Class _L/jZ. Book . COPYRIGHT DEPOSIT PRINCIPLES Political Economy, BY / CHARLES GIDE, Peofessor of Political Economy in the University of montpellier, france. TRANSLATED BY EDWARD PERCY JACOBSEN (Formerly of University College, London). Utl^ an fntrobuttion anb ^olts By JAMES BONAR, M.A., LL.D. BOSTON, U.S.A.: D. C. HEATH & CO., PUBLISHERS. 189I. "c7 Copyright, i8gi, By D. C. heath & CO. Typography by J. S. Gushing & Co., Boston, U.S.A. Presswork by Berwick & Smith, Boston, U.S.A. INTRODUCTION. American and "^nglish readers will welcome the translation of Professor Gide's book. It is neither a primer for beginners, nor 1 dissertation for the learned, but a guide-book for serious students who have mastered the economical alphabet, and are feeling their way to a judgment of their own on economical subjects. Its place in French economic literature is almost unique. It is helping m' uiy a young Frenchman to turn his attention to economic theory, and to study it in the light of the latest discussions. Professor Gide has Adam Smith's faculty of making his readers think for themselves, and accept no conclusion without following out the process that leads to it. He lays a just emphasis on the need of impartiality and freedom from prejudice. In a book written for real students of a subject, the truth should be told without reserve or fear of consequences. Economists familiar with recent investigations (Continental, American, and English) of the doctrines of Value, Wages, Foreign Trade, etc., will not always agree with the views presented in this volume. Students will do well to supplement its somewhat scanty references to current economic Hterature by such a bibUography as that which is given by Professor E. B. Andrews in his Institutes of Economics (Boston, 1889). It will be observed that the schools of modern economists are (in the beginning of the book) so classified that our author re- iv INTRODUCTION. mains outside of them. His position, however, is substantially that of the First or "Classical School," if we substitute evolution and social union ("solidarity") for finality and individualism. Like the Classical School, he recognizes the need of Theory and (to that end) of Abstraction ; and the theoretical work of the Classical School is in great part the foundation of his own new building. Political Economy in the hands of Professor Gide is neither dismal in its conclusions, nor dull in its deliberations. Though these may be counted adventitious attractions, they will be keenly appreciated by most of his readers. In point of style, our author has few rivals, even in France. JAMES BONAR. Hampstead, London, 14th March, 1891. AUTHOR'S PREFACE TO THE THIRD [FRENCH] EDITION. When the first edition of this work appeared in 1883, 1 refrained from prefixing any prefatory note, for I thought it wiser for the book to introduce itself to the pubhc. In the second edition I somewhat sharply replied to some severe criticisms which had been directed against the tendency of the treatise. In the preface to this new edition complaints are out of the question ; all that I can do is to thank the public for the favorable manner in which the book has been received both in France and abroad. I have endeavored to acknowledge this kind reception by cor- recting and supplementing, to the best of my powers, the weak points and deficiencies which have been brought before my notice. However, there is a criticism of a general nature which has reached me from various quarters and has proceeded from friends as well as from adversaries ; to this I must devote a few words oi explanation unless I wish to incur the charge of neglecting it. The complaint is, that in treating each question I have set forth the various competing systems without expressing my own opinions in a sufficiently decided manner ; I am, therefore, charged with leaving students to wander in a state of unpleasant uncertainty, and with consequently failing to discharge in full measure the duties of a pro- fessor who is entrusted with the care of the minds of the young. My reply is, that this book is not intended for scholars in pri- mary schools or for use in secondary education. Nor is it addressed exclusively to students of the universities ; its object is also to reach practical men who wish to form for themselves an opinion on economic and social questions ; I repeat, men who wish to V VI AUTHOR S PREFACE TO THE THIRD EDITION. form an opinion " for themselves," and are not content with re- ceiving one ready-made from the teacher's Hps. My method may sometimes leave the reader in a state of hesitation and suspended, as it were, in a species of mental balancing which is wont to lull to sleep minds of a sluggish nature ; but I am confident that it will be profitable to those who are eager for the discovery of truth and do not wish to have opinions forced upon them. Further, I have not shrunk from pronouncing an outspoken judgment on all questions in which the truth seems to be beyond contro- versy ; in all cases in which doubt is possible, — a class of ques- tions which unfortunately is far more extensive, — I have striven to maintain an equal balance, but, nevertheless, have not neglected to throw in that grain of sand which, for the keen observer's eye, is enough to turn the scale. Perhaps I may also be allowed to remark, that the excess of impartiality for which I am taken to task has not been the char- acteristic feature of treatises on political economy which have been hitherto published in France. For several generations these books had been in the habit of presenting political economy in only one light, — the point of view of the " Liberal " school. There is, then, no reason to murmur if later treatises should break with a tradi- tion which was beginning to assume the shape of a law, should restore their rightful place to doctrines which have heretofore been proscribed, and should give their due share of justice even to notions which do not command our assent ; for thus can be applied Shakespeare's admirable maxim, — " There is some soul of goodness in things evil, Would men observingly distil it out." — Henry V, act iv, scene i. CHARLES GIDE. AMERICAN INTRODUCTION. Science is international ; it suffers when the natural relation between different countries is interrupted, and gains when the connection is resumed. The publication in America of a treatise on Economics written in France, and translated in England, means the re-establishment of an intellectual commerce that has been partly under an embargo. The orthodoxy of »iany French econ- omists, and the impulse to enlist under new school or historical standards, which lately showed itself in America, had the effect of isolating these two countries from each other ; while between the American school and the EngUsh school of a few years ago, a similar though less complete separation had taken place. Between England and America an active interchange of thought has since been established. In addition to the benefit to be derived from a closer scientific relation to France, there are specific gains to be expected from the use of Professor Gide's treatise by American students. Its progressive spirit will make it everywhere welcome, and its appreci- ative attitude toward the older schools of thought will, at the same time, make it everywhere useful. It carefully retains the best fruits of early work ; the " new departure " that it represents is one that does not break with the past. Its conspicuous quality is a wisdom that is not often combined with so much of brilliancy. Mr. Jacobsen has been very successful in preserving in his trans- lation the literary quality of the original work. J. B. CLARK. Northampton, Mass., March 20, 1891, TABLE OF CONTENTS. GENERAL NOTIONS. PAGE I. The object of political economy .' . . . i II. On method in political economy 4 III. "Whether there are natural laws in political economy 9 IV. The four economic schools 15 Book I. WEALTH AND VALUE. Chapter I. — Wealth.- I. The desire for wealth 31 II. The wants of man. 34 III. The definition of wealth 38 Chapter II. — Value. I. What is value ? 44 II. What is the cause of value ? 47 III. Critical examination of the various theories of value 54 IV. Variations in value 60 V. The effects produced on value by competition 64 VI. Whether competition is cheapness 68 Chapter III. — Price, I. How value is measured by exchange . , 'J2 II. On the choice of a common measure of values 74 III. What is price? 82 IV. Whether the measure of value be not an insoluble problem 84 V. Whether money should be reckoned as wealth 88 X TABLE OF CONTENTS. Book II. PRODUCTION. Part I. — The Conditions of Individual Production. THE FACTORS OF PRODUCTION. Chapter I. — Nature. page I. The environment 96 II. The ground 99 III. The raw material loi IV. Motive forces 103 Chapter II. — Labor. I. On the part played in production b^ labor 108 II. How labor produces Ill III. What kinds of labor should be called productive? 