalistexploitation.Tounderstanditsmarch,weneednotgobackveryfar.Althoughwecomeacrossthefirstbeginningsofcapital-istproductionasearlyasthefourteenthorfifteenthcentury,sporadically,incertaintownsof 406TheMarxianChallengetheMediterranean,thecapitalisticeradatesfromthesixteenthcentury.Whereveritappears,theabolitionofserfdomhasbeenlongeffected,andthehighestdevelopmentofthemiddleages,theexistenceofsovereigntowns,hasbeenlongonthewane.Inthehistoryofprimitiveaccumulation,allrevolutionsareepoch-makingthatactasleversforthecapitalistclassincourseofformation;but,aboveall,thosemomentswhengreatmassesofmenaresuddenlyandforciblytornfromtheirmeansofsubsistence,andburiedasfreeand‘unattached’proletariansonthelabour-market.Theexpropriationoftheagriculturalproducer,ofthepeasant,fromthesoil,isthebasisofthewholeprocess.Thehistoryofthisexpropriation,indifferentcountries,assumesdifferentaspects,andrunsthroughitsvariousphasesindifferentordersofsuccession,andatdifferentperiods.InEnglandalone,whichwetakeasourexample,hasittheclassicform.ChapterXXXII:HistoricaltendencyofcapitalistaccumulationWhatdoestheprimitiveaccumulationofcapital,thatis,itshistoricalgenesis,resolveitselfinto?Insofarasitisnotimmediatetransformationofslavesandserfsintowage-labourers,andthere-foreamerechangeofform,itonlymeanstheexpropriationoftheimmediateproducers,thatis,thedissolutionofprivatepropertybasedonthelabourofitsowner.Privateproperty,astheantithesistosocial,collectiveproperty,existsonlywherethemeansoflabourandtheexternalconditionsoflabourbelongtoprivateindividuals.Butaccordingastheseprivateindividualsarelabourersornotlabourers,privatepropertyhasadifferentcharacter.Thenumberlessshades,thatitatfirstsightpresents,correspondtotheintermediatestageslyingbetweenthesetwoextremes.Theprivatepropertyofthelabourerinhismeansofproductionisthefoundationofpettyindustry,whetheragricultural,manufacturing,orboth;pettyindustry,again,isanessentialconditionforthedevelopmentofsocialproductionandofthefreeindividualityofthelabourerhimself.Ofcourse,thispettymodeofproductionexistsalsounderslavery,serfdom,andotherstatesofdependence.Butitflourishes,itletslooseitswholeenergy,itattainsitsadequateclassi-calform,onlywherethelaboureristheprivateownerofhisownmeansoflaboursetinactionbyhimself:thepeasantofthelandwhichhecultivates,theartisanofthetoolwhichhehandlesasavirtuoso.Thismodeofproductionpre-supposesparcellingofthesoil,andscatteringoftheothermeansofproduction.Asitexcludestheconcentrationofthesemeansofproduction,soalsoitexcludesco-operation,divisionoflabourwithineachseparateprocessofproduction,thecontrolover,andtheproductiveapplicationoftheforcesofNaturebysociety,andthefreedevel-opmentofthesocialproductivepowers.Itiscompatibleonlywithasystemofproduction,andasociety,movingwithinnarrowandmoreorlessprimitivebounds.Toperpetuateitwouldbe,asPecqueurrightlysays,‘todecreeuniversalmediocrity’.Atacertainstageofdevelopmentitbringsforththematerialagenciesforitsowndissolution.Fromthatmomentnewforcesandnewpassionsspringupinthebosomofsociety;buttheoldsocialorganisationfettersthemandkeepsthemdown.Itmustbeannihilated;itisannihilated.Itsannihilation,thetransformationoftheindividualisedandscatteredmeansofproductionintosociallyconcentratedones,ofthepigmypropertyofthemanyintothehugepropertyofthefew,theexpropriationofthegreatmassofthepeoplefromthesoil,fromthemeansofsubsistence,andfromthemeansoflabour,thisfear-fulandpainfulexpropriationofthemassofthepeopleformsthepreludetothehistoryofcapital.Itcomprisesaseriesofforciblemethods,ofwhichwehavepassedinreviewonlythosethathavebeenepoch-makingasmethodsoftheprimitiveaccumulationofcapital.Theexpro-priationoftheimmediateproducerswasaccomplishedwithmercilessVandalism,andunderthestimulusofpassionsthemostinfamous,themostsordid,thepettiest,themostmeanlyodious.Self-earnedprivateproperty,thatisbased,sotosay,onthefusingtogetheroftheisolated,inde-pendentlabouring-individualwiththeconditionsofhislabour,issupplantedbycapitalistic Marx:DasKapital407privateproperty,whichrestsonexploitationofthenominallyfreelabourofothers,thatis,onwage-labour.Assoonasthisprocessoftransformationhassufficientlydecomposedtheoldsocietyfromtoptobottom,assoonasthelabourersareturnedintoproletarians,theirmeansoflabourintocapital,assoonasthecapitalistmodeofproductionstandsonitsownfeet,thenthefurthersocialisationoflabourandfurthertransformationofthelandandothermeansofproductionintosociallyexploitedand,therefore,commonmeansofproduction,aswellasthefurtherexpro-priationofprivateproprietors,takesanewform.Thatwhichisnowtobeexpropriatedisnolongerthelabourerworkingforhimself,butthecapitalistexploitingmanylabourers.Thisexpro-priationisaccomplishedbytheactionoftheimmanentlawsofcapitalisticproductionitself,bythecentralisationofcapital.Onecapitalistalwayskillsmany.Handinhandwiththiscentralisa-tion,orthisexpropriationofmanycapitalistsbyafew,develop,onanever-extendingscale,theco-operativeformofthelabour-process,theconscioustechnicalapplicationofscience,themethodicalcultivationofthesoil,thetransformationoftheinstrumentsoflabourintoinstru-mentsoflabouronlyusableincommon,theeconomisingofallmeansofproductionbytheiruseasthemeansofproductionofcombined,socialisedlabour,theentanglementofallpeoplesinthenetoftheworld-market,andwiththis,theinternationalcharacterofthecapitalisticregime.Alongwiththeconstantlydiminishingnumberofthemagnatesofcapital,whousurpandmonopolisealladvantagesofthisprocessoftransformation,growsthemassofmisery,oppres-sion,slavery,degradation,exploitation;butwiththistoogrowstherevoltoftheworkingclass,aclassalwaysincreasinginnumbers,anddisciplined,united,organisedbytheverymechanismoftheprocessofcapitalistproductionitself.Themonopolyofcapitalbecomesafetteruponthemodeofproduction,whichhassprungupandflourishedalongwith,andunderit.Centralisationofthemeansofproductionandsocialisationoflabouratlastreachapointwheretheybecomeincompatiblewiththeircapitalistintegument.Thisintegumentisburstasunder.Theknellofcapitalistprivatepropertysounds.Theexpropriatorsareexpropriated.Thecapitalistmodeofappropriation,theresultofthecapitalistmodeofproduction,producescapitalistprivateproperty.Thisisthefirstnegationofindividualprivateproperty,asfoundedonthelabouroftheproprietor.Butcapitalistproductionbegets,withtheinexorabilityofalawofNature,itsownnegation.Itisthenegationofnegation.Thisdoesnotre-establishprivatepropertyfortheproducer,butgiveshimindividualpropertybasedontheacquisitionsofthecapitalistera:thatis,onco-operationandthepossessionincommonofthelandandofthemeansofproduction.Thetransformationofscatteredprivateproperty,arisingfromindividuallabour,intocapitalistprivatepropertyis,naturally,aprocess,incomparablymoreprotracted,violent,anddifficult,thanthetransformationofcapitalisticprivateproperty,alreadypracticallyrestingonsocialisedproduc-tion,intosocialisedproperty.Intheformercase,wehadtheexpropriationofthemassofthepeoplebyafewusurpers;inthelatter,wehavetheexpropriationofafewusurpersbythemassofthepeople. Part4TheMarginalRevolutionIntroductionSocialism–orSocialism,Romanticism,andAnarchism–werenottheonlyresponsestobothClassicalPoliticalEconomyandtheneweconomicsystemwhichtheClassicaleconomistswereseekingtobothexplicateandpromote.Anotherresponse–actuallyaresponsetobothClassicalPoliticalEconomyandSocialism–wasthatoftheso-calledmarginalrevolutionofthe1870s.StillanotherwasthehistoricalapproachofschoolsinEnglandandGermany.Byroughly1870,politicaleconomy,oreconomicsasitwasincreasinglycomingtobecalled,exhibitedsomethingofanidentitycrisis.Thecrisis,whichremainslargelyunresolvedwelloveracenturylater,hadseveralelements:(1)Thenameofthediscipline:politicaleconomyoreconomics–surelyacentralaspectofidentity.(2)Thestatusofthefoundingfathers:Quesnay,Smith,Ricardo,theotherClassicaleconomists–surelyanothercentralaspectofidentity.(3)Ambiguityandconflictinvaluetheory,thefielddeemedbymanytobecentraltothedisci-pline,thecoreofeconomictheory.(4)Themultiplicityanddiversityofschoolsofeconomicthought–afurtheraspectofconfusedidentity.(5)ThethreatofMarxianeconomicsandphilos-ophy,andofsocialismingeneral,toeconomicsandtotheWesterneconomic,politicalandsocialsystem;andthestatusofthestatusquo–increasinglydefinedineconomicterms–ingeneral.Whereeconomicsstoodonallthis.(6)Theidentityofeconomicsasascience:(a)itsepistemo-logical,ormethodological,character;(b)itscentralproblemofanalysis;and(c)itsownidentity(supra).(7)Disagreementsoverfundamentalterms,forexample,capital,money,investment,andsoon.Themarginalistresponsegerminatinginthe1870sledtothediscipline,nowlargelycalledeconomics,havingcertainstructuralandsubstantivecharacteristicsinthetwentiethcentury,especiallyafterthe1940s.Thestructuralcharacteristicsincluded:(1)thehegemonyofneoclassi-caleconomics;(2)theheterogeneityofneoclassicaleconomics;(3)theheterogeneityofanarrayofheterodoxschoolsofeconomicthought;and(4)theresultantheterogeneityofeconomicsasawhole,neoclassicalhegemonynotwithstanding.Theheterogeneitywasaconsequenceoftheeffortsofdifferentschoolsandofdifferentfactions(onparticularsubstantiveandmethodologicalissues)withinindividualschoolsworkingouttheelementsoftheidentitycrisisdifferentlyfromeachother.Thesubstantivecharacteristicsoftheincreasinglyascendentneoclassicism–equatedbymanywithintheschoolwitheconomicsassuch–included:(1)Formalpricetheoryreplacedvaluetheory,foundedupon(a)thegeneralbutnotubiquitousdemiseofbeliefinsomeabsoluteandinvariantbasisofpriceand(b)theriseofthedemandandsupplymodelincorporatingbothcostofpro-ductionandutilitytheories,formerlyofvaluebutnowoftheirrespectivecurves(functions).Otherschools,suchastheAustriansandtheMarxists,retainedabeliefinvaluetheoryasdistinctfrompricetheory;andtheinstitutionalistshadquitedifferentideas,someholdingatechnologicaltheoryofvalueandothersanalyzingthevaluesensconcedwithintheworkingrulesoflawand morals.(2)Economicsastheexplicationofthemarketmechanism,largelydevoidofconsiderationsofsocialandinstitutionalstructureandchange.Neoclassicismeventuallyadoptedthemodelofapureabstractconceptuala-institutionalmarketeconomy,inmarkedcontrasttotheviewofthose,largelybutnotsolelyofaninstitutionalistpersuasion,thatmarketswereafunctionofandgaveeffecttotheinstitutionswhichformedandoperatedthroughthem.Theneoclassicalmodel,whichearlierhadbeentreatedasasetofconceptualtoolswithwhichtothenanalyzetheecon-omy,increasinglybecametreatedasadefinitionofeconomicrealityitself.(3)Economiccate-goriesbecameincreasinglynarrow.Asneoclassicaleconomicsincreasinglycenteredonpureexchange,considerationsofsocialstructureevaporated;forexample,whattheClassicalecono-mistsidentifiedassocialclasses,theneoclassicistscalledfactorsofproduction:land,labor,andcapital.(4)Theneoclassicalfocuswasonwhateventuallycametobecalledmicroeconomicanalysis:ontheroleofthepricemechanismintheallocationofresources,accompaniedbythe-oriesofabstracthouseholdsandfirms.(5)Theconductofmicroeconomicanalysisinlargely,thoughnotentirely,partialstaticequilibriumterms,supplementedbyaconceptofgeneralequi-librium,allformulateddifferentlybydifferenteconomists.(6)Thedevelopmentofaneoclassicalresearchprotocolcallingforthecreationofuniquedeterminateoptimalequilibriumsolutionsforallproblems–incontrastwiththeearlierMarshallian(seebelow)approachinwhicheconom-icsisthescienceofconflictingtendencies,notuniquesolutionswhichalsoweredeemedoptimal.(7)Thedevelopmentofperiodanalysis–especiallyshortrunandlongrun;eventuallyyearoneandyeartwo–asconceptualtools.(8)Thedevelopmentofthetheoryofdistributionontwolev-els:(a)particulartheoriesofparticularfactorsofproduction,multipleinnumber;and(b)general-izedtheoriesencompassingallfactorsofproduction:opportunitycostandmarginalproductivitytheories.Theneoclassicismwhichemergedrelativelytriumphantafterthe1960swasgivenavarietyofcentralmeaningsorproblems.Theseincludedanalysisof:(1)thepuremarket,orpricemechanism;(2)theallocationofresources;(3)constrained-maximizationdecision-making;and(4)thelogicofchoice.Suchheterogeneityisnotsurprising,giventhatmarginalismitselfhadsev-eraldifferentconnotations,including:(1)themarginalutilitytheoryofvalue;(2)constrainedmaximization;and(3)marginaladjustments.Theheterogeneousstructureanddiversesubstantivecontentofeconomicsinthetwentiethcenturyresultedfromdifferentwaysoftryingtoresolvetheidentitycrisisofthelatenineteenthcentury.Althoughstillnotresolved,itseemsthatdevelopmentshadcertainmotivations,butcon-sciousandunarticulated.Theseincluded:(1)Thequestforsocialstatus,especiallytohaveeconomicsrecognizedasascience.Thiswascomplicatedbythefactthattheconcept“science”meantdifferentthingstodifferentpeople.Itwasadvanced,inpart,bythosewhowantedecono-miststospeakwithonevoice–ofcourse,theirs–andtobesafeinaworldofcontroversyandideologicalsubversion.(2)Thedesireforthesocialroleoftheexpert,theman(asthedisciplinemainlyencompassed)ofknowledge.Thecombinationof(1)and(2)gaverisetoatensionbetweenobjectivityandadvocacy.(3)Thedesiretohavesomethingauthoritativetosayabouttheeconomicroleofgovernment,thatis,asto“sound”economicpolicy.Inallthateconomicsincreasinglycametoperformthreesocialroles:(1)theprovisionofauthoritativeeconomicknowledge,bothforitsownsakeandasabasisforpolicy;(2)theprovisionofpsychicbalm,intheformofclaimsofharmonyandoptimality,ofcoherenceandofmeaning-fulness,inthefaceofapparentconflictandconfusion;and(3)theprovisionofsocialcontrol,intheformof(a)putativelydefinitiveanswerstoquestionsofpolicyand(b)legitimationofsomeidealizedmodelofthemodern,marketeconomicsystem.Themarginalrevolutionhadmultiplesourcesandindeedmultipleprecursors.Theprecursorswereprimarilyeconomistswhohadearlieradoptedthesubjectiveutilitytheoryofvalueor appliedtheanalysisofthemargintoproductionandsupply–includingMountifortLongfield,JulesDupuit,AugustinCournot,JohannHeinrichvonThünen,andHermannHeinrichGossen.Theprincipalsourceswerethewritingsofseveralmen:theEnglisheconomistWilliamStanleyJevons;theAustrianSchooleconomistCarlMenger–togetherwithseveralothers,includingEugenvonBöhm-BawerkandFriedrichvonWieser;theFrencheconomistLeonWalras;andtheEnglisheconomistAlfredMarshall–andothers,suchasFrancisY.EdgeworthandArthurCecilPigou.ReferencesandfurtherreadingBlack,R.D.C.etal.,eds(1972)TheMarginalRevolutioninEconomics,Durham,NC:DukeUniversityPress.Fisher,RobertM.(1986)TheLogicofScientificDiscovery:NeoclassicalEconomicsandtheMarginalRevolution,NewYork:ColumbiaUniversityPress.Hennings,KlausandSamuels,WarrenJ.,eds(1989)NeoclassicalEconomicTheory,1870–1930,Boston:Kluwer.Howey,R.S.(1960)TheRiseoftheMarginalUtilitySchool,1870–1899,Lawrence,KS:UniversityPressofKansas.Hutchison,T.W.(1953)AReviewofEconomicDoctrines,1870–1929,NewYork:OxfordUniversityPress.——(1978)OnRevolutionsandProgressinEconomicKnowledge,Cambridge:CambridgeUniversityPress.Kauder,E.(1965)AHistoryofMarginalUtilityTheory,Princeton:PrincetonUniversityPress.Jaffé,William(1976)“Menger,JevonsandWalrasDe-Homogenized,”EconomicInquiry14(December):511–24.Mirowski,Philip(1989)MoreHeatThanLight:EconomicsasSocialPhysics,PhysicsasNature’sEconomics,Cambridge:CambridgeUniversityPress.Stigler,GeorgeJ.(1941)ProductionandDistributionTheories:TheFormativePeriod,NewYork:Macmillan. WILLIAMSTANLEYJEVONS(1835–1882)WilliamStanleyJevonswasborninLiverpoolandeducatedatUniversityCollege,London,where,duetohisfamily’sfinancialmisfortunes,hisstudieswereinterruptedbyafive-yearperiodduringwhichheservedasassayertotheMintinSydney,Australia.Hisearlyeducationwasinmathe-maticsandchemistry,buthisreturntoEnglandsawhimbroadenhisstudiestoincludelogicandeconomics.AftercompletinghisM.A.in1862,heheldacademicpositionsatOwensCollege,Manchester,and,from1876,UniversityCollege,London.Jevonsdiedbydrowningattheageofforty-six.Jevonswasoneoftheforemostvirtuosoeconomistsofalltime.Althoughhetechnicallyreducedeconomics–oreconomictheory,oftenequatedwitheconomics–tothemechanicsofutilityandself-interest,hedideconomics,anddiditremarkablywell,inavarietyofways.Hewroteonpuretheory,especiallyadvocatingthemarginalutilitytheoryofvalue.Heconductedhistoricalandstatisticalstudiesofthecoalindustryandofcurrencyandfinance,andhistoricalandinstitu-tionalanalysisofthestateinrelationtolaboraswellasonsocialreform.Hedidempiricalworkonbusinesscycles.Andhewroteonthephilosophyofscienceandlogic.UnlikeAlfredMarshall,who,althoughamajorparticipantinthe“marginalrevolution,”sawhimselfasputtingforthabodyoftheoryconsistentwiththatofhisclassicalpredecessors,Jevonswasself-consciouslyrevolutionaryinattemptingtopromulgateabodyoftheorytoreplacewhathesawastheerroneousideasofRicardoand,especially,J.S.Mill.TheexcerptsfromJevons’sTheoryofPoliticalEconomyreprintedhereareillustrativeofhisdesiretobuilduponBentham’scalculusofpleasureandpainandtocenterthis“new”economicsontheprincipleofmarginalutility(called“finaldegreeofutility”byJevons).Hisattempttodistancehimselffromtheclassicalapproachisevidencedinhismarginalutilitytheoryofvalue.ThelastpartofthisreadingintroducesthereadertoJevons’sfamousanalysisofthelaborsupplydecisionintermsofbalancingthemarginalutilityoftheproduceoflaboragainstthemarginaldisutilityofthelaboritself.ReferencesandfurtherreadingBlack,R.D.C.(1972)“Jevons,BenthamandDeMorgan,”Economica39:119–34.——(1987)“Jevons,WilliamStanley,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.2,London:Macmillan,1008–13.Hutchison,T.W.(1982)“ThePoliticsandPhilosophyinJevons’sPoliticalEconomy,”TheManchesterSchool50(4):366–79.Jevons,W.S.(1865)TheCoalQuestion,London:Macmillan.——(1875)MoneyandtheMechanismofExchange,London:C.Kegan&Paul.——(1882)TheStateinRelationtoLabour,London:Macmillan.——(1972–1981)PapersandCorrespondenceofWilliamStanleyJevons,7vols,editedbyR.D.C.BlackandR.Könekamp,London:MacmillanfortheRoyalEconomicSociety. 414TheMarginalRevolutionKeynes,J.M.(1936)“WilliamStanleyJevons,1835–1882:ACentenaryAllocutiononHisLifeandWorkasEconomistandStatistician,”reprintedinJ.M.Keynes,EssaysinBiography,London:RupertHart-Davis,1951,255–308.Laidler,David(1982)“JevonsonMoney,”TheManchesterSchool50(4):326–53.Peach,Terry(1987)“JevonsasanEconomicTheorist,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.2,London:Macmillan,1014–19.Peart,Sandra(1996)TheEconomicsofW.S.Jevons,London:Routledge.Robbins,Lionel(1936)“ThePlaceofJevonsintheHistoryofEconomicThought,”reprintedinLionelRobbins,TheEvolutionofModernEconomicTheory,1970,169–88.Schabas,Margaret(1990)AWorldRuledbyNumber:WilliamStanleyJevonsandtheRiseofMathematicalEconomics,Princeton:PrincetonUniversityPress.Warke,Tom(2000)“MathematicalFitnessintheUtilityConceptfromBenthamtoJevonstoMarshall,”JournaloftheHistoryofEconomicThought22(March):5–27. TheTheoryofPoliticalEconomy(1871)ChapterI:IntroductionThescienceofPoliticalEconomyrestsuponafewnotionsofanapparentlysimplecharacter.Utility,wealth,value,commodity,labour,land,capital,aretheelementsofthesubject;andwhoeverhasathoroughcomprehensionoftheirnaturemustpossessorbesoonabletoacquireaknowledgeofthewholescience.Asalmosteveryeconomicwriterhasremarked,itisintreatingthesimpleelementsthatwerequirethemostcareandprecision,sincetheleasterrorofconceptionmustviti-ateallourdeductions.Accordingly,Ihavedevotedthefollowingpagestoaninvestigationoftheconditionsandrelationsoftheabove-namednotions.Repeatedreflectionandinquiryhaveledmetothesomewhatnovelopinion,thatvaluedependsentirelyuponutility.Prevailingopinionsmakelabourratherthanutilitytheoriginofvalue;andthereareeventhosewhodistinctlyassertthatlabouristhecauseofvalue.Ishow,onthecontrary,thatwehaveonlytotraceoutcarefullythenaturallawsofthevariationofutility,asdependinguponthequantityofcommodityinourpossession,inordertoarriveatasatisfactorytheoryofexchange,ofwhichtheordinarylawsofsupplyanddemandareanecessaryconsequence.Thistheoryisinharmonywithfacts;and,wheneverthereisanyapparentreasonforthebeliefthatlabouristhecauseofvalue,weobtainanexplanationofthereason.Labourisfoundoftentodeterminevalue,butonlyinanindirectmanner,byvaryingthedegreeofutilityofthecommoditythroughanincreaseorlimitationofthesupply.Theseviewsarenotputforwardinahastyorill-consideredmanner.Allthechiefpointsofthetheoryweresketchedouttenyearsago;buttheywerethenpublishedonlyintheformofabriefpapercommunicatedtotheStatisticalorEconomicSectionoftheBritishAssociationattheCambridgeMeeting,whichtookplaceintheyear1862.Astillbrieferabstractofthatpaperwasinsertedinthereportofthemeeting,andthepaperitselfwasnotprinteduntilJune1866.Sincewritingthatpaper,Ihave,overandoveragain,questionedthetruthofmyownnotions,butwithouteverfindinganyreasontodoubttheirsubstantialcorrectness.MathematicalcharacterofthescienceItisclearthatEconomics,ifitistobeascienceatall,mustbeamathematicalscience.Thereexistsmuchprejudiceagainstattemptstointroducethemethodsandlanguageofmathematicsintoanybranchofthemoralsciences.Manypersonsseemtothinkthatthephysicalsciencesformthepropersphereofmathematicalmethod,andthatthemoralsciencesdemandsomeothermethod–Iknownotwhat.MytheoryofEconomics,however,ispurelymathematicalincharacter.Nay,believingthatthequantitieswithwhichwedealmustbesubjecttocontinuousvariation,Idonothesitatetousetheappropriatebranchofmathematicalscience,involvingthoughitdoesthefearlessconsiderationofinfinitelysmallquantities.Thetheoryconsistsinapplyingthedifferentialcalculustothefamiliarnotionsofwealth,utility,value,demand,supply, 416TheMarginalRevolutioncapital,interest,labour,andalltheotherquantitativenotionsbelongingtothedailyoperationsofindustry.Asthecompletetheoryofalmosteveryotherscienceinvolvestheuseofthatcalculus,sowecannothaveatruetheoryofEconomicswithoutitsaid.Tomeitseemsthatoursciencemustbemathematical,simplybecauseitdealswithquantities.Whereverthethingstreatedarecapableofbeinggreaterorless,therethelawsandrelationsmustbemathematicalinnature.Theordinarylawsofsupplyanddemandtreatentirelyofquantitiesofcommoditydemandedorsupplied,andexpressthemannerinwhichthequantitiesvaryinconnectionwiththeprice.Inconsequenceofthisfactthelawsaremathematical.Economistscannotaltertheirnaturebydenyingthemthename;theymightaswelltrytoalterredlightbycallingitblue.WhetherthemathematicallawsofEconomicsarestatedinwords,orintheusualsymbols,x,y,z,p,q,andsoon,isanaccident,oramatterofmereconvenience.Ifwehadnoregardtotroubleandprolixity,themostcomplicatedmathematicalproblemsmightbestatedinordinarylanguage,andtheirsolutionmightbetracedoutbywords.Infact,somedistinguishedmathematicianshaveshownalikingforgettingridoftheirsymbols,andexpressingtheirargumentsandresultsinlan-guageasnearlyaspossibleapproximatingtothatincommonuse.InhisSystèmeduMonde,Laplaceattemptedtodescribethetruthsofphysicalastronomyincommonlanguage;andThomsonandTaitinterweavetheirgreatTreatiseonNaturalPhilosophywithaninterpretationinordinarywords,supposedtobewithinthecomprehensionofgeneralreaders.Theseattempts,howeverdistinguishedandingenioustheirauthors,soondisclosetheinherentdefectsofthegrammaranddictionaryforexpressingcomplicatedrelations.Thesymbolsofmathematicalbooksarenotdifferentinnaturefromlanguage;theyformaperfectedsystemoflanguage,adaptedtothenotionsandrelationswhichweneedtoexpress.Theydonotconstitutethemodeofreasoningtheyembody;theymerelyfacilitateitsexhibitionandcomprehension.If,then,inEconomics,wehavetodealwithquantitiesandcomplicatedrelationsofquantities,wemustreasonmathematically;wedonotrenderthesciencelessmathematicalbyavoidingthesym-bolsofalgebra–wemerelyrefusetoemploy,inaveryimperfectscience,muchneedingeverykindofassistance,thatapparatusofappropriatesignswhichisfoundindispensableinothersciences.…ChapterII:TheoryofpleasureandpainPleasureandpainasquantitiesProceedingtoconsiderhowpleasureandpaincanbeestimatedasmagnitudes,wemustundoubtedlyacceptwhatBenthamhaslaiddownuponthissubject.‘Toaperson’,hesays,‘consideredbyhimself,thevalueofapleasureorpain,consideredbyitself,willbegreaterorlessaccordingtothefourfollowingcircumstances:1Itsintensity.2Itsduration.3Itscertaintyoruncertainty.4Itspropinquityorremoteness.Thesearethecircumstanceswhicharetobeconsideredinestimatingapleasureorapainconsideredeachofthembyitself’.Benthamgoesontoconsiderthreeothercircumstanceswhichrelatetotheultimateandcom-pleteresultofanyactorfeeling;theseare:5Fecundity,orthechanceafeelinghasofbeingfollowedbyfeelingsofthesamekind:thatis,pleasures,ifitbeapleasure;pains,ifitbeapain. Jevons:TheoryofPoliticalEconomy4176Purity,orthechanceithasofnotbeingfollowedbyfeelingsofanoppositekind.7Extent,orthenumberofpersonstowhomitextends,andwhoareaffectedbyit.Thesethreelastcircumstancesareofhighimportanceasregardsthetheoryofmorals;buttheywillnotenterintothemoresimpleandrestrictedproblemwhichweattempttosolveinEconomics.Afeeling,whetherofpleasureorofpain,mustberegardedashavingtwodimensions,ormodesofvaryinginregardtoquantity.Everyfeelingmustlastsometime,anditmaylastalongerorshortertime;whileitlasts,itmaybemoreorlessacuteandintense.Ifintwocasesthedurationoffeelingisthesame,thatcasewillproducethegreaterquantitywhichisthemoreintense;orwemaysaythat,withthesameduration,thequantitywillbeproportionaltotheintensity.Ontheotherhand,iftheintensityofafeelingweretoremainconstant,thequantityoffeelingwouldincreasewithitsduration.Twodaysofthesamedegreeofhappinessaretobetwiceasmuchdesiredasoneday;twodaysofsufferingaretobefearedtwiceasmuch.Iftheintensityevercon-tinuedfixed,thewholequantitywouldbefoundbymultiplyingthenumberofunitsofintensityintothenumberofunitsofduration.Pleasureandpain,then,arequantitiespossessingtwodimensions,justassuperficiespossessesthetwodimensionsoflengthandbreadth.Inalmosteverycase,however,theintensityoffeelingwillchangefrommomenttomoment.Incessantvariationcharacterizesourstatesofmind,andthisisthesourceofthemaindifficultiesofthesubject.Nevertheless,ifthesevariationscanbetracedoutatall,oranyapproachtomethodandlawcanbedetected,itwillbepossibletoformaconceptionoftheresultingquantityoffeeling.Wemayimaginethattheintensitychangesattheendofeveryminute,butremainsconstantintheintervals.Thequantityduringeachminutemayberepresented,asinFigure1,byarectanglewhosebaseissupposedtocorrespondtothedurationofaminute,andwhoseheightisproportionaltotheintensityofthefeelingduringtheminuteinquestion.Alongthelineoxwemeasuretime,andalongparallelstotheperpendicularlineoywemeasureintensity.Eachoftherectanglesbetweenpmandqnrepresentsthefeelingof1minute.Theaggregatequantityoffeel-inggeneratedduringthetimemnwillthenberepresentedbytheaggregateareaoftherectanglesbetweenpmandqn.Inthiscasetheintensityofthefeelingissupposedtobegraduallydeclining.ypqoxmnFigure1Butitisanartificialassumptionthattheintensitywouldvarybysuddenstepsandatregularintervals.Theerrorthusintroducedwillnotbegreatiftheintervalsoftimeareveryshort,andwillbelesstheshortertheintervalsaremade.Toavoidallerror,wemustimaginetheintervalsoftimetobeinfinitelyshort;thatis,wemusttreattheintensityasvaryingcontinuously.Thustheproperrepresentationofthevariationoffeelingisfoundinacurveofmoreorlesscomplexchar-acter.InFigure2theheightofeachpointofthecurvepq,abovethehorizontallineox,indicatestheintensityoffeelinginamomentoftime;andthewholequantityoffeeling 418TheMarginalRevolutionypbqoamnxFigure2generatedinthetimemnismeasuredbytheareaboundedbythelinespm,qn,mn,andpq.Thefeelingbelongingtoanyothertime,ma,willbemeasuredbythespacemabpcutoffbytheperpendicularlineab.Pain,thenegativeofpleasureItwillbereadilyconcededthatpainistheoppositeofpleasure;sothattodecreasepainistoincreasepleasure;toaddpainistodecreasepleasure.Thuspleasureandpaintreatedaspositiveandnegativequantitiescanbetreatedinalgebra.Thealgebraicsumofaseriesofpleasuresandpainswillbeobtainedbyaddingthepleasurestogetherandthepainstogether,andthenstrikingthebalancebysubtractingthesmalleramountfromthegreater.Ourobjectwillalwaysbetomaximizetheresultingsuminthedirectionofpleasure,whichwemayfairlycallthepositivedirection.Thisobjectweshallaccomplishbyacceptingeverything,andundertakingeveryactionofwhichtheresultingpleasureexceedsthepainwhichisundergone;wemustavoideveryobjectoractionwhichleavesabalanceintheotherdirection.…ChapterIII:TheoryofutilityDefinitionoftermsPleasureandpainareundoubtedlytheultimateobjectsoftheCalculusofEconomics.Tosatisfyourwantstotheutmostwiththeleasteffort–toprocurethegreatestamountofwhatisdesirableattheexpenseoftheleastthatisundesirable–inotherwords,tomaximizepleasure,istheproblemofEconomics.Butitisconvenienttotransferourattentionassoonaspossibletothephysicalobjectsoractionswhicharethesourcetousofpleasuresandpains.Averylargepartofthelabourofanycommunityisspentupontheproductionoftheordinarynecessariesandconve-niencesoflife,suchasfood,clothing,buildings,utensils,furniture,ornaments,andsoon;andtheaggregateofthesethings,therefore,istheimmediateobjectofourattention.Itisdesirabletointroduceatonce,andtodefine,sometermswhichfacilitatetheexpressionofthePrinciplesofEconomics.Byacommodityweshallunderstandanyobject,substance,action,orservice,whichcanaffordpleasureorwardoffpain.Thenamewasoriginallyabstract,anddenotedthequalityofanythingbywhichitwascapableofservingman.Havingacquired,by Jevons:TheoryofPoliticalEconomy419acommonprocessofconfusion,aconcretesignification,itwillbewelltoretainthewordentirelyforthatsignification,andemploythetermutilitytodenotetheabstractqualitywherebyanobjectservesourpurposes,andbecomesentitledtorankasacommodity.Whatevercanproducepleasureorpreventpainmaypossessutility.J.-B.Sayhascorrectlyandbrieflydefinedutilityas‘lafacultéqu’ontleschosesdepouvoirserviràl’homme,dequelquemanierequecesoit’.Thefoodwhichpreventsthepangsofhunger,theclotheswhichfendoffthecoldofwinter,possessincontestableutility;butwemustbewareofrestrictingthemeaningofthewordbyanymoralconsiderations.Anythingwhichanindividualisfoundtodesireandtolabourformustbeassumedtopossessforhimutility.InthescienceofEconomicswetreatmennotastheyoughttobe,butastheyare.Bentham,inestablishingthefoundationsofMoralScienceinhisgreatIntroductiontothePrinciplesofMoralsandLegislation(p.3),thuscomprehensivelydefinestheterminquestion:‘Byutilityismeantthatpropertyinanyobject,wherebyittendstoproducebenefit,advantage,pleasure,good,orhappiness(allthis,inthepresentcase,comestothesamething),or(whatcomesagaintothesamething)topreventthehappeningofmischief,pain,evil,orunhap-pinesstothepartywhoseinterestisconsidered’.ThisperfectlyexpressesthemeaningofthewordinEconomics,providedthatthewillorincli-nationofthepersonimmediatelyconcernedistakenasthesolecriterion,forthetime,ofwhatisorisnotuseful.…UtilityisnotanintrinsicqualityMyprincipalworknowliesintracingouttheexactnatureandconditionsofutility.ItseemsstrangeindeedthateconomistshavenotbestowedmoreminuteattentiononasubjectwhichdoubtlessfurnishesthetruekeytotheproblemofEconomics.Inthefirstplace,utility,thoughaqualityofthings,isnoinherentquality.Itisbetterdescribedasacircumstanceofthingsarisingoutoftheirrelationtoman’srequirements.AsSeniormostaccu-ratelysays,‘Utilitydenotesnointrinsicqualityinthethingswhichwecalluseful;itmerelyexpressestheirrelationstothepainsandpleasuresofmankind’.Wecannever,therefore,sayabsolutelythatsomeobjectshaveutilityandothershavenot.Theorelyinginthemine,thedia-mondescapingtheeyeofthesearcher,thewheatlyingunreaped,thefruitungatheredforwantofconsumers,havenoutilityatall.Themostwholesomeandnecessarykindsoffoodareuselessunlesstherearehandstocollectandmouthstoeatthemsoonerorlater.Nor,whenweconsiderthematterclosely,canwesaythatallportionsofthesamecommoditypossessequalutility.Water,forinstance,mayberoughlydescribedasthemostusefulofallsubstances.Aquartofwaterperdayhasthehighutilityofsavingapersonfromdyinginamostdistressingmanner.Severalgallonsadaymaypossessmuchutilityforsuchpurposesascookingandwashing;butafteranadequatesupplyissecuredfortheseuses,anyadditionalquantityisamatterofcomparativeindifference.Allthatwecansay,then,is,thatwater,uptotoacertainquantity,isindispensable;thatfurtherquantitieswillhavevariousdegreesofutility;butthatbeyondacertainquantitytheutilitysinksgraduallytozero;itmayevenbecomenegative,thatistosay,furthersuppliesofthesamesubstancemaybecomeinconvenientandhurtful.Exactlythesameconsiderationsapplymoreorlessclearlytoeveryotherarticle.Apoundofbreadperdaysuppliedtoapersonsaveshimfromstarvation,andhasthehighestconceivableutility.Asecondpoundperdayhasalsonoslightutility:itkeepshiminastateofcomparativeplenty,thoughitbenotaltogetherindispensable.Athirdpoundwouldbegintobesuperfluous.Itisclear,then,thatutilityisnotproportionaltocommodity:theverysamearticlesvaryinutilityaccord-ingaswealreadypossessmoreorlessofthesamearticle.Thelikemaybesaidofotherthings.Onesuitofclothesperannumisnecessary,asecondconvenient,athirddesirable,afourthnot 420TheMarginalRevolutionunacceptable;butwe,soonerorlater,reachapointatwhichfurthersuppliesarenotdesiredwithanyperceptibleforce,unlessitbeforsubsequentuse.LawofthevariationofutilityLetusnowinvestigatethissubjectalittlemoreclosely.Utilitymustbeconsideredasmeasuredby,orevenasactuallyidenticalwith,theadditionmadetoaperson’shappiness.Itisaconvenientnamefortheaggregateofthefavourablebalanceoffeelingproduced–thesumofthepleasurecreatedandthepainprevented.Wemustnowcarefullydiscriminatebetweenthetotalutilityaris-ingfromanycommodityandtheutilityattachingtoanyparticularportionofit.Thusthetotalutilityofthefoodweeatconsistsinmaintaininglife,andmaybeconsideredasinfinitelygreat;butifweweretosubtractatenthpartfromwhatweeatdaily,ourlosswouldbebutslight.Weshouldcertainlynotloseatenthpartofthewholeutilityoffoodtous.Itmightbedoubtfulwhetherweshouldsufferanyharmatall.Letusimaginethewholequantityoffoodwhichapersonconsumesonanaverageduringtwenty-fourhourstobedividedintotenequalparts.Ifhisfoodbereducedbythelastpart,hewillsufferbutlittle;ifasecondtenthpartbedeficient,hewillfeelthewantdistinctly;thesub-tractionofthethirdtenthpartwillbedecidedlyinjurious;witheverysubsequentsubtractionofatenthparthissufferingswillbemoreandmoreserious,untilatlengthhewillbeuponthevergeofstarvation.Now,ifwecalleachofthetenthpartsanincrement,themeaningofthesefactsis,thateachincrementoffoodislessnecessary,orpossesseslessutility,thanthepreviousone.Toexplainthisvariationofutilitywemaymakeuseofspace-representations,whichIhavefoundconvenientinillustratingthelawsofEconomicsinmycollegelecturesinthepastfifteenyears(Figure3).yqq
pp
boxIIIIIIIVVVIVIIVIIIIXXaFigure3Letthelineoxbeusedasameasureofthequantityoffood,andletitbedividedintotenequalpartstocorrespondtothetenportionsoffoodmentionedabove.Upontheseequallinesarecon-structedrectangles,andtheareaofeachrectanglemaybeassumedtorepresenttheutilityoftheincrementoffoodcorrespondingtoitsbase.Thustheutilityofthelastincrementissmall,beingproportionaltothesmallrectangleonx.Asweapproachtowardso,eachincrementbearsalargerrectangle,thatstandinguponIIIbeingthelargestcompleterectangle.Theutilityofthenextincre-ment,II,isundefined,asalsothatofI,sincetheseportionsoffoodwouldbeindispensabletolife,andtheirutility,therefore,infinitelygreat.Wecannowformaclearnotionoftheutilityofthewholefood,orofanypartofit,forwehaveonlytoaddtogethertheproperrectangles.Theutilityofthefirsthalfofthefoodwillbethesumoftherectanglesonthelineoa;thatofthesecond,anglesstandinghalfwillberepresentedI Jevons:TheoryofPoliticalEconomy421ypbb
qoama
nxFigure4bythesumofthesmallerrectanglesbetweenaandb.Thetotalutilityofthefoodwillbethewholesumoftherectangles,andwillbeinfinitelygreat.Thecomparativeutilityoftheseveralportionsis,however,themostimportantpoint.Utilitymaybetreatedasaquantityoftwodimensions,onedimensionconsistinginthequantityofthecommodity,andanotherintheintensityoftheeffectproducedupontheconsumer.Now,thequantityofthecommodityismeasuredonthehorizontallineox,andtheintensityofutilitywillbemeasuredbythelengthoftheuprightlines,orordinates.Theintensityofutilityofthethirdincrementismeasuredeitherbypq,orpq,anditsutilityistheproductoftheunitsinppmultipliedbythoseinpq.Butthedivisionofthefoodintotenequalpartsisanarbitrarysupposition.Ifwehadtakentwentyorahundredormoreequalparts,thesamegeneralprinciplewouldholdtrue,namely,thateachsmallportionwouldbelessusefulandnecessarythanthelast.Thelawmaybeconsid-eredtoholdtruetheoretically,howeversmalltheincrementsaremade;andinthiswayweshallatlastreachafigurewhichisundistinguishablefromacontinuouscurve.Thenotionofinfinitelysmallquantitiesoffoodmayseemabsurdasregardstheconsumptionofoneindividual;but,whenweconsidertheconsumptionofanationasawhole,theconsumptionmaywellbecon-ceivedtoincreaseordiminishbyquantitieswhichare,practicallyspeaking,infinitelysmallcom-paredwiththewholeconsumption.Thelawswhichweareabouttotraceoutaretobeconceivedastheoreticallytrueoftheindividual;theycanonlybepracticallyverifiedasregardstheaggre-gatetransactions,productions,andconsumptionsofalargebodyofpeople.Butthelawsoftheaggregatedependofcourseuponthelawsapplyingtoindividualcases.Thelawofthevariationofthedegreeofutilityoffoodmaythusberepresentedbyacontin-uouscurvepbq(Figure4),andtheperpendicularheightofeachpointofthecurveabovethelineox,representsthedegreeofutilityofthecommoditywhenacertainamounthasbeenconsumed.Thus,whenthequantityoahasbeenconsumed,thedegreeofutilitycorrespondstothelengthofthelineab;forifwetakeverylittlemorefood,aa,itsutilitywillbetheproductofaaandabveryandmorenearlythelessisthemagnitudeofaa.Thedegreeofutilityisthusproperlymea-suredbytheheightofaverynarrowrectanglecorrespondingtoaverysmallquantityoffood,whichtheoreticallyoughttobeinfinitelysmall.TotalutilityanddegreeofutilityWearenowinapositiontoappreciateperfectlythedifferencebetweenthetotalutilityofanycommodityandthedegreeofutilityofthecommodityatanypoint.Theseare,infact,quantitiesofaltogetherdifferentkinds,thefirstbeingrepresentedbyanarea,andthesecondbyaline. 422TheMarginalRevolutionWemustconsiderhowwemayexpressthesenotionsinappropriatemathematicallanguage.Letxsignify,asisusualinmathematicalbooks,thequantitywhichvariesindependently–inthiscasethequantityofcommodity.Letudenotethewholeutilityproceedingfromtheconsumptionofx.Thenuwillbe,asmathematicianssay,afunctionofx;thatis,itwillvaryinsomecontinuousandregular,butprobablyunknown,manner,whenxismadetovary.Ourgreatobjectatpresent,however,istoexpressthedegreeofutility.Mathematiciansemploythesignprefixedtoasignofquantity,suchasx,tosignifythataquantityofthesamenatureasx,butsmallinproportiontox,istakenintoconsideration.Thusxmeansasmallportionofx,andxxisthereforeaquantityalittlegreaterthanx.Now,whenxisaquantityofcommodity,theutilityofxxwillbemorethanthatofxasageneralrule.Letthewholeutilityofxxbedenotedbyuu;thenitisobviousthattheincrementofutilityubelongstotheincrementofcommodityx;andif,forthesakeofargument,wesup-posethedegreeofutilityuniformoverthewholeofx,whichisnearlytrueowingtoitssmallness,weshallfindthecorrespondingdegreeofutilitybydividingubyx.WefindtheseconsiderationsfullyillustratedbyFigure4,inwhichoarepresentsx,andabisthedegreeofutilityatthepointa.Now,ifweincreasexbythesmallquantityaa,orx,theutilityisincreasedbythesmallrectangleabba,oru;and,sincearectangleistheproductofitssides,wefindthatthelengthofthelineab,thedegreeofutility,isrepresentedbythefractionu/x.Asalreadyexplained,however,theutilityofacommoditymaybeconsideredtovarywithperfectcontinuity,sothatwecommitasmallerrorinassumingittobeuniformoverthewholeincrementx.Toavoidthiswemustimaginextobereducedtoaninfinitelysmallsize,udecreasingwithit.Thesmallerthequantitiesarethemorenearlyweshallhaveacorrectexpressionforab,thedegreeofutilityatthepointa.Thusthelimitofthisfractionu/x,or,asitiscommonlyexpressed,du/dx,isthedegreeofutilitycorrespondingtothequantityofcom-modityx.Thedegreeofutilityis,inmathematicallanguage,thedifferentialcoefficientofuconsideredasafunctionofx,andwillitselfbeanotherfunctionofx.Weshallseldomneedtoconsiderthedegreeofutilityexceptasregardsthelastincrementwhichhasbeenconsumed,or,whichcomestothesamething,thenextincrementwhichisabouttobeconsumed.Ishallthereforecommonlyusetheexpressionfinaldegreeofutility,asmeaningthedegreeofutilityofthelastaddition,orthenextpossibleadditionofaverysmall,orinfinitelysmall,quantitytotheexistingstock.Inordinarycircumstances,too,thefinaldegreeofutilitywillnotbegreatcomparedwithwhatitmightbe.Onlyinfamineorotherextremecircumstancesdoweapproachthehigherdegreesofutility.Accordingly,wecanoftentreatthelowerportionsofthecurvesofvariation(pbq,Figure4)whichconcernordinarycommercialtransactions,whileweleaveoutofsighttheportionsbeyondporq.Itisalsoevidentthatwemayknowthedegreeofutilityatanypointwhileignorantofthetotalutility,thatis,theareaofthewholecurve.Tobeabletoestimatethetotalenjoymentofapersonwouldbeaninterestingthing,butitwouldnotbereallysoimportantastobeabletoestimatetheadditionsandsubtractionstohisenjoyment,whichcircumstancesoccasion.Inthesamewayaverywealthypersonmaybequiteunabletoformanyaccuratestatementofhisaggregatewealth;butmayneverthelesshaveexactaccountsofincomeandexpenditure,thatis,ofadditionsandsubtractions.VariationofthefinaldegreeofutilityThefinaldegreeofutilityisthatfunctionuponwhichtheTheoryofEconomicswillbefoundtoturn.Economists,generallyspeaking,havefailedtodiscriminatebetweenthisfunctionandthetotalutility,andfromthisconfusionhasarisenmuchperplexity.Manycommoditieswhicharemostusefultousareesteemedanddesiredbutlittle.Wecannotlivewithoutwater,andyetinordinarycircumstanceswesetnovalueonit.Whyisthis?Simplybecauseweusuallyhaveso Jevons:TheoryofPoliticalEconomy423muchofitthatitsfinaldegreeofutilityisreducednearlytozero.Weenjoy,everyday,thealmostinfiniteutilityofwater,butthenwedonotneedtoconsumemorethanwehave.Letthesupplyrunshortbydrought,andwebegintofeelthehigherdegreesofutility,ofwhichwethinkbutlittleatothertimes.Thevariationofthefunctionexpressingthefinaldegreeofutilityistheall-importantpointineconomicproblems.Wemaystateasagenerallaw,thatthedegreeofutilityvarieswiththequantityofcommodity,andultimatelydecreasesasthatquantityincreases.Nocommoditycanbenamedwhichwecontinuetodesirewiththesameforce,whateverbethequantityalreadyinuseorpossession.Allourappetitesarecapableofsatisfactionorsatietysoonerorlater,infact,boththesewordsmean,etymologically,thatwehavehadenough,sothatmoreisofnousetous.Itdoesnotfollow,indeed,thatthedegreeofutilitywillalwayssinktozero.Thismaybethecasewithsomethings,espe-ciallythesimpleanimalrequirements,suchasfood,water,air,andthelike.Butthemorerefinedandintellectualourneedsbecome,thelessaretheycapableofsatiety.Tothedesireforarticlesoftaste,science,orcuriosity,whenonceexcited,thereishardlyalimit.…DistributionofcommodityindifferentusesTheprinciplesofutilitymaybeillustratedbyconsideringthemodeinwhichwedistributeacommoditywhenitiscapableofseveraluses.Therearearticleswhichmaybeemployedformanydistinctpurposes:thus,barleymaybeusedeithertomakebeer,spirits,bread,ortofeedcattle;sugarmaybeusedtoeat,orforproducingalcohol;timbermaybeusedinconstruction,orasfuel;ironandothermetalsmaybeappliedtomanydifferentpurposes.Imagine,then,acommunityinthepossessionofacertainstockofbarley;whatprincipleswillregulatetheirmodeofconsumingit?Or,aswehavenotyetreachedthesubjectofexchange,imagineanisolatedfamily,orevenanindividual,possessinganadequatestock,andusingsomeinonewayandsomeinanother.Thetheoryofutilitygives,theoreticallyspeaking,acompletesolutionofthequestion.Letsbethewholestockofsomecommodity,andletitbecapableoftwodistinctuses.Thenwemayrepresentthetwoquantitiesappropriatedtotheseusesbyx1,andy1,itbeingaconditionthatx1y1
s.Thepersonmaybeconceivedassuccessivelyexpendingsmallquantitiesofthecommodity.Nowitistheinevitabletendencyofhumannaturetochoosethatcoursewhichappearstoofferthegreatestadvantageatthemoment.Hence,whenthepersonremainssatisfiedwiththedistributionhehasmade,itfollowsthatnoalterationwouldyieldhimmorepleasure;whichamountstosayingthatanincrementofcommoditywouldyieldexactlyasmuchutilityinoneuseasinanother.Letu1,u2,betheincrementsofutility,whichmightariserespectivelyfromconsuminganincrementofcommodityinthetwodifferentways.Whenthedistributioniscompleted,weoughttohaveu1
u2;oratthelimitwehavetheequationdu1/dx
du2/dy,whichistruewhenx,yarerespectivelyequaltox1,y1.Wemust,inotherwords,havethefinaldegreesofutilityinthetwousesequal.Thesamereasoningwhichappliestousesofthesamecommoditywillevidentlyapplytoanytwouses,andhencetoallusessimultaneously,sothatweobtainaseriesofequationslessnumerousbyaunitthanthenumberofwaysofusingthecommodity.Thegeneralresultisthatcommodity,ifconsumedbyaperfectlywisebeing,mustbeconsumedwithamaximumproductionofutility.Weshouldoftenfindtheseequationstofall.Evenwhenxisequalto99/100ofthestock,itsdegreeofutilitymightstillexceedtheutilityattachingtotheremaining1/100partineitheroftheotheruses.Thiswouldmeanthatitwaspreferabletogivethewholecommoditytothefirstuse.Suchacasemightperhapsbesaidtobenottheexceptionbuttherule;for,wheneveracommodityiscapableofonlyoneuse,thecircumstanceistheoreticallyrepresentedbysaying,thatthefinaldegreeofutilityinthisemploymentalwaysexceedsthatinanyotheremployment. 424TheMarginalRevolutionUnderpeculiarcircumstancesgreatchangesmaytakeplaceintheconsumptionofacommodity.Inatimeofscarcitytheutilityofbarleyasfoodmightrisesohighastoexceedaltogetheritsutility,evenasregardsthesmallestquantity,inproducingalcoholicliquors;itsconsumptioninthelatterwaywouldthencease.Inabesiegedtowntheemploymentofarticlesbecomesrevolutionized.Thingsofgreatutilityinotherrespectsareruthlesslyappliedtostrangepurposes.InParisavaststockofhorseswereeaten,notsomuchbecausetheywereuselessinotherways,asbecausetheywereneededmorestronglyasfood.Acertainstockofhorseshad,indeed,toberetainedasanecessaryaidtolocomotion,sothattheequationofthedegreesofutilityneverwhollyfailed.…ChapterIV:TheoryofExchangeImportanceofexchangeineconomicsExchangeissoimportantaprocessinthemaximizingofutilityandthesavingoflabour,thatsomeeconomistshaveregardedtheirscienceastreatingofthisoperationalone.Utilityarisesfromcommoditiesbeingbroughtinsuitablequantitiesandatthepropertimesintothepossessionofpersonsneedingthem;anditisbyexchange,morethananyothermeans,thatthisiseffected.Tradeisnotindeedtheonlymethodofeconomizing:asingleindividualmaygaininutilitybyaproperconsumptionofthestockinhispossession.Thebestemploymentoflabourandcapitalbyasinglepersonisalsoaquestiondisconnectedfromthatofexchange,andwhichmustyetbetreatedinthescience.But,withtheseexceptions,Iamperfectlywillingtoagreewiththehighimportanceattributedtoexchange.ItisimpossibletohaveacorrectideaofthescienceofEconomicswithoutaperfectcompre-hensionoftheTheoryofExchange;andIfinditbothpossibleanddesirabletoconsiderthissubjectbeforeintroducinganynotionsconcerninglabourortheproductionofcommodities.InthesewordsofJ.S.MillIthoroughlyconcur:‘Almosteveryspeculationrespectingtheeconomi-calinterestsofasocietythusconstituted,impliessometheoryofValue:thesmallesterroronthatsubjectinfectswithcorrespondingerrorallourotherconclusions;andanythingvagueormistyinourconceptionofitcreatesconfusionanduncertaintyineverythingelse’.Butwhenheproceedstosay,‘Happily,thereisnothinginthelawsofValuewhichremainsforthepresentoranyfuturewritertoclearup;thetheoryofthesubjectiscomplete’–heuttersthatwhichitwouldberashtosayofanyofthesciences.AmbiguityofthetermValueImust,inthefirstplace,pointoutthethoroughlyambiguousandunscientificcharacterofthetermvalue.AdamSmithnoticedtheextremedifferenceofmeaningbetweenvalueinuseandvalueinexchange;anditisusualforwritersonEconomicstocautiontheirreadersagainsttheconfusionofthoughttowhichtheyareliable.ButIdonotbelievethateitherwritersorreaderscanavoidtheconfusionsolongastheyusetheword.Inspiteofthemostacutefeelingofthedanger,Ioftendetectmyselfusingthewordimproperly;nordoIthinkthatthebestauthorsescapethedanger.LetusturntoMill’sdefinitionofExchangeValue,andweseeatoncethemisleadingpoweroftheterm.Hetellsus,‘Valueisarelativeterm.Thevalueofathingmeansthequantityofsomeotherthing,orofthingsingeneral,whichitexchangesfor’.Now,ifthereisanyfactcertainaboutexchangevalue,itis,thatitmeansnotanobjectatall,butacircumstanceofanobject.Valueimplies,infact,arelation;butifso,itcannotpossiblybesomeotherthing.AstudentofEconomicshasnohopeofeverbeingclearandcorrectinhisideasofthescienceifhethinksofvalueasat Jevons:TheoryofPoliticalEconomy425allathingoranobject,orevenasanythingwhichliesinathingorobject.Personsarethusledtospeakofsuchanonentityasintrinsicvalue.Thereare,doubtless,qualitiesinherentinsuchasub-stanceasgoldorironwhichinfluenceitsvalue;butthewordValue,sofarasitcanbecorrectlyused,merelyexpressesthecircumstanceofitsexchanginginacertainratioforsomeothersubstance.ValueexpressesRatioofExchangeIfatonofpig-ironexchangesinamarketforanounceofstandardgold,neithertheironisvaluenorthegold;noristherevalueintheironnorinthegold.Thenotionofvalueisconcernedonlyinthefactorcircumstanceofoneexchangingfortheother.Thusitisscientificallyincorrecttosaythatthevalueofthetonofironistheounceofgold:wethusconvertvalueintoaconcretething;anditis,ofcourse,equallyincorrecttosaythatthevalueoftheounceofgoldisthetonofiron.Themorecorrectandsafeexpressionis,thatthevalueofthetonofironisequaltothevalueoftheounceofgold,orthattheirvaluesareasonetoone.Valueinexchangeexpressesnothingbutaratio,andthetermshouldnotbeusedinanyothersense.Tospeaksimplyofthevalueofanounceofgoldisasabsurdastospeakoftheratioofthenumberseventeen.Whatistheratioofthenumberseventeen?Thequestionadmitsnoanswer,fortheremustbeanothernumbernamedinordertomakearatio;andtheratiowilldifferaccordingtothenumbersuggested.Whatisthevalueofironcomparedwiththatofgold?–isanintelligiblequestion.Theanswerconsistsinstatingtheratioofthequantitiesexchanged.PopularuseofthetermValueInthepopularuseofthewordvaluenolessthanthreedistinctthoughconnectedmeaningsseemtobeconfusedtogether.Thesemaybedescribedas1Valueinuse;2Esteem,orurgencyofdesire;3Ratioofexchange.AdamSmith,inthefamiliarpassagealreadyreferredto,distinguishedbetweenthefirstandthethirdmeanings.Hesaid,‘Thewordvalue,itistobeobserved,hastwodifferentmeanings,andsometimesexpressesthepowerofpurchasingothergoodswhichthepossessionofthatobjectconveys.Theonemaybecalled“valueinuse”;theother“valueinexchange”.Thethingswhichhavethegreatestvalueinusehavefrequentlylittleornovalueinexchange;and,onthecontrary,thosewhichhavethegreatestvalueinexchangehavefrequentlylittleornovalueinuse.Nothingismoreusefulthanwater:butitwillpurchasescarceanything;scarceanythingcanbehadinexchangeforit.Adiamond,onthecontrary,hasscarceanyvalueinuse;butaverygreatquantityofothergoodsmayfrequentlybehadinexchangeforit’.Itissufficientlyplainthat,whenSmithspeaksofwaterasbeinghighlyusefulandyetdevoidofpurchasingpower,hemeanswaterinabundance,thatistosay,watersoabundantlysuppliedthatithasexerteditsfullusefuleffect,oritstotalutility.Water,whenitbecomesveryscarce,asinadrydesert,acquiresexceedinglygreatpurchasingpower.ThusSmithevidentlymeansbyvalueinuse,thetotalutilityofasubstanceofwhichthedegreeofutilityhassunkverylow,becausethewantofsuchsub-stancehasbeenwellnighsatisfied.Bypurchasingpowerheclearlymeanstheratioofexchangeforothercommodities.Butherehefailstopointoutthatthequantityofgoodsreceivedinexchangedependsjustasmuchuponthenatureofthegoodsreceived,asonthenatureofthosegivenforthem.Inexchangeforadiamondwecangetagreatquantityofiron,orcorn,orpaving-stones,orothercommodityofwhichthereisabundance;butwecangetveryfewrubies,sapphires,orotherpreciousstones.Silverisofhighpurchasingpowercomparedwithzinc,orlead,oriron, 426TheMarginalRevolutionbutofsmallpurchasingpowercomparedwithgold,platinum,oriridium.Yetwemightwellsayinanycasethatdiamondandsilverarethingsofhighvalue.ThusIamledtothinkthatthewordvalueisoftenusedinrealitytomeanintensityofdesireoresteemforathing.Asilverornamentisabeautifulobjectapartfromallideasoftraffic;itmaythusbevaluedoresteemedsimplybecauseitsuitsthetasteandfancyofitsowner,andistheonlyonepossessed.EvenRobinsonCrusoemusthavelookeduponeachofhispossessionswithvaryingesteemanddesireformore,althoughhewasincapableofexchangingwithanyotherperson.Now,inthissensevalueseemstobeidenticalwiththefinaldegreeofutilityofacommodity,asdefinedinapreviouspage…itismeasuredbytheintensityofthepleasureorbenefitwhichwouldbeobtainedfromanewincre-mentofthesamecommodity.Nodoubtthereisacloseconnectionbetweenvalueinthismean-ing,andvalueasratioofexchange.Nothingcanhaveahighpurchasingpowerunlessitbehighlyesteemedinitself;butitmaybehighlyesteemedapartfromallcomparisonwithotherthings;and,thoughhighlyesteemed,itmayhavealowpurchasingpower,becausethosethingsagainstwhichitismeasuredarestillmoreesteemed.ThusIcometotheconclusionthat,intheuseofthewordvalue,threedistinctmeaningsarehabituallyconfusedtogether,andrequiretobethusdistinguished:1Valueinuse
totalutility;2Esteem
finaldegreeofutility;3Purchasingpower
ratioofexchange.Itisnottobeexpectedthatwecouldprofitablydiscusssuchmattersaseconomicdoctrines,whilethefundamentalideasofthesubjectarethusjumbleduptogetherinoneambiguousword.Theonlythoroughremedyconsistsinsubstitutingforthedangerousnamevaluethatoneofthethreestatedmeaningswhichisintendedineachcase.Inthiswork,therefore,Ishalldiscontinuetheuseofthewordvaluealtogether,andwhen,aswillbemostoftenthecaseintheremainderofthebook,Ineedtorefertothethirdmeaning,oftencalledbyeconomistsexchangeorexchangeablevalue,IshallsubstitutethewhollyunequivocalexpressionRatioofExchange,specifyingatthesametimewhatarethetwoarticlesexchanged.Whenwespeakoftheratioofexchangeofpig-ironandgold,therecanbenopossibledoubtthatweintendtorefertotheratioofthenumberofunitsoftheonecommoditytothenumberofunitsoftheothercommodityforwhichitexchanges,theunitsbeingarbitraryconcretemagnitudes,buttheratioanabstractnumber.…DefinitionofmarketBeforeproceedingtotheTheoryofExchange,itwillbedesirabletoplacebeyonddoubtthemeaningsoftwoothertermswhichIshallfrequentlyemploy.ByaMarketIshallmeanmuchwhatcommercialmenuseittoexpress.Originallyamarketwasapublicplaceinatownwhereprovisionsandotherobjectswereexposedforsale;butthewordhasbeengeneralized,soastomeananybodyofpersonswhoareinintimatebusinessrelationsandcarryonextensivetransactionsinanycommodity.Agreatcitymaycontainasmanymarketsasthereareimportantbranchesoftrade,andthesemarketsmayormaynotbelocalized.Thecentralpointofamarketisthepublicexchange,martorauctionrooms,wherethetradersagreetomeetandtransactbusiness.InLondon,theStockMarket,theCornMarket,theCoalMarket,theSugarMarket,andmanyothers,aredistinctlylocalized;inManchester,theCottonMarket,theCottonWasteMarket,andothers.Butthisdistinctionoflocalityisnotnecessary.Thetradersmaybespreadoverawholetown,orregionofcountry,andyetmakeamarket,iftheyare,by Jevons:TheoryofPoliticalEconomy427meansoffairs,meetings,publishedpricelists,thepostoffice,orotherwise,inclosecommunicationwitheachother.Thus,thecommonexpressionMoneyMarketdenotesnolocality:itisappliedtotheaggregateofthosebankers,capitalists,andothertraderswholendorborrowmoney,andwhoconstantlyexchangeinformationconcerningthecourseofbusiness.InEconomicswemayusefullyadoptthistermwithaclearandwell-definedmeaning.ByamarketIshallmeantwoormorepersonsdealingintwoormorecommodities,whosestocksofthosecommoditiesandintentionsofexchangingareknowntoall.Itisalsoessentialthattheratioofexchangebetweenanytwopersonsshouldbeknowntoalltheothers.Itisonlysofarasthiscommunityofknowledgeextendsthatthemarketextends.Anypersonswhoarenotacquaintedatthemomentwiththeprevailingratioofexchange,orwhosestocksarenotavailableforwantofcommunication,mustnotbeconsideredpartofthemarket.Secretorunknownstocksofacommoditymustalsobeconsideredbeyondreachofamarketsolongastheyremainsecretandunknown.Everyindividualmustbeconsideredasexchangingfromapureregardtohisownrequirementsorprivateinterests,andtheremustbeperfectlyfreecompetition,sothatanyonewillexchangewithanyoneelsefortheslightestapparentadvantage.Theremustbenoconspiraciesforabsorbingandholdingsuppliestoproduceunnaturalratiosofexchange.Wereaconspiracyoffarmerstowithholdallcornfrommarket,theconsumersmightbedriven,bystarvation,topaypricesbearingnoproperrelationtotheexistingsupplies,andtheordinaryconditionsofthemarketwouldbethusoverthrown.Thetheoreticalconceptionofaperfectmarketismoreorlesscompletelycarriedoutinpractice.Itistheworkofbrokersinanyextensivemarkettoorganizeexchange,sothateverypurchaseshallbemadewiththemostthoroughacquaintancewiththeconditionsofthetrade.Eachbrokerstrivestogainthebestknowledgeoftheconditionsofsupplyanddemand,andtheearliestinti-mationofanychange.Heisincommunicationwithasmanyothertradersaspossible,inordertohavethewidestrangeofinformation,andthegreatestchanceofmakingsuitableexchanges.Itisonlythusthatadefinitemarketpricecanbeascertainedateverymoment,andvariedaccordingtothefrequentnewscapableofaffectingbuyersandsellers.Bythemediationofabodyofbrokersacompleteconsensusisestablished,andthestockofeverysellerorthedemandofeverybuyerbroughtintothemarket.Itisoftheveryessenceoftradetohavewideandcon-stantinformation.Amarket,then,istheoreticallyperfectonlywhenalltradershaveperfectknowledgeoftheconditionsofsupplyanddemand,andtheconsequentratioofexchange;andinsuchamarket,asweshallnowsee,therecanonlybeoneratioofexchangeofoneuniformcommodityatanymoment.Soessentialisaknowledgeoftherealstateofsupplyanddemandtothesmoothprocedureoftradeandtherealgoodofthecommunity,thatIconceiveitwouldbequitelegitimatetocompelthepublicationofanyrequisitestatistics.Secrecycanonlyconducetotheprofitofspeculatorswhogainfromgreatfluctuationsofprices.Speculationisadvantageoustothepubliconlysofarasittendstoequalizeprices;anditis,therefore,againstthepublicgoodtoallowspeculatorstofosterartificiallytheinequalitiesofpricesbywhichtheyprofit.Thewelfareofmillions,bothofconsumersandproducers,dependsuponanaccurateknowledgeofthestocksofcottonandcorn;anditwould,therefore,benounwarrantableinterferencewiththelibertyofthesubjecttorequireanyinformationastothestocksinhand.InBillingsgatefishmarkettherewaslongagoaregulationtotheeffectthatsalesmenshallfixupinaconspicuousplaceeverymorningastate-mentofthekindandamountoftheirstock.ThesameprinciplehaslongbeenrecognisedintheActsofParliamentconcerningthecollectionofstatisticsofthequantitiesandpricesofcornsoldinEnglishmarkettowns.Morerecentlysimilarlegislationhastakenplaceasregardsthecottontrade,intheCottonStatisticsActof1868.Publicity,wheneveritcanthusbeenforcedonmarketsbypublicauthority,tendsalmostalwaystotheadvantageofeverybodyexceptperhapsafewspeculatorsandfinanciers. 428TheMarginalRevolutionDefinitionoftradingbodyIfinditnecessarytoadoptsomeexpressionforanynumberofpeoplewhoseaggregateinfluenceinamarket,eitherinthewayofsupplyordemand,wehavetoconsider.ByatradingbodyImean,inthemostgeneralmanner,anybodyeitherofbuyersorsellers.Thetradingbodymaybeasingleindividualinonecase;itmaybethewholeinhabitantsofacontinentinanother;itmaybetheindividualsofatradediffusedthroughacountryinathird.EnglandandNorthAmericawillbetradingbodiesifweareconsideringthecornwereceivefromAmericainexchangeforironandothergoods.ThecontinentofEuropeisatradingbodyaspurchasingcoalfromEngland.ThefarmersofEnglandareatradingbodywhentheysellcorntothemillers,andthemillersbothwhentheybuycornfromthefarmersandsellflourtothebakers.Wemustusetheexpressionwiththiswidemeaning,becausetheprinciplesofexchangearethesameinnature,howeverwideornarrowmaybethemarketconsidered.Everytradingbodyiseitheranindividualoranaggregateofindividuals,andthelaw,inthecaseoftheaggregate,mustdependuponthefulfilmentoflawintheindividuals.Wecannotusuallyobserveanypreciseandcontinuousvariationinthewantsanddeedsofanindividual,becausetheactionofextrane-ousmotives,orwhatwouldseemtobecaprice,overwhelmsminutetendencies.AsIhavealreadyremarked…asingleindividualdoesnotvaryhisconsumptionofsugar,butter,oreggsfromweektoweekbyinfinitesimalamounts,accordingtoeachsmallchangeintheprice.Heprobablycontinueshisordinaryconsumptionuntilaccidentdirectshisattentiontoariseinprice,andhethen,perhaps,discontinuestheuseofthearticlesaltogetherforatime.Buttheaggregate,orwhatisthesame,theaverageconsumption,ofalargecommunitywillbefoundtovarycontinu-ouslyornearlyso.Themostminutetendenciesmakethemselvesapparentinawideaverage.Thus,ourlawsofEconomicswillbetheoreticallytrueinthecaseofindividuals,andpracticallytrueinthecaseoflargeaggregates;butthegeneralprincipleswillbethesame,whatevertheextentofthetradingbodyconsidered.Weshallbejustified,then,inusingtheexpressionwiththeutmostgenerality.Itshouldberemarked,however,thattheeconomiclawsrepresentingtheconductoflargeaggregatesofindividualswillneverrepresentexactlytheconductofanyoneindividual.Ifwecouldimaginethattherewereathousandindividualsallexactlyalikeinregardtotheirdemandforcommodities,andtheircapabilitiesofsupplyingthem,thentheaveragelawsofsupplyanddemanddeducedfromtheconductofsuchindividualswouldagreewiththeconductofanyoneindividual.Butacommunityiscomposedofpersonsdifferingwidelyintheirpowers,wants,habits,andpossessions.InsuchcircumstancestheaveragelawsapplyingtothemwillcomeunderwhatIhaveelsewherecalledthe‘FictitiousMean’,thatistosay,theyarenumericalresultswhichdonotpretendtorepresentthecharacterofanyexistingthing.Butaveragelawswouldnotonthisaccountbelessuseful,ifwecouldobtainthem;forthemovementsoftradeandindustrydependuponaveragesandaggregates,notuponthewhimsofindividuals.TheLawofIndifferenceWhenacommodityisperfectlyuniformorhomogeneousinquality,anyportionmaybeindiffer-entlyusedinplaceofanequalportion:hence,inthesamemarket,andatthesamemoment,allportionsmustbeexchangedatthesameratio.Therecanbenoreasonwhyapersonshouldtreatexactlysimilarthingsdifferently,andtheslightestexcessinwhatisdemandedforoneovertheotherwillcausehimtotakethelatterinsteadoftheformer.Innicelybalancedexchangesitisaveryminutescruplewhichturnsthescaleandgovernsthechoice.Aminutedifferenceofqualityinacommoditymaythusgiverisetopreference,andcausetheratioofexchangetodif-fer.Butwherenodifferenceexistsatall,orwherenodifferenceisknowntoexist,therecanbenogroundforpreferencewhatever.If,insellingaquantityofperfectlyequalanduniformbarrelsof Jevons:TheoryofPoliticalEconomy429flour,amerchantarbitrarilyfixeddifferentpricesonthem,apurchaserwouldofcourseselectthecheaperones;andwheretherewasabsolutelynodifferenceinthethingpurchased,evenanexcessofapennyinthepriceofathingworthathousandpoundswouldbeavalidgroundofchoice.Hencefollowswhatisundoubtedlytrue,withproperexplanations,thatinthesameopenmarket,atanyonemoment,therecannotbetwopricesforthesamekindofarticle.Suchdifferencesasmaypracticallyoccurarisefromextraneouscircumstances,suchasthedefectivecreditofthepurchasers,theirimperfectknowledgeofthemarket,andsoon.TheprincipleexpressedaboveisagenerallawoftheutmostimportanceinEconomics,andIproposetocallitTheLawofIndifference,meaningthat,whentwoobjectsorcommoditiesaresubjecttonoimportantdifferenceasregardsthepurposeinview,theywilleitherofthembetakeninsteadoftheotherwithperfectindifferencebyapurchaser.Everysuchactofindifferentchoicegivesrisetoanequationofdegreesofutility,sothatinthisprincipleofindifferencewehaveoneofthecentralpivotsofthetheory.Thoughthepriceofthesamecommoditymustbeuniformatanyonemoment,itmayvaryfrommomenttomoment,andmustbeconceivedasinastateofcontinualchange.Theoreticallyspeaking,itwouldnotusuallybepossibletobuytwoportionsofthesamecommoditysuccessivelyatthesameratioofexchange,because,nosoonerwouldthefirstportionhavebeenboughtthantheconditionsofutilitywouldbealtered.Whenexchangesaremadeonalargescale,thisresultwillbeverifiedinpractice.Ifawealthypersoninvested£100,000inthefundsinthemorning,itishardlylikelythattheoperationcouldberepeatedintheafternoonatthesameprice.Inanymarket,ifapersongoesonbuyinglargely,hewillultimatelyraisethepriceagainsthimself.Thusitisapparentthatextensivepurchaseswouldbestbemadegradually,soastosecuretheadvan-tageofalowerpriceupontheearlierportions.Intheorythiseffectofexchangeupontheratioofexchangemustbeconceivedtoexistinsomedegree,howeversmallthepurchasesmademaybe.Strictlyspeaking,theratioofexchangeatanymomentisthatofdytodx,ofaninfinitelysmallquantityofonecommoditytotheinfinitelysmallquantityofanotherwhichisgivenforit.Theratioofexchangeisreallyadifferentialcoefficient.Thequantityofanyarticlepurchasedisafunctionofthepriceatwhichitispurchased,andtheratioofexchangeexpressestherateatwhichthequantityofthearticleincreasescomparedwithwhatisgivenforit.Wemustcarefullydistinguish,atthesametime,betweentheStaticsandDynamicsofthissub-ject.Therealconditionofindustryisoneofperpetualmotionandchange.Commoditiesarebeingcontinuallymanufacturedandexchangedandconsumed.Ifwewishedtohaveacompletesolutionoftheprobleminallitsnaturalcomplexity,weshouldhavetotreatitasaproblemofmotion–aproblemofdynamics.Butitwouldsurelybeabsurdtoattemptthemoredifficultquestionwhenthemoreeasyoneisyetsoimperfectlywithinourpower.Itisonlyasapurelysta-ticalproblemthatIcanventuretotreattheactionofexchange.Holdersofcommoditieswillberegardednotascontinuouslypassingonthesecommoditiesinstreamsoftrade,butaspossessingcertainfixedamountswhichtheyexchangeuntiltheycometoequilibrium.Itismuchmoreeasytodeterminethepointatwhichapendulumwillcometorestthantocal-culatethevelocityatwhichitwillmovewhendisplacedfromthatpointofrest.Justso,itisafarmoreeasytasktolaydowntheconditionsunderwhichtradeiscompletedandinterchangeceases,thantoattempttoascertainatwhatratetradewillgoonwhenequilibriumisnotattained.Thedifferencewillpresentitselfinthisform:dynamicallywecouldnottreattheratioofexchangeotherwisethanastheratioofdyanddx,infinitesimalquantitiesofcommodity.Ourequationswouldthenberegardedasdifferentialequations,whichwouldhavetobeintegrated.Butinthestaticalviewofthequestionwecansubstitutetheratioofthefinitequantitiesyandx.Thus,fromtheself-evidentprinciple…thattherecannot,inthesamemarket,atthesamemoment,betwodifferentpricesforthesameuniformcommodity,itfollowsthatthelastincrementsinanactofexchangemustbeexchangedinthesameratioasthewholequantitiesexchanged.Supposethattwo 430TheMarginalRevolutioncommoditiesarebarteredintheratioofxfory;theneverymthpartofxisgivenforthemthpartofy,anditdoesnotmatterforwhichofthemthparts.Nopartofthecommoditycanbetreateddifferentlyfromanyotherpart.Wemaycarrythisdivisiontoanindefiniteextentbyimaginingmtobeconstantlyincreased,sothat,atthelimit,evenaninfinitelysmallpartofxmustbeexchangedforaninfinitelysmallpartofy,inthesameratioasthewholequantities.Thisresultwemayexpressbystatingthattheincrementsconcernedintheprocessofexchangemustobeytheequationdyy.
dxxTheusewhichweshallmakeofthisequationwillbeseeninthenextsection.TheTheoryofExchangeThekeystoneofthewholeTheoryofExchange,andoftheprincipalproblemsofEconomics,liesinthisproposition–Theratioofexchangeofanytwocommoditieswillbethereciprocaloftheratioofthefinaldegreesofutilityofthequantitiesofcommodityavailableforconsumptionaftertheexchangeiscompleted.Whenthereaderhasreflectedalittleuponthemeaningofthisproposition,hewillsee,Ithink,thatitisnecessarilytrue,iftheprinciplesofhumannaturehavebeencorrectlyrepresentedinpreviouspages.Imaginethatthereisonetradingbodypossessingonlycorn,andanotherpossessingonlybeef.Itiscertainthat,underthesecircumstances,aportionofthecornmaybegiveninexchangeforaportionofthebeefwithaconsiderableincreaseofutility.Howarewetodetermineatwhatpointtheexchangewillceasetobebeneficial?Thisquestionmustinvolveboththeratioofexchangeandthedegreesofutility.Suppose,foramoment,thattheratioofexchangeisapprox-imatelythatoftenpoundsofcornforonepoundofbeef:thenif,tothetradingbodywhichpos-sessescorn,tenpoundsofcornarelessusefulthanoneofbeef,thatbodywilldesiretocarrytheexchangefurther.Shouldtheotherbodypossessingbeeffindonepoundlessusefulthantenpoundsofcorn,thisbodywillalsobedesiroustocontinuetheexchange.Exchangewillthusgoonuntileachpartyhasobtainedallthebenefitthatispossible,andlossofutilitywouldresultifmorewereexchanged.Bothparties,then,restinsatisfactionandequilibrium,andthedegreesofutilityhavecometotheirlevel,asitwere.Thispointofequilibriumwillbeknownbythecriterion,thataninfinitelysmallamountofcommodityexchangedinaddition,atthesamerate,willbringneithergainnorlossofutility.Inotherwords,ifincrementsofcommoditiesbeexchangedattheestablishedratio,theirutilitieswillbeequalforbothparties.Thus,iftenpoundsofcornwereofexactlythesameutilityasonepoundofbeef,therewouldbeneitherharmnorgoodinfurtherexchangeatthisratio.Itishardlypossibletorepresentthistheorycompletelybymeansofadiagram,butFigure5may,perhaps,renderitclearer.Supposethelinepqrtobeasmallportionofthecurveofutilityofonecommodity,whilethebrokenlinepqristhelikecurveofanothercommoditywhichhasbeenreversedandsuperposedontheother.Owingtothisreversal,thequantitiesofthefirstcommodityaremeasuredalongthebaselinefromatowardsb,whereasthoseofthesecondmustbemeasuredintheoppositedirection.Letunitsofbothcommoditiesberepresentedbyequallengths:thenthelittlelineaaindicatesanincreaseofthefirstcommodity,andadecreaseofthesecond.Assumetheratioofexchangetobethatofunitforunit,or1to1:then,byreceivingthecommodityaathepersonwillgaintheutilityad,andlosetheutilityac;orhewillmakeanetgainoftheutilitycorrespondingtothemixtilinearfigurecd.Hewill,therefore,wishtoextendthe Jevons:TheoryofPoliticalEconomy431pr
dfqcep
ra
amb
bFigure5exchange.Ifheweretogouptothepointb,andwerestillproceeding,hewould,bythenextsmallexchange,receivetheutilitybe,andpartwithbf;orhewouldhaveanetlossofef.Hewould,therefore,havegonetoofar;anditisprettyobviousthatthepointofintersection,q,definestheplacewherehewouldstopwiththegreatestadvantage.Itistherethatanetgainisconvertedintoanetloss,orratherwhere,foraninfinitelysmallquantity,thereisneithergainnorloss.Torepresentaninfinitelysmallquantity,orevenanexceedinglysmallquantity,onadia-gramis,ofcourse,impossible;butoneithersideofthelinemqIhaverepresentedtheutilitiesofasmallquantityofcommoditymoreorless,anditisapparentthatthenetgainorlossupontheexchangeofthesequantitieswouldbetrifling.SymbolicstatementofthetheoryTorepresentthisprocessofreasoninginsymbols,letxdenoteasmallincrementofcorn,andyasmallincrementofbeefexchangedforit.NowourLawofIndifferencecomesintoplay.Asboththecornandthebeefarehomogeneouscommodities,nopartscanbeexchangedatadifferentratiofromotherpartsinthesamemarket:hence,ifxbethewholequantityofcorngivenforythewholequantityofbeefreceived,ymusthavethesameratiotoxasytox;wehavethen,yyy,
ory
x.xxxInastateofequilibrium,theutilitiesoftheseincrementsmustbeequalinthecaseofeachparty,inorderthatneithermorenorlessexchangewouldbedesirable.Nowtheincrementofbeef,y,isy/xtimesasgreatastheincrementofcorn,x,sothat,inorderthattheirutilitiesshallbeequal,thedegreexofutilityofbeefmustbex/ytimesasgreatasthedegreeofutilityofcorn.Thuswearriveattheprinciplethatthedegreesofutilityofcommoditiesexchangedwillbeintheinversepro-portionofthemagnitudesoftheincrementsexchanged.Letusnowsupposethatthefirstbody,A,originallypossessedthequantityaofcorn,andthatthesecondbody,B,possessedthequantitybofbeef.Astheexchangeconsistsingivingxofcornforyofbeef,thestateofthingsafterexchangewillbeasfollows:Aholdsaxofcorn,andyofbeef,Bholdsxofcorn,andbyofbeef.Let1(ax)denotethefinaldegreeofutilityofcorntoA,and2xthecorrespondingfunctionforB.Alsolet1ydenoteA’sfinaldegreeofutilityforbeef,and2(by)B’ssimilarfunction.Then…Awillnotbesatisfiedunlessthefollowingequationholdstrue:1(ax)•dx
1y•dy; 432TheMarginalRevolutionor1(ax)dy.
1ydxHence,substitutingforthesecondmemberbytheequationgiven[above]wehave1(ax)y.
1yx˛˛WhatholdstrueofAwillalsoholdtrueofB,mutatismutandis.Hemustalsoderiveexactlyequalutilityfromthefinalincrements,otherwiseitwillbeforhisinteresttoexchangeeithermoreorless,andhewilldisturbtheconditionsofexchange.Accordinglythefollowingequationmustholdtrue:2(by)•dy
2x•dx;or,substitutingasbefore,2xy.
2(by)xWearrive,then,attheconclusion,thatwhenevertwocommoditiesareexchangedforeachother,andmoreorlesscanbegivenorreceivedininfinitelysmallquantities,thequantitiesexchangedsat-isfytwoequations,whichmaybethusstatedinaconciseform:1(ax)y2x.

1yx2(by)Thetwoequationsaresufficienttodeterminetheresultsofexchange;forthereareonlytwounknownquantitiesconcerned,namely,xandy,thequantitiesgivenandreceived.Avaguenotionhasexistedinthemindsofeconomicalwriters,thattheconditionsofexchangemaybeexpressedintheformofanequation.Thus,J.S.Millhassaid:‘Theideaofaratio,asbetweendemandandsupply,isoutofplace,andhasnoconcerninthematter:thepropermathematicalanalogyisthatofanequation.Demandandsupply,thequantitydemandedandthequantitysupplied,willbemadeequal’.Millherespeaksofanequationasonlyapropermathematicalanalogy.ButifEconomicsistobearealscienceatall,itmustnotdealmerelywithanalogies;itmustreasonbyrealequations,likealltheotherscienceswhichhavereachedatallasystematiccharacter.Mill’sequation,indeed,isnotexplicitlythesameasanyatwhichwehavearrivedabove.HisequationstatesthatthequantityofacommoditygivenbyAisequaltothequantityreceivedbyB.Thisseemsatfirstsighttobeameretruism,forthisequalitymustneces-sarilyexistifanyexchangetakesplaceatall.Thetheoryofvalue,asexpoundedbyMill,failstoreachtherootofthematter,andshowhowtheamountofdemandorsupplyiscausedtovary.AndMilldoesnotperceivethat,astheremustbetwopartiesandtwoquantitiestoeveryexchange,theremustbetwoequations.Nevertheless,ourtheoryisperfectlyconsistentwiththelawsofsupplyanddemand;andifwehadthefunctionsofutilitydetermined,itwouldbepossibletothrowthemintoaformclearlyexpressingtheequivalenceofsupplyanddemand.Wemayregardxasthequantitydemandedononesideandsuppliedontheother;similarly,yisthequantitysuppliedontheonesideanddemandedontheother.Now,whenweholdthetwoequationstobesimultaneouslytrue,we Jevons:TheoryofPoliticalEconomy433assumethatthexandyofoneequationequalthoseoftheother.Thelawsofsupplyanddemandarethusaresultofwhatseemstomethetruetheoryofvalueorexchange.…ImpedimentstoexchangeWehavehithertotreatedtheTheoryofExchangeasiftheactionofexchangecouldbecarriedonwithouttroubleorcost.Inreality,thecostofconveyanceisalmostalwaysofimportance,anditissometimestheprincipalelementinthequestion.Tothecostofmeretransportmustbeaddedavarietyofchargesofbrokers,agents,packers,dock,harbour,lightdues,andtheliketogetherwithanycustomsdutiesimposedeitherontheimportationorexportationofcommodities.Allthesecharges,whethernecessaryorarbitrary,aresomanyimpedimentstocommerce,andtendtoreduceitsadvantages.Theeffectofanyonesuchcharge,oroftheaggregateofthecostsofexchange,canberepresentedinourformulæinaverysimplemanner.Inwhatevermodesthechargesarepayable,theymaybeconceivedaspaidbythesurrenderonimportationofacertainfractionofthecommodityreceived;fortheamountofthechargeswillusuallybeproportionaltothequantityofgoods,and,ifexpressedinmoney,canbeconsideredasturnedintocommodity.Thus,ifAgivesxinexchange,thisisnotthequantityreceivedbyB;apartofxispreviouslysubtracted,sothatBreceivessaymx,whichislessthanx,andthetermsofexchangemustbeadjustedonhispartsoastoagreewiththiscondition.Hencethesecondequationwillbey2(mx).
mx2(by)Again,A,thoughgivingx,willnotreceivethewholeofy;butsayny,sothathisequationsimilarlywillbe1(ax)ny.
1(ny)xTheresultis,thatthereisnotoneratioofexchange,buttworatios;andthemorethesediffer,thelessadvantagetherewillbeinexchange.ItisobviousthatAhaseithertoremainsatisfiedwithlessofthesecondcommoditythanbefore,orhastogivemoreofhisowninpurchasingit.Byanobvioustransferofthefactorsmandnwemaystatetheequationsofimpededexchangeintheconciseform:1(ax)ym2(mx)

.n1(ny)x2(by)IllustrationsoftheTheoryofExchangeAsstatedabove,theTheoryofExchangemayseemtobeofasomewhatabstractandperplexingcharacter;butitisnotdifficulttofindpracticalillustrationswhichwillshowhowitisverifiedintheactualworkingofagreatmarket.Theordinarylawsofsupplyanddemand,whenproperly 434TheMarginalRevolutionstated,arethepracticalmanifestationofthetheory.Considerablediscussionhastakenplacecon-cerningtheselaws,inconsequenceofMrW.T.Thornton’swritingsuponthesubjectintheFortnightlyReview,andinhisworkontheClaimsofLabour.Mill,althoughhehadpreviouslydeclaredtheTheoryofValuetobecompleteandperfect…wasledbyMrThornton’sargu-mentstoallowthatmodificationwasrequired.Formyownpart,IthinkthatmostofMrThornton’sargumentsarebesidethequestion.Hesuggeststhattherearenoregularlawsofsupplyanddemand,becauseheadducescertaincasesinwhichnoregularvariationcantakeplace.Thosecasesmightbeindefinitelymultiplied,andyetthelawsinquestionwouldnotbetouched.Ofcourse,lawswhichassumeacontinuityofvariationareinapplicablewherecontinuousvariationisimpossible.Economistscanneverbefreefromdifficultiesunlesstheywilldistinguishbetweenatheoryandtheapplicationofatheory.Because,inretailtrade,inEnglishorDutchauction,orotherparticularmodesoftraffic,wecan-notatonceobservetheoperationofthelawsofsupplyanddemand,itisnotintheleasttobesupposedthatthoselawsarefalse.Infact,MrThorntonseemstoallowthat,ifprospectivedemandandsupplyaretakenintoaccount,theybecomesubstantiallytrue.But,intheactualworkingofanymarket,theinfluenceoffutureeventsshouldneverbeneglected,neitherbyamerchantnoraneconomist.ThoughMrThornton’sobjectionsaremostlybesidethequestion,hisremarkshaveservedtoshowthattheactionofthelawsofsupplyanddemandwasinadequatelyexplainedbypreviouseconomists.Whatconstitutesthedemandandthesupplywasnotinvestigatedcarefullyenough.AsMrThorntonpointsout,theremaybeanumberofpersonswillingtobuy;butiftheirhigh-estofferiseversolittleshortofthelowestpricewhichtheselleriswillingtotake,theirinfluenceisnil.Ifinanauctiontherearetenpeoplewillingtobuyahorseat£20,butnothigher,theirdemandinstantlyceaseswhenanyonepersonoffers£21.Iaminclinednotonlytoacceptsuchaview,buttocarryitfurther.Anychangeinthepriceofanarticlewillbedeterminednotwithregardtothelargenumberswhomightormightnotbuyitatotherprices,butbythefewwhowillorwillnotbuyitaccordingasachangeismadeclosetotheexistingprice.Thetheoryconsistsincarryingoutthisviewtothepointofassertingthatitisonlycomparativelyinsignificantquantitiesofsupplyanddemandwhichareatanymomentoperativeontheratioofexchange.Thisispracticallyverifiedbywhattakesplaceinanyverylargemarket–saythatoftheConsolidatedThreePerCentAnnuities.AsthewholeamountoftheEnglishfundsisnearlyeighthundredmillionssterling,thequantityboughtorsoldbyanyordinarypurchaserisinconsiderablysmallincomparison.Even£1000worthofstockmaybetakenasaninfinitesimallysmallincrement,becauseitdoesnotappreciablyaffectthetotalexistingsupply.Nowthetheoryconsistsinassertingthatthemarketpriceofthefundsisaffectedfromhourtohournotbytheenormousamountswhichmightbeboughtorsoldatextremeprices,butbythecomparativelyinsignificantamountswhicharebeingsoldorboughtattheexistingprices.Achangeofpriceisalwaysoccasionedbytheoverbal-ancingoftheinclinationsofthosewhowillorwillnotselljustaboutthepointatwhichpricesstand.WhenConsolsare931/2,andbusinessisinatranquilstate,itmattersnothowmanybuyersthereareat93,orsellersat94.Theyarereallyoffthemarket.Thoseonlyareoperativewhomaybemadetobuyorsellbyariseorfallofaneighth.Thequestionis,whetherthepriceshallremainat931/2,orriseto935/8,orfallto933/8.Thisisdeterminedbythesaleorpurchaseofcomparativelyverysmallamounts.Itisthepurchaserswhofindalittlestockmoreprofitabletothemthanthecorrespondingsumofmoneywhomakethepriceriseby1/.Whenthepriceofthefundsisverysteadyandthe8marketquiescent,itmeansthatthestocksaredistributedamongholdersinsuchawaythattheexchangeofmoreorlessattheprevailingpriceisamatterofindifference.Inpractice,nomarketeverlongfulfilsthetheoreticalconditionsofequilibrium,because,fromthevariousaccidentsoflifeandbusiness,therearesuretobepeoplecompelledtoselleveryday, Jevons:TheoryofPoliticalEconomy435orhavingsuddeninducementstobuy.Thereisnearlyalways,again,theinfluenceofprospectivesupplyordemand,dependinguponthepoliticalintelligenceofthemoment.Speculationcom-plicatestheactionofthelawsofsupplyanddemandinahighdegree,butdoesnotintheleastdegreearresttheiractionoraltertheirnature.WeshallneverhaveascienceofEconomicsunlesswelearntodiscerntheoperationoflawevenamongthemostperplexingcomplicationsandapparentinterruptions.…ComplexcasesofthetheoryWehavehithertoconsideredtheTheoryofExchangeasapplyingonlytotwotradingbodiespossessinganddealingintwocommodities.Exactlythesameprinciplesholdtrue,howevernumerousandcomplicatedmaybetheconditions.Themainpointtoberememberedintracingouttheresultsofthetheoryis,thatthesamepairofcommoditiesinthesamemarketcanhaveonlyoneratioofexchange,whichmustthereforeprevailbetweeneachbodyandeachother,thecostsofconveyancebeingconsideredasnil.Theequationsbecomerapidlymorenumerousasadditionalbodiesorcommoditiesareconsidered;butwemayexhibitthemastheyapplytothecaseofthreetradingbodiesandthreecommodities.Thus,supposethatApossessesthestockaofcotton,andgivesx1ofittoB,x2toC.Bpossessesthestockbofsilk,andgivesy1toB,y2toC.Cpossessesthestockcofwool,andgivesz1toA,z2toB.Wehaveherealtogethersixunknownquantities:x1,x2,y1,y2,z1,z2;butwehavealsosufficientmeansofdeterminingthem.Theyareexchangedasfollows:Agivesx1fory1,andx2forz1.Bgivesy1forx1,andy2forz2.Cgivesz1forx2,andz2fory2.Thesemaybetreatedasindependentexchanges;eachbodymustbesatisfiedinregardtoeachofitsexchanges,andwemustthereforetakeintoaccountthefunctionsofutilityorthefinaldegreesofutilityofeachcommodityinrespectofeachbody.Letusexpressthesefunctionsasfollows:1,1,1aretherespectivefunctionsofutilityforA.2,2,2…………................................................B.3,3,3……….................................................…C.NowA,aftertheexchange,willholdax1x2ofcottonandy1ofsilk;andBwillholdx1ofcottonandby1y2ofsilk:theirratioofexchange,y1forx1,willthereforebegovernedbythefollowingpairofequations:1(ax1x2)y12x1.

1y1x12(by1y2) 436TheMarginalRevolutionTheexchangeofAwithCwillbesimilarlydeterminedbytheratioofthedegreesofutilityofwoolandcottononeachsidesubsequenttotheexchange;hencewehave1(ax1x2)z3x12.

1z1x23(cz1z2)TherewillalsobeinterchangebetweenBandCwhichwillbeindependentlyregulatedonsimi-larprinciples,sothatwehaveanotherpairofequationstocompletetheconditions,namely2(by1y2)z23y2.

