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MANUAL OF POLITICAL ECONOMY. 
 
MANUAL 
 
 POLITICAL ECONOMY 
 
 BY 
 
 HENRY FAWCETT, M.P. 
 
 FELLOW OF TEINITT HALL, AND PKOFESSOE OF POUTICVL ECONOMY 
 IN IHE UNIYEKSITY OE CAMEEIDGE. 
 
 FIFTH EDITION, BEYISED AND ENLARGED. 
 
 HonUon : 
 
 MACMILLAN AND CO. 
 
 1876. 
 
 [All Rights rcsa'vedJi 
 
/^-^ n i 
 r 2.7 
 
 (!!:amfititge: 
 
 PRINTED BY C. J. CLAY, M.A., 
 AT THE XmrVEBSIIY MESS. 
 
 (^ n^'TS" 
 
PREFACE TO THE FIFTH EDITION. 
 
 OINCE the publication of the last Edition a marked 
 ^^ fall in the price of silver has taken place, and so 
 many important consequences have been thereby produced, 
 that I have thought it desirable to insert a new chapter 
 on The Depreciation of Silver. The circumstances "which 
 determine the value of gold and silver are so intimately 
 connected with each other, that I have substituted a new 
 chapter on The Recent Discoveries of Gold and Silver, in 
 the place of the chapter in former editions, entitled The 
 Recent Gold Discoveries. 
 
 The present Edition has been carefully revised through- 
 out, and new illustrations have been introduced, where it 
 was thought desirable. 
 
 July, 1876. 
 
 PREFACE TO THE FOURTH EDITION. 
 
 ALTHOUGH the general arrangement of this book 
 ■^-^ remains unaltered, yet in preparing this Edition it 
 has been found necessary to re-write considerable portions 
 of many of the chapters. Some of the illustrations con- 
 tained in the former editions are no longer apposite; 
 others have been substituted in the place of these, for 
 it is always desirable as far as possible to illustrate the 
 principles of Political Economy by applying them to the 
 discussion of passing events. New chapters have been 
 added on the Nationalization of the Land, and on Local 
 Taxation. In the last chapter of the volume an attempt 
 has been made to solve the somewhat complicated econo- 
 mic question of tracing the incidence of local taxation 
 when rates are imposed upon different kinds of property, 
 such as land, houses, shops, manufactories, railways, gas 
 
Preface to the Fourth, Edition. 
 
 works, and water works. In the chapters on Socialism 
 and the Nationalisation of the Land, reference is made 
 to a new economic movenaent, which I have designated 
 modern socialism. Between modern socialism and the 
 socialism of earlier days, there is this characteristic dif- 
 ference, that whereas the latter sought to effect its objects 
 by voluntary associations, the socialists of the present 
 time make a direct appeal for State intervention. The 
 recent marked rise in the price of coals is referred to as 
 affording an illustration of the laws which determine the 
 price of mineral produce; and in the chapter on Wages, 
 I have directed attention to the very important fact that 
 the unprecedented increase in wealth, which has taken 
 place in England during the last quarter of a century, has 
 not been accompanied by a corresponding improvement in 
 the material condition of many classes of labourers. Since 
 the last edition was published, the cooperative movement 
 has so rapidly developed that it has been necessary en- 
 tirely to re-write the chapter on Cooperation. Great stress 
 has been laid on the important economic advantage which 
 would result, if the entire people were brought under the 
 influence of a comprehensive system of national education. 
 Among the many circumstances which tend to perpetuate 
 poverty, particular allusion is made to the encouragement 
 given to improvidence by our Poor Law system and by 
 the facility with which out-door relief is granted. 
 
 In preparing this edition I have derived the most 
 valuable assistance from my wife, who in applying her- 
 self to the work has shown the greatest care and assi- 
 duity. I also have to thank her for having suggested 
 many improvements, and she has also pointed out many 
 defects which had previously escaped my notice. 
 
 Cameeidgb, 
 February, 1874, 
 
PEEFACE TO THE FIRST EDITION. 
 
 IT has been often remarked that Political Economy is 
 more frequently talked about' than any other science, 
 and that its principles are more frequently appealed to in 
 the discussions of ordinary life. No science, however, is 
 perhaps more imperfectly understood. Profound mathe- 
 maticians, or accomplished geologists and botanists, are 
 far more numerous than real masters of the principles of 
 Political Economy. Such a fact is somewhat surprising, 
 ■when it is remembered that Political Economy must be 
 appealed to, in order properly to discuss almost any poli- 
 tical, financial, or social question. Sometimes it has no 
 doubt happened, that people have not become generally 
 familiarised with a science, because its principles have not 
 been clearly explained. But Political Economy has never 
 wanted able expounders. Adam Smith wrote the first 
 systematic treatise on the subject, and his work will long 
 continue to be read as a masterpiece of clear exposition. 
 Mr John Stuart Mill's treatise on 'The Principles of Poli- 
 tical Economy' is perhaps the most remarkable work of 
 that great author, and the book will be remembered as 
 amongst the most enduring literary productions of the 
 nineteenth century. It is therefore necessary for me to 
 explain the object I have had in view in writing the 
 present work. 
 
 The end I hope to attain, .1 may briefly state to be this. 
 I think that all who take an interest in political and 
 social questions, must desire to possess some knowledge of 
 Political Economy. Mr Mill's treatise is so complete and 
 so exhaustive, that many are afraid to encounter the labour 
 and thought which are requisite to master it; perhaps, 
 therefore, these may be induced to read an easier and 
 much shorter work. I so well remember the great advan- 
 tage which I derived from reading Mr Mill's book, that I 
 would not publish my own work if I thought that it would 
 
viii Preface to the First Edition. 
 
 withdraw students from the perusal of a more complete 
 treatise. I am, however, convinced that those who become 
 acquainted with the first principles of Political Economy, 
 will be so much struck with the attractiveness and im- 
 portance of the science, that they will not relinquish its 
 study. 
 
 I have not attempted to discuss all the principles of 
 Political Economy in full detail; but I believe no import- 
 ant branch of the subject has been omitted; and I there- 
 fore think that the principles which are explained in the 
 present work will enable the reader to obtain a tolerably 
 complete view of the whole science. In order to show how 
 intimately Political Economy is connected with the prac- 
 tical questions of life, I have devoted a separate chapter 
 to some subjects of great present interest; such, for in- 
 stance, as Cooperative Societies — Strikes and Trades'- 
 Unions — and The Effects of the Recent Gold Discoveries. 
 For the convenience of the ordinary reader, and espe- 
 cially for those who may use the book to prepare them- 
 selves for examinations, I have prefixed a very detailed 
 summary of Contents, which may be regarded as an ana- 
 lysis of the work. 
 
 I cannot conclude these prefatory remarks without 
 acknowledging the kind assistance which I have derived 
 from those who have verified my statistical facts; but I 
 have especially to thank my friend, Mr Leslie Stephen, 
 Fellow of Trinity Hall. He has given me many most 
 important suggestions, and has carefully revised the work : 
 the accurate and complete knowledge which he possesses 
 of the science makes his revision peculiarly valuable. 
 
 The labour of writing these pages would have been 
 much greater, if I had not been fortunate enough to 
 have a most patient and excellent amanuensis in the 
 youth who is to me so faithful an attendant. 
 
 Tr.iNiTT Hall, Cambkidge, 
 Feb. 1863. 
 
CONTENTS. 
 BOOK I. 
 
 PRODUCTION OP WEALTH. 
 
 Chaptee I. Introductory Remarks. 
 
 In an introductory chapter it is better to give a general description of 
 Political Economy, rather than to attempt an accurate definition of the 
 science — Political Economy investigates the laws which regulate the 
 production, the distribution, and the exchange of wealth — Popular pre- 
 judice considers that Political Economy is hardhearted and selfish — This 
 fallacy explained and refuted — Any commodity which has an exchange- 
 able value is wealth — The civilization of a country determines to what 
 extent its natural resources can be classed as wealth — ^Fallacies now 
 known as the Mercantile System explained pages 3 — 9 
 
 Chapter II. The Requisites of Production. 
 
 The production of wealth has three requisites : land, labour, and capital — 
 Capital defined to be wealth which is saved, and applied to the future 
 production of wealth 10 — ii 
 
 Chapter III. Labour as an Agent of Production. 
 
 The simplest commodity cannot be made available for consumption with- 
 out the application of many different kinds of labour — All labour does 
 not contribute to the production of wealth — Hence labour is classed as 
 productive and unproductive — Labour is productive when it either 
 directly or indirectly embodies utilities in material objects — The most 
 useful labour may be sometimes unproductive — As an example, a 
 railway may be partly made and never opened — Labour which is 
 unproductive may yet be very useful — Mr Mill's definition of productive 
 labour would make the labour of the schoolmaster to be unproductive, 
 and this may be obviated by a wider definition — Consumption also 
 may be either productive or unproductive 12 — 16 
 
 Chapter IV. Of Capital. 
 
 It is sometimes fallaciously supposed that capital consists of money, to 
 the exclusion of any other kind of wealth — The entire capital of the 
 country can never be simultaneously employed — A most useful com- 
 modity, such as wheat, need not necessarily be employed as oapitaJr- 
 
Contents. 
 
 An individual cannot increase the capital of the country by spending 
 wealth upon his own enjoyments — A demand for commodities is not a 
 demand for labour— hence, the man who saves, and not the spendthrift, 
 is the labourer's best friend— The science of Political Economy often 
 only affirms tendencies, and therefore the results deduced from its 
 principles do not always come into immediate operation — It is fallacious 
 to suppose that there can be a glut of- capital, and that consequently, 
 without the unproductive expenditure of the rich, the poor coTjld not be 
 adequately employed — Wealth can only perform the functions of 
 capital by being wholly or partially consumed— Foregoing principles 
 illustrated by examples— The rapidity with which a country recovers 
 from a devastating war explained— The consequences of raising revenue 
 by loans investigated— The effects of loans and taxation compared, 
 with especial reference to England and India- The distinction between 
 circulating and fixed capital— The former is consumed by a single use, 
 the latter may continue to perform its functions for a long period; 
 food which feeds labourers is circulating capital ; whereas fixed capital 
 consists of machinery, buildings, raUroarls, &e.— The conversion of 
 circulating into fixed capital may temporarily injure the labourers, and 
 may in certain cases permanently injure some classes of labourers. 
 
 PAGES 17 — 45 
 
 Chapter V. On the Productive Power of the Three 
 Requisites of Production. 
 
 Political Economy would embrace a great number of sciences, if it 
 investigated all the causes upon which depend the productiveness of 
 land, labour, and capital. Hence a definition of Political Economy is 
 required, in order that some limit may be placed upon the scope of the 
 science — The most fertile land may be unproductive of wealth — The 
 chief causes which determine the productiveness of labour— The 
 fallacy of estimating the productiveness of capital by the profits 
 realised — All questions relating to profits concern the distribution and 
 not the production of wealth— Division of labour makes labour far 
 more productive— This proved by Adam Smith's illustration with 
 regard to pin-making — He thinks that division of labour increases its 
 productiveness, for the three following reasons: ist. The dexterity 
 of the workman is increased; 2nd. Time is saved if the workman 
 does not pass from one employment to another ; 3rd. When industry 
 is divided into special processes, suitable machinery is more likely to 
 be invented and applied — The first of these three causes produces the 
 principal effect — Many writers think that Adam Smith attributes too 
 much importance to the second cause — The application of machinery 
 often enforces a certain division of labour — Mr Babbage has shown 
 that Adam Smith has not pointed out that labour is economised 
 when divided, since each workman can be solely employed upon the 
 work for which he is best qualified — The dema,nd for a commodity 
 determines the extent to which division of labour can be carried — The 
 combination or cooperation of labour is essential to its efficiency — 
 Mr Wakefield has classified the cooperation of labour as simple and 
 complex — The first occurs when several workmen combine to do the 
 same thing — The second when one industry is assisted by another — 
 Mr Wakefield explained the mischief of permitting a young colony 
 to be occupied by scattered settlements: the growth of the town popu- 
 
Contents. xi 
 
 lation ought always to be encouraged — Mr Wakefield's theory of colo- 
 nization corroborated by the effects of the gold discoveries in Australia 
 — There cannot be cooperation between different industries, unless 
 the means of communication are good — Division of labour is an instance 
 of the complex cooperation of labour pages 46 — 64 
 
 Chapter VI. Production on a Large and on a Small 
 
 Scale. 
 
 The advantage of producing on a large scale becomes greater as the use of 
 machinery is extended — This is exemplified at the present time in the 
 increasing size of our manufactories and warehouses — The extent of the 
 demand must influence the scale of produetion^The advantages and 
 disadvantages of the joint-stock principle — Joint-stock companies are 
 very beneficial to a country — Farming on a large and on a small scale 
 compared — The increased use of machinery in agriculture makes 
 farming on a large scale more advantageous — Why smaU farming is 
 beneficial in certain special cases, such as dairy farming 65 — 72 
 
 Chapter VII. On the Laws which determine the 
 Increase of Production. 
 
 If we suppose the agents of production to be in their most efiSoient state, 
 then the production of wealth cannot be increased, unless either land, 
 labour, or capital, is increased — In the absence of agricultural improve- 
 ments, more land is not brought into cultivation, unless the value of 
 agricultural produce is increased; this proposition is the basis of 
 Eicardo's Theory of Eent — In Political Economy, the fertility or 
 productiveness of land varies inversely with the amount of labour and 
 capital which is required to make its produce available for consumption 
 — As the population of the country increases, less fertile land has to be 
 cultivated, and therefore agricultural produce has a tendency to become 
 more expensive, as population advances — England exemplifies the 
 practical importance of employing the word ' tendency ' when enun- 
 ciating a proposition in Political Economy, since the rise in the price 
 of wheat, which would accompany the present increase in her popula- 
 tion, has been counteracted, partly by agricultural improvements, but 
 principally by foreign importations of corn, consequent on Eree Trade 
 — ^A rise in wages usually accompanies an increased demand for 
 labour; this rise in wages creates an increased supply of labour by 
 discouraging emigration, and by encouraging marriages amongst the 
 poor — Meat and dairy produce must rise in price as the population 
 of a country increases, because these commodities, unlike corn, are 
 difficult and expensive to import from a distance 73 — 82 
 
 Chapter VIII. On the Increase of Capital, 
 
 An increase of capital implies an increased saving — Two principal 
 motives induce saving: ist, a prudent foresight with regard to the 
 future ; 2nd, a desire t6 make wealth by an advantageous investment — 
 The first motive operates with regard to the bulk of the capital accu- 
 mulated; but upon the second motive depend the fluctuations in the 
 
xii Contents. 
 
 amount of this capital — In Political Economy, as in Mathematics, the 
 causes -which produce fluctuations and disturbances often create 
 phenomena which are independent of causes more constant in their 
 effects — Each class of society has a recognised standard of living; if, 
 therefore, the commodities of ordinary use are cheapened, a greater 
 amount of capital will be saved — A large portion of the capital saved 
 in England is invested in foreign countries ; consequently, by checking 
 the amount sent abroad, an amount which is practically imlimited may 
 be obtained for any eligible home investment — ^Different consequences 
 produced by the raising of loans in countries which do not export 
 capital — This illustrated by the effect in France by the loans raised 
 in France in consequence of the Franco-German war — The eoonomical 
 condition of England and India contrasted; the former requires 
 cheap food; the latter, capital — How India may be economically 
 benefited by England's rule — The West Indies neither want land nor 
 capital, but are deficient in labour — The objection to the Coolie traffic 
 — The striking feature of America's economical condition is the com- 
 parative dearness of labour, and the comparative cheapness of land — 
 Why high farming is not remunerative in America — Commerce between 
 England and America must be especially beneficial to both countries. 
 
 PAGES 83 — 94 
 
 BOOK II. 
 
 DISTRIBUTION. 
 
 Chaptee I. Private Property and Socialism. 
 
 The distribution of wealth implies the existence of rights of property, and 
 the rights of property cannot be maintained without law — Property has 
 not the same rights in one age or country as in another ; for instance, 
 the privilege of entailing property may exist in one age, but not in' 
 another — Men may determine according to what laws wealth should be 
 distributed, but from any particular method of distribution certain con- 
 sequences must inevitably follow, and it pertains to Pohtical Economy 
 to investigate these consequences in each particular case— If private 
 property is permitted, there must ensue great inequalities in wealth ; 
 this fact has suggested socialism — ■ Socialism, therefore, as far as 
 possible, limits the rights of private property — 'The impracticability of 
 socialism in the present state of mankind explained — The two schemes 
 of socialism which have received the greatest attention are those of St 
 Simon and Fourier — These two schemes explained, and their impracti- 
 cability pointed out — The scheme of Fourier is the most skilfully de- 
 signed — The schemes of Fourier, St Simon, and Eobert Owen, were 
 voluntary in their charaoter^ — Cooperation is one of the most favourable 
 results of these schemes — The influence of the State is sometimes used 
 to enforce a, form of socialism upon the country, e.g. the Poor Law — 
 Compulsory socialism is open to objections that do not apply to volun- 
 tary socialism — Free education and the nationalisation of the land 
 would be cases of compulsory socialism ..^...97 — 1.07 
 
Contents. xiil 
 
 Chapter II. The Classes among whom Wealth is 
 distributed. 
 
 Wealth is distributed between rent, wages, and profits : these three 
 shares represent respectively the value of the services rendered to the 
 production of wealth by land, labour, and capital — In England, rent, 
 wages, and profits are generally received by distinct individuals, 
 termed landlords, labourers, and employers — Two of the portions or 
 even the three portions into which wealth is distributed, may belong 
 to one individual ; this illustrated by the case of a peasant-proprietor — • 
 The laws which regulate the distribution of manufactured produce are 
 similar to those which apply to agricultural produce — The distribution 
 of wealth is regulated either by competition or custom ; as a nation 
 advances, custom shows a greater tendency to succumb to competition 
 — ^Labourers cannot be injured by competition pages io8 — 114 
 
 Chapter III. Rents as determined hy Competition. 
 
 Origin of Rent — Statement and proof of Ricardo's theory of Rent — Dr 
 Whewell's objections to this theory — How rents are affected by various 
 circumstances, such as the following: a reduction in the average rate of 
 profit ; the introduction of improved implements ; a rise in agricultural 
 wages — In what sense the interest of the landlord is opposed to that of 
 the farmer and labourer — Rents are raised more by an increase of 
 population than by any other cause — The profit arising from capital 
 spent in improving land, is rent — The drainage companies — Rent is 
 not an element in the cost of producing food 115 — 130 
 
 Chapter IV. On Wages. 
 
 Wages are determined by a ratio between capital and population — The 
 meaning of the expression that wages are regulated by demand and 
 supply — The great increase which has taken place in the production 
 of wealth in late years, has not been accompanied by a corresponding 
 improvement in the condition of many of the labouring classes — Mr 
 Brassey, in his book Work and Wages, shows that the wages of some 
 labourers have not increased at all during the last 20 years ; therefore, 
 considering the increase in the cost of living, the real remuneration 
 of their labour is diminished — This fact is to be attributed to three 
 causes, viz. the increase of population, the extended use of labour- 
 saving machinery, and the export of capital — Malthus's Essay on 
 Population affirms that checks on population are positive and pre- 
 ventive — The five causes which, according to Adam Smith, produce 
 different rates of wages in different trades — An explanation of the 
 different rates of wages prevailing in different localities — How wages 
 are affected by good or bad trade — When a branch of industry is de- 
 pressed a great injury is often done to the labourers, by inducing them, 
 through aims and parochial relief, to remain in the locality — Striking 
 example of this afforded by the Lancashire cotton famine 131 — 156 
 
xiv Contents. 
 
 Chapter V. Profits. 
 
 Profits are composed of the three following elements : interest on capital; 
 compensation for risk ; wages of superintendence — ^Each trade has a 
 certain rate of profit peculiar to itself — This is termed the natural 
 rate of profit — The profits realised in each trade constantly approxi- 
 mate to the natural rate — The causes which determine the general 
 average rate of profit — In what sense Eioardo's proposition is true, 
 that the rate of profit depends on wages — The rate of profit really 
 depends upon the cost of labour — The high rate of profit prevailing 
 in Australia explained — Cost of lahour is a function of the three fol- 
 lowing variables : the efficiency of labour ; the amount of wages esti- 
 mated in produce ; and the cost at which this produce can be purchased 
 — The effect of each of these three causes upon the rate of profit illus- 
 trated — Capitalists and labourers are both benefited by an increase 
 of the efficiency of labour and by a diminution of the cost of the 
 necessaries of life — The benefit to the labourer will only be temporary 
 if an increase of population is stimulated — The influence exerted on 
 profits and wages by the export of capital pages 157 — 180 
 
 Chapter VI. Peasant Proprietors. 
 
 Distinction between a peasant-proprietor and a small tenant-farmer — 
 When land is rented, large farms, are more advantageous in England 
 than small farms — Peasant proprietors of Flanders and Norway — The 
 testimony of Arthur Young, Mr Thornton and others, concerning 
 peasant-proprietors — The aggregation of land in England is promoted 
 partly by artificial and partly by natural causes — The effects of the 
 laws of primogeniture and entail considered, also the influence exerted 
 by the costly system of conveyancing — The social effects of peasant- 
 proprietorship considered — The condition of our own agricultural la- 
 bourers and that of the peasant proprietors of the Continent contrasted 
 — Mr Jones's opinion refuted, that peasant-proprietors are imprudeut 
 with regard to marriage — It is eiToneous to suppose that the advocates 
 of the system of peasant properties desire the introduction of the 
 French law of compulsory subdivision — The combined advantages 
 resulting from large farming and peasant properties may be secured 
 if land is owned and cultivated by associations of labourers — The 
 recent emancipation of the serfs in Eussia will extend upon a vast 
 scale the system of peasant properties — The land reforms, carried out 
 in Prussia by Stein and Hardenberg, quoted to show the advantages 
 Kussia may anticipate from the emancipation of her serfs 181 — 202 
 
 Chapter VII. Metayers and Cottiers, and the Economic 
 aspects of Tenant-Bight. 
 
 Metayer and Cottier tenancy described — In the metayer tenure the rent 
 paid is always a fixed portion of the produce, but not always one-halt — 
 In Tuscany the metayer rent is two-thirds of the produce — The me- 
 tayers who cultivate the most fertile land enjoy a beneficial interest — 
 
Contents. 
 
 Fixed customs regulate the conditions of the metayer tenure, although 
 these conditions vary in different countries — The contradictory opinions 
 ■with regard to the effects of metayer tenure explained — Why metayer 
 farming is bad in France and extremely good in Italy — The condition 
 of Irish cottiers most deplorable — Cottier rents are regulated by the 
 competition of population, and are therefore often so high as to be 
 
 merely nominal — The Irish tenure termed ' conacre ' explained The 
 
 Ulster tenant-right is e premium paid for the good-TOll of a farm by 
 the incoming to the out-going tenant ; tenant-right is also often under- 
 stood to mean compensation for unexhausted improvements — The Irish 
 Land Bill of 1870 — Mr Howard's Tenant-right BiU for England ex- 
 plained. Such legislation is justified not on the ground that it pro- 
 tects the tenant, but that it promotes the general weUbeiug of the 
 community by encouraging a better system of farming — The Ulster 
 tenant-right had no legal sanction previous to 1870 — Tenant-right, 
 when it represents compensation for unexhausted improvements, might 
 with great advantage be established by law in all countries where the 
 land is not generally cultivated by those who own it — Such a tenant- 
 right would encourage farmers to devote more capital and energy to 
 agriculture — Tenant-right in England can be supported by arguments 
 Bimilaj to those which are urged in its favour in Irelaud..PAGES'203 — ^^o 
 
 Chapter VIII. National Education and other Remedies 
 for Low Wages. 
 
 TLe average wages are determined by a ratio between capital and the num- 
 ber of the labouring population — If this ratio remains constant, wages 
 cannot be increased, miless profits are diminished, or labour is made 
 more efficient — Any advance in wages in a particular trade, which 
 reduces the profits of that trade below the current rate, cannot be per- 
 manent — A law to regulate wages must either be mischievous or nuga- 
 tory — ^Equally unsatisfactory results would ensue if the length of a, 
 day's work were regulated by law — Associations of labourers when 
 carrying on business on their own account have an opportunity of 
 showing whether men who now suffer from excessive employment 
 could do as much if they worked a smaller number of hours each 
 day — The State cannot find work for all the unemployed, unless popu- 
 lation is restrained by law — No remedy for low wages can exert any 
 decided permanent influence unless it increases the efficiency of labour 
 and improves the social and moral condition of the labourers — Hence 
 it will be shown that National Education is not only the most effectual 
 but also an essential remedy — Explanation of the way in which educa- 
 tion directly increases the efficiency of labour — Education indirectly 
 promotes industrial prosperity by diminishing the burdens of local 
 taxation — ^Widespread ignorance indicates premature employment 
 from which manifold evils result — Education promotes prudential 
 habits — Until many of our labourers become more frugal an advance 
 in wages will produce no permanent advantage because it stimu- 
 lates an increase of population — Emigration may be a most effi- 
 cient remedy for low wages — In the present condition of the people 
 the relief which emigration gives to an overstocked labour market is 
 frequently neutralised by an accompanying increase of population — 
 
xvi Contents. 
 
 The education of the people can only be secured by a compulsory 
 eystem — The defects of the Education Act of 1870, so far as it deals 
 with compulsion — The principle of the Factory Acts is that education 
 is enforced on children who are at work ; there are much stronger 
 reasons why it should be enforced upon children who are not at work 
 — Compulsory education does not even temporarily injure those parents 
 whose children are not at work — The difficulty suggested by the poverty 
 of the parents considered, if compulsory education were enforced upon 
 the children of agricultural labourers — This difficulty not so great as 
 at first sight appears, because our worst-paid labourers only receive 
 minimum wages — The difference between the ultimate effects of a 
 poor-rate and an education rate explained- — The advantages resulting 
 from the allotment system may in future greatly increase — The en- 
 closure of commons has often inflicted great injury not only on the 
 poor but also on the general public — These enclosures ought generally 
 in future to be resisted — The test of the efficiency of any means of 
 raising the condition of the poor is this : Will it tend to make the 
 poor ultimately rely more upon self-help? pages 231 — 239 
 
 Chapter IX. Trades' -Unions and Strikes. 
 
 An explanation of the functions of a trades' union — Trades' unions pro- 
 duce their greatest effect upon wages if they restrict the number of 
 workmen employed in a trade — This is attempted to be done by limit- 
 ing the number of apprentices — Such restrictions, if carried into effect, 
 inflict great injustice on the labouring class ; they also raise the price 
 of commodities, and may jeopardise the existence of an industry — 
 As an example of this, the effects of the trades' unions at Birmingham 
 and Sheffield may be quoted — Trades' unions not necessarily connected 
 with strikes — Workmen have a right to combine and to join a strike 
 if they use neither intimidation nor violence in support of their com- 
 bination — The majority of intelligent artisans are in favour of trades' 
 unions — Their effect on wages described — They could exert no in- 
 fluence on wages if the effect of competition were instantaneous — ^But 
 competition acts slowly, and in some cases, as with the wages of some 
 agricultural labourers, it is neutralised for an indefinitely long period 
 — Wages are fixed in the same way as a bargain carried on by the 
 buyer and seller of a commodity — ^In order to improve their position 
 in adjusting this bargain, employers and employed form combinations 
 with others of their class — They are thus placed in a position of equality 
 — Bargaining imphes antagonism of interest— As long as wages ai-e 
 fixed by a bargain, strikes wOl continue to occur, because in settling 
 the terms of a bargain it must often happen that one party will refuse 
 to accept the price offered by the other — Conciliation and arbitration 
 are not effectual remedies for strikes, because they do not remove the 
 antagonism of interest between employers and employed — This is 
 effected by copartnerships — The principle of copartnership defined — 
 Its benefits extend both to employers and employed — There are many 
 collateral advantages connected with copartnership— It has been adopted 
 with great success by M. Leolaire and others^— It is well suited to 
 agriculture — The experiment of Lord George Manners at Newmarket — 
 The progress of the movement wiU be greatly assisted by national 
 education 2 40 — 2 5 5 
 
Contents. xvii 
 
 Chapter X. On Cooperative Institutions. 
 
 Cooperation exists in its complete form, when labourers supply the capital 
 which their industry requires — Many of the so-called cooperative stores 
 are not truly cooperative, because they distribute the profits between 
 the shareholders and the customers, and give no portion of them to 
 labour — The origin of the cooperative movement in England — The 
 history of the Eochdale Pioneers' store — In the Eochdale store the 
 ordinary retail prices are charged, and the profits are distributed 
 among the customers in proportion to the amount of their purchases 
 at the end of each quarter — In the Civil Service stores the customers 
 receive their share of the profits by being charged a reduced price for 
 goods— Cooperative stores give no credit — Great advantages result 
 from this — The Wholesale Society was established to supply goods to 
 cooperative stores — This society manufactures many of the goods it 
 sells — Cooperative production — The progress of cooperative cotton 
 mills — The question of the right of labour to a share in the profits of 
 cooperative societies is stiU. unsettled — ^It is much easier to apply co- 
 operation to distribution than to production — ^Examples of successful 
 cooperative production in Paris — The cooperative masons and the 
 cooperative piauo-forte makers — Advantages of applying cooperation 
 to agriculture — The late Mr Gurdon's cooperative farms at Assington — 
 Mr Brand's proposal to allow agricultural labourers to invest their 
 savings in the farm on which they are employed — Cooperative bank- 
 ing — A description of , the cooperative banks in Germany founded by 
 M. Schulze-Delitzsch — The legislative enactments which have impeded 
 cooperation in England — A description of some undertakings which 
 are partly cooperative in their character, such as building so- 
 cieties PAGES 256 — 282 
 
 Chapter XI. The Nationalisation of the Land. 
 
 Two schools of social reformers represented in Germany by Lassalle and 
 Schulze-Delitzsch; from the former of these has originated the modern 
 socialism represented by the programme of the International ; foremost 
 in this programme is placed the Nationalisation of the Land — The 
 meaning attached to this expression is that the land now held by 
 individuals should be purchased by the State — Estimated cost of car- 
 rying out such a poKcy ; even under favourable circumstances it would 
 involve an annual deficit of £50,000,000, besides encouraging endless 
 jobbery and corruption on the part of the Government — A considera- 
 tion of the difficulties caused by the distribution among various appli- 
 cants of land of difierent degrees of productiveness — Would the land 
 be let at an uniform rent, or would the rent be proportioned to its pro- 
 ductiveness? — The former plan would involve national bankruptcy, the 
 latter would revive all the much-complained-of hardships caused by 
 competition — Advocates of nationalisation should remember that the 
 scheme would deprive building and cooperative societies of their land — 
 The weakening of individual responsibility and rehance on State inter- 
 ference are prominent characteristics of modem socialism — Socialists 
 usually evade the discussion of the main obstacle to their schemes, 
 viz. the increase of population — How this would affect the nationalisa- 
 tion of the land 285 — 303 
 
 F. M. 6 
 
xviii Contents. 
 
 Chaptee XII. On the Economic Aspects of Slavery. 
 
 Owing to the termination of the American war many remarks made in 
 this chapter are no longer pertinent to the present time. It has however 
 for various reasons heen thought desirable not to omit the chapter. 
 
 Slaves are a portion of fhe cultivator's capital ; hence, in slave cultiva- 
 tion, the produce is distributed between rent and profits — The ultimate 
 abolition of slavery chiefly turns upon economic considerations — The 
 late Professor Cairnes, in his work entitled "The Slave Power," affirms 
 that slave-labour has the three following defects : it is given reluctantly ; 
 it is unskQful ; it is wanting in versatility — The consequences of these 
 defects, traced — Slave-labour can only be profitably employed when 
 labour can be concentrated — No skilled labour can be carried on by 
 slaves — Mr Olmstead's testimony — No parallel between the condition 
 of slaves in Greece and the slaves of the present day — Slave-labour 
 impoverishes the soil, hence fertile virgin soils are required — The 
 acquisition of new territory is therefore indispensable to slavery — 
 Slavery will gradually cease to be profitable, and therefore will be ulti- 
 mately exterminated if restricted to a definite area pages 304— 311 
 
 BOOK III. 
 
 EXCHANGE. 
 Chapter I. On Value and Price. 
 
 Why it is advantageous to discuss the production and distribution of 
 wealth, before considering the exchange of wealth — Value and price 
 defined — Value is a relative expression, and implies comparison — 
 Price is the value of a commodity estimated in money — There cannot 
 be a general rise in values, but there can be a general rise in prices — 
 When the value of one commodity is compared with that of another, it 
 is always done by comparing their prices — Hence we depart from the 
 method usually pursued, and proceed at once to consider the laws which 
 determine the price, and not the value, of commodities — The assump- 
 tion is in the first instance made, that any alteration in the price of a 
 commodity is not produced by a change in the value of the precious 
 metals 315 — 318 
 
 Chapter II. On the Causes which Regulate the Price of 
 Commodities. 
 
 Commodities, when their price is investigated, are divided into three 
 classes : the first class comprises those commodities whose supply is 
 absolutely limited ; the second class comprises those commodities which 
 become more expensive as their supply is increased ; the third class 
 embraces those commodities whose supply can be increased without 
 their becoming more expensive — Articles of virti, agricultural produce, 
 
Contents. 
 
 and manufactured produce, are representatives of these three classes — 
 The laws of price which apply to the first class, illustrated by con- 
 sidering how the price of one of Turner's pictures is determined; it 
 ■would be usually said that the price of such a picture is regulated by a 
 ratio between the demand and the supply — This is erroneous; the price 
 must be such as to equalise the demand to the supply — ' Effectual 
 Demand ' defined — ^Value is composed of two elements ; represented 
 by value in use, and by the difiiculty of obtaining an article — These 
 elements symbolised by letters U and D — No article can have an ex- 
 change value unless U and D are both present — The price of almost 
 every commodity depends upon D, the element U being only partially 
 operative — U exerts its full infiuence with regard to those commodities 
 which are comprised in the first class above enimierated 
 
 PAGES 319—325 
 
 Chapter III. On the Price of Agricultural and Mineral 
 Produce. 
 
 The price of agricultural produce must be such as to give the farmer the 
 ordinary profit for his capital and for his labour of superintendence — 
 If, therefore, the rent of land increases without a diminution in the 
 farmer's other expenses, the price of agricultural produce must rise in 
 order that the farmer may be compensated — Eicardo's theory proves 
 that rents must rise if, as population increases, worse land has to be 
 cultivated; but if rents rise, the price of agricultural produce must 
 rise — The land which is on the margin of cultivation only pays a 
 nominal rent ; and the price of agricultural produce must be always 
 such as to give the ordinary rate of profit for cultivating this land — 
 From this last proposition it follows that the price of agricultural pro- 
 duce is not affected by the payment of rent, but by the demand for 
 agricultural produce, since the demand determines how far the margin 
 of cultivation must descend — The rise in the price of agricultural pro- 
 duce consequent on an increase in population may be counteracted 
 either by agricultural improvements or by the importation of corn — 
 The price of mineral produce is regulated by laws similar to those 
 which determine the price of agricultural produce— A commodity is 
 said to be at its natural price, when its price is such as to equalise the 
 supply to the demand — The natural price denotes a position of equili- 
 brium — A parallel drawn between this position and the elliptic planetary 
 orbits — An increase or decrease in the demand does not necessarily 
 produce a proportionate increase or decrease in price — Under certain 
 circumstances an increase in the demand, say of 10 per cent., may pro- 
 duce a rise in price of 50 per cent. — ^This ciroumstanos fxplains the 
 recent great rise in the price of coal — The extremely heavy burden cast 
 upon the community by this rise in the price of coal — The proprietors 
 and lessees of coal mines probably gained not less than £40,000,000 
 a year at the expense of the general consumer — Increased economy in 
 the use of coal is the only compensation which the nation can derive 
 from this rise in the price of coal — The great rise in the price of coal 
 was succeeded by a fall — The causes of this fall examined — The fall 
 was partly due to a general depression of trade, and paitly to the in- 
 creased production of coal, stimulated by exceptionally high profits 
 and wages 326 — 336 
 
 62 
 
XX Contents. 
 
 Chapter IV. On the Price of Manufactured 
 
 Commodities. 
 
 Wliy the laws of price wMch apply to agricultural produce do not apply 
 to manufactured produce — An increased demand for a manufactured 
 commodity may economise some of the processes of manufacture and 
 thus diminish the price of a commodity — This iUustrated by Mr 
 Thompson's invention for boatbuilding — The competition of capital 
 causes a certain average rate of profit to belong to each branch of in- 
 dustry — Hence the price of a commodity must have a constant tend- 
 ency to be such as to give this particular rate of profit — Consequently 
 the price of a manufactured commodity constantly approximates to its 
 cost of production — Cost of production includes the profits of the pro- 
 ducer — Sudden fluctuations in the demand or supply may cause the 
 price of a commodity to vary greatly from its cost of production — These 
 variations in price, though great, are, however, only temporary, since 
 the competition of capital is constantly tending to make the price again 
 equivalent to the cost of production — This iUustrated by an example of 
 a sudden demand for rifles — There is a constant tendency in operation 
 to equalise the demand for a commodity to its supply, both when the 
 price of the commodity is regulated by its cost of production, and 
 when its price is disturbed by sudden fluctuations in the demand and 
 supply PAGES 337 — 348 
 
 Chapter V. On Money. 
 
 Why we discussed the price of commodities before we considered the sub- 
 ject of money — Money provides a medium of exchange, thus obviating 
 barter, and money also serves as a general standard of value — It is not 
 necessary, but it is most convenient, that money should be made of the 
 precious metals — Any substance may be chosen as a general measure 
 or standard of value ; if wheat was thus selected, the price of all com- 
 modities must be estimated in wheat — The substance which is chosen 
 as money ought, as far as possible, to possess the following qualities : 
 its value should be uniform ; it should possess an intrinsic value of its 
 own ; it should contain a great value in small bulk — Gold and silver 
 do not vary much in value, because the cost of obtaining these metals 
 is not liable to any great changes, and, except on rare occasions, the 
 supply of these metals is not subject to sudden fluctuations— The 
 quantity of gold and silver which is used for other purposes besides 
 being coined into money is comparatively small, and therefore the 
 quantity of gold required for such purposes does not vary greatly — Gold 
 and silver have always possessed an intrinsic value of their own, since 
 no other substances are so well qualified for ornaments ; the brightness 
 of these metals gives them beauty ; they can be long preserved, and 
 their malleability makes them easily worked into artistic forms — These 
 metals have always been scarce— Hence they possess the third requisite 
 for money, since they contain great value in small bulk— Copper money 
 is used for the convenience of making small payments — The incon- 
 venience of a double standard— If gold and silver are both made a 
 standard of value, then this standard is subject to increased varia- 
 tions—The arrangements adopted by our own Mint explained— Gold is 
 in our own country the only standard of value, since silver and copper 
 money are merely made subsidiary coins 349 — 360 
 
Contents. xxi 
 
 Chapter VI. On the Value of Money. 
 
 'Value of money' is an ambiguous expression — It is popularly used to 
 describe the current interest, as represented by the bank rate of dig- 
 count — In Political Economy value of money means the purchasing 
 power of money — Hence the value of money increases as general prices 
 decline, and vice versd — The value of gold in bullion must be the same 
 as the value of gold when converted into money — The fallacy of con- 
 sidering that the value of gold has remained unchanged, because the 
 price of gold never varies — The value of money is determined by the 
 same laws as those which regulate the value or price of all mineral 
 produce — Gold is devoted to two distinct purposes : first, it is coined 
 into money ; secondly, it is employed for purposes of ai-t and manu- 
 facture — The quantity of gold required for the last of these two pur- 
 poses does not vary greatly from year to j'ear — Hence any increase in 
 the quantity of gold produced must be almost entirely converted into 
 coin — The amount of money any country requires partly depends upon 
 the amount of its wealth, and partly upon the number of times which 
 any commodity is bought and sold for money — The amount of money 
 which a country keeps in circulation is no accurate measm'e of its 
 national wealth — A country requires a greater amount of money in cir- 
 culation as its wealth and population increase — In the case of an ordinary 
 commodity, the demand is equalised to the supply, by either a rise or 
 fall in the price of the commodity — But the price of gold is a meaning- 
 less expression ; hence, in the case of money, the demand is equalised 
 to the supply by a rise or fall in the value of the precious metals — The 
 demand for a commodity varies with its price, but the ratio of this 
 variation cannot be precisely defined, for it varies greatly with different 
 commodities — This last proposition illustrated by examples — The de- 
 mand for the precious metals varies, cceteris paribus, precisely in the 
 inverse ratio of their value, if imiformity in general prices is pre- 
 served — If we suppose that the precious metals are solely employed as 
 money, a nation has a demand for a greater or less amount of money, 
 in order to maintain general prices unchanged — Hence, if the wealth 
 and population of a country increase, the demand for money will in- 
 crease — It is most important that the value of gold, or, in other words, 
 that general prices, should fluctuate as little as possible — The supply 
 of gold is cateris paribus increased if the value of gold advances, be- 
 cause gold-mining becomes more profitable — But an increase in the 
 value of gold is caused by a deficiency in its supply — Hence an in- 
 creased demand for gold stimulates an increased supply ; consequently 
 iixe demand is equalised to the supply, and thus a tendency is brought 
 into operation to preserve uniformity in general prices — This process 
 of equalisation is analogous to that which takes place with regard to 
 every other commodity — In the absence of any counteracting circum- 
 stances, the value of the precious metals must increase if the cost of 
 obtaining them is increased, and vice versd their value must decrease if 
 the cost of obtaining them is diminished by the discovery of more pro- 
 ductive mines paoes 361 — 376 
 
 Chapter VII. Foreign Commerce or International Trade. 
 
 Foreign commerce enables the capital and labour of a country to be 
 applied to those branches of industry for which it possesses special 
 
Contents. 
 
 advantages — ^If two countries produce commodities at a different relative 
 cost, foreign trade becomes profitable to them both — Hence, it is pos- 
 sible that foreign trade may be profitable to two countries, although aU 
 the commodities exchanged might be produced cheaper in one country 
 than in the other — The bargain of international trade is adjusted by 
 equalising the supply of a commodity to the demand for it— The profit 
 arising from foreign commerce is shared between two trading countries 
 in the inverse ratio of the demand which each has for the commodities 
 imported from the other — If England exports iron to France, and im- 
 ports wheat, and if the cost of producing iron is cheapened in England, 
 but not in France, the terms of the international trade must be again 
 adjusted, so as to equalise the demand to the supply — It is quite pos- 
 sible, under the circumstances just supposed, that the cost to France 
 of the iron she imports nmy be reduced by an amount exceeding the 
 diminution in the cost of producing this iron in England — The gain 
 which results from international trade is distributed amongst the con- 
 sumers of the commodities imported, and cannot be appropriated, 
 either by the producers of exported commodities, or by the merchants 
 who oarry on foreign trade — Foreign trade will generally cause the 
 price oi a commodity which is exported to rise in the home market — 
 The home producers of a commodity may temporarily suffer loss, if 
 the price of a commodity is reduced in consequence of foreign importa- 
 tions — But inequahties in the rate of profit in any industry will always 
 be ultimately removed by the competition of capital — The rent of land 
 may be permanently reduced, if agricultural produce is cheapened by 
 foreign importations — Foreign trade affects the price, both of the im- 
 ported and exported commodity — The equation of international trade, 
 therefore, requires a very complicated process of adjustment, since the 
 price both of the imported and exported commodity must be such as to 
 equalise the supply to the demand for these commodities in both the 
 trading countries — Foreign commerce raises the price of the commodi- 
 ties exported, and reduces the price of those imported — Hence labourers 
 may be injured if the ordinary necessaries of life are exported in ex- 
 change for commodities which the labourers do not largely consume — 
 The labourers wiU generally be compensated for this possible injury by 
 an increase in their money wages, because foreign commerce economises 
 labour and capital, and therefore enables higher wages to be paid with- 
 out encroaching upon profits— A consideration of the arguments in 
 favour of protection which are current in the United States and in 
 Australia^The fallacy explained of what is called 'reciprocity of free 
 trade' — The cost of exporting and importing commodities may be 
 borne in different ratios in two different countries — The greatest por- 
 tion of this cost of carriage would be borne by the country whose de- 
 maud is least diminished by the commodity being increased in price, 
 in consequence of the cost of carriage — If it is assumed that there is 
 perfect free trade between the two countries, then there cannot be a 
 greater difference in the price of any commodity in the two countries 
 than is equivalent to the cost of carriage — The principles investigated 
 in this chapter are equally true when a great number of commodities 
 are interchanged, and when foreign commerce is not restricted to two 
 countries — When it is said that, in order to satisfy the equation of 
 international trade, the commodities which a country imports must be 
 equivalent in value to those which she exports, it is assumed that a 
 country has no other payments to make to other countries except for 
 goods imported, and no other payments to receive except for goods 
 
Contents. xxjii 
 
 exported — If a country is a debtor of other countries, then her exports 
 ■will exceed in value her imports by an a,mount ecpivalent to this in- 
 debtedness — If a country is a creditor of other countries, then her 
 imports 'will exceed in value her exports by an amount equivalent to 
 the net indebtedness of other countries to her — These principles ex- 
 plain why the exports of India always greatly exceed her ino^orts, and 
 why, on the other hand, the imports of England greatly exceed her ex- 
 ports PAGES 377 — 4H 
 
 Chapter VIII. On the Transmission of the Frecions 
 Metals from One Country to Another. 
 
 In a note at the beginning of this chapter, it is shown that the value of 
 the metal selected as the standard currency is the same whether in 
 bullion or in coin, when the Government makes no charge for coinage 
 — The precious metals are distributed in two ways; filst, they are 
 exported from the mining ooimtries as an ordinary commodity of 
 commerce ; secondly, they are transmitted from one country to another 
 in the form of money — The value of the precious metals is regulated 
 by laws identical with those which regulate the value of any other 
 commodity which is exchanged in foreign commerce — The precious 
 metals are constantly transmitted in the form of money from one 
 country to another, because, in the first place, they contain great value 
 in a small bulk, and secondly, every kind of wealth can be purchased 
 by gold and silver — England is to a great extent, the emporium of 
 gold ; a great portion of the gold which is produced in Australia, Cali- 
 fornia, (fee. , is in the first instance sent to her, and then distributed by 
 her to the various countries of the world — Although England imports 
 and exports so much gold, yet the value of gold is kept in England 
 approximately constant — This constancy invalue is maintained, because 
 it is impossible to obtain an undue amount of the precious metals, 
 without producing a, decline in the value of gold, or, in other words, 
 a rise in general prices — If general prices rise in one country com- 
 paratively more than in another, the balance of trade is at once dis- 
 turbed; the exports from the country are diminished, and her imports 
 increased, and a drain of specie, consequently, at once commences — 
 There is tiieref ore a constant agency at work, which causes the precious 
 metals to be equally distributed over the world 406 — 413 
 
 Chapter IX. Foreign Exchanges^ 
 
 The commodities bought and sold in foreign commerce are usually paid 
 for by bills of exchange; this course is adopted in order a* far as pos- 
 sible to obviate the transmission of specie — A bill of exchange is a 
 written acknowledgment given to a creditor, that a debt due to him 
 shall be paid on a particular day — If the exports sent to a particular 
 country are equivalent in value to the imports received from a par- 
 ticular country, bills of exchange enable the transmission of sped© to 
 be as completely obviated as if the exports were exchanged for the im- 
 ports by barter — If the imports from France exceed in value the exports 
 from England to France, EngUsh merchants will have a greater 
 
Contents. 
 
 demand for bills drawn upon France, than French merchants for bills 
 drawn npon England — Bills drawn upon France will consequently be 
 at a premium — ^When this is the case, the exchange is said to be 
 against England, and in favour of France— A country has consequently 
 to export specie when the exchange is against her — Hence the expres- 
 sions 'favourable' and 'unfavourable' exchange are remnants of the 
 mercantile system — If the exchange is against a country, its money 
 will be depreciated in value, when compared with the money of a 
 country which has a favourable exchange — When a scarcity of gold is 
 anticipated, bills may rise to a greater premium or fall to a greater 
 discount than is represented by the cost of carriage — As an example, 
 bills drawn on France rose ten per cent, when it was known that 
 Napoleon had landed from Elba — If an unfavoirrable exchange always 
 required specie to be actually exported, the premium upon bills would 
 always closely approximate to the cost of transmitting specie — There 
 .are, however, constant fluctuations in the premium upon bills, because 
 an unfavourable exchange may be rapidly succeeded by a favourable 
 exchange — An unfavourable exchange cannot be of long continuance, 
 because it exerts a tendency to diminish the imports, and to increase 
 exports — An export of the precious metals, as ordinary commodities of 
 commerce, does not necessarily denote an unfavourable exchange. 
 
 PAGES 4 1 3 — 42 2 
 
 Chapter X. The Functions of Credit. 
 
 Credit signifies borrowing and lending, and therefore impKes confidence — 
 Credit is said to be good when there is confidence in those who borrow 
 — The credit of an individual, as well as the credit of a state, is mea- 
 sured by the rate of interest paid for money borrowed — The oft-repeated 
 maxim, that credit is capital, is a meaningless expression — Credit 
 greatly assists the production of wealth, because wealth which is em- 
 ployed as capital is often borrowed from those who would not them- 
 selves employ productively the wealth which they lend — The deposit 
 accounts which are held by banks Olustrate the extent to which credit 
 increases the capital of a country — Large public works, such as rail- 
 ways, could not be carried out if credit did not exist ; the capital which 
 they require is so large, that it must be borrowed from a great number 
 of individuals — Credit enables aU wealth which is saved to be applied 
 to the most productive purposes 423 — 429 
 
 Chapter XI. The Influence of Credit on Prices. 
 
 Bills of exchange, bank-notes, and cheques may be regarded as instru- 
 ments of Credit — A bill of exchange is a, written promise to pay a 
 certain amount at a fixed date ; a bank-note is a promise to pay a cer- 
 tain amount upon demand — Different bankers exchange their cheques 
 at the Clearing House, and the convenience of this course is great — 
 BiUs of exchange, bank-notes, and cheques provide substitutes for mo- 
 ney — Hence the infiuence exerted by credit on prices — ^When commodi- 
 ties are bought and sold by bills of exchange, the use of money is as 
 completely dispensed with as if commodities were exchanged by barter 
 . — ^If biUs of exchange were not employed, one of two things would hap- 
 
Contents. 
 
 XXV 
 
 pen ; either the money in circulation must he increased, or specie would 
 rise in value— It is credit, and not the particular form in which credit 
 is given, which provides a substitute for money — hook-credits, for in- 
 stance, although not existing in a transferable form, may provide as 
 complete a substitute for money as bills of exchange — Bills of exchange 
 cause the amount of credit which is given in a country to be much 
 greater than it would be if book credits were alone employed — A bank- 
 note is a more complete substitute for money than bills of exchange, 
 because if bank-notes did not exist, money must be employed in most 
 of the transactions which are carried on by bank-notes — If bank-notes 
 did not exist, either more money must be brought into circulation or 
 general prices would decline — A country requires a smaller amount of 
 money if it employs bank-notes; hence bank-notes economise wealth, 
 because gold and silver are valuable commodities — No effect is exerted 
 on prices by bank-notes, if they simply occupy the place of a corre- 
 sponding amount of money — General prices are advanced by a bank- 
 note circulation if bank-notes are added to the circulation without 
 causing a corresponding amount of money to be withdrawn — Credit 
 increases the purchasing power of each individual, and in this way ex- 
 erts a great effect on prices — The effect, though great, is, however, 
 temporary — Credit-purchases may enormously increase the demand 
 for a commodity, and hence raise its price — But this rise in price 
 is only temporary, because the price of all commodities ultimately 
 approximates to their cost of production — The great pm-ehasing jiower 
 which may be exerted by credit illustrated by the Tea speculations in 
 1839 — ^^^ provisions of the Bank Charter Act explained — Speculative 
 purchases which lead to a panic are not in the first instance made by 
 bank-notes; hence restrictions upon the issue of bank-notes do not 
 prevent commercial panics — In the latter stages of a panic, the demand 
 for bank-notes and other money increases because credit coUapses — 
 Hence it has frequently been necessary to suspend the Bank Charter 
 Act after a panic has continued some time — When trade is in its 
 ordinary state, the bank-note circulation would not be increased if 
 the Bank Act were repealed — The impression that the Bank Act will 
 be suspended in a commercial crisis, increases the uncertainty and 
 distrust prevalent at such a period — Creditors may be defrauded, and 
 general prices may be raised without limit, if inconvertible notes 
 are made a legal tender — These serious consequences do not occur if 
 inconvertible notes are not made a legal tender pages 430 — 450 
 
 Chapter XII. On the Bate of Interest. 
 
 The current rate of interest is determined by the price of Funds, because 
 these securities involve no risk— In this chapter, two questions have to 
 be investigated; in the first place, the causes which determine the 
 normal or average current rate of interest must be explained, and 
 secondly, the daily fluctuations in the current rate of interest must be 
 accounted for — The current rate of interest must be such as will 
 equalise the demand for to the supply of loans — The average current 
 rate of interest may be affected by national character, because some 
 nations are more prudent, and therefore satisfied with a smaller rate 
 of interest than others — If the average rate of profit advances, the 
 current rate of interest must also rise — The rate of profit depends on 
 
xxvi Contents. 
 
 the cost of labour ; the cost of labour increases if food becomes more 
 expensive — If the current rate of interest advances, the price of 
 securities and the price of land wiU decline — The causes which advance 
 the rate of interest generally exert an influence to diminish the rent of 
 land — Different rates of interest may prevail in different countries, 
 because the people of one country will not invest their capital in 
 another country without receiving some additional remuneration — 
 Temporary fluctuations in the rate of discount or in the rate of 
 interest are caused by variations in the demand for money — An 
 increase in the demand for money is generally produced by contrac- 
 tion of credit pases 451 — 460 
 
 Chapter XIII. On the Tendency of Profits to fall as 
 a Nation advances. 
 
 Adam Smith erroneously supposed that the rate of profit depended upon 
 general prices — A rise or fall in general prices need not necessarily 
 affect the rate of profit— Adam Smith was led into the error above 
 alluded to by misinterpreting the phenomena connected with the 
 depression and activity of trade — The average rate of profit is partly 
 the cause and partly the effect of the amount of capital accumulated — 
 When a country advances in population and wealth, two agencies 
 operate to reduce profits: in the first place, food becomes more 
 expensive, and the cost of labour is increased ; and secondly, a greater 
 capital is accumulated in proportion to the profits which can be 
 realised upon it — The decline in the rate of profit in England re- 
 tarded by the great amount of capital which we invest in foreign 
 countries — Industrial improvements, and the importation of cheap 
 food, may prevent the cost of labour increasing as a country advances 
 in population — This explains the fact that the rate of profit has not 
 declined in England, although her population and wealth have both 
 greatly increased — A nation is said to be in a stationary state, when 
 the rate of profit is so low that the accumulation of capital does not 
 further increase— The stationary state was more likely to be attained 
 in the last century than at the present time — Surplus capital is ab- 
 sorbed, or rather destroyed, in a commercial panic ; thus an influence 
 is exerted to sustain the average rate of profit — A high rate of profit 
 prevails in a colony, because fertile land is abundant — Agriculture 
 must be the staple industry of a young colony — The returns to agri- 
 culture must be great when only the most fertile soils need be cul- 
 tivated — Hence, in a colony, wages and profits are both generally 
 high 461 — 472 
 
 Chapter XIV. Of Over-production or Excess of Supply. 
 
 Malthus, Chalmers, and Sismondi feared over-production, and therefore 
 affirmed that some moral restraint ought to be exercised with regard to 
 the accumulation of capital — Over-production has two meanings; it 
 may either signify that commodities produced cannot be sold at 
 remunerative prices, or it may signify that commodities are produced 
 which are really not wanted — Over-production in its first signification 
 will cause the profits of a particular trade to be low : the trade is then 
 
Contents. xxvii 
 
 said to be dull or depressed, but suoli depression can only be tem- 
 porary — The Lancashire Cotton Trade would have exhibited this first 
 kind of over-produotion, if the American Civil War had not occurred — ■ 
 This excessive supply of cotton goods would not be wasted; they 
 would be readily purchased, if sold at sufficiently low prices — The 
 accumulation of capital may reduce profits, but never causes more 
 commodities to be produced than can be consumed — If capital con- 
 tinues to be accumulated, the wages of labourers would be increased — ■ 
 As an extreme case, it may be supposed that wages are so much 
 increased, that aU the wants of the labourer are satisfied; if, then, his 
 wages are still further increased, he will shorten his hours of toU. 
 
 PAQES 473 — 478 
 
 Chapter XV. On the Recent Discoveries of Gold and 
 Silver. 
 
 The annual supply of gold was trebled by the discoveries in Australia and 
 California — The expectation that this increased supply would cause a 
 great faU in the value of gold has not been fulfilled — There has only 
 been a moderate decUne in its value — The disadvantages which result 
 to a country from a variation in the value of the substance which it 
 uses as money — Difiiculty of estimating the change in the value of gold 
 by a comparison of prices at different periods — It is probable that there 
 has been a rise in general prices since the gold discoveries of about 15 
 per cent. — This opiinion is supported by the late Prof. Caimes and by 
 Prof. Jevons — The' value of the precious metals is determined by the 
 same laws which govern the price of agricultural produce, but because 
 mining is a more speculative industry than agriculture a decline in the 
 value of gold and silver will not so rapidly lead to the abandonment of 
 the least productive mines as a fall in the value of agricultural produce 
 will throw the least fertile soils out of cultivation — The absorption of 
 the large additional supplies of gold without producing a great fall in 
 its value affords conclusive evidence that the value of gold would have 
 greatly risen if these additional supplies had not been forthcoming — 
 The increase of commerce consequent on free trade and the develop- 
 ment of the railway system has absorbed much of the new gold — There 
 was also a large additional demand for silver : great quantities of silver 
 were sent to India during the American civil war to purchase cotton 
 and also for the construction of public works — As there was until lately 
 but a slight increase in the annual supply of silver, the additional 
 silver required for the East was to a considerable extent supplied from 
 the currencies of Prance, Germany and other countries ; gold partly 
 took the place of this sUver ; there was thus an increased demand for 
 gold, and another influence was in this way brought into operation to 
 maintain the value of gold— The prospect of a depreciation in silver 
 and other circumstances have caused silver to be much less used as 
 money in Germany and other countries — As silver is less used, gold is 
 more used, and this has caused an additional demand for gold — It is 
 impossible to foresee what will be the future value of gold, as there is 
 the greatest uncertainty whether its annual supply will increase or de- 
 crease — Its supply is likely to be increased to a considerable extent, 
 because of the large proportion of gold contained in the ore raised in 
 the silver mines recently discovered in the United States — As there is 
 
xxviii Contents. 
 
 much imcertainty about the future value of gold and silver, arrange- 
 ments wMeh involve fixed pecuniary -payments over a long period of 
 years should as far as possible be avoided — "Wly the gold discoveries 
 have exerted a special influence in promoting the prosperity of Australia 
 — Gold-digging is not more profitable than other Mnds of iudustry, 
 but a gold discovery acts more powerfully than any other cause to 
 attract labour and capital to a, colony — Other Mnds of industry in a 
 young colony involve, in the first instance, great risks; a supply of 
 labour must be insured, and much fixed capital has to be expended 
 in constructing roads, &c. — These obstacles impede gold-digging less 
 than any other industry pages 479 — 494 
 
 Ch;apter XVI. The Depreciation in the value of Silver. 
 
 The supply of silver remained almost stationary until about 1870, when 
 it very greatly increased — Silver has rapidly declined in price — The 
 rapidity of the fall when ootopared with the slight and gradual fall in 
 the value of gold explained by the circumstance that when the gold 
 discoveries were made there was a great additional demand for gold ; 
 whereas there has been a great falling off in the demand for silver at 
 the very time when its supply is increased — The falling off in the 
 demand for silver has been partly produced by the demonetisation of 
 silver in Germany and other European countries — There has been a 
 great falling off in the demand for silver in India — The quantity ex- 
 ported is now only a fourth of what it was 10 years since — This falling 
 off ill the demand is chiefly produced by the increasing proportion of 
 the Indian Revenue which is spent in England — The depreciation in 
 silver may be estimated in two ways : first by comparing its value 
 with that of gold, and secondly by considering its general purchasing 
 power — The recent faU in the price of silver has not yet been accom- 
 panied by a general rise of prices iu India— This rise in prices must 
 however ocom-, because it is now exceptionally profitable to purchase 
 goods in India and exceptionally unprofitable for the people of India to 
 purchase goods abroad — This will stimulate the export of silver to 
 India and check the fall in its price — India suffers peculiar inconveni- 
 ence and loss from a depreciation in the value of silver, because a large 
 portion of her revenue is fixed in pecuniary amount and is paid in 
 silver, and she has annually to pay a large sum to England in gold — 
 A gold currency is wholly unsuitable to India — The unadvisability of 
 attempting to maintain the value of the rupee in India by limiting the 
 coinage— The importance of guarding against fluctuations in the value 
 of gold and silver — India for a time wOl have to bear a serious loss 
 from the depreciation of silver, which must be met by increased 
 economy • 495— 513 
 
 BOOK IV. 
 
 TAXATION. 
 
 Chapter I. On the General Principles of Taxation. 
 Mr Mm and others give to this portion of the subject the general title 
 'The Influence of Government'— "We think it advisable to limit this 
 
Contents. xxix 
 
 portion of our subject to au enquiry into taxation — Adam Smith's 
 four rules, or 'canons' of taxation are the following — ist. Taxation 
 should be equal; ■znd. Taxation should be certain in its amount; 
 3rd. Taxes should be levied at the time and in the mode which cause 
 the least inconvenience to the tax-payer; 4th. A tax ought to obtain 
 for the Government as much as possible of the whole amount which is 
 levied from the tax-payer — Equality of taxation is impracticable, if it 
 means taxing people in proportion to their means ; this illustrated by 
 the case of two individuals possessing equal incomes, one of whom is 
 married, and the other not — With the view of obtaining equality of 
 taxation, it would be useless to attempt to tax people in proportion to 
 the protection which they derive from Government — The first principle 
 of taxation is enunciated by Adam Smith in very ambiguous language ; 
 he affirms that when there is equality of taxation, people are taxed in 
 proportion to their ability to pay — Equality of taxation will not be 
 secm-ed, if it is attempted to apply this principle to one special tax — 
 Equality of taxation is best Beeiured by a rough process of compen- 
 sation PAGES 517 — 526 
 
 Chapter II. On the Income-tax. 
 
 The proposal that temporary incomes should be taxed at a lower rate 
 than permanent incomes is supported, by some persons, first upon 
 arithmetical grounds, and secondly, upon the general principles of 
 taxation — The arithmetical argument is conclusive, that temporary 
 incomes ought to be taxed at the same rate as permanent incomes, 
 if it is assumed that the income-tax is uniform in amount, and 
 permanent — Temporary and permanent incomes ought to be taxed at a 
 different rate, if the continuance of the income-tax could ever be restrict- 
 ed to a definite period — Experience proves that this is impossible — The 
 difficulty and expense of collecting the income-tax would be greatly 
 increased, if an equitable rating of temporary and permanent incomes 
 should be attempted — It is generally affirmed that the income-tax 
 ought to be so adjusted, that each person should contribute to it in 
 proportion to his means — This principle, even if it could be carried 
 out, would not necessarily secure equality of taxation; this proposi- 
 tion illustrated by considering the remission of the tax upon small 
 incomes — Various other difficulties described, which render the adjust- 
 ment of the income-tax almost impracticable — The incidence of a tax 
 distinguishes the real from the nominal payer of the tax — The inci- 
 dence of the income-tax will partly fall on the labom'ers, if any portion of 
 the tax is paid out of capital — The wealth of a country may be seriously 
 affected by an income-tax, if the tax diminishes the national capital— 
 Hence, in India an income-tax would produce very serious conse- 
 quences, because there capital is accumulated very slowly — In England 
 an income-tax produces none of those serious consequences, since we 
 always have a large surplus capital to invest in foreign countries — If 
 the income-tax is remitted upon incomes of less than tool, a year, this 
 amount ought to be deducted from all larger incomes, and only the 
 remainder should be taxed — Reasons for and against a graduated 
 income-tax — The reasons against preponderate — One serious inequality 
 affecting the income-tax, is caused by the power which dishonest people 
 have of evading it 5^7 — M^ 
 
XXX Contents. 
 
 Chaptee III. Taxes on Commodities and other 
 Indirect Taxes^ 
 
 Distinction between a direct and an indirect tax; tlie former is really 
 paid by tbe person from -wliom it is levied ; the latter is levied from 
 one ..person, and paid by another — A tax is often made indirect by 
 custom ; for instance, the poor-rates are often paid by farmers, and 
 are therefore an indirect tax — ^Poor-rates might be paid by the landlord ; 
 they would then be a direct tax — None of our taxes on commodities are 
 protective — Taxes on commodities must be generally characterised by 
 inequality, because they can rarely be made ad valorem — Taxes on com- 
 modities are generally certain in their amount, and therefore obey 
 Adam Smith's second rule — As far as the consumer is concerned, taxes 
 on commodities are always paid at a convenient time, and therefore 
 obey Adam Smith's third rule — Some taxes, such as the tax on hops, 
 are obliged to be levied from the producer at a very inconvenient time 
 — The convenience of Bonding Houses — Taxes on conuuodities ought, 
 as far as possible, to be made consistent with Adam Smith's last rule 
 — Customs duties are most inexpensive to levy in an island, because a 
 land frontier is more difficult to protect against smuggling — Excise and 
 customs duties should be confined to a few articles of consumption — 
 The most serious objection against taxes on commodities is due to the 
 fact that a tax increases the price of a commodity by an amount which 
 exceeds the sum which the tax yields to the State — This objection 
 ought to be, as far as possible, guarded against ; hence a manufactured 
 commodity ought to be taxed in preference to the raw material-r-A tax 
 on a manufactured commodity is objectionable, because it necessitates 
 the enforcement of vexatious regulations by Government officers— It is 
 intended that import and excise duties should be paid by the con- 
 sumers, but an export duty is supposed to be mainly paid by foreigners 
 — This, however, rarely happens ; such a duty usually diminishes the 
 export trade of a country, and thus decreases her national wealth — 
 It would be most disastrous for England to impose an export duty 
 on silk goods, because, as far as this branch of industry is concerned, 
 we shoxild be unable in foreign commerce to compete with other 
 countries — The theory of international trade proves the impolicy of 
 protective duties — Landowners are the only class that can be per- 
 manently benefited by protective duties ; the value of the natural 
 monopoly which they possess may be artificially increased by pro- 
 tection — Protective duties cannot, in the long run, increase the profits 
 of any class of traders, because the competition of capital equalises 
 profits in difierent trades— The Com Laws benefited the landowners, 
 not the tenant farmers — The increased prosperity of the country com- 
 pensates landowners for the abolition of protective duties ; this illus- 
 trated by the rise in the rent of land in this country since the passing 
 of free trade — An industry artificially fostered by protection may be 
 destroyed by free trade; but this cannot be ultimately a loss to a 
 nation — A strong party in Australia are in favour of imposing protec- 
 tive import duties — They have supported this policy by a remark 
 in Mr Mill's Political Economy, in reference to an apparent exception 
 which he makes in favour of protective duties in certain branches of 
 industry in a young colony — A comparison between direct and indirect 
 
Contents. xxxi 
 
 taxation useless — ^Each system has its peculiar disadvantages ; hence 
 equality of taxation is best secured by raising the revenue, partly by 
 direct, and partly by indirect taxes pages 547 — 568 
 
 Chapter IV. On the Land-Tax aiid Poor-Rates. 
 
 The chief part of the revenue of India is raised by a land-tax — A land-tax 
 is simply rent — A land-tax neither diminishes the profits of the culti- 
 vator nor increases the price of agricultural produce — If a land-tax 
 exceeds a rack-rent in amount, the price of agricultural produce must 
 rise, and therefore the consumers of this produce will be virtually 
 taxed — The importation of produce will be encouraged if the land-tax 
 exceeds a rack-rent ; hence land wUL be thrown out of cultivation, and 
 the land-tax wiU yield a smaller revenue — The land-tax in this country 
 is small, because commuted at a fixed money payment — The tax-payers 
 would have been benefited if the land-tax had not been thus com- 
 muted, but had been fixed at a certain definite proportion of the value 
 of the land — A tithe may be regarded as a rent-charge, and tithes 
 neither diminish the profits of the cultivator nor affect the price of 
 agricultural produce — The Tithe Commutation Act was not quite fair 
 to tithe-proprietors, because tithes are not affected by a rise in the 
 price of stock — Agricultural improvements may be impeded if tithes 
 are not commuted 569 — 574 
 
 Chapter V. The Poor-Law and its Influence on 
 Pauperism. 
 
 The prevalence of pauperism in England — The allowance system exercises 
 a pernicious influence by stimulating population — Labourers have been 
 greatly injured by the law of Settlement — The provisions of the new 
 Poor-Law of 1834 explained — A national poor-rate is undesirable 
 because it would lead to extravagance — An investigation into the 
 incidence of poor-rates — Poor-rates when levied upon land faU upon 
 the landowner — 'When levied upon trade premises they are partly » 
 charge upon profits, and are partly paid by the consumers of com- 
 modities — When levied upon houses they fall jointly on the occupier 
 of the house and on the owner of the land on which it is built — Paro- 
 chial relief discourages prudential habits, and depresses wages — Con- 
 siderations in favour of gradually abolishing parochial relief — The 
 danger which would result if the State guaranteed employment to all 
 applicants — ^An evil influence is often produced by private charity — 
 It is generally wastefuUy administered — Charitable endowments ought 
 to be devoted to education — Breakdown of the present poor-law system 
 — The effect of various agencies, such as national education, in di- 
 minishing pauperism — Out-door relief ought to be greatly restricted— 
 By an Act recently passed the in-door relief given iu London is a charge 
 upon the whole metropolis ; whereas each district has to bear the whole 
 cost of the out-door relief which it affords to the poor residing within 
 it — This discouragement to out-door relief has been accompanied by a 
 great decrease in the number of paupers in London, especially in the 
 East end — In the Irish poor law out-door relief is greatly restricted — 
 In the Scotch poor law out-door relief is much more freely given ; the 
 
xxxii Contents. 
 
 results of the two systems shown in the fact that there is very much 
 more pauperism in Scotland than in Ireland — State emigration is a 
 doubtful and partial remedy for pauperism — Various means by which 
 labourers can render themselves independent of parochial relief — 
 Injury is inflicted on prudent laboiirers by parochial relief — Pauperism 
 is encouraged by the present position of women — State interference 
 with women's labour is unjust — The necessity of producing a marked 
 improvement in the condition of one generation pages 575 — 600 
 
 Chapter VI. Local Taxation. 
 
 In this country a great contrast exists between local and imperial finance 
 — The imperial revenue has been of late years so prosperous that 
 although the expenditure has been maintained at a. very high rate, 
 there have been repeated surpluses and constant remissions of taxa- 
 tion — In local finance the expenditure invariably exceeds the revenue, 
 and the deficiency is made up by loans — Statement of the local finance 
 of London in 1868 — Local expenditure is increasing much more rapidly 
 than the national wealth — This illustrated by the great increase of rates 
 in Liverpool since 1841 — Defects of administration arising from con- 
 fused areas of rating and from multifarious rating bodies — The creation 
 of many new rates — The demand for new rates is encouraged by the 
 idea that an increase of local expenditure is of little consequence in a 
 country so rapidly increasing in wealth as England — Fallacy of this 
 explained — Arguments against meeting local expenditure by grants 
 from the Consolidated Fund 601 — 613 
 
 Chapter VII. The Incidence of Local Taxation. 
 
 Local taxation consists almost entirely of rates on real property — Figures 
 quoted to prove that rates in towns are generally much higher than in 
 country districts — Land is contributing a constantly decreasing amount 
 to local taxation in comparison with other kinds of property — In the case 
 of cultivated land, although the rates are usually paid by the occupier, 
 their real incidence is upon the owner of the land — In the case of 
 houses the incidence of by far the larger portion of the rates is upon 
 the occupier ; a small portion only falling upon the owner of the land 
 on which the house is built — If, however, the house possesses such 
 exceptional advantages of situation that the rent is only in a small 
 degree determined by the cost of building, then the incidence of the 
 rates is almost entirely upon the owner of the ground — ^When a uni- 
 form and general rate is imposed on business premises the rate really 
 falls on the consumer — ^When rates are exceptionally high in a particu- 
 lar district they are a special tax on the profits of trade in that district 
 — Bates imposed on railways and the railway passenger duty are a 
 charge upon the profits of the shareholders and are not paid by railway 
 passengers — The rates imposed upon water-works and gas-works are, 
 except in certain exceptional cases, paid by the shareholders — The in- 
 justice explained of carrying out works of improvement by loans, the 
 interest and capital of which are paid off in a fixed number of years, in 
 the form of additional rates by the leasehold occupier, as distinguished 
 from the owner of houses, land, and other rateable property.. .614 — 631 
 
POLITICAL ECONOMY. 
 
 BOOK I. 
 PRODIJCTION" OF WEALTH. 
 
CHAPTER I. 
 
 INTRODUCTORY REMARKS. 
 
 ALL who have studied an exact science must liave 
 J\. experienced the formidable difficulties which ele- 
 mentary chapters invariably present. The young mathe- 
 matician may well be staggered at the discussions usually 
 annexed to the enunciations of the laws of motion;- the 
 axioms in his Euclid, which he is told to believe are self- 
 evident propositions, offer philosophic questions of such 
 complexity, that they continue to form an arena upon 
 which the subtlest intellects contend. 
 
 A definition of political eco^iomy, and an inquiry into 
 the method of investigation that ought to be pursued in 
 this science, involve considerations which are sure to per- 
 plex the beginner ; but the young mathematician need 
 not be driven away from his Euclid because philosophy has 
 not decided whether axioms are intuitive truths, or truths 
 learnt from experience ; in a similar way, the stTident in 
 political economy ought not to have his faith shaken in 
 the truths of this science, because he has learnt before- 
 hand that political economists still dispute upon questions 
 of philosophic method. 
 
 We ask such a student to accompany us with an un- 
 biassed mind ; we will promise to lay before him truths 
 of great interest and great importance ; we will endea- 
 vour to render them intelligible, and when such a body of 
 truths has been accumulated in the student's mind, he will 
 be in a position to understand the exact nature and scope 
 of the science to which they belong. 
 
 Although it is not advisable in this place to attempt a 
 precise definition of political economy, yet it is necessary 
 to give a general idea of the class of phenomena which 
 
 A2 
 
 Difficulty 
 of the first 
 elements of 
 political 
 economy. 
 
 Prejudices 
 against 
 politicol 
 economjj. 
 
Manual of Political Economy. 
 
 BOOK I. 
 CH. I. 
 
 Political 
 
 economy is 
 
 primarily 
 
 concerned 
 
 with 
 
 wealth. 
 
 this science investigates ; it is all the more important 
 to do this, because the vagueness of popular conceptions 
 has generated a vast amount of prejudice towards political 
 economy. Hardhearted and selfish are the stereotyped 
 epithets applied to this science. Ill-defined antipathy is 
 sure not to rest long suspended upon a mere abstract idea; 
 it seeks some concrete object, and therefore the epithets 
 applied to the science are speedily transferred to those 
 ■who study it, and a political economist exists vaguely in 
 the haze of popular ignorance as a hardhearted selfish 
 being, who wishes to see everyone rich, but who has no 
 sympathy with those higher qualities which ennoble the 
 character of man. The error of this ignorant prejudice 
 will be abundantly exposed in these pages; but we will 
 make a few preliminary remarks upon it, in order to 
 convince the student that the political economist is not 
 the harsh being generally portrayed, but that he pos- 
 sesses that information which tells him how to improve 
 the lot of his fellow-men. He may therefore be the most 
 useful of all philanthropists ; because a mere desire to do 
 good without any principles of guidance is ever liable to 
 be a futile and a misdirected effort. 
 
 Political economy is concerned with those principles 
 which regulate the production, the distribution, and the 
 exchange of wealth. 
 
 The first great work on political economy was called by 
 Adam Smith ' The Wealth of Nations ; ' but political eco- 
 nomy is concerned alike with individual and national 
 wealth. Those who share the popular error above alluded 
 to, make this enquiry. Has a nation no other mission to 
 fulfil than to become rich? and should wealth be to the 
 individual the one absorbing aim of life ? But political 
 economy never even gives colour to the suspicion that the 
 creation and accumulation of wealth ought to be the great 
 object either of a nation's or of an individual's existence. 
 The springs of life's action are numerous ; society is held 
 together by a vast aggregation of motives and sympatbies. 
 Wealth is necessary to man's existence ; a great portion of 
 human exertion is stimulated by the necessity to labour, 
 in order to procure the commodities which maintain 
 life. When, therefore, we endeavour to consider the phe- 
 nomena connected with the production and distribution 
 
Introductory Remarks. 
 
 of wealth, we do not wish, in a feeling of opposition, to 
 ignore the other phenomena of man's social existence ; we 
 isolate this class of phenomena, because the necessities of 
 scientific investigation demand it. Every social question, 
 either directly or indirectly, iavolves some considerations 
 of wealth, and therefore has an aspect from which it must 
 be considered by political economy. Thus it may be pro- 
 posed to extend to the whole nation the system of compul- 
 sory education, introduced by the Factory Acts. Political 
 economy would point out how production in this country, 
 and how the wages of the labouring classes, would be 
 affected, by compelling every child under thirteen years of 
 age, who might be employed in any kind of labour, to 
 attend school a fixed number of hours per week. This is 
 an aspect of the question which must and would be con- 
 sidered, but even if the political economist should prove 
 that the production of commodities would be rendered 
 more expensive, he might be the first to admit that such 
 a loss of national wealth would be abundantly compensated 
 by the increased intelligence of the labouring population. 
 
 Numerous other examples might be given which would 
 still further prove the complete fallacy of the accusation 
 which is so constantly brought against political economy, 
 that it is a science which encourages selfishness and de- 
 grades the best feelings of human natura If a political 
 economist considers that the only aim and end of life is 
 the accumulation of wealth, then the individual ought to 
 be blamed, and not the science which he studies. Poli- 
 tical economy, if kept within its proper limits, does not 
 provide a code of social ethics which will enable us to de- 
 cide what is right or wrong, and what is just or unjust. It 
 is the business of political economy to explain the effect 
 which any circumstance such as the imposition of a tax, 
 or the enforcement of a particular land-tenure, will exert 
 upon the production, the distribution, and the exchange of 
 wealth; and it is therefore manifest that political economy 
 cannot take account of various other consequences which 
 may be independent of any considerations concerning 
 wealth. Thus, to revert to our original illustration, the 
 principles of political economy will enable us to ascertain 
 in what manner the wages of labourers and the production 
 of wealth will be affected by a compulsory system of 
 
 BOOK I. 
 OH. 1. 
 
 ■butdoesn^ 
 ignore 
 other mo- 
 tives than 
 the desire 
 for wealth. 
 
Manual of Political Economy. 
 
 BOOK I. 
 CH. i. 
 
 Meaning of 
 the word 
 ' wealth.' 
 
 Exchange 
 value. 
 
 national education. Hence the department of this ques- 
 tion which belongs to political economy is, as it were, 
 separated from those other departments of the question 
 which investigate whether or not the morality and the 
 social happiness of the people are increased by a system of 
 national education. It is therefore a fundamental error 
 to suppose that political economy ever asserts that the 
 higher motives which actuate human beings ought to be 
 discarded in favour of wealth. Some writers on this 
 science when discussing social questions may consider only 
 that part of a subject with which political economy is 
 concerned, and thus the eiTor may be committed of es- 
 tablishing general conclusions from an incomplete inves- 
 tigation. Hence political economists have sometimes 
 appeared to be harsh and narrow-minded, but it is as idle 
 upon these grounds to accuse political economy of being 
 selfish and hardhearted,, as it would be to blame geology 
 because an injudicious and enthusiastic geologist ignored 
 and despised other branches of physical science. 
 
 It must moreover be borne in mind that although senti- 
 mental moralists may profess to sneer at wealth as one of 
 the idle vanities of this world, yet there can be no doubt 
 that, even in England, the great besetting evil of the nation 
 is the poverty of the humbler cla.sses, and that these people 
 cannot make any great social advance until a decided 
 improvement has taken place in their material condition. 
 
 We have described political economy as a science which 
 is concerned with the production, the distribution, and 
 the exchange of wealth. But the meaning of wealth, 
 though a word of every-day use, will not probably be 
 adequately understood without some elucidation. 
 
 Wealth may be defined to consist of every commodity 
 which has an exchange value. 
 
 The necessity of the limitations introduced into this 
 definition may be readily shown. The air we breathe is of 
 course not only a want, but a necessity of life ; yet it can- 
 not be regarded as wealth, because it caa be obtained 
 without labour and its supply is unlimited, and it there- 
 fore has no exchange value. Water very generally can 
 be obtained in an unlimited quantity, and therefore it is 
 not wealth; but the population of a large town would 
 soon absorb all the water which nature spontaneously 
 
Introductory Remarks. 
 
 provides, and therefore water must be supplied by attip 
 ficial means. It then at once possesses an exchange value, 
 and is justly considered to be wealth. Wealth, therefore, 
 is not determined by the nature and quality of a com- 
 modity, but rather by the circumstances in which that 
 commodity may be placed. A gallon of the water which 
 flows from the springs at Amwell is not, there, wealth; 
 it would be as valueless to sell as a cubic foot of air, be- 
 cause, there, a supply of water can be as easily obtained 
 as a supply of air; but that same water conveyed a few 
 miles, to the metropolis, produces the large annual reve- 
 nues of the New River Company. 
 
 The character of wealth may be also given to a com- 
 modity by the shifting caprice, or by the changing wants 
 of man. It thus becomes evident that exchange value 
 is the characteristic which stamps a commodity with the 
 attribute of wealth. 
 
 The most striking variations in wealth are exhibited by 
 the same nation in different ages, and by different nations 
 in the same age. There was a time when England was as 
 poor as any country which is now consigned to the wan- 
 dering savage, and yet she possessed then those same 
 natural resources which now so materially contribute not 
 only to form but to sustain her present wealth. The 
 richest seams of coal were unworked, but in those remote 
 times her population was in a condition in which they 
 could have no demand for coal, and therefore this article 
 had no exchange value ; and that commodity which is now 
 so valuable, could not then be legitimately classed as 
 wealth. Hence it is manifest that the social condition 
 of a nation and the state of its civilisation determine to 
 what extent natural resources may be classed as wealth. 
 
 Each stage through which progressive nations have ad- 
 vanced from barbarism to civilisation is preserved -at the 
 present time in some parts of the globe. The savage still 
 exists who lives by hunting and fishing; the wandering 
 Arabs are true types of the ancient nomad tribes whose 
 flocks and herds were grazed on natural pastures without 
 the aid of the large supply of food which would be yielded 
 even to the rudest agriculture. The village communities 
 of the East remain instructive examples of the patriarchal 
 iype of life ; the stereotyped condition of China exhibits 
 
 BOOK I. 
 CH, i. 
 
 Various 
 amounts of 
 wealth in 
 different 
 ages and 
 countries. 
 
Manual of Political Economy. 
 
 BOOK I. 
 CH. I. 
 
 Erroneous 
 mew of 
 wealth. 
 
 The mer- 
 cantile 
 
 the features of a remote civilisation. These great differ- 
 ences in wealth are partly due to physical causes, but they 
 mainly depend upon social circumstances^ and as far as 
 they do so, form the appropriate topics of political economy. 
 The mind of an Englishman so habitually contemplates 
 progress, that it is difficult to keep in view how large a 
 portion of the habitable globe is in an absolutely station- 
 ary condition. It is the duty of the political economist 
 to explain not ooly the conditions which determine pro- 
 gress in national wealth, but also the causes which tend 
 to make the material state of a country either stationary 
 or retrogressive. 
 
 It is even at the present day important to direct careful 
 attention to an erroneous conception of wealth, which was 
 universal until the appearance of Adam Smith's great work 
 in 1775. The error when once exposed may appear incap- 
 able of misleading a child, yet no error was ever more 
 tenaciously clung to; it not only corrupted speculative 
 science, but it infected the whole commercial policy of 
 every European nation. These errors are associated with 
 the policy which has received the name of the mercantile 
 system. The essence of the mercantile system was to 
 identify wealth with money. Now the use of money is 
 one of the first signs which marks a nation's progress from 
 barbarism towards civilisation. Societies even compara- 
 tively rude must be impressed with the necessity of 
 adopting some medium of exchange. This will be readily 
 understood by a cursory glance at the general functions 
 which money fulfils. In the first place, money provides 
 a measure by which to record the value of each commodity. 
 If, for instance, it is known that a sack of wheat is worth 
 twenty shillings, the value of the sack of wheat, compared 
 with any other article, can be at once ascertained when 
 the price of this last article is known. Money, moreover, 
 is not only a universal measure of value, but is also a 
 universal mediuni of exchange. A man may possess a 
 store of wheat which he requires to exchange for various 
 other commodities; money provides him with the ma- 
 chinery by which this can be readily effected. The wheat 
 has simply to be sold for so much money, and with this 
 money a certain amount of the other commodities required 
 can be purchased. But if the use of money did not pro- 
 
Inttoductorij Remarks. 
 
 vide a general medium of exchange, the whole transaction 
 must be conducted by barter; thus, if the individual 
 possessing the wheat required a coat, he would have to 
 discover some one who was willing to exchange the coat 
 lie wanted for wheat. Every transaction would under 
 these circumstances be conducted by barter. Commerce 
 thus impeded could never develope, and society never 
 advance beyond its primitive rudeness. But these im- 
 portant functions which money performs, engendered in 
 men's minds the fallacies of the mercantile system. For 
 the value of every commodity being estimated in money, 
 and every commodity also when bought or sold being 
 exchanged for money, men soon began to mistake the 
 symbol for the reality, and nothing was regarded as wealth 
 except money. A nation consequently tested the utility 
 of its commercial transactions with other nations, by as- 
 certaining whether the commerce caused money to flow 
 into the country. The whole commercial policy of a 
 nation was framed with a specific object of encouraging 
 the greatest possible accumulation of the precious metals. 
 No one would now profess adherence to the errors of the 
 mercantile system, but we shall have abundant oppor- 
 tunities of showing that they are still the secret prompters 
 of many a wide-spread fallacy. The consequences of the 
 mercantile system will be further discussed in those 
 chapters which treat of money. 
 
 These general remarks upon wealth will enable us at 
 once to proceed to the consideration of the production of 
 wealth, the first great division of political economy. 
 
 BOOK I. 
 CH. I. 
 
BOOK I. 
 CH. II. 
 
 Requisites 
 of produc- 
 tion. 
 
 Labour, 
 natural 
 agents, 
 
 CHAPTER II. 
 
 THE REQUISITES OF PRODUCTION. 
 
 THE production of every species of wealth requires the 
 application of man's labour. The forces of nature, 
 acting upon the materials of which the earth is composed, 
 have created products from which wealth is immediately 
 derived. The seams of coal were deposited without any 
 human agency; but the coal is not available to satisfy any 
 of the wants of life until man's labour has dug this coal 
 from the mine, and placed it in those situations in which 
 it is required. But labour, in order to produce anything, 
 must have some materials upon which to work. These 
 are supplied by nature, and may be termed natural agents. 
 The steam-engine, for example, is fashioned out of metals, 
 deposited as the result of certain forces acting in remote 
 geological ages. 
 
 Production, therefore, has manifestly two requisites — 
 labour, and appropriate natural agents upon which this 
 labour may work. But there is a third requisite, the 
 necessity of which will, perhaps, not appear so self-evi- 
 dent. The casual observer might be very possibly satisfied 
 to accept as sufficient the two requisites of production we 
 have mentioned; for it might be said. Does not properly 
 trained labour, acting upon suitable materials, suffice to 
 produpe the required commodity? But there is something 
 which is requisite to this labour itself. The labourer must 
 be fed. How can he be fed but by food which has been pre- 
 viously accumulated? This food also required the applica- 
 tion of labour; therefore, since the labourer must be fed by 
 previously accumulated food, a third requisite of production 
 is suggested, for some of the results of past labour are 
 required to be set aside to sustain the labourer whilst 
 
The Requisites of Production. 
 
 II 
 
 lalbouring. The third requisite of production, therefore, 
 is a fund reserved from consumption, and devoted to sus- 
 tain those engaged in future production. This fund is 
 termed capital. 
 
 The early steps of a student in almost every science are 
 met by certain obstacles; if he succeeds in surmounting 
 these obstacles, his future progress seems to be insured. 
 The young mathematician who obtains a firm grasp of the 
 physical conceptions involved in the laws of motion, will 
 comprehend with facility problems of apparently great 
 mathematical complexity. The questions. involved in con- 
 sidering the functions of capital, will test a man's capacity 
 to master the principles of political economy. Success in 
 the study of this science may be regarded as guaranteed to 
 all who obtain a clear insight into the nature of capital. 
 
 There are certain fundamental propositions concerning 
 capital which should be kept steadily and constantly in 
 view. One of these is as follows: — Capital is the result 
 of saving. This saving taay not be primarily prompted 
 with a view of assisting future production. The results 
 of labour, however, are not rendered immediately avail- 
 able for consumption: the ploughman who ploughs the 
 soil must wait for months before the wheat which his 
 labour contributes to produce, will be ready for human 
 food; but the ploughman must be' fed, and he is fed with 
 food previously accumulated. The labourers, too, who 
 have constructed his plough, must be fed on food which 
 has been saved from previous consumption; for a consider- 
 able time- must elapse before the harvest can be gathered 
 from the soil which the plough has assisted in tilling. 
 Capital, therefore, represents all that has been set aside 
 from the results of past labour to assist present or future 
 production. It will now be perceived that capital is as 
 indispensable a requisite of production as either labour or 
 appropriate natural agents, • 
 
 BOOK I. 
 CH. II. 
 
 and capi- 
 tal. 
 
 Capital is 
 the remit 
 of saving. 
 
BOOK I. 
 CH. III. 
 
 Wealth in- 
 volves the 
 applica- 
 tion of 
 labour 
 
 in compli- 
 cated pro- 
 cesses. 
 
 CHAPTER III. 
 
 LABOUR AS AN AGENT OF PRODUCTION. 
 
 IT is manifest, from the remarks which have been made 
 in the previous chapter, that labour is indispensable 
 to the production of wealth. As we proceed to describe 
 the purposes to which labour is directed, it will be found, 
 as observed by Mr Mill, that labour creates utilities fixed 
 and embodied in material objects. Nature supplies the 
 materials, but labour fashions these materials, arranges 
 them, places them in those situations in which they are 
 required, and in fact renders them in every respect suited 
 to satisfy the wants of life. 
 
 The greater number of commodities, before they become 
 serviceable for man, pass through many complicated pro- 
 cesses, each of which necessitates much complex labour. 
 Trace the cotton seed, first sown in the swamps of Georgia, 
 then supplying material to the looms of Manchester. 
 Watch the woven cloth transported to the far East, there 
 destined to clothe the inhabitants of some remote valley 
 of Scinde. Attempt such an examination, and we at once 
 become almost overwhelmed with the endless series of 
 labourers who have ministered to the production of so 
 simple a commodity as a piece of cotton cloth. There 
 are those who cultivate the cotton plant in Georgia, and 
 prepare it for exportation. The cotton has to be brought 
 to the port. Shipwrights must have constructed the 
 ships which carry the cotton from America to England ; 
 sailors must navigate these ships; dock-labourers are re- 
 quired to unload the cotton ; the railway on which the 
 cotton is carried from Liverpool to Manchester has been 
 constructed by the industry of numerous classes of labourers ; 
 and the cotton, before it is woven into cloth, passes through 
 
Labour as an Agent of Production. 
 
 13 
 
 the hands of a succession of workmen whose skill is as- 
 sisted by machinery — to the creation of which almost 
 every class of labourers has contributed, from the collier 
 to the skilled and thinking mechanician. Every one may 
 also be regarded as an important participator in the work, 
 who has, by 'his saving, contributed to the accumulation of 
 .the capital by which the industry of the labourers has to 
 be sustained. We are quickly carried into endless rami- 
 fications if we attempt to ascertain the labour which has, 
 either directly or indirectly, assisted in the production of 
 an apparently simple commodity. 
 
 Although no wealth whatever can be produced without 
 labour, yet there is much labour which does not contribute 
 to the creation of wealth. Hence, labour is divided into 
 two great classes, productive and unproductive labour. 
 This is a distinction which, in name, is familiar to those 
 who have not studied political economy. 
 
 Before the characteristics which distinguish productive 
 from unproductive labour are explained, it will be neces- 
 sary to revert to our primary conception of wealth. Nature, 
 as has been before remarked^, supplies the materials. Man 
 is powerless to create any material object; he combines 
 substances together which would never be combined with- 
 out his interposition, and thus creates a product which 
 nature could never construct without his aid. Man takes 
 the wheat and puts it in that situation where it will be 
 ground.; with the flour he mixes a certain quantity of 
 water and yeast, and when he has brought the mixture 
 within the influence of the requisite heat, a loaf of 
 bread will have been made. It is through the agency of 
 man's labour that these utilities are embodied in mate- 
 rial objects which give them their exchange value. For 
 instance, the utility which man confers upon coal is to 
 place it in those situations in which it may be required. 
 There can be no doubt, therefore, that all that labour is 
 productive which confers iitilitj' upon material objects. 
 
 Such is the labour of all oirdinary workmen. Agricul- 
 tural labourers, manufacturing operatives, bricklayers, &c., 
 must all be manifestly ranked as productive labourers. 
 All those, too, who are employed in transporting mer- 
 chandise from one place to another, are productive labour- 
 ers, for they confer upon commodities the utility of being 
 
 300K I. 
 
 CH. lit. 
 
 Productive 
 and un- 
 productive 
 labour. 
 
 Functions 
 of labour 
 
 in confer- 
 
 ringutility 
 
 directly, 
 
14 
 
 Manual of Political Economy. 
 
 BOOK I. 
 CH. III. 
 
 or in- 
 directly. 
 
 in the place where they are required. The labour of 
 policemen and others who are engaged in protecting in- 
 dustry is productive, because they confer upon commodities 
 the important utility of security. Eut even the labour 
 of productive labourers is not unfrequently unproductive. 
 Public works have been commenced and abandoned ; the 
 labour which was bestowed upon these is of course wasted. 
 A railway was constructed from Chesterford to Newmarket ; 
 it was closed almost from the first ; there is now no chance 
 of its being reopened, for the company has commenced 
 reselling the land to its original proprietors; and thus the 
 labour of even the most useful workmen may be unpro- 
 ductive. 
 
 There is also labour which is eminently useful, but 
 which, however, does not directly contribute to the pro- 
 duction of wealth. As an example of this, it may be 
 mentioned that, not many years since, the uneducated 
 labourer was considered as efficient as the educated la- 
 bourer, and employers were heard to regret those days 
 when there were no schools to corrupt the industrial vir- 
 tues of the workmen. When such opinions were current 
 the labour of the schoolmaster must have been considered 
 entirely unproductive, because it would have been sup- 
 posed that, even if he did not impede, he certainly did not 
 promote, the efficiency of the labourers, regarded as mere 
 machines for the production of wealth. But now facts are 
 every day coming to hght which must impress us with 
 the conviction that the schoolmaster occupies a most im- 
 portant position in the material economy of the nation. 
 Even to manual labourers a properly developed mind is as 
 essential as a well-developed body ; and there can be no 
 doubt that he who contributes in any manner to improve 
 either the physical or intellectual condition of the people 
 takes no unimportant part in assisting the nation's wealth. 
 Much labour, therefore, which at first sight may seeni 
 unproductive, will appear, on further consideration, to ex- 
 ert an indirect influence upon the production of wealth. 
 Popular notions attach a certain stigma to unproductive 
 labour. No doubt, waste of any kind is to be deplored • 
 but we should not be too prone to regret that so much 
 labour is devoted to provide the pleasures of life, for the 
 happiness of a nation may be in some degree estimated by 
 
Labour as an Agent of Production. 
 
 IS 
 
 , the time and labour which can be spared for enjoyment : 
 even the labour of those who provide these enjoyments 
 is not altogether unproductive ; a man will work with more 
 vigour and efficiency if his mind can be diverted from the 
 routine toil of life. 
 
 From these remarks we are able to deduce a precise 
 definition of productive labour. The definition which is 
 now usually accepted, is as follows : — ' Productive labour 
 is that which produces utilities fixed and embodied in 
 material objects.' According to this definition, the labour 
 of the teacher is unproductive from whose instruction a 
 mechanic acquires his skill. And yet the skill of our 
 workmen ought to be classed as wealth, because the loss 
 of this skill would diminish the wealth of the nation, 
 as much as if she were deprived of a great amount of 
 material wealth. If, however, the skill of the labourer 
 is classified as wealth, we strain the use of the word 
 ' wealth ' beyond its usual acceptation ; because wealth is 
 always popularly conceived to be something material. 
 We will therefore adopt the following definition : — Pro- 
 ductive labour is that which either directly or indirectly 
 produces utilities fixed and embodied in material objects. 
 According to this definition, the labour of the teacher who 
 imparts skill to the mechanic is productive, for by this 
 skill wealth is created — or, in other words, utilities are 
 embodied in material objects, and therefore the labour of 
 the teacher indirectly produces these utilities, and his 
 labour must consequently be classified as productive. The 
 definition, moreover, obviates the necessity of running 
 counter to popular language, for this is undoubtedly done 
 if we denominate as wealth such an- immaterial object as 
 the skill of a mechanic. 
 
 For the purposes of political economy, there is another 
 distinction, as important as that between productive and 
 unproductive labour. Much of that which is produced is 
 destined to be wasted, or to be consumed unproductively. 
 The wants of those who never contribute, either directly 
 or indirectly, to the wealth of the nation must be supplied 
 by the results of productive labour ; and hence a portion 
 only of the results of productive labour assists in the 
 formation of new wealth. Consumption, therefore, as well 
 as labour, may be either productive or unproductive. 
 
 BOOK I. 
 CH. III. 
 
 Definition 
 of pro- 
 ductive 
 labour. 
 
 Productive 
 and unpro- 
 ductive 
 consump- 
 tion. 
 
i6 
 
 Manual of Political Economy. 
 
 Although the entire consumption of unproductive la- 
 bourers must be unproductive, yet it does not follow that 
 commodities are always consumed productively by pro- 
 ductive labourers. For instance, even the poorest labourers 
 in this country purchase some luxuries which they could 
 abstain from, without in the slightest degree diminishing 
 the eflSciency of their labour. AU such purchases, therefore, 
 even if made by the most productive labourers, denote 
 unproductive consumption. 
 
 The distinction between productive and unproductive 
 consumption will assume considerable importance in the 
 remarks we are about to make upon capital. 
 
CHAPTER IV. 
 
 OF CAPITAL. 
 
 WE have already explained that capital is as indis- 
 pensable a requisite of production as either labour 
 or appropriate natural agents. A very little consideration 
 will render it evident that labourers, whilst engaged in 
 any particular industry, cannot live upon the commodity 
 which their labour is assisting to produce. The plough- 
 man "who tills the soil from which, in the following 
 autumn, the harvest will be gathered, is fed with the 
 wealth which his master has saved ; or, in other words, the 
 master pays his labourer's wages from the wealth which 
 he has previously saved. The production of "wealth, 
 therefore, cannot proceed unless some of the wealth 
 previously produced has been set aside from immediate 
 consumption. The wealth which has been accumulated 
 with the object of assisting production, is termed capital; 
 and, therefore, the capital of the country is the wealth 
 which is not immediately consumed unproductively, and 
 which may, consequently, be devoted to assist the further 
 production of wealth. This is a wide definition, but it is 
 correct and sufficiently definite until the subject has been 
 more fully elucidated. 
 
 In the general introductory remarks upon wealth, 
 particular attention was directed to that current fallacy 
 which confounds money with wealth. The student, in 
 obtaining his primary conceptions of capital, is not un- 
 frequently confused by a similar fallacy. Capital, like 
 other "wealth, is estimated and expressed in money. Hence 
 the idea is encouraged that capital consists of money, to 
 the exclusion of any other commodity ; although, perhaps, 
 adhesion would not often be professed to such a proposition 
 
 F. M. B 
 
 BOOK I. 
 CH. IV. 
 
 Definition, 
 of capital. 
 
 Fallacy of 
 confound- 
 ing capital 
 with 
 money. 
 
i8 
 
 Manual of Political Economy. 
 
 BOOK I. 
 CH. IT. 
 
 Capitalnot 
 all in ac- 
 tual em- 
 ployment. 
 
 when stated in plain terms ; yet, when the error can be 
 partially concealed in some of the difiBculties of compli- 
 cated questions, it will be found to vitiate many popular 
 opinions which at first sight appear plausible. Capital, 
 let it again be borne in mind, is all that wealth, in what- 
 ever shape or form it may exist, which is set aside to assist 
 future production. It is true that if, for instance, you ask 
 a farmer how much capital he has with which to work his 
 farm, he will reply that he has so many thousand pounds, 
 but his capital is not actually in money, and even if it 
 were in money it could not fulfil the functions of capital 
 until the money had been exchanged for various commo- 
 dities. For why does a farmer require capital to work 
 his farm? He requires capital because implements and 
 stock are wanted, and because he must have money, or 
 some other property in hand which he converts into money, 
 in order to pay the wages of his labourers ; although a 
 farmer estimates his capital in money, he obtains the 
 amount of this estimate by ascertaining the pecuniary 
 value of the various items of which his capital is composed. 
 In making this calculation, he takes account of the value 
 of his stock, his implements, and the amount of money 
 which it is necessary for him to keep in hand in order 
 to pay his labourers' wages, and to provide the outlay 
 which is requisite for other purposes. 
 
 It has been just stated that the whole capital of any 
 country is the sum of the wealth existing in any shape or 
 form which has been set aside with the object of being 
 devoted to assist future production. Hence it is manifest 
 that the whole capital of the country is not at any par- 
 ticular time actually employed. This may be readily 
 explained by an illustration. 
 
 Let us consider some commoditj^, such as wheat, which is 
 produced in our own country, and to simplify the matter we 
 will suppose that all the wheat of one harvest is consumed 
 by the time the next harvest is gathered in. Now it may 
 naturally be asked. What portion of this wheat ought at 
 any time to be regarded as constituting capital ? Imme- 
 diately the harvest is gathered in, the wheat is of course 
 so much wealth, and at that time just so much of the 
 wheat as each individual owner intends to employ produc- 
 tively is capital, But this affords no correct estimate of 
 
Of Capital. 
 
 19 
 
 the quantity of this wealth -which will he ultimately em- 
 ployed as capital. The intentions of the individual owners 
 may change ; he who to-day intends to devote to produc- 
 tive employment so much wealth as is represented by a 
 certain quantity of wheat in his possession, may next day 
 resolve to spend it on unproductive consumption, and 
 therefore, to speak correctly, the amount of the capital of 
 a country varies from day to day, on account of the shift- 
 ing caprice of individuals. It has been supposed that the 
 whole of this wheat will have been consumed when the 
 next harvest arrives, and then the exact quantity of the 
 wheat which has been employed as capital would of course 
 be known, if the portion of it which had been devoted to 
 productive purposes could be ascertained. 
 
 A difficulty may here probably suggest itself, which 
 it is very important should be cleared away. A prime 
 necessary of life such as wheat is never to any large ex- 
 tent wasted or squandered luxuriously; the great bulk 
 of it being always devoted to satisfy the most necessary 
 wants of life. It may therefore be asked. Should not all 
 the wheat which a country possesses be regarded as a por- 
 tion of its capital, when it is consumed as usefully as any 
 commodity can be? A prodigal farmer may sell his wheat, 
 and squander the money which he obtains for it, but the 
 wheat will not be wasted, and therefore it might be very 
 plausibly urged that the individual owner of a commodity 
 like wheat does not prevent it being productively employ- 
 ed, or, in other words, has not the power of determining 
 whether it shall or shall not form a portion of the capital 
 of the country. We have thus gradually found our way to 
 a difficulty. The subject of capital cannot b'e considered 
 under too many aspects ; it is here that the young student 
 in political economy finds himself most beset with diffi- 
 culty. He will never become familiar with the fundamental 
 principles of capital by exhibiting them in the form of 
 propositions; they had better be suggested to him by 
 following out some illustration. An adequate grasp is 
 never obtained of the physical principles of mechanics, 
 until the student has solved problems for himself. 
 
 The case suggested is this. Suppose the farmers re- 
 solved to sell half their wheat, and spend the money 
 upoiji their own enjoyments ; the money for which one- 
 
 b8 
 
 BOOK I. 
 CH. IV. 
 
 A difficulty 
 stated: Is 
 all the 
 wheat in 
 existence 
 capital ? 
 
20 
 
 Manual of Political Economy. 
 
 BOOK I. 
 CH. IV. 
 
 That por- 
 Hon which 
 is ex- 
 changed 
 for luxu- 
 ries in not 
 capital. 
 
 half the wheat is exchanged would be thus employed 
 unproductively. Ought this wheat to be regarded as 
 capital? Yes — is the answer which will very probably 
 be given. It is true that the money for which the wheat 
 is sold is employed unproductively, but this will not in 
 any degree prevent the wheat being devoted to useful 
 purposes. The wheat will still be made into bread, and 
 will be consumed in just the same manner as it would 
 have been if the farmers devoted the money for which it 
 was sold to productive purposes, instead of spending it 
 on their own enjoyments. But suppose the farmers had 
 devoted this money for which the wheat was sold to pro- 
 ductive purposes ; by just that amount would the capital 
 of the country be increased. The money for which the 
 wheat is sold is not itself consumed; this money is devoted 
 to purchase commodities, and if they are consumed un- 
 productively, an amount of wealth equal in value to the 
 quantity of wheat first exchanged is consumed unpro- 
 ductively, instead of being devoted to increase the capital 
 of the country, and thus assist the future production of 
 wealth. Now our argument implies that when unpro- 
 ductive consumption is spoken of, a tacit assumption is 
 made that the money for which the wheat has been sold 
 is employed, in great part, to purchase luxuries. But 
 luxuries, it may be said, naturally imply waste, and are 
 not devoted to assist the production of wealth. Hence, 
 all that portion of the wealth of a country which consists 
 of luxuries can never be productively employed, and, 
 therefore, can never be made to form a part of a nation's 
 capital. It may, therefore, be asked, Can a farmer be said 
 to diminish fce capital of a country, if he does not waste 
 his wheat, but simply sells it to others who will take good 
 care to use it properly ? It may further be urged that he 
 does not reduce the capital of the country by buying 
 luxuries; for luxuries cannot be used as capital, and if 
 they were not consumed unproductively by him they 
 would be so by some other person. It might, therefore, 
 appear that wealth is diverted from forming a part of 
 the capital of the country rather by those who produce 
 luxuries, than by those who consume them ; it must, 
 however, be borne in mind that the demand of the 
 consumer, and not the arbitrary caprice of the producer, 
 
Of Capiial. 
 
 21 
 
 determines the particular commodities which are manu- 
 factured. Luxuries, and other articles which cannot be 
 devoted to reproductive employment, would not be brought 
 into the market if it were not for the demand of the con- 
 sumer. Enough has now been said to establish the pro- 
 position that an individual increases the capital of the 
 country, not by spending his wealth on his own enjoy- 
 ments, but by devoting it to reproductive employment. 
 This is only another corroboration of what has been 
 already stated, namely, that capital is the result of saving. 
 For when wealth is saved, it is not hoarded, but invested ; 
 it is then productively employed, and as a consequence 
 at once assumes the functions of capital. 
 
 The proposition just enunciated, that an individual 
 diminishes the capital of a country by spending his wealth 
 in luxuries, and increases the capital of the country by 
 saving it, will lead us to another equally important propo- 
 sition, and one which is sometimes announced as a startling 
 paradox. For we shall be able to deduce, from our pre- 
 vious remarks, that a demand for commodities is not a 
 demand for labour, or, in other words, that he who spends 
 hi^ wealth upon his own indulgences gives no additional 
 employment to the labourer ; the labourers are benefited 
 by those who save, and who are eagerly anxious to accu- 
 mulate wealth for themselves. These opinions, however, 
 are entirely opposed to popular notions. The spendthrift 
 is half 'excused, and often receives the homage due to a 
 public benefactor, because, although he injures himself, 
 yet it is supposed that he benefits the community in 
 general. The virtues of prudent saving meet with no 
 such kindly reception; if there is national distress, the 
 capitalists have first to bear the brunt of popular in- 
 dignation. We will endeavour to explain away such 
 misconceptions. 
 
 We must revert to our original definition, that the 
 capital of a country is that portion of its wealth which is 
 appropriated to reproductive purposes. But if wealth is 
 so appropriated, it must be" employed in assisting those 
 who produce wealth. But the producers of wealth are 
 the labourers, therefore capital remunerates the labourers; 
 or, in other words, the capital of a country is the fund out 
 of which the labourers are paid their wages ; the greater, 
 
 BOOK I. 
 OH. IV. 
 
 A demand 
 for com- 
 modities is 
 not a de- 
 mand for 
 labour. 
 
52 
 
 Manual of Political Economy. 
 
 This pro- 
 position il- 
 lustrated 
 by an ex-] 
 ample. 
 
 therefore, the capital is, the larger will be the fund which 
 is to be distributed amongst the labourers. Returning to 
 our previous illustration, we will consider two cases. In 
 the first place, let it be supposed that a farmer sells a 
 certain portion of his wheat, say one half, and spends the 
 amount upon his own enjoyments. He afterwards ceases 
 to do this, and converts the amount he previously spent 
 into capital, employing it in paying labourers. In what 
 manner will this change in the farmer's course of conduct 
 affect the labourers? In the first case, the farmer may 
 spend the money upon such enjoyments as luxurious living 
 and expensive wearing apparel. Let one item of his 
 extravagance be 'taken. Suppose it be 501. paid to hia 
 tailor for expensive cloth. The manufacturer of this cloth 
 has employed so many labourers, and if there was no 
 demand for it, the labourers engaged in its manufacture 
 would be thrown out of employment; and therefore it 
 would appear that the purchaser of 50^. worth of cloth 
 causes just the same demand for labour as if he had paid 
 this 50^. to labourers whom he himself employed. But 
 there is a further consideration. When the cloth is con- 
 sumed, so much wealth is destroyed ; the wearing of the 
 cloth has given gratification to the purchaser, but has not 
 in any way assisted the future production of wealth. So 
 much wealth ^as been destroyed without any reprodiictive 
 result. But if the 60^., instead of being laid out in cloth, 
 was paid directly to labourers, different results ensue, for 
 then, after the 501. has been consumed by the labourers, 
 there will be something left ; there will be the result of 
 their industry, which will represent so much wealth. And 
 thus the wealth of the country will bp increased. But 
 we have yet to examine whether any different consequences 
 will ensue to the labourers themselves. It will probably 
 be thought that the labourers, as a body, will be in the 
 same position as they were before ; and that the same 
 amount of wages will be distributed amongst them, be- 
 cause since there is now not so great a demand for cloth, 
 fewer labourers will be employed in that department of 
 industry; and that the loss to labourers employed in 
 making cloth will be compensated by the farmer employ- 
 ing more labourers in agriculture. This is, undoubtedly, 
 true ; but if .there is less demand for cloth, legs wiU be' 
 
Of Capital. 
 
 manufactured. The cloth manufacturers will restrict their 
 business, they will have to employ less capital in it than 
 they did before ; they will, therefore, be able to spare a 
 portion of their capital for other investments ; nothing 
 has occurred to make these manufacturers more extra- 
 vagant, and therefore they will be anxious to seek some 
 profitable employment for that portion of their capital 
 which is now set free from their own business. This 
 capital will still, therefore, be employed productively ; 
 but if it is employed productively, it must still continue 
 to perform the functions of capital, or, in other words, 
 must be devoted to pay the wages of labourers engaged in 
 some productive employment. Hence a greater demand 
 must be caused for labour if an individual, instead of 
 purchasing commodities for his own enjoyment, employs 
 the money to pay the wages of the labourers. The pro- 
 position that a demand for commodities is not a demand 
 for labour, is a proposition which is perhaps more rarely 
 understood than any other in the whole range of political 
 economy. Let us, therefore, endeavour to exhibit its 
 truth in a still stronger light. The truth of the propo- 
 sition shall be tested by the most extreme case which even 
 an opponent can suggest. 
 
 Let it be supposed that a person has a certain amount 
 of property in the form of some useful commodity ; that 
 he sells a portion of it, 50Z. worth, with which he purchases 
 some useless luxury, such as lace. If it is correct that a 
 demand for commodities is not a demand for labour, then 
 the purchase of this lace ultimately does no more good to 
 the labourers than would be done if the individual wantonly 
 destroyed the property which has been sold in order to 
 purchase the lace. If such a wanton destruction of pro- 
 perty occurred, the demand for lace would be proportion- 
 ately diminished, and, as we have before mentioned, the 
 result of this diminished demand would be, that the lace 
 manufacturer would employ less capital and less labour in 
 his trade ; but he would be anxious to make use of the 
 capital which was thus set free from his business; he 
 would seek for it some profitable investment : it would 
 therefore not be wasted, but continue as capital, or, in 
 other words, would still be appropriated to pay the wages 
 of labourers. Hence the capital of the country, and. 
 
 EOOE I. 
 OH. IV. 
 
 A further 
 illustra- 
 tion. 
 
24 
 
 Manual of Political Economy. 
 
 BOOK I. 
 CH. IV. 
 
 Another 
 case. Em- 
 ployment 
 of unpro- 
 ductive 
 labourers 
 and unpro- 
 ductive 
 consump- 
 tion of 
 wealth 
 compared. 
 
 therefore, the fund which is distributed amongst the 
 labourers, is not in any way diminished if an individual 
 should wantonly destroy so much wealth, instead of con- 
 suming it unproductively for his own gratification. It is 
 therefore evident that demand for commodities is not 
 demand for labour, and that, consequently, an individual ' 
 increases the wealth of the country, and improves the con- 
 dition of the labourer, not by spending, but by saving. 
 
 There still remains another case to be considered. We 
 have shown, in the above example, that the owner of 
 capital neither increases the wealth of the nation nor 
 benefits the labourers if he spends his wealth unpro- 
 ductively upon his own enjoyment. But how will the 
 wealth of the nation, and how will the condition of the 
 labourers be affected, if an individual employs his wealth 
 in paying the wages of unproductive labourers ? Suppose 
 that the 50Z., which in the above example purchased lace, 
 was now devoted to paying labourers engaged in carrying 
 out some useless work — such, for instance, as digging an 
 artificial lake ; this change in the mode of spending money 
 would benefit the labourers, because the amount of 
 money distributed amongst the labourers, or, in other 
 words, the wage-fund, would be increased by oOZ. As far 
 as the labourers, therefore, are concerned, there is an 
 important difference whether wealth is consumed unpro- 
 ductively or whether it is spent in maintaining unpro- 
 ductive labourers. The unproductive consumption of 
 wealth benefits the labourers as little as if the wealth was 
 wantonly destroyed. But when wealth is spent in payino- 
 labourers for doing unproductive work, then the labourers 
 are, in the first instance, as much benefited as if the wealth 
 was devoted to productive industry. This must be so, 
 because the same amount is distributed amongst the la- 
 bouring classes. But the ulterior consequences which 
 result from the productive employment of capital are very 
 different, for when capital is productively employed the 
 wages which are consumed by the labourers cause a repro- 
 duction of wealth ; therefore, in this case, the wealth of a 
 nation is increased, and there is a greater fund from which 
 future capital may be saved. Henc^, if we summarize our 
 remarks on this subject, it is evident that there are three 
 cases : . 
 
Of Capital. 
 
 25 
 
 1. A man may spend money on luxuries; then wealth 
 is consumed in simply giving him pleasure. 
 
 2. A man may spend capital on labour that is not 
 reproductive of wealth ; then capital is consumed in sim- 
 ply giving food to labourers. 
 
 3. A man may spend capital on reproductive labour ; 
 then capital is not only reproduced, but also gives the 
 same amount of support to the labourers as in the second 
 case. 
 
 The propositions just established afford an instructive 
 proof that a knowledge of even the first elementary prin- 
 ciples of political economy shows the futility of the re- 
 proaches which ignorance casts upon this science. It is 
 Stigmatised as encouraging selfishness ; but the selfish man 
 devotes his means to his own indulgence, and political 
 economy proves that such an one cannot claim the excuse 
 of benefiting the labourers by causing a demand for the 
 products of their industry. 
 
 The propositions of political economy are necessarily 
 somewhat abstraqt, and cannot be rendered familiar to the 
 reader without illustrations. It is important to make these 
 illustrations appear as practicail as possible ; and, although 
 there is nothing at all improbable in the cases we have 
 above supposed, yet the affairs of commercial life are com- 
 plicated by other considerations which we cannot conve- 
 niently take account of, until we have further advanced 
 into our subject. We have supposed the case of an 
 individual who, having been accustomed to purchase 501. 
 worth of lace, ceases to buy the lace, in order to employ 
 the money in paying the wages of labourers. To this 
 it may be objected that political economy is not concerned 
 with a single farmer or a single manufacturer, but ought 
 rather to investigate the economy of a nation. But the 
 result cannot be altered if the transaction we have supposed 
 occurred between a great number of farmers and manufac- 
 turers, instead of between single individuals. Again, it 
 may be remarked that, in discussing the above example, 
 it was stated that when individuals cease to buy lace, in 
 order to employ more labourers, the lace manufacturers 
 would, in consequence of this diminution in the de- 
 mand for lace, restrict their business, and would em- 
 ploy less capital in it.. But it may be said that we 
 
 BOOK I. 
 
 CH. IV. 
 
 General re- 
 sult of the 
 discussion. 
 
 These con- 
 elusions 
 are in 
 practice 
 modifiedhy 
 the com- 
 plexity of 
 commercial 
 trans- 
 actions. 
 
26 
 
 Manual of Political Economy. 
 
 hut are still 
 valuable. 
 
 Capital is 
 frequently 
 wasted or 
 employed 
 ineffec- 
 tively. 
 
 have omitted to consider the losses which must always 
 occur, both to the manufacturers and to their. operatives, 
 when their particular branch of industry suffers a check. 
 Upon this point, however, we will make an observation, 
 which should be carefully borne in mind throughout our 
 illustrations. The results which are deduced from the 
 principles of political economy do not come into immediate 
 operation. These principles indicate and affirm tendencies 
 to produce certain results, which will inevitably in time be 
 realised, if not counteracted by other causes. Thus a 
 diminution of demand, such as we have imagined, took 
 place in the Coventry ribbon trade when the commercial 
 treaty with France was entered into ; and no doubt the 
 ribbon manufacturers could not immediately transfer their 
 capital to other departments of industry, nor could their 
 operatives immediately find an equally remunerative em- 
 ployment : but still, as the ribbon trade has remained 
 permanently crippled, the Coventry manufacturers have 
 gradually transferred their capital to other investments, 
 and the Coventry operatives have been gradually drafted^ 
 off to other employments. Such a transfer of capital and 
 labour cannot, however, be made without some sacrifice. 
 Machinery, as will be shown in our remarks upon fixed 
 capital, is an important part of the capital of a country ; 
 and the machinery employed in a ribbon manufactory 
 would be almost valueless if it were sold to be used for 
 some other purpose. The ribbon weavers, too, would be 
 much less valuable labourers, because their acquired skill 
 would not be so efficient in a different kind of industry. 
 We must proceed gradually to take account of all these 
 and other more complicated considerations. At the com- 
 mencement of our subject it is necessary to take the most 
 simple cases ; but even this elementary treatise will pro- 
 vide the student with the requisite data fully to solve 
 economical problems of much complexity. 
 
 In the course of this chapter it has been frequently 
 remarked that capital is wealth which has been appro- 
 priated to assist future production. Wealth so appropriated 
 consists of machinery, stock, implements, and a fund out 
 of which the wages of the labourers are provided ; but the 
 capital of the country is not always employed at the great- 
 est advantage, or, in other words,. the capital of a country 
 
Of Capital. 
 
 27 
 
 might always administer to the production of a greater 
 quantity of wealth than is actually produced. Capital is 
 wasted through want of skill ; inferior machinery is fre- 
 quently used ; industrial enterprises, after having involved 
 a heavy outlay, are often finally abandoned. Wealth 
 Tvhich is used as capital, from other reasons, too, never 
 contributes all the assistance it might to the production of 
 wealth. The wages of labourers paid out of capital are 
 generally sufficient to provide something more than the 
 necessaries of life. The worst-paid classes of labourers 
 probably spend some small portion of their wages in 
 luxuries, the consumption 'of which does not assist, but 
 perhaps rather interferes with, the efficiency of their 
 labour. The advocates of Temperance furnish abundant 
 statistics upon this point. We' are assured that the 
 working-men of this country annually spend 3,000,000Z. 
 upon tobacco. If it can be proved that tobacco does 
 not benefit, but injures both the body and the mind, 
 then 3,000,000?. of the capital of the country, which in 
 the first place is paid to labourers, and then expended 
 by them in tobacco, is, considered as capital, rendered 
 completely nugatory, because the 3,000,OOOZ. in no way 
 assists the production of wealth. If, moreover, it is true 
 that tobacco cannot be used without detriment, then this 
 3,000,000?. not only does not assist, but actually is an 
 obstacle to the production of wealth. But it will per- 
 haps be said. Although this sum of money spent upon 
 tobacco does the labourer no good, yet it is not with- 
 out its beneficial influence ; the expenditure of so much 
 money is good for trade, and thus the labourer receives an 
 indirect advantage. The fallacy of such a supposition 
 will be readily understood by recalling the proposition we 
 have been so careful to explain, namely, that a demand 
 for commodities is not a demand for labour. It is, how- 
 ever, necessary to be extremely cautious in expressing 
 an opinion as to whether the consumption of a particular 
 article does the labourer good. The relations between 
 chemistry and physiology are as yet by no means settled. 
 The theory of food is most imperfectly understood. A 
 chemical an^-lysis may very possibly show that such an 
 article as tea contains none of those ingredients which are 
 commonly considered to nourish the human frame ; and 
 
 BOOK I. 
 CH. IV. 
 
28 
 
 Manual of Political Economy. 
 
 BOOK I. 
 CH. IV. 
 
 Fears of a 
 'glut' of 
 capital are 
 hased upon 
 misconcep- 
 tion. 
 
 An in- 
 crease of 
 capital 
 might ac- 
 company 
 an increas- 
 ing or a 
 stationary 
 state of 
 population. 
 
 hence a rash and ignorant assertion is often made that tea 
 is not a necessary of life, and that therefore a heavy tax 
 upon tea is no hardship to the labourer; the tax, it is 
 urged, is simply a salutary sumptuary law, because the 
 consumption of tea ought rather to be discouraged than 
 encouraged. But although tea may not nourish the body, 
 yet it undoubtedly soothes the mind, and this is equally 
 important ; for without some such soothing influence, life 
 would be almost intolerable, and even the body itself 
 would be wasted by the weariness of the mind. 
 
 Enough has now been, perhaps, stated to establish the 
 proposition that although industry is maintained by capi- 
 tal, yet that there is always in a country sufficient capital 
 to support more industry, or, in other words, to administer 
 to the production of a greater quantity of wealth than 
 that which is actually produced. 
 
 Intimately connected with this portion of the subject of 
 capital there is a very widespread misconception that there 
 would be a glut of capital if it were increased beyond a 
 certain point ; in fact, that capital might be so augmented 
 that no industry would be found upon which it could be 
 employed. Therefore, a certain waste of capital is consi- 
 dered necessary in order to prevent such a glut. Now, it 
 has been explicitly stated that capital is the result of sav- 
 ing, and therefore if capital is increased, the increase must 
 be due to greater saving. Let it therefore be supposed 
 that the rich spend much less upon luxuries, and resolve 
 to employ labourers with the money thus saved. It may 
 be imagined that if such saving were continued, our various 
 industrial marts would soon be overstocked, and that ware- 
 houses would be filled with goods for which there was no 
 demand. There are few even amongst political economists 
 who do not sometimes write and speak as if they believed 
 that the unproductive expenditure of the rich is required 
 to give adequate employment to the poor. But if such 
 an increase of capital as that described should occur, two 
 suppositions may be made : an increase of population 
 proportionate to the increase of capital may occur; or 
 secondly, the population may remain the same as it was, 
 before the increase of capital commenced. 
 
 The first case presents no difficulty; the increased 
 capital would be required to support the increased popu- 
 
Of Cd^tal. 
 
 29 
 
 lation. But the second case must be carefully consi- 
 dered, and it at once suggests this difficulty : if all the 
 labourers "were previously fully employed, how could 
 the increase of ' capital give additional employment to 
 labourers ? 
 
 A particular point, which may be keenly disputed in an 
 abstract science, such as political economy, is frequently 
 completely obscured in the ambiguities of general lan- 
 guage : and, of this, thje question under discussion aifords a 
 striking example. It therefore becomes very necessary, as 
 a preliminary process, to attribute a distinct meaning to the 
 above expression, — 'giving additional employment to the 
 labourers.' The augmentation in the capital of the country 
 has been supposed to result from the diminished consump- 
 tion of luxuries on the part of the rich: It is assumed that 
 all the labourers were previously fully employed. But a 
 new fund, which is now intended to be paid to the labourers, 
 has arisen from the increased savings of the rich ; where, 
 therefore, are the labourers amongst whom this increased 
 fund is to be distributed ? Those labourers, it is true, who 
 have manufactured the luxuries which the rich now no 
 longer purchase, will be thrown out of employment. But 
 the capital of the manufacturers of these luxuries will 
 be now seeking fresh investments, and wiU be therefore 
 sufficient to give employment either directly or indirectly 
 to the same number of labourers as were previously main- 
 tained by it, and therefore the new capital created by the 
 increased savings of the rich still apparently remains un- 
 employed. But although the assumption has been made 
 that all the labourers were previously fully employed, yet 
 let us consider what this means. It must be interpreted 
 thus : That all able-bodied labourers were in full em- 
 ployment, and that they received certain wages for a cer- 
 tain quantity of work. There can be no doubt that the 
 labourers would willingly receive more wages if they 
 could be obtained. It is quite impossible that the wages 
 can be increased unless the capital is increased ; now, 
 however, there is an increase of capital, and therefore 
 the wages of the labourers will rise. If the labourers 
 were before supplied with all the necessaries of life, 
 they in their turn will begin to consume more luxuries, 
 -and the labour which before had produced luxuries for 
 
 BOOK I. 
 CH. IV. 
 
 In either 
 case the 
 fears of a 
 ghit are 
 imaginary. 
 
30 
 
 Manual of Jklitical Economy. 
 
 BOOK I. 
 CH. IV. 
 
 Capital 
 must be 
 consumed 
 in order to 
 fulfil its 
 functions. 
 
 the rich is now available to meet this new demand on 
 the part of the labourer. It may, however, be argued 
 that if the capital continued in this way to increase, 
 the labourers' wages would also be constantly increas- 
 ing, and at length all their wants might be satisfied. 
 When such a happy event was consummated, then the 
 hours of toil would be shortened, and men would not 
 be compelled to labour so ceaselessly as at the present 
 time. Human beings are not endowed with an uncon- 
 trollable instinct for physical exertion; the wants of life; 
 must be satisfied by physical labour, but civilisation has 
 no nobler mission to fulfil than to diminish the labour 
 which is required to satisfy the physical wants of life. 
 Hence the vaunted progress of civilisation must appear 
 delusive to that great majority of the human race who 
 toil for hire, and who have found that the hours of their 
 toil have only been slightly lessened. Generations after 
 generations pass away whose minds remain undeveloped, 
 and whose bodies have had to work with the constancy 
 and the regularity of a machine. Political economy 
 will assist us in understanding the means by which the 
 labourer's toil is to be lightened. Let it not then be 
 called a harsh or degrading science, for no study can fill 
 our minds with brighter anticipations for the future 
 than one which will enable us to comprehend some of the 
 requisites which will afford, to a greater number, "that 
 only true and most supreme happiness — ^the development 
 of the human faculties to a harmonious and consistent 
 whole." 
 
 Since capital is the result of saving, it is often errone- 
 ously considered that capital is wealth which is set aside 
 with the object of not being spent ; but this is a funda- 
 mental misconception, for capital cannot fulfil any of its 
 functions except by being wholly or partially consumed. 
 Thus, capital provides the fund from which the wages of 
 labour are paid, and these wages are, of course, consumed 
 in ministering to the wants of the labourer, and in sup- 
 plying him with all the various necessaries of life. If a 
 man has so much wheat, it is wealth which may at any 
 moment be employed as capital; but this wheat is not 
 made capital by being hoarded ; it becomes capital when 
 it feeds the labourers, and it cannot feed the labourers un- 
 
Of Capital. 
 
 31 
 
 less it is consumed. These considerations apply to capital 
 existing even in a more permanent form, such' as ma- 
 chinery. All machines must in time gradually -vyear out; 
 a steam-engine, durable as it may appear, is only capable 
 of performing so much work; but a steam-engine is capital, 
 because it assists the production of wealth, and therefore 
 it only fulfils the functions of capital when it is in motion; 
 but every hour that it is kept in motion contributes some- 
 what to its ultimate wearing out. It is therefore manifest 
 that all the wealth of the country, in whatever form it may 
 be, can only perform the functions of capital by being wholly 
 or partially consumed. The capital of a country is con- 
 stantly being consumed in order to produce more wealth, and 
 therefore capital is maintained by perpetual reproduction, 
 and not by hoarding and keeping wealth out of consumption. 
 
 The leading propositions with regard to capital have 
 now been discussed, and they afford principles which will 
 enable us to investigate economic problems of the greatest 
 interest and importance. An endless variety of such pro- 
 blems bearing upon the subject of capital may be readily 
 suggested, and the student should zealously apply himself 
 to their solution. Let him not suppose that he is wasting 
 time upon the mere rudiments of the science; he may rest 
 assured that, if he fully comprehends the subject of capi- 
 tal, his future successful progress in the science is insured, 
 and that he will become one of those who can apply the 
 principles of political economy even to those simple finan- 
 cial and social questions which are the topics of everyday 
 discussion. 
 
 It will be, perhaps, useful to our readers if we give one 
 or two practical applications of the laws of capital which 
 have been enunciated in this chapter. One such applica- 
 tion is suggested by considering the rapidity with which 
 a country recovers from the ravages of a disastrous 
 war. This phenomenon was first fully elucidated by Dr. 
 Chalmers. A conqueror overruns a country, and destroys 
 every vestige of accumulated wealth which he can discover. 
 A great portion of the food with which the labourers were 
 to be fed is gone; machinery and other appliances with 
 which industry is assisted are destroyed. The capital of 
 the country appears to be almost lost, and when it is re- 
 membered that the future production of wealth depended 
 
 BOOK I. 
 CH. IV. 
 
 Practical 
 applica- 
 tion of 
 these 
 principles. 
 
 Effects of a 
 war. 
 
32 
 
 Manual of Political Economy. 
 
 BOOK I. 
 CH. IV. 
 
 Commer- 
 cial pro- 
 
 upon this capital, it might be supposed that production 
 would cease, and that the country must for years remain 
 the same desolate waste. But, on the contrary, countries 
 which have been thus ravaged and pillaged, have in a few 
 years revived, and seemed to be as prosperous as before. 
 The history of Athens, and the French Wars in the Pala- 
 tinate, afford many striking examples of a rapid recovery 
 from the devastation of war. The remarkable rapidity 
 with which France recovered her commercial and financial 
 prosperity after the conclusion of the war with Germany in 
 1870 — 71 is another example in point. Within four years 
 of the time when her capital city and no inconsiderable 
 portion of her territory were occupied by the invader, she 
 seemed to have recovered more than her former prosperity. 
 Her revenue was never in a more flourishing condition, 
 although within this period of four yeai-s she had to pay 
 to Germany a war indemnity of £240,000,000. This re- 
 vival of prosperity admits of a very simple explanation. 
 It has been shown in this chapter that the capital which 
 at any time exists ina country is always sufficient to ad- 
 minister to the production of a much greater amount of 
 wealth than that which is produced; or, in other words, 
 the production of wealth which actually takes place might 
 be effected with the aid of much less capital than the 
 amount which is applied. There, therefore, always exists 
 a considerable excess of capital which might be wholly de- 
 stroyed without necessarily impeding the production of 
 wealth. For instance, every shilling of the labourer's 
 wages which is expended upon anything but the mere 
 necessaries of life might be destroyed without affecting 
 the industrial efficiency of the labourer, and consequently 
 without diminishing the future production of wealth. If, 
 therefore, in a country ravaged by war, there should be 
 just enough food left for the labourers to live upon until 
 the next harvest is gathered in, and if also they had the 
 necessary agi'icultural implements, there is no reason why 
 the country should not soon be restored to its former 
 fertile and well-cultivated appearance. But if the imple- 
 ments of agriculture were destroyed, cultivation could not 
 proceed until they were replaced; and the after conse- 
 quences of the war would be more permanently disastrous. 
 As a nation advances in commercial prosperity, a con- 
 
Of Capital. 
 
 33 
 
 stantly increasing quantity of national wealth assumes a 
 permanent and fixed form. The docks, the railways, our 
 unsurpassed mercantile navy, the great manufactories of 
 Lancashire and Yorkshire, with their machinery as costly 
 as it is ingenious ; these works, and not the food and cloth- 
 ing stored in our warehouses, are the striking evidences of 
 England's vast accumulated wealth. If all the food was 
 destroyed except just enough to prevent the people starv- 
 ing, England in one year might present an unchanged 
 aspect of commercial prosperity; for the food which is 
 stored at any particular time is destined to be consumed, 
 and it is only that portion which maintains productive 
 labourers that ministers to the future production of wealth. 
 But if an invader should ever range unrestrained over 
 these islands, and should destroy the wealth which exists 
 in a permanent form, such as public works, machinery and 
 buildings, then the disaster could not soon be repaired, 
 and England would suffer for a far longer period than 
 did poorer nations, conquered in more backward times. 
 Hence the richer a country is, the more severe may be the 
 injury inflicted on her by war, if the enemy should destroy 
 any considerable part, of the wealth which is in the form 
 of fixed capital and which constitutes her industrial plant. 
 If Germany had adopted this policy in her war with 
 France, it would have been impossible for France to have 
 recovered her prosperity with the remarkable rapidity to 
 which allusion has just been made. Of late years a feel- 
 ing of false humanity has attempted to make the rights of 
 private property respected in war. Life may be sacrificed 
 with as much prodigality as ever. The foremost mechani- 
 cal genius of this mechanical age is devoted to the pro- 
 duction of weapons of death; but civilization, it is said, 
 demands that there should be no wanton destruction of 
 property. No such attempt to palliate the material disas- 
 ters of war ought to be encouraged ; war will be rendered 
 less frequent, if a whole nation is made to feel its terrible 
 consequences, instead of concentrating all the horrors in 
 the sacrifice of thousands of helpless victims who may be 
 marshalled at the caprice of a despot. If any nation 
 should ever threaten England with invasion, England ought 
 to speak in unmistakable language that her vengeance 
 ahould not be confined to a retributive slaughter of 
 
 F. M. C 
 
 BOOK I. 
 CH. lY. 
 
 gress In- 
 creases the 
 evils of 
 war. 
 
34 
 
 Manual of Political Economy. 
 
 BOOK I. 
 ' CH. IV. 
 
 Shmdd 
 wars he 
 paid for hy 
 increased 
 luxation ? 
 
 soldiers, but that she would destroy all the public works 
 upoa which the wealth of the nation mainly depended. 
 This will give a practical check to vaunting ambition, and 
 might rouse a nation to restrain the military designs of 
 the most despotic ruler. 
 
 This digression suggests a consideration of the much 
 debated financial question, whether any extraordinary na- 
 tional expenditure, such as is caused by a war, ought to be 
 defrayed by a loan or by increased taxation ? England has 
 resorted to loans, and a permanent record of this financial 
 policy is afforded by a national debt, larger than the aggre- 
 gate amount of the debts of all other European nations'. 
 Mr Gladstone in his budget-speech of 1854 evoked the 
 enthusiasm of the House of Commons by the declaration 
 that in future the financial policy of England was to be 
 reversed. The expenses of the Russian War were to be 
 defrayed entirely by increased taxation, and thus posterity 
 would inherit the assumed advantages of that contest, 
 unencumbered with the penalties of augmented pecu- 
 niary burdens. The virtuous resolution of Parliament was 
 not maintained, and the Russian War added 50,000,000^. 
 to our permanent debt. It would be foreign to our im- 
 mediate subject to discuss to what an extent the present 
 generation is justified in burdening future generations; 
 there can however be no doiibt that the whole of the 
 money required for the Russian War might have been 
 raised by taxation. 
 
 A loan may be obtained from two sources ; it may 
 be taken from the capital of the country, or it may 
 be provided from increased savings. If capitalists con- 
 sider that the terms offered by the Government afford 
 an eligible investment, they may be induced to take 
 some of the capital employed in various commercial 
 undertakings, and lend it to the Government. Now let 
 us trace the consequences of such a diversion of capital 
 from reproductive industry. It may be thought that if 
 the. Government spends the loan at home, the loan has not 
 diminished the capital of the country; it has merely 
 
 ^ This was written in 1863, sinOQ -which time our own debt has been 
 somewhat reduced, whilst those of nearly all European countries, except 
 Germany, have been- greatly increased ; that of France alone amounting 
 to, 1,100,000,0002., or more than 300,000,000;. in excess of our own debt 
 
Of Capital. 
 
 ■35 
 
 caused a portion of it to be diverted to other purposes. 
 The Government, however, will ordinarily spend the loan 
 in warlike weapons. Cannon balls, gunpowder, and 
 mortars are commodities which cannot be appropriated 
 to assist the future production of wealth, labourers cannot 
 be fed by them, and therefore when the loan is converted 
 into such commodities it cannot form a portion of the 
 capital of the country. If, however, the capital which 
 has been contributed to the loan had remained with its 
 original possessors, it would in the undertakings in which 
 it was employed, in all probability, contribute to the pro- 
 duction of some useful commodities which might after- 
 wards be applied as capital. Upon such an hypothesis, 
 therefore, the capital of the country is diminished in 
 consequence of the loan ; the labourers will ultimately 
 suffer, because since there is less capital there will be 
 a smaller sum to be distributed amongst them. 
 
 As a second hypothesis, let it be supposed that the loan, 
 after being raised in a country, is productively employed 
 by a Government. Where industrial enterprise is back- 
 ward, it may happen that many important undertakings, 
 such as railways, canals, and irrigation works, will not be 
 carried out by any one but the Government. A loan 
 which is raised under such circumstances will cause an 
 augmentation in the capital of the country, unless the 
 whole of the loan is obtained from wealth already per- 
 forming the functions of capital. This is scarcely a possi- 
 ble supposition ; there is never this active employment of 
 capital by private individuals in countries where indus- 
 trial enterprise is backward. The money lent to the 
 Government would no doubt, to a considerable extent, be 
 supplied from wealth which has been hoarded. The ad- 
 dition which may be made to the capital of a country by 
 devoting a loan to reproductive purposes may be much 
 greater than is here described ; for it generally happens 
 that a large portion of the loan is obtained from foreign 
 countries. Thus the Government railways of Russia and 
 the public works of India have been to a very large extent 
 constructed by means of English capital. In the contrast 
 which has just been drawn between the certain loss and 
 possible gain which may ensue upon the unproductive or 
 productive employment of loans, it must not be supposed 
 
 C2 
 
 Loans ap- 
 plied to 
 public 
 works. 
 
3<5 
 
 Manual of Political Economy. 
 
 BOOK I. 
 CH. IV. 
 
 Loans ap- 
 plied tomi- 
 productive 
 purposes. 
 
 that a Government is justified under all circumstances in 
 raising loans for industrial undertakings. In the first 
 place the interference of the Government may check 
 private enterprise, and it is always better that trade and 
 industry should as far as possible be left to private enter- 
 prise. Government management is almost invariably waste- 
 ful and inefficient. Even when the circumstances warrant 
 the Government in raising a loan for some industrial work, 
 it often happens that the advantage which such a loan 
 might bring to the country is to a great extent counteracted 
 by the wasteful manner in which the work is carried out. 
 The history of the Public Works Department in India 
 affords numerous examples of the truth of this remark. 
 
 But again, referring to loans which are unproductively 
 expended by the Government, it may not unnaturally be 
 a.sked : — Why should the unproductive expenditure of 
 a Government impoverish a nation more than if the same 
 amount of wealth was spent unproductively by indivi- 
 duals ? In one sense, no doubt, a nation is not rendered 
 poorer, as may be shown from the following considera- 
 tions: Suppose, for instance, we wish to make an esti- 
 mate of the whole wealth of the English nation. All the 
 wealth possessed by Englishmen in the funds should be 
 omitted from this estimate. If it were not so, the same 
 wealth would be counted twice over. Suppose A has 
 a mortgage of 10,OOOL on B's estate. The mortgage is 
 wealth to A ; but it is not a part of the nation's wealth, 
 because the mortgage simply shows that B's estate is 
 not entirely his own property, but that A has a share of 
 it, the value of which share is equivalent to the amount of 
 the mortgage. Similarly the fundholders have a mort- 
 gage upon the industry of the nation ; and if the fund- 
 holders were all English, and the nation repudiated its 
 debt, the wealth of the country would not in the slightest 
 degree be either decreased or augmented : a most unjust 
 confiscation of property would be perpetrated, but there 
 would have been no destruction of wealth ; for what the 
 fundholders would lose the tax-payers would gain. The 
 national debt, considered in this aspect, is a mortgaoe 
 upon the industry of the nation; and the creation of°a 
 mortgage cannot diminish the wealth of a nation unless 
 the persons who own the mortgage should be foreigners 
 
Of Capital. 
 
 37 
 
 when, of course, a portion of the national wealth is trans- 
 ferred to another country. These considerations show 
 that if the raising of a loan encourages money to be 
 saved, the loan might be spent in the most unproduc- 
 tive manner possible without in any way diminishing the 
 "national wealth. There is, however, a difference in the 
 consequences which result when money is spent unpro- 
 ductively by individuals, and when the same money is 
 subscribed to a loan, which is spent unproductively by 
 Government. In the first case, where individuals spend 
 the money unproductively, no one has to pay them any- 
 thing for doing so; but in the second case, where these 
 individuals lend the money to the Government to be spent 
 unproductively, the whole nation has annually to pay 
 a certain penalty in consequence of this unproductive ex- 
 penditure. The penalty paid is the interest received by 
 the lenders of the loan. 
 
 In estimating the effects of a loan we have these general 
 principles to guide us : The loss of the labourer is in pro- 
 portion to the extent to which the loan encroaches upon 
 the capital of the country. A loan may increase the capital 
 of a country either by encouraging greater saving, or by 
 inducing capital to be subscribed to the loan from other 
 countries. In this case the labourer may receive an imme- 
 diate benefit, proportioned to the increase of capital caused 
 by the loan. Indian railways have been constructed by 
 loans subscribed almost entirely in England. It has been 
 calculated that 11,000,OOOZ. has been paid to the natives 
 of India for their labour upon railways ; and, since this 
 amount was imported capital, the labouring population of 
 India derive the same advantage as if private capitalists 
 had decided to spend an additional 11,000,OOOZ. in the em- 
 ployment of labour. Whether the advantage is permanent 
 or not depends on whether the railways ultimately prove to 
 be remunerative. The Indian railways have hitherto not 
 yielded sufficient to pay the interest on the loans raised 
 for their construction, and the deficiency has to be sup- 
 plied by taxation. It must be remembered that this 
 taxation has to be borne by the whole people, many of 
 whom live too far from the railways to derive any 
 advantage from the extra demand for labour which their 
 construction created. If, however, a loan in any way 
 
 BOOK I. 
 OH. IV. 
 
 Effects of 
 loans in 
 general. 
 
38 
 
 Manual of Political Economy. 
 
 BOOK I. 
 CH. IV. 
 
 Effect of 
 raising 
 money by 
 taxation 
 instead of 
 loan. 
 
 An income- 
 tax, if paid 
 out of in- 
 come, does 
 not injure 
 labourers ; 
 
 causes the capital of the country to be increased, the 
 labourers will receive immediate benefit, even if the loan 
 is Spent unproductively ; on the contrary, the employers 
 will, under the same circumstances, suffer a loss, because 
 wages will rise as a consequence of the capital being 
 increased. * 
 
 The ultimate effects of a loan upon all classes depend 
 entirely upon the manner in which the loan is spent. If 
 it is spent unproductively, the whole nation will have to 
 pay a permanent penalty for the extravagant expenditure. 
 If it is devoted to works of industrial usefulness, which 
 would not be carried out by private enterprise, then the 
 nation may be greatly enriched. 
 
 In quoting warlike material as an example of an unpro- 
 ductive expenditure on the part of Government, it is 
 intended to express no opinion adverse to military prepa- 
 rations. Vast sums have been, and will probably again 
 be, squandered in war; but there can be no greater impedi- 
 ment to the production and accumulation of wealth than 
 a want of security from hostile attack ; and therefore it is 
 absolutely necessary, even for the interests of commerce, 
 that the defences of the country should be adequately 
 maintained. 
 
 Let us now examine what different consequences ensue 
 if an increased expenditure is supplied by taxation in- 
 stead of by loan. Increased taxation is obtained in dif- 
 ferent ways in different countries. In our own country 
 there are probably only two sources available for largely 
 augmenting the revenue. These are the income-tax and 
 an increase of the duties upon some commodities of general 
 consumption, such as tea and sugar. Let it be supposed 
 that recourse is had to both these expedients. An income- 
 tax may be paid in two ways; it may be paid out of income, 
 or it may be paid out of capital. Thus a manufacturer 
 who is charged with 1,000^. additional income-tax, may 
 pay the amount by increased saving, or, in other words, by 
 diminishing his personal expenditure. If this is done,' his 
 capital is in no way affected, and therefore the labourers do 
 not suffer ; the important thing for them is that no en- 
 croachment should be made upon capital. But it will 
 perhaps be said, that if the people who pay the increased 
 income-tax are induced to retrench their expenditure, trade 
 
Of Capital. 
 
 39 
 
 will suffer in consequence of their purchasing fewer com- 
 modities, and that the labourers will thus be injured be- 
 cause dull trade is always prejudicial to them. But here 
 we must once more recall the important proposition, that a 
 demand for commodities is not a demand for labour; if, 
 therefore, the income-tax is paid from income and not out of 
 capital, the labourers may derive a very decided advantage 
 from an increased income-tax, because a portion of the 
 money which is thus obtained by the Government is sure 
 to be employed as capital, since it will be paid in wages 
 to artizans, shipwrights, and other classes of labourers en^ 
 gaged by the Government. One of the advantages often 
 attributed to a democratic suffrage is that the people have 
 a direct interest in checking a reckless expenditure, and 
 it is also urged that it is the interest of the rich in oppo- 
 sition to the poor to encourage heavy taxation. But the 
 labourers will in every way be greatly profited by in- 
 creased expenditure if the money is provided by an in- 
 come-tax, which is sure to be partly supplied from increased 
 economy, and which, in this country, it has never been 
 proposed to levy upon the labouring population. In a 
 country so rich as England, even a heavy income-tax 
 would probably in the main be paid out of income, and not 
 out of capital. Such a tax, therefore, would not seriously 
 interfere with the production of wealth, but would most 
 materially encroach upon the means of enjoyment, of the 
 majority of those who pay it. Even in the richest 
 country, if an income-tax continues to be increased, it 
 must at length cease to be chiefly paid out of income. 
 Directly it encroaches upon the capital of the country, 
 the tax becomes doubly burdensome and disastrous, the 
 production of wealth will be impeded, the position of the 
 labourers must be rapidly deteriorated, and the finances of 
 the country will be gradually brought into a most critical 
 state. In a poor country, such as India, an income-tax 
 is a much more hazardous expedient, than in a wealthy 
 country like our own. 
 
 We have now pointed out some of the effects which 
 follow both from loans and from increased taxation, and 
 there can be little doubt that loans ought to be avoided 
 as far as possible. A loan, however, is perfectly justifiable 
 when it is necessary to resort to so high an income-tax 
 
 BOOK I. 
 CH. IV. 
 
 if paid out 
 ofeajntalit 
 injures the 
 labourers. 
 
 Objection 
 to loans, 
 viz. that 
 theytendto 
 diminish 
 capital ge- 
 ■nerally, 
 
40 
 
 Manual of Tolitical Economy. 
 
 BOOK I. 
 CH. IV. 
 
 hut not in- 
 ■raridbhj. 
 
 that it must in great part be paid out of the capital of the 
 country, or when taxes on commodities have been raised 
 to the point at which further increase is attended with a 
 diminution of revenue. In both these cases the produc- 
 tion of wealth is at once impeded. If we had to decide 
 between a loan and taxation as a mere abstract question 
 concerning the production of wealth, there would be little 
 hesitation in deciding against the loan, because a loan 
 would generally be paid more entirely out of capital. 
 It is, however, impossible to frame a general maxim 
 which will apply to every case. Political economy will 
 supply the principles which will suffice for each case, 
 as it may occur. Thus, if a war should break out in India, 
 it would be extremely impolitic to defray its cost by a 
 loan if, the money for the loan was subscribed in India, be- 
 cause the loan would thus abstract so much capital from 
 India, a country which not only requires all her own capi- 
 tal, but in which works of the greatest industrial import- 
 ance cannot be carried out until more foreign capital is 
 imported. An Indian statesman would, however, have 
 good reasons to prefer the loan, if it could be raised in 
 England, for the loan would be the means of bringing 
 capital to India. If the loan is intended to support a 
 war, a great portion of it would, no doubt, be spent un pro- 
 ductively in India ; but a considerable sum would be ap- 
 plied as capital in paying the wages of various classes of 
 labourers who are always called into active employment 
 by military preparations. It is also quite possible that, in 
 order to assist some of the operations of the campaign, 
 roads might be improved and bridges built, and in this 
 manner a warlike expenditure might cause works of per- 
 manent commercial utility to be constructed. As a con- 
 sequence of such a loan, the revenue of India would be 
 charged with a certain annual payment, but such an an- 
 nual charge might be paid out of income, or at any rate 
 would not cause the same diminution in the capital of 
 India, as if the loan had been in the first place entirely 
 provided by Indian capitalists. 
 
 As an illustration of a remark previously made, that a 
 practical question ought not to be decided solely from 
 economic considerations, it may be pointed out that a 
 most important counterpoise can be set off to the eco- 
 
Of Capital. 
 
 4.1 
 
 nomic advantages which would result from providing for 
 additional expenditure in India by loans raised in England. 
 It is at once obvious that the greater the indebtedness of 
 India to England, the greater is the pecuniary inducement 
 offered to the Indian people to throw off our rule, and thus 
 to free themselves from the debt. The question, therefore, 
 of the desirability of raising a loan must be regarded by 
 a statesman from the political as well as from the economic 
 point of view. 
 
 These discussions upon the relative advantages and dis- 
 advantages of loans and taxation will show the importance 
 of arranging a tax so that it should cause the least possible 
 diminution of capital. It is, therefore, extremely impoli- 
 tic to tax a raw material. Suppose it were determined to 
 raise a certain sum by taxing cotton; a tax on cotton goods 
 would be far preferable to a tax on raw cotton. If a 
 manufacturer were obliged to pay 1001. upon a certain 
 quantity of raw cotton, he would thus have to give to the 
 Government 1001. which he intended to employ as capital, 
 and therefore the tax would be entirely taken out of capital. 
 But suppose the Government said, We will let you manu- 
 facture your cotton, and then you shall pay us the same 
 amount, by levying a tax upon the manufactured goods. 
 The result of the tax would be, that the price of cotton 
 goods would rise, the manufacturers would be able to pay 
 the tax out of the increased price obtained for their goods, 
 and the tax would not, under these circumstances, in any 
 degree diminish the capital of the manufacturers. 
 
 It will have been remarked, that every kind of wealth, 
 which in any way assists future production, has been, 
 this chapter, described as capital. Capital, there- 
 
 in 
 
 fore, is not confined to the food which feeds the labourers, 
 but includes machinery, buildings, and, in fact, every pro- 
 duct due to man's labour which can be applied to assist his 
 industry; but capital which is in the form of food does not 
 perform its functions in the same manner as capital that is 
 in the form of machinery : the one is termed circulating 
 capital, the other fixed capital. This is a real distinction, 
 from which many important consequences follow. Circu- 
 lating capital is only used once in order to fulfil any 
 particular purpose ; fixed capital may continuously repeat 
 the assistance which it lends to industry. A store of food 
 
 BOOK I. 
 CH. IV. 
 
 A general 
 principle 
 of taxa- 
 tion. 
 
 Circulat- 
 ing and 
 fixed capi- 
 tal. 
 
42 
 
 Manual of Political Economy. 
 
 BOOK I. 
 OH. IV. 
 
 fulfils the functions of capital when it feeds labourers, but 
 in feeding the labourers it is consumed ; it cannot repeat 
 the service which it has rendered. But the same looms, 
 set in motion by the same steam-engine, will continue to 
 weave cotton cloth through a long succession of years. 
 The same ploughs till the land for many successive crops. 
 The'capital with which a road is made does not facilitate the 
 transport of wealth for any limited period ; but, if a slight 
 sum is spent to keep the road in repair, it will permanently 
 serve the same industrial purposes. The capital expended 
 on the great irrigation works of India, may, through count- 
 less ages, fertilize the same tracts of land. Circulating 
 capital, since it is destroyed by one use, must receive an 
 immediate return ; the application of fixed capital is 
 rewarded by industrial advantages continued for a long 
 period of time. A farmer expects that each successive 
 crop will remunerate him for the wages he has paid 
 during the current year. But if he purchases a steam 
 thrashing-machine, he does not expect that his outlay will 
 be returned to him in one year ; he hopes to use the 
 machine for a great number of years, and thus he will be 
 gradually repaid for his original outlay. As another ex- 
 ample, raw material is circulating capital to a manufac- 
 turer : the raw cotton is only once woven into cloth ; and 
 the manufacturer, when he sells the cloth, is repaid for 
 the sum which he has expended in the raw material. But 
 the money which he has invested in fixed capital — such 
 as the machinery used in his manufactory — is gradually 
 returned to him. When the capital which administers to 
 the production of any wealth is entirely circulating, the 
 amount of wealth produced must in value be at least equal 
 to the capital employed ; for since this capital, according 
 to our hypothesis, is circulating, it is entirely consumed by 
 one use, and therefore the particular industry could not be 
 remunerative unless the value of the wealth produced was 
 somewhat more than sufficient to replace the capital con- 
 sumed. All capital, as we have before said, is intended 
 to be, either sooner or later, consumed : circulating capital 
 is destroyed by once ministering to the production of 
 wealth ; but capital is maintained by reproduction. Hence, 
 since circulating capital implies immediate consumption, 
 circulating capital. must also necessarily imply immediate 
 
Of Capital. 
 
 43 
 
 reproduction. Fixed capital, however, may repeat for a 
 long period the assistance it renders to production ; fixed 
 capital, therefore, is only gradually consumed, and the 
 amount of wealth expended upon fixed capital is not 
 immediately reproduced. The most important practical 
 consequences follow from these considerations. Let it be 
 supposed that a considerable amount of capital, which has 
 been previously employed as circulating capital, is con- 
 verted into fixed capital; when employed as circulating 
 capital it was at once reproduced, and therefore the wealth 
 which this capital produces must at least be sufficient in 
 amount to enable the capital to be re-created. But the 
 same immediate reproduction of wealth does not take 
 place if the capital is converted into fixed capital; and 
 therefore there need not immediately be produced so large 
 an amount of wealth as if the capital were consumed by a 
 single use, and had, in consequence, to be at once repro- 
 duced. Now, labourers derive their wages from circulating 
 capital; hence, if the circulating capital is diminished, 
 their wages will temporarily fall. As an example, the 
 construction of a railway may cause circulating to be con- 
 verted into fixed capital. Suppose that 10,000,000?., 
 previously paid to agricultural labourers, is now paid to 
 railway labourers : the agricultural labourers would con- 
 sume their wages; but then their labour would at once 
 produce something which would be again consumed, and 
 which would be again employed as circulating capital. 
 The railway labourers will be as usefully, or even more 
 usefully, employed than the agricultural labourers. The 
 nation is not made poorer by this transfer of capital from 
 one industry to another; she has her railway instead of 
 the commodities which were produced by the capitg.! pre- 
 viously invested in agriculture. There is no diminution 
 of national wealth ; but there may be less wealth in the 
 country available for consumption — a smaller fund, in 
 fact, to distribute amongst the labourers, and therefore 
 the labourers may temporarily suffer. The application of 
 improved machinery and the construction of such works 
 as railways will ultimately confer upon the labourers an 
 advantage amply sufiicient to compensate them for any 
 temporary loss which they may suffer from the conversion 
 pf circulating into fixed capital , Railways and machinery 
 
 BOOK I. 
 OH. IT. 
 
 Practical 
 conse- 
 quences of 
 the distinc- 
 tion be- 
 tweenfixed 
 and circu- 
 lating 
 capital. 
 
 A tempo- 
 rary injury 
 •may he in- 
 flictedupon 
 labourers 
 by the con- 
 version of 
 circulating 
 
44 
 
 Ifanual of Political Economy. 
 
 BOOK I. 
 CH. IV. 
 
 into fixed 
 capital. 
 
 A perma- 
 nent loss is 
 sometimes 
 suffered by 
 special 
 classes of 
 workmen 
 throughthe 
 introduc- 
 tion of 
 machinery. 
 
 have most powerfully stimulated the production of wealth, 
 and a large amount of wealth has been produced by their 
 aid which could never have been produced without them. 
 Moreover, the capacity which exists in England for the 
 accumulation of capital, quickly repairs any encroachment 
 that is made upon her circulating capital; and therefore - 
 it is doubtful whether the labourers in this country have 
 been even temporarily injured by the extensive use of 
 machinery, and by the rapid development of our railway 
 system. 
 
 But although the labourers as a body are not injured 
 by the conversion of circulating into fixed capital, through 
 the extended use of machinery, yet particular classes 
 of labourers often suffer a serious and permanent injury 
 from this cause. For instance, a man may spend seven 
 years in acquiring special skill in performing some process 
 of manufacture. The possession of this skill may be re- 
 garded as an important property, the pecuniary value of 
 which to its possessor can be estimated by the difference 
 between his wages and those of an ordinary labourer. 
 This difference may be so great that the skilled workman 
 can earn 4Z. a week, while the ordinary labourer can only 
 earn 11. One day a machine is introduced which performs 
 this particular process at one-fourth of the cost at which 
 it was performed by the skilled mechanic. He is, of 
 course, at once superseded; his skill, which before was 
 worth 3Z. a-week, ceases to have any value, and he may 
 have to descend to the condition of the ordinary labourer. 
 In such a case the loss to the labourer is just as real as if 
 he had been suddenly deprived of an income of 150^. a 
 year, or if an owner of a landed estate suddenly found its 
 letting value diminished by three-fourths. Many striking 
 examples might be easily given of the loss inflicted on 
 artisans who possess some special skill which is superseded 
 by the invention of a machine. It is, for instance, not 
 generally known that the curve given to the brim of the 
 best gentlemen's hats is done by hand, and requires so 
 much skill, precision, and nicety, that those who are en- 
 gaged in this particular kind of work often earn as much 
 as 71. or SI. a week. A machine has already been in- 
 vented which moulds brims sufficiently well for the cheaper 
 sort of hats, and some improvement may very probably be 
 
Of Capital. 
 
 45 
 
 introduced iuto this machine which will enable it to super- 
 sede the highly-paid labour above referred to. In this 
 case a special class of men who can now earn 71. or 81. a 
 week would have to descend to the position of ordinary 
 workmen, and would probably not earn so much as half 
 their former wages. 
 
 When therefore we hear of the opposition of certain 
 classes of labourers to the introduction of machinery, we 
 should remember that political economy affords no justi- 
 fication for the offhand way in which this opposition is 
 often spoken of as irrational and unfounded. The reality 
 of the loss which has to be borne by the labourers ought 
 at once to be admitted; and as the loss is brought upon 
 them by no fault of their own, the public ought at any 
 rate to extend to them a kindly sympathy; sometimes the 
 labourers might be induced, if calmly reasoned with, to 
 relinquish a useless opposition to machinery : they not 
 unfrequently increase the loss inflicted on them through 
 the introduction of machinery by entering into a fruitless 
 and costly struggle to resist its use. Probably the best 
 way for the workmen to meet such a misfortune as that 
 just described is to endeavour to tind some other branch 
 of industry, in which the kind of skill which they possess 
 could be made to some extent available. The hand-loom 
 weavers of Spitalfields, instead of clinging to an industry 
 which has been superseded, and thus gradually sinking 
 into deeper and deeper distress, would have done far 
 better if they had sought employment in the silk-mills in 
 the north of England, 
 
 BOOK I. 
 CH. IV. 
 
BOOK I. 
 CH. V. 
 
 Variations 
 in the pro- 
 ductive 
 power 
 
 of land, 
 
 labour, 
 
 CHAPTER V. 
 
 ON THE PRODUCTIVE POWER OF THE THREE EEQITISITES 
 OF PRODUCTION. 
 
 THE three requisites of production, labour, appropriate 
 natural agents, and capital, have now been discussed. 
 The subject of the production of wealth will not be com- 
 plete without an investigation of some of the laws upon 
 which depends the amount or degree of productiveness of 
 each of these requisites. All the materials upon which 
 labour and capital are employed, are produced either 
 directly or indirectly from the land. Wool is not a pro- 
 duct of the land like cotton and timber, but the sheep 
 from which the wool is clipped are fed by food obtained 
 from the land. Land, labour, and capital are, therefore, 
 the three requisites of production. The most casual 
 observer will have noticed that each of these varies 
 greatly in productiveness at different times, and in dif- 
 ferent places. Some of the richest ' tracts of land in 
 England were not long since an uncultivated morass ; 
 Cambridgeshire and Norfolk are now amongst the largest 
 corn-producing counties, yet Cambridge was once the 
 home of the bittern and snipe, and Norfolk was little 
 better than a rabbit-warren. At the present time England 
 possesses land of every degree of fertility; the rich loam 
 land of Sussex and the Lothians will let for 4L an acre; and 
 large tracts of land on the moors of Yorkshire, if given to 
 a farmer rent free, would not pay to be cultivated. There 
 is also the greatest difference in the efificiency of labour. 
 It has been calculated that an English mower will do as 
 much work in a day as three Russian serfs, and the con- 
 tractors for the French railways found that an Eno-lish 
 navvy was worth two French labourers. Such differences 
 
Variations in Productive Power. 
 
 47 
 
 in the value of labour mainiy depend iipon superior 
 strength and stamina, but still greater differences arise 
 from superior skill ; many operations in the manufacture 
 of commodities require, perhaps, a delicate touch or a 
 quick dexterity which no amount of untrained labour 
 could supply. Capital, directed by superior knowledge, 
 may effect what before was impossible ; mines are now 
 worked which no amount of labour and capital, unaided 
 by the steam-engine, could have drained ; and the appli- 
 "cation of a hundred times as much labour and capital 
 would not produce the cloth which is now woven by the 
 spinning-jenny and the power-loom. These considera- 
 tions may, perhaps, suggest the opinion that we shall be 
 obliged to call in the assistance of every science in order 
 to investigate the laws which determine the productiveness 
 of land, labour, and capital. For it may be said, agri- 
 cultural chemistry makes known the constituents upon 
 which depend the fertility of the soil ; the difference in 
 the stamina and strength of English and Russian labourers 
 must be elucidated by appealing to physiology, and to 
 other sciences. Again, the efficiency of machinery must 
 be explained by the principles of mechanics. It, there- 
 fore, manifestly becomes necessary to place some limita- 
 tion upon the scope of political economy, unless it is 
 intended to embrace a vast number of other sciences. 
 Now, it will be remembered, that no accurate definition 
 of political economy was attempted to be given at the 
 commencement of this work. It is far better that the 
 reader should have the definition evolved for him as the 
 subject gradually progresses. 
 
 In the introductory chapter we described political 
 economy to be the science which investigates the laws 
 that determine the production, the distribution, and the 
 exchange of wealth; it was, however, at the same time 
 stated that this was rather a general description than 
 an accurate definition. It is not an accurate defini- 
 tion, for it is already perceived that, even concerning the 
 first branch of the subject, political economy does not 
 investio-ate all the laws. which concern the production of 
 wealth; for if it did investigate those laws, chemistry, 
 physiology, mathematics, and various other branches of 
 knowledge, would form a part of the science of political 
 
 BOOK I. 
 CH. V. 
 
 and capi- 
 tal. 
 
 A neces- 
 sary limi- 
 tation of 
 our enqui- 
 ries into 
 the cause of 
 this varia- 
 tion. 
 
48 
 
 Manual of Political Economy/. 
 
 BOOK I. 
 CH. V. 
 
 The pro- 
 ductiveness 
 of land. 
 
 economy. It -will be necessary therefore to place some 
 limit upon our investigations; and the necessary limitation 
 is provided by assuming that the facts which are acquired 
 from other sciences are known, or at any rate are supposed 
 to be true. Thus political economy assumes all that we can 
 tell at the present time with regard to the fertility of the 
 soil. It is not the business of political economy to decide 
 whether chemistry can suggest any particular manure 
 which will greatly increase the productiveness of the land; 
 but if the land, by any such cause, is rendered more 
 fertile, then political economy would trace the conse- 
 quences of this increased fertility upon the production; 
 the distribution, and the exchange of wealth. Again, it 
 would be foreign to the subject of political economy to 
 prove, by a physiological argumeiit, the causes upon 
 which the inferior strength of the French and Russian 
 labourers depends; but political economy, assuming that 
 this inferiority exists, without explaining its cause, or 
 suggesting a remedy for its removal, traces its conse- 
 quences upon the production, the distribution, and the 
 exchange of wealth. 
 
 Returning now to the immediate subject of this chapter ; 
 we have to consider the productiveness of land, labour, 
 and capital, not as they depend on physical causes, but as 
 they are determined by production on a large and small 
 scale, by division of labour, by the accumulation of capital 
 in joint-stock companies, and by various other such circum- 
 stances which we shall proceed to notice. 
 
 The productiveness of land does not depend entirely 
 upon its fertility ; for the quantity of labour and capital 
 which may be required to make the produce raised from 
 the land available for consumption forms a very important 
 element in estimating its productiveness. The rich allu- 
 vial plains of the Mississippi are almost unsurpassed in 
 fertility; but a considerable portion of the wheat which 
 is grown there is consumed in Europe; and the cost of 
 carrying this wheat to the European markets is virtually 
 so much deducted from the productiveness of the soil 
 upon which the wheat was grown. When the valley of the 
 Mississippi possesses population so dense as to consume all 
 the wheat there grown, the land, although it may be 
 not more fertile, will be more productive of wealth ; for 
 
VaTiations in Productive Poiuer, 
 
 49-. 
 
 the wheat will no longer be wanting an utility, which, 
 amongst others, gives it the character of wealth, namely, 
 of being in the place where it is required to be consumed: 
 an utility which cannot now be conferred upon it without 
 considerable cost. Everything, therefore, which facilitates 
 the transport of produce, increases the productiveness of 
 land. A great, perhaps the greater, portion of the most 
 fertile land in the world is entirely unproductive. Pro- 
 ducts might be raised from it which would be eminently 
 serviceable to man, but various obstacles interpose which 
 render these products unavailable for consumption. The 
 most splendid pine-trees are often seea rotting on the 
 sides of the Swiss mountains, because it would cost more 
 to bring the timber to market than it is worth. 
 
 The increase of population may create a demand for a 
 product, and thus make the land from which it is obtained 
 more productive. The- great natural pastures of Australia 
 have for many years supported immense flocks of sheep. 
 In England the carcase of a sheep is far more valuable 
 than its wool ; but the reverse was the case in Australia — 
 the wool was valuable, the carcase was almost worthless. 
 Wool is not a bulky commodity, and the cost of sending 
 a fleece from Australia to England is comparatively 
 trifling ; but so- great a quantity of meat was almost 
 worthless to so sparse a population. The gold discoveries 
 at once caused the population of Australia to be largely 
 increased ; the mutton which had been before wasted was 
 now required; the sheep became much more valuable; 
 and the pastures upon which the sheep graze thus became 
 far more productive of wealth, although the fertility of 
 these pastures has remained unchanged. 
 
 If the productiveness of labour is estimated by the 
 amount of wealth which is produced by a certain quantity 
 of labour, then the productiveness of labour is partly the 
 cause and partly the effect of the fertility of the land. 
 " Quantity of labour " may be conveniently defined by 
 the labour of a certain number of men working for a 
 certain number of houi;s per day. The amount of wealth 
 which is produced depends jointly upon the product- 
 iveness of land and the productiveness of the labour 
 employed ; but as remarks have already been made upon 
 the productiveness of land, we shall now proceed to 
 
 F. M. D 
 
 BOOK I. 
 CH. V. 
 
 It is af' 
 fected by 
 the faci- 
 lities of 
 transport- 
 ing pro- 
 duce. 
 
 The pro- 
 ductiveness 
 of labour. 
 
 It is af- 
 fected by 
 thefertility 
 of land, 
 
SO' 
 
 ■Manual of Political Economy. 
 
 by national 
 character, 
 
 by the in- 
 crease of 
 capital, 
 
 and by the 
 ediicdtion 
 of the 
 labourers. 
 
 consider some of the causes upon which, under any as- 
 sumed set of circumstances, depends the productiveness 
 of labour. 
 
 Enei-gy and intelligence are two of the most valuable 
 qualities which a labourer can possess. It does not, as has 
 been previously observed, appertain to our subject to at- 
 tempt a full explanation of the causes which determine 
 differences of national character. The Irish labourer, for 
 instance, does not possess that steadiness and dogged de- 
 termination which distinguish the English labourer. Mr 
 Brassey's boot, called Work and Wages, gives many strik- 
 ing examples of the different industrial qualities pos- 
 sessed by workmen of different nations. He gives the 
 palm to the English labourer; and states that although 
 wages are higher in this country than in any other Euro- 
 pean country, yet bridges, viaducts, tunnels, and all engi- 
 neering works, can be executed at a cheaper rate in 
 England than in any other country in the world. 
 
 Labourers have generally been so imperfectly educated 
 that the economic advantage of intelligence lo the labourer 
 has been, and is still, most inadequately appreciated. 
 Almost every industrial operation will be better and more 
 expeditiously effected by the intelligent workman. The 
 agricultural labourer is verj"- generally looked upon as 
 requiring no special skill or intelligence; but an expe- 
 rienced English land-agent has stated that in his opinion 
 the reason why the land in the Lothians lets at a higher 
 rent than equally fertile land in England, is that the 
 Scotch labourers k.nd farmers are, as a general rule, better 
 educated and consequently more intelligent than labourers 
 and farmers in England. This opinion has been confirmed 
 by a large landowner and practical agriculturist, the Mar- 
 quis of Aylesbury, who in a speech to his tenantry, in 
 November 1874, said that he found that the' farms that 
 were the best cultivated were in those counties where 
 wages were the highest, and he attributed this to the 
 circumstance that in these counties there were better and 
 more skilled workmen. If therefore the English agri- 
 cultural labourer becomes properly educated, it may^'be 
 found that the productiveness of the land is as much 
 increased as if an important addition had been made to 
 its natural fertility. Education also produces a most 
 
Variations in Productive Power. 
 
 51 
 
 decided improvement in the moral character of the work- 
 man. If workmen are dishonest, the loss which is in- 
 curred is in no way represented by the amount of pro- 
 perty which may be stolen ; if reliance cannot be placed 
 upon labourers, they must be superintended and watched, 
 and thus their labour is rendered less productive, because 
 a certain portion of the wealth which is produced has to 
 be paid to overlookers and others who would not be re- 
 quired to watch the labourer if complete confidence could 
 be reposed in him. Thus if one overlooker is required to 
 superintend the labour of twenty men, and if he is paid, 
 as he probably is, twice as high wages as the ordinary 
 workmen, it is obvious that the amount paid in labour for 
 the production of a certain commodity is just one-tenth 
 more than it would be, if it were not necessary to employ 
 the overlooker. If therefore his services were dispensed 
 with the productiveness of labour would be increased, which 
 would render it possible either to cheapen the commodity 
 to the consumer, or to make an addition to the profits of 
 the employer and the wages of the labourer. The pro- 
 ductiveness of labour depends upon a great variety of 
 other personal qualities possessed by the labourer. In- 
 temperance makes a labourer less able to do his work, and 
 his labour is sure to be more irregular. 
 
 The productiveness of capital may be estimated by the 
 amount of wealth which is produced by the application of 
 a certain quantity of capital. Capital is of course capable 
 of producing more wealth when it employs efiicient labour 
 and is applied to fertile land; but there are certain cir- 
 cumstances which tend to make capital more productive, 
 whether the land and labour are good or bad. Every 
 improvement in any of the processes of industry makes 
 capital more productive. "Without the assistance of the 
 steam-engine, the capital at the present time existing in 
 the country would not suffice for the production of even a 
 small portion of the wealth which is now annually pro- 
 duced. Machinery causes a greater quantity of wealth to 
 be created with the assistance of a smaller amount of 
 labour and capital. But the productiveness of capital is 
 popularly estimated according to a different standard ; for 
 capital is conceived to be productive when the profits 
 obtained by the, capitalist are^large. For instance, a farmer 
 
 D2 
 
 BOOK I. 
 OH. V. 
 
 The pro- 
 dMctiveners 
 of capital. 
 
 It is af- 
 fected by 
 improve- 
 ment of 
 industrial 
 processes ; 
 
5^ 
 
 Manual of Political Economy. 
 
 BOOK I. 
 CH. V. 
 
 might say, It is true that in consequence of the advance 
 in agricultural science a great deal more produce is grown 
 upon a farm now than a few years since ; but the rents 
 which the farmers pay have increased; and therefore the 
 profits of the farmer are not larger now than formerly. 
 His capital, therefore, gives him no greater return, and he 
 might for these reasons consider that the productiveness of 
 capital had not been increased. This, no doubt, might be 
 the case, as far as the farmer himself was concerned;, but 
 the productiveness of capital depends upon the amount of 
 wealth produced, and not upon the particular manner in 
 which this wealth may be distributed amongst the different 
 parties who have a claim to be remunerated. The laws 
 which determine the relative value of the remuneration 
 received by landlords, capitalists, and labourers, will be 
 explained in those chapters which treat of the distribution 
 of wealth. 
 
 Hitherto, the great social and economic importance of 
 securing the greatest efficiency of labour, by giving the 
 labourer some pecuniary interest in the work in which he 
 is employed, has been most imperfectly understood. The 
 relations between employers and employed will never 
 become satisfactory until they are more united by the 
 bonds of mutual interest Too many of our labourers pass 
 a life of hopeless drudgery; they in no way share their 
 master's prosperity. In some of the succeeding chapters 
 of this work, the great advantages of co-partnership and 
 cooperation will be shown; for it will be explained that 
 under such systems not only has the labourer been socially 
 and morally improved, but capital and labour have in this 
 way been rendered more productive, by calling forth the 
 highest and most skilled efforts of the labourer. Improved 
 relations between employers and employed might render 
 unnecessary a great proportion of the present large outlay 
 upon wages of superintendence, which, as above explained, 
 so seriously diminish the productiveness both of labour 
 and capital. 
 
 As yet only the general causes on which the produc- 
 tiveness of land, labour, and capital depend have been 
 mentioned. Some of the more special means by which 
 the efficiency of the three agents of production may be 
 increased must now be considered. As a first example 
 
Variations in Productive Power. 
 
 S3 
 
 we will refer to the striking illustrations employed by 
 Adam Smith, which demonstrate the advantages derived 
 from the division of labour. A pin passes through about 
 eighteen processes. The metal has to be drawn into 
 wire, the wire has to be cut a proper length, the end 
 sharpened, the head must be made and fastened to the 
 pin, the pin must be burnished and then properly packed. 
 The most skilled workman could not make more than 
 twenty pins per day if he had himself to attend to all 
 the processes through which the pin passes. But when 
 the labour of pin-making is divided, the various processes 
 being performed by different workmen, ten workmen will 
 make 50,000 pins in a day. Without division of labour 
 the ten workmen would only make 200 pins per day, and 
 thus it would appear that in this case a proper division of 
 labour increases its productiveness more than two hun- 
 dredfold. Other examples, even more striking than the 
 one just quoted, might be readily selected. M. Say says 
 that, in the manufacture of playing cards, there are 
 seventy-two distinct operations. When these operations 
 are appropriated to different workmen, 15,500 cards have 
 been made in a day by thirty workmen; but if a single 
 workman had to perform all the operations himself, he 
 would not make more than one or two cards per day. 
 The increased efficiency which is thus conferred upon 
 labour is, according to Adam Smith, due to three causes : 
 
 1. The increase of dexterity in every particular work- 
 man. 
 
 2. The saving of the time which is commonly lost in 
 passing from one species of work to another. 
 
 3. The invention of a great number of machines which 
 facilitate and abridge labour, and enable one man to do 
 the 'Work of many. 
 
 The greatest influence no doubt is produced by the first 
 of these causes, namely, the increase of dexterity of the 
 workman. The effect of continuous practice in performing 
 both mental and physical operations is most strikingly 
 exhibited in the increased quickness obtained. By prac- 
 tice the eye and hand may learn to work in perfect unison, 
 and the hand and eye are made to obey with intuitive 
 quickness the behests of the will. The glass-blower ap- 
 pears to give a casual glance at a decanter, wishing to 
 
 POOK I. 
 OH. V. 
 
 Division of 
 labour in- 
 creases iU 
 efficiency. 
 
 for three 
 reasonn. 
 
 The dex- 
 terityofthe 
 workmanis 
 increased. 
 
54 
 
 ' Manual of Political Economy. 
 
 make one like it. He places some molteu glass upon 
 his blow-pipe, and after a few minutes of blowing and 
 twisting a decanter is made, and between it and its 
 model the nicest eye can detect no difference in size or 
 shape ; yet science can scarely analyse or explain the 
 marvels of this extraordinary handiwork. No rule but 
 the eye has been employed to measure, the eye looks at 
 the decanter, and the hand is thus directed. The shape 
 of the decanter is produced by a combination of different 
 forces, which the most refined analysis of the mathema- 
 tician could scarcely investigate ; there is the force of 
 expansion caused by the blowing, and centrifugal and 
 other forces are brought into action by the twirling and 
 twisting. Many of the operations of industry need a 
 dexterity which can only be acquired in childhood ; the 
 pliant fingers of youth must be moulded to the work. 
 When, therefore, the distinct operations of any industry 
 are performed by different workmen, then each of these 
 operations may become a separate trade, for which men 
 may be separately trained. If all the processes of pin- 
 making were performed by one man, he would not have 
 sufficient practice to acquire the requisite dexterity in 
 any single operation, and, therefore, if there was no di- 
 vision of labour in pin-making, all the labour employed 
 must be, comparatively speaking, unskilled, and conse- 
 quently very inefficient. The precision and quickness 
 acquired by practice are not in any way confined to. the 
 mechanical operations of trade. What can be more extra- 
 ordinary than the precision and quickness of the accom- 
 plished and practised musician ? If the theory of violin- 
 playing is explained, it seems to require a skill beyond the 
 reach of man. The fingers appear to move with careless 
 rapidity over the strings, yet the accuracy of each note 
 depends upon the string being touched with the strictest 
 correctness at some particular point. 
 
 Another advantage results from the dexterity of the 
 superior workman, for he will use all the materials em- 
 ployed with the greatest possible economy; nothing is 
 wasted by his blunders or mistakes. 
 
 Later writers on political economy, and amongst them, 
 in particular, Mr Mill, consider that too much importance 
 has been attributed to the second of the three causes 
 
Variations in Productive Power. 
 
 55 
 
 which, according to Adam Smith, explain the increased 
 efficiency of labour when the distinct operations of indus- 
 try are properly apportioned amongst the workmen em- 
 ployed. A great deal of time is undoubtedly wasted if a 
 workman has often to pass from one species of work to 
 another, and this waste is of course obviated when a 
 labourer can steadily keep throughout the day at the same 
 kind of work. But Adam Smith, exaggerates the nature 
 and the amount of the advantages which may be thus 
 secured, and omits to notice some counterbalancing dis- 
 advantages which may very possibly occur. Adam Smith, 
 says, " A man commonly saunters a little in turning his 
 hand from one employment to another. When he first 
 begins the new work he is seldom very keen and hearty ; 
 his mind, as they say, does not go to it, and for some time 
 he rather trifles than applies to good purpose. The habit 
 of sauntering and of indolent careless application which is 
 naturally or rather necessarily acquired by every country 
 workman, who is obliged to change his work and his tools 
 every half-hour, and to apply his hand in twenty diiferent 
 ways almost every day of his life, renders him almost 
 always slothful and lazy, and incapable of any vigorous 
 application even on the most pressing occasions." There 
 is nothing in this passage absolutely incorrect ; it is, 
 however, truth overstated. Each of the circumstances 
 mentioned'by Adam Smith produces some of the influence 
 he describes ; but his remarks would seem to prove that 
 ■all those whose employments are various must be sloth- 
 ful and indolent, but the reverse is often the case; 
 labourers frequently become quicker and more intelligent 
 when the monotony of their employment is relieved by 
 some variety. Waiters in large establishments are pro- 
 verbially quick in their movements, and yet before they 
 finish one thing they are often called upon to do a dozen 
 different things. Gardeners are generally extremely in- 
 telligent, and yet there is the most constant variation in 
 their employments. Before machinery was so largely used 
 in agriculture as it is at the present time, the work of the 
 agricultural labourer was far more monotonous. There 
 are many labourers still living, who during twenty years 
 of their life spent ten hours a day during ten months of 
 the year in thrashing with th^ flail. Such a labourer might 
 
 , BOOK I. 
 OH. V. 
 
 to another 
 is saved ; 
 
 altliough 
 the advan- 
 tage of this 
 has been 
 exagge- 
 rated. 
 
S6 
 
 Manual of Political Economy. 
 
 BOOK I. 
 CH. T. 
 
 Tlie inven- 
 tion of ma- 
 chines is 
 perhaps 
 facilitated; 
 
 hut this is 
 doubtful as 
 a general 
 principle. 
 
 The inven- 
 tion of 
 machines, 
 however, 
 facilitates 
 thedivision 
 of labour. 
 
 perhaps be somewhat stronger as a thrasher, but he passed 
 his life as a machine, and it was impossible that an active 
 intelligence should be preserved through such an ordeal. 
 
 The third advantage which arises from the division of 
 labour as enumerated by Adam Smith is, " the invention 
 of a great number of machines which facilitate and abridge 
 labour, and enable one man to da the work of many." 
 There is some ambiguity in Adam Smith's conception of 
 *he causes which influence the invention of such machines. 
 Returning to our original example, each of the workmen 
 employed in pin-making has his attention concentrated 
 upon some distinct operation of the manufacture, and it is 
 therefore maintained that he will be more likely to suggest 
 some improvement in the particular operation iti which 
 ■he as constantly engaged, than would another workman 
 whose attention is distracted by a great number of the 
 processes of pin-making. The supposition may be verified 
 by some striking instances. The boy whose only employ- 
 ment consisted in opening amd shutting the valve of a 
 steam-engine invented a self-acting apparatus, which had 
 not suggested itself to Watt and other accomplished me- 
 chanicians. The spinning-jenny and the mule were invented 
 by working men; but there is no general principle which 
 regulates the invention of machines of industrial usefulness; 
 many most important mechanical improvements have been 
 suggested by those who perhaps for the first time may have 
 watched the operations of a particular industry. Novelty 
 has often been the prompter of an invention, and improve- 
 ments in machinery have often, as it were, been forced 
 upon a trade. The practical advantage of the steam 
 thrashing machine was proved long before the farmers 
 could be generally induced to use it. Routine has often 
 so dulled the minds of those who are employed in some 
 special industrial operation, that they are reluctant to 
 understand that any improvement in the processes of a 
 particular industry is required. 
 
 Although division of labour may not be so entirely the 
 cause of mechanical inventions as is sometimes supposed, 
 yet there can be no doubt that a mechanical invention 
 almost always induces a greater division of labour. When 
 a machine is at work there are various operations per- 
 formed by it which must be separately attended to. The 
 
Variations in Productive Power. 
 
 57 
 
 the application of m; 
 machinery may nec( 
 labour. Boat-buildii 
 division of labour, 
 has been invented by 
 by which a boat may 
 
 machinery employed in a cottojuiiHftiUwregulates the extent 
 to which the division of lah(i^[0B carried^: for every pro- 
 cess through which the cfl^flpH' passes, from the time it is 
 cleaned until it is wovroMnto cloth, mtrsl be separately 
 attended to, and thus^cfivision^f .lalgp^jis enforced by 
 jmery. jSPhe fe^Muction of new 
 itate^ muc^e^ter division of 
 ia|>ri«!£ hit^K^/required any great 
 mo^ iijj^^Sie^f machine, however, 
 AmM-jc^^^^r Nathan Thompson, 
 beN;«Bipetely built in a few hours. 
 If boats are thus built, the nature of the machine will 
 exactly determine to what extent division of labour will 
 be henceforth practised in boat-building, for the distinct 
 operations performed by the machine must be attended to 
 by a certain number of workmen. 
 
 Mr Babbage pointed out a most important advantage 
 resulting from the division of labour which was altogether 
 omitted by Adam Smith. Our former example will most 
 clearly illustrate this advantage. The labourers who are 
 employed in the various operations in pin-making receive 
 wages which vary greatly. Boys can fasten on the heads 
 of the pins with as much facility as men ;, girls can sort 
 and pack the pins with great rapidity. Some of the other 
 operations of pin-making, such as drawing the wire and 
 pointing the ends, are performed by highly trained and 
 very skilled labourers, and consequently the remuneration 
 received varies from fourpence-halfpenny to four shillings 
 per day ; and in other branches of industry there are even 
 greater differences than these. Mr Babbage states that 
 the various parts of which a watch is composed employ a 
 hundred distinct trades, and the skill required in some of 
 these trades is much greater than in others. A watch-case 
 is, comparatively speaking, a simple article to make, whilst 
 on the other hand, some of the parts on which the accuracy 
 of a chronometer depends, must be so delicately adjusted 
 that only very few workmen ever acquire the refined skill 
 which is needed. These workmen therefore possess a vir- 
 tual monopoly, and can obtain wages far exceeding any 
 which are usually paid. If there were no division of labour 
 in pin-making, each workman who made the pins must 
 possess the skill which is required for each of the opera- 
 
 BooK r. 
 
 OH. V. 
 
 Another 
 advantage 
 of division 
 of labour 
 pointed out 
 by Mr 
 Babbage, 
 viz. classi- 
 fication of 
 labourers. 
 
58 
 
 Manual of Political Economy. 
 
 BOOK I. 
 OH. V. 
 
 Economic 
 advantage 
 thus ob- 
 tained. 
 