113 IV. On pain as a factor of labor 118 V. On time as a factor of labor 121 Chapter III. — Capital, I. On the part played in production by capital 1 25 II. The meaning of the productivity of capital 127 III. The distinction between wealth which is capital and wealth which is not 1 30 IV. The durability of fixed and of circulating capital 135 V. How capital is formed 138 Part II. — The Social Conditions of Production. the social organism. Chapter I. — Association. I. The various forms of associjition I45 II. The advantages and disadvantages of large production 150 III. Whether large production should be extended to agriculture 154 Chapter II. — Division of Labor. I. The different forms of division of labor 158 II. The advantages and the disadvantages of division of labor 161 III. Liberty of labor 166 TABLE OF CONTENTS. XI Chapter III. — Exchange. page I. On the part played in production by exchange 169 II. The advantages of exchange 172 III. On the means of facilitating exchange 1 74 IV. On the part played in production by traders 174 V. The disadvantages of the multiplication of traders.. 176 VI. Means of transport 1 79 VII. The breaking-up of barter into sale and purchase 182 Chapter IV. — Metallic Money. I. \\Tiy the precious metals have been chosen as the instrument of exchange 186 II. The invention of coined money 188 III. The conditions to be fulfilled by all good money 190 IV. Gresham's lavi^ 194 the question of monometallism and bimetallism. I. The necessity of taking several metals, and the resulting difficulties 198 II. How it is that bimetallist countries really have but one money. . . 202 III. Whether it is advisable to adopt the monometallist system 207 IV. Whether the respective yalue of the two metals could not be fixed by an international understanding 211 Chapter V. — Paper Money. I. Whether metallic money can be replaced by paper money 214 II. Whether the creation of paper money is equivalent to a creation of wealth 219 III. The dangers resulting from the use of paper money and the means of preventing them 224 IV. How even paper money may be dispensed with 228 V. How the improvements in exchange bring us back to barter 233 VI. The decadence of the precious metals 234 Chapter VI. — International Trade. I. Why exaggerated importance is attached to foreign trade ....... 236 II. Why international trade always tends to take the shape of barter 237 III. What is meant by the balance of trade 241 IV. Wherein lie the advantages of international trade 246 Xii TABLE OF CONTENTS. PAGE V. Why the advantages of international trade should be measured neither by the excess in imports nor by the excess in exports. . 248 VI. How it happens that international trade necessarily harms certain interests 250 THE QUESTION OF FREE TRADE AND PROTECTION. I. Why the question of free trade is a question 252 II. The protectionist system 256 III. Whether the dangers feared by the protectionist theory are real. . 260 IV. On the disadvantages of protective duties 264 V. Why the bounty system is preferable 269 VI. On some moderate forms of protection 270 Chapter VII. — Credit. I. Credit operations 272 II. Credit papers 275 III. Whether credit can create capital 277 IV. Banks 280 V. Deposits 281 VI. Discount 283 VII. On the issuing of bank notes 2S6 VIII. The differences between the bank note and paper money 290 IX. The rate of exchange 292 X. The raising of the rate of discount 299 XI. Some special forms of credit 303 THE QUESTION OF ivIONOPOLY OR OF LIBERTY OF BANKING. I. On monopoly or competition in the issuing of notes 309 II. As to liberty or regulation in the issuing of notes 313 Part III. — The Equilibrium between Production and Consumption. Chapter I. — Insufficiency in Production. I. The increase of population; the laws of Malthus 320 II. On the limitation of production in agriculture, and the law of decreasing returns 323 III. On the limitation of production in other industries 328 IV. How limitation of production affects prices 330 TABLE OF CONTENTS. XIU PAGE Chapter II. — Excess in Production. I. How to maintain the equilibrium between production and con- sumption 334 II. Crises , . , 336 III. Is there reason to fear too much production? 341 Chapter III. — Progress in Production. I. Current illusions as to economic progress 345 II, The disadvantages necessarily involved in all progress in pro- duction 348 III. The question of machinery 35 1 IV. The future of production 356 Book III. CONSUMPTION. How Wealth can be Employed. Chapter I. — Expenditure. I. What should be our conception of expenditure? 361 II. How it happens that expenditure regulates but does not feed production 364 III. The real aims of expenditure 366 IV. Luxury 369 V. The expenditure of foreigners 373 VI. The means of reducing expenditure 376 Chapter II. — Saving. I. "What should be our conception of saving? 379 II. The conditions necessary for saving 382 III. Institutions for the facilitation of saving 386 Chapter III. — Investing, I. What should be our conception of investing? 390 II. The conditions necessary for investing 395 XIV TABLE OF CONTENTS. Book IV. DISTRIBUTION. Part I. — The Various Principles of Distribution. Chapter I. — The Social Problem. page I. Is there a social question ? 398 II. The inequality of wealth 401 III. Why the problem of distribution is so hard to solve 406 Chapter II. — The Socialist Solution. I. Communism 410 II. Collectivism 414 III. The different formulae for the division of wealth 418 IV. Why there is no solution 428 Chapter III. — The Rights of Property. I. The origin of the rights of property 430 II. What are the attributes of the rights of property? 431 III. Over what things should the right of property extend? 438 IV. The historical evolution of landed property 445 V. The legitimacy of landed property 451 VI. The law of ground rent ........." 4^5 VII. The nationalization of the land 461 VIII. The organization of landed property 464 Part II. — The Various Classes of Sharers. Chapter I. — The Autonomous Producer. I. Why this condition is the most favorable for a fair distribution of wealth 473 Chapter II. — The Master. I. The part played by the master, and the legitimacy of profits 477 II. The laws which regulate profits 482 III. Whether the rate of profits is in inverse ratio to the rate of wages 486 Chapter III. — The Wages-earner. I. The contract of wages 489 II. The laws which regulate the rate of wages 492 TABLE OF CONTENTS. XV PAGE III. The rise in wages 503 IV. Whether there are any means of improving the condition of the wages-earners 5°^ V. Strikes 509 VI. State interference 512 VII. Co-operation 5^9 Chapter IV. — The Man who Lives on his Income. I. The right to be idle 526 II. The rent of land 529 III. House-rent 532 IV. Interest 535 V. Does the rate of interest tend to fall? 539 Chapter V. — The Indigent. I. The right to relief 543 II. The organization of public relief. 547 HI. Is pauperism on the increase? 55^ Appendix. — The Public Finances of France. I. Public expenditure 554 II. The public revenue 559 III. The public debt 570 PRINCIPLES OF POLITICAL ECONOMY. GENERAL NOTIONS. I. THE OBJECT OF POLITICAL ECONOMY. It may appear strange, at the beginning of a treatise on political economy which is perhaps the hundredth which has been written on the subject, to declare that a precise definition of political economy has still to be found. Such, however, is the truth ; and after all, there is nothing very surprising about it. No science can be clearly defined until it has been finished and till the neighboring sciences are so also. Now, such is not the case with the science which is occupying our attention ; on the contrary, like the other social sciences, it is a science in process of formation. Just as in a still unexplored land, the traveller cannot mark out on the map the exact frontiers of each district, but must confine himself to indicating more or less approximately the great dividing lines which he perceives or guesses at, so here, too, we must be contented with pointing out as accurately as we can the domain of political economy, without venturing to mark it off very clearly from the territory of the other social sciences. Without, then, seeking at present a precision that would be useless, we may say, in harmony with most writers, that political economy is the science of wealth. Although the word " wealth " of itself greatly needs definition, yet it sharply suggests to the mind the e^ential facts with which our science deals, and there- 2 PRINCIPLES OF POLITICAL ECONOMY. fore frees us from a recourse to long circumlocutions ; still we must not be led astray by the circumstance that political economy deals with wealth, that is to say, with things, res, nor be tempted thereby to class it among the natural sciences which study bodies. Wealth, as we shall see, is created by the needs of men living in society, and consequently the study of wealth is nothing but the study of " man " under one of his most characteristic aspects. Three questions have always occupied the thoughts of men : "How can wealth be produced? " *' What use should be made of it?" "In what manner should it be divided?" The several an- swers to each of these questions constitute one of the great divisions of political economy ; .viz., production, consumption, and distribu- tion. In works on political economy, almost without exception, a fourth division is added, viz., circulation ; but we must confess that we have never been able to understand what the term answered and referred to. For the circulation of wealth, i.e. the transferring of commodities from hand to hand, is, as will be seen, nothing but a consequence and a form of division of labor. It is there- fore irrational to detach this section from the department of pro- duction in order to make it into a distinct branch. The fact that wealth may be transferred from hand to hand is a circumstance which is valueless in itself, and its only worth lies in the measure in which it contributes to social production. It is clear that the three questions which constitute the pith of political economy are essentially practical ones, and it seems to follow that the science whose object it is to supply an answer to these questions should itself be of a practical nature ; in other words, be an art rather than a science. Indeed, it was under this aspect as an art, or say a practical study pursuing a definite aim, namely, national prosperity, that political economy was always regarded by the ancients. This, too, is shown by the etymology of the word (oikos = the house, vo/ao? = government, ttoAis = the city), and Adam Smith, the father of the science, adhered to this definition. But the human mind, which is always curious to learn the GENERAL NOTIONS. 