2z2y23(cz1z2)Wemightproceedinthesamewaytolaydowntheconditionsofexchangebetweenmorenumerousbodies,buttheprincipleswouldbeexactlythesame.Foreveryquantityofcommoditywhichisgiveninexchangesomethingmustbereceived;andifportionsofthesamekindofcommoditybereceivedfromseveraldistinctparties,thenwemayconceivethequantitywhichisgivenforthatcommoditytobebrokenupintoasmanydistinctportions.Theexchangesinthemostcomplicatedcasemaythusalwaysbedecomposedintosimpleexchanges,andeveryexchangewillgiverisetotwoequationssufficienttodeterminethequantitiesinvolved.Thesamecanalsobedonewhentherearetwoormorecommoditiesinthepossessionofeachtradingbody.…AcquiredutilityofcommoditiesTheTheoryofExchange,asexplainedabove,restsentirelyontheconsiderationofquantitiesofutility,andnoreferencetolabourorcostofproductionhasbeenmade.Thevalueofadivisiblecommodity,ifImayforamomentusethedangerousterm,ismeasured,not,indeed,byitstotalutility,butbyitsfinaldegreeofutility,thatisbytheintensityoftheneedwehaveformoreofit.Butthepowerofexchangingonecommodityforanothergreatlyextendstherangeofutility.Wearenolongerlimitedtoconsideringthedegreeofutilityofacommodityasregardsthewantsofitsimmediatepossessor;foritmayhaveahigherusefulnesstosomeotherperson,andcanbetransferredtothatpersoninexchangeforsomecommodityofahigherdegreeofutilitytothepurchaser.Thegeneralresultofexchangeis,thatallcommoditiessink,asitwere,tothesamelevelofutilityinrespectofthelastportionsconsumed.IntheTheoryofExchangewefindthatthepossessorofanydivisiblecommoditywillexchangesuchaportionofit,thatthenextincrementwouldhaveexactlyequalutilitywiththeincrementofotherproducewhichhewouldreceiveforit.Thiswillholdgoodhowevervariousmaybethekindsofcommodityherequires.Supposethatapersonpossessesonesinglekindofcommodity,whichwemayconsidertobemoney,orincome,andthatp,q,r,s,t,andsoon,arequantitiesofothercommoditieswhichhepurchaseswithportionsofhisincome.Letxbetheuncertainquantityofmoneywhichhewilldesirenottoexchange;whatrelationwillexistbetweenthesequantitiesx,p,q,r,andsoon?Thisrelationwillpartlydependupontheratioofexchange,partlyonthefinaldegreeofutilityofthesecommodities.Letusassume,foramoment,that,alltheratiosofexchangeareequalitiesorthataunitofoneisalwaystobepurchasedwithaunitofanother.Then,plainly,wemusthavethedegreesofutilityequal,otherwisetherewouldbeadvantageinacquiringmoreofthatpossessingthehigherdegreeofutility.Letthesigndenotethefunction Jevons:TheoryofPoliticalEconomy437ofutility,whichwillbedifferentineachcase;thenwehavesimplytheequations:1x
2p
3q
4r
5s
etc.But,asamatteroffact,theratioofexchangeisseldomorneverthatofunitforunit;andwhenthequantitiesexchangedareunequal,thedegreesofutilitywillnotbeequal.IfforonepoundofsilkIcanhavethreeofcotton,thenthedegreeofutilityofcottonmustbeathirdthatofsilk,otherwiseIshouldgainbyexchange.Thusthegeneralresultofthefacilityofexchangeprevailinginacivilizedcountryis,thatapersonprocuressuchquantitiesofcommoditiesthatthefinaldegreesofutilityofanypairofcommoditiesareinverselyastheratiosofexchangeofthecommodities.Letx1,x2,x3,x4,andsoon,betheportionsofhisincomegivenforp,q,r,s,andsoon,respectively,thenwemusthave2px1,3qx2,4rx3,


1xp1xq1xrandsoon.Thetheorythusrepresentsthefact,thatapersondistributeshisincomeinsuchawayastoequalizetheutilityofthefinalincrementsofallcommoditiesconsumed.Aswaterrunsintohollowsuntilitfillsthemuptothesamelevel,sowealthrunsintoallthebranchesofexpenditure.Thisdistributionwillvarygreatlywithdifferentindividuals,butitisself-evidentthatthewantwhichanindividualfeelsmostacutelyatthemomentwillbethatuponwhichhewillexpendthenextincrementofhisincome.Itobviouslyfollowsthatinexpendingaperson’sincometothegreatestadvantage,thealgebraicsumofthequantitiesofcommodityreceivedorpartedwith,eachmultipliedbyitsfinaldegreeofutility[aftertheexchange],willbezero.Wecannowconceive,inanaccuratemanner,theutilityofmoney,orofthatsupplyofcom-moditywhichformsaperson’sincome.Itsfinaldegree,ofutilityismeasuredbythatofanyoftheothercommoditieswhichheconsumes.What,forinstance,istheutilityofonepennytoapoorfamilyearningfiftypoundsayear?Asapennyisaninconsiderableportionoftheirincome,itmayrepresentoneoftheinfinitelysmallincrements,anditsutilityisequaltotheutilityofthequantityofbread,tea,sugar,orotherarticleswhichtheycouldpurchasewithit,thisutilitydependingupontheextenttowhichtheywerealreadyprovidedwiththosearticles.Toafamilypossessingonethousandpoundsayear,theutilityofapennymaybemeasuredinanexactlysim-ilarmanner;butitwillbemuchless,becausetheirwantofanygivencommoditywillbesatiatedorsatisfiedtoamuchgreaterextent,sothattheurgencyofneedforapennyworthmoreofanyarticleismuchreduced.Thegeneralresultofexchangeisthustoproduceacertainequalityofutilitybetweendifferentcommodities,asregardsthesameindividual;butbetweendifferentindividualsnosuchequalitywilltendtobeproduced.InEconomicsweregardonlycommercialtransactions,andnoequalizationofwealthfromcharitablemotivesisconsidered.Thedegreeofutilityofwealthtoaveryrichmanwillbegovernedbyitsdegreeofutilityinthatbranchofexpenditureinwhichhecontinuestofeelthemostneedoffurtherpossessions.Hisprimarywantswilllongsincehavebeenfullysatisfied;hecouldfindfood,ifrequisite,forathousandpersons,andso,ofcourse,hewillhavesuppliedhim-selfwithasmuchasheintheleastdesires.Butsofarasisconsistentwiththeinequalityofwealthineverycommunity,allcommoditiesaredistributedbyexchangesoastoproducethemaximumbene-fit.Everypersonwhosewishforacertainthingexceedshiswishforotherthings,acquireswhathewantsprovidedhecanmakeasufficientsacrificeinotherrespects.Nooneiseverrequiredtogivewhathemoredesiresforwhathelessdesires,sothatperfectfreedomofexchangemustbetotheadvantageofall.… 438TheMarginalRevolutionTheoriginofvalueTheprecedingpagescontain,ifIamnotmistaken,anexplanationofthenatureofvaluewhichwill,forthemostpart,harmonizewithpreviousviewsuponthesubject.Ricardohasstated,likemostothereconomists,thatutilityisabsolutelyessentialtovalue;butthat‘possessingutility,com-moditiesderivetheirexchangeablevaluefromtwosources:fromtheirscarcity,andfromthequantityoflabourrequiredtoobtainthem’.Senior,again,hasadmirablydefinedwealth,orobjectspossessingvalue,as‘thosethings,andthosethingsonly,whicharetransferable,arelim-itedinsupply,andaredirectlyorindirectlyproductiveofpleasureorpreventiveofpain’.Speakingonlyofthingswhicharetransferable,orcapableofbeingpassedfromhandtoband,wefindthattwooftheclearestdefinitionsofvaluerecognizeutilityandscarcityastheessentialqualities.Butthemomentthatwedistinguishbetweenthetotalutilityofamassofcommodityandthedegreeofutilityofdifferentportions,wemaysaythatitisscarcitywhichpreventsthefallinthefinaldegreeofutility.Breadhasthealmostinfiniteutilityofmaintaininglife,andwhenitbecomesaquestionoflifeordeath,asmallquantityoffoodexceedsinvalueallotherthings.Butwhenweenjoyourordinarysuppliesoffood,aloafofbreadhaslittlevalue,becausetheutilityofanadditionalloafissmall,ourappetitesbeingsatiatedbyourcustomarymeals.IhavepointedouttheexcessiveambiguityofthewordValue,andtheapparentimpossibilityofusingitsafely.Whenintendedtoexpressthemerefactofcertainarticlesexchanginginaparticularratio,Ihaveproposedtosubstitutetheunequivocalexpression–ratioofexchange.ButIaminclinedtobelievethataratioisnotthemeaningwhichmostpersonsattachtothewordValue.Thereisacertainsenseofesteemordesirableness,whichwemayhavewithregardtoathingapartfromanydistinctconsciousnessoftheratioinwhichitwouldexchangeforotherthings.Imaysuggestthatthisdistinctfeelingofvalueisprobablyidenticalwiththefinaldegreeofutility.WhileAdamSmith’softenquotedvalueinuseisthetotalutilityofacommoditytous,thevalueinexchangeisdefinedbytheterminalutility,theremainingdesirewhichweorothershaveforpossessingmore.Thereremainsthequestionoflabourasanelementofvalue.Economistshavenotbeenwantingwhoputforwardlabourasthecauseofvalue,assertingthatallobjectsderivetheirvaluefromthefactthatlabourhasbeenexpendedonthem;anditisthusimplied,ifnotstated,thatvaluewillbeproportionaltolabour.Thisisadoctrinewhichcannotstandforamoment,beingdirectlyopposedtofacts.Ricardodisposesofsuchanopinionwhenhesays:‘Therearesomecommodi-ties,thevalueofwhichisdeterminedbytheirscarcityalone.Nolabourcanincreasethequantityofsuchgoods,andthereforetheirvaluecannotbeloweredbyanincreasedsupply.Somerarestatuesandpictures,scarcebooksandcoins,winesofapeculiarquality,whichcanbemadeonlyfromgrapesgrownonaparticularsoil,ofwhichthereisaverylimitedquantity,areallofthisdescription.Theirvalueiswhollyindependentofthequantityoflabouroriginallynecessarytoproducethem,andvarieswiththevaryingwealthandinclinationsofthosewhoaredesiroustopossessthem’.Themerefactthattherearemanythings,suchasrareancientbooks,coins,antiquities,andthelike,whichhavehighvalues,andwhichareabsolutelyincapableofproductionnow,dispersesthenotionthatvaluedependsonlabour.Eventhosethingswhichareproducibleinanyquantitybylabourseldomexchangeexactlyatthecorrespondingvalues.Themarketpriceofcorn,cot-ton,iron,andmostotherthingsis,intheprevalenttheoriesofvalue,allowedtofluctuateaboveorbelowitsnaturalorcostvalue.Theremay,again,beanydiscrepancybetweenthequantityoflabourspentuponanobjectandthevalueultimatelyattachingtoit.AgreatundertakingliketheGreatWesternRailway,ortheThamesTunnel,mayembodyavastamountoflabour,butitsvaluedependsentirelyuponthenumberofpersonswhofindituseful.IfnousecouldbefoundfortheGreatEasternsteamship,itsvaluewouldbenil,exceptfortheutilityofsomeofitsmateri-als.Ontheotherhand,asuccessfulundertaking,whichhappenstopossessgreatutility,mayhave Jevons:TheoryofPoliticalEconomy439avalue,foratimeatleast,farexceedingwhathasbeenspentuponit,asinthecaseofthe[first]AtlanticCable.Thefactis,thatlabouroncespenthasnoinfluenceonthefuturevalueofanyarticle:itisgoneandlostforever.Incommercebygonesareforeverbygones;andwearealwaysstartingclearateachmoment,judgingthevaluesofthingswithaviewtofutureutility.Industryisessentiallyprospective,notretrospective;andseldomdoestheresultofanyundertakingexactlycoincidewiththefirstintentionsofitspromoters.Butthoughlabourisneverthecauseofvalue,itisinalargeproportionofcasesthedeterminingcircumstance,andinthefollowingway:Valuedependssolelyonthefinaldegreeofutility.Howcanwevarythisdegreeofutility?–Byhavingmoreorlessofthecommoditytoconsume.Andhowshallwegetmoreorlessofit?–Byspendingmoreorlesslabourinobtainingasupply.Accordingtothisview,then,therearetwostepsbetweenlabourandvalue.Labouraffectssupply,andsupplyaffectsthedegreeofutility,whichgovernsvalue,ortheratioofexchange.Inorderthattheremaybenopossiblemistakeabouttheseimportantseriesofrelations,Iwillre-stateitinatabularform,asfollows:Costofproductiondeterminessupply;Supplydeterminesfinaldegreeofutility;Finaldegreeofutilitydeterminesvalue.Butitiseasytogotoofarinconsideringlabourastheregulatorofvalue;itisequallytoberememberedthatlabourisitselfofunequalvalue.Ricardo,byaviolentassumption,foundedhistheoryofvalueonquantitiesoflabourconsideredasoneuniformthing.Hewasawarethatlabourdiffersinfinitelyinqualityandefficiency,sothateachkindismoreorlessscarce,andisconsequentlypaidatahigherorlowerrateofwages.Heregardedthesedifferencesasdisturbingcircumstanceswhichwouldhavetobeallowedfor;buthistheoryrestsontheassumedequalityoflabour.Thistheoryrestsonawhollydifferentground.Iholdlabourtobeessentiallyvariable,sothatitsvaluemustbedeterminedbythevalueoftheproduce,notthevalueoftheproducebythatofthelabour.Iholdittobeimpossibletocompareáprioritheproductivepowersofanavy,acarpenter,aniron-puddler,aschoolmaster,andabarrister.Accordingly,itwillbefoundthatnotoneofmyequationsrepresentsacomparisonbetweenoneman’slabourandanother’s.Theequation,ifthereisoneatall,isbetweenthesamepersonintwoormoredifferentoccupations.Thesubjectisoneinwhichcomplicatedactionandreactiontakesplace,andwhichwemustdeferuntilafterwehavedescribed,inthenextchapter,theTheoryofLabour.ChapterV:TheoryofLabourDefinitionoflabourAdamSmithsaid,‘Therealpriceofeverything,whateverythingreallycoststothemanwhowantstoacquireit,isthetoilandtroubleofacquiringit.…Labourwasthefirstprice,theoriginalpurchase-moneythatwaspaidforallthings’.Ifsubjectedtoaverysearchinganalysis,thiscelebratedpassagemightnotprovetobesoentirelytrueasitwouldatfirstsightseemtomostreaders.Yetitissubstantiallytrue,andluminouslyexpressesthefactthatlabouristhebeginningoftheprocessestreatedbyeconomistsasconsumptionistheendandpurpose.Labouristhepainfulexertionwhichweundergotowardoffpainsofgreateramount,ortoprocurepleasureswhichleaveabalanceinourfavour.Courcelle-SeneuilandHearnhavestatedtheproblemofEconomicswiththeutmosttruthandbrevityinsaying,thatitistosatisfyourwantswiththeleastpossiblesumoflabour.Indefininglabourforthepurposesoftheeconomistwehaveachoicebetweentwocourses.Inthefirstplace,wemay,ifwelike,includeinitallexertionofbodyormind.Agameofcricketwould,inthiscase,belabour;butifitbeundertakensolelyforthesakeoftheenjoymentattachingtoit, 440TheMarginalRevolutionthequestionariseswhetherweneedtakeitunderournotice.Allexertionnotdirectedtoadistantanddistinctendmustberepaidsimultaneously.Thereisnoaccountofgoodoreviltobebal-ancedatafuturetime.WearenotpreventedinanywayfromincludingsuchcasesinourTheoryofEconomics;infact,ourTheoryofLabourwill,ofnecessity,applytothem.Butweneednotoccupyourattentionbycaseswhichdemandnocalculus.Whenweexertourselvesforthesoleamusementofthemoment,thereisbutoneruleneeded,namely,tostopwhenwefeelinclined–whenthepleasurenolongerequalsthepain.Itwillprobablybebetter,therefore,totakethesecondcourseandconcentrateourattentiononsuchexertionasisnotcompletelyrepaidbytheimmediateresult.ThiswouldgiveusadefinitionnearlythesameasthatofSay,whodefinedlabouras‘Actionsuivée,dirigéeversunbut’.Labour,Ishouldsay,isanypainfulexertionofmindorbodyundergonepartlyorwhollywithaviewtofuturegood.Itistruethatlabourmaybebothagreeableatthetimeandconducivetofuturegood;butitisonlyagreeableinalimitedamount,andmostmenarecompelledbytheirwantstoexertthemselveslongerandmoreseverelythantheywouldotherwisedo.Whenalabourerisinclinedtostop,heclearlyfeelssomethingthatisirksome,andourtheorywillonlyinvolvethepointwheretheexer-tionhasbecomesopainfulastonearlybalanceallotherconsiderations.Whateverthereisthatiswholesomeoragreeableaboutlabourbeforeitreachesthispointmaybetakenasanetprofitofgoodtothelabourer;butitdoesnotenterintotheproblem.Itisonlywhenlabourbecomeseffortthatwetakeaccountofit,and,asHearntrulysays,‘sucheffort,astheverytermseemstoimply,ismoreorlesstroublesome’.Infact,wemust,aswillshortlyappear,measurelabourbytheamountofpainwhichattachestoit.QuantitativenotionsoflabourLetusendeavourtoformaclearnotionofwhatwemeanbyamountoflabour.Itisplainthatdurationwillbeoneelementofit;forapersonlabouringuniformlyduringtwomonthsmustbeallowedtolabourtwiceasmuchasduringonemonth.Butlabourmayvaryalsoinintensity.Inthesametimeamanmaywalkagreaterorlessdistance;maysawagreaterorlessamountoftimber;maypumpagreaterorlessquantityofwater;inshort,mayexertmoreorlessmuscularandnervousforce.Henceamountoflabourwillbeaquantityoftwodimensions,theproductofintensityandtimewhentheintensityisuniform,orthesumrepresentedbytheareaofacurvewhentheintensityisvariable.Butintensityoflabourmayhavemorethanonemeaning;itmaymeanthequantityofworkdone,orthepainfulnessoftheeffortofdoingit.Thesetwothingsmustbecarefullydistin-guished,andbothareofgreatimportanceforthetheory.Theoneisthereward,theotherthepenalty,oflabour.Orrather,astheproduceisonlyofinteresttoussofarasitpossessesutility,wemaysaythattherearethreequantitiesinvolvedinthetheoryoflabour–theamountofpainfulexertion,theamountofproduce,andtheamountofutilitygained.Thevariationofutility,asdependingonthequantityofcommoditypossessed,hasalreadybeenconsidered;thevariationoftheamountofproducewillbetreatedinthenextchapter;wewillheregiveattentiontothevariationofthepainfulnessoflabour.Experienceshowsthataslabourisprolongedtheeffortbecomesasageneralrulemoreandmorepainful.Afewhoursofworkperdaymaybeconsideredagreeableratherthanotherwise;butsosoonastheoverflowingenergyofthebodyisdrainedoff,itbecomesirksometoremainatwork.Asexhaustionapproaches,continuedeffortbecomesmoreandmoreintolerable.Jenningshassoclearlystatedthislawofthevariationoflabour,thatImustquotehiswords.‘Betweenthesetwopoints,thepointofincipienteffortandthepointofpainfulsuffering,itisquiteevidentthatthedegreeoftoilsomesensationsendureddoesnotvarydirectlyasthequantityofworkper-formed,butincreasesmuchmorerapidly,liketheresistanceofferedbyanopposingmediumtothevelocityofamovingbody’. Jevons:TheoryofPoliticalEconomy441‘Whenthisobservationcomestobeappliedtothetoilsomesensationsenduredbytheworkingclasses,itwillbefoundconvenienttofixonamiddlepoint,theaverageamountoftoilsomesen-sationattendingtheaverageamountoflabour,andtomeasurefromthispointthedegreesofvariation.If,forthesakeofillustration,thisaverageamountbeassumedtobeoftenhours’dura-tion,itwouldfollowthat,ifatanyperiodtheamountweretobesupposedtobereducedtofivehours,thesensationsoflabourwouldbefound,atleastbythemajorityofmankind,tobealmostmergedinthepleasuresofoccupationandexercise,whilsttheamountofworkperformedwouldonlybediminishedbyone-half;if,onthecontrary,theamountweretobesupposedtobeincreasedtotwentyhours,thequantityofworkproducedwouldonlybedoubled,whilsttheamountoftoilsomesufferingwouldbecomeinsupportable.Thus,ifthequantityproduced,greaterorlessthantheaveragequantity,weretobedividedintoanynumberofpartsofequalmagnitude,theamountoftoilsomesensationattendingeachsucceedingincrementwouldbefoundgreaterthanthatwhichwouldattendtheincrementpreceding;andtheamountoftoil-somesensationattendingeachsucceedingdecrementwouldbefoundlessthanthatwhichwouldattendthedecrementpreceding’.Therecanbenoquestionofthegeneraltruthoftheabovestatement,althoughwemaynothavethedataforassigningtheexactlawofthevariation.WemayimaginethepainfulnessoflabourinproportiontoproducetoberepresentedbysomesuchcurveasabcdinFigure6.Inthisdiagramtheheightofpointsabovethelineoxdenotespleasure,anddepthsbelowitpain.Atthemomentofcommencinglabouritisusuallymoreirksomethanwhenthemindandbodyarewellbenttothework.Thus,atfirst,thepainismeasuredbyoa.Atbthereisneitherpainnorpleasure.Betweenbandcanexcessofpleasureisrepresentedasduetotheexertionitself.Butafterctheenergybeginstoberapidlyexhausted,andtheresultingpainisshownbythedownwardtendencyofthelinecd.ypqobcmxadFigure6[Figure9inJevons’text]Wemayatthesametimerepresentthedegreeofutilityoftheproducebysomesuchcurveaspq,theamountofproducebeingmeasuredalongthelineox.Agreeablytothetheoryofutility,alreadygiven,thecurveshowsthat,thelargerthewagesearned,thelessisthepleasurederivedfromafurtherincrement.Therewill,ofnecessity,besomepointmsuchthatqm
dm,thatistosay,suchthatthepleasuregainedisexactlyequaltothelabourendured.Now,ifwepasstheleastbeyondthispoint,abalanceofpainwillresult:therewillbeanever-decreasingmotiveinfavouroflabour,andanever-increasingmotiveagainstit.Thelabourerwillevidentlycease,then,atthe 442TheMarginalRevolutionpointm.Itwouldbeinconsistentwithhumannatureforamantoworkwhenthepainofworkexceedsthedesireofpossession,includingallthemotivesforexertion.Wemustconsiderthedurationoflabourasmeasuredbythenumberofhoursofworkperday.Thealternationofdayandnightontheearthhasrenderedmanessentiallyperiodicinhishabitsandactions.Inanaturalandwholesomeconditionamanshouldreturneachtwenty-fourhourstoexactlythesamestate;atanyrate,thecycleshouldbeclosedwithinthesevendaysoftheweek.Thusthelabourermustnotbesupposedtobeeitherincreasingordiminishinghisnormalstrength.Butthetheorymightalsobemadetoapplytocaseswherespecialexertionisundergoneformanydaysorweeksinsuccession,inordertocompletework,asincollectingtheharvest.Adequatemotivesmayleadtoandwarrantoverwork,but,iflongcontinued,excessivelabourreducesthestrengthandbecomesinsupportable;andthelongeritcontinuestheworseitis,thelawbeingsomewhatsimilartothatofperiodiclabour. CARLMENGER(1840–1921)CarlMengerwasborninPolandandreceivedalawdegreefromtheUniversityofKrakowin1867.HebecameinterestedineconomicswhileworkingintheofficeofthePrimeMinisterinViennaandpublishedhisPrinciplesofEconomicsin1871,thesameyearthatJevonspublishedhisTheoryofPoliticalEconomy.Apartfromathree-yearbreakservingastutortotheCrownPrinceofAustria,hewasaprofes-sorattheUniversityofViennafrom1873until1903,whenheresignedtodevotehistimefullytoresearchandwriting–inparticular,fleshingoutandextendingtheanalysisfirstelaboratedinhisPrinciples.Unfortunately,hewasunabletodosobeforehisdeathin1921.ThroughhisPrinciples,Mengermadefundamentalcontributionstotheeconomictheoryofvalueandprice,centeringonthetheoryofutilityandthecomplementarityrelationshipsbetweenconsumerandpro-ducergoods.Menger’sanalysisdidnotusethepleasure–painlocusofJevons,but,rather,theideaofsubjectivelyfelthumanneedsandthetranslationoftheseintoconsumerdemands.Healsoempha-CarlMenger,bycourtesyofTheWarrenJ.SamuelsPortraitsizedtheessentialcommonalitybetweenCollectionatDukeUniversity.thevalue-determinationprocessesofcon-sumer(“lowerorder”)andproducer(“higherorder”)goods,andhedidallofthissansthemathematicalanddiagrammaticalapparatusthatmarkstheworkofJevonsandWalras.ItisthesethemesthataredealtwithintheexcerptsfromhisPrinciples,reprintedbelow.MengerwasalsoakeyplayerintheMethodenstreit,defendingtheuseofpuretheoryagainsttheGermanHistoricalSchool’sadvocacyofempiricalandhistoricalcasestudies.However,hesimultaneouslyemphasizedtheimportanceofinstitutionsandthecomplexmannerinwhichtheyoriginatedandevolved.Hearguedboththatmanyimportantinstitutionsevolvednondeliberatively, 444TheMarginalRevolutionthatis,withoutconsciousdesign,andthatthesesameinstitutionswereandmustbetheobjectofdeliberativecritiqueandrevision.Mengeralsoworkedinthefieldofmonetarytheory,wherehiswritingsbecamefoundationalworksforthelaterelaborationofAustrianmonetarytheoryinthehandsof,forexample,LudwigvonMises.ReferencesandfurtherreadingCalwell,BruceJ.,ed.(1990)CarlMengerandHisLegacyinEconomics,Durham,NC:DukeUniversityPress.Endres,A.M.(1995)“CarlMenger’sTheoryofPriceFormationReconsidered,”HistoryofPoliticalEconomy27(Summer):261–87.Hayek,F.A.(1981)“CarlMenger,”introductiontoCarlMenger,PrinciplesofEconomics,translatedbyJamesDingwallandBertF.Hoselitz,NewYork:NewYorkUniversityPress.Hicks,J.R.andWeber,W.(eds)(1973)CarlMengerandtheAustrianSchoolofEconomics,Oxford:ClarendonPress.Menger,Carl(1934–1936)TheCollectedWorksofCarlMenger,London:LondonSchoolofEconomics.Mises,Ludwigvon(1978)“CarlMengerandtheAustrianSchoolofEconomics,”inLudwigvonMises,TheClashofGroupInterestsandOtherEssays,NewYork:CenterforLibertarianStudies.Streissler,Eric(1972)“ToWhatExtentWastheAustrianSchoolMarginalist?”HistoryofPoliticalEconomy4(Fall):426–41.VariousAuthors,“CarlMengerandAustrianEconomics,”AtlanticEconomicJournal6(September):specialissues.Vaugh,KarenI.(1987)“Menger,Carl,”inJohnEatwell,MurrayMilgateandPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,438–44. PrinciplesofEconomics(1871)*ChapterIII:Thetheoryofvalue1.ThenatureandoriginofvalueIftherequirementsforagood,inatimeperiodoverwhichtheprovidentactivityofmenistoextend,aregreaterthanthequantityofitavailabletothemforthattimeperiod,andiftheyendeavortosatisfytheirneedsforitascompletelyaspossibleinthegivencircumstances,menfeelimpelledtoengageintheactivitydescribedearlieranddesignatedeconomizing.Buttheirpercep-tionofthisrelationshipgivesrisetoanotherphenomenon,thedeeperunderstandingofwhichisofdecisiveimportanceforourscience.Irefertothevalueofgoods.Iftherequirementsforagoodarelargerthanthequantityofitavailable,andsomepartoftheneedsinvolvedmustremainunsatisfiedinanycase,theavailablequantityofthegoodcanbediminishedbynopartofthewholeamount,inanywaypracticallyworthyofnotice,withoutcausingsomeneed,previouslyprovidedfor,tobesatisfiedeithernotatalloronlylesscompletelythanwouldotherwisehavebeenthecase.Thesatisfactionofsomeonehumanneedisthereforedependentontheavailabilityofeachconcrete,practicallysignificant,quantityofallgoodssubjecttothisquantitativerelationship.Ifeconomizingmenbecomeawareofthiscircumstance(i.e.iftheyperceivethatthesatisfactionofoneoftheirneeds,orthegreaterorlesscompletenessofitssatisfaction,isdependentontheircommandofeachportionofaquantityofgoodsoroneachindividualgoodsubjecttotheabovequantitativerelationship)thesegoodsattainforthemthesignificancewecallvalue.Valueisthustheimportancethatindividualgoodsorquantitiesofgoodsattainforusbecauseweareconsciousofbeingdependentoncommandofthemforthesatisfactionofourneeds.Thevalueofgoods,accordingly,isaphenomenonthatspringsfromthesamesourceastheeconomiccharacterofgoods–thatis,fromtherelationship,explainedearlier,betweenrequire-mentsforandavailablequantitiesofgoods.Butthereisadifferencebetweenthetwophenom-ena.Ontheonehand,perceptionofthisquantitativerelationshipstimulatesourprovidentactivity,thuscausinggoodssubjecttothisrelationshiptobecomeobjectsofoureconomizing(i.e.economicgoods).Ontheotherhand,perceptionofthesamerelationshipmakesusawareofthesignificancethatcommandofeachconcreteunitoftheavailablequantitiesofthesegoodshasforourlivesandwell-being,thuscausingittoattainvalueforus.Justasapenetratinginvestigationofmentalprocessesmakesthecognitionofexternalthingsappeartobemerelyourconscious-nessoftheimpressionsmadebytheexternalthingsuponourpersons,andthus,inthefinal*PrinciplesofEconomics,First,GeneralPart,byCarlMenger,translatedandeditedbyJamesDingwallandBertF.Hoselitz,withanIntroductionbyFrankH.Knight,TheFreePress,Glencoe,Illinois,1950. 446TheMarginalRevolutionanalysis,merelythecognitionofstatesofourownpersons,sotoo,inthefinalanalysis,istheimportancethatweattributetothingsoftheexternalworldonlyanoutflowoftheimportancetousofourcontinuedexistenceanddevelopment(lifeandwell-being).Valueisthereforenothinginherentingoods,nopropertyofthem,butmerelytheimportancethatwefirstattributetothesatisfactionofourneeds,thatis,toourlivesandwell-being,andinconsequencecarryovertoeconomicgoodsastheexclusivecausesofthesatisfactionofourneeds.Fromthis,itisalsoclearwhyonlyeconomicgoodshavevaluetous,whilegoodssubjecttothequantitativerelationshipresponsiblefornon-economiccharactercannotattainvalueatall.Therelationshipresponsibleforthenon-economiccharacterofgoodsconsistsinrequirementsforgoodsbeingsmallerthantheiravailablequantities.Thustherearealwaysportionsofthewholesupplyofnon-economicgoodsthatarerelatedtonounsatisfiedhumanneed,andwhichcanthereforelosetheirgoods-characterwithoutimpinginginanywayonthesatisfactionofhumanneeds.Hencenosatisfactiondependsonourcontrolofanyoneoftheunitsofagoodhavingnon-economiccharacter,andfromthisitfollowsthatdefinitequantitiesofgoodssubjecttothisquantitativerelationship(non-economicgoods)alsohavenovaluetous.Ifaninhabitantofavirginforesthasseveralhundredthousandtreesathisdisposalwhileheneedsonlysometwentyayearforthefullprovisionofhisrequirementsfortimber,hewillnotconsiderhimselfinjuredinanyway,inthesatisfactionofhisneeds,ifaforestfiredestroysathousandorsoofthetrees,providedheisstillinapositiontosatisfyhisneedsascompletelyasbeforewiththerest.Insuchcircumstances,therefore,thesatisfactionofnoneofhisneedsdependsuponhiscommandofanysingletree,andforthisreasonatreealsohasnovaluetohim.Butsupposetherearealsointheforesttenwildfruittreeswhosefruitisconsumedbythesameindividual.Supposetoo,thattheamountoffruitavailabletohimisnotlargerthanhisrequirements.Certainlythen,notasingleoneofthesefruittreescanbeburnedinthefirewith-outcausinghimtosufferhungerasaresult,orwithoutatleastcausinghimtobeunabletosatisfyhisneedforfruitascompletelyasbefore.Forthisreasoneachoneofthefruittreeshasvaluetohim.Iftheinhabitantsofavillageneedathousandpailsofwaterdailytomeettheirrequirementscompletely,andabrookisattheirdisposalwithadailyflowofahundredthousandpails,aconcreteportionofthisquantityofwater,onepailforinstance,willhavenovaluetothem,sincetheycouldsatisfytheirneedsforwaterjustascompletelyifthispartialamountwereremovedfromtheircom-mand,orifitwerealtogethertoloseitsgoods-character.Indeed,theywillletmanythousandsofpailsofthisgoodflowtotheseaeverydaywithoutinanywayimpairingsatisfactionoftheirneedforwater.Aslongastherelationshipresponsibleforthenon-economiccharacterofwatercontin-ues,therefore,thesatisfactionofnoneoftheirneedswilldependupontheircommandofanyonepailofwaterinsuchawaythatthesatisfactionofthisneedwouldnottakeplaceiftheywerenotinapositiontousethatparticularpail.Forthisreasonapailofwaterhasnovaluetothem.If,ontheotherhand,thedailyflowofthebrookweretofalltofivehundredpailsdailyduetoanunusualdroughtorotheractofnature,andtheinhabitantsofthevillagehadnoothersourceofsupply,theresultwouldbethatthetotalquantitythenavailablewouldbeinsufficienttosatisfytheirfullneedsforwater,andtheycouldnotventuretoloseanypartofthatquantity,onepailforinstance,withoutimpairingthesatisfactionoftheirneeds.Eachconcreteportionofthequantityattheirdisposalwouldcertainlythenhavevaluetothem.Non-economicgoods,therefore,notonlydonothaveexchangevalue,ashaspreviouslybeensupposedintheliteratureofoursubject,butnovalueatall,andhencenousevalue.Ishallattempttoexplaintherelationshipbetweenexchangevalueandusevalueingreaterdetaillater,whenIhavedealtwithsomeoftheprinciplesrelevanttotheirconsideration.Forthetimebeing, Menger:PrinciplesofEconomics447letitbeobservedthatexchangevalueandusevaluearetwoconceptssubordinatetothegeneralconceptofvalue,andhencecoordinateintheirrelationstoeachother.AllthatIhavealreadysaidaboutvalueingeneralisaccordinglyasvalidforusevalueasitisforexchangevalue.Ifthen,alargenumberofeconomistsattributeusevalue(thoughnotexchangevalue)tonon-economicgoods,andifsomerecentEnglishandFrencheconomistsevenwishtobanishtheconceptusevalueentirelyfromourscienceandseeitreplacedwiththeconceptutility,theirdesirerestsonamisunderstandingoftheimportantdifferencebetweenthetwoconceptsandtheactualphenomenaunderlyingthem.Utilityisthecapacityofathingtoserveforthesatisfactionofhumanneeds,andhence(providedtheutilityisrecognized)itisageneralprerequisiteofgoods-character.Non-economicgoodshaveutil-ityaswellaseconomicgoods,sincetheyarejustascapableofsatisfyingourneeds.Withthesegoodsalso,theircapacitytosatisfyneedsmustberecognizedbymen,sincetheycouldnototherwiseacquiregoods-character.Butwhatdistinguishesanon-economicgoodfromagoodsubjecttothequantita-tiverelationshipresponsibleforeconomiccharacteristhecircumstancethatthesatisfactionofhumanneedsdoesnotdependupontheavailabilityofconcretequantitiesoftheformerbutdoesdependupontheavailabilityofconcretequantitiesofthelatter.Forthisreasontheformerpossessesutility,butonlythelatter,inadditiontoutility,possessesalsothatsignificanceforusthatwecallvalue.Ofcoursetheerrorunderlyingtheconfusionofutilityandusevaluehashadnoinfluenceonthepracticalactivityofmen.Atnotimehasaneconomizingindividualattributedvalueunderordinarycircumstancestoacubicfootofairor,inregionsaboundinginsprings,toapintofwater.Thepracticalmandistinguishesverywellthecapacityofanobjecttosatisfyoneofhisneedsfromitsvalue.Butthisconfusionhasbecomeanenormousobstacletothedevelopmentofthemoregeneraltheoriesofourscience.Thecircumstancethatagoodhasvaluetousisattributable,aswehaveseen,tothefactthatcommandofithasforusthesignificanceofsatisfyinganeedthatwouldnotbeprovidedforifwedidnothavecommandofthegood.Ourneeds,atanyrateinpart,atleastasconcernstheirorigin,dependuponourwillsoronourhabits.Oncetheneedshavecomeintoexistence,how-ever,thereisnofurtherarbitraryelementinthevaluegoodshaveforus,fortheirvalueisthenthenec-essaryconsequenceofourknowledgeoftheirimportanceforourlivesorwell-being.Itwouldbeimpossible,therefore,forustoregardagoodasvaluelesswhenweknowthatthesatisfactionofoneofourneedsdependsonhavingitatourdisposal.Itwouldalsobeimpossibleforustoattributevaluetogoodswhenweknowthatwearenotdependentuponthemforthesatisfactionofourneeds.Thevalueofgoodsisthereforenothingarbitrary,butalwaysthenecessaryconse-quenceofhumanknowledgethatthemaintenanceoflife,ofwell-being,orofsomeeversoinsignificantpartofthem,dependsuponcontrolofagoodoraquantityofgoods.Regardingthisknowledge,however,mencanbeinerroraboutthevalueofgoodsjustastheycanbeinerrorwithrespecttoallotherobjectsofhumanknowledge.Hencetheymayattributevaluetothingsthatdonot,accordingtoeconomicconsiderations,possessitinreality,iftheymis-takenlyassumethatthemoreorlesscompletesatisfactionoftheirneedsdependsonagood,orquantityofgoods,whenthisrelationshipisreallynon-existent.Incasesofthissortweobservethephenomenonofimaginaryvalue.Thevalueofgoodsarisesfromtheirrelationshiptoourneeds,andisnotinherentinthegoodsthemselves.Withchangesinthisrelationship,valuearisesanddisappears.Fortheinhabitantsofanoasis,whohavecommandofaspringthatabundantlymeetstheirrequirementsforwater,acer-tainquantityofwateratthespringitselfwillhavenovalue.Butifthespring,astheresultofanearthquake,shouldsuddenlydecreaseitsyieldofwatertosuchanextentthatthesatisfactionoftheneedsoftheinhabitantsoftheoasiswouldnolongerbefullyprovidedfor,eachoftheirconcreteneedsforwaterwouldbecomedependentupontheavailabilityofadefinitequantityof 448TheMarginalRevolutionit,andsuchaquantitywouldimmediatelyattainvalueforeachinhabitant.Thisvaluewould,however,suddenlydisappeariftheoldrelationshipwerereestablishedandthespringregaineditsformeryieldofwater.Asimilarresultwouldensueifthepopulationoftheoasisshouldincreasetosuchanextentthatthewaterofthespringwouldnolongersufficeforthesatisfactionofallneeds.Suchachange,duetotheincreaseofconsumers,mighteventakeplacewithacertainregularityatsuchtimesastheoasiswasvisitedbynumerouscaravans.Valueisthusnothinginherentingoods,nopropertyofthem,noranindependentthingexistingbyitself.Itisajudgmenteconomizingmenmakeabouttheimportanceofthegoodsattheirdisposalforthemaintenanceoftheirlivesandwell-being.Hencevaluedoesnotexistoutsidetheconsciousnessofmen.Itis,therefore,alsoquiteerroneoustocallagoodthathasvaluetoecono-mizingindividualsa“value,”orforeconomiststospeakof“values”asofindependentrealthings,andtoobjectifyvalueinthisway.Fortheentitiesthatexistobjectivelyarealwaysonlyparticularthingsorquantitiesofthings,andtheirvalueissomethingfundamentallydifferentfromthethingsthemselves;itisajudgmentmadebyeconomizingindividualsabouttheimportancetheircom-mandofthethingshasforthemaintenanceoftheirlivesandwell-being.Objectificationofthevalueofgoods,whichisentirelysubjectiveinnature,hasneverthelesscontributedverygreatlytoconfusionaboutthebasicprinciplesofourscience.2.TheoriginalmeasureofvalueInwhathaspreceded,wehavedirectedourattentiontothenatureandultimatecausesofvalue–thatis,tothefactorscommontovalueinallcases.Butinactuallife,wefindthatthevaluesofdif-ferentgoodsareverydifferentinmagnitude,andthatthevalueofagivengoodfrequentlychanges.Aninvestigationofthecausesofdifferencesinthevalueofgoodsandaninvestigationofthemeasureofvaluearethesubjectsthatwilloccupyusinthissection.Thecourseofourinvestigationisdeterminedbythefollowingconsideration.Thegoodsatourdisposalhavenovaluetousfortheirownsakes.Onthecontrary,wehaveseenthatonlythesatisfactionofourneedshasimportancetousdirectly,sinceourlivesandwell-beingaredependentonit.ButIhavealsoexplainedthatmenattributethisimportancetothegoodsattheirdisposalifthegoodsensurethemthesatisfactionofneedsthatwouldnotbeprovidedforiftheydidnothavecommandofthem–thatis,theyattributethisimportancetoeconomicgoods.Inthevalueofgoods,therefore,wealwaysencountermerelythesignificanceweassigntothesatisfactionofourneeds–thatis,toourlivesandwell-being.IfIhaveade-quatelydescribedthenatureofthevalueofgoods,ifithasbeenestablishedthatinthefinalanalysisonlythesatisfactionofourneedshasimportancetous,andifithasbeenestablishedtoothatthevalueofallgoodsismerelyanimputationofthisimportancetoeconomicgoods,thenthedifferencesweobserveinthemagnitudeofvalueofdifferentgoodsinactuallifecanonlybefoundedondifferencesinthemagnitudeofimportanceofthesatisfactionsthatdependonourcommandofthesegoods.Toreducethedifferencesthatweobserveinthemagnitudeofvalueofdifferentgoodsinactuallifetotheirultimatecauses,wemustthereforeperformadoubletask.Wemustinvestigate:(i)towhatextentdifferentsatisfactionshavedifferentdegreesofimportancetous(subjectivefactor),and(ii)whichsatisfactionsofconcreteneedsdepend,ineachindividualcase,onourcommandofaparticulargood(objectivefactor).Ifthisinvestigationshowsthatsep-aratesatisfactionsofconcreteneedshavedifferentdegreesofimportancetous,andthatthesesatisfactions,ofsuchdifferentdegreesofimportance,dependonourcommandofparticulareconomicgoods,weshallhavesolvedourproblem.Forweshallhavereducedtheeconomicphenomenonwhoseexplanationwestatedtobethecentralproblemofthisinvestigationtoitsultimatecauses.Imeandifferencesinthemagnitudeofvalueofgoods. Menger:PrinciplesofEconomics449Withananswertothequestionastotheultimatecausesofdifferencesinthevalueofgoods,asolutionisalsoprovidedtotheproblemofhowitcomesaboutthatthevalueofeachofthevar-iousgoodsisitselfsubjecttochange.Allchangeconsistsofnothingbutdifferencesthroughtime.Hence,withaknowledgeoftheultimatecausesofthedifferencesbetweenthemembersofasetofmagnitudesingeneral,wealsoobtainadeeperinsightintotheirchanges.A.Differencesinthemagnitudeofimportanceofdifferentsatisfactions(subjectivefactor)Asconcernsthedifferencesintheimportancethatdifferentsatisfactionshaveforus,itisaboveallafactofthemostcommonexperiencethatthesatisfactionsofgreatestimportancetomenareusuallythoseonwhichthemaintenanceoflifedepends,andthatothersatisfactionsaregraduatedinmagnitudeofimportanceaccordingtothedegree(durationandintensity)ofpleasuredependentuponthem.Thusifeconomizingmenmustchoosebetweenthesatisfactionofaneedonwhichthemaintenanceoftheirlivesdependsandanotheronwhichmerelyagreaterorlessdegreeofwell-beingisdependent,theywillusuallyprefertheformer.Similarly,theywillusuallyprefersatisfactionsonwhichahigherdegreeoftheirwell-beingdepends.Withthesameintensity,theywillpreferpleasuresoflongerdurationtopleasuresofshorterduration,andwiththesameduration,pleasuresofgreaterintensitytopleasuresoflessintensity.Themaintenanceofourlivesdependsonthesatisfactionofourneedforfood,andalso,inourclimate,onclothingourbodiesandhavingshelteratourdisposal.Butmerelyahigherdegreeofwell-beingdependsonourhavingacoach,achessboard,etc.Thusweobservethatmenfearthelackoffood,clothing,andsheltermuchmorethanthelackofacoach,achessboard,etc.Theyalsoattributeasubstantiallyhigherimportancetosecuringsatisfactionoftheformerneedsthantheyattributetothesatisfactionofneedsonwhich,asinthecasesjustmentioned,onlyapassingenjoymentorincreasedcomfort(i.e.merelyahigherdegreeoftheirwell-being)depends.Butthesesatisfactionsalsohaveverydifferentdegreesofimportance.Themaintenanceoflifedependsneitheronhavingacomfortablebednoronhavingachessboard,buttheuseofthesegoodscontributes,andcertainlyinverydifferentdegrees,totheincreaseofourwell-being.Hencetherecanalsobenodoubtthat,whenmenhaveachoicebetweendoingwithoutacom-fortablebedordoingwithoutachessboard,theywillforgothelattermuchmorereadilythantheformer.Wehavethusseenthatdifferentsatisfactionsareveryunequalinimportance,sincesomearesatisfactionsthathavethefullimportancetomenofmaintainingtheirlives,othersaresatisfac-tionsthatdeterminetheirwell-beinginahigherdegree,stillothersinalessdegree,andsoondowntosatisfactionsonwhichsomeinsignificantpassingenjoymentdepends.Butcarefulexam-inationofthephenomenaoflifeshowsthatthesedifferencesintheimportanceofdifferentsat-isfactionscanbeobservednotonlywiththesatisfactionofneedsofdifferentkindsbutalsowiththemoreorlesscompletesatisfactionofoneandthesameneed.Thelivesofmendependonsatisfactionoftheirneedforfoodingeneral.Butitwouldbeentirelyerroneoustoregardallthefoodstheyconsumeasbeingnecessaryforthemaintenanceoftheirlivesoreventheirhealth(i.e.fortheircontinuingwell-being).Everyoneknowshoweasyitistoskiponeoftheusualmealswithoutendangeringlifeorhealth.Indeed,experienceshowsthatthequantitiesoffoodnecessarytomaintainlifeareonlyasmallpartofwhatwell-to-dopersonsasaruleconsume,andthatmeneventakemuchmorefoodanddrinkthanisnecessaryforthefullpreservationofhealth.Menconsumefoodforseveralreasons:aboveall,theytakefoodtomaintainlife;beyondthis,theytakefurtherquantitiestopreservehealth,sinceadietsufficientmerelytomaintainlifeistoosparing,asexperienceshows,toavoidorganicdisorders;finally, 450TheMarginalRevolutionhavingalreadyconsumedquantitiessufficienttomaintainlifeandpreservehealth,menfurtherpartakeoffoodssimplyforthepleasurederivedfromtheirconsumption.Theseparateconcreteactsofsatisfyingtheneedforfoodaccordinglyhaveverydifferentdegreesofimportance.Thesatisfactionofeveryman’sneedforfooduptothepointwherehislifeistherebyassuredhasthefullimportanceofthemaintenanceofhislife.Consumptionexceedingthisamount,againuptoacertainpoint,hastheimportanceofpreservinghishealth(i.e.hiscontinuingwell-being).Consumptionextendingbeyondeventhispointhasmerelytheimportance–asobservationshows–ofaprogressivelyweakerpleasure,untilitfinallyreachesacertainlimitatwhichsatisfactionoftheneedforfoodissocompletethateveryfurtherintakeoffoodcontributesneithertothemaintenanceoflifenortothepreservationofhealth–nordoesitevengivepleasuretotheconsumer,becomingfirstamatterofindifferencetohim,eventuallyacauseofpain,adangertohealth,andfinallyadangertolifeitself.Similarobservationscanbemadewithrespecttothemoreorlesscompletesatisfactionofallotherhumanneeds.Aroom,oratleastsomeplacetosleepprotectedfromtheweather,isneces-saryinourclimateforthemaintenanceoflife,andreasonablyspaciousquartersforthepreserva-tionofhealth.Inaddition,however,menusuallypossessfurtheraccommodations,iftheyhavethemeans,merelyforpurposesofpleasure(drawingrooms,ballrooms,playrooms,pavilions,huntinglodges,etc.).Thusitisnotdifficulttorecognizethattheseparateconcreteactsofsatisfyingtheneedforshelterhaveverydifferentdegreesofimportance.Uptoacertainpoint,ourlivesdependonsatisfyingourneedforshelter.Beyondthis,ourhealthdependsonamorecompletesatisfaction.Andstillfurtherattemptstosatisfythesameneedwillbringatfirstagreaterandthenasmallerenjoyment,untileventuallyapointcanbeconceived,foreachperson,atwhichthefurtheremploy-mentofavailableaccommodationswouldbecomeamatterofcompleteindifferencetohim,andfinallyevenburdensome.Itispossible,therefore,withrespecttothemoreorlesscompletesatisfactionofoneandthesameneed,tomakeanobservationsimilartotheonemadeearlierwithrespecttothediffer-entneedsofmen.Wesawearlierthatthedifferentneedsofmenareveryunequalinimportanceofsatisfaction,beinggraduatedfromtheimportanceoftheirlivesdowntotheimportancetheyattributetoasmallpassingenjoyment.Weseenow,inaddition,thatthesatisfactionofanyonespecificneedhas,uptoacertaindegreeofcompleteness,relativelythehighestimpor-tance,andthatfurthersatisfactionhasaprogressivelysmallerimportance,untileventuallyastageisreachedatwhichamorecompletesatisfactionofthatparticularneedisamatterofindif-ference.Ultimatelyastageoccursatwhicheveryacthavingtheexternalappearanceofasatis-factionofthisneednotonlyhasnofurtherimportancetotheconsumerbutisratheraburdenandapain.Inordertorestatetheprecedingargumentnumerically,tofacilitatecomprehensionofthesub-sequentdifficultinvestigation,Ishalldesignatetheimportanceofsatisfactionsonwhichlifedependswith10,andthesmallerimportanceoftheothersatisfactionssuccessivelywith9,8,7,6,etc.Inthiswayweobtainascaleoftheimportanceofdifferentsatisfactionsthatbeginswith10andendswith1.Letusnow,foreachofthesedifferentsatisfactions,givenumericalexpressiontotheadditionalimportance,diminishingbydegreesfromthefigureindicatingtheextenttowhichtheparticularneedisalreadysatisfied,offurtheractsofsatisfactionofthatparticularneed.Forsatisfactionsonwhich,uptoacertainpoint,ourlivesdepend,andonwhich,beyondthispoint,awell-beingisdependentthatsteadilydecreaseswiththedegreeofcompletenessofthesatisfactionalreadyachieved,weobtainascalethatbeginswith10andendswith0.Similarly,forsatisfactionswhosehighestimportanceis9,weobtainascalethatbeginswiththisfigureandalsoendswith0,andsoon. Menger:PrinciplesofEconomics451Thetenscalesobtainedinthiswayaregiveninthefollowingtable:IIIIIIIVVVIVIIVIIIIXX109876543219876543210876543210765432106543210543210432103210210100TheRomannumeralsinthetoplineofthetablearesymbolsdesignatingthedifferentcommodities(orclassesofcommodities)consumedbyasingleindividual.Thesuccessivefiguresdowneachverticalcolumnrepresentsuccessiveadditionstototalsatisfactionresultingfromincreasedconsump-tionofthedesignatedcommodity.…–TR.SupposethatthescaleincolumnIexpressestheimportancetosomeoneindividualofsatisfactionofhisneedforfood,thisimportancediminishingaccordingtothedegreeofsatisfac-tionalreadyattained,andthatthescaleincolumnVexpressessimilarlytheimportanceofhisneedfortobacco.Itisevidentthatsatisfactionofhisneedforfood,uptoacertaindegreeofcom-pleteness,hasadecidedlyhigherimportancetothisindividualthansatisfactionofhisneedfortobacco.Butifhisneedforfoodisalreadysatisfieduptoacertaindegreeofcompleteness(if,e.g.afurthersatisfactionofhisneedforfoodhasonlytheimportancetohimthatwedesig-natednumericallybythefigure6),consumptionoftobaccobeginstohavethesameimportancetohimasfurthersatisfactionofhisneedforfood.Theindividualwillthereforeendeavor,fromthispointon,tobringthesatisfactionofhisneedfortobaccointoequilibriumwithsatisfactionofhisneedforfood.Althoughsatisfactionofhisneedforfoodingeneralhasasubstantiallyhigherimportancetotheindividualinquestionthansatisfactionofhisneedfortobacco,withthepro-gressivesatisfactionoftheformerastageneverthelesscomes(asisillustratedinthetable)atwhichfurtheractsofsatisfactionofhisneedforfoodhaveasmallerimportancetohimthanthefirstactsofsatisfyinghisneedfortobacco,whichalthoughlessimportantingeneralisatthisstagestillwhollyunsatisfied.Bythisreferencetoanordinaryphenomenonoflife,IbelieveIhaveclarifiedsatisfactorilythemeaningofthenumbersinthetable,whichwerechosenmerelytofacilitatedemonstrationofadifficultandpreviouslyunexploredfieldofpsychology.Thevaryingimportancethatsatisfactionofseparateconcreteneedshasformenisnotforeigntotheconsciousnessofanyeconomizingman,howeverlittleattentionhashithertobeenpaidbyscholarstothephenomenaheretreated.Wherevermenlive,andwhateverlevelofcivilizationtheyoccupy,wecanobservehoweconomizingindividualsweightherelativeimportanceofsatis-factionoftheirvariousneedsingeneral,howtheyweighespeciallytherelativeimportanceoftheseparateactsleadingtothemoreorlesscompletesatisfactionofeachneed,andhowtheyarefinallyguidedbytheresultsofthiscomparisonintoactivitiesdirectedtothefullestpossiblesatisfactionoftheirneeds(economizing).Indeed,thisweighingoftherelativeimportanceofneeds–this 452TheMarginalRevolutionchoosingbetweenneedsthataretoremainunsatisfiedandneedsthatare,inaccordancewiththeavailablemeans,toattainsatisfaction,anddeterminingthedegreetowhichthelatteraretobesatisfied–istheverypartoftheeconomicactivityofmenthatfillstheirmindsmorethananyother,thathasthemostfar-reachinginfluenceontheireconomicefforts,andthatisexercisedalmostcontinuallybyeveryeconomizingindividual.Buthumanknowledgeofthedifferentdegreesofimportanceofsatisfactionofdifferentneedsandofseparateactsofsatisfactionisalsothefirstcauseofdifferencesinthevalueofgoods.B.Thedependenceofseparatesatisfactionsonparticulargoods(objectivefactor)If,oppositeeachparticularconcreteneedofmen,therewasbutasingleavailablegood,andthatgoodwassuitableexclusivelyforthesatisfactionoftheoneneed(sothat,ontheoneside,satis-factionoftheneedwouldnottakeplaceiftheparticulargoodwerenotatourdisposal,andontheotherside,thegoodwouldbecapableofservingforthesatisfactionofthatconcreteneedandnoother)thedeterminationofthevalueofthegoodwouldbeveryeasy;itwouldbeequaltotheimportanceweattributetosatisfactionofthatneed.Foritisevidentthatwheneverwearedepen-dent,insatisfyingagivenneed,ontheavailabilityofacertaingood(i.e.wheneverthissatisfac-tionwouldnottakeplaceifwedidnothavethegoodatourdisposal)andwhenthatgoodis,atthesametime,notsuitableforanyotherusefulpurpose,itcanattainthefullbutneveranyotherimportancethanthatwhichthegivensatisfactionhasforus.Hence,accordingtowhethertheimportanceofthegivensatisfactiontous,inacasesuchasthis,isgreaterorsmaller,thevalueoftheparticulargoodtouswillbegreaterorsmaller.If,forinstance,amyopicindividualwerecastawayonalonelyislandandfoundamongthegoodshehadsalvagedjustonepairofglassescorrectinghismyopiabutnosecondpair,thereisnodoubtthattheseglasseswouldhavethefullimportancetohimthatheattributestocorrectedeyesight,andjustascertainlynogreaterimpor-tance,sincetheglasseswouldhardlybesuitableforthesatisfactionofotherneeds.Butinordinarylifetherelationshipbetweenavailablegoodsandourneedsisgenerallymuchmorecomplicated.Usuallynotasinglegoodbutaquantityofgoodsstandsoppositenotasingleconcreteneedbutacomplexofsuchneeds.Sometimesalargerandsometimesasmallernumberofsatisfactions,ofverydifferentdegreesofimportance,dependsonourcommandofagivenquantityofgoods,andeachoneofthegoodshastheabilitytoproducethesesatisfactionsdifferingsogreatlyinimportance.Anisolatedfarmer,afterarichharvest,hasmorethantwohundredbushelsofwheatathisdisposal.Aportionofthissecureshimthemaintenanceofhisownandhisfamily’slivesuntilthenextharvest,andanotherportionthepreservationofhealth;athirdportionassureshimseed-grainforthenextseeding;afourthportionmaybeemployedfortheproductionofbeer,whiskey,andotherluxuries;andafifthportionmaybeusedforthefatteningofhiscattle.Severalremain-ingbushels,whichhecannotusefurtherforthesemoreimportantsatisfactions,heallotstothefeedingofpetsinordertomakethebalanceofhisgraininsomewayuseful.Thefarmeris,therefore,dependentuponthegraininhispossessionforsatisfactionsofverydifferentdegreesofimportance.Atfirsthesecureswithithisownandhisfamily’slives,andthenhisownandhisfamily’shealth.Beyondthis,hesecureswithittheuninterruptedoperationofhisfarm,animportantfoundationofhiscontinuingwelfare.Finally,heemploysaportionofhisgrainforpurposesofpleasure,andinsodoingisagainemployinghisgrainforpurposesthatareofverydifferentdegreesofimportancetohim.Wearethusconsideringacase–onethatistypicalofordinarylife–inwhichsatisfactionsofverydifferentdegreesofimportancedependontheavailabilityofaquantityofgoodsthatweshallassume,forthesakeofgreatersimplicity,tobecomposedofcompletelyhomogeneousunits.Thequestionthatnowarisesis:what,underthegivenconditions,isthevalueofacertain Menger:PrinciplesofEconomics453portionofthegraintoourfarmer?Willthebushelsofgrainthatsecurehisownandhisfamily’sliveshaveahighervaluetohimthanthebushelsthatenablehimtoseedhisfields?Andwillthelatterbushelshaveagreatervaluetohimthanthebushelsofgrainheemploysforpurposesofpleasure?Noonewilldenythatthesatisfactionsthatseemassuredbythevariousportionsoftheavailablesupplyofgrainareveryunequalinimportance,rangingfromanimportanceof10toanimpor-tanceof1intermsofourearlierdesignations.Yetnoonewillbeabletomaintainthatsomebushelsofgrain(those,forinstance,withwhichthefarmerwillnourishhimselfandhisfamilytillthenextharvest)willhaveahighervaluetohimthanotherbushelsofthesamequality(those,forinstance,fromwhichhewillmakeluxurybeverages).Inthisandineveryothercasewheresatisfactionsofdifferentdegreesofimportancedependoncommandofagivenquantityofgoods,weare,aboveall,facedwiththedifficultquestion:whichparticularsatisfactionisdependentonaparticularportionofthequantityofgoodsinquestion?Thesolutionofthismostimportantquestionofthetheoryofvaluefollowsfromreflectionuponhumaneconomyandthenatureofvalue.Wehaveseenthattheeffortsofmenaredirectedtowardfullysatisfyingtheirneeds,andwherethisisimpossible,towardsatisfyingthemascompletelyaspossible.Ifaquantityofgoodsstandsoppositeneedsofvaryingimportancetomen,theywillfirstsatisfy,orprovidefor,thoseneedswhosesatisfactionhasthegreatestimportancetothem.Ifthereareanygoodsremaining,theywilldirectthemtothesatisfactionofneedsthatarenextindegreeofimportancetothosealreadysatisfied.Anyfurtherremainderwillbeappliedconsecutivelytothesatisfactionofneedsthatcomenextindegreeofimportance.Ifagoodcanbeusedforthesatisfactionofseveraldifferentkindsofneeds,andif,withrespecttoeachkindofneed,successivesingleactsofsatisfactioneachhavediminishingimportanceaccordingtothedegreeofcompletenesswithwhichtheneedinquestionhasalreadybeensatisfied,economizingmenwillfirstemploythequantitiesofthegoodthatareavailabletothemtosecurethoseactsofsatisfaction,withoutregardtothekindofneed,whichhavethehighestimportanceforthem.Theywillemployanyremainingquantitiestosecuresatisfactionsofcon-creteneedsthatarenextinimportance,andanyfurtherremaindertosecuresuccessivelylessimportantsatisfactions.Theendresultofthisprocedureisthatthemostimportantofthesatis-factionsthatcannotbeachievedhavethesameimportanceforeverykindofneed,andhencethatallneedsarebeingsatisfieduptoanequaldegreeofimportanceoftheseparateactsofsatisfaction.Wehavebeenaskingwhatvalueagivenunitofaquantityofgoodspossessedbyaneconomizingindividualhasforhim.Ourquestioncanbemorepreciselystatedwithrespecttothenatureofvalueifitisstatedinthisform:whichsatisfactionwouldnotbeattainediftheeconomizingindividualdidnothavethegivenunitathisdisposal–thatis,ifheweretohavecommandofatotalamountsmallerbythatoneunit?Theanswer,whichfollowsfromthepreviousexpositionofthenatureofhumaneconomy,isthateveryeconomizingindividualwouldinthiscase,withthequantityofgoodsyetremainingtohim,byallmeanssatisfyhismoreimportantneedsandforgosatisfactionofthelessimportantones.Thus,ofallthesatisfac-tionspreviouslyobtained,onlytheonethathasthesmallestimportancetohimwouldnowbeunattained.Accordingly,(ineveryconcretecase)ofallthesatisfactionssecuredbymeansofthewholequantityofagoodatthedisposalofaneconomizingindividual,onlythosethathavetheleastimportancetohimaredependentontheavailabilityofagivenportionofthewholequantity.Hencethevaluetothispersonofanyportionofthewholeavailablequantityofthegoodisequaltotheimportancetohimofthesatisfactionsofleastimportanceamongthoseassuredbythewholequantityandachievedwithanequalportion. 454TheMarginalRevolutionSupposethatanindividualneeds10discreteunits(or10measures)ofagoodforthefullsatis-factionofallhisneedsforthatgood,thattheseneedsvaryinimportancefrom10to1,butthathehasonly7units(oronly7measures)ofthegoodathiscommand.Fromwhathasbeensaidaboutthenatureofhumaneconomyitisdirectlyevidentthatthisindividualwillsatisfyonlythoseofhisneedsforthegoodthatrangeinimportancefrom10to4withthequantityathiscommand(7units),andthattheotherneeds,ranginginimportancefrom3to1,willremainunsatisfied.Whatisthevaluetotheeconomizingindividualinquestionofoneofhis7units(ormeasures)inthiscase?Accordingtowhatwehavelearnedaboutthenatureofthevalueofgoods,thisquestionisequivalenttothequestion:whatistheimportanceofthesatisfactionsthatwouldbeunattainediftheindividualconcernedweretohaveonly6insteadof7units(ormeasures)athiscommand.Ifsomeaccidentweretodeprivehimofoneofhissevengoods(ormeasures),itisclearthatthepersoninquestionwouldusetheremaining6unitstosatisfythemoreimportantneedsandwouldneglecttheleastimportantone.Hencetheresultoflosingonegood(oronemeasure)wouldbethatonlytheleastofallthesatisfactionsassuredbythewholeavailablequantityofsevenunits(i.e.thesatisfactionwhoseimportancewasdesignatedas4)wouldbelost,whilethosesatisfactions(oractsofsatisfyingneeds)whoseimportancerangesfrom10to5wouldtakeplaceasbefore.Inthiscase,therefore,onlyasatisfactionwhoseimportancewasdesignatedby4willdependoncommandofasingleunit(ormeasure),andaslongastheindividualinquestioncontinuestohavecommandof7units(ormeasures)ofthegood,thevalueofeachunit(ormeasure)willbeequaltotheimportanceofthissatisfaction.Foritisonlythissat-isfactionwithanimportanceof4thatdependsononeunit(ormeasure)oftheavailablequantityofthegood.Otherthingsbeingequal,ifonly5units(ormeasures)ofthegoodwereavailabletotheeconomizingindividualinquestion,itisevidentthat–aslongasthiseconomicsituationpersisted–eachdiscreteunitorpartialquantityofthegoodwouldhaveanimportancetohimexpressednumericallybythefigure6.Ifhehad3units,eachonewouldhaveanimportancetohimexpressednumericallybythefigure8.Finally,ifhehadbutasinglegood,itsimportancewouldbeequalto10.…Ifwesummarizewhathasbeensaid,weobtainthefollowingprinciplesastheresultofourinvestigationthusfar:1Theimportancethatgoodshaveforusandwhichwecallvalueismerelyimputed.Basically,onlysatisfactionshaveimportanceforus,becausethemaintenanceofourlivesandwell-beingdependonthem.Butwelogicallyimputethisimportancetothegoodsonwhoseavailabilityweareconsciousofbeingdependentforthesesatisfactions.2Themagnitudesofimportancethatdifferentsatisfactionsofconcreteneeds(theseparateactsofsatisfactionthatcanberealizedbymeansofindividualgoods)haveforusareunequal,andtheirmeasureliesinthedegreeoftheirimportanceforthemaintenanceofourlivesandwelfare.3Themagnitudesoftheimportanceofoursatisfactionsthatareimputedtogoods–thatis,themagnitudesoftheirvalues–arethereforealsounequal,andtheirmeasureliesinthedegreeofimportancethatthesatisfactionsdependentonthegoodsinquestionhaveforus.4Ineachparticularcase,ofallthesatisfactionsassuredbythewholeavailablequantityofagood,onlythosethathavetheleastimportancetoaneconomizingindividualaredependentoncommandofagivenportionofthewholequantity.5Thevalueofaparticulargoodorofagivenportionofthewholequantityofagoodatthedisposalofaneconomizingindividualisthusforhimequaltotheimportanceoftheleast Menger:PrinciplesofEconomics455importantofthesatisfactionsassuredbythewholeavailablequantityandachievedwithanyequalportion.Foritiswithrespecttotheseleastimportantsatisfactionsthattheeconomiz-ingindividualconcernedisdependentontheavailabilityoftheparticulargood,orgivenquantityofagood.Thus,inourinvestigationtothispoint,wehavetracedthedifferencesinthevalueofgoodsbacktotheirultimatecauses,andhavealso,atthesametime,foundtheultimate,andoriginal,measurebywhichthevaluesofallgoodsarejudgedbymen.Ifwhathasbeensaidiscorrectlyunderstood,therecanbenodifficultyinsolvinganyprobleminvolvingtheexplanationofthecausesdeterminingthedifferencesbetweenthevaluesoftwoormoreconcretegoodsorquantitiesofgoods.Ifweask,forexample,whyapoundofdrinkingwaterhasnovaluewhatsoevertousunderordinarycircumstances,whileaminutefractionofapoundofgoldordiamondsgenerallyexhibitsaveryhighvalue,theanswerisasfollows:Diamondsandgoldaresorarethatallthedia-mondsavailabletomankindcouldbekeptinachestandallthegoldinasinglelargeroom,asasimplecalculationwillshow.Drinkingwater,ontheotherhand,isfoundinsuchlargequantitiesontheearththatareservoircanhardlybeimaginedlargeenoughtoholditall.Accordingly,menareabletosatisfyonlythemostimportantneedsthatgoldanddiamondsservetosatisfy,whiletheyareusuallyinapositionnotonlytosatisfytheirneedsfordrinkingwaterfullybut,inaddi-tion,alsotoletlargequantitiesofitescapeunused,sincetheyareunabletouseupthewholeavailablequantity.Underordinarycircumstances,therefore,nohumanneedwouldhavetoremainunsatisfiedifmenwereunabletocommandsomeparticularquantityofdrinkingwater.Withgoldanddiamonds,ontheotherhand,eventheleastsignificantsatisfactionsassuredbythetotalquantityavailablestillhavearelativelyhighimportancetoeconomizingmen.Thusconcretequantitiesofdrinkingwaterusuallyhavenovaluetoeconomizingmenbutconcretequantitiesofgoldanddiamondsahighvalue.Allthisholdsonlyfortheordinarycircumstancesoflife,whendrinkingwaterisavailabletousincopiousquantitiesandgoldanddiamondsinverysmallquantities.Inthedesert,however,wherethelifeofatravellerisoftendependentonadrinkofwater,itcanbyallmeansbeimag-inedthatmoreimportantsatisfactionsdepend,foranindividual,onapoundofwaterthanonevenapoundofgold.Insuchacase,thevalueofapoundofwaterwouldconsequentlybegreater,fortheindividualconcerned,thanthevalueofapoundofgold.Andexperienceteachesusthatsucharelationship,oronethatissimilar,actuallydevelopswheretheeconomicsituationisasIhavejustdescribed.…3.ThelawsgoverningthevalueofgoodsofhigherorderA.TheprincipledeterminingthevalueofgoodsofhigherorderAmongthemostegregiousofthefundamentalerrorsthathavehadthemostfar-reachingconse-quencesinthepreviousdevelopmentofourscienceistheargumentthatgoodsattainvalueforusbecausegoodswereemployedintheirproductionthathadvaluetous.Later,whenIcometothediscussionofthepricesofgoodsofhigherorder,Ishallshowthespecificcausesthatwereresponsibleforthiserrorandforitsbecomingthefoundationoftheacceptedtheoryofprices(inaformhedgedaboutwithallsortsofspecialprovisions,ofcourse).HereIwanttostate,aboveall,thatthisargumentissostrictlyopposedtoallexperience…thatitwouldhavetoberejectedevenifitprovidedaformallycorrectsolutiontotheproblemofestablishingaprincipleexplainingthevalueofgoods. 456TheMarginalRevolutionButeventhislastpurposecannotbeachievedbytheargumentinquestion,sinceitoffersanexplanationonlyforthevalueofgoodswemaydesignateas“products”butnotforthevalueofallothergoods,whichappearasoriginalfactorsofproduction.Itdoesnotexplainthevalueofgoodsdirectlyprovidedbynature,especiallytheservicesofland.Itdoesnotexplainthevalueoflaborservices.Nordoesiteven,asweshallseelater,explainthevalueoftheservicesofcapital.Forthevalueofallthesegoodscannotbeexplainedbytheargumentthatgoodsderivetheirvaluefromthevalueofthegoodsexpendedintheirproduction.Indeed,itmakestheirvaluecompletelyincomprehensible.Thisargument,therefore,providesneitheraformallycorrectsolutionnoronethatconformswiththefactsofreality,totheproblemofdiscoveringauniversallyvalidexplanationofthevalueofgoods.Ontheonehand,itisincontradictionwithexperience;andontheotherhand,itispatentlyinapplicablewhereverwehavetodealwithgoodsthatarenottheproductofthecom-binationofgoodsofhigherorder.Thevalueofgoodsoflowerordercannot,therefore,bedeter-minedbythevalueofthegoodsofhigherorderthatwereemployedintheirproduction.Onthecontrary,itisevidentthatthevalueofgoodsofhigherorderisalwaysandwithoutexceptiondeterminedbytheprospectivevalueofthegoodsoflowerorderinwhoseproductiontheyserve.Theexistenceofourrequirementsforgoodsofhigherorderisdependentuponthegoodstheyservetoproducehavingexpectedeconomiccharacter…andhenceexpectedvalue.Insecuringourrequirementsforthesatisfactionofourneeds,wedonotneedcommandofgoodsthataresuitablefortheproductionofgoodsoflowerorderthathavenoexpectedvalue(sincewehavenorequirementsforthem).Wethereforehavetheprinciplethatthevalueofgoodsofhigherorderisdependentupontheexpectedvalueofthegoodsoflowerordertheyservetoproduce.Hencegoodsofhigherordercanattainvalue,orretainitoncetheyhaveit,onlyif,oraslongas,theyservetoproducegoodsthatweexpecttohavevalueforus.Ifthisfactisestablished,itisclearalsothatthevalueofgoodsofhigherordercannotbethedeterminingfactorintheprospectivevalueofthecorrespondinggoodsoflowerorder.Norcanthevalueofthegoodsofhigherorderalreadyexpendedinproducingagoodoflowerorderbethedeterminingfactorinitspresentvalue.Onthecontrary,thevalueofgoodsofhigherorderis,inallcases,regulatedbytheprospectivevalueofthegoodsoflowerordertowhoseproductiontheyhavebeenorwillbeassignedbyecono-mizingmen.Theprospectivevalueofgoodsoflowerorderisoften–andthismustbecarefullyobserved–verydifferentfromthevaluethatsimilargoodshaveinthepresent.Forthisreason,thevalueofthegoodsofhigherorderbymeansofwhichweshallhavecommandofgoodsoflowerorderatsomefuturetime…isbynomeansmeasuredbythecurrentvalueofsimilargoodsoflowerorder,butratherbytheprospectivevalueofthegoodsoflowerorderinwhoseproductiontheyserve.Suppose,forexample,thatwehavethesaltpetre,sulphur,charcoal,specializedlaborservices,appliances,etc.,necessaryfortheproductionofacertainquantityofgunpowder,andthatthus,bymeansofthesegoods,weshallhavethisquantityofgunpowderatourcommandinthreemonthstime.Itisclearthatthevaluethisgunpowderisexpectedtohaveforusinthreemonthstimeneednotnecessarilybeequalto,butmaybegreaterorlessthan,thevalueofanidenticalquantityofgunpowderatthepresenttime.Hencealso,themagnitudeofthevalueoftheabovegoodsofhigherorderismeasured,notbythevalueofgunpowderatpresent,butbytheprospec-tivevalueoftheirproductattheendoftheproductionperiod.Casescanevenbeimaginedinwhichagoodoflowerorfirstorderiscompletelyvaluelessatpresent(iceinwinter,forexample),whilesimultaneouslyavailablecorrespondinggoodsofhigherorderthatassurequantitiesofthegoodoflowerorderforafuturetimeperiod(allthematerialsandimplementsnecessaryfortheproductionofartificialice,forexample)havevaluewithrespecttothisfuturetimeperiod–andviceversa. Menger:PrinciplesofEconomics457Hencethereisnonecessaryconnectionbetweenthevalueofgoodsoflowerorfirstorderinthepresentandthevalueofcurrentlyavailablegoodsofhigherorderservingfortheproductionofsuchgoods.Onthecontrary,itisevidentthattheformerderivetheirvaluefromtherelation-shipbetweenrequirementsandavailablequantitiesinthepresent,whilethelatterderivetheirvaluefromtheprospectiverelationshipbetweentherequirementsandthequantitiesthatwillbeavailableatthefuturepointsintimewhentheproductscreatedbymeansofthegoodsofhigherorderwillbecomeavailable.Iftheprospectivefuturevalueofagoodoflowerorderrises,otherthingsremainingequal,thevalueofthegoodsofhigherorderwhosepossessionassuresusfuturecommandofthegoodoflowerorderrisesalso.Buttheriseorfallofthevalueofagoodoflowerorderavailableinthepresenthasnonecessarycausalconnectionwiththeriseorfallofthevalueofcurrentlyavailablecorrespondinggoodsofhigherorder.Hencetheprinciplethatthevalueofgoodsofhigherorderisgoverned,notbythevalueofcor-respondinggoodsoflowerorderofthepresent,butratherbytheprospectivevalueoftheprod-uct,istheuniversallyvalidprincipleofthedeterminationofthevalueofgoodsofhigherorder.Onlythesatisfactionofourneedshasdirectandimmediatesignificancetous.Ineachcon-creteinstance,thissignificanceismeasuredbytheimportanceofthevarioussatisfactionsforourlivesandwell-being.Wenextattributetheexactquantitativemagnitudeofthisimportancetothespecificgoodsonwhichweareconsciousofbeingdirectlydependentforthesatisfactionsinquestion–thatis,weattributeittoeconomicgoodsoffirstorder,asexplainedintheprinciplesoftheprevioussection.Incasesinwhichourrequirementsarenotmetorareonlyincompletelymetbygoodsoffirstorder,andinwhichgoodsoffirstorderthereforeattainvalueforus,weturntothecorrespondinggoodsofthenexthigherorderinoureffortstosatisfyourneedsascom-pletelyaspossible,andattributethevaluethatweattributedtogoodsoffirstorderinturntogoodsofsecond,third,andstillhigherorderswheneverthesegoodsofhigherorderhaveeco-nomiccharacter.Thevalueofgoodsofhigherorderistherefore,inthefinalanalysis,nothingbutaspecialformoftheimportanceweattributetoourlivesandwell-being.Thus,aswithgoodsoffirstorder,thefactorthatisultimatelyresponsibleforthevalueofgoodsofhigherorderismerelytheimportancethatweattributetothosesatisfactionswithrespecttowhichweareawareofbeingdependentontheavailabilityofthegoodsofhigherorderwhosevalueisunderconsider-ation.Butduetothecausalconnectionsbetweengoods,thevalueofgoodsofhigherorderisnotmeasureddirectlybytheexpectedimportanceofthefinalsatisfaction,butratherbytheexpectedvalueofthecorrespondinggoodsoflowerorder.…C.ThevalueofcomplementaryquantitiesofgoodsofhigherorderInordertotransformgoodsofhigherorderintogoodsoflowerorder,thepassageofacertainperiodoftimeisnecessary.Hence,whenevereconomicgoodsaretobeproduced,commandoftheservicesofcapitalisnecessaryforacertainperiodoftime.Thelengthofthisperiodvariesaccordingtothenatureoftheproductionprocess.Inanygivenbranchofproduction,itislongerthehighertheorderofthegoodstobedirectedtothesatisfactionofhumanneeds.Butsomepassageoftimeisinseparablefromanyprocessofproduction.Duringthesetimeperiods,thequantityofeconomicgoodsofwhichIamspeaking(capital)isfixed,andnotavailableforotherproductivepurposes.Inordertohaveagoodoraquantityofgoodsoflowerorderatourcommandatafuturetime,itisnotsufficienttohavefleetingposses-sionofthecorrespondinggoodsofhigherorderatsomesinglepointintime,butinsteadnecessarythatweretaincommandofthesegoodsofhigherorderforaperiodoftimethatvariesinlengthaccordingtothenatureoftheparticularprocessofproduction,andthatwefixtheminthisproductionprocessforthedurationofthatperiod. 458TheMarginalRevolutionIntheprecedingsection,wesawthatcommandofquantitiesofeconomicgoodsforgivenperiodsoftimehasvaluetoeconomizingmen,justasothereconomicgoodshavevaluetothem.Fromthisitfollowsthattheaggregatepresentvalueofallthegoodsofhigherordernecessaryfortheproductionofagoodoflowerordercanbesetequaltotheprospectivevalueoftheproducttoeconomizingmenonlyifthevalueoftheservicesofcapitalduringtheproductionperiodisincluded.Suppose,forexample,wewishtodeterminethevalueofthegoodsofhigherorderthatassureuscommandofagivenquantityofgrainayearhence.Thevalueoftheseedgrain,theservicesofland,thespecializedagriculturallaborservices,andalltheothergoodsofhigherordernecessaryfortheproductionofthegivenquantityofgrainwillindeedbeequaltotheprospectivevalueofthegrainattheendoftheyear…,butonlyonconditionthatthevalueofayear’scommandoftheseeconomicgoodstotheeconomizingindividualsconcernedisincludedinthesum.Thepresentvalueofthesegoodsofhigherorderbythemselvesisthereforeequaltothevalueoftheprospectiveproductminusthevalueoftheservicesofthecapitalemployed.Toexpresswhathasbeensaidnumerically,supposethattheprospectivevalueoftheproductthatwillbeavailableattheendoftheyearis100,andthatthevalueofayear’scommandofthenecessaryquantitiesofeconomicgoodsofhigherorder(thevalueoftheservicesofcapital)is10.Itisclearthattheaggregatevalueofallthecomplementarygoodsofhigherorderrequiredfortheproductionoftheproduct,excludingtheservicesofcapital,isequalnotto100,butonlyto90.Ifthevalueoftheservicesofcapitalwere15,thepresentvalueoftheothergoodsofhigherorderwouldbeonly85.Thevalueofgoodstotheeconomizingindividualsconcernedis,asIhavealreadystatedsev-eraltimes,themostimportantfoundationofpriceformation.Nowif,inordinarylife,weseethatbuyersofgoodsofhigherorderneverpaythefullprospectivepriceofagoodoflowerorderforthecomplementarymeansofproductiontechnicallynecessaryforitsproduction,thattheyarealwaysonlyinapositiontogrant,andactuallydogrant,pricesforthemthataresomewhatlowerthanthepriceoftheproduct,andthatthesaleofgoodsofhigherorderthushasacertainsimi-laritytodiscounting,theprospectivepriceoftheproductformingthebasisofthecomputation,thesefactsareexplainedbytheprecedingargument.Apersonwhohasathisdisposalthegoodsofhigherorderrequiredfortheproductionofgoodsoflowerorderdoesnot,byvirtueofthisfact,havecommandofthegoodsoflowerorderimmediatelyanddirectly,butonlyafterthepassageofaperiodoftimethatislongerorshorteraccordingtothenatureoftheproductionprocess.Ifhewishestoexchangehisgoodsofhigherorderimmediatelyforthecorrespondinggoodsoflowerorder,orforwhatisthesamethingunderdevelopedtraderelations,acorrespondingsumofmoney,heisevidentlyinapositionsim-ilartothatofapersonwhoistoreceiveacertainsumofmoneyatafuturepointintime(after6months,forexample)butwhowantstoobtaincommandofitimmediately.Iftheownerofgoodsofhigherorderintendstotransferthemtoathirdpersonandiswillingtoreceivepaymentonlyaftertheendoftheproductionprocess,naturallyno“discounting”takesplace.Infact,wecanobservethepricesofgoodsthataresoldoncreditrisinghigher(apartfromtheriskpremium)thefurthertheagreed-upondateofpaymentliesinthefuture.Allthis,however,explainsatthesametimewhytheproductiveactivityofapeopleisgreatlypromotedbycredit.Inbyfarthegreaternumberofcases,credittransactionsconsistinhandinggoodsofhigherorderovertopersonswhotransformthemintocorrespondinggoodsoflowerorder.Production,ormoreextensivefabricationatleast,isveryoftenonlypossiblethroughcredit;hencetheperniciousstoppageandcurtailmentoftheproductiveactivityofapeoplewhencreditsuddenlyceasestoflow.Theprocessoftransforminggoodsofhigherorderintogoodsoflowerorfirstorder,provideditiseconomicinotherrespects,mustalsoalwaysbeplannedandconducted,withsomeeconomic Menger:PrinciplesofEconomics459purposeinview,byaneconomizingindividual.ThisindividualmustcarrythroughtheeconomiccomputationsofwhichIhavejustbeenspeaking,andhemustactuallybringthegoodsofhigherorder,includingtechnicallaborservices,together(orcausethemtobebroughttogether)forthepurposeofproduction.Thequestionastowhichfunctionsareincludedinthisso-calledentrepre-neurialactivityhasalreadybeenposedseveraltimes.Aboveallwemustbearinmindthatanenter-preneur’sowntechnicallaborservicesareoftenamongthegoodsofhigherorderthathehasathiscommandforpurposesofproduction.Whenthisisthecase,heassignsthem,justliketheservicesofotherpersons,theirrolesintheproductionprocess.Theownerofamagazineisoftenacon-tributortohisownmagazine.Theindustrialentrepreneuroftenworksinhisownfactory.Eachofthemisanentrepreneur,however,notbecauseofhistechnicalparticipationintheproductionprocess,butbecausehemakesnotonlytheunderlyingeconomiccalculationsbutalsotheactualdecisionstoassigngoodsofhigherordertoparticularproductivepurposes.Entrepreneurialactivityincludes:(a)obtaininginformationabouttheeconomicsituation;(b)economiccalculation–allthevariouscomputationsthatmustbemadeifaproductionprocessistobeefficient(providedthatitiseconomicinotherrespects);(c)theactofwillbywhichgoodsofhigherorder(orgoodsingeneral–underconditionsofdevelopedcommerce,whereanyeconomicgoodcanbeexchangedforanyother)areassignedtoaparticularproductionprocess;andfinally(d)super-visionoftheexecutionoftheproductionplansothatitmaybecarriedthroughaseconomicallyaspossible.Insmallfirms,theseentrepreneurialactivitiesusuallyoccupybutaninconsiderablepartofthetimeoftheentrepreneur.Inlargefirms,however,notonlytheentrepreneurhimself,butoftenseveralhelpers,arefullyoccupiedwiththeseactivities.Buthoweverextensivetheactiv-itiesofthesehelpersmaybe,thefourfunctionslistedabovecanalwaysbeobservedintheactionsoftheentrepreneur,eveniftheyareultimatelyconfined(asincorporations)todeterminingtheallocationofportionsofwealthtoparticularproductivepurposesonlybygeneralcategories,andtotheselectionandcontrolofpersons.Afterwhathasbeensaid,itwillbeevidentthatIcannotagreewithMangoldt,whodesignates“riskbearing”astheessentialfunctionofentrepreneurshipinaproductionprocess,sincethis“risk”isonlyincidentalandthechanceoflossiscounterbal-ancedbythechanceofprofit.Intheearlystagesofcivilizationandevenlaterinthecaseofsmallmanufactures,entrepre-neurialactivityisusuallyperformedbythesameeconomizingindividualwhosetechnicallaborservicesalsoconstituteoneofthefactorsintheproductionprocess.Withprogressivedivisionoflaborandanincreaseinthesizeofenterprises,entrepreneurialactivityoftenoccupieshisfulltime.Forthisreason,entrepreneurialactivityisjustasnecessaryafactorintheproductionofgoodsastechnicallaborservices.Itthereforehasthecharacterofagoodofhigherorder,andvaluetoo,sincelikeothergoodsofhigherorderitisalsogenerallyaneconomicgood.Hencewheneverwewishtodeterminethepresentvalueofcomplementaryquantitiesofgoodsofhigherorder,theprospectivevalueoftheproductdeterminesthetotalvalueofallofthemtogetheronlyifthevalueofentrepreneurialactivityisincludedinthetotal.Letmesummarizetheresultsofthissection.Theaggregatepresentvalueofallthecomple-mentaryquantitiesofgoodsofhigherorder(i.e.alltherawmaterials,laborservices,servicesofland,machines,tools,etc.)necessaryfortheproductionofagoodoflowerorfirstorderisequaltotheprospectivevalueoftheproduct.Butitisnecessarytoincludeinthesumnotonlythegoodsofhigherordertechnicallyrequiredforitsproductionbutalsotheservicesofcapitalandtheactivityoftheentrepreneur.Fortheseareasunavoidablynecessaryineveryeconomicpro-ductionofgoodsasthetechnicalrequisitesalreadymentioned.Hencethepresentvalueofthetechnicalfactorsofproductionbythemselvesisnotequaltothefullprospectivevalueoftheproduct,butalwaysbehavesinsuchawaythatamarginforthevalueoftheservicesofcapitalandentrepreneurialactivityremains. 460TheMarginalRevolutionD.ThevalueofindividualgoodsofhigherorderWehaveseenthatthevalueofaparticulargood(orofagivenquantityofgoods)totheecono-mizingindividualwhohasitathiscommandisequaltotheimportanceheattachestothesatis-factionshewouldhavetoforgoifhedidnothavecommandofit.Fromthiswecouldinfer,withoutdifficulty,thatthevalueofeachunitofgoodsofhigherorderislikewiseequaltotheimportanceofthesatisfactionsassuredbycommandofaunitifwewerenotimpededbythefactthatagoodofhigherordercannotbeemployedforthesatisfactionofhumanneedsbyitselfbutonlyincombinationwithother(thecomplementary)goodsofhigherorder.Becauseofthis,however,theopinioncouldarisethatwearedependent,forthesatisfactionofconcreteneeds,notoncommandofanindividualconcretegood(orconcretequantityofsomeonekindofgood)ofhigherorder,butratheroncommandofcomplementaryquantitiesofgoodsofhigherorder,andthatthereforeonlyaggregatesofcomplementarygoodsofhigherordercanindependentlyattainvalueforaneconomizingindividual.Itis,ofcourse,truethatwecanobtainquantitiesofgoodsoflowerorderonlybymeansofcomplementaryquantitiesofgoodsofhigherorder.Butitisequallycertainthatthevariousgoodsofhigherorderneednotalwaysbecombinedintheproductionprocessinfixedproportions(inthemanner,perhaps,thatistobeobservedinthecaseofchemicalreactions,whereonlyacertainweightofonesubstancecombineswithanequallyfixedweightofanothersubstancetoyieldagivenchemicalcompound).Themostordinaryexperienceteachesusratherthatagivenquantityofsomeonegoodoflowerordercanbeproducedfromgoodsofhigherorderthatstandinverydifferentquantitativerelationshipswithoneanother.Infact,oneorseveralgoodsofhigherorderthatarecomplementarytoagroupofcertainothergoodsofhigherordermayoftenbeomittedaltogetherwithoutdestroyingthecapacityoftheremainingcomplementarygoodstoproducethegoodoflowerorder.Theservicesofland,seed,laborservices,fertilizer,theservicesofagriculturalimplements,etc.,areusedtoproducegrain.Butnoonewillbeabletodenythatagivenquantityofgraincanalsobeproducedwithouttheuseoffertilizerandwithoutemployingalargepartoftheusualagriculturalimplements,providedonlythattheothergoodsofhigherorderusedfortheproductionofgrainareavailableincorrespondinglylargerquantities.Ifexperiencethusteachesusthatsomecomplementarygoodsofhigherordercanoftenbeomittedentirelyintheproductionofgoodsoflowerorder,wecanmuchmorefrequentlyobserve,notonlythatgivenproductscanbeproducedbyvaryingquantitiesofgoodsofhigherorder,butalsothatthereisgenerallyaverywiderangewithinwhichtheproportionsofgoodsappliedtotheirproductioncanbe,andactuallyare,varied.Everyoneknowsthat,evenonlandofhomoge-neousquality,agivenquantityofgraincanbeproducedonfieldsofverydifferentsizesifmoreorlessintensivelytilled–thatis,iflargerorsmallerquantitiesoftheothercomplementarygoodsofhigherorderareappliedtothem.Inparticular,aninsufficiencyoffertilizercanbecompensatedforbytheemploymentofalargeramountoflandorbettermachines,orbythemoreintensiveapplicationofagriculturallaborservices.Similarly,adiminishedquantityofalmosteverygoodofhigherordercanbecompensatedforbyacorrespondinglygreaterapplicationoftheothercomplementarygoods.Butevenwhereparticulargoodsofhigherordercannotbereplacedbyquantitiesofothercom-plementarygoods,andadiminutionoftheavailablequantityofsomeparticulargoodofhigherordercausesacorrespondingdiminutionoftheproduct(intheproductionofsomechemical,forinstance),thecorrespondingquantitiesoftheothermeansofproductiondonotnecessarilybecomevaluelesswhenthisoneproductiongoodislacking.Theothermeansofproductioncan,asarule,stillbeappliedtotheproductionofotherconsumptiongoods,andsointhelastanalysistothesatisfactionofhumanneeds,eveniftheseneedsareusuallylessimportantthantheneedsthatcouldhavebeensatisfiedifthemissingquantityofthecomplementarygoodunderconsiderationhadbeenavailable. Menger:PrinciplesofEconomics461Asarule,therefore,whatdependsonagivenquantityofagoodofhigherorderisnotcommandofanexactlycorrespondingquantityofproduct,butonlyaportionoftheproductandoftenonlyitshigherquality.Accordingly,thevalueofagivenquantityofaparticulargoodofhigherorderisnotequaltotheimportanceofthesatisfactionsthatdependonthewholeprod-uctithelpstoproduce,butisequalmerelytotheimportanceofthesatisfactionsprovidedforbytheportionoftheproductthatwouldremainunproducedifwewerenotinapositiontocom-mandthegivenquantityofthegoodofhigherorder.Wheretheresultofadiminutionoftheavailablequantityofagoodofhigherorderisnotadecreaseinthequantityofproductbutaworseningofitsquality,thevalueofagivenquantityofagoodofhigherorderisequaltothedifferenceinimportancebetweenthesatisfactionsthatcanbeachievedwiththemorehighlyqualifiedproductandthosethatcanbeachievedwiththelessqualifiedproduct.Inbothcases,therefore,itisnotsatisfactionsprovidedbythewholeproductthatagivenquantityofaparticu-largoodofhigherorderhelpstoproducethataredependentoncommandofit,butonlysatisfactionsoftheimportancehereexplained.Evenwhereadiminutionoftheavailablequantityofaparticulargoodofhigherordercausestheproduct(somechemicalcompound,forexample)todiminishproportionately,theothercomplementaryquantitiesofgoodsofhigherorderdonotbecomevalueless.Althoughtheircomplementaryfactorofproductionisnowmissing,theycanstillbeappliedtotheproductionofothergoodsoflowerorder,andthusdirectedtothesatisfactionofhumanneeds,eveniftheseneedsare,perhaps,somewhatlessimportantthanwouldotherwisehavebeenthecase.Thusinthiscasetoo,thefullvalueoftheproductthatwouldbelosttousforlackofaparticulargoodofhigherorderisnotthedeterminingfactorinitsvalue.Itsvalueisequalonlytothedifferenceinimportancebetweenthesatisfactionsthatareassuredifwehavecommandofthegoodofhigherorderwhosevaluewewishtodetermineandthesatisfactionsthatwouldbeachievedifwedidnothaveitatourcommand.Ifwesummarizethesethreecases,weobtainagenerallawofthedeterminationofthevalueofaconcretequantityofagoodofhigherorder.Assumingineachinstancethatallavailablegoodsofhigherorderareemployedinthemosteconomicfashion,thevalueofaconcretequan-tityofagoodofhigherorderisequaltothedifferenceinimportancebetweenthesatisfactionsthatcanbeattainedwhenwehavecommandofthegivenquantityofthegoodofhigherorderwhosevaluewewishtodetermineandthesatisfactionsthatwouldbeattainedifwedidnothavethisquantityatourcommand.Thislawcorrespondsexactlytothegenerallawofvaluedetermination…sincethedifferencereferredtointhelawoftheprecedingparagraphrepresentstheimportanceofthesatisfactionsthatdependonourcommandofagivengoodofhigherorder.Ifweexaminethislawwithrespecttowhatwassaidearlier…aboutthevalueofthecomple-mentaryquantitiesofgoodsofhigherorderrequiredfortheproductionofaconsumptiongood,weobtainacorollaryprinciple:thevalueofagoodofhigherorderwillbegreater(1)thegreatertheprospectivevalueoftheproductifthevalueoftheothercomplementarygoodsnecessaryforitsproductionremainsequal,and(2)thelower,otherthingsbeingequal,thevalueofthecomplementarygoods.… LEONWALRAS(1834–1910)LeonWalras,thesonofeconomistAugusteWalras,wasborninFranceandeducatedattheUniversityofParis.Afteratimestudyingengineering,workingasajournalistandthenintherailwayandbankingsectors,WalrasreceivedanappointmentasaprofessorofpoliticaleconomyattheUniversityofLausanne.Walrasnotonlywasaco-founderofthemarginalutilityapproachtoeconomicthe-ory,hewasthefirsteconomisttoself-con-sciouslyandelaboratelydevelopamathematicalmodelofgeneralequilib-rium–doingsoinhisElementsofPureEconomics,publishedintwopartsin1874and1877.UnlikeJevons’TheoryofPoliticalEconomyandMenger’sPrinciples,theElementswaslargelyignoredforalongtimeafteritspublication,inspiteofWalras’extensiveeffortstopro-moteit.Thebookwassimplytoomathe-maticallycomplexformanycontemporaryreaders.Ontheotherhand,theextentoftheinsightintothemarketprocessunderidealizedconditionsevidencedintheElementshasresultedinitbeingfarmoreLeonWalras,byCourtesyofDonaldA.Walker.readinthemodernerathantheworksofWalras’fellow“revolutionaries.”Walrasconstructedhisbasicanalyticalstructureofgeneralequilibriumsequentially,beginningwiththesimplestofcasesandgraduallyincreasingthedegreeofcomplexity.Theanalysisstartswiththecaseoftwopartiesandtwogoodsinapureexchange(barter)system,wherehederivesthesameconsumerexchangeequilibriumequationsasJevonsbutmovedontothederivationofdownward-slopingconsumerdemands.Fromthere,hemovestoexchangeinvolvingmultiplepar-tiesandmultiplegoods,thentotheadditionofproductiontothesystem,andlastlytotheinclusionofcreditandmoney.TheresultwasananalyticalsysteminwhichpricesadjustthroughaprocessthatWalraslabeledtâtonnementtoeliminateexcesssuppliesanddemands,withtheendresultbeingasystemofpricessuchthatallmarketsinthesystemclearsimultaneously. LeonWalras463Walraswasnotinterestedsolelyinpureeconomictheory.Healsowroteonmonetarytheoryandreform,andconcentratedaswellonrationaleffortstoreformsocietyalongmoderatesocial-istlines.Infact,hehadhopedtowriteamajortreatiseonsocialandappliedeconomicsthatwasonaparwithhisElements,buthenevermanagedtocompeteit.TheexcerptsfromtheElementsreprintedhereillustratethecaseofexchangewithseveralcommoditiesandthedeterminationofgeneralequilibriuminthatcontext.ReferencesandfurtherreadingArrow,KennethJ.andHahn,FrankH.(1971)GeneralCompetitiveAnalysis,SanFrancisco:Holden-Day.Collard,David(1973)“LéonWalrasandtheCambridgeCaricature,”EconomicJournal83(June):465–76.Eatwell,John(1987)“Walras’sTheoryofCapital,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.4,London:Macmillan,868–72.Friedman,Milton(1955)“LéonWalrasandHisEconomicSystem,”AmericanEconomicReview45(December)900–9.Ingrao,BrunaandIsrael,Giorgio(1990)TheInvisibleHand:EconomicEquilibriumintheHistoryofScience,Cambridge,MA:MITPress.Jaffé,William,ed.(1965)CorrespondenceofLéonWalrasandRelatedPapers,3vols,Amsterdam:NorthHolland.——(1981)“AnotherLookatWalras’sTheoryofTâtonnement,”HistoryofPoliticalEconomy13(Summer):313–36.——(1984)“TheAntecedentsandEarlyLifeofLéonWalras,editedbyDonaldA.Walker,”HistoryofPoliticalEconomy16(Spring):1–57.Morishima,Michio(1977)Walras’Economics:PureTheoryofCapitalandMoney,Cambridge:CambridgeUniversityPress.Patinkin,Don(1987)“Walras’sLaw,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.4,London:Macmillan,863–8.Walker,DonaldA.(1983)WilliamJaffé’sEssaysonWalras,Cambridge:CambridgeUniversityPress.——(1987)“Walras,Léon,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.4,London:Macmillan,852–63.——(1996)Walras’sMarketModels,Cambridge:CambridgeUniversityPress.Weintraub,E.Roy(1983)“OntheExistenceofaCompetitiveEquilibrium:1930–1954,”JournalofEconomicLiterature21(March):1–39.——(1985)GeneralEquilibriumAnalysis:StudiesinAppraisal,Cambridge:CambridgeUniversityPress. ElementsofPureEconomics(1874)*Lesson11:Problemofexchangeofseveralcommoditiesforoneanother–thetheoremofgeneralequilibrium104.Weshallnowpassfromthestudyoftheexchangeoftwocommodities,(A)and(B),foreachothertoastudyoftheexchangeofseveralcommodities,(A),(B),(C),(D),…,foroneanother.Inthisconnection,allweneedtodoistoreturntothecaseinwhicheachpartytotheexchangeisaholderofonlyonecommodityandthengeneralizeourformulaeinasuitableway.Fromnowon,letDa,bdesignatetheeffectivedemandfor(A)inexchangefor(B),Db,atheeffectivedemandfor(B)inexchangefor(A),pa,bthepriceof(A)intermsof(B)andpb,athepriceof(B)intermsof(A).TorelatethefourunknownsDa,b,Db,a,pa,b,andpb,awehavetwoequationsofeffectivedemandDa,b
Fa,b(pa,b),Db,a
Fb,a(pb,a),andtwoequationsexpressingequalitybetweeneffectivedemandandeffectiveoffer:Db,a
Fa,bpa,b,Da,b
Db,apb,a.Aswehavealreadyseen,thefirsttwooftheseequationscanberepresentedgeometricallybytwocurves,andthelasttwobyinscribingtworectangleswithinthesecurvessuchthatthebaseofeachisequaltotheinverseratioofitsaltitudetothealtitudeoftheotherortothedirectratioofitsareatotheareaoftheother.105.Now,leavingthecaseoftwocommodities(A)and(B),weshalltakethecaseofthreecommodities(A),(B),and(C).Weshallimagine,therefore,somepeoplecomingtoamarketwithcommodity(A),ofwhichtheyarepreparedtogiveuponepartforcommodity(B)andanotherpartforcommodity(C);whileotherscometothesamemarketwithcommodity(B)ofwhichtheyarepreparedtogiveuponepartforcommodity(A)andanotherpartforcommodity(C);andstillotherscomewithcommodity(C)ofwhichtheyarepreparedtogiveuponepartforcommodity(A)andanotherpartforcommodity(B).Underthissupposition,letustakeoneofthesepeople,sayaholderof(B),andletusdevelopthereasoningwhichweoutlinedearlierinawaythatisappropriatetothenewsituation.Weshallfindthathereagainthetrader’sscheduleofthisindividualcanberigorouslydetermined.Infact,everyholderofaquantityqbofcommodity(B),whocomestothemarketpreparedtoexchangeacertainquantityoh,aof(B)foracertainquantityda,bof(A)accordingtotheequationofexchangeda,bva
ob,avb,*ElementsofPureEconomicsorTheSocialTheoryofWealth,translatedbyWilliamJaffé.PublishedforTheAmericanEconomicAssociationandTheRoyalEconomicSocietybyGeorgeAllenandUnwinLtd.,MuseumStreet,London.AtranslationoftheEditionDefinitive(1926)oftheElémentsd’économiepolitiquepure,annotatedandcollatedwiththepreviouseditions.Firstedition1874. Walras:ElementsofPureEconomics465aswellasacertainquantityob,aof(B)foracertainquantitydc,bof(C)accordingtotheequationofexchangedc,bvc
ob,cvb,willtakeawayfromthemarketaquantityda,bof(A),aquantitydc,bof(C)andaquantityyof(B)equaltovavcqbob,aob,c
qbda,bdc,b.vbvbIngeneral,thequantitiesqbandva/vborpa,b,da,bandvc/vborpc,b,dc,bandywillalwaysberelatedbytheequationqb
yda,bpa,bdc,bpc,b.Beforehereachesthemarket,ourtraderdoesnotknowwhatva/vborpa,bandwhatvc/vborpc,bwillbe;butheissuretofindoutassoonashegetsthere.Oncehediscovershowhighpa,bandpc,bare,hewilldecideuponthequantitiesda,banddc,baccordingly,whenceacertainvalueofyresultsbyvirtueoftheaboveequation.Surely,wemustadmitthatthedeterminationofda,bisimpossi-bleunlesspa,bisknownaswellaspc,bandthatthedeterminationofdc,bisimpossibleunlesspa,bisknownaswellaspc,b.Atthesametime,wehavetoagreethat,whenbothpa,bandpc,bareknown,thisveryknowledgemakespossiblethedeterminationda,banddc,b.106.Now,again,nothingcouldbeeasierthantoindicatemathematicallythedirectrelation-shipofda,banddc,b,thatis,theeffectivedemandfor(A)and(C)inexchangefor(B),topa,bandpc,b,thatis,pricesofthesecommodities.Thisrelationship,whichamountstothetrader’sscheduleoftheindividualweareconsidering,isrigorouslydefinedbythetwoequations,da,b
fa,b(pa,b,pc,b)anddc,b
fc,b(pa,b,pc,b).Inlikemanner,wecouldobtainequationstoexpresstheseveraltrader’sschedulesofallotherholdersof(B)for(A)and(C).Then,simplybyaddingtheseequationsofindividualdemand,weobtaintwoequationsoftotaldemandDa,b
Fa,b(pa,b,pc,b),Dc,b
Fc,b(pa,b,pc,b),whichexpressthetrader’sschedulesofallholdersof(B)takentogether.Similarly,wecouldobtaintwoequationsoftotaldemandDa,c
Fa,c(pa,c,pb,c),Db,c
Fb,c(pa,c,pb,c),whichexpressthetrader’sschedulesofallholdersof(C)takentogether.Finally,usingthesameprocedure,wecouldobtaintwoequationsoftotaldemandDb,a
Fb,a(pb,a,pc,a),Dc,a
Fc,a(pb,a,pc,a),whichexpressthetrader’sschedulesofallholdersof(A).107.Wehave,besides,twoequationsofexchangeof(B)for(A)andof(B)for(C)Db,a
Da,bpa,b,Db,c
Dc,bpc,b.Wehave,also,twoequationsofexchangeof(C)for(A)andof(C)for(B):Dc,a
Da,cpa,c,Dc,b
Db,cpb,c.And,lastofall,wehavetwoequationsofexchangeof(A)for(B)andof(A)for(C):Da,b
Db,apb,a,Da,c
Dc,apc,a. 466TheMarginalRevolutionThus,wehaveinalltwelveequationsrelatingthefollowingtwelveunknowns:thesixpricesofthethreecommoditieseachexpressedintermsoftheothertwo,andthesixtotalquantitiesofthethreecommoditieswhichareexchangedforoneanother.108.Nowletussupposeamarketinwhichtherearemcommodities:(A),(B),(C),(D),….Itisreadilyseenthatbyusing,inthiscase,exactlythesamereasoningwhichweusedfirstinthecaseoftwocommoditiesandtheninthecaseofthreecommoditiesandwhichitwouldbeotiosetorepeathere,wecanimmediatelywrite,first,them1equationsofeffectivedemandfor(B),(C),(D),…inexchangefor(A)Db,a
Fb,a(pb,a,pc,a,pd,a,…),Dc,a
Fc,a(pb,a,pc,a,pd,a,…),Dd,a
Fd,a(pb,a,pc,a,pd,a,…),…then,them1equationsofeffectivedemandfor(A),(C),(D),…inexchangefor(B)Da,b
Fb,a(pa,b,pc,b,pd,b,…),Dc,b
Fc,b(pa,b,pc,b,pd,b,…),Dd,b
Fd,b(pa,b,pc,b,pd,b,…),…then,them1equationsofeffectivedemandfor(A),(B),(D),…inexchangefor(C)Da,c
Fa,c(pa,c,pb,c,pd,c,…),Db,c
Fb,c(pa,c,pb,c,pd,c,…),Dd,c
Fd,c(pa,c,pb,c,pd,c,…),…then,them1equationsofeffectivedemandfor(A),(B),(C),…inexchangefor(D)Da,d
Fa,d(pa,d,pb,d,pc,d,…),Db,d
Fb,d(pa,d,pb,d,pc,d,…),Dc,d
Fc,d(pa,d,pb,d,pc,d,…),…andsoon.Inallwehavem(m1)equations.109.Inaddition,wecanevidentlywrite,withoutfurtherexplanation,them1equationsofexchangeof(A)for(B),(C),(D),…Da,b
Db,apb,aDa,c
Dc,apc,aDa,d
Dd,apd,a,…them1equationsofexchangeof(B)for(A),(C),(D),…Db,a
Da,bpa,bDb,c
Dc,bpc,bDb,d
Dd,bpd,b,…them1equationsofexchangeof(C)for(A),(B),(D),…Dc,a
Da,cpa,cDc,b
Db,cpb,cDc,d
Dd,cpd,c,…them1equationsofexchangeof(D)for(A),(B),(C),…Dd,a
Da,dpa,dDd,b
Db,dpb,dDd,c
Dc,dpc,d,…andsoon.Inallwehaveagainm(m1)equations.Thesem(m1)equationsofexchangealongwiththem(m1)equationsofeffectivedemandmakeatotalof2m(m1)equations.Theseequationsconnectprecisely2m(m1)unknowns,fortherearem(m1)pricesandm(m1)totalquantitiesexchangedwhenthemcommoditiesareconsideredtwoatatime.110.Inthespecialcaseoftheexchangeoftwocommoditiesforeachother,andinthespecialcaseoftheexchangeofthreecommoditiesforoneanother,theproblemcanbesolvedeithergeo-metricallyoralgebraically,becauseinboththesecasesthedemandfunctionscanberepresented Walras:ElementsofPureEconomics467geometrically.Inthefirstofthesespecialcases,thedemandfunctionsarefunctionsofonevari-ableandcanberepresentedbytwocurves.Inthesecond,thedemandfunctionsarefunctionsoftwovariablesandcanberepresentedbysixsurfacesinspace.Inthefirstcaseweobtainageometricalsolutionoftheproblem(ofequilibrium)simplybyinscribingrectangleswithinthecurves;whileinthesecondcasewearriveatageometricalsolutionbyinscribingrectangleswithincurvesobtainedbytheintersectionofthesixsurfacesbyplanes.Inthegeneralcase,however,thedemandfunctionsarefunctionsofm1variableswhicharetoonumeroustoberepresentedinspace.Itseems,therefore,thattheproblemwhengeneralizedcanonlybeformulatedandsolvedalgebraically,notgeometrically.Itshouldberecalled,more-over,thatwhatwehaveinmindthroughoutthisvolumeisnottoposeandsolvetheprobleminquestionasifitwerearealprobleminagivenconcretesituation,butsolelytoformulatescientif-icallythenatureoftheproblemwhichactuallyarisesinthemarketwhereitissolvedempirically.Fromourpointofview,notonlyisthealgebraicsolutionasgoodasthegeometricalsolution;butwemaygosofarastosaythatinadoptingtheanalyticalformofmathematicalexpressionweareusingaformthatisgeneralandscientificparexcellence.111.Theproblemoftheexchangeofseveralcommoditiesforoneanothernowappearstobesolved.Actually,itisonlyhalfsolved.Undertheconditionsdescribedabove,therewouldindeedbeacertainequilibriuminthemarketsofarasthepricesofcommoditiestakentwoatatimewereconcerned;butthatequilibriumwouldbeanimperfectequilibrium.Wedonothaveperfectorgeneralmarketequilibriumunlessthepriceofoneofanytwocommoditiesintermsoftheotherisequaltotheratioofthepricesofthesetwocommoditiesintermsofanythirdcommodity.Thisremainstobeproved.Letusbeginbyselectingthreecommoditiesoutofthetotalnumber,say(A),(B)and(C),andletussup-posethatthepricepc,bisgreaterorsmallerthantheratioofpc,atopb,aandseewhatwillhappen.Inordertofixourideas,weshallimaginethattheplacewhichservesasamarketfortheexchangeofallthecommodities(A),(B),(C),(D),…foroneanotherisdividedintoasmanysectorsastherearepairsofcommoditiesexchanged.Weshouldthenhavem(m1)/2specialmarkets,eachidentifiedbyasignboardindicatingthenamesofthetwocommoditiesexchangedthereaswellastheirpricesorratesofexchangewhicharemathematicallydeterminedinaccordancewiththesystemofequa-tionsdevelopedabove.Forexample,weshouldread:“Exchangeof(A)for(B)and(B)for(A)atthereciprocalpricespa,bandpb,a”;“Exchangeof(A)for(C)and(C)for(A)atthereciprocalpricespa,candpc,a”;and“Exchangeof(B)for(C)and(C)for(B)atthereciprocalpricespb,candpc,b.”Undertheseassumptions,ifeachholderof(A)whowanted(B)and(C)simplytradedhis(A)for(B)and(C)onthefirsttwooftheabovespeciallydesignatedmarkets,ifeachholderof(B)whowantedsome(A)and(C)simplytradedhis(B)for(A)and(C)onthefirstandthirdofthesemarkets,andifeachholderof(C)whowanted(A)and(B)simplytradedhis(C)for(A)and(B)onthelasttwoofthesemarkets,thenequilibriumwouldremainunchanged[eventhoughpc,bmightbegreaterorlessthantheratioofpc,atopb,a].Itiseasytoshow,however,thatneithertheholdersof(A),northoseof(B),northoseof(C)willtradeinthisway.Theywillallgoaboutitinanotherwaywhichismoretotheiradvantage.112.Letussuppose,aswedidbefore,thatpc,apc,b
,pb,aorthatpc,bpb,apa,c
1,whereisfirstassumed1.Itfollowsfromthisequationthatthetruepriceof(C)intermsof(B)willnotbepc,bbutpc,b/,inviewofthefactthatforpc,b/unitsof(B)itispossiblefirsttoobtainpc,bpb,a/unitsof(A)onthe(A,B)marketatthepricepa,b
1/pb,aof(A)intermsof(B),andthentotradethesepc,bpb,a/unitsof(A)onthe(A,C)marketforpc,bpb,apa,c/
1unitof(C)atthepricepc,a
1/pa,cof(C)intermsof(A). 468TheMarginalRevolutionItfollowsalsothatthetruepriceof(B)intermsof(A)willnotbepb,abutpb,a/,inviewofthefactthatforpb,a/unitsof(A)itispossiblefirsttoobtainpb,apa,c/unitsof(C)onthe(A,C)mar-ketatthepricepc,a
1/pa,cof(C)intermsof(A),andthentotradethesepb,apa,c/unitsof(C)onthe(B,C)marketforpb,apa,cpc,b/
1unitof(B)atthepricepb,c
1/pc,bof(B)intermsof(C).Andfinallyitfollowsthatthetruepriceof(A)intermsof(C)willnotbepa,cbutpa,c/,inviewofthefactthatforpa,c/unitsof(C)itispossiblefirsttoobtainpa,cpc,b/unitsof(B)on(B,C)market,atthepricepb,c
1/pc,bof(B)intermsof(C)andthentotradethesepa,cpc,b/unitsof(B)onthe(A,B)marketforpa,cpc,bpb,a/
1unitof(A)atthepricepa,b
1/pb,aof(A)intermsof(B).113.Inordertoclarifythispointwiththeaidofconcretenumbers,letussupposethatpc,b
4,pc,a
6,andpb,a
2,whichmakes
1.33.Fromtheequation1426
11.33weseethatthetruepriceof(C)intermsof(B)willnotbe4,but4/1.33
3,inviewofthefactthatfor3unitsof(B)[intendedfortheeventualpurchaseof(C)]itispossiblefirsttoobtain32
6unitsof(A)onthe(A,B)market,wherethepriceof(A)intermsof(B)is1/2andthentotradethese6unitsof(A)onthe(A,C)marketfor61/6
1unitof(C),sincethepricethereof(C)intermsof(A)is6.Weseealsofromtheaboveequationthatthetruepriceof(B)intermsof(A)willnotbe2,but21.33
1.50,inviewofthefactthatfor1.50unitsof(A)[intendedfortheeventualpurchaseof(B)]itispossiblefirsttoobtain1.501/6
1/4ofaunitof(C)onthe(A,C)market,wherethepriceof(C)intermsof(A)is6;andthentotradethis1/4ofaunitof(C)onthe(B,C)marketfor1/44
1unitof(B),sincethepricethereof(B)intermsof(C)is1/4.Andfinallyweseethatthetruepriceof(A)intermsof(C)willnotbe1/6,but1/61.33
1/8,inviewofthefactthatfor1/8ofaunitof(C)[intendedfortheeventualpur-chaseof(A)]itispossiblefirsttoobtain1/84
1/2ofaunitof(B)onthe(B,C)market,wherethepriceof(B)intermsof(C)is1/4;andthentotradethis1/2ofaunitof(B)onthe(A,B)marketfor1/22
1unitof(A),sincethepricethereof(A)intermsof(B)is1/2.114.Clearly,nooneoftheholdersof(A),or(B),or(C)willhesitatetoresorttotheexpedientofsubstitutingtheindirectexchangeof(A)against(C)and(C)against(B)forthedirectexchangeof(A)against(B);ortheindirectexchangeof(B)against(A)and(A)against(C)forthedirectexchangeof(B)against(C);ortheindirectexchangeof(C)against(B)and(B)against(A)forthedirectexchangeof(C)against(A).Thisindirectexchangeiscalledarbitrage.Astothegainsthetradingpartiesrealizebyarbitrage,theywilldistributethemastheypleaseaccordingtotheirvar-iouswants,bypurchasingalittlemoreofonecommodityoranotherinordertoprocurethelargestpossiblesumtotalofsatisfactions.Theconditionofthismaximum,itiswelltopointout,isthattheratiosoftheintensitiesofthelastwantssatisfiedbeequaltotherealpricesresultingfromarbitrageoperations.Butweshallnotgointothatnow,foritsufficestonoteatthispointthatthesupplementarydemand[entailedinarbitrageoperations]ispartandparceloftheprin-cipaldemand:whentheholdersof(A)exchange(A)against(C)and(C)against(B)butnever(A)directlyagainst(B);whentheholdersof(B)exchange(B)against(A)and(A)against(C)butnever(B)directlyagainst(C);andwhentheholdersof(C)exchange(C)against(B)and(B)against(A)butnever(C)directlyagainst(A).Consequently,onthe(A,B)markettherewillinevitablybeademandfor(A)andanofferof(B),butnodemandfor(B)norofferof(A);whenceafallinpb,a.Onthe(A,C)markettherewillinevitablybeademandfor(C)andanofferof(A),butnodemandfor(A)norofferof(C);whencearisepc,a.Andonthe(B,C)markettherewillinevitablybeademandfor(B)andanofferof(C),butnodemandfor(C)norofferof(B);whenceafallinpc,b.115.Itisevidentfromthisthatinthecasewherepc,bpc,a/pb,a,themarketequilibriumwillnei-therbefinalnorgeneralandarbitrageoperationswillbeeffectedwiththeresultthatpc,bwillfall, Walras:ElementsofPureEconomics469pc,awillriseandpb,awillfall.Itisevident,also,thatifthecaseweresuchthatpc,bpc,a/pb,a,therewouldbearbitrageoperationsinthemarket,resultinginariseinpc,b,afallinpc,aandariseinpb,a.Inthissecondcaseweshouldfindthatpc,apc,b
orpb,cpa,bpc,a
1,pb,awhere1,inconsequenceofwhichthetruepriceof(B)intermsof(C)wouldbepb,c,providedthat(C)wastradedfor(A)and(A)for(B);thetruepriceof(A)intermsof(B)wouldbepa,b,providedthat(B)wastradedfor(C)and(C)for(A);andthetruepriceof(C)intermsof(A)wouldbepc,a,providedthat(A)wastradedfor(B)and(B)for(C).Clearly,whathasbeensaidaboutthepricesof(A),(B),and(C)isequallytrueofthepricesofanythreecommoditieswhatsoever.Hence,ifonewishedtoleavearbitrageoperationsasideandatthesametimetogeneralizetheequilibriumestablishedforpairsofcommoditiesinthemarket,itwouldbenecessarytointroducetheconditionthatthepriceofeitheroneofanytwocommodities[chosenatrandom]expressedintermsoftheotherbeequaltotheratioofthepricesofeachofthesetwocommoditiesintermsofanythirdcommodity.Inotherwords,thefollowingequationswouldhavetobesatisfied:1pc,apd,apa,b
,pc,b
,pd,b
,ppb,apb,apb,a1pb,apd,apa,c
,pb,c
,pd,c
,ppc,apc,apc,a1pb,apc,apa,d
,pb,d
,pc,d
,ppd,apd,apd,a…andsoforth.Weshouldhave,inall,(m1)(m1)equationsofgeneralequilibrium,whichcontainedimplicitlym(m1)/2equationsexpressingthereciprocalrelationshipbetweenprices.Thecommod-ityintermsofwhichthepricesofalltheothersareexpressedisthe‘numéraire’[orstandardcommodity].116.Itgoeswithoutsayingthatthechangetothese(m1)(m1)conditionscallsforareduc-tionofourpreviouslydevelopedsystemofequationsofdemandandexchangebyanequalnum-berofequations.Thisispreciselythereductionwhichiseffectedwhenasinglegeneralmarketissubstitutedfortheseveralspecialmarketsinsuchawaythattheequationsofexchangeexpress-ingequalitybetweenthedemandandofferofeachcommodityintermsofandinexchangeforeachoftheothercommoditiestakenseparatelyarereplacedbythefollowingequationsofexchangeexpressingequalitybetweenthedemandandofferofeachcommodityintermsofandinexchangeforalltheothercommoditiestakentogether:Da,bDa,cDa,d…
Db,apb,aDc,apc,aDd,apd,a…Db,aDb,cDb,d…
Da,bpa,bDc,bpc,bDd,bpd,b…Dc,aDc,bDc,d…
Da,cpa,cDb,cpb,cDd,cpd,c…Dd,aDd,bDd,c…
Da,dpa,dDb,dpb,dDc,dpc,d……andsoon,inallmequations.Butthesemequationsreducetom1equations.Ifweinsertthevaluesofthepricesfoundinthegeneralequilibriumequationsandthendesignatethepricesof(B),(C),(D),…intermsof(A)simplybypb,pc,pd,…,andtheaboveequationsbecome:Da,bDa,cDa,dP
Db,apbDc,apcDd,apdp1pcpdDb,aDb,cDb,dP
Da,bDc,bDd,bppbpbpb 470TheMarginalRevolution1pbpdDc,aDc,bDb,dp
Da,cDb,cDd,cppcpcpc1pbpcDd,aDd,bDd,cp
Da,dDb,dDc,dppdpdpd…Andnow,addingtogetherallbutthefirstofthesemequations,aftermultiplyingbothsidesofthefirstoftheremainingm1equationsbypb,bothsidesofthesecondofthesem1equationsbypc,bothsidesofthethirdbypd,…,andthencancellingoutidenticaltermsonbothsidesofthesum,weendupwiththefirstequationoftheabovesystem.Thefirstequation,may,therefore,beomit-ted,andthewholesystemreducestotheremainingm1equations.Thus,wehavefinallym1equationsofexchangetowhichweaddthem(m1)equationsofdemandandthe(m1)(m1)generalequilibriumequations,makingatotalof2m(m1)equationstherootsofwhicharethem(m1)pricesofthemcommoditiesintermsofoneanotherandthem(m1)totalquantitiesofthemcommoditieswhichareexchangedforoneanother.Inthisway,giventheequationsofdemand,thepricesaredeterminedmathematically.Nowthereremainsonlytoshow–andthisistheessentialpoint–thattheproblemofexchangeforwhichwehavejustgivenatheoreticalsolu-tionistheselfsameproblemthatissolvedempiricallyonthemarketbythemechanismoffreecom-petition.Beforeproceedingtothisdemonstration,however,weshallexaminethecasewherethepartiestotheexchangecometothemarketeachholdingseveralcommodities.Thisisthegeneralcasewhichthetheoremofmaximumsatisfactionwillenableustodealwithquitesimplyandeasily.Lesson12:Thegeneralformulaofthemathematicalsolutionoftheproblemofexchangeofseveralcommoditiesforoneanother–thelawoftheestablishmentofcommodityprices117.Inthecaseoftheexchangeofanynumberofcommoditiesforoneanother,asinthecaseoftheexchangeoftwocommoditiesforeachother,theindividualeffectivedemandequa-tionsaremathematicallydeterminedbytheconditionofmaximumsatisfactionofwants.What,exactly,isthisconditionofmaximumsatisfaction?Italwaysconsistsintheattainmentofequal-itybetweentheratiooftheraretésofanytwocommoditiesandthepriceofoneintermsoftheother,forotherwiseitwouldbeadvantageoustomakefurtherexchangesofthesecommoditiesforeachother.Ifeachofthepartiestotheexchangeisaholderofonecommodityonly,andif,inordertofurnishanoccasionforarbitragetransactions,them(m1)pricesofthemcommodi-tiesarecriedasratiosofexchangebetweenthecommoditiestakentwoatatimewithoutrefer-encetotheconditionofgeneralequilibrium,thenmaximumsatisfactionwillbeachievedbyeachpartywhentheratiosoftheraretésoftheseveralcommoditiesdemandedtotheraretéoftheonecommodityoriginallyheldareequal,nottopricesastheyarefirstcried,buttothetruepricesarrivedatbyarbitrage.Butifeachpartyistheholderofseveralcommoditiesandif,inthiscase,thepricesofm1ofthemcommoditiesarecriedintermsofthemth,whichisselectedasthenuméraire,inordertopreventarbitrageoperationsfromtakingplace,then,providedthatthepriceofoneofanypairofthemcommoditiesintermsoftheotherisequaltotheratiooftheirpricesintermsofthenuméraire,itisevidentthatmaximumsatisfactionwillbeachievedbyeachtraderwhentheratiosoftheraretésofthecommoditiesnotusedasthenumérairetotheraretéofthecommoditysousedequalthepricescried.118.Nowletparty(1)beaholderofqa,1of(A),qb,1of(B),qc,1of(C),qd,1of(D),…Letr
a,1(q),r
b,1(q),r
c,1(q),r
d,1(q),…behisequationsofutilityorwantforcommodities(A),(B),(C),(D),…duringagivenperiodoftime.Letpb,pc,pd,…betherespectivepricesofcommodities(B),(C),(D),…intermsof(A).Andletx1,y1,z1,w1,…bethequantitiesof(A),(B), Walras:ElementsofPureEconomics471(C),(D),…respectivelywhichourindividualwilladdtotheoriginalquantitiesheldqa,1,qb,1,qc,1,qd,1,…atpricespb,pc,pd,….Theseadditionsmaybepositiveandconsequentlyrepresentquanti-tiesdemanded;ortheymaybenegativesoastorepresentquantitiesoffered.Inasmuchastheindividualtradercannotpossiblydemandanyofthesecommoditieswithoutofferinginreturnaquantityofothercommoditieshavingthesamevalue,wecanbesurethatifsomeofthequanti-tiesx1,y1,z1,w1,…arepositive,othersareboundtobenegative,andthatthefollowingrelationshipbetweenthesequantitieswillalwayshold:x1y1pbz1pcw1pd…
0.Ifwesupposemaximumsatisfactiontohavebeenattained,theabovequantitieswillevidentlyberelatedbythefollowingsystem:b,1(qb,1y1)
pba,1(qa,1x1),c,1(qc,1z1)
pca,1(qa,1x1),d,1(qd,1w1)
pda,1(qa,1x1),…constitutinginallm1equations,whichtogetherwiththeprecedingequationgiveusasystemofmequations.Wemaysupposethatm1ofthemunknowns,x1,y1,z1,w1,…,areeliminatedoneafteranotherfromtheseequationssothatweareleftwithonlyoneequationexpressingthemthunknownasafunctionoftheprices.Weshouldthenhavethefollowingequationsofdemandorofferof(B),(C),(D),…byparty(1):y1
fb,1(pb,pc,pd,…),z1
fc,1(pb,pc,pd,…),w1
fd,1(pb,pc,pd,…),…whilehisdemandorofferof(A)isgivenbytheequationx1
(y1pbz1pcw1pd…).Similarly,inthecaseofparties(2),(3),…wecouldderivethefollowingequationsofdemandorofferof(B),(C),(D),…:y2
fb,2(pb,pc,pd,…),z2
fc,2(pb,pc,pd,…),w2
fd,2(pb,pc,pd,…),…y3
fb,3(pb,pc,pd,…),z3
fc,3(pb,pc,pd,…),w3
fd,3(pb,pc,pd,…),…andsoforth,whiletheirrespectivedemandsoroffersof(A)aregivenbytheequations:x2
(y2pbz2pcw2pd…),x3
(y3pbz3pcw3pd…).…Inthiswayeveryone’stradingschedulecouldbededucedfromtheutilitywhichthevariouscom-moditieshaveforhimandfromhisoriginalstocksofthesecommodities.Beforeproceedingfurther,however,wehaveaveryimportantobservationtomakeatthisjuncture.119.Itispossiblefory1tobenegativeatcertainvaluesofpb,pc,pd,…whichisthecasewhenparty(1)offerscommodity(B)insteadofdemandingit.Itisevenpossiblefory1tobeequal 472TheMarginalRevolutiontoqb,1,whenparty(1)doesnotretainanyofcommodity(B)atallforhimself.Ifweenterthisvalueofy1inthesystemofm1equationsofmaximumsatisfaction,wehaveb,1(0)
pba,1(qa,1x1),c,1(qc,1z1)
pca,1(qa,1x1),d,1(qd,1z1)
pda,1(qa,1x1),…Substitutingthevaluesforpb,pc,pd,…derivedfromtheaboveequationsintox1z1pcw1pd…
qb,1pb,weobtainx1a,1(qa,1x1)z1c,1(qc,1z1)w1d,1(qd,1w1)…