 The divi- 
 sion of la- 
 bour is 
 limited hy 
 the demand 
 for thecoma 
 modities 
 •produced. 
 
 tions. He must be able to sharpen the pins, ' and the 
 labour of a man who can sharpen pins is, as we have seen, 
 worth four shillings per day. Without division of labour 
 the workman cannot spend his whole time in sharpening 
 the ends of pins ; he will have to devote a portion of his 
 time to fastening on the heads, of pins, and is then doing 
 work which is worth only fourpence per day, thus incur- 
 ring the most serious waste. Hence a workman would be 
 compelled to produce what was worth only fourpence per 
 day when his labour might produce what was worth four 
 shillings per day. Mr Babbage has attempted to form 
 some estimate of the loss which would be thus incurred, 
 for he has calculated "that even supposing a workman 
 could make a pound of pins in the same time in which ten 
 workmen combining their labour can make ten pounds, 
 they would cost in making three times and three-quarters 
 as much as they now do by means of the division of labour." 
 A still greater loss would be incurred if the mechanician 
 upon whose skill the accuracy of a chronometer depends 
 had to waste his time, and perhaps destroy the delicacy of 
 his touch, upon some of the rougher work by which parts 
 of the watch are made. Labour is most efficient in the 
 production of wealth when each individual can be employed 
 upon work which is best suited to the skill and physical 
 strength which he possesses. The perfection of modern 
 manufacturing industry makes such a minute division of 
 labour possible, that the labour which is performed can be 
 so apportioned as to suit the capacity of each individual 
 workman. 
 
 It has often been remarked that the demand for any parti- 
 cular commodity places a practical limit upon the extent to 
 which division of labour in its manufacture can be carried. 
 There are in this country few commodities in such a posi- 
 tion. But to take a hypothetical case ; let it be supposed 
 that a pin manufactory is established in a new colony, the 
 population of which is small. If there is such a division 
 of labour that ten men are employed in the manufactory, 
 there would be made, as has been before stated, fifty 
 thousand pins in the course of a day. The colony might 
 only have a demand for half of this number ; and hence, if 
 we suppose, for the sake of simplicity, that the colony has 
 no export trade, there will be more pins made than are 
 
Variations in Productive Power. 
 
 59 
 
 required. The pin manufactory might be closed during a 
 portion of the year, in order that a smaller number of pins 
 might be made. But in order to avoid the loss which is 
 always incurred when a trade is carried on at intervals, 
 the pin manufacturer would probably find it more to his 
 advantage to employ a smaller number of men. If only 
 five were now employed, there would not be so great a 
 division of labour, and the labour of the five workmen 
 would not be so efficient, for the number of pins now made 
 in the course of the year would fall far short of one-half 
 of the number previously made, although only double the 
 quantity of labour was then employed. In England there 
 are few things which are manufactured at an increased cost 
 in consequence of the limited demand existing for them. 
 If the stereoscope, for example, were only used as formerly 
 for scientific purposes, and employed, like many other 
 optical instruments, by professors to illustrate the laws of 
 optics, a stereoscope would be far more expensive than it 
 is now. The few which would then be purchased in the 
 course of a year would be made, speaking compara- 
 tively, without any division of labour; it would not be 
 worth while specially to apply any machinery to the con- 
 struction of stereoscopes. But the stereoscope has now 
 become a drawing-room toy, and tens of thousands are 
 made every year. The price of stereoscopes has conse- 
 quently been greatly reduced ; so many are now manu- 
 factured, that workmen may be employed entirely in 
 constructing them ; and each part in a stereoscope may, 
 like the various parts of a pin, be separately manufactured. 
 All the advantages of division of labour can in this manner 
 be secured ; the dexterity of the workman is increased ; 
 machines, too, will be probably invented specially to 
 facilitate some of the operations in the construction of 
 the stereoscope, and these various operations can now be 
 apportioned amongst workmen according to their skill and 
 capacity. The practical result of this is strikingly exem- 
 plified in the fact that a stereoscope which now can be 
 purchased for three shillings could not, a few years since, 
 be obtained for less than a pound. 
 
 The efficiency of labour as an agent of production depends 
 as much upon the combination or cooperation of labour 
 as upon its division. Labour may be combined in two 
 
 Combina- 
 tion of la- 
 bour is as 
 I necessary 
 
6o 
 
 Manual of Foliticdl Economy. 
 
 BOOK I. 
 CH. V. 
 
 OS division 
 of labour. 
 
 Case of the 
 manufac- 
 ture of 
 cotton 
 cloth. 
 
 different ways, and these have been described by Mr 
 Wakefield as simple and complex cooperation. Wh^n 
 several -workmen combine their labour in the same way 
 to do the same thing, it is called by Mr Wakefield 
 simple cooperation; and its importance can be readily 
 illustrated. Work has often to be done which requires 
 the strength of a great number of men ; a weight may 
 have to be lifted which could not be lifted by any one 
 man. Without such a cooperation of labour none of 
 the works which mark the civilisation of a country could 
 have been accomplished ; for unless labourers united their 
 strength and skill, bridges could not be built, railways could 
 not be made, mines could not be dug, and buildings could 
 not be erected. The assistance which labourers engaged 
 in one employment lend to those in another was described 
 by Mr Wakefield as the complex cooperation of labour. 
 He was the first who adequately explained the most impor- 
 tant considerations which arise from such a combination of 
 labour. Political economists, guided by the example of 
 Adam Smith, had previously almost entirely confined their 
 attention to a very subsidiary branch of the subject, namely, 
 the division of labour. We have already indirectly re- 
 marked upon the great extent to which different employ- 
 ments combine to assist each other. The manufacture of 
 cotton cloth was mentioned as an example, to show how 
 various are the different classes of labourers who assist in 
 the production of even a simple commodity. We were led 
 into endless ramifications in attempting to trace the dif- 
 ferent kinds of labour, either directly or indirectly brought 
 into requisition, from the time that the cotton seed is planted 
 in the swamps of Georgia until the cloth is woven in the 
 looms of Manchester. There are distinct sets of labourers 
 employed in tilling the cotton fields, in carrying the cotton 
 to the port, in navigating the vessel in which it is shipped, 
 in unloading the cotton at Liverpool, and then in trans- 
 porting it to the mills of Manchester. All these different 
 classes of labourers have been directly engaged in bringing 
 the cotton to the place where it is wanted by the manufac- 
 turer. It would be vain to attempt a complete enume- 
 ration of all the different labourers who have indirectly 
 assisted in bringing the cotton to market. There are the 
 shipwrights who have built the ships, the labourers who 
 
Variations in Productive Po^er. 
 
 6i 
 
 have constructed the roads along which the cotton is car- 
 ried, and the artizans who have made the tools with which 
 the cotton fields are cultivated. 
 
 There is, as it were, a tacit compact between each indi- 
 vidual and society in general, that the commodities which 
 he consumes will be produced for him by other classes of 
 labourers. If there were not confidence that such a com- 
 pact would be realised, society would return to.its primitive 
 type ; for each man would have to live on his own plot of 
 land, and every commodity which he consumed would have 
 to be produced by himself. If this is done in any country 
 to a large extent, the country must be poor and backward. 
 Mr Wakefield pointed out the important bearing of such 
 considerations upon colonisation. The English Government 
 had frequently encouraged a system of colonisation which 
 tended to impoverish a colony, by impeding this complex 
 cooperation of labour. In order to stimulate emigration, 
 each family obtained from the government a certain area 
 of land in fee-simple, and thus a new colony was dotted 
 over with the isolated settlements of a great number of 
 distinct families, who lived so widely scattered that they 
 could hold but slight intercourse with each other. Each 
 family had, therefore, to produce for itself almost everything 
 it required. Under these circumstances there could be little 
 commerce or trade, and the country necessarily remained 
 in almost a stationary condition. The people in one sense 
 were not poor ; for the virgin fertility of the soil supplied 
 them abundantly with the ordinary necessaries of life ; 
 but there was an almost complete absence of cooperation of 
 labour. One of these families might possess a superfluity 
 of food : there might be some commodity which, in a par- 
 ticular situation, could be easily produced, yet it could not 
 be exchanged for some other commodity which a family 
 might particularly want, and which it might, perhaps, fail 
 to obtain, even by the application of the greatest amount 
 of labour. A colony in this condition derives scarcely any 
 benefit from such great natural advantages as a genial 
 climate, great mineral resources, and vast tracts of fertile 
 land, as yet untilled and unappropriated. Therefore, Mr 
 "Wakefield emphatically insists that a government, when 
 establishing a new colony, ought not to grant to emigrants 
 settlements of land, far distant, and widely scattered, 
 
 BOOK 1. 
 CH. V. 
 
 Bearing of 
 the prittr ' 
 ciple of 
 comJjina- 
 
 tion 
 hour 
 
 of la- 
 upon 
 
 colonisa 
 tion. 
 
63 
 
 Manual of Political Economy. 
 
 BOOK I. 
 OH. V. 
 
 This prin- 
 ciple exem- 
 plified in 
 Australia. 
 
 without at the same time taking steps to encourage the 
 growth of a town population. The settlements which are 
 granted by the government ought to be concentrated as 
 much as possible, and should, in the first place, be not 
 too remote from the towns. There will then at once arise 
 a cooperation between the industry of the town and the 
 industry of the country. The industry of the town will 
 supply the inhabitants of the country with the commodities 
 which they foiind most difficult to obtain ; and the town 
 population will have an active demand for the food and 
 other natural products which in the country can be raised 
 in such plentiful abundance. The efficiency of labour will 
 thus be greatly increased; for, with such an interchange of 
 commodities, a family which could previously do little more 
 than supply itself with food from a tract of land, can now 
 not only obtain, with the same labour, all the food it re- 
 quires, but can also purchase from the town population 
 articles of utility and luxury before unattainable. Such a 
 colony will rapidly advance in wealth; roads will be made, 
 and other industrial appliances will be carried out, which 
 will powerfully stimulate the rising commerce. 
 
 It was at first supposed that the gold discoveries in 
 Australia would cripple its agriculture ; that labour would 
 be drawn from the farm to the gold mine; that the wages 
 of agricultural labourers would greatly increase ; and that 
 under such difficulties agriculture must decline. But al- 
 though this did in the first instance take place, yet agricul- 
 ture speedily recovered in Australia, and has within the 
 last few years rapidly advanced. The reason is that the 
 gold discoveries caused the town population to be largely 
 and suddenly increased, and the food which such a town 
 population required was supplied from the agricultural dis- 
 tricts. Those who sold the food could purchase, in return, 
 all the products which the commerce of Europe provides ; 
 and Victoria has, in a few years, advanced from an aggrega- 
 tion of isolated settlements to the position of a prosperous 
 country, with all the appliances of the oldest and most 
 thriving commercial community. The large yield of gold 
 within the last ten years is generally considered to be the 
 source of the increased wealth of Australia. As Prof. 
 Cairnes well remarked', the extent to which the gold 
 
 1 Essays in Political Economy, Theoretical and Applied. By Prof. 
 J. B. Cairnes. 
 
Variations in IVoductive Power. 
 
 63 
 
 discoveries have enriched Australia can be measured 
 by the degree in which she has parted with this gold. 
 In other words, she has been enriched, not by keep- 
 ing it, but by sending it away in exchange for useful 
 products from other countries. The gold may have been 
 the primary stimulus of her prosperity; but the gold 
 which has been produced most inadequately represents 
 the extent to which her wealth has been augmented. 
 Not only has all her labour, whether agricultural or 
 not, been rendered more efficient by the increased co- 
 operation of labour which is now practised there, in 
 consequence of the growth of the town population ; but 
 even her land has been rendered far more productive of 
 wealth, because, at an earlier period, much of the produce 
 which was obtained from it was not required, and there- 
 fore could not be accounted wealth. 
 
 There cannot be any extensive cooperation of labour 
 between one employment and another, or between one 
 district and another, unless the means of communication 
 are good. Nothing, probably, has more contributed to 
 perpetuate the poverty and backwardness of India than 
 the want of good roads. There, it frequently happens 
 that one district can scarcely lend any assistance to an- 
 other; an interchange of commodities, which would be 
 advantageous to every party, is often prevented by the 
 want of a road. During the terrible famine which ra- 
 vaged the North-West Provinces, in the year 1860, rice 
 which was in one district at the famine price of four 
 rupees per maund of 83 lbs., was selling in adjoining 
 districts at less than two rupees per maund. As long 
 as such occurrences can take place, India must continue 
 poor, her resources must remain imperfectly developed, 
 and her labour must be comparatively inefficient. A 
 village community virtually isolated from the rest of 
 India cannot now raise that produce for which their 
 land is best adapted, but liiust cultivate it with a 
 view of supplying themselves with the first necessaries of 
 life. Manchester would, no doubt, annually purchase of 
 India many million pounds' worth of cotton ; but cotton 
 will not be produced on any large scale until the people of. 
 India feel that if they grow cotton they will be able to 
 exchange it for food and other necessaries. 
 
 BOOK I. 
 CH. T, 
 
 Combina- 
 tion of la- 
 bour re- 
 quires good 
 means of 
 communi- 
 cation. 
 
64 
 
 Manual of Political Economy, 
 
 BOOK I. 
 CH. T. 
 
 I'/ie various 
 functions 
 of capital 
 illustrate 
 the same 
 principle. 
 
 Arrange- 
 ment of the 
 subject. 
 
 The remarks which have been made to illustrate the 
 functions of capital, afford striking examples of the complex 
 cooperation of labour. An individual may save the fund 
 which forms his capital from a great variety of sources. 
 The wealth which he has thus saved, he will probably em- 
 bark in a great number of different investments, and in this 
 way assist the labour of those engaged in the production 
 of various kinds of wealth. Part of his capital will pro- 
 bably be devoted to the trade in which he is engaged ; and 
 he will perhaps deposit the remainder with his banker, by 
 whom it would be lent to numerous traders to support 
 them in their business. All commerce, in fact, forcibly 
 exemplifies the cooperation of labour, not only between 
 different employments, but between different countries. 
 England gathers wealth from every quarter of the world, 
 but at the same time she equally enriches the countries 
 with whom she trades. • 
 
 In an earlier part of this chapter, we considered the 
 increased efficiency given to labour, when the distinct 
 operations of any industry are performed by separate sets 
 of workmen. In this case, workmen who are differently 
 employed combine to assist each other in the production 
 of the same commodity, and hence division of labour is an 
 instance of the complex cooperation of labour. We have 
 therefore departed from scientific accuracy in our arrange- 
 ment of this chapter, and, partly in deference to popular 
 opinion, have given precedence in our remarks to a dis- 
 cussion of the advantages of division of labour. Political 
 economists following in the steps of Adam Smith have 
 restricted the subject of the division of labour to its narrow 
 sense. The reason of this may perhaps be, that the illus- 
 trations used by Adam Smith have made the division of 
 labour one of the most popular parts of political economy ; 
 and thus its importance, compared with other portions of 
 the subject, has been greatly exaggerated. 
 
CHAPTER VI. 
 
 PRODUCTION ON A LAEGE ANO A SMALL SCALE. 
 
 IF we had not feared that the last chapter was becoming 
 too long, we shoiild not have placed the subject we here 
 propose to discuss in a separate chapter, because the carry- 
 ing out of production on a large and a small scale exerts a 
 very powerful effect upon the productive powers both of 
 land, labour, and capital. 
 
 The comparative advantages of production on a large, 
 and production on a small scale, depend upon conditions 
 which may vary greatly at different times, and in different 
 employments. Every extension of machinery no doubt 
 tends to give an advantage to production on a large scale. 
 In the days of hand-loom weavers, little would have been 
 gained by gathering them together into large buildings, 
 such as the mills of Manchester. Each hand-loom weaver 
 worked for himself; he needed not the assistance of others, 
 and therefore there was no reason why he should not work 
 in his own cottage. But the introduction of machinery 
 has divided the work which was previously done by the 
 hand-loom weaver, into a great number of distinct opera- 
 tions ; and in this way machinery renders production on 
 a large scale absolutely necessary. But to what extent it 
 is advantageous to increase the scale of production, whether 
 it is more profitable to erect a mill containing 10,00;) 
 spindles, or two mills containing 5,000 each, will be most 
 correctly determined by those engaged in the trade. The 
 comparative economy of working large and small mills is 
 ' sure to be quickly ascertained by the manufacturers them- 
 selves ■ there can, however, be no doubt that a small 
 manufactory will have little chance of competing with a 
 large one, if the small manufactory is not large enough 
 
 Compara- 
 tive advan- 
 tages of 
 production 
 on a large 
 and small 
 scale. 
 
 F. M. 
 
 E 
 
66' 
 
 Mamal of Political Economy. 
 
 BOOK I. 
 CH. TI. 
 
 Advan- 
 tages of 
 large 
 manvfac- 
 tories. 
 
 The scale of 
 viamtfac- 
 iuring ope- 
 rations is 
 limited hy 
 the de- 
 mand. 
 
 for the efficient working of the most complete machinery 
 used in the trade. Again, a small manufactory cannot 
 compete with a large one, if in the one there is a less 
 complete division of labour than in the other. A pin 
 factory which employed ten men would produce pins 
 at a much smaller cost than a factory in which only five 
 men were employed. The labour of superintendence 
 generally forms a comparatively larger item in small 
 concerns than in large ones ; for instance, each room in a 
 cotton mill may require an overlooker, whether a hundred 
 men are working in the room, or two hundred. A steam- 
 engine must be constantly watched by an engineer, 
 whether the engine is fifty-horse power, or a hundred- 
 horse power; but all such questions concerning the 
 greater or less economy of business arrangements will 
 ultimately be decided by practical experience. There is 
 at the present time a very decided tendency to increase the 
 scale of production, and this tendency is particularly shown 
 in those vast manufactories and warehouses which exem- 
 plify the wealth and energy of Lancashire and Yorkshire ; 
 hence we must conclude, that production on a large scale, 
 especially in the manufacturing districts, is rapidly becom- 
 ing more advantageous. In fact, we have ascertained that 
 a cotton mill containing 10,000 throstle spindles can be 
 worked with a capital of 20,000Z., whereas a mill with 
 5,000 spindles requires a capital of not less than ll,0O0Z. 
 
 It was remarked in the last chapter that the extent of 
 the demand places a limit upon the division of labour. 
 But the extent of the' demand influences in a much more 
 decided manner the scale on which the production of any 
 commodity can be carried on. A very serious loss would 
 be incurred if the demand for any commodity was not 
 sufficient to take off all that might be produced by the 
 machinery and plant erected for its manufacture. Ma- 
 chinery when unemployed is capital lying idle, and the 
 workmen when thrown out of employment could only 
 be kept together by paying them some portion of their 
 v,'ages. This would represent an unproductive employ- 
 ment of capital, but if the labourers were not thus kept 
 together, when work was resumed new and untrained 
 hands would have to be employed. Machinery also, if 
 '• kept idle, frequently suffers great injury. The fluctuation 
 
Production on a Large and a Small Scale. 
 
 67 
 
 iu the demand, when it is small, is comparatively much 
 greater than when the demand is large. 
 
 Evea if production on a large scale is very advan- 
 tageous, production on a small scale may still be very 
 much practised. Let us again use our previous example, 
 and suppose that a cotton mill containing 20,000 spindles 
 can be worked at a much cheaper rate than one containing 
 5,000 ; but a capital of nearly 40,000?. may perhaps be 
 required to work a mill with 20,000 spindles, whereas 
 a capital not much exceeding 11,000^ would probably 
 suffice for a mill with 5,000 spindles. The number of 
 individuals who possess a capital of 40,000Z., and who 
 are willing to invest it in a cotton mill, is very limited, 
 and therefore there can only be a limited number of 
 mills with 20,000 spindles. These mills may not sufiSce 
 to spin all the cotton for which there is a demand, and 
 therefore other and smaller mills must be worked. It is 
 true that the small mills could not remain open if they 
 had to compete with an unlimited number of large mills ; 
 but as the number of these is virtually restricted, the 
 small mills may be still worked at an advantage, although 
 the profits obtained by these mills may fall far short of 
 the profits obtained by the larger ones. Large capitals 
 thus obtain an advantage, and possess as it were a mo- 
 nopoly ; we shall treat this subject at considerable length 
 in our chapters on profits. 
 
 It may naturally be supposed that, in a wealthy 
 country like England, production on a large scale when 
 advantageous will never be restricted by the causes to 
 which we have just alluded, for it may be said that if 
 the individuals who have sufficient capital to work large 
 mills are limited in number, there will be no difficulty in 
 gathering together the requisite capital by means of joint- 
 stock companies, and that such companies will avail them- 
 selves of the advantages of a large production, andthus 
 drive the small producers out of the market. But joint- 
 stock companies labour under many difficulties; and al- 
 though they secure the advantages of producing on a large 
 scale, yet in many industrial occupations, joint-stock com- 
 panies cannot compete with the energy of the individual 
 trader or manufacturer. With one or two exceptions there 
 are no individuals who have capital enough for the con- 
 
 E 2 
 
 BOOK I. 
 CH. VI. 
 
 Froduction 
 on a small 
 scale may 
 maintain 
 itself, 
 though at a 
 disadvan- 
 tage. 
 
 The advan- 
 tages of 
 production 
 on a large 
 scale only 
 pattly at- 
 tainableby 
 joint-stock 
 companies, 
 
68 
 
 Manual of Political Economy. 
 
 BOOK I. 
 CH. VI. 
 
 owing to the 
 want of in- 
 terest on 
 the part 
 of the 
 managers. 
 
 struction and maintenance of such works as railways, docks 
 and canals ; and therefore such undertakings must be 
 carried out by joint-stock companies. But if a joint-stock 
 company conducts some ordinary business, it is often 
 placed in a comparatively disadvantageous position, be- 
 cause the energy and watchfulness are wanting which an 
 individual exercises when a business is his own. If com- 
 petition is active, a business cannot be successful unless 
 all its operations are conducted witti energy, and unless 
 economy is secured by constant vigilance. In a joint- 
 stock company all depends upon the manager or agent. 
 The individual shareholders are not sufficiently interested 
 to take any part in the management of the concern. Men 
 can very rarely be found who are as careful with other 
 people's property as they would be with their own. The 
 manager of a company may do nothing which is in the 
 slightest degree dishonest, it may be impossible to single 
 out any particular instance in which he has neglected to 
 do his duty, j'et the position in which he is placed will not 
 probably call forth those qualities which not only dis- 
 tinguish the good man of business, but which also cause 
 the success of commercial undertakings. If however the 
 manager is partly remunerated by a share of the profits 
 realised, he will no doubt be stimulated to much greater 
 exertion ; in fact he will be made to feel the same kind of 
 interest in the success of the business as if it were his own, 
 and man}' of the disadvantages to which we have just 
 referred as impeding the success of joint-stock companies 
 will be removed. Joint-stock trading companies have 
 frequently failed, because those concerned in their manage- 
 ment have not a sufficiently strong pecuniary interest in 
 their success. There can be no doubt that individual 
 employers suffer most serious losses from the listlessness 
 and apathy of their workmen, although such employers 
 have the strongest motives to prevent neglect of work by 
 their labourers; the losses however which are thus in- 
 curred will be still more serious in the case of a trading 
 company, when the labourers are only watched by a 
 manager, who is comparatively uninterested. A joint- 
 stock trading company would even be more benefited 
 than the individual trader, by adopting some course, if 
 it were practicable, which would give the labourers a 
 
Production on a Large and a Small Scale. 
 
 69 
 
 pecuniary interest in their work, for in this manner the 
 energy and skill of the workmen might with greater cer- 
 tainty be secured. Joint-stock companies have always 
 experienced the greatest obstacles in retail trades, where 
 the transactions are numerous and small. The petty 
 details of such businesses seem particularly to require the 
 energy of individual management. 
 
 The cooperative stores, however, which have lately as- 
 sumed so much prominence all over the country, especially 
 in London and in the north of England, are joint-stock 
 companies ; the capital is supplied almost entirely by a 
 large number of shareholders. Yet these societies have 
 engaged with the most remarkable success in the ordinary 
 retail trades, conducted by grocers, drapers, chemists, 
 wine- merchants, coal-merchants, bakers, butchers, &c. 
 The success of these societies not only proves that the 
 disadvantages of the joint-stock system have been much 
 exaggerated, but also indicates how the most prominent 
 of these disadvantages may be overcome. The prosperity 
 of the cooperative stores is probably mainly due to the 
 ready-money system which they invariably adopt; the 
 smallest sum is consequently never lost in bad debts. 
 
 It is in every respect advantageous to a country, that 
 the joint-stock system should be encouraged; it greatly 
 promotes the production of wealth. Small capitals which, 
 if separately applied, would do little towards the pro- 
 duction of wealth, are brought together by joint-stock 
 companies, and accomplish industrial works of the utmost 
 importance. A thousand individuals who have saved 1001. 
 each, may not have the time, capacity, or inclination 
 themselves to employ the money in any business. If each 
 of these individuals subscribed his 100/. to one common 
 fund, a capital would be created sufficient to work a large 
 Manchester manufactory ; they would become proprietors 
 and promoters of a great commercial concern, annually 
 producing a large amount of wealth, and annually employ- 
 ing many hundreds of labourers. 
 
 The relative advantages of large and small farming have 
 long been one of the most controverted points connected 
 with the subject of this chapter. In England, agriculture 
 has no doubt, within the last few years, been conducted on 
 a much larger scale than formerly. In the best culti- 
 
 BOOK I. 
 CH. VI. 
 
 Special ad- 
 vantage of 
 coopera- 
 tive stores. 
 
 The exten- 
 sion of the 
 joint-stock 
 system de- 
 sirablc. 
 
 Large and 
 
 small 
 
 farming. 
 
70 
 
 Manual of Political Economy. 
 
 BOOK I. 
 CH. VI. 
 
 Advantages 
 of large 
 farming. 
 
 Agricul- 
 tural ma- 
 chinery 
 morcavail- 
 able. 
 
 vated districts of England, each farmer generally rents not 
 less than three or four hundred acres. In many parishes 
 the land which is now cultivated by one or two farmers 
 was, withia the memory of those who are still living, par- 
 celled into twenty or thirty distinct holdings. We will 
 first point out some of the obvious advantages which arise 
 from large farming. The extended use of agricultural 
 machinery has been a prominent feature of that great 
 improvement in the cultivation of the soil which has taken 
 place within the last few years. Twenty-five years since 
 the greater portion of the corn grown in this country was 
 thrashed by the flail ; now steam-thrashing machines are 
 used in every district, and the flail has been almost 
 banished; even agricultural labourers rejoice in the change, 
 and confess that they should most reluctantly resume the 
 use of the flail ; the young men of the present day would 
 probably not submit to such monotonous work. Steam 
 cultivation is each year rapidly extending. A much 
 greater proportion of the farmers' capital is consequently 
 now invested in machinery than formerly. A good steam- 
 thrashing machine costs nearly 400/. ; small farmers cannot 
 afford to avail themselves of all this improved and expen- 
 sive machinery. Not only can they not afford it, but a 
 steam-thrashing machine requires for its workin"- some- 
 thing more than the resources which a small farm can 
 supply ; its working must be attended to by eight or ten 
 men ; the corn is taken from the stack by two men, another 
 man has to feed the machine with corn ; the eno-ine must 
 have an engineer ; the straw must be carried away by one 
 man, and stacked by another; another man must take 
 the grain from the machine, and another again will have 
 to carry water to the engine. It is true that a great many 
 even of the large farmers do not now own, but hire the 
 steam-thrashing machines which they use'; such a plan, 
 however, is extremely uneconomical. A farmer who hires 
 such a machine cannot always obtain it at the exact time 
 he may require it ; those who let the machine must make 
 a profit from those who hire it, and for several reasons a 
 high charge must be paid for the use of the machine. 
 There is the expense of taking it from one farm to 
 another; it is earning nothing when being so moved, and 
 the wear and tear caused by dragging it along the roads is 
 
Production on a Large and a Small Scale. 
 
 71 
 
 very considerable. But a small farmer who hires such a 
 machine is under still greater disadvantages, for, he not 
 only has to hire the machine, but must also hire the men 
 to work it, since he has not enough men in his own em- 
 ' ployment. Men who are hired in this irregular way must 
 be paid more than the ordinary labourer, whose employ- 
 ment is constant, for they have to sacrifice much time in 
 moving from place to place in quest of this irregular em- 
 ployment. Such a farmer will not be able to thrash his 
 corn at the time most convenient to him ; he must thrash 
 it when he can get the engine and hire the men. 
 
 Small farming generally involves small fields; these fields 
 will be surrounded by hedges, and must be approached by 
 roads, and thus a great deal of land is wasted ; the disad- 
 vantage of small fields will be greatly increased when 
 steam cultivation is introduced. The steam plough re- 
 quires considerable breadth of land upon which to work ; 
 at every turn that the plough makes, time is lost ; after 
 the centre of the field has been ploughed, the headlands 
 Avill remain to be ploughed separately; the labour of 
 moving the engine from field to field is considerable; 
 much time may be thus wasted, and in fiict it has been 
 calculated that a steam cultivator would plough a square 
 field of ten acres in half the time occupied in ploughing 
 two fields of five acres each, and at two-thirds of the 
 expense. 
 
 Many kinds of labour on a small farm are less pro- 
 ductive than on a large one. Thus a flock of 400 sheep 
 requires as many shepherds as a flock of 800. Each 
 farm has a carter, whether the farm is 300 acres, or 600 
 Again, much of the time and energy of a small 
 
 acres. 
 
 farmer is frequently wasted, for he would often be able 
 to superintend his farm quite as well if it were larger. 
 
 These and many other considerations show that large 
 farming now possesses advantages over small farming, a.nd 
 that these advantages are destined to become more decided 
 as the use of agricultural machinery is extended. Under 
 laro-e farming, labour can be made to work with greater 
 efliciency ; capital can be applied with greater effect, the 
 most complete machinery can be used, less land will be 
 wasted in useless hedges, and thus large farming tends to 
 make labour and capital more efficient. 
 
 BOOK I. 
 CH. VI. 
 
 Fields are 
 larger, 
 
 and lahour 
 frequently 
 more pro- 
 ductive. 
 
72 
 
 Mamial of Political Economy. 
 
 BOOK I. 
 CH. TI. 
 
 of smalt 
 farminj. 
 
 The advantages which have been here attributed to 
 large farming mainly refer to the cultivation of corn. In 
 the growth of various other products, and especially 
 in dairy farming, many most important advantages are 
 associated with small farming. A traveller on the 
 continent must have remarked that the vine, and other 
 such products which require great care, it may be al- 
 most said tenderness, in their cultivation, are most fre- 
 quently grown by small farmers ; the reason of this is, 
 that the cultivation of products requiring such watch- 
 fulness and skill could not be trusted to the careless 
 apathy which so frequently characterizes the hired la- 
 bourer. It is seldom that anyone but a mother will 
 bestow the tender care an infant needs, and the vine will 
 be seldom properly cultivated except by one who has that 
 interest in it which can alone be derived from the feeling 
 of oAvnership. Even in England there is a similar advan- 
 tage associated with small farming ; for all the operations 
 of a small farm may be attended by the kindly interested 
 watchfulness of the farmer himself, and this advantage is 
 more prominently shown in those farming operations which 
 require great care. A dairy, for instance, needs a constant 
 attention which the large farmers of the present day have 
 not time or inclination to bestow; hence, if there is a dairy 
 attached to a corn or sheep farm, the large farmer will 
 generally underlet his dairy ; the farmer supplies all the 
 food for his cows, and the person to whom the dairy is let 
 has every motive to give his whole and undivided atten- 
 tion to those minute details upon which the success of a 
 dairy depends. Again, English farmers seldom are will- 
 ing to give the time and attention which the profitable 
 rearing of poultry for the market requires. In France, 
 on the contrary, the farmer depends upon his poultry 
 for no inconsiderable portion of his profits; and the extent 
 to which this branch of industry is cultivated is proved 
 by the fact that England annually purchases from France 
 eggs to the value of more than £2,000,000. 
 
 The question of large and small farming is often incor- 
 rectly confused with the consideration of small landed 
 properties. This subject will be discussed in some of the 
 succeeding chapters of this work.- 
 
CHAPTER VII. 
 
 ON THE LAWS WHICH DETERMINE THE INCREASE OF 
 PRODUCTION. 
 
 WE have in the two previous chapters discussed some 
 of the causes which determine the productiveness 
 of land, labour, and capital; we have shown, for instance, 
 how the productiveness of land may be increased by good 
 systems of farming, and how the efficiency of labour and 
 capital may be promoted by machinery and by a proper 
 combination of labour. But if the land, labour, and capi- 
 tal of a country are in the most efficient state of produc- 
 tiveness, the production of wealth can only be inoi'eased 
 by increasing either the land, labour, or capital ; for if 
 when the land in cultivation is in the highest state of 
 tillage more produce from the land is required, it must 
 be obtained by bringing a greater area of land under 
 cultivation. Again, if all the labour which is employed 
 is in the highest state of efficiency, a greater quantity 
 of wealth canuot be produced unless the labour of the 
 country is in some way increased ; similarly, if the capital 
 existing in a country is applied to the greatest advantage, 
 and if it supports the greatest number of labourers it 
 is capable of doing, more labour cannot be employed, 
 and as a consequence more wealth cannot be produced, 
 unless the capital of the country is in some way in- 
 creased. Hence ethe laws which separately regulate the 
 increase of land, labour, and capital, are the laws which 
 combine to determine the increased production of wealth. 
 We therefore intend in this chapter to discuss the laws 
 on which depend the increase of land and labour; the 
 next chapter will be devoted to a consideration of the 
 laws which determine the increase of capital; and there- 
 
 BOOK I. 
 CH. VII. 
 
 Conditions 
 of an ill- 
 creased 
 production 
 of wealth. 
 
Manual of Political Economy. 
 
 BOOK I. 
 CH. VII. 
 
 Fresh I-and 
 ■may be cul- 
 tivated. 
 
 owing to 
 agricul- 
 tural im- 
 provements 
 
 or in- 
 creased de- 
 
 fore the two chapters will complete our investigations con- 
 cerning the laws which combine to regulate the increased 
 production of wealth. 
 
 The area of each country is limited, but, nevertheless, 
 each country possesses much land which is not cultivated. 
 It would therefore seem that, as far as the production of 
 wealth is concerned, each country has the power of increas- 
 ing the area of its cultivated land. But land sometimes 
 remains uncultivated because it will not pay the expense 
 of cultivation ; if this is so, it would appear that the area 
 of cultivation cannot be extended, because no individual 
 would be willing to cultivate land at a loss. In explaining 
 what will take place under such circumstances, Tve shall 
 introduce to our readers some of the considerations upon 
 which depends the theory of rent, a theory perhaps the 
 most important and the most rarely understood in the 
 whole range of economic science. 
 
 That land, as a general rule, remains untilled because it 
 will not pay to be cultivated, is a proposition which we 
 wish the reader to bear steadily in mind. Whenever, 
 therefore, fresh land is brought into cultivation we must 
 suppose that something has occurred which will cause the 
 land to pay for cultivation better than it did before. Agri- 
 cultural improvements have frequently enabled land which 
 was before unproductive to pay a considerable rent. Thus, 
 the present fertility of Norfolk is in a great measure due 
 to the introduction of the turnip ; this root enabled large 
 flocks of sheep to be kept, which have fertiUsed what was 
 before a poor soil. At one time Salisbury Plain was a 
 great tract of down land which paid scarcely any rent, but 
 now, with the assistance of artificial manures, luxuriant 
 crops of corn are grown there. Much of the rich fen land 
 of the Isle of Ely, which is now rented at SI. an acre, was 
 forty years since a worthless marsh. In these cases the 
 productiveness of the land has been increased by special 
 improvements. Cases, however, have frequently occurred, 
 and are now constantly occurring, where more land is 
 brought under cultivation, not in consequence of agri- 
 cultural improvements, but because there is a greater 
 demand for the produce which is raised from the land. 
 If the population of a country increases, its people will 
 require a greater quantity of food ; and this food must 
 
On the Increase of Production. 
 
 75 
 
 be obtained either by making the land which is already 
 in cultivation more productive, or by extending the area 
 of cultivation. If at the time this increased demand for 
 food arises there are no particular agricultural improve- 
 ments to be suggested, the enlarged demand must be 
 supplied by cultivating more land- but as this land did 
 not previously pay for cultivation, and as it would not 
 now be cultivated if it did not pay for cultivation, it 
 therefore follows that the value of agricultural produce 
 must rise in order that the farmer may realise an ade- 
 quate amount of profit. Since land previously untilled 
 is now supposed to be cultivated, the production of wealth, 
 as we have before remarked, is increased in consequence 
 of the greater demand which has taken place for food. 
 It is not alone the land thus brought into cultivation 
 which is made more productive, but all the land of the 
 country becomes more productive of wealth ; for although 
 there is not a greater quantity of produce raised from 
 it, yet the value of the produce is enhanced by the in- 
 creased demand for food. All the effects here attributed 
 to an increase of population are strikingly exemplified in 
 the progress of a prosperous colony. No one can doubt 
 that many of the great natural pastures of Australia, 
 which now scarcely pay any rent, will in the course of 
 time be cultivated and rented as valuable agricultural 
 land. Within the last few years the area of cultivation 
 in Australia has rapidly extended. From 1851 to 1861 
 the population of Victoria increased from 80,000 to 
 500,000. The increased quantity of food which is now 
 consumed in Victoria has caused more land to be brought 
 into cultivation ; the value of agricultural produce must 
 consequently have risen, because land which is in cultiva- 
 tion now would not have repaid its cultivators when the 
 population of Victoria was so very much smaller. 
 
 Although it has thus been shown that the value of 
 agricultural produce must rise when the demand of a 
 larger population causes more land to be brought under 
 cultivation, yet it will assist the reader, if the primary 
 causes are explained upon which this rise in value depends. 
 Every country possesses land which varies greatly in pro- 
 ductiveness. In estimating the productiveness of any par- 
 ticular laud it is necessary not only to consider the fertility 
 
 BOOK I. 
 CH. VII. 
 
 mand for 
 food and 
 increased 
 value of 
 produce. 
 
 Asthevalue 
 of produce 
 rises, less 
 productive 
 soils are 
 cultivated. 
 
76 
 
 Manual of Political Economy. 
 
 BOOK I. 
 OH. VII. 
 
 The mean- 
 ing of the 
 word 'pro- 
 ductive ' as 
 applied to 
 land. 
 
 An in- 
 creased de- 
 mand for 
 food tends 
 to increase 
 the value of 
 agricul- 
 tural pro- 
 dime. 
 
 of its soil but also its accessibility, or, in other words, its 
 convenience of situation. Some of the most fertile land in 
 the world is so remote from any population which requires 
 its produce, that its cultivation would prove unremunera- 
 tive, and therefore it may be regarded as unproductive of 
 wealth. Confusion frequently arises because a productive 
 soil and a fertile soil are regarded as synonymous expres- 
 sions. In an economic treatise, however, it must be 
 always carefully remembered that not only fertility but 
 also convenience of situation are included when the term 
 ' productive ' is applied to land. 
 
 Bearing these remarks in mind, it is evident that the 
 productiveness of land varies inversely with the quantity 
 of labour and capital required not only to raise a certain 
 amount of produce, but also to bring the produce to the 
 situation where it is required. The most fertile land, if 
 extremely remote from the population which is willing to 
 purchase its produce, is frequently unproductive, because 
 of the great expense which cost of carriage would involve. 
 As the population increases, the area of cultivation is ex- 
 tended, and less productive soils must be resorted to ; or, 
 in other words, land is gradually brought into cultivation 
 which does not return so much for the labour and capital 
 expended upon it, as land which was previously cultivated. 
 Hence the production of wealth cannot be indefinitely in- 
 creased, because the returns to labour and capital diminish, 
 as it becomes necessary to resort to less productive land. 
 This principle forms the basis of Ricardo's theory of Rent. 
 
 The proposition just enunciated suggests an obstacle 
 which more or less impedes the continual increase in the 
 production of wealth. The reader, for several reasons, 
 finds it difficult adequately to appreciate the magnitude of 
 the impediment which in many countries is thus placed 
 upon the production of wealth. It will be necessary fre- 
 quently to recur to this subject ; a few more remarks may, 
 however, be here made upon it with advantage. It may 
 be thought that although less productive land requires 
 more labour and capital, yet the general value of agri- 
 cultural produce will be but slightly affected. For it may 
 be urged that the productiveness of the land which was 
 previously cultivated will not in any way be diminished, 
 on account of the more expensive culture required by 
 
On the Increase of Production. 
 
 77 
 
 the less productive land, which is now resorted to. A por- 
 tion only of the produce which is raised from the land will 
 require a greater outlay of labour and capital, the produc- 
 tiveness of all the remaining land will he unchanged, and 
 hence it may be argued that no serious impediment can 
 be caused to the production of wealth. We must repeat, 
 that when an increased demand for food brings less pro- 
 ductive land into cultivation, this food is obtained at a 
 greater cost of labour and capital, and therefore food 
 becomes more expensive. But the value of wheat of the 
 same quality does not vary, when brought to market, 
 because one sack of wheat has been produced at a greater 
 cost than another; of course this is matter of no considera- 
 tion to the purchaser, but simply to the growers of wheat. 
 If therefore it is necessary that the price of wheat should 
 rise, in order to make the cultivation of inferior land 
 remunerative, the price of all the wheat grown must rise 
 in a similar manner, and food consequently becomes more 
 expensive. If by these causes the price of wheat is raised, 
 it is nianifest that the farmers who cultivate the more 
 productive land must derive a great advantage, because 
 the produce which they obtain does not require more la- 
 bour and capital, and yet its price is materially increased. 
 The farmers however cannot in the long run appropriate 
 this advantage to themselves, as the landlords secure it in 
 the form of increased rent. A further discussion on'this 
 branch of the subject would involve an explanation of the 
 theory of rent ; and this theory does not properly belong 
 to the production, but to the distribution of wealth. 
 
 The important proposition we wish to establish concern- 
 ing the production of wealth is, that an increased demand 
 for food has a tendency to make food more expensive, and 
 as such an increased demand is almost always caused by 
 an increased population, we may enunciate the principle 
 thus : that as population advances, food has a tendency to 
 become more expensive. In the enunciation of this prin- 
 ciple, we have employed the word tendency. We believe 
 that an example may be thus afforded, which will illustrate 
 the great importance of enunciating almost all the prin- 
 ciples of political economy, as exerting tendencies, rather 
 than as producing immediate results. This has not been 
 sufficiently recognised, and consequently the progress of 
 
 BOOK I. 
 CH. VII. 
 
 Political 
 economy 
 explains 
 the tenden- 
 cy of cer- 
 tain events 
 rather tlian 
 their actual 
 immediate 
 results. 
 
78 
 
 Manual of Political Economy. 
 
 BOOK I. 
 CH. VII. 
 
 Why the 
 price of 
 wheat has 
 
 political economy has been greatly retarded, and much 
 prejudice and incredulity have been raised in the minds of 
 practical men towards the conclusions of this science. In 
 mathematics a force is measured by the effects which it 
 has a tendency to produce, i.e. which it would produce if 
 not counteracted by other forces. The force of gravity is 
 estimated by the space through which a body would fall 
 in a second of time, if it was acted upon hj no other 
 force; this space is sixteen feet; all bodies, however, do not 
 so move, although every particle of matter is acted on by 
 the same force of gravity. A feather floating in the air is 
 attracted by the force of gravity, and yet it does not fall 
 through sixteen feet in a second of time; the feather does 
 not fall through this space, because its downward motion 
 is retarded by the resistance of the air. Although the 
 force of gravity is thus partly counteracted, it is not 
 either destroyed or rendered nugatory ; its effects may 
 appear to be different, but the force of gravity always 
 exerts a tendency, whether the tendency be counteracted 
 or not, to make a body move through sixteen feet in a 
 second of time. It would be very unreasonable to assert 
 that the theory of mechanics was erroneous, because other 
 forces intervene and modify the effects attributed to the 
 action of a certain force. The distrust which is sometimes 
 shown towards the principles of political economy is 
 equally unreasonable ; these principles attribute certain 
 effects to certain causes, but the effects will be altered, if 
 the causes are modified ; these causes, like the forces in 
 mechanics, are often affected in their operation by many 
 disturbing agencies. For instance, the principle has been 
 enunciated that the tendency of the increased demand of 
 an advancing population is to make food more expensive. 
 Political economy however is not in error, because circum- 
 stances may occur which will counteract this tendency; 
 we are all aware that this tendency towards higher prices 
 has been and may be again counteracted ; that agricultural 
 improvements, for instance, have often been introduced, 
 which have enabled the increased wants of a larger popu- 
 lation to be supplied without any rise in the price of food. 
 The population of Great Britain increased 4,500,000 
 between 1841 and 1861, and yet the price of wheat was 
 on the average lower in 1861 than in 1841 ; but this fact 
 
On the Increase of Production. 
 
 79 
 
 does not falsify the principle above enunciated. The cir- 
 cumstances which have prevented a rise in the price of 
 wheat are patent to all. Before 1848, we were in a great 
 degree restricted to our own soil for our supplies of corn. 
 Now we are freely permitted to purchase wheat from any 
 country which offers it for sale. As many as ten million 
 quarters of wheat are often imported in one year ; and as 
 the means of communication improve the area from which 
 we draw our supplies is constantly extended; thus wheat 
 is often now sent in considerable quantities to England 
 from California and Australia, and even such a remote 
 region as the Punjab will regularly export wheat to 
 Great Britain. The influeuce therefore of free trade has 
 been analogous to that which would have been exerted 
 if a tract of fertile land had been added to the culti- 
 vable area of this island. Suppose that, in consequence 
 of the great abundance of fertile land in the valley of 
 the Mississippi, wheat grown there could be sold in our 
 markets at a less price than would adequately remunerate 
 the English agriculturist if he grew wheat on many of the 
 less productive soils in England. Under these circum- 
 stances the valley of the Mississippi would, as far as the 
 supply of wheat is concerned, serve England the same 
 purpose as if a tract of fertile land could be added to her 
 shores. We are quite ready to admit, that the effects at- 
 tributed by political economy to one particular cause, sel- 
 dom occur with strict exactness ; such perfect conformity 
 could not take place unless the cause acted alone, and this 
 is very rarely the case ; the practical utility of political 
 economy however is not for this reason lessened, for the 
 science demonstrates that certain results must ensue, if a 
 counteracting influence does not come into action. We 
 will illustrate our meaning by referring to an argument, 
 which we believe is unanswerable when urged in support 
 of free trade. The population of England is advancing ; 
 if >ve are restricted to our own soil for supplies, then food 
 will be obtained at a greater cost of labour and capital, 
 and food must ultimately become much dearer. It there- 
 fore becomes most important that the fertile soil of the 
 whole world should, as far as possible, be made available 
 to supply us with the produce we may require. 
 
 We must next consider how the production of wealth 
 
 BOOK I. 
 CH. Til. 
 
 iiotrisenin 
 England. 
 
 Increase in 
 the labour- 
 
8o 
 
 Manual of Political Economy. 
 
 BOOK I. 
 OH. VII. 
 
 irei; popu- 
 lation. 
 
 Influenceof 
 a demand 
 for labour 
 upon the 
 amount of 
 population. 
 
 is affected by an increase in the amount of laboui", or, 
 in other words, by an increase in the number of the 
 labouring population. Labour is increased -when it is 
 made more efficient. If a machine is introduced which 
 enables one labourer to do the work of six, of course the 
 amount of labour in the country is augmented, but this in- 
 crease is due to improvement in the efficiency of labour, 
 a subject which was considered in the last chapter. We 
 must here therefore restrict ourselves to a discussion of the 
 consequences which result, when an increase in the num- 
 ber of the labouring population causes more wealth to be 
 produced. If a greater quantity of any commodity is re- 
 quired, a greater number of labourers must be employed, 
 unless some industrial improvements are introduced. Sup- 
 pose, for instance, there suddenly arose a very active de- 
 mand for English cottons in China; a much greater number 
 of labourers would soon be engaged in cotton manufactories. 
 It maybe asked, How is the increased number of labourers 
 to be obtained ? Surplus hands will be drawn from other 
 employments, and emigration will be checked, if there is 
 a great demand for labour. If the demand for additional 
 labour continues, an increase of population will be power- 
 fully stimulated, and the labour required will ultimately 
 be supplied principally from this source. It is important 
 to point out in what manner an increase of population is 
 promoted by an active demand for labour. 
 
 Labour is in demand when trade is good ; then wages are 
 high, and the labourers are prosperous. It is found that 
 the number of marriages amongst the poorer classes is 
 invariably much greater when the labourers are prosper- 
 ous. There is no surer test of the prosperity of the la- 
 bouring class than the low price of bread, and there are 
 few statistical facts better substantiated than that the 
 marriages atnongst the labouring class increase with the 
 fall in the price of bread. It may be reasonably assumed 
 that wages are high when trade is good. But from what 
 source are these higher wages supplied ? It must be from 
 the capital of the country, because this is the fund from 
 which the labourers' wages are provided ; the circulating 
 capital employed in any trade or manufacture must be 
 increased if the labourers engaged in it received higher 
 wages. It may be here remarked, that when a trade 
 
On the Increase of Production. 
 
 8r 
 
 IS active, the profits are high, and thus a great induce- 
 ment is offered to those engaged as employers in the 
 trade, not only to save more, but to apply a greater 
 amount of capital to their business; thus additional capital 
 is either borrowed or is withdrawn from other invest- 
 ments. But now, having pointed out some of the sources 
 from which an increased number of labourers will be 
 obtained, we have next to consider how this increased 
 population will be fed. Reference has just been made to 
 some of the sources from which the additional wages paid 
 to the labourers will be supplied when an active trade 
 causes a greater demand for labour. Let us suppose,' 
 therefore, that when the labouring population has in- 
 creased, the circulating capital of the country has been 
 !)roportionally augmented ; but if there is a larger popu- 
 ation, more food will be required, and the important 
 question arises. Under what conditions is this food to be 
 obtained ? In answering this question we avail ourselves 
 of that principle which has been stated in the first part 
 of this chapter, namely, that there is a tendency for food 
 to become more expensive as the demand for it increases, 
 because less productive land has to be resorted to, the 
 returns from which are not so large in proportion to the 
 labour and capital expended upon it. 
 
 The production of an increased quantity of wealth re- 
 quires a greater number of labourers, and when the 
 labouring population is thus augmented food will become 
 more expensive, unless the additional food required can 
 be obtained either by agricultural improvements, or can 
 be imported at a comparatively cheap rate from other 
 , countries. All that we have here stated is strikingly 
 exemplified by the events which have occurred within the 
 last few years. The trade of the country has advanced 
 with marvellous rapidity, the number of labourers now 
 engaged in the manufacturing industry of this country 
 greatly exceeds the number employed twenty years since. 
 The capital invested in our manufactures has even 
 advanced more rapidly than the increase of population. 
 Not only are there more labourers, but the wages of these 
 labourers have risen very decidedly within the last few 
 years. Two causes, therefore,, have combined to increase 
 the demand for food, namely, a larger population and a 
 
 F. M. r 
 
 BOOK I. 
 CH. VII. 
 
 Relation 
 between in- 
 crease of 
 population 
 and in- 
 creased 
 production 
 from land. 
 
 Exemplifi- 
 cation of 
 these prin- 
 ciples in 
 late years.. 
 
82 
 
 Manual of Political Economy, 
 
 better paid labouring class. But it may be said political 
 economy would predict that, in consequence of such a de- 
 mand, all food will become more expensive; and yet bread 
 is cheaper. But as previously remarked, we have now the 
 whole world from which to obtain our supplies of wheat, 
 and the cost of carrying wheat from one country to an- 
 other is comparatively small. There has, however, been a 
 most decided rise in the value of those articles of food 
 which we cannot with such facility obtain from other 
 countries. For instance, it is much more difficult and 
 much more expensive to import meat than corn. Meat 
 must reach a scarcity price in England before it would be 
 remunerative to send cattle and sheep from even the east- 
 ern shores of America, and yet corn is constantly imported 
 with considerable profit from regions as remote as Cali- 
 fornia. Since, therefore, we are to a much greater extent 
 restricted to our own soil for meat and dairy produce, im- 
 portation has not been able to counteract that rise in the 
 price of these articles which, according to political econo- 
 my, must accompany the increased consumption of a more 
 numerous and better paid labouring class ; the result has 
 been that meat and dairy produce have become fifty or 
 sixty per cent, more expensive within the last few years. 
 In all probability the labouring population will for many 
 years continue to increase ; every year therefore a greater 
 quantity of food will be consumed in this country; the 
 mode in which this increased supply of food will be ob- 
 tained must mainly determine what will be the future 
 condition of our labouring population. If the opening of 
 new sources of foreign supply and the introduction of agri- 
 cultural improvements should enable an increased quantity 
 of food to be procured without any advance in its value, 
 then a larger population may be maintained in an im- 
 proved material condition. If on the other hand foreign 
 importations and agricultural improvements should not 
 exert a sufficiently powerful influence to check a rise in 
 the value of food, as the demand for it increases (or, in 
 other words, if resort must be had to less productive soils 
 in order to supply the wants of an increasing population), 
 then the condition of the labouring population will gradu- 
 ally but steadily deteriorate. 
 
 Tlie cost at 
 which an 
 increased 
 supply of 
 food can be 
 obtained 
 wiUmainly 
 determine 
 the con- 
 dition of 
 our labour- 
 ing popu- 
 lation. 
 
CHAPTER VIII. 
 
 ON THE INCREASE OF CAPITAL. 
 
 IN the preceding chapter we have remarked upon some 
 of the more prominent conditions which determine the 
 increased production of wealth, as far as it depends upon 
 an increase of the cultivated land, and upon an increase 
 in the number of the labouring population. But larger 
 production also requires an increase of capital. It must 
 be evident from the remarks we have made upon capital, 
 that an increase of capital is as essential to a larger pro- 
 duction of wealth as an increase of land and labour. If 
 land, for instance, is more highly cultivated, additional 
 capital must be applied to it : and new land cannot be 
 brought under ciiltivation without the application of 
 capital to it. If more labourers are employed, a larger 
 fund, in the form of circulating capital, must be devoted to 
 pay their wages. Improvements in the various processes of 
 industry cannot be introduced without the expenditure of 
 capital. Machinery, warehouses, manufactories, railroads, 
 ships, all such industrial appliances as these, exhibit the 
 various modes in which the fixed capital of a nation assists 
 her industry. 
 
 It has been previously asserted as a fundamental pro- 
 position, that capital, whether fixed or circulating, is the 
 result of saving. Increased capital, therefore, implies 
 increased saving ; and hence the laws may be determined 
 which regulate the increase of capital by considering the 
 causes upon which depends the increased saving or accu- 
 mulation of wealth. There are two principal motives 
 which induce men to save ; and these are, first, a prudent 
 foresight with regard to the future; and, secondly, a. desire 
 
 BOOK I. 
 CH. VIII. 
 
 Increased 
 production 
 of wealth 
 implies an 
 increase of 
 capital, 
 
 and, there- 
 fore, in- 
 creased 
 saving. 
 
84 
 
 Manual of Political Economy. 
 
 BOOK I. 
 CH. Till. 
 
 which may 
 be due to 
 twomotives 
 —foresight 
 and desire 
 for profit. 
 
 Tmportance 
 of the de- 
 tire to ac- 
 cumulate 
 wealth. 
 
 to make wealth by an advantageous investment. The first 
 motive is by far the more powerful. To its action has been 
 due the greater part of all wealth which has been saved. 
 But the second motive is the chief cause of fluctuations in 
 the amount of a nation's capital. Whether the amount of 
 capital at any time existing in the country is above or 
 below the average is almost entirely determined by the 
 profit' which it may be thought capital will realise. 
 This profit may be estimated by the current rate of 
 interest. But in political economy, as in many other 
 sciences, the causes which produce the disturbing fluctua- 
 tions require a more careful investigation than those causes 
 whose action is more constant, and more undeviating. 
 The earth when revolving in its orbit is acted on by a great 
 number of forces. It is attracted by every body in the 
 planetary system, yet these forces combined are almost 
 immeasurably inferior to the force of attraction which is 
 exerted by the sun. Most important mathematical in- 
 vestigations, however, depend upon the action of these 
 disturbing forces. Similarly, in political economy, the 
 effects of the more constant causes can be readily esti- 
 mated ; but causes more varying in their action introduce 
 fluctuations and disturbances which must be investigated 
 and classified by the scientific principles of political eco- 
 nomy. 
 
 As civilisation advances the desire to accumulate wealth 
 increases, and foresight for the future becomes more 
 general. The more men's intellectual and moral faculties 
 are developed, the more careful will they be to make a 
 reasonable provision for the future. The Jesuit mission- 
 aries, who a century since formed a settlement in Para- 
 guay, found the great difficulty they had to contend with 
 was the utter recklessness of the people. The missionaries 
 gave them seed. They knew that this seed would, if 
 sown, in a few months yield them a plentiful supply of 
 food, yet they could not be restrained from eating the 
 seed instead of sowing it ; the smallest present enjoyment 
 was by them preferred to the greatest prospective advan- 
 tage. People in such a condition can be very little 
 superior to the more intelligent animals, whose hereditary 
 instincts induce them to provide against danger which 
 they may have to encounter. Birds build nests which 
 
On the Increase of Capital. 
 
 85 
 
 are most perfectly adapted to protect their young; beavers 
 construct their habitations ou a plan so admirable that it 
 seems almost to rival the skill of man ; and even dogs 
 collect a store of food to which they will resort when 
 pressed by hunger. 
 
 In England the desire to accumulate wealth acts with 
 great force amongst certain classes. It is impossible 
 accurately to define the causes which regulate the amount 
 saved by any individual, but it may be stated generally 
 that in England each class of society has a recognised 
 standard of living which involves a certain expenditure, 
 and the whole of an individual's income which is in excess 
 of this expenditure is usually saved and invested. The 
 amount which is saved is, therefore, partly dependent at 
 any particular time upon the material prosperity of the 
 country. If activity of trade or any other such circum- 
 stance should increase the incomes of any particular class, 
 there would be a larger fund from which savings might 
 be made, and more would be saved. Habit has such a 
 powerful influence in determining expenditure, that it 
 often happens that a man does not spend more, although 
 his income may be greatly increased. Any circumstance, 
 therefore, which tends to augment the wealth of the nation, 
 will induce increased saving. 
 
 It may also be remarked that the amount of an indivi- 
 dual's expenditure is to some extent determined by the 
 cost of the commodities which he consumes. The con- 
 sumption of some articles diminishes in proportion to the 
 rise which may take place in their price. In Madras, 
 when the salt duties were recently raised 18 per cent., the 
 result was an increase in the revenue of only 12 per cent. 
 This proves that the consumption of salt was diminished 
 by the increase in its price. It was, for instance, found 
 that when the sugar duties were raised beyond a certain 
 amount, they did not produce a larger revenue. A rise in 
 the price of sugar induces large numbers to give up its 
 Such articles, however, as tea and bread, are, in this 
 
 use 
 
 country, almost universally regarded as necessaries of life ; 
 and the quantity of tea and bread which is consumed by 
 those classes who accumulate the capital of the country, is 
 not materially affected by a variation in the price of these 
 commodities. If, therefore, bread and tea decline in price, 
 
 BOOK I. 
 CH. VIIl. 
 
 Its strength 
 in Eng- 
 land. 
 
 The 
 
 amount of 
 saving is 
 partly de- 
 termined 
 by the cost 
 of the 
 articles 
 consumed. 
 
86 
 
 Manual of Political Economy. 
 
 BOOK I. 
 
 CH. vin. 
 
 Causes of 
 fluctua- 
 tions in the 
 amount of 
 saving. 
 
 the household expenses of the middle and upper classes 
 will be diminished, and a larger portion of their income 
 will remain to be saved as capital. We mention this as 
 applying particularly to the middle and upper classes, be- 
 cause there is no doubt that our labouring population 
 would gladly consume a greater quantity, even of the 
 ordinary necessaries of life, had they the means of pur- 
 chasing them. If the price of tea is reduced one-half, the 
 labourers will probably continue to spend upon this article 
 as much as they had previously done ; they would spend 
 less upon bread if its price was reduced, but the amount 
 which they thus saved would not, as a general rule, be in- 
 vested by the labourers as capital, but would be applied 
 to satisfy some of the many wants and desires of life, 
 which they have not the means of gratifying. The labourers 
 therefore are benefited in two distinct ways, by the cheap- 
 ening of any article of ordinary consumption. They have, 
 in the first place, to pay less for it when they purchase it, 
 and secondly, the cheapening of such a product has a ten- 
 dency to augment the capital of the country, by enabling 
 the middle and upper classes to increase their savings, 
 and the labourers will receive higher waares if capital is 
 mcreased. 
 
 We have however before remarked, that the fluctuations 
 in the amount of capital which is saved, depend upon the 
 nature of the opportunities which present themselves for 
 investment. If the profits which can be realised upon capi- 
 tal increase, a greater inducement is offered to save, and a 
 larger amount is sure to be saved. From such a source, 
 either directly or indirectly, any large increase of capital 
 which may be required is mainly supplied. At any par- 
 ticular time there is a certain interest upon capital which 
 people expect, and with less they will not be satisfied. But 
 it will perhaps be said, what does a capitalist do with his 
 capital? if. he wants 3^ per cent, interest and can only 
 obtain 3 per cent., he will not squander it because he is 
 not satisfied with so low a rate of interest ; will, therefore, 
 less wealth be saved ? Less, no doubt, will be saved, because 
 a low rate of interest offers less inducement to save ; the 
 most important point, however, to be borne in mind is that 
 a much smaller portion of the wealth which is saved will 
 be invested as capital in our own country, when the rate 
 
On the Increase of Capital. 
 
 87 
 
 of interest is low. England, far more than any other 
 country, offers a striking example of the vast amount of 
 capital which the people are ready to invest, if a favour- 
 able opportunity presents itself. When the government 
 requires a loan, many millions are at once subscribed, with- 
 out encroaching in the slightest degree upon either the 
 circulating or fixed capital of the country. The loan is 
 not altogether supplied from capital which was previously 
 unemployed, but England has vast sums invested in almost 
 every civilised country. Magnificent as are the tokens of 
 England's wealth which surround us on every side, yet our 
 manufactories, our railroads, our mercantile marine will 
 not give us an adequate idea of England's riches, unless 
 we remember that there are few countries either in the 
 new or the old world that are not our debtors. Russia, 
 Turkey, India, Australia, Canada, the United States, the 
 Republics of South America, all have satisfied their state 
 tiecessities, by loans supplied from English capital. But 
 it is not only foreign governments who borrow from us ; 
 a vast number of foreign speculations have been sup- 
 ported by English capital. A considerable number of rail- 
 roads throughout the world have been made by English 
 capital ; the Grand Trunk Railway of Canada has ab- 
 sorbed 15,000,000Z. of English capital. The railways, irri- 
 gation works and roads of India have been constructed 
 by English capital, and some of the richest mines in 
 South America have been worked by English companies. 
 Consequently only a portion of the wealth which is an- 
 nually accumulated in England is retained to be invested 
 in this country. If, therefore, England requires a greater 
 amoimt of capital to extend any branch of trade or to 
 carry out any public work, she can supply an amount 
 which is practically unlimited. If, for instance, there 
 were such an expansion in our cotton manufacture, that 
 100,000,OOOZ. of additional capital was required, it would be 
 readily obtained, by placing a check upon the investments 
 of English capital abroad. The amount of capital, there- 
 fore, which is applied to the production of wealth in this 
 country, does not depend so much upon the amount which 
 is saved, as upon the proportion retained by the country 
 itself of all the wealth which is saved. The relative 
 amount of English capital which is invested at home and 
 
 BOOK I. 
 OH. Til 
 
 Foreignin- 
 vestments. 
 
88 
 
 Manual of Political Economy. 
 
 BOOK I. 
 CH. YIII. 
 
 Economi- 
 cal condi- 
 tion of 
 foreign 
 countries 
 as to the re- 
 quisites of 
 production. 
 
 India has 
 abundance 
 of land and 
 labour, but 
 little ca- 
 pital. 
 
 abroad is regulated by many considerations, the chief of 
 which is the rate of interest which can be obtained at 
 home compared to that which can be obtained in foreign 
 countries. We have explained that the English govern- 
 ment may raise large loans without diminishing the 
 capital invested in English industry, the loans being 
 chiefly derived from capital which would otherwise have 
 been embarked in foreign investments. Yet it must be 
 borne in mind that this remark does not apply to France 
 and to other countries from which little capital is exported. 
 Thus France was congratulated at the close of the war 
 upon the ease with which she raised successive loans, 
 amounting to many hundred millions of pounds, to defray 
 the expenses of her war with Germany and to pay the 
 German indemnity. A portion of these vast loans was 
 probably supplied from money which had been hoarded ; 
 but a great portion of them was no doubt obtained from 
 capital which would otherwise have been re-employed in 
 the production of wealth. The war had caused, over a 
 great part of France, an almost entire cessation of produc- 
 tion. Hence, as the war proceeded and as trade declined, 
 there was a large amount of capital which had previously 
 been employed in productive industry ready at hand to be 
 lent to the government to be consumed in war. It is a 
 most serious misfortune to France that even after the war 
 was concluded, the indemnity of 240,000,000^. which she 
 had to pay to Germany withdrew a large amount of 
 capital from France which might have been employed in 
 reviving the various branches of industry which had suf- 
 fered so much during the war. 
 
 India affords another example that the economic con- 
 dition of England must not be taken to be the type of the 
 economic condition of other countries. England, in many 
 respects, offers a direct antithesis to other countries ; thus, 
 she possesses an almost unlimited capital, but has very 
 little fertile land at the present time uncultivated. India 
 and many other countries are very deficient in capital, but 
 possess vast tracts of fertile landi^'^till untilled ; therefore, 
 contrasting England and India, the increased production of 
 wealth will take place under very different conditions in the 
 two countries. In England capital is readily supplied to 
 assist an increased production of wealth. The labourers' 
 
On the Increase of Capital. 
 
 89 
 
 wages will probably rise when the industry of the country 
 is active. There may, however, be one drawback to the 
 benefit which they thus derive. As the area of new soil 
 which England can bring under cultivation is so limited, 
 the price of many articles of food will rise, in consequence 
 of the larger consumption of a more numerous and better 
 paid labouring class. India, in her present condition, has 
 a most abundant supply of land and labour, but her capital 
 is so restricted that it is difficult for the production of 
 wealth to increase unless capital is obtained from other 
 oountries. 
 
 It is evident, from the previous remarks, that in 
 England the great requisite for the increased production 
 of wealth is a large supply of cheap food. This cheap food 
 may be obtained either by importation, by agricultural 
 improvements, or by extending the area of land cultivated 
 in England. Industry cannot be for any length of time 
 impeded in this country by any want of labour and capital, 
 but in India an increase of capital, both fixed and circu- 
 lating, is most essential to a larger production of wealth. 
 She possesses an abundant supply of fertile land and of 
 cheap labour, but for some time to come the greater portion 
 of the additional capital applied in India must be obtained 
 from England. Ages of anarchy have produced a wide- 
 spread feeling of insecurity throughout India. Individuals 
 have been afraid to exhibit their wealth, because it would 
 tempt the rapacity of those who had the power to pillage 
 their weaker neighbours. A great part of the wealth 
 saved was hoarded, and it consequently performed none of 
 the functions of capital. The owners of property felt that 
 it was only secure when it could be concealed. If they 
 employed labourers, they could not feel certain that they 
 would be able to retain the results of the labourers' in- 
 dustry. Hence we can reasonably anticipate one most 
 beneficent result from England's rule in India; for her 
 power, in course of time, may make every class in India 
 feel that the rights of property are respected. Nothing 
 will more tend to increase the capital, and hence the wealth 
 of the country ; for when security is given to property 
 there is a great inducement to save, and the wealth which 
 is saved, instead of being hoarded, will be usefully applied 
 as capital to assist the further production of wealth. India 
 
 BOOK I. 
 CH. VIII. 
 
 Thus Eng- 
 land want! 
 cheapfood, 
 and India 
 capital. 
 
 Useful re- 
 sults to 
 India of 
 Jierconnex- 
 ion with 
 England. 
 
90 
 
 Manual of Political Economy. 
 
 BOOK I. 
 CH. VIII. 
 
 In the West 
 Indies 
 there is 
 abundance 
 oflandand 
 capital, but 
 little la- 
 bour. 
 
 is at the present time, in some degree, deriving this ad- 
 vantage from England's rule. But admitting this ad- 
 vantage, it cannot be too carefully borne in mind by those 
 who are responsible for the government of India, that the 
 Indian people ought not to be compelled to pay too high 
 a price for it. Our administration being necessarily ex- 
 pensive, in consequence of the high remuneration which 
 Europeans receive in order to induce them to reside in the 
 country, every care ought to be taken to prevent its being 
 more costly than it need be. 
 
 Although there are so many points of diversity between 
 England and India, yet there are other countries whose 
 economic condition differs most essentially from' either 
 that of England or India. The main requisite for the 
 increased production of wealth is, in India, an increase of 
 capital, and in England, an increase of land, or, in other 
 words, an increased supply of cheap food. In the West 
 India islands, however, there is an abundance of land and 
 capital, but a great scarcity of labour. The decline in the 
 prosperity of these islands is, in an economic sense, most 
 instructive. Previous to the emancipation of the slaves, 
 the West Indies possessed all the three requisites of pro- 
 duction ; their soil was fertile, it was owned by English 
 proprietors, who readily supplied all the capital that was 
 required, and labour was, of course, never deficient when 
 slaves could be freely imported, and when there was an 
 abundance of money with which to purchase them. But 
 the abolition of slavery not only freed the slave, but 
 effectually checked the importation of labour. Property 
 in man was declared to be illegal, and therefore no one 
 would resort to the expense of importing labour when he 
 had not the power to retain the services of the labourers 
 he imported. The emancipated negroes of the West 
 Indies are unwilling to do as much work as when labour 
 was extorted from them. Degraded by their bondage, 
 their wants are few, and easily satisfied ; the rich fertility 
 of the tropics supplies them with almost all the food 
 they require, with the exertion of very little labour. 
 Why should they, therefore, constantly toil ? they have 
 few tastes to gratify, and few wants to satisfy. No one 
 will labour for labour's sake; the emancipated negroes 
 are well fed almost by the spontaneous bounty of nature, 
 
On the Increase of Capital. 
 
 91 
 
 and they are therefore perfectly contented to live a lazy life 
 of repose. The consequence of this is that the production 
 of wealth has almost ceased in many parts of the West 
 Indies ; the land is as fertile as it was before. English 
 proprietors would only be too glad to supply capital if they 
 could find the labourers ; but this labour is not forth- 
 coming; the emancipated negroes are unwilling to work 
 and the climate is unsuited to European labourers ; the 
 production of wealth cannot proceed, and estates, which be- 
 fore 1833 were worth 10,000^. a year, are now little more 
 than a useless burden to their owners. It is thus quite 
 evident that it is impossible for the West Indies to become 
 more prosperous without a larger supply of labour. How 
 -is such a supply of labour to be obtained ? In the first 
 place, labourers may be imported ; secondly, the population 
 of the islands may increase, and the people may become 
 more desirous to labour, as their wants become gradually 
 enlarged. Let us first consider the importation of labour. 
 Labourers may pass from one country to another entirely 
 of their own accord. Large numbers of Chinese have 
 emigrated to Australia because they could earn higher 
 wages in Australia than in China. They have also emi- 
 grated in large numbers to the United States. Australia 
 never took any steps to encourage their coming; their 
 presence is, in fact, so much objected to, that an extreme 
 measure has been passed, and a poll-tax of 101. has been 
 imposed on every Chinaman who lands. If the Chinese 
 felt that equal advantages were to be secured in the West 
 Indies, no doubt great numbers would emigrate to those 
 islands, and thus supply the labour which is so much 
 needed. It is, however, a singular fact, that the English, 
 the Germans, and the Chinese are the only people who 
 freely emigrate at the present day'. Now it is quite 
 impossible for English or Germans to work in a sugar 
 plantation under a tropical sun ; if, therefore, the Chinese 
 will not resort in the same way to the West Indies as 
 they have to California and Australia, the West Indies 
 cannot depend upon a supply of labour from voluntary 
 emigration. Such emigration as that of the coolies 
 cannot be regarded as voluntary. A government votes 
 
 1 Tbe word Englisli is here used, as in other places in tMs volume, 
 to describe tte inhabitants of the United Kingdom generally. 
 
 BOOK I. 
 CH. VIII. 
 
 Conse- 
 quences of 
 this defi- 
 ciency. 
 
 Difficulty 
 of sup- 
 jihjingithy 
 importing 
 labour. 
 
92 
 
 Manual of Political Economy. 
 
 BOOK I. 
 CH. Till. 
 
 Other 
 means of 
 remedying 
 the evil. 
 
 In America 
 land and 
 capital are 
 plentiful, 
 but labour 
 dear ; 
 
 a certain sum of money to fit out ships which sail to 
 the Malay Archipelago. The natives are canvassed to 
 emigrate, their expenses are paid, and they are pro- 
 mised work when they arrive at their destination. 
 Large numbers of coolies have in this manner been im- 
 ported to the Mauritius and the West Indies, but the 
 traffic is liable to be abused, and the coolies have occa- 
 sionally endured on their voyage sufferings which seem 
 to revive some of the horrors of the slave-trade. The 
 coolie-traffic can never be carried on by private enterprise, 
 because, if an individual imported coolies, he would have 
 no power to compel them to work for him in preference 
 to another person. If such a power were permitted, there 
 would cease to be any real distinction between the coolie- 
 trafSc and slavery. 
 
 The negroes of the West Indies are, as we before re- 
 marked, unwilling to work ; and the only hope of making 
 the people more industrious, is to stimulate in them new 
 desires and new wants ; they will not, of course, work as 
 long as they are content to obtain little else than the 
 food which the islands supply in abundance. If they can 
 only be made more anxious to have expensive clothing 
 or expensive food, which may perhaps have to be imported 
 from other countries, they will at once have a motive to 
 work, and the West Indies will cease to suffer from the 
 present great scarcity of labour. England, therefore, 
 offers a striking contrast in every respect to the West 
 Indies ; nothing can exceed the ceaseless industrial acti- 
 vity of the English people. We all of us labour, because 
 there is some desire which we wish to gratify. Our 
 labourers are pressed on to continuous labour by the 
 necessity of procuring a livelihood. Our climate is rigo- 
 rous, and the bounty of nature will not supply us with 
 the means of supporting life unless we work with energy 
 and with constancy. The middle classes are urged on to 
 industrial activity by the desire to improve their social 
 and material condition. 
 
 The economic condition of America, as far as the pro- 
 duction of wealth is concerned, differs in some respects 
 from each of the three countries we have considered. In 
 America, labour is comparatively more scarce than either 
 land or capital. We say comparatively more scarce, be- 
 
On the Increase of Capital. 
 
 93 
 
 cause in the West Indies the scarcity of labour is so great 
 that the production of wealth is almost entirely prevented; 
 but this is not the case in America, for in no country has 
 the production of wealth advanced with greater rapidity! 
 If, however, we compare America with England, we know 
 that land is much cheaper in America and labour much 
 dearer ; and one of the consequences of this difference is 
 strikingly exemplified by a circumstance which has been 
 noticed by almost every traveller in America, but which 
 has been seldom explained. America is ill cultivated 
 compared with England, and her agriculture appears to be 
 most slovenly; there must be some cause for this differ- 
 ence; it cannot be explained by a commonplace remark 
 on difference of race. An agriculturist, who may in Eng- 
 land have cultivated his farm like a garden, will, if he 
 emigrates to America, find it greatly to his interest to 
 adopt a very different system of tillage. The reason of 
 this may be best shown by an example. An English 
 farmer, let us suppose, cultivates a hundred acres of 
 land, for which he pays 200Z. a year rent. 200?. a year 
 expended in wages on his farm will return the farmer a 
 fair profit for his capital and his exertion ; but he may 
 think that it will answer his purpose to farm more highly, 
 to employ twice as much labour as before. He will be 
 remunerated for the additional 200?. which he expends on 
 wages, if the increased produce from the farm sufficiently 
 exceeds the cost of this extra labour to leave the farmer a 
 fair profit on the additional capital he has expended. If 
 this is the case, the additional labour will be as profitable 
 to the farmer as that which he first employed, but it will 
 not be so productive. When only 200?. was expended on 
 wages, the produce of this labour must have been sufficient 
 not only to return a fair profit upon the amount expended 
 in wages, but must also have been sufficient to cover the 
 rent. If the additional labour employed diminishes in 
 productiveness, it may be said why not apply it to other 
 land ? it cannot, however, be applied to equally good land 
 without having to pay a rent for the use of the land ; hence, 
 up to a certain point, it is more remunerative to apply 
 additional labour to the same land, although the labour 
 diminishes in productiveness, rather than to apply the 
 labour to other land for which rent wiU have to be paid. 
 
 BOOK I. 
 
 CH. VIII. 
 
 effect! of 
 this upon 
 agricul- 
 ture. 
 
94 
 
 Mamml of Political Economy. 
 
 BOOK I. 
 CH. VIII. 
 
 Compari- 
 son of the 
 different 
 results 
 obtained. 
 
 But if good land were extremely plentiful, or if, in other 
 words, rents were extremely low as in America, it would 
 manifestly be far more profitable to cultivate fresh land 
 rather than apply additional labour upon land already 
 under tillage in order to cultivate it more highly. Hence, 
 in America much less labour is employed in the cultivation 
 of a certain area of land than would be employed upon the 
 same area in England, and farming is consequently more 
 slovenly in the former than in the latter country, because 
 in the one country land is cheaper than in the other, and 
 labour dearer. 
 
 In this and the preceding chapter, we have investigated 
 the laws which regulate the increase of labour, and capital; 
 and cultivable land. These laws combined, furnish the 
 conditions upon which depends an increase in the produc- 
 tion of wealth. We have attempted to illustrate the 
 manner in which these Islws may be combined, by con- 
 sidering four countries, England, India, the West Indies, 
 and the United States; and in each of these countries the 
 requisites for an increased production of wealth assume, 
 relatively, different degi'ees of importance. In England,- 
 an abundant supply of cheap food is required ; in India, 
 an increase of capital is most essential ; and in the West 
 Indies, an increase of labour. In America the production 
 of wealth meets with no serious impediment, for it 
 advances with the most extraordinary rapidity. Yet, in 
 America, there is a comparative scarcity of labour, and an 
 ample supply of productive land. America and England 
 have conferred upon each other the most important mutual 
 benefits. Cheap food is essential to England's progress, 
 and our greatest supplies are obtained from America. Cheap 
 labour is the most valuable gift to America, and our 
 surplus population, which would become burdensome to us 
 if there had been no emigration, is providing America with 
 the labour she so much needs. 
 
 All the more important propositions which concern 
 the production of wealth have now been considered; 
 this portion of our subject will be frequently recurred 
 to, in order that the reader may obtain a firmer grasp 
 of many of the principles here discussed. We now pass 
 on to the next branch of our subject, which is the distri- 
 bution of wealth. 
 
BOOK 11. 
 DISTRIBUTIOK 
 
CHAPTER I. 
 
 PRIVATE PROPERTY AND SOCIALISM. 
 
 HAVING considered the production of wealth in the- 
 last book, we now pass, by a natural sequence, to 
 expound the principles which regulate the distribution of 
 wealth. In some of the remarks on the production of 
 wealth, it was necessary to anticipate the fact that the 
 wealth produced is distributed amongst different classes. 
 The wages of the labourers, the profits of the capitalist, 
 and the rent of the landlord, have been spoken of Allusion 
 has also been made to some of the sources which supply 
 the wealth thus distributed; for instance, the nature of 
 capital could not be explained, without showing that the 
 capital of the country is the fund from which the wages 
 of the labourers are supplied, and, therefore, if the 
 capital increases, the wages paid must increase. Although 
 in this manner, the subject of the distribution of wealth 
 has been slightly encroached upon, yet nothing has hitherto 
 been said in reference to the principles which determine 
 the relative amounts of the shares into which wealth is 
 distributed. It, therefore, remains to explain why wages 
 are high or low, why profits rise or fall, and why rents in 
 one country vary so greatly in amount at different times 
 and in different places. This book, therefore, will probably 
 be more interesting than the last, because in it questions 
 will be discussed of the greatest practical importance; we 
 shall have occasion to show how wages and profits are 
 affected by such combinations as strikes, and how industry 
 is influenced by the different tenures of land which exist 
 in different countries; the subjects discussed will, in fact, 
 have equal interest for the philanthropist and the trader ; 
 for remedies will be suggested for alleviating the poverty 
 
 r. M. 6 
 
 BOOK II. 
 CH. I. 
 
 Distribu- 
 tion of 
 wealth. 
 
■98 
 
 Manual of Political Economy. 
 
 BOOK 11. 
 OH. I. 
 
 The distri- 
 bution of 
 wealth im- 
 plies pro- 
 jierty, 
 
 and is af- 
 fected hy 
 the dif- 
 ferent Imcs 
 about pro- 
 pertij. 
 
 of the poor; and the causes upon which depend the pros- 
 perity of trade will be explained. 
 
 Distribution of wealth implies the idea of property. If 
 there were no property, or, in other words, if no individual 
 possessed anything which he could claim as his own, 
 there could of course be no distribution of wealth. Every 
 one would then obtain, either by chance or by force, the 
 food and other necessaries which minister to the wants of 
 life. It is impossible for property to exist until society 
 is organised, for the fundamental idea involved in property 
 is this; that those who own the property possess in it a 
 right, which will be enforced by law; but the existence of 
 law implies that a people composing a state or a nation 
 will exercise a combined power to make individuals regu- 
 late their conduct according to certain rules termed laws. 
 Such combined action constitutes the power of govern- 
 ment, and the government ceases to exist if it is not able 
 to exercise its power and enforce obedience to its laws. 
 A great portion of the laws of every nation concern pro- 
 perty; such laws vary greatly in different countries and at 
 different times, and property has rights in one age of a 
 nation's existence which it has not in another. Before 
 the passing of the Act of Emancipation, a negro, if pur- 
 chased by an English colonist, became as much his pro- 
 perty as an article of domestic furniture. In feudal times, 
 a baron could enforce various personal services from those 
 who occupied his land; they were bound to furnish him, 
 if he waged war, with a certain number of men, horses, 
 and coats of armour. There is, again, the greatest differ- 
 ence in the control which can be exercised over the dis- 
 posal of property; for, in England, land can be entailed, 
 and devised by will, to an unborn child. In France, the 
 owner of land has no power to prevent his children sharing 
 it equally upon his death. Then again, property is held 
 in different ways; a great number of individuals forming 
 a company or society may be the joint owners of property. 
 Property may be held on lease. In Europe, the land is 
 chiefly the property of private individuals; whereas, in 
 India, the bulk of the land is owned by the government. 
 It would be impossible to describe the origin of all the 
 different kinds of property, and the rights connected there- 
 Avith, without writing the history of each country; but 
 
Preliminary Remarlcs on Property. 
 
 99 
 
 although it does not pertain to political economy to discuss 
 the origin of the laws of inheritance, or of landed tenure, 
 yet the production and distribution of wealth are most 
 materially influenced by particular laws of inheritance, 
 and by different systems of land-tenure: therefore, all 
 such influences must be most carefully considered in a 
 treatixse on political economy. 
 
 It has been remarked that the principles which regu- 
 late the production of wealth have the character of physical 
 laws. The distribution of wealth is much more liable to 
 be controlled by the human will. As an instance, nature 
 supplies the materials out of which all wealth must be 
 created ; and the kind and amount of the labour which 
 must be bestowed upon the raw material when it is con- 
 verted into some manufactured commodity depends upon 
 the properties of the material. Again, the world has been 
 so constituted, that every country possesses land of various 
 degrees of fertility; from this circumstance we deduced 
 that important law which was explained in the last book, 
 and which affirms that the cost of agricultural produce 
 has a tendency to increase as the deinand for it advances. 
 The production of wealth is, therefore, influenced by 
 various physical conditions which are independent of 
 human agency; but the distribution of wealth is, of course, 
 entirely subject to human control. Men may regulate 
 the distribution of wealth by any rules or principles of 
 their own creation; and it is the purpose of political 
 economy to explain the consequences which must follow 
 from the rules which may be adopted, or from the prin- 
 ciples which may be brought into action. It is, for instance, 
 quite optional with men whether they allow custom or 
 competition to regulate the distribution of wealth, but it 
 is not optional with them to control the effects which 
 follow when a particular custom has been adopted, or 
 when competition has regulated a transaction. In England 
 competition is far more active than in almost any other 
 .country, and therefore many of the practical conclusions 
 of political economy must be somewhat modified before 
 they are applied to other countries, where, perhaps, custom 
 is far more powerful than competition. In England com- 
 petition regulates the rent of land ; but in many parts of 
 Italy, according to an invariable custom, metayer rents are 
 
 G2 
 
 BOOK II. 
 CH. I. 
 
 The dis- 
 tributionof 
 wealth is 
 affected by 
 customand 
 competi- 
 tion. 
 
100 
 
 Manual of Political Economy. 
 
 BOOK II. 
 OH. I. 
 
 Inequali- 
 ties of 
 wealth 
 necessarily 
 follow the 
 institution 
 of private 
 property. 
 
 Schemes to 
 avoid this 
 
 paid, that is, one-half the produce is given for the use of 
 the land. In England, again, the produce of the land is 
 shared amongst three classes — landlords, farmers, and la- 
 bourers; but throughout the greater part of the world the 
 produce is shared only amongst two classes, the landlords 
 and farmers being -combined in one, like the ancient free- 
 holders of England; or the farmers and labourers are 
 merged into one class, like the miserable cottiers of Ire- 
 land. On the continent of Europe peasant proprietors are 
 very numerous, and in these cases the individual owns the 
 land, cultivates it himself, and likewise provides the capi- 
 tal. It will be necessary to trace the consequences which 
 arise from these various arrangements. 
 
 The greatest inequalities of wealth are sure to follow 
 the institution of private property; and the wealthier a 
 country is, the more striking is the contrast between 
 the wea:lth and the poverty which have throughout the 
 history of the world accompanied each other. Various 
 schemes have been propounded with the view of causing 
 the wealth which is produced to be distributed more equi- 
 tably; but if the State confiscated the property of every 
 individual in England to-morrow, accumulated the whole 
 wealth of the country in one great fund, and divided all 
 the land equally amongst the inhabitants, there would 
 gradually arise the same inequalities of wealth which exist 
 at the present time. The industrious would soon obtain 
 those portions of wealth which were allotted in this na- 
 tional distribution to those who were indolent and defi- 
 cient in industrial capacity. Men are differently endowed 
 by nature, and those who possessed strength and ability 
 would soon become wealthy, and those who were less strong 
 and less able would quickly return to comparative poverty. 
 If, therefore, private property is permitted, and if men can 
 indisputably claim as their own the wealth which is dis- 
 tributed to them as the reward of their labour, there must 
 result great inequalities of wealth. And these inequalities 
 will be increased if a person is allowed to devise his pro- 
 perty by will; for a man who has already a great deal of 
 property of his own may have left to him the property 
 possessed by four or five other wealthy individuals. 
 
 Benevolent men, deeply impressed with the widespread 
 poverty which prevails even in the most wealthy countries, 
 
Preliminary Remarks on Property. 
 
 lOI 
 
 have rightly perceived that such great inequalities of 
 wealth must always exist if the privileges of private pro- 
 perty are freely permitted ; consequently, philanthro- 
 pists have been frequently prompted to advocate schemes 
 of social life in which private property shall not exist, 
 but all the wealth of the community shall be enjoyed 
 in common. This is the fundamental idea which has 
 suggested socialism. No philanthropists have ever been 
 more unpopular than the socialists ; but much of the anti- 
 pathy is no doubt due to the popular error that a com- 
 munist is anxious to limit the rights of private property 
 by means of wholesale confiscation. Such a charge, 
 however, is extremely unjust. When socialism has been 
 attempted, the property upon which the experiment has 
 been made has been fairly and legitimately obtained. 
 The socialists may have been mistaken theorists, but let 
 us not deal harshly with them. They have often made 
 noble sacrifices in order to battle against great defects 
 in the state of society ; they have sometirnes effected 
 great practical good, and the experiments they made, 
 even when they have been unsuccessful, are always worthy 
 of attentive reflection. 
 
 Socialism, as first propounded by Owen and Fourier, 
 proposed that a society living together should share all 
 the wealth that was produced. A number of families 
 would, according to this scheme, live together on the 
 same terms as the individual members of a single family. 
 When a family settles in the backwoods of Canada, each 
 member of the family labours on that work to which he 
 or she may be best suited. In such a case the labour 
 of each renders some assistance to all the rest, and then 
 the results of the labour of the whole family are shared 
 in' common. Such a society, however, can only be kept 
 -together by the strong ties of family affection ; and it is 
 manifestly impracticable, in the present state of society, 
 to 'maintain a similar union between several distinct fami- 
 lies. Although the difficulties which oppose socialism may 
 be patent to all, yet it is well to consider some of the 
 evils which communism seeks to remedy. In a state of 
 society li'ke our own, established on the basis of private, 
 property, everything tends to heighten the disadvantages 
 which result from comparative defects in natural endow- 
 
 BOOK II. 
 CH. I. 
 
 inequality; 
 socialism. 
 
 Schemes 
 proposedby 
 Owen and 
 Fourier. 
 
I02 
 
 Manual of Political Economy. 
 
 Difficulties 
 in these 
 schemes. 
 
 St Simon's 
 plan for 
 avoiding 
 these diffi- 
 culties. 
 
 ments. The strong and able are permitted through life to 
 appropriate to themselves all the fruits of their own la- 
 bour, and the weak and less able are constantly, as it 
 were, borne down in the struggle. But in order to remedy 
 these evils by any form of socialism, an amount of virtue 
 is required which is rarely possessed at the present time. 
 The utmost self-denial and the widest charity will also 
 be needed ; in fact, men must become a higher order of 
 beings, before they will work through life, not for the 
 benefit of themselves, but for the purpose of contributing 
 their labour to the advantage of the community to which 
 they belong. Some of the practical difficulties, however, 
 here suggested were partly obviated in two systems of 
 modified socialism which were propounded with great 
 ability by St Simon and Fourier, who both proposed that 
 the enjoyment of private property should not be altogether 
 forbidden. 
 
 St Simon's scheme was specially intended to provide 
 some machinery for the arrangement of the labour in a 
 socialistic society, for without some such arrangement all 
 would be in confusion ; there would be no security that 
 individuals would be employed on the labour for which 
 they were best adapted, and every one would be anxious 
 to avoid all disagreeable work. St Simon, therefore, pro- 
 posed that chiefs of the community should be appointed, 
 who should equitably distribute the labour which had to 
 be performed, and should also determine who were to be 
 ordinary labourers, and who were to be skilled artisans. 
 These chiefs not only distributed the labour, but also 
 distributed the results of the labour ; they allotted to each 
 individual the share of the wealth to which they consi- 
 dered he was fairly entitled ; and the share which an indi- 
 vidual thus obtained he was permitted to enjoy as his own 
 private property. But nothing can be more impracticable 
 than this scheme, unless there should happen to be such a 
 marked distinction between the individual members of the 
 community and its chiefs that the right of the chiefs to 
 dictate and to govern could not be disputed. The Jesuit 
 missionaries established such a community with great 
 success in Paraguay; but between these missionaries and 
 the community they controlled, there was the difference 
 which distinguishes civilisation from barbarism. But no 
 
Preliminary Remarks on Property. 
 
 103 
 
 body of men would ever consent to delegate to any of 
 their fellow-countrymen the powers which would entirely 
 subjugate their own individuality; and St Simonism, even 
 if it alleviated poverty, would introduce greater evils ; for 
 men and women are in a pitiable state of subjection if 
 they are not free to choose the labour upon which they 
 should employ their energy. 
 
 The scheme proposed by Fourier was much more skil- 
 fully designed ; he intended that each separate community 
 should consist of about 2,000 persons, who should be set- 
 tled on a square league of ground ;. he not only permitted 
 private property, but allowed property to be obtained by 
 inheritance. Every member of this community would 
 receive a certain remuneration, even if he were not able 
 to work. Fourier also recognised the claim of capital to 
 be rewarded; the community were combined like a trading 
 company to produce wealth, and after a certain competence, 
 considered necessary to support life, had been allotted to 
 every individual, the remaining produce was divided as a 
 reward for labour, capital,, and talent.. The administration 
 of this division of the produce was arranged by the heads 
 of the community according to the following plan : — The 
 labourers were divided intO' three distinct grades, which 
 marked different standards of skill and talent, and the 
 remuneration received by each of these grades varied 
 according to a fixed proportion. The particular grade to 
 which a workman was admitted, was determined by the 
 vote of his fellow-workmen ; there was community of la- 
 bour, but not community of living ; it was also proposed, 
 for the sake of economy, that each family should have its 
 separate apartments in the same block of buildings. The 
 first objection that will probably be made to this scheme 
 is the following : that very soon the industry of a com- 
 munity would be destroyed by its members regarding 
 exertion as unnecessary, if a livelihood were always en- 
 sured to those who did not work. Exactly the same 
 objection may be brought against our Poor-Law system, 
 and yet England has obtained a great commercial posi- 
 tion in spite of this impediment to her industrial pro- 
 gress. Internal dissensions would be the greatest diffi- 
 culty against which the scheme of Fourier would have to 
 contend; men would be dissatisfied with the grade in 
 
 BOOK II. 
 CH. 1. 
 
 Fourier's 
 scheme. 
 
 Its chief 
 difficulties. 
 
lEb4 
 
 Manual of Political Economy. 
 
 BOOK it. 
 CH. J.-. 
 
 Voluntary 
 socialism 
 contracted 
 with com- 
 pulsory 
 socialism. 
 
 which they were placed, and the chiefs of a community 
 Would occupy a position most diflScult to maintain, for a 
 man is most jealous of any interference with the details of 
 his daily life. Again, if such a community were pros- 
 perous, and if wealth Were more equally distributed than 
 in the present state of society, all the members of the 
 community would be sufSciently well off to marry at an 
 early age ; the result would be a rapid increase of popu- 
 lation ; the land possessed by the community would soon 
 become not sufficient to supply the increased population 
 with food ; food would become much more expensive, and 
 there would soon arise poverty and distress. We believe 
 that all such schemes of socialism must entirely fail, if, in 
 a country like our own, they attempt to displace a state 
 of society based on private property. It is, however, ad- 
 visable to allude to the principal socialistic schemes, be- 
 cause, at different times, they have excited great interest, 
 and the speculations of the authors of these schemes are 
 deserving of much careful attention. The difficulties 
 which we believe will oppose the success of socialism have 
 not been pointed out in a spirit of antagonism. A social- 
 istic experiment may be made without inflicting th-e 
 slightest loss or injury upon any but those who voluntarily 
 take part in it. It is quite possible that such an experi- 
 ment would dispd many of those objections which before- 
 hand appear most formidable. Such an experiment ought 
 then to be welcomed and not opposed, for socialism has 
 always been mainly prompted by a desire to alleviate 
 the poverty which presses so heavily upon a large portion 
 of mankind. 
 
 We have been careful to point out that the socialistic 
 schemes to which the attention of the reader has been 
 directed were voluntary organizations. This constitutes 
 one of their chief claims to favourable consideration. If 
 the property upon which a socialistic experiment is made 
 is fairly acquired, and if all those who join in the experi- 
 ment do so entirely of their own free will, no injustice is 
 inflicted on any one, and although the scheme may fail, 
 yet it maybe fruitful of good by suggesting the adoption 
 of new social and economic arrangements. For instance, 
 in our own country, various socialistic experiments were 
 made by Robert Owen. None of these obtained any per- 
 
Preliminary Remarhs on Property. 
 
 105 
 
 manent success ; but the co-operative movement, which 
 IS assuming such significance at the present time, and 
 which may not impossibly lead to a most important 
 change in carrying on industry, undoubtedly had its 
 origin in the ideas propounded by Owen and his fol- 
 lowers. The essential characteristic of co-operation is 
 a union of capital and labour. A certain number of 
 labourers form themselves into a society to work -for a 
 common object, and they supply the capital which their 
 labour requires. Co-operation may thus be regarded as 
 a modified form of socialism ; but as in a co-operative 
 society each member's share of the aggregate wealth 
 produced is apportioned to the amount of capital he sub- 
 scribes to the common fund, as well as the quantity and 
 quality of the labour he supplies, it is evident that an 
 influence is thus brought into operation to stimulate each 
 individual's energy. This constitutes the fundamental dif- 
 ference between co-operation and the socialistic schemes 
 of St Simon and Fourier ; for it has been pointed out that 
 -the chief obstacle which would prevent their achieving any 
 practical success was the improbability that men would 
 be found to work with sufficient energy if the reward they 
 received for their labour was guaranteed to them, and did 
 not depend either on their own abstinence, or upon the 
 amount of their labour. 
 
 Although the socialistic schemes here described were 
 voluntary organizations, yet it is important to bear in 
 mind that the influence of the state may be used to 
 enforce some form of socialism upon a country. It is 
 almost needless to say that whenever such an attempt is 
 made, it should be most narrowly watched. Probably the 
 best definition that can be given of socialism is, that 
 it enables a man to rely upon a society or community for 
 maintenance instead of upon his own individual efforts. 
 In the schemes of Fourier and St Simon, a certain num- 
 ber of persons formed themselves into an association or 
 company, and guaranteed to give maintenance to each 
 other. No one can deny the right of a number of indi- 
 viduals to enter into such an arrangement as this. It 
 maj"^ however happen that people, instead of promising 
 maintenance to others as a voluntary act, may be com- 
 pelled to do so by law. A notable example of such com- 
 
io6 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. I. 
 
 The growth 
 of socialis- 
 tic prinei- 
 ples at the 
 present 
 time. 
 
 pulsion is afforded by our Poor-Law system, for it confers 
 upon every individual a legal claim for maintenance. 
 If a man is in a state of destitution he can claim paro- 
 chial relief, even if the destitution is entirely caused by his 
 own indolence or imprudence; he can thus compel other 
 people to keep him whether they wish to do so or not. 
 We shall in a subsequent chapter discuss the general 
 effects produced by the Poor-Law. We have referred to 
 the subject here, because it affords an example of a prac- 
 tical adoption of the socialistic principle by the State. 
 Not only has a powerful encouragement already been 
 given to socialism by the State, but many who would be 
 foremost in their denunciations of socialism are constantly 
 bringing forward proposals which would extend the in- 
 fluence of socialism in its most mischievous form. Thus 
 it is not unfrequently said, that parochial relief ought 
 to be granted on more easy and liberal terms. But if 
 such a suggestion were carried out, it is evident that an 
 increased inducement would be offered to people to de- 
 pend upon society rather than upon their own efforts 
 for maintenance^ and thus the socialistic influence exer- 
 cised by the Poor-I^aw would be greatly extended. As 
 another illustration, it may be mentioned that an increas- 
 ing number of people ar© now urging the adoption of 
 a general system of free primary education. It is, how- 
 ever, obvious that a new and important recognition would 
 be given to socialism, if the entire expense of educating 
 children were transferred from the parent to the State. 
 If such a transfer were sanctioned, it might afford a pre- 
 cedent for transferring the entire burden of maintaining 
 children from their parents to the State. 
 
 Nothing seems to be a more marked tendency of the 
 present day than the growing inclination there is to seek 
 the intervention of the State in matters which before 
 were left to individual effort. This reliance upon the 
 State may be regarded as an essential characteristic of 
 socialism in its present phase, and we shall have occasion 
 to describe the important economic influence which may 
 be exercised by such an application of the socialistic 
 principle. Thus in discussing the subject of the nation- 
 alization of the laud, it will be shown that this is just 
 such an application of the socialistic principle aa that to 
 
Preliminary Remarks on Property. 
 
 107 
 
 which we are now referring. Nationalization of the land 
 means that all the land in the country should be bought 
 by the State, and distributed at what is termed a fair 
 price among the entire people. The advocates of the 
 scheme hope that in this way, through the intervention of 
 the state, all those who wish to possess land would not 
 have to wait until they could purchase it in the open 
 market, but would be able to obtain it from the State 
 whenever they wanted it, on reasonable terms. We have 
 here only referred to the scheme as affording an example 
 of what we wish to signify by modern socialism. We will 
 postpone any further discussion of it to a subsequent 
 chapter. 
 
BOOK II. 
 CH. II. 
 
 The classes 
 amongst 
 whom 
 u-ealth is 
 distribut- 
 ed. 
 Their 
 shares are 
 termed 
 rent, 
 
 wages, and 
 profits. 
 
 CHAPTEE II. 
 
 THE CLASSES AMONG WHOM WEALTH IS DISTRIBUTED. 
 
 IT has been shewn that the three requisites of the pro- 
 duction of wealth are land, labour, and capital. Since, 
 therefore, land, labour, and capital are essential to the 
 production of wealth, it is natural to suppose that the 
 wealth which is produced ought to be possessed by those 
 who own the land, labour, and capital which have respect- 
 ively contributed to its production. The share of wealth 
 which is thus allotted to the possessor of the land is termed 
 rent ; the portion allotted to the labourer is termed wages, 
 and the remuneration of the capitalist is termed profit.- 
 The remuneration therefore received in the form of rent, 
 wages, and profits, represents the three distinct claims 
 which individuals have upon any wealth which is pro- 
 duced. Having pointed out that wealth is distributed 
 between rent, wages, and profits, we must proceed to enun- 
 ciate the laws which regulate the comparative amounts of 
 rent, wages, and profits. In different countries these rela- 
 tive amounts vary greatly ; for instance, rents are much 
 higher in England than in Australia, and wages are m.uch 
 lower in the one country than in the other. The rate of 
 profit is also much greater in Australia than in England. 
 In Australia, ten per cent, may be obtained on the secu- 
 rity of a freehold mortgage, whereas in England a similar 
 investment will not yield more than five per cent. With- 
 out, therefore, enquiring whether Australia is more pro- 
 ductive of wealth than England, it is very important to 
 establish principles which will explain why ^vealth is so 
 very differently distributed in the two countries. Other 
 countries present equally striking points of difference. 
 It has been shown that wealth is distributed in three 
 
Glasses amongst whom Wealth is distributed. 
 
 109 
 
 shares, namely, rent, •wages, and profits : because land, 
 labour, and capital are essential to the production of 
 wealth ; and rent, wages, and profits represent the service 
 which has been rendered by each of these agents of pro- 
 duction. It must not be supposed that rent, wages, and 
 profits are always received by distinct individuals. In 
 England, as a general rule, there are these three distinct 
 classes of recipients, who are respectively named land- 
 lords, labourers, and employers. The landlord seldom 
 supplies either capital or labour ; the capital is advanced 
 by the employer; and the labourer has very rarely 
 any capital invested in the industry upon which he is 
 employed. But the economic condition of England dif- 
 fers, in this respect, more widely from other countries 
 than is usually supposed ; in fact, it is rather the exception 
 than the rule, that wealth should be distributed in the form 
 of rent, wages, and profits, amongst distinct and separate 
 classes of individuals. In the south of France, in Italy, in 
 Flanders, and in other parts of the continent, peasant pro- 
 prietors occupy a great portion of the land. It is intended 
 to signify, by a peasant proprietor, a man who cultivates a 
 small quantity of land which is his own property ; he him- 
 self supplying all the labour and capital which are required. 
 In such a case, the produce is not distributed into rent, 
 wages, and profits, for one individual is entitled to all the 
 produce which is raised, since he owns the land, and has 
 also contributed the labour and capital. Although the 
 whole produce is, as it were, heaped together, without being 
 divided into three portions corresponding to rent, wages, 
 and profits, yet the remuneration obtained by the peasant 
 proprietor is composed of three distinct parts. These are 
 combined, but they may be separately estimated in the 
 following manner. If the land cultivated by the peasant 
 proprietor was not his own property, he would be obliged 
 to pay a certain rent for its use. A portion of the pro- 
 duce, therefore, equal in value to the amount which would 
 be thus paid, represents the rent. Again, if the capital 
 employed by the peasant proprietor was borrowed from 
 some one else, a payment must be made for the loan, and 
 therefore a portion of the produce equal in value to such a 
 payment indicates the profit, which is a fair remuneration 
 lor the capital which the peasant proprietor employs. 
 
 BOOK II. 
 OH. II. ■ 
 
 These 
 shares are 
 not always 
 payable to 
 different 
 individu- 
 als. 
 
 The pea- 
 sant pro- 
 prietor re- 
 ceives all 
 the three 
 shares of 
 the pro- 
 duce of his 
 land. 
 
no 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. II. 
 
 Cases of 
 India and 
 of slave- 
 owning 
 countries. 
 
 Again, the portion of the produce -which represents wages 
 may be ascertained by estimating the wages which would 
 have to be paid if the peasant proprietor, instead of 
 working himself, cultivated his land with hired labour. 
 Such an estimate as that we have just indicated is often 
 of great practical importance. The comparative advan- 
 tages and disadvantages of farming by peasant proprietors 
 have long been keenly disputed. In order to decide this 
 important question, we must pursue the following method. 
 From the whole produce which is raised upon the land 
 cultivated by a peasant proprietor, there must in the first 
 place be deducted an amount which represents the rent 
 this land would pay ; there must also be deducted a 
 certain amount for labour and capital, and if a surplus 
 remains, it will represent the advantage of farming by 
 peasant proprietors. We shall, in another chapter, have 
 occasion to enlarge on this subject. 
 
 A great portion of the land of India is occupied, not by 
 peasant proprietors, but by peasant cultivators. The land 
 is generally owned by the government. The peasant cul- 
 tivators often rent from the government a small j)ortion of 
 land, which they can cultivate with their own labour and 
 capital. Sometimes the government grants the land at a 
 fixed rental to individuals who occupy the position of 
 middle-men, and who re-let the land to peasant cultivators. 
 Land which is cultivated by slaves is in an anomalous 
 position, for in this case it would appear that the whole 
 produce is shared between rent and capital, since the 
 slaves must be regarded as a portion of the slave-owner's 
 capital, just in the same manner as the horses which plough 
 our own soil are a portion of an English farmer's capital. 
 The slaves do not receive any wages ; they cannot accumu- 
 late wealth; they have none of the rights of property. 
 The slaves are fed, it is true ; but so are the horses fed. 
 The economic condition of a slave country diilers so much 
 from other countries that it is proposed to discuss some of 
 the economic aspects of slavery in a separate chapter. 
 
 The reader may remark that in the general observations 
 made in this cliapter on the distribution of wealth we 
 have only considered agricultural produce. This Las been 
 done because similar although somewhat more complicated 
 laws regulate the distribution of the wealth which is 
 
Classes amongst whom Wealth is distributed. 
 
 lit 
 
 created by manufacturing industry. All the materials upon' 
 which manufacturing industry is employed are products 
 obtained from the land. Thus, wool is an article of agri- 
 cultural produce. When wool is woven into cloth, it is 
 rendered much more valuable. How, then, is this wealth 
 distributed which is added to the wool by manufacturing 
 it into cloth? Wool, and such other raw materials of 
 manufacturing industry, are purchased by the manufac- 
 turer,, and become a portion of his capital, and the wealth 
 produced by manufacturing industry is finally distributed 
 between capital and labour ; in fact, there are two distri- 
 butions. The raw produce, or, more correctly, the money 
 with which the manufacturer purchases this raw produce, 
 is distributed in a similar manner to other agricultural 
 produce ; after this raw material has been manufactured, 
 another distribution takes place between the labour and 
 the capital which have been employed in the production 
 of the manufactured commodities. 
 
 When it is stated that wealth is distributed in the form 
 of rent, wages, and profits, it must not be supposed that 
 the labour which has directly contributed to the produc- 
 tion of the wealth is alone remunerated. Before agricul- 
 tural produce is brought to the market, the industry of 
 many other labourers has been called in besides those who 
 are actually working on the farm, all of whom will receive 
 a certain share of the produce in the form of wages. A 
 farmer may employ bargemen to take his wheat by canal 
 to a particular market, but these bargemen must be paid 
 wages, just in the same way as labourers who are em- 
 ployed on the farm. Again, a farmer may join with others 
 to pay labourers for keeping the roads in a proper state 
 of repair ; from him, also, are levied rates which main- 
 tain a police establishment, considered necessary to make 
 property secure. We shall hereafter enquire on whom 
 these burdens fall. 
 
 The amount which in any particular case the landlord, 
 capitalist, or labourer receives is regulated either by com- 
 petition or by custom. In almost every case competition 
 and custom exercise a joint influence ; but competition 
 not unfrequently acts so much more powerfully than 
 custom, that it may be virtually regarded as the sole 
 determining cause. It is impossible to enumerate all 
 
 BOOK II. 
 CH. II. 
 
 Manu- 
 
 factaring 
 
 industry. 
 
 JtemuTiera- 
 tion due to 
 labour 
 when in- 
 directly ■ 
 produc- 
 tive. 
 
 Relative 
 importance 
 of compe- 
 tition and 
 custom. 
 
112 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. II. 
 
 Beneficial 
 effects of 
 competi- 
 tion 
 
 upon the 
 
 labouring 
 
 classes. 
 
 the important customs which influence various trades, but 
 it will be necessary, to trace the effect of customs more 
 wide and constant in their operation, such, for instance, 
 as those which regulate the rent of land. The metayer 
 rents which exist in many continental countries may be 
 quoted as an example of one of these customs ; for where 
 this tenure prevails the rent paid for the use of the land 
 is always equivalent to a fixed portion of the produce. 
 This portion is generally one-half. 
 
 It may, however, be remarked that as a nation advances 
 in industrial enterprise all her commercial transactions are 
 more completely regulated by competition. There cannot 
 be activity of trade without a keen desire for gain ; but 
 such a feeling indicates the spirit of competition, for in 
 business men compete with each other with the view of 
 securing the greatest possible gain. It is, however, im- 
 portant to present competition in a somewhat different 
 aspect; for the manner in which it has been here described 
 may very possibly encourage the widespread error that 
 with it there is associated something almost criminal. 
 Many who profess to be social philosophers attach to com- 
 petition the stigma of selfish greed. The poverty of the 
 poor is often attributed to it ; but we shall have reason to 
 show that it is no enemy to the working-classes. Without 
 it, their poverty would be rendered doubly severe ; for it 
 is an active spirit of competition which maintains the 
 capital from which the wages of the labourers are paid. 
 Competition befri,ends the working-classes in other re- 
 spects; it cheapens commodities, and ensiires that the 
 maximum of wages shall always be paid. Competition 
 is not confined to one class ; it may be as rife among 
 buyers as among sellers, or among the employers as 
 among the employed. Individuals who have goods to 
 sell are anxious to realise as large profits as possible ; but 
 when there is competition, a trader cannot be paid more 
 than what is termed a fair price for his goods, because if 
 he attempts to obtain more than the ordinary price he 
 will be undersold by other traders. When buyers compete 
 with each other they are anxious to secure the greatest 
 gains, or in other words, to buy upon the best possible 
 terms ; and thus, when buyers are each intent on pur- 
 chasing on the most favourable terms, a commodity is 
 
Classes amongst whom Wealth is distributed^ 
 
 I'I3 
 
 sure to realise what it is worth. It therefore follows that 
 if on the one hand competition prevents a trader obtain- 
 ing exceptionally high profits ; on the other hand, it 
 ensures to him a fair price for his goods. Some, per- 
 haps, may think it unfortunate that employers, stimu- 
 lated by a desire to realise the largest gains, should 
 seek to engage their labourers on the lowest possible 
 terms. But such conduct upon the part of the employers 
 inflicts no injury upon the labourers ; for whenever there 
 is activity of competition,. an individual manufacturer or 
 trader is as powerless ttj get labourers to work for him 
 at less than the ordinary wages as he would be to buy 
 cotton at a cheaper rate than his fellow-manufacturers. 
 The price of cotton is maintained because there are those 
 who are anxious to purchase it; the rate of wages is 
 also maintained by those who are anxious to purchase 
 labour. Competition, consequently, exerts no tendency 
 to reduce profits or wages; the tendency is rather one 
 of equalisation. 
 
 Competition acts with far greater force in some coun- 
 tries than in others. In England the commercial spirit is 
 so active that we are liable to forget that in some coun- 
 tries various transactions, such as the renting of land, the 
 hiring of labour, and the sale of commodities, are regu- 
 lated by custom to a far greater extent than by com- 
 petition. 
 
 It has been often remarked that all men are more or 
 less the slaves of habit. Eveiy nation has some customs 
 which become, as it were, engrafted on its existence ; 
 customs, which in their origin were perhaps purely social, 
 have in many cases, after a certain lapse of time, pro- 
 duced effects of great pecuniary consequencei In this 
 way the results which would ensue if competition freely 
 operated are often interfered with; for men not unfre- 
 quently pay the most implicit obedience to a custom, 
 even when they are not bound to do so by law. It has 
 already been stated that, in parts of the continent, the 
 landlord uniformly receives as a rent one-half the produce 
 of the land ; he never thinks of asking more or less, 
 although his land might very likely yield him a larger 
 income if it were let to the tenant who consented to 
 pay the highest rent for it. In many professions the 
 
 F. M. H 
 
 BOOK II. 
 OH. II. 
 
 Competi- 
 tion varies 
 inintensiiy 
 indifferent 
 countries. 
 
 Effects of 
 this in the 
 case of 
 rent. 
 
"4 
 
 Manual of Folitical Economy. 
 
 charges made are absolutely fixed by custom. Lawyers 
 and physicians do not adjust their charges like ordinary 
 traders; the charges are regulated by the custom of the 
 profession. Equally rigid customs affect many classes of 
 labourers ; artisans in particular trades must serve a fixed 
 term of apprenticeship, and the wages received are often 
 determined by customs which, though perhaps not so 
 rigidly observed as some others, yet are frequently not 
 easily modified. 
 
 Having, therefore, shown that the distribution of wealth 
 may be primarily classified into rent, wages, and profits, 
 we shall, in the first place, explain how the amount which 
 is received in the form of rent, wages, and profits is deter- 
 mined when regulated by competition ; and we shall then, 
 secondly, proceed to explain the different results which 
 follow, when the distribution of wealth is affected by such 
 customs as those which have just been indicated. 
 
CHAPTER III. 
 
 BENTS AS DETERMINED BY COMPETITION. 
 
 A COMPREHENSIVE history would have to be writ- 
 ten, if it were attempted fully to describe the 
 origin of property in land. Every country has probably 
 been subjugated, and grants of the vanquished territory 
 were the ordinary rewards which the conquering chief 
 bestowed upon his more distinguished followers. Some 
 families in this country still retain the lands which their 
 ancestors received from William the Conqueror. Lands 
 obtained by force had to be defended by force; and 
 before law had asserted her supremacy and property was 
 made secure, no baron was able to retain his possessions 
 unless those who lived on his estates were prepared to 
 defend them. There thus arose almost universally some 
 personal relations between landlord and tenant, and the 
 personal services which such a feudal tenure required 
 formed a considerable part of the rent which was paid for 
 the land. As property became secure, and landlords felt 
 that the power of the State would protect them in all 
 the rights of property, every vestige of these feudal 
 tenures was abolished, and the relation between landlord 
 and tenant has thus become purely commercial. A land- 
 lord offers his land to any one who is willing to take it ; 
 he is anxious to receive the highest rent he can obtain. 
 What are the .principles which regulate the rent which 
 may thus be paid? 
 
 We all know that the more fertile land is, the higher 
 will be its rent. We are also aware that the rent which 
 land yields not only depends upon fertility of soil, but 
 also upon convenience of situation. Land which is re- 
 mote from towns does not pay so high a rent as land 
 
 h2 
 
 Historical 
 origin of 
 rent. 
 
 How is the 
 rent of a 
 given tract 
 of land de- 
 termined? 
 
ii6 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. III. 
 
 Short 
 utatement 
 of Ricar- 
 ilo's theory 
 of rent. 
 
 of equal fertility situated at a short distance from some 
 large centre of population. The relative rents, there- 
 fore, which are paid for different farms are determined 
 by fertility of soil and by convenience of situation. It 
 will be generally admitted that the value of land de- 
 pends upon the two causes we have just mentioned, 
 but the important question to answer is this : Can 
 we obtain an index to the amount of rent which 
 land can afford to pay at any particular time ? The 
 object of the present chapter is to supply an answer to 
 this question. 
 
 In every country there is the greatest variety in the 
 productiveness of the land'; high rents are paid for the 
 use of some land, whereas other land not far distant 
 may be too poor to be cultivated. Let it be supposed that 
 there are two farms which are rented at different rates ; 
 the one farm is rented more highly than the other be- 
 cause its soil is more fertile or its situation more con- 
 venient, and the difference in the rents paid by these 
 two farms would indicate the pecuniary value of the 
 superior productiveness of the one farm over the other. 
 There may be another tract of land so poor that, if cul- 
 tivated at all, it could only bear a nominal rent ; for land 
 will only pay a nominal rent when the produce raised 
 from it is no more than sufficient to return the average 
 rate of profit upon the capital spent in its cultivation. 
 If we compare such barren land with land which pays 
 a considerable rent, then, as we have just remarked, the 
 difference in the pecimiary value of the superior produc- 
 tiveness of this better land may be measured by the dif- 
 ference in the rents paid by the good and barren land 
 respectively. But this difference is denoted by the whole 
 rent paid by the good land, since the rent of the poor land 
 is assumed to be merely nominal ; or, expressing this in 
 other words, it may be stated, that the rent of land re- 
 presents the pecuniary value of the advantages which 
 such land possesses over the worst land in cultivation, the 
 rent which this worse land yields being merely nominal in 
 amount. 
 
 1 The value wMoli land receives from these two causes, viz., fertility 
 of the soil and convenience of situation, wUl throughout be designated by 
 the word "productive." Tide pages 48, 49. 
 
Rents as determined hy Competition. 
 
 117 
 
 The proposition which has just been enunciated, and 
 the simple reasoning by which it has been established, 
 may be regarded as a statement and a proof of Ricardo's 
 celebrated theory of rent. The theory, as here expounded, 
 may appear so simple, nay, perhaps, so obvious, that 
 our readers will not readily appreciate its importance, 
 nor will they perhaps believe that the theory itself 
 has been warmly controverted by eminent men. It will 
 be advisable to consider the ordinary objections urged 
 against the theory, for we shall be able thus still farther 
 to elucidate it, and these objections will afford an appro- 
 priate example of the popular prejudice which so fre- 
 quently attempts to discredit the conclusions of science. 
 One of the attacks on Ricardo's theory may be found 
 in some prefatory remarks by the .late Dr Whewell, 
 prefixed to a 'Collection of Some Fragmentary Tracts 
 on Political Economy, by Mr Jones \' Dr Whewell 
 objects to Ricardo's theory because the rent of land is, 
 over the greater portion of the world, controlled by 
 custom; and even in England, where land is let by com- 
 petition, Dr Whewell maintains that this theory is never 
 employed to settle the rents that are paid ; he therefore 
 made ' two specific allegations : his first position is, that 
 the theory is of comparatively little value because of its 
 limited application, and, secondly, that it can be of no 
 practical importance even in the exceptional cases where 
 it may be regarded as capable of a practical applica- 
 tion. In this chapter we shall confine our attention to 
 the last of these allegations ; the modifications which the 
 theory requires, when rents are fixed by custom and not 
 by competition, will be considered in another chapter. 
 No one can reasonably suppose that Ricardo, or any of 
 those who adopt this theory, imagine that a land-steward 
 avails himself of it when he is fixing the rent of any 
 particular land. No farmer when about to rent a farm 
 asks himself. What is the value of this farm above the 
 worst land in cultivation? But these considerations do 
 not afford any valid objections against the theory ; it 
 might as well be said that the laws of digestion and 
 respiration are not worth explaining, because no one 
 
 ■■ Mr Jones was Professor of Political Economy at the late Bast India 
 Comj-any's College at Haileybury. 
 
 BOOK II. 
 OH. III. 
 
 Dr Whe- 
 well's ob- 
 jections to 
 this theory; 
 
 that it is 
 rarely ap- 
 plicable, 
 and that 
 when ap- 
 plicable it 
 is unim- 
 portant. 
 
 The last 
 objection 
 answered. 
 
lU 
 
 Manual of Political Economy. 
 
 Restate- 
 ment of tlie 
 theory. 
 
 Illustra- 
 tion of the 
 theory by 
 an exam- 
 ple. 
 
 thinks of these laws when he eats or breathes. Although 
 men of business do not use a theory of rent, and may 
 have never heard the name of such a theory, yet uncon- 
 sciously they follow the theory; and the theory will ex- 
 plain the practical consequences connected with the rent- 
 ing of land, as completely as if all who were engaged in 
 such business transactions were political economists of the 
 Ricardian type. The point, therefore, to be determined 
 is, not whether the theory is used, but whether the theory 
 is universally true when rents are determined by compe- 
 tition. Let us again expound the theory ; and we think 
 it will be admitted that each of the positions which it 
 assumes is incontrovertible. It cannot be denied that the 
 land of each country varies so greatly in productiveness, 
 that there always exists some land which is either so 
 barren or so disadvantageously situated that it is just on 
 the margin of cultivation, and can only pay a nominal 
 rent. Land which is more productive will pay a rent, 
 and such rent must represent the difference in the value 
 between this better land and that land which is so barren 
 that it can only pay a nominal rent. But this value is 
 represented by the difference in the nett produce obtained 
 from the two lands in question, and hence the rent of any 
 particular land may be estimated as the difference be- 
 tween the amount which it produces and the amount of 
 produce raised from the worst land in cultivation. This 
 is the ordinary enunciation of Ricardo's theory; the terms 
 however in which this enunciation is expressed require 
 some explanation. In the first place, it should be re- 
 marked that nett produce, not gross produce, is meant. 
 The necessity of making this distinction may be illus- 
 trated by an example. Let us, for instance, suppose that 
 there are two farmers, A and B, and that one of these. A, 
 occupies a much more productive farm than the other, B. 
 Now the gross produce of a farm is the whole produce 
 which is raised from it, without deducting the expenses of 
 cultivation. But the surplus produce which remains to 
 the farmer cannot be ascertained until from this gross 
 produce are deducted all the expenses connected with the 
 farm. A certain sum must also be deducted as interest 
 for the capital invested in the farm, and the farmer should 
 also estimate his own labour of superintendence at a 
 
Bents as determined by Competition. 
 
 rig 
 
 certain pecuniary amount. All these deductions may be 
 regarded as forming in the aggregate the cost of cultiva- 
 tion; and when such deductions have been made, the 
 produce which remains is the nett produce; or, in other 
 words, the nett produce is obtained by deducting the. cost 
 of raising the produce from the pecuniary value of this 
 produce. If, therefore, it were ascertained that the nett 
 produce of A's farm exceeded by 1,000/. the nett produce 
 of B's farm, it is manifest that A would be able to pay 
 1,000Z. more rent than B. If B's farm was so poor that 
 he obtained it at a merely nominal rent, the amount of 
 its nett produce would be also nominal. But it may be 
 said. If such were the case, B would not continue to cul- 
 tivate the farm; this, however, need not be so, because 
 it has been supposed that the nett produce is that which 
 remains, after every expense connected with the farm has 
 been paid, and after an adequate remuneration has been 
 given to the farmer for his own labour and for the use of 
 his capital; therefore, it would answer B's purpose to cul- 
 tivate his farm, although the nett produce was merely 
 nominal, if he could obtain the farm at a nominal rent. 
 But, since we have supposed that the nett produce of A's 
 farm exceeds by 1,000/. the nett produce of B's farm, A 
 would be able to pay this 1,000/. as rent, and, therefore, 
 the rent of any land is the difference between its nett 
 produce and the nett produce of land which pays a merely 
 nominal rent. Moreover, we shall proceed to show that 
 this amount of rent, namely 1,000?., which from theoretical 
 considerations we have proved that A is able to pay, will 
 be approximately the rent which is astually paid if land 
 is let by open competition. Experience proves that men 
 are satisfied to continue in business if they can realise the 
 current rate of profit upon their capital, and also obtain 
 a certain remuneration for their own risk and trouble. 
 Let it be supposed that A's landlord demands from him 
 a rent of 1,000/. — this sum representing in value the nett 
 produce of the farm — the profits he obtained upon his 
 farm would still be sufficient to induce him to continue 
 his business. If, however, he were called upon to pay 
 a greater rent than this, say 1,500/., a year, his profits 
 would be so diminished that he would not be able to obtain 
 the same return for his capital as if it were invested in 
 
 BOOK II. 
 CH. III. 
 
 The theo- 
 retical re- 
 sult coin- 
 cides with, 
 the practi- 
 cal result, 
 assuming 
 freedom of 
 competi- 
 tion. 
 
<I20 
 
 Manual of Political Economy. 
 
 some other business. He would virtually lose by farming, 
 because he could make more of his money if otherwise 
 invested; and no class of traders will continue a business 
 when it becomes comparatively unremunerative. The 
 landlord would therefore be powerless to obtain from A a- 
 rent much exceeding 1,000Z. But there is a further ques- 
 tion : What would prevent the farmer paying a less rent 
 than 1,OOOZ., say a rent of 700Z. ? This would certainly 
 be prevented by the competition of others anxious to 
 engage in farming operations. Those who had a practical 
 knowledge of farming would be able to calculate with 
 considerable exactness what would be the nett produce 
 on A's farm, and they woald thus know that if A was only 
 paying a rent of 700Z. a year, that he was paying 300?. 
 a year less than might be paid, with a realisation of a 
 fair profit to the farmer. Others would come forward and 
 offer a higher rent for the farm, and A would consequently 
 be obliged to leave the farm or else pay a higher rent. 
 
 It is, therefore, no exaggeration to say that when land 
 is freely competed for, rents are approximately adjusted, 
 according to Ricardo's theory. We say " approximately," 
 because there is a certain margin of variation for which 
 allowance ought always to be made. Thus, two land- 
 agents may differently value the nett produce of a farm. 
 A landlord, rather than lose an old tenant, may often 
 continue to receive less rent from him than a new tenant 
 would be willing to pay; but in such a case competition is 
 to a certain extent interfered with by the feelings which 
 arise from affection and old association. Ricardo's theory 
 is strictly true upon the supposition that there is free 
 competition, and in practical life the results which may be 
 deduced from the theory really occur in proportion to the 
 extent to which competition acts without interference from 
 other disturbing agencies. It is no uncommon thing to 
 say that the sun causes the earth to revolve in an ellipse, 
 and yet the earth never does so move, it oscillates from 
 one side to the other of this ellipse in consequence of the 
 disturbing force of each planet's attraction. For many of 
 the practical purposes of astronomy, it may be stated with 
 sufficient exactness that the orbit of the earth is a true 
 ellipse ; and just in a similar way, in a country such as 
 England, competition is so much more powerful than any 
 
Bents as determined hy Competition. 
 
 121 
 
 of the other motives which influence the adjustment of 
 rents, that it will be sufficiently exact to affirm that the 
 rents which are actually paid are those which would be 
 deduced from Ricardo's theory. In some cases, however, 
 other motives, which may be regarded as antagonistic to 
 free competition, assume so much importance that they 
 must be specially considered. 
 
 It will much assist clearness of conception, if we employ 
 some technical language to describe the terms of Ricardo's 
 theory. This theory implies that in any given condition 
 of a country there is some land which will just pay for 
 cultivation if it is let at a nominal rent. Thus, as it were, 
 a Tnargin of cultivation is marked, below which the cul- 
 tivation of land cannot descend, ualess some circumstances 
 should occur which should either induce men to be satis- 
 fied with smaller profits, or should increase the productive^ 
 ness of land ; it jaaust be borne in mind that there are two 
 ways in which the productiveness of land may be increased; 
 ■ in the first place, a larger demand for agricultural produce 
 may raise its value, and, in the second place, agricultural 
 improvements may cause a greater amount of produce to 
 be obtained from the soil. In the example which we have 
 employed, it has been supposed that this margin of culti- 
 vation has been denoted by the farm occupied by B ; for 
 the produce which is raised from this farm only suffices 
 to pay the expenses of cultivation, and to return B a 
 fair remuneration for his capital and for his personal 
 exertions. Under these conditions the 
 rent. Various circumstances, however, 
 will enable rent to be obtained from 
 other words, would cause the margin 
 descend. Let us, therefore, enquire into some of these 
 circumstances. 
 
 It has already been remarked that the current rate of 
 profit which prevails ia different countries varies greatly. 
 In Australia ten per cent, can readily be obtained on the 
 security of a freehold mortgage, and a merchant in "that 
 country would not think of incurring the risk and trouble 
 of investing his capital in trade, unless he could make a 
 much larger profit than ten per cent., because he could 
 secure this profit without risk or trouble upon a freehold 
 mortgage; therefore, traders in that country would not 
 
 land will pay no 
 may occur which 
 this land, or, in 
 of cultivation to 
 
 BOOK II. 
 CH. III. 
 
 The 'Mar- 
 gin of cul- 
 tivation.' 
 
 The mar- 
 gin of cul- 
 tivation 
 depends 
 upon the 
 rate of 
 profit in 
 each coun- 
 try. 
 
122 
 
 Manual of Political Economy. 
 
 continue their business unless their profits were very much 
 more than ten per cent. But in England five per cent, can 
 scarcely be obtained on a freehold mortgage, and a trader 
 would be perfectly satisfied with his business if a profit of, 
 ten per cent, were realised on the capital invested in it. 
 We shall hereafter enquire into the causes which produce 
 these great variations in the rate of profit in different 
 countries. In Holland a still lower rate of profit prevails 
 than in England. Let it be assumed that in this respect 
 England became like Holland, and that the English would 
 be satisfied with a rate of profit so reduced that they would 
 lend money to their government, as the Dutch have done, 
 at the small interest of two per cent. If such a change 
 occurred, men of business in England would be satisfied 
 with a smaller profit than they are now, and would be 
 ready to invest their capital in businesses which would 
 produce them a lower rate of profit. But such a change 
 would at once affect the margin of cultivation. Before 
 the change occurred, no worse land is brought under tillage 
 than that which is cultivated by B, because, although he 
 pays only a nominal rent for his land, yet he cannot do 
 more than realise a certain profit upon his capital, say a 
 profit of ten per cent. ; and it is assumed that with a less 
 profit than this, men of business will not be satisfied. But 
 when the change we have supposed has taken place, a 
 lower rate of profit will prevail throughout the country, 
 and men will now be satisfied with a smaller profit. Hence 
 worse land than that which was before cultivated by B, 
 would return sufficient to give that lower rate of profit 
 with which men are now supposed to be satisfied. The 
 margin of cultivation would therefore descend, the land 
 occupied by B would cease to be the worst under culti- 
 vation ; and this land, instead of paying a nominal rent, 
 would now yield a rent which might be estimated by the 
 difference between its nett produce and the nett produce of 
 the inferior land which has been brought under cultivation 
 in consequence of the reduction in the general rate of profit. 
 It is, therefore, manifest that such a reduction in the gene- 
 ral rate of profit would cause the rent of all land to rise. 
 Australia will one day offer a striking example of a rise 
 in the rent of land, caused in the manner we have just 
 described. The great inequality in the rates of profit 
 
Rents as determined by Competition. 
 
 123 
 
 current ia England and Australia cannot permanently 
 continue ; and wlien profits in Australia are reduced to 
 "what they are in England, a vastly increased area of land 
 will be brought under cultivation in Australia; the margin 
 of cultivation will rapidly descend, and the rent of land 
 will be greatly increased. 
 
 We will now discuss some of the other causes which may 
 affect the rent of land. The productiveness of land has 
 already been much increased, and is perhaps destined still 
 farther to be increased, by improved implements. Confi- 
 dent predictions have been made by competent persons 
 that steam cultivation will materially diminish the cost of 
 tillage. If this be the case, the nett produce of every farm, 
 as we have defined it, will be greatly increased, and, there- 
 fore, rents will as a consequence rise from this diminution 
 in the expense of cultivation. But when rents rise, the 
 margin of cultivation will , descend ; for if the cost of 
 cultivation is diminished by steam machinery, laud may 
 be profitably cultivated which before would not pay the 
 expenses of tillage. The farmers, therefore, will ultimately 
 receive no special advantage from the introduction of 
 improvements in the method of cultivation. Temporarily 
 they may be benefited; for those who first avail them- 
 selves of the improved machinery may for a long time 
 continue to derive an important advantage, because, until 
 the machinery has been generally introduced, rents will 
 not be raised. Ultimately, however, the whole of the 
 advantage will be absorbed by the landlords ; for if the 
 expenses of cultivation are diminished, the farmers will 
 be able to pay a higher rent, and the competition of capi- 
 tal will render it impossible to resist the increase of rent. 
 We have purposely said that the landlords, and not the 
 farmers, will derive a special advantage, because, in one 
 sense, the farmers, conjointly with every other class in the 
 community, will be benefited, since, if the expenses of 
 cultivation are diminished, the cost of production is dimi- 
 nished, and, therefore, food will be cheapened. The effect 
 which may be thus produced by cheapening food, at once 
 suggests questions of the greatest importance. These, 
 however, we must reserve until we treat of exchange, in 
 the next division of the subject. 
 
 We will here take the opportunity of remarking that 
 
 BOOK II. 
 OH. HI. 
 
 Sent is 
 affected by 
 improved 
 methods of 
 cuUiva- 
 tion. 
 
 These con- 
 clusions 
 
124 
 
 Manual of Political Economy. 
 
 BOOK II. 
 OH. lU. 
 
 will re- 
 quire fur- 
 ther con- 
 sideration 
 when we 
 come to 
 speak of 
 value. 
 
 we have as yet said nothing about the value of those 
 shares into which any wealth which is produced may be 
 distributed. All such questions with regard to value can- 
 not be appropriately considered until we treat of exchange. 
 When, therefore, in this chapter we have alluded to parti- 
 cular circumstances which will increase rents, we attribute 
 the increase not to any rise in the price of agricultural 
 produce, but we refer the increased rent entirely to a 
 different distribution of the produce of the land, more 
 advantageous to the landlord. Thus the distribution will 
 be changed in the following manner, when the use of 
 improved implements dimiuishes the expense of culti- 
 vation : the profits of the farmer and the wages of his 
 labourers will remain as they were before ; but the land- 
 lord will receive, in addition to the rent which is pre- 
 viously paid to him, all that is saved in the expense of 
 cultivation. It is very important to bear this in mind, 
 because a confusion may arise very embarrassing to the 
 reader; for in popular phraseology rents are often said 
 to rise without any alteration in the relative amounts 
 received by those classes amongst whom the produce of 
 the land may be distributed. If, for example, a landlord's 
 rent is a certain portion of the produce of the land, then 
 his rent is said to rise if anything should occur to in- 
 crease the value of this produce. Before the Tithe Com- 
 mutation Act was passed, " the tithe was a rent-charge 
 amounting to one-tenth of the produce. If it had not 
 been for this commutation, tithes at the present day 
 would be increased by two distinct causes ; for, in the 
 first place, since more produce is now obtained from 
 the land, the tithe would be increased in quantity ; and, 
 secondly, even if the tithe were not increased in quantity, 
 its amount would be increased if there had been an 
 augmentation in the value of agricultural produce. But 
 we must postpone considering an increase of rent which is 
 represented, not by a larger amount of produce, but by a 
 rise in the price of this produce ; for when discussing the 
 distribution of wealth we must suppose that rent, profits, 
 and wages are received in kind. Distribution is concerned 
 with the laws which regulate the absolute and relative 
 magnitude of those portions into which wealth is dis- 
 tributed; and it belongs to the subject of exchange to 
 
Rents as determined by Competition. 
 
 125 
 
 examine the causes which determine the value of an 
 individual's share of the profits derived from some indus- 
 trial source, such as a farm or manufactory. 
 
 Keturning, now, to those causes which affect rents 
 in the sense just described, it becomes obvious, after 
 what has been sta,ted with regard to improved machinery, 
 that rents must be increased by any circumstance which 
 diminishes the expense of cultivation ; and, conversely, 
 rents must be diminished, if the expenses of cultivation 
 should be augmented. Such an augmentation will, in 
 all probability, be caused in a few years by a rise in the 
 wages of agricultural labourers^. Agricultural labourers 
 in this country have long been worse paid than any other 
 labourers. Each year, however, many influences are 
 brought more powerfully into operation, which will tend 
 to remove such inequalities in the remuneration of dif- 
 ferent classes of labourers. Increased education will make 
 those employed in agriculture more keenly desirous to 
 sell their labour on the best possible terms. The rapid 
 extension of our railway system enables labourers to 
 pass easily from one district to another. Emigration 
 has already materially raised the general rate of wages 
 throughout the country ; and the influence thus produced 
 by emigration is probably destined to be much more 
 strikingly exhibited. But if labourers receive higher 
 wages, or, in other words, an increased share of the aggre- 
 gate produce, there will be a smaller remainder left to be 
 distributed between rent and profits. It is of course here 
 assumed that the productiveness, of land, labour, and 
 capital remains unchanged. If the rise in wages is 
 accompanied with no reduction in the general rate of 
 profit throughout the country, then rents must suffer. 
 This is sure to be the case if the rise in wages is not 
 general, but is confined to agricultural labourers, because, 
 under such a supposition, nothing would have occurred to 
 affect the general rate of profit in other businesses, and, 
 therefore, the profits made by farmers cannot continue to 
 
 1 The probable rise in wages here spoken of has already begun to 
 take place. Agricultural labourers are beginning to form themselves 
 into unions, and the effect which such combinations may, under certain 
 circumstances, exert in raising wages will be explaine'd in a subsequent 
 chapter which treats of trades' unions and strikes. 
 
 BOOK II. 
 OH. III. 
 
 Causes 
 tending to 
 raise or 
 lower 
 rents. 
 
 Bise of 
 wages of 
 agricul- 
 tural la- 
 bourers. 
 
126 
 
 Manual of Political Economy. 
 
 BOOK II. 
 OH. III. 
 
 In what 
 sense the 
 ■interests of 
 the labour- 
 er and 
 landlord 
 are oppos- 
 ed to each 
 other. 
 
 be exceptionally lower than the profits realised in other 
 trades. But the theory of Ricardo supplies a test which 
 will indicate how rents are affected by any change in the 
 economic condition of the country. This theory defines 
 the rent of any particular land to be the difference between 
 its produce and the produce of the worst land in culti- 
 vation. Therefore, the important thing to ascertain is, 
 whether the margin of cultivation has or has not descended. 
 If, for instance, the wages of agricultural labourers were 
 materially to increase, without any alteration in the value 
 of agricultural produce, and without the introduction of 
 improved methods of tillage, much of the land which is 
 now cultivated would cease to return any profit ; the 
 margin of cultivation would ascend, and there would be a 
 general fall in rents. In this sense, therefore, the interest 
 of the landlord is opposed to that of the labourer. Again, 
 if the general rate of profit throughout the country were 
 to rise, the profit realised by farmers would also rise. The 
 poorest land in cultivation would not yield to the farmer 
 this increased rate of profit. This worst land, therefore, 
 would cease to be cultivated, the margin of cultivation 
 would ascend, and in this case, also, the rent of land would 
 be reduced. A rise, therefore, in the rate of profit, or in 
 the rate of wages, unless accompanied by some counter- 
 acting circumstances, will cause rents to decline. Hence, 
 it would appear that the interest of the landlord is opposed 
 to that of the labourer and the capitalist. This conclusion 
 has been the source of much of the opposition expressed 
 towards Ricardo's theory. But it is difiicult to understand 
 why such a conclusion should be regarded as so very 
 objectionable. If the produce of the land is distributed 
 amongst rents, wages, and profits, it is obvious that the 
 more there is allotted to labour the less there will remain 
 to be appropriated as rent. The opposition of interest in- 
 tended to be expressed by Ricardo, does not imply that 
 the interests of any one class are opposed to the general 
 welfare of the country, for all the three classes may parti- 
 cipate in any general improvement. Thus, if an increased 
 quantity of produce is obtained from the land, there will 
 be more to be distributed, and rents, wages, and profits 
 may be simultaneously increased. The opposition of in- 
 terest which has been spoken of only refers to variations in 
 
Bents as determined by Competition. 
 
 127 
 
 the relative magnitude of those portions or shares into 
 •which wealth is distributed. 
 
 The rent of land is, however, far more powerfully af- 
 fected by an increase or decrease of population than by any 
 other circumstance. Within a comparatively short period 
 the population of Great Britain has increased 25 per cent. 
 This implies that at least 25 per cent, more food is re- 
 quired. Let us for a moment consider what would occur 
 if this increased supply of food had been obtained from our 
 own soil. In the first place, more land must be brought 
 under cultivation ; the farmer would be remunerated for 
 cultivating this worse land by a rise in the price of food. 
 The margin of cultivation would thus be greatly lowered, 
 the rent of all land would therefore be greatly increased ; 
 the farmers would be able to pay these higher rents, be- 
 cause the price of agricultural produce had risen. It 
 therefore appears that a very considerable rise, both in the 
 rent of land and in the price of food, must have inevitably 
 accompanied this increase in our population. The rise in 
 the rent of land would, under such circumstances, be as- 
 sisted by two distinct causes : in the first place, rents if 
 received in kind would be increased, because the margin 
 of cultivation has descended, and the produce thus received 
 as rent would have been rendered more valuable in conse- 
 quence of the rise in the price of food. But this rise in rent 
 and in the price of food has been, to some extent, pre- 
 vented, because a considerable portion of the additional 
 food required for the increasing population of this country 
 has been supplied by the vast importations of corn which 
 have taken place since the removal of protective duties. 
 There has, during the last few years, been an average an- 
 nual importation of £50,000,000 worth of corn and flour. 
 Although rents would be far higher than they are now if 
 we had been restricted to our own soil for the additional 
 supplies of food required, yet if we now travel through the 
 country, we observe tracts of highly cultivated land which 
 a few years since were open downs. A considerable por- 
 tion of Salisbury Plain is now covered with comparatively 
 luxuriant crops ; but the cultivation of such land affords 
 most unmistakeable evidence of the rise in the rent of 
 land which has occurred during the last few years. 
 
 The remarks which have been made in this chapter on 
 
 BOOK II. 
 CH. III. 
 
 How phe 
 increase of 
 population, 
 affects 
 
 Part of the 
 actual rent 
 
128 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. III. 
 
 paid may 
 be consi- 
 dered as 
 profit on 
 capital. 
 
 rowed for 
 permanent 
 improve- 
 ments. 
 
 the subject of rent would seem to indicate that the rent of 
 any particular soil depends upon its natural productive- 
 ness. But the value of land is rarely due entirely to its 
 natural productiveness ; little of the land which is now cul- 
 tivated would be as productive as it is, unless capital had 
 been spent upon it. The fens of Lincolnshire and Cam- 
 bridgeshire were once worthless swamps, but drainage has 
 now converted these fens into most valuable arable land. 
 In such a case, it would appear that the rent which is 
 paid is almost entirely due to the- capital which has been 
 spent on these improvements. Hence this important ques- 
 tion is suggested : Ought we to consider as rent the addi- 
 tional price which is paid for the use of land when its pro- 
 ductiveness is increased by an outlay of capital on drainage 
 and other such improvements ? The rent of land the pro- 
 ductiveness of which has been artificially created, differs 
 in no single respect from the rent of land the productive- 
 ness of which has been chiefly derived from unassisted 
 nature ; and the amount of rent which is paid in these 
 two cases is determined by the same causes. The farmer 
 who cultivates a reclaimed fen, can afford to pay in rent 
 just so much produce as is left to him, after all the ex- 
 penses of his farm have been paid, and he has himself 
 been reimbursed for his own labour and capital. He pays 
 rent because he is allowed to cultivate a productive soil, 
 and it is a matter of no concern to him whether the pro- 
 ductiveness of the soil is due to natural or artificial causes. 
 A portion of rent, therefore, may generally be considered 
 to represent a return to capital which has been spent in 
 improving the land. And thus rent, though generally 
 paid in one sum to the same individual, is almost invari- 
 ably made up of two distinct components which represent 
 different claims, or, perhaps, more properly, different kinds 
 of ownership in the soil. This may be readily shown by 
 an example of frequent occurrence. By a recent Act of 
 Parliament, the owner of even a life-interest in landed 
 property is enabled to borrow money to be spent in drain- 
 age or other permanent improvements, such as the con- 
 struction of better farm-buildings. The company or society 
 which lends the money is guaranteed repayment by a rent- 
 charge upon the land for a certain number of years. This 
 rent-charge at the present time is usually six per cent, on 
 
Rents as determined hy Competition. 
 
 129 
 
 the money lent, to be annually paid for twenty-two years. 
 The tenants, who receive the first immediate advantages 
 of these improvements, gladly allow this rent-charge to be 
 added to the rents which they previously paid ; and, in this 
 manner, their rents are composed of two portions, one of 
 which is paid for the use of the land, and the other is paid 
 as a return to< the eapitai which has been expended in 
 improvemenits. A nobleman, whose family have been long 
 ■embarrassed,, and whose estates have been consequently 
 much neglected, has, in this manner, within the last few 
 years spent £70,000. in improving his estates. The whole 
 of this sum has been borrowed upon the conditions above 
 described. The advantages which have resulted from this 
 expenditure have been so. gseat and so immediate that 
 the tenants can afford to have their rents increased by a 
 much greater amount than the rent-charge of 6 per cent., 
 guaranteed to the company which has lent the money. 
 The landlord therefore does not, even in the first instance, 
 incur any pecuniary sacrifice for' these improvements, but, 
 on the contrary, he at once obtains an increase of rent, 
 and after the twenty-two years have elapsed he is able to 
 appropriate to himself the entire benefits which arise from 
 this improvement in his land. It seems difficult to explain 
 why landlords who have not capital of their own do not 
 more largely avail themselves of the great facilities which 
 are offered to them for obtaining the requisite capital to 
 improve their estates. In no epoch, probably,. has the land 
 of England been so greatly improved as during the last 
 few years; but, nevertheless, in every county of England 
 many important agricultural improvements, such as drain- 
 age and the construction of better farm buildings, still re- 
 quire the expenditure of a considerable amount of capital, 
 to which not only a large prospective but even a large 
 immediate profit would be returned. 
 
 From Ricardo's theory of rent there can be deduced the 
 very important proposition, that rent is not an element of 
 the cost of obtaining agricultural produce. A no less 
 eminent writer than the late Mr Buckle has assured his 
 readers that the proposition just stated can only be grasped 
 by a comprehensive thinker; we, however, believe that it 
 may be made very intelligible by a simple exposition. If 
 rent is not an element of cost of production, food would 
 
 F. M. I 
 
 BOOK II. 
 CH. III. 
 
 Rent is not 
 an element 
 o/theprice 
 of agricul- 
 tural pro- 
 duce. 
 
I. 10 
 
 Mwrnoal of Political Economy. 
 
 BOOK II. 
 CH. III. 
 
 Simple 
 proof of 
 this propo- 
 sition. 
 
 Activity of 
 competi- 
 tion is im- 
 plied in 
 the above. 
 
 be no cheaper if all land were arbitrarily made rent free. 
 Let us, therefore, inquire if this would be the case. It has 
 been frequently stated in this chapter that there is always 
 some land in cultivation so poor that it can only afford to 
 pay a nominal rent, the produce it yields being no more 
 than sufficient to reimburse the expenses of cultivation. 
 
 Let us now suppose that all land is made rent free by 
 an arbitrary edict of the Government. Such an act of 
 spoliation, although it would unjustly interfere with pro- 
 perty, would not cause any diminution in the consumption 
 of food ; the same quantity of agricultural produce would 
 be required as before; the same area of land would there- 
 fore have to be cultivated. That land would consequently 
 still require to be tilled which previously only paid a 
 nominal rent; but if food was rendered cheaper, by making 
 land rent free, this land, which before only paid a nominal 
 rent, would be cultivated at a loss. No person, however, 
 will continue to apply his labour and capital if he does 
 not obtain in return the ordinary rate of profit, and, there- 
 fore, if food became cheaper, such land as we have just 
 described would cease to be cultivated; but this cannot 
 be, because the demand of the country for food is such 
 that the produce which this land yields cannot be dis- 
 pensed with. It is therefore manifest that food would 
 not become cheaper, even if land were made rent free. 
 Rent consequently is not an element in the cost of pro- 
 duction. The value of food is, cceteris paribus, determined 
 by the demand for it, because the demand for food regu- 
 lates the margin of cultivation. Although the payment 
 of rent does not influence the cost of producing food, yet 
 the amount of rent paid indicates the position of' the 
 margin of cultivation, and the value of food must rise as 
 this margin of cultivation descends. 
 
 It has already been remarked that Ricardo's theory im- 
 plies activity of competition. In many countries, however, 
 this activity of competition does not exist, but is interfered 
 with by various customs. In succeeding chapters many 
 of the various land-tenures which exist in different countries 
 will be described, and we shall be thus led to consider 
 whether the conclusions deduced from Ricardo's theory 
 apply to those countries, such as India, where the tenure 
 and the rent of land are influenced by various causes 
 besides activity of competition. 
 
CHAPTER IV. 
 
 ON WAGES. 
 
 IT has been impossible to expound the general laws of 
 rent without mentioning the other two portions into 
 which wealth is distributed; namely, wages and profits. 
 But, as yet, we have not examined the laws which regu- 
 late wages and profits; it will therefore be convenient in 
 the first place to devote a chapter to the subject of wages; 
 we shall then consider profits; and when we have thus 
 completed an examination of the laws concerning rent, 
 wages, and profits, we shall be in a position more clearly 
 to understand some special but important questions con- 
 cerning the distribution of wealth. 
 
 In previous chapters it has been shown that capital is 
 the fund from which labour is remunerated. It thus be- 
 comes obvious that wages in the aggregate depend upon 
 a ratio between capital and population. If the number of 
 the labouring population remain stationary, wages cannot 
 rise, unless the capital of the country is increased; but if, 
 on the other hand, there is an increase in the number of 
 the labouring population unaccompanied by any augmen- 
 tation in the capital of the country, then wages must 
 decline. The truths which have been just stated are in 
 popular language expressed somewhat differently, for wages 
 are commonly said to be regulated by supply and demand. 
 We shall be able to show that this means the same thing; 
 but 'supply and demand' is one of those hackneyed phrases 
 not unfrequently employed by those who have no accurate 
 knowledge of political economy. Let us, in the first place, 
 inquire what is the meaning of the expressions 'demand 
 for labour' and 'supply of labour.' A demand for labour 
 can only be caused by those who have the means of 
 
 12 
 
 BOOK II. 
 CH. IV. 
 
 depend 
 ■upon the 
 relative 
 rates of in- 
 crease of 
 capital 
 and popu- 
 lation. 
 
132 
 
 Manual of Political Economy. 
 
 BOOK n. 
 CH. IV. 
 
 which is 
 equivalent 
 to saying 
 that they 
 depend up- 
 on supply 
 find de- 
 mand. 
 
 Effect of 
 this upon 
 the condi- 
 tion of the 
 labouring 
 classes. 
 
 remunerating the labourer. But the remuneration which 
 is intended to be given to the labourer is capital; therefore 
 those only can exert a demand for labour who can apply 
 capital for the remuneration of labour, and the greater the 
 amount of capital to be applied in this manner, the greater 
 will be the demand for labour; it therefore appears that 
 the expression 'demand for labour' may be replaced by 
 some such phrase as 'capital seeking to be devoted to the 
 employment of labour.' Again, supply of labour may be 
 estimated by the number of those who are anxious to 
 labour; consequently an increase in the supply of labour 
 is equivalent in its meaning to an increase in the number 
 of the labouring population. When, therefore, we say that 
 wages depend on the ratio between capital and population, 
 we state the same principle as those who afiSrm that wages 
 are regulated by demand and supply. This latter mode of 
 expressing the principle is not incorrect, but the words 
 demand and supply convey no definite meaning, whereas 
 every law concerning wages must be deduced from the 
 fundamental conception of a ratio between capital and 
 population. 
 
 The law just stated goes no farther than to indicate the 
 source from which wages are supplied; this law affirms 
 that wages cannot generally rise or fall, unless the capital 
 or population of the country is either increased or de- 
 creased. This law also indicates the only means by which 
 the material condition of the labouring classes may be 
 improved. Few questions have a more practical or press- 
 ing importance. The middle and upper classes profess a 
 philanthropic feeling towards the poor, and express an 
 anxious hope that their poverty may be alleviated. Let 
 us endeavour to understand the true causes of poverty, 
 with the view of turning this sympathy to some practical 
 purpose. When regret is felt that an agricultural labourer 
 only earns twelve shillings a week, care should be taken 
 clearly to comprehend the reason why his wages are so 
 low. In no country has capital increased so rapidly as it 
 has in England during the last few years; the extension 
 of our commerce and the increase of our national wealth 
 have been quite unprecedented. Numberless statistics 
 may be quoted, each of which would prove a wondrous 
 development of our commerce and trade. In twelve 
 
On Wages. 
 
 133 
 
 years, from 1849 to 1861, our exports advanced from 
 60,000,000?. to 120,000,O0OZ., and our imports in the 
 same period nearly doubled. This increase in our trade 
 has continued up to the present time, and our exports 
 now considerably exceed 300,000,000?. per annum. But 
 this increase of national prosperity has as yet effected no 
 corresponding improvement in the condition of the labour- 
 ing classes. In some branches of industry there has been 
 no doubt a very considerable advance in wages ; many 
 classes of workmen, however, have only been able to 
 obtain an increase in their wages barely sufficient to 
 compensate them for the greater cost of living consequent 
 on the rise in price of so many articles of general con- 
 sumption. Before the publication of Mr Brassey's book on 
 Work and Wages, we certainly had supposed that the 
 extraordinary increase in the production of wealth that has 
 taken place during the last quarter of a century in our 
 country had exercised a more powerful influence than it 
 appears to have done in securing for the workman an 
 advance of wages. Mr Brassey has evidently investigated 
 the question with great care. His statements may be 
 accepted as perfectly accurate ; he has in fact had unusual 
 opportunities of arriving at correct conclusions, for he has 
 Ijeen able to inspect the books, not only of his own firm, 
 but also of many other employers. Before attempting 
 to offer a solution of what must certainly be regarded as 
 a very perplexing problem, it may be well to refer to a 
 few of the instances adduced by Mr Brassey in which 
 there has been either no advance in wages, or none at all 
 adequate to compensate the labourer for an augmentation 
 in the cost of living. In the Canada Engineering Works 
 at Birkenhead, 13 different classes of workmen are em- 
 ployed, such as fitters, turners, coppersmiths, &c. Of these 
 13 classes, 6 were receiving less wages in 1869 than in 
 1854, 3 were receiving the same, and 4 were receiving 
 somewhat higher wages. Thirteen different classes of 
 workmen are enumerated who are employed in the 
 Government Dockyard at Sheerness, such as shipwrights, 
 caulkers, forgemen, &c. In 3 of these classes only was 
 there any advance in wages between 1849 and 1859, and 
 the advance was only 6rf. a day, in no single instance was 
 there any advance at all between 1859 and 1869 : wages 
 
 BOOK II. 
 OH. IT. 
 
 Why the 
 increase of 
 wealth has 
 not im- 
 proved 
 their con- 
 dition. 
 
134 
 
 Manual of Political Economy. 
 
 The in- 
 crease in 
 wages has 
 not been 
 proportion- 
 ate to the 
 increase in 
 the cost of 
 living. 
 
 were absolutely stationary throughout these years. Twenty 
 classes of workmen are enumerated who worked in the 
 private ship-building yards on the Thames. Although 
 their wages were higher in 1865 than in 1851, yet in 1869 
 the advance had been lost, and they had again fallen to 
 what they were in 1851. The rise in 1865 was no doubt 
 due to activity of trade consequent on the speculative 
 mania which preceded the panic of 1867. The temporary 
 rise in wages was however dearly purchased by the work- 
 men, for thousands of them were thrown out of employ- 
 ment, and reduced to the greatest state of distress on the 
 collapse of trade which immediately succeeded the panic. 
 Mr Brassey thinks that the operatives who are employed 
 in the building trades of London and Manchester have 
 obtained a greater advance in their wages than any other 
 workmen. He shows that between 1853 and 1872 wages 
 in the building trade, estimated by the amount paid for 
 an hour's work, have by steady steps increased by about 
 one-third. This at first sight appears to indicate a very 
 important augmentation in the remuneration of labour. 
 It is however too often forgotten that the remuneration 
 of labour cannot be estimated simply by the pecuniary 
 amount of wages, but must be measured by the purchas- 
 ing power of these wages. Thus wages may advance 
 from 20s. to 25s. a week, but this augmentation of 25 per 
 cent, will leave the labourer no better off than he was 
 before, if there is at the same time a rise of 25 per cent, 
 in the rent of houses, the price of food, fuel, clothing, and 
 the other items which constitute the labourer's ordinary 
 expenditure. When describing the marked advance in 
 the wages of the operatives engaged in the building trade, 
 it is incidentally stated that the rent of houses has risen 
 in quite as great a ratio as have the wages of the opera- 
 tives employed in building the houses. It is very generally 
 supposed, as wdl be shown when we consider the effects 
 produced by the recent gold discoveries, that there has 
 been a general rise in prices of not less than 30 per cent. 
 Many articles, such as coal, meat, butter, milk, and cheese, 
 have risen in price during the last 30 years more than 3o' 
 per cent. It would therefore seem that even in some of 
 the trades where it is assumed that the advance in wages 
 has been most marked, the remuneration of the labourer 
 
On Wages. 
 
 135 
 
 has only been slightly augmented. In other trades where 
 wages have remained almost stationary, the condition of 
 the labourer must have deteriorated pari passu with the 
 increase in his cost of living consequent on the greater 
 dearness of commodities. With regard to that large class 
 who are paid by fixed salaries, such as clerks, porters, 
 policemen, railway servants, omnibus and cab drivers, it 
 seems certain that there has not been a sufficient rise in 
 their remuneration during the last 20 years to compensate 
 them for the increased cost of living. Such conclusions 
 certainly suggest some very serious reflections, for they 
 would seem to show that no improvement has been 
 effected in the condition of a large portion of the popula- 
 tion by an unprecedented increase in the production of 
 wealth. No subject in the whole range of economic 
 science can be of greater practical interest than to attempt 
 to explain how it happens that many labourers do not 
 receive a greater remuneration, some of them even receiv- 
 ing less, than they received 20 years since, when the trade 
 of the country was not half what it is at the present time. 
 In accordance with the princijDle already enunciated, we 
 may conclude that in the instances where the remunera- 
 tion of the labourers has remained almost stationary, an 
 increase in the demand for labour must have been accom- 
 panied by a nearly corresponding increase in the supply. 
 It is important to bear in mind that the supply of labour 
 can be increased in two distinct ways. In the first place, 
 the number of the labouring population may be augmented ; 
 secondly, the invention of new machines and other in- 
 dustrial improvements may, by economizing labour and 
 rendering it more efficient, produce just the same effect 
 in increasing its supply as if an addition were made to 
 the number of the labouring population. It can be easily 
 shown that during the period to which we are now re- 
 ferring both of these agencies have been in such active 
 operation that they must have exerted a very considerable 
 influence in increasing the supply of labour. With regard 
 to the addition made to the actual number of the labour- 
 ing population, it is scarcely necessary to say that the 
 population of the country has been rapidly advancing 
 during the period to which we are now referring. It 
 is moreover particularly to be borne in mind that any 
 
 BOOK II. 
 CH. IV. 
 
 The ivfiii- 
 ence of ma- 
 chinery in 
 reducing 
 the de- 
 mand for 
 labour; 
 
 and of tl.e 
 growth of 
 population 
 in increas- 
 ing its svp- 
 ply. 
 
136 
 
 Manual of Folitioal Economy. 
 
 BOOK II. 
 OH. IV. 
 
 increase in the demand for labour is sure in the present 
 social condition of the country to call into activity an 
 influence "which must ultimately lead to an increase in 
 the supply of labour. There is no fact more clearly de- 
 monstrated by the returns of the Registrar-General than 
 that an increase dn the number of marriages is the in- 
 evitable resuk of an advance in wages. In one of the 
 quarterly reports 'of the Registrar-General the following 
 passage appears, and many similar ones might be quoted : 
 "The population engaged in the production of coal and 
 iron are recovering from depression, and are again marry- 
 ing and giving in marriage at their 'Usual pace." In the 
 Quarterly Report issued in October, 1873, it was stated 
 that the prosperity 'of the country is proved by the high 
 marriage-rate prevailing. Again, in the same report it 
 was inferred from the marriage returns, that the prosperity 
 which on the whole this country had enjoyed during the 
 two previous years, had not been diffused amongst all 
 sections of the oommunity, but that, speaking generallv, 
 it had been experienced principally in the coal and iron- 
 mining districts ; to a less degree amongst the population 
 engaged in the cotton and woollen manufactures, and very 
 little, if at all, in the purely agricultural parts. It there- 
 fore appears to be distinctly proved that directly the 
 labourers obtain any advance in wages they call into opera- 
 tion an influence which sooner or later must exert a 
 tendency again to reduce wages. It is, in fact, clearly 
 shown that when wages advance in consequence of an 
 increased demand for labour, the number of marriages is 
 sure to increase, and in this way the supply of labour is 
 certain to be augmented. It can be easily shown from 
 very simple economic considerations, that as long as an 
 advance in wages stimulates an increase in population, 
 not only will it be impossible to maintain a permanent 
 augmentation in the remuneration ©f labour, but the 
 condition -of the labouring population will very probably 
 deteriorate. 
 
 Nothing is more certain than that in a comparatively 
 thickly peopled country such as ours, the value or cost of 
 food is certain to increase if additional supplies are re- 
 quired for an increasing population. This enhancement of 
 cost may of course be partly counteracted by agricultural 
 
On Wages. 
 
 137 
 
 improvements and by obtaining cheap supplies from 
 foreign countries. But after making full allowance for 
 improved agriculture, and for the influence exercised by 
 the importation of food, it will be scarcely disputed that 
 the extra demand for many of the -commodities of ordinary 
 consumption has already produced a marked effect in 
 making them more expensive. The commodities which 
 have risen most in price are those which, from their 
 perishable nature, can be with difficulty imported, such as 
 milk, butter, meat, &c. When an extra demand for a 
 commodity has to be satisfied entirely from the resources 
 of the country itself, a much greater rise in its price 
 ensues, as is proved by the extraordinary advance which 
 lately took place in the price of coal. It therefore follows 
 that the increase in population, which in the present 
 social condition of the people in this country is sure to be 
 stimulated by any advance in wages, reduces the remu- 
 neration of labour in two distinct ways. In the first place, 
 an increase in the supply of labour tends to diminish 
 wages; in the second place, as population increases, food 
 becomes dearer, the cost of living is augmented, and wages 
 possess less purchasing power. 
 
 But, as we have before remarked, it is aot solely by an 
 increase of population that the supply of labour is in- 
 creased. If some machine is invented, or some new 
 method of carrying on industry is introduced, which en- 
 ables 20 men to do as much work as before was done by 
 100 men, it is obvious that the supply of labour, so far as 
 a particular trade is concerned, is augmented five-fold. 
 Innumerable instances might be given in which labour 
 has been thus economized to a most remarkable extent. 
 In fact, the extraordinary increase in the production of 
 wealth, which has •characterized the last 20 years, would 
 have been impossible if industry had been carried on with 
 its old appliances. Again, quoting Mr Brassey, it appears 
 that Mr Nasmyth, in his evidence before the Trades Union 
 Commission, stated that by the introduction into his work- 
 shops of self-acting tools, he was able to dispense with all 
 that class of men who depended upon mere dexterity, and 
 he reduced the number of men in his employment by 
 fully one half. 
 
 Numerous instances may also be given of the extent to 
 
 BOOK II. 
 OH. IV. 
 
 Two ways 
 in which 
 an increase 
 of popula- 
 tion tends 
 to reduce 
 wages. 
 
 The man- 
 ner in 
 which tht 
 invention 
 of labour- 
 saving 
 machinery 
 acts on 
 wages. 
 
138 
 
 Manual of Political Economy. 
 
 BOOK II. 
 OH. IT. 
 
 which employers are induced to economize labour by the 
 introduction of improved industrial processes, when trade 
 is unfavourably affected by any such circumstances as a 
 deficiency of raw material or a scarcity of labour. Thus 
 it is said: "In their gallant struggles in the difficult times 
 following the war in America, our manufactureis developed 
 the resources of machinery to a greater extent than had 
 ever been attempted before, and they succeeded in making 
 a considerable reduction in the amount of labour em- 
 ployed." In consequence of the extremely high wages 
 which are prevalent in the United States, the Americans 
 are far more interested than we are in England in apply- 
 ing machinery with the view of saving labour. Machinery 
 is not only far more largely used in agriculture in the 
 United States than it is in England, but many of the im- 
 provements which we have introduced into agricultural 
 implements have been obtained from America. We find it 
 stated that, "In the United States the application of labour- 
 saving machinery to agricultural operations is increasing 
 every year. The number of patents issued for agricultural 
 implements was in 1847, 43; in 1863, 390; in 1864, 563; 
 in 1866, 1778 ; and in 1867, 1800." It can scarcely be 
 doubted that even the comparatively small rise of 2s. or 
 3s. a week which has taken place in the wages of English 
 agricultural labourers since the formation of agricultural 
 unions, has already acted as a stimulus to many farmers 
 to adopt various means of economizing labour, such as the 
 employment of more machinery. If the supply of agri- 
 cultural labour in this country should be diminished, as 
 seems not improbable, by a large emigration of agricultural 
 labourers, it cannot be doubted that the farmers would be 
 prompted to make still greater efforts to economize labour; 
 and thus the rise in wages which would naturally result 
 from a diminution in the supply of labour would be to a 
 considerable extent counteracted. 
 
 It is made sufficiently clear from such instances as 
 those just enumerated, that increased production of 
 wealth does not necessarily cause a proportionate increase 
 in the demand for labour, but, on the contrary, it may 
 very possibly happen that the discovery of some machine 
 or some new industrial process may so economize the use 
 of labour as to cause the demand for labour to diminish at 
 
On Wages. 
 
 139 
 
 the very time when there is an increase in the production 
 of wealth. It is important to bear this in mind, because 
 we are too prone to conclude that every class in the 
 community must immediately participate in the greater 
 prosperity which is supposed necessarily to accompany an 
 increased production of wealth. No doubt the commu- 
 nity is ultimately benefited by the invention of improved 
 machinery, but we must remember that the advantage 
 thus secured is often accompanied by a severe loss to 
 certain classes of labourers. The invention of new ma- 
 chinery, as we have seen in the case of Mr. Nasmyth's 
 works, may, by economizing labour, so much diminish 
 the demand for labour in a particular trade as to throw 
 many out of employment. As previously pointed out, 
 the invention of a new machine generally enables some 
 industrial process to be mechanically performed which 
 before needed manual skill. A class of labourers may 
 thus find that they are suddenly deprived of the pecu- 
 niary advantage which they are able to secure from 
 the possession of some particular skill. A serious loss 
 may thus be inflicted on certain classes of workmen ; 
 they may have to seek some new employment in which 
 the skill which they possess, acquired after a long and 
 expensive training, is no longer of any use to them. As 
 an example of the loss which workmen may thus suffer, 
 we have seen that Mr Nasmyth was able, through the 
 introduction of improved machinery, to dispense with 
 the labour of all that class of men who depended upon 
 mere dexterity, and to reduce the number of his men 
 by one half The men who were thus dismissed were 
 of course those who were in receipt of the highest 
 wages. 
 
 The considerations here adduced are, we believe, suffi- 
 cient partly to account for the fact that the increase in 
 . the remuneration of labour has not been at all propor- 
 tionate to the increase in national wealth, and that many 
 workmen have scarcely participated at all in what is so 
 constantly described as a remarkable growth of national 
 prosperity. The comparatively small extent to which it 
 appears the labourers have benefited by a great increase 
 in the production of wealth is doubtless in a considerable 
 degree due to the fact that only a portion of the wealth 
 
 BOOK II. 
 CH. IV. 
 
 The la- 
 bourers 
 who gene- 
 rally suffet' 
 most from 
 the intro- 
 duction of 
 machinery 
 are those 
 wlwpossess 
 some spe- 
 cial skill 
 or dexter- 
 ity. 
 
140 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. IT. 
 
 The influ- 
 ertce of the 
 export of 
 capital in 
 reducing 
 wages. 
 
 annually saved or accumulated in England is invested in 
 our own industry. 
 
 Our national capital may be regarded as divided into 
 two portions, one of which is retained for the maintenance 
 of home industry; the other portion is exported, being 
 lent to foreign governments, or embarked in various 
 foreign investments, such as railways, mines, irrigation 
 works, etc. All that portion of our national capital which 
 is thus exported exercises no immediate influence in 
 raising the wages of our own labourers. It is for the 
 time, so far as our own labour market is concerned, non- 
 existent. Too little consideration is generally given to 
 the vast amount of capital which is thus annually drawn 
 away from England. It would be impossible to state the 
 exact amount of this drain, but some idea may be formed 
 of its magnitude by considering the vast amounts which 
 are annually lent by English capitalists to foreign govern- 
 ments.' Almost every country in Europe spends more 
 than its revenue, and the deficiency is to a considerable 
 extent supplied by loans raised in England. 
 
 This excessive expenditure was caused by the example 
 of the imperial government ia France, for with the esta- 
 blishment of the second empire commenced that system 
 of rivalry in military armaments which is mainly respon- 
 sible for the great increase in the national debts of almost 
 all European countries. It is perfectly well known that 
 England has supplied a very considerable proportion of the 
 loans which are raised by such countries as Russia, Italy, 
 Turkey, and Egypt. This being the case, we are able to 
 form some idea of the extent to which during the last 
 20 years English capital has been exported, instead of 
 being reproductively employed in home industry, when it 
 is found that between the years 1848 and 1870 the na- 
 tional debt of Russia increased from £100,000,000 to 
 £300,000,000, and that of Italy from £30,000,000 to 
 £285,500,000. Turkey raised her first foreign loan in 
 ISS-i ; since that time by repeatedly borrowing, chiefly in 
 the London money market, she has accumulated a debt of 
 £92,000,000. Egypt raised her first foreign loan in 1862. 
 In eight years she obtained four loans in England, and 
 her debt in 1870 was £36,000,000'. Since that time she 
 
 1 These figures are obtained from the late Mr Dudley Baxter's "Work 
 on National Debts, " 
 
On Wages. 
 
 141 
 
 has been borrowing on even a more extended scale. 
 A great amount of English capital has also been invested 
 in the loans which were raised by America during the 
 Civil War. Again, various industrial enterprises, such as 
 railways, which have done so much to stimulate the pro- 
 duction of wealth in England, have also exercised a power- 
 ful influence in causing capital to be exported from 
 England. Thus in a few years no less a sum than 
 £90,000,000 of English capital was invested in Indian 
 railways. We therefore think that the comparatively 
 small increase which there has been in the remuneration 
 of labour in this country, when compared with the in- 
 crease in her aggregate wealth, may be partly accounted 
 for by the fact that only a portion of the wealth pos- 
 sessed by England is invested as capital in her own 
 industrj', and it is this portion which can alone produce 
 any immediate effect in raising the wages of her labourers. 
 Probably, however, the circumstance that has had the 
 greatest effect in retarding an increase in the remunera- 
 tion of labour is the fact that hitherto whenever there is 
 an advance in wages consequent on an increased demand 
 for labour, two powerful influences have been brought 
 into operation again to reduce wages ; for it has been 
 shown that additional wages not only stimulate an in- 
 crease of population, but also cause the adoption of various 
 means for economizing labour. 
 
 As almost every question concerning wages is inti- 
 mately connected with the laws of population, it will be 
 desirable here to make some reference to these laws, and 
 to the distinguished economist by whom they were first 
 expounded. Malthus enunciated these laws in his cele- 
 brated Essay on Populatian, a work which gave a new 
 aspect to the speculations of political economists. In 
 this essay the restraints upon population are classified as 
 positive and preventive. Positive checks on population 
 are, according to Malthus, causes over which an individual 
 has no direct control, such as the mortality arising from 
 famine, disease, or the ravages of war. In all civilised 
 countries a certain number of people are restrained from 
 early marriages by feelings of prudence, and then the 
 population is kept down by what Malthus called a pre- 
 ventive check. Malthus examines the social condition of 
 
 BOOK II. 
 CH. IV. 
 
 The three 
 circum- 
 stances to 
 which we 
 attribute 
 the small 
 advance in 
 wages are : 
 
 1. The in- 
 crease of 
 popula- 
 tion. 
 
 2. The ex- 
 tended tise 
 of labour- 
 saving ma- 
 chinery. 
 
 3. The ex- 
 port of 
 capital. 
 
 Malthus's 
 Essay on 
 Popula- 
 tion. 
 
142 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. IT. 
 
 Some 
 checks to 
 population 
 invariably 
 exist. 
 
 each country, with the view of ascertaining whether pre- 
 ventive or positive checks are most efficient in restraining 
 their population. The description which from this point 
 of view he gives of the most important countries may be 
 still read with great interest. His entire essay is most 
 suggestive, and the time which has elapsed since its first 
 appearance at the commencement of the present century, 
 has detracted little from its value or importance. 
 
 It is quite evident that population must be restrained 
 by some check, for if all married when they arrived at 
 maturity, this earth would not merely fail to feed, but 
 would scarcely even offer standing-room for the countless 
 millions that would be born. This may be exemplified by 
 an illustration from natural history : ' the elephant is 
 reckoned the slowest breeder of all known animals, and I 
 have taken some pains to estimate its probable minimum 
 rate of increase. It will be under the mark to assume 
 that it breeds when thirty years old, and goes on breeding 
 until ninety years old, bringing forth three pairs of young 
 in this interval. If this be so, at the end of the fifth 
 century there would be alive fifteen million elephants, 
 descended from the first pair\' It is stated in Prof. 
 Cairnes's Essays that the population of Ireland more than 
 doubled itself in the thirty-eight years between 1767 and 
 1805°. The population of a country, under favourable 
 circumstances, has been known to double in a period of 
 twenty years, and so great is the power of man's multipli- 
 cation, that the world might soon be far more densely 
 populated than it is now, by the progeny of a single pair, 
 if none of these positive or preventive checks which act in 
 various countries were brought into operation. It is the 
 opinion of Malthus, that throughout the East, and formerly 
 in most European countries, the population has been 
 restrained by such positive checks as famines, destructive 
 wars, negligent rearing of children, and the unskilful 
 treatment of terrible diseases, not unfrequently caused by 
 an insufficiency of food, and which often appeared in the 
 form of periodic plagues. It is estimated that the plague 
 known as the Black Death, which swept over Europe in 
 1347-8, destroyed in England alone the lives of more than 
 
 1 Darwin, ' Origin of Species.' 
 
 ^ 'Political Essays,' by Prof. J. E. Cairnes. 
 
On Wages. 
 
 143 
 
 one half of the population. In almost every country these 
 positive checks still operate, but with much less powerful 
 effect. In England, for instance, there is a great mor- 
 tality amongst the children of the poor, which is no doubt 
 chiefly due to the unfavourable circumstances in which 
 they live. In many districts one half of the children 
 belonging to the poorer classes die before they are five 
 years old. In some European countries, population is 
 restrained by law. In Norway, no couple is allowed to 
 marry until it can be proved that the man and wife pos- 
 sess jointly a certain amount of money. In other countries, 
 prudential feelings, which almost amount to a general 
 custom, prevent early marriages, and in this manner re- 
 strain population. In some of the Swiss cantons, a man 
 rarely marries before he is thirty, nor does a woman marry 
 before she is five-and- twenty. 
 
 In some exceptional cases the condition of the labour- 
 ing classes may for a time suffer no deterioration, although 
 neither positive nor preventive checks on population are in 
 very active operation. In a new colony with a healthy 
 climate, and a great breadth of fertile and unoccupied 
 land, population may for a time continue to expand with 
 scarcely any let or hindrance; but in a country like England, 
 if- the population were not restrained by some checks, the 
 labour-market would soon become so redundant that the 
 labourers would be reduced to abject poverty and misery. 
 The middle and upper classes display, as a general rule, 
 considerable prudence : they do not often marry unless 
 they have a reasonable prospect of being able to bring up 
 a family in a state of social comfort, similar to that to 
 which they themselves have been accustomed. But the 
 labourers, who form the majority of the population, are 
 but slightly influenced by such cautious foresight. Even 
 a trifling temporary improvement in their material pros- 
 perity acts as a powerful impulse to induce them to marry ; 
 for it is a demonstrated statistical fact, that the number 
 of marriages invariably increases with the decline in the 
 price of bread. As previously remarked, the reports of 
 the Registrar-General prove that if any particular branch 
 of industry becomes prosperous, there is immediately an 
 increase in the number of marriages among those who are 
 employed in it. In the case of the labouring classes, pru- 
 
 BOOK ir. 
 CH. IV. 
 
 Pruden- 
 tial checls 
 to popula - 
 tion 
 
144 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. IV. 
 
 are not 
 sufficiently 
 strong in 
 the labour- 
 ing classes. 
 
 Emigra- 
 tion as a 
 check to 
 popula- 
 tion. 
 
 dence is in a great degree replaced by other restraints 
 upon population, which indicate a state of society deeply 
 to be deplored. Of the children belonging to the upper 
 and middle classes, only twenty per cent, die before the 
 age of five. This proportion is more than doubled in the 
 case of children belonging to the labouring classes. This 
 great mortality amongst poor children is caused by neg- 
 lect, by want of proper food, and by unwholesome dwell- 
 ings ; sometimes the parents are too poor to rear their 
 children properly, but too frequently the premature death 
 of children is due to drunkenness and other excesses of 
 which their parents are guilty. If, therefore, the chil- 
 dren of the poor had during the last ten years been 
 treated with proper care, there would be in this country, 
 at the present time, 1,150,000 more children than are 
 now living. In this manner the supplj' of labour may 
 be vastly increased. And yet, if any faith is placed in 
 the progressive improvement of the people, it must be 
 believed that the check upon population just noticed, so 
 replete with misery, and associated with so much human 
 depravity, will be gradually weakened. But if this be 
 so, then it becomes of paramount importance that the 
 lalDouring classes should, with regard to marriage, exhibit 
 prudence ; for if increased prudence is not exercised, 
 when these positive checks upon population are removed, 
 the labour-market will be so over-supplied, that the 
 material condition of the labourer must rapidly deterio- 
 rate. 
 
 One check upon population, which has not yet been 
 referred to, has relieved this country of much surplus 
 labour and has been peculiarly beneficial in all its other 
 consequences. During the last few years, there has been 
 a large emigration from Great Britain to the United 
 States, and to our various colonies. Between the years 
 1848 and 1864 the total number of emigrants from the 
 United Kingdom was 3,863,000 : and although of late 
 years there have been fluctuations in the amount of emi- 
 gration, at present there appears to be no likelihood of a 
 permanent reduction in its average amount : in 1873 no 
 fewer than 310,000 emigrants left this country. Had there 
 not been this emigration, all these persons would have 
 remained at home to have shared the wage-fund with 
 
On Wages. 
 
 145 
 
 the other labourers of the country, and wages would have 
 been greatly reduced. But this consideration suggests 
 only a very small portion of the advantage which has 
 resulted from emigration. Our emigrants leave an over- 
 supplied labour-market and settle in countries where great 
 natural resources are undeveloped, and where vast tracts 
 of fertile land are untilled, because no adequate supply 
 of labour has been forthcoming. The returns to labour 
 applied under such favourable conditions are of course 
 very great : wealth is quickly created, and tracts of land 
 thus peopled by our emigrants rapidly become prosper- 
 ous commercial communities. Many of the nations which 
 have been, as it were, created by our emigration, afford 
 the mother-country a supply of cheap food, and thus con- 
 fer upon her a most important benefit. This naturally 
 leads us to consider other causes which produce a deterio- 
 ration in the condition of the poor, and which also impede 
 prosperity, Avhen, in a thickly peopled country like our 
 own, population is not either restrained, or else relieved 
 by some such agency as emigration. 
 
 It has been frequently stated that agricultural produce 
 must rise in price if it becomes necessary to resort to less 
 productive land in order to obtain food for an increasing 
 population. Rent, as we have already demonstrated, does 
 not form a part of the cost of producing food, for the price 
 of food is regulated by the expense of obtaining produce 
 from land which is so poor that it can only pay a nominal 
 rent. If, therefore, the population of this country rapidly 
 advanced, and the demand for food became so great as to 
 render the resort to less productive land necessary, then 
 food would become much more expensive. It must be 
 always borne in m.ind that food must rise in price as 
 population increases, unless supplies of cheap food are 
 imported from other countries, or agricultural improve- 
 ments render our own soil more productive. If, therefore, 
 emigration does not relieve the labour-market of its 
 surplus population, the condition of the labourer will be 
 injuriously affected in two distinct ways: in the first 
 place, his money-wages will diminish, because there will 
 be a greater number amongst whom to distribute the 
 wage-fund ; and secondly, the necessaries of life will rise 
 in, value, because there will be a greater demand for food. 
 
 BOOK II. 
 CH. IT. 
 
 TJte tend- 
 ency of 
 food to be- 
 come 
 dearer as 
 population 
 advances, 
 injures the 
 labourer. 
 
 F. M. 
 
146 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. IV. 
 
 This evil is 
 greatly ob- 
 viated hy 
 emigra- 
 tion. 
 
 If our constantly-increasing population had to be supplied 
 with food entirely from our own soil, it is doubtful 
 whether a sufficient quantity of even the necessaries of 
 life could be obtained ; but if there were not an absolute 
 dearth of provisions, food would under such circumstances 
 enormously rise in value, and the greatest distress amongst 
 the labouring classes would be sure to ensue. 
 
 The remarks just made upon the tendency of food to 
 become dearer as population advances, indicate another 
 most beneficial influence resulting from emigration; for 
 not only is the home labour-market relieved by emigra- 
 tion, but it also promotes the development of countries 
 to which England must chiefly look for supplies of cheaj) 
 food. Emigration, therefore, is not only a check upon 
 population, but it is in every respect most beneficial in its 
 results ; it causes wages to rise, or rather prevents their 
 fall in those countries from which emigration takes place ; 
 and by providing supplies of cheap food, it indirectly con- 
 fers upon the labouring classes another most important 
 advantage. It must however be remembered that emi- 
 gration must, after a time, cease to be a remedy for over- 
 population. Some of the facts already mentioned show 
 that population has, under favourable conditions, such a 
 high rate of geometrical increase, that our colonies might, 
 before a long period has elapsed, become as thickly peo- 
 pled as the mother-country. Emigration would then no 
 longer afford relief. 
 
 It has now been pointed out that the average rate of 
 wages received throughout the country depends upon a 
 ratio between capital and the number of the labouring 
 population. The capacity of increase is so great, that if 
 some powerful checks are not placed upon population, the 
 condition of the labourer must rapidly deteriorate ; for the 
 greatest accumulation of capital that has ever occurred 
 would entirely fail to create a demand for labour in any 
 way proportionate to the supply of labour which would be 
 forthcoming, if man's power of multiplying his species 
 were not restrained by some very efficient causes. When 
 indicating the various ways in which population may be 
 restrained, particular importance has been attributed to 
 emigration, in the case of a thickly peopled country such 
 as England. The future progress of such a country de- 
 
On Wages. 
 
 147 
 
 pends to a great extent upon her capacity to obtain 
 supplies of cheap food ; it has been shown that emi- 
 gtation not only relieves her from the burden of a surplus 
 population, but also powerfully promotes the development 
 of those new countries from which cheap food is mainly 
 imported. 
 
 Many important questions connected with wages still 
 remain to be explained ; such, for instance, as the dif- 
 ferent rates of remuneration received in different employ- 
 ments. For not only are higher wages paid in some 
 trades than in others, but it may be frequently observed 
 that the wages of one particular class of workmen may 
 rise or fall to a very considerable extent without any 
 variation at the same time taking place in the wages of 
 other employments. Special circumstances are connected 
 with various employments, which must' have the effect of 
 producing permanent variations in the wages paid in 
 different trades. Adam Smith divides the causes which 
 produce different rates of v/ages into the five following 
 classes : 
 
 1st. The agreeableness or disagreeableness of the em- 
 ployments themselves. 
 
 2nd. The easiness and cheapness or the difficulty and 
 expense of learning them. 
 
 3rd. The constancy or inconstancy of employment in 
 them. 
 
 4th. The small or great trust which must be reposed 
 in those who exercise them. 
 
 5th. The probability or improbability of success in 
 them. 
 
 Examples of the effects which may be attributed to 
 each of these different kinds of causes will readily suggest 
 themselves. A collier proverbially earns higher wages 
 than even many skilled ' workmen in his own district. 
 A collier, not working so many hours in a day, earns 
 more wages than a carpenter. But coal mining is not 
 only a very laborious, but a very dangerous occupation. 
 The work is dirty : a man has to labour in the dark, and 
 often in very bad air. When all these circumstances are 
 considered, it is easy to understand that men would not 
 work in coal mines unless they were induced to do so by 
 very high wages. 
 
 k2 
 
 BOOK II. 
 OH. IV. 
 
 Variation 
 of wages in 
 different 
 employ- 
 ments. 
 
 Causes as- 
 signed by 
 Adam 
 Smith. 
 
 Agreeable- 
 ness of the 
 employ- 
 ment. 
 
148 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. IT. 
 
 Difficulty 
 of learning 
 it. 
 
 Constancy 
 of the em- 
 ployment. 
 
 The second circumstance mentioned by Adam Smith 
 probably produces a greater influence on wages. If a 
 trade is difficult to learn, an apprenticeship fee has often 
 to be paid as a premium for the necessary instruction. 
 This, in the first place, greatly limits the number of those 
 who can be brought up to the trade, for comparatively few 
 labourers, even if they were inclined to do so, have the 
 means to pay such a fee for any of their children : but the 
 apprenticeship premium represents only a very small por- 
 tion of the cost a parent must bear if he brings a child up 
 to a skilled trade. An apprentice not unfrequently works 
 for four or five years withoiit receiving any wages at all, 
 and therefore such a youth, until perhaps he is twenty 
 years of age, must be kept by his parents. If, however, he 
 had entered upon some ordinary, unskilled employment, 
 he would have been receiving increasing wages from the 
 time he first began to work. Every skilled workman has 
 had a certain amount of capital spent in gaining the 
 skill his trade requires, and this capital would of course 
 not be spent unless an ample future return was given to 
 it in the form of higher wages. The difference in the 
 wages of skilled and unskilled labour represents a large 
 return to the capital which has been spent in the skilled 
 workman's education. This must be so, whilst so few of 
 our workmen have either the foresight or the means to 
 bring their children up to some skilled employment. 
 Skilled workmen therefore possess, as it were, the advan- 
 tages of a monopoly. In some skilled employments a 
 monopoly is created by nature, for the skill needed is so 
 gi'eat that few have the natural capacity ever to acquire 
 it. Thus, as it has been previously mentioned, there is a 
 very limited number, amongst all the watchmakers in 
 England, who can ever acquire that delicate accuracy of 
 workmanship which is needed in the construction of a 
 chronometer. Such workmen, therefore, are endowed with 
 a natural monopoly, and they can, within certain limits, 
 obtain almost as high wages as they choose to demand. 
 
 The third circumstance mentioned by Adam Smith — 
 namely, the constancy or inconstancy of employment — ^he 
 very aptly exemplifies by the case of builders' operatives. 
 ' In the greater part of manufactures a journeyman may 
 be pretty sure of employment almost every day in the 
 
On Wages. 
 