3 reason of things, has gone on to ask a further question : " What is Wealth?" But this differs from the three earher questions by possessing a purely speculative character; its object is to deter- mine the causes which render wealth desirable, to discover the necessary relations between different kinds of wealth ; in other words, to formulate the laws of value and of price. To the answering of this branch of questions we purpose to devote a fourth division ; but to comply with the necessities of logic this must be our first part, and should be regarded as the purely theoretical side of political economy. In most works on political economy, value is merely dealt with as a portion of exchange, but that presents it in a far too narrow light. The notion of value is really the basis of all political economy ; and not only exchange, but distribution, consumption, and production likewise become united, from a strictly scientific as well as from a practical point of view, when questions of value are discussed. It is logical, then, to give value a branch to itself, unless, indeed, we are willing to scatter it through all the other divisions. In fine, works on pure political economy are in reality nothing but treatises on value. Political economy is not the only science which treats of the relations between men and things or of the relations of men inter se ; Law and Morals share in this study. These three great social sciences have the same object, at least for a part of their work ; though, no doubt, they view it under three differ- ent aspects. The economist is concerned merely with the wa^its of men, the lawyer with his rights, the moralist with his duties. But on questions of succession, property, credit, on the contract of loans and of wages, the lawyer and the economist are compelled to join hands, just as the economist and the moralist have to meet on the questions of luxury or poverty and many others. This is a happy meeting and is of great benefit to all three sciences. Our virtual separation of them follows less from the necessities of logic than from that weakness of human understanding which debars us from comprehending so vast a domain at one and the same 4 PRINCIPLES OF POLITICAL ECONOMY. glance. Still it is to be hoped that there may be a daily increase in their blending and joint study. Years ago Auguste Comte laid down " that every study isolated from its various social elements was, from the very nature of the science, compelled to be essentially sterile, after the example of political economy.^'' For he conceived the idea, which constitutes his chief title to fame, of the regulation of all social phenomena by a separate science which he called sociology. All workers at sociology, whether they be of the school of Comte or of the school of Herbert Spencer, apply their main efforts to the formation of a huge synthesis of all the social sciences ; but the field is so vast that it is easy to miss the right roado II. ON METHOD IN POLITICAL ECONOMY. In scientific language the term " method " is used to mean the road that must be followed for the discovery of truth. Now there are several roads, and the question as to which road should be chosen has in recent years aroused a great controversy. The classical school of economics, of which Ricardo is the most illustrious representative, used to employ the deductive method, — a method which starts from certain general principles that are regarded as indisputable, and proceeds thence by way of logical consequence to deduce an indefinite series of propositions. Geometry (or even theology) may be taken as the type of the sciences that employ the deductive method. Law students will readily recognize that Law itself, particularly Roman Law, employs the deductive method ; for the jurisconsult, starting from a few principles laid down by the Twelve Tables, or found in the jus gentium, proceeded to construct that huge monument of learning that we call the Pandects. In economic science the deductive school started from the principle (named hedonistic) " that man always desires to obtain the maximum of satisfaction with the minimum of pain," and thence deduced a series of propositions which still constitute the framework of economic science. GENERAL NOTIONS. 5 The new school rejects this mode of reasoning ; it asserts that in social science, and in the physical or natural sciences likewise, the inductive method is the only one to employ : this method starts from the observation of certain particular facts in order to rise to the height of general propositions ; for example, from the fact that all bodies fall, to the law of gravity. In economics this method will be shown in the individual and accumulated obser- vation of all social facts as they are revealed to us, in their present state by means of statistics or by information supplied by travellers, in their past state by history. Thus we shall be able to slowly raise the edifice of economic science, which will then be the true science, not like that artificial science (so says the new school) which the deductive school constructed in cut and dried fashion. Both of these methods are too absolute ; but truth is never reached by so perfectly straight a road. The real method of political economy proceeds by three stages : First. By the obseri>ation of facts without any preconceived notion, even those which at first sight appear to be the most trivial. Second. By the imagination of a general explanation which will enable us to establish mutual relations between certain groups of facts ; i.e. by the forming of an hypothesis. Third. By the verificatio7i of the validity of this hypothesis, by seeking, by the aid of experiment if possible, at any rate by specially directed observations, to discover whether it exactly cor- responds with the facts. ... Of course it is not necessary for the same men of science to make observations, form hypotheses, and verify them ; for the gifts of observation and of imagination are somewhat rarely combined in the same person. The above has been the procedure adopted in all sciences. All those great laws which constitute the bases of modern sciences, beginning with Newton's Law of Gravity, are only verified hypotheses ; and we must add that the great theories which are the groundwork of scientific research, e.g. the existence of ether in physics, or the theory of evolution in natural science, are merely hypotheses which require verification. Proof of this may be found 6 PRINCIPLES OF POLITICAL ECONOMV. in Claude Bernard's Introdiictioji a P Etude de la Mcdecine Experi- meniale and in M. Naville's La Logiqiie de V HypotJiese. As Stanley Jevons has observed in his Principles of Science, the method employed for obtaining the discovery of truth in the sciences is similar to that unconsciously made use of by those who try to find the meaning of those rebuses or ciphers to be met with on the back page of some illustrated papers. In order to guess what the meaning of this enigma may be, we imagine some mean- ing or other. Then we observe whether this really agrees with the figures or images before us ; if it does not, it is an hypothesis to be rejected. We then conceive another one, and so forth, until we obtain a more successful result, or lose courage altogether. We shall find nothing in facts unless we have previously in our minds an image or a forecast of the tnith. The new school, then, is wholly in the right when it blames the classical school for its dogmatic attitude and for its tendency to believe that the principles, at which it has arrived by reasoning, are the exact expression of what is and of what ought to be. But this school, in its turn, commits no less serious an error in believ- ing that the attentive observation of facts is of itself sufficient to establish the science of economics, and that we may therefore for the future dispense with any resort to abstraction, hypothesis, and the " let us suppose " so dear to the school of Ricardo and so obnoxious to the school now under mention. / The facts presented