qb,1b,1(0).Thisequationexpressesaconditionwhichcanbetranslatedintothefollowingterms:Fortheofferofoneofthecommoditiestobeequaltothequantitypossessedofthatcommodity,itmustbepossibletoinscribesuchrectangleswithinthesegmentsoftheutilitycurvesenclosingtheareaswhichliejustabovetheboundedareasrepresentingthewants[already]satisfiedbythequantitiespossessedofthecommoditiestobedemanded,thatthesumoftheirareasisequaltotheareaofarectanglethealtitudeofwhichrepresentstheoriginalstockofthecommoditytobeofferedandthebasethemaximumintensityofwantforthatcommodity.Thisconditionmayormaynotbesatisfied.Ifitis,party(l)’sofferof(B)may,undercertaincir-cumstances,beequaltothequantityqb,1whichheholdstostartwith.Inanycase,theoffercanneverbegreaterthanthisquantity.Theessentialpointwhichfollowsfromthisisthatthedemandorofferequationof(B)mustbereplacedbyy1
qb,1forallvaluesofpb,pc,pd,…whichmakey1negativeandgreaterthanqb,1inthisequation.120.Butthatisnotall.Inthefirstplace,thesameconclusionappliestothedemandorofferequa-tionsof(C),(D),…forsuchvaluesofpb,pc,pd,…whichmakez1,w1,…negativeandlargerthanqc,1,qd,1,….Inthesecondplace,itispreciselywhentheseequationshavetobereplacedbyz1
qc,1,w1
qd,1,…,thatthedemandorofferequationof(B)mustbechangedinconsequence.Forexample,ifz1
qc,1,thesystemofequationsdeterminingparty(l)’sdemandorofferof(B)wouldbethefollowing:x1y1pbz1pcw1pd…
qc,1pc,b,1(qb,1y1)
pba,1(qa,1x1),d,1(qd,1w1)
pda,1(qa,1x1),…m1equationsinall,fromwhichwecouldsupposem2unknowns,suchas,x1,w1,…,tobeeliminatedoneafteranother,sothatonlyoneequationexpressingy1asafunctionofpb,pc,pd,…wouldremain.Theprocedureisthesamewhenw1
qd,1,….Itwillbereadilyunderstood,with-outfurtherdemonstration,thatthesameprocedurewouldapplynotonlyinthecasewhereofferequalsthequantitypossessedofoneofthecommodities(C),(D),…,butalsointhecasewherethisequalityholdsfor2,3,4,…,or,generallyspeaking,foranynumberofthesecommodities.121.Wehavesaidnothingsofarabouttheequationofthedemandorofferofthenumérairecommodity(A),becausethisequationtakesonaspecialform.Evidentlyittoomustbereplacedbyx1
qa,1forvaluesofpb,pc,pd,…whichwouldmakex1negativeandgreaterthanqa,1.Inthatcase,moreover,thesystemofequationsdeterminingparty(l)’sdemandorofferof(B)wouldbethefollowing:y1pbz1pcw1pd…
qa,1,pbc,1(qc,1z1)
pcb,1(qb,1y1),pbd,1(qd,1w1)
pdb,1(qb,1y1),… Walras:ElementsofPureEconomics473inall,asbefore,m1equationsfromwhichwecouldsupposem2unknownssuchasz1,w1,…tobeeliminatedoneafteranother,sothatonlyoneequationexpressingy1asafunctionofpb,pc,pd,…wouldremain.122.Undoubtedly,itwouldbemoreorlessdifficulttosetoutthedemandandofferequationsinsuchawayastosatisfytherestrictionsdescribedabove;butitisnonethelesscertain–andthisistheimportantpoint–that,oncecertainprices,saypb¿,pc¿,pd¿,pof(B),(C),(D),…intermsof(A),havebeencried,thequantitiestobeofferedanddemandedofallthecommoditiesinquestion,evenwhenwetakeintoaccountthefactthatoffermayequalquantitypossessed,areperfectlydeterminate.Thisiswhatwehavetoprove.Letq
a,1(r),q
b,1(r),q
c,1(r),q
d,1(r),…betheutilityequationsofparty(1)forcom-modities(A),(B),(C),(D),…,whicharetobesolvednowforthequantitiesratherthantheraretés.Uponthecompletionofalltheexchangetransactions,wehavenotonlyqa,1x1
a,1(ra,1),qa,1y1
b,1(rb,1),qa,1z1
c,1(rc,1),qd,1z1
d,1(rd,1),…butalsoqa,1pb¿qb,1pc¿qc,1p¿dqd,1p
ca,11r¿a,12pb¿cb,11pb¿ra,¿12pc¿cc,11pc¿ra,¿12pdd,1(pdra,1)…byvirtueoftheconditionofequalityofthevaluesofthequantitiesexchangedandtheconditionofmaximumsatisfaction.Thislastequationcanbesolvedforra,1.Knowingra,1,wehaverb,¿1,rc,¿1,rd,¿1,
p,andconsequentlyx1¿,y1¿,z1¿,w1¿,p.Theonlycommoditieswhichwillberetainedoracquiredarethoseforwhichtheintensityofthefirstwanttobesatisfiedisgreaterthantheproductofpricetimesra,1.Ifra,¿1isgreaterthantheintensityofhisfirstwantfor(A),party(1)willneitherdemandnorretainanyofthecommodityservingasthenuméraire.123.Theequationsofthedemandorofferof(A),(B),(C),(D),…byparties(1),(2),(3),…havingbeenappropriatelysetoutexhypothesiinsuchawayastosatisfytherestrictionsdescribedabove,letX,Y,Z,W,…designaterespectivelythesumsx1x2x3…,y1y2y3…,z1z2z3…,w1w2w3…,andletFb,Fc,Fd,…designaterespectivelythesumsofthefunctionsfb,1,fb,2,fb,3,…fc,1,fc,2,fc,3,…fd,1,fd,2,fd,3,…Sincetheconditionofequalitybetweenthedemandandtheofferof(A),(B),(C),(D),…isexpressedbytheequationsX
0,Y
0,Z
0,W
0,…inthegeneralcaseunderdiscussion,wehavethefollowingequationsforthedetermi-nationofcurrentequilibriumprices:Fb(pb,pc,pd,…)
0,Fc(pb,pc,pd,…)
0,Fd(pb,pc,pd,…)
0,…makingup,inall,m1equations.Moreover,sincepb,pc,pd,…arebytheirnaturepositive,itisevidentthat,iftheaboveequationsaresatisfied,thatis,ifY
0,Z
0,W
0,…,wealsohaveX
(YpbZpcWpd…)
0.124.Thus,m1pricesofm1ofthemcommoditiesaredeterminedmathematicallyintermsofthemthcommoditywhichservesasthenuméraire,whenthefollowingthreeconditionsaresatisfied:firstthateachandeverypartytotheexchangeobtainthemaximumsatisfactionof 474TheMarginalRevolutionhiswants,theratiosofhisraretésthenbeingequaltotheprices;secondthateachandeverypartygiveupquantitiesthatstandinadefiniteratiotothequantitiesreceivedandviceversa,therebeingonlyonepriceintermsofthenuméraireforeachcommodity,namelythepriceatwhichtotaleffectivedemandequalstotaleffectiveoffer;andthirdthattherebenooccasionforarbitragetransactions,theequilibriumpriceofoneofanytwocommoditiesintermsoftheotherbeingequaltotheratioofthepricesofthesetwocommoditiesintermsofanythirdcommodity.Nowletusseeinwhatwaythisproblemoftheexchangeofseveralcommoditiesforoneanothertowhichwehavejustgivenascientificsolutionisalsotheproblemwhichisempiricallysolvedinthemarketbythemechanismofcompetition.125.Firstofall,whatactuallytakesplaceinthemarketisthatthem(m1)pricesofmcom-moditiesintermsofoneanotherarereducedthroughtheemploymentofanumérairetom1pricesofm1ofthemcommoditiesintermsofthemth.Thismthcommodityisthenuméraire.The(m1)(m1)pricesoftheremainingcommoditiesintermsofoneanotherarepresumedtobeequaltotheratiosofthepricesofthecommoditiesintermsofthenuméraireincomformitywiththeconditionofgeneralequilibrium.Letpb,pc,pd,…of(B),(C),(D),…intermsof(A)bem1pricescriedinthisway,atrandom.Atthesepriceseachpartytotheexchangedecidesuponhisdemandorofferof(A),(B),(C),(D),….Thesedecisionswhicharearrivedataftersomedelib-eration,butwithoutrefinedcalculation,aremadeasiftheywerereachedbythemathematicalsolutionofthesystemofequationsofdemandandofferandofmaximumsatisfactionsubjecttosuitableconstraints.Letx1,x2,x3,…y1,y2,y3,…w1,w2,w3,…bepositiveornegative,rep-resentingtheindividualdemandsorofferscorrespondingtothepricespb,pc,pd,….Ifthetotaldemandequalledthetotalofferofeachandeverycommodity,if,inotherwords,weimmediatelyhadY
0,Z
0,W
0,…,and,inconsequence,X
0,theexchangewouldtakeplaceatthesepricesandtheproblemwouldbesolved.Generally,however,thetotaldemandwillnotequalthetotalofferofeachandeverycommodity,sothatwehaveY0,Z0,W0,…,and,inconsequence,X0.Whatwillhappenonthemarketthen?Ifthedemandforanyonecommodityisgreaterthantheoffer,thepriceofthatcommodityintermsofthenumérairewillrise;iftheofferisgreaterthanthedemand,thepricewillfall.Whatmustwedoinordertoprovethatthetheoreticalsolutionisidenticallythesolutionworkedoutbythemarket?Ourtaskisverysimple:weneedonlyshowthattheupwardanddownwardmovementsofpricessolvethesystemofequationsofofferanddemandbyaprocessofgroping[‘partâtonnement’].126.LetusrecallthatwehavetheequationXYpbZpcWpd…
0,whichcanbewrittenDa¿O¿a1Db¿Ob¿2pb¿1Dc¿O¿c2pc¿1Dd¿O¿d2pd¿p
0,whereDa,Db,Dc,Dd,…,designatethesumsofthepositivex’s,y’s,z’s,w’s,…andOa,Ob,Oc,Od,…,designatethesumsofthenegativex’s,y’s,z’s,w’s,…takenpositively,thecorrespondingpricesbeingpb,pc,pd,….Weobservethat,sincepb,pc,pd,…arepositivebytheirverynature,ifsomeofthequantitiesX¿
Da¿O¿a,Y¿
D¿bO¿b,Z¿
Dc¿Oc¿,W¿
D¿dOd¿,parepositive,otherswillbenegative,andconversely,ifsomeofthesequantitiesarenegative,otherswillbepositive.Thismeansthatifatthepricespb,pc,pd,…thetotaldemandforsomecommoditiesisgreater(orsmaller)thantheiroffer,thentheofferofsomeoftheothercommoditiesmustbegreater(orsmaller)thanthedemandforthem.127.LetusnowconsidertheinequalityFb1pb¿,pc¿,pd¿,p20,andletusrewriteitinthisform¢b1pb¿,pc¿,pd¿,p2b1pb¿,pc¿,pd¿,p2, Walras:ElementsofPureEconomics475wherethefunctionbisthesumofthepositivey’s,orDb,andthefunctionbisthesumofthenegativey’s,orOb.Leavingpc,pd,…toonesidesincethesepricesareassumedtohavebeenpre-viouslydetermined,sothatpbaloneremainstobedetermined,letustrytofindhowpbmustbeadjustedbetweenzeroandinfinityforthedemandfor(B)toequalitsoffer.AlthoughneitherthefunctionFbnorthefunctionsbandbareknown,wecan,nevertheless,derivesufficientinfor-mationforpresentpurposesfromtheforegoingstudyofexchangetotellushowpbcanbebroughttoavaluewhich,ifitexistsatall,willmaketheFbfunctionequalzeroorthebandbfunctionsequaltoeachother.128.Starting,now,withthefunctionb,whichisthedemandfunctionof(B)inexchangefor(A),(C),(D),…,weknowthatitispositivewhenpb
0,thatis,atzeropricesof(B)intermsof(A),(C),(D),….Infact,atthese[zero]pricesthetotaleffectivedemandfor(B)willbeequaltotheexcessofthetotalextensiveutilityof(B)overthetotalquantityof(B)possessed,andthiswillbeapositiveexcessifcommodity(B)isscarceandformspartofsocialwealth.Ifpbisallowedtoincreaseinsuchawaythatthevariouspricesof(B)intermsof(A),(C),(D),…allriseinthesameproportion,thefunctionbwilldecreasesinceitisasumofdecreasingfunctions.Infact,com-modity(B)willbecomedeareranddearerinrelationtocommodities(A),(C),(D),…;anditisunthinkable,underthishypothesis,thatthedemandfor(B)shouldincrease.Itcanonlydiminish.Moreover,wecanalwayssupposethevalueofpb,thatistosaythepricesof(B)intermsof(A),(C),(D),…,tobesohigh,infiniteifneedbe,thatthedemandfor(B)iszero.Turningourattention,next,tothefunctionb,whichistheofferfunctionof(B)inexchangefor(A),(C),(D),…,weknowthatitiszeroforpb
0,andevenforcertainpositivevaluesofpb,thatis,forthezeropriceandevencertainpositivepricesof(B)intermsof(A),(C),(D),….Indeed,justaswemaysupposepricesof(B)intermsof(A),(C),(D),…sohighthatthedemandfor(B)iszero,sowemayimaginepricesof(A),(C),(D),…intermsof(B)sohighthatthedemandforthesecom-moditiesiszero,inwhichcasetheofferof(B)mustbezero.Ifpbisallowedtoincreaseinsuchawaythatthevariouspricesof(B)intermsof(A),(C),(D),…allriseinthesameproportion,thefunctionbwillfirstincreaseandthendecrease,sinceitisasumoffunctionswhichfirstincreaseandthendecrease.Inthiscase,thecommodities(A),(C),(D),…willbecomecheaperandcheaperinrelationtocommodity(B),andthedemandforthemwillconformtothesuccessivechangesintheofferof(B).Butthisofferwillnotincreaseindefinitely;itpassesthroughatleastonemaximumvaluewhichcannotbegreaterthanthetotalquantitypossessed.Theofferof(B)mustthendiminishandreturntozeroifpbisinfinite,thatis,if(A),(C),(D),…arefreegoods.129.UndertheseconditionsthereexistsacertainvalueofpbatwhichDbandObareequal,exceptinthecasewhereDbfallstozerobeforeObstartstoriseabovezero,inwhichcasethereisnosolution.Suchacase,however,willnotoccuraslongasthereareanypartiestotheexchangewhoareholdersofmorethanonecommodity.Inordertofindthe[equilibrium]valueofpb,pbwillhavetorisewheneverY0,thatis,wheneverDbObatthatprice;andpbwillhavetofallwheneverY0,thatis,wheneverObDbatthatprice.Thus,wearriveattheequationFb1pb–,pc¿,pd¿,p2
0.Oncethisoperationhasbeencarriedout,theinequalityFc1pb¿,pc¿,pd¿,p20.becomesFc1pb–,p–c,pd¿,p20,butthisinequalitycanbeturnedintoFc1pb–,p–c,pd¿,p2
0,byincreasingordecreasingpc,accordingasZ0(i.e.DcOc)atthatprice. 476TheMarginalRevolutionInthesamewaywecanobtaintheequationFd1pb–,p–c,pd¿,p2
0,andsoforth.130.Aftertheseoperationshavebeeneffected,weshallhaveFb1pb–,p–c,p–d,p20.ItremainstobeshownthatthisinequalityisclosertoequalitythantheinequalityFb1pb¿,pc¿,pd¿,p20,withwhichwestarted.Thiswillappearprobableifwerememberthatthechangefrompbtopb,whichreducedtheaboveinequalitytoanequality,exertedadirectinfluencethatwasinvariablyinthedirectionofequalityatleastsofarasthedemandfor(B)wasconcerned;whilethe[conse-quent]changesfrompctopc,pd,topd,…,whichmovedtheforegoinginequalityfartherawayfromequality,exertedindirectinfluences,someinthedirectionofequalityandsomeintheoppositedirection,atleastsofarasthedemandfor(B)wasconcerned,sothatuptoacertainpointtheycancelledeachotherout.Hence,thenewsystemofpricespb,pc,pd,…isclosertoequilibriumthantheoldsystemofpricespb,pc,pd,…;anditisonlynecessarytocontinuethisprocessalongthesamelinesforthesystemtomovecloserandclosertoequilibrium.Wearenowinapositiontoformulatethelawoftheestablishmentofequilibriumpricesinthecaseoftheexchangeofseveralcommoditiesforoneanotherthroughthemediumofanuméraire:Givenseveralcommodities,whichareexchangedforoneanotherthroughthemediumofanuméraire,forthemarkettobeinastateofequilibriumorforthepriceofeachandeverycommodityintermsofthenumérairetobestationary,itisnecessaryandsufficientthatatthesepricestheeffectivedemandforeachcommodityequalitseffectiveoffer.Whenthisequalityisabsent,theattainmentofequilibriumpricesrequiresariseinthepricesofthosecommoditiestheeffectivedemandforwhichisgreaterthantheeffectiveoffer,andafallinthepricesofthosecommoditiestheeffectiveofferofwhichisgreaterthantheeffectivedemand. FRANCISYSIDROEDGEWORTH(1845–1926)F.Y.Edgeworth,anIrishman,wasedu-catedatTrinityCollege,Dublin,andatOxford.Hepracticedlawforatimeandthenheldasuccessionofacademicpostsintheareasofliterature,logic,andpoliti-caleconomy,culminatinginhisappoint-mentasDrummondProfessorofPoliticalEconomyatOxfordin1891.Inadditiontohisextensivewritingsineconomicsandpioneeringworkinmathematicalstatistics,Edgeworthalsoserved,from1891,aseditoroftheEconomicJournal,whichwassponsoredbytheRoyalEconomicSociety.Edgeworthwasoneofthefirsttorestateutilitarianethicalandeconomicanalysisinmathematicalform,albeit,andnotsurprisingly,inrudimentaryform;themathematicswaslargelythatofalgebraandcalculus.Hisanalysisraisedinadirectwaytheproblemofbarrierstoreachingdeterminateanswers,thusset-tingthestageforacentury-longprocessofcomingtogripswiththatproblem,withmixedandcontroversialresults.HealsoFrancisYsidroEdgeworth,Photographer:WalterStoneman,bywasthefirsttomakeuseofindifferencecourtesyoftheNationalPortraitGallery,London.curves(whichwereveryslowtocatchonastoolsofthetrade)andformulatedthenotionofa“contractcurve”asthelocusofequilibriumcurvesoftradesbetweeneconomicactorswithdifferentcombinationsofinitialentitlements–aviewwhich,whileitinterferedwiththeattain-mentofuniquedeterminantoutcomes,effectively,ifunconsciously,continuedtheRicardianideathatallocationisinfluencedbydistribution.Edgeworth’snotionofthecoreofanexchangeecon-omyand,inthelargenumberscase,thecorrespondencebetweenthisandperfectlycompetitiveequilibrium,hashadafundamentallyimportantinfluenceonthedevelopmentofmoderngeneralequilibriumtheory. 478TheMarginalRevolutionTheexcerptsherefromEdgeworth’sMathematicalPsychicsshowhiselaborationoftheexchangeanalysisforwhichhehasbecomesowellknown.Thereader’sattentionisalsodrawntohisdiscussionoftherelationofthesocialsciencestothenaturalsciences–representativeofthegeneraldesireineconomicsoverthisperiodtobringtheanalysismoreintolinewiththemethodsofthemoreprestigiousnaturalsciences.ReferencesandfurtherreadingBlaug,Mark,ed.(1992)AlfredMarshall(1842–1924)andFrancisEdgeworth(1845–1926),Aldershot:EdwardElgarPublishing.Bowley,A.L.(1934)“FrancisYsidroEdgeworth,”Econometrica2:113–24.Creedy,John(1979)“Edgeworth’sContributiontotheTheoryofExchange,”ScottishJournalofPoliticalEconomy26(June):163–81.——(1986)EdgeworthandtheDevelopmentofNeoclassicalEconomics,Oxford:BasilBlackwell.——(1990)“MarshallandEdgeworth,”ScottishJournalofPoliticalEconomy37(February):18–39.Edgeworth,F.Y.(1925)PapersRelatingtoPoliticalEconomy,3vols,London:MacmillanfortheRoyalEconomicSociety.Keynes,J.M.(1951)“FrancisYsidroEdgeworth,1845–1926,”inJ.M.Keynes(ed.),EssaysinBiography,London:RupertHart-Davis,218–38.Newman,Peter(1987)“Edgeworth,FrancisYsidro,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.2,London:Macmillan,84–98Stigler,StephenM.(1987)“EdgeworthasaStatistician,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.2,London:Macmillan,98–9. MathematicalPsychics(1881)*TheapplicationofmathematicstoBelief,thecalculusofProbabilities,hasbeentreatedbymanydistinguishedwriters;thecalculusofFeeling,ofPleasureandPain,isthelessfamiliar,butnotinrealitymoreparadoxicalsubjectofthisessay.Thesubjectdividesitselfintotwoparts;concernedrespectivelywithprincipleandpractice,rootandfruit,theapplicabilityandtheapplicationofMathematicstoSociology.PartIInthefirstpartitisattemptedtoproveanaffinitybetweenthemoralandtheadmittedlymathe-maticalsciencesfromtheirresemblanceasto(1)acertaingeneralcomplexion,(2)aparticularsalientfeature.1.Thescienceofquantityisnotalientothestudyofman,itwillbegenerallyadmitted,insofarasactionsandeffectivedesirescanbenumericallymeasuredbywayofstatistics–thatis,veryfar,asProfessorJevonsanticipates.Butinsofarasourdatamayconsistofestimatesotherthannumerical,observationsthatsomeconditionsareaccompaniedwithgreaterorlesspleasurethanothers,itisnecessarytorealisethatmathematicalreasoningisnot,ascommonlysupposed,lim-itedtosubjectswherenumericaldataareattainable.Wheretherearedatawhich,thoughnotnumericalarequantitative–forexample,thataquantityisgreaterorlessthananother,increasesordecreases,ispositiveornegative,amaximumorminimum,theremathematicalreasoningispossibleandmaybeindispensable.Totakeatrivialinstance:aisgreaterthanb,andbisgreaterthanc,there-foreaisgreaterthanc.Hereismathematicalreasoningapplicabletoquantitieswhichmaynotbesusceptibleofnumericalevaluation.Thefollowinginstanceislesstrivial,analogousindeedtoanimportantsocialproblem.Itisrequiredtodistributeagivenquantityoffuel,soastoobtainthegreatestpossiblequantityofavailableenergy,amongagivensetofengines,whichdifferineffi-ciency–efficiencybeingthusdefined:oneengineismoreefficientthananotherif,wheneverthetotalquantityoffuelconsumedbytheformerisequaltothatconsumedbythelatter,thetotalquantityofenergyyieldedbytheformerisgreaterthanthatyieldedbythelatter.Inthedistribution,shallalargerportionoffuelbegiventothemoreefficientengines?Always,oronlyinsomecases?And,ifso,inwhatsortofcases?Hereisaverysimpleprobleminvolvingnonumericaldata,yetrequiring,itmaybesafelysaid,mathematicsforitscompleteinvestigation.Thelatterstatementmaybedisputedinsofarassuchquestionsmaybesolvedbyreasoning,which,thoughnotsymbolical,isstrictlymathematical;answeredmoreinformally,yetcorrectly,byundisciplinedcommonsense.But,first,theadvocateofmathematicalreasoninginsocialscienceisnotconcernedtodenythatmathematicalreasoninginsocial,aswellasinphysical,sciencemay*MathematicalPsychics:AnEssayontheApplicationofMathematicstotheMoralSciences.London:C.KeganPaul&Co.,1881.ReprintedbyAugustusM.Kelley,1967. 480TheMarginalRevolutionbedivestedofsymbol.Onlyitmustberememberedthatthequestionhowfarmathematicscanwithsafetyorproprietybedivestedofherpeculiarcostumeisaverydelicatequestion,onlytobedecidedbytheauthorityandinthepresenceofMathematicsherself.And,second,astothesuffi-ciencyofcommonsense,theworstofsuchunsymbolic,atleastunmethodic,calculationsaswemeetinpopulareconomicsisthattheyareapttomissthecharacteristicadvantagesofdeductivereasoning.Hethatwillnotverifyhisconclusionsasfaraspossiblebymathematics,asitwerebring-ingtheingotsofcommonsensetobeassayedandcoinedatthemintofthesovereignscience,willhardlyrealisethefullvalueofwhatheholds,willwantameasureofwhatitwillbeworthinhow-everslightlyalteredcircumstances,ameansofconveyingandmakingitcurrent.Whenthegivenconditionsarenotsufficienttodeterminatetheproblem–acaseofgreatimportanceinPoliticalEconomy–the´ 
´islesslikelytosuspectthisdeficiency,lesscompetenttocorrectitbyindicatingwhatconditionsarenecessaryandsufficient.Allthisisevidentataglancethroughtheinstrumentofmathematics,buttothenakedeyeofcommonsensepartiallyandobscurely,and,asPlatosaysofunscientificknowledge,inastatebetweengenuineBeingandNot-Being.Theprecedingproblem,todistributeagivenquantityofmaterialinordertoamaximumofenergy,withitsstartingpointloosequantitativerelationsratherthannumericaldata–itsslipperythoughshortpathalmostnecessitatingthesupportofmathematics–illustratesfairlywelltheproblemofutilitariandistribution.Toillustratetheeconomicalproblemofexchange,themazeofmanydealerscontractingandcompetingwitheachother,itispossibletoimagineamecha-nismofmanypartswherethelawofmotion,whichparticularpartmovesoffwithwhich,isnotpreciselygiven–withsymbols,arbitraryfunctions,representingnotmerelynotnumericalknowledgebutignorance–where,thoughthemodeofmotiontowardsequilibriumisindeterminate,thepositionofequilibriumismathematicallydetermined.Examplesnotmadetoorder,takenfromthecommonstockofmathematicalphysics,willofcoursenotfitsoexactly.Buttheymaybefoundinabundance,itissubmitted,illustratingthepropertyunderconsideration–mathematicalreasoningwithoutnumericaldata.InHydrodynamics,forinstance,wehaveaThomsonorTaitreasoning‘principles’for‘determiningPandQwillbegivenlater.InthemeantimeitisobviousthateachdecreasesasXincreases.Hencetheequationsofmotionshow’–andhegoesontodrawaconclusionofmomentousinterestthatballs(properly)projectedinaninfiniteincompressiblefluidwillmoveasiftheywereattractedtoeachother.AndgenerallyinthehigherHydrodynamics,inthatboundlessoceanofperfectfluid,swumthroughbyvortices,wherethedeepfirstprinciplesofPhysicsaretobesought,isnotasimilarunnumerical,orhyperarithmeticalmethodtherepursued?Ifaportionofperfectfluidsomovesatanytimethateachparticlehasnomotionofrotation,thenthatportionofthefluidwillretainthatpropertyforalltime;hereisnoapplicationofthenumericalmeasuring-rod.Nodoubtitmaybeobjectedthatthesehydrodynamicalproblemsemploysomeprecisedata;theverydefinitionofForce,theconditionsoffluidityandcontinuity.Butsoalsohaveoursocialproblemssomeprecisedata:forexample,thepropertyofuniformityofpriceinamarket;orratherthe(approximatelyrealised)conditionsofwhichthatpropertyisthededucibleeffect,andwhichbearsastrikingresemblancetothedataofhydrodynamics:(1)thefulnessofthemarket:thattherecontinuestobeuptotheconclusionofthedealinganindefinitenumberofdealers;(2)thefluidityofthemarket,orinfinitedividednessofthedealers’interests.Giventhispropertyofuni-formprice,MrMarshallandM.Walrasdeducemathematically,thoughnotarithmetically,aninterestingtheorem,whichMillandThorntonfailedwithunaidedreasontodiscern,thoughtheywerequiteclosetoit–thetheoremthattheequationofsupplytodemand,thoughanecessary,isnotasufficientconditionofmarketprice.Toattempttoselectrepresentativeinstancesfromeachrecognisedbranchofmathematicalinquirywouldexceedthelimitsofthispaperandtherequirementsoftheargument.Itmustsuf-fice,inconclusion,todirectattentiontoonespeciesofMathematicswhichseemslargelyaffected Edgeworth:MathematicalPsychics481withthepropertyunderconsideration,theCalculusofMaximaandMinima,or(inawidesense)ofVariations.Thecriterionofamaximumturns,notupontheamount,butuponthesignofacertainquantity.Wearecontinuallyconcernedwiththeascertainmentofacertainloosequantitativerela-tion,thedecrease-of-rate-of-increaseofaquantity.Now,thisistheveryquantitativerelationwhichitisproposedtoemployinmathematicalsociology;giveninsuchdataasthelawofdiminishingreturnstocapitalandlabour,thelawofdiminishingutility,thelawofincreasingfatigue;theverysameirregular,unsquaredmaterialwhichconstitutesthebasisoftheEconomicalandtheUtilitarianCalculus.Now,itisremarkablethattheprincipalinquiriesinSocialSciencemaybeviewedasmaximum-problems.ForEconomicsinvestigatesthearrangementsbetweenagentseachtendingtohisownmaximumutility;andPoliticsand(Utilitarian)Ethicsinvestigatethearrangementswhichconducetothemaximumsumtotalofutility.Since,then,SocialScience,ascomparedwiththeCalculusofVariations,startsfromsimilardata–loosequantitativerelations–andtravelstoasimilarconclusion–determinationofmaximum–whyshoulditnotpursuethesamemethod,Mathematics?ThereremainstheobjectionthatinPhysicalCalculusthereisalways(asintheexamplequotedabovefromThomsonandTait)apotentiality,anexpectation,ofmeasurement;whilePsychicswantthefirstconditionofcalculation,aunit.Thefollowingbriefanswerisdiffidentlyoffered.Utility,asProfessorJevonssays,hastwodimensions,intensityandtime.Theunitineachdimen-sionisthejustperceivableincrement.Theimpliedequationtoeachotherofeachminimumsensi-bileisafirstprincipleincapableofproof.Itresemblestheequationtoeachotherofundistinguishableeventsorcases,whichconstitutesthefirstprincipleofthemathematicalcalcu-lusofbelief.Itisdoubtlessaprincipleacquiredinthecourseofevolution.Theimpliedequatabil-ityoftime-intensityunits,irrespectiveofdistanceintimeandkindofpleasure,isstillimperfectlyevolved.Suchistheunitofeconomicalcalculus.Formoralcalculusafurtherdimensionisrequired;tocomparethehappinessofonepersonwiththehappinessofanother,andgenerallythehappinessofgroupsofdifferentmembersanddifferentaveragehappiness.Suchcomparisoncannolongerbeshirked,ifthereistobeanysystematicmoralityatall.Itispostulatedbydistributivejustice.Itispostulatedbythepopulationquestion;thathorizoninwhicheverymoralprospectterminates;whichispresentedtothefar-seeingateveryturn,onthemostsacredandthemosttrivialoccasions.Youcannotspendsixpenceutilitarianly,withouthav-ingconsideredwhetheryouractiontendstoincreasethecomfortofalimitednumber,ornumberswithlimitedcomfort;withouthavingcomparedsuchalternativeutilities.Invirtueofwhatunitissuchcomparisonpossible?Itisheresubmitted:Anyindividualexperi-encingaunitofpleasure-intensityduringaunitoftimeisto‘countforone’.Utility,then,hasthreedimensions;amassofutility,‘lotofpleasure’,isgreaterthananotherwhenithasmoreintensity-time-numberunits.Thethirddimensionisdoubtlessanevolutionalacquisition;andisstillfarfromperfectlyevolved.Lookingbackatourtriplescale,wefindnopeculiardifficultyaboutthethirddimension.Itisanaffairofcensus.Theseconddimensionisanaffairofclockwork;assumingthatthedistinctionheretouched,betweensubjectiveandobjectivemeasureoftime,isofminorimportance.Butthefirstdimension,whereweleavethesafegroundoftheobjective,equatingtounityeachminimumsensibile,presentsindeedpeculiardifficulties.Atomsofpleasurearenoteasytodistinguishanddiscern;morecontinuousthansand,morediscretethanliquid;asitwerenucleiofthejust-perceivable,embeddedincircumambientsemi-consciousness.Wecannotcountthegoldensandsoflife;wecannotnumberthe‘innumerablesmile’ofseasoflove;butweseemtobecapableofobservingthatthereishereagreater,therealess,multitudeofpleasure-units,massofhappiness;andthatisenough.2.Theapplicationofmathematicstotheworldofsouliscountenancedbythehypothesis(agreeabletothegeneralhypothesisthateverypsychicalphenomenonistheconcomitant,andin 482TheMarginalRevolutionsomesensetheothersideofaphysicalphenomenon),theparticularhypothesisadoptedinthesepages,thatPleasureistheconcomitantofEnergy.EnergymayberegardedasthecentralideaofMathematicalPhysics;maximumenergytheobjectoftheprincipalinvestigationsinthatscience.Byaidofthisconceptionwereduceintoscientificorderphysicalphenomena,thecomplexityofwhichmaybecomparedwiththecomplexitywhichappearssoformidableinSocialScience.ImagineamaterialCosmos,amechanismascompositeaspossible,andperplexedwithallmannerofwheels,pistons,parts,connections,andwhosemazycomplexitymightfartranscendinitsentanglementthewebsofthoughtandwilesofpassion;nevertheless,ifanygivenimpulsesbeimpartedtoanydefinitepointsinthemechanismatrest,itismathematicallydeduciblethateachpartofthegreatwholewillmoveoffwithavelocitysuchthattheenergyofthewholemaybethegreatestpossible–thegreatestpossibleconsistentwiththegivenimpulsesandexistingconstruction.Ifweknowsomethingabouttheconstructionofthemechanism,ifitis‘amightymaze,butnotwithoutaplan’;ifwehavesomequantitativethoughnotnumericaldatumabouttheconstruction,wemaybeabletodeduceasimilarlyindefiniteconclusionaboutthemotion.Forinstance,anynumberofcasesmaybeimaginedinwhich,ifadatumabouttheconstructionisthatcertainpartsarelessstiffthanothers,aconclusionaboutthemotionwouldbethatthosepartstakeonmoreenergythantheirstifferfellows.Thisrough,indefinite,yetmathematicalrea-soningisanalogoustothereasoningonasubsequentpage,thatinordertothegreatestpossiblesumtotalofhappiness,themorecapableofpleasureshalltakemoremeans,morehappiness.Intheprecedingillustrationthemotionofamechanismwassupposedinstantaneouslygener-atedbytheapplicationofgivenimpulsesatdefinitepoints(oroverdefinitesurfaces);butsimilargeneralviewsareattainableinthenotsodissimilarcaseinwhichwesupposemotiongeneratedintimebyfiniteforcesactingupon,andinteractingbetween,theparticlesofwhichthemecha-nismiscomposed.ThissuppositionincludesthecelebratedproblemofManyBodies(attractingeachotheraccordingtoanyfunctionofthedistance);inreferencetowhichoneoftenhearsitaskedwhatcanbeexpectedfromMathematicsinsocialscience,whensheisunabletosolvetheproblemofThreeBodiesinherowndepartment.ButMathematicscansolvetheproblemofmanybodies–notindeednumericallyandexplicitly,butpracticallyandphilosophically,afford-ingapproximatemeasurements,andsatisfyingthesoulofthephilosopherwiththegrandestofgeneralisations.Byaprinciple‘discoveredorimprovedbyLagrange,eachparticleofthehow-evercomplexwholeiscontinuallysomovingthattheaccumulationofenergy,whichisconsti-tutedbyaddingtoeachothertheenergiesofthemechanismexistingateachinstantoftime(technicallytermedAction–thetime-integralofEnergy)shouldbeamaximum.BythediscoveryofSirWilliamRowanHamiltonthesubordinationofthepartstothewholeismoreusefullyexpressed,thevelocityofeachpartisregardedasderivablefromtheactionofthewhole;theactionisconnectedbyasingle,althoughnotanexplicitoringeneraleasilyinterpretable,relationwiththegivenlawofforce.Themanyunknownarereducedtooneunknown,theoneunknownisconnectedwiththeknown.Nowthisaccumulation(ortime-integral)ofenergywhichthusbecomestheprincipalobjectofthephysicalinvestigationisanalogoustothataccumulationofpleasurewhichisconstitutedbybringingtogetherinprospectthepleasureexistingateachinstantoftime,theendofrationalaction,whetherself-interestedorbenevolent.ThecentralconceptionofDynamicsand(invirtueofpervadinganalogiesitmaybesaid)ingeneralofMathematicalPhysicsisother-sidedlyidenticalwiththecentralconceptionofEthics;andasolutionpracticalandphilosophical,althoughnotnumericalandprecise,asitexistsfortheproblemoftheinteractionofbodies,soispossiblefortheproblemoftheinteractionofsouls.Thisgeneralsolution,itmaybethought,atmostisapplicabletotheutilitarianproblemofwhichtheobjectisthegreatestpossiblesumtotalofuniversalhappiness.Butitdeservesconsid-erationthatanobjectofEconomicsalso,thearrangementtowhichcontractingagentsactuated Edgeworth:MathematicalPsychics483onlybyself-interestiscapableofbeingregardeduponthepsychophysicalhypothesishereenter-tainedastherealisationofthemaximumsumtotalofhappiness,therelativemaximum,orthatwhichisconsistentwithcertainconditions.ThereisdimlydiscernedtheDivineideaofapowertend-ingtothegreatestpossiblequantityofhappinessunderconditions;whethertheconditionofthatperfectdisintegrationandunsympatheticisolationabstractedlyassumedinEconomics,orthoseintermediateconditionsofwhatHerbertSpencermighttermintegrationontothatperfectedutilitariansympathyinwhichthepleasuresofanotherareaccountedequalwithone’sown.Therearediversitiesofconditions,butonemaximum-principle;manystagesofevolution,but‘oneincreasingpurpose’.‘MécaniqueSociale’mayonedaytakeherplacealongwith‘MécaniqueCeleste’,thronedeachuponthedouble-sidedheightofonemaximumprinciple,thesupremepinnacleofmoralasofphysicalscience.Asthemovementsofeachparticle,constrainedorloose,inamaterialcosmosarecontinuallysubordinatedtoonemaximumsum-totalofaccumulatedenergy,sothemove-mentsofeachsoul,whetherselfishlyisolatedorlinkedsympathetically,maycontinuallyberealisingthemaximumenergyofpleasure,theDivineloveoftheuniverse.‘MécaniqueSociale’,incomparisonwithhereldersister,islessattractivetothevulgarworshipperinthatsheisdiscerniblebytheeyeoffaithalone.Thestatuesquebeautyoftheoneismanifest;butthefairylikefeaturesoftheotherandherfluentformareveiled.ButMathematicshaslongwalkedbytheevidenceofthingsnotseenintheworldofatoms(themeth-odswhereof,itmayincidentallyberemarked,statisticalandrough,mayillustratethepossibilityofsocialmathematics).TheinvisibleenergyofelectricityisgraspedbythemarvellousmethodsofLagrange;theinvisibleenergyofpleasuremayadmitofasimilarhandling.Asinasystemofconductorscarryingelectricalcurrentstheenergyduetoelectro-magneticforceistobedistinguishedfromtheenergyduetoordinarydynamicalforces,forexample,grav-itationactingupontheconductors,sotheenergyofpleasureistobedistinguishednotonlyfromthegrossenergyofthelimbs,butalsofromsuchnervousenergyaseitherisnotallrepresentedinconsciousness(paceG.H.Lewes),orisrepresentedbyintensityofconsciousnessnotintensityofplea-sure.Aselectro-magneticforcetendstoamaximumenergy,soalsopleasureforcetendstoamax-imumenergy.Theenergygeneratedbypleasureforceisthephysicalconcomitantandmeasureoftheconsciousfeelingofdelight.Imagineanelectricalcircuitconsistingoftworailsisolatedfromtheearthconnectedatoneextremitybyagalvanicbatteryandbridgedoverattheotherextremitybyasteam-locomotive.Whenacurrentofelectricityissentthroughthecircuit,thereisanelectro-magneticforcetend-ingtomovethecircuitoranymoveablepartofitinsuchadirectionthatthenumberoflinesofforce(duetothemagnetismoftheearth)passingthroughthecircuitinapositivedirectionmaybeamaximum.Theelectro-magneticforcethereforetendstomovethelocomotivealongtherailsinthatdirection.Nowthisdelicateforcemaywellbeunabletomovetheponderouslocomotive,butitmaybeadequatetopressaspringandturnahandleandletonsteamandcausetheloco-motivetobemovedbythesteam-engineinthedirectionoftheelectro-magneticforce,eitherbackwardsorforwardsaccordingtothedirectioninwhichtheelectricalcurrentflows.Thedelicateelectro-magneticforceisplacedinsuchacommandingpositionthatsheswaysthemovementsofthesteam-enginesoastosatisfyherownyearningtowardsmaximum.Addnowanotherdegreeoffreedom;andletthesteam-cargovernedmoveuponaplaneinadirectiontendingtowardsthepositionofMinimumPotentialElectro-MagneticEnergy.Complicatethisconception;modifyitbysubstitutingfortheprincipleofMinimumForce-PotentialtheprincipleofMinimumMomentum-Potential;imagineacomparativelygrossmechanismofinnumerabledegreesoffreedomgoverned,inthesenseadumbrated,byamoredelicatesystem–itself,howeverinconceivablydiversifieditsdegreesoffreedom,obedientstilltothegreatMaximumPrinciplesofPhysics,andamenabletomathematicaldemonstration,thoughatfirstsight 484TheMarginalRevolutionashopelesslyincalculableaswhateverisinlifecapriciousandirregular–asthesmilesofbeautyandthewavesofpassion.Similarlypleasureinthecourseofevolutionhasbecomethronedamonggrossersubjectener-gies–asitwereexplosiveengines,readytogooffatthepressureofahair-spring.Swayedbythefirstprinciple,sheswaysthesubjectenergiessoastosatisfyherownyearningtowardsmaximum;‘hereveryairOfgestureandleastmotion’alawofForcetogovernedsystems–afluentform,aFairyQueenguidingamostcomplicatedchariot,wheelwithinwheel,the‘speculativeandactiveinstruments’,themotornerves,thelimbsandtheenvironmentonwhichtheyact.AsystemofsuchcharioteersandchariotsiswhatconstitutestheobjectofSocialScience.Theattractionsbetweenthecharioteerforces,thecollisionsandcompactsbetweenthechariots,pre-sentanappearanceofquantitativeregularityinthemidstofbewilderingcomplexityresemblinginitsgeneralcharactersthefieldofelectricityandmagnetism.Toconstructascientifichypothe-sisseemsrathertosurpassthepowersofthewriterthanofMathematics.‘SinhasnepossimnaturæaccederepartesFrigidusobstiteritcircumpræcordiasanguis’;atleasttheconceptionofManasapleasuremachinemayjustifyandfacilitatetheemploymentofmechanicaltermsandMathematicalreasoninginsocialscience.PartIISucharesomeofthepreliminaryconsiderationsbywhichemboldenedweapproachthetwofieldsintowhichtheCalculusofPleasuremaybesubdivided,namelyEconomicsandUtilitarianEthics.TheEconomicalCalculusinvestigatestheequilibriumofasystemofhedonicforceseachtendingtomaximumindividualutility;theUtilitarianCalculus,theequilibriumofasysteminwhicheachandalltendtomaximumuniversalutility.ThemotivesofthetwospeciesofagentscorrespondwithMrSidgwick’sEgoisticandUniversalisticHedonism.Butthecorrespondenceisnotperfect.For,first,upontheprincipleof‘selflimitation’ofamethod,soclearlystatedbyMrSidgwick,sopersistentlymisunderstoodbycritics,thePureUtilitarianmightthinkitmostbeneficenttosinkhisbenevolencetowardscompetitors;andtheDeductiveEgoistmighthaveneedofaUtilitarianCalculus.Butfurther,itispossiblethatthemoralconstitutionoftheconcreteagentwouldbeneitherPureUtilitariannorPureEgoistic,butı´ı.ForitissubmittedthatMrSidgwick’sdivisionofHedonism–theclassof‘Method’whoseprincipleofactionmaybegenericallydefinedmaximisinghappiness–isnotexhaustive.ForbetweenthetwoextremesPureEgoisticandPureUniversalistictheremaybeanindefinitenumberofimpuremethods;whereinthehappinessofothersascomparedbytheagent(inacalmmoment)withhisown,neithercountsfornothing,notyet‘countsforone’,butcountsforafraction.Deferringcontroversy,letusglanceattheelementsoftheEconomicCalculus;observingthattheconnotation(andsomeofthereasoning)extendsbeyondtheusualdenotation;tothepoliticalstruggleforpower,aswellastothecommercialstruggleforwealth.EconomicalcalculusDefinitionsThefirstprincipleofEconomicsisthateveryagentisactuatedonlybyself-interest.Thework-ingsofthisprinciplemaybeviewedundertwoaspects,accordingastheagentactswithout,orwith,theconsentofothersaffectedbyhisactions.Inwidesenses,thefirstspeciesofactionmaybecalledwar;thesecond,contract.Examples:(1)Ageneral,orfencer,makingmoves,adealerlow-eringprice,withoutconsentofrival.(2)Asetofco-operatives(labourers,capitalists,manager)agreednem.con.todistributethejoint-producebyassigningtoeachacertainfunctionofhissacrifice.Thearticlesofcontractareinthiscasetheamountofsacrificetobemadebyeach,andtheprincipleofdistribution. Edgeworth:MathematicalPsychics485‘Isitpeaceorwar?’askstheloverof‘Maud’,ofeconomiccompetition,andanswershastily:Itisboth,paxorpactbetweencontractorsduringcontract,war,whensomeofthecontractorswithouttheconsentofothersrecontract.Thus,anauctioneerhavingbeenincontactwiththelastbidder(tosellatsuchapriceifnohigherbid)recontractswithahigherbidder.Soalandlordonexpiryofleaserecontracts,itmaybe,withanewtenant.Thefieldofcompetitionwithreferencetoacontract,orcontracts,underconsiderationconsistsofalltheindividualswhoarewillingandabletorecontractaboutthearticlesunderconsideration.Thus,inanauctionthefieldconsistsoftheauctioneerandallwhoareeffectivelywillingtogiveahigherpricethanthelastbid.Inthiscase,asthetransactionreachesdetermination,thefieldcontinuallydiminishesandultimatelyvanishes.Butthisisnotthecaseingeneral.Supposeagreatnumberofauctionsgoingonatthesamepoint;or,whatcomestothesamething,amarketconsistingofanindefinitenumberofdealers,sayXs,incommodityx,andanindefinitenumberofdealers,sayYs,incommodityy.Inthiscase,uptothedeterminationofequilibrium,thefieldcontinuesindefinitelylarge.Tobesureitmaybesaidtovanishatthepositionofequilibrium.Butthatcircumstancedoesnotstultifythedefinition.Thus,ifonechosetodefinethefieldofforceasthecentresofforcesensiblyactingonacertainsystemofbodies,theninacontinuousmediumofattractingmatter,thefieldmightbecontinuallyofindefiniteextent,mightchangeasthesystemmoved,mightbesaidtovanishwhenthesystemreachedequilibrium.Thereisfreecommunicationthroughoutanormalcompetitivefield.Youmightsupposetheconstituentindividualscollectedatapoint,orconnectedbytelephones–anidealsupposition,butsufficientlyapproximatetoexistenceortendencyforthepurposesofabstractscience.Aperfectfieldofcompetitionprofessesinadditioncertainpropertiespeculiarlyfavourabletomath-ematicalcalculation;namelyacertainindefinitemultiplicityanddividedness,analogoustothatinfinityandinfinitesimalitywhichfacilitatesolargeaportionofMathematicalPhysics(considerthetheoryofAtoms,andallapplicationsoftheDifferentialCalculus).Theconditionsofaperfectfieldarefour;thefirstpairreferribletotheheadingmultiplicityorcontinuity,thesecondtodividednessorfluidity.1Anyindividualisfreetorecontractwithanyoutofanindefinitenumber,forexample,inthelastexamplethereareanindefinitenumberofXsandsimilarlyofYs.2Anyindividualisfreetocontract(atthesametime)withanindefinitenumber;forexample,anyX(andsimilarlyY)maydealwithanynumberofYs.Thisconditioncombinedwiththefirstappearstoinvolvetheindefinitedivisibilityofeacharticleofcontract(ifanyXdealwithanindefinitenumberofYshemustgiveeachanindefinitelysmallportionofx);whichmightbeerectedintoaseparatecondition.3Anyindividualisfreetorecontractwithanotherindependentlyof,withouttheconsentbeingrequiredof,anythirdparty,forexample,thereisamongtheYs(andsimilarlyamongtheXs)nocombinationorpre-contractbetweentwoormorecontractorsthatnoneofthemwillrecontractwithouttheconsentofall.AnyYthenmayaccepttheofferofanyXirrespectivelyofotherYs.4Anyindividualisfreetocontractwithanotherindependentlyofathirdparty;forexample,insimpleexchangeeachcontractisbetweentwoonly,butsecusintheentangledcontractdescribedintheexample…whereitmaybeaconditionofproductionthatthereshouldbethreeatleasttoeachbargain.Therewillbeobservedacertainsimilaritybetweentherelationofthefirsttothesecondcondi-tion,andthatofthethirdtothefourth.Thefailureofthefirstinvolvesthefailureofthesecond,butnotviceversâ;andthethirdandfourtharesimilarlyrelated.Asettlementisacontractwhichcannotbevariedwiththeconsentofallthepartiestoit.Afinalsettlementisasettlementwhichcannotbevariedbyrecontract,withinthefieldofcompetition.Contractisindeterminatewhenthereareanindefinitenumberoffinalsettlements. 486TheMarginalRevolutionTheProblemtowhichattentionisspeciallydirectedinthisintroductorysummaryis:Howfarcontractisindeterminate–anenquiryofmorethantheoreticalimportance,ifitshownotonlythatindeterminatenesstendstopreventwidely,butalsoinwhatdirectionanescapefromitsevilsistobesought.DemonstrationsThegeneralansweris–()Contractwithoutcompetitionisindeterminate,()Contractwithperfectcompetitionisperfectlydeterminate,()Contractwithmoreorlessperfectcompetitionislessormoreindeterminate..Letuscommencewithalmostthesimplestcaseofcontract–twoindividuals,XandY,whoseinterestdependsontwovariablequantities,whichtheyareagreednottovarywithoutmutualconsent.Exchangeoftwocommoditiesisaparticularcaseofthiskindofcontract.Letxandybetheportionsinterchanged,asinProfessorJevons’sexample.Thentheutilityofoneparty,sayX,maybewritten1(ax)1(y);andtheutilityoftheotherparty,sayY,2(x)2(by);whereandaretheintegralsofProfessorJevons’ssymbolsand.Itisagreedthatxandyshallbevariedonlybyconsent(notforexamplebyviolence).Moregenerally,letP,theutilityofX,oneparty,
F(x,y),and,theutilityofY,theotherparty,
(x,y).Ifnowitisinquiredatwhatpointtheywillreachequilibrium,oneorbothrefus-ingtomovefurther,towhatsettlementtheywillconsent;theanswerisingeneralthatcontractbyitselfdoesnotsupplysufficientconditionstodeterminatethesolution;supplementaryconditionsaswillappearbeingsuppliedbycompetitionorethicalmotives,Contractwillsupplyonlyonecondition(forthetwovariables),namelydPddPd
,dxdydydx(correspondingtoProfessorJevons’sequation1(ax)2(x)
.1(y)2(by)Theory(p.108),whichitisproposedheretoinvestigate.ConsiderPF(x,y)
0asasurface,Pdenotingthelengthoftheordinatedrawnfromanypointontheplaneofxy(saytheplaneofthepaper)tothesurface.Consider(x,y)similarly.Itisrequiredtofindapoint(xy)suchthat,inwhateverdirectionwetakeaninfinitelysmallstep,Panddonotincreasetogether,butthat,whileoneincreases,theotherdecreases.ItmaybeshownfromavarietyofpointsofviewthatthelocusoftherequiredpointisdPddPd
0,dxdydydxwhichlocusitishereproposedtocallthecontract-curve.1.ConsiderfirstinwhatdirectionsXcantakeanindefinitelysmallstep,sayoflength,fromanypoint(xy).SincetheadditiontoPisdPdP[()cos()sin],dxdycosbeing
dx,andsin
dy,itisevidentthatXwillsteponlyononesideofacertainline,thelineofindifference,asitmightbecalled;itsequationbeingdPdP(x)()(y)()
0.dxdy Edgeworth:MathematicalPsychics487Anditistobeobserved,inpassing,thatthedirectioninwhichXwillprefertomove,thelineofforceorlineofpreference,asitmaybetermed,isperpendiculartothelineofindifference.Similarremarksapplyto.IfthenweenquireinwhatdirectionsXandYwillconsenttomovetogether,theansweris,inanydirectionbetweentheirrespectivelinesofindifference,inadirectionpositiveasitmaybecalledforboth.Atwhatpointthenwilltheyrefusetomoveatall?Whentheirlinesofindifferencearecoincident(andlinesofpreferencenotonlycoincident,butinoppositedirections);whereofthenecessary(butnotsufficient)conditionis(dP)(d)dPd()()
0.dxdydydx2.Thesameconsiderationmightbethusput.LetthecompletevariationofPbedPdPDP
[()cos()sin]dxdyandsimilarlyfor.Theningeneralcanbetaken,sothatDP/Dshouldbepositive,say
g2,andsoPandbothincreasetogether.2(dPdx)g(ddx)tan
.2(dPdy)g(ddy)Butthissolutionfailswhen(dPdx)(ddx)
.(dPdy)(ddy)Infact,inthiscaseDP/Disthesameforalldirections.If,then,thatcommonvalueofDP/Disnegative,motionisimpossibleinanydirection.3.Or,again,wemayconsiderthatmotionispossiblesolongas,onepartynotlosing,theothergains.Thepointofequilibrium,therefore,maybedescribedasarelativemaximum,thepointatwhichforexamplebeingconstant,Pisamaximum.PutP
Pc(),wherecisacon-stantandisthesupposedgivenvalueof.ThenPisamaximumonlywhendPddPddx(c)dy(c)
0,dxdxdydywhencewehaveasbeforethecontract-curve.ThesameresultwouldfollowifwesupposedYinducedtoconsenttothevariation,notmerelybytheguaranteethatheshouldnotlose,orgaininfinitesimally,butbytheunderstandingthatheshouldgainsensiblywiththegainsofP.Forinstance,let
k2Pwherekisaconstant,certainlynotaverypracticablecondition.Or,moregenerally,letPmovesubjecttotheconditionthatDP
2D,whereisafunctionofthecoordinates.ThenDP,subjecttothiscondition,vanishesonlywhendPdPdPdPdd20
()dx()dyc{()dx()dy[()dx()dy]},dxdydxdydxdywherecisaconstant;whencedPd()2(1c)c()
0dxdx 488TheMarginalRevolutionanddPd2()(1c)c()
0,dxdywhenceasbeforedPddPd()()()()
0.dxdydydxNodoubttheonetheorywhichhasbeenthusdifferentlyexpressedcouldbepresentedbyaprofessedmathematicianmoreelegantlyandscientifically.Whatappearstothewriterthemostphilosophicalpresentationmaybethusindicated.4.Uponthehypothesisaboveshadowedforth,humanactiongenerally,andinparticularthesteptakenbyacontractormodifyingarticlesofcontract,mayberegardedastheworkingofagrossforcegoverned,leton,anddirectedbyamoredelicatepleasure-force.Fromwhichitseemstofollowupongeneraldynamicalprinciplesappliedtothisspecialcasethatequilibriumisattainedwhenthetotalpleasure-energyofthecontractorsisamaximumrelative,orsubject,toconditions;thecon-ditionsbeinghere(i)thatthepleasure-energyofXandYconsideredeachasafunctionof(cer-tainvaluesof)thevariablesxandyshouldbefunctionsofthesamevalues:inthemetaphoricallanguageaboveemployedthatthecharioteer-pleasuresshoulddrivetheirteamstogetherovertheplaneofxy;(ii)thatthejoint-teamshouldneverbeurgedinadirectioncontrarytotheprefer-encesofeitherindividual;thattheresultantlineofforce(andthemomentum)ofthegross,thechariot,systemshouldbecontinuallyintermediatebetweenthe(positivedirectionsofthe)linesoftherespectivepleasure-forces.[Wemaywithoutdisadvantagemakeabstractionofsensiblemomentum,andsupposethebytheconditionjoint-systemtomovetowardsequilibriumalongalineofresultantgrossforce.Letitstartfromtheorigin.Andletusemployanarbitraryfunctiontodenotetheunknownprincipleofcompromisebetweentheparties;supposetheratioofthesinesofanglesmadebytheresultantlinewiththerespectivelinesofpleasure-force.]Then,byreasoningdifferentfromtheprecedingonlyinthepointofview,itappearsthatthetotalutilityofthesystemisarelativemaximumatanypointonthepurecontract-curve.Itappearsfrom(1)and(2)thereisaportionofthelocusdPdddP()()()()
0,dxdydxdywhereDP/Dis,notthereforeindicatingimmobility,aucontraire,theimpure(partofthe)contract-curve,asitmightbecalled.Thismightbeillustratedbytwospheres,eachhavingtheplaneofthepaperasadiametralplane.Thecontractcurveiseasilyseentobethelinejoiningthecentres.Supposingthatthedistancebetweenthecentresislessthanthelessoftheradii,partofthecontract-curveisimpure.Iftheindex,asMrMarshallmightcallit,beplacedanywhereinthisportionitwillrunuptoacentre.Butbetweenthecentresthecontract-curveispure;theindexplacedanywhereinthisportionisimmovable;andifaccountbetakenoftheportionsofthespheresunderneaththeplaneofthepaper,thedownwardordinatesrepresentingnegativepleasures,similarstatementshold,mutatismutandis.Itappearsthatthepureandimpurepartsofthecontract-curvearedemarcatedbythepointswhereDP/Dchangessign,thatis(ingeneral)whereeitherDP/dorD/d(dbeinganincrementofthelengthofthecontract-curve)eithervanishesorbecomesinfinite.AccordinglythemaximaandminimaofPandpresentdemarcatingpoints;forexample,thecentreofeachsphere,whichcorrespondstoamaximuminreferencetotheupperhemisphere,aminimumin Edgeworth:MathematicalPsychics489referencetothelowerhemisphere.Theimpurecontractcurveisrelevanttocaseswherethecom-modityofonepartyisadiscommoditytotheother.Buteveninthepurecontract-curveallpointsdonotinthesamesenseindicateimmobility.For,accordingtotheconsideration(3)(above,…),thecontract-curvemaybetreatedasthelocuswhere,beingconstant,Pisstationary,eitheramaximumorminimum.Thus,anypointinourcaseoftwointersectingspheresaffordsamaximuminrelationtotheupperhemisphere;butthesamepoint(itisonlyanaccidentthatitshouldbethesamepoint–itwouldnotbethesamepointifyousupposeslightlydistortedspheres)affordsaminimuminrelationtothelowerhemisphere.Thispure,butunstable(partofthe)contract-curveisexemplifiedincertaincasesofthatunstableequilib-riumoftrade,whichhasbeenpointedoutbyPrincipalMarshallandProfessorWalras.Theprecedingtheorymayeasilybeextendedtoseveralpersonsandseveralvariables.LetP1
F1(xyz)denotetheutilityofoneofthreeparties,utilitydependingonthreevariables,xyz;andsimilarlyP2
F2,P3
F3.Thenthecontract-settlement,thearrangementforthealterationofwhichtheconsentofallthreepartiescannotbeobtained,willbe(subjecttoreservationsanalogoustothoseanalysedintheprecedingparagraphs)theEliminant.dP1dP1dP1,dxdydzdP2dP2dP2,dxdydzdP3dP3dP3.dxdydzIngenerallettherebemcontractorsandnsubjectsofcontract,nvariables.Thenbytheprin-ciple(3)[above,…]thestateofequilibriummaybeconsideredassuchthattheutilityofanyonecontractormustbeamaximumrelativetotheutilitiesoftheothercontractorsbeingconstant,ornotdecreasing;whichmaybethusmathematicallyexpressed:D(l1P1l2P2…lmPm)
0,whereDrepresentscompleteincrementandl1,l2,…,areinde-terminatemultipliers;whence,iftherebenvariablesx1x2…xn,wehavenequationsoftheformdP1dP2dPml1l2…lm
0,dx1dx1dx1fromwhich,ifnbenotlessthanm,wecaneliminatethe(m1independent)constantslandobtainthecontract-systemconsistingofn(m1)equations.Thecaseofnbeinglessthanmmaybesufficientlyillustratedbyaparticularexample.LettheabscissaxrepresentthesinglevariableonwhichtheutilitiesPandoftwopersonscontractingdepend.Thenifpand
arethemaximumpointsfortherespectivepleasure-curves(comparethereasoning,…)itisevidentthatthetractofabscissabetween
andpisofthenatureofpurecontract-curve;thattheindexbeingplacedanywhereinthattractwillbeimmovable;secusoneithersidebeyond
andp.Similarlyitmaybeshownthat,ifthreeindividualsareincontractabouttwovariablesxy,thecontractlocusorregionis(thespacewithin)acurvilineartriangleintheplanexyboundedbythethreecontract-curvespresentedbysuccessivelysupposingeachpairofindividu-alstobeincontractwithrespecttoxandy.Andsimilarlyforlargernumbersinhyperspace.Itisnotnecessaryforthepurposeofthepresentstudytocarrytheanalysisfurther.Togatherupandfixourthoughts,letusimagineasimplecase–RobinsonCrusoecontractingwithFriday.Thearticlesofcontract:wagestobegivenbythewhite,labourtobegivenbytheblack.LetRobinsonCrusoe
X.Representy,thelabourgivenbyFriday,byahorizontallinemeasurednorthwardfromanassumedpoint,andmeasurex,theremunerationgivenbyCrusoe,fromthe 490TheMarginalRevolutionsamepointalonganeastwardline(seeaccompanyingFigure1).Thenanypointbetweentheselinesrepresentsacontract.Itwillverygenerallybetheinterestofbothpartiestovarythearticlesofanycontracttakenatrandom.Butthereisaclassofcontractstothevariationofwhichthe,consentofbothpartiescannotbeobtained,ofsettlements.Thesesettlementsarerepresentedbyanindefinitenumberofpoints,alocus,thecontract-curveCC,orrather,acertainportionofitwhichmaybesupposedtobewhollyinthespacebetweenourperpendicularlinesinadirectiontrend-ingfromsouth-easttonorth-west.Thisavailableportionofthecontract-curveliesbetweentwopoints,say0x0north-west,andy00south-east;whichare,respectively,theintersectionswiththecontract-curveofthecurvesofindifferenceforeachpartydrawnthroughtheorigin.Thus,theutil-ityofthecontractrepresentedby0x0isforFridayzero,orrather,thesameasiftherewasnocontract.Atthatpointhewouldassoonbeoffwiththebargain–workbyhimselfperhaps.Thissimplecasebringsclearlyintoviewthecharacteristicevilofindeterminatecontract,dead-lock,undecidableoppositionofinterests,´ıó´ı´ı´.Itistheinterestofbothpartiesthatthereshouldbesomesettlement,oneofthecontractsrepresentedbythecontract-curvebetweenthelimits.Butwhichofthesecontractsisarbitraryintheabsenceofarbitration,theinterestsofthetwoadversâpugnantiafronteallalongthecontract-curve,Ydesiringtogetasfaraspossiblesouth-easttowardsy00,Xnorth-westtoward0x0.Anditfurtherappearsfromthepre-cedinganalysisthatinthecaseofanynumberofarticles(forinstance,RobinsonCrusoetogiveFridayinthewayofIndustrialPartnershipafractionoftheproduceaswellaswages,oragain,arrangementsaboutthemodeofwork),thecontract-locusmaystillberepresentedasasortofline,alongwhichthepleasure-forcesofthecontractorsaremutuallyantagonistic.Anaccessoryevilofindeterminatecontractisthetendency,greaterthaninafullmarket,towardsdissimulationandobjectionableartsofhiggling.AsProfessorJevonssayswithreferencetoasimilarcase,‘Suchatransactionmustbesettleduponotherthanstrictlyeconomicalgrounds.…Theartofbargainingconsistsinthebuyerascertainingthelowestpriceatwhichtheselleriswillingtopartwithhisobject,withoutdisclosing,ifpossible,thehighestpricewhichhe,thebuyer,iswillingtogive’.CompareCourcelle-Seneuil’saccountofthecontractbetweenahunterandawood-maninanisolatedregion.Withthiscloggedandundergroundprocedureiscontrasted()thesmoothmachineryoftheopenmarket.AsCourcelle-Seneuilsays,‘àmesurequelenombredesconcurrentsaugmente,lesYC
0x0
3y3x
y
2y2y
y00x
22C
XOFigure1 Edgeworth:MathematicalPsychics491conditionsd’échangedeviennentplusnécessaires,plusimpersonellesenquelquesorte.’Youmightsupposeeachdealertowritedownhisdemand,howmuchofanarticlehewouldtakeateachprice,withoutattemptingtoconcealhisrequirements;andthesedatahavingbeenfurnishedtoasortofmarket-machine,thepricetobepassionlesslyevaluated.Thatcontractinastateofperfectcompetitionisdeterminedbydemandandsupplyisgenerallyaccepted,butishardlytobefullyunderstoodwithoutmathematics.Themathematicsofaperfectmarkethavebeenworkedoutbyseveraleminentwriters,inparticularMessrsJevons,Marshall,Walras;towhosevariedcultivationofthemathematicalscience,Catallactics,thereaderisreferredwhowishestodigdowntotherootoffirstprinciples,totraceoutallthebranchesofacompletesystem,togatherfruitsrareandonlytobereachedbyamathematicalsubstructure.Thereemergesamidstthevarietyofconstructionandterminology
o ´óo´ o´´ı,anessentiallyidenticalgraphicalformoranalyticalformulaexpressingtheequationofsup-plytodemand;whereofthesimplesttype,thecatallacticmolecule,asitmightbecalled,ispre-sentedinthecaseabovedescribedinthedefinitionofperfectcompetition.Thefamiliarpairofequationsisdeducedbythepresentwriterfromthefirstprinciple:Equilibriumisattainedwhentheexistingcontractscanneitherbevariedwithoutrecontractwiththeconsentoftheexistingparties,norbyrecontractwithinthefieldofcompetition.Theadvantageofthisgeneralmethodisthatitisapplicabletotheparticularcasesofimperfectcompetition;wheretheconceptionsofdemandandsupplyatapricearenolongerappropriate.Thecatallacticmoleculeiscompounded,whenwesupposetheXsandYsdealinginrespecteachofseveralarticleswithseveralsetsofZs,As,Bs,etc.;acaseresolvedbyM.Walras.Thus,theactualcommercialfieldmightberepresentedbysetsofentrepreneursXs,Ys,Zs,eachXbuyinglabourfromamongsetsoflabourers,As,Bs,Cs,useofcapitalfromamongsetsofcapitalists,Js,Ks,Ls,useoflandfromamongsetsoflandowners,Ps,Qs,Rs,andsellingproductsamongasetofconsumersconsistingofthesumofthethreeaforesaidclassesandtheentrepre-neursofaspeciesdifferentfromX,theYsandZs.Asthedemandofthelabourerisdeduciblefromconsideringhisutilityasafunctionofwagesreceivedandworkdone,sothedemandoftheentrepreneurisdeduciblefromconsideringhisutilityasafunctionof(1)hisexpendituresontheagentsofproduction;(2)hisexpendituresinthewayofconsumption;(3)hisreceiptsfromsaleofproduce;(4)hislabourofsuperintendence.Thelast-namedvariableisnotanarticleofcontract;buttherebeingsupposedadefiniterelationconnectingtheproducewithagentsofproductionandentrepreneur’slabour,thecatallacticformulæbecomeapplicable.Thisisaveryabstractrep-resentation(abstracting,forexample,risk,foreigntrade,themigrationfromoneemploymenttoanother,forexampleXsbecomingYs,etc.),yetmoreconcretethanthatofM.Walras,whoapparentlymakesthemoreabstractsuppositionofasortoffrictionlessentrepreneur,‘faisantnipertenibénéfice’.FromthepointofviewjustreachedmaywithadvantagebecontemplatedoneofthedomainsmostrecentlyaddedtoEconomicScience–MrSidgwick’scontributiontothe‘FortnightlyReview’,September,1879.TheindirectnessoftherelationbetweenwagesandinterestwhichMrSidgwickhassoclearlydemonstratedinwordsisself-evidentinsymbols.Thepre-determinatednessofthewage-fund,whichhasreceiveditscoupdegrâcefromMrSidgwick,mustalways,onewouldthink,haveappeareduntenablefromthehumblestmathematicalpointofview,theconsiderationofthesimplesttypesofperfectcompetition;fromwhichalsoitmustbeaddedthatMrSidgwick’s–perhapsinadvertent,perhapsheremisinterpreted–statement,thatcontractbetweenemployerandoperativeeveninthecaseofwhatisherecalledperfectcompetition,isindeterminate,doesnot,itissubmitted,appeartenable.ItisfurthersubmittedthatMrSidgwick’sstricturesonProfJevonsarehasty;forthatbya(compound)employmentoftheJevonian(oranequivalentcatallactic)formula,thecomplexrelationsbetweenentrepreneur,capitalistandlabourerarebestmadeclear.Andso‘thereisápriorigroundforsupposingthatindustrialcompetitiontendsto 492TheMarginalRevolutionequalizetherateofprofit(aswellasinterest)oncapitalsofdifferentamount’.That‘thelabourofmanagingcapitaldoesnotincreaseinproportiontotheamountmanaged’issofarfromcreatinganypeculiardifficulty,thatitisratheroftheessenceofthetheoryofexchange;quitecongruentwiththefamiliarcircumstancethatthedisutilityof(common)labour(laboursubjectivelyesti-mated)doesnotincreaseinproportiontoworkdone(labourobjectivelyestimated).Thatthelabourofmanagingcapitalincreasesnotonlynotatthesamebutatalessrate-of-increasethantheamountmanaged,asMrSidgwickseemstoimply,isindeedapeculiarcircumstance;butitisofasortwithwhichtheJevonianformula,themathematicaltheoryofcatallactics,isquitecompe-tenttodeal,withwhichinfactMrMarshallhasdealtinhissecondclassofDemand-Curves.Butitisnotthepurportofthepresentstudytoattemptadetailed,muchlessapolemical,dis-cussionofpureCatallactics,butrather()toenquirehowfarcontractisdeterminateincasesofimperfectcompetition.ItisnotnecessaryforthispurposetoattackthegeneralproblemofContractqualifiedbyCompetition,whichismuchmoredifficultthanthegeneralproblemofunqualifiedcon-tractalreadytreated.Itisnotnecessarytoresolveanalyticallythecompositemechanismofacom-petitivefield.Itwillsufficetoproceedsynthetically,observinginasimpletypicalcasetheeffectofcontinuallyintroducingintothefieldadditionalcompetitors.I.Letusstart,then,fromtheabstracttypicalcaseaboveput…anXandYdealingrespec-tivelyinxandy.HerexrepresentsthesacrificeobjectivelymeasuredofX;itmaybemanualworkdone,orcommoditymanufactured,orcapitalabstainedfromduringacertaintime.AndyistheobjectivelymeasuredremunerationofX.Henceitmaybeassumed,accordingtothetwofirstaxiomsoftheUtilitarianCalculus,thelawofincreasinglabour,andthelawofdecreasingutility,thatPbeingtheutilityofX,(1)dP/dxiscontinuallynegative,dP/dypositive;dP/dx2,dP/dy2,dP/dxdy,continuallynegative.(Attentionissolicitedtotheinterpretationof222thethirdcondition.)Nodoubttheselatterconditionsaresubjecttomanyexceptions,especiallyinregardtoabstinencefromcapital,andincaseofpurchasenotforconsumption,butwithaviewtore-sale;andinthesortofcasescomprisedinMrMarshall’sClassIIcurves.Still,theseexceptions,thoughtheydestroythewatertightnessofmanyofthereasoningsinthisandthecompanioncalculus,areyetperhapsofsecondaryimportancetoonetakingageneralabstractview.Thisbeingpremised,letusnowintroduceasecondXandasecondY;sothatthefieldofcom-petitionconsistsoftwoXsandtwoYs.Andforthesakeofillustration(notoftheargument)letussupposethatthenewXhasthesamerequirements,thesamenatureastheoldX;andsimilarlythatthenewYisequal-naturedwiththeold.Thenitisevidentthattherecannotbeequilibriumunless(1)allthefieldiscollectedatonepoint;(2)thatpointisonthecontract-curve.For(1)ifpossibleletonecouplebeatonepoint,andanothercoupleatanotherpoint.ItwillgenerallybetheinterestoftheXofonecoupleandtheYoftheothertorushtogether,leavingtheirpartnersinthelurch.And(2)ifthecommonpointisnotonthecontract-curve,itwillbetheinterestofallpartiestodescendtothecontract-curve.Thepointsofthecontract-curveintheimmediateneighbourhoodofthelimitsy00and0x0cannotbefinalsettlements.Forifthesystembeplacedatsuchapoint,sayslightlynorth-westofy00,itwillingeneralbepossibleforoneoftheYs(withouttheconsentoftheother)torecontractwiththetwoXs,sothatforallthosethreepartiestherecontractismoreadvantageousthanthepreviouslyexistingcontract.Fortherightlinejoiningtheoriginto(theneighbourhoodof)y00willingeneralliealtogetherwithintheindifference-curvedrawnfromtheorigintoy00.Fortheindifference-curveisingeneralconvextotheabscissa.ForitsdifferentialequationisdydF(xy)dx
,dxdF(xy)dy Edgeworth:MathematicalPsychics493whenced2Fd2FdydFdFd2Fd2Fdy[(2)()]()()[()2]d2ydxdxdydxdydxdxdydydx
,dx22(dF)dywhichisperfectlypositive.Thereforetheindifferencecurve(sofarasweareconcernedwithit)isconvextotheabscissa.Now,atthecontract-curvethetwoindifferencecurvesforXandYtouch.Thus,theFigure1,isprovedtobeacorrectrepresentation,indicatingthatapointxycanbefoundbothmoreadvantageousforYthanthepointonthecontract-curvey11(onaninteriorindifference-curve,asitmaybesaid),andalsosuchthatitsco-ordinatesarethesums(respectively)oftheco-ordinatesoftwootherpoints,bothmoreadvantageousforanX.TheselatterpointstobeoccupiedbyX1,andX2,maybeproperlyregarded(owingtothesymmetryandcompetition)ascoincident;withxyco-ordinates22.Further,itappearsfrompreviousreasoningsthattherewillbeacontract-xyrelationbetween(xy)and22;namelyxyFx()x(xy)22
;1y(xy)xyFy()22whereFxisputforthefirstpartiallyderivedfunction(dF(xy)/dx).Whenthisrelationissatisfiedthesystemofthreemightremaininthepositionreached;butforY2whohasbeenleftoutinthecold.Hewillnowstrikein,withtheresultthatthesystemwillbexyworkeddowntothecontract-curveagain;toapointatleastasfavourablefortheXsas22.Thus,theYswillhavelostsomeoftheiroriginaladvantagebycompetition.Andacertainprocessofwhichthisisanabstracttypicalrepresentationwillgoonaslongasitispossibletofindapointxywiththerequisiteproperties.Attentiontotheproblemwillshowthattheprocesswillcometoastopatapointonthecontract-curvey22,suchthatifalinejoiningittotheoriginintersectthecurve,thesupplementarycontract-curve.asitmightbecalled,xyFx()x(xy)22
;2y(xy)xyFy()22xyinthepointxythen(2y2)
(xy),providedthat(22)fallswithintheindifference-curveforYdrawnthrough(2y2).Ifotherwise,aslightlydifferentsystemofequationsmustbeemployed.IfnowathirdXandthirdY(stillequal-natured)beintroducedintothefield,thesystemcanbeworkeddowntoapoint3y3;whoseconditionsareobtainedfromthosejustwrittenbysubstitut-xy2x2yingfor22,33.Forthisrepresentsthelastpointatwhich2Yscanrecontractwith3Xswithadvantagetoallfive.Analyticalgeometrywillshowthatthispointislowerdown(inrespectoftheadvantageofY)than2y2.Inthelimit,whentheXsandYsareindefinitely(equally)multiplied,weshallhave(xy)coincidentwith(y),oraswemaysayforconvenience(),satisfyingoneorotherofthealternativescorrespondingtothosejustmentioned.Incaseofthefirstalternativewehavex()y()
0. 494TheMarginalRevolutionFor()
(Xy)
((1h)(1h)).Inthelimitingcasehisinfinitesimal.Whencebyxydifferentiatingtheaboveequationisobtained.Andthesecondalternative(22)notfallingwithintheindifference-curveofY)isnottobedistinguishedfromthefirstinthelimitingcase.Ifthisreasoningdoesnotseemsatisfactory,itwouldbepossibletogiveamoreformalproof;bringingouttheimportantresultthatthecommontangenttobothindifference-curvesatthepointisthevectorfromtheorigin.Byaparityofreasoningitmaybeshownthat,ifthesystemhadbeenstartedatthenorth-westextremityof(theavailableportionofthecontract-curve,itwouldhavebeenworkeddownbycompetitionbetweentheXstothesamepoint;determinedbytheintersectionwiththecontract-curveofFxFy
0;forthesamepointisdeterminedbytheintersectionofeithercurvewiththecontract-curve.Forthethreecurvesevidentlyintersectinthesamepoint.Takingaccountofthetwoprocesseswhichhavebeendescribed,thecompetingYsbeingworkeddownforacertaindistancetowardsthenorth-west,andsimilarlythecompetingXstowardsthesouth-east:weseethatingeneralforanynumbershortofthepracticallyinfinite(ifsuchatermbeallowed)thereisafinitelengthofcontract-curve,frommymtoxmm,atanypointofwhichifthesystemisplaced,itcannotbycontractorrecontract,bedisplaced;thatthereareanindefinitenumberoffinalsettlements,aquantitycontinuallydiminishingasweapproachaper-fectmarket.Wearebroughtbackagaintocase(),onwhichsomefurtherremarkshavebeencon-venientlypostponedtothisplace.(ForadditionalillustrationsseeAppendixV[notprovidedhere].)Thetwoconditions,xy
0andFxFy
0,justobtainedcorrespondtoProfessorJevons’stwoequationsofexchange.Hisformulæaretoberegardedasrepresentingthetransactionsoftwoindividualsin,orsubjectto,thelawof,amarket.Ourassumedunityofnatureinthemidstofpluralityofpersonsnaturallybringsoutthesameresult.Therepresentedtwocurvesmaybecalleddemand-curves,aseachexpressestheamountofdealingwhichwillaffordtooneofthedealersthemaximumofadvantageatacertainrateofexchangeavalueofy/x.Thismightbeele-gantlyexpressedinpolarco-ordinates,tanwillthenbetherateofexchange,and,ifPbetheutilityofX,(dP/d)
0isthedemand-curve.Byawell-knownpropertyofanalysis(dP/d)
0representsnotonlymaximumpoints,butminimumpoints;thelowestdepthsofvalley,aswellasthehighestelevations,whichonemovingcontinuallyinafixedrightlinefromtheoriginovertheutility-surfacewouldreach.Thisminimumportionofthedemand-curvecorrespondstoMrMarshall’sClassII.Weseethatthedealeratanygivenrateofexchange,farfromrestingandhavinghisendatapointonthispartofthecurve,willtendtomoveawayfromit.Ithasnotthepropertiesofagenuinedemand-curve.Thedealingofanindividualinanopenmarket,inwhichthereprevailswhatmaybecalledthelawofprice,therelationbetweentheindividual’srequirementsandthatquantitycollectively-demanded-at-a-price,usuallydesignatedbythetermDemand,betweenlittledandbigDinM.Walras’sterminology,iselegantlyexhibitedbythatauthor.ComparealsoCournoton‘Concurrence’.Hereitisattemptedtoproceedwithoutpostulatingthephenomenonofuniformityofpricebythelongerrouteofcontract-curve.Whenwesupposepluralityofnaturesaswellaspersons,wehavetosupposeapluralityofcontract-curves(whichmaybeappropriatelyconceivedasgrouped,accordingtothewell-knownlogarithmiclaw,aboutanaverage).Then,byconsidera-tionsanalogoustothosealreadyemployed,itmayappearthatthequantityoffinalsettlementsisdiminishedasthenumberofcompetitorsisincreased.Tofacilitateconception,letussupposethatthefieldconsistsoftwoXs,notequally,butnearlyequally,natured;andoftwoYssimilarlyrelated.And(asinthefifthAppendix)lettheindifferencecurvesconsistoffamiliesofconcentriccircles.Then,insteadofasinglecontract-curve,wehaveacontract-region,orbundleofcon-tract-curves;namelythefourlinesjoiningthecentresofthecircle-systems,thelinesC1C1,C1C2, Edgeworth:MathematicalPsychics495C1
Y1
C1
1C21
1C2
Figure2C2C1,C2C2;whereinC1C2arethecentresofX1andX2,supposedclosetogether;andsimilarlyC1andC2fortheYs.Whatcorrespondsheretothatsettlementofthewholefieldatasinglepointinthecontract-curve,whichwehadunderconsiderationinreasoningaboutequal-naturedXs,maythusbeindicated.Takeapoint11ononeofthecontract-lines,sayC1C1;andletX1andY1beplacedthere.LetX2Y2beplacedataneighbouringpoint,11,onthelineC2C2;suchthat(1)11isoutsidethetwoindifferencecurvesdrawnforX1andY1respectivelythrough11;(2)11isoutsidethetwoindifferencecurvesdrawnforX2andY2respectivelythrough11(Figure2).ThenthesettlementcannotbedisturbedbyanXandaYsimplychangingpartners,rushingintoeachother’sarms,andleavingtheirdesertedconsortstolookoutfornewalliances.Re-contractcannowproceedonlybyoneYmovingoffwiththetwoXs,asinthepreviouscase;bywhichprocessthesystemmaybeworkeddowntoaneighbourhooddescribableas2y2.Inthelimit,whenthenumberofXsandYsareincreasedindefinitely,butnotnecessarilyequally(sup-posemX,andnY,wheremandnareindefinitelylarge);ifxryrrepresentthedealingsofanyX,namelyXr,andsimilarlyandbeemployedforthedealingsoftheYs,weshouldfindforthe2m2nvariablesthefollowing2m2nequations:1mnequationsindicatingthateachXandeachYisonhisindividualdemand-curve…,forexampledFr(xryr)dFr(xryr)xryr
0,dxrdyr(thedifferentiationbeingofcoursepartial).y1y2122mn1equationsindicatinguniformityofprice

…


….x1x2123Alastcondition,whichmightperhapsbecalledparexcellencetheequationofDemandtoSupply,namelyeitherSx
,orSy
.Thusthedealingsofeachandallarecompletelydeterminateanddetermined.Ifwetransformtopolarco-ordinates,wemightwriteanyindividualdemand-curve,as
fr();andthenceobtaintwocollectivedemand-curves
Sf()and
();substantiallyidenticalwiththosecollectivedemandcurvessoscientificallydevelopedbyM.Walras,andsofruitfullyappliedbyMrMarshall.Thus,proceedingbydegreesfromthecaseoftwoisolatedbargainerstothelimitingcaseofaperfectmarket,weseehowcontractismoreorlessindeterminateaccordingasthefieldislessormoreaffectedwiththefirstimperfection,limitationofnumbers. 496TheMarginalRevolutionII.Lettherebeequalnumbersofequal-naturedXsandequal-naturedYs,subjecttotheconditionthateachYcandealatthesametimewithonlynXs,andsimilarlyeachXwithonlynYs.Firstletn
n.Then,inthelightoftheconceptionslatelywon,itappearsthatcontractisasindeterminateasifthefieldconsistedofonlynXsandnYs;thatistosay,thereareasmanyandthesamefinalsettlementsasinthatcase,representedbythesameportionofthecontract-curvebetween(say)yandx.Letnincrease.Contractbecomeslessindeterminate:movingnorth-west,andthequantityoffinalsettlementsbeingtherebydiminished.Thesubtractedfinalsettle-mentsaremostfavourabletotheYs.Letndiminish.Contractbecomesmoreindeterminate;movingsouth-east,andthequantityoffinalsettlementsbeingtherebyincreased.TheaddedfinalsettlementsaremorefavourabletotheYsthanthosepreviouslyexisting.Thetheoremadmitsofbeingextendedtothegeneralcaseofunequalnumbersandnatures.III.LettherebeanequalnumberNofequal-naturedXsandequal-naturedYs,andleteachsetbeformedintoequalcombinations,therebeingnXsineachXcombination,andnYsineachYcombination.First,letn
n.Thencontractisasindeterminateasifthefieldconsistedof(N/n)Xsand(N/n)Ys;inthesamesenseasthatexplainedinthelastparagraph.Letndiminish.Contractbecomeslessindeterminate,inthesamesenseasinthelastparagraph.Letnincrease.Contractbecomesmoreindeterminate;theaddedfinalsettlementsbeingmorefavourabletotheYsthanthosepreviouslyexisting.Thetheoremistypicalofthegeneralcaseinwhichnumbers,natures,andcombinationsareunequal.Combinationtendstointroduceorincreaseindeterminateness;andthefinalsettle-mentstherebyaddedaremorefavourabletothecombinersthanthe(determinateorindetermi-nate)finalsettlementspreviouslyexisting.Combinersstandtogaininthissense.Theworthofthisabstractreasoningoughttobetestedbycomparisonwiththeunmathemati-caltreatmentofthesamesubject.Asfarasthewriterisaware,astraightforwardanswerhasneverbeenofferedtotheabstractquestion,Whatistheeffectofcombinationsoncontractinanotherwiseperfectstateofcompetition,asheresupposed?Writerseitherignoretheabstractquestionalto-gether,confiningthemselvestootheraspectsofTradeUnionism;itstendencytopromotecom-munication,mobility,etc.;inourterms,torenderthecompetitionmorenormal,andmoreperfectinrespectofextent(diminishingourfirstimperfection,forsuchistheeffectofincreasedmobility,alikeofgoodsandmen).Or,whiletheyseemtoadmitthatunionismwouldhavetheeffectofraisingtherateofwages,theyyetdenythatthetotalremunerationoftheoperatives,thewage-fund(intheintelligiblesenseofthatterm),canbeincreased.Butifourreasoningsbecorrect,theonethingfromanabstractpointofviewvisibleamidstthejumbleofcatallacticmolecules,thejostleofcompetitivecrowds,isthatthosewhoformthemselvesintocompactbodiesbycombinationdonottendtolose,butstandtogaininthesensedescribed,togaininpointofutility,whichisafunc-tionnotonlyofthe(objective)remuneration,butalsoofthelabour,andwhich,therefore,mayincrease,althoughtheremunerationdecrease;asMrFawcettwellsees(inrespecttothequestionofunproductiveconsumption–‘Manual’,ch.iv.),thoughhegivessouncertainasoundaboutTradesUnionism.Andif,asseemstobeimpliedinmuchthathasbeenwrittenonthissubject,itisattemptedtoenforcetheargumentagainstTradesUnionismbytheconsiderationthatittendstodiminishthetotalnationalproduce,theobviousreplyisthatunionists,as‘economicmen’,arenotconcernedwiththetotalproduce.Becausethetotalproduceisdiminished,itdoesnotfollowthatthelabourer’sshareisdiminished(thelossmayfallonthecapitalistandtheentrepreneur,whosecompressibilityhasbeenwellshownbyMrSidgwickinthearticlealreadyreferredto);muchlessdoesitfollow(asaforesaid)thatthereshouldbediminishedthatquantitywhichalonetheratio-nalunionistisconcernedtoincrease–thelabourer’sutility.Ifthisviewbecorrect,itwouldseemasif,inthematterofunionism,aswellasinthatofthepredeterminatewage-fund,the‘untutoredmind’oftheworkmanhadgonemorestraighttothepointthaneconomicintelligencemisledbyabadmethod,reasoningwithoutmathematicsuponmathematicalsubjects. Edgeworth:MathematicalPsychics497IV.LettherebeanequalnumberNofequalnaturedXsandYs;subjecttotheconditionthattoeverycontractmadebyaYatleastnXsmustbeparties,andsimilarlyforanXnYs.First,letn
n.Contractisasindeterminateasifthefieldconsistedof(N/n)Xsand(N/n)Ys.Letnincrease.Contractbecomesmoreindeterminate,andtheYsstandtogain.Andconversely.Toappreciatethequantityofindeterminatenesslikelytoresultinfactfromtheseimperfections(operatingseparatelyandtogether)wouldrequireaknowledgeofconcretephenomenatowhichthewritercanmakenoclaim.ThefirstimperfectionappliestoMonopolies.Itisperhapschieflyimportant,assupplyingaclueforthesolutionoftheothercases.Thesecondimperfectionmaybeoperativeinmanycasesofcontractforpersonalservice.Supposeamarket,consistingofanequalnumberofmastersandservants,offeringrespectivelywagesandservice;subjecttotheconditionthatnomancanservetwomasters,nomasteremploymorethanoneman;orsupposeequilibriumalreadyestablishedbetweensuchpartiestobedisturbedbyanysuddeninfluxofwealthintothehandsofthemasters.Thenthereisnodeterminate,andverygenerallyunique,arrangementtowardswhichthesystemtendsundertheoperationof,maywesay,alawofNature,andwhichwouldbepredictableifweknewbeforehandtherealrequirementsofeach,oroftheaverage,dealer;butthereareanindefinitenumberofarrangementsàprioripossible,towardsoneofwhichthesystemisurgednotbytheconcurrenceofinnumerable(asitwere)neuteratomseliminat-ingchance,but(abstractionbeingmadeofcustom)bywhathasbeencalledtheArtofBargaining–higglingdodgesanddesigningobstinacy,andotherincalculableandoftendisreputableaccidents.Now,ifmanagerialworkdoesnotadmitofbeingdistributedoverseveralestablishments,ofbeingsoldinbits,itwouldseemthatthisspeciesofindeterminatenessaffectsthecontractofanentrepreneurwithforeman,ofaco-operativeassociationofworkmen(oracombination)withamanager.Thisviewmustbemodifiedinsofarasmanagerialwagesaredeterminedbythecostofproduction(ofamanager!),ormoreexactlybytheequationbetweenmanagerialwagesandtheremunerationinotheroccupations,wheretheremunerationisdeterminedbyaprocessofthenatureofperfectcompetition;andbyotherpracticalconsiderations.Thethirdimperfectionmayhaveanydegreeofimportanceuptothepointwhereawholeinterest(labourersorentrepreneurs)issolidifiedintoasinglecompetitiveunit.Thisvaryingresultmaybetolerablywellillustratedbythecaseofamarketinwhichanindefinitenumberofcon-sumersaresuppliedbyvaryingnumbersofmonopolists(acaseproperlybelongingtoourfirstimperfection:namelylimitednumberofdealers).Startingwithcompletemonopoly,weshallfindthepricecontinuallydiminishasthenumberofmonopolistsincreases,untilthepointofcompleteflu-idityisreached.Thisgradual‘extinction’oftheinfluenceofmonopolyiswelltracedbyCournotinadiscussionmasterly,butlimitedbyaparticularcondition,whichmaybecalleduniformityofprice,not(itissubmitted)abstractedlynecessaryincasesofimperfectcompetition.GoingbeyondCournot,notwithouttrembling,thepresentenquiryfindsthat,wherethefieldofcompetitionissensiblyimperfect,anindefinitenumberoffinalsettlementsarepossible;thatinsuchacasedifferentfinalset-tlementswouldbereachedifthesystemshouldrundownfromdifferentinitialpositionsorcon-tracts.ThesortofdifferencewhichexistsbetweenDutchandEnglishauction,theoreticallyunimportantinperfectcompetition,doescorrespondtodifferentresults,differentfinalsettlementsinimperfectcompetition.Andingeneral,andintheabsenceofimposedconditions,thesaidfinalsettlementsarenotonthedemand-curve,butonthecontract-curve.Thatistosay,theredoesnotnecessarilyexistinthecaseofimperfectastheredoesinthecaseofperfectcompetitionacertainproperty(whichsomeevenmathematicalwritersmayappeartotakeforgranted),namelythat–inthecaseallalongsupposedofXsandYsdealingrespectivelyinxandy–ifanyXXgivexinexchangeforyr,hegetsnolessandnomoreythanheiswillingtotakeattherateofexchangeyr/xr.If,however,thiscondition,thoughnotspontaneouslygeneratedbyimperfectasbyperfectcompetition,shouldbeintroducedabextra,imposedbycustomandconvenience,asnodoubtwouldbevery 498TheMarginalRevolutiongenerallythecase,neverthelessthepropertyofindeterminateness,pluralityoffinalsettlements,willabide.Onlythefinalsettlementswillnowbebywayofdemand-curve,notcontract-curve.If,forinstance,powerfultradesunionsdidnotseektofixthequidproquo,theamountsoflabourexchangedforwealth(whichtheywouldbequitecompetenttoseek),butonlytherateofexchange,itbeinglefttoeachcapitalisttopurchaseasmuchlabourashemightdemandatthatrate,therewouldstillbethatsortofindeterminatenessfavourabletounionistsabovedescribed.…Thefourthimperfectionwouldseemlikelytooperateinthecaseofco-operativeassociationsuptothetimewhenthecompetitivefieldshallcontainapracticallyinfinitenumberofsuchbodies;thatis,perhapsforalongtime.Tofixtheideas,supposeassociationsofcapitalist-workmen,con-sistingeachof100members,50contributingchieflycapital,and50chieflylabour.Letthefieldofcompetitionconsistof1000individuals.Thepointhereindicatedisthat,notwithstandingthenumericalsizeofthefield,contractwillnotbemoredeterminate(owingtothefactthatallthemembersoftheassociationareincontractwitheachother–not,asnowusual,eachforhimselfcon-tractingwithemployer)thanifthefieldconsistedof10individuals.Andasimilarresultwouldholdif,withmoregenerality,wesupposememberscontributinglabourandcapitalinvaryingamounts,andremuneratedfortheirsacrificesaccordingtoaprincipleofdistribution;inthemost,or,atanyrate,asufficientlygeneralcase,afunctionofthesacrifices,theformofthefunctionbeingacontract-variable,orwhatcomestomuchthesamething,therebeingassumedafunctionofgivenformcontaininganynumberofconstants,whicharearticlesofcontract,subject,ofcourse,totheconditionthatthesumoftheportionsassignedisequaltothedistribuend.And,similarly,ifweintroducedifferentkindsoflabourandotherconcretecomplications.TheDeterminatenesswilldependnotsomuchuponthenumberofindividualsasuponthenumberofassociationsinthefield.Asco-operativeassociationbecomesmoreprevalent,nodoubt,cæterisparibus,theindeterminatenesshereindicatedwoulddecrease.Nevertheless,inconsequenceofthegreatvarietyofcooperativeexperiments,thesundrykindsofcontractanddiversspeciesofarticles,thefieldofcompetitionbeingthusbrokenup,itissubmittedthattheriseofco-operativeassociationislikelytobeaccompaniedwiththeprevalenceofindeterminateness,whateveropinionwemayformaboutthepossibleregularityinadistantfuture.Altogether,ifoftwogreatcominginstitutions,tradesunionismisaffectedwiththethirdimper-fection,andco-operativeassociationwiththefourth,andbothwiththesecond,itdoesnotseemveryrashtoinfer,ifnotforthepresent,atleastintheproximatefuture,aconsiderableextentofindeterminateness.Ofthisinferencewhatwouldbetheconsequence.Toimpair,itmaybeconjectured,therever-encepaidtocompetition;inwhoseresults–asifworkedoutbyaplayofphysicalforces,imper-sonal,impartial–economistshavecomplacentlyacquiesced.Ofjusticeandhumanitytherewasnopretence;butthereseemedtocommandrespectthemajesticneutralityofNature.Butifitshouldappearthatthefieldofcompetitionisdeficientinthatcontinuityoffluid,thatmultietyofatomswhichconstitutethefoundationsoftheuniformitiesofPhysics;ifcompetitionisfoundwanting,notonlytheregularityoflaw,buteventheimpartialityofchance–thethrowofadieloadedwithvillainy–economicswouldbeindeeda‘dismalscience’,andthereverenceforcom-petitionwouldbenomore.Therewouldariseageneraldemandforaprincipleofarbitration.Andthisaspirationofthecommercialworldwouldbebutonebreathintheuniversalsighforarticlesofpeace.Foralmosteveryspeciesofsocialandpoliticalcontractisaffectedwithanindeterminatenesslikethatwhichhasbeendescribed;anevilwhichislikelytobemuchmorefeltwhen,withthegrowthofintelligenceandliberty,theprincipleofcontractshallhavereplacedboththeappealtoforceandtheacquiescenceincustom.Throughoutthewholeregionofinawidesensecontract,inthegeneralabsenceofamechanismlikeperfectcompetition,thesame Edgeworth:MathematicalPsychics499essentialindeterminatenessprevails;ininternational,indomesticpolitics;betweennations,classes,sexes.Thewholecreationgroansandyearns,desideratingaprincipleofarbitration,anendofstrifes.CorollaryWhere,then,wouldaworldwearyofstrifeseekaprincipleofarbitration?Injustice,repliesthemoralist;andalonglineofphilosophers,fromPlatotoHerbertSpencer,arereadytoexpoundtheprinciple.Buttheirexpositions,howeverelevatinginmoraltone,andofgreathortativevalueforthosewhoalreadyknowtheirduty,arenothereofmuchavail,wherethethingsoughtisadefinite,evenquantitative,criterionofwhatistobedone.Equityand‘fairnessofdivision’arecharminginthepagesofHerbertSpencer,anddelightedDugaldStewartwiththeappearanceofmathematicalcertainty;buthowwouldtheybeapplicabletothedistributionofajointproductbetweenco-operators?Noristheequitysoofteninvokedbyahighauthorityonco-operationmuchmoreavailable;forwhyistheparticularprincipleofdistributionrecommendedbyMrHolyoake(operativestotakenotproduct,payingtherefromasalarytomanager,roughlyspeaking,andtosaynothingofcapital)moreequitablethananindefinitenumberofotherprin-ciplesofdistribution(e.g.operativestotakeanyfractionwhichmighthavebeenagreedupon,managertheremainder;eitherparty,orneither,payingwagestotheother).Justicerequirestobeinformedbysomemoredefiniteprinciple,asMillandMrSidgwickreasonwell.Thestarofjusticeaffordsnocertainguidance–forthosewhohaveloosedfromthemooringsofcustom–unlessitreflecttheraysofasuperiorluminary–utilitarianism.But,evenadmittingadispositioninthepurerwillsandclearerintellectstoacceptthejustasfinislitium,andtheusefulasthedefinitionofthejust;admittingthatthereexistsinthehigherpartsofhumannatureatendencytowardsandfeelingafterutilitarianinstitutions;couldweseri-ouslysupposethatthesemoralconsiderationswererelevanttowarandtrade;coulderadicatethe‘controllesscore’ofhumanselfishness,orexerciseanappreciableforceincomparisonwiththeimpulseofself-interest.Itwouldhavetobefirstshownthattheinterestofallistheinterestofeach,anillusiontowhichtheambiguouslanguageofMill,andperhapsBentham,mayhavelentsomecountenance,butwhichisforeverdispelledbythemasterlyanalysisofMrSidgwick.MrSidgwickacknowledgestwosupremeprinciples–EgoismandUtilitarianism;ofindependentauthority,conflictingdictates;irreconcilable,unlessindeedbyreligion.Itisfarfromthespiritofthephilosophyofpleasuretodepreciatetheimportanceofreligion;butinthepresentenquiry,anddealingwiththelowerelementsofhumannature,weshouldhavetoseekamoreobvioustransition,amoreearthypassage,fromtheprincipleofself-interesttotheprinciple,oratleastthepractice,ofutilitarianism.Now,itisacircumstanceofmomentousinterest–visibletocommonsensewhenpointedoutbymathematics–thatoneoftheingeneralindefinitelynumeroussettlementsbetweencontractorsistheutilitarianarrangementofthearticlesofcontract,thecontracttendingtothegreatestpos-sibletotalutilityofthecontractors.Inthisdirection,itmaybeconjectured,istobesoughttherequiredprinciple.Fortherequiredbasisofarbitrationbetweeneconomicalcontractorsisevidentlysomesettlement;andtheutilitariansettlementmaybeselected,intheabsenceofanyotherprincipleofselection,invirtueofitsmoralpeculiarities:itssatisfyingthesympathy(suchasitis)ofeachwithall,thesenseofjusticeandutilitarianequity.Theseconsiderationsmightbeputclearestinaparticular,thoughstillveryabstract,case.Letussupposethatinconsequenceofcombinationscompetitionfailstodeterminethecontractbetweenentrepreneurandoperatives.Thecasebecomesthatdescribedunder(a)deadlockbetweentwocontractingparties.Oneofthepartiesisindeedherecollective;butitisallowableforthesakeofillustrationtomakeabstractionofthiscircumstance,toabstractalsothecorrelated 500TheMarginalRevolutionbargainswithcapitalists,landowners,etc.,andtosupposeasingleentrepreneurindealingwithasingleoperative.And,first,letitbeattemptedtoarbitrateuponsomeprincipleofdoctrinairejustice–somemetaphysicaldogma,forinstance,ofequality:thattheentrepreneurshallhavean‘equal’shareoftheproduce.Now,thereisnopresumptionthatthis‘fairdivision’isutilitarianian;inviewofthedifferentcharacteroftheentrepreneur’ssacrifice,inviewalso(ifonemaybeallowedtosayso)ofapossibledifferenceintheentrepreneur’scapacity:suppose,forinstance,thatamorehighlynervousorganisationrequiredontheaverageahigherminimumofmeanstogetuptothezeroofutility.Asthereisnopresumptionthattheproposedarrangementisutilitarian,sothereisnopre-sumptionthatitisonthecontract-curve.Therefore,theself-interestsofthetwopartieswillconcurtobulgeawayfromtheassumedposition;and,burstingthecobwebsofdoctrinairejustice,todescendwithirresistibleforcetosomepointuponthecontract-curve.Supposethatbyrepeatedexperiencesofthissortthecontract-curvehasbeenroughlyascertained–aconsiderablenumberoffinalsettlementsstatisticallytabulated.Nowthesepositionslieinareverseorderofdesirabilityforeachparty;anditmayseemtoeachthatashecannothavehisownway,intheabsenceofanydefiniteprincipleofselection,hehasaboutasgoodachanceofoneofthearrangementsasanother.But,ratherthanresorttosomeprocesswhichmayvirtuallyamounttotossingup,bothpartiesmayagreetocommutetheirchanceofanyofthearrangementsforthecertaintyofoneofthem,whichhascertaindistinguishingfeaturesandpeculiarattractionsasabovedescribed–theutilitarianarrangement.Orperhaps,consideringthewholelineofpossiblearrangements,theymightagreeto‘splitthedifference’,andmeeteachotherintheneighbourhoodofthecentralpoint–the‘quantita-tivemean’,asitmightbecalled.Well,first,thisquantitativemeanwouldlikelytobenearerthantheextremestotheutilitarianpoint;and,further,thisverynotionofmeanappearstobetheoutcomeofarudimentary‘implicit’justice,aptinadialecticalatmospheretobloomintothe‘qualitativemean’ofutilitarianequity.Orlessspecificallymaywesaythatintheneighbourhoodofthecontract-curvetheforcesofself-interestbeingneutralised,thetenderpowerofsympathyandrightwouldbecomeappreciable;asthegentlerforcesofthemagneticfieldaremademanifestwhenterrestrialmagnetism,bybeingopposedtoitself,iseliminated.Uponthewhole–omittingwhatitisobvioustounderstandaboutthespiritinwhichveryabstractreasoningsaretoberegarded:astaraffordingageneraldirection,notafinger-posttospecifyaby-path–theremayappear,athowevergreatadistance,ageneralindicationthatcom-petitionrequirestobesupplementedbyarbitration,andthebasisofarbitrationbetweenself-interestedcontractorsisthegreatestpossiblesum-totalutility.Thus,theeconomicalleadsuptotheutilitariancalculus;thefaintoutlinesofwhich,sketchedinapreviouslypublishedpaper,maybeacceptedasthesecondsubdivisionofourSecondPart.Notes1Correctedversionofequation;thatpublishedinthebookisinerror.2Correctedversionofequation;thatpublishedinthebookisinerror. ALFREDMARSHALL(1842–1924)AlfredMarshallwaseducatedinmathematicsatStJohn’sCollegeCambridge,andwaselectedtoamathe-maticsfellowshipthereuponreceivinghisdegree.Heresignedthispositionin1877andtookapositionasprofessorofpoliticaleconomyatBristol.HemovedontoBalliolCollege,Oxfordand,in1885returnedtoCambridge,whereheremainedasprofes-sorofpoliticaleconomyuntilhisretirementin1908.UnlikeJevons,whopaintedhiseconom-icsasrepresentingastrongbreakfromtheclassicalanalysis,Marshallempha-sizedthestrongdegreeofcontinuitybetweentheclassicalsandhisowntheory.Yet,throughhisPrinciplesofEconomics(1890),aswellasthroughtheforceofhispersonalityindevelopingeconomicsedu-cationatCambridge,Marshallhelpedshapemanyoftheprincipalelementsofwhatbecamethemicroeconomiccoreofneoclassicaleconomics:itsstaticpartialequilibriumanalysis;thedemandandsup-plymodel;theconcernwiththehouseholdandthefirmasthebasisofdemandandAlfredMarshall,Photographer:WalterStoneman,bycourtesyofsupply,respectively;andavastarraytheNationalPortraitGallery,London.oftoolsofpartial-equilibriumanalysis.Thetoolsincluded:theprincipleofsubsti-tution,elasticity,longrunandshortrun,internalandexternaleconomiesofscale,primeandsupplementarycosts,consumers’surplus,quasi-rents,andtherepresentativefirm.ForMarshall,however,thesewerestrictlytoolsofanalysis,notabodyofconcretetruth,notamodelofsometranscendentconceptualeconomicsystem,asitlaterbecameforneoclassicism,butanengineforthediscoveryofconcretetruthalsorequiringcloseempiricalandinstitutionalanalysis.ForMarshall,too,economicswasascienceoftendencies,notalogicmachinegeneratinguniquedeterminateoptimalequilibriumresults. 502TheMarginalRevolutionMarshallwasoneofthosewhousedutilityanalysis,butnotasatheoryofvalue;forhimitwaspartofthetheorywithwhichonecouldexplaindemandcurves,anotherpartbeingtheprincipleofsubstitution.Indeed,Marshall’sscissorsanalysis–whichcombineddemandandsupply,thatis,utilityandcostofproduction,asiftwobladesofapairofscissors–notonlytranscendedthecon-flictbetweenClassicalandAustriantheoriesofvaluebut,equallyifnotmoreimportant,effectivelyremovedthetheoryofvaluefromcenterstageandreplaceditwiththetheoryofprice;thoughtheterm“value”continuedtobeused,formostpeopleitwasasynonymfor“price.”Pricesnolongerwerethoughttogravitatetowardsomeultimateandabsolutebasisofprice;priceswerepurelyexistential,amatterofadance,asitwere,betweendemandandsupply,or,rather,betweenandamongthefactorsandforcesoperatingthroughdemandandsupply(onlysomeofwhich,however,werethoughttobewithinthepurviewofeconomists).Marshall’sapproachtomethodologicalissueswaslargelylowkey,ormiddlebrow.Heemphasizeddeliberatenessoverselfishnessand,sensitivetocriticismsofeconomicsasextollingselfishness,proposedtostudymanasheisratherthananabstract“economic”man;proposedacatholicdefini-tionofeconomicsasthestudyofmankindintheordinarybusinessoflife,earningaliving;affirmedthelimiteduseofmathematicsineconomictheory(e.g.inspiteofhisstrongmathematicalback-ground,MarshalllargelyrelegatedmathematicalanalysistofootnotesandappendicesinthePrinciples);combinedhabitwithdeliberatenessinexplainingeconomicbehavior;identifiedeco-nomiclawsasstatementsoftendencyundercertain,stipulatedconditions,notabsolutenaturallaws;emphasizedobjectivitythroughmeasurement,thoughhehimselfengagedinlittlequantitativestudy;combinedquantitativeempiricalstudywithbothpuretheoryandthestudyofinstitutionsandbehavior;wasdubiousaboutthepracticalandtheoreticalrelevanceofsuchgrandiosenotionsasmaximumsatisfaction,theinvisiblehand,andlaissezfaire;andsoon.ThecoreofMarshall’stheoryisthedeterminationofprice.Price,heargued,isafunctionofdemandandsupply,butcouldbeanalyzeddifferentlyonthebasisofdifferentconceptualtimeperiods–especiallythemarketperiod,shortrunandlongrun–understoodasthedifferentlengthsoftimeittookforcertainvariablestoworkthemselvesout.Intheshortrun,forexample,pricewasheavilyinfluencedbydemand;inthelongrun,bycostofproduction.Inallsuchperiods,however,pricewasalsoinfluencedbywhetherthemarketwascompetitiveormonopolistic.Marshall’sdistributiontheorywas,likethatofmostothereconomists,eclectic.Itincluded(1)ageneraltheoryoffactorpricing,(2)differentspecifictheoriesofwages,rent,interestandprofit,and(3)attentiontothedifferentconditionsofsupplyoftheseveralfactorsofproduction–conditionswhichreflectedclass,custom,legalstatusandpowerstructure.Hethoughtthatlabormarkets,especiallyontheirsupplyside,werenotlikeothermarkets;suchmarketshadcertain“peculiarities”whichworkedtolabor’scumulativelydisadvantageousposition.Whileheurgedcautioninseekingmajorinstitutionalreformstoimprovethepositionoflabor,henonethelessarguedthatfailuretoattendtolabor’sproblemswasworsethanmakingmistakesindoingso.TheexcerptsfromMarshall’sPrinciplesreprintedherearetakenfromhiseighthedition,pub-lishedin1920.Wearegivenaglimpseofhisviewofthenatureandgoalsofeconomicanalysis,thetheoryofincreasinganddiminishingreturnsinproduction,hiselegantformulationoftheapparatusofdemandandsupply,includinghisfamous“scissors”analogy,andhisintroductionofperiodanalysisintoeconomictheory,wherethereadermighttakenoteofthedegreeofcorres-pondencebetweenMarshall’slong-periodequilibriumandtheconceptofmarketequilibriumintheclassicalanalysis.ReferencesandfurtherreadingAldrich,John(1996)“TheCourseofMarshall’sTheorizingaboutDemand,”HistoryofPoliticalEconomy28(Summer):171–217. AlfredMarshall503Blaug,Mark,ed.(1992)AlfredMarshall(1842–1924)andFrancisEdgeworth(1845–1926),Aldershot:EdwardElgarPublishing.Coase,R.H.(1975)“MarshallonMethod,”JournalofLawandEconomics18(April):25–31.Friedman,Milton(1949)“TheMarshallianDemandCurve,”JournalofPoliticalEconomy57(December):463–95.Gordon,H.Scott(1973)“AlfredMarshallandtheDevelopmentofEconomicsasaScience,”inR.N.GlereandR.S.Westfall(eds),FoundationsofScientificMethodintheNineteenthCentury,Bloomington,IN:IndianaUniversityPress.Groenewegen,Peter(1995)ASoaringEagle:AlfredMarshall,1842–1924,Aldershot:EdwardElgarPublishing.Keynes,J.M.(1933)“AlfredMarshall,1842–1924,”inJ.M.Keynes,EssaysinBiography,London:Macmillan,125–217.Maloney,John(1985)Marshall,OrthodoxyandtheProfessionalisationofEconomics,Cambridge:CambridgeUniversityPress.Marshall,Alfred(1879)ThePureTheoryofForeignTrade.ThePureTheoryofDomesticValues,London:LondonSchoolofEconomics,1930.——(1919)IndustryandTrade,London:Macmillan.——(1923)Money,CreditandCommerce,London:Macmillan.——(1961)PrinciplesofEconomics,9th(Variorum)edn,editedbyC.W.Guillebaud,2vols,London:Macmillan.Marshall,AlfredandMarshall,MaryPaley(1979)TheEconomicsofIndustry,London:Macmillan.Pigou,A.C.(1925)MemorialsofAlfredMarshall,London:Macmillan.Robbins,Lionel(1928)“TheRepresentativeFirm,”EconomicJournal38:387–404.Robertson,D.H.(1952)UtilityandAllThat,London:GeorgeAllen&Unwin.Shove,Gerald(1942)“ThePlaceofMarshall’sPrinciplesintheDevelopmentofEconomicTheory,”EconomicJournal52(December):294–329.Sraffa,Piero(1926)“TheLawsofReturnsUnderCompetitiveConditions,”EconomicJournal36(December):535–50.Whitaker,J.K.(1975)TheEarlyEconomicWritingsofAlfredMarshall,1867–1890,2vols,London:Macmillan.——(1987)“Marshall,Alfred,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,350–63.Wood,JohnC.(1982)AlfredMarshall:CriticalAssessments,London:CroomHelm.——(1993)AlfredMarshall:CriticalAssessments,secondseries,London:Routledge. PrinciplesofEconomics(1890)*BookI:PreliminarysurveyChapterI:Introduction1.Politicaleconomyoreconomicsisastudyofmankindintheordinarybusinessoflife;itexaminesthatpartofindividualandsocialactionwhichismostcloselyconnectedwiththeattainmentandwiththeuseofthematerialrequisitesofwell-being.Thusitisontheonesideastudyofwealth;andontheother,andmoreimportantside,apartofthestudyofman.Forman’scharacterhasbeenmouldedbyhisevery-daywork,andthemate-rialresourceswhichhetherebyprocures,morethanbyanyotherinfluenceunlessitbethatofhisreligiousideals;andthetwogreatformingagenciesoftheworld’shistoryhavebeenthereligiousandtheeconomic.Hereandtheretheardourofthemilitaryortheartisticspirithasbeenforawhilepredominant:butreligiousandeconomicinfluenceshavenowherebeendisplacedfromthefrontrankevenforatime;andtheyhavenearlyalwaysbeenmoreimportantthanallothersputtogether.Religiousmotivesaremoreintensethaneconomic,buttheirdirectactionseldomextendsoversolargeapartoflife.Forthebusinessbywhichapersonearnshislivelihoodgener-allyfillshisthoughtsduringbyfarthegreaterpartofthosehoursinwhichhismindisatitsbest;duringthemhischaracterisbeingformedbythewayinwhichheuseshisfacultiesinhiswork,bythethoughtsandthefeelingswhichitsuggests,andbyhisrelationstohisassociatesinwork,hisemployersorhisemployees.Andveryoftentheinfluenceexertedonaperson’scharacterbytheamountofhisincomeishardlyless,ifitisless,thanthatexertedbythewayinwhichitisearned.Itmaymakelittledif-ferencetothefullnessoflifeofafamilywhetheritsyearlyincomeis£1000or£5000;butitmakesaverygreatdifferencewhethertheincomeis£30or£150:forwith£150thefamilyhas,with£30ithasnot,thematerialconditionsofacompletelife.Itistruethatinreligion,inthefamilyaffectionsandinfriendship,eventhepoormayfindscopeformanyofthosefacultieswhicharethesourceofthehighesthappiness.Buttheconditionswhichsurroundextremepoverty,especiallyindenselycrowdedplaces,tendtodeadenthehigherfaculties.ThosewhohavebeencalledtheResiduumofourlargetownshavelittleopportunityforfriendship;theyknownothingofthedecenciesandthequiet,andverylittleevenoftheunityoffamilylife;andreligionoftenfailstoreachthem.Nodoubttheirphysical,mental,andmoralill-healthispartlyduetoothercausesthanpoverty:butthisisthechiefcause.And,inadditiontotheResiduum,therearevastnumbersofpeoplebothintownandcountrywhoarebroughtupwithinsufficientfood,clothing,andhouse-room;whoseeducationisbroken*PrinciplesofEconomics,EighthEdition,London:Macmillan,1920. Marshall:PrinciplesofEconomics505offearlyinorderthattheymaygotoworkforwages;whothenceforthareengagedduringlonghoursinexhaustingtoilwithimperfectlynourishedbodies,andhavethereforenochanceofdevelopingtheirhighermentalfaculties.Theirlifeisnotnecessarilyunhealthyorunhappy.RejoicingintheiraffectionstowardsGodandman,andperhapsevenpossessingsomenaturalrefinementoffeeling,theymayleadlivesthatarefarlessincompletethanthoseofmany,whohavemorematerialwealth.But,forallthat,theirpovertyisagreatandalmostunmixedeviltothem.Evenwhentheyarewell,theirwearinessoftenamountstopain,whiletheirpleasuresarefew;andwhensicknesscomes,thesufferingcausedbypovertyincreasestenfold.And,thoughacontentedspiritmaygofartowardsreconcilingthemtotheseevils,thereareotherstowhichitoughtnottoreconcilethem.Overworkedandundertaught,wearyandcareworn,withoutquietandwithoutleisure,theyhavenochanceofmakingthebestoftheirmentalfaculties.Althoughthensomeoftheevilswhichcommonlygowithpovertyarenotitsnecessaryconse-quences;yet,broadlyspeaking,‘thedestructionofthepooristheirpoverty’,andthestudyofthecausesofpovertyisthestudyofthecausesofthedegradationofalargepartofmankind.