 149 
 
 year that he is able to work. A mason or bricklayer, on 
 the contrary, can work neither in hard frost nor in foul 
 weather, and his employment at all other times depends 
 upon the occasional calls of his customers. He is liable, 
 •in consequence, to be frequently without any work. What 
 he earns, therefore, while he is employed, must not only 
 maintain him when he is idle, but make him some com- 
 pensation for those anxious and desponding moments 
 which the thought of so precarious a situation must some- 
 times occasion. When the .computed earnings of the 
 greater part of manufacturing operatives, accordingly, are 
 nearly upon a level with the day wages of common la- 
 bourers, those of masons and bricklayers are generally from 
 one half more to double those wages.' 
 
 With regard to the fourth cause mentioned by Adam 
 Smith, it may be remarked that, when a great amount 
 of trust is requisite to be reposed in a labourer, his wages 
 are of course higher. A labourer, when he has demon- 
 strated that he possesses such qualities as will cause his 
 employer to place confidence in him, can claim higher 
 wages, and the employer who gives these higher wages 
 is abundantly recompensed. A jeweller has to intrust 
 valuable property to his workmen, and if confidence 
 could not be reposed in these workmen, their employer 
 would be at a considerable outlay in order to have them 
 constantly watched, and he would be likewise subjected to 
 various other losses and annoyances. A considerable por- 
 tion of the cost of any commodity does not arise from the 
 labour employed in actually producing it, but is caused 
 by the expense of superintending and watching this labour. 
 An employer might dispense with such an outlay if he 
 felt assured that his workmen could be trusted ; and such 
 an employer would readily devote a part of the expense 
 thus saved to raise the wages of those he employed. 
 
 The following is the fifth and last cause enumerated by 
 Adam Smith. 'The wages of labour in different employ- 
 ments vary according to the- probability or improbability 
 of success in them.' This circumstance but very slightly 
 affects those who are usually considered to belong to the 
 wage-receiving class. If a youth is brought up as a shoe- 
 maker, it is almost certain that he will acquire the art 
 of shoemaking. In some of the liberal professions, how- 
 
 BOOE II. 
 
 CH. IV. 
 
 Amount of 
 trust re- 
 posedinthe 
 labourers. 
 
 Proba- 
 bility of 
 success. 
 
I50 
 
 Manual of Political Economy. 
 
 BOOK n. 
 CH. IT. 
 
 Effect of 
 this in the 
 liberalpro- 
 fessiom. 
 
 ever, such as the law and medicine, the large remuneration 
 received by a few may perhaps be considered to be partly 
 counterbalanced by the number of those who fail to earn 
 a competency in any degree proportioned to the expense 
 which their professional education has involved. But we 
 think Adam Smith, even in the case of the liberal pro- 
 fessions, has attributed too much influence to the cause 
 above mentioned. The uncertainty of success in such a 
 profession as the bar is not due to a difficulty in ascer- 
 taining beforehand whether an individual possesses those ~ 
 talents which will fit him for such a profession. Success 
 is uncertain, because it depends on extraneous conditions 
 which an individual cannot control. A barrister may have 
 brilliant abilities, but unless he happens to be acquainted 
 ■with solicitors he may wait for years without a brief In 
 many professions, too, although the fees paid appear to be 
 high, yet the average earnings are extremely small. More- 
 over, in the choice of a profession other motives act more 
 powerfully than a prospect of gain : a profession gives 
 position in society, and men of property often join one 
 of the learned professions in oi-der to give them an 
 occupation : hence the competition for employment is 
 artificially increased. When therefore any question is 
 considered relating to wages, or to the profits of trade, 
 a distinction ought to be made between the liberal pro- 
 fessions and other occupations which are resorted to al- 
 most entirely for the purpose of gain. A clergyman who 
 is only obtaining 100/. a year, may feel assured that if he 
 were engaged in some other occupation his income would 
 be far larger; but such a man may be prompted by a 
 high sense of duty to enter the Church, or he may be 
 influenced by the social position he obtains from being in 
 it, and therefore he chooses his profession independently 
 of pecuniary considerations. With regard to trade, no ' 
 such feelings can exercise any practical influence ; no one 
 can feel that it is his duty to be a grocer rather than a 
 baker; a man usually chooses the trade or employment to 
 which he has been brought up, or the one in which he 
 thinks he can earn the most money with the most pleasure, 
 or rather the least inconvenience to himself 
 
 The five classes of circumstances to which Adam Smith 
 attributes the different wages paid in different employ- 
 
On Wages. 
 
 151 
 
 ments have now been enumerated. Considerable influ- 
 ence is no doubt produced by each of these classes of 
 circumstances; but wages are perhaps more affected by 
 other causes which are much less frequently considered. 
 For instance, a fact with regard to wages must have been 
 noticed by even the most casual observer, since not only 
 do the wages of different employments vary, but there 
 are great variations in the wages obtained in the same 
 employment in different parts of the country; it may 
 moreover be remarked that variations of this kind are par- 
 ticularly striking with regard to many unskilled employ- 
 ments. During the winter months an ordinary agricultural 
 labourer in Yorkshire earns sixteen or seventeen shillings 
 a week. The wages of a Wiltshire or Dorsetshire labourer 
 doing the same kind of work, and working a similar num- 
 ber of hours, are only eleven or twelve shillings a week. 
 This great difference in wages is not counterbalanced by 
 other considerations ; living is not more expensive in 
 Yorkshire than in Dorsetshire, and the Dorsetshire la- 
 bourer does not enjoy any particular advantages or privi- 
 leges which are denied to the Yorkshire labourer. This 
 inequality in wages is not merely a temporary difference, 
 and the question naturally arises, How can such a great 
 variation in the wages of the same employment be per- 
 manently preserved ? Why does not the Dorsetshire 
 labourer remove to Yorkshire, where he would be able to 
 obtain forty per cent, more for his labour? The obstacles, 
 however, to such a migration are too formidable to be 
 overcome even by such a premium as is offered by this 
 difference in wages. In the first place, a Dorsetshire 
 labourer can seldom either read or write; he therefore 
 has little or no information with regard to the wages paid 
 in other districts. His ignorance magnifies the difficul- 
 ties of removing to a distant part of the country, and 
 makes him disinclined to leave the locality to which he 
 has been accustomed. Again, if he has a family, he 
 is far too poor to pay the expense of conveying them 
 to a comparatively distant place: for it is a fact that 
 in those counties where wages are lowest, an agricultural 
 labourer has rarely saved even a few shillings. More- 
 over, there is associated with our system of poor-relief 
 a law of settlement which has often bound and fettered 
 
 BOOK II. 
 CH. IV. 
 
 other cir- 
 cumstances 
 produce a 
 variation • 
 of wages. 
 
 They vary 
 in different 
 districts. 
 
 The law of 
 settlement. 
 
i';2 
 
 ManvAil of Political Economy. 
 
 BOOK ir. 
 
 CH. IV. 
 
 These facts 
 are consist- 
 rut with 
 the princi- 
 ples stated 
 above. 
 
 Means of 
 improving 
 the la- 
 bourer's 
 condition. 
 
 the labourer to the district in which he was born. No 
 law has perhaps ever more grievously oppressed a class. 
 A man by resorting to a place not far distant may much 
 improve his position; employment there might be much 
 better, and he would therefore get -higher wages; but the 
 law of settlement 6ften prevents him availing himself of 
 these advantages : he is not allowed, to settle in another 
 district because it is feared that he or his family may 
 some day become chargeable on the poor-rate. 
 
 The combined influence of the causes just enumerated 
 prevents labourers readily migrating from one district to 
 another in order to avail themselves of the advantages 
 which they would secure from a greater demand for their 
 labour. A more accurate conception is therefore ob- 
 tained of many of the phenomena connected with wages, 
 if a countr'y like our own is considered to be composed 
 of distinct provinces between which there is little mi- 
 gration of labour and in which within certain limits 
 different rates of wages prevail, or, in other words, dif- 
 ferent relations exist between population and capital, or 
 between the demand for, and the supply of, laboiir. It is 
 important to bear this in mind when we practically apply 
 those general laws of wages described at the commencement 
 of this chapter. But let it not for one moment be sup- 
 posed that these laws are less true because it is necessary 
 to place some limitation upon their general application. 
 The wages of the Dorsetshire labourers depend as abso- 
 lutely on a ratio between capital and population as if these 
 labourers readily passed from one part of the country to 
 another; but their wages are far more affected by an 
 increase or decrease of capital and population in their own 
 district than by any change in the capital or population of 
 the whole country. It is also evident that if Dorsetshire 
 labourers will not go to Yorkshire, the wages of the 
 Yorkshire labourers are not affected by an increase in the 
 population of Dorsetshire. But wages in Yorkshire will 
 inevitably be affected if there is any alteration in the 
 amount of the capital invested in the district, or if there 
 is any increase or decrease in the number of those who 
 are seeking employment in the locality. If therefore the 
 wages in any particular district are too low, there is only 
 one way in which they can possibly be raised. Mere 
 
On Wages. 
 
 153 
 
 sympathy can do little in ^advancin^the wages of the 
 Dorsetshire labourer : his j^^J^mtion can hnly be improved 
 either by bringing moffi~«apital into -ithe county, or by 
 restricting the supply /gf^abour. Tfgsj: may be effected 
 either by foreign enng;jration,^^ hyh- sojAe of the able- 
 bodied labourers ren^^mg froffiP thesie illf-paid districts to 
 localities where, wag^lcare h^Jier. /^.iV/ 
 
 Every year varioufcaii^f ar^ 'iB^^J^peration which act 
 with increasing effect\o lessen ^^iese>inequalities in wages 
 which we have just been notijchig. A few years since the 
 greatest differences in the price of commodities prevailed 
 in different parts of the country. Communication was so 
 difficult, that some article of food which was often an ex- 
 pensive luxury in one part of the country could be had in 
 abundance in another part. Poultry was four times as 
 dear in London as in many country districts. Railways 
 have changed all this, and now provisions are almost as 
 cheap in London as they are at a distant place like Aber- 
 deen; and as people gradually avail themselves- of the easy 
 means of communication between one district and another, 
 Vages in the same employment will throughout the country 
 approximate to one uniform rate. The more intelligent 
 of our workmen ' freely leave the place in which they 
 are employed if they think that by doing so their pro- 
 spects are improved. As our agricultural labourers gra- 
 dually become more intelligent, they will show an equal 
 readiness to avail themselves of any advantage offered to 
 them by a more favourable state of the labour-market in 
 some other locality. 
 
 Although it has been stated that a higher average rate 
 of wages prevails in Yorkshire than in Dorsetshire, yet 
 the causes which produce this difference in wages have 
 not yet been fully explained. As wages depend upon a 
 ratio between capital and population we mus1> enquire 
 why does the capital invested in agriculture in Yorkshire 
 bear a different relation to the number of the agricultural 
 population from that which it bears in Dorsetshire ? 
 Yorkshire, unlike Dorsetshire, is not merely an agri- 
 cultural county : it has many most thriving manufacturing 
 industries; therefore in the former county a great many 
 other employments besides agriculture compete for the 
 labour of the agricultural population. It is true that 
 
 BOOK II. 
 
 OH. IV. 
 
 The dif- 
 ference be- 
 tweenratea 
 of wages ill 
 different 
 districts 
 tends to 
 diminish. 
 
 Causes 
 which 
 make 
 wages 
 higher in 
 Yorkshire 
 than in 
 Dorset- 
 shire. 
 
154 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. IV. 
 
 Influence 
 exerted on 
 ■wages iy 
 goodtrade; 
 
 hy attract- 
 ing capital 
 to parti- 
 cular em- 
 ployments. 
 
 an agricultural labourer is not suddenly converted into 
 a cloth-weaver. Such a transition rarely takes place, 
 but if there is a manufactory close at hand, many of 
 the children of the agricultural labourers will be em- 
 ployed in it. There is always connected with an active 
 manufacturing industry much subsidiary work which can 
 be performed by &ny ordinary labourer. Thus in the 
 Dowlais iron works in South Wales there are no less than 
 oOO horses employed, which of course require a great 
 number of men to superintend them. Such work, con- 
 sequently, draws off many labourers from agriculture, and 
 thus the higher wages paid to agricultural labourers in 
 the manufacturing districts may be entirely explained by 
 those general laws which regulate all wages : for in this, 
 as in every other case, it is a question between population 
 and capital ; the agricultural population of the manufac- 
 turing districts being diminished by the frequent employ- 
 ment of the labourers themselves in other work, and by 
 the engagement of their children in the manufactories. 
 
 Before concluding this chapter it will be important to 
 explain the influence which is exerted on wages by what 
 is called good or bad trade. In England, where capital is 
 accumulated with such rapidity, the amount of capital 
 invested in any particular industry could be immediately 
 increased beyond almost any assignable limits. Suppose 
 the prospects of the cotton trade were so good, that the 
 La,ncashire manufacturers thought they could profitably 
 invest an additional 10,000,000^. in their trade. Many of 
 them would withdraw capital for this purpose from other 
 investments, and there would be no difficulty whatever in 
 making up the whole 10,000,OOOZ. required by obtaining 
 advances from bankers and others on the credit of the 
 individual manufacturers. It would not, however, be 
 possible with equal rapidity to make such an increase in 
 the labour employed in any particular industry. One who 
 is accustomed to other work cannot without considerable 
 practice acquire the skill of a cotton-operative. Many of 
 the processes of cotton-spinning could not probably be 
 learnt by an adult, for their manipulation requires fingers 
 trained from childhood. New capital in various forms, 
 such as larger quantities of raw material, may be at once 
 brought into any particular industry ; but when those who 
 
On Wages. 
 
 ISS 
 
 have been accustomed to the industiy are once fully em- 
 ployed, an increased supply of labour can then be only 
 gradually obtained. Hence it appears that the labourers 
 of each separate trade possess, so far as the supply of 
 labour is concerned, a monopoly for a limited period. 
 This will explain the benefit which is observed to result 
 to any class of labourers when their special trade happens 
 to be prosperous. Reverting for an illustration to the 
 manufacture of cotton, let us consider what takes place 
 when this trade is unusually active, as it was during the 
 years 1859 — 60. Throughout this period cotton manu- 
 facturers realized such large profits, that they were anxious 
 to spin as much yarn and weave as much cloth as they 
 possibly could. They therefore had every inducement to 
 apply to their business the greatest possible amount of 
 capital that was practicable ; so far as depended upon the 
 supply of capita], the cotton trade might have been at 
 once indefinitely extended ; but new mills and machinery 
 require time for their erection. It was no use therefore 
 for a manufacturer to buy more raw material, or employ 
 more labour than was suited to the mills and machinery 
 at his command. But every manufacturer during such 
 times does as much trade as possible; he will therefore 
 compete for labour ; every cotton operative is thus certain 
 to be fully employed at very high wages, and consequently 
 the prosperity of any particular branch of trade confers a 
 great temporary benefit upon the labourers who are 
 engaged in it. We say temporary benefit, because if the 
 good trade continued, and wages remained exceptionally 
 high, an additional supply of labour would at length be 
 forthcoming. People would be gradually attracted from 
 other worse-paid employments, because the high wages 
 would offer them a temptation to learn the trade which is 
 exceptionally prosperous. Every parent in the district 
 would have a great inducement to bring his children up 
 to this trade ; and this accession of juvenile labour would 
 be the chief source from which would be gradually supplied 
 an additional quantity of labour, sufiicient to meet the 
 increased demands of the trade. If the skill which any 
 industry requires is particularly great, the labourers of 
 the trade possess a more complete monopoly, because 
 under such circumstances it would be more difficult and 
 
 BOOK II. 
 OH. IV. 
 
 The benefit 
 thus con- 
 ferred on 
 the la- 
 bourers is 
 temporary. 
 
156 
 
 Manual of Political Economy. 
 
 take a longer time to import labour from other employ- 
 ments. The labourers fully understand the advantages of 
 a trade monopoly, and they constantly strive to maintain 
 such a monopoly by various restrictions as to the number 
 of apprentices admitted into any trade. In order to effect 
 these purposes, Trades' Unions have been established. It 
 "will be better, however, to defer our remarks upon these 
 societies, and the various other means which have been 
 often resorted to, in order to secure higher wages, until 
 the subject of profits has been discussed ; for a complete 
 investigation will then have been made into the general 
 laws which regulate the distribution of wealth into the 
 three primary divisions of rent, wages, and profits. 
 
CHAPTER V. 
 
 PROFITS. 
 
 RENT, wages, and profits, the three portions into ■which 
 wealth is distributed, denote the remuneration re- 
 ceived by different classes of individuals for the assistance 
 which they render towards the production of wealth. 
 Those who have appropriated land receive a remuneration 
 in the form of rent when they permit others to use the 
 land which has been so appropriated. Those who apply 
 their labour to the production of wealth receive wages as 
 a remuneration for this physical exertion; and profits de- 
 note the remuneration which those receive who supply the 
 remaining requisite of production, namely capital. As 
 capital is the result of saving, the owner of capital exer- 
 cises forbearance when he saves his wealth instead of 
 spending it; profits therefore are the reward of abstinence, 
 in the same manner that wages are the reward of physical 
 exertion. If an individual invests a certain sum in any 
 productive employment, his profits will consist of the entire 
 surplus which remains after the capital has been replaced. 
 Suppose an agriculturist cultivates his farm with a capital 
 of 5,000L ; this capital will be composed of many different 
 elements, such as stock, implements, and a fund from 
 which he is able to advance the wages of his labourers. 
 The profits of the farmer will consist of the surplus which 
 remains, when from the whole produce of the farm sufiicient 
 has been deducted to replace the original 5,000Z., the value 
 of the capital which the farmer possesses. But in such a 
 case these profits of the farmer will not simply represent a 
 return to his capital, or, in popular language, interest for 
 his money; the farmer has probably given his own time 
 and labour in watching those whom he employs, and in 
 superintending the various operations of his farm : he has 
 
 BOOK II. 
 CH. T. 
 
 Profits are 
 the remu- 
 neration 
 paid to the 
 
158 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. V. 
 
 and may 
 be divided 
 into three 
 parts. 
 
 liewardfor 
 saving. 
 
 of course to be remunerated for his time and trouble, and 
 therefore part of his profits represents the wages properly 
 due to this labour of superintendence. Again, every busi- 
 ness is attended with more or less risk. If a man invests 
 his capital in the funds, he may regard it as perfectly 
 secure, but capital invested in business can never be made 
 equally secure against loss. . There may be revulsions in 
 trade, or bad debts; and property invested in any. com- 
 mercial undertaking is subject to depredations of the 
 dishonest, and in some countries to the rapine of internal 
 war. A capitalist therefore must receive some compensa- 
 tion for the increased risk of loss which is incurred when 
 his capital is invested in trade; a portion of his' aggregate 
 profits represents this compensation. The profits there- 
 fore which a man obtains from his business are composed 
 of the three following elements. 
 
 1st. A reward for saving, or, more properly, a reward 
 for abstinence. 
 
 2nd. A compensation for the risk of loss. 
 
 3rd. Wages for the labour of superintendence. 
 
 It is very easy to ascertain the portion of profits which 
 ought in any particular instance to be allotted as the 
 reward of saving. In every commercial countiy there are 
 investments, the security of which is regarded as perfect. 
 In our own country, for instance, the funds, a freehold 
 mortgage, a stock guaranteed by our own Government, 
 are securities which are regarded as free from risk. 
 The interest which is obtained from capital invested in 
 these securities may be considered as entirely the remune- 
 ration for saving. He who so invests his capital cannot 
 receive any remuneration for risk, when there is none, and 
 the investment entails no labour upon him. The interest 
 which is obtained from such securities is termed the 
 current rate of interest; and therefore the first element of 
 which profits are composed may be always estimated in 
 amount by the current rate of interest. If the current 
 rate of interest is four per cent., a capital of 5,000^. would 
 secure a profit of 200Z. without the shght'est risk or trouble. 
 A person therefore who has .5,000?. invested in his business 
 might consider that 200?. of his annual profits represents 
 interest on capital, or, in other words, is the remuneration 
 which he receives for his abstinence. 
 
Profits: 
 
 In many cases it is more difficult to estimate the amount 
 of the second of the three elements of which profits are 
 composed — namely, remuneration for risk. Sometimes, 
 however, a ihan of business pays to others a certain por- 
 tion of his profits to compensate him for a'oy particular 
 loss or risk to which his business may be exposed. Such 
 a payment is termed an insurance. In this country it is 
 almost a universal practice to insure against fire. Mer- 
 chants insure their vessels against shipwreck; farmers not 
 infrequently insure their crops against the loss which may 
 be incurred by severe hailstorms; farmers may also now 
 insure their live-stock. The sum which is spent upon any 
 of these insurances has of course to be deducted from the 
 gross profits; but such insurances cannot cover the whole 
 risk to which an individual's capital is exposed when in- 
 vested in business. Thus the whole of a farmer's profits 
 may be destroyed by unpropitious weather. In 1860 and 
 in 1875 the crops were so bad, in consequence of the con- 
 tinued wet weather, that many farmers obtained no profit 
 whatever; but although it is very difficult to apportion 
 the exact amount of profits which might, in any particular 
 business, be considered as a fair remuneration for risk of 
 loss, yet it can readily be ascertained that some businesses 
 and trades are subject to far greater risk than others; and 
 therefore we should expect to find that the profits would 
 be greatest in those trades which are most hazardous, so 
 that the increased risk may be thus compensated. If an 
 individual embarks his capital in some undertaking which 
 he does not himself superintend, but which returns him a 
 large interest, the excess of the interest so obtained above 
 the current rate of interest represents the increased risk. 
 Shares can generally be purchased in English copper mines 
 which pay an interest of 10 per cent., but it is impossible 
 to foresee how long a copper mine will continue productive; 
 every indication may be most promising, but a slight alte- 
 ration in the strata may at once destroy the value of the 
 lode. If, therefore, an individual obtains ten per cent, 
 from a copper mine when the current rate of interest is 
 only four per cent., six per cent, may be regarded as a 
 return for the hazardous nature of the speculation. 
 
 The amount of the remaining element of which profits 
 are composed — namely, the remuneration for the labour 
 
 159 
 
 BOOK II. 
 CH. V. 
 
 Compensa- 
 tion for 
 risk, 
 
 and remu- 
 neration 
 for super- 
 intendence. 
 
1 66 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. V. 
 
 Interest on 
 capital re- 
 mains con- 
 stnnt atthe 
 same time 
 and place. 
 
 of superintendence — may be estimated by deducting from 
 the gross profits the amount due to the first and second 
 elements of profit which have just been mentioned. The 
 remuneration which is obtained for this labour of super- 
 intendence is influenced by many of the same causes which 
 affect the wages of ordinary labour. Some employments 
 require for their superintendence greater skill and greater 
 patience than others ; some are more disagreeable to 
 superintend than others. If this be so, then the remune- 
 ration of the labour of superintendence will be greater in 
 one case than in the other. The caprice of society often 
 gives to some employments a social dignity, which is re- 
 fused to others; and this consideration enables us to ex- 
 plain the proverbially low profits obtained in this country 
 from farming compared with the profits of many retail 
 trades. Society now considers that a man of high family 
 may with propriety occupy himself with farming; agri- 
 cultural pursuits are extremely healthy and thoroughly 
 congenial to English tastes. A person does not require a 
 tedious apprenticeship, or an expensive special education, 
 to qualify himself to be a farmer. Many men therefore 
 consider that they are almost sufficiently remunerated for 
 the labour of superintending the cultivation of their farm 
 by the health and pleasure derived from the occupation.. 
 They therefore do not expect to receive anj"^ considerable 
 return for the labour of superintendence. The gross profits 
 of farming are consequently smaller than the profits of 
 many retail trades. A grocer not only expects to receive 
 as much interest upon the capital invested in his business 
 as does the farmer, but, in addition to this, must also 
 receive an adequate remuneration for superintending the 
 details of his business. A man is induced to carry on the, 
 grocery trade, by no other object than to obtain profit 
 from it; he is not attracted to the occupation by the 
 prospect of securing health and pleasure. 
 
 Interest on capital, insurance for risk, and remuneration 
 for labour of superintendence, are therefore the three 
 elements of which profits are composed. The first, interest 
 on capital, is represented by the current rate of interest, 
 and therefore may be regarded as a constant quantity for 
 all occupations at the same time, and in the same country. 
 We say at the same time, and, in the same country, because 
 
Profits. 
 
 not only is the current rate of interest much higher in one 
 age than in another, but very different rates of interest 
 prevail at the same time in different countries. Thus the 
 current rate of interest in England, is now about 3^ per 
 cent., whereas, two centuries since, it was at least eight 
 per cent.; although at the present time the current rate 
 of interest is onlj'' 3^ per cent, in England, it is about 
 eight per cent, in Australia. The cause which produces 
 these variations in the rate of interest will be explained 
 in a future chapter. 
 
 In considering the profits of different trades, the amount 
 to be allotted to interest on capital is the same for all 
 trades in the same country ; the different rates of profit 
 which prevail in different occupations must, therefore, be 
 attributed to variations in the remaining components of 
 profits, namely, insurance for risk, and remuneration for 
 labour of superintendence. If larger profits are obtained 
 in one trade than in another, we must be sure that, in 
 the one trade, capital is subject to greater risk than in 
 the other, or the labour of superintending the one trade 
 requires a higher remuneration than in the case of the 
 other; if, therefore, in any trade a permanently higher 
 rate of profit prevails than in other trades, it must be 
 due either to the operation of these causes, acting singly, 
 or combined. Agriculture has been quoted as an example, 
 to show that the profits in a particular branch of industry 
 may be extremely small, because various circumstances 
 connected with the trade cause a slight remuneration to 
 be given to the labour of superintendence. Consequently, 
 . the various trades and occupations of which the industry 
 of the country is composed, will each have a scale of 
 profits peculiar to itself, the appropriate amount of profits 
 which belong to each trade being determined by various 
 causes, just in the same way as the wages of different 
 employments are regulated by particular circumstances, 
 described in the last chapter. Such an assertion may, 
 at first sight, seem to contradict a principle of political 
 economy, perhaps more frequently quoted than any other ; 
 namely, that the profits of different trades have a constant 
 tendency to become equalised. The principle, when pro- 
 perly understood, is true; the apparent contradiction admits 
 of ready explanation. When the profits realised in any 
 F. M. L 
 
 i6i 
 
 BOOK II. 
 
 OH. V. 
 
 Sencepro- 
 fits vary 
 when com- 
 pensation 
 for risk 
 and wages 
 of superin- 
 tendence 
 vary. 
 
 Each trade 
 has a cer- 
 tain scale 
 of profit, 
 
1 62 
 
 Manual of Political' Economy. 
 
 BOOK II. 
 CH. T. 
 
 which may 
 he called 
 the natural 
 rate of 
 profit. 
 
 Profits of 
 different 
 trades do 
 not tend to 
 become 
 e^ual. 
 
 but to 
 reach this 
 natural 
 rate of 
 profit. 
 
 business are jast sufficient to give an adequate compen- 
 sation for interest on capital, for risk against loss, and 
 for labour of superintendence, then it is said tliat the 
 natural rate of profit is obtained ; and hence it would appear 
 that each separate trade has a natural rate of profit peculiar 
 to itself, because this rate of profit must give a proper 
 remuneration for the three elements of which profits are 
 composed; and two of these, namely, the insurance against 
 .risk, and the wages of superintendence, vary in difi'erent 
 industrial occupations. If the current rate of interest 
 permanently rises, an effect is produced upon the profits of 
 all businesses, and the natural rate of profit in every busi- 
 ness rises. But if any circumstances should occur which 
 should increase the chance of loss in a particular trade, 
 without affecting others, then the natural rate of profit 
 belonging to this particular business would be increased. 
 The natural profits of farming are low, because English 
 tastes are such as to make farming a pleasurable occupa- 
 tion. If the definition which has been given to the term 
 'natural profits' is borne in mind, there will be no diffi- 
 culty in explaining what is meant by the popular expres- 
 sion, that the profits in different trades have a tendency to 
 become equalised. 
 
 The circumstances of various trades are intrinsically dif- 
 ferent — one business, as we have before remarked, may be 
 a more hazardous speculation than another, and the trader 
 who incurs this greater risk must be compensated by per- 
 manently higher profits ; these higher profits, therefore, 
 denote a real compensation, not a casual or temporary dis- 
 turbance, and there is no tendency whatever to abolish 
 the compensation by equalising the profits of the more 
 hazardous trade with those of the less hazardous one. But 
 if, by some disturbing cause, the profits of a business rise 
 or fall below that point which has been described to be 
 their natural amount, a tendency at once is brought into 
 operation to restore the equilibrium, and to make the pro- 
 fits return to their natural amount ; this is the equalising 
 tendency which affects profits ; but there is no tendency to 
 cause a uniform rate of profit to prevail in different trades. 
 It will be important to explain the mode in which this 
 equalising tendency acts, both when the profits of trade rise 
 above their natural amount and when they fall below it. 
 
Profits. 
 
 First, let us consider an example of a rise. During the 
 year's 1859 and 1860, the cotton trade was in a most 
 flourishing condition; cotton-spinners realised far larger 
 profits than other manufacturers. The cause of this active 
 trade was an abundant cotton crop in America, and an 
 unusually large demand for cotton goods in the East. 
 The American civil war quickly destroyed this sudden 
 prosperity ; a deficiency in the supply of raw cotton threw 
 a gloom over the manufacturing industry of Lancashire ; 
 but if the American difficulties had not occurred, the pro- 
 fits of the cotton trade could not have continued to be 
 what they were during the years 1859 and 1860. Profits 
 were then suddenly raised greatly above their natural 
 amount ; they would, in the course of time, have inevitably 
 been restored to their proper level by the competition of 
 capital. In the first place, the large profits realised by 
 the manufacturers would induce them to extend their 
 trade as much as they possibly could ; for they would 
 know that, as long as the manufacture continued so thriv- 
 ing, their capital would not realise such large returns in 
 any other investment. They would, therefore, be natu- 
 rally anxious to withdraw capital from other investments, 
 for the purpose of employing it in their own business. 
 In a country where capital is so rapidly accumulated as 
 it is in England, large amounts of capital are always 
 available, if an eligible investment is offered. The trans- 
 actions connected with the borrowing and lending of capi- 
 tal are carried on by bankers, stock-brokers, and bill-dis- 
 counters ; all these are men of great acuteness and practical 
 ability, who are ever ready to avail themselves of the 
 slightest advantage which any particular investment may 
 offer. When the profits of a manufacturer are extremely 
 large, he considers that it will repay him to extend his 
 business to its utmost possible limits, by applying to a 
 banker, or discount-broker, for loans. In such prosperous 
 times he can offer favourable terms for these loans, and 
 they are readily granted to him ; and thus there is scarcely 
 any practical limit to the amount of capital which may be 
 suddenly brought into a trade, when it is in an exception- 
 ally prosperous condition, and when its profits conse- 
 quently rise above their natural amount. Such a sudden 
 accession of capital may operate, in two distinct ways, 
 
 l2 
 
 163 
 
 BOOK II. 
 CH. V. 
 
 Example. 
 
 The profits 
 of the 
 cotton 
 trade when 
 unusually 
 raised 
 tend to 
 sinlc. 
 
 The manu- 
 facturers 
 would 
 borrow 
 more 
 capital. 
 
164 
 
 Manual of Political Economy. 
 
 BOOK II. 
 OH. V. 
 
 which 
 would 
 lower the 
 profits in 
 two ways. 
 
 and more 
 capital 
 would be 
 attracted 
 from other 
 trades. 
 
 These 
 changes 
 would tahe 
 place slow- 
 ly. 
 
 to reduce profits. In the first place, there will be an 
 increased demand for the raw material, and the raw 
 material will consequently rise in price. Now it is a well- 
 known fact, that a manufacturer is not immediately com- 
 pensated for an increase in the price of the raw material 
 by a corresponding rise in the price of his manufactured 
 goods; consequently, the profits of the trade will be re- 
 duced if the anxiety to extend a particular manufacture, 
 when trade is good, causes such an increased demand for 
 the raw material that its price is raised. But as the ma- 
 nufacture is thus extended, the supply of goods would be 
 largely increased, and will soon become perhaps more than 
 sufficient to meet the demand. The cause which has 
 mainly produced the prosperity and large profits of the 
 trade will then cease to exist ; for if the supply exceeds 
 the demand, high prices will be replaced by low ones, and 
 the profits of the trade will be quickly reduced. We can- 
 not discuss at greater length the effect which is produced 
 on prices by such an alteration in the supply of, or de- 
 mand for, a commodity such as that just noticed, without 
 anticipating the subject of ' value,' which will be considered 
 in the next division of this work. 
 
 There is, however, another equalising influence which 
 will be brought into operation if the profits of any par- 
 ticular business continue long to exceed their natural 
 amount. Not only will those already engaged in the 
 business bring more capital into it when its profits exceed 
 the natural rate ; but other traders will be induced to em- 
 bark their capital in an industry which is exceptionally 
 prosperous. A similar influence to that above described, 
 to reduce profits, will be thus brought into operation. 
 But it would be very erroneous to conclude that these 
 equalising tendencies are instantaneous in their effects. 
 Augmented supplies of capital may be quickly brought 
 into any particular trade, but the trade cannot suddenly 
 be extended beyond certain limits. During 1859 and 
 1860 every cotton mill in Lancashire was probably pro- 
 ducing as large a quantity of manufactured goods as it 
 possibly could ; the existing machinery was worked to its 
 utnaost, and however large might have been the supply of 
 capital, the quantity of goods manufactured could be in- 
 creased in no other way than by erecting new mills. But 
 
Profits. 
 
 the coastruction of new mills and new machinery requires 
 .time, and during this time those engaged in the manu- 
 facture can take full advantage of the high profits. These 
 considerations, however, suggest another circumstance 
 which very materially reduces the high profits that pre- 
 vail in times of active trade. In the case just described 
 it is evident that as manufacturers will be anxious to ex- 
 tend their business as much as possible, not only will all 
 their mills and machinery be in full work, but they will 
 actively compete for labour. A considerable portion of 
 the new capital which is attracted to the industry will 
 consequently, in the first instance, be employed as circu- 
 lating capital, or, in other words, will be paid away in 
 wages. It has, however, been pointed out, in the last 
 chapter, that the skilled labour which a particular indus- 
 try requires cannot be suddenly increased by engaging 
 labourers who had been accustomed to other occupations ; 
 consequently the additional amount of circulating capital 
 which is attracted to a trade by high profits is chiefly 
 employed, not in obtaining labourers from other branches 
 of industry, but in raising the wages of those who are 
 already engaged in the trade. Such a rise of wages must 
 exert a direct influence to reduce profits. It has there- 
 fore been shown that a rise in the price of raw material, 
 a constantly increasing supply of goods, and an advance in 
 wages, are three circumstances which are sure to reduce 
 the profits of a particular trade, when they are exception- 
 ally high. These reducing tendencies not unfrequently 
 continue so long, that the profits of a trade are ultimately 
 reduced below their natural amount; in fact, it may be 
 often observed, that activity of trade is regularly suc- 
 ceeded by a corresponding depression. When, however, 
 a trade is so depressed that its profits fall below their 
 natural rate, then equalising tendencies are brought into 
 operation, which raise the rate of profit ; these tendencies 
 we will now proceed to describe. 
 
 Let it be supposed that a trade has been affected by 
 adverse circumstances, and that its profits are reduced 
 below the natural rate. In the autumn of 1862 the cot- 
 ton trade was in an extremely depressed state. The price 
 of raw cotton had risen so much, in consequence of the 
 American civil war, that it was almost impossible, without , 
 
 I6S 
 
 BOOK II. 
 CH. V. 
 
 and would 
 at first 
 raise the 
 rate of 
 wages in 
 the trade, 
 anddepress 
 profits. 
 
 The con- 
 trary case. 
 
t66 
 
 Manual of Political Economy. 
 
 BOOK II. 
 OH. V. 
 
 Profits 
 
 depresserl 
 
 ielow ths 
 
 natural 
 
 ratetendto 
 
 rise. 
 
 Case of the 
 eilk trade. 
 
 incurring loss, to manufacture cotton goods at the prices 
 they then realised. In fact, it would perhaps have been 
 advisable for manufacturers to have closed their mills, had 
 it not been for the sufferings which would have been en- 
 tailed upon the operatives. Under such circumstances it 
 was the interest of the manufacturers to contract their 
 business ; some mills were consequently closed, and great 
 numbers worked short time. The supply of cotton goods 
 was thus for many years considerably diminished. In 
 this way a tendency was brought into operation to raise 
 prices, and profits were gradually restored to such amount 
 as again to make the manufacture remunerative. When 
 trade is thriving everything is done to increase the capital 
 applied in the business; but when trade is depressed, a 
 directly opposite course is pursued; operations are re- 
 stricted, capital is withdrawn, less is paid in wages, and 
 new mills are not erected. 
 
 The circumstances, however, which ^threw the cotton 
 manufacture into a state of stagnation, are so exceptional, 
 that it will perhaps be more advisable to illustrate our 
 remarks by considering the condition of the silk trade in 
 this country. It is supposed, by some, that the French 
 possess natural advantages for the manufacture of silk, 
 greatly superior to those of our own country. It is, for 
 instance, said that, owing to the clear atmosphere of 
 France, the silks assume a finer colour than those which 
 can be produced in England, and the French have greater 
 skill in producing to order a dye of any particular shade. 
 The result is that, at the present time, French silks are 
 considered to be superior to English silks. The conse- 
 quence has been, that since 1860, when the duty on 
 French silks was removed, the English silk trade has been 
 greatly depressed, and its profits have been reduced below 
 the natural rate. Let us inquire what will occur if the 
 supposed superiority of French silks is permanently main- 
 tained. The English silk trade will continue to be de- 
 pressed ; but the question arises. Will the profits of this, 
 trade remain, therefore, constantly below their natural 
 rate ? It is impossible that such should be the case, for 
 manufacturers will not permanently continue an industry 
 from which they realise less profit than in any other 
 branch of trade. Silk manufacturers would, therefore, 
 
Profits. 
 
 (Under the circumstances assumed, remove their capital as 
 quickly as possible from this trade, and employ it in some 
 other more remunerative way. The transfer cannot be 
 made suddenly; it will require a considerable time, and 
 must cause great loss to the manufacturers. All the fixed 
 capital employed in the silk manufacture, such as machi- 
 nery and buildings, cannot be adapted to other industrial 
 purposes without involving a large outlay. The manu- 
 facturers, too, will not readily submit to the change ; they 
 will struggle with the adverse circumstances for a con- 
 siderable' time. No man, even independently of the pecu- 
 niary sacrifices involved, would willingly change a business 
 to which he has been accustomed, and in which he has 
 acquired skill, for one to which he would be a stranger, A 
 trade therefore, if its profits were permanently reduced 
 below their natural amount, would, after a certain time, 
 be entirely relinquished, and individuals engaged in the 
 trade would be severe losers. 
 
 It is scarcely necessary to observe, that under these sup- 
 posed circunistances the operatives in the silk trade would 
 suffer even more severely than their employers. Each 
 year as the depression continued the demand for labour 
 would steadily diminish. Wages would become lower and 
 lower, and a greater number of operatives would be thrown 
 out of employment. There are always those who cling to 
 hope, after all hope is gone. Many, consequently, would 
 remain in the locality, eking out a miserable existence 
 upon alms and parochial relief; and would thus become 
 permanently pauperised. Those who are more sagacious 
 or more enterprising would recognise the true state of the 
 case, and would meet with promptitude the misfortune 
 which had befallen their trade. Before their savings were 
 exhausted they would emigrate to some foreign country, 
 or migrate to some locality where the demand for labour 
 was active. 
 
 It not unfrequently happens when a trade is depressed 
 that a great injury is done to the operatives by charity 
 and by parochial relief. Labourers are thus induced to re- 
 main in the locality in which trade is slack; whereas, if 
 affairs were allowed to take their natural course, or, if the 
 money subscribed by the charitable were devoted to the 
 .promotion of the emigration and migration of labour, it 
 
 167 
 
 BOOK It. 
 OH. V. 
 
 The effect 
 pro iuced 
 by the de- 
 pression of 
 a trade 
 upon the 
 wages of 
 the labour- 
 ers em- 
 ployed in 
 it. 
 
1 68 
 
 Manual of Political Economy. 
 
 BOOK II. 
 OH. V. 
 
 The case of 
 the Lanca- 
 shire cot- 
 ton opera- 
 tives de- 
 scribed. 
 
 Causes 
 which re- 
 gulate the 
 general 
 rate of 
 profit. 
 
 would greatly diminish the loss which the labourers sufi'er 
 in consequence of depressed trade. During the four or 
 five years of the American civil war, when the cotton 
 trade of Lancashire was almost paralysed, vast sums ob- 
 tained by private subscriptions and by parochial relief 
 were distributed amongst the Lancashire operatives. When 
 this enormous almsgiving was taking place, too little at- 
 tention was paid to a most significant fact. At the time 
 when the trade of Lancashire was depressed, other branches 
 of industry were so flourishing that there was no diminu- 
 tion, but an augmentation in the aggregate trade of the 
 country. It was therefore clearly indicated that there was 
 no falling off in the general demand for labour, but simply 
 a transfer of a portion of the demand from one locality to 
 another. The natural remedy was consequently to assist 
 a certain number of the Lancashire operatives to migrate 
 to those localities where a new demand for labour had 
 arisen. A contrary course was adopted. These operatives 
 were virtually bribed to remain in their own county, and 
 the result was in many ways unfortunate. For several 
 years after the cessation of the war the cotton trade con- 
 tinued to be depressed. Many mills worked only half- 
 time, and there was in many localities a considerable 
 amount of unemployed labour. It is evident that there 
 would not have been this excess in the supply of labour, 
 and the severity of the subsequent depression would have 
 been greatly diminished, if a portion of the funds, which 
 were spent in charity, had been expended in assisting 
 some of the operatives to seek employment in localities 
 where the demand for labour was active. 
 
 Having remarked upon the equalising tendencies which 
 preserve the profits of each department of industry at a 
 certain relative amount, designated the natural rate of 
 profit, we shall next proceed to consider the causes which 
 regulate the general rate of profit prevailing throughout 
 the country at any particular time. It has been previ- 
 ously stated that the general rate of profit is higher at 
 one time than at another, and that very different rates of 
 profit prevail in different countries. 
 
 If any manufacture is taken as an example, it is mani- 
 fest that the produce is shared between the employer and 
 the employed; or, in other words, belween profits and 
 
Profits. 
 
 wages. la any given case, the more the employer re- 
 ceives, the less will be left for the employed ; or, in 
 other words, the more is taken in the form of profits, 
 the less will be given in wages. If wages take a larger 
 share of the produce, profits must take a smaller share. 
 Suppose, however, that industry, by the introduction of 
 new machinery, is rendered more productive, there will 
 then be a greater quantity of produce to be distributed, 
 and more may be apportioned to profits, without the 
 slightest reduction in wages. But, although the amount 
 of wages received might remain the same, yet it has been 
 customary for political economists to say, that under such 
 circumstances the rate of wages is altered ; for they con- 
 ceive that the rate of wages is determined by the ratio 
 which wages bear to profits. Ricardo employed the ex- 
 pressions, ' rate of wages/ and ' rate of profit,' to explain 
 merely the terms of a ratio ; and he would have said, that 
 even if wages were reduced one half in amount, the rate 
 of wages and the rate of profit would remain unaltered, 
 supposing that the reduction in wages was accompanied 
 by a corresponding reduction in profits. Although this 
 proposition as explained by Ricardo is strictly accurate, 
 yet the language employed in enunciating it, makes the 
 statement appear unnecessarily in conflict with popular 
 opinions with regard to wages. 
 
 In order to understand what is meant when it is stated 
 by Ricardo and others that profits depend upon wages, it 
 is necessary to bear in mind that profits may be defined 
 to be the surplus which remains after the capital has been 
 replaced which has, directly or indirectly, contributed to 
 the production of wealth. The proportion this surplus 
 bears to the capital which has been so expended deter- 
 mines the rate of profit. If the expenditure of a certain 
 quantity of capital produces an amount of wealth equal to 
 three times its value, then the surplus which remains, after 
 the capital expended has been replaced, will equal twice 
 the value of this capital ; and, therefore, the rate of profit 
 will, in this case, be two hundred per cent. But when it 
 is said that capital is expended in the production of wealth, 
 it is important to understand what this expression signifies. 
 A great portion of this capital is paid away directly in 
 wages J the remainder is spent in purchasing materials or 
 
 169 
 
 BOOK II. 
 CH. T. 
 
 Statement 
 that the 
 rate of 
 profit de- 
 pends upon 
 wages ex- 
 amined. 
 
I70 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. V. 
 
 In what 
 seme it is 
 true. 
 
 Correct 
 statement 
 of the prin- 
 ciple, viz. 
 that the 
 rate of pro- 
 fit depends 
 upon the 
 cost of la- 
 bour. 
 
 machinery; but even when such a material as coal is 
 bought, the money with which it is purchased may be re- 
 garded as indirectly devoted to paying wages; for the money 
 for which coal is sold pays the wages of all those who have 
 contributed to raise it. The capital, therefore, which is 
 applied to the production of any commodity is expended, 
 either directly or indirectly in wages. The rate of profit, 
 as we have just remarked, depends upon the ratio which 
 the whole produce raised bears to the capital expended in 
 raising this produce; and, since this capital is expended 
 in paying wages, Ricardo and others have stated that the 
 rate of profit depends upon wages. This principle, how- 
 ever, is comparatively useless, and is moreover not strictly 
 correct unless a particular signification is given to the 
 terms employed in its enunciation. For if labour is ren- 
 dered greatly more eSicient, either by better education, by 
 superior management, or by improved machinery, more 
 produce will be raised by the application of the same 
 quantity of labour. The same capital may be expended, 
 or, in other words, the same amount may be paid away in 
 wages ; but, in consequence of the superior efficiency of 
 labour, more will be produced.- A greater amount, there- 
 fore, will be left to be apportioned to profits ; thus the 
 rate of profit will be increased, whilst wages remain 
 unaltered. This is in direct contradiction to Kicardo's 
 principle, that the rate of profit depends on wages; 
 and, therefore, this principle is not correct, unless it 
 is assumed that the efficiency of labour is a constant 
 quantity. 
 
 Mr Mill has shown that the correct way of stating the 
 principle is, that the rate of profit depends on the cost of 
 labour. The cost of labour is determined by comparing 
 the wages the labourer receives with the amount of wealth 
 which is produced by his labour. If, therefore, labour is 
 rendered more efficient, the cost of labour is manifestly 
 diminished, because either more produce is raised by the 
 payment of the same amount of wages, or an equal amount 
 of produce results from the expenditure of a smaller sum 
 in wages. When labour is rendered more efficient, it 
 has been shown that the rate of profit will rise, although 
 the same amount is paid in wages. Hence, if whilst each 
 individual labourer receives the same remuneration, his 
 
Profits. 
 
 labour produces more, the cost of labour is diminished. 
 The rate of profit therefore varies inversely with the cost 
 of labour. From this principle some most important con- 
 clusions may be deduced. If anything occurs to render 
 labour more efficient, profits will be increased, assuming 
 that the labourers receive the same wages as before. It 
 also follows that, when labour becomes more efficient, the 
 rate of profit, and also wages, may both be increased ; for 
 profits must be increased if the rise in wages is not so 
 great as to make the cost of labour more than it was 
 before the improvement in the efficiency of labour took 
 place. With regard to agriculture, it has been frequently 
 stated, that as land diminishes in fertility, the labour 
 which is applied to it will diminish in productiveness. 
 Twenty labourers working on poor land may not cause as 
 much produce to be raised as ten labourers working on 
 more fertile soil. Unless, therefore, the agricultural la- 
 bourers receive less wages, the cost of agricultural labour 
 must increase ; or, in other words, the rate of profit 
 obtained from farming must decline as it gradually be- 
 comes necessary to resort to less fertile land. Let us 
 apply these conclusions to explain some of those points 
 in which the present economical condition of Australia 
 contrasts so strongly with that of England. In enunci- 
 ating Ricardo's theory of Rent, it has been shown that, 
 in each country, the poorest land cultivated can only pay 
 a nominal rent. The present population of Australia is 
 comparatively small, and her tracts of uncultivated fertile 
 land are almost of boundless extent. The worst land 
 which is cultivated in Australia is far more fertile than 
 the worst land cultivated in England. Hence, agricul- 
 tural labour, being applied to a more productive soil, 
 is far more efficient in Australia than in England. The 
 same amount of labour which is employed upon the poorest 
 farms in England would, if applied to any land which is 
 cultivated in Australia, cause a great deal more produce 
 to be raised. Hence, in consequence of the increased 
 efficiency which is thus given to agricultural labour in 
 Australia, the wages of agricultural labourers may be 
 much higher in Australia than in England, and yet 
 the cost of this labour in. Australia may be less than 
 it is in England. , But if the cost of labour is dimin- 1 
 
 171 
 
 BOOK II. 
 OH. V. 
 
 Cost of 
 labour in 
 Australia 
 and Eng- 
 land, 
 
1/2 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. V. 
 
 The cost of 
 agricultu- 
 ral labour 
 is measured 
 by its cost 
 when ap- 
 plied to the 
 leastfertile 
 soils ill cul- 
 tivation. 
 
 ished, the principle just enunciated shows that the rate 
 of profit must be increased; and such a conclusion is 
 amply verified in the case of Australia. Wages are 
 far higher there than in England, and profits are also 
 higher. 
 
 There may appear to be a difficulty connected with 
 the explanation just given; for it may be said, the agri- 
 cultural labour which is applied to some of England's 
 most productive soils yields more than the same quantity 
 of labour applied to even the best land in Australia. It 
 may, therefore, be thought incorrect to say that agri- 
 cultural labour is less productive in England than in 
 Australia, since it would seem that only that portion of 
 our agricultural labour is less productive which is em- 
 ployed upon our least fertile soils. It must, however, 
 be remembered that the cost of agricultural labour is 
 determined by the cost of that labour which is em- 
 ployed upon the least productive land in cultivation. 
 Rent may be regarded as a sum which the farmer pays 
 for the permission to employ labour upon productive 
 land. The more productive the land, the higher, of 
 course, is the rent ; or, in other words, the more favour- 
 able the circumstances under which agricultural labour 
 is applied, the greater is the sum which has to be paid 
 as rent. Although agricultural labour employed on a 
 fertile soil is more efficient, yet the farmer obtains no 
 advantage from the cost of this labour being diminished ; 
 for what he would thus gain he has to pay away in 
 rent. His profits, therefore, would not be diminished 
 by an increase in the cost of labour, provided that there 
 was a corresponding reduction in his rent. The profits 
 which are derived from agriculture approximate to an 
 equality ; it is still correct to say, even with regard 
 to agriculture, that the rate of profit is determined by 
 the cost of labour, if it is remembered that in this case 
 the cost of labour is not entirely composed of wages, 
 but also consists of rent, since rent may be regarded 
 as a premium paid when agricultural labour is assisted 
 by a fertile soil. Considered in this light, therefore, the 
 cost of agricultural labour may be regarded as uniform 
 throughout the same country. But in the case in which 
 the worst land cultivated is so poor that only a nominal 
 
Profits. 
 
 rent is paid, then rent can no longer be regarded as an 
 element of the cost of agricultural labour. Hence the 
 proposition above enunciated is proved: namely, that 
 the general cost of agricultural labour is determined 
 by the cost of that labour which is employed upon the 
 least productive land in cultivation. If, therefore, food 
 cannot be supplied to an advancing population without 
 continually resorting to less productive land, then one 
 of two consequences must inevitably ensue : either the 
 cost of agricultural labour will increase, and then a de- 
 cline in the rate of profit will follow ; or, if the cost of this 
 labour does not increase, the labourers must receive lower 
 wages ; for when labour is applied to less productive land, 
 an increase in the cost of this labour can alone be pre- 
 vented by paying the labourers lower wages. 
 
 Enough has now been said to establish the propo- 
 sition, that the rate of profit depends upon the cost of 
 labour. If, therefore, the rate of profit is higher in one 
 country than in another, it must be because the cost 
 of labour is greater in one country than in the other. 
 Let us enquire into the causes which regulate the cost of 
 labour. If capital increases, without any increase in the 
 number of the labouring population, it is manifest that 
 there is a larger sum to be distributed amongst them ; 
 wao'es will rise, and consequently the cost of labour 
 will increase, and the rate of profit wiU diminish. If 
 population increases, and capital remains stationary, wages 
 will fall, the cost of labour will be diminished, and 
 the rate of profit wiU advance. Hence it appears that 
 not only the average remuneration of the labourers, bat 
 also the rate of profit, is primarily determined by the 
 ratio between the capital of the country and the number 
 of its labouring population. This, however, is not a com- 
 plete explanation, for it would seem 'to indicate that the 
 rate of profit is higher when wages are low ; facts contra- 
 dict this, for in Australia wages and profits are both 
 higher than they are in England. But the difficulty 
 arises from confusing wages with cost of labour; wages 
 may be very low, and yet the labour be so inefficient, 
 from causes previously explained, that the cost of labour 
 may be extremely high. The English contractors who 
 made the French railways could have engaged any 
 
 173 
 
 BOOK II. 
 CH. V. 
 
 Variation 
 in the cost 
 of labour^ 
 in different 
 countries. 
 
174 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. V. 
 
 Cost of 
 labour not 
 to he con- 
 founded 
 with 
 wages. 
 
 Cost of la- 
 bour and 
 rate of 
 profit a 
 function of 
 three vari- 
 ables : 
 
 number of French labourers at 
 were paid to Ensrlish 
 
 one half the wages that 
 navvies; but so superior is the 
 physical strength °of an Englishman, that it was proved 
 that one English navvy would do as much work as 
 two French labourers. In this case, therefore, the cost 
 of French labour would be as great as the cost of English 
 labour, although the wages of the English labourer were 
 twice as great as those paid in France. Again; high 
 wages do not always denote that a large remuneration 
 is received by the labourer. Wages may be high, and 
 food so dear, that a labourer is far better off in a 
 country where wages may not be so high, but where food 
 is cheaper. Hence labourers may be comparatively speak- 
 ing impoverished, in consequence of the dearness of food, 
 although their wages are high ; in such a case the cost 
 of labour would be great, and the result would be a low 
 rate of profit, accompanied by the impoverishment of 
 the labouring class. Such is the result which has to be 
 feared in a country whose increasing population makes 
 food dearer. The supplies of cheap food which have been 
 imported into England since the introduction of free trade 
 have exerted an important influence in sustaining the rate 
 of profit. 
 
 After the remarks which have now been made in refer- 
 ence to cost of labour, the reader will be able to ap- 
 preciate the admirable analysis of Mr Mill, when he says 
 that ' Cost of labour, and therefore the rate of profit, is a 
 function of three variables :' 
 
 1. ' The efiiciency of labour.' 
 
 2. 'The wages of labour' (meaning thereby the real 
 reward of the labourer). 
 
 3. ' The greater or less cost at which the articles com- 
 posing that real reward can be produced or purchased.' 
 
 If labour becomes more efficient, -v^hilst the wages of 
 the labourers and the price of food remain unaltered; 
 the cost of labour will be diminished. If the wages of 
 the labourers are reduced, whilst there is no change in 
 the efficiency of labour and the price of food, the cost 
 of labour will again be diminished. The cost of labour 
 will also be diminished if the price of food is reduced, 
 and the amount of the labourer's wages, estimated by the 
 commodities they will purchase for him, remains un- 
 
Profits. 
 
 changed. If, therefore, the cost of labour, or, in other 
 words, the rate of profit, varies in different countries 
 from time to time, the variations must be due to the 
 influence of one or more of the three circumstances above 
 enumerated. The current rate of interest affords a suf- 
 ficiently sure evidence of the rate of profit. It would 
 be a most useful exercise for the student to trace to , 
 which of the three variables is due a high or a low rate 
 of profit, prevailing in any particular country. In order 
 to assist him in such an examination, we will indicate 
 some of the leading causes upon which depend the effi- 
 ciency of laboui-, the real wages of the labourer, and the 
 price of food. 
 
 lu previous chapters the causes have been described 
 in detail which determine the productiveness of labour. 
 It need only here be added that nothing more powerfully 
 promotes the efficiency of labour than an abundance of 
 productive land. But an abundant supply of productive 
 land causes food to be cheap, and under such circum- 
 stances, two out of the three causes are brought into 
 operation upon which depend a high rate of profit and 
 a small cost of labour; the influence which is thus pro- 
 duced in increasing the rate of profit, is so great, that 
 in a country like Australia, where there is a large supply 
 of fertile land, profits are high, although a labourer at 
 the same time receives a very large remuneration for his 
 labour. 
 
 The second variable, upon which depends the cost of 
 labour — namely, the remuneration received by the la- 
 bourer — ^is determined by the ratio which population bears 
 to capital. It would be foreign to our purpose to attempt 
 to describe why some countries are more populous than 
 others. Our colonies and the American continent have 
 not yet had time to be thickly peopled with an European 
 population. In the last chapter allusion was made to 
 the power of man's multiplication, and it was stated 
 that Malthus's 'Essay on Population' gives a most de- 
 tailed and interesting analysis of the checks by which, in 
 various countries, population is restrained. In England, 
 whatever may be the other checks which restrain popu- 
 lation, there is one which exercises a preponderating in- 
 fluence in determining the variations in the number of 
 
 175 
 
 BOOK II. 
 OH. V. 
 
 first, the 
 
 efficiency 
 
 of labour, 
 
 which 
 
 especialhj 
 
 depends 
 
 upon the 
 
 supply of 
 
 fertile 
 
 land;.. 
 
 secondly, 
 the wages 
 of labour, 
 which de- 
 pend upon 
 the relative 
 increase of 
 population 
 
176 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. V. 
 
 and capi- 
 tal. 
 
 The in- 
 crease of 
 capital 
 itself de- 
 pends upon 
 
 the rate of 
 profit, 
 
 our labouring population. It has been satisfactorily proved 
 that the number of marriages varies with the price of 
 food; diminishing as food becomes dear, increasing as 
 food declines in price. A great portion of the advantage 
 which the poor would derive from the cheapening of food 
 is therefore ultimately lost to them, because the increase 
 of population which is stimulated by cheap food has a 
 tendency to lower wages. 
 
 The causes which influence the accumulation of capital 
 are extremely various. Much depends upon national cha- 
 racter; one nation may be far more prudent, and may 
 possess much more foresight than another; the inhabitants 
 of one country may consume, in their own .personal en- 
 joyment, almost all the wealth they can obtain, whilst in 
 another country saving is promoted by the most rigid 
 economy. No nation will ever accumulate a large amount 
 of capital for the purpose of applying it to productive 
 purposes, until there is sufficient social order to render 
 property secure. But independently of any effects pro- 
 duced upon the accumulation of capital by differences in 
 the character and condition of various nations, it may be 
 observed that the accumulation of capital is always influ- 
 enced by the rate of profit. If, for instance, the current 
 rate of interest should be greatly increased in England, an 
 additional inducement would be offered to every one to 
 save ; the result would be strikingly exhibited by a greatly 
 increased accumulation of capital. The amount of wealth, 
 therefore, which is saved in a country is kept, as it were, 
 confined between certain limits by a self-acting agency. 
 For if in any particular year there should be some irregu^ 
 larity which should cause a much larger capital to be 
 saved than is customary, the labourers would, in con- 
 sequence of this augmentation of capital, receive higher 
 wages; the cost of their labour would thus be increasedj 
 the rate of profit would dimiaish, and the current rate of 
 interest would fall. In this manner less inducement 
 would be held out for individuals to save, and a force 
 would be created to restore capital to its former amount. 
 Sufficient capital might soon be accumulated in England 
 to reduce the current rate of interest to two per cent. 
 This was the current rate of interest in Holland at the 
 end of the last century; the Dutch at that time were 
 
, Profits. 
 
 therefore content with two per cent, but the English 
 are not satisfied unless three per cent, can be obtained. 
 The current rate of interest, therefore, to a great extent, 
 depends upon national character; for if the English, as 
 a nation, became more prudent, and more anxious to 
 save, the current rate of interest might rapidly decline 
 to two per cent. 
 
 The effect which is produced upon the rate of profit by 
 the last of the three variables, upon which the cost of 
 labour 'depends, has not generally been sufficiently con- 
 sidered. Suppose an employer pays 1000?. in wages, and 
 that his labourers spend the greater portion of these 
 wages in purchasing food. We have ascertained that an 
 agricultural labourer with a family consumes forty per 
 cent, of his wages in purchasing bread; 400L therefore, 
 out of lOOOZ. paid in agricultural wages, is devoted to the 
 purchase of bread\ Suppose, by some cause, such as the 
 introduction of free trade, that the price of bread is re- 
 duced one-fourth ; a loaf before sold for Is. 4:d. now only 
 costs Is.; 300Z. will purchase as much bread as 400Z. did 
 before the price of bread was reduced. The labourers 
 therefore, who amongst them received lOOOZ. in wages, 
 will now be quite as well off if they only receive 900i!. 
 Their real wages will remain unchanged, although their 
 nominal wages have been reduced one-tenth. The cost 
 of labour might thus, in consequence of bread being 
 cheapened, be reduced one-tenth, without the condition 
 of the labourer being in the slightest degree deteriorated. 
 But the question may very reasonably be asked. Will the 
 employer be able to appropriate to himself the whole ad- 
 vantage ? Is cheap food only instrumental in increasing 
 the rate of profit ? We shall be able to explain why this 
 seldom or never takes place ; the advantage is invari- 
 ably shared in the first instance between the employer 
 and the labourer. When the cost of labour is diminished, 
 the capital previously existing can support an increased 
 amount of industry. In the exa;mple we have above 
 given, a farmer, in consequence of bread being cheapened, 
 pays only 900Z. in wages instead of 1000^. He, therefore, 
 has 100?. to spare. This he may apply in employing more 
 
 ^ The labourer is supposed to earn 10s. a week, and to have a wife 
 and two children ; the price of breid being Is. the 8 lb. loaf. 
 
 F. M. M 
 
 177 
 
 BOOK II. 
 OH. V. 
 
 and the 
 
 national 
 
 character. 
 
 Thirdly, 
 the cost of 
 producing 
 the real 
 wages. 
 
 A diminu- 
 tion of tliix 
 cost will l<e 
 heneficial 
 both to the 
 employer 
 and la- 
 bourer. 
 
178 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. T. 
 
 The benefit 
 to the la- 
 hourer will 
 only he 
 temporary 
 if it stimu- 
 lates a 
 large in- 
 crease of 
 popiila- 
 tiun. 
 
 labourers on his farm, or he may invest it as capital in 
 some other undertaking. In either case, the labourers 
 as a class are benefited by a proceeding which virtually 
 increases the capital of the country, and therefore the 
 demand for labour ; but if this be so, their wages will be 
 raised, and they will share with their employers the ad- 
 vantage of cheap food. One case may be supposed in 
 which the labourers would not be benefited, even in the 
 first instance, by cheap food. If the lOOZ. which, in ihe 
 above example, the employer saves by the cost of labour 
 being diminished, is not saved as capital, but is spent 
 upon the employer's own enjoyment, the labourer's wages 
 will not be increased; for the capital of the country will 
 be decreased in proportion to the diminution in the cost 
 of labour. The case last supposed would rarely occur, for 
 an increased rate of pi-ofit seldom makes men more ex- 
 travagant; it in fact produces an opposite influence, 
 for it most powerfully stimulates the accumulation of 
 capital. 
 
 In describing the advantage which cheap food confers 
 upon the employer and the employed, we have been careful 
 to denote that the benefit enjoyed by the labourer may only 
 be a temporary one. It has already been stated that a 
 considerable portion of our population is in so low a con- 
 dition, both socially and morally, that even a slight addi- 
 tion to their means of livelihood immediately causes an 
 increase in the number of marriages. In a few years 
 there is consequently an increase in the supply of labour, 
 which will probably more than absorb the advantage the 
 labourers might have derived, either from the cheap- 
 ening of food, or from any other circumstance calculated 
 to improve their material condition. This affords an ex- 
 planation of the comparatively small effect which free- 
 trade has produced upon the condition of our worst paid 
 labourers. It was supposed that when the corn laws were 
 repealed, pauperism would become almost extinct. The 
 country has enjoyed free trade for 20 years, and the 
 poverty of the poor is scarcely diminished, and pauperism 
 still assumes most serious proportions. It will be shown, 
 in a subsequent chapter on the poor law, that these sad 
 and disappointing facts are a striking illustration of the 
 important principle that an improvement in the material 
 
Profits. 
 
 condition of the labourer cannot be permanent, unless 
 it is accompg,nied by a corresponding social and moral 
 advancement. 
 
 Before concluding this chapter, it is important to direct 
 attention to the great influence exerted upon profits and 
 wages by the export of capital. It has already been shown 
 that the current rate of profit may be regarded partly as 
 the cause and partly as the effect of the amount of capi- 
 tal accumulated. An increase in capital tends cwteris 
 paribus to lower the rate of profit ; whereas an advance in 
 the rate of profit promotes the accumulation of capital. 
 It is however essential to bear in mind that only a 
 portion of the aggregate wealth which is annually saved 
 in any country is invested in its own industry; the re- 
 mainder is exported to be employed as capital in other 
 countries. Hence the capital annually saved in such a 
 country as England is divided into two portions; that 
 portion which is exported produces no immediate effect 
 upon the current rate of wages and profit prevailing in 
 England. Consequently in all discussions relating to 
 wages and profits, it is important not only to consider 
 the whole amount of capital annually saved, but parti- 
 cular attention must be directed to the portion of this 
 aggregate capital which is retained for home investment. 
 It is evident that the relative magnitude of the two por- 
 tions into which a nation's capital is thus divided will be 
 regulated by the profits which are respectively realised by 
 home and foreign investments. If a rise in the rate of 
 profit abroad should be unaccompanied by any advance in 
 the rate of profit at home, an influence is at once brought 
 into operation to increase the relative amount of the 
 capital which is exported, and consequently to diminish 
 the amount retained for home investment. Although, 
 therefore, there is no diminution in the national capital, 
 yet as a smaller amount is employed in home industry, 
 the effects that ensue will, in many respects, be analogous 
 to those which would occur if the amount of wealth an- 
 nually saved were diminished. This is particularly the 
 case, as shown in the previous chapter, with regard to 
 wages, which, depending upon the amount of circulating 
 capital, must evidently be regulated, not so much by 
 the whole amount of capital annually saved, as by the 
 
 M2 
 
 t79 
 
 BOOK II. 
 CH. T. 
 
 The ivflu- 
 ence exert- 
 ed on pro- 
 fits and 
 wages by 
 the export 
 ofcdpital. 
 
i8o 
 
 Manual of Political Economy. 
 
 amount which is retained for home investment. It will 
 be very necessary to bear this in mind when consider- 
 ing the various expedients which are resorted to for 
 raising wages. It may here be generally said that an 
 advance in wages, unaccompanied by any increase in the 
 efficiency or productiveness of labour, can seldom confer 
 a permanent benefit upon the labourer. Such an ad- 
 vance in wages will lower the rate of profit at home; 
 a greater proportion of the national capital will therefore 
 be invested abroad ; the circulating capital in the country 
 itself will be diminished ; or, in other words, its wage fund 
 will be decreased. 
 
CHAPTER VI. 
 
 PEASANT PBOPEIETORS. 
 
 THE reader has already been warned against the con- 
 clusion that the present system of land tenure in 
 England is to be regarded as the type of that -which pre- 
 vails throughout Europe and the other civilised parts of 
 the world. A very considerable portion of the land in 
 England belongs to the large estates of the aristocracy; 
 land is rarely cultivated by its owner. The farms in 
 England are generally large, and are becoming larger; 
 they are almost entirely cultivated by hired labour; and, 
 consequently, the produce of the land has to be distributed 
 amongst landlords, farmers, and labourers. But the con- 
 dition of England in this respect was, a few centuries 
 since, very different. No class of men in our early annals 
 occupied a more prominent or honourable position than 
 the yeomanry. Their praises have been sung by our 
 greatest poets ; their sturdy independence on many occa- 
 sions preserved the liberty, and proved the courage, of 
 the English race. The tenant farmers of the present day 
 differ essentially from the old yeomen of England, who 
 were freeholders, cultivating the land which they owned. 
 Their holdings were generally much smaller than those of 
 the present day. In many continental countries, such as 
 France, Norway, Switzerland, Italy, Belgium, Prussia, and 
 some of the German states, much of the land is still 
 .possessed by small proprietors, termed peasant proprietors, 
 who own the land which they cultivate. A peasant pro- 
 prietor frequently cultivates his farm entirely by the 
 laljour of hiniself and his family. In this case, land. 
 
 BOOK II. 
 CH. VI. 
 
 Different 
 kinds of 
 land 
 tenure. 
 
l82 
 
 Manual of Political Economy. 
 
 SOOK II. 
 OH. VI. 
 
 Differ- 
 ences of 
 opinion as 
 to the ad- 
 vantages 
 of peasant 
 proprietor- 
 ship. 
 
 The ad- 
 vantages 
 of large 
 farms con- 
 sidered. 
 
 labour and capital are all supplied by the same individual; 
 he therefore claims the whole produce of the land ; and 
 rent, wages, and profits are merged together. The question 
 as to the comparative advantages and disadvantages of 
 cultivating the land by peasant proprietors has been, per- 
 haps, more keenly discussed by political economists than 
 any other subject. On the Continent, not only political 
 economists, but practical farmers, are decidedly favourable 
 to peasant proprietorships ; they can of course watch the 
 system in actual working, and are therefore in a much 
 better position to judge of its effects than we who have 
 now no opportunity of observing any considerable tract 
 of land in England cultivated by peasant proprietors. 
 English opinion is so strongly in favour of large farming, 
 that we may naturally expect to find that our countrymen 
 almost invariably express themselves antagonistic to a 
 system of peasant properties, which implies small farming. 
 Amongst English political economists the two most pro- 
 minent champions of the system are Mr Mill and Mr W. T. 
 Thornton. Both of these writers have collected a great 
 mass of facts bearing upon the subject, and have discussed 
 these facts with the most perfect impartiality. Much of 
 the opposition which has been expressed by English writers 
 towards peasant proprietors is undoubtedly- due to a radi- 
 cal misconception. Peasant proprietorships imply small 
 farms, but a small farm cultivated by its owner dilSers 
 essentially from a small farm either occupied by a tenant 
 at will or rented upon a lease ; we believe that the whole 
 advantage which can be attributed to peasant proper- 
 ties is almost entirely due to the fact that the cultivator 
 owns the soil which he tills. The weU-known Arthur 
 Young, whose preference in favour of large farming was 
 most decided, has very happily said, 'Give a man the 
 secure possession of a bleak rock, and he will turn it into 
 a garden ; give him a nine years' lease of a garden, and 
 he wiU convert it into a desert.' 
 
 In a previous chapter, various reasons have been stated 
 which lead to the conclusion, that large farms are more 
 productive than small farms, when land is cultivated not 
 by its owner, but by a tenants This opinion is corrobo- 
 rated by the facts of every-day experience ; for there can 
 1 See Book I., Chap. VI. 
 
Peasant Proprietors. 
 
 183 
 
 be no doubt that the size of farms in England is increas,- 
 ing, rather than diminishing ; and the advantage of large 
 farms is sure to be more prominently shown, as machinery 
 of an expensive character becomes extensively used in 
 agriculture. It cannot be supposed that small farms are 
 being absorbed into larger ones, simply in consequence of 
 the caprice of landlords ; the absorption takes place, be- 
 cause tenants and landlords have alike learnt that a higher 
 rent can be paid for a farm of six hundred acres, than for 
 the same land, divided into- two farms of three hundred 
 acres. But, although it can be proved that large farming 
 is more productive than small farming, yet such a con- 
 clusion does not definitely decide whether or not a nation 
 is benefited by a class of peasant proprietors ; for it has 
 been already stated, that there is a fundamental distinc- 
 tion between a peasant proprietor and a small tenant 
 farmer. Now we believe that very great social advantages 
 are derived from peasant proprietorships ; but before en- 
 quiring into this particular branch of the subject, the eco- 
 nomical effects resulting from, the cultivation of land by 
 peasant proprietors will be described. The question is in 
 fact reduced to this — To what extent are the disadvantages 
 which are associated with small farming compensated by 
 the advantages which arise from the cultivator feeling that 
 the land is his own? We will first make some general 
 remarks on the subject, and then substantiate our opinions 
 by well-authenticated facts. 
 
 Many of the inconveniences which' belong to farming 
 on a small scale, exert a similar influence when an equally 
 small farm is cultivated by a peasant proprietor. The 
 want of proper machinery and implements is the most 
 formidable difficulty with which small farming has to 
 contend; and it may be observed, in England, that the 
 implements and stock of small farms are generally of an 
 inferior kind. A small farmer has not sufficient capital 
 promptly to take advantage of improved implements, and 
 it often would not answer his purpose to make a consider- 
 able outlay in purchasing a new machine, considering the 
 little work it would have to do on a small farm. The 
 expenses of a small farm are comparatively much greater 
 than those of a large one; a flock of six hundred sheep 
 would probably require only one shepherd, but six separate 
 
 BOOK II. 
 CH. VI. 
 
 Incon- 
 venience 
 of small 
 farming, 
 which are 
 also appli- 
 cable to 
 peasant 
 proprietor- 
 ships. 
 
1 84 
 
 Manual of Political Economy. 
 
 How these 
 incon- 
 veniences 
 are com- 
 pensated 
 in the last 
 case. 
 
 The magic 
 of pro- 
 perty. 
 
 flocks of a hundred sheep would each require a shepherd. 
 A similar consideration applies to much of the other la- 
 bour which is employed upon a farm ; a farmer is obliged 
 to spend the same time in going to a fair or market, 
 whether he has 501. worth of stock or corn, or whether he 
 has 500Z. worth to dispose of. Farmers appreciate this, 
 for it is proverbially said that small farms cannot compete 
 with large ones, because the profits of a small farm are 
 eaten up by expenses. A small farmer in England is 
 generally occupied, partly in labouring himself, and partly 
 in superintending the labour of others. Frequently he is 
 efficient neither as a labourer nor as an overlooker of la- 
 bour, and the want of industry in our small farmers has 
 been often remarked. It must, however, be borne in 
 mind, that both the large and small tenant farmers have 
 no adequate interest in improving the land ; for if capital 
 is spent by a tenant farmer in improvements, the landlord, 
 at the expiration of the lease, may appropriate the whole 
 advantage to himself by raising the rent. There are, 
 moreover, improvements of a more difficult and delicate 
 kind, which, it appears, will never be carried out unless 
 the cultivator is stimulated to the most watchful and un- 
 tiring industry, by the feeling that the land which he im- 
 proves is his own property. The testimony of Arthur 
 Young on this point is very valuable : — ' Leaving Sauve,' 
 says he, ' I was much struck with a large tract of land, 
 seemingly nothing but huge rocks, yet most of it enclosed 
 and planted with the most industrious attention. Every 
 man has an olive, a mulberry, an almond, or a peach-tree, 
 and vines scattered among them; so that the whole 
 ground is covered with the oddest mixture of these plants' 
 and bulging rocks that can be conceived. The inhabitants 
 of this village deserve encouragement for their industry, 
 and if I were a French minister they should have it. They 
 would soon turn all the deserts around them into gardens; 
 Such a knot of active husbandmen, who turn their rocks 
 into scenes of fertility {because, I suppose, their own), 
 would do the same by the wastes, if animated by the same 
 omnipotent principle.' Again, ' Walk to Rosendal (near 
 Dunkirk), where M. le Brun has an improvement on the 
 Dunes, which he very obligingly showed me. Between 
 the town and that place, is a great number of neat little 
 
Peasant Proprietors. 
 
 185 
 
 houses, built each with its garden and one or two fields 
 enclosed, of most wretched blowing dune sand, naturally 
 as white as snow, but improved by industry. The magic 
 of property turns sand into gold.' 
 
 Flanders affords the most striking example of the in- 
 fluence produced by what Arthur Young so aptly terms 
 'the magic of property.' The farming both in East and 
 West Flanders has long been celebrated ; it is unsurpassed 
 in Europe ; for, as Mr M'CuUoch says, ' Its natural soil 
 consists almost wholly of barren sand, and its great fer- 
 tility is entirely the result of very skilful management 
 and judicious application of various manures.' Such a 
 tract of land, if owned by a landed aristocracy, would have 
 remained a barren waste. It would be worthless to be 
 rented by a tenant, and nO labour which a landlord could 
 have hired would have bestowed that unwearied and in- 
 telligent industry which has converted barrenness into 
 luxurious fertility. This will become evident when we 
 know the agency by which these improvements have 
 been effected. It has been frequently remarked by those 
 who have travelled through Flanders, that the Flemish 
 agriculturists want nothing but space to work upon. 
 Whatever the quality of the soil may be, in time they will 
 make it produce something. The sand in Campine is like 
 the sands on the seashore, of which it originally was a 
 part; and here you see a cottage and rude cowshed 
 erected on a most unpromising spot. The loose sand is 
 held together in little mounds by the roots of the heath. 
 A small spot being selected, it is surrounded by a ditch and 
 levelled ; it is then planted partly with broom and pota- 
 toes, and perhaps a small patch of diminutive clover, and 
 manures both solid and liquid are collected. This is the 
 nucleus from which, in a few years, a little farm will spread 
 around. The only thing that will grow on this sand with- 
 out manure is broom, and this will be sown if no manure 
 can be got, and will in three years be fit to cut, when it 
 is sold, to bakers or brickmakers. The leaves falling en- 
 rich the soil, and the roots give it a compactness ; it may 
 now be sown with buckwheat or rye without manure. 
 When this is reaped, some manure may have been obtain- 
 ed, and a course of cropping may begin. With the aid of 
 clover and potatoes, a farmer may keep cows and make 
 
 BOOK II. 
 OH. VI. 
 
 Evidence 
 in favour 
 of small 
 properties 
 derived 
 from the 
 state of 
 Flanders. 
 
 Cultiva- 
 tion of 
 sand- 
 dunes. 
 
1 86 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. VI. 
 
 Excellence 
 of Flemish 
 farming. 
 
 Evidence 
 to the 
 same effect 
 from 
 Zurich, 
 
 Norway, 
 
 manure ; the improvement will be so rapid, that in a few 
 years the soil will become as mellow, retentive of moisture, 
 and enriched by manure and the decomposition of vege- 
 table matter, as soil which was originally good ; and the 
 crops produced by both soils will be more nearly alike at 
 harvest, than is the case in soils 'of different qualities in 
 other countries. The people who have achieved these 
 great results in agriculture are principally peasant pro- 
 prietors, and they labour so earnestly and so intelligently 
 because the ground they till is their own. The Flemings, 
 at a time when English agriculture was in a most back- 
 ward condition, followed a most approved system of rota- 
 tion of crops. The English farmer is generally a better 
 educated man than these small Flemish proprietors. He 
 has money at his command, a far larger capital than they 
 have, and therefore he is able to purchase superior imple- 
 ments ; but a competent authority has observed, ' that 
 in the minute attention to the qualities of the soil, in 
 the management and application of manures of different 
 kinds, in the judicious succession of crops, and especially 
 in the economy of land, so that every part of it shall be 
 in a constant state of production, we have still something 
 to learn from the Flemings, and not from an instructed 
 and enterprising Fleming here and there, but from the 
 general practice \ 
 
 Authorities seem unanimously to agree upon the great 
 industry evinced by peasant proprietors, and thus peasant 
 proprietors would appear essentially to differ from small 
 farmers who rent the land they cultivate ; for indolence is 
 generally assigned as the fault of this latter class. Mr 
 Ingliss was forcibly impressed with the wonderful industry 
 of the peasant proprietors of Zurich. Mr Laing, a 
 traveller, who, with singular acuteness, observed the 
 economy of various European countries, remarks, when 
 speaking of Norway, the country where peasant pro- 
 prietors are most numerous, and of longest standing in 
 proportion to the population, ' if small proprietors are not 
 good farmers, it is not from the same cause here which 
 we are told makes them so in Scotland — indolence and 
 want of exertion. The extent to which irrigation is 
 
 1 See an article on Flemisli Husbandry in the Farmers' Series of the 
 Society for the Diffusion of Useful Knowledge. 
 
Peasant Proprietors. 
 
 187 
 
 carried on, in these glens and valleys, shows a spirit of 
 exertion and co-operation to which the latter can show 
 nothing similar.' Once more we will quote Arthur Young, 
 who has most happily expressed the effect which the feel- 
 ing of property exerts in stimulating industry. Although 
 Arthur Young often found great fault with the agriculture 
 which he observed on some of the small properties in 
 France, yet he remarks that what he saw in France 
 'proved that property in land is, of all others, the most 
 active instigator to severe and incessant labour. And this 
 truth is of such force and extent, that I know of no way 
 so sure of carrying tillage to a mountain-top, as by per- 
 mitting the adjoining villagers to acquire it in property; 
 in fact, we see that in the mountains of Languedoc they 
 have conveyed earth in baskets on their backs, to form 
 a soil where nature had denied it.' It has been often 
 urged as an objection against small properties in land, 
 that there are many important improvements which can 
 only be carried out by a cooperation of labour and by a 
 combination of resources, which, it is supposed, would not 
 exist among small proprietors. For instance, it may be 
 impossible to drain one isolated field, if those around it 
 remained undrained ; an ' outlet must be found for the 
 water, and in this way the interests of an adjoining pro- 
 perty might be affected. Again in many countries the 
 fertility, and consequently the value, of the land depends 
 on irrigation. Any one who is acquainted with those 
 works of irrigation which have converted many of our 
 English valleys from almost useless swamps into the 
 richest meadow-land, will no doubt have observed, that 
 the most expensive of these works are not constructed for 
 any particular field, but serve a large tract of country. 
 Therefore.it might be supposed that irrigation would 
 never be attempted, if it were necessary to consult the 
 conflicting interests of a great number of small proprie- 
 tors. Such a supposition is completely met by the testi- 
 mony of Mr Laing with regard to Norway, who assures us 
 that in many districts entirely occupied by peasant pro- 
 prietors, irrigation is carried out to its fullest possible 
 extent. Mr Laing emphatically speaks, not only of the 
 industry, but also of the cooperation of labour, shown by 
 the Norwegian peasant proprietors in irrigating their land. 
 
 BOOK II. 
 CH. VI. 
 
 and 
 France. 
 
 Certain ■ 
 objections 
 to peasant 
 proprietor- 
 ship are 
 obviated 
 by the co- 
 operation 
 of labour, 
 as shown 
 by the Nor- 
 weginn 
 peasants. 
 
i88 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. VI. 
 
 Is the nett 
 produce 
 greater on 
 small pro- 
 perties, as 
 well as the 
 
 Evidence 
 of A. 
 Thaer, 
 
 Mr Kay, 
 
 and M. 
 
 Seichens- 
 
 perger. 
 
 Rapid in- 
 crease of 
 the value 
 of small 
 properties. 
 
 English writers, whilst allowing that a small proprietor 
 may cultivate his land with great care, have almost in- 
 variably assumed that this kind of cultivation is more 
 suited to a garden than a farm, and hence it is frequently 
 stated that farming by peasant proprietors is much more 
 expensive than farming on a large scale. The gross pro- 
 duce from small properties may be greater, but the nett 
 produce, it is said, cannot be. Some continental agricul- 
 turists have, however, enquired into this subject with 
 great care, and their conclusions are worthy of attentive 
 consideration. Amongst a great number of German wri-- 
 ters whose opinions upon this subject coincide, we select 
 Albrecht Thaer, a writer on the different systems of agri- 
 culture, and who had, in some of his earlier works, ex- 
 pressed himself very decidedly in favour of large properties 
 divided into large farms. He says he is convinced 'that 
 the nett produce of land is greater, when farmed by small 
 proprietors, than when farmed by great proprietors or 
 their tenants.' Mr Kay, a most intelligent English writer, 
 expresses the same opinion, and says: — 'The peasant 
 farming of Prussia, Saxony, Holland, and Switzerland, is 
 the most perfect and economical farming I have ever 
 witnessed in any country.' But if the nett produce of land 
 is increased when occupied by small proprietors, a large 
 estate ought, of course, to be more valuable if it were 
 divided among several small proprietors. Upon this 
 point M. Reichensperger has given some most valuable 
 information, based upon personal observation, and upon 
 the most accurate statistical facts. He expresses a very 
 decided opinion, not only that the gross produce of any 
 given number of acres held and cultivated by small or 
 peasant proprietors, is greater than the gross produce of 
 an equal number of acres held by a few great proprietors, 
 and cultivated by tenant farmers; but that the nett pro- 
 duce of the former, after deducting all the expenses of 
 cultivation, is also greater than the nett produce - of the 
 latter. He mentions facts which seem to prove that the 
 fertility of the land, in countries where properties are 
 small, must be rapidly increasing, and substantiates this 
 opinion by proving that the price of the land which is 
 divided into small properties in tlie Prussian Rhine pro- 
 vinces is much higher, and has been rising much more 
 
Peasant Proprietors. 
 
 189 
 
 rapidly, than the price, of land on the great estates. ' T|iis 
 is the most conclusive, tiestimony which can be given in 
 fevour of small landed properties; it is in fact a practical 
 and complete solution of the question, for upon this sub- 
 ject a,bstract reasoning will have little effect in convincing 
 the great bulk of mankind. Even if a very strong case 
 can be made out in favour of small properties, it will not 
 convince a people like the English, who are accustomed to 
 a different system; they will naturally say — If small pro- 
 perties are more advantageous, an estate if divided would 
 realise a larger price.; and thjerefore a large estate, when- 
 ever it was sold, would inevitably be partitioned into a 
 great number of small properties. The reverse of this, 
 however, has taken place in England ; estates have not 
 been more subdivided, for it is well known that within the 
 last few years, in almost every district, a great number of 
 small properties have gradually been absorbed, and com- 
 bined into large estates ; this apparently affords very 
 strong evidence that small properties are not in England 
 economically advantageous. 
 
 It is often erroneously imagined, that if a' political 
 economist describes the advantages which are conferred 
 upon a nation by the existence of a class of peasant pro- 
 prietors, he must therefore be anxious to introduce small 
 properties into a country like our own by some compulsory 
 measures. But many of the advocates of peasant proper- 
 ties desire no more than that legislation should not foster 
 one system of land tenure more than another. If the 
 law of a country gives no artificial encouragement to any 
 particular form of land tenure, then the development of 
 any system would be spontaneous, and would prove its 
 economic advantage. In England, many circumstances 
 combine, not only to prevent the partition of large into 
 small properties, but also to encourage the rapid absorp- 
 tion of the small properties, which were so numerous in 
 former times. The influence thus exerted to encourage 
 the aggregation of land is partly due to our law of real 
 property; partly to customs which this law fosters; and 
 also partly to causes which may be described as natural, 
 and whose operations cannot therefore be directly con- 
 trolled. Taking these three different classes of circum- 
 stances in order, it may be sufficient here to state that the 
 
 BOOK II. 
 CH. VI. 
 
 Experi- 
 ence of 
 England. 
 
 The prin- 
 cipal legal 
 obstacles 
 to the in- 
 troduction 
 of peasant 
 proprietors 
 into Eng- 
 land are 
 
1 90 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. VI. 
 
 The lata of 
 primogeni- 
 ture. 
 
 Tlie power 
 of entail, 
 
 legal influence referred to arises from the law of primo- 
 geniture, from the power of entail, and from a system of 
 conveying landed property which is costly and cumbrous. 
 It is no doubt often truly said that in England primogeni- 
 ture is maintained much more by custom than by law. No 
 one is compelled to leave his land to his eldest son; and 
 the only occasion in which the eldest son is necessarily 
 preferred to the younger children is in the case of intes- 
 tacy. When it is remembered that few people die without 
 a will, it is often argued that the law of intestacy, with 
 regard to real property, produces but a very slight effect. 
 It is, however, impossible to say to what an extent the 
 custom of primogeniture, which so generally prevails in 
 England, is encouraged by this law. When a man dies 
 without a will, it is only fair to conclude that such a dis- 
 position is made of his property as the State deems to be 
 most strictly just. The law of England, therefore, virtually 
 aflSrms that in the ca.se of personal property all the children 
 of a family shall be treated alike; but with regard to real 
 property the extraordinary doctrine is laid down, that it is 
 just that the eldest son, to the exclusion of his mother and 
 brothers and sisters, should inherit all the land possessed 
 by his father. To prefer one child before all the rest is so 
 contrary to the instincts of human nature that the custom 
 of primogeniture could not be maintained unless it were 
 supposed that some collateral advantages were associated 
 with it, or unless the custom derived some such sanction 
 as is given to it by the law of this country. In feudal 
 times there were collateral advantages associated with 
 primogeniture, because it was necessary to keep landed 
 estates intact for purposes of protecting them against 
 hostile attack. But now that property is secure, the un- 
 natural institution of primogeniture has no defence except 
 that which it derives from the sanction conferred upon it 
 by our law of intestacy. 
 
 But great as is the influence which is exerted upon the 
 aggregation of land in England by the law and custom 
 of primogeniture, the effect produced by the power of 
 entail is probably still greater. Our law enables land to 
 be settled upon any number of lives in being, and upon 
 the unborn child of the survivor. Directly such a settle- 
 ment is made, it is impossible to sell the estate affected 
 
Peasant Proprietor's. 
 
 191 
 
 by it, until that long period (sometimes 80 or 90 years) 
 has elapsed when the unborn child of the survivor shall 
 have attained his majority. There can be no doubt that 
 by far the greater part of the whole land of this country 
 is thus settled. Consequently only the remaining portion 
 can be regarded as a marketable commodity. The direct 
 result of this is that so far as the selling of land is con- 
 cerned, its supply is artificially restricted, and conse- 
 quently in this country land obtains a monopoly price. 
 
 The acquisition of small properties in land is also im- 
 peded by our cumbrous system of conveyancing. There 
 is not any great difference between the cost of conveying 
 a small and a large estate. It is therefore manifest that 
 a heavy penalty is imposed upon the subdivision of land 
 when the expense of conveying a small plot of ground 
 represents no inconsiderable portion of its price. 
 
 Beside these causes which are connected with laws that 
 can be at once repealed or modified, the aggregation of 
 land is promoted by other circumstances which cannot 
 be so directly controlled. Thus in a country which is 
 advancing in wealth and population the number of people 
 who are able and anxious to purchase land is constantly 
 increasing. The possession of land confers social position 
 and political influence. If a man owns a large estate 
 he is certain to be made a deputy lieutenant and pro- 
 bably high sheriff of his county ; these social distinctions 
 are highly valued. The possession of land also enables a 
 man to enjoy the pleasures of a country life. There are 
 consequently many collateral advantages associated with 
 the ownership of land ; which, in a country such as our 
 own, are each year increasing in value. The price which 
 is paid for landed property is therefore composed of two 
 elements. The one represents the agricultural value of 
 the land and may be estimated by the rent annually 
 yielded. The other element represents the pecuniary 
 value of those collateral advantages associated with land, 
 which have just been alluded to. It is manifest that if 
 this last element constitutes any considerable portion of 
 the .whole value of the land, a man cannot afford to 
 become the purchaser of land who desires to cultivate 
 it for profit. It has been previously stated that in a 
 thickly peopled country such as England, the difference 
 
 BOOK II. 
 CH. TI. 
 
 And our 
 cumbrous 
 system of 
 convey- 
 ancing. 
 
 There are 
 also social 
 and politi- 
 cal ob- 
 stacles to 
 the intro- 
 duction of 
 peasant 
 proprietors 
 into Eng- 
 land. 
 
193 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. TI. 
 
 Social 
 effects of 
 the Enp- 
 lish sys- 
 tem. 
 
 Extreme 
 poverty of 
 English 
 labourers. 
 
 between the market value and the agricultural value 
 of land steadily increases; hence each year a smaller 
 area of our land ■will be cultivated by those who own 
 it. This tendency to separate the cultivation from the 
 ownership of the soil is, as previously explained, greatly 
 intensified by various laws, such as the law of primo- 
 geniture and entail. It therefore becomes of particular 
 importance as far as possible to remove all the encou- 
 ragement, thus artificially given, to promote the aggre- 
 gation of land. The opinions of the highest authorities 
 on Agriculture, such as Arthur Young and others, have 
 been quoted to show that the feeling of ownership exerts 
 by far the most powerful influence that can be brought 
 into operation to secure the most efficient cultivation of 
 land. The same opinion has been strongly expressed-by 
 Adam Smith and by almost every other distinguished 
 political economist who has written since his time. 
 
 After having pointed out some of the economic dis- 
 advantages associated with the aggregation of land, it 
 will be important to enquire whether there are any 
 counterbalancing advantages resulting from our existing 
 system of land tenure. Even those who are most decided 
 in their opinions as to the productiveness of England's 
 industry, must feel that the condition of those who are 
 employed in agriculture is most unsatisfactory ; for there 
 are few classes of workmen who, in many respects, are so 
 thoroughly wretched as the English agricultural labourers. 
 They are in many districts so miserably poor, that if they 
 were converted into slaves to-morrow, it would be for the 
 interest of their owners to feed them far better than they 
 are fed at the present time. In some localities which are 
 at a considerable distance from the manufacturing dis- 
 tricts, twelve shillings a week may be regarded as the 
 maximum of agricultural wages during the winter months. 
 A few years since much lower wages prevailed ; eight 
 or nine shillings a week were then frequently paid. A 
 moment's consideration will show that such wages are 
 barely sufficient to supply the first necessaries of life. 
 Meat cannot be tasted more than once a week, and those 
 who have to exist on this scanty fare are more exposed 
 than any others to the inclemency of our trying climate. ' 
 Such wages wiU not permit the slightest provision to be' 
 
Peasant Proprietors. 
 
 193 
 
 made, either for sickness, or the feebleness of old age. 
 Throughout large agricultural districts not a single agri- 
 cultural labourer will be found who has saved as much as 
 a week's wages. A life of toiling and incessant industry 
 offers no other prospect than a miserable old age ; for 
 when these labourers are too old to work they will either 
 be paupers in the workhouse, or they must come, as sup- 
 pliant mendicants, for parish relief. But even the phy- 
 sical suffering which is associated with their poverty is 
 not the worst feature of their condition; their ignorance 
 is as complete as it is distre.ssing. Improved schools, 
 enormous educational grants, and a general zeal for 
 instructing the poor, have failed to educate the agricul- 
 tural labourers. The reason of the failure is obvious. 
 When children leave school at eight or nine years of age, 
 to become ploughboys, the little that has been learnt is 
 sure to be forgotten; and the consequence is, that in 
 many large agricultural villages there is not one young 
 man who can read sufficiently well to understand a news- 
 paper. Parents may be accused of neglecting their chil- 
 dren's welfare ; but how can we expect those who are so 
 miserably poor, and who are ignorant themselves, and 
 know not the value of knowledge, to sacrifice the two 
 shillings a week that a child of eight or nine years of age 
 may readily earn ? Other countries, no doubt, possess 
 labourers who are equally poor, and equally ignorant ; but 
 the poverty and the ignorance are heightened, when con- 
 trasted with the accumulated wealth and the vaunted 
 civilisation with which they are surrounded. We make 
 these remarks in order to show, that even if the system 
 of land tenure in this country is productive of wealth, yet 
 that the distribution of this vi'ealth is so unsatisfactory, 
 that those whose labour is instrumental in producing it 
 are miserably poor, and their life in every respect most 
 unenviable. They have, in fact, to work with the regu- 
 larity of machines, without hope that their condition will 
 be improved'. 
 
 1 Since this description of- the condition of the agrioiiltural labourer 
 was -written, a remarkable movement, inaugurated by Mr Arch, has led 
 to the establishment of agricultural unions. These unions were com- 
 menced in the spring of 1872 ; they had scarcely been in existence a year 
 when they effected a not unimportant rise in agricultui-al wages through- 
 
 BOOK II. 
 
 CH. VI. 
 
 This ex- 
 treme 
 poverty 
 products 
 extreme 
 ignorance. 
 
 F. M. 
 
 N 
 
194 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. VI. 
 
 Social 
 effects of 
 peasant 
 proprietor- 
 ship. 
 
 Industry 
 of labour- 
 
 Let us BOW enquire whether the condition of an agri-, 
 cultural community is more desirable when the land is 
 owned and cultivated by peasant proprietors. Before 
 quoting any special instances, it may be mentioned that 
 the condition of a man who can enjoy the entire fruits 
 of his own labour is in every respect superior to the 
 condition of one who is simply a hired labourer, and who, 
 consequently, has no direct interest in the work upon 
 which he is employed. The faculties of the latter are 
 never fully stimulated, his hopes are not excited by success, 
 his energies are not called forth to contend with the^ 
 difficulties and disasters to which every employment is" 
 liable ; his life is, in fact, one of dull routine. It may be 
 said that he is spared many anxieties, with which the 
 labourer who is his own master has to contend. But it is 
 almost a truism to assert, that these cares and anxieties 
 are the most valuable instruments of education, and that 
 without them the human faculties can never be adequately- 
 developed. These general observations may be corrobo- 
 rated by actual experience, at least in the case of an 
 agricultural community. All writers on peasant proprie- 
 tors bear the most decided testimony to their incessant and 
 intelligent industry. In Switzerland, France, Flanders, 
 and the Rhine-land, we are told that the small proprietors, 
 who cultivate their own land, economise their time with 
 the most scrupulous care ; they earnestly strive to turn 
 every half hour to the utmost possible advantage ; they 
 work earlj' and late, and their labour exhibits a watchful- 
 ness, and a fostering attention, which is never acquired by 
 hired labourers ; magical is the influence which the feeling 
 of property exerts, and truly indeed has it been said by 
 Arthur Young, that it is potent enough to turn sand into 
 gold, and convert a desert into a garden. So great is the 
 industry of peasant proprietors, that some writers have 
 alleged, that they are too industrious ; that they are, in 
 
 out the country. This rise even in the districts where the lowest rate of 
 wages prevailed amounted to not less than 2s. a week ; in other districts 
 an advance of 3s. or 4s. a week was secured. Prom what has already 
 been observed of this movement, during the few years it has been in ope^ 
 ration, it seems probable that it will not only obtain a higher remunera- 
 tion for the agricultural labourer, but it is also likely to exert a powerful 
 influence in promoting his general welfare. This subject will be referred 
 to again in tie Chapter on Trade Unions. 
 
Peasant Proprietors. 
 
 195 
 
 fact, too much engrossed in the business of life. But it is 
 with reference to the prudential virtues, that they offer 
 the most striking contrast to our hired labourers. The 
 ■worst paid workmen in this country are so thoroughly reck- 
 less, that they seldom show any foresight for the future; 
 and many, consequently, who are impressed with this fact, 
 have maintained, that higher wages effect no permanent 
 irnprovement in the condition of the poor. They do not 
 save their increased earnings, but they either many with 
 increased recklessness and improvidence, or spend more 
 money in drink. Improved education would no doubt 
 powerfully tend to correct these faults, for an almost en- 
 tire absence of prudence is one of the most certain effects 
 of ignorance. The life of a hired labourer can exert no 
 influence whatever towards cultivating prudential habits. 
 His poverty is so great, that he, when he has the means, 
 naturally indulges in somewhat better living; and even if 
 he should, by dint of great sacrifice and exertion, accumu- 
 late a trifling amount of money, he very seldom has any 
 eligible opportunity of investing these savings. No defi- 
 nite prospect is held out to him, that his savings will ever 
 enable him to occupy a different social position. If a 
 hired labourer saves twenty pounds, he has no chance of 
 investing it as capital in some profitable employment; the 
 only purpose to which he can devote it, is to place it in 
 the savings bank, where he can obtain something below 
 the current rate of interest. How much more powerfully 
 will prudence be stimulated, if a definite prospect is held 
 out, that a labourer might in the course of time, by means 
 of saving, acquire a small landed property ! The value of 
 such an acquisition to the labourer is not to be estimated 
 by the amount of wealth with which it enriches him. It 
 , makes him in fact a different man; it raises him from 
 - tlje position of a labourer, and calls forth all those active 
 qualities of mind which are sure to be exerted when a 
 man has the consciousness that he is working on his own 
 account. 
 
 These remarks are corroborated by the unanimous testi- 
 
 ■ mony of the most competent authorities ; for it has been 
 
 repeatedly afiirmed that peasant proprietors are invariably 
 
 a most thrifty class, and so anxious are they to accumulate 
 
 capital, that the style of their living has oftea been, erro- 
 
 N2 
 
 BOOK II. 
 OH. VI. 
 
 Their pru- 
 dential vir- 
 tues, 
 
 which 
 even in 
 excess are 
 preferable 
 to English 
 reckless- 
 ness. 
 
 Evidence 
 to prove 
 the thrifti- 
 ness of 
 peasant 
 proprie- 
 tors. 
 
igS 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. TI. 
 
 DenmarJi. 
 
 3Ir Jcmes's 
 assertion 
 that pea- 
 sant pro- 
 prietorship 
 over stimu- 
 lates popu- 
 lation. 
 
 neously supposed to denote poverty, when it is simply a 
 result of great economy. The advantage to be derived 
 from saving is brought most distinctly home to them. A 
 small proprietor knows, that if he can save a few pounds, 
 he will be able to have another horse or cow, or perhaps 
 some new implement, and he is able clearly to foresee the 
 profit which he will derive from such a purchase. Let a 
 man once feel how efficient the wealth which he saves 
 may become in producing more wealth, and he is sure in 
 future to exert himself actively to accumulate capital. Mr 
 Browne, who was a few years since the English consul at. 
 Copenhagen, has made some most interesting observa- 
 tions with reference to the peasant proprietors of Den- 
 mark. He bears the most decided testimony to their 
 thrift, and also to the superior comfort in which they live. 
 Thus, he says, ' The first thing a Dane does with his 
 savings is to purchase a clock, then a horse and cow, 
 which he hires out, and which pay a good interest. Then 
 his ambition is to become a petty proprietor, and this class 
 of persons is better off than any in Denmark. Indeed, I 
 know of no people, in any country, who have more easily 
 within their reach all that is really necessary for life, than 
 this class, which is very large in comparison with that of 
 labourers.' 
 
 A system of small landed properties has sometimes been 
 condemned, because it is supposed to encourage a reck- 
 less increase of population. Thus the late Mr Richard 
 Jones, in some lectures which he gave as Professor of 
 Political Economy at the East India College formerly- 
 existing at Haileybury, says that the peasant proprietors 
 are 'exactly in the condition in which the animal disposi- 
 tion to increase their numbers is checked by the fewest 
 of those balancing motives and desires which regulate the 
 increase of superior ranks, or more civilised people.' He 
 however entirely fails to support this opinion by specific 
 facts. Many other writers besides Mr Jones have main- 
 tained that small landed proprietors must become gradu~ 
 ally impoverished, in consequence of the continued division 
 of the land amongst the children of each generation. It 
 is not unfrequently assumed, that a man will marry directly 
 he acquires a small landed property, a large family will 
 have to be maintained, and that the father will be able,- 
 
Psdstmt Proprietors. 
 
 197 
 
 at his death, to make little or no provision for his numer- 
 ous children, unless he either divides the land which he 
 owns amongst them, or else leaves the land to one of his 
 children heavily encumbered with annuities, to be paid to 
 the rest. In order to disprove such suppositions, we will 
 in the first place show that all cb priori reasons' would lead 
 us to conclude that the acquisition of property will act 
 more powerfully than any other circumstance to make a 
 class prudent with regard to marriage; we shall, in the 
 'second place, adduce specific facts bearing upon the slow 
 rate of the increase of population amongst peasant pro- 
 prietors. 
 
 The mgst casual observer must have remarked that the 
 poorest classes in this country show the greatest impru- 
 dence with regard to marriage. As a general rule, a man 
 does not marry, in the middle and upper classes, unless he 
 believes that he shall, at any rate, be able to give his 
 children as good an education as he has himself received, 
 and be also able to place them in a social position similar 
 to that which he himself occupies. The majority of men 
 are accustomed to some particular style of living, and they 
 generally refrain from marriage, if the increased expenses 
 of married life would compel them to live in a manner 
 which would not give them, what has been aptly termed, 
 'their habitual standard of comfort.' But the very poor 
 are not influenced by any such considerations — they are 
 not restrained from marriage by a desire to preserve a 
 certain standard of comfort. What standard of comfort 
 could the miserable cottiers of Ireland have had? Those 
 who are accustomed to poverty do not attempt to exercise 
 any restraint with regard to marriage; and amongst such 
 persons, population is only restrained by the great mor- 
 tality which prevails amongst the very poor, and more 
 especially amongst their children. But when a labourer 
 becomes a small landed proprietor he is at once influenced 
 by the same motives which render the middle and upper 
 dasses prudent with regard to marriage. A person in the 
 middle classes appreciates the value of the position he 
 occupies ; and he will not marry, if marriage will so im- 
 poverish him as to render it necessary for him to resign 
 his position. A small landed proprietor must be quite as 
 forcibly convinced of the superiority of his own position 
 
 BOOK II. 
 CH. VI. , 
 
 Improba- 
 bility of 
 this state- 
 ment. A ■ 
 nalogy of 
 our upper 
 classes. 
 
IgS 
 
 Manual of Politicai Economy. 
 
 BOOK II. 
 OH. TI. 
 
 Direct evi- 
 dence. 
 
 Sismondi's 
 opinion. 
 
 Mr Kay's 
 account of 
 Switzer- 
 land. 
 
 compared with that of a hired labourer; and he will be 
 equally careful not to marry, if he considers that the ex- 
 penses of a family would force him to give up this position, 
 and would compel him to sell his land, and return to the 
 ranks of the ordinary labourer. There is, moreover, 
 abundant evidence to prove that peasant proprietors are 
 acted upon by these motives. Sismondi, perhaps more 
 than any other writer, has been impressed with the evils 
 which result to the poor from over-population, consequent 
 on imprudent marriages; and his strong advocacy of pea- 
 sant properties is principally based upon the conviction 
 that the system acts powerfully to restrain population. 
 His testimony with regard to France is extremely impor- 
 tant, because in France the system of peasant proprietor- 
 ship is put to the most severe test, by the operation of the 
 law which forces the equal division of landed property. 
 Sismondi says, 'There is no danger lest the proprietor 
 should bring up his children to make beggars of them. 
 He knows exactly what inheritance he has to leave them; 
 he knows that the law will divide it equally amongst 
 them ; he sees the limit beyond which this division would 
 make them descend from the rank which he has himself 
 filled, and a just family pride, common to the peasant and 
 to the nobleman, makes him abstain from summoning into 
 life children for whom he cannot properly provide.' 
 
 Mr Kay, who may always be relied upon as a most 
 accurate observer, shows that the prospect of acquiring 
 landed property makes not only those who are engaged 
 in agriculture prudent with regard to marriage, but also 
 exerts the same influence upon the labourers who are em- 
 ployed in the adjacent towns. Speaking of Switzerland, 
 he says, 'In some parts, as in the canton of Argovie, for 
 instance, a peasant never marries before he attains the 
 age of twenty-five years, and generally much later in life; 
 and,in that canton the women very seldom marry before 
 they have attained the age of thirty. Nor do the division 
 of land, and the cheapness of the mode of conveying it 
 from one man to another, encourage the providence of the 
 labourers of the rural districts only. They act in the 
 same manner, though perhaps in a less degree, upon the 
 labourers of the smaller towns. In the smaller provincial 
 towns, it is customary for a labourer to own a small plot 
 
Peasant Proprietors. 
 
 199 
 
 of ground, outside the town. This plot he cultivates in 
 the evenings, as his kitchen-garden. He raises in it vege- 
 tables and fruit for the use of his family during the winter. 
 . After his day's work is over, he and his family repair to 
 the garden for a short time, which they spend in planting, 
 sowing, weeding, or preparing for sowing a harvest, ac- 
 cording to the season. The desire to become possessed of 
 one of these gardens operates very strongly in strengthen- 
 ing prudential habits, and in restraining improvident 
 marriages. Some of the manufacturers in the canton of 
 Argovie told me that a townsman was seldom contented 
 until he had bought a garden, or a garden and house, and 
 that the town labourers generally deferred their marriages 
 for some years, in order to save enough to purchase either 
 one or both of these luxuries.' Mr Kay also proves, by the 
 most precise statistical facts, that the peasant proprie- 
 tors of the Prussian Rhine-land are extremely provident 
 with regard to marriage, the ordinary age at which 
 people there marry varying between twenty-five and 
 thirty years. Numerous other facts might be adduced, 
 to prove that a system of cultivation by peasant pro- 
 prietors is in every respect most satisfactory in its social 
 consequences. 
 
 In contrast with these results, the effects of our own 
 system of land tenure may be correctly characterised in 
 the following manner. The land is owned by compara- 
 tively few great landlords ; it is occupied by tenants who 
 have sufficient capital to cultivate large farms, and the 
 labour is supplied by hired labourers, whose poverty is 
 proverbial and whose industrial status is altogether un- 
 satisfactory. When the soil of a country is owned and 
 cultivated by peasant proprietors, the efficiency of pro- 
 duction is not interfered with; and we believe it has 
 been shown that the social and material condition of 
 peasant proprietors is most satisfactory. Our own history, 
 at least, proves that this class, formerly represented in 
 this country by the ancient yeomanry, has ever been dis- 
 tinguished for its independence and its patriotism. 
 
 Whenever the system of peasant properties is advocated, 
 it is important to state, in the most explicit manner, that 
 it would not be desirable to create small landed properties 
 by compulsory legislation. Some people are never tired 
 
 BOOK II. 
 CH. TI. 
 
 Effects of 
 our own 
 system con- 
 trasted 
 with that 
 of peasant 
 proprie- 
 tors. 
 
 It would 
 not be de- 
 sirable to 
 create 
 small 
 
200 
 
 Manual of Political Economy. 
 
 of repeating the misrepresentation that all who are dis- 
 satisfied with the English system of land tenure, are 
 anxious to substitute for it the French law of compulsory 
 subdivision of land. The objection to this law is similar 
 to that which has been urged against our owu law of real 
 property. Neither the aggregation of land nor its sub- 
 division ought to be enforced by legislation. If things 
 were allowed to take their natural course, experience 
 would soon prove which system of land tenure was the 
 most beneficial to different countries. 
 
 It has already been stated that in growing corn and 
 some other products, large farming will become com- 
 paratively more advantageous than small farming, as 
 machinery is more extensively used in agriculture. In 
 order therefore to combine the peculiar advantages as- 
 sociated with large farming with those resulting from 
 peasant properties, it may be anticipated that, in future, 
 land will often be owned and cultivated by associations 
 of labourers. The practicability of forming such associa- 
 tions will be shown in the chapter which describes the 
 progress of cooperative societies. 
 
 An event has occurred in Europe within the last feW 
 years which will extend upon a vast scale the system of 
 peasant properties. Until the great act of emancipation 
 was carried out by the present Emperor of Russia, all the 
 land in that country was cultivated by serfs. These serfs 
 were supposed to. number about 22,000,000; their con- 
 dition had for ages been that of semi-slavery. Each serf 
 generally occupied a small portion of land ; and instead 
 of paying the proprietor of the soil any rent, the serf waS 
 bound to give him a certain proportion of his labour, and 
 to render him various other services. As long as the serf 
 fulfilled his obligations, he had a claim to the plot of 
 ground which he was accustomed to cultivate. The landed ; 
 proprietor was, however, permitted to exercise upon the 
 serfs much of the tyranny with which, in feudal times, 
 the lord oppressed his villeins. A Eussian serf could not 
 marry whom he pleased; labour was ruthlessly extorted 
 from him by the stick and by other means of corporal 
 punishment ; and a trivial offence, perhaps never properly 
 investigated, would often consign a serf to perpetual Si- 
 berian exile. The present Emperor of Russia has made 
 
Peasant Proprietors. 
 
 '20 1 
 
 every Russian serf a free labourer, and has given him 
 possession of two-thirds of the small plot of land which he 
 held upon the feudal tenure previously described. The 
 time which has elapsed since this great scheme of emanci- 
 pation was completed, is too brief to enable a judgment to 
 , be formed as to its results. It need cause no surprise or 
 disappointment that so fundamental a change in the social 
 and economic condition of a nation, should be accompanied 
 by some temporary inconvenience, even to the emanci- 
 pated serfs themselves. But all experience would lead to 
 the conclusion that Russia will in a few years derive in- 
 calculable advantage from a reform which may convert 
 millions of serfs into as many prosperous peasant pro- 
 prietors. Nothing probably has so powerfully contributed 
 to promote the progress of Prussia as the reforms which 
 were carried out in her system of land tenure, at the 
 commencement of the present century, by Stein and 
 Hardenberg. A feudal tenantry was transformed into 
 cultivating proprietors, who have probably more than 
 any other class contributed to the social and material 
 advancement of Prussia. But the extraordinary manner 
 in which France has recovered her prosperity since the 
 conclusion of her disastrous war with Germany, affords 
 the most striking illustration of the wealth diffused among 
 the agricultural classes by a system of peasant properties. 
 Although the cost of the war to France including the 
 indemnity to Germany was not less than £400,000,000, and 
 although many extensive tracts of land were laid waste, 
 yet a great portion of the money required for this enor- 
 mous outlay was readily supplied from the accumulated 
 savings of the French peasantry. English writers not 
 unfrequently assert that French agriculture is inferior 
 to that of our own country. It should however be re- 
 membered that whereas English farmers often cultivate 
 the land with very inadequate capital, and English agri- 
 cultural labourers have no capital at all, it has been shown 
 that the French peasantry possessed great reserves of capital 
 even after their country had been desolated by a destructive 
 war. It has been well said that the French ' would save 
 money out of wages that would scarcely suffice to keep 
 English labourers , off the pauper roll ;' and there seems 
 to be every reason to conclude that these habits of thrift 
 
202 
 
 Manual of Political Economy. 
 
 which have been so deeply implanted iu the French 
 character have been powerfully stimulated by a system 
 of land tenure which causes so large a proportion of the 
 nation to have proprietary rights in the soil. 
 
CHAPTER VII. 
 
 METAYERS AND COTTIERS, AND THE ECONOMIC ASPECTS 
 OF TENANT RIGHT. 
 
 AVERY considerable portion of the land of Europe is 
 . cultivated by metayers, and nearly the whole of the 
 soil of Ireland before the famine in 1848 was occupied by 
 cottier tenants. A metayer originally occupied the land 
 on the condition that the landowner should receive one 
 half the produce as his rent. The name is still preserved, 
 although the terms of this tenancy have been much 
 modified. Almost the whole of Tuscany is cultivated 
 by metayers, who pay the landlord two thirds of the 
 produce as rent ; a metayer tenancy therefore now sig- 
 nifies, that a certain fixed portion of the produce should 
 be paid as rent. Whether this portion should be one half, 
 two thirds, or any other amount, seems chiefly to be regu- 
 lated by the customs of different countries. Those who 
 are only acquainted with English agriculture find it diffi- 
 cult to imagine the great extent of land which is cultivated 
 by metayers. Before the revolution of 1790, nearly the 
 whole of the land of France was rented by metayers, and 
 even at the present time scarcely any other system of 
 land tenure is known in Piedmont, Lombardy, Tuscany, 
 and other parts of the Italian peninsula. 
 
 The cottier tenure is so anomalous that it is not easy to 
 characterise it in a brief description. It may however be 
 said generally, that a landlord takes from a cottier in the 
 form of rent the utmost possible amount. The cottier 
 has only left to him the means of bare subsistence. 
 " Cottier rents are nominal in pecuniary amount ; because 
 these rents are fixed so high, that it is impossible for the 
 cottiers ever to pay them. The nominal amount of the 
 
 The me- 
 tayer sys- 
 tem. 
 
 The cottier 
 system. 
 
204 
 
 Manual of Political Economy. 
 
 BOOK n. 
 CH. Til. 
 
 Compari- 
 son of 
 cottier and 
 metayer 
 systems. 
 
 The me- 
 tayer sys- 
 tem exhi- 
 bits the 
 control of 
 competi- 
 tion by 
 custom. 
 
 rent often exceeds the whole produce which the land would 
 yield. These tenants, therefore, are perpetually in arrear, 
 and this gives the landlord the means of appropriating 
 to himself the whole advantage of any unusually good., 
 crops. 
 
 We have classed metayers and cottiers together, be- 
 cause the same disadvantages in part belong to these 
 two systems of land tenure; but the results which arise 
 from these tenures offer in many other respects a striking 
 contrast. 
 
 The metayer tenancy illustrates in a very remarkable 
 manner the control which custom exerts over competition; 
 for the fact that metayer tenure prevails throughout a 
 country plainly indicates that many landlords sacrifice 
 their own interests, in order to obey a custom ; since it . 
 can be readily shown, that the rent of land, if regulated by 
 competition, would in the majority of cases greatly exceed 
 the metayer rents which are paid. And this will be true 
 whatever may be the portion of the produce at which the 
 metayer rents are fixed ; for instance, in Tuscany two- 
 thirds of the whole produce is apportioned to the landlord. 
 This is probably the highest metayer rent which is paid. 
 The fertility of the soil of Tuscany must be such, that one 
 third of the produce which is yielded by any land which 
 is cultivated suffices to pay the expenses of cultivation, 
 and also remunerate the tenant for his labour. If one 
 third of the produce was not sufficient to do this, the land 
 would be cultivated at a loss ; since it is supposed that 
 two thirds are allotted to rent. But if one third of the 
 produce yielded by inferior land is sufficient for the pur- 
 poses just mentioned, then it is manifest that one third of 
 the produce yielded by more fertile land would more than 
 suffice, according to the rates of profit and wages current 
 in the country, to remunerate the tenant for the capital he 
 expends, and for his labour of superintendence. But when 
 rents are regulated entirely by competition, a farmer can- 
 not hope to obtain more than the average rate of profit, 
 and, in such a case, the farmer who cultivates productive 
 land is not in a better position than a farmer who occu- 
 pies land of inferior productiveness. The landlord is able 
 to appropriate to himself the whole advantage of the 
 increased fertility ; since, when rents are regulated by 
 
Metayers and Cottiers, arid economic aspects of Tenant right. 205' 
 
 competition, they are adjusted in proportion to the fer- 
 tility and other advantages which, a particular farm may 
 possess. "When, therefore, metayer rents are paid, the 
 tenants who happen to occupy the most productive land 
 possess a beneficial interest, the value of -which is pro- 
 portioned to the productiveness of the soil. We will 
 illustrate our meaning by an example. Let it be sup- 
 posed that there are two farms which vary greatly in 
 productiveness, but in the cultivation of which the same 
 amount of capital is invested ; this amount being 2000Z. 
 Let it be further assumed that the ordinary rate of agri- 
 cultural profit is ten per cent., and that therefore these 
 farmers will be satisfied with a profit of 2001. The annual 
 expense of cultivation, including wages, seed, wear and 
 tear of implements, &c., may be, assumed to be in each 
 farm 800Z. Let the annual amount of the produce of 
 the two farms he respectively 1800Z. and 1600Z. If, there- 
 fore, the two fai'ms paid rents of 800Z. and 5001. respect- 
 ively, there would in each case be lOOOZ. left to the 
 farmers ; this would replace their capital, and leave them 
 200Z,, or a profit of ten per cent., as a remuneration for 
 their own laboiir and capital. These farms therefore, if 
 tlie rents were regulated by competition, would pay rents 
 of 800Z. and 5001. respectively. We will now examine 
 what would occur if these two same farms, cultivated by 
 the same amount of capital as before, paid a metayer rent 
 of one third the produce ; the produce from the two farms 
 above supposed being 1800Z. and 1500Z., the metayer rents 
 would consequently be 6001. and 5001. respectively. The 
 worse farm of the two therefore pays the same rent as 
 before, but the better farm pays a rent of 2001. less ; 
 therefore the metayer tenant who occupies the more 
 fertile farm would have a beneficial interest which might 
 be estimated at 2001. per annum. In any special case, 
 the amount of this beneficial interest depends upon the 
 productiveness of the land. The purport of this example 
 has not been to prejudge the question, whether or not, 
 Tjnder a metayer tenure, the landlords receive smaller 
 rents, and the tenants are better off than if they occupied 
 the land upon a rack-rent. Such a question can only be 
 determined by considerations upon which we will proceed 
 -to remark. But the object of the above example is to 
 
 BOOK ir. 
 CH. VII. 
 
 Different 
 profits of 
 farmers 
 
 under the. , 
 rack-rent 
 and me- 
 tayer nys- 
 tems. 
 
^206 
 
 Manual of Political Economy. 
 
 £00K II. 
 OH. VII. 
 
 Various 
 arrange- 
 ments of 
 the fneta- 
 yer system. 
 
 Difference 
 
 between 
 
 metayers 
 
 show, that -when rents are regulated by a custom which 
 fixes them at a certain definite proportion of the produfce, 
 then the rent paid by the most productive soils is less in 
 excess of that paid by the less productive than it would 
 be if both were let on rack-rent. 
 
 The arrangements connected with the metayer tenure 
 vary greatly in different countries. The landlord almost 
 always supplies a portion of the capital. Sometimes he 
 provides the stock, the tenant buying the seed and imple- 
 ments. In Piedmont, the landlord pays the taxes and 
 repairs the buildings, and the tenant provides stock, im- 
 plements, and seed. According to Arthur Young, the con- 
 ditions of the metayer tenure in France before the revolu- 
 tion, were far more complicated and variable than at the 
 present time. In Champagne, the landlords commonly 
 find half the cattle and half the seed, and the metayer, 
 labour, implements, and taxes: but in some districts the 
 landlord bears a share of these. In RousiUon, the land- 
 lord pays half the taxes ; and in Guienne, from Auch to 
 Fleuerne, many landlords pay all. Near Aguillon, on the 
 Garonne, the metayers furnish half the cattle. But the 
 metayer tenures of all countries are controlled by the 
 principle, that the conditions of the tenure are arranged 
 according to an undeviating usage. Thus, if it is customary 
 in Piedmont that the landlord should pay the taxes, repair 
 the buildings, and receive two thirds of the produce as 
 rent, it would be an unheard of thing for a metayer* 
 tenant to have his rent raised to three-fourths of the 
 produce, or to be displaced from his occupation, because 
 some other person offered the landowner a higher price 
 for the use of the land. The whole tone of public feeling 
 would prevent the landlord accepting such an offer; in 
 fact, persons would be restrained from making the offer 
 by feelings similar to those which prevent a barrister 
 publicly announcing that he will hold briefs at one half 
 the customary fees. Land is often retained for many ' 
 generations in the same family, by metayer tenants; 
 they almost regard the land as a patrimonial possession, - 
 because they believe that they will not be displaced from 
 its occupation, and that the conditions on which they 
 hold it will remain unchanged. Metayer tenants there- 
 fore may justly, in a modified sense, regard the land as 
 
Metayers and Cottiers, mud economic aspects of Tenant right. 207 
 
 their own property, and consequently to this tenure he- 
 long, in part, those advantages which, as shown in the 
 last chapter, result from small properties when cultivated 
 by_ their owners. We say these advantages only belong 
 in part to the metayers, because many of those motives 
 upon which depend the advantages of peasant properties 
 only act with limited effect in the case of a metayer 
 tenure. For instance, a metayer feels that he has a claim 
 to only a portion of the fruits of his labour ; if he is more 
 industrious, and his land is made more productive, the 
 
 " landlord takes a portion of this increased produce, there- 
 fore the feeling of self-interest which stimulates the active 
 and intelligent industry of the peasant proprietor cannot 
 act with similar force upon the metayer. But a more 
 serious objection than that just noticed is that the metayer 
 system often discourages the application of capital, both 
 by the landlord and by his tenant. For instance, if the 
 land is drained at the expense of a metayer landlord, 
 whose rent is one third of the produce, the land is of 
 course made more productive, but the landlord only se- 
 cures one third of the increased produce ; the remaining 
 two thirds is gratuitously given to the tenant, who has 
 borne none of the expense. If, on the other hand, the 
 land was drained at the sole cost of the tenant, he, in 
 a similar manner, will only obtain two thirds of the 
 advantage ; the remaining one third would be gi-atui- 
 tously presented to the landlord. Whenever the metayer 
 system is inefficient, it is no doubt principally due to 
 this cause; in fact, the strongest opponents of metayer 
 cultivation most strenuously insist on the great want of 
 capital which it exhibits. This objection may be, and is, 
 no doubt, overcome in those countries where the metayer 
 farming is most satisfactory ; for when the application of 
 capital is required, there is no reason whatever why the 
 
 'metayer landlord and his tenants should not equitably 
 arrange between themselves the particular amount which 
 each party should respectively spend. If the metayer 
 rents were one third of the produce, then it might be 
 equitably arranged that one third of the cost of such an 
 useful improvement as drainage should be borne by the 
 landlord, and the remaining two thirds by the tenant. 
 The terms of the contract might be varied under different 
 
 BOOK II. 
 CH. Til. 
 
 and pea- 
 sant pro- 
 prietors. 
 
 Ineffici- 
 ency of 
 metayer 
 system 
 generally 
 due to 
 want of 
 capital. 
 
20S 
 
 ■ Manual of Political Econtimy. 
 
 BOOK II. 
 CH. Yir. 
 
 Contradic- 
 tory opi- 
 nions on 
 the meta- 
 yer-system 
 due to va- 
 riety of 
 customs in 
 different 
 countries. 
 
 circumstances ; the tenant ought not to pay so much, if 
 there was any chance that his term of occupation would 
 be limited. Arrangements similar to these are frequently 
 made between English landlords and their tenants, when 
 money is borrowed from the Land Improvement Com- 
 panies, for the purpose of carrying out works of perma^ 
 nent utility. Although it has been pointed out that a 
 metayer might not have the same motive as a peasant 
 proprietor has to improve the land by incessant industry, 
 and by judicious application of capital, yet on the other 
 hand, it must be remembered that the labour of the 
 metayer will be, in all probability, much more efficient 
 than that of our own agricultural labourers, who simply 
 work for hire; they have no interest in the work in which, 
 they are employed, they have no motive but to labour 
 with just sufficient skill and regularity to avoid being dis' 
 missed. To them it is a matter of little moment whether 
 their employer's profits are large or small. The indo- 
 lence and carelessness which are thus engendered cause a 
 loss to an employer of hired labour which is rarely ade- 
 quately appreciated. In metayer cultivation, little hired 
 labour is employed. A metayer generally occupies no 
 more land than he can himself cultivate with the assist- 
 ance of his family. He therefore, far more than the hired- 
 labourer, is stimulated to be industrious, because the 
 profits which his exertions produce are at any rate in part 
 his own. 
 
 The most contradictory opinions with regard to the 
 results of metayer farming have been expressed by those 
 who have observed it in various countries. These differ- 
 ent results may, no doubt, be attributed to the particular ' 
 customs which prevail with regard to the metayer tenures 
 in different countries. Some of these customs have al- 
 ready beea noticed. We believe that the efficiency of the 
 metayer tenure depends on the extent to which the cus- 
 toms of a country facilitate the application of capital to 
 the land. The efficiency of the metayer cultivation also, 
 in a great degree, depends upon the security which the 
 tenant has that he shall not be disturbed in the possession 
 of his holding. It is hopeless to expect that there ever 
 can be good farming when the cultivator is a mere tenant- 
 at will, who is ever liable to have his rent raised in pro- 
 
Metayers and Cottiers, and economic aspects of Tenant-right. 209. 
 
 portion to the improvement produced on the land by 
 either his skill or his capital. The evil has been partly 
 remedied in England by the leasing of farms at a rack- 
 rent for a period of years which varies from seven to 
 twenty-one; but, even under this system, enterprise on, 
 the part of the farmer is much discouraged; for it too 
 frequently happens that his rent will be raised at the 
 expiration of his lease if he has made his farm more pro- 
 ductive. This evil is remedied by the metayer tenure; 
 for, as we have before remarked^ a metayer tenant is 
 seldom displaced, and a rent, which is fixed at a certain 
 definite portion of the produce, gives, the tenant a bene- 
 ficial interest in the increased productiveness of the soil. 
 
 We will now proceed to consider how far these general 
 d, priori remarks upon metayers are corroborated by the 
 facts which have been derived from experience and obser- 
 vation. Most English writers on this subject, including 
 Arthur Young, Mr McCuUoch, and Mr Jones, have been 
 unsparing in their denunciations of the metayer system.; 
 they assure us that it causes the land to be wretchedly 
 cultivated, that it deprives the landlords of half the rent 
 they might obtain under a different tenure, and that it 
 makes the metayers themselves more impoverished and 
 more wretched than ordinary labourers. But these writers 
 have principally formed their opinions by observing the 
 condition of the French metayers. French agriculture 
 does not, however, afford a fair test of the effects of me- 
 tayer farming; for it there labours under many disadvan- 
 tages which do not operate in other countries. Mr Jones, 
 for instance, supports his opinion by quoting Turgot; but 
 Turgot spoke of the country before the French revolution. 
 Then the exclusive privileges of the French nobility ex- 
 empted them from direct taxation, and the most burden- 
 some imposts were thrown entirely upon the metayer 
 tenants. But in Piedmont it is an essential condition of 
 the metayer tenure that taxes should be paid by the land- 
 owner. In fact, one passage in Arthur Young's own work 
 is suflBcient to explain all the defects of the French me- 
 tayer agriculture. He says that in Limousin and Angou- 
 mois (the provinces which Turgot administered, and from 
 which he formed his impression of the metayer system) 
 'the metayers have no virtual fixity of tenure: whereas 
 
 r. M. 
 
 BOOK II. 
 OH. YII. 
 
 Unsatis- 
 factory 
 nature of 
 metayer 
 tenure in 
 France. 
 
210 
 
 Manual of Political Economy. 
 
 BOOK II. 
 OH. VII. 
 
 Good re- 
 sults of 
 the meta- 
 yer tenure 
 in Lom- 
 iardy, 
 
 and in the 
 valley of 
 the Amo. 
 
 the metayers of Italy claim fixity of tenure as an essential 
 condition of their contract.' 'Again, in Limousin,' Arthur 
 Young tells us, 'the metayers are considered as little 
 better than menial servants, removeable at pleasure, and 
 obliged to conform in all things to the will of the landlord.' 
 Under such circumstances the system must in every re- 
 spect work badly, and the metayers themselves must 
 inevitably be poor and wretched. 
 
 The metayer tenure of Italy strikingly contrasts with 
 that of France, both in its results and in the nature of the 
 contract. Almost the entire land of Lombardy and Pied- 
 mont is cultivated by metayers. The excellence of the 
 agriculture in these countries is proverbial; in fact it is 
 not surpassed in any country in the world. This excel- 
 lence is not due to any peculiar natural advantages. The 
 soil of Piedmont is scarcely of average fertility, and Lom- 
 bardy was for years exposed to intolerable oppression by 
 its Austrian rulers. Bad government is usually supposed 
 to cause the impoverishment of a country. The Lombard 
 system of agriculture must, therefore, have been singularly 
 efficient; for Lombardy continued one of the best culti- 
 vated and most productive countries during the whole 
 period through which it was oppressed by Austrian 
 tyranny. In Lombardy and Piedmont the land is not so 
 much subdivided as in France; a metayer farm seldom 
 exceeds sixty, but is never less than ten acres. The farm 
 buildings are models of convenience and comfort. Com- 
 petent observers affirm that nothing can exceed the skill 
 and economy displayed in the management of the land. 
 Chateauvieux, who is an excellent authority, says — 'In 
 Piedmont and Lombardy the rotation of crops is excellent. 
 I should think- no country can bring so large a portion of 
 its produce to market as Piedmont. Though the soil is 
 not naturally fertile, the number of cities is prodigiously 
 great. The agriculture must therefore be eminently fa- 
 vourable to the nett, as well as the gross produce of the 
 land.' Again, he remarks — 'In no part of the world are 
 the economy and management of the land better under- 
 stood than in Piedmont, and this explains the phenomenon 
 of its great population and immense export of provisions.' 
 
 In the valley of the Arno, the metayer farms are much 
 smaller than in Piedmont and Lombardy, their size vary- 
 
Metayers and Cottiers, and economic aspects of Tenant-right. 2 1 r 
 
 ing from three to ten acres; and yet, in spite of this great 
 subdivision, numerous travellers have described the valley 
 of the Arno as cultivated with singular care and skill, and 
 as presenting a most prosperous appearance. The hold- 
 ings are so small that the homesteads of the metayers are 
 situated at a short distance from each other. We are 
 assured that these homesteads appear to be most neatly 
 kept and have a thoroughly comfortable aspect, and the 
 metayer peasants in this valley are well and tastefully 
 dressed. It is true that English writers have said, if you 
 enter the house of a metayer, he does not seem to live as 
 much at his ease and to possess the same luxury as the 
 farmers of other countries; but it is most unreasonable to 
 make such a comparison. A metayer in the valley of the 
 Arno, who cultivates his five or six acres of land, ought 
 not to be contrasted with our own farmers who possess 
 large capital; such a metayer is essentially a labourer, he 
 Cultivates the land without the assistance of hired labour; 
 if therefore we wish fairly to compare the condition of an 
 agricultural population in a metayer country with its con- 
 dition under a different system of land tenure, we ought to 
 contrast the metayer not with capitalist farmers, but with 
 agricultural labourers, working for hire. If this compari- 
 son is made, there certainly can be no doubt that the 
 metayers of Italy in their social and economic condition 
 are in every respect greatly superior to our own agricul- 
 tural labourers. 
 
 Chateauvieux bears the most important testimony to 
 the beneficial influence exerted upon the landlords by a 
 metayer tenure. Nothing, in fact, seems to enforce with 
 so much practical effect the important maxim, that pro- 
 perty has duties as well as rights. The following very 
 intelligent remarks are made by Chateauvieux : 'The me- 
 tayer system constantly occupies and interests the pro- 
 prietors, which is never the case with great proprietors, 
 who lease their estates at fixed rents. It establishes a 
 community of interests, and relations of kindness between 
 the proprietors and the metayers — a kindness which I 
 have often witnessed and from which result great ad- 
 vantages in the moral condition of society. The proprie- 
 tor under this system, always interested in the success of 
 the crop, never refuses to make an advance upon it, which 
 
 02 
 
 BOOK II. 
 CH. VII. 
 
 Kindly- 
 feeling be- 
 tween 
 landlord 
 and tenant 
 under the 
 metayer 
 
212 
 
 Manual of Political Economy. 
 
 BOOK II. 
 OH. VII. 
 
 Impracti- 
 cability of 
 introduc- 
 ing this 
 systeminto 
 England, 
 
 the land promises to repay with interest. It is by these 
 advances and by the hope thus inspired, that the rich pro- 
 prietors of land gradually perfect the whole rural economy 
 of Italy. It is to them that it owes the numerous systems 
 of irrigation which water its soil, as also the establishment 
 of terrace culture on the hills — gradual but permanent im- 
 provements which common peasants, for want of means, 
 could never have effected, and which could never have 
 been accomplished by the farmers, nor by the great pro- 
 prietors who let their estates at fixed rents. The metayer 
 system therefore forms of itself that alliance between the 
 rich proprietor, whose means provide for the improvement 
 of the culture, and the metayer, whose care and labours 
 are directed, by a common interest, to make the most of 
 these advances.' Sismondi, who was a resident metayer 
 landlord, speaks in warm approval of the system. He 
 proves by the most definite facts that under the metayer 
 tenure the land is well cultivated, and that the condition of" 
 the metayer tenants is in every respect most satisfactory. 
 
 The object we have had in view in making these re- 
 marks upon the metayer tenure has not been to propose 
 its introduction into England ; this, even if desirable, we 
 well know is impossible, for it is the fundamental prin- 
 ciple of this tenure, that the rent of land should be regu- 
 lated by custom and not by competition. But custom is 
 gradually exercising less influence upon the commercial 
 arrangements of our own country ; and rents, profits, and 
 wages are each year apportioned more completely in 
 accordance with competition. We have, however, been 
 chiefly induced to make these remarks, because the pre- 
 judice of English writers against every system of land 
 tenure different from our own has been so great, that it 
 is commonly assumed that the metayer tenure produces 
 unmixed evils in the countries where it exists, and that 
 these countries can never be greatly improved until it is 
 replaced by a system of cultivation resembling our own. 
 The facts just mentioned are sufficient to disprove such 
 an opinion, for we believe the following propositions have 
 been established : — that the metayer system of cultiva- 
 tion is in many instances extremely efficient ; — that the 
 metayer tenants are generally in a condition greatly su- 
 perior to that of our own day-labourers; — and, that the 
 
Metayers and Cottiers, and economic aspects of Tenant-right. 2 1 3 
 
 metayer landlords are often induced to perform those duties 
 pertaining to landed property which are too frequently 
 neglected by the landowners of our own country. With- 
 out wishing, therefore, to advocate any Utopian scheme 
 for the introduction of this tenure into England, we still 
 think it very important that its merits as well as its de- 
 fects should be known. 
 
 It has already been stated that the cottier and metayer 
 tenure will be described in the same chapter ; because the 
 former system of cultivation exhibits none of the advan- 
 tages which belong to the latter, while it possesses all its 
 defects in an aggravated form. The cottier tenure has 
 existed on a far more extended scale in Ireland than in 
 any other country, for before the famine of 1848 nearly 
 the whole of the land in Ireland was cultivated by cottiers, 
 and even at the present time this form of tenancy still 
 exists. The cottiers of Ireland may be described as pea- 
 sant cultivators ; for they rent the land directly from the 
 landowner, and cultivate it by their own labour. The 
 produce of the land is, therefore, as in the case of the 
 metayer tenure, entirely divided between the landlord and 
 the cultivator ; but there is a fundamental difference be- 
 tween the metayer and the cottier tenure. The rent 
 which the metayer pays is definitely fixed by custom ; on 
 the other hand, the rent which the cottier pays is entirely 
 regulated by competition. Custom also generally gives to 
 the metayer fixity of tenure, but no such fixity of tenure 
 can be claimed by cottiers; they compete against each 
 other for the possession of a plot of land, and the landlord 
 is only anxious to obtain those tenants who will give him 
 the highest rents. Now the rack-rents, which are paid by 
 the large capitalist farmers in England, are regulated by 
 competition; and it may therefore be asked- — Can there 
 be any essential difference between rack-rents and cottier- 
 rents ? There is this essential and very important differ- 
 ence ; a rack-rent is determined by the competition of 
 capitalists, whereas a cottier-rent is determined by the 
 competition of labourers. The consequences of this dis- 
 tinction we will proceed to explain. When farmers apply 
 large capitals, as in England, to cultivate their farms, they 
 expect to obtain the ordinary rate of profit for their capital, 
 and a reasonable remuneration for their labour of super- 
 
 BOOK II. 
 OH. VII. 
 
 Cottier 
 tenure. 
 
 Ireland, 
 
 Cause of 
 the differ- 
 ence be- 
 tween 
 rackrents 
 and cot- 
 tier-rentn. 
 
214 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. TII. 
 
 Disastrous 
 effects of 
 the cottier 
 system 
 upon Irish 
 labourers. 
 
 intendence ; it is, therefore, quite impossible that the rent 
 paid by English farmers could long continue so high as t6 
 prevent this ordinary rate of profit being received, for if 
 this were so, capital -would not continue to be invested in 
 farming, but would inevitably be applied in other employ- 
 ments, where the ordinary rate of profit could be secured. 
 Eack -rents, therefore, are kept, as it were, ia a position of 
 stable equilibrium by the competition of capital ; for com- 
 petition of capital signifies that men are eagerly anxious 
 to invest their capital to the greatest possible advantage ; 
 and consequently, a rack-rent is in this manner so ad- 
 justed, that farming is neither much more nor much less 
 profitable than other occupations. In the case, however, 
 of a cottier tenancy, it is population, and not capital, 
 which competes for the land. The Irish cottiers, for in- 
 stance, are miserably poor peasants, who possess no capital, 
 except one or two tools and the scanty furniture of their 
 wretched hovels. When, therefore, they compete for a 
 plot of land, it is absurd to suppose that they calculate 
 the rent which they are willing to pay, by considering 
 whether their capital would secure a higher rate of profit 
 in some other investment ; they are themselves fit for no 
 other employment, and all the capital they possess would 
 scarcely realise more than a nominal sum. 
 
 To a cottier, the possession of a plot of land is not a 
 question of profit, but of subsistence ; and consequently, 
 in any district, the more numerous is the peasantry the 
 more actively will the land be competed for. The pea- 
 santry of Ireland were so long accustomed to poverty, 
 that they were satisfied if they could occupy a plot of 
 ground, and obtain from it just sufficient food to provide a 
 bare subsistence ; their habitual standard of comfort was 
 almost inconceivably low; every adult' peasant married, 
 and a want of food, with its consequent diseases, was the 
 only check upon population. Such being the condition of 
 the Irish peasantry, it may be naturally supposed that 
 cottier rents were forced up to their highest possible 
 point; the cottier could only obtain just sufficient to live 
 upon, and the whole remaining produce was pJlid to the 
 landlord as rent. The pecuniary amount of these cottier 
 rents may be regarded as merely nominal ; a peasant was 
 so anxious to obtain a plot of ground, that he cared not 
 
Metayers and Gottiers, and economic aspects of Tenant-fight. 2 1 5 
 
 what rent he offered for it ; he well knew that the land- 
 lord, whatever was the nominal amount of rent, must 
 leave him sufficient to live upon. And thus we learn, 
 from the evidence taken before Lord Devon's Irish Poor 
 Law Commission, that the nominal amount of many of 
 these cottier rents exceeded the whole produce which the 
 land yielded, even in the most favourable season. The 
 cottier was consequently in constant arrear to his land- 
 lord ; the landlord had of course a legal right to distrain 
 ■ for the rent, but such a remedy was of no value, for the 
 whole property of the cottier was scarcely worth seizing. 
 Neither could the landlord gain much by resorting to 
 eviction, for the evicted tenant would only be replaced 
 by another tenant of the same character, whose arrears 
 of rent would accumulate with similar rapidity. Although 
 eviction was a legal right of the landlord, yet he was 
 restrained from exercising this right by the powerful mo- 
 tive of personal safety. Assassination was the retribu- 
 tion with which the cottiers of Ireland not unfrequently 
 punished an evicting landlord. The economic condition 
 of no other country has ever been so unsatisfactory as 
 was the condition of Ireland under the cottier tenancy ; 
 for the cottiers, having taken the land at a rent which 
 it was impossible for them to pay, had no motive to be 
 industrious ; if by skill and labour the land was rendered 
 more productive, the increased produce was absorbed in 
 the rent of the landlord. The rents were, in fact, fixed 
 so high, that whether the seasons were favourable or not, 
 whether the land was well or badly cultivated, the cottier 
 tenants could never expect to obtain for themselves any 
 more than a bare subsistence; hence it has been aptly 
 remarked, that the Irish cottiers were the only people 
 in the world whose condition was so deplorable that 
 they gained nothing by being industrious. No scheme 
 could possibly be devised which would act more effec- 
 tually to impoverish the people, and throw the land 
 into the most wretched state of cultivation. The pro- 
 gress of Ireland cannot be marked by a surer sign than 
 by the gradual abolition of the cottier tenure. 
 
 In Ireland there was also a subsidiary kind of tenure, 
 termed conacre. If a landlord required any labour to be 
 done on his estate, it was a frequent practice for him to 
 
 BOOK II. 
 OH. TIT. 
 
 Assassina- 
 tion. 
 
 The direct 
 tendency 
 of the cot- 
 tier system 
 is to impo- 
 verish the 
 people and 
 lower the 
 cultiva- 
 tion. 
 
 Conacre. 
 
2l6 
 
 Manual of Political Economy. 
 
 A feudal 
 tenure. 
 
 The Ulster 
 tenant- 
 right. 
 
 SThe Irish 
 Land Bill 
 of 1870. 
 
 pay the labourers he employed, not by money, but by 
 giving them a plot of manured ground rent free ; the plot 
 thus held, on the condition that the tenant should give 
 the landlord so much labour, was termed conacre. This 
 tenure was feudal in its character; for during the middle 
 ages, a great portion of the cultivated land was granted 
 ■to tenants on the condition that they should be bound 
 •to perform certain personal services for the landowner, or, 
 as he was then termed, the lord. These personal services 
 consisted either in providing the lord with mere ordinary, 
 manual labour, or else with men and weapons for war- 
 like purposes. 
 
 In Ulster a peculiar kind of land tenure prevails, in 
 consequence of the existence of a particular form of tenant- 
 right. It is ordinarily supposed that tenant-right repre- 
 sents the compensation which is paid to the tenant by the 
 landowner for improvements carried on by the tenant's 
 capital and skill, and the effects of which are not ex- 
 hausted at the time when the tenant relinquishes his 
 occupation. The Ulster tenant-right is something very 
 different, for it represents a -sum sometimes amounting 
 to as much as the value of the fee-simple of the land; this 
 sum is paid for the goodwill of the farm, by the incoming 
 to the outgoing tenant. Side by side with this tenant- 
 right there also exists in Ulster the tenant-right first 
 described. For if an Ulster tenant relinquishes his occu- 
 pation to his landlord he obtains from the landlord com- 
 pensation for unexhausted improvements. The Ulster 
 tenant-right previous to 1870, when the Irish Land Bill 
 was passed, had no legal sanction; it simply existed as a 
 custom, which was, however, in almost every instance, im- 
 plicitly obeyed. This may be regarded as a remarkable 
 example of the extent to which custom may control com- 
 mercial transactions. The large sum which is paid by the 
 incoming to the outgoing tenant represents partly a pre- 
 mium for goodwill, and partly compensation for unex- 
 hausted improvements. 
 
 The disadvantage associated with the Ulster custom is 
 that it^ deprives the incoming tenant of a portion of his 
 capital at a time when he most rieeds it for his farm. 
 But on the other hand it has this important advantage, 
 that it practically gives security of tenure^ and therefore 
 
Metayers and Cottiers, and economic aspects of Tenant-right. 217 
 
 encourages the tenant to develope the resources of his 
 farm to the utmost. It is obvious that the financial 
 result of the arrangement is that the tenant pays a 
 smaller rent in consequence of the sum he has paid as 
 goodwill upon entering the farm. The Irish Land Bill, 
 besides giving legal sa.nction to the Ulster tenant-right, 
 protects all Irish tenants against arbitrary evictions and 
 also secures them compensation for unexhausted improve- 
 ments. Sufficient time has not yet elapsed to enable us 
 fully to estimate the advantages which will ultimately be 
 produced by this measure, but its results have already 
 proved to be most satisfactory. 
 
 Soon after the Irish Land Bill was passed, it was pro- 
 posed to extend some of its provisions to England and 
 Scotland. In 1875 the Agricultural Holdings Act was 
 passed. This measure is based upon the principle that 
 capital which is invested by the tenant in the improve- 
 ment of the land is his own property, and that when he 
 leaves his farm he is entitled to claim from his landlord 
 compensation for any unexhausted improvements which 
 have been effected by the tenant's capital. The measure 
 also recognizes the right of the landlord to claim from the 
 tenant compensation, if the land has been injured by bad 
 farming. Although, however, these claims for compen- 
 sation respectively possessed by the tenant and landlord 
 have thus received a legal recognition, yet the very un- 
 usual course has been adopted of allowing the measure to 
 be made inoperative in any instance where either the land- 
 lord or the tenant should declare his wish not to come 
 under its provisions. It seems probable that this power 
 to contract themselves out of the bill will be so largely 
 used by the owners of land, that for some time to come 
 the measure cannot produce very important consequences. 
 It has been urged that the Act ought to be thus permis- 
 sive in its character in order to maintain the principle of 
 freedom of contract. If the question is regarded as one 
 which only concerns landowners and tenants, it no doubt 
 may be fairly urged that a tenant ought to be freely per- 
 mitted to make whatever terms he likes with the land- 
 owners. If he agrees to rent a farm on terms unfavourable 
 to himself, he has no more right to look to the State to 
 protect him against the consequences of his own impru- 
 
 BOOK II. 
 CH. VII. 
 
 Tenant- 
 right in 
 England. 
 
2l8 
 
 Manual of Political Economy. 
 
 BOOK II. 
 OH. Til. 
 
 dence than has the occupier of a house if he agrees to pay 
 an excessive rent for it, or a trader if he purchases com- 
 modities at a price so excessive as to be ruinous to him- 
 self. The chief justification, however, for imposing legal 
 regulations upon the letting of land, which would be inde- 
 fensible in the case of other mercantile transactions, arises 
 from the fact that the whole community is vitally inter- 
 ested in making the land as productive as possible. If 
 the buyer of a commodity pays an extravagant price for it, 
 the loss which he suffers represents so much gain to the 
 seller. It is simply a transfer of wealth from one person 
 to another in which the general public are not interested. 
 But if the cultivators of land agree to rent it on conditions 
 which can be proved to cause a great diminution in its 
 productiveness, then the entire community is injured, 
 because all that is raised from the land becomes dearer, if 
 inferior cultivation lessens its productiveness. Nothing is 
 more certain than that the investment of capital in the 
 improvement of the land must be most seriously impeded 
 as long as the cultivator has no security that tlie advan- 
 tage resulting from the expenditure of his capital will not 
 be appropriated by another. A tenant virtually spends 
 his money not for his own advantage but for the advan- 
 tage of the landowner if he can be arbitrarily evicted 
 without receiving adequate compensation for impro;ve- 
 ments. From such considerations it inevitably follows that 
 land will not, as a general rule, be properly cultivated if, 
 as is the case in our own country, those who rent it seldom 
 possess any security that they will be able to claim com- 
 pensation for unexhausted improvements. The correctness 
 of this conclusion is repeatedly confirmed by those who are 
 intimately acquainted with agriculture. Lord Leicester, a 
 large landed proprietor and a well known agriculturist, 
 has lately said that after having travelled through a con- 
 siderable portion of England and Scotland, and having 
 carefully observed the farming, he has arrived at a very 
 positive conclusion, that the produce of the land might be 
 nearly doubled if our present system of agriculture were 
 improved by the application of a greater amount of capital 
 to the cultivation of the land. A similar opinion has 
 been expressed by Lord Derby. , The correctness of these 
 conclusions receives an important confirmation from the 
 
Metayers and Cottiers, and economic aspects of Tenant-rigid,. 219 
 
 excellent farming which prevails in parts of Lincolnshire, 
 where a system of tenant-right is maintained by custom. 
 
 The prohibition by law of the letting of land upon 
 conditions which effectually prevent the investment of an 
 adequate amount of capital in agriculture, is to be de- 
 fended on the ground, not that it will give protection to 
 a special class, but that it will powerfully promote the 
 general well-being of the nation. It can in fact be easily 
 proved by a simple example that farmers are not more 
 interested than are the labourers and the general public 
 in obtaining for the cultivator greater security for the 
 capital which he invests in the improvement of the land. 
 Suppose, for instance, that a farmer has a capital of 6000Z. 
 employed in his business, and that he would be willing to 
 increase this capital by 4000^. if a measure of tenant-right 
 gave him adequate security for the capital so invested. 
 Considering the great amount of English capital which is 
 embarked in foreign investments, it may be fairly assumed 
 that the whole of this additional capital, or at any rate a 
 considerable portion of it, is withdrawn from some foreign 
 investment, and consequently so much more capital is em- 
 ployed in English farming without in any way diminishing 
 the capital employed in other branches of English indus- 
 try. The 4OOOI might, for instance, have been lent to the 
 Russian government to construct a military railway; and 
 upon such an investment an interest of 5 per cent, would 
 be yielded. It is visually supposed that a profit of 8 per 
 cent, is a fair return upon capital employed in English 
 farming. It is therefore evident that the gain to the 
 farmer, from employing this 4000?. in his own business, 
 would be represented by the difference between 5 per cent, 
 and 8 per cent., which on 4000Z. is 120^:. a year. This, 
 however, is only a small portion of the whole advantage 
 resulting from the change. The chief part of it will in 
 reality be gained by the labourers and the general public. 
 We have ascertained, after inquiry from practical farmers, 
 that at least lOOOZ. out of every 4000?. of additional capital 
 employed in the manner described would be used in pay- 
 ing additional labourers; the demand for labour would 
 therefore pro tanto increase, and the wages of agricultural 
 labourers would advance. We have also ascertained that 
 the application of this additional capital would probably 
 
220 
 
 BOOK U. 
 CH. VII. 
 
 Manual of Political Economy. 
 
 increase the produce of the land by at least 1500Z. a year. 
 This additional produce would be so much added to the 
 food supplies of the country. Hence it follows that whereas 
 the farmer gains 1201. a year, the labourers would have 
 lOOOZ. a year more distributed amongst them in wages, 
 and the land would yield annually for the community 
 1500^. worth of additional food. In the example just given 
 it has been supposed that the additional capital employed 
 in the cultivation of the land had been previously invested 
 in a high class foreign security; in order, however, to ob- 
 tain an adequate idea of the economic gain which might 
 result to the nation if greater security were given to capi- 
 tal invested in the cultivation of the land, it is necessary 
 to bear in mind that at the very time when English land 
 may be said to thirst for more capital as much as a dry 
 soil thirsts for rain, vast sums of English capital are an- 
 nually wasted in a countless number of worthless and 
 fraudulent foreign investments, such as the loans of bank- 
 rupt and repudiating states. 
 
 In the foregoing example great stress has been laid on 
 the benefit resulting to the country from increasing the 
 productiveness of the soil, because there is no conclusion 
 which, in a treatise on Political Economy, has to be 
 brought into greater prominence than that the increasing . 
 dearness of food is the chief obstacle which impedes the 
 prosperitj'^ of a country such as England, the population 
 of which, already dense, is still rapidly advancing. We 
 have in previous chapters explained the powerful influence 
 which is thus exercised in reducing the remuneration of 
 labour and in diminishing the rate of profit. So many 
 other serious consequences result from the increasing dear- 
 ness of food, that it is evident a most powerful agency 
 will be brought into operation to promote national pros- 
 perity, if the productiveness of the soil were increased in 
 a degree even approximating to what has been antici- 
 pated by the authorities just quoted. It is estimated 
 that the present annual value of the agricultural produce 
 raised in England and Scotland is 300,000,000^. ; and it 
 has, as we have seen, been stated that with a better 
 system of farming, this annual produce might be doubled. 
 
CHAPTER VIII. 
 
 NATIONAL EOUCATION AND OTHER REMEDIES FOR 
 LOW WAGES. 
 
 THE great mass of the labouring population, in even 
 the most prosperous and civilized countries, is so 
 poor, that a philanthropic sympathy is excited, and reme- 
 dies are constantly being proposed with the object of 
 improving the condition of the poor. The practical utility 
 of Political Economy cannot be better illustrated than by 
 applying its principles to test these remedies. When this 
 is done many of them will prove to be impracticable or 
 illusory ; it will be shown that they not unfrequently 
 cause the opposite effects to those which they are in- 
 tended to produce, and increase the poverty they seek 
 to alleviate. Strikes, trades'- unions, and cooperation are 
 the remedies for low wages in which at the present time 
 different sections of the labouring class place most faith. 
 We shall therefore devote a separate chapter to the 
 influence which may be produced by strikes, trades'- 
 unions, and cooperative societies. There is also a growing 
 tendency to rely upon various forms of State intervention. 
 We shall therefore also devote a separate chapter to con- 
 sider the proposal that the State should buy all the 
 land. This scheme, which is known as the Nationalization 
 of the land, has at times received a great deal of popular 
 support. But before discussing these subjects, it will be 
 well to consider some other remedies, in the efficacy of 
 which many people have at different times expressed gfeat 
 confidence. 
 
 If our readers revert to the chapter in which the laws 
 of wages were discussed, it will be perceived that the 
 
 BOOK II. 
 CH. VIII. 
 
 Remedies 
 for low 
 wages are 
 often il- 
 lusory. 
 
 Principles 
 by which 
 
222 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. VIII. 
 
 they must 
 be tested. 
 
 Do they 
 tend to 
 increase 
 capital or 
 to diminish 
 popula- 
 tion? 
 
 Is the in- 
 crease of 
 wages ex- 
 pected 
 from a 
 diminution 
 of profit or 
 an in- 
 creased 
 efficiency 
 of labour ? 
 
 following principles can be applied to test the efiScacy of 
 any of the means which may be proposed to raise wages. 
 The remark has frequently been made that the capital 
 of the country provides its wage-fund. This wage-fund 
 is distributed amongst the whole wage-receiving popu- 
 lation, and therefore the average of each individual's 
 wages cannot increase unless either the number of those 
 who receive wages is diminished, or the wage-fund is aug- 
 mented. Therefore, with regard to all questions concern- 
 ing a general rise of wages, it should first be ascertained 
 whether the agency by which this rise is intended to be 
 effected will exert any influence in diminishing the num- 
 ber of the labouring population, or in augmenting that 
 portion of a nation's capital which is retained for home 
 investment. If it can be proved that such an influence 
 will not be exerted, it may be concluded that a general 
 rise of wages cannot take place. In the consideration, 
 however, of such a question several precautions must be 
 carefully observed. For instance, it has been said that 
 the produce of labour is divided into two shares; one of 
 these shares is termed the profits of capital, and the other 
 share is termed the wages of labour ; therefore, cceteris 
 paribus, if wages increase, the share apportioned to capi- 
 tal, or, in other words, profits, must diminish. Hence 
 it may be concluded that, when wages increase, profits 
 must decrease. But, before admitting such a conclusion, 
 it is necessary to inquire whether circumstances may not 
 occur which will enable a rise of wages to take place with- 
 out being accompanied by any decrease in profits. If, for 
 instance, labour is made more efficient by the labourer 
 becoming more skilful' and more energetic, the produce of 
 labour will be increased, and the share allotted not only 
 to labour, but also to capital, might be augmented. If, 
 therefore, any method is suggested by which it is pro- 
 posed to increase wages, it is most important to endea- 
 vour to discover whether the proposed increase will be 
 taken from the profits of capital or from the additional 
 wealth produced by making labour in any 'manner more 
 efficient. In the first case, the rise of wages cannot 
 be perinanent; the nature of the rise creates its own 
 destruction; for the amount of capital accumulated de- 
 pends on the inducement to save. If, therefore, profits 
 
I^ational Education and other Remedies for Low Wages. 223 
 
 are diminished, there is not so great an inducement to 
 save, and the amount of capital accumulated will decrease ; 
 the wage-fund will consequently be diminished, and there 
 will be a smaller amount to distribute amongst the 
 labouring classes. The practical importance of this con- 
 sideration will be shown when discussing the subject of 
 strikes. We will now proceed to consider in detail some 
 of the popular remedies for low wages. 
 
 Our own statute-book proves that the attempt has 
 frequently been made to regulate wages by law. The 
 enactments which have been passed with this object 
 illustrate the shifting policy of Governments. On one 
 occasion, when the employer is to be favoured, a law is 
 passed limiting the amount of wages which a labourer is 
 to receive. When the employed is to be protected, the 
 employer is forbidden to ofifer the labourer less than a 
 certain remuneration. Such legislation is always either 
 futile or mischievous. It will be necessary to examine 
 several cases in order fully to elucidate the effects of 
 legislative interference with wages. In the first place, 
 suppose a general law were passed enacting that wages in 
 every employment should be raised 20 per cent. If em- 
 ployers were unable to repay themselves for the higher 
 wages they were compelled to give, by a rise in the price 
 of commodities, it is evident that this advance in wages 
 would simply represent so much taken away from profits. 
 The immediate consequence of this would be a contraction 
 of business. Capitalists would find it less profitable 
 than heretofore to invest money in home industry. A 
 larger portion of the national capital would be exported; 
 a great advantage would be given to our foreign competi- 
 tors in every bra.nch of industry. They would undersell 
 us even in our own markets; our foreign and our home 
 trade would be most seriously crippled. The result there- 
 fore of any attempt to secure a general advance in wages 
 by law would be mischievous to the whole nation and 
 especially disastrous to the labourers themselves. An 
 advance in wages implies an increase in the wage-fund, 
 or a diminution in the number of those among whom the 
 wage-fund is distributed. A law to regulate wages such 
 as that just indicated would, for reasons previously stated, 
 diminish the wage-fund.; moreover its immediate effect 
 
 BOOK II. 
 CH. Till. 
 
 Attempts to 
 regulate 
 wages by 
 law are 
 always 
 either 
 futile or 
 miscMcv- 
 
 Any legis- 
 lation 
 which 
 lowered t?ie 
 rate of 
 profit 
 would lead 
 to the 
 export of 
 capital. 
 
224 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. VIII. 
 
 The conse- 
 quences of 
 Govern- 
 ment inter- 
 ference 
 examined. 
 
 would be to stimulate an increase of population.. For in 
 the present social and moral condition of the labouring 
 poor even a slight temporary improvement in their mate- 
 rial condition at once leads to earlier and more impro- 
 vident marriages. In a few years therefore there would 
 be a greater number of labourers competing for employ- 
 ment : the demand for labour woiild, at the same time be 
 constantly diminishing, since the capital invested in home 
 industry would steadily decrease as long as the law arti- 
 ficially to raise wages continued in operation. 
 
 It may be thought that these evil consequences would 
 not ensue if a law to regulate wages only affected some 
 special trades, in which all are ready to admit that wages 
 are too low. In order to examine a case which seems to 
 be the most favourable for Government interference, let it 
 be assumed that a law is passed declaring that no able- 
 bodied agricultural labourer shall receive less than fifteen 
 shillings a week. It can be urged that no man ought to 
 receive less than this amount ; and thait in fact, fifteen 
 shillings a week is the minimum upon which a man with 
 a family can maintain himseK in full health and vigour. 
 It is probable that employers would be benefited if the 
 wages of the worst-paid labourers were raised. An opinion 
 has in fact been already expressed, that farmers who only 
 pay their labourers eleven or twelve shillings a week act 
 as unwisely as if they were to give an insufficiency of food 
 to their horses. Facts indisputably demonstrate that the 
 labour which receives the lowest remuneration is often not 
 the least costly. It would therefore seem that a law 
 fixing the minimum of agricultural wages at fifteen shil- 
 lings a week would not only confer a boon upon the 
 labourers, but would inflict no loss upon their employers. 
 Such might be the immediate effects of this legislation ; 
 but unless this advance in wages were accompanied by a 
 corresponding elevation in the social and moral condition 
 of the labourer, earlier and more improvident marriages 
 would indubitably ensue. An increase of population would 
 thus be artificially stimulated ; a legislative discourage- 
 ment would moreover be given to emigration; in a few 
 years the supply of labour would be unnaturally in- 
 creased ; nothing would at the same time have occurred to 
 augment the demand for labour. Hence the ultimate 
 
National Education a/nd other Remedies for Low Wages. 
 
 225 
 
 effect of legislative interference with wages even in the 
 inost favourable case that can be supposed would be to 
 produce an excess in the supply of labour when compared 
 with the demand for it; or, in other words, there would 
 soon be a large class unable to obtain employment who 
 would have to be supported by parochial relief. 
 
 It may be said that no one at the present time seriously 
 proposes to ask Parliament to regulate wages. Such a 
 request is now never directly made; but demands are con- 
 stantly put forward which plainly show that many still 
 continue to be influenced by the same fallacies which for- 
 merly misled those who considered it to be the duty of 
 Governments to regulate wages. In some of the states of 
 the American Union laws have been passed fixing a day's 
 work at eight hours. Such a law would certainly find 
 favour with some very intelligent workmen in England. 
 With much plausibility they argue that if this eight hours' 
 law were passed, labourers would probably receive as much 
 for eight hours' work as they do now for ten hours' work ; 
 for it is said that .the supply of labour would be dimi- 
 nished, and therefore its remuneration would be propor- 
 tionately increased, if men were forbidden to work more 
 than eight hours a day. In order to show the fallacy of 
 this reasoning, it will only be necessary briefly to allude 
 to some of the consequences which we have above shown 
 would ensue if a law were passed to raise wages. Em- 
 ployers would find their profits diminish if they had to 
 pay as much for eight hours' as for ten hours' work. This 
 diminution of profits would cause capital to be withdrawn 
 from business, and our industry would be crippled. It 
 may, however, be argued, that employers could recom- 
 pense themselves by charging a higher price for their com- 
 modities. It must not, however, be forgotten that each 
 country, has to carry on a keen contest with foreign com- 
 petitors. England, therefore, would have to succumb to 
 her foreign rivals, if the price of her products were thus 
 artificially raised, and her trade would consequently be 
 paralysed. But even supposing that she had nothing to 
 fear from foreign competitors, and that a rise in general 
 prices sufiicient to compensate employers for increased 
 wao-es could be maintained, the additional remuneration 
 received by the labourer would be nominal and not real; 
 
 F. M. ^ 
 
 BOOK II. 
 CH. VIII. 
 
 Other 
 forms of 
 legislative 
 inter- 
 ference 
 with 
 wages. 
 
226 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. Till. 
 
 The conse- 
 quences of 
 an eight- 
 hours' bill. 
 
 It is possi- 
 ble that in 
 some em- 
 ployments 
 labourers 
 could do as 
 much in 
 eight hours 
 as in ten. 
 
 if he obtained a greater number of shillings for a certain 
 number of hours' work, these shillings would be of less 
 value to him than before; for since general prices have 
 risen they would possess less purchasing power. 
 
 Many, no doubt, are induced to advocate legislative re- 
 strictions on the hours of labour, from a conviction that at 
 the present time men are often over-worked, and that as 
 much would be done if the hours of labour were shortened. 
 If this opinion be correct, employers could of course 
 afford to pay the same wages for a shorter day's work. 
 Every one would rejoice if such a change were brought 
 about ; for it is most desirable that the hours of toil should 
 be as far as possible diminished, so that men may have 
 more leisure for physical and mental enjoyment. Nothing 
 is a greater reproach upon our vaimted material progress, 
 and nothing more surely indicates the grave defects in our 
 existing economic arrangements, than the fact that a vast 
 augmentation of national wealth has hitherto done so 
 little to make the labourer feel that his struggle for exist- 
 ence is less severe. But if it is true that as much work 
 can be done in eight hours as in ten, employers should be 
 made to recognise the circumstance, not by legislation, 
 but by experience. It is not diflficult to foresee the incon- 
 venience and the countless anomalies that would arise if a 
 law were passed on such a subject. Different kinds of la- 
 bour vary greatly in severity. It can scarcely be seriously 
 argued that when work is light as much can be done in 
 eight hours as in ten. Some labour is so exhausting that, 
 at the present, eight hours is considered a full day's work. 
 For instance, in the Cornish copper mines, the men who 
 work underground never work more than eight hours in a 
 day ; whereas those who are employed in lighter work 
 upon the surface labour for ten hours. In future, work- 
 men will have increased opportunities of showing. what is 
 the best time for a man to continue working in different 
 employments. Through the agency of industrial associa- 
 tions a larger number of labourers are each year carrying 
 on various kinds of business on their own account. They 
 can therefore make this or any other experiment they 
 please; and no discovery will be more valuable in its social 
 and economic aspects than if they can demonstrate that 
 many of our labourers would be able to do more work if 
 
National Education and other Remedies for Low Wages. 227 
 
 they received higher wages, and if they were employed for 
 a smaller number of hours during each day. 
 
 To provide work for the unemployed is a service which 
 many think they have a much greater right to demand 
 from the Government than the -regulation of wages by law. 
 "We will trace some of the consequences that would 
 ensue, if every applicant had a right, not only to demand 
 work from the Government, but to receive the ordinary 
 wages. When such a privilege was first granted, it might 
 prove very beneficial to the labouring classes, and would 
 not probably be injurious to the general community ; 
 but if the privilege were continued, its ultimate effects 
 would be most disastrous to the nation. If the Govern- 
 ment were compelled to find work for the unemployed, it 
 would of course be necessary to provide the money by 
 increased taxation. If this increased taxation were sup- 
 plied entirely from capital, the wage-fund would not 
 be augmented, but it would, in fact, only be distri- 
 buted by different owners. The wages which are now 
 paid by the Government would have been before paid 
 by individual employers, and therefore the labouring classes 
 would not in the aggregate have a greater amount of 
 wages distributed amongst them than they were accus- 
 tomed to receive. But increased taxation, in a country 
 like our own, will only be paid to a very limited extent 
 out of capital. K the income tax were doubled, the ad- 
 ditional amount thus obtained would to a gi-eat extent be 
 saved from personal expenditure. An employer would 
 rarely be induced to discharge workmen because the in- 
 come tax was increased. There is therefore, in the first 
 instance, a real gain for the working classes, if the wages 
 paid to labourers by the Government are obtained, not 
 from capital, but from a reduction in the personal ex- 
 penditure of the tax-payers, or from a diminution in the 
 amount of capital invested abroad. This benefit will often 
 not be confined to the labourers ; for a Government may 
 frequently increase the wealth of a country by applying a 
 loan, or increased taxation, to public works, which would 
 not be carried out by private enterprise. It therefore ap- 
 pears that, if a great number of labourers were thrown out 
 of work by some sudden and unavoidable cause, a Govern- 
 ment is perfectly justified in promising, as a temporary 
 
 p2 
 
 BOOK II. 
 OH. VIII. 
 
 Effects of 
 granting a 
 legal right 
 to employ- 
 ment at the 
 ordinary 
 wages. 
 
 The effect 
 might he 
 at first 
 beneficial. 
 
 and might 
 justify 
 such a 
 measure 
 in ease of 
 
228 
 
 Manual of Political Economy. 
 
 but must be 
 disastrous 
 if the mea- 
 sure were 
 permanent, 
 
 because 
 there 
 would be 
 no check 
 on popula- 
 tion. 
 
 expedient, to finii work for the unemployed. Such a po- 
 licy need not in any way cripple the productive resources 
 of the country, because the money which is paid away by 
 the Government in wages will not, in the first instance, be 
 provided out of the capital of the nation. The most dis- 
 astrous consequences, however, would ensue, if the Govern- 
 ment continued to give employment to all applicants ; for 
 population has an indefinite power to increase; and, there- 
 fore, no limit could be assigned to the numbers which Go- 
 vernment would be compelled to employ, if it engaged to 
 give work to all those who applied for it. If Government 
 offered such assistance to the working classes, there can be 
 no doubt that, in the present state of society, an increase 
 in population would 'be so powerfully stimulated, that the 
 number of those seeking employment would be constantly 
 augmented ; at last the resources of the nation would be 
 strained to the utmost to provide the wages which the 
 Government would be called upon to pay. This is no 
 imaginary supposition, for statistics have demonstrated that 
 many among the lower classes of society marry with utter 
 recklessness. If they can live when they first marry, they 
 are perfectly contented ; the additional expenses which a 
 family entails are not thought of. If, therefore, Govern- 
 ment found work for all applicants, marriages amongst the 
 labouring classes would be so encouraged, that increase of 
 population amongst them would no longer be restrained by 
 any prudential checks. The State, therefore, could not con- 
 tinue to find work for the unemployed, unless a law were 
 passed imposing severe checks upon the increase of popula- 
 tion. The absolute necessity of this precaution is shown in 
 our own system of Poor Laws. Every pai'ish is bound to 
 provide all those who are charged upon it with food and 
 clothing sufficient to protect them against physical want. 
 But those who claim this relief can be compelled to reside 
 in the workhouse, where they are subjected to certain re- 
 straints ; man and wife, for instance, unless they are very 
 aged, are not permitted to live together ; if this were al- 
 lowed, union workhouses would become establishments for 
 breeding hereditary paupers, and the poor-rate would soon 
 absorb the whole wealth of a parish. It therefore appears 
 that there is a fundamental difficulty connected with aU at- 
 tempts to improve the material condition of the poor by any 
 
National Education and other Remedies for Low Wages. 229 
 
 permanent system of relief; for population is encouraged 
 by granting pecuniary assistance to the poor, and conse- 
 quently the money required for such a scheme of general 
 relief would constantly absorb an increasing amount of 
 wealth. This difficulty can only be met by placing some 
 check upon population ; and it would be impossible for our 
 present Poor-Law system to continue, if nian and wife 
 were permitted to live together in the union workhouse. 
 It is not here necessary to pursue this subject further; 
 as the influence exerted by the Poor Law upon the 
 condition of the labourers will be considered in a sepa- 
 rate chapter. 
 
 Any relief which only effects a slight improvement in 
 the condition of the poor, can be of no permanent advan- 
 tage. The benefit which is, in the first place, conferred, 
 creates its own destruction, by encouraging an increase of 
 population. Any scheme of general philanthropy cannot, 
 therefore, be really efficient, unless it so decidedly im- 
 proves the condition of the working classes, that they are 
 lifted into a different stage of social and material comfort. 
 The lower classes marry recklessly, because they do not 
 feel that they have any social position to maintain ; and 
 they often live so miserably that they cannot be said to 
 have an habitual standard of comfort, such as they will 
 not willingly resign. Men in the middle and in the upper 
 classes will not, as a general rule, marry, if they expect 
 to be obliged to live in an inferior state of comfort, and to 
 bring their children up in a lower social position. Similar 
 prudential motives would control the labouring classes if 
 their material condition could be once greatly improved. 
 They would then possess, as the middle and upper classes 
 do now, an habitual standard of comfort, which they 
 would not willingly sacrifice by improvident marriages. 
 
 The natural conclusion to be drawn from these re- 
 marks is that no remedy for low wages can be really 
 effectual, unless it increases the efficiency of labour and 
 secures a social and moral improvement in the condi- 
 tion of the labourers themselves. This being the case 
 it will not be difficult to show that national education 
 will be the most powerful agency in effecting a real 
 advance in the condition of the poor. It is most essential 
 that this agency should be brought into operation, for 
 
 Schemes 0/ 
 philan- 
 thropy 
 must he 
 sufficient to 
 raise the 
 lower 
 
 classes to a 
 different 
 stage of 
 comfort. 
 
 National 
 education 
 would ef- 
 fect a real' 
 improve- 
 msnt in the.- 
 
230 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. YIII. 
 
 condition 
 of the poor. 
 
 Education 
 greatly in- 
 creases the 
 'efficiency 
 of latom: 
 
 The direct 
 and 
 
 indirect 
 benefits of 
 education. 
 
 many remedies for low 'wages, such as emigration, will 
 produce no great or permanent efifect, unless our people 
 become better educated. If a large portion of the nation 
 is permitted to remain in its present state of ignorance, 
 emigration and every other remedial measure will be 
 powerless to remove the poverty of the very poor. 
 
 Little need be said in reference to the increased effi- 
 ciency which is given to labour by education. There is 
 scarcely an industrial process which does not require a 
 mental as well as a physical effort. It has until recently 
 been generally assumed that agricultural operations vary 
 so little from year to year, and that the implements with 
 which the land is cultivated are so simple, that edu- 
 cation is of little importance either to a farmer or to his 
 labourers. But gradually the truth is beginning to dawn 
 even upon farmers themselves, that agriculture, as much 
 as any other industry, requires skill and intelligence; that in 
 order to realise satisfactory profits costly and complicated 
 implements must be used, and that these cannot with 
 safety or advantage be entrusted to rude and ignorant 
 workmen. Employers in every part of the country now 
 complain that each year it is becoming more doubtful 
 whether England will be able to maintain the commercial 
 supremacy she once possessed : the countries which are 
 becoming her most formidable competitors are those which 
 like Prussia and the United States have long since esta- 
 blished a system of national education. Increased dex- 
 terity ; greater power of concentration ; superior trustwor- 
 thiness ; quickness in discovering a new industrial process 
 and in learning how to use a new machine, are some of 
 the many industrial advantages which the labourer whose 
 mind has been trained generally possesses over one who 
 has grown up in ignorance. 
 
 A not less important influence is however indirectly 
 exerted by education upon the efficiency of labour and 
 upon the prosperity of industry. Ignorance almost in- 
 variably implies premature employment. Millions in this 
 country are unable to read and write, not because there 
 were no schools within their reach when they were 
 young; but because their parents, either through ignorance, 
 poverty, or selfishness, sent them to work at too early an 
 age. Frequent allusion has been made to the deplorable 
 
National Education and other Remedies for Low Wages. 231 
 
 ignorance of our rural labourers; yet it is well known that 
 there are few of them who were not at school when very 
 young. A child, however, who is taken from school when 
 eight or nine years old rapidly forgets almost the whole 
 of the little he has learnt. Widespread ignorance there- 
 fore is a sure indication that a considerable proportion of 
 the population has had inflicted upon it the manifold 
 ervils which result from premature employment. Health 
 is sacrificed, physical vigour is diminished, and strength 
 often becomes exhausted at an age when men ought still 
 to be in the prime of life. The mischief which thus re- 
 sults is not confined to the labourers themselves; the 
 whole community suffers a severe pecuniary loss if the 
 industrial efficiency of those by whom wealth is primarily 
 produced is impaired. Men who are thus made prema- 
 turely old have to be maintained by parochial relief, at a 
 time of life when they ought still to be productive la- 
 bourers. In this way the burden of local taxation is 
 seriously increased. 
 
 Each year facts are coming to light which show that the 
 competition which England has to carry on with foreign 
 countries is more keen and more closely contested. She 
 is gradually losing some branches of trade in which she 
 once possessed undisputed supremacy. One example will 
 illustrate the change which is thus in some instances 
 taking place. The chairman of the Birmingham Chamber 
 of Commerce lately asserted that formerly the district 
 round that town made nearly all the locks which were 
 used throughout the world; but that at the present time 
 the industrial appliances of America were so superior to our 
 own, that America imported the metal of which locks are 
 made from Staffordshire, and exported the manufactured 
 locks to England, underselling us in our own market. 
 Upon inquiry it is found that all the reasons which are 
 given to account for this superiority of American industry, 
 either directly or indirectly, arise from the imperfect 
 education of our people. Although higher wages are paid 
 in the United States than in England, yet labour is said 
 to be less costly in the former country, because the work- 
 men there possess a quicker intelligence, greater inge- 
 nuity, and are more ready to avail themselves of improved 
 mechanical appliances. All this superiority is manifestly 
 
 BOOK n. 
 OH. VIII. 
 
 England 
 cannot 
 maintain 
 Tier com- 
 mercial su- 
 premacy 
 unless her 
 labourers " 
 are edu- 
 cated. 
 
232 
 
 Manual of Political Economy. 
 
 BOOK II. 
 OH. VIII, 
 
 The bur- 
 dens of 
 local taxa- 
 tion would 
 be lighten- 
 ed by edu- 
 cation. 
 
 Crime and 
 
 pauperism, 
 would be 
 decreased. 
 
 due to better education. Again, the complaint most fre- 
 quently heard from English employers is, that industry is 
 impeded by the heavy burdens of local taxation ; and that 
 trades'-unions enforce upon employers regulations anta- 
 gonistic to the principles of Political Economy. The im- 
 portance to be attributed to this latter allegation will be 
 considered in a subsequent chapter upon strikes and 
 trades'-unions. It is here sufficient to observe, that if a 
 child is allowed to grow up in ignorance, it can scarcely 
 be expected that when he becomes a man he will possess 
 the requisite knowledge to enable him to guide his actions 
 in strict accordance with the principles of economic science. 
 With regard however to the pecuniary burdens which the 
 industry of this country has to bear, no one can doubt 
 that this is an evil of great and increasing significance. 
 It is almost needless to state that to crime and pauperism 
 are in a great degree due the onerous charges which our 
 industry is compelled to bear. Statistics indisputably 
 prove that ignorance is the fruitful source of crime. 
 Not more than four per cent, of convicted offenders can 
 read and write with facility. It may be said that drunk- 
 enness is the most powerful promoter both of crime and 
 pauperism ; but there is manifestly an intimate con- 
 nection between intemperance and ignorance. Men will 
 frequent the public-house if they are unable to derive 
 enjoyment from rational pleasures; for leisure, instead 
 of being a blessing to them, hangs heavily on their 
 hands. 
 
 With regard to pauperism, there can be little doubt that 
 improved education would cause it to be very much di- 
 minished. Higher wages do not make men more provi- 
 dent unless their moral and social character is improved; 
 higher wages now generally lead to an increase of popula- 
 tion. The advocates of free-trade confidently predicted 
 that unrestricted commerce would almost extinguish pau- 
 perism. After thirty years of free-trade, pauperism is 
 still one of the most formidable of all social and economic 
 diflSculties. Higher wages frequently fail to promote in- 
 creased saving. So little frugality is there among many 
 of our labourers, that if depressed trade causes a cessation 
 of employment a majority of those thrown out of work 
 are immediately compelled to apply for parochial relief. 
 
National Education and other Remedies for Low Wages. 233 
 
 Moreover, it will be shown in a subsequent chapter that 
 until an efficient system of national education is esta- 
 blished there can be little hope that any widespread 
 influence will be exerted by those new economic arrange- 
 ments, such as copartnerships and co-operation, upon 
 which we must chiefly rely for the industrial elevation of 
 the people. 
 
 Emigration might no doubt become a most effectual 
 remedy for low wages. It not only relieves an over- 
 burdened labour-market, but by our emigrants countries 
 are developed, to which England must chiefly look for 
 those supplies of cheap food which are so essential to her 
 material progress. But in the present condition of the 
 country there is a grave peril associated with emigration. 
 Those who leave our shores are naturally the most ener- 
 getic and intelligent of our labourers; the consequence is 
 that emigration is constantly drawing away those whom 
 we can least afford to lose, and those remain behind who 
 are most likely to become a burden upon our resources. 
 While so large a proportion of the population is deficient 
 in frugality, the advantages resulting from emigration are 
 frittered away, and no permanent benefit is produced. The 
 relief temporarily given to an overstocked labour-market 
 by emigration is quickly neutralised by the increase of 
 population which is invariably stimulated by an advance 
 in wages. During the last twenty years emigration on a 
 large scale has been constantly going on from these 
 islands; yet there never was a time when complaints were 
 more frequent as to the unsatisfactory condition of our 
 labourers. 
 
 Summarising the conclusions to be deduced from these 
 remarks, it may be briefly said, that education, by enor- 
 mously increasing the efficiency of labour, would make 
 labour and capital both more productive; hence there 
 would be more to be distributed in profits to the capitalist 
 and in wages to the labourers. The cost of commodities 
 would be lessened, every branch of industry would acquire 
 a new prosperity, and this prosperity would be shared by 
 the whole community. The additional wages thus ob- 
 tained would not sow the seeds of future poverty by 
 stimulating an improvident increase of population, but 
 would be enjoyed by a people whose prudential habits 
 
 Without 
 national 
 education, 
 the bene- 
 ficial ef- 
 fects of 
 emigration 
 will only 
 be tempo- 
 rary. 
 
 A brief 
 summary 
 of the ef- 
 fects of a 
 system of 
 national 
 education. 
 
234 
 
 , Manual of Political Economy. 
 
 BOOK II. 
 CH. VIII. 
 
 How can 
 national 
 education 
 he secured! 
 
 The Ele- 
 mentary 
 Education 
 Act, 1870. 
 
 ■would be so much developed as to make them perma- 
 nently retain the superior standard of living they had 
 acquired. 
 
 In proceeding to consider how a system of national 
 education can be secured, it may be remarked that expe- 
 rience has shown that something more is required than 
 the building and maintaining of schools. The State must 
 resolutely interfere, and boldly assert the great principle 
 that every child shall be protected against the irreparable 
 wrong which is inflicted upon him if he is permitted to 
 grow up in ignorance. This principle has received only a 
 partial recognition in the Elementary Education Act of 
 1870. This Act introduced not a general system of com- 
 pulsion, but what may be described as permissive compul- 
 sion. In those districts where the school accommodation 
 is insufiScient, a school board is constituted ; the ratepayers 
 also have the power to form a school board if they wish to 
 do BO, even where the school accommodation is sufficient. 
 These boards are permitted to frame bye-laws for enforc- 
 ing school attendance on every child between the ages of 
 five and thirteen ; but as it is not obligatory on the boards 
 to do so, and as there is no other means of securing com- 
 pulsion except through the school boards, it follows that 
 only a portion of the community has been brought under 
 the influence of compulsory education. In fact, the Act 
 has done scarcely anything to improve the education of 
 the rural districts. A school board is very rarely esta- 
 blished in a country 'parish, and it has been repeatedly 
 proved that the ignorance of the rural labourers is far 
 more due to the early age at which children are sent to 
 work than to a deficiency of school accommodation. 
 
 The arguments in favour of the adoption of a general 
 system of compulsory education are greatly strengthened 
 by the good results which are generally admitted to have 
 followed from the educational clauses of the Factory Acts, 
 which enforce 15 hours' school attendance a week upon 
 all children under thirteen who are employed in factories. 
 If a child who is at work is compelled to attend school it 
 is impossible to suggest any reason why a similar protec- 
 tion should not be extended to children who are not at 
 work. In this case the difficulty of depriving parents of 
 their children's earnings does not arise. It is important 
 
National Education and other Remedies for Low Wages. 235 
 
 tp -bear in mind that the educational clauses of the Fac- 
 tory Acts have now been extended to every important 
 trade in the country except agriculture. And by an Act 
 recently passed a certain amount of school attendance is 
 to be enforced upon children employed in agriculture. 
 The amount of education, however, which they are to 
 receive is unhappily reduced almost to a minimum. They 
 need only attend school four months in a year ; they 
 are also permitted to leave school altogether when they 
 reach the age of ten years and four months. 
 
 The objection most frequently brought against compiil- 
 sory education is that it would deprive poor parents of 
 their children's earnings. This objection is manifestly 
 not applicable except in the case of those children who 
 are at work. The great majority of those who would 
 be at the present time directly affected by a general 
 system of compulsory education are neither at school nor 
 at work; for, as we have seen, a certain amount of school 
 attendance is enforced upon every child who is engaged 
 in industry. It is therefore evident that this plea about 
 the poverty of the parents has little real validity; the 
 enforcement of school attendance takes nothing further 
 than the school pence from those parents who allow their 
 children to grow up in idleness. Although from these 
 considerations it appears that the difficulty associated 
 with the loss of children's earnings is unduly magnified, 
 yet it is very important carefully to estimate the ob- 
 stacles which are presented by the poverty of rural 
 labourers to the extension of education in the agricultural 
 districts ; because this poverty is constantly put forward 
 a;s a reason why children employed in agriculture should 
 receive such a very small amount of education compared 
 with children who are employed in manufacturing and 
 other industries. 
 
 It has been already stated that there is the most striking 
 diversity in the condition of agricultural labourers in differ- 
 ent localities. The report of the commissioners who a few 
 years since inquired into the condition of people employed in 
 agriculture shows that few labourers in England are better 
 off than the agricultural labourers of Northumberland. 
 They earn 70 or 80 per cent, more than is earned by their 
 fellow-labourers in many parts of the East and South- 
 
 BOOK II. 
 CH. VIII. 
 
 TAfi objec- 
 tions to 
 compul- 
 sory edu- 
 cation con- 
 sidered. 
 
2^6 
 
 Manual of Political Economy. 
 
 BOOK II. 
 OH. VIII. 
 
 The 
 
 poverty of 
 parents 
 shewn to he 
 a not in- 
 superable 
 difficulty. 
 