to us by nature are too numerous, too / complex, too interlaced ; and in economics especially, they form ^ too inextricable a labyrinth for us ever to be able to discover our whereabouts, unless reason or imagination comes to our aid and throws light upon the darkness and forms order out of the chaos. It is true enough that the generalizations of the classical school to which, too ambitiously, perhaps, has been given the name of "laws" (for instance, those associated with Ricardo and with Mal- thus), are for the most part only hypotheses to be verified or to be rejected. But, such as they are, they have rendered eminent service to the science of economics, and it would be ungrateful GENERAL NOTIONS. . "J to disown them, even though they may come to be regarded not as the framework of pohtical economy, but only as the scaffolding used during the construction of buildings, and destined to be taken down as soon as the work is completed. . Latterly, however, a new deductive school has arisen, which, in spite of adhering faithfully to the reasoning method, and even pushing it to the extreme, as is shown by its preferring to employ mathematical language, has been wary enough not to be ensnared by its own speculations, as was the case with the former deductive school. This newer deductive school presents its abstractions purely as what they are ; that is to say, as hypotheses intended to illuminate facts and guide observation. In his Elements d' Economic politique pure, M. Walras of Lau- sanne writes : '" Pure political economy is essentially the theory of the determination of prices under a hypothetical regulation of ab- solutely free competition." To this may be added a dictum of Signor Pantaleoni in his Principii di Economia pura : " Whether i the hedonistic and psychological hypothesis (that of the maximum 7 of pleasure with the minimum of effort), whence all economic truths are deduced, coincides or fails to coincide with the motives which actually determine men's actions, is a question which in nowise detracts from the accuracy of truths deduced therefrom." In point of method there is one great difference between the economic and the natural sciences ; in economics it is very diffi- cult and often impossible to employ experiment, and therefore hypotheses may remain in suspense for an indefinitely long period, for want of any suitable means of verification. The chemist, the physicist, and even the biologist, though the last experiences greater difficulties, can always place the fact which they wish to study under certain artificially determined conditions which they can vary at will. For instance, in order to study the respiration of an animal, they can place it under the bell-jar of a pneumatic machine, and alter the pressure of the air according to their requirements. This power is never possible to the economist, even though he be 8 PRINCIPLES OF POLITICAL ECONOMY. joined by a lawgiver or an omnipotent despot. In social matters we are obliged to study facts as they are presented to us, without being able to isolate them from the web of connected facts in which they are implicated. We cannot put a country under a bell-jar; and even if we could, that would not be enough to enable us to draw any certain conclusions. Let us suppose that in order to study the effects produced by free trade, we could take two countries, and subject one to an absolute regime of free trade, the other to a protectionist system ; and find, at the end of ten years, that the former had greatly increased in wealth, whereas the latter had become ruined. No doubt this would be valuable information for us to gain ; but still, even under the extraordinarily favorable, and moreover, altogether ' imaginary, circumstances that I have supposed, the experiment would not be a decisive one. For the various destinies of different countries can be explained by far other causes than differences in their commercial systems "^ to wit : differences in environment, in race, in legislation, in individual energy. Take the two Australian colonies of New South Wales and of Victoria ; though both of them are of the same race and in the same environment, the first is free-trading, the second is protec- tionist. Although this experiment has already lasted for a long time, are we to think that the question of free trade has yet been solved? By no means ! Adhuc sub judice lis est. Instead, therefore, of being able to make direct social experi- ments, we are obliged to wait for what chance may supply us with in certain particular circumstances, such as the application of a new method of legislation, the foundation of a socialist com- munity, a pathological crisis in an existing society ; and even then this indirect mode of experimentation would but very rarely lead us to any definite conclusions. We must not then be astonished, as people too often are, if the science of economics takes far longer to construct than was the case with the physical or natural sciences. Nay ! the reverse rather would have caused surprise ; for on the one hand the GENERAL NOTIONS. 9 observation of facts is in this study more difficult than it is else- where ; and, on the other hand, the most powerful means for reading betweerl the lines of facts (the auxihary that has enabled the other sciences to make such marvellous and so rapid prog- ress), I mean experiment, now deserts us. A further reason this, for not absolutely rejecting the employment of the abstract method. In truth, the observation of economic and social facts is a task which is infinitely above all individual effort. It could only be the collective work of thousands of men putting their observations together, or of governments themselves, using for this purpose the powerful means of investigation which they have at their disposal. If there is one simple and elementary fact among all the facts which have any connection with the social sciences, it is surely that of the number of persons composing a society. Yet it is clear that an isolated observer is absolutely powerless to determine this matter. Governments alone can undertake this task, and even then it is only quite recently that official returns have attained a moderate degree of accuracy. To take another example. In 1879 the French National Soci- ety of Agriculture wished to make an inquiry into the question whether the division of property had increased or diminished. Can a simpler question be imagined ? Yet the result of this inquiry (as reported by M. Leroy-Beaulieu in his book on La Repartiiioji des richesses) was that out of 'B,Z correspondents, 38 replied that the division of property had increased, 4 that it had diminished, 21 that it had remained unchanged, and 25 made no reply at all, probably because they knew nothing at all about it. III. WHETHER THERE ARE NATURAL LAWS IN POLITICAL ECONOMY. When we grant to any branch of human knowledge the name of science, our object is not the simple bestowal on it of an honorary title ; the assertion we make is, that the facts studied by this lO PRINCIPLES OF POLITICAL ECONOMY, " science " are naturally connected with one another in a regular order ; in other words, that they are subject to laws. In some domains the order of phenomena is so obvious that such a state of things has compelled remark even from the minds which are least accustomed to scientific speculations. A mere lifting of the eyes skywards is enough to establish the regularity of the nightly progress of the stars, of the monthly succession of the phases of the moon, of the yearly journey of the sun through the constellations. In the most remote days of history, shepherds watching their flocks, sailors steering their vessels, had already recognized the periodical nature of these movements, and herein were laid the foundations of a true science, the oldest of all sciences, — astronomy. The phenomena which are manifested in the constitution of organized bodies and dead matter are not as simple, and the order of their co-existence or succession is not as easy to comprehend. Many centuries, therefore, had to elapse before the human mind, lost in the labyrinth of things, succeeded in laying hold of the guiding thread, in finding at length order and law in these facts themselves, and in forming out of them the sciences of physics, chemistry, and biology. Little by little this idea of a constant order among phenomena has penetrated into all domains, even into those which at first sight seemed destined to remain forever closed to it. Even those winds and waves, which poets had from time immemorial made the emblem of inconstancy and caprice, have in their turn come to recognize the empire of this new power. At least the great laws have been established, which direct, through the atmosphere or across the oceans, the aerial or the maritime currents. And meteorology, or the physics of the globe, has in its turn established its foundations. Even the chances of wagers, the combinations of dice — there is none, even of these, which has not been sub- jected to the calculation of probabilities. Hazard, even, hence- forward has its laws. The day, too, was to come when this grand idea of a natural GENERAL NOTIONS. II order in things, after having step by step, in the guise of a