…BookIV:Theagentsofproduction:Land,labour,capitalandorganizationChapterXIII:Conclusion.Correlationofthetendenciestoincreasingandtodiminishingreturn1.AtthebeginningoftheBookwesawhowtheextrareturnofrawproducewhichnatureaffordstoanincreasedapplicationofcapitalandlabour,otherthingsbeingequal,tendsinthelongruntodiminish.IntheremainderoftheBookandespeciallyinthelastfourchapterswehavelookedattheothersideoftheshield,andseenhowman’spowerofproductiveworkincreaseswiththevolumeoftheworkthathedoes.Consideringfirstthecausesthatgovernthesupplyoflabour,wesawhoweveryincreaseinthephysical,mentalandmoralvigourofapeo-plemakesthemmorelikely,otherthingsbeingequal,toreartoadultagealargenumberofvig-orouschildren.Turningnexttothegrowthofwealth,weobservedhoweveryincreaseofwealthtendsinmanywaystomakeagreaterincreasemoreeasythanbefore.Andlastlywesawhoweveryincreaseofwealthandeveryincreaseinthenumbersandintelligenceofthepeopleincreasedthefacilitiesforahighlydevelopedindustrialorganization,whichinitsturnaddsmuchtothecollectiveefficiencyofcapitalandlabour.Lookingmorecloselyattheeconomiesarisingfromanincreaseinthescaleofproductionofanykindofgoods,wefoundthattheyfellintotwoclasses–thosedependentonthegeneraldevel-opmentoftheindustry,andthosedependentontheresourcesoftheindividualhousesofbusinessengagedinitandtheefficiencyoftheirmanagement;thatis,intoexternalandinternaleconomies.Wesawhowtheselattereconomiesareliabletoconstantfluctuationssofarasanyparticularhouseisconcerned.Anableman,assistedperhapsbysomestrokesofgoodfortune,getsafirmfootinginthetrade,heworkshardandlivessparely,hisowncapitalgrowsfast,andthecreditthatenableshimtoborrowmorecapitalgrowsstillfaster;hecollectsaroundhimsubordinatesofmorethanordinaryzealandability;ashisbusinessincreasestheyrisewithhim,theytrusthimandhetruststhem,eachofthemdevoteshimselfwithenergytojustthatworkforwhichheisspeciallyfitted,sothatnohighabilityiswastedoneasywork,andnodifficultworkisentrustedtounskilfulhands.Correspondingtothissteadilyincreasingeconomyofskill,thegrowthofhisbusinessbringswithitsimilareconomiesofspecializedmachinesandplantsofallkinds;everyimprovedprocessisquicklyadoptedandmadethebasisoffurtherimprovements;successbringscreditandcreditbringssuccess;creditandsuccesshelptoretainoldcustomersandtobringnew 506TheMarginalRevolutionones;theincreaseofhistradegiveshimgreatadvantagesinbuying;hisgoodsadvertiseoneanother,andthusdiminishhisdifficultyinfindingaventforthem.Theincreaseinthescaleofhisbusinessincreasesrapidlytheadvantageswhichhehasoverhiscompetitors,andlowersthepriceatwhichhecanaffordtosell.Thisprocessmaygoonaslongashisenergyandenterprise,hisinventiveandorganizingpowerretaintheirfullstrengthandfreshness,andsolongastheriskswhichareinseparablefrombusinessdonotcausehimexceptionallosses;andifitcouldendureforahundredyears,heandoneortwootherslikehimwoulddividebetweenthemthewholeofthatbranchofindustryinwhichheisengaged.Thelargescaleoftheirproductionwouldputgreateconomieswithintheirreach;andprovidedtheycompetedtotheirutmostwithoneanother,thepublicwouldderivethechiefbenefitoftheseeconomies,andthepriceofthecom-moditywouldfallverylow.Butherewemayreadalessonfromtheyoungtreesoftheforestastheystruggleupwardsthroughthebenumbingshadeoftheirolderrivals.Manysuccumbontheway,andafewonlysurvive;thosefewbecomestrongerwitheveryyear,theygetalargershareoflightandairwitheveryincreaseoftheirheight,andatlastintheirturntheytowerabovetheirneighbours,andseemasthoughtheywouldgrowonforever,andforeverbecomestrongerastheygrow.Buttheydonot.Onetreewilllastlongerinfullvigourandattainagreatersizethananother;butsoonerorlateragetellsonthemall.Thoughthetalleroneshaveabetteraccesstolightandairthantheirrivals,theygraduallylosevitality;andoneafteranothertheygiveplacetoothers,which,thoughoflessmaterialstrength,haveontheirsidethevigourofyouth.Andaswiththegrowthoftrees,sowasitwiththegrowthofbusinessesasageneralrulebeforethegreatrecentdevelopmentofvastjoint-stockcompanies,whichoftenstagnate,butdonotreadilydie.Nowthatruleisfarfromuniversal,butitstillholdsinmanyindustriesandtrades.Naturestillpressesontheprivatebusinessbylimitingthelengthofthelifeofitsoriginalfounders,andbylimitingevenmorenarrowlythatpartoftheirlivesinwhichtheirfacultiesretainfullvigour.Andso,afterawhile,theguidanceofthebusinessfallsintothehandsofpeo-plewithlessenergyandlesscreativegenius,ifnotwithlessactiveinterestinitsprosperity.Ifitisturnedintoajoint-stockcompany,itmayretaintheadvantagesofdivisionoflabour,ofspecial-izedskillandmachinery:itmayevenincreasethembyafurtherincreaseofitscapital;andunderfavourableconditionsitmaysecureapermanentandprominentplaceintheworkofproduction.Butitislikelytohavelostsomuchofitselasticityandprogressiveforce,thattheadvantagesarenolongerexclusivelyonitssideinitscompetitionwithyoungerandsmallerrivals.Whenthereforeweareconsideringthebroadresultswhichthegrowthofwealthandpopula-tionexertontheeconomiesofproduction,thegeneralcharacterofourconclusionsisnotverymuchaffectedbythefactthatmanyoftheseeconomiesdependdirectlyonthesizeoftheindi-vidualestablishmentsengagedintheproduction,andthatinalmosteverytradethereisacon-stantriseandfalloflargebusinesses,atanyonemomentsomefirmsbeingintheascendingphaseandothersinthedescending.Forintimesofaverageprosperitydecayinonedirectionissuretobemorethanbalancedbygrowthinanother.Meanwhileanincreaseintheaggregatescaleofproductionofcourseincreasesthoseeconomies,whichdonotdirectlydependonthesizeofindividualhousesofbusiness.Themostimportantoftheseresultfromthegrowthofcorrelatedbranchesofindustrywhichmutuallyassistoneanother,perhapsbeingconcentratedinthesamelocalities,butanyhowavailingthem-selvesofthemodernfacilitiesforcommunicationofferedbysteamtransport,bythetelegraphandbytheprintingpress.Theeconomiesarisingfromsuchsourcesasthis,whichareaccessibletoanybranchofproduction,donotdependexclusivelyuponitsowngrowth:butyettheyaresuretogrowrapidlyandsteadilywiththatgrowth;andtheyaresuretodwindleinsome,thoughnotinallrespects,ifitdecays. Marshall:PrinciplesofEconomics5072.Theseresultswillbeofgreatimportancewhenwecometodiscussthecauseswhichgovernthesupplypriceofacommodity.Weshallhavetoanalysecarefullythenormalcostofproducingacommodity,relativelytoagivenaggregatevolumeofproduction;andforthispurposeweshallhavetostudytheexpensesofarepresentativeproducerforthataggregatevolume.Ontheonehandweshallnotwanttoselectsomenewproducerjuststrugglingintobusiness,whoworksundermanydisadvantages,andhastobecontentforatimewithlittleornoprofits,butwhoissatisfiedwiththefactthatheisestablishingaconnectionandtakingthefirststepstowardsbuildingupasuc-cessfulbusiness;norontheotherhandshallwewanttotakeafirmwhichbyexceptionallylong-sustainedabilityandgoodfortunehasgottogetheravastbusiness,andhugewell-orderedworkshopsthatgiveitasuperiorityoveralmostallitsrivals.Butourrepresentativefirmmustbeonewhichhashadafairlylonglife,andfairsuccess,whichismanagedwithnormalability,andwhichhasnormalaccesstotheeconomies,externalandinternal,whichbelongtothataggregatevolumeofproduction;accountbeingtakenoftheclassofgoodsproduced,theconditionsofmarketingthemandtheeconomicenvironmentgenerally.Thusarepresentativefirmisinasenseanaveragefirm.Buttherearemanywaysinwhichtheterm‘average’mightbeinterpretedinconnectionwithabusiness.AndaRepresentativefirmisthatparticularsortofaveragefirm,atwhichweneedtolookinordertoseehowfartheeconomies,internalandexternal,ofproductiononalargescalehaveextendedgenerallyintheindustryandcountryinquestion.Wecannotseethisbylookingatoneortwofirmstakenatran-dom:butwecanseeitfairlywellbyselecting,afterabroadsurvey,afirm,whetherinprivateorjoint-stockmanagement(orbetterstill,morethanone),thatrepresents,tothebestofourjudg-ment,thisparticularaverage.ThegeneralargumentofthepresentBookshowsthatanincreaseintheaggregatevolumeofproductionofanythingwillgenerallyincreasethesize,andthereforetheinternaleconomiespos-sessedbysucharepresentativefirm;thatitwillalwaysincreasetheexternaleconomiestowhichthefirmhasaccess;andthuswillenableittomanufactureatalessproportionatecostoflabourandsacrificethanbefore.Inotherwords,wesaybroadlythatwhilethepartwhichnatureplaysinproductionshowsatendencytodiminishingreturn,thepartwhichmanplaysshowsatendencytoincreasingreturn.Thelawofincreasingreturnmaybewordedthus:Anincreaseoflabourandcapitalleadsgenerallytoimprovedorganization,whichincreasestheefficiencyoftheworkoflabourandcapital.Thereforeinthoseindustrieswhicharenotengagedinraisingrawproduceanincreaseoflabourandcapitalgenerallygivesareturnincreasedmorethaninproportion;andfurtherthisimprovedorganizationtendstodiminishorevenoverrideanyincreasedresistancewhichnaturemayoffertoraisingincreasedamountsofrawproduce.Iftheactionsofthelawsofincreasinganddiminishingreturnarebalancedwehavethelawofconstantreturn,andanincreasedproduceisobtainedbylabourandsacrificeincreasedjustinproportion.Forthetwotendenciestowardsincreasinganddiminishingreturnpressconstantlyagainstoneanother.Intheproductionofwheatandwool,forinstance,thelattertendencyhasalmostexclu-siveswayinanoldcountry,whichcannotimportfreely.Inturningthewheatintoflour,orthewoolintoblankets,anincreaseintheaggregatevolumeofproductionbringssomeneweconomies,butnotmany;forthetradesofgrindingwheatandmakingblanketsarealreadyonsogreatascalethatanyneweconomiesthattheymayattainaremorelikelytobetheresultofnewinventionsthanofimprovedorganization.Inacountryhoweverinwhichtheblankettradeisbutslightlydeveloped,theselattermaybeimportant;andthenitmayhappenthatanincreaseintheaggregateproductionofblanketsdiminishestheproportionatedifficultyofmanufacturingbyjustasmuchasitincreasesthatofraisingtherawmaterial.Inthatcasetheactionsofthelawsofdiminishingandofincreasingreturnwouldjustneutralizeoneanother;andblanketswould 508TheMarginalRevolutionconformtothelawofconstantreturn.Butinmostofthemoredelicatebranchesofmanufac-turing,wherethecostofrawmaterialcountsforlittle,andinmostofthemoderntransportindustriesthelawofincreasingreturnactsalmostunopposed.IncreasingReturnisarelationbetweenaquantityofeffortandsacrificeontheonehand,andaquantityofproductontheother.Thequantitiescannotbetakenoutexactly,becausechangingmethodsofproductioncallformachinery,andforunskilledandskilledlabourofnewkindsandinnewproportions.But,takingabroadview,wemayperhapssayvaguelythattheoutputofacertainamountoflabourandcapitalinanindustryhasincreasedbyperhapsaquarterorathirdinthelasttwentyyears.Tomeasureoutlayandoutputintermsofmoneyisatempting,butadangerousresource:foracomparisonofmoneyoutlaywithmoneyreturnsisapttoslideintoanestimateoftherateofprofitoncapital.3.Wemaynowsumupprovisionallytherelationsofindustrialexpansiontosocialwell-being.Arapidgrowthofpopulationhasoftenbeenaccompaniedbyunhealthyandenervatinghabitsoflifeinovercrowdedtowns.Andsometimesithasstartedbadly,outrunningthematerialresourcesofthepeople,causingthemwithimperfectappliancestomakeexcessivedemandsonthesoil;andsotocallforththesternactionofthelawofdiminishingreturnasregardsrawproduce,withouthavingthepowerofminimizingitseffects.Havingthusbegunwithpoverty,anincreaseinnumbersmaygoontoitstoofrequentconsequencesinthatweaknessofcharacterwhichunfitsapeoplefordevelopingahighlyorganizedindustry.Theseareseriousperils:butyetitremainstruethatthecollectiveefficiencyofapeoplewithagivenaverageofindividualstrengthandenergymayincreasemorethaninproportiontotheirnumbers.Iftheycanforatimeescapefromthepressureofthelawofdiminishingreturnbyimportingfoodandotherrawproduceoneasyterms;iftheirwealthisnotconsumedingreatwars,andincreasesatleastasfastastheirnumbers;andiftheyavoidhabitsoflifethatwouldenfeeblethem;theneveryincreaseintheirnumbersislikelyforthetimetobeaccompaniedbyamorethanproportionateincreaseintheirpowerofobtainingmaterialgoods.Foritenablesthemtosecurethemanyvariouseconomiesofspecializedskillandspecializedmachinery,oflocalizedindustriesandproductiononalargescale:itenablesthemtohaveincreasedfacilitiesofcommu-nicationofallkinds;whiletheveryclosenessoftheirneighbourhooddiminishestheexpenseoftimeandeffortinvolvedineverysortoftrafficbetweenthem,andgivesthemnewopportunitiesofgettingsocialenjoymentsandthecomfortsandluxuriesofcultureineveryform.Nodoubtdeductionmustbemadeforthegrowingdifficultyoffindingsolitudeandquietandevenfreshair:butthereisinmostcasessomebalanceofgood.Takingaccountofthefactthatanincreasingdensityofpopulationgenerallybringswithitaccesstonewsocialenjoymentswemaygivearatherbroaderscopetothisstatementandsay:Anincreaseofpopulationaccompaniedbyanequalincreaseinthematerialsourcesofenjoymentandaidstoproductionislikelytoleadtoamorethanproportionateincreaseintheaggregateincomeofenjoymentofallkinds;providedfirstly,anadequatesupplyofrawproducecanbeobtainedwithoutgreatdifficulty,andsecondlythereisnosuchovercrowdingascausesphysicalandmoralvigourtobeimpairedbythewantoffreshairandlightandofhealthyandjoyousrecreationfortheyoung.Theaccumulatedwealthofcivilizedcountriesisatpresentgrowingfasterthanthepopulation:andthoughitmaybetruethatthewealthperheadwouldincreasesomewhatfasterifthepopu-lationdidnotincreasequitesofast;yetasamatteroffactanincreaseofpopulationislikelytocontinuetobeaccompaniedbyamorethanproportionateincreaseofthematerialaidstopro-duction:andinEnglandatthepresenttime,witheasyaccesstoabundantforeignsuppliesofrawmaterial,anincreaseofpopulationisaccompaniedbyamorethanproportionateincreaseofthemeansofsatisfyinghumanwantsotherthantheneedforlight,freshair,etc.Muchofthisincreaseishoweverattributablenottotheincreaseofindustrialefficiencybuttotheincreaseof Marshall:PrinciplesofEconomics509wealthbywhichitisaccompanied:andthereforeitdoesnotnecessarilybenefitthosewhohavenoshareinthatwealth.Andfurther,England’sforeignsuppliesofrawproducemayatanytimebecheckedbychangesinthetraderegulationsofothercountries,andmaybealmostcutoffbyagreatwar,whilethenavalandmilitaryexpenditurewhichwouldbenecessarytomakethecountryfairlysecureagainstthislastrisk,wouldappreciablydiminishthebenefitsthatshederivesfromtheactionofthelawofincreasingreturn.BookVChapterIII:Equilibriumofnormaldemandandsupply1.Wehavenexttoinquirewhatcausesgovernsupplyprices,thatispriceswhichdealersarewillingtoacceptfordifferentamounts.Inthelastchapterwelookedattheaffairsofonlyasin-gleday;andsupposedthestocksofferedforsaletobealreadyinexistence.Butofcoursethesestocksaredependentontheamountofwheatsownintheprecedingyear;andthat,initsturn,waslargelyinfluencedbythefarmers’guessesastothepricewhichtheywouldgetforitinthisyear.Thisisthepointatwhichwehavetoworkinthepresentchapter.Eveninthecorn-exchangeofacountrytownonamarket-daytheequilibriumpriceisaffectedbycalculationsofthefuturerelationsofproductionandconsumption;whileintheleadingcorn-marketsofAmericaandEuropedealingsforfuturedeliveryalreadypredominateandarerapidlyweavingintooneweballtheleadingthreadsoftradeincornthroughoutthewholeworld.Someofthesedealingsin‘futures’arebutincidentsinspeculativemanœuvres;butinthemaintheyaregovernedbycalculationsoftheworld’sconsumptionontheonehand,andoftheexistingstocksandcomingharvestsintheNorthernandSouthernhemispheresontheother.Dealerstakeaccountoftheareassownwitheachkindofgrain,oftheforwardnessandweightofthecrops,ofthesupplyofthingswhichcanbeusedassubstitutesforgrain,andofthethingsforwhichgraincanbeusedasasubstitute.Thus,whenbuyingorsellingbarley,theytakeaccountofthesuppliesofsuchthingsassugar,whichcanbeusedassubstitutesforitinbrewing,andagainofallthevariousfeedingstuffs,ascarcityofwhichmightraisethevalueofbarleyforconsumptiononthefarm.Ifitisthoughtthatthegrowersofanykindofgraininanypartoftheworldhavebeenlosingmoney,andarelikelytosowalessareaforafutureharvest;itisarguedthatpricesarelikelytoriseassoonasthatharvestcomesintosight,anditsshortnessismanifesttoall.Anticipationsofthatriseexerciseaninfluenceonpresentsalesforfuturedelivery,andthatinitsturninfluencescashprices;sothatthesepricesareindirectlyaffectedbyestimatesoftheexpensesofproducingfurthersupplies.Butinthisandthefollowingchapterswearespeciallyconcernedwithmovementsofpricesrangingoverstilllongerperiodsthanthoseforwhichthemostfar-sighteddealersinfuturesgen-erallymaketheirreckoning:wehavetoconsiderthevolumeofproductionadjustingitselftotheconditionsofthemarket,andthenormalpricebeingthusdeterminedatthepositionofstableequilibriumofnormaldemandandnormalsupply.2.Inthisdiscussionweshallhavetomakefrequentuseofthetermscostandexpensesofpro-duction;andsomeprovisionalaccountofthemmustbegivenbeforeproceedingfurther.Wemayreverttotheanalogybetweenthesupplypriceandthedemandpriceofacommod-ity.Assumingforthemomentthattheefficiencyofproductiondependssolelyupontheexertionsoftheworkers,wesawthat‘thepricerequiredtocallforththeexertionnecessaryforproducinganygivenamountofacommoditymaybecalledthesupplypriceforthatamount,withreferenceofcoursetoagivenunitoftime’.Butnowwehavetotakeaccountofthefactthattheproduc-tionofacommoditygenerallyrequiresmanydifferentkindsoflabourandtheuseofcapitalinmanyforms.Theexertionsofallthedifferentkindsoflabourthataredirectlyorindirectly 510TheMarginalRevolutioninvolvedinmakingit;togetherwiththeabstinencesorratherthewaitingsrequiredforsavingthecapitalusedinmakingit:alltheseeffortsandsacrificestogetherwillbecalledtherealcostofpro-ductionofthecommodity.Thesumsofmoneythathavetobepaidfortheseeffortsandsacrificeswillbecalledeitheritsmoneycostofproduction,or,forshortness,itsexpensesofproduction;theyarethepriceswhichhavetobepaidinordertocallforthanadequatesupplyoftheeffortsandwaitingsthatarerequiredformakingit;or,inotherwords,theyareitssupplyprice.Theanalysisoftheexpensesofproductionofacommoditymightbecarriedbackwardtoanylength;butitisseldomworthwhiletogobackveryfar.Itisforinstanceoftensufficienttotakethesupplypriceofthedifferentkindsofrawmaterialsusedinanymanufactureasultimatefacts,withoutanalysingthesesupplypricesintotheseveralelementsofwhichtheyarecomposed;other-wiseindeedtheanalysiswouldneverend.Wemaythenarrangethethingsthatarerequiredformakingacommodityintowhatevergroupsareconvenient,andcallthemitsfactorsofproduction.Itsexpensesofproductionwhenanygivenamountofitisproducedarethusthesupplypricesofthecorrespondingquantitiesofitsfactorsofproduction.Andthesumoftheseisthesupplypriceofthatamountofthecommodity.3.Thetypicalmodernmarketisoftenregardedasthatinwhichmanufacturerssellgoodstowholesaledealersatpricesintowhichbutfewtradingexpensesenter.Buttakingabroaderview,wemayconsiderthatthesupplypriceofacommodityisthepriceatwhichitwillbedeliveredforsaletothatgroupofpersonswhosedemandforitweareconsidering;or,inotherwords,inthemarketwhichwehaveinview.Onthecharacterofthatmarketwilldependhowmanytradingexpenseshavetobereckonedtomakeupthesupplyprice.Forinstance,thesupplypriceofwoodintheneighbourhoodofCanadianforestsoftenconsistsalmostexclusivelyofthepriceofthelabouroflumbermen:butthesupplypriceofthesamewoodinthewholesaleLondonmarketconsistsinalargemeasureoffreights:whileitssupplypricetoasmallretailbuyerinanEnglishcountrytownismorethanhalfmadeupofthechargesoftherailwaysandmiddlemenwhohavebroughtwhathewantstohisdoors,andkeepastockofitreadyforhim.Again,thesupplypriceofacertainkindoflabourmayforsomepurposesbedividedupintotheexpensesofrearing,ofgeneraleducationandofspecialtradeeducation.Thepossiblecombinationsarenumberless;andthougheachmayhaveincidentsofitsownwhichwillrequireseparatetreatmentinthecom-pletesolutionofanyproblemconnectedwithit,yetallsuchincidentsmaybeignored,sofarasthegeneralreasoningsofthisBookareconcerned.Incalculatingtheexpensesofproductionofacommoditywemusttakeaccountofthefactthatchangesintheamountsproducedarelikely,evenwhenthereisnonewinvention,tobeaccompaniedbychangesintherelativequantitiesofitsseveralfactorsofproduction.Forinstance,whenthescaleofproductionincreases,horseorsteampowerislikelytobesubstitutedformanuallabour;materialsarelikelytobebroughtfromagreaterdistanceandingreaterquan-tities,thusincreasingthoseexpensesofproductionwhichcorrespondtotheworkofcarriers,middlemenandtradersofallkinds.Asfarastheknowledgeandbusinessenterpriseoftheproducersreach,theyineachcasechoosethosefactorsofproductionwhicharebestfortheirpurpose;thesumofthesupplypricesofthosefactorswhichareusedis,asarule,lessthanthesumofthesupplypricesofanyothersetoffactorswhichcouldbesubstitutedforthem;andwheneveritappearstotheproducersthatthisisnotthecase,theywill,asarule,settoworktosubstitutethelessexpensivemethod.Andfurtheronweshallseehowinasomewhatsimilarwaysocietysubstitutesoneundertakerforanotherwhoislessefficientinproportiontohischarges.Wemaycallthis,forconvenienceofreference,Theprincipleofsubstitution.Theapplicationsofthisprincipleextendoveralmosteveryfieldofeconomicinquiry.4.Thepositionthenisthis:weareinvestigatingtheequilibriumofnormaldemandandnor-malsupplyintheirmostgeneralform;weareneglectingthosefeatureswhicharespecialto Marshall:PrinciplesofEconomics511particularpartsofeconomicscience,andareconfiningourattentiontothosebroadrelationswhicharecommontonearlythewholeofit.Thusweassumethattheforcesofdemandandsup-plyhavefreeplay;thatthereisnoclosecombinationamongdealersoneitherside,buteachactsforhimself,andthereismuchfreecompetition;thatis,buyersgenerallycompetefreelywithbuy-ers,andsellerscompetefreelywithsellers.Butthougheveryoneactsforhimself,hisknowledgeofwhatothersaredoingissupposedtobegenerallysufficienttopreventhimfromtakingalowerorpayingahigherpricethanothersaredoing.Thisisassumedprovisionallytobetruebothoffinishedgoodsandoftheirfactorsofproduction,ofthehireoflabourandoftheborrowingofcapital.Wehavealreadyinquiredtosomeextent,andweshallhavetoinquirefurther,howfartheseassumptionsareinaccordancewiththeactualfactsoflife.Butmeanwhilethisisthesup-positiononwhichweproceed;weassumethatthereisonlyonepriceinthemarketatoneandthesametime;itbeingunderstoodthatseparateallowanceismade,whennecessary,fordiffer-encesintheexpenseofdeliveringgoodstodealersindifferentpartsofthemarket;includingallowanceforthespecialexpensesofretailing,ifitisaretailmarket.Insuchamarketthereisademandpriceforeachamountofthecommodity,thatis,apriceatwhicheachparticularamountofthecommoditycanfindpurchasersinadayorweekoryear.Thecircumstanceswhichgovernthispriceforanygivenamountofthecommodityvaryinchar-acterfromoneproblemtoanother;butineverycasethemoreofathingisofferedforsaleinamarkettheloweristhepriceatwhichitwillfindpurchasers;orinotherwords,thedemandpriceforeachbusheloryarddiminisheswitheveryincreaseintheamountoffered.Theunitoftimemaybechosenaccordingtothecircumstancesofeachparticularproblem:itmaybeaday,amonth,ayear,orevenageneration:butineverycaseitmustbeshortrelativelytotheperiodofthemarketunderdiscussion.Itistobeassumedthatthegeneralcircumstancesofthemarketremainunchangedthroughoutthisperiod;thatthereis,forinstance,nochangeinfashionortaste,nonewsubstitutewhichmightaffectthedemand,nonewinventiontodisturbthesupply.Theconditionsofnormalsupplyarelessdefinite;andafullstudyofthemmustbereservedforlaterchapters.Theywillbefoundtovaryindetailwiththelengthoftheperiodoftimetowhichtheinvestigationrefers;chieflybecauseboththematerialcapitalofmachineryandotherbusinessplant,andtheimmaterialcapitalofbusinessskillandabilityandorganization,areofslowgrowthandslowdecay.Letuscalltomindthe‘representativefirm’,whoseeconomiesofproduction,internalandexternal,aredependentontheaggregatevolumeofproductionofthecommoditythatitmakes;and,postponingallfurtherstudyofthenatureofthisdependence,letusassumethatthenormalsupplypriceofanyamountofthatcommoditymaybetakentobeitsnormalexpensesofpro-duction(includinggrossearningsofmanagements)bythatfirm.Thatis,letusassumethatthisisthepricetheexpectationofwhichwilljustsufficetomaintaintheexistingaggregateamountofproduction;somefirmsmeanwhilerisingandincreasingtheiroutput,andothersfallinganddiminishingtheirs;buttheaggregateproductionremainingunchanged.Apricehigherthanthiswouldincreasethegrowthoftherisingfirms,andslacken,thoughitmightnotarrest,thedecayofthefallingfirms;withthenetresultofanincreaseintheaggregateproduction.Ontheotherhand,apricelowerthanthiswouldhastenthedecayofthefallingfirms,andslackenthegrowthoftherisingfirms;andonthewholediminishproduction:andariseorfallofpricewouldaffectinlikemannerthoughperhapsnotinanequaldegreethosegreatjoint-stockcompanieswhichoftenstagnate,butseldomdie.5.Togivedefinitenesstoourideasletustakeanillustrationfromthewoollentrade.Letussupposethatapersonwellacquaintedwiththewoollentradesetshimselftoinquirewhatwouldbethenormalsupplypriceofacertainnumberofmillionsofyardsannuallyofaparticularkindofcloth.Hewouldhavetoreckon(i)thepriceofthewool,coal,andothermaterialswhichwould 512TheMarginalRevolutionbeusedupinmakingit,(ii)wear-and-tearanddepreciationofthebuildings,machineryandotherfixedcapital,(iii)interestandinsuranceonallthecapital,(iv)thewagesofthosewhoworkinthefactories,and(v)thegrossearningsofmanagement(includinginsuranceagainstloss),ofthosewhoundertaketherisks,whoengineerandsuperintendtheworking.Hewouldofcourseestimatethesupplypricesofallthesedifferentfactorsofproductionoftheclothwithref-erencetotheamountsofeachofthemthatwouldbewanted,andonthesuppositionthattheconditionsofsupplywouldbenormal;andhewouldaddthemalltogethertofindthesupplypriceofthecloth.Letussupposealistofsupplyprices(orasupplyschedule)madeonasimilarplantothatofourlistofdemandprices:thesupplypriceofeachamountofthecommodityinayear,oranyotherunitoftime,beingwrittenagainstthatamount.Astheflow,or(annual)amountofthecommodityincreases,thesupplypricemayeitherincreaseordiminish;oritmayevenalternatelyincreaseanddiminish.Forifnatureisofferingasturdyresistancetoman’seffortstowringfromheralargersupplyofrawmaterial,whileatthatparticularstagethereisnogreatroomforintroducingimportantneweconomiesintothemanufacture,thesupplypricewillrise;butifthevolumeofproductionweregreater,itwouldperhapsbeprofitabletosubstitutelargelymachineworkforhandworkandsteampowerformuscularforce;andtheincreaseinthevolumeofproductionwouldhavediminishedtheexpensesofproductionofthecommod-ityofourrepresentativefirm.Butthosecasesinwhichthesupplypricefallsastheamountincreasesinvolvespecialdifficultiesoftheirown;andtheyarepostponedtoChapterXIIofthisBook.6.Whenthereforetheamountproduced(inaunitoftime)issuchthatthedemandpriceisgreaterthanthesupplyprice,thensellersreceivemorethanissufficienttomakeitworththeirwhiletobringgoodstomarkettothatamount;andthereisatworkanactiveforcetendingtoincreasetheamountbroughtforwardforsale.Ontheotherhand,whentheamountproducedissuchthatthedemandpriceislessthanthesupplyprice,sellersreceivelessthanissufficienttomakeitworththeirwhiletobringgoodstomarketonthatscale;sothatthosewhowerejustonthemarginofdoubtastowhethertogoonproducingaredecidednottodoso,andthereisanactiveforceatworktendingtodiminishtheamountbroughtforwardforsale.Whenthedemandpriceisequaltothesupplyprice,theamountproducedhasnoten-dencyeithertobeincreasedortobediminished;itisinequilibrium.Whendemandandsupplyareinequilibrium,theamountofthecommoditywhichisbeingproducedinaunitoftimemaybecalledtheequilibrium-amount,andthepriceatwhichitisbeingsoldmaybecalledtheequilibrium-price.Suchanequilibriumisstable;thatis,theprice,ifdisplacedalittlefromit,willtendtoreturn,asapendulumoscillatesaboutitslowestpoint;anditwillbefoundtobeacharacteristicofstableequilibriathatinthemthedemandpriceisgreaterthanthesupplypriceforamountsjustlessthantheequilibriumamount,andviceversa.Forwhenthedemandpriceisgreaterthanthesup-plyprice,theamountproducedtendstoincrease.Therefore,ifthedemandpriceisgreaterthanthesupplypriceforamountsjustlessthananequilibriumamount;then,ifthescaleofproduc-tionistemporarilydiminishedsomewhatbelowthatequilibriumamount,itwilltendtoreturn;thustheequilibriumisstablefordisplacementsinthatdirection.Ifthedemandpriceisgreaterthanthesupplypriceforamountsjustlessthantheequilibriumamount,itissuretobelessthanthesupplypriceforamountsjustgreaterandtherefore,ifthescaleofproductionissomewhatincreasedbeyondtheequilibriumposition,itwilltendtoreturn;andtheequilibriumwillbesta-blefordisplacementsinthatdirectionalso.Whendemandandsupplyareinstableequilibrium,ifanyaccidentshouldmovethescaleofproductionfromitsequilibriumposition,therewillbeinstantlybroughtintoplayforcestendingtopushitbacktothatposition;justas,ifastonehangingbyastringisdisplacedfromitsequilibriumposition,theforceofgravitywillatoncetendtobringitbacktoitsequilibriumposition.The Marshall:PrinciplesofEconomics513movementsofthescaleofproductionaboutitspositionofequilibriumwillbeofasomewhatsimilarkind.1Butinreallifesuchoscillationsareseldomasrhythmicalasthoseofastonehangingfreelyfromastring;thecomparisonwouldbemoreexactifthestringweresupposedtohanginthetroubledwatersofamill-race,whosestreamwasatonetimeallowedtoflowfreely,andatanotherpartiallycutoff.Norarethesecomplexitiessufficienttoillustrateallthedisturbanceswithwhichtheeconomistandthemerchantalikeareforcedtoconcernthemselves.Ifthepersonholdingthestringswingshishandwithmovementspartlyrhythmicalandpartlyarbitrary,theillustrationwillnotoutrunthedifficultiesofsomeveryrealandpracticalproblemsofvalue.Forindeedthedemandandsupplyschedulesdonotinpracticeremainunchangedforalongtimetogether,butareconstantlybeingchanged;andeverychangeinthemalterstheequilibriumamountandtheequilibriumprice,andthusgivesnewpositionstothecentresaboutwhichtheamountandthepricetendtooscillate.Theseconsiderationspointtothegreatimportanceoftheelementoftimeinrelationtodemandandsupply,tothestudyofwhichwenowproceed.Weshallgraduallydiscoveragreatmanydifferentlimitationsofthedoctrinethatthepriceatwhichathingcanbeproducedrepre-sentsitsrealcostofproduction,thatis,theeffortsandsacrificeswhichhavebeendirectlydevotedtoitsproduction.For,inanageofrapidchangesuchasthis,theequilibriumofnormaldemandandsupplydoesnotthuscorrespondtoanydistinctrelationofacertainaggregateofpleasuresgotfromtheconsumptionofthecommodityandanaggregateofeffortsandsacrificesinvolvedinproducingit:thecorrespondencewouldnotbeexact,evenifnormalearningsandinterestwereexactmeasuresoftheeffortsandsacrificesforwhichtheyarethemoneypayments.Thisistherealdriftofthatmuchquoted,andmuchmisunderstooddoctrineofAdamSmithandothereconomiststhatthenormal,or‘natural’,valueofacommodityisthatwhicheconomicforcestendtobringaboutinthelongrun.Itistheaveragevaluewhicheconomicforceswouldbringaboutifthegeneralconditionsoflifewerestationaryforarunoftimelongenoughtoenablethemalltoworkouttheirfulleffect.Butwecannotforeseethefutureperfectly.Theunexpectedmayhappen;andtheexistingtendenciesmaybemodifiedbeforetheyhavehadtimetoaccomplishwhatappearsnowtobetheirfullandcompletework.Thefactthatthegeneralconditionsoflifearenotstationaryisthesourceofmanyofthedifficultiesthataremetwithinapplyingeconomicdoctrinestopracticalproblems.OfcourseNormaldoesnotmeanCompetitive.MarketpricesandNormalpricesarealikebroughtaboutbyamultitudeofinfluences,ofwhichsomerestonamoralbasisandsomeonaphysical;ofwhichsomearecompetitiveandsomearenot.Itistothepersistenceoftheinfluencesconsidered,andthetimeallowedforthemtoworkouttheireffectsthatwereferwhencontrastingMarketandNormalprice,andagainwhencontrastingthenarrowerandthebroaderuseofthetermNormalprice.7.Theremainderofthepresentvolumewillbechieflyoccupiedwithinterpretingandlimitingthisdoctrinethatthevalueofathingtendsinthelongruntocorrespondtoitscostofproduction.Inparticularthenotionofequilibrium,whichhasbeentreatedratherslightlyinthischapter,willbestudiedmorecarefullyinChaptersVandXIIofthisBook:andsomeaccountofthecontroversywhether‘costofproduction’or‘utility’governsvaluewillbegiveninAppendixI.Butitmaybewelltosayawordortwohereonthislastpoint.Wemightasreasonablydisputewhetheritistheupperortheunderbladeofapairofscissorsthatcutsapieceofpaper,aswhethervalueisgovernedbyutilityorcostofproduction.Itistruethatwhenonebladeisheldstill,andthecuttingiseffectedbymovingtheother,wemaysaywithcarelessbrevitythatthecuttingisdonebythesecond;butthestatementisnotstrictlyaccurate, 514TheMarginalRevolutionandistobeexcusedonlysolongasitclaimstobemerelyapopularandnotastrictlyscientificaccountofwhathappens.Inthesameway,whenathingalreadymadehastobesold,thepricewhichpeoplewillbewillingtopayforitwillbegovernedbytheirdesiretohaveit,togetherwiththeamounttheycanaffordtospendonit.Theirdesiretohaveitdependspartlyonthechancethat,iftheydonotbuyit,theywillbeabletogetanotherthinglikeitataslowaprice:thisdependsonthecausesthatgovernthesupplyofit,andthisagainuponcostofproduction.Butitmaysohappenthatthestocktobesoldispracticallyfixed.This,forinstance,isthecasewithafishmarket,inwhichthevalueoffishforthedayisgovernedalmostexclusivelybythestockontheslabsinrelationtothedemand:andifapersonchoosestotakethestockforgranted,andsaythatthepriceisgovernedbydemand,hisbrevitymayperhapsbeexcusedsolongashedoesnotclaimstrictaccuracy.Soagainitmaybepardonable,butitisnotstrictlyaccuratetosaythatthevaryingpriceswhichthesamerarebookfetches,whensoldandresoldatChristie’sauctionroom,aregovernedexclusivelybydemand.Takingacaseattheoppositeextreme,wefindsomecommoditieswhichconformprettycloselytothelawofconstantreturn;thatistosay,theiraveragecostofproductionwillbeverynearlythesamewhethertheyareproducedinsmallquantitiesorinlarge.Insuchacasethenormallevelaboutwhichthemarketpricefluctuateswillbethisdefiniteandfixed(money)costofpro-duction.Ifthedemandhappenstobegreat,themarketpricewillriseforatimeabovethelevel;butasaresultproductionwillincreaseandthemarketpricewillfall:andconversely,ifthedemandfallsforatimebelowitsordinarylevel.Insuchacase,ifapersonchoosestoneglectmarketfluctuations,andtotakeitforgrantedthattherewillanyhowbeenoughdemandforthecommoditytoinsurethatsomeofit,moreorless,willfindpurchasersatapriceequaltothiscostofproduction,thenhemaybeexcusedforignor-ingtheinfluenceofdemand,andspeakingof(normal)priceasgovernedbycostofproduction–providedonlyhedoesnotclaimscientificaccuracyforthewordingofhisdoctrine,andexplainstheinfluenceofdemandinitsrightplace.Thuswemayconcludethat,asageneralrule,theshortertheperiodwhichweareconsidering,thegreatermustbetheshareofourattentionwhichisgiventotheinfluenceofdemandonvalue;andthelongertheperiod,themoreimportantwillbetheinfluenceofcostofproductiononvalue.Fortheinfluenceofchangesincostofproductiontakesasarulealongertimetoworkitselfoutthandoestheinfluencesofchangesindemand.Theactualvalueatanytime,themar-ketvalueasitisoftencalled,isoftenmoreinfluencedbypassingeventsandbycauseswhoseactionisfitfulandshort-lived,thanbythosewhichworkpersistently.Butinlongperiodsthesefit-fulandirregularcausesinlargemeasureeffaceoneanother’sinfluence;sothatinthelongrunpersistentcausesdominatevaluecompletely.Eventhemostpersistentcausesarehoweverliabletochange.Forthewholestructureofproductionismodified,andtherelativecostsofproductionofdifferentthingsarepermanentlyaltered,fromonegenerationtoanother.Whenconsideringcostsfromthepointofviewofthecapitalistemployer,weofcoursemea-suretheminmoney;becausehisdirectconcernwiththeeffortsneededfortheworkofhisemployeesliesinthemoneypaymentshemustmake.Hisconcernwiththerealcostsoftheireffortandofthetrainingrequiredforitisonlyindirect,thoughamonetaryassessmentofhisownlabourisnecessaryforsomeproblems,aswillbeseenlateron.Butwhenconsideringcostsfromthesocialpointofview,wheninquiringwhetherthecostofattainingagivenresultisincreasingordiminishingwithchangingeconomicconditions,thenweareconcernedwiththerealcostsofeffortsofvariousqualities,andwiththerealcostofwaiting.Ifthepurchasingpowerofmoney,intermsofefforthasremainedaboutconstant,andiftherateofremunerationforwaitinghasremainedaboutconstant,thenthemoneymeasureofcostscorrespondstotherealcosts:butsuchacorrespondenceisnevertobeassumedlightly.Theseconsiderationswillgenerally Marshall:PrinciplesofEconomics515sufficefortheinterpretationofthetermCostinwhatfollows,evenwherenodistinctindicationisgiveninthecontext.ChapterV:Equilibriumofnormaldemandandsupply,continued,withreferencetolongandshortperiods1.ThevariationsinthescopeofthetermNormal,accordingastheperiodsoftimeunderdiscussionarelongorshort,wereindicatedinChapterIII.Wearenowreadytostudythemmoreclosely.Inthiscase,asinothers,theeconomistmerelybringstolightdifficultiesthatarelatentinthecommondiscourseoflife,sothatbybeingfranklyfacedtheymaybethoroughlyovercome.ForinordinarylifeitiscustomarytousethewordNormalindifferentsenses,withreferencetodifferentperiodsoftime;andtoleavethecontexttoexplainthetransitionfromonetoanother.Theeconomistfollowsthispracticeofeverydaylife:but,bytakingpainstoindicatethetransition,hesometimesseemstohavecreatedacomplicationwhichinfacthehasonlyrevealed.Thus,whenitissaidthatthepriceofwoolonacertaindaywasabnormallyhighthoughtheaveragepricefortheyearwasabnormallylow,thatthewagesofcoal-minerswereabnormallyhighin1872andabnormallylowin1879,thatthe(real)wagesoflabourwereabnormallyhighattheendofthefourteenthcenturyandabnormallylowinthemiddleofthesixteenth;everyoneunderstandsthatthescopeofthetermnormalisnotthesameinthesevariouscases.Thebestillustrationsofthiscomefrommanufactureswheretheplantislong-lived,andtheproductisshort-lived.Whenanewtextilefabricisfirstintroducedintofavour,andthereisverylittleplantsuitableformakingit,itsnormalpriceforsomemonthsmaybetwiceashighasthoseofotherfabricswhicharenotlessdifficulttomake,butformakingwhichthereisanabundantstockofsuitableplantandskill.Lookingatlongperiodswemaysaythatitsnormalpriceisonaparwiththatoftheothers:butifduringthefirstfewmonthsagooddealofitwereofferedforsaleinabankrupt’sstockwemightsaythatitspricewasabnormallylowevenwhenitwassellingforhalfasmuchagainastheothers.Everyonetakesthecontextasindicatingthespecialuseofthetermineachseveralcase;andaformalinterpretationclauseisseldomnecessary,becauseinordinaryconversationmisunderstandingscanbenippedinthebudbyquestionandanswer.Butletuslookatthismattermoreclosely.Wehavenoticedhowaclothmanufacturerwouldneedtocalculatetheexpensesofproducingallthedifferentthingsrequiredformakingclothwithreferencetotheamountsofeachofthemthatwouldbewanted;andonthesuppositioninthefirstinstancethattheconditionsofsupplywouldbenormal.Butwehaveyettotakeaccountofthefactthathemustgivetothistermawiderornarrowerrange,accordingashewaslookingmoreorlessfarahead.Thusinestimatingthewagesrequiredtocallforthanadequatesupplyoflabourtoworkacer-tainclassoflooms,hemighttakethecurrentwagesofsimilarworkintheneighbourhood:orhemightarguethattherewasascarcityofthatparticularclassoflabourintheneighbourhood,thatitscurrentwagestherewerehigherthaninotherpartsofEngland,andthatlookingforwardoverseveralyearssoastoallowforimmigration,hemighttakethenormalrateofwagesataratherlowerratethanthatprevailingthereatthetime.Orlastly,hemightthinkthatthewagesofweaversalloverthecountrywereabnormallylowrelativelytoothersofthesamegrade,inconsequenceofatoosanguineviewhavingbeentakenoftheprospectsofthetradehalfagen-erationago.Hemightarguethatthisbranchofworkwasovercrowded,thatparentshadalreadybeguntochooseothertradesfortheirchildrenwhichofferedgreaternetadvantagesandyetwerenotmoredifficult;thatinconsequenceafewyearswouldseeafalling-offinthesupplyoflaboursuitedforhispurpose;sothatlookingforwardalongtimehemusttakenormalwagesataratehigherthanthepresentaverage. 516TheMarginalRevolutionAgain,inestimatingthenormalsupplypriceofwool,hewouldtaketheaverageofseveralpastyears.Hewouldmakeallowanceforanychangethatwouldbelikelytoaffectthesupplyintheimmediatefuture;andhewouldreckonfortheeffectofsuchdroughtsasfromtimetotimeoccurinAustraliaandelsewhere;sincetheiroccurrenceistoocommontoberegardedasabnor-mal.Buthewouldnotallowhereforthechanceofourbeinginvolvedinagreatwar,bywhichtheAustraliansuppliesmightbecutoff;hewouldconsiderthatanyallowanceforthisshouldcomeundertheheadofextraordinarytraderisks,andnotenterintohisestimateofthenormalsupplypriceofwool.Hewoulddealinthesamewaywiththeriskofciviltumultoranyviolentandlong-continueddisturbanceofthelabourmarketofanunusualcharacter;butinhisestimateoftheamountofworkthatcouldbegotoutofthemachinery,etc.undernormalconditions,hewouldprobablyreckonforminorinterruptionsfromtradedisputessuchasarecontinuallyoccurring,andarethereforetoberegardedasbelongingtotheregularcourseofevents,thatisasnotabnormal.Inallthesecalculationshewouldnotconcernhimselfspeciallytoinquirehowfarmankindareundertheexclusiveinfluenceofselfishorself-regardingmotives.Hemightbeawarethatangerandvanity,jealousyandoffendeddignityarestillalmostascommoncausesofstrikesandlock-outs,asthedesireforpecuniarygain:butthatwouldnotenterintohiscalculations.Allthathewouldwanttoknowaboutthemwouldbewhethertheyactedwithsufficientregularityforhimtobeabletomakeareasonablygoodallowancefortheirinfluenceininterruptingworkandraisingthenormalsupplypriceofthegoods.2.Theelementoftimeisachiefcauseofthosedifficultiesineconomicinvestigationswhichmakeitnecessaryformanwithhislimitedpowerstogostepbystep;breakingupacomplexquestion,studyingonebitatatime,andatlastcombininghispartialsolutionsintoamoreorlesscompletesolutionofthewholeriddle.Inbreakingitup,hesegregatesthosedisturbingcauses,whosewanderingshappentobeinconvenient,forthetimeinapoundcalledCæterisParibus.Thestudyofsomegroupoftendenciesisisolatedbytheassumptionotherthingsbeingequal:theexis-tenceofothertendenciesisnotdenied,buttheirdisturbingeffectisneglectedforatime.Themoretheissueisthusnarrowed,themoreexactlycanitbehandled:butalsothelesscloselydoesitcorrespondtoreallife.Eachexactandfirmhandlingofanarrowissue,however,helpstowardstreatingbroaderissues,inwhichthatnarrowissueiscontained,moreexactlythanwouldother-wisehavebeenpossible.Witheachstepmorethingscanbeletoutofthepound;exactdiscus-sionscanbemadelessabstract,realisticdiscussionscanbemadelessinexactthanwaspossibleatanearlierstage.Ourfirststeptowardsstudyingtheinfluencesexertedbytheelementoftimeontherelationsbetweencostofproductionandvaluemaywellbetoconsiderthefamousfictionofthe‘Stationarystate’inwhichthoseinfluenceswouldbebutlittlefelt;andtocontrasttheresultswhichwouldbefoundtherewiththoseinthemodernworld.Thisstateobtainsitsnamefromthefactthatinitthegeneralconditionsofproductionandcon-sumption,ofdistributionandexchangeremainmotionless;butyetitisfullofmovement;foritisamodeoflife.Theaverageageofthepopulationmaybestationary;thougheachindividualisgrowingupfromyouthtowardshisprime,ordownwardstooldage.Andthesameamountofthingsperheadofthepopulationwillhavebeenproducedinthesamewaysbythesameclassesofpeopleformanygenerationstogether;andthereforethissupplyoftheappliancesforproductionwillhavehadfulltimetobeadjustedtothesteadydemand.Ofcoursewemightassumethatinourstationarystateeverybusinessremainedalwaysofthesamesize,andwiththesametradeconnection.Butweneednotgosofarasthat;itwillsufficetosupposethatfirmsriseandfall,butthatthe‘representative’firmremainsalwaysofaboutthesamesize,asdoestherepresentativetreeofavirginforest,andthatthereforetheeconomiesresultingfromitsownresourcesareconstant:andsincetheaggregatevolumeofproductionis Marshall:PrinciplesofEconomics517constant,soalsoarethoseeconomiesresultingfromsubsidiaryindustriesintheneighbourhood,etc.[Thatis,itsinternalandexternaleconomiesarebothconstant.Theprice,theexpectationofwhichjustinducedpersonstoenterthetrade,mustbesufficienttocoverinthelongrunthecostofbuildingupatradeconnection;andaproportionateshareofitmustbeaddedintomakeupthetotalcostofproduction.]Inastationarystatethentheplainrulewouldbethatcostofproductiongovernsvalue.Eacheffectwouldbeattributablemainlytoonecause;therewouldnotbemuchcomplexactionandreactionbetweencauseandeffect.Eachelementofcostwouldbegovernedby‘natural’laws,subjecttosomecontrolfromfixedcustom.Therewouldbenoreflexinfluenceofdemand;nofundamentaldifferencebetweentheimmediateandthelatereffectsofeconomiccauses.Therewouldbenodistinctionbetweenlong-periodandshort-periodnormalvalue,atalleventsifwesupposedthatinthatmonotonousworldtheharveststhemselveswereuniform:fortherepresen-tativefirmbeingalwaysofthesamesize,andalwaysdoingthesameclassofbusinesstothesameextentandinthesameway,withnoslacktimes,andnospeciallybusytimes,itsnormalexpensesbywhichthenormalsupplypriceisgovernedwouldbealwaysthesame.Thedemandlistsofpriceswouldalwaysbethesame,andsowouldthesupplylists;andnormalpricewouldnevervary.Butnothingofthisistrueintheworldinwhichwelive.Hereeveryeconomicforceiscon-stantlychangingitsaction,undertheinfluenceofotherforceswhichareactingaroundit.Herechangesinthevolumeofproduction,initsmethods,andinitscostareevermutuallymodifyingoneanother;theyarealwaysaffectingandbeingaffectedbythecharacterandtheextentofdemand.Furtherallthesemutualinfluencestaketimetoworkthemselvesout,and,asarule,notwoinfluencesmoveatequalpace.Inthisworldthereforeeveryplainandsimpledoctrineastotherelationsbetweencostofproduction,demandandvalueisnecessarilyfalse:andthegreatertheappearanceofluciditywhichisgiventoitbyskilfulexposition,themoremischievousitis.Amanislikelytobeabettereconomistifhetrustshiscommonsense,andpracticalinstincts,thanifheprofessestostudythetheoryofvalueandisresolvedtofinditeasy.3.TheStationarystatehasjustbeentakentobeoneinwhichpopulationisstationary.Butnearlyallitsdistinctivefeaturesmaybeexhibitedinaplacewherepopulationandwealtharebothgrowing,providedtheyaregrowingataboutthesamerate,andthereisnoscarcityofland:andprovidedalsothemethodsofproductionandtheconditionsoftradechangebutlittle;andaboveall,wherethecharacterofmanhimselfisaconstantquantity.Forinsuchastatebyfarthemostimportantconditionsofproductionandconsumption,ofexchangeanddistributionwillremainofthesamequality,andinthesamegeneralrelationstooneanother,thoughtheyareallincreasinginvolume.Thisrelaxationoftherigidbondsofapurelystationarystatebringsusonestepnearertotheactualconditionsoflife:andbyrelaxingthemstillfurtherwegetnearerstill.Wethusapproachbygradualstepstowardsthedifficultproblemoftheinteractionofcountlesseconomiccauses.Inthestationarystatealltheconditionsofproductionandconsumptionarereducedtorest:butlessviolentassumptionsaremadebywhatis,notquiteaccurately,calledthestaticalmethod.Bythatmethodwefixourmindsonsomecentralpoint:wesupposeitforthetimetobereducedtoastationarystate;andwethenstudyinrelationtoittheforcesthataffectthethingsbywhichitissurrounded,andanyten-dencytheremaybetoequilibriumoftheseforces.Anumberofthesepartialstudiesmayleadthewaytowardsasolutionofproblemstoodifficulttobegraspedatoneeffort.…5.Togooverthegroundinanotherway.Marketvaluesaregovernedbytherelationofdemandtostocksactuallyinthemarket;withmoreorlessreferenceto‘future’supplies,andnotwithoutsomeinfluenceoftradecombinations. 518TheMarginalRevolutionButthecurrentsupplyisinitselfpartlyduetotheactionofproducersinthepast;andthisactionhasbeendeterminedonastheresultofacomparisonofthepriceswhichtheyexpecttogetfortheirgoodswiththeexpensestowhichtheywillbeputinproducingthem.Therangeofexpensesofwhichtheytakeaccountdependsonwhethertheyaremerelyconsideringtheextraexpensesofcertainextraproductionwiththeirexistingplant,orareconsideringwhethertolaydownnewplantforthepurpose.Inthecase,forinstance,ofanorderforasinglelocomotive,whichwasdiscussedalittlewhileago,thequestionofreadjustingtheplanttodemandwouldhardlyarise:themainquestionwouldbewhethermoreworkcouldconvenientlybegotoutoftheexistingplant.Butinviewofanorderforalargenumberoflocomotivestobedeliveredgraduallyoveraseriesofyears,someextensionofplant‘specially’madeforthepurpose,andthereforetrulytoberegardedasprimemarginalcostswouldalmostcertainlybecarefullyconsidered.Whetherthenewproductionforwhichthereappearstobeamarketbelargeorsmall,thegeneralrulewillbethatunlessthepriceisexpectedtobeverylowthatportionofthesupplywhichcanbemosteasilyproduced,withbutsmallprimecosts,willbeproduced:thatportionisnotlikelytobeonthemarginofproduction.Astheexpectationsofpriceimprove,anincreasedpartoftheproductionwillyieldaconsiderablesurplusaboveprimecosts,andthemarginofpro-ductionwillbepushedoutwards.Everyincreaseinthepriceexpectedwill,asarule,inducesomepeoplewhowouldnototherwisehaveproducedanything,toproducealittle;andthose,whohaveproducedsomethingforthelowerprice,willproducemoreforthehigherprice.Thatpartoftheirproductionwithregardtowhichsuchpersonsareonthemarginofdoubtastowhetheritisworthwhileforthemtoproduceitattheprice,istobeincludedtogetherwiththatofthepersonswhoareindoubtwhethertoproduceatall;thetwotogetherconstitutethemarginalpro-ductionatthatprice.Theproducers,whoareindoubtwhethertoproduceanythingatall,maybesaidtoliealtogetheronthemarginofproduction(or,iftheyareagriculturists,onthemarginofcultivation).Butasaruletheyareveryfewinnumber,andtheiractionislessimportantthanthatofthosewhowouldinanycaseproducesomething.Thegeneraldriftofthetermnormalsupplypriceisalwaysthesamewhethertheperiodtowhichitrefersisshortorlong;buttherearegreatdifferencesindetail.Ineverycasereferenceismadetoacertaingivenrateofaggregateproduction;thatis,totheproductionofacertainaggregateamountdailyorannually.Ineverycasethepriceisthattheexpectationofwhichissuf-ficientandonlyjustsufficienttomakeitworthwhileforpeopletosetthemselvestoproducethataggregateamount;ineverycasethecostofproductionismarginal;thatis,itisthecostofpro-ductionofthosegoodswhichareonthemarginofnotbeingproducedatall,andwhichwouldnotbeproducedifthepricetobegotforthemwereexpectedtobelower.Butthecauseswhichdeterminethismarginvarywiththelengthoftheperiodunderconsideration.Forshortperiodspeopletakethestockofappliancesforproductionaspracticallyfixed;andtheyaregovernedbytheirexpectationsofdemandinconsideringhowactivelytheyshallsetthemselvestoworkthoseappliances.Inlongperiodstheysetthemselvestoadjusttheflowoftheseappliancestotheirexpectationsofdemandforthegoodswhichtheapplianceshelptoproduce.Letusexaminethisdifferenceclosely.6.Theimmediateeffectoftheexpectationofahighpriceistocausepeopletobringintoactiveworkalltheirappliancesofproduction,andtoworkthemfulltimeandperhapsovertime.Thesupplypriceisthenthemoneycostofproductionofthatpartoftheproducewhichforcestheundertakertohiresuchinefficientlabour(perhapstiredbyworkingovertime)atsohighaprice,andtoputhimselfandotherstosomuchstrainandinconveniencethatheisonthemar-ginofdoubtwhetheritisworthhiswhiletodoitornot.Theimmediateeffectoftheexpectationofalowpriceistothrowmanyappliancesforproductionoutofwork,andslackentheworkofothers;andiftheproducershadnofearofspoilingtheirmarkets,itwouldbeworththeirwhile Marshall:PrinciplesofEconomics519toproduceforatimeforanypricethatcoveredtheprimecostsofproductionandrewardedthemfortheirowntrouble.But,asitis,theygenerallyholdoutforahigherprice;eachmanfearstospoilhischanceofgettingabetterpricelateronfromhisowncustomers;or,ifheproducesforalargeandopenmarket,heismoreorlessinfearofincurringtheresentmentofotherproducers,shouldhesellneedlesslyatapricethatspoilsthecommonmarketforall.Themarginalproductioninthiscaseistheproductionofthosewhomalittlefurtherfallofpricewouldcause,eitherfromaregardtotheirowninterestorbyformalorinformalagreementwithotherproducers,tosuspendproduc-tionforfearoffurtherspoilingthemarket.Thepricewhich,forthesereasons,producersarejustonthepointofrefusing,isthetruemarginalsupplypriceforshortperiods.Itisnearlyalwaysabove,andgenerallyverymuchabovethespecialorprimecostforrawmaterials,labourandwear-and-tearofplant,whichisimmediatelyanddirectlyinvolvedbygettingalittlefurtheruseoutofapplianceswhicharenotfullyemployed.Thispointneedsfurtherstudy.Inatradewhichusesveryexpensiveplant,theprimecostofgoodsisbutasmallpartoftheirtotalcost;andanorderatmuchlessthantheirnormalpricemayleavealargesurplusabovetheirprimecost.Butifproducersacceptsuchordersintheiranxietytopreventtheirplantfrombeingidle,theyglutthemarketandtendtopreventpricesfromreviving.Infacthowevertheyseldompursuethispolicyconstantlyandwithoutmoderation.Iftheydid,theymightruinmanyofthoseinthetrade,themselvesperhapsamongthenumber;andinthatcasearevivalofdemandwouldfindlittleresponseinsupply,andwouldraiseviolentlythepricesofthegoodsproducedbythetrade.Extremevariationsofthiskindareinthelongrunbeneficialneithertoproducersnortoconsumers;andgeneralopinionisnotaltogetherhostiletothatcodeoftrademoralitywhichcondemnstheactionofanyonewho‘spoilsthemarket’bybeingtooreadytoacceptapricethatdoeslittlemorethancovertheprimecostofhisgoods,andallowsbutlittleonaccountofhisgeneralexpenses.Forexample,ifatanytimetheprimecost,inthenarrowestsenseoftheword,ofabaleofclothis£100;andifanother£100areneededtomaketheclothpayitsdueshareofthegeneralexpensesoftheestablishment,includingnormalprofitstoitsowners,thenthepracticallyeffec-tivesupplypriceisperhapsnotverylikelytofallbelow£150underordinaryconditions,evenforshortperiods;thoughofcourseafewspecialbargainsmaybemadeatlowerpriceswithoutmuchaffectingthegeneralmarket.Thus,althoughnothingbutprimecostentersnecessarilyanddirectlyintothesupplypriceforshortperiods,itisyettruethatsupplementarycostsalsoexertsomeinfluenceindirectly.Aproducerdoesnotoftenisolatethecostofeachseparatesmallparcelofhisoutput;heisapttotreataconsiderablepartofit,eveninsomecasesthewholeofit,moreorlessasaunit.Heinquireswhetheritisworthhiswhiletoaddacertainnewlinetohispresentundertakings,whetheritisworthwhiletointroduceanewmachineandsoon.Hetreatstheextraoutputthatwouldresultfromthechangemoreorlessasaunitbeforehand;andafterwardshequotesthelowestprices,whichheiswillingtoaccept,withmoreorlessreferencetothewholecostofthatextraoutputregardedasaunit.Inotherwordsheregardsanincreaseinhisprocessesofproduction,ratherthananindividualparcelofhisproducts,asaunitinmostofhistransactions.Andtheanalyticaleconomistmustfollowsuit,ifhewouldkeepinclosetouchwithactualconditions.Theseconsiderationstendtoblurthesharpnessofoutlineofthetheoryofvalue:buttheydonotaffectitssubstance.Tosumupthenasregardsshortperiods.Thesupplyofspecializedskillandability,ofsuitablemachineryandothermaterialcapital,andoftheappropriateindustrialorganizationhasnottimetobefullyadaptedtodemand;buttheproducershavetoadjusttheirsupplytothedemandasbesttheycanwiththeappliancesalreadyattheirdisposal.Ontheonehandthereisnottimemateriallytoincreasethoseappliancesifthesupplyofthemisdeficient;andontheother,ifthe 520TheMarginalRevolutionsupplyisexcessive,someofthemmustremainimperfectlyemployed,sincethereisnottimeforthesupplytobemuchreducedbygradualdecay,andbyconversiontootheruses.Variationsintheparticularincomederivedfromthemdonotforthetimeaffectperceptiblythesupply;anddonotdirectlyaffectthepriceofthecommoditiesproducedbythem.Theincomeisasurplusoftotalreceiptsoverprimecost;[thatis,ithassomethingofthenatureofarentaswillbeseenmoreclearlyinChapterVIII].Butunlessitissufficienttocoverinthelongrunafairshareofthegeneralcostsofthebusiness,productionwillgraduallyfalloff.Inthiswayacontrollinginfluenceovertherelativelyquickmovementsofsupplypriceduringshortperiodsisexercisedbycausesinthebackgroundwhichrangeoveralongperiod;andthefearof‘spoilingthemarket’oftenmakesthosecausesactmorepromptlythantheyotherwisewould.7.Inlongperiodsontheotherhandallinvestmentsofcapitalandeffortinprovidingthematerialplantandtheorganizationofabusiness,andinacquiringtradeknowledgeandspecial-izedability,havetimetobeadjustedtotheincomeswhichareexpectedtobeearnedbythem:andtheestimatesofthoseincomesthereforedirectlygovernsupply,andarethetruelong-periodnormalsupplypriceofthecommoditiesproduced.Agreatpartofthecapitalinvestedinabusinessisgenerallyspentonbuildingupitsinternalorganizationanditsexternaltradeconnections.Ifthebusinessdoesnotprosperallthatcapitalislost,eventhoughitsmaterialplansmayrealizeaconsiderablepartofitsoriginalcost.Andanyoneproposingtostartanewbusinessinanytrademustreckonforthechanceofthisloss.Ifhimselfamanofnormalcapacityforthatclassofwork,hemaylookforwarderelongtohisbusinessbeingarepresentativeone,inthesenseinwhichwehaveusedthisterm,withitsfairshareoftheeconomiesofproductiononalargescale.Ifthenetearningsofsucharepresentativebusinessseemlikelytobegreaterthanhecouldgetbysimilarinvestmentsinothertradestowhichhehasaccess,hewillchoosethistrade.Thusthatinvestmentofcapitalinatrade,onwhichthepriceofthecommodityproducedbyitdependsinthelongrun,isgovernedbyestimatesontheonehandoftheoutgoingsrequiredtobuildupandtoworkarepresentativefirm,andontheotheroftheincomings,spreadoveralongperiodoftime,tobegotbysuchaprice.Atanyparticularmomentsomebusinesseswillberisingandothersfalling:butwhenwearetakingabroadviewofthecauseswhichgovernnormalsupplyprice,weneednottroubleour-selveswiththeseeddiesonthesurfaceofthegreattide.Anyparticularincreaseofproductionmaybeduetosomenewmanufacturerwhoisstrugglingagainstdifficulties,workingwithinsuf-ficientcapital,andenduringgreatprivationsinthehopethathemaygraduallybuildupagoodbusiness.Oritmaybeduetosomewealthyfirmwhichbyenlargingitspremisesisenabledtoattainneweconomies,andthusobtainalargeroutputatalowerproportionatecost:and,asthisadditionaloutputwillbesmallrelativelytotheaggregatevolumeofproductioninthetrade,itwillnotmuchlowertheprice;sothatthefirmwillreapgreatgainsfromitssuccessfuladaptationtoitssurroundings.Butwhilethesevariationsareoccurringinthefortunesofindividualbusi-nesses,theremaybeasteadytendencyofthelong-periodnormalsupplypricetodiminish,asadirectconsequenceofanincreaseintheaggregatevolumeofproduction.8.Ofcoursethereisnohardandsharplineofdivisionbetween‘long’and‘short’periods.Naturehasdrawnnosuchlinesintheeconomicconditionsofactuallife;andindealingwithpracticalproblemstheyarenotwanted.Justaswecontrastcivilizedwithuncivilizedraces,andestablishmanygeneralpropositionsabouteithergroup,thoughnohardandfastdivisioncanbedrawnbetweenthetwo;sowecontrastlongandshortperiodswithoutattemptinganyrigiddemarcationbetweenthem.Ifitisnecessaryforthepurposesofanyparticularargumenttodivideonecasesharplyfromtheother,itcanbedonebyaspecialinterpretationclause:buttheoccasionsonwhichthisisnecessaryareneitherfrequentnorimportant.Fourclassesstandout.Ineach,priceisgovernedbytherelationsbetweendemandandsupply.Asregardsmarketprices,Supplyistakentomeanthestockofthecommodityinquestionwhichis Marshall:PrinciplesofEconomics521onhand,oratallevents‘insight’.Asregardsnormalprices,whenthetermNormalistakentorelatetoshortperiodsofafewmonthsorayear,Supplymeansbroadlywhatcanbeproducedforthepriceinquestionwiththeexistingstockofplant,personalandimpersonal,inthegiventime.Asregardsnormalprices,whenthetermNormalistorefertolongperiodsofseveralyears,Supplymeanswhatcanbeproducedbyplant,whichitselfcanberemunerativelyproducedandappliedwithinthegiventime;whilelastly,thereareverygradualorSecularmovementsofnormalprice,causedbythegradualgrowthofknowledge,ofpopulationandofcapital,andthechangingconditionsofdemandandsupplyfromonegenerationtoanother.…Notes1CompareV.I.I.TorepresenttheequilibriumofdemandandsupplygeometricallywemaydrawthedemandandsupplycurvestogetherasinFig.19.IfthenORrepresentstherateatwhichproductionisbeingactuallycarriedon,andEdthedemandpriceisgreaterthanRfthesupplyprice,theproductionisexceptionallyprofitable,andwillbeincreased.R,theamount-index,aswemaycallit,willmovetotheright.Ontheotherhand,ifRdislessthanRs,Rwillmovetotheleft.IfRdisequaltoRs,thatis,ifRisverti-callyunderapointofintersectionofthecurves,demandandsupplyareinequilibrium.yDdsS
sdSD
ORRxThismaybetakenasthetypicaldiagramforstableequilibriumforacommoditythatobeysthelawofdiminishingreturn.ButifwehadmadeSahorizontalstraightline,weshouldhaverepresentedthecaseof‘constantreturn’,inwhichthesupplypriceisthesameforallamountsofthecommodity.AndifwemadeSSinclinednegatively,butlesssteeplythanDD(thenecessityforthisconditionwillappearmorefullylateron),weshouldhavegotacaseofstableequilib-riumforacommoditywhichobeysthelawofincreasingreturn.Ineithercasetheabovereason-ingremainsunchangedwithoutthealterationofawordoraletter;butthelastcaseintroducesdifficultieswhichwehavearrangedtopostpone. EUGENVONBÖHM-BAWERK(1851–1914)EugenvonBöhm-BawerkwasborninViennaandeducatedinlawattheUniversitythere.HespenthiscareerasaprofessorattheuniversitiesofInnsbruckandVienna,sandwichedaroundfifteenyearsinthecivilservice,includingthreetoursofdutyasMinisterofFinance.Böhm-BawerkwasastaunchcriticofKarlMarxand,withFriedrichvonWieser,didagreatdealtopopularizetheAustrianapproachtoeconomics,originallydevel-opedatthehandsofMenger.Hissignalcontributionsarehistheoriesofcapitalandinterest,andthesearebuiltuponthenotionof“roundaboutness”–theideathattheinvestmentofphysicalcapitallength-enstheproductionprocessandpositivelyimpactsproductivity.Böhm-Bawerkwasoneofthefirsttotreattheeconomicproblemsintroducedbythepassageoftimeinasignificantwayandasacentralbuildingblockofthethe-ory.Beyondtheobviousfactthatround-aboutnessintroducesanintertemporalEugenvonBöhm-Bawerk,bycourtesyofTheWarrenJ.Samuelselement,Böhm-BawerkpointedoutthatPortraitCollectionatDukeUniversity.manyconsumptionandproductionactivi-tiesinvariablyoccurovertimeand/orrequireachoicebetweenpresentandfutureactivities.Hearguedthatthereisasystematictendencyonthepartofeconomicagentstoexcessivelyfavorthepresentoverthefuture,therebymakinginterestratespositive.First,marginalutilityofincomeisdecliningovertimebecausetheyexpecthigherincomesinthefuture.Second,themarginalutilityofacommoditydiminishesthegreateristhelengthoftimethatpassesbeforeitwillbeavailabletotheagent.Takentogether,thesetwoideasindicateapositiverateoftimepreference,whichrequiresthepaymentofinterestinreturnforthedeferralofactivities–productiveorconsumptive–intothefutureandthewillingnesstopayinterestinordertocommandtheseactivitiesinthepresentratherthaninthefuture.ThethirdrationaleforapositiverateofinterestinBöhm-Bawerk’sanalysisiswhathecalls“thetechnicalsuperiorityofpresentoverfuturegoods”andisderivedfromhis EugenvonBöhm-Bawerk523theoryofroundaboutness.Greateramountsofcapitalimplygreaterroundaboutness,bothlength-eningtheproductionperiodandincreasingtheamountofthefinalproduct.Thisincreaseinpro-ductivityassociatedwithcapital,then,wouldresultinapositiverateofinterestevenapartfromthefirsttwoissuesoftimepreference.ThefollowingexcerptsfromBöhm-Bawerk’sThePositiveTheoryofCapitallayouthisnotionofroundaboutnessinproduction,hisideasregardingtheevaluationofpresentversusfutureactivi-ties,andhistheoryofthedeterminationoftherateofinterest.ReferencesandfurtherreadingBlaug,Mark,ed.(1992)EugenvonBöhm-Bawerk(1851–1914)andFriedrichvonWieser(1851–1926),Aldershot:EdwardElgarPublishing.Böhm-Bawerk,Eugenvon(1884)CapitalandInterest,London:Macmillan,1890.——(1896)KarlMarxandtheCloseofHisSystem,London:FisherUnwin,1898.——(1962)ShorterClassics,SouthHolland,IL:LibertarianPress.Dorfman,Robert(1959)“AGraphicalExpositionofBöhm-Bawerk’sInterestTheory,”ReviewofEconomicStudies26(February):153–58.——(1959)“WaitingandthePeriodofProduction,”QuarterlyJournalofEconomics73(August):351–72.Faber,M.(1979)IntroductiontoModernAustrianCapitalTheory,Berlin:Springer.Garrison,RogerW.(1990)“AustrianCapitalTheory:TheEarlyControversies,”HistoryofPoliticalEconomy22(Supplement):133–54.Hennings,K.H.(1987)“Böhm-Bawerk,Eugenvon,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.1,London:Macmillan,254–59.——(1997)TheAustrianTheoryofValueandCapital:StudiesintheLifeandWorkofEugenvonBöhm-Bawerk,Aldershot:EdwardElgar.Kuenne,R.E.(1971)EugenvonBöhm-Bawerk,NewYork:ColumbiaUniversityPress. ThePositiveTheoryofCapital(1888)*BookI:ThenatureandconceptionofcapitalChapterII:ThenatureofcapitalTheendandaimofallproductionisthemakingofthingswithwhichtosatisfyourwants;thatistosay,themakingofgoodsforimmediateconsumption,orConsumptionGoods.Themethodoftheirproductionwehavealreadylookedatinageneralway.Wecombineourownnaturalpow-ersandnaturalpowersoftheexternalworldinsuchawaythat,undernaturallaw,thedesiredmaterialgoodmustcomeintoexistence.Butthisisaverygeneraldescriptionindeedofthemat-ter,andlookingatitclosertherecomesinsightanimportantdistinctionwhichwehavenotasyetconsidered.Ithasreferencetothedistancewhichliesbetweentheexpenditureofhumanlabourinthecombinedproductionandtheappearanceofthedesiredgood.Weeitherputforthourlabourjustbeforethegoalisreached,orwe,intentionally,takearoundaboutway.Thatistosay,wemayputforthourlabourinsuchawaythatitatoncecompletesthecircleofconditionsnec-essaryfortheemergenceofthedesiredgood,andthustheexistenceofthegoodimmediatelyfol-lowstheexpenditureofthelabour;orwemayassociateourlabourfirstwiththemoreremotecausesofthegood,withtheobjectofobtaining,notthedesiredgooditself,butaproximatecauseofthegood;whichcause,again,mustbeassociatedwithothersuitablematerialsandpow-ers,till,finally,–perhapsthroughaconsiderablenumberofintermediatemembers,–thefin-ishedgood,theinstrumentofhumansatisfaction,isobtained.Thenatureandimportanceofthisdistinctionwillbebestseenfromafewexamples;and,asthesewill,toaconsiderableextent,formademonstrationofwhatisreallyoneofthemostfundamentalpropositionsinourtheory,Imustriskbeingtedious.Apeasantrequiresdrinkingwater.Thespringissomedistancefromhishouse.Therearevariouswaysinwhichhemaysupplyhisdailywants.First,hemaygotothespringeachtimeheisthirsty,anddrinkoutofhishollowedhand.Thisisthemostdirectway;satisfactionfollowsimmediatelyonexertion.Butitisaninconvenientway,forourpeasanthastotakehiswaytothewellasoftenasheisthirsty.Anditisaninsufficientway,forhecannevercollectandstoreanygreatquantitysuchasherequiresforvariousotherpurposes.Second,hemaytakealogofwood,hollowitoutintoakindofpail,andcarryhisday’ssupplyfromthespringtohiscottage.Theadvantageisobvious,butitnecessitatesaroundaboutwayofconsiderablelength.Themanmustspend,perhaps,adayincuttingoutthepail;beforedoingsohemusthavefelledatreeinthefor-est;todothis,again,hemusthavemadeanaxe,andsoon.Butthereisstillathirdway;insteadoffellingonetreehefellsanumberoftrees,splitsandhollowsthem,laysthemendforend,and*Eugenv.Böhm-Bawerk,ThePositiveTheoryofCapital,translatedwithaprefaceandanalysisbyWilliamSmart,1891.ReprintedNewYork:G.E.Stechert&Co.,1930. Böhm-Bawerk:ThePositiveTheoryofCapital525soconstructsarunnelorrhonewhichbringsafullheadofwatertohiscottage.Here,obviously,betweentheexpenditureofthelabourandtheobtainingofthewaterwehaveaveryround-aboutway,but,then,theresultiseversomuchgreater.Ourpeasantneedsnolongertakehiswearywayfromhousetowellwiththeheavypailonhisshoulder,andyethehasaconstantandfullsupplyofthefreshestwaterathisverydoor.Anotherexample.Irequirestoneforbuildingahouse.Thereisarichveinofexcellentsand-stoneinaneighbouringhill.Howisittobegotout?First,Imayworktheloosestonesbackandforwardwithmybarefingers,andbreakoffwhatcanbebrokenoff.Thisisthemostdirect,butalsotheleastproductiveway.Second,Imaytakeapieceofiron,makeahammerandchiseloutofit,andusethemonthehardstone–aroundaboutway,which,ofcourse,leadstoaverymuchbetterresultthantheformer.Thirdmethod–HavingahammerandchiselIusethemtodrillaholeintherock;nextIturnmyattentiontoprocuringcharcoal,sulphur,andnitre,andmixingtheminapowder,thenIpourthepowderintothehole,andtheexplosionthatfollowssplitsthestoneintoconvenientpieces–stillmoreofaroundaboutway,butonewhich,asexperienceshows,isasmuchsuperiortothesecondwayinresultasthesecondwastothefirst.Yetanotherexample.Iamshort-sighted,andwishtohaveapairofspectacles.ForthisIrequiregroundandpolishedglasses,andasteelframework.Butallthatnatureofferstowardsthatendissiliciousearthandironore.HowamItotransformtheseintospectacles?WorkasImay,itisasimpossibleformetomakespectaclesdirectlyoutofsiliciousearthasitwouldbetomakethesteelframesoutofironore.Herethereisnoimmediateordirectmethodofproduc-tion.Thereisnothingforitbuttotaketheroundaboutway,and,indeed,averyroundaboutway.Imusttakesiliciousearthandfuel,andbuildfurnacesforsmeltingtheglassfromthesiliciousearth;theglassthusobtainedhastobecarefullypurified,worked,andcooledbyaseriesofprocesses;finally,theglassthusprepared–againbymeansofingeniousinstrumentscarefullyconstructedbeforehand–isgroundandpolishedintothelensfitforshort-sightedeyes.Similarly,Imustsmelttheoreintheblastfurnace,changetherawironintosteel,andmaketheframetherefrom–processeswhichcannotbecarriedthroughwithoutalongseriesoftoolsandbuild-ingsthat,ontheirpartagain,requiregreatamountsofpreviouslabour.Thus,byanexceedinglyroundaboutway,theendisattained.Thelessontobedrawnfromalltheseexamplesalikeisobvious.Itis–thatagreaterresultisobtainedbyproducinggoodsinroundaboutwaysthanbyproducingthemdirectly.Whereagoodcanbeproducedineitherway,wehavethefactthat,bytheindirectway,agreaterproductcanbegotwithequallabour,orthesameproductwithlesslabour.But,beyondthis,thesuperi-orityoftheindirectwaymanifestsitselfinbeingtheonlywayinwhichcertaingoodscanbeobtained;ifImightsayso,itissomuchthebetterthatitisoftentheonlyway!Thatroundaboutmethodsleadtogreaterresultsthandirectmethodsisoneofthemostimportantandfundamentalpropositionsinthewholetheoryofproduction.Itmustbeemphati-callystatedthattheonlybasisofthispropositionistheexperienceofpracticallife.Economictheorydoesnotandcannotshowapriorithatitmustbeso;buttheunanimousexperienceofallthetechniqueofproductionsaysthatitisso.Andthisissufficient;allthemorethatthefactsofexperiencewhichtellusthisarecommonplaceandfamiliartoeverybody.Butwhyisitso?Theeconomistmightquitewelldeclinetoanswerthisquestion.Forthefactthatagreaterproductisobtainedbymethodsofproductionthatbeginfarbackisessentiallyapurelytechnicalfact,andtoexplainquestionsoftechniquedoesnotfallwithintheeconomist’ssphere.Forinstance,thattropicallandsaremorefruitfulthanthepolarzone;thatthealloyofwhichcoinsismadestandsmorewearandtearthanpuremetal;thatarailroadisbetterfortransportthananordinaryturn-pikeroad;–allthesearemattersoffactwithwhichtheeconomistreckons,butwhichhissciencedoesnotcallonhimtoexplain.Butthisisexactlyoneofthosecaseswhere,intheeconomist’sowninterest–theinteresthehasinlimitinganddefininghisowntask–itisexceedinglydesirabletogo 526TheMarginalRevolutionbeyondthespecificeconomicsphere.Ifthesoberphysicaltruthisoncemadeclear,politicaleconomycannotindulgeinanyfanciesorfictionsaboutit;and,insuchquestions,politicaleconomyhasneverbeenbehindinthedesireandtheattempttosubstituteitsownimaginings!Although,then,thislawisalreadysufficientlyaccreditedbyexperience,Iattachparticularvaluetoexplainingitscause,and,afterwhathasbeensaidastothenatureofproduction,thisshouldnotbeverydifficult.Inthelastresortallourproductiveeffortsamounttoshiftingsandcombinationsofmatter.Wemustknowhowtobringtogethertherightformsofmatterattherightmoment,inorderthatfromthoseassociatedforcesthedesiredresult,theproductwanted,mayfollow.But,aswesaw,thenaturalformsofmatterareoftensoinfinitelylarge,oftensoinfinitelyfine,thathumanhandsaretooweakortoocoarsetocontrolthem.Weareaspowerlesstoovercomethecohesionofthewallofrockwhenwewantbuildingstoneasweare,fromcarbon,nitrogen,hydrogen,oxygen,phosphor,potash,etc.,toputtogetherasinglegrainofwheat.Butthereareotherpowerswhichcaneasilydowhatisdeniedtous,andthesearethepowersofnature.Therearenaturalpowerswhichfarexceedthepossibilitiesofhumanpoweringreatness,andthereareothernaturalpow-ersinthemicroscopicworldwhichcanmakecombinationsthatputourclumsyfingerstoshame.Ifwecansucceedinmakingthoseforcesouralliesintheworkofproduction,thelimitsofhumanpossibilitywillbeinfinitelyextended.Andthiswehavedone.Theconditionofoursuccessis,thatweareabletocontrolthematerialsonwhichthepowerthathelpsusdepends,moreeasilythanthematerialswhicharetobetransformedintothedesiredgood.Happilythisconditioncanbeveryoftencompliedwith.Ourweakyieldinghandcannotovercomethecohesionoftherock,butthehardwedgeofironcan;thewedgeandthehammertodriveitwecanhappilymasterwithlittletrouble.Wecannotgathertheatomsofphosphorusandpotashoutoftheground,andtheatomsofcarbonandoxygenoutoftheatmosphericair,andputthemtogetherintheshapeofthecornofwheat;buttheorganicchem-icalpowersoftheseedcanputthismagicalprocessinmotion,whileweonourpartcanveryeas-ilyburytheseedintheplaceofitssecretworking,thebosomoftheearth.Often,ofcourse,wearenotabledirectlytomastertheformofmatteronwhichthefriendlypowerdepends,butinthesamewayaswewouldlikeittohelpus,dowehelpourselvesagainstit;wetrytosecuretheallianceofasecondnaturalpowerwhichbringstheformofmatterthatbearsthefirstpowerunderourcontrol.Wewishtobringthewellwaterintothehouse.Woodenrhoneswouldforceittoobeyourwill,andtakethepathweprescribe,butourhandshavenotthepowertomaketheforesttreesintorhones.Wehavenotfartolook,however,foranexpedient.Weaskthehelpofasecondallyintheaxeandthegouge;theirassistancegivesustherhones;thentherhonesbringusthewater.Andwhatinthisillustrationisdonethroughthemediationoftwoorthreemembersmaybedone,withequalorgreaterresult,throughfive,ten,ortwentymembers.Justaswecon-trolandguidetheimmediatematterofwhichthegoodiscomposedbyonefriendlypower,andthatpowerbyasecond,socanwecontrolandguidethesecondbyathird,thethirdbyafourth,this,again,byafifth,andsoon,–alwaysgoingbacktomoreremotecausesofthefinalresult–tillintheserieswecomeatlasttoonecausewhichwecancontrolconvenientlybyourownnat-uralpowers.Thisisthetrueimportancewhichattachestoourenteringonroundaboutwaysofproduction,andthisisthereasonoftheresultassociatedwiththem:everyroundaboutwaymeanstheenlistinginourserviceofapowerwhichisstrongerormorecunningthanthehumanhand;everyextensionoftheroundaboutwaymeansanadditiontothepowerswhichenterintotheserviceofman,andtheshiftingofsomeportionoftheburdenofproductionfromthescarceandcostlylabourofhumanbeingstotheprodigalpowersofnature.Andnowwemayputintowordsanideawhichhaslongwaitedforexpression,andmustcertainlyhaveoccurredtothereader;thekindofproductionwhichworksinthesewisecircuitousmethodsisnothingelsethanwhateconomistscallCapitalistProduction,asopposedtothat Böhm-Bawerk:ThePositiveTheoryofCapital527productionwhichgoesdirectlyatitsobject,astheGermanssay,‘mitdernacktenFaust’.AndCapitalisnothingbutthecomplexofintermediateproductswhichappearontheseveralstagesoftheroundaboutjourney.ItisinthiswayIinterpretthemostimportantfundamentalconceptioninthetheoryofcapital,andIshouldbeverygladtostophere.But,likesomanyotherconceptionsinthetheoryofcapital,thisconceptionofcapitalitselfhasbecomeaveritableappleofdiscordtothetheo-rists.Aperfectlyamazingnumberofdivergentinterpretationshereconfronteachother,andblocktheapproachtothetheoryofcapitalwithoneofthemostvexatiouscontroversiesinwhichoursciencecouldbeinvolved.Thisuncertaintyastotheconceptionofcapital,badenoughinitself,becomesworseinproportionasCapitalgivesmodernsciencenewquestionstoconsideranddiscuss.Itiscertainlyveryunfortunatewhenasciencealreadyearnestly,evenacrimoniouslyengagedonthesolutionofquestionswhichaffectsocietytoitsdepths–questionswhichalltheworldknows,ponders,anddiscussesasthegreat‘problemsofcapital’–isstruck,asitwere,byasecondconfusionoftongues,andbecomesinvolvedinanendlesswrangleastowhatkindofthingitisthatproperlyiscalledCapital!Suchacontroversyatsuchapointismorethanembar-rassing;itisacalamity;andhasbeenfoundsointhehistoryofPoliticalEconomy.Almosteveryyearthereappearssomenewattempttosettlethedisputedconception,but,unfortunately,noauthoritativeresulthasasyetfollowedtheseattempts.Onthecontrary,manyofthemhaveonlyservedtoputmorecombatantsinthefieldandfurnishmoremattertothedispute.Iconfessthat,tome,thesettlementoftherealproblemsconnectedwiththenameofcapitalseemsmoreimportant,andcertainlyismoreattractive,thanthecataloguingofcontroversiesastotheproperuseoftheword.Allthesamethefactremainsthattheconfusionaboutthenamehasbroughtagreatamountofconfusionintothematter;and,again,itmightbeopentomisconstruc-tion–andnotwithoutreason,–iftheauthorofasomewhatcomprehensiveworkoncapitalweretopassoverthediscussionofwhatiscertainlythemostnoisy,ifnotthemostweightycontroversyaboutcapital.OnthesetwoaccountsIfeelobligedagaintotreadtheheatedpathofcontroversy,inthehopethatimpartialandsoberinquiryintothematterindisputemaysucceedinendingit.ChapterIV:Thetrueconceptionofcapital…CapitalingeneralweshallcallagroupofProductswhichserveasmeanstotheAcquisitionofGoods.UnderthisgeneralconceptionweshallputthatofSocialCapitalasanarrowerconception.SocialCapitalweshallcallagroupofproducts,whichserveasmeanstothesocio-economicalAcquisitionofGoods;or,asthisacquisitionisonlypossiblethroughproduction,weshallcallitagroupofproductsdestinedtoservetowardsfurtherproduction;or,briefly,agroupofIntermediateProducts.Synonymouswiththewiderofthetwoconceptions,thetermAcquisitiveCapitalmaybeverysuitablyused,or,lesssuitablybutmoreinaccordancewithusagethetermPrivateCapital.SocialCapitalagain,thenarrowerofthetwoconceptions,maybewellandconciselycalledProductiveCapital.Thefollowingaremyreasonsforthisclassification.Capitalinitswidersense,andcapitalinitsnarrowersense,bothmarkoutcategorieswhich,economically,areofthehighestimportance.‘Productswhichservetoacquisitiveends’possessapre-eminentimportanceforthetheoryofincomeasbeingthesourceofinterest;whilethe‘inter-mediateproducts’possessatleastasgreatanimportanceforthetheoryofproduction.Thedis-tinctionbetweenproductionfromhandtomouthandproductionwhichemploysroundaboutandfruitfulmethods,issofundamentalthatitiseminentlydesirablethataspecialconceptionshouldbecoinedforthelatter.Thisisdone–ifnot,asweshallsee,intheonlypossibleway,yetinawaythatisnotinappropriate–ingroupingtogether,undertheconceptionofcapital,the‘intermediateproducts’whichcomeintoexistenceinthecourseofthisroundaboutproduction. 528TheMarginalRevolutionAgain,thesolutionsuggestedisthemostconservativeone.WithoutlayinganyparticularweightonthefactthatthehistoricaloriginofthewordCapitalindicatesarelationtoanacquisitionoragain,andthatourreadingremainstruetothis,itpreservesthedoublerelation–therelationtoacquisitionofinterestontheoneside,andtoproductionontheother–whichwasimportedintotheconceptionofcapitalbyAdamSmith,andsincehistimehasbeenadoptedinscientificusage.Itisnoinconsiderableadvantage,then,thatwedonotrequiretocreateamajorityinitsfavourbyarevolutioninterminology;themajorityisalreadywithus,andtheconceptionmayeasilybecar-riedunanimouslyifweaddsomenewunbiassedmembers.Here,too,itisworthyofparticularattentionthatthosewriterswhohaveoccupiedthemselvesprofessedlyandmostprofoundlywiththeinvestigationoftheconceptionofcapitalanditsproblems,haveended,almostwithoutexcep-tion,byadoptingexactlythesameconception,oratleastonewhichcomesveryclosetoit.Connectedwiththisisthefurtheradvantage,thatweavoidapuzzlingchangeofnameforthetwoclassesofproblemswhicharebothtreatedofnowunderthenameofproblemsofcapital.Thepopularnameisretainedbothforthe‘factorofproduction’andforthe‘sourceofinterest’.Andfinally,itseemstomenosmalladvantagethat,notwithstandingthematerialdifferencethereisbetweencapitalthefactorofproduction,andcapitalthesourceofinterest,itisnotnecessaryinourreadingofittomaketwoconceptionsofcapitalthatareentirelyforeigntooneanother,andhavenothingmoreincommonthancathaswithcategory.Ourtwoconceptionshavejustenoughincommontoallowoftheirbeingformallycoupledunderonecommondefinition,andthendistinguishedasnarrowerandwiderconceptions.True,theirconnectionisnotanintimateone,andinthelightofwhathasbeensaiditcannotbeso;itrestssimplyontheaccidentalcir-cumstancethat,forsocietyasawhole,whichcannotacquireexceptthroughproducing,thegoodswhichconstitutetheproducedmeansofacquisition(capitalinthewidersense)coincidewiththegoodswhichconstitutetheproducedmeansofproduction(capitalinthenarrowersense,orSocialCapital).ItwillbenotedthatIusethephraseSocialCapital,andnotthecommonexpres-sionNationalCapitalIdosoforthisreason,that,foralimitedcommunity,themeansofacquisi-tionembracenotonlyproductivegoodsbutconsumptiongoodslenttoforeigncountries.ThosewhoholdbytheconceptionofNationalCapital,then,musteithertakeintheabove-namedconsumptiongoodsalongwithproductivegoods,therebyarrivingataveryuninterestingcon-ceptionindeed;oriftheymeantoconfineittoproductivegoodsonly,theymustbuildtheirnationalconceptiononaquiteindependentbasis,andbreakoffalllogicalconnectionwiththeotherconception,–whichwouldatanyratebeadoubtfulpolicy.Our‘SocialCapital’avoidsboththesedifficulties.BookV:PresentandfutureChapterI:PresentandfutureineconomiclifePresentgoodsare,asarule,worthmorethanfuturegoodsoflikekindandnumber.Thispropo-sitionisthekernelandcentreoftheinteresttheorywhichIhavetopresent.Allthelinesofexpla-nation,bywhichIhopetoelucidatethephenomenaofinterest,runthroughthisfact;androundit,bothessentiallyandsuperficially,isgroupedthewholeofthetheoreticalworkwehavetodo.Thefirstpartofourexplanationwilltrytoprovethetruthoftheproposition;thesecondwillthenshowthat,outofthefact,spring,naturallyandnecessarily,allthemanifoldformswhichthephenomenaofinteresttake.Inthepresentbookwehavetotakeupthefirstpart,andIshalltrytogointoitwiththatminutenesswhichisduetothecardinalimportanceofsuchaproposition.Tothisendweshall,firstofall,makeageneralsurveyoftherelationsbetweenpresentandfutureinhumaneconomy–asubject,obviously,ofthehighestimportance,butonewhich,strangelyenough,hasuptillnowattractedbutscantyscientificattention. Böhm-Bawerk:ThePositiveTheoryofCapital529Inthepresentweliveandmove,butourfutureisnotamatterofindifferencetous,andourdesiresare,withreason,directedtowardsawell-beingnotlimitedbythepresent.Itisonlyasthelogicalcarryingoutofthisgeneralprinciplethatwesetbeforeus,inoureconomicalarrangements,thelargerobjectofprovidingforourfutureaswellasforourpresentwell-being.Asafact,thefuturehasagreatplaceinoureconomicalprovision;agreater,indeed,thanpeopleusuallythink.Itis,ofcourse,acommonplace,but,allthesame,itisatruthseldomseeninallitsbearings,thatoureco-nomicalconducthasexceedinglylittlereferencetothepresent,butis,almostentirely,takenupwiththefuture.Letusclearlyunderstandwhatthislatterstatementmeans.Itmeansthatouranxietyinthepresentistohaveatourdisposal,inthefuture,meansforthesatisfactionofwantsthatwillnotemergetillthefuture.Inotherwords,itmeansthatpleasuresorpains,whichwewillonlyexperi-enceinthefuture,determineusnowtoprovidegoodsorservices,which,again,willonlyasserttheiruseinthefuture.Buthowisitpossiblethatfeelingswhicharenotyetfelt,andthereforefeelingswhich,essentially,donotexist,canbemotivestowillanddeed?Now,asasuggestivewriterhassaid,wedonotindeedpossessthegiftoffeelingfuturesensa-tions,butwepossesstheothergiftofanticipatingtheminimagination.Eitheritisthatwehavealreadyinthepast,onceormanytimes,experiencedthesamewantasweexpectinthefuture,andretainapictureofitinourmemory;or,atleast,wehavealreadyexperiencedwantsorfeelingsthatbearacertainresemblancetothefeelingsweareexpecting,andcan,fromsuchanal-ogousreminiscences,constructforourselvesanimaginativepicturewhichismoreorlesstrue.Onsuchpicturesofmemoryandimaginationwebaseoureconomicalcalculationsandoureconomicaldecisions.Certainly,asmanyaonewillbeapttoobject,itisanunsafeanddeceptivefoundation,but,allthesame,itisalmosttheonlyonethatwehave.Itistherarestpossiblethingforustobaseavaluationofgoods,oraneconomicaldecision,onapainthatwearefeelingattheverymoment.Itis,indeed,oneofthecharacteristicsofacivilisedcommunitythatitanticipateswantbyprovidingforit,anddoesnotallowthepainofemptiness,whichtheunsatisfiedwantwouldinvolve,togettoitsfullheight.Wedonotbegintoprepareourmealswhenhungerhasreacheditshighestpointoftorment:wedonotwaittillthefloodhasoverwhelmedhouseandhomebeforewethinkofputtingupthedam:wedonotdelaybuildingthefire-enginetilltheflameshavebrokenoverus.Atthemomentwhenwedecideonaneconomicalaction,thewantswhichcauseustomakethedecisionare,almostalways,inthefuture,andso,howevernearthatfuturemaybe,theyareactingonus,notasactualfeelings,butassimpleanticipations.Howmanyamanhasnever,eveninthepast,fullyfeltthewantwhichmakeshimvaluethegoodshedailyuses!Howmanyrichpeopleknowonlyfromhearsaywhatrealhungeris!Henceitisobviousthat,howeverdeceitfulandunsafethisgiftofanticipationmaybe,andhoweverfarastrayitmayleadusinindividualcases,westillhaveeverycausetobeheartilythankfulthatwehaveit.Otherwise,neitheractuallyfeelingthefuturewants,noryetforewarnedofthembyanticipation,wecouldnot,ofcourse,providefortheminadvance;oncewanthadmadeitselffelt,anymeasureswecouldtakewouldbemiserablyinadequatetoprovideforit;and,poorerthanthepoorestsavages,weshoulddragoutahazardoushand-to-mouthexistence.Buteconomicalactionmeanssomethingmorethanthinkinggenerallyaboutthewantswhicharetobeprovidedfor.As,indeed,alleconomisingarisesfromthequantitativeinsufficiencyofthemeansofsatisfactionascomparedwiththewantsrequiringsatisfaction,soitdemandsacon-stantselection,aconstantchoosingbetweenthosewantswhichcanandshouldbeprovidedfor,andthoseotherswhichcannotbeprovidedfor.Theselectionnaturallyproceedsonacomparisonoftheimportanceandurgency–or,aswemaysay,theintensity–ofthefeelingsofpleasureandpainwhichareassociatedwithindividualwantsandtheirsatisfaction.Now,ifitisseldomthat,inthemomentofaneconomicaldecision,weactuallyfeelthatonewanttowhichitrefers,itismuchmoreseldomthat,onthemomentofourchoice,weexperience,asactualfeelings,allthose 530TheMarginalRevolutionsensationsofpleasureandpainbetweenwhichwehavetochoose.Ourcomparisonsmust,almostinvariably,be,partiallyandveryoftencompletely,madeonimaginativeanticipationswhichwemakeoffuturefeelings.AndthisleadsustoafactwhichIshouldliketoemphasise:Thefuturefeelingsweimaginearecommensurable.Theyarecommensurablewithpresentactu-allyfeltsensations,andtheyarecommensurablewithoneanother,andthattoowithoutreferencetowhethertheybelongtothesameortodifferentlevelsoftime.ItisaseasyformetochoosebetweenapleasurewhichseemsdesirableatthemomentandanotherpleasurewhichIcanobtainineightdays,asbetweentwodifferentpleasureswhicharebothobtainableineightdays,or,again,asbetweentwopleasuresofwhichtheoneisobtainableineightdays,theotherineightmonths,oreightyears.Thefactthatweborrowfromfuturesensationsthemotiveforourpresentactions,isonesideofourconnectionwiththefuture.Anothersideisthat,byourpresentactions,wepreparegoodsormaterialservicesforthebenefitofthefuture.Ifweanalysethetotalityofgoodswhichconsti-tutesourwealthweshallfindthatbyfarthegreaterparthasthecharacterofwhat,forwantofabettername,wemaycall‘futuregoods’(Zukunftsgüter).Allproductivegoods,withoutexception,aredestinedaltogethertotheserviceofthefuture.Durableconsumptiongoodsgiveoffonlyafractionoftheirmaterialservicesinthepresent,andalltheremainderinthefuture.Ifadwelling-house,forinstance,remainsoccupiedforahundredyears,andaffordsshelterandcomfortallthattime,onlyaninfinitesimalfractionoftheseservicesisrenderedtoday;astillverysmallfractionisrenderedinthepresentyear;thegreatbulkoftheserviceisspreadoverremotefutureperiods.Eveninthecaseofthoseperishablegoods,suchasmeatanddrink,woodandcandles,whichwekeepreadyforimmediateconsumptioninourdomesticeconomy,onlyoneportionoftheiruseis,strictlyspeaking,devotedtotheserviceofthemoment;thegreaterpartiscarriedoverintothefuture,althoughitmaybetheimmediatefuture.As,amongourmotives,futurefeelingsarethedominantones,so,amongthegoodswepossessanduse,‘futuregoods’occupythelargerplace.Andthereisyetanotherimportantanalogy.Asfuturefeelings,whethertheybelongtothenearortothefarfuture,arecommensurable,alikewithoneanotherandwithpresentfeelings,soarefuturegoodscommensurable,alikewithoneanotherandwithpresentgoods.Wecancomparethevalueofacamelliawhichfadesinanhour,withthatofaticketforanextweek’sconcert,orwiththatofabunchofnextyear’sroses;orwecangiveoneofthesegoodsfortheother.Itmakesnodifferencetothematterwhetherthe‘futuregood’,whichwecompareorbarter,isathandandreadyfordeliverynow,orwhetheritisrepresentedinbodilyshapebynothingmorethanthemeansofproductionoutofwhichitwillcome,orwhether,atthemoment,itisneitheritselfreadynoriscapableofbeingpalpablyrepresented–is,thatistosay,a‘futuregood’,inthenar-rowestandstrictestsenseofthatword.Thuswegivepresentmoneyinexchange,notonlyforthepresentconsumptiongoodBread,butalsoforthepresentproductivegoodMeal,inwhichthefuturegood,bread,liesconcealed.Butjustaseasilycanwebuyfromafarmer,formoneydown,hisnextyear’sharvest.In‘reservedseats’webuythefutureservicesofactorsandsingers.Inbuy-ingConsolswegiveourpresentmoneyforaseriesoffuturepayments.Futuregoodsandservicesaretous–Ihavecausetoemphasisethis–entirelyfamiliarobjectsofeconomicdealing,justasfuturefeelingsareentirelyfamiliareconomicmotives.Bothhavetheirultimategroundinthecontinuityofourpersonallife.Whatweshallexperienceinaweekorayearhenceaffectsusnotlessthanwhatweexperiencetoday,andhas,therefore,equalclaimstobeconsideredinoureconomicarrangements.Botharrangementshavefortheirendourwell-being.Whetherthistheoreticallysimilarclaimoffutureandpresentisalwaysfullyrecognisedinpracticallife,isanotherquestionwhichwillrequiremuchconsideration.Provisionforthefuturemakesnoinconsiderabledemandsonourintellectualstrength;makessomedemands,even,onourmoralstrength;andthesedemandsarenotequallymetbymenat Böhm-Bawerk:ThePositiveTheoryofCapital531allstagesofcivilisation.Thepresentalwaysgetsitsrights.Itforcesitselfuponusthroughoursenses.Tocryforfoodwhenhungryoccurseventoababy.Butthefuturewemustanticipateandpicture.Indeed,tohaveanyeffectinthefuture,wemustformadoubleseriesofanticipations.Wemustbeabletoformamentalpictureofwhatwillbethestateofourwants,needs,feelings,atanyparticularpointoftime.Andwemustbeabletoformanothersetofanticipationsastothefateofthosemeasureswhichwetakeatthemomentwithaviewtothefuture.Ourknowledgeofcausalprocessesmustenableusbeforehandtoformanadequatepictureoftheformswhichgoodswilltake,ofthequantityofthem,andofthetimewhentheywillcometomaturityasaresultofthoseproductiveorcommercialactivitieswhichwearenowcommencing.Tomakethisdoubleworkofanticipatingacomparativelyremotefutureclearandtruetofact,isnotpossibletotheinfant,andnotmuchmorethanpossibletothechildandthesavage.Civilisationofcourseteachesusthisdifficultartgradually.But,evenamongthemostadvancedpeoples,theartisstillveryfarfrombeingperfect,andthepracticaleconomicprovisionforthefutureiscorrespond-inglyinadequate.But,bethedegreeofanticipationandprovisionforthefuturewhatitmay,whereveritexistsinthemostgeneralway–andthatisevenamongthemostbarbaroustribes–futuregoodsandfutureservicesareasmuchactualobjectsofeconomicaldealingaspresentgoods.Westrivetogetthem;weproducethem;wevaluethem;webuyandsellthem.Isay,wevaluethem;andthisisapointthatmustbelookedmorecloselyinto.Onwhatprinci-plesdoweestimatethevalueoffuturegoods?Theansweris:Onthesameprinciplesasweesti-matethevalueofgoodsingeneral:thatis,accordingtothemarginalutilitywhichtheywillbringusinthecircumstances,ofWantandProvisionforwant.Buthere,naturally,wehavenottodealwiththerelationsofwantandprovisionthatobtainatthemoment,butwiththewantandprovi-sionofthatfutureperiodwhenthegoodsinquestionwillbeatourdisposal.Totheinhabitantsofabesiegedtown,threatenedwithstarvation,grainthatwaspromisedfordeliveryayearaftertheraisingofthesiegewouldcertainlynotbevaluedandpaidaccordingtothestandardofthemoment’sneed;while,onthecontrary,abrewerwho,inJanuary,concludesapurchaseforahun-dredcubicfeetoficetobedeliveredinJulyofthecomingsummer,will,justascertainly,notmeasurethevalueoftheiceaccordingtotheover-supplythatobtainsatthemomentwhenthebargainisconcluded,butaccordingtothescarcitywhichislikelytocomewiththesummer.Veryfrequently,however,thereentersintothevaluationoffuturegoodsanelementwhichcausesustovaluethemalittle–orevenagreatdeal–undertheirfuturemarginalutility,butwhich–asIshallshowpresently–hasnoconnectionwiththephenomenonofinterest.ThisistheelementofUncertainty.Tousnothingfutureisabsolutelycertain.Howevercloselywemayhaveboundpre-sentandfuturetogetherineconomicalconnection,andhowevermuchreasonwemayhavetoexpectthefuturetobringcertaingoodsintoexistence,orputthematourdisposal,stilltheactualfulfilmentofourexpectationsisnever,inthestrictsenseoftheword,certain:itisalwaysmoreorlessprobable.Ofcourse,theprobabilityisoftensogreatthat,practically,itamountstocertainty:as,forinstance,theexpectationthatpaymentwillfollowanacceptancebytheRothschilds.Insuchcaseswedoneglecttheinfinitelysmallamountthatiswantingoffullcertainty,anddeductnothingfromthevaluationweputupontheacceptanceonthegroundofuncertainty.But,frequently,theprobabilityfallsconsiderablyshortoffullcertainty.Thefarmer,forinstance,mayhavedoneevery-thinginhispowertoobtainaharvestbyploughing,manuring,sowing,andsoon:buttheharvestmaybedestroyed,whollyorinpart,byhail,frost,flooding,orinsectravages.Sometimes,indeed,theprobabilitysinkstothelevelofaveryfaintpossibility,as,forexample,whenamanholdsoneofahundredticketsinalotterywherethereisonlyasingleprize.Caseslikethesecauseacertainamountofhesitationtoeconomicmen.Aretheytovalueuncertainfuturesumsofgoodsexactlyasiftheywerecertain?Impossible!Fortheneverylotteryticketthatcarriedthechanceofwinning£100wouldbevaluedat£100,andeveryclaim,eventhemostdoubtful,atitsfullnominalamount;–acoursewhich,obviously,wouldlandthemen 532TheMarginalRevolutionwhotriedtodobusinessontheselinesinthebankruptcycourtintheshortestpossibletime.Oraretheuncertainfuturesumsofgoodsnottohaveanyvalueputuponthem?Isnoimportancewhatevertobeattachedtothemwithrespecttoourwell-being?Asimpossible,andasruinous!Forthennomanwouldgivethesmallestpriceforachanceinalottery,orevenforninehundredandninety-ninechancesoutofathousand;noonewoulddaretomaketheslightestsacrificetosowwhenharvestwasuncertain.Fromthisdilemmathereisonlyoneescape:wemustascribetouncertainfuturesumsofgoodsanimportanceasregardsourwell-being,but,atthesametime,wemusttakeaccountoftheuncertaintyoftheiracquisitionaccordingtothedegreeofthatuncertainty.But,practically,thiscannotbedoneotherwisethanbytransferringthegradationfromwherethegradationexists,butcannotbeexpressed–thatis,fromthedegreeofprobabil-ity,–towherethegradationisnot,butwherealoneitcanbeexpressed–thatis,thedegreeoftheexpectedutility:thusequalisingagreater,butlessprobableutility,toaless,butmoreprobableutility,andthisagaintoastilllessbutabsolutelycertainutility.Inaword,wereduceallpossibili-tiesofutilitytocertainty,andrestorethebalancebydeductingfromthisutilityorvaluetheamountwemustaddtotheprobabilityoftheexpectedutilitytoraiseittocertainty.ThuswereckonaclaimontheRothschildsatitsfullnominalvalue(disregardingforthemomentthedis-count,asbelongingtoanentirelydifferentsphereofphenomena),whileonelotteryticketofathousand,wherethechanceisaprizeof£100,wevalueperhapsat2s.,oneofahundredat20s.,andoneoften,perhaps,at£10.Strictlylookedat,thiskindofvaluation–exceptwherethecertaintyoftheanticipatedfutureutilityispracticallyassured–isalwaysincorrect.For,torecurtoourillustration,theticketwilleitherdrawtheprizeoritwilldrawablank.Intheformercaseitwillhavebeen,astheeventsshow,worthahundredpounds;inthelatter,worthnothingatall.Innocasewillithavebeenworth2s.,or20s.,or£10.But,howeverfalsethismethodofvaluationisintheindividualcase,itcomesatleastapproximatelyright,accordingtothelawofaverages,overagreatmanycases;and,intheabsenceofanybettermethodofvaluation–whichisdeniedusbythedullnessofourimaginativeforethought–itiswelljustifiedasapracticalmakeshift.Irepeatthattheelementofuncertainty,whichisthecauseofalesservaluebeingputuponparticularclassesoffuturegoods,hasnocausalconnectionwiththephenomenonofinterest.Thelesservaluationwhichisitseffectisaspecialone,andextendstooneclassoffuturegoodsonly,andthereitbearsthecharacterofadeductionaspremiumforrisk.Withtheexceptionofthispeculiarity,thevaluationofpresentandfuturegoodsismadeonidenticalprinciples.But,toconcludefromthisthattheamountofvalueofpresentandfuturegoodsmustbeidentical,wouldbetoohasty.Onthecontrary,sincepresentgoodsareavailableatadifferenttimefromfutureones,andthereforecomeunderdifferentactualcircumstances,andareintendedfortheserviceofadifferentsetofwants,itistobeargued,fromallweknowaboutvalue,thatthevalueofsuchgoodsmust,asarule,bedifferent.Andsoitisinfact.Wearrivethusatapropositionwhichisafundamentaloneinourinquiry:Asarulepresentgoodshaveahighersubjectivevaluethanfuturegoodsoflikekindandnumber.Andsincetheresultantofsubjectivevaluationsdeterminesobjectiveexchangevalue,presentgoods,asarule,haveahigherexchangevalueandpricethanfuturegoodsoflikekindandnumber.Thisphenomenonistheresultoftheco-operationofanumberofcauses;–causeswhich,individually,areofverydifferentnatures,butwhich,asithappens,workinthesamedirection.Thesecausesweshallconsiderinorder.ChapterII:DifferencesinwantandprovisionforwantThefirstgreatcauseofdifferenceinvaluebetweenpresentandfuturegoodsconsistsinthedif-ferentcircumstancesofwantandprovision(BedarfundDeckung)inpresentandfuture.Present Böhm-Bawerk:ThePositiveTheoryofCapital533goods,asweknow,receivetheirvaluefromthecircumstancesofwantandprovisioninthepre-sent:futuregoodsfromthesamecircumstancesinthosefutureperiodsoftimewhentheywillcomeintoourdisposal.Ifapersonisbadlyinwantofcertaingoods,orofgoodsingeneral,whilehehasreasontohopethat,atafutureperiod,hewillbebetteroff,hewillalwaysvalueagivenquantityofimmediatelyavailablegoodsatahigherfigurethanthesamequantityoffuturegoods.Ineconomiclifethisoccursveryfrequently,andmaybeconsideredastypicalinthetwofollowingcases.First,inallcasesofimmediatedistressandnecessity.Apeasantwhohashadabadharvest,orsustainedlossbyfire,anartisanwhohashadheavyexpensesthroughillnessordeathinhisfamily,alabourerwhoisstarving;alltheseagreeinvaluingthepresentshilling,whichliftsthemoutofdirestneed,eversomuchmorethanthefutureshilling,–theproofbeingtheusuriousconditionstowhichsuchpeopleoftensubmitinordertoraisemoneyatthemoment.Second,inthecaseofpersonswhohavereasontolookforwardtoeconomicalcircum-stancesofincreasingcomfort.Thusallkindsofbeginnerswhohavenomeans,suchasyoungartists,lawyers,officials,buddingdoctors,mengoingintobusiness,areonlytooready,inreturnforasumofpresentgoodswhichassiststhemtostartinthevocationtheyhavechosen,andactsasfoundationoftheireconomicalexistence,topromiseaconsiderablylargersumonthecondi-tionthattheydonotrequiretopayituntiltheyareinreceiptofadecentincome.Ofcoursethecontraryalsooccursnotunfrequentlyineconomicallife.Therearepersonswhoarecomparativelywelloffatthemoment,andwhoarelikelytobeworseoffinthefuture.Tothiscategorybelongs,amongothers,thatveryconsiderablenumberofpeoplewhoseincomeisobtained,mostlyoraltogether,bypersonalexertions,andwill,presumably,fallawayatalaterperiodoflifewhentheybecomeunfitforwork.Amerchant’sclerk,forinstance,whoisinhisfifti-ethyear,andhasanincomeof£100,cannotexpecttohaveanythingbettertenyearslaterthan,perhaps,asmallretiringallowanceof£30,oranannuitywhichhemaysecurebypurchaseatanassuranceoffice.Itisevidentthattosuchpeoplethemarginalutilitythatdependsonashillingspentnowissmallerthanthatdependingonashillingavailableinthemorebadlysecuredfuture.Itwouldseemthat,insuchcases,apresentshillingshouldbelessvaluedthanafutureone.Andsoitwouldbeifpresentgoodswerenecessarilyspentinthepresent,butthatisnotthecase.Mostgoods,andamongthem,particularly,money,whichrepresentsallkindsofgoodsindifferently,aredurable,andcan,therefore,bereservedfortheserviceofthefuture.Thecase,then,betweenpresentandfuturegoodsstandsthus.Theonlypossibleusesoffuturegoodsare,naturally,future,whilepresentgoodshavethesamepossibilityoffutureuse,andhavebesides–accordingtochoice–eitherthepresentuses,orthosefutureoneswhichmayturnupinthetimethatinter-venesbetweenthepresentmomentandthefuturepointoftimewithwhichthecomparisonisbeingmade.Herethenaretwopossibilities.Eitheritisthecasethatallthoseusesofthepresentandnearfuture,whicharegenerallytakenintoconsiderationasregardsthegoodinquestion,arelessimportantthanthefutureuses;andinthiscasethepresentgoodwillbereservedforthesefutureuses,willderiveitsvaluefromthem,andwillbejustequalinvaluetoafuturegoodsimilarlyavailable.Oritisthecasethatoneoftheearlierusesismoreimportant;andthenthepresentgoodgetsitsvaluefromthisuse,andhas,therefore,theadvantageoverthefuturegood,whichcanonlyobtainitsvaluefromalessimportantfutureemployment.But,usually,oneneverknowsthatsomeunforeseenoccurrenceinthenearfuturemaynotgiverisetosomemoreurgentwant.Atanyratesuchathingispossible,anditgivesachanceofprofitableemploymenttoagoodalreadyonhand,suchas,naturally,agoodthatwillonlycomeintoourpossessioninthefuturehasnotgot:achancewhich,aswehaveseen,iscalculatedintheamountofthevalue,andassessed,accordingtopracticalalthoughincorrectmethods,asanincrementgraduatedaccord-ingtoitsprobability.Toputitinfigures.With£100whichwillcomeintomyhandsattheendoffiveyears,Icanonlyaimatamarginalutilitydeterminedbythesituationofthingsintheyear 534TheMarginalRevolution1896;weshallputthisutilitydownat1000idealunits.With£100atmydisposalnow,Ican,attheleast,realisethesamemarginalutilityof1000units,butifanurgentwant,arisinginthemeantime,givesmeanopportunityofobtainingamarginalutilityof1200,Imay,possibly,realiseit.Say,now,thattheprobabilityofsuchanopportunityoccurringequalsone-tenth,Ishallestimatethevalueofthepresent£100at1000unitscertain,and,beyondthat,atone-tenthofthepossiblesurplusof200:thatis,inall,at1020units.Presentgoodsare,therefore,intheworstcase,equalinvaluetofuturegoods,and,asarule,theyhavetheadvantageovertheminbeingemployedasareserve.Theonlyexceptionoccursinthosecomparativelyrarecaseswhereitisdifficultorimpracticabletokeepthepresentgoodstillthetimeofworseprovisioncomes.Thishappens,forinstance,inthecaseofgoodssubjecttorapiddeteriorationordecay,suchasice,fruit,andthelike.AnyfruitmerchantinharvesttimewillputaconsiderablyhighervalueonabushelofgrapestobedeliveredinAprilthanonabushelofgrapesinhisstoreatthetime.Orsaythatarichmanisanticipatingalongperiodofarrest,duringwhichhislivingwillbecon-formedtothehardfareofprisonregime,howwillinglywouldhegivethepriceofahundredpre-sentluxuriousmealsifhecouldensuretensuchmealsduringhiscaptivity!Wemay,then,drawupthebalance-sheetwhichshowstheinfluenceofthedifferentcircum-stancesofWantanditsProvisioninpresentandfutureasfollows.Agreatmanypersonswhoarenotsowellprovidedforinthepresentastheyexpecttobeinthefuture,setaconsiderablyhighervalueonpresentgoodsthanonfuture.Agreatmanypersonswhoarebetterprovidedforinthepresentthantheyexpecttobeinthefuture,butwhohavethechanceofpreservingpresentgoodsfortheserviceofthefuture,and,moreover,ofusingthemasareservefundforanythingthatmayturnupinthemeantime,valuepresentgoodseitheratthesamefigureasfuture,oralittlehigher.Itisonlyinafractionalminorityofcases,wherecommunicationbetweenpresentandfutureishinderedorthreatenedbypeculiarcircumstances,thatpresentgoodshave,fortheirowners,alowersubjectiveusevaluethanfuture.Thisbeingthestateofthings,eveniftherewasnothingelseco-operatingwiththisdifferenceofwantandprovisioninpresentandfuture,theresultantofthesubjectivevaluations,whichdeterminestheobjectiveexchangevalue,wouldobviouslybesuchthatpresentgoodsmustmaintainaproportionateadvantage,aproportionate,agiooverfuture.But,besidesthis,thereareotherco-operatingcircumstanceswhichwork,evenmoredistinctly,inthesamedirection.ChapterIII:UnderestimateofthefutureItisoneofthemostpregnantfactsofexperiencethatweattachlessimportancetofutureplea-suresandpainssimplybecausetheyarefuture,andinthemeasurethattheyarefuture.Thusitisthat,togoodswhicharedestinedtomeetthewantsofthefuture,weascribeavaluewhichisreallylessthanthetrueintensityoftheirfuturemarginalutility.Wesystematicallyunderestimatefuturewants,andthegoodswhicharetosatisfythem.Ofthefactitselftherecanbenodoubt;but,ofcourse,inparticularnations,atvariousstagesoflife,indifferentindividuals,thephenomenonmakesitsappearanceinveryvaryingdegree.Wefinditmostfranklyexpressedinchildrenandsavages.Withthemtheslightestenjoyment,ifonlyitcanbeseizedatthemoment,outweighsthegreatestandmostlastingadvantage.HowmanyanIndiantribe,withcarelessgreed,hassoldthelandofitsfathers,thesourceofitsmaintenance,tothepalefacesforacoupleofcasksof‘firewater’!Unfortunatelyverymuchthesamemaybeseeninourownhighlycivilisedcountries.TheworkingmanwhodrinksonSundaytheweek’swagehegetsonSaturday,andstarvesalongwithwifeandchildthenextsixdays,isnotfarremovedfromtheIndian.But,toasmallerextent,andinmorerefinedform,thesamephenomenonis,Iventuretoassert,notquiteunknowntoanyofus,howeverprudent,orcultured,orhighlyprincipled.Whichofushasnotbeensurprisedtofindthat,underthepressureofmomentaryappetite,he Böhm-Bawerk:ThePositiveTheoryofCapital535wasnotabletorefusesomefavouritedishorcigarwhichthedoctorhadforbidden–knowingperfectlythathewasdoinganinjurytohishealth,which,calmconsiderationwouldtellhim,wasmuchmoreconsiderablethanthepleasureofthattriflingindulgence?Or,whichofushasnot,toavoidalittlemomentaryembarrassmentorannoyance,plungedheadlongintoamuchgreater?Whoistherethathasneverpostponedsometroublesomebutunavoidablecall,orbusiness,orworkwhichhadtobedonewithinacertaintime,tillthedaywaspastwhenitcouldbedonewithlittletrouble,andhashadtodoitinmoredifficultcircumstances,inhasteandhurry,withover-exertionandill-humour,tothedispleasureofthosewhowereinjuredorwoundedbythedelay?Anyonewhoknowshimself,andkeepshiseyesopentowhatisgoingonaroundhim,willfindthisfactoftheunderestimateoffuturepleasuresandpainsexhibitedunderathousandformsinthemidstofourcivilisedsociety.Ofthefact,then,thereisnodoubt.Whyitshouldbesoismoredifficulttosay.Theentirepsychologicalrelations,indeed,throughwhichfuturefeelingsingeneralactonourjudgmentsandouractions,arestillveryobscure,anditwillbeunderstoodthatthesameobscuritycoversthereasonswhyfuturefeelingsactwithgreaterweaknessonourjudgmentsandactionsthanpre-sentfeelings.Withoutmeaningtoforestallthepronouncementofthepsychologists,whoseemtomemorecompetenttodecideonbothquestionsthantheeconomists,Iventuretothinkthatthisphenomenonrests,notononeground,butonthejointactionofnolessthanthreedifferentgrounds.Thefirstgroundseemstometobetheincompletenessoftheimaginationsweformtoourselvesofourfuturewants.Whetheritbethatourpowerofrepresentationandabstractionisnotstrongenough,orwhetheritbethatwewillnottakethenecessarytrouble,theconsiderationwegiveourfutureand,particularly,ourfar-awayfuturewants,ismoreorlessimperfect.Naturally,then,allthosewantswhichwehavenotconsideredremainwithoutinfluenceonthevaluationofsuchgoodsasaredestinedtoservethosefuturewants,and,consequently,themarginalutilityofsuchgoodsisputtoolow.Whilethisfirstgroundisverymuchapeculiardefectinestimate,thesecondseemstometorestonadefectinwill.Ibelieveitfrequentlyoccursthataman,calledontomakechoicebetweenapresentandafuturepleasureorpain,decidesforthepresentpleasurealthoughheknowsperfectly,andisevenconsciouswhilechoosing,thathisfuturelosswilloutweighhispresentgain,andthat,takinghiswelfareasawhole,thechoiceisunprofitable.Howwellmanya‘goodfellow’knowsthepainfulembarrassmentsandprivationsheisbringingonhimself,byrunningthroughhissalaryonthedayhegetsit,andyethasnotthestrengthtoresistthetemptationofthemoment!Or,howoftendoesaman,‘fromweakness’,lethimselfbehurriedintotakingsomestep,ormakingsomepromise,whichheknowsatthemomenthewillruebeforetwenty-fourhoursareover!Thecauseofsuchdefectsinconduct,Isay,appearstome,indistinctionfromtheformercase,torest,notonwantofknowledge,butondefectofwill.Ishouldnotbesurprised,however,ifthepsychologistsweretoexplainthiscasealsoasonlyavariationoftheformer:itmaybethattheweakerfeelingofthemomentprevailsoverthestrongerfeelingofthefutureonlybecausethelatter,whilepresentinconsciousnessinageneralway,isnotlivelyenoughandstrongenoughtotakepossessionofthemind.Forourpurpose,however,itisamatterofnoconsequence.Finally,asthirdground,Iaminclinedtonametheconsiderationoftheshortnessanduncer-taintyoflife.Inthecaseoffuturegoods,theirobjectiveacquisitionmaybepracticallycertain,andyetitispossiblethatwemaynotlivetoacquirethem.Thismakestheirutilityamatterofuncer-taintyforus,andcausesus–inperfectanalogywiththecaseofobjectivelyuncertaingoods–tomakeadeductionfromtheirvaluecorrespondingtothedegreeofuncertainty.Autilityof100,astowhichthereis50percentofprobabilitythatweshallnotlivetoseeit,wecertainlydonotvaluesohighlyasapresentutilityof100;probablywevalueitaswedoapresentutilityof50;andIamconvincedthatanyofuswhowaspromised,today,achequefor£10,000onhis 536TheMarginalRevolutionhundredthbirthday,wouldbegladtoexchangethislarge,butsomewhatuncertaingift,foraverysmallsuminpresentmoney!…ChapterIV:ThetechnicalsuperiorityofpresentgoodsThereisstillathirdreasonwhypresentgoodsare,asarule,worthmorethanfuture.Thefactonwhichitisbasedhaslongbeenknowninageneralway,butitsessentialnaturehasbeenthor-oughlymisunderstood.Hiddeninaperfectwildernessofmistakes,economistseversinceSayandLauderdalehavebeeninthehabitofgoingtoit,underthename‘productivityofcapital’,fortheirexplanationandjustificationofInterest.Thisname,whichhasalreadybeenthecauseofsomanyerrors,andwhich,besides,doesnotaltogethercorrespondwithwhatitisintendedtoconvey,Ishalllayononeside,andshallconfinemyselftothefactsofthecase–pureandsimple.Thesefactsareasfollows:–that,asarule,presentgoodsare,ontechnicalgrounds,preferableinstrumentsforthesatisfactionofhumanwant,andassureus,therefore,ahighermarginalutilitythanfuturegoods.Itisanelementaryfactofexperiencethatmethodsofproductionwhichtaketimearemoreproductive.Thatistosay,giventhesamequantityofproductiveinstruments,thelengthiertheproductivemethodemployedthegreaterthequantityofproductsthatcanbeobtained.Inpre-viouschapterswewentverythoroughlyintothis,showedthereasonsofit,andillustratedandconfirmeditbymanyexamples.Iventuretothinkwemaynowassumeitasproved.If,then,wetakeanamountofproductiveinstrumentsavailableatacertainpointoftimeasgiven,wehavetorepresenttheproduct,whichmaybeturnedoutbyincreasinglylengthyprocesses,underthepictureofaseriesincreasinginacertainratio,regularorirregular.Supposethat,intheyear1888,wehavecommandofadefinitequantityofproductiveinstruments,say,thirtydaysoflabour,wemay,intermsoftheaboveproposition,assumesomethinglikethefollowing.Themonth’slabour,employedinmethodsthatgiveareturnimmediately,andare,therefore,veryunremunerative,willyieldonly100unitsofproduct:employedinaoneyear’sprocess,ityields200unitsbut,ofcourse,yieldsthemonlyfortheyear1889:employedinatwoyears’processityields280units–forthisyear1890–andsooninincreasingprogression;say,350unitsfor1891,400for1892,440for1893,470for1894,and500for1895.Comparewiththiswhatwemaygetfromasimilarquantityofproductiveinstruments,namely,amonth’slabour,undertheconditionthatwedonotgetpossessionofthelabourtillayearlater.Amonth’slabourwhichfallsdueintheyear1889evidentlyyieldsnothingfortheeco-nomicyear1888.Ifanyresultistobegotfromitintheyear1889itcanonlybebyemployingitinthemostunremunerative(becauseimmediate)production,andthatresultwillbe,asabove,100units.In1890itispossibletohaveareturnof200unitsbyemployingitinaoneyear’smethodofproduction;in1891tohave280unitsbyemployingitinatwoyears’process,andsoon.Inexactlythesameway,withamonth’slabourfallingduetwoyearslater,in1890,nothingcanbehadtosatisfythewantsoftheeconomicyears1888and1889,while100unitsmaybegotfor1890byanunremunerativeimmediate,process,200for1891,280for1892,andsoon.…Whateverperiodoftimewetakeasourstandpointofcomparison,theearlier(present)amountofproductiveinstrumentsisseentobesuperior,technically,totheequallygreatlater(future)amount.Butisitsuperioralsointheheightofitsmarginalutilityandvalue?Certainlyitis.Forif,ineveryconceivabledepartmentofwantsforthesupplyofwhichwemayorshallemployit,itputsmoremeansofsatisfactionatourdisposal,itmusthaveagreaterimportanceforourwell-being.OfcourseIamawarethatthegreateramountneednotalwayshavethegreatervalue–abushelofcorninayearoffaminemaybeworthmorethantwobushelsafterarichharvest;asilvershillingbeforethediscoveryofAmericawasworthmorethanfiveshillingsarenow.Butforone Böhm-Bawerk:ThePositiveTheoryofCapital537andthesameperson,atoneandthesamepointoftime,thegreateramounthasalwaysthegreatervalue;whatevermaybetheabsolutevalueofthebushelortheshilling,thismuchiscertain,that,forme,twoshillingsortwobushelswhichIhavetodayareworthmorethanoneshillingoronebushelwhichIhavetoday.Andinourcomparisonofthevalueofapresentandafutureamountofpro-ductiveinstrumentsthecaseisexactlysimilar.Possiblythe470unitsofproductwhichmaybemadefromamonth’slabourin1889fortheyear1895,areworthlessthanthe350unitswhichmaybegotfromthesamefortheyear1892,andthelatter,notwithstandingtheirnumbers,maybethemostvaluableproductwhichcanbemadeoutofamonthof1889ingeneral.Inanycasethe400unitswhichamancangainbyamonth’slabouroftheyear1888fortheyear1892arestillmorevaluable,andthereforethesuperiorityoftheearlier(present)amountofproductiveinstru-ments–hereandeverywhere,howevertheillustrationmaybevaried–remainsconfirmed.Thetruthoftheproposition,thatthetechnicalsuperiorityofpresenttofuturemeansofpro-ductionmustalsobeassociatedwithasuperiorityinvalue,maybemadeabsolutelyconvincingbymathematicalevidenceifthetabularcomparison,whichwehavedrawnouttoshowthetech-nicalproductivenessofdifferentyearsofproductiveinstruments,beextendedtothemarginalutilityandvalueofthesame.Andsincewehavetodealherewithapropositionwhichwillformthechiefpillarinmyinteresttheory,Iprefertoerronthesideofmakingittooplainratherthanrisknotmakingitplainenough,andIshallsparenopainstoproveitinthemostcompleteway.Inotherrespects,too,thetroubleitcostsuswillnotbealtogetherlost:asweproceedweshallgetanoccasionalglimpseintocertainrelationswhichareseldomornevertakenthoughtof,andyet,nonetheless,havesomeimportancetowardsgivingusacompleteandthoroughgraspofthewhole.Themarginalutilityandvalueofmeansofproductiondepend,asweknow,ontheanticipatedmarginalutilityandvalueoftheirproduct.Butthemeansofproductionofwhichwehavebeenspeaking,themonth’slabour,maybeinvestedinaproductionthatyieldsanimmediatereturn,orinaone,two,three,ortenyears’periodofproduction,and,accordingasitissoinvested,wemayobtaintheverydifferentproductof100,200,280,350units,andsoon.Whichoftheseproductsistobeourstandard?Theforegoingchaptershavealreadygivenustheanswer.Inthecaseofgoodswhichmaybeemployedindifferentwaysyieldingdifferentmarginalutilities,itisthehigh-estmarginalutilitythatisthestandard.Therefore,inourpresentcase,itisthatproductwhichpro-ducesthegreatestamountofvalue.Butthisneednotcoincidewiththelargestproduct,theproductwhichcontainsthegreatestnumberofunits;onthecontrary,itseldomornevercoincideswiththat.Weshouldobtainthegreatestnumberofunitsbyaninfinitelylongproductionprocess,oraprocesslastingahundredortwohundredyears.Butgoodswhichfirstcomeintopossessioninthelifetimeofourgrandchildrenorgreat-grandchildren,have,inourvaluationoftoday,littleornovalue.Indeterminingwhich,ofvariouspossibleproducts,hasthehighestvalueforus,weareguidedbythetwoconsiderationsofwhichwehavejustspoken.First,weareguidedbytheanticipatedpositionofourprovisionatthevariousperiodsoftime.If,forinstance,amanisillprovidedforinthepresent,ornotprovidedforatall,theunitofproductinthepresentmay,onthatveryaccount,havesohighamarginalutilityandvalue,thatthesumofvalueof100presentunitsofproductisgreatertohimthanthatof500unitswhichhemighthaveathiscommandin1895.Toanotherman,again,whosepresentisaswellprovidedfor,ornearlyaswellprovidedfor,ashisfuture,theadvantageinnumbersmaygiveanadvantageinvaluetothe500units.Thesecondconsiderationbywhichweareguidedis,thatourpresentvaluationofafuturegoodorproductdoesnotdependonitstruemarginalutility,butonoursubjectiveestimationofthemarginalutility.But,informingthissubjectiveestimate,theretakesplace,aswehavealreadyseen,akindofper-spectivediminution;adiminutionwhichisindirectratiowiththefuturityofthetimetowhichthegoodinquestionbelongs.Theamountofwhichweareinsearch,therefore,thegreatestsumof 538TheMarginalRevolutionvalue,willevidentlybelongtothatone,amongthevariouspossibleproducts,thenumberofwhoseitems,multipliedbythevalueoftheunitofproduct(asthatvalueshowsitselfwithregardtotherelationofwantandprovisionforwantintheparticulareconomicperiod,andwithregardtothediminutionwhichfuturegoodsundergofromperspective),givesthegreatestamountofvalue.…Butifwewerealsotoabstractthedifferenceinthecircumstancesofprovisionindifferentperiodsoftime,thesituationwouldreceivethestampofextremeimprobability,evenofself-contradiction.Ifthevalueoftheunitofproductweretobethesameinallperiodsoftime,howeverremote,themostabundantproductwould,naturally,atthesametimebethemostvaluable.Butsincethemostabun-dantproductisobtainedbythemostlengthyandroundaboutmethodsofproduction–perhapsextendingoverdecadesofyears–theeconomiccentreofgravity,forallpresentmeansofproduction,would,onthisassumption,befoundatextremelyremoteperiodsoftime–whichisentirelycontrarytoallexperience.And,besides,ifsuchastateofthingsweretoemergeatanypar-ticularpointoftime,itwouldimmediatelybringitsowncorrection.Forifeveryemploymentofgoodsforfutureperiodsis,notonlytechnically,buteconomically,moreremunerativethantheemploymentofthemforthepresentornearfuture,ofcoursemenwouldwithdrawtheirstocksofgoods,toagreatextent,fromtheserviceofthepresent,anddirectthemtothemoreremunerativeserviceofthefuture.Butthiswouldimmediatelycauseanebb-tideintheprovisionforthepresent,andafloodintheprovisionforthefuture,forthefuturewouldthenhavethedoubleadvantageofhavingagreateramountofproductiveinstrumentsdirectedtoitsservice,andthoseinstrumentsemployedinmorefruitfulmethodsofproduction.Thusthedifferenceinthecircumstancesofprovision,whichmighthavedisappearedforthemoment,wouldrecurofitsownaccord.Butitisjustatthispointthatwegetthebestproofthatthesuperiorityinquestionisindepen-dentofdifferencesinthecircumstancesofprovision:sofarfrombeingobligedtoborrowitsstrengthandactivityfromanysuchdifference,itis,onthecontrary,able,ifneedbe,tocallforththisverydifference.–Thusweget,asaresultofourdigression,theassuredconvictionoftwothings;first,thattheproductivesuperiorityofpresentgoodsassuresthem,notonlyasurplusinproduct,butasurplusinvalue,and,second,that,inthissuperiority,wehavetodealwithathirdcauseofthesurplusvalue,andonewhichisindependentofanyofthetwoalreadymentioned.Wehavenowtoask:Towhatextentisthisthirdcauseactive?Ofthisourformeranalysesgiveapoorandinadequatepicture.Whathasbeensaidisonlysufficienttoexplainhowpresentmeansofproductionareworthmorethanfuturemeansofproduction.But,fromthesamecause,aswehavenowtoshow,presentconsumptiongoodsalsoobtainapreferenceoverfutureconsumptiongoods,sothat,inthisthirdcause,wehaveaquiteuniversallyvalidreasonforpresentgoodshavingagreatervaluethanfuture.Theconnectionisasfollows.Commandoverasumofpresentconsumptiongoodsprovidesuswiththemeansofsubsistenceduringthecurrenteconomicperiod.Thisleavesthemeansofpro-duction,whichwemayhaveatourdisposalduringthisperiod(Labour,UsesofLand,Capital),freeforthetechnicallymoreproductiveserviceofthefuture,andgivesusthemoreabundantproductattainablebytheminlongermethodsofproduction.Ontheotherhand,commandoverasumoffutureconsumptiongoodsleaves,ofcourse,thepresentunprovidedfor,and,consequently,leavesusunderthenecessityofdirectingthemeansofproductionthatareatourcommandinthepresent,whollyorpartially,totheserviceofthepresent.Butthisinvolvescurtailmentoftheproductionprocess,and,asaconsequence,adiminishedproduct.Thedifferenceofthetwoproductsistheadvantageconnectedwiththepossessionofpresentconsumptiongoods.Toillustratethisbyanexampleassimpleasitiswell-worn:imagine,withRoscher,atribeoffisher-folkwithoutcapital,subsistingonfishleftinpoolsontheshorebytheebb-tideandcaughtwiththebarehand.Herealabourermaycatchandeatthreefishaday.Ifhehadaboatandnet Böhm-Bawerk:ThePositiveTheoryofCapital539hecouldcatch30fishaday,insteadofthree.Buthecannothavethesetools,fortheirmakingwouldcosthimamonth’stimeandlabour,and,inthemeantime,hewouldhavenothingtoliveupon.Tosavehimselffromstarvationhemustcontinuehiswretchedandcostlyfishingbyhand.Butnowsomeoneclevererthantherestborrows90fish,promising,againsttheloan,togiveback180fishafteronemonth.Withtheborrowedfishhesupportshimselfduringamonth,makesaboatandnet,and,duringthenextmonth,catches900fishinsteadof90.Fromthistake,notonlycanhemakethestipulatedpaymentof180fish,butheretainsaconsiderablenetgaintohimself,andtherebyaffordsastrikingproofthatthe90(present)fishheborrowedwereworthtohim,notonlymuchmorethanthe90,butevenmorethanthe180(future)fishhepaidforthem.Now,ofcourse,thedifferencesinvaluearenotalwayssogreatasinthisexample.Theyaregreatestamongpeoplewholivefromhandtomouth.Forthemtogetcommandoverpresentconsumptiongoodsmeansthetransitiontocapitalistproduction.Lessstriking,butalwayspresent,isthedifferencewherepeoplealreadypossessacertainstockofgoods.If,forexample,theirstockofgoodsissufficientforthreeyears,theymayrealisetheirmeansofproductioninanaveragethreeyears’productionprocess.If,now,bysomemeansorother,theyobtainanotheryear’ssupplyofpresentmeansofsubsistence,theymayextendtheiraverageproductionperiodfromthreetofouryears,andobtaintherebyanincrementofproductwhich,absolutely,isalwaysimportant,but,relatively,willbemuchlessthaninthefirstcase.Wecanseethathere,again,thematteroffact,onwhichIbasemyconclusions,isanoldandwell-knownone:eveninthetimeofAdamSmithandTurgot,itwasnotoriousthatthepossessionofpresentconsumptiongoodsconferscertainadvantages.Butastheoldertheoryofcapitalwas,generallyspeaking,anestofwarpedconceptionsandincorrectexplanations,thisfactalsowasputdowninaformassingularasitwasinappropriate.Consumptiongoods–goodsforimmedi-ateconsumption–werelookedonasproductivegoodsormeansofproduction;assuchtheywerecountedcapital;andthenalltheadvantagesinherentinthemwereexplainedbytheproductivityofcapital.Indeed,awriterofthestandingofJevons,simplythroughdwellingonthegreatimportancewhichattachestothecommandoverpresentgoods,wasmisledintoascrib-ingtoconsumptiongoodsthehighpositionofbeingtheonlycapital!Inthefaceofsuchmisin-terpretationsourbusinessnowistogetatthetruthoffacts.Andthefactsareverysimple.Consumptiongoodsarenotmeansofproduction:theyare,therefore,notcapital;andtheadvan-tageswhichtheyconferdonotproceedfromanyproductivepowertheypossess.Everythingturnsonthesimplefactthat,accordingtothequitefamiliarlawsofvalue,presentgoods,invirtueoftheabovestatedcasuisticalconnectionofcircumstances,are,normally,themeansofobtainingahighermarginalutility,andreceivetherebyahighervalue,thanfuturegoods.ChapterV:Co-operationofthethreefactorsTOputtogethertheresultsatwhichwehavearrivedthusfar.Wehaveseenthattherearethreefactors,eachofwhich,independentlyoftheother,isadequatetoaccountforadifferenceinvaluebetweenpresentandfuturegoodsinfavouroftheformer.Thesethreefactorsare:Thedif-ferenceinthecircumstancesofprovisionbetweenpresentandfuture;theunderestimate,duetoperspective,offutureadvantagesandfuturegoods;and,finally,thegreaterfruitfulnessoflengthymethodsofproduction.……Herewecometoourlastdutyinthisbook:toshowhowtheratiothatobtainsbetweenpresentandfuturegoodsinsubjectivevaluationsistransferredtotheirobjectiveexchangevalue.Inthecaseofthesingleindividual,extremelyvarioussubjectivevaluationswillbeformed,accordingastheoneortheotheroftheabove-mentionedfactorsisstrongerorweaker.These 540TheMarginalRevolutionencountereachotheronthemarketwherepresentgoodsareexchangedagainstthefuture.Therearemanysuchmarketsandtheytakemanydifferentforms.Inthenextbookweshallmoreexactlyexaminetheirconstitution.Inthemeantimewemustbecontenttoexaminethemethodinwhichpricesareformedinitsmostgeneralandtypicaloutlines.Indeedtheformationofpriceheretakesthesamecourseasitdoeselsewhere.Thedivergenceofthesubjectivevalua-tionswhichencountereachotheronthemarketmakespossible,economically,theexchangeofpropertybetweenthetwoparties.Thosewho,onanysubjectivegrounds,putarelativelyhighvalueonpresentgoods,appearasbuyersofpresentagainstfuturecommodities;thosewhoputarelativelylowvalue,assellers:andthemarketpricewillbesettledbetweenthesubjectivevalua-tionsofthelastcompetitorswhoactuallyexchange,andthefirstcompetitorswhoareshutout,or,aswehaveputit,betweenthevaluationsofthetwomarginalpairs.Wemayrepresentthepositionofthemarketbythefollowingscheme:IntendingPresentNextyear’sIntendingPresentNextyear’sbuyersgoodsgoodsinsellersgoodsgoodsininunitsunitsinunitsunitsA1values100