 West of England ; they possess other advantages which 
 are now rarely enjoyed by labourers in these less favoured 
 localities. If all our agricultural labourers were as well 
 off as they are in Northumberland the argument derived 
 from the poverty of the parent would cease to exist. But 
 it is necessary not so much to consider those who are ex- 
 ceptionally well off, but to inquire how the enforcement of 
 a greater amount of school attendance upon children would 
 afect the Wiltshire or Dors^shire labourer who is only • 
 earning his nine or ten shillings a week. Strange as at 
 first sight it may appear, it is not difficult to show that 
 in consequence of the extreme poverty of these labourers, 
 the loss of a portion of their children's earnings will inflict 
 upon them a very snmll amount of hardship. Wages of 
 nine and ten shillings a week may be truly designated 
 minimum wages ; or, in oth-er words, they represent the 
 smallest amount upon which a man with a family can 
 live. That this is the case is strikingly corroborated by 
 the well-ascertained fact, that in those districts where 
 agricultural wages are the lowest, the remuneration of 
 the labourer fluctuates with the price of corn. When 
 bread is dear, wages advance. If there is a fall in the 
 price of bread, wages are at once reduced. Farmers when 
 meeting at market, talk about the subject jvith each 
 other; if eleven shillings a week represent the current 
 wages, and there is a considerable rise in the price of 
 wheat, it is agreed by common consent that a man with a 
 family cannot live upon eleven shillings a week; conse- 
 quently an understanding is arrived at, which everyone 
 throughout the locality obeys, that wages shall be raised 
 to twelve or thirteen shillings a week. It seems contrary 
 to the generally accepted principles of Political Economy 
 that wages should fluctuate with the price of wheat. A 
 rise or fall in its price does not indicate any change, either 
 in the amount of capital invested in agriculture, or in the 
 supply of labour. But the fact that wages continue in 
 these localities exceptionally low, distinctly indicates that 
 the remuneration of the labourer is not controlled by the 
 general competition of the labour-market, but is deter- 
 mined by the particular circumstances of the locality. If, 
 therefore, wages are kept down at a minimum, as in Wilt- 
 shire and Dorsetshire, it is evident that a man cannot be 
 
National Edibcation and other Remedies for Low Wages. 
 
 237 
 
 much worse off if he is deprived of a portion of his chil- 
 dren's earnings. A calculation is made as to the smallest 
 amount upon which he can live ; in making this calcula- 
 tion the earnings of his children are of course taken into 
 consideration. The amount therefore which has to be al- 
 lotted to him must be somewhat increased if the earnings 
 of his children are to a certain extent reduced. It must 
 also be borne in mind that a child does not necessarily lose 
 half what he has been accustomed to earn if he is com- 
 pelled to spend one half of his time at school. Such a 
 restriction upon labour diminishes its supply, ^aaid conse- 
 quently exerts a tendency to raise its prica Moreover, an 
 indirect effect would be exerted upon the rennuneration 
 of adult labour by diminishing the supply of juvenile 
 labour ; for the employment of children often reduces the 
 wages of the adult labourer. It may be thought that if 
 labour were thus made dearer, a tax would be imposed 
 upon employers ; any loss which they might in this way 
 suffer could be but temporary; in a few years they would 
 receive a rich recompense in possessing a body of edu- 
 cated labourers. 
 
 As the nation advances in intellectual development, 
 many agencies for improving the condition of the people 
 will be spontaneously brought into operation. Thus, at 
 the present time, the gravest moral and economic evils re- 
 sult from the miserable dwellings in which so many of our 
 labourers live. If, however, the character of these people 
 became elevated, they would absolutely refuse to herd to- 
 gether in hovels, where many of -the decencies of life must 
 necessarily be ignored. Every landowner would then feel 
 that it was as essential to provide commodious cottages as 
 good farm buildings. Many schemes of philanthropy now 
 prove abortive, because people are not in a position to 
 utilise advantages which are brought within their reach. 
 Complaints are frequently made that there is compara- 
 tively little use in erecting better cottages, because if one 
 or two extra bedrooms are provided, they are certain to 
 be let to lodgers, and things soon become as bad as they 
 were before. 
 
 People often become disheartened when they observe 
 the little permanent influence produced by some well- 
 devised scheme for ameliorating the condition of the poor. 
 
 BOOK II. 
 CH. Till. 
 
 If the 
 peoplewere 
 educated 
 their ma- 
 terial and 
 ■moral con- 
 dition 
 would be 
 improved. 
 
 The in- 
 fluence of 
 allotmenii 
 in amelior- 
 
238 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. VIII. 
 
 ating the 
 condition 
 of the la- 
 bourer. 
 
 Labourers 
 often svffer 
 severely 
 through 
 the en- 
 closure 
 
 Thus it was confidently hoped that the granting of allot- 
 ment gardens would do much for the labourers. There 
 can be no doubt that these allotments might exert a most 
 beneficial influence. They are not however in themselves 
 sufficient to raise the condition of a class. Too much was 
 in fact expected from them. People became disappointed, 
 and many high authorities on economic subjects have 
 consequently underrated their advantages. It has, for 
 instance, been maintained that, in the case of our worst- 
 paid labourers, an allotment only acts as a rate in aid 
 of wages ; that these labourers obtain from their wages 
 and their allotments only just sufficient to live upon ; and 
 that, consequently, their wages would have to be advanced 
 if they were deprived of their allotments. In some cases 
 there is a certain amount of truth in these allegations; but 
 as the labourers gradually improve, the produce obtained 
 from an allotment must represent a real addition to 
 wages. When allotments can be provided for town la- 
 bourers, they not only supply much produce which would 
 be expensive to purchase, but they furnish a healthy and 
 most desirable occupation for leisure time. The greatest 
 care should therefore be taken to secure land for allot- 
 ments. The enclosure act of 1845 specially provided that 
 when land was enclosed, some portion of it should be re- 
 served, as allotments for the labouring poor. These pro- 
 visions have been most shamefully ignored. In the year 
 1869 it was proposed to enclose in different parts of the 
 country 6,900 acres of land, and the whole amount re- 
 served as allotments for the labouring poor was 6 acres. 
 
 Sometimes it is urged, with the supposed object of bene- 
 fiting the poor, that our remaining waste lands should 
 be brought under cultivation. Those who make such a 
 demand should remember that since the commencement 
 of the last century nearly 5,000,000 acres of land have 
 been enclosed. Evidence which has been repeatedly given 
 before Parliamentary Committees, indisputably proves that 
 in the case of almost all these enclosures the interests of 
 the poor have been systematically neglected. The land 
 which has been thus enclosed has sooner or later been 
 added to the large estates of neighbouring proprietors. 
 Land over which the public could exercise many most 
 valuable rights and privileges is, when enclosed, converted 
 
National Education and other Remedies for Low Wages. 239 
 
 into private property. The opportunities for recreation 
 and for enjoyment are not, only greatly curtailed, but la- 
 bourers who have been accustomed to graze a cow or feed 
 poultry upon a common, never again have a similar oppor- 
 tunity when the common is enclosed. Those who possess 
 rights of common are no doubt, in the first instance, com- 
 pensated ; but the benefits of this compensation rarely ex- 
 tend beyond those who receive it. The small plot of land 
 which is allotted to some poor commoner is almost certain 
 to be sold ; whereas his rights af common constituted a 
 property which could not be alienated. Formerly it was 
 advantageous to bring unenclosed land under cultiifration, 
 but enclosures have now in almost every locality gone far 
 enough. Every new proposal for destroying a common 
 should be watched with the utmost jealousy. Such public 
 lands as commons must each year become of more value 
 and importance to the whole community, in a country 
 where land is so scarce, and so eagerly sought after as it 
 is in England. 
 
 Many other remedies for improving the condition of the 
 poor have from time to time excited public attention. 
 The efficiency of these may be tested by considerations 
 similar to those which have been mentioned in this chap- 
 ter. The question of primary importance is this. Will 
 the agency proposed exert an influence to make the poor 
 rely upon self-help ?. In seeking to find an answer to this 
 question, we have been led to conclude that all remedies 
 for low wages cannot permanently prove effectual until 
 the whole community has been brought under the influ- 
 ence of a comprehensive scheme of National Education. 
 
 of waste 
 lands. 
 
 No agency 
 will effect 
 a lasting 
 improve- 
 ment in the 
 condition 
 ofthepoor, 
 unless it 
 makes 
 them rely 
 on self- 
 help. 
 
BOOK II. 
 CH. IX. 
 
 Trades'- 
 unions 
 have two 
 objects; 
 that of or- 
 dinary 
 friendly 
 societies, 
 and that of 
 organisa- 
 tions to in- 
 fluence 
 wages. 
 
 CHAPTER IX. 
 
 TRADES -UNIONS AND STRIKES. 
 
 THE frequency of strikes during the last few years has 
 been a prominent feature in the social condition of 
 England. The labouring classes would not be always 
 ready to make such great sacrifices to support a strike, 
 unless they believed that it was an efficient remedy for 
 low wages. The subject demands a careful and dispas- 
 sionate consideration, for the prejudices of each party in 
 the dispute are so strong, and the feelings excited so 
 angry, that little is heard but useless recrimination and 
 unreasoning partizanship. 
 
 According to popular ideas, strikes are inseparably con- 
 nected with trades'-unioDS, and it will therefore be neces- 
 sary, in the first place, to settle the much-disputed question 
 as to the purposes which trades'-unions are intended to 
 fulfil. A royal commission, after a most elaborate investi- 
 gation, made a report a few years since upon trades'-unions. 
 From this report and other sources of information the 
 following conclusions may be deduced : — Trades'-unions 
 serve two distinct purposes. In the first place a trades'- 
 union performs the ordinary functions of a friendly society. 
 A member of one of these societies is assisted, when 
 thrown out of work either by illness, or by the stagnation 
 of trade. It is not here necessary further to discuss the 
 efiects of a trades'-union, when it is simply used for the 
 charitable purposes just indicated. But a trades'-union is 
 always something more than a friendly society, its chief 
 purpose is generally to organise the workmen of a parti- 
 cular trade into a combination, sufficiently powerful to 
 enforce various regulations, both upon masters and men. 
 
■Trades -Unions and Strikes. 
 
 24.x- 
 
 The promoters of trades'-unions seem distinctly to un- 
 derstand that the most effective way to raise the wages in 
 any particular trade, is to restrict the number of labourers 
 who are employed in it. Consequently many of the rules 
 of these societies are framed with the specific object of 
 artificially limiting the supply of labour. Thus some 
 trades'-unions will not permit a master workman to take 
 more than a certain number of apprentices. In the hat 
 trade the number is limited to two. If the union has 
 sufficient power to enforce obedience to its mandates, 
 any restriction which limits the number of those brought 
 up to the trade must exert a direct influence to raise the 
 wages which are paid in this particular branch of industry. 
 For suppose that those who are engaged in the manufac- 
 ture of hats were freely permitted to take as many ap- 
 prentices as they pleased, the number of journeymen 
 hatters in the country might be very much increased. 
 Let it be assumed that there would be twenty per cent, 
 more journeymen hatters than there are now ; under these 
 circumstances, there would be a greater number of labour- 
 ers competing for employment in the hat trade, and their 
 wages would consequently be reduced. The saving re- 
 sulting from the lower wages will ultimately benefit those 
 who purchase hats, because the price of hats would be 
 reduced. The hat manufacturers would not be able to 
 a^ppropriate to themselves the savings which would accrue 
 from the payment of a less amount in wages, because, 
 when the cost of producing any commodity is reduced, its 
 price is sure to be lowered in a corresponding degree, since 
 people engaged in the same trade compete against each 
 other for as large an amount of business as, possible ; and 
 in their anxiety to undersell one another, they offer their 
 commodities at a price just sufficiently in excess of the cost 
 of production to leave them the profit ordinarily realised 
 in trade. It therefore appears, that those who purchase 
 any commodity are compelled to pay a higher price for it, 
 and that the wages of the labourers engaged in its manu- 
 facture are artificially raised when restrictions are imposed 
 which limit the number of those who are permitted to be 
 employed in the particular trade. 
 
 These restrictions can on no grounds be defended; in 
 the first place, any such interference with the distribution 
 
 F. M. Q 
 
 BOOK II. 
 OH. IX. 
 
 A trades'- 
 union can 
 only raise 
 the wages 
 of a parti- 
 cular trade 
 by limiting 
 the number 
 of work- 
 men. 
 
 Such limit- 
 ations are 
 irldefensi- 
 
242 
 
 Manual of Political Economy. 
 
 SOOE 11. 
 OH. IX. 
 
 hie on any 
 aground. 
 
 They in- 
 juriously 
 affect all 
 classes 
 
 and drive 
 away 
 
 of the labour of the country, amongst its various branches 
 of industry, introduces many most mischievous inequali- 
 ties. The labour of which some employments are compul- 
 sorily deprived is thrown, as a burdensome surplus, upon 
 other branches of industry; and the wages in some em- 
 ployments are consequently as much depressed as the 
 wages in others are raised. The members of a trades'- 
 union, when they usurp such powers, virtually confiscate 
 to their own advantage a portion of the wages which 
 would be paid to other classes of labourers, if industry 
 were unshackled by such, arbitrary rules. Although this 
 injustice is striking, yet there still remains to be described 
 a much greater wrong, which is inflicted upon those who 
 are prevented by a trades'-union from following the em- 
 ployment they would select, if left to their own free 
 choice. There is no right to which all men and women 
 have a more indefeasible claim, than absolute freedom to 
 follow those pursuits in which they think they are best 
 qualified to succeed. The laws of a free country ought to 
 secure to every one this right ; for, if it is denied, indi- 
 vidual freedom at once ceases to exist. Such a right is 
 denied, if a person is excluded by a trade's-union from 
 following a particular employment. It is no excuse for 
 the members of the union to saj' — Our trade is already 
 overcrowded, wages are too low in it, and it would be 
 disastrous if they should be still farther reduced by an 
 increase in the number of those applying for employment. 
 Every man has a right to judge of such things for himself; 
 he may wish to engage in the trade, because he has a 
 particular capacity for it, and if he is arbitrarily driven to 
 some other employment, he is deprived of the advantages 
 of the skill with which nature has endowed him. It 
 would therefore seem, that trades'-unions may inflict upon 
 labourers great social tyranny ; it is not the labourers who 
 alone suffer, for every class of the community is more or 
 less injuriously affected. These trades'-unions may imperil 
 the very existence of an industry in any particular district: 
 for the various restrictions imposed upon employers may 
 so much increase the cost of a commodity, as to render it 
 impossible for them to compete against others in the same 
 trade, whose operations are not similarly impeded. Ex- 
 amples may be quoted which prove that some branches of 
 
Trades' -Unions and Strikes, 
 
 243 
 
 iudustry have been driven from certain localities by trades'- 
 unions. These societies have long been very powerful in 
 Birmingham, and their efforts were at one time chiefly 
 directed against the introduction of machinery. These 
 efforts were in a great degree successful, and consequently, 
 when steam began to be generally applied, those trades 
 which required much machinery settled in other localities, 
 and the manufactures of Birmingham are to this day 
 in a great degree confined to those branches of industry 
 which require comparatively a much greater amount of 
 manual labour than machinery. Another example may 
 be furnished by Shef3&eld. In this town, a few years ago, 
 many dreadful outrages were perpetrated upon artisans 
 who refused to join the trades'-unions. When these 
 societies practise such tyranny, they are sure to use coer- 
 cion towards the masters, attempting to control theita in 
 their business arrangements by all kinds of vexatious 
 restrictions. Trade, thus trammelled, must suffer; for al- 
 though the place has special advantages for the industry 
 which there flourishes, yet other localities, where masters 
 and men are permitted to act as they please, will be able 
 to compete successfully against Sheffield. In corrobora- 
 tion of this opinion it may be stated, that a successful steel 
 manufactory has already been established in Manchester, 
 and its promoters openly confess that they have been in- 
 duced to select Manchester, in order that they may 
 escape the influence of the trades'-unions of Sheffield. 
 If, moreover, these societies should increase in numbers 
 and in power, so as gradually to embrace a large ma- 
 jority of the working classes, the industrial prosperity 
 of the nation might be seriously jeopardised, since various 
 branches of industry might not only pass from one lo- 
 cality to another, but might even leave the country. 
 For we cannot compete with foreign countries if our 
 manufacturers are to be dictated to by their workmen 
 with regard to the use of machinery and the conduct of 
 business. 
 
 It may perhaps be asked : — How can these trade societies 
 exercise the influence they do, when everyone is aware that 
 the coercion they practise is not based on any legal sanc- 
 tion? No one can doubt that the members of a trades'- 
 union commit a criminal act, if they attempt, in the slightest 
 
 Q2 
 
 BOOK n. 
 CH. IS. 
 
 trade : 
 instances 
 of Birm- 
 ingham 
 
 and Shef- 
 field, 
 
 by means 
 of exercis ■ 
 ing a 
 social ter- 
 rorism. 
 
244' 
 
 Manual of Political Economy. 
 
 BOOK H. 
 CH. IX. 
 
 Tlie con- 
 nection he- 
 tween 
 trades' - 
 unioTie and 
 strikes is 
 intimate, 
 though not 
 necessary. 
 
 degree, to interfere with any individual who does not 
 belong to their society. It would therefore appear that 
 social terrorism is the source of their power; for although 
 I such outrages as those committed at Sheffield are excep- 
 tional, yet a non-union man is subjected to so many petty 
 annoyances that his life not unfrequently becomes a burden 
 to him; and employers are coerced in a similar manner, if 
 they do anything contrary to the rules of a trades '-union. 
 Thus if a master, engaged in some business such as wool- 
 stapling, where the trade society is all-powerful, were to 
 employ non-society men, all his labourers who belonged 
 to the trades'-union would at once refuse to work for 
 him, and he would in this way be subject to great loss 
 and inconvenience. 
 
 It is not, however, these regulations concerning the 
 internal arrangements of a trade, which have caused so 
 much public attention to be directed towards trades'- 
 unions during the last few years; the interest excited in 
 these societies has been in a great degree due to their 
 connection with strikes. The trades'-unions have, in fact, 
 endeavoured to regulate wages, and they apply their or- 
 ganisation to compel employers to agree to their demands. 
 If, for instance, it is proposed to reduce the wages in some 
 particular branch of industry where the majority of the 
 men employed belong to a trade society, then, if the 
 leaders of the society consider that the reduction ought 
 not to be made, they issue an order that work should be 
 discontinued rather than accept the reduction. If the 
 reduction is still insisted on by the employer, the imme- 
 diate consequence is a turn-out of the workmen, or, in 
 other words, a strike. Now it is evident that a trades'- 
 union need not necessarily have the slightest connection 
 with a strike; even if trades'-unions did not exist, strikes 
 might still be of frequent occurrence. A strike implies a 
 combination amongst a large number of workmen, and 
 such a combination is not possible unless a considerable 
 majority of those engaged in any trade agree to act in 
 unison. Such combined action as a strike requires 
 cannot therefore exist unless the workmen submit to be 
 governed by an organisation. The trades'-unions supply 
 this organisation, without which there cannot be complete 
 unity of action. It is quite possible, however, to conceive 
 
Trades' -Unions and Strikes. 
 
 245 
 
 that a trades' -union may prevent a strike, and many of 
 these societies have, as yet, never >been connected with a 
 strike; still, as long as a great number of workmen in this 
 country are warm advocates of the system of strikes, it is 
 quite certain that trades'-unions and strikes will be inti- 
 mately connected together. 
 
 Since a strike requires combination, we have to inquire, 
 when investigating the effect of strikes, whether workmen 
 by combining can obtain higher wages. It can scarcely be 
 disputed that they possess a perfect right to combine. The 
 right may be, and has been, abused; then, of course, it 
 ceases to be justifiable; but if employers are freely per- 
 mitted to invest their capital to the greatest possible 
 advantage, the employed may equally claim to be allowed 
 to obtain the highest wages they can for their labour. If, 
 therefore, any number of them choose to form themselves 
 into a combination, and refuse to work for the wages 
 which are offered to them, they are as perfectly justified 
 in doing this as capitalists are when they refuse to embark 
 their capital because the investment offered is not suffi- 
 ciently remunerative. Workmen, however, do an illegal 
 and most mischievous act, which ought to be severely 
 punished, if they attempt to sustain the combination by 
 force, or if they coerce individuals to join it by threaten- 
 ing to subject those who keep aloof either to annoyance 
 or personal violence. Workmen have sometimes main- 
 tained their combinations, not only by acts of violence, 
 but also by various kinds of social terrorism. Justice 
 obviously demands that the blame which attaches to such 
 actions should not be borne by those who never abuse 
 the power of combination. An increasing number of the 
 intelligent artisans of this country each year become more 
 decided advocates of trades'-unions. The influence of 
 these societies is rapidly extending in other countries; it 
 is therefore very important to ascertain the effect exerted 
 upon wages and upon the general condition of the labourer 
 by a legitimate use of the power of combination. 
 
 In making this investigation it is essential to keep 
 clearly in view the fundamental distinction between the 
 permanent and temporary consequences which arise from 
 the operation of an economic agency. In every branch of 
 industry there is a certain position of equilibrium to which 
 
 BOOK II. 
 CH. IX. 
 
 Question 
 whether 
 combina- 
 tions of 
 workmen 
 can raise 
 wages. 
 
 The great 
 majority of 
 intelligent 
 artisans 
 are in 
 favour of 
 trades'- 
 unions. 
 
246 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. IX. 
 
 The effect 
 of competi- 
 tion is gra- 
 dual not 
 immediate. 
 
 Under 
 some cir- 
 cwmstances 
 the force of 
 competi- 
 tion is 
 neutral- 
 ised for 
 an indefi- 
 nitely long 
 period. 
 
 If competi- 
 tion acted 
 instantane- 
 ously, ccm- 
 IbinOtion 
 
 profits and "wages have a tendency to approximate. A 
 long time however may be required to restore wages and 
 profits to this position of equilibrium. Thus the woollen 
 trade cannot permanently continue very much more pro- 
 fitable than the cotton trade, because the competition of 
 capital will gradually induce capital to be invested in the 
 one trade and withdrawn from the other. Competition 
 cannot exercise this equalising force instantaneously; it 
 takes, for instance, a considerable time to erect new wool- 
 len miUs, and there wiU be always much hesitation before 
 men will relinquish such a business as the cotton trade, 
 to which they have been accustomed. Hence, one branch 
 of manufacture may continue for many years exception- 
 ally prosperous, whilst in some other business there may 
 be a corresponding 'depression. 
 
 Competition exerts a similar equalising influence upon 
 wages. If wages in one branch of industry are exception- 
 ally high, whilst in some other they are exceptionally low, 
 labour will be gradually attracted to the business in which 
 the high remuneration is given, and will be withdrawn 
 from the business in which the remuneration is less than 
 the average. Bat here again time is reqoaired for carrying 
 out this equalising process. Labourers will rather submit 
 to some temporary loss than change their occupation. A 
 considerable expense will also be incurred, if a man has to 
 change his residence in order to obtain a new employment. 
 In some cases it happens that such obstacles as these 
 neutralise the force of competition, ©ot temporarily, but 
 for an indefinitely long period. For instance, the wages 
 of agricultfural labourers in some localities are permanently 
 depressed below the average rate. The reason of this is, 
 that the force which competition would exert to advance 
 these wages is neutralised by the labourer being prevented 
 through ignorance and poverty from resorting to those 
 localities where wages are higher. These general remarks 
 enable us more exactly to determine the influence which 
 can be exerted upon the condition of the labourers by the 
 power of combination. 
 
 If competition acted instantaneously, or in other words, 
 if profits and wages in every branch of industry were al- 
 ways at their natural rate, it might be at once concluded 
 that the power of combination could exercise no effect 
 
Trades' -Unions and Strikes. 
 
 247 
 
 either upoa profits or upon wages. Suppose, for instance, 
 that workmen by resorting to a strike obtained an ad- 
 vance in wages. This advance would be of no benefit to 
 them, if the competition of other labourers, anxious to 
 participate in this advance, could immediately produce 
 its equalising effect. No conclusion of any practical value 
 can be arrived at on the subject unless the mode in which 
 competition acts is kept steadily in mind. In all those 
 branches of industry in which the competition of labour 
 and capital freely acts there cannot be secured any per- 
 manent increase in profits or wages, by a combination 
 either of employers or employed. It has, however, been 
 previously remarked that in some cases the equalising 
 effect of competition is neutralised through an indefinitely 
 long period. This occurs with regard to agriculture, in 
 those counties where wages are the lowest. When a 
 branch of industry is in this position, there can be no 
 doubt that labourers can by combining secure a per- 
 manent advance in wages. Suppose, for instance, that 
 Dorsetshire labourers, earning only ten shillings a week, 
 received so much extraneous assistance that they were able 
 to maintain a prolonged strike. The farmers, under such 
 circumstances, would almost inevitably be vanquished in 
 the struggle. They would be ruined if their land remained 
 uncultivated, and since the wages previously paid were 
 minimum wages, it would be impossible to obtain labour 
 from other localities unless a higher remuneration were 
 offered for it. The power of combination has, within the 
 last year or two, since the establishment of agricultural 
 labourers' 'unions, produced some effect in raising the 
 wages of our worst paid agricultural labourers. When 
 these combinations become more general, various other 
 agencies, such as migration and emigration, will be brought 
 into operation to raise wages. It now remains to investi- 
 gate the influence which a power of combination may 
 exercise upon wages and profits, during the time which 
 always elapses, before competition can produce its equal- 
 ising effect. 
 
 When men labour simply for hire, it is manifest that 
 the adjustment of wages is analogous to the bargaining 
 which is carried on by the buyer and seller of a com- 
 modity. Although it is no doubt true, that the price, at 
 
 BOOK II. 
 CE. IZ. 
 
 wouMhave 
 no effect on 
 profits and 
 wages. 
 
 The effect 
 of a 
 trades'- 
 union vpon 
 the wages 
 of agricul- 
 tural la- 
 bourers de- 
 scribed. 
 
 Wages are 
 fixed in 
 the same 
 way as a 
 bargain, 
 
■248 
 
 Manual of Political Uconomy. 
 
 BOOK II. 
 CH. IX. 
 
 carried on 
 by the 
 buyer and 
 seller of a 
 commodi- 
 ty- 
 Do combi- 
 nations im- 
 prove the 
 position of 
 the parties 
 to this 
 bargain ? 
 
 Combina- 
 tions exist 
 among em- 
 ployers. 
 
 An exam- 
 ple of the 
 effect of 
 combina- 
 tions upon 
 wages. 
 
 which a commodity is sold, approximates to the cost at 
 which it can be produced and brought to market, yet the 
 price at which it is actually sold is often to a consider- 
 able extent influenced by various circumstances which 
 may happen to place the buyer in either a better or worse 
 position for bargaining than the seller. In a similar way 
 wages ultimately depend upon the amount of capital and 
 upon the number of labourers; yet the wages which, at 
 any time^ are paid in a certain trade are to a considerable 
 extent influenced by the relative advantages possessed by 
 employers and employed for carrying on the bargaining, 
 by which wages are adjusted. The question therefore 
 arises, Will workmen by combining, or by showing that 
 they have the power to combine, improve their position 
 in carrying on this bargain 1 
 
 It is well known that employers in various trades fre- 
 quently act in combination. For instance, the iron- 
 masters in the midland counties hold quarterly meetings 
 at which a scale of wages and prices is fixed. Every iron- 
 master considers himself bound to conduct his trade in 
 strict accordance with the scale agreed upon. If any one 
 should disobey the decision of the meeting, he would sub- 
 ject himself, not indeed to personal violence, but to a social 
 terrorism very analogous to that by which trades'-unionists 
 so frequently maintain their organisations. The recalci- 
 trant iron-master would be abused by his fellow-employers, 
 and very probably an effort would be made to ruin one 
 whose conduct was supposed to be injurious to the inter- 
 ests of his class. It is impossible fully to understand the 
 effects resulting from combinations of workmen unless it is 
 remembered that similar combinations are formed by their 
 employers. 
 
 Let it be supposed that the iron-masters at one of their 
 meetings decide, in consequence of a prosperous state of 
 trade, to advance wages 10 per cent. The iron-masters, 
 who like other people are liable to mistakes, may not have 
 made such an advance in wages as the state of the trade 
 would fairly admit. _ Wages might, perhaps, have been 
 raised 20 per cent., without unduly trenching upon profits. 
 A labourer, impressed with the conviction that an advance 
 of 10 per cent, is not sufficient, demands something more 
 from his employer. The employer, who has entered into a 
 
Trades' -Unions and 'Strikes. 
 
 249 
 
 compact with others of his class, as to the wages which 
 shall be paid, must at once feel the advantageous position 
 he occupies in resisting the demands that the labourers 
 make upon him, if they have no organisation for com- 
 bined action. He knows that if any of them refuse to 
 work for him, they will be unable to obtain higher wages 
 from other employers in the locality; becausie by previous 
 agreement a uniform rate of wages prevails. A labourer 
 has seldom saved sufficient to be able to maintain himself 
 for any length of time without work ; he makes a great 
 sacrifice if he seeks another occupation to which he is un- 
 accustomed, and especially at a time when his own trade 
 happens to be exceptionally prosperous. It therefore ap- 
 pears, that the bargaining which often goes on in adjust- 
 ing wages, implies a struggle, or a conflict of effort between 
 employers and employed; in this conflict a great advantage 
 will be possessed by those who can act in concert, over 
 those who simply act as isolated individuals. The truth 
 of this will be more distinctly perceived by considering 
 what would occur if, in the case just described, the labour- 
 ers combined to make a demand for a greater advance in 
 wages. Assume that in the iron trade there is a powerful 
 trades'-union ; that all the labourers in the district belong 
 to it, and that they are as well organised as their employ- 
 ers. The representatives of this trades'-union would feel 
 that they were placed in a position of equality with their 
 employers, when making a demand for higher wages ; the 
 employer also would know that as a last resource a strike 
 would be agreed upon. This would bring business to a 
 standstill, and thus trade would be suspended when it 
 was very prosperous, and when exceptionally high profits 
 were being; realised. The loss and inconvenience thus in- 
 flicted upon employers would be a strong inducement to 
 them to yield to the demand of their labourers if it could be 
 fairly conceded. Each party to the bargain would thus be 
 placed in a position of equality when arranging its terms. 
 
 In the example just investigated it has been implied 
 that the employers do not, in the first instance, offer an 
 adequate advance in wages. It often, however, happens 
 that the labourers err on their side, and insist upon wages 
 which cannot be fairly conceded. The only security against 
 such errors is the serious loss inflicted both on masters and 
 
 BOOK II. 
 CH. IX 
 
 Bargain- 
 ing implies 
 an antago- 
 nism of 
 interest. 
 
 Another 
 example. 
 
 If the em- 
 ployed do 
 not com- 
 bine, they 
 are not in 
 a position 
 of equality, 
 with their 
 employers. 
 
350 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. IX. 
 
 Tfte loss 
 described 
 which a 
 strike in- 
 flicts both 
 on employ- 
 ers and 
 employed. 
 
 Strikes are 
 insepara- 
 ble from 
 ourpresent 
 economic 
 system. 
 Because, 
 as long as 
 wages are 
 settled in 
 the same 
 way as a 
 bargain, it 
 must often 
 happen 
 that one 
 party will 
 
 men by trade disputes. It is diflScult adequately to esti- 
 mate the loss which is caused to each party by such a sus- 
 pension of business. The employers not only have a vast 
 amount of capital lying idle, but a very considerable por- 
 tion of their trade may permanently pass away to other 
 localities. When business is recommenced many of their 
 former labourers have left the district, and their places 
 have to be occupied by inferior workmen. During a strike 
 labourers often endure the most severe hardships; the 
 savings of many years are spent, and so acute is the dis- 
 tress, that even household furniture has sometimes to be 
 sold. All this suffering is aggravated by the losses in- 
 flicted on the employers, because if a great amount of 
 capital is sacrificed in the conflict, the wage-fund will be 
 diminished, and less will remain to be distributed in wages 
 when work is resumed. 
 
 There can be no doubt that in the majority of strikes 
 the masters have been sufiiciently powerful not to concede 
 the demands of their workmen. Not only do the superior 
 resources of the employer enable him to carry on the 
 struggle for a longer period, but workmen are generally 
 such unskilled tacticians that they usually strike, not to 
 secure an advance in wages when trade is prosperous, but 
 to prevent a reduction when trade is depressed. In times 
 of depression a temporary suspension of business may very 
 possibly be rather an advantage than a loss to employers. 
 Consequently at such a time the prospect of a strike im- 
 plies by no means so formidable a threat as when trade 
 is active. 
 
 From the tenor of these remarks it appears that strikes 
 are inseparably associated with our present economic sys- 
 tem. As long as the relations between employers and 
 employed continue to be analogous to those existing be- 
 tween the buyer and seller of a commodity, it must often 
 happen that the one party will refuse to accept the price 
 which is offered by the other for labour; if the refusal is 
 persisted in, a strike inevitably ensues. When stiikes are 
 regarded from this point of view it is as hopeless to expect 
 that legislation can prevent them, as it is to suppose that 
 merchants could be compelled to sell their goods if an in- 
 adequate price were offered for them. Something may no 
 doubt be done by conciliation and arbitration, either to 
 
Trades -Unions and Strikes. 
 
 251 
 
 obviate or to render less frequent the trade disputes arising 
 between employers and employed. A master wbo exhibits 
 great personal interest in his workmen's welfare, is gene- 
 rally able amicably to settle any difference which arises in 
 his business upon a question of wages. Experience has 
 also shown that the establishment of courts of arbitration 
 often enables trade disputes to be arranged, without re- 
 course being had to the disastrous expedient of a strike. 
 The efficiency of these courts depends to a great extent 
 upon making a wise selection when choosing an Umpire. 
 It is usual for the employers and employed to have an 
 equal number of representatives in these courts of arbitra- 
 tion. The ultimate decision has therefore sometimes to 
 be made by the Umpire or Referee, who must be a person 
 absolutely unsuspected of any bias towards either party in 
 the dispute. 
 
 Such expedients as personal conciliation and courts of 
 arbitration, although exerting a most useful influence, 
 do not provide a completely efficient remedy for strikes. 
 These disputes must be regarded as the natural outgrowth 
 of the existing relations between employers and employed. 
 In order to obtain a complete remedy for strikes, it will 
 be necessary to remove the antagonism of interest now 
 existing between employers and employed. Some plan 
 must be adopted, which will make masters and workmen 
 feel that they have an identity of interest. It is no doubt 
 true that all those who are engaged in any business have 
 a common interest in its prosperity ; but the grave defect 
 connected with our present economic arrangements is that 
 the amount of advantage or disadvantage which is derived 
 from prosperous or adverse trade by employers and em- 
 ployed is not arranged according to any definite plan, 
 but is too frequently settled in an angry struggle of rival 
 pecuniary interests. Various schemes have already been 
 tried with considerable success, which correct the defect 
 just alluded to, and which introduce a copartnership be- 
 tween masters and workmen. These schemes are based 
 upon the general principle, that labourers should not work 
 simply for hire, but should participate in the profits which 
 are realised by their industry. It has been previously 
 shown that the power of combination enables workmen 
 more surely to participate in the profits realised in times 
 
 refuse to 
 accept the 
 price offer- 
 ed by the 
 other. 
 Concilia- 
 tion and 
 arbitra- 
 tion, 
 though 
 useful, do 
 not remove 
 the cause 
 of these 
 disputes. 
 
 Strilces can 
 only be ef- 
 fectually 
 prevented 
 by rermiv- 
 ing the an- 
 tagonism 
 of interest 
 between 
 employers 
 arid em- 
 ployed. 
 
 This can 
 be effected 
 by copart- 
 nerships of 
 industry. 
 The prin- 
 ciple of co- 
 partner- 
 ship de- 
 fined. 
 
2?2 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. IX. 
 
 Some ex- , 
 amples of 
 the suc- 
 cessful 
 adoptionof 
 copartner- 
 ship. 
 
 The benefit 
 extends 
 both to em- 
 ployers 
 and em- 
 ployed. 
 
 of active trade. From this it would appear that the power 
 of combination establishes, as it were by force, a copart- 
 nership between employers and employed. 
 
 If this fact should obtain general recognition it may be 
 confidently anticipated that the principle of copartnership 
 will be generally introduced into our industry. In order 
 to show that there are no practical difficulties opposing 
 its introduction, which cannot be ultimately surmounted, 
 we will proceed to describe some of the cases in which it 
 has been applied. 
 
 One of the first and most valuable experiments was 
 made by M. Leclaire, a house decorator in Paris. The 
 experiment, though well known, is particularly important, 
 because its results have been verified by the most accurate 
 testimony. M. Leclaire employed about 200 workmen, 
 and the carelessness and apathy of his men subjected him 
 to constant loss and annoyance. He therefore resolved 
 that he would endeavour to make the labour of his men 
 more efficient by giving them some pecuniary interest in 
 the work in which they were employed. He consequently 
 assembled them together, told them that he would con- 
 tinue to pay them the customary wages of the trade, and 
 at the end of the year would distribute amongst them 
 a certain share of the profits which had been realised. 
 M. Leclaire affirms that the plan was eminently success- 
 ful, and that he was in a pecuniary sense abundantly re- 
 compensed for the share of his profits which he gave to 
 his workmen. 
 
 As another example, it may be mentioned that the 
 Paris and Orleans Railway Company distribute a certain 
 portion of the profits realised amongst the working staff 
 of the railway, and it is unanimously affirmed by the 
 directors that the plan succeeds admirably. 
 
 The fact that M. Leclaire has been abundantly recom- 
 pensed for the share of profits allotted to his workmen, 
 deserves particular attention. It shows that co-partner- 
 ship does not require from the employer any sacrifice on 
 behalf of his workmen, but, on the contrary, that both are 
 equally benefited. The efficiency of labour and capital 
 must evidently be greatly increased, by improving the 
 relations between employers and employed ; and when 
 labour and capital become more efficient, there is more 
 
Trades' -Unions and Strikes. 
 
 253 
 
 to distribute both in wages and profits. The error is not 
 unfrequently committed of supposing that the share of 
 profits allotted to labour represents so much abstracted 
 from the returns of the capitalists. The Eoyal Commis- 
 sioners, who lately reported upon trades'-unions, failed to 
 appreciate the advantages resulting from copartnership, 
 because they assumed that the share of profits received by 
 the labourer was so much taken from his employer. If 
 this were so, no particular benefit could attach to the 
 system, because there would be no identity of interest 
 established, if what was gained by the labourer were lost 
 by the capitalist. The fundamental advantage of these 
 schemes arises from the circumstance that the benefit they 
 confer is mutual ; the share of profits received by the 
 labourer is a measure of the gain secured by the em- 
 ployer, as a consequence of the additional efficiency given 
 to labour and capital by introducing harmony, where 
 before there was antagonism and rivalry of interest. 
 Some idea may be formed of the enormous saving which 
 might thus accrue. Not only would the loss inflicted on 
 industry by strikes and lockouts be avoided, but a vast 
 amount of waste would be obviated. Employers con- 
 stantly complain of the loss they sustain from the list- 
 lessness and apathy of their workmen. A heavy outlay 
 has to be incurred in overlooking labourers, in order to 
 see that work is not shirked. In some branches of in- 
 dustry it is impossible to obtain anything like an adequate 
 supervision; the labour is too much dispersed. This is 
 particularly the case with agriculture, and to such a 
 business copartnership could be applied with maximum 
 advantage. It can be confidently asserted that a farmer 
 would largely increase his own profits if he consented to 
 allot to his labourers some portion of his profits. After 
 paying them the current wages, and setting aside a fair 
 amount, as interest upon capital and as remuneration for 
 his labour of superintendence, he might agree to distribute 
 amongst his labourers a portion, say one half, of any extra 
 profits that might be realised. Each labourer's share of 
 this bonus being determined by the aggregate amount of 
 wages he had earned, the most would consequently be 
 obtained by those who were the best labourers. Such an 
 arrangement would powerfully stimulate the industrial 
 
 BOOK II. 
 OH. IX. 
 
 Some of 
 the col- 
 lateral ad- 
 vantages 
 of copart- 
 nerships. 
 
254 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. IX. 
 
 The ex- 
 periments 
 of Messrs 
 Crossley 
 
 nndMessrs 
 Briggs. 
 
 energy of the labourer who is now proverbially slow in his 
 movements and apathetic in his work because he has no 
 inducement, except when engaged in piece work, to exert 
 himself more than he is absolutely obliged. Other plans 
 of industrial partnership have been adopted which secure 
 a more complete union between capital and labour. During 
 the last few years the practice has been rapidly extending 
 not only of allotting to workmen a share in profits, but 
 also of allowing them to invest capital in the business in 
 which they are employed. When the great carpet manu- 
 factory of Messrs Crossley of Halifax was converted into 
 a joint stock company, one-fourth of the shares were prefer- 
 entially offered to the workmen engaged in the business.. 
 This arrangement, by enabling the workmen to become 
 part owners of the concern, gave them a far more direct in- 
 terest in the prosperity of the business than if they had 
 been employed as ordinary labourers. Another very inter- 
 esting experiment was carried out by the Messrs Briggs, 
 at their collieries at Methley, near Leeds. In this instance 
 the workmen not only had an opportunity of purchasing 
 shares in the company, but after a profit of 10 per cent, 
 had been realised on capital, one half of the surplus pro- 
 fits was distributed amongst the labourers as a bonus. 
 Every workman was thus given an immediate interest in 
 the success of the business. For many years this ex- 
 periment was carried out with admirable success. Trade 
 disputes, which had before been of frequent occurrence, 
 altogether ceased, and the workmen were stimulated to 
 increased exertions by the prospect of securing to them- 
 selves a share of the profits realised. The unprecedented 
 rise in the price of coal, which took place in 1872, brought 
 such sudden prosperity to coal-mining that it unhappily 
 disturbed the harmonious relations between workmen and 
 employers at Methley. A dispute arose upon the extent 
 to which capital and labour should respectively participate 
 in this extra profit, and the copartnership principle has 
 unfortunately been abandoned. It is obvious from what 
 has occurred at Methley that copartnership is likely to be 
 carried out with the best chance of success in those 
 branches of industry which are not liable to great and 
 sudden fluctuations in prosperity. These considerations 
 lead to the conclusion that the system could be very ad- 
 
Trades' -Unions and Strikes. 
 
 255 
 
 vantageously applied in agriculture. A very interesting 
 experiment of the kind was tried a few years since with 
 marked success, by the late Lord George Manners, on 
 a farm which he cultivated on his estate near Newmarket. 
 The plan which he adopted was very simple, and resem- 
 bled in all essentials tJie method which was carried out 
 by M. Leclaire in Paris. The labourers on the farm 
 received the ordinary wages which were current in the 
 district ; but it was agreed that if through extra exertion, 
 or greater skill on their part, extra profits were realised, 
 a portion of these profits should be distributed among 
 them as a bonus on their labour. Lord George Manners 
 unfortunately died before this experiment had been in 
 operation for many years ; but he spoke confidently of its 
 permanent*success, and affirmed that it would prove alike 
 advantageous to employer and employed. 
 
 It may confidently be hoped that these copartnerships 
 will so rapidly extend as to fundamentally change the 
 economic relations now existing between employers and 
 employed. There can be no doubt, as was remarked in 
 the last chapter, that the movement will be powerfully 
 promoted by national education; for all these schemes 
 which have been described require men to repose a cer- 
 tain amount of trust in each other ; distrust and suspicion 
 are always prominent characteristics of a low state of 
 intellectual development. 
 
 Ultimately it may be hoped that there will be so much 
 moral and social advancement as to enable a perfect union 
 between capital and labour to be established : this is 
 secured when labourers supply all the capital which is 
 required to sustain the industry in which they are en- 
 gaged. When this is accomplished there is cooperation 
 in its highest form; the subject of cooperation is of so 
 much importance that it will be necessary to devote a 
 separate chapter to its consideration. 
 
 BOOK IT. 
 CH. IX. 
 
 The pro- 
 gress of 
 copartner- 
 ships will 
 be greatly 
 promoted 
 byrtational 
 education. 
 
BOOK n. 
 CH. X. 
 
 Coopera- 
 tion ex- 
 jilained. 
 
 Coopera- 
 tive stores 
 are often 
 coopera- 
 tive only 
 in name. 
 
 CHAPTER X. 
 
 COOPERATION. 
 
 WE have had frequent occasion to refer to the fact 
 that the capital and labour which industry requires 
 are in this, and in most other countries, generally supplied 
 by two distinct classes, who are termed capitalists and 
 labourers, or sometimes employers and employed. In- 
 dustry is said to be carried on upon the cooperative prin- 
 ciple when these two classes are merged into one, and 
 when the capital which is needed for the production and 
 distribution of wealth is supplied by those who provide the 
 requisite labour. Thus a cotton manufactory would be 
 converted into a purely cooperative undertaking, if the 
 operatives employed in it were able to subscribe a suf- 
 ficient amount amongst them to purchase the manufactory 
 and to carry on the business on their own account. Again, 
 an ordinary retail shop would become cooperative if the 
 premises and stock-in-trade were owned by those who 
 served in the shop, by the porters, and by others who are 
 engaged in carrying on the business. The great majority, 
 however, of the societies which are known in this country 
 as cooperative, differ essentially both from the cooperative 
 manufactory and the cooperative retail shop which have 
 been just described. Cooperation has hitherto been sel- 
 dom applied to the production of wealth. Probably at 
 least nine-tenths of the existing cooperative societies carry 
 on those ordinary retail businesses the function of which is 
 to distribute rather than produce wealth. These distri- 
 butive societies, which are now generally known as coope- 
 rative stores, are wanting in the most essential character- 
 istic of cooperation, for they do not necessarily establish an 
 
Cooperation. 
 
 257 
 
 union, or, as we have described it, a merging of capital and 
 labour. The capital in these stores is owned by, and the 
 profits realised upon it are distributed amongst, the cus- 
 tomers and the shareholders, and not amongst the em- 
 ployes of the establishment. 
 
 In thus pointing out that the title cooperative is now 
 given to many trading concerns which are not conducted 
 upon strictly cooperative principles, it must not be sup- 
 posed that we underrate the great iDenefit which coopera- 
 tion, even applied in this modified form, has conferred 
 not only upon the working classes, but also upon the 
 general community. The cooperative movement is no 
 doubt, as yet, only in its infancy, but in tracing its rapid 
 development during the last few years, we shall not only 
 endeavour to describe the great advantages which have 
 already resulted from it, but we shall also attempt to 
 explain why cooperation may probably be more confidently 
 I'elied upon than any other economic agency, to effect a 
 marked and permanent improvement in the social and in- 
 dustrial condition of the country. 
 
 One of the earliest and most successful of the cooperative 
 stores in this country was established about 30 years since, 
 and it had an origin so humble as at the time scarcely to 
 attract any notice. It appears that in the year 1844, there 
 was great depression in the flannel trade at Rochdale, and 
 as the wages of the weavers were much reduced, the fact 
 seems to have impressed itself upon some of them, that their 
 scanty earnings did not go so far as they might, because the 
 articles sold to them in the ordinary retail shops were dear 
 a,nd often much adulterated. Twenty-eight of these poor 
 weavers accordingly agreed to club together a small sum in 
 order to purchase some tea and sugar from a wholesale shop. 
 After they had done so, each one of their number was sup- 
 plied with tea and sugar from this common stock, paying 
 ready money for it, and giving the same price for it as 
 they had been charged at the shops. They did not expect 
 to secure any considerable profit; the object they had in 
 view was not so much to obtain a good investment as to 
 avoid purchasing dear and adulterated articles. But they 
 found, not a little to their surprise, that a very large profit 
 had been realised. The great advantage of the plan be- 
 came self-evident, for not only were they provided with a 
 
 r. M. . K 
 
 BOOK II. 
 CH. X. 
 
 The origin 
 of the 
 Boclidale 
 Pioneers' 
 Society. 
 
2S8 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. X. 
 
 Develop- 
 ment of the 
 Society. 
 
 Its metltod 
 (if doing 
 l)Hsiness 
 described. 
 
 lucrative investment for their savings, but they obtained 
 unadulterated tea and sugar at the same price as they had 
 been previously obliged to pay for these same articles 
 when their quality was deteriorated by all kinds of adul- 
 teration. A fresh stock of tea and sugar was of course 
 purchased. Other labourers were quickly attracted to join 
 in the undertaking, and subscribe their savings. 
 
 In 1856 this society, now become famous as the 
 Rochdale Pioneers, possessed a capital of about £12,900. 
 The business was not long restricted to articles of grocery; 
 bread, meat, and clothing were all sold on the same plan. 
 Their capital so rapidly increased, that they were soon en- 
 abled to erect expensive steam flour-mills; and a supply of 
 pure bread was thus insured. During the last few years, 
 this Pioneers' Society has attracted frequent public atten- 
 tion; for it has gradually grown into a vast commercial 
 institution, embracing a great variety of trades\ 
 
 The share capital of the Pioneers' Society has so rapidly 
 increased that it possesses now far more than sufficient to 
 carry on the business at the store. With a capital of 
 £25,000 which is employed in this store, a business of not 
 less than £250,000 a year is carried on. The remarkable 
 success achieved at Rochdale natiirally led to the establish- 
 ment of similar stores throughout the country. In many 
 of the manufacturing towns in the north of England, the 
 working classes deal almost entirely at these stores; but 
 they have not been established in the large towns only, 
 for they are now frequently to be found in agricultural 
 villages. As previously remarked, the profits realised in 
 these stores are distributed not amongst the employes, but 
 amongst the customers and the shareholders. The par- 
 ticular method of distributing the profits which has been 
 adopted at nearly all the stores is extremely simple, and 
 is the one originally agreed upon at Rochdale, which we 
 will now describe. Each customer, when he makes a pur- 
 chase, receives certain tin tickets or tallies which record 
 the amount of his purchases. The accounts are made up 
 at the end of each quarter, and after a fixed dividend at 
 
 1 Many of the figures about to be quoted have been kindly furnished 
 to me by my friend Mr Walter Morrison, late M.P. for Plymouth, who, 
 from the great interest he has long taken in the cooperative movement, 
 may be justly regarded as one of the leading authorities on the subject. ' 
 
Cooperation. 
 
 259 
 
 the rate of five per cent, per annum has been allotted to 
 capital, the surplus profits are divided amongst the cus- 
 tomers in proportion to the amount of their purchases. 
 It should be mentioned that two and a half per cent, 
 of the profits is always devoted to education. Each 
 customer brings his tin tickets, which serve as a record 
 of the amount he has purchased. The goods are sold 
 at the prices which are current at the ordinary retail 
 shops. The business is strictly a ready-money one. Under 
 no circumstances whatever is any credit given. The 
 strict adherence to this rule has doubtless contributed 
 more than any other circumstance to the remarkable 
 success of these stores. At the Civil Service Store in 
 the Haymarket, and the other large Cooperative Stores 
 in London, the business is conducted on a different plan. 
 Here also the rule of giving no credit is rigidly adhered 
 to, but the customers, instead of receiving their share of 
 the profits at the end of each quarter, obtain' the goods at 
 lower prices than those which are charged in the ordinary 
 retail shops. There are many reasons which induce us 
 to think that this is not so advantageous a mode of dis- 
 tributing the profits. The method of distribution adopted 
 at Eochdale is certainly to be preferred when, as is the 
 case with a majority of the stores, the bulk of the cus- 
 tomers belong to the working classes. It is obvious that 
 an individual's share of the profits is more likely to 
 be saved if he receives it in a lump sum at the end of 
 each quarter, than if he is enabled to save it in driblets 
 each time he makes a purchase. Experience, in fact, 
 shows that the amount which has to be received at the 
 end of each quarter is very generally left as an investment 
 in the society. Saving is thus powerfully promoted, for 
 many men, by the accumulation of these small invest- 
 ments, gradually become the possessors of a considerable 
 amount of capital. The remark has already been made 
 that nothing has done so much to promote the success of 
 those stores as strict adherence to the ready-money prin- 
 ciple. In the first place, there are no bad debts. No- 
 thing probably interferes so much with the success of the 
 retail trader as the loss he incurs from bad debts, and the 
 great amount of capital which, when credit is given, he 
 is sure to have locked up in book debts. In the second 
 
 e2 
 
 BOOK II. 
 OH. X. 
 
 The Civil 
 Service Go- 
 operative 
 Stores. 
 
 The ad- 
 vantages of 
 the ready- 
 money 
 principle. 
 
26o 
 
 Manual of Political Economy. 
 
 BOOK II. 
 OH. \. 
 
 Disadvan- 
 tages of 
 the credit 
 system. 
 
 place, it is obvious that when all the goods sold are paid 
 for across the counter, a maximum amount of business can 
 be carried on with a minimum of capital. It is shown 
 from the published accounts of these stores that their capi- 
 tal is not unfrequently turned over ten times in the course 
 of the year. In the third place, it is to be observed that 
 when no credit is given, no credit need be received. The 
 managers of these stores can pay ready money for all the 
 goods they purchase. They consequently obtain them at 
 the lowest possible price, and have also, as has been well 
 described, the pick of the market. There are also many 
 other most important advantages resulting from the adop- 
 tion of the principle of giving no credit. The facility 
 with which people are allowed to get into debt at retail 
 shops gives a disastrous encouragement to improvidence. 
 Credit, it has been truly said, is the great bane of the 
 working classes. When a man is heavily in debt, not 
 only does he too often become reckless, but to a great 
 extent he ceases to be a free agent. The tradesman to 
 whom he owes money can force him to go on dealing with 
 him, and can charge him extravagant prices for very infe- 
 rior articles. Again, it is evident that under a system of 
 credit, the honest who do pay are charged a far higher 
 price than they ought to be, in order to compensate the 
 tradesman for the losses he incurs from the dishonesty of 
 those who either do not pay at all, or who keep the 
 tradesman waiting for his money. There is good ground 
 for believing that if the retail business of this country 
 were generally conducted on the ready-money principle, 
 prices might be so much reduced that the public would 
 gain far more than would be represented by the entire 
 remission of the national debt. We express this opinion 
 not simply as a vague surmise, for it has been shown in 
 the Civil Service Store in the Haymarket that, although 
 the goods sold there are quite 20 per cent, cheaper than 
 they are in the retail shops, yet the business is so remu- 
 nerative that a far larger profit is yielded on the capital 
 invested in the business than is secured by the ordinary 
 tradesman. This being the case, it appears that the 
 credit system virtually imposes an income-tax of 20 per 
 cent, upon all that portion of every individual's income 
 which is expended in the purchase of commodities of 
 
Cooperation. 
 
 261 
 
 ordinary consumption. It need scarcely be said that paying 
 such a tax is equivalent to a far more onerous burden 
 than is imposed by the interest of the national debt. It 
 is also to be borne in mind that the credit system is 
 scarcely less injurious to the retail trader than it is to the 
 general public. It is well known that a large number of 
 tradesmen fail in business, not only in consequence of 
 their losses from bad debts, but also in consequence of 
 their money becoming locked up in book-credits. Not 
 long since the price list of the Civil Service Store was 
 submitted to a grocer who was carrying on a large busi- 
 ness in a provincial town. He admitted that the prices 
 in this list were 20 per cent, lower than those which he 
 charged, but he said that if he were paid ready money 
 for all the goods he sold, he was sure that he could sell 
 his goods as cheaply as they were sold at the Civil Ser- 
 vice Store, and he was also certain that his business would 
 at the same time become far more profitable than before, 
 Such considerations as these induce us to think that not 
 the least important advantage likely to result from the 
 cooperative stores is, that they will so conclusively demon- 
 strate to the whole country the loss produced by the credit 
 system as gradually to lead to the almost universal adop- 
 tion of the ready-money principle in air retail transactions. 
 Although it is probable that these stores will absorb a 
 greater proportion of the retail business of the country, yet 
 the individual trader need not fear that he will be super- 
 seded. Instead of expending his energies in vain attempts 
 to seek the aid of the legislature in impeding the progress 
 of these stores, he would act more wisely if he at once 
 came to the determination that as they had secured their 
 success by refusing credit, he might obtain a similar suc- 
 cess by adopting the same principle in his own business. 
 
 We have already referred to the fact that these co- 
 operative stores are wanting in one important element of 
 cooperation, because no share of the profits is allotted to 
 the managers, clerks, porters, and the other employes 
 whose labour is essential to the carrying-on of the busi- 
 ness. These stores may, in fact, be correctly described as 
 joint-stock companies, which conduct their business on the 
 ready-money principle, and in which the chief portion of 
 the profits realised is distributed amongst the customers. 
 
 BOOK II. 
 CH. X. 
 
 Coopera- 
 tive sUyres 
 are not 
 always 
 completely 
 coopera- 
 tive. 
 
262 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. X. 
 
 When considering in a previous chapter the advantages 
 and disadvantages of the joint-stock system, it was shown 
 that the circumstance which is likely most to impede the 
 success of a joint-stock undertaking is that the paid 
 manager has not so direct or immediate an interest in 
 the prosperity of a business as one who owns. the busi- 
 ness and has his fortunes bound up in it. Joint-stock 
 companies may, no doubt, be freed from the difficulty to 
 which allusion has just been made, by giving the managers 
 and other employes a certain portion of the profits real- 
 ised. They may thus be made to feel almost as active an 
 interest in a joint-stock undertaking as if it were their own 
 business, and carried on entirely with their own money. 
 It therefore seems to be of the greatest importance that 
 this plan should be adopted in the case of cooperative 
 stores ; for not only would it meet a disadvantage under 
 which all joint-stock companies suffer, but it would give to 
 these stores a much more truly cooperative character than 
 they can now fairly claim. 
 
 In describing the remarkable progress of the Rochdale 
 society it was stated that its capital soon became far more 
 than sufficient for the store. As previously remarked, the 
 entire capital of the store at the present time is pro- 
 bably not more than 25,000Z., whereas the aggregate share 
 capital now possessed by the Pioneers' Society is 108,000?. 
 The working classes of Rochdale, in fact its entire popu- 
 lation, became so much impressed with the advantages 
 which the society offers as an investment, that it soon pos- 
 sessed a far larger capital than was required for the store. 
 Consequently it was necessary to determine the best mode 
 of employing this surplus capital. This was an extremely 
 delicate and difficult question, but the managers of the 
 society, by the exercise of remarkable tact and sagacity, 
 have shown that in almost every instance they were capa- 
 ble of dealing successfully with it. This we think will be 
 proved as we proceed to describe the various undertakings 
 that have from time to time been supported by this Pio- 
 neers' Society. It is the more important that such a de- 
 scription should be given with as much clearness as possible, 
 because it serves distinctly to mark the gradual develop- 
 ment and progress of the cooperative movement. 
 
 As the business of the store at Rochdale rapidly 
 
Cooperation. 
 
 263 
 
 extended, its managers were not unnaturally led to perceive 
 the advantage of establishing a wholesale dep6t of their 
 own,, instead of purchasing the various goods they sold 
 from ordinary wholesale houses. It was moreover felt 
 that such a wholesale society might render invaluahle 
 assistance to small struggling societies if an attempt were 
 made to crush them by a combination of tradesmen jealous 
 of cooperation. In 186.S this wholesale society was trans- 
 ferred to Manchester. It has now become a great central 
 depot with branches in London and Newcastle ; branches 
 will also shortly be formed at Birmingham, Bristol, Cardiff, 
 and Cambridge. The Wholesale Society is now doing a 
 business of more than 2,000,OOOZ. a year, aild so rapidly 
 is it growing that there has been since 1872 an increase of 
 between 37 and 57 per cent, in each quarter over its im- 
 mediate predecessor. No individual can purchase goods 
 from the Society; its entire business consists in selling 
 goods to various cooperative stores. At the present time 
 no less than 690 of these stores deal with this Society, and 
 of this number 358 have capital invested in it. Those 
 stores which purchase goods from the Wholesale, but do 
 not hold shares in it, are usually small struggling stores 
 which have no spare capital. The business appears to be 
 most admii-ably conducted. Under no circumstances what- 
 ever is a longer credit given than seven days from the date 
 of invoice. The result of strictly adhering to this rule is 
 that on transactions amounting to more than 2,000,000^. 
 per annum, the amount lost by bad debts does not on the 
 average exceed 301. The cost of management is unprece- 
 dentedly small ; not amounting to 1 per cent, on the re- 
 turns. The leading idea which appears to be predominant 
 amongst the supporters of this Wholesale Society is a 
 desire as far as possible to get rid of middlemen. In 
 order to do this, commodities are purchased, whenever an 
 occasion offers, directly from the producers, and as the con- 
 cern developes they will undoubtedly manufacture for 
 themselves a greater portion of the goods they sell. For 
 instance, instead of buying Irish butter through the pro- 
 vision merchants who import it, they have their own 
 agents in Ireland, who purchase it directly from the 
 farmers. They have also already established a shoe manu- 
 factory of their own at Leicester, and a biscuit manu- 
 
 BOOK II. 
 CH. X. 
 
 TheWhole- 
 sale Coope- 
 rative So- 
 ciety. 
 
264 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. X. 
 
 A proposal 
 is at pre- 
 sent under 
 considera- 
 tion to give 
 the em- 
 ployes in 
 the Whole- 
 saleashare 
 in the pro- 
 fits. 
 
 factory at Manchester; and they propose shortly to start 
 a soap manufactory. It is difficult to assign limits to 
 the development to which this Wholesale Society may 
 ultimately attain, if its progress continues to be as rapid 
 as it has been up to the present time. Some of those who 
 are connected with it already begin to feel confidence that 
 the day is not far distant when they will obtain wheat and 
 other agricultural produce from their own land, and when 
 they will import tea, coffee, and sugar in their own ships 
 from their own plantations. 
 
 It is to be remarked that as the chief motive which 
 prompted the establishment of this Wholesale Society was 
 to give assistance to the various cooperative stores scattered 
 throughout the country, the goods are sold at the lowest 
 possible price ; only such an amount is charged for them 
 as to cover the expenses of management, and leave a suf- 
 ficient margin for profit. It is also to be remarked that 
 this Wholesale Society, like the cooperative stores pre- 
 viously described, is not so truly cooperative as it might 
 be; because its managers and other employes do not enjoy 
 any share of the profits, but are remunerated by salaries or 
 wages, just in the same way as they would be in an ordinary 
 wholesale house. A proposal is now being discussed to 
 allot them a certain share of profits. The decision which 
 may be arrived at on the subject will, in all probability, 
 exercise a most important influence on the future of co- 
 operation. It is sometimes said that the remarkable suc- 
 cess obtained by such a society as the Wholesale, satisfac- 
 torily proves that it cannot be necessary to allot any share 
 of profits to labour. The managers of this society could 
 not possibly have displayed more ability or zeal. They 
 are so devoted to the cause of cooperation that it is quite 
 unnecessary to stimulate their activity by giving them a 
 more direct pecuniary interest in the prosperity of the 
 undertaking. Such reasoning, however, as this is surely 
 both unsound and shortsighted. A business, however 
 successful it may be, cannot be regarded as resting on a 
 sure and permanent basis, if those who conduct it are not 
 adequately rewarded, and if, taking advantage of the enthu- 
 siasm they may happen to feel for a cause, their employers 
 give them less for their services than they could command 
 in the open market. If this determination to deprive 
 
Cooperation. 
 
 265 
 
 labour of all share of profits is persisted in, cooperative 
 societies will become nothing more than ordinary joint- 
 stock companies in which a great part of the capital is 
 owned by the working classes. We do not in any way 
 
 ■ desire to underrate the advantages of the movement even 
 if it simply assumes this form. It must be an immense 
 benefit to the working classes to obtain the commodities 
 they purchase at a cheaper rate, and to have placed within 
 their reach an eligible investment for their savings. Pru- 
 dential habits will in this way be powerfully stimulated, 
 and without an increase of prudence no permanent im- 
 provement can be effected in the condition of the working 
 classes. Again, it is impossible to place too high a value 
 upon the educational influence which may be exercised 
 upon the members of cooperative societies. A workman 
 who has a few pounds invested in a cooperative store soon 
 understands what are the true functions of capital. In- 
 stead of thinking that capital is some mysterious agent 
 specially created to oppress and injure labour, he becomes 
 as much impressed as an individual employer can be that 
 capital is not less essential to industry than labour, and 
 that consequently it possesses a not less indefeasible claim 
 to receive its due reward. But the friends of cooperation 
 cannot too carefully remember that the mere fact of calling 
 societies cooperative will do nothing to improve the indus- 
 trial position of the labourer, if he is to enjoy no share in 
 the profits, for we believe all experience has shown that a 
 joint-stock company is not likely to be a less severe, or a 
 more liberal taskmaster than the individual employer. 
 Cooperation moreover loses its chief industrial advantage if 
 the labourer is not permitted to participate in profits : for, 
 as we have endeavoured repeatedly to explain, the great 
 defect in our present industrial economy is that it fails to 
 make labour as efficient as it ought to be, because it has 
 not a sufiiciently direct and immediate interest in the suc- 
 cess of the work upon which it may be engaged. It is this 
 defect which may be remedied by cooperation; and it is 
 because cooperation, when truly carried out, may remedy 
 this defect, that we regard the application of the coopera- 
 tive principle as one of the most effective of all agencies 
 
 for securing improvement in the economic condition of the 
 country. 
 
266 
 
 Manual of Political Economy. 
 
 BOOK TI. 
 OH. X. 
 
 Coopera- 
 tive pro- 
 duction. 
 
 The coope- 
 rative cot- 
 ton mills. 
 
 As we have now shown how the success of coopera- 
 tive stores led to the establishment of the Wholesale 
 Society, we will next proceed to describe various other 
 developments of the movement. The large profits real- 
 ised by the stores brought so forcibly home to the work- 
 ing classes the advantages of carrying on a retail trade on 
 their own account, that they very naturally thought that 
 they should be able to secure still greater advantages if 
 the labourers could form themselves into associations to 
 carry on some of the various trades in which they were 
 employed. One of the first experiments of this kind in 
 what may be termed cooperative productive industry was 
 made at Rochdale in 1855. Previous to this time, however, 
 several cooperative trading establishments had been in 
 successful working in Paris. Some of these we will here- 
 after describe. But, reverting to what was done at Roch- 
 dale, we find that, as was the case at the Pioneers' Store, 
 the experiment of applying cooperation to productive in- 
 dustry was commenced on a very small scale. In the 
 first instance only a room was rented, and in it were 
 placed a few looms. The cotton trade, however, was then 
 in the height of its prosperity, and large profits were 
 consequently realised even from so imperfect an efibrt. 
 Encouraged by this first success, the promoters of the 
 undertaking determined to extend their operations, and 
 part of a mill was accordingly rented. Their capital at 
 that time was about 5000Z., and the system of conducting 
 the business was as simple as it was excellent. A divi- 
 dend of five per cent, on capital was the first charge on 
 profits. After this dividend had been secured, the re- 
 maining profits were divided into two equal shares. One 
 of these shares was given as an extra dividend on capital, 
 and the other was distributed as a bonus amongst the 
 labourers employed. Each labourer's share of this bonus 
 was proportioned to the aggregate amount of wages he 
 had earned. The most therefore was given to those who 
 worked with the greatest regularity and the greatest 
 skill ; and as, in addition to this bonus, the wages current 
 in the trade were paid, it was natural that the best 
 efforts of those employed were stimulated, and the most 
 prudent operatives in the locality were powerfully at- 
 tracted to an undertaking where tl^eir labour received 
 
Cooperation. 
 
 267 
 
 an extra remuneration, and where they obtained a lucra- 
 tive investment for their savings. The undertaking de- 
 veloped so rapidly that soon a larger mill was required 
 than any that could be rented. It was therefore resolved 
 to build one: it was commenced in 1856, and completed 
 in 1860, at a cost of 45,000?. The mill was fitted with 
 the best machinery and was complete in every respect. 
 So confident were the workmen of the success of the 
 scheme that the outlay involved in the erection of this 
 mill did not exhaust the capital they were willing to in- 
 vest, and accordingly a second mill was soon commenced. 
 These mills had scarcely time to get into full working 
 when the breaking out of the civil war in America brought 
 the cotton trade of Lancashire into a state of unprece- 
 dented depression. Long after many of the surrounding 
 manufactories had been closed the cooperative mills cou- 
 rageously struggled on. The difficulties, however, which 
 had to be contended against were of so entirely unusual 
 a character that no one can have any just reason to feel 
 less confidence in the cooperative movement because an 
 association of workmen were unable successfully to con- 
 tend against circumstances so exceptional as to be quite 
 out of the current of ordinary calculation. As the cotton 
 trade gradually revived after the close of the American 
 civil war, many cooperative cotton mills were established 
 in different parts of Lancashire. They have obtained a 
 varying amount of success. One of the most prosperous 
 of these manufactories appears to be the Sun Mill at 
 Oldham. Cooperation certainly seems to flourish more 
 in this town than in any other place, except Eochdale. 
 It has been calculated that the working classes of Oldham 
 have no less than 500,000?. invested in various coopera- 
 tive undertakings. Of this amount not less than 100,000?. 
 is invested as share capital in the Sun Mill. During the 
 last few years this manufactory has on an average realised 
 a profit of 12^ per cent. This certainly is an eminently 
 satisfactory result when we remember that the cotton trade 
 during a portion of this period was affected bythe depres- 
 sion consequent on the civil war in America. 
 
 It is to be remarked that in these manufactories, which 
 have been established by associations of workmen, the 
 plan has been very generally departed from of allotting 
 
 The ques- 
 tion of 
 allotting a 
 share of 
 
268 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. X. 
 
 the profits 
 to labour. 
 
 It is much 
 easier to 
 apply the 
 principle 
 of coopera- 
 tion to dis- 
 tribution 
 than to 
 produc- 
 tion. 
 
 to labour a share of the profits. When depressed trade 
 brought adverse times to the Rochdale Mill, one of the 
 first things that happened was a contention as to the right 
 of labour to share in the profits. Those who possessed 
 capital in the concern seemed to think that they were 
 unnecessarily generous, and were making a sacrifice for 
 which they received no return, if they surrendered any 
 fraction of profits to labour. Antagonism of interest thus 
 arose in every respect similar to that which unhappily so 
 widely prevails between employers and employed. The 
 question whether labour should enjoy any share of profits 
 is still beiug keenly disputed amongst cooperators, and it 
 is difficult to say how it will be ultimately determined. 
 There certainly seems to be good reason to hope that the 
 party will ultimately prevail who, having obtained an in- 
 sight into the true nature of cooperation, assert that the 
 bonus which is distributed amongst labourers is not a 
 sacrifice on the part of capital, but is rather a measure of 
 the increased efficiency given both to capital and labour; 
 and that if such a bonus is withheld from labour, co- 
 operation loses that which gives it its chief vitality; and 
 a cooperative society becomes little else than an ordinary 
 joint-stock company. 
 
 Before leaving the subject of cooperative production, 
 it is desirable to point out that the cooperative principle 
 can be applied much more easily and much more simply 
 to the distribution than to the production of wealth. It 
 is, for instance, evident that a cooperative store has not 
 to contend with many difficulties which stand in the Avay 
 of a cooperative manufactory. As the business of a store 
 is conducted on the ready-money principle, scarcely any 
 risk need be incurred. It is not necessary to make any 
 speculative purchases. The goods can to a great extent 
 be bought as they are wanted. The returns in such a 
 business are regular. The trade done in one quarter 
 difi'ers_ little from that done in the previous quarter, and 
 there is no difficulty in contracting or expanding the busi- 
 ness if it should be requisite to do so. A manufacturing 
 business is, however, from the nature of the case, specu- 
 lative and imcertain. Profits often depend almost entirely 
 upon purchasing raw material at a favourable time. Some- 
 times the trade suddenly becomes so depressed that it is 
 
Cooperation. 
 
 269 
 
 necessary to -withhold the manufactured goods from the 
 market. This of course cannot be done unless there is a 
 reserve fund to fall back upon. It is probable that the 
 cotton trade more than any other industry in the country 
 has always been characterized by violent fluctuations. 
 Prosperity and adversity seem to succeed each other in 
 regular cycles, for if exceptionally high profits are realised 
 for two or three years, there is sure to be a period of cor- 
 responding depression, when scarcely any profits at 'all can 
 be secured. As an example it may be mentioned that 
 from the published accounts of the Sun Mill at Oldham, 
 it appears that the average profits during the last three 
 quarters of 1869 were only 9 per cent, whereas the pro- 
 fits during the first three quarters of 1870 were 22 per 
 cent. Sometimes the profits are more than three times 
 greater in one quarter than in the quarter immediately 
 preceding or succeeding it. Thus in the quarter end- 
 ing in June, 1872, the profits were returned at no less 
 than 80 per cent., whereas in the quarter ending in 
 September in the same year they sank to 9 per cent. 
 It is obvious that the greatest prudence and forbearance 
 are required in order that a business which is liable to 
 such severe and sudden fluctuations should be successfully 
 carried on. There is, of course, a constant temptation to 
 appropriate too large a portion of the exceptionally high 
 profits yielded in prosperous years, and thus leave an 
 inadequate reserve to meet adverse times. That this 
 temptation has been in many instances successfully re- 
 sisted by associations of workmen, may justly be regarded 
 as affording the most satisfactory evidence of the capacity 
 of a considerable number of the labouring classes to carry 
 on most complicated and difiicult indtistrial undertakings. 
 The experiment of applying the cooperative principle to 
 so speculative and fluctuating a trade as the cotton manu- 
 facture was an extremely bold one ; for there is no other 
 branch of industry in which associations of workmen have 
 to resist so many temptations and to struggle against so 
 many obstacles. Cooperative production may no doubt be 
 far more easily carried on in those trades where the re- 
 turns a,re more regular, and where the amount of capital 
 which has to be invested in plant and material is small, 
 compared with the amount expended in wages. One of 
 
 BOOK II. 
 OH. X. 
 
270 
 
 Manual of Political Economy. 
 
 Examples 
 of success- 
 ful coope- 
 rative pro- 
 duction. 
 
 the earliest and most successful cooperative productive 
 societies in this country was established by a body of 
 workmen who were engaged in making picture frames. 
 Such a trade manifestly requires very little capital; all 
 the capital in fact that is needed can be readily sup- 
 plied by those who are employed as workmen in the 
 society, and thus there is much less chance of a conflict 
 arising between capital and labour. One great obstacle 
 to the success of cooperative production is no doubt re- 
 moved when the necessary capital required for carrying 
 on a business can be entirely provided by those who also 
 supply the requisite labour. Many very successful co- 
 operative societies have been established in Paris, and in 
 these the rule has generally been observed, that the work- 
 men employed should supply the capital required, none 
 being subscribed by a body of shareholders who are not 
 employed as labourers. It will moreover be seen, as we 
 proceed to describe the remarkable progress of two of 
 these societies, that they had an extremely humble origin, 
 and that they were not commenced, as is necessary in 
 the case of a manufactory, with expensive plant and a 
 large capital. The first establishment we intend to de- 
 scribe, is a society of cooperative masons, which was founded 
 in Paris in the year 1848. This society was reproached 
 for holding certain political opinions, and the government 
 attempted to discourage it by refusing to it any loan of 
 capital. This hostility insured its future success ; for the 
 societies which were assisted by the government in almost 
 every instance proved to be failures. The cooperative 
 masons endured many vicissitudes, and in the year 1852 
 they determined to reorganize their society. It then 
 consisted of only seventeen members, and possessed no 
 capital. They resolved to create a capital by depositing 
 in a common chest one-tenth of their daily earnings. At 
 the end of the first year a capital of lU. 10s. was in this 
 manner created. At the end of the year 1854, the capital 
 had increased to 680^. ; and in 1860, the society consisted 
 of 107 members, and the capital possessed by them was 
 14,500?._ The following are some of the important build- 
 ings which have been constructed in Paris by this society : 
 The H6tel Fould, in the Rue de Berry ; the Hotel Rouher, 
 in the Champs Elysees; the H&tel Frescati, Rue de 
 
Cooperation. 
 
 271 
 
 Richelieu; the Square d'Orleans, Rue Taithout, etc. 
 These cooperative masons have also erected mansions for 
 M. Girardin, on the Boulevard of the King of Rome ; for 
 M. Ars^nne Haussage, and for M. Pdcotte, at Montrouge. 
 No labourers except the shareholders are employed by 
 this society. The labourers are paid the ordinary wages 
 current in the trade, and the nett profits realised are 
 apportioned in the following manner: — two -fifths of 
 these profits form a fund, from which the annual divi- 
 dend on capital is paid ; and the remaining three-fifths 
 are appropriated to provide an extra bonus on labour. 
 The bonus which each labourer thus receives is propor- 
 tioned to the amount of labour he has performed through- 
 out the year. No arrangements that could be devised 
 would more powerfully promote the efficiency of labour. 
 This is the secret of the remarkable success achieved by 
 this society. The cooperative masons have fairly entered 
 into the great field of commercial competition; they 
 have striven to do their work cheaper and better than 
 others ; and it is because they have proved that they can 
 work better and cheaper that they have been employed 
 to build residences for such persons as M. Girardin and 
 the others we have enumerated. Another French cooper- 
 Eltive trading society may with advantage be described, 
 in consequence of the remarkable circumstances which 
 attended its formation. In 1848, fourteen pianoforte 
 makers of Paris resolved to form themselves into an 
 association. They were as poor as men could be ; they 
 had no capital, and scarcely any tools, and they were also 
 refused any loan from the State. After bravely enduring 
 the most severe hardships, they succeeded in saving 45Z. ; 
 with this they determined to commence business. They 
 at first rented a very small room in an obscure part of 
 Paris. Fortunately a timber merchant was so much im- 
 pressed in their favour, that he was induced to give them 
 some credit. For many months they denied themselves 
 every luxury ; in fact it was impossible to live on more 
 scanty or frugal fare. One incident will illustrate the 
 difficulty of their position. They joyfully accepted an 
 offer from a baker to purchase a piano for 191., and to pay 
 them for it in bread. This bread was for a considerable 
 time their chief means of support. All obstacles were 
 
 BOOK II. 
 OH. X. 
 
272 
 
 Manual of Political Economy. 
 
 BOOK II. 
 OH. X. 
 
 Self-help 
 the secret 
 of success. 
 
 Coopera- 
 tive agri- 
 culture. 
 
 however, one ty one, surmounted; and their progress 
 though gradual, was steady and sure. In a few years the 
 members of the society increased to 32; they had left 
 their first humble room, and were then renting a commo- 
 dious building, at 801. a year ; at this time their stock was 
 worth 1600Z. They have lately become the owners of a 
 large freehold manufactory, which is furnished with the 
 most improved machinery: the business which they now 
 annually transact exceeds 8000?. This Pianoforte associa- 
 tion has obtained a well-deserved reputation for the ex- 
 cellence and cheapness of its work. 
 
 It is to be particularly observed that the remarkable 
 success obtained by the two societies just described has 
 been entirely self-created ; no reliance whatever was 
 placed upon any extraneous aid. They did not obtain 
 help from the State, they did not waste their energies in 
 declaiming against the present constitution of society. 
 Instead of entering into a costly conflict with capital, by 
 the exercise of great self-denial they saved sufficient to 
 supply their industry with all the capital it required, and 
 they thus became entitled to enjoy the entire fruits of 
 their labour. When it is observed that those who created 
 these and other similar societies were not aided by a 
 single exceptionally favourable circumstance, but had, 
 on the contrary, to struggle in the first instance with 
 the most trying difficulties, we have reason to feel great 
 confidence in the steady progress of cooperation. There 
 is nothing whatever to prevent hundreds of thousands 
 of workmen doing what was done by those who founded 
 these societies. 
 
 Without attempting to predict the exact phases through 
 which cooperation will pass, it can scarcely be doubted 
 that the principle is so well adapted to agriculture, that it 
 is certain some day to be applied to that particular branch 
 of industry with the most beneficial results. Hitherto co- 
 operation has never been applied to agriculture except in 
 a very imperfect form ; but these experiments, though 
 very incomplete, have been most encouraging and satis- 
 factory. The one that has attracted the most attention 
 was made thirty years since by Mr Gurdon, on his es- 
 tate at Assington, near Sudbury, in Sufi'olk. Mr Gurdon 
 was so much impressed -with the miserable condition of 
 
Cooperation. 
 
 273 
 
 the agricultural labourers who were employed on his 
 estate, that he was prompted to do something on their 
 behalf. When therefore one of his farms became vacant, 
 he offered to let it at the ordinary rent, 1501. a-year, to 
 the labourers who worked upon it. As they, of course, 
 had not sufi&cient capital to cultivate it, he in the first in- 
 stance lent them the requisite stock and implements. The 
 labourers were, in fact, formed into a company in which 
 there were eleven shares, and no labourer was permitted 
 to hold more than one share. The plan was so eminently 
 successful that in a few years sufScient, had been saved 
 out of profits to repay all that he had advanced, and 
 the stock and implements became the property of the 
 labourers. Each share has enormously increased in value. 
 Mr. Gurdon was so much encouraged, not only by the 
 pecuniary advantages secured to the labourers, but also 
 by the general improvement effected in their condition, 
 that some years afterwards he let another and larger 
 farm on similar terms. Although no statement of ac- 
 counts has ever been published, the remarkable pecu- 
 niary advantages secured to the labourers is proved by 
 the fact that, after enjoying at least as high wages as 
 were paid in the district, they were able in a few years to 
 become the owners of a valuable property, consisting of 
 the stock and implements on the farms. One of the most 
 significant and hopeful circumstances connected with the 
 experiment is, that it was not carried out by a picked 
 body of men ; and if so much could be done by labourers 
 who were probably amongst the worst educated in the 
 country, it may be fairly concluded that when the intelli- 
 gence of our rural population has been better developed, 
 cooperation may be applied in a more complete form to 
 ao-riculture, and with even more striking results than have 
 been obtained at Assington, Agriculture has perhaps suf- 
 fered more than any other industry from the listlessness 
 and apathy of the labourer, and the only way of removing 
 this listlessness and apathy is to give the labourer a more 
 direct and active interest in his work than he possibly 
 can feel, so long as he simply works for fixed wages. In 
 the chapter on peasant proprietors we had frequent occa- 
 sion to describe how powerfully the industry of the 
 labourer is stimulated by the feeling of property. When 
 
 F. M. s 
 
274 
 
 Manual of Political Economy. 
 
 Coopera- 
 tive agri- 
 culture 
 fecures the 
 advan- 
 tages of 
 peasant 
 proprietor- 
 ihip, with- 
 out its dis- 
 advan- 
 tages. 
 
 he cultivates his own plot of ground, he exerts himself to 
 the utmost, because he knows that he will enjoy all that is 
 yielded by his labour. Each year it is becoming less 
 likely that any considerable quantity of land in a country 
 such as England will be cultivated by small proprietors, 
 because as machinery is more extensively used in agricul'- 
 ture, it becomes much more advantageous to farm on a 
 large scale. When, therefore, cooperative agriculture be- 
 comes practicable, land may be cultivated by associations 
 of labourers, and thus many of the advantages associated 
 with the system of peasant proprietorship may be secured, 
 whilst at the same time the disadvantages of small farm- 
 ing may be avoided. The progress towards cooperative 
 agriculture will no doubt be slow and gradual. The 
 labourers will liav« to advance towards it by many pre- 
 liminaiy steps. Many schemes of modified cooperation 
 have already been proposed, all of which we believe would 
 not only afford valuable training for the labourer, but 
 would prove in a pecuniary sense highly advantageous to 
 all who are concerned in the cultivation of the land. As 
 an example of one of these schemes, it may be mentioned 
 that Mr Brand, the present Speaker of the House of 
 Commons, has offered to the labourers whom he em- 
 ploys on his farms, to allow them to invest in the farm 
 any money which they may save, receiving the same 
 interest as he obtains on his capital. In the event of 
 the farm yielding them no profit, he further promises, 
 in order to secure them against all risk of loss, to pay 
 them the same interest as they could get in a Post-office 
 Savings'-bank. If the labourers avail themselves of this 
 offer, they may not only have an eligible investment 
 for their savings, but they will be also made to feel a 
 more direct interest in their work, and thus the scheme 
 may be not less advantageous to them than to their 
 employer. 
 
 From the description which has been given of coopera- 
 tive production, it will be observed that there are two 
 distinct classes of cooperative productive societies : namely, 
 those which are in direct communication with the Whole- 
 sale Society, and those which are carried on as separate 
 trading establishments. These two different modes of 
 applying cooperation have each their special advocates. 
 
Cooperation. 
 
 27s 
 
 Those cooperators who favour the first method are often 
 termed federalists, those who favour the second are termed 
 individualists. The federalists say that if all the pro- 
 ductive societies are in direct connection with the Central 
 Wholesale Society a certain and steady market for their 
 produce is insured ; they have not to compete against 
 individual traders and reckless speculators, consequently 
 there is much less risk of loss. On the other side, it is 
 maintained by the individualists that if a great number 
 of manufactories and other trading establishments were 
 brought into connection with the Wholesale Society the 
 business would become far too extensive and complicated 
 to be properly managed. Again, it has been urged that 
 if the Wholesale Society were compelled to purchase its 
 goods entirely from the establishments with which it is 
 connected, it would have to obtain them on more un- 
 favourable terms than if they were bought in the open 
 maket. This would be certain to produce discontent 
 amongst those who dealt with the Wholesale. After 
 carefully considering these and other arguments that have 
 been brought forward by the partisans of federalism and 
 individualism, it certainly seems to us that, as is so often 
 the case in a dispute, there is a considerable amount of 
 truth in the reasons urged by each of the contending 
 parties. It can scarcely be denied, after what has been 
 already effected by the Wholesale Society, that the 
 greatest possible good has resulted from associating with 
 it other businesses for the purpose of producing some of 
 the goods which are sold by the Wholesale. It is also 
 not less certain that equally great advantages have, been 
 produced by the establishment of various cooperative 
 trading societies which are entirely unconnected with the 
 Wholesale. Instead, therefore, of there being any neces- 
 sary antagonism between the two systems, each may 
 progress without interference from the other, and nothing 
 but good can arise from each being developed to the 
 fullest extent possible. 
 
 The difference of opinion to which allusion has just 
 been made not only exists with regard to cooperative 
 production, but is also to be found amongst those who 
 are respectively the advocates of two different systems 
 of cooperative banking. Although cooperative banking 
 
 S2 
 
 BOOK II. 
 CB. A. 
 
 Coopera- 
 tive bank- 
 ing. 
 
?76 
 
 Manual of Political Economy. 
 
 has for some time obtained a remarkable development in 
 Germany, yet, until the last few years, it has scarcely 
 had any existence in England. This is no doubt partly 
 due to the circumstance that ever since cooperation 
 attracted any notice from the Legislature, not a single 
 Act of Parliament was passed bearing on the subject 
 which did not contain some clause specially prohibiting 
 cooperative banking'. It has however been lately found 
 that without directly infringing these Acts, a cooperative 
 society can discharge many of the more useful functions 
 of a bank, and consequently two cooperative banks have 
 been recently formed, and each of them is at the present 
 time carrying on a very extensive business. The first of 
 these banks was established at Newcastle-on-Tyne in 1871 
 mainly through the instrumentality of Dr Rutherford, 
 The bank is at the present time doing a business of 
 200,OOOZ. a month. Although many cooperative societies 
 hold shares in the bank, yet individuals can also become 
 shareholders. This, however, is not permitted in the case 
 of a bank which has recently been established in con- 
 nection with the Wholesale Society. In this case only 
 cooperative societies are allowed to hold shares. Two 
 important advantages can no doubt be secured from these 
 banks. In the first place, a cooperative society may find 
 au eligible investment for its surplus capital, and in the 
 second place, a cooperative society may sometimes obtain 
 most valuable assistance by getting a temporary advance 
 of capital. The managers of these banks will of course 
 have to be just as careful as ordinary bankers are, not 
 to advance money on imperfect security either to a co- 
 operative society or to individuals. They will also have 
 to avoid the temptation to make unsound investments. 
 In the first establishment of these banks many mistakes 
 will no doubt be committed. Thus in the bank connected 
 with the Wholesale Society a fixed allowance of five per 
 cent, on deposits is allowed, although a much lower rate 
 of interest than this may be current in the open market. 
 
 1 During the last few years cooperation has obtained so much 
 general approval that Beveral instances have occurred in which it has 
 been attempted to win public confidence in some fraudulent scheme, by 
 calling it cooperative, but -which has no connection whatever with real 
 cooperation. 
 
Cooperation. 
 
 Z77 
 
 The adoption of this rule seems to have been prompted 
 by the notion which is so widely prevalent that five per 
 cent, is the proper, or, as it is sometimes termed, the fair, 
 rate of interest. Such mistakes as these will soon cease 
 to be committed, as the managers of these cooperative 
 banks obtain further experience. 
 
 We cannot leave the subject of cooperative banking 
 without referring to the origin of the movement which 
 took place in Germany in the year 1851, under the 
 direction of M. Schulze-Delitzsch. The object of these 
 cooperative or credit banks, as first started under the wise 
 supervision of this gentleman, was to give to the labourer, 
 through the agency of self-help, direct access to the 
 capital necessary to production. It is evident that an 
 individual labourer cannot obtain the use of borrowed 
 capital, for the simple reason that the security he is able 
 to give for its repayment is insufficient ; but what is true 
 of a single artisan ceases to be true of an association 
 of artisans jointly and severally responsible for the debts 
 of every member of the association, and especially where 
 the terms of membership are such as to reduce to a 
 minimum the risk of loss through the dishonesty or the 
 incompetence of those who join it. Such associations were 
 formed through the influence of M. Schulze-Delitzsch; 
 the terms of the association are so drawn up as to exclude 
 all but bon^ fide labourers, and as the cardinal principle 
 of the association is self-help, the candidates for admis- 
 sion must give substantial proof that they are able to 
 help themselves. The circumstances of the candidate for 
 admission are always carefully enquired into before he 
 is allowed to join. He is moreover required to become 
 a shareholder in the concern. It may be urged that if all 
 these securities are required to prove a man's honesty 
 and his power to pay, he would have no difficulty in 
 obtaining a loan independently of the association. A very 
 little consideration will, however, show that this is not 
 the case. The security offered by an individual workman 
 can in the vast majority of instances only be a personal 
 security ; if therefore he obtained a loan at all it would 
 . be on exorbitant terms. The owner of capital advanced 
 to an individual workman would run a very great risk 
 of losing it altogether : if, for instance, the workman died 
 
 BOOK II. 
 CH. X. 
 
 Theeo- 
 operative 
 banks in 
 Germany, 
 fownded 
 by M. 
 Schulze- 
 DeliUmch. 
 
278 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. X. 
 
 In Eng- 
 land co- 
 operation 
 has been 
 retarded 
 by legis- 
 lative en- 
 actments. 
 
 or absconded the owner of the capital would have no 
 remedy. But the credit of a workman rests on altogether 
 a different footing if he belongs to an association every 
 member of which is jointly and severally responsible for 
 the debts of all the rest. One fundamental principle of 
 the Schulze-Delitzsch Credit Associations is that of un- 
 limited liability : this principle makes the credit of the 
 association unimpeachable ; it also exercises an important 
 influence in keeping up due watchfulness on the circum- 
 stances of the candidates for admission. The capital re- 
 quired for the working of the associations is obtained in 
 two ways; first, by the subscriptions of members, and 
 secondly, by loans contracted in the open market on the 
 credit of the association. The bulk of the business is 
 carried on with capital obtained in .the latter way. To 
 give some idea of the proportions which this movement 
 has assumed in the country in which it originated, it may 
 be mentioned that in the year 1865 there were 961 of 
 these Credit Associations in existence in Germany. Of 
 these about one-half or 498 sent in their statistics to the 
 central bureau, showing that they then possessed nearly 
 170,000 members and that the money they annually ad- 
 vanced was equal to 10,000,000Z'. 
 
 It has already been stated that cooperative banking has 
 been seriously impeded in England through the action of 
 the Legislature. This, however, is not the only way in 
 which the action of the Legislature has retarded the pro- 
 gress of cooperation. Until 1867 no cooperative society 
 was permitted to invest more than 2002. in any other 
 society. This restriction at one time brought a very 
 serious danger upon the Rochdale Pioneers. Having more 
 capital than they could use in their own business, a por- 
 tion of their capital, in consequence of their not being 
 able to invest more than 200?. in any other society, was 
 lying idle. It was therefore decided to repay to some of 
 the largest shareholders a portion of the money which 
 they had invested in the society. No sooner had this 
 process of repayment commenced than a rumour not un- 
 naturally gained credence that the wealthier shareholders 
 
 ^ See the eleventli Eeport of the Trades' Union Commissioners, 
 Vol. II. Appendix, pp. 165 — 178. This part of the Eeport is by Mr 
 R. D. Morier. 
 
Cooperation. 
 
 279 
 
 had lost confidence in the concern, and were withdrawing 
 their capital from it. A panic ensued, and such a run 
 was made by frightened shareholders upon the funds of 
 the society that it was for some time in imminent periL 
 It is impossible to have a more instructive example of the 
 widespread mischief which may result from meddlesome 
 and ill-considered legislation. As another instance of the 
 manner in which the development of cooperation has been 
 retarded by legal impediments, it may be mentioned that 
 until two Acts were passed in 1867 and 1871 cooperative 
 societies could not buy or sell land except for the purposes 
 of their special trade. Now that these societies have been 
 empowered to buy and sell land, many of them have in- 
 vested a considerable portion of their surplus capital in 
 the erection of houses for their members. The Rochdale 
 Pioneers have already expended many thousands in this 
 way, and it need scarcely be said that it is not possible to 
 render the working classes a greater service than to ma,ke 
 it more practicable for them to obtain suitable dwellings. 
 The members of a cooperative society may obtain their 
 houses just as the customers of a cooperative stor©, at the 
 lowest possible price, since the object of investing the 
 money of the society in building houses is not to obtain 
 a large profit, but to secure the best possible house ac- 
 commodation for the members of the society. Various 
 other schemes have from time to time beea propounded 
 with the object -of improving the houses of the poorer 
 classes. These schemes, though not cooperative in the 
 sense in which we have employed the word, are based on 
 the principle that much more can often be done by an 
 union of several small capitals than can be done by each 
 of these small capitals working separately. Thus if a 
 hundred men subscribed 2001. each, with the 20,000?. thus 
 collected, a block of buildings could be erected which 
 would provide each member with much better accom- 
 modation than if each had expended his 200?. in building 
 a house for himself. The building societies which have 
 assumed such marked prominence during the last few 
 years afford important facilities for workmen becoming 
 the owners of the houses in which they live. These 
 societies gather together a great number of small capitals 
 and employ the fund thus collected in making advance 
 
 BOOK II. 
 CH. X. 
 
 Building 
 societies. 
 
28o 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. X. 
 
 The opera- 
 tion! of the 
 ArtisaTis', 
 Labour- 
 ers', and 
 General 
 Dwellings 
 Company 
 described. 
 
 The 
 
 Shaftes- 
 bury Park 
 Estate, 
 
 to those who wish to build or purchase a house. The 
 house itself is a security for the money advauced, and the 
 loan is repaid by small weekly or monthly instalments. 
 It is difficult adequately to estimate the good which is 
 done by these societies. They have undoubtedly enabled 
 many hundreds of thousands of workmen to become the 
 proprietors of their own houses. 
 
 During the last few years a society has been started 
 which is known as the Artisans', Labourers', and General 
 Dwellings Company, and which, though possessing in 
 many respects the character of an ordiuary building so- 
 ciety, yet has so many peculiar features of its own that 
 it will be desirable to give a brief description of the man- 
 ner in which it carries out its operations. This society 
 not only assists the occupier of a house in acquiring it as 
 his own property, but also encourages workmen to become 
 the builders of their own houses, and, further, takes se- 
 curity that the houses shall be built as part of a general 
 scheme, strict attention being paid to sanitary and other 
 regulations. In order to carry out these desirable objects, 
 the society in the first instance purchases a tract of build- 
 ing ground. Upon this ground roads and drains are laid 
 out, and all the other necessary preparations are made for 
 building. It is then decided that a certain number of 
 houses shall be erected ; it is thus provided that too many 
 houses shall not be crowded together, and a certain amount 
 of garden ground, when the occasion permits, is reserved 
 for each house. Any one who wishes to build a house 
 obtains from the society an advance of money, which he 
 can repay by weekly, monthly, or yearly instalments. 
 Although houses of different character and size are erected, 
 yet various regulations with regard to drains, ventilation, 
 etc., are strictly enforced. At Salford sufficient land was 
 purchased by the society for the ^erection of 76 houses. 
 In Birmingham three estates have been purchased, on 
 which it is proposed to erect 600 houses. Probably, how- 
 ever, the most successful and the most extensive scheme 
 yet carried out by the society has been in the neighbour- 
 hood of London on what is known as the Shaftesbury 
 Park Estate. This estate, which is close to the Clapham 
 Junction railway station, consists of about 40 acres. Upon 
 it 370 houses have already been erected, and it is pro- 
 
Cooperation. 
 
 28 1 
 
 posed to build 410 more. When the scheme is thus com- 
 pleted it will constitute a town of no less than 7000 in- 
 habitants, which will be in many respects a self-contained 
 organization. A lecture-hall and schools have been erected, 
 a recreation ground has been reserved, and it is proposed 
 to rent a dairy-farm in order to secure a supply of pure 
 milk. It need scarcely be said that great advantage must 
 result from encouraging workmen to build their own 
 houses. In an account lately written of this society it is 
 stated^: "The whole shows what an amoiint of practical 
 ingenuity a body of workmen (for each man contribtites 
 his suggestions) can bring to bear on a project on which 
 the men's hearts are set, and, above all, in passing through 
 those lines of streets it is impossible to forget that to a 
 great extent the builders are the occupiers. The men are 
 working on the estate cheerfully with the evident con- 
 viction that it is their own property, and, moreover, with 
 the look of men who know that it is no 'charity' scheme 
 in which they are concerned, but one of complete inde- 
 pendence." It need only further be remarked that there 
 seems to be nothing to prevent the operations of the 
 society being almost indefinitely extended. Hitherto losses 
 from bad debts have been so entirely avoided, and its 
 finances have been managed on so sound a system, that 
 a considerable surplus profit remains, after a fair amount 
 has been reserved for interest on capital. As these sur- 
 plus profits are devoted to extend the business of the 
 society, it is obvious that its scope will gradually become 
 enlarged. 
 
 We have now described some of the more important 
 results of cooperation, and we have also indicated some of 
 the probable phases of its future development. Anyone 
 who considers what it has already effected, and what it is 
 capable of doing in the future, must, we think, come to 
 the conclusion that we may look with more confidence to 
 cooperation than to any other economic agency to improve 
 the industrial condition of the countiy. It cannot be too 
 carefully borne in mind that those who have achieved the 
 most striking success in cooperation have not been assist- 
 ed by any extraneous aid. They have placed their chief 
 
 1 See The Times of Novi 14, 1873. 
 
 BOOK II. 
 CH. X. 
 
 Theessevcr. 
 of coopera- 
 tion is self- 
 reliance. 
 
382 
 
 Ma/nudl of Political Economy. 
 
 reliance in unioti of effort, in prudence, and in self-denial. 
 In striking contrast to this, we shall in the next chapter 
 describe a scheme in which many have much greater faith 
 than in cooperation, and which, far from not depending 
 on any extraneous aid, is to be carried out entirely through 
 the direct intervention of the State. The scheme to which 
 we now refer is one to which allusion has already been 
 made, and which is known as the Nationalisation of the 
 Land. 
 
CHAPTER XI. 
 
 THE NATIONALISATION OF THE LAND. 
 
 IT has been pointed out in a previous chapter that the 
 most characteristic feature in the socialism of the 
 present day is the reliance which it places on the inter- 
 vention of the State. The most distinguished advocate 
 of this new form of socialism was probably Lassalle ; 
 between him and M. Schulze-Delitzsch there was for 
 many years in Germany a keen and active contest. They 
 respectively became the founders of two rival schools of 
 social and industrial reformers, and there was in almost 
 every respect the widest divergence in the ideas pro- 
 pounded by each of these schools. M. Schulze-Delitzsch 
 gave, as we have seen, a most important stimulus to the 
 cooperative movement; and the guiding principle which 
 influenced him was that the people were to rely for their 
 improvement upon self-help. Lassalle, on the other hand, 
 thought that what the people chiefly needed was a greater 
 amount of aid from the State. The movement which he 
 set on foot is now represented by the society which is 
 known as the International, and especially by the foreign 
 branches of this organisation. The International has put 
 forward various proposals, nearly all of which involve State 
 intervention. Probably however the scheme to which 
 it looks with most confidence to effect an improvement 
 in the condition of the people is that which is known 
 as the Nationalisation of the land and the other instru- 
 ments of production. 
 
 We have endeavoured, by a careful perusal of the 
 documents of the International, and by frequent conver- 
 sations with many of its members, to ascertain with as 
 
 BOOK II. 
 CH. XI. 
 
 Two 
 
 schools of 
 social re- 
 formers 
 represent- 
 ed in Ger- 
 many by 
 Lassalle 
 and 
 
 Schulze- 
 Delitzsch. 
 
284 
 
 Manual of Political ^Economy. 
 
 BOOK II. 
 CH. ZI. 
 
 The mean- 
 ing attacJi- 
 ed by 
 Interna- 
 tionalists 
 to the 
 phrase 
 ' National- 
 tation of 
 the Land,' 
 is that the 
 land now 
 held by 
 individii- 
 als should 
 not be con- 
 fiscated, 
 but should 
 be pur- 
 chased by 
 the State. 
 
 much accuracy as possible the precise meaning which is 
 attributed to nationalising the land and all the other 
 instruments of production. So far as we are able to 
 judge,' it is apparently proposed that the land of the 
 country and all its industrial appliances should be pur- 
 chased by the State, and when thus converted into 
 national property, the land and the other instruments 
 of production should be used by the people, on the 
 understanding that they should pay to the State for such 
 use a fair rent or price. An impression no doubt prevails 
 that this property is to be acquired by the nation without 
 giving existing owners an adequate compensation. It 
 cannot be denied that there is some warrant for such an 
 opinion in the language which is occasionally employed 
 by some of the advocates of this new socialistic movement. 
 Thus it has not unfrequently been said that private pro- 
 perty is a crime and a blunder; that the land was origi- 
 nally the people's, that it has wrongly been taken away 
 from them, and therefore ought to be restored to them. 
 Such phrases are, however, to be regarded as the lan- 
 guage of excited rhetoric; they do not represent the 
 serious intentions of modern Socialists. When the ques- 
 tion is calmly put to them, we have always found that 
 they protest against such a policy of confiscation, and 
 they invariably admit that a proper compensation should 
 be given to the owners of land and of any other property 
 which may be taken over by the State. 
 
 It should, however, be remarked that some who re- 
 pudiate the idea of immediate confiscation really advocate 
 a policy analogous to it. Such persons maintain that if 
 no existing owners were dispossessed, but if the State 
 took possession of the land at the death of existing owners, 
 there would be no confiscation and no injustice. It is, 
 however, at once evident that the adoption of such a 
 plan would be equivalent to wholesale confiscation; the 
 exact pecuniary amount of which can be estimated by 
 the difference in value between a life interest in any 
 particular estate and its fee-simple. It must be also 
 borne in mind that no inconsiderable portion of the land 
 of the country is held by various corporations, such as 
 colleges and schools. A corporate body cannot die ; there- 
 fore it may be presumed that all the land which is thus 
 
The Nationalisation of the Land. 
 
 285 
 
 held would be immediately taken over by the State. As, 
 however, the idea most prevalent among Internationalists 
 and other modem Socialists is the immediate purchase 
 of the land by the State, we will proceed to trace some 
 of the consequences which would result from carrying out 
 the policy of nationalisation in the manner just indicated. 
 
 It will be well, in the first instance, to confine our 
 attention to the land, and assume that after it has been 
 fairly valued, the State compulsorily purchases the whole 
 of it at its present market-price. , It is not necessary now 
 to consider whether such an enforced dispossession of the 
 owners of property, even if they receive a pecuniary com- 
 pensation, can be defended on any recognised principles 
 of justice. Some, no doubt, would maintain that, even if 
 the landlords were unfairly treated, it is quite justifiable 
 to inflict an injury on a limited class, in order to secure 
 the greater happiness of the whole community. There 
 will, however, be no occasion to consider whether such a 
 theory is or is not defensible; for it will not be diflScult 
 to show that the purchase of the land by the State would, 
 on the contrary, make the social and economic condition 
 of the country in every respect far more unsatisfactory 
 than it is at the present time. 
 
 It is difficult to estimate with precision the present 
 value of the whole landed property of the country. Com- 
 petent authorities say that the value of all the land and 
 houses in this country, exclusive of mines and railways, 
 cannot be less than 4,500,000,OOOZ. This enormous sum, 
 exceeding by six times our national debt, would have to 
 be raised in the form of a State loan, in order to carry 
 out the first part of this policy of nationalising the in- 
 struments of production. For, after such an expenditure 
 had been incurred in acquiring land and houses, it is 
 probable that at least an equal outlay would be involved 
 in purchasing the railways, mines, buildings, machinerj', 
 and various other appliances, which constitute the in- 
 dustrial plant of the community. But, confining our 
 attention to the first transaction, let us inquire in what 
 way, and upon what terms, the State would obtain this 
 4,500,000,OOOZ. In order to put the case as fairly as 
 possible, let it be assumed that the financial credit of 
 the country has not been in the slightest degree injured 
 
 BOOK II. 
 OH. XI. 
 
 Estimated 
 cost of 
 carrying 
 out such a 
 policy. 
 
286 
 
 Manual of Political EeonoTny. 
 
 BOOK II. 
 CH. XI. 
 
 It would, 
 even under 
 favourable 
 circum- 
 stances, in- 
 volve an 
 annual 
 deficit of 
 
 5d,ooo,o'ooz, 
 
 by the social and political revolution which the members 
 of the International themselves admit must in all pro- 
 bability take place before they can hope to see their 
 schemes practically realised. It may, therefore, be granted 
 that the loan would be raised on the same terms as if 
 nothing had occurred to disturb the credit of the country. 
 Our Government is now able to borrow money at the 
 rate of three and a quarter per cent. Sir John Lubbock, 
 who, as one of the leading London bankers, has had 
 great experience in monetary affairs, expresses a confident 
 opinion that the raising of so large a loan would increase 
 the rate of interest at least one per cent. It therefore 
 appears, after making proper allowance for the cost of 
 collection and management, that the Government would 
 not be able to borrow this 4,500,000,000?. at less than 
 four and a half per cent. There is, in fact, every reason 
 to suppose that it would be necessary to pay a consider- 
 ably higher rate of interest. If, however, what may be 
 regarded as the minimum rate of only four and a half 
 per cent, were paid, the annual charge involved in such 
 a loan would be 202,500,000?. This sum exceeds by nearly 
 three times our present national revenue. After making 
 due allowance for expenses involved in management, in 
 collection of rents, in repairs, and in the erection of new 
 buildings, it can scarcely be doubted that the land and 
 house property in this country does not yield upon its 
 present market-price a return of more than three and a 
 quarter per cent. There would, therefore, be a loss of one 
 and a quarter per cent, upon the purchase, or, in other 
 words, there would be an annual deficit of 50,000,000?. 
 This large deficiency would exist, even if the rent of land 
 and of houses was in every single instance maintained at 
 its present high level. But is not a reduction in rent the 
 chief advantage which the advocates of this nationalising 
 policy hope to secure ? The belief that land is too dear 
 and that house-rent is too high is the chief cause which 
 has led to the enthusiastic adoption of the proposal ; and 
 the members of the International and other Socialists 
 would be the first to admit that they had been bitterly 
 disappointed and cruelly deceived if they found, after 
 their schemes had been realised, that they were obliged 
 to pay just as high a price as ever for permission to 
 
The Nationalisation of the Land. 
 
 2S7 
 
 cultivate the land or for the privilege of obtaining a cer- 
 tain amount of house accommodation. It may, therefore, 
 be fairly concluded that if the State purchased the land 
 and houses, the transaction would involve an annual loss 
 of at least 50,000,000^., and the loss would be far greater 
 than this if rents were not maintained at what is so gener- 
 ally denounced as their present extravagant rate. 
 
 It must also be borne in mind that all governments try 
 to strengthen their position by the exercise of patronage ; 
 and the more, patronage a government has to bestow, the 
 more will pecuniary and political corruption flourish. It 
 is obvious that if the land and other instruments of pro- 
 duction were purchased by the State, the amount of Go- 
 vernment patronage would be indefinitely increased. The 
 Government would at once have placed at their disposal 
 an infinite number of opportunities of rewarding friends 
 and of injiiring opponents. When the land, for instance, 
 was being bought, what would be more easy than to re- 
 compense on a scale of great liberality a proprietor who 
 happened to be a political supporter, or who was in a 
 position to exercise influence ? On the other hand, it 
 would be equally easy to deprive of a portion of their just 
 compensation those landowners who were either not well 
 affected to the government of the day or who had not 
 the support of powerful friends. Jealousy and discontent 
 would thus be produced, and a most demoralising and 
 corrupting temptation would be brought to bear upon the 
 people and the Government. 
 
 Serious as are the evils which are thus shown to be 
 associated with the purchase of the land by the State, 
 there would, however, ensue far graver mischief when the 
 land and the other instruments of production came to be 
 distributed at a fair price amongst the people. No ade- 
 quate conception can be formed of the hopeless impracti- 
 cability of the scheme, and of the disastrous consequences 
 it would produce, unless we endeavour to picture to our- 
 selves what would take place when the process of letting 
 the land to the people at a fair price commenced. What 
 method of selection is it proposed to adopt in order to 
 decide who shall be the favoured tenants to be located on 
 fertile and picturesque land within easy reach of large 
 towns? And who, on the other hand, are to be the 
 
 BOOK II. 
 CH. XI. 
 
 It would 
 also en- 
 courage 
 jobbery 
 and COT- 
 rtiption. 
 
 The distri- 
 bution of 
 land of 
 various d,'- 
 grees of 
 fertility 
 would alio 
 produce 
 insuper- 
 able diffi- 
 culties. 
 
'288 
 
 Manual of Political Economy. 
 
 nooK II. 
 
 CH. XI. 
 
 Competi- 
 tion would 
 not be got 
 rid of ty 
 national- 
 isation of 
 the land. 
 
 unfortunates who are to be deported to the bleak moors of 
 Yorkshire or to the dreary wastes of Sutherlandshire ? If 
 it were attempted to regulate the allotment and appor- 
 tionment of the land by competition, it will at once be 
 perceived that equally great difi&culties would ensue, and 
 the advocates of the scheme would be lauded in a still 
 worse dilemma. The most fertile and the most favourably 
 situated land would be actively competed for. The wealthy 
 would obtain the best situations, the poor would be driven 
 to the most impoverished soils. Thus cqmpetition, so 
 hateful to Socialism, would act with uncontrolled force, 
 and would exercise as much influence as ever. 
 
 When such considerations as these were on one occasion 
 pointed out to some of the leading supporters of the na- 
 tionalisation of the land, they made some such rejoinder 
 as the following : — It would be our first duty and our chief 
 anxiety to prevent the force of competition coming into 
 operation. It has done more than anything else to make 
 our present condition so unsatisfactory; we lay to its 
 charge much of the misery which we have to endure, and 
 most of the misfortunes under which we suffer. It is be- 
 cause competition so much raises the price of land that 
 we are crowded into unwholesome courts. If land were 
 cheaper, instead of being thus huddled together we might 
 each of us have a house surrounded by a plot of ground ; 
 and our children, instead of breathing a pestilential air, 
 and being reared surrounded by vice and squalor, might 
 dwell in some sunny and salubrious situation, enjoying the 
 pleasures of a country life. — All this, it is thought, might 
 be realised by banishing competition ; because, it is main- 
 tained, if the land were cheaper, and were more equally 
 divided, there would be far more than enough for all. But 
 even if this Utopian idea could be realised, and if the 
 State let the land at an uniform price, it at once becomes 
 evident that the influence of competition would neither 
 cease nor diminish. It would simply exert its activity 
 in a somewhat different direction. If the State decided 
 to let every plot of land at an uniform rate, it is obvious 
 that there would be as active a competition as there is 
 now to obtain the most fertile and the most conveniently 
 situated allotments. As previously remarked, the Go- 
 vernment would have placed in its hands an entirely 
 
The Nationalisation of the Land. 
 
 289 
 
 unprecedented opportunity of rewarding friends and of 
 punishing foes. The vast sum which is represented by 
 the difference in value between the more productive and 
 the less productive land would be virtually placed at the 
 disposal of the State to dispense as patronage. As a 
 natural consequence, the whole community would be de- 
 moralised and degraded by bringing into activity an in- 
 calculable amount of jobbery, intrigue, and favouritism. 
 Again, it must be borne in mind that if the land were 
 thus let at an uniform price, the purchase of it by the 
 State would inevitably be financially so disastrous as to 
 involve the nation in bankruptcy. The particular jpecu- 
 niary amount which is meant when this uniform price 
 is spoken of has never been clearly defined. It is pro- 
 bably intended that the rent should be what is vagLiely 
 called a fair and moderate one. But if the imposition 
 of moderate rents is that which is desired, it is manifest 
 that the charging of an uniform price for the use of land 
 would entirely defeat the object sought to be attained. A 
 pound an acre would be an extremely moderate price 
 to pay for some land ; but, in other instances, it would 
 represent a rent so excessive, that if it were imposed 
 land would be thrown out of cultivation. Five pounds 
 an acre charged for land in the neighbourhood of large 
 towns may be a very much lower rent than two shillings 
 an acre for land on the Scotch or North of England 
 moors. There cannot be a greater fallacy than to suppose 
 that the highest-rented land is the dearest, or that the 
 lowest-rented land is the cheapest. For the additional 
 rent which is paid, at least an equivalent is given in 
 consequence of the land being more fertile or more con- 
 veniently situated. The farmer who cultivates highly 
 rented land virtually pays a premium for the use of an 
 efficient machine; and it is just as unreasonable to say 
 that he is placed in a worse position than the man who 
 cultivates land for which a low rent is charged, as it 
 would be to suppose that a manufacturer who pays a 
 certain annual sum for the use of a machine is in a 
 worse position than those by whom the machine is not 
 used. It therefore appears that if it were possible to 
 fix the rent of land at some uniform rate, the only result 
 would be that some land would be greatly underlet, 
 
 F. M. T 
 
 BOOK II. 
 OH. XI. 
 
 If the land 
 were let at 
 an uni- 
 form price 
 it would 
 involve the 
 nation in 
 banlcrupt- 
 cy. 
 
290 
 
 Manual of Political Economy^ 
 
 An uni- 
 form rent ■ 
 still more 
 impracti- 
 cable in the 
 case of 
 building 
 land. 
 
 whilst some would be so enormously over-rented that its 
 remunerative cultivation would be impossible. 
 
 Innumerable as thus appear to be the difficulties which 
 would arise if an attempt were made to levy an uniform 
 rent on agricultural land, the proposal is far more absurd 
 and impracticable when it is applied to building land. 
 Although agricultural land varies greatly in value — some 
 letting for seven pounds an acre, whereas, in other in- 
 stances, a rent of not more than one shilling an acre is 
 yielded, yet such differences in value appear trifling when 
 we consider the price which is realised by the most eligible 
 sites for building. Within the last few years land has 
 been sold in the City of London at the rate of a hundred 
 thousand pounds an acre. . 
 
 When, however, the visiona/y nature of the proposal 
 to charge an uniform price for the use of land is brought 
 distinctly home to the advocates of nationalisation, they 
 not unfrequently shift their ground and maintain that 
 what they desire is not uniform rents, but a general re- 
 duction in all rents. Feeling that the conditions of life 
 are 4:00 hard, that an adequate maintenance cannot be 
 obtained without too great a struggle and without an 
 undue amount of toil, observing that there is too much 
 poverty and misery, they at once hurry to the conclu- 
 sion that all this which is so unsatisfactory would be to 
 a considerable extent remedied, if the rent paid for land, 
 houses, and the other instruments of production, could 
 be reduced. They further urge that as long as these 
 things are permitted to remain private property, no such 
 general reduction of rents is possible ; for competition 
 will always force the price up to the highest point. If, 
 however, the proposed policy of nationalisation were car- 
 ried out, the State, it is argued, would become the pro- 
 prietor, and could charge just such rents as would most 
 promote the well-being of the community. With no little 
 plausibility it is, for instance, asked whether the con- 
 dition of the great mass of the people would not be greatly 
 improved, and whether the happiness and prosperity of 
 the vast majority of the nation would not be promoted, 
 if the rent of land and of houses were reduced — say 
 twenty or thirty per cent. The land being thus dis- 
 tributed amongst the people, and let to them on easy 
 
The Nationalisation of the Land.. 
 
 291 
 
 terms, all who devoted themselves to agriculture would 
 find that they were engaged in a lucrative industry. 
 Under this new system, thus inaugurated, every one 
 who wished to cultivate land would be able to do so 
 upon easy terms. Would not this, it is asked, present 
 a favourable contrast with what exists at the present 
 time, when the mass of the people are divorced from 
 the soil, when farmers find that high rents absorb an 
 undue share of the results of their toil, and when the 
 labourer who tills the land lives in ignorance and de- 
 pendence, and has to work hard for a beggarly pittance 
 of eleven or twelve shillings a week ? 
 
 In a similar way a description is given of the not less 
 striking advantages which would result from a general 
 ^eduction in house-rent. There would be no Icpger the 
 same necessity for the poor to herd together in over- 
 crowded dwellings. Tens of thousands of families, who 
 are now compelled to live in single rooms, would be 
 able to afford two or three rooms ; and if laud and houses 
 Were both cheapened, the artisans of our large towns 
 could reside in healthy country homes, surrounded by 
 good gardens. If such an improvement in the condition 
 of the people could be effected, it would be the duty 
 of every one to spare no effort to bring it about. Many 
 of the opponents of nationalisation are as little satisfied 
 with the present state of things as the most ardent Socialist 
 can be. It can, however, be shown that, in order to im- 
 prove the social condition of the people, agencies entirely 
 different from those which have been suggested must be 
 brought into operation. 
 
 It will now, however, be desirable to revert to a con- 
 sideration of the consequences which would result if the 
 State, after having purchased all the land and houses 
 in the country, tried to effect a general reduction in rents. 
 In the first place, -it is to be observed that the more 
 rents were reduced, the greater would be the difference 
 between the interest on the money expended by the 
 State in the purchase of the property, and the amount 
 which this property would annually yield. Thus, refer- 
 ring to the figures already quoted, it has been shown 
 that the annual interest on the loan which would be 
 . i;equired for the purchase of the land and houses would 
 
 T 2 
 
 BOOK II. 
 OH. XI. 
 
 Tfie conse- 
 quence of 
 a general 
 reduction 
 of rents. 
 
292 
 
 Manual of Political Economy. 
 
 be about 200,000,000Z. The property, if let at exist- 
 ing rents, would annually yield about 150,000,000?. If, 
 therefore, rents were raaintained at their present rate, 
 there would be a deficiency of not less than 50,000,000?. 
 each year. If, however, there was, as is proposed, a gene- 
 ral reduction of rents, say of one-third, it is evident 
 that this deficiency would be at once increased from 
 50,000,000?. to 100,000,000?. The scheme, therefore, is 
 at once met with this most formidable difficulty — How 
 is such an enormous annual loss to be made good ? The 
 members of the International say that all revenue which 
 the State requires is to be obtained by a graduated tax 
 on property. They would therefore look to this source to 
 supply the annual deficiency. But they forget that si- 
 multaneously with the imposition of the graduated tax 
 on property, the State is to become the possessor of all 
 the real property in the country. Consequently, they 
 would tax the State in order to provide the State with 
 money. This is nothing more nor less than attempting 
 to create wealth by taking money out of one pocket and 
 putting it into another. It will perhaps, however, be 
 said that although it is contemplated that the State 
 should own the land and the other instruments of pro- 
 duction, yet there would be a great deal of other pro- 
 perty in the country upon which the graduated tax might 
 be imposed. For instance, the former proprietors will be 
 in possession of the money which has been paid to them 
 when the State purchased their property. But if a heavy 
 and increasing tax is to be levied from them in order 
 to provide for a deficiency created by an artificial reduc- 
 tion in rents, it would have been far simpler, and would 
 have involved no greater injustice, if they had been in 
 the first instance compelled to sell their property at less 
 than its market value. It is therefore evident that 
 an attempt thus artificially to reduce rents would prove 
 financially disastrous, and would in fact overwhelm the 
 country with insurmountable pecuniary difficulties. 
 
 Probably, however, the most serious objections to na- 
 tionalising the land and the other instruments of pro- 
 duction still remain to be noticed. It is evident that if 
 the scheme were carried out, the Government would not 
 only be compelled to buy the estates of large proprietors. 
 
The UTationalisation of the Land. 
 
 29^ 
 
 and the manufactories and workshops of wealthy capital- 
 ists, it would also be equally necessary for the. State to 
 purchase the small freeholds of the peasant farmers, as 
 well as the stores and workshops of cooperative societies, 
 and the houses which workmen have become the owners 
 pf through the agency of building societies. Great land- 
 holders and small landholders, the capitalist with his 
 hundreds of thousands embarked in business, and the work- 
 man with his few pounds invested in some cooperative 
 association or building society, would all alike have to 
 submit to the decree that henceforward all the instruments 
 of production shall be vested in the State. Such considera- 
 tions as these will probably exert little influence upon the 
 advocates of the policy, for they may very possibly say 
 the labourers who either own land or have capital invested 
 in business are so few, that the interests of so small a 
 minority ought not to impede the adoption of measures 
 which would so greatly promote the well-being of the 
 whole community. It has, however, been shown in the 
 previous chapter that the amount of property owned by 
 workmen is rapidly increasing, and that the extension of 
 building and cooperative societies may be regarded as one 
 of the most marked and satisfactory characteristics of the 
 age. It is, moreover, essential to ramember that many 
 agencies may in future years be brought into operation 
 which will either directly or indirectly afford workmen 
 much greater facilities for becoming the proprietors of 
 land and the other instruments of production. The ex- 
 perience of Ireland shows that when a large landed estate 
 is sold the tenants are sure, in numerous instances, to 
 become the owners of the land they cultivate. The Lon- 
 donderry estates of Lord Waterford were recently sold in 
 the Landed Estates Court for 280,000?. ; the greatest part 
 of the property was purchased by the tenants, who often 
 paid as much as forty or fifty years' purchase for the land. 
 It is well known that in England the quantity of land 
 which is brought into the market is artificially restricted 
 by various causes which are under legislative control. 
 There is no reason why an Encumbered Estates Court 
 should not be established in England. Many a proprietor 
 would gladly avail himself of such a tribunal, in order to 
 free . himself from mortgages, intricate settlements, and 
 
 BOOK II. 
 CH. XI. 
 
 The na- 
 tionalisa- 
 tion of 
 the land 
 would de- 
 prive 
 building 
 and co- 
 operative 
 societies 
 of part of 
 their pro- 
 perty. 
 
 Artificial 
 impedi- 
 ments upon 
 the sale of 
 land ought 
 to be abo- 
 lished. 
 
294 
 
 Manual of Political Economy. 
 
 numberless other encumbrances. Again, the present costly 
 method of conveyancing seriously impedes the acquisition 
 of small properties in land by workmen and others of 
 limited means. The whole policy of our law has been to 
 favour the aggregation of land; primogeniture has been 
 sanctioned and encouraged by the fundamental distinction 
 which is adopted in the distribution of the real and per- 
 sonal property of intestates. Other circumstances may be 
 alluded to, such, for instance, as the settlement of land 
 upon an unborn child, which exert a powerful influence 
 in diminishing the quantity of land which is annually 
 brought into the market. It is the fault of the people 
 themselves if they do not abolish these artificial impedi- 
 ments upon the sale of land. If they like to express them^ 
 selves with sufficient determination upon the subject an 
 Encumbered Estates Court will be established, the convey- 
 ance of land will be simplified, and cheapened by a system 
 of compulsory registration; primogeniture will be deprived 
 of its present sanction and encouragement, and no one 
 wiU be permitted to settle property upon an unborn child. 
 It cannot be doubted that the people have the power to 
 bring about all these reforms. If they were carried out, 
 it is certain that the quantity of land annually brought 
 into the market woMld be greatlj' augmented, and, con- 
 sequently, labourers, either individually or by means of 
 associations, would have much greater facilities for be- 
 coming landed proprietors. 
 
 It may perhaps be said that reform is slow, and that 
 abuses die hard. It may be also urged that the changes 
 here indicated have often been advocated before, but with 
 little or no effect. The people are tired of waiting; they 
 place no confidence in remedies that come so tardily, and 
 they are consequently prepared to support schemes which 
 will bring about what they desire much more rapidly, and 
 much more thoroughly. Such, we have reason to believe, 
 is not an inaccurate description of the state of feeling 
 which has induced so many of our workmen to become 
 adherents of the doctrines of modern Socialism. The 
 existence, however, of such a state of feeling is to be 
 regretted, and particularly so in our own country. The 
 reason why it is so difficult to carry out the reforms which 
 have been suggested, and why the remedies indicated are 
 
The Nationalisation of the Land. 
 
 ^95 
 
 so slowly brouglit to bear, is chiefly to be traced to the 
 fact that the working classes, because they are divided in 
 purpose, lose a considerable portion of the influence which 
 they might legitimately exercise upon the legislature. 
 The propagation of socialistic ideas, which is at the present 
 time so actively going on, will still further divert the 
 workmen from striving, by a. persistent and united efifort, 
 to obtain various changes in the law, and other reforms 
 which are practically within their reach. 
 
 There is probably no chance of preventing so much of 
 the energy of some of our best workmen being thus mis- 
 directed, except by proving to them that the new schemes 
 in which they place so much faith are either Utopian, or, 
 if practicable, distinctly mischievous. It can, for instance, 
 be scarcely doubted, that many who have given their ad- 
 herence to these new socialistic ideas, would have been 
 debarred from doing so if they could have been induced 
 to see that the carrying-out of the policy of nationalisation 
 would deprive every small freeholder of his plot of land, 
 would take from cooperative associations their plant and 
 their buildings, and would prevent the prudent workman 
 from enjoying the satisfaction of feeling that the house in 
 which he lived was his own. All the various socialistic 
 schemes which have from time to time been propounded 
 possess one common chauaeteristic — ^they would, one and 
 all, tend to enable a man to make others bear a con- 
 siderable portion of the consequences which result from 
 his own voluntary acts. From this point of view our 
 Poor Law, as before remarked, is distinctly socialistic in 
 its tendencies; because, if a man refuses to provide main- 
 tenance for himself by his own labour, the Poor Law gives 
 him a right to claim this maintenance from the public. 
 This weakening and lessening of individual responsibility, 
 which may be regarded as the most pi-ominent charac- 
 teristic of Socialism, may be traced through every part of 
 the programme of the International. Thus, the nationali- 
 sation of the land is intended to secure to each individual 
 an opportunity to cultivate a plot of land at a reasonable 
 price. He is to enjoy this privilege even if he should 
 have taken no trouble to qualify himself for the industry, 
 and even if he should have made no effort by previous 
 saving to obtain sutScient to pay his rent, to furnish him 
 
 BOOK II. 
 CH. XI. 
 
 The weak- 
 ening of 
 individual 
 responsi- 
 bility a 
 eharacter- 
 istic of 
 modern 
 socialism. 
 
296 
 
 Manual of Political Economy. 
 
 BOOK H. 
 CH. XI. 
 
 ■with . capital, and to provide him with adequate security 
 against the vicissitudes of trade. Again, general gratui- 
 tous education would transfer a portion of the expense of 
 maintaining children from those who are responsible for 
 bringing them into the world to the general public. _ A 
 right to demand work from the State at remunerative 
 wages Avould confer upon a man the power to compensate 
 himself at other people's expense for any loss he might 
 incur, through wilfully remaining in a locality where his 
 labour is not wanted, or through persistently continuing 
 in a trade in which the supply of labour far exceeds the 
 demand. A right to claim loans from the State to esta- 
 blish cooperative societies would enable those who had 
 lost their capital through mismanagement or extravagance 
 to recoup themselves at other people's expense. The 
 adoption of a general scheme of State emigration would 
 really confer upon any one who might desire to settle in 
 another country a right to claim from the State the pay- 
 ment of his travelling expenses. If, moreover, the whole 
 revenue of the country, as the Internationalists propose, 
 were raised entirely by a graduated property-tax, the 
 majority of the people would make no contribution to the 
 revenue at all : therefore such luxuries as work at remu- 
 nerative wages, low-rented land, cheap and commodious 
 houses, education for their children, the payment of their 
 travelling expenses if they wish to emigrate, and many 
 other good things, would be provided for them at the sole 
 expense of the unfortunate minoi'ity, who happened to 
 possess the property on which the graduated tax would 
 be imposed. If such ideas could ever be realised, the 
 possession of wealth might become a misfortune, and the 
 rich might indeed have reason to say, " Blessed are the 
 poor !" 
 
 Although Socialism, in its broader aspects, may be easily 
 detected, yet its influence is so subtle, that it often spreads 
 itself unnoticed, and it is found where least expected. 
 Many of our most popular charitable institutions exercise 
 a baneful socialistic influence, for they not only help those 
 who make no effort to help themselves, but they also 
 serve more or less to protect people against the conse- 
 quences of their improvidence and their want of self- 
 denial. Those who are engaged in works of philanthropy 
 
The KadonaUsation of the Land. 
 
 297 
 
 and charity cannot too constantly remember, that nothing 
 tends so much to perpetuate misery and to increase 
 poverty as diffusing among the people a belief that it is 
 the duty of the State to protect them from the conse- 
 quences of their own improvidence, indolence, and self- 
 indulgence. Any one "who studies the causes which are 
 chiefly instrumental in producing pauperism, and in ren- 
 dering the social condition of the people in every country 
 so unsatisfactory, must, we think, come to the conclusion 
 that, above all things, it is important to enforce the truth 
 that it is by industry and thrift alone that wealth can be 
 made and accumulated. If it can be shown that any laws 
 impede the full use and efficient application of mkn's in- 
 dustrial powers, let no effort be spared to get such laws 
 repealed or modified. It is, however, not difficult to show 
 that all the socialistic schemes now being put forward 
 possess this fatal defect, that they would spread among 
 the people the belief that they could, with comparative 
 impunity, disregard prudence, self-denial, and other most 
 essential industrial virtues. Thus, reverting to the pro- 
 posal for the nationalisation of the land, and the other 
 instruments of production, it can scarcely be denied that 
 the desire to be either a landowner, the possessor of one's 
 own house, or to become one of the proprietors of a co- 
 operative association, often produces in labourers the most 
 active industry, the most careful economy, and the most 
 admirable prudence. On the other hand, all these social 
 and industrial virtues will gradually vanish if men are 
 induced to think that, even if they are indolent, and even 
 if they gratify every passion which self-indulgence can 
 suggest, an adequate maintenance and many of the com- 
 forts of life will still be guaranteed to them either by the 
 bounty of individuals or by the State. It should never 
 be forgotten that our old Poor Law was administered with 
 so much laxity, that men were rewarded in proportion to 
 their recklessness, and the lazy pauper thus often found 
 himself better off than the hard-working labourer. So 
 much encouragement was in this way given to improvi- 
 dence and indolence, that if the system had been con- 
 tinued a few years longer England's industry would have 
 been ruined, and her finances would have become as much 
 involved as those of a bankrupt State. The realisation of 
 
298 
 
 Manual of Political Economy. 
 
 B)OE II. 
 CH. XI. 
 
 Socialists 
 evade the 
 difficulties 
 arising 
 from are 
 Increase of 
 popula- 
 tion. 
 
 the ideas of modern Socialism would vastly extend the 
 evil influence of the old Poor Law. Can it, for instance, 
 be doubted that the nationalisation of the land and the 
 other instruments of production would directly discourage 
 thrift and prudence ? A man would cease to have any 
 adequate motive to save, or to live with ordinary pru- 
 dence, if he knew that, however indolent he might be, 
 however reckless in living, and however improvident with 
 regard to marriage, the State was bound to provide him, 
 and as many children as he chose to call into the world, 
 with land, machinery, and implements, at a cheap rate, 
 with a house at a low rent, and with work at remunera- 
 tive wages. 
 
 It is to be particularly observed that in the proposals 
 for improving the condition of mankind which are from 
 time to time put forth, by far the most important consider- 
 ation is almost always kept out of view. Thus, modern 
 Socialists carefully avoid making the slightest allusion to 
 the provision which must be made for an increase of 
 population. It is easy to show that it would be not less 
 unreasonable to try to build a house without first lay- 
 ing the foundation, than it is to attempt to construct a 
 new social system without providing for an increase of 
 population. The necessity of making such a provision 
 is a stern reality which has to be faced. If it could be 
 ignored, many of the dreams of the Socialists might be 
 realised. A community might then attain exactly that 
 condition which so many seem to think most to be de- 
 sired; every man being able to marry without thought 
 of the future, wealth being so distributed that, however 
 many mouths there were to feed, there would never be 
 any lack of food. A social reformer who keeps out of 
 sight the question of an increase of population is as 
 dangerous a guide as a navigator who, steering his ship 
 without chart, is almost sure to find himself wrecked on 
 some sunken rock or hidden reef. 
 
 Impracticable as the scheme of nationalisation has been 
 shown to be, yet the insurmountable difficulties which 
 lie in its way cannot be fully appreciated until we in- 
 quire what provision would be made under such a scheme 
 for the maintenance and employment of an increased 
 population. At the present time it is known that the 
 
The Nationalisation of the Land. 
 
 299 
 
 population of this country is augmented during each ten 
 years by about fourteen per cent. At this rate of in- 
 crease, population doubles itself in about fifty years. A 
 rapid acceleration in the rate of increase of population 
 would be an inevitable result of adopting the principles of 
 Socialism. It has been shown that the leading character- 
 istic of all socialistic schemes is to lessen individual respon- 
 sibility. But if individual responsibility is lessened, and 
 if a man is able to depend more upon others and less upon 
 his own exertions for maintenance, it is obvious that he 
 will have much less reason than he has now to exercise any 
 prudence with regard to incurring the expense involved 
 in supporting a numerous family. Although, therefore, it 
 may be fairly assumed that population would be greatly 
 stimulated as a consequence of bringing any socialistic 
 scheme into operation, yet in order to avoid all risk of 
 overstating the case, it may be supposed that after the 
 land aftd the other instruments of production have been 
 nationalised, the rate of increase of population remains 
 what it is at the present, time. It is to be presumed 
 that the State, after having purchased the land and the 
 various appliances of industry, distributes them amongst 
 the people as far as possible on cheap and equitable 
 terms. Every one would thus, it is supposed, be pro- 
 ' vided for ; there would be general equality of condition ; 
 the wealthy might be less wealthy, but the poor would be 
 less poor ; and the land, instead of being portioned among 
 the few, would be divided approximately in equal shares 
 among the whole people. It may be assumed that the 
 allotment which each would thus have would be suffi- 
 cient to provide a comfortable maintenance. At the end 
 of ten years, however, there would be fourteen per cent, 
 more people in the country ; as this extra number would 
 have to be provided for, it would be necessary to make 
 another apportionment of the laad amongst the people. If 
 the land was fully occupied before, each individual's allot- 
 ment would have to be reduced by about one-seventh; 
 either this must take place, or the increased population 
 would be driven to unproductive soils which had not pre- 
 viously been regarded as worth cultivating. This would 
 be, however, the re-introduction of a system of inequality ; 
 the occupiers of the productive land would be regarded 
 
 BOOK II. 
 CH. XI. 
 
 The hear- 
 ing of the 
 increase of 
 population 
 upon the 
 nationali- 
 sation of 
 the land. 
 
300 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. XI. 
 
 as privileged persons, whereas those who were compelled 
 to obtain a maintenance from unproductive land would 
 be in the unfortunate position of outcasts. Those who 
 were placed in the advantageous position would soon 
 become wealthy ; whereas gradual impoverishment would 
 only too certainly be the lot of those who had to struggle 
 against the difficulty of cultivating a sterile soil. The 
 inequality thus commenced would rapidly increase, and 
 the difference between the rich and the poor would 
 steadily widen. At the end of fifty years the population 
 would be doubled, and the number of those to be located 
 on the land would also bp doubled. Again, in order to 
 provide for this extra population it would be necessary 
 either that they should seek subsistence from poor and 
 unoccupied soils, or the size of the original allotments 
 must be reduced one-half 
 
 It is not difficult to imagine the sense of injustice 
 which would be aroused, and the envy and discontent 
 which would be excited, the very moment men found 
 that either a part of the land which they were culti- 
 vating, or a portion of the machinery and other indus- 
 trial plant which they were using, was taken away in 
 order to make provision for an extra population. In the 
 first place, it is evident that the prudent and the im- 
 provident would receive the same treatment; the prudent 
 man would have to make the greater sacrifice, because 
 it would be said that if a person had been so provident 
 as not to incur the expenses involved in the mainten- 
 ance of a large family, he was just the very person who 
 could best afford to help those who had to support a great 
 number of children. Therefore as population increased 
 those would be expected to make the greatest sacrifice 
 who were least responsible for the increase. A heavy 
 fine would, in fact, be placed on prudence ; the injustice 
 of such a system would be so obvious as to arouse discon- 
 tent; an inevitable result, moreover, of thus rewarding 
 the improvident at the expense of the provident would be 
 to destroy the influence of all prudential motives. The 
 most effective checks upon an undue increase of popula- 
 tion would be removed, and a far greater rate of increase 
 would have to be provided for than that which has been 
 here assumed. The encouragement which would in this 
 
The Jffationalisation of the Land. 
 
 301 
 
 ■way be given to a reckless increase of population and 
 to every other form of improvidence, may be regarded 
 as the most serious evil connected with the nationalisa- 
 tion of the land, and with other popular socialistic 
 schemes. If there is one fact in reference to the social 
 condition of man which is more clearly proved than any 
 other, it is this : that without some adequate motive 
 prudence will be rarely exercised, and that if men can 
 throw upon others the responsibility of maintaining their 
 children, population will multiply with utter disregard 
 to the consequences which will result to the general well- 
 being of society. It can scarcely be denied that saving, 
 to the great majority of those who do save, involves a 
 considerable sacrifice of present enjoyment. To those 
 who are comparatively wealthy, the setting aside of a 
 portion of their incomes generally signifies nothing more 
 than abstaining from some pleasure or the relinquish- 
 ment of some luxury. But those of whom this can be 
 said represent a very small minority of a nation. By 
 " far the larger number have a hard struggle to provide 
 themselves and those who are dependent upon them with 
 a sufficient maintenance. Persons thus circumstanced can 
 rarely save without personal privation, or without adding 
 some extra toil to a life of severe labour. In such oases, 
 therefore, there is a strong temptation not to save. This 
 temptation, too often unresisted now, would seldom be 
 resisted at all if men were led to believe that either 
 through the aid of some organization, or by the inter- 
 vention of the State, the misery, the suffering, and all 
 the other misfortunes that saving averts, would without 
 its assistance be warded off. This will be the more 
 clearly seen if, for a moment, we ask — What are the 
 chief advantages which prudence now secures, and what 
 are the chief evils which it averts 1 As a first example, 
 it is scai'cely necessary to say that a man is induced to 
 «et aside a portion of his income for life insurance be- 
 cause he desires that, in the event of his death, a due 
 provision should be secured not only for his wife, but 
 also for the maintenance and education of his children. 
 All motive, however, for life insurance would, be gone, 
 and a man would feel that money spent in insurance 
 premiums was to a great extent wasted, if the State pro- 
 
 BOOK II. 
 CH. XI. 
 
 The exist- 
 ingmoth'ct 
 for pru- 
 dence 
 would be 
 weakened. 
 
302 
 
 Manual of Political Economy. 
 
 vided gratuitous maintenance and education, and at the 
 same time guaranteed a proper provision to widows whof 
 had not a sufficient income of their own. Again, it can- 
 not be doubted that nothing probably acts so powerfully 
 to promote thrift and industry as the prospect of acquir- 
 ing property. It is scarcely necessary to repeat what 
 has been so often mentioned before, about the magical 
 effect exerted upon the industrial habits of the people 
 when they have a reasonable prospect of acquiring land. 
 The industry and economy of peasant proprietors have 
 been described in a previous chapter. All such incen- 
 tives to prudence would be removed if the State, having 
 become the proprietor of all the land, was bound always 
 to let it at a very cheap rate. It is also evident that 
 the carrying-out of such a policy would inevitably de- 
 prive those institutions of their vitality which have done, 
 and are still doing, most to promote the welfare of the 
 working classes. Reference has already been made to 
 the rapid growth of building societies ; through their 
 agency tens of thousands of artisans have actually ac- 
 quired, or are in the process of acquiring as their own 
 property, the houses in which they dwell. Our best arti- 
 sans seem desirous of gratifying the honourable pride of 
 being able to call the house in which they live their 
 own. They therefore willingly set aside something out 
 of their hard-earned wages in order to subscribe to a 
 building society. The habit of saving, being thus once 
 commenced, is often continued, and those who begin by 
 subscribing to a building society, not unfrequently in the 
 end become the proprietors of a considerable amount of 
 capital invested in some flourishing cooperative associa- 
 tion. There would, however, at once cease to be any 
 advantage in belonging either to a building or to a co- 
 operative society, if the State undertook to provide all 
 applicants with cheap and wholesome dwellings, and also 
 promised to furnish capital, and other industrial appli- 
 ances, at a reasonable price, to all who might require their 
 use. The repetition of similar illustrations is, however, 
 unnecessary. Enough probably has been said to make, 
 it clear that such State intervention as is proposed by 
 the advocates of this policy of industrial nationalisation 
 would effectually neutralize the operation of the agencies 
 
The Nationalisation of the Land. 
 
 303 
 
 to which we can most confidently look for human im- 
 prpvement. It is not more but less State intervention 
 that is needed. The Legislature has conferred the most 
 indisputable benefits on the community, not by enacting 
 new laws, but by the repeal of old statutes which have 
 retarded individual energy and impeded freedom of action. 
 As long as the State attempted to regulate trade and to 
 protect industry, there was little industrial progress. 
 During the last twenty years the commerce of this coun- 
 try, released from the shackles by which, through suc- 
 cessive generations, it had been fettered, has exhibited 
 an unprecedented development. 
 
 It may not improbably be thought that as the scheme 
 of the nationalisation of the land is so imprsicticable, 
 we have in this chapter discussed it in too great detail. 
 The importance of the subject however is not to be mea- 
 sured by the probability of the scheme being adopted 
 in any country ; we have been induced to devote so much 
 attention to its consideration because it may be regarded 
 as exhibiting in a striking manner the consequences 
 which ensue if the people rely upon State intervention 
 and not \ipon self-help. In the last chapter numerous 
 examples were given of the great results which have 
 already been achieved, and of the still greater advantages 
 which may be gained in the future, by cooperative insti- 
 tutions whose essential principle is self-help. In this 
 chapter we have had occasion to describe a scheme which 
 is probably favoured more than any other by those who 
 encourage the people to rely for social and economic 
 improvements on the State rather than on themselves. 
 Amongst other consequences which it would produce, we 
 have attempted to show that it would lead to financial 
 embarrassment, that it would burden the country with 
 a heavier load of taxation, that it would foster political 
 corruption, and that it would, by lessening individual 
 responsibility, encourage improvidence. 
 
 BOOK II. 
 CH. XI. 
 
BOOK II. 
 CH. XII. 
 
 The pro- 
 duce of 
 slave culti- 
 vation is 
 divided 
 amongst 
 twoclasses. 
 
 Impor- 
 tance of 
 consider- 
 ing the eco- 
 nomical 
 effects of 
 slavery. 
 
 CHAPTER XII. 
 
 ON THE ECONOMIC ASPECTS OF SLAVEEY^ 
 
 IT has been already remarked, that when land is 'culti- 
 vated by a peasant proprietor, the entire produce 
 belongs to him, because he provides the land, labour, and 
 capital ; but this ownership of land, labour, and capital, 
 by the same individual, is also characteristic of slave 
 cultivation, for if a farmer owns slaves, they are as much 
 a part of his capital as the horses which plough his ground. 
 When land is cultivated entirely by slaves, no portion of the 
 produce is allotted to the labourers in the form of wages ; 
 slaves are not permitted to possess property, and they are 
 therefore never paid wages; they of course have to be fed, 
 and so have thfe horses which till the ground. Slaves 
 therefore should not be regarded as labourers receiving 
 wages, since they are as much a portion of the cultivator's 
 capital as any kind of stock or implements which he may 
 possess. Consequently, in slave cultivation, the produce 
 of the land has not to be distributed between rent, profits, 
 and wages ; but simply between rent and profits. 
 
 A discussion on the moral effects of slavery does not 
 properly belong to Political Economy; for this science only 
 undertakes to investigate the phenomena which concern 
 wealth. No unimportant service, however, will be rendered 
 
 1 The American civil war was at its height when this chapter was 
 written. Many of the remarks contained in it are consequently not per- 
 tinent to the present time. It is however perhaps advisable not to omit 
 the chapter. It is still useful to be reminded of the true issue of that 
 great struggle. This chapter, moreover, is chiefly based upon the specu- 
 lations of the late Professor Cairues, which afford a strildng example of 
 the sMll with which the principles of economic science can be applied to 
 render intelligible the real character of a great politioal question. ' 
 
On the Economic Aspects of Slavery. 
 
 305 
 
 to every pHlanthropist, and to every lover of freedom, if 
 the principles of Political Economy demonstrate that slave 
 labour is inefficient and uneconomical, and that it ulti- 
 mately diminishes the productiveness of the soil. If these 
 facts can be established, slavery must ultimately work its 
 awn destruction, provided that the area over which it is 
 permitted to extend can be restricted. 
 
 The economic aspects of slavery were never discussed 
 in so clear and masterly a manner as ia a work by Pro- 
 fessor Cairnes, on 'The Slave Power.' This writer has 
 most aptly said, that the labour of the slave has the three 
 following defects : — ' it is given reluctantly ; it is unskil- 
 ful ; it is wanting in versatility.' We will, therefore, in 
 the first place, explain the causes which produce, and the 
 consequences which result from, each of these defects. 
 No one can doubt that slave labour must be given re- 
 luctantly. The only object which the slave can have, is 
 to do no more work than is sufficient to prevent corporal 
 or some other kind of punishment being inflicted upon 
 him ; the slave has no more interest in the prosperity of 
 the industry in which he is employed than the mere 
 beast of burden, for, whether the crops are good or bad, 
 he must be fed. An able-bodied slave could be sold in 
 America for 2501., and therefore the self-interest of the 
 slave-owners always provided a guarantee that the phy- 
 sical comforts of a slave were not so much neglected as to 
 endanger his health. No farmer, if he were in his proper 
 senses, would ever permit a valuable horse to suffer, either 
 from ill treatment or from want of food, for if he could 
 not affijrd to keep the horse properly, it would of course 
 be better for him at once to sell it. A slave, therefore 
 has no motive to exert himself, for whether he is indus- 
 trious or not, he is sure to obtain the food and clothing 
 which his master thinks he requires. Consequently, his 
 labour is extorted from him, and he requires to be most 
 vigilantly watched. Slaves can therefore only be ad- 
 vantageously employed when the work upon which they 
 8tre engaged is such that they can be collected together 
 in gangs, for it is impossible to watch a great number of 
 workmen when they are scattered about. This considera- 
 tion suggests the reason why the only commodities which 
 have been produced on any large scale by slave labour 
 
 BOOK II. 
 
 CH. XII. 
 
 Defects of 
 slave la- 
 bour. 
 
 It is given 
 
 reluctant- 
 
 ly. 
 
 The slaves 
 must con- 
 sequently 
 be worked 
 in gangs. 
 
 F. M. 
 
 U 
 
306 
 
 Manual of Political Economy. 
 
 This deter- 
 mines the 
 products 
 wponwhich 
 slave la- 
 bour is em- 
 ploy ed,and 
 its geo- 
 graphical 
 distribu- 
 tion. 
 
 are cotton, tobacco, sugar, and rice ; for the cultivation 
 which each of these commodities requires, is charac-. 
 terised by the circumstance that a great amount of labour 
 is employed on a very small area, and the labour can 
 therefore be concentrated. Mr Olmsted, whose most 
 valuable work on 'Slavery' contains an exhaustive record 
 of facts, has calculated that one labourer will cultivate 
 ten acres of wheat, whereas one acre sown with cotton 
 requires the labour of at least ten men. A similar re- 
 mark holds true with regard to the other products, namely, 
 tobacco, sugar, and rice, which are cultivated by slave 
 labour. This necessity of working slaves in gangs, in 
 order that they may be vigilantly watched, was strikingly 
 exemplified by the geographical distribution of slavery in 
 America; for there was nothing in the original constitu- 
 tion of the states which composed the Federal Union that 
 satisfactorily accounted for the fact, that the North was 
 cultivated by free labour, whereas the South was culti- 
 vated almost entirely by slave labour. It was sometimes 
 hastily concluded, that Europeans could not work in the 
 South, but this was an entire mistake; many of the 
 Southern States, such as Virginia, have a climate quite 
 as well adapted to Europeans as many of the free States 
 of the "West, such as Wisconsin. The boundaries of 
 slavery were not determined by climate, but by the 
 nature of the products which the soil was best fitted to 
 grow. If corn were grown by slave labour, this labour 
 would be inefficient, because it could not be sufficiently 
 concentrated to be adequately watched ; hence slave la- 
 bour becomes more expensive than free labour, and there- 
 fore cannot compete against it, when such a commodity 
 as corn is grown. This conclusion was corroborated in 
 a very remarkable manner, for some parts of the Southern 
 States, such as the slopes of the AUeghanies, are well 
 adapted to grow corn, and the other commodities which 
 formed the staple products of the North. It is a most 
 instructive fact, that these particular localities, although 
 in slave states, and surrounded with slavery, were inva- 
 riably cultivated by free labour. It was therefore proved 
 that slave labour, because it was reluctantly given, must 
 be most carefully watched ; and unless this can be' done 
 the labour of the slave becomes so inefficient that it is 
 
On the Economic Aspects of Slavery. 
 
 307 
 
 far more expensive than hired labour, even in those coun- 
 tries, such as America, where high wages prevail. 
 
 Unskilfulness is the second defect which belongs to slave 
 labour, and in fact this defect is an inevitable consequence 
 of the first defect, because, when labour is reluctantly 
 given, it is sure to be deficient in skill. If the slave has 
 no motive to put forth his physical energies, he certainly 
 has no greater inducement to apply his mental faculties 
 in order to acquire skill and dexterity; his position would 
 in no way be improved, even if he were to show that he 
 was a more valuable workman than his fellows. He must 
 be fed, and so must they ; and the fact that his price would 
 be advanced in the slave market by an increase of skill, 
 is a matter of no consequence whatever to himself. The 
 more a slave shows that he is capable of doing, the greater 
 is the amount of work which will be extorted from him, 
 and for this extra exertion he receives no additional re- 
 ward whatever. It is therefore for the interest of the 
 slave to disguise as far as possible from his master the 
 amount and the kind of work which he can really perform; 
 a heavy discouragement is consequently thrown in the 
 way of the least mental effort, and slave labour must 
 always be most unskilful. These conclusions can be cor- 
 roborated by specific facts, for it has never even been 
 proposed to employ slave labour either in manufacturing, 
 or any other industry which requires skill on the part of 
 the labourer. We will once more refer to Mr Olmsted, 
 for from personal observation he gives direct testimony 
 with regard to the unskilfulness of slave labour; thus, he 
 says that the negro slave is entirely unfit to be trusted 
 with machinery; if he has placed in his hands any but 
 the rudest tools, he is sure to break them. Mr Olmsted 
 affirms that the slave owners of Virginia found it more 
 economical to use implements so heavy and clumsy that 
 it increased the cost of performing work at least ten per 
 cent., simply because they were not so liable to be injured 
 or broken. He also mentions the very curious fact, that 
 mules were almost invariably employed in the Southern 
 States, instead of horses, because the slaves were sure to 
 neglect or ill-use any animals which they had in charge ; 
 the mule being a hardier animal than the horse, was con- 
 sequently not so liable to be injured by the want of 
 
 U2 
 
 BOOK ll. 
 CH. XII. 
 
 Slave la- 
 bour is un- 
 skilful. 
 
 Facts 
 which con- 
 firm this 
 proposi- 
 tion. 
 
3o8 
 
 Manual of Political Economy. 
 
 BOOK II. 
 CH. XII. 
 
 Slave la- 
 bour is 
 wanting in 
 versatility. 
 
 The expla- 
 nation of 
 these pecu- 
 liarities of 
 slave la- 
 bour by the 
 race of the 
 slaves is 
 untenable. 
 
 proper treatment. These facts, and others which might 
 be enumerated, clearly prove that no skilled industry can 
 ever be successfully carried on bj' slave labour. 
 
 The third defect of slave labour, namely, want of versa- 
 tility, is due to the same causes as those which produce 
 the other two defects which we have already discussed ; 
 for labour which is given reluctantly, and is unskilful, 
 cannot possibly display any versatility. A labourer must 
 possess considerable intelligence if he is able efficiently 
 to perform several different kinds of work. Such intelli- 
 gence, however, is sure never to be displayed by the slave ; 
 for if he only shows that he is able to do some additional 
 kind of work, extra labour will probably be forced upon 
 him, and therefore he rather loses than gains by acquiring 
 versatility. Hence it is natural that slaves should show a 
 great disinclination to be taught any new kind of work ; 
 upon this point Professor Cairnes has said, ' The difficulty 
 of teaching the slave any thing is so great, that the only 
 chance of turning his labour to profit is, when he has 
 once learned a lesson, to keep him to that lesson for life. 
 Where slaves, therefore, are employed there can be no 
 variety of production. If tobacco be cultivated, tobacco 
 becomes the sole staple, and tobacco is produced whatever 
 be the state of the market, and whatever the condition of 
 the soil.' 
 
 Before proceeding to describe some important conse- 
 quences which result from the defects in slave labour just 
 enumerated, it will be advisable to anticipate a remark 
 which may very probably be made. Some of our readers 
 nfky say, Although it is true that the negro slave labour 
 possesses all the defects which are here ascribed to it, yet 
 these defects are inherent in the negro race, and do not 
 necessarily form a part of the institution of slavery. The 
 history of ancient countries no doubt gives some support 
 to this opinion. When Greece was in her greatest glory, 
 a considerable portion of her skilled industry was per- 
 formed by slaves; they constructed buildings and other 
 works which never have been surpassed in artistic beauty. 
 But the social position of the Athenian slave in no respect 
 resembled the position formerly occupied by the slaves in 
 the United States. Even many Americans who did not live 
 in the slave States despised the negro as a being degraded 
 
On the Economic Aspects of Slavery. 
 
 309 
 
 by inferiority of race, and considered that his colour made 
 him a permanent outcast. But the Greek slave was 
 generally a captive obtained in war; perhaps he was 
 respected for the courage he had shown on the battle- 
 field ; he very possibly belonged to a race whom the 
 Greeks scarcely regarded as their inferiors. The Greek 
 slave had certain rights of property secured to him, and 
 he always had a definite hope that he should be able, 
 by his own exertions, honourably to emancipate himself. 
 His industrial energy therefore, instead of being com- 
 pletely destroyed, was powerfully stimulated, and, unlike 
 the negro slave, whose interest it was to be unskilful, he 
 had every motive to exert himself to the utmost. There 
 is therefore no parallel whatever between the condition 
 of the Greek and that of the negro slave. Our previous 
 conclusions are consequently not in the least degree 
 shaken; for if slaves are as completely deprived of every 
 human right as they were in America, we may be quite 
 sure that their labour must exhibit all the defects which 
 have been attributed to it, whatever may be the race to 
 which the slave may happen to belong. From these 
 defects in slave labour some very important consequences 
 result. 
 
 It has already been stated, that the slave is wanting in 
 so many of those qualities which make labour efficient, 
 that there are very few branches of industry which can be 
 successfully carried on by slave labour. For instance, 
 corn, and the various other products of European agricul- 
 ture, are never grown by slave labour. Slaves are never 
 employed in manufacturing industry, because they cannot 
 be entrusted with machinery; in fact, slave labour may be 
 said only to produce four commodities, viz. cotton, sugar, 
 tobacco, and rice. If any other kind of industry is at- 
 tempted, slave labour is sure to be supplanted by free 
 labour, because the superior efficiency of the latter makes 
 it more economical. But although the four products just 
 enumerated can be profitably cultivated by slave labour, 
 profit even in this case cannot be obtained unless certain 
 conditions are fulfilled. It is, in the first place, evident 
 that the unskilfulness and general inefficiency of slave 
 labour causes it to be extremely wasteful and careless. 
 The cultivation of the land with such labour must inevit- 
 
 BOOK II. 
 OH. Xlt. 
 
 Slave la- 
 bour is only 
 applicable 
 to a few 
 commodi- 
 ties. , 
 
310 
 
 Manual of Political Economy. 
 
 It there- 
 fore tends 
 to exhaust 
 the soil. 
 
 Evidence 
 of Mr Clay. 
 
 lixplanc - 
 tion of tl e 
 policy of 
 the Sovkl . 
 
 ably be slovenly, and consequently the land is gradually 
 impoverished. Moreover, there is another circumstance 
 ■which tends to impoverish the land when it is cultivated 
 by slaves ; for able-bodied slaves were, previous to the 
 civil war, worth no less than 250Z. in the American 
 markets. Hence a planter required a capital of 25,000Z. 
 in order to purchase 100 slaves. The greater part of the 
 planter's capital was probably absorbed in obtaining slaves, 
 and he therefore had little to spare for carrying out im- 
 provements in his land. Hence slave cultivation gradually 
 exhausted the soil, and it therefore became all-important 
 to the slave owners that they should be able to obtain 
 fresh soils of virgin fertility. The highest authorities, 
 many of them slave owners themselves, agreed with per- 
 fect unanimity as to the exhaustive nature of slave culti- 
 vation. We will quote the very remarkable testimony of 
 the Hon. C. Clay, who was moreover a native of the 
 South, and an advocate of slavery. He said, 'I can show 
 you with sorrow, in the older portions of Alabama, and 
 in my native county of Madison, the sad memorials of 
 the artless and exhausting culture of cotton.' He then 
 stated that the majority of the planters had not sufficient 
 means to improve their land, either by rest or by the 
 application of manures, and that they consequently moved 
 farther West, or South, in search of virgin soils, which 
 were impoverished in their turn ; and he then proceeded 
 emphatically to affirm, that 'a country in its infancy, where 
 fifty years ago scarce a forest-tree had been felled by 
 the axe of the pioneer, is already exhibiting the painful 
 signs of senility and decay apparent in Virginia and the 
 Carolinas ; the freshness of its agricultural glory is gone, 
 the vigour of its growth is extinct, and the spirit of 
 desolation seems brooding over it.' These most sugges- 
 tive remarks of Mr Clay might be easily corroborated 
 by a grea;t mass of similar evidence. It may therefore 
 be regarded as conclusively proved, that slave cultivation 
 cannot continue to be profitable unless the slave-holders 
 have at their command an abundant supply of fertile 
 virgin soils. This suggests an explanation of the policy 
 which was for many years pursued by the Southern States 
 of America; for they ceaselessly directed their efforts to 
 bring new and unoccupied territories under the dominion 
 
On the Economic Aspects of Slavery. 
 
 311 
 
 of slave institutions. Texas was unjustly seized from 
 Mexico, and yet its soil was not immediately wanted, for 
 after its annexation comparatively few slaves were located 
 there. The South, however, fully recognised the future 
 importance of acquiring this vast area of fertile and un- 
 occupied land. Similar motives induced the South to 
 strain every effort to obtain possession of Kansas. At 
 the commencement of the civil war in America, it was 
 uncertain whether the issue involved was the immediate 
 abolition of slavery. It was however foreseen by those, 
 most fitted to form an opinion, that the result of the war 
 would determine the great question — Shall the limits 
 of slavery be indefinitely extended ? As the struggle pro- 
 ceeded it was also foreseen that not only the extension 
 of slavery, but also its existence as an institution, were at 
 stake. This prediction was justified by the events, for' 
 happily for America and for mankind, the North tri- 
 umphed, and slavery was for ever banished from the 
 United States. It now only lingers as a recognized in- 
 stitution in Brazil and Cuba. 
 
BOOK III. 
 EXCHANGE. 
 
CHAPTER I. 
 
 ON VALUE AND PRICE. 
 
 THE subject of exchange is so intimately connected witb 
 every question of political economy, that many writers 
 on this science consider that the production and distribu- 
 tion of wealth cannot be understood without previously 
 ascertaining the laws of exchange. There is reason for 
 this opinion, because it is quite true that many com- 
 modities are only produced to be exchanged for other 
 commodities, and the digtribution of wealth of course im- 
 plies the exchange of wealth. We believe, however, that 
 clearness of conception is obtained by the arrangement 
 adopted in this work, for the laws of the production and 
 distribution of wealth have been discussed, without an- 
 ticipating any of the laws of exchange, which will now be 
 BKplaiaed. 
 
 The words value and price have already been occasion- 
 ally employed without receiving any precise definition. 
 Before investigating the laws of exchange, it is most im- 
 portant to define these words accurately; for many of 
 the most wide-spread errors with regard to economic 
 science arise from confusing the words value and price. 
 The difference in their meaning will be best marked by 
 an illustration. If a sack of wheat exchanges for a ton of 
 coal, or if, in other words, a person who possesses a sack 
 of wheat can obtain a ton of coal in exchange for it, then 
 a ton of coal is the value of a sack of wheat ; or, em- 
 ploying more popular phraseology, a sack of wheat is 
 worth a ton of coal. It therefore appears that value 
 implies the comparison of one commodity with another; 
 for a sack of wheat has some particular value with 
 
 Reasons 
 for not 
 previously 
 comider- 
 ing vahir. 
 
 Distinc- 
 tion be- 
 tween 
 value and 
 price. 
 
3i6 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. I. 
 
 A general 
 rise or fall 
 of value is 
 impossible. 
 
 Price is 
 value esti- 
 mated in 
 the metals 
 used as 
 money. 
 
 regard to every commodity for which it can be ex- 
 changed. If a sack of wheat could be exchanged for six 
 pounds of tea, then six pounds of tea would be the value 
 of a sack of wheat, when estimated in this particular 
 manner. Value, therefore, is a relative expression; for 
 instance, if the value of wheat compared with any par- 
 ticular article falls to a certain amount, there must be a 
 corresponding rise in the value of this commodity, com- 
 pared with wheat ; for if wheat declines in value, so that 
 it will only exchange for half as much tea, then tea must 
 manifestly rise in value, since it will now exchange for 
 twice as much wheat. When, therefore, the general value 
 of a commodity declines, less of every commodity can be 
 obtained for it in exchange ; but if this be so, the value of 
 all these commodities must rise when compared with the 
 particular commodity in the value of which it has been 
 supposed a decline has taken place. These considera- 
 tions demonstrate the erroneous nature of a statement 
 not unfrequently made, that there is a general rise or fall 
 in the value of all commodities. This is as impossible a« 
 it would be for each one of six rowers to row faster or 
 slower than the other five. A. cannot row faster than hia 
 five companions, except by each of these rowing slower 
 than A. In a similar manner value is a relative expression, 
 and essentially implies comparison. It is quite impossible 
 that there should be a general rise of values, for if there is 
 a rise in the value of one commodity, there must be a fall 
 in the value of all the commodities with which this one is 
 compared. All that is here stated may appear so simple, 
 that it will perhaps be supposed that time is being wasted 
 in explaining self-evident truths. These truths however 
 are by no means self-evident when involved in the en- 
 tanglement of more complicated propositions. A shade of 
 error has been cast over the writings of some eminent 
 political economists because they have neglected to keep 
 steadily in view the correct meaning of the word value. 
 
 Price is a particular case of value. If the value of a 
 commodity is estimated by comparing it with those pre- 
 cious metals which civilised countries employ as money, 
 then it is said that the price, and not the value of a com- 
 modity, is ascertained. If a sack of wheat is exchanged 
 for a quantity of gold, termed a pound sterling, it would 
 
On Value and Price. 
 
 317 
 
 be perfectly correct to say that the value of a sack of 
 wheat, estimated in gold, is one pound sterling; but, for 
 reasons >vhich will be afterwards explained, it is found 
 convenient to single out this case of value from every 
 other, and consequently it receives a particular name, for 
 it is not termed value, but price. The price of a com- 
 modity may therefore be defined as its value, when esti- 
 mated by comparison with those precious metals which 
 by general consent have been adopted as money. Al- 
 though there cannot be a general rise or fall in values, 
 there can be a general rise or fall in prices. If the pre- 
 cious metals become much more plentiful, their value 
 compared with all other commodities declines; since a 
 certain quantity of gold or silver will exchange for a 
 diminished quantity of all other commodities. If the 
 value of the precious metals, compared with other commo- 
 dities, is diminished, the value of all other commodities, 
 compared with the precious metals, must be increased; 
 but, as before stated, the value implied in this latter com- 
 parison is termed price, and consequently the price of all 
 commodities will be increased. 
 
 In political economy a system of propositions may be 
 enunciated, which treat of the value of commodities, and 
 not of their price. This course is usually adopted, but 
 it only adds to the difficulty of the subject, without at- 
 taining any practical object of utility ; for none of the 
 transactions of trade and commerce in civilised countries 
 are ever arranged without the machinery of a monetary 
 standard. Money has aptly been described as the uiii- 
 versal medium of exchange. If it is desired to ascertain 
 how much of one commodity another will exchange for, 
 the calculation is always made in money; the prices of the 
 commodities, and not their values, are considered. If for 
 instance, a person who possessed wheat desired to pur- 
 diase coal, it would be important for him to estimate the 
 value of wheat compai'ed with coal ; but he would not 
 attempt to do this by actually bartering away his wheat 
 for coal; such bartering would be cumbrous and expensive. 
 All that it would be necessary for him to do would be to 
 ascertain how much money his lyheat would exchange 
 for. When he thus knew the price of a sack of wheat, 
 and also the price of a ton of coal, the value of wheat 
 
 BOOK m. 
 
 OH. I. 
 
 Eeasons 
 for con- 
 sidering 
 price in- 
 stead of 
 value in 
 this trea- 
 tise. 
 
3i8 
 
 Manual of Political Economy. 
 
 Ordinary 
 method of 
 political 
 econo- 
 mists. 
 
 estimated in coal would be immediately known, because 
 the quantity of coal for which a certain quantity of wheat 
 would exchange would be accurately ascertained. 
 
 As therefore, in practice, questions of value involve a 
 comparison of prices, our investigations will be simplified 
 if the laws regulating the price of commodities are con- 
 sidered, without attempting to establish propositions with 
 regard to the values of commodities. But iintil the func- 
 tions of money are explained it will be necessary carefully 
 to bear in mind that a certain assumption is made in 
 all the investigations which involve the consideration of 
 price. The assumption is this ; that when the price of a 
 commodity varies, the variation is always supposed to be 
 produced by something which affects the value of the 
 commodity, and not the value of the precious metals. 
 We will endeavour to explain our meaning still further, 
 by an illustration. Suppose it is observed that the price 
 of wheat rises ; this rise in the price of wheat may be due 
 to two very distinct causes. In the one case, wheat may 
 become scarcer, and therefore dearer; in the other case, 
 wheat in common with every other commodity may rise 
 in price, in consequence of new discoveries of the precious 
 metals, such as those made in Australia and California, 
 during the last few years. In the following chapters, 
 therefore, which precede the discussion of the theory of 
 money, the assumption is made that variations in price 
 are not caused by an alteration in the value of the 
 precious metals. 
 
 We shall 
 assume at 
 present 
 that the 
 value of 
 the preci- 
 ous metals 
 is not af- 
 fected by 
 any change 
 in the 
 mines. 
 
CHAPTER II. 
 
 ON THE CAUSES WHICH REGULATE THE PRICE OF 
 COMMODITIES. 
 
 THE commodities which compose the wealth of a nation 
 may be divided into three classes; and the manner in 
 which the price of any particular commodity is regulated 
 depends upon the class or division to which the commo- 
 dity belongs.- The three classes may be characterised as 
 follows : — 
 
 1st. Some commodities are absolutely limited- in quan- 
 tity; however great the demand may be for them, it is 
 impossible to increase their supply. Only a certain num- 
 ber of sculptures and paintings by ancient masters are 
 extant, and no efforts can increase their number. Again, 
 if some particular site is thought desirable for a house, 
 the number of houses which can be built upon this 
 site cannot exceed a certain limit. Thus, the shops in a 
 thoroughfare such as the Strand, or Fleet Street, cannot 
 exceed a certain number ; articles of vertu, curiosities and 
 antiquities, which are prized because some particular as- 
 sociations are attached to them, are in a certain degree 
 fixed in quantity. There may thus be perhaps half a 
 dozen very rare coins in the cabinets of collectors, and no 
 one can feel certain that another of these coins will ever 
 be discovered. 
 
 2nd. Some commodities can be increased in quantity, 
 without any practical limit, but if their supply is in- 
 creased their production will require a greater proportional 
 expenditure of labour and capital, and therefore these 
 commodities have a constant tendency to become more 
 expensive, as the demand for them augments. We have 
 already remarked that this character peculiarly belongs to 
 
 BOOK III. 
 CH. II. 
 
 Three 
 classes of 
 commodi- 
 ties. 
 
 Those 
 which aire 
 absolutely 
 limited in 
 quantity. 
 
 Those of 
 which the 
 supply 
 may be 
 increased 
 by greater 
 proportion- 
 al labour. 
 
320 
 
 Manual of Political Economy. 
 
 BOOK III. 
 
 CH. II. 
 
 Those 
 which may 
 be indefi- 
 nitely in- 
 creased at 
 the same 
 rate of la- 
 hour. 
 
 Laws 
 which 
 regulate 
 the price 
 of these 
 classes. 
 Example 
 of the first 
 class. 
 The price 
 of a pic- 
 ture by a 
 deceased 
 artist. 
 
 agricultural produce. If there is an increase in the de- 
 mand for agricultural produce, it becomes necessary to 
 resort to less productive land, which cannot be cultivated 
 without a greater expenditure of labour and capital in 
 proportion to the produce which is raised from it. Many 
 of the most important speculations of economic science, 
 for instance Eicardo's theory of rent, depend upon the 
 tendency whieh agricultural produce has to become more 
 expensive, as the demand for it increases. 
 
 3rd. Some commodities can be increased to a practi- 
 cally unlimited extent without increasing their cost. Ma- 
 nufactured goods may be placed in this class; for although 
 the cost of the raw material will, like the cost of agricul- 
 tural produce, increase as the demand for it is augmented, 
 yet the increase of cost which is thus produced may be 
 almost neglected, because it bears such a small proportion 
 to the whole cost of the manufactured article. Other 
 articles, such as household furniture and wearing apparel, 
 may be placed in this third class. There is no reason why 
 shoes, for instance, should become scarcer because there is 
 a greater demand for them ; there could be no difficulty 
 in supplying any number of shoes for which there may be 
 a demand. 
 
 Very different laws regulate the price, and therefore the 
 value of a commodity, according to the particular class to 
 which it belongs. We will commence by considering the 
 commodities included in the first class. 
 
 The works of a deceased artist have already been stated 
 to be included in this class. Let us enquire what deter- 
 mines the price of one of Turner's pictures. The price is 
 usually supposed to be regulated by demand and supply; 
 but the words ' demand and supply ' appear to be a never- 
 failing recipe for solving every economic difficulty ; popu- 
 lar writers and popular speakers seem to think that an 
 explanation based upon demand and supply must be not 
 only very satisfactory, but also extremely scientific. The 
 expression 'demand and supply' too often conveys as little 
 meaning to those who use it as to those to whom it is 
 addressed. If the question were asked, what regulates 
 the price of Turner's pictures, the reply would not impro- 
 bably be made that the price is regulated by the ratio 
 which exists between the supply of these pictures and the 
 
The Causes which regulate the Price of Commodities. 
 
 321 
 
 demand for them. It surely must be erroneous to speak of 
 a ratio between demand and supply : there cannot be such 
 a ratio, for supply in this case means a certain number of 
 pictures, and demand in this case signifies a desire to pos- 
 sess a picture. It is therefore absurd to attempt to esta- 
 blish a ratio between a picture and a desire to possess it. 
 A ratio can only exist when the two things compared are 
 of the same kind. Demand is an indefinite expression; 
 every educated person would like to possess a picture by 
 Turner, and therefore in this sense the demand is almost 
 universal ; but the universality of such a demand cannot 
 produce much effect in determining the price of a picture ; 
 every beggar would like to have a diamond, but a jeweller 
 does not for this reason obtain a higher price for diamonds. 
 This obvious ambiguity with regard to the meaning of the 
 word demand has suggested to political economists the use 
 of the term ' effectual demand.' It is intended to denote 
 by this expression the demand which is exerted by those 
 who are not merely desirous to possess some particular 
 commodity, but who also have the requisite means to pur- 
 chase it. This demand is the only one which can be ef- 
 fectual in producing any influence on prices. Although 
 the employment of the words 'effectual demand' recog- 
 nises a real diffictilty, yet the difficulty itself continues to 
 remain Tmsolved, for it cannot be said that the price of an 
 article is regulated by the effectual demand for it, since a 
 moment's consideration will clearly show that the effectual 
 demand for an article varies with and depends upon its 
 price. If Turner's pictures could be purchased at ten 
 guineas each, there would be a much greater demand for 
 them than if the same pictures realised a hundred guineas 
 each. The effectual demand, therefore, varies with the 
 price; an adjustment takes place, the price ultimately 
 being such that the effectual demand which results from 
 it will be satisfied by the supply of the article in question. 
 If one of Turner's pictures were to be sold, and three indi- 
 viduals, namely A, B, C, were each willing to give 1,000 
 o-uineas for it, the effectual demand for this picture, when 
 its price is 1,000 guineas, would be manifestly greater 
 than the supply ; for at this price three persons have a de- 
 mand for one article. If A and B are each willing to give 
 1,500 guineas for this picture, but will not give so 
 F. M. X. 
 
 BOOK III. 
 
 ce. II. 
 
 The state- 
 ment that 
 it is deter- 
 mined by 
 the ratio of 
 supply and 
 demand is 
 inaccu- 
 rate. 
 
 Meaning 
 of the term 
 'effectual 
 demand.' 
 
 Nature of 
 the adjust- 
 ment be- 
 tween sup- 
 ply and 
 demand 
 which ac- 
 tually 
 tajces 
 place. 
 
322 
 
 Mcmual of Political Economy. 
 
 BOOK III. 
 CH. II. 
 
 Higgling 
 of the 
 market. 
 
 Tlie notion 
 of 'ratio' 
 hetweende- 
 mand and 
 supply 
 must be 
 discarded. 
 
 A further 
 analysis is 
 necessary. 
 
 The two 
 elements oj 
 value. 
 
 much, the effectual demand for this picture, when its 
 price is 1,500 guineas, still exceeds the supply. Again, 
 suppose that A is willing to give 2,000 guineas for the 
 picture, but that B will not give more than 1,900; the 
 price at which the effectual demand will equal the supply 
 may then be any amount between 1,900 and 2,000 guineas. 
 The price, however, which this picture might actually 
 realise depends upon what has been aptly termed by 
 Adam Smith the higgling of the market. Since B is wil- 
 ling to give 1,900 guineas for the picture, but no more ; 
 and since A will not purchase it at a higher price than 
 2,000 guineas, the picture must consequently sell at some 
 price between 1,900 and 2,000 guineas. If A had certain 
 knowledge that B would not give for the picture more 
 than 1,900 guineas, A would probably offer to purchase it 
 at a price slightly exceeding this, and at this price he 
 would no doubt obtain the picture. If, however, the 
 owner of the picture knew that A would give 2,000 
 guineas for it, rather than not possess it, he might pre- 
 tend to hesitate about selling the picture to A, and might 
 ultimately succeed in inducing A to offer 2,000 guineas. 
 Demand and supply, therefore, determine within very nar- 
 row limits the price of all those commodities which may 
 be classed under our first division. The price which is 
 actually realised oscillates between these narrow limits, 
 according as the vendor or purchaser has the most skill 
 and knowledge of trading operations. Hence it appears 
 that the price of all those articles which are classed under 
 our first division are regulated, not by a ratio between the 
 demand and the supply, but by an equalisation of the de- 
 mand to the supply. The notion of a ratio ought there- 
 fore to be discarded, since it is not a ratio, but an 
 equation. 
 
 A further question may now arise. Why should A be 
 willing to give 2,000 guineas for a picture, which B will 
 not purchase at a greater price than 1,900 guineas, and for 
 which G will not bid more than 1,000 guineas ? A, it is 
 said, considers the picture worth 2,000 guineas ; but this 
 is not a sufficient explanation. Why does he place this 
 particular value upon the picture, whereas B and C place 
 a less value upon it ? A further analysis is consequently 
 required. Value is composed of two elements, and these 
 
The Causes lohich regulate the Price of Commodities. 
 
 323 
 
 two elements respectively arise, firstly from the use which 
 the individual may have for the article, and secondly, from 
 the difficulty he may have in obtaining it. These two ele- 
 ments, which are the components of value, may be symbo- 
 lised by the letters U and D. U is supposed to signify 
 value as depending upon utility, and D signifies value as 
 depending on the difficulty of attainment ; both of these 
 elements must always be present whenever an article has 
 an exchange value. No commodity can be more essen- 
 tially useful than water, yet water has never any exchange 
 value, unless there is some difficulty in obtaining it. It is 
 true that in large towns water has an exchange value, and 
 it is consequently sold at a certain definite price ; in this 
 ease, however, the element D is present, for in large towns 
 there is a difficulty in obtaining water ; the spontaneous 
 supply which nature provides soon becomes exhausted, 
 and water has at a considerable outlay to be brought 
 from a distance. On the other hand, no article can ob- 
 tain exchange value unless the element U is present; 
 since difficulty of attainment will not make an article 
 valuable, unless it either can serve some practical use 
 or gratify some desire. A precious stone, such as a ruby, 
 is prized as an ornament ; it therefore has its use, because 
 it serves to gratify a desire. It is generally said that 
 rubies are very valuable, because they are so very difficult 
 to obtain ; but if, in consequence of a change in fashion 
 or taste, they should ever cease to be prized as ornaments, 
 they will then have no value at all, although it might be 
 just as difficult to find a ruby as before. Both the ele- 
 ments U and D must therefore coexist in every article 
 which hag exchange value, for an article, however difficult 
 to obtain, can have no value unless it is capable either of 
 supplying some want, or gratifying some desire; on the 
 other hand, no article can possess exchange value, if it 
 can be obtained without difficulty, although the article 
 may be of prime necessity. 
 
 It is not possible beforehand to predicate in what pro- 
 portion the two elements U and D may combine to form 
 the value or price of any particular commodity. In almost 
 every case the price at which an individual purchases 
 a commodity represents in value only a very small por- 
 tion of the use or advantage which the possession of -the 
 
 X2 
 
 BOOK III. 
 CH. II. 
 
 Absolute 
 utility and 
 difficulty 
 of attain- 
 ment. 
 
 The first 
 exempli- 
 fied in the 
 case of 
 water. 
 
 The second 
 in the case 
 of precious 
 stones. 
 
 The price 
 may be de- 
 termined 
 by either 
 or both of 
 these ele- 
 ments. 
 
324 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. II. 
 
 The utilivj 
 can he the 
 sole cle- 
 ment ope- 
 rative, 
 only when 
 the supply 
 is abso- 
 lutely 
 limited. 
 
 Exempli- 
 fied by the 
 former in- 
 stance. 
 
 article confers upon the individual who purchases it. A 
 person buys a coat for three pounds, because at this 
 price a coat of the quality he requires is offered to him ; 
 but three pounds does not represent the use -which the 
 person who purchases the coat derives from it, for if he 
 had the money be would no doubt give thirty guineas, 
 rather than be without a coat ; therefore, in this case, the 
 element U only exerts a small portion of its whole force 
 in determining the price of a coat. The price is in this 
 case almost entirely regulated by D, or, in other words, by 
 the difficulty of obtaining the coat. As, however, before 
 remarked, IJ, although only partially operative, can never 
 be entirely absent. 
 
 The example just quoted illustrates the manner in 
 which the two elements U and D combine to produce 
 the price of a commodity. U is in fact almost invariably 
 only partially operative ; this is the general rule, for the 
 case may be regarded as a very rare exception when U as 
 well as I) both exert their full influence upon the price of 
 an article. When such a case does occur, the purchaser of 
 a commodity is guided, in the price which he offers for it, 
 solely and entirely by the consideration of the use he 
 expects to derive from the article. This can only happen 
 when the supply of a commodity is absolutely limited. 
 To explain this still further, let us revert to our original 
 example, which supposes that three persons, A, B and C, 
 are each anxious to purchase some particular picture by 
 Turner; C will not give more than 1,.500 guineas for it, 
 B not more than 1,900, and A ultimately purchases it at a 
 price between 1,900 and 2,000 guineas. With regard to 
 C and B, 1,500 guineas and 1,900 guineas represent the 
 value in use, which G and B respectively place upon the 
 picture. This, therefore, is the monetary value of the 
 element U, according to the individual opinion of C and 
 B. In As estimation, the value of the element U is 
 greater, for to him the picture has a value of 2,000 
 guineas. As before remarked, the price which the pic- 
 ture actually realises will he some amount between 1,900 
 and 2,000 guineas, because if the price sank below the 
 inferior limit there would be a greater demand for the 
 picture than the supply ; if the price exceeded the supe- 
 rior limit the demand would entirely cease, because this 
 
The Causes which regulate the Price of Commodities. 
 
 325 
 
 superior limit denotes the greatest value in use placed 
 vipon the picture by the person who is most anxious to 
 possess it. To recapitulate, therefore, it may be stated, 
 that the following principle regulates the price of all 
 those commodities whose supply is absolutely limited. 
 The demand depends upon the price ; the price must be 
 such that the demand will exactly equal the supply. 
 
 The value in use which an individual may happen 
 to set upon some particular article is the result of 
 various motives, which it is almost impossible to analyse. 
 Thus to one individual. A, the value in use of one of 
 Turner's pictures is 2,000 guineas, for A would rather 
 give this sum than be without the picture. To B, how- 
 ever, the value in use of the same picture is only 1,900 
 guineas. It is quite evident that various motives may 
 induce a greater value in use to be attributed to' this 
 picture by A than by B>; A may be a wealthier man 
 than B, and money may consequently not be of so m-uch 
 importance to him. A may perhaps also have a superior 
 taste for art, which makes his appreciation of a painting 
 greater than that of B. A may also be influenced by a 
 hope of fiiture gain, since he may expect to I'ealise con- 
 siderable- sums by granting permission to have the pic- 
 ture engrart^ed, or he may think that after a few years 
 have elapsed the demand for the works of the particular 
 artist may so. increase as greatly to enhance- the value of 
 the picture. In every case, a great variety of motives 
 operate upon different individuals in determining the value 
 in use which each may place upon any particular article. 
 
 The articles, the supply of which is absolutely limited, 
 are so few in- number, that it may be thought that the 
 above example has been too minutely investigated. It is, 
 however, somewhat curious- that those principles of eco- 
 nomic science which are apparently the most simple- are 
 usually treated with the greatest obscurity. With few 
 exceptions, political economists hante failed clearly to ex- 
 plain the principles which regulate the price of such a 
 commodity as the one j ust considered. 
 
 In the succeeding chapter the causes will be analysed 
 which determine the price of those commodities comprised 
 in the second of the three classes previously enumerated 
 at the commensement of this chapter. 
 
 BOOK III. 
 CH. II. 
 
 Value in 
 use cannot 
 be ana- 
 lysed. 
 
 The value 
 of the class 
 of articles 
 absolutely 
 limited is 
 often ob- 
 scurely ex- 
 plained. 
 
BOOK III. 
 
 CH. III. 
 
 Agricultu- 
 ral pro- 
 duce is 
 subject to 
 consider- 
 able fluc- 
 tuations 
 in price. 
 
 Determi- 
 nation of 
 the ordi- 
 nary pro- 
 fits of 
 farming. 
 
 CHAPTER III. 
 
 ON THE PRICE OF AGRICULTUEAl AND MINERAL 
 PRODUCE. 
 
 IT is desirable to devote a separate chapter to the 
 consideration of the laws which determine the price 
 of agricultural produce. In all questions relating to price, 
 a broad distinction must be drawn between agricultural 
 and manufactured produce. As previously stated, an 
 increase in the demand for the former usually causes an 
 advance in price : whereas the supply of manufactured 
 commodities can be, as a general rule, increased without 
 producing any material advance in their price. 
 
 Many causes make the price of agricultural produce 
 vary from year to year. Our corn markets are influenced 
 not only by the productiveness of the last harvest, and 
 by the prospects of the next, but they are also sensibly 
 affected by the good or bad crops of other countries. 
 Since so many circumstances cause a great fluctuation 
 in price, it may perhaps appear impossible to establish 
 any general laws with regard to the price of agricultural 
 produce. It will however be shown that the variations 
 in the price of such produce, though constant and great, 
 obey certain laws with strict regularity. 
 
 No farmer will rent land unless he believes that the 
 price which the produce realises will, on the average of 
 years, suffice to pay his rent and all the expenses of culti- 
 vation; a surplus must also remain adequate to remu- 
 nerate him, not only for the capital he has invested in the 
 business, but also for his own labour of superintendence. 
 When the farmer is fairly remunerated for his labour and 
 capit^il he may be considered to realise the ordinary profits 
 of trade. It is quite impossible that the prices in any 
 particular trade can permanently be so low as to prevent 
 
On the Price of Agricultural and Mineral Produce. 
 
 327 
 
 these ordiDary profits being realised ; because no traders 
 would be satisfied to continue investing their capital in a 
 business if much smaller profits were realised from this 
 business than from others. From these considerations 
 the following principle may be deduced — the price of 
 agricultural produce must be such as will enable farmers 
 on the average of years to realise the ordinary profits 
 of trade. 
 
 The profits of the farmer have above been described as 
 the surplus which remains when all the expenses of culti- 
 vation have been deducted from the pecuniary value of 
 the annual produce of a farm. These expenses include 
 rent, the wages of labourers, the purchase of new im- 
 plements, the wear and tear of old implements, the loss 
 which arises from the ordinary casualties to which live 
 stock is liable, &c. It must be evident that any cause 
 which increases the farmer's expenses must diminish his 
 profits. Suppose the average annual value of the produce 
 raised from a farm is 2,OO0Z., and that the expenses of cul- 
 tivation are 1,500Z., the farmer having to pay 500Z. in 
 rent, 800Z. the wages of his labourers, and the remaining 
 200Z. being required for various other necessary expenses, 
 such as the purchase of implements, &c. Deducting the 
 1,500Z. from the 2,000^., which is the annual average value 
 of the produce of the farm, it is evident that the 500Z. 
 which remain would be the farmer's profits. Now let it 
 be further assumed, that this 500i is a fair remuneration 
 to the farmer for his capital and labour of superintend- 
 ence. Consequently, when his profits are 500/., he may 
 be considered to realise the ordinary profits of trade. In 
 this case, the prices obtained for the produce cause every- 
 thing to be in a state of perfect adjustment. It, however, 
 frequently happens, that the rent of "land in the course of 
 a few years considerably rises. Let us enquire what will 
 occur if the rent of this farm is increased from 500?. to 
 700?. a year, whilst the price of agricultural produce, and 
 the expense of cultivating the farm, remain unchanged. 
 This increase of rent would reduce the farmer's profits 
 from 500?. to 300?.; but it has been above assumed, that 
 when his profits were 500?. he obtained no more, than 
 the ordinary remuneration for his capital and labour of 
 superintendence. He consequently receives less than the 
 
 BOOK III. 
 CH. III. 
 