con- quering power, invaded all the domains of human knowledge, would at length penetrate the region of social facts. To the French school of Physiocrats falls the distinction of having first recognized and proclaimed the existence of this natural govern- ment of things ; thence, in truth, is derived the name of their school, from two Greek words which mean " government of nature." For this reason they might be said to have earned the title of founders of economic science, had they not been too greatly eclipsed by the glory of Adam Smith. " Human society," said Quesnay, " is a necessary fact, governed by providential laws. The mission of government is not to make laws, but to declare and proclaim natural laws, and make their observance sure." In the present century, especially, following in the wake of Auguste Comte and Herbert Spencer, nearly all the great schools, positivist, evolutionist, historical, even socialistic, have teemed with opinions of this character; all of them, in greater or less degree, regard human societies as organisms, which are born and developed according to laws precisely analogous with those bio- logical laws which govern the evolution of all living creatures. Still, it cannot yet be said that this notion of natural laws in economics is unanimously accepted. It conflicts, in fact, with no small difficulty ; economic facts are human acts, and therefore voluntary acts, and as b&ing such can scarcely be conceived as falling under the rule of inevitable laws. However, there is no insurmountable contradiction in the case. If an inevitable contradiction is customarily found (or supposed) to exist between the idea of liberty and the idea of natural law, that arises from our not understanding the latter expression in its real sense : natural law is represented under the shape of civil law or penal law ; that is to say, as a power holding a sword in its hand, which insists on being obeyed, willy nilly. Nothing could be more false than this conception. Natural law is only the expression of a constant relation which has been estabhshed between certain phenomena, and in economics it is nothing but 12 PRINCIPLES OF POLITICAL ECONOMY. the expression of certain constant relations in the acts and pro- ceedings of men. Now statistics have frequently shown the really surprising regu- larity in the recurrence of the most important acts of human life, such as marriage ; or of the most trivial, such as posting a letter without having addressed it. In economic facts, properly so called, this regularity is no less remarkable. The current of a river, which is usually determined by natural laws, is neither more constant nor more regular than the movement of a great commercial current, such as that of a railway line, and the variations of traffic of the latter are surely easier to explain and to forecast than the changes of level of the former. For an explanation of this regularity which is so strange at first sight, it would be sufficient, to begin with, to consider how important a part is played in social facts by the involuntary and the unwitting ; for instance, the influence, or rather the tyranny, exercised over our daily conduct by habit, imitation, and heredity, — those three factors which have the common attribute of being absolutely independent of our will (see M. Tarde's very inter- esting book Les lois de I'ifiiitation). But, in truth, it is not even necessary for an explanation of this phenomenon to restrict the field of human liberty. The regularity of economic and social facts is not opposed to liberty ; on the contrary, it is the consequence of this liberty when enlightened and deliberate. Imagine a world in which all men were absolutely free, absolutely wise ; the march of events therein would be cer- tainly far more regular even than it is with us. If, on the other hand, all men were mad, then, but then only, would disorder and chaos be the law of this world, and economic facts would be beyond the pale of all rational prediction. Kant, the metaphysician of free will, fully admits, however, the existence of natural laws in the social sciences. " In whatever way free will may be represented in metaphysics, its manifestations are in human actions determined, like every other phenomenon, by general laws of nature. History, which deals with the recital GENERAL NOTIONS. 1 3 of these manifestations, however deeply their causes be hidden, does not abandon one hope ; viz., that in observing the play of free will on a large scale it may discover therein a regular movement. . . . Thus marriages, births, and deaths do not seem to be subject to any rule which would admit of the calculation of their number beforehand ; yet the yearly tables drawn up in some great countries testify that in this matter as close obedience is paid to constant laws as is paid by the variations in the atmosphere, the growth of plants, the course of rivers, and the remainder of the economy of nature. Individuals, nay, whole peoples, do not in the least imagine that though following each of them their own bent and often engaging in strife with one another, they are still unconsciously obeying, just as the bees and the beavers, the design of nature which is unknown to them, and are contributing to an evolution, which, even could they be aware of it, would be of little matter to them." — Kant, Idea of an Universal History. Edition Hartenstein, IV, 143, Prediction, in fact, is the criterion by which we recognize the existence of natural laws, and consequently, too, the character of a true science. If, indeed, facts are linked together in a certain order, like a well-managed procession in which each member keeps its place and observes its distances, if there is, to use a current phrase, a " march " of events, it should always be possible, one fact being given, to foresee what should follow or accompany it. In some sciences, on account of their simplicity, this power of prediction is so extensively exercised that it stupefies the vulgar and assumes the shape of actual prophecy ; for instance, the predictions of astronomy. In the physical and natural sciences prediction rarely cleaves the future, but yet in more modest measure it enables the chemist, combining two substances in a crucible, to say what body will result from this combination and what its properties will be ; and by its aid the geologist can state the various strata that will be met with in the piercing of a tunnel or the sinking of a mine -shaft. The naturalist who sees for the first time an unknown animal, even before dissecting, can tell in 14 PRINCIPLES OF POLITICAL ECONOMY. advance, from certain external signs, what organs will meet his scalpel, and their order of presentation. Is the economist capable of availing himself of a similar faculty of prediction, thanks to his scientific pretensions ? He is, midoubtedly. Of two objects of the same quality but of unequal value, he can foretell that the buyer will choose the less dear ; or if that instance be too trivial, he can nowadays, from various signs, such as the rate of exchange, which is neither more nor less certain than the warnings given to the sailor by the barometer, observe and foresee the approach of commercial crises. We shall have occasion to see other instances. If into any country an inferior money be introduced, say paper money, the speedy disappearance of the good money can be safely pre- dicted (see Greshaui's Law). By the simple sight of the rate of exchange one can judge of the financial and commercial condi- tion of a country (see Exchange). Stanley Jevons has even es- sayed to prove that there is a ten-yearly cycle in commercial crises parallel to that shown by astronomical phenomena, to which his daring theory strove to relate them (see Crises). We must point out that even those who are the most vehement in refusing to economists the possibility of prediction in economic questions, do not fail, however, to employ it themselves in their ordinary course of life and in the management of their daily busi- ness. The financier who buys a share in the Suez Canal or in a railway foresees the continuity and the progressive increase of a particular traffic in a fixed direction, and his purchase of the share at a high rate testifies, whether he will or no, to his firm confi- dence in the regularity of one economic law. Every one who speculates — and who is there who does not speculate? — resorts to prediction after his own fashion ; this, no doubt, is too often exer- cised in a haphazard manner, but it might be used scientifically : taking it all in all, the speculator, as far as he is concerned, con- siders prediction to be perfectly rational. True enough, in this sphere forecasts are, as is sometimes said, only approximate ones, and cannot be expected to reach any GENERAL NOTIONS. 