300B1values100
99A2100200B2100100A3100150B3100101A4100120B4100102A5100110B5100103A6100108B6100105A7100107B7100106A8100106B8100107A9100104B9100108A10100102B10100110Inthecircumstancesofthemarketwhichthisschemerepresents,A7andB7formtheuppermarginalpair,A8andB8thelower.Themarketpricefor100presentunitsofgoodswillbefixedbetween106and107,sayat1061/2nextyear’sunits,andthisdeterminesanagioof61/2%infavourofpresentgoods.Onceamarketpriceofthiskindforpresentgoodshasbeenestablished,itexertsareflexlevellinginfluenceonthesubjectivevaluationswhichwereoriginallysostronglydivergent.Eventhosewho,frompersonalcircumstances,wouldvaluefuturegoodsonlyalittleunder,orperhapsatequaltermswith,presentgoods,nowvaluepresentgoodsaccordingtothehigherexchangevaluewhichthepositionofthemarketlendstothem.Thisisthereason,andtheonlyreason,why,inpracticallife,scarcelyanyonewouldbewillingtoexchangepresentgoodsagainstanexactlyequalsumoffutureones.Thereareplentyofpeoplewhosecircumstancesofwantandprovisionforwantareofsuchakind,thatthesubjectiveusevalueofpresentandfuturegoodstothemstandsalmostequal.Butthegeneralpositionofthemarketis,almostinvariably,sostronglyinfavourofpresentgoods,thatitassuresthemapreferenceinexchangevalue,ofwhich,naturally,everyonetakesadvantage.Developedmarketexchange,however,bringswithitalevellingeffectfromanotherside;thatistosay,itbringstheamountofagioinfavourofpresentgoods,asagainstfuturegoodswhichfalldueatvariouslyremotepointsoftime,intoonenormalratiowiththelengthoftheelapsingtime.Itmighteasilybethecasethatthecauseswhichtendtotheundervaluationoffuturegoodsmightchancetobequitedisproportionatelyeffectiveongoodsbelongingtodifferentperiodsoftime.Indeed,intheverynatureofseveralofthosecauses(forinstance,theconsiderationoftheshort-nessofhumanlife)theywouldscarcelyobtainatallasagainstgoodsofthenearfuture,while,asagainstgoodsofremoteperiods,theywouldobtainstronglyandirregularly.Initself,therefore,it Böhm-Bawerk:ThePositiveTheoryofCapital541mightbequitepossiblethat,while100presentunitsofgoods,asagainst100unitsofnextyear’sgoods,obtained,inthemarket,anagioof5unitsonly,asagainstgoodsofthenextyeartheymightobtainanagioofmorethantwicethat,say20,and,asagainstthethirdyear’sgoods,per-hapsanagioof40.Butsuchdisproportionatepricesforgoodsofdifferentperiodsofremotenesscouldnotlonghold.Byakindoftimearbitragetheywouldverysoonbebroughtintoanequalratio.If,forinstance,thevariousmarketpricesmentionedabovewerefoundquotedatonegivenmoment,speculatorswouldimmediatelyappearonthescene,whowouldsellpresentgoodsagainsttwoyears’goods,coverthepurchasebybuyingpresentagainstnextyear’sgoods,andarrangeforpayingthelatterayearlaterbyasecondpurchaseofpresentagainstnextyear’sgoods.Thebusinesswouldworkoutthus.In1888thespeculatorbuys1000presentunitsfor1050unitsoftheyear1889,andsellsthematthesametimefor1200oftheyear1890.In1889hehastodeliver1050units,andhegetsthembybuying,againwithaagioof5%,thethenpre-sent(1889)goodsforthethennextyear’s(1890)goods.Forthe1050unitsherequirestodeliverhemustthusgive11021/2unitsof1890.But,fromthefirsttransaction,hethenreceives1200ofthesevery(1890)units.Hehasthus,onthewholebusiness,autilityofabout100units.Sucharbitragetransactionsmustevidentlybringthepricesobtainableforgoodsofvariousfutureyearstoalevel.Thespeculativedemandforthemuchundervaluedtwoyears’goodsmustraisetheirprice;thesupplyofnextyear’sgoodsmustdepresstheirprice;tillsuchtimeastheagioisbroughtdirectlyintoproportionwiththelengthofthetime.Whenthishappens–say,forexample,thattheagiohasbecomeequalisedat5%peryear,itmayholdonatthatrateundisturbed.Forthenitisequallyremunerativetoexchangepresentgoodsagainstnextyear’sgoodsforthreeyearssuc-cessively,ortoexchangepresentgoodsdirectlyagainstthreeyears’goods,andthearbitragewehavejustsketchedhasnofurtheroccasiontointerfereintheformationofprice.Thuswemayacceptthefollowingaspositiveresultofthepresentbook.Therelationbetweenwantandprovisionforwantinpresentandfuture,theundervaluationoffuturepleasuresandpains,andthetechnicaladvantageresidinginpresentgoods,havetheeffectthat,totheoverwhelmingmajorityofmen,thesubjectiveusevalueofpresentgoodsishigherthanthatofsimilarfuturegoods.Fromthisrelationofsubjectivevaluationstherefollows,inthemarketgenerally,ahigherobjectiveexchangevalueandmarketpriceforpresentgoods,andthis,reflectingbackonpresentgoods,givesthemahighersubjective(exchange)valueevenamongthosewhosepersonalcircumstanceshappentobesuchthatthegoodswouldnotnaturallyhaveanypreferenceinsubjectiveusevalue.Finally,thelevellingtendenciesofthemarketbringthereducedvalueoffuturegoodsintoaregularproportiontotheirremotenessintime.Intheeco-nomiccommunity,then,wefinduniversallythatfuturegoodshavealessvalue,bothsubjectiveandobjective,correspondingtothedegreeoftheirremotenessintime.BookVI:ThesourceofinterestChapterIX:ResultsWehavetracedallkindsandmethodsofacquiringinteresttooneidenticalsource–theincreas-ingvalueoffuturegoodsastheyripenintopresentgoods.Thusitiswiththeprofitoftheunder-takers,whotransformlabour–thefuturegoodwhichtheypurchase–intoproductsforconsumption.Thusitiswithlandlords,property-owners,andownersofdurablegoodsgenerally,whoallowthelaterservicesofthegoodstheypossesstograduallymature,andpluckthemwhentheyhaveripenedintofullvalue.Thus,finally,itiswiththeloan.Evenhereitisnotthecase,asonemighteasilythinkatfirstsight,thattheenrichmentofthecapitalistcomesfromthecreditorreceivingmorearticlesthanhegives–foratfirst,indeed,thearticlesconcernedarelessinvalue–butfromthefactthattheloanedobjects,atfirstlowerinvalue,graduallyincreaseinvalue,andonthemomentoffruitionenterintotheircompletehigherpresentvalue. 542TheMarginalRevolutionWhat,then,arethecapitalistsasregardsthecommunity?–Inaword,theyaremerchantswhohavepresentgoodstosell.Theyarethefortunatepossessorsofastockofgoodswhichtheydonotrequireforthepersonalneedsofthemoment.Theyexchangethisstock,therefore,intofuturegoodsofsomeformoranother,andallowthesetoripenintheirhandsagainintopresentgoodspossessingfullvalue.Manycapitalistsmakethisexchangeonceforall.Onewhobuildsahousewithhiscapital,orbuysapieceofland,oracquiresabond,orgivesaloanatinterestforfiftyyears,exchangeshispresentgoods,whollyorinpart,forgoodsorserviceswhichbelongtoaremoteperiodoftime,andconsequentlycreates,asitwereatablow,theopportunityorcondi-tionofapermanentincrementofvalue,andanincomecalledinterestwhichwilllastoverthislongperiod.One,again,whodiscountsathreemonths’bill,orentersonaoneyear’sproduction,mustfrequentlyrepeattheexchange.Inthreemonthsorinoneyearthefuturegoodsthusacquiredbecomefull-valuedpresentgoods.Withthesepresentgoodsthebusinessbeginsoveragain;newbillsarebought,newrawmaterial,newlabour;theseintheirturnripenintopresentgoods,andsoonagainandagain.Inthecircumstances,then,itisveryeasilyexplainedwhycapitalbearsan‘everlasting’interest.Wemaydismissanyideaofaninexhaustible‘productivepower’incapital,assuringiteternalfruitfulness,–anyideaofaneternal‘Use’givenoff,yearoutyearin,totheendoftimebyagoodperhapslongperished.Itisbecausethestockofpresentgoodsisalwaystoolowthatthecon-juncturefortheirexchangeagainstfuturegoodsisalwaysfavourable.Anditisbecausetimealwaysstretchesforwardthattheprudentlypurchasedfuturecommoditysteadilybecomesapre-sentcommodity,growsaccordinglyintothefullvalueofthepresent,andpermitsitsowneragainandagaintoutilisethealwaysfavourableconjuncture.Idonotseethatthereisanythingobjectionableinthis.Fornaturalreasons,presentgoodsarecertainlymorevaluablecommoditiesthanfuturegoods.Iftheownerofthemorevaluablecom-modityexchangeitforagreaterquantityofthelessvaluable,thereisnothingmoreobjectionableinthisthanthattheownerofwheatshouldexchangeapeckofwheatformorethanapeckofoatsorbarley,orthataholderofgoldshouldexchangeapoundofgoldformorethanapoundofironorcopper.Fortheownernottorealisethehighervalueofhiscommoditywouldbeanactofunselfishnessandcharitywhichcouldnotpossiblybetranslatedintoageneralduty,andasafactwouldnotbesotranslatedinregardtoanyothercommodity.…Inmakingthiscalculationitwillnotbeoverlookedthattheinstitutionofinteresthasitsmanifolduses;particularlyastheprospectofinterestinducessavingandaccumulationofcapital,andthus,bymakingpossibletheadoptionofmorefruitfulmethodsofproduction,becomesthecauseofamoreabundantprovisionforthewholepeople.Inthisconnectionthemuch-usedandmuch-abusedexpression,‘RewardofAbstinence’,isinitsproperplace.Theexistenceofinterestcannotbetheoreticallyexplainedbyit:onecannothopeinusingittosayanythingabouttheessentialnatureofinterest:everyoneknowshowmuchinterestissimplypocketedwithoutany‘abstinence’thatdeservesreward.But,justasinterestsometimeshasitsinjuriousaccompaniments,soinitstrainitbringsothers,fortunately,thatarebeneficentanduseful;andtotheseitisduethatinterest,whichhasitsorigininquitedifferentcauses,acts,amongotherthings,asawageandasaninducementtosave.Iknowverywellthatprivatesavingisnottheonlypossiblewaytotheaccumulationofcapital,andthat,evenintheSocialiststate,capitalmaybeaccumulatedandaddedto.Butthefactremainsthatprivateaccumulationofcapitalisaprovedfact,whilesocialistaccumulationisnot;–andthereare,besides,someveryseriousaprioridoubtswhetheritcanbe.… Böhm-Bawerk:ThePositiveTheoryofCapital543BookVII:TherateofinterestChapterI:TherateinisolatedexchangeTheexchangeofpresentgoodsforfuture,inwhichinteresthasitsorigin,isonlyaspecialcaseoftheexchangeofgoodsingeneral.Itgoes,then,withoutsayingthattheformationofpriceinthiscaseissubjecttothesamelawsasgoverntheformationofpriceineconomicalexchangegener-ally.Thequestionwhetherpresentgoodsingeneralobtainanagio,andalsothefurtherquestionoftheheightofthatagio,arebothtobeansweredaccordingtotheruleslaiddowninBookIV.asregardspricesofgoodsingeneral.Whatremainsforushereisonlytoamplifyandvivifythecolourlessschemewhichdemonstratedthatthecurrentpriceofgoodsistheresultantofsubjec-tivevaluationscomingtogetherinamarket,bypointingoutthoseconcretecircumstanceswhichinthiscase–theexchangeofpresentagainstfuturecommodities–influencethemutualvaluationofboth.Asbefore,itisadvisabletodistinguishbetweenisolatedexchangeandcompetitiveexchange.Intheexchangewhichtakesplacebetweenanownerofapresentcommodityandasuitorforit,theprice,accordingtotheformulalaiddownonp.199,willbefixedsomewherebetweenthevalueofthepresentgoodtoitsownerasunderlimit,anditsvaluetothesuitorasupperlimit.If,forinstance,£100presentmoneyareworthtotheirownerexactlyasmuchas£100ofnextyear’smoney,whiletothesuitortheyareworth,onsubjectivegrounds(say,onaccountoftem-porarilypressingcircumstances),asmuchas£200ofnextyear’smoney,thepriceof£100presentmoneywillbefixedsomewherebetween£100and£200ofnextyear’smoney,andtheagioatsomethingbetweennothingand100percent.Theprecisefigurethatisfixed,intheindi-vidualcase,withinthesewidelimits,dependsontheskilland‘stayingpower’displayedbybothpartiesinconductingthenegotiations.Asarule,theownerofpresentgoodswillbeinapositionofadvantage,becausehecandowithouttheexchangeandyetsuffernoloss,whilethesuitorisoftendriventopayanypriceforpresentgoods.Hencethefamiliarcaseswhere,intheabsenceofcompetition,usuriouslyhighratesof50,100,even200and300percent,areextorted.Whenwegofarther,andinquireastothedeeperreasonswhichaffectthesubjectivevaluationofthesuitorsandthusaffecttheeconomicupperlimitoftheagio,wefindthemalittledifferentinthecaseoftheconsumptionloanfromwhattheyareintheproductionloan,towhichlatterthebuyingoflabouriscloselyallied.Inthecaseoftheconsumptionloanthedeterminantsare–theurgencyofwantatthetime,theprobableprovisionatthetimewhentheloanistobepaidback,and,finally,thedegreeofthesuitor’sunderestimateofthefuture.Themoreurgentlyherequirestheloan,themoreeasilyheexpectstobeabletoreplaceit;andthelesshetakesthoughtforthemorrow,thehighertheagiotowhichhewill,intheworstcase,consentandviceversa.Intheproductionloanwefinddifferentconcretedeterminants.Heretheimportantthingisthedifferenceinproductivenessbetweenthemethodsopentohimwhogetstheloan,andthoseopentohimwhohastodowithoutit.Torecurtoouroldillustration.Ifthefisher,whohasnocapital,andcancatchonly3fishadaybyhand,getsaloanof90fish,andisthusputinaposi-tiontomakeaboatandnetinthecourseofamonth,andwiththesetocatch30fishadayfortheremaining11months,thebalancestandsasfollows:–withouttheloanhecatchesinayear3365
1095fish;withtheloanhecatchesnothinginthefirstmonth,but30perdayfortheother11months,thatis,33530
10,050,orasurplusof8955fish.Solong,then,ashehastogiveanythinglessthan8955(nextyear’s)fishfortheborrowed90(present)fish,hegainsbythetransaction.Inthisillustrationthedifferenceinpossiblereturnbetweenthetwoproductivemethods,and,withit,theupperlimitoftheeconomicallypossibleagio,isabsurdlyhigh–8955nextyear’sunitsfor90presentunitsissomethinglike10,000percent.Buttherewillalwaysbeaveryimportant 544TheMarginalRevolutiondifferencewhenthechoiceliesbetweencapitalistproductionandhand-to-mouthproduction,asthelatteris,ofcourse,alwaysextremelyunremunerative.Thedifference,again,willtendtogrowlesswhenthechoiceliesbetweentwodifferentcapitalistmethods;andwillbecomemorerapidlylessinproportiontothelengthoftheprocessalreadysecuredwithouttheloan.Thisfactisofverygreatimportanceasregardsthe,rateofinterest,notonlyinisolated,butalsoincompetitiveexchange.Ifweputitintheclearestpossiblewaynow,itwillgiveagoodbasisforwhatcomeslater.InanearlierchapterIcalledattentiontothewell-attestedfactthatthelengtheningofthecapitalistprocessalwaysleadstoextrareturns,butthat,beyondacertainpoint,theseextrareturnsareofdecreasingamount.Takeagainthecaseoffishing.Ifwhatwemightcalltheonemonth’sproductionprocessofmakingofaboatandnetleadstothereturnoftheday’slabourbeingincreasedfrom3to30,–thatisby27fish,–itisscarcelylikelythatthelengtheningoftheprocesstotwoorthreemonthswilldoubleortreblethereturn.Certainlythelengtheningitto100monthswillnotincreasethesurplusbyahundredfold.Thesurplusreturn–fortherewillalwaysbeasurplusreturn–willincreasebyaslowerprogressionthantheproductionperiod.Wemay,therefore,withapproximatecorrectnessrepresenttheincreasingproductivityofextendingproductionperiodsbythefollowingtypicalscheme.ProductionperiodReturnperannumSurpluswithoutcapital(years)£15—135£202451035384585562466537672868:10s.1:10s.969:10s.110700:10s.ItmustbeunderstoodthatIdonotattachanyimportancetotheseparticularfigures.Everybodyknowsthat,ineverybranchofproductionandateverystageoftechnicalknowledge,thefigureswilldiffer.Inonebranchthefallofsurplusreturnmaybeslower,inanotheritmaybemorerapid.AllIlaystressonisthefactthatthefiguresexpressthegeneraltendencyofsurplusreturnstofall.Assume,tocompletethehypothesis,thataworkerneeds£30ayeartomaintainhiminsuitablecircumstances,andletustrytofindoutonthisbasisthelimitoftheeconomicallypossibleagiowhichasuitorforproductivecreditmay,intheworstcase,offerforaloanof£30ayear.Ifthesuitorhasnocapitalwhatever,hecangetareturnofonly£15withouttheloan:withtheloan,inaoneyear’sproductionperiodhecangetareturnof£35.Inthemostextremecasehemaytherefore,withoutalteringhispositionfortheworsebythetransaction,offeranagioof£20;thatis662/3percent.If,ontheotherhand,thesuitoralreadyhasacapitalof£30(whencehegetsit–whetheritishisownoradvancedfromotherquarters–doesnotaffectthecase),hecan,withoutborrowing,engageinaoneyear’sprocessandobtainaproductof£35,andallthatdependsonhisgettingtheloanistheextensionoftheprocessfromoneyeartotwo,andtherais-ingofthereturnfrom£35to£45;thatis,ayearlysurplusof£10.Here,then,thesuitorcaneconomicallyoffer,atthemost,anagioof£10on£30;thatis,aninterestrateof331/3percent.Similarly,ifthesuitor,bywhatevermeans,isalreadyequippedforatwoyears’process,theloanof£30isnowthecauseofasurplusreturnof£8(£53£45)
262/3percent.Thusthemoreamplethesuitor’sequipmentisalready–themorecapitalhehas–thelowerfallthe Böhm-Bawerk:ThePositiveTheoryofCapital545surplusreturnsandtheratioofagiodependentontheloan.Thatistosay,thesurplusfallsto£5,£4,£3,£2,30s.,20s.,10s.,andtherateto162/3,131/3,10,62/3,5,31/3,l2/3percent.Thisfallisboundtoemergeunlessthereturnsobtainablein1,2,3,4,xproductionperiodsshouldrun,not,aswehaveassumed,intheprogressionof35,45,53,58,62,etc.,butsteadilyinthemuchsharperprogressionof35,45,55,65,75…105…1005,etc.Inthislattercase,oneveryone-yearextensionoftheproductionperiodmadepossiblebythe£30,therewoulddependaconstantsurplusreturnof£10,andtheupperlimitoftheeconomicallypossibleagiowouldremainuniformat331/3%.Butaratioofincreaselikethiscannotinanycasegobeyondafewstagesinsomefewproductions;itcannotgoonpermanentlyandwithoutlimitinanyproduction.Wecome,then,totheimportantpropositionthattointendingproducers,generallyspeaking,apresentloanhaslessvalueinproportiontothelengthoftheproductionperiodsalreadyprovidedforfromothersources.Thepropositiondirectlyappliestotherateofinterestinisolatedexchange,inasmuchasthevaluationoftheborrowerforproductivepurposesdirectlygivestheupperlimitoftheeconomicallypossiblerate.Italsoallowsus,however,tojudgeinwhatdirectionthisproposi-tionmustinfluencetherateofinterestincompetitiveexchange,wherethepriceistheresultantofthesubjectivevaluationsofindividuals,ofwhommanyareintendingproducers.Ashasbeensaidabove,thecaseofproductivecreditiscloselyrelatedtothecaseofthepur-chaseoflabour,theemploymentofproductivelabourersbythecapitaliststhemselves.Here,however,thereentercertaincomplicationswhichmaybeaseasilyandbrieflystatedundercom-petitiveexchange.Ishallnot,therefore,discussthemseparately,butshallgoonatoncetoexplaintherateofinterestindevelopedcompetitiveexchange.ChapterII:TherateinmarkettransactionsThecharacterofthemarketinwhichpresentgoodsareexchangedagainstfuturegoodshasalreadybeendescribed.Wenowknowthepeoplewhoappearinthatmarketasbuyersandsell-ers.Weknowthatthesupplyofpresentgoodsisrepresentedbythecommunity’scurrentstockofwealth–withcertainunimportantexceptions–andthatthedemandforthemcomes(1)fromthesuitorsforproductivecreditwhowishtoequipthemselvesfortheirownworkinproduction,(2)fromthesuitorsforwage-paidlabour,and(3)fromthesuitorsforconsumptioncredit.Tothesethreecategorieswemayadd,undercertainreservations,themaintenanceofthelandowners.Finally,itwillberememberedthattheresultantmarketpricemust,asarule,beinfavourofpresentgoods,andmustleadtoanagioonthesame.Whatwehavenowtodoistogrouptogetherthecauseswhichdeterminetheheightofthisagioinoneadequateandtypicalpicture.Ifweweretoattemptallatoncetodrawapicturelikethis,covering,asitdoes,thewholeareaofthevariedinfluencesthatcrossandintersecteachotheronthemarket,weshouldmeetwithgreat,indeedinsuperabledifficulties,inthewayofstatement.Ishall,therefore,actontheprinci-ple,divideetimpera,andfirstconsiderhowthepriceisdeterminedundertheassumptionthat,con-frontingthesupplyofpresentgoods,thereisonesinglebranchofdemand,though,inpresentcircumstances,byfarthemostimportantbranch,namelythedemandoftheWage-Earners.Oncewehavedrawninbroadclearlinesthemostimportantanddifficultpartofthewholepicture,itwillberelativelyeasytodefinethekindandmeasureofthesharewhichalltheremainingmarketfactorshaveinformingtheresultant,andsograduallytomakethepicturetruetothefullcom-plexityofpracticallife.ForgoodreasonsIalsoretainprovisionallytheformerassumption,thatthewholesupplyandthewholedemandforpresentgoodsmeetinonesinglemarketembracingtheentirecommunity.And,finally,weshallsupposemeanwhilethatallbranchesofproductionshowthesameproductiveness,andalsothesameincrementofproductivenessoneachextensionoftheproductionperiod:thatistosay,weshallassumeanidenticalscaleofsurplusreturns. 546TheMarginalRevolutionSuppose,then,thatinourcommunitythestockofwealthinthemarket,assupply,amountsto£1500,000,000,andthatthereare10,000,000ofwage-earners.Followingthescheme[above],theannualproductofeachworkerincreasesinallbranchesofproduction,inproportiontothelengthoftheproductionperiod)from£35(inaoneyear’sprocess)to£70(inatenyears’process).Thequestionis–inthesecircumstancesofthemarkethowhighwillrisetheagioonpresentgoods?Itisquitecertain,aswehavealreadyexplained,thattheagiowillsettleatthatlevelwheresupplyanddemandexactlybalanceeachother,andthisliesbetweenthesubjectivevaluationsofthelastpairwhoactuallyexchange.Butthefixingofthesevaluationshereencountersaquiteexceptionaldifficulty,andonewhichdoesnotoccurinanyotherexchangetransaction,buthasitsbasisinaspecialpeculiarityofthecommodity‘labour’.Everyothercommodity,thatistosay,hasapredeterminedsubjectivevaluetotheonewhowishestobuyit.Labourhasnot,andforthisreason.Itisvaluedaccordingtoitsprospectiveproduct,whiletheprospectiveproductvariesaccordingasthatlabourisinvestedinashortorinalongproductionprocess.Wesaidabovethat,inthesubjectivecircumstancesofthecapitalist,asumofpresentgoodswas,asarule,worthasmuchasthesamesumoffuturegoods.Thecapitalistwill,therefore,countthevalueoflabourequaltojustasmanypresentshillingsasitwillbringhimininthefuture.But,accordingasthislabourisinvestedinashortoraroundaboutprocess,itmaybringhimin£35or£58or£70.Atwhichofthesefiguresisthecapitalisttovalueit?Itmaybeanswered:Accordingtotheproductaimedatinenteringuponthemethodofproductionwhichis,economically,themostreasonable.Hewill,therefore,valuetheyear’slabourat£35if,onreasonablegrounds,hemeditatesadoptingaoneyear’sprocess;at£70ifheconsidersatenyears’periodthemostsuitable.Thiswouldbeverywellifonlyitwascertainbeforehandwhatperiodwasthemostsuitablefortheundertaker.Butthisisnotcertain:onthecontrary,thelengthoftheprocessisitselfdependentontherateofwagefixedasresultantpriceonthelabourmarket.Ifthewage,forinstance,standsat£25,aoneyear’sprocessisthemostfavourablefortheundertaker.At£25hegains£10intheyear–or,toputitexactly,inthesixmonths,since,ontheaverage,theadvanceextendsoveronlysixmonths;thatis,80percentperannum.Inatenyears’processforthe£25inwageshegets£70,andthesurplusreturnof£45is,absolutely,muchgreater,but,whendividedasprofitoveranaverageoffiveyears’givesonly£9foroneyear,oraprofitof36percent.Ontheotherhand,iftheyear’swageis£50,itisquiteclearthatitwouldbeasabsurdtochooseaoneyear’sprocess,withitsproductof£35,asitwasmostreasonableinthepreviouscircumstances,andonlythoselongerproductionperiodswhichshowanannualproductover£50couldbethoughtof.Thematter,therefore,standsasfollows.Elsewhere,inthecaseofothercommodities,theemploymentforwhichthebuyerswishtoacquirethemisalreadydetermined.Itisthefixedpoint–thethingwhichfirstofallhelpstodeterminethepriceofferedbythebuyers,andthenthroughthattheresultantmarketprice.Here,inthecaseofthecommodityLabouronthecontrary,theemploymentisanundeterminedamount,anx,whichisfirstdeterminedbytheresultantprice.Inthesecircumstancesitisclearthatthefixedpointofthepricetransactionsmustbegotsomewhatdifferentlyfromtheordinaryway;not,ofcourse,accordingtodifferentprinciplesorlaws,butwithacertaincasuisticalmodificationindetailwhichwehavenowtoexamine.Inplaceofthefixedpoint,whichisnotavailablebecausetheemploymentofthelabouritselfisnotfixed,wefindasubstituteinthefactthatanotheramount,usuallyindetermined,isherefixed,namely,thequantitiessold.Itmaybetakenascertainthatallthelabouroffered,likethewholesumofpresentgoodsoffered,findsamarket.Thecertaintyofthisisbasedonapeculiarcircumstance.Exactlyas,inthescienceofmoney,itisafamiliardogmathat,inthelong-run,anysumofmoney,beitgreatorsmall,issufficienttodotheworkofcirculationinacommunity,soisittruethatanysumofpresentgoods,beitgreatorsmall,issufficienttobuyupthewholesup-plyofwagelabourthatexistsinthecommunity,andtopayitswages.Allthatrequirestobedone Böhm-Bawerk:ThePositiveTheoryofCapital547istocontractorextendtheproductionperiod.Iftherearetenmillionwageworkers,andfifteenhundredmillionsofcapital,thisstockisjustsufficienttopaythetenmillionworkers£30ayeareachoveratenyears’productionprocess.Ifthereareonlyfivehundredmillionsofcapitalnolabourersneedgoidleonthataccount:only,ofcourse,theycannothavetheirmaintenanceadvancedthemforatenyears’process,but(atthesamewageof£30)onlyforathreeandathirdyears’process,andtheaveragedurationoftheproductionperiodmustbecurtailedaccordingly.Supposethereareonlyfiftymillionsofcapital,allthelabourcouldstillbebought,butnowonlyforafourmonths’process,anditmustbesecured,byafurthershorteningoftheproductionperiod,thatthescantyamountofpresentgoodsisrenewedaftereveryshortperiodbytheacces-sionoffreshreturns.Itis,therefore,alwayspossiblefortheexistingstockofwealthtobuyallthelabour,andtherearecertainreasonsinthiscasethatworkverystronglytowardsalwaysmakingthepossibleintotheactual.Betweencapitalistsandlabourerstheeconomicconditionsare–withveryfewexceptions–extremelyfavourabletotheeffectingofexchange.Thelabourersurgentlyneedpresentgoods,andcannot,orcanscarcelyturntheirownlabourtoanyaccount;theywill,therefore,toamanratherselltheirlabourcheaplythannotsellitatall.Butverymuchthesameistrueofthecapi-talists.Intheirpeculiarcircumstancesofwantandprovisionforwant,theirpresentgoods–whichthey,inanycase,wouldlayupagainstthefuture–arenotworthmoretothemthanasim-ilarsumoffuturegoods.Theywill,therefore,preferanypurchaseoflabourwherethereisanagio,howeverlittleitmaybe,ratherthanlettheircapitalliedead;andtheconsequenceisthatallcapital,likealllabour,actuallycomestoasale.Asafactweseethat,inalleconomiccommuni-ties,althoughthequantitativerelationsbetweenwealthandnumberofwage-earnersareextremelyvarious,thesetwoamountsexactlybuyupeachother.Thereareeverywhereafewlabourerswhohavenowork,andafewcapitalswhicharenotemployed,butthisis,ofcourse,notincontradictiontowhathasbeensaid.Ineedscarcelypointoutthatthepresenceofsuchunemployedisnevertraceabletothepurchasingpowerofcapitalbeinginsufficienttothewholenumberofthelabourers–inapoorercountry,indeed,acapitalofhalftheamountwouldhavetopaythesamenumberoflabourers,andactuallydoespaythem–butalwaystocertainfric-tionalandtemporarydisturbancesoforganisation,suchasareinevitableinamechanismsocomplicatedastheindustrialdivisionoflabourinagreatcountry.Wemay,therefore,assumeitascertainthatthewholesupplyoflabour,andthewholesupplyofpresentgoods,cometomutualexchange.Inthisfactthelengthoftheproductionperiod,andthustheamountofproductwhichtheundertakermayobtainthroughthelabourhebuys,obtainsacertaindefiniteness.Thatistosay,wemust,inanycase,assumesuchaperiodofproductionthat,duringitscontinuance,theentiredisposablefundofsubsistenceisrequiredfor,andissufficienttopayfor,theentirequantityoflabourofferingitself.Iftheperiodweretobeshorterthanthis,somecapitalwouldremainunemployed;iflonger,alltheworkerscouldnotbeprovidedforoverthewholeperiod;theresultwouldalwaysbeasupplyofunemployedeconomicelementsurgentlyofferingtheirservices,andthiscouldnotfailtoupsettheoffendingarrangementsButwearenotyetfinishedwiththesubject.Itisnotonesingledefiniteproductionperiodthatharmoniseswiththeaboveassumption,butagreatmanydifferentperiods.Obviously,giventhecapitalandthenumberofworkers,averyvaryingnumberofyearscanbeprovidedforaccordingasthewageoflabourishighorlow.Withacapitaloffifteenhundredmillionsforinstance,ourtenmillionworkerscanbekeptinworkandwagefortenyearsatawageof£30,orforfiveyearsatawageof£60,orforsixyearsatawageof£50.Nowwhichofthesepossiblecaseswillbetheoneactuallyadopted?–Thiswillbedetermined,bytheplayofthesameegoisticmotivesasregulatetheformationofpriceincompetitiongenerally,inthefollowingway.Assumeforamomentthattheusualwageis£30.Acapitalistthenwith£1000–forconveniencesakeweshalltakethisamountastheunitthroughoutthefollowingdiscussion–mayemploy 548TheMarginalRevolutioneither66.6labourersinaoneyear’sprocess,or33.3labourersinatwoyears’process,or22.2inathreeyears’process.Naturallyhewillchoosetheprocesswhichhefindsmostadvantageous.WhichprocessthatiswillbeseenfromtheTableI,basedontheformerschemeofproductivity…,showinghowmanyworkerscanbeemployedby£1000ineachproductionperiod,andhowmuchannualprofitmaybegotfromthatsum.TableIWage£30ProductionAnnualAnnualprofitNumberofTotalannualperiodinproductperemployedprofitontheyearslabourer£10001£350£5066.66£333.30245015033.33500353023022.22511.11458028016.66466.66562032013.33426.66665035011.11388.8576703709.52352.248681038108.33320.829691039107.4292.5107004006.66266.66ThetableIshowsthat,inthegivencircumstancesofallthefactors,itismostprofitablefortheundertakerstodevotethemselvestoathreeyears’productionperiod.Theyobtaintherebytheveryconsiderablerateof51.1percent,whilebothinthelongerandintheshorterprocessestheprofitislower.Inthesecircumstancesnaturallyallundertakerswillseektoadoptthislengthofprocess.Buttowhatdoesthislead?Inathreeyears’process£1000canemploy22.2workers,andthereforetoemployalltheavailablecapitalinthecommunity(viz.£1500,000,000)331/3millionworkerswouldbeneeded–whilethereareonlytenmillions.Thesetenmillionworkerscouldbeemployedbyasumoffourandahalfmillionpounds,leavingcapitaltotheamountoftenandahalfmillionslyingidle.Ofcoursethesetenandahalfmillionsofcapitalcouldnotandwouldnotremainso:theywouldcompeteforemployment;attractlabourersbyofferinghigherwages;andthenecessaryresultwouldbeariseoftherateofwages.The£30rate,then,assumingtheabovepositionofthefactors,cannotpossiblybeapermanentone.Supposenowthattherateofwagesis£60,wegetthefollowingtable.TableIIWage£60ProductionAnnualAnnualprofitNumberTotalprofitperiodinproductperofontheyearslaboureremployed£10001£350£25033.33Loss245015016.66Loss35307011.11Loss4580208.33Loss5620206.66£13.336650505.5527.777670704.7633.33868108104.1635.41969109103.7035.15107001003.3333.33 Böhm-Bawerk:ThePositiveTheoryofCapital549Thistableprovesthat,ifweassume£60astherateofwages,productioninanythinglessthanafiveyears’periodshowsapositiveloss,while,ofthelongerperiods,theeightyears’processisthemostprofitable.Ityieldsthemodestinterestof3.54percent,but,relativelyspeaking,itisthemostfavourableratethatcanbegot.Itiseasytosee,however,thatitisasimpossibleforawageof£60,asitwasfor£30,tobethedefiniteresultantpriceoflabour.Undertheassumedcircumstancesofproductivitytheeightyears’periodisthemostprofitablelengthofprocessata£60rateofwage.Byadoptingitacapitalof£1000canemployonly4.16labourers;consequentlytheentirecapitalof£1500,000,000canemployonlysixandaquartermillionworkers;andtheremainingthreeandthree-quartermillionsmuststarve.Thisagainisimpossible;theunemployedwilloffertheirservicesincompetitionwitheachother;andwageswillbepressedbelowtherateof£60.Atwhatpoint,then,willthisoverbiddingandunder-bidding,whichcomefromunemployedcapitalwhenwageistoolowandfromunemployedlabourwhenwageistoohigh,cometoanend?Obviouslyitwillbewhenthemostreasonableproductionperiodexactlyabsorbsthewagefundontheoneside,andthelabourofferedontheother.Thiswillbethecase,asthefollowingtableshows,atawageof£50.TableIIIWage£50ProductionAnnualAnnualprofitNumberTotalprofitperiodinproductperofontheyearslaboureremployed£10001£350£15040Loss24505020Loss35303013.33£404580801080562012089666501506.6610076701705.7197.07868101810592.59691019104.4486.6610700200480Atawageof£50thesixyears’productionperiodprovesthemostprofitable.Itgivesaninterestof10percentontheinvestedcapital,whileafiveyears’processwouldreturnonly9.6percent,andasevenyears’,9.7percent.Moreover,asatthatwagethe£1000employs62/3labourers,theentiretenmillionworkersandtheentirefifteenhundredmillionsofcapitalfindemployment;andthepointisreachedwheretheformationofpricemaycometorest.Allwhohaveitintheirpowertodisturbthesettlementbyfurtheroverorunderbiddinghavenoinducementtodoso,andallwhomighthaveaninducementhavenotthepower,as,oneconomicgrounds,theyarealreadyexcludedfromcompetition.Thereisnoidlecapitalwhichmightbetemptedtoseekemploymentbyoverbidding,andtherearenoidlelabourerswhomightbetemptedtoseekemploymentbyunderbidding.And,finally,theundertakerswhohaveplacedtheirproductiononthefootingwhichmakesthisfavourablepositionofthingspossiblearerewardedbythisarrange-mentbeingatthesametimethemostprofitableforthem,andtheytoohavenoinducementtomakeanychange.Thoseundertakers,ontheotherhand,whomighthavewishedtoengageinlongerorshorterprocesses,andwouldthushavemadeeithercapitalorlabourinsufficient,areexcludedfromanysuchdisturbingcompetitionbythefactthatsuchmethodsofproductionshoweitheralossorasmallerprofit.Thepriceoflabour,then,willandmustsettleatawageof£50,andthisinvolves,atthesametime,anagioof10percentonpresentgoods.Isay,itmustdoso,for,solongasthispointisnotreached,therearecertaintendenciesalwaysatworktoforcethepricetowardsit.If,forexample, 550TheMarginalRevolutionthewagewereonlyalittlehigher,say£51,thesixyears’processwouldstillbethemostprofitable,butonly9,800,000labourerscouldbeemployedbytheavailablecapitalof£1500,000,000;theunemployed,bytheurgencyoftheircircumstances,wouldexertapressureonthepriceoflabour,tillsuchtimeastheyalsocouldbetakenin,whichwouldbethecasewhenwagecamedownto£50.If,onthecontrary,thewagewerealittlelower;say£49,theemploymentofthetenmillionworkerswouldtakeuponly£1470,000,000ofcapital;theunemployedremain-derwouldattractemploymentthroughoverbidding;andtheresultagainwouldbeariseofwagetillsuchtimeasthepointwasreachedatwhichequilibriumallroundcouldtakeplace.Intheassumedstateofallthefactorsanagioof10percentisthereforetheeconomicallyneces-saryresult.Whyexactly10percent?–Theconsiderationshithertopresentedcanonlyanswernegativelythatthenecessaryequilibriumcouldhavebeenreachedatnootherrateofinterest.Butwemaynowinquirewhetherourfiguresdonotbringoutsomeothercircumstanceswhichmaypositivelyindicatearateof10percent,andgiveusmatterforaprecisepositivelawoftheinterestrate.Toarriveatapositionofequilibrium,thecapitalofthecommunityhadtobetakenoutofshorterprocesseswherefullemploymentcouldnotbefoundfortheexistingstockoflabour,andemployedingraduallyextendingmethodstillallthelabourerswerefullyoccupied.Thiswasarrivedatinthesixyears’process.Ontheotherhand,theadoptionofstilllongerprocesses,forwhichagainthecapitalisnotsufficient,had,economically,tobeprevented.Inthesecircum-stancesthesixyears’producersarethelastbuyers,the‘marginalbuyers’;thewould-besevenyears’producersarethemostcapableexcludedsuitorsformeansofsubsistence;and,accordingtoourwell-knownlaw,thepricethatresultsmustfallbetweenthesubjectivevaluationsofthesetwo.Howdoesitstandwiththesevaluations?Whatwehavetolooktosimplyis:Whatistheutilitywhich,forthosetwosetsofbuyers,dependsonthedisposaloveradefinitesumofmeansofsubsistence?Here,firstofall,itmaybeputdowngenerallythat,onthedisposalovereachhalfyear’swage–inthepresentcase,£25–dependsononeyear’sextensionoftheproductionperiodperworker.Accordingly,withrespecttothesixyears’producers,itspeciallydependsontheirpossessionornon-possessionofthe£25whether,asregardsonelabourer,theycanembarkonorcontinueinthesixyears’processinsteadoftheshorterfiveyears’process.Butaccordingtoourschemeofproductivitytheyear’sreturnofoneworkerinafiveyears’processamountstoonly£62,whileinasixyears’processitamountsto£65.What,therefore,asregardsthemarginalbuyer,dependsonhishavingthedis-posalover£25,istheobtainingofayearlysurplusproductof£3.Ontheotherhand,thosewould-beproducerswhoaretryingtotakemeansofsubsistenceoutofthemarketinordertoextendtheproductionperiodtoaseventhyear,couldgainbytheirextensiononlyasurplusreturnof£2(£67£65).Forthem,therefore,allthatdependsontheirdisposaloverthe£25isasurplusof£2,andtheyareexcludedfromcompetitioninasmuchastheresultantpricehasestablishedanagiowhichexceedstherateof2on25(8percent).Iftherefore–andthisisindispensabletoequilibriumbeingreached–theextensionoftheproductionperiodistohaltatthelimitofsixyears,theagioestablishedbythefixingofthepricemustliebetweentheratethatrepresentsthevaluationofthelastbuyers(£3on£25,or12percent)asupperlimit,andtheraterepresentingthevaluationofthecompetitorsfirstexcluded(8percent)aslowerlimit.Andthusourformerempiricalandcircumstantialdemonstrationoftherateofwageandtherateofinterestatwhichequilibriummaybereachedonthemarket,mustpointprovisionallytotherateof10percent.Itmustatleastpointtothezonebetween8percentand12percent.Thefactthat,withinthiszone,therateof10percentisexactlybroughtout,isdue,ofcourse,nottothelimitationsindicatedbythevaluationsofthemarginalpair,but…simplytothequantitativeeffectofsupplyanddemand.Weshallseeimmediately,however,thatthewidelatitude(8to12percent)whichourabstractschemeleavesforthenarrowingactionofsupplyanddemand,looksconsiderableonlyonaccountofthefiguresaccidentallychosen;inpracticallifethelatitudegivenisalmostalwaysvanishinglysmall. Böhm-Bawerk:ThePositiveTheoryofCapital551Meanwhilewemayputtheresultsatwhichwehavearrivedingeneralformasfollows:-Therateofinterest–ontheassumptionsalreadymade–islimitedanddeterminedbytheproductivenessofthelastextensionofprocesseconomicallypermissible,andofthefurtherextensioneconomicallynotpermissible;inthiswaythattheunitofcapital,whichmakesthisextensionofprocesspossible,mustalwaysbearanamountofinterestlessthanthesurplusreturnofthefirst-named,andmorethanthesurplusreturnofthelast-namedextension.Withinthesemarginallimitsthepricemaybemoreexactlydeterminedbythequantitativerelationbetweenwagefundandnumberofworkers,accordingtothelawofsupplyanddemand.Inpracticallife,however,thelattermethodofdeterminingpriceisseldomtaken.Itistruethatinourabstractschemetherewasanunusuallywidelatitudetocomeandgoon,becausewehadassumedasuddendecreaseofthesurplusreturnfrom£3to£2;thatis,afalloffullyone-half.Butinpracticallifesuddendifferenceslikethisscarcelyeveroccur.Thefigureswhichrepresentthepro-ductivenessofthelastpermissible,andthefirstnon-permissibleextensioncomeusuallyveryclosetoeachother,and,consequently,theyaresufficienttolimitthevariationsoftheinterestratesostrictlyandsharplythatthetheoreticallymoreexactdeterminationbymeansoftherelationofsupplyanddemandispracticallyunimportant.Indeed,assumingthatthesetwomarginallimitsareveryneareachother,oneofthemmayevenbeleftoutofaccountwithoutanyseriousinaccuracy,andthelawbesimplyformulatedthus:therateisdeterminedbythesurplusreturnofthelastper-missibleextensionofproduction.ThiscoincidesalmosttoawordwithThünen’scelebratedlawwhichmakestherateofinterestdependontheproductivenessofthe‘lastapplieddoseofcapital’.ChapterIII:Therateinmarkettransactions(continued)…Wehave,then,overthesphereofourinvestigationssofar,torecordthreeelementsorfactorswhichactasdecisivedeterminantsoftherateofinterest:theAmountofthenationalsubsistencefund,theNumberofworkersprovidedforbyit,andtheDegreeofproductivityinextendingpro-ductionperiods.Andthewayinwhichthesethreefactorsaffecttheratemaybeputasfollows:Inacommunityinterestwillbehighinproportionasthenationalsubsistencefundislow,asthenum-beroflabourersemployedbythesameisgreat,andasthesurplusreturnsconnectedwithanyfur-therextensionoftheproductionperiodcontinuehigh.Conversely,interestwillbelowthegreaterthesubsistencefund,thefewertirelabourers,andthequickerthefallofthesurplusreturns.Thisisthewayinwhichtheinterestrateshouldbeformed,andthewayinwhichitshouldalter,ifourtheoryiscorrect.Howisitinactuallife?–Exactlyasourformulapredicts,andthusexperiencegivesthatformulathemostcompleteverification.For,first,itisoneofthebestaccreditedandrecognisedfactsofeconomichistorythattheincreaseofthesubsistencefund,or,touseanexpressionnotquitesoaccuratebutyetroughlysignificant,theincreaseofthecom-munity’scapital,hasatendencytodepresstherateofinterest.Second,itisnolessfamiliarandself-evidentthatherewedonotspeakoftheabsoluteamountofthenationalcapital,butoftherelationbetweenthatcapitalandthenumbersofthepopulation:inotherwords,wemeanthatanincreaseofpopulation,withoutasimultaneousincreaseofcapital,hasatendencytoraisetheinterestrate.And,thirdly,itisalsoanacknowledgedempiricalfactthatthediscoveryofnewandmoreproductivemethodsofproduction,outlets,businessopportunities,etc.,whichconducetocheckthefallofsurplusreturns,tendtoraisetherateofinterest,whiletheclosingofformeropportunitiesofproductionorsale,orotheroccurrenceswhichendinareductionoftheprevi-ousdegreeofproductiveness,tendtolowertheinterestrate.Wefind,therefore,thatallthosefac-torstowhich,onthelinesofourformerinquiry,wewereforcedtoascribeadecisiveinfluenceontheinterestrate,do,asafact,possessandexertthatinfluence.… Part5TheDevelopmentofMacroeconomicsIntroductionForaboutacentury,Say’sLawwasseenaseffectivelyrulingoutseriouseconomicinstability,businesscycles,andproblemsofunemployment.Yet,itwasincreasinglyanduneasilycombinedwithempiricalandtheoreticalstudiesofbusinesscyclesandunemployment.AsPaulSamuelsonputitinadifferentconnection,Economicsexhibitedschizophrenia:preachingstabilityandstudyinginstability.Hundreds,ifnotthousands,ofbooksandarticleswerepublisheddealingwitheconomicinstabilityanditsaccompaniments.Thefieldsofbusinesscycletheoryandempiri-calbusinesscycleresearchbecame,intheearlytwentiethcentury,increasinglyimportant.Inpart,thesubject-matterderivedfromthehistoricalrecord:crisesandcycles;andeconomistsendeavoredtomakesenseofthem.Inpart,too,theworkofeconomistscenteredonhowtheymodeledthemacroeconomy,thatis,thegenerallevelsofoutputandemployment.Partoftherecordistheuseofmonetarytheory,particularlythequantitytheoryofmoney,aseitheranapproachoramajorelementintheapproachformulated.Say’sLawwasformulatedinseveraldifferentways:thatsupplycreatesitsowndemand,thatis,thatpaymentstoinputownersconstitutethepurchasingpowerforoutput;thatproductioniscoextensivewithtotaluse;andthatallincomeisspent,thatis,whatisnotspentonconsumption(andgovernment,thenaminorspendingcategory)isalsospent,oninvestmentgoods.ThebasiclogicofSay’sLawmadeintuitivesense:peoplesuppliedgoodsinordertoacquirethepurchasingpowerwithwhichtobuyothergoods.Butthislogic–andasystemoflogic,notofempirics,itwas–dependedonseveralassumptions;infact,inthenineteenthcenturyeconomistsidentifiedtheseassumptionsoftenforthepurposeofmakingthesystemwork,thatis,toyieldinferencesofstableoutputandemployment.Theassumptionsincludethese:(1)thatmoneyisonlyamediumofexchange,(2)thattheinterestrateequatessavingandinvestment,(3)thatthepricesofgoodsandthefactorsofproductionareflexible,and(4)thatwantsareinsatiable.Iftheseconditionsapplied,theeconomyshouldbestable,thatis,withoutbusinesscycles.Buttheassumptionsneednotapplyand,perhaps,typicallydidnot.(1)Moneywasastoreofvalue,notonlyamediumofexchange;peoplecouldhaveadesiretoholdontomoneybalancesortoputtheminportfolioinvestment,whichdidnotnecessarilyleadtotherealinvestmentrequiredbythetheory.(2)Theinterestrateequatedthedemandandsupplyofmoney,notsavingandinvestment.(3)Priceseitherwerenotorwerenotnecessarilyflexible.Inflexiblepricesmeantmarketsdidnotclear,leadingtoinstability.Also,economistscouldnotagreewhenpriceswereandwerenotflexible.(4)Insatiablewantsprovedsomewhatmetaphysical;eventuallytheriddlewassolvedbyasking,notwhetherwantswereinfactinsatiable–whoknewwhat“insatiable”meant?–butwouldconsumersbuygoodsunderanyandallconditions,andwouldrealinvestorsbuyinvestmentgoodsnomatterwhattheexpectedrateofprofit?Puttingthematterthatway,itbecameobviousthat,forexample,evenifbusinesspersonscouldaccumulateplantandequip-mentwithoutlimit,therewereinfactlimits,whichmeantthat,incombinationwiththeother findings,thelogicofSay’sLawbrokedown.Inaddition,iteventuallybecamewidelyfeltthatSay’sLawmisconstruedtheincomemechanism,misconceivedtheproblemwithwhichitdealt,andwasempiricallywrong,thisunlessoneassumedthatanyachievedlevelofincomeisipsofactothefullemploymentlevel–anassumptionwithproblemsofitsown.Ofthehundredsofeconomistswhoworkedontheseproblems,threeareincludedinthiscol-lection:KnutWicksell,IrvingFisher,andJohnMaynardKeynes.Eachmadeimportantadvancesonclassicalmacroeconomicthinking,andeachdidsoinquitedifferentways–andwithratherdifferentpolicyimplications,asthefollowingreadingsdemonstrate. KNUTWICKSELL(1851–1926)OnemajorcontributortothismacroeconomicsliteratureattheturnofthecenturywastheSwedisheconomistKnutWicksell(1851–1926).WicksellwasborninStockholmandeducatedinmathematicsattheUniversityofUppsala.Roughlyadecadelater,in1885,hebegantotravelonthecontinentstudyingeconomics,and,in1895,heearnedhisdoctoratefromUppsalaand,subsequenttothat,adegreeinlaw.HetaughtattheUniversityofLund(Sweden)from1899to1916.ButWicksell’sinterestswentfarbeyondtheacademic;hewasalsoasocialandpoliticalradical.HewasdeeplyinfluencedbytheMalthusiantheoryofpopulationandwroteinthepopularpressonissuesofpopulationandfamilyplanning,feminism,alcoholism,andthemonarchy.Ontheeconomicsfront,Wicksellwasmuchmorethepuretheoristthanwhathisreformistactivitiesmightleadonetothink.Hewroteonanumberoftopics,includingpublicfinance(hisdoctoralthesiswasontaxation),pricetheory,marginalproductivitytheory,andsoon.Wicksell’stheorythatonlyunanimityinthevotingprocesscouldguaranteethatpolicymeasureswerewelfare-improvingwasamajorimpetusforthedevelopmentofmodernpublicchoicetheoryinthehandsofJamesBuchananandGordonTullock.ButWicksell’smajorcontributionwashisattempttoexplicateeconomicinstabilityonthebasisofdifferencesbetweenthe“natural”(returnonnewcapital)and“market”(whatbankscharge)ratesofinterest,doingsowithanemphasisonwhatanotherSwedisheconomist,GunnarMyrdal,latercalled“cumulativecausation.”Thebasicideawasthatifthemarketrateofinterestwasbelowthepositednaturalrate,increasedinvestmentwouldtakeplace,leadingtobothgrowththatcouldnotbemaintainedandinflation,andtherebytoamoreorlessseriousadjustmentprocess.Conversely,ifthemarketrateofinterestwasabovethenaturalrate,investment,output,andincomewouldfall,leadingtoanadjustmentprocessoftheoppositekind,arecessionordepres-sion.Here,Wicksellmovedthedebatebeyondthesimplequantitytheorythatlinkedthepriceleveldirectlytothesupplyofmoney.TheStockholmSchoolofEconomics,whichincludedBertilOhlin,Myrdal,andErikLindahl,developedfromhiswork.Wicksell’s“Theinfluenceoftheinterestrateonprices,”reprintedhere,givesaconcisestate-mentofhistheoryoftherelationshipbetweenprice-levelfluctuationsandtherateofinterest–Wicksell’ssignalcontributiontoeconomictheory.ReferencesandfurtherreadingBlaug,Mark,ed.(1992)KnutWicksell(1851–1926),Aldershot:EdwardElgarPublishing.Gårlund,Torsten(1958)TheLifeofKnutWicksell,translatedbyNancyAdler,Stockholm:Almqvist&Wiksell.Hennipman,P.(1982)“WicksellandPareto:TheirRelationshipintheTheoryofPublicFinance,”HistoryofPoliticalEconomy14(Spring):37–64.Humphrey,ThomasM.(1997)“FisherandWicksellontheQuantityTheory,”FederalReserveBankofRichmondEconomicQuarterly83(Fall):71–90. 556TheDevelopmentofMacroeconomicsPatinkin,Don(1972)StudiesinMonetaryEconomics,NewYork:Harper&Row.Pivetti,Massimo(1987)“Wicksell’sTheoryofCapital,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.4,London:Macmillan,912–15.Samuelson,P.A.(1987)“WicksellandNeoclassicalEconomics,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.4,London:Macmillan,908–10.Uhr,C.G.(1960)EconomicDoctrinesofKnutWicksell,Berkeley,CA:UniversityofCaliforniaPress.——(1987)“Wicksell,JohanGustavKnut,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.4,London:Macmillan,901–8.Wicksell,Knut(1893)Value,CapitalandRent,translatedbyS.H.Frowein,London:Allen&Unwin,1954.——(1898)InterestandPrices:AStudyoftheCausesRegulatingtheValueofMoney,translatedbyR.F.Kahn,London:Macmillan,1936.——(1938)LecturesonPoliticalEconomy,2vols,translatedbyE.ClassenandeditedwithanintroductionbyLionelRobbins,London:Routledge.——(1958)SelectedPapersonEconomicTheory,editedbyErikLindahl,Cambridge,MA:HarvardUniversityPress.——(1997)SelectedEssaysinEconomics,Vol.I,editedbyBoSandelin,London:Routledge.——(1999)SelectedEssaysinEconomics,Vol.II,editedbyBoSandelin,London:Routledge. “TheInfluenceoftheRateofInterestonPrices”(1907)*ThethesiswhichIhumblysubmittocriticismisthis.If,otherthingsremainingthesame,theleadingbanksoftheworldweretolowertheirrateofinterest,say1percentbelowitsordinarylevel,andkeepitsoforsomeyears,thenthepricesofallcommoditieswouldriseandriseandrisewithoutanylimitwhatever;onthecontrary,iftheleadingbanksweretoraisetheirrateofinter-est,say1percentaboveitsnormallevel,andkeepitsoforsomeyears,thenallpriceswouldfallandfallandfallwithoutanylimitexceptZero.Nowthispropositioncannotbeproveddirectlybyexperience,becausethefactrequiredinitshypothesisneverhappens.Thesuppositionwasthatthebanksweretolowerorraisetheirinterest,otherthingsremainingthesame,butthat,ofcourse,thebanksneverdo;why,indeed,shouldthey?Otherthingsremainingthesame,thebank-rateissuretoremainthesametoo,orif,byanychance,forexample,bymistake,itwerealtered,itwouldverysooncomeroundtoitsproperlevel.Mythesisis,therefore,onlyanabstractstatement,andsomebody,perhaps,willask:whatistheuseofitthen?ButIventuretoassertthatitmaybeofverygreatuseallthesame.EverybodyknowsthestatementofNewtonthat,iftheattractionofthesunweresuddenlytocease,thentheplanetswouldleavetheirorbitsinthetangentialdirection;this,too,ofcourse,isonlyanabstractproposition,becausethesolarattractionneverceases,butitismostusefulnevertheless;indeed,itistheverycorner-stoneofcelestialmechanics;andinthesamewayIbelievethatthethesisherepro-pounded,ifprovedtobetrue,willturnouttobethecorner-stoneofthemechanicsofprices,orratheroneofitscorner-stones,theinfluenceofthesupplyofpreciousmetalsandofthedemandforcommoditiesfromthegold-producingcountriesbeingtheother.Beforegoingfurther,however,wemustansweronemorequestion.Oursuppositionmightbenotonlyunrealastofacts,butevenlogicallyimpossible;andthen,ofcourse,itsusewouldbenil.Accordingtothegeneralopinionamongeconomists,theinterestonmoneyisregulatedinthelongrunbytheprofitoncapital,whichinitsturnisdeterminedbytheproductivityandrelativeabundanceofrealcapital,or,inthetermsofmodernpoliticaleconomy,byitsmarginalproductiv-ity.Thisremainingthesame,as,indeed,byoursuppositionitismeanttodo,woulditbeatallpossibleforthebankstokeeptherateofinteresteitherhigherorlowerthanitsnormallevel,prescribedbythesimultaneousstateoftheaverageprofitoncapital?Thisquestiondeservesverycarefulconsideration,and,infact,itsproperanalysiswilltakeusalongwaytowardssolvingthewholeproblem.Interestonmoneyandprofitoncapitalarenotthesamething,noraretheyimmediatelyconnectedwitheachother;iftheywere,theycouldnotdifferatall,orcouldonlydifferacertain*ApaperreadbeforetheEconomicSectionoftheBritishAssociation,1906.Publishedin:TheEconomicJournal,17(June1907):213–20. 558TheDevelopmentofMacroeconomicsamountateverytime.Thereisnodoubtsomeconnectinglinkbetweenthem,butthepropernatureandextentofthisconnectionisnotsoveryeasytodefine.Ifwelookonlyatcredittransactionsbetweenindividuals,withoutanyinterferenceofbanks,theconnectionbetweeninterestandprofitindeedseemsobvious.Ifbyinvestingyourcapitalinsomeindustrialenterpriseyoucanget,afterdueallowanceforrisk,aprofitof,say,10percent,then,ofcourse,youwillnotlenditatamuchcheaperrate;andiftheborrowerhasnorecoursebuttoindividualsinthesamesituationasyou,hewillnotbeabletogetthemoneymuchcheaperthanthat.Butitisaverydifferentthingwiththemodernformsofcredit,whichalmostalwaysimplythemediationofsomebankorprofessionalmoney-lender.Thebanksintheirlendingbusinessarenotonlynotlimitedbytheirowncapital;theyarenot,atleastnotimmediately,limitedbyanycapitalwhatever;byconcentratingintheirhandsalmostallpayments,theythemselvescreatethemoneyrequired,or,whatisthesamething,theyaccelerateadlibitumtherapidityofthecircula-tionofmoney.Thesumborrowedto-dayinordertobuycommoditiesisplacedbythesellerofthegoodsonhisaccountatthesamebankorsomeotherbank,andcanbelenttheverynextdaytosomeotherpersonwiththesameeffect.AstheGermanauthor,EmilStruck,justlysaysinhiswell-knownsketchoftheEnglishmoneymarket:inourdaysdemandandsupplyofmoneyhavebecomeaboutthesamething,thedemandtoalargeextentcreatingitsownsupply.Inapuresystemofcredit,whereallpaymentsweremadebytransferenceinthebank-books,thebankswouldbeabletograntatanymomentanyamountofloansatany,howeverdiminutive,rateofinterest.Butthen,whatbecomesoftheconnectinglinkbetweeninterestandprofit?Inmyopinionthereisnosuchlink,exceptpreciselytheeffectonprices,whichwouldbecausedbytheirdifference.Wheninterestislowinproportiontotheexistingrateofprofit,andif,asItakeit,thepricestherebyrise,then,ofcourse,tradewillrequiremoresovereignsandbank-notes,andthereforethesumslentwillnotallcomebacktothebank,butpartofthemwillremainintheboxesandpursesofthepublic;inconsequence,thebankreserveswillmeltawaywhiletheamountoftheirliabilitiesverylikelyhasincreased,whichwillforcethemtoraisetheirrateofinterest.Thereverseofallthis,ofcourse,willtakeplacewhentherateofinteresthasaccidentallybecometoohighinproportiontotheaverageprofitoncapital.Sofar,youwilleasilyremark,mypropositionisquiteinaccordancewithwell-knownfactsofthemoneymarket.Ifitbenottrue,if,onthecontrary,asThomasTookeasserted,andevenRicardoinhisearlierwritingsseemstohavebelieved,alowrateofinterest,bycheapening,astheyputit,oneoftheelementsofpro-duction,wouldlowerprices,andahighrateofinterestraisethem–amostspeciousargument,resting,however,ontheunwarrantableassumptionthattheremunerationoftheotherfactorsofproductioncould,undersuchcircumstances,remainthesame–thenthepolicyofbanksmustbetheveryreverseofwhatitreallyis;theywouldlowertheirrateswhenpricesweregettinghighandreservesbecominglow,theywouldraisethemintheoppositecase.Amoredirectproofofmythesisisrequired,however,andmightbegiveninsomesuchwayasthis.IfasamerchantIhavesoldmygoodstotheamountof£100againstabillorpromissorynoteofthreemonths,andIgetitdiscountedatoncebyabankorabillbroker,therateofdis-countbeing4percentperannum,theninfactIhavereceivedacashpriceformygoodsamountingto£99.If,however,thebillistakenbythebankat3percent,thenthecashpriceofmygoodshaveipsofactorisen,ifonlyaquarterof1percent;verylikelynoteventhat,becausecompetitionprobablywillforcemetocedepartofmyextraprofittothebuyerofthegoods.Inothercases,however,whenlong-termcreditcomesintoplay,theimmediateriseofpricesmightbeverymuchgreaterthanthat.Iftherateofdiscountremainslow,theinterestonlongloansissuretogodowntoo;buildingcompaniesandrailwaycompanieswillbeabletoraisemoney,sayat4percentinsteadof5percent,andtherefore,otherthingsbeingthesame,theycanoffer,and Wicksell:“InfluenceoftheRateofInterestonPrices”559bycompetitionwillbemoreorlesscompelledtoofferforwagesandmaterials,anythingupto25percentmorethanbefore,4percenton£125beingthesameas5percenton£100.But,further–andthisistheessentialpointtowhichIwouldcallyourspecialattention–theupwardmovementofprices,whethergreatorsmallinthefirstinstance,canneverceasesolongastherateofinterestiskeptlowerthanitsnormalrate,thatis,therateconsistentwiththethenexistingmarginalproductivityofrealcapital.Whenallcommoditieshaveriseninprice,anewlevelofpriceshasformeditselfwhichinitsturnwillserveasbasisforallcalculationsforthefuture,andallcontracts.Therefore,ifthebank-ratenowgoesuptoitsnormalheight,thelevelofpriceswillnotgodown;itwillsimplyremainwhereitis,therebeingnoforcesinactionwhichcouldpressitdown;and,consequently,ifthebank-rateremainslowerthanitsnormalheight,anewimpetustowardsforcingupthepriceswillfollow,andsoon.Theoppositeofallthiswilltakeplacewhentherateofinteresthasbecometoohighinproportiontoaverageprofit,andsoinbothcasesadifferencebetweenthetworatesremaining,themovementofpricescannevercease,justastheelectriccurrentneverceasesaslongasthedifferenceoftensionbetweenthepolesremains.Thepropositionthatalowrateofinterestwillraiseprices,ahighrateofinterestlowerprices,isinsomerespectsanythingbutnew;ithasbeenstatedmorethanonce,butaformidableobjec-tionwasalwaystriumphantlybroughtagainstitintheshapeofstatisticalfacts;indeed,ifyouconsiderthefiguresgiven,forexample,bySauerbeckinhiswell-knowntablesintheJournaloftheStatisticalSociety,youwillgenerallyfindthathighpricesdonotcorrespondwithalowrateofinterest,andviceversa;itrathercomestheoppositeway,interestandpricesveryoftenrisingandfallingtogether.Butthisobjectionquitelosesitsimportance;nay,more,itturnsintoapositivesupportofourtheory,assoonaswefixoureyesontherelativityoftheconceptionofinterestonmoney,itsnecessaryconnectionwithprofitoncapital.Therateofinterestisneverhighorlowinitself,butonlyinrelationtotheprofitwhichpeoplecanmakewiththemoneyintheirhands,andthis,ofcourse,varies.Ingoodtimes,whentradeisbrisk,therateofprofitishigh,and,whatisofgreatconsequence,isgenerallyexpectedtoremainHigh;inperiodsofdepressionitislow,andexpectedtoremainlow.Therateofinterestonmoneyfollows,nodoubt,thesamecourse,butnotatonce,notofitself;itis,asitwere,draggedaftertherateofprofitbythemovementofpricesandtheconsequentchangesinthestateofbankreserve,causedbythedifferencebetweenthetworates.Inthemeantimethisdifferenceactsonpricesinjustthesamewayaswouldbethecaseif,accordingtoouroriginalsupposition,profitoncapitalweretoremainconstant,andinterestonmoneyweretoriseorfallspontaneously.Inoneword,theinterestonmoneyis,inreality,veryoftenlowwhenitseemstobehigh,andhighwhenitseemstobelow.ThisIbelievetobetheproperanswertotheobjectionstatedabove,asfarastheinfluenceofcreditonpricesisregarded;occasionally,ofcourse,asintimesofwildspeculationorpanics,theproblemiscomplicatedverymuchbytheactionofotherfactors,whichneednotherebetakenintoconsideration.Granted,then,ourtheorytobetrueinthemainorintheabstract,whatwillbeitspracticalconsequences?Towhatextentwouldtheleadingmoneyinstitutionsbeabletoregulateprices?Asinglebank,ofcourse,hasnosuchpowerwhatever;indeed,itcannotputitsrates,whethermuchhigherormuchlowerthanprescribedbythestateofthemarket;ifitdid,itwouldintheformercaseloseallprofitablebusiness;inthelattercaseitsspeedyinsolvencywouldbetheinevitableconsequence.Notevenallthebanksofasinglecountryunitedcoulddoitinthelongrun;atoohighortoolowratewouldinfluenceitsbalanceoftrade,andtherebycauseaninfluxorrefluxofgoldinthewell-knownway,soastoforcethebankstoapplytheirratestothestateoftheuniversalmoneymarket.Butsupposing,as,indeed,wehavedone,thatalltheleadingbanksofthecommercialworldweretofollowthesamecourse,thengoldcouldhavenoreasontogotooneplacemorethanto 560TheDevelopmentofMacroeconomicsanother,andsotheactionexercisedonpriceswouldhaveitsswaywithoutanyhindrancefromtheinternationalmovementofmoney.Still,eventhenitwould,underthepresentcircumstances,haveitsobviouslimits.AsIremarkedattheoutset,theinfluenceofcreditortherateofinterestisonlyoneofthefactorsactingonprices;theotheristhevolumeofmetallicmoneyitself,espe-cially,inourtimes,thesupplyofgold,andsolongasthegolditselfremainsthestandardofvalue,thisfactorevidentlywilltaketheleadinthelongrun.Weretheproductionofgoldmateri-allytodiminishwhilethedemandformoneybeunaltered,thebanksnodoubt,byloweringtheirrateofinterest,mightforawhileprofitablyreactagainsttheotherwiseinevitablepressureonprices,butonlyforawhile,because,eveniftheratherunnecessarystiffnessofpresentbankleg-islationscouldbeslackened,theever-growingdemandforgoldforindustrialpurposeswouldgraduallyreducethebankstores,andcouldonlybecheckedbyraisingthepriceofgold–thatis,byloweringtheaveragemoneyprices.Theotherextreme,whichatpresentseemsmuchmorelikelytooccur:aplethoraofgoldsup-ply,andtheriseofpricestherebycaused,couldnotbeeffectuallymetinanyway,solongasfreecoinageofgoldexists.1Ontheotherhand,ifthismostessentialsteponthewaytoarationalmonetarysystemshouldbetaken,ifthefreecoiningofgold,likethatofsilver,shouldcease,andeventuallythebank-noteitself,orrathertheunityinwhichtheaccountsofbanksarekept,shouldbecomethestandardofvalue,then,andnottillthen,theproblemofkeepingthevalueofmoneysteady,theaveragelevelofmoneypricesataconstantheight,whichevidentlyistoberegardedasthefundamentalprob-lemofmonetaryscience,wouldbesolvabletheoreticallyandpracticallytoanyextent.Andthemeansofsolvingitneednotbesoughtinsomemoreorlessfantasticschemelikethatofacen-tralissuingbankforalltheworld,asitissometimesproposed,butsimplyinapropermanipula-tionofgeneralbank-rates,loweringthemwhenpricesaregettinglow,andraisingthemwhenpricesaregettinghigh.Norwouldthissystembeatallartificial,becausethepointaboutwhichtherateofinterestwouldthenoscillate,andtowhichitwouldconstantlygravitate,wouldbepreciselywhatIhavecalledaboveitsnormallevel,thatoneprescribedbythesimultaneousstateofthemarginalpro-ductivityofrealcapital,thealterationsofwhichwe,ofcourse,cannotcontrol,butonlyhavetocomplywith.PS–WhenthispaperwasreadattheBritishAssociationmeetingitwasobjectedbyMrPalgravethatthebankscouldnotpossiblybechargedwiththeregulationofprices,theirlibertyofaction–ifIunderstoodhimright–being,inhisview,restrictedbythenecessityofprotectingtheirownreservesaswellfromgettingtoolowinconsequenceofanunfavourablebalanceoftrade,asfromrunningtoanunprofitableheightbyaninfluxofgold.This,nodoubt,istrue,butitmustnotbeforgottenthattheinternationalratepolicyofbankshas,asitwere,twodegreesoffreedom,insofarastheinternationalmovementofgoldcanbecheckedormodified,notonlybyraisingtherateofdiscountinthecountryfromwhichthemetalflows,butalsobyloweringitinthecountry,orcountries,towhichgoldisflowing.Inotherwords,theactionofthebanksagainsteachother,whichhasforitsobjecttheproperdistributionofmoney,orthelevellingoftheniveauofpricesbetweendifferentcountries,mightlogicallybeconcomitantwithacommonactionforthepurposeofkeepingtheuniversalvalueofmoneyandlevelofpricesataconstantheight,which,however,underpresentcircumstancesonlycanbedonewithinthelimitsprescribedbythegeneralsupplyofgold.Ontheotherhand,itwasremarkedbyProfessorEdgeworththatifthefreecoinageofgoldbesuppressed,theGovernmentsthemselveshaveintheirhandtheregulatingofgeneralprices.This,too,istrue,atanyratesolongasthepresentlargeproductionofgoldpersists;andevenifitshouldcease,andgoldbecomescarce,theGovernments,nodoubt,mightsupplantthelackin Wicksell:“InfluenceoftheRateofInterestonPrices”561currencybyajudiciousemissionofpaper-money.ButasingleGovernmenthasinthisrespectonlythechoicebetweentwoalternatives:itmaytrytokeepthevalueofitsmoneysteadytowardsthecommodities,butthenitnecessarilysacrificestheparityofitsexchanges;orelseitmaymanagetokeepitsexchangesstrictlyatpar,butthenithasofitselfnopoweroverthelevelofprices.Someinternationalagreement,eitherregardingtheamountofgoldtobecoinedbyeachcoun-tryorelseinvolvingacommonrate-policyofthebanksasdescribedabove,mustneedscomeintoplay,shallboththosepurposes–thesteadinessoftheaveragevalueofmoneyandtheparityofexchanges–befulfilledtogether;anditseemstome,althoughImaybemistaken,thatforseveralreasonssuchagreementscouldbefarmoreeasilyandeffectuallymadebythebanks,withthesupport,thatis,oftheGovernments,thanbytheGovernmentsthemselvesexclusiveofthebanks.Foramoredetailedanalysisofthepracticalsideofthequestionandofthewholeargument,Imustrefertomybook,GeldzinsundGüterpreise(Jena:GustavFischer,1898;beingthefurtherdevelopmentofanarticleinConrad’sJahrbücher,Bd.13,1897),aswellastomyprintedUniversityLectures(Bd.1:2,1906,inSwedish).Notes1Itisnoteasytodescribeorimaginetheexactmannerinwhichanexcessordeficiencyintheordinarygoldsupplyaffectsprices,althoughitsultimateeffectonthemcannotwellbedoubted.Asinourdaysthenewgoldgenerallyfindsitswayassoonaspossibletothebanks,thecommonimpressionseemstobethatitbysomuchincreasestheloanablefundsofthebanks,andthereforeinthefirstinstancecausestherateofinteresttogodown.This,nodoubt,wouldbetrueifthenewgoldinitstotalityweredepositedbyitsownersascapitalforlendingpurposes,andinsofarasthismaybethecaseitindeedaffordsanillustration,andtheonlypracticalone,oftheloweringofbankrateseffectingariseofprices.Butmostly,Isuppose,thegoldcomestousnotaslendingcapital,butaspaymentfortheimportsofthegold-producingcoun-tries,andifsoitsactingonthepriceswillbemuchmoreimmediateanditseffectontherateofinterestveryslight.Itisevenpossiblethattheriseofprices,causedbytheincreaseddemandforcommoditiesfromthegoldcountries,willforerunthearrivingofthegold,thenecessarymediumofexchangebeinginthemeantimesuppliedbyanextensionofthecredit,sothattherateofinterestperhapswillrisefromthebeginning.Inanycasetheultimateeffectofanincreasedgoldsupplywillbearise,notafall,intherateofinterest(andviceversawithalackingsupplyofgold),becausethelargeminingenterprisesandthebuy-ingupofgoldbythenon-producingcountrieshaveactuallydestroyedlargeamountsofrealcapitalandtherebygiventherateofprofitatendencytorise.Thisallmaybetheexplanationofsomeratherper-plexingfeaturesineconomichistory,ariseofpricesevenwhenapparentlycausedbyasurplusofgoldsupplyveryseldombeingaccompaniedbyalowrateofinterest,butgenerallybyahighone. IRVINGFISHER(1867–1947)IrvingFisherwasaleadingUSeconomistformanyyearsandisthoughtbysometobethegreatestUSeconomistpriortoPaulSamuelsonandwascertainlytheUS’sforemostmonetaryeconomist.EducatedatYale,Fisheroriginallytaughtmathemat-icsthere,butmovedovertoeconomicsin1895followingthepublicationofhisthesis,MathematicalInvestigationsintotheTheoryofValueandPricesattractedwideattentionforitsoriginalandinsightfulcon-tributions.HespenttheremainderofhiscareeratYale,writingextensivelyineco-nomics(andmonetarytheoryinparticular)andalsopromotingvariouscauses–includingprohibition,thescientificapproachtohealthyliving,eugenics,andworldpeace–inwhichhewasapassion-atebeliever.Fisherwas,alongwithRagnarFrischandCharlesF.Roos,afounderoftheEconometricSocietyandservedasitsfirstpresident.Fisherwasavirtuosodeveloperofthequantitytheory,which,inhismodel,includedbothcurrencyandbankcredit–IrvingFisher,bycourtesyofManuscriptsandArchives,Yaleamajorinnovation.IfSay’sLawheld,thenUniversityLibrary.thequantitytheorymeantthatanychangeinthemoneysupply,M,likelyaffectedonlythepricelevel,P,intheequationP
MV/T.Withtheeconomystableatfullemployment,thevelocityoftheuseofmoney,V,wouldlikelynotchange,norwouldtheleveloftransactions,T(oroutput,O,inadifferentformulationofthetheory).Thus,Fisherandothermonetaryeconomistsattemptedtocombatempiricalinstabilitybytinkering,evenreconstructinginamajorway,themonetary,ormoneyandbanking,system.Fisherwasparticularlyadroitatidentifyingorimaginingmonetaryreformswhichhopefullywouldstabilizetheeconomicsystem.Hisothermostimportanttechnicalcontributionsincludedhisthe-oryofinterest(quiteinthetraditionofBöhm-Bawerk);thetheoryandpracticeofindexnumbers;pricetheory;capitaltheory;andsoon,includingthemathematicizationofeconomictheory. IrvingFisher563Hecombinedpuretheory,statistics,andnonquantitativeempiricalandinstitutionalstudies,inamannerreminiscentof,butarguablymoreadvancedthan,Jevons.TheexcerptsfromThePurchasingPowerofMoneyreprintedheregivethereaderaniceelaborationofFisher’sresurrectionandrefinementofthequantitytheoryandtheassociatedequationofexchange.ReferencesandfurtherreadingBarber,WilliamJ.(1999)“IrvingFisher(1867–1947):CareerHighlightsandFormativeInfluences,”inHans-E.LoefandHansG.Monissen(eds),TheEconomicsofIrvingFisher:ReviewingtheScientificWorkofaGreatEconomist,Aldershot:EdwardElgarPublishing.Blaug,Marketal.(1995)TheQuantityTheoryofMoney:FromLocketoKeynesandFriedman,Aldershot:EdwardElgarPublishing.Dimand,RobertA.(1998)“FisherandVeblen:TwoPathsforAmericanEconomics,”JournaloftheHistoryofEconomicThought20(December):449–65.Fellner,Williametal.(1967)TenEconomicStudiesintheTraditionofIrvingFisher,NewYork:JohnWiley&Sons.Fisher,Irving(1892)MathematicalInvestigationsintheTheoryofValueandPrices,reprinted,NewYork:AugustusM.Kelley,1961.——(1906)TheNatureofCapitalandIncome,NewYork:Macmillan.——(1922)TheMakingofIndexNumbers,Boston:HoughtonMifflin.——(1930)TheTheoryofInterest,NewYork:Macmillan.——(1997)TheWorksofIrvingFisher,editedbyWilliamJ.Barber,consultingeditorJamesTobin,London:PickeringandChatto.Fisher,I.N.(1956)MyFatherIrvingFisher,NewYork:CometPress.Loef,Hans-E.andMonissen,HansG.,eds(1999)TheEconomicsofIrvingFisher:ReviewingtheScientificWorkofaGreatEconomist,Cheltenham:EdwardElgarPublishing.Samuelson,PaulA.(1967)“IrvingFisherandtheTheoryofCapital,”inWilliamFellneretal.(eds),TenEconomicStudiesintheTraditionofIrvingFisher,NewYork:JohnWiley&Sons.Tobin,James(1987)“Fisher,Irving,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.2,London:Macmillan,369–76. ThePurchasingPowerofMoneyandItsDeterminationandRelationtoCreditInterestandCrises(1911)*ChapterII:Purchasingpowerofmoneyasrelatedtotheequationofexchange1Wedefinemoneyaswhatisgenerallyacceptableinexchangeforgoods.Thefacilitywithwhichitmaythusbeexchanged,oritsgeneralacceptability,isitsdistinguishingcharacteristic.Thegeneralacceptabilitymaybereënforcedbylaw,themoneythusbecomingwhatisknownas“legaltender”;butsuchreënforcementisnotessential.Allthatisnecessaryinorderthatanygoodmaybemoneyisthatgeneralacceptabilityattachtoit.Onthefrontier,withoutanylegalsanction,moneyissometimesgolddustorgoldnuggets.IntheColonyofVirginiaitwastobacco.AmongtheIndiansinNewEnglanditwaswampum.“InGermanNewGuineathebenttusksofaboarareusedasmoney.InCaliforniaredbirds’headshavebeenusedinthesameway.”StonemoneyandshellmoneyaresousedinMelanesia.“InBurmahChinesegamblingcountersareusedasmoney.GuttaperchatokensissuedbystreetcarcompaniesinSouthAmericaaresaidtobeusedinthesameway.”NotmanyyearsagoinatowninNewYorkstate,similartokensgotintolocalcirculationuntiltheirissuewasforbiddenbytheUnitedStatesgovernment.InMexicolargecacaobeansofrelativelypoorqualitywereusedasmoney,andonthewestcoastofAfricalittlematswereused.Thelistcouldbeextendedindefinitely.Butwhateverthesubstanceofsuchacommodity,itisgeneralexchangeabilitywhichmakesitmoney.Ontheotherhand,evenwhatismadelegaltendermay,bygeneralusage,bedeprivedofitspracticalcharacterasmoney.DuringtheCivilWarthegovernmentattemptedtocirculatefifty-dollarnotes,bearinginterestat7.3percent,sothattheinterestamountedtotheveryeasilycom-putedamountofacentaday.Thenotes,however,failedtocirculate.Inspiteoftheattempttomaketheirexchangeeasy,peoplepreferredtokeepthemforthesakeoftheinterest.Moneyneverbearsinterestexceptinthesenseofcreatingconvenienceintheprocessofexchange.Thisconvenienceisthespecialserviceofmoneyandoffsetstheapparentlossofinterestinvolvedinkeepingitinone’spocketinsteadofinvesting.Therearevariousdegreesofexchangeabilitywhichmustbetranscendedbeforewearriveatrealmoney.Ofallkindsofgoods,perhapstheleastexchangeableisrealestate.Onlyincasesomepersonhappenstobefoundwhowantsit,canapieceofrealestatebetraded.Amortgageonrealestateisonedegreemoreexchangeable.Yet,evenamortgageislessexchangeablethanawellknownandsafecorporationsecurity;andacorporationsecurityislessexchangeablethanagovernmentbond.Infactpersonsnotinfrequentlybuygovernmentbondsasmerelytemporaryinvestments,intending*ThePurchasingPowerofMoneyandItsDeterminationandRelationtoCreditInterestandCrises,NewYork:Macmillan,1911.Secondrevisededition1922. Fisher:ThePurchasingPowerofMoney565tosellthemagainassoonaspermanentinvestmentsyieldingbetterinterestareobtainable.Onedegreemoreexchangeablethanagovernmentbondisabillofexchange;onedegreemoreexchangeablethanabillofexchangeisasightdraft;whileacheckisalmostasexchangeableasmoneyitself.Yet,nooneoftheseisreallymoneyfornoneofthemis“generallyacceptable.”Ifweconfineourattentiontopresentandnormalconditions,andtothosemeansofexchangewhicheitheraremoneyormostnearlyapproximateit,weshallfindthatmoneyitselfbelongstoageneralclassofpropertyrightswhichwemaycall“currency”or“circulatingmedia.”Currencyincludesanytypeofpropertyrightwhich,whethergenerallyacceptableornot,doesactually,foritschiefpurposeanduse,serveasameansofexchange.Circulatingmediaareoftwochiefclasses:(1)money;(2)bankdeposits,whichwillbetreatedfullyinthenextchapter.Bymeansofchecks,bankdepositsserveasameansofpaymentinexchangeforothergoods.Acheckisthe“certificate”orevidenceofthetransferofbankdeposits.Itisacceptabletothepayeeonlybyhisconsent.Itwouldnotbegenerallyacceptedbystrangers.Yetbychecks,bankdepositsevenmorethanmoneydoactuallyserveasamediumofexchange.Practicallyspeaking,moneyandbankdepositssubjecttocheckaretheonlycirculatingmedia.Ifpost-officeordersandtelegraphictransferaretobeincluded,theymayberegardedascertificatesoftransferofspecialdeposits,thepostofficeortelegraphcompanyservingthepurpose,forthesespecialtransactions,ofabankofdeposit.Butwhileabankdeposittransferablebycheckisincludedascirculatingmedia,itisnotmoney.Abanknote,ontheotherhand,isbothcirculatingmediumandmoney.Betweenthesetwoliesthefinallineofdistinctionbetweenwhatismoneyandwhatisnot.True,thelineisdelicatelydrawn,especiallywhenwecometosuchchecksascashier’schecksorcertifiedchecks,forthelatterarealmostidenticalwithbanknotes.Eachisademandliabilityonabank,andeachconfersontheholdertherighttodrawmoney.Yet,whileanoteisgenerallyacceptableinexchange,acheckisspeciallyacceptableonly,thatis,onlybytheconsentofthepayee.Realmoneyrightsarewhatapayeeacceptswithoutquestion,becauseheisinducedtodosoeitherby“legaltender”lawsorbyawell-establishedcustom.Ofrealmoneytherearetwokinds:primaryandfiduciary.Moneyiscalled“primary”ifitisacommoditywhichhasjustasmuchvalueinsomeuseotherthanmoneyasithasinmonetaryuse.Primarymoneyhasitsfullvalueindependentlyofanyotherwealth.Fiduciarymoney,ontheotherhand,ismoneythevalueofwhichdependspartlyorwhollyontheconfidencethattheownercanexchangeitforothergoods,forexample,forprimarymoneyatabankorgovernmentoffice,oratanyratefordischargeofdebtsorpurchaseofgoodsofmerchants.Thechiefexam-pleofprimarymoneyisgoldcoin;thechiefexampleoffiduciarymoneyisbanknotes.Thequalitiesofprimarymoneywhichmakeforexchangeabilityarenumerous.Themostimportantareportability,durability,anddivisibility.Thechiefqualityoffiduciarymoneywhichmakesitexchangeableisitsredeemabilityinprimarymoney,orelseitsimposedcharacteroflegaltender.Banknotesandallotherfiduciarymoney,aswellasbankdeposits,circulatebycertificatesoftencalled“tokens.”“Tokencoins”areincludedinthisdescription.Thevalueofthesetokens,apartfromtherightstheyconvey,issmall.Thus,thevalueofasilverdollar,aswealth,isonlyabout40cents;thatisallthattheactualsilverinitisworth.Itsvalueasproperty,however,is100cents;foritsholderhasalegalrighttouseitinpayingadebttothatamount,andacustomaryrighttosouseitinpaymentforgoods.Likewise,thepropertyvalueofa50-centpiece,aquarter,a10-centpiece,a5-centpiece,ora1-centpieceisconsiderablygreaterthanitsvalueaswealth.Thevalueofapaperdollaraswealth–forinstance,asilvercertificate–isalmostnothing.Itisworthjustitsvalueaspaper,andnomore.Butitsvalueaspropertyisahundredcents,thatis,theequivalentofonegolddollar.Itrepresentstothatextentaclaimoftheholderonthewealthofthecommunity.Figure1indicatestheclassificationofallcirculatingmediaintheUnitedStates.Itshowsthatthetotalamountofcirculatingmediaisabout81/2billions,ofwhichabout7billionsarebankdepositssubjecttocheck,and11/2billions,money;andthatofthis11/2billionsofmoney,1billionisfiduciarymoneyandonlyabout1/2abillion,primarymoney. 566TheDevelopmentofMacroeconomicsDepositssubjecttocheck8½billionsFiduciarymoneyPrimary1moneybillion2/3billionFigure1Inthepresentchapterweshallexcludetheconsiderationofbankdepositsorcheckcirculationandconfineourattentiontothecirculationofmoney,primaryandfiduciary.IntheUnitedStates,theonlyprimarymoneyisgoldcoin.Thefiduciarymoneyincludes(1)tokencoins,namelysilverdollars,fractionalsilver,andminorcoins(“nickels”andcents);(2)papermoney,namely(a)certificatesforgoldandsilver,and(b)promissorynotes,whetheroftheUnitedStatesgovernment(“greenbacks”),oroftheNationalbanks.Checksaside,wemayclassifyexchangesintothreegroups:theexchangeofgoodsagainstgoods,orbarter;theexchangeofmoneyagainstmoney,orchangingmoney;andtheexchangeofmoneyagainstgoods,orpurchaseandsale.Onlythelast-namedspeciesofexchangemakesupwhatwecallthe“circulation”ofmoney.Thecirculationofmoneysignifies,therefore,theaggregateamountofitstransfersagainstgoods.Allmoneyheldforcirculation,thatis,allmoney,exceptwhatisinthebanksandUnitedStatesgovernment’svaults,iscalled“moneyincirculation.”Thechiefobjectofthisbookistoexplainthecausesdeterminingthepurchasingpowerofmoney.Thepurchasingpowerofmoneyisindicatedbythequantitiesofothergoodswhichagivenquantityofmoneywillbuy.Thelowerwefindthepricesofgoods,thelargerthequantitiesthatcanbeboughtbyagivenamountofmoney,andthereforethehigherthepurchasingpowerofmoney.Thehigherwefindthepricesofgoods,thesmallerthequantitiesthatcanbeboughtbyagivenamountofmoney,andthereforethelowerthepurchasingpowerofmoney.Inshort,thepurchasingpowerofmoneyisthereciprocalofthelevelofprices;sothatthestudyofthepurchasingpowerofmoneyisidenticalwiththestudyofpricelevels.2Overlookingtheinfluenceofdepositcurrency,orchecks,thepricelevelmaybesaidtodependononlythreesetsofcauses:(1)thequantityofmoneyincirculation;(2)its“efficiency”orvelo-cityofcirculation(ortheaveragenumberoftimesayearmoneyisexchangedforgoods);and(3)thevolumeoftrade(oramountofgoodsboughtbymoney).Theso-called“quantitytheory,”1thatis,thatpricesvaryproportionatelytomoney,hasoftenbeenincorrectlyformulated,but(overlookingchecks)thetheoryiscorrectinthesensethatthelevelofpricesvariesdirectlywiththequantityofmoneyincirculation,providedthevelocityofcirculationofthatmoneyandthevolumeoftradewhichitisobligedtoperformarenotchanged.Thequantitytheoryhasbeenoneofthemostbitterlycontestedtheoriesineconomics,largelybecausetherecognitionofitstruthorfalsityaffectedpowerfulinterestsincommerceandpolitics. Fisher:ThePurchasingPowerofMoney567Ithasbeenmaintained–andtheassertionisscarcelyanexaggeration–thatthetheoremsofEuclidwouldbebitterlycontrovertediffinancialorpoliticalinterestswereinvolved.Thequantitytheoryhas,unfortunately,beenmadethebasisofargumentsforunsoundcur-rencyschemes.Ithasbeeninvokedonbehalfofirredeemablepapermoneyandofnationalfreecoinageofsilverattheratioof16to1.Asaconsequence,notafew“soundmoneymen,”believingthatatheoryusedtosupportsuchvagariesmustbewrong,andfearingthepoliticaleffectsofitspropagation,havedriftedintothepositionofopposing,notonlytheunsoundpro-paganda,butalsothesoundprinciplesbywhichitsadvocatessoughttobolsteritup.Theseattacksuponthequantitytheoryhavebeenrenderedeasybytheimperfectcomprehensionofitonthepartofthosewhohavethusinvokeditinabadcause.Personally,Ibelievethatfewmentalattitudesaremorepernicious,andintheendmoredisas-trous,thanthosewhichwouldupholdsoundpracticebydenyingsoundprinciplesbecausesomethinkersmakeunsoundapplicationofthoseprinciples.Atanyrate,inscientificstudythereisnochoicebuttofindandstatetheunvarnishedtruth.Thequantitytheorywillbemademoreclearbytheequationofexchange,whichisnowtobeexplained.Theequationofexchangeisastatement,inmathematicalform,ofthetotaltransactionseffectedinacertainperiodinagivencommunity.Itisobtainedsimplybyaddingtogethertheequationsofexchangeforallindividualtransactions.Suppose,forinstance,thatapersonbuys10poundsofsugarat7centsperpound.Thisisanexchangetransaction,inwhich10poundsofsugarhavebeenregardedasequalto70cents,andthisfactmaybeexpressedthus:70cents
10poundsofsugarmultipliedby7centsapound.Everyothersaleandpurchasemaybeexpressedsimilarly,andbyaddingthemalltogetherwegettheequationofexchangeforacertainperiodinagivencommunity.Duringthissameperiod,however,thesamemoneymayserve,andusu-allydoesserve,forseveraltransactions.Forthatreasonthemoneysideoftheequationisofcoursegreaterthanthetotalamountofmoneyincirculation.Theequationofexchangerelatestoallthepurchasesmadebymoneyinacertaincommunityduringacertaintime.Weshallcontinuetoignorechecksoranycirculatingmediumnotmoney.Weshallalsoignoreforeigntradeandthusrestrictourselvestotradewithinahypotheticalcom-munity.Laterweshallreincludethesefactors,proceedingbyaseriesofapproximationsthroughsuccessivehypotheticalconditionstotheactualconditionswhichprevailto-day.Wemust,ofcourse,notforgetthattheconclusionsexpressedineachsuccessiveapproximationaretruesolelyontheparticularhypothesisassumed.Theequationofexchangeissimplythesumoftheequationsinvolvedinallindividualexchangesinayear.Ineachsaleandpurchase,themoneyandgoodsexchangedareipsofactoequivalent;forinstance,themoneypaidforsugarisequivalenttothesugarbought.Andinthegrandtotalofallexchangesforayear,thetotalmoneypaidisequalinvaluetothetotalvalueofthegoodsbought.Theequationthushasamoneysideandagoodsside.Themoneysideisthetotalmoneypaid,andmaybeconsideredastheproductofthequantityofmoneymultipliedbyitsrapidityofcirculation.Thegoodssideismadeupoftheproductsofquantitiesofgoodsexchangedmultipliedbytheirrespectiveprices.Theimportantmagnitude,calledthevelocityofcirculation,orrapidityofturnover,issimplythequotientobtainedbydividingthetotalmoneypaymentsforgoodsinthecourseofayearbytheaverageamountofmoneyincirculationbywhichthosepaymentsareeffected.Thisvelocityofcirculationforanentirecommunityisasortofaverageoftheratesofturnoverofmoneyfordifferentpersons.Eachpersonhashisownrateofturnoverwhichhecanreadilycalculatebydividingtheamountofmoneyheexpendsperyearbytheaverageamounthecarries.Letusbeginwiththemoneyside.Ifthenumberofdollarsinacountryis5,000,000,andtheirvelocityofcirculationistwentytimesperyear,thenthetotalamountofmoneychanginghands 568TheDevelopmentofMacroeconomics(forgoods)peryearis5,000,000timestwenty,or$100,000,000.Thisisthemoneysideoftheequationofexchange.Sincethemoneysideoftheequationis$100,000,000,thegoodssidemustbethesame.Forif$100,000,000hasbeenspentforgoodsinthecourseoftheyear,then$100,000,000worthofgoodsmusthavebeensoldinthatyear.Inordertoavoidthenecessityofwritingoutthequantitiesandpricesoftheinnumerablevarietiesofgoodswhichareactuallyexchanged,letusassumeforthepresentthatthereareonlythreekindsofgoods–bread,coal,andcloth;andthatthesalesare:200,000,000loavesofbreadat$0.10aloaf,10,000,000tonsofcoalat$5.00aton,and30,000,000yardsofclothat$1.00ayard.Thevalueofthesetransactionsisevidently$100,000,000,thatis,$20,000,000worthofbreadplus$50,000,000worthofcoalplus$30,000,000worthofcloth.Theequationofexchangetherefore(rememberthatthemoneysideconsistedof$5,000,000exchanged20times)isasfollows:$5,000,00020timesayear
200,000,000loaves$0.10aloaf10,000,000tons$5.00aton30,000,000yards$1.00ayard.Thisequationcontainsonthemoneysidetwomagnitudes,namely(1)thequantityofmoneyand(2)itsvelocityofcirculation;andonthegoodssidetwogroupsofmagnitudesintwocolumns,namely(1)thequantitiesofgoodsexchanged(loaves,tons,yards),and(2)thepricesofthesegoods.Theequationshowsthatthesefoursetsofmagnitudesaremutuallyrelated.Becausethisequationmustbefulfilled,thepricesmustbeararelationtothethreeothersetsofmagnitudes,–quantityofmoney,rapidityofcirculation,andquantitiesofgoodsexchanged.Consequently,thesepricesmust,asawhole,varyproportionallywiththequantityofmoneyandwithitsvelo-cityofcirculation,andinverselywiththequantitiesofgoodsexchanged.Suppose,forinstance,thatthequantityofmoneyweredoubled,whileitsvelocityofcirculationandthequantitiesofgoodsexchangedremainedthesame.Thenitwouldbequiteimpossibleforpricestoremainunchanged.Themoneysidewouldnowbe$10,000,00020timesayearor$200,000,000;whereas,ifpricesshouldnotchange,thegoodswouldremain$100,000,000,andtheequationwouldbeviolated.Sinceexchanges,individuallyandcollectively,alwaysinvolveanequivalentquidproquo,thetwosidesmustbeequal.Notonlymustpurchasesandsalesbeequalinamount–sinceeveryarticleboughtbyonepersonisnecessarilysoldbyanother–butthetotalvalueofgoodssoldmustequalthetotalamountofmoneyexchanged.Therefore,underthegivenconditions,pricesmustchangeinsuchawayastoraisethegoodssidefrom$100,000,000to$200,000,000.Thisdoublingmaybeaccomplishedbyanevenorunevenriseinprices,butsomesortofariseofpricestheremustbe.Ifthepricesriseevenly,theywillevidentlyallbeexactlydoubled,sothattheequationwillread:$10,000,00020timesayear
200,000,000loaves$0.20perloaf10,000,000tons$10.00perton30,000,000yards$2.00peryard.Ifthepricesriseunevenly,thedoublingmustevidentlybebroughtaboutbycompensation;ifsomepricesrisebylessthandouble,othersmustrisebyenoughmorethandoubletoexactlycompensate.Butwhetherallpricesincreaseuniformly,eachbeingexactlydoubled,orsomepricesincreasemoreandsomeless(soasstilltodoublethetotalmoneyvalueofthegoodspurchased),thepricesaredoubledontheaverage.Thispropositionisusuallyexpressedbysayingthatthe“generallevelofprices”israisedtwofold.Fromthemerefact,therefore,thatthemoneyspentforgoodsmustequalthequantitiesofthosegoodsmultipliedbytheirprices,itfollowsthatthelevelofprices Fisher:ThePurchasingPowerofMoney569mustriseorfallaccordingtochangesinthequantityofmoney,unlesstherearechangesinitsvelocityofcirculationorinthequantitiesofgoodsexchanged.Ifchangesinthequantityofmoneyaffectprices,sowillchangesintheotherfactors–quanti-tiesofgoodsandvelocityofcirculation–affectprices,andinaverysimilarmanner.Thus,adoublinginthevelocityofcirculationofmoneywilldoublethelevelofprices,providedthequantityofmoneyincirculationandthequantitiesofgoodsexchangedformoneyremainasbefore.Theequationwillbecome:$5,000,00040timesayear
200,000,000loaves$0.20aloaf10,000,000tons$10.00aton30,000,000yards$2.00ayard,orelsetheequationwillassumeaforminwhichsomeofthepriceswillmorethandouble,andotherslessthandoublebyenoughtopreservethesametotalvalueofthesales.Again,adoublinginthequantitiesofgoodsexchangedwillnotdouble,buthalve,theheightofthepricelevel,providedthequantityofmoneyanditsvelocityofcirculationremainthesame.Underthesecircumstancestheequationwillbecome:$5,000,00020timesayear
400,000,000loaves$0.05aloaf20,000,000tons$2.50aton60,000,000yards$0.50ayard,orelseitwillassumeaforminwhichsomeofthepricesaremorethanhalved,andotherslessthanhalved,soastopreservetheequation.Finally,ifthereisasimultaneouschangeintwoorallofthethreeinfluences,thatis,quantityofmoney,velocityofcirculation,andquantitiesofgoodsexchanged,thepricelevelwillbeacompoundorresultantofthesevariousinfluences.If,forexample,thequantityofmoneyisdoubled,anditsvelocityofcirculationishalved,whilethequantityofgoodsexchangedremainsconstant,thepricelevelwillbeundisturbed.Likewise,itwillbeundisturbedifthequantityofmoneyisdoubledandthequantityofgoodsisdoubled,whilethevelocityofcirculationremainsthesame.Todoublethequan-tityofmoney,therefore,isnotalwaystodoubleprices.Wemustdistinctlyrecognizethatthequantityofmoneyisonlyoneofthreefactors,allequallyimportantindeterminingthepricelevel.3Theequationofexchangehasnowbeenexpressedbyanarithmeticalillustration.Itmaybealsorepresentedvisually,byamechanicalillustration.SucharepresentationisembodiedinFigure2.Thisrepresentsamechanicalbalanceinequilibrium,thetwosidesofwhichsymbolize,respec-tively,themoneysideandthegoodssideoftheequationofexchange.Theweightattheleft,sym-bolizedbyapurse,representsthemoneyincirculation;the“arm”ordistancefromthefulcrumatwhichthisweight(purse)ishungrepresentstheefficiencyofthismoney,oritsvelocityofcircula-tion.Ontherightsidearethreeweights–bread,coal,andcloth,symbolizedrespectivelybyaloaf,acoalscuttle,andarollofcloth.Thearm,ordistanceofeachfromthefulcrum,representsitsprice.Inorderthattheleverarmsattherightmaynotbeinordinatelylong,wehavefounditconvenienttoreducetheunitofmeasureofcoalfromtonstohundredweights,andthatofclothfromyardstofeet,andconsequentlytoenlargecorrespondinglythenumbersofunits(themea-sureofcoalchangingfrom10,000,000tonsto200,000,000hundredweights,andthatoftheclothfrom30,000,000yardsto90,000,000feet).Thepriceofcoalinthenewunitperhundredweightbecomes25centsperhundredweight,andthatofclothinfeetbecomes331/3;centsperfoot.Weallknowthat,whenabalanceisinequilibrium,thetendencytoturninonedirectionequalsthetendencytoturnintheother.Eachweightproducesonitssideatendencytoturn, 570TheDevelopmentofMacroeconomicsFigure2Figure3measuredbytheproductoftheweightbyitsarm.Theweightontheleftproduces,onthatside,atendencymeasuredby5,000,00020;whiletheweightsontherightmakeacombinedoppo-sitetendencymeasuredby200,000,0000.10200,000,0000.2590,000,0000.331/3.Theequalityoftheseoppositetendenciesrepresentstheequationofexchange.Anincreaseintheweightsorarmsononesiderequires,inordertopreserveequilibrium,aproportionalincreaseintheweightsorarmsontheotherside.Thissimpleandfamiliarprinciple,appliedtothesymbolismhereadopted,meansthatif,forinstance,thevelocityofcirculation(leftarm)remainsthesame,andifthetrade(weightsattheright)remainsthesame,thenanyincreaseofthepurseattheleftwillrequirealengtheningofoneormoreofthearmsattheright,repre-sentingprices.Ifthesepricesincreaseuniformly,theywillincreaseinthesameratioastheincreaseinmoney;iftheydonotincreaseuniformly,somewillincreasemoreandsomelessthanthisratio,maintaininganaverage.Likewiseitisevidentthatifthearmattheleftlengthens,andifthepurseandthevariousweightsontherightremainthesame,theremustbeanincreaseinthearmsattheright.Again,ifthereisanincreaseinweightsattheright,andiftheleftarmandthepurseremainthesame,theremust“beashorteningofrightarms.”Ingeneral,achangeinoneofthefoursetsofmagnitudesmustbeaccompaniedbysuchachangeorchangesinoneormoreoftheotherthreeasshallmaintainequilibrium.Asweareinterestedintheaveragechangeinpricesratherthaninthepricesindividually,wemaysimplifythismechanicalrepresentationbyhangingalltheright-handweightsatoneaveragepoint,sothatthearmshallrepresenttheaverageprices.Thisarmisa“weightedaverage”ofthethreeoriginalarms,theweightsbeingliterallytheweightshangingattheright.ThisaveragingofpricesisrepresentedinFigure3,whichvisualizesthefactthattheaveragepriceofgoods(rightarm)variesdirectlywiththequantityofmoney(leftweight),anddirectlywithitsvelocityofcirculation(leftarm),andinverselywiththevolumeoftrade(rightweight). Fisher:ThePurchasingPowerofMoney5714Wenowcometothestrictalgebraicstatementoftheequationofexchange.Analgebraicstate-mentisusuallyagoodsafeguardagainstloosereasoning;andloosereasoningischieflyresponsi-bleforthesuspicionunderwhicheconomictheorieshavefrequentlyfallen.Ifitisworthwhileingeometrytodemonstratecarefully,atthestart,propositionswhicharealmostself-evident,itisahundredfoldmoreworthwhiletodemonstratewithcarethepropositionsrelatingtopricelevels,whicharelessself-evident;which,indeed,whileconfidentlyassumedbymany,arecontemptu-ouslyrejectedbyothers.Letusdenotethetotalcirculationofmoney,thatis,theamountofmoneyexpendedforgoodsinagivencommunityduringagivenyear,byE(expenditure);andtheaverageamountofmoneyincirculationinthecommunityduringtheyearbyM(money).Mwillbethesimplearithmeticalaverageoftheamountsofmoneyexistingatsuccessiveinstantsseparatedfromeachotherbyequalintervalsoftimeindefinitelysmall.Ifwedividetheyear’sexpenditures,E,bytheaverageamountofmoney,M,weshallobtainwhatiscalledtheaveragerateofturnoverofmoneyinitsexchangeforgoods,E/M,thatis,thevelocityofcirculationofmoney.ThisvelocitymaybedenotedbyV,sothatE/M
V;thenEmaybeexpressedasMV.Inwords:thetotalcirculationofmoneyinthesenseofmoneyexpendedisequaltothetotalmoneyincirculationmultipliedbyitsvelocityofcirculationorturnover.EorMV,therefore,expressesthemoneysideoftheequationofexchange.Turningtothegoodssideoftheequation,wehavetodealwiththepricesofgoodsexchangedandquantitiesofgoodsexchanged.Theaveragepriceofsaleofanyparticulargood,suchasbread,purchasedinthegivencommunityduringthegivenyear,mayberepresentedbyp(price);andthetotalquantityofitpurchased,byQ(quantity);likewisetheaveragepriceofanothergood(saycoal)mayberepresentedbypandthetotalquantityofitexchanged,byQ;theaveragepriceandthetotalquantityofathirdgood(saycloth)mayberepresentedbypandQrespectively;andsoon,forallothergoodsexchanged,howevernumerous.Theequationofexchangemayevidentlybeexpressedasfollows:2MV
pQpQpQ…Theright-handsideofthisequationisthesumoftermsoftheformpQ–apricemultipliedbyaquantitybought.Itiscustomaryinmathematicstoabbreviatesuchasumofterms(allofwhichareofthesameform)byusing“
”asasymbolofsummation.ThissymboldoesnotsignifyamagnitudeasdothesymbolsM,V,p,Q,etc.Itsignifiesmerelytheoperationofadditionandshouldberead“thesumoftermsofthefollowingtype.”Theequationofexchangemaythereforebewritten:MV

pqThatis,themagnitudesE,M,V,thep’sandtheQ’srelatetotheentirecommunityandanentireyear;buttheyarebasedonandrelatedtocorrespondingmagnitudesfortheindividualpersonsofwhichthecommunityiscomposedandfortheindividualmomentsoftimeofwhichtheyeariscomposed.Thealgebraicderivationofthisequationis,ofcourse,essentiallythesameasthearithmeticalderivationpreviouslygiven.Itconsistssimplyinaddingtogethertheequationsforallindividualpurchaseswithinthecommunityduringtheyear.Bymeansofthisequation,MV

pq,thethreetheoremssetforthearlierinthischaptermaybenowexpressedasfollows:1IfVandtheQ’sremaininvariablewhileMvariesinanyratio,themoneysideoftheequa-tionwillvaryinthesameratioandthereforeitsequal,thegoodsside,mustvaryinthatsameratioalso;consequently,eitherthep’swillallvaryinthatratioorelsesomep’swillvarymorethaninthatratioandothersenoughlesstocompensateandmaintainthesameaverage. 572TheDevelopmentofMacroeconomics2IfMandtheQ’sremaininvariablewhileVvariesinanyratio,themoneysideoftheequa-tionwillvaryinthesameratio,andthereforeitsequal,thegoodsside,mustvaryinthatratioalso;consequently,thep’swillallvaryinthesameratioorelsesomewillvarymoreandothersenoughlesstocompensate.3IfMandVremaininvariable,themoneysideandthegoodssidewillremaininvariable;consequently,iftheQ’sallvaryinagivenratio,eitherthep’smustallvaryintheinverseratioorelsesomeofthemwillvarymoreandothersenoughlesstocompensate.Wemay,ifwewish,furthersimplifytherightsidebywritingitintheformPTwherePisaweightedaverageofallthep’s,andTisthesumofalltheQ’s.Pthenrepresentsinonemagni-tudethelevelofprices,andTrepresentsinonemagnitudethevolumeoftrade.Thissimplifica-tionisthealgebraicinterpretationofthemechanicalillustrationgiveninFigure3,whereallthegoods,insteadofbeinghungseparately,asinFigure2,werecombinedandhungatanaveragepointrepresentingtheiraverageprice.Wehavederivedtheequationofexchange,MV

pq,byaddingtogether,fortherightside,thesumsexpendedbydifferentpersons.Butthesamereasoningwouldhavederivedanequationofexchangebytakingthesumsreceivedbydifferentpersons.Theresultsofthetwomethodswillharmonizeifthecommunityhasnoforeigntrade;for,apartfromforeigntrade,whatisexpendedbyonepersoninthecommunityisnecessarilyreceivedbysomeotherpersoninthatcommunity.Ifwewishtoextendthereasoningsoastoapplytoforeigntrade,weshallhavetwoequationsofexchange,onebasedonmoneyexpendedandtheotheronmoneyreceivedoracceptedbymembersofthecommunity.Thesewillalwaysbeapproximatelyequalandmayormaynotbeexactlyequalwithinacountryaccordingtothe“balanceoftrade”betweenthatcountryandothers.Therightsideoftheequationbasedonexpenditureswillinclude,inadditiontothedomesticquantitiesalreadyrepresentedthere,thequantitiesofgoodsimportedandtheirprices,butnotthoseexported;whilethereversewillbetrueoftheequationbasedonreceipts.5Thiscompletesourstatementoftheequationofexchange,exceptfortheelementofcheckpay-ments,whichisreservedforthenextchapter.Wehaveseenthattheequationofexchangehasasitsultimatebasistheelementaryequationsofexchangepertainingtogivenpersonsandgivenmoments,inotherwords,theequationspertainingtoindividualtransactions.Suchelementaryequationsmeanthatthemoneypaidinanytransactionistheequivalentofthegoodsboughtatthepriceofsale.FromthissecureandobviouspremiseisderivedtheequationofexchangeMV

pq,eachelementinwhichisasumoranaverageofthelikeelementaryelementsfordifferentindividualsanddifferentmoments,thuscomprisingallthepurchasesinthecommunityduringtheyear.Finally,fromthisequationweseethatpricesvarydirectlyasMandV,andinverselyastheQ’s,providedineachcaseonlyoneofthesethreesetsofmagnitudesvaries,andtheothertworemainunchanged.Whethertochangeoneofthethreenecessarilydisturbstheothersisaquestionreservedforalaterchapter.ThosewhoobjecttotheequationofexchangeasameretruismareaskedtodeferjudgmentuntiltheyhavereadChapterVIII.Torecapitulate,wefindthenthat,undertheconditionsassumed,thepricelevelvaries(1)directlyasthequantityofmoneyincirculation(M),(2)directlyasthevelocityofitscircula-tion(V),(3)inverselyasthevolumeoftradedonebyit(T).Thefirstofthesethreerelationsisworthemphasis.Itconstitutesthe“quantitytheoryofmoney.”Soimportantisthisprinciple,andsobitterlycontestedhasitbeen,thatweshallillustrateitfurther.Asalreadyindicated,by“thequantityofmoney”ismeantthenumberofdollars(orothergivenmonetaryunits)incirculation.Thisnumbermaybechangedinseveralways,ofwhichthe Fisher:ThePurchasingPowerofMoney573followingthreearemostimportant.Theirstatementwillservetobringhometoustheconclusionswehavereachedandtorevealthefundamentalpeculiarityofmoneyonwhichtheyrest.Asafirstillustration,letussupposethegovernmenttodoublethedenominationsofallmoney;thatis,letussupposethatwhathasbeenhithertoahalfdollarishenceforthcalledadollar,andthatwhathashithertobeenadollarishenceforthcalledtwodollars.Evidentlythenumberof“dollars”incirculationwillthenbedoubled;andthepricelevel,measuredintermsofthenew“dollars,”willbedoublewhatitwouldotherwisebe.Everyonewillpayoutthesamecoinsasthoughnosuchlawwerepassed.Buthewill,ineachcase,bepayingtwiceasmany“dollars.”Forexample,if$3formerlyhadtobepaidforapairofshoes,thepriceofthissamepairofshoeswillnowbecome$6.Thus,weseehowthenominalquantityofmoneyaffectspricelevels.Asecondillustrationisfoundinadebasedcurrency.Supposeagovernmentcutseachdollarintwo,coiningthehalvesintonew“dollars”;and,recallingallpapernotes,replacesthemwithdoubletheoriginalnumber–twonewnotesforeacholdoneofthesamedenomination.Inshort,supposemoneynotonlytoberenamed,asinthefirstillustration,butalsoreissued;pricesinthedebasedcoinagewillagainbedoubledjustasinthefirstillustration.Thesubdivisionandrecoinageisanimmaterialcircumstance,unlessitbecarriedsofarastomakecountingdifficultandthustointerferewiththeconvenienceofmoney.Whereveradollarhadbeenpaidbeforedebasement,twodollars–thatis,twooftheoldhalvescoinedintotwoofthenewdollars–willnowbepaidinstead.Inthefirstillustration,theincreaseinquantitywassimplynominal,beingbroughtaboutbyrenamingcoins.Inthesecondillustration,besidesrenaming,thefurtherfactofrecoiningisintro-duced.Inthefirstcasethenumberofactualpiecesofmoneyofeachkindwasunchanged,buttheirdenominationsweredoubled.Inthesecondcase,thenumberofpiecesisalsodoubledbysplittingeachcoinandremintingitintotwocoins,eachofthesamenominaldenominationastheoriginalwholeofwhichitisthehalf,andbysimilarlyredoublingthepapermoney.Forathirdillustration,supposethat,insteadofdoublingthenumberofdollarsbysplittingthemintwoandrecoiningthehalves,thegovernmentduplicateseachpieceofmoneyinexistenceandpresentstheduplicatetothepossessoroftheoriginal.(Wemustinthiscasesuppose,further,thatthereissomeeffectualbartopreventthemeltingorexportingofmoney.Otherwisethequantityofmoneyincirculationwillnotbedoubled:muchoftheincreasewillescape.)Ifthequantityofmoneyisthusdoubled,priceswillalsobedoubledjustastrulyasinthesecondillus-tration,inwhichtherewereexactlythesamedenominations.Theonlydifferencebetweenthesecondandthethirdillustrationswillbeinthesizeandweightofthecoins.Theweightsoftheindividualcoins,insteadofbeingreduced,willremainunchanged;buttheirnumberwillbedou-bled.Thisdoublingofcoinsmusthavethesameeffectasthe50percentdebasement,thatis,itmusthavetheeffectofdoublingprices.Theforceofthethirdillustrationbecomesevenmoreevidentif,inaccordancewithRicardo’spresentation,wepassbackbymeansofaseignioragefromthethirdillustrationtothesecond.Thatis,afterduplicatingallmoney,letthegovernmentabstracthalfofeachcoin,therebyreduc-ingtheweighttothatofthedebasedcoinageinthesecondillustration,andremovingtheonlypointofdistinctionbetweenthetwo.This“seigniorage”abstractedwillnotaffectthevalueofthecoins,solongastheirnumberremainsunchanged.Inshort,thequantitytheoryassertsthat(providedvelocityofcirculationandvolumeoftradeareunchanged)ifweincreasethenumberofdollars,whetherbyrenamingcoins,orbydebasingcoins,orbyincreasingcoinage,orbyanyothermeans,priceswillbeincreasedinthesameproportion.Itisthenumber,andnottheweight,thatisessential.Thisfactneedsgreatemphasis.Itisafactwhichdifferentiatesmoneyfromallothergoodsandexplainsthepeculiarmannerinwhichitspurchasingpowerisrelatedtoothergoods.Sugar,forinstance,hasaspecificdesirabilitydepen-dentonitsquantityinpounds.Moneyhasnosuchquality.Thevalueofsugardependsonitsactualquantity.Ifthequantityofsugarischangedfrom1,000,000poundsto1,000,000hundredweight,it 574TheDevelopmentofMacroeconomicsdoesnotfollowthatahundredweightwillhavethevaluepreviouslypossessedbyapound.Butifmoneyincirculationischangedfrom1,000,000unitsofoneweightto1,000,000unitsofanotherweight,thevalueofeachunitwillremainunchanged.Thequantitytheoryofmoneythusrests,ultimately,uponthefundamentalpeculiaritywhichmoneyaloneofallgoodspossesses–thefactthatithasnopowertosatisfyhumanwantsexceptapowertopurchasethingswhichdohavesuchpower.ChapterVIII:Influenceofquantityofmoneyandotherfactorsonpurchasingpowerandoneachother1Thechiefpurposeoftheforegoingchaptersistosetforththecausesdeterminingthepurchasingpowerofmoney.Thispurchasingpowerhasbeenstudiedastheeffectoffive,andonlyfive,groupsofcauses.Thefivegroupsaremoney,deposits,theirvelocitiesofcirculation,andthevol-umeoftrade.Theseandtheireffects,prices,wesawtobeconnectedbyanequationcalledtheequationofexchange,MVMV