 They are 
 determined 
 by the 
 average 
 value of 
 the pro- 
 duce after 
 deducting 
 the rent. 
 
 EffectB of 
 a rise of 
 rents. 
 
328 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH.III. 
 
 Came of a 
 rise of 
 rents as 
 deduced 
 from Bi- 
 cardo's 
 tlieory of 
 rent. 
 
 ordinary remuneration when his proj&ts are reduced to 
 300Z. He therefore virtually cultivates his farm at a loss, 
 because he would secure a larger income if he applied his 
 capital and energy to some other business. Under these 
 circumstances, farmers would be induced gradually to 
 leave their farms, and the land would be thrown out of 
 cultivation. But as it is necessary that the people should 
 be fed, the land must be cultivated. It may therefore be 
 concluded, that neither rent, nor any other items of the 
 expense of cultivating land, such as cost of labour, can be 
 increased, unless the farmer receives a compensating re- 
 muneration from a rise in the price of agricultural pro- 
 duce. Let us now, however, revert to Ricardo's theory 
 of rent, in order to understand how a rise in rent is 
 produced. 
 
 This theory describes rent as a price which is paid for 
 the use of an appropriated natural monopoly. This 
 monopoly arises from the fact, that the supply of fertile 
 land which can be brought under cultivation in any par- 
 ticular country, cannot be increased beyond certain limits. 
 The difference between the rents paid for two different 
 farms represents the excess of the pecuniary value of the 
 one farm above that of the other, whether derived from 
 greater fertility or from superior advantages of situation. 
 The land of each country varies so greatly in fertility, that 
 every country possesses some barren tracts which are too 
 poor to be cultivated; even if granted rent free. England 
 has soils of every degree of fertility, from the barrenness of 
 her Yorkshire and Devonshire moors, to the rich luxuri- 
 ance of the Sussex wolds. There will consequently always 
 be some land which may be considered to be on the 
 margin of cultivation. Such land will pay for cultivation 
 if let at a merely nominal rent. Hence Ricardo's theory 
 of rent defines the rent of any particular land to be the 
 pecuniary measure of the degree by which it exceeds in 
 productiveness that land which, is just upon the margin of 
 cultivation. It is evident that the margin of cultivation 
 descends as the population of the country increases, for 
 it becomes necessary gradually to resort to less productive' 
 land, in order to supply a larger demand for food. But as 
 
 ' The epithet "■produotiye" here includes fertility and advantages of. 
 situation. 
 
On the Price of Agricultural and Mineral Produce. 
 
 329 
 
 the margin of cultivation descends, rents must rise, be- 
 cause as less productive land is brought under tillage, the 
 greater will be the difference between the produce raised 
 from any, particular land and the worst land under- culti- 
 vation, and rent may be regarded as the pecuniary mea- 
 sure of this difference. The worst land, however, which is 
 in cultivation at any pai'ticular time, will only just bear a 
 nominal rent, and -does no more than return the ordinary 
 rate of profit to the farmer for his labour and capital. If, 
 as popiilation increases, it is aecessary to bring still worse 
 land into cultivation, it will be manifestly impossible to 
 till this land except at a loss, unless a rise takes place in 
 the price of agricultural produce. Hence this principle is 
 established — that the price of agricultural produce must 
 always be such as will enable the ordinary rate of profit 
 to be obtained from the worst land in cultivation> which 
 pays a merely nominal rent. It can be easily shown, 
 from this proposition, that rent is not an element of the 
 price of agricultural produce; or, in other words, corn and 
 food would not necessarily be cheaper if every farmer's 
 rent in England were remitted for a term of years. This 
 has always appeared a most startling paradox to those 
 who are unacquainted with political economy. 
 
 Let it be assumed that every farmer has the rent of 
 his farm remitted for the next thirty years : all the land 
 cultivated would then be rent free. The question arises. 
 Would this change produce- any effect upon the price of 
 agricultural produce ?' The quantity of agricultural pro- 
 duce required, in any particular country, is not affected 
 by the amount of rent paid for the use of land. If, there- 
 fore, all the land of England were made rent free, there 
 would be no reason tO' suppose that either more or less 
 agricultural produce would be consumed than when the 
 present rents were charged for- land. The same area of 
 land would therefore have to be cultivated ; the margin of 
 cultivation would neither ascend nor descend. That la,nd, 
 however, whose fertility is sueh as to place it just on the 
 margin of cultivation, paid merely a nominal i-ent before 
 the supposed change was introduced which made land 
 rent free. The price of agi'icultural produce was, previous 
 to this change, such as to enable the farmer to realise the 
 ordinary profit of trade upon this land ; the land would 
 
 BOOK III. 
 CH. III. 
 
 Conclusion 
 as to the 
 price of 
 agricul- 
 tural pro- 
 duce. 
 
 Proof that 
 rent is not 
 an element 
 in the 
 price of 
 agricul- 
 tural pro- 
 duce. 
 
330 
 
 Manual of Political Economy. 
 
 BOOK III. 
 OH. III. 
 
 I'he price 
 of agricul- 
 tural pro- 
 duce tends 
 to rise as 
 population 
 increases, 
 but this 
 rise is 
 partly 
 counter- 
 acted. 
 
 by impor- 
 tation of 
 corn, 
 
 and by 
 agricul- 
 tural 
 improve- 
 ments. 
 
 not, of course, continue to be cultivated, if the price of 
 agricultural produce was not sufficient to enable such 
 profit to be obtained. But even if all rents were remitted 
 it would still be necessary to cultivate this particular land, 
 because there is no reason to suppose that the country 
 will require less agricultural produce than before. Hence 
 the price of agricultural produce cannot decline in conse- 
 quence of a remission of rents, since, if such a decline in 
 price occurred, much of the land which was previously 
 cultivated at a merely nominal rent would cease to return 
 the ordinary rate of profit, and would therefore be thrown 
 out of tillage ; but this cannot take place, because the de- 
 mand for agricultural produce is as great as it was before. 
 Hence if all the land of the country were rent free, it 
 would not necessarily follow that the price of agricultural 
 produce would be reduced. It may therefore be con- 
 cluded, that the price of agricultural produce is not af- 
 fected by the payment of rent. The price is really deter- 
 mined by the demand for agricultural produce ; because, 
 as the demand increases, it is necessary to resort to less 
 productive land. As the population of a country in- 
 creases, the demand for agricultural produce becomes 
 greater. Hence the price of agricultural produce tends to 
 rise as the population of a country advances. This rise 
 in price may be counteracted in the two following ways : — 
 
 1st. The introduction of agricultiiral improvements 
 may supply a country with an increased quantity of food, 
 without extending the area of cultivation. 
 
 2nd. The increased quantity of food required by a 
 country whose population is advancing may be supplied 
 by foreign importation. 
 
 The effect of the importation of food, either in reducing 
 or keeping down its price, will be fully explained in the 
 chapter on international trade. The last few years have 
 afforded a striking example of the influence produced by the 
 importation of corn. Since the repeal of the corn laws a 
 very great increase in our population has taken place, but 
 so vast have been the importations of corn, that there has 
 been no material rise in its price. The introduction of 
 most important agricultural improvements has been no 
 less effectual towards meeting these increased demands for 
 food. Drainage has produced fertility, where before all 
 
On the Price of Agricultural and Mineral Produce. 
 
 331 
 
 was useless sterility. Moreover, new agricultural imple- 
 ments, such as the steam plough, may yet be destined so 
 much to economise labour, that land which will not now 
 pay to be cultivated may be made to return a remune- 
 rative profit, without any rise in the price of agricultural 
 produce. In the absence, therefore, of agricultural im- 
 provements, it may be said that the price of agricultural 
 produce is determined by the extent to which the demand 
 for it has to be satisfied from the soil of the country itself. 
 
 If the importation of food does not keep pace with the 
 increased wants of an advancing population, the price of 
 agricultural produce must inevitably rise. 
 
 The price of mining produce is regulated by laws very 
 analogous to those which determine the price of agricul- 
 tural produce. Mineral deposits vary in richness, in the 
 same manner as land varies in fertility. Some mines are 
 more expensive to work, and less advantageously situated 
 than others; just in the same way as land may be incon- 
 veniently situated, because remote from markets. Sup- 
 pose the price of iron declined one half; a great number 
 of the existing iron mines would at once cease to return 
 any profit, and could not be worked except at a very con- 
 siderable loss. But people will not continue investing 
 their capital if they cannot realise upon it an adequate 
 profit, and therefore such a reduction in the price of iron 
 would cause all the least productive mines to be shut up ; 
 the supply of this metal would consequently be greatly 
 diminished. If this diminished supply sufficed to satisfy 
 the demand, the reduction in price might be permanent. 
 But if the demand was in excess of the supply, a rise 
 in the price of iron must follow, because, without such a 
 rise, no adequate inducement could be offered to increase 
 the supply by reopening those mines which a reduction in 
 price had caused to be closed. It therefore appears, that 
 the supply of iron which is forthcoming at any particular 
 time depends upon the price which this metal realises, 
 because the price determines what mines can be worked 
 at a profit. The following adjustment must therefore take 
 place : the demand varies, cwteris pa/ribus, inversely with 
 the price, for the greater is the price the less will be the 
 demand. On the other hand, however, the supply varies 
 directly with the price, because the greater the price 
 
 BOOK III. 
 CH. III. 
 
 The price . 
 of mining 
 produce i« 
 determined 
 by laws 
 similar to 
 those 
 which 
 determine 
 the price 
 of agricul- 
 tural pro- 
 duce. 
 
332 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. III. 
 
 There are 
 constant 
 oscilla- 
 tions of 
 price about 
 the natural 
 price thus 
 deter- 
 mined. 
 
 the greater will be the supply. If the price is too 
 great, the supply will exceed the demaad ; if the price 
 is too low, the demand will exceed the supply. The price, 
 therefore,' must be such as to adjust the demand to the 
 supply. When the price reaches this point, it is in a 
 position of equilibrium. 
 
 It is no doubt quite true that there are constant varia- 
 tions' in price, which prevent this position of equilibrium 
 being continuously maintained, but this does not lessen 
 the importance of ascertaining that such a position of 
 equihbrium' really exists. The discovery that the planets 
 move in ellipses was justly regarded as a most important 
 scientific truth, and the importance of the discovery was 
 not diminished, although it was afterwards proved that the 
 planets are' constantly disturbed from their elliptic orbits 
 by a great number of small perturbing forces. The elliptic 
 orbit of a planet may be regard-ed as a position of stable 
 equilibrium), because, as the planet is disturbed from this 
 position, a force will be generated to restore equilibrium, 
 and the intensity of this force, if the disturbing cause- con- 
 tinues, will so constantly increase, that in the end it must 
 pfove effectual. In a similar manner a position of stable 
 equilibrium is defined, when the price of iron' is such as 
 to equalise the supply to the demand ; the- price does 
 constantly oscillate about this position, but these oscilla- 
 tions cannot exceed' certain limits, because an agency is 
 generated, as in the case of the planetary elliptic orbits, 
 to restore the price to its position of equilibrium. The 
 price so determined has, by Adam Smith and others, been 
 termed the natural price. 
 
 As we have endeavoured in this chapter to explain the 
 manner in which an increase or a diminution in the de- 
 mand for agricultural and mineral produce causes a rise 
 or fall in price, it may be necessary to point out that an 
 alteration in the' demand is not nec.essarily accompanied 
 by a proportionate- alteration, in price. It will not be 
 difficult to sho'wr that it is impossible to laj' down precise 
 rules as to the effect exerted on price in any particular 
 case by a certain alteration in the demand. Thus it may 
 sometimes happen that a rise of 20 per cent, in the de- 
 m'lnd may produce an increase of price of more than iO 
 per cent., whereas it may also happen that an increase 6f 
 
On the Price of Agricultural and Minerttl Produce. 
 
 333 
 
 20 per cent, in the demand may create an increase of not 
 more than 5 or 10 per cent, in price. The extent to 
 which the price is affected obviously depends upon the 
 difficulty of meeting the increased demand. If, wheu 
 more corn and coal are required, the additional corn can 
 be grown on land nearly as productive as that previously 
 cultivated, and if the additional coal can be obtained by 
 working seams but slightly more expensive to work, then 
 it is evident that an increase in the demand may create 
 a much less than a proportionate increase in price. As 
 soon, however, as it becomes necessary to resort to much 
 less productive sources of supply in order to satisfy an 
 increased demand, there may then suddenly occur a rise 
 of price which may be out of all proportion to the extra 
 demand. The remarks which have just been made sug- 
 gest an explanation of the great and sudden rise in the 
 price of coai which took place in 1872. For many years 
 there had been a steady increase in the demand for coal, 
 and yet the extra coal was produced without causing any 
 important rise in its price. This no doubt arose from the 
 fact that the additionE.l coal required could be obtained 
 without resorting to seams which were more expensive to 
 work, and without pressing unduly upon the available 
 supply of labour. At length, however, the demand reached 
 a point when it could not be met without resorting to 
 much less productive sources of supply. Deeper shafts had 
 to be sunk, thinner seams had to be worked, and conse- 
 quently there was a rise in the price of coal sufficient to 
 provide compensation for this greater cost in producing it. 
 Another circumstance was also brought into operation to 
 increase the cost of obtaining coal. When all the work- 
 men in any particular industry are employed, there are, 
 in the absence of improved mechanical appliances, only 
 two ways of increasing the supply of labour. In the first 
 place, those who are already employed in the particular 
 industry may be induced to work a greater number of 
 hours a day, by the offer of higher wages; or, secondly, 
 labour may be imported from other industries. It is 
 evident, whichever course is adopted, that a rise in wages 
 must ensue. It has, however, been shown that the recent 
 great rise in the price of coal is to be attributed in a far 
 greater degree to the increased cost of getting coal, than 
 
 BOOK III. 
 OH. III. 
 
 The rise in 
 pric'e not 
 always 
 propor- 
 tionate-to 
 an in- 
 crease in 
 the de- 
 mand. 
 
 Recent rise 
 in the price 
 of coal. 
 
334 
 
 Manual of Political Economy. 
 
 BOOK III. 
 OH. III. 
 
 Great bur- 
 den thrown 
 on the na- 
 tion. 
 
 to a rise in the wages of colliers. From the evidence 
 which was given in 1873 before a Select Committee of 
 the House of Commons appointed to investigate the 
 causes which had produced the rise in the price of coal, it 
 appears that not more than one-fifth of the rise which took 
 place is due to an increase in the wages of colliers. The 
 increase in their wages did not account for a rise of more 
 than 2s. a ton, whereas the rise in price at the pit's mouth 
 was certainly not less than lOs. a ton. It therefore fol- 
 lows that four-fifths of the increase in the price of coal 
 was added as extra profits on all the coal obtained from 
 sources of supply that were previously worked. As 
 the annual production of coal in this country is about 
 120,000,000 tons, the amount of extra profit thus obtained 
 by the owners or lessees of coal mines may be estimated 
 at 40,000,OOOZ. a year while the exceptionally high price 
 lasted. It can be scarcely necessary to point out that 
 this rise in the price of coal imposed as real a burden 
 upon the community as if the taxation of the country had 
 been increased by an amount equivalent to the rise in the 
 price of the coal retained for home consumption. The 
 amount of coal used for domestic purposes in this country 
 is about 19,000,0£)0 tons per annum. Assuming that the 
 rise in price was 10s. a ton, the burden thrown upon the 
 householders of the country was equivalent to the imposi- 
 tion of an income-tax which would yield 9,500,000Z. a year. 
 To obtain this sum an addition of fivepence to the income 
 tax would be required. There is, however, this difference 
 between a burden thus imposed upon the people and 
 an income-tax which would yield 9,500,000Z. a year. 
 An income-tax is not levied upon very small incomes, 
 whereas even the poorest person must bear his share 
 of the burden which is imposed by a rise in the price 
 of coal. It is also to be remarked that the loss which 
 the community suffers from a rise in the price of coal is 
 not to be estimated by simply considering the amount 
 of coal which is used for domestic purposes. A rise in 
 the price of coal must ultimately increase the cost of 
 producing manufactured commodities, and it will be 
 shown in the next chapter that the price at which manu- 
 factured commodities are sold to the consumer depends 
 upon the cost of producing them. The nation may 
 
On the Price of Agricultural and Mineral Produce. 
 
 335 
 
 obtain one compensation for the loss resulting from a 
 rise in the price of coal. It cannot be donated that the 
 comparative cheapness of coal led to very wasteful methods 
 of burning it, both for manufacturing and domestic pur- 
 poses. The rise in its price caused the adoption of many 
 contrivances for economizing its use. As geologists agree 
 that the available supplies of coal in this country are by 
 no means inexhaustible, it is evident that the prevention 
 of waste is of great importance, not only to those who are 
 now living, but to future generations. 
 
 Many causes have combined to prevent coal perma- 
 nently retaining the remarkable advance in price which 
 it obtained in 1872. Towards the close of 1874 the price 
 of coal began to decline, and this decline went on so rapidly 
 that in about two years time its price had receded almost 
 to its former level. This fall in price may be regarded as 
 partly due to accidental circumstances, but no doubt the fall 
 has also been partly produced by causes which are certain 
 to come into operation whenever there is a period of such 
 exceptional prosperity in a trade that the profits and wages 
 obtained by those engaged in it greatly exceed their ordi- 
 nary rate. With regard to those accidental circumstances 
 which we have described, it may be mentioned that soon 
 after the great rise in the price of coal took place, there 
 was a marked change in the general commercial condition 
 of the country. The extraordinary activity of trade which 
 had continued for many years was succeeded by a period 
 of industrial depression, and in no branch of industry was 
 this depression more strikingly exhibited than in the 
 falling off both in the foreign and home demand for iron. 
 In a single year between 1873 and 1874, there was a 
 decline of no less than 2.5 per cent, in the quantity of 
 pig iron produced, and even this diminished quantity 
 could only meet with a sale at considerably reduced prices. 
 Consequently the iron masters not only greatly diminished 
 their purchases of coal, but they could only afford to pay a 
 much lower price for it. When it is remembered that the 
 great development of the iron trade was one of the chief 
 causes which contributed to the rise in tlie price of coal, it 
 naturally follows that the decline of this trade exerted a 
 corresponding influence in reducing its price. This fall 
 in price was no doubt assisted by the depression in the 
 
 BOOK III. 
 CH. III. 
 
 One com- 
 pensation 
 for a rise 
 in the 
 price of 
 coal. 
 
336 
 
 Manual of Political Economy. 
 
 general industrial condition of the country. Coal is of 
 course largely used in every industry in which machinery 
 is employed, and, consequently, inactivity of trade is sure 
 immediately to affect the demand for coal. But even had 
 there not been this depression of trade there were other 
 circumstances in operation which would have caused a 
 reduction in the price of coal. The exceptionally high 
 profits and wages earned in the coal trade led to a largely 
 increased production. New mines were opened in all 
 directions, new shafts were sunk, all available labour was 
 pressed into this particular industry, and in fact everything 
 was done to stimulate increased production. What hap- 
 pened in this case, as previously pointed out, is sure to 
 occur whenever any trade becomes exceptionally pros- 
 perous. It is obvious that it would have been impossible 
 for this price of coal to be maintained unless the increased 
 production, stimulated in the manner just described, had 
 been accompanied by a corresponding increase in the 
 demand for coal. But far from this being the case, we 
 have seen that jnst at the very time when the new 
 mines that had been opened began to yield their addi- 
 tional supplies, there was a depression of trade, and 
 consequently a considerable falling off in the demand for 
 coal. The decline in the price of coal was therefore assisted 
 by two powerful circumstances, an increase in its supply 
 occurring simultaneously with a diminution in the demand. 
 
CHAPTER IV. 
 
 ON THE PRICE OF MANUFACTURED COMMODITIES. 
 
 IN this chapter the price of those articles will be consi- 
 dered which were placed in the last of the three classes 
 previously enumerated. To such commodities the name 
 of manufactured articles is given ; because the name sug- 
 gests the leading points of difference between these com- 
 modities and those the price of which was considered in 
 the last chapter. It may be thought that no such distinc- 
 tion really exists; a manufactured article, it might be 
 said, is in one sense either an agricultural or a mineral 
 product. A piece of linen cloth is woven from flax, which 
 is in every sense of the word as much an agricultural 
 product as the wheat from which a loaf of bread is made. 
 Since, therefore, bread and linen cloth are both made 
 from the produce of agriculture, it may appear that the 
 laws which regulate the price of one ought to regulate 
 the price of the other; and that, therefore, those laws of 
 price which were enunciated in the last chapter, with 
 regard to agricultural and mining produce, will equEilly 
 apply in determining the price of such a commodity as 
 a piece of linen cloth. But there is this distinction : the 
 value of agricultural and mining produce is almost entirely 
 derived from the value of the raw material; whereas the 
 value of the raw material from which a manufactured 
 article is made only forms a small portion of the entire 
 value of this particular article. The reason of this must 
 be manifest to all. Before a bundle of flax can be woven 
 into a piece of linen cloth, it must pass through many 
 different processes, carried on by many different classes of 
 labourers. Not only must all these labourers be remune- 
 rated, but the employers of these labourers have advanced 
 
 F. M. Y 
 
 BOOK III. 
 CH. IT. 
 
 Commo- 
 dities of 
 ■which the 
 supply can 
 he indefi- 
 nitely in- 
 creased 
 without in- 
 creasing 
 the cost of 
 produc- 
 tion. 
 
 The value 
 of the ram 
 material 
 ftirms a 
 small part 
 of the value 
 
338 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. IV. 
 
 of manu- 
 factured 
 goods. 
 
 The price 
 of manu- 
 factures 
 need not 
 increase 
 withanin- 
 creased 
 demand. 
 
 rts only one 
 of the ele- 
 ments of 
 their value 
 is affected. 
 
 capital and invested money in expensive machinery, 
 and for all this outlay they must receive an adequate 
 compensation. There must, therefore, be such a differ- 
 ence in the price of the flax in its raw state, and the price 
 of the linen cloth into which it is woven, as will serve 
 to give both to the employers and their labourers all the 
 remuneration just pointed out. The value, therefore, of 
 the raw material forms only a very small portion of the 
 whole value of the particular article into which it is 
 manufactured. It is this circumstance which causes the 
 price of manufactured commodities, and the price of raw 
 produce, to be regulated by very different laws. 
 
 Unless a fresh discovery is made, or unless improved 
 machinery and improved "methods of production are intro- 
 duced, it is generally impossible to increase the supply 
 of mining produce without resorting to less productive 
 sources, or to increase the supply of agricultural produce 
 without resorting either to less fertile land or to more 
 expensive culture. Such produce therefore, in the absence 
 of counteracting circumstances, must rise in price as it 
 becomes necessary to increase the supply, in order to meet 
 a larger demand. But the same law does not apply in 
 the case of a manufactured article. If it were known that 
 the quantity of linen cloth required to be manufactured 
 in this country would increase twenty per cent, in the 
 next two years, manufacturers of linen would have to 
 increase their purchases of raw flax by twenty per cent. 
 This increased demand for flax would cause its price to 
 rise, in obedience to the principles enunciated in the last 
 chapter. This rise in the price of flax would, of course, 
 produce some effect on the price of linen; because the 
 manufacturers of the linen must be compensated for the 
 higher price which is paid for the raw flax. But since 
 the value of the flax forms only a very small portion of 
 the whole value of the cloth into which it is woven, it 
 foUows that the rise in the price of the cloth due to the 
 rise in the price of flax will be, comparatively speaking, 
 small. Thus we are informed that a rise of twenty per 
 cent, in the price of flax would not cause the price of 
 linen cloth to rise as much as five per cent. The causes, 
 therefore, which affect the price of raw produce also in- 
 fluence the price of manufactured commodities, but only 
 
On the Price of Manufactured Commodities. 
 
 339 
 
 to a limited extent. If we omit the very trifling rise in 
 price, in a manufactured commodity, which results from 
 an increased demand for the raw material, there is no 
 reason why the price of manufactured commodities should 
 in any way be affected by an increased demand for them. 
 An increased demand for linen cloth to the extent of twenty 
 per cent, need not necessarily influence any of the elements, 
 with the exception of the price of the raw material, of which 
 the cost of producing this cloth is composed. Machinery 
 need not be more expensive, the wages of labour need not 
 necessarily rise ; it is even quite possible to suppose that 
 the production of an article may be cheapened as its supply 
 is increased, because when commodities are manufactured 
 on a large scale many of the processes of the manufacture 
 can often be economised. For instance, division of labour 
 makes labour cheaper and more efficient; machinery on 
 a large scale almost invariably works at less comparative 
 cost than machinery on a smaller scale. A steam-engine 
 exerting the same propelling force as two smaller engines 
 wiU originally cost less than the two, will consume a 
 smaller quantity of fuel, and will not require the same 
 amount of labour to superintend it. It is therefore quite 
 possible that an increased demand for a manufactured 
 article may diminish its price. To illustrate this the fol- 
 lowing example may be quoted. An American, Mr 
 Nathan Thompson, recently invented a most ingenious 
 machine for sawing and cutting, in their proper form, the 
 planks of which light boats are made. It has been calcu- 
 lated that so much labour and time would be saved by 
 this machine that the cost of a boat would be reduced at 
 least thirty per cent. People therefore confidently pre- 
 dicted that the machine would be introduced, and that 
 Ijoats would inevitably decline thirty per cent, in price ; 
 but this is too hasty a conclusion. It must be remem- 
 bered, that so great is the rapidity with which this 
 machine works, that a very few of these machines would 
 soon turn out a great many more planks than are re- 
 quired in the construction of all the boats which are 
 built in a year. The demand, therefore, for boats would 
 not be sufficient to keep these machines fully at work. 
 This would involve considerable loss. In the first place, a 
 machine, when not at work, must be regarded as capital 
 
 Y -Z 
 
 BOOK HI. 
 CH. IV. 
 
 The coat of 
 production 
 of manu- 
 factures 
 may dimi- 
 nish as the 
 supply 
 increases. 
 
 Illustra- 
 tion of this 
 principle 
 from boat- 
 building 
 machin- 
 ery. 
 
340 
 
 Mamial of Political Ecwiomy. 
 
 BOOK III. 
 
 cm. IT. 
 
 A rise in 
 the wages 
 of labour- 
 ers must 
 be compen- 
 sated by a 
 rise in the 
 price of 
 the pro- 
 ducts ef 
 their la- 
 bour. 
 
 lying idle, and secondly, the men who attend it would be 
 employed irregularly. Such labour is always expensive> 
 because a man has to receive some remuneration for the 
 time when he is not at work. These machines, therefore, 
 can only exert part of their effect, in reducing the price of 
 boats, as long as the demand for boats is not sufficient to 
 keep them actively at work. It is not improbable that 
 this invention will for some time effect no sensible reduc- 
 tion in the price of boats, because in so limited a trade 
 people may hesitate to introduce expensive machines, and 
 therefore boats may continue to be made according to the 
 old plan in spite of tlfe demonstrated excellence of Mr 
 Thompson's invention. But if a much greater number of 
 boats were required to be made, no doubt these machines 
 would be generally introduced, and nothing could then 
 prevent a reduction in the price of boats proportionate to 
 the decrease which these machines effected in the cost of 
 making boats. 
 
 It frequently happens that the wages of the labourers 
 employed in the manufacture of a particular commodity 
 advance as the demand for the commodity increases. If 
 this occurs, these particular manufactured goods will rise 
 in price, in order that the employer may be compensated 
 for the higher wages he is now obliged to pay. Suppose 
 that, at a time when the activity of the cotton manufac- 
 ture affords constant employment to all those accustomed 
 to the trade, a new market for our cotton goods is sud- 
 denly opened. In order to satisfy this new demand the 
 cotton manufacture must be extended; new hands will 
 have to be imported into the trade, and such untrained 
 labour must for a time be, comparatively speaking, in- 
 efficient, and therefore more expensive than the labour of 
 those who are accustomed to the trade. The period just 
 preceding the American civil war afforded an example of 
 this. So rapidly was the cotton manufacture extended in 
 consequence of the large exports of cotton goods to the 
 East, that the supply of labour in the district proved 
 to be inadequate. The manufacturers, therefore, sent 
 agents throughout the country in search of labourers, and 
 in one agricultural village in the Eastern Counties no less 
 than a hundred labourers — including men, women, and 
 children — were engaged for the purpose of being employed 
 
On the Pries of Manufactured Commodities. 
 
 341 
 
 in some of the Lancashire mills. To these persons high 
 wages were of course offered, in order to induce them to 
 leave their own locality. But such labourers could not 
 be worth so much as those who by practice had acquired 
 skill in that trade. The regular Lancashire operatives, 
 therefore, obtained a very important rise of wages ; and 
 it is impossible for such a rise of wages to occur without 
 increasing the cost of producing cotton goods. The ques- 
 tion, therefore, arises — By whom is this increased cost 
 borne ? Would it come entirely out of the manufac- 
 turers' pockets, or would it be borne by the purchaser of 
 cotton goods ? The answer to this question will be found 
 to involve an explanation of the principles by which the 
 price of manufactured commodities is determined. It 
 will, in the first place, be proved that the manufacturers 
 will be compensated for the rise of wages by a rise in the 
 prices received by them from the purchasers of cotton 
 goods. When discussing the subject of profits, it was 
 pointed out that the profits of each particular trade ap- 
 proximate to a certain average. The constancy of this 
 average is maintained by the competition of capital. We 
 do not mean to say that the profits of the butcher ap- 
 proximate to the profits of the cotton manufacturer, for 
 there "are causes which must create a permanent differ- 
 ence between the profits of these two trades. But al- 
 though the average profits realised in different trades 
 may greatly and permanently differ, yet there is a certain 
 rate of profit belonging to each trade, which is termed the 
 natural rate of profit for that trade. Such a rate of profit 
 indicates a point of equilibrium about which the average 
 profits of the trade may be considered to oscillate. Some- 
 times they fall short of this point, sometimes they go 
 beyond it, but the competition of capital is an agency 
 which is ever at work to restore the average rate of profit 
 to this position of equilibrium, whenever disturbed from 
 it. It is impossible precisely to tell what will be the 
 average rate of profit realised in a particular business. 
 Let us suppose that, in the cotton trade, it is ten per 
 cent, upon the whole capital invested. There is always 
 in this country a vast amount of capital ready to be ex- 
 changed from one investment to another, if the slightest 
 additional profit can be realised. Such a rapid transfer 
 
 BOOK III. 
 CH. IV. 
 
 Proof of 
 thit propo- 
 sition. 
 
 The aver- 
 age rate of 
 profit in 
 each trade 
 is deter- 
 mined by 
 the migra- 
 tion of 
 capital. 
 
342 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. IT. 
 
 If wages 
 were in- 
 creased 
 without an 
 incrtase of 
 price, pro- 
 Jits must 
 fall in the 
 trade 
 affected. 
 
 Hence the 
 price is 
 certain to 
 rise. 
 
 The price 
 of manu- 
 factures is 
 
 may be regarded as a proof that the competition of capital 
 is active. Having, therefore, assumed that the average 
 rate of profit in the cotton trade is ten per cent., let us 
 attempt to trace what will occur if the profits realized in 
 this trade are, by some disturbing cause, reduced below 
 ten per cent. ; this being the natural rate of profits as de- 
 termined by the competition of capital. 
 
 The rise in the wages of the cotton operatives which 
 was caused by the increased demand for cotton goods in 
 the East, was quite sufficient to have reduced the profits 
 of the cotton manufacturers from ten to seven per cent. 
 But if not more than seven per cent, were realised, the 
 cotton manufacturer would be placed in an exceptionally 
 unfavourable position, for it has been supposed that his 
 business, after making allowance for all the various cir- 
 cumstances connected with it, will be less remunerative 
 than'other branches of industry, unless a profit of ten per 
 cent, can be secured. Cotton manufacturers, therefore, 
 would show an anxiety to contract, rather than to extend 
 their operations, for they would be naturally desirous to 
 withdraw as much capital as possible from their own com- 
 paratively imremunerative business, and place it in other 
 more lucrative investments. The manufacture of cotton 
 goods would consequently be diminished just at the time 
 when it ought to be extended, in order to meet the in- 
 creased demand. But it is easy to show that such a con- 
 tingency could not actually occur. An increased demand 
 for cotton goods means an increased desire to possess 
 them, accompanied with the requisite means to purchase 
 them. ' Those individuals who want cotton goods will 
 much prefer to pay a somewhat higher price for them 
 rather than go without them altogether. Such a higher 
 price, therefore, will be offered for cotton goods as will 
 compensate the manufacturer for the increased wages 
 whicb he is compelled to pay to his operatives. But the 
 demand for a commodity is always diminished if its price 
 is increased. The demand for cotton goods will not be so 
 great as it would have been but for the rise in the price 
 of these goods necessary to compensate the manufacturer 
 for the augmented cost of production resulting from a rise 
 in the wages of labour. Hence it would appear that the 
 price of manufactured commodities is regulated by two 
 
On the Price of Manufactured Commodities. 
 
 343 
 
 principles. The first of these principles determines the 
 average price of a commodity ; this price we have before 
 described as a position of equilibrium from which there 
 may be frequent temporary variations. The second prin- 
 ciple accounts for these variations, and indicates the laws 
 by which they are regulated. The meaning of this may 
 perhaps be better explained by referring to an illustration 
 already noticed. The orbit of every planet is mainly de- 
 termined by the attraction of the sun ; and its orbit, so far 
 as it depends on this attraction, is accurately an ellipse. 
 But each planet is acted upon by an almost infinite num- 
 ber of small disturbing forces, which cause it constantly 
 to deviate from an accurate elliptic orbit. Although a 
 planet, therefore, never continues even for a short period 
 to move in an ellipse, yet for many purposes it is sufiS- 
 ciently accurate to consider that the ellipse is its real 
 orbit. Other phenomena however, most important to be 
 considered, depend entirely upon those small disturbing 
 forces which produce the variations in a planet's elliptic 
 orbit. Hence astronomy requires not only that the main 
 cause of a planet's motion should be explained, but also 
 that the laws of the disturbing forces which act upon it 
 should be enunciated with equal care and precision. We 
 will now show the analogy which we have been indicating, 
 by stating the two principles which regulate the price of 
 a manufactured commodity. 
 
 1st. The price of each manufactured commodity must, 
 on the average, approximate to its cost of production. 
 The term ' cost of production ' includes not simply the cost 
 of material, and the wages of labour, but also the ordinary 
 profit upon the capital employed in producing the par- 
 ticular commodity. 
 
 2nd. The demand for a commodity varies with its 
 price, and the price at any particular time must be such 
 as to equalise the demand to the supply. 
 
 With regard to these two principles it may be re- 
 marked, that the first controls prices in the following 
 manner. The price of any manufactured commodity can- 
 not permanently to any considerable extent either exceed 
 or fall short of its cost of production. If the price were 
 greatly in excess, the producer would seciire very much 
 more than the ordinary rate of profit ; and on the other 
 
 BOOK III. 
 CH. IV. 
 
 therefore 
 determin- 
 ed hy two 
 principles, 
 one deter- 
 mining 
 the aver- 
 age price, 
 the other, 
 the oscilla- 
 tions about 
 it. 
 
 Statement 
 of theae 
 principles. 
 
 Tlie aver- 
 age price 
 approxi- 
 mates to 
 the cost of 
 produc- 
 tion. 
 
344 
 
 Maimal of Political Economy. 
 
 BOOE III. 
 CH. IV. 
 
 The oscil- 
 lations are 
 determined 
 hy varia- 
 tions in the 
 supply and 
 demand. 
 
 Illustra- 
 tion of the 
 second 
 principle 
 from the 
 Birming- 
 ham gun 
 trade. 
 
 hand, if the price ' of a commodity were much less than 
 the cost of its production, the profits of those who produce 
 the commodity would fall materially below the ordinary 
 rate. But the competition of capital prevents the profits 
 of any particular trade continuing, for a length of time, 
 either above or below the ordinary rate of profit. With 
 regard therefore to the price of a commodity, its cost of 
 production may be regarded as a position of stable equili- 
 brium, and whenever disturbed from this position, the 
 competition of capital is at once brought into action, to 
 restore equilibrium. Just in the same way the elliptic 
 orbit of a planet may be regarded as a position of stable 
 equilibrium : the planet is constantly disturbed from this 
 position, but the attraction of the sun is at once brought' 
 into operation to restore its equilibrium. 
 
 Although the competition of capital makes the profits 
 of each trade and the price of each commodity tend to- 
 wards what has been termed the natural rate, yet it is a 
 matter of ordinary observation, that there are temporary 
 fluctuations in the prices of all commodities which corre- 
 spond to the temporary variations in the profits which are 
 realised in any particular trade. Such temporary fluctua- 
 tions in the price of a commodity, and in the profits of any 
 particular trade, are produced by variations in the demand 
 and supply. Many striking instances of these variations 
 in price, consequent on a sudden variation in the demand 
 for a commodity, were afforded by the circumstances of 
 the American civil war. Let us take the case of the 
 Birmingham gun trade, which was thrown into a state of 
 sudden activity, in consequence of the purchase of a large 
 number of rifles both by the Federal and Confederate 
 armies. Before this sudden demand arose, the rifle trade 
 was in its ordinary condition; the price of rifles closely 
 approximated to the cost of producing them, and the na- 
 tural rate of profit consequently prevailed. When, how- 
 ever, an unusually large number of rifles was suddenly^ 
 required, the price for a time rose greatly above the 
 cost of production ; in fact, the cost of production tempo- 
 rarily ceased to be the controlling force in regelating ths 
 price. These high prices of course stimulated the manu- 
 facturers to the utmost activity, and the greatest possible 
 number of rifles was produced which could be manufac- 
 
On the Price of Manufactured Commodities. 
 
 tured by the available resources of the trade. Time is, 
 however, required to increase the supply beyond a certain 
 point ; the workmen accustomed to a trade are limited in 
 number ; and new workmen cannot acquire the requisite 
 skill without a long and tedious training. Therefore the 
 supply, even of a manufactured commodity, cannot be im- 
 mediately increased beyond a certain point ; hence a very 
 great and sudden demand for a particular commodity may 
 cause it temporarily to assume the same character as 
 those commodities the price of which has been previously 
 considered', and of which the supply is absolutely limited 
 in amount. It was shown that the price of such commo- 
 dities must be so adjusted as to make the supply equal to 
 the demand. 
 
 Although the price of a manufactured article may vary 
 greatly from its cost of production, yet such a variation 
 must be regarded as only temporary. If for instance the 
 price of such a commodity greatly exceeds the cost of pro- 
 ducing it, unusually large profits are realised by those who 
 produce it, and thus a powerful inducement' is constantly 
 held out to increase the supply. But as the supply is in- 
 creased, the price will have a constant tendency to decline, 
 until at length the price approximates to the cost of pro- 
 duction of the commodity, and the trade is again restored 
 to its normal condition. 
 
 In order to prevent a possible misapprehension, it may 
 be important to observe, before concluding this chapter, 
 that the price of a commodity must be always such as to 
 equalise the demand to the supply. This principle is 
 equally true, both when the price is disturbed by sudden 
 fluctuations in the demand and supply, and when the trade 
 is in its normal condition, and the price of the commodity 
 consequently approximates to its cost of production. Let 
 us revert to the example just investigated, and assume 
 that a rifle which is ordinarily sold at 51. becomes worth 
 10^. owing to a sudden increase in the demand for rifles. 
 It has been before remarked, that, when the demand for 
 a commodity is suddenly increased, its price may tempo- 
 rarily cease to be controlled by its cpst of production. 
 The immediate available supply is limited; and it is there- 
 fore evident, that the increased demand cannot be imrae- 
 1 See Book II. Chap. ii. 
 
 Hence the 
 second 
 principle 
 is the same 
 at that 
 which 
 regulates 
 the price 
 of commo- 
 dities 
 whose sup- 
 ply is ab- 
 solutely 
 limited. 
 
 The prin- 
 ciple of 
 the equali- 
 sation of 
 supply and 
 demand 
 applies in 
 all cases. 
 
346 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. IV. 
 
 Explana- 
 tion of the 
 process by 
 which sup- 
 ply and de- 
 mand are 
 equalised 
 when the 
 price ap- 
 proximates 
 to the cost 
 of produc- 
 tion. 
 
 Case when 
 the de- 
 mand is 
 brought to 
 exceed the 
 supply. 
 
 diately satisfied. The demand of those will therefore be 
 first met who are willing to pay the highest price; but, as 
 the price of the commodity rises, the demand for it 
 diminishes. Hence the price must continue to rise, until 
 at length the demand is so much decreased that it can be 
 satisfied with the immediately available supply, or, in 
 other words, the demand becomes equal to the supply. 
 
 It now only remains to describe the process which 
 equalises the supply to the demand, when a commodity is 
 selling at its cost of production; or, in other words, when 
 a trade is not disturbed from its ordinary steady condition. 
 Let it again be assumed that a manufacturer of rifles will 
 be adequately remunerated, and will obtain the ordinary 
 profit realised in the trade, if he is able to sell his rifles 
 at 51. each. But, as previously remarked, the demand for 
 any commodity varies, cceteris paribus, with its price. 
 Hence it is quite possible that, when rifles are sold for 51., 
 the demand for them may be either greater or less than 
 the supply. If the first case should arise, and the demand 
 exceed the supply, then the price of rifles would soon ad- 
 vance beyond 51., and the manufacturers of rifles would 
 consequently obtain an exceptionally high rate of profit. 
 If, on the other hand, the demand for rifles at 51. each 
 should be less than the supply, the price would become 
 less than 51, and the manufacturers of rifles would con- 
 tinue their business at a comparative loss. But no branch 
 of industry can permanently continue to be in the state 
 implied by either of the two contingencies just alluded 
 to; the competition of capital would, on the one hand, 
 prevent manufacturers of rifles permanently obtaining an 
 exceptionally high rate of profit; and, on the other hand, 
 manufacturers would refuse permanently to continue their 
 business, if a greater return could be secured by employ- 
 ing their capital in some other investment. Let us, 
 therefore, consider what would really take place under 
 the circumstances supposed. 
 
 The case assumes that there are no sudden fluctuations, 
 either in the demand or supply, but that everything con- 
 nected with the trade is in a steady condition. The cost 
 of producing a commodity is composed of two elements; 
 namely, profits upon capital, and wages of labour ; it is 
 therefore evide.nt, that if either of these elements be 
 
On the Price of Manufactured Commodities. 
 
 347 
 
 increased, the cost price of the commodity will also be in- 
 creased. Thus, -when certain wages are paid, the cost 
 price of a rifle may be 51., but if these wages have to be 
 increased, the cost price of a rifle may advance from hi. to 
 CZ. The assumption has been made, that if rifles are sold 
 at hi., the demand will exceed the supply. Suppose that 
 the price is slightly advanced beyond 51.; the profits of 
 the trade will thus be increased, an additional amount of 
 capital will be brought into the trade, and the number of 
 rifles made will be considerably augmented. All manu- 
 factured commodities, however, need skilled labour, and 
 the requisite skill cannot be acquired without considerable 
 training. Hence when a trade has to be extended, com- 
 paratively untrained labourers must be employed. The 
 skilled labourers already engaged in the trade will con- 
 sequently be eagerly competed for, and their wages will 
 rise. If, however, their wages rise, the cost of manufac- 
 turing the commodity will increase; but a rise in the price 
 of a commodity exerts an influence to diminish the de- 
 mand ; these causes will continue to operate, until at length 
 the supply is made equal to the demand. 
 
 In a similar way we can explain the process of equalis- 
 ing the supply to the demand, when the demand for a 
 commodity, selling at its cost price, is less than the supply. 
 S.uppose this cas#to arise with regard to rifles. Let it be 
 assumed that the cost price of a rifle is hi., and that at 
 this price there will not be so many rifles purchased as are 
 manufactured; the price of rifles must therefore decline; 
 it would however seem that, if they were permanently 
 sold at 4Z. 10s., the manufacturers of rifles would lose by 
 their trade, because they only realised the ordinary rate of 
 profit even when hi. could be obtained for a rifle. It must 
 however be borne in mind, that some of those engaged in 
 a trade often possess special opportunities for carrying it 
 on profitably ; their place of business may perhaps be in 
 an exceedingly favourable situation, or they may them- 
 selves have a special aptitude for the business in which 
 they are engaged. Again, as remarked in a previous 
 chapter, those who possess sufiicient capital to carry on 
 production upon a large scale often obtain an exceptionally 
 high rate of profit. When, therefore, the supply of a 
 commodity exceeds the demand, two causes will exert an 
 
 BOOK III. 
 CH. IV. 
 
 Case when 
 the de- 
 mand is 
 less than 
 the supply. 
 
348 
 
 Manual of Political Economy. 
 
 In both 
 eases an 
 equalising 
 force is 
 exerted. 
 
 influence to equalise the demand to the supply. In the 
 first place, if the supply of the commodity is diminished, 
 its cost price will also be diminished, because if less of 
 the commodity has to be produced, only the most skilful 
 workmen in the trade need be employed, and those only 
 need continue the manufacture of the commodity who 
 possess special advantages for producing it most cheaply. 
 In the second place, as the price of the commodity is 
 reduced, the demand for it will increase. These two 
 circumstances, acting conjointly, must at length equalise 
 the supply to the demand. 
 
 It has therefore been shown that, in all cases, there is a 
 tendency in constant operation to make the supply of a 
 commodity equal to the demand. This principle is equally 
 true, whether the price of a commodity is simply regulated 
 by its cost of production, or whether the price temporarily 
 ceases to be regulated by the cost of production, in conse- 
 quence of sudden fluctuations, either in the supply or in 
 the demand. 
 
CHAPTER V. 
 
 ON MONET. 
 
 THE last three chapters have been devoted to an inves- 
 tigatioi^of the laws which regulate the price of various 
 commodities. The course usually followed .by political 
 economists, is in the first place to treat of the value of 
 commodities, and to defer any discussion of the laws of 
 price until the functions of money have been fully ex- 
 plained. In pursuing this course, they perhaps adopt a 
 logical method, because money, as a medium of exchange, 
 must necessarily be involved in the meaning of the term 
 price. It has however been thought expedient to adopt 
 the course pursued in the last three chapters, because the 
 investigation of a subject which must always be compli- 
 cated is rendered more difficult by speaking of the value of 
 a commodity instead of its price; the public almost inva- 
 riably speak of the price of a commodity, and seldom con- 
 sider its value by directly estimating the quantity of every 
 other commodity for which it will exchange; moreover, 
 the last three chapters, although relating to price, have 
 not required anything to be assumed, with regard to the 
 laws of money, which was not quite self-evident. 
 
 It has been already remarked, that price is a particular 
 case of value. Eveiy country, as it emerges from bar- 
 barism into the first stages of civilisation, has found it 
 absolutely necessary to select some substance as a medium 
 of exchange. Without such a anedium, every trading 
 transaction must be conducted by direct barter; the incon- 
 venience of a system of barter is evident, for if the owner 
 of a stack of com wished to obtain clothes or fuel in 
 exchange for his corn, he would be obliged to find some 
 
 BOOK III. 
 OH. V. 
 
 Reasons 
 for con- 
 sidering 
 questions 
 of price 
 before dis- 
 cussing the 
 functions 
 of monty. 
 
 Use of 
 money. 
 
350 
 
 Manual of Political Economy. 
 
 BOOK III. 
 OH. T. 
 
 Different 
 mtbstances 
 used for 
 money. 
 
 other individuals who are willing to give him clothes and 
 fuel for the corn which he offers. Commerce, hampered 
 by such impediments, could never advance beyond its rude 
 beginning. Consequently, in each civilised nation, some 
 substance is sure to be adopted as a medium of exchange, 
 by the universal consent of society. A medium of exchange 
 provides a standard with which to compare the value of 
 every commodity, and by means of which the exchange 
 of commodities is facilitated in a most important degree. 
 Any substance may be selected as this medium of ex- 
 change ; it has however been generally found most advan- 
 tageous, for reasons which will be presently stated, to 
 choose the precious metals as the medium of exchange. 
 But various other substances have been used for a similar 
 purpose by different nations. The Chinese have used 
 pressed cubes of tea as their money ; some African tribfes 
 employ the shells called cowries. It must therefore be 
 borne in mind that it is not essential that money should 
 be composed of the precious metals ; whatever substance 
 is adopted, by the general consent of society, as its 
 medium of exchange, ought properly to be considered as 
 the money of that community. Thus, in China, money 
 has consisted of those pressed cubes of tea we have spoken 
 of; and, in Africa, the cowrie shells must be regarded as 
 money. The money of our own, and of almost every other 
 country, has so long been made of the precious metals, 
 that we are naturally led to associate money with one or 
 more of the precious metals. If, however, in any country, 
 some substance is made to perform the functions of 
 money, that substance is as justly entitled to be considered 
 money as our own gold and silver coin. Even those 
 nations enjoy the great advantage of possessing money, 
 although they estimate the value of commodities by cubes 
 of tea, and by cowrie shells, and exchange their goods for 
 these substances, instead of buying and selling, as we do, 
 for gold and silver. Such money, it is true, is rude and 
 inconvenient, but even the possession of the rudest money 
 indicates a great advance in civilisation beyond those 
 tribes who have no money at all, and who are, therefore, 
 compelled to conduct every trading transaction by barter. 
 The reason why the precious metals are almost universally 
 employed as money, in preference to any other substance, 
 
On Money. 
 
 351 
 
 will at once become evident by considering the purposes 
 which money has to fulfil. The functions of money may 
 be divided into two leading classes. 
 
 1st. Money serves as a measure of value. 
 
 2nd. Money is a universal medium of exchange. 
 
 We will proceed to consider the first of these functions. 
 'Measure of value' may perhaps with advantage be re- 
 placed, by the expression, measure of wealth. Without 
 some such measure, the amount, either of a nation's or of 
 an individual's wealth, could only be stated by enume- 
 rating a long catalogue of commodities. Instead of saying 
 that a farmer is worth 9,000?., we should be able to 
 form no other estimate of his wealth except by making an 
 inventory of his possessions. The number of cows, horses, 
 pigs, sheep, the quantity of corn, &c. he possessed, would 
 all have to be separately enumerated. The value of a 
 man's property is a meaningless phrase, unless there is 
 some recognised standard of value. The value of a com- 
 modity is always supposed to mean its exchange value, 
 for unJess'it has some exchange value it is not, in political 
 economy, considered to have any value at all. No com- 
 modity can be more useful than water, but, as previously 
 remarked, it is not wealth. It has in fact no value, be- 
 cause when, as is usually the case, it can be freely obtained, 
 nothing will be given for it in exchange. But no mean- 
 ing can be assigned to the expression, exchange value of a 
 commodity, unless it is known for what other commodity 
 it is intended to be given in exchange. It is as correct to 
 say, that the exchange value of a sack of wheat is a ton of 
 coal, or a barrel of beer, as it would be to estimate the 
 value of the wheat by so much gold and silver. Every- 
 thing, therefore, with regard to the value of commodities, 
 or the amount of wealth, is completely vague and indefi- 
 nite, until society has agreed to select some particular 
 substance with which the value of all commodities may be 
 compared. Such a substance becomes an universal standard, 
 or measure of value, and thus has attached to it the first 
 of the two characteristics which entitle a substance to be 
 considered as money. It is not necessary to select the 
 precious metals for this standard of value, although they 
 possess for this purpose many advantages which cannot 
 be claimed by other substances. 
 
 BOOK III. 
 OH. T. 
 
 The two 
 chief func- 
 tions of 
 money. 
 
 Money is a 
 measure of 
 value. 
 
 Advan- 
 tages of a 
 universal 
 standard 
 of value. 
 
352 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. V. 
 
 These 
 might be 
 partly 
 secured hy 
 the use of 
 other sm6- 
 stances 
 than the 
 precious 
 metals for 
 money. 
 
 Money is 
 a general 
 medium of 
 exchange. 
 
 Import- 
 ance of 
 tliese func- 
 tions of 
 money. 
 
 Suppose a nation, agreed to adopt wheat as the general 
 measure of value, the value of all commodities would be 
 referred to wheat as a standard, wealth would be estimated 
 by so many quarters of wheat, and it would, under this 
 supposition, be correct to say, that the price of an article 
 was not so many pounds sterling, but so many quarters of 
 wheat. One of the purposes, therefore, which money is 
 intended to fulfil would be in this manner attained, for 
 there would be one recognised substance to which the 
 value of all other commodities might be referred. But 
 when we proceed to consider the second important function 
 which money is intended to perform, namely, a general 
 medium of exchange, it will at once be understood that it 
 would be impracticable to have such a substance as wheat 
 for the money of a country. 
 
 When a nation possesses not only a measure of value, 
 but also a general medium of exchange, every trading 
 transaction is facilitated in the most important manner. 
 There wiU then be a standard, by comparison with which 
 the value of any commodity can be ascertained, and when 
 the value is thus known, the commodity may be exchanged 
 for a certain quantity of the substance thus chosen for 
 the money of the country. But the fundamental charac- 
 teristic of money is that it is a general medium of ex- 
 change ; or, in other words, any commodity which may be 
 required can be obtained by . money. When, therefore, 
 an individual exc^&saiges a commodity for m'oney, he 
 obtains that which will give him the power of purchasing 
 any article which he may require; in this manner the 
 great inconveniences of barter are obviated, for under a 
 system of barter a person who possessed one commodity 
 could not without great diflficulty exchange it for any 
 commodities he might require. For instance, the owner 
 of a quantity of wheat, if he wanted meat, fuel, or clothes, 
 would have to search for those persons who were willing 
 to give him these articles in exchange for wheat. Since 
 an universal standard of value is provided by money, 
 the values of all commodities are known and registered by 
 this standard ; or, in other words, the price of aJl commo- 
 dities can be ascertained, since the price of a commodity 
 is its value estimated in money. Money, therefore, enables 
 the amount of wealth to be estimated, and when the price 
 
On Money. 
 
 353 
 
 of commodities is ascertained, the purchasing power of any 
 sum of money is known. 
 
 The chief purposes which money is intended to serve 
 have now been explained ; we can therefore at once pass 
 on to consider the particular qualities which should be 
 possessed by any substance which is used as money. In 
 the first place, it is most important that any general 
 standard or measure should vary as little as possible, 
 For instance, all distances are referred to a certain stand- 
 ard unit of length. How endless would be the confusion 
 if this standard varied! A mile represents the same 
 distance as it did a century since, and therefore, when a 
 mile is mentioned, there can be no doubt as to the dis- 
 tance intended to be expressed. Weight, in a similar 
 manner, i"s referred to a certain invariable standard ; and, 
 therefore, if it is said that the weight of a body is so 
 many tons, there can be no ambiguity as to the weight 
 which is meant to be described. It is, of course, quite as 
 important that a standard of value should be as invariable 
 as the nature of the case admits. It is obvious that it 
 is impossible to obtain an absolutely invariable standard 
 of value, because the value of every substance which is 
 known to us is liable to variations. Some substances are, 
 however, liable to much greater fluctuations in their 
 value than others ; and it is evident that these are quite 
 unfit to fulfil the functions of money ; the substance selected 
 to be used as money should be liable to as few and as 
 slight variations in its value as possible. This qualifica- 
 tion is possessed in a high degree by the precious metals. 
 If gold and silver were liable to as great fluctuations 
 in value as wheat and cotton, it is manifest that money 
 would be no uniform standard of value, although a pound 
 sterling might always contain the same quantity of gold. 
 The value of wheat and cotton fluctuates with almost every 
 variation in the weather, and with almost every change in 
 the politics of a nation. Unpropitious seasons have often 
 been so destructive to the harvest, that wheat has been 
 forced up almost to a famine price. These seasons of 
 scarcity are now, so far as concerns our own country, in 
 some degree obviated by free trade, since we are now no 
 longer restricted to our own soil for our supplies of corn. 
 But even since the passing of free trade, there have been 
 
 r. M. z 
 
 BOOK III. 
 CH. V. 
 
 Qualities 
 desirable 
 in sub- 
 stances 
 ■used for 
 money. 
 
 As a stand- 
 ard of 
 value it 
 should be 
 subject to 
 as few va- 
 riations as 
 possible. 
 
 The value 
 should not 
 vary sud- 
 denly. 
 
 Advan- 
 tages of 
 gold and 
 silver over 
 other com- 
 modities in 
 this re- 
 spect. 
 
354 
 
 Mamml of Political Economy. 
 
 BOOK III. 
 OH. V. 
 
 As a 
 
 medium of 
 exchange 
 money 
 ehouldpos- 
 tess an in- 
 trinsic 
 value. 
 
 extremely great variations in the price of wheat. In the 
 year 1854, wheat was 90s. a quarter, in 1856 wheat was 
 40s. a quarter. The value, therefore, of any commodity 
 not liable to such fluctuations would be, when compared 
 with wheat, twice as great in 1856 as in 1854, assuming 
 that gold remained constant. A ton of coals, for instance, 
 would sell at the same money in 1856 as in 1854, but it 
 would exchange for more than twice as much wheat in 
 the former year as in the latter. If, therefore, wheat were 
 chosen by a nation as a general standard of value instead 
 of gold and silver, the value of all commodities estimated 
 in wheat, or, in other words, the price of all commodities, 
 might rise more than 100 per cent, in the short space of 
 two years. Such great and sudden irregularities in price 
 would throw commercial transactions into inextricable 
 confusion. It is, therefore, evident that a substance 
 should be selected as money which is subject to the 
 smallest possible fluctuations in value ; upon this quality 
 mainly depends the efficiency with which money can ful- 
 fil the functions which are required from it, as a standard 
 of value. 
 
 Let us now enquire what qualities money ought to 
 possess, in order that it should become a convenient 
 medium of exchange. In the first place, the substance 
 chosen as money must possess an intrinsic value of its 
 own. This may appear to be contradicted by the fact 
 that a portion of the money of England and many other 
 nations consists of bank notes. In England, a person 
 considers a Bank of England note for 101. to be in every 
 respect as valuable as ten sovereigns, yet the note has no 
 intrinsic value whatever; thousands of such notes might 
 be manufactured for a few shillings; iVhereas the ten 
 sovereigns for which one of these notes can be exchanged 
 have an intrinsic value of their own ; if they were melted, 
 they would be as valuable in bullion as in coin. The bank 
 note derives none of its value from the substance of which 
 it is composed; it is simply a written warrant of a promise 
 to pay, whenever demanded, the sum which it represents. 
 If all believe that this promise is certain to be strictly 
 fulfilled, there can be no reason why the note should not 
 be as freely accepted as money. But a nation can never 
 feel this entire confidence, either in the promise of the 
 
On Money. 
 
 355 
 
 state or of private individaals, until government becomes 
 firmly settled, and commercial credit securely established. 
 It is therefore necessary that the substance which is 
 chosen as money should possess an intrinsic value. It 
 has been explained, in a former chapter, that a substance 
 acquires value from the conjunction of two qualities : in 
 the first place, labour must be employed to obtain it, 
 for the most essential necessaries of life, such as water 
 and air, have no exchange value, if spontaneously supplied 
 by nature ; secondly, no substance can have value unless 
 it can be made to satisfy some want, or gratify some de- 
 sire, of man. Hence, in order that the substance chosen 
 as money should possess an intrinsic value, it must in the 
 first place require labour to obtain it, and secondly, it 
 must be regarded as useful for other purposes than being 
 employed as money. 
 
 The last requisite possessed by money, upon which we 
 shall remark, is, that it should be a commodity suffi- 
 ciently expensive to contain great value in a small bulk. 
 If this were not so, whenever any valuable article was 
 sold, the money which it realised would be extremely 
 cumbrous, and inconvenient to carry about, in conse- 
 quence of its great weight and bulk. If we possessed no 
 money but our copper coinage, the copper money equi- 
 valent to ten sovereigns would be a heavy load ; and the 
 inconvenience would be still greater if a less valuable 
 metal than copper, such as iron, were selected. 
 
 Having now remarked upon the qualities which ought 
 to belong to a substance which is used as money, we shall 
 be in a position to appreciate the great advantage which 
 the precious metals possess, as money, in comparison with 
 any other substances. The first requisite is, that the 
 substance of which money is composed should be liable 
 to as few variations in value as possible. Gold and silver 
 both fulfil this condition in a very striking manner. Al- 
 though, as will be explained in a subsequent chapter, the 
 discovery of new gold and silver mines may so much 
 increase the supply of these metals as permanently to 
 affect their value, yet they are liable to much less varia- 
 tion in value than is probably the case with any other 
 substance. Changes of temperature so much affect the 
 growth of agricultural produce, that the abundant crop 
 
 Z2 
 
 BOOK in. 
 
 CH. V. 
 
 and should 
 he of great 
 value in a 
 smallbulk. 
 
 Advan- 
 tages pos- 
 sessed by 
 gold and 
 silver. 
 
 They do 
 not sud- 
 denly vary 
 
356 
 
 Manual of Folitical Hconomy. 
 
 BOOK III. 
 CH. V. 
 
 in vabie 
 from year 
 to year. 
 
 They pos- 
 sess intrin- 
 sic value. 
 
 of one year may be succeeded by great scarcity in the 
 next. Such causes, however, can in no way influence the 
 productiveness of mines. The demand for some commo- 
 dities varies almost from day to day, and the variation 
 causes those constant fluctuations in price alluded to in 
 the last chapter. Gold and silver, except when used as 
 money, are chiefly employed for the manufacture of 
 ornaments, and various articles of luxury. Now it is 
 evident that the demand for gold and silver plate does not 
 vary greatly from year to year. The last twenty-five to 
 thirty years may seem to offer an exception to the constancy 
 in the value of the precious metals, for since the discovery 
 of the gold mines of California in 1848, and those of 
 Australia in 1850, the annual yield of gold has increased 
 at least 300 per cent. During the last few years some 
 silver mines of such extraordinary richness have been dis- 
 covered in the United States that the annual aggregate 
 production of silver has increased from £7,000,000 sterling 
 to more than £14,000,000 sterling. There is no question 
 of the day more important for the political economist to 
 discuss than to trace the effects of these recent discoveries 
 of the precious metals. This must be reserved for a 
 separate chapter. Although it is not improbable that the 
 value of gold and silver may in future years be greatly 
 depreciated by these discoveries, yet such sudden changes 
 in the annual yield are extremely rare. In fact, history 
 affords no other similar instance, except the discovery of 
 the gold and silver mines of the American continent, at 
 the time when the New World first became known to the 
 Old. It is not therefore necessary for us to qualify our 
 remark, that gold and silver are, as a general rule, subject 
 to less frequent variations in value than almost any other 
 substances. 
 
 The second of the enumerated qualities which ought to 
 belong to money is, that it should possess an intrinsic 
 value of its own. Nations, even from a remote antiquity, 
 have always placed a great value upon gold and silver. 
 Ancient remains prove that the most costly and highly 
 wrought ornaments have long been manufactured from 
 gold and silver. It is no wonder that ornaments in every 
 age should have been made from these metals; their 
 •singular brightness gives them beauty, and it is a beauty 
 
On Money. 
 
 357 
 
 which is scarcely effaced by time. Iron soon rusts and 
 decays, copper soon becomes corroded, but golden orna- 
 ments are dug up from the bogs of Ireland in almost as 
 perfect a state of preservation as when they adorned the 
 primaeval inhabitant of that island. The great mallea- 
 bility of gold and silver gives the workman abundant 
 opportunity to display his artistic skill. Moreover, gold 
 and silver have always been sufficiently rare to be esteem- 
 ed for their scarcity. 
 
 The great value possessed by these metals gives them 
 the third essential quality which ought to belong to money ; 
 namely, that it should contain a great deal of value in a 
 small bulk. It should also be remarked, that gold and 
 silver possess other qualities which make them specially 
 adapted to fulfil the functions of money ; these metals are 
 extremely durable, and they can be coined with facility, 
 because they can be divided into portions containing any 
 assigned quantity or weight. 
 
 All these considerations combined cause gold and silver 
 to fulfil the purposes of money far more completely than 
 any other substances. It is true that our own country, 
 and several others, have copper, or rather, bronze, money 
 in addition to gold and silver. Copper, though very 
 much less valuable than gold or silver, is very convenient 
 for small payments. A piece of gold or silver, which in 
 value would represent a penny, would be almost too 
 small an object to be perceived ; and on the other hand, 
 if copper were used as the only money, any large payment 
 would require a weight of copper money too great to be 
 carried by an individual. 
 
 Although the metallic currency of this country is com- 
 posed of gold, silver, and copper money, yet it is found 
 convenient that only one of these substances should be a 
 general standard of value. The substance thus selected 
 is gold. Other countries, however, have adopted silver 
 instead of gold, as a general standard of value. We shall 
 be able easily to explain why gold is a better standard of 
 value than silver. In the first place, gold is the more 
 costly metal of the two, and it therefore contains greater 
 value in small bulk. Secondly, it has been found by ex- 
 perience that the cost of obtaining gold, and consequently 
 the value of gold, varies less than the value of silver, and 
 
 BOOK III. 
 CH. V. 
 
 Tliey have 
 great value 
 in a small 
 bulk. 
 
 Copper 
 money. 
 
 Conveni- 
 ence of 
 taking 
 either gold 
 or silver as 
 the only 
 standard. 
 
358 
 
 Mcmual of Political Economy. 
 
 BOOK III. 
 OH. V. 
 
 A double 
 standard 
 is unde- 
 sirable. 
 
 liecause it 
 is affected 
 by varia- 
 tions in 
 the value 
 of two 
 substances. 
 
 Ilegula- 
 Honsiohich 
 
 sufficient has already been stated to show the importauce 
 of possessing, as a standard of value, that substance whose 
 value is most uniform. 
 
 It has, however, been frequently proposed to make both 
 gold and silver a general standard of value, and the 
 adoption of such a plan would involve what is technically 
 termed a double standard. Various reasons may be stated 
 which will prove that such a double standard is extremely 
 undesirable. We have already pointed out the incon- 
 veniences consequent upon any variations in the value of 
 the substance which is adopted as the standard of value. 
 Gold and silver are both liable to fluctuations in value ; 
 these metals, for instance, may at any time be cheapened, 
 in consequence of the discovery of productive mines, and, 
 on the other hand, the cost of obtaining gold and silver 
 may be increased by the gradual exhaustion of the richest 
 gold and silver mines. If, however, gold and silver are 
 both adopted as a standard of value, the uniformity of 
 this standard will be affected by variations in the value 
 of two substances instead of one. For instance, let it be 
 supposed that the value of silver is reduced five per cent., 
 in consequence of the discovery of some rich silver mines. 
 Let it also be assumed that nothing has occurred to affect 
 the value of gold ; consequently, the value of silver, esti- 
 mated in gold, will be depreciated five per cent; or, in 
 other words, an ounce of gold will exchange for five per 
 cent, more silver than it did previously. Now a double 
 standard implies that any person who has a payment to 
 make can use his own discretion as to whether he shall 
 pay the amount in gold or silver. If, therefore, the case 
 just supposed should arise, and the value of silver should 
 be depreciated five per cent., it is manifest that every 
 person who had a debt to discharge would take advantage 
 of this depreciation, and all payments would consequently 
 be made in silver instead of in gold. The result would 
 manifestly be, that the amount to be paid would be re- 
 duced five per cent., and the amount to be received would 
 consequently in every case be diminished by a similar 
 amount. It is evident that this unfortunate and most 
 mischievous disturbance in the terms of monetary con- 
 tracts is avoided if gold is the only standard of value. 
 
 It must not be imagined that England has a double 
 
On Money. 
 
 359 
 
 standard, because silver and copper money form a part 
 of our metallic currency. Our silver and copper money 
 must be regarded as subsidiary coins, and by a very simple 
 arrangement all the advantages are enjoyed arising from 
 the employment of such coins, without any of the incon- 
 veniences which belong to a double standard. It is fixed 
 by law, in this country, that each silver coin should con- 
 tain a certain quantity of silver, and it is also further 
 enacted that these coins should exchange for, or, in other 
 words, be equivalent in value to, a fixed quantity of gold. 
 Thus a shilling always contains the same quantity of silver, 
 a sovereign always contains the same quantity of gold, and 
 twenty shillings are made equivalent in value to one 
 sovereign. The silver, however, which is contained in 
 twenty shillings is not really equivalent in value to a 
 sovereign, for if the shillings were melted down, the silver 
 which they contain would not purchase so large a quantity 
 of gold as is contained in a sovereign. The Mint, there- 
 fore, obtains a profit on the silver which it coins ; in fact, 
 our silver coinage may be regarded as a slightly depre- 
 ciated currency. The Mint, however, is not permitted to 
 issue more than a certain amount of silver coinage, and 
 the reason why a silver coinage is, as it were, slightly 
 depreciated, may be readily explained. For suppose that 
 the weight of gold in a sovereign, and the weight of silver 
 in a shilling, had in the first instance been so arranged 
 that the quantity of silver contained in twenty shillings 
 had been exactly equivalent in value to the gold contained 
 in a sovereign. If this plan had been adopted, any subse- 
 quent rise in the value of silver compared with gold would 
 have made it profitable to melt silver coin, and sell it as 
 bullion. The silver coinage of the country would thus be 
 constantly liable to be absorbed, for the purpose of being 
 melted down ; therefore, one of two things would occur, 
 either the country would soon lose its silver coinage, or 
 the Mint would have to bear a heavy loss ; since, if silver 
 rose in value compared with gold, the Mint would mani- 
 festly lose upon all the silver coined, and an unlimited 
 amount might be demanded as long as it continued pro- 
 fitable to melt silver coin. 
 
 Such a contingency is, however, obviated by the judi- 
 cious regulations which control the Mint. For since twenty 
 
 BOOK III. 
 CH. V. 
 
 preserve a 
 single 
 standard 
 in Eng- 
 land. 
 
 Beasons 
 for a slight 
 deprecia- 
 tion of the 
 silvereoin- 
 
 Regula- 
 tionsofthe 
 Mint in 
 England 
 
36o 
 
 Manual of Political Ecommy. 
 
 BOOE III, 
 OH. V. 
 
 and 
 France. 
 
 Reasons 
 for limit- 
 ing the 
 amount of 
 a legal 
 tender in 
 silver. 
 
 shillings, although they exchange for a sovereign, do not 
 contain an amount of silver equivalent in value to a 
 sovereign, it is manifestly unprofitable to melt down our 
 silver coinage, and sell it as bullion, unless there should 
 be a very considerable rise in the value of silver compared 
 with gold. The plan adopted by our Mint prevents any 
 profit being realised by the melting of silver, unless the 
 rise in the value of silver should be very considerable. In 
 the currency of France the amount of silver contained in 
 its silver coinage is much more nearly equivalent in value 
 to the gold coinage for which it exchanges, than is the 
 case in our own currency. For instance, the gold coin 
 termed a 'Napoleon' is said to represent twenty "'francs'; 
 and if four 'five-franc' silver pieces were melted down, the 
 silver which they contain was, at the time the standard 
 was fixed, as nearly as possible equivalent in value to the 
 gold contained in a 'Napoleon.' If therefore anything 
 should occur to increase the value of silver compared with 
 gold, it would become profitable to melt the silver coinage 
 of France and exchange it for gold. The melting of the 
 French silver coinage no doubt took place on a large scale 
 during the time when there was a rise in the value of 
 silver, consequent on the increased demand for silver to 
 be exported to India, chiefly in payment for the greatly 
 increased quantities of cotton that were purchased at very 
 high prices from India during the American civil war. 
 Gold took the place of the silver coinage which was thus 
 melted. 
 
 We have described our own silver coinage to be, as it 
 were, a slightly depreciated currency ; it might therefore 
 be supposed, that a person would incur a certain risk of 
 loss if he were compelled to accept silver instead of gold 
 in payment of a debt due to him. But in order to obviate 
 such an occurrence, a law has been passed, which enacts 
 that silver shall not be a legal tender for any amount 
 exceeding 40s., and copper coinage is not a legal tender 
 for any amount exceeding 5s. Silver and copper money 
 may, therefore, be regarded as merely subsidiary coins; 
 and thus all the advantages of having convenient coins to 
 discharge the smallest payments are obtained without any 
 of the disadvantages which belong to a double standard. 
 
CHAPTER VI. 
 
 ON THE VALUE OF MONET. 
 
 TO the expression 'value of money,' an ambiguity of 
 meaning is attached, which it is necessary clearly to 
 explain. The value of money has a popular signification, 
 which is quite distinct from its scientific meaning. If 
 the ' city article ' of any daily newspaper is perused it will 
 be perceived that the value of money is considered to be 
 synonymous with the current rate of interest. Thus the 
 value of money is said to be increasing, when the rate of 
 interest is rising. What is known as the Bank-rate of 
 discount is the measure, at any particular time, of the 
 value of money, where this expression is regarded as sig- 
 nifying the current rate of interest. The Governors of 
 the Bank of England announce from time to time, usually 
 at their weekly meetings, the terms on which they will 
 discount bills, or, in other words, the interest which must 
 be paid by those who wish temporarily to borrow money 
 from the Bank. In the language therefore of every-day 
 life, the value of money is considered to be represented 
 by the bank rate of discount ; the value of money is thus 
 said to rise, as this rate of discount advances, and to fall, 
 as the rate of discount declines. 
 
 It may be gathered, from the previous remarks on value 
 and price, that the expression ' value of money' has another 
 and very diflferent meaning. In political economy the 
 greatness or smallness of value is estimated by the power 
 which a commodity has to obtain other commodities in 
 exchange for it. If a sack of wheat will at the present 
 time exchange for a greater quantity of coal, of meat, and 
 of every other commodity than it would have exchanged 
 for a twelvemonth since, it may be said that the value of 
 
 BOOK IIT. 
 CH. TI. 
 
 Distinc- 
 tion be- 
 tween the 
 popular 
 and scien- 
 tific sense 
 of value of 
 money. 
 
 The scien- 
 tific sense 
 of this ex- 
 pression. 
 
362 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. VI. 
 
 The value 
 of gold 
 rises as 
 prices fall, 
 and falls 
 as prices 
 rise. 
 
 The price 
 of gold is 
 said to he 
 fixed by 
 law. 
 
 wheat has risen. If, on the other hand, the wheat ex- 
 changed for a less, instead of a greater, quantity of coal, 
 meat, &c., the value of wheat would be described as having 
 fallen. In a similar manner, if a certain quantity of gold 
 would, at the present time, exchange for a greater quantity 
 of coal, of meat, and of every other commodity, than it 
 would have exchanged for a twelvemonth since, it would 
 be said that the value of gold had risen ; on the other 
 hand, it would be affirmed that the value of gold had de- 
 clined, if the gold exchanged for a less, instead of a greater, 
 quantity of those articles just enumerated. But when it 
 is said that gold exchanges for a greater quantity of any 
 commodity, it is, in fact, asserted that the price of this 
 commodity has fallen; and again, when gold exchanges for 
 a diminished quantity of any commodity, the price of the 
 commodity has increased. Suppose that, a twelvemonth 
 since, the gold contained in two sovereigns would exchange 
 for a sack of wheat, and that now this gold exchanges fot 
 two sacks of wheat, it is manifest that the value of gold, 
 estimated in wheat, has increased twofold in the course 
 of a twelvemonth, and consequently the price of wheat 
 during this period has diminished in the same ratio ; for 
 wheat has, according to this hypothesis, during the time 
 declined in price from 40s. to 20s. a sack. When there- 
 fore, in political economy, the value of the precious metals, 
 or the value of money is spoken of, the purchasing power 
 of money is referred to; or, in other words, the power 
 which money has to obtain other commodities in exchange 
 for it. It must therefore be distinctly borne in mind, that 
 although men of business consi(Jer the value of money to 
 be represented by the rate of interest, yet the signification 
 which is here attached to the expression 'value of money' 
 is such as to describe the value of money to be great 
 when prices are low, and to be small when prices are high. 
 A few lines above it was remarked, that the value of 
 money is the same as the value of the precious metals of 
 which it is composed. This statement may perhaps require 
 some elucidation. Our readers have no doubt frequently 
 observed, that the Mint price of gold is SI. 17s. lO^d. per 
 oz. This price is fixed by law, and if an individual takes 
 gold in the form of bullion to the Mint, the authorities 
 are compelled by law to purchase it from him, at the price 
 
On the Value of Money. 
 
 363 
 
 of 3Z. 17s. 10J(^. per oz. The price of gold therefore, con- 
 sidered as metal, is by act of parliament fixed at an 
 invariable amount. This is not the case with any other 
 metal, for we are all aware that the price of a ton of iron, 
 or of a ton of tin, varies greatly from time to time. It 
 will now be explained what is really meant by the price 
 of gold being thus permanently fixed by law. 
 
 The fixed price which is given to gold by law is not 
 unfrequently the basis of most erroneous conclusions. 
 Some persons who profess to be authorities on monetary 
 afifairs decide, in the most off-hand manner, that the value 
 of gold has not been affected by the recent gold discoveries, 
 grounding this opinion upon the fact that the price of gold 
 ■has remained unchanged. They say an ounce of gold now 
 realises exactly the same price, namely 'Si. 17s. 10|d, as 
 it realised ten years since. How then, they ask, can the 
 value of gold have declined, whilst its price remains un- 
 altered ? But this constancy in the price of gold only proves 
 that the quantii;y of gold in a sovereign remains the same. 
 The Mint authorities give M. 17s. lO^d. for an ounce of 
 gold, because they know that there is just sufficient gold 
 in an ounce to manufacture three sovereigns, and that 
 portion of a sovereign which is represented by 175. lOJd. 
 Since, therefore, the price of gold remains constant, we 
 may speak of gold and buUioa as synonymous with the 
 value of gold when converted into coin. The value of 
 gold money, therefore, is regulated by the same laws as 
 those which regulate the value of gold in bullion. In 
 order, therefore, to investigate the value of money, it will 
 only be necessary to apply those principles already enun- 
 ciated which regulate the value of mineral products. 
 
 It is very important to keep most distinctly before the 
 student's mind, that money is composed of substances, the 
 value of which is regulated in the same manner as any 
 other ordinary commodities of trade. The subject of 
 money is rendered confused and difficult, because, in con- 
 sequence of the phraseology which is often employed, a 
 belief is encouraged that there is something mysterious 
 . connected with every economical question relating to 
 money. It will be remembered that in discussing the laws 
 of value and price, commodities were divided into three 
 distinct classes, and these three classes were separated from 
 
 Erroneous 
 conclu- 
 sions from 
 this state- 
 ment. 
 
 Its real 
 meaning. 
 
 The value 
 of gold is 
 regulated 
 by the or- 
 dinary 
 laws of 
 
364 
 
 Manual of Political Economy. 
 
 BOOK III. 
 OH. VI. 
 
 ApplieabU 
 to agricul- 
 tural and 
 mining 
 produce. 
 
 Although 
 tlie opera- 
 tion of the 
 law is con- 
 cealed by 
 the uncer- 
 tainty of 
 mining 
 operations. 
 
 each other respectively by the following characteristics. 
 In the first class were placed all those articles whose 
 supply was absolutely limited ; in the second class, all pro- 
 duce was included the supply of which would, if increased, 
 involve a greater proportionate expenditure of labour and 
 capital ; and, in the third and last class, were enumerated 
 all commodities whose supply might be increased without 
 any practical limit. 
 
 The commodities belonging to the second class were 
 described in general terms, as agricultural and mineral 
 produce. The laws of value and price which apply to this 
 class were expounded in Chapter III., Book ill. These 
 particular laws therefore will have to be applied in order 
 to establish the principles which regulate the value of 
 money ; because, as above remarked, the value of money, 
 and the value of the precious metals of which it is com- 
 posed, are synonymous expressions. It is hardly necessary 
 to repeat, that the fundamental conclusion established in 
 the chapter just referred to, may be expressed in the 
 following way. If the demand for agricultural or mineral 
 produce renders it necessary so to increase the supply 
 that resort must be had to less productive sources, the 
 price, or, in other words, the value of such produce, will 
 rise, in order to compensate the augmented cost of pro- 
 duction. It is true that this law is not brought so dis- 
 tinctly or so immediately into operation, in the case of 
 mineral as in that of agricultural produce, because mining 
 is far more speculative and uncertain than agriculture. 
 This uncertainty is most strikingly apparent in those mines 
 which are worked for the precious metals. Thus the gold- 
 digging of Australia has the character of a lottery. If a 
 man cultivates a plot of ground, he can calculate approxi- 
 mately the average produce it will yield, and the profit 
 that will be left to him ; but an Australian gold-digger , 
 cannot know beforehand whether the claim, upon which he 
 purchases permission to dig, will prove a complete blank, 
 or will contain nuggets sufficient to make him a rich man 
 in a few days. Although it may appear impracticable to 
 apply the principles of economic science to a branch of 
 industry so speculative and so irregular as gold-digging, 
 yet the Australian diggers are of course influenced, in 
 commeucing and continuing gold mining, by the average 
 
On ilie Value of Money. 
 
 365 
 
 amount of the gains realised. If the gold-fields become 
 more productive, a greater number of diggers would be 
 attracted to them, and the same effect would be produced 
 if the gold that was found became more valuable. 
 
 Agricultural and mineral produce, consistently with the 
 law above enunciated, becomes more valuable, or in other 
 words, rises in price, as it becomes necessary to increase 
 the supply, in order to meet an increased demand. An 
 increased demand for corn and meat is caused by an in- 
 creased consumption of food, and we are all aware of the 
 various circumstances which may affect the demand for 
 such -minerals as coal, copper, and iron; the demand for 
 these minerals increases with every extension of com- 
 merce. Let us, therefore, enquire. Is there any differ- 
 ence in the nature of the causes which affect the de- 
 mand for the precious metals? Gold (and the same 
 remark applies to silver) is devoted to two distinct pur- 
 poses. 
 
 1st. Gold is employed as an ordinary article of com- 
 merce. 
 
 2nd. Gold is the substance from which a great portion 
 of the money of most countries is made. By far the larger 
 part of the gold annually produced is devoted to the last 
 of these two purposes. 
 
 Gold is, however, employed in a great variety of ways, 
 both in arts and manufactures. But it is difficult even 
 approximately to estimate the quantity which is thus 
 absorbed. From the stamp which is in this country placed 
 upon gold and silver plate, we are enabled to ascertain 
 that the gold plate which is annually manufactured does 
 not in value exceed 40,OOOZ. The most competent autho- 
 rities differ greatly in their calculations with regard to the 
 amount of gold which is used in jewellery, gilding, and in 
 various other ways. Mr Jacob supposed that, thirty years 
 since, an amount of gold equivalent to 2,000,000Z. was 
 thus annually absorbed. If this estimate was correct, this 
 amount has probably been now doubled ; it is, however, 
 generally believed that Mr Jacob's estimate was much too 
 high. At any rate, the gold which is required for industrial 
 purposes cannot vary greatly from year to year. Hence, if 
 the supply of gold is suddenly doubled or trebled, as it was 
 about twenty-five years since by the discovery of the rich 
 
 BOOK III. 
 CH. VI. 
 
 Cauies 
 which may 
 raise the 
 price of 
 agricultu- 
 ral pro- 
 duce. 
 
 Do they 
 operate in 
 the case of 
 goldf 
 
 The two 
 uses of 
 gold. 
 
 The gold 
 used for 
 purposes of 
 art 
 
 does not 
 greatly 
 vary in 
 amount. 
 Hence the 
 increased 
 
366 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. TI. 
 
 produce it 
 chiefly 
 used for 
 money. 
 
 Wliat de- 
 termines 
 the amount 
 of money 
 employed. 
 
 A ssump- 
 tion made 
 for sim- 
 plicity. 
 
 General 
 causes 
 which de- 
 termine 
 the quan- 
 tity of 
 money in 
 circula- 
 tion. 
 
 deposits in Australia and California, it is evident that the 
 large additional supply must be almost entirely converted 
 into gold coinage. It therefore appears, that any increase 
 or decrease in the quantity of gold which is used, is almost 
 solely determined by the amount of gold which is manu- 
 factured into money. We must, therefore, in investigating 
 the demand for gold, enquire into the causes which regu- 
 late the quantity of money which each country may re- 
 quire. There is little difficulty in explaining the circum- 
 stances which regulate the particular demand a country 
 has for the various commodities it consumes. Thus 
 England needs so many sacks of wheat, because there are 
 a certain number of people to be fed. The quantity of 
 cotton goods which the English annually require for their 
 own use varies with the price at which these goods can be 
 sold ; each successive reduction in price gives a greater 
 number the power to purchase them, and consequently the 
 demand increases as the price is reduced. England's gold 
 coinage, at the present time, may be roughly estimated at 
 45,000,OOOZ. sterling; each year, on an average, about 
 2,000,000^. is added to this coinage ; this, therefore, may 
 approximately be regarded as the amount of gold which 
 England annually requires to maintain her metallic cur- 
 rency. But why has England this particular demand 
 for gold coinage ? Why should she not keep in circula- 
 tion twice as much gold coinage? In giving an answer 
 to these questions, an explanation will be afforded of the 
 principles which regulate the distribution of the precious 
 metals over the various countries of the world. 
 
 It would be better in the first place to suppose, for the 
 sake of simplicity, that England has no other money except 
 a metallic coinage. It will afterwards be considered 
 whether the conclusions which are arrived at, on this 
 supposition, have in any way to be modified, because 
 England possesses paper money, such as bank notes, in 
 addition to her coinage. 
 
 It will be necessary, as a preliminary enquiry, to inves- 
 tigate the general causes that regulate the quantity of 
 money which a nation requires to keep in circulation. 
 It is almost self-evident that the amount of money which 
 a nation needs must bear some proportion to its wealth. 
 England annually produces and accumulates a much 
 
On the Value of Money. 
 
 367 
 
 It is in 
 some pro- 
 portion to 
 the wealth 
 and popu- 
 lation of a 
 cov,ntry. 
 
 greater amount of wealth than Ireland. A much larger 
 quantity of commodities ■will therefore each year be bought 
 and sold for money, in England than in Ireland ; in order 
 to carry on this exchange, a greater amount of money will 
 be required in the one country than in the other. The 
 population of England also much exceeds that of Ireland. 
 English labourers are certainly as well remunerated as 
 Irish labourers ; wages are generally paid in money, and 
 therefore, as far as the payment of wages is concerned, 
 England will require a much greater amount of money 
 than Ireland. But we need scarcely remark further upon 
 this subject, as it must be evident that the amount of 
 money which a nation requires to carry on all its transac- 
 tions of buying and selling must bear some proportion to its 
 wealth and population. The vague expression ' some pro- 
 portion,' is advisedly used in order to warn the student 
 ao-ainst the fallacy of supposing that the money which a 
 country keeps in circulation is an accurate measure of its 
 national wealth. The error of such a supposition will be 
 clearly shown, if the mode of conducting the trade and 
 commerce of a country is for one moment considered. 
 
 A vast amount of wealth is daily bought and sold with- 
 out the transfer of any money ; in fact, it is not too much 
 to state, that money is rarely employed in any of those 
 laro'e transactions which constitute wholesale trade. The 
 Leeds manufacturer who purchases wool from the stapler 
 pays for it by a cheque, and not by gold or silver coin ; and 
 when he sells the cloth which he has manufactured, he 
 does not receive gold or silver from the purchaser, but he 
 is invariably paid by a cheque, or by a bill of exchange. 
 The cheques and bills of exchange which he may have 
 thus issued on his own credit are returned to his bank, and 
 the amount of money which they represent is deducted 
 from the aggregate amount of bills and cheques which he 
 may have received from others, and deposited at the same 
 bank ■ the balance which is left represents so much wealth 
 which the manufacturer keeps with his banker, either for 
 purposes of convenience or for security. It thus appears, 
 that a manufacturer who may produce in the course of a 
 year 100,000^. worth of cloth, may never have in his pos- 
 session a greater amount of money than is suflScient to 
 pav the weekly wages of his labourers, and to make such 
 
 Means by 
 which the 
 quantity of 
 money ire 
 circulation 
 is econo- 
 mised iy 
 manufac- 
 turers. 
 
368 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. VI. 
 
 For pri- 
 vate per- 
 sons. 
 
 Hence, 
 though the 
 absolute 
 amount is 
 uncertain, 
 it increases 
 with the 
 increase of 
 wealth and 
 popula- 
 tion. 
 
 The a- 
 mount of 
 money is 
 also affict- 
 ed by the 
 number of 
 commer- 
 cial trans- 
 actions. 
 
 daily payments as are usually discharged by ready 
 money. 
 
 As another illustration, it may be stated that an in- 
 dividual whose personal expenditure is lOOOZ. a year, need 
 never have more than a very small amount of money in 
 his possession at any one time. He will discharge all his 
 larger payments by cheques, and he will only require 
 money to pay the wages of his servants, and to meet 
 small current daily expenses, such, for instance, as buying 
 railway tickets, paying cab-fares, &c. It is consequently 
 manifest that the money which any individual has in bis 
 possession forms a very insignificant part of his aggregate 
 wealth. Although it is therefore impossible to tell, 
 from any d priori reasoning, whether the wealth of a 
 country is fifty times or a hundred times as great as the 
 amount of money which is kept in circulation, yet it may 
 nevertheless with certainty be concluded that, as the 
 wealth and population of a country increase, a greater 
 amount of wealth is bought and sold for money. Such a 
 conclusion is correct, because although a great amount of 
 wealth is exchanged without the transfer of money from 
 one individual to another, yet money is required, and is 
 always used in certain transactions', and these transactions 
 increase both in number and in amount as the wealth and 
 population of a country increase. Thus labourers receive 
 their wages in money. The wage-fund of the country 
 increases with every advance in its wealth, but a larger 
 wage-fund implies that a greater amount of money is 
 employed in paying the wages of the labourers. Again, 
 every individual uses money to discharge most of his 
 smaller payments, such as the purchase of railway-tickets, 
 the hiring of cabs, the settling of hotel-bills, &c. But as 
 the wealth and population of a country increase, more will 
 be spent in railway tickets, cab-fares, hotel-bills, &c., and, 
 consequently, a greater amount of money will be required 
 for these purposes. 
 
 In order still further to show the difficulty of assigning 
 any definite proportion between the wealth of a country 
 and the amount of money kept in circulation, it may be 
 mentioned that the amount of money which is required 
 to carry on the trade of a country may partly depend 
 upon the number of times a commodity is bought and 
 
On the Value of Money. 
 
 369 
 
 sold before it is consumed. To illustrate this, suppose 
 that a sack of flour is bought and sold ten times, to ten 
 different individuals, before it reaches the baker who 
 bakes it, and that each time the flour is paid for in money. 
 It is manifest that this buying and selling will put as 
 much money in circulation, or, in other words, will require 
 the use of as much coin, as if ten sacks of flour had been 
 at once sold by the miller to the baker. 
 
 Sufficient has now been said to establish the two 
 following, principles, which regulate the quantity of money 
 required to be kept in circulation : 
 
 1st. The amount of money required to be kept in cir- 
 culation depends upon the amount of wealth which is ex- 
 changed for money. Hence, cceteris jparihus, the amount 
 of money in circulation ought to increase as the population 
 and wealth of a country advance. 
 
 2nd. The amount of money required to be kept in 
 circulation also depends upon the number of times com- 
 modities are bought and sold for money, before they are 
 consumed. 
 
 The question now arises — Do the causes just described 
 as regulating the demand for the precious metals, afford 
 any explanation of the agency by which the demand and 
 the supply of the precious metals tend to an equality? 
 
 With regard to any other commodity, there is, as we 
 have shown, no difficulty in explaining this process of 
 equalisation; for the adjustment of the demand to the 
 supply, and vice versa, is always effected by a rise or fall 
 in price. An excess in the supply beyond the demand 
 means, that at the price at which any particular article of 
 commerce is offered for sale, there are not sufficient pur- 
 chasers to take the whole quantity which is offered. But 
 this apparent superfluity is, after all, a mere question of 
 price, fbr if the price be lowered, new purchasers will at 
 once come into the market, and there will cease to be an 
 excess in the supply. As soon as the price is sufficiently 
 reduced there will be purchasers for the whole of the 
 commodity which is offered for sale. The demand for a 
 commodity always varies with its cheapness, although the 
 ratio of this variation cannot be numerically defined. It 
 is not only different for different commodities, but it also 
 alters with every change in the economic condition of the 
 
 BOOK III. 
 CH. VI. 
 
 Two prin- 
 ciples at 
 which WK 
 have ar- 
 rived. 
 
 Applica- 
 tion of the 
 principle 
 of demand 
 and tupplg 
 to the pre- 
 cuma me- 
 tals. 
 
 F. M. 
 
 A A 
 
370 
 
 Manual of Political Economy. 
 
 BOOK III, 
 CH.VI. 
 
 We nmM 
 tubstitute 
 value for 
 price. 
 
 country. As an example, Mr Gladstone was confident 
 in his belief that a reduction of one hundred per cent, 
 in the price of inferior French clarets would cause 
 these wines to be purchased by classes of society in this 
 country who never before purchased them, and that there- 
 fore the consumption of this wine would increase much 
 more than one hundred per cent. As another example, 
 it is perhaps not too much to say that at the present day 
 even the poorest are generally able to obtain as much 
 bread as they require, and therefore it is not probable that 
 the demand for bread would be doubled, or, in other words, 
 that twice as much bread would be consumed, if the price 
 of bread were reduced one half. But although we cannot 
 beforehand define the exact point to which the price of 
 any commodity must either rise or fall to adjust the de- 
 mand to the supply, yet there can be no doubt as to the 
 agency by which this adjustment is effected : when the 
 demand exceeds the supply the price will rise, and thus 
 diminish the demand ; when, on the other hand, the supply 
 exceeds the demand, the price will fall, and thus increase 
 the demand. But it would be naturally asked, Can the 
 demand and supply of the precious metals be adjusted in 
 the same manner ? for it may be said the price of gold is 
 invariable; it is fixed by law at 31. I7s. 10|d. an ounce, 
 and, therefore, it would seem contradictory to assert that 
 an adjustment of the demand and supply of gold is effected 
 by a rise or fall in its price. This is a difficulty which 
 must be clearly explained. 
 
 It has been frequently stated that the price of any com- 
 modity is an expression synonymous with its value esti- 
 mated in gold, or in any other substance which is selected 
 as money. It is, therefore, an evident contradiction to 
 speak of the demand and supply of gold being adjusted 
 by a rise and fall in its price. The price of gold is, in 
 fact, a meaningless expression, since, according to the 
 signification which we have just attached to the word 
 price, the price of gold means the value of gold estimated 
 in gold, and this is a phrase which can have no meaning. 
 Let, therefore, the expression 'value of gold' be sub- 
 stituted for 'price of gold,' and this substitution will enable 
 us to escape from our apparent difficulty. The value of 
 gold accurately varies in the inverse ratio of the price of 
 
On the Value of Money. 
 
 37'- 
 
 commodities. If the prices of all commodities rise one 
 hundred per cent., the value of gold falls one hundred per 
 cent., for the same quantity of gold will exchange for or 
 purchase only half as much of each commodity. In the 
 absence, therefore, of any counteracting circumstances, if 
 the prices of all commodities rise one hundred per cent., 
 twice as much gold or silver is required each time any 
 commodity is purchased ; and there must consequently be 
 twice as much gold and silver in the country circulating in 
 the form of money. The following principle can therefore 
 be enunciated : — The amount of gold actually in circulation 
 varies, cceteris parihus, in the direct ratio of the price of 
 commodities. If the prices of all commodities rise, each 
 purchase requires an increased amount of money. Hence 
 more money is kept in circulation, or, in other words, the 
 quantity of metal employed is increased. 
 
 The following is a summary of the somewhat compli- 
 cated process by which the quantity of gold and silver in 
 circulation is regulated. 
 
 The greater is the quantity of coin in circulation, the 
 higher, cceteris paribus, wiU be the price of commodities. 
 But as the price of commodities rises, the value of gold, 
 or the value of any other substance out of which money 
 is made, declines. If the value of gold diminishes, the 
 profits of the miners who produce this gold must diminish, 
 and when the profits are thus reduced many will be dis- 
 couraged from gold mining, and the supply of gold will 
 consequently be also diminished. 
 
 We shall now be able readily to explain the means by 
 which the demand for gold is equalised to its supply. It 
 is necessary in the first place to inquire what is meant by 
 a country's demand for the precious metals ; in order to 
 simplify this inquiry, let it be supposed that such a metal 
 as gold is employed for no other purpose except to be 
 coined into money. This supposition will much simplify 
 the investigation, and will not in any sensible degree affect 
 the correctness of the ultimate conclusions ; for, as pre- 
 viously stated, the quantity of gold used for the ordinary 
 purposes of art and manufacture is subject to very small 
 variations from year to year. 
 
 According to this assumption it will be correct to say 
 that the amount of gold coinage which a country requires 
 
 AA2 
 
 BOOK in. 
 CH. VI. 
 
 Demand 
 
 for gold 
 
 varies 
 
 directly 
 
 with 
 
 prices. 
 
 Summary 
 of the pro- 
 cess 
 
 by which 
 the demand 
 for gold is 
 equalised 
 to the 
 supply. 
 
 If the 
 
 wealth of 
 
Marmal of Political Economy. 
 
 BOOK III. 
 OH. TI. 
 
 England 
 were to in- 
 crease, 
 either the 
 amount of 
 money 
 must in- 
 crease or 
 the value 
 of gold 
 must in- 
 crease. 
 
 Hypotheti- 
 cal case 
 investi- 
 gated. 
 
 If the de- 
 mand for 
 money in- 
 creases 
 faster than 
 thesvpply, 
 prices fall. 
 
 determines its demand for gold. It has already been 
 remarked in this chapter, that the amount of coinage 
 which a country keeps in circulation is primarily re- 
 gulated by the amount of wealth which is exchanged for 
 money, and by the number of times which any of the 
 commodities that compose this wealth are bought and sold. 
 If, in the absence of any counteracting circumstances, 
 England's wealth were doubled, and if in every trading 
 transaction the amount of wealth bought and sold were 
 doubled, England would require twice as much money in 
 order to efifect her transactions of buying and selling. But 
 in what sense is an increased amount of money necessary ? 
 What would be the consequence if a larger amount of 
 money were not brought into circulation ? These ques- 
 tions will be answered by showing, in the first place, that 
 the increased quantity of money is required in order to 
 preserve general prices unchanged ; and that, secondly, if 
 the money were not forthcoming, the prices of all com- 
 modities would decline, or, in other words, the value of 
 gold would be increased. 
 
 An investigation of the following hypothetical case will 
 substantiate these propositions. Let it be supposed that 
 the material wants of England's entire population are sud- 
 denly doubled, and that an adequate supply of commoditie.s 
 is spontaneously provided to meet this increased demand. 
 According to this hypothesis the supply of every com- 
 modity except money would be augmented ; each persoii 
 who before purchased one loaf of bread, one pound of meat, 
 and one coat, would now purchase two loaves, two pounds 
 of meat, and two coats. But since he possesses no more 
 money than he did when his material wants were satisfied 
 with only half the amount of commodities he now requires, 
 he and every other individual can only now give the same 
 quantity of money for two loaves, two pounds of meat, and 
 two coats, as they before gave for one loaf, one pound of 
 meat, and one coat. If, however, this be the case, bread, 
 meat, clothes, and every other article must have declined 
 one half in price. It is therefore evident that, in this 
 imaginary case, where circumstances have occurred which 
 doubled the demand for money without its supply being 
 increased, the price of all commodities will be diminished 
 one half, or, in other words, the value of gold will be 
 
On the Value of Money. 
 
 373 
 
 doubled; buying and selling, however, will not be inter- 
 fered with, the people will not be prevented satisfying 
 their demand for commodities, nor will less material wealth 
 be produced and consumed. 
 
 Again, it would be said that a nation requires, and 
 therefore has a demand for, a greater quantity of coinage, 
 if her population and wealth should increase ; but, in this 
 case, the greater quantity of coinage is required in order 
 to prevent prices from declining, for if the greater quantity 
 were not forthcoming, trade would not be prevented from 
 developing, the production of wealth would not be stopped, 
 but the prices of all commodities would inevitably decline. 
 This general decline in price is quite as undesirable as 
 a general rise in price, for if prices either suddenly rise or 
 suddenly fall the conditions of every monetary contract are 
 immediately altered; the annuitant, for instance, who is 
 in the receipt of his 1001. a year, may suddenly find, if 
 there is a general rise in the price of commodities, that his 
 annual income is only one half as valuable; or, in other 
 words, will only purchase him one half as much of the 
 necessaries and enjoyments of life. On the other hand, if 
 prices suddenly Ml, the burden of any fixed money pay- 
 ment will be at once increased; thus the farmer who is 
 bound to pay 500?. a year as rent to his landlord might be 
 .seriously impoverished, because this 500Z. would represent 
 twice as much agricultural produce. , It is, therefore, most 
 desirable that the value of gold should remain as constant 
 as possible. Hence, if an increase of population and wealth 
 causes a country to require a greater amount of coinage, 
 the demand for gold and silver which is thus produced 
 represents a real want. 
 
 Although it is clearly important that prices should not 
 vary, the question now arises, Why should prices happen 
 to be what they are at any particular time ? Why, on the 
 one hand, should there not have been a smaller production 
 of gold, and lower prices — or why, on the other hand, 
 should there not be a greater production of gold, and 
 higher prices ? The gold mines of the world have never 
 in one year yielded more than a small portion of what 
 they might have yielded if more labour and capital had 
 been employed upon them. But this increased amount of 
 labour and capital has not been embarked in gold mining, 
 
 BOOK III. 
 
 OH. Tr. 
 
 AUvaria- 
 tiom in 
 price are 
 undesira- 
 ble. 
 
 The aver- 
 age price 
 of commo- 
 dities is 
 determined 
 by the cost 
 of produc- 
 tion of 
 gold. 
 
374 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. TI. 
 
 The pro- 
 cess which 
 equalises 
 the supply 
 and de- 
 mand of 
 gold is not 
 peculiar to 
 itself, if 
 we substi- 
 tute value 
 for price. 
 
 Recapitu- 
 lation. 
 
 precisely for the same 'reason that a greater quantity of 
 labour and capital has not been employed upon the mines 
 of Cornwall. If the price of copper were greatly increased, 
 then copper mining would become a more profitable specu- 
 lation. There would be a greater inducement offered to 
 extend mining operations, and an increased amount of 
 copper ore would inevitably be raised. If, on the other 
 hand, the value of copper were diminished, the profits of 
 copper mining would also be diminished, and a smaller 
 quantity of copper ore would be annually raised. If, in 
 the same way, the value of gold were to increase, or, in 
 other words, if general prices were to decline, an increased 
 quantity of gold would be annually produced. If, on the 
 contrary, the value of gold were to fall, or general prices 
 to rise, the profits of gold mining would be decreased, and 
 the annual yield of gold would diminish, because with the 
 diminution in the profits of gold mining there would be 
 less inducement to employ labour and capital upon gold 
 digging. An increase in the demand for gold is evidenced 
 by a fall in the price of commodities ; but, as we have just 
 stated, such a fall in general prices stimulates an increase 
 in the annual yield of gold, and in this manner an agency 
 is constantly brought into operation to equalise the supply 
 of gold to the demand, or, in other words, to preserve 
 a uniformity of general prices. The process is exactly 
 analogous to the equg-lisation of the supply to the demand 
 in the case of every other commodity. If the demand for 
 cotton goods increases, the price or value of cotton goods 
 will rise, but a rise in the price of cotton goods causes 
 their supply to be also increased. The reason, therefore, 
 why there is an apparent exception in the case of gold 
 arises from this circumstance. An active demand for any 
 other commodity is characterised by a rise in its price or 
 value. The same holds true with regard to gold, but since 
 the price of gold is a meaningless expression, it is neces- 
 sary to say that an increased demand for gold signifies a 
 rise in its value; a rise in the value of gold can, however, 
 only be shown by a fall in general prices. 
 
 The leading propositions established in this chapter are 
 briefly these : — If the demand for gold increases, without 
 the sources of its supply becoming more produetive, the 
 increased quantity of gold required will be obtained at 
 
On the Value of Monet/. 
 
 375 
 
 a greater cost, and the result must be that the value of 
 gold will rise. An increase in the value of gold must be 
 shown by a fall in general prices. If, on the other hand, 
 rich gold mines should be discovered, and the cost of ob- 
 taining gold should be lessened, the supply of gold will be 
 increased, and its value must inevitably decline, unless 
 circumstances should simultaneously happen which should 
 cause various countries to require a greater amount of 
 gold money. If such circumstances should occur, an in- 
 crease in the demand for gold might be created, and the 
 whole of the additional gold yielded might be absorbed 
 without the value of this metal being decreased. If, on 
 the other hand, no circumstances should occur to increase 
 the demand for gold, the increase in the supply of gold 
 must cause a decrease in its value. But a diminution in 
 the value of gold, or, in other words, a rise in general 
 prices, creates an increased employment for gold, because 
 if the price of a commodity is increased, a greater amount 
 of money is required to be used each time a commodity is 
 bought and sold. In this way the supply of gold will be 
 always equalised to the demand, because, as the value of 
 gold becomes depreciated by an increased supply, the 
 demand for gold will also be increased in exact proportion 
 to the amount of this depreciation. Thus, if the value of 
 gold is decreased one half, or, in other words, general prices 
 are doubled, the quantity of gold money required will 
 also be doubled. This process of equalisation is moreover 
 assisted by the two following circumstances : 
 
 In the first place, as the value of gold diminishes, 
 a greater quantity of it will be used for purposes of art 
 and manufacture, and in this way a portion of the ad- 
 ditional supply of gold may be absorbed. 
 
 In the second place, a decrease in the value of gold 
 exerts an influence to limit the supply, because gold 
 mining will be rendered less profitable, and therefore the 
 least productive mines will gradually cease to be worked. 
 It will be shown, in a future chapter, that the principles 
 just enunciated render us much assistance in determining 
 the effects which have been produced by the recent gold 
 discoveries in Australia and California. 
 
 We have, in this chapter, explained the manner in which 
 the demand for gold is equalised to its supply in the case 
 
 BOOK III. 
 OH. TI. 
 
 Circum- 
 starwes 
 which tend 
 to eqitalise 
 the demand 
 to the sup- 
 ply of gold. 
 
.176 
 
 Manual of Political Economy. 
 
 of the countries which produce it; but other countries, 
 
 such as our own, yield no gold ; it is obtained entirely as 
 
 an imported commodity. It wiU be therefore necessary 
 
 to call to our aid the principles of international trade, in 
 
 order to explain how the quantity of gold is regul?ited 
 
 I which a country like England annually retains for the 
 
 I purposes of coinage. The subject of international trade 
 
 i will therefore be considered in the next chapter. 
 
CHAPTER VII. 
 
 FOREIGN COMMERCE OE INTEENATIOXAL TRADE. 
 
 THE advantages which a country derives from foreign 
 commerce must be patent to the most casual observer. 
 By foreign commerce a country obtains various com- 
 modities which she cannot produce herself; her people do 
 not perhaps possess the requisite skill, or her climate and 
 other circumstances of her physical condition are unsuited 
 to the growth and manufacture of the products in question. 
 Foreign commerce therefore extends the range of man's 
 enjoyments ; he is not confined to the products of his own 
 soil, but commodities are brought from every region of the 
 world to minister to his wants. Foreign commerce how- 
 ever confers another advantage which is equally important; 
 a single example will show how greatly foreign trade 
 stimulates the production of wealth by increasing the 
 efficiency of labour and capital. 
 
 If the economic condition of two countries is considered 
 it will at once be perceived that there is the greatest pos- 
 sible variation in the relative advantages which they 
 respectively possess for the production of various commo- 
 dities. For instance, the mixture of coal and iron-stone, 
 in alternate seams, gives England a striking advantage in 
 the manufacture of hardware. On the other hand, a country 
 like France has peculiar facilities for the growth of wheat ; 
 her land is fertile, and her labour is cheap. It may there- 
 fore be assumed that in England iron is comparatively less 
 costly to produce than wheat, and that in France the 
 production of wheat is comparatively less costly than that 
 of iron. In order to explain the advantage, which each of 
 these countries derives from trading with the other, let it 
 
 Advan- 
 tages of 
 interna- 
 tional 
 trade. 
 
 The mu- 
 tual ad- 
 vantage 
 gained by 
 France 
 
 wheat to 
 England 
 for hard- 
 ware. 
 
378 
 
 Manual of Folitical Economy. 
 
 BOOK III. 
 OH. Til. 
 
 This ad- 
 vantage 
 may be 
 gained 
 whenever 
 the prices 
 of two arti- 
 cles bear 
 a different 
 proportion 
 to each 
 other in 
 different 
 countries. 
 
 be supposed that in France the production of a ton of pig 
 iron requires as much labour and capital as the production 
 of twenty sacks of wheat ; but that in England the same 
 quantity of iron requires as much labour and capital as 
 would produce ten sacks of wheat ; then iron, estimated in 
 wheat, is twice as valuable in France as in England. 
 England therefore might say to France — It will be greatly 
 to our mutual advantage if you will let me supply you 
 with iron, and receive from you wheat in exchange for it. 
 For suppose you give me fifteen sacks of wheat for each 
 ton of iron that I send you, then we shall each gain five 
 sacks of wheat on every transaction; if you manufacture 
 the ton of iron yourself, it would cost you as much as 
 twenty sacks of wheat, whereas you only have to give me 
 fifteen sacks. On the other hand, I should only be able to 
 get ten sacks of wheat for a ton of iron, if I sold the iron 
 in my own country. We therefore each of us obtain a 
 profit upon the transaction, which is represented in value 
 by five sacks of wheat. This is a great gain, and a great 
 saving of wealth, for the gain is made at no one's ex- 
 pense. 
 
 In order that two countries should enjoy those striking 
 advantages which have just been pointed out as resulting 
 from foreign commerce, it is not necessary that of the two 
 commodities exchanged the first should be dearer in the 
 one country than in the other, and that the second com- 
 modity should be cheaper ; all that is necessary is that in 
 the two countries there should be a difference in the 
 relative value of the commodities which are exchanged. 
 It is very important to bear this remark in mind ; its truth 
 may be illustrated by an example. Suppose the cost price 
 of a ton of iron produced in France is 30^., and that the 
 price of a sack of wheat is 30s. ; a ton of iron would 
 therefore exchange in France for twenty sacks of wheat. 
 But, in England, a ton of iron is supposed to exchange for 
 only ten sacks of wheat. Let it therefore be considered 
 that a ton of iron in England is worth 101., and that a sack 
 of wheat is worth 11. Wheat and iron are therefore both 
 cheaper in England than in France, but iron is three times 
 as dear in France as in England, and wheat is only one 
 and a half times as dear. There is therefore a difference 
 in the relative value of wheat and iron in the two countries, 
 
Foreign Commerce or International Trade. 
 
 2,79 
 
 and hence a foreign trade in these two commodities can 
 be carried on with great advantage to the two countries 
 concerned. For if England gives France a ton of iron in 
 exchange for fifteen sacks of wheat, each country will upon 
 the transaction obtain a profit which in value is to be 
 estimated at five sacks of wheat. But all the gain which 
 arises from this exchange would be at once lost if there 
 were no difference in the relative value of wheat and iron 
 in the two countries, for if wheat as well as iron were three 
 times as dear in France as in England, it would be im- 
 possible for England or France to realise any profit by 
 exchanging iron for wheat ; the transaction would involve 
 heavy loss to each party, because there would be no profit 
 to counterbalance the expense involved in exporting the 
 commodities from one country to the other. 
 
 In explaining the profit realised by two countries from 
 foreign commerce, we omitted to mention the cost of 
 carrying these commodities from one country to the other. 
 This cost of carriage has, of course, to be deducted when 
 estimating the aggregate gain resulting firom foreign trade. 
 This item must net only be considered, but it will be also 
 necessary to point out the causes which fix the exact 
 proportion of the whole cost of carriage which is borne by 
 each of the two countries. It will, however, much simplify 
 our investigations if for the present the consideration of 
 the cost of carriage is omitted. In order still more to 
 simplify the subject, it may, in the first instance, be as- 
 sumed that England's foreign commerce is restricted to one 
 country, and that her exports to this eoumbry, and her im- 
 ports from it, are confined to two commodities. Reverting 
 •to our former example, let it be supposed that England's 
 foreign commerce consists entirely in sending iron to 
 France, and receiving wheat in exchange for it. As yet it 
 has only been proved that England and France would 
 both realise considerable profit if there was a difference in 
 the relative value of wheat and iron in the two countries. 
 It has been shown above, that upon every ton of iron ex- 
 ported, England and France might both obtain a profit 
 equal in value to five sacks of wheat, if a ton of iron were 
 worth twenty sacks of wheat in France and ten sacks in 
 England : this particular profit would manifestly be realised 
 if fifteen sacks of wheat were given for one ton of iron. 
 
 BOOK III. 
 CH. Til. 
 
 Cost of 
 carriage. 
 
 If com- 
 merce be 
 supposed 
 restricted 
 to two 
 articles 
 
3 So 
 
 Manual of Political Economy. 
 
 BOOK in. 
 CH. VII. 
 
 whatwould 
 be the 
 terms of 
 exchange ? 
 
 The pro- 
 cess by 
 which the 
 equalisa- 
 tion of sup- 
 ply and de- 
 mand is 
 effected in 
 this case, 
 is similar 
 to that 
 which 
 takesplace 
 in home 
 trade. 
 
 But the question now arises — Is it necessary that these, and 
 no others, should be the terms of the bargain ? Why 
 should not twelve sacks of wheat instead of fifteen sacks 
 be given for each ton of iron ? The trade would still be 
 highly remunerative to each country, although the profit 
 resulting from the transaction would now be unequally 
 instead of equally distributed, for France would obtain a 
 profit represented by eight sacks of wheat upon each ton 
 of iron exported from England, whereas the profit realised 
 by England upon the same transaction would be no more 
 than two sacks of wheat. The terms of such a bargain are 
 certainly not regulated by blind chance ; the buyer and 
 seller in the transactions of international trade are shrewd 
 merchants, whose business it is to buy as cheaply as they 
 can and to sell as dearly. We will therefore proceed to 
 describe the manner in which the bargain is ultimately 
 adjusted. 
 
 If England could receive fifteen sacks of wheat for every 
 ton of iron she exported to France, the quantity of iron 
 which she would be willing to export upon these terms 
 might be greatly in excess of the quantity of iron which 
 France requires. If this be so, then the supply of iron to 
 France would manifestly be in excess of the demand; it 
 will therefore be necessary to consider how the supply 
 may be equalised to the demand. In making this in- 
 vestigation it wiU be shown that the process by which 
 this equalisation is effected exactly resembles that process 
 of equalisation which takes place in the case of com- 
 modities which are bought and sold in the country where 
 they are produced. 
 
 When the supply of any commodity is in excess of the 
 demand, the commodity must be cheapened in order to 
 equalise the supply to the demand ; by cheapening the 
 commodity its supply will be diminished, and the demand 
 for it will be increased. England, therefore, will be com- 
 pelled to offer her iron to France on more favourable terms, 
 if the quantity of iron which England exports is more than 
 sufficient to meet the demand which France has for iron. 
 Let it therefore be assumed that France only gives Eng- 
 land fourteen sacks of wheat instead of fifteen for each 
 ton of iron. This change in the terms of the bargain will 
 .aanifestly exert an influence in two distinct ways towards 
 
Foreign Commerce or International Trade. 
 
 381 
 
 et[ualisiiig the demand for iron in France to the supply 
 which is imported from England. 
 
 In the first place, the profit obtained upon the trans- 
 £kction by the English manufacturer of iron will be di- 
 minished, and therefore he will be induced to export a less 
 quantity of iron to France than he did when fifteen sacks 
 of wheat were given for each ton of iron. The supply of 
 iron to France will in this manner be decreased. The 
 demand for iron in France will, at the same time, be in- 
 creased; because if any commodity is cheaper the demand 
 for it always becomes greater. Iron must manifestly be 
 cheapened in France if fourteen sacks of wheat instead of 
 fifteen are given for each ton of this metal which is im- 
 ported. If, however, this alteration in the terms of the 
 bargain is not sufficient to equalise the demand to the 
 supply, and if the "quantity of iron which England is will- 
 ing to export still exceeds the quantity which France 
 requires, the terms of the bargain must be further altered 
 in the same direction. It may, therefore, be assumed that 
 England will be compelled to ofi'er France iron at the rate 
 of thirteen instead of fourteen sacks of wheat for each ton 
 of metal exported. Let it, therefore, be supposed that 
 these are the terms upon which the international trade is 
 finally adjusted; thirteen sacks of wheat being exchanged 
 for one ton of iron. Some important propositions may be 
 deduced from the description which has just been given 
 of the internal mechanism which regulates the bargains 
 of international trade. 
 
 As an example, the reader will observe that the whole 
 profit which accrues upon each transaction of international 
 commerce is shared, between the two trading countries, in 
 the inverse ratio of the demand which one country has for 
 the commodity which it imports from the other. Thus, in 
 the case just considered, the partition of the profit between 
 France and England is made according to the following 
 j^tio : — England upon each ton of iron exported obtains 
 a profit equal in value to three sacks of wheat, whereas 
 the profit secured by France is seven sacks of wheat, or, 
 in other words, more than twice as much as that which 
 falls to the lot of England. But if the demand for iron in 
 France should increase, France would obtain a smaller 
 share of the profit, and England of course a greater share. 
 
 BOOK III. 
 CH. VII. 
 
 An in- 
 creased de- 
 mand of 
 onecountTy 
 for the pro- 
 duce of t):f 
 other 
 makes the 
 terms les' 
 favourable 
 to it; 
 
 or, tJiepn- 
 fit of eacli 
 country is 
 in an tn- 
 verse ratio 
 to its de- 
 mand for 
 the import- 
 ed goods. 
 
^82 
 
 Manual of Political Economy. 
 
 BOOK III, 
 CH. Til. 
 
 Effect! of 
 lowering 
 the cost of 
 production 
 of one of 
 the commo- 
 dities ex- 
 changed. 
 
 It doei not 
 follow that 
 the country 
 in which 
 tlie pro- 
 
 This proposition, after what has been stated, can scarcely 
 need any explanation. When thirteen sacks of wheat are 
 given for one ton of iron, there is a certain definite quantity 
 of iron which England is willing to export upon these 
 terms. But if this particular quantity of iron no longer 
 satisfies the demand of France, then France, in order to 
 induce England to send her more iron, must offer higher 
 terms for this iron ; and thus France may, in consequence 
 of her increased demand for iron, be compelled to give 
 fourteen sacks of wheat instead of thirteen for each ton of 
 ii-on. The whole profit of the transaction will then be 
 divided between France and England in the ratio of six to 
 four, instead of in the ratio of seven to three. 
 
 Let us next inquire what will be the effect upon the 
 ratio in which the aggregate profits are divided if the 
 production of one of the commodities interchanged is 
 cheapened in England, but not in France. Suppose that 
 in England some rich deposits of iron ore are discovered, 
 or that, in the process of smelting, some improvements are 
 introduced which France has not either the appliances or 
 the enterprise to adopt. The cost of producing iron might 
 in this manner be so materially diminished in England 
 that a ton of iron wUl become equivalent in value to eight 
 sacks of wheat instead of ten, while at the same time there 
 is no diminution in the cost of producing iron in France ; 
 and therefore in that country a ton of iron, if no supplies 
 were obtained from other countries, would be still equiva- 
 lent in value to twenty sacks of wheat. The whole profit 
 which will now result from the interchange of iron for 
 wheat between England and France will be represented 
 by twelve sacks of wheat, instead of by ten. The question 
 therefore arises. Will England be able to appropriate to 
 herself the whole of the additional profit ? That she will 
 be able to do so may at first sight seem probable, because 
 the improvements or discoveries which have cheapened the 
 cost of iron are due entirely to her, and have as yet exerted 
 no effect in diminishing the cost of producing iron in 
 France. England has previously been obtaining from 
 France thirteen sacks of wheat for each ton of iron. If 
 France were still to carry on the commerce upon these 
 terms, now that a ton of iron is only worth eight sacks of 
 wheat in England, the profit obtained by England would 
 
Foreign Commerce or International Trade. 
 
 383 
 
 be increased from three sacks of wheat to five sacks of 
 wheat ; she would thus appropriate to herself the whole 
 drdvantage arising from the diminished cost of iron; France 
 still having to give for iron exactly what she did before. 
 But the competition of the English ironmasters will in- 
 evitably prevent this taking place : directly they find that 
 the profits obtained upon the export of iron to France are 
 so greatly increased, they will be anxious to send a much 
 larger quantity of iron to France; iron will, in fact, be 
 forced upon the French markets, gi-eatly in excess of the 
 quantity required. This is sure to be the case, since before 
 increased exports of iron were encouraged by high profits, 
 the demand for iron in France was exactly equalised to its 
 supply. The terms upon which the trade between France 
 anjd England is conducted must become less favourable to 
 the latter country, in order to induce England to export 
 less iron, and also to induce France to purchase a greater 
 quantity of the iron imported, from England. In this 
 manner England may be compelled to accept only 
 eleven, or even ten sacks of wheat, for each ton of iron. 
 We have here simply to repeat, what was stated in the 
 case above analysed, that the terms upon which the bargain 
 is finally adjusted depend entirely upon the equalisation 
 of the demand to the supply. If, when a ton of iron is 
 exchanged for eleven sacks of wheat, the quantity of iron 
 sent to France is in excess of that which she requires, the 
 terms of the exchange must be again adjusted ; it may for 
 instance happen that when only ten sacks of wheat are 
 given for one ton of iron, the demand for iron in France 
 wiU be exactly equal to the supply : if this be so, then ten 
 sacks of wheat for one ton of iron will be the terms upon 
 which the exchange is finally adjusted. But if these were 
 the terms upon which the bargain was ultimately arranged, 
 it is manifest that France must obtain the greater portion 
 of the profit which arises from the diminished cost of pro- 
 ducing iron, even although this diminution in the cost of 
 producing iron has been confined entirely to England. If 
 ten sacks of wheat are given for a ton of iron, the profit 
 secured by France upon each ton of iron she imports will 
 be an equivalent in value to ten sacks of wheat, whereas 
 the profit secured by England will be only two sacks of 
 wheat. This is a smaller profit than she obtained before 
 
 BOOK III. 
 CH. VII. 
 
 duction is 
 cheapened 
 will gain 
 all the ad- 
 vantage. 
 
384 
 
 Mamml of Political Econmhy. 
 
 BOOK III. 
 CH. YII. 
 
 The benefit 
 arising 
 from inter- 
 national 
 trade is 
 distributed 
 amongst 
 the whole 
 people. 
 
 Process by 
 which this 
 is effected. 
 
 the cost of producing the iron she exports was reduced. 
 France, therefore, has been able to appropriate the whole 
 of the additional profit. This may appear a paradoxical 
 result, but it is one which very possibly may really occur. 
 
 Allusion has so frequently been made in this chapter to 
 the profit arising from international trade that the ques- 
 tion will be naturally asked — Into whose possession does 
 this profit ultimately fall? When England obtains a profit 
 of five sacks of wheat upon each ton of iron she exports, is 
 this profit solely enjoyed by the English merchant, and 
 the English ironmaster, or is it distributed amongst the 
 whole nation? In answering this question it must be 
 borne in mind that the profit arising from international 
 trade is due to a saving of labour and capital ; this profit 
 cannot be permanently retained by the merchants, or by 
 those who produce the commodity exported ; because, as 
 has been so frequently remarked, the competition of capital 
 prevents exceptionally high profits being permanently 
 secured in any branch of industry. It would therefore 
 appear that the advantages which a country derives from 
 foreign commerce will be distributed amongst the con- 
 sumers of the imported commodity. It therefore becomes 
 necessary to consider how this distribution of gain amongst 
 the consumers of imported commodities is effected. 
 
 It has been supposed that in France a ton of iron costs 
 as much to produce as twenty sacks of wheat, whereas in 
 England the production of a ton of iron only costs as much 
 as ten sacks of wheat. It is therefore evident, supposing 
 there were no foreign commerce between the two countries, 
 that the price of iron would be 201. a ton in France, when 
 the price of wheat there was 11. per sack, and that in 
 England the price of a ton of iron would be 15?., when the 
 price of wheat in England was SOs. a sack. What effect 
 would be produced upon the price of these commodities by 
 a commerce between the two countries ? In order to in- 
 vestigate the question which has just been put, let it be 
 supposed that France gives England fifteen sacks of wheat 
 for each ton of iron ; a ton of iron must now, therefore, 
 in each country, be worth as much as fifteen sacks of 
 wheat. In France a ton of iron cannot any longer be 
 worth more than fifteen sacks of wheat, because in ex- 
 change for this quantity of wheat England is willing to 
 
Foreign Commerce or International Trade. 
 
 38s 
 
 give a ton of iron. Again, ten sacks of wheat will no 
 longer be worth as much as one ton of iron in England, 
 because, by sending iron to France, one ton of iron will 
 procure fifteen sacks of wheat. The value of iron, there- 
 fore, if estimated in wheat, has risen in England, and 
 declined in France; or, considering the question from a 
 different point of view, it may be said that the value of 
 wheat, estimated in iron, has fallen in England ; whereas, 
 on the other hand, it has risen in France. Foreign com- 
 merce has therefore, in each country, produced a change 
 in the relative value of these two commodities. The price 
 of a ton of iron will now, in France, be no longer equi- 
 valent in price to twenty sacks of wheat. In the same 
 way the price of a ton of iron will, in England, be no 
 longer equivalent to the price of ten sacks of wheat ; for 
 since in each country a ton of iron now exchanges for 
 fifteen sacks of wheat, the price of a ton of iron must in 
 each country be equivalent in price to fifteen sacks of 
 wheat. If, therefore, in England, a ton of iron still con- 
 tinues to sell for \Ql., fifteen sacks of wheat will only sell 
 for 101.; or, in other words, wheat will be 13s. ^d. a sack. 
 If, in the same manner, wheat continues to be 11. per sack 
 in France, a ton of iron will there sell for lol.; there will 
 therefore have been a reduction of twenty-five per cent, in 
 its price, for before, a ton of iron sold for 20?. Hence it 
 appears that the effect of foreign commerce between two 
 countries is to reduce the price, in each country, of the 
 commodity which is imported ; wheat will be reduced in 
 price in England, and iron will be reduced in price in 
 France, and the persons who consume wheat in England, 
 and those who use iron in France, will consequently have 
 distributed amongst them the gain which results from 
 international trade. In fact, the main effect of foreign 
 commerce is to increase the efficiency of labour and 
 capital ; foreign commerce causes labour and capital to be 
 applied in such a manner as will make them most pro- 
 ductive of wealth. According to our assumption, England 
 possesses peculiar advantages for the manufacture of iron, 
 whereas France is much better adapted to grow wheat 
 than to produce iron. Each country must therefore be 
 mutually benefited, if England produces iron for France, 
 and France grows wheat for England. 
 
 BOOK III. 
 CH. VII. 
 
 Tlie price 
 of the im- 
 ported 
 commodity 
 is lowered 
 in the im- 
 poTting 
 country. 
 
 F. M. 
 
 BB 
 
386 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. VII. 
 
 The price 
 of the ex- 
 ported 
 commodity 
 is general- 
 ly affected 
 in the 
 country 
 exporting 
 it. 
 
 It may be 
 supposed 
 that the 
 benefits of 
 interna- 
 tional 
 trade are 
 at the cost 
 of one class 
 of traders. 
 
 We do not pretend to say that the figures above given 
 represent with numerical accuracy the reduction in the 
 price of iron and wheat which would actually occur. 
 According to the hypothesis just made, wheat will in 
 England be reduced in price to 13s. 4d a sack, and iron 
 will in France be reduced to £15 a ton, if it is supposed 
 that the price of iron in England, and the price of wheat 
 in France, are unaffected by the international trade be- 
 tween these two countries. But it will be shown that 
 this cannot, as a general rule, be the case. Let it, for in- 
 stance, be assumed that 500,000 tons of iron is the quan- 
 tity which England each year requires for her own use, 
 and that she annually exports to France 100,000 tons ; tbe 
 question will then be suggested, Will the price of iron be 
 raised in consequence of the additional 100,000 tons of 
 iron which have annually to be produced for export to 
 France ? If no rise of price results, the price of iron will 
 be unaffected by foreign trade. But it was shown, in 
 Chapter ill. Book III., that the price of minerals is re- 
 gulated by laws analogous to those which control the price 
 of agricultural produce. Consequently, in the absence of 
 any counteracting circumstances, the price of iron must 
 rise if its supply has to be increased, because less pro- 
 ductive veins of iron-stone wUl have to be worked in order 
 to obtain the additional 100,000 tons of iron annually ex- 
 ported to France. These considerations show that the 
 price of iron may very possibly in England be advanced 
 from 10?. to 12Z. a ton. If this be so, the importation of 
 wheat from France will not cause so great a reduction in 
 its price as that above supposed, for although England 
 may still obtain fifteen sacks of wheat for one ton of iron, 
 yet this ton of iron is now worth 12Z.; the fifteen sacks of 
 wheat will therefore be worth 12Z. ; or, in other words, 
 wheat will in England be 16s., instead of 13s. 4c?., a 
 sack. 
 
 We trust that it has now been made evident that it is 
 not the traders, or merchants, but the consumers of im- 
 ported commodities who derive the greatest benefit from 
 foreign commerce. A cursory view, however, of the subject 
 may perhaps induce some to believe that the advantage 
 resulting from foreign commerce is in a great degree 
 counteracted by the pecuniary loss which is inflicted upon 
 
Foreign Commerce or International Trade. 
 
 the home-producers of those foreign commodities which 
 are reduced in price by foreign importation. For instance, 
 with reference to the trade in wheat and iron supposed to 
 exist between France and England, it may be said, that, 
 though there can be no doubt as to the benefit conferred 
 upon the English nation by a reduction in the price of 
 wheat from 30s. to 16s. a sack, it should on the other 
 hand not be forgotten that this reduction in price must 
 inflict serious loss upon the English growers of wheat ; 
 consequently the community is benefited at the expense of 
 one class of traders. This opinion, in fact, forms the 
 ground-work upon which were based many of the fallacious 
 arguments of the advocates of protection. We will there- 
 fore proceed to explain the manner in which the position 
 of the home-producer of a commodity is affected when the 
 price of the commodity is reduced by foreign importation. 
 In the example above investigated, the hypothesis has 
 been made, that 100,000 tons of iron are each year sent to 
 France, for which England obtains in exchange 1,500,000 
 sacks of wheat. England, now that she imports wheat, 
 will manifestly have to raise from her own soil a diminished 
 quantity of wheat. Her own yield of wheat might be 
 annually diminished by 1,500,000 sacks. The area of her 
 soil which is devoted to the growth of wheat will there- 
 fore be lessened, and wheat wiU no longer be grown upon 
 that land which is least fertile; or, in other words, the 
 least adapted to the growth of wheat. The margin of 
 cultivation will therefore ascend, and rents n^ust be re- 
 duced. The farmer will thus ultimately be compensated 
 for the reduction in the price of wheat ; the landlords will 
 sufifer a loss from this diminution in the value of their 
 land; the farmers may also be temporary losers ; some farm- 
 ers, for instance, may be bound by long leases, and rents 
 may not be immediately adjusted consistently with the re- 
 duction which is supposed to have taken place in the price 
 of wheat. The home-trader therefore may no doubt tem- 
 porarily suffer loss from the competition of foreign traders 
 in the same branch of industry; but it must be remembered 
 that everything will again be adjusted, because, as has 
 been so frequently remarked, the competition of capital is 
 constantly exerting a tendency to smoothe down any tem- 
 porary inequality in the profits of different trades. Even 
 
 BB2 
 
 387 
 
 BOOK III. 
 CH. VII. 
 
 Proof tliMt 
 this cannot 
 be the case. 
 
388 
 
 Manual of Political Economy. 
 
 BOOK HI. 
 CH. VII. 
 
 Effects of 
 an inter- 
 national 
 trade upon 
 the growth 
 of com in 
 countries 
 which im- 
 port it. 
 
 The a- 
 mount of 
 wheat pro- 
 duced in 
 
 if it is admitted that any particular class of traders are 
 injured by foreign importations, the loss of profit which 
 they thus suffer .cannot justly he regarded as a confiscation 
 of their private property, against which the government is 
 bound to protect them. There can be no right to which a 
 nation has a juster claim, than that every individsal of the 
 community should be freely permitted to obtain commodi- 
 ties where he can buy them on the cheapest terms, and to 
 sell them where he can realise the highest price. 
 
 The trade between England and France — ^which, as an 
 illustration, has already been analysed- — suggests one or 
 two other points for consideration, which must be ex- 
 amined in order to establish a complete theory of inter- 
 national trade. Summarising the hypothetical result at 
 which we have arrived, it will be remembered that 100,000 
 tons of iron are exported from England, and that in ex- 
 change for this iron, 1,500,000 sacks of wheat are imported 
 into England. It has also been supposed that iron has 
 been raised in price in England from 101. to 121. a ton, in 
 consequence of this foreign demand ; hence it has been also 
 concluded, that since fifteen sacks of wheat are given in 
 exchange for one iton of iron, fifteen sacks of wheat will 
 be in England of the same value as one ton of iron. 
 But if this be so, the price of wheat must manifestly be 
 in England 16s. a sack, because the price of iron is con- 
 sidered to be 12L a ton. It has been assumed that, if there 
 were no foreign trade, the price of wheat in England would 
 be 30s. a sack.; let it also be supposed that the English 
 nation annually consumes 6,000,000 sacks of wheat. Con- 
 sequently English farmers .can grow 6,000,000 sacks of 
 wheat, and obtain the .current rate .of profit if the price 
 of wheat is 30s. a sack. But if 1,500,000 sacks of wheat 
 are imported into England from Franoe, the quantity of 
 wheat which will then be required to be grown in England 
 will be 4,500,000 sacks instead of 6,000,000 sacks ; those 
 lands, therefore, will be no longer sown with wheat which 
 are least adapted for its growth'. It has been previously 
 proved that the price of wheat is determined by the cost of 
 producing it ,on those soils which are the least fitted for its 
 
 1 In order to simplify the investigation it is for the present assumed 
 that the demand for wheat is not increased in consequence of its dimin- 
 ished price. 
 
Foreign Commerce or International Trade. 
 
 389 
 
 growth. The price of wheat, therefore, will manifestly 
 decline if the quantity which is required to be grown in 
 England is diminished twenty-five per cent.; such a de- 
 crease as this in the quantity required to be grown at home 
 will manifestly result from the importations from France. 
 Before these foreign importations commenced, 30s. a sack 
 was a price adequate to remunerate those who grew wheat 
 upon the least fertile soils. The question therefore arises, 
 What will be the price which will adequately remunerate 
 the growers of wheat, when' the quantity of wheat required 
 is diminished twenty-five per cent. ? 
 
 The terms upon which the foreign commerce between 
 England and France is supposed to be conducted imply 
 that the price of wheat in England would be 16s. a sack. 
 But now this important point has to be considered — Will 
 the quantity of wheat which is required by England 
 (namely 4,500,000 sacks) be grown if the English farmer 
 can only obtain 16s. a sack for wheat? It is manifest 
 that the quantity of wheat required will not be produced 
 if 16s. a sack is not a remunerative price, for English 
 farmers grow wheat for profit, and not for philanthropy. 
 The people^ however, must be supplied with wheat; if 
 therefore 16s. a sack is not a sufficient price to induce the 
 English farm-ers to grow the quantity of wheat required, a 
 higher price will be willingly offered, rather than that 
 there should be any deficiency in the supply. Let it 
 therefore be supposed that wheat advances to 20s. a sack, 
 and that at this price the supply is sufficient to meet the 
 demand. But let us now consider in what manner the 
 commerce between England and France will be affected 
 by this advance in the price of wheat. At first sight it 
 may appear that the profits of those who export iron 
 would be enormously increased by this advance in the 
 price of wheat; an iron-master, for instance, if he sells 
 a ton of iron in England, only obtains \2l. for it, whereas 
 by sending it to France he can exchange it for fifteen 
 sacks of wheat, which are in England worth 15Z. ; there- 
 fore his profits appear to be increased by 3Z. upon each 
 ton of iron exported. But the competition of capital will, 
 in this as in every other case, render it impossible for the 
 iron-master to continue appropriating to himself these 
 exceptionally high profits ; each iron-master would eagerly 
 
 BOOK in. 
 
 CH. VII. 
 
 the country 
 will deter- 
 mine the 
 price of 
 wheat. 
 
 If the price 
 as deter- 
 mined pre- 
 viously is 
 insufficient 
 to cause 
 the neces- 
 sary a- 
 mx>vjnt to 
 he groion. 
 
 the price 
 must rise. 
 
 The profits 
 of pro- 
 du^ers will 
 not be 
 affected, 
 
390 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. TH. 
 
 but the 
 terms of 
 interna- 
 tional 
 trade will 
 be differ- 
 ently ad- 
 justed. 
 
 Is tlie con- 
 sumer of 
 commodi- 
 ties in- 
 variably 
 benefited 
 by inter- 
 national 
 trade ? 
 
 strive to send as much iron as possible to France if the 
 price obtained for a ton of iron exported to France ex- 
 ceeded by 21. the price realised for the iron when sold in 
 England. This anxiety to export iron would soon cause 
 the French market to be over supplied; iron would there- 
 fore fall in price in France, or, in other words, iron would 
 exchange for a less quantity of wheat. In this way the 
 quantity of wheat given for a ton of iron might be reduced 
 from fifteen to twelve sacks. This fall in the price of 
 iron iu France will increase the demand for ii-on in that 
 country, and it may be supposed that 120,000 tons of 
 iron are exported to France, whereas the annual export 
 of iron had before only amounted to 100,000 tons. This 
 increased demand in France for English iron will affect 
 its price in the latter country, and the price may con- 
 sequently advance in England from 121. to 13Z. a ton. 
 Such are the terms upon which it may be supposed that 
 the exchange between the two countries is ultimately con- 
 ducted. A ton of iron will therefore now be equivalent in 
 value to twelve sacks of wheat; but a ton of iron is in 
 England worth ISl., therefore the price of wheat in Eng- 
 land will be 21s. 8d. a sack. When wheat is at this price 
 a much greater quantity can be grown in England at a 
 remunerative profit than when a sack of wheat sold for 
 16s.; it may therefore be assumed that the wheat now 
 grown in England, together with the wheat imported from 
 France, is sufficient to supply the English market. From 
 what has been just stated it will be perceived that it is 
 necessary, in order to adjust the equation of international 
 trade, that the demand and the supply should be equalised 
 in both the countries. 
 
 It will be remarked, that the price both of the imported 
 and the exported commodity is affected by foreign com- 
 merce. It has for instance been supposed, if Englaad had 
 no foreign commerce, that the price of wheat would be 
 30s. a sack, and that the price of a ton of iron would be 
 101. It has been shown that, by foreign commerce, the 
 price of a sack of wheat may be reduced from 80s. to 
 21s. 8d., and the price of a ton of iron raised from 101. 
 to 131. It may therefore be naturally asked. Is it certain 
 that the consumer of commodities is benefited by foreign 
 commerce ? May not the advantage arising from the 
 
Foreign Commerce or International Trade. 
 
 391 
 
 reduction in the price of the imported commodity be 
 entirely nullified by a rise in the price of the exported 
 commodity? It can be proved, without entering into 
 details, that the wealth of a nation must be increased by 
 foreign commerce. Foreign commerce increases the pro- 
 ductive powers of labour and capital by causing labour 
 and capital in each country to be applied to those par- 
 ticular branches of industry for which the country has the 
 greatest natural advantages. Thus the wheat imported 
 into England would cost very much more, if grown in 
 England, than the iron costs with which this wheat is 
 purchased from France. Consequently foreign commerce 
 increases the productive powers of labour and capital, and 
 therefore must augment each nation's wealth. 
 
 It is however no doubt true, that a particular class of 
 consumers may not be benefited, but, on the other hand, 
 may be injured by foreign commerce. If, for instance, 
 wheat is imported from France to England, in exchange 
 for iron, an increased quantity of wheat must be grown in 
 France, and therefore the price of wheat will rise in 
 France; the iron which France imports from England will 
 of course be reduced in price. But to the great body of the 
 people, and certainly to the labouring classes, cheap iron 
 will afford no compensation whatever for even a slight rise 
 in the price of bread, and thus the labouring classes in a 
 country may be injured by foreign commerce, although it 
 augments the wealth of a nation. It is quite possible that 
 the labouring classes of a particular country may suffer 
 very seriously from foreign commerce, if the exports con- 
 sist of commodities which are more generally consumed 
 than those which are imported. If France exported wheat, 
 wine, and live stock, and imported woollen clothes and iron, 
 it is very probable that cheaper iron and clothes would not 
 adequately compensate the labouring classes in France for 
 advance in the price of meat, bread, and wine. The 
 injury which, in this manner, may be inflicted upon the 
 labouring classes by foreign commerce, will generally in 
 some degree be counteracted by advantages which are not 
 connected with the change in the price of commodities. 
 
 Foreign commerce economises labour and capital, and 
 therefore must exert some tendency towards increasing the 
 nominal wages of the labourer ; when labour and capital 
 
 It is possi- 
 ble that a 
 particular 
 class may 
 be injured. 
 
 BOOK III. 
 CH. TII. 
 
 Foreign 
 commerce 
 must tend 
 to raise 
 wages. 
 
392 
 
 Manual of Political Economy. 
 
 BOOK UI. 
 CH. Til. 
 
 Although 
 this loss to 
 the con- 
 sumer may 
 talce place, 
 
 restric- 
 tions on 
 trade are 
 impolitic 
 and unjust. 
 
 are economised, an equal amount of material wealth can 
 be produced by the application of a diminished quantity 
 of labour and capital. But if this be so, the labourer's 
 wages will be increased without encroaching upon his 
 employer's profits; in fact, since more wealth is produced, 
 there will be a larger aggregate amount to be divided 
 between the employer and the employed, and consequently 
 profits, as well as wages, may be augmented. 
 
 We have been the more anxious to point out the loss 
 which foreign commerce may inflict upon those who con- 
 sume the exported commodity, although the loss is one 
 which is doubtless generally more than made up for in 
 practice by counterbalancing advantages, because it is too 
 much the custom to think only of the interest of the 
 trader or merchant, and entirely to forget the consumer. 
 Many of our statesmen consider that the nation must be 
 advancing in prosperity and happiness if the Board of 
 Trade Eeturns exhibit an augmentation in the exports 
 and imports. But on behalf of the consumer it should be 
 borne in miad, that a rise in the price of the commodities 
 exported is not unfrequently a prominent feature of an 
 expanding foreign trade. Although this, as a possible 
 result of foreign trade, is one which ought not to be lost 
 sight of, yet we should be the last to advocate that com- 
 mercial intercourse between countries should be impeded, 
 because commodities may rise in price in the country from 
 which they are exported. A policy which should attempt 
 such restrictions would not only be unwise, but ought 
 almost to be stigmatised as wicked. Man, we conceive, 
 has an indefeasible right that the wealth which ministers 
 to his wants, and provides his enjoyments, should be pro- 
 duced with as little labour as possible. This can only be 
 secured by perfectly free commercial intercourse between 
 aU nations. The benefits conferred by foreign commerce 
 are truly cosmopolitan; for foreign commerce brings men 
 of every nation in contact, and thus becomes the most 
 powerful agent of civilisation. It removes the barriers 
 between nations, and makes them one, as far as their 
 industrial economy is concerned. A rancorous enmity, 
 combined with an ignorance of the true principles of trade, 
 has for centuries raised every possible obstacle to a trade 
 between France and England. Many of our manufactured 
 
Foreign Commerce or International Trade. 
 
 393 
 
 commodities are far superior to those possessed by the 
 French ; they, on the other hand, had products which 
 could not be grown on our soil, and under our climate. 
 If the Straits of Dover were bridged over by a narrow 
 strip of land, and the two countries formed one nation, 
 it would seem inexpressibly absurd that those who lived 
 in the north of the country should scarcely be permitted 
 to taste the products which are grown in the south ; it 
 would seem equally absurd, that people in one part of the 
 country should be compelled to manufacture certain com- 
 modities, under the most unfavourable conditions, because 
 they were not permitted to purchase these commodities 
 in another part of the country, although there, the quality 
 would be better, and the price cheaper. A restrictive 
 policy which seems so unreasonable if two nations become 
 one, is not more defensible when the two nations are 
 separated by a boundary which is often merely artificial. 
 
 It has been thought desirable to point out the injury 
 which in certain cases may be inflicted on particular classes 
 by foreign commerce, in order more completely to under- 
 stand the causes which make so many countries still favour 
 a policy of protection. The advantages which England 
 has derived from free trade are so striking and so apparent, 
 that our countrymen are perhaps too prone to treat those 
 who support protection with contempt and ridicule. It 
 should, however, be remembered that in almost every 
 country except our own the protectionist party is numerous 
 and powerful. Free trade has never been popular either 
 in France, the United States, or in our colonies. It has 
 moreover been repeatedly shown that in America and 
 Australia the great body of the working men are ardent 
 pr(>tectionists. The reason of this is probably due to the 
 fact that they observe the loss which may be inflicted upon 
 particular classes of the community by unrestricted foreign 
 commerce, whilst they fail to understand the advantages 
 which will more than compensate this loss. American 
 workmen, for instance, argue that their exports consist 
 chiefly of the necessaries of life, and that the imports 
 they obtain from Europe are mainly composed of com- 
 modities which are consumed by the wealthier classes. 
 They therefore conceive that the cheapening of these 
 articles would not compensate them for an increase in the 
 
 BOOK III. 
 OH. Til. 
 
 The rea- 
 sons why 
 protection 
 is still up- 
 held in 
 many 
 countries. 
 
394 
 
 Manual of Political Economy. 
 
 BOOK III. 
 
 CH. VII. 
 
 The fal- 
 lacy of the 
 doctrine of 
 "recipro- 
 city." 
 
 price of any of the necessaries of life. Again, it is supposed 
 that labourers have a particular interest in protecting the 
 trade to -which they are accustomed against foreign com- 
 petition. Thus a cotton operative in America might be 
 ready to admit that the aggregate production of wealth in 
 his country would be increased if all cotton goods were 
 imported from Lancashire. But he would argue that if 
 the cotton manufacture should cease iu America, he would 
 lose the advantage of his acquired skill; he would be com- 
 pelled to resort to some employment to which he was not 
 accustomed, and in which he would consequently obtain 
 lower wages. It is only fair to acknowledge that these 
 allegations may be true. The only way in which they can 
 be met is to assert the principle that mankind in general 
 is interested in having no unnecessary obstacles interposed 
 to the production of wealth. A government cannot be 
 pursuing a just or wise policy if it causes the labour and 
 capital of a community to work with diminished eflBciency. 
 The abolition of all protective duties in America might 
 temporarily cause some loss to particular classes. The 
 introduction of the greatest industrial improvements have 
 always caused some suffering to individuals. Not a few 
 coach-proprietors and road-side innkeepers were ruined by 
 railways. Every new machine that is invented dispenses 
 with the necessity of em^lojang some kind of manual 
 skill which was previously a valuable possession to those 
 who applied it. A government would not for these reasons 
 impede the construction of railways or the introduction of 
 machinery. It would be felt that the temporary interests 
 of the few must not stand in the way of the permanent 
 welfare of the many. Similar considerations resting on 
 a wider basis suggest the arguments to be urged against 
 protection. Free trade enables the labour and capital of 
 each country to work with maximum efficiency. The 
 additional wealth which is consequently produced when 
 commerce is unrestricted far more than compensates a 
 nation for the temporary loss inflicted on individuals by 
 the abolition of protective duties. 
 
 Although, as previously remarked, few can now be found 
 in England who would favour the re-imposition of protective 
 duties, yet there arose a few years since a new and some- 
 what curious objection to free trade. England, it is argued. 
 
Foreign Commerce or International Trade. 
 
 395 
 
 is suffering because with regard to the abolition of protec- 
 tive duties there has not been suflScient reciprocity between 
 her and other countries. It is in fact argued that free 
 trade is excellent when all countries adopt it, but that 
 a country pursues a too generous course, and one involving 
 too much self-sacrifice, if she abolishes protective duties 
 whilst her neighbours retain them. It is no doubt per- 
 fectly true that England would be benefited if other 
 countries adopted free trade. We therefore have every 
 inducement to do all in our power to make them take 
 such a course. It is also equally true that other countries 
 have shared the advantages which England has derived 
 from free trade ; but if we re-imposed protective duties 
 because other countries are sufficiently unwise to retain 
 them, the only result would be that we should inflict an 
 injury upon ourselves in order to avenge the unwise 
 financial policy pursued by other countries. England 
 would be largely benefited by the active stimulus which 
 would be given to her iron trade, if America would remove 
 protective duties upon manufactured iron. But we should 
 be acting with ignorant pei-versity if we refused to buy the 
 wheat from America which we so urgently require, because 
 America refuses to purchase as much English iron as we 
 are willing to sell her. It is therefore evident that with 
 regard to free trade there is reciprocity, but in a sense 
 directly opposed to those who desire that protective duties 
 should be re-imposed because other countries will not 
 abolish them. The advantages associated with free trade 
 are reciprocal, because even if only one country adopts 
 such a policy, the benefits resulting are diffused over every 
 country with which commerce is carried on. 
 
 It now becomes necessary, in order to complete the 
 theory of international trade, no longer to omit the con- 
 sideration of the cost of carrying from one country to 
 another the commodities which are interchanged. The 
 subject will be best explained by the former example. 
 Let it be assumed that the cost of exporting iron from the 
 English to the French market is \l. per ton, and that the 
 cost of exporting wheat from the French to the English 
 market is 2s. a sack ; the question therefore at once sug- 
 gests itself. What share of this cost of carriage is borne by 
 each country respectively ? Let the terms of exchange be 
 
 BOOK III. 
 CH. VII. 
 
 The cost of 
 carriage 
 must be 
 taken into 
 account. 
 
396 
 
 Manual of Political Economy. 
 
 BOOK III. 
 
 CH. Til. 
 
 The de- 
 mand in 
 each coun- 
 try will be 
 checked, 
 but in 
 different 
 ratios. 
 
 one ton of iron for twelve sacks of wheat; the iron in 
 England being raised in price from 101. to 131. a ton, in 
 consequence of the foreign demand. We will first examine 
 what will take place if the cost of carriage were borne 
 entirely by the exporter; the English merchants paying 
 the whole expenses of sending th* iron to I'rance, and the 
 French merchants- paying the whole expense of sending 
 wheat to England.- Upon this hypothesis, although Eng- 
 land would nominally sell her iron to France at ISl. a ton, 
 yet the real price would be only 121., because 11. per ton 
 has to be deducted for cost of carriage; similarly 2s. a sack 
 would have to be deducted from the nominal price which 
 the French obtain for the wheat sent to England. If, 
 therefore, France gave England 13L a ton for iron, iron 
 must be selling in the English market for 121.. a ton : if it 
 sold for more, it would be manifestly to the advantage of 
 the English merchant to dispose of his iron at home, 
 instead of exporting it to France ; for the same reason 
 wheat must be selling in the French market at 2s. a sack 
 less than the price at which England purchases it from 
 France, in order to compensate the French exporter of 
 wheat for the cost of carriage. Each country will therefore 
 have to pay a higher price for the commodities it im- 
 ports, in' consequence of the cost of carriage ; therefore the 
 demand for the imported commodity will not be so great 
 as it would be if no expense were involved in carrying 
 goods from one country to another. There will therefore 
 be a diminution in the French demand for English iron, 
 and in the English demand, for French wheat. But the 
 falling off in the demand may vary in different ratios in the 
 two countries. Thus a rise of 2s. in the price of French 
 wheat may diminish the demand for French wheat in 
 England by one-fifth, whereas a rise of 11. a ton in the 
 price of iron may cause only a decrease of one-tenth in the 
 quantity of iron purchased by France from England. Our 
 previous analysis has shown that the terms upon which 
 commodities are exchanged, in internatiomal trade, are 
 entirely regulated by the demand. Each' country purchases 
 the imported commodities by those which are exported, 
 and the amount of the demand which a country has for 
 any commodity depends upon its price ; if, therefore, a 
 country wishes another to purchase a greater quantity of 
 
Foreign Commerce or International Trade. 
 
 397 
 
 her exports, the price of these exports must he reduced ; 
 consequently, when the bargain of ijitemational trade is 
 finally settled, the price of imported and exported com- 
 modities must be ^uch that each country is enabled, by 
 means of her exports, to pay for all the commodities which 
 are imported. 
 
 If the cost of carriage should raise the price of the com- 
 modities interchanged in foreign commerce, the amount 
 of this increased cost, which is borne by each of the coun- 
 tries respectively between which the trade is carried on, 
 depends upon the relative degree in which the demand 
 for imported commodities is affected. Thus it was above 
 supposed that the cost of carriage diminishes the demand 
 for French wheat in England by one-fifth ; whereas the 
 same cause only diminishes the demand for English iron 
 in France by one-tenth. We will illustrate this by a 
 numerical example. 
 
 Suppose that 100,000 tons of iron would be each year 
 exported from England to France, if commodities could 
 be sent from one country to another without amy cost of 
 carriage ; and that, under the same supposition, France 
 would export to England 1,500,000 sacks of wheat in 
 exchange for the iron. Let it also be assumed that English 
 iron would sell for 151. a ton in France if there were no 
 cost of carriage ; the cost of carriage, being 1^. a ton, will 
 raise the price of English iron in the French market to 
 16Z. a ton. Similarly, it may be assumed that cost of 
 carriage raises the price of French wheat in the English 
 market from 20s. to 22s. a sack. If English iron were sold 
 to France at 15^. a ton, and if French wheat were sold to 
 England at 20s. a sack, France would import 100,000 tons 
 of iron, and England would import 1,500,000 sacks of 
 wheat; the equation of international trade would conse- 
 quently be satisfied, because the exports from each country 
 would be exactly equivalent in value to the imports. But 
 the rise in the price of English iron to 16Z. a ton di- 
 minishes the demand of France by one-tenth, and the 
 demand of England for French wheat is diminished by 
 one-fifth, if its price rises to 22s. a sack. Although, there- 
 fore, the French will only purchase 90,000 tons of iron at 
 16^. a ton, yet they may be willing to increase their pur- 
 chases by 5,000 tons, if iron is reduced in price 5s. a ton. 
 
 BOOK III. 
 CH. Til. 
 
 Tlie share 
 of cost of 
 carriage 
 lorne by 
 each de- 
 pends upon 
 this ratio. 
 
 Analysis 
 oftheeffect 
 produced 
 in a par- 
 ticular 
 
393 
 
 Manual of Political Economy. 
 
 BOOS III. 
 CH. VII. 
 
 liesults ar- 
 rived at 
 from this 
 analysis. 
 
 General 
 principles 
 
 The 
 
 English iron-masters must submit to 
 
 this reduction 
 in price, because the. demand for iron in France has been 
 diminished by the cost of carriage, and the supply will 
 consequently exceed the demand if the price of iron re- 
 mains at 161. a ton. The French exporters of wheat must 
 submit to a still greater reduction in price, in order to 
 equalise the demand to the supply, because the demand 
 of England for French wheat, when its price is raised, is 
 more affected than is the case with the demand of France 
 for English iron, when its price is raised. French wheat, 
 therefore, may sell in England for 21s. instead of 22s. a 
 sack ; if this be so, the French growers of wheat will only 
 obtain 19s. a sack for the wheat which they export to 
 England, because there must be sufficient difference be- 
 tween the price of wheat in France and England to cover 
 the cost of carriage, which is 2s. a sack. In a similar way 
 the English iron-masters will only obtain 14<l. 15s. a ton 
 for the iron which they export to France, if iron is sold in 
 the French market at 151. 15s. a ton ; because there must 
 be such a difference between the price of iron in the 
 French and English markets to cover the cost of carriage, 
 which has been assumed to be 11. a ton. The hypothesis 
 which has been made consequently leads to the following 
 results. 
 
 If there were no cost of carriage, iron would be selling 
 in the English and French markets at 151. a ton. The 
 cost of carriage, which is supposed to be 11. a ton, raises 
 the price of iron in France to 151. 15s. a ton, or, in other 
 words, increases the price of iron by 15s. a ton. It would 
 therefore appear, that France pays seventy-five per cent, 
 of the cost which is involved in sending iron from England 
 to France. 
 
 Again, if there were no cost of carriage, French wheat 
 would be selling in England and France at 20s. a sack ; 
 the cost of carriage, which is supposed to be 2s. a sack, 
 raises the price of French wheat in England to 21s. a sack ; 
 the cost of carriage, therefore, although amounting to 2s. 
 a sack, only raises the price of wheat Is. a sack in England. 
 It would therefore appear that England only pays fifty 
 per cent, of the cost which is involved in sending wheat 
 from France to England. 
 
 These results consequently lead to the conclusion that 
 
Foreign Commerce or International Trade. 
 
 399 
 
 France contributes more to the cost of carriage than 
 England, or, in other words, that as far as international 
 trade is concerned, the latter country is placed in a better 
 position, as regards the cost of carriage, than the former 
 country. This conclusion still further corroborates the 
 following principle — If any new element, such as cost of 
 carriage, affects the terms upon which the trade between 
 the two countries is conducted, the re-adjustment of the 
 bargain will most turn to the advantage of that country 
 whose demand for the imported commodities is either 
 most diminished or least increased by the new conditions 
 of which account has to be taken. 
 
 It has been assumed, in the remarks which have just 
 been made, that the difference in the price of, any com- 
 modity, in two countries between which there is free 
 commercial intercourse, cannot exceed the cost of sending 
 a commodity from one country to the other. Although 
 this proposition appears to be a self-evident truth, yet it 
 may be perhaps advisable to say a few words upon it. 
 Let us take, as an example, the case above analysed. It 
 has been there assumed that the cost of sending iron to 
 France is 11. a ton, and the cost of sending wheat from 
 France to England is 2s. a sack. If there were no cost of 
 carriage, the price of iron and wheat must be the same 
 in England as in France; because if iron would realise 
 even as little as 2s. 6d. a ton more in France than in 
 England, the English iron-masters would vie with each 
 other to sell as much of their iron as possible in France, 
 in order to secure the extra 2s. 6d. a ton. This eager 
 competition would rapidly reduce the price of iron in the 
 two countries to an equality. It will be remembered that 
 ■ it has been also assumed that if there were no cost of 
 carriage English iron would sell in each country for 151. 
 a ton, and that French wheat would sell in each country 
 for 20s. a sack. These prices would adjust the equation 
 of international trade, enabling the exports of each country 
 exactly to pay for the imports. Again, it has been as- 
 sumed that, when the cost of carriage is taken into 
 consideration, English iron must sell for 151. 15s. a ton 
 in France, and French wheat must sell in England for 
 21s. a sack, in order that the equation of international 
 trade may be satisfied. The question now suggests itself, 
 
 E00£ III. 
 OH. VII. 
 
 as to the 
 effect pro- 
 duced by 
 any new 
 element, 
 such as 
 cost of 
 carriage. 
 
 The as- 
 lumption 
 made 
 above, 
 that the 
 difference 
 of price of 
 any com- 
 modity in 
 two coun- 
 tries can- 
 not exceed 
 the cost of 
 carriage, 
 shovm to 
 be true. 
 
400 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. VII. 
 
 The dif- 
 ference of 
 price must 
 exactly 
 equal the 
 coat of 
 carriage. 
 
 These re- 
 sults are 
 not affect- 
 ed by the 
 difference 
 ofcurrency 
 in two 
 countries. 
 
 What, under these circumstances, will be the price of 
 English iron in England, and what will be the price of 
 French wheat in France ? The answer may, at once, be 
 given, that the price of iron in England will be 14?. 15s. a 
 ton, and that the price of wheat in France will be 19s. 
 a sack. This must be the case, for since the cost of sending 
 iron from England to France is supposed to be \l. a, ton, 
 the difference in the price of iron in the two countries 
 must be 11. a ton. If the difference were less than this, 
 and the price of iron were 15Z. a ton in England, no iron- 
 masters would send any iron to France, as it would be so 
 much more remunerative to sell it in England. 
 
 Again, there cannot be a greater difference in the price 
 of iron in the two countries than \l. a ton, for if iron were 
 l<al. 10s. a ton in France, and 15?. in England, the English 
 iron-masters would vie with each other to sell all their 
 iron in France, since their iron, after paying the cost of 
 carriage, would realise 10s. a ton more in France than 
 in England. These considerations establish the proposi- 
 tion that the difference in the price of any commodity, in 
 two countries, is exactly equivalent to the cost of sending 
 this commodity from the one country to the other. 
 
 It may be objected that prices in different countries 
 cannot be compared, because countries have seldom the 
 same currency. Without anticipating the remarks which 
 will be made in a future chapter on currency, it will be 
 sufficient to state that the price of a commodity in different 
 countries can always be compared by considering how 
 much gold it will exchange for. The distinctive character- 
 istic of a substance like gold is, that it is a universal me- 
 dium of exchange ; people in France are as ready to sell 
 their commodities for gold as we are in England. The 
 cost of sending an ounce of gold to France is most trifling, 
 and therefore, if an ounce of gold would purchase a greater 
 quantity of wheat in France, including the cost of sending 
 the wheat from France to England, than could be pur- 
 chased by the same quantity of gold in England, gold will 
 be exported to France for the purpose of purchasing wheat. 
 The demand for wheat would therefore rise in France, and 
 its price would increase. Similarly, if the English con- 
 sumers of wheat purchased wheat from the French instead 
 of the English growers, the demand for wheat in England 
 
Foreign Commerce or International Trade. 
 
 401 
 
 would decline; this rise in the price of French wheat, and 
 this fall in the price of English wheat, would continue 
 until at length there ceased to be any profit in sending 
 gold from England to purchase wheat in France. Such a 
 profit would manifestly cease to exist if there were no 
 greater difference in the value of wheat jn the two coun- 
 tries, estimated in gold, than would be equivalent to the 
 cost of carriage. But the price of a commodity has been 
 defined to be its value estimated in gold. It may be there- 
 fore said that, if the trade between two countries is per- 
 fectly free, there cannot permanently be any greater dif- 
 ference in the price of any commodity in the two countries 
 than would be equivalent to the cost of carrying the com- 
 modity from the one country to the other. 
 
 Throughout this chapter, the assumption has been made 
 that foreign commerce has been restricted to two coun- 
 tries, and to two commodities. The principles which have 
 been deduced from this assumption enable us to esta- 
 blish a complete theory of international trade. Let us con- 
 sider how the bargains of foreign commerce are adjusted 
 in such a country as England, which exports the most 
 varied commodities to every country in the world, and im- 
 ports in exchange every product which can either gratify 
 the desires, or minister to the wants of the people. In 
 this case it is equally true that there is an' equation of 
 international trade which must be satisfied; it is easy to 
 show, by a method of investigation similar to that pursued 
 when corn was supposed to be exchanged for iron, that the 
 aggregate exports must ultimately pay for the aggregate 
 imports. The terms upon which this exchange is con- 
 ducted are regulated entirely by the relative amount of 
 the demand which exists in two trading countries for the 
 various commodities which each country respectively im- 
 ports. It has already been shown that England must 
 give France a greater quantity of iron for the same amount 
 of wheat, or, in other words, the terms of the exchange 
 will turn to the advantage of France, and to the disad- 
 vantage of England, if England's demand for French wheat 
 increases in a greater ratio than the demand of France for 
 English iron. In a similar way the bargain of foreign 
 trade will become less favourable to England, or, in other 
 words, England will be compelled to receive less for her 
 
 BOOK III. 
 CH. VII. 
 
 These 
 truths may 
 be extend- 
 ed to trade 
 between 
 any num- 
 ber of 
 countries 
 in any 
 number of 
 articles. 
 
 F. M. 
 
 CG 
 
402 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. VII. 
 
 The ex- 
 ports of 
 gome coun- 
 tries per- 
 manently 
 exceed the 
 imports; 
 arid TJce 
 versa. 
 
 Explana- 
 tion of this 
 apparent 
 contradic- 
 tion of 
 what lias 
 been pre- 
 viously 
 stated. 
 
 exports, and to give more for her imports, if her demand 
 for the various commodities which she imports increases in 
 a greater ratio than the demand which other countries 
 may have for the various commodities which compose her 
 aggregate exports. 
 
 It has heen shown in this chapter that a country pays 
 for its imports by the commodities it exports, and that the 
 equation of international trade is adjusted when the ex- 
 ports are exactly equivalent in value to the imports. It 
 may, however, be thought that this adjustment never 
 actually takes place, because in no country does it appear 
 that the exports are equal in value to the imports. For 
 instance, the value of the commodities imported into Eng- 
 land always greatly exceeds the value of those which are 
 exported. At the present time this excess is no less than 
 100,000,OOOZ. per annum. On the other hand, the com- 
 modities exported from India always greatly exceed in 
 value those which are imported. The value of the exports 
 from India is about 50,000,OOOZ. per annum, whereas the 
 imports are not more than 30,000,000Z. This excess of 
 exports over imports is not an accidental circumstance, 
 but represents the normal condition of Indian trade. 
 We will, therefore, proceed to explain the cause of this 
 apparent contradiction between actual facts and the con- 
 clusions which have been deduced from the principles of 
 international trade. 
 
 When it is said that exports and imports must be 
 equivalent in value because a country pays for her imports 
 by her exports, it is tacitly assumed that a country has to 
 make to foreign countries no other payment except, for the 
 commodities she imports, and that foreign countries have, 
 on their part, to make no other payment to her except for 
 the commodities which she has exported to them. Upon 
 this assumption it is easy to show that there must be a 
 constant tendency in operation to make the exports from a 
 country equivalent in value to the commodities imported. 
 For, reverting to our previous example, suppose that the. 
 foreign commerce of France and England respectively was 
 confined to an interchange of commodities between these 
 two countries. If the value of the goods which England 
 sells to France exceeds the value of the goods which 
 France sells to England, it is obvious that a balance 
 
Foreign Commerce or International Trade. 
 
 403 
 
 which must be liquidated by a transmission' of money, 
 will.be due each year from France to England. The 
 amount of money in France will thus be constantly dimi- 
 nished, and the amount of money in England will be pro 
 tanto increased. The result of this will be that prices will 
 be continually declining in France and continually rising 
 in England. But a rise of prices in England and a fall of 
 prices in France will make it more advantageous for Eng- 
 land to purchase commodities from France, and will make 
 it less advantageous for France to purchase commodities 
 in England. Hence the exports to France will diminish 
 and the imports from France will increase. It, therefore, 
 follows that when the exports exceed the imports a force 
 is brought into operation to diminish the exports and to 
 increase the imports, and this forcQ will continue in opera- 
 tion until a position of equilibrium is attained and the 
 exports are equal in value to the imports. 
 
 But the conclusion which has just been established is, 
 as before remarked, based on the supposition that the 
 countries which trade with each other have no other pay- 
 ments to make or to receive, except for the commodities 
 which are imported and exported. But suppose that 
 France has to make a large annual payment to England 
 of 10,000,00(W. as interest for money which England has 
 lent to France: it can then be readily shown that the 
 amount of commodities which England imports from 
 France will exceed the value of her exports to that coun- 
 try by 10,000,000?. a year, this being the annual amount 
 of the indebtedness of France to England. The exports 
 can no longer be equivalent in value tO' the imports, be- 
 cause, if this were so, France would have each year to 
 transmit to England 10,000,000?. in order to pay the 
 interest on the money borrowed from England. If the 
 monetary circulation of England were thus each year 
 largely added to, and the monetary circulation of France 
 were each year reduced, it is obvious that gold would be- 
 come comparatively plentifol in England and scarce in 
 France, or, in other words, prices would rise in England and 
 decline in France. It would, therefore, each year become 
 more advantageous for France to pay the amount owed to 
 England by transmitting commodities instead of money, and 
 thus it is evident that an adjustment would ultimately be 
 
 c C2 
 
 BOOK III. 
 CH. VII 
 
 When one 
 country 
 has in- 
 curred 
 pecuniary 
 obligations 
 to another, 
 the indebt- 
 ed country 
 must send 
 more goods 
 to the 
 nation 
 fromwhich 
 it has 
 borrowed 
 than it 
 receives in 
 return, 
 i. e. its 
 exports to 
 must per- 
 manently 
 exceed its 
 imports 
 from that 
 country. 
 
404 
 
 Manual of Political Uconomy. 
 
 BOOK III. 
 OH. Til. 
 
 The in- 
 debtedness 
 of India to 
 England 
 causes the 
 exports 
 
 attained, when France exported to England a sufficient 
 amount of commodities not only to pay for the commodities 
 she imports, but also to pay the amount which she annually 
 owes to England. It therefore appears, that it is not 
 correct to say that in all cases the equation of interna- 
 tional trade requires that the exports of a country should 
 be equivalent in value to the imports ; on the contrary, if 
 a country is in debt to other countries, her exports will 
 exceed in value her imports by an amount equivalent to 
 her annual indebtedness. If, on the other hand, a country 
 should be a creditor and not a debtor of other countries, 
 the value of her imports will exceed that of her exports by 
 an amount which will be equivalent to the indebtedness 
 of other countries to her. The enunciation of these prin- 
 ciples at once affords an explanation of the circumstance 
 to which allusion has already been made, namely, that 
 England's imports largely exceed her exports, whereas in 
 India, and in many other countries, the exports exceed the 
 imports. From the large number of foreign loans that are 
 raised in the London Money Market, and from the great 
 amount of English capital that is embarked in various 
 foreign investments, it is quite evident that a great amount 
 is each year due to England from foreign countries, inde- 
 pendently of the amount which may be due to England 
 for the commodities purchased from her. Hence it follows 
 that foreign countries will have to send to England an 
 amount of commodities considerably in excess of the 
 amount which would be required to pay for the commo- 
 dities procured from England. It therefore appears that 
 England's imports largely exceed her exports because of 
 the great amount of capital which she has invested in 
 foreign countries. 
 
 After the explanation which has just been given, it is 
 scarcely necessary to say that if a country borrows from 
 other countries more capital than she lends to them, an 
 exactly opposite phenomenon will occur to that which 
 happens in England, for then the exports must be in 
 excess of the imports. For instance, it is well known that 
 scarcely any capital is embarked either by the Indian 
 Government or by the Indian people in any foreign in- 
 vestment, whereas England has lent large sums to the 
 Indian Government, and a great amount of English capital 
 
Foreign Commerce or International Trade. 
 
 40s, 
 
 has also been invested in various undertakings in India, such 
 as railways and irrigation works. A considerable amount 
 is consequently each year due from India to England for 
 the money which has thus been invested in India. India 
 has also annually to pay England a very large sum for 
 the expenses of the Home Government, for official salaries, 
 and for official pensions. India, therefore, has to export 
 commodities not only sufficient to pay for those which are 
 imported, but also sufficient to liquidate the payments to 
 which reference has just been made. Her exports must 
 therefore each year be largely in excess of her imports. 
 
 The principles of international trade have now been 
 examined in sufficient detail. In the next chapter these 
 principles will be applied to a very important case. The 
 laws will be investigated which determine the value of 
 money, when the precious metals of which money is com- 
 posed are considered as commodities, exported and im- 
 ported, as ordinary articles of commerce. 
 
 from India 
 to exceed 
 in value 
 the imports 
 which she 
 receives 
 from Eng- 
 land. 
 
BOOK III. 
 OH. Till. 
 
 Gold may 
 be trans- 
 mitted 
 
 CHAPTER VIII. 
 
 ON THE TRANSMISSIOK OF THE PRECIOUS METAI^ FEOM 
 ONE COUNTRY TO ANOTHER. 
 
 EACH country obtains its supply of the precious metals 
 in two distinct ways. In the first place, gold and 
 silver are imported from the mining countries as ordi- 
 nary commodities of commerce, and secondly, the precious 
 metals, in the form of money', are sent from one country 
 
 ^ In this chapter, it is. assumed that the value of the metal which is 
 chosen as the standard currency in each country is the same whether in 
 coin or in bullion. Thus in England, the standard currency being gold, the 
 value of a given weight of gold, whether in coin or in bullion, is the same ; 
 whereas, India having a silver standard, the same remark appUes in that 
 country to silver. It has already been stated that a certain weight of gold 
 must have the same value whether in bullion or in specie, if no charge is 
 made for the expense of coining this gold.. In England the coining of gold 
 is performed by the mint gratuitously. If therefore an ounce of gold is 
 taken to the English mint, its value must be exactly represented by the 
 amount of money into which it can be coined. As previously stated, 
 silver and copper money have an exchange value as coins greater than 
 the actual value of a corresponding weight of the metals of which they 
 Hence the authorities of the mint very properly decline 
 
 to coin silver and copper for private individuals ; if this rule were de- 
 parted from, individuals would be able to make, at the expense of the 
 nation, a very considerable profit b.y bringing silver and copper bullion to 
 the mint and getting it coined. If gold in bullion were in the slightest 
 degree more valuable than when in coin, it would at once become profit- 
 able to melt money and thus convert it into bullion. If, on the other 
 hand, gold bullion were less valuable than coin, bullion would be im- 
 mediately taken to the mint to be converted into money. It is therefore 
 evident when no charge is made for coining, that the value of bullion and 
 specie must be exactly equivalent. It may however be thought expedient 
 that the government should not bear the cost of coining. A certain sum 
 might be charged, termed a seignorage, when bullion is converted into 
 money. If it be assumed that this seignorage is one per cent, upon the 
 amount coined, the value of a certain quantity of the precious metals 
 when in the form of money would exceed by one per cent, the value of 
 the same weight of bullion. The question whether or not it would be 
 desirable to impose a seignorage at the English mint must be mainly 
 
Transndssion of the Precious Metals. 
 
 407 
 
 to another for various purposes. For instance, loans are 
 raised in England for India, and these loans are in a great 
 part transmitted to that country either in buUion or in 
 specie. England annually purchases from China an 
 enormous amount of tea and silk, and China prefers to be 
 paid in part for this tea and silk by the precious metals 
 rather than by our manufactured goods. A great portion of 
 the rent of the land in Ireland is paid in money to absentee 
 landlords. Capital may be invested in our funds and rail- 
 ways by foreigners, whose dividends will be annually paid 
 to them in money. Again, with regard to international 
 trade, it must be remembered that commodities are not 
 always exchanged by barter, but are almost always bought 
 and sold for money. English merchants who purchase 
 wheat from France pay for it in money, instead of offering 
 other commodities, such as iron and coal, in exchange for 
 this wheat. These and many other circumstances which 
 might be enumerated, cause a considerable amount of the 
 precious metals to be constantly passing, either in the 
 form of money or bullion, from one country to another. 
 It win be convenient, in the first place, to consider the 
 precious metals as exports from the countries whence they 
 are obtained. 
 
 A considerable portion of the industry of Australia and 
 California is devoted to gold-digging; gold is, to these 
 countries, as truly a staple article of export as hardware or 
 cotton cloth is in England. The precious metals may 
 therefore be regarded as an ordinary article of export or 
 import ; the value of these metals is consequently regu- 
 lated by the same laws as those which determine the value 
 of any other commodity which is bought and sold in the 
 transactions of foreign trade. For instance, Australia, like 
 any other country, must pay for the commodities she im- 
 ports by those which she exports. It makes no difference 
 whatever that a principal part of Australia's exports happens 
 
 determined by considering whether the inconvenience arising from even 
 slightly altering a recognized standard of value would be compensated by 
 removing the expense now imposed upon the nation at large by our pre- 
 sent system of gratuitous coining of gold. It must moreover be borne in 
 mind that as the representative value of our silver and copper coinage is 
 greater than its intrinsic value, the state makes a profit upon the coinage 
 of silver and copper, which more than compensates for the slight loss in 
 the gratuitous coining of gold. 
 
 BOOK III. 
 OH. VIII. 
 
 either as 
 an article 
 of coin- 
 merce or 
 as money. 
 
 Goldforms 
 part of the 
 ordinary 
 exports of 
 some coun- 
 tries, and 
 its value is 
 determined 
 on the 
 same prin- 
 ciples as 
 that of 
 other com- 
 modities. 
 
4o8 
 
 Manual of Political Economy. 
 
 A great 
 increase 
 in the pro- 
 duction of 
 gold 
 
 would be 
 absorbed 
 in the same 
 way as a 
 great in- 
 crease in 
 the pro- 
 duction of 
 iron. 
 
 to be gold. It may in fact be shown, that the discovery 
 of rich gold mines in Australia exerts on the industry of 
 that country an influence similar to that which would be 
 produced by the discovery of rich deposits of some material 
 which England exports; such, for instance, as iron. If the 
 discovery of very rich deposits of iron-stone caused a great 
 increase in the quantity of iron annually produced in Eng- 
 land, iron would inevitably decline in price. This decline 
 in price would increase the home demand for iron, and the 
 foreign demand would also be increased, because iron 
 would be offered to foreign countries at lower rates. 
 An equaUty between the demand and the supply would 
 in this manner again be restored, and the whole of the 
 increased quantity of iron produced would be quickly 
 absorbed. 
 
 In a similar way, the results inay be traced which would 
 ensue from a great increase in the yield of gold in 
 Australia, or of silver in Mexico and California. At 
 the present time the annual produce of gold in Austra- 
 lia is about 2,500,000 ounces. Suppose that, from the 
 discovery of richer deposits, or from improvements in 
 quartz-crushing, Australia annually yielded 5,000,000 
 ounces of gold, instead of 2,500,000 ounces. How would 
 this increased quantity of the precious metals be absorbed ? 
 It has been seen that additional supplies of iron would be 
 absorbed by a decline in its value increasing the demand 
 for it. Let us now enquire if an additional supply of gold 
 will not be absorbed in a similar way. 
 
 It is evident that Australia would not require this ad- 
 ditional 2,500,000 ounces of gold for her own use. She 
 will therefore export the gold to other countries ; but in 
 what form, and for what purpose, will this gold be ex- 
 ported? In the first place, Australia, having become so 
 much wealthier, would more largely purchase foreign com- 
 modities. Every article of luxury or utility which Aus- 
 tralia has been previously accustomed to obtain from 
 foreign countries, she would now purchase in larger quan- 
 tities. The consequence of this would inevitably be, that 
 these commodities would advance in price, on account of 
 the increased demand. Suppose the exports from England 
 to Australia; were doubled, this increased demand would 
 cause the price of the articles which compose these exports 
 
Transmission of the Precious Metals. 
 
 409 
 
 to rise in England, as well as in Australia. The value of 
 gold, estimated in these commodities, would therefore de- 
 cline, and thus a tendency is exerted, just in the same way 
 as in the case of the iron, to cause the increased yield of 
 gold to be absorbed, in consequence of a decline in its 
 value. 
 
 Having now considered the case in which the precious 
 metals are sent from the mining countries as a staple 
 commodity of commerce, we will proceed to investigate 
 the second of the two modes by which the precious metals 
 are distributed over the world. At the commencement of 
 this chapter an enumeration was made of some of the 
 various purposes for which gold and silver are transmitted 
 from one country to another in the form of money. The 
 reason of this constant transmission is, that gold and silver 
 contain great value in small bulk, and therefore can be sent 
 from one country to another at comparatively little cost. 
 The precious metals, moreover, are willingly accepted in 
 exchange for goods purchased by every trading community 
 in the world. Each year we purchase an enormous quan- 
 tity of tea and silk from China. The Chinese are not very 
 willing to accept any of our manufactured goods in exchange, 
 but they seem eager to sell us as much tea and silk as we 
 choose to take, if we will only pay them for it by gold and 
 silver. In former years vast sums of specie were sent 
 from England to India, to pay the wages of those en- 
 gaged upon the railways, and other public works which 
 were constructed principally by English capital. 
 
 The precious metals are also transmitted from one 
 country to another, for the purpose of investment. If, 
 according to our former example, the yield of gold in 
 Australia, should be doubled, it would be reasonable to 
 conclude, that the whole of this increased gold would not 
 be entirely absorbed by the consequent expansion of trade. 
 Many of those who possessed the gold would send a por- 
 tion of it to England and other countries, to be invested 
 in various securities, such as funds, railway shares, &c. 
 Statistical returns prove that this is the course pursued. 
 Almost the entire gold which Australia annually yields is 
 sent to England. A portion of this pays for the commo- 
 dities which England exports to Australia ; a great part of 
 the remainder is invested in our funds, in railway shares, 
 
 BOOK III. 
 OH. VIII. 
 
 Gold is 
 also trans- 
 mitted in 
 the form 
 of money, 
 
 for the 
 payment 
 of debts, 
 
 or for in- 
 vestment. 
 
4IO 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. VIII. 
 
 The quan- 
 tity of 
 money in 
 circulation 
 ■must in- 
 crease as 
 commerce 
 increases 
 in order 
 that prices 
 may not 
 fluctuate. 
 
 bank shares, and various other securities, which are bought 
 and sold in our money market. The precious metals 
 which are thus poured into England she again redistri- 
 butes, having sent in some years no less a sum than 
 14,000,000?. sterling to India and China. 
 
 In the remarks on price, it was shown that the general 
 prices which prevail in a country are regulated by the ex- 
 tent of its commerce, and by the amount of the precious 
 metals which exist in the country in the form of money. 
 It may, in general terms, be stated, that if the population 
 and wealth of a country increase, prices will decline, unless 
 a greater amount of money is brought into circulation. 
 On the other hand, prices will rise if a greater amount of 
 money is brought into circulation, when there is neither an 
 expansion of commerce nor an increased production of 
 wealth. It is most undesirable that there should be any 
 great fluctuations in general prices; it is true, however, 
 that popular feeling is not unfrequently opposed to this 
 idea, for there are many who still think that general high 
 prices are advantageous to the producers of commodities, 
 and that a general decline in prices would benefit those 
 who purchased the commodities. A general rise or fall in 
 prices means that the standard of value is altered ; if there 
 is a general rise in prices to the extent of one hundred per 
 cent., two sovereigns will be only worth as much as one 
 sovereign was worth before; the country would not be 
 richer ; the only result would be, that the terms of every 
 monetary contract would be altered. Those who had fixed 
 money payments to make would only have to give half as 
 much value as before, and all whose incomes were derived 
 from such investments as funds, guaranteed stocks, &c., 
 would have their real incomes diminished one half, for 
 300?. a year would now be worth no more than 150?. a 
 year was worth previously. Such consequences would not 
 only be disastrous to individuals, but would also, if of fre- 
 quent occurrence, give to all monetary transactions an 
 uncertainty which would act most prejudicially upon the 
 interests of commerce. It is therefore of great importance 
 that general prices, or, in other words, the value of gold, 
 should fluctuate as little as possible. General prices are, 
 as previously stated, regulated by the quantity of money 
 in circulation, compared with the amount of the nation's 
 
Transmission of the Precious Metals. 
 
 411 
 
 wealth and commerce; hence, in order to prevent a fluctu- 
 ation in the general prices which prevail in a country, the 
 quantity of money in circulation ought to increase or 
 decrease as the commerce of the country increases or 
 decreases. 
 
 It may appear that such an adjustment can have little 
 chance of being made in England, because she receives 
 gold from so many sources, and again sends it to other 
 countries for so many various purposes. But, in spite of 
 this apparent complexity, there is an agency constantly at 
 work to regulate the quantity of money in circulation, so 
 that the value of gold exhibits great steadiness, and, .ex- 
 cept within certain limits, is subject to few fluctuations. 
 The mode in which this agency acts may be explained in 
 the following manner. Suppose that the quantity of gold 
 imported by England from the gold-producing countries 
 during the next year were to exceed by 4,000,000?. the 
 amount which she imports during the present year, but 
 that in every other respect there should be no difference 
 with regard to her commerce, either home or foreign, be- 
 tween the next year and the present one. This extra 
 4,000,OOOZ. of gold, it may be further supposed, is converted 
 into coin. It might, therefore, appear that an additional 
 4,000,000?. of money is brought into circulation, and that, 
 in consequence of this increased specie circulation, general 
 prices would inevitably rise. But this rise in general 
 prices could not long continue ; a force would be brought 
 into operation which would exert a tendency to restore 
 prices to the point at which they previously stood. For if 
 such a general rise in price should occur in England dur- 
 ing the next year, and no similar rise should take place 
 in other countries, it would manifestly be to the interest 
 of England to purchase such commodities as wheat from 
 foreign countries, in order to avoid the higher prices pre- 
 vailing in England. Foreign merchants would also be 
 anxious to participate in the high prices current in Eng- 
 land, and would therefore increase, as far as possible, the 
 quantity of goods which they export to England. Both of 
 these causes would act, in the same direction, and would 
 alike exert an influence to increase England's imports and 
 to' diminish her exports. The equation of international 
 trade would therefore be disturbed, and a large amount of 
 
 BOOK III. 
 CH. Till. 
 
 Metlwd of 
 adjustment 
 which 
 tends to 
 keep prices 
 constant in 
 England. 
 
412 
 
 Manual of Political Economy. 
 
 money would be sent abroad to pay for these increased 
 imports; in this manner the gold temporarily added to 
 England's circulation would in great part be rapidly with- 
 drawn. The extra 4,000,000^. of gold would not be per- 
 manently added to England's specie circulation, but would 
 be gradually distributed over every trading country. 
 
 The various modes in which the precious metals are 
 transmitted from one country to another have now been 
 described. A special chapter will be devoted to the con- 
 sideration of the leading effects which have been produced 
 by the remarkable gold discoveries which have been made 
 during the last few years. .AJlusion will also be made to 
 the probable results of the recent discovery in the United 
 States of silver mines of such extraordinary richness that 
 the annual production of silver has been suddenly more 
 than doubled. 
 
CHAPTER IX. 
 
 FOREIGN EXCHANGES. 
 
 IT was remarked in the last chapter that, in foreign com- 
 merce, commodities are seldom exchanged by barter; 
 each country usually purchases its imports by money, and 
 sells its exports for money. If coal is exported to France 
 and silk is imported from that country, a cargo of coal is 
 ' not bartered for so many bales of silk, but the coal is sold 
 for money and the silk is purchased with money. Let it be 
 supposed that A, an English merchant, sells a cargo of 
 coal to B, a French merchant, for lOOOZ., and that C, an- 
 other English merchant, purchases from D, a French mer- 
 chant, a certain number of bales of silk for 1000?.' It is 
 manifest that there are two distinct ways in which such 
 trading transactions as these may be settled. In the first 
 place, B may pay for the coal he purchases by sending to 
 A 1000?. from France to England ; in a similar way C 
 may pay for the silk which he purchases by sending to D 
 1000?. from England to France. It is evident that, if this 
 plan were adopted, the risk and expense would be incurred 
 of sending lOOOZ. from France to England, and also of 
 sending 1000?. from England to France. 
 
 A second very obvious course might be adopted, which 
 would avoid the necessity of transmitting any money from 
 one country to the other, and consequently the expense 
 just alluded to would be saved. If C were instructed to 
 pay the English merchant A 1000?., instead of paying the 
 same amount to D, who lives in France; if also the French 
 merchant B were instructed to pay D 1000?., instead of 
 sending this amount to A in England, the debts due to A 
 
 1 The currencies of France and England are, in this case, supposed 
 to be identical. 
 
 3IetJu)ds 
 by whicli 
 interna- 
 tional 
 debts may 
 be settled. 
 
414 
 
 Mamud of Political Economy. 
 
 BOOK III. 
 
 CH. IX. 
 
 miu of 
 
 exchange. 
 
 Their 
 nature. 
 