1 5 mathematical precision. But it would be utterly absurd to con- clude that, because exact prediction is not possible, therefore there are no laws at all ! No one can hold that wind, rain, hail, or storms are the result of chance, much less of human will. They are certainly ruled by natural laws. Yet forecasts are no more exact in this branch than they are in economics, and a commercial crisis can be more safely predicted than can a cyclone. If our predictions in pohtical economy are always uncertain and do not look far in advance, the reason of this must be sought, not at all in the non-existence of economic laws or in a sup- posed want of order in events, but purely in our ignorance of causes, just as in meteorology. Whatever may be one's opinion as to free will, it is not doubtful, as John Stuart Mill says, " That given the motives which are present to an individual's mmd, and hkewise the character and disposition of the individual, — if we knew the person thoroughly and knew all the inducements which are acting upon him, — we could foretell his conduct and the man- ner in which he will act." — Logic, VI, ii, sect. 2, page 422. Such motives will never be known to us exactly. Luckily, in the treatment of economic facts, we have not to forecast the con- duct of any one individual considered by himself; all that con- cerns us is the conduct of men viewed en masse ; we have only to deal with averages, and therefore have no need of that exactness which is indispensable to the astronomer or the physicist. IV. THE FOUR ECONOMIC SCHOOLS.i The science of Political Economy is divided into numerous schools (into almost as many as philosophy), which is an incon- testable sign of inferiority. It is no real consolation to say that the science has existed for scarcely more than a century, and that age will remedy this defect. Other sciences which are no older, 1 In an Address given at Geneva in March, 1890, our author classifies the schools as those of Liberty, Authority, Equality, and Solidarity, respectively; and he ranks himself with the last. — J. B. l6 PRINCIPLES OF POLITICAL ECONOMY. some, indeed, which are younger, have already succeeded in de- veloping a collection of principles sound enough to gain the unan- imous adhesion of all their students. As this is not the case with economics, many keen intellects refuse to grant it the title of " science," or at any rate declare that such a title is a premature one. Yet it is well to remark that the various schools differ from one another far less about the explanation of economic phenomena than about the mode of studying them, the way of judging them, and the practical consequences that can be deduced. The pos- sibility of a common understanding is not remote when the ques- tion is, for example, the discovery of the causes of the inequality of wealth; but when the subject for discussion is to determine whether this inequality of conditions is a good thing in itself, and especially whether any attempt at modification is necessary, then it is that divergences of opinion become marked. They arise, then, from the moral and political character of this science, and probably will never disappear, though there is reason to hope that on certain essential principles some agreement will be arrived at. Section i. The Liberal School. The first of these schools is what is called classical, on account of its having appeared first, and having long reigned without a rival ; or liberal, in virtue of the famous forniula which is its motto. But is it really a school ? Its partisans reply to such a question with some hauleur, and claim to represent the science itself; they assume, and for the most part receive, even from their opponents, the name of economists, and nothing more. The latter, however, sometimes term it, not without a touch of irony, the orthodox, or individualist, school. Its doctrine is very simple, and may be summed up as follows : — Human societies are governed by natural laws which we could not alter one jot, cvcti if we wished, since they are not of our making. Moreover, zve have not the least interest in modifying them, even if we could ; for they are good, or, at any rate, the best possible. ("The laws which govern capital, wages, and the dis- GENERAL NOTIONS. I7 tribution of wealth are as good as they are inevitable. They bring about the gradual elevation of the level of humanity." — Leroy- Beaulieu, Precis d'economie politique.) The part of the econo- mist is confined to discovering the action of these natural laws ; and it is for men and governments to strive to regulate their conduct according to them. These laws are in nowise opposed to human liberty ; on the contrary, they are the expression of relations which are spontane- ously estabhshed between men living in society, wherever these men are left to themselves, and are free to act according to their interests. Thus, between these individual interests which are apparently antagonistic a harmony is established, which exactly represents the natural order of things, and is far superior to any artificial combination which could be imagined. The part of the legislator, if he wishes to insure social order and progress, is confined, then, to developing these individual initiatives as far as possible, to doing away with whatever might interfere with them, and to prevent individuals from harboring ill will, or being biassed one against the other. Therefore the inter- vention of the powers that be ought to be reduced to that minimum which is indispensable to the security of each and of all; in a word, to laisser faire. "We assert that these natural laws govern the production and distribution of wealth in the manner which is the most useful ; i.e. the most conformable to the general good of the human species. Observation of them, together with the smoothing away of the natural obstacles which impede their action, and especially the prevention of any artificial obstacles, is suffi- cient to render the condition of man as good as is consistent with the state of advancement of his acquirements and his industries. Our gospel, therefore, is summed up in these four words, ' Laisser faire, laisser passer.' " — De Molinari, Les lois natiirelles. The whole of Bastiat's famous work, the Harnio7iies econo- miqiies, is nothing but the development of these ideas. This conception assuredly lacks neither simplicity nor grandeur. Whatever destiny be in store for it, it will at least have the merit l8 PRINCIPLES OF POLITICAL ECONOMY. of having assisted to establish the science of political economy ; and, if some day other doctrines take its place, it will none the less be the foundation upon which they are built. The most serious complaint that can be made against this body of teaching is a -very marked tendency to optitnisjfi, which ap- pears to be inspired far less by a truly scientific spirit than by a desire to justify the existing order of things. Undoubtedly, from a consideration of the economic organization of a society and of the institutions which are its groundwork, the conclusion may be drawn that they are beneficial, at any rate in certain aspects ; for the very fact of their existence and duration shows well enough that they have a value which is at least relative ; further, that they are natural is a just conclusion to make, for they are evidently determined by the series of previous states which produced them. But in nowise can it be inferred that they are the best possible ; that conclusion is altogether illogical. Auguste Comte, years ago, protested in the name of science against "this systematic tendency to optimism which is clearly theological in origin" {Cours de philosophie positive, 48* legon). But this doctrine cannot even offer the excuse that it agrees with theology, as Comte supposes ; for Christian theology is less optimistic than anything else. On the contrary, in its eyes, the actual order of things and all the manifestations of human liberty are irretrievably vitiated by the Fall. Nor is it any more legitimate to conclude that because natural laws are permanent and immutable, the existing economic facts and institutions should also possess this character of permanence and immutability. That, too, is a sophism, not to say word-jug- glery. If, on the other hand, as contemporary science shows a tendency to believe, the natural law, par excellence, is that of evolution, then it would be necessary to say that natural laws, far from excluding the idea of change, always presuppose it. When the Socialists, for instance, maintain that the wages system is bound to disappear, because, just as it has succeeded to serfdom and slavery, so it too will be replaced in turn by co-operation or GENERAL NOTIONS. I9 some other at present not named state, their line of argument can no doubt be criticised ; but it cannot be stigmatized as con- tradicting natural laws, since these very laws cause the same plant to produce in succession, first seed, then flower, then fruit. Not only can economic facts and institutions suffer change, but also our. will is by no means powerless in bringing about these alterations. Indeed, this will is every day and in the most effica- cious manner exercised on physical facts for their modification according to our needs, and this reasoned human action on natural phenomena is not in the slightest incompatible with the idea of natural law ; on the contrary, it is closely bound up with it. As M. Espinas wittily remarks in his Societes animaks, " If human activity was incompatible with the order of things, the act of boiling an egg would have to be regarded as a miracle." If, in truth, the idea of law were non-existent, if there were no