pQ.Thefivecauses,inturn,wefoundtobethemselveseffectsofantecedentcauseslyingentirelyoutsideoftheequationofexchange,asfollows:thevolumeoftradewillbeincreased,andthereforethepricelevelcorrespondinglydecreasedbythedifferentiationofhumanwants;bydiversificationofindustry;andbyfacilitationoftransporta-tion.Thevelocitiesofcirculationwillbeincreased,andthereforealsothepricelevelincreasedbyimprovidenthabits;bytheuseofbookcredit;andbyrapidtransportation.Thequantityofmoneywillbeincreased,andthereforethepricelevelincreasedcorrespondinglybytheimportandmintingofmoney,and,antecedently,bytheminingofthemoneymetal;bytheintroductionofanotherandinitiallycheapermoneymetalthroughbimetallism;andbytheissueofbanknotesandotherpapermoney.Thequantityofdepositswillbeincreased,andthereforethepricelevelincreasedbyextensionofthebankingsystemandbytheuseofbookcredit.Thereversecausesproduce,ofcourse,reverseeffects.Thus,behindthefivesetsofcauseswhichaloneaffectthepurchasingpowerofmoney,wefindoveradozenantecedentcauses.Ifwechosetopursuetheinquirytostillremoterstages,thenumberofcauseswouldbefoundtoincreaseateachstageinmuchthesamewayasthenumberofone’sancestorsincreaseswitheachgenerationintothepast.Inthelastanalysismyriadsoffactorsplayuponthepurchasingpowerofmoney;butitwouldbeneitherfeasiblenorprofitabletocataloguethem.Thevalueofouranalysisconsistsratherinsimplifyingtheproblembysettingforthclearlythefiveproximatecausesthroughwhichallotherswhatsoevermustoperate.Atthecloseofourstudy,asatthebeginning,standsforththeequationofexchangeasthegreatdeter-minantofthepurchasingpowerofmoney.Withitsaidweseethatnormallythequantityofdepositcurrencyvariesdirectlywiththequantityofmoney,andthatthereforetheintroductionofdepositsdoesnotdisturbtherelationswefoundtoholdtruebefore.Thatis,itisstilltruethat(1)pricesvarydirectlyasthequantityofmoney,providedthevolumeoftradeandthevelocitiesofcirculationremainunchanged;(2)thatpricesvarydirectlyasthevelocitiesofcirculation(ifthesevelocitiesvarytogether),providedthequantityofmoneyandthevolumeoftraderemainunchanged;and(3)thatpricesvaryinverselyasthevolumeoftrade,providedthequantityofmoney–andthereforedeposits–andtheirvelocitiesremainunchanged.2Itisproposedinthischaptertoinquirehowfarthesepropositionsarereallycausalpropositions.Weshallstudyindetailtheinfluenceofeachofthesixmagnitudesoneachoftheotherfive.Thisstudywillaffordanswerstotheobjectionswhichhaveoftenbeenraisedtothequantitytheoryofmoney. Fisher:ThePurchasingPowerofMoney575Tosetforthallthefactsandpossibilitiesastocausationweneedtostudytheeffectsofvarying,oneatatime,thevariousmagnitudesintheequationofexchange.Weshallineachcasedistin-guishbetweentheeffectsduringtransitionperiodsandtheultimateornormaleffectsafterthetransitionperiodsarefinished.Forsimplicityweshallineachcaseconsiderthenormalorultimateeffectsfirstandafterwardtheabnormalortransitionaleffects.Sincealmostallofthepossibleeffectsofchangesintheelementsoftheequationofexchangehavebeenalreadysetforthinpreviouschapters,ourtaskinthischapterischieflyoneofreviewandrearrangement.Ourfirstquestionthereforeis:given(say)adoublingofthequantityofmoneyincirculation(M),whatarethenormalorultimateeffectsontheothermagnitudesintheequationofexchange,namely:M,V,V,thep’sandtheQ’s?Wehaveseen,inChapterIII,thatnormallytheeffectofdoublingmoneyincirculation(M)istodoubledeposits(M)becauseunderanygivenconditionsofindustryandcivilizationdepositstendtoholdafixedornormalratiotomoneyincirculation.Hence,theultimateeffectofadoublinginMisthesameasthatofdoublingbothMandM.WeproposenexttoshowthatthisdoublingofMandMdoesnotnormallychangeV,V,ortheQ’s,butonlythep’s.Theequationofexchangeofitselfdoesnotaffirmordenythesepropositions.Foraughttheequationofexchangeitselftellsus,thequantitiesofmoneyanddepositsmightevenvaryinverselyastheirrespectivevelocitiesofcirculation.Werethistrue,anincreaseinthequantityofmoneywouldexhaustallitseffectsinreducingthevelocityofcirculation,andcouldnotproduceanyeffectonprices.Iftheopponentsofthe“quantitytheory”couldestablishsucharelationship,theywouldhaveproventheircasedespitetheequationofexchange.Buttheyhavenotevenattemptedtoprovesuchaproposition.Asamatteroffact,thevelocitiesofcirculationofmoneyandofdepositsdepend,aswehaveseen,ontechnicalconditionsandbearnodiscov-erablerelationtothequantityofmoneyincirculation.Velocityofcirculationistheaveragerateof“turnover,”anddependsoncountlessindividualratesofturnover.These,aswehaveseen,dependonindividualhabits.Eachpersonregulateshisturnovertosuithisconvenience.Agivenrateofturnoverforanypersonimpliesagiventimeofturnover–thatis,anaveragelengthoftimeadollarremainsinhishands.Headjuststhistimeofturnoverbyadjustinghisaveragequantityofpocketmoney,ortillmoney,tosuithisexpenditures.Hewilltrytoavoidcarryingtoolittlelest,onoccasion,hebeundulyembarrassed;andontheotherhand,toavoidencumbrance,wasteofinterest,andriskofrobbery,hewillavoidcarryingtoomuch.Eachman’sadjustmentis,ofcourse,somewhatrough,anddependentlargelyontheaccidentofthemoment;but,inthelongrunandforalargenumberofpeople,theaveragerateofturnover,orwhatamountstothesamething,theaveragetimemoneyremainsinthesamehands,willbeverycloselydetermined.Itwilldependondensityofpopulation,commercialcustoms,rapidityoftransport,andothertechnicalconditions,butnotonthequantityofmoneyanddepositsnoronthepricelevel.Thesemaychangewithoutanyeffectonvelocity.Ifthequantitiesofmoneyanddepositsaredoubled,thereisnothing,sofarasvelocityofcirculationisconcerned,topreventthepricelevelfromdou-bling.Onthecontrary,doublingmoney,deposits,andpriceswouldnecessarilyleavevelocityquiteunchanged.Eachindividualwouldneedtospendmoremoneyforthesamegoods,andtokeepmoreonhand.Theratioofmoneyexpendedtomoneyonhandwouldnotvary.Ifthenumberofdollarsincirculationandindepositshouldbedoubledandadollarshouldcometohaveonlyhalfitsformerpurchasingpower,thechangewouldimplymerelythattwiceasmanydollarsasbeforewereexpendedbyeachpersonandtwiceasmanykeptonhand.Theratioofexpendituretostockonhandwouldbeunaffected.IfitbeobjectedthatthisassumesthatwiththedoublinginMandMtherewouldbealsoadoublingofprices,wemaymeettheobjectionbyputtingtheargumentinaslightlydifferentform.Suppose,foramoment,thatadoublinginthecurrencyincirculationshouldnotatonceraiseprices,butshouldhalvethevelocitiesinstead;sucharesultwouldevidentlyupsetforeach 576TheDevelopmentofMacroeconomicsindividualtheadjustmentwhichhehadmadeofcashonhand.Pricesbeingunchanged,henowhasdoubletheamountofmoneyanddepositswhichhisconveniencehadtaughthimtokeeponhand.Hewillthentrytogetridofthesurplusmoneyanddepositsbybuyinggoods.Butassome-bodyelsemustbefoundtotakethemoneyoffhishands,itsmeretransferwillnotdiminishtheamountinthecommunity.Itwillsimplyincreasesomebodyelse’ssurplus.Everybodyhasmoneyonhishandsbeyondwhatexperienceandconveniencehaveshowntobenecessary.Everybodywillwanttoexchangethisrelativelyuselessextramoneyforgoods,andthedesiretodosomustsurelydriveupthepriceofgoods.Noonecandenythattheeffectofeveryone’sdesiringtospendmoremoneywillbetoraiseprices.Obviouslythistendencywillcontinueuntilthereisfoundanotheradjustmentofquantitiestoexpenditures,andtheV’sarethesameasoriginally.Thatis,ifthereisnochangeinthequantitiessold(theQ’s),theonlypossibleeffectofdoublingMandMwillbeadoublingofthep’s,forwehavejustseenthattheV’scannotbepermanentlyreducedwithoutcausingpeopletohavesurplusmoneyanddeposits,andtherecannotbesurplusmoneyanddepositswithoutadesiretospendit,andtherecannotbeadesiretospenditwithoutariseinprices.Inshort,theonlywaytogetridofaplethoraofmoneyistoraisepricestocorrespond.Sofarasthesurplusdepositsareconcerned,theremightseemtobeawayofgettingridofthembycancelingbankloans,butthiswouldreducethenormalratiowhichMbearstoM,whichwehaveseentendstobemaintained.Wecomebacktotheconclusionthatthevelocityofcirculationeitherofmoneyordepositsisindependentofthequantityofmoneyorofdeposits.Noreasonhasbeen,or,sofarasisapparent,canbeassigned,toshowwhythevelocityofcirculationofmoney,ordeposits,shouldbedifferent,whenthequantityofmoney,ordeposits,isgreat,fromwhatitiswhenthequantityissmall.Therestillremainsoneseemingwayofescapefromtheconclusionthatthesoleeffectofanincreaseinthequantityofmoneyincirculationwillbetoincreaseprices.Itmaybeclaimed–infactithasbeenclaimed–thatsuchanincreaseresultsinanincreasedvolumeoftrade.Wenowproceedtoshowthat(exceptduringtransitionperiods)thevolumeoftrade,likethevelocityofcirculationofmoney,isindependentofthequantityofmoney.Aninflationofthecurrencycannotincreasetheproductoffarmsandfactories,northespeedoffreighttrainsorships.Thestreamofbusinessdependsonnaturalresourcesandtechnicalconditions,notonthequantityofmoney.Thewholemachineryofproduction,transportation,andsaleisamatterofphysicalcapacitiesandtechnique,noneofwhichdependonthequantityofmoney.Theonlywayinwhichthequantitiesoftradeappeartobeaffectedbythequantityofmoneyisbyinflu-encingtradesaccessorytothecreationofmoneyandtothemoneymetal.Anincreaseofgoldmoneywill,ashasbeennoted,bringwithitanincreaseinthetradeingoldobjects.Itwillalsobringaboutanincreaseinthesalesofgoldminingmachinery,ingoldminers’services,inassay-ingapparatusandlabor.Thesechangesmayentailchangesinassociatedtrades.Thus,ifmoregoldornamentsaresold,fewersilverornamentsanddiamondsmaybesold.Againtheissueofpapermoneymayaffectthepaperandprintingtrades,theemploymentofbankandgovernmentclerks,etc.Infact,thereisnoendtotheminutechangesintheQ’swhichthechangesmentioned,andothers,mightbringabout.Butfromapracticalorstatisticalpointofviewtheyamounttonothing,fortheycouldnotaddtonorsubtractone-tenthof1percentfromthegeneralaggre-gateoftrade.OnlyaveryfewQ’swouldbeappreciablyaffected,andthosefewveryinsignificant.Probablynoonewilldenythis,butsomeobjectorsmightclaimthat,thoughtechniqueofpro-ductionandtradedeterminemostofthesethings,neverthelesstheQ’s–theactualquantitiesofgoodsexchangedformoneyanddepositcurrency–mightconceivablyvaryaccordingasbarterisorisnotresortedto.Ifbarterwereasconvenientassale-and-purchase,thiscontentionwouldhaveforce.Therewouldthenbelittleneedofdistinguishingbetweenmoneyasthegenerallyaccept-ablemediumofexchangeandotherpropertyasnotgenerallyacceptable.Ifallpropertywereequallyacceptable,allpropertywouldbeequallymoney;orifthereweremanykindsofproperty Fisher:ThePurchasingPowerofMoney577nearlyasexchangeableasmoney,resorttobarterwouldbesoeasythatsomeofthegoodssoldformoneycouldbealmostequallywellbarteredforsomethingelse.Butaslongastherewereanypreferenceatallfortheuseofmoney,resorttobarterwouldbereluctantlymadeandasatem-poraryexpedientonly.Wehaveseenthiswhenstudyingtransitionperiods.Undernormalcondi-tionsandinthelongrunonlyanegligiblefractionofmoderntradecanbedonethroughbarter.Weconclude,therefore,thatachangeinthequantityofmoneywillnotappreciablyaffectthequantitiesofgoodssoldformoney.Since,then,adoublinginthequantityofmoney:(1)willnormallydoubledepositssubjecttocheckinthesameratio,and(2)willnotappreciablyaffecteitherthevelocityofcirculationofmoneyorofdepositsorthevolumeoftrade,itfollowsnecessarilyandmathematicallythatthelevelofpricesmustdouble.While,therefore,theequationofexchange,ofitself,assertsnocausalrelationsbetweenquantityofmoneyandpricelevel,anymorethanitassertsacausalrelationbetweenanyothertwofactors,yet,whenwetakeintoaccountconditionsknownquiteapartfromthatequation,namelythatachangeinMproducesaproportionalchangeinM,andnochangesinV,V,ortheQ’s,thereisnopossibleescapefromtheconclusionthatachangeinthequantityofmoney(M)mustnormallycauseaproportionalchangeinthepricelevel(thep’s).OneoftheobjectorstothequantitytheoryattemptstodisposeoftheequationofexchangeasstatedbyNewcomb,bycallingitameretruism.Whiletheequationofexchangeis,ifwechoose,amere“truism,”basedontheequivalence,inallpurchases,ofthemoneyorchecksexpended,ontheonehand,andwhattheybuy,ontheother,yetinviewofsupplementaryknowledgeastotherelationofMtoM,andthenon-relationofMtoV,V,andtheQ’s,thisequationisthemeansofdemonstratingthefactthatnormallythep’svarydirectlyasM,thatis,demonstratingthequantitytheory.“Truisms”shouldneverbeneglected.Thegreatestgeneralizationsofphysi-calscience,suchasthatforcesareproportionaltomassandacceleration,aretruisms,but,whendulysupplementedbyspecificdata,thesetruismsarethemostfruitfulsourcesofusefulmechan-icalknowledge.Tothrowawaycontemptuouslytheequationofexchangebecauseitissoobvi-ouslytrueistoneglectthechancetoformulateforeconomicsciencesomeofthemostimportantandexactlawsofwhichitiscapable.Wemaynowrestate,then,inwhatcausalsensethequantitytheoryistrue.Itistrueinthesensethatoneofthenormaleffectsofanincreaseinthequantityofmoneyisanexactlyproportionalincreaseinthegenerallevelofprices.Todenythisconclusionrequiresadenialofoneormoreofthefollowingpremisesuponwhichitrests:1Theequationofexchange,MVMV

pQ.2AnincreaseofMnormallycausesaproportionalincreaseofM.3AnincreaseofMdoesnotnormallyaffectV,V,ortheQ’s.Ifthesethreepremisesbegranted,theconclusionmustbegranted.Ifanyofthepremisesbedenied,theobjectormustshowwhereinthefallacylies.Premise(1)hasbeenjustifiedinChaptersIIandIII,andmathematicallydemonstratedintheAppendicestoChaptersIIandIII.Premise(2)hasbeenshowntobetrueinChapterIIIandpremise(3)inthepresentchapter.SomuchpainshasbeentakentoestablishthesepremisesandtoemphasizetheresultsofthereasoningbasedonthembecauseitseemsnothinglessthanascandalinEconomicSciencethatthereshouldbeanygroundfordisputeonsofundamentalaproposition.Thequantitytheoryasthusstateddoesnotclaimthatwhilemoneyisincreasedinquantity,othercausesmaynotaffectM,V,V,andtheQ’s,andthusaggravateorneutralizetheeffectofMonthep’s.ButthesearenottheeffectsofMonthep’s.SofarasMbyitselfisconcerned,itseffectonthep’sisstrictlyproportional. 578TheDevelopmentofMacroeconomicsTheimportanceandrealityofthispropositionarenotdiminishedintheleastbythefactthattheseothercausesdonothistoricallyremainquiescentandallowtheeffectonthep’sofanincreaseinMtobeseenalone.TheeffectsofMareblendedwiththeeffectsofchangesintheotherfactorsintheequationofexchangejustastheeffectsofgravityuponafallingbodyareblendedwiththeeffectsoftheresistanceoftheatmosphere.Finally,itshouldbenotedthat,inaccordancewithprinciplespreviouslyexplained,nogreatincreaseofmoney(M)inanyonecountryorlocalitycanoccurwithoutspreadingtoothercoun-triesorlocalities.Assoonaslocalpriceshaverisenenoughtomakeitprofitabletosellatthehighpricesinthatplaceandbuyatthelowpriceselsewhere,moneywillbeexported.TheproductionofgoldinColoradoandAlaskafirstresultsinhigherpricesinColoradoandAlaska,theninsend-inggoldtoothersectionsoftheUnitedStates,theninhigherpricesthroughouttheUnitedStates,theninexportabroad,andfinallyinhigherpricesthroughoutthegold-usingworld.3WehaveemphasizedthefactthatthestrictlyproportionaleffectonpricesofanincreaseinMisonlythenormalorultimateeffectaftertransitionperiodsareover.Thepropositionthatpricesvarywithmoneyholdstrueonlyincomparingtwoimaginaryperiodsforeachofwhichpricesarestationaryoraremovingalikeupwardordownwardandatthesamerate.Astotheperiodsoftransition,wehaveseenthatanincreaseinMproduceseffectsnotonlyonthep’s,butonallthemagnitudesintheequationofexchange.WesawinChapterIVontransi-tionperiodsthatitincreasesMnotonlyinitsnormalratiotoM,butoften,temporarily,beyondthatratio.WesawthatitalsoquickenedVandVtemporarily.Aspreviouslynoted,whileVandVusuallymoveinsympathy,theymaymoveinoppositedirec-tionswhenapanicdecreasesconfidenceinbankdeposits.Thenpeoplepayoutdepositsasrapidlyaspossibleandmoneyasslowlyaspossible–thelast-namedtendencybeingcalledhoarding.WesawalsothatanincreaseofMduringaperiodofrisingpricesstimulatedtheQ’s.Finally,wesawthatareductioninMcausedthereverseeffectsofthoseabovesetforth,decreasingVandV,decreasingMnotabsolutelyonly,butinrelationtoM,anddecreasingtheQ’spartlybecauseofthedisinclinationtosellatlowmoneypriceswhicharebelievedtobebuttemporary,partlybecauseofaslightsubstitutionofbarterforsales;forifMshouldbeverysuddenlyreduced,somewaywouldhavetobefoundtokeeptradegoing,andbarterwouldbetemporarilyresortedtoinspiteofitsinconve-nience.Thiswouldbringsomerelief,butitsinconveniencewouldleadsellerstodemandmoneywheneverpossible,andprospectivebuyerstosupplythemselvestherewith.Thegreatpressuretosecuremoneywouldenhanceitsvalue–thatis,wouldlowerthepricesofotherthings.Thisresultantfallofpriceswouldmakethecurrencymoreadequatetodothebusinessrequired,andmakelessbarternecessary.Thefallwouldproceeduntiltheabnormalpressure,duetotheinconvenienceofbarter,hadceased.Practically,however,intheworldofto-day,evensuchtemporaryresorttobarteristrifling.Theconvenienceofexchangebymoneyissomuchgreaterthantheconvenienceofbarter,thatthepriceadjustmentwouldbemadealmostatonce.Ifbarterneedstobeseriouslyconsideredasarelieffrommoneystringency,weshallbedoingitfulljusticeifwepictureitasasafety-valve,workingagainstaresistancesogreatasalmostnevertocomeintooperationandthenonlyforbrieftransitionintervals.Forallpracticalpurposesandallnormalcases,wemayassumethatmoneyandchecksarenecessitiesformoderntrade.Thepeculiareffectsduringtransitionperiodsareanalogoustothepeculiareffectsinstartingorstoppingatrainofcars.Normallythecaboosekeepsexactpacewiththelocomotive,butwhenthetrainisstartingorstoppingthisrelationshipismodifiedbythegradualtransmissionofeffectsthroughtheinterveningcars.Anyspecialshocktoonecarissimilarlytransmittedtoalltheothersandtothelocomotive. Fisher:ThePurchasingPowerofMoney579Wehaveseen,forinstance,thatasuddenchangeinthequantityofmoneyanddepositswilltemporarilyaffecttheirvelocitiesofcirculationandthevolumeoftrade.Reversely,seasonalchangesinthevolumeoftradewillaffectthevelocitiesofcirculation,andeven,ifthecurrencysystemiselastic,thequantityofmoneyanddeposits.Inbriskseasons,aswhen“moneyisneededtomovethecrops,”thevelocityofcirculationisevidentlygreaterthanindullseasons.Moneyiskeptidleatonetimetobeusedatanother,andsuchseasonalvariationsinvelocityreducemate-riallythevariationswhichotherwisewouldbenecessaryinthepricelevel.Inasimilarwaysea-sonalvariationsinthepricelevelarereducedbythealternateexpansionandcontractionofanelasticbankcurrency.Inthiscasetemporarily,andtoanextentlimitedbytheamountoflegaltendercurrency,moneyordepositsorbothmaybesaidtoadaptthemselvestotheamountoftrade.Inthesetwoways,then,boththeriseandfallofpricesaremitigated.Thereforethe“quantitytheory”willnotholdtruestrictlyandabsolutelyduringtransitionperiods.WehavefinishedoursketchoftheeffectsofM,andnowproceedtotheothermagnitudes.4Astodeposits(M),thismagnitudeisalwaysdependentonM.Depositsarepayableondemandinmoney.Theyrequirebankreservesofmoney,andtheremustbesomerelationbetweentheamountofmoneyincirculation(M),theamountofreserves(),andtheamountofdeposits(M).Normallywehaveseenthatthethreeremainingivenratiostoeachother.Butwhatisanormalratioatonestateofindustryandcivilizationmaynotbenormalatanother.Changesinpopulation,commerce,habitsofbusinessmen,andbankingfacilitiesandlawsmayproducegreatchangesinthisratio.Statistically,aswillbeshowninChapterXII,theratioM/Mhaschangedfrom3.1to4.1infourteenyears.SinceMisnormallydependentonM,weneednotaskwhataretheeffectsofanincreaseofM;fortheseeffectshavebeenincludedundertheeffectsofM.But,sincetheratioofMtoMmaychange,wedoneedtoaskwhataretheeffectsofthischange.Suppose,ashasactuallybeenthecaseinrecentyears,thattheratioofMtoMincreasesintheUnitedStates.IfthemagnitudesintheequationsofexchangeinothercountrieswithwhichtheUnitedStatesisconnectedbytradeareconstant,theultimateeffectonMistomakeitlessthanwhatitwouldotherwisehavebeen,byincreasingtheexportsofgoldfromtheUnitedStatesorreducingtheimports.InnootherwaycanthepriceleveloftheUnitedStatesbepreventedfromrisingabovethatofothernationsinwhichwehaveassumedthislevelandtheothermagnitudesintheequationofexchangetobequiescent.Whiletheultimateeffectthenistoincreasethevolumeofcirculatingmedia,thisincreaseisspreadoverthewholeworld.Althoughtheextensionofbankingispurelylocal,itseffectsareinternational.Infact,notonlywilltherebearedistributionofgoldmoneyoverallgoldcountries,buttherewillbeatendencytomeltcoinintobullionforuseinthearts.TheremainingeffectsarethesameasthoseofanincreaseinMwhichhavealreadybeenstud-ied.Thatis,therewillbeno(ultimate)appreciableeffectonV,V,ortheQ’s,butonlyonthep’s,andthesewillrise,relativelytowhattheywouldotherwisehavebeen,throughouttheworld.InforeigncountriesthenormaleffectwillbeproportionaltotheincreaseofmoneyincirculationwhichtheyhaveacquiredthroughthedisplacementofgoldintheUnitedStates.IntheUnitedStatestheeffectwillnotbeproportionaltotheincreaseinM,sinceMhasmovedintheoppositedirection.ItwillbeproportionaltotheincreaseinMMifVandVareequal,andlessthaninthatproportionifVislessthanV,asistheactualfact.Inanycasetheeffectonpricesisextremelysmall,beingspreadoverthewholecommercialworld.Takingtheworldasawhole,theultimateeffectis,aswehaveseen,toraiseworldpricesslightlyandtomeltsomecoin.TheonlyappreciableultimateeffectofincreasingtheratioofMtoMinonecountryistoexpelmoneyfromthatcountryintoothers.Alloftheseeffectsare 580TheDevelopmentofMacroeconomicsexactlythesameasthoseofincreasingtheissueofbanknotes,solongastheycontinueredeemableingoldorotherexportablemoney.Anissuebeyondthispointresultsinisolatingtheissuingcountryandthereforeinrapidlyraisingpricesthereinsteadofspreadingtheeffectoverothercountries.ThisiswhathappenedintheUnitedStatesduringtheCivilWar.Astotransitionaleffects,itisevidentthat,beforetheexpulsionofgoldfromtheUnitedStates,theremustbeanappreciableriseinpricesthere,ofwhichtraderswillthentakeadvantagebysellingintheUnitedStates,shippingawaymoney,andbuyingabroad.Duringtheperiodofris-ingpricesalltheothertemporaryeffectspeculiartosuchaperiod,effectswhichhavebeendescribedatlengthelsewhere,willbeinevidence.ExactlyoppositeeffectsofcoursefollowadecreaseofMrelativelytoM.5Wecomenexttotheeffectsofchangesinvelocities(VandV).Theseeffectsarecloselysimilartothosejustdescribed.Theultimateeffectsareonprices,andnotonquantityofmoneyorvolumeoftrade.Butachangeinthevelocityofcirculationofmoneyinanycountry,connectedbyinter-nationaltradewithothercountries,willcauseanoppositechangeinthequantityofmoneyincirculationinthatcountry.Therewillbearedistributionofmoneyamongthecountriesoftheworldandofmoneymetalasbetweenmoneyandthearts.Thenormaleffect,then,ofincreasingVorVinanycountryistodecreaseMbyexport,todecreaseMproportionally,andtoraiseprices(p’s)slightlythroughouttheworld.Thereisnoreasontobelievethattherewill,normally,beanyeffectsonthevolumeoftrade.Itisquitepossi-blethatachangeinoneofthetwovelocitieswillcauseacorrespondingchangeintheother,or,atanyrate,thatmostofthecauseswhichincreaseonewillincreasetheother.Increaseddensityofpopulation,forinstance,inallprobabilityquickenstheflowbothofmoneyandchecks.Unfortunately,however,wehavenotsufficientempiricalknowledgeofthetwosortsofvelocitytoassert,withconfidence,anyrelationsbetweenthem.Duringtransitionperiodstheeffectsofchangesinvelocitiesaredoubtlessthesameastheeffectsofincreasedcurrency.6OurnextquestionisastotheeffectsofageneralincreaseordecreaseintheQ’s,thatis,inthevolumeoftrade.Anincreaseofthevolumeoftradeinanyonecountry,saytheUnitedStates,ultimatelyincreasesthemoneyincirculation(M).InnootherwaycouldtherebeavoidedadepressioninthepricelevelintheUnitedStatesascomparedwithforeigncountries.TheincreaseinMbringsaboutaproportionateincreaseinM.Besidesthiseffect,theincreaseintradeundoubtedlyhassomeeffectinmodifyingthehabitsofthecommunitywithregardtotheproportionofcheckandcashtransactions,andsotendssomewhattoincreaseMrelativelytoM;asacountrygrowsmorecommercialtheneedfortheuseofchecksismorestronglyfelt.Astoeffectsonvelocityofcirculation,wemaydistinguishthreecases.Thefirstiswherethechangeinvolumeoftradecorrespondstoachangeinpopulation,aswhenthereisanincreaseintradefromthesettlingofnewlands,withoutanygreaterconcentrationinpreviouslysettledareas,andwithoutanychangeinthepercapitatradeorinthedistributionoftradeamongtheelementsofthepopulation.Undersuchconditionsnoreasonhasbeenassigned,norapparentlycanbeassigned,toshowwhythevelocityofcirculationofmoneyshouldbeotherforaconditioninwhichthevolumeoftradeislargethanforaconditioninwhichitissmall.Thesecondcaseiswheretheincreaseinvolumeoftradecorrespondstoanincreaseddensityofpopulation,butnochangeinpercapitatrade.Inthiscase,theclosersettlementmayfacilitate Fisher:ThePurchasingPowerofMoney581somewhatgreatervelocity.Thethirdcaseiswherethechangeinthevolumeoftradedoesaffectthepercapitatradeorthedistributionoftradeinthepopulation.Therearethenseveralwaysinwhichthevelocityofcirculationmayconceivablybeaffected.First,anychangeintrade,implyingachangeinmethodsoftransportationofgoods,willimplyachangeinmethodsoftransportationofmoney;quicktransportationmeansusuallymorerapidcirculation.Second,achangeddistributionoftradewillaltertherelativeexpendituresofdifferentpersons.Iftheirratesofturnoveraredifferent,achangeintheirexpenditureswillclearlyaltertherelativeimportanceorweightingoftheseratesinthegeneralaverage,thuschangingthataveragewithoutnecessarilychangingtheindividualratesofturnover.Forinstance,anincreasedtradeinthesouthernstates,wherethevelocityofcirculationofmoneyispresumablyslow,wouldtendtolowertheaveragevelocityintheUnitedStates,simplybygivingmoreweighttothevelocityintheslowerportionsofthecountry.Third,achangeinindividualexpenditures,whenduetoarealchangeinthequantityofgoodspurchased,maycauseachangeinindividualvelocities.Itseemstobeafactthat,atagivenpricelevel,thegreateraman’sexpendituresthemorerapidhisturnover;thatis,therichhaveahigherrateofturnoverthanthepoor.Theyspendmoneyfaster,notonlyabsolutelybutrelativelytothemoneytheykeeponhand.StatisticscollectedatYaleUniversityofanumberofcasesofindividualturnovershowthisclearly.Inotherwords,themanwhospendsmuch,thoughheneedstocarrymoremoneythanthemanwhospendslittle,doesnotneedtocarryasmuchinproportiontohisexpenditure.Thisiswhatweshouldexpect;since,ingeneral,thelargeranyoperation,themoreeconomicallyitcanbemanaged.ProfessorEdgeworthhasshownthatthesameruleholdsinbanking.Whentwobanksareconsolidated,thereserveneededislessthanthesumofthetwopreviousreserves.Wemaythereforeinferthat,ifanationgrowsricherpercapita,thevelocityofcirculationofmoneywillincrease.Thisproposition,ofcourse,hasnoreferencetonominalincreaseofexpenditure.Aswehaveseen,adoublingofallpricesandincomeswouldnotaffectanybody’srateofturnoverofmoney.Eachpersonwouldneedtomakeexactlytwicetheexpenditureforthesameactualresultandtokeeponhandexactlytwicethemoneyinordertomeetthesamecontingenciesinthesameway.Thedeterminantofvelocityisrealexpenditure,notnominal.Butaperson’srealexpenditureisonlyanothernameforhisvolumeoftrade.Weconclude,therefore,thatachangeinthevolumeoftrade,whenitaffectsthepercapitatrade,affectsvelocityofcirculationaswell.Wefindthenthatanincreaseintrade,unlikeanincreaseincurrency(MandM)orvelocities(VandV)hasothereffectsthansimplyonprices–effects,infact,ofincreasingmagnitudesontheoppositesideoftheequation,VandV,and(thoughonlyindirectlybyaffectingbusinessconve-nienceandhabit)MrelativelytoM.Iftheseeffectsincreasetheleftsideasmuchastheincreaseintradeitself(theQ’s)directlyincreasestherightside,theeffectonpriceswillbenil.Iftheeffectontheleftsideexceedsthatontheright,priceswillrise.Onlyprovidedtheeffectontheleftsideislessthantheincreaseintradewillpricesfall,andthennotproportionatelytotheincreaseintrade.Inaformerchapter,itwasshownthatachangeintrade,providedcurrency(MandM)andveloci-ties(VandV)remainedthesame,producedaninversechangeinprices.Butnowwefindthattheprovisoisinconsistentwiththepremise;currencyandvelocitiescanremainthesameonlybytheclumsyhypothesisthatthevariousothercausesaffectingthemshallbesochangedasexactlytoneutralizetheincreaseintrade.Ifthesevariousothercausesremainthesame,thencurrencyandvelocitieswillnotremainthesame.Thisisthefirstinstanceinourstudywherewehavefoundthatnormally,thatis,apartfromtemporaryortransitionaleffects,wereachdifferentresultsbyassumingcausestovaryoneatatime,thanbyassumingthealgebraicfactorsintheequationtovaryoneatatime.The“quantitythe-ory”stillholdstrue–thatprices(p’s)varywithmoney(M)–whenweassumethatothercausesremainthesame,aswellaswhenweassumedmerelythatotheralgebraicfactorsremainthesame;andalltheothertheoremsstatedalgebraicallywerefoundtoholdcausationally,exceptingonly 582TheDevelopmentofMacroeconomicsthetheoremastovariationintrade.Whilethemainpurposeofthischapteristojustifythe“quantitytheory”asexpressingacausalaswellasanalgebraicrelation,itisimportanttopointoutthatcausalandalgebraictheoremsarenotalwaysidentical.Astothetransitionaleffectsofachangeinthevolumeoftrade,thesedependmainlyononeofthetwopossibledirectionsinwhichpricesmove.Iftheymoveupward,thetransitionaleffectsaresimilartothosewearealreadyfamiliarwithforperiodsofrisingprices;ifdownward,theyaresimilartothoseincidenttosuchamovement.7Wehavenowstudiedtheeffectsofvariationsineachofthefactorsintheequationofexchange(saveone)ontheotherfactors.Wehavefoundthatineachcaseexceptinthecaseoftrade(theQ’s)theulti-mateeffectwasonprices(thep’s).Theonlygroupoffactorswhichwehavenotyetstudiedascausearetheprices(p’s)themselves.Hithertotheyhavebeenregardedsolelyaseffectsoftheotherfactors.Buttheobjectorstothequantitytheoryhavemaintainedthatpricesshouldberegardedascausesratherthanaseffects.Ournextproblem,therefore,istoexamineandcriticizethisproposition.SofarasIcandiscover,excepttoalimitedextentduringtransitionperiods,orduringapassingseason(e.g.thefall),thereisnotruthwhateverintheideathatthepricelevelisanindependentcauseofchangesinanyoftheothermagnitudesM,M,V,V,ortheQ’s.Toshowtheuntenabilityofsuchanidealetusgrantforthesakeofargumentthat–insomeotherwaythanastheeffectofchangesinM,M,V,V,ortheQ’s–thepricesin(say)theUnitedStatesarechangedto(say)doubletheiroriginallevel,andletusseewhateffectthiscausewillproduceontheothermagnitudesintheequation.Itisclearthattheequalitybetweenthemoneysideandthegoodssidemustbemaintainedsomehow,andthatifthepricesareraisedthequantityofmoneyorthequantityofdepositsortheirvelocitiesmustberaised,orelsethevolumeofbusinessmustbereduced.Butexaminationwillshowthatnoneofthesesolutionsistenable.Thequantityofmoneycannotbeincreased.Nomoneywillcomefromabroad,forwehaveseenthataplacewithhighpricesdrivesmoneyaway.TheconsequenceoftheelevationofpricesintheUnitedStateswillbethattraderswillsellintheUnitedStateswherepricesarehigh,andtaketheproceedsinmoneyandbuyabroadwherepricesarelow.Itwillbeasdifficulttomakemoneyflowintoacountrywithhighpricesastomakewaterrunuphill.Forsimilarreasonsmoneywillnotcomeinviathemint.Sincebullionandgoldcoinoriginallyhadthesamevaluerelativelytogoods,afterthesupposeddoublingofprices,goldcoinhaslosthalfitspurchasingpower.Noonewilltakebulliontothemintwhenhetherebyloseshalfitsvalue.Onthecontrary,aswesawinapreviouschapter,theresultofhighpricesistomakemenmeltcoin.Finally,thehighpriceswillnotstimulatemining,butonthecontrarytheywilldiscourageit,norwillhighpricesdiscourageconsumptionofgold,butonthecontrarytheywillstimulateit.Thesetendencieshaveallbeenstudiedindetail.Everyprinciplewehavefoundregulatingthedistributionofmoneyamongnations(thedistributionofmoneymetalasbetweenmoneyandtheartsortheproductionandconsumptionofmetals)worksexactlyoppositetowhatwouldbenecessaryinordertobringmoneytofitpricesinsteadofpricestofitmoney.Itisequallyabsurdtoexpecthighpricestoincreasethequantityofdeposits(M).Wehaveseenthattheeffectwouldbetodiminishthequantityofmoneyincirculation(M),butthismoneyisthebasisofthedepositcurrency(M),andtheshrinkageofthefirstwillentailtheshrinkageofthesecond.ThereductionofMandMwillnottendtofavor,butonthecontrarywilltendtopulldownthehighpriceswehavearbitrarilyassumed.Theappealtothevelocities(VandV)isnomoresatisfactory.Thesehavealreadybeenadjustedtosuitindividualconvenience.Todoublethemmightnotbeaphysicalpossibility,andwouldcertainlybeagreatinconvenience.Thereislefttheforlornhopethatthehighpriceswilldiminishtrade(theQ’s).Butifallpricesincludingthepricesofservicesaredoubled,thereisnoreasonwhytradeshouldbereduced. Fisher:ThePurchasingPowerofMoney583Sincetheaveragepersonwillnotonlypay,butalsoreceivehighprices,itisevidentthatthehighpriceshegetswillexactlymakehimabletostandthehighpriceshepayswithouthavingtoreducehispurchases.Weconcludethatthehypothesisofadoubledpricelevelactingasanindependentcausecon-trollingtheotherfactorsintheequationofexchangeanduncontrolledbythemisuntenable.Anyattempttomaintainartificiallyhighpricesmustresult,aswehaveseen,notinadjustingtheotherelementsintheequationofexchangetosuitthesehighprices,butonthecontraryinarousingtheirantagonism.Goldwillgoabroadandintothemeltingpot,willbeproducedlessandcon-sumedmoreuntilitsscarcityasmoneywillpulldowntheprices.Thepricelevelisnormallytheoneabsolutelypassiveelementintheequationofexchange.Itiscontrolledsolelybytheotherelementsandthecausesantecedenttothem,butexertsnocontroloverthem.Butthoughitisafallacytothinkthatthepricelevelinanycommunitycan,inthelongrun,affectthemoneyinthatcommunity,itistruethatthepricelevelinonecommunitymayaffectthemoneyinanothercommunity.Thispropositionhasbeenrepeatedlymadeuseofinourdiscussion,andshouldbeclearlydistinguishedfromthefallacyabovementioned.Thepricelevelinanoutsidecommunityisaninfluenceoutsidetheequationofexchangeofthatcommunity,andoperatesbyaffectingitsmoneyincirculationandnotbydirectlyaffectingitspricelevel.ThepriceleveloutsideofNewYorkCity,forinstance,affectsthepricelevelinNewYorkCityonlyviachangesinthemoneyinNewYorkCity.WithinNewYorkCityitisthemoneywhichinfluencesthepricelevel,andnotthepricelevelwhichinfluencesthemoney.Thepriceleveliseffectandnotcause.Moreover,althoughthepriceleveloutsideofNewYorkisaproximatecauseofchangesofmoneyinNewYork,thatpricelevelinturniscauseonlyinasecondarysense,beingitselfaneffectoftheotherfactorsintheequationofexchangeoutsideofNewYorkCity.Fortheworldasawholethepricelevelisnotevenasecondarycause,butsolelyaneffect–oftheworld’smoney,deposits,velocities,andtrade.Wehaveseenthathighpricesinanyplacedonotcauseanincreaseofthemoneysupplythere;formoneyflowsawayfromsuchaplace.Inthesamewayhighpricesatanytimedonotcauseanincreaseofmoneyatthattime;formoney,sotospeak,flowsawayfromthattime.Thus,ifthepricelevelishighinJanuaryascomparedwiththerestoftheyear,banknoteswillnottendtobeissuedinlargequantitiesthen.Onthecontrary,peoplewillseektoavoidpayingmoneyatthehighpricesandwaittillpricesarelower.Whenthattimecomestheymayneedmorecurrency;banknotesanddepositsmaythenexpandtomeettheexcessivedemandsforloanswhichmayensue.Thus,currencyexpandswhenpricesarelowandcontractswhenpricesarehigh,andsuchexpansionandcontractiontendtolowerthehighpricesandraisethelowprices,thusworkingtowardmutualequality.Weseethenthat,sofarfromitsbeingtruethathighpricescauseincreasedsupplyofmoney,itistruethatmoneyavoidstheplaceandtimeofhighpricesandseekstheplaceandtimeoflowprices,therebymitigatingtheinequalityofpricelevels.Whathasbeensaidpresupposesthatpurchasershavetheoptiontochangetheplaceandtimeoftheirpurchases.Totheextentthattheirfreedomtochoosetheirmarketplaceortimeisinterferedwith,thecorrectiveadjustmentofthequantityofmoneyisprevented.Theanomaloustimeofapanicmayevenbecharacterizedbynecessitytomeetoldcontractswhichaffordnochoiceofdefer-ringthepayment.Theremaythenbea“moneyfamine”andafeverishdemandforemergencycur-rencyneededtoliquidateoutstandingcontractswhichwouldneverhavebeenenteredintoifthesituationhadbeenforeseen.Thatsuchanomalousconditionsdonotnegativethegeneralthesisthatpricesaretheeffectandnotthecauseofcurrency(includingdepositcurrency)isshownstatisticallybyMinnieThroopEngland.8Wereitnotforthefanaticalrefusalofsomeeconomiststoadmitthatthepricelevelisinultimateanalysiseffectandnotcause,weshouldnotbeatsogreatpainstoproveitbeyondcavil.Itisdue 584TheDevelopmentofMacroeconomicsoursciencetodemonstrateitstruths.Theobligationtodothiscarrieswithittheobligationtoexplainifpossiblewhysoobviousatruthhasnotbeenfullyaccepted.Onereasonhasalreadybeencited,thefeartogiveaidandcomforttotheenemiesofallsoundeconomists–theunsoundmoneymen.Anothermaynowreceiveattention,namelythefalla-ciousideathatthepricelevelcannotbedeterminedbyotherfactorsintheequationofexchangebecauseitisalreadydeterminedbyothercauses,usuallyalludedtoas“supplyanddemand.”Thisvaguephrasehascoveredmultitudesofsinsofslothfulanalystsineconomics.Thosewhoplacesuchimplicitrelianceonthecompetencyofsupplyanddemandtofixprices,irrespectiveofthequantityofmoney,deposits,velocity,andtrade,willhavetheirconfidencerudelyshakeniftheywillfollowthereasoningastopricecausationofseparatearticles.Theywillfindthattherearealwaysjustonetoofewequationstodeterminetheunknownquantitiesinvolved.Theequationofexchangeisneededineachcasetosupplementtheequationsofsupplyanddemand.Itwouldtakeustoofarafieldtoinserthereacompletestatementofprice-determiningprinci-ples.Butthecompatibilityoftheequationofexchangewiththeequationswhichhavetodealwithpricesindividuallymaybebroughthometothereadersufficientlyforourpresentpurposesbyemphasizingthedistinctionbetween(1)individualpricesrelativelytoeachotherand(2)thepricelevel.Theequationofexchangedeterminesthelatter(thepricelevel)only,andthelatteronlyisthesubjectofthisbook.Itwillnothelp,butonlyhinderthereadertomixwiththediscussionofpricelevelstheprinciplesdeterminingindividualpricesrelativelytoeachother.Itisamazinghowtenaciouslymanypeopleclingtothemistakenideathatanindividualprice,thoughexpressedinmoney,maybedeterminedwhollywithoutreferencetomoney.Others,moreopen-mindedbutalmostequallyconfused,seethenecessityofincludingthequantityofmoneyamongthecausesdeterminingprices,butinthecarelessspiritofeclecticismsimplyjumbleitinwithamiscellaneouscollectionofinfluencesaffectingprices,withnoregardfortheirmutualrelations.Itshouldbeclearlyrecognizedthatpricelevelsmustbestudiedindependentlyofindividualprices.Thelegitimacyofseparatingthestudyofpricelevelsfromthatofpriceswillbeclearlyrecog-nized,whenitisseenthatindividualpricescannotbefullydeterminedbysupplyanddemand,moneycostofproduction,etc.,withoutsurreptitiouslyintroducingthepricelevelitself.Wecanscarcelyoveremphasizethefactthatthe“supplyanddemand”orthe“costofproduction”ofgoodsintermsofmoneydonotandcannotcompletelydetermineprices.Eachphrase,fullyexpressed,alreadyimpliesmoney.Thereisalwayshiddensomewheretheassumptionofageneralpricelevel.Yet,writers,likeDavidA.Wells,haveseriouslysoughttheexplanationofageneralchangeinpricelevelsintheindividualpricechangesofvariouscommoditiesconsideredseparately.Muchoftheirreasoninggoesnofartherthantoexplainonepriceintermsofotherprices.Ifweattempttoexplainthemoneypriceofafinishedproductintermsofthemoneypricesofitsrawmaterialsandothermoneycostsofpricesofproduction,itisclearthatwemerelyshifttheproblem.Wehavestilltoexplaintheseantecedentprices.Inelementarytextbooksmuchemphasisislaidonthefactthat“demand”and“supply”areincompletedesignationsandthattogivethemmeaningitisnecessarytoaddtoeachthephrase“ataprice.”Butemphasisalsoneedstobelaidonthefactthat“demandataprice”and“supplyataprice”arestillincompletedesignations,andthattogivethemmeaningitisnecessarytoadd“atapricelevel.”Thedemandforsugarisnotonlyrelativetothepriceofsugar,butalsotothegenerallevelofotherthings.Notonlyisthedemandforsugarat10centsapoundgreaterthanthedemandat20centsapound(atagivenlevelofpricesofotherthings),butthedemandat20centsatahighlevelofpricesisgreaterthanthedemandat20centsatalowlevelofprices.Infactifthepricelevelisdoubled,thedemandat20centsapoundwillbeasgreatasthedemandwasbeforeat10centsapound,assumingthatthedoublingapplieslikewisetowagesandincomesgenerally.Thesignificanceofadollarliesinwhatitwillbuy;andtheequivalencebetweensugaranddollarsisatbottomanequivalencebetweensugarandwhatdollarswillbuy.Achangeintheamountofwhatdollarswillbuyisasimportantasachangeintheamountofsugar.Thepriceofsugarindollarsdependspartlyonsugar Fisher:ThePurchasingPowerofMoney585andpartlyondollars–thatis,onwhatdollarswillbuy–thatis,onthepricelevel.Therefore,beneaththepriceofsugarinparticulartherelies,asoneofthebasesofthatparticularprice,thegenerallevelofprices.Wehavemoreneedtostudythepricelevelpreparatorytoastudyofthepriceofsugarthantostudythepriceofsugarpreparatorytoastudyofthepricelevel.Wecannotexplaintheleveloftheseabytheheightofitsindividualwaves;rathermustweexplaininpartthepositionofthesewavesbythegenerallevelofthesea.Each“supplycurve”or“demandcurve”restsupontheuncon-sciousassumptionofapricelevelalreadyexisting.Althoughthecurvesrelatetoacommodity,theyrelatetoitonlyascomparedwithmoney.Apriceisaratioofexchangebetweenthecommodityandmoney.Themoneysideofeachexchangemustneverbeforgottennorthefactthatmoneyalreadystandsinthemindofthepurchaserforageneralpurchasingpower.Althougheverybuyerandsellerwhobidsoroffersapriceforaparticularcommoditytacitlyassumesagivenpurchasingpowerofthemoneybidoroffered,heisusuallyasunconsciousofsodoingasthespectatorofapictureisuncon-sciousofthefactthatheisusingthebackgroundofthepictureagainstwhichtomeasurethefiguresintheforeground.Asaconsequence,ifthegenerallevelchanges,thesupplyanddemandcurvesfortheparticularcommodityconsideredwillchangeaccordingly.Ifthepurchasingpowerofthedollarisreducedtohalfitsformeramount,thesecurveswillbedoubledinheight;foreachpersonwillgiveortakedoubletheformermoneyforagivenquantityofthecommodity.If,throughspecialcausesaffectingaspecialcommodity,thesupplyanddemandcurvesofthatcommodityandtheirintersec-tionareraisedorlowered,thenthesupplyanddemandcurvesofsomeothergoodsmustchangeinthereversedirection.Thatis,ifonecommodityrisesinprice(withoutanychangeinthequantityofitorofotherthingsboughtandsold,andwithoutanychangeinthevolumeofcirculatingmediumorinthevelocityofcirculation),thenothercommoditiesmustfallinprice.Theincreasedmoneyexpendedforthiscommoditywillbetakenfromotherpurchases.Inotherwords,thewavesintheseaofpriceshavetroughs.Thiscanbeseenfromtheequationofexchange.Ifwesupposethequantityofmoneyanditsvelocityofcirculationtoremainunaltered,theleftsideoftheequationremainsthesame,andthereforetherightsidemustremainunalteredalso.Consequently,anyincreaseinoneofitsmanyterms,duetoanincreaseofanyindividualprice,mustoccurattheexpenseoftheremain-ingterms.Itis,ofcourse,truethatadecreaseinthepriceofanyparticularcommoditywillusuallybeaccompaniedbyanincreaseintheamountofitexchanged,sothattheproductofthetwomaynotdecreaseandmayevenincreaseiftheamountexchangedincreasessufficiently.Inthiscase,sincetherightsideofourequationremainsthesame,theeffectoftheincreaseinsometermswillnecessarilybeadecreaseinothers;andtheremainingtermsoftherightsidemustdecreasetosomeextent.Theeffectmaybeageneralorevenauniversalloweringofprices.Eveninthiscasethereductioninthepricelevelhasnodirectconnectionwiththereductioninthepriceoftheparticularcommodity,butisduetotheincreaseintheamountofitexchanged.Thereactionaryeffectofthepriceofonecommodityonthepricesofothercommoditiesmustneverbelostsightof.Muchconfusionwillbeescapedifwegiveupanyattempttoreasondirectlyfromindividualprices.Improvementsinproductionwillaffectpricelevelssimplyastheyaffectthevolumeofbusinesstransacted.Anyrationalstudyoftheinfluenceofimprovementsinmethodsofproductionuponthelevelofpricesshould,therefore,fixattention,first,ontheresultingvolumeoftrade,andshouldaimtodiscoverwhetherthis,inturn,carriespricesupwardsordownwards.Oneofthesupposedcausesofhighpricesto-day,muchunderdiscussionatthepresenttime,isthatofindustrialandlaborcombinations.Fromwhathasbeensaid,itmustbeevidentthat,otherthingsremainingequal,trustscannotaffectthegenerallevelofpricesthroughmanipulat-ingspecialcommoditiesexceptastheychangetheamountssold.Ifpricesforonecommodityarechangedwithoutachangeinthenumberofsales,theeffectonthepricelevelwillbeneutralizedbycompensatorychangesinotherprices.Iftradeunionsseektoraisepricesoflaborwhiletrustsraisepricesofcommodities,thegenerallevelofeverythingmayriseorfall;butitcanriseonlyby 586TheDevelopmentofMacroeconomicsageneraldecreaseinthequantitiesofcommodities,labor,etc.,sold,orbyanincreaseofcur-rency,orbyanincreaseinvelocitiesofcirculation.Ifthereisneitheranincreasenordecreaseinvolumeofbusiness,andifthequantityandvelocityofcirculationofmoneyanditssubstitutesremainunchanged,thepricelevelcannotchange.Changesinsomepartsofthepricelevelmayoccuronlyattheexpenseofoppositechangesinotherparts.Wehaveseenthatthepricelevelisnotdeterminedbyindividualprices,butthat,onthecontrary,anyindividualpricepresupposesapricelevel.Wehaveseenthatthecompleteandonlyexplanationofapricelevelistobesoughtinfactorsoftheequationofexchangeandwhateverantecedentcausesaffectthosefactors.Theterms“demand”and“supply,”usedinreferencetoparticularprices,havenosignificancewhateverinexplainingariseorfallofpricelevels.Incon-sideringtheinfluenceaffectingindividualpriceswesaythatanincreaseinsupplylowersprices,butanincreaseindemandraisesthem.Butinconsideringtheinfluencesaffectingpricelevelsweenteruponanentirelydifferentsetofconcepts,andmustnotconfusethepropositionthatanincreaseinthetrade(theQ’s)tendstolowerthepricelevel,withthepropositionthatanincreaseinsupplytendstoloweranindividualprice.Trade(theQ’s)isnotsupply–infactisnomoretobeassociatedwithsupplythanwithdemand.TheQ’sarethequantitiesfinallysoldbythosewhosupply,andboughtbythosewhodemand.Wemayherestateaparadoxwhichwillservetobringoutclearlythedistinctionbetweenthecausationofindividualpricesrelativelytoeachotherandthecausationofthegenerallevelofprices.Theparadoxisthatalthoughanincreaseddemandforanyindividualcommodityresultsinagreaterconsumptionatahigherprice,yetanincreasedgeneraldemandforgoodswillresultinagreater,trade(theQ’s)atlowerprices.Wecannot,therefore,reasondirectlyfromparticulartogeneralprices;wecanreasononlyindi-rectlybyreferencetotheeffectsonquantities.Sometimestheriseinanindividualpriceraisesandatothertimeslowersthegeneralpricelevel.Todrawaphysicalparallelletussupposethatathousandpileshavebeendriveninaquicksandandthattheownerwishestoraisetheirlevelafoot.Hegetshoistingapparatusandplantingitonthepilespullsoneofthemupafoot.Hethenpullsupanotherandcontinuesuntilhehaspulledupeachofthethousand.Butifeverytimehehaspulledoneupafoothehaspusheddown999over1/999ofafoot,whenhehasfinished,hewillfindhisthousandpileslowerthanwhenhebegan.Eachtimeapilehasrisen,theaveragelevelofallhasfallen.Thepropositionthatageneralincreaseindemand,resultinginanincreaseintrade,tendstodecreaseandand[sic]nottoincreasethegenerallevelofprices,mayberegardedasasortofponsasi-norumtotestone’sknowledgeofthefundamentaldistinctionbetweenthoseinfluencesaffectingthegeneralpricelevelandthoseaffectingtheriseandfallofaparticularpricewithrespecttothatlevel.9Wehaveseenthatthevariousfactorsrepresentedintheequationofexchangedonotstandonthesamecausalfooting.Pricesarethepassiveelementsandtheirgenerallevelmustconformtotheotherfactors.Thecausalpropositionswehavefoundtobetruenormally,thatisaftertransi-tionsarecompleted,areinbriefasfollows:1Anincreaseinthequantityofmoney(M)tendstoincreasedeposits(M)proportionally,andtheincreaseinthesetwo(MandM)tendstoincreasepricesproportionally.2Anincreaseinthequantityofmoneyinonecountrytendstospreadtoothersusingthesamemoneymetal,andtothearts,assoonasthepricelevelsortherelativevalueofmoneyandbulliondifferenoughtomakeexportormeltingofthemoneymetalprofitableandtoraiseslightlyworldprices.3Anincreaseindeposits(M)comparedwithmoney(M)tendslikewisetodisplaceandmeltcoin,andtoraiseworldprices. Fisher:ThePurchasingPowerofMoney5874Anincreaseinvelocitiestendstoproducesimilareffects.5Anincreaseinthevolumeoftrade(theQ’s)tends,notonlytodecreaseprices,butalsotoincreasevelocitiesanddepositsrelativelytomoneyandthroughthemtoneutralizepartlyorwhollythesaiddecreaseinprices.6Thepricelevelistheeffectandcannotbethecauseofchangeintheotherfactors.7InnumerablecausesoutsidetheequationofexchangemayaffectM,M,V,V,andtheQ’sandthroughthemaffectthep’s.Amongtheseoutsidecausesarethepricelevelsinsurround-ingcountries.8Thecausationofindividualpricescanonlyexplainpricesascomparedamongthemselves.Itcannotexplainthegenerallevelofpricesascomparedwithmoney.9Someoftheforegoingpropositionsaresubjecttoslightmodificationduringtransitionperi-ods.Itisthentrue,forinstance,thatanincreaseinthequantityofmoney(M)besideshavingtheeffectsabovementionedwillchangetemporarilytheratioofMtoManddisturbtemporarilyV,V,andtheQ’s,makingacreditcycle.Ingeneral,then,ourconclusionastocausesandeffectsisthatnormallythepricelevel(thep’s)istheeffectofalltheotherfactorsintheequationofexchange(M,M,V,V,andtheQ’s);thatamongtheseotherfactors,deposits(M)arechieflytheeffectofmoney,giventhenormalratioofMtoM,thatthisratioispartlytheeffectoftrade(theQ’s),thatVandVarealsopartlytheeffectsoftheQ’s;andthatallofthemagnitudes,M,M,V,V,andtheQ’saretheeffectsofantecedentcausesoutsidetheequationofexchange,adinfinitum.Themainconclusionisthatwefindnothingtointerferewiththetruthofthequantitytheorythatvariationsinmoney(M)producenormallyproportionalchangesinprices.Notes1Thistheory,thoughoftencrudelyformulated,hasbeenacceptedbyLocke,Hume,AdamSmith,Ricardo,Mill,Walker,Marshall,Hadley,Fetter,Kemmerer,andmostwritersonthesubject.TheRomanJuliusPaulus,aboutAD200,statedhisbeliefthatthevalueofmoneydependsonitsquantity.SeeZuckerkandl,TheoriedesPreises;Kemmerer,MoneyandCreditInstrumentsintheirRelationtoGeneralPrices,NewYork(Holt),1909.Itistruethatmanywritersstillopposethequantitytheory.Seeespecially,Laughlin,PrinciplesofMoney,NewYork(Scribner),1903.2AnalgebraicstatementoftheequationofexchangewasmadebySimonNewcombinhisablebutlittleappreciatedPrinciplesofPoliticalEconomy,NewYork(Harper),1885,p.346.ItisalsoexpressedbyEdgeworth,“ReportonMonetaryStandard.”ReportoftheBritishAssociationfortheAdvancementofScience,1887,p.293,andbyPresidentHadley,Economics,NewYork(Putnam),1896,p.197.SeealsolrvingFisher,“TheRôleofCapitalinEconomicTheory,”EconomicJournal,December,1899,pp.515–21,andE.W.Kemmerer,MoneyandCreditInstrumentsintheirRelationtoGeneralPrices,NewYork(Holt),1907,p.13.Whilethusonlyrecentlygivenmathematicalexpression,thequantitytheoryhaslongbeenunder-stoodasarelationshipamongtheseveralfactors:amountofmoney,rapidityofcirculation,andamountoftrade.SeeMill,PrinciplesofPoliticalEconomy,BookIII,ChapterVIII,§3.Ricardoprobablydeserveschiefcreditforlaunchingthetheory. JOHNMAYNARDKEYNES(1883–1946)JohnMaynardKeyneswasthesonofJohnNevilleKeynes(1852–1949),him-selfadistinguishedeconomistandcol-leagueofMarshall’sattheUniversityofCambridge.KeyneswaseducatedatCambridge,workedinthecivilservice,wasanactivememberoftheartisticandliterarycircleknownastheBloomsburyGroup(whichalsoincluded,forexample,LyttonStrachey,VirginiaWolf,BertrandRussell,andCliveandVanessaBell),andwastheleadingfigureineconomicsatCambridgeatatimewhenCambridgeemergedasthecenteroftheeconomicsuniverse.Keynesservedinnumerouswaysasanadvisortogovernmentsandgovernmentalcommit-teesthroughouthiscareer,andwasoneofthearchitectsofthepostSecondWorldWarinternationalmonetarysystem.Healsocontributedregularlytothepopularpressandservedaseditor(withEdgeworth)oftheEconomicJournal.BythetimeoftheGreatDepression,JohnMaynardKeynes,Photographer:RamsayandMuspratt,byKeyneshadbecomeoneoftheworld’scourtesyoftheNationalPortraitGallery,London.greateconomists,perhapsitsleadingmonetarytheorist.Yet,eveninthe1920sheheldmanythen-unorthodoxviews:Heearlyfeltthattherelationshipbetweensavingandinvestment,particularlytheirpsychologicalunderpinnings,werefragile.Herejectedtheso-calledautomaticityandbenevolenceofthegoldstandardinfavorofmonetaryreformandcentralbankmanagementofthemoneysupplyandpricelevelindependentofgoldreserves.Hefeltthatforallitshighlytoutedadvantages,notablyforsomepeople,themarketeconomy,especiallyitslaissez-faireform,wasinadequateforattendingtovariousimportantanddisruptivesocialproblems,forexample,controlofunemploy-ment,inflation,andpopulation.Hewasoneofagroupofmonetarytheoristswhoreformulatedthequantitytheorytogiveeffecttomotivesforholdingmoney,therebydeferringspending,whichseriouslycompromisedtherelationshipbetweenthesupplyofmoneyandthepricelevel.Lateinthe1920shecametoseethatdisequilibriumbetweensavingandinvestmentwasthecritical JohnMaynardKeynes589immediatecauseofinstability,butcontinuedtothinkinthetermsoftraditionalmonetarytheory,focusingontheeffectofprice-levelchangesonprofit-and-lossbalances.Hecontinuedtoemphasizemonetarymanagement,focusingondeflationratherthanrecessionordepressionasthecentralproblemandpolicytarget.In1936,KeynespublishedhisepochalGeneralTheoryofEmployment,InterestandMoney.Keynes’stargetwastraditionalmonetaryandmacroeconomictheory(thoughitwasnotyetsonamed),centeringontherejectionofSay’sLawandextendingtherevisionofthequantitytheory,generallyalongthelinessummarizedabove.Butnowthefocuswasnolongeronthepricelevel;itwasonthelevelsofrealeconomicactivityandofemploymentandunemployment.Keynes’snewtheorywasimportantinseveralways:(1)Heestablishedaconvictionamongeconomiststhatamacroeconomicproblemexisted–thedeterminationofthelevelsofincome,output,andemployment–whichrequiredanalysisandshouldnotbefinessedbyatheorywhoseassumptionsexcludedthepossiblesourcesofdisequilibrium,instability,andequilibrium,asitwere,atlessthanfullemployment.(2)Heprovidedanextensivetheoryofthedeterminationofthelevelsofincome,output,andemployment,aswellasofthepricelevelwhichconstitutedhisver-sionofthatanalysis.(3)Hehadamorecomplex,andevenquiteradical,viewofsavingthanhith-ertoheld.Savinghadbeenheldtobeanunmixedblessing(perhapsexceptforthemiserwhodiedofmalnutrition):itfinancedinvestment,enabledgreaterincome,providedresourcesforarainyday,retirement,andinheritance.Keynesarguedthat(a)thatwaslargelytruebut(b)investmentwasalsofinancedbybankcreditaswellasretainedbusinessearnings(notsolelyhouseholdsaving),and(c)theeconomicsignificanceofanylevelofsavingdependedonitsrela-tiontoitscorrelativelevelofinvestment:ifsavingexceededinvestment,thelevelofeconomicactivitywaslikelytocontract,andviceversa.(4)Hearguedthattheroleoftheinterestratewasnottoequatesavingandinvestmentbutsomethinglikethedemandandsupplyofmoney,takingespecialaccountofthedemandtoholdmoney(liquiditypreference).(5)Hemaintainedthatgov-ernmentspendingwillynillywaspartoftheincomemechanismandraisedthetheoreticalandpractical-policypossibilitiesofusingtherelationofgovernmentspendingtotaxationasameansofcounteringorcompensatingfordevelopmentsintheprivatesectordeemedundesirable,forexample,unemploymentandinflation.(6)Hearguedthatthetraditionalviewsofthebenefitsofreductionsinpriceandwagelevelswereincomplete.Afallinthepricelevelwouldincreasetherealvalueofcashbalances,andpossiblyleadtothespendingofexcessbalancestocountertherecessionwhichledtothefallinprices;butaseriousrecessionmightalsoleadpeopletowanttoholdgreaterrealbalancesandtoafallinprofitexpectations.Itwasamatter,generallyspeaking,oftherelativestrengthofthetwotendencies(sometimescalledthePigouandtheKeyneseffects).Asforwagecuts,suchmightwellleadtoincreasedemploymentatlowerwage-ratelevels;butsuchwouldalsodecreaseeffectivedemandbyreducingthepurchasingpowerofwageearners.Againitwasamatteroftherelativestrengthofthetwotendencies.Keynes’stheorymaintainedthatthelevelsofincome,output,andemployment,aswellasofprice,wereafunctionofthelevelofspending,oraggregatedemand.Changesinspendingbroughtaboutchangesinincome.Thesechangescameinthevariableswhichcomprisedandundergirdedspending(andinthefunctionwhichrelatedaggregatesupplytoemployment):Consumption:theaverageandmarginalpropensitytoconsume,andespeciallyconsumerpsy-chology.Investment:theexpectedrateofprofit(calledbyhimthemarginalefficiencyofcapital)inrelationtotheinterestrate(whichwasafunctionofthesupplyofmoneyinrelationtoliquiditypref-erence).Government:thepolicies,moreorlesscoherent,whichrelatedthelevelsofspendingandtaxation.Allthiswas,especiallyasassembledbyKeynes,quiteunlikeanythingwhichhadappearedbefore1936.Muchremainedtobereformulatedboththeoreticallyandempiricallyandmadesub-jecttofurthercriticism.ButKeynes’s“generaltheory”wroughtarevolutionineconomicsthelikes 590TheDevelopmentofMacroeconomicsofwhichhadnotbeenseenbefore–rivalled,perhaps,onlybythatslowly(andthushardlyamatterofrevolution)broughtaboutbyCantillon,Turgot,andSmith,aswellasperhapsRicardo.ThefactoftheGreatDepressionnotonlyhelpedtomotivateKeynes,itconditionedotherecono-miststobereceptivetohistheory.ThefocusonunemploymentalsotendedtoobscurethefactthatKeynes’stheorycouldhelpaccountforinflation:inflationcouldresultfrombusinessesraisingprices(aswellasoutput,inwhateverproportion)atlessthanfullemploymentinresponsetoincreasesinaggregatedemand,orinflationwouldhavetoresultfromincreasesinaggregatedemandatfullemployment.Finally,Keynes’sanalysishelpedlocatethesourcesofunemploy-mentinthescarcityofjobs(duetoinadequateeffectivedemand)ratherthanintheunwillingnessoflabortowork(say,atlowerwagesandsalaries).KeyneswasbothandadmirerandcriticoftheWesterneconomicsystemtheninplace.Thosewhofeltthestingofhiscriticismdidnottrusteitherhisreformsorhistheory.Thosewhocompre-hendedhisadmirationfeltthathewasseekingtosavecapitalism,ifonlyareformedcapitalism.ReprintedherearethreedifferentexcerptsfromKeynes’swritings.Thefirst,“Theendoflaissez-faire,”isanelegantstatementofthecaseforwhatiscommonlyreferredtoas“governmentinter-vention.”ThisisfollowedbyarelativelybriefstatementoftheideasdevelopedinTheGeneralTheory–takenfromanarticlerespondingtohiscriticsthatKeyneswrotefortheQuarterlyJournalofEconomicsshortlyafterthebook’spublication.ThelastextractisfromTheGeneralTheoryitself–theconcludingchapter,inwhichKeyneselaboratestheimplicationsofhistheory.ReferencesandfurtherreadingBateman,BradleyW.(1996)Keynes’sUncertainRevolution,AnnArbor:UniversityofMichiganPress.Blaug,Mark,ed.(1991)JohnMaynardKeynes(1883–1946),Aldershot:EdwardElgarPublishing.Clarke,Peter(1988)TheKeynesianRevolutionintheMaking,1924–1936,NewYork:OxfordUniversityPress.Corry,B.(1978)“KeynesintheHistoryofEconomicThought,”inA.P.Thirwall(ed.)KeynesandLaissez-Faire,London:Macmillan.Eatwell,John(1987)“Keynesianism,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,46–7.Hansen,AlvinH.(1953)AGuidetoKeynes,NewYork:McGraw-Hill.Harrod,R.F.(1951)TheLifeofJohnMaynardKeynes,London:Macmillan.Hicks,J.R.(1937)“Mr.KeynesandtheClassics:ASuggestedReinterpretation,”Econometrica5(April):147–59.Kahn,R.F.(1984)TheMakingofKeynes’GeneralTheory,Cambridge:CambridgeUniversityPress.Keynes,J.M.(1919)TheEconomicConsequencesofthePeace,London:Macmillan.——(1921)ATreatiseonProbability,London:Macmillan.——(1923)ATractonMonetaryReform,London:Macmillan.——(1930)ATreatiseonMoney,2vols,London:Macmillan.——(1971–1989)TheCollectedWritingsofJohnMaynardKeynes,London:MacmillanfortheRoyalEconomicSociety.Laidler,DavidE.W.(1999)FabricatingtheKeynesianRevolution,Cambridge:CambridgeUniversityPress.Leijonhufvud,A.(1968)OnKeynesianEconomicsandtheEconomicsofKeynes,NewYork:OxfordUniversityPress.Lekachman,Robert(1966)TheAgeofKeynes,NewYork:RandomHouse.Milgate,Murray(1987)“Keynes’sGeneralTheory,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,42–6.Moggridge,D.E.(1992)MaynardKeynes:AnEconomist’sBiography,London:Routledge.Patinkin,Don(1965)Money,Interest,andPrices,2ndedn,NewYork:Harper&Row.——(1987)“Keynes,JohnMaynard,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,19–41.Skidelsky,Robert(1983)JohnMaynardKeynes,Vol.1:HopesBetrayed,1883–1920,NewYork:VikingPenguin. JohnMaynardKeynes591Skidelsky,Robert(1988)JohnMaynardKeynes,Vol.2:TheEconomistasSavior,1920–1937,NewYork:Penguin.——(2001)JohnMaynardKeynesVol.3:FightingforFreedom,1937–1946,NewYork:Viking.Tarshis,L.(1987)“KeynesianRevolution,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.3,London:Macmillan,47–50.Thirwall,A.P.(ed.)(1978)KeynesandLaissez-Faire,London:Macmillan.Weintraub,Sidney(1961)ClassicalKeynesianism,MonetaryTheoryandthePriceLevel,Philadelphia:Chilton.Wood,J.C.,ed.(1983)JohnMaynardKeynes:CriticalAssessments,London:CroomHelm. “TheEndofLaissez-Faire”(1926)*Letusclearfromthegroundthemetaphysicalorgeneralprinciplesuponwhich,fromtimetotime,laissez-fairehasbeenfounded.Itisnottruethatindividualspossessaprescriptive‘naturalliberty’intheireconomicactivities.Thereisno‘compact’conferringperpetualrightsonthosewhoHaveoronthosewhoAcquire.Theworldisnotsogovernedfromabovethatprivateandsocialinterestalwayscoincide.Itisnotsomanagedherebelowthatinpracticetheycoincide.ItisnotcorrectdeductionfromthePrinciplesofEconomicsthatenlightenedself-interestalwaysoperatesinthepublicinterest.Norisittruethatself-interestgenerallyisenlightened;moreoftenindividualsactingseparatelytopromotetheirownendsaretooignorantortooweaktoattaineventhese.Experiencedoesnotshowthatindividuals,whentheymakeupasocialunit,arealwayslessclear-sightedthanwhentheyactseparately.Wecannot,therefore,settleonabstractgrounds,butmusthandleonitsmeritsindetail,whatBurketermed‘oneofthefinestproblemsinlegislation,namelytodeterminewhattheStateoughttotakeuponitselftodirectbythepublicwisdom,andwhatitoughttoleave,withaslittleinterferenceaspossible,toindividualexertion’.WehavetodiscriminatebetweenwhatBentham,inhisforgottenbutusefulnomenclature,usedtotermAgendaandNon-Agenda,andtodothiswith-outBentham’spriorpresumptionthatinterferenceis,atthesametime,‘generallyneedless’and‘generallypernicious’.PerhapsthechieftaskofEconomistsatthishouristodistinguishafreshtheAgendaofGovernmentfromtheNon-Agenda,andthecompaniontaskof‘PoliticsistodeviseformsofGovernmentwithinaDemocracywhichshallbecapableofaccomplishingtheAgenda’.IwillillustratewhatIhaveinmindbytwoexamples.1.Ibelievethatinmanycasestheidealsizefortheunitofcontrolandorganizationliessome-wherebetweentheindividualandthemodernState.Isuggest,therefore,thatprogressliesinthegrowthandtherecognitionofsemi-autonomousbodieswithintheState–bodieswhosecriterionofactionwithintheirownfieldissolelythepublicgoodastheyunderstandit,andfromwhosedeliberationsmotivesofprivateadvantageareexcluded,thoughsomeplaceitmaystillbeneces-sarytoleave,untiltheambitofmen’saltruismgrowswider,totheseparateadvantageofparticu-largroups,classes,orfaculties–bodieswhichintheordinarycourseofaffairsaremainlyautonomouswithintheirprescribedlimitations,butaresubjectinthelastresorttothesovereigntyofthedemocracyexpressedthroughParliament.Iproposeareturn,itmaybesaid,towardsmediaevalconceptionsofseparateautonomies.But,inEnglandatanyrate,corporationsareamodeofgovernmentwhichhasneverceasedtobeimportantandissympathetictoourinstitutions.Itiseasytogiveexamples,fromwhatalreadyexists,ofseparateautonomieswhichhaveattainedorareapproachingthemodeIdesignate–the*InJ.M.Keynes,EssaysinPersuasion,NewYork:Harcourt,Brace,&Co.,1932. Keynes:“TheEndofLaissez-Faire”593Universities,theBankofEngland,thePortofLondonAuthority,evenperhapstheRailwayCompanies.ButmoreinterestingthantheseisthetrendofJointStockInstitutions,whentheyhavereachedacertainageandsize,toapproximatetothestatusofpubliccorporationsratherthanthatofindividualisticprivateenterprise.Oneofthemostinterestingandunnoticeddevelopmentsofrecentdecadeshasbeenthetendencyofbigenterprisetosocialiseitself.Apointarrivesinthegrowthofabiginstitution–particularlyabigrailwayorbigpublicutilityenterprise,butalsoabigbankorabiginsurancecompany–atwhichtheownersofthecapital,thatis,thesharehold-ers,arealmostentirelydissociatedfromthemanagement,withtheresultthatthedirectpersonalinterestofthelatterinthemakingofgreatprofitbecomesquitesecondary.Whenthisstageisreached,thegeneralstabilityandreputationoftheinstitutionaremoreconsideredbythemanagementthanthemaximumofprofitfortheshareholders.Theshareholdersmustbesatis-fiedbyconventionallyadequatedividends;butoncethisissecured,thedirectinterestofthemanagementoftenconsistsinavoidingcriticismfromthepublicandfromthecustomersoftheconcern.Thisisparticularlythecaseiftheirgreatsizeorsemi-monopolisticpositionrendersthemconspicuousinthepubliceyeandvulnerabletopublicattack.Theextremeinstance,perhaps,ofthistendencyinthecaseofaninstitution,theoreticallytheunrestrictedpropertyofprivatepersons,istheBankofEngland.ItisalmosttruetosaythatthereisnoclassofpersonsintheKingdomofwhomtheGovernoroftheBankofEnglandthinkslesswhenhedecidesonhispolicythanofhisshareholders.Theirrights,inexcessoftheirconventionaldividend,havealreadysunktotheneighbourhoodofzero.Butthesamethingispartlytrueofmanyotherbiginstitutions.Theyare,astimegoeson,socialisingthemselves.Notthatthisisunmixedgain.Thesamecausespromoteconservatismandawaningofenter-prise.Infact,wealreadyhaveinthesecasesmanyofthefaultsaswellastheadvantagesofStateSocialism.Nevertheless,weseehere,Ithink,anaturallineofevolution.ThebattleofSocialismagainstunlimitedprivateprofitisbeingwonindetailhourbyhour.Intheseparticularfields–itremainsacuteelsewhere–thisisnolongerthepressingproblem.Thereis,forinstance,noso-calledimportantpoliticalquestionsoreallyunimportant,soirrelevanttothereorganisationoftheeconomiclifeofGreatBritain,astheNationalisationoftheRailways.Itistruethatmanybigundertakings,particularlyPublicUtilityenterprisesandotherbusinessrequiringalargefixedcapital,stillneedtobesemi-socialised.Butwemustkeepourmindsflexi-bleregardingtheformsofthissemi-socialism.Wemusttakefulladvantageofthenaturaltendenciesoftheday,andwemustprobablyprefersemi-autonomouscorporationstoorgansoftheCentralGovernmentforwhichMinistersofStatearedirectlyresponsible.IcriticisedoctrinaireStateSocialism,notbecauseitseekstoengagemen’saltruisticimpulsesintheserviceofSociety,orbecauseitdepartsfromlaissez-faire,orbecauseittakesawayfromman’snaturallibertytomakeamillion,orbecauseithascourageforboldexperiments.AllthesethingsIapplaud.Icriticiseitbecauseitmissesthesignificanceofwhatisactuallyhappening;becauseitis,infact,littlebetterthanadustysurvivalofaplantomeettheproblemsoffiftyyearsago,basedonamisunderstandingofwhatsomeonesaidahundredyearsago.Nineteenth-centuryStateSocialismsprangfromBentham,freecompetition,etc.,andisinsomerespectsaclearer,insomerespectsamoremuddled,versionofjustthesamephilosophyasunderliesnineteenth-centuryindividualism.Bothequallylaidalltheirstressonfreedom,theonenegativelytoavoidlimitationsonexistingfreedom,theotherpositivelytodestroynaturaloracquiredmonopolies.Theyaredifferentreactionstothesameintellectualatmosphere.2.IcomenexttoacriterionofAgendawhichisparticularlyrelevanttowhatitisurgentanddesirabletodointhenearfuture.Wemustaimatseparatingthoseserviceswhicharetechnicallysocialfromthosewhicharetechnicallyindividual.ThemostimportantAgendaoftheStaterelatenottothoseactivitieswhichprivateindividualsarealreadyfulfilling,buttothosefunctionswhichfall 594TheDevelopmentofMacroeconomicsoutsidethesphereoftheindividual,tothosedecisionswhicharemadebynooneiftheStatedoesnotmakethem.TheimportantthingforGovernmentisnottodothingswhichindividualsaredoingalready,andtodothemalittlebetteroralittleworse;buttodothosethingswhichatpresentarenotdoneatall.Itisnotwithinthescopeofmypurposeonthisoccasiontodeveloppracticalpolicies.Ilimitmyself,therefore,tonamingsomeinstancesofwhatImeanfromamongstthoseproblemsaboutwhichIhappentohavethoughtmost.Manyofthegreatesteconomicevilsofourtimearethefruitsofrisk,uncertainty,andignorance.Itisbecauseparticularindividuals,fortunateinsituationorinabilities,areabletotakeadvantageofuncertaintyandignorance,andalsobecauseforthesamereasonbigbusinessisoftenalottery,thatgreatinequalitiesofwealthcomeabout;andthesesamefactorsarealsothecauseoftheUnemploymentofLabour,orthedisappointmentofreasonablebusinessexpecta-tions,andoftheimpairmentofefficiencyandproduction.Yet,thecureliesoutsidetheopera-tionsofindividuals;itmayevenbetotheinterestofindividualstoaggravatethedisease.Ibelievethatthecureforthesethingsispartlytobesoughtinthedeliberatecontrolofthecurrencyandofcreditbyacentralinstitution,andpartlyinthecollectionanddisseminationonagreatscaleofdatarelatingtothebusinesssituation,includingthefullpublicity,bylawifnecessary,ofallbusi-nessfactswhichitisusefultoknow.ThesemeasureswouldinvolveSocietyinexercisingdirectiveintelligencethroughsomeappropriateorganofactionovermanyoftheinnerintricaciesofprivatebusiness,yetitwouldleaveprivateinitiativeandenterpriseunhindered.Evenifthesemeasuresproveinsufficient,neverthelesstheywillfurnishuswithbetterknowledgethanwehavenowfortakingthenextstep.MysecondexamplerelatestoSavingsandInvestment.Ibelievethatsomeco-ordinatedactofintelligentjudgementisrequiredastothescaleonwhichitisdesirablethatthecommunityasawholeshouldsave,thescaleonwhichthesesavingsshouldgoabroadintheformofforeigninvestments,andwhetherthepresentorganisationoftheinvestmentmarketdistributessavingsalongthemostnationallyproductivechannels.Idonotthinkthatthesemattersshouldbeleftentirelytothechancesofprivatejudgementandprivateprofits,astheyareatpresent.MythirdexampleconcernsPopulation.ThetimehasalreadycomewheneachcountryneedsaconsiderednationalpolicyaboutwhatsizeofPopulation,whetherlargerorsmallerthanatpresentorthesame,ismostexpedient.Andhavingsettledthispolicy,wemusttakestepstocarryitintooperation.Thetimemayarrivealittlelaterwhenthecommunityasawholemustpayattentiontotheinnatequalityaswellastothemerenumbersofitsfuturemembers.ThesereflectionshavebeendirectedtowardspossibleimprovementsinthetechniqueofmodernCapitalismbytheagencyofcollectiveaction.ThereisnothinginthemwhichisseriouslyincompatiblewithwhatseemstometobetheessentialcharacteristicofCapitalism,namelythedependenceuponanintenseappealtothemoney-makingandmoney-lovinginstinctsofindivid-ualsasthemainmotiveforceoftheeconomicmachine.NormustI,soneartomyend,straytowardsotherfields.Nevertheless,Imaydowelltoremindyou,inconclusion,thatthefiercestcontestsandthemostdeeplyfeltdivisionsofopinionarelikelytobewagedinthecomingyearsnotroundtechnicalquestions,wheretheargumentsoneithersidearemainlyeconomic,butroundthosewhich,forwantofbetterwords,maybecalledpsychologicalor,perhaps,moral.InEurope,oratleastinsomepartsofEurope–butnot,Ithink,intheUnitedStatesofAmerica–thereisalatentreaction,somewhatwidespread,againstbasingSocietytotheextentthatwedouponfostering,encouraging,andprotectingthemoney-motivesofindividuals.Apreferenceforarrangingouraffairsinsuchawayastoappealtothemoney-motiveaslittleaspossible,ratherthanasmuchaspossible,neednotbeentirelyàpriori,butmaybebasedonthecomparisonofexperiences.Differentpersons,accordingtotheirchoiceofprofession,findthemoney-motiveplayingalargeorasmallpartintheirdailylives,andhistorianscantellusabout Keynes:“TheEndofLaissez-Faire”595otherphasesofsocialorganisationinwhichthismotivehasplayedamuchsmallerpartthanitdoesnow.Mostreligionsandmostphilosophiesdeprecate,tosaytheleastofit,awayoflifemainlyinfluencedbyconsiderationsofpersonalmoneyprofit.Ontheotherhand,mostmentodayrejectasceticnotionsanddonotdoubttherealadvantagesofwealth.Moreover,itseemsobvioustothemthatonecannotdowithoutthemoneymotive,andthat,apartfromcertainadmittedabuses,itdoesitsjobwell.Intheresulttheaveragemanavertshisattentionfromtheproblem,andhasnoclearideawhathereallythinksandfeelsaboutthewholeconfoundedmatter.Confusionofthoughtandfeelingleadstoconfusionofspeech.Manypeople,whoarereallyobjectingtoCapitalismasawayoflife,argueasthoughtheywereobjectingtoitonthegroundofitsinefficiencyinattainingitsownobjects.Contrariwise,devoteesofCapitalismareoftenundulyconservative,andrejectreformsinitstechnique,whichmightreallystrengthenandpreserveit,forfearthattheymayprovetobefirststepsawayfromCapitalismitself.Nevertheless,atimemaybecomingwhenweshallgetclearerthanatpresentastowhenwearetalkingaboutCapitalismasanefficientorinefficienttechnique,andwhenwearetalkingaboutitasdesirableorobjectionableinitself.Formypart,IthinkthatCapitalism,wiselymanaged,canprobablybemademoreefficientforattainingeconomicendsthananyalternativesystemyetinsight,butthatinitselfitisinmanywaysextremelyobjectionable.Ourproblemistoworkoutasocialorganisa-tionwhichshallbeasefficientaspossiblewithoutoffendingournotionsofasatisfactorywayoflife.Thenextstepforwardmustcome,notfrompoliticalagitationorprematureexperiments,butfromthought.Weneedbyaneffortofthemindtoelucidateourownfeelings.Atpresentoursympathyandourjudgementareliabletobeondifferentsides,whichisapainfulandparalysingstateofmind.Inthefieldofactionreformerswillnotbesuccessfuluntiltheycansteadilypursueaclearanddefiniteobjectwiththeirintellectsandtheirfeelingsintune.Thereisnopartyintheworldatpresentwhichappearstometobepursuingrightaimsbyrightmethods.MaterialPovertyprovidestheincentivetochangepreciselyinsituationswherethereisverylittlemarginforexperiments.MaterialProsperityremovestheincentivejustwhenitmightbesafetotakeachance.Europelacksthemeans,Americathewill,tomakeamove.Weneedanewsetofconvic-tionswhichspringnaturallyfromacandidexaminationofourowninnerfeelingsinrelationtotheoutsidefacts. “TheGeneralTheoryofEmployment”(1937)*IIammuchindebtedtotheEditorsoftheQuarterlyJournalforthefourcontributionsrelatingtomyGeneralTheoryofEmployment,InterestandMoneywhichappearedintheissueforNovember,1936.Theycontaindetailedcriticisms,muchofwhichIacceptandfromwhichIhopetobene-fit.ThereisnothinginProfessorTaussig’scommentfromwhichIdisagree.MrLeontiefisright,Ithink,inthedistinctionhedrawsbetweenmyattitudeandthatofthe“orthodox”theorytowhathecallsthe“homogeneitypostulate.”Ishouldhavethought,however,thattherewasabun-dantevidencefromexperiencetocontradictthispostulate;andthat,inanycase,itisforthosewhomakeahighlyspecialassumptiontojustifyit,ratherthanforonewhodispenseswithit,toproveageneralnegative.Iwouldalsosuggestthathisideamightbeappliedmorefruitfullyandwithgreatertheoreticalprecisioninconnectionwiththepartplayedbythequantityofmoneyindeterminingtherateofinterest.Foritishere,Ithink,thatthehomogeneitypostulateprimarilyentersintotheorthodoxtheoreticalscheme.Mydifferences,suchastheyare,fromMrRobertsonchieflyariseoutofmyconvictionthatbothheandIdiffermorefundamentallyfromourpredecessorsthanhispietywillallow.WithmanyofhispointsIagree,without,however,beingconsciousinseveralinstancesofhavingsaid(or,anyhow,meant)anythingdifferent.Iamsurprisedheshouldthinkthatthosewhomakesportwiththevelocityofthecirculationofmoneyhavemuchincommonwiththetheoryofthemul-tiplier.Ifullyagreewiththeimportantpointhemakes…thattheincreaseddemandformoneyresultingfromanincreaseinactivityhasabackwashwhichtendstoraisetherateofinterest;andthisis,indeed,asignificantelementinmytheoryofwhyboomscarrywithinthemtheseedsoftheirowndestruction.Butthisis,essentially,apartoftheliquiditytheoryoftherateofinterest,andnotofthe“orthodox”theory.Wherehestates…thatmytheorymustberegarded“notasarefutationofacommon-senseaccountofeventsintermsofsupplyanddemandforloanablefunds,butasanalternativeversionofit,”Imustask,beforeagreeing,foratleastonereferencetowherethiscommon-senseaccountistobefound.Thereremainsthemostimportantofthefourcomments,namelyProfessorViner’s.Inregardtohiscriticismsofmydefinitionandtreatmentofinvoluntaryunemployment,Iamreadytoagreethatthispartofmybookisparticularlyopentocriticism.Ialreadyfeelmyselfinapositiontomakeimprovements,andIhopethat,whenIdoso,ProfessorVinerwillfeelmorecontent,especiallyasIdonotthinkthatthereisanythingfundamentalbetweenushere.Inthecaseofhissecondsection,however,entitled“ThePropensitytoHoard”Iampreparedtodebatehispoints.TherearepassageswhichsuggestthatProfessorVineristhinkingtoomuchinthemorefamiliartermsofthequantityofmoneyactuallyhoarded,andthatheoverlookstheemphasisIseekto*QuarterlyJournalofEconomics(February1937):209–23. Keynes:“TheGeneralTheoryofEmployment”597placeontherateofinterestasbeingtheinducementnottohoard.Itispreciselybecausethefacilitiesforhoardingarestrictlylimitedthatliquiditypreferencemainlyoperatesbyincreasingtherateofinterest.Icannotagreethat“inmodernmonetarytheorythepropensitytohoardisgenerallydealtwith,withresultswhichinkindaresubstantiallyidenticalwithKeynes’,asafactoroperatingtoreducethe‘velocity’ofmoney.”Onthecontrary,Iamconvincedthatthemon-etarytheoristswhotrytodealwithitinthiswayarealtogetheronthewrongtrack.Again,whenProfessorVinerpointsoutthatmostpeopleinvesttheirsavingsatthebestrateofinteresttheycangetandasksforstatisticstojustifytheimportanceIattachtoliquidity-preference,heisover-lookingthepointthatitisthemarginalpotentialhoarderwhohastobesatisfiedbytherateofinter-est,soastobringthedesireforactualhoardswithinthenarrowlimitsofthecashavailableforhoarding.When,ashappensinacrisis,liquidity-preferencesaresharplyraised,thisshowsitselfnotsomuchinincreasedhoards–forthereislittle,ifany,morecashwhichishoardablethantherewasbefore–asinasharpriseintherateofinterest,thatis,securitiesfallinpriceuntilthose,whowouldnowliketogetliquidiftheycoulddosoatthepreviousprice,arepersuadedtogiveuptheideaasbeingnolongerpracticableonreasonableterms.Ariseintherateofinterestisameansalternativetoanincreaseofhoardsforsatisfyinganincreasedliquidity-preference.Norismyargumentaffectedbytheadmittedfactthatdifferenttypesofassetssatisfythedesireforliquidityindifferentdegrees.Themischiefisdonewhentherateofinterestcorrespondingtothedegreeofliquidityofagivenassetleadstoamarket-capitalizationofthatassetwhichislessthanitscostofproduction.ThereareothercriticismsalsowhichIshouldbereadytodebate.ButthoughImightbeabletojustifymyownlanguage,Iamanxiousnottobeled,throughdoingsointoomuchdetail,toover-lookthesubstantialpointswhichmay,nevertheless,underliethereactionswhichmytreatmenthasproducedinthemindsofmycritics.IammoreattachedtothecomparativelysimplefundamentalideaswhichunderliemytheorythantotheparticularformsinwhichIhaveembodiedthem,andIhavenodesirethatthelattershouldbecrystallizedatthepresentstageofthedebate.Ifthesimplebasicideascanbecomefamiliarandacceptable,timeandexperience,andthecollaborationofanumberofmindswilldiscoverthebestwayofexpressingthem.Iwould,therefore,prefertooccupysuchfurtherspace,astheEditorofthisJournalcanallowme,intryingtoreëxpresssomeoftheseideas,thanindetailedcontroversywhichmightprovebarren.AndIbelievethatIshalleffectthisbest,eventhoughthismayseemtosomeasplungingstraightoffintothecontroversialmoodfromwhichIpurporttoseekescape,ifIputwhatIhavetosayintheshapeofadiscussionastocertaindefinitepointswhereIseemtomyselftobemostclearlydepartingfromprevioustheories.IIItisgenerallyrecognizedthattheRicardiananalysiswasconcernedwithwhatwenowcalllong-periodequilibrium.Marshall’scontributionmainlyconsistedingraftingontothisthemarginalprin-cipleandtheprincipleofsubstitution,togetherwithsomediscussionofthepassagefromonepositionoflong-periodequilibriumtoanother.Butheassumed,asRicardodid,thattheamountsofthefactorsofproductioninuseweregivenandthattheproblemwastodeterminethewayinwhichtheywouldbeusedandtheirrelativerewards.EdgeworthandProfessorPigouandotherlaterandcontemporarywritershaveembroideredandimprovedthistheorybyconsideringhowdifferentpeculiaritiesintheshapesofthesupplyfunctionsofthefactorsofproductionwouldaffectmatters,whatwillhappeninconditionsofmonopolyandimperfectcompe-tition,howfarsocialandindividualadvantagecoincide,whatarethespecialproblemsofexchangeinanopensystemandthelike.Butthesemorerecentwritersliketheirpredecessorswerestilldealingwithasysteminwhichtheamountofthefactorsemployedwasgivenandtheotherrelevantfactswereknownmoreorlessforcertain.Thisdoesnotmeanthattheyweredealingwithasysteminwhichchangewasruledout,orevenoneinwhichthedisappointmentofexpectationwasruledout.Butatany 598TheDevelopmentofMacroeconomicsgiventimefactsandexpectationswereassumedtobegiveninadefiniteandcalculableform;andrisks,ofwhich,thoughadmitted,notmuchnoticewastaken,weresupposedtobecapableofanexactactu-arialcomputation.Thecalculusofprobability,thoughmentionofitwaskeptinthebackground,wassupposedtobecapableofreducinguncertaintytothesamecalculablestatusasthatofcertaintyitself;justasintheBenthamitecalculusofpainsandpleasuresorofadvantageanddisadvantage,bywhichtheBenthamitephilosophyassumedmentobeinfluencedintheirgeneralethicalbehavior.Actually,however,wehave,asarule,onlythevaguestideaofanybutthemostdirectconsequencesofouracts.Sometimeswearenotmuchconcernedwiththeirremoterconse-quences,eventhoughtimeandchancemaymakemuchofthem.Butsometimesweareintenselyconcernedwiththem,moreso,occasionally,thanwiththeimmediateconsequences.Nowofallhumanactivitieswhichareaffectedbythisremoterpreoccupation,ithappensthatoneofthemostimportantiseconomicincharacter,namelyWealth.ThewholeobjectoftheaccumulationofWealthistoproduceresults,orpotentialresults,atacomparativelydistant,andsometimesatanindefinitelydistant,date.Thus,thefactthatourknowledgeofthefutureisfluctuating,vague,anduncertain,rendersWealthapeculiarlyunsuitablesubjectforthemethodsoftheclassicaleconomictheory.Thistheorymightworkverywellinaworldinwhicheconomicgoodswerenecessarilyconsumedwithinashortintervaloftheirbeingproduced.Butitrequires,Isuggest,considerableamendmentifitistobeappliedtoaworldinwhichtheaccumulationofwealthforanindefinitelypostponedfutureisanimportantfactor;andthegreatertheproportionatepartplayedbysuchwealth-accumulationthemoreessentialdoessuchamendmentbecome.By“uncertain”knowledge,letmeexplain,Idonotmeanmerelytodistinguishwhatisknownforcertainfromwhatisonlyprobable.Thegameofrouletteisnotsubject,inthissense,touncer-tainty;noristheprospectofaVictorybondbeingdrawn.Or,again,theexpectationoflifeisonlyslightlyuncertain.Eventheweatherisonlymoderatelyuncertain.ThesenseinwhichIamusingthetermisthatinwhichtheprospectofaEuropeanwarisuncertain,orthepriceofcopperandtherateofinteresttwentyyearshence,ortheobsolescenceofanewinvention,orthepositionofprivatewealth-ownersinthesocialsystemin1970.Aboutthesemattersthereisnoscientificbasisonwhichtoformanycalculableprobabilitywhatever.Wesimplydonotknow.Nevertheless,thenecessityforactionandfordecisioncompelsusaspracticalmentodoourbesttooverlookthisawkwardfactandtobehaveexactlyasweshouldifwehadbehindusagoodBenthamitecalculationofaseriesofprospectiveadvantagesanddisadvantages,eachmultipliedbyitsappropriateprobability,waitingtobesummed.Howdowemanageinsuchcircumstancestobehaveinamannerwhichsavesourfacesasrational,economicmen?Wehavedevisedforthepurposeavarietyoftechniques,ofwhichmuchthemostimportantarethethreefollowing:1Weassumethatthepresentisamuchmoreserviceableguidetothefuturethanacandidexam-inationofpastexperiencewouldshowittohavebeenhitherto.Inotherwords,welargelyignoretheprospectoffuturechangesabouttheactualcharacterofwhichweknownothing.2Weassumethattheexistingstateofopinionasexpressedinpricesandthecharacterofexistingoutputisbasedonacorrectsummingupoffutureprospects,sothatwecanacceptitassuchunlessanduntilsomethingnewandrelevantcomesintothepicture.3Knowingthatourownindividualjudgmentisworthless,weendeavortofallbackonthejudgmentoftherestoftheworldwhichisperhapsbetterinformed.Thatis,weendeavortoconformwiththebehaviorofthemajorityortheaverage.Thepsychologyofasocietyofindividualseachofwhomisendeavoringtocopytheothersleadstowhatwemaystrictlytermaconventionaljudgment.Nowapracticaltheoryofthefuturebasedonthesethreeprincipleshascertainmarkedcharacteristics.Inparticular,beingbasedonsoflimsyafoundation,itissubjecttosuddenandviolentchanges.Thepracticeofcalmnessandimmobility,ofcertaintyandsecurity,suddenly Keynes:“TheGeneralTheoryofEmployment”599breaksdown.Newfearsandhopeswill,withoutwarning,takechargeofhumanconduct.Theforcesofdisillusionmaysuddenlyimposeanewconventionalbasisofvaluation.Allthesepretty,politetechniques,madeforawell-panelledBoardRoomandanicelyregulatedmarket,areliabletocollapse.Atalltimesthevaguepanicfearsandequallyvagueandunreasonedhopesarenotreallylulled,andliebutalittlewaybelowthesurface.Perhapsthereaderfeelsthatthisgeneral,philosophicaldisquisitiononthebehaviorofmankindissomewhatremotefromtheeconomictheoryunderdiscussion.ButIthinknot.Thoughthisishowwebehaveinthemarketplace,thetheorywedeviseinthestudyofhowwebehaveinthemarketplaceshouldnotitselfsubmittomarket-placeidols.Iaccusetheclassicaleconomictheoryofbeingitselfoneofthesepretty,politetechniqueswhichtriestodealwiththepresentbyabstractingfromthefactthatweknowverylittleaboutthefuture.Idaresaythataclassicaleconomistwouldreadilyadmitthis.But,evenso,Ithinkhehasover-lookedtheprecisenatureofthedifferencewhichhisabstractionmakesbetweentheoryandprac-tice,andthecharacterofthefallaciesintowhichheislikelytobeled.ThisisparticularlythecaseinhistreatmentofMoneyandInterest.AndourfirststepmustbetoelucidatemoreclearlythefunctionsofMoney.Money,itiswellknown,servestwoprincipalpurposes.Byactingasamoneyofaccountitfacilitatesexchangeswithoutitsbeingnecessarythatitshouldeveritselfcomeintothepictureasasubstantiveobject.Inthisrespectitisaconveniencewhichisdevoidofsignificanceorrealinfluence.Inthesecondplace,itisastoreofwealth.Sowearetold,withoutasmileontheface.Butintheworldoftheclassicaleconomy,whataninsaneusetowhichtoputit!Foritisarecog-nizedcharacteristicofmoneyasastoreofwealththatitisbarren;whereaspracticallyeveryotherformofstoringwealthyieldssomeinterestorprofit.Whyshouldanyoneoutsidealunaticasylumwishtousemoneyasastoreofwealth?Because,partlyonreasonableandpartlyoninstinctivegrounds,ourdesiretoholdMoneyasastoreofwealthisabarometerofthedegreeofourdistrustofourowncalculationsandconven-tionsconcerningthefuture.EventhoughthisfeelingaboutMoneyisitselfconventionalorinstinctive,itoperates,sotospeak,atadeeperlevelofourmotivation.Ittakeschargeatthemomentswhenthehigher,moreprecariousconventionshaveweakened.Thepossessionofactualmoneylullsourdisquietude;andthepremiumwhichwerequiretomakeuspartwithmoneyisthemeasureofthedegreeofourdisquietude.Thesignificanceofthischaracteristicofmoneyhasusuallybeenoverlooked;andinsofarasithasbeennoticed,theessentialnatureofthephenomenonhasbeenmisdescribed.Forwhathasattractedattentionhasbeenthequantityofmoneywhichhasbeenhoarded;andimportancehasbeenattachedtothisbecauseithasbeensupposedtohaveadirectproportionateeffectontheprice-levelthroughaffectingthevelocityofcirculation.Butthequantityofhoardscanonlybealteredeitherifthetotalquantityofmoneyischangedorifthequantityofcurrentmoney-income(Ispeakbroadly)ischanged;whereasfluctuationsinthedegreeofconfidencearecapa-bleofhavingquiteadifferenteffect,namelyinmodifyingnottheamountthatisactuallyhoarded,buttheamountofthepremiumwhichhastobeofferedtoinducepeoplenottohoard.Andchangesinthepropensitytohoard,orinthestateofliquidity-preferenceasIhavecalledit,primarilyaffect,notprices,buttherateofinterest;anyeffectonpricesbeingproducedbyreper-cussionasanultimateconsequenceofachangeintherateofinterest.This,expressedinaverygeneralway,ismytheoryoftherateofinterest.Therateofinterestobviouslymeasures–justasthebooksonarithmeticsayitdoes–thepremiumwhichhastobeofferedtoinducepeopletoholdtheirwealthinsomeformotherthanhoardedmoney.Thequantityofmoneyandtheamountofitrequiredintheactivecirculationforthetransactionofcurrentbusiness(mainlydependingonthelevelofmoney-income)determinehowmuchisavailableforinactivebalances,thatis,forhoards.Therateofinterestisthefactorwhichadjustsatthemarginthedemandforhoardstothesupplyofhoards. 600TheDevelopmentofMacroeconomicsNowletusproceedtothenextstageoftheargument.Theownerofwealth,whohasbeeninducednottoholdhiswealthintheshapeofhoardedmoney,stillhastwoalternativesbetweenwhichtochoose.Hecanlendhismoneyatthecurrentrateofmoney-interestorhecanpurchasesomekindofcapital-asset.Clearlyinequilibriumthesetwoalternativesmustofferanequaladvantagetothemarginalinvestorineachofthem.Thisisbroughtaboutbyshiftsinthemoney-pricesofcapital-assetsrelativetothepricesofmoney-loans.Thepricesofcapital-assetsmoveuntil,havingregardtotheirprospectiveyieldsandaccountbeingtakenofallthoseelementsofdoubtanduncertainty,interestedanddisinterestedadvice,fashion,convention,andwhatelseyouwillwhichaffectthemindoftheinvestor,theyofferanequalapparentadvantagetothemarginalinvestorwhoiswaveringbetweenonekindofinvestmentandanother.This,then,isthefirstrepercussionoftherateofinterest,asfixedbythequantityofmoneyandthepropensitytohoard,namelyonthepricesofcapital-assets.Thisdoesnotmean,ofcourse,thattherateofinterestistheonlyfluctuatinginfluenceontheseprices.Opinionsastotheirprospectiveyieldarethemselvessubjecttosharpfluctuations,preciselyforthereasonalreadygiven,namelytheflimsinessofthebasisofknowledgeonwhichtheydepend.Itistheseopinionstakeninconjunctionwiththerateofinterestwhichfixtheirprice.Nowforstagethree.Capital-assetsarecapable,ingeneral,ofbeingnewlyproduced.Thescaleonwhichtheyareproduceddepends,ofcourse,ontherelationbetweentheircostsofpro-ductionandthepriceswhichtheyareexpectedtorealizeinthemarket.Thus,iftheleveloftherateofinteresttakeninconjunctionwithopinionsabouttheirprospectiveyieldraisethepricesofcapital-assets,thevolumeofcurrentinvestment(meaningbythisthevalueoftheoutputofnewlyproducedcapital-assets)willbeincreased;whileif,ontheotherhand,theseinfluencesreducethepricesofcapital-assets,thevolumeofcurrentinvestmentwillbediminished.Itisnotsurprisingthatthevolumeofinvestment,thusdetermined,shouldfluctuatewidelyfromtimetotime.Foritdependsontwosetsofjudgmentsaboutthefuture,neitherofwhichrestsonanadequateorsecurefoundation–onthepropensitytohoardandonopinionsofthefutureyieldofcapital-assets.Noristhereanyreasontosupposethatthefluctuationsinoneofthesefactorswilltendtooffsetthefluctuationsintheother.Whenamorepessimisticviewistakenaboutfutureyields,thatisnoreasonwhythereshouldbeadiminishedpropensitytohoard.Indeed,theconditionswhichaggravatetheonefactortend,asarule,toaggravatetheother.Forthesamecircumstanceswhichleadtopessimisticviewsaboutfutureyieldsareapttoincreasethepropensitytohoard.Theonlyelementofself-rightinginthesystemarisesatamuchlaterstageandinanuncertaindegree.Ifadeclineininvestmentleadstoadeclineinoutputasawhole,thismayresult(formorereasonsthanone)inareductionoftheamountofmoneyrequiredfortheactivecirculation,whichwillreleasealargerquantityofmoneyfortheinactivecirculation,whichwillsatisfythepropensitytohoardatalowerleveloftherateofinterest,whichwillraisethepricesofcapital-assets,whichwillincreasethescaleofinvestment,whichwillrestoreinsomemeasurethelevelofoutputasawhole.Thiscompletesthefirstchapteroftheargument,namelytheliabilityofthescaleofinvestmenttofluctuateforreasonsquitedistinct(a)fromthosewhichdeterminethepropensityoftheindivid-ualtosaveoutofagivenincomeand(b)fromthosephysicalconditionsoftechnicalcapacitytoaidproductionwhichhaveusuallybeensupposedhithertotobethechiefinfluencegoverningthemarginalefficiencyofcapital.If,ontheotherhand,ourknowledgeofthefuturewascalculableandnotsubjecttosuddenchanges,itmightbejustifiabletoassumethattheliquidity-preferencecurvewasbothstableandveryinelastic.Inthiscaseasmalldeclineinmoney-incomewouldleadtoalargefallintherateofinterest,probablysufficienttoraiseoutputandemploymenttothefull.Intheseconditionswemightreasonablysupposethatthewholeoftheavailableresourceswouldnormallybeemployed;andtheconditionsrequiredbytheorthodoxtheorywouldbesatisfied. Keynes:“TheGeneralTheoryofEmployment”601IIIMynextdifferencefromthetraditionaltheoryconcernsitsapparentconvictionthatthereisnonecessitytoworkoutatheoryofthedemandandsupplyofoutputasawhole.Willafluctuationininvestment,arisingforthereasonsjustdescribed,haveanyeffectonthedemandforoutputasawhole,andconsequentlyonthescaleofoutputandemployment?Whatanswercanthetradi-tionaltheorymaketothisquestion?Ibelievethatitmakesnoansweratall,neverhavinggiventhematterasinglethought;thetheoryofeffectivedemand,thatisthedemandforoutputasawhole,havingbeenentirelyneglectedformorethanahundredyears.Myownanswertothisquestioninvolvesfreshconsiderations.Isaythateffectivedemandismadeupoftwoitems–investment-expendituredeterminedinthemannerjustexplainedandconsumption-expenditure.Nowwhatgovernstheamountofconsumption-expenditure?Itdependsmainlyonthelevelofincome.People’spropensitytospend(asIcallit)isinfluencedbymanyfactorssuchasthedistributionofincome,theirnormalattitudetothefuture,and–thoughprobablyinaminordegree–bytherateofinterest.Butinthemaintheprevailingpsychologicallawseemstobethatwhenaggregateincomeincreases,consumption-expenditurewillalsoincreasebuttoasomewhatlesserextent.Thisisaveryobviousconclusion.Itsimplyamountstosayingthatanincreaseinincomewillbedividedinsomeproportionoranotherbetweenspend-ingandsaving,andthatwhenourincomeisincreaseditisextremelyunlikelythatthiswillhavetheeffectofmakinguseitherspendlessorsavelessthanbefore.Thispsychologicallawwasoftheutmostimportanceinthedevelopmentofmyownthought,anditis,Ithink,absolutelyfundamentaltothetheoryofeffectivedemandassetforthinmybook.Butfewcriticsorcommentatorssofarhavepaidparticularattentiontoit.Therefollowsfromthisextremelyobviousprincipleanimportant,yetunfamiliar,conclusion.Incomesarecreatedpartlybyentrepreneursproducingforinvestmentandpartlybytheirproducingforconsumption.Theamountthatisconsumeddependsontheamountofincomethusmadeup.Hence,theamountofconsumption-goodswhichitwillpayentrepreneurstopro-ducedependsontheamountofinvestment-goodswhichtheyareproducing.If,forexample,thepublicareinthehabitofspendingnine-tenthsoftheirincomeonconsumption-goods,itfollowsthatifentrepreneursweretoproduceconsumption-goodsatacostmorethanninetimesthecostoftheinvestment-goodstheyareproducing,somepartoftheiroutputcouldnotbesoldatapricewhichwouldcoveritscostofproduction.Fortheconsumption-goodsonthemarketwouldhavecostmorethannine-tenthsoftheaggregateincomeofthepublicandwouldthereforebeinexcessofthedemandforconsumption-goods,whichbyhypothesisisonlythenine-tenths.Thus,entrepreneurswillmakealossuntiltheycontracttheiroutputofconsumption-goodsdowntoanamountatwhichitnolongerexceedsninetimestheircurrentoutputofinvestmentgoods.Theformulaisnot,ofcourse,quitesosimpleasinthisillustration.Theproportionoftheirincomeswhichthepublicwillchoosetoconsumewillnotbeaconstantone,andinthemostgeneralcaseotherfactorsarealsorelevant.Butthereisalwaysaformula,moreorlessofthiskind,relatingtheoutputofconsumption-goodswhichitpaystoproducetotheoutputofinvestment-goods;andIhavegivenattentiontoitinmybookunderthenameoftheMultiplier.Thefactthatanincreaseinconsumptionisaptinitselftostimulatethisfurtherinvestmentmerelyfortifiestheargument.Thatthelevelofoutputofconsumption-goods,whichisprofitabletotheentrepreneur,shouldberelatedbyaformulaofthiskindtotheoutputofinvestment-goodsdependsonassumptionsofasim-pleandobviouscharacter.Theconclusionappearstometobequitebeyonddispute.Yet,theconse-quenceswhichfollowfromitareatthesametimeunfamiliarandofthegreatestpossibleimportance.Thetheorycanbesummedupbysayingthat,giventhepsychologyofthepublic,thelevelofoutputandemploymentasawholedependsontheamountofinvestment.Iputitinthisway,notbecausethisistheonlyfactoronwhichaggregateoutputdepends,butbecauseitisusualinacomplexsystemtoregardasthecausacausansthatfactorwhichismostpronetosuddenandwide 602TheDevelopmentofMacroeconomicsfluctuation.Morecomprehensively,aggregateoutputdependsonthepropensitytohoard,onthepolicyofthemonetaryauthorityasitaffectsthequantityofmoney,onthestateofconfidenceconcerningtheprospectiveyieldofcapital-assets,onthepropensitytospendandonthesocialfactorswhichinfluencethelevelofthemoney-wage.Butoftheseseveralfactorsitisthosewhichdeterminetherateofinvestmentwhicharemostunreliable,sinceitistheywhichareinfluencedbyourviewsofthefutureaboutwhichweknowsolittle.ThisthatIofferis,therefore,atheoryofwhyoutputandemploymentaresoliabletofluctuation.Itdoesnotofferaready-maderemedyastohowtoavoidthesefluctuationsandtomaintainoutputatasteadyoptimumlevel.Butitis,properlyspeaking,aTheoryofEmploymentbecauseitexplainswhy,inanygivencircumstances,employmentiswhatitis.Naturally,Iaminterestednotonlyinthediagnosis,butalsointhecure;andmanypagesofmybookaredevotedtothelatter.ButIconsiderthatmysuggestionsforacure,which,avowedly,arenotworkedoutcompletely,areonadifferentplanefromthediagnosis.Theyarenotmeanttobedefinitive;theyaresubjecttoallsortsofspecialassumptionsandarenecessarilyrelatedtotheparticularconditionsofthetime.Butmymainreasonsfordepartingfromthetraditionaltheorygomuchdeeperthanthis.Theyareofahighlygeneralcharacterandaremeanttobedefinitive.Isumup,therefore,themaingroundsofmydepartureasfollows:1.Theorthodoxtheoryassumesthatwehaveaknowledgeofthefutureofakindquitedifferentfromthatwhichweactuallypossess.ThisfalserationalizationfollowsthelinesoftheBenthamitecalculus.Thehypothesisofacalculablefutureleadstoawronginterpretationoftheprinciplesofbehaviorwhichtheneedforactioncompelsustoadopt,andtoanunderestimationoftheconcealedfactorsofutterdoubt,precariousness,hope,andfear.Theresulthasbeenamistakentheoryoftherateofinterest.Itistruethatthenecessityofequalizingtheadvantagesofthechoicebetweenowningloansandassetsrequiresthattherateofinterestshouldbeequaltothemarginalefficiencyofcapital.Butthisdoesnottellusatwhatleveltheequalitywillbeeffective.Theorthodoxtheoryregardsthemarginalefficiencyofcapitalassettingthepace.Butthemarginalefficiencyofcapitaldependsonthepriceofcapital-assets;andsincethispricedeterminestherateofnewinvest-ment,itisconsistentinequilibriumwithonlyonegivenlevelofmoney-income.Thus,themarginalefficiencyofcapitalisnotdetermined,unlessthelevelofmoney-incomeisgiven.Inasysteminwhichthelevelofmoney-incomeiscapableoffluctuating,theorthodoxtheoryisoneequationshortofwhatisrequiredtogiveasolution.Undoubtedly,thereasonwhytheorthodoxsystemhasfailedtodiscoverthisdiscrepancyisbecauseithasalwaystacitlyassumedthatincomeisgiven,namelyatthelevelcorrespondingtotheemploymentofalltheavailableresources.Inotherwordsitistacitlyassumingthatthemonetarypolicyissuchastomaintaintherateofinterestatthatlevelwhichiscompatiblewithfullemployment.Itis,therefore,incapableofdealingwiththegeneralcasewhereemploymentisliabletofluctuate.Thus,insteadofthemarginalefficiencyofcapitaldeterminingtherateofinterest,itistruer(thoughnotafullstatementofthecase)tosaythatitistherateofinterestwhichdeterminesthemarginalefficiencyofcapital.2.Theorthodoxtheorywouldbynowhavediscoveredtheabovedefect,ifithadnotignoredtheneedforatheoryofthesupplyanddemandofoutputasawhole.IdoubtifmanymoderneconomistsreallyacceptSay’sLawthatsupplycreatesitsowndemand.Buttheyhavenotbeenawarethattheyweretacitlyassumingit.Thus,thepsychologicallawunderlyingtheMultiplierhasescapednotice.Ithasnotbeenobservedthattheamountofconsumption-goodswhichitpaysentrepreneurstoproduceisafunctionoftheamountofinvestment-goodswhichitpaysthemtoproduce.Theexplanationistobefound,Isuppose,inthetacitassumptionthateveryindividualspendsthewholeofhisincomeeitheronconsumptionoronbuying,directlyorindi-rectly,newlyproducedcapitalgoods.But,hereagain,whilsttheoldereconomistsexpresslybelievedthis,Idoubtifmanycontemporaryeconomistsreallydobelieveit.Theyhavediscardedtheseolderideaswithoutbecomingawareoftheconsequences. TheGeneralTheoryofEmployment,InterestandMoney(1936)*Chapter24:ConcludingnotesonthesocialphilosophytowardswhichthegeneraltheorymightleadITheoutstandingfaultsoftheeconomicsocietyinwhichweliveareitsfailuretoprovideforfullemploymentanditsarbitraryandinequitabledistributionofwealthandincomes.Thebearingoftheforegoingtheoryonthefirstoftheseisobvious.Buttherearealsotwoimportantrespectsinwhichitisrelevanttothesecond.Sincetheendofthenineteenthcenturysignificantprogresstowardstheremovalofverygreatdisparitiesofwealthandincomehasbeenachievedthroughtheinstrumentofdirecttaxation–incometaxandsurtax,anddeathduties–especiallyinGreatBritain.Manypeoplewouldwishtoseethisprocesscarriedmuchfurther,buttheyaredeterredbytwoconsiderations;partlybythefearofmakingskilfulevasionstoomuchworthwhileandalsoofdiminishingundulythemotivetowardsrisk-taking,butmainly,Ithink,bythebeliefthatthegrowthofcapitaldependsuponthestrengthofthemotivetowardsindividualsavingandthatforalargeproportionofthisgrowthwearedepen-dentonthesavingsoftherichoutoftheirsuperfluity.Ourargumentdoesnotaffectthefirstoftheseconsiderations.Butitmayconsiderablymodifyourattitudetowardsthesecond.Forwehaveseenthat,uptothepointwherefullemploymentprevails,thegrowthofcapitaldependsnotatallonalowpropensitytoconsumebutis,onthecontrary,heldbackbyit;andonlyinconditionsoffullemploymentisalowpropensitytoconsumeconducivetothegrowthofcapital.Moreover,experi-encesuggeststhatinexistingconditionssavingbyinstitutionsandthroughsinkingfundsismorethanadequate,andthatmeasuresfortheredistributionofincomesinawaylikelytoraisethepropensitytoconsumemayprovepositivelyfavourabletothegrowthofcapital.Theexistingconfusionofthepublicmindonthematteriswellillustratedbytheverycommonbeliefthatthedeathdutiesareresponsibleforareductioninthecapitalwealthofthecountry.AssumingthattheStateappliestheproceedsofthesedutiestoitsordinaryoutgoingssothattaxesonincomesandconsumptionarecorrespondinglyreducedoravoided,itis,ofcourse,truethatafiscalpolicyofheavydeathdutieshastheeffectofincreasingthecommunity’spropensitytoconsume.Butinasmuchasanincreaseinthehabitualpropensitytoconsumewillingeneral(i.e.exceptinconditionsoffullemployment)servetoincreaseatthesametimetheinducementtoinvest,theinferencecommonlydrawnistheexactoppositeofthetruth.Thus,ourargumentleadstowardstheconclusionthatincontemporaryconditionsthegrowthofwealth,sofarfrombeingdependentontheabstinenceoftherich,asiscommonlysupposed,ismorelikelytobeimpededbyit.Oneofthechiefsocialjustificationsofgreatinequalityofwealthis,therefore,removed.Iamnotsayingthattherearenootherreasons,unaffectedbyourtheory,capableofjustifyingsomemeasureofinequalityinsomecircumstances.Butitdoesdisposeofthemostimportantofthereasonswhyhithertowehavethoughtitprudenttomovecarefully.Thisparticularlyaffectsourattitudetowardsdeathduties:fortherearecertainjustificationsforinequalityofincomeswhichdonotapplyequallytoinequalityofinheritances.*London:Macmillan,1936. 