 If the 
 value of 
 imports 
 and ex- 
 ports are 
 equal, 
 transmis- 
 sion of 
 specie is 
 avoided hy 
 the use of 
 bills of 
 exchange. 
 
 and D for the coal and silk they have respectively sold 
 would be discharged without the transfer of any money 
 from the one country to the other. The course just de- 
 scribed is almost invariably adopted in the transactions of 
 foreign commerce ; bills of exchange are the means by 
 which the method is carried into practical effect. It is 
 only necessary to explain the nature of bills of exchange, 
 in order to show that they provide a machinery which 
 enables the bargains of foreign commerce to be arranged 
 in. such a manner that the least possible amount of specie 
 is transmitted from one country to another. 
 
 In the above example, when A sells B a cargo of coal 
 for lOOOi!., A receives from B a bill of exchange. This bill 
 is a written acknowledgement that B owes A lOOOZ., and 
 that this amount will be paid at the date far which the 
 bill is drawn, if it is presented either at B's own bankers, 
 or at any other establishment which has confidence in B's 
 solvency. In a similar manner the French merchant D, 
 who sells 1000?. worth of silk to the English merchant C, 
 receives from C a bill of exchange for this amount. The 
 English merchant A has therefore in his possession a bill 
 for 1000?., which has to be paid in France, and D, the 
 French merchant, has also a bill for lOOOZ., which is to be 
 paid in England; if A and D exchange these bills, then A 
 has a bill which will be paid in England, and D has a bill 
 which will be paid in France; therefore both A and D's 
 debt can be discharged without the transmission of any 
 specie whatever from one country to the other. The ex- 
 change here supposed to take place between A and D 
 is not usually effected directly by merchants themselves ; 
 such transactions form a distinct business, which is carried 
 on by a class of middle men, Avho are termed money 
 dealers or bill-discounters'. 
 
 The English merchant A, instead of waiting to ex- 
 change his bill with the French merchant D, at once takes 
 it to an English bill-discounter, who readily cashes it for 
 him, A paying a small sum for commission. D in a 
 
 1 Pcpiilar prejudice attaches to a 'bill-discounter a certain opprobrium 
 for it is not unfrequently supposed that he is a person who lends money 
 at usurious rates of interest. It is hardly necessary to state that this is 
 an unfounded prejudice ; no business is more legitimate or more useful 
 than that which is carried on by the discount houses in a commercial 
 country. 
 
Foreign Exchanges. 
 
 415 
 
 similar manner gets his bill cashed by taking it to a 
 discount house in France; in this way the English dis- 
 count houses collect all the bills which are drawn upon 
 France, and the French discount houses collect all the 
 bills which are drawn upon England. The French and 
 English discount houses then exchange the bills thus 
 gathered together, and are remunerated for the trouble 
 which they thus take, by the small commission which is 
 paid to them. If, therefore, the value of the exports sold 
 to France is exactly equal to the value of the imports 
 which are brought from that country, the whole of the 
 trade between the two countries can be carried on without 
 the transmission of any specie; in fact the transmission 
 of specie can be as completely avoided as if the whole 
 trade was one of barter, and coal and iron were bartered 
 for silk and wine. 
 
 It, however, very rarely happens that the money value 
 of the exports which are sold to any particular country 
 is exactly equal to the money value of the imports which 
 are brought from the same country. Suppose that the 
 annual value of England's exports to France is 10,000,000?., 
 and that the annual value of the imports from that 
 country is 12,0O0,00OZ. Under these circumstances it is 
 manifest that the bills which are in the possession of 
 French merchants, and which are drawn in England, will 
 exceed in amount by 2,000,000?. the bills which are drawn 
 upon France, and which are in the possession of English 
 merchants. It is, of course, to the interest of the English 
 merchant to pay the French merchant by bills drawn upon 
 France; by doing so the English merchant saves the ex- 
 pense of sending specie to France. The French merchants 
 who have bought the goods we export are for similar 
 reasons anxious to pay the English merchants by bills 
 drawn upon England. But since the value of England's 
 imports from France exceeds the value of her exports to 
 that country, England will have to pay to France a larger 
 sum than France has to pay England; therefore the de- 
 mand which exists in England for bills drawn on France 
 will exceed by 2,OOO,00OZ. the demand which exists in 
 France for bills drawn on England. In fact, English 
 merchants have to pay in France 12,000,000?., and there 
 are only 10,000,000?. of French bills wherewith to make 
 
 BOOK III. 
 CH. IX. 
 
 If a 
 
 balance is 
 due from 
 England 
 to France, 
 hills of 
 exchange 
 on France 
 will he at 
 
 a premium 
 aboutequi- 
 valent to 
 the cost of 
 transmit- 
 ting specie. 
 
4i6 
 
 Manual of Political Economy. 
 
 BOOK in. 
 OH. IX. 
 
 Bills on 
 Mngland 
 will be at 
 a corre- 
 sponding 
 discount. 
 
 the payment; some of the English merchants, therefore, will 
 be obliged to transmit specie to the amount of 2,000,000Z. ; 
 those who transmit this specie incur the expense of the 
 transmission. If this expense were two per cent., it would, 
 of course, be to the advantage of the English merchants 
 to purchase bills in France, even if they paid one and a 
 half per cent, premium for them; if bills were bought at 
 this premium it would be cheaper by half per cent, to 
 make payments to France by means of these bills, instead 
 of transmitting specie, which involves an expense of two 
 per cent. English merchants, therefore, will compete for 
 the purchase of bills drawn on France, and this, competi- 
 tion will inevitably raise these biUs to a premium which is 
 approximately equivalent to the expense of transmitting 
 specie to France. The premium upon bills cannot exceed 
 this amount, because if it did so then it would be cheaper 
 to transmit specie than bills. 
 
 Similar considerations wiU show that, in France, bills 
 which are drawn on England wUl be at a corresponding 
 discount. French merchants have to receive 2,000,OOOT. 
 more for goods exported to England than they have to 
 pay for goods imported from that country. In France 
 there will be 12,000,000?. of bills drawn on England in 
 possession of French merchants, and since France has only 
 to pay England 10,000,000?., there will be a demand for 
 only this amount of bills drawn on England. 2,000,OOOZ. 
 of the bills drawn on England must therefore be sent to 
 England to be cashed, and the money will then have to 
 be transmitted to France. But if a bill drawn on England 
 is not wanted in France to pay for goods bought in 
 England, such bills must fall to a discount. A money 
 dealer obviously cannot afford to give a merchant more 
 than 98?. for a bill on England for lOOZ. if it is necessary 
 to send his bill to England to be cashed, and have the 
 money transmitted to France; since it has been assumed 
 that such transmission costs two per cent, of the specie 
 transmitted. When, therefore, bills drawn upon France 
 are at a premium in England, bills drawn on England 
 will be at a corresponding discount in France. If the state 
 of things which is here described exists, it is technically 
 said that the exchange is against England and in favour 
 of France. 
 
Foreign Exchanges. 
 
 417 
 
 The .origin of this phraseology may be readily explained. 
 It is evident, that the exchange is against England, and 
 in favour of France, when the commerce between the two 
 countries is such that it is necessary to send specie from 
 England to France. At one time the belief was universal, 
 and is still very general, that the profit which a nation 
 derives from foreign commerce can be accurately esti- 
 mated by the amount of specie which she succeeded in 
 drawing to herself from other countries. This belief formed 
 the basis of the Mercantile System.' Statesmen of every 
 commercial nation have, in years gone by, vied with each 
 other in framing ingenious devices to encourage the im- 
 portation of the precious metals, and to impede their 
 export. It is no wonder, then, that the exchange is de- 
 scribed as being against a country, when its foreign trade 
 is in such a position as inevitably to require the trans- 
 mission of specie to foreign countries. 
 
 The exchange will, of course, be at par when the value 
 of the exports to a country exactly equals the value of the 
 imports from the same country. If it had been supposed, 
 in the above example, that tlie value of England's imports 
 from France was 10,000,000^. instead of 12,000,000Z., 
 then, in each country, the demand for bills drawn upon 
 the other country would be exactly equal to the amount 
 of bills to be disposed of ; nothing would cause the bills of 
 either country to rise to a premium, or fall to a discount, 
 and the exchange would in each country be at par. 
 
 Hitherto, in this chapter, we have supposed that the 
 currencies of different nations are identical. We will now 
 examine a case where two countries, such as France and 
 England, have the different currencies which they possess 
 at the present time, and which, in spite of reason, economy, 
 and convenience, they will probably maintain for many 
 years to come. 
 
 In the French currency, the franc, as the general 
 mea.sure of value, occupies the same position as the pound 
 sterling does in our own coinage. If the French wish to 
 express the value of a landed estate, or any other kind of 
 wealth, they say that it is worth so many francs. In order 
 to compare values which are thus differently expressed in 
 the two countries, it will be sufficiently exact if we con- 
 sider that 25 francs are equivalent to 11. sterling. When, 
 
 BOOK in. 
 OH. IX. 
 
 The mean- 
 ing of the 
 saying 
 that in 
 this case 
 exchange 
 is against 
 England, 
 and in 
 favour of 
 France. 
 
 The mean- 
 ing of ex- 
 change at 
 par. 
 
 Currencies 
 have 
 hitherto 
 been sup- 
 posed 
 identical. 
 
 How our 
 conclu- 
 sions must 
 he express- 
 ed when 
 the cur- 
 rencies 
 differ. 
 
 F. M. 
 
 DD 
 
4i8 
 
 Manual of Political Economy. 
 
 BOOK in, 
 
 CH. IX. 
 
 Inthiscase 
 the money 
 of one 
 country 
 may be de- 
 preciated 
 relatively 
 to that of 
 the other. 
 
 therefore, an English merchant sells 100?. worth of goods 
 to a French merchant, the' former would receive a bill 
 drawn upon the French merchant for 2500 francs, and 
 not, as we have above supposed, for 1001. If imports 
 from France to England exceed in value the exports from 
 England to France, the exchange will be against England, 
 and in favour of France. If this be the case, England 
 will have to .make larger payments to France than France 
 has to England, and there will consequently be in England 
 a greater demand for biUs drawn on France than there 
 exists in France for bills drawn on England. Consequently, 
 a bill drawn on France for 2500 francs willin England be 
 worth more than 100?. ; on the other hand, a bill on 
 England for 100?. would in France be worth less than 
 2500 francs. It is manifest that the premium which bills 
 drawn on France realise in England, cannot exceed the 
 cost of transmitting specie from the one country to the 
 other. If the cost of this transmission should be two per 
 cent., then, under the circumstances just assumed, it is 
 quite reasonable to conclude that a bill upon France for 
 2500 francs would in England sell for 101?. 10s., and that 
 a bill upon England for 100?., would in France only sell for 
 2463 francs. 
 
 It should moreover be borne in mind, that when the 
 exchange is against one country and in favour of another, 
 specie must not only be sent from the former to the latter 
 country, but the money of the former country will also be 
 depreciated in value, when compared with the money of 
 the latter country. 
 
 When the exchange is against England, suppose that a 
 person who intends to travel in France takes 100?. to some 
 money exchange office in London, for the purpose of having 
 it changed into French coin. When the exchange is at 
 par, 25 francs are equivalent in value to 1?. sterling. The 
 question now arises. How many francs will be given at a 
 money exchange office in London for 100?., when the ex- 
 change is against England? Since the exchange is against 
 England, English money must be sent to France to adjust 
 the trade between the two countries, but no French money 
 will for a similar purpose have to be sent to England. 
 The money exchange offices will therefore be compelled 
 specially to obtain French money from France; they must 
 
Foreign Exchanges. 
 
 419 
 
 therefore be compensated for the cost of importing this 
 French coin, and consequently 11. sterling of English money 
 will exchange for less than its equivalent value in French 
 money, namely 25 francs. English money, therefore, would 
 be depreciated in value, compared with French money, and 
 this depreciation would not be avoided, even if the English 
 money were exchanged for French money in Paris, instead 
 of in London. The exchange being against England, 
 English money is sent from England to France; hence 
 there is a surplus of English money in France, or, in other 
 words, English money is at a discount when compared 
 with French money. 
 
 If, on the other hand, the exchange is in favour of Eng- 
 land, the English money will be comparatively of greater 
 value than French money, and \l. sterling will exchange 
 for more than 25 francs. Suppose that a person wishing 
 to exchange English money for French money goes to an 
 exchange office in London. A favourable exchange im- 
 plies that there will be a surplus of French money in Eng- 
 land, because French money has been sent to England in 
 (jrder to adjust the trade between the two countries. 
 People therefore will be anxious to dispose of this French 
 ' money, for it will not in England perform the ordinary 
 functions of money. English tradesmen will not accept 3 
 francs instead of half-a-crown, cab fares cannot be paid in 
 French coin, and a person in London with only French 
 money in his pocket would be subject to as many incon- 
 veniences as if a traveller were in Paris with only English 
 money in his pocket. Those persons, therefore, in England 
 to whom French money has been sent to pay for the excess 
 of exports to that country, will be anxious to convert this 
 French money into English money. This French money 
 cannot be sent back to France, without involving the cost 
 of transmission. A considerable loss will also be incurred 
 if the other alternative is adopted, and the French money 
 which is in England is melted in order to be sold as 
 bullion. These considerations show that French money 
 must be depreciated, or, in other words, when foreign ex- 
 changes are technically said to be against a country, the 
 money of the country will be depreciated, when compared 
 with the money of those countries with regard to which 
 the favourable exchange is supposed to exist. 
 
 DJi 2 
 
 BOOK III. 
 CH. IX. 
 
 Meaning' 
 of favour- 
 able ex- 
 change in 
 this case. 
 
420 
 
 Manual of Political Economy. 
 
 Causes 
 which may 
 increase 
 the premi- 
 um or dis- 
 count on 
 bills of 
 exchange 
 beyond the 
 cost of 
 transmit- 
 ting gold. 
 
 The state- 
 ment that 
 this pre- 
 mium is 
 equal to 
 the cost of 
 transmit- 
 ting gold 
 must be 
 modified, 
 
 From these remarks it would appear, that when two 
 countries such as France and England are considered, the 
 bills of exchange which are drawn upon either of these 
 countries cannot either rise to a greater premium, or fall to 
 a greater discount, than that which would be represented 
 by the cost of transmitting the precious metals from the 
 one country to the other. Some facts, however, may be 
 recalled, which seem to contradict this conclusion. For 
 instance, it is well known, that when the news of Napoleon's 
 return from Elba was first brought to England, the price 
 of bills drawn upon foreign coiuitries suddenly rose ten per 
 cent. Mr Mill has remarked, "Of course this premium 
 was not a mere equivalent for cost of carriage, since the 
 freight of such an article as gold, even with the addition of 
 war insurance, could never have amounted to so much. 
 This great price was an equivalent, not for the difficulty of 
 sending gold, but for the anticipated difficulty of procuring 
 it to send ; the expectation being, that there would be 
 such immense remittances to the Continent in subsidies, 
 and for the support of armies, as would press hard on the 
 stock of bullion in the country." 
 
 When the exchange is against any particular country, 
 or, in other words, when bills upon foreign countries are 
 selling at a premium, it may be thought that this premium 
 must be always exactly equivalent to the cost of trans- 
 mitting the precious metals. It may be urged that an 
 unfavourable exchange is caused by the necessity of trans- 
 mitting specie, in order to pay for an excess of imports 
 over exports; therefore the competition of merchants 
 amongst each other to purchase foreign bills of exchange, 
 in order to avoid the cost of transmitting specie, will force 
 all foreign bills to a premium equivalent to this cost of 
 transmitting specie. If, for instance, the cost of sending 
 specie from England to France were two per cent., an 
 English merchant who had payments to make to France 
 would gain some profit, if he paid as high a premium as 
 11. 19s. per cent, for bills drawn on France. It would 
 therefore seem to be proved, that when the exchano-e is 
 unfavourable, bills must be at a premium equivalent to the 
 cost of transmitting specie. There are, however, other 
 considerations which modify this conclusion, and which 
 also explain the fact, that when the exchange is unfavour- 
 
Foreign Exchanges. 
 
 421 
 
 able, and bills at a premium, this premium does not 
 remain constant, but varies from day to day. 
 
 It is no doubt true, that bills would invariably be at a 
 premium approximating to the cost of transmitting specie, 
 if it was always necessary to export specie, when the 
 foreign exchanges happened to be unfavourable to a coun- 
 try. But it must be borne in mind, that the balance 
 which a country has to discharge, when the value of its 
 imports exceeds the value of its exports, may often be 
 liquidated without the transmission of any specie. For 
 instance, foreign commerce is liable to constant fluctuations; 
 various circumstances may at any time occur which may 
 increase a country's exports or diminish its imports ; thus 
 an exchange which is unfavourable may be rapidly con- 
 verted into one which is favourable. If such an event is 
 anticipated, those who have payments to make in foreign 
 countries will delay transmitting specie, or, at any rate, 
 will refuse to pay for foreign bills a premium equivalent 
 to the cost of transmitting specie. Such a delay may be 
 obtained by various arrangements ; for instance, a person 
 whose credit is good can always readily renew his bills at 
 the current rate of interest. 
 
 There are, moreover, valid reasons for assuming that an 
 unfavourable exchange cannot be of long continuance; for 
 specie cannot be withdrawn from the currency of a country, 
 to pay for an excess of imports over exports, without in- 
 creasing the value of gold in that country, or, in other 
 words, without reducing general prices. But a reduction 
 of general prices at once exerts a tendency to prevent the 
 export of specie. If general prices are lowered in a coun- 
 try, the exports of the country will be increased, because 
 it will be more profitable to sell commodities in foreign 
 countries. Under the same circumstances, the imports will 
 be diminished, because foreign countries will not export 
 so large a quantity of commodities to this particular coun- 
 try, when generally lower prices prevail in it. It therefore 
 appears, that an unfavourable exchange cannot long con- 
 tinue, if the specie which is transmitted to foreign coun- 
 tries is supplied from the money of the country. It has, 
 however, been already stated, that the precious metals are 
 often transmitted from one country to another, as an or- 
 dinary commodity of commerce. Such an export of specie 
 
 BOOK III. 
 OH. IX. 
 
 became 
 tlie actual 
 traimmis- 
 sion of 
 specie may 
 be avoided. 
 
 and an 
 unfavour- 
 able ex- 
 change 
 exerts a 
 direct ten- 
 dency to ■ 
 correct 
 
422 
 
 Manual of Political Economy. 
 
 can scarcely be said to denote an unfavourable exchange, 
 since the specie is not withdrawn from the money of a 
 country, and no effect is consequently exerted on general 
 prices. Australia, for instance, annually sends 10,000,000/. 
 of gold to England, but this export of gold from Australia 
 does not show that the foreign exchanges are unfavourable 
 with regard to that country; this gold is simply exported 
 fi'om Australia as an ordinary commodity of commerce. 
 
CHAPTEK X. 
 
 THE FUNCTIONS OF CREDIT. 
 
 IN Political Economy the very name of Credit is omin- 
 ous of confused and never-ending discussion. Questions 
 concerning credit may be regarded as the polemics of this 
 science; for the subject of currency is intimately connected 
 with credit. The currency has always been a popular 
 topic for much vague theorising ; it seems to be not unfre- 
 quently thought that out of the intricacies of the currency 
 problem some specific may be evolved which will sponta- 
 neously create wealth, and which wiU provide an adequate 
 remedy for every national disaster. It will, however, be 
 perceived that the functions performed by credit and the 
 influence it exerts on currency admit of a very simple 
 explanation. 
 
 Credit signifies the relation which exists between the 
 borrower and lender ; credit consequently implies trust, or 
 confidence. One individual, A, may have a larger amount 
 of wealth than he wishes either to consume or to employ 
 as capital. Another individual, B, may be greatly in want 
 of this wealth, desiring perhaps a greater amount of 
 capital to assist the industry in which he is engaged ; B 
 therefore says to A, If you will lend me your wealth, I wiU 
 pay you a certain annual sum for the use of it, and you 
 may depend upon me to repay it to you at the expiration 
 of a certain time. If A has sufficient confidence in B's 
 solvency and is satisfied with the terms which are ofiered, 
 A will lend the wealth to B. In other M'ords, B calls his 
 credit into action to borrow wealth from another individual, 
 A; credit therefore simply signifies bon-owing and leading. 
 The borrowing does not always take place in the precise 
 manner just described ; there is however no difference in 
 
 BOOK UI. 
 CH. X. 
 
 Credit im- 
 plies bor- 
 rowing and 
 lendivo. 
 
424 
 
 Marmal of Political Economy. 
 
 Not neces- 
 sarily 
 money. 
 
 Circum- 
 stances 
 affecting 
 credit. 
 
 principle, although there may be some difference in the 
 mode in which the transaction is conducted. 
 
 For instance, it is customary, when wealth is lent, that 
 the loan should be made in money. If, in the above 
 example, the surplus wealth which A is supposed to pos- 
 sess consists of a stock of wheat, he will not, as a general 
 rule, lend this wealth in the form of wheat, for he will 
 almost invariably sell the wheat and then lend the money. 
 Such a course is much more convenient, since a substance 
 which is uniform in its value is always chosen to perform 
 the functions of money. When money is lent, both the 
 borrower and lender very accurately know how much they 
 have respectively to pay and receive. But if, instead of 
 money, any other kind of wealth, such as wheat, was lent, 
 great risk would be incurred both by the borrower and 
 lender; because if the wheat were to be repaid at any 
 particular time, it might then be only half as valuable, or, 
 on the other hand, perhaps far more valuable than it was 
 at the time when it was borrowed. 
 
 If it is borne in mind that credit is a synonymous 
 expression for borrowing and lending, it will be readily 
 perceived that various circumstances are implied in the 
 existence of credit. In the first place, there can be no 
 credit if a man has not confidence in the person to whom 
 he lends. No one would be willing to lend his wealth, 
 unless he believed that he who borrowed it would repay 
 it. The more confident a man is in this belief the less 
 remuneration will he require for the money which he 
 lends. If A lends two sums of 1001. to B and C respect- 
 ively, and if he places much greater faith in B's honesty 
 and ability to pay than he does in C's, C will be compelled 
 to pay a much greater sum for the use of this loan than 
 B. It need scarcely be said that the annual sum which 
 is paid for the use of borrowed money is termed the 
 rate of interest. Therefore two individuals borrowing at 
 the same time and from the same person, pay a rate 
 of interest which is determined by the confidence which 
 he who lends the money may feel that it will be repaid; 
 or, in other words, by the faith which he places in the 
 solvency of those to whom the money is lent. Since B 
 is supposed to be able to obtain a loan at a lower rate of 
 interest than C, B's credit is for that reason said to be 
 
The Fwnctions of Credit. 
 
 425 
 
 better than Cs; hence, credit should be defined as the 
 power to borrow wealth. This definition is more precise 
 than the meaning given above, but not inconsistent with 
 it. Credit being defined as the relation between the 
 borrower and lender, credit will be good when this relation 
 is easily produced, i.e. when money is easily lent or bor- 
 rowed; or credit will be abundant when there is a large 
 number of persons ready to enter into the relation on both 
 sides, and a large amount of wealth ready to be lent and 
 borrowed. 
 
 It has been said that C's credit would not be so good as 
 B's, if C were compelled to pay a higher rate of interest for 
 money borrowed than B. But it must be remembered 
 that B and C are supposed to borrow money in the same 
 place, and in the same country. If B borrowed in England 
 and C in India, C would be compelled to pay a higher 
 rate of interest than B, although C's credit, so far as 
 depended upon personal character and means, might be 
 quite as good as B's. It would in fact be necessary for C 
 to pay this higher rate of interest, not because bis own 
 credit was not good, but because a generally higher rate of 
 interest prevails in India than in England. This is tanta- 
 mount to saying that the credit of India is not so good as 
 the credit of England. The circumstances which determine 
 whether the credit of any particular country is good or bad 
 are very similar to those on which depends the credit of 
 individuals. If the government of a country is unsettled, 
 a revolution may quickly displace the ruling dynasty, 
 and the obligation incurred by one government may be 
 disavowed by the next which takes its place. In such a 
 case as this those who lend money must be compensated 
 for the increased risk which is incurred. States, either 
 through dishonesty or through inability to pay, have some- 
 times repudiated their obligations. Those who subscribe 
 to government loans carefully examine the character and 
 the financial position of the states to whom the money 
 is lent. The result of this examination is shown in the 
 price of foreign stocks, for the prices of these stocks form 
 a measure of the credit of different countries. Russia 
 can borrow money at five per cent., whereas the credit of 
 Egypt and Turkey is so low that Egypt cannot borrow 
 money at less than 18 per cent., and Turkey, in conse- 
 
 BOOK III. 
 OH. X. 
 
 Credit is 
 the power 
 to borrow 
 wealth. 
 
 Thiipower 
 varies in 
 individu- 
 als 
 
 and in 
 countries. 
 
426 
 
 Manual of Political Uconomy 
 
 BOOK III. 
 CH. Z. 
 
 Confused 
 notion that 
 credit is 
 capital. 
 
 Credit 
 aids the 
 production 
 of wealth, 
 by increas- 
 ing the 
 accumula- 
 tion and 
 profitable 
 applica- 
 tion of 
 capital. 
 
 quence of her inability to pay the interest on her existing 
 loans, is now unable to borrow, and her 5 per cent, stock 
 stands at a nominal price of 121. The credit of Russia 
 therefore is at least three times as good as that of Egypt. 
 
 Hence the meaning to be attributed to the word 
 credit, is the power to borrow, whether the credit of an 
 individual, or the credit of a state is spoken of. It may 
 perhaps excite surprise that so simple a signification is 
 given to the word credit, for it is often spoken of in a 
 most mysterious manner. Thus some political economists 
 assert that the principles of this science can only be un- 
 folded to those who properly appreciate the great maxirn, 
 that credit is capital. If the true nature of credit is 
 borne in mind, it will be at once perceived that this 
 maxim instead of being pregnant with meaning is a strik- 
 ing indication of confusion of thought and language. The 
 fundamental idea attached to capital is, that it is a fund 
 from which to feed, and otherwise to support labourers. 
 Credit is a power to borrow, and surely labourers cannot 
 be fed on a power to borrow. The power to borrow, if ex- 
 ercised, may obtain capital. Just in the same way, the 
 nyiscles of a man's arm will, if required, lift fifty pounds ; 
 but it would be absurd to say, that his muscles were fifty 
 pounds. 
 
 We shall proceed to point out the real assistance which 
 credit lends to the production of wealth ; in doing so, it 
 will be shown that if there were no credit much less 
 wealth would be saved, and a great portion of that which 
 is saved would cease to be productively employed. PoH- 
 tical economists are not, however, justified in afiirniing 
 that credit is capital, although it may be shown that the 
 existence of credit materially aids the production and 
 distribution of wealth. If there were no credit, all the 
 capital of the country must be applied to industry by 
 those individuals who actually possess it. A person who 
 saves wealth, but does not wish to employ it upon any 
 industrial purposes, would be prevented using it as capital, 
 if he were debarred from lending this wealth to those 
 who would be willing to devote it to the further production 
 of wealth. The amount of wealth which is in this manner 
 saved by those who wish others to employ it as capital 
 is enormously great. Some conception of the amount may 
 
The Functions of Credit. 
 
 427 
 
 be formed from glancing over the accounts of such institu- 
 tions as the London and Westminster Bank. The average 
 amount of the deposits which are held by this bank exceeds 
 18,000,000/1. This vast amount of wealth has been col- 
 lected from a multitude of depositors, who are in very 
 different positions in society, and who are engaged in the 
 most varied occupations. Experience teaches, that even 
 the most prudently managed bank need not keep in the 
 form of money an amount exceeding one-third of the 
 sums deposited with it, in order to meet the every-day 
 demands which are made upon the bank by those who 
 have deposited money. If, therefore, a bank has deposit 
 accounts amounting to 18,000,000?., at least 12,000,000?. 
 of this sum may be applied by the bank to productive 
 purposes. The profits of a banking establishment mainly 
 arise from such an application of their deposits, for the 
 bank either employs the money directly as capital in 
 carrying out some industrial work from which profit is 
 realised ; or, as is generally the case, the bank lends the 
 money to others, who use it as capital, and who pay a 
 certain rate of interest for the loans thus received from 
 the bank. But suppose that either from the instability 
 of the government, from a generally low state of com- 
 mercial morality, or from any other cause, the credit of 
 this country should be materially damaged. Confidence in 
 banks and other similar institutions would thus be lost. 
 Those who now deposit in banks the money which they 
 do not require for their immediate wants, would then cease 
 to do so, since they would be prompted to hoard it for the 
 sake of security. Some idea may be formed of the extent 
 to which such an event would affect the capital of the 
 country, when it is remembered that the credit of the Lon- 
 don and Westminster Bank enables it to gather together 
 18,000,000?. in deposit accounts; of this amount a sum 
 equivalent to at least 12,000,000?. is employed as capital. 
 The foregoing remarks suggest one of the many modes 
 by which credit economises the resources of the country. 
 These deposit accounts represent the sums which trades- 
 men and others keep to meet their current expenses ; for 
 instance, a person who receives an official salary of 1000?. 
 does not wish to iavest it, because he will have to live 
 iipon it during the year. He would also be afraid to keep 
 
 BOOK III. 
 CH. X. 
 
 Method by 
 which 
 banks in- 
 crtase the 
 effective 
 resmtrcea 
 of the 
 country. 
 
428 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. X. 
 
 Accumula- 
 ted wealth 
 is made 
 useful by 
 credit. 
 
 Undertak- 
 ings tbo 
 great for 
 individual 
 resources 
 are carried 
 out by 
 credit. 
 
 SO large a sum in his own house. He therefore deposits 
 it in a bank, and gradually draws upon it as he requires it. 
 In this manner, small sums which would not otherwise be 
 invested as capital are collected by banks, and a large 
 proportion of the aggregate sum which is so collected is 
 productively employed as capital. 
 
 Again., many persons who accumulate wealth would not 
 do so if they were obliged to engage in businBss themselves, 
 and to superintend the industry which may be supported 
 by the wealth which they save. An individual, A, may 
 have an annual income of 20002. One thousand pounds a 
 year suflSces for his ordinary expenditure ; he is therefore 
 glad to save the remaining lOOOi, if he can profitably 
 invest it. But very probably he does not wish to engage 
 in any industry himself, or if he is already so engaged, 
 he may not wish to exteiid his operations by bringing 
 more capital into his business. He will therefore be 
 anxious to lend the 10002. which he is disposed to save to 
 some one whom he can trust, and who will pay him in- 
 terest for the use of it. If it is assumed that the money 
 is lent to B, B probably desires to borrow it, because he 
 thinks that he can so advantageously employ this sum as 
 capital, that there will be a profit remaining to him, after 
 he has paid interest for the use of the loan. If, however, 
 A placed no confidence either in B's credit or the credit 
 of any other individual, he would not lend the lOOOZ. he 
 had saved, and therefore the money would not be em- 
 ployed as capital, unless A chose so to employ it himself. 
 It has however been supposed that he is unwilling to do 
 this; in all probability, therefore, he would spend the 
 10002., if the absence of credit prevented him from finding 
 a profitable investment for it. The consequence of this 
 would be, that the industry of the country would be seri- 
 ously affected, since the accumulation of capital would 
 be impeded. 
 
 There is another mode in which the existence of credit 
 most powerfully assists the production of wealth. It has 
 been frequently remarked, that nothing contributes more 
 powerfully to promote the wealth of a nation than its 
 public works. The railways, docks, canals, and roads of 
 this country are not only the surest signs of its wealth, 
 but have also been the chief instruments of its industrial 
 
The Functions of Credit. 
 
 429 
 
 greatness. Such an undertaking as a railway, however, 
 requires an amount of capital for its construction too 
 large to be supplied by one individual. Such works, 
 therefore, are carried out by a company, who collect the 
 requisite amount of capital from a great number of indi- 
 viduals. These individuals would not entrust their capital 
 to the company, unless they could place confidence in it, 
 OT, in other words, unless its credit was good. Moreover, 
 not only must the personal credit of the directors of the 
 company inspire confidence, but it is also necessary that 
 the credit of the country in which the works are carried 
 out should stand high ; because great risk will be incurred 
 by sinking large sums of money in works which would 
 be easily destroyed if the government was in a state of 
 an9,rchy, and property consequently insecure. 
 
 Enough has now been said to show, that credit as 
 powerfully as any other agent contributes to the pro- 
 duction and accumulation of wealth. Although credit is 
 not capital, yet a great portion of the capital of each 
 country is undoubtedly due to the existence of credit. 
 ' The higher the credit of a community is, the more 
 completely can every particle of wealth which is saved be 
 economised. Credit, in fact, enables the wealth which is 
 saved to be immediately applied to the most productive 
 purposes. 
 
 Having in this chapter described the influence exerted 
 by credit on the production of wealth, we shall in the next 
 chapter discuss the manner in which the prices of com- 
 modities are affected by credit. 
 
 Thus 
 credit 
 creates 
 capital. 
 
BOOK III. 
 CH. XI. 
 
 Different 
 fonm of 
 credit. 
 
 Bills of 
 exchange. 
 
 They are 
 a conve- 
 nient form 
 of credit. 
 
 CHAPTER XI. 
 
 THE INFLUENCE OF CREDIT ON PRICES. 
 
 WHEN an individual, B, uses his credit in borrowing 
 from A a certain sum of money, it is natural to sup- 
 pose that A will require some written acknowledgment 
 of B's liability to him. The written acknowledgment of 
 such indebtedness may be given in many different forms, 
 and these various forms may be regarded as the tangible 
 evidence of the fact, that credit has been given and taken. 
 It will be well to describe some of these forms in detail. 
 
 We will commence with a bill of exchange; some re- 
 marks have already been made upon this instrument of 
 credit. It is well known that the wholesale transactions 
 of commerce are seldom carried on by ready money. If 
 A sells B a cargo of coal for lOOOZ., A receives an acknow- 
 ledgment of the debt due to him in the form of a bill; 
 this bill is a written promise', that B will pay a certain 
 sum to A on a particular day, and in the bill it is stated 
 what consideration has been given for the debt which has 
 been incurred. The time which has to elapse before the 
 bill falls due is a matter of previous arrangement between 
 A and B, but upon this point different customs prevail in 
 various trades, which are very uniformly observed. When, 
 for instance, a draper purchases goods of a warehouseman, 
 a bill for three months is almost always given; but in the 
 book trade it is customary to give a bill for six months. 
 
 A bill of exchange affords a convenient instrument for 
 facilitating credit. K in the above transaction B, who is 
 supposed to purchase the coals, should be a stranger to A, 
 it is probable that A may require some additional security 
 
 1 The promise is almost invariably given in the form of a -written 
 order to a banker, who becomes the medium of payment. 
 
The Influence of Credit on Prices. 
 
 431 
 
 besides the ■written promise of B to discharge the debt. 
 Some bank with which B does business may have perfect 
 confidence in him. B will go to this bank and say, A is 
 not satisfied with my promise to pay, but he no doubt 
 would be if a public institution like yours would give him 
 some testimony as to my solvency. The bank grants 
 this request by placing its name upon the back of the bill, 
 which is technically called endorsing the bill. This en- 
 dorsement makes the bank liable to pay the bill in the 
 event of B refusing to do so; A then accepts the bill, 
 being satisfied with this additional security. Now A may 
 perhaps be in want of ready money, and does not wish to 
 wait until the bill falls due. He therefore gets this bill 
 discounted ; discounting the bill means selling the bill 
 for ready money. If the person who discounts this bill 
 for A is satisfied with the security which is provided by 
 the two endorsements which are already on the bill, he 
 accepts the bill without any further endorsement; but if 
 he is not satisfied, he may also require the endorsement 
 of A, the person from whom he purchases the bill. A bill 
 of exchange may be thus bought and sold any number of 
 times before it falls due, and perhaps each time it is so 
 bought and sold it receives an additional endorsement. 
 Thus it not unfrequently happens that before a bill is 
 finally presented for payment it is almost completely 
 covered with endorsements. 
 
 When credit is given by banks, it usually assximes the 
 form either of bank notes or cheques. The distinction 
 between a bank note and a biU of exchange is this: a bank 
 note is a written promise to pay a certain sum whenever 
 it may be demanded; whereas a bill of exchange is a 
 written promise to pay a sum at a certain date, which is 
 stated on the bill. Moreover, in almost every country 
 certain privileges are given to bank notes which are not 
 possessed by any other instrument of credit. Almost 
 every country has a State bank, the bank notes from 
 which are generally made a legal tender. In this country, 
 any debt can be discharged by paying the sum in Bank 
 of England notes; and, similarly, in France a debt can 
 be discharged by paying the amount in notes issued by 
 the Bank of France. But the notes which are issued 
 by private banks are not a legal tender. State banks are 
 
 BOOK III. 
 CH. XI. 
 
 Banknotes 
 
 and 
 
 cheques 
 
 as issued 
 by State 
 banks 
 
432 
 
 Manual of Political Economy. 
 
 BOOE III. 
 CH. XI. 
 
 or private 
 banks. 
 
 subject to certain restrictions, which vary in different 
 countries. Our own bank is regulated by the Bank Charter 
 Act, the provisions of which we shall hereafter explain. 
 It is only necessary here to state, that this Act provides 
 security that the Bank of England shall not issue notes 
 beyond a certain amount, unless it possesses a correspond- 
 ing quantity of gold to provide for their payment. Al- 
 though a Bank of England note is as legal a tender as 
 gold coin, yet our currency is said to be convertible, 
 because the Bank of England is bound, if the demand is 
 made upon it, to give gold in exchange for its notes. But 
 the currencies of some other countries are inconvertible, 
 and when this is the case, no one has a right to demand 
 coin in exchange for bank notes, although they may be a 
 legal tender. 
 
 Besides the notes which are issued by the Bank of 
 England, private banking firms are allowed to issue notes 
 under certain conditions. A moment's consideration will 
 show, that a bank note, whether issued by a State establish- 
 ment or by a private firm, is simply a convenient form for 
 bringing into practical use the credit which may be pos- 
 sessed by the bank. All those who place perfect confidence 
 in the solvency of a particular banker will be willing to 
 accept his notes. A banker, therefore, whose credit is 
 good, can circulate a great number of his notes in his 
 own neighbourhood, his notes being willingly accepted 
 by those to whom he is known. Such notes, however, are 
 not convenient for payments which have to be made at 
 a distance, to those to whom the banker is a stranger. 
 The notes of private bankers are never made a legal 
 tender, and if the notes are presented for payment at 
 the bank from which they are issued, it is compulsory 
 that either coin, or Bank of England notes, should be 
 given in exchange for them. It is, however, manifestly 
 to the advantage of a banker to issue notes; for suppose 
 60,000/!. of these notes are kept in circulation, it is ascer- 
 tained, by experience, that an amount of legal tender- 
 equivalent in value to one third of the notes issued will 
 be sufficient, if kept as a reserve, to meet all the notes 
 which are presented for payment. A banker, therefore, 
 whose notes circulate to the extent of 60,000Z., has 40,000?. 
 at his free disposal, to place in some profitable investment. 
 
T/te Influence of Credit on Prices. 
 
 43 3- 
 
 it is hardly necessary to describe a cheque. Individuals 
 deposit money with bankers for purposes of convenience 
 or safety, and of course they can withdraw any portion of 
 this money when they have a payment to make. But if 
 A wants to pay B lOOOZ., A does not first withdraw lOOOZ. 
 from his bank and pay the amount to B, who would then 
 probably deposit the amount received, in the bank with 
 which he might happen to do business. A much more 
 convenient course is adopted: A, instead of paying the 
 money to B, gives him a cheque, which is simply an 
 instruction to A's banker that the amount stated in the 
 cheque should be paid to B when he demands it. A is 
 thus saved the trouble of withdrawing money from his 
 bank; B is also saved the trouble of sending so much 
 money to his bank, for now he has only to transmit the 
 cheque to his banker, who will place the amount to his 
 account, B's banker taking the trouble of getting the 
 cheque paid by A's banker. The trouble of doing this, 
 however, is very small, for cheques will be drawn upon 
 B's banker, and in this manner the cheques drawn upon 
 one bank are exchanged for those drawn upon another. 
 This exchange is daily carried on in London, at an esta- 
 blishment called the Clearifig House. It has been calcu- 
 lated that more than 2,000,000,000?. of cheques are 
 annually exchanged in this manner. No gold whatever 
 is required in settling the accounts between the various 
 banks. When a balance remains in favour of, or against, 
 a particular bank, the amount is placed to the credit or 
 debit of this bank in the books of the Bank of England. 
 
 The chief forms which credit assumes have now been 
 described. It will be perceived that bills of exchange, 
 bank notes, and cheques perform many of the functions of 
 money. Credit, therefore, considered in this aspect, may 
 be reo'arded in a certain degree as a substitute for money. 
 We are thus led to the main subject of inquiry in this 
 chapter, which proposes to investigate the influence pro- 
 duced by credit on prices. We will commence this in- 
 vestigation by explaining the manner in which bills of 
 exchange, bank notes, and cheques respectively perform 
 the functions of money. 
 
 Althouo-h, in the wholesale transactions of commerce, 
 commodities are almost invariably sold for money, yet it 
 
 BOOK III. 
 CH. XI. 
 
 Use of 
 eheques. 
 
 Credit is 
 to some ex- 
 tent a sub- 
 stitute for 
 money. 
 
 The func- 
 tions of 
 
 T. M. 
 
 EE 
 
434 
 
 Marnud of Political Economy. 
 
 BOOK III. 
 CH. XI. 
 
 money may 
 be per- 
 formed by 
 bills of ex- 
 change. 
 
 As wealth 
 increases, 
 prices tend 
 to decline; 
 but this 
 tendency 
 is stopped 
 by the use 
 of bills. 
 
 very rarely happens that any money is interchanged be- 
 tween the buyer and seller. In such transactions, bills of 
 exchange provide a ready substitute for monej'^; it also 
 frequently happens that the same bill of exchange supplies 
 a substitute for money in many transactions besides the 
 original one which first called the bill into existence. We 
 have already said that bills are often almost covered with 
 endorsements before they are finally presented for pay- 
 ment. If, for instance, B receives from A a bill for 1000?., 
 B may endorse this bill, and with it purchase commodities 
 to the value of lOOOi. from C. C in a ^similar way may 
 again endorse the bill, and with it purchase goods from D, 
 and the same process may be continued any number of 
 times. But when this is done, it is manifest that the bill 
 is as efficient in its purchasing power, or, in other words, 
 exerts the same influence in buying and selling, as if A 
 paid B a thousand sovereigns instead of the bill, and B 
 purchased goods from C with this money instead of pa,ying 
 C for the goods by means of the bill. As long therefore as 
 this bill is kept in circulation, it pi-ovides a substitute for 
 an equivalent amount of money. If biUs were not used, 
 and if no other substitute for money were provided, it is 
 manifest that, when commodities were bought and sold for 
 money, the money must be forthcoming. In discussing 
 the laws of price, the principle was established, that general 
 prices depend upon the quantity of money in circulation 
 compared with the wealth which is bought and sold with 
 money, and also upon the frequency with which this wealth 
 is bought and sold before it is consumed. If more wealth 
 is produced, and an increased quantity of wealth is also 
 bought and sold for money, general prices must decline 
 unless a larger quantity of money is brought into circular 
 tion. Suppose, for instance, that the production of every 
 kind of wealth is doubled in this country, that every one 
 doubles his purchases of commodities, and, at the same 
 time, there is no increase in the amount of money in 
 circulation. Upon this hypothesis, each individual, al- 
 though he is supposed to purchase twice as much of every 
 commodity as he did before, will only possess the same 
 amount of money with which to effect these purchases. 
 He will, therefore, be only able to give the same amount 
 of money for double the quantity of each commodity he 
 
The Influence of Credit on Prices. 
 
 435 
 
 purchases ; but this is tantamount to saying that general 
 prices have declined one-half. In fact, if there should be 
 an increased production of wealth, if there should be more 
 buying and selling, or if any other circumstance should 
 occur the effect of which is to require the circulation of a 
 larger amount of money, the value of money must rise; 
 or, in other words, general prices must decline, unless an 
 increased supply of money is forthcoming, so that a larger 
 amount may be brought into circulation. When buying 
 and selling are effected by bills of exchange, the necessity 
 for money is as completely dispensed with as if the trans- 
 action was carried on by barter; those trading transactions 
 therefore in which bills of exchange are employed may be 
 almost indefinitely extended without rendering it necessary 
 to briag an increased amount of money into circulation. 
 
 A consideration of some of the consequences which 
 would ensue if bills of exchange did not exist, will perhaps 
 more plainly indicate the influence which they exert upoa 
 prices. Suppose that all the commodities which are now 
 bought and sold by means of bills of exchange were paid 
 for by money; a largely increased amount of money would 
 be required to be brought into circulation. If this ad- 
 ditional supply were not forthcoming, money would rise in 
 value, or, in other words, general prices would decline. 
 Hence bills of exchange, in many classes of transactions, 
 are a convenient and complete substitute for money ; con- 
 sequently, if it were not for bills of exchange, one of two 
 things must happen. Either the money in circulation 
 must be increased, or the money already in circulation 
 must become more valuable, since a greater amount of 
 money will be required to carry on the trade and com- 
 merce of the country. But to say that money becomes 
 more valuable is equivalent to stating that general prices 
 decline. 
 
 It therefore appears that we cannot, by a simple negative 
 or affirmative, answer the question whether an increased 
 issue of bills of exchange affects prices. All that can be 
 said is this — If the buying and selling now carried on by 
 bills of exchange were effected by money, then one of two 
 things must occur — eitKer more money must be brought 
 into circulation, or general prices must decline. The in- 
 fluence, however, which is exerted upon prices by bills of 
 
 EE 2 
 
 BOOS III, 
 OH. XI. 
 
 If bills 
 were not 
 used, the 
 Tnoney in 
 circula- 
 tion must 
 increase, 
 or prices 
 decline; 
 
 hence 
 prices are 
 not affect- 
 ed by bills, 
 but by the 
 credit 
 which they 
 imply. 
 
43<5 
 
 Manual of Political Economy/. 
 
 BOOK HI. 
 CH. XI. 
 
 The same 
 effect 
 might he 
 produced 
 hy hooh 
 credits, 
 
 Imt not to 
 so great a 
 degree. 
 
 Manknotes 
 are a still 
 more 
 powerful 
 instrument 
 of credit. 
 
 exchange is not due to anything peculiar in the nature or 
 form of a bill of exchange ; it is not the bill which produces 
 the influence, but the influence is produced by the credit 
 which is given. The bill is not this credit, but is simply 
 a testimony or record of its existence. The truth of this 
 assertion is illustrated by the fact that buying and selling 
 may be carried on by book credits, instead of by bills of 
 exchange. Suppose A sells B a cargo of coals for lOOOZ.; 
 A, instead of receiving a bill of exchange frorii B, may 
 debit him with the amount in his ledger. Let it be also 
 assumed that A buys a quantity of coal for lOOOZ. from a 
 third person C, and that C again buys lOOOL worth of 
 timber from B. Then A appears a debtor for lOOOi. in C's 
 ledger, and C appears a debtor for lOOOZ. in B's ledger. 
 Payment will therefore be made by cancelling each debt, 
 for A will cancel B's debt, if C will cancel A's, and this of 
 course C will be willing to do if B will cancel C's. In this 
 case, although the buying and selling are nominally made 
 for money, yet the resort to book credits enables money to 
 be as completely dispensed with as if bills of exchange had 
 been used. It is therefore credit, and not the particular 
 form which credit may assume, that enables money to be 
 dispensed with, and consequently produces an influence on 
 prices. 
 
 Bills of exchange are, however, more potent in their in- 
 fluence on prices than book credits, simply because bills of 
 exchange facilitate credit, and call a vast amount of credit 
 into action which would never be given if book credits 
 were always adopted instead of bills of exchange. For 
 instance, if A receives from B a bill of exchange for goods 
 sold, then A has the power of increasing his credit by 
 means of this bill, for he can actually convert the bill into 
 money, or he can purchase commodities with it ; but if A, 
 instead of receiving a bill from B, simply has a register 
 of his debt in his ledger, he would have no power of 
 buying commodities by means of this book credit. 
 
 Although in many transactions bills of exchange provide 
 a perfect substitute for money, yet bank notes seem more 
 completely to perform all the functions of money ; we will 
 therefore next proceed to inquire into the influence exerted 
 upon prices by credit when in the form of bank notes. 
 A bank note is a far more complete substitute for money 
 
The Influence of Credit on Prices. 
 
 437 
 
 than a bill of exchange, because a bank note is used in 
 those cases in which money would necessarily be employed, 
 if bank notes did not provide a substitute. The transac- 
 tions, however, which are effected by bills of exchange 
 might, as we have seen, be often performed by book cre- 
 dits. Bills of exchange are seldom used, except in the 
 wholesale transactions of trade and commerce, but bank 
 notes form a part of the ready money which a man keeps 
 in his possession, to supply the ordinary wants of life. If, 
 therefore, an amount of coin equivalent to one-third of the 
 bank notes issued is kept by the bankers as a reserve, it is 
 manifest that each bank-note which is in circulation en- 
 ables an amount of money to be dispensed with equivalent 
 in value to two-thirds of the sum which the note repre- 
 sents. The bank note circulation of Great Britain varies 
 between 30,000,000^. and 32,000,000i!. If it is 30,000,000?. 
 sterling, it may be approximately said that, in consequence 
 of bank notes, a substitute is provided for 20,000,0002. of 
 coined money. The same proposition may be expressed 
 in different words, by saying that, if no bank notes were in 
 circulation, 20,000,0002. more money would be required. 
 If this additional amount were not forthcoming money 
 would become scarcer, or, in other words, general prices 
 would decline. 
 
 It may be asked, What would be the effect upon prices 
 if the bank note circulation were suddenly increased? 
 This suggests one of the most disputed of the currency 
 questions. As previously stated, the bank note circulation 
 of England is placed under various restrictions, the nature 
 of which will be presently detailed. The purpose we have 
 in view, at this stage of our inquiry, is to investigate the 
 effect which would be produced on prices if the bank note 
 circulation were largely increased by a removal of all re- 
 strictions which now limit its amount. We conceive that 
 the effect which would be produced entirely depends upon 
 circumstances. Let it be supposed that there is no change 
 in the 'population, or in the commercial condition of the 
 country. If, under these circumstances, an increased issue 
 of notes were added to the money circulation of the country, 
 prices would manifestly rise, because there would be now 
 more money in circulation to carry on the same amount of 
 buying and selling which was previously conducted by a 
 
 BOOK III. 
 OH. XT. 
 
 The effect 
 of largely 
 increasing 
 the bank 
 note circu- 
 lation 
 wouldvary 
 under dif- 
 ferent 
 circum- 
 stance,-. 
 
438 
 
 Manual of Political Economrf. 
 
 BOOK III, 
 CH. XI. 
 
 The impor- 
 tant ques- 
 tion is 
 whether 
 they dis- 
 place an 
 equal 
 amount of 
 bullion, or 
 increase 
 the whole 
 circula- 
 tion. 
 
 Cheques 
 are a less 
 complete 
 substitute 
 for money. 
 
 smaller amount of money. If, however, the additional 
 notes "which are issued simply cause a corresponding 
 amount of bullion to be withdrawn from circulation, it 
 is manifest that no effect is produced on prices. The only 
 result is, that the trade of the country is carried on more 
 economically, because these notes, which are simply pieces 
 of paper of no intrinsic value, perform with equal efiSciency 
 all the purposes which were previously fulfilled by the 
 gold, now supposed to be dispensed with. Consequently 
 the economy of this substitution is evident ; gold is a 
 valuable commodity, requiring much labour and capital 
 to obtain it. We therefore have the following principles 
 to guide us in an inquiry into the effects of a bank note 
 circulation. 
 
 1st. If bank notes simply occupy in the monetary cir- 
 culation of the country the place of a corresponding value 
 of bullion, these notes produce no effect on prices. 
 
 2nd. If it can be shown that, either by the repeal of 
 the Bank Charter Act, or by any other cause, the bank 
 note circulation of the country can be increased without 
 withdrawing from circulation a corresponding amount of 
 coin, it is manifest that the aggregate money circulating 
 in a country will be augmented, and general prices will, 
 as a consequence, undoubtedly rise. 
 
 Although a cheque is not so complete a substitute for 
 money as a bank note, yet cheques often provide facilities 
 for dispensing with money which are possessed by no other 
 instrument of credit, except a bank note. It has already 
 been explained in what manner cheques render the em- 
 ployment of money unnecessary. As an example, it has 
 been stated that the returns of the Clearing House show 
 that payments to the amount of more than 2,000',000,000Z. 
 sterling per annum are made by means of cheques, without 
 requiring the use of any coin whatever. There can be no 
 doubt that, if it were not for cheques, the great majority 
 of these payments must be made with money; in this case 
 the money circulation of the country would have to be 
 increased to a corresponding amount. If it were not so 
 increased, a greater amount of buying and selling would 
 have to be performed by the money already in circulation. 
 This is equivalent to saying that general prices would 
 decline. 
 
The Influence of Credit on Prices. 
 
 439 
 
 We have now investigated one part of the influence 
 which is exerted by credit on prices : it must however be 
 borne in mind that credit exerts upon prices another 
 distinct kind of influence, which as yet has been scarcely 
 noticed. Hitherto, in this chapter, those efifects on prices 
 have alone been noticed which are due to the circumstance 
 that credit supplies, when in the form of bank notes, bills 
 of exchange, or cheques, a substitute for money, more or 
 less complete. But by far the most powerful influence 
 exerted by credit on prices is caused by increasing the 
 purchasing power of the country. If it were not for 
 credit, the demand for commodities would frequently be 
 much less than it is. In fact, when credit is freely given, 
 the demand for a commodity may increase without any 
 assignable limits ; when the demand is so stimulated, prices 
 may temporarily rise in a very striking manner. We lay 
 particular stress upon the word ' temporarily,' because as 
 frequently stated the price of all commodities, except those 
 whose supply is absolutely limited, must always in the 
 long run be regulated by their cost of production. But 
 although cost of production determines a point towards 
 which the prices of commodities must ultimately have a 
 tendency to approach, yet the prices of commodities may 
 temporarily either very much fall short of their cost of 
 production, or be greatly in excess of it. These variations 
 in price are due to sudden fluctuations in the demand and 
 supply of any particular commodity; nothing exerts so 
 powerful an influence in producing these fluctuations as an 
 extended system of credit. If no credit were given, and if 
 everything were consequently paid for by nioney directly it 
 was purchased, there would be little speculation; com- 
 modities woxild generally be bought as they were wanted ; 
 everything connected with trade would be regular and 
 uniform, and there would be no great variations in the 
 demand. This regularity in demand exists with regard 
 to those commodities which are not, from their nature, 
 bought upon credit for speculative purposes, and the price 
 of such commodities never deviates ipuch from the cost of 
 producing them. 
 
 Bread is one of these commodities ; it is bought to be 
 immediately consumed, and no one uses his credit to 
 accumulate large stores of bread ; hence the price of bread 
 
 BOOK III. 
 . CH. ZI. 
 
 Credit 
 exerts a 
 more 
 powerful 
 influence 
 on price! 
 by increas- 
 ing the 
 purchas- 
 ing power 
 of the 
 country. 
 
 Variations 
 in price 
 are pro- 
 duced by 
 credit, 
 
440 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH, XI. 
 
 and are 
 great in 
 articles 
 bought for 
 specula- 
 tive pur- 
 poses. 
 
 Example 
 of tallow 
 in the Bus- 
 sian war. 
 
 Tea in the 
 war with 
 China. 
 
 is always regulated by its immediate cost of production. 
 The price of bread of the same quality is uniform through- 
 out large towns and districts, and if the cost of producing 
 a loaf of bread is slightly lessened by a fall of 2s. a quarter 
 in the price of wheat, the effect of this is shown by a 
 corresponding fall in the price of bread. On the other 
 hand, many commodities, such as wheat, are largely bought 
 on credit for speculative purposes, and are consequently 
 subject to the greatest fluctuations in the demand. Sup- 
 pose some event occurs which forebodes a coming war ; 
 merchants may then think that, if the war takes place, the 
 foreign supplies of various commodities will be greatly 
 diminished; they therefore at once commence to make 
 speculative purchases. Every man can use his credit as a 
 purchasing power; if he exerts his credit to purchase a 
 commodity, he of course assists in increasing the demand ' 
 for it. When the first rumours arose in 1854 of coming 
 hostilities with Russia, large speculative purchases of 
 taUow were made, because it was thought that all impor- 
 tations of that commodity from Russia would be stopped. 
 y!he merchants who speculated in tallow employed their 
 credit ; they did not withdraw their capital from profitable 
 undertakings in which it might be invested, for the pur- 
 pose of purchasing this tallow ; they simply employed 
 their credit in the form of bills of exchange, and paid for 
 the tallow with these bills. They no doubt intended, 
 either to re-sell the tallow before the bills fell due, or, if 
 they did not do this, they would probably pay a certain 
 sum for permission to renew the bills from time to time. 
 If a commodity in which speculation thus takes place 
 does not rise in price as anticipated, many of the specu- 
 lators are sure to be unable to meet their credit engage- 
 ments, and a commercial crisis ensues. Each commer- 
 cial crisis affords most striking instances of the wonder- 
 ful extent of an individual's purchasing power, when he 
 brings his credit into full activity. Mr Mill refers to 
 a very remarkable speculation in the tea trade, which is 
 described in Tooke's ' History of Prices.' We will give a 
 brief summary of some of the facts, which are very in- 
 structive. 
 
 It was expected, in consequence of our dispute with 
 China in 1839, that there would be a rise in the price of 
 
The Influence of Credit on Prices. 
 
 441 
 
 tea. Many retail grocers were therefore extremely anxious 
 to lay in a stock of tea, and they accordingly commenced 
 making speculative purchases. One grocer is particularly 
 mentioned who had a capital of 1200Z., all of which was 
 locked up in his business. If, therefore, he had wished to 
 purchase tea and pay for it with money in his possession, 
 he probably would not have been able to lay out more 
 than 1001. But he adopted a different course, and em- 
 ployed his credit to its fuU extent as a purchasing power. 
 He ordered chests of tea from every wholesale tea mer- 
 chant with whom he was accustomed to deal; they did 
 not think of consulting each other, and had therefore 
 every reason for supposing that the tea which he thus 
 purchased was required for the legitimate purposes of his 
 trade. He, probably following the custom of his trade, 
 gave bills due at three months. Before, however, these 
 bills fell due, tea had risen in price, and he was therefore 
 enabled to realise considerable profits. Now it will be 
 observed, that here was a grocer in a small way of busi- 
 ness, who purchased large quantities of tea, and who 
 therefore exerted an influence in increasing the demand 
 for it, without employing a single farthing of money, 
 either in the form of coin or bank notes. The profits 
 which the grocer, in the first instance, thus realised, he 
 applied in the following manner to extend his speculations. 
 If a grocer buys tea upon credit, it is customary that he 
 should deposit as a security 21. upon each chest of tea 
 purchased. The realisation of profit in the first instance 
 enabled the grocer to pay this deposit, and his speculative 
 dealing rapidly expanded. A few cargoes of tea, however, 
 unexpectedly came to London, having sailed before the 
 Chinese ports were closed ; a sudden fall in price took 
 place, the grocer could not meet his engagements, and in 
 the course of his examination as a bankrupt it was shown 
 that he had purchased 4000 chests of tea at a cost of 
 80,000?., the loss upon which was 16,000Z. In this case, 
 therefore, a comparatively poor man was enabled, by 
 using his credit as a purchasing power, in a short time to 
 buy 80,OOOZ. worth of tea. Many others adopted the same 
 course, and every grocer in the country might have em- 
 ployed his credit in a similar manner. It is, therefore, 
 almost impossible to assign any limit to the rise of price 
 
 Immense 
 purchas- 
 ing power 
 produced 
 by credit. 
 
442 
 
 Manual of Political Economy. 
 
 BOOK III. 
 OH. XI. 
 
 The sup- 
 position 
 that bank 
 notes are 
 the most 
 efficient 
 purchas- 
 ing power 
 nave rise 
 to the 
 Bank 
 Charter 
 Act. 
 
 which may temporarily take place when the demand for 
 commodities is stimulated by purchases made upon credit. 
 The rise, as we have before said, was only temporary, for 
 directly a panic commences credit is as sparingly allowed 
 as it was before recklessly given. Prices rapidly fall, and 
 they often sink as much below that position of equilibrium 
 which is determined by cost of production as before they 
 went beyond it. 
 
 It must be evident, from the examples just given, that 
 every contrivance which facilitates the employment of 
 credit as a purchasing power increases the influence of 
 credit on prices. Many people believe that bank notes 
 are more efficient as a purchasing power than any of the 
 other instruments of credit. As it is conceived that com- 
 mercial panics are caused by a reckless employment of 
 credit, it is concluded that restrictions upon the issue of 
 bank notes provide the best remedy for the prevention 
 of panics. These opinions prompted the passing of the 
 Bank Charter Act. This Act was introduced and carried 
 by the late Sir Robert Peel in 1844 ; its leading provisions 
 admit of a brief and simple explanation. The main object 
 of the measure was to restrict the issue of bank notes; it 
 was therefore enacted that the Bank of England should 
 not be permitted to issue notes beyond a certain amount 
 unless a corresponding amount of specie or bullion were re- 
 tained by the bank. The limit thus fixed was 14,000,000?., 
 it being thought that the funds and various other property 
 possessed by the bank would prove a sufficient security to 
 meet an issue of 14,000,000?. of notes. The bank was, 
 however, compelled to'keep in its possession specie exactly 
 equivalent in value to every note that was issued beyond 
 14,000,000?. If, for instance, the Bank of England's note 
 circulation is at any time 18,000,000?., the bank is com- 
 pelled to retain in its coffers 4,000,000?. of bullion or 
 specie. In order that the public may feel sure that this 
 obligation is faithfully obeyed, the bank is compelled to 
 publish in the 'London Gazette' a weekly statement of 
 its accounts. This statement shows at a glance what is the 
 specie reserve at the bank, and what also is its note circu- 
 lation. The Bank Charter Act also provides that no banks 
 established after the passing of the measure should be per- 
 mitted to issue their own notes, and the old banks were not 
 
The Influence of Credit on Prices. 
 
 443 
 
 allowed to increase the issue of their own notes. High finan- 
 cial authorities still continue to differ as to whether this 
 Act has the power of doing what it was intended to effect. 
 Many people suppose that the Act secures the converti- 
 bility of our paper currency, but this is entirely erroneous. 
 If the Act were rescinded to-morrow, it would still be as 
 obligatory on the Bank of England as it was before to give 
 specie for every note presented to them, if the demand 
 were made upon them to do so. The Act compels the 
 bank to keep a certain amount of bullion or specie to 
 meet these demands, but this obligation need scarcely be 
 enforced in order to preserve the solvency of the bank. 
 The remarkable prudence and wisdom which distinguish 
 the management of that institution would always be an 
 adequate guarantee that sufficient bullion and specie 
 would be voluntarily retained in the bank to meet the 
 demands made upon it. But those who most strongly 
 support the Act base their advocacy not upon any security 
 which is provided for the solvency of the bank, but upon 
 the restriction which the Act imposes upon the unlimited 
 issue of bank notes. These persons maintain, that during 
 a period of active speculation, the bank, if left uncon- 
 trolled, might most powerfully stimulate credit, by large 
 issues of bank notes, and thus contribute to force up the 
 prices of various commodities to an unnatural point. This 
 phenomenon always accompanies a commercial crisis. 
 There can, however, be no doubt that the credit purchases 
 which are made in times of active speculation are rarely, if 
 ever, effected by means of bank notes. Bills of exchange 
 and book credits are the instruments of credit which are 
 almost invariably employed. For instance, the retail 
 grocer who in 1839 was enabled to purchase 80,000?. 
 worth of tea, although he only possessed a capital amount- 
 ing to 1200?., all of which was locked up in his business, 
 never thought of employing bank notes. The Bank 
 Charter Act did not then exist; the bank was perfectly 
 free to issue as many notes as it pleased, yet it was just as 
 difficult for this grocer to obtain bank notes on credit as it 
 would have been for him to have borrowed money. It 
 would, therefore, have been impossible for him to have 
 speculated to any considerable extent if he had used bank 
 notes, instead of either bills of exchange or book credits. 
 
 BOOK III. 
 
 CH. XI. 
 
 The Act 
 was not 
 wanted to 
 secure the 
 converti- 
 bility of 
 the hank 
 note, 
 
 but to pre- 
 vent prices 
 being 
 raised by 
 an un- 
 due issue 
 of bank 
 notes. 
 
 This can 
 be done 
 without 
 bank notes 
 
444 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. XI. 
 
 in the first 
 stages of 
 specula- 
 tion. 
 
 The Bank 
 Charter 
 Act comes 
 into opera- 
 tion at a 
 later 
 period. 
 
 Tempo- 
 rary sus- 
 pension of 
 the Act in 
 1848, 1857 
 and 1866. 
 
 Impor- 
 tance of 
 the relief 
 affordedby 
 this sus- 
 pension. 
 
 It thus appears that, at any rate in the primary stages of 
 speculation, credit engagements are freely entered into, 
 whether the issue of bank notes is restricted or not. 
 
 It is, however, maintained that the Bank Charter Act 
 comes into operation in the later stages of speculation, 
 for after these credit purchases have been continued some 
 time many find it difficult to meet their engagements ; 
 bills begin to fall due, and an anxiety is shown to get 
 them renewed. This, therefore, is the time when the bank 
 is pressed to discount bills ; large amounts will be willingly 
 paid for accommodation, and the rate of discount conse- 
 quently rapidly rises. This rise in the rate of discount 
 affords the bank an opportunity of realising large profits, 
 if freelj' permitted to issue an unlimited amount of bank 
 notes. But the Bank Charter Act effectually restricts the 
 amount of accommodation which the bank can give, for it 
 cannot issue notes without purchasing an equivalent value 
 of bullion ; if compelled to do this, the profit of the trans- 
 action is of course destroyed. In 1848, in 1857 and in 
 1866, the three panics which have occurred since the pass- 
 ing of the Bank Charter Act, the pressure upon the bank 
 for accommodation was so severe that the Act had ou 
 all these occasions to be temporarily suspended. By adopt- 
 ing this course, the pressure was immediately relieved. 
 The failure of those was not prevented who had speculated 
 recklessly and unfortunately, but the increased accommo- 
 dation which the bank was enabled to give saved many 
 firms, who were not only solvent but wealthy, from suc- 
 cumbing under the sudden contraction of credit which is 
 sure to accompany every panic. If, therefore, this relief 
 had not been provided, many would have been ruined 
 without any fault of their own; for even the most prudent 
 firms in this country conduct their business upon a system 
 of credit; they pay for the goods they purchase by bills, 
 and they are justified in assuming that, if they wish it, 
 these bills will be renewed, or advances will be made to 
 them by their bankers, unless some very exceptional cir- 
 cumstances should occur. The credit of a solvent firm may 
 perhaps be partly based upon the possession of property, 
 and in ordinary times there is no difficulty whatever in 
 immediately obtaining money upon this property to almost 
 the full extent of its value. However, in the general cours3 
 
The Influence of Credit on Prices. 
 
 445 
 
 of commerce a merchant is seldom required to settle any 
 of his transactions by money, for he both pays and receives 
 bills in almost all his transactions. But, in a commercial 
 panic, there is a complete collapse of credit; bills which 
 were renewed before will not be renewed now unless some 
 ruinous premium is paid amounting perhaps to ten, twelve, 
 or fifteen per cent. A general feeling of distrust and in- 
 security is prevalent throughout the commercial world, and 
 consequently no one will, if he- can avoid it, accept any- 
 thing but money in payment of the debts that are due to 
 him. All the. usual sources of accommodation are closed. 
 Banks can no longer afford to make advances, for the 
 pressure upon them is particularly severe, since their cus- 
 tomers hastily withdraw their money which may have been 
 left on deposit. During a commercial panic there is a 
 dearth of the legal currency of the realm; in fact, this 
 must be so; because when credit collapses, payments have 
 to be made in money which were never paid in money 
 before ; consequently a largely increased supply of money 
 is temporarily required, and if it is not forthcoming, 
 money must obtain a scarcity value, just in the same way 
 as the value of any other commodity would be affected if 
 the demand for it were suddenly and largely increased. 
 
 None of the ordinary substitutes for money, such as 
 bills of exchange, will suffice to relieve this scarcity, be- 
 cause these substitutes are only instruments of credit, and 
 the severity of the panic is due to a. thorough collapse of 
 credit. But Bank of England notes, if allowed to be issued, 
 will afford relief, because as long as these notes are pay- 
 able on demand, people are as willing to accept them as 
 the current coin of the realm. Now it is very remarkable 
 that, on the three occasions when the Bank Act was 
 suspended, relief was afforded on two occasions without 
 the bank issuing any additional notes. In 1857 the ad- 
 ditional issue of notes did, not exceed 1,000,000^. sterling ; 
 in a few days the majority of these notes were returned 
 to the bank, and the circulation was again in its normal 
 condition. The relief may, therefore, be really regarded 
 us a sentimental remedy. When the Bank Act was sus- 
 pended, people thought that there would no longer be 
 a dearth of money; they were, therefore, not so desirous 
 •to receive every payment in money. Credit was thus again 
 
 BOOK m. 
 
 CH. xr. 
 
 The re- 
 lief was 
 affcrrded 
 with re- 
 markable 
 
446 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. XI. 
 
 In the or- 
 dinary 
 condition 
 of trade 
 the Bank 
 Act is in- 
 operative. 
 
 The ordi- 
 nary bank 
 note circu- 
 lation is 
 not affect- 
 ed by the 
 Bank 
 Charter 
 Act. 
 
 Prejudi- 
 cial effects 
 of the Act. 
 
 gradually given as before, and the bank was consequently 
 not -obliged permanently to increase its issue of notes, 
 since the cause no longer existed which had so stimu- 
 lated the demand for money that it obtained a scarcity 
 value. 
 
 When trade is in its ordinary condition, we believe that 
 the amount of the Bank of England note circulation would 
 be the same, whether the Bank Act existed or not. As 
 long as bank notes are convertible into coin upon demand, 
 the amount of bank notes which are kept in circulation is 
 determined by exactly the same causes as those which 
 regulate the amount of the copper and silver coinage. 
 Unless something new should occur, such as a change in 
 the mode of conducting business, it would be impossible 
 to keep in circulation double the amount of our present 
 copper coinage. Bankers could not induce their customers 
 to take copper instead of silver ; when a tradesman draws 
 from his bank the wages to pay his workmen, he takes 
 just as much gold, silver, and copper money as he believes 
 he shall require ; the pence he only uses to pay odd sums, 
 for he would never think of burdening one of his workmen 
 with eighty-four cumbrous pence, instead of paying him 
 the amount in silver. Similar considerations apply to 
 bank notes ; for certain purposes they are extremely con- 
 venient. If a person who is travelling takes a considerable 
 sum of money about with him, bank notes are particularly 
 useful ; they occupy so much less space, and are so much 
 lighter than gold. But the repeal of the Bank Act would 
 be as powerless to make an individual use bank notes in 
 those cases where he now employs gold, as it would be to 
 induce a man to use copper instead of silver money. We 
 therefore conceive that, in ordinary times, the amount of 
 the bank note circulation is entirely independent of the 
 Bank Act ; we also think that this Act exerts no influence 
 in the first stages of speculation. 
 
 When, however, a continuance of excessive speculation 
 produces a commercial panic, it has been shown,, on the 
 three occasions when such a panic occurred, that credit 
 cannot be restored without a suspension of the Act. We 
 therefore consider the Act to be prejudicial in its effects. 
 It is generally practically inoperative ; it is true, that in 
 a commercial crisis its effects are felt, but on such occa- 
 
The Influence of Credit on Prices. 
 
 447 
 
 sions its suspension has always hitherto become necessary. 
 Nothing can be more unfortunate than these repeated 
 suspensions ; no one can tell from hour to hour what will 
 be done, and yet every one is sure that, if the Act is sus- 
 pended, an enormous revulsion will take place in the 
 money market. Th*e rate of discount in 1857 and in 1866 
 rapidly fell from ten to four per cent. All this uncer- 
 tainty increases the excitement and distrust which are 
 sure to be too prevalent in a period of financial difficulty. 
 
 Inconvertible bank notes are the only other instruments 
 of credit which have not yet been noticed. In our own 
 country, every bank note can be immediately exchanged 
 for coin. A private bank is obliged to give either Bank 
 of England notes, or coin, for the notes which it issues ; 
 and the Bank of England is obliged to give coin in ex- 
 change for all its notes ; our bank note currency is there- 
 fore said to be convertible. The currencies of some other 
 countries are not in this position, and at the commence- 
 ment of the present century our own bank notes were 
 not convertible into coin. From 1797 to 1819, cash pay- 
 ments were suspended in this country, or, in other words, 
 during this time the Bank of England was permitted to 
 issue notes without being obliged to give coin in exchange 
 for them. At the present time the United States afford 
 the most striking example of a large issue of inconvertible 
 paper currency. The civil war which was so vigorously 
 waged in that country severely tried the resources of the 
 national exchequer ; it was consequently attempted to 
 meet the financial pressure by an issue of Treasury notes, 
 which may be regarded as bank notes not convertible into 
 coin on demand. We shall presently consider some of 
 the effects of this issue of treasury notes, and we shall trace 
 its influence on prices. 
 
 Before proceeding further with this subject, it is neces- 
 sary to point out the very different consequences which 
 follow, according as an inconvertible currency is or is not 
 made a legal tender. If an inconvertible currency is made 
 a legal tender, an opportunity is immediately afforded to 
 a government to defraud its creditors to an unlimited ex- 
 tent, and the whole monetary arrangements of the country 
 at once suffer a most disastrous disturbance. Great stress 
 has already been laid upon the fact, that when a currency 
 
 BOOK III. 
 CH. XI. 
 
 Inconver- 
 tible bank 
 notes. 
 
 They may 
 or may not 
 be a legal 
 tender. 
 
448 
 
 Manual of Politiqal Economy. 
 
 BOOK in. 
 
 OH. XI. 
 
 V'itldn 
 certain 
 limite they 
 need not 
 disturb the 
 finances 
 of the 
 country. 
 
 Init if in- 
 creased be- 
 yond those 
 limits the 
 circula- 
 tion must 
 be depre- 
 ciated. 
 
 is convertible, the bank note circulation cannot be forced 
 beyond its natural limits, because, if the bank note issue 
 is unduly increased, the notes are sure to be almost im- 
 mediately returned to the bank, in order to be exchanged 
 for coin. But there is no practical limit to the issue of 
 inconvertible bank notes, and this is especially the case 
 if these notes are made a legal tender. A government 
 may pay the interest of its debt in these notes. Govern- 
 ment contractors may also have the debts due to them 
 discharged in these notes; the contractors, for instance, 
 who supplied the Federal army with stores and provisions^ 
 were paid in this manner. In fact so indefinite is the 
 power of issuing inconvertible notes, that the American 
 government was enabled in a few months to float 
 40,000,000Z. of these notes, whereas the Bank of England 
 notes in circulation do not exceed half this amount. In- 
 convertible notes will be as freely accepted as coin, if 
 people have confidence that an inconvertible currency is 
 only a temporary expedient, and that the government 
 will take scrupulous care never to permit the issue of 
 inconvertible notes to exceed an amount which can witb 
 certainty be ultimately redeemed. 
 
 It is, therefore, possible to conceive that exceptional 
 circumstances may occur, during which an inconvertible 
 currency may be issued, if kept within proper limits, 
 without disturbing the finances of the country. For in- 
 stance, there can be little doubt that the American civil 
 war created a demand for a greater amount of money to 
 be circulated in that country; more money was in fact 
 required, because the raising of a large army, and support- 
 ing it in the field, would render it necessary to make 
 many more payments in money. If the issue of an incon- 
 vertible currency in America had gone no further than to 
 satisfy this demand for a greater sum of money to be 
 brought into circulation, no one's confidence in the finan- 
 cial credit of the government would have been shaken, 
 and the inconvertible currency would have exerted no 
 effect on prices. But the American government far out- 
 stepped these legitimate limits. These notes -therefore 
 became depreciated, and the consequence is that they 
 have fallen to a discount, or, in other words, gold has 
 advanced to a premium. In the year 1869 gold in America 
 
The Influence of. Credit on Prices. 
 
 449 
 
 was at a premium of about thirty-two per cent., conse- 
 quently notes, which represented 1S21. only exchanged 
 for 1001. of specie. At the present time (1876) the pre- 
 mium is about twelve per cent. It therefore follows, that 
 if the government or other individuals should pay with 
 these notes debts which were incurred before the currency 
 was depreciated, they would virtually defraud their cre- 
 ditors of a certain proportion of the amount which in 
 equity is due to them. 
 
 If, therefore, an inconvertible currency is made a legal 
 tender, nominal prices may be forced up in proportion to 
 the, extent to which the currency is depreciated. Suppose, 
 for instance, that the American Government wished to 
 contract for a supply of rifles. A rifle manufacturer might 
 have said, I am perfectly willing to sell my rifles at 10^. 
 each, but if I sell them to the American Government I 
 must obtain at least 13Z., for they will pay me in their 
 depreciated currency, and 131. in their notes is barely 
 equivalent in value to 101. in gold. The nominal price of 
 rifles in America would rise thirty percent., in consequence 
 of its depreciated currency, and the same would be the case 
 with every other commodity. 
 
 It cannot be said that any injury or injustice is done if 
 inconvertible bank notes are not made a legal tender, al- 
 though the issue of these notes may indicate a financial 
 policy disastrous to a country. When these notes are not 
 a legal tender, no one is obliged to accept them ; if an in- 
 dividual does take them, and afterwards discovers that the 
 government cannot meet its obligations, the loss which he 
 suffers is as much his own creation as if he were to accept 
 a bill of exchange from an insolvent trader. Such notes can- 
 not exert the same nominal influence on prices as that just 
 ascribed to inconvertible notes when made a legal tender. 
 If inconvertible notes are not made a legal tender, there is 
 no reason why prices should be estimated in them. Such 
 notes would always serve as a barometer to measure the 
 credit of a government, for as confidence in a government 
 diminishes, these inconvertible notes would be constantly 
 falling to a greater discount. The French Revolutionary 
 Government of 1792 adopted the expedient of issuing 
 inconvertible notes in the form of assignats, and they 
 attempted to maintain the value of these assignats by as- 
 
 BOOE III. 
 OR. XI. 
 
 If not 
 made a 
 legal ten- 
 der no in- 
 justice is 
 done, but 
 the credit 
 of the Go- 
 vernment 
 is destroy- 
 ed by a 
 large issue 
 of them. 
 
 F. M. 
 
 FF 
 
-4SO 
 
 Manual of Political Economy. 
 
 suring the people that they were thepaper representatives 
 of the confiscated landed property of France. But the value 
 of an inconvertible note is not increased, although it is 
 nominally issued as the representative of certain property, 
 unless people can have an assurance that the holders of 
 these notes will have a legal claim to the property, and 
 that no more notes will be issued than will be equivalent 
 in value to the property on which their security is pre- 
 tended to be based. What would be the value of a mort- 
 gage on an estate, if the owner of it could create any 
 number of mortgages, all of which should constitute an 
 equal claim to the property? The French people soon 
 showed that they placed no faith in these assignats, which 
 became so rapidly depreciated, that an assignat of 2000 
 francs was scarcely sufficient to purchase a cup of coffee. 
 
CHAPTER XII. 
 
 ON THE RATE OF INTEREST. 
 
 "TN the minds of most people, every question concerning 
 1. currency is so intimately connected with the rate of 
 interest, that it will be advisable in this place to discuss 
 he subject in a distinct chapter. It is the more necessary 
 hat we should take this course, because the price of many 
 dnds of property is directly regulated by the current rate 
 jf interest. 
 
 It was observed, in our remarks upon profits, that gross 
 profits are made up of the three following components: — 
 First, insurance against risk ; secondly, wages of superin- 
 tendence ; and thirdly, interest on capital. This last com- 
 ponent may be regarded as a remuneration for saving. 
 The amount of the last component may be estimated by 
 the interest which can be obtained upon capital, when in- 
 vested in securities which, according to the general opinion 
 of the community, involve no risk whatever. In our own 
 country, this certainty against risk of loss is provided by 
 the public funds, and therefore the interest which can be 
 obtained on money, when invested in the funds, always 
 affords a measure of the current rate of interest in this 
 country. 
 
 The price of funds varies slightly from day to day, and 
 consequently the current rate of interest must also be sub- 
 ject to daily fluctuations. But although the current rate 
 of interest is liable to these constant variations, yet through 
 a long succession of years they are confined within very 
 narrow limits. The English funds at the present time 
 annually pay 3^. upon each 1001. of stock ; when, there- 
 fore, Consols are at 100?. the current rate of interest is 
 three per cent. The lowest price which Consols have 
 
 Fr2 
 
 BOOK III. 
 OH. yil. 
 
 Bate of 
 interest. 
 
 It may be 
 
 measured 
 
 inEngland 
 
 by theprice 
 
 of the 
 
 public 
 
 funds. 
 
 which is 
 
 nearly 
 
 constant, 
 
Manual of Political Economy. 
 
 BOOK III. 
 OH. XII. 
 
 though 
 different 
 from the 
 rate in 
 other com:- 
 tries. 
 
 The rate 
 of interest 
 is subject 
 to small 
 oscilla- 
 tions. 
 
 ! reached during the last twenty years has been H^L; money 
 I invested in Consols at this price would pay an interest of 
 about three and three-sevenths per cent.; and, therefore, 
 the current rate of interest, though subject to constant 
 fluctuations, has not, when estimated by the price of funds, 
 varied so much as half per cent, during twenty years. 
 
 In the language of every-day life, the current rate of 
 interest is said to be determined, or rather to be denoted, 
 by the price of money. If an individual, a company, or a 
 foreign government, wished to obtain money in the loan 
 market, they are obliged to pay a certain price for the use 
 of it, in the same way as they would be if they purchased 
 any other commodity ; the price which is so paid is repre- 
 sented by the rate of interest whi«h is promised by the 
 borrowing party. Suppose the Russian Government cannot 
 obtain a loan in our market under five per cent., whereas 
 our own Government can at the same time borrow money 
 at three per cent., those who lend money to our Govern- 
 ment think that they incur no risk of loss, and therefore 
 a remimeration of two per cent, is given for the risk which 
 is supposed to be incurred when lending money to the 
 Russian Government. With this remuneration for risk' 
 we are not concerned, when investigating the current rate 
 of interest. 
 
 It is evident that there is some point which may be 
 regarded as a position of stable equilibrium about which 
 the current rate of interest in this country oscillates, for 
 although varying from day to day, yet it always approxi- 
 mates to about three and a quarter per cent. This point, 
 therefore, about which the oscillation takes place, may be 
 regarded as the average or normal amount of the current 
 rate of interest. Two distinct investigations must con- 
 sequently be made. In the first place, the causes must be 
 ascertained which determine the average current rate of 
 interest ; for the question may be naturally asked. Why 
 should not the rate of interest fluctuate about two or about 
 four per cent., instead of keeping with so much constancy 
 to about three and a quarter per cent.? After having made 
 this investigation, we shall then proceed to account for 
 those small fluctuations in the rate of interest which are 
 almost of daily occurrence. It would thus appear, adopt- 
 ing the language of the money market, and speaking of 
 
On the Rate of Interest. 
 
 453 
 
 the price of money instead of the rate of interest, that the 
 laws which determine the price of money require the same 
 mode of exposition as those which regulate the price of 
 every other commodity. In the chapters on Price it was 
 explained, that the price of each commodity was subject to 
 constant variations, which were caused by fluctuations in 
 the demand and supply ; but at the same time these varia- 
 tions always gravitate to a certain point, which is deter- 
 mined by the cost of producing the article, and which has 
 been denominated by political economists the natural price. 
 The first problem, therefore, which presents itself for 
 solution is this, Why should the rate of interest in this 
 country, upon the best security, be now always about three 
 and a quarter per cent.? why should it not be either much 
 more or much less than this — say, for instance, five per 
 cent., or two per cent,? A century since, no money could 
 be borrowed in this country, even by Government, at less 
 than five per cent; whereas, in Holland, the Government 
 has frequently obtained loans at two per cent. The rate 
 of interest is primarily determined by the capacity and 
 desire the people of the country have to accumulate 
 capital, compared with the demand iot the capital which 
 is so accumulated. Now, as previously remarked, the 
 amount of wealth which is saved will vary cceteris paribus 
 with the rate of interest which can be obtained. If five 
 per cent, were the current rate instead of three per cent., 
 there would be a greater inducement offered to every indi- 
 vidual to save, and consequently a greater amount of 
 capital would be saved. But on the other hand, the de- 
 mand for capital varies inversely with the rate of interest; 
 there will be a greater demand to borrow when money can 
 be obtained at three per cent., than when it is necessary to 
 give five per cent. If, therefore, the rate of interest were 
 five per cent., there might be an amount of capital ac- 
 cumulated more than sufficient to meet the demands of 
 those who wished to borrow ; if, however, the rate of 
 interest were only two per cent., the demand of those 
 who wished to borrow might far exceed the amount of 
 capital to be lent. An adjustment takes place similar 
 to that which regulates the price of commodities, for 
 the rate of interest must ultimately settle down to such 
 a point as will equalise the demand to the supply ; or, in 
 
 BOOK III. 
 OH. XIT, 
 
 The cur- 
 rent rate 
 of interest 
 depends 
 upon the 
 accumula- 
 tion of 
 capital 
 and its re- 
 lation to 
 the de- 
 mands of 
 borrowers. 
 
454 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. XII. 
 
 Explana- 
 tion of the 
 difference 
 between 
 rates of in- 
 terest in 
 different 
 countries. 
 
 In Austra- 
 lia it is 
 high be- 
 cause pro- 
 Jits are 
 high. 
 
 other words, the amount of capital accumulated must 
 satisfy the demands of those who wish to borrow. 
 
 The principle just enunciated affords an explanation of 
 the various rates of interest which prevail in different 
 countries. The Dutch are more frugal in their habits 
 and less expensive in their mode of living than we are. 
 A less powerful inducement will therefore make them 
 abstain from spending, and consequently two per cent, 
 interest on capital may exert the same influence in causing 
 the Dutch to accumulate as would be exerted upon the 
 English by an interest on capital of three per cent. It 
 therefore appears that the amount of capital accumulated, 
 or, in other words, the current rate of interest which 
 prevails through an average of years, partly depends on 
 national character. In countries where the government 
 is unsettled and property insecure, the rate of interest 
 is certain to be high, because under such circumstances 
 it would be impossible to find any very secure invest- 
 ment; consequently a portion of the interest received 
 may always be considered as an equivalent for the risk 
 of loss incurred ; in the same way people always expect to 
 obtain a high rate of interest from hazardous speculations. 
 In India, a high rate of interest has always prevailed, for 
 there property has been insecure, the people being con- 
 stantly pillaged by the native rulers who tyrannised over 
 them. In a young prosperous colony such as Australia, 
 the rate of interest is sure to be higher than in an old 
 thickly peopled country like our own. In this case the 
 high rate of interest is not to be accounted for, as in India, 
 by a want of security with regard to property. It has 
 already been remarked, with reference to Australia, that a 
 generally high rate of profit is sure to prevail when there 
 is a plentiful supply of fertile land. But if the average 
 rate of profit which can be realised in trade is high, the 
 rate of interest must necessarily be also high. If farmers 
 in Australia on the average obtain a profit of twenty per 
 cent., whereas farmers in England only obtain a profit of 
 ten per cent., an Australian farmer will pay a much 
 higher rate of interest for capital which he might wish 
 to borrow with a view to extending his business, than 
 an English farmer could possibly afford to pay. Every 
 circumstance therefore in a country which tends to raise 
 
On the Bate of Interest. 
 
 455 
 
 the average rate of profit must also produce an increase 
 in the rate of interest; on the other hand, the rate of 
 interest will he lowered by every circumstance which tends 
 to reduce the average rate of profit. 
 
 It has been shown in a previous chapter' that the 
 average rate of profit rises or falls as the cost of labour is 
 increased or decreased ; it has been also explained that 
 the cost of labour is less or greater according as food is 
 cheaper or dearer; hence, a bountiful supply of cheap food, 
 whether imported from other countries, or obtained from 
 our own soil by agricultural improvements, exerts a direct 
 influence to raise the average rate of profit, and conse- 
 quently to increase the average rate of interest. But 
 in a country like our own, the rapid increase of popu- 
 lation tends to make food become more expensive, and 
 therefore the question, whether the general rate of profit, 
 and consequently the average rate of interest, will de- 
 cline as population advances, must be determined by con- 
 sidering whether agricultural improvements and foreign 
 importations of food will sufSce to meet the demands of 
 a larger population without increasing the expense of 
 obtaining food. 
 
 The price of many kinds of property directly depends 
 upon the average rate of interest. Suppose from any 
 circumstance, such as the cheapening of food, or from 
 the opening up of new and eligible investments for 
 capital, that the rate of interest should rise throughout 
 England, say from three to four per cent. ; a correspond- 
 ing decline must take place in the price of all such 
 securities as the funds, railway debentures, and other 
 investments, the interest upon which is fixed. The price 
 of railway, mining, and other shares, would also decline ; 
 for the price of these shares is now so regulated by the 
 general competition in the money market, that the divi- 
 dends paid upon these shares must be sufficient, not only 
 to return the interest given by investments which,. are 
 perfectly secure, but, in addition to this, an adequate 
 equivalent for the risk incurred. The price therefore of 
 such shares must decline, if the rate of interest increases. 
 The price of land would also be affected by either a 
 
 ' Chap. T. Book ii. 
 
 BOOK in. 
 
 OH. XII. 
 
 It will be 
 affected hy 
 the cost of 
 obtaininy 
 food. 
 
 The price 
 of property 
 often de- 
 pends upon 
 the current 
 rate of in- 
 terest. 
 
456 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. XII, 
 
 The price 
 of land 
 will gene- 
 rally fall 
 as the rate 
 of interest 
 rises, 
 
 rise or fall in the general rate of interest. In our own 
 country, land is considered as secure an investment 
 as Consols. There are many advantages associated with 
 the ovmership of land which are not enjoyed by a fund- 
 holder; the possession of land gives social position and 
 political influence, and also affords an opportunity for 
 enjoying the pleasures of a country life. Money invested 
 in land does not return so large an interest as if it were 
 invested in the funds, for the advantages just enumerated 
 are considered to afford a compensation for the smaller 
 interest received. If, therefore, the general rate of interest 
 should rise, the price of Consols would decline, and the 
 price of land would also decline, because land would be 
 expected to pay a higher rate of interest than before. 
 
 When it is said that the price of land tends to decline 
 with a rise in the rate of interest, it must not be sup- 
 posed that land necessarily diminishes in value as the 
 rate of interest advances. The particular influence which 
 is exerted on the price of land by a rise in the rate of 
 interest may be understood from the following simple 
 example : — Let it be supposed that money invested in land 
 ought to return the same interest as money invested in 
 the funds; we may consider this interest to be at .the 
 present time three per cent. A landed estate, therefore, 
 the net income from which was SOOOl. a year would sell for 
 100,000?. But the same estate, if the net annual returns 
 from it continued to be 3000?., would only sell for 60,000?. 
 if the rate of interest should advance from three- to five 
 per cent., and if people still expected to obtain the cur- 
 rent rate of interest from money invested in land. Upon 
 this hypothesis the price of this estate and all other 
 landed property would decline forty per cent, if the rate 
 of interest advanced from three to five per cent. It must, 
 however, be borne in mind, that the causes which affect 
 the average current rate of interest may also affect the 
 returns to landed property, or, in other words, the rent 
 of land. The conclusion that the price of landed property 
 would decline forty per cent, if the rate of interest ad- 
 vances from three to five per cent, is based upon the as- 
 sumption that the rent of land remains unchanged ; the 
 current rate of interest, in fact, simply determines the 
 number of years' purchase which land will realise. It 
 
On the Rate of Interest. 
 
 437 
 
 may, however, be remarked, that most of the circum- 
 stances which produce a rise in the rate of interest will 
 usually decrease the rent of land ; thus, the rate of interest 
 is raised by a diminution in the cost of labour; cheap 
 food decreases the cost of labour, but when food is cheap, 
 agricultural produce is also cheap, and farmers cannot pay 
 so high a rent for the use of land. Again, if the rise in 
 the rate of interest is not accompanied by any change in 
 the price of agricultural produce, the farmer's profits will 
 be the same as they were before; he will not, however, 
 be satisfied with the same profits, because the average 
 rate of profit throughout the country will rise if the rate 
 of interest is increased, and his rent must consequently be 
 reduced. It therefore appears that a rise in the rate of 
 interest will generally reduce the price of land in two dis- 
 tinct ways ; in the first place, as the rate of interest ad- 
 vances, the number of years' purchase which land will 
 realise diminishes ; in the second place, the causes which 
 produce a rise in the rate of interest generally exert an 
 influence to decrease the rent of land. 
 
 A remark may here be made to meet a difficulty which 
 may suggest itself to some of our readers. It may be 
 asked, How can there be, with the keen competition of 
 capital which distinguishes this commercial age, such a 
 difference in the current rate of interest as that between 
 England and Holland ? It might be thought that Dutch- 
 men would place the same confidence in our funds as they 
 would in their own government securities, and that con- 
 sequently capital would be sent from Holland to be in- 
 vested in our funds, instead of being employed there at a 
 lower rate of interest. If the Dutch did this on a very 
 large scale, there would cease to be any marked difi'erence 
 in the rate of interest prevailing in the two countries. 
 But however active the competition of labour and capital 
 may be, however keen and desirous traders may be to 
 realise the largest profits, and labourers to secure the 
 highest wages, yet the people of each community, more 
 or less, restrict the range of competition to their own 
 country. The prospect of very slightly higher wages would 
 tempt our more intelligent workmen from London to 
 Scotland; but a far larger inducement must be offered to 
 workmen in order to induce them to undertake a shorter 
 
 BOOK III. 
 OH. XIT. 
 
 and for 
 
 two dis- 
 tinct rea- 
 sons. 
 
 Causes 
 which tend 
 to keep up 
 different 
 rates of 
 interest in 
 different 
 countries. 
 
458 
 
 Manual of Political Economy. 
 
 BOOK III. 
 
 CH. xn. 
 
 Confidence 
 
 felt by 
 
 eachpeople 
 
 in their 
 
 own 
 
 govern- 
 
 mevt. 
 
 Daily fiuc- 
 tuations in 
 the rate of 
 discount. 
 
 Bank of 
 England 
 rate of du- 
 count. 
 
 journey : to cross the Channel and to settle in France. As 
 long, therefore, as these feelings continue, very different 
 rates of wages may prevail in different countries. In a 
 similar manner, although there is no doubt that capital 
 passes more freely than labour from one country to an- 
 other, yet the people of each country naturally feel more 
 confidence in their own government than is felt by the 
 people of other nations. Hence they are willing to accept 
 a smaller rate of interest from their government than 
 would satisfy foreign investors. It is evident, therefore, that 
 although capital is largely invested in foreign countries, 
 yet people so highly appreciate the advantage of having 
 their capital invested in their own country, that very dif- 
 ferent rates of interest may prevail in two neighbouring 
 nations. 
 
 We have now remarked upon the chief causes which 
 determine the average rate of interest which prevails in 
 different countries ; it is now necessary to explain those 
 temporary variations in the rate of interest which are 
 indicated by daily fluctuations in the price of funds, or 
 by frequent alterations in the rate of discount. It has 
 been stated, that the price of funds has not varied more 
 than twelve per cent, during many years, consequently 
 there is not more than about three-eighths per cent, differ- 
 ence in the interest which the funds pay when at their 
 maximum, and when at their minimum price. But alter- 
 ations in the rate of interest at different times would 
 appear to be much greater, if they are estimated by 
 fluctuations in the rate of discount. The rate of discount 
 very frequently varies as much as one per cent, in the 
 course of a week, and during a commercial crisis it has in 
 a few weeks advanced from four to ten per cent. The 
 rate at which the Bank of England discounts bills is 
 termed the bank rate of discount, and this is an indication 
 \ of the general rate of discount throughout the country. 
 The bank could of course have no power to control the 
 rate of discount, unless it carefully followed the wants of 
 the money market ; for if the bank rate of discount was 
 higher than the rate at which other establishments could 
 afford to discount bills, no bills would be taken to the 
 bank to be discounted. If, on the other hand, the bank 
 should discount bills at lower rates than other establish- 
 
On ike Rate of Interest. 
 
 45:9 
 
 ments, every bill would be taken to the bank, and the 
 bank would be virtually resigning a large amount of 
 profit. The bank rate of discount is usually fixed each 
 Thursday, at the weekly meeting of the governors, and 
 unless something very extraordinary occurs, it is rarely 
 altered during the week. The bank rate of discount also 
 regulates the amount of interest which can be temporarily 
 obtained upon money; for joint-stock banks, such as the 
 London and Westminster, allow interest one per cent, 
 less than the bank rate of discount upon all sums which 
 are deposited with them exceeding 500Z. The interest 
 upon deposits, for instance, would be nine per cent., when 
 in a commercial panic the bank rate of discount was ten 
 per cent. 
 
 It may seem extraordinary that there should not have 
 been a greater fall in the funds and other such securities, 
 when bankers would allow interest at the rate of nine per 
 cent. Why, it may be said, should any one have kept 
 their money in funds or railway shares, which were only 
 paying three or four per cent., when bankers would give 
 nine per cent, interest ? It must, however, be remembered, 
 that every one knows that the rate of discount would only 
 remain for a very limited time at ten per cent. ; it would 
 rapidly, perhaps suddenly, return to its former amount ; 
 as the crisis subsides, the price of all securities would im- 
 prove, and then those who sold their funds or shares to 
 enjoy a temporary high rate of interest, would be obliged 
 to repurchase them at advanced prices. 
 
 The frequent variations in the rate of discount are not 
 due to any permanent causes, but rather depend on the 
 amount of money floating in the loan market, compared 
 with the amount required to support the various advances 
 made, and the various engagements undertaken upon 
 credit. The rate of discount would immediately rise if 
 any event should occur which would cause an increased 
 demand for specie. Suppose, for an example, that a pro- 
 spect of war with China should induce our merchants to 
 believe that we might for a time be shut out from com- 
 mercial intercourse with that country ; it so happens that 
 a large portion of the tea and the silk we obtain from China 
 is purchased by specie. If, therefore, there was a rumour 
 of war with China, our merchants would at once send out 
 
 BOOK III. 
 OH. XII. 
 
 Why the ' 
 funds di> 
 not vat y 
 more 
 rapidly. 
 
 Rate of 
 discomit 
 depends 
 upon the 
 amount of 
 money in - 
 the marht 
 at a given 
 time. 
 
460 
 
 Manual of Political Economy. 
 
 Summary 
 of the re- 
 sults ar- 
 rived at. 
 
 large amounts of specie to China, for the purpose of 
 purchasing tea and silk. These merchants would obtain 
 this money by advances made to them on credit. If they 
 had bills in their possession not yet due, they would im- 
 mediately get them discounted; hence the demand- for 
 discount, or, in other words, the demand for specie, will be 
 temporarily increased, and the rate of discount and the 
 rate of interest will both rise. Any circumstance which 
 causes credit to be restricted will at once produce an ad- 
 vance in the rate of discount; for a restriction of credit 
 means, that people are more anxious to be paid in the 
 form of money. There will, therefore, be a greater anxiety 
 shown to convert all such instruments of credit as bills of 
 exchange into money; the demand for money will increase, 
 and the rate of discount necessarily advance. 
 
 If, therefore, we summarise the results of this chapter, 
 it may be stated, that the average rate of interest which 
 prevails in any period depends upon the amount of capital 
 existing in a country, compared with the vai'ious other 
 circumstances which have been enumerated as affecting 
 the economical condition of a nation. But those tempo- 
 rary variations in the rate of interest which are marked by 
 almost daily fluctuations in the price of Consols, and in 
 the rate of discount, are not determined by changes in the 
 demand and supply of capital, in all the various forms in 
 which it ministers to the production of wealth. These 
 variations depend on the demand and supply of capital in 
 one particular form, namely, money; for it has been shown 
 that a rise in the rate of discount is caused by an increased 
 demand for ready money, usually resulting from a contrac- 
 tion of credit. 
 
CHAPTER XIII. 
 
 THE TENDENCY OF PROFITS TO FAIL AS A NATION ADVANCES 
 
 IT has been incidentally remarked in the last and several 
 other chapters, that a high rate of profit is sure to 
 prevail in young colonies which possess an abundant 
 supply of fertile land. Moreover, the history of every pro- 
 gressive nation shows that the current rate of interest has 
 gradually declined ; it would therefore seem, that an ad- 
 vance in population and wealth is sure to be accompanied 
 by a fall in the general rate of profit. 
 
 The explanation of the different rates of profit which 
 prevail in the various stages of a nation's progress, suggests 
 questions of as much practical and scientific interest as 
 any that are discussed in political economy. It is some- 
 what singular, too, that these particular questions have 
 perplexed many of the most eminent writers on this 
 science ; for instance, Adam Smith failed to give a correct 
 solution of the problem here presented. All his remarks 
 on the subject seem infected with the fallacy that low 
 prices produce a reduction in the rate of profit. 
 
 General high or low prices indicate nothing with 
 regard to the average rate of profit. High prices simply 
 show that money has a small purchasing power; on the 
 other hand, low prices show that money has a large 
 purchasing power. If, from the discovery of very rich 
 gold mines, the cost of obtaining gold should be greatly 
 reduced, gold might then decline in value one half; if 
 this should be so the price of every commodity would be 
 doubled. It would not however follow, that such a great 
 rise in general prices would be accompanied by even the 
 slightest alteration in the average of profit. In order to, 
 
4J3 
 
 Manual of Political Economy. 
 
 BOOK III, 
 CH. XIII. 
 
 The rate 
 of profit is 
 . primarily 
 determined 
 hytheratio 
 in which 
 produce is 
 divided. 
 
 'The con- 
 nection 
 which, in 
 certain 
 cases, ex- 
 ists be- 
 tween high 
 prices and 
 high pro- 
 fits ex- 
 plained. 
 
 prove this, let us enquire in what manner the position of a 
 manufacturer would be affected by such a change in the 
 value of gold as that just supposed. If general prices 
 were doubled, the manufacturer would be enabled to 
 obtain double the price for his goods ; but then it must 
 not be forgotten, that the money cost of producing these 
 goods would also be doubled, for he would be obliged to 
 pay double the price for his machinery, and for the raw 
 material. His labourers' wages must also be doubled, 
 because now M. would only have the same power of pur- 
 chasing commodities as 50s. had before. It is therefore 
 manifest, that a general rise or fall in prices is solely 
 caused by an alteration in the value of the precious 
 metals, and, consequently, can have no effect in deter- 
 mining the average rate of profit. 
 
 In order that there should be no obscurity upon this 
 subject, let us again impress upon our readers, that the 
 rate of profit is primarily determined by the i-atio in which 
 any wealth which is produced is distributed between the 
 capitalists and the labourers, who have contributed to its 
 production. Unless, therefore, the amount of the wealth 
 itself is increased, the share allotted to the capitalists can 
 only be augmented by diminishing the share appropriated 
 to the labourers. If, for instance, the employer's share is 
 one third, the labourer's share will be two thirds, and if 
 the employer's profits should be increased, and his share 
 should become one half, the labourers' wages must be 
 diminished, for their share would be one half instead of 
 two thirds. This proposition, though apparently so simple, 
 is fundamental, and cannot be too carefully borne in mind 
 by the reader. 
 
 Adam Smith was probably induced to suppose that 
 low profits were produced by low prices, by misinterpret- 
 ing certain phenomena of frequent occurrence. When any 
 particular branch of industry is extremely prosperous the 
 prices prevailing in it rapidly advance and an exception.- 
 ally high rate of profit prevails. On the other hand, when 
 any particular branch of trade is depressed, prices decline 
 and profits are reduced. The connection which thus ap- 
 pears to exist in certain cases between high or low prices 
 and high or low profits can be readily explained. Activity 
 of trade is due to an augmentation in the demand for any 
 
Th& Tendency of Profits to fall as a Nation advances. 
 
 463 
 
 particular commodity; on the other hand, an industry 
 becomes depressed when the supply of the commodities 
 produced exceeds the demand for them. In the first 
 place let it be assumed that a new market is suddenly 
 opened for some kind of manufactures, such, for instance, 
 as woollen cloth. An increased quantity of cloth cannot 
 perhaps be at once produced to meet this new demand ; 
 those who are anxious to purchase cloth compete with 
 each other for its possession; the price of cloth conse- 
 quently rises and the manufacturer's profits are increased. 
 This advance in profits can only be temporary, for the 
 exceptionally high profits will attract capital to the trade. 
 The supply of commodities will be increased, and thus the 
 new demand will become satisfied. Prices will decline 
 and the profit realised in the branch of industry will be 
 gradually restored to thenatural rate. 
 
 In order to investigate the opposite case, let it be as- 
 sumed that there is a sudden falling off in the demand for 
 cotton goods. The supply will consequently, for a time, 
 exceed the demand. The competition of those who are 
 anxious to sell will reduce prices, and profits will decline. 
 People are naturally anxious to contract their business if 
 it ceases to be remunerative. The manufacture of cotton 
 goods will be gradually contracted. The supply will be 
 diminished; prices will again rise, and profits will be 
 restored to their natural rate. It is therefore evident that 
 the prevalence of high or low profits in some particular 
 branch of trade simply indicates that for a time either an 
 exceptionally high or an exceptionally low rate of profit is 
 realised. But a rise or a fall in general prices is solely due 
 to an alteration in the value, or, in other words, in the 
 purchasing power of gold, and denotes nothing whatever 
 with regard to the average rate of profit. 
 
 It has already been found convenient to employ the 
 expression, 'the effective desire to accumulate wealth.' 
 This effective desire is sure to increase with the social 
 progress of a nation. The less civilised people are, the 
 less care will they have for the future ; the more prudent 
 people are, the more desirous will they be to save wealth, 
 and thus accumulate capital. It is only the most back- 
 ward tribes who do not make some provision for the future, 
 and there is no doubt' that a great amount of wealth 
 
 BOOK III. 
 CH. XIII. 
 
 The effec- 
 tive desire 
 to accumu- 
 late wealth 
 increases 
 as a coun- 
 try pro- 
 
464 
 
 Manual of Political Economy. 
 
 Connec- 
 tion be- 
 tween the 
 amount of 
 wealth 
 saved and 
 
 the rate of 
 profit. 
 
 would be saved, even if no profit could be obtained on 
 capital. People would set aside something, in order either 
 to make a provision for children, or to be prepared against 
 old age, and such casualties as illness. But the great 
 bulk of the capital of the country is saved for the purpose 
 of obtaining a profit upon its investment. It therefore 
 follows, that the amount of profit which is thus obtained 
 primarily determines the amount of capital accumulated. 
 It is, however, impossible to tell the exact ratio in which 
 the amount of capital accumulated would increase or 
 decrease with a rise or fall in the average rate of profit ; 
 all that can be said is this, that the wealth saved will be 
 greatly diminished, if the ciirrent rate of interest on the 
 best security should fall from three to one per cent. On 
 the other hand, the accumulation of capital will be most 
 powerfully stimulated, if new and eligible investments 
 for capital should be opened up. It must, however, not 
 be concluded, that if at some future day our government 
 should be able to borrow money at one per cent., there 
 would then be less capital accumulated than now. The 
 reverse would assuredly be the case, because such a»fall 
 in the rate of interest would prove that the effective 
 desire of the people to accumulate wealth had been much 
 increased ; in fact, their prudence would have become so 
 great, that then one per cent, interest would offer the 
 same inducement to save as three per cent, does now. 
 
 It would therefore appear, that the amount of wealth 
 which is saved in a country at any particular time is 
 partly the cause and partly the effect of the average rate 
 of profit, for the greater the amount of the capital which 
 i.s accumulated, the less cceter is paribus -will he the average 
 rate of profit ; whereas, on the other hand, the less the 
 average rate of profit, the smaller cCeteris paribus will be 
 the amount of capital accumulated. An adjustment takes 
 place between these different influences ; for it is evident, 
 in the first place, that a certain average rate of profit 
 results from a particular amount of accumulation, and 
 secondly, the amount which is accumulated determines 
 the average rate of profit. In each stage, therefore, of a 
 nation's social and economical condition there must pre- 
 vail a certain average rate of profit, this rate being adapted 
 to the particular amount of capital which will be accumu^ 
 
Tlie Tendency of Profits to fall as a Nation advances. 
 
 46s 
 
 lated by the prospect of being able to obtain the rate of 
 profit which is supposed to prevail. We are now in a 
 position to investigate the general tendency of profits to 
 rise or fall as a nation advances ; for this can be conve- 
 ^niently done by considering the principal circumstances 
 which accompany a nation's economical progress, and by 
 tracing the effect of these circumstances upon the average 
 rate of profit. When a nation is advancing, capital and 
 population are sure both to increase. If the population 
 increases faster than the circulating capital of a country, 
 there wiU be a smaller proportionate wage-fund to dis- 
 tribute amongst the labourers, and their wages must in- 
 evitably dechne. If this decline in wages is not accom- 
 panied by any diminution in the industrial efiiciency of 
 the labourer, a smaller sum of money will be paid for the 
 same amount of labour, and it would therefore appear that 
 profits must consequently be increased. If, on the other 
 hand, the circulating capital increases faster than the 
 population, wages must advance, and the profits of capital 
 will be diminished. It might, therefore, seem that an 
 increase of population tends to augment the rate of profit, 
 and yet such a conclusion is apparently contradicted by 
 experience ; for in young colonies, whose fertile land is 
 only partly occupied, a high average rate of profit always 
 prevails ; moreover, it may be observed that profits de- 
 cline as a country becomes more thickly peopled. All 
 the phenomena just described may be very simply ex- 
 plained. 
 
 It has already been frequently affirmed that, in the 
 absence of any counteracting circumstances, food requires 
 more labour and capital to produce it, and therefore 
 becomes more expensive, as the wants of an increasing 
 population render it necessary to resort to less productive 
 land. If food could be obtained in indefinitely large quan- 
 tities without any increased cost, every advance in the 
 population of the country would exert a direct influence 
 to raise the average rate of profit. In every old country 
 the remuneration received by the worst-paid labourers 
 may be regarded as the minimum wages, or, in other words, 
 the least wages which will suffice to support the labourer. 
 As an example of this, our own agricultural labourers may 
 be cited, for every one who is acquainted with their con- 
 
 BOOE in. 
 
 OH. XIII. 
 
 When a 
 country in 
 progress- 
 ing capi- 
 tal and 
 population 
 both in- 
 crease. 
 
 Food con- 
 stantly re- 
 quires 
 more la- 
 bour to 
 produce it 
 as a coun- 
 try pro- 
 gresses, 
 
 T, M. 
 
 GG 
 
466 
 
 Maniud of Political Economy. 
 
 BOOK in. 
 
 OH. XIII. 
 
 and thus 
 the cost of 
 labour in- 
 creases. 
 
 Hence two 
 causes 
 conibine to 
 lower pro- 
 fits: 
 
 increased 
 cost of la- 
 bour, and 
 increased 
 saving. 
 
 The effect 
 of these 
 came* is 
 
 dition must know that their wages could not be reduced, 
 without depriving them of many of the first necessaries 
 of life ; such a deprivation would diminish their manual 
 strength, and decrease the efficiency of their labour. The 
 wages of the agricultural labourer in this country are 
 barely sufficient at the present time to provide him and 
 his family with the cheapest clothing, and the simplest 
 food. Let any one take the average earnings of an agri- 
 cultural labourer in the west of England, and let an esti- 
 mate be formed of this labourer's expenditure, and it 
 will be found that it is impossible for an agricultural 
 labourer to eat meat more than once a week; he is 
 moreover powerless to make any provision against old age 
 or sickness. Let us inquire what will take place if popula- 
 tion increases, and food becomes more expensive. It may 
 be assumed, in order to illustrate the argument, that bread 
 rises in price fifty per cent. ; such an assumption is by no 
 means imaginary, for within the last few years there has 
 been in many districts in England a greater rise than this 
 in the price of meat and dairy produce. Labourers would 
 endure much suffering if they obtained less bread than 
 they are now accustomed to consume ; if, therefore, bread 
 rose in price fifty per cent., it would be impossible for 
 agricultural labourers to live on their present wages; their 
 wages therefore must be raised, or, in other words, the 
 cost of labour increases, if no counteracting circumstances 
 intervene to prevent food becoming more expensive, as 
 population advances. Hence, in a country like England, 
 which is advancing in population and wealth, two agencies 
 are constantly exerting an influence to reduce profits. 
 
 In the first place, an increased population tends to make 
 food more expensive, but if food becomes more expensive, 
 the cost of labour is augmented, and this cannot happen 
 without diminishing profits. In the second place, as a 
 nation advances in wealth, the people become more pru- 
 dent, a smaller return on capital will induce them to save, 
 and consequently, a greater capital is accumulated in pro- 
 portion to the profits which can be realised upon it. There 
 can however be no doubt that many circumstances come 
 into operation which act more or less powerfully to retard 
 this fall in profits. Thus it should be borne in mind, 
 that only a portion of the capital accumulated in England 
 
The Tendency of Profits to fall as a Natioiv- advances. 
 
 Afi% 
 
 is invested in the country itself, either as circulating or as 
 fixed capital. Our capital is freely invested itt other 
 countries ; we subscribe to foreign loans, and by our aid 
 many most important railways and other works have beem 
 carried out in every quarter of the world. As an example 
 it may be stated that of the 15,000,000^. which has been» 
 spent upon the Grand Trunk Railway in Canada, nearly 
 the entire amount was subscribed by English shareholders. 
 Every year the field for the investment of capital in foreign 
 countries is rapidly extending, and it will continue to 
 extend, as the barriers of prejudice are brokea down 
 between different nations, and as security of property is 
 spread over a wider area. Now all this capital which is 
 accumulated, but is not invested, in our own country, pro- 
 duces no effect, either upon the average rate of profit, or 
 upon the wages paid to our labourers.; and as the field for 
 the investment in foreign countries may become of almost 
 boundless extent, it is qiiite possible to conceive that 
 capital may continue to increase, even with greater rapidity 
 than it has during the past few years, without causing 
 any fall in the rate of profit. If, however, this outlet for 
 our savings should be at any time partially closed, a 
 great stream of capital would be turned back upon 
 England : the circulating capital of the country would 
 consequently be greatly augmented; the wages paid to the 
 labourers, and therefore the cost of their labour, would be ' 
 greatly increased, and the rate of profit would rapidly 
 decline. 
 
 Observations have now been made upon the extent to 
 which a fall in the rate of profit resulting from a con- 
 stantly increasing accumulation of capital may be counter- 
 acted by the investment of capital in foreign countries. 
 We will next speak of the principal circumstances which 
 counteract the decline ira profits, which will be sure to ac- 
 company an increase in population, unless supplies of cheap 
 food can be obtained. Agricultural improvements, and 
 the importation of food from countries less thickly peopled 
 than our own, are the chief circumstances which enable 
 additional supplies of food to be obtained without an in- 
 crease in its cost. In the first place, with regard to 
 agricultural improvements, there can be no doubt that 
 superior methods of culture have largely augmented the 
 
 GG2 
 
 BOOK IK. 
 CH. XIII. 
 
 retarded, 
 by the ex- 
 portation 
 of capital. 
 
 The de- 
 cline of 
 profits is 
 also clieck- 
 ed by agri- 
 cultural 
 improve' 
 mcnts. 
 
468 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. XIII. 
 
 The 'sta- 
 tionary 
 state ' 
 
 seems to be 
 less pro- 
 bable now 
 than for- 
 merly. 
 
 average yield from each acre of land in this country, and 
 this larger produce has been obtained without a greater 
 proportionate expenditure of labour and capital. Two very 
 prominent improvements need only be mentioned ; for it 
 is well known that much comparatively unproductive land 
 has been made to produce large crops of corn, by the cul- 
 tivation of the turnip, and by the use of artificial manures. 
 Improved implements are every year introducing greater 
 efiSciency and economy into agriculture. If we were com- 
 pelled to obtain from our own soil all the additional food 
 which an increasing population would require, food would 
 greatly rise in price, the cost of labour would be increased, 
 and profits would decline. 
 
 Those political economists who consider that a decline 
 in the rate of profit must of necessity accompany an ad- 
 vance in population and wealth, frequently afiirm that 
 material progress has very definite limits, and that the 
 progress of each nation must, necessarily, sooner or later 
 cease. It is, for instance, maintained that if the rate 
 of profit continues to decline, the returns to capital 
 will, after a time, be so small, that nO adequate induce- 
 ment will be held out for increased accumulation. Under 
 these circumstances, capital will not be further increased, 
 the rate of profit will have reached its lowest limit, and the 
 nation then will arrive at what is called a stationary state. 
 A stationary state is of course a possible contingency, and 
 there can be no doubt that England might soon be in 
 this condition if those causes which have been enumerated, 
 as tending to keep up the rate of profit, ceased to act for 
 any length of time. But, with regard to almost all coun- 
 tries, the stationary state was more likely to be attained 
 fifty years since than it is now. During the last century, 
 the Dutch frequently lent money to their government at 
 two per cent. ; this indicates a much lower rate of profit 
 than has prevailed in any European country for many 
 years past. Holland in the last century had no doubt 
 very closely approached the stationary state. But the 
 general condition of Europe was then so disturbed, that 
 comparatively little capital was sent from one country to 
 another for the purpose of being invested ; hence, nearly 
 all the capital which was accumulated by the thrifty Dutch 
 had to be invested in their own country, and the result of 
 
The Tendency of Profits tofaU as a Nation advances. 
 
 469 
 
 this was that the rate of profit which prevailed was so low, 
 that no sufficient inducement was offered to increase the 
 amount of capital accumulated. 
 
 There are many other modes in which capital is ab- 
 sorbed, besides those which we have enumerated ; for in- 
 stance, the conversion of circulating into fixed capital tends 
 to keep up the average rate of profit. During the first 
 years of the great railway extension in this country, the 
 average rate of interest undoubtedly rose; there was a 
 great demand for capital, and the tempting speculations 
 which presented themselves induced many to withdraw 
 capital from business, and embark it in railway under- 
 takings. But when, by the conversion of circulating into 
 fixed capita], the wage fund of the country is diminished, 
 the cost of labour is decreased, and an influence is thus 
 exerted to raise the rate of profit. Such diminution in 
 the wage fund is by no means hypothetical ; the wages of 
 labourers have often been for a time decreased by the 
 sudden conversion of a large amount of wealth into fixed 
 capital, in the form of railways, machinery, &c. The 
 injury to the labourers, it is true, is only temporary, 
 because machinery and useful public works greatly aug- 
 ment the productive resources of the country, and create 
 a larger fund, from which future capital may be accu- 
 mulated. 
 
 Some people bave considered that the average rate of 
 profit is kept up, or is prevented from falling, by the de- 
 struction of capital, which always takes place in those 
 commercial panics which seem to recur with, periodic re- 
 gularity. The phenomena which accompany these crises 
 give colour to this opinion. In consequence of the in- 
 creasing accumulation of capital, the money market is at 
 length said to become glutted with capital seeking for in- 
 vestment ; loans are freely offered, and the rate of interest 
 declines. In such a state of things any undertaking which 
 offers a prospect of unusual gain is eagerly supported ; a 
 speculative feeling is thus engendered, the excitement 
 quickly blinds men's judgment, all kinds of fictitious 
 schemes are brought forward, and capital is recklessly sub- 
 scribed to carry out unprofitable undertakings. Directly 
 the mania begins to subside the losses of individuals be- 
 come revealed, and it is discovered that immense sums of 
 
 BOOK III, 
 CH. XIII.. 
 
 The con- 
 version of 
 circulating 
 into fixed 
 capital 
 tends to 
 keep vjp 
 the rate of 
 profi,t. 
 
 A commer- 
 cial crisis 
 maytendto 
 keep it up 
 by the des- 
 truction of 
 capital. 
 
470 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. XIII. 
 
 The high 
 rateof pro- 
 fit which 
 prevails in 
 Australia 
 explained. 
 
 Reason 
 why in a 
 young 
 country 
 agricul- 
 ture and 
 
 capital have been wasted ; the surplus capital which was 
 floating in the money market has been destroyed, capital 
 becomes scarcer and the rate of interest rises. Hence, no 
 doubt, a commercial crisis produces a considerable effect 
 on the rate of profit by absorbing, or rather by destroying 
 capital; but it is to be doubted whether the influence thus 
 exerted is so powerful as that which is produced by those 
 other circumstances already described as sustain in g the 
 average Tate of profit. 
 
 The general remarks which have been made in this 
 chapter may be illustrated by explaining the high average 
 rate ef profit which prevails in a young colony such as 
 Australia. The material condition of a country in the 
 position of Australia is characterised by an abundance of 
 fertile land and by a scarcity of capital and labour. The 
 economy, therefore, of an old country like England affords 
 a direct contrast ; for in England fertile land is scarce, and 
 labour and capital are both abundant. When fertile land 
 is plentiful, food is sure to be cheap, and this will be 
 especially true with regard to those kinds of food which 
 require little labour for their production. For instance, 
 immense flocks of sheep have been fed on the pastures of 
 Australia entirely for the sake of their tallow and wool. 
 The meat of these sheep was of no value whatever, until 
 the gold discoveries brought a sudden accession of popula- 
 tion ; for previously there were only enough people in 
 Australia to consume a small portion of the mutton that 
 was annually killed. Wheat, however, was not relatively 
 so cheap as mutton, because the cultivation of wheat 
 requires considerable capital and labour. Labour was 
 however, scarce, and the implements of agriculture were 
 expensive. Although labour and capital may be both scarce 
 in such a country as Australia, yet it is evident that the 
 returns of this labour and capital, if applied to cultivate 
 the soil, must be extremely great when it is remembered 
 that in such a country even the most fertile land can be 
 obtained at a merely nominal price. 
 
 The industry of a young colony is sure to be almost 
 entirely confined to agriculture, for the great abundance 
 of fertile land at her command gives her superior advan- 
 tages in comparison with older countries. On the other 
 hand, it is impossible for a young colony to compete 
 
The Tendency of Profits to fall as a Nation advances. 
 
 471 
 
 successfully in manufacturing industry; she does not possess 
 the appliances which manufacturers I'equire, the machinery 
 would have to he imported, and labour would be more 
 expensive. Our operatives would not, of course, emigrate 
 to Australia unless they expected to obtain higher wages. 
 The same considerations apply in a somewhat modified 
 degree to mining industry ; the gold mining of Australia 
 is an exception to this, because comparatively few coun- 
 tries produce gold, and therefore Australia has little 
 competition. But in the case of such minerals as copper, 
 which are produced both in England and Australia, it is 
 impossible for Australian copper mines to compete against 
 English copper mines, unless the former are far richer 
 than the latter. Labour and machinery are so expensive 
 in Australia, and the cost of bringing the ore from the 
 mine to the coast is so great, that many a copper mine 
 which is unprofitable in Australia would be a source of 
 enormous wealth if it could be transferred to England. 
 
 We may, therefore, conclude that the industry of a 
 colony is employed in agriculture and in supplying those 
 wants of the people for which provision cannot be made 
 by importing commodities from other countries. For 
 besides agricultural labourers, there must, in a young 
 colony, be bricklayers and carpenters to build houses, 
 and all the various retail dealers and others connected 
 with them who minister to the daily domestic require- 
 ments of life. Since, therefore, agriculture is the staple 
 industry of a colony, it is evident that the average rate 
 of profit which prevails will be regulated by the profit 
 which can be obtained upon agriculture. When there 
 is abundance of fertile land, every one can easily become 
 a farmer; hence capital would not long continue to be 
 employed in house building, or in retail trades, if a 
 larger profit could be realised by investing it in agri- 
 culture. In order therefore to explain the high rate of 
 profit which prevails in a colony, it will be necessary 
 to show that the profits on agriculture are larger in a 
 colony than in a thickly peopled country. Where fertile 
 land is so abundant, it is of course only necessary to 
 cultivate the most productive soils. Consequently labour 
 and capital, when applied to agriculture, will be far more 
 productive in a colony than in a country like our own. 
 
 BOOK III. 
 CH. XIII. 
 
 mining are 
 more flour- 
 ishing 
 thanmcmu- 
 factures. 
 
 Tlie rate 
 of profit 
 which pre- 
 vails tJiere 
 will be 
 regulated 
 by the rate 
 of profit 
 obtained 
 by agricul- 
 ture. 
 
472 
 
 Manual of Political Economy. 
 
 It may perhaps, however, be said, that we have land far 
 more fertile than any which is tilled in Australia. This, 
 no doubt, is true, but the English farmer has to pay a 
 heavy rent for the use of land, and he does not on the 
 average realise gi-eater profits than the farmer who culti- 
 vates worse land, but who pays a smaller rent. England's 
 population is so great, that there is a demand for all the 
 produce which can be raised from her cultivated soil ; high 
 rents therefore must prevail. These rents are an essential 
 part of an English farmer's expense ; he pays his rent for 
 the use of an efficient agent of production, just in the 
 same way as if he were compelled to purchase a useful 
 machine. The farmer in a colony has, speaking com- 
 paratively, to pay no rent; he is saved this heavy expense, 
 and there consequently remains a greater amount of 
 produce to be distributed between the farmer and the 
 labourer. Wages and profits are, for these reasons, almost 
 invariably higher in a colony where fertile land is abun- 
 dant, than in an older country where the growth of 
 population has made land scarce. 
 
CHAPTER XIV. 
 
 OF OVER-PEODirCTION OR EXCESS OF SUPPLY. 
 
 ALL political economists who preceded James Mill and 
 XJL Ricardo, and many who have succeeded them, seem 
 to anticipate a general over-production of commodities 
 as a possible or even probable contingency. Dr Chal- 
 mers and Mr Malthus went so far as to impress upon all, 
 the duty of exercising a moral restraint with regard to 
 the accumulation of capital ; for if this is not done, they 
 feared that wealth would only be created to ;be wasted, 
 and that it would be impossible to consume a great por- 
 tion of the commodities produced. Sismondi was actually 
 opposed to the use of machinery, because he believed that 
 if the production of wealth was so much facilitated there 
 would inevitably ensue a general over-productton of all 
 commodities. 
 
 The fundamental error involved in these opinions 
 would probably never have been supported by the three 
 great writers just mentioned, if there had not been some 
 ambiguity in the meaning they attached to the expression 
 'over-production.' Let us therefore commence by defin- 
 ing what is meant by this word. Now, over-production 
 may exist in two very different ways : in the first place, a 
 greater quantity of commodities may be produced than 
 can be sold at remunerative prices. In this case there may 
 be no deficiency in the power of consumption. Everything 
 which is produced can be readily consumed, but those who 
 have a demand are not willing to pay such a price as will 
 remunerate those who produce the commodities. It is 
 difficult, from the language employed, to determine 
 whether this is the kind of over-production which is 
 
 BOOK III. 
 CH. XIV. 
 
 Supposed 
 danger of 
 over-pro- 
 duction. 
 
 Over-pro- 
 duction 
 may have 
 two mean- 
 ings. 
 
474 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. XIT. 
 
 The evils 
 which may 
 result from 
 over-pro- 
 duction in 
 the sense 
 of low pro- 
 fits 
 
 are ad- 
 duced to 
 prove the 
 possibililij 
 of a pro- 
 duction 
 of more 
 wealth 
 than can 
 be con- 
 sumed. 
 
 intended by Chalmers, Malthus and Sismondi. It is, per- 
 haps, more probable that they conceived a second kind of 
 over-production, differing very essentially from this. It 
 is possible, as an hypothesis, to suppose that a greater 
 quantity of all commodities may be produced than people 
 really want. In the course of this chapter it will be proved 
 that such an over-production has never taken place in the 
 past and is never likely to occur in the future. 
 
 With regard to the first kind of over-production, it has 
 been stated when considering the laws of value and price 
 that some particular commodity is frequently produced in 
 excess ; the price at which it sells will then cease to be 
 remunerative, and the profits of those who produce the 
 commodity are consequently reduced. These low profits 
 discourage the production of a particular commodity ; in 
 this way its supply is diminished, the demand is once 
 more equalised to the supply, and prices are again made 
 remunerative to the producer. When these low profits 
 temporarily prevail in any branch of industry in conse- 
 quence of over-production, it is said that the particular 
 trade is dull or depressed. It is quite possible that such 
 dullness and depression caused in the manner above 
 described may exist in every trade ; if such a phenomenon 
 should really occur, it would no doubt have been considered 
 by the above-mentioned writers to denote general over- 
 production. In one sense, it would be over-production ; 
 but the word has a double meaning, and by the aid of this 
 ambiguity the most mischievous economic fallacies are 
 speciously propounded and readily assented to. The 
 method adopted is the following — Certain phenomena are 
 described, and are admitted to prove the existence of 
 general over-production in one of its significations. When, 
 therefore, the possibility of over-production is proved, 
 numerous events are shown to result from over-production 
 in its other signification, and therefore the possibility that 
 these events may really occur is regarded as proved, be- 
 cause the existence of over-production in its other sense 
 has been admitted. This method of reasoning affords a 
 basis for an indefinite number of fallacies. It it be admitted 
 that there is over-production, so far as it is represented 
 by low profits, yet it can be proved that there never has 
 been, and there never will be, over-production in the 
 
Of Over-Production or Excess of Supply. 
 
 475 
 
 sense that more commodities are produced than people 
 will consume. 
 
 Let us consider the case of a market being over-supplied 
 with some particular commodity. If the American civil 
 war had not occurred, the cotton manufacture of Lanca- 
 shire would, no doubt, quickly have presented an example 
 of what is commonly called over-production. During the 
 years 1859 and 1860, the Eastern demand for cotton goods 
 was extremely active; prices ruled high, and unusually 
 large profits were realised. Every manufacturer was con- 
 sequently stimulated to produce on as large a scale as he 
 possibly could. All the existing mills were worked to their 
 utmost, and new mills were rapidly erected. The extra 
 demand which caused these large profits would no doubt 
 soon have been fully supplied. Manufacturers, if we may 
 judge from past experience, would not have sufiiciently 
 diminished their production as the additional demand for 
 cotton goods became gradually satisfied ; the market there- 
 fore would almost certainly have become over-supplied, 
 and the unusual activity which had prevailed in this branch 
 of industry would infallibly have been succeeded by low 
 profits and general dullness of trade. In fact, activity and 
 depression always seem to succeed each other in the cotton 
 trade in regular cycles. 
 
 Although the market may be thus over-supplied with 
 cotton goods, no one can suppose that these cotton goods 
 will be wasted ; there would be no difficulty whatever in 
 selling the goods if they were only offered at a sufiiciently 
 low price. These low prices may be very disastrous to the 
 manufacturer, but what he loses is gained, or is saved, by 
 those who purchase cotton goods ; there can therefore be 
 no waste — .all that happens is simply that the producers of 
 certain commodities miscalculate the extent of the demand 
 when these commodities are offered at a particular price. 
 If the demand is over-estimated, the producers will realise 
 smaller profits than they anticipated. But such an excess 
 of supply can only be temporary, because low profits will 
 check production. The demand for a commodity is deter- 
 mined by its price ; raise the price of a commodity, and 
 the quantity of that commodity which will be purchased 
 is at once diminished. But, on the other hand, by siiffi- 
 ciently lowering the price, the quantity of a commodity 
 
 BOOK III. 
 OH. XIV. 
 
 Case of 
 over-pro- 
 duction of 
 a single 
 commodity,' 
 such as 
 cotton. 
 
 The cotton 
 goods 
 would not 
 be wasted, 
 but the 
 profits of 
 manufac- 
 turers 
 would be 
 temporari- 
 ly lowered. 
 
476 
 
 Manual of Political Economy. 
 
 BOOK III. 
 OH. XIV. 
 
 Z,ow pro- 
 fits may 
 tempt to a 
 misappli- 
 cation of 
 capital, 
 hut not to 
 a superflu- 
 ous pro- 
 duction of 
 wealth. 
 
 which will be purchased may be indefinitely increased. 
 There is a certain average rate of profit which prevails in 
 a country at any particular time. Unless manufacturers 
 and traders hope, on the average of years, to realise a cer- 
 tain rate of profit on their capital, they will not continue 
 their business ; they would rather withdraw their capital 
 as speedily as possible, and invest it in other undertakings. 
 A constant tendency is therefore in operation which so 
 regulates the price of commodities that the ordinary rate 
 of profit is, on the average of years, given to each class of 
 producers. If the price of any commodity is more than 
 sufficient to do this, the production of the commodity is 
 stimulated, the supply is increased, and the price of the 
 commodity must fall in order to make the demand meet 
 the increased supply. But whenever the price of any 
 commodity falls so low as to cause a particular branch of 
 industry to be comparatively unremunerative, there exists 
 what is commonly called over-production ; such over- 
 production can only be temporary, for the low prices will 
 exert an influence to check the supply of the commodity, 
 and the price of the commodity will soon be raised, so 
 that the producers of it again receive the ordinary rate of 
 profit. 
 
 It therefore appears that, however great may be the 
 accumulation of capital, commodities are sure not to be 
 produced so as to be wasted ; there will be always persons 
 ready to consume the commodities which are produced, if 
 the price at which they are sold is sufficiently low. Con- 
 sequently the accumulation of capital, as was pointed out 
 in the last chapter, may reduce profits, but never causes a 
 superfluous production of wealth. Capital may be misap- 
 plied and wasted, and when a very low rate of profit pre- 
 vails, there is always a great temptation, as is proved by 
 every commercial crisis, to squander capital upon useless 
 and unproductive schemes. People become dissatisfied 
 with the small profits of legitimate trade, and therefore 
 recklessly embark in any scheme that affords a prospect 
 of large gain. But such a m.isapplication of capital, result- 
 ing in a waste of wealth, is a very different thing from 
 wealth being produced in such superfluity that it must be 
 wasted for want of consumers. It is true that the invest- 
 ment of capital in unproductive schemes is often prompted 
 
Of Over-Production or Excess of Supply. 
 
 A77 
 
 by the prevalence of a low rate of profit. The capital 
 however need not be so invested, for it could still be em- 
 ployed productively ; if it were so employed, the supply of 
 commodities would be farther increased, and profits would 
 again decline. This decline in profits would be disadvan- 
 tageous to the producers; the consumers of the com- 
 modities would be benefited, and the wealth of the nation 
 would be increased to the full extent of this additional 
 production. 
 
 When discussing the subject of capital the most ex- 
 treme case of over-production was assumed; for it was 
 supposed that capital went on accumulating so fast, and 
 the production of commodities was so largely increased, 
 that at length the labourers were able to obtain every- 
 thing which they required. It may be said that if in 
 such a state of things capitalists should continue to accu- 
 mulate, and labourers continue to labour, additional wealth 
 would be produced, which no one would have any desire 
 to consume ; but such a supposition tacitly assumes that 
 men have an uncontrollable desire to labour, and that in 
 fact they labour for labour's sake. This is entirely con- 
 trary to the experience of human nature: men labour in 
 order to satisfy their wants, and to provide themselves with 
 the enjoyments of life. Labourers would gladly shorten 
 their hours of toil, if, in consequence of an increased 
 accumulation of capital, the remuneration of laJbour 
 should ever be so largely augmented that their wages 
 should become sufficient to supply them with all the 
 necessaries and enjoyments of life. It therefore appears 
 that, upon the most extreme hypothesis, there cannot be 
 over-production, in the sense conceived by Malthus, Chal- 
 mers, and Sismondi. The fallacies they propounded on 
 this subject were no doubt due to a misinterpretation of 
 the phenomena connected with the low profits which pre- 
 vail in a trade when there has been an over-production of 
 some particular commodity. Mr J. S. Mill has aptly 
 remarked that any "difference of opinion on the subject of 
 over-production, involves radically different conceptions of 
 political economy, especially in its practical aspect. On 
 the one view we have only to consider how a sufficient 
 production may be combined with the best possible dis- 
 tribution ; but on the other, there is a third thing to be 
 
 BOOK III. 
 CH. XIV. 
 
 The ex- 
 treme case 
 of over- . 
 production 
 assumecl in 
 the chapter 
 on Capital 
 it imagi- 
 nary. 
 
478 
 
 Manual of Political Economy. 
 
 considered — how a market can be created for produce, or 
 how production can be limited to the capabilities of the 
 market. Besides, a theory so essentially self-contradictory 
 cannot intrude itself without carrying confusion into the 
 very heart of the subject, and making it impossible even 
 to conceive with any distinctness many of the more com- 
 plicated economical workings of society." 
 
CHAPTEE, XV. 
 
 ON THE EECENT DISCOVERIES OP GOLD AND SILVER. 
 
 WE intend in the present and in the following 
 chapter to trace some of the consequences which 
 have already been, and which are likely in the future 
 to be, produced by the discovery about twenty-five 
 years since of gold deposits of extraordinary richness in 
 Australia and California, and by the development within 
 the last few years of silver mines of such productive- 
 ness that the annual yield of silver has in a short time 
 more than doubled. Just prior to the discoveries in 
 Australia and California the annual aggregate yield 
 of gold was not more than £10,000,000. This amount 
 was, however, at once trebled by the additional gold 
 obtained from Australia and California, for during 
 the five years between 1852 and 1857, no less than 
 £10,000,000 of gold was annually yielded by each of these 
 countries. When it was observed that the annual supply 
 of gold was thus suddenly increased threefold many not 
 unreasonably thought that gold would rapidly decline in 
 value. Some even went so far as to predict that this 
 decline would be so great that in the course of a few 
 years gold would be not more valuable than silver. It 
 is at the present time scarcely necessary to remark that 
 these anticipations with regard to a rapid fall in the value 
 of gold have not been fulfilled. Although for reasons 
 which will be presently stated we incline to the opinion 
 that there has been a moderate decline in the value of 
 gold, yet there are no doubt many, whose opinion is en- 
 titled to great consideration, who deny the correctness of 
 this conclusion, and maintain that the increased supplies 
 of gold have been absorbed without, to any perceptible 
 
 BOOK III. 
 OH. XV. 
 
 The yield 
 ofgoldwas 
 suddenly 
 trebled by 
 the dis- 
 coveries in 
 Australia 
 and Cali- 
 fornia. 
 
48o 
 
 Manual of Political Economy. 
 
 BOOK HI. 
 
 CH. XV. 
 
 The gene- 
 ral em- 
 ployment 
 of gold or 
 silver as 
 money, 
 and as the 
 standard 
 of value. 
 
 The value 
 of the sub- 
 stance 
 chosen as 
 money 
 should not 
 
 extent, afifecting its value. There can, moreover, be no 
 doubt that the present great increase in the production of 
 silver must, if it continues, exercise an important influence 
 in modifying many of the effects which would result from 
 an increase in the annual supply of gold. 
 
 After the remarks made in previous chapters it will 
 only be necessary briefly to allude to some of the conse- 
 quences which will follow an alteration in the value of 
 gold and silver. All countries which have settled institu- 
 tions employ these metals as money, and one of them is 
 usually chosen as the general standard or measure of 
 value. Thus, as previously explained, gold is chosen for 
 this purpose in England. Our silver and copper money 
 is to be regarded as subsidiary coinage, for only payments 
 of limited amount can be legally made in silver and 
 copper. In most continental countries, in India, and in 
 fact generally throughout the world, silver has occupied as 
 a standard of value the same position which gold occupies 
 in England. If there is an increase or a decrease in the 
 value of the substance which is chosen as money, there 
 must manifestly be a corresponding change in its pur- 
 chasing power which will be shown either by a general 
 fall or a general rise in prices. Thus if gold increases in 
 value 50 per cent, a certain quantity of gold will exchange 
 for 50 per cent, more produce than before. If, for instance, 
 a hundred sovereigns were before equivalent in value to a 
 hundred sacks of wheat, they would now be equivalent in 
 value to a hundred and fifty sacks of wheat. A sovereign, 
 which before would only purchase one sack of wheat, would 
 now purchase one sack and a half. "Wheat, therefore, has 
 declined in price from 20s. to 13s. 4<d. a sack. Hence it 
 follows that an increase in the value of any substance 
 which is chosen as money, ineans that the purchasing 
 power of this substance has increased and that 'general 
 prices have declined, whereas a decline in the value of a 
 substance which is chosen as money is shown by a general 
 rise in prices. 
 
 It is manifestly of great importance to a community 
 that the value of the substance which is selected as its 
 money should not be subject to great and sudden fluctua- 
 tions. If the value of money varies the terms of every 
 monetary transaction become materially changed. If the 
 
On the IBecent Discoveries of Gold and Silver. 
 
 481. 
 
 value of money increases those who have fixed money 
 payments to receive become enriched, and those who have 
 
 , to make them suffer a corresponding loss. If money is 
 depreciated in value the exact reverse takes place, and the 
 rpcipients of all fixed annuities, such as fundholders, mort- 
 gagees, the proprietors of debenture stocks, have a serious 
 
 . loss inflicted on them. The disadvantage which arises 
 from a variation in value of the monetary standard is not 
 to be measured simply by the loss and inconvenience it 
 may cause to individuals. If the substance which is 
 chosen as money were subject to great and frequent 
 changes in value, a most serious impediment would be 
 thrown in the way of commercial development, for it 
 would be hazardous to enter into any transaction which 
 involved deferred money payments. Thus if gold were 
 liable to vary 50 per cent, in value within a short period, 
 a man who had agreed to lease a house at lOOZ. a year 
 might suddenly find that the rent he had to pay had 
 virtually increased oQl. a year. 
 
 As therefore such serious inconvenience is caused by a 
 change in the value of money it becomes of great import- 
 ance to endeavour to ascertain what are the effects 
 which have been and are likely to be produced upon the 
 value of gold and silver by the large additional supplies of 
 these metals which have been obtained during recent 
 years. Confining our remarks in the first instance to a 
 ^consideration of the annual increase in the supply of gold, 
 it may not unnaturally be thought that any change in the 
 value of this metal could at once be detected by a com- 
 parison of the prices of commodities at various periods. 
 Thus it may be said, if gold has been depreciated by the 
 Australian and Californian discoveries prices will as a 
 general rule be higher than they were before these dis- 
 coveries were made. This method, however, of measuring 
 the depreciation in the value of gold does not afford a con- 
 clusive test, and is certainly not free from many difficulties, 
 for directly such a comparison is attempted, it will be 
 found that although a great number of commodities have 
 risen in price, yet some have fallen. For instance, during 
 the last fifteen or twenty years, the price of meat and dairy 
 produce has decidedly risen, whereas the price of some 
 manufactured goods has fallen. But, as previously stated, 
 
 BOOK III. 
 OH. XT. 
 
 he liable to 
 frequent 
 fluctua- 
 tion!.. 
 
 Difficulty 
 of estimat- 
 ing the 
 effect on 
 prices of 
 the Cali- 
 fornian 
 and Aus- 
 tralian 
 discoveries 
 of gold. 
 
 F. M. 
 
 HH 
 
482 
 
 Manual of Political Economy. 
 
 BOOK ni, 
 OH. XV. 
 
 The rise in 
 ijeneral 
 prices is 
 estimated, 
 hy the best 
 authori- 
 ties, as 
 from 10 to 
 15 per 
 cent. 
 
 It might be 
 supposed 
 that, if 
 gold liad 
 fallen in 
 value, 
 viinet 
 
 the rise in the price of meat may be fairly explained with- 
 out implying that the value of gold has been depreciated 
 by the recent discoveries, since the increase in the quantity 
 of meat which is required to meet the wants of a larger 
 population is quite sufficient to account for a rise in the 
 price of meat. Again, improvements in machinery and in 
 the processes of manufacture have cheapened the cost of 
 producing various commodities, and their price has conse- 
 quently declined. It therefore appears that a rise in the 
 price of some articles and a fall in the price of others may 
 be due to some special causes, and may occur indepen- 
 dently of any general decrease or increase in the value of 
 gold. 
 
 After making allowance for special circumstances, which 
 in dififerent ways affect the price of particular commo- 
 dities, we however certainly believe that there has been a 
 depreciation in the value of gold. This conclusion is 
 chiefly based upon the arguments contained in a series of 
 essays on the gold question by the late Professor Cairnes', 
 and upon an elaborate investigation by Prof Jevons. Prof. 
 Jevons has compared the average prices of many hundreds 
 of commodities since the gold discoveries, with their prices 
 previous to 1848. He has, with the utmost care, made 
 allowance for the influence which might have been exerted 
 upon the price of any particular commodity by causes 
 independent of a change in the value of gold. The result 
 of his investigations would seem to prove that there has 
 been a rise in general prices amounting to 10 or 15 per 
 cent. 
 
 It may seem that there is yet another method of inves- 
 tigation, which will conclusively decide the question as to 
 whether the value of gold has, or 'has not, been depre- 
 ciated. Thus it may be said, that in a previous chapter 
 of this work, the value of gold as well as of all other 
 mineral produce was stated to be regulated by laws similar 
 to those which determine the value of agricultural pro- 
 duce. If the value, or price of agricultural produce de- 
 clines, the worst land in cultivation will cease to return 
 any profit, and will consequently be thrown out of tillage. 
 In the same way, if the value of mineral produce declines, 
 
 1 Essays in Political Economy Theoretical and Applied. By the late 
 Prof. J. E. Cairnea. 
 
On the Recent Discoveries of Gold, and Silver. 
 
 483 
 
 the profits resulting from mining industry will be dimi- 
 nished, and many of the least productive mines will cease 
 to be worked. It may therefore be thought that many of 
 the least productive gold mines must during the last few 
 years have been relinquished if the value of gold has been 
 depreciated by the discoveries in Australia and California. 
 It does not, however, appear that gold mines in other 
 parts of the world have been thus relinquished. 
 
 The evidence, however, which is derived from the con- 
 sideration just mentioned, is not as conclusive as at first 
 sight it may appear to be. We think it necessary thus to 
 caution our readers, because it must be borne in mind that 
 mining industry, and especially gold mining, is far more 
 speculative and uncertain than agriculture. A decline 
 in the price of agricultural produce almost immediately 
 affects the rent which farmers will consent to pay. Each 
 farmer can very approximately calculate the profit which 
 he will be able to realise, and he will refuse to rent his 
 farm, unless he considers that he will be able to obtain an 
 adequate return for his labour and capital. No such pre- 
 cise calculation can, however, be made with regard to the 
 profits which a mine is likely to yield. The discovery of a 
 new lode may, in a few months, vastly increase the profits 
 and value of a mine. Even in our own country it has 
 frequently happened that a copper or tin mine has in a 
 short time increased in value a hundredfold. Mining 
 therefore resembles a lottery ; those consequently who are 
 -engaged in mining industry do not, and cannot, accurately 
 calculate the profits which are likely to be realised. The 
 chance of obtaining a great prize is the real motive which 
 prompts mining enterprise. Thus, we believe it can be 
 shown that the profit realised on the aggregate capital in- 
 vested in copper and tin. mines in Cornwall has never 
 amounted to as much as one per cent, even at the time 
 when mining industry was in its most prosperous condi- 
 tion. People, however, continue freely to invest their 
 capital in this unremunerative industry, as long as they 
 observe that a mine here and there has been so successful 
 that 100?. originally invested in it would realise an income 
 of many hundreds a year. People in a similar way have 
 been attracted to the gold fields by the intelligence of 
 great and successful 'finds,' and they seldom calculate what 
 
 HH 2 
 
 BOOK III. 
 CH. XV. 
 
 would have 
 gone out of 
 work. 
 
 This is not , 
 conclusive, 
 hecause 
 mining 
 profits are 
 unsteady 
 and par- 
 take of the 
 nature of 
 a lottery. 
 
 They are 
 
 worked 
 
 when the 
 
 average 
 
 profits are' 
 
 extremely 
 
 low. 
 
484 
 
 Manual of Political JScoUomy.. 
 
 BOOK III. 
 
 CH. XV. 
 
 The large 
 iupplies of 
 gold re- 
 ceived 
 have pre- 
 vented a 
 disar- j 
 
 rangement ', 
 of the fi- 
 nances 
 of the 
 comitry. 
 
 This is 
 owing to 
 the fact 
 that the 
 gold dis- 
 coveries 
 coincided 
 with the 
 commence 
 ment of a 
 new era in i 
 commerce 
 
 is the average profit realised by each person employed 
 upon a gold field. It therefore appears that the supply 
 of gold may not immediately be much affected by a slight 
 depreciation in its value ; a continuance of the deprecia- 
 tion must, however, after a time diminish the supply. 
 Hence a depreciation in the value of gold is spontaneously 
 retarded, because a depreciation in value exerts a tendency 
 to decrease the supply of gold, and a diminution in the 
 supply at the same time exerts a tendency to increase its 
 value. 
 
 The absorption of such large additional supplies of gold, 
 without producing any greater depreciation in its value 
 than that to which we have referred, affords conclusive 
 evidence of some very important results Avhich have been 
 produced by the gold discoveries. It has already been 
 stated that th«se discoveries increased the annual supply 
 of gold more than threefold, and it is evident that this 
 large augmentation in the supply must have been accom- 
 panied by a very considerable decline in value, unless 
 there had arisen an increased demand for gold at tho time 
 when these additional supplies were forthcoming. It can 
 be readily shown that many circumstances combined 
 greatly to increase the demand for gold just at the time 
 when the discoveries of gold were made in Australia and 
 California. It is, for instance, deserving of special remark 
 that the great increase in the supply of gold coincided 
 with the commencement of a new era in the commerce of 
 this country. About that time the Navigation Laws were 
 repealed, and witii the adoption of this measure the prin- 
 ciples of free trade were applied to our entire commercial 
 system. Our trade and industry, being thus released from 
 the trammels of protective duties, at once showed a most 
 extraordinary development. This commercial develop- 
 ment was also powerfully aided by the great extension of 
 railways which took place about that time, and by the 
 increased application of steam as a motive power, to various 
 branches of industry. Our exports in twelve years, from 
 1848-60, advanced from 60,000,000?. to 135,000,000?., and 
 our imports exhibited a corresponding increase. This 
 increase in trade was maintained, and in 1874 the exports 
 amounted to 250,000,000?., and the imports to 350,000,000?. 
 In 1847 we imported about 500,000,000 lbs. of cotton, and 
 
On the Becent Discoveries of Oold and Silver. 
 
 485 
 
 55,000,000 lbs. of tea; in 1856 we imported more, than 
 1,000,000,000 lbs. of cotton, and nearly 90,000,000 lbs. of 
 tea. This expansion of our trade and commerce was as 
 sudden as it was great ; for it is an instructive fact, that 
 the trade of this country seemed to be in a stationary 
 state for several years previoas to the introduction of free 
 trade. Our exports and imports had, since the conclusion 
 of the war in 1815, shown a progressive increase; but 
 about the year 1838, until the establishment of free trade, 
 they remained almost stationary. It is quite evident that 
 such a sudden development of trade and commerce would 
 require a larger amount of money to be brought into cir- 
 culation; for, as the wealth of the country increased, a 
 greater number of commodities would be each year bought 
 and sold for money, and more money would also be re- 
 quired because the population was more numerous. A.gain, 
 more money was wanted in order to pay the wages of 
 the labourers; for our exports could not advance from 
 60,000,000^. to 250,000,000Z. without the wage-fund of 
 the country being greatly increased. It therefore ap- 
 pears, that the sudden development of our trade and 
 commerce about the year ISoO, created a demand for 
 a greater quantity of money to be brought into circula- 
 tion. 
 
 If no new supplies of gold had been forthcoming, this 
 additional demand for gold must have inevitably caused a 
 sudden rise in its value. The extent of this rise might 
 have been very considerable, and those consequences would 
 have ensued which have been already described. Every 
 one who had a fixed money-payment to make would have 
 found this payment greatly increased, and the real burden 
 of the national debt would have been augmented in exact 
 proportion to the increase in the value of gold. The 
 extent to which the value of gold might have risen can be 
 best understood by reflecting on the large quantities of 
 gold which have been poured into this country without 
 producing a greater depreciation in its value than has 
 actually taken place. It therefore may be regarded as 
 conclusively proved that the gold discoveries were made 
 at a most opportune time, and that they averted a very 
 serious evil; for, if we had been left to the old sources 
 of supply for obtaining gold, commerce could not have 
 
 BOOK III. 
 CH. XV. 
 
 If the gold 
 had not 
 bien dis- 
 covered, 
 there must 
 have been 
 a decline 
 in prices. 
 
486 
 
 Manual of Folitical Economy. 
 
 The ex- 
 pansion 
 of trade 
 has not 
 been con- 
 fined tn 
 England, 
 but has 
 been uni- 
 versal, 
 causinfi a 
 greatly 
 increased 
 demand 
 for the 
 precioux 
 metals. 
 
 expanded as it lias during the last few years without a 
 large and sudden fall in general prices. 
 
 Although almost the whole of the Australian gold and 
 a very considerable portion of the gold produced in 
 California is, in the first instance, sent to England, yet 
 England retains only a comparatively small part of this 
 gold for her own use. The gold is re-exported, and has 
 no doubt been partly employed, as it has been in England, 
 in meeting the wants of increasing trade. The ex- 
 traordinary development of commerce, to which reference 
 has just been made, has by no means been confined to 
 England, for th,e last quarter of a century may be regarded 
 as a period of general and unprecedented industrial pro- 
 gress. More money was required in order to carry on this 
 expanding trade, and consequently there was a general 
 increase in the demand for the precious metals. It may 
 however be thought that there would have been a much 
 greater increase in the demand for silver than in the 
 demand for gold, because many more countries used silver 
 as a standard of value than gold. For some time after 
 the gold discoveries there was little increase in the supply 
 of silver, and consequently many were led to the con- 
 clusion that silver, when compared with gold, would 
 rapidly advance in value. There were also other con- 
 siderations which seemed to warrant the opinion that 
 there would be a rapid rise in the value of silver. Soon 
 after the Indian Mutiny there was a large and continuous 
 export of silver to India. In some years the amount 
 exported was not less than 17,000,000/. A considerable 
 amount of this silver was sent to India in payment for 
 the largely increased quantities of cotton which were 
 purchased from India by England during the American 
 civil war. About this period also loans on a great scale 
 were raised in England for the construction of public 
 works in India. No less a sum than 90,000,000/. was 
 raised in England for Indian railways. A portion of this 
 amount was expended in England in the purchase of plant 
 and material. It has, however, been calculated that con- 
 siderably more than half the entire amount was sent to 
 India in the form of silver to pay the wages of those 
 employed in making the railways, and for other purposes. 
 As there was no increase in the production of silver in 
 
On the Recent Discoveries of Gold and Silver. 
 
 487 
 
 any way commensurate with this large increase in the 
 demand, it is evident that the additional silver which was 
 required to supply this export of silver to the East, must 
 have been to a great extent provided from the stocks of 
 silver already existing. It has, in fact, been ascertained 
 that great quantities of silver were taken from the cur- 
 rencies of France, Germany, and other continental countries, 
 to supply this export to the East. The void thus created 
 in the silver currency was to some extent filled up by the 
 more extensive use of gold, and by the issue of a paper 
 currency of small value. This increased use of gold in- 
 dicates another source of absorption of the additional 
 supplies which were obtained from Australia and California, 
 and consequently, as gold was ready to take the place of 
 the silver which was sent away, this great increase in the 
 demand for silver was not only met without any marked 
 rise in its value, but the additional demand for silver, by 
 creating an additional demand for gold, exercised a very 
 important influence in maintaining the value of gold. 
 
 During the last few years several other circumstances 
 have come into operation which have exerted a con- 
 siderable effect in increasing the demand for gold, to which 
 it is necessary to make some reference. There seems to 
 be every probability that silver will in future be much 
 less used for purposes of currency by various European 
 countries than it has hitherto been, and that as gold will 
 take the place of this silver, an additional demand for gold 
 wiU thus be created. Germany has, for instance, within 
 the last few years demonetised silver. A considerable 
 portion of her small note circulation has also been called in, 
 and she has since 1871 purchased no less than 70,000,000Z. 
 of gold, to take the place of the silver and the notes which 
 have been withdrawn from circulation. In 1865 France, 
 Switzerland, Italy, Belgium and Greece, formed a com- 
 bination which is known as the Latin Convention, and 
 they subsequently agreed that for some time to come they 
 would greatly restrict their coinage of silver. There can 
 be no doubt that a considerable amount of additional gold 
 has been employed in place of the silver which would 
 have been coined and circulated, had not this agreement 
 been entered into. Holland has recently decided to adopt 
 a gold instead of a silver standard. She also will require 
 
 BOOK III. 
 CH. XV. 
 
 The in- 
 creased 
 demand 
 for silver 
 in the Ba^t 
 was met 
 by with- 
 drawing 
 silver from 
 the circu- 
 lation of 
 other coun- 
 tries, 
 such as 
 France : 
 the place 
 of the 
 silver thus 
 withdrawn 
 being 
 taken 
 by gold. 
 
 This cir- 
 cumstance 
 and others, 
 here enu- 
 merated, 
 have 
 
 exerted a 
 tendency 
 to keep up 
 the value 
 of gold. 
 
 The Demo- 
 netisation 
 of silver in 
 Germany. 
 
 The Latin 
 
 Monetary 
 Union. 
 
 Holland 
 has recent- 
 ly adopted 
 a gold 
 standa/rd. 
 
488 
 
 Manual of Political Economy. 
 
 BOOK III. 
 OH. XT. 
 
 The fall 
 ill the 
 vfilue of 
 silver has 
 already 
 reached 20 
 per cent. 
 
 The future 
 value of 
 gold can- 
 not be 
 confidently 
 predicted. 
 
 a large amount of gold to effect this conversion of her 
 monetary standard. It "seems not improbable that many 
 other countries, even if they do not demonetize silver, will 
 considerably diminish the amount of their silver coinage, 
 and thus an additional demand for gold will be created. 
 There is reason to believe that this partial demonetization 
 of silver has been prompted by a fear that silver, when 
 compared with gold, is likely to become considerably de- 
 preciated. An important depreciation in silver has already 
 taken place ; its price having in a short time fallen from 
 60d. to 48rf. an ounce. It is evident . that a prospect of 
 the continuance of this depreciation will offer an induce- 
 ment to those countries which have a silver standard to 
 abandon it in favour of a gold standard ; and it therefore 
 appears that a continuance of the present depreciation in 
 the value of silver may exercise a considerable influence 
 in increasing the demand for gold, and consequently in 
 maintaining its value. 
 
 The various circumstances which have been pointed out 
 as increasing the demand for gold, account for the fact 
 that the large additional supplies of gold have been 
 absorbed without causing a greater depreciation in its 
 value than that which has actually taken place. With 
 regard to what is likely to be the value of gold in the 
 future, it would be hazardous to venture upon a confident 
 prediction ; for it is evident that its value will depend 
 upon many circumstances which cannot with any certainty 
 be foreseen. Thus, for instance, it is impossible to ascer- 
 tain what will be the annual production of gold a few 
 years hence : new gold mines may be discovered, and the 
 most contradictory opinions prevail about the future yield 
 of gold from the existing mines. Although, at the present 
 time the Austrahan and Californian gold fields are less 
 productive than they were soon after their first discovery, 
 yet there are many who suppose that the yield of gold v/ill 
 again increase as gold mining becomes more systematically 
 carried on and as improved machinery is applied to quartz- 
 crushing. As an illustration of the difficulty of foretelling 
 with certainty anything about the future production of 
 gold and silver, it may be mentioned, as already stated, 
 that only a few years since, there seemed to be good reason 
 to conclude that silver, would considerably increase in value 
 
On the Recent Discoveries of Gold and Silver. 
 
 489 
 
 ■when compared with gold. There was a large additional 
 demand for silver, and there was but a very slight increase 
 in the annual yield of silver to meet this additional de- 
 mand. The discovery, however, of rich silver mines in 
 Nevada, and other parts of the United States, at once 
 greatly increased the supply of silver. Many events have 
 at the same time happened, to which we shall presently 
 more specially refer, which have caused this additional 
 supply of silver to be accompanied by a considerable 
 falling oflF in the demand. It has consequently happened 
 that instead of silver increasing in value, it has greatly 
 fallen in value, when compared with gold. It also deserves 
 to be particularly noticed that the discovery of these mines 
 in Nevada will exercise an important direct influence upon 
 the annual production of gold. It is a well known fact 
 that a certain amount of gold is almost always contained 
 in silver ore. In the Mexican and South American mines, 
 from which the largest portion of silver was formerly ob- 
 tained, gold existed only in very inconsiderable quantities ; 
 in the mines of Nevada, however, the ore contains so much 
 gold, that nearly 45, per cent, in value of their entire 
 produce consists of gold; or in other words, 1001. worth of 
 ore contains 551. worth of silver, and 45?. worth of gold '. 
 Although the . other silver mines in the United States 
 ai'e not as rich in gold as the Nevada mines, yet it is 
 calculated that at least 33 per cent, in value of the produce 
 of the mines consists of gold. As it is supposed that the 
 mines of the United States will produce not less than 
 
 ^ The large proportion of gold contained in the sOver ore in these 
 Nevada mines, may exercise a very important influence in determining 
 ■ the future value of silver. It has been stated that in one of these mines, 
 on the Comstook lode, 17,000,000 dollars worth of gold and silver were 
 last year raised at a cost of about 5,000,000 dollars, and consequently the 
 mine yielded a profit of 12,000,000 dollars. Assuming that 45 per cent. 
 in value of the entire quantity of metal produced was gold, it would 
 appear that rather more than 8,000,000 dollars worth of gold was pro- 
 duoed in this mine during the past year. If, therefore, it is remembered 
 that the entire cost of working the mine was stated to be 5,000,000 
 dollars, it is evident that the gold contained in the ore would yield a very 
 large profit on the outlay. It would therefore seem that these mines 
 would be highly remunerative even if silver were reduced in value to a 
 mere nominal amount. The mine would in fact have realized a profit of 
 100 per cent., if the 9,000,000 dollars worth of silver had only been sold 
 for 2,000,000 dollars, or, in other words, if silver realised little more than 
 1«. an ounce. 
 
 BOOK ni. 
 CH. XV. 
 
 The silver 
 mines of 
 Nevada 
 contain a 
 large pro- 
 portion of 
 gold: they 
 could be 
 worked 
 profitably 
 for the 
 sake of ' 
 the gold 
 only. 
 
49° 
 
 Manual of Political Economy. 
 
 BOOK m. 
 CH. IT. 
 
 Although 
 no con- 
 fident pre- 
 diction is 
 made, it 
 rrnist be 
 remember- 
 ed that a 
 consider- 
 able fall 
 in the 
 value of 
 the pre- 
 cious 
 
 metals is a 
 possible 
 C07itin- 
 gency. 
 
 10,000,000^. of silver during the present year, it follows 
 that more than 3,000,000?. of gold will also be produced ; 
 this is an important addition to the annual yield of gold, 
 and as many people think that these mines in the United 
 States are only in the infancy of their development, it 
 may not impossibly happen that the amount of gold 
 obtained from this source may very considerably increase. 
 Although these remarks have been made with the 
 object of showing that there may possibly be so great an 
 inci-ease in the future yield of gold as to cause a con- 
 siderable deprecjiation in its value, yet on a subject which 
 is surrounded by so much uncertainty, anything like a 
 confident prediction ought to be carefully avoided. As, 
 however, no one can say that a depreciation in the value 
 of the precious metals is an impossible contingency, it is 
 of great importance that arrangements should not be 
 entered into based on the supposition that gold and silver 
 will never vary in value. We shall in the next chapter 
 show the very serious embarrassment which is beginning 
 to be felt by the government and the people of India, in 
 consequence of the depreciation of silver which has already 
 taken place. A considerable portion of the inconvenience 
 that will be caused to India by a fall in the value of silver 
 might, as we shall hereafter explain, have been averted ; 
 and although a change in the value of the substance 
 chosen as money must produce great inconvenience, yet 
 the amount of this inconvenience may be diminished if 
 proper precautions are taken, and if people as far as pos- 
 sible avoid entering into arrangements on the supposition 
 that the value of the precious metals will always remain 
 stationary. At the present time the importance of taking 
 these precautions is seldom recognised; for instance, 
 fathers who wish to leave a comfortable provision for un- 
 married daughters, frequently settle on them a certain 
 fixed money income, arising from an investment in the 
 funds, and not unfrequently the money is settled upon 
 them in such a way that the investment cannot be 
 changed. Eeasons, however, have been stated, which 
 show that such a provision is not so free from risk as it is 
 intended to be; for a depreciation in the value of gold 
 might very seriously diminish the real value or purchasing 
 power of the income derived from such an investment. 
 
On the Becent Discoveries of Gold and Silver. 
 
 491 
 
 The following example will show how a possible de- 
 preciation in the value of gold might be guarded against. 
 Suppose a person wished permanently to invest 10,000Z. 
 in railway property ; this sum invested in debentures 
 would yield a uniform income of about 400^. a year. If, 
 however, the value of gold became depreciated twenty- 
 five per cent., he would virtually lose twenty-five per 
 cent, of his income, although its nominal amount would 
 remain unaltered. Let it, however, be assumed, that the 
 lO.OOOZ. was expended not in debentures, but in stock. A 
 debenture only gives a man a claim upon a railway com- 
 pany for a certain annual money payment, but the pos- 
 sessor of railway stock is part owner of the railway itself ; 
 if, therefore, the value of gold is depreciated, the money 
 value of the railway will, cceteris paribus, increase in a 
 corresponding degree ; and, therefore, the money value of 
 the stock which is possessed by the individual will also 
 be increased to the same extent. Hence, property thus 
 invested is secure against any loss arising from a depre- 
 ciation in the value of gold. An income derived from 
 land is also similarly secured against any loss arising from 
 this cause ; but all securities, such as our own funds, fo- 
 reign stocks, &c., in which a fixed rate of interest is paid, 
 diminish in value in exact proportion to the depreciation 
 in the value of gold. It must not, however, be supposed, 
 that this depreciation would be shown by a reduction in 
 the price of these securities ; their price would not be in 
 any way affected. If gold were depreciated one half, SI. 
 would be worth no more than 11. 10s. is now, and a fund- 
 holder's property would consequently be depreciated one 
 half, although the price of funds might remain unaltered. 
 It is moreover evident, that the tax-payers would be re- 
 lieved of one half the burden of the national debt, if the 
 fundholders lost one half their income by a depreciation 
 in the value of gold. 
 
 Some have considered, that if the fundholders' property 
 should be depreciated in the manner just described, they 
 would have a legitimate claim for compensation from the 
 nation. Such a claim would be more plausible, if gold 
 had been depreciated in value so suddenly that it was 
 impossible for any one to take timely warning. The 
 claim, however, under present circumstances, would be 
 
 BOOK m. 
 CH. XV. 
 
 Means by 
 which the 
 evils caus- 
 ed by a 
 deprecia- 
 tion of 
 gold, in 
 particular 
 cases, may' 
 be avoid- 
 ed. 
 
 Tlie fund- 
 holders 
 wouldhnre 
 no claim 
 for com- 
 pensation 
 on the 
 govern- 
 ment. 
 
492 
 
 Manual of • Political Economy. 
 
 BOOK ni. 
 
 CH. XV. 
 
 Influence 
 of the gold 
 discoveries 
 upon the 
 exporting 
 countries. 
 
 A ustralia 
 was pre- 
 viously 
 rich in 
 land, but 
 poor in 
 labour and 
 capital. 
 
 The gold 
 discoveries 
 attracted 
 labour and 
 capital, 
 
 manifestly indefensible ; for the possibility of a deprecia- 
 tion in the value of gold has been discussed and predicted 
 for the last twenty years. Some authorities affirm, that 
 the depreciation has already commenced ; whereas other 
 authorities of equal reputation as confidently assert, that 
 the time may be still indefinitely distant, when the value 
 of gold will become depreciated. Hence every investor 
 has ample time to take warning, and no one ought for one 
 moment to be encouraged to believe that he would have 
 the slightest claim for compensation, if his property should 
 become depreciated by a fall in the value of the precious 
 metals. 
 
 We have now considered the influence that has been, 
 and is yet likely to be, exerted on prices by the recent 
 gold discoveries; we will now proceed to describe the 
 effects which these discoveries have produced upon the 
 countries in which they have been made. We will, for the 
 sake of convenience, chiefly confine our attention to a de- 
 scription of the economic progress of Australia ; for at the 
 time of the gold discoveries, the commercial condition of 
 Australia so much resembled that of California, that the 
 remarks made with regard to the one country, will equally 
 apply to the other. 
 
 It has been previously stated, that of the three requisites 
 of production — viz. land, labour, and capital — a young 
 colony such as Australia possesses the first in an eminent 
 degree ; for long previous to the gold discoveries, the great 
 natural resources of Australia! were known, but it was im- 
 possible, in consequence of a deficiency in the supply of 
 labour, to make these resources adequately productive. 
 Her pastures, for instance, grazed enormous flocks of sheep ; 
 the population of the colony was, however, so small that 
 these sheep were almost worthless except for their wool. 
 An abundance of fertile land could be purchased at almost 
 a nominal price ; but previous to 1848, comparatively very 
 few emigrants went to Australia ; consequently two of the 
 requisites of production — namely, capital and labour — were 
 wanting, and the progress of the colony was extremely 
 slow. But directly it became known that rich deposits of 
 gold had been discovered, thousands of emigrants were 
 immediately attracted to Australia. This additional sup- 
 ply of labour exerted no immediate effect upon the deve- 
 
On the Recent Discoveries of Gold and Silver. 
 
 493 
 
 lopment of the other resources of the country ; in fact, her 
 general industry was, in the first instance, seriously inter- 
 fered with, for a great proportion of the labourers of the 
 colony were attracted to the gold fields. Shepherds left 
 their flocks, and almost every class of the community for 
 a time relinquished their ordinary ayocations. The whole 
 economy of the nation was quickly thrown into a state of 
 confusion; it was, however, soon discovered, that the average 
 profits realised in the gold fields were not greater than 
 the profits which could be obtained from many other em- 
 ployments. A considerable amount of labour was therefore 
 rapidly withdrawn from the gold-diggings, and returned 
 to agriculture and other industrial pursuits. There was, 
 moreover, a large population at the gold fields, whose 
 wants had to be supplied. This new demand so increased 
 the wealth of the colony, that meat which before could 
 only be sold at a nominal price, soon realised 3d. and M. 
 a pound in the Melbourne market. Wealth was rapidly 
 made, and a large amount of capital was saved. The high 
 rate of profit which prevailed in the country attracted 
 capital from England ; Australia in this way suddenly ob- 
 tained the two remaining requisites of production — namely 
 capital and labour — and she consequently advanced in 
 commercial prosperity with wonderful rapidity. 
 
 It therefore appears that the gold discoveries have 
 exerted a special influence in promoting the industrial 
 progress of Australia. We have, however, been anxious 
 to explain, that the benefit thus conferred is not due to 
 the realisation of an exceptionally high rate of profit in 
 , gold-digging. No doubt some of the Australian gold- 
 diggers have made great gains ; but, when the average 
 earnings are estimated, it is found that gold-digging is not 
 more remunerative than other branches of industry. For 
 instance,- when agricultural wages were 40s, or 50s. a week 
 in Australia, it was calculated that the average earnings of 
 those engaged in many of the gold-fields did not exceed 
 35s. a week. But the discovery, of gold confers a special 
 benefit upon a colony; because no other circumstance 
 exerts so powerful an influence in attracting emigrants; 
 the reason of this is very obvious. 
 
 In the first place it may be remarked, that in a hazard- 
 ous speculation such as gold-digging, the instances of great 
 
 BOOK III. 
 CH. XV. 
 
 althowph 
 the rate of 
 profit in 
 gold min- 
 ing was 
 not excep- 
 tionally 
 high. 
 
 Gold 
 
 mining 
 
 partakes 
 
494 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. XV. 
 
 uf the 
 nature of 
 a lottery, 
 and is 
 therefore 
 very at- 
 tractive, 
 
 wliiUt it 
 requires 
 little capi- 
 tal. 
 
 success are brought into far greater prominence than the 
 cases of failure. The same feelings which induce people 
 eagerly to enter a lottery, attract them to an employment 
 which offers chances of great gain. It must also be 
 borne in mind, that gold-digging is not impeded by 
 those obstacles which, in a young colony, retard the pro- 
 gress of almost every other kind of industry. Land 
 cannot, for instance, be profitably cultivated in a youBg 
 colony, until roads have been made, and until there is a 
 town population in the colony itself to purchase the pro- 
 duce. Manufacturing industry cannot be carried on with 
 success, because labour is so dear. Moreover, all mining 
 operations except gold-digging require a great expenditure 
 of labour and capital. Expensive machinery has to be 
 constructed, and the produce raised is bulky, and therefore 
 the cost of conveying it to market is extremely great. 
 Australia is, no doubt, very rich in other minerals besides 
 gold ; many of her copper mines are far more productive 
 than those which have yielded large profits in Cornwall ; 
 but one single fact will show the difficulty of working an 
 Australian mine with advantage. The price charged for 
 bringing the ore from an Australian mine called the 
 North Khine Copper Mine, to port, is 51. a ton, whereas 
 the average price which the smelters pay for English 
 copper ore does not exceed this amount. 
 
 When gold was first discovered in Australia, it was 
 chiefly found in alluvial deposits near the surface, conse- 
 quently the gold-digger required little capital except a 
 few simple tools, and sufficient money to pay his passage 
 out; and therefore, in embarking in this industry, he 
 risked little more than a certain amount of time and labour. 
 It therefore need not be a matter of surprise that the gold 
 discoveries immediately attracted thousands of emigrants 
 to Australia ; the labour which she required was thus 
 supplied, and her future progress was consequently in- 
 sured. 
 
CHAPTER XVV 
 
 THE DEPRECIATION IN THE VALUE OF SILVER. 
 
 THE depreciation in the value of silver whicli has already 
 occurred is likely to produce consequences of so much 
 practical importance, that it is desirable to devote a 
 separate chapter to the subject. The depreciation has 
 been so rapid that, as previously remarked, silver has 
 within three years fallen nearly 20 per cent, in value, 
 when compared with gold; the depreciation has lately been 
 so rapid that between January and. July of the present 
 year (1876), silver has fallen from 56d. to 48d an ounce. 
 After what has been said in reference to the absorption 
 of the increased supplies of gold, the question is at once 
 suggested — How has it happened that an increase of 300 
 per cent, in the annual production of gold, produced com- 
 paratively so little efifect on its value ; whereas a much 
 smaller increase in the annual yield of silver has been 
 accompanied by so great and rapid a depreciation as that 
 which has just been described? • 
 
 It will be in the recollection of the reader that it was 
 shown in the last chapter that contemporaneously with the 
 ■ increase in the supply of gold, various circumstances came 
 into operation to augment the, demand for gold. Amongst 
 the prominent causes which increased the demand for 
 gold, it may be sufficient here to enumerate — 
 
 1st. The rapid development of commerce. 
 
 ' Many of the facts on which the conclusions of this chapter are based 
 are taken from the Eeport of the Select Committee appointed in 1876, to 
 enquire into the causes of the depreciation of silver, and from the evi- 
 dence taken by that committee. , 
 
 BOOK III. 
 CH. XVI. 
 
 The recent 
 increase in 
 the pro- 
 duction of 
 silver has 
 been much 
 less than 
 was the 
 increase in 
 the pro- 
 duction of 
 sold in 
 1848-51. 
 Yet the fall 
 in the 
 value of 
 silver has 
 been much 
 more 
 marked 
 than was 
 the fall in 
 the value 
 of gold. 
 
496 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. XVI. 
 
 The gold 
 discoveries 
 were ac- 
 companied 
 by a great 
 increase in 
 the de- 
 mand for 
 gold: the 
 tilver dis- 
 coveries, 
 on the con- 
 trary, have 
 been ac- 
 companied 
 by a con- 
 tiderable 
 falling off 
 in the 
 demandfor 
 silver. 
 
 2n(ily. The considerable displacement of silver by 
 gold in the currencies of many countries. 
 
 Srdly. A large export of silver to the East between 
 1860 and 1870, causing a new field for the employment 
 of gold in those countries from which this silver was with- 
 drawn. 
 
 Th.ese and other circumstances are ^ufificient to show 
 how greatly the demand for gold has increased, since its 
 supply was augmented by the discoveries in Australia and 
 CaUfornia. What, however, has happened with regard 
 to silver, affords a most striking contrast to that which 
 occurred in reference to gold. The great addition in the 
 supply of silver has taken place within the last six years. 
 Previous to this time there had been for twenty years no 
 marked increase in the annual production of silver. 
 
 From 1852 to 1862 the annual production is estimated 
 to have ranged between 8,000,000?. and 9,000,000(!. 
 
 From 1862 to 1867 it varied from 9,000,000?. to 
 10,800,000?. 
 
 From 1868 to 1870 the production was somewhat lower. 
 
 After this date the production rapidly sprang up, until 
 in 1875 it reached 15,000,000?. It therefore appears that 
 nearly twice as much silver was produced in 1875 as was 
 annually produced on the average between the years 1852 
 and 1862. As previously remarked, it is supposed that 
 the yield in 1876 will greatly exceed that of 1875 ; for new 
 mines of extraordinary richness are now being rapidly 
 developed in Nevada, and it is estimated that the Ilriited 
 States will produce annually 10,000,000?. of silver. This 
 great production of silver in the United States is an almost 
 entirely new source of supply ; for less than 20 years ago 
 her annual yield of silver was only 25,000?., and within 
 six years the production increased from 2,325,000?. in 1869, 
 to 8^000,000 in 1875. Great as is this increase in the 
 production of silver, it is not, as already shown in the last 
 chapter, so great as was the addition made to the annual 
 supply of gold by the discoveries in Australia and California. 
 But, whereas these discoveries were accompanied by an 
 important increase in the demand for gold, it can be shown 
 that this large increase in the supply of silver has taken 
 place at the very time when there has been a most im- 
 portant falling off in the demand in those countries which 
 
The Depreciation in the Value of Silver. 
 
 A9T 
 
 had previously absorbed the greatest quantity of silver. 
 .We will proceed to explain the chief causes ■which have 
 produced this diminution in the demand for silver. It 
 was necessary to allude to some of these causes in the last 
 chapter, in order to show the influence which they had 
 exerted on the demand for gold. It will however be 
 desirable to consider the subject here in greater detail. 
 
 The demonetisation of silver in Germany, which has 
 been taking place during the last few years, has exerted 
 a considerable influence in lowering the value of silver, 
 for it has caused the German govei-nment to become a 
 seller instead of a buyer of silver. It has been calculated 
 that the amount of silver in circulation in Germany in 
 December, 1871, before the demonetisation began, was 
 6O,OO0,000Z. A considerable amount of silver would be 
 annually required to maintain so large an amount of 
 coinage. Although various estimates have been given of 
 the amount of the subsidiary silver coinage which Germany 
 will still require when the demonetisation of silver has 
 been completed, yet it may be safely assumed that the 
 amount will not be more than half that which was 
 previously in circulation. A part of the silver which 
 Germany has withdrawn from circulation has been sold 
 during the last few years ; the amount which has already 
 been thus brought into the market is of the value of 
 6,000,OOOZ. The amount which remains to be disposed 
 of has been variously estimated by different authorities 
 as between 10,000,000?. and 30,000,000?. The sale of 
 6,000,000?. of silver, spread over three or four years, 
 would not, under ordinary circumstances, produce any 
 perceptible influence in lowering the price of silver. It 
 must, however, be borne in mind that this silver was sold 
 just at the very time when the American mines were 
 yielding such large additional supplies. A considerable 
 effect has also been produced in lowering the price of 
 silver by the uncertainty which prevails with regard to the 
 amount which Germany will ultimately have to dispose of; 
 and this uncertainty is increased by doubts as to the 
 amount which she might at any moment suddenly throw 
 upon the market. 
 
 A policy similar to that which has been pursued in 
 Germany has 
 
 F. M. 
 
 been carried out in the Scandinavian king- 
 
 II 
 
 BOOK III. 
 CH. XVI. 
 
 The demo- 
 netisation, 
 of silver in 
 Germany 
 has been 
 one of the 
 causes 
 of the de- 
 cline in the 
 price of 
 silver. 
 
 Silver has 
 also been 
 dcmonetis- 
 
498 
 
 Manual of Political Economy. 
 
 (BOOK III. 
 ■OH. XYI. 
 
 ed in the 
 Scandina- 
 vian king- 
 doms. 
 
 Hie Latin 
 Monetary 
 Union has 
 caused the 
 amount of 
 silver coin- 
 age to be 
 contracted. 
 
 France, 
 however, 
 has coined 
 very large 
 quantities 
 of silver 
 since the 
 end of the 
 war of 
 1870—1. 
 But this 
 exception- 
 ally large 
 demand 
 for silver 
 on the part 
 of France 
 can only 
 be tempo- 
 rary. 
 The de- 
 mand for 
 silver in 
 Europe is 
 likely very 
 consider- 
 ably to de- 
 cline. 
 
 doms. A gold currency has gradually taken the place of 
 the silver currency. The consequence of this has been, 
 not merely to throw a certain ainount of silver (estimated 
 at 2,000,000?.) into the market, but to diminish the demand 
 ■which these countries have hitherto had for silver. 
 Austria has also been contracting the amount of her silver 
 currency, replacing it in part by gold ; as a result of this 
 she has been able to dispose of l,000,OOOZ. of silver between 
 the years 1872 — 75. Italy has not adopted a gold currency; 
 but her paper circulation has had the effect of so entirely 
 driving out silver, that she was able to export 8,000,000/. 
 of silver during the years 1872 — 73. As long ago as 1865 
 Italy, France, Belgium, Switzerland and Greece, formed a 
 monetary combination, which is known as the Latin 
 Monetary Union; the action of this Union and that of 
 Holland has been to limit as far as possible the coinage of 
 silver. Although France is a member of the Union she 
 has since the conclusion of the war adopted vigorous 
 measures to replenish her stock of silver, and during the 
 last four years she has imported no less than 33,500,000?. 
 of silver. France therefore, within this time, has absorbed 
 nearly half the silver which has been produced. There is, 
 however, no reason to suppose that France will maintain 
 this exceptionally large demand for silver ; and the more 
 so, because it has been proved that nearly the whole of 
 the specie which France paid to Germany as the war 
 indemnity has gradually returned to France. In England 
 no change has been introduced into our currency, and 
 consequently no important alteration in the demand for 
 silver has taken place. The amount of silver annually 
 required for arts and manufactures, is comparatively speak- 
 ing so small, and fluctuates so little from year to year, that 
 it exercises little influence on the value of silver^ With 
 regard therefore to Europe, it appears that in no country 
 is there likely to be an increased demand for silver, but, 
 on the contrary, in many European countries the demand 
 for silver is certain very materially to decrease ; moreover, 
 
 1 The ainount of silver-plate manufactured in England, and retained 
 for home use, was of the value of 
 
 £181,250 in 1852, 
 £182,500 in 1874, 
 £191,500 in 1875. 
 
The Depreciation in the Value of Silver. 
 
 499 
 
 in consequence of the demonetisation of silver, a con 
 siderable quantity of surplus silver will be thrown into the, 
 market by countries which before annually absorbed a 
 certain amount of silver for purposes of currency. 
 
 In the United States, where the great increase in the 
 production of silver is taking place, it will follow that as the 
 small paper money is gradually withdrawn from circulation, 
 a considerable quantity of silver coinage will be required 
 to replace it. It is difificult accurately to estimate how 
 much silver may be absorbed for this purpose ; but after 
 a very careful investigation of this question by the com- 
 mittee which was appointed to consider the causes which 
 have produced the present depreciation of the value of 
 silver, it was concluded that the amount required by the 
 United States would be probably about equal to the 
 quantity of silver which will be set free by the demone- 
 tisation of silver in Germany. There is likely to be no 
 increased demand for silver in other parts of America, and 
 it would therefore appear, assuming that the amount of 
 silver which Germany has to spare will be sufEcient to 
 meet the additional demand for silver in the United 
 States, that it is impossible to discover either in Europe or 
 America any indication that the large increase in the 
 supply of silver is likely to be met by a corresponding 
 increase in the demand ; but on the contrary, the demand 
 is far more likely to decrease than to increase. It would 
 therefore seem that two powerful sets of circumstances 
 are acting simultaneously to depreciate the value of silver: 
 1st, an increase in the supply, and 2ndly, a falling off in 
 the demand. 
 
 The probability of a further depreciation in the value of 
 silver becomes still stronger when it is found that India, 
 where formerly far more silver was absorbed than in any 
 other country, has now much less demand for silver than 
 she had a few years since. In the four years ending with 
 1875, the amount of silver sent to India was 15,600,000?., 
 in the four years ending with 1871, the amount sent was 
 nearly double this, or 28,000,000?. ;. whereas, in the eight 
 previous years the average annual amount was no less 
 than 15,000,000?. 
 
 It would therefore appear from these figures that India, 
 some years since, absorbed far more silver than the amount 
 
 112 
 
 BOOK III. 
 CH. XVI. 
 
 Tlie quav- 
 tity of sil- 
 ver requir- 
 ed in the 
 United 
 States con- 
 sequent on 
 the re- 
 sumption 
 of specie 
 payments 
 will abovt 
 absorb the 
 silver set 
 free by the 
 demoneti- 
 sation of 
 silver iu 
 Germany. 
 
 The in- 
 creased 
 production 
 of silver is 
 taking 
 place 
 simultane- 
 ously with 
 a great de- 
 cline in 
 the de- 
 mand. 
 This di- 
 minished 
 demand 
 for silver 
 very mark- 
 ed in 
 India. 
 
500 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. XVI. 
 
 India 
 formerly 
 ahsorbed 
 more silver 
 than was 
 annually 
 produced, 
 she now 
 takes only 
 about one 
 fourth of 
 the annual 
 produc- 
 tion. 
 
 Examina- 
 tion of the 
 causes 
 which 
 have pro- 
 duced the 
 decline in 
 the de- 
 mand for 
 silver in 
 India. 
 
 annually produced, and consequently her demand for silver 
 was partly met by drawing upon the silver currencies of 
 France and other countries which had a silver standard. 
 Now, however, the supply of silver is so much increased, and 
 the demand of India is so much diminished, that assum- 
 ing the annual production of silver to be lo,000,OOOZ., she 
 only takes about one-fourth of this amount. This striking 
 diminution in the demand for silver in the country which 
 has hitherto been by far the largest purchaser of silver, 
 must evidently produce so marked an iniluence on its 
 value, that it becomes of the first importance to consider 
 to what circumstance this falling off in the demand is due, 
 with the view of ascertaining whether it is likely to be 
 permanent. 
 
 The causes which have produced the falling off in the 
 export of silver to India were carefully investigated by the 
 select committee on the depreciation of silver, and the 
 following conclusions were arrived at : — 
 
 " 1st. That the total remittances actually made to 
 India in government bills and treasure together in the 
 ordinary course of business have declined, but only on a 
 slight scale. 
 
 " 2nd. That except for other causes, and excluding the 
 extraordinary years of the cotton famine, there is no evi- 
 dence to show that the demand for silver would have 
 materially fallen. 
 