bond between phenomena, if a cause might prodiice a certain effect, or might not ; in a word, if chance were the ruler of the world, man would be powerless to do aught, or to attain any end what- ever ; for while modifying such and such a fact he would never know what the result was to be, and his acts would be those of a blind man. Man erects lightning conductors to protect his build- ings because he believes in a natural law, viz. that metallic points exert a certain influence on electricity ; but, if electricity followed at random any track, it is clear that Franklin's invention would be useless. Besides, the mere opening of the eyes enables us to perceive at once man's marvellous power of mo,difying natural phenomena. Some, no doubt, from their immensity or their distance, obtain immunity from all acts of ours, — say, astronomical, or geological, or even meteorological phenomena : then we have but to submit to them in silence, and our power of prediction does not enable us to escape from a shock from a comet or from an earthquake ; but how many other domains are there in which our knowledge is almost supreme ! Most of the compounds of inorganic chemistry (the most important ones, by the way) have been made by the 20 PRINCIPLES OF POLITICAL ECONOMY. man of science in his laboratory. On seeing the cattle-breeder in his stalls, the horticulturist in his gardens, ceaselessly modifying animal or vegetable forms and creating new races, it seems as if animate Nature herself submitted to a process of kneading like inert matter. Even atmospheric phenomena do not entirely escape from the power of human industry ; the latter, indeed, makes bold to assert that by fitting clearances, or by new plantations, it will modify the government of the winds and the waters, and, repeating the miracle of the prophet Elisha, will, whenever it wishes, bring down from heaven the rain and the dew. In much greater measure, our activity can be exercised on eco- nomic facts, precisely because they are acts done by man, and we have immediate hold over them. Even the teachings of the deter- minist school, those who deny free will (and surely the liberal school are not among such) recognize that man has the power of modifying the order of things in which he lives. They only make this reservation : that every act of man is itself predctenniued by certain causes ; but that is a question in pure metaphysics into which we have not to enter in this place. Without doubt, here as in the sphere of physical phenomena, this action of ours is restricted within certain limits, which science tries to mark out, and which all men, whether acting individually by means of private enterprise, or acting collectively under legislative regulation, should make it in- cumbent upon themselves to respect. Here we might quote Bacon's old adage, " Naturae non imperatur nisi parendo " ; for the modifi- cation of economic facts, economic laws must be known and con- formed to. Alchemy strove to turn lead into gold ; chemistry has abandoned that useless quest, having found that these two bodies are simple elements, or at least irreducible ones ; but it has not renounced the attempt of converting charcoal into diamond, for in this case it has established the presence of one single body in two different states. The Utopian uselessly tortures nature to ask and obtain what it cannot give him ; the man of science asks only for what he knows to be possible. But the sphere of this term "possible " is far wider than the classical school imagines. GENERAL NOTIONS. 21 Section 2. The Socialist School. The socialist school is as old as the classical school ; older, we may even say, for there were socialists long before there was any political economy. As the doctrines of this school are especially critical in nature, they are far harder to formulate than those of the preceding school. Still they may be summed up as follows, at any rate, in their essential features. The various socialist schools hold that the organization of modern societies is tainted by certain essential vices, and is there- fore destined to disappear at a more or less near future. In their eyes, this organization is not in the least a natural product of liberty, but is the result of a long series of acts of injustice and spoliation which have been in a measure hallowed by written laws. Their .sp£cial objects of attack are private property and free competition, and their aim is to prove that the action of these two great springs, which set in motion the whole social organism, tends to sacrifice social to private interest, and to enable a few privi- leged persons to live at the expense of the huge body of the disinherited. They wait, then, for a new order of things, in which private property, if not completely aboHshed, will at any rate be reduced to the minimum which is compatible with the just requirements of hum^an personality, and in which personal interest will no longer be the sole motor power, and will be subordinated to the collec- tive welfare. As to the manner in which this future society is to be brought about, the various schools have numerous divergent theories. Some, who might be called idealists, but who are most usually termed Utopians, and whose doctrines are nowadays some- what, perhaps too much, discredited, strive to build up this future society like a new house, with certain a piiori principles of justice as foundation and as scale. Others, who proudly assume the title of scientific socialism, assert that this future society will siui sponte issue forth from present society, like a butterfly from its chrysali's; " In the most interesting and original portion of their thesis they 22 PRINCIPLES OF POLITICAL ECONOMY. labor to prove that this society of the future is now reposing, in the state of an embryo, in the womb of our present-day societies, which are already ripe for such a birth. It is sometimes care- lessly said that this school contests the existence of natural laws ; that is perfectly incorrect. On the contrary, it is irreconcilably determinist ; only, while for the liberal school the term " natural ia7u " implies the idea of stability and immutability, to the sociahst school it presents the idea of unlimited change and transformation. Instead of regarding human societies as Bastiat regarded the solar system, as turning round a fixed point and suspended in an eternal and changeless equilibrium, it pictures them in the shape of a plant or an animal, which from birth to death is undergoing cease- less transformations. We must confess that this is exactly the standpoint of contemporary science. Even the solar systems undergo change and transformation. In general, save for a few exceptions, it considers the Revolution to be indispensable for the substitution of the new order in place of the present. Coming from evolutionists, this manner of looking at things is at first sight rather astounding ; they attempt to justify it by noting that the process of evolution is often accomplished by means of crises ; i.e. by the brusque and even violent passage from one state to another. They instance the chrysaUs, which, before becoming butterfly, must tear away its cocoon ; or the chicken, which, to leave the egg, must break the shell with its beak. All these schools (save one alone, the anarchist school, which, on the contrary, is violently individualist) are naturally disposed to extend as far as possible the functions of the collective powers, represented by the State or by the municipalities, since their aim is to transform into public agencies all that which to-day springs from private enterprise. It is only, however, as a transition step that socialism asks for the extension of the functions of the State. For it professes the greatest contempt for the State as it is to-day, the bourgeois State, as it terms it, which looks after its interests and carries on its enterprises by the same methods as are used by GENERAL NOTIONS. 