604TheDevelopmentofMacroeconomicsFormyownpart,Ibelievethatthereissocialandpsychologicaljustificationforsignificantinequalitiesofincomesandwealth,butnotforsuchlargedisparitiesasexistto-day.Therearevaluablehumanactivitieswhichrequirethemotiveofmoney-makingandtheenvironmentofprivatewealth-ownershipfortheirfullfruition.Moreover,dangeroushumanproclivitiescanbecanalisedintocomparativelyharmlesschannelsbytheexistenceofopportunitiesformoney-makingandprivatewealth,which,iftheycannotbesatisfiedinthisway,mayfindtheiroutletincruelty,therecklesspursuitofpersonalpowerandauthority,andotherformsofself-aggrandisement.Itisbetterthatamanshouldtyranniseoverhisbankbalancethanoverhisfellow-citizens;andwhilsttheformerissometimesdenouncedasbeingbutameanstothelatter,sometimesatleastitisanalternative.Butitisnotnecessaryforthestimulationoftheseactivitiesandthesatisfactionoftheseproclivitiesthatthegameshouldbeplayedforsuchhighstakesasatpresent.Muchlowerstakeswillservethepurposeequallywell,assoonastheplayersareaccustomedtothem.Thetaskoftransmutinghumannaturemustnotbeconfusedwiththetaskofmanagingit.Thoughintheidealcommonwealthmenmayhavebeentaughtorinspiredorbredtotakenointerestinthestakes,itmaystillbewiseandprudentstatesmanshiptoallowthegametobeplayed,subjecttorulesandlimitations,solongastheaverageman,orevenasignificantsectionofthecommunity,isinfactstronglyaddictedtothemoney-makingpassion.IIThereis,however,asecond,muchmorefundamentalinferencefromourargumentwhichhasabearingonthefutureofinequalitiesofwealth;namelyourtheoryoftherateofinterest.Thejustificationforamoderatelyhighrateofinteresthasbeenfoundhithertointhenecessityofpro-vidingasufficientinducementtosave.Butwehaveshownthattheextentofeffectivesavingisnecessarilydeterminedbythescaleofinvestmentandthatthescaleofinvestmentispromotedbyalowrateofinterest,providedthatwedonotattempttostimulateitinthiswaybeyondthepointwhichcorrespondstofullemployment.Thus,itistoourbestadvantagetoreducetherateofinteresttothatpointrelativelytothescheduleofthemarginalefficiencyofcapitalatwhichthereisfullemployment.Therecanbenodoubtthatthiscriterionwillleadtoamuchlowerrateofinterestthanhasruledhitherto;and,sofarasonecanguessattheschedulesofthemarginalefficiencyofcapitalcorrespondingtoincreasingamountsofcapital,therateofinterestislikelytofallsteadily,ifitshouldbepracticabletomaintainconditionsofmoreorlesscontinuousfullemployment–unless,indeed,thereisanexcessivechangeintheaggregatepropensitytoconsume(includingtheState).Ifeelsurethatthedemandforcapitalisstrictlylimitedinthesensethatitwouldnotbediffi-culttoincreasethestockofcapitaluptoapointwhereitsmarginalefficiencyhadfallentoaverylowfigure.Thiswouldnotmeanthattheuseofcapitalinstrumentswouldcostalmostnothing,butonlythatthereturnfromthemwouldhavetocoverlittlemorethantheirexhaustionbywastageandobsolescencetogetherwithsomemargintocoverriskandtheexerciseofskillandjudgement.Inshort,theaggregatereturnfromdurablegoodsinthecourseoftheirlifewould,asinthecaseofshort-livedgoods,justcovertheirlabour-costsofproductionplusanallowanceforriskandthecostsofskillandsupervision.Now,thoughthisstateofaffairswouldbequitecompatiblewithsomemeasureofindividual-ism,yetitwouldmeantheeuthanasiaoftherentier,and,consequently,theeuthanasiaofthecumulativeoppressivepowerofthecapitalisttoexploitthescarcity-valueofcapital.Interestto-dayrewardsnogenuinesacrifice,anymorethandoestherentofland.Theownerofcapitalcanobtaininterestbecausecapitalisscarce,justastheowneroflandcanobtainrentbecauselandisscarce.Butwhilsttheremaybeintrinsicreasonsforthescarcityofland,therearenointrinsicreasonsforthescarcityofcapital.Anintrinsicreasonforsuchscarcity,inthesenseofa Keynes:TheGeneralTheory605genuinesacrificewhichcouldonlybecalledforthbytheofferofarewardintheshapeofinter-est,wouldnotexist,inthelongrun,exceptintheeventoftheindividualpropensitytoconsumeprovingtobeofsuchacharacterthatnetsavinginconditionsoffullemploymentcomestoanendbeforecapitalhasbecomesufficientlyabundant.Butevenso,itwillstillbepossibleforcommunalsavingthroughtheagencyoftheStatetobemaintainedatalevelwhichwillallowthegrowthofcapitaluptothepointwhereitceasestobescarce.Isee,therefore,therentieraspectofcapitalismasatransitionalphasewhichwilldisappearwhenithasdoneitswork.Andwiththedisappearanceofitsrentieraspectmuchelseinitbesideswillsufferasea-change.Itwillbe,moreover,agreatadvantageoftheorderofeventswhichIamadvocating,thattheeuthanasiaoftherentier,ofthefunctionlessinvestor,willbenothingsudden,merelyagradualbutprolongedcontinuanceofwhatwehaveseenrecentlyinGreatBritain,andwillneednorevolution.Thus,wemightaiminpractice(therebeingnothinginthiswhichisunattainable)atanincreaseinthevolumeofcapitaluntilitceasestobescarce,sothatthefunctionlessinvestorwillnolongerreceiveabonus;andataschemeofdirecttaxationwhichallowstheintelligenceanddetermination,andexecutiveskillofthefinancier,theentrepreneurethocgenusomne(whoarecertainlysofondoftheircraftthattheirlabourcouldbeobtainedmuchcheaperthanatpresent),tobeharnessedtotheserviceofthecommunityonreasonabletermsofreward.Atthesametimewemustrecognisethatonlyexperiencecanshowhowfarthecommonwill,embodiedinthepolicyoftheState,oughttobedirectedtoincreasingandsupplementingtheinducementtoinvest;andhowfaritissafetostimulatetheaveragepropensitytoconsume,with-outforgoingouraimofdeprivingcapitalofitsscarcity-valuewithinoneortwogenerations.Itmayturnoutthatthepropensitytoconsumewillbesoeasilystrengthenedbytheeffectsofafallingrateofinterest,thatfullemploymentcanbereachedwitharateofaccumulationlittlegreaterthanatpresent.Inthiseventaschemeforthehighertaxationoflargeincomesandinher-itancesmightbeopentotheobjectionthatitwouldleadtofullemploymentwitharateofaccu-mulationwhichwasreducedconsiderablybelowthecurrentlevel.Imustnotbesupposedtodenythepossibility,oreventheprobability,ofthisoutcome.Forinsuchmattersitisrashtopredicthowtheaveragemanwillreacttoachangedenvironment.If,however,itshouldproveeasytosecureanapproximationtofullemploymentwitharateofaccumulationnotmuchgreaterthanatpresent,anoutstandingproblemwillatleasthavebeensolved.Anditwouldremainforseparatedecisiononwhatscaleandbywhatmeansitisrightandreasonabletocallonthelivinggenerationtorestricttheirconsumption,soastoestablish,incourseoftime,astateoffullinvestmentfortheirsuccessors.IIIInsomeotherrespectstheforegoingtheoryismoderatelyconservativeinitsimplications.Forwhilstitindicatesthevitalimportanceofestablishingcertaincentralcontrolsinmatterswhicharenowleftinthemaintoindividualinitiative,therearewidefieldsofactivitywhichareunaf-fected.TheStatewillhavetoexerciseaguidinginfluenceonthepropensitytoconsumepartlythroughitsschemeoftaxation,partlybyfixingtherateofinterest,andpartly,perhaps,inotherways.Furthermore,itseemsunlikelythattheinfluenceofbankingpolicyontherateofinterestwillbesufficientbyitselftodetermineanoptimumrateofinvestment.Iconceive,therefore,thatasomewhatcomprehensivesocialisationofinvestmentwillprovetheonlymeansofsecuringanapproximationtofullemployment;thoughthisneednotexcludeallmannerofcompromisesandofdevicesbywhichpublicauthoritywillco-operatewithprivateinitiative.ButbeyondthisnoobviouscaseismadeoutforasystemofStateSocialismwhichwouldembracemostoftheeconomiclifeofthecommunity.Itisnottheownershipoftheinstrumentsofproductionwhich 606TheDevelopmentofMacroeconomicsitisimportantfortheStatetoassume.IftheStateisabletodeterminetheaggregateamountofresourcesdevotedtoaugmentingtheinstrumentsandthebasicrateofrewardtothosewhoownthem,itwillhaveaccomplishedallthatisnecessary.Moreover,thenecessarymeasuresofsocial-isationcanbeintroducedgraduallyandwithoutabreakinthegeneraltraditionsofsociety.Ourcriticismoftheacceptedclassicaltheoryofeconomicshasconsistednotsomuchinfindinglogicalflawsinitsanalysisasinpointingoutthatitstacitassumptionsareseldomorneversatisfied,withtheresultthatitcannotsolvetheeconomicproblemsoftheactualworld.Butifourcentralcontrolssucceedinestablishinganaggregatevolumeofoutputcorrespondingtofullemploymentasnearlyasispracticable,theclassicaltheorycomesintoitsownagainfromthispointonwards.Ifwesupposethevolumeofoutputtobegiven,thatis,tobedeterminedbyforcesoutsidetheclassi-calschemeofthought,thenthereisnoobjectiontoberaisedagainsttheclassicalanalysisofthemannerinwhichprivateself-interestwilldeterminewhatinparticularisproduced,inwhatpro-portionsthefactorsofproductionwillbecombinedtoproduceit,andhowthevalueofthefinalproductwillbedistributedbetweenthem.Again,ifwehavedealtotherwisewiththeproblemofthrift,thereisnoobjectiontoberaisedagainstthemodernclassicaltheoryastothedegreeofcon-siliencebetweenprivateandpublicadvantageinconditionsofperfectandimperfectcompetition,respectively.Thus,apartfromthenecessityorcentralcontrolstobringaboutanadjustmentbetweenthepropensitytoconsumeandtheinducementtoinvest,thereisnomorereasontosocialiseeconomiclifethantherewasbefore.Toputthepointconcretely,Iseenoreasontosupposethattheexistingsystemseriouslymisemploysthefactorsofproductionwhichareinuse.Thereare,ofcourse,errorsofforesight;butthesewouldnotbeavoidedbycentralisingdecisions.When9,000,000menareemployedoutof10,000,000willingandabletowork,thereisnoevidencethatthelabourofthese9,000,000menismisdirected.Thecomplaintagainstthepresentsystemisnotthatthese9,000,000menoughttobeemployedondifferenttasks,butthattasksshouldbeavailablefortheremaining1,000,000men.Itisindeterminingthevolume,notthedirection,ofactualemploymentthattheexistingsystemhasbrokendown.Thus,IagreewithGesellthattheresultoffillinginthegapsintheclassicaltheoryisnottodisposeofthe‘ManchesterSystem’,buttoindicatethenatureoftheenvironmentwhichthefreeplayofeconomicforcesrequiresifitistorealisethefullpotentialitiesofproduction.Thecentralcontrolsnecessarytoensurefullemploymentwill,ofcourse,involvealargeextensionofthetraditionalfunctionsofgovernment.Furthermore,themodernclassicaltheoryhasitselfcalledattentiontovariousconditionsinwhichthefreeplayofeconomicforcesmayneedtobecurbedorguided.Buttherewillstillremainawidefieldfortheexerciseofprivateinitiativeandresponsibility.Withinthisfieldthetraditionaladvantagesofindividualismwillstillholdgood.Letusstopforamomenttoremindourselveswhattheseadvantagesare.Theyarepartlyadvantagesofefficiency–theadvantagesofdecentralisationandoftheplayofself-interest.Theadvantagetoefficiencyofthedecentralisationofdecisionsandofindividualresponsibilityisevengreater,perhaps,thanthenineteenthcenturysupposed;andthereactionagainsttheappealtoself-interestmayhavegonetoofar.But,aboveall,individualism,ifitcanbepurgedofitsdefectsanditsabuses,isthebestsafeguardofpersonallibertyinthesensethat,comparedwithanyothersystem,itgreatlywidensthefieldfortheexerciseofpersonalchoice.Itisalsothebestsafeguardofthevarietyoflife,whichemergespreciselyfromthisextendedfieldofpersonalchoice,andthelossofwhichisthegreatestofallthelossesofthehomogeneousortotalitarianstate.Forthisvarietypreservesthetraditionswhichembodythemostsecureandsuccessfulchoicesofformergenerations;itcoloursthepresentwiththediversificationofitsfancy;and,beingthehandmaidofexperimentaswellasoftraditionandoffancy,itisthemostpowerfulinstrumenttobetterthefuture. Keynes:TheGeneralTheory607Whilst,therefore,theenlargementofthefunctionsofgovernment,involvedinthetaskofadjustingtooneanotherthepropensitytoconsumeandtheinducementtoinvest,wouldseemtoanineteenth-centurypublicistortoacontemporaryAmericanfinanciertobeaterrificencroach-mentonindividualism,Idefendit,onthecontrary,bothastheonlypracticablemeansofavoidingthedestructionofexistingeconomicformsintheirentiretyandastheconditionofthesuccessfulfunctioningofindividualinitiative.Forifeffectivedemandisdeficient,notonlyisthepublicscandalofwastedresourcesintoler-able,buttheindividualenterpriserwhoseekstobringtheseresourcesintoactionisoperatingwiththeoddsloadedagainsthim.Thegameofhazardwhichheplaysisfurnishedwithmanyzeros,sothattheplayersasawholewillloseiftheyhavetheenergyandhopetodealallthecards.Hithertotheincrementoftheworld’swealthhasfallenshortoftheaggregateofpositiveindi-vidualsavings;andthedifferencehasbeenmadeupbythelossesofthosewhosecourageandini-tiativehavenotbeensupplementedbyexceptionalskillorunusualgoodfortune.Butifeffectivedemandisadequate,averageskillandaveragegoodfortunewillbeenough.Theauthoritarianstatesystemsofto-dayseemtosolvetheproblemofunemploymentattheexpenseofefficiencyandoffreedom.Itiscertainthattheworldwillnotmuchlongertoleratetheunemploymentwhich,apartfrombriefintervalsofexcitement,isassociated–and,inmyopin-ion,inevitablyassociated–withpresent-daycapitalisticindividualism.Butitmaybepossiblebyarightanalysisoftheproblemtocurethediseasewhilstpreservingefficiencyandfreedom.IVIhavementionedinpassingthatthenewsystemmightbemorefavourabletopeacethantheoldhasbeen.Itisworthwhiletorepeatandemphasisethataspect.Warhasseveralcauses.Dictatorsandotherssuch,towhomwaroffers,inexpectationatleast,apleasurableexcitement,finditeasytoworkonthenaturalbellicosityoftheirpeoples.But,overandabovethis,facilitatingtheirtaskoffanningthepopularflame,aretheeconomiccausesofwar,namelythepressureofpopulationandthecompetitivestruggleformarkets.Itisthesecondfactor,whichprobablyplayedapredominantpartinthenineteenthcentury,andmightagain,thatisgermanetothisdiscussion.Ihavepointedoutintheprecedingchapterthat,underthesystemofdomesticlaissez-faireandaninternationalgoldstandardsuchaswasorthodoxinthelatterhalfofthenineteenthcentury,therewasnomeansopentoagovernmentwherebytomitigateeconomicdistressathomeexceptthroughthecompetitivestruggleformarkets.Forallmeasureshelpfultoastateofchronicorintermittentunder-employmentwereruledout,exceptmeasurestoimprovethebalanceoftradeonincomeaccount.Thus,whilsteconomistswereaccustomedtoapplaudtheprevailinginternationalsystemasfurnishingthefruitsoftheinternationaldivisionoflabourandharmonisingatthesametimetheinterestsofdifferentnations,therelayconcealedalessbenigninfluence;andthosestatesmenweremovedbycommonsenseandacorrectapprehensionofthetruecourseofevents,whobelievedthatifarich,oldcountryweretoneglectthestruggleformarketsitsprosperitywoulddroopandfail.Butifnationscanlearntoprovidethemselveswithfullemploymentbytheirdomesticpolicy(and,wemustadd,iftheycanalsoattainequilibriuminthetrendoftheirpop-ulation),thereneedbenoimportanteconomicforcescalculatedtosettheinterestofonecountryagainstthatofitsneighbours.Therewouldstillberoomfortheinternationaldivisionoflabourandforinternationallendinginappropriateconditions.Buttherewouldnolongerbeapressingmotivewhyonecountryneedforceitswaresonanotherorrepulsetheofferingsofitsneighbour,notbecausethiswasnecessarytoenableittopayforwhatitwishedtopurchase,butwiththeexpressobjectofupsettingtheequilibriumofpaymentssoastodevelopabalanceoftradeinits 608TheDevelopmentofMacroeconomicsownfavour.Internationaltradewouldceasetobewhatitis,namely,adesperateexpedienttomaintainemploymentathomebyforcingsalesonforeignmarketsandrestrictingpurchases,which,ifsuccessful,willmerelyshifttheproblemofunemploymenttotheneighbourwhichisworstedinthestruggle,butawillingandunimpededexchangeofgoodsandservicesinconditionsofmutualadvantage.VIsthefulfilmentoftheseideasavisionaryhope?Havetheyinsufficientrootsinthemotiveswhichgoverntheevolutionofpoliticalsociety?Aretheinterestswhichtheywillthwartstrongerandmoreobviousthanthosewhichtheywillserve?Idonotattemptananswerinthisplace.Itwouldneedavolumeofadifferentcharacterfromthisonetoindicateeveninoutlinethepracticalmeasuresinwhichtheymightbegraduallyclothed.Butiftheideasarecorrect–ahypothesisonwhichtheauthorhimselfmustnecessarilybasewhathewrites–itwouldbeamistake,Ipredict,todisputetheirpotencyoveraperiodoftime.Atthepresentmomentpeopleareunusuallyexpectantofamorefundamentaldiagnosis;moreparticularlyreadytoreceiveit;eagertotryitout,ifitshouldbeevenplausible.Butapartfromthiscontemporarymood,theideasofeconomistsandpoliticalphilosophers,bothwhentheyarerightandwhentheyarewrong,aremorepowerfulthaniscommonlyunderstood.Indeedtheworldisruledbylittleelse.Practicalmen,whobelievethemselvestobequiteexemptfromanyintellectualinfluences,areusuallytheslavesofsomedefuncteconomist.Madmeninauthority,whohearvoicesintheair,aredistillingtheirfrenzyfromsomeacademicscribblerofafewyearsback.Iamsurethatthepowerofvestedinterestsisvastlyexaggeratedcomparedwiththegradualencroachmentofideas.Not,indeed,immediately,butafteracertaininterval;forinthefieldofeconomicandpoliticalphilosophytherearenotmanywhoareinfluencedbynewtheoriesaftertheyare25or30yearsofage,sothattheideaswhichcivilservantsandpoliticiansandevenagitatorsapplytocurrenteventsarenotlikelytobethenewest.But,soonorlate,itisideas,notvestedinterests,whicharedangerousforgoodorevil. Part6InstitutionalEconomicsIntroductionInstitutionaleconomics,akintoandsomewhatinfluencedbytheGermanHistoricalSchools,isnonethelessadistinctivelyUSphenomenon,thoughithasseveralkeyfigures–GunnarMyrdalandA.W.Kapp–andnumerousfollowersinEurope.InstitutionalismwasaveryconspicuouspartofeconomicsintheUSbeforetheFirstWorldWarandduringtheinterwaryears,whenthedistinctionbetweeninstitutionalismandneoclassicismwasnotverystarkandwhenmanyifnotmosteconomistswereeclecticandhadtheirfeetinbothschoolsofeconomicthought.Institutionalismhashadthreedistinctfacets.(1)Ithasgeneratedabodyofknowledgeconcerningtheorganizationandcontroloftheeconomicsystemconsideredasawholeanditsevolution,includingtherolesofinformalandformalsocialcontrol.(2)Ithasprotestedboth(a)aspectsofthemarketeconomy,particularlythoseassociatedwiththecorporatesystemanditshegemonyinbotheconomyandpolityand(b)mainstreameconomicsforitsmyopictreatmentofimportantfactorsandforces,anditsserviceinrationalizingandlegitimizingthecapitalist-dominatedformofthemarketeconomy.(3)Ithasprovidedanapproachtoproblem-solvingwhichisempirical,holistic,andmulti-disciplinary,pragmatic,reformist,andpluralistwithregardtobothpowerstructureandtheinterestsgiveneffectthroughpolicy.ItsleadingearlyfiguresincludedRichardT.Ely,ThorsteinB.Veblen,WaltonHamilton,JohnR.Commons,WesleyC.Mitchell,andJohnMauriceClark.Asabodyofknowledgedealingwiththeorganizationandcontroloftheeconomicsystemasawholeanditsevolution,institutionalismhascenteredonmarketsasinstitutionalcomplexesoperatingwithinandgivingeffecttootherinstitutionalcomplexes;ontheimportanceofpowerstructureandpowerplay;onthecriticalimportanceoftheeconomicroleofgovernmentand,therefore,ofthosewhocontrolitsmakingofpolicy;onthecriticalrolesoftechnology,psychol-ogy,andbeliefsystemineconomicorganization,policy,andperformance.Whereinstitutionaleconomicshasdealtwiththesamegeneralproblemasneoclassicaleconomics,forexample,theallocationofresources,ithasdeployedawideranddeeperrangeofvariables;butforthemostpartinstitutionaleconomicshasdealtwithadifferentcentralproblem,thatoforganizationandcontrol.Inthoserespects,institutionalismhascontinued–itwillbeseenonthebasisofmanyoftheearlierreadingsinthiscollection–adualtradition,asitwere,ineconomics:thesimultaneous“pure-theory”analysisoftheoperationofmarketsandtheempiricalandhistoricalanalysisofinstitutionsandtheeconomicorderwhichtheyform.Someofthelatterhasbeenobscured–asalsoseenabove–bysomeeconomiststhroughtheirtakingtheinstitutionalsystemtobepartofthenaturalorderofthings.Thus,institutionalisttheoryhashadseveralimportantcoordinates,including:(1)atheoryofsocialchange,includinganactivistorientationtowardsocialinstitutions;(2)atheoryofsocialcontrol,withafocusontheimportanceofcollectiveactionthroughthelegal–economicnexus;(3)theimportanceoftechnologyand,thereby,ofindustrialization;(4)themarketseenas functioningwithinandgivingeffecttoinstitutions,includingthefundamentalthemethatitisnotmarketswhichallocateresourcesbuttheinstitutionalandorganizationalstructureofthesystem;(5)atheoryofvaluecentering,notontheexchangeratiosbetweencommodities,butonthevaluesensconcedwithintheworkingrulesoflawandofmoralswhichstructured,governedaccessto,andgovernedtheperformanceofmarketsandotherdomainsofeconomicactivity,suchasgovernment.Inotherwords,institutionalism,farfromseekinguniquedeterminateoptimalequilibriumsolutions,soughttoidentifythefactorsandforcesoperativeintheprocessofworkingoutsolutionstoproblems;andfarfrompostulatingapureconceptualabstracta-institutionaleconomicsystem,soughttodealwithinstitutionallydriveneconomiesandtheprocessesthroughwhichthoseinstitutionswereformed,changedandoperated.Inbothoftheserespectsandalsoinregardtotheforegoingcoordinates,institutionalismhasbeen,bycomparisonwithmainstreamneoclassicaleconomics,holistic,andempirical.TheVeblenandCommonsapproachestoeconomicshadseveraldifferences.OnewasthatVeblenandhisdiscipleshavegenerallythoughtthatinstitutionalandneoclassicaleconomicswerecontradictoryandmutuallyexclusive;whereasCommonsandhisfollowershavegenerallyfeltthattheworkofthetwoschoolswassupplementarytoeachother.AnotherwasthattheVeblenianshaveenvisionedinstitutionsasinhibitiveofprogressivetechnology;whereasthoseintheCommonstraditionhaveconsideredbothinstitutionsandtechnologytobeimportantingeneratingeconomicperformanceandworkingthingsout.ForfurtherreadingBarber,WilliamJ.(1994)“TheDivergentFatesofTwoStrandsof‘Institutionalist’DoctrineDuringtheNewDealYears,”HistoryofPoliticalEconomy26(Winter):569–87.Dorfman,Josephetal.(1963)InstitutionalEconomics,Berkeley:UniversityofCaliforniaPress.Gruchy,AllanG.(1947)ModernEconomicThought,NewYork:Prentice-Hall.Hodgson,GeoffreyM.,Samuels,WarrenJ.,andTool,MarcR.(1994)TheElgarCompaniontoInstitutionalandEvolutionaryEconomics,Aldershot:EdwardElgarPublishing.Rutherford,Malcolm(1994)InstitutionsinEconomics:TheOldandtheNewInstitutionalism,Cambridge:CambridgeUniversityPress.——(2000)“UnderstandingInstitutionalEconomics:1918–1929,”JournaloftheHistoryofEconomicThought22(September):277–308.——(2001)“InstitutionalEconomics:ThenandNow,”JournalofEconomicPerspectives15(Summer):173–94.Samuels,WarrenJ.(1987)“InstitutionalEconomics,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.2,London:Macmillan,864–6.——,ed.(1988)InstitutionalEconomics,3vols.,Aldershot:EdwardElgarPublishing. THORSTEINB.VEBLEN(1857–1929)ThorsteinB.VeblenwasperhapstheUnitedStates’mostoriginalsocialthinker.BorninWisconsintoNorwegianimmigrantparents,VeblenearnedaPhDinphiloso-phyfromYaleandlaterstudiedeconomicsatCornell.VeblensubsequentlytaughtattheUniversityofChicago,StanfordUniversity,andtheUniversityofMissouri.Veblenbroughtacriticalanthropologicalattitudetowardbehaviorandpracticestakenasgivenandnaturalbyhiscontem-poraries.Hestressedtherolesofcustomandhabitoveragainstthestricthedonismofthemainstream’snotionofrationaleco-nomicman.Heemphasizedtheimpor-tanceoftheinstinctofworkmanshipanditssubversionbybusinessprinciples–andaparallelanalysisofthesubversionofuni-versities(“thehigherlearning”)bytheintroductionofbusinessideologyandprin-ciples.Heleveledawide-rangingcritiqueofthemethodology,aswellasthesub-stantivedoctrines,ofneoclassicaleco-ThorsteinB.Veblen,bycourtesyofCorbis,www.corbis.com.nomics–thenameapparentlycoinedbyhim.Hestressedthestaticcharacterofthemainstreamanalysisofutilityandmarkets,arguinginsteadforanevolutionaryeconomicswhich,interalia,paidattentiontothemultiplicityofpsychologicaldrives(inthelanguageofhisdayhecalledthem“instincts”)andthedynamicroleofinstitutions,maintainingthatotherwiseeconomicswaslittlemorethanadefenseofexistingarrangements,arrangementswhichwere,infact,alwaysinaprocessofchange.Veblen’scritiquecoveredcapitalismasitwasinstitutionalizedaswellasmainstreameconomics.Heidentifiedanonproductiverulingleisureclass–inrelationtowhichhecoinedtheterm“conspicuousconsumption”todescribepracticeswhichallclassesundertookinpursuitofstatusemulation.Hedistinguishedbetweenactivitieswhichwereessentiallypecuniary(makingmoney)andactivitieswhichwereessentiallyindustrial(makinggoods).Hefocusedontheinstitutionalandpowerdynamicsofthebusinessenterpriseandwasamongthefirsttoidentifyandexaminethemoderncorporatesystemandcorporatestate.Veblen’smostwell-knownbookisundoubtedlyhisTheoryoftheLeisureClass,fromwhichthefollowingexcerptsaredrawn. 612ThorsteinB.VeblenReferencesandfurtherreadingBlaug,Mark,ed.(1992)ThorsteinVeblen(1857–1929),Aldershot:EdwardElgarPublishing.Dorfman,Joseph(1934)ThorsteinVelbenandHisAmerica,NewYork:Viking.Hamilton,David(1953)“VeblenandCommons:ACaseofTheoreticalConvergence,”SouthwesternSocialScienceQuarterly34(September):43–50.Hobson,J.A.(1936)Veblen,London:ChapmanandHall.Rutherford,Malcolm(1984)“ThorsteinVeblenandtheProcessofInstitutionalChange,”HistoryofPoliticalEconomy16(Fall):331–48.Seckler,David(1974)ThorsteinVeblenandtheInstitutionalists,London:Macmillan.Sowell,Thomas(1967)“Onthe‘Evolutionary’EconomicsofThorsteinVeblen,”OxfordEconomicPapers19(July):177–98.——(1987)“Veblen,Thorstein,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.4,London:Macmillan,799–800.Tilman,Ric(1992)ThorsteinVelbenandHisCritics,1891–1963,Princeton,NJ:PrincetonUniversityPress.Veblen,Thorstein(1904)TheTheoryofBusinessEnterprise,NewYork:CharlesScribner’sSons.——(1919)ThePlaceofScienceinModernCivilization,NewYork:Huebsch.Walker,DonaldA.(1977)“ThorsteinVeblen’sEconomicSystem,”EconomicInquiry15(April):213–37. TheTheoryoftheLeisureClass(1899)*Chaptertwo:PecuniaryemulationInthesequenceofculturalevolutiontheemergenceofaleisureclasscoincideswiththebeginningofownership.Thisisnecessarilythecase,forthesetwoinstitutionsresultfromthesamesetofeconomicforces.Intheinchoatephaseoftheirdevelopmenttheyarebutdifferentaspectsofthesamegeneralfactsofsocialstructure.Itisaselementsofsocialstructure–conventionalfacts–thatleisureandownershiparemattersofinterestforthepurposeinhand.Anhabitualneglectofworkdoesnotconstitutealeisureclass;neitherdoesthemechanicalfactofuseandconsumptionconstituteownership.Thepresentenquiry,therefore,isnotconcernedwiththebeginningofindolence,norwiththebeginningoftheappropriationofusefularticlestoindividualconsumption.Thepointinques-tionistheoriginandnatureofaconventionalleisureclass,ontheonehand,andthebeginningsofindividualownershipasaconventionalrightorequitableclaim,ontheotherhand.Theearlydifferentiationoutofwhichthedistinctionbetweenaleisureandaworkingclassarisesisadivisionmaintainedbetweenmen’sandwomen’sworkinthelowerstagesofbar-barism.Likewisetheearliestformofownershipisanownershipofthewomenbytheablebodiedmenofthecommunity.Thefactsmaybeexpressedinmoregeneraltermsandtruertotheimportofthebarbariantheoryoflife,bysayingthatitisanownershipofthewomanbytheman.Therewasundoubtedlysomeappropriationofusefularticlesbeforethecustomofappropriat-ingwomenarose.Theusagesofexistingarchaiccommunitiesinwhichthereisnoownershipofwomeniswarrantforsuchaview.Inallcommunitiesthemembers,bothmaleandfemale,habit-uallyappropriatetotheirindividualuseavarietyofusefulthings;buttheseusefulthingsarenotthoughtofasownedbythepersonwhoappropriatesandconsumesthem.Thehabitualappropri-ationandconsumptionofcertainslightpersonaleffectsgoesonwithoutraisingthequestionofownership;thatistosay,thequestionofaconventional,equitableclaimtoextraneousthings.Theownershipofwomenbeginsinthelowerbarbarianstagesofculture,apparentlywiththeseizureoffemalecaptives.Theoriginalreasonfortheseizureandappropriationofwomenseemstohavebeentheirusefulnessastrophies.Thepracticeofseizingwomenfromtheenemyastrophies,gaverisetoaformofownership-marriage,resultinginahouseholdwithamalehead.Thiswasfollowedbyanextensionofslaverytoothercaptivesandinferiors,besideswomen,andbyanextensionofownership-marriagetootherwomenthanthoseseizedfromtheenemy.Theoutcomeofemulationunderthecircumstancesofapredatorylife,therefore,hasbeen,ontheonehand,aformofmarriagerestingoncoercion,and,ontheotherhand,thecustomof*Macmillan,1899. 614InstitutionalEconomicsownership.Thetwoinstitutionsarenotdistinguishableintheinitialphaseoftheirdevelopment;botharisefromthedesireofthesuccessfulmentoputtheirprowessinevidencebyexhibitingsomedurableresultoftheirexploits.Bothalsoministertothatpropensityformasterywhichpervadesallpredatorycommunities.Fromtheownershipofwomentheconceptofownershipextendsitselftoincludetheproductsoftheirindustry,andsotherearisestheownershipofthingsaswellasofpersons.Inthiswayaconsistentsystemofpropertyingoodsisgraduallyinstalled.Andalthoughinthelateststagesofthedevelopment,theserviceabilityofgoodsforconsumptionhascometobethemostobtrusiveelementoftheirvalue,still,wealthhasbynomeansyetlostitsutilityasahonorificevidenceoftheowner’sprepotence.Wherevertheinstitutionofprivatepropertyisfound,eveninaslightlydevelopedform,theeconomicprocessbearsthecharacterofastrugglebetweenmenforthepossessionofgoods.Ithasbeencustomaryineconomictheory,andespeciallyamongthoseeconomistswhoadherewithleastfalteringtothebodyofmodernisedclassicaldoctrines,toconstruethisstruggleforwealthasbeingsubstantiallyastruggleforsubsistence.Suchis,nodoubt,itscharacterinlargepartduringtheearlierandlessefficientphasesofindustry.Suchisalsoitschar-acterinallcaseswherethe‘niggardlinessofnature’issostrictastoaffordbutascantyliveli-hoodtothecommunityinreturnforstrenuousandunremittingapplicationtothebusinessofgettingthemeansofsubsistence.Butinallprogressingcommunitiesanadvanceispresentlymadebeyondthisearlystageoftechnologicaldevelopment.Industrialefficiencyispresentlycar-riedtosuchapitchastoaffordsomethingappreciablymorethanabarelivelihoodtothoseengagedintheindustrialprocess.Ithasnotbeenunusualforeconomictheorytospeakofthefurtherstruggleforwealthonthisnewindustrialbasisasacompetitionforanincreaseofthecomfortsoflife–primarilyforanincreaseofthephysicalcomfortswhichtheconsumptionofgoodsaffords.Theendofacquisitionandaccumulationisconventionallyheldtobetheconsumptionofthegoodsaccumulated–whetheritisconsumptiondirectlybytheownerofthegoodsorbythehouseholdattachedtohimandforthispurposeidentifiedwithhimintheory.Thisisatleastfelttobetheeconomicallylegitimateendofacquisition,whichaloneitisincumbentonthetheorytotakeaccountof.Suchconsumptionmayofcoursebeconceivedtoservetheconsumer’sphysicalwants–hisphysicalcomfort–orhisso-calledhigherwants–spiritual,aesthetic,intellectual,orwhatnot;thelatterclassofwantsbeingservedindirectlybyanexpenditureofgoods,afterthefashionfamiliartoalleconomicreaders.Butitisonlywhentakeninasensefarremovedfromitsnaivemeaningthatconsumptionofgoodscanbesaidtoaffordtheincentivefromwhichaccumulationinvariablyproceeds.Themotivethatliesattherootofownershipisemulation;andthesamemotiveofemulationcontinuesactiveinthefurtherdevelopmentoftheinstitutiontowhichithasgivenriseandinthedevelopmentofallthosefeaturesofthesocialstructurewhichthisinstitutionofownershiptouches.Thepossessionofwealthconfershonour;itisaninvidiousdistinction.Nothingequallycogentcanbesaidfortheconsumptionofgoods,norforanyotherconceivableincentivetoacquisition,andespeciallynotforanyincentivetoaccumulationofwealth.Itisofcoursenottobeoverlookedthatinacommunitywherenearlyallgoodsareprivatepropertythenecessityofearningalivelihoodisapowerfulandever-presentincentiveforthepoorermembersofthecommunity.Theneedofsubsistenceandofanincreaseofphysicalcom-fortmayforatimebethedominantmotiveofacquisitionforthoseclasseswhoarehabituallyemployedasmanuallabour,whosesubsistenceisonaprecariousfooting,whopossesslittleandordinarilyaccumulatelittle;butitwillappearinthecourseofthediscussionthateveninthecaseoftheseimpecuniousclassesthepredominanceofthemotiveofphysicalwantisnotsodecidedashassometimesbeenassumed. Veblen:TheTheoryoftheLeisureClass615Ontheotherhand,sofarasregardsthosemembersandclassesofthecommunitywhoarechieflyconcernedintheaccumulationofwealth,theincentiveofsubsistenceorofphysicalcom-fortneverplaysaconsiderablepart.Ownershipbeganandgrewintoahumaninstitutionongroundsunrelatedtothesubsistenceminimum.Thedominantincentivewasfromtheoutsettheinvidiousdistinctionattachingtowealth,and,savetemporarilyandbyexception,noothermotivehasusurpedtheprimacyatanylaterstageofthedevelopment.Propertysetoutwithbeingbootyheldastrophiesofthesuccessfulraid.Solongasthegrouphaddepartedandsolongasitstillstoodinclosecontactwithotherhostilegroups,theutilityofthingsorpersonsownedlaychieflyinaninvidiouscomparisonbetweentheirpossessorandtheenemyfromwhomtheyweretaken.Thehabitofdistinguishingbetweentheinterestsoftheindi-vidualandthoseofthegrouptowhichhebelongsisapparentlyalatergrowth.Invidiouscom-parisonbetweenthepossessorofthehonorificbootyandhislesssuccessfulneighbourswithinthegroupwasnodoubtpresentearlyasanelementoftheutilityofthethingspossessed,thoughthiswasnotattheoutsetthechiefelementoftheirvalue.Theman’sprowesswasstillprimarilythegroup’sprowess,andthepossessorofthebootyfelthimselftobeprimarilythekeeperofthehonourofhisgroup.Thisappreciationofexploitfromthecommunalpointofviewismetwithalsoatlaterstagesofsocialgrowth,especiallyasregardsthelaurelsofwar.Butassoonasthecustomofindividualownershipbeginstogainconsistency,thepointofviewtakeninmakingtheinvidiouscomparisononwhichprivatepropertyrestswillbegintochange.Indeed,theonechangeisbutthereflexoftheother.Theinitialphaseofownership,thephaseofacquisitionbynaiveseizureandconversion,beginstopassintothesubsequentstageofanincipientorganisationofindustryonthebasisofprivateproperty(inslaves);thehordedevelopsintoamoreorlessself-sufficingindustrialcommunity;possessionsthencometobevaluednotsomuchasevidenceofsuccessfulforay,butratherasevidenceoftheprepotenceofthepossessorofthesegoodsoverotherindividualswithinthecommunity.Theinvidiouscomparisonnowbecomesprimarilyacomparisonoftheownerwiththeothermembersofthegroup.Propertyisstillofthenatureoftrophy,but,withtheculturaladvance,itbecomesmoreandmoreatrophyofsuccessesscoredinthegameofownershipcarriedonbetweenthemembersofthegroupunderthequasi-peaceablemethodsofnomadiclife.Gradually,asindustrialactivityfurtherdisplacedpredatoryactivityinthecommunity’severy-daylifeandinmen’shabitsofthought,accumulatedpropertymoreandmorereplacestrophiesofpredatoryexploitastheconventionalexponentofprepotenceandsuccess.Withthegrowthofsettledindustry,therefore,thepossessionofwealthgainsinrelativeimportanceandeffectivenessasacustomarybasisofreputeandesteem.Notthatesteemceasestobeawardedonthebasisofother,moredirectevidenceofprowess;notthatsuccessfulpredatoryaggressionorwarlikeexploitceasestocallouttheapprovalandadmirationofthecrowd,ortostirtheenvyofthelesssuccessfulcompetitors;buttheopportunitiesforgainingdistinctionbymeansofthisdirectman-ifestationofsuperiorforcegrowlessavailablebothinscopeandfrequency.Atthesametimeopportunitiesforindustrialaggression,andfortheaccumulationofproperty,increaseinscopeandavailability.Anditisevenmoretothepointthatpropertynowbecomesthemosteasilyrecognisedevidenceofareputabledegreeofsuccessasdistinguishedfromheroicorsignalachievement.Itthereforebecomestheconventionalbasisofesteem.Itspossessioninsomeamountbecomesnecessaryinordertoanyreputablestandinginthecommunity.Itbecomesindispensabletoaccumulate,toacquireproperty,inordertoretainone’sgoodname.Whenaccumulatedgoodshaveinthiswayoncebecometheacceptedbadgeofefficiency,theposses-sionofwealthpresentlyassumesthecharacterofanindependentanddefinitivebasisofesteem.Thepossessionofgoods,whetheracquiredaggressivelybyone’sownexertionorpassivelybytransmissionthroughinheritancefromothers,becomesaconventionalbasisofreputability.Thepossessionofwealth,whichwasattheoutsetvaluedsimplyasanevidenceofefficiency,becomes, 616InstitutionalEconomicsinpopularapprehension,itselfameritoriousact.Wealthisnowitselfintrinsicallyhonourableandconfershonouronitspossessor.Byafurtherrefinement,wealthacquiredpassivelybytrans-missionfromancestorsorotherantecedentspresentlybecomesevenmorehonorificthanwealthacquiredbythepossessor’sowneffort;butthisdistinctionbelongsatalaterstageintheevolutionofthepecuniarycultureandwillbespokenofinitsplace.Prowessandexploitmaystillremainthebasisofawardofthehighestpopularesteem,althoughthepossessionofwealthhasbecomethebasisofcommonplacereputabilityandofablamelesssocialstanding.Thepredatoryinstinctandtheconsequentapprobationofpredatoryefficiencyaredeeplyingrainedinthehabitsofthoughtofthosepeopleswhohavepassedunderthedisciplineofaprotractedpredatoryculture.Accordingtopopularaward,thehighesthonourswithinhumanreachmay,evenyet,bethosegainedbyanunfoldingofextraordinarypredatoryefficiencyinwar,orbyaquasi-predatoryefficiencyinstatecraft;butforthepurposesofacommonplacedecentstandinginthecommunitythesemeansofreputehavebeenreplacedbytheacquisitionandaccumulationofgoods.Inordertostandwellintheeyesofthecommu-nity,itisnecessarytocomeuptoacertain,somewhatindefinite,conventionalstandardofwealth;justasintheearlierpredatorystageitisnecessaryforthebarbarianmantocomeuptothetribe’sstandardofphysicalendurance,cunning,andskillatarms.Acertainstandardofwealthintheonecase,andofprowessintheother,isanecessaryconditionofreputability,andanythinginexcessofthisnormalamountismeritorious.Thosemembersofthecommunitywhofallshortofthis,somewhatindefinite,normaldegreeofprowessorofpropertysufferintheesteemoftheirfellow-men;andconsequentlytheysufferalsointheirownesteem,sincetheusualbasisofself-respectistherespectaccordedbyone’sneighbours.Onlyindividualswithanaberranttemperamentcaninthelongrunretaintheirself-esteeminthefaceofthedisesteemoftheirfellows.Apparentexceptionstotherulearemetwith,especiallyamongpeoplewithstrongreligiousconvictions.Buttheseapparentexceptionsarescarcelyrealexceptions,sincesuchpersonscommonlyfallbackontheputativeapprobationofsomesupernaturalwitnessoftheirdeeds.Sosoonasthepossessionofpropertybecomesthebasisofpopularesteem,therefore,itbecomesalsoarequisitetothecomplacencywhichwecallself-respect.Inanycommunitywheregoodsareheldinseveraltyitisnecessary,inorderforhisownpeaceofmind,thatanindividualshouldpossessaslargeaportionofgoodsasotherswithwhomheisaccustomedtoclasshimself;anditisextremelygratifyingtopossesssomethingmorethanothers.Butasfastasapersonmakesnewacquisitions,andbecomesaccustomedtotheresultingnewstandardofwealth,thenewstandardforthwithceasestoaffordappreciablygreatersatisfactionthantheearlierstandarddid.Thetendencyinanycaseisconstantlytomakethepresentpecuniarystandardthepointofdepartureforafreshincreaseofwealth;andthisinturngivesrisetoanewstandardofsuffi-ciencyandanewpecuniaryclassificationofone’sselfascomparedwithone’sneighbours.Sofarasconcernsthepresentquestion,theendsoughtbyaccumulationistorankhighincomparisonwiththerestofthecommunityinpointofpecuniarystrength.Solongasthecomparisonisdis-tinctlyunfavourabletohimself,thenormal,averageindividualwillliveinchronicdissatisfactionwithhispresentlot;andwhenhehasreachedwhatmaybecalledthenormalpecuniarystandardofthecommunity,orofhisclassinthecommunity,thischronicdissatisfactionwillgiveplacetoarestlessstrainingtoplaceawiderandever-wideningpecuniaryintervalbetweenhimselfandthisaveragestandard.Theinvidiouscomparisoncanneverbecomesofavourabletotheindividualmakingitthathewouldnotgladlyratehimselfstillhigherrelativelytohiscompetitorsinthestruggleforpecuniaryreputability.Inthenatureofthecase,thedesireforwealthcanscarcelybesatiatedinanyindividualinstance,andevidentlyasatiationoftheaverageorgeneraldesireforwealthisoutoftheques-tion.Howeverwidely,orequally,or‘fairly’,itmaybedistributed,nogeneralincreaseofthe Veblen:TheTheoryoftheLeisureClass617community’swealthcanmakeanyapproachtosatiatingthisneed,thegroundofwhichapproachtosatiatingthisneed,thegroundofwhichisthedesireofeveryonetoexceleveryoneelseintheaccumulationofgoods.If,asissometimesassumed,theincentivetoaccumulationwerethewantofsubsistenceorofphysicalcomfort,thentheaggregateeconomicwantsofacommunitymightconceivablybesatisfiedatsomepointintheadvanceofindustrialefficiency;butsincethestruggleissubstantiallyaraceforreputabilityonthebasisofaninvidiouscompari-son,noapproachtoadefinitiveattainmentispossible.Whathasjustbeensaidmustnotbetakentomeanthattherearenootherincentivestoacquisitionandaccumulationthanthisdesiretoexcelinpecuniarystandingandsogaintheesteemandenvyofone’sfellow-men.Thedesireforaddedcomfortandsecurityfromwantispresentasamotiveateverystageoftheprocessofaccumulationinamodernindustrialcom-munity;althoughthestandardofsufficiencyintheserespectsisinturngreatlyaffectedbythehabitofpecuniaryemulation.Toagreatextentthisemulationshapesthemethodsandselectstheobjectsofexpenditureforpersonalcomfortanddecentlivelihood.Besidesthis,thepowerconferredbywealthalsoaffordsamotivetoaccumulation.Thatpropensityforpurposefulactivityandthatrepugnancetoallfutilityofeffortwhichbelongtomanbyvirtueofhischaracterasanagentdonotdeserthimwhenheemergesfromthenaivecommunalculturewherethedominantnoteoflifeistheunanalysedandundifferentiatedsoli-darityoftheindividualwiththegroupwithwhichhislifeisboundup.Whenheentersuponthepredatorystage,whereself-seekinginthenarrowersensebecomesthedominantnote,thispropensitygoeswithhimstill,asthepervasivetraitthatshapeshisschemeoflife.Thepropensityforachievementandtherepugnancetofutilityremaintheunderlyingeconomicmotive.Thepropensitychangesonlyintheformofitsexpressionandintheproximateobjectstowhichitdirectstheman’sactivity.Undertheregimeofindividualownershipthemostavailablemeansofvisiblyachievingapurposeisthataffordedbytheacquisitionandaccumulationofgoods;andastheself-regardingantithesisbetweenmanandmanreachesfullerconsciousness,thepropensityforachievement–theinstinctofworkmanship–tendsmoreandmoretoshapeitselfintostrain-ingtoexcelothersinpecuniaryachievement.Relativesuccess,testedbyaninvidiouspecuniarycomparisonwithothermen,becomestheconventionalendofaction.Thecurrentlyacceptedlegitimateendofeffortbecomestheachievementofafavourablecomparisonwithothermen;andthereforetherepugnancetofutilitytoagoodextentcoalesceswiththeincentiveofemula-tion.Itactstoaccentuatethestruggleforpecuniaryreputabilitybyvisitingwithasharperdisap-provalallshortcomingandallevidenceofshortcominginpointofpecuniarysuccess.Purposefuleffortcomestomean,primarily,effortdirectedtoorresultinginamorecreditableshowingofaccumulatedwealth.Amongthemotiveswhichleadmentoaccumulatewealth,theprimacy,bothinscopeandintensity,therefore,continuestobelongtothismotiveofpecuniaryemulation.Inmakinguseoftheterm‘invidious’,itmayperhapsbeunnecessarytoremark,thereisnointentiontoextolordepreciate,ortocommendordeploreanyofthephenomenawhichthewordisusedtocharacterise.Thetermisusedinatechnicalsenseasdescribingacomparisonofpersonswithaviewtoratingandgradingtheminrespectofrelativeworthorvalue–inanaestheticormoralsense–andsoawardinganddefiningtherelativedegreesofcomplacencywithwhichtheymaylegitimatelybecontemplatedbythemselvesandbyothers.Aninvidiouscomparisonisaprocessofvaluationofpersonsinrespectofworth.Chapterthree:ConspicuousleisureIfitsworkingwerenotdisturbedbyothereconomicforcesorotherfeaturesoftheemulativeprocess,theimmediateeffectofsuchapecuniarystruggleashasjustbeendescribedinoutlinewouldbetomakemenindustriousandfrugal.Thisresultactuallyfollows,insomemeasure,so 618InstitutionalEconomicsfarasregardsthelowerclasses,whoseordinarymeansofacquiringgoodsisproductivelabour.Thisismoreespeciallytrueofthelabouringclassesinasedentarycommunitywhichisatanagriculturalstageofindustry,inwhichthereisaconsiderablesubdivisionofindustry,andwhoselawsandcustomssecuretotheseclassesamoreorlessdefiniteshareoftheproductoftheirindustry.Theselowerclassescaninanycasenotavoidlabour,andtheimputationoflabouristhereforenotgreatlyderogatorytothem,atleastnotwithintheirclass.Rather,sincelabouristheirrecognisedandacceptedmodeoflife,theytakesomeemulativeprideinareputationforefficiencyintheirwork,thisbeingoftentheonlylineofemulationthatisopentothem.Forthoseforwhomacquisi-tionandemulationispossibleonlywithinthefieldofproductiveefficiencyandthrift,thestruggleforpecuniaryreputabilitywillinsomemeasureworkoutinanincreaseofdiligenceandparsi-mony.Butcertainsecondaryfeaturesoftheemulativeprocess,yettobespokenof,comeintoverymateriallycircumscribeandmodifyemulationinthesedirectionsamongthepecuniaryinferiorclassesaswellasamongthesuperiorclass.Butitisotherwisewiththesuperiorpecuniaryclass,withwhichwearehereimmediatelyconcerned.Forthisclassalsotheincentivetodiligenceandthriftisnotabsent;butitsactionissogreatlyqualifiedbythesecondarydemandsofpecuniaryemulation,thatanyinclinationinthisdirectionispracticallyoverborneandanyincentivetodiligencetendstobeofnoeffect.Themostimperativeofthesesecondarydemandsofemulation,aswellastheoneofwidestscope,istherequirementofabstentionfromproductivework.Thisistrueinanespecialdegreeforthebarbarianstageofculture.Duringthepredatoryculture,labourcomestobeassociatedinmen’shabitsofthoughtwithweaknessandsubjectiontoamaster.Itisthereforeamarkofinferiority,andthereforecomestobeaccountedunworthyofmaninhisbestestate.Byvirtueofthistradi-tionlabourisfelttobedebasing,andthistraditionhasneverdiedout.Onthecontrary,withtheadvanceofsocialdifferentiationithasacquiredtheaxiomaticforceduetoancientandunquestionedprescription.Inordertogainandtoholdtheesteemofmenitisnotsufficientmerelytopossesswealthorpower.Thewealthorpowermustbeputinevidence,foresteemisawardedonlyonevidence.Andnotonlydoestheevidenceofwealthservetoimpressone’simportanceonothersandtokeeptheirsenseofhisimportancealiveandalert,butitisofscarcelylessuseinbuildingupandpreservingone’sself-complacency.Inallbuttheloweststagesofculturethenormallyconstitutedmaniscomfortedandupheldinhisself-respectby‘decentsurroundings’andbyexemptionfrom‘menialoffices’.Enforceddeparturefromhishabitualstandardofdecency,eitherintheparapher-naliaoflifeorinthekindandamountofhiseverydayactivity,isfelttobeaslightuponhishumandignity,evenapartfromallconsciousconsiderationoftheapprovalordisapprovalofhisfellows.Thearchaictheoreticaldistinctionbetweenthebaseandthehonourableinthemannerofaman’sliferetainsverymuchofitsancientforceeventoday.Somuchsothattherearefewofthebetterclasswhoarenotpossessedofaninstinctiverepugnanceforthevulgarformsoflabour.Wehavearealisingsenseofceremonialuncleannessattachinginanespecialdegreetotheoccupationswhichareassociatedinourhabitsofthoughtwithmenialservice.Itisfeltbyallpersonsofrefinedtastethataspiritualcontaminationisinseparablefromcertainofficesthatareconventionallyrequiredofservants.Vulgarsurroundings,mean(thatistosay,inexpensive)habitations,andvul-garlyproductiveoccupationsareunhesitatinglycondemnedandavoided.Theyareincompatiblewithlifeonasatisfactoryspiritualplane–with‘highthinking’.FromthedaysoftheGreekphiloso-pherstothepresent,adegreeofleisureandofexemptionfromcontactwithsuchindustrialprocessesasservetheimmediateeverydaypurposesofhumanlifehaseverbeenrecognisedbythoughtfulmenasaprerequisitetoaworthyorbeautiful,orevenablameless,humanlife.Initselfandinitsconsequencesthelifeofleisureisbeautifulandennoblinginallcivilisedmen’seyes.Thisdirect,subjectivevalueofleisureandofotherevidencesofwealthisnodoubtingreatpartsecondaryandderivative.Itisinpartareflexoftheutilityofleisureasameansofgaining Veblen:TheTheoryoftheLeisureClass619therespectofothers,andinpartitistheresultofamentalsubstitution.Theperformanceoflabourhasbeenacceptedasaconventionalevidenceofinferiorforce;thereforeitcomesitself,byamentalshort-cut,toberegardedasintrinsicallybase.Duringthepredatorystageproper,andespeciallyduringtheearlierstagesofthequasi-peaceabledevelopmentofindustrythatfollowsthepredatorystage,alifeofleisureisthereadiestandmostconclusiveevidenceofpecuniarystrength,andthereforeofsuperiorforce;providedalwaysthatthegentlemanofleisurecanliveinmanifesteaseandcomfort.Atthisstagewealthconsistschieflyofslaves,andthebenefitsaccruingfromthepossessionofrichesandpowertaketheformchieflyofpersonalserviceandtheimmediateproductsofpersonalservice.Conspicuousabstentionfromlabourthereforebecomestheconventionalmarkofsuperiorpecuniaryachievementandtheconventionalindexofreputability;andconversely,sinceapplica-tiontoproductivelabourisamarkofpovertyandsubjection,itbecomesinconsistentwithareputablestandinginthecommunity.Habitsofindustryandthrift,therefore,arenotuniformlyfurtheredbyaprevailingpecuniaryemulation.Onthecontrary,thiskindofemulationindirectlydiscountenancesparticipationinproductivelabour.Labourwouldunavoidablybecomedishon-ourable,asbeinganevidenceindecorousundertheancienttraditionhandeddownfromanearlierculturalstage.Theancienttraditionofthepredatorycultureisthatproductiveeffortistobeshunnedasbeingunworthyofable-bodiedmenandthistraditionisreinforcedratherthansetasideinthepassagefromthepredatorytothequasi-peaceablemanneroflife.Eveniftheinstitutionofaleisureclasshadnotcomeinwiththefirstemergenceofindividualownership,byforceofthedishonourattachingtoproductiveemployment,itwouldinanycasehavecomeinasoneoftheearlyconsequencesofownership.Anditistoberemarkedthatwhiletheleisureclassexistedintheoryfromthebeginningofpreda-toryculture,theinstitutiontakesonanewandfullermeaningwiththetransitionfromthepredatorytothenextsucceedingpecuniarystageofculture.Itisfromthistimefortha‘leisureclass’infactaswellasintheory.Fromthispointdatestheinstitutionoftheleisureclassinitsconsummateform.Duringthepredatorystageproper,thedistinctionbetweentheleisureandthelabouringclassisinsomedegreeaceremonialdistinctiononly.Theablebodiedmenjealouslystandalooffromwhat-everisintheirapprehension,menialdrudgery;buttheiractivityinfactcontributesappreciablytothesustenanceofthegroup.Thesubsequentstageofquasi-peaceableindustryisusuallycharac-terisedbyanestablishedchattelslavery,herdsofcattle,andaservileclassofherdsmenandshep-herds;industryhasadvancedsofarthatthecommunityisnolongerdependentforitslivelihoodonthechaseoronanyotherformofactivitythatcanfairlybeclassedasexploit.Fromthispointon,thecharacteristicfeatureofleisureclasslifeisaconspicuousexemptionfromallusefulemployment.Thenormalandcharacteristicoccupationsoftheclassinthismaturephaseofitslifehistoryareinformverymuchthesameasinitsearlierdays.Theseoccupationsaregovernment,war,sports,anddevoutobservances.Personsundulygiventodifficulttheoreticalnicetiesmayholdthattheseoccupationsarestillincidentallyandindirectly‘productive’;butitistobenotedasdecisiveofthequestioninhandthattheordinaryandostensiblemotiveoftheleisureclassinengagingintheseoccupationsisassuredlynotanincreaseofwealthbyproductiveeffort.Atthisasatanyotherculturalstage,governmentandwarare,atleastinpart,carriedonforthepecuniarygainofthosewhoengageinthem;butitisgainobtainedbythehonourablemethodofseizureandconversion.Theseoccupationsareofthenatureofpredatory,notofproductive,employment.Somethingsimilarmaybesaidofthechase,butwithadifference.Asthecommunitypassesoutofthehuntingstageproper,huntinggraduallybecomesdifferentiatedintotwodistinctemployments.Ontheonehanditisatrade,carriedonchieflyforgain;andfromthistheelementofexploitisvirtuallyabsent,oritisatanyratenotpresentinasufficientdegreetoclearthepursuitoftheimputationofgainfulindustry.Ontheotherhand,thechaseisalsoasport–anexerciseofthepredatoryimpulsesimply.Assuchitdoesnotaffordanyappreciablepecuniaryincentive,butitcontainsamoreorlessobviouselementofexploit.Itisthislatterdevelopmentof 620InstitutionalEconomicsthechase–purgedofallimputationofhandicraft–thataloneismeritoriousandfairlybelongsintheschemeoflifeofthedevelopedleisureclass.Abstentionfromlabourisnotonlyahonorificormeritoriousact,butitpresentlycomestobearequisiteofdecency.Theinsistenceonpropertyasthebasisofreputabilityisverynaiveandveryimperiousduringtheearlystagesoftheaccumulationofwealth.Abstentionfromlabouristheconvenientevidenceofwealthandisthereforetheconventionalmarkofsocialstanding;andthisinsistenceonthemeritoriousnessofwealthleadstoamorestrenuousinsistenceonleisure.Notanotaeestnotareiipsius.Accordingtowellestablishedlawsofhumannature,prescriptionpresentlyseizesuponthisconventionalevidenceofwealthandfixesitinmen’shabitsofthoughtassomethingthatisinitselfsubstantiallymeritoriousandennobling;whileproductivelabouratthesametimeandbyalikeprocessbecomesinadoublesenseintrinsicallyunworthy.Prescriptionendsbymakinglabournotonlydisreputableintheeyesofthecommunity,butmorallyimpossibletothenoble,freebornman,andincompatiblewithaworthylife.Thistabuonlabourhasafurtherconsequenceintheindustrialdifferentiationofclasses.Asthepopulationincreasesindensityandthepredatorygroupgrowsintoasettledindustrialcommunity,theconstitutedauthoritiesandthecustomsgoverningownershipgaininscopeandconsistency.Itthenpresentlybecomesimpracticabletoaccumulatewealthbysimpleseizure,and,inlogicalconsistency,acquisitionbyindustryisequallyimpossibleforhighmindedandimpecuniousmen.Thealternativeopentothemisbeggaryorprivation.Whereverthecanonofconspicuousleisurehasachanceundisturbedtoworkoutitstendency,therewillthereforeemergeasecondary,andinasensespurious,leisureclass–abjectlypoorandlivinginaprecari-ouslifeofwantanddiscomfort,butmorallyunabletostooptogainfulpursuits.Thedecayedgentlemanandtheladywhohasseenbetterdaysarebynomeansunfamiliarphenomenaevennow.Thispervadingsenseoftheindignityoftheslightestmanuallabourisfamiliartoallcivilisedpeoples,aswellastopeoplesofalessadvancedpecuniaryculture.Inpersonsofadeli-catesensibilitywhohavelongbeenhabituatedtogentlemanners,thesenseoftheshamefulnessofmanuallabourmaybecomesostrongthat,atacriticaljuncture,itwillevensetasidetheinstinctofself-preservation.So,forinstance,wearetoldofcertainPolynesianchiefs,who,underthestressofgoodform,preferredtostarveratherthancarrytheirfoodtotheirmouthswiththeirownhands.Itistrue,thisconductmayhavebeendue,atleastinpart,toanexcessivesanctityortabuattachingtothechief’sperson.Thetabuwouldhavebeencommunicatedbythecontactofhishands,andsowouldhavemadeanythingtouchedbyhimunfitforhumanfood.Butthetabuisitselfaderivativeoftheunworthinessormoralincompatibilityoflabour;sothatevenwhenconstruedinthissensetheconductofthePolynesianchiefsistruertothecanonofhonorificleisurethanwouldatfirstappear.Abetterillustration,oratleastamoreunmistakableone,isaffordedbyacertainkingofFrance,whoissaidtohavelosthislifethroughanexcessofmoralstaminaintheobservanceofgoodform.Intheabsenceofthefunctionarywhoseofficeitwastoshifthismaster’sseat,thekingsatuncomplainingbeforethefireandsufferedhisroyalpersontobetoastedbeyondrecovery.ButinsodoinghesavedhisMostChristianMajestyfrommenialcontamination.Summumcredenefasanimampraeferrepudori,Etproptervitamvivendiperderecausas.Ithasalreadybeenremarkedthattheterm‘leisure’,ashereused,doesnotconnoteindolenceorquiescence.Whatitconnotesisnon-productiveconsumptionoftime.Timeisconsumednon-productively(1)fromasenseoftheunworthinessofproductivework,and(2)asanevidenceofpecuniaryabilitytoaffordalifeofidleness.Butthewholeofthelifeofthegentlemanofleisureisnotspentbeforetheeyesofthespectatorswhoaretobeimpressedwiththatspectacleofhonorificleisurewhichintheidealschememakesuphislife.Forsomepartofthetimehislifeisperforcewithdrawnfromthepubliceye,andofthisportionwhichisspentinprivatethegentlemanofleisureshould,forthesakeofhisgoodname,beabletogiveaconvincingaccount.Heshouldfindsomemeansofputtinginevidencetheleisurethat Veblen:TheTheoryoftheLeisureClass621isnotspentinthesightofthespectators.Thiscanbedoneonlyindirectly,throughtheexhibitionofsometangible,lastingresultsoftheleisuresospent–inamanneranalogoustothefamiliarexhibitionoftangible,lastingproductsofthelabourperformedforthegentlemanofleisurebyhandicraftsmenandservantsinhisemploy.Thelastingevidenceofproductivelabourisitsmaterialproduct–commonlysomearticleofconsumption.Inthecaseofexploititissimilarlypossibleandusualtoprocuresometangibleresultthatmayserveforexhibitioninthewayoftrophyorbooty.Atalaterphaseofthedevel-opmentitiscustomarytoassumesomebadgeofinsigniaofhonourthatwillserveasaconven-tionallyacceptedmarkofexploit,andwhichatthesametimeindicatesthequantityordegreeofexploitofwhichitisthesymbol.Asthepopulationincreasesindensity,andashumanrelationsgrowmorecomplexandnumerous,allthedetailsoflifeundergoaprocessofelaborationandselection;andinthisprocessofelaborationtheuseoftrophiesdevelopsintoasystemofrank,titles,degrees,andinsignia,typicalexamplesofwhichareheraldicdevices,medals,andhonorarydecorations.Asseenfromtheeconomicpointofview,leisure,consideredasanemployment,iscloselyalliedinkindwiththelifeofexploit;andtheachievementswhichcharacterisealifeofleisure,andwhichremainasitsdecorouscriteria,havemuchincommonwiththetrophiesofexploit.Butleisureinthenarrowersense,asdistinctfromexploitandfromanyostensiblyproductiveemploymentofeffortonobjectswhichareofnointrinsicuse,doesnotcommonlyleaveamaterialproduct.Thecriteriaofapastperformanceofleisurethereforecommonlytaketheformof‘immaterial’goods.Suchimmaterialevidencesofpastleisurearequasi-scholarlyorquasi-artisticaccomplishmentsandaknowledgeofprocessesandincidentswhichdonotconducedirectlytothefurtheranceofhumanlife.So,forinstance,inourtimethereistheknowledgeofthedeadlanguagesandtheoccultsciences;ofcorrectspelling;ofsyntaxandprosody;ofthevariousformsofdomesticmusicandotherhouseholdart;ofthelatestpropertiesofdress,furniture,andequipage;ofgames,sports,andfancy-bredanimals,suchasdogsandrace-horses.Inallthesebranchesofknowledgetheinitialmotivefromwhichtheiracquisitionproceededattheoutset,andthroughwhichtheyfirstcameintovogue,mayhavebeensomethingquitedifferentfromthewishtoshowthatone’stimehadnotbeenspentinindustrialemployment;butunlesstheseaccomplishmentshadapprovedthemselvesasserviceableevidenceofanunproductiveexpenditureoftime,theywouldnothavesurvivedandheldtheirplaceasconventionalaccomplishmentsoftheleisureclass.Theseaccomplishmentsmay,insomesense,beclassedasbranchesoflearning.Besideandbeyondthesethereisafurtherrangeofsocialfactswhichshadeofffromtheregionoflearningintothatofphysicalhabitanddexterity.Sucharewhatisknownasmannersandbreeding,politeusage,decorum,andformalandceremonialobservancesgenerally.Thisclassoffactsareevenmoreimmediatelyandobtrusivelypresentedtotheobservation,andtheythereforemorewidelyandmoreimperativelyinsistedonasrequiredevidencesofareputabledegreeofleisure.Itisworthwhiletoremarkthatallthatclassofceremonialobservanceswhichareclassedunderthegeneralheadofmannersholdamoreimportantplaceintheesteemofmenduringthestageofcultureatwhichconspicuousleisurehasthegreatestvogueasamarkofreputability,thanatlaterstagesoftheculturaldevelopment.Thebarbarianofthequasi-peaceablestageofindustryisnotoriouslyamorehigh-bredgentleman,inallthatconcernsdecorum,thananybuttheveryexquisiteamongthemenofalaterage.Indeed,itiswellknown,oratleastitiscurrentlybelieved,thatmannershaveprogressivelydeterioratedassocietyhasrecededfromthepatriarchalstage.Manyagentlemanoftheoldschoolhasbeenprovokedtoremarkregretfullyupontheunder-bredmannersandbearingofeventhebetterclassesinthemodernindustrialcommunities;andthedecayoftheceremonialcode–orasitisotherwisecalled,thevulgarisationoflife–amongtheindustrialclassesproperhasbecomeoneofthechiefenormitiesoflatter-daycivilisationintheeyesofallpersonsofdelicatesensibilities.Thedecaywhichthecodehassufferedatthehands 622InstitutionalEconomicsofabusypeopletestifies–alldepreciationapart–tothefactthatdecorumisaproductandanexponentofleisureclasslifeandthrivesinfullmeasureonlyunderaregimeofstatus.Theorigin,orbetterthederivation,ofmannersisnodoubt,tobesoughtelsewherethaninaconsciouseffortonthepartofthewell-manneredtoshowthatmuchtimehasbeenspentinacquir-ingthem.Theproximateendofinnovationandelaborationhasbeenthehighereffectivenessofthenewdepartureinpointofbeautyorofexpressiveness.Ingreatparttheceremonialcodeofdecoroususagesowesitsbeginninganditsgrowthtothedesiretoconciliateortoshowgoodwill,asanthropologistsandsociologistsareinthehabitofassuming,andthisinitialmotiveisrarelyifeverabsentfromtheconductofwell-manneredpersonsatanystageofthelaterdevelopment.Manners,wearetold,areinpartanelaborationofgesture,andinparttheyaresymbolicalandconventionalisedsurvivalsrepresentingformeractsofdominanceorofpersonalserviceorofpersonalcontact.Inlargeparttheyareanexpressionoftherelationofstatus–asymbolicpan-tomimeofmastery,ontheonehand,andofsubservience,ontheother.Whereveratthepresenttimethepredatoryhabitofmind,andtheconsequentattitudeofmasteryandofsubservience,givesitscharactertotheaccreditedschemeoflife,theretheimportanceofallpunctiliosofcon-ductisextreme,andtheassiduitywithwhichtheceremonialobservanceofrankandtitlesisattendedtoapproachescloselytotheidealsetbythebarbarianofthequasi-peaceablenomadicculture.SomeoftheContinentalcountriesaffordgoodillustrationsofthisspiritualsurvival.Inthesecommunitiesthearchaicidealissimilarlyapproachedasregardstheesteemaccordedtomannersasafactofintrinsicworth.Decorumsetoutwithbeingsymbolandpantomimeandwithhavingutilityonlyasanexponentofthefactsandqualitiessymbolised;butitpresentlysufferedthetransmutationwhichcommonlypassesoversymbolicalfactsinhumanintercourse.Mannerspresentlycame,inpopularapprehension,tobepossessedofasubstantialutilityinthemselves;theyacquiredasacramentalcharacter,ingreatmeasureindependentofthefactswhichtheyoriginallyprefigured.Deviationsfromthecodeofdecorumhavebecomeintrinsicallyodioustoallmen,andgoodbreedingis,ineverydayapprehension,notsimplyanadventitiousmarkofhumanexcellence,butanintegralfeatureoftheworthyhumansoul.Therearefewthingsthatsotouchuswithinstinctiverevulsionasabreachofdecorum;andsofarhavewepro-gressedinthedirectionofimputingintrinsicutilitytotheceremonialobservancesofetiquettethatfewofus,ifany,candissociateanoffenceagainstetiquettefromasenseofthesubstantialunworthinessoftheoffender.Abreachoffaithmaybecondoned,butabreachofdecorumcannot.‘Mannersmaketheman’.Nonetheless,whilemannershavethisintrinsicutility,intheapprehensionoftheperformerandthebeholderalike,thissenseoftheintrinsicrightnessofdecorumisonlytheproximategroundofthevogueofmannersandbreeding.Theirulterior,economicgroundistobesoughtinthehonorificcharacterofthatleisureornon-productiveemploymentoftimeandeffortwithoutwhichgoodmannersarenotacquired.Theknowledgeandhabitofgoodformcomeonlybylong-continueduse.Refinedtastes,manners,habitsoflifeareausefulevidenceofgentility,becausegoodbreedingrequirestime,applicationandexpense,andcanthereforenotbecompassedbythosewhosetimeandenergyaretakenupwithwork.Aknowledgeofgoodformisprimafacieevidencethatthatportionofthewell-bredperson’slifewhichisnotspentundertheobservationofthespectatorhasbeenworthilyspentinacquiringaccomplishmentsthatareofnolucrativeeffect.Inthelastanalysisthevalueofmannersliesinthefactthattheyarethevoucherofalifeofleisure.Therefore,conversely,sinceleisureistheconventionalmeansofpecuniaryrepute,theacquisi-tionofsomeproficiencyindecorumisincumbentonallwhoaspiretoamodicumofpecuniarydecency.Somuchofthehonourablelifeofleisureasisnotspentinthesightofspectatorscanservethepurposesofreputabilityonlyinsofarasitleavesatangible,visibleresultthatcanbeputin Veblen:TheTheoryoftheLeisureClass623evidenceandcanbemeasuredandcomparedwithproductsofthesameclassexhibitedbycompetingaspirantsforrepute.Somesucheffect,inthewayofleisurelymannersandcarriage,etc.,followsfromsimplepersistentabstentionfromwork,evenwherethesubjectdoesnottakethoughtofthematterandstudiouslyacquireanairofleisurelyopulenceandmastery.Especiallydoesitseemtobetruethatalifeofleisureinthiswaypersistedinthroughseveralgenerationswillleaveapersistent,ascertainableeffectintheconformationoftheperson,andstillmoreinhishabitualbearinganddemeanour.Butallthesuggestionsofacumulativelifeofleisure,andalltheproficiencyindecorumthatcomesbythewayofpassivehabituation,maybefurtherimproveduponbytakingthoughtandassiduouslyacquiringthemarksofhonourableleisure,andthencarryingtheexhibitionoftheseadventitiousmarksofexemptionfromemploy-mentoutinastrenuousandsystematicdiscipline.Plainly,thisisapointatwhichadiligentapplicationofeffortandexpendituremaymateriallyfurthertheattainmentofadecentproficiencyintheleisure-classproperties.Conversely,thegreaterthedegreeofproficiencyandthemorepatenttheevidenceofahighdegreeofhabitua-tiontoobservanceswhichservenolucrativeorotherdirectlyusefulpurpose,thegreaterthecon-sumptionoftimeandsubstanceimpliedlyinvolvedintheiracquisition,andthegreatertheresultantgoodrepute.Hence,underthecompetitivestruggleforproficiencyingoodmanners,itcomesaboutthatmuchpainsistakenwiththecultivationofhabitsofdecorum;andhencethedetailsofdecorumdevelopintoacomprehensivediscipline,conformitytowhichisrequiredofallwhowouldbeheldblamelessinpointofrepute.Andhence,ontheotherhand,thiscon-spicuousleisureofwhichdecorumisaramificationgrowsgraduallyintoalaboriousdrillindeportmentandaneducationintasteanddiscriminationastowhatarticlesofconsumptionaredecorousandwhatarethedecorousmethodsofconsumingthem.Inthisconnectionitisworthyofnoticethatthepossibilityofproducingpathologicalandotheridiosyncrasiesofpersonandmannerbyshrewdmimicryandasystematicdrillhavebeenturnedtoaccountinthedeliberateproductionofaculturedclass–oftenwithaveryhappyeffect.Inthisway,bytheprocessvulgarlyknownassnobbery,asyncopatedevolutionofgentlebirthandbreedingisachievedinthecaseofagoodlynumberoffamiliesandlinesofdescent.Thissyncopatedgentlebirthgivesresultswhich,inpointofserviceabilityasaleisure-classfactorinthepopulation,areinnowisesubstantiallyinferiortootherswhomayhavehadalongerbutlessarduoustraininginthepecuniaryproperties.Thereare,moreover,measureabledegreesofconformitytothelatestaccreditedcodeofthepunctiliosasregardsdecorousmeansandmethodsofconsumption.Differencesbetweenonepersonandanotherinthedegreeofconformitytotheidealintheserespectscanbecompared,andpersonsmaybegradedandscheduledwithsomeaccuracyandeffectaccordingtoapro-gressivescaleofmannersandbreeding.Theawardofreputabilityinthisregardiscommonlymadeingoodfaith,onthegroundofconformitytoacceptedcanonsoftasteinthematterscon-cerned,andwithoutconsciousregardtothepecuniarystandingorthedegreeofleisurepractisedbyanygivencandidateforreputability;butthecanonsoftasteaccordingtowhichtheawardismadeareconstantlyunderthesurveillanceofthelawofconspicuousleisure,andareindeedconstantlyundergoingchangeandrevisiontobringthemintocloserconformitywithitsrequire-ments.Sothatwhiletheproximategroundofdiscriminationmaybeofanotherkind,stillthepervadingprincipleandabidingtestofgoodbreedingistherequirementofasubstantialandpatentwasteoftime.Theremaybesomeconsiderablerangeofvariationindetailwithinthescopeofthisprinciple,buttheyarevariationsofformandexpression,notofsubstance.Muchofthecourtesyofeverydayintercourseisofcourseadirectexpressionofconsiderationandkindlygood-will,andthiselementofconducthasforthemostpartnoneedofbeingtracedbacktoanyunderlyinggroundofreputabilitytoexplaineitheritspresenceortheapprovalwith 624InstitutionalEconomicswhichitisregarded;butthesameisnottrueofthecodeofproperties.Theselatterareexpres-sionsofstatus.Itisofcoursesufficientlyplain,toanyonewhocarestosee,thatourbearingtowardsmenialsandotherpecuniarydependentinferiorsisthebearingofthesuperiormemberinarelationofstatus,thoughitsmanifestationisoftengreatlymodifiedandsoftenedfromtheoriginalexpressionofcrudedominance.Similarly,ourbearingtowardssuperiors,andingreatmeasuretowardsequals,expressesamoreorlessconventionalisedattitudeofsubservience.Witnessthemasterfulpresenceofthehigh-mindedgentlemanorlady,whichtestifiestosomuchofdominanceandindependenceofeconomiccircumstances,andwhichatthesametimeappealswithsuchconvincingforcetooursenseofwhatisrightandgracious.Itisamongthishighestleisureclass,whohavenosuperiorsandfewpeers,thatdecorumfindsitsfullestandmaturestexpression;anditisthishighestclassalsothatgivesdecorumthatdefiniteformulationwhichservesasacanonofconductfortheclassesbeneath.Andtherealsothecodeismostobvi-ouslyacodeofstatusandshowsmostplainlyitsincompatibilitywithallvulgarlyproductivework.Adivineassuranceandanimperiouscomplaisance,asofonehabituatedtorequiresubservienceandtotakenothoughtforthemorrow,isthebirthrightandthecriterionofthegentlemanathisbest;anditisinpopularapprehensionevenmorethanthat,forthisdemeanourisacceptedasanintrinsicattributeofsuperiorworth,beforewhichthebase-borncommonerdelightstostoopandyield.Ashasbeenindicatedinanearlierchapter,thereisreasontobelievethattheinstitutionofownershiphasbegunwiththeownershipofpersons,primarilywomen.Theincentivestoacquir-ingsuchpropertyhaveapparentlybeen:(1)apropensityfordominanceandcoercion;(2)theutilityofthesepersonsasevidenceoftheprowessoftheowner;(3)theutilityoftheirservices.Personalserviceholdsapeculiarplaceintheeconomicdevelopment.Duringthestageofquasi-peaceableindustry,andespeciallyduringtheearlierdevelopmentofindustrywithinthelimitsofthisgeneralstage,theutilityoftheirservicesseemscommonlytobethedominantmotivetotheacquisitionofpropertyinpersons.Servantsarevaluedfortheirservices.Butthedominanceofthismotiveisnotduetoadeclineintheabsoluteimportanceoftheothertwoutil-itiespossessedbyservants.Itisratherthatthealteredcircumstanceoflifeaccentuatetheutilityofservantsforthislast-namedpurpose.Womenandotherslavesarehighlyvalued,bothasanevidenceofwealthandasameansofaccumulatingwealth.Togetherwithcattle,ifthetribeisapastoralone,theyaretheusualformofinvestmentforaprofit.Tosuchanextentmayfemaleslaverygiveitscharactertotheeconomiclifeunderthequasi-peaceableculturethatthewomenevencomestoserveasaunitofvalueamongpeoplesoccupyingthisculturalstage–asforinstanceinHomerictimes.Wherethisisthecasethereneedbelittlequestionbutthatthebasisoftheindustrialsystemischattelslaveryandthatthewomenarecommonlyslaves.Thegreat,pervadinghumanrelationinsuchasystemisthatofmasterandservant.Theacceptedevidenceofwealthisthepossessionofmanywomen,andpresentlyalsoofotherslavesengagedinattendanceontheirmaster’spersonandinproducinggoodsforhim.Adivisionoflabourpresentlysetsin,wherebypersonalserviceandattendanceonthemasterbecomesthespecialofficeofaportionoftheservants,whilethosewhoarewhollyemployedinindustrialoccupationsproperareremovedmoreandmorefromallimmediaterelationtothepersonoftheirowner.Atthesametimethoseservantswhoseofficeispersonalservice,includ-ingdomesticduties,comegraduallytobeexemptedfromproductiveindustrycarriedonforgain.Thisprocessofprogressiveexemptionfromthecommonrunofindustrialemploymentwillcommonlybeginwiththeexemptionofthewife,orthechiefwife.Afterthecommunityhasadvancedtosettledhabitsoflife,wife-capturefromhostiletribesbecomesimpracticableasacustomarysourceofsupply.Wherethisculturaladvancehasbeenachieved,thechiefwifeisordinarilyofgentleblood,andthefactofherbeingsowillhastenherexemptionfromvulgaremployment.Themannerinwhichtheconceptofgentlebloodoriginates,aswellastheplacewhichitoccupiesinthedevelopmentofmarriage,cannotbediscussedinthisplace.Forthe Veblen:TheTheoryoftheLeisureClass625purposeinhanditwillbesufficienttosaythatgentlebloodisbloodwhichhasbeenennobledbyprotractedcontactwithaccumulatedwealthorunbrokenprerogative.Thewomenwiththeseantecedentsispreferredinmarriage,bothforthesakeofaresultingalliancewithherpowerfulrel-ativesandbecauseasuperiorworthisfelttoinhereinbloodwhichhasbeenassociatedwithmanygoodsandgreatpower.Shewillstillbeherhusband’schattel,asshewasherfather’schattelbeforeherpurchase,butsheisatthesametimeofherfather’sgentleblood;andhencethereisamoralincongruityinheroccupyingherselfwiththedebasingemploymentsofherfellow-servants.Howevercompletelyshemaybesubjecttohermaster,andhoweverinferiortothemalemem-bersofthesocialstratuminwhichherbirthhasplacedher,theprinciplethatgentilityistrans-missiblewillacttoplaceherabovethecommonslave;andsosoonasthisprinciplehasacquiredaprescriptiveauthorityitwillacttoinvestherinsomemeasurewiththatprerogativeofleisurewhichisthechiefmarkofgentility.Furtheredbythisprincipleoftransmissiblegentilitythewife’sexemptiongainsinscope,ifthewealthofherownerpermitsit,untilitincludesexemptionfromdebasingmenialserviceaswellasfromhandicraft.Astheindustrialdevelopmentgoesonandpropertybecomesmassedinrelativelyfewerhands,theconventionalstandardofwealthoftheupperclassrises.Thesametendencytoexemptionfromhandicraft,andinthecourseoftimefrommenialdomesticemployments,willthenassertitselfasregardstheotherwives,ifsuchthereare,andalsoasregardsotherservantsinimmediateattendanceuponthepersonoftheirmaster.Theexemptioncomesmoretardilytheremotertherelationinwhichtheservantstandstothepersonofthemaster.Ifthepecuniarysituationofthemasterpermitsit,thedevelopmentofaspecialclassofpersonalorbodyservantsisalsofurtheredbytheverygraveimportancewhichcomestoattachtothispersonalservice.Themaster’sperson,beingtheembodimentofworthandhonour,isofthemostseriousconsequence.Bothforhisreputablestandinginthecommunityandforhisself-respect,itisamatterofmomentthatheshouldhaveathiscallefficientspecialisedservants,whoseattendanceuponhispersonisnotdivertedfromthistheirchiefofficebyanyby-occupation.Thesespecialisedservantsareusefulmoreforshowthanforserviceactuallyperformed.Insofarastheyarenotkeptforexhibitionsimply,theyaffordgratificationtotheirmasterchieflyinallowingscopetohispropensityfordominance.Itistrue,thecareofthecontinuallyincreasinghouseholdapparatusmayrequireaddedlabour;butsincetheapparatusiscommonlyincreasedinordertoserveasameansofgoodreputeratherthanasameansofcomfort,thisqualificationisnotofgreatweight.Alltheselinesofutilityarebetterservedbyalargernumberofmorehighlyspe-cialisedservants.Thereresults,therefore,aconstantlyincreasingdifferentiationandmultiplicationofdomesticandbodyservants,alongwithaconcomitantprogressiveexemptionofsuchservantsfromproductivelabour.Byvirtueoftheirservingasevidenceofabilitytopay,theofficeofsuchdomesticsregularlytendstoincludecontinuallyfewerduties,andtheirservicetendsintheendtobecomenominalonly.Thisisespeciallytrueofthoseservantswhoareinmostimmediateandobviousattendanceupontheirmaster.Sothattheutilityofthesecomestoconsist,ingreatpart,intheirconspicuousexemptionfromproductivelabourandintheevidencewhichthisexemptionaffordsoftheirmaster’swealthandpower.Aftersomeconsiderableadvancehasbeenmadeinthepracticeofemployingaspecialcorpsofservantsfortheperformanceofaconspicuousleisureinthismanner,menbegintobepreferredabovewomenforservicesthatbringthemobtrusivelyintoview.Men,especiallylusty,personablefellows,suchasfootmenandothermenialsshouldbe,areobviouslymorepowerfulandmoreexpensivethanwomen.Theyarebetterfittedforthiswork,asshowingalargerwasteoftimeandofhumanenergy.Hence,itcomesaboutthatintheeconomyoftheleisureclassthebusyhousewifeoftheearlypatriarchaldays,withherretinueofhard-workinghandmaidens,presentlygivesplacetotheladyandthelackey. 626InstitutionalEconomicsInallgradesandwalksoflife,andatanystageoftheeconomicdevelopment,theleisureoftheladyandofthelackeydiffersfromtheleisureofthegentlemaninhisownrightinthatitisanoccupationofanostensiblylaboriouskind.Ittakestheform,inlargemeasure,ofapainstakingattentiontotheserviceofthemaster,ortothemaintenanceandelaborationofthehouseholdparaphernalia;sothatitisleisureonlyinthesensethatlittleornoproductiveworkisperformedbythisclass,notinthesensethatallappearanceoflabourisavoidedbythem.Thedutiesper-formedbythelady,orbythehouseholdordomesticservants,arefrequentlyarduousenough,andtheyarealsofrequentlydirectedtoendswhichareconsideredextremelynecessarytothecomfortoftheentirehousehold.Sofarastheseservicesconducetothephysicalefficiencyorcomfortofthemasterortherestofthehousehold,theyaretobeaccountedasproductivework.Onlytheresidueofemploymentleftafterdeductionofthiseffectiveworkistobeclassedasaperformanceofleisure.Butmuchoftheservicesclassedashouseholdcaresinmoderneverydaylife,andmanyofthe‘utilities’requiredforacomfortableexistencebycivilisedman,areofaceremonialcharacter.Theyare,therefore,properlytobeclassedasaperformanceofleisureinthesenseinwhichthetermishereused.Theymaybenonethelessimperativelynecessaryfromthepointofviewofdecentexistence:theymaybenonethelessrequisiteforpersonalcomforteven,althoughtheymaybechieflyorwhollyofaceremonialcharacter.Butinsofarastheypartakeofthischarac-tertheyareimperativeandrequisitebecausewehavebeentaughttorequirethemunderpainofceremonialuncleannessorunworthiness.Wefeeldiscomfortintheirabsence,butnotbecausetheirabsenceresultsdirectlyinphysicaldiscomfort;norwouldatastenottrainedtodiscriminatebetweentheconventionallygoodandtheconventionallybadtakeoffenceattheiromission.Insofarasthisistruethelabourspentintheseservicesistobeclassedasleisure;andwhenperformedbyothersthantheeconomicallyfreeandself-directedheadoftheestablishment,theyaretobeclassedasvicariousleisure.Thevicariousleisureperformedbyhousewivesandmenials,undertheheadofhouseholdcares,mayfrequentlydevelopintodrudgery,especiallywherethecompetitionforreputabilityiscloseandstrenuous.Thisisfrequentlythecaseinmodernlife.Wherethishappens,thedomesticservicewhichcomprisesthedutiesofthisservantclassmightaptlybedesignatedaswastedeffort,ratherthanasvicariousleisure.Butthelattertermhastheadvantageofindicatingthelineofderivationofthesedomesticoffices,aswellasofneatlysuggestingthesubstantialeconomicgroundoftheirutility;fortheseoccupationsarechieflyuse-fulasamethodofimputingpecuniaryreputabilitytothemasterortothehouseholdonthegroundthatagivenamountoftimeandeffortisconspicuouslywastedonthatbehalf.Inthisway,then,therearisesasubsidiaryorderivativeleisureclass,whoseofficeistheperfor-manceofavicariousleisureforthebehoofofthereputabilityoftheprimaryorlegitimateleisureclass.Thisvicariousleisureclassisdistinguishedfromtheleisureclassproperbyacharac-teristicfeatureofitshabitualmodeoflife.Theleisureofthemasterclassis,atleastostensibly,anindulgenceofaproclivityfortheavoidanceoflabourandispresumedtoenhancethemaster’sownwell-beingandfulnessoflife;buttheleisureoftheservantclassexemptfromproductivelabourisinsomesortaperformanceexactedfromthem,andisnotnormallyorprimarilydirectedtotheirowncomfort.Theleisureoftheservantisnothisownleisure.Sofarasheisaservantinthefullsense,andnotatthesametimeamemberofalowerorderoftheleisureclassproper,hisleisurenormallypassesundertheguiseofspecialisedservicedirectedtothefurther-anceofhismaster’sfulnessoflife.Evidenceofthisrelationofsubservienceisobviouslypresentintheservant’scarriageandmanneroflife.Thelikeisoftentrueofthewifethroughouttheprotractedeconomicstageduringwhichsheisstillprimarilyaservant–thatistosay,solongasthehouseholdwithamaleheadremainsinforce.Inordertosatisfytherequirementsoftheleisureclassschemeoflife,theservantshould Veblen:TheTheoryoftheLeisureClass627shownotonlyanattitudeofsubservience,butalsotheeffectsofspecialtrainingandpracticeinsubservience.Theservantorwifeshouldnotonlyperformcertainofficesandshowaserviledis-position,butitisquiteasimperativethattheyshouldshowanacquiredfacilityinthetacticsofsubservience–atrainedconformitytothecanonsofeffectualandconspicuoussubservience.Eventodayitisthisaptitudeandacquiredskillintheformalmanifestationoftheservilerelationthatconstitutesthechiefelementofutilityinourhighlypaidservants,aswellasoneofthechiefornamentsofthewell-bredhousewife.Thefirstrequisiteofagoodservantisthatheshouldconspicuouslyknowhisplace.Itisnotenoughthatheknowshowtoeffectcertaindesiredmechanicalresults;hemustaboveall,knowhowtoeffecttheseresultsindueform.Domesticservicemightbesaidtobeaspiritualratherthanamechanicalfunction.Graduallytheregrowsupanelaboratesystemofgoodform,specif-icallyregulatingthemannerinwhichthisvicariousleisureoftheservantclassistobeperformed.Anydeparturefromthesecanonsofformistobedepreciated,notsomuchbecauseitevincesashortcominginmechanicalefficiency,oreventhatitshowsanabsenceoftheservileattitudeandtemperament,butbecause,inthelastanalysis,itshowstheabsenceofspecialtraining.Specialtraininginpersonalservicecoststimeandeffort,andwhereitisobviouslypresentinahighdegree,itarguesthattheservantwhopossessesit,neitherisnorhasbeenhabituallyengagedinanyproductiveoccupation.Itisprimafacieevidenceofavicariousleisureextendingfarbackinthepast.Sothattrainedservicehasutility,notonlyasgratifyingthemaster’sinstinctivelikingforgoodandskilfulwork-manshipandhispropensityforconspicuousdominanceoverthosewhoselivesaresubservienttohisown,butithasutilityalsoasputtinginevidenceamuchlargerconsumptionofhumanser-vicethanwouldbeshownbythemerepresentconspicuousleisureperformedbyanuntrainedperson.Itisaseriousgrievanceifagentleman’sbutlerorfootmanperformshisdutiesabouthismaster’stableorcarriageinsuchunformedstyleastosuggestthathishabitualoccupationmaybeploughingorsheepherding.Suchbunglingworkwouldimplyinabilityonthemaster’sparttoprocuretheserviceofspeciallytrainedservants;thatistosay,itwouldimplyinabilitytopayfortheconsumptionoftime,effort,andinstructionrequiredtofitatrainedservantforspecialserviceundertheexactingcodeofforms.Iftheperformanceoftheservantargueslackofmeansonthepartofhismaster,itdefeatsitschiefsubstantialend;forthechiefuseofservantsistheevidencetheyaffordofthemaster’sabilitytopay.Whathasjustbeensaidmightbetakentoimplythattheoffenceofanunder-trainedservantliesinadirectsuggestionofinexpensivenessorofusefulness.Such,ofcourse,isnotthecase.Theconnectionismuchlessimmediate.Whathappenshereiswhathappensgenerally.Whateverapprovesitselftousonanygroundattheoutset,presentlycomestoappealtousasagratifyingthinginitself;itcomestorestinourhabitsofthoughtassubstantiallyright.Butinorderthatanyspecificcanonofdeportmentshallmaintainitselfinfavour,itmustcontinuetohavethesupportof,oratleastnotbeincompatiblewith,thehabitoraptitudewhichconstitutesthenormofitsdevelopment.Theneedofvicariousleisure,orconspicuousconsumptionofservice,isadomi-nantincentivetothekeepingofservants.Solongasthisremainstrueitmaybesetdownwithoutmuchdiscussionthatanysuchdeparturefromacceptedusageaswouldsuggestanabridgedapprenticeshipinservicewouldpresentlybefoundinsufferable.Therequirementofanexpensivevicariousleisureactsindirectly,selectively,byguidingtheformationofourtaste–ofoursenseofwhatisrightinthesematters–andsoweedsoutunconformabledeparturesbywithholdingapprovalofthem.Asthestandardofwealthrecognisedbycommonconsentadvances,thepossessionandexploitationofservantsasameansofshowingsuperfluityundergoesarefinement.Theposses-sionandmaintenanceofslavesemployedintheproductionofgoodsargueswealthandprowess,butthemaintenanceofservantswhoproducenothingarguesstillhigherwealthandposition. 628InstitutionalEconomicsUnderthisprincipletherearisesaclassofservants,themorenumerousthebetter,whosesoleofficeisfatuouslytowaituponthepersonoftheirowner,andsotoputinevidencehisabilityunproductivelytoconsumealargeamountofservice.Theresupervenesadivisionoflabouramongtheservantsordependentswhoselifeisspentinmaintainingthehonourofthegentle-manofleisure.Sothat,whileonegroupproducesgoodsforhim,anothergroup,usuallyheadedbythewife,orchief,consumesforhiminconspicuousleisure;therebyputtinginevidencehisabilitytosustainlargepecuniarydamagewithoutimpairinghissuperioropulence.Thissomewhatidealisedanddiagrammaticoutlineofthedevelopmentandnatureofdomesticservicecomesnearestbeingtrueforthatculturalstagewhichhasherebeennamedthe‘quasi-peaceable’stageofindustry.Atthisstagepersonalservicefirstrisestothepositionofaneconomicinstitution,anditisatthisstagethatitoccupiesthelargestplaceinthecommunity’sschemeoflife.Intheculturalsequence,thequasi-peaceablestagefollowsthepredatorystageproper,thetwobeingsuccessivephasesofbarbarianlife.Itscharacteristicfeatureisaformalobservanceofpeaceandorder,atthesametimethatlifeatthisstagestillhastoomuchofcoercionandclassantagonismtobecalledpeaceableinthefullsenseoftheword.Formanypurposes,andfromanotherpointofviewthantheeconomicone,itmightaswellbenamedthestageofstatus.Themethodofhumanrelationduringthisstage,andthespiritualattitudeofmenatthislevelofculture,iswellsummedupundertheterm.Butasadescriptivetermtocharacterisetheprevailingmethodsofindustry,aswellastoindicatethetrendofindustrialdevelopmentatthispointineconomicevolution,theterm‘quasi-peaceable’seemspreferable.SofarasconcernsthecommunitiesoftheWesternculture,thisphaseofeconomicdevelopmentprobablyliesinthepast;exceptforanumericallysmallthoughveryconspicuousfractionofthecommunityinwhomthehabitsofthoughtpeculiartothebarbar-ianculturehavesufferedbutarelativelyslightdisintegration.Personalserviceisstillanelementofgreateconomicimportance,especiallyasregardsthedistributionandconsumptionofgoods;butitsrelativeimportanceeveninthisdirectionisnodoubtlessthanitoncewas.Thebestdevelopmentofthisvicariousleisureliesinthepastratherthaninthepresent;anditsbestexpressioninthepresentistobefoundintheschemeoflifeoftheupperleisureclass.Tothisclassthemoderncultureowesmuchinthewayoftheconserva-tionoftraditions,usages,andhabitsofthoughtwhichbelongonamorearchaicculturalplane,sofarasregardstheirwidestacceptanceandtheirmosteffectivedevelopment.Inthemodernindustrialcommunitiesthemechanicalcontrivancesavailableforthecomfortandconvenienceofeverydaylifearehighlydeveloped.Somuchsothatbodyservants,or,indeed,domesticservantsofanykind,wouldnowscarcelybeemployedbyanybodyexceptonthegroundofacanonofreputabilitycarriedoverbytraditionfromearlierusage.Theonlyexceptionwouldbeservantsemployedtoattendonthepersonsoftheinfirmandthefeeble-minded.Butsuchservantsproperlycomeundertheheadoftrainednursesratherthanunderthatofdomesticservants,andtheyare,therefore,anapparentratherthanarealexceptiontotherule.Theproximatereasonforkeepingdomesticservants,forinstance,inthemoderatelywell-to-dohouseholdofto-day,is(ostensibly)thatthemembersofthehouseholdareunablewithoutdis-comforttocompasstheworkrequiredbysuchamodernestablishment.Andthereasonfortheirbeingunabletoaccomplishitis(1)thattheyhavetoomany‘socialduties’,and(2)thattheworktobedoneistoosevereandthatthereistoomuchofit.Thesetworeasonsmayberestatedasfollows:(1)Underthemandatorycodeofdecency,thetimeandeffortofthemembersofsuchahouseholdarerequiredtobeostensiblyallspentinaperformanceofconspicuousleisure,inthewayofcalls,drives,clubs,sewing-circles,sports,charityorganisations,andotherlikesocialfunc-tions.Thosepersonswhosetimeandenergyareemployedinthesemattersprivatelyavowthatalltheseobservances,aswellastheincidentalattentiontodressandotherconspicuousconsump-tion,areveryirksomebutaltogetherunavoidable.(2)Undertherequirementofconspicuousconsumptionofgoods,theapparatusoflivinghasgrownsoelaborateandcumbrous,intheway Veblen:TheTheoryoftheLeisureClass629ofdwellings,furniture,bric-a-brac,wardrobeandmeals,thattheconsumersofthesethingscannotmakewaywiththemintherequiredmannerwithouthelp.Personalcontactwiththehiredpersonswhoseaidiscalledintofulfiltheroutineofdecencyiscommonlydistastefultotheoccupantsofthehouse,buttheirpresenceisenduredandpaidfor,inordertodelegatetothemashareinthisoner-ousconsumptionofhouseholdgoods.Thepresenceofdomesticservants,andofthespecialclassofbodyservantsinaneminentdegree,isaconcessionofphysicalcomforttothemoralneedofpecuniarydecency.Thelargestmanifestationofvicariousleisureinmodernlifeismadeupofwhatarecalleddomesticduties.Thesedutiesarefastbecomingaspeciesofservicesperformed,notsomuchfortheindividualbehoofoftheheadofthehouseholdasforthereputabilityofthehouseholdtakenasacorporateunit–agroupofwhichthehousewifeisamemberonafootingofostensibleequality.Asfastasthehouseholdforwhichtheyareperformeddepartsfromitsarchaicbasisofownership-marriage,thesehouseholddutiesofcoursetendtofalloutofthecategoryofvicariousleisureintheoriginalsense;exceptsofarastheyareperformedbyhiredservants.Thatistosay,sincevicar-iousleisureispossibleonlyonabasisofstatusorofhiredservice,thedisappearanceoftherela-tionofstatusfromhumanintercourseatanypointcarrieswithitthedisappearanceofvicariousleisuresofarasregardsthatmuchoflife.Butitistobeadded,inqualificationofthisqualification,thatsolongasthehouseholdsubsists,evenwithadividedhead,thisclassofnon-productivelabourperformedforthesakeofthehouseholdreputabilitymuststillbeclassedasvicariousleisure,althoughinaslightlyalteredsense.Itisnowleisureperformedforthequasi-personalcorporatehousehold,insteadof,asformerly,fortheproprietaryheadofthehousehold.Chapterfour:ConspicuousconsumptionInwhathasbeensaidoftheevolutionofthevicariousleisureclassanditsdifferentiationfromthegeneralbodyoftheworkingclasses,referencehasbeenmadetoafurtherdivisionoflabour–thatbetweenthedifferentservantclasses.Oneportionoftheservantclass,chieflythosepersonswhoseoccupationisvicariousleisure,cometoundertakeanew,subsidiaryrangeofduties–thevicariousconsumptionofgoods.Themostobviousforminwhichthisconsumptionoccursisseeninthewearingofliveriesandtheoccupationofspaciousservants’quarters.Another,scarcelylessobtrusiveorlesseffectiveformofvicariousconsumption,andamuchmorewidelyprevalentone,istheconsumptionoffood,clothing,dwelling,andfurniturebytheladyandtherestofthedomesticestablishment.Butalreadyatapointineconomicevolutionfarantedatingtheemergenceofthelady,specialisedconsumptionofgoodsasanevidenceofpecuniarystrengthhadbeguntoworkoutinamoreorlesselaboratesystem.Thebeginningofadifferentiationinconsumptionevenante-datestheappearanceofanythingthatcanfairlybecalledpecuniarystrength.Itistraceablebacktotheinitialphaseofpredatoryculture,andthereisevenasuggestionthatanincipientdifferen-tiationinthisrespectliesatthebackofthebeginningsofthepredatorylife.Thismostprimitivedifferentiationintheconsumptionofgoodsislikethelaterdifferentiationwithwhichweareallsointimatelyfamiliar,inthatitislargelyofaceremonialcharacter,butunlikethelatteritdoesnotrestonadifferenceinaccumulatedwealth.Theutilityofconsumptionasanevidenceofwealthistobeclassedasaderivativegrowth.Itisanadaptiontoanewend,byaselectiveprocess,ofadistinctionpreviouslyexistingandwellestablishedinmen’shabitsofthought.Intheearlierphasesofthepredatoryculturetheonlyeconomicdifferentiationisabroaddis-tinctionbetweenanhonourablesuperiorclassmadeupoftheable-bodiedmenontheoneside,andabaseinferiorclassoflabouringwomenontheother.Accordingtotheidealschemeoflifeinforceatthetimeitistheofficeofthementoconsumewhatthewomenproduce. 630InstitutionalEconomicsSuchconsumptionasfallstothewomenismerelyincidentaltotheirwork;itisameanstotheircontinuedlabour,andnotaconsumptiondirectedtotheirowncomfortandfulnessoflife.Unproductiveconsumptionofgoodsishonourable,primarilyasamarkofprowessandaperquisiteofhumandignity;secondarilyitbecomessubstantiallyhonourabletoitself,especiallytheconsumptionofthemoredesirablethings.Theconsumptionofchoicearticlesoffood,andfrequentlyalsoofrarearticlesofadornment,becomestabutothewomenandchildren;andifthereisabase(servile)classofmen,thetabuholdsalsoforthem.Withafurtheradvanceinculturethistabumaychangeintosimplecustomofamoreorlessrigorouscharacter;butwhateverbethetheoreticalbasisofthedistinctionwhichismaintained,whetheritbeatabuoralargerconventionality,thefeaturesoftheconventionalschemeofconsumptiondonotchangeeasily.Whenthequasi-peaceablestageofindustryisreached,withitsfundamentalinstitutionofchattelslavery,thegeneralprinciple,moreorlessrigorouslyapplied,isthatthebase,industriousclassshouldconsumeonlywhatmaybenecessarytotheirsubsistence.Inthenatureofthings,luxuriesandthecomfortsoflifebelongtotheleisureclass.Underthetabu,certainvictuals,andmoreparticularlycertainbeverages,arestrictlyreservedfortheuseofthesuperiorclass.Theceremonialdifferentiationofthedietaryisbestseenintheuseofintoxicatingbeveragesandnarcotics.Ifthesearticlesofconsumptionarecostly,theyarefelttobenobleandhonorific.Therefore,thebaseclasses,primarilythewomen,practiceanenforcedcontinencewithrespecttothesestimulants,exceptincountrieswheretheyareobtainableataverylowcost.Fromarchaictimesdownthroughallthelengthofthepatriarchalregimeithasbeentheofficeofthewomentoprepareandadministertheseluxuries,andithasbeentheperquisiteofthemenofgentlebirthandbreedingtoconsumethem.Drunkennessandtheotherpathologicalconse-quencesofthefreeuseofstimulantsthereforetendintheirturntobecomehonorific,asbeingamark,atthesecondremove,ofthesuperiorstatusofthosewhoareabletoaffordtheindulgence.Infirmitiesinducedbyover-indulgenceareamongsomepeoplesfreelyrecognisedasmanlyattributes.Ithasevenhappenedthatthenameforcertaindiseasedconditionsofthebodyarisingfromsuchanoriginhaspassedintoeverydayspeechasasynonymfor‘noble’or‘gentle’.Itisonlyatarelativelyearlystageofculturethatthesymptomsofexpensiveviceareconven-tionallyacceptedasmarksofasuperiorstatus,andsotendtobecomevirtuesandcommandthedeferenceofthecommunity;butthereputabilitythatattachestocertainexpensiveviceslongretainssomuchofitsforceastoappreciablylessonthedisapprobationvisiteduponthemenofthewealthyornobleclassforanyexcessiveindulgence.Thesameinvidiousdistinctionaddsforcetothecurrentdisapprovalofanyindulgenceofthiskindonthepartofwomen,minors,andinfe-riors.Thisinvidioustraditionaldistinctionhasnotlostitsforceevenamongthemoreadvancedpeoplesoftoday.Wheretheexamplesetbytheleisureclassretainsitsimperativeforceintheregulationoftheconventionalities,itisobservablethatthewomenstillingreatmeasurepractisethesametraditionalcontinencewithregardtostimulants.Thischaracterisationofthegreatercontinenceintheuseofstimulantspractisedbythewomenofthereputableclassesmayseemanexcessiverefinementoflogicattheexpenseofcommonsense.Butfactswithineasyreachofanyonewhocarestoknowthemgotosaythatthegreaterabstinenceofwomenisinsomepartduetoanimperativeconventionality;andthisconventionalityis,inageneralway,strongestwherethepatriarchaltradition–thetraditionthatthewomanisachattel–hasretaineditsholdingreatestvigour.Inasensewhichhasbeengreatlyqualifiedinscopeandrigour,butwhichhasbynomeanslostitsmeaningevenyet,thistraditionsaysthatthewoman,beingachattel,shouldconsumeonlywhatisnecessarytohersustenance–exceptsofarasherfurtherconsumptioncontributestothecomfortorthegoodreputeofhermaster.Theconsumptionofluxuries,inthetruesense,isaconsumptiondirectedtothecomfortoftheconsumerhimself,andis,therefore,amarkofthemaster.Anysuchconsumptionby Veblen:TheTheoryoftheLeisureClass631otherscantakeplaceonlyonabasisofsufferance.Incommunitieswherethepopularhabitsofthoughthavebeenprofoundlyshapedbythepatriarchaltraditionwemayaccordinglylookforsurvivalsofthetabuonluxuriesatleasttotheextentofaconventionaldeprecationoftheirusebytheunfreeanddependentclass.Thisismoreparticularlytrueasregardscertainluxuries,theuseofwhichbythedependentclasswoulddetractsensiblyfromthecomfortorpleasureoftheirmasters,orwhichareheldtobeofdoubtfullegitimacyonothergrounds.IntheapprehensionofthegreatconservativemiddleclassofWesterncivilisationtheuseofthesevariousstimulantsisobnoxioustoatleastone,ifnotboth,oftheseobjections;anditisafacttoosignificanttobepassedoverthatitispreciselyamongthesemiddleclassesoftheGermanicculture,withtheirstrongsurvivingsenseofthepatriarchalproprieties,thatthewomenaretothegreatestextentsubjecttoaqualifiedtabuonnarcoticsandalcoholicbeverages.Withmanyqualifications–withmorequalificationsasthepatriarchaltraditionhasgraduallyweakened–thegeneralruleisfelttoberightandbindingthatwomenshouldconsumeonlyforthebenefitoftheirmasters.Theobjection,ofcourse,presentsitselfthatexpenditureonwomen’sdressandhouseholdparapher-naliaisanobviousexceptiontothisrule;butitwillappearinthesequelthatthisexceptionismuchmoreobviousthansubstantial.Duringtheearlierstagesofeconomicdevelopment,consumptionofgoodswithoutstint,especiallyconsumptionofthebettergradesofgoods–ideallyallconsumptioninexcessofthesubsistenceminimum–pertainsnormallytotheleisureclass.Thisrestrictiontendstodisappear,atleastformally,afterthelaterpeaceablestagehasbeenreached,withprivateownershipofgoodsandanindustrialsystembasedonwagelabouroronthepettyhouseholdeconomy.Butduringtheearlierquasi-peaceablestage,whensomanyofthetraditionsthroughwhichtheinsti-tutionofaleisureclasshasaffectedtheeconomiclifeoflatertimesweretakingformandconsis-tency,thisprinciplehashadtheforceofaconventionallaw.Ithasservedasthenormtowhichconsumptionhastendedtoconform,andanyappreciabledeparturefromitistoberegardedasanaberrantform,suretobeeliminatedsoonerorlaterinthefurthercourseofdevelopment.Thequasi-peaceablegentlemanofleisure,then,notonlyconsumesofthestaffoflifebeyondtheminimumrequiredforsubsistenceandphysicalefficiency,buthisconsumptionalsounder-goesaspecialisationasregardsthequalityofthegoodsconsumed.Heconsumesfreelyandofthebest,infood,drink,narcotics,shelter,services,ornaments,apparel,weaponsandaccou-trements,amusements,amulets,andidolsordivinities.Intheprocessofgradualameliorationwhichtakesplaceinthearticlesofhisconsumption,themotiveprincipleandproximateaimofinnovationisnodoubtthehigherefficiencyoftheimprovedandmoreelaborateproductsforpersonalcomfortandwell-being.Butthatdoesnotremainthesolepurposeoftheirconsump-tion.Thecanonofreputabilityisathandandseizesuponsuchinnovationsasare,accordingtoitsstandard,fittosurvive.Sincetheconsumptionofthesemoreexcellentgoodsisanevidenceofwealth,itbecomeshonorific;andconversely,thefailuretoconsumeinduequantityandqualitybecomesamarkofinferiorityanddemerit.Thisgrowthofpunctiliousdiscriminationastoqualitativeexcellenceineating,drinking,etc.presentlyaffectsnotonlythemanneroflife,butalsothetrainingandintellectualactivityofthegentlemanofleisure.Heisnolongersimplythesuccessful,aggressivemale–themanofstrength,resource,andintrepidity.Inordertoavoidstultificationhemustalsocultivatehistastes,foritnowbecomesincumbentonhimtodiscriminatewithsomenicetybetweenthenobleandtheignobleinconsumablegoods.Hebecomesaconnoisseurincreditableviandsofvariousdegreesofmerit,inmanlybeveragesandtrinkets,inseemlyapparelandarchitecture,inweapons,games,dancers,andthenarcotics.Thiscultivationofaestheticfacultyrequirestimeandapplication,andthedemandsmadeuponthegentlemaninthisdirectionthereforetendtochangehislifeofleisureintoamoreorlessarduousapplicationtothebusinessoflearninghowtolivealifeofostensibleleisureinabecomingway.Closelyrelatedtotherequirementthatthegentlemanmustconsumefreelyand 632InstitutionalEconomicsoftherightkindofgoods,thereistherequirementthathemustknowhowtoconsumetheminaseemlymanner.Hislifeofleisuremustbeconductedindueform.Hencearisegoodmannersinthewaypointedoutinanearlierchapter.High-bredmannersandwaysoflivingareitemsofconformitytothenormofconspicuousleisureandconspicuousconsumption.Conspicuousconsumptionofvaluablegoodsisameansofreputabilitytothegentlemanofleisure.Aswealthaccumulatesonhishands,hisownunaidedeffortwillnotavailtosuffi-cientlyputhisopulenceinevidencebythismethod.Theaidoffriendsandcompetitorsisthereforebroughtinbyresortingtothegivingofvaluablepresentsandexpensivefeastsandentertainments.Presentsandfeastshadprobablyanotheroriginthanthatofnaiveostentation,buttheyrequiredtheirutilityforthispurposeveryearly,andtheyhaveretainedthatcharactertothepresent;sothattheirutilityinthisrespecthasnowlongbeenthesubstantialgroundonwhichtheseusagesrest.Costlyentertainments,suchasthepotlatchortheball,arepeculiarlyadaptedtoservethisend.Thecompetitorwithwhomtheentertainerwishestoinstituteacomparisonis,bythismethod,madetoserveasameanstotheend.Heconsumesvicariouslyforhishostatthesametimethatheiswitnesstotheconsumptionofthatexcessofgoodthingswhichhishostisunabletodisposeofsingle-handed,andheisalsomadetowitnesshishost’sfacilityinetiquette.Inthegivingofcostlyentertainments,othermotivesofmoregenialkind,areofcoursealsopresent.Thecustomoffestivegatheringsprobablyoriginatedinmotivesofconvivialityandreli-gion;thesemotivesarealsopresentinthelaterdevelopment,buttheydonotcontinuetobethesolemotives.Thelatter-dayleisure-classfestivitiesandentertainmentsmaycontinueinsomeslightdegreetoservethereligiousneedandinahigherdegreetheneedsofrecreationandcon-viviality,buttheyalsoserveaninvidiouspurpose;andtheyserveitnonethelesseffectuallyforhavingacolorablenon-invidiousgroundinthesemoreavowablemotives.Buttheeconomiceffectofthesesocialamenitiesisnotthereforelessened,eitherinthevicariousconsumptionofgoodsorintheexhibitionofdifficultandcostlyachievementsinetiquette.Aswealthaccumulates,theleisureclassdevelopsfurtherinfunctionandstructure,andtherearisesadifferentiationwithintheclass.Thereisamoreorlesselaboratesystemofrankandgrades.Thisdifferentiationisfurtheredbytheinheritanceofwealthandtheconsequentinheri-tanceofgentility.Withtheinheritanceofgentilitygoestheinheritanceofobligatoryleisure;andgentilityofasufficientpotencytoentailalifeofleisuremaybeinheritedwithoutthecomple-mentofwealthrequiredtomaintainadignifiedleisure.Gentlebloodmaybetransmittedwith-outgoodsenoughtoaffordareputablyfreeconsumptionatone’sease.Henceresultsaclassofimpecuniousgentlemenofleisure,incidentallyreferredtoalready.Thesehalf-castegentlemenofleisurefallintoasystemofhierarchicalgradations.Thosewhostandnearthehigherandthehighestgradesofthewealthyleisureclass,inpointofbirth,orinpointofwealth,orboth,out-ranktheremoter-bornandthepecuniarilyweaker.Theselowergrades,especiallytheimpecu-nious,ormarginal,gentlemenofleisure,affiliatethemselvesbyasystemofdependenceorfealtytothegreatones;bysodoingtheygainanincrementofrepute,orofthemeanswithwhichtoleadalifeofleisure,fromtheirpatron.Theybecomehiscourtiersorretainers,servants;andbeingfedandcountenancedbytheirpatrontheyareindicesofhisrankandvicariousconsumerofhissuperfluouswealth.Manyoftheseaffiliatedgentlemenofleisureareatthesametimelessermenofsubstanceintheirownright;sothatsomeofthemarescarcelyatall,othersonlypartially,toberatedasvicariousconsumers.Somanyofthem,however,asmakeuptheretainerandhangers-onofthepatronmaybeclassedasvicariousconsumerwithoutqualification.Manyoftheseagain,andalsomanyoftheotheraristocracyoflessdegree,haveinturnattachedtotheirpersonsamoreorlesscomprehensivegroupofvicariousconsumerinthepersonsoftheirwivesandchildren,theirservants,retainers,etc.Throughoutthisgraduatedschemeofvicariousleisureandvicariousconsumptiontheruleholdsthattheseofficesmustbeperformedinsomesuchmanner,orundersomesuchcircumstance Veblen:TheTheoryoftheLeisureClass633orinsignia,asshallpointplainlytothemastertowhomthisleisureorconsumptionpertains,andtowhomthereforetheresultingincrementofgoodreputeofrightinures.Theconsumptionandleisureexecutedbythesepersonsfortheirmasterorpatronrepresentsaninvestmentonhispartwithaviewtoanincreaseofgoodfame.Asregardsfeastsandlargessesthisisobviousenough,andtheimputationofreputetothehostorpatronheretakesplaceimmediately,onthegroundofcommonnotoriety.Whereleisureandconsumptionisperformedvicariouslybyhenchmenandretainers,imputationoftheresultingreputetothepatroniseffectedbytheirresidingnearhispersonsothatitmaybeplaintoallmenfromwhatsourcetheydraw.Asthegroupwhosegoodesteemistobesecuredinthiswaygrowslarger,morepatentmeansarerequiredtoindicatetheimputationofmeritfortheleisureperformed,andtothisenduniforms,badges,andliveriescomeintovogue.Thewearingofuniformsorliveriesimpliesaconsiderabledegreeofdependence,andmayevenbesaidtobeamarkofservitude,realorostensible.Thewearersofuniformsandliveriesmayberoughlydividedintotwoclasses–thefreeandtheservile,orthenobleandtheignoble.Theservicesperformedbythemarelikewisedivisibleintonobleandignoble.Ofcoursethedistinctionisnotobservedwithstrictconsistencyinpractice;thelessdebasingofthebaseservicesandthelesshonorificofthenoblefunctionsarenotinfrequentlymergedinthesameperson.Butthegeneraldistinctionisnotonthataccounttobeoverlooked.Whatmayaddsomeperplexityisthefactthatthisfundamen-taldistinctionbetweennobleandignoble,whichrestsonthenatureoftheostensibleserviceperformed,istraversedbyasecondarydistinctionintohonorificandhumiliating,restingontherankofthepersonforwhomtheserviceisperformedorwhoseliveryisworn.So,thoseofficeswhicharebyrighttheproperemploymentoftheleisureclassarenoble;suchasgovernment,fighting,hunting,thecareofarmsandaccoutrements,andthelike–inshort,thosewhichmaybeclassedasostensiblypredatoryemployments.Ontheotherhand,thoseemploy-mentswhichproperlyfalltotheindustriousclassareignoble;suchashandicraftorotherproductivelabour,menialservicesandthelike.Butabaseserviceperformedforapersonofveryhighdegreemaybecomeaveryhonorificoffice;asforinstancetheofficeofaMaidofHonororofaLadyinWaitingtotheQueen,ortheKing’sMasteroftheHorseorhisKeeperoftheHounds.Thetwoofficeslastnamedsuggestaprincipleofsomegeneralbearing.Whenever,asinthesecases,themenialserviceinquestionhastododirectlywiththeprimaryleisureemploymentsoffightingandhunting,iteasilyacquiresareflectedhonorificcharacter.Inthiswaygreathonormaycometoattachtoanemploymentwhichinitsownnaturebelongstothebasersort.Inthelaterdevelopmentofpeaceableindustry,theusageofemployinganidlecorpsofuniformedmen-at-armsgraduallylapses.Vicariousconsumptionbydependentsbearingtheinsigniaoftheirpatronormasternarrowsdowntoacorpsofliveriedmenials.Inaheighteneddegree,therefore,theliverycomestobeabadgeofservitude,orratherservility.Somethingofanhonorificcharacteralwaysattachedtotheliveryofthearmedretainer,butthishonorificcharac-terdisappearswhentheliverybecomestheexclusivebadgeofthemenial.Theliverybecomesobnoxioustonearlyallwhoarerequiredtowearit.Weareyetsolittleremovedfromastateofeffectiveslaveryasstilltobefullysensitivetothestingofanyimputationofservility.Thisantipathyassertsitselfeveninthecaseoftheliveriesoruniformswhichsomecorpora-tionsprescribeasthedistinctivedressoftheiremployees.Inthiscountrytheaversionevengoesthelengthofdiscrediting–inamildanduncertainway–thosegovernmentemployments,militaryandcivil,whichrequirethewearingofaliveryoruniform.Withthedisappearanceofservitude,thenumberofvicariousconsumersattachedtoanyonegentlemantends,onthewhole,todecrease.Thelikeisofcoursetrue,andperhapsinastillhigherdegree,ofthenumberofdependentswhoperformvicariousleisureforhim.Inageneralway,thoughnotwhollynorconsistently,thesetwogroupscoincide.Thedependentwhowasfirst 634InstitutionalEconomicsdelegatedforthesedutieswasthewife,orthechiefwife;and,aswouldbeexpected,inthelaterdevelopmentoftheinstitution,whenthenumberofpersonsbywhomthesedutiesarecustomarilyperformedgraduallynarrows,thewiferemainsthelast.Inthehighergradesofsocietyalargevol-umeofboththesekindsofserviceisrequired;andherethewifeisofcoursestillassistedintheworkbyamoreorlessnumerouscorpsofmenials.Butaswedescendthesocialscale,thepointispresentlyreachedwherethedutiesofvicariousleisureandconsumptiondevolveuponthewifealone.InthecommunitiesoftheWesternculture,thispointisatpresentfoundamongthelowermiddleclass.Andhereoccursacuriousinversion.Itisafactofcommonobservancethatinthislowermiddleclassthereisnopretenseofleisureonthepartoftheheadofthehousehold.Throughforceofcircumstancesithasfallenintodisuse.Butthemiddle-classwifestillcarriesonthebusi-nessofvicariousleisure,forthegoodnameofthehouseholdanditsmaster.Indescendingthesocialscaleinanymodernindustrialcommunity,theprimaryfact–theconspicuousleisureofthemasterofthehousehold–disappearsatarelativelyhighpoint.Theheadofthemiddle-classhouseholdhasbeenreducedbyeconomiccircumstancestoturnhishandtogainingalivelihoodbyoccupationswhichoftenpartakelargelyofthecharacterofindustry,asinthecaseoftheordinarybusinessmanoftoday.Butthederivativefact–thevicariousleisureandconsumptionrenderedbythewife,andtheauxiliaryvicariousperformanceofleisurebymenials–remainsinvogueasaconventionalitywhichthedemandsofreputabilitywillnotsuffertobeslighted.Itisbynomeansanuncommonspectacletofindamanapplyinghimselftoworkwiththeutmostassiduity,inorderthathiswifemayindueformrenderforhimthatdegreeofvicariousleisurewhichthecommonsenseofthetimedemands.Theleisurerenderedbythewifeinsuchcasesis,ofcourse,notasimplemanifestationofidle-nessorindolence.Italmostinvariablyoccursdisguisedundersomeformofworkorhouseholddutiesorsocialamenities,whichproveonanalysistoservelittleornoulteriorendbeyondshow-ingthatshedoesnotoccupyherselfwithanythingthatisgainfulorthatisofsubstantialuse.Ashasalreadybeennoticedundertheheadofmanners,thegreaterpartofthecustomaryroundofdomesticcarestowhichthemiddle-classhousewifegiveshertimeandeffortisofthischaracter.Notthattheresultsofherattentiontohouseholdmatters,ofadecorativeandmundificatorycharacter,arenotpleasingtothesenseofmentrainedinmiddle-classproprieties;butthetastetowhichtheseeffectsofhouseholdadornmentandtidinessappealisatastewhichhasbeenformedundertheselectiveguidanceofacanonofproprietythatdemandsjusttheseevidencesofwastedeffort.Theeffectsarepleasingtouschieflybecausewehavebeentaughttofindthempleasing.Theregoesintothesedomesticdutiesmuchsolicitudeforapropercombinationofformandcolour,andforotherendsthataretobeclassedasaestheticinthepropersenseoftheterm;anditisnotdeniedthateffectshavingsomesubstantialaestheticvaluearesometimesattained.Prettymuchallthatishereinsistedonisthat,asregardstheseamenitiesoflife,thehousewife’seffortsareundertheguidanceoftraditionsthathavebeenshapedbythelawofconspicuouslywastefulexpenditureoftimeandsubstance.Ifbeautyorcomfortisachieved–anditisamoreorlessfor-tuitouscircumstanceiftheyare–theymustbeachievedbymeansandmethodsthatcommendthemselvestothegreateconomiclawofwastedeffort.Themorereputable,‘presentable’portionofmiddle-classhouseholdparaphernaliaare,ontheonehand,itemsofconspicuousconsump-tion,andontheotherhand,apparatusforputtinginevidencethevicariousleisurerenderedbythehousewife.Therequirementofvicariousconsumptionatthehandsofthewifecontinuesinforceevenatalowerpointinthepecuniaryscalethantherequirementofvicariousleisure.Atapointbelowwhichlittleifanypretenseofwastedeffort,inceremonialcleannessandthelike,isobservable,andwherethereisassuredlynoconsciousattemptatostensibleleisure,decencystillrequiresthewifetoconsumesomegoodsconspicuouslyforthereputabilityofthehouseholdanditshead. Veblen:TheTheoryoftheLeisureClass635Sothat,asthelatter-dayoutcomeofthisevolutionofanarchaicinstitution,thewife,whowasattheoutsetthedrudgeandchatteloftheman,bothinfactandintheory–theproducerofgoodsforhimtoconsume–hasbecometheceremonialconsumerofgoodswhichheproduces.Butshestillquiteunmistakablyremainshischattelintheory;forthehabitualrenderingofvicariousleisureandconsumptionistheabidingmarkoftheunfreeservant.Thisvicariousconsumptionpractisedbythehouseholdofthemiddleandlowerclassescan-notbecountedasadirectexpressionoftheleisure-classschemeoflife,sincethehouseholdofthispecuniarygradedoesnotbelongwithintheleisureclass.Itisratherthattheleisure-classschemeoflifeherecomestoanexpressionatthesecondremove.Theleisureclassstandsattheheadofthesocialstructureinpointofreputability;anditsmanneroflifeanditsstandardsofworththereforeaffordthenormofreputabilityforthecommunity.Theobservanceofthesestandards,insomedegreeofapproximation,becomesincumbentuponallclasseslowerinthescale.Inmoderncivilisedcommunitiesthelinesofdemarcationbetweensocialclasseshavegrownvagueandtransient,andwhereverthishappensthenormofreputabilityimposedbytheupperclassextendsitscoerciveinfluencewithbutslighthindrancedownthroughthesocialstruc-turetotheloweststrata.Theresultisthatthemembersofeachstratumacceptastheiridealofdecencytheschemeoflifeinvogueinthenexthigherstratum,andbendtheirenergiestoliveuptothatideal.Onpainofforfeitingtheirgoodnameandtheirself-respectincaseoffailure,theymustconformtotheacceptedcode,atleastinappearance.Thebasisonwhichgoodreputeinanyhighlyorganisedindustrialcommunityultimatelyrestsispecuniarystrength;andthemeansofshowingpecuniarystrength,andsoofgainingorretain-ingagoodname,areleisureandaconspicuousconsumptionofgoods.Accordingly,bothofthesemethodsareinvogueasfardownthescaleasitremainspossible;andinthelowerstratainwhichthetwomethodsareemployed,bothofficesareingreatpartdelegatedtothewifeandchil-drenofthehousehold.Lowerstill,whereanydegreeofleisure,evenostensible,hasbecomeimpracticableforthewife,theconspicuousconsumptionofgoodsremainsandiscarriedonbythewifeandchildren.Themanofthehouseholdalsocandosomethinginthisdirection,andindeed,hecommonlydoes;butwithastilllowerdescentintothelevelsofindigence–alongthemarginoftheslums–theman,andpresentlyalsothechildren,virtuallyceasetoconsumevaluablegoodsforappearances,andthewomanremainsvirtuallythesoleexponentofthehousehold’specuniarydecency.Noclassofsociety,noteventhemostabjectlypoor,forgoesallcustomaryconspicuousconsumption.Thelastitemsofthiscategoryofconsumptionarenotgivenupexceptunderstressofthedirestnecessity.Verymuchofsqualouranddiscomfortwillbeenduredbeforethelasttrinketorthelastpretenseofpecuniarydecencyisputaway.Thereisnoclassandnocountrythathasyieldedsoabjectlybeforethepressureofphysicalwantastodenythemselvesallgratificationofthishigherorspiritualneed.Fromtheforegoingsurveyofthegrowthofconspicuousleisureandconsumption,itappearsthattheutilityofbothalikeforthepurposesofreputabilityliesintheelementofwastethatiscommontoboth.Intheonecaseitisawasteoftimeandeffort,intheotheritisawasteofgoods.Botharemethodsofdemonstratingthepossessionofwealth,andthetwoareconventionallyacceptedasequivalents.Thechoicebetweenthemisaquestionofadvertisingexpediencysimply,exceptsofarasitmaybeaffectedbyotherstandardsofpropriety,springingfromadifferentsource.Ongroundsofexpediencythepreferencemaybegiventotheoneortheotheratdifferentstagesoftheeconomicdevelopment.Thequestionis,whichofthetwometh-odswillmosteffectivelyreachthepersonswhoseconvictionsitisdesiredtoaffect.Usagehasansweredthisquestionindifferentwaysunderdifferentcircumstances.Solongasthecommunityorsocialgroupissmallenoughandcompactenoughtobeeffectuallyreachedbycommonnotorietyalonethatistosay,solongasthehumanenvironmenttowhichtheindividualisrequiredtoadapthimselfinrespectofreputabilityiscomprised 636InstitutionalEconomicswithinhissphereofpersonalacquaintanceandneighbourhoodgossip–solongtheonemethodisaboutaseffectiveastheother.Eachwillthereforeserveaboutequallywellduringtheearlierstagesofsocialgrowth.Butwhenthedifferentiationhasgonefartheranditbecomesnec-essarytoreachawiderhumanenvironment,consumptionbeginstoholdoverleisureasanordinarymeansofdecency.Thisisespeciallytrueduringthelater,peaceableeconomicstage.Themeansofcommunicationandthemobilityofthepopulationnowexposetheindividualtotheobservationofmanypersonswhohavenoothermeansofjudgingofhisreputabilitythanthedisplayofgoods(andperhapsofbreeding)whichheisabletomakewhileheisundertheirdirectobservation.Themodernorganisationofindustryworksinthesamedirectionalsobyanotherline.Theexigenciesofthemodernindustrialsystemfrequentlyplaceindividualsandhouseholdsinjuxta-positionbetweenwhomthereislittlecontactinanyothersensethanthatofjuxtaposition.One’sneighbours,mechanicallyspeaking,oftenaresociallynotone’sneighbours,orevenacquain-tances;andstilltheirtransientgoodopinionhasahighdegreeofutility.Theonlypracticablemeansofimpressingone’specuniaryabilityontheseunsympatheticobserversofone’severydaylifeisanunremittingdemonstrationofabilitytopay.Inthemoderncommunitythereisalsoamorefrequentattendanceatlargegatheringsofpeopletowhomone’severydaylifeisunknown;insuchplacesaschurches,theaters,ballrooms,hotels,parks,shops,andthelike.Inordertoimpressthesetransientobservers,andtoretainone’sself-complacencyundertheirobservation,thesignatureofone’specuniarystrengthshouldbewrittenincharacterswhichhewhorunsmayread.Itisevident,therefore,thatthepresenttrendofthedevelopmentisinthedirectionofheighteningtheutilityofconspicuousconsumptionascomparedwithleisure.Itisalsonoticeablethattheserviceabilityofconsumptionasameansofrepute,aswellastheinsistenceonitasanelementofdecency,isatitsbestinthoseportionsofthecommunitywherethehumancontactoftheindividualiswidestandthemobilityofthepopulationisgreatest.Conspicuousconsumptionclaimsarelativelylargerportionoftheincomeoftheurbanthanoftheruralpopulation,andtheclaimisalsomoreimperative.Theresultisthat,inordertokeepupadecentappearance,theformerhabituallylivehand-to-mouthtoagreaterextentthanthelatter.Soitcomes,forinstance,thattheAmericanfarmerandhiswifeanddaughtersarenotoriouslylessmodishintheirdress,aswellaslessurbaneintheirmanners,thanthecityartisan’sfamilywithanequalincome.Itisnotthatthecitypopulationisbynaturemuchmoreeagerforthepeculiarcomplacencythatcomesofaconspicuousconsumption,norhastheruralpopulationlessregardforpecuniarydecency.Buttheprovocationtothislineofevidence,aswellasitstran-sienteffectiveness,ismoredecidedinthecity.Thismethodisthereforemorereadilyresortedto,andinthestruggletooutdooneanotherthecitypopulationpushtheirnormalstandardofcon-spicuousconsumptiontoahigherpoint,withtheresultthatarelativelygreaterexpenditureinthisdirectionisrequiredtoindicateagivendegreeofpecuniarydecencyinthecity.Therequire-mentofconformitytothishigherconventionalstandardbecomesmandatory.Thestandardofdecencyishigher,classforclass,andthisrequirementofdecentappearancemustbeliveduptoonpainoflosingcaste.Consumptionbecomesalargerelementinthestandardoflivinginthecitythaninthecountry.AmongthecountrypopulationitsplaceistosomeextenttakenbysavingsandhomecomfortsknownthroughthemediumofneighbourhoodgossipsufficientlytoservethelikegeneralpurposeofPecuniaryrepute.Thesehomecomfortsandtheleisureindulgedin–wheretheindulgenceisfound–areofcoursealsoingreatparttobeclassedasitemsofconspicuousconsumption;andmuchthesameistobesaidofthesavings.Thesmalleramountofthesavingslaidbytheartisanclassisnodoubtdue,insomemeasure,tothefactthatinthecaseoftheartisanthesavingsarealesseffectivemeansofadvertisement,relativetotheenvironmentinwhichheisplaced,thanare