 " 3rd. But that the supply of a different form of re- 
 mittance, namely, Government Bills, has superseded to a 
 great extent the necessity of remitting bullion. 
 
 "4tb. That the effect of this cause has to be measured in 
 very large figures, as the yearly amount payable by India 
 for the disbursements of the Home Government has risen 
 since the Indian mutiny from 5,000,000^. to lo,000,000i, 
 a difference of which the magnitude will be appreciated 
 when it is remembered that it is considerably more than 
 half of the total amount of silver annually produced. 
 
 " 5th. That the full effect of this substitution has only 
 been recently felt, as that effect was retarded by the con- 
 struction of the Indian railways, which involved an ex- 
 penditure in India of money raised in England, counter- 
 balancing therefore an equal amount of expenditure in 
 England of money raised in India. 
 
The Depreciation in the Value of Silver. 
 
 5CI 
 
 " 6th. That the amount of the disbursements which has 
 just been stated appears to represent the present normal 
 expenditure of the Home Government, and that therefore, 
 unless by some marked change of policy, no diminution 
 of that amount can be looked for." Report, p. xxxvi. 
 
 It would therefore appear that although the exports 
 from India exceed in value her imports by an amount 
 varying between 17,000,000^. and 21,000,000^. a year, yet 
 only a small portion of this balance, amounting to between 
 3,000,000?. and 4,000,000?., has to be liquidated by a 
 transmission of silver to India, because India is in her 
 turn indebted to England to the extent of 15,000,000?. 
 annually for the expenses of her Home Government. The 
 amount of specie which India has annually to receive to 
 adjust her balance of trade is also diminished by the 
 increasing proportion of the income of Indian officers, 
 officials and other English residents in India, which is 
 transmitted to, or spent in, England. In consequence 
 of the greater facilities for travelling, English residents in 
 India visit England much more frequently than formerly ; 
 their wives and families are also often resident in Eng- 
 land ; in fact, India is not now looked upon as a home by 
 Englishmen, but is regarded simply as a place to reside 
 in for a few years with the object of saving as much 
 money as possible to be invested and spent in England. 
 It has also been ascertained that a much smaller amount 
 of the Indian debt is now held in India than formerly. 
 The natives of India show a growing disinclination to 
 invest in government securities; before the East India 
 Company was abolished, a system prevailed of what were 
 called 'open loans': money could be brought at any time 
 to the government treasury and deposited at a fixed rate 
 of interest. Although there may be a disadvantage in 
 a government borrowing money when it is not actually 
 required, yet these ' open loans' seemed well adapted to 
 the circumstances of the country; and they undoubtedly 
 induced the natives to entrust their money much more 
 readily to the government than they do at the present 
 time. These 'open loans' formed a sort of savings-bank, 
 and were advantageous both from a financial and political 
 point of view : if they had been continued the amount of 
 money which now has annually to be remitted to the 
 
 BOOK III. 
 CH. XTI. 
 
 The in- 
 debtedness 
 of India to 
 England 
 has rapid- 
 ly increas- 
 ed. 
 
502 
 
 Manual of I'olifical Economy. 
 
 BOOK III. 
 CH. XVI. 
 
 The Home 
 charges ap- 
 pear likely 
 to increase 
 ratkerthan 
 to dimin- 
 ish. 
 
 The depre- 
 ciation in 
 silver may 
 be estimat- 
 ed in two 
 ways: first, 
 by com- 
 paring it 
 with gold, 
 orsecondly, 
 by con- 
 sidering 
 its general 
 
 Home Governmeat would be much less thau it is ; it is 
 moreover of great importance to encourage such invest- 
 ment on the part of the natives, because they are thus 
 made to feel a direct pecuniary interest in the stability of 
 the British Government in India. 
 
 It has now been clearly shown that the increase in the 
 Indian home charges has been the cause which has pro- 
 duced the greatest influence in diminishing the import of 
 silver into India. At the present time there seems to be 
 little probability that these home charges will diminish ; 
 but, on the contrary, many causes are in operation which 
 are likely to make them increase. The Indian Govern- 
 ment is constantly borrowing money in England for rail- 
 ways, irrigation schemes, and other public works in India. 
 As this money is borrowed in England, the interest will 
 have to be remitted from India, and will, consequently, 
 represent a permanent addition to the home charges. 
 Loans are also from time to time raised to meet some 
 exceptional charge, such for instance as the expenditure 
 on the recent Bengal famine; it also not unfrequently 
 happens that the ordinary expenditure in India exceeds 
 her ordinary revenue, and the deficit has to be made 
 good by borrowing money in England. We therefore 
 arrive at the conclusion, that the circumstances which have 
 in recent years produced such a marked falling off in the 
 export of silver to India, are likely for some time to come 
 to exert at least as much, and probably more, influence 
 in the future. 
 
 It is, however, of great importance to explain that if 
 the depreciation in silver continues, an economic agency 
 must be brought into operation, which will exercise a very 
 decided influence upon the transmission of silver to India. 
 
 It will be observed that in the course of these remarks 
 the depreciation in silver has been estimated by consider- 
 ing what has been the decline in its value when compared 
 with gold ; we have not measured its depreciation by con- 
 sidering whether there has been a decline in its purchasing 
 power, or whether there has been a general rise in prices 
 in those countries, such as India, which have a silver 
 standard. It is essential to bear carefully in mind the 
 two different points of view from which the depreciation 
 in the value of silver may be considered. If a depreciation 
 
The Depreciation in the Value of Silver. 
 
 S03 
 
 in the value of silver is estimated by a decline in its pur- 
 chasing power, or by a rise in general prices in those 
 countries which have a silver standard, it is evident that 
 there may be a great depreciation in silver without any 
 change whatever in its value when compared with gold, or 
 in its price estimated in gold. Thus, suppose there should 
 be simultaneously a great increase in the supply of gold 
 and silver, and that this increase should be much greater 
 than any increase in the demand for these metals : gold 
 and silver would as a consequence both decline in value, 
 and this decline in value would be shown by a general 
 rise in prices in all countries, whether they had a gold or 
 a silver standard. If, however, the supply of gold was 
 increased proportionately much more than that of silver, 
 gold might be depreciated much more than silver. There 
 would consequently be a greater rise in prices in those 
 countries which had a gold standard than in those which 
 had a silver standard ; the rise might be 50 per cent, in 
 the former instance, and 20 per cent, in the latter ; and, 
 therefore, although silver estimated by its general pur- 
 chasing power would be depreciated to this extent, yet its 
 value when compared with gold would have increased, and 
 its price estimated in gold would have risen. As a verifi- 
 cation of the conclusion at v/hich we have just arrived, it 
 can be shown that, although there was a great depreciation 
 in the value of both gold and silver after the discovery 
 of America, yet gold was more depreciated than silver, 
 and consequently the depreciation of silver, or the decline 
 in its purchasing power, was accompanied by an increase 
 in its value as compared with gold, as was shown by a rise 
 in its price when estimated in gold. Dr Soetbeer, who 
 has made the most elaborate investigation into the rela- 
 tive values of gold and silver at different historical periods, 
 has shown that gold was, during the middle ages, about 
 16 times more valuable than the same weight of silver. 
 If, therefore, it is assumed that there are four sovereigns 
 in an ounce of gold, the price of silver would at that time 
 have been 5s. an ounce. After the discovery of America, 
 it is shown by the same authority that gold was only 10^ 
 times more valuable than silver, and consequently the 
 price of silver would then be about 7s. Qd. an ounce. 
 Consequently a great depreciation in the value or general 
 
 BOOK III.. 
 OH. XVI., 
 
 purchasing 
 power. 
 
 Relative 
 value of 
 gold and 
 silver in 
 different 
 historical 
 periods. 
 
504 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. XVI. 
 
 Uf to the 
 present 
 time tliere 
 }ias been 
 no deciine 
 in the pur- 
 chasing 
 power of 
 silver in 
 India. 
 
 purchasing power of gold and silver was accompanied b}' 
 a rise of more than 50 per cent, in the price of silver. 
 Dr Soetbeer remarks that after this period there was 
 little change in the relative value of gold and silver until 
 the beginning of the 17th century. After that time gold 
 began to rise again in value, and by the end of the 17th 
 century the proportion had become 1 to 15. There was 
 very little variation from this figure in the comparative 
 vake of gold and silver until quite recently ; for silver 
 never exchanged for gold in a less proportion than 16 to 
 1, and never in a higher proportion than 15 to 1. The 
 Tecent fall in the price of silver to 48d. an ounce shows 
 that silver at the present time exchanges for gold in the 
 proportion of about 20 to 1. 
 
 It has thus been shown that a great fall in the price of 
 ■silver, or a great change in its value when compared' with 
 gold, need not necessarily be accompanied by a deprecia- 
 tion in its value estimated by a decline in its purchasing 
 power, and it therefore becomes of great importance to en- 
 quire whether the recent rapid fall in the price of silver to 
 48d. an oun<3e has produced a decline in the purchasing 
 pow-er of silver in India, where silver is used as the general 
 standard of value. On this point there seems to be con- 
 clusive evidence that up to the present time no such decline 
 in the purchasing power of silver has taken place in India. 
 If such a decline had occurred general prices in that country 
 must have advanced, whereas there seems to be no doubt 
 that during the last three or four years when silver has 
 been falling in price, general prices have not advanced in 
 India, but, on the contrary, have somewhat fallen. This 
 fact, which may at first sight seem difficult to account for, 
 admits, we think, of an easy explanation. Allusion has 
 already been made to the great amount of silver which 
 was imported into India from the time of the mutiny 
 until about 1870, and special attention has also been di- 
 rected to the remarkable diminution in this import of 
 silver which has taken place during the last four years. 
 It was conclusively established, by the evidence which was 
 given before the select committee on Indian Finance which 
 sat in 1871-2-3, that the importation of this great quan- 
 tity of silver into India had produced a very marked 
 depreciation in its value, which was shown by a general 
 
The Depreciation in the Value of Silver. 
 
 SOS 
 
 rise in prices. This rise was estimated by many compe- 
 tent authorities to be as much as 30 or 40 per cent. It 
 was also established that this rise in prices was checked 
 so soon as the import of silver began to diminish ; and it 
 is only natural to find that as the import of silver has now 
 declined to little more than 3,000,000?. a year, the rise in 
 prices which occurred when 15,OOO,000Z. of silver were 
 annually imported has not been maintained, but has been 
 succeeded by a slight fall in prices. 
 
 We have now, however, to consider what is likely to be 
 the future effect on prices in India, if the value of silver 
 compared with gold continues to be as much depreciated 
 as it is at the present time. Assuming that no effect has 
 yet been produced in raising prices in India, by this fall 
 in the value of silver when compared with gold, it can be 
 easily shown that as long as this state of things continues, 
 it will become, with each fall in the price of silver, more 
 advantageous for traders of other countries to purchase 
 produce in India, and will become less advantageous for 
 the Indian people to purchase the products of other coun- 
 tries. This can be readily proved by a simple example : — 
 Suppose 6 lbs. of cotton can be purchased in India for a 
 rupee. Before the fall in price of silver, it may be con- 
 sidered that a sovereign was worth ten rupees, conse- 
 quently 60 lbs. of cotton could be purchased for a sove- 
 reign. Now that silver has fallen to 48ci. an ounce, a 
 sovereign will exchange for about 12 rupees ; and, conse- 
 quently, on the supposition that there has been no change 
 of prices in India, a sovereign will purchase 72 lbs. instead 
 of 60 lbs. of cotton. It is, therefore, much more profitable 
 for English traders to purchase Indian cotton, and conse- 
 quently more will be purchased. In a similar way it can 
 be shown that there wiE. be less inducement for the Indian 
 people to purchase commodities from other countries. 
 Thus, suppose that a bale of Manchester goods was worth 
 £5, and that there is no change in general prices in Eng- 
 land. Before the fall in the price of silver 50 rupees 
 would be required to purchase this bale of goods, but now 
 not 50 but 60 rupees are equivalent in value to £5, and 
 consequently India will have to pay foreign countries 60 
 rupees for that which she was able formerly to obtain for 
 50 rupees. This must evidently cause her imports to 
 
 BOOK III. 
 CH. XVI. 
 
 This de- 
 cline in 
 the pur- 
 chasing 
 power of 
 silver in 
 India must 
 however 
 inevitably 
 take place, 
 if the pre- 
 sent low 
 price of 
 silver con- 
 tinues. 
 
So6 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. XVI. 
 
 Tliere can- 
 not he a 
 permanent 
 difference 
 in the pur- 
 chasing 
 power of 
 silver in 
 India and 
 in the 
 countries 
 with which 
 she trades. 
 
 By pro- 
 ducing an 
 increased 
 demand 
 for sih'L'r 
 in India 
 the fall in 
 the value 
 of silver 
 will pro- 
 bably he 
 checked. 
 
 A con- 
 sideration 
 
 decline, and as it has been shown that her exports will 
 increase, there will be a greater balance due to her, which 
 will have to be liquidated by the transmission of an in- 
 creased amount of specie. If, therefore, the fall in the 
 price of silver continues, a portion of the additional quan- 
 tity of silver which is annually produced will inevitably 
 find its way to India; and if this import of silver into 
 India continues, prices there will advance until it ceases 
 to be exceptionally profitable to purchase goods from 
 India, and exceptionally unprofitable for India to purchase 
 goods from foreign countries. In this way an influence 
 will be brought into operation which will ultimately cause 
 the decline in the price of silver, or the fall in its value 
 compared with gold, to be accompanied by a corresponding 
 depreciation in its purchasing power, or, in other words, 
 by a corresponding rise in prices in India, and in other 
 countries which still retain silver as a standard of value. 
 It is obvious that as long as prices in England and India 
 are such as to make it exceptionally profitable to purchase 
 goods in India, and exceptionally unprofitable for the 
 people of India to purchase goods in other countries, an 
 influence is brought into operation to stimulate the export 
 of silver to India. This increased demand for silver will 
 of course tend to check the fall in its price. There has 
 not yet been sufiicient time to estimate to what extent or 
 with what rapidity this circumstance will exercise an in- 
 fluence on the price of silver. After reaching 48(Z. an 
 ounce, there has been a slight recovery in the price of 
 silver to 49W. an ounce ; and it is not improbable that 
 this rise is due to the circumstance to which we have just 
 referred. 
 
 It is impossible to say how long a period will elapse 
 before the process of readjustment is completed ; a con- 
 siderable interval will undoubtedly occur ; and as it seems 
 that the adjustment has scarcely yet commenced, it be- 
 comes important to enquire in the first place : What is 
 the present effect on India of the fall in the price of 
 silver ? And, secondly : What will be the effect on India 
 when this fall has produced a corresponding rise in prices 
 in India? 
 
 The financial relations between India and England are 
 so exceptional, that it appears certain that for some time 
 
The Depreciation in the Value of Silver. 
 
 .SO? 
 
 to come the fall in the price of silver is likely to produce 
 the maximum amount of mischief and inconvenience to 
 India. By. far the most important source of revenue in 
 India is that which is derived from the land ; the govern- 
 ment may be regarded as the general landoAvner, the 
 cultivator paying rent in the form of land-tax. Through- 
 out a considerable portion of the mo^t fertile part of 
 India, what is known as the Permanent Settlement pre- 
 vails ; and where this is the case the government has 
 agreed to let the land for ever at a fixed annual charge 
 estimated in silver. The amount of land-revenue yielded 
 by the districts thus permanently settled is about 
 £5,000,000 a year, and consequently as this amount is 
 paid in silver, its value becomes depreciated in exact pro- 
 portion to the depreciation in the value of silver. Even 
 in those districts which are not permanently settled, the 
 land is in many instances settled for thirty years, or, in 
 other words, it has been leased for this period at a fixed 
 pecuniary amount to be paid in silver : consequently until 
 the term of settlement expires the revenue derived from 
 the land is depreciated in exact proportion to the depre- 
 ciation in the value of silver. If the revenue of India 
 was spent in India, this depreciation in the value of silver 
 when compared with gold would be of little consequence 
 to India, so loug as the general purchasing power of silver 
 in India remained unaltered; but, as previously remarked, 
 India is in th« unfortunate position, that an increasing 
 portion of her revenue, now amounting to one-third, is 
 spent in England. What India has to expend in England 
 is chiefly paid in gold. Thus the interest on her debt, 
 which amounts to nearly 6,000, OOOZ. annually, is a fixed 
 charge payable in gold : consequently as silver becomes 
 depreciated when compared with gold, India will require 
 an increasing amount of silver to obtain this gold : she 
 therefore is at the present moment in this position, that so 
 far as a large portion of her revenue is concerned, she 
 obtains a fixed quantity of silver ; this silver has to dis- 
 charge certain payments which have to be made in gold ; 
 consequently as silver becomes depreciated in value when 
 compared with gold, more and more silver is needed to 
 make these payments. Therefore so far as payments to 
 England are concerned, the revenue of India is constantly 
 
 BOOK III. 
 OH. XVI. 
 
 of the im- 
 mediate 
 result in 
 India of 
 the fall in 
 the value 
 of silver. 
 
 The effect 
 of the Per- 
 manent 
 Settlement 
 in limiting 
 the Land 
 Revenue 
 of India. 
 
 The sums 
 which 
 India owes 
 to England 
 are for the 
 most part 
 paid in 
 gold; 
 whereas 
 the Indian 
 revenue is 
 paid in 
 silver, a 
 large part 
 of which 
 cannot be 
 increased 
 in amount. 
 
So8 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. XTI. 
 
 The effect 
 on the pos- 
 sessors of 
 fixed in- 
 comes in 
 India. 
 
 The effect 
 of a rise 
 in general 
 prices in 
 India. 
 
 declining and her expenditure constantly increasing. The 
 fall in the price of silver is thus likely to cause the most 
 serious inconvenience and embarrassment to the govern- 
 ment of India. It will also inflict a very real loss upon 
 many private individuals; every one in India who is in 
 receipt of a fixed income of so many rupees, finds that all 
 that portion of hite income which he spends in England is 
 depreciated in exact proportion to the fall in the price of 
 silver. Suppose, for example, that a Civil Servant is in 
 receipt of a salary of 50,000 rupees per annum, that he 
 has been in the habit of spending 20,000 rupees in India, 
 and transmitting to England 30,000 rupees for the educa- 
 tion of his children, for the support of his wife and family, 
 and for investment. These 30,000 rupees when silver was 
 at 6Qd. an ounce were worth £3000 ; now that silver has 
 fallen to 48d. an ounce they are worth no more than 
 £2400, and thus he has to bear just as great a loss as if 
 an income-tax of 20 per cent., or 4s. in the pound, were 
 imposed upon all that portion of his income which is 
 transmitted to England. It therefore appears that the 
 depreciation in silver will be not only severely felt by the 
 government, but will also inflict great loss upon many 
 private individuals. 
 
 It now remains to consider what is likely to be the 
 effect on India of a depreciation in the value of silver 
 when that depreciation has produced a general rise of 
 prices in India. There is too much reason to fear that, 
 as the depreciation in the value of silver gradually brings 
 about a rise of prices in India, the disadvantage and 
 inconvenience which is now being caused to the govern- 
 ment will rather increase than lessen. A considerable 
 part of the most important source of revenue in India is, 
 as previously stated, fixed in pecuniary amount, either 
 permanently or for a considerable period of years. As 
 therefore a large part of the land revenue virtually repre- 
 sents a fixed quantity of silver, this revenue will become 
 less valuable and less capable of performing the general 
 purposes of the government in exact proportion as the 
 general purchasing power of silver declines. If, for in- 
 stance, there is a depreciation in the value of silver in 
 India, or a rise in general prices, of 30 per cent., the pay 
 of the army, the salaries of civil servants, and of all pei-- 
 
The Depreciation in the Value of Silver. 
 
 S09 
 
 sons employed by the government, must be increased 
 30 per cent, and consequently almost every item of ex- 
 penditure will be increased, whilst a considerable part of 
 the most productive source of revenue will remain sta- 
 tionary. 
 
 The strain which will in this way be put upon the 
 finances of India is so great, that since the present depre- 
 ciation in the value of silver took place various remedial 
 measures have from time to time been suggested. Thus 
 it has been proposed to introduce a gold currency into 
 India, and to make gold the standard of value instead of 
 silver. It appears however that the adoption of such a 
 proposal would bring no relief to India, but would, on the 
 contrary, aggravate the difficulties of her present position. 
 A gold currency is entirely unsuited to such a country as 
 India, where the great mass of the people are so poor and 
 their purchases are of such small amount, that they are 
 carried on almost entirely by means of pice and annas, the 
 small copper coins of the country. The controller of the 
 finances stated, in his evidence before the select com- 
 mittee on Indian Finance, that great numbers of the poor 
 people in Bengal never had so much as a small silver coin 
 in their possession. But even if a gold currency were not 
 so entirely unsuited to India as it is, the difficulties of 
 changing a currency in such a country would be most 
 formidable. The people themselves, who dislike innova- 
 tions upon their habits and traditions with an intensity 
 which Europeans can scarcely understand, would strongly 
 resent such a change, and however well intentioned it 
 might be, they would be sure to conclude that the govern- 
 ment was prompted by some sinister motive to introduce 
 it. Nothing would be more calciilated to spread a feeling 
 of insecurity and discontent throughout the country. But 
 even if there were not these obstacles in the way, it is 
 more than doubtful whether the adoption of a gold cur- 
 rency would avert the inconvenience and loss produced by 
 a fall in the price of silver. It has been already stated 
 that the German Government have purchased 70,000,GOOZ. 
 of gold in order to effect the change in their currency, but 
 if it has been necessary for Germany to purchase this large 
 quantity of gold, a far greater amount would have to be 
 purchased by India if silver were demonetised ih that 
 
 BOOS III. 
 OH. XVI. 
 
 The vari- 
 ous reme- 
 dies that 
 have been 
 suggested. 
 
 A gold 
 standard, 
 and a gold 
 currency. 
 
 The con- 
 servative 
 habits of 
 the people 
 would ren- 
 der such a 
 change al- 
 most im- 
 
 Its utility 
 is also 
 most ques- 
 tionable. 
 
510 
 
 Manual of Political Economy. 
 
 BOOK in. 
 OH. XVI. 
 
 A gold 
 standard 
 and a sil- 
 ver cur- 
 rency. 
 
 country. The purchase of a great amount of gold and the 
 sale of the large quantity of silver which would be dis- 
 placed by this gold, would exercise a more powerful in- 
 fluence than is probably exerted by any circumstance now 
 in operation, to depreciate the value of silver compared 
 with gold. A change in the currency of a great and popu- 
 lous country such as India could not be suddenly carried 
 out: many years would be required for its completion, and 
 during the whole of this time, as silver was gradually with- 
 drawn from circulation, India would find herself in this 
 unfortunate position, that the silver which she had to sell 
 was constantly falling in price, and that she had conse- 
 quently to give more and more silver for the gold she 
 required. 
 
 It has however been suggested that with a view of 
 obviating the difficulties here referred to, gold might be 
 adopted as a standard of value in that country without 
 introducing a gold currency. The advocates of this scheme 
 apparently propose some such plan as the following: — At 
 a certain period it should be declared that a given number 
 of rupees, say ten, were equivalent in value to one pound 
 sterling, and that all payments which before had to be 
 made in rupees should in future be reckoned in pounds, 
 counting 10 rupees as equivalent to a pound. If such 
 an arrangement were adopted, a person who had engaged 
 to pay a fixed annual sum, say a land rent of 50 rupees a 
 year, would find that his rent was increased ; because 
 the rent having been converted into a payment of 51. 
 which was at the time equivalent to 50 rupees, is now, 
 that the value of silver has become depreciated, equivalent 
 to 60 rupees. If the government resorted to such an 
 expedient in order to escape the loss consequent on the 
 depreciation of silver, they would obviously lay them- 
 selves open to the charge of arbitrary confiscation ; and 
 it would be far simpler, and certainly not more unjust, 
 to declare that those who had to make fixed payments 
 in silver should have these payments increased in exact 
 proportion to the depreciation of silver. If however 
 this were done, it would not unreasonably be regarded 
 as a breach of faith, and it would be fairly objected, that 
 when silver increased in value as it has sometimes done, 
 the government and others who had fixed money pay- 
 
The Bepreciation in the Value of Silver. 
 
 5" 
 
 ments to receive did not reduce the amount of these 
 payments. 
 
 It has been also suggested that it would be advisable 
 to introduce a double standard into India. It can be 
 readily shown that a double standard would entirely fail 
 to meet the difficulties of the situation. If persons were 
 allowed to make payments either in gold or in silver, 
 they would inevitably make them in that metal the rela- 
 tive value of which had fallen ; consequently those who 
 had a fixed amount of money to receive would always 
 be liable to have it paid in the money which was at 
 the time of the least value. Consequently silver would 
 at the present time be used in India, and if at any future 
 time, gold should fall ia value compared with silver, the 
 government and others who had fixed pecuniary amounts 
 to receive would be paid in gold, and they consequently 
 would lose the advantage they might otherwise obtain 
 from a recovery in the value of silver. Another of the 
 suggested schemes is to make gold the standard of value 
 in India, retaining silver as the currency, and to maintain 
 the value of silver by limiting the quantity of silver 
 coined. It is imagined by the advocates of this proposal 
 that if the amount of silver coinage were thus limited, 
 silver could be maintained in India at its old value of 10 | 
 rupees to the pound sterling, however great may be the | 
 fall in its value in other countries. Such an attempt to j 
 give an artificial and fictitious value to silver in coin, 
 would be frustrated because it would offer a large pecuni- 
 ary inducement to the illicit manufacture of full-weight 
 silver coins. Thus assuming the fall in the price of silver 
 to be no greater than it is at the present time, the silver 
 that could be purchased in any other country for 100?. 
 could be manufactured into rupees which would be worth 
 120Z. in India ; there would be therefore a great profit in 
 making such coins, and the profit would increase, and con- 
 sequently the inducement to make such coinage would be 
 strengthened, with each fall in the price of silver. It is 
 certain that there would be a great and rapid fall in silver 
 if a proposal were adopted artificially to restrict the 
 amount of coinage in India, because it would be felt that 
 the chief source for the absorption of silver had been to a 
 great extent closed. 
 
 BOOK III. 
 CH. XVI, 
 
 A double 
 standard. 
 
 Limita- 
 tion of the 
 amount of 
 silver 
 coined. 
 
si; 
 
 Manual of Political Economy. 
 
 BOOK III. 
 CH. XVI. 
 
 All these 
 schemes 
 are incon- 
 venient or 
 impractic- 
 able. 
 
 In all 
 future 
 land settle- 
 ments the 
 rent paid 
 to the 
 govern- 
 ment 
 should lie 
 made 
 capable of 
 readjust- 
 ment from 
 time to 
 time. 
 
 We have thought it desirable to explain how inex- 
 pedient or impracticable many of the schemes are, which 
 have been from time to time proposed for averting the 
 inconvenience and loss caused by the fall in the value 
 of silver. The fluctuation which has taken place in the 
 value of silver, and the change which, as we have shown 
 in the last chapter, may possibly occur in the value of 
 gold, should serve as a warning that neither gold nor 
 silver can be regarded as a fixed standard of value. 
 Any arrangement, therefore, based on the payment of a 
 definite sum of money always has this element of un- 
 certainty associated with it ; that the fixed sum of money 
 may become much less valuable, or may represent less 
 purchasing power at one period than at another. The 
 discovery of extremely rich deposits within the last 25 
 years both of gold and silver, in localities where these 
 metals were previously not known to exist, shows that 
 great caution should be exercised both by individuals 
 and by governments in entering into transactions which 
 involve fixed pecuniary payments lasting over a long period 
 of time. The 5,OOO,0O0Z. which the government of India 
 now receives as Land Revenue, from the permanently 
 settled districts of Bengal, is probably not equivalent to 
 one-fourth of the sum it would be receiving if the 
 I'evenue had not been thus commuted for a fixed annual 
 payment. The cultivators do not gain what the govern- 
 ment loses, for they simply pay to zemindars, who may 
 be regarded as private landlords, a full rack-rent, which, 
 if received by the government, might be employed to 
 reduce the taxation which presses upon the general 
 body of the people, including these cultivators them- 
 selves. The unfortunate error which was committed 
 when the Permanent Settlement was sanctioned cannot 
 now be repaired. But in future land settlements in India 
 it ought to be borne in mind that the value of silver 
 may fluctuate, and precautions should consequently be 
 taken to guard against these fluctuations. Thus if the 
 land revenue could be made to vary with the price of 
 agricultural produce, as the tithe does in England with 
 the price of corn, it is manifest that the amount of the 
 land revenue would increase directly general prices 
 advanced in consequence of a depreciation in silver. 
 
The Depreciation in the Value, of Silver. 
 
 513 
 
 As no such precaution as this has hitherto been taken, 
 it is impossible to avert the loss which is caused to 
 India by the present fall in silver. A severe strain 
 must, at any rate for a time, be borne by the Indian 
 Government, and it consequently becomes of the first im- 
 portance' to meet the crisis by increased thrift and care in 
 the financial administration of the country. 
 
 The great 
 loss from 
 which 
 India is 
 suffering 
 must he 
 met by 
 increased 
 thrift and 
 economy. 
 
 F. M, 
 
 KK 
 
BOOK IV. 
 TAXATION. 
 
 ICK 2 
 
CHAPTER I. 
 
 ON THE GENERAL PEINCIPLES OF TAXATION. 
 
 IT is customary for writers on political economy to discuss 
 taxation as a part of the separate division of the science 
 which has been termed by the late Mr Mill, ' the influence 
 of government.' It is no doubt true, that almost every 
 law which is enacted exerts, either directly or indirectly, 
 some influence on the economy and wealth of the nation. 
 It might therefore appear that every act of Parliament 
 might be appropriately discussed in a treatise on political 
 economy. But if such a course were adopted, the range 
 of this science would be practically unlimited. It is there- 
 fore necessary that some restriction should be placed upon 
 the scope of this part of our enquiry; a convenient 
 boundary line will be drawn, if our investigations are 
 confined to measures, the specific object of which is to 
 obtain money, which the government either spends itself, 
 or directs to be expended by others. It is manifest that 
 such measures are included in the term taxation, meaning 
 by the word local as well as general taxation ; for taxation 
 has no other object in view except to obtain money. The 
 taxes, when collected, may be devoted to any purposes 
 which the government may direct ; but a person is never 
 made to pay a tax, in order that some subsidiary end may 
 be attained. 
 
 As an example it may be mentioned, that a tax on spirits 
 raises their price; the consumption of an intoxicating 
 beverage is thus discouraged, and the tax may be therefore 
 said to promote temperance. But anxious as the govern- 
 ment may be to prevent drunkenness, the tax on spirits is 
 imposed for the sole purpose of obtaining revenue. It is, 
 
 BOOK IT. 
 OH. I. 
 
 Taxation 
 is gene- 
 rally dis- 
 cussed un- 
 der the 
 head of 
 'the Influ- 
 ence' of the 
 Govern- 
 ment.' 
 Reasons 
 forresfrict- 
 ing this 
 branch of 
 the en- 
 quiry. 
 
 Taxes may 
 produce 
 various 
 effects, of 
 which we 
 only con- 
 sider those 
 which in- 
 
5i8 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 CH. I. 
 
 fluence the 
 produc- 
 tion, dis- 
 tribution, 
 and ex- 
 change of 
 wealth. 
 
 Govern- 
 ments are 
 compelled 
 to raise 
 taxes. 
 
 Are there 
 anyprinci- 
 ples which 
 will enable 
 ■us to decide 
 on their 
 justice ? 
 Adam 
 Smith's 
 
 of course, fortunate if the tax effects another subsidiary 
 object, and improves the morality of the people. But if 
 the revenue which is raised by the spirit-duties should not 
 be wanted, no one but a fanatic would think of retaining 
 these duties merely for the purpose of discouraging drunk- 
 enness. Even if such a proposition were seriously enter- 
 tained, it would involve considerations which would not 
 belong to political economy, but to the general science of 
 ethics. Political economy has simply to explain what will 
 be the influence of any particular measure upon the pro- 
 duction, the distribution, and the exchange of wealth ; 
 this science is" trespassing upon the domains of other 
 sciences, if it attempts to decide whether a particular 
 measure be right or wrong. We therefore think it ad- 
 visable to avoid discussing, in a treatise on political 
 economy, those acts of a government which are intended 
 to effect some object which is not directly concerned, either 
 with the production, the distribution, or the exchange of 
 wealth, but which may, nevertheless, at the same time 
 exert some indirect influence upon the general economy 
 of the nation. Several advantages are obtained by adopt- 
 ing this course. 
 
 It is evident that a government cannot possibly exist, 
 unless it possesses a revenue ; its laws, for instance, become • 
 a dead letter, unless the penalties which the law sanctions 
 are enforced on those who disobey. The people who en- 
 force these penalties are servants of the State, and they 
 therefore require some remuneration for the duties which 
 they perform. Hence the State must possess a revenue, 
 in order to pay its various agents and servants. This 
 revenue may be obtained by rapine and pillage; but if 
 such means are resorted to, the revenue is not raised by 
 taxation ; for taxation implies, that the right to levy a tax 
 is given by law, and that the law not only enacts by what 
 classes of the community the tax should be paid, but also 
 specially states the penalty which any one incurs, if he re- 
 fuses to pay the tax. The question, therefore, is at once 
 suggested, Are there any principles which will enable us 
 to decide whether any particular tax is just or unjust, de- 
 fensible or indefensible ? Adam Smith considered, that 
 all the principles of taxation might be deduced from the 
 four following rules, or precepts. These four rules, which 
 
On the general Principles of Taoeation. 
 
 S19 
 
 have been termed canons of taxation, shall be described in 
 Adam Smith's own words. 
 
 ' 1st. The subjects of every state ought to contribute to 
 the support of the government, as nearly as possible in 
 proportion to their respective abilities ; that is, in pro- 
 portion to the revenue which they respectively enjoy under 
 the protection of the State. In the observation or neglect 
 of this maxim consists, what is called the equality, or in- 
 equality of taxation.' 
 
 ' 2nd. The tax which each individual is bound to pay, 
 ought to be certain, and not arbitrary. The time of pay- 
 ment, the manner of payment, the quantity to be paid, 
 ought all to be clear and plain to the contributor, and to 
 every other person. Where it is otherwise, every person 
 subject to the tax is put, more or less, in the power of the 
 tax-gatherer, who can either aggravate the tax upon any 
 obnoxious contributor, or extort, by the terror of such 
 aggravation, some present or perquisite to himself The 
 uncertainty of taxation encourages the insolence, and 
 favours the corruption of an order of men who are natu- 
 rally unpopular, even when they are neither insolent nor 
 corrupt. The certainty of what each individual ought to 
 pay is, in taxation, a matter of so great importance, that a 
 very considerable degree of inequality, as appears I believe 
 from the experience of all nations, is not near so great an 
 evil, as a very small degree of uncertainty.' 
 
 ' 3rd. Every tax ought to be levied at the time, or in 
 the manner, in which it is most likely to be convenient for 
 the contributor to pay it. A tax upon the rent of land, or 
 of houses, payable at the same time at which such rents 
 are usually paid, is levied at a time when it is most likely 
 to be convenient for the contributor to pay ; or when he 
 is most likely to have wherewithal to pay. Taxes upon 
 such consumable goods as are articles of luxury, are all 
 finally paid by the consumer, and generally in a manner 
 that is very convenient to him. He pays them by little 
 and little, as he has occasion to buy the goods. As he is at 
 liberty too, either to buy or not to buy as he pleases, it 
 must be his own fault if he ever suffers any considerable 
 inconvenience from such taxes.' 
 
 ' 4th. Every tax ought to be so contributed as both to 
 take out and keep out of the pockets of the people as little 
 
 BOOK IV. 
 OH. I. 
 
 Canons of 
 Taxation. 
 Taxes 
 should be 
 in propor- 
 tion to the 
 means of 
 the taxed. 
 
 They 
 should he 
 certain. 
 
 They 
 should be 
 levied at 
 the time 
 most con- 
 venient to 
 the taxed. 
 
 They 
 
 shoiddtal'fl 
 as little as 
 
S20 
 
 Mamval of Political Economy. 
 
 BOOK IV. 
 CH. I. 
 
 possible be- 
 yond the 
 amount 
 which 
 comes into 
 the trea- 
 sury. 
 
 Summary 
 of these 
 four rules. 
 
 The truth 
 of the last 
 three is 
 indinput- 
 ablc. 
 
 Equality 
 of taxa- 
 
 as possible over and above what it brings into the public 
 treasury of the State. A tax may either take, or keep out 
 of the pockets of the people, a great deal more than it 
 brings into the public treasury, in the four following ways. 
 1st. The levying of it may require a great number of 
 officers, whose salaries may eat up the greater part of the 
 produce of the tax, and whose perquisites may impose 
 another additional tax upon the people. 2nd. It may 
 divert a portion of the labour and capital of the com- 
 munity from a more to a less productive employment. 
 3rd. By the forfeitures and other penalties which those 
 unfortunate individuals incur, who attempt unsuccessfully 
 to evade the tax, it may frequently ruin them, and thereby 
 put an end to the benefit which the community might 
 have derived from the employment of their capitals. An 
 injudicious tax offers a great temptation to smuggling. 
 4th. By subjecting the people to the frequent visits, and 
 the odious examination of the tax-gatherers, it may expose 
 them to. much unnecessary trouble, vexation, and op- 
 pression.' 
 
 In order to assist the reader's recollection, these four 
 rules or principles of taxation may be briefly described 
 as follows : — 
 
 1st. Taxation should possess equality. 
 
 2nd. There should be no uncertainty with regard to the 
 amount to be levied. 
 
 3rd. The tax should be levied at the most convenient 
 time, and in the most convenient manner. 
 
 4th. The State ought to obtain as much as possible of 
 the whole amount which is really levied from the tax-payer. 
 
 The importance of the last three of these four rules, 
 after the remarks which have been made upon them by 
 Adam Smith, will be so generally admitted, that it is un- 
 necessary farther to dwell upon them ; they will receive 
 additional illustration when various special taxes are dis- 
 cussed. It is, however, necessary that the first of these 
 four principles should be clearly stated ; we will therefore 
 endeavour to explain what is really meant by equality of 
 taxation, and we will also enquire as to the best mode of 
 securing such equality. 
 
 Equality of taxation is one of those expressions which 
 although in constant popular use, cannot, without difficultyj 
 
On the general Principles of Taxation. 
 
 521 
 
 be accurately defined. Some people seem to think it 
 sufficient to state, that equality of taxation is secured 
 when every person in a community is taxed according to 
 his means; but to tax a person according to his means, is 
 an expression which does not convey a clearer conception 
 than equality of taxation. At any rate, the precept that 
 people should be taxed according to their means, would 
 give the statesman as little assistance in framing a just 
 system of taxation as if he were told to obey the maxim, 
 that equality of taxation must be secured. Insuperable 
 difficulties at once suggest themselves, if any attempt is 
 made to decide whether one person's means are, or are not, 
 equal to another's. A and B, we will suppose, are two 
 landowners; each of them possessing a freehold estate 
 worth lOOOi. a year. A is a bachelor, and never intends 
 to marry ; B has ten children, besides a great number of 
 other relations depending upon him. Unless the signifi- 
 cation of words be severely strained, it could not be 
 maintained that B's means were equal to those of A ; and 
 yet no system of taxation which has ever been proposed, 
 would exempt B from a tax which A was bound to pay, 
 simply on the ground that B had a large family, and A 
 had no children. In fact, under every system of taxation 
 which prevails in any country at the present time, B would 
 pay a greater instead of a smaller amount in taxes than 
 A; for B, having a larger establishment than A, would 
 purchase a greater amount of the commodities which are 
 taxed. If, for example, these two individuals lived in our 
 own country, B, on account of his large family, would be 
 sure to purchase more tea than A, and probably also 
 more beer, wine, and spirits; B would also require a 
 larger house than A, and a greater amount of local taxa- 
 tion would consequently be levied upon him. It therefore 
 appears, with regard to those taxes which are levied upon 
 commodities, that no attempt can be made so to adjust 
 them that each individual shall be taxed in proportion to 
 his means. Consequently, if taxing an individual in pro- 
 portion to his means is to be the test of equality of taxa- 
 tion, inequality seems to be inseparably associated with 
 the great majority of taxes that are imposed. 
 
 But it may, perhaps, be said, that if taxes on commodi- 
 ties exert upon different individuals such an unequal 
 
 BOOK IV. 
 CH. I. 
 
 Hon is a 
 term in- 
 capable of 
 definition. 
 
 Difficulty 
 of inter- 
 preting it 
 when ap- 
 plied to 
 married 
 men and 
 bachelors. 
 
522 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 CH. I. 
 
 The un- 
 eqiialpres- 
 sure of 
 taxes on 
 commodi- 
 ties cannot 
 be redress- 
 ed by an 
 income- 
 tax. 
 
 Unsatis- 
 factory na- 
 ture of the 
 theory that 
 taxation 
 should be 
 propor- 
 tionate to 
 tJie amount 
 of protec- 
 tion deriv- 
 ed from tlie 
 State. 
 
 Adam 
 Smith's ex- 
 pressions 
 are indis- 
 tinct, for 
 they imply 
 that taxa- 
 tion ought 
 to be pro- 
 
 amount of pressure as that -which has been described, it 
 then becomes all the more important, that equality of tax- 
 ation should be restored by a proper adjustment of an in- 
 come-tax. The income-tax will be subsequently considered ; 
 it is here only necessary to state, that no plan of levying 
 the income-tax which has ever been proposed would haVe 
 the slightest effect in causing the two individuals, A and B, 
 above described, to be taxed according to their means. 
 Although many have advocated the policy of levying a 
 different rate of income-tax on various kinds of income, 
 yet no one has ever even suggested that two incomes in 
 every respect of the same kind should be differently taxed, 
 because the one income belonged to a bachelor, and the 
 other to a man with a large family. It must, therefore, 
 be evident that equality of taxation cannot mean the 
 taxing of people according to their means, because this is 
 an end which it is useless even to attempt to attain. 
 
 There is another test of equality of taxation, which has 
 been regarded by numerous writers as perfectly satisfactory. 
 These writers affirm that the revenue of a government 
 is employed in protecting the lives and property of its 
 subjects; consequently the amount which each individual 
 contributes to the revenue ought to be proportioned to 
 the benefit which he derives from the protection of the 
 State. But if equality of taxation is to be secured in this 
 manner, it would not only be necessary to tax the property 
 which is protected, but it would also be necessary to 
 impose a poll-tax upon every member of the community. 
 The life of every individual is of some value to himself; 
 therefore, in protecting his person, a government confers the 
 same benefit upon each member of the community. It 
 would, however, be a manifest absurdity to propose such a 
 poll-tax, and therefore this scheme for securing equality 
 of taxation, though it has an air of plausibility about it, is 
 scarcely worthy of serious consideration. 
 
 It does not appear at all certain that Adam Smith 
 distinctly conceived a plan for deciding whether, in any 
 particular case, equality of taxation is, or is not, secured. 
 His language, when apparently clear, sometimes fails to 
 convey a definite meaning. His words are these : ' The 
 subjects of every State ought to contribute to the support 
 of the government as nearly as possible in proportion to 
 
On the general Principles of Taxation. 
 
 523 
 
 their respective abilities; that is, ia proportion to the 
 revenue which they respectively enjoy under the protec- 
 tion of the State.' Upon this fundamental principle it is 
 repeatedly said that every system of taxation ought to he 
 based. Notwithstanding the deference due to such a high 
 authority, we believe it will be found that, if the language 
 employed by Adam Smith is closely analysed, his first 
 principle of taxation is not only expressed in words which 
 are obscure, but that it is almost useless for any purposes 
 of practical application. It will be observed that Adam 
 Smith, in the first place, affirms that the subjects of a State 
 ought to contribute to the support of the government in 
 proportion to their respective abilities ; then he professes 
 to make this statement of his principle more clear by 
 enunciating it "in different terms; for he explains that 
 ' contributing to a government in proportion to a person's 
 abilities,' is the same thing as ' contributing in proportion 
 to the revenue which he enjoys under the protection of 
 the State.' These two statements of the principle, if they 
 have any precise signification, do not mean the same, but 
 entirely different things. 
 
 Adam Smith apparently intends by the first statement 
 of his principle, to give an implied assent to the opinion, 
 that equality of taxation cannot be secured, if simply the 
 income, or property of each individual is considered, with- 
 out taking any notice of various other circumstances which 
 may cause any particular tax to be really much more 
 burdensome to one individual than to another, although 
 they may possess equal incomes. Hence this question is 
 at once suggested, What does Adam Smith wish to signify 
 by the expression 'ability to pay'? Should 'ability to pay' 
 be estimated by the amount of wealth which a man may 
 possess? If so, a man whose income is only bOl. a year 
 ought to pay just half as much in taxation as a man whose 
 income is 100?. a year. Without expressing an opinion as 
 to the justice of such an arrangement, it is necessary to 
 point out that different significations are sometimes at- 
 tached to the expression 'ability to pay' ; and Adam Smith 
 does not definitely tell us which signification ought to be 
 accepted. Some people have urged that, if an income of 
 50Z. a year is only just sutficient to provide the possessor 
 of it with the bare necessaries of life, then he who has such 
 
 BOOK IT. 
 CH. I. 
 
 portioned 
 to revenue 
 and also to 
 ability to 
 
 pay. 
 
 which are 
 different 
 and incon- 
 sistent 
 tests. 
 
 Ability to 
 pay slwuld 
 not be con- 
 sidered as 
 propor- 
 tionate to 
 income, 
 
524 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 CH. I. 
 
 and pro- 
 vides no 
 test of 
 equality. 
 
 Taxation 
 on commo- 
 dities Ten- 
 ders it im- 
 possitle to 
 tax ac- 
 cording to 
 ability to 
 pay. 
 
 Hence 
 Adam 
 Smith's 
 first rule is 
 of no prac- 
 tical use as 
 
 an income cannot be said to have any 'ability to pay' a 
 portion of it in taxation. Adam Smith probably did not 
 make any allowance for such considerations as these ; it 
 may therefore be assumed that, in his opinion, a system of 
 taxation would be perfectly equitable, if it coiild be so ar- 
 ranged that an individual whose income was 1001. a year, 
 should contribute just twice as much to the revenue of the 
 State as an individual whose income was only 501. a year. 
 This in all probability was his opinion, because he endea- 
 vours more fully to elucidate his principle by affirming 
 that each individual ought to contribute in proportion to 
 the amount of revenue which the State protects for him. 
 But even admitting that this is the meaning of Adam 
 Smith's principle, it may be asked, Does it provide any 
 measure or standard of equality of taxation by means of 
 which the justice of anyparticular tax might be ascertained ? 
 Let us test the practical utility of this principle, by apply- 
 ing it to our own fiscal system. 
 
 It has been previously affirmed that equality of taxation 
 passes out of the legislator's control, if it is necessary to 
 raise a revenue by taxing commodities. The amount 
 which each individual contributes to a tax on commodities 
 must be entirely regulated by the consumption of this 
 commodity, and can, in no way, be apportioned to the 
 ability of each individual to pay the tax. The inequality 
 which, according to Adam Smith's definition, is thus intro- 
 duced, cannot be remedied by an adjustment of that portion 
 of the revenue which is raised by direct taxation. It 
 may be a debateable question, whether an income de- 
 rived from some temporary source, such as a profession, 
 should be taxed at the same rate as an income which is 
 derived from freehold land; but no one has ever thought 
 of proposing, that two incomes of the same kind and the 
 same amount should be dififerently rated, because other 
 taxes may levy from the possessors of these two incomes 
 amounts which are not proportioned to their respective 
 abilities to contribute to the revenue of the State. 
 
 These remarks have been made with the view of show- 
 ing that Adam Smith's first rule is of no practical use, 
 if it is applied to test the justice or injustice of any 
 one particular tax; in fact, it is very important to es- 
 tablish this point, because many eri-ors with regard to 
 
On the general Principles of Taxation. 
 
 525 
 
 taxation have been based upon this first rule of Adam 
 Smith. Examples of such errors are frequently met 
 with in the various proposals which are made for the 
 adjustment of the income-tax. Thus it is often affirmed 
 that an income which is derived from a temporary source, 
 ought not to be taxed at the same rate as an income 
 arising from a permanent source. It is argued that the 
 owner of a temporary income has not the same ability 
 to pay the tax as the possessor of a permanent income, 
 since the former has to set aside a larger portion of his 
 income to provide against future contingencies than the 
 latter. Sjach an argument involves a fallacy; it would 
 no doubt be perfectly fair to apply Adam Smith's first 
 rule to one particular tax, such as the income-tax, if 
 it could also be applied to every other tax which is 
 imposed. It has, however, been shown that such a 
 general application of this rule is impossible ; it does not 
 therefore follow that the inequality which is necessarily 
 associated with some taxes, would be in any way diminished 
 by attempting so to arrange one particular tax, that each 
 individual should contribute to it in proportion to his 
 ability to pay it. , 
 
 In order to illustrate this remark, let it be assumed that 
 the whole revenue of the State is obtained by a 20 per 
 cent, income-tax, and by a high duty on some article of 
 general consumption, such as tea. Let it also be further 
 assumed, that there are two individuals, A and B, whose 
 incomes are respectively 500Z. and lOOOZ. a year. If A 
 and B have the same number of children, they will pro- 
 bably purchase nearly the same quantity of tea, and, 
 therefore, they will contribute, as far as the tea-duty is 
 concerned, nearly the same amount to the revenue, al- 
 though the ability of one to pay the duty is twice as 
 great as that of the other. This inequality of taxation 
 would manifestly remain untouched, if the income-tax 
 were levied in strict accordance with Adam Smith's first 
 rule, and if each of these two individuals were consequently 
 made to contribute to the income-tax in proportion to his 
 ability to pay. In order to remove the inequality which 
 is connected with the tea-duty, it would be necessary to 
 make some kind of compensation to the possessor of the 
 smaller income, and therefore a smaller rate of income- 
 
 BOOK IT. 
 CH. I. 
 
 a test of 
 the justice 
 of a tax. 
 
 Exemplifi- 
 cation of 
 the useless- 
 ness of the 
 rule as ap- 
 plied to a 
 system of 
 taxation. 
 
526 
 
 Manual of Political Economy. 
 
 True state- 
 ment of the 
 principle. 
 
 Equality 
 of taxation 
 may be ap- 
 proxiTnate- 
 ly obtain- 
 ed. 
 
 tax ought to be levied from the possessor of the income of 
 5001. a year, because he contributes a larger proportion of 
 his income to the tea-duty, than is contributed by the 
 owner of the income of lOOOi. We readily admit that such 
 an attempt to adjust the burden of taxation could never 
 produce perfect equality ; but it is only by adopting such 
 a course, that even an approximation towards equality of 
 taxation can be attained. It therefore appears that, al- 
 though Adam Smith's first rule of taxation ought not, 
 under any existing revenue system, to be applied to any 
 special tax, yet the principle is no doubt true, when ex- 
 pressed in the following manner : — The aggregate amount 
 which each individual pays in taxes, ought to be in pro- • 
 portion to his ability to contribute to the revenue of the 
 State. 
 
 In the remarks which we shall now proceed to make upon 
 various special taxes, it will be shown that the equahty 
 of taxation which this principle is intended to define, 
 can never be perfectly secured. It may, however, be ap- 
 proximately obtained by giving to one class, with regard 
 to some taxes, certain advantages which will, in a rough 
 way, provide a compensation for disadvantages which the 
 same class may suffer from inequalities of taxation, per- 
 haps inseparably associated with other portions of the 
 national revenue. 
 
CHAPTER II. 
 
 ON THE INCOME-TAX. 
 
 IT is advisable to devote a separate chapter to the 
 consideration of the income-tax. There still exists 
 much difference of opinion amongst political economists 
 ■with regard to various questions connected with the levy- 
 ing and incidence of this tax. One of the chief points of 
 dispute is this : Ought incomes arising from a temporary 
 source to be taxed at the same rate as incomes which may 
 be regarded as permanent ? There is no doubt that the 
 greater number of people who have written on this sub- 
 ject express a very decided opinion, that the barrister 
 who is deriving lOOOZ. a year from his profession, ought 
 not to pay so high a rate of income-tax as the landowner 
 who receives lOOOZ. a year from freehold land. The argu- 
 ments which are urged in support of this opinion may 
 be divided into two classes ; the first of these classes is 
 based upon arithmetical reasons, whereas the other class 
 appeals to the general principles of taxation. Let us, 
 therefore, first consider the arguments which are supposed 
 to be supplied from arithmetical considerations. 
 
 It is urged that the income of a professional man ought 
 to be regarded as an annuity for a certain term of years. 
 It is therefore maintained that a man who derives lOOOZ. 
 a year from some permanent source of income ought to 
 pay a higher rate of income-tax than a man who only 
 enjoys an annuity of lOOOZ. for a certain number of years, 
 which, for purposes of illustration, we will suppose to be 
 twenty. It will be expedient in the first place to discuss 
 this question as one of pure arithmetic, and then consider 
 the plea that is urged in favour of an annuitant, on the 
 ground that he is not so well able to pay the income-tax 
 
 BOOK IV. 
 CH. II. 
 
 Ought tew,' 
 porary in- 
 comes to 
 be taxed as 
 highly as 
 permanent 
 incomes 1 
 
 Statem^ent 
 of the case. 
 
52 8 
 
 Manual of Political Ecormmy. 
 
 BOOK IV. 
 OH. II. , 
 
 Arithmeti- 
 cal argu- 
 ment. 
 
 If the in- 
 come-tax 
 were per- 
 manent, no 
 injury 
 would he 
 inflicted 
 by taxing 
 temporary 
 and per- 
 manent 
 incomes at 
 the same 
 rate. 
 
 which is now levied upon him as the possessor of a perma- 
 nent income. 
 
 The arithmetical argument will be most clearly eluci- 
 dated by an example. Let it be assumed that the current 
 rate of interest is three per cent., and that two brothers, A 
 and B, each inherit from their father 10,000?. A invests 
 his money in the funds, and the rate of interest is three 
 per cent. ; he will, therefore, obtain a permanent income of 
 300Z. a year. B invests his 10,000Z. in purchasing an an- 
 nuity of 600?., continued during his lifetime. Let it be 
 further assumed that the income-tax is a shilling in the 
 pound. According to the present mode of levying the tax, 
 A would pay 15?. a year and B would pay 30?. a year ; and 
 the question arises. Is this equitable, considering that A 
 and B both possess the same amount of property? In 
 order to answer this question, let it be in the first instance 
 supposed that the income-tax is a uniform permanent 
 charge, and that the government is willing to redeem the 
 tax. It is upon this hypothesis quite evident, that an an- 
 nuity of 600?. a year for B's lifetime, is exactly equal in 
 value to an annuity of 300?. a year continued for ever, 
 supposing the rate of interest to be three per cent.; for 
 either of these annuities can be obtained by the investment 
 of 10,000?. But if the income-tax were permanently fixed 
 at the uniform rate of five per cent., A's 10,000?. would have 
 to pay an income-tax of 15?. a year for ever, because he is 
 supposed to invest it in the form of a permanent annuity. 
 B.'s 10,000?., however, would only have to pay 30?. a year 
 during his lifetime, because his annuity of 600?. a year 
 will cease at his death. If A and B wished to redeem the 
 income-tax on the 10,000?. which they respectively possess, 
 they would each have to pay exactly^ the same sum to the 
 government; for the present value of an annuity of 30?. 
 a year to be continued during B's lifetime must be equi- 
 valent in value to a permanent annuity of 15?. a year, 
 because it has been assumed that the present value of 
 these annuities is equal. If, therefore, the income-tax 
 were permanent and uniform, it appears on mere arith- 
 metical grounds that a temporary income such as an 
 annuity for a limited term of years ought to be taxed at 
 the same rate as a permanent income. If it is supposed 
 in the above example, that permanent incomes are taxed 
 
On the Income- Tax. 
 
 529 
 
 at the same rate as temporary incomes, then A and B 
 would have to pay the same amount to redeem the income- 
 tax upon the 10,000?. -which they inherited from their 
 father. Such an arrangement would be just and equitable, 
 since there can be no valid reason why B, because he de- 
 cides on investing the money in a temporary annuity, 
 should pay a less amount to redeem the tax than A, 
 who invests the money in a permanent income. But an 
 undoubted injustice would be inflicted on A if temporary 
 incomes were taxed at a lower rate than permanent incomes. 
 
 Let it, for instance, be assumed that a permanent in- 
 come pays a tax of five per cent., whereas a life-annuity 
 annually pays two-and-a-half per cent. According to this 
 assumption, B would only have to pay half as much as A 
 in order to redeem the income-tax on 10,000?. Why, 
 again, it may be asked, should not the amounts which A 
 and B have both to pay be the same, when it is. remem- 
 bered that A and B both originally possessed 10,000?. and 
 at their own free will chose different kinds of investment ? 
 We therefore think the above example, simple as it may 
 appear, affords a conclusive arithmetical argument that, if 
 the income-tax were permanent and uniform, temporary 
 incomes ought to be taxed at the same rate as permanent 
 incomes. The conclusion, however, which has just been 
 established is based upon a particular hypothesis; and it 
 remains to be enquired whether the same conclusion holds 
 true, when an income-tax is neither permanent nor uni- 
 form. 
 
 The income-tax has again and again been described by 
 statesmen in this country as only a temporary expedient. 
 In order to give a technical form to these assertions con- 
 cerning the temporary character of the income-tax, the 
 continuance of this tax from year to year is based upon a 
 special Act of Parliament. The people are, moreover, re- 
 peatedly assured by successive Chancellors of the Exchequer, 
 that the income-tax shall be reduced immediately the 
 finances of the country will permit such a reduction. It 
 is therefore evident that the income-tax is neither per- 
 manent nor uniform ; for no other tax in our whole fiscal 
 system is so temporary in its character, or so varying in its 
 rate. When this is borne in mind, it may seem that the 
 views above expressed cannot be maintained, and that 
 
 BOOK IV. 
 OH. 11; 
 
 A dijfer- 
 ence in 
 the rate 
 would be- 
 unjust to 
 tlie posses^ 
 sor of a 
 permanent 
 income. 
 
 The in- 
 come tax is, 
 however, 
 neither 
 permanent 
 nor uni- 
 form. 
 
 r. M. 
 
 LL 
 
530 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 CH. II. 
 
 If the 
 income-tax 
 is only for 
 a fixed 
 period the 
 temporary 
 income 
 should be 
 taxed at 
 a lower 
 rate. 
 
 But the 
 period is 
 never 
 really 
 fixed. 
 
 Resxdts 
 which 
 would fol- 
 low from 
 different 
 rates in 
 onr oivn 
 country. 
 
 temporary and permanent incomes ought no longer to be 
 taxed at the same rate. 
 
 In order to settle this point, let us revert to our previous 
 example, and suppose that an income-tax of five per cent, 
 is imposed for five years, and that A and B are two indi- 
 viduals who inherit 10,000Z. each from their father. Let 
 it also be further assumed that A invests his money in the 
 funds and obtains an income of 300Z. a year, and that B 
 purchases with his 10,000Z. a life-annuity of 6001. If, 
 therefore, permanent and temporary incomes are taxed at 
 the same rate, A will pay five times lol. or 7ol. during the 
 five years that the income-tax is supposed to be continued, 
 whereas B will pay 1501. in income-tax. Now it may be 
 iirged that this cannot be just; for why should B pay" 
 twice as much in income-tax as A, since they both origin- 
 ally have the same amount of property which they chose 
 to invest in a different manner? Hence it appears to us 
 quite indisputable, that temporary incomes ought to be 
 taxed at a lower rate than permanent incomes, if the 
 income-tax can be really considered to be imposed for only 
 a limited period, which we have here assumed to be five 
 years. Experience, however, incontestably proves that the 
 time during which the income-tax will be continued can 
 never be predicted even with approximate accuracy. This 
 uncertainty, consequently, renders it impossible to frame 
 any equitable method of adjustment based upon the hypo- 
 thesis that the tax will not be continued for a longer 
 period than that which is originally proposed. For let us 
 see what would have been the result if such a method 
 of adjustment had been adopted in our own country. 
 
 In the year 1854 the Chancellor of the Exchequer con- 
 fidently affirmed, that the income-tax would be gradually ; 
 reduced, and would be entirely abolished in the year 1860. 
 Here, then, a case is presented, exactly similar to that 
 just described; foi', reverting to our original example, it 
 may be assumed that the two brothers A and B come into 
 possession of 10,000^. each in the year 1854. A invests his 
 10,000^. in the funds, and obtains a permanent income of > 
 300/;. a year, whereas B purchases with his 10,000Z. a life 
 annuity of QOOl. It is therefore manifest that, if tem- 
 poraa-y. incomes are taxed at the same rate as permanent 
 incomes, B, will each year contribute twice as much to the 
 
On the InQOme-Tax. 
 
 531 
 
 income-tax as A. Now if the income-tax is only a tem- 
 porary impost which is certain to be repealed in the course 
 of six years, B might very fairly urge that, since his income 
 is derived from the same amount of property as his 
 brother's, they ought to contribute the same amount to 
 the income-tax, B might also further urge that, if he 
 and his brother both wished to redeem the income-tax 
 upon their 10,000?., they ought to pay the same amount 
 for this redemption; B would however be compelled to 
 pay twice as much as A, in order to redeem the tax, if 
 temporary incomes were taxed at the same rate as per- 
 manent incomes. 
 
 Those who believed that the income-tax would inevi- 
 tably expire in the year 1860, would have found it difiScult 
 to answer the argument just supposed to be advanced by 
 B. But if such a claim in favour of temporary incomes 
 had been admitted, what would have been the result ? 
 The year 1860 comes ; the income-tax is neither repealed 
 nor reduced, but is, on the contrary, greatly increased. 
 We therefore maintain, that an equitable adjustment 
 would not have been secured, but, on the contrary, a great 
 injustice would have been done to the possessors of per- 
 manent incomes, if, in the year 1854, our statesmen, acting 
 on the supposition that the income-tax. would only be 
 continued for six years, had capitalized all temporary in- 
 comes, and then so arranged the income-tax, that the 
 same amount of property, though differently invested, 
 should contribute the same amount to the income-tax. 
 Another example may be adduced, in order more clearly 
 ■to illustrate the injustice which such a method of adjust- 
 ment would have entailed. 
 
 Let it be assumed that one of the brothers, B, invests 
 his 10,000Z. in the purchase of an annuity of 2000Z., to be 
 continued for six years. The other brother A still invests 
 his 10,000?. in the funds, and obtains a permanent income 
 of 300?. a year. Let it also be assumed, that in 1854 the 
 income-tax was five per cent., and that it was to remain at 
 this amount until the tax was entirely repealed in 1860. 
 If permanent incomes were taxed at the same rate as 
 temporary incomes, then A during these six yea^s would 
 only contribute 90?. to the income-tax, whereas B; who 
 has purchased an annuity of 2000?., would contribute 600?. 
 
 LL 2 
 
 Book it. 
 
 OH. II. 
 
 The wneer- 
 tain dura- 
 tion of the 
 income-tax 
 prevents , 
 an equita- 
 ble adjust- 
 ment be- 
 tween per- 
 manent 
 and tem- 
 porary in^ • 
 comes. 
 
 A further 
 example of 
 the injus- 
 tice result- 
 ing from 
 an at- 
 temptei 
 adjust- 
 ment. 
 
532 
 
 Manual of Political Economy. 
 
 The in- 
 come-tax 
 should he 
 regarded 
 as perma- 
 nent. 
 
 An adjust- 
 ment is 
 further 
 made im- 
 practicable 
 by tlie com- 
 plicated 
 arrange- 
 ments 
 which it 
 would ne- 
 cessitate. 
 
 There eau be no doubt that such a result would be 
 extremely unfair, if the income-tax were certain to be re- 
 pealed at the end of the period originally fixed. It has 
 been before remarked, that A and B, each inheriting 
 10,000^., the tax ought not to take more from one than 
 from the other ; it would therefore seem, that B as well as 
 A ought to contribute only lol. a year, and consequently 
 B's income would only be taxed at the rate of f per cent. 
 The equity of such a method of adjustment entirely de- 
 pends on the income-tax being repealed at a fixed definite 
 period. Experience however proves, that the time for the 
 repeal of this tax can never be anticipated with certainty; 
 for, when the year 1860 arrived, the repeal of the income- 
 tax seemed indefinitely remote ; according therefore to 
 the method of adjustment which has been just described, 
 B's 10,000Z. invested in an annuity would in the aggregate 
 only contribute 901. to the income-tax; whereas A has 
 already contributed the same amount, and will still have 
 to pay income-tax upon his SOOl. a year, during the whole 
 time that the tax may happen to be continued. We 
 therefore think, that the most simple and the most just 
 plan is to consider the income-tax, and every other tax, 
 as permanent. The extreme uncertainty which exists 
 with regard to the charges which may be made upon the 
 revenue of a country, renders it impossible for any one to 
 foresee when a particular impost may be reduced or re- 
 pealed. But if the income-tax is regarded as a permanent 
 charge, the whole weight of the arithmetical argument is 
 opposed to the opinion, that there should be any difference 
 in the rates imposed upon temporary and permanent in- 
 comes. Besides the arithmetical arguments which support 
 such a conclusion, other subsidiary reasons may be advanced 
 in favour of a uniform rating. 
 
 In the first place it may be remarked, that a uniform 
 income-tax can be collected with great facility, and at com- 
 paratively little expense ; there would, however, be endless 
 complications and confusion, if a method of adjustment , 
 was attempted, based on the plan of capitalising temporary 
 incomes. For instance, a different amount of income-tax 
 would have to be levied each successive year from indi- 
 viduals who possessed annuities for a limited period, since 
 the capitalised value of a temporary annuity diminishes 
 
On the Income-Tax. 
 
 533' 
 
 each successive year. Again, a great variety of compli- 
 Gated and uncertain rules must be laid down, for the pur- 
 pose of estimating the capitalised value of incomes derived 
 from speculative investments, such as mining. The diffi- 
 culty of estimating the capitalised value of incomes arising 
 from trades and professions would involve still more com- 
 plicated calculations. Thus the barrister of forty, who has 
 a professional income of lOOOZ. a year, ought to be taxed 
 at a higher rate than the barrister of sixty, who has the 
 same professional income. The income of the one is likely 
 to continue very much longer than the income of the 
 other, and therefore the capitalised value of the former 
 income is very much greater than that of the latter. Nu- 
 merous other difficulties may be readily suggested. The 
 income of the barrister is wholly lost to his family at his 
 death, but the income which a solicitor obtains from his 
 business may be partly enjoyed by his family after his 
 decease, since the good-will of his practice may be sold, 
 or some person may be taken into the business as a part- 
 ner, who will pay the family a certain annual sum. The 
 capitalised value of a solicitor's professional income must 
 be therefore greater than the capitalised value of a barris- 
 ter's income of the same amount. Hence, it would appear 
 that incomes derived from one branch of the law ought to 
 be taxed at a higher rate than incomes derived from other 
 branches of the profession. The settlement of such intri- 
 cate questions as these would give to the income-tax some 
 of the worst qualities that belong to a tax ; for it would be 
 uncertain in its amount, and it would be so difficult to 
 adjust in the various special cases which may arise, that 
 a whole army of income-tax collectors and commissioners 
 would have to be employed ; consequently the expense and 
 inconvenience of collecting the tax would be enormous. 
 I These considerations strengthen our conviction, that the 
 income-tax ought to be levied at a uniform rate, and we 
 entertain this opinion with all the more confidence, be- 
 cause the arithmetical arguments that can be adduced 
 certainly do not oppose, but rather favour, the present 
 method of levying the tax. 
 
 The principle of uniform income-tax is however op- 
 posed, for reasons which are quite independent of any 
 arithmetical calculations. These, reasons, which we now 
 
 BOOK IV. 
 OH. II. 
 
 Example 
 in the diffi- 
 culty of 
 comparing 
 a tarris- 
 ter^s with 
 a solici- 
 tor's in- 
 come. 
 
534 
 
 Manual of Political Economy. 
 
 proceed to consider, are, in fact, based upon the first 
 maxim of Adam Smith, which is popularly thought to de- 
 fine equality of taxation. The persons who oppose a uni- 
 form income-tax maintain that, whether a temporary and 
 uncertain income ought to be taxed at the same rate as a 
 permanent and certain income, is a question which must 
 be settled independently of arithmetical considerations. 
 For instance, it is frequently afiirmed, that an income de- 
 rived from a trade or profession ought to be taxed at a 
 much lower rate than an income obtained from some such 
 permanent and certain source as the funds, or landed pro- 
 perty. When it is asked why this distinction should be 
 made, it is considered quite sufiicient to reply, that the 
 tradesman or professional man who obtains an income of 
 lOOOZ. a year cannot so well afford to pay the income-tax 
 as the individual who receives an income of the same 
 amount from the funds, or from landed property. This is 
 undoubtedly true, since the income of the tradesman or 
 professional man is uncertain, and* may be altogether lost 
 in the event of his death ; whereas the possessor of a per- 
 manent income can at his death leave it intact, to be dis- 
 tributed amongst his family. It is, therefore, indisputable, 
 that the income-tax ought not to be levied at a uniform 
 rate, if the principle is admitted that each single tax 
 should be so adjusted that every individual should con- 
 tribute to it in proportion to his means, or, in other words, 
 in proportion to his ability to pay the tax. 
 
 It has been stated in the preceding chapter, that this 
 principle is in the abstract perfectly true, and it would no 
 doubt secure equality of taxation, if it could be practi- 
 cally applied to adjust all the taxes that are imposed. 
 But the impossibility of this has already been shown. 
 No method of adjustment will cause individuals to con- 
 tribute to taxes on commodities in proportion to their 
 means ; the amount which is levied from each individual, 
 by these taxes, depends upon the quantity of a com- 
 modity which he consumes. Hence it has been con- 
 cluded that equality of taxation is not necessarily pro- 
 moted by adjusting some particular tax in such a way 
 that each individual would contribute to it in exact pro- 
 portion to his means. For instance, if the income-tax 
 were adjusted in strict accordance with this rule, every 
 
On the Incolfne'Tdx. 
 
 535 
 
 labouring man in the country ought undoubtedly to con- 
 tribute his quota to the tax; and yet the introduction 
 of such a change into our present fiscal system would 
 certainly not promote equality of taxation. The labouring 
 classes are most justly relieved from the income-tax; 
 because, in the first place, it would be difficult to collect 
 it from them, and in the second place, they contribute 
 to such a tax as the duty on tea, a much greater amount, 
 in proportion to their means, than is contributed by the 
 wealthier classes of the community. The remission of the 
 income-tax upon such incomes as are ordinarily possessed 
 by labouring men, affords some compensation for the 
 inequality of taxation which is necessarily associated with 
 such an impost as the duty on tea. Inequality of taxation 
 may be therefore rather increased than prevented by 
 applying to any particular tax such a rule as that above 
 referred to. Equality of taxation can be best secured, 
 not by botching and patching each single tax, but by 
 contemplating the revenue as a whole. If it is found that 
 any tax presses unequally on any particular class, it is 
 almost invariably better not to attempt to adjust the tax 
 by any complicated arrangements ; the inequality of tax- 
 ation should be reniedied by placing the paiiicular class 
 whom it prejudicially affects, in a relatively advantageous 
 position with regard to some other tax. Thus the tea- 
 duty presses very unfairly upon the working classes ; but 
 it is in every respect more desirable to compensate them 
 for this inequality of taxation, by a remission of the 
 income-tax, than to afford them compensation by attempt- 
 ing to make the tea-duty so equitable in itself, that every 
 individual should contribute to it in proportion to his 
 means. Various proposals for making the tea-duty a 
 more equitable tax have been, and may be, suggested ; 
 for instance, one source of inequality would be removed, 
 if the tea-duty could be made ad valorem. The duty which 
 is now paid upon the tea consumed by the poor man is at 
 least three times as great, in proportion to the value of 
 the tea, as the duty which is paid upon superior tea. 
 It has, however, been found almost impracticable to levy 
 ad valorem duties upon such a commodity as tea ; it 
 was soon proved that these ad valorem duties entailed 
 a series of complicated arrangements, which materially 
 
 BOOK IV. 
 OH. II. 
 
 Equality 
 of taxa- 
 tion to be 
 aimed at 
 hy con- 
 templatiny 
 therevenue 
 as a whole. 
 
 Some 
 
 taxes, such 
 as that on 
 tea, can- 
 not be 
 made to 
 operate 
 fairly by 
 themselves 
 without 
 producing 
 greater 
 counter- 
 balancing 
 evils. 
 
536 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 CH. II. 
 
 Impossi- 
 bility of 
 levying the 
 income-tax 
 so as to 
 make even/ 
 one con- 
 tribute ac- 
 cording to 
 Ids means. 
 
 interfered with the trade, and, consequently, the tax when 
 made ad valorem, though apparently more ju.st, was 
 really more disadvantageous in its aggregate results than 
 it was hefore. Let us therefore enquire whether similar 
 obstacles would not oppose all the schemes which are 
 often favourably received, for rendering the income-tax 
 more ^equitable. 
 
 Almost insuperable obstacles at once suggest themselves, 
 if .an attempt is made to levy the income-tax in such a 
 way that each individual should contribute to it in pro- 
 portion to his means. It may be at once asked, How is it 
 possible to supply any test or measure of the amount 
 which a man can afford to pay towards a tax ? Certainly 
 such a test or measure is not provided by the nature of 
 the source from which an income may be derived ; for the 
 income of almost every individual is obtained from a great 
 variety of different sources ; therefore some portion of his 
 income may be permanent, and another part of it may 
 be temporary. Consequently it is impossible to judge of 
 an individual's means, by considering only one part of his 
 aggregate income. Thus A may possess 2000L a year in 
 landed property, and may, in addition to this, derive lOOOi, 
 a year from his profession. Another individual, B, may 
 possess only 500?. year in landed property, but has a 
 permanent income cC lOOOZ. a year from the funds. On 
 what grounds do those who oppose a uniform income-tax 
 affirm that the 1000?. a year which B obtains from the 
 funds, should be taxed at a higher rate than the lOOOZ. a 
 year which A i« supposed to realise from his profession? 
 B is a much poorer man than A, and it therefore cannot 
 be maintained that B, with regard to a portion of his in- 
 come, should be taxed at a higher rate than A, because 
 the former can better afford to contribute to the tax than 
 the latter. In addition to the difficulty which has been 
 just suggested, it would be necessary to fix the rate at 
 which each kind of income should be taxed by arbitrary 
 rules, which should be subjected to constant discussion and 
 revision. With regard to professional incomes, it has 
 already been said, that the solicitor whose practice is 
 worth lOOOZ. a year is a far richer man than a barrister 
 whose practice is of the same value ; since a solicitor can 
 either sell the good-will of his business, or leave it to his. 
 
On the Income-Tax. • 
 
 537 
 
 children, whereas the practice of a barrister can neither be 
 sold nor handed over to another. If, therefore, a pei-- 
 manent source of income is taxed at the rate of five, per 
 cent., what principles can be found which will tell us the 
 amount of income-tax which ought to be levied from the 
 incomes of solicitors and barristers respectively? These, 
 and various other considerations which might be adduced, 
 lead to the conclusion, that the present method of levying 
 the income - tax cannot with advantage be materially 
 changed. The income-tax, as it is now levied, avoids 
 those difficulties and complications just referred to. It 
 must also be remembered that, if the arrangements con- 
 nected with any tax involve intricate details, the col- 
 lection of the tax must be expensive. If, moreover, 
 an attempt should be made to equalize this tax by a 
 complicated process of adjustment, many practical diffi- 
 culties would be sure to arise, which would probably lead 
 to disputes and costly litigation ; and thus even those will 
 become more discontented, who are specially intended to 
 be benefited by the adjustment of the tax. 
 
 Having dwelt at considerable length upon the best 
 mode of levying the income-tax, we will next proceed to 
 remark upon that which is technically called the incidence 
 of the tax. As this expression has not been previously 
 employed, it will be necessary to define it. It is quite evi- 
 dent that a tax is frequently not really paid by the person 
 from whom it is levied ; for instance, the malt-duty is no- 
 minally paid by maltsters, although it is really paid by the 
 consumers of malt, since the price of malt is increased by 
 the exact amount of the duty which is imposed. Simi- 
 larly, all taxes on commodities are really paid by the con- 
 sumer, although the government generally levies the tax 
 from either the producer or the importer of a commodity. 
 Hence, it is said that the incidence of these taxes falls on 
 the consumer, and therefore the incidence of a tax may be 
 considered to denote the real, in distinction from the 
 nominal, payment of the tax. As another example it may 
 be mentioned, that the incidence of the poor-rates which 
 are levied upon the land, falls upon the land-owner ; for, 
 although such rates are generally paid by the farmer, yet 
 the rent of the land would be so much greater if there 
 were no such rates. The incidence of those taxes just 
 
 BOOK lY. 
 OH. II. 
 
 The pre- 
 sent system 
 is probably 
 the best. 
 
 Meaning 
 of the term, 
 'incidence 
 of taxa- 
 tion.' 
 
•538. 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 CH. II. 
 
 The inci- 
 dence of 
 the in- 
 come-tax 
 will vary 
 according 
 as it is 
 paid out of 
 capital or 
 saved from 
 expendi- 
 ture. 
 
 If paid out 
 of capital 
 the inci- 
 dence will 
 be to some 
 extent up- 
 on the la- 
 bouring 
 classes. 
 
 mentioned, is very easy to trace ; but with regard to the 
 incidence of some other taxes, such as the income-tax, 
 many questions of perplexity and importance are sug- 
 gested. Some of these questions we will now proceed to 
 consider. 
 
 It may perhaps be remembered, that when expounding 
 some of the fundamental propositions concerning capital, 
 the income-tax was occasionally referred to, in order to 
 show the different results which ensue, according as the 
 tax is paid out of capital, or is saved from increased 
 economJ^ In the first case, the incidence of the tax partly 
 falls on the labouring classes, whereas, in the second case, 
 the incidence of the tax does not fall on any one but those 
 who pay it. That this must be so is evident, from the 
 following considerations. It has been frequently remarked, 
 that the capital which supports the industry of a country 
 is composed of two portions, which are respectively termed, 
 circulating and fixed capital. The circulating capital of 
 a country is its wage-fiind. If, therefore, this fund is 
 diminished, there will be a smaller amount to distribute 
 amongst the labouring classes, and less- average wages will 
 be received. The fixed capital of a country consists of 
 machinery, stock, implements, and, in fact, of every kind 
 of wealth which exists in some permanent form, and which 
 is intended to give assistance to the future production of 
 wealth. If, therefore, any tax should diminish the fixed 
 capital of the country, and should thus cause less machinery 
 to be used, or fewer useful public works to be carried out, 
 the industry of the country would be interfered with, 
 and the progress of the nation's wealth would be obstructed. 
 If the income-tax were partly paid out of capital in a 
 country which accumulates wealth rapidly, it is almost 
 certain that the amount would be withdrawn, not from 
 fixed, but from circulating capital. As far as the labourers 
 are concerned, it in the first instance makes little differ- 
 ence whether the income-tax is paid out of circulating or 
 fixed capital; because such fixed capital as machinery and 
 railways can only be constructed by labour, and there- 
 fore, if a smaller sum is spent upon such works, a smaller 
 sum will be distributed in wages. It therefore appears, 
 that the aggregate wages which are paid must be 
 diminished, if the income-tax be either wholly or partly 
 
On the Income-Tax. 
 
 539 
 
 paid out of the capital of the country. It consequently 
 follows that, if any portion of the inconie-tax is paid out 
 of capital, the incidence of the tax partly falls on the 
 labourers, although the tax may never be directly levied 
 from them. It will be instructive to explain the process 
 by which the burden of this tax is, as it were, shifted from 
 one class to another. 
 
 Let it be assumed that an income-tax of ten per cent, is 
 imposed, and that throughout the country one half of the 
 tax is saved from each individual's personal expenditure, 
 whereas the other half is provided out of capital. Upon 
 this hypothesis, an individual, A, who has an aggregate 
 income of 2000i. a year, would be rated at 200^. a year; 
 his net income is therefore 1800Z. His personal expendi- 
 ture is lOOOZ. a year, and he therefore annually saves 
 800^., which he can invest as capital in his business. If 
 there were no income-tax, his annual income would be 
 2000Z., but, according to our hypothesis, he will only spend 
 one half of the 200i. a year, which would be added to his 
 income if the income-tax were remitted ; he would con- 
 sequently each year save 900?. if there were no income-tax, 
 and this sum he might employ as capital in his business. 
 The amount of capital which he accumulates is therefore 
 annually reduced by IQOl. in consequence of the income- 
 tax. Circulating capital is however employed in paying 
 the wages of labourers, and therefore the income-tax may 
 diminish by 100?. the amount which A annually pays to 
 labourers ; consequently this amount is as really paid by 
 the labouring classes as if the income-tax was directly 
 levied from them. 
 
 It is impossible to assign the exact proportion of the 
 income-tax which will be paid out of capital; but it is 
 nevertheless quite certain that an income-tax would be 
 paid out of capital to a far greater extent in some coun- 
 tries than in others. As an example, it may be men- 
 tioned that the industrial progress of India is retarded by 
 a want of capital ; her accumulation of capital is compara- 
 tively so small, that an income-tax could not be imposed 
 in that country without diminishing the national capital, 
 and in this way most seriously affecting the national 
 wealth. In England, however, the income-tax produces 
 none of these serious consequences; no branch of our 
 
 BOOK IV. 
 CH. II. 
 
 Explana- 
 tion of the 
 process by 
 which the 
 incidence 
 of the tax 
 is thus 
 changed. 
 
 The share 
 of the tax 
 paid out of 
 capital 
 varies in 
 different 
 countries. 
 
540 
 
 Manual of PoUHcaC Economy. 
 
 BOOK IV. 
 CH. II. 
 
 It also 
 varies 
 preatly in 
 different 
 sectioiis in 
 the same 
 country. 
 
 industry which presents a fair chance of profit is ever 
 retarded for want of capital ; in addition to all the capital 
 which we invest in our own commerce and trade, we al- 
 ways seem to possess an almost unlimited supply of capital 
 for foreign investments, if the terms which are offered for 
 the use of it are sufiiciently remunerative. It may, there- 
 fore, with considerable certainty be concluded, that the 
 income-tax does not seriously diminish the amount of 
 wealth which is produced in this country; for although 
 some portion of the tax is paid out of capital,, yet this 
 amount is probably withdrawn, not from fixed capital, but 
 from circulating capital, or, in other words, from the wage- 
 fund. We say that it is not fixed capital which is af- 
 fected, because that part of fixed capital which consists of 
 machinery, implements, and stock, is never sold for the 
 purpose of paying the tax, nor can any one suppose that 
 less machinery is employed in industry, or fewer useful 
 permanent improvements carried out in consequence of 
 the income-tax. Our circulating capital may no doubt, to 
 some extent, be diminished; if this be so, a portion of the 
 tax is virtually contributed by the labourers. In England, 
 however, as well as in most other countries, the average 
 amount of the income-tax which is respectively paid out 
 of capital or saved from personal expenditure, varies 
 greatly in the different sections of the community. Those 
 who have incomes of 1501. or 200^. a year are usually 
 obliged to deprive themselves of many things which they 
 consider almost indispensable. Such persons, therefore, if 
 released from the income-tax, would probably spend the 
 whole additional income which the remission of the tax 
 would give them. The wealthy merchant, however, who 
 is worth his 20,000?. a year, would most likely not in- 
 crease his personal expenditure in the slightest degree, 
 although the repeal of the income-tax might give him an 
 additional lOOOZ. a year to spend. The additional lOOOi. 
 which he would thus annually accumulate would not in- 
 duce him to extend his own business ; he would probably 
 invest the lOOOZ. in some security. It therefore appears 
 that the additional capital which will be saved, if the ■ 
 income-tax is repealed, would be principally thrown into 
 the money market for investment; the amount saved 
 would not be employed as capital by each individual 
 
On the Incorrie-Tax. 
 
 S4I 
 
 tax-payer, because in a couatry where so much commerce 
 is transacted by credit, the individual tax-payer would, 
 before the income-tax had been remitted, have had 
 no difficulty in obtaining extra capital to embark in his 
 business. 
 
 As far, therefore, as the capital of the country is con- 
 cerned, the effects of the income-tax are not in this 
 .country so important as they are generally supposed to 
 be ; because, let it be assumed (and it is rather an exces- 
 sive estimate) that 6,000,OOOZ. out of the 10,000,000?. 
 which an income-tax of five-pence in the pound would now 
 yield would be saved as capital, if the tax were repealed. 
 ■6,000,000?. thrown into the money-market for investment 
 cannot produce any momentous results upon the industry 
 of a country whose wealth is so great that many millions 
 have often been raised in a few days for foreign invest- 
 ments, without apparently exerting any influence upon our 
 trade. The remaining 4,000,000/., which, according to 
 our estimate, is saved from personal expenditure, expresses 
 the real amount of the temporary comfort and enjoyment 
 .of which the tax deprives the community. It has been 
 already stated that to this last amount different sections 
 of the community contribute in very unequal degrees ; the 
 .wealthy man who is accumulating capital rapidly, does 
 not spend less in consequence of the tax; his personal 
 comfort is not in the slightest degree interfered with, 
 and the only result of the tax to him is that he possesses 
 a few thousand pounds less of realized property. Very 
 (different consequences, however, result to those who pos- 
 sess the small incomes which just come within the range 
 of the tax. For instance, an income just exceeding 400?. 
 is taxed at the same rate as an income of 10,000Z. There 
 can be no doubt that the owner of such a small income as 
 400/. cannot pay even a few pounds towards an income-tax, 
 without depriving himself or his family of the means of 
 .satisfying some real want or enjoyment of life. The income- 
 tax, therefore, entails a far greater sacrifice upon such a 
 person than upon the more wealthy man who can pay the 
 tax without encroaching upon his personal expenditure. 
 
 The inequality to which allusion has just been made is 
 attempted, in some degree, to be remedied in our own 
 .country by exempting all incomes of less than 150?. from 
 
 BOOK IV. 
 CH. II. 
 
 In this 
 country 
 the effects 
 of the in- . 
 come-tax 
 are pro- 
 bably not 
 so impor- 
 tant as has 
 generally 
 been as- 
 sumed. 
 
 The in- 
 come-tax 
 imposes 
 great 
 scicrijices 
 upon per- 
 sons with 
 moderate 
 incomes, ■ 
 
542 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 CH. II. 
 
 Mr Mill's 
 proposal 
 for obviat- 
 ing this 
 injustice. 
 
 payment of the tax. In order also to lessen the burden of 
 the tax upon owners of small incomes, a deduction of 1201,. 
 is made before assessing the tax from all incomes between 
 150Z. and 4001.; thus, if a man has an income of 3001., he 
 pays the tax upon an income of only 1801. It is obvious 
 that this method of adjustment only partially removes the 
 inequality which it is intended to remedy, because at the 
 present time, an income of a few shillings, over 1501. has 
 to pay the tax upon SOI, whereas an income a few shillings 
 less than 1501. escapes the tax altogether. Again if a man 
 has an income of 401Z. a year, he pays the tax upon his 
 entire income, whereas if he has an income of 400^., he 
 only pays the tax upon 2801. If, therefore, the income- 
 tax were one shilling in the pound, a man with an income 
 of 401?. would not be so well off by 51. a year as the man 
 with an income of 400Z. The unfairness of such an arrange- 
 ment is manifest. Mr Mill, adopting a suggestion of 
 Bentham's, proposed a very simple scheme for the pur- 
 pose of obviating this unjust anomaly. He maintained 
 that the legislature ought, in the first instance, to decide , 
 what is the maximum income which should be allowed to 
 escape the income-tax, and he considered that a decision 
 upon this point ought to be chiefly guided by the prin- 
 ciple that an income should not be taxed if it was not 
 more than sufiicient to provide its owner with the mere 
 necessaries of life. Such a principle would of course only 
 enable a rough estimate to be made ; the important things 
 however, is to fix a limit. Let it, therefore, be supposed 
 that the limit is 100?. a year. Mr Mill proposed to 
 deduct this amount from every income, and only tax 
 the remainder. The owner, therefore, of an income of 
 120?. a year would only pay the tax upon 20?. This 
 plan manifestly provides a complete remedy for the 
 inequality to which we have just alluded. The plan in- 
 volves no practical difficulties, and is founded upon strict 
 justice ; since, if the tax is not imposed on an income of 
 100?. because such an income is no more than sufficient 
 to provide its owner with the mere necessaries of life, the 
 tax ought, with regard to all incomes, to be remitted upon 
 a similar amount which has to be expended in the mere 
 necessaries of life. 
 
 The scheme advocated by Mr Mill is not to be con- 
 
On the Income-Tax. 
 
 543. 
 
 founded with any of those proposals for graduating the 
 income-tax which have been by some so warmly espoused. 
 It has been urged that an income of 10,00 OZ. ought to be 
 taxed at a far higher rate than the income of lOOOZ. 
 There is no doubt weight in the argument that the 
 inpome-tax presses with unequal force upon the owners 
 of comparatively small incomes, because the tax often 
 involves some real sacrifice to them, whereas with regard 
 to the very wealthy it in no way diminishes their means 
 of enjoyment. It is however important to remember 
 that the proposal to graduate the income-tax seems to 
 sanction the principle that it is desirable to impose a 
 penalty upon the accumulation of wealth. Any such 
 scheme which is aimed against large capitals probably 
 obtains popular support, because it seems to favour the 
 prejudice which is so frequently expressed against what 
 is termed the tyranny of Capital. There was a time 
 when it was very generally believed by the labourers of 
 this country that the owner of a large capital possessed 
 a peculiar power to oppress theip. Superior education 
 and the extension of cooperative institutions are already 
 beginning to make the labourers understand the true 
 functions of capital. It should, moreover, be borne in 
 mind, that one of the strongest theoretical arguments 
 which can be urged against the income-tax, is based upon 
 the fact that it is imposed upon savings. The man who 
 has 10,OOOZ. a year, and spends the whole of his income, 
 only pays the tax once ; but the man who has an equal 
 income, and only spends a portion of it, pays in the first 
 instance the same amount to the tax, and is also each year 
 compelled to pay the tax upon the income which is 
 derived from the investment of the amouUt which he has 
 saved from his annual income. The income-tax, therefore, 
 to a certain degree, encourages spending, and discourages 
 savino-. This, as we have already said, is a matter of little 
 consequence in a country like our own, where the desire to 
 'accumulate wealth is so strong, and consequently the 
 amoiint of capital which is annually saved is so vast. ^\ii 
 in India the accumulation of capital is so vitally impor- 
 tant that the income-tax, because it discouraged the 
 accumulation of capital, was felt to be injurious to the 
 industry of that country. This consideratipn, combined 
 
 BOOK IV. 
 OH. II. 
 
 Difference 
 between 
 this pro- 
 posal and 
 some other 
 schemes 
 which have 
 been pro- 
 posed. 
 Mischiev- 
 ous nature 
 of those 
 which are 
 unfavour- 
 able to the 
 accumula- 
 tion of 
 capital. 
 
 This is 
 especially' 
 true in a 
 poor 
 country. 
 
544 
 
 Manual of Political Econdmif. 
 
 BOOK IV. 
 OH. II. 
 
 Objection 
 to the in- , 
 co7ne~tax 
 from the 
 difficulty 
 of estimat- 
 ing some 
 of the in- 
 comes upon 
 which it is 
 raised. 
 
 with the difficulties of assessment and collection, has led 
 to its abandonment. It therefore follows that, as far as 
 even England is concerned, one of the most serious ob- 
 jections which can be urged against the tax is greatly 
 strengthened, if it should be so graduated that the tax is 
 increased in proportion to the amount which an indiyi- 
 dual saves. 
 
 Perhaps, however, the most conclusive objection to 
 a graduated income-tax arises from the greater com- 
 plexity and difficulty which would be associated with the 
 collection of the tax if it were graduated. It now fre- 
 quently happens that an individual does not pay the 
 tax himself, but that it is deducted from his income 
 before he receives it. Official salaries, for instance, are 
 paid minus the income-tax, and the tax is also deducted 
 from dividends in the funds and other investments. If 
 the tax were graduated it would be impossible to make 
 such deductions, because if two men had official salaries 
 of lOOOZ. a year each, and one of these had no private 
 property whereas the other had private property amount- 
 ing to 2000^. a year, the deduction which the income-tax 
 would cause to be made from the salary of the one would 
 be greater than that made from the salary of the other. 
 It is therefore obvious that such an attempt to graduate 
 the tax would make it much more difficult to collect and 
 render necessary a more scrutinising enquiry into the 
 private affairs of many who pay the tax. 
 
 In conclusion, it is necessary to refer to a serious objec- 
 tion connected with the income-tax which cannot be obvi- 
 ated by any method of adjustment. It is evident that the 
 tax can be accurately levied upon all incomes the amounts 
 of which are publicly known. As previously stated, the 
 Bank of England, when paying the dividends arising from 
 the funds, deducts the income-tax, and hands the amount 
 over to the government. It is, therefore, impossible for 
 a fund-holder to evade the tax. The tax is also similarly 
 deducted from all official salaries, and also from the pay of 
 officers in the army and navy. The amount of the tax 
 which is levied from various other kinds of incomes is also 
 regulated by definite rules. For instance, a farmer's in- 
 come is estimated to be equivalent to one half his rent. 
 If, therefore, his rent is 800?. a year, and if the income-tax 
 
On the Income-Taoc. 
 
 545 
 
 is five per cent, the income-tax levied upon him will be 201, 
 His income may no doubt be either more or less than 
 400?. a year, but when the rule has once been made, he 
 has no power to evade any portion of the tax, because the 
 amount at which he is assessed is precisely determined. 
 But with regard to various other classes of traders it is 
 impossible to ascertain the amount of their incomes by 
 any definite rules. The income of a manufacturer or 
 retail trader can only be approximately estimated; an 
 opportunity is thus afforded to evade a considerable por- 
 tion of the tax. Morality is unfortunately too often based 
 on conventionality ; and many who pass for honest men do 
 not hesitate to cheat the government, although in the 
 private transactions of life they would shrink from doing 
 anything in the least degree dishonourable. Numerous 
 cases have occurred which strikingly exemplify the dis- 
 honesty that is practised by many in their dealings with 
 the government. 
 
 The following well-known instance has frequently been 
 quoted. A particular street in London was, during a cer- 
 tain period, closed for traffic in consequence of improve- 
 ments which were being carried out. The business of the 
 various tradesmen who lived in the street was prejudicially 
 affected, and they consequently claimed compensation. The 
 amount of compensation which each individual received 
 was apportioned to the net income which he derived from 
 his business. All the tradesmen, consequently, made a 
 return of their incomes. Some one, thinking that these 
 returns were excessive, had the curiosity to compare them 
 with the amount of the incomes which these tradesmen 
 returned for the assessment of the income-tax. The 
 extraordinary and, it may be added, the melancholy fact 
 was revealed, that the tradesmen living in a respectable 
 London street could practise so much deception, that for 
 the purpose of assessing the income-tax they returned their 
 incomes at a certain amount, and immediately declared 
 that their incomes were double the amount when pressing 
 their claims for compensation. It is therefore evident 
 that, as long as such duplicity is prevalent, many will evade 
 a part of the income-tax which they are bound to pay to 
 the government. Hence the tax operates with a certain 
 decree of unfairness, because some classes of the com- 
 
 BOOK IV. 
 CH. II. 
 
 The dis- 
 honesty 
 which is 
 occasional- 
 ly thvs 
 produci'J. 
 
 F. M. 
 
 MM 
 
54<5 
 
 Mamial of Political Economy. 
 
 munity have a chance of evading the tax, whereas others 
 have not. 
 
 The inequality which is caused by this power of evasion 
 is not by many so much objected to as the general im- 
 morality which they conceive to be produced by such taxa- 
 tion. It is, for instance, maintained that the income-tax 
 places so great a premium upon deception, that many who 
 would otherwise be honourable, are tempted to deceive 
 the government. Little attention, however, ought to be 
 paid to such an argument. The morality of those indi- 
 viduals who are so easily led away from the paths of 
 virtue and honour is scarcely worth the fostering care of 
 a government. Every precaution should of course be 
 taken to detect and punish those who make false .returns, 
 because the burden which they escape is thrown upon the 
 rest of the community. 
 
 This im- 
 morality 
 can scarce- 
 ly be con- 
 tidered as 
 a weighty 
 argument 
 against the 
 tux. 
 
CHAPTER III. 
 
 TAXES ON COMMODITIES AND OTHEE INDIRECT TAXES. 
 
 THE last chapter was devoted to the discussion of the 
 income-tax, and although the tax manifestly differs 
 in many essential respects from other direct taxes, yet 
 the income-tax possesses many characteristics which are 
 common to all direct taxes. We shall, therefore, he 
 enabled, after having described indirect taxation in the 
 present chapter, to compare or rather to contrast the two 
 systems of taxation. 
 
 Direct and indirect taxation are words of such frequent 
 use that they probably need no definition. It may per- 
 haps, however, be well to state that a direct tax is really 
 paid by the person from whom it is levied, whereas an 
 indirect tax, though nominally paid by one person, is 
 really paid by another. An income-tax^, and all assessed 
 taxes, such as taxes on private carriages and dogs, are 
 direct taxes ; for they deprive those who pay them of an 
 amount of wealth equivalent to the tax. But an entirely 
 different result follows with regard to an indirect tax, 
 such as the malt duty ; for in such a case, although the 
 malt duty is in the first instance paid by the maltster, 
 yet the tax really comes out of the pockets of the con- 
 sumers of beer, because the price which they are com- 
 pelled to pay for beer is increased by an amount which 
 must at least be equivalent to the tax imposed. It is, 
 
 1 As explained in the last chapter, an income-tax is sometimes partly 
 paid out of circulating capital. In this case the tax diminishes the wage- 
 fund, and is therefore really paid by the labourers. But it is sufficiently 
 exact to state that an income-tax is a direct tax because it is intended 
 that the tax should take so much wealth from those upon whom it is 
 levied. In the case of an indirect tax, such as the duty on malt, it is 
 intended to tax the consumer of beer, and not the maltster who in the 
 first instance pays the tax. 
 
 MM2 
 
 BOOK IT. 
 CH. III. 
 
 Distinc- 
 tion be- 
 tween di- 
 rect and 
 indirect 
 taxation. 
 
 Taxes on 
 commodi- 
 ties are ne- 
 cessarily 
 indirect. 
 
548 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 CH. III. 
 
 Other 
 taxes may 
 become in- 
 direct, 
 
 and in- 
 directtaxes 
 may he 
 made di- 
 rect. 
 
 The tnx.es 
 considered 
 here are 
 those im- 
 posed for 
 revenve, 
 
 therefore, manifest that taxes on commodities are in- 
 direct; because if commodities are taxed they are in- 
 creased in price, and consequently the consumers of the 
 commodities really pay the taxes, although they may in 
 the first instance be levied upon the importers or pro- 
 ducers of commodities. 
 
 It must not, however, be supposed that there are no in- 
 direct taxes except those -which are imposed upon commo- 
 dities; for instance, a tax which is in its essential character 
 direct, may become indirect by private and commercial 
 arrangements, and by many other causes. Thus, in England, 
 it is customary for the tenant-farmer to pay poor-rates ; it 
 is, however, evident that all such charges as these are 
 really paid by the landowner, because if a farmer has to 
 contribute 1001. a year to poor-rates, he is able to pay so 
 much less a year for the use of the land he cultivates ; 
 consequently, if no poor-rates were imposed, the landlord 
 might increase the rent of his farm by the whole amount 
 which his tenant previously contributed to these rates. The 
 same remark applies to various other rates, and also to 
 tithes ; it therefore appears that there is not necessarily an 
 essential distinction between a direct and an indirect tax, 
 for we have seen that a direct tax may be converted into 
 an indirect tax, simply by a private commercial arrange- 
 ment, since there is no reason whatever why the poor-rates 
 should not in all cases be paid by the landlord, and not by 
 his tenant. If this were done, the poor-rates would become 
 a direct tax. It is, therefore, possible that the words direct 
 and indirect, when applied to a tax, may denote only a 
 nominal distinction ; the tax, however, which is imposed 
 on commodities cannot be made a direct one, since it 
 would be impracticable to levy the tax upoa each person 
 who may have to purchase any particular article ; conse- 
 quently, the real points of distinction between the two 
 different systems of taxation will be best elucidated by 
 comparing the effects of a direct tax with those which 
 result from a tax imposed upon a commodity. 
 
 At the commencement of this inquiry it may be impor- 
 tant to remark that various commodities have "been taxed 
 in our own country, and are still taxed in many other 
 countries, in order to protect native industry, and not 
 solely for the purpose of obtaining revenue for the State. 
 
Taxes on Commodities and other Indirect Taxes. 
 
 549 
 
 We intend hereafter to discuss the theory of protective 
 duties, and we shall therefore, for the present, consider 
 those taxes on commodities which are imposed for the sole 
 purpose of obtaining revenue for the State. The last 
 remnant of protection has been banished from our fiscal 
 system, and every tax is now carefully adjusted with the 
 view of placing the home and foreign producer in a position 
 of equality. 
 
 As previously stated, a tax upon any commodity must 
 •almost invariably be opposed by Adam Smith's first canon 
 of taxation, which affirms that ' each person ought to con- 
 tribute to the revenue in proportion to his ability to pay.' 
 Taxes on commodities cannot be framed in obedience to 
 this rule, for various reasons. In the first place, it may be 
 remarked that taxes on commodities can seldom be made 
 ad valorem, and it is quite evident that from this circum- 
 stance great inequality of taxation must inevitably result. 
 As an example it may be mentioned that every pound of 
 tea which is imported into this country has at the present 
 time to pay a tax of Qd. per pound. The inferior qualities 
 of tea which the poor principally consume would, if ad- 
 mitted duty free, be retailed at a price certainly not ex- 
 ceeding Is. Qd. per pound. It therefore follows that the 
 tea which is used by the poor, who are the least able to 
 contribute to the revenues of the State, is taxed at the. rate 
 of more than 30 per cent., whereas the superior qualities 
 of tea which are purchased by the wealthy at. four shillings 
 per pound, only pay a tax of about fourteen per cent. 
 This inequality of taxation, which in a greater or less, 
 degree is common to those taxes which are imposed upon 
 commodities, rarely admits of any practical remedy. For 
 instance, it has been frequently proposed to make the 
 diity on tea vary with the quality ot the tea ; but those 
 who are most competent to form a practical judgment 
 affirm that such a method of adjustment would be frus- 
 trated by the extreme difficulty and uncertainty of testing 
 the quality of tea at the custom-house. As before re- 
 marked, the inequality to which we have just alluded, and 
 from which taxes when levied upon commodities cannot as 
 a general rule be freed, must as far as possible be compen- 
 sated by making other taxes, such as the income-tax, fall 
 most lightly on those who are the most injured by the 
 
 BOOK IV. 
 OH. III. 
 
 notfeirpro- 
 tecUmi. 
 
 Taxes on 
 commodi- 
 ties are al- 
 most in- 
 variably 
 incapable 
 of satisfy- 
 ing the 
 condition 
 of equality 
 of inci- 
 dence. 
 
 This mMij 
 be partly 
 compen- 
 sated by 
 other taxes.. 
 
SSo 
 
 Manual of Political Economy. 
 
 BOOK rv. 
 
 CH. III. 
 
 Taxes on 
 commodi- 
 ties 
 
 generally 
 satisfy the 
 principle 
 of being 
 certain. 
 
 There are 
 however 
 exceptions 
 in the case 
 of ad va- 
 lorem du- 
 
 particular inequality which we have just described. These 
 coDsiderations induce us again to remark that equality of 
 taxation can be most efFectually secured, not by framing 
 any one tax in obedience to Adam Smith's first rule, but 
 by applying a general process of compensation to the whole 
 revenue. 
 
 Let us next inquire to what extent taxes on commodities 
 can be made consistent with Adam Smith's second rule, 
 which states that 'the amount which each individual con- 
 tributes to a tax ought to be certain and not arbitrary.' 
 In one sense almost all taxes on commodities strictly obey 
 this rule or principle of taxation. The producer or im- 
 porter of a taxed commodity can always know the exact 
 amount which the particular tax will levy upon him. If 
 the duty on tea is 6a!. per pound, the merchant who im- 
 ports a cargo of tea can calculate with strict accuracy the 
 amount of duty which the tea must pay; the same remark 
 applies to the producer of a taxed commodity such as nialt. 
 The only case in which uncertainty can arise is .when a tax 
 is made ad valorem, because then the test which the 
 government applies to ascertain the value of any com- 
 modity may be uncertain and imperfect in its operation. 
 There has been an instance of this in the financial 
 measures of Mr Gladstone. Within a few years the spirit 
 duties have been raised, and when Mr Gladstone proposed 
 in 1860 a great reduction in the duty on wine, he felt that 
 the difference between the duty on wine and spirits was so 
 great that the revenue might be defrauded by mixing 
 spirits with wine, and importing the whole as wine. With 
 a view of preventing such a fraud, he proposed to tax wine 
 in proportion to the amount of alcohol it contained. The 
 plan which was adopted to ascertain the quantity of this 
 alcohol was denounced by those engaged in the wine trade 
 as most vexatious; and they chiefly based their com- 
 plaint upon the uncertainty of the tax when it was so im- 
 posed, for they affirmed that they never could tell before- 
 hand the amount of duty which any particular wine would 
 have to pay. It must, however, be admitted that such 
 uncertainty with regard to taxes on commodities is ex- 
 ceptional, and rarely if ever exists, unless an attempt is 
 made to adjust the tax according to some ad valorem 
 standard. 
 
Taxes on Commodities and other Indirect Taxes. 
 
 551 
 
 The third rule of taxation laid down by Adam Smith 
 affirms that 'every tax ought to be levied at the time or in 
 the manner in which it is most likely to be convenient for 
 the contributor to pay it;' the inquiry must therefore be 
 made whether taxes on commodities are generally con- 
 sistent with this rule. In making this enquiry it will be 
 necessary to distinguish the real from the nominal payer of 
 the tax; for it has been already stated that the burden of 
 these taxes really falls upon the consumers of a commodity, 
 although the tax is generally levied from the producer or 
 importer. Taxes on commodities are no doubt paid, as far 
 as the consumer is concerned, at a time and in a manner 
 which is most convenient; for the tax is in fact levied 
 upon the consumer at the time when he pays for the com- 
 modity which he may purchase. But the producer or im- 
 porter of a commodity may be called upon, in consequence 
 of defective financial arrangements, to pay the tax at 
 a time and in a manner most inconvenient. Sometimes 
 the inconvenience just alluded to is entirely due to in- 
 judicious financial arrangements; sometimes, however, it 
 is inherent in the nature of the tax; when this is the case, 
 the tax ought not to be imposed, except as a financial 
 necessity. For instance, it seems that the duty on hops 
 could not be levied, except in a manner which was most 
 inconvenient to the growers of hops, and thus a strong 
 argument was provided for the repeal of this duty. Hops 
 were taxed at so much per pound, whatever was the quality 
 or quantity of the crop; the tax was assessed immediately 
 the crop was gathered in, and the hop-grower was com- 
 pelled to pay the duty at a certain definite time, whether 
 he had sold his hops or not. The hop crop is so uncertain, 
 that the grower could never accurately calculate how much 
 he should be called upon to pay. If he were not a man 
 of large capital, he was compelled to sell his hops, whe- 
 ther he wished to do so or not, in order to pay the duty. 
 A too abundant crop was also a great disadvantage to the 
 grower ; the demand for hops does not vary greatly from 
 year to year, and, consequently, there must be great fluc- 
 tuations in the price of hops, since the crop of one year is 
 often three or four times as great as the crop of the next 
 year. The amount of duty which a grower had to pay 
 was proportionate to the abundance of the yield, and it 
 
 BOOK IV. 
 OH. III. 
 
 They are 
 generally 
 paid at the 
 time most 
 convenient 
 to the con- 
 sumer. 
 
 hut fre- 
 quently at 
 a time in- 
 convenient 
 to the pro- 
 ducer or 
 importer. 
 
ss: 
 
 Manual of Political Economy. 
 
 BOOK IT, 
 CH, III. 
 
 Thisincon- 
 remence 
 may J>e 
 avoided by 
 judicious 
 arrange- 
 ments, such 
 (in bondivg 
 Iiouscs. 
 
 Taxes 
 lienerally 
 take more 
 out of tile 
 pockets of 
 the people 
 than they 
 bring into 
 the State 
 treasury. 
 
 therefore not unfrequently happened that a large crop 
 was most disastrous to the grower, because the maximum 
 amount of duty had to be paid when the price of hops was 
 extremely low. These, and other inconveniences, seemed 
 to admit of no adequate remedy, and therefore the hop 
 duty has been most properly repealed. 
 
 It generally happens that many of the inconveniences 
 connected with the time and manner of levying a tax on 
 a commodity can be greatly diminished by proper financial 
 arrangements. As an example, the bonding houses may 
 be referred to, which offer great facilities and advantages 
 to those who import taxed commodities. A merchant may 
 not wish immediately to sell the goods he imports, he is 
 therefore permitted to place them in bond, and as long 
 as they remain in bond he is not compelled to pay any 
 duty upon them. This, no doubt, is a just arrangement, 
 because the government intends that the consumer of the 
 commodity should really pay the tax imposed upon it ; 
 therefore as short an interval as possible ought to elapse 
 between the payment of the duty and the sale of a com- 
 modity. The merchant simply advances the tax, and if 
 repayment is deferred, he will be compelled to employ a 
 greater capital in his business, and the consumer will be 
 consequently charged a higher price for the commodity. 
 
 The last rule of taxation propounded by Adam Smith 
 affirms that ' every tax ought to be so contrived, as both 
 to take out, and to keep out of the pockets of the people 
 as little as possible over and above what it brings into 
 the public treasury of the State.' It has been previously 
 stated that any tax which is expensive to levy will be 
 inconsistent with this rule. The same remark holds true 
 if a tax diverts labour from a productive to a more un- 
 productive employment; if it encourages smuggling, and 
 lastly, if it necessitates restrictive regulations with regard 
 to the mode in which any trade or industry is con- 
 ducted. Taxes on commodities cannot, as a general rule, 
 be completely free from all the faults which have been 
 just described, but the faidts may be much mitigated by 
 proper financial arrangements. A tax, whether levied on 
 a home-produced commodity, or upon one which is im- 
 ported, must be expensive to collect. A great number of 
 excise and custom officers must be employed to assess and 
 
Taxes on Commodities and other Indirect Taxes. 
 
 553 
 
 collect the tax ; and an enormous outlay is often required 
 to prevent smuggling and other kinds of fraud. Smuggling 
 is much more easily prevented in an island like our own, 
 than in a country where a great extent of land frontier has 
 to be protected. The difficulty of guarding 2000 or 3000 
 miles of frontier would render the imposition of custom 
 duties most undesirable in such a country as America. 
 The expense of collecting a certain amount of revenue by 
 taxes on commodities is very much diminished, if the taxes 
 are confined to a few articles of general consumption; 
 when a tax is imposed upon some a!rtic!e of limited use, 
 the cost of collecting the tax is always enormous in pro- 
 portion to the amount yielded to the State. About thirty 
 years since, the tariff of this country contained a list of 
 300 or 400 articles which were subject to either excise or 
 custom duties. The great majority of these duties have 
 been most properly repealed, and at the present time, 
 tobacco, tea, coffee, wine, foreign spirits, and a few 
 other articles, are alone subject to custom duties; malt 
 and spirits being the articles which chiefly contribute 
 to that portion of our revenue which is raised by excise 
 duties. Again, with regard to smuggling, there can be 
 no doubt that it is much discouraged by the removal of 
 extremely high duties on articles which contain a great 
 value in small bulk, and which can therefore be readily 
 concealed. A tax on a commodity may, however, in 
 various ways which are not so frequently noticed, take 
 out of the pockets of the tax-payer an amount which 
 greatly exceeds that which the tax yields to the State. 
 
 In the first place it may be stated that when a com- 
 modity is taxed, the price which the consumer has to pay 
 for it is increased by an amount which often exceeds the 
 amount of the tax. Thus let us take the case of a tax 
 being levied under very favourable circumstances, and 
 suppose, as an example, that a retail grocer buys so many 
 chests of tea direct from bond. The amount of tea which 
 he buys we may assume to be 30001. ; the value of this 
 tea would not probably exceed 2400?., if tea were admitted 
 duty free, because, considering the average quality of the 
 tea sold, the duty on tea may be estimated at twenty-five 
 per cent, upon its value. The grocer, when he sells this 
 tea retail, will of course expect to realise the ordinary 
 
 BOOK IV. 
 CH. III. 
 
 The ex- 
 penses of 
 collection 
 may be 
 reduced by 
 ajudicious 
 selection of 
 taxes. 
 
 But the 
 price may/ 
 be unduly 
 enhanced 
 for the con- 
 sumer. 
 
5S4 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 
 OH. rii. 
 
 This is the 
 most seri- 
 ous objec- 
 tion 
 against 
 taxes on 
 commodi- 
 ties. 
 
 It affects 
 to some ex- 
 tent all 
 taxes on 
 commodi- 
 ties. 
 
 trade profit. This profit we will suppose to be twenty per 
 cent.; the grocer will therefore obtain 3600Z. for the tea, 
 which cost him 3000Z., whereas if it were not for the duty, 
 the grocer would be obliged to give only 2400Z. for the 
 same quantity of tea, and would be remunerated with the 
 same per-centage of profit, if he sold his tea to his cus- 
 tomers at such a price as would realise for him 2880Z. It 
 therefore appears that those who purchase this tea pay 
 720Z. additional for it, although only 6001. of this amouut 
 is received by the government as duty. Hence, upon this 
 hypothesis, the duty takes out of the pockets of the tax- 
 payers twenty per cent, more than it gives to the revenue 
 of the State. This is the most serious objection which 
 can be' urged against taxes on commodities, and it is one 
 which has not been adequately considered. It must, 
 moreover, be remembered that the case just described 
 does not as a general rule adequately represent the 
 amount which a tax on a commodity keeps out of the 
 pockets of the people beyond what it yields to the State. 
 For instance, it has been assumed that the tea is pur- 
 chased by the retail grocer direct from bond, but no doubt 
 it much more frequently happens that the tea, after it is 
 taken from bond, passes through the hands of four or five 
 dealers, before it is ultimately sold to the consumer. If, 
 therefore, it is supposed that tea pays a duty of twenty-five 
 per cent, upon its value, each of these dealers will require 
 twenty-five per cent, more capital to conduct his trade in 
 tea. The ordinary profit of trade must be realised upon 
 the additional capital which is thus required to be em- 
 ployed ; consequently, when a commodity is taxed, the 
 consumer is generally compelled to pay for it a price' 
 which is increased to an extent considerably exceeding 
 the amount of the duty. 
 
 A more serious defect cannot belong to any tax than 
 that it should take from the tax-payer an amount which 
 greatly exceeds that which it yields to the revenue. This 
 defect, to a greater or a less degree, accompanies all indi- 
 rect taxation; for all indirect taxes are in the first instance 
 paid by the producers or importers of a commodity, who 
 are remunerated by the increased price which the con- 
 sumer is compelled to pay. In every instance, some time 
 must elapse between the payment of the duty and the sale 
 
Taxes on Commodities and other Indirect Taxes. 
 
 sss 
 
 of a commodity, and, consequently, the trader who first 
 advances the tax must wait for a certain time before he is 
 repaid by the consumer. But the trader is compelled to 
 employ a portion of his capital to make this advance, and 
 upon this capital he will expect to obtain the ordinary 
 trade profit ; this profit the consumer must return to him, 
 in addition to the amount of the tax. This most serious 
 defect, though inherent in all taxes on commodities, may 
 be very much diminished by proper precautions. Thus it 
 is evident that as short an interval as possible ought to 
 elapse between the levying of a tax on a commodity, and 
 the time when it is ready for consumption. On this ac- 
 count it is much more desirable to tax manufactured goods 
 than the raw material. In order to illustrate this point 
 still further, let us briefly trace the different results which 
 would be produced by a tax on raw cotton, and by a tax 
 on cotton goods. 
 
 It may be assumed that the two different taxes yield 
 the same amount to the revenue. Let it in the first 
 instance be supposed that raw cotton is taxed, and that 
 a manufacturer who purchases 10,000?. worth of raw 
 cotton has to pay lOOOZ. duty. The tax, therefore, com- 
 pels him to employ a capital of ll,000il. instead of 10,0OOZ. 
 Upon this additional capital he will expect to realise the 
 ordinary trade profit, which may be assumed to be ten 
 per cent. At the end of a twelvemonth he sells the goods 
 which have been manufactured from this raw cotton to 
 warehousemen; since, however, the duty imposed on the 
 raw cotton has necessitated the employment of lOOOZ. 
 additional capital, the price of these manufactured goods 
 must in consequence of the tax be increased by llOOZ., 
 and not by 1000?., which is the amount really received by 
 the government ; for if this were not so, the manufacturer 
 would not be adequately compensated for the capital em- 
 ployed in his business. 
 
 Let us now make a second supposition, and consider the 
 tax to be paid upon the manufactured goods. Then the 
 manufacturer would not be called upon to pay the tax, 
 until his goods were actually purchased by the retail 
 dealer, or warehouseman, and consequently the tax would 
 not compel him to employ a larger capital in his business. 
 In this case, therefore, the price of the goods, when sold 
 
 BOOK 1\. 
 OH. III. 
 
 Illustra- 
 tion of the 
 fault. 
 Results of 
 taxing raw 
 cotton 
 
 or manv- 
 faetured 
 cotton 
 goods. 
 
556 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 OH. III. 
 
 Tlie last 
 tax would 
 tahe much 
 less from, 
 the con- 
 tuDier. 
 
 Taxes on 
 manufac- 
 tures how- 
 ever cause 
 annoyance 
 in other 
 ways. 
 
 Questionof 
 taxing ex- 
 ports. 
 
 by the manufacturer, will not be increased by an amount 
 exceeding the amount of the tax. It therefore appears 
 that a tax on manufactured goods, if it can be easily 
 levied, is far preferable to a tax on raw material. It 
 however not unfrequently happens that a manufactured 
 commodity cannot be taxed without subjecting the parti- 
 cular trade to the most injurious interference; for in 
 order to assess an excise duty, and in order to prevent 
 fraud, various kinds of restrictions with regard to the 
 particular mode in which trade i§ carried on must be en- 
 forced, and great annoyance is often caused by the vexa- 
 tious visits of the excise officers. Thus few taxes on a 
 manufactured commodity can be assessed and collected 
 with greater facility than the duty on malt, yet maltsters 
 are compelled to carry on their trade according to certain 
 strict rules. Notice, for instance, must be given when 
 the barley is to be wetted ; the barley, when wetted, 
 must be thrown out in a particular manner on the floors 
 to be dried, and the exciseman can visit the malt-house 
 whenever he pleases. Such interference would be a still 
 more serious evil, if some commodity should be taxed 
 which involved complicated processes of manufacture, 
 each of which has to be conducted according to certain 
 rules, and to be watched by government officers, in 
 order not only to prevent fraud, but to assess the tax. 
 Such interference would oppose an insurmountable ob- 
 stacle to the development of a branch of industry, for 
 all that enterprise would be checked which stimulates 
 the introduction of machinery, and other industrial im- 
 provements. 
 
 The remarks hitherto made in this chapter have been 
 restricted to the import duties and to the excise duties 
 that are imposed upon the commodities which are con- 
 sumed in the country ; the government, in fact, intends 
 that the burden of these taxes should fall on the con- 
 sumers. It is, however, manifest that various exported 
 commodities may be also taxed ; but it has been thought 
 desirable to consider separately the operation of export 
 duties, because these duties are imposed with the view 
 of shifting the burden of the tax upon foreign countries. 
 It will, moreover, be shown that, contrary to popular 
 opinion, it almost invariably happens that, in attempting 
 
Taxes on Commodities and other Indirect Taxes. 
 
 557 
 
 to tax the foreigner, the country that imposes an export 
 duty taxes itself. 
 
 To discuss the operation of export duties, it will he 
 necessary to recall some of the principles which were 
 established with regard to international trade. When 
 investigating that subject it was proved that there is a 
 constant tendency in operation to make the exports of a 
 country pay for its imports ; it was also shown that the 
 amount of profit which each country derives from inter- 
 change of commodities varies inversely with the demand 
 which the one country has for the products of the other. 
 Let us, therefore, bear these principles in mind when 
 tracing the effects of an export duty. One of the most 
 recent export duties that has been proposed was an export 
 duty upon coal ; this financial measure met with a con- 
 siderable amount of support in parliament in 1860, at the 
 time when the details of the commercial treaty with 
 France were being discussed. Let it be assumed that a 
 duty of 2s. was levied upon each ton of coal exported. 
 The price of English coal in foreign countries would in 
 consequence of the tax be increased two shillings per ton. 
 The demand for commodities always varies inversely with 
 their price, and therefore this increase in the price of coal 
 would diminish the demand for English coal in foreign 
 countries. The export of coal from England would conse- 
 quently be diminished ; the decrease in the export would 
 be greater with regard to some countries than with regard 
 to others. France, for instance, purchases coal from Bel- 
 gium, and if Belgian coal remained imtaxed, France might 
 probably cease to import coal from England if our coal 
 was subject to an export dutj'. It therefore appears that 
 the first result of any export duty would be to diminish 
 the amount of our export trade. The commodities which 
 were subject to an export duty would decline in price to 
 the home con.sumer in consequence of the foreign demand 
 for them being checked. It might therefore seem that 
 an export duty on such an article as coal would confer two 
 oreat advantages on the general body of the tax-payers ; 
 in the first place, it would cause foreigners to contribute 
 to our revenue, and thus relieve us of a portion of our 
 taxation ; secondly, the price of coal would be reduced, 
 and this would be advantageous to the nation at large. 
 
 BOOK IV. 
 OH. HI. 
 
 Effects of 
 an export 
 duty such 
 as a duiij 
 on coah. 
 
 Its appa- 
 rent ad- 
 vantages. 
 
558 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 OH. III. 
 
 A partial 
 net-off to 
 them. 
 
 Investiga- 
 tion of the 
 effects pro- 
 duced on 
 oar import 
 trade. 
 
 It may, no doubt, be urged as a set-off to these apparent 
 advantages, that the coal trade would suffer in consequence 
 of this diminution in the export of coal, and that the 
 owners of collieries would realise smaller profits, owing to 
 the fall in the price of coal. It may, however, be rejoined, 
 that the loss which thus accrues to those engaged in a 
 particular branch of industry is more than compensated 
 by the advantages which we have shown would be con- 
 ferred upon the general body of the tax-payers. But an 
 important point still remains to be determined ; for the 
 effect which might be produced upon our import trade, if 
 our exports were checked by the imposition of a duty, has 
 not yet been considered. 
 
 In order to investigate this question it may be supposed 
 that an export duty upon coal has caused France to cease 
 importing coal from this country. It has been already 
 proved that exports pay for imports; it is, therefore, 
 manifest that if the export trade of a country is diminished, 
 the amount of her imports must also be diminished; this 
 must be so, because the commodities which are exported 
 pay for those that are imported. Such a decrease in the 
 foreign trade of a country must diminish national wealth; 
 since it has been shown that foreign commerce increases 
 the efficiency of labour and capital, by enabling each 
 country to apply itself to those branches of industry for 
 which it possesses the greatest natural advantages. It 
 therefore follows that the question, whether or not an 
 export duty is advantageous as a financial measure, must 
 be mainly determined by the circumstances of each special 
 case. For instance, it is quite possible that an export 
 duty may entirely prevent the export of a commodity; 
 this would no doubt be the result if an export duty were 
 in this country imposed upon silk manufactures. The 
 competition between France and England in the silk trade 
 is extremely keen; on the one hand, France has cheap 
 labour, and her clearer climate is supposed to give a 
 superior colour to her dyes. On the other hand, England 
 can perhaps manufacture more economically, because she 
 possesses more perfect machinery and cheaper fuel. It is 
 consequently difiicult to decide whether France or England 
 can sell silk goods to foreign countries at the cheapest rate. 
 It is, therefore, evident that the imposition of even a small 
 
Taxes on Commodities and other Indirect Taxes. 
 
 SS9 
 
 export duty upon English silks would, as far as this branch 
 of industry is concerned, completely drive England from 
 foreign markets. The prosperity of an important branch 
 of industry would thus be imperilled, and an export duty 
 under such circumstances would be most disastrous and 
 indefensible. 
 
 A much more favourable case for the imposition of an 
 export duty will next be considered. It cannot be disputed 
 that the United States have hitherto possessed to a great 
 extent a natural monopoly for the growth of cotton. No 
 other country has been able to produce cotton of so good 
 a quality at so cheap a rate. Let us, therefore, trace the 
 consequence which would have ensued if a small export 
 duty, say of a halfpenny or a penny per lb., had been im- 
 posed upon American cotton. Even so small an export duty 
 as this would have yielded a considerable amount to the 
 revenue of the United States. Foreign countries who pur- 
 chased American cotton would of course be compelled to pay 
 this duty, and it will therefore be instructive to inquire 
 whether such a iBnancial measure would in any way have 
 prejudicially affected the material interest of the United 
 States. The first effect of such a duty would manifestly 
 be to raise the price of American cotton in all countries 
 which import it by an amount at least equivalent to the 
 duty. If the duty was a penny per lb., England would be 
 compelled to pay sixpence instead of fivepence per lb. for 
 American cotton. It may be perhaps thought that this 
 rise in the price of American cotton would induce England 
 to obtain cotton from other sources of supply; this, no 
 doubt, would be so, if other countries possessed the same 
 advantages for the production of cotton as America. It 
 therefore follows, that it would be most unwise to impose 
 an export duty either on a raw or a manufactured com- 
 modity, if the commodity could be produced on as favour- 
 able terms by other countries as by the country which 
 imposes the export duty. But with regard to cotton, it 
 was shown during the late civil war in America that, with- 
 out the United States, it is impossible for England and 
 other countries to obtain the quantity of raw cotton which 
 they require. The available supply from other sources is 
 in fact so limited, that a rise in the price amounting to 
 200 or 300 per cent, fails to bring us so large a quantity 
 
 BOOK IV. 
 CH. III. 
 
 Effects of 
 an export 
 duty im- 
 posed upon 
 cotton by 
 the United 
 States. 
 
S6o 
 
 Manual of Political Economr. 
 
 BOOK IT. 
 CH. III. 
 
 Such a 
 duty mis lit 
 not seri- 
 ously affect 
 the price 
 of manu- 
 factured 
 cotton, 
 
 and might, 
 as an ex- 
 ceptional 
 case, he 
 financially 
 politic. 
 
 Import 
 duties im- 
 posed for 
 the sake of 
 protection. 
 
 of cotton as we are willing to purchase at even these high 
 rates. Until, therefore, the resources of India and other 
 countries are more fully developed, it cannot be supposed 
 that we should resort to other countries for raw cotton if 
 the United States imposed a small export duty upon this 
 material. The rise in the price of cotton which would be 
 caused by this duty would slightly diminish the quantity 
 of cotton which such a country as England would purchase. 
 If the English manufacturers have to pay a higher price 
 for raw cotton, they must charge a higher price for manu- 
 factured goods, and if the price of cotton goods is increased, 
 the demand for them will be diminished. But a verj- 
 slight rise in the price of cotton goods would be sufficient 
 to compensate the manufacturer for a rise in the price of 
 the raw material, and so slight a rise in price would exert 
 but little influence upon the demand for a commodity 
 which is not used as a luxury, but which serves to provide 
 one of the necessaries of life. It is impossible to predict 
 the position which the cultivation of cotton may in future 
 occupy. The United States had, for some time previously 
 to the late war, possessed a natural monopoly for the 
 growth of cotton ; as long as this natui'al monopoly con- 
 tinued, the imposition by the United States of a small 
 export duty upon raw cotton would have been politic, 
 considered merely as a financial measure. Although, in 
 the special case just investigated, we have spoken some- 
 what favourably of an export duty, yet itr must be borne 
 in mind that our remarks were based on the fact that the 
 United States possessed, with regard to the growth, of 
 cotton, a natural monopoly. This, therefore, is quite an 
 exceptional case: an export duty would almost invariably, 
 as shown in a previous example, jeopardise the export 
 trade of a country, and thus diminish the national wealth. 
 We have hitherto, in this chapter, considered that im- 
 port duties are imposed for the sole purpose of obtaining 
 revenue for the State. But until a very recent period it 
 was almost universally believed that another most import- 
 ant end was attained by import duties. Forty years 
 since the theory of protection was as generally accepted 
 in this country as it is now discarded. In America, in 
 France, and in most continental countries, the great ma- 
 jority of politicians are even at the present day ardent 
 
Taxes on Commodities and other Indirect Taxes. 
 
 S6i 
 
 protectionists. It is, therefore, still extremely important, 
 as a practical question, to investigate the effects of import 
 duties when they are imposed for the double purpose of 
 obtaining revenue, and of protecting native industry. It is 
 quite evident that an import duty can be easily arranged 
 so as to obtain the double object. We have already, for 
 instance, alluded to the closeness of competition in the 
 silk-trade, between France and England. If, therefore, 
 an import duty, say of ten per cent., should be placed 
 upon French silks, and if at the same time English silks 
 should be subject to no excise duty, it is manifest that 
 French silks would probably be almost entirely excluded 
 from the English market. A similar end might be at- 
 tained with regard to all other imported commodities 
 which compete with commodities of the same kind pro- 
 duced at home. It is consequently possible to limit, or 
 altogether stop the importation of a commodity, by sub- 
 jecting it to a sufficiently high import duty. 
 
 The principles which have been established with regard 
 to international trade clearly prove the loss which the 
 nation suffers if protective duties either prevent or check 
 the importation of commodities. When trade is carried 
 on between two countries, the wealth of each is increased, 
 because each country is enabled to apply its labour and 
 capital to those branches of industry for which it pos- 
 sesses the greatest natural advantages. Thus reverting to 
 our previous illustration, it has been assumed that the 
 cost of growing corn, compared with the cost of producing 
 iron, is much less in France than in England. It may, 
 for instance, be supposed that a ton of iron costs as much 
 to produce, in France, as ten sacks of wheat; whereas, in 
 England, a ton of iron would only be equivalent in value 
 to six sacks of wheat. It is, therefore, easy to perceive the 
 loss which France and England would both suffer if pro- 
 tective import duties imposed in France upon English iron 
 should prevent the importation of English iron into France, 
 and if protective duties imposed in England upon corn 
 should prevent the importation of French wheat into 
 England. Such a protective tariff would cause labour 
 and capital to be wasted, or, in other words, would deprive 
 them of a part of their productive power. Six sacks of 
 wheat cost England as. much to produce as one ton of 
 
 BOOK rv. 
 
 CH. III. 
 
 A protec- 
 tive tariff 
 always in- 
 volves a 
 waste of 
 capital 
 aiid la- 
 bour. 
 
 F. M. 
 
 NN 
 
S62 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 OH. III. 
 
 Protee- 
 tionitts ig- 
 nora this 
 loss, and 
 point out 
 the tempo- 
 rary evils 
 inflicted 
 vpon home 
 industry 
 by free 
 trade. 
 
 A consi- 
 deration of 
 free trade 
 in com in 
 
 iron ; but if the trade between England and France were 
 unrestricted, England might divert a portion of her labour 
 and capital from the growth of wheat to the production 
 of iron for France; it would be manifestly greatly to 
 the advantage of France to give England eight sacks of 
 wheat for each ton of iron. Hence, unrestricted trade so 
 much increases the wealth of a country, that a certain 
 amount of labour and capital, which before would only 
 obtain six sacks of wheat, now produces a ton of iron, 
 in exchange for which a foreign country will willingly 
 give eight sacks of wheat. 
 
 The argument just adduced, considered in conjunc- 
 tion with the remarks which have been made upon in- 
 ternational trade, may be regarded as conclusively de- 
 monstrating the injurious effect which is produced upon 
 a nation by protective duties. Protectionists, however, 
 ignore this loss of national wealth; they advocate the 
 protective system, because they conceive that, without its 
 support, some special branches of industry would be un- 
 able to compete against foreign countries. It might, for 
 instance, be argued that it would be impossible for the Eng- 
 lish farmer to compete against the French farmer, if wheat 
 can be grown at a much cheaper rate in France than in 
 England; on the other hand, it would be equally impos- 
 sible for the French iron-master to compete against the 
 English iron-master, if cheap English iron is freely im- 
 ported into France. It is, therefore, plausibly aroned 
 that free trade is a dangerous experiment if it should 
 cause the agricultural interest to be ruined in England, 
 and the iron interest to be ruined in France. It can, 
 however, be easily shown that no class of traders can. 
 either be permanently benefited by protective duties, or 
 permanently injured by free trade. Landowners are the 
 only class that can derive a lasting advantage from pro- 
 tection. Property in land may be described as the posses- 
 sion of a natural monoply. The value of this natural 
 monoply may be artificially raised by protection, but 
 it can be shown that other circumstances almost invaria- 
 bly deprive even the landowners of this special advantage. 
 
 The effect produced by the corn-laws on the position 
 of the English farmer, may be quoted to prove that 
 no class of traders can. be permanently benefited by pro- 
 
Taxes on Commodities and other Indirect Taxes. 
 
 563 
 
 tective duties. The restriction which the corn laws im- 
 posed upon the importation of corn no doubt increased 
 its price in this country; it was therefore concluded 
 that protection, because it increased the price of com, 
 conferred a special benefit upon the English farmers. 
 It must, however, be borne in mind that permanent low 
 prices are as advantageous to the English farmer as per- 
 manent high prices. In a country like our own, where 
 there is great commercial enterprise, the competition of 
 capital is constantly exerting a tendency to equalise profits 
 in different trades. If the price of all agricultural pro- 
 duce should be doubled, the farmer's gross returns would 
 cceteris paribus be doubled ; his profits therefore would 
 be enormously augmented, if he were able to appropriate 
 to himself all these additional returns. But if the profits 
 of the farmers, or of any other class of traders, should be 
 greatly increased, an active competition for farms would 
 be at once stimulated, the rent of land would consequently 
 rise, the profits of the farmer would soon be reduced to 
 their former amount, and thus the landowner, and not 
 the farmer, would be ultimately benefited. Again, if the 
 price of agricultural produce should be reduced by foreign 
 importations, the profits of the farmer might be greatly 
 diminished ; traders, however, will cease to continue a 
 business, if they are unable to realise from it the ordinary 
 rate of profit. Landowners will, consequently, be obliged 
 to submit to a reduction of rent; hence, it is not the 
 farmer, but the landowner, who would ultimately suffer. 
 Of course, farmers may be temporarily benefited by a 
 sudden rise in prices, or temporarily injured by a sudden 
 fall. For instance, many farms are let on lease, and 
 the rent of such farms cannot therefore be either imme- 
 diately raised or immediately lowered. When, moreover, 
 the profits which are realised in a particular trade are 
 affected by a sudden change of prices, a considerable time 
 must elapse before the trade is again restored to its 
 normal or steady condition; during this interval the trader 
 may either secure exceptionally great gains, or may have 
 to submit to an unusually low rate of profit. 
 
 It has been proved, as a possible theoretical result, that 
 the landowners may be injured by the abolition of pro- 
 tective duties. The experience which has been derived 
 
 NN 2 
 
 BOOK IT. 
 OH. III. 
 
 shows that 
 it cannot 
 perma- 
 nently in- 
 jure any 
 clots of 
 English 
 traders. 
 
 Free trade 
 mifiht 
 cause tern' 
 porary in- 
 
S64 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 CH. III. 
 
 jury to 
 land- 
 owners ; 
 hut, in 
 practice, 
 can rarely 
 produce 
 that effect. 
 
 F articular 
 branchesof 
 industry 
 ■may suffer 
 from free 
 trade for 
 a time, but 
 its ulti- 
 mate ef- 
 fects must 
 be bene- 
 ficial, 
 
 from the introduction of free trade into this country has 
 shown that the landowner will generally receive compen- 
 sation in various ways. The rent of land has not di- 
 minished but has considerably increased since the pass- 
 ing of free trade. This fact may be readily explained, 
 for although the price of wheat has been reduced by 
 foreign importations, yet a more than corresponding 
 rise has taken place in the price of other kinds of agri- 
 cultural produce. Meat, dairy produce, and even barley, 
 are much dearer now than they were previous to the 
 repeal of protective duties. It must moreover be remem- 
 bered, that the rise in the price of these articles is in a 
 great measure due to free trade. Our commerce, released 
 from the trammels of protection, has expanded in the 
 most extraordinary manner. An augmentation in our 
 export trade amounting to 100,000,000^. represents an 
 enormous addition to the accumulated wealth, or, in 
 other words, to the capital of the country; but if the 
 capital of the country is augmented, the wage-fund must 
 also be increased, and thus the additional wealth which 
 has been created by unrestricted commercial intercourse 
 has been distributed amongst the nation at large. Tbe 
 population having largely increased and th'e people hav- 
 ing been made wealthier, a greater quantity of meat, 
 dairy produce, and beer is consumed. Meat and dairy 
 produce are expensive to import, and barley, after being 
 for a length of time in the hold of a ship, does not make 
 good malt. Hence these commodities have all greatly 
 risen in price ; farmers are consequently now able to pay 
 higher rents than they could when they were protected by 
 prohibitive duties, and growing prosperity for the landed 
 interest has been substituted for the impending ruin 
 which was so often gloomily predicted by protectionist 
 statesmen. 
 
 Foreign competition may, no doubt, cause some parti- 
 cular branches of industry to be altogether relinquished, 
 if the industry has been artificially sustained and fostered 
 by protective duties. As an example, it may be men- 
 tioned that this country, following the example of France, 
 might have imposed high import duties upon sugar, with 
 the view of encouraging the home-manufacture of sugar 
 from beet-root, A home-sugar interest of great import- 
 
Taxes on Commodities and other Indirect Taxes. 
 
 56s 
 
 auce might thus have been artificially created; if, how- 
 ever, the support of protection should be removed, it 
 would be impossible for the producer of home-grown sugar 
 to compete against the foreign importer; this particular 
 department of native industry would therefore be imme- 
 diately destroyed. Such a destruction of a branch of 
 industry may be perhaps regarded as disastrous, because 
 it may be thought that labourers would be thrown out 
 of employment, and capitalists would be deprived of 
 an eligible investment for their capital. The labourers 
 engaged in one particular kind of industry no doubt 
 suffer a loss if they are compelled to relinquish the 
 labour to which they are accustomed; each branch of 
 industry requires some special skill or knowledge, and 
 consequently those who are compelled to engage in a new 
 kind of labour lose the advantage of their acquired skill. 
 Again, employers always suffer a certain amount of loss if 
 they are obliged to relinquish the industry to which they 
 are accustomed ; they also possess a special knowledge, 
 which they must to a great degree sacrifice, and capital 
 cannot be transferred from one employment to another 
 without considerable waste. In every branch of industry 
 there is a large amount embarked in the form of fixed 
 ,capital ; machinery, buildings, and plant, cannot be con- 
 verted to a new use without involving great expense. 
 These temporary disadvantages may no doubt accompany 
 the removal of protective duties, but an abundant com- 
 pensation is provided by the great benefits which are sure 
 ultimately to result from free commercial intercourse. 
 The general body of the consumers are provided with 
 cheaper commodities, and the wealth of the country must 
 be increased, because labour and capital are both rendered 
 more productive. The principal argument which foreign 
 protectionists still urge against free trade would be re- 
 moved, if it is once clearly perceived that it cannot be any 
 loss to a country to import commodities instead of pro- 
 ducing them. If commodities are imported, commodities 
 of an equivalent value must be exported to pay for those 
 which are imported. If, therefore, the introduction of 
 free trade causes a nation to purchase commodities, in- 
 stead of producing them herself, the aggregate wealth in 
 the country cannot be diminished — labour and capital are 
 
 BOOK IV. 
 
 CH. in. 
 
 for it can- 
 not he a 
 los$ to a 
 country in 
 import 
 commodi- 
 ties iiistead 
 ofpro- 
 ducini; 
 them. 
 
S66 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 CH. III. 
 
 simply transferred from oue industry to another; since, if 
 d greater amount of commodities is purchased from foreign 
 countries, a larger quantity must be also produced at 
 home, in order to supply the increased exports which pay 
 for these additional imports \ 
 
 1 The old battle between Protection and Free Trade is being fought 
 out in our Australian colonies. The Melbourne correspondent of the 
 Times, in one of his able letters, tells us that the protectionist party 
 defend their conduct by quotations from the works of many political 
 economists, including, amongst others, the late Mr J. S. Mill. It is 
 scarcely necessary to say that Mr Mill explained the misohieYous fal- 
 lacies of protection probably mor^ clearly than any other writer. The 
 Colonial protectionists maintain that he supports their views, because 
 in one passage of his Principles of Political Economy (vide Book v. 
 Chap. X.) an opinion is expressed, that in the case of a young colony a. 
 protective duty may occasionally be wisely imposed, if it can be clearly 
 shown that this artificial encouragement may cause some branch of 
 industry to be permanently and prosperously established in a colony, 
 and if it can also be shown that this branch of industry might never 
 have been introduced, if it had not been first stimulated and fostered by 
 protection. Mr Mill makes this exception in favour of a protective 
 duty, because he supposes that any industry when first established in 
 a colony has always to struggle with peculiar difficulties. The colony 
 therefore will be placed under a great disadvantage, if it has to com- 
 pete with a country in which some particular industry has been car- 
 ried on for a long period. The colonial trader will relinquish this 
 unequal struggle unless he receives some assistance from the state in the 
 form of protection, and thus many different kinds of industry, for the 
 successful prosecution of which the colony may perhaps have peculiar 
 advantages, will be virtually banished from the colony. The arguments 
 of the Colonial protectionists are thus presented in their most plausible 
 and favourable form. Mr MUl no doubt put a strong case, if we 
 assent to the hypothesis upon which it is based. But in our judgment 
 he over-stated the peculiar difficulties which an industry .has to 
 contend with, when first introduced into a iiew colony. Australia has 
 purchased from England nearly all the manufactured commodities she 
 requires instead of producing them herself, because in England labour, 
 machinery and fuel are cheaper than they are in Austraha. There is 
 apparently no reason why these circumstances, which give to England a 
 superiority in manufacturing industry,' should act with less force if the 
 Australians are induced to form manufacturing establishments by the 
 promise that British goods shall be excluded from their markets. As 
 long as labour, machinery and fuel continue to be so dear in 
 Australia, that it is cheaper to buy goods in England and to pay in 
 addition the cost of carrying them 12,000 miles, it cannot be supposed 
 that manufacturing industry will thrive in this colony. But it, in the ' 
 course of a few years, the economic condition of Australia should change ; 
 if, for instance, labour should become so much cheaper in that 
 country, that woollen or cotton goods could be made there cheaper than 
 they could be imported from England, then it appears to us quite certain 
 that woollen or cotton manufactures would thrive in Australia, and 
 that their progress would not be impeded by any special difficulties 
 which are so formidable that they can only be vanquished by a protective 
 
Taxes on Commodities and oiker Indirect Tames. 
 
 367 
 
 In the present and preceding chapters the chief circunt- 
 stances connected with direct and indirect taxation have 
 been briefly reviewed. Writers on taxation usually make 
 a comparison of these two different systems, and attempt 
 to balance the advantages and disadvantages of each. We 
 think, however, that it is impossible fairly to make such 
 a comparison, and the attempt may possibly lead to mis- 
 chievous results. For instance, if it can be shown that 
 direct taxation is more in accordance with Adam Smith's 
 four rules than indirect taxation, the proposition is at 
 once propounded that the whole revenue of the State 
 ought to be raised by direct taxation. Some of the evil 
 consequences which would be produced if such a proposal 
 were carried into practical effect have been explained in 
 this chapter. Direct and indirect taxation are both re- 
 spectively accompanied by certain defects and inequali- 
 ties which can only be partially remedied. It is impos- 
 sible to decide with certainty, whether the defect which 
 may belong to a direct tax is comparatively of greater 
 moment than another defect which may be inseparably 
 connected with a tax on a commodity. Thus an income- 
 tax may be reasonably objected to on two distinct grounds : 
 in the first place, it taxes savings, and therefore dis- 
 courages the accumulation of capital ; in the second place, 
 it cannot be accurately assessed with regard to certain 
 
 tariff. It is remarkable that this demand for protection should have 
 arisen in a community where the wages paid are higher than those which 
 are received by the labourers of any other country. Moreover, in Australia 
 the position of the capitalist is as satisfactory as that of the labourer, for 
 in previous chapters it has been frequently remarked that in Australia 
 fertile land is so abundant, and as a consequence the production of wealth 
 is carried on under such advantageous conditions, that profits as weU 
 as wages are extremely high. It is therefore evident that the various 
 kinds of industry which flourish in that colony must be singularly re- 
 munerative, and the community must inciir a serious loss if protective 
 duties should artificially stimulate certain trades, which would be less 
 productive of wealth in proportion to the labour and capital invested in 
 them, than are the various branches of industry which are now carried on. 
 Hence in this, as in every other case,, protection would exert a mischievous 
 tendency to cause labour and capital to be transferred from one industry 
 to some other which is less productive of wealth. In Australia the ac- 
 cumulation of wealth may be augmented almost without any assignable 
 limit, if a sufficient supply of labour is forthcoming; and the protectionists 
 in that country should not lose sight of the fact that their policy will make 
 imported commodities dearer, and will thus diminish the advantages 
 which a labourer will derive from emigrating to that colony. 
 
 BOOK IV. 
 
 OH. ni. 
 
 A compari- 
 son is fre- 
 quently 
 made be- 
 tween di- 
 rect and 
 indirect 
 taxation. 
 
 SwcA 
 general 
 compari- 
 sons are 
 futile. 
 
568 
 
 Manual of Political Economy. 
 
 BOOK IT. 
 OH. III. 
 
 A n ad- 
 herence to 
 either hind 
 of taxation 
 exclusivehj 
 must pro- 
 duce bad 
 effects. 
 
 classes of incomes. All taxes on commodities are, how- 
 ever, subject to certain imperfections which are peculiar 
 to this particular kind of taxation. Thus a tax on a com- 
 modity can be seldom made ad valorem, and therefore 
 such a commodity as the tea which is purchased by a 
 poor man, is far more highly taxed than the tea which is 
 purchased by the rich. What test therefore will decide 
 whether the inequality consequent upon the difficulty of 
 making taxes on commodities ad valorem, is of more 
 serious moment than the discouragement which an in- 
 come-tax places on the accumulation of capital ? 
 
 It should moreover be rememberedthat some particular 
 section in the community must suffer a special injury, if 
 the incidence of a tax is unequal and unfair. Inequality 
 of taxation really signifies that a tax takes an undue 
 amount from some one class ; it is therefore evident that 
 all the particular defects which belong to each tax would 
 be intensified, and would produce a concentration of in- 
 equality with regard to some one class of the community, 
 if any tax should be so greatly increased that a large part 
 of the revenue should be raised by it. For instance, the 
 advocates of direct taxation would repeal most of the ex- 
 isting taxes on commodities, and would substitute an in- 
 come-tax in their place. An income-tax of 4<s. in the 
 pound would thus be probably required, and such a tax 
 could not be raised without increasing the evil conse- 
 quences of an income-tax in a far greater ratio than the 
 increase in the amount of the tax. Thus it is probable 
 that our present income-tax does not to any serious extent 
 discourage the accumulation of capital. But an increase 
 of the income-tax to 4s. in the pound would so powerfully 
 check the accumulation of capital, that the production of 
 wealth would be greatly diminished, and the wage-fund of 
 the country would also be so much decreased, that the 
 wages of the labourers would be considerably reduced. 
 Again, if the chief part of the revenue of the state were 
 raised by an income-tax, the inequality of taxation would 
 be greater than any existing at the present time, since 
 certain classes, such as traders and manufacturers, can 
 escape a portion of the tax without much fear of detection/ 
 Hence it seems it would be unwise to obtain the revenue 
 of a country exclusive^ by either direct or indirect taxation. 
 
CHAPTER IV. 
 
 ON THE LAND-TAX. 
 
 WE propose to discuss the land-tax in a separate 
 chapter, because in some respects this tax differs 
 in its incidence from all others. 
 
 The Land-tax possesses a special, practical importance 
 at the present time, for although it yields a very insigni- 
 ficant portion of the revenue of this country, yet a large 
 part of the revenue of our greatest dependency, India, 
 is provided by the taxes which are imposed upon land. 
 The nature and incidence of the land-tax will be clearly 
 understood, by considering the mode in which the do- 
 minion of Great Britain was established in India. The 
 British traders who first settled in that country found it 
 governed by a great number of petty rulers, who owned 
 the soil, and derived their revenue by making their sub- 
 jects pay a rent, or tax, for permission to cultivate the 
 land. The dominions of these native rulers were obtained 
 by the English, either by annexation, or by conquest ; 
 and, consequently, our government gradually became 
 possessed of a great portion of the soil of India, and could 
 exercise over it the same rights of property as those which 
 an English landlord exercises over his own estate. The 
 government in India takes the place of individual land- 
 lords, and the cultivators of the soil rent their land from 
 the government instead of from private landowners. It 
 therefore appears that there is no real, but simply a no- 
 minal distinction between a land-tax and rent, for in a 
 previous chapter it was shown that rent is the price 
 which is paid for the use of an appropriated natural 
 monopoly. If land has been appropriated by the govern- 
 ment, then the price paid for the use of this appropriated 
 
 BOOK IT. 
 CH. IV. 
 
 Peculiar 
 nature of a 
 land-tax. 
 Impor- 
 tance of 
 the land- 
 tax in 
 India. 
 
 The land- 
 tax is often 
 in the 
 nature of 
 rent. 
 
S70 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 OH. IV. 
 
 The land- 
 tax does 
 not injure 
 the culti- 
 vators of 
 the soil. 
 
 If the land- 
 tax exceeds 
 a raclc-rent 
 in amount 
 it must 
 raist the 
 price of 
 agricultu- 
 ral pro- 
 duce. 
 
 natural monopoly is received by the government, and is 
 termed a land-tax. If, however, the price is paid to a 
 private individual, then it is termed rent. 
 
 From these considerations it is evident, that, as far as 
 the cultivators of the soil are concerned, it can be a matter 
 of no consequence whatever to them, whether they pay a 
 land-tax to the government, or whether they pay rent to 
 private landowners. Hence a land-tax is no burden upon 
 the cultivator, nor does this impost cause any loss to the 
 rest of the community. It therefore follows, that a land- 
 tax, as long as it does not exceed a rack-rent, cannot in- 
 crease the price of products raised from the laud, for those 
 who grow the products would not sell them cheaper if 
 they paid rent to a private landlord, instead of paying the 
 same amount to the government in the form of a land-tax. 
 A land-tax consequently differs from all other taxes, for it 
 possesses the excellent quality of providing a large revenue 
 for the state without diminishing the wealth of any class 
 in the community. Those, therefore, are completely in 
 error, who quote the aggregate amount of taxation which 
 is raised in India, in order to prove how heavily the people 
 of that country are taxed. At least 20,000,000^. per annum 
 is obtained in India by the land-tax ; but it would be as 
 unreasonable to consider this amount as a burden laid 
 upon the people, as it would be to consider that the whole 
 rent which is paid to English landlords in this country is 
 an impost levied upon the cultivators of the soil. 
 
 It is, however, quite possible that a land-tax may exceed 
 a rack-rent in amount, and the tax would, in this case, 
 increase the price of agricultural produce. Suppose, as 
 an example, that our government should arbitrarily take 
 possession of all the landed property of this country. The 
 English farmer would then rent his land from the state, 
 and not from private individuals; the position of the culti- 
 vator would manifestly be unaffected by this appropria- 
 tion of property if rents were determined then, as now, by 
 competition. The same rack-rent would, in fact, be paid 
 by the farmers, and the price of agricultural produce need 
 in no way be influenced by such a transfer of property. 
 But let us enquire what would occur if the government 
 resolved to levy a greater rent, in the form of land-tax, 
 than the rack-rent which the cultivator previously paid. 
 
On the Land-Tax. 
 
 S7^ 
 
 Let it, for instance, be assumed that the government levies 
 oQQl. a year in land-tax from a farmer whose rent had 
 been previously 400i. a year. It will be remembered 
 that a rack-rent is the price which is paid for the use of 
 land when rents are determined by competition. Since, 
 therefore, free competition of capital is supposed to exist, 
 the farmer, after paying a rent of 400Z. a year, will realise 
 on the average of years the ordinary rate of profit upon 
 his labour and capital. The extra IQQl. a year which it 
 is assumed the government levies from him, he cannot 
 afiford to pay; or, in other words, the payment of this 
 additional sum will prevent him realising the ordinary 
 rate of profit upon his labour and capital, unless he 
 is compensated by a rise in the price of agricultural 
 produce. No class of traders will, however, continue an 
 occupation if it is permanently less profitable than other 
 branches of industry ; hence it is impossible for a land-tax 
 to exceed a rack-rent in amount without producing a rise 
 in the price of agricultural produce. It therefore follows 
 that all that portion of a land-tax which exceeds a rack- 
 rent in amount is really contributed by the consumers of 
 agricultural produce, since the price of such produce is 
 increased. 
 
 Other considerations show, that when a land-tax exceeds 
 a rack-rent in amount, a counteracting infiuence is brought 
 into operation which diminishes the aggregate revenue 
 which the land-tax yields. For it is evident that the im- 
 portation of agricultural produce will be encouraged, if the 
 price of such produce is artificially raised in the home- 
 market by an excessive land-tax. But if an increased 
 amount of produce is imported, a diminished quantity of 
 produce will be grown in the country itself Directly, 
 therefore, a land-tax is greater in amount than a rack-rent, 
 a tendency, is exerted to throw land out of cultivation. 
 This tendency will continue if the land-tax is increased, 
 and thus the area of land from which the tax can be levied 
 will be gradually restricted. 
 
 The land-tax which exists in our own country forms only 
 a very small part of the rent which is paid to private land- 
 lords. Such a tax should properly be considered to denote 
 that the state has reserved a small pecuniary share in the 
 ownership of the soil. The relative value of the shares 
 
 BOOK IV. 
 CH. IV. 
 
 A land-tax 
 which ex- 
 ceeds a 
 rack-rent 
 tends to 
 throw the 
 soil out of 
 cultiva- 
 tion. 
 
 The land- 
 tax in 
 England 
 only de- 
 notes that 
 the State 
 
572 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 OH. IV. 
 
 retains a 
 small in- 
 terest in 
 the soil. 
 
 An aug- 
 mentation 
 of the 
 land-tax 
 now would 
 injure the 
 land- 
 holders. 
 
 Tithes are 
 equivalent 
 to a rent- 
 charge. 
 
 which the landowner and the state respectively possess was 
 very different formerly to what it is now. The land-tax 
 in our own country has long since been commuted for a 
 fixed money payment, and the tax has consequently not 
 increased with the enormous advance in the value of 
 landed property. As far as the cultivator is concerned, it 
 makes no difference whether he pays the land-tax or not, 
 because if it is arranged that the tax should be levied 
 from him he manifestly pays so much' less rent to the 
 landlord. As before said, such a land-tax as that which 
 exists in England merely denotes the fact, that the state 
 possesses a certain pecuniary interest in the soil; and it is 
 therefore evident that both the profits of the cultivator 
 and the price of agricultural produce must be the same 
 whether the land-tax exists or not; or, in other words, 
 whether the state has, or has not, reserved for itself a 
 certain right of property in the soil. It would therefore 
 have been a fortunate circumstance for the nation if the 
 land-tax in this country were greater in amount than it is 
 at the present time. It would now, however, be an unjust 
 confiscation of property to increase the land-tax ; such an 
 augmentation of the tax would be paid entirely from the 
 rent of landowners, and would therefore be as indefensible 
 as any other impost levied upon one special class. But 
 it would have been a boon to the tax-paying community 
 if, when the land-tax was first imposed, its amount had 
 been fixed not at a certain sum of money, but at a 
 certain definite proportion of the value of the land. If 
 this arrangement had been adopted, the amount which 
 the land-tax yields to the revenue would have been con- 
 stantly augmented in proportion to the increase in the 
 value of the land ; the amount of revenue thus raised, 
 though constantlj' augmenting, Avould be felt as a burden 
 by no class, because the land-tax is, as it >vere, spon- 
 taneously provided by the appropriation of a natural 
 monopoly; therefore the tax will yield a larger revenue 
 as the value of this monopoly increases. 
 
 The tithe which exists in this country is essentially a 
 land-tax, and was originally equivalent in value, as its 
 name implies, to one tenth part of the produce of the 
 land. The tithe has not been usually termed a land- 
 tax, because it was originally appropriated to religious 
 
On the Land-Tax. 
 
 575 
 
 purposes, aud consequently did not form a part of the 
 general revenue of the state. Only a portion of the tithes 
 in this country has since the Reformation served as a 
 religious endowment, for tithes are now often possessed 
 by private individuals like any other kind of property. 
 A tithe is in fact a rent-charge upon landed property, 
 and this rent-charge is frequently not possessed by the 
 owner of the land. As far as the cultivator is con- 
 cerned, it manifestly can be a matter of no consequence 
 whether such a rent-charge does or does not exist. If the 
 land which he cultivates is tithe-free, the whole amount 
 which he pays for the use of it will be regarded as rent ; 
 if, however, the land should be subject to a tithe, the 
 amount which the cultivator pays for the use of the 
 land will be the same as it would be if the land were 
 tithe-free ; but the whole of this amount will no longer 
 be considered as rent, for it will be shared between the 
 landowner and the tithe-proprJetor. 
 
 The tithe, like the land-tax, would be now very insig- 
 nificant in amount, if it had been originally commuted at 
 a fixed money payment. Previous to the Tithe Commuta- 
 tion Act, which was passed in 1837, the tithe was assessed 
 as nearly as possible upon the principle of making it equi- 
 valent in value to one-tenth of the produce of the land ; 
 the tithe consequently increased as the value of landed 
 property increased, for the tithe would manifestly be aug- 
 mented if the productiveness of land increased, or if the 
 value of agricultural produce advanced. The main object 
 of the Tithe Commutation Act was to facilitate the assess- 
 ment of the tithe, and the amount which is now annually 
 paid as tithe is determined by the average price of corn 
 during the previous seven years. It is quite possible that 
 tithe-proprietors may be ultimately injured by this com- 
 mutation. The amount at which the tithe is now assessed 
 being solely determined by the price of corn, it is evident 
 that the tithe-proprietor is not benefited by a rise in the 
 price of stock. In this work the opinion has been fre- 
 quently expressed that stock is destined to become re- 
 latively much dearer than corn, because stock must be 
 always difficult to import, whereas the area from which 
 corn is obtained is rapidly extending. A tithe therefore 
 constantly represents in value a smaller proportion of the 
 
 BOOK IV. 
 OH. TV. 
 
 The Tithe 
 Commuta- 
 tion Act. 
 
 It may be 
 ultimately 
 injurious 
 to tithe- 
 proprie- 
 tors. 
 
574 
 
 Manual of Political Economy. 
 
 Titlie-pro- 
 prietors 
 derive no 
 benefit 
 ■from in- 
 creased 
 produc- 
 tivenesM of 
 the soil. 
 
 whole value of the produce raised from the land, if the 
 amount at which the tithe is assessed is not influenced hy 
 the rise in the value of stock, but is solely determined by 
 the price of corn. 
 
 A tithe-proprietor under the present commutation 
 derives no benefit from the increased productiveness of 
 land. Improved methods of tillage may double the 
 produce which is raised from a farm, and yet the tithe 
 paid upon it will not be increased, unless there is a rise 
 in the price of corn. It was no doubt with great force 
 urged by the promoters of the tithe commutation, that a 
 tithe-proprietor ought not to share with the landowner 
 the additional produce which results from superior agri- 
 culture. It was, for instance, maintained that the land is 
 rendered more productive by the expenditure of capital 
 upon it, and it would be unfair that the tithe-proprietor 
 should be benefited by an outlay of capital which has 
 been entirely contributed by the landowner. It was more- 
 over argued that the admission of this claim on the part 
 of a tithe-proprietor might seriously impede agricultural 
 improvements, since landowners would be reluctant to 
 invest capital if others were to share with them in the 
 advantages of the outlay. 
 
CHAPTER V. 
 
 THE POOR-LAW AND ITS INFLUENCE ON PAUPERISM. 
 
 WE have had frequent occasion to refer to the extra- 
 ordinary increase in wealth which has taken place 
 in England during the last quarter of a century. For 
 some time it appeared that an increase of wealth had no 
 effect whatever in diminishing pauperism ; on the con- 
 trary, the number of paupers steadily advanced with the 
 growing wealth of the country. Since 1871 up to the 
 present time, (1876), there has been a diminution in 
 pauperism; it is, however, difficult to decide whether the 
 tide has really turned, or whether the growth of pauperism 
 has simply received a temporary check. Whatever may 
 be the opinion held on this point, it is certainly of the 
 first importance to endeavour to explain the causes which 
 have produced such wide-spread pauperism in one of the 
 wealthiest countries of the world. 
 
 It has been frequently asserted that there is more 
 pauperism in England than in any other country. It is 
 difficult, with certainty, to prove whether or not we pos- 
 sess this unenviable pre-eminence. Our statistical returns 
 of misery are perhaps exceptionally accurate. It also not 
 improbably happens that the painful impression produced 
 by the poverty existing amongst us is intensified, because 
 it is so frequently contrasted with profuse and wicked ex- 
 travagance : but without expre.ssing any positive opinion 
 as to the relative amount of pauperism existing in different 
 countries, it is sufficient to say that at the present time 
 the pauper question is, in England, one of the gravest of 
 economic problems. 
 
 Those of our population who need relief obtain it in two 
 distinct ways; in the first place, any destitute person. upon 
 
 BOOK IV. 
 OH. T. 
 
 The preva- 
 lence of 
 pauperism 
 ire Eng- 
 land. 
 
 There are 
 two wayi 
 
576 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 CH. V. 
 
 of obtain- 
 ing relief, 
 poor-rates 
 and pri- 
 vate chari- 
 t'J. 
 
 The allow- 
 ance sys- 
 tem. Its 
 evil effects 
 in stimu- 
 lating po- 
 nulation. 
 
 application has a right to demand maintenance from the 
 poor-rates ; secondly, relief is voluntarily administered 
 by an almost countless number of private charitable in- 
 stitutions. "We shall attempt to trace some of the effects 
 which result from each of these systems of assisting the 
 impoverished. 
 
 The English are the only people who have ventured to 
 incur the grave responsibility of proclaiming that every des- 
 titute person possesses a legal right to be supported from 
 the rates. The adoption of such a principle of national 
 policy must be fraught with consequences of the utmost 
 importance. It is evident that if the relief which can be 
 legally claimed were administered with carelessness, or were 
 granted too profusely, pauperism might become a desirable 
 occupation, and the people who were supported by rates 
 might be better off than those who lived by honest toil. If 
 our poor-law exerted any such influence as this, it is cer- 
 tain that the country would be ruined ; nothing, in fact, 
 could avert national bankruptcy. At the beginning of the 
 century such a danger seemed impending, for pauperism 
 was steadily encouraged by the method of relief which was 
 adopted. At that time rates were often applied in such a 
 manner as to offer a direct reward to improvidence. It 
 was then the custom for parochial authorities to give 
 grants to able-bodied labourers, if their wages were in- 
 sufficient adequately to maintain them. The amount of 
 these grants was proportioned to the number of children 
 a man happened to have; those, therefore, would generally 
 obtain the most who had been most improvident with 
 regard to marriage. This system exerted much the same 
 influence in encouraging imprudence and in stimulating 
 an undue increase of population, as if employers were to 
 pay their labourers, not according to the amount of work 
 done, but in proportion to the number of their children. 
 These grants in aid of wages not only caused incalculable 
 mischief, but rates when applied to such a purpose were 
 really dishonestly appropriated; the wages of labourers 
 were, in fact, only in part paid by those who emplojed 
 them, the remainder being obtained from the ratepayers. 
 If any one profited by the system it was the landowner ; 
 for when wages are low, farmers can afford to pay higher 
 rents. The gain, however, to the landowners was more 
 
The Poor-Law and its Influence on Pauperism. 
 
 ^77 
 
 apparent than real, because it is upon them that a con- 
 siderable part of the burden of increased rates falls ; and 
 the gain, whatever it might have been in the first instance, 
 ■was purchased at an enormous ultimate cost. This country 
 is still feeling the effects of the stimulus which was then 
 given to improvidence ; and when landowners complain 
 of the excessive rates which are now imposed, they should 
 remember that no small portion of the poverty prevailing 
 in the rural districts is to be traced to the encouragement 
 to pauperism which was given by their forefathers. It is 
 difficult to trace all the pernicious influences which were 
 exerted upon the labourer by these grants in aid of wages. 
 All independence of character in him was destroyed ; he 
 was bound, as it were, hand and foot, to the authorities 
 from whom he obtained a portion of his maintenance; 
 so little freedom of action did he possess, that he might 
 be regarded as a serf attached to the soil. A combina- 
 tion of evil influences was thus brought to bear to de- 
 press and degrade the labourer, and the present unsatis- 
 factory condition of large sections of our population is a 
 proof that the mischief arising from the old state of things 
 has not passed away. 
 
 But pernicious as were these grants in aid of wages, 
 there were probably other circumstances connected with 
 our system of poor-law relief which produced even more dis- 
 astrous results. It is well known that the celebrated Act 
 of Elizabeth was our first poor-law. This Act not only 
 conferred upon every destitute person a legal claim to be 
 supported, but it also asserted a principle fraught with the 
 most momentous consequences ; that the relief should be 
 parochial, or, in other words, that each individual should 
 have a claim to be supported by the parish to which he 
 belonged. The adoption of the principle that each parish 
 should support its own poor necessitated the passing of 
 many complicated Acts, which sought to determine what 
 constituted 'belonging to any particular parish.' These 
 Acts were known as the Laws of Settlement. In the first 
 instance, it was affirmed that no one had a claim upon 
 any parish except upon the one in which he was born. 
 Parochial authorities were consequently tempted to prevent 
 any new comer from settling in their parish ; for even if 
 they could discover the place in which he was born, they 
 
 BOOK IV. 
 OH. V. 
 
 • 
 
 Tlie Law 
 of Settle- 
 ment. 
 
 F. M. 
 
 00 
 
578 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 CH. V. 
 
 The New 
 Poor Law 
 of 1834 
 discourag- 
 ed out-door 
 relief. 
 
 might have the expense of sending him back to his own 
 parish in the event of his applying for relief. The circula- 
 tion of labour was almost prohibited, and incalculable loss 
 was inflicted both upon employers and employed. In one 
 district there was often a superfluity of labour, and in 
 another district a corresponding dearth. From time to 
 time remedial measures were attempted ; thus, in the 
 reign of William III., an Act was passed which permitted 
 parish officers to grant certificates, stating the particular 
 parish to which an individual was chargeable. The pos- 
 sessor of one of these certificates was more likely to be ad- 
 mit1;ed into any parish where he was anxious to seek 
 employment ; but grave hardship was still inflicted upon 
 the labourers ; they had not the power to claim these 
 certificates as a right, and therefore the parish authorities 
 would often refuse to grant them, fearing that the migra- 
 tion of labour might tend to advance its price. It seems 
 that no effectual remedy either was or could be applied ; 
 and Adam Smith, in his ' Wealth of Nations,' asserted 
 that there was probably no artizan of forty years of age 
 who had not suffered from the law of settlement. As time 
 went on, more and more injury was inflicted on the coun- 
 try by our poor-laws. Allowance in aid of wages and 
 recklessness in granting out-door relief were gradually 
 pauperising the country, and the rates, which were con- 
 stantly increasing, absorbed a large portion of the profits 
 of industry. At length it became evident that something 
 decided must be done, and in the year 1834 a most im- 
 portant Act was passed, which is known as the New Poor 
 Law. The chief characteristic of this Act was the dis- 
 couragement of out-door relief Guardians obtained the 
 power to refuse out-door relief altogether ; if any person 
 applied for relief, the guardians could compel the appli- 
 cant to become an inmate of the workhouse; and resi- 
 dence in the workhouse is usually regarded as a kind of 
 imprisonment. 
 
 It was no doubt intended that under this New Poor 
 Law in-door relief should be the rule and out-door relief 
 the exception. This was the principle on which the Act 
 was for some years administered, and as long as this 
 policy was continued, so decided a check was given to 
 pauperism that the number of paupers steadily dimi- 
 
The Poor-Law and its Influence on Pauperism. 
 
 S79. 
 
 nished. Unhappily, however, parochial authorities soon 
 adopted so different a method of administering relief that 
 out-door relief became the rule and ia-door relief the 
 exception. At the present time the out-door paupers ex- 
 ceed the in-door paupers in the proportion of four and a 
 half to one. The preference which is thus shown to grant 
 out-door instead of in-door relief is, no doubt, partly 
 prompted by notions of false economy, and partly by 
 sentiments of mistaken kindness. It is thought that in- 
 door relief is more expensive because the average cost of 
 maintaining an ia-door pauper exceeds the cost of main- 
 taining an out-door pauper. The saving which may thus 
 in the first instance be effected is most dearly purchased. 
 All experience shows that out-door relief gives so powerful 
 a stimulus to pauperism that the cost is ultimately far 
 greater than it would be if the principle were adhered to 
 of making in-door relief the rule and out-door relief the 
 exception. It also, no doubt, frequently happens that 
 out-door relief is preferred to in-door relief from the 
 feeling that the poor are somewhat harshly dealt with if 
 they are compelled to enter a workhouse instead of re- 
 ceiving relief in their own homes. 
 
 All experience shows that if there were greater diffi- 
 culty in obtaining out-door relief, many persons who are 
 now constant recipients of it would not be paupers at 
 all. Many persons who cheerfully accept out-door relief 
 as if it were a kind of pension would refuse to enter a 
 workhouse, and their relatives would gladly contribute to 
 their support, if it were known that the only way in which 
 they could obtain poor relief would be by entering the 
 'house.' This feeling operates very powerfully in Ire- 
 land, where, as will be presently shown, out-door relief is 
 rarely given ; and Ireland in this respect offers a favour- 
 able contrast to England and Scotland, where out-door 
 relief is more freely given, and where it is perfectly well 
 known that no inconsiderable portion of those who are 
 paupers are obliged to depend upon parochial relief be- 
 cause their children and other relations do not afford 
 them succour in their old age or in times of temporary 
 distress. 
 
 It cannot be too constantly borne in mind that the 
 majority of those who obtain parochial relief have either 
 
 002 
 
 BOOK IV. 
 OH. V. 
 
 TJie social^ 
 effects of 
 
■SSo 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 OH. V. 
 
 tli£ poor- 
 law. 
 
 Truden- 
 tial liabits 
 (ire dis- 
 couraged. 
 
 brought poverty on themselves by improvidence and in- 
 temperance, or have not taken proper precautions to ward 
 it off. It must also be remembered that poor-rates never 
 reward the industrious ; in fact, relief is almost forbidden 
 to those who have done something to help themselves. 
 Two individuals, Robinson and Smith, are fellow-work- 
 men, earning the same wages, and each of them has a 
 family to maintain. Robinson is thrifty, and is resolved 
 not to be dependent upon others. Through careful sav- 
 ing, he sets aside enough to purchase a small annuity, 
 upon which he maintains himself when he is too old 
 to work. Smith is a very different man, he lives reck- 
 lessly, never thinks of the morrow, is a frequenter of the 
 public-house, and, never having saved a shilling, iinds 
 himself penniless in his old age ; he therefore claims sup- 
 port from his parish ; possibly three or four shillings each 
 week is granted to him in the form of out-door relief. 
 Robinson never gets a farthing from the rates. A shilling 
 or two a week, added to the small annuity which he has 
 obtained by the exercise of self-denial, would give him 
 much additional comfort and happiness; but if he ven- 
 tured to make such an application for assistance, the 
 parochial authorities would say, ' You are the possessor of 
 an annuity which, though small, is sufficient to keep you 
 from starvation, and we cannot grant you a farthing from 
 the rates.' He might reply, 'My neighbour Smith, who 
 had in past years the same opportunity of saving as I 
 have had, is receiving each week three shillings from the 
 parish, and I only ask for one shilling.' The parochial 
 authorities would rejoin, 'You, Robinson, have been so 
 prudent that you can just manage to live without any 
 assistance from us, and therefore we shall give you no- 
 thing; your neighbour Smith has been so intemperate 
 and so improvident that we shall support him until he 
 dies.' 
 
 Cases analogous to the one just described are of daily 
 occurrence ; in fact, they denote a leading characteristic 
 of our poor-law system. Thousands, consequently, jq 
 whom it is most important to promote prudential habits 
 are discouraged from making any self-sacrifice, when they 
 observe that the parish does nothing for the industrious 
 whereas it creates a refuge and an asylum for those who 
 
The Poor-Law and its Influence on Pauperism. 
 
 S8r 
 
 have spent their resources improvidently, or who have 
 wasted their substance in drink. But the injustice of 
 the system does not stop here. The working man often 
 finds that the small savings which he has accumulated 
 with so much difficulty are taxed and rated in order to 
 provide support to those who are reckless and unthrifty. 
 He may, for instance, fairly say — 'Is it not unjust that I 
 should have to pay this money ? Many of those who are 
 supported by rates ought to have been better off than I 
 am. There is a neighbour of mine who, although too old 
 for work, has to support a large young family, because he 
 married a second time when advanced in life. This man 
 will soon have to go upon the parish, and is it not hard 
 that I should be taxed in order to maintain one who 
 commits such an act of reckless folly ? ' Such sentiments 
 as these not only command sympathy, but deserve most 
 careful attention. It may, perhaps, be thought that out- 
 door relief is so scanty, and life in the workhouse is so 
 much dreaded, that those who become paupers really 
 sink into this condition from circumstances which they 
 cannot control. Some there are, no doiibt, whose wages 
 are too small to enable them to make any adequate pro- 
 vision against old age or sickness. Oth«rs are reduced to 
 poverty by unforeseen and unavoidable accidents; and 
 those who impoverish themselves are usually made intem- 
 perate and improvident by the force of early associations, 
 and by defective education. But admitting the truth of 
 all this, the question still remains, ' What influence have 
 the poor-laws in making the remuneration of some 
 labourers so small that they cannot save sufficient to 
 provide a maintenance for themselves in old age?' Our 
 system of parochial relief may exert a most pernicious 
 influence upon a man's character, although at the time 
 when he is making an improvident marriage, or is living 
 intemperately, he does not calculate the assistance he 
 may ultimately derive from the rates. 
 
 Our agricultural labourers afford a melancholy example 
 of wages being so small that saving is rendered almost 
 impossible. A married man with only 12s. a week is 
 insufficiently provided with many of the necessaries of 
 life, and if he attempted to save, he would have to de- 
 prive himself or his family of either food, fuel, or clothing, 
 
 BOOK IV. 
 CH. T. 
 
 Influence 
 of parochi- 
 al relief in 
 depressing 
 wages. 
 
582 
 
 ' Manual of Political Economy. 
 
 BOOK IV. 
 CH. T. 
 
 Ought 
 parochial 
 relief to be 
 abolished? 
 
 which they urgently require. But it has been previously 
 remarked that the vicious system of granting parochial 
 relief which formerly prevailed in the rural districts has 
 done much to reduce the agricultural labourers to their 
 present low condition. Improvident marriages were en- 
 couraged, over-population resulted, wages were reduced, 
 and the people were thus gradually accustomed to submit 
 to a low standard of material comfort. The improvidence 
 has continued after many of the agencies which origi- 
 nally promoted it have been modified. Children imitate 
 the example of parents, and the habits of imprudence 
 which were fostered by the allowance system remain, 
 although that system has ceased to operate. The help- 
 lessness and the dependence which are such character- 
 istic faults of our rural population have been inherited 
 from those times when men were taught to rely more 
 upon the parish than upon their own efforts. If the 
 Dorsetshire labourer had more spirit and more self- 
 reliance, he would soon insure an advance in his wages. 
 He would not consent to drag out a miserable existence 
 on 12s. a week, when he could obtain for the same 
 kind of work in Yorkshire or in Lancashire forty or 
 fifty per cent. more. If he had a little more knowledge 
 and a little more enterprise, he would at once decide to 
 emigrate if he could not live in adequate comfort in 
 his own country. 
 
 Believing as we do that the poor-laws have not only 
 exerted a most baneful influence in the past, but are 
 also at the present time offering a most serious encou- 
 ragement to improvidence, the question may be asked, 
 'Would it be wise and just to abolish the legal claim 
 to be maintained which every destitute person now has ?' 
 To this question it may at once be replied that it would 
 be neither wise nor just to introduce such a fundamental 
 change precipitately. The country ought to have due 
 warning, so that adequate preparations might be made 
 to meet the new state of things. The abolition of paro- 
 chial relief ought to be carried out gradually, and should 
 form a part of a comprehensive scheme of social and 
 economic reform. The condition of the people is made 
 what it is by the operation of a great variety of agencies 
 which act and react upon each other; it is this which 
 
The Poor-Law and its Influence on Pauperism. 
 
 583 
 
 makes it so necessary that our statesmen should rely upon 
 systematic and not upon isolated measures. To show 
 how intimate is the connection between various social 
 agencies, it may be sufficient to remark that ignorance 
 is one chief cause of poverty, and that poverty exerts 
 a powerful influence in making the education of the 
 people defective. As another illustration we may 
 refer to the fact that parochial relief has done much 
 to lower the condition of the people, and until their 
 condition is raised, they cannot do without this relief. 
 It would, therefore, be unwise to abolish parochial relief 
 until agencies have been brought into operation to ele- 
 vate the social condition of the country. If, for instance, 
 it is assumed that the State will in future permit large 
 sections of our population to grow up in ignorance, the 
 abolition of parochial relief will, under such circum- 
 stances, be rendered impracticable. Those who are sunk 
 in ignorance will not, as a general rule, be sufficiently 
 provident to render themselves independent of extraneous 
 support: for thrift and foresight imply a certain amount 
 of moral development which rarely exists in the absence 
 of mental cultivation. It is therefore hopeless to expect 
 that our poor-laws can be abolished until one generation 
 has been brought under the influence of a comprehensive 
 system of national education. 
 
 It is well that people should, as soon as possible, be 
 accustomed to the idea that manifold evils result from the 
 claim which is now possessed to demand maintenance as a 
 legal right; the abolition of this right ought therefore to be 
 anticipated as a more than probable contingency. Unless 
 some such warning as this is given, adequate preparations 
 will never be made to meet the new state of things. Every 
 man neglects a clear and important duty if he does not, in 
 the absence of other means of subsistence, use every effiart 
 to support himself and his family by his own labour. It 
 may be objected that many who are sincerely anxious to 
 discharge this duty have not the requisite means; wages 
 are too low, employment is too uncertain, the cost of living 
 is so great, that men even in the vigour of life find that 
 they have nothing to spare: how then is it possible to 
 make a provision for old age, for sickness, or for various 
 casual misfortunes which are liable to arise from financial 
 
 BOOK IV. 
 OH. V. 
 
584 
 
 Manual of Political Economy. 
 
 BOOK IT. 
 OH. V. 
 
 The 
 amount 
 spent ty 
 the poor 
 in spirits 
 shows that 
 they have 
 the power 
 to save. 
 
 The State 
 ought not 
 to guaran- 
 tee em- 
 ployment. 
 
 panics and depressed trade? But those who raise these 
 objections should remember that vast numbers who, at the 
 present time, do not save, could save if they had the incli- 
 nation to do so. Millions are annually spent, not in the 
 purchase of a reasonable quantity of wholesome beer, but 
 in excessive drinking. A man who works hard may be 
 benefited by a moderate use of sound beer, but nearly the 
 whole of the vast amount which is expended in spirits is 
 money worse than wasted. If one half of the outlay thus 
 incurred by working-men were each year set aside to 
 purchase annuities, and if the other half were devoted 
 to life insurance, no inconsiderable proportion of our in- 
 dustrial population would be able to procure a comfortable 
 competence in old age, and would leave behind them an 
 adequate amount to maintain their widows and children. 
 
 The economic and social condition of England ought to 
 be regarded as radically unsound and unsatisfactory until 
 it becomes the custom, and not, as it is now, the excep- 
 tion, or working men to insure their lives, and to provide 
 themselves with annuities for their old age. The acquisi- 
 tion of these habits of prudence is discouraged not only by 
 the whole tone of public opinion, but also by the sentiments 
 of professed moralists. Those who aspire to be popular 
 are never tired of proclaiming that every man has a right 
 to live, and that the State ought to find work for those 
 who need employment. Sympathy, moreover, is ever 
 readily extended to those who are said to be so unfortu- 
 nate that they have a wife and a numerous family without 
 anything to keep them upon. Whilst such doctrines as 
 these obtain acceptance, wages must remain low and 
 pauperism will continue to afflict the land. Those who 
 say that the State ought to find work for all who need it 
 should inquire from what source the State will obtain the 
 wages to pay all those who may demand employment. 
 The State has not inexhaustible coffers, which are kept 
 ever full by the bounty of nature, and from which riches 
 spontaneously flow, as from a perennial fountain. Every 
 shilling which the State expends represents considerably 
 more than a shilling taken from the aggregate body of 
 tax-payers who compose the nation. It is an old sayintj 
 that taxes keep out of the pockets of the people far more 
 than they yield to the national exchequer. It, therefore 
 
The Poor-Law and its Influence on Pauperism. 
 
 5^5 
 
 "would probably be necessary to diminish the wealth of 
 the nation by at least 6,000,OOOZ., in order to obtain 
 5,000,000?., as a capital Tivherewith to employ State 
 labourers. Can it be supposed that capital procured 
 in this costly way would return the ordinary rate of 
 profit ? A private business carried on under these con- 
 ditions would inevitably fail. Governments have hitherto 
 proved themselves to be the most wasteful and unsuccess- 
 ful traders. Labourers would apply to the State for work, 
 when individual capitalists could not employ them profit- 
 ably ; but, if this were the case, how much less profitably 
 could they be employed when under the comparatively 
 irresponsible and incompetent supervision of some Govern- 
 ment department ! If the plan of giving work to all 
 applicants were fully carried out, our industrial popula- 
 tion would lose self-respect, and soon become demoral- 
 ised ; many of them would cease to attribute any con- 
 sequence to a dismissal from an employer's service, for 
 they would feel that they could always fall back upon 
 the State. Under existing circumstances it behoves every 
 one carefully to consider the particular nature of his own 
 trade ; in those employments which are precarious, higher 
 wages are paid, and a portion of these extra wages ought 
 to be set aside as a reserve fund. But what need would 
 there be for this prudence if each individual could de- 
 mand work from the State immediately his trade became 
 temporarily depressed ? It no doubt seems hard that 
 men who are anxious to work should be compelled to 
 remain idle. But sometimes it is necessary to act with 
 apparent harshness, in order to prevent in the future 
 the existence of an increased amount of human suffering. 
 It would be well if it were more frequently remembered 
 that the functions which the statesman has to discharge 
 to society are often analogdus to those which the physi- 
 cian fulfils to the individual. A surgeon who, in order 
 to save a patient some temporary pain, hesitates to re- 
 move a source of future suffering, does not deserve to be 
 praised as a kind man, but ought to be severely censured. 
 In the same way it is equally true that a statesman who, 
 from a sentiment of mistaken kindness, does not strive to 
 check, but rather encourages, the causes which produce 
 such a social evil as pauperism, is really an enemy to man- 
 
 BOOK IV. 
 
 CH. ¥. 
 
586 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 CH. T. 
 
 Govern- 
 ment inter- 
 vention 
 even dur- 
 ing the 
 cotton 
 famine 
 was not 
 permanent- 
 ly bene- 
 ficial. 
 
 kind, although his intentions may be good and his motives 
 excellent. Thus it would be an agreeable act of generosity 
 to give work to all who needed it ; but such a policy ought 
 to be firmly resisted, for it would ultimately intensify 
 and augment the evils which in the first instance it 
 alleviated. Men would seek employment from the State 
 when they could not obtain it from private individuals ; 
 or, in other words, the State would be appealed to when 
 the supply of labour exceeded the demand. The State 
 would be justified in granting this aid if, by its agency, 
 the supply of labour would be ultimately equalised to the 
 demand ; but such Government intervention, instead of 
 creating this equilibrium, would in a few years widen the 
 difference between the supply and the demand. People 
 who cannot obtain work will very probably emigrate, and 
 in this way a portion of the surplus labour will be drafted 
 off. Again, those who are unemployed cannot afford to 
 marry; statistics, in fact, conclusively prove that the num- 
 ber of marriages varies with the prosperity of the labour- 
 ing class. The supply of labour would continue perma- 
 nently to exceed the demand for it, if the State undertook 
 to find employment for all applicants ; the two sources of 
 relief would be checked ; emigration would be discouraged, 
 and population, instead of being restrained, would be 
 stimulated. 
 
 Some who agree with the observations which have just 
 been made may be inclined to think that the Government 
 ought to find employment in times of occasional depression. 
 Few would presume to assert that in no case would such a 
 policy be justifiable : our object is rather to show that the 
 cases which warrant such Government interference are 
 much less frequent than is usually supposed. Lancashire 
 during the cotton famine, will be very probably considered 
 to present a case in which the advantages of Government 
 intervention can scarcely be disputed ; but there are some 
 considerations which ought to make us pause before we 
 conclude that the Lancashire operatives derived any per- 
 manent benefit from the pecuniary assistance which the 
 Government rendered them. It must be remembered 
 that, during the American civil war, there was no marked 
 decrease in the aggregate production of manufactured 
 goods throughout the United Kingdom. What was lost 
 
The Poor-Law and its Influence on Pauperism. 
 
 587 
 
 by Lancashire was to a great extent gained by other 
 localities ; the woollen, the worsted, the jute, and the linen 
 trades became unusually prosperous ; Leeds, Bradford, 
 Dundee, Belfast, and other towns rapidly advanced in 
 wealth. If, therefore, affairs had been permitted to take 
 a more natural course, a great number of the unemployed 
 Lancashire operatives would have migrated to these locali- 
 ties, where their labour was particularly required. As it 
 was, the loans obtained from Government encouraged 
 these operatives to remain in their own county in a state 
 of semi-starvation. The mischief thus done continued 
 to operate for many years after the cotton famine had 
 ceased. Lancashire for a long time had more labour 
 than she needed, and manufacturers were obliged to 
 work their mills on short time. It therefore appears 
 that the policy that was pursued not only increased the 
 sufferings of the people during the cotton crisis, but im- 
 peded the return of prosperity. 
 
 It must moreover be borne in mind that each time the 
 Government interferes, an influence is brought into opera- 
 tion which makes the people rely less upon their own 
 efforts. It is now most painful to observe, that imme- 
 diately any adverse circumstance occurs, our artizans have 
 no reserve fund to fall back upon. England's condition 
 cannot be satisfactory while so large a proportion of the 
 working classes literally live from hand to mouth. 
 
 It would often be necessary to travel many miles before 
 an agricultural labourer could be found who had saved 
 even a few shillings ; but it appears that others besides 
 our worst-paid labourers are living in this precarious way. 
 A year or two since it happened that the London builders, 
 in consequence of a temporary depression in trade, were 
 obliged to discharge many of their hands ; within three 
 days these men were parading the streets, and were asking 
 the public to relieve their dire necessities. Misfortunes 
 may sometimes happen, so overwhelming and so unfore- 
 seen, that those who are overtaken by them ought either 
 to be helped by the Government or assisted by private 
 charity. But everything ought to be done to make the 
 people feel that they must expect such assistance only in 
 the most exceptional cases. 
 
 Private charity frequently produces a more demoralizing 
 
 BOOK IT. 
 CH. V. 
 
 Influence 
 of private 
 charity. 
 
588 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 CH. V. 
 
 The waste- 
 fulness of 
 charitable 
 societies. 
 Investiga- 
 tion by the 
 ' Times.' 
 
 efifect than bounties obtained from the State ; those who 
 have money to spare find it far more agreeable to give some 
 of it away than to take the trouble carefully to investigate 
 the purposes to which it is devoted. A man, for instance, by 
 subscribing lOOOZ. to some charitable society, eases his con- 
 science, and enjoys the pleasure of seeing his act of benevo- 
 lence widely advertised. If our charitable institutions were 
 closely scrutinised, few of them would be found to obey 
 the maxim that those alone ought to be helped who have 
 striven to rely upon self-help. It often happens that the 
 most hypocritical obtain the largest share of private bene- 
 factions ; those who are too independent to beg, frequently 
 remain unaided and unnoticed. It also usually occurs 
 that the most earnest appeals for assistance are made on 
 behalf of those who have committed some wilful act of 
 improvidence. There is no one, for instance, who is sup- 
 posed to have so strong a claim upon public sympathy as 
 a clergyman, who has to maintain a wife and a very large 
 family upon an annual income of 1001. Those who exert 
 themselves to assist such a man virtually give a bribe to 
 improvidence. If a more healthy tone of public opinion 
 prevailed, society, instead of rewarding, would most se- 
 verely condemn a man who brings children into the world 
 without the means of adequately maintaining them. 
 
 It has been shown in a very able pamphlet by Dr 
 Hawkesley, that the amount annually given away in 
 charity in London is more than 5,000,OOOZ. Scarcely any 
 part of this sum rewards the frugal and the industrious ; 
 by far the largest portion of it, by being bestowed upon 
 the improvident, exerts a direct tendency to increase and 
 perpetuate poverty. 
 
 In 1869 the proprietors of the Times newspaper^ ren- 
 dered a most signal service to the public by publishing 
 a synopsis of a great number of London charities. Mr. 
 Hicks, who so ably conducted this investigation, carefully 
 examined the accounts of some charities whose combined 
 income exceeds 2,000,000?. annually. Some of the facts 
 he disclosed are extremely startling. The accounts of 
 many charitable societies are so loosely kept that they are 
 absolutely worthless, and, in many cases, a great portion 
 
 1 The Times, February 11, 1869. 
 
The Poor-Law and its Influence on Pauperism. 
 
 589 
 
 of the amount annually subscribed is expended in agency 
 and in the cost of collection. The Times significantly, 
 remarked : " It must be considered, in fact, condemnatory 
 of the whole system, that a quarter of the contributions 
 of the public should be swallowed up in agency. The 
 charity of the public is seen flowing on all sides, but 
 there is no reservoir, no regular channel. The stream 
 is dissipated in little rivulets, and wasted in innumerable 
 small conduits." 
 
 Not a few of those who give money for charitable 
 purposes are desirous to secure some posthumous fame. 
 They therefore decree that, for all time to come, a sum of 
 money shall be annually applied in some particular way 
 with which their names shall be associated. The condi- 
 tions which are imposed upon those who obtain these 
 benefactions often exhibit the strangest freaks of folly, 
 vanity, and superstition ; old men and women receive a 
 certain quantity of bread or money if they attend church 
 regularly; thus tempted, poor decrepit creatures, in the 
 most inclement weather, drag their weary limbs to church, 
 and sit shivering through a long service, though often they 
 may be too deaf to hear a single word that is spoken. 
 Some unknown person supposes that his name will be 
 handed down to posterity as a good and pious man, be- 
 cause he compels people to go through this cruel farce. 
 Sometimes almshouses are built, and, in these, men are 
 supported who have been too improvident to save ; and in 
 other cases a maintenance is given to widows whose 
 husbands have been too imprudent or too self-indulgent to 
 insure their lives. Where there is one successful appli- 
 cant for this kind of relief, there are probably scores who 
 are unsuccessful, and these live in a miserable state of 
 suspense. The most shameful jobbery has often been 
 associated with the administration of these endowments ; 
 sometimes the trustees of charities have granted favourable 
 leases to their friends and relations; sometimes a more 
 petty kind of meanness has been practised ; — an influential 
 person has secured a charity for some old servant who, by 
 rendering his master a long life of faithful service, ought 
 to have had the strongest claims upon his private gene- 
 rositv. Many of these abuses have been corrected since 
 the Charity Commissioners were appointed in 1853 ; but 
 
 BOOK IT. 
 CH. V. 
 
590 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 CH. V. 
 
 Charitable 
 endow- 
 ments 
 might he 
 devoted to 
 education. 
 
 there are many grievances still remaining imredressed, and 
 the greatest advantage would result from investigating all 
 the charities of the kingdom, with a view of organizing 
 them according to some systematic plan. 
 
 In numerous instances, primary and secondary schools 
 might be supported by consolidating benefactions, which 
 now often produce far more mischief than good. The 
 carrying out of such a policy would moreover be a practical 
 adoption of the important principle, that no one should be 
 permitted to decide the particular purposes to which pro- 
 perty should be permanently devoted. When land or 
 money is bequeathed to private individuals, a control can- 
 not be exercised over it for more than two generations. 
 Thus an estate may be disposed of by will to any number 
 of living persons, and for twenty-one years after the death 
 of the survivor ; but if it were attempted to arrange the 
 disposal of the property for a longer period, the bequest 
 would become illegal, and therefore void. There can be no 
 valid reason why people should be enabled to exercise a 
 perpetual control over property which they wish to appro- 
 priate to charitable purposes. 
 
 In the remarks which have just been made, there has 
 been no intention to express any opposition to the ex- 
 ercise of charity. We have' simply striven to show that 
 gifts or bequests which are made from the kindest and 
 most generous motives, if inconsiderately employed, often 
 produce grave mischiefs. An individual is bound to con- 
 sider carefully what wiU be the effects which will result 
 from any charity which he may wish to dispense. Ex- 
 perience has shown that it is not always wise or safe to 
 place implicit confidence in benevolent intentions. It 
 ought also to be constantly borne in mind that as it is 
 impossible to foresee the social wants of the future, no at- 
 tempt ought to be made to trammel posterity by devising 
 rigid rules for the administration of a particular bequest. 
 
 The abuses which are associated with the administration 
 of private charities may be thought to furnish a strong 
 argument in favour of our poor-law system. It may, for 
 instance, be said that these and kindred abuses would be 
 greatly intensified if poverty could obtain only casual and 
 uncertain relief, derived from private benevolence. The 
 clever beggar and the skilful impostor would thrive upon 
 
The Poor-Law and its Influence on Pauperism. 
 
 591 
 
 the alms of careless and credulous donors ; -whereas thou- 
 sands who would not beg would die from starvation, un- 
 heeded and undiscovered. It must, however, be remem- 
 bered that England is the only country in which a man 
 can claim maintenance as a legal right. It would, perhaps, 
 be unfair to make a comparison between England and 
 new countries, such as the United States and Australia, 
 which possess boundless tracts of unoccupied fertile land ; 
 but turning to the Continent, it will be found that in 
 France and in Prussia there are no poor-laws similar to 
 our own, and these countries show that it is not necessary 
 to have a poor-law to prevent widespread starvation. In 
 London, in proportion to the population, as many people 
 die from want and exposure as in Paris or Berlin. More- 
 over, in England we suffer from the evils which result 
 both from private and parochial relief; for although we 
 have most burdensome poor-rates, yet at the same time 
 there is probably no country in which so much is annually 
 spent in private charity. In spite of all which is thus 
 done publicly and privately, pauperism still exists to a 
 most serious extent. When any extra strain is put upon 
 our poor-law system it absolutely breaks down. When 
 the Lancashire operatives were thrown out of employment 
 during the American war, all the resources of parochial 
 relief were exhausted in a few months ; loans of money 
 had to be obtained from the Government, and earnest 
 appeals were made to the whole nation for assistance. 
 At every returning Christmas the newspapers are filled 
 with accounts of those who are suffering the horrors 
 of starvation; the public is entreated to relieve cases 
 of pressing necessity. Does not all this conclusively 
 prove that our poor-law system fails to reach thousands 
 who most need assistance ? All these evils cannot be 
 eradicated in a day ; but we should at any rate attempt 
 to introduce a new state of things when it is seen 
 that the policy which is now pursued does not destroy or 
 even check, but on the contrary stimulates, pauperism. 
 As previously remarked, the change should be brought 
 about gradually, for people who have been reared on the 
 existing system of relief ought not at once to be sub- 
 jected to an entirely different treatment. 
 
 Without pretendmg fully to detail the new policy which 
 
 BOOK IV. 
 CH. V. 
 
 Break- 
 down of 
 the present 
 poor-law 
 system. 
 
 National 
 education 
 
592 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 CH. V. 
 
 and other 
 reforms 
 would di- 
 minish 
 pauperism. 
 
 Out-door 
 relief 
 ought to 
 he greatly 
 restricted. 
 
 ought to be adopted, it is not difScult to suggest some 
 tilings which should be done. It has frequently been 
 proved that a comprehensive scheme of national education 
 would exert a most powerful influence in diminishing 
 pauperism. It might also be shown that a similar in- 
 fluence would be exerted upon pauperism by the effect 
 which will be produced on poverty by various other cir- 
 cumstances ; such as the improvement of the relations 
 between capital and labour ; the more general adoption of 
 the cooperative principle in industry ; the reform of the 
 tenure of land ; the reduction of taxation ; the extension 
 of free-trade ; and the encouragement of emigration. 
 Associated with the working of all these beneficial 
 agencies, it is most important that some changes in our 
 present poor-law system should be immediately carried 
 out. 
 
 Nothing demands more serious consideration than the 
 large amount which is spent in granting out-door relief. 
 It will be invariably found that there is the most pauper- 
 ism in proportion to the population in those districts 
 where out-door relief is most freely given. In some rural 
 unions the out-door paupers exceed the indoor paupers in 
 the proportion of 20 to 1 ; and in these localities it often 
 happens that no less than one out of every fourteen of 
 the population is a pauper. What has happened however 
 in London during the last few years affords a striking 
 example of the intimate connection which exists between 
 the administration of the poor-law and the amount of 
 pauperism which is produced. By a very remarkable 
 return which was published by the Poor-Law Board in 
 1870, it appeared that the amount spent in out-door relief 
 in London in the previous nine years had increased by 
 130 per cent., and during this time pauperism went on 
 increasing, 'even in years of exceptional prosperity such 
 as 1869 and 1870. About that time several circumstances 
 took place which led to the discouragement of out-door 
 relief, and the effect which has been produced in diminish- 
 ing pauperism is most remarkable. Many boards of 
 guardians, and especially those of the poor districts of 
 the East of London, became alarmed at the grojvth of 
 pauperism and at the rapid increase in rates. They there- 
 fore determined to administer the poor-law with more 
 
The Poor-Law and its Influence on Pauperism. 
 
 593 
 
 care, and to confine the granting of out-door relief within 
 the narrowest possible limits. This policy of restricting 
 out-door relief was encouraged by an act passed by Mr 
 Goschen in 1870, which made the cost of maintaining 
 in-door paupers a metropolitan charge, whilst each union 
 had still to bear the cost of maintaining its out-door poor. 
 The guardians therefore of any particular union have thus 
 a direct pecuniary inducement to make as many as pos^ 
 sible of those who apply for relief enter the workhouse, 
 because the cost of their maintenance as long as they 
 are in the workhouse is thrown upon the entire metro- 
 polis. It is most important to observe that this restriction 
 of out-door relief has produced a steady and marked 
 decline in pauperism, and the decline has been in no way 
 checked by the great depression in trade which has 
 characterised the years 1875 — 6. During these two years 
 the number of paupers in London in receipt of relief in 
 the first week in June has declined from 96,071 to 79,816. 
 During the previous four years the diminution of pauper- 
 ism had been no less than 30 per cent., and it is to be 
 particularly noted that this decrease of pauperism is 
 entirely due to a diminution in the number of out-door 
 paupers. In some of the East London unions, which 
 are usually supposed to be the poorest parts of the 
 metropolis, there are fewer out-door than in-door paupers ; 
 and in proportion to population there is, now,, not one- 
 third as much pauperism in such poor parishes as Shore- 
 ditch, Bethnal Green, and Whitechapel, as there is in 
 many rural unions. There can be little doubt that a 
 great improvement in the administration of the poor-law 
 would be introduced if the principle of Mr Goschen's act 
 were applied to the whole country. This might be done 
 either by making out-door relief a parochial charge, and 
 in-door relief a union charge ; or by making each union 
 bear the cost of out-door pauperism, and throwing the 
 charge of in-door pauperism upon a larger district, for 
 instance, the county. 
 
 But striking as is the evidence afforded by what has 
 occurred in London, of the discouragement which is given 
 to pauperism by a judicious administration of the poor- 
 law, we obtain still more conclusive proof of the ill-etfects 
 of out-door relief from comparing the results of the Irish 
 
 BOOK IT. 
 CH. V. 
 
 The effect 
 of recent ■ 
 legislation 
 en metro- 
 politan 
 pauperism. 
 
 ¥. M. 
 
 PP 
 
594 
 
 Manual of Political Economy. 
 
 The Scotch 
 and Irish 
 poor-laws 
 compared. 
 
 State Emi- 
 gration is 
 a doubtful 
 and par- 
 tialrem^dy 
 forpauper- 
 ism. 
 
 and Scotch Poor-laws. By the Irish Poor-law which was 
 passed in 1843, out-door relief was altogether forbidden ; 
 whereas in the Scotch Poor-law, which was passed about 
 the same time, the local authorities were allowed to give 
 out-door relief on even easier conditions than those on 
 which it is granted in England. The Scotch are so much 
 more provident and thrifty than the Irish that it might 
 almost with certainty have been concluded that there 
 would be much less pauperism in Scotland than in Ireland. 
 The granting of out-door relief, however, so disastrously 
 encourages pauperism, that some years after the passing 
 of the Scotch and Irish Poor-laws, the number of paupers 
 in Scotland, in proportion to its population, exceeded by 
 five times the number in Ireland. The demoralisation 
 which has been produced by the Scotch Poor-law is so 
 great that in some parishes no less than one out of every 
 eight of the population is a pauper ; and in the Highlands, 
 in proportion to the population, there is twelve times as 
 much pauperism as there is in Ulster and Connaught. 
 It is sometimes said that a very considerable portion of 
 the pauperism existing in England and Scotland is due to 
 the great numbers of Irish who settle in Great Britain ; 
 but this, if true, only affords a striking corroboration of 
 the superiority of the Irish Poor-law system ; because it 
 shows that the Irish who keep off the pauper roll as long 
 as they remain in their own country, eagerly accept 
 parochial relief as soon as they get under the demoralising 
 influence of the Scotch and English Poor-law. 
 
 From time to time proposals have been made that we 
 should resort to emigration, in order to free ourselves from 
 pauperism. An Act was passed a few years since which 
 confers upon Poor-law guardians the power to pay from 
 the rates the passage-money of those who may be willing 
 to emigrate. This Act has hitherto been almost nugatory; 
 it has, in fact, been applied only in three or four parishes. 
 There are two very different aspects from which the sub- 
 ject of pauper emigration may be viewed: in the first 
 place, a right may be conferred on every individual to 
 demand the requisite means to enable him to emigrate ;' 
 secondly, parochial authorities may have the power to 
 compel an applicant for relief to emigrate. The only 
 argument which can be urged against the last proposal is, 
 
The Poor-Law and its Influence on Pauperism. 
 
 S95. 
 
 that foreign countries may object to be made the re- 
 ceptacle of our pauperism ; in fact, the United States has 
 already protested against it. Very cogeat reasons can, 
 however, be assigned against the adoption of the first 
 proposal. Improvidence would be encouraged in all its 
 worst forms if men could not only claim maintenance, but 
 could also demand the payment of their passage-money, 
 if they should desire to emigrate. The carrying out of 
 such an arrangement would give additional encouragement 
 to imprudent marriages and reckless living. Every man 
 would feel that if he could not get on in his own country, 
 he would be able to make others pay the expense of send- 
 ing him and his family to any colony in which they might 
 choose to settle. The number of applicants for emigra- 
 tion would go on steadily accumulating; the places of 
 those who left would be quickly occupied, and the cost of 
 carrying out this policy would rapidly augment. It is 
 extremely probable that a great additional burden would 
 be cast upon the rates if people could claim to be sent 
 abroad; for not only would improvidence be encouraged, 
 but a considerable portion of our emigrants who now 
 provide their own passage-money would compel parochial 
 authorities to pay it. 
 
 As we have frequently insisted upon the duty which is 
 imposed upon every individual to provide as far as pos- 
 sible against old age and sickness, it is important to point 
 out the best mode of securing such a provision. A man 
 may protect himself and his family against all the casual- 
 ties to which he can be ordinarily subject by joining 
 friendly societies, by purchasing annuities, and by life 
 insurance. In our country, the most important friendly 
 societies are the trades' -unions ; this fact is often completely 
 ignored by those who regard trades'-unions as being neces- 
 sarily associated with strikes. It could be shown that the 
 objects which a friendly society has in view probably sug- 
 gested the first formation of these combinations, and the 
 connection which now so often exists between trades'- 
 unions and strikes is rather accidental than preconceived. 
 A member of a trades' -union receives a certain weekly al- 
 lowance when thrown out of work by depressed trade, and 
 also when disabled by sickness or by accident. A trades'- 
 unionist, as long as the funds of his society will permit, is 
 
 PP2 
 
 BOOK IT. 
 CH. V. 
 
 Labourers 
 can render 
 themselves 
 indepen- 
 dent of 
 parochial 
 relief by 
 
 Trades'- 
 unions ; 
 
596 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 CH. T. 
 
 Govern- 
 ment An- 
 nuities; 
 
 and Life 
 Insiirancc. 
 
 to a great extent independent of parochial relief. It is an 
 unknown occurrence for an able-bodied -workman who be- 
 longs to a prosperous union, such as the "Amalgamated 
 Engineers," to apply to the parish authorities for assist- 
 ance. This emancipation from dependence upon rates has 
 produced most beneficial effects, and it probably accounts 
 for the fact which is admitted by the strongest opponents 
 of trades'-unions, that our best and most intelligent work- 
 men almost invariably belong to these societies. 
 
 Though trades'-unions render a man independent of 
 parochial assistance while he is an able-bodied labourer, 
 something else is required to secure him a provision in 
 old age. Far greater facilities for doing this exist since 
 Mr Gladstone passed his admirable scheme for the crea- 
 tion of small annuities. As yet these annuities have ex- 
 cited little attention, but when their advantages are fully 
 appreciated they will be ranked as amongst the most bene- 
 ficial measures which we owe to Mr Gladstone. By the 
 deposit of a small weekly sum, a man is able to secure a 
 certain income, to commence at a time of life when it may 
 reasonably be calculated that work will have to be discon- 
 tinued. A Government guarantee makes these annuities 
 perfectly secure. This feeling of absolute security will 
 powerfully stimulate prudential habits on the part of 
 working men. One chief reason why, as a class, they 
 have not saved, has been the difficulty which they have had 
 in finding safe and suitable investments. There have been 
 repeated exposures of shameful dishonesty practised by 
 those who have been the concoctors of societies for grant- 
 ing small annuities: one instance of such dishonesty pro- 
 duces a widespread influence in encouraging improvi- 
 dence; for people will think that they might as well spend 
 all that they have, when they observe that some friend or 
 neighbour has lost all that has been put together during 
 many years of careful saving. It therefore appears that 
 by subscribing to friendly societies, and by the purchase 
 of an annuity, every working-man may make himself in- 
 dependent of parochial relief. If he insures his life, he 
 then secures a provision for his wife and family in the 
 event of his dying prematurely. There must, however, be 
 a fundamental change in the condition of our industrial 
 population before they acquire not only the means but 
 
The Poor-Law and its Influence on Pauperism. 
 
 597 
 
 also the inclination to set aside a sufficient sum from their 
 ■weekly earnings to make all those provisions which have 
 been just described. 
 
 It may be proved from simple economic considerations 
 that the power to save possessed by the working-classes 
 increases in a direct ratio with their desire to save. The 
 remuneration which labour receives varies directly with 
 the amount of capital accumulated, and inversely with the 
 number of the labouring population. Capital is the fund 
 from which wages are paid; if, therefore, this fund in- 
 creases, whilst population remains stationary, it is evident 
 that there will be a greater demand for labour, and, con- 
 sequently, it will obtain a larger remuneration. On the 
 contrary, the wages of labour will diminish, if the number 
 of the labouring population increases in a faster ratio than 
 capital. Pecfple who are accustomed to a comparatively 
 high standard of comfort naturally feel a disinclination to 
 sacrifice it by improvident marriages. A professional man 
 does not, for instance, as a general rule, marry, until he 
 feels that he has a reasonable chance of being able to give 
 his children at least as good an education, and also as 
 many comforts, as he has himself enjoyed. But these pru- 
 dential restraints exert much less influence upon those 
 who are so poor that they feel they have little to sacrifice. 
 It is notorious that before the famine in 1847 the Irish 
 peasantry, though sunk in the depths of poverty, married 
 with utter recklessness. The Irish cottier was always 
 hopelessly in debt to his landlord ; he therefore knew that 
 having a large family to maintain could make him no 
 poorer, for just sufficient potatoes must be left to enable 
 him and his children to live. Many of our poorest la- 
 bourers are nearly as improvident as the Irish ; prudential 
 considerations never restrain them from marrying: their 
 material condition is such that they feel they have nothing 
 to lose, and their life being devoid of hope, they think 
 they have nothing to sacrifice in the future. It is impos- 
 sible for those who act in this manner to achieve any ma- 
 terial advance. The pressure of population must reduce 
 their wages to a minimum, and hence there is always a 
 large class who are receiving only just sufficient wages to 
 provide them with a bare subsistence. The great end to 
 be attained is to raise the condition of one generation so 
 
 BOOK ly. 
 CH. V. 
 
 Prudential 
 habits pro- 
 mote high 
 wages. 
 
 The in- 
 fluence of 
 improvi- 
 dent mar- 
 riages. 
 
■598 
 
 Manual of Political Economy. 
 
 , BOOK IV. 
 OH. V. 
 
 Injury in- 
 flicted ore 
 prudent 
 labourers 
 hyparochi- 
 al relief. 
 
 much as to make them feel that they possess something 
 which is worth preserving, and which therefore they will 
 not sacrifice by improvidence. If our labouring population 
 should advance to a much higher standard of comfort, 
 they would be as anxious as professional men now are 
 that their children should not sink to a lower position. 
 When such prudential considerations as these become pre- 
 valent, working-men will be anxious to protect themselves 
 or their families against the loss arising from such casual- 
 ties as sickness, loss of employment, and premature death, 
 by subscribing to friendly societies, by purchasing annui- 
 ties, and by life insurance. 
 
 Labourers who desire to advance their condition must 
 constantly find their progress impeded by our poor-law 
 system. Not only do parochial rates press heavily upon 
 them, but the relief which is given to pauperism acts 
 most powerfully to reduce wages. Improvidence is en- 
 couraged by the assistance which is given to poverty, and 
 improvidence is the main cause why wages are low. It 
 often, also, happens that pauper labour comes into direct 
 competition with free labour. As an illustration it may 
 be mentioned that the Manchester guardians have lately 
 made able-bodied paupers grind corn by hand. Let us 
 see what this plan, which has been almost unanimously 
 approved, really involves. A tax is imposed upon the in- 
 dustrial population of Manchester ; a portion of the pro- 
 ceeds of this tax is appropriated to employ labour in a 
 most costly, unproductive, and wasteful way. Labour 
 which is reluctantly given can never be efiicient, and these 
 paupers who grind corn by hand are doing that which 
 could be done far cheaper and far better by machinery. 
 The granting of relief to able-bodied labourers is con- 
 clusively condemned when we are obliged to admit that 
 there is no better mode of employing them than that 
 which has been adopted by the Manchester guardians. 
 
 There is only one other subject to which allusion need 
 be made before concluding this chapter. One fruitful 
 source of pauperism is the position which women occupy 
 in this country. Social customs and legal enactments 
 combine to discourage women of every class from earn- 
 ing their own livelihood. The influences which deter 
 women from supporting themselves assume various forms. 
 
The Poor-Law and its Influence on Pauperism. 
 
 599 
 
 "Women in ,the upper and middle classes are told that if 
 they attempt to employ their labour productively they 
 unsex themselves and destroy those graces and charms 
 which peculiarly fit them for married life. Those women 
 who wish to support themselves by manual labour often 
 meet with a different kind of opposition ; sometimes they 
 are impeded by the rules of trades' -unions ; sometimes 
 they find that laws have been passed prohibiting them 
 from certain kinds of work. This opposition, though 
 exhibited in various forms, is probably mainly due to the 
 selfishness of the stronger sex. Women should have the 
 same opportunity as men to follow any profession, trade, 
 or employment to which they desire to devote their 
 energies. As long as women remain in a state of compa- 
 rative helplessness, it is evident that they will frequently 
 depend for support upon parochial relief. It is now, in 
 fact, almost assumed as a matter of course, that upon the 
 death of a labouring man his widow immediately comes 
 upon the parish; yet, in spite of this melancholy fact, 
 proposals are frequently made that Parliament should im- 
 pose further restrictions upon the employment of women. 
 If it is found that the women engaged in any particular 
 kind of work are in an unsatisfactory condition, some well- 
 intentioned persons instantly suggest that this work 
 should be forbidden to them by law. There is scarcely 
 any labour which is necessarily degrading. At any rate, a 
 life of dependent pauperism must be far more pernicious 
 than honest industry. It has been repeatedly shown that 
 women need not suffer any injury from work which is 
 supposed to be degrading in its influence. No one, for 
 instance, can deny that in many parts of England the 
 women who are employed in agriculture are in a most un- 
 satisfactory condition ; their wages are extremely small ; 
 they are poorly and unsuitably clothed, and often, driven 
 into the fields by the pressure of poverty, they work when 
 they ought to be attending to home duties. Many who 
 observe these evils are anxious that Parliament should 
 prohibit the employment of women in agriculture ; but if 
 the labour is differently carried on, it is proved that 
 women suffer no evils, but are benefited by working in 
 the fields. 
 
 Mr Henley, one of the Assistant Commissioners who 
 
 BOOK IV. 
 CH. V. 
 
 Pauperitm 
 is en- 
 couraged 
 by the 
 present 
 position of 
 women. 
 
6oo 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 OH. V. 
 
 State inter- 
 
 ferenee 
 
 with 
 
 women's 
 
 labour is 
 
 unjust. 
 
 inquired into the condition of people employed in agri- 
 culture, has given a most interesting account of the rural 
 population of Northumberland. When his description 
 of these Northumberland labourers is compared with the 
 distressing accounts which are given of the peasantry in 
 other parts of England, it is difficult to believe that the 
 Dorsetshire and Northumberland labourers are inhabitants 
 of the same country. The' latter earn good wages ; they 
 live well but frugally ; fuel is cheap ; and their houses are 
 clean and commodious. At particular seasons of the year 
 the w^omen of the family work in the fields ; but home 
 duties are never neglected. The women being well and 
 suitably clothed, their out-door labour is beneficial to 
 them, for they generally appear in the most robust health. 
 Their close contiguity to Scotland seems to have given 
 these peasants a certain enthusiasm for education. Good 
 schools are abundant, and the children are generally kept 
 at them until they are twelve or thirteen years of age. 
 Facts such as these should make us hesitate before we 
 sanction any measures which would compel women to be 
 even more dependent than they now are upon parochial 
 relief 
 
 One of the chief objects of this chapter is to prove that 
 a greater number of agencies must be simultaneously 
 brought into operation in order to produce a marked 
 diminution in pauperism. The problem which should 
 be constantly kept in view is this — How can the condi- 
 tion of at least one generation be so distinctly improved 
 that the people will themselves recognise the advance 
 which they have secured, and consequently refuse by 
 improvidence or by any other act to descend to their 
 former conditional 
 
 ' The influence exercised by the Poor-law has been much more fully 
 discussed than it could be in this chapter in a course of Lectures I deli- 
 vered a few years since in the University of Cambridge, and which have 
 been published in a separate form under the title of "Pauperism: its 
 Causes and Eemedies." 
 
CHAPTER VI. 
 
 LOCAL TAXATION. 
 
 IN the last chapter we considered the influence which 
 is exercised on pauperism by the existing method of 
 admistering parochial relief.. As yet we have only inci- 
 dentally referred- to the various financial questions which 
 are connected with our Poor-law system. It will, there- 
 fore, be desirable to jievote a separate chapter to the sub- 
 ject of local taxation, and after having done so, we shall 
 as far as possible explain some of the various complicated 
 economic questions which are associated with the inci- 
 dence of local taxation. 
 
 When taxation is spoken of in this country it is too 
 frequently forgotten that there is not only imperial but 
 also local taxation to be considered, and the one subject 
 offers in many respects the most striking contrast to the 
 other. For several years past, although many taxes have 
 been remitted, and the expenditure has been kept ex- 
 tremely high, yet the imperial revenue has been more 
 than suflBcient to meet all demands. When, however, we 
 turn to local taxation, we observe an entirely different 
 state of things. Local expenditure, meaning by that 
 phrase the money raised and spent by local authorities, 
 has been constantly increasing, until it has now reached 
 no less a sum than 36,000,00W. If the local expenditure 
 continues to increase during the next twenty-five years 
 in the same ratio as it has increased during the past 
 twenty-five years, it will considerably exceed the impe- 
 rial .expenditure. So far as the finances of the state are 
 concerned, there has been almost invariably during many 
 past years a balance on the right side. With regard, 
 
 BOOK IV. 
 CH. VI. 
 
 Contrast 
 between 
 imperial 
 and local 
 finance. 
 
602 
 
 Manual of Political Economy. 
 
 BOOK IT. 
 CH. VI. 
 
 Excess of 
 expendi- 
 ture over 
 income is 
 a charac- 
 teristic of 
 local fi- 
 nance. 
 
 Local re- 
 venue of 
 London 
 in 1868. 
 
 however, to local expenditure, exactly the reverse has 
 taken place. Local authorities, from one end of the 
 country to the other, are habitually spending more than 
 their ordinary income. It not unfrequently happens that 
 the expenditure is so greatly in excess of revenue, and 
 the deficit to be made up is consequently so large, that 
 the amount which has to be borrowed is not far short of 
 the entire sum raised by municipal taxation. 
 
 The following is a statement of the financial position 
 of London in the year 1868. The description is taken 
 from an official report, and the year 1868 is not selected 
 for any particular reason; it does not differ, in any 
 material respect, either from the years which preceded 
 or from those which succeeded it. 
 
 The receipts in 1868 were as follow: 
 
 Baised by rates 
 
 . £3,470,000 
 
 „ dues, tolls, and fees . 
 
 390,000 
 
 ,, rents and sales of property 
 
 580,000 
 
 ,, Government subvention 
 
 400,000 
 
 ,, miscellaneous receipts . 
 
 290,000 
 
 ,, loans 
 
 3,100,000 
 
 The entire expenditure in 1868 was 8,000,000Z.^ 
 From these figures it appears that the expenditure so 
 far exceeded the revenue, that the amount raised by loans 
 was only one-seventh less than the whole sum obtained 
 from rates. But borrowing even to so alarming an 
 extent as this would have been insufficient, had not 
 assistance to the extent of 580,000?. been obtained by 
 rents and sales of property. It is, however, scarcely 
 necessary to remark upon the peril involved in seeking 
 assistance from such a source. If borrowing and selling 
 property are resorted to simultaneously, it is only too 
 certain that the income in future years will be diminished 
 in proportion to the property sold, and consequently a 
 growing expenditure will have to be met by diminished 
 resources. The state of things disclosed by these figures 
 is so serious, that it may be supposed that the metropolis 
 is an exceptional case. Unfortunately, however, this is 
 not so, for the financial position of London is typical of 
 what is going on in other parts of the country. As 
 
 ^ These fignres and many other facts on locat taxation are taken 
 from Mr E, H. I. Palgrave's useful work on the Local Taxation of Great 
 Britain. 
 
Local Taxation. 
 
 603 
 
 previously stated, the annual amount of local expenditure 
 in Great Britain and Ireland is 36,000,000^., and the entire 
 amount raised by local taxation is 25,000,000^. This 
 large excess of expenditure over revenue deserves most 
 anxious consideration. It will probably be urged that 
 the ordinary revenue is always adequate to meet the 
 ordinary expenditure, and that the loans which are 
 annually raised, being devoted to carry out works of 
 permanent improvement, should be regarded not in the 
 light of financial deficits, but as capital embarked in 
 .eligible investments. It will also, no doubt, be said that 
 a country which is advancing so rapidly in wealth and 
 population can afford this local expenditure, and that the 
 increase of expenditure is after all of triiling importance 
 compared with the growing prosperity of the country. 
 Pleas similar to these are very generally accepted as 
 constituting valid excuses for the large outlay upon which 
 we have just been commenting. A little inquiry, however, 
 will at once disclose facts which show that such a defence 
 as is generally put forward in favour of the present local 
 expenditure is altogether inadequate and unsatisfactory. 
 
 In the first place, it is to be remarked that the cir- 
 cumstances connected with the raising and spending of 
 these loans seem to be involved in the most inextricable 
 confusion. It is, for instance, difficult to ascertain what 
 is the aggregate indebtedness incurred by local authorities, 
 and it is impossible to discover what steps are being 
 taken to repay the loans which are borrowed. Although 
 it is constantly asserted that these loans are devqted to 
 such reproductive works as the carrying out of permanent 
 improvements, yet those who confidently make these 
 assertions have probably seldom taken the trouble to 
 see whether they can be borne out by the published 
 accounts of local authorities. Nothing has been a more 
 fruitful source of financial embarrassment than the appro- 
 priation to ordinary revenue of money which is pro- 
 fessedly intended to be expended as capital. 
 
 ' An audit of accounts which does not trace the manner 
 in which loans are spent is almost worthless. The accounts 
 of local authorities have rarely been submitted to this 
 ordeal, and until they have been, it will be impossible to 
 know the true position of local finance. But of all the 
 
 BOOK IT. 
 
 OH. TI. 
 
 The state 
 of local . 
 finance in 
 London is 
 typical of 
 the whole 
 country. 
 
 The diffi- 
 culties 
 which sur- 
 round the 
 investiga- 
 tion of tJte 
 subject. 
 
 Appropri- 
 ation of 
 capitai to 
 income. 
 
 The audit 
 of the 
 accounts 
 is rarely 
 searching. 
 
6o4 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 CH. VI. 
 
 Local ex- 
 pendilure 
 is increas- 
 ing much 
 mure ra- 
 pidly than 
 the Tiatiorir 
 al wealth. 
 
 Example : 
 Liverpool 
 in 1841 
 and 1870. 
 
 prevalent misconceptions on the subject of local taxation, 
 none is so. fruitful of mischievous consequences as one to 
 which allusion has already been made. People are almost 
 forced, by constant reiteration, to believe that the increase 
 in local expenditure is much less serious than it otherwise 
 would be, because the population and wealth of the 
 country are increasing at a much more rapid rate than 
 the expenditure. That this supposition is altogether 
 erroneous, is at once shown by considering some of the 
 statistics of local taxation. The figures about to be 
 quoted refer to the local expenditure of Liverpool since 
 1841. 
 
 It need scarcely be said that the increase in the pro- 
 duction of wealth, which is so marked a characteristic 
 of the present time, began soon after 1841, and that 
 probably no town in the kingdom has prospered more 
 than Liverpool by the unprecedented development of 
 commerce and trade which has taken place during the 
 last quarter of a century. In 1841, in the parish of 
 Liverpool, which forms only a part of the borough of 
 Liverpool, the amount raised by rates was 81,733?. This 
 amount has steadily increased, until, in 1870, it was 
 300,941?. In 1841 the local taxation in the parish of 
 Liverpool represented a charge per head of 7s. 4<d. In 
 1870 this charge had increased to no less a sum than 
 II. 5s. 3d. 
 
 The rates have not grown in the same proportion; 
 their growth, however, is suflBcient to excite serious 
 alarm. In 1841 the rates in this parish were 2s. 8^d. 
 in the pound; in 1851 they were 3s. 4d.; in 1860, 3s. Md • 
 and in 1871, 4s. 5id * '' 
 
 The theoiy that the increase of local expenditure is 
 only proportionate to the increase in wealth and popu- 
 lation, is completely disproved by the figures just quoted; 
 for they show that, in one of the wealthiest and most 
 thriving towns in the kingdom, the charge which local 
 taxation imposes upon each inhabitant has increased in 
 thirty years 340 per cent., and that the rates imposed 
 upon all the property assessed have in the same period in- 
 creased 75 per cent. It may perhaps be thought that 
 the parish of Liverpool exhibits exceptionally unfavour- 
 able results. The reverse, however, is the case, as will 
 
Local Taxation. 
 
 605 
 
 be seen from the following remarkable figures, which 
 describe the growth of local taxation and local expend- 
 iture in the townships which compose the borough and 
 suburbs of Liverpool. In the hundred of West Derby 
 the rates have advanced in this period from Is. 7d in the 
 pound to 5s. 4 A ; in Everton they now amount to 6s. \\d. 
 in the pound; and in Kirkdale they are 6s. 6fcZ. In order 
 to make this picture of increasing financial burdens com- 
 plete, it may be mentioned that the debt of Liverpool 
 has increased in this period more than 360 per cent. — 
 namely, from 1,212,192^. to 4,363,070Z. We shall pre- 
 sently have occasion again to refer to these figures, but 
 it is perhaps desirable to dwell for a moment or two on 
 Some of the reflections which they suggest. 
 
 It may be asked, what wiU be the consequences if that 
 which has taken place during the last thirty years is to 
 be continued during the next thirty years ? Local taxation 
 will then impose upon each inhabitant a charge of more 
 than 4Z. per head, and the rates will be not less in the 
 West Derby hundred than 17s. in the pound. It will 
 no doubt be said that these are hypothetical conclusions, 
 impossible of realisation. But where are we to look for 
 an effective resistance to that increasing expenditure 
 which, as we have seen, has been during the last thirty 
 years advancing with sure and steady steps ? To look 
 for any effective resistance at the present time, when 
 there is not only increased taxation, but increased borrow- 
 ing, is about as reasonable as to suppose that a fire can be 
 extinguished by pouring oil on the flames. What does 
 this increase of local indebtedness show? That, great as 
 has been the increase in local burdens, still the revenue 
 has been insufiicient to meet the expenditure. 
 
 Although in some of the townships which compose the 
 borough of Liverpool, the rates are no less than 6s. in the 
 pound, yet side-by-side with this onerous taxation an in- 
 creased liability, or in other words augmented rates, are 
 being stored up for the future. The present system of 
 local expenditure, which leads not only to increased taxa- 
 tion, but also to increased borrowing, is often defended on 
 the ground that no inconsiderable portion of the money 
 which has been expended, has been devoted to permanent 
 ij?orks, and therefore the outlay once made will not have 
 
 BOOK IT. 
 CH. VI. 
 
6o6 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 
 OH. VI. 
 
 Covfusion 
 caused by 
 the differ- 
 ent areas 
 of rating 
 not being 
 coinci- 
 dent; 
 
 and by the 
 number of 
 different 
 bodies who 
 have the 
 power to 
 levy rates. 
 
 to be repeated. But considering that this growthof local 
 expenditure has been continuing unchecked during the 
 last thirty years, is it reasonable to suppose that it -will 
 be arrested, unless the system of administration under 
 which it has been sanctioned and developed is funda- 
 mentally changed? As will be presently more fully 
 shown, the existing system of local government seems 
 especially devised to weaken some of the most effective 
 securities for economy, and to destroy the guarantees of 
 administrative efficiency. It was not long since stated, 
 by the head of the Local Government Department, that 
 " there is a chaos as regards authorities, a chaos as regards 
 rates, and a worse chaos than all as regards areas of tax- 
 ation. And not only that, but every different form of 
 collection which it is possible to conceive is employed 
 by the various local authorities administering these 
 various areas." That this description is in no way ex- 
 aggerated, is abundantly shown by such facts as the 
 following: — In country districts there are usually three 
 areas of rating — petty sessional divisions, highway dis- 
 tricts, and poor-law unions. These, instead of being co- 
 incident, often overlap each other so as to produce such 
 inextricable confusion that the Sanitary Commission, in 
 its report of 1870, declared that ihe result is "the' 
 maximum of embarrassment and waste of local govern- 
 ment, and the utmost loss of means and effectiveness." 
 In towns the state of things is worse, if possible, than 
 in the country. It usually happens, for instance, that 
 there are in boroughs three separate rating authorities 
 — viz. the board of guardians, the town council, and the 
 local board of health. To these recent legislation has 
 added a fourth, for the school-boards have the power 
 to levy rates. County magistrates also levy rates for 
 county purposes from a town population. These various 
 authorities levy rates at different times, by different sets 
 of officials, and often by different methods of assess- 
 ment. In many places it happens that the town council 
 attends to the police, appoints various committees, levies 
 a borough-rate, manages the water- works, and levies 
 a water-rate. The local board of health manages the 
 roads, levies rates for their maintenance and for all 
 sanitary matters. Sometimes it happens that when the 
 
Local Taxition. 
 
 607 
 
 water-works and the gas-works are owned by the munici- 
 pality, the one is managed by the town council and the 
 other by the local board of health. It will scarcely be 
 believed that the town council and the local board of 
 health are composed of exactly the same persons. 
 They are, in fact, the same body under two different 
 names. It is easy to imagine how innumerable are 
 the complications which are thus unnecessarily created, 
 when it is remembered that the result of giving this 
 body two different names is that rates are collected 
 by different sets of officials at different times. The 
 borough rate, which is levied by the town council, is 
 in some cases paid out of the poor-rate, which is levied 
 under the authority of the board of guardians. Other 
 rates — such, for instance, as the cemetery rate, and a 
 contribution to the county lunatic asylum — are paid out 
 of the poor-rate. The board of health levy a general 
 district rate and a lighting rate. The general district rate 
 is levied, like all rates under the Public Health Act, with 
 an exemption of 75 per cent, in favour of market-gardens 
 and railways. These exemptions do not apply either to 
 the borough rate or to the poor-rate. 
 
 Instead of the system being improved, additional com- 
 plexity is constantly being accumulated upon it. Nothing 
 has been a more striking characteristic of the legislation 
 of recent years, than the rapidity with which new rates 
 have been called into existence. From time to time 
 various schemes are favoured by the public for effecting 
 reforms in the social condition of the people. Each of 
 these schemes, as it obtains legislative sanction, too fre- 
 quently leaves its mark on the country in the creation 
 of a new rate. Thus in a comparatively few years Parlia- 
 ment has called into existence the following new rates : — 
 Burial Board Rate, Public Library and Museum Rate, 
 General District Rate, Sewerage Rate, Parish Improve- 
 ment Rate, Animals Contagious Diseases Rate, Borough 
 Lunatic Asylum Rate, Borough Library and Museum 
 Rate, Borough Baths and Wash-houses Rate, Borough 
 Improvement Rate, and Borough Burial Board Rate. 
 
 Allusion has already been made to the fact that since 
 the passing of the Elementary Education Act, in 1870, 
 a considerable portion of the expense of educating the 
 
 BOOK IT. 
 CH. VI. 
 
 The con- 
 stantly in- 
 creasing 
 complexity 
 of the sub- 
 ject. 
 
 The Edu- 
 cation 
 rate. 
 
6o8 
 
 Manual of Political Economy, 
 
 BOOK lY. 
 CH. TI. 
 
 Free edu- 
 cation. 
 
 Tli'e con- 
 stantly in- 
 creasing 
 demands 
 made upon 
 ■tlie rates 
 are encou- 
 
 people is thrown upon the rates. It would be out of 
 place here to consider a school-rate from an educational 
 point of view, but it is necessary to refer to it so far as it 
 affects the question of local taxation; it may be also 
 desirable to make a few remarks on the subject of free 
 education, as the proposal to throw the entire expense 
 of primary education on the public has obtained a certain 
 amount of popular support. If the principle of gratuitous 
 instruction for the people is conceded, it is impossible 
 to assign any limits to the requisite expenditure. General 
 free education will then follow as a natural consequence, 
 because if the workman earning three pounds a week has 
 the schooling of his children paid for, will it be possible 
 to refuse the same privilege to the small tradesman, to 
 the poor clerk, or to half-pay officers, clergymen, and 
 others who have to keep up a respectable appearance on 
 an income not larger than that earned by many a skiUed 
 mechanic ? It is, moreover, important to bear in mind 
 that this demand for free education is simply one offshoot 
 of a sentiment which seems destined to exercise a rapidly 
 extending influence. Scarcely any one can fail to be 
 struck with the growing tendency which there now is to 
 support various proposals, all based upon the principle 
 that an individual should be able to look to the general 
 community for such pecuniary assistance as will enable 
 him to gratify many tastes and satisfy many wants. Free 
 education would enable a parent to make others pay for 
 that instruction which has now been declared to be neces- 
 sary to a child. By State emigration it would be possible 
 for a man to throw upon others the cost of his settling in 
 another country. The boarding-out system, which has 
 lately been engrafted on our poor-law, gives to every one 
 who is willing to desert his children an assurance that 
 they wiU be carefully tended in healthy country homes, 
 and will enjoy many more comforts than the majority of 
 working men are able to secure for their families. 
 
 There is scarcely a single subject of social reform now 
 discussed by the public, with which there is not sure to 
 be associated some scheme that will necessitate an increase 
 either of local or imperial taxation. To take one illustra- 
 tion : it is now each day repeated that the land question 
 is rapidly coming to the front, and that legislation in con- 
 
Local Taxation. 
 
 609 
 
 nection with it is imperatively needed. The legislative 
 measures which are advocated by some of the most able 
 and most active of land reformers could not be carried 
 out, unless pecuniary aid on a very large scale were ob- 
 tained either from local or imperial revenues. Thus it is 
 proposed, in order to give labour an adequate interest in 
 the cultivation of the soil, that the State or municipalities 
 should purchase land, and either let it to cooperative 
 associations, or parcel it out in small holdings with a vi&w 
 to its being occupied by individual labourers. It is 
 further said that, as little capital is possessed by labourers, 
 it would be necessary, in order to give these reforms in 
 the tenure of land a fair chance of success, that the State 
 or municipalities should advance to these cooperative 
 associations, or to these small tenants, the capital requi- 
 site for the proper cultivation of the land. Even if the 
 scheme should prove ultimately successful, the large out- 
 lay that would have in the first instance to be incurred, 
 would constitute a very considerable addition either to 
 local or to imperial taxation. Moreover, those who ob- 
 tained these advances of capital would be unable to give 
 any adequate security for their repayment. If such 
 security were forthcoming, the capital could be borrowed 
 in the 'ordinary way of business, and it would therefore 
 be not necessary to seek aid either from the State or from 
 the municipality. The pecuniary sacrifice involved in 
 advancing capital without adequate security would have 
 to be borne by the general community, whose contribu- 
 tions create the revenue of the State or of the munici- 
 palities. These demands are, no doubt, powerfully en- 
 couraged by the feeling so widely prevalent, that in a 
 country where wealth is accumulated with such great 
 rapidity as in England, neither harm nor peril can result 
 from an increase in expenditure. It therefore becomes 
 of great importance to say a few words on this particular 
 point. . . 
 
 Eeverting in the first place to some of the statistics 
 already quoted in reference to Liverpool, it will be seen 
 that even in that town, which has certainly been one of 
 the most prosperous in the kingdom, local expenditure 
 has far more than kept pace with the remarkable growth 
 both of her wealth and population. Not only has each 
 
 BOOK IV. 
 CH. VI. 
 
 raged by 
 the opinion 
 that the 
 wealth of 
 England 
 is so great 
 that there 
 is no need 
 for eco- 
 nomy. 
 
 That this 
 opinion is 
 unfourtded 
 is proved 
 by the ex- 
 ample of 
 Liverpool, 
 
 F. M. 
 
 QQ 
 
6io 
 
 Manual of Political Economy. 
 
 inhabitant to contribute a much larger sum than former^, 
 but property has to bear a much heavier aggregate rate. 
 It will n-o doubt be urged that, as the town has become 
 much wealthier, the contribution of 1^. 5s., which is now 
 levied from each inhabitant, does not represent so great a 
 sacrifice as the contribution of 7s. paid in 1841. It is not, 
 however, difficult to show that such an argument is en- 
 tirely erroneous, and is calculated to produce very mis- 
 chievous consequences. In order to prove this, it is only 
 necessary to remember that, even in the most prosperous 
 towns, there are sure to be found thousands whose con- 
 dition is one of extreme poverty. The vast accumulation 
 of wealth, which is so striking a characteristic of the 
 present time, does not, unfortunately, exert any per- 
 ceptible influence in diminishing the number of those 
 who live in squalor and destitution. Any one who knows 
 the social condition of such a town as Liverpool, must 
 have this conclusion forced upon him, that there may 
 be the most rapid extension of trade, and yet, side by 
 side with all this evidence of material prosperity, there 
 will be a countless number living just on the verge of 
 pauperism. 
 
 When such facts as these are borne in mind, such a 
 growth of local expenditure as is observed at Liverpool at 
 once suggests some most serious reflections, and cannot be 
 passed lightly by, as if it were a natural and harmless 
 accompaniment of advancing prosperity. Experience has so 
 clearly shown what are the most fruitful sources of poverty, 
 that it is now looked upon simply as the repetition of a 
 truism to assert that pauperism begets pauperism. When, 
 therefore, it is found that one of the chief reasons why 
 local expenditure increases is that each year a greater 
 amount has to be spent in the maintenance of paupers, are 
 there not some valid grounds for the supposition that 
 pauperism is fostered by the aid it receives, and that 
 the greater the sum spent in parochial relief, the greater 
 is the sum which will be required to be spent in future 
 years ? Considered from this point of view, we believe it 
 can be shown that, as a falling stone obtains increased 
 momentum, so does each augmentation in local expendi- 
 ture indicate that the movement has gathered an addi- 
 tional impetus, which will necessitate a still greater 
 
Local Taxation. 
 
 6ii 
 
 expenditure in future years. But this is not the only way 
 in which the movement gathers strength. Reference has 
 already been made to the fact that wherever paupers are 
 to be found, there are sure to be at least an equal number, 
 and probably a far greater number, living just on the 
 verge of pauperism. Nothing can be more erroneous 
 than to assume that there is a marked difference in the 
 pecuniary resources of some of those who are, and some 
 of those who are not, in the receipt of parochial relief. 
 The addition which is sure to be made in the number of 
 paupers by any adverse circumstance, such as a depression 
 in trade or scarcity of food, affords indisputable evidence 
 that the struggle which thousands are carrying on to 
 resist the necessity of claiming relief from the parish is 
 so close and so severe, that the issue of the contest may 
 be determined by some circumstance, the influence of 
 which may at first appear to be but trifling. The balance 
 between dependence and independence is so nicely ad- 
 justed that the weight of a hair is sufficient to turn the 
 scale. It will, in fact, be scarcely disputed by any who 
 are practically acquainted with the present condition of 
 our poor, that each addition made to the rates weakens 
 the force of resistance of those who are carrying on the 
 struggle to which we have just referred ; and consequently 
 as rates increase, the number of paupers is sure to in- 
 crease. This, therefore, suggests one of the most serious 
 considerations connected with the growth of local ex- 
 penditure, for it shows that unless some agencies can be 
 brought into operation to exercise an economising in- 
 fluence, a large expenditure at the present time will 
 create a necessity for a still larger expenditure in the 
 future. Many agencies may, no doubt, be brought into 
 operation not only to diminish the present local expendi- 
 ture, but also to prevent its increase in the future. Refer- 
 ence has already been made to the importance of consoli- 
 dating the various rates, and introducing more concentra- 
 tion into 'local administration. The necessity has also 
 been insisted upon of most carefully guarding against the 
 tendency which there now is to make new demands upon 
 local funds. Before proceeding further, however, it is 
 desirable to say a few words upon various proposals which 
 are now receiving much support, the effect of which would 
 
 QQ2 
 
 BOOK IV. 
 CH. TI. 
 
6l2 
 
 Mamml of Political Economy. 
 
 BOOK IV. 
 CH. TI. 
 
 Reasons 
 why the 
 Consoli- 
 dated 
 Fund can- 
 not he re- 
 lied upon 
 for tlie re- 
 lief of 
 local bur- 
 dens. 
 
 he, not to promote greater economy, but t.o produce greater 
 extravagance in local expenditure. 
 
 From time to time it is proposed to' transfer various 
 charges from local to imperial funds. There are many, 
 for instance, who advocate a national poor-rate, and the 
 House of Commons in 1872 affirmed by a large majority 
 that a considerable portion of the cost of maintaining 
 lunatics and the police should be borne by the Consoli- 
 dated Fund. Such proposals as these obviously suggest 
 two distinct sets of considerations — ^viz., those which are 
 political and those which are financial. It would, of course, 
 be inappropriate to discuss the subject here in its political 
 aspect. Upon this branch of the question it need simply 
 be remarked that a transfer of charges from local to im- 
 perial funds would inevitably weaken the principle of 
 local self-government. The money which is provided by 
 the State ought, of course, to be administered by the State, 
 and not by local authorities. The principle of local self- 
 government has done so much to diffuse amongst the 
 people a spirit of self-reliance, that it behoves us to resist 
 with the utmost firmness the introduction of any central- 
 ising tendency. It is, however, not difficult to show from 
 purely financial considerations the grave peril which would 
 be incurred if sanction were given to demands that are 
 now constantly being made, to transfer various charges from 
 local rates to the Consolidated Fund. No device that can 
 be imagined would more effectually weaken all the gua- 
 rantees for economy. Each locality is interested in econo- 
 my when it is known that the district will have to bear 
 the burden of any outlay which may be incurred. But 
 when public money is to be spent there is a regular 
 scramble for it, and each town and each district thinks 
 that it is directly benefited by getting the largest share 
 possible of this money. There is the broadest distinction 
 in the world between economy in the abstract and the 
 concrete. A candidate seeking the suffrages of a con- 
 stituency may be applauded to the echo by pledging him- 
 self in favour of the most rigid frugality in the expendi- 
 ture of public money, and at the same time it is only too 
 notorious that this enthusiasm would not be forfeited, but 
 would on the contrary be greatly increased, if he should 
 afterwards exert himself to obtain for this same constitu- 
 
Local Taxation. 
 
 613 
 
 ency a grant of public money to be squandered in some 
 perfectly useless local undertaking. Experience more and 
 more confirms the opinion that the great bulk of the peo- 
 ple think that money can be taken out of the Consoli- 
 dated Fund just in the same way as water is drawn from 
 a perennial fountain ; the stream, it seems to be supposed, 
 ceaselessly flows, and no labour nor sacrifice is required to 
 replenish it. When, however, it is remembered that the 
 Consolidated Fund, far from being this fountain of wealth, 
 never obtains a shilling which is not taken out of the 
 tax-payer's pocket, it at once becomes evident that the 
 transfer to this fund of local charges would, by leading 
 to greater expenditure, not lessen the aggregate burden of 
 taxation. 
 
 As a striking instance of the inconsiderateness of many 
 of the opinions which are propounded in reference to 
 taxation, it may be mentioned that those who urgently 
 demand the transfer of local charges to the Consolidated 
 Fund, simultaneously display an equal eagerness for a 
 ' free breakfast table,' and for the unconditional repeal of 
 the income-tax. It is not for us to decide whether those 
 who support such ideas are themselves the victims of a 
 delusion, or intentionally try to delude the people by pro- 
 pagating amongst them so palpable a fallacy. It might 
 be thought that a moment's reflection would suffice to 
 show that if 2,000,000?. of local charges were transferred to 
 the Consolidated Fund, this fund would have to be in- 
 creased. The money will not be rained down from hea- 
 ven. There is one way only by which it can be obtained, 
 and that is by increased taxation. But if taxation is to 
 be increased, direct taxes, such as the income-tax, must be 
 augmented, or indirect taxes, such as taxes on commo- 
 dities, must be made to yield more to the State revenue. 
 
 BOOK IT. 
 CH. VI. 
 
BOOK lY. 
 CH. VII. 
 
 CHAPTER VII. 
 
 THE INCIDENCE OF LOCAL TAXATION. 
 
 WITH a few exceptions, all local taxation is confined 
 to levying rates on land, houses, and business pre- 
 mises. The exceptions to which we refer are certain tolls 
 and dues, and in a few instances some commodity, such as 
 coal, is subjected to a special local tax. It often happens, 
 however, that the toll or due is simply the price charged 
 for a distinct service rendered, and therefore can hardly 
 be regarded as taxation. Thus a market toll is paid for 
 the accommodation which a market provides ; a harbour 
 due is in a similar way paid for the accommodation' 
 obtained by shipping. These tolls and dues, when so 
 adjusted as to return not more than a fair compensation 
 for the outlay incurred in the erection of the market or 
 in the construction of the harbour, may be properly looked 
 upon as rent paid to a corporate proprietor. In such a 
 case it would be as unfair to consider these charges to be 
 taxes, as it would be to consider as taxation the price paid 
 for a telegram or for the postage of a letter. With the 
 exception of a duty levied on coal in the metropolis, in 
 Brighton, and a few other towns, there is scarcely any 
 instance in this country of commodities being subjected to 
 local taxation. The only other source of income besides 
 rates from which local revenue is derived consists of a 
 certain amount of landed property held by corporations. It 
 is extremely difficult to ascertain the exact amount of this 
 property, and many questions connected with its manage- 
 ment and its appropriation require very careful investiga- 
 tion. In the last chapter it was shown in reference to the 
 local taxation of London that, in the year 1868, an item was 
 
■ The Incidence of Local Taxation. 
 
 615 
 
 put down of 580,000Z. ass rents and sales of property. It 
 is certainly somewhat remarkable, that the money derived 
 from the rent of property and the sale of property should 
 be thus lumped together in one sum. Few questions 
 bearing upon the future financial position of London can 
 possess greater practical interest than to determine at 
 what rate its corporate property is being sold and de- 
 voted to ordinary income. Unless some reasons can be 
 alleged which do not readily suggest themselves, it seems 
 very difficult to justify these sales of property, when it 
 is remembered how rapidly property is advancing in value 
 in London, and how probable it is that there may be 
 a depreciation in the value of money. 
 
 Not only has it been shown that local taxation con- 
 sists almost entirely of rates levied upon real property, 
 but it is essential to remember that under the present 
 system these rates can only be resorted to if it is neces- 
 sary to obtain an increase of revenue from local tax- 
 ation. Thus, as the expenditure of London increases, 
 the local authorities have the power to provide for it by 
 increasing the rates; they could not, however, without 
 a special Act of Parliament, increase the duty on coal or 
 impose any fresh taxation on commodities. This at once 
 suggests a fundamental and most important distinction 
 between imperial and local finance. If the national ex- 
 penditure increases, the additional revenue which may 
 be required can be obtained in many different ways. 
 Any existing taxes or duties can be increased, or new 
 taxes can be imposed. The additional revenue, however, 
 required to meet an augmentation in local expenditure is 
 obtained by the imposition of higher rates upon lands, 
 houses, and buildings. The remark has already been 
 made that each tax has its own peculiar inequality, and 
 with it there is sure to be associated some special disad- 
 vantage or injustice. Thus it is impossible to prevent 
 a great deal of fraud in connexion with the income-tax. 
 Many incomes, of which the exact amount cannot be 
 ascertained, often pay much less than they ought, and 
 consequently an additional burden is thrown upon in- 
 comes which can be accurately known, such as those 
 derived from the funds and from salaries. It is probable 
 that if no deception were practised in connexion with the 
 
 BOOK IV. 
 CH. VII. 
 
 Local tax- 
 ation con- 
 sists almost 
 entirely of 
 rates on 
 real pro- 
 perty. 
 
6i6 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 OH. VII. 
 
 The inci- 
 dence of 
 local tax- 
 ation is 
 mainly 
 upon the 
 occupiers 
 of houses. 
 
 income-tax, a tax of od. in the pound would produce 
 as much as is now yielded by a tax of Qd. in the pound. 
 The chief inequality belonging to taxes on commodities is 
 to be attributed to a very different cause. Thus it has 
 been shown that such a duty as that on tea cannot be 
 made ad valorem. Consequently the cheaper qualities 
 of tea have to bear three or four times as heavy a tax 
 as is imposed upon the expensive teas consumed by the 
 rich. It is therefore evident that, if either the income- 
 tax or the tea duty be alone increased when additional 
 revenue is needed, those will be placed in an exceptionally 
 unfair and unfavourable position who are most affected 
 by the particular inequality which, as we have shown, 
 belongs to each of these methods of obtaining revenue. 
 
 When the incidence of local rates is investigated, it 
 will be readily perceived that what has been said in 
 reference to some special inequality clinging to each tax 
 is certainly true with regard to local taxation. From 
 facts to be presently adduced it will be shown that local 
 rates fall with the greatest severity upon the occupiers of 
 houses. Hence as all increase of local expenditure has 
 to be provided out of rates, each addition to the rates 
 must necessarily accumulate inequality upon the occu- 
 piers of houses. No redress can be given to them, as 
 may be the case with imperial taxation, by occasionally 
 shifting the main pressure of the extra burden to some 
 other class. 
 
 Before proceeding to trace the incidence of local tax- 
 ation, it is important to show in what proportion the 
 aggregate amount raised by rates is contributed by differ- 
 ent classes and different kinds of property. An impres- 
 sion no doubt very generally prevails that by far the 
 largest portion of the amount raised in this country by 
 local taxation is taken from the land. The following facts 
 will, however, clearly prove that by far the largest portion 
 of the amount now raised by local taxation is levied 
 not on the owners or cultivators of land, but on the 
 occupiers of houses. It will, moreover, be shown that 
 the great increase in local expenditure which has taken 
 place for some years past has caused an addition to the 
 burdens on land, which can be regarded as of only trifling 
 importance when compared with the augmentation in 
 
The Incidence of Local Taxation. 
 
 617 
 
 1843. 
 
 1868. 
 
 49-10 
 
 33-20 
 
 41-44 
 
 47-27 
 
 2-82 
 
 11-11 
 
 6-64 
 
 8-42 
 
 rates paid by the occupiers of houses. The striking 
 figures which are about to be quoted are contained in 
 Mr R. H. I. Palgrave's work on ' Local Taxation.' In 
 1814, of the whole amount of property assessed to rates, 
 69"28 per cent, consisted of land, 27'84 per cent, of houses, 
 and 2'88 per cent, of other property. It is impossible to 
 obtain accurate returns for the period between 1814 and 
 1842, but in 1843 and 1868 the above percentages respec- 
 tively were — 
 
 Land 
 Houses 
 Eailwaya . 
 Other properly 
 
 These figures prove with striking distinctness that land, 
 in comparison with other kinds of real property, is con- 
 tributing a continually diminishing amount to local tax- 
 ation. Such a conclusion, though at variance with what 
 is currently believed on the subject, admits of a very 
 obvious explanation. Although there has been a con- 
 stant increase in the value of land, yet, in consequence 
 of its quantity being limited, the addition made to its 
 aggregate value is small when compared with the increase 
 in the value of houses and buildings, the number of which 
 can be indefinitely multiplied. Accordingly, it is found 
 that, estimating the value of land by the amount at 
 which it is assessed, the increase in its value between 
 1814 and 1843 was 14 per cent., between 1814 and 1868 
 it was 28 per cent. Houses increased in value during 
 the same periods no less than 138 per cent, and 356 per 
 cent. ; and the increase in the value of other kinds of pro- 
 perty was respectively 428 and 1,727 per cent. 
 
 Mr Purdy, who for many years has been officially 
 connected with the Poor-Law Board, and who has gained 
 a high reputation as a statistician, has stated, after a 
 very careful investigation, that, in consequence of the 
 great increase in the aggregate amount at which houses 
 and other kinds of property are assessed, " in 1864-65, as 
 against 1851-52, 103 per cent, has passed from the land, 
 and gone upon other assessable property." It therefore 
 appears that a constantly increasing proportion of local 
 
 BOOK IV. 
 OH. YII. 
 
 Land, in 
 compari- 
 son with 
 other kinds 
 of proper- 
 ty, con- 
 tributes a 
 constantly 
 diminish- 
 ing amount 
 to local 
 taxation. 
 
6i8 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 CH. VII. 
 
 Funda- 
 mental dis- 
 tinctionhe- 
 tween the 
 incidence 
 
 expenditure has to be borne by the occupiers of houses, 
 and not by the owners of land. 
 
 It will be necessary to bear this conclusion very care- 
 fully in mind when inquiring whether the demands of 
 those can be justly conceded who assert that the land 
 is unfairly burdened with local taxation, and that relief 
 ought to be given out of the Consolidated Fund to the 
 owners of land. When it is so frequently stated that 
 the owners and cultivators of land are subjected to 
 peculiar hardship from the present system of local tax- 
 ation, it is apparently forgotten that rates are much 
 smaller in amount in the rural than in the urban districts. 
 The statistics of local taxation at once show that, almost 
 without exception, rates are very much less in purely 
 country districts than they are in those unions in which 
 important towns are situated. The following may be 
 cited as typical examples: — The average rates for Wilt- 
 shire are 3s. lO^d. ; in Salisbury, 7s. IQd. ; Cheshire, 
 2s. Qld. ; Chester, 6s. 2|d. ; Devon, 3s. 2f cZ. ; Plymouth, 
 6s. lOcZ. ; Norfolk, .3s. Id ; Norwich, 7s. \d. ; King's Lynn, 
 7s. 2\d. ; Leicestershire, 2s. Ihd. ; and Leicester, 4s. 4fd. 
 Such facts as these add one more argument to the many 
 that can be advanced in support of the conclusion, that 
 the burdens of local taxation press with greater seve- 
 rity upon the occupiers of houses and business premises 
 than upon the landed interest. It is now, however, 
 necessary for us to proceed to consider by whom the rates 
 which are levied upon various kinds of property are really 
 paid. 
 
 It seems to be a fundamental principle of our system of 
 rating that rates are to be levied on the occupiers and 
 not on the owners of property. Thus in the case of 
 cultivated land, rates are paid by the tenant-farmer and 
 not by the landowner. In the case of houses and business 
 premises, rates are levied on the occupier, and not on 
 the owner either of the building or of the ground on 
 which it stands. It cannot, however, be too carefully 
 borne in mind that, although rates are thus always paid 
 by the occupier, yet there is a fundamental distinction 
 between the incidence of rates when imposed upon land, 
 and when imposed upon houses and buildings. It will not 
 be difficult to show that rates, though levied on the 
 
The Incidence of Local Taxation. 
 
 6ig 
 
 occupier of land, are really paid by the landowner, whereas 
 the occupier of a house or building is not, to the same 
 extent, able to shift the burden from himself to the owner. 
 As the distinction just pointed out is of the utmost im- 
 portance, it will be desirable to explain it with as much 
 care as possible. Let us therefore, in the first instance, 
 inquire upon whom the burden of rates really falls in the 
 case of cultivated land. Probably the best way to con- 
 sider the subject will be by the following example. Let 
 it be assumed that a tenant-farmer pays a rent of lOOOZ. a 
 year, and that in addition to this rent he also has to pay 
 rates to the amount of 2001. a year. Suppose an Act were 
 passed to abolish all rates by transferring all local charges 
 to the Consolidated Fund. If the farmer were a yearly 
 tenant, the landowner would naturally say to him, ' You 
 are now released from all rates, and the 2001. a year 
 which you are thus saved you can afford to pay me as 
 additional rent.' If the tenant objected to pay this 
 additional rent, the landowner would have no difficulty 
 in obtaining it from some one else. Nothing would have 
 occurred to affect either the price of agricultural produce 
 or the cost of cultivating land, and the farm let at 1,200Z. 
 a year would be just as cheap, or would yield just as large 
 a profit, as when the tenant had to pay lOOOZ. a year as 
 rent, and 2001. a year in rates. If the farmer, instead 
 of being a yearly tenant, held the land upon lease, it is 
 evident that although the landowner would not be able so 
 immediately to appropriate to himself the saving resulting 
 from the land being relieved from rates, yet he would 
 be able to do so at the expiratioa of the lease. It is 
 therefore evident that if rates were altogether remitted, 
 the advantage would be sooner or later appropriated not 
 by the cultivator but by the owner of land. From similar 
 reasoning it can at once be shown that, if rates are re- 
 duced, the rent of land will be ultimately increased by an 
 amount exactly equivalent to the reduction io rates. If, 
 however, there is a lease, the rent cannot be raised until 
 the expiration of the lease, and consequently, during this 
 time, the tenant is able to appropriate to himself the 
 advantage resulting from the reduction. Tenant-farmers, 
 therefore, are entirely misled, if they suppose that they 
 are interested in the amount of rates which is paid to the 
 
 BOOK IT. 
 CH. VII. 
 
 of rates 
 imposed on 
 land and 
 tliose im- 
 posed on 
 buildings. 
 
620 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 CH. VII. 
 
 The inci- 
 dence of 
 rates 
 levied on 
 land is on 
 the owner, 
 not on the 
 occupier. 
 
 same extent as the landowners. If rents were regulated 
 entirely by competition, and not at all by custom, an 
 increase in rates would be no loss, and a reduction of 
 rates would be no gain, to those farmers who are yearly 
 tenants. In the case of farms held on lease, the extra 
 burden resulting from an increase of rates would have to 
 be borne by the farmer, and the saving resulting from the 
 reduction of rates would also be appropriated by him 
 during the period his lease may have to run. In order 
 still more clearly to show that rates are really paid not by 
 the occupier of the land but by its owner, it will perhaps 
 be desirable to consider the question from a somewhat 
 different point of view. It is a well-known principle of 
 economic science that at any particular time there is a 
 certain rate of profit appropriate to industry. This is 
 termed the natural rate of profit, and it may be regarded 
 as indicating a position of stable equilibrium. If the 
 profits exceed this rate, then the industry becomes ex- 
 ceptionally remunerative. There arises an active com- 
 petition to participate in these extra profits, and profits 
 are reduced by the force of competition. In a similar 
 way capital will not continue to be embarked in an 
 industry which is exceptionally unremunerative, and thus 
 a force is brought into operation to raise profits if they 
 are reduced below their natural rate. Assuming that 
 farmers could appropriate to themselves the benefit re- 
 sulting from a decrease of rates, farming would become 
 an exceptionally profitable industry. Farms would be so 
 actively competed for that the rise which would take 
 place in rents would at length be equivalent to what 
 had been saved in rates, and consequently the farmer 
 would ultimately be no better off than he was before. 
 When it was proposed to abolish the Corn Laws the 
 farmers were the staunchest advocates of protection. They 
 were deluded into the belief that they, as a class, were 
 specially interested in the maintenance of high prices. 
 They seemed incapable of recognising the very obvious 
 fact that their rents were adjusted according to the price 
 of agricultural produce. High prices simply meant high 
 rents. Untaught by experience, they are apparently 
 about to commit the same error, for they seem to think 
 that if rates are reduced they will be able to appropriate 
 
The Incidence of Local Taxation. 
 
 621 
 
 the advantage to themselves. As, however, sufficient has 
 probably been said to establish the proposition that a 
 rate is a charge upon land, and is not a tax on the 
 cultivator, we will now proceed to consider who really 
 pay the rates which are levied upon houses and business 
 premises. 
 
 It is evident that in the case of a house there are three 
 distinct persons to be considered. In the first place there 
 is the owner of the ground on which the house stands; 
 secondly, there is the owner of the house itself; thirdly, 
 there is the occupier or tenant of the house. It may in 
 the first instance be assumed that the occupier has not a 
 lease, but is simply a yearly tenant. It generally happens 
 that the aggregate rent which is paid by the occupier 
 consists of two portions. He pays a ground-rent to the 
 owner of the land, and he pays a rent to the owner of the 
 house. The amount of the latter sum must be sufficient 
 to give a proper remuneration, or, in other words, to yield 
 a fair profit for the outlay incurred in building the house. 
 This being the case, it is obvious that the amount of rent 
 thus paid cannot be affected by the amount of rates levied 
 upon the house. Capital would not be invested in building 
 unless the return was sufficient to yield the ordinary rate 
 of interest. It therefore follows that rates must be borne 
 either by the occupier of a house or by the owner of the 
 land upon which it is built. In order to ascertain whether 
 the burden of rates really falls upon the owner of the 
 ground or upon the occupier, let us suppose that house 
 property is relieved from the payment of rates. We have 
 then to determine whether the saving which would result 
 would be appropriated by the owners of ground-rents or 
 by the occupiers of houses. In deciding this qiiestion it 
 must be borne in mind that the area of land on which 
 houses can be built is not limited in quantity. If, for 
 instance, it is assumed that there is a house, the rent of 
 which is 60Z., the ground-rent lOZ., and the rates 20?., we 
 have to consider whether the 20Z., saved by the remission 
 of rates, could or could not be appropriated by the owner 
 of the ground-rent. If it were possible for him to appro- 
 priate this amount to himself, it is at once obvious that 
 his ground-rent would be advanced from 101. to 301. We 
 now, however, have to inquire what is the determining 
 
 BOOK IT. 
 OH. VII. 
 
 The inci- 
 dence of 
 rates levi- 
 ed on 
 houses, 
 when the 
 area of 
 'building 
 land is 
 practically 
 unlimited, 
 is upon the 
 occupier. 
 
622 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 OH. VII. 
 
 cause which fixed the ground-rent at 101. previous to the 
 remission of rates. It is manifest that to this question 
 there can only be one answer. The ground-rent is simply 
 the price paid for the use of a plot of ground, and this 
 price is regulated by demand and supply. The mere 
 remission of rates can exercise no direct influence either 
 upon the demand for, or upon the supply of, building ground, 
 and consequently no change can take place in its price. 
 It therefore follows that ground-rents will remain the 
 same as they were before, and the saving resulting from 
 the remission of rates cannot be appropriated by the 
 owner of the ground-rent, but will represent so much 
 gained by the occupier of the house. It will be observed 
 that in establishing this proposition it has been stated 
 that the remission of rates can exert no direct influence 
 upon the price of building ground. The expression ' direct 
 influence' has been employed because it may no doubt 
 happen that a slight indirect effect may be exerted upon 
 the price of building ground by the remission of rates. 
 The gain which will accrue to house occupiers from such 
 a remission will enable them of course, if they please, to 
 live in a somewhat better house. Thus a man who saves 
 201. a year from having to pay no rates may be induced 
 to take a better house. Again, it no doubt happens that 
 a man often delays commencing housekeeping until he 
 thinks he is able to aiford to take a house suitable to his 
 position. The remission of rates, by lessening the cost of 
 housekeeping, would increase the demand for houses. It 
 therefore follows that' the remission of rates, by inducing 
 some people to live in better houses, and by inducing 
 others to commence housekeeping, would exercise some 
 influence on the demand for building ground. The price 
 of this building ground would somewhat advance, and a 
 small portion of the benefit resulting either from a remis- 
 sion or reduction of rates would fall to the share of the 
 owners of ground-rents and of building ground. Making, 
 however, full allowance for this, we still arrive at the con- 
 clusion that by far the greater part of the advantage 
 would, in ordinary cases, be undoubtedly appropriated by 
 house occupiers. We say 'in ordinary cases,' because it 
 is necessary to point out that in certain exceptional in- 
 stances the reverse of what has just been stated takes 
 
The Incidence of Local Taxation. 
 
 623 
 
 place, and the greater proportion of the rates is paid, not 
 by the occupier of the house, but by the" owner of the 
 ground. The reader will probably perceive that through- 
 out the above investigation it has been assumed that the 
 area of building ground is not limited in quantity. It is, 
 however, obvious that this assumption is only true in certain 
 cases and with certain qualifications. It is, for instance, 
 perfectly well known that some houses possess a mono- 
 P0I3' of advantages so far as situation is concerned. Some- 
 times the advantage consists in beauty of prospect. ' A small 
 area of ground may command a beautiful view, and there 
 is no power whatever of increasing the number of houses 
 built upon it. In other cases the advantage arises from 
 convenience of situation for business purposes. Customers, 
 for instance, are more likely to be attracted to those shops 
 which happen to be situated in the leading thoroughfares 
 of our large towns. The competition for business premises 
 possessing these exceptional advantages of situation is so 
 great that the rent is only in a slight degree determined 
 by the value of the building itself Thus business pre- 
 mises at Charing Cross or in Lombard Street which may 
 only cost 10,OOOZ. to erect may not improbably let for 
 SOOOi. a year. A profit of ten per cent, may be regarded 
 as more than an ample return upon money invested in 
 building. Consequently, in such a case as that just de- 
 scribed, where the annual rent is 3000?., certainly not 
 more than lOOOZ. of this amount can fairly be regarded 
 as the rent of the building ; the remaining 2000Z. is the 
 annual price or rent paid for the use of the ground on 
 which the building stands. Assuming that the rates on 
 this building are 5s. in the pound, or, in other words, 750Z. 
 a year, we have to determine whether these rates are 
 borne by the owner of the building or by the occupier. 
 In order as far as possible to simplify the investigation, 
 we will in the first instance suppose that the owner of the 
 ground is also the owner of the building, and it will then 
 be only necessary to determine whether, if rates were 
 altogether remitted, the gain would be secured by the 
 owner of the building or by its occupier. It is at once 
 obvious that the rent which the occupier pays is not 
 regulated by the cost of erecting the building. _ The cause 
 which here determines value or rent is not, as in ordinary 
 
 BOOK IV. 
 OH. VII. 
 
 Investiga- 
 tion of the 
 incidence 
 on rates on 
 houses and 
 business 
 premises, 
 where the 
 land, on 
 which they 
 are built, 
 possesses 
 exception- 
 al advan- 
 tages. 
 
624 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 
 CH. vri. 
 
 cases, cost of production, but. the demand which exists at 
 any particular time for an article the supply of which 
 cannot be increased beyond definitely assigned limits. 
 The rent of an ordinary house is ultimately determined 
 by the cost of production, just in the same way as the 
 price of ordinary commodities is regulated by the outlay 
 involved in producing them. Ifj however, there is some 
 article, the supply of which cannot be increased, such, 
 for instance, as a vase designed by a distinguished artist 
 no longer living, it is evident that its price is not in- 
 fluenced by the original cost of producing it, but is solely 
 controlled by the demand of those who may wish to pur- 
 chase the vase. The demand which may be regarded 
 as proving effectual in this case, or, in other words, the 
 demand which ultimately fixes the price, is to be measured 
 by the amount offered for the vase by the purchaser willing 
 to pay for it the highest price. If we inquire why there 
 is this demand for the vase, or why a person is willing to 
 pay this highest price, we can only say that the desire 
 may be prompted by pleasure, or by a prospect of ultimate 
 profit. Analogous considerations will show that the price 
 or rent paid for a house possessing exceptional advantages 
 of situation is only in a small degree influenced by the 
 cost of building the house, but is determined by the 
 highest price which any -one is willing to pay who wishes 
 to occupy the house, either for purposes of pleasure, or in 
 order to secure the extra trade profits which will result 
 from the occupation of premises in a peculiarly favourable 
 situation. It is evident that this demand, whether prompt- 
 ed by pleasure or by an anticipation of gain, is not in- 
 fluenced by the amount of rates which may be levied 
 on the premises. Thus, assume that there are two sets 
 of business premises, one in the Euston Eoad, and the 
 other at Charing Cross, which, so far as regards the size 
 and general character of the buildings, are identically the 
 same, it is by no means unreasonable to suppose that if 
 the premises in the Euston Road let for oOOl. a year, 
 those at Charing Cross would let for 2,000Z. If these 
 should be the two rents respectively paid, the difference, 
 1,5001. a year, would represent the pecuniary value 
 possessed by premises of this character when situated 
 at Charing Cross, compared with the Euston Road. In 
 
The Incidence of Local Taxation. 
 
 625 
 
 saying that the rents are 2000?. and 5001. respectively, 
 it is assumed that these rents include the amount paid 
 in rates. Suppose that there is a uniform consolidated 
 rate in the metropolis of 5s. in the pound ; the aggregate 
 rent of 2000Z. which is paid for the building at Charing 
 Cross, will consist of 1600Z. paid as rent to the landlord, 
 and 400Z. paid as rates. The 5001. of rent for the building 
 in Euston Road is composed of rent to landlord, 400?., 
 and rates, 100?. Let us now inquire what would take 
 place if rates were altogether remitted. "What is true 
 ia the case of the entire remission of rates would, ^ro 
 tanto, hold good in the case of reduction of rates. As 
 the two buildings which we are now considering are in 
 every respect of the same size and character, it is manifest 
 that the cost of erecting each must have been the same. 
 Let it be assumed that this cost was 4000?., upon which 
 there is a return of 8 per cent. The Euston Eoad premises 
 which let for 400?. a year may conseqently be regarded as 
 yielding an ordinary rent of 320?. a year and a ground-rent 
 of 80?. The premises at Charing Cross, in consequence of 
 their erection costing the same as those in the Euston Road, 
 yield the same ordinary rent, viz. 320?., and the ground- 
 rent will consequently be 1280?. The remission of rates 
 would not in any way affect the pecuniary value for business 
 purposes possessed by the house at Charing Cross. The 
 demand for this house would be the same as it was before 
 the rates were remitted, consequently its owner would 
 be able to secure the same rent for it, viz. 2000?. This 
 rent of 2000?. previously consisted of three distinct ele- 
 ments; viz. 400?. rates, 1280?. ground-rent, and 320?. 
 ordinary rent, or, in other words, the return for the money 
 spent in building the house. The amount of this return 
 is solely regulated by the ordinary rate of profit upon 
 money invested in building, and is not, therefore, in any 
 way affected by the remission of rates. Hence, when no 
 rates are paid, the aggregate rent is still 2000?. a year, 
 and as the ordinary rent still remains at 320?. a year, 
 it therefore follows that the ground-rent will be increased 
 by 400?., viz. from 1280?. to 1680?. Erom these con- 
 siderations it appears to be proved that in the case of 
 buildings possessing exceptional advantages of situation, 
 rates are not a charge on the owner or occupier of the 
 
 BOOK IV. 
 OH. VII. 
 
 F. M, 
 
 EK 
 
626 
 
 Manual of Political JEconomy. 
 
 BOOK IV. 
 CH. VII. 
 
 Are rates 
 on trade 
 premises a 
 burden on 
 profits or 
 on the con- 
 sumer? 
 
 house, but upon the owner of the ground, because it has 
 just been shown that if rates were remitted, the saving 
 resulting would simply represent so much added to the 
 ground-rent. When business premises do not possess any 
 exceptional advantages of situation, it is evident, from 
 considerations similar to those adduced in the case of 
 ordinary dwelling-houses, that rates are a charge upon 
 the occupier or tenant. It still, however, remains for us 
 to determine whether the tradesman who pays rates upon 
 his shop, and the merchant or manufacturer who pays rates 
 upon a warehouse or manufactory, are able to shift the 
 burden of these rates upon the purchasers and the con- 
 sumers of commodities. Putting this question in another 
 form, we have to ascertain whether rates are to be regarded 
 as a deduction from trade-profits, or whether they are a 
 tax imposed upon the consumers of merchandise. It will 
 be easy to show that the answer which must be given to 
 this inquiry will be different under different circumstances. 
 In the first place, let it be assumed that the rates im- 
 posed in different localities are the same, and that the 
 home trader has to encounter no foreign competition. 
 Under such circumstances there can be little doubt that 
 rates would be really paid by the consumer and not by 
 the trader. If this were not so, any increase in rates 
 would represent so much taken away from the profits of 
 trade. But if trade profits were thus diminished, they 
 would sink below their natural level, and the force of 
 competition would at once be brought into operation to 
 restore them to their former position; for it is obvious 
 that capital would not continue to be invested in busi- 
 ness if it could be more advantageously employed in 
 other undertakings. We have next to enquire what 
 would take place when rates are higher in some localities 
 than in others. Those who carry on business in localities 
 where rates are exceptionally high would be unable to 
 shift the burden of the extra rates upon the consumer, 
 because the competition of those localities where rates 
 are comparatively low, would prevent the price of the 
 commodity being raised sufficiently to compensate those 
 traders upon whom the exceptionally high rates are im- 
 posed. It is therefore evident that the trade of a district 
 may be seriously imperilled if it has to bear rates much 
 
TJie Incidence of Local Taxation. 
 
 627 
 
 in excess of those which are levied in other localities. A 
 merchant or manufacturer may be unable to continue his 
 business, or may be induced to withdraw his capital to 
 other localities, if he has to bear the burden cast upon 
 him by excessive rates. It has been very frequently, said 
 that the trades' -unions are mainly responsible for the 
 decline of the ship-building trade on the Thames. It is, 
 however, probable that this decline ought, in a far greater 
 degree, to be attributed to the excessive rates which for 
 some time prevailed in the East end of London. Sum- 
 marising the conclusions at which we have just arrived, it 
 may be generally stated that rates, so far as they represent 
 a uniform charge upon business premises, are a tax imposed 
 upon consumers. In those cases where rates are exception- 
 ally high, the excess above the ordinary amount constitutes 
 a special tax imposed upon the traders of the locality. 
 
 In order to complete the investigation, we have next to 
 inquire whether the conclusions at which we have just 
 arrived have in any way to be modified, when the compe- 
 tition of foreign traders is taken into account. It has 
 been shown that, as rates are ordinarily a charge upon 
 the consumer, an increase of rates will raise the price of 
 commodities. Such a rise in price, however, will at once 
 stimulate foreign competition. The foreign producer, 
 anxious to avail himself of these high prices, will send us 
 a greater quantity of goods. This augmentation in the 
 foreign supply must exert an influence in reducing prices. 
 It will consequently follow that the home trader, when 
 rates increase, will only be able partly to recoup himself 
 by a rise in prices. The burden in this case will have to 
 be shared between the trader and the consumer. The 
 more rates are increased, the greater will be the advan- 
 tage given to our foreign competitors. It may quite 
 possibly happen, that a constant increase in rates might 
 ultimately jeopardise the very existence of many branches 
 of industry, in which there is a close competition between 
 the home and the foreign producer. 
 
 It may, in conclusion, be desirable to trace the inci- 
 dence of rates when imposed upon such undertakings as 
 railways and gas and waterworks. Nothing can be more 
 anomalous and confused than the methods adopted for 
 levying rates upon these undertakings. It has been 
 
 BOOK IV. 
 OH. Tir. 
 
 Incidence 
 of rates on 
 railwaifs, 
 •Ice. 
 
628 
 
 Manual of Political Economy. 
 
 BOOK IV. 
 CH.'VII. 
 
 already stated that rates are levied upon the annual let- 
 ting value of business premises, and not upon the profits 
 realised from the business. In the case of railways and 
 waterworks, rates are levied by an absolutely unintelli- 
 gible process. They are, in a certain rough way, imposed 
 upon the profits realised. The laws of rating, so far as 
 this kind of property is concerned, are simply a mass of 
 heterogeneous and contradictory jargon, which no amount 
 of human ingenuity can interpret. A late eminent judge, 
 in giving his decision in a dispute arising from the rating 
 of some waterworks, declared it to be impossible to recon- 
 cile or to understand the various contradictory Acts of 
 Parliament which bore upon the subject. We must, 
 however, forbear from pursuing this branch of the subject 
 at greater length ; for the object we have in view is 
 rather to trace the incidence of rates than to adduce 
 instances to prove how imperatively our entire system of 
 local finance and administration requires fundamental 
 reform. The rates which are imposed on railways are 
 usually supposed to be a charge upon railway travellers, 
 and not a charge upon the proprietors of railway stock. 
 Some valid reasons, however, may be adduced for arriving 
 at a different conclusion. It will be scarcely denied that 
 there is a certain point at which railway fares might be 
 fixed, so as to return the maximum profit. Railway ma- 
 nagers very likely have hitherto failed to discover this 
 point. Some competent authorities assert that the pro- 
 fits of railways would be greatly increased if existing fares 
 were considerably reduced. But whether this should 
 ultimately prove to be so or not, the fact still remains, 
 that as railways are ordinary commercial undertakings 
 primarily administered for profit, the facilities which are 
 offered for the conveyance of goods and passengers, so far 
 as fares and accommodation are concerned, are such as 
 will, in the opinion of directors and managers, yield the 
 largest amount of profit. Bearing this in mind,''let it be 
 supposed that, in consequence of an increase of local rates, 
 an extra charge is thrown upon a railway. We have, 
 therefore, simply to inquire whether the railway proprie- 
 tors will be able to recoup themselves for this extra 
 charge by increasing the fares for goods and passengers. 
 It certainly seems that such a question admits of but one 
 
The Incidence of Local Taxation. 
 
 629 
 
 answer. If fares could with advantage be raised after the 
 extra rates were imposed, why were they not raised be- 
 fore ? The original amount at which these fares were 
 fixed was supposed to indicate a point at which the max- 
 imum of profit would be realised. How, then, can it be 
 "imagined that an increase of rates would prompt railway 
 proprietors to raise their fares, or, in other words, to do 
 that which would lead to a reduction in their profits ? 
 Hence it follows that local rates diminish the profits of 
 railway shareholders, and any imperial tax levied on 
 railways, such as the railway passenger duty, has the same 
 effect. From analogous considerations it follows that 
 rates imposed upon waterworks and gasworks represent a 
 charge upon the profits of these undertakings. There is 
 a certain price which, if charged for gas and water, will 
 yield a maximum of profit, and, consequently, a rise in 
 price, instead of providing compensation for an increase of 
 rates, would simply tend to reduce profits. It not unfre- 
 quently happens, however, that when an Act of Parliament 
 is obtained for the construction of gas and waterworks, 
 the proprietors are prohibited from appropriating to them- 
 selves a dividend of more than a fixed amount, generally 
 10 per cent. When this maximum dividend has been 
 reached, it is evident that rates are solely a charge upon 
 the consumer, because if there were no rates there would 
 be so much more of extra profits, to appropriate to a 
 reduction in the price of gas and water. In those cases 
 where gas and waterworks are owned by a municipality, 
 there can be no object in rating them at all. If they are 
 made to pay rates, it is simply taking money out of one 
 pocket and putting it into another. 
 
 There is one peculiar injustice associated with the 
 present method of levying local taxation, upon which 
 it is desirable to make a few remarks. It will be seen 
 that the inequality to which we refer presses with par- 
 ticular severity upon the leasehold occupiers of dwelling- 
 houses and business premises. It is, as we have shown in 
 the last Chapter,a prominent characteristic of local finance 
 in this country, that the aggregate local expenditure each 
 year exceeds by many millions the aggregate amount 
 which is raised by local taxation and by grants from the 
 imperial exchequer. , This excess of expenditure over re- 
 
 BOOK IV. 
 
 cn. VII. 
 
630 
 
 Manual of Political Economy, 
 
 BOOK IV. 
 CH. VII. 
 
 venue, which often amounts to more than 10,000,000?. has 
 to be met by raising loans upon the security of the rates. 
 
 It is surprising that the amount of local indebtedness, 
 which is being rapidly accumulated throughout the 
 country, has hitherto attracted so little notice. It has 
 often happened in recent years that the imperial revenue 
 has exceeded the expenditure by 3,000,000?. or 4,000,000?. 
 a year; and yet we persistently ignore the fact, that the 
 addition which is each year made to our local indebted- 
 ness greatly exceeds any diminution which is effected in 
 our national obligations. Every facility seems to be given 
 to local authorities to get into debt, and what makes the 
 matter still more serious is, that the circumstances under 
 which these loans are contracted are frequently involved 
 in inextricable confusion. This system of constantly 
 borrowing is often justified upon the plea that the money 
 is devoted to works of permanent improvement. But 
 it is sometimes difficult to discover whether a portion of 
 these loans is not occasionally applied to purposes which 
 ought to be defrayed out of ordinary revenue. Again, 
 it is frequently urged in defence of this system of bor- 
 rowing for works of permanent utility, that at the time 
 the loans are contracted arrangements are entered into 
 which will secure the repayment or redemption of the 
 loan in a certain limited period. Thus, if 500,000?. is 
 required for the carrying out of a new system of drainage, 
 or for the construction of waterworks, the money is raised 
 either in the form of terminable annuities, or, which comes 
 to the same thing, the local authorities consider that the 
 loan involves a charge of six or seven per cent., and the 
 amount of this interest above the current rate is devoted 
 to the creation of a sinking fund, which will enable the 
 loan to be paid off in a certain period, say twenty-one 
 years. It is easy to show that this arrangement, instead 
 of constituting a defence of the present system, is essen- 
 tially unjust, and it is to the injustice associated with it 
 that we will now direct the attention of the reader. If 
 500,000?. is, as we have supposed, raided for drainage 
 purposes, or for waterworks, let us inquire what will take 
 place if the loan is paid off in twenty-one years, seven 
 per cent, interest being charged upon it during the period. 
 The loan will obviously, upon this hypothesis, throw upon 
 
The Incidence of Local Taxation. 
 
 631 
 
 the rates, during a period of twenty-one years, an addi- 
 tional charge of 35,000^. a year. Suppose that just pre- 
 vious to the time when this loan was contracted, a man 
 takes a lease of a house or of some business premises for 
 twenty-one years. During the entire period of the lease 
 he will be obliged to contribute his share to the extra 
 charge thrown upon the rates by this loan. At the 
 expiration of the lease, this improvement, which has 
 cost 500,000?., is paid for. The owner of the leasehold 
 property has not contributed a single shilling to the 
 amount, although his property is permanently improved 
 by the expenditure. The tenant will probably find at 
 the expiration of the lease that his rent is raised in exact 
 proportion to the extent to which the property has been 
 improved. The landlord will be able to say, " You paid 
 me 60Z. before, but the house is well worth 65Z. or 7QI., 
 now that the town has been so well drained, and now 
 that there is a constant supply of water almost free of 
 charge." Of what avail will it be for the tenant to plead 
 that it is he and not the landlord who has paid for the 
 drainage works and the water? Sooner or later, of course, 
 just such a rent will be charged for the house as the 
 house is worth. The wrong which is in this way inflicted 
 on leasehold tenants is so entirely indefensible, that it 
 seems impossible to understand how it has been so quietly 
 submitted to. Urban occupiers, at least, have the remedy 
 in their own hands. They are the majority of the rate- 
 payers, and it rests with them to determine whether loans 
 should be raised at all, and if raised, under what condi- 
 tions they shall be contracted. Loans raised upon the 
 security of county rates are in a somewhat different posi- 
 tion, because the county magistrates, being a non-elective 
 body, are not subject to the ratepayers' control. It is 
 however to be observed, that by far the greater portion 
 of the loans has been raised, not in rural, but in urban 
 districts, and it is to this circumstance we must partly 
 attribute the fact to which we have already alluded, that 
 rates are now, on the average, in the towns, nearly twice 
 as high as they are in the country. 
 
 THE END. 
 
 BOOK rv. 
 
 OH. VII. 
 
Csmbriifgt : 
 
 rmuTBD BY C. J. CLAT. SI.A. 
 
 AT THB UKITEBSITY PRESS. 
 
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 K 2 
 
4 MACMILLAN'S CATALOGUE OF WORKS IN 
 
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 Cox (G. V.)— RECOLLECTIONS OF OXFORD. By G. 
 V. Cox, M.A., New College, late Esquire Bedel and Coroner 
 in the University of Oxford. Cheaper Edition. Crown 8vo. 6s. 
 
 Cunynghame (Sir A. T.) — my command in south 
 
 AFRICA, 1874 — 78. Comprising Experiences of Travel in the 
 Colonies of South Africa and the Independent States. By Sir 
 Arthur Thurlow Cunynghame, G.C.B., then Lieutenant- 
 Governor and Commander of the Forces in South Africa. Third 
 Edition. 8vo. 12s. dd. 
 
 The Times says : — "It is a volume /f great interest, full of 
 
 incidents which vividly illustrate the condition of the Colonies and the 
 character and habits of the natives It contains valuable illus- 
 trations of Cape warfare, and at the present moment it caniwt fail to 
 command wide-spread attention." 
 
 "Daily News."— the daily news' correspond- 
 
 ENCE of the War between Germany and France, 1870 — i. Edited 
 with Notes and Comments. New Edition. Complete in One 
 Volume. With Maps and Plans. Crown 8vo. 6s. 
 
 THE DAILY NEWS' CORRESPONDENCE of the War between 
 Russia and Turkey, to the fall of Kars. Including the letters of 
 Mr. Archibald Forbes, Mr. J. E. McGalian, and other Special 
 Correspondents in Europe and Asia. Second Edition, enlarged. 
 Cheaper Edition. Crown 8vo. 6^. 
 
 FROM THE FALL OF KARS TO THE CONCLUSION OF 
 PEACE. Cheaper Edition. Crown 8vo. 6.c. 
 
HISTORY, BIOGRAPHY, TRAVELS, ETC. 7 
 
 Davidson.— THE LIFE OF A SCOTTISH PROBATIONER ; 
 being a Memoir of Thomas Davidson, with his Poems and 
 Letters. By James Brown, Minister of St. James's Street 
 Church, Paisley. Second Edition, revised and enlarged, with 
 Portrait. Crown 8vo. 7j. iid. 
 
 Deas. — THE RIVER CLYDE. An Historical Description of the 
 Rise and Prrigress of the Harbour of Glasgow, and of the Im- 
 provement of the River from Glasgow to Port Glasgow. By J. 
 Deas, M. Inst. C.E. 8vo. loj. bd. 
 
 Denison.— A HISTORY OF cavalry from THE EAR- 
 LIEST TIMES. With Lessons for the Future. By Lieut. -Col. 
 George Denison, Commanding the Governor-General's Body 
 Guard, Canada, Author of " Modem Cavalry." With Maps and 
 Plans. 8vo. i8j. 
 
 Dilke. — GREATER BRITAIN. A Record of Travel in English- 
 speaking Countries during 1866-7. (America, Australia, India.) 
 By Sir Charles Wentworth Dilke, M.P. Sixth Edition. 
 Crown 8vo. 6f. 
 
 " Many of the subjects discussed in these pages^' savs the Daily News, 
 " are of the widest interest, and such as no man who cares for the future 
 of his race and of the world can afford to treat with indifference." 
 
 Doyle.— HISTORY OF AMERICA. By J. A. Doyle. With 
 Maps. i8mo. 4J. dd. 
 " Mr. Doyle's style is clear and simple, his facts are accurately stated, 
 and his book is meritoriously free from prejudice on questions whei-e 
 partisanship runs high amongst us." — Saturday Revievt. 
 
 Drummond of Hawthornden : THE STORY OF HIS 
 LIFE AND WRITINGS. By Professor Masson. With Por- 
 trait and Vignette engraved by C. H. Jeens. Crown 8vo. 10s. 6d. 
 " Around his hero. Professor Masson groups national and individual 
 episodes and sketches of character, which are of the greatest interest, ana 
 which add to the value of a biographical work which we warmly recom- 
 mend to the lovers of thoroughly healthy books." — Notes and Queries. 
 
 Duff. — Works by M. E. Grant-Duff, M.P., late Under Secretary 
 of State for India : — 
 
 NOTES OF AN INDIAN JOURNEY. With Map. 8vo. 10s. 6d. 
 
 " These notes are full of pleasant remarks and illustrations, borrowed 
 from every kind of source." — Saturday Review. 
 
 MISCELLANIES POLITICAL AND LITERARY. 8vo. los.dd. 
 
 Eadie. — LIFE OF JOHN EADIE, D.D., LL.D. By James 
 Brown, D.D., Author ol "The Life of a Scottish Probationer." 
 With Portrait. Second Edition. Crown 8vo. Ts. 6d. 
 "An ahly written awl characteristic biography." — TIMES. 
 
8 MACMILLAN'S CATALOGUE OF WORKS IN 
 
 EiUott LIFE OF HENRY VENN ELLIOTT, of Brighton. 
 
 By JosiAH Bateman, M.A. With Portrait, engraved by Jeens. 
 
 Extra fcap. 8vo. Third and Cheaper Edition, bs. 
 Elze. — ESSAYS ON SHAKESPEARE. By Dr. Karl Elze. 
 
 Translated with the Author's sanction by L. Dora Schmitz. 
 
 8vo. 1 2 J. 
 "A more desirable contribution to criticism has not recently been made." 
 — Athen^um. 
 English Men of Letters. Edited by John Morley. a 
 
 Series of Short Books to tell people what is best worth knowing 
 
 as , to the Life, Character, and Works of some of the great 
 
 Eiiglish Writers. In crown 8vo. Price 2s. 6d. each. 
 
 I. DR. JOHNSON. By Leslie Stephen. [i>ixth Tlwusand. 
 *' The new series opens well with Mr. Leslie Stephen's sketch of Dr. 
 
 Johnson. It could hardly have been done better ; and it will convey to 
 the readers for whom it is intended a juster estiviate of "Johnson thaji 
 either of the two essays of Lord Macaulay " — Pall Mall Gazette. 
 
 II. SIR WALTER SCOTT. By R. H. HnxTON. [Fifth Thousand. 
 " The tpne of the volume is excellent throughout." — Athenaeum. 
 
 " We could not wish for a more sugiiestive introduction to Scotland 
 his poems and novels." — Examiner. 
 
 III. GIBBON. By J. C. Morison. [Fifth Thousand. 
 "As a clear, thoughtful, and attractive record of the life and works of 
 
 the greatest among the world's historians, it deserves the highest praise."- — ■ 
 Examiner. 
 
 IV. SHELLEY. By J. A. Symonds. [Fifth Thousand. 
 " The lovers of this great poet are to be congratulated on having at 
 
 their command so fresh, clear, and intelligent a presentment of the subject, 
 written by a tnan of adequate and wide culture" — Athen^um. 
 
 V.HUME. By Professor Huxley. [Fifth Thousand. 
 
 *^ It may fairly be said that no one now living could have expounded 
 Hume with more sympathy or with equal perspicuity." — Athen^um. 
 
 VI. GOLDSMITH. By William Black. [Fifth Tlwusand. 
 ''Mr. Black brings a fine sym-pathy and taste to bear in his criticism 
 
 of Goldsmith' s writings as well as in his sketch of the incidents of his life." 
 Athen.«um. 
 
 VII. DEFOE. By W. Minto. 
 
 BURNS. By Principal Shairp. \ 
 
 SPENCER. By R.W. Church, Dean of St. Paul's. ( ., ,, 
 HAWTHORNE. By Henry James. Jun. \ '■''" "" press. 
 
 THACKERAY. By Anthony Trollope. ) 
 
 Others in preparation. 
 Eton College, History of. By H. C. Maxwell Lyte, 
 M.A. With nutnerous Illustrations by Professor Delamotte, 
 Coloured Plates, and a Steel Portrait of the Founder, engraved 
 
HISTORY, BIOGRAPHY, TRAVELS, ETC. 
 
 by C. H. Jeens. New and cheaper Issue, with Gorreotions. 
 
 Medium 8vo. Cloth elegant, zij. 
 
 '' Hitherto no account of the College, with all its associations, has 
 
 appeared which can compare either in completeness or m interest with 
 
 ■ this. . . , It is indeed a book worthy of the ancient renown oj Kin" 
 
 Henry's College." — Daily News. '^ 
 
 " tVeare at length presented with a work on England's greatest ptUic 
 
 school,worthy of the subject of which it treats. . . . A reallji vfilua^k and 
 
 authentic history of Eton College. " — GUARDIAN. 
 
 European History, Narrated in a Series pf Historical 
 
 Selections from the best Authorities. Edited and arranged by 
 
 E. M. Sewell and C. M. Yonge. First Series, crown 8vo. ts. ; 
 
 Second Series, 1088-1228, crown Svo. 6s. Third Edition. 
 
 " We know of scarcely anything," says the GUARDIAN, of this volume, 
 
 "which is so likely t<i raise to a higher level the average standard of 
 
 En^ish education," 
 
 F3raday.^MICU4EL FARADAY. By J. H. Gladstoise, 
 Ph.D., F, R. S. Second Edition, with Portrait engraved by Jeens 
 from a photograph by J. Watki^js. Crown Svo. 4J. dd. 
 : PORTRAIT. Artist's Proof. 5^. 
 
 Contents : — I. The Story of his Lije. II. Study of his Character. 
 III. Fruits of his Experience. IV. His Method of Writing. V, The 
 Value of his Discoveries. — Supplementary Portraits, Appendices: — List 
 of Honorary Fellowships, etc. 
 
 Forbes.^LIFE and letters of JAMES DAVID 
 FORBES, F.R.S., late Principal of the United College in the 
 University of St. Andrews. By J. C. Shairp, LL.D., Principal 
 of the United College in the University of St. Andrews; P. G. 
 Tait, M.A., Professor of Natural Philosophy in the University 
 of Edinburgh; and A. Adams-Reilly, F.R.G.S. Svo. with 
 Portraits, Map, and Illustrations, 16s. 
 ' ' Not only a biography that all should read, but a scientific treatise, 
 without which the shelves of no physicists library can be deemed com- 
 plete. " — Standaed. 
 
 Freeman. — Works by Edward A. Freeman, D.C.L.,LL.D. :— 
 
 HJSTORICAL ESSAYS. Third Edition. Svo. 10s. 6d. 
 
 Contents: — /. "The Mythical and Romantic Elements in Early 
 
 English History;" II. " The Continuity of English History j" III. 
 
 "Tff^ Relations betweefi the Crowns of England and Scotland' ;" IV. 
 
 "St. Thomas of Canterbury and his Piograthers ;" V. " The Reign of 
 
 Edward the Third:" VI. "The Holy Roman Empire;" VII. "The 
 
 Franks and the Gauls;" VIII. "The Early Sieges of Paris;" IX. 
 
 "Frederick the lirst, King of Italy ;" X. "The Emperor Frederick the 
 
 Second:" XI. "Charles the Bold;" XII, " Presidential Government." 
 
 A SECOND SERIES OF HISTORICAL ESSAYS. Svo. 
 
 los.'td. 
 
lo MACMILLAJSrS CATALOGUE OF WORKS IN 
 Freeman — continued. 
 
 The principal Essays are : — " Ancient Greece and Mediceval Italy : " 
 " Mr. GUidston^s Homer and the Homeric Ages : " " The Historians 
 of Athens:" '■'■The Athenian Democracy:" "Alexander the Great:" 
 '■'Greece during the Macedonian Period:" "Mommsen's History of Rome i" 
 "Lucius Cornelius Sulla :" " The Flaiiian Ccesars." 
 
 COMPARATIVE POLITICS. --Lectures at the Royal Institution. 
 To which is added the " Unity of History," the Rede Lecture at 
 Cambridge, 1872. 8vo. 14J. 
 THE HISTORY AND CONQUESTS OF THE SARACENS. 
 Six Lectures. Third Edition, with New Preface. Crown 8vo. 
 Zs. td. 
 "Mr. Freeman opportunely reprints his erudite and valuable lec- 
 tures." — Daily Telegraph. 
 
 HISTORICAL AND ARCHITECTURAL SKETCHES: 
 chiefly Italian. With Illustrations by the Author. Crown 8vo. 
 10 J. dd. 
 " Ml". Freeman may here be said to give us a series of ' notes on the 
 spot ' in illustration oj the intimate relations of History and Architecture, 
 and this is done in so masterly a manner — there is so much freshness, so 
 much knowledge so admirably condensed, that ive are almost tempted to 
 say that lue prefer these sketches to his more elaborate studies," — NONCON- 
 FORMIST. 
 
 HISTORY OF FEDERAL GOVERNMENT, from the Foun- 
 dation of the Achaian League to the Disruption of the United 
 States. Vol. I. General Introduction. History of the Greek 
 Federations. 8vo. -lis. 
 
 OLD ENGLISH HISTORY. WitYi Five Coloured Maps. Fourth 
 Edition. Extra fcap. 8vo., half-bound. 6^. 
 
 " The book indeed is full of instruction and interest to students oj all 
 ages, and he must be a well-infoi med man indeed toho will not rise 
 from its perusal ■with clearer and more accurate ideas of a too much 
 neglected portion of English history." — SPECTATOR. 
 
 HISTORY OF THE CATHEDRAL CHURCH OF WELLS, 
 
 as illustrating the History of the Cathedral Churches of the Old 
 
 Foundation. Crown 8vo. 3^. dd. 
 
 " The history assumes in Mr. Freeman's hands a significance, and, we 
 
 may add, a p> actical value as suggestive 0/ what a cathedral ought to be, 
 
 which make it well worthy of mention." — Spectator. 
 
 THE GROWTH OF THE ENGLISH CONSTITUTION 
 FROM THE EARLIEST TIMES. Crown Svo. £■?• Third 
 Edition, revised. 
 
 GENERAL SKETCH OF EUROPEAN HISTORY. Being 
 Vol. I. of a Historical Course for Schools edited by E. A. 
 Freeman. New Edition, enlarged with Maps, Chronological 
 Table, Index, &c. i8iuu. y. dd. 
 
HISTOR Y, BIOGRAPHY, TRAVELS, ETC. ii 
 Freeman — conthmed. 
 
 "It supplies the great want of a good foundation for historical teach- 
 ing. The scheme is an excellent one, and this instalment hai- been 
 accepted in a way that promises much for the volumes that are yet 
 to appear." — Educational Times. 
 THE OTTOMAN POWER IN EUROPE : its Nature, its Growth, 
 and its Decline. With Three Coloured Maps. Crown 8vo. Is. 6d. 
 Galileo.— THE private life of GALILEO. Compiled 
 principally from his Correspondence and that of his eldest 
 daughter, Sister Maria Celeste, Nun in the Franciscan Convent of 
 S. Matthew in Arcetri. With Portrait. Crown 8vo. 7^. 6d. 
 
 Geddes. — the problem of the homeric poems. 
 
 By W. D. Geddes, LL.D., Professor of Greek in the University 
 of Aberdeen. 8vo. 14J. 
 
 Gladstone — Works by the Right Hon.W. E. Gladstone, M. P. :— 
 JUVENTUS MUNDI. The Gods and Men of the Heroic Age. 
 
 Crown 8vo. cloth. With Map. loj. 6d. Second Edition. 
 "Seldom," says the ATHENiEUM, ^^ out of the great poems themselves, 
 have these Divinities looked so majestic and respectable. To read these 
 brilliant details is like standing on the Olympian threshold and gazing at 
 the ineffable brightness ivithin." 
 
 HOMERIC SYNCHRONISM. An inquiry into the Time and 
 
 JPlace of Homer. Crown 8vo. 6^. 
 '^ It is impossible not to admire the immense range of thought and 
 inquiry which the author has displayed." — British Quarterly 
 Review. 
 
 Goethe and Mendelssohn (1821—1831). Translated from the 
 German of Dr. Karl Mendelssohn, Son of the Composer, by 
 M. E. Von Glehn. From the Private Diaries and Home 
 Letters of Mendelssohn, with Poems and Letters of Goethe never 
 before printed. Also vnth two New and Original Portraits, Fac- 
 similes, and Appendix of Twenty Letters hitherto unpublished. 
 Crown 8vo. 5^. Second Edition, enlarged. 
 " . . . Every page is full of interest, not merely to the musi- 
 cian, but to the general reader. The book is a very charming one, on 
 a topic of deep and lasting interest." — Standard. 
 
 Goldsmid. — TELEGRAPH AND TRAVEL. A Narrative ot 
 
 the . Formation and Development of Telegraphic Communication 
 
 between England and India, under the orders of Her Majesty's 
 
 Government, with incidental Notices of the Countries traversed by 
 
 the Lines. By Colonel Sir Frederic Goldsmid, C.B., K.C.S.I., 
 
 late Director of the Government Indo-European Telegraph. With 
 
 numerous Illustrations and Maps. 8vo. 2IJ. 
 
 " The merit of the work is a total aisetwe of exaggeration, which does 
 
 not, however, preclude a vividness and vigour of style net always character^ 
 
 istic of similar narratives." — STANDARD. 
 
12 MACMILLAN'S CATALOGUE OF WORKS IN 
 
 Gordon. — last letters FROM EGYPT, to wlu<!h are added 
 
 Letters from the Cape. By Lady Duff Gordon. With a 
 
 Memoir by her Daughter, Mjs. Ross, and Portrait engraved by 
 
 Jeens. Second EtJition. Crown 8vo. 9^. 
 
 ' ' The intending tourist who wishes to acquqint hiinselfwith the country 
 
 he is abo^t to visit, stands embarvassed amidst the riches presented for his 
 
 choice, and in the end probably ruts contented with the sober usefulness oj 
 
 Mt^rray. , He will nQt, however, if he is well advised, grudge a place in 
 
 his portina.nteau to this book." — Times. 
 
 Gray. — china, a History of the Laws, Maimers, and Customs 
 of the People. By the Venerable John Henry Gray. LL.D., 
 Archdeacon of Hong Kong, fonjierly H. B.M. Consular Chaplain 
 .SitCajnton. Edited by W. Gow Gregor. With 1 50 Full-page IHu,stra- 
 tions, being Facsimiles of Drawings by a Chinese Artist. 2 Vols. 
 Demy 8vo. 32J. 
 '* its pages contain the most truthful and vivid picture of Chinese life ' 
 
 which has ever been published." — Athenaeum. 
 
 " The only elaborate and valuable book we have had fbr many years 
 
 treating generally of the people of the Celestial Empire." — Academy. 
 
 Green. — Works by John Richard Green: — 
 HISTORY OF THE ENGLISH PEOPLE. Vol. I.— Early 
 England — Fqrqign Kings^The Charter — ^The Parliament. With 
 8 Coloured Maps. 8vo. i6j. Vol. II. — The Monarchy, 
 1461 — 1540 ; the Restoration, 1540 — ^l6o3- 8vo. ids. ' 
 "Mr. Green has done a work which probably no one but Jiimself could 
 have done. He has read and assimilated the results of all the labours of 
 students during the last half century in the field of English history, and 
 has given them a fresh meaning by his own independent study. He has 
 fused together by the force of sympathetic imagination all that he has so 
 collected, and has ^iven us a vivid and forcible sketch of the march op 
 English history. His book, both in its aims and its accomplishments, 
 rises far beyond any of a similar kind, and it wiUgive the colouring to the 
 popular view to English history for some time to come." — Examiner. 
 
 A SHORT HISTORY OF THE ENGLISH PEOPLE. With 
 
 Coloured Maps, Genealogical Tables, and Chronological Annals. 
 
 Crown 8vo. Zs. dd. Fifty-fifth Thousand. 
 
 " To say that Mr. Crten's bpok is better than those which have pre- 
 
 ■ceiicd it, would be to convey a very inadequate impression of its merits. It 
 
 stands alone as the one general history of. the country, for the sake of 
 
 which all fftjicrs, if young and old are ifiise, will be speedily and surely set 
 
 ■afide." 
 
 STRAY STUDIES FROM ENGLAND AND ITALY. Crown 
 8vo. %s. 6d. Containirig : .Lambeth, and the Archbishops — The 
 Florence of Dante— Venice and Rome — Early History of Oxford 
 —The District Visitor— Capri-^ Hotels in the Clouds— Sketches 
 in Sunshine, iSrc. 
 
 " One and all of the papers are eminently readable." — AxHEN^/EUNr. 
 
HISTORY, BIOGRAPHY, TRAVELS, ETC. 13 
 
 Hamerton. — Works by p. G. HamertON:— 
 
 THE INTELLECTUAL LIFE. With a Portrait of Leonairdo da 
 Vinci, etched by Leopold Flameng. Second Edition. Gi'own 
 lof. bd. 8vo. 
 " We have read the whole book with great pleasure, and we can re- 
 commend it strongly to all who can appreciate grave reflections on a very 
 important subject, excellently ilhtstrated from the resources of a rhind 
 stored with much reading and much keen obseiiiation of real life." — 
 Saturday Revie*. 
 
 THOUGHTS ABOUT ART. New Edition, revised, with an 
 Introduction. Crown 8vo. 8j. 6d. 
 
 "A manual of sound and thorough criticism on art!' — Standard. 
 " The book is full of thought, and worthy of attentive consideration" — 
 Daily News. 
 
 Hill. — THE RECORDER OF BIRMINGHAM. A Memoir of 
 Matthew Davenport Hill, with Selections from his Correspondence. 
 By his Daughters Rosamond and Florence Davenport-Hill. 
 With Portrait engraved by C. H. Jeens. 8vo. ids. 
 
 Hill. — WHAT WE SAW IN AUSTRALIA. By RosAMdJfD 
 and Florence Hill. Crown 8vo. 10s. 6d. 
 "May be recommended as an interesting and truthful picture cf the 
 condition of those lands which are so distant a^id yet so much like home." 
 — Saturday Review. 
 
 Hodgson. — MEMOIR OF REV. FRANCIS HODGSON, 
 B.D., Scholar, Poet, and Divine. By his Son, the Rev. James 
 T. Hodgson, M.A. Containing numerous Letters from Lord 
 Byron and others. With Portrait engraved by JeenS. Two 
 Vols. Crown 8vo. iSj. 
 ' ' A book that has added so much of a healthy nature to our knowledge 
 
 of Byron, and that contains so rich a store of delightful correspondence." 
 
 — Athenaeum. 
 
 Hole.— A GENEALOGICAL STEMMA OF THE KINGS 
 OF ENGLAND AND FRANCE. By the Rev. C. Hole, 
 M.A., Trinity College, Cambridge. On Sheet, \s. 
 
 A BRIEF BIOGRAPHICAL DICTIONARY. Compiled ^d 
 Arranged by the Rev. Charles Hole, M.A. Second Edition.. 
 iSfiio. 4r. dd. 
 
 Hooker and Ball. — mAROCCO and the great 
 ATLAS: Journal of a' Tour in. By Sir Joseph D. Hooker, 
 K.C.S.L, C.B., F.R.S., &c., and John Ball, F.R.S. With an 
 Appendix, including a Sketch of the Geology of Maroccq, by 
 G. Maw, F.L.S., F.G.S. With Illustrations and Map. 8vo. 21s. 
 
H MACMILLAN'S CATALOGUE OF WORKS IN 
 
 Hozier (H. M.) — Works by Captain Henry M. Hozier, 
 late Assistant Military Secretary to Lord Napier of Magdala :— 
 THE SEVEN WEEKS' WAR ; Its Antecedents and Incidents. 
 New and Cheaper Edition. With New Preface, Maps, and Plans. 
 Crown 8vo. hs. 
 "All that Mr. Hosier saw of the great events of the war— and he saw 
 a large share of them — he describes in clear and vivid language." — 
 Saturday Review. 
 
 THE INVASIONS OF ENGLAND : a History of the Past, with 
 
 Lessons for the Future. Two Vols. Svo. z'is. 
 The Pall Mall Gazette says : — "■As to all invasions executed, or 
 deliberately projected bat not carried out, from the landing of Julius 
 CfEsar to the raising of the Boulogne camp, Captain Hozier furnishes 
 copious and most interesting particulars. " 
 
 Hiibner. — A ramble round THE world in 1871. By 
 
 M. Le Baron Hubner, formerly Ambassador and Minister. 
 Translated by Lady Herbert. New and Cheaper Edition. 
 With numerous Illustrations. Crown Svo. 6s. 
 " It is difficult to do ample justice to this pleasant narrative of travel 
 . ... it does not contain a single dull paragraph."— yiOK^ma Post. 
 
 Hughes. — Works by Thomas Hughes, Q.C, Author of "Tom 
 Brown's School Days." 
 memoir of a brother. With Portrait of George Hughes, 
 after Watts. Engraved by Jeens. Crown Svo. S^. Sixth 
 Edition. 
 " TTie boy who can read this book without deriving from it some addi- 
 tional impulse towards honourable, manly, and independent conduct, has 
 no good stuff in him." — Daily News. 
 
 ALFRED THE GREAT. New Edition. Crown Svo. 6s. 
 
 Hunt.— HISTORY OF ITALY. By the Rev. W. Hunt, M.A. 
 Being the Fourth Volume of the Historical Course for Schools. 
 Edited by Edward A. Freeman, D. C. L. iSmo. 3^-. 
 " Mr. Hunt gives us a most compact but very readable little book, con- 
 taining in small compass a very complete outline of a complicated and 
 perplexing subject. It is a book which may be sdfely recommended to 
 others besides schoolboys" — John Bull. 
 
 Irving.— THE ANNALS OF OUR TIME. A Diurnal of Events, 
 Social and Political, Home and Foreign, from the Accession of 
 Queen Victoria to the Peace of Versailles. By Joseph Irving. 
 Fourth Edition. Svo. half-bound. i6j. 
 
 ANNALS OF OUR TIME. Supplement. From Feb. 28, 1S71, 
 to March 19, 1874. Svo. 41. 6d. 
 
 ANNALS OF OUR TIME. Second Supplement. From March, 
 1S74, to the Occupation of Cyprus. Svo. \N'early ready. 
 
HISTORY, BIOGRAPHY, TRAVELS, ETC. 15 
 
 ' ' We have before us a trusty and ready guide 'to the events of the 
 past thirty years, available equally for the statesman, the politician, the 
 public writer, and the general reader." — Times. 
 
 James. — Works by Henry James, Jun. FRENCH POETS AND 
 NOVELISTS. Crown 8vo. %s. 6d. 
 Contents : — Alfred de Musset ; Thiophile Gautier ; Baudelaire ; 
 Honori de Bahac ; George Sand ; The Two Ampires ; Turgenieff, &'c. 
 THE EUROPEANS. A Novel. Two Vols. Crown 8vo. 21s. 
 
 Johnson's Lives of the Poets. — The Six Chief 
 
 Lives — Milton, Dryden, Swift, Addison, Pope, Gray. With 
 Macaulay's " Life of Johnson." Edited, with Preface, by 
 Matthew Arnold. Crown 8vo. 6s. 
 
 Killen.— ECCLESIASTICAL HISTORY OF IRELAND, from 
 the Earliest Date to the Present Time. By W. D. Killen, D.D., 
 President of Assembly's College, Belfast, and Professor of Eccle- 
 siastical History. Two Vols. 8vo. 25J. 
 " Those who have the leisure will do well to read these two volumes. 
 
 They are full of interest, and are the result of great research. . , . We 
 
 have no hesitation in recomtnending the work to all who wish to improve 
 
 their acquaintance with Irish history." — Spectator. 
 
 Kingsley (Charles). — Works by the Rev. Charles Kingsley, 
 M.A., Rector of Eversley and Canon of Westminster. (For 
 other Works by the same Author, see Theological and Belles 
 Lettres Catalogues. ) 
 ON THE ANCIEN REGIME as it existed on the Continent before 
 the French Revolution. Three Lectures delivered at the 
 Royal Institution. Crown 8vo. bs. 
 AT LAST : A CHRISTMAS in the WEST INDIES. With nearly 
 
 Fifty Illustrations. Fifth Edition. Crown 8vo. ds. 
 
 Mr. ICingsley's dream of forty years was at last fulfilled, when he 
 
 started on a Christmas expedition to the West Indies, for the prurpose of 
 
 becoming personally acquainted with the scenes which he has so vividly 
 
 described in " Westward Ho !" These two volumes are the journal of his 
 
 voyage. Records of natural history, sketches of tropical landscape, chapters 
 
 on education, views of society, all find their place. " We can only say 
 
 that Mr. Kingsley' s account of a ' Christmas in the West Indies ' is in 
 
 every way worthy to be classed among his happiest productions." — 
 
 Standard. 
 
 THE ROMAN AND THE TEUTON. A Series of Lectures 
 
 delivered before the University of Cambridge. New and Cheaper 
 
 Edition, with Preface by Professor Max Mijller. Crown 8vo. 6j. 
 
 PLAYS AND PURITANS, and other Historical Essays. With 
 
 Portrait of Sir Walter Raleigh. New Edition. Crown 8vo. ds. 
 
 In addition to the Essay mentioned in the title, this volume contains 
 
 other two — one on "Sir Walter Raleigh and his Time," and one on 
 
 Froudis " History of England." 
 
i6 MACMILLAN'S CATALOGUE OF WORKS IN ' 
 
 KingSley (Henry). — TALES OF OLD TRAVEL. Re- 
 narrated by Henry Kingsley, F.R.G.S. With Eight Illus- 
 trations by HuARD. Fifth Edition. Crown 8vo. 5^. 
 " We know no better book for those who want knowledge or seek to 
 refresh it. As for the ' sensational,' most novels are tame compared with 
 these narratives." — Athenaeum. 
 
 Lang. -^CYPRUS : Its History, its Present Resources and Fttture 
 
 Prospects. By R. Hamilton Lang, late H.M. Consul for the 
 
 Island of Cyprus. With Two Illustrations and Four Maps. 8vo. 14J. 
 
 '* The fair and impartial account of her past and present to be found in 
 
 these pages has an undoubted claim on the attention of all intelligent 
 
 readirs."—MORNmG POST. 
 
 LaOCOOn. — Translated from the Text of Lessing, with Preface and 
 Notes by the Right Hon. Sir Robert J. Phillimore, D.C.L. 
 With Photographs. 8vo. 12s. 
 
 Leonardo da Vinci and his Works. — Consisting of a 
 
 Life of Leonardo Da Vinci, by Mrs. Charles W. Heaton, 
 
 Author of ' ' Albrecht Durer of Niirnberg, " &c. , an Essay on his 
 
 Scientific and Literary Works by Charles Christopher 
 
 Black, M.A., and an account of his more important Paintings 
 
 and Drawings. Illustrated with Permanent Photographs. Royal 
 
 8vo. cloth, extra gilt. ^is. 6d. 
 
 " A beautiful volume, both without and within. Messrs. Macmillan 
 
 are conspicuous among publishers for the choice binding and printing of 
 
 their books, and this is got up in their best style. . . . No English 
 
 publication that we know of has so thoroughly and attractively collected 
 
 together all that is known of Leonardo." — TIMES. 
 
 Liechtenstein. — HOLLAND HOUSE. By Princess Marie 
 Liechtenstein. With Five Steel Engravings by C. H. Jebns, 
 after Paintings by Watts and other celebrated Artists, and 
 numerous Illustrations drawn by Professor P. H. Delamotte, toA 
 engraved on Wood by J. D. Cooper, W. Palmer, and Jewitt & 
 Co. Third and Cheaper Edition. Medium 8vo. clotii elegant. 
 i6j. 
 Also, an Edition containing, in addition to the above, about 40 
 Illustrations by the Woodbury-type process, and India Proofs of 
 the Steel Engravings. Two vols, medium 4to. half morocco 
 elegant. 4/. 4J. 
 " When every strictly just exception shall have been taken, she may be 
 conscientiously congratulated by the most scrupulous critic on the produc- 
 tion of a useful, agreeable, beautifully-illustrated, and attractive book." 
 
 Times. ^^ It would take up more room than we can spare to enumerate 
 all the interesting suggestions and notes which are to be found in these 
 volumes. .... The woodcuts are admirable, and some of tlie autographs 
 are very interesting." — Pall Mall Gazette. 
 
HISTORY, BIOGRAPHY, TRAVELS, ETC. 17 
 
 Lloyd.— THE AGE OF PERICLES. A History of the Arts and 
 
 Politics of Greece from the Persian to the Peloponnesian.War. 
 
 By W. Waikiss Lloyd. Two Vols. 8vo. 21 j 
 
 " No such account of Greek art oj the best period has yet been brought 
 
 together in an English work. .... Mr. Lloyd has produced a book of 
 
 unusual excellence and interest." — Pall Mall Gazette. 
 
 Macarthur — history of Scotland, By Margaret 
 
 Macarthuk. Being the Third Volume of the Historical Course 
 
 for Schools, Edited by Edward A. Freeman, D.C.L. Second 
 
 Edition. i8mo. 2.s. 
 
 ^^ It is an excellent summary, unimpeachable as to facts, and putting 
 
 them in the clearest and most impartial light attainable." — GuARDfAN. 
 
 " Ho previous History of Scotland of the same bulk is anything like so 
 
 trustworthy, or deserves to be so extensively used as a text-book." — Globe. 
 
 Macmillan (Rev. Hugh) For other Works by same Author, 
 
 see Theological and Scientific Catalogues. 
 holidays on HIGPI lands ; or, Rambles and Incidents in 
 search of Alpine Plants. Second Edition, revised and enlarged. 
 Globe 8vo. cloth, (ts. 
 '^ Botanical knowledge is blended with a love of nature, a pious en- 
 thusiasm, and a rich felicity of diction not to be met with in any works 
 of kindred character, if we except those of Hugh Miller." — -Telegraph. 
 ^'Mr. Macmillan' s glowing pictures of Scandinavian scenery." — 
 Saturday Review. 
 
 Macready. — macready's reminiscences and se- 
 lections from his diaries and letters. Edited 
 by Sir F. POLLOCK, Bart., one of his Executors. With Four 
 Portraits engraved by JEENS. New and Cheaper Edition. Crown 
 8vo. "js. 6d. 
 " As a careful and for the most part just estimate of the stage during 
 a very brilliant period, the attraction of these volumes can scarcely be 
 surpassed. .... 'Readers who have no special intei-est iti theatrical 
 matters, but enjoy miscellaneous gossip, will be allured from page to page, 
 attracted by familiar names and by observations upon popular actors and 
 authors." — Spectator. 
 
 M'ahaffy. — Works by the Rev. J. P. Mahaffy, M.A., Fellow of 
 Trinity College, Dublin :— 
 SOCIAL LIFE IN GREECE FROM HOMER TO MENAN- 
 DER. Third Edition, revised and enlarged, with a new chapter 
 on Greek Art. Crown 8vo. gj. 
 "It should be in the hands of all zvho desire thoroughly to understand 
 and to enjoy Greekliterature, and to get an intelligent idea of the old Greek 
 life, political, social, and religious." — Guardian. 
 RAMBLES AND STUDIES IN GREECE. With lUustralionf. 
 Crown Svo. lOf. 6d. New and enlarged Edition, with Map and 
 Illustration.'! , 
 
 "A singularly instructive and agreeable volume." — Athen^um. 
 
 IS 
 
i8 MACMILLAN'S CATALOGUE OF WORKS IN 
 
 " Maori." — SPORT AND WORK ON THE NEPAUL FRON- 
 TIER ; or, Twelve Years' Sporting Reminiscences of an Indigo 
 Planter. By "Maori." With Illustrations. 8vo. i+r. 
 
 Margary. — the JOURNEY OF AUGUSTUS RAYMOND 
 
 MARGARY FROM SHANGHAE TO BHAMO AND BACK 
 
 TO MANWYNE. From his Journals and Letters, with a brief 
 
 Biographical Preface, a conclu^g chapter by Sir RUTHERFORD 
 
 Alcock, K.C.B., and a Steel Portrait engraved by Jeens, and 
 
 Map. 8vo. los. dd. 
 
 " There is a manliness^ a cheerful spirit, an inherent vigour which 
 
 was nevti- overcome by sickness or debility, a tact which conquered the 
 
 prejudices of a strange and suspicious population, a quiet self-reliance, 
 
 always combined with deep religious feeling, unalloyed by either priggish- 
 
 ness, cant, or superstition, that ought to commend this volume to readers 
 
 sitting quietly at home who feel any pride in the high estimation accorded 
 
 to men of tlieir race at Yarkand or at Khiva, in the heart of Africa, o> 
 
 on the shores of Lake Seri-kul." — Saturday Review. 
 
 Martin.— THE HISTORY OF LLOYD'S, AND OF MARINE 
 INSURANCE IN GREAT BRITAIN. With an Appendix 
 containing Statistics relating to Marine Insurance. By Frederick 
 Martin, Author of "The Statesman's Year Book." 8vo. 14J. 
 " We have in the editor of the ''Statesman's Year Book' an in- 
 dustrious and conscientious guide, and we can certify that in his * History 
 of Lloyd's' he has produced a work of more than passing interest." — 
 Times. 
 
 Martineau.— BIOGRAPHICAL SKETCHES, 1852—1875. 
 By Harriet Martineau. With Additional Sketches, and Auto- 
 biographical Sketch. Fifth Edition. Crown 8vo. ds. 
 " Miss -Martineau' s large literary powers and her fine intellectual 
 
 training make these little sketches more instructive, and constitute them 
 
 more genuinely works of art, than many more ambitious and diffuse 
 
 biographies." — Fortnightly Review. 
 
 MaSSOn (David).— For other Works by same Author, see Philo- 
 soPHicAi- and Belles Lettres Catalogues. 
 
 CHATTERTON - A Story of the Year 1770. By David Masson, 
 LL. D., Professor of Rhetoric and Englisla Literature in the Uni- 
 versity of Edinburgh. Crown 8vo. ^s. 
 " 0ns of this popular writer's best essays on the English poets" — 
 Standard. 
 
 THE THREE DEVILS : Luther's, Goethe's, and Milton's ; and 
 
 other Essays. Crown Svo. 5^. 
 WORDSWORTH, SHELLEY, AND KEATS; and other 
 
 Essays. Crown 8vo. Jj. 
 
HISTORY, BIOGRAPHY, TRAVELS, ETC. ig 
 
 Maurice.— THE friendship of books ; AND- OTHER 
 LECTURES. By the Rev. F. D. Maurice. Edited with Pre- 
 face, by Thomas Hughes, Q.C. Ciowm 8vo. los. 6d. 
 " TJie high, pure, syvipatheHc, and truly charitable nature of Mr. 
 Maurice is delightfully visible throughout these lectures, which are ex- 
 cellently adapted to spread a love of literature amongst the peopled — 
 Daily News. 
 
 Mayor (J. E. B.)— WORKS edited by John E. B. Mayor, 
 M.A., Kennedy Professor of Latin at Cambridge : — 
 
 CAMBRIDGE IN THE SEVENTEENTH CENTURY. Part II. 
 Autobiography of Matthew Robinson. Fcap. 8vo. 5^. ()d. 
 
 LIFE OF BISHOP BEDELL. By his Son. Fcap. Svo. y. 6d. 
 
 Melbourne.— MEMOIRS OF the rt. hon William, 
 
 SECOND VISCOUNT MELBOURNE. By W. M. Torrens, 
 
 M.P. Witli Portrait after Sir. T. Lawrence. Second Edition. 
 
 2 Vols. Svo. 32J. 
 
 " As might be expected, he has produced a book "which will command 
 
 and reward attention. It contains a great deal of valitable matter and 
 
 a great deal of animated, elegant writing." — Quarterly Review. 
 
 Mendelssohn.-^LETTERS AND recollections. By 
 Ferdinand Hiller. Translated by M. E. Von Glehn. With 
 Portrait from a Drawing by Karl Muller, never before pub- 
 lished. Second Edition. Crown Svo. "Js. 6d. 
 " This is a very interesting addition to our knowledge of the great 
 German composer. It reveals him to us under a new light, as the warm- 
 hearted comrade, the musician whose soul was in his work, and the home- 
 loving, domestic OTa»."— Standard. 
 
 Merewether by sea and by land. Being a Trip 
 
 through Egypt, India, Ceylon, Australia, New Zealand, and 
 America — all Round the World. By Henry Alworth Mere- 
 wether, one of Her Majesty's Counsel. Crown Svo. Sj-. dd. 
 
 Michael Angelo Buonarotti ; Sculptor, Painter, Architect. 
 
 The Story of his Life and Labours. By C. C. Black, M.A. 
 
 Illustrated by 20 Permanent Photographs. Royal Svo. cloth 
 
 elegant, 31^. (>d. 
 " The story of Michael Angela's life remains interesting whatever be the 
 manner of telling it, and supported as it is by this beautiful series of photo- 
 graphs, the volume must take rank among the m-ost splendid of Christmas 
 books, fitted to serve and to outlive the season" — Pall Mall Gazette. 
 
 Michelet— A SUMMARY OF MODERN HISTORY. Trans- 
 lated from the French of M. Michelet, and continued to the 
 present time by M. C. M. Simpson. Globe Svo. 4?. dd. 
 " We are glad to see one of the ablest and most useful summaries of 
 European history put into the hands of English readers. The transla- 
 tion is excellent." — Standard. 
 
 B 2 
 
20 MACMILLAN'S CATALOG UE OF WORKS /A 
 
 Milton. — LIFE OF JOHN MILTON. Narrated in connection 
 with the Political, Ecclesiastical, and Literary History of his Time. 
 By David Masson, M.A., LL.D., Professor of Rhetoric and 
 English Literature in the University of Edinburgh. With Portraits. 
 Vol. L i%s. Vol. II., 1638— 1643. 8vo. i6s. Vol. III. 
 1643— 1649. 8vo. iSj. Vols. IV. and V. 1649—1660. 32J. 
 Vol. VI. in preparation. 
 
 This work is not only a Biography, but also a continuous Political, Eccle- 
 siastical, and Literary History of England through Milton's whole time. 
 
 Mitford (A. B.) — TALES OF OLD JAPAN. By A. B. 
 
 MiTFORD, Second Secretary to the British Legation in Japan. 
 
 With upwards of 30 Illustrations, drawn and cut on Wood by 
 
 Japanese Artists. New and Cheaper Edition. Crown 8vo. ds. 
 
 " These very original volumes will always be interesting as memorials 
 
 of a most exceptional societv, while regarded simply as tails, they are 
 
 sparkling, sensational, and dramatic, and the originality of their idea 
 
 and the quaintness of their language give them a most captivating 
 
 piquancy. The illustrations are extremely interesting, and for the 
 
 curious in such matters have a special and particular value." — Fall 
 
 Mall Gazette. 
 
 Monteiro.— ANGOLA AND THE RIVER CONGO. By 
 Joachim Monteiro. With numerous Illustrations from Sketches 
 taken on the spot, and a Map. Two Vols, crown Svo, 2ls. 
 " Gives the first detailed account of a part of tropical Afriea which is 
 
 little knownto Englishmen The remarks on the geography arul 
 
 zoology of the country and the manners and customs of the various races 
 inhabiting it, are extremely curious and interesting." — Saturday Re- 
 view. ' ' Full of valuable information and much picturesque description." 
 Pall Mall Gazette. 
 
 ' Morison. — the LIFE and times of saint BERNARD, 
 Abbot of Clairvaux. By James Cotter Morison, M.A. New 
 Edition. Crown 8vo. 6j. 
 The Pall Mall Gazette caUs this " A delightful and instructive 
 volume, and one of the best products of the modern historic spirit." 
 
 Moseley. — notes BY A naturalist on the chal- 
 lenger : being an Account of various Observations made 
 during the Voyage of H.M.S. Challenger, Round the World, 
 in 1872-76. By H. N. Moseley, F.R.S., Member of the 
 Scientific Staff of the Challenger. 8vo. with Maps, Coloured Plates, 
 and Woodcuts. 21s. 
 
 Murray.— ROUND ABOUT FRANCE. By E. C. Grenville 
 Murray. Crown Svo. is. dd. 
 ** These short essays are a perfect mine of iifoy?naiion as to the present 
 condition and future prospects of political parties in France. . . . It is 
 at once extremely interesting and e.'cccpiionally instructive on a subject on 
 which feiti English pe(yple are well informed " — gcoTSMAN. 
 
HISTOR Y, BIOGRAPHY, TRAVELS, ETC. 21 
 
 Napoleon — the history of napoleon i. By p- 
 
 Lanfrey. a Translation with the sanction of the Aitthor. Vols- 
 
 I. II. and III. 8vo. price \2s. each. 
 The Pall Mall Gazette savs it is "one of the most striking 
 pieces of historical composition of which France has to boast," and the 
 Saturday, Review callsit " an excellent translation of a workon ^ery 
 ground desetving to be translated. It is unquestionably and immeasurably 
 the best that has been produced. It is in fact the only work to which we 
 can turn for an accurate and trustworthy narrative of that extraordinary 
 career. . . . TJie book is the best and indeed the only trustworthy history 
 of Napoleon which has been written." 
 
 Nash,— OREGON ; There and Back in 1877. By Wallis Nash. 
 With Map and Illustrations. Crown 8vo. , "Js. 6d. 
 ' ' This unpretentious little volume is a bright and very clever record of 
 a journey which the author made to Orci^on . . . which will tell any one 
 who reads it a very great deal worth knoiaing about Oregon .... Alto- 
 gether, he has written an interesting and amusing book." — Spectator. , 
 
 Nichol.— TABLES OF EUROPEAN LITERATURE AND 
 HISTORY, A.D. 200—1876. By J. NiCHOL, LL.D., Professor 
 of English Language and Literature, Glasgow. 4to. ds. dd. 
 TABLES OF ANCIENT LITERATURE AND HISTORY, 
 B.C. 1500— A. D. 200. By the same Author. 4to. 4s. 6d. 
 
 Oliphant (Mrs.). — the makers of Florence : Dante 
 
 Giotto, Savonarola, and thei'r City. By Mrs. Oliphant. With 
 numerous Illustrations from -drawings by . Professor Delamotte, 
 and portrait of Savonarola, engraved by Jeens. Second Edition. 
 Medium 8vo. Cloth extra. 21s. 
 " Mrs. Oliphant has jnade a beautiful addition to the mass of literature 
 
 already piled round the recoi-ds of the Tuscan capital." — Times. 
 
 " We are grateful to Mrs. Oliphant for her eloquent and beautiful 
 
 sketches of Dante, Fra Angelico, and Savonarola. ' They are picturesque, 
 
 full of l^e, and rich in detail, and they are charmingly illustrated by the 
 
 art of the engraver." — Spectator. 
 
 Oliphant. — THE DUKE and the SCHOLAR; and other 
 Essays. By T. L. Kington Oliphant. 8vo. is. 6d. 
 *' This volume contains one of the most beautiful biographical essays we 
 have seen since Macaulay's days." — Standard. 
 
 Otte. — SCANDINAVIAN HISTORY. By E. C. Otte. With 
 Maps. Extra fcap. 8vo. 6s. 
 " We have peculiar pleasure in recommending this intelligent rlsum! 
 of Northern history as a book essential to every Englishman who interests 
 himself in Scandinavia. "Sve.CTA.'vo^, 
 
 Owens College Essays and Addresses. — By Pro- 
 fessors AND Lecturers of Owens College, Manchester. 
 Published in Commemoration of the Opening of the New College 
 Buildings, October 7th, 1873. 8vo. i+f. 
 
22 MACMILLAN'S CATALOGUE OF WORKS IN 
 
 Palgrave (R. F. D.)— THE HOUSE OF COMMONS ; 
 
 Illustrations of its History and Practice. By Reginald F. D. 
 
 Palgrave, Clerk Assistant of the House of Commons. New 
 
 and Revised Edition. Crown 8vo. 2s. 6d. 
 Palgrave (Sir F.)— HISTORY OF NORMANDY AND 
 
 OF ENGLAND. By Sir Francis Palgrave, Deputy Keeper 
 
 of Her Majesty's Public Records. Completing the History to the 
 
 Death of William Rufus. 4 Vols. 8vo. 4/. 4J. 
 
 Palgrave (W. G.)— A NARRATJVE OF A YEAR'S 
 JOURNEY THROUGH CENTRAL AND EASTERN 
 ARABIA, 1862-3. By William Gifford Palgrave, late of 
 the Eighth Regiment Bombay N. I. Sixth Edition. With Maps, 
 Plans, and Portrait of Author, engraved on steel by Jeens. Crown 
 8vo. 6^. 
 "He has not only written one of the lest books on the Arabs and one 
 of the best books on Arabia, but h( has done so in a manner that must 
 command the respect no less than the admiration of his fellow-country- 
 men." — Fortnightly Review. 
 ESSAYS ON EASTERN QUESTIONS. By W. Gifford 
 
 Palgrave. 8vo. \os. 6d. 
 " These essays are full of anecdote and interest. The book is decidedly 
 a valuable addition to the stock of literature on which men must 
 base their opinion of the difficult social and political problems su^* 
 gested by the designs of Russia, ike capacity of Mahometans fof 
 sovereig^tty, and the g(od government and retention of India." — 
 Saturday Review. 
 
 DUTCH GUIANA. With Maps and Plans. 8vo. 9s. 
 
 ' ' His pages are nearly exhaustive as far as facts and statistics go, 
 while they are lightened by graphic social sketches as well as sparkling 
 descriptions of scenety."—SA.TVRJiAY Review. 
 
 Patteson.— LIFE and letters of JOHN COLERIDGE 
 
 PATTESON, D.D., Missionary Bishop of the Melanesian Islands. 
 
 By Charlotte M. Yonge, Author of " The Heir of Redclyffe." 
 
 With Portraits after Richmond and from Photograph, engraved by 
 
 Jeens. With Map. Fifth Edition. Two Vols. Crown 8vo. izj. 
 
 ' ' Miss Yongis work is in one respect a model biography. It is made 
 
 up almost entirely of Fatteson's own letters. Aware that he had left his 
 
 home once and for all, his correspondence iook the form of a diary, and 
 
 as we read on we come to know the man, and to love him almost as if we 
 
 had seen him." — ATHEN.ffiUM. "Such a life, with its grand lessons of 
 
 unselfishness, is a blessing and an honour to the age in which it is lived • 
 
 the biography cannot be studied without pleasure and profit, and indeed 
 
 we should think little of the man who did not rise from the study of it 
 
 better and wiser. Neither the Church nor the nation which produces 
 
 such sons need ever despair of itsfiiture." — Saturday Review. 
 
HISTORY , BIOGRAPHY, TRAVELS, ETC. 23 
 
 Pauli PICTURES OF OLD ENGLAND. By Dr. Reinholu 
 
 Pauli. Translated, with the approval of the Author, by E. C. 
 Otte. Cheaper Edition. Crown 8vo. 6j-. 
 
 Payne. — a history OF EUROPEAN COLONIES. By 
 E. J. Payne, M. A. With Maps. i8mo, ,4^.6^. 
 
 The Times says: — " We have seldom met with a historian capable oj 
 forming a more comprehensive, far-seeing, and unprejudiced estimate oJ 
 events and peoples, and we can commend this little work as one certain to 
 prove of the highest interest to all thoughtful readers." 
 
 Persia. — eastern Persia. An Account of the Journeys of 
 the Persian Boundary Commission, 1870-1-2. — Vol. I. The Geo- 
 graphy, with Narratives by Majors St. John, Lovett, and Euan 
 Smith, and an Introduction by Major-General Sir Frederic 
 GOLDSMID, C.B., K.C.S.I., British Commissioner and Arbitrator. 
 With Maps and Illustrations. — Vol. II. The Zoology and Geology. 
 By W. T. Blanford, A.R.S.M., F.R.S. With Coloured Illus- 
 trations. Two Vols. 8vo. ifls. 
 " The volumes largely increase our store of information about 
 
 countries with which Englishmen ought to be familiar 
 
 They throw into the shade all that hitherto has appeared in our tongue 
 respecting the local features of Persia, its scenery, its resojirces, even its 
 social condition. They contain also abundant evidence of English 
 endurance, daring, and spirit," — Times. 
 
 Prichard. — THE ADMINISTRATION OF INDIA. From 
 1859 to 1868. The First Ten Years of Administration under the 
 Crown. By I. T. Prichard, Barrister-at-Law. Two Vols. 
 Demy 8vo. With Map. 2\s. 
 
 Raphael.— RAPHAEL OF URBINO AND HIS FATHER 
 GIOVANNI SANTI. By J. D. Passavant, formerly Director 
 of the Museum at Frankfort. With Twenty Permanent Photo- 
 graphs. Royal 8vo. Handsomely bound. 3IJ. dd. 
 The Saturday Review says of them, " We have seen not a few 
 
 elegant specimens of Mr. Woodbury's new process, but we have seen 
 
 none that equal these." 
 
 Reynolds.— SIR JOSHUA REYNOLDS AS A PORTRAIT 
 PAINTER. AN ESSAY. By J. Churton Collins, B.A. 
 Balliol College, Oxford. Illustrated by a Series of Portraits of 
 distinguished Beauties of the Court of George III. ; reproduced 
 in Autotype from Proof Impressions of the celebrated Engravings, 
 by Valentine Green, Thomas Watson, F. R. Smith, E. 
 Fisher, and others. Folio half-morocco. ;^S 5j. 
 
 Rogers (James E. Thorold). — HISTORICAL GLEAN- 
 INGS : A Series of Sketches. Montague, Walpole, Adam Smith, 
 Cobbett. By Prof. Rogers. Crown 8vo. 4f. (>d. Second Series. 
 Wiklif, Laud, Wilkes, and Home Tooke. Crown 8vo. f>s. 
 
24 MACMILLAN'S CATALOGUE OF WORKS 
 
 Routledge.— CHAPTERS IN THE HISTORY OF POPULAR 
 
 PROGRESS IN ENGLAND, chiefly in Relation to the Freedom 
 
 of the Press and Trial by Jury, 1660— 1820. With application to 
 
 later years. By J. Routledge. 8vo. ids. 
 
 " The volume abounds in facts and information, almost always useful 
 
 and often curious." — Times. 
 
 Rumford.— COUNT RUMFORD'S COMPLETE WORKS, 
 with Memoir, and Notices of his Daughter. By George Ellis. 
 Five Vols. 8vo. 4/. iv- (><i- 
 
 Seeley (Professor). — lectures and essays. By 
 
 J. R. Seeley, M.A. Professor of Modem History in the 
 University of Cambridge. 8vo. los. 6d. 
 Contents : — Roman Imperialism : i. T/te Great Roman Revolu- 
 tion; 2. Tke Proximate Cause of the Fall of the Roman Empire; 
 The Later Emfiire. — Milton's Political Opinions — Milton's Poetry 
 — Elementary Principles in Art — Liberal Education in Universities 
 — English in Schools — The Church as a Teacher of Morality — The 
 Teaching of Politics : an Inaugural Lecture delivered at Cambridge. 
 
 Shelburne.— LIFE OF WILLIAM, EARL OF SHELBURNE, 
 
 afterwards first MARQUIS OF LANSDOWNE. 
 
 With Extracts from his Papers and Correspondence. By Lord 
 
 Edmond Fitzmaurice. In Three Vols. 8vo. Vol.1. 1737 — 
 
 1766, lis.; Vol. II. 1766— 1776, \2s.; Vol. IIL 1776— 1805. 
 
 ifo. 
 
 "Lord Edmond Fitzmaurice has succeeded in placing before us a 
 
 wealth of new matter, which, while casting valuable and much-needed 
 
 light on several obscure passages in the political history of a hundred 
 
 vears ago, has enabled us for the first time to form a clear and consistent 
 
 idea of his ancestor." — SPECTATOR. 
 
 Sime. — HISTORY OF GERMANY. By James Sime, M.A. 
 
 l8mo. 3J-. Being Vol. V. of the Historical Course for Schools, 
 
 Edited by Edward A. Freeman, D.C.L. 
 
 * ' Tliis is a remarkably clear and impressive History of Germany. Its 
 
 great events are wisely kept as caitral figures, and the smaller events are 
 
 carefully kept not only subordinate and subservient, but ■most skilfully 
 
 woven into the texture of the historical tapestry presented to tke eye." — 
 
 Standard. * 
 
 Squier.—PERU : INCIDENTS OF TRAVEL AND EX- 
 PLORATION IN THE LAND OF THE INCAS. By E. G. 
 Sqdier, M.A., F.S.A., late U.S. Commissioner to Peru. With 
 300 Illustrations. Second Edition. 8vo. 21s. 
 The Times says: — "No more solid and trust-uorthy contribution had 
 been made to anaccurate knowledge of what are among the most wonderful 
 ruins in the world. .... The work is really what its title implies. 
 
HISTORY, BIO GRAPHY, TRA VELS, ETC. 25 
 
 While of the greatest importance as a contribution to Pel uvian archceology, 
 it is also a thoroughly entertaining and instructive narrative of travel. 
 .... Not the least important feature must be considered the numerous 
 well executed illustrations." 
 
 Strangford.— EGYPTIAN SHRINES AND SYRIAN SEPUL- 
 CHRES, including a Visit to Palmyra. By Emily A. Beaufort 
 (Viscountess Strangford), Author of "The Eastern Shores of 
 the Adriatic." New Edition. Crown 8vo. Is. 6d. 
 
 Tait.— AN ANALYSIS OF ENGLISH HISTORY, based upon 
 Green's " Short History of the English People." By C. W. A. 
 Tait, M.A., Assistant Master, Clifton College. Crown 8vo. 
 2s. 6d. 
 
 Thomas.— THE LIFE OF JOHN THOMAS, Surgeon of the 
 ' ' Earl of Oxford " East Indiaman, and First Baptist Missionary to 
 Bengal. By C. B^ Lewis, Baptist Missionary. 8vo. 10s. dd. 
 
 Thompson. — HISTORY OF ENGLAND. By Edith Thomp- 
 son. Being Vol. II. of the Historical Course for Schools, Edited 
 by Edward A. Freeman, D.C.L. New Edition, revised and 
 enlarged, with Maps. l8mo. 2j. td. 
 " Freedo7n from prejudice, simplicity of style, and accuracy of state- 
 ment, are the characteristics of this volume. It is a trustworthy text-book, 
 and likely to be generally serviceable in schools." — Pall Mall Gazette. 
 " In its great accuracy and correctness of detail it stands far ahead of the 
 general run of school manuals. Its arrangement, too, is clear, and its 
 style simple and straightforward." — Saturday Review. 
 
 Todhunter. — the CONFLICT OF studies ; AND 
 OTHER ESSAYS ON SUBJECTS CONNECTED WITH 
 EDUCATION. By Isaac Todhunter, M.A., F.R.S., late 
 Fellow and Principal Mathematical Lecturer of St. John's College, 
 Cambridge. 8vo. 10s. 6d. , 
 Contents : — /. The Conflict of Studies. II. Competitive Exa- 
 minations. III. Private Study of Mathematics. IV.' Academical 
 Reform. V. Elementary Geometry. VI. The Mathematical Tripos. 
 
 Trench (Archbishop). — For other Works by the same Author, 
 
 see Theological and Belles Lettres Catalogues, and 
 
 page 30 of this Catalogue. 
 GUSTAVUS ADOLPHUS IN GERMANY, and other Lectures 
 
 on the Thirty Years' War. Second Edition, revised and enlarged . 
 
 Fcap. 8vo. 4f.' 
 PLUTARCH, HIS LIFE, HIS LIVES, AND HIS MORALS. 
 
 Five Lectures. Second Edition, enlarged. Fcap. 8vo. 3^-. 6d. 
 LECTURES ON MEDIEVAL CHURCH HISTORY. Being 
 
 the substance of Lectures delivered in Queen's College, London. 
 
 Second Edition, revised. 8vo. 12s, 
 
26 MACMILLAN 'S CATALOGUE OF WORKS IN 
 
 Trench (Maria). — the life of ST. TERESA. By Maria 
 Trench. With Portrait engraved by Jeens. Crown 8vo. cloth 
 extra. %s. dd. 
 " A book of rare interest." — John Bull. 
 
 Trench (Mrs. R.)— REMAINS OF THE LATE MRS. 
 RICHARD TRENCH. Being Selections from her Journals, 
 Letters, and other Papers. Edited by ARCHBISHOP Trench. 
 New and Cheaper Issue, with Portrait. 8vo. ds. 
 
 TroUope.— A history of the commonwealth of 
 
 FLORENCE FROM THE EARLIEST INDEPENDENCE 
 of the COMMUNE TO THE FALL OF THE REPUBLIC 
 IN 1 83 1. By T. Adolphus Trollope. 4 Vols. Svo. Half 
 morocco. 21 J. 
 
 Uppingham by the Sea. — a NARRATIVE OF THE 
 
 YEAR AT BORTH. By J. H. S. Crown Svo. 3^. (sd. 
 
 Wallace.— THE MALAY ARCHIPELAGO: the Land of the 
 
 Orang Utan and the Bird of Paradise. By Alfred Russel 
 
 Wallace. A Narrative of Travel with Studies of Man and 
 
 Nature. With Maps and numerous Illustrations. Sixth Edition. 
 
 Crown Svo. 7^. 6a'. 
 
 " The result is a vivid picture of tropical life, which may be read with 
 
 unflagging interest, and a sufficient account of his scientific conclusions to 
 
 stimulate our appetite without wearying us by detail. In short, we may 
 
 uxfely say that we have never read a more agreeable book of its kind." — 
 
 Saturday Review. 
 
 Ward.— A HISTORY OF ENGLISH DRAMATIC LITERA- 
 TURE TO THE DEATH OF QUEEN ANNE. By A. W. 
 Ward, M.A., Professor of History and English Literature in 
 Owens College, Manchester. Two Vols. Svo. 32J. 
 " As full of intere'st as of information. To students of aramatic 
 
 literature invaluable, and may be equally recmnmended to readers for 
 
 mere pastime." — Pall Mall Gazette. 
 
 Ward (J.) — EXPERIENCES OF A DIPLOMATIST. Being 
 recollections of Germany founded on Diaries kept during the years 
 1840 — 1870. By John Ward, C.B., late H.M. Minister- 
 Resident to the Hanse Towns. Svo. 10s. dd. 
 
 Waterton (C.)— wanderings in south America, 
 
 THE NORTH-WEST OF THE UNITED STATES, AND 
 THE ANTILLES IN 1812, 1816, 1S20, and 1824. With 
 Original Instructions for the perfect Preservation of Birds, etc., 
 for Cabinets of Natural History. By Charles Waterton. 
 New Edition, edited with Biographical Introduction and Explana- 
 tory Index by the Rev. J. G. Wood, M.A. With 100 lUustrations. 
 Svo. Cloth elegant. 2l.f. 
 
HISTORY, BIOGRA PHY, TRAVELS, ETC. 27 
 
 Wedgwood.— JOHN wesley and the evangelical 
 
 REACTION of the Eighteenth Century. By Julia Wedgwood. 
 Crown 8vo. %s. 6d. 
 " In style and intellectual power, in breadth of view and clearness oj 
 insight. Miss Wedgwood's book far surpasses all rivals'' — Athen^um. 
 
 Whewell.— WILLIAM WHEWELL, D.D., late Master of 
 Trinity College, Cambridge. An Account of his Writings, with 
 Selections from his Literary and Scientific Correspondence. By 
 I. ToDHUNTER, M.A., F.R.S. Two Vols. 8vo. 25^. 
 
 White.— THE NATURAL HISTORY AND ANTIQUITIES 
 OF SELBORNE. By Gilbert White. Edited, with Memoir 
 and Notes, by Frank Bitckland, A Chapter on Antiquities by 
 Lord Selborne, Map, &c., and numerous Illustrations by 
 P. H. Delamotte. Royal 8vo. Cloth, extra gilt. Cheaper 
 Issue. 2\s. 
 Also a Large Paper Edition, containing, in addition to the above, 
 upwards of Thirty Woodburytype Illustrations from Drawings by 
 Prof. Delamotte. Two Vols. 4to. Half morocco, elegant. 4/. 4)-. 
 "Mr. Delamotte s charming illustrations are a worthy decoration of so 
 
 aainty a book. They bring Selborne before us, and really help us to 
 
 understand why White's love for his native place never grew cold." — 
 
 Times. 
 
 Wilson. — A MEMOIR OF GEORGE WILSON, M. D., 
 F.R.S.E., Regius Professor of Technology in the University of 
 Edinburgh. By his SiSTERi New Edition. Crown 8vo. bs. 
 " An exquisite and touching portrait of a rare and beautiful spirit." — 
 
 Guardian. 
 
 Wilson (Daniel, LL.D.)— Works by Daniel Wilson, 
 LL.D., Professor of History and English Literature in University 
 College, Toronto : — 
 PREHISTORIC ANNALS OF SCOTLAND. New Edition, 
 
 with numerous Illustrations. Two Vols, demy 8vo. %6s. 
 " One of the most interesting, learned, and elegant works we have 
 seen for a long time." — Westminster Review. 
 
 PREHISTORIC MAN : Researches into the Origin of Civilization 
 
 in the Old and New World. New Edition, revised and enlarged 
 
 throughout, with numerous Illustrations and two Coloured Plates. 
 
 Two Vols. 8vo. 36j-. 
 
 "A valuable work pleasantly written and well worthy of attention 
 
 both by students and general readers. "■ — Academy. 
 
 CHATTERTON : A Biographical Study. By Daniel Wilson, 
 LL.D., Professor of History and English Literature in University 
 College, Toronto. Crown Svo. (>s. bd. 
 
28 MACMILLAN'S CATALOGUE OF 
 
 Wyatt (Sir M. Digby).— fine art : a Sketch of its 
 
 History, Theory, Practice, and application to Industry. A Course 
 of Lectures dehvered before the University of Cambridge. By 
 Sir M. Digby Wyatt, M.A. Slade Professor of Fine Art. 
 Cheaper Issue. 8vo. 5j-. 
 
 "An excellent handbook for the student of art." — Graphic. " The 
 book abounds in valuable matter, and will therefore be read with 
 pleasure and profit by lovers of art." — Daily News. 
 
 Yonge (Charlotte M.)— Works by Charlotte M. Yonge, 
 Author of "The Heir of Redclyffe," &c. &c. :— 
 
 A PARALLEL HISTORY OF FRANCE AND ENGLAND : 
 consisting of Outlines and Dates. Oblong 4to. zs. 6d. 
 
 CAMEOS FROM ENGLISH HISTORY. From Rollo to Edward 
 II. Extra fcap. 8vo. . Third Edition. 5^. 
 
 A Second Series, THE WARS IN FRANCE. Extra fcap. 
 8vo. Third Edition, ^s. 
 
 A Third Series, THE WARS OF THE ROSES. Extra 
 fcap. 8vo. 5^. 
 
 "Instead of dry details," ,rayx ^/ji? NONCONFORMIST, "we have living 
 pictures, faithful, vivid, and striking." 
 
WORKS IN POLITICS, ETC. 
 
 POLITICS, POLITICAL AND SOCIAL 
 ECONOMY, LAW, AND KINDRED 
 SUBJECTS. 
 
 Anglo-Saxon Law essays in. Contents: taw Courts 
 
 ^-Land and Family Laws and Legal Procedure generally. With 
 Select cases. Medium Svo. i8j. 
 
 Ball. — THE STUDENT'S GUIDE TO THE BAR. By 
 
 Walter W. Ball, M.A., of the Inner Temple, Barrister-at- 
 
 Law. Crown Svo. 2s. 6d. 
 
 " The student will here find a clear statement of the several steps by 
 
 which the degree of barrister is obtained, and also useful advice about 
 
 the advantages of a^ prolonged course of ^reading in Chambers.'" — 
 
 Academy. 
 
 Bernard.— FOUR lectures on subjects connected 
 
 WITH diplomacy. By Montague Bernard, M.A., 
 Chichele Professor of International Law and Diplomacy, Oxford. 
 Svo. 9J. 
 " Singularly interesting lectures, so able, clear, and attractive." — Spec- 
 tator. 
 
 Bright (John, M. P.)— SPEECHES ON QUESTIONS OF 
 PUBLIC POLICY. By the Right Hon. John Bright, M.P, 
 Edited by Professor Thorold Rogers. Author's Popular Edition. 
 Globe Svo. 3J-. (>d. 
 "Mr. Bright'' s speeches will always deserve to be studied, as an 
 apprenticeship to popular and parliamentary oratory ; they will form 
 materials for the history of our time, and many brilliant passages, 
 perhaps some entire speeches, will really become a part of the living litera- 
 ture of England."— TtAlVi l^WNS. 
 
 LIBRARY EDITION. Two Vols. Svo. With Portrait 25^. 
 
 Bucknill.— HABITUAL DRUNKENNESS AND INSANE 
 DRUNKARDS. By J. C. Bucknill, M.D., F.R.S., late 
 Lord Chancellor's Visitor of Lunatics. Crown Svo. 2s. 6d. 
 
 Cairnes. — Works by J. E. Cairnes, M.A., Emeritus Professor ot 
 Political Economy in University College, London. 
 ESSAYS IN POLITICAL ECONOMY, THEORETICAL 
 and APPLIED. By J. E. Cairnes, M.A., Professor of Political 
 Economy in University College, London. Svo. los. 6d. 
 " The production of one of the ablest of living economists."— K-^-as.- 
 NiBUM. 
 
30 MACMILLAN'S CATALOGUE OF 
 
 (,3^irneS> — continued. 
 
 POLITICAL ESSAYS. 8vo. icw. 6d. 
 
 7%c Saturday Review says: — "We recently expressed our high 
 admiration of the former volume ; and the present one is no less remark- 
 able for the qualities of clear statement, sound logic, and candid treat- 
 ment of opponents which were conspicuous in its predecessor. . . . We 
 may safely say that none op Mr. Mill's many disciples is a worthier repre- 
 sentative of the best qualities of their master than Professor Cairnes.'' 
 
 SOME LEADING PRINCIPLES OF POLITICAL ECONOMY 
 NEWLY EXPOUNDED. 8vo. 14J. 
 
 Contents : — Fart I. Value. Part II. Labour and Capital. Part 
 III. International Trade. 
 
 " A work which is perhaps the most valuable contribution to the science 
 made sifue the publication, a quarter of a ce7itury since, of Mr. Mill's 
 ' Principles of Political Economy.' " — DAILY NEWS. 
 
 THE CHARACTER AND LOGICAL METHOD OF POLI- 
 TICAL ECONOMY. New Edition, enlarged. 8vo. "Js. 6d. 
 
 " These lectures are admirably fitted to correct the slipshod generaliza- 
 tions which pass current as the science of Political Economy!' ■ — Times. 
 
 Clarke. — EARLY ROMAN LAW. THE REGAL PERIOD 
 By E. C. Clarke, M.A., of Lincoln's Inn, Barrister-at-Law 
 Lecturer in Law and Regius Professor of Civil Law at Cam- 
 bridge. Crown 8vo. ^s. 
 '■'Mr. Clarke has brought together a great mass of valuable matter in 
 
 an accessible form." — Saturday Review. 
 
 Cobden (Richard).— speecpies ON QUESTIONS OF 
 PUBLIC POLICY. By Richard Cobden. Edited by the 
 Right Hon. John Bright, M.P., and J. E. Tliorold Rogers. 
 Popular Edition. 8vo. 3^. dd. 
 
 Fawcett. — Works by Henry Fawcett, M.A., M.P,, Fellow of 
 Trinity Hall, and Professor of Political Economy in the University 
 of Cambridge : — 
 
 THE ECONOMIC POSITION OF THE BRITISH 
 
 LABOURER. Extra fcap. 8vo. £■?• 
 MANUAL OF POLITICAL ECONOMY. Fifth Edition, with 
 New Chapters on the Depreciation of Silver, etc. Crown 8vo. 
 1 2 J. 
 The Daily News says: "It forms one of the best introductions to the 
 principles of the science, and to its practical applications in the problems 
 of modern, and especially of English, government and society." 
 
 PAUPERISM : ITS CAUSES AND REMEDIES. Crown 8vo. 
 
 5j. bd. 
 The Athen^um calls the work "a repertory of interesting and well 
 digested information." 
 
WORKS IN POLITICS, ETC. 31 
 
 Fawcett. — continued. 
 
 SPEECHES ON SOME CURRENT POLITICAL QUES- 
 TIONS. 8vo. 10s. 6d. 
 
 " They luill help to educate, not perhaps, parties, but the educators of 
 parties." — Daily News. 
 
 ESSAYS ON POLITICAL AND SOCIAL SUBJECTS. By 
 Professor Fawcett, M.P., and Millicent Garrett 
 Fawcett. 8vo. ioj. (yd. 
 " They will all repay the perusal of the thinking reader" — Daily 
 News. 
 
 FREE TRADE AND PROTECTION: an Inquiry into the 
 Causes which have retarded the general adoption of Free Trade 
 since its introduction into England. Second Edition. 8vo. 7^'. dd. 
 "No greater service can be rendered to the cause of Free Trade than a 
 clear explanation of the principles on which Free Trade rests. Pro- 
 fessor Fawcett has done this in the volume before us with all his habitual 
 clearness of thought and expression." — Economist. 
 
 Fawcett (Mrs.) — Works by Millicent Garrett Fawcett. 
 
 POLITICAL ECONOMY FOR BEGINNERS. WITH QUES- 
 TIONS. New Edition. iSmo. 2s. 6d. 
 
 The Daily News calls it "clear, compact, and comprehensive ;" and 
 the Spectator says, "Mrs. Fawcetfs treatise is perfectly suited to its 
 purpose." 
 
 TALES IN POLITICAL ECONOMY. Crown 8vo. 3^. 
 
 " The idea is a good one, and it is quite wonderful what a mass of 
 economic teaching the author manages to compress into a small space. . . The 
 true doctrines of International Trade, Currency, and the ratio between 
 Production and Population, are set before us and illustrated in a masterly 
 manner."— ATlil-ViJKVU. 
 
 Freeman (E. A.), M.A., D.C.L,.— COMPARATIVE 
 
 POLITICS. Lectures at the Royal Institution, to which is 
 
 added " The Unity of History," being the Rede Lecture delivered 
 
 at Cambridge in 1872. 8vo. 14J. 
 
 " We find in Mr. Freeman's new volu7ne the same sound, careful, 
 
 comprehensive qualities which have long ago raised him. to so high a place 
 
 amon'^st historical writers. For historical discipline, then, as well as 
 
 historical information, Mr. Freeman's book is full of value." — Pall 
 
 Mall Gazette. 
 
 Goschen.— REPORTS AND SPEECHES ON LOCAL TAXA- 
 TION. By George J. GoscHEN, M. P. Royal- 8vo. 5^. 
 " The volume contains a vast massof information of the highest value." 
 — Athen^um. 
 
32 MACMILLAlSrS CATALOGUE OF 
 
 Guide to the Unprotected, in Every Day Matters Re- 
 lating to Property and Income. By a Banker's Daughter. 
 Fourth Edition, Revised. Extra fcap. Svo. y. 6d. 
 "Many an unprotected female will bless the head which planned and 
 :hc hand which compiled this admirable little manual. . , . This book 
 !.;ts very much wanted, and it could not have been better done." — 
 Morning Star. • 
 
 Hamilton. — MONEY AND VALUE: 'an Inquiry into the 
 
 Means and Ends of Economic Production, with an Appendix 
 
 on the Depreciation of Silver and Indian Curi-ency. By Rowland 
 
 Hamilton. Svo. \2s. 
 
 " The subject is here dealt with in a luminous style, and by presenting 
 
 it from a new point of vieiv in connection with the nature and functions 
 
 of money, a genuine service has been rendered to commercial science," — 
 
 British Quarterly Review. 
 
 Harwood. — DISESTABLISHMENT : a Defence of the Principle 
 of a National Church. By George Harwood, M. A. Svo. \2s. 
 
 Hill. — Works by Octavia Hill :— 
 HOMES OF THE LONDON POOR. Extra fcap. Svo. y. 6d. 
 ' ' She is clear, practical, and definite." — Globe. 
 
 OUR COMMON LAND ; and other Short Essays. Extra fcap. 
 Svo. y..6d. 
 
 Contents : — Our Common Land. District Visiting. A More 
 Excellent Way of Charity. A Word on Good Citizenship. Open Spaces. 
 Effectual Charity. The Future of our Commons. 
 
 Historicus. — letters ON SOME QUESTIONS OF 
 INTERNATIONAL LAW. Reprinted from the Times, with 
 considerable Additions. Svo. ']s.~6d. Also, ADDITIONAL 
 LETTERS. Svo. 2s. 6d. 
 
 Holland.— THE TREATY RELATIONS OF RUSSIA AND 
 TURKEY FROM 1774 TO 1853. A Lecture delivered at Oxford, 
 April 1S77. By T. E. Holland, D.C.L., Professor of Inter- 
 national Law and Diplomacy, Oxford. Crown Svo. 2s. 
 
 Hughes (Thos.)— THE OLD CHURCH: WHAT SHALL 
 WE DO WITH IT? By Thomas Hughes, Q.C. Crown 
 Svo. 6s. 
 
 Jevons. — Works by W. Stanley Jevons, M.A., Professor of 
 Political Economy in University College, London. (For other 
 Works by the same Author, see Educational and Philo- 
 sophical Catalogues.) 
 
WORKS IN POLITICS, ETC. 33 
 
 Jevons. —continued. 
 
 THE COAL QUESTION : An Inquiry Concerning the Progress 
 of the Nation, and the Probable Exhaustion of our Coal Mines. 
 Second Edition, revised. 8yo. \os. dd. 
 
 THE THEORY OF POLITICAL ECONOMY. 8vo. pj. 
 
 ^'Professor Jevons has done invaluable service by courageously claim,ing 
 political economy to be strictly a branch of Applied Mathematics. 
 — WESTlflNSTER REVIEW. 
 
 PRIMER OF POLITICAL ECONOMY. i8mo. is. 
 
 Lavel'eye. — PRIMITIVE PROPERTY. By Emile de 
 Laveleye. Translated by G. R. L. Marriott, LL. B., with an 
 Introduction by T. E. Cliffe Leslie, LL.B. 8vo. I2r. 
 " It is almost impossible to over-estimate the value of the well-digestea 
 
 knowledge which it contains ; it is one of the most learned books that 
 
 have been contHbuted to the historical department of the literature oj 
 
 economic science." — Athen^UM. 
 
 Leading Cases done into English. By an Apprentice 
 OF Lincoln's Inn. Third Edition. Crown 8vo. 2s. 6d. 
 " ffei-e is a rare treat for the lovers of quaint conceits, who in reading 
 this charming little book will find enjoyment in the varied metre and 
 graphic language in which the several tales are told, no less than in the 
 accurate and pithy rendering of soteie of our most Jamiliar ' Leading 
 Cases' — Saturday Review. 
 
 Macdonell.— THE LAND QUESTION, WITH SPECIAL 
 REFERENCE TO ENGLAND AND SCOTLAND. By 
 John Macdonell, Barrister-at-Law. 8yo. \os. da. 
 
 Martin. — THE STATESMAN'S YEAR-BOOK: A Statistical 
 and Historical Annual of the States of the Civilized World,, 
 for the year 1 879. By Frederick Martin. Sixteenth Annual 
 Publication. Revised after Official Returns. Crown 8vo. \os. 6d. 
 The Statesman's Year-Book is the only work in the English langmge 
 which furnishes a clear and concise account of the actual condition of all 
 the States of Europe, the civilized countries of America, Asia, and 
 Africa, and the British Colonies and Dependencies in all' parts of the 
 world. The new issue of the work has been revised and corrected, on the 
 basis of official reports received direct from the heads of the leading Govern- 
 ments of the world, in reply to letters sent to them by the Editor. Through 
 the valuable assistance thus given, it has been possible to collect an amount 
 of information, political, statistical,,and commercial, of the latest date, cind 
 of unimpeachable trustworthiness, such as no pubUatHan, of the same 
 kind has ever been able to furnish, "4' indispensable as Brads-hay."— 
 Times. 
 
34 MACMILLAN'S CATALOGUE OF 
 
 Monahan. — THE METHOD OF LAW: an Essay on the 
 
 Statement and Arrangement of the Legal Standard of Conduct. 
 
 By J. H. Monahan, Q.C. Crown 8vo. 6^. 
 
 " Will be found valuable by careful law students who have felt the 
 
 importance of gaining clear ideas regarding the relations between the parts 
 
 of the complex organism they have to j-torf;/."— British Quarterly 
 
 Review. 
 
 Paterson. — the liberty of the subject and the 
 
 LAWS OF ENGLAND RELATING TO THE SECURITY 
 OF THE PERSON. Commentaries on. By James Paterson, 
 M,,A., Barrister at Law, sometime Cpmmissijner for English and 
 ' Irish Fisheries, etc. Cheaper issue. Two Vols. Crown 8vo. 21j. 
 ' ' Two or three hours' dipping into these volumes, not to say reading then 
 through, will give legislators and stump orators a knowledge of the liberty 
 of a citizen of their country, in its principles, its fulness, and its modi- 
 fication, such as they probably in nine cases out of ten never had before." 
 — Scotsman. 
 
 Phillimore. — private law among the romans, 
 
 from the Pandects. By John GEORGE Phillimore, Q.C. 8vo. 
 
 Rogers. — cobden and political opinion. By J. E. 
 
 Thorold Rogers. 8vo. icj-. bd. 
 " Will be foundm^st useful by politicians of every school, as it form.s a 
 sort of handbook to Cobden^ s teaching.^^ — Athen^um. 
 
 Stephen (C. E.)— THE SERVICE OF THE POOR; 
 Being an Inquiry into the Reasons for and against the Establish- 
 ment of Religious Sisterhoods for Charitable Purposes. By 
 Caroline Emilia Stephen. Crown 8vo. (>s. 6d. 
 " The ablest advocate oj a better line of work in this direction that we 
 
 have ever seen." — Examiner. 
 
 Stephen. — Works by Sir James F. Stephen, K.C.S.I., Q.C. 
 A DIGEST OF THE LAW OF EVIDENCE. Third Edition 
 with New Preface. Crown 8vo. 6s. 
 A DIGEST OF THE CRIMINAL LAW. (Crimes and 
 
 Punishments. ) 8vo. i 6j-. 
 ' ' We feel sure that any person of ordinary intelligence who had never 
 looked into a law-book in his life might, by a few days' careful study of 
 this volume, obtain a more accurate understanding of the criminal law, 
 a more perfect conception of its different bearings a more thorough 
 and intelligent insight into its snares and pitfalls, than an ordinary 
 practitioner can boast of after years of study of the ordinary i'.xt- 
 books and practical experience of the Courts unassisted by any competent 
 guide." — Saturday Review. 
 
 A GENERAL VIEW OF THE CRIMINAL LAW OF ENG- 
 LAND. Two Vols. Crown 8vo. \^New edition in the press. 
 
WORKS ON LANG UAGE. 35 
 
 Stubbs.— VILLAGE POLITICS. Addresses and Sermons on 
 the Labour Question. By C. W. Stubbs, M. A., Vicar of 
 Granborough, Bucks. Extra fcap. 8vo. y. 6d. 
 
 Thornton.— Works by W. T. Thornton, C.B., Secretary for 
 Public Works in the India Office :— 
 
 ON LABOUR : Its Wrongful Claims and Rightful Dues ; Its 
 Actual Present and Possible Future. Second Edition, revised 
 8vo. I4J-. ' 
 
 A PLEA FOR PEASANT PROPRIETORS : With the Outlines 
 of a Plan for their Establishment in Ireland. New Edition, 
 revised. Crown 8vo. ^s. 6d. 
 
 INDIAN PUBLIC WORKS AND COGNATE INDIAN 
 TOPICS. With Map of Indian Railways. Crown 8vq, 8j-. dd. 
 
 Walker. — Works by F. A. Walker, M.A., Ph.D., Professor of 
 Political Economy and History, Yale College : — 
 THE WAGES QUESTION. A Treatise on Wages and the 
 
 Wages Class. 8vo. 14J. 
 MONEY. 8vo. 16s. 
 
 ' ' It is painstaking, laborious, and states the question in « clear and 
 very intelligible form . . . . The volume possesses a great value as a sort 
 of encyclopadia of knowledge on the subject." — Economist. 
 
 Work about the Five Dials. with an Introductory 
 Note by Thomas Carlyle. Crown 8vo. 6^. , 
 "A book which abounds with wise and practical suggestions." — Pall 
 Mall Gazette. 
 
 WORKSCONNECTED WITH THE SCIENCE 
 OR THE HISTORY OF LANGUAGE. 
 
 Abbott.— A SHAKESPERIAN GRAMMAR : An Attempt to 
 illustrate some of the Differences between Elizabethan and Modem 
 English. By the Rev. E. A. Abbott, D.D., Head Master of the 
 City of London School. New and Enlarged Edition. Extra 
 fcap. 8vo. 6s. 
 '^Valuable not only as an aid to the critical study of " Shakespeare, 
 
 but as tending to familiarize the reader with Elizabethan English in 
 
 s;eneral. " — Athenaeum. 
 
 Besant.— STUDIES IN EARLY FRENCH POETRY. By 
 Walter Besant, M. A. Crown 8vo. Ss. 6d. 
 
36 MACMILLAN'S CATALOGUE OF 
 
 Breymann. — a FRENCH GRAMMAR BASED ON PHILO- 
 LOGICAL PRINCIPLES. By Hermann Breymann, Ph.D., 
 Professor of Philology in the University of Munich late Lecturer 
 on French Language and Liter^ure at Owens College, Man- 
 ehester. Ejctra fcap. 8vo. 4s. 6d. 
 " We dismiss the work with every feiling of saiisfaction. It cannot 
 fail to be taken into use by all schools which endeavour to malie the study 
 of French a means towards the hiirher culture."— 'EmJCA.Tlo^f^ Times. 
 
 Ellis PRACTfCAL HINTS ON THE QUANTITATIVE 
 
 PRONUNCIATION OF LATllST, FOR THE USE OF 
 CLASSICAL TEACHERS AND LINGUISTS. By A. J. 
 Ellis, B.A., F.R.S., &c. Extra fcap. S,vo. 4^. bd. 
 
 Fleay. — A SHAKESPEARE MANUAL. By the Rev. F. G. 
 Fleay, M.A., Head Master of Skipton Grammar School. Extra 
 fcap. 8vo. 4f. dd, 
 
 Goodwin.— SYNTAX OF THE GREEK MOODS AND 
 TENSES. By W. W. Goodwin, Professor of Greek Literature 
 in Harvard University. New Edition. Crown 8vo. 6s. 6d. 
 
 Hadley.— ESSAYS philological and CRITICAL. 
 Selected from the Papers of James Hadley, LL.D., Professor of 
 Greek in Yole College, &c. 8vo. ids. 
 
 Hales.— LONGER ENGLISH POEMS. With Notes, Philo- 
 logical and Explaiiatory, and an Introduction on the Teaching ol 
 English. Chiefly for use in Schools. Edited by J. W. Hales, 
 M.A., Professor of English Literature at King's College, London, 
 &c. &c. Fifth Edition. Extra fcap. 8vo. 45. dd. 
 
 Helfenstein (James). — a COMPARATIVE GRAMMAR 
 
 OF THE TEUTONIC LANGUAGES : Being at the same 
 time a Historical Grammar of the English Language, and com- 
 ftrising Gothic, Anglo-Saxon, Early English, Modem English, 
 Icelandic (Old Norse), Danish, S\*-edish, Old High German, 
 Middle High German, Modem German, Old Saxon, Old Frisian, 
 and Dutch. By James Helfenstein, Ph.D. 8vo. lis. 
 
 Masson (Gustave). — a compendious dictionary 
 
 OF THE FRENCH LANGUAGE (French-English and English- 
 French). Followed by a List of the Principal Diverging Deriva- 
 tions, and preceded by Chronological and Historical Tables. By 
 Gustave Masson, Assistant-Master and Librarian, Harrow 
 School. Fourth Edition. Crown 8vo. Half-bound. 6s. 
 "A book which any student, whatever may be the degree of his ad- 
 vancement in the lam;uage, would do well to have on the table close at 
 hand while he is trading." — SATURDAY Review. 
 
WORKS ON LANGUAGE:. 37 
 
 Mayor.— A BIBLIOGRAPHICAL CLUE TO LATIN LITE- 
 RATURE. Edited aftei Dr. E. Hubner. With large Additions 
 by John E. B. MAYOk, M.Ai, Professor of Latin in the Univer- 
 sity of Cambridge. Crown 8vo. ts. 6d. 
 
 "An extremely useful volume that should be in the hands of all 
 scholars." — Athen^eum^ 
 
 Morris.^Works by the Rev. Richard Morris, LL.D., Member 
 of the Council of the Philol. Soc. , Lecturer on English Language 
 and Literature in King's College School, Editor of " Specimens 
 of Early English," etc., etc. : — 
 
 HISTORICAL OUTLINES OF ENGLISH ACCIDENCE, 
 comprising Chapters on the History and Development of 
 the Language, and on Word-formation, Sixth Edition. Fcap. 
 8vo. ds. 
 
 ELEMENTARY LESSONS IN HISTORICAL ENGLISH 
 GRAMMAR, containing Accidence and Word-formation. Third 
 Edition. i8mo. 2J. td. 
 
 Oliphant. — the old and middle English. By 
 
 T. L. Kington Oliphant, M.A., of Balliol College, Oxford. 
 A New Edition, revised and greatly enlarged, of " The Sources 
 of Standard English. Extra fcap. 8vo. <js. 
 
 "■Mr. Oliphant' s book is, to our mind, one of the ablest and most 
 scholarly contributions to our standard English -we have seen for many 
 vrarj."— School Board Chronicle. "The book comes nearer to a 
 history of the English language than anything we have seen since such a 
 history could be written, without ■•confusion and contradictions!^ — ■ 
 Saturday Review. 
 
 Peile (John, M.A.) — an introduction to greek 
 AND LATIN ETYMOLOGY. By John Peile, M.A., 
 Fellovir and Tutor of Christ's College, Cambridge. Third 
 and revised Edition. Crown 8vo. \os, 6d, 
 
 "The book may be accepted as a very valuable contribution to the 
 science of language." — Saturday Review. 
 
 Philology.— THE JOURNAL OF SACRED AND CLAS- 
 SICAL PHILOLOGY. Four Vols. 8vo. I2j. (sd. each. 
 
 THE JOURNAL OF PHILOLOGY. New Series. Edited by 
 John E. B. Mayor, M.A., and W. Aldis Wright, M.A. 
 4J. iid. (Half-yearly.) 
 
38 MACMILLAN'S CATALOGUE OF 
 
 Roby (H. J*)— A GRAMMAR OF THE LATIN LANGUAGE, 
 FROM PLAUTUS TO SUETONIUS. By Henry John 
 Roby, M.A., late Fellow oV St. John's College, Cambridge. 
 In Two Parts. Second Edition. Part I. containing : — Book I. 
 Sounds. Book II. Inflexions. Book III. Word Formation. Ap- 
 pendices. Crown 8vo. Sj. (>d. Part II. — Syntax, Prepositions, 
 &c. Crown 8vo. ioj. td. 
 ' ' The book is marked by the clear and practical insight of a master in 
 his art. It is a book "which would do honour to any country." — 
 Athen^um. ^^ Brings before the student in a methodical form the best 
 results of modern philology hearing on the Latin language. " — StCOTSMAN. 
 
 Schmidt. — THE RYTHMIC AND METRIC OF THE 
 CLASSICAL LANGUAGES. To which are added, the Lyric 
 Parts of the "Medea" of Euripides and the "Antigone" of 
 Sophocles ; with Rhythmical Scheme and Commentary. By 
 Dr. J. H. Schmidt. Translated from the German by J. \V. 
 White, D.D. 8vo. ios.6d. 
 
 Taylor. — Works by the Rev. Isaac Taylor, M.A.:— 
 ETRUSCAN RESEARCHES. With Woodcuts. 8vo. 14s. 
 The Times says: — " The learning and industry displayed in this 
 vohtme deserve . the most cordial recognition. The ultimate verdict of 
 science we shall not attempt to anticipate ; but we can safely say this, that 
 it is a learned book which the unlearned can enjoy, and that in the de- 
 scriptions of the tomb-builders, as well as in the marrellous coincidences 
 and unexpected analogies brought together by the author, readers of everv 
 grade vtay take delight as well as philosophers and scholars." 
 
 WORDS AND PLACES ; or. Etymological Illustrations of 
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