Veblen:TheTheoryoftheLeisureClass637thesavingsofthepeoplelivingonfarmsandinthesmallvillages.Amongthelatter,everybody’saffairs,especiallyeverybody’specuniarystatus,areknowntoeverybodyelse.Consideredbyitselfsimply–takeninthefirstdegree–thisaddedprovocationtowhichtheartisanandtheurbanlabouringclassesareexposedmaynotveryseriouslydecreasetheamountofsavings;butinitscumulativeaction,throughraisingthestandardofdecentexpenditure,itsdeterrenteffectonthetendencytosavecannotbutbeverygreat.Afelicitousillustrationofthemannerinwhichthiscanonofreputabilityworksoutitsresultsisseeninthepracticeofdram-drinking,‘treating’,andsmokinginpublicplaces,whichiscus-tomaryamongthelabourersandhandicraftsmenofthetowns,andamongthelowermiddleclassoftheurbanpopulationgenerallyJourneymenprintersmaybenamedasaclassamongwhomthisformofconspicuousconsumptionhasagreatvogue,andamongwhomitcarrieswithitcertainwell-markedconsequencesthatareoftendeprecated.Thepeculiarhabitsoftheclassinthisrespectarecommonlysetdowntosomekindofanill-definedmoraldeficiencywithwhichthisclassiscredited,ortoamorallydeleteriousinfluencewhichtheiroccupationissupposedtoexert,insomeunascertainableway,uponthemenemployedinit.Thestateofthecaseforthemenwhoworkinthecompositionandpressroomsofthecommonrunofprinting-housesmaybesummedupasfollows.Skillacquiredinanyprinting-houseoranycityiseasilyturnedtoaccountinalmostanyotherhouseorcity;thatistosay,theinertiaduetospecialtrainingisslight.Also,thisoccupationrequiresmorethantheaverageofintelligenceandgeneralinformation,andthemenemployedinitarethereforeordinarilymorereadythanmanyotherstotakeadvantageofanyslightvariationinthedemandfortheirlabourfromoneplacetoanother.Theinertiaduetothehomefeelingisconsequentlyalsoslight.Atthesametimethewagesinthetradearehighenoughtomakemove-mentfromplacetoplacerelativelyeasy.Theresultisagreatmobilityofthelabouremployedinprinting;perhapsgreaterthaninanyotherequallywell-definedandconsiderablebodyofwork-men.Thesemenareconstantlythrownincontactwithnewgroupsofacquaintances,withwhomtherelationsestablishedaretransientorephemeral,butwhosegoodopinionisvaluednonethelessforthetimebeing.Thehumanproclivitytoostentation,reinforcedbysentimentsofgoodfellowship,leadsthemtospendfreelyinthosedirectionswhichwillbestservetheseneeds.Hereaselsewhereprescriptionseizesuponthecustomassoonasitgainsavogue,andincor-poratesitintheaccreditedstandardofdecency.Thenextstepistomakethisstandardofdecencythepointofdepartureforanewmoveinadvanceinthesamedirection–forthereisnomeritinsimplespiritlessconformitytoastandardofdissipationthatisliveduptoasamatterofcoursebyeveryoneinthetrade.Thegreaterprevalenceofdissipationamongprintersthanamongtheaverageofworkmenisaccordinglyattributable,atleastinsomemeasure,tothegreatereaseofmovementandthemoretransientcharacterofacquaintanceandhumancontactinthistrade.ButthesubstantialgroundofthishighrequirementindissipationisinthelastanalysisnootherthanthatsamepropensityforamanifestationofdominanceandpecuniarydecencywhichmakestheFrenchpeasant-proprietorparsimoniousandfrugal,andinducestheAmericanmillionairetofoundcolleges,hospitals,andmuseums.Ifthecanonofconspicuousconsumptionwerenotoffsettoaconsiderableextentbyotherfeaturesofhumannature,alientoit,anysavingshouldlogicallybeimpossibleforapopulationsituatedastheartisanandlabouringclassesofthecitiesareatpresent,howeverhightheirwagesortheirincomemightbe.Butthereareotherstandardsofreputeandother,moreorlessimperative,canonsofconduct,besideswealthanditsmanifestation,andsomeofthesecomeintoaccentuateortoqualifythebroad,fundamentalcanonofconspicuouswaste.Underthesimpletestofeffectivenessforadvertising,weshouldexpecttofindleisureandtheconspicuousconsumptionofgoodsdividingthefieldofpecuniaryemulationprettyevenlybetweenthemattheoutset.Leisuremightthenbe 638InstitutionalEconomicsexpectedgraduallytoyieldgroundandtendtoobsolescenceastheeconomicdevelopmentgoesforward,andthecommunityincreasesinsize;whiletheconspicuousconsumptionofgoodsshouldgraduallygaininimportance,bothabsolutelyandrelatively,untilithadabsorbedalltheavailableproduct,leavingnothingoverbeyondabarelivelihood.Buttheactualcourseofdevelop-menthasbeensomewhatdifferentfromthisidealscheme.Leisureheldthefirstplaceatthestart,andcametoholdarankverymuchabovewastefulconsumptionofgoods,bothasadirectexpo-nentofwealthandasanelementinthestandardofdecency,duringthequasi-peaceableculture.Fromthatpointonward,consumptionhasgainedground,until,atpresent,itunquestionablyholdstheprimacy,thoughitisstillfarfromabsorbingtheentiremarginofproductionabovethesubsistenceminimum.Theearlyascendencyofleisureasameansofreputabilityistraceabletothearchaicdistinc-tionbetweennobleandignobleemployments.Leisureishonorableandbecomesimperativepartlybecauseitshowsexemptionfromignoblelabour.Thearchaicdifferentiationintonobleandignobleclassesisbasedonaninvidiousdistinctionbetweenemploymentsashonorificordebasing;andthistraditionaldistinctiongrowsintoanimperativecanonofdecencyduringtheearlyquasi-peaceablestage.Itsascendencyisfurtheredbythefactthatleisureisstillfullyaseffectiveanevidenceofwealthasconsumption.Indeed,soeffectiveisitintherelativelysmallandstablehumanenvironmenttowhichtheindividualisexposedatthatculturalstage,that,withtheaidofthearchaictraditionwhichdep-recatesallproductivelabour,itgivesrisetoalargeimpecuniousleisureclass,anditeventendstolimittheproductionofthecommunity’sindustrytothesubsistenceminimum.Thisextremeinhibitionofindustryisavoidedbecauseslavelabour,workingunderacompulsionmorevigor-ousthanthatofreputability,isforcedtoturnoutaproductinexcessofthesubsistenceminimumoftheworkingclass.Thesubsequentrelativedeclineintheuseofconspicuousleisureasabasisofreputeisduepartlytoanincreasingrelativeeffectivenessofconsumptionasanevidenceofwealth;butinpartitistraceabletoanotherforce,alien,andinsomedegreeantagonistic,totheusageofconspicuouswaste.Thisalienfactoristheinstinctofworkmanship.Othercircumstancespermitting,thatinstinctdisposesmentolookwithfavouruponproductiveefficiencyandonwhateverisofhumanuse.Itdisposesthemtodepreciatewasteofsubstanceoreffort.Theinstinctofworkmanshipispresentinallmen,andassertsitselfevenunderveryadversecircumstances.Sothathoweverwastefulagivenexpendituremaybeinreality,itmustatleasthavesomecolourableexcuseinthewayofanostensiblepurpose.Themannerinwhich,underspecialcircumstances,theinstincteventuatesinatasteforexploitandaninvidiousdiscriminationbetweennobleandignobleclasseshasbeenindicatedinanearlierchapter.Insofarasitcomesintoconflictwiththelawofconspicuouswaste,theinstinctofworkmanshipexpressesitselfnotsomuchininsistenceonsub-stantialusefulnessasinanabidingsenseoftheodiousnessandaestheticimpossibilityofwhatisobviouslyfutile.Beingofthenatureofaninstinctiveaffection,itsguidancetoucheschieflyandimmediatelytheobviousandapparentviolationsofitsrequirements.Itisonlylesspromptlyandwithlessconstrainingforcethatitreachessuchsubstantialviolationsofitsrequirementsasareappreciatedonlyuponreflection.Solongasalllabourcontinuestobeperformedexclusivelyorusuallybyslaves,thebasenessofallproductiveeffortistooconstantlyanddeterrentlypresentinthemindofmentoallowtheinstinctofworkmanshipseriouslytotakeeffectinthedirectionofindustrialusefulness;butwhenthequasi-peaceablestage(withslaveryandstatus)passesintothepeaceablestageofindustry(withwagelabourandcashpayment)theinstinctcomesmoreeffectivelyintoplay.Itthenbeginsaggressivelytoshapemen’sviewsofwhatismeritorious,andassertsitselfatleastasanauxiliarycanonofself-complacency.Allextraneousconsiderationsapart,thosepersons(adult)arebut Veblen:TheTheoryoftheLeisureClass639avanishingminoritytodaywhoharbournoinclinationtotheaccomplishmentofsomeend,orwhoarenotimpelledoftheirownmotiontoshapesomeobjectorfactorrelationforhumanuse.Thepropensitymayinlargemeasurebeoverbornebythemoreimmediatelyconstrainingincen-tivetoareputableleisureandanavoidanceofindecoroususefulness,anditmaythereforeworkitselfoutinmake-believeonly;asforinstancein‘socialduties’,andinquasi-artisticorquasi-scholarlyaccomplishments,inthecareanddecorationofthehouse,insewing-circleactivityordressreform,inproficiencyatdress,cards,yachting,golf,andvarioussports.Butthefactthatitmayunderstressofcircumstanceseventuateininanitiesnomoredisprovesthepresenceoftheinstinctthantherealityofthebroodinginstinctisdisprovedbyinducingahentositonanestfulofchinaeggs.Thislatter-dayuneasyreaching-outforsomeformofpurposefulactivitythatshallatthesametimenotbeindecorouslyproductiveofeitherindividualorcollectivegainmarksadifferenceofattitudebetweenthemodernleisureclassandthatofthequasi-peaceablestage.Attheearlierstage,aswassaidabove,theall-dominatinginstitutionofslaveryandstatusactedresistlesslytodiscountenanceexertiondirectedtootherthannaivelypredatoryends.Itwasstillpossibletofindsomehabitualemploymentfortheinclinationtoactioninthewayofforcibleaggressionorrepressiondirectedagainsthostilegroupsoragainstthesubjectclasseswithinthegroup;andthissewedtorelievethepressureanddrawofftheenergyoftheleisureclasswithoutaresorttoactu-allyuseful,orevenostensiblyusefulemployments.Thepracticeofhuntingalsosewedthesamepurposeinsomedegree.Whenthecommunitydevelopedintoapeacefulindustrialorganisation,andwhenfulleroccupationofthelandhadreducedtheopportunitiesforthehunttoanincon-siderableresidue,thepressureofenergyseekingpurposefulemploymentwaslefttofindanoutletinsomeotherdirection.Theignominywhichattachestousefuleffortalsoentereduponalessacutephasewiththedisappearanceofcompulsorylabour;andtheinstinctofworkmanshipthencametoassertitselfwithmorepersistenceandconsistency.Thelineofleastresistancehaschangedinsomemeasure,andtheenergywhichformerlyfoundaventinpredatoryactivity,nowinparttakesthedirectionofsomeostensiblyusefulend.Ostensiblypurposelessleisurehascometobedeprecated,especiallyamongthatlargeportionoftheleisureclasswhoseplebeianoriginactstosetthematvariancewiththetraditionoftheotiumcumdignitate.Butthatcanonofreputabilitywhichdiscountenancesallemploymentthatisofthenatureofproductiveeffortisstillathand,andwillpermitnothingbeyondthemosttransientvoguetoanyemploymentthatissubstantiallyusefulorproductive.Theconsequenceisthatachangehasbeenwroughtintheconspicuousleisurepracticedbytheleisureclass;notsomuchinsubstanceasinform.Areconciliationbetweenthetwoconflictingrequirementsiseffectedbyaresorttomake-believe.Manyandintricatepoliteobservancesandsocialdutiesofaceremonialnaturearedeveloped;manyorganisationsarefounded,withsomespeciousobjectofameliora-tionembodiedintheirofficialstyleandtitle;thereismuchcomingandgoing,andadealoftalk,totheendthatthetalkersmaynothaveoccasiontoreflectonwhatistheeffectualeconomicvalueoftheirtraffic.Andalongwiththemake-believeofpurposefulemployment,andwoveninextricablyintoitstexture,thereiscommonly,ifnotinvariably,amoreorlessappreciableelementofpurposefuleffortdirectedtosomeseriousend.Inthenarrowersphereofvicariousleisureasimilarchangehasgoneforward.Insteadofsim-plypassinghertimeinvisibleidleness,asinthebestdaysofthepatriarchalregime,thehousewifeoftheadvancedpeaceablestageappliesherselfassiduouslytohouseholdcares.Thesalientfeaturesofthisdevelopmentofdomesticservicehavealreadybeenindicated.Throughouttheentireevolutionofconspicuousexpenditure,whetherofgoodsorofservicesorhumanlife,runstheobviousimplicationthatinordertoeffectuallymendtheconsumer’sgoodfameitmustbeanexpenditureofsuperfluities.Inordertobereputableitmustbewasteful.Nomeritwouldaccruefromtheconsumptionofthebarenecessariesoflife,exceptbycomparison 640InstitutionalEconomicswiththeabjectlypoorwhofallshortevenofthesubsistenceminimum;andnostandardofexpenditurecouldresultfromsuchacomparison,exceptthemostprosaicandunattractivelevelofdecency.Astandardoflifewouldstillbepossiblewhichshouldadmitofinvidiouscomparisoninotherrespectsthanthatofopulence;as,forinstance,acomparisoninvariousdirectionsinthemanifestationofmoral,physical,intellectual,oraestheticforce.Comparisoninallthesedirec-tionsisinvoguetoday;andthecomparisonmadeintheserespectsiscommonlysoinextricablyboundupwiththepecuniarycomparisonastobescarcelydistinguishablefromthelatter.Thisisespeciallytrueasregardsthecurrentratingofexpressionsofintellectualandaestheticforceorproficiency;sothatwefrequentlyinterpretasaestheticorintellectualadifferencewhichinsubstanceispecuniaryonly.Theuseoftheterm‘waste’isinonerespectanunfortunateone.Asusedinthespeechofeverydaylifethewordcarriesanundertoneofdeprecation.Itishereusedforwantofabettertermthatwilladequatelydescribethesamerangeofmotivesandofphenomena,anditisnottobetakeninanodioussense,asimplyinganillegitimateexpenditureofhumanproductsorofhumanlife.Intheviewofeconomictheorytheexpenditureinquestionisnomoreandnolesslegitimatethananyotherexpenditure.Itisherecalled‘waste’becausethisexpendituredoesnotservehumanlifeorhumanwell-beingonthewhole,notbecauseitiswasteormisdirectionofeffortorexpenditureasviewedfromthestandpointoftheindividualconsumerwhochoosesit.Ifhechoosesit,thatdisposesoffthequestionofitsrelativeutilitytohim,ascomparedwithotherformsofconsumptionthatwouldnotbedeprecatedonaccountoftheirwastefulness.Whateverformofexpendituretheconsumerchooses,orwhateverendheseeksinmakinghischoice,hasutilitytohimbyvirtueofhispreference.Asseenfromthepointofviewoftheindividualcon-sumer,thequestionofwastefulnessdoesnotarisewithinthescopeofeconomictheoryproper.Theuseoftheword‘waste’asatechnicalterm,therefore,impliesnodeprecationofthemotivesoroftheendssoughtbytheconsumerunderthiscanonofconspicuouswaste.Butitis,onothergrounds,worthnotingthattheterm‘waste’inthelanguageofeverydaylifeimpliesdeprecationofwhatischaracterisedaswasteful.Thiscommon-senseimplicationisitselfanoutcroppingoftheinstinctofworkmanship.Thepopularreprobationofwastegoestosaythatinordertobeatpeacewithhimselfthecommonmanmustbeabletoseeinanyandallhumaneffortandhumanenjoymentanenhancementoflifeandwell-beingonthewhole.Inordertomeetwithunqualifiedapproval,anyeconomicfactmustapproveitselfunderthetestofimpersonalusefulness–usefulnessasseenfromthepointofviewofthegenericallyhuman.Relativeorcompetitiveadvantageofoneindividualincomparisonwithanotherdoesnotsatisfytheeconomicconscience,andthereforecompetitiveexpenditurehasnottheapprovalofthisconscience.Instrictaccuracynothingshouldbeincludedundertheheadofconspicuouswastebutsuchexpenditureasisincurredonthegroundofaninvidiouspecuniarycomparison.Butinordertobringanygivenitemorelementunderthisheaditisnotnecessarythatitshouldberecognisedaswasteinthissensebythepersonincurringtheexpenditure.Itfrequentlyhappensthatanelementofthestandardoflivingwhichsetoutwithbeingprimarilywasteful,endswithbecoming,intheapprehensionoftheconsumer,anecessaryoflife;anditmayinthiswaybecomeasindispens-ableasanyotheritemoftheconsumer’shabitualexpenditure.Asitemswhichsometimesfallunderthishead,andarethereforeavailableasillustrationsofthemannerinwhichthisprincipleapplies,maybecitedcarpetsandtapestries,silvertableservice,waiter’sservices,silkhats,starchedlinen,manyarticlesofjewelryandofdress.Theindispensabilityofthesethingsafterthehabitandtheconventionhavebeenformed,however,haslittletosayintheclassificationofexpendi-turesaswasteornotwasteinthetechnicalmeaningoftheword.Thetesttowhichallexpendituremustbebroughtinanattempttodecidethatpointisthequestionwhetheritservesdirectlytoenhancehumanlifeonthewhole–whetheritfurthersthelifeprocesstakenimpersonally. Veblen:TheTheoryoftheLeisureClass641Forthisisthebasisofawardoftheinstinctofworkmanship,andthatinstinctisthecourtoffinalappealinanyquestionofeconomictruthoradequacy.Itisaquestionastotheawardrenderedbyadispassionatecommonsense.Thequestionis,therefore,notwhether,undertheexistingcircumstancesofindividualhabitandsocialcustom,agivenexpenditureconducestotheparticularconsumer’sgratificationorpeaceofmind;butwhether,asidefromacquiredtastesandfromthecanonsofusageandconventionaldecency,itsresultisanetgainincomfortorinthefullnessoflife.Customaryexpendituremustbeclassedundertheheadofwasteinsofarasthecustomonwhichitrestsistraceabletothehabitofmakinganinvidiouspecuniarycomparison–insofarasitisconceivedthatitcouldnothavebecomecustomaryandprescriptivewithoutthebackingofthisprincipleofpecuniaryreputabilityorrelativeeconomicsuccess.Itisobviouslynotnecessarythatagivenobjectofexpenditureshouldbeexclusivelywastefulinordertocomeinunderthecategoryofconspicuouswaste.Anarticlemaybeusefulandwaste-fulboth,anditsutilitytotheconsumermaybemadeupofuseandwasteinthemostvaryingproportions.Consumablegoods,andevenproductivegoods,generallyshowthetwoelementsincombination,asconstituentsoftheirutility;although,inageneralway,theelementofwastetendstopredominateinarticlesofconsumption,whilethecontraryistrueofarticlesdesignedforproductiveuse.Eveninarticleswhichappearatfirstglancetoserveforpureostentationonly,itisalwayspossibletodetectthepresenceofsome,atleastostensible,usefulpurpose;andontheotherhand,eveninspecialmachineryandtoolscontrivedforsomeparticularindustrialprocess,aswellasintherudestappliancesofhumanindustry,thetracesofconspicuouswaste,oratleastofthehabitofostentation,usuallybecomeevidentonaclosescrutiny.Itwouldbehazardoustoassertthatausefulpurposeiseverabsentfromtheutilityofanyarticleorofanyservice,how-ever,obviouslyitsprimepurposeandchiefelementisconspicuouswaste;anditwouldbeonlylesshazardoustoassertofanyprimarilyusefulproductthattheelementofwasteisinnowayconcernedinitsvalue,immediatelyorremotely.Chapterfive:ThepecuniarystandardoflivingForthegreatbodyofthepeopleinanymoderncommunity,theproximategroundofexpenditureinexcessofwhatisrequiredforphysicalcomfortisnotaconsciousefforttoexcelintheexpan-sivenessoftheirvisibleconsumption,somuchasitisadesiretoliveuptotheconventionalstandardofdecencyintheamountandgradeofgoodsconsumed.Thisdesireisnotguidedbyarigidlyinvariablestandard,whichmustbelivedupto,andbeyondwhichthereisnoincentivetogo.Thestandardisflexible;andespeciallyitisindefinitelyextensible,ifonlytimeisallowedforhabituationtoanyincreaseinpecuniaryabilityandforacquiringfacilityinthenewandlargerscaleofexpenditurethatfollowssuchanincrease.Itismuchmoredifficulttorecedefromascaleofexpenditureonceadoptedthanitistoextendtheaccustomedscaleinresponsetoanaccessionofwealth.Manyitemsofcustomaryexpenditureproveonanalysistobealmostpurelywasteful,andtheyarethereforehonorificonly,butaftertheyhaveoncebeenincorporatedintothescaleofdecentconsumption,andsohavebecomeanintegralpartofone’sschemeoflife,itisquiteashardtogiveuptheseasitistogiveupmanyitemsthatconducedirectlytoone’sphysicalcomfort,oreventhatmaybenecessarytolifeandhealth.Thatistosay,theconspicuouslywastefulhon-orificexpenditurethatconfersspiritualwell-beingmaybecomemoreindispensablethanmuchofthatexpenditurewhichministerstothe‘lower’wantsofphysicalwell-beingorsustenanceonly.Itisnotoriouslyjustasdifficulttorecedefroma‘high’standardoflivingasitistolowerastandardwhichisalreadyrelativelylow;althoughintheformercasethedifficultyisamoralone,whileinthelatteritmayinvolveamaterialdeductionfromthephysicalcomfortsoflife.Butwhileretrogressionisdifficult,afreshadvanceinconspicuousexpenditureisrelativelyeasy;indeed,ittakesplacealmostasamatterofcourse.Intherarecaseswhereitoccurs,afailureto 642InstitutionalEconomicsincreaseone’svisibleconsumptionwhenthemeansforanincreaseareathandisfeltinpopularapprehensiontocallforexplanation,andunworthymotivesofmiserlinessareimputedtothosewhofallshortinthisrespect.Apromptresponsetothestimulus,ontheotherhand,isacceptedasthenormaleffect.Thissuggeststhatthestandardofexpenditurewhichcommonlyguidesoureffortsisnottheaverage,ordinaryexpenditurealreadyachieved;itisanidealofconsumptionthatliesjustbeyondourreach,ortoreachwhichrequiressomestrain.Themotiveisemulation–thestimulusofaninvidiouscomparisonwhichpromptsustooutdothosewithwhomweareinthehabitofclassingourselves.Substantiallythesamepropositionisexpressedinthecommon-placeremarkthateachclassenviesandemulatestheclassnextaboveitinthesocialscale,whileitrarelycomparesitselfwiththosebeloworwiththosewhoareconsiderablyinadvance.Thatistosay,inotherwords,ourstandardofdecencyinexpenditure,asinotherendsofemulation,issetbytheusageofthosenextaboveusinreputability;until,inthisway,especiallyinanycom-munitywhereclassdistinctionsaresomewhatvague,allcanonsofreputabilityanddecency,andallstandardsofconsumption,aretracedbackbyinsensiblegradationstotheusagesandhabitsofthoughtofthehighestsocialandpecuniaryclass–thewealthyleisureclass.Itisforthisclasstodetermine,ingeneraloutline,whatschemeofLifethecommunityshallacceptasdecentorhonorific;anditistheirofficebypreceptandexampletosetforththisschemeofsocialsalvationinitshighest,idealform.Butthehigherleisureclasscanexercisethisquasi-sacerdotalofficeonlyundercertainmateriallimitations.Theclasscannotatdiscretioneffectasuddenrevolutionorreversalofthepopularhabitsofthoughtwithrespecttoanyoftheseceremonialrequirements.Ittakestimeforanychangetopermeatethemassandchangethehabitualattitudeofthepeople;andespeciallyittakestimetochangethehabitsofthoseclassesthataresociallymoreremotefromtheradiantbody.Theprocessisslowerwherethemobilityofthepopulationislessorwheretheintervalsbetweentheseveralclassesarewiderandmoreabrupt.Butiftimebeallowed,thescopeofthediscretionoftheleisureclassasregardsquestionsofformanddetailinthecommunity’sschemeoflifeislarge;whileasregardsthesubstantialprin-ciplesofreputability,thechangeswhichitcaneffectliewithinanarrowmarginoftolerance.Itsexampleandpreceptcarriestheforceofprescriptionforallclassesbelowit;butinworkingoutthepreceptswhicharehandeddownasgoverningtheformandmethodofreputability–inshapingtheusagesandthespiritualattitudeofthelowerclasses–thisauthoritativeprescriptionconstantlyworksundertheselectiveguidanceofthecanonofconspicuouswaste,temperedinvaryingdegreebytheinstinctofworkmanship.Tothosenormsistobeaddedanotherbroadprincipleofhumannature–thepredatoryanimus–whichinpointofgeneralityandofpsycho-logicalcontentliesbetweenthetwojustnamed.Theeffectofthelatterinshapingtheacceptedschemeoflifeisyettobediscussed.Thecanonofreputability,then,mustadaptitselftotheeconomiccircumstances,thetradi-tions,andthedegreeofspiritualmaturityoftheparticularclasswhoseschemeoflifeitistoreg-ulate.Itisespeciallytobenotedthathoweverhighitsauthorityandhowevertruetothefundamentalrequirementsofreputabilityitmayhavebeenatitsinception,aspecificformalobservancecanundernocircumstancesmaintainitselfinforceifwiththelapseoftimeoronitstransmissiontoalowerpecuniaryclassitisfoundtoruncountertotheultimategroundofdecencyamongcivilisedpeoples,namelyserviceabilityforthepurposeofaninvidiouscompari-soninpecuniarysuccess.Itisevidentthatthesecanonsofexpenditurehavemuchtosayindeterminingthestandardoflivingforanycommunityandforanyclass.Itisnolessevidentthatthestandardoflivingwhichprevailsatanytimeoratanygivensocialaltitudewillinitsturnhavemuchtosayastotheformswhichhonorificexpenditurewilltake,andastothedegreetowhichthis‘higher’needwilldom-inateapeople’sconsumption.Inthisrespectthecontrolexertedbytheacceptedstandardof Veblen:TheTheoryoftheLeisureClass643livingischieflyofanegativecharacter;itactsalmostsolelytopreventrecessionfromascaleofconspicuousexpenditurethathasoncebecomehabitual.Astandardoflivingisofthenatureofhabit.Itisanhabitualscaleandmethodofrespondingtogivenstimuli.Thedifficultyinthewayofrecedingfromanaccustomedstandardisthedifficultyofbreakingahabitthathasoncebeenformed.Therelativefacilitywithwhichanadvanceinthestandardismademeansthatthelifeprocessisaprocessofunfoldingactivityandthatitwillreadilyunfoldinanewdirectionwheneverandwherevertheresistancetoself-expressiondecreases.Butwhenthehabitofexpressionalongsuchagivenlineoflowresistancehasoncebeenformed,thedischargewillseektheaccustomedoutletevenafterachangehastakenplaceintheenvironmentwherebytheexternalresistancehasappreciablyrisen.Thatheightenedfacilityofexpressioninagivendirectionwhichiscalledhabitmayoffsetaconsider-ableincreaseintheresistanceofferedbyexternalcircumstancestotheunfoldingoflifeinthegivendirection.Asbetweenthevarioushabits,orhabitualmodesanddirectionsofexpression,whichgotomakeupanindividual’sstandardofliving,thereisanappreciabledifferenceinpointofpersistenceundercounteractingcircumstancesandinpointofthedegreeofimperativenesswithwhichthedischargeseeksagivendirection.Thatistosay,inthelanguageofcurrenteconomictheory,whilemenarereluctanttoretrenchtheirexpendituresinanydirection,theyaremorereluctanttoretrenchinsomedirectionsthaninothers;sothatwhileanyaccustomedconsumptionisreluctantlygivenup,therearecertainlinesofconsumptionwhicharegivenupwithrelativelyextremereluctance.Thearticlesorformsofconsumptiontowhichtheconsumerclingswiththegreatesttenacityarecommonlytheso-callednecessariesoflife,orthesubsistenceminimum.Thesubsistenceminimumisofcoursenotarigidlydeterminedallowanceofgoods,definiteandinvariableinkindandquantity;butforthepurposeinhanditmaybetakentocompriseacertain,moreorlessdefinite,aggregateofconsumptionrequiredforthemaintenanceoflife.Thisminimum,itmaybeassumed,isordinarilygivenuplastincaseofaprogressiveretrench-mentofexpenditure.Thatistosay,inageneralway,themostancientandingrainedofthehabitswhichgoverntheindividual’slife–thosehabitsthattouchhisexistenceasanorganism–arethemostpersistentandimperative.Beyondthesecomethehigherwants–later-formedhabitsoftheindividualortherace–inasomewhatirregularandbynomeansinvariablegrada-tion.Someofthesehigherwants,asforinstancethehabitualuseofcertainstimulants,ortheneedofsalvation(intheeschatologicalsense),orofgoodrepute,mayinsomecasestakeprecedenceofthelowerormoreelementarywants.Ingeneral,thelongerthehabituation,themoreunbrokenthehabit,andthemorenearlyitcoincideswithprevioushabitualformsofthelifeprocess,themorepersistentlywillthegivenhabitassertitself.Thehabitwillbestrongeriftheparticulartraitsofhumannaturewhichitsactioninvolves,ortheparticularaptitudesthatfindexerciseinit,aretraitsoraptitudesthatarealreadylargelyandprofoundlyconcernedinthelifeprocessorthatareintimatelyboundupwiththelifehistoryoftheparticularracialstock.Thevaryingdegreesofeasewithwhichdifferenthabitsareformedbydifferentpersons,aswellasthevaryingdegreesofreluctancewithwhichdifferenthabitsaregivenup,goestosaythattheformationofspecifichabitsisnotamatteroflengthofhabituationsimply.Inheritedaptitudesandtraitsoftemperamentcountforquiteasmuchaslengthofhabituationindecidingwhatrangeofhabitswillcometodominateanyindividual’sschemeoflife.Andtheprevalenttypeoftransmittedaptitudes,orinotherwordsthetypeoftemperamentbelongingtothedominantethnicelementinanycommunity,willgofartodecidewhatwillbethescopeandformofexpressionofthecommu-nity’shabituallifeprocess.Howgreatlythetransmittedidiosyncrasiesofaptitudemaycountinthewayofarapidanddefinitiveformationofhabitinindividualsisillustratedbytheextremefacilitywithwhichanall-dominatinghabitofalcoholismissometimesformed;orinthesimilarfacilityandthesimilarlyinevitableformationofahabitofdevoutobservancesinthecaseofpersonsgifted 644InstitutionalEconomicswithaspecialaptitudeinthatdirection.Muchthesamemeaningattachestothatpeculiarfacilityofhabituationtoaspecifichumanenvironmentthatiscalledromanticlove.Mendifferinrespectoftransmittedaptitudes,orinrespectoftherelativefacilitywithwhichtheyunfoldtheirlifeactivityinparticulardirections;andthehabitswhichcoincidewithorproceeduponarelativelystrongspecificaptitudeorarelativelygreatspecificfacilityofexpressionbecomeofgreatconsequencetotheman’swell-being.Thepartplayedbythiselementofapti-tudeindeterminingtherelativetenacityoftheseveralhabitswhichconstitutethestandardoflivinggoestoexplaintheextremereluctancewithwhichmengiveupanyhabitualexpenditureinthewayofconspicuousconsumption.Theaptitudesorpropensitiestowhichahabitofthiskindistobereferredasitsgroundarethoseaptitudeswhoseexerciseiscomprisedinemulation;andthepropensityforemulation–forinvidiouscomparison–isofancientgrowthandisapervadingtraitofhumannature.Itiseasilycalledintovigorousactivityinanynewform,anditassertsitselfwithgreatinsistenceunderanyformunderwhichithasoncefoundhabitualexpression.Whentheindividualhasonceformedthehabitofseekingexpressioninagivenlineofhonorificexpenditure–whenagivensetofstimulihavecometobehabituallyrespondedtoinactivityofagivenkindanddirectionundertheguidanceofthesealertanddeep-reachingpropensitiesofemulation–itiswithextremereluctancethatsuchanhabitualexpenditureisgivenup.Andontheotherhand,wheneveranaccessionofpecuniarystrengthputstheindividualinapositiontounfoldhislifeprocessinlargerscopeandwithadditionalreach,theancientpropensitiesoftheracewillassertthemselvesindeterminingthedirectionwhichthenewunfoldingoflifeistotake.Andthosepropensitieswhicharealreadyactivelyinthefieldundersomerelatedformofexpres-sion,whichareaidedbythepointedsuggestionsaffordedbyacurrentaccreditedschemeoflife,andfortheexerciseofwhichthematerialmeansandopportunitiesarereadilyavailable–thesewillespeciallyhavemuchtosayinshapingtheformanddirectioninwhichthenewaccessiontotheindividual’saggregateforcewillassertitself.Thatistosay,inconcreteterms,inanycommu-nitywhereconspicuousconsumptionisanelementoftheschemeoflife,anincreaseinanindi-vidual’sabilitytopayislikelytotaketheformofanexpenditureforsomeaccreditedlineofconspicuousconsumption.Withtheexceptionoftheinstinctofself-preservation,thepropensityforemulationisproba-blythestrongestandmostalertandpersistentoftheeconomicmotivesproper.Inanindustrialcommunitythispropensityforemulationexpressesitselfinpecuniaryemulation;andthis,sofarasregardstheWesterncivilisedcommunitiesofthepresent,isvirtuallyequivalenttosayingthatitexpressesitselfinsomeformofconspicuouswaste.Theneedofconspicuouswaste,therefore,standsreadytoabsorbanyincreaseinthecommunity’sindustrialefficiencyoroutputofgoods,afterthemostelementaryphysicalwantshavebeenprovidedfor.Wherethisresultdoesnotfollow,undermodernconditions,thereasonforthediscrepancyiscommonlytobesoughtinarateofincreaseintheindividual’swealthtoorapidforthehabitofexpendituretokeepabreastofit;oritmaybethattheindividualinquestiondeferstheconspicuousconsumptionoftheincrementtoalaterdate–ordinarilywithaviewtoheighteningthespectaculareffectoftheaggregateexpenditurecontemplated.Asincreasedindustrialefficiencymakesitpossibletoprocurethemeansoflivelihoodwithlesslabour,theenergiesoftheindustriousmembersofthecommunityarebenttothecompassingofahigherresultinconspicuousexpenditure,ratherthanslackenedtoamorecomfortablepace.Thestrainisnotlightenedasindustrialefficiencyincreasesandmakesalighterstrainpossible,buttheincrementofoutputisturnedtousetomeetthiswant,whichisindefinitelyexpandable,afterthemannercommonlyimputedineconomictheorytohigherorspiritualwants.ItisowingchieflytothepresenceofthiselementinthestandardoflivingthatJ.S.Millwasabletosaythat‘hithertoitisquestionableifallthemechanicalinventionsyetmadehavelightenedtheday’stoilofanyhumanbeing’.Theacceptedstandardofexpenditureinthecommunityorintheclassto Veblen:TheTheoryoftheLeisureClass645whichapersonbelongslargelydetermineswhathisstandardoflivingwillbe.Itdoesthisdirectlybycommendingitselftohiscommonsenseasrightandgood,throughhishabituallycontem-platingitandassimilatingtheschemeoflifeinwhichitbelongs;butitdoessoalsoindirectlythroughpopularinsistenceonconformitytotheacceptedscaleofexpenditureasamatterofpropriety,underpainofdisesteemandostracism.Toacceptandpracticethestandardoflivingwhichisinvogueisbothagreeableandexpedient,commonlytothepointofbeingindispensabletopersonalcomfortandtosuccessinlife.Thestandardoflivingofanyclass,sofarasconcernstheelementofconspicuouswaste,iscommonlyashighastheearningcapacityoftheclasswillpermit–withaconstanttendencytogohigher.Theeffectupontheseriousactivitiesofmenisthereforetodirectthemwithgreatsinglenessofpurposetothelargestpossibleacquisitionofwealth,andtodiscountenanceworkthatbringsnopecuniarygain.Atthesametimetheeffectonconsumptionistoconcentrateituponthelineswhicharemostpatenttotheobserverswhosegoodopinionissought;whiletheinclinationsandaptitudeswhoseexercisedoesnotinvolveahonorificexpenditureoftimeorsubstancetendtofallintoabeyancethroughdisuse.Throughthisdiscriminationinfavourofvisibleconsumptionithascomeaboutthatthedomesticlifeofmostclassesisrelativelyshabby,ascomparedwiththeéclatofthatovertportionoftheirlifethatiscarriedonbeforetheeyesofobservers.Asasecondaryconsequenceofthesamediscrimination,peoplehabituallyscreentheirprivatelifefromobservation.Sofarasconcernsthatportionoftheirconsumptionthatmaywithoutblamebecarriedoninsecret,theywithdrawfromallcontactwiththeirneighbours.Hence,theexclusivenessofpeople,asregardstheirdomesticlife,inmostoftheindustriallydevelopedcommunities;andhence,byremoterderivation,thehabitofprivacyandreservethatissolargeafeatureinthecodeofproprietiesofthebetterclassinallcommunities.Thelowbirthrateoftheclassesuponwhomtherequirementsofreputableexpenditurefallwithgreaturgencyislikewisetraceabletotheexi-genciesofastandardoflivingbasedonconspicuouswaste.Theconspicuousconsumption,andtheconsequentincreasedexpense,requiredinthereputablemaintenanceofachildisveryconsiderableandactsasapowerfuldeterrent.ItisprobablythemosteffectualoftheMalthusianprudentialchecks.Theeffectofthisfactorofthestandardofliving,bothinthewayofretrenchmentintheobscurerelementsofconsumptionthatgotophysicalcomfortandmaintenance,andalsointhepaucityorabsenceofchildren,isperhapsseenatitsbestamongtheclassesgiventoscholarlypursuits.Becauseofapresumedsuperiorityandscarcityofthegiftsandattainmentsthatchar-acterisetheirlife,theseclassesarebyconventionsubsumedunderahighersocialgradethantheirpecuniarygradeshouldwarrant.Thescaleofdecentexpenditureintheircaseispitchedcorre-spondinglyhigh,anditconsequentlyleavesanexceptionallynarrowmargindisposablefortheotherendsoflife.Byforceofcircumstances,theirhabitualsenseofwhatisgoodandrightinthesematters,aswellastheexpectationsofthecommunityinthewayofpecuniarydecencyamongthelearned,areexcessivelyhigh–asmeasuredbytheprevalentdegreeofopulenceandearningcapacityoftheclass,relativelytothenon-scholarlyclasseswhosesocialequalstheynominallyare.Inanymoderncommunitywherethereisnopriestlymonopolyoftheseoccupations,thepeopleofscholarlypursuitsareunavoidablythrownintocontactwithclassesthatarepecuniarilytheirsuperiors.Thehighstandardofpecuniarydecencyinforceamongthesesuperiorclassesistransfusedamongthescholarlyclasseswithbutlittlemitigationofitsrigour;andasaconsequencethereisnoclassofthecommunitythatspendsalargerproportionofitssubstanceinconspicuouswastethanthese. JOHNR.COMMONS(1862–1945)JohnR.CommonsreceivedhiseducationatOberlinCollegeandJohnsHopkinsUniversityandspentthemajorityofhiscareerasaprofessorattheUniversityofWisconsin,wherehewasafounderofwhatbecameknownasthe“Wisconsinschool”ofinstitutionaleconomics.Commonshad,asitwere,severalcareers.First,Commonsbecamethefirsthistorianandtheore-ticianofthelabormovementintheUnitedStates.Heenvisionedlaborunionsaslegitimatemeansofsecuringthelegitimateinterestsofworkersandbothlaborrelationslegislationandprotectivelaborlegislationasprovidinglegalprotectionforlaborinterestsinamannerparallelingtheprotectiongiventootherinterestsunderthenameofprivateproperty.Second,Commonsanalyzedtheevolutionoftheintroduction–overmanycenturies–,organi-zationandcontrolofthemoderneconomicsystem,exploringwhathecalledthelegalfoundationsofcapitalism.Hisanalysisencompassedamodelofinterpersonalrelationsspecifiedinquasi-legalterms;abehavioristictheoryofpsychology;theoriesofsocialcontrolandsocialchange;atheoryofthenature,formationandrolesoftheworkingrulesoflawandmorals;atheoryoflan-guageanditsroleinthesocialconstructionofreality,includingthesenseofcontinuityprovidedbyusingthesameterm–suchasfreedomandproperty–eventhoughitsrelevantsubstantivecon-tentchangedovertime;theoriesofsystemandinstitutionalorganization,especiallyofproperty,markets,governmentandbusinessfirms;atheoryofpowerstructureandatheoryofthelegal–economicnexus,includingatheoryofconflictresolution.Third,Commonswasinvolvedinaseriesofexperiments,bothdirectlyandthroughhisstu-dents,atbothstateandnationallevels,inwhichlegislationwascraftedandenactedtopromotehithertoneglectedinterests.Thesewereintheareasofpublicutilityregulation,workmen’scom-pensation,civilservicereform,controlofworkingconditionsandotherareasofprotectivelaborlegislation,unemploymentinsurance,socialsecurity,andsoon.Commonswasalsoactivelyinvolvedinmonetaryreformandantitrustenforcement.Fourth,Commonssoughttoextendhislegal–economicanalysisandtocombineitwithbothhisinterpretationofmainstreameconomicsandstillotherbodiesofknowledge,withtheobjectiveofproducingageneralinstitutional-economicstheory.Thiswashisleastsuccessfulactivity.Commonsessayon“InstitutionalEconomics,”reprintedhere,givesaconciseoverviewofwhathebelievedtheinstitutionalapproachtoeconomicanalysiscouldaddtoeconomictheory.ReferencesandfurtherreadingCommons,JohnR.(1924)LegalFoundationsofCapitalism,NewYork:Macmillan.——(1934)InstitutionalEconomics,NewYork:Macmillan.——(1950)TheEconomicsofCollectiveAction,Madison:UniversityofWisconsinPress.Harter,LafayetteG.(1962)JohnR.Commons:HisAssaultonLaissez-Faire,Corvallis:OregonStateUniversityPress. JohnR.Commons647Mitchell,WesleyC.(1935)“CommonsonInstitutionalEconomics,”AmericanEconomicReview25(December):635–52.Rutherford,Malcolm(1983)“JohnR.Commons’sInstitutionalEconomics,”JournalofEconomicIssues17(September):721–44.Samuels,WarrenJ.(1987)“Commons,JohnRogers,”inJohnEatwell,MurrayMilgate,andPeterNewman(eds),TheNewPalgrave:ADictionaryofEconomics,Vol.1,London:Macmillan,506–507. “InstitutionalEconomics”(1931)*Aninstitutionisdefinedascollectiveactionincontrol,liberationandexpansionofindividualaction.Itsformsareunorganizedcustomandorganizedgoingconcerns.Theindividualactionisparticipationinbargaining,managingandrationingtransactions,whicharetheultimateunitsofeconomicactivity.Thecontrolbycustomorconcernsconsistsinworkingruleswhichgovernmoreorlesswhattheindividualcan,must,ormaydoornotdo.Thesearechoices,resolvedintoperformance,forbearanceoravoidancewhileparticipatingintransactions.TheworkingruleoftheSupremeCourtisdueprocessoflaw.Theuniversalprinciples,thatis,similaritiesofcause,effect,orpurpose,discoverableinalltransactions,arescarcity,efficiency,futurity,workingrulesandlimitingfactorsundervolitionalcontrol.Theserevealthemselvesinanegotiational,orbehavioristic,psychologyofpersuasionandcoercioninbargainingtransactions,commandandobedienceinmanagerialtransactions,argumentandpleadinginrationingtransactions.Transactionsdeterminelegalcontrol,whiletheclassicalandhedoniceconomicswascon-cernedwithphysicalcontrol.Legalcontrolisfuturephysicalcontrol.Thethreesocialrelationsimplicitintransactionsareconflict,dependenceandorder.Socialphilosophiesdiffereconomi-callyaccordingtothekindoftransactionswhichtheyplaceuppermost.Thedifficultyindefiningafieldfortheso-calledinstitutionaleconomicsistheuncertaintyofmeaningofaninstitution.Sometimesaninstitutionseemstomeanaframeworkoflawsornaturalrightswithinwhichindividualsactlikeinmates.Sometimesitseemstomeanthebehavioroftheinmatesthemselves.Sometimesanythingadditionaltoorcriticaloftheclassicalorhedoniceconomicsisdeemedtobeinstitutional.Sometimesanythingthatis“economicbehavior”isinstitu-tional.Sometimesanythingthatis“dynamic”insteadof“static,”ora“process”insteadofcom-modities,oractivityinsteadoffeelings,ormassactioninsteadofindividualaction,ormanagementinsteadofequilibrium,orcontrolinsteadoflaissezfaire,seemstobeinstitutionaleconomics.Allofthesenotionsaredoubtlessinvolvedininstitutionaleconomics,buttheymaybesaidtobemetaphorsordescriptions,whereasascienceofeconomicbehaviorrequiresanalysisintosimi-laritiesofcause,effectorpurpose,andasynthesisinaunifiedsystemofprinciples.Andinstitu-tionaleconomics,furthermore,cannotseparateitselffromthemarvellousdiscoveriesandinsightoftheclassicalandpsychologicaleconomists.Itshouldincorporate,however,inaddition,theequallyimportantinsightofthecommunistic,anarchistic,syndicalistic,fascistic,cooperativeandunionisticeconomists.Doubtlessitistheefforttocoverbyenumerationalloftheseuncoordi-natedactivitiesofthevariousschoolswhichgivestothenameinstitutionaleconomicsthatrepu-tationofamiscellaneous,nondescriptyetmerelydescriptive,characterofso-called“economicbehavior,”whichhaslongsincerelegatedthecrudeHistoricalSchool.*AmericanEconomicReview21(December1931),pp.648–57. Commons:“InstitutionalEconomics”649Ifweendeavortofindauniversalcircumstance,commontoallbehaviorknownasinstitutional,wemaydefineaninstitutionascollectiveactionincontrol,liberationandexpansionofindividualaction.Collectiveactionrangesallthewayfromunorganizedcustomtothemanyorganizedgoingconcerns,suchasthefamily,thecorporation,thetradeassociation,thetradeunion,thereservesystem,thestate.Theprinciplecommontoallofthemisgreaterorlesscontrol,liberationandexpansionofindividualactionbycollectiveaction.Thiscontroloftheactsofoneindividualalwaysresultsin,andisintendedtoresultin,againorlosstoanotherorotherindividuals.Ifitbetheenforcementofacontract,thenthedebtisexactlyequaltothecreditcreatedforthebenefitoftheotherperson.Adebtisadutyenforcedcollectively,whilethecreditisacorrespondingrightcreatedbycreatingtheduty.Theresultingsocialrelationisaneconomicstatus,consistingoftheexpectationstowardswhicheachpartyisdirectinghiseconomicbehavior.Onthedebtanddutysideitisthestatusofconformitytocol-lectiveaction.Onthecreditandrightsideitisastatusofsecuritycreatedbytheexpectationofthesaidconformity.Thisisknownas“incorporeal”property.Or,thecollectivecontroltakestheformofatabuorprohibitionofcertainacts,suchasactsofinterference,infringement,trespass;andthisprohibitioncreatesaneconomicstatusoflibertyforthepersonthusmadeimmune.Butthelibertyofonepersonmaybeaccompaniedbyprospec-tivegainorlosstoacorrelativeperson,andtheeconomicstatusthuscreatedisexposuretothelibertyoftheother.Anemployerisexposedtothelibertyoftheemployeetoworkornottowork,andtheemployeeisexposedtothelibertyoftheemployertohireorfire.Thetypicalcaseoflibertyandexposureisthegoodwillofabusiness.Thisiscomingtobedistinguishedas“intangible”property.Eitherthestate,oracorporation,oracartel,oraholdingcompany,oracooperativeassociation,oratradeunion,oranemployers’association,oratradeassociation,orajointtradeagreementoftwoassociations,orastockexchange,oraboardoftrade,maylaydownandenforcetheruleswhichdetermineforindividualsthisbundleofcorrelativeandreciprocaleconomicrelationships.Indeed,thesecollectiveactsofeconomicorganizationsareattimesmorepowerfulthanthecollec-tiveactionofthepoliticalconcern,thestate.Statedinthelanguageofethicsandlaw,tobedevelopedbelow,allcollectiveactsestablishrelationsofrights,duties,norightsandnoduties.Statedinthelanguageofindividualbehavior,whattheyrequireisperformance,avoidance,forbearancebyindividuals.Statedinthelanguageoftheresultingeconomicstatusofindividuals,whattheyprovideissecurity,conformity,libertyandexposure.Statedinlanguageofcause,effectorpurpose,thecommonprinciplesrunningthroughallofthemaretheprinciplesofscarcity,efficiency,futurity,theworkingrulesofcollec-tiveactionandthelimitingandcomplementaryfactorsofeconomictheory.Statedinlanguageoftheoperationofworkingrulesonindividualaction,theyareexpressedbytheauxiliaryverbsofwhattheindividualcan,cannot,must,mustnot,mayormaynotdo.He“can”or“cannot,”becausecollectiveactionwillorwillnotcompelhim.He“may,”becausecollectiveactionwillpermithimandprotecthim.He“maynot,”becausecollectiveactionwillpreventhim.Itisbecauseofthesevolitionalauxiliaryverbsthatthefamiliarterm“workingrules”isappro-priatetoindicatetheuniversalprinciplesofcause,effectorpurpose,commontoallcollectiveaction.Workingrulesarecontinuallychanginginthehistoryofaninstitution,andtheydifferfordifferentinstitutions;but,whatevertheirdifferences,theyhavethissimilaritythattheyindicatewhatindividualscan,must,ornay,doornotdo,enforcedbycollectivesanctions.Analysisofthesecollectivesanctionsfurnishesthatcorrelationofeconomics,jurisprudenceandethicswhichisprerequisitetoatheoryofinstitutionaleconomics.DavidHumefoundtheunityofthesethreesocialsciencesintheprincipleofscarcityandtheresultingconflictofinter-est,contrarytoAdamSmithwhoisolatedeconomicsfromtheothersonassumptionsofdivine 650InstitutionalEconomicsprovidence,earthlyabundanceandtheresultingharmonyofinterest.InstitutionaleconomicsgoesbacktoHume.TakingourcuefromHumeandthemodernuseofsuchatermas“businessethics,”ethicsdealswiththerulesofconductarisingfromconflictofinterests,arising,inturn,fromscarcityandenforcedbythemoralsanctionsofcollectiveopinion;buteconomicsdealswiththesamerulesofconductenforcedbythecollectiveeconomicsanctionsofviolence.Institutionaleconomicsiscontinuallydealingwiththerelativemeritsandefficiencyofthesethreetypesofsanctions.Fromthisuniversalprincipleofcollectiveactionincontrol,liberationandexpansionofindi-vidualactionarisenotonlytheethicalconceptsofrightsanddutiesandtheeconomicconceptsofsecurity,conformity,libertyandexposure,butalsoofassetsandliabilities.Infact,itisfromthefieldofcorporationfinance,withitschangeableassetsandliabilities,ratherthanfromthefieldofwantsandlabor,orpainsandpleasures,orwealthandhappiness,orutilityanddisutility,thatinstitutionaleconomicsderivesalargepartofitsdataandmethodology.Institutionaleconomicsistheassetsandliabilitiesofconcerns,contrastedwithAdamSmith’sWealthofNations.Butcollectiveactionisevenmoreuniversalintheunorganizedfromofcustomthanitisintheorganizedformofconcerns.Customhasnotgivenwaytofreecontractandcompetition,aswasassertedbySirHenryMaine.Customshavemerelychangedwithchangesineconomiccondi-tions,andtheymaytodaybeevenmoremandatorythanthedecreesofadictator,whoperforceiscompelledtoconformtothem.Thebusinessmanwhorefusesorisunabletomakeuseofthemoderncustomsofthecreditsystem,byrefusingtoacceptorissuechecksonsolventbanks,althoughtheyaremerelyprivatearrangementsandnotlegaltender,simplycannotcontinueinbusinessbycarryingontransactions.Theseinstrumentsarecustomarytender,insteadoflegaltender,backedbythepowerfulsanctionsofprofit,lossandcompetition,whichcompelconfor-mity.Othermandatorycustomsmightbementioned,suchascomingtoworkatseveno’clockandquittingatsix.Ifdisputesarise,thentheofficersofanorganizedconcern–acreditassociation,themanagerofacorporation,astockexchange,aboardoftrade,acommercialorlaborarbitrator,orfinallythecourtsoflawuptotheSupremeCourtoftheUnitedStates–reducethecustomtoprecisionbyaddinganorganizedsanction.Thisisthecommon-lawmethodofmakinglawbythedecisionofdisputes.Thedecisions,bybecomingprecedents,becometheworkingrules,forthetimebeing,oftheparticularorganizedconcern.Thehistoric“commonlaw”ofAnglo-Americanjurisprudenceisonlyaspecialcaseoftheuniversalprinciplecommontoallconcernsthatsurvive,ofmakingnewlawbydecidingcon-flictsofinterest,andthusgivinggreaterprecisionandorganizedcompulsiontotheunorganizedworkingrulesofcustom.Thecommon-lawmethodisuniversalinallcollectiveaction,butthetechnical“common-law”ofthelawyersisabodyofdecisions.Inshort,thecommon-lawmethodisitselfacustom,withvariabilities,likeothercustoms.Itisthewaycollectiveactionactsonindividualactionintimeofconflict.Thuscollectiveactionismorethancontrolofindividualaction–itis,bytheveryactofcontrol,asindicatedbytheaforesaidauxiliaryverb,aliberationofindividualactionfromcoercion,duress,discrimination,orunfaircompetitionbyotherindividuals.Andcollectiveactionismorethancontrolandliberationofindividualaction–itisexpansionofthewilloftheindividualfarbeyondwhathecandobyhisownpunyacts.Theheadofagreatcorporationgivesorderswhoseobedience,enforcedbycollectiveaction,executeshiswillattheendsoftheearth.Thusaninstitutioniscollectiveactionincontrol,liberationandexpansionofindividualaction.Theseindividualactionsarereallytrans-actionsinsteadofeitherindividualbehaviororthe“exchange”ofcommodities.Itisthisshiftfromcommoditiesandindividualstotransactionsand Commons:“InstitutionalEconomics”651workingrulesofcollectiveactionthatmarksthetransitionfromtheclassicalandhedonicschoolstotheinstitutionalschoolsofeconomicthinking.Theshiftisachangeintheultimateunitofeco-nomicinvestigation.Theclassicandhedoniceconomists,withtheircommunisticandanarchisticoffshoots,foundedtheirtheoriesontherelationofmantonature,butinstitutionalismisarela-tionofmantoman.Thesmallestunitoftheclassiceconomistswasacommodityproducedbylabor.Thesmallestunitofthehedoniceconomistswasthesameorsimilarcommodityenjoyedbyultimateconsumers.Onewastheobjectiveside,theotherthesubjectiveside,ofthesamerelationbetweentheindividualandtheforcesofnature.Theoutcome,ineithercase,wasthematerialisticmetaphorofanautomaticequilibrium,analogoustothewavesoftheocean,butpersonifiedas“seekingtheirlevel.”Butthesmallestunitoftheinstitutionaleconomistsisaunitofactivity–atransaction,withitsparticipants.Transactionsintervenebetweenthelaboroftheclassiceconomistsandtheplea-suresofthehedoniceconomists,simplybecauseitissocietythatcontrolsaccesstotheforcesofnature,andtransactionsare,notthe“exchangeofcommodities,”butthealienationandacquisi-tion,betweenindividuals,oftherightsofpropertyandlibertycreatedbysociety,whichmustthereforebenegotiatedbetweenthepartiesconcernedbeforelaborcanproduce,orconsumerscanconsume,orcommoditiesbephysicallyexchanged.Transactions,asderivedfromastudyofeconomictheoriesandofthedecisionsofcourts,maybereducedtothreeeconomicactivities,distinguishableasbargainingtransactions,managerialtransactionsandrationingtransactions.Theparticipantsineachofthemarecontrolledandlib-eratedbytheworkingrulesoftheparticulartypeofmoral,economicorpoliticalconcerninquestion.Thebargainingtransactionderivesfromthefamiliarformulaofamarket,which,atthetimeofnegotiation,beforegoodsareexchanged,consistsofthebesttwobuyersandthebesttwosell-ersonthatmarket.Theothersarepotential.Outofthisformulaarisefourrelationsofpossibleconflictofinterest,onwhichthedecisionsofcourtshavebuiltfourclassesofworkingrules.1Thetwobuyersarecompetitorsandthetwosellersarecompetitors,fromwhosecompetitionthecourts,guidedbycustom,haveconstructedthelonglineofrulesonfairandunfaircom-petition.2Oneofthebuyerswillbuyfromoneofthesellers,andoneofthesellerswillselltooneofthebuyers,and,outofthiseconomicchoiceofopportunities,bothcustomandthecourtshaveconstructedtherulesofequalorunequalopportunity,which,whenreducedtodecisionsofdisputes,becomethecollectiverulesofreasonableandunreasonablediscrimination.3Atthecloseofthenegotiations,oneofthesellers,byoperationoflaw,transferstitletooneofthebuyers,andoneofthebuyerstransferstitletomoneyoracreditinstrumenttooneofthesellers.Outofthisdoublealienationandacquisitionoftitlearisestheissueofequalityorinequalityofbargainingpower,whosedecisionscreatetherulesoffairandunfairprice,orreasonableandunreasonablevalue.4Buteventhedecisionsthemselvesonthesedisputes,orthelegislativeoradministrativerulesprescribedtoguidethedecisions,maybecalledinquestion,undertheAmericanSystem,byanappealtotheSupremeCourt,onthegroundthatpropertyorlibertyhasbeen“taken”bythegoverningorjudicialauthority“withoutdueprocessoflaw.”DueprocessoflawistheworkingruleoftheSupremeCourtforthetimebeing,whichchangeswithchangesincus-tomandclassdominance,orwithchangesinjudges,orchangesintheopinionsofjudges,orwithchangesinthecustomarymeaningsofpropertyandliberty.Hencethefoureconomicissuesarisingoutofthatunitofactivity,thebargainingtransaction,arecompetition,discrimination,economicpowerandworkingrules. 652InstitutionalEconomicsThehabitualassumptionbackofthedecisionsintheforegoingclassesofdisputesistheassumptionofequalityofwillingbuyersandwillingsellersinthebargainingtransactionsbywhichtheownershipofwealthistransferredbyoperationoflaw.Heretheuniversalprincipleisscarcity.Buttheassumptionbackofmanagerialtransactions,bywhichthewealthitselfisproduced,isthatofsuperiorandinferior.Heretheuniversalprincipleisefficiency,andtherelationisbetweentwoparties,insteadofthefourpartiesofthebargainingtransaction.Themaster,ormanager,orforeman,orotherexecutive,givesorders–theservantorworkmanorothersubordinatemustobey.Yetachangeinworkingrules,incourseoftime,asmodifiedbythenewcollectiveactionofcourtdecisions,maydistinguishbetweenreasonableandunreasonablecommands,willingandunwillingobedience.Finallytherationingtransactionsdifferfrommanagerialtransactionsinthatthesuperiorisacollectivesuperiorwhiletheinferiorsareindividuals.Familiarinstancesarethelog-rollingactiv-itiesofalegislatureinmattersoftaxationandtariff;thedecreesofcommunistorfascistdicta-torships;thebudget-makingofacorporateboardofdirectors;eventhedecisionsofacourtorarbitrator;allofwhichconsistinrationingeitherwealthorpurchasingpowertosubordinateswithoutbargaining,althoughthenegotiationsaresometimesmistakenforbargaining,andwith-outmanaging,whichislefttoexecutives.Theyinvolvenegotiation,indeed,butintheformofargument,pleading,oreloquence,becausetheycomeundertheruleofcommandandobedi-enceinsteadoftheruleofequalityandliberty.Ontheborderlinearepartnershipagreementswhichrationtothepartnersthebenefitsandburdensofajointenterprise.Theserationingtrans-actions,likewise,intheAmericansystem,aresubjectfinallytotheworkingrules(dueprocessoflaw)oftheSupremeCourt.Inallcaseswehavevariationsandhierarchiesoftheuniversalprincipleofcollectiveactioncontrolling,liberatingandexpandingindividualactioninalltheeconomictransactionsofbar-gaining,managingandrationing.Sinceinstitutionaleconomicsisbehavioristic,andthebehaviorinquestionisnoneotherthanthebehaviorofindividualswhileparticipatingintransactions,institutionaleconomicsmustmakeananalysisoftheeconomicbehaviorofindividuals.Thepeculiarqualityofthehumanwillinallitsactivities,distinguishingeconomicsfromthephysicalsciences,isthatofchoosingbetweenalternatives.Thechoicemaybevoluntary,oritmaybeaninvoluntarychoiceimposedbyanotherindividualorbycollectiveaction.Inanycasethechoiceisthewholemindandbodyinaction–thatis,thewill–whetheritbephysicalactionandreactionwithnature’sforces,ortheeconomicactivityofmutuallyinducingothersinthetransaction.Everychoice,onanalysis,turnsouttobeathree-dimensionalact,which,asmaybederivedfromtheissuesarisingindisputes,isatoneandthesametime,aperformance,anavoidance,andaforbearance.Performanceistheexerciseofpowerovernatureorothers;avoidanceisitsexer-ciseinonedirectionratherthanthenextavailabledirection;whileforbearanceistheexercise,notofthetotalpowerexceptatacrisis,buttheexerciseofalimiteddegreeofone’spossiblemoral,physicaloreconomicpower.Thusforbearanceisthelimitplacedonperformance;per-formanceistheactualperformance;andavoidanceisthealternativeperformancerejectedoravoided–allatoneandthesamepointoftime.Itisfromforbearancethatthedoctrineofreasonablenessarises,whileperformancemeanseitherrenderingaservice,compellingaservice,orpayingadebt,butavoidanceisnon-interferencewiththeperformance,forbearanceoravoidanceofothers.Eachmaybeadutyoraliberty,withacorrespondingrightorexposureofothers,andeachmaybeenforced,permitted,orlimitedbycollectiveactionaccordingtothethenworkingrulesoftheparticularconcern.Ifinstitutionaleconomicsisvolitionalitrequiresaninstitutionalpsychologytoaccompanyit.Thisisthepsychologyoftransactions,whichmayproperlybenamednegotiationalpsychology.Nearlyallhistoricpsychologiesareindividualistic,sincetheyareconcernedwiththerelationof Commons:“InstitutionalEconomics”653individualstonature,ortootherindividuals,treated,however,notascitizenswithrights,butasobjectsofnaturewithoutrightsorduties.ThisistrueallthewayfromLocke’scopypsychology,Berkeley’sidealisticpsychology,Hume’sskepticalpsychology,Bentham’spleasure–painpsychology,thehedonisticmarginalutilitypsychology,James’spragmatism,Watson’sbehaviorism,andtherecentGestaltpsychology.Allareindividualistic.OnlyDewey’sissocialistic.Butthepsychologyoftransactionsisthepsychologyofnegotiations.Eachparticipantisendeavoringtoinfluencetheothertowardsperformance,forbearanceoravoidance.Eachmodi-fiesthebehavioroftheotheringreaterorlessdegree.Thisisthepsychologyofbusiness,ofcustom,oflegislatures,ofcourts,oftradeassociations,oftradeunions.Inpopularlanguageitresolvesintothepersuasionsorcoercionsofbargainingtransactions,thecommandsandobedienceofmanagerialtransactions,ortheargumentsandpleadingsofrationingtransactions.Allofthesearenegotiationalpsychology.Itmaybeobservedthattheyareabehavioristicpsychology.Buttheseareonlynamesanddescriptions.Ascientificunderstandingofnegotiationalpsychologyresolvesitintothesmallestnumberofgeneralprinciples,thatis,similaritiesofcause,effectorpurpose,tobefoundinalltransactions,butinvaryingdegree.Firstisthepersonalityofparticipants,which,insteadoftheassumedequalityofeconomictheory,isallthedifferencesamongindividualsintheirpowersofinducementandtheirresponsestoinducementsandsanctions.Thenarethesimilaritiesanddifferencesofcircumstanceinwhichpersonalitiesareplaced.Firstisscarcityorabundanceofalternatives.Thisisinseparablefromefficiency,orthecapacitytobringeventstohappen.Inallcasesnegotiationsaredirectedtowardsfuturetime,theuniversalprincipleoffuturity.Workingrulesarealwaystakenintoaccount,sincetheyaretheexpectationsofwhattheparticipantscan,mustormaydoornotdo,ascontrolled,liberatedorexpandedbycollectiveaction.Then,ineachtransactionisalwaysalimitingfactorwhosecontrolbythesaga-ciousnegotiator,salesman,managerorpolitician,willdeterminetheoutcomeofcomplementaryfactorsintheimmediateorremotefuture.Thusnegotiationalpsychologyisthetransactionalpsychologywhichoffersinducementsandsanctionsaccordingtothevariablepersonalitiesandthepresentcircumstancesofscarcity,efficiency,expectation,workingrulesandlimitingfactors.Historicallythistransactionalpsychologymaybeseentohavechanged,andischangingcontinuously,sothatthewholephilosophiesofcapitalism,fascismorcommunismarevariabilitiesofit.Inthecommon-lawdecisionsitisthechangingdistinctionsbetweenpersuasionandcoercionorduress,persuasionbeingconsideredtheoutcomeofareasonablestatusofeitherequalityofopportunity,orfaircompetition,orequalityofbargainingpower,ordueprocessoflaw.Buteco-nomiccoercionandphysicalduressaredenialsoftheseeconomicideals,andnearlyeverycaseofeconomicconflictbecomesanassumptionorinvestigation,underitsowncircumstances,ofthenegotiationalpsychologyofpersuasionandcoercion.Eventhemanagerialandrationingnegotia-tionscomeunderthisruleofinstitutionalchange,forthepsychologyofcommandandobedienceischangedwithchangesinthestatusofconformity,security,libertyorexposure.Themodern“personnel”managementisanillustrationofthiskindofchangeinnegotiationalpsychology.Allofthisrestsonwhatmaybedistinguishedasthreesocialrelationsimplicitineverytransaction,therelationsofconflict,dependenceandorder.Thepartiesareinvolvedinaconflictofinterestsonaccountoftheuniversalprincipleofscarcity.Yettheydependoneachotherforreciprocalalienationandacquisitionofwhattheotherwantsbutdoesnotown.Thenthework-ingruleisnotaforeordainedharmonyofinterests,asassumedinthehypothesesofnaturalrightsormechanicalequilibriumoftheclassicalandhedonicschools,butitactuallycreates,outofconflictofinterests,aworkablemutualityandorderlyexpectationofpropertyandliberty.Thusconflict,dependenceandorderbecomethefieldofinstitutionaleconomics,builtupontheprinciplesofscarcity,efficiency,futurityandlimitingfactorsderivedfromtheolderschools,but 654InstitutionalEconomicscorrelatedunderthemodernnotionsofworkingrulesofcollectiveactioncontrolling,liberatingandexpandingindividualaction.Whatthenbecomesofthe“exchange”ofphysicalcommoditiesandtheproductionofwealth,aswellastheconsumptionofwealthandsatisfactionofwantsbyconsumers,whichfurnishedthestartingpointsoftheclassical,hedonic,communistandotherschoolsofeconomists?Theyaremerelytransferredtothefuture.Theybecomeexpectationsoftheimmediateorremotefuture,securedbythecollectiveaction,or“institution,”ofpropertyandliberty,andavailableonlyaftertheconclusionofatransaction.Transactionsarethemeans,underoperationoflawandcustom,ofacquiringandalienatinglegalcontrolofcommodities,orlegalcontrolofthelaborandman-agementthatwillproduceanddeliverorexchangethecommoditiesandservices,forwardtotheultimateconsumers.Institutionaleconomicsisnotdivorcedfromtheclassicalandpsychologicalschoolsofecono-mists–ittransferstheirtheoriestothefuturewhengoodswillbeproducedorconsumedorexchangedasanoutcomeofpresenttransactions.Thatfuturemaybetheengineeringeconom-icsofproductionoftheclassicaleconomistsorthehomeeconomicsofconsumptionofthehedoniceconomists,whichdependonphysicalcontrol.Butinstitutionaleconomicsislegalcontrolofcommoditiesandlabor,wheretheclassicalandhedonictheoriesdealtonlywithphysicalcon-trol.Legalcontrolisfuturephysicalcontrol.Futurephysicalcontrolisthefieldofengineeringandhomeeconomics.Thusitmaybeseenhowitwasthatthenaturalrightsideasoftheeconomistsandlawyerscre-atedtheillusionofaframework,supposedtobeconstructedinthepast,withinwhichpresentindividualsaresupposedtoact.Itwasbecausetheydidnotinvestigatecollectiveaction.Theyassumedthefixityofexistingrightsofpropertyandliberty.Butifrights,duties,libertiesandexposuresaresimplythechangeableworkingrulesofallkindsofcollectiveaction,lookingtowardsthefuture,thentheframeworkanalogydisappearsintheactualcollectiveactionofcon-trolling,liberatingandexpandingindividualactionfortheimmediateorremotefutureproduc-tion,exchange,andconsumptionofwealth.Consequentlythefinalsocialphilosophy,or“ism”–whichisusuallyabeliefregardinghumannatureanditsgoal–towardswhichinstitutionaleconomicstrendsisnotsomethingforeordainedbydivineornatural“right,”ormaterialisticequilibrium,or“lawsofnature”–itmaybecom-munism,fascism,capitalism.Ifmanagerialandrationingtransactionsarethestartingpointofthephilosophy,thentheendisthecommandandobedienceofcommunismorfascism.Ifbar-gainingtransactionsaretheunitsofinvestigationthenthetrendistowardstheequalityofoppor-tunity,thefaircompetition,theequalityofbargainingpower,andthedueprocessoflawofthephilosophyofliberalismandregulatedcapitalism.Buttheremaybealldegreesofcombination,forthethreekindsoftransactionsareinterdependentandvariableinaworldofcollectiveactionandperpetualchange,whichistheuncertainfutureworldofinstitutionaleconomics. IndexAbbeville169Appian151abstinence325–6,330,331,332;fromcapital327,apprenticeships81,172,206,405492;“Rewardof”542;withoutprofit329approbation184,185abundance86,237,250,251,653;capital116,117,Aquinas,StThomas3,16–17;SummaTheologica557;commodities301;gold/silver141;land18–29272,273;money87,88,89,90,91,242,288arbitrage468,469,474,541abusesofcivilsociety196arbitrarypower355Abyssinia330Arbuthnot,John151accounts76Aristotle2,3,16,366;NichomacheanEthics2,accumulationofcapital263,265,276,277,284,14–15;Politics2,4–13295–302,396–404,542arithmetic136acquisition528,615,616,617;artof8,9;army172objective535artisans82,85,93,142,636;distinctionsinfavourActofNavigation(1660)169of206;needsof98;slave81,83advantage22,332,339,343,346,537;commonarts108,142,145,148,579;improvementsin19;deprivedof25;extraordinary331;mutual288608;shared338;temporal29Asia216,295Africa139,216,295,564aspirations352agenda186Assyria1aggregates248,428Athens2,3,145–6,151agreementforcompensation27Attica145agriculture109,118,157,165,169,174–9,Augustine,St18,19,21,23,29199–200,252,300;improvementsin260;Australia377,516investmentin95;possibleencouragementsheldAustriandominions138outto206;theoryofdiminishingreturnsin257AustrianSchool409,411Alaska578authority354AlbertusMagnus,St16automaticity588alchemy21averages428Alexander,theGreat,kingofMacedonia3,41alienationtheory371Babylonia1allocation256;influencedbydistribution477Bacon,Roger45ambition12balanceofpayments317;favorable,policiesAmbrose,St20,21aimedatgenerating30America53,87,136,211,212,213,216–17,219,balanceoftrade35,40,43–4,89,572,607–8;242,284,295,351,355,428,509;seealsoUnitedunfavourable230,239;seealsoHume;MunStatesBalticpower321Amsterdam34,140,152,240,252bankdeposits565,566;confidenceinAnacharsistheScythian136578anarchism189,370,409bankers64,65Anglicans30banknotes227,241,558,574,583;circulationofAngoumois110223,225;country224,233,234;increasingtheanimals6,8,200,357;destructionof263,264;seeissueof580;temptationtoexchangeforguineasalsolivestock239annualadvances98,99,100BankofEngland220,224,225,226,228,231,Antoninus,Romanemperor94233–4,238–9,242–4,593ApollodorustheLemnian11bankruptcy93,94;securityagainst150 656Indexbanks135,136,148,149–50,232,233,557,558,capital:abstinencefrom327,492;abundanceof560;central588;circulatingnotes224;country116,117;advancesof107,115;allocationof227;private222256;augmentation277;circulating256,266–7,barbarians6,12,621,628;theoryoflife613269,270,271;constant372;defined325;barbarism253,277disposable283;emigrationof285;employmentBarbary147of108–9,110,112–13,117;formationof104,bargaining86,497,651–2,654264;growthof603;increaseof276,285;bargains76,160;determinedbycompetitioninexhaustible“productivepower”in542;314investmentof520;lawofdiminishingreturnstobarter9,69,70,86,159,160,161,286,287,288,481;lossof302;managing492;marginal337,430,576,577,578efficiencyof600,602,604;moneyconvertedBatavia140into381–5,394;moveable117;natureofBath193524–7;new112;overflowof350;preventingbeggars160populationfromincreasingfasterthan315;Belgium377productivenessof274,551;productivityof539;benevolence13,160,196,207profitson242,281,557–8;progressof350;Bentham,Jeremy131,180–2,208,312,333,413,quantityof314;redundancyof307;scarcity-499,592,593,598,602,653;AnarchicalFallaciesvalue604,605;stationarystateof351;stock188–91;IntroductiontothePrinciplesofMoralsand256;substitutingforlabour257;transferredLegislation183–5,419;ManualofPoliticalEconomy332;trueconceptionof527–8;unemployed186–7;PrinciplesoftheCivilCode192549;valueof237;variable372;seealsoBerkeley,George653accumulationofcapital;Böhm-Bawerk;fixedBerne151capital;MarxBible213,216capital-assets600,602billsofexchange39,223,224,226,228,229,238,capitalism370,371,374,544,653;devoteesof240,287,542;marketpriceof286595;enemiesof373;essentialcharacteristicofbimetallism574594;lawsofmotionof372,373;regulated654;Bithynia145rentieraspectof605BloomsburyGroup588capitalists305,310,326–7,329,545,547;bodilypleasures10accumulation403–4;actualhabitsofgeneralityofBöhm-Bawerk,Eugenvon411,522–3,562;The303;methods95;subjectivecircumstances546PositiveTheoryofCapital524–51Carlisle55bonds224,564–5carriagecosts337–40booty615,621Carthage140borrowers65,70,71,91–2,113,114,145cash91,92,223,227,228,229,244,576,580;borrowing64,66,68,228,234,511;demandforhard94;national139;running68;scarcityof141;difficultyof63228,229Bos,L’Abbédu148Cassiodorus22Bourbonnois110Casuists93–4bourgeoisie373,377,405;classicalapologiafor318catallactics491,492,496Brazil88,321,380Catholics30bribes26cattle104,105–6,160,165,624;dying109brigands8causes:andeffects144,183;instrumental28BritishAssociation415,560centralplanning370Brittany148certainty531,532,598Brussels376;GermanWorkers’Association377CharestheParian11Buchanan,James555charity201,365,542;Christian17bullion31,71,76,99,149,230,579,582;Charondas6controversy220;exports30;highpriceof231;chattels625,630seealsoRicardocheapness284,301,304,341,343,349;demandBurke,E.592inproportionto346,347,348;food30;Burma564increaseof344,345,348;labour147,149,201businesscycle370,372cheating18–24buyers68,87,228,249,394,545,651;cheatingchildren6,12,80,91;deathbefore17yearsof18–24;competitionof253;willing652age81–2;encouragingbirthof301,302;foodandattentionto202;legalinterventioninCadiz37favourof360;starving203California377,564China83,140,147canals284Chinese213,218Cantillon,Richard590;EssayontheNatureofChios12Commerce78–94Christianreligion16,213 Index657Chrysostom,StJohn22,23toquickensalesandkeepupprices249;Church16,17conspicuous627,629–41,644;current,Cincinnatus389capitalistabstainingfrom318;demandcirculatingpaper225sometimessynonymouswith320;diminishedcitizenship5,181283;diminishesdemand296;encouraging144,Clark,JohnMaurice609253;family313;foreignwares32–5,36,37;ClassicalSchool131–367immediate295,297,388;increased300,301,classstruggle371303,305,307;labour-power394;lawswhichclerics23regulate314;necessarytogiveproperstimulusclothing297,298,299toproduction308;preciousmetals242;coercion187,624,653;extra-legal354;marriageproductive389;serviceabilityofgoodsfor614;restingon613soleendandpurposeofproduction174;coin(s)/coinage10,26,49,136,139,243,567;substance26;surplusofproduceabove304;debased573;doubling573;exportof238,239,temporarydiminutionof300;tobacco451;241;gold240,560;raisingdenominationoftolerablyconstant81;unproductive496;value71–7;reducedpriceof232;renderedcheapof176;verygreat306;wasteful395;world”s230;silver24,250;“somethinginthestateof”509231;token565;useof9consumption-goods601Colbert,J.-B.95,174,175contractcurve477,490,492,493,494,495,500;Coleridge,SamuelTaylor333impure489;pure488,489collectiveaction609,649,650,652,654contracts18,74,75,93,139,142,191,485,583;collectivism181articlesof484,489,491,499;determinate492;colonization365indeterminate486,490,496,497;precedent73;Colorado578shouldbeentirelyfreefromdouble-dealing19comforts203,277,309,350,614,617,626,629,conveniences17,61,62,66,68,79641conventions189commensurability15Cooper,AnthonyAshley,1stEarlofShaftesbury57commerceseeCantillon;Humecopper72,74,86,90,140;coinsof87commodities378–81,435;acquiredutilityofCornLaws131,194,257436–7;consumable68;durable164;“eternalcostsofproduction17,294,305,316,317,337,laws”oftheexchangeof394;simplecirculation339,345,346–7,584,600;average514;of383;valueof384,385comparative340–1;defined331–2;determinescommodityprices227–8,229,234,465,467;supply439;governsvalue517;lowered343;componentpartsof161–3;establishmentofmoney518;prime519;real510,513;supply470–6limitedby331Commons,JohnR.609,610,646–7;“InstitutionalCottonStatisticsAct(1868)427Economics”648–54CouncilofTradeandPlantations(1673–74)57Commonwealth32,34,35,39,40counterfeitmoney74,136communism371,373,375,653,654;“voluntary”Courcelle-Seneuil,J.-G.439,490–1208Cournot,Augustin411,497communities5,8,366;villagesunitedin6courts17comparativecosts334craftsmen79–80;master83;slave82compensation136,149,223,226,230,323,568;credit64,67,92,560;book574;consumptionasconditionofloan26;forloss22,27545;long-term558;puresystemof558;seealsocompetition:bargainsdeterminedby314;buyersFisher;papercredit253;disturbing549;equal332;fair654;creditors65,67,92;debtorprosecutedby106;foreigners173;formationofpricein547;freenational306–7,310238,278,593;imperfect497,597,606;perfectCreekIndians252485,486,491,497,606Cromwell,Oliver45compulsorycontributions354cross-conjunction14Comte,August333cumulativecausation555conditionsofwork370currency:emergency583;paper239;redundantCondorcet,M.J.A.N.C.,Marquisde193,197241conformity623,627,649Customs44,166;revenue173consciousness483consistency184Daedalus7Consols434damnumemergens93conspicuouswaste638,640,645DariusIII,kingofPersia41consumption:adequatepassionfor299;annualDavenant,SirWilliam83175;average,andmarginalpropensity589;deathduties603balancebetweenproduceand311;briskenoughdeathrates194 658Indexdebts26,63,70,73,74,75,145,230,244;dominance637discouragingthegrowthof310;double342;Dublin136friendship27;national,diminutionof309Dupuit,Jules411decency618,620,622,629,637,640,641Dutchauction497decentralisation606Dutchtrade139decisionmaking181duties148,165,170;repeal171decorum622,623dynamics482defects20,21–2degreesofutility421,422,430,431,436–7,441;EastIndiaCompany30,312,333final422–3,437,438,439EastIndies34,36,38,139,152Delphi2economicalcalculus481,484–500demand249–53,319–20,321;absolute163;EconomicalTable178alterationsin323;borrowing141;deficiencyofeconomicgrowth256;keyroleplayedbydivision306;diminished296,300;equationsof469,oflabour154471,472;foreign343;generalwantof299;Economists,The177–8gold560;guineas239;individual465;lawsofEdgeworth,FrancisYsidro411,477–8,560,581,415,433,434;moneyasortofrepresentativeof588,597;MathematicalPsychics479–50015;powerfulandnecessaryelementofEdinburgh150,153,240,323increasing294;productionincreases296;education202,357,359,360;brokenoffearlyproportionbetweensupplyand261;prospective504–5435;supplylessthan228,229;total465;seealsoeffectivedemand300,301,304,311,464,465,effectivedemand;effectualdemand;466,474,476;deficient607;inadequate590;internationaldemand;labourdemandmadeupoftwoitems601;total475demand-curves492,494;collective495effectualdemand163,164,165,296,297,demandfunctions467,475298Demosthenes151efficiency325,479,507,509,631,653;accepteddepreciation233,239,240,241,243badgeof615;advantagesof606;industrialdepression174–5,559614,644;predatory616;preserving607;desires10,20,67,259;forsex208productive638;unequal349despotism367egoism119,499destitution364Egypt1,94,144;frugalityofmonarchs151determinism373electricity483Dewey,John653Ely,RichardT.609dialecticalprocess371emigration200diamonds380–1,425,455employment:deprivation171,172;indefiniteDifferentialCalculus485prospectof351;industrial361,624;lucrativedilettantism375143;natural168;separationofdifferenttradesDion144and157;sole158;statuteof39;wantof144;Dionysius12seealsofullemployment;Keynesdisadvantage19,340,507Enchiridion29disapprobation184,185encouragements187,199,206discount458,558endowments354,366disequilibrium589ends10disposableclass118energy479,482,488;invisible483disposingclass117,118Engels,Friedrich370,373,376distribution:allocationinfluencedby477;England30–44,237–8,285–7,337–49;Charitycommodityindifferentuses423–4;income372,Schools80;consumption89;economizingthe601,603;labour275,284;lawsof313;moneyuseofcirculatingmedium242;farmers428;205,560;occasionedbyunproductiveconsumerslandandlabour282–3;laws360;poorlaws302–11;preciousmetals288;trade580,581;204,205–6,207,214–15;population202,218;utilitarian480;wages314–15;seealsowealthpreciousmetals89;scarcity202–3;warswithdistributionFrance220dividedness485England,MinnieThroop583dividends593enjoyments10,12,304,450divinelaw19,24Enlightenment133,180divisionoflabour3,45,156–8,355,506,624,entrepreneurialactivity459,491,497,499,500,605628,629;better275;industrial547;keyroleinenvy615economicgrowth154;principlewhichgivesEpimenidestheCretan6occasionto159–61;takingadvantageof153equality14–15,15,188,652;justice19,20;Dodona2legislationfavouring351–2;ofopportunitydomesticservants85,90,91,627,628654;real20 Index659equationofexchange584,587;purchasingpowerFisher,Irving554,562–3;ThePurchasingPowerofofmoneyasrelatedto564–74andItsDeterminationandRelationtoCredit,Interestequilibrium:attained488,491;determinationofandCrises564–87485;general462,464,474;long-period502,fixedcapital173,256,266–71passim,512597;materialistic654;mathematicallyFlanders152determined462,480;mechanicalbalanceinFlorence36569;money289;nomarketeverlongfulfilsfood8–11passim,202;additionalquantityrequiredtheoreticalconditionsof434;normaldemand282;cheap30;common299;difficultyofandsupply509–21providingadditionalquantityof278;necessaryequity499;utilitarian500toexistence198;needfor451;priceof261,Eschwege,W.L.380275;scarcityof264;surplus297estates65–6force480,482,484,487;minimum483esteem615,618,622;popular616foreigners76,88,89,91,136,342;competitionofestimates19,75,77173;greatfundspossessedby152;publicethics370,481,482;utilitarianapproach119,negotiationsandtransactionswith149484foreignexchanges244Euclid567foreigntrade51,98,282–90,310,572;Europe199,216,330,509,594consumption166;restraintsupon178evil23,29,199,202,206,505fortunes89;amassing11exchange329–32;cointheunitof10;commonFrance34,37,80,83,87,95,100,137,145,146,measureof138;direct468;disadvantageous148,149,151,174,177–8,238,250,284,349;204;double251;economicalproblemof480;England’swarswith220;preciousmetals89equationsof465,466,469,583;fairandFranklin,B.213deliberate159;fallin230,231;increasein87;fraud20,21,22,44indirect468;international337–49;isolatedfreedom358,607;individual354;perfect199;543–5;measureof139;moneyinventedchieflypersonal370;political354forthepurposeof25;theoryof424–39,492;seefreepeasants82alsobillsofexchange;equationofexchange;FrenchRevolution102,196ratioofexchangefriendship18,41;basedonutility20exchangeablevalue163,167,249,259,260,264,Frisch,Ragnar562266,269,273,275;gold289;meansoffrugality142,143,145,151,203,206,253,325,increasing302–11;regulated274351exchangerates286,467,497;natural265fullemployment550,562,589,602,604;exchange-value378–9,380,384,393,539,540;aggregatevolumeofoutputcorrespondingtolabour-power394606;failuretoprovidefor603;netsavinginExchequer64605existence199;foodnecessaryto198futuregoods530,532,533,536,538,539,541,expectations531,597–8547;exchangeofpresentgoodsagainst/for542,expenditure:annual,excessive100;productive98,543;presentgoodsworthmorethan/equalin99,101;public278;sterile98,99,101valueto528,534;valuationof531exploitation398,402,405,407exports43,237,343;aggregate341;bullion30;gains65,143;greedfor23;outofmoney11diminished230;money36–8,238;rawproduceGalba,Romanemperor4198;waysandmeanstoincrease32–5GarcilassodelaVega144externaltrade99Gee,Joshua146extravagance300,302Geneva150Genoa34,36,149,152factorsofproduction456,510,528,597;systemgentleblood624–5,632seriouslymisemploys606GermanHistoricalSchools609FactoryActs360Germanicculture631fallacy197GermanNewGuinea564family6,7,8,313;dividedintoparts9Germany37,138,151,338–49,370,409famine277Gesell,S.606fascism653,654Gestaltpsychology653faults20–1gifts26favours82girls79felicity180,183Glasgow150,153FerdinandoI,GrandDukeofTuscany37,gluttony638God1,2,25,59,60,61;Lawsof47;relationshipfiduciarymoney565,566betweenmanand16;usesallsinforsomefisheries30good29 660Indexgods6,7;false29Hesiod2,6Godwin,William193,194,197,198,205,209;Anhiggling338,497EnquiryConcerningPoliticalJustice208,210,211;Hittiteempire1OfPopulation210–19hoarding104,107,138,150,151,152,384,385,gold53–4,222–3,559–60;abundanceof141;578,599;guineas225;paper226;propensitytocertificatesfor566;coinageof87,560,561;596–7,600,602demandfor560;durabilityof330;importanceHodgkins,Thomas208ofholdings30;internationalmovementof560;Holland80,119,149,171,177,240,285intrinsicvalueof67;mines88–9;mintpriceofHolstein177228,229,231,243–4;papermoneynevercanHolyoake,G.J.499exceedthevalueof224;papersupplyingtheHomer6placeof226;preventingitsuniversaldiffusionhonesty18,19andcirculation140;productionof578;quantityHouseofCommons181,235;SelectCommitteeoflabourrequiredtoobtainquantityof271;(BullionReport,1810)220scarcityof141,226,330;silvermorecommonhouseholdmanagement6–7,8,10–11than140;subjecttofluctuations260;tradeinHull323576;valueof68,262,289;seealsobullionHume,David134,197,242,649,650,653;goldstandard588PoliticalDiscourses:“OftheBalanceofTrade”good9,187;Godusesallsinforsome29;highest133,145–52;“OfInterest”133,140–5;“Of5;physicalandmoral367;positive302Money”133,135–40goodsseefuturegoods;presentgoodsHungary91,295Gossen,HermannHeinrich411hunting8,619,633government181,191;advancesto238;economichusbandry11,53,61,109,260roleof181,334;good/bad253;influenceofHutcheson,Francis154353;interferenceonthepartof186–7;kinglyhydrodynamics480formof6;loansto244,302;measureof183,184;personal5;rightsanteriortoestablishmentideology371of189;securities228,229;stateofthingsprioridleness548,549to/subsequenttoexistenceof188imports30,75,88,90,165,237,283,337,342,GreatBritain165–6,169,170,172;goods349;aggregate341;diminishing33;increasedrendereddearin228–9,230;seealsoEngland;230;priceof249;prohibitionsof261;reducingScotland;Thornton579;restraintsupon165–74GreatDepression588,590incentive614,615,617,618,624;pecuniary619greatesthappinessprinciple180–1income107,114,115,118,143,145,504;Greece151distributionof256,370,372,601,603;Greeks1,16,136,193inequalitiesof604;national131Greenland34indemnity22guilt29India147,249Guinea330indifference-curve490,492,493,494,495guineas224,227,231,233,244;debased241;individualism119,133,181,593,604,606;demandfor226,239;hoarded225;slownessinencroachmenton607;methodological180thecirculationof226individuality354,355Guizot,M.376indolence304;luxuriesalwayspreferredto297Guttaperchatokens564industrialism/industrialization370,609industrialreservearmy398–404Halley,Edmond81industriousclass117Hamilton,SirWilliamRowan482industry141,142,144,145,148,168,253;Hamilton,Walton609domestic166,167,170,171;productive204;happiness183,184,190,198,201,206,284,306,subdivisionof618;ultimateendandobjectof309,310,417,420,481;maximising186,483,174;wantof152484;universal482;seealsogreatesthappinessinequality116,275,281,476,594;contrarytoprinciplejustice24;income604;institutionallyproducedhealth10,11,39,175,306,449–50,452,535370;money147;natural199;wealth603,604Hearn,W.E.439,440inference189Hebrew213inferiority618Hedonism484inflation220,576Hegel,G.W.F.375information459;accessto356;earlyandaccuratehegemony371,373322Hellenicstates6inheritance352,603HenryVII,kingofEngland151injustice20,25,175;armed6;gross306Hephaestus7input-cost-basedtheory78 Index661instability95–6,589justtheory197instinct200Jutland177institutionaleconomics609–54instrumentsoflabour386–7,388,391,395;Kapp,A.W.609transformationof407Keynes,JohnMaynard291,554,588–91;“TheEndinstrumentsofproduction7,324–6,605ofLaissez-Faire”592–5;“TheGeneralTheoryofintellectualcapacity356employment”596–602;TheGeneralTheoryofintellectualimprovement306Employment,InterestandMoney245,589,603–8intelligence357King,Lord240intensityoflabour263,440kings5;ruleof6interchange315–16,337,339,341,343,344,347;moreadvantageoustermsof342labour:abstentionfrom619,620;abstinencealmostinterest543–51;assured89;causes91–4;fallinalwaysaccompaniedbysomedegreeof325;rateof307;liquidityand596,597;lossof227,capitalsubstitutingfor257;costof265;definition329;loweringof114;marketrateof243;moneyof324,439–40;diminishinghoursof362;on115;permanentalterationsinrateof280;disutilityof492;durationof442;eachman’spressureoftaxationnecessarytopay309;priceshareof198;essentialconditionsof387;foreignof117;simple55–6;sourceof541–2;supply-296,310;hard203,207;inefficient518;lawofand-demand-basedtheoryofdetermination78;diminishingreturnsto481;loveof112;moneyusewhichmoney-lendermakesof117–18;mustbeconstantlyexchangedfor67;paymentforseealsoFisher;Hume;Locke;Wicksell23;productivenessof156–7,335,380,381;interests180,181,183propertyof59–62;purchaseof545;qualitiesofintermediateproducts527263,265;quantitativenotionsof440–2;savingofinternationaldemand339,340,341,342,343,424;stockof144;theoryof439–42;transferred344,345,348;332;unproductive176,302;useful176,177;internationaltrade30;comparative-advantagevalueof81–3,111;seealsodivisionoflabour;theoryof257instrumentsoflabour;intensityoflabour;priceofintrinsicvalue78,80–1,83,85,86,87,237,248,249labour;productivelabour;quantityoflabour;alsoinvestment:agricultural95;capital520;currentunderfollowingheadingsprefixed“labour”600;optimumrateof605;permanent565;ratelabourdemand79–80,172,276,301,302,336,ofinterestafunctionoftheoverallprofitability400,401,402of57;savingsand588–9,594,604;temporarylabourmarkets206,401,546;analysisof334;564–5priceof275investment-goods601labour-power379–80,386,389,392,393;buyinginvisiblehand154,167,334otherpeople’s405;consumptionof394;Ireland34,45,51,55,74,146,172exchange-valueof394;increaseddemandforIrishmen39396–8;replacedbyanexactequivalent395;Iroquois83unskilledorsimple396;use-valueof389–90IsledeFrance110labourtheoryofvalue57,208,256,257,291,Israel1371–2Italy35,36,37,140,145,148,152,307;Lacedaemonians13merchants33Lagrange,J.L.de,Comte482,483laissez-faire353–67,588Jamaica140land51–5,62,79,80–1,116,141,327,328;James,William653acquisitionof108;appropriationof272;fertileJenner,Edward327298;improvementof70;leasesof109;moneyJennings,R.440investedin115;mortgageof94;priceof89,Jerome,St23106;proprietorsof99;purchaseof107;Jerusalem81quantityandquality272–3;scarcityof604–5;Jesuits44valueof81–3Jevons,WilliamStanley78,411,413–14,479,481,landlords52,73,88,162,164,272,275,278,295,486,490,491,492,494,501,539;TheTheoryof298,306,310,329;consumptionof303;PoliticalEconomy415–42,462contendingwith305;prodigal142Jews25landowners85,88joint-stockcompanies511,593Laplace,P.S.,Marquisde416journeymen405Lauderdale,Lord295,536justice22,29,370,499;administrationof6;lawofaverages532distributive14,481;doctrinaire500;equalityoflawofconstantreturn507,50819,20;inequalitycontraryto24;lawsof179;lawofdiminishingreturn508perfect175;political208;rectificatory14;rulelawofdiminishingutility481of20;sinagainst26;usuryharmonizingwith25lawofincreasingfatigue481 662Indexlawofincreasingreturn507,509McCulloch,J.R.350,393lawofindifference428–30,431Macedonia151lawofNature48,60,188,198,214,215,302,machinery158,176,289,314,508;enablingone335,654mantodotheworkofmany157;improvementsLawofSettlements172in159,260,275,282,288;inventionin303;lawofsupplyanddemand551unemploymentconsequenttointroductionof257laws6,15,18,25,183,354,363;divine19,24;macroeconomics245;developmentof553–608interferenceof362;natural26,83,524;repealMaine,SirHenry650of189;toreduceinterest63–4;unrepealableMalthus,ThomasRobert131,193–5,210–19,191;seealsopoorlaws262,279,292,320,400,555,645;AnEssayonthelawyers143PrincipleofPopulation196–207,350;Principlesoflegalcontrol648,654PoliticalEconomy291,293–311legaltender564management:private361;shareholdersalmostLeghorn37entirelydissociatedfrom593leisure198,302,305,309;conspicuous617–29,“ManchesterSystem”606638;seealsoVeblenMandeville,Bernard:TheGrumblingHive:or,Knaveslenders70,91–2,93,117,142,145Turn’dHonest119–29lending65,67;difficultyof63Mangoldt,HansKarlEmilvon459Lenin,V.I.373manners199,622,623,632,636Leontief,W.596manuallabour309,614,620Lewes,G.H.483manufactures172,177,252,253;fetchingandliberalism181,654carrying169;reciprocalwantof299;restraintsliberality13,44;princes40upon178;superiorityof289;trifling156;liberty199,200,214,355,652,654;economicunwholesome207;woollen157statusof649;infringementof354;natural154,marginalutility462,522,531,534,536,537,539;172,179,593;perfect163,165,175,190;seefuture534;theoryofvalue413alsoMill(J.S.)Maritimemerchants94Limousin110marketeconomy256,588,609;a-institutional154Lindahl,Erik555marketforces57liquidity-preference597marketprices84,86–7,91,92,207,231,513,514,Lisbon152520–1,540,546;bills286;commodities163–5;litigation17labour275;perpetualebbandflowin81;livelihood51;bare8supply-and-demand-determined78Liverpool,R.B.Jenkinson,Lord239–40markets154;altercationsof90;cheaper240;livestock11;feeding99,100;maintenanceof99;competitive17;competitivestrugglefor607;valueandproductof101definitionof426–7;distant87;fluidityof480;livingstandards636,640;downwardpressureonforeign166,228,229,230,608;money558,194;ofmasses208;pecuniary641–5559;new282;perfect427,495;retail511;loans17,18,94,238,244,302,544–5,576;special467;spoiling519compensationasconditionof26;consumptionmarkettransactions545–51543;new242,243;production543;public85;marriage7,202,203,217,361,624,625,629;sinscommittedin24–9averagebirthsto219;early199,279;Locke,John57–8,78,83,86,87,95,239–40,653;encouragingbirthof302;prudentialhabitswithOfCivilGovernment57,59–62;SomeConsiderationsregardto400;restingoncoercion613;sexualoftheConsequencesoftheLoweringofInterest,andtherelationsoutside194RaisingoftheValueofMoney57,63–77Marshall,Alfred411,413,480,488,489,491,London35,52–3,55,56,64,91,93,136,140,492,494,495,501–3,588,597;Principlesof147,224,225,226,233–4,240,252,285,323;Economics504–21Marxin370,377;water331Marxism371,409Longfield,Mountifort411Marx,Karl208,257,318,369–408,522;loosequantitativerelations480,481CommunistManifesto(withEngels)370,376;loss26;compensationfor22,27CritiqueofPoliticalEconomy374,375–7;DasLowCountries34,36,37,38Kapital374,378–407lowerclasses202,206,207,635masses:livingstandardof208;overproductionlucrumcessans94among193lust6mastersandservants7,497luxuries17,98,101,114,138,145,207,214,276,materialism119,133;dialectical/historical371294,452,630,631;alwayspreferredtomathematics415–16,422,477;seealsoEdgeworthindolence297;countervailing304;foregoingmeans–endsrelations30297,298;foreign305;wanton164meansofproduction370,387,388,391,405,406;Lycurgus149centralisationof407;economisingof407; Index663future537,538;increasein304;supplyingmonopoly12,30,166,167,168,169,173,174,labour-powerwith390;transformationof407332,497,597;profitsof362meansofsubsistence199,200,201,301,304,389,Montesquieu,CharlesL.deSecondat,Barondela400,406,539,550;populationnecessarilyBrède211limitedby194;populationpressesagainst277morals/morality154,180,417“MécaniqueSociale”483mortality203Mediterranean406mortgages85,309,564;land94Melanesia564motion482;lawof480Menger,Carl411,443–4;PrinciplesofEconomicsmultiplicity485445–61,462Multiplier601,602menialservants175–6,308,310Mun,Thomas:England’sTreasurebyForraignTradeormercantilism30–1,119,153,173–4,385;tradetheBallanceofourForraignTradeistheRuleofourpolicy154Treasure30–1,32–44mercenarytroops135mutualagreement18merchants143,145,149,150,168,177,542;Myrdal,Gunnar555,609differentordersof111;foreign282;intelligent252;loanto238;originof142;wholesale94,166naturalagents324,325,332;proprietorsof327MercierdelaRivière(PierrePaulFrançoisJoachimnaturalprice163,164,165,265,286;labour275,Henri)178276Mexico81,564naturalresources576middleclass635;businessmen369;lower403,nature191;seealsolawofNature634,637;radicalism181navy172Middlesex83necessities/necessariesoflife32–3;bare639;Miletus12common305;priceof164,261,275,276,281,Mill,James131,181,257;CommerceDefended245,282;productionof300;taxesupon170312;ElementsofPoliticalEconomy312,313–16;needs18,23;artisan98;daily6;food451;HistoryofBritishIndia312satisfactionof447,457,461Mill,JohnStuart131,181,296,312,320,334,negotiationalpsychology652–3424,432,434,480,499,644;Essaysonsomeneoclassicaleconomics409,410,609,611UnsettledQuestionsofPoliticalEconomy333;OnNetherlands35Liberty333;PrinciplesofPoliticalEconomyNewcastle323,324334–67Newcomb,Simon577minorities355;smallprivileged369NewEngland34,564Mirabeau,VictorRiqueti,Marquisde178Newfoundland34misery198,207,253NewSouthWales189Mitchell,WesleyC.609Newton,SirIsaac557modeofproduction399;bourgeois376;capitalNewYorkState/City564,583becomesafetterupon407;changing373;NewYorkTribune377evolving371non-interferenceprinciple353–67monarchy181Normandy109,148monetaryexpansion220nourishment198,200;wantof204money:abundanceof242,288;accumulationofnuméraire469,472,473,474,476104,286;birthofmoneyfrom11;clipped75;numeration136diminutioninonecountryandincreaseinanother287,288;embezzled204;employmentobligation17,26,27for107,115,116;functionsof599;hard87–91;occupations264,265,269,618,619internationalmovementof560;lent26–9;lostOdessa323147;makingmore393;miser’sloveof13;onlyOhlin,Bertil555methodofbanishing152;properandprincipaloligarchy355useof25;ready32,37,92,150,224;real565;output256,519,600;aggregate602;demandandsilver26,50;sterilityof17;suddenacquisitionofsupplyof601,602144;temptationtoexport239;unvaryingvalueoverbidding549,550278;usurious28–9;valueof58;violentandoverproduction193,393,402forciblemethodsofcarryingaway152;worthofoverseers81,82,83241–2;seealsoFisher;Hume;Keynes;Locke;alsoOwen,Robert208underpurchasingpower;quantitytheoryofownership12,25,26,27,328,614,624,629;money;scarcity;valueofmoney;velocityearliestformof613;individual615;oflandmoneyincirculation67,87,88,90,98,111–12,85;public370382,383,558,566,567,569,574,580;doubling575;quantityof58,572,573,575pain187;pleasureand180,183,413,416–18,moneystock78,101,139,148,222420,479,530,534,535 664IndexPaisdeVaux151consideredasstimulustocontinuedincreaseofPaley,W.213–14wealth294–5;great298;lawswhichregulate306Palgrave,R.H.Inglis560populationpressure193–207panic578Portsmouth50papercredit135,136,148,149,150,152;totalPortugal140,147,148,284,285–7,295failureof243;totaloverthrowof244;seealsoPortuguese88,139Thorntonpossessions7,9,12,23,85,104;wealth615–16papermoney240,566,574;creating243;poverty12,100,137,193,595;dependent206;Governments’judiciousemissionof560–1;sufferingcausedby505;universal279;utilityofirredeemable56730papernotes573powersofproduction294,299,308;diminishingparentalpower360307;effectto303;great295,309,310;Paris93,252,375,376,424increased311parsimony177,300,301,305;wantsdiminishedpreciousmetals138,140,141,143,144,148,149,by296150,152,237,238,289,349;consumptionofpassion198,202242;distributionof288;exportof239;PaulusAemilius151influenceofthesupplyof557peasants142Pre-Classicalthought1–129Pecqueur,Constantin406preference487pecuniaryemulation613–17,618,619,637,644prejudice76,196Peking218premium19Peloponnesianwar151presentgoods532,533,541,547;equalinvaluetopenalties55futuregoods534;full-valued542;marketperfectibility197,198,199stronglyinfavourof540;ownerinapositionofperfection197advantage543;technicalsuperiorityof536–9;performance652;long-run256worthmorethanfuturegoods528Perseus151priceoflabour89,135,136,137,145,148,170,Persia1201,398;real206persuasion159,653prices330–1;agricultural30;allgoodsmusthavePetty,SirWilliam57,83,95;PoliticalArithmetick45;15;average570,571;city86;current248,TreatiseofTaxesandContributions45–6,47–56250;demand509,511,512;determinationofPharisees25139,502;doubling573,575,577,583;PhilosophicalRadicals208equilibrium473,509,513;fixed84,113,139,physicians143162,234;fluctuationsin224;formationof549;Physiocraticschool95,102,132,153generallevelof568–9,585;higherthanwhatPigou,ArthurCecil411,597waspaid22–3;inflexible553;internationalplans200317;just19,28;money65,68,71;monopolyplantations100372;normal513,521;payableatafuturedatePlato2,3,211,366,480,49992;regulatorof332;relative259;settled141;pleasure13,426,453,484;accumulationof482;stationary578;supply507,510,511,512,516,atomsof481;intellectual208;maximum520;uncertain84;uniformityof480,494;energyof483;painand180,183,413,416–18,seealsocommodityprices;marketprices;natural420,479,530,534,535;philosophyof499price;priceoflabourpledge26priests44Pliny151primarymoney565,566Poland91,147,252,284,289,295,443primitiveaccumulation404–7politicaleconomy216,303,403,404,409,480;principleofcompromise488superficialityof400;seealsoBentham;Jevons;privateproperty3,13,162,302,614,615;Malthus;Marx;Mill(both);Ricardo;Say;consideredassacred308;dissolutionof406;Senior;Smithrightof294;self-earned406–7politicalregulations215privileges82;exclusive172politicization133probability531,535,598Polybius140,151production:aggregate506,507,511,518;Polynesianchiefs620agricultural95;consumptionnecessaryto174,poorlaws204,205–6,207,215,317,355,364;308;demandincreasedby296;difficultyofamendmentof279;clearanddirecttendencyof290;hand-to-mouth544;influenceofprogress278ofsocietyon350–2;materialforcesof376;population256,594;seealsoGodwin;Malthusmethodof536;permanentdiminutionof303;populationdensity352,580;increasing508processof395–6;socialistorganizationof372;populationgrowth506;rapid508vascularsystemof387;volumeof507;wealthpopulationincreases275,277,285,302,314–15;248–55;seealsocostsofproduction;instruments Index665ofproduction;meansofproduction;modeofquantityoflabour:alterationsin269;comparativeproduction;powersofproduction274;definite391,392;diminished261,266;productiveinstruments536,537,538double335;employedonproduction271;productivelabour175,176,177,294,295,310,equal380;greaterorlesser269;increased266;311,391,401,621,625less(er)262,264;proportional278;relativeproductivity544,551;capital539;marginal272;totalnecessarytomanufacture264559quantitytheoryofmoney57,58,87,566–7,profits280–2;abstinenceand318,329;574–87;formulation562;seealsoFisher;accumulated112;alterationinpermanentrateLockeof269,271;annual114–15;average327–8;Quesnay,François95–6,153,175,178,291,409;capital557–8;commerce141,145;constantTableauÉconomique97–102112;consumedasrevenue297;dependenceonwages288–9;diminished278;employmentofratioofexchange425,426,428,429,430,capital242;equalornearlyequal166;434excessive251;fallingrateof131,307,372;rawmaterials30,250,274,275,298,386,387–8,handsome253;indispensable111;large113;391,395,542;abundantforeignsuppliesof508;low143,144;monopoly362;permanentlyhighpurchaseof98;wasteof389302;principleswhichregulate278;raised284;reason183,190;natural25reduced243;regular111;Ricardo’sviewofreasonableness652299;stationary283;uncertain84;usury28;reasoning:loose571;mathematical479variationin271rebate22prohibition145–6,165,168–9,174;legal354;reciprocity3,14–15repeal171recusants44proletariat397,407redistribution580,603promissorynotes566reflection185property8–9,10,28,59–62,85,327,335–6,ReformAct(1832)181576–7;accruingfromusury28;accumulatedregulations168,173,174615;arrangementsabout12;artofacquiring7;Rehoboam41common12;distributionof351;establishedrelativevalues261,263,265,268;alterationinadministrationof215;incorporeal649;266;disproportionin276intangible649;landed101,181,309;moneyreligion133,180,213,214,307,353,499convertedinto116;movable101;nonlandedremittances227181;personal104,106,107,111,114;publicremuneration26,27,326,329;average331;total354;transferof90;seealsoprivateproperty496propertyrights565,654rents51–2,53,67,73,74,85,90,162,163,164,proprietors117,118,141256,272–5,327,328;aggregate,higher131;inprosperity135,175,350,506,595,607;averagegoldandsilver139;large109;ordinaryor402;commercial252;general252;strongaveragerateof163;theoryof194,257indicationof250repayment26,27protectionism30representativefirm511,512Protestants30reputability615,616,618,620,622,623,630–8Proudhon,P.J.377passim,642;competitionfor626prowess615,616,627reserves581prudence306,351restraints174,178,203;moral194;prudentialpsychology652–3351publiccharges47–55restrictions40Publicola29retailtrade11,50,84publicopinion351,355retaliation171publicutilityenterprises593retrenchment118punishments19,25;exemplary360retribution118purchasingpower58,320,514,547;exceedinglyreturns145;diminishing131,257,273,481;great425;small426;seealsoFishersurplus544,545,546,551Pythagoreans14revenue:annual98,99,167;conversionintocapital295;customs173;disposable283;qualityoflife194disposing118;excessof114;profitsconsumedquantity:complementary457–9,460;constantas297;real176;surplus328;threeoriginal517;consumed450;decrease-of-rate-of-increasesourcesof163481;definite447–8;demanded432;revolution373mathematicalreasoningapplicableto479;reward23,25money576,577,602;pleasureandpainas416;Rhadamanthus14supplied432;unknown435RheinischeZeitung375 666IndexRicardo,David131,181,194,220,236,256,258,Senior,NassauW.317–18,419,438;AnOutlineof296–301passim,304,310,317,334,409,438,theScienceofPoliticalEconomy319–32477,558,573,590,597;OnthePrinciplesofservants203,624,628,629;specialised625;PoliticalEconomyandTaxation235,257,259–90,subservience626–7312,332;TheHighPriceofBullion235,237–44servility633rightandwrong184,185settlements486,490,495,499,549;final485,rights:imprescriptible190,191;individual181;492,494,496,497legal190;natural189,190;supposed188Severus,Alexander,Romanemperor94risk112,113,459,532,594;roleinpricesex:desirefor208;relationsoutsidemarriage194determination78shareholders593roads284shipping36,39,89,169Robertson,D.H.596shopkeepers84RomanCatholicchurch16Sicily12,35Romanticism370,409Sidgwick,H.484,491,492,496,499Rome94,144,145,148,151,152silks34,35,37Roos,CharlesF.562silver69–77passim,86–91passim,222–3;roundaboutprocess522,523,525,527,538,abundanceof141;certificatesfor566;coinsof54624,76,87,567;durabilityof330;money26,RoyalCommissions31750;morecommonthangold140;preventingitsRoyalSociety45universaldiffusionandcirculation140;priceofrudeproduce178114;scarcityof141,330;subjecttofluctuationsrulingclass180,369;hegemonyof371,373;state260;valueof67,68,224;seealsobullionaninstrumentof374;“subsidization”131sins23;committedinloans24–9Russia285skilledlabour396,508slaves/slavery5,7,82,106,188,190,191,624;Saint-Simon,C.H.,Comtede333artisan81,83;extensionof613;labouring83;salaries107,108,109,118,136,366wealthconsistschieflyof619;womenand6sales139,250;consumptionbriskenoughtoSmith,Adam131,133,154–5,291,180,197,quicken249;illicit20,22;mutual99;unjust222–7passim,231,232–3,238,241,256,259–6318,20passim,271,274,304,307,334,338,350,404,Samaritan213409,425,438,439,513,528,539,590,649;Samuelson,Paul553,562TheoryofMoralSentiments153–4;WealthofSardanapalus,kingofAssyria41Nations103,153,156–79,235,245,257,650satisfaction423,447,449–55,461,468,524,529,snobbery623536,654;maximum470,472,474socialcontrol181,194;legal154Sauerbeck,A.559socialism333,375,409;historicmeaningof370savings206,304,305,636–7;andinvestmentsociology479,481588–9,594,604Solomon,kingofIsrael40–1Say,Jean-Baptiste247,295–6,317,419,536;ASolon9,211TreatiseonPoliticalEconomy245,248–54;seealsoSouthAmerica216,564Say’sLawSovietUnion371Say’sLaw245–6,257,291,553,554,562,602;Spain35,36,88,144,145,147,148,285,295,rejectionof589337scales74Spaniards81,139scarcity:capital116,264;cash228,229;farmsSparta149202–3;foodandnecessaries264;gold141,226;speculation427,541;largeandimproper229jobs590;land604–5;money64,65,70,138,Spencer,Herbert483,499250;silver141;valuedeterminedby259Spengler,JosephJ.78Scholastics16,17spices34science159Sraffa,Piero256–7scissorsanalysis502,513stability96,593Scotland34,148,150,168;banks231;Highlandsstagnation402161stamps74,77secularism133standardoflivingseelivingstandardssecurity64,117,136,167,226,279,293,310,649;Stanian151againstbankruptcies150;bad70;equal113state8;agenda592,593–4;authoritariansystemsseigniorage231,573607;comesintoexistence6;excessiveself-interest119,154,167,499,606;enlightenedunificationof13;perfect12592statesmen9,10,12,167,171;distinctionbetweensellers68,87,228,383,394,545,651;cheatingkingand518–24;willing652StateSocialism593,605 Index667stationarystate350,516,517Thornton,W.T.344,434statistics479,517,559,581;fatherof45Thünen,JohannHeinrichvon411,551status622,624,637Tiberius,Romanemperor145sterling151time516Stewart,Dugald499tithes99StockholmSchoolofEconomics555titles54stocks228,229;saleof224tobacco451Struck,Emil558tokens564,565,566Stuart,SirJames240Tooke,Thomas558Styles,Ezra213trade177;advancementof70;distributionofsubjection188580,581;freedomof170,172,173;subjectivevaluations540,546international580,608;moneynecessarytothesubsidiaryindustries517carryingonof67;over-balancing66;percapitasubsidies90;selective30581;prejudiceto66;volumeof572,573,574,subsistenceseemeansofsubsistence576,579,580,581,587;seealsobalanceoftrade;substance20;consumptionof26barter;foreigntradesubstitutes/substitution509,510,578,597TradeUnionism496,585Sumeria1tradingbodies428,435SummerIslands34Trajan,Romanemperor145superabundantarticles250,251,277transactionalpsychology653supply:abundant262;alterationsin323;basictransmittedaptitudes643–4notionsof57;causeswhichlimit330–1;transportcost86,89,91comparativelimitationof329;continuedtreasure150,151;hidden242increaseof294;costofproductiondeterminestrophies613,615,621439;demandexactlybalances546;demandtruisms577greaterthan228,229;equationofdemandtotruth189,197;demonstrative205;goodman495;excessof311;family313;gold560;shouldnotdepartfrom20labour336,401,402,505,515,547;lawsofTullock,Gordon555433,434;lessthandemand228;ordinarylawsTully19,21of415;prospective435Turgot,AnneRobertJacques153,539,590;Reflect-suppositions338,346ionsontheFormationandDistributionofWealthsurplus82,89,104,327,534,544,550;103–18maximizationof95;moneyanddeposits576Turkey33,34,36,295surplus-population398–404Turks53,81surplusvalue372,383,384;absolute,productionturnover567,571,575,581of385–96;changeinthedivisionof397tyranny357,358,365;domestic360Swift,Jonathan146,152Switzerland151uncertainty84,85,424,532,594,600;reducing598sympathy154under-bidding549Syracuse12underconsumptiontheory370under-employment607Tait,P.G.416,480,481unemployment549,550,590,594;involuntarytalents160,161,162,252,328,356,357596;technological257TalestheMilesian12unhappiness183,200;inextricable203tariffprotection30UnitedStatesofAmerica199,245,252–3,609;Taussig,F.W.596circulatingmedia565–6;exportsofgoldfromtaxes41,99,102,139,140,149,152,174,187,249,579–80;SupremeCourt648,650,651,652;251,289;compulsory354,362;diminutionofvelocityofcirculation581308;direct605;relieffrom311;removalof309;universities366uponnecessariesoflife170;seealsoPetty;Ricardounskilledlabour11,336,508technicalconditions576unwholesomehabitations203,207technology371;importanceof609;progressive,upperclasses181,193institutionsasinhibitiveof610usefulness21,68tenants52use-values378,379,381,383,386,387,388,394;theology16labour-power389–90;productionof389Thiers,A.404usufruct25,26,28ThirdWorldcountries371usurapecuniae113Thomson,W.416,480,481usury11,17,18,24–9,55–6,533;notdirectlyThornton,Henry221,241,480;AnEnquiryintothepermitted149NatureandEffectsofthePaperCreditofGreatBritainususfructus54220,222–34,235utilitariancalculus481,492 668Indexutilitarianism180,484,499,500wants67,305;differencesin532–4;diminishedutility183–5;almostinfinite438;alteration323;byparsimony296;everyday6;future535;creationof250;expected532;friendshipbasednational304;natural9;provisionfor531,on20;future532;maximizingof424;532–4,538,547;public118;satisfactionof383,maximumuniversal484;ofpoverty30;present470,473–4,529,536,654;small156535;theoryof418–24;total421,422,425,475,war607,615488;valuedependsentirelyupon415;seealsowastefulness640degreesofutility;marginalutilityWaterCompanies331–2utopianperfectibility194Watson,J.B.653wealth:abundanceof25;accumulated10,404,value259–72;ambiguityoftheterm424–5;508,598,615,617,620,624,625;acquisition/artcapital101;comparative266;consumptionofgetting3,7–8,9,10,11;goods-based176;costofproductiongoverns517;defineddefinitionof78;506;immediatecausesofthe319;dependsentirelyuponutility415;extrinsicprogressof293–311;national30,31,186,causesof321–2;international337–49;intrinsic319–24;possessionof615–16;productionof10,causesof321–2,329,330;labour111;land186,248–55;seealsoSmith;Turgot81–3;market101;objectiveexchange532;wealthdistribution308,326–32,335–7,603;originof438–9;pecuniary27;popularuseofinfluenceofprogressofsocietyon350–2theterm425;property565;steadinessin322–4;welfare102;economic119;internationalsuperimposingasystemof16;theoryof445–61;30valuemutual144;seealsoexchange-value;welfarestate370exchangeablevalue;intrinsicvalue;labourwell-being448,449,450,457,508,529,530,532,theoryofvalue;relativevalues;surplus-value;644use-values;valueofmoneyWells,DavidA.584valueofmoney27,85,137;seealsoWestIndies86,139,144LockeWestphalia252vassals82wholesalers84,94,166Vauban,Sébastiende148Wicksell,Knut554,555–6;InterestandPrices220;Veblen,ThorsteinB.609,610,611–13;TheTheory“TheInfluenceoftheRateofInterestonoftheLeisureClass613–45Prices”557–61velocityofcirculation566–76passim,579,580,Wieser,Friedrichvon411,522582,585,597,599;determinantof581wife-capture624Venetians33,42Wisconsinschool646Venice34,36,52,152wisdom12,190vestedinterests608wives6vice23,198–9women12,79,360–1,624;labouring629;villagesociety6ownership613;slavesand6;temperanceViner,J.596–7towards13Virginia34,564Wordsworth,William333virtues6,13,190,199;detrimentto22workforce30virtuousattachment201workhouses206–7voluntaryagency362workingage81,82workingclasses305,370,401,403,629;wages275–82,336–7,362–3,546–50;averagesubsistenceminimumof638327;depressing372;fallintherealvalueofworth18–19262;falling401;fixed85,90;internationalwretchedness306317;low30;managerial497;normal515;profitscanneverbeincreasedbutbyafallin284;profitsdependon288–9;real288–9;Xenophon2unfixed85Wallace,Robert197,215Walras,Leon411,462–3,480,489,491,494,495;Yorkshire285ElementsofPureEconomics464–76“YoungHegelians”370