23 individuals. In its plans for reorganizing future society, this school avoids even pronouncing the word " state," and prefers to use the term " society." The State, in the sociaUst plan, is to lose all poUtical character, so as to become purely economic ; it is to become something analogous to the administrative council of a huge co-operative society, embracing the entire country. It is on this point that true socialism can be distinguished from State socialism. At this stage we cannot gauge the value of the criticisms directed by the socialist school against the existing order of things ; we shall come across them once more in the course of our further exposition. Suffice it to say here that they appear to contain a somewhat large portion of truth. It is especially from the critical point of view that contemporary socialism has produced some remarkable works ; notably, those of Proudhon in France, and those of Karl Marx in Germany. But it is from the positive, or, if it is preferred, the constructive point of view, that the weak side of this school is discoverable ; and we must observe that its most distinguished leaders, especially those whose names have been just mentioned, have prudently avoided any entrance into that field. The detailed exposition of the socialist ideal may, however, be seen in Schaffle's Quintes- senz des Socialismus (a German book, which has been trans- lated into French), in Gronlund's Co-operative Commonwealth, and in Bellamy's very successful novel. Looking Backward. In fact, whatever be the imperfections, or even dangers, of per- sonal interest, and the desire to grow rich, as the motor power of the economic mechanism, it is not easy to see by what other means men can be made to stir. There are only two possible means, — compulsio7i and love. Now love, or altruism, as it is called in opposition to egoism, would indeed be the true solution, and we must hope for its realization in the future. But the so- cialists, who are relying on such a motor force at this time of day, are certainly showing their possession of an optimism which is as stubborn in its own way as that for which we were just now 24 PRINCIPLES OF POLITICAL ECONOMY. blaming the economists. Before man makes up his mind to work purely out of love for his neighbor, a more radical transformation would be necessary than could be brought about by any social revolution. Man would have to procure a new heart. There is, therefore, reason to fear that, the motor spring of love failing them, the socialists will be obliged to fall back upon com- pulsion ; now, besides the circumstance that the loss of liberty would be too high a price to pay for the general welfare, even at this price it is. doubtful whether the desired result could be attained. For, in order that the production of wealth shall be abundant, the employment of individual energy is always requi- site, and experience shows that a regime of compulsion forbids the full exercise of such energies. Further, many socialists be- lieve that they will be able to dispense with individual initiative, and have recourse, instead, to the action of collective bodies, the State, municipalities, powerfully organized corporations, and so forth ; but this hope is based on no sounder foundation than that mentioned above. For every-day experience teaches us that asso- ciations, great or small, are worth not a jot more than the indi- viduals of whom they are composed. Consequently, every system which will tend to reduce individual energy will not stand a great chance of gaining anything especially advantageous from collec- tive enterprises, however ingeniously they may otherwise be organ- ized. Section 3. The Catholic or Christian School. Although the very epithet which is used as the distinguishing mark of this school appears to put it outside the pale of scientific classification, yet in some countries it has obtained too great a development, and even from the purely economic standpoint (our only object of study here) it presents too characteristic features for us to pass it by in silence. The Catholic school, like the classical school, firmly believes in the existence of natural laws, called by it providential laws, which govern social as well as physical facts. But it believes that GENERAL NOTIONS. 2$ the working of these providential laws may be seriously deranged by the action of human liberty, and that this indeed has actually come to pass by man's own fault ; the world is not what it was destined to be, what God would have wished it to be. We must observe that Fourier's theory^ also consisted of the asseveration that for man there is " a plan of God " the secret of which has been lost through man's own fault, but which he must try and rediscover. The Catholic school differs from the liberal school in not being in the least optimistic ; it regards the social order of things neither as good, nor even as naturally tending towards the best; above all, it does not trust to laisser faire for the re-estab- lishment of harmony and the confirmation of progress ; for it is in this very liberty, or rather in liberalism, that it discovers the real cause of social disorganization. To take its programme : it hopes to re-establish social concord by the influence of a triple authority, that of the father in the family, of the employer in the workshop, and of the Church in the State, these several "social authorities," of course, being bound to carry out reciprocal duties. It is not hostile to the interference of the State, which, to quote the words of Pope Leo XIII., " is, after the Church, God's minister for good." The vehemence of the criticisms made against the present organization of society by the Cathohc school, together with its appeal to State interference in certain cases, has caused economists of the liberal school to call it Chiistian socialism. Against this imputation it vigorously protests, and in truth, except for certain points of view which are common to them, it differs from the socialist school to to orbe. - Firstly, in that it has no intention of abolishing the fundamental institutions of social affairs as they are, such as property, inheri- tance, the wages system, etc. ; but proposes, on the contrary, to restore, that is to say, to strengthen them. ^The features of Fourier's system are described in detail by Professor Gide in his introduction to the volume Charles Fourier, CEuvres Choisies {^Petite Bibliotheque Economique, Guillaumin, 1890). — J. B. 26 PRINCIPLES OF POLITICAL ECONOMY. Secondly, in that it disbelieves in evolution and in the indefi- nite progress of the human species, and seeks its ideal far less in the future than in a return to some of the institutions of the past, for instance, to the family stock, to rural life, and to pro- fessional corporations of employers and workmen acting together. The term ''family stock" {famiile soiuhe) is used by the school of Le Play to designate the family strongly bound together and stable as in older days, so as to form a small permanent society existing within society at large. This is in opposition to the un- stable and constantly scattered family which is the characteristic feature of modern societies. Le Play's school is a branch of the Catholic school,^ which, how- ever, is differentiated from the latter, and therefore becomes more approximated to the liberal school, by a stronger tendency to lay action as opposed to Church interference, and by a narrower limi- tation of the sphere of State interference. Brushing aside all controversy that might trench on political or religious ground, the strongest objection that could be made to this body of doctrine taught by the Catholic school was long ago formulated by John Stuart Mill, when he asserted that there was no example of any class whatever, when in possession of power, having exercised that power for the benefit of the other classes of the community. It is greatly to be feared that, if ever the task of solving the social problem were entrusted solely to the ruling classes as employers, the mournful fact animadverted on by John Stuart Mill would receive but one confirmation the more. There is also a Christian (but not Catholic) socialism which is taking a more prominent place in Protestant countries, both in England and in the United States.^ Though denouncing the 1 See the article of Mr. H. Higgs " Frederic Le Play " in the Harvard Quarterly yournal of Economics, July, 1890. — J. B. 2 A sign of its precence in England is the formation of the " Christian Social Union " and the publication of its organ, the Economic Reviezv. The leading members and writers are adherents of the High Church party in the English Church.— J. B. GENERAL NOTIONS. 2/ iniquities of the existing social order with no less severity than the Catholic school, and likewise waiting for " a land in which justice dwells," it is deeply divided from the Catholic school by its programme. For the conservation of social peace or concord it relies less on the asthority of a few " classes " than in the increas- ing solidarity of all classes, and co-operative institutions appear to it to be the best means for bringing about such a solidarity. Thus, though it does not in a general way refuse all State inter- ference, still it is jealous to preserve all individual energy. Section 4. The Historical or Realist School. The school which was at first called "historical," or that of the " socialists of the chair " {Katheder socialisten), but which more readily receives the name of the realist school, sprang from a reaction against the classical school, as regards both its method and its tendency. It first saw the light in Germany about forty years ago, and professors of the German universities are still among the number of its leaders. By now, however, it has drawn into its fold many professors of political economy of all countries save France. (Reference may be made to the author's article " The Economical Schools in France " in the New York Political Science Quarterly, December, 1890.) The commencement of this school is usually dated by the publication, in 1854, of Roscher's Treatise of Political Economy. It was in Germany, too, that the historical school of Law first arose under the guidance of Savigny. As to its method, the realist school absolutely rejects the deduc- tive method, which is based on a priori reasoning, on abstractions, and on hypotheses, and asserts that the only way of arriving at \ truth is by the patient observation of facts. It is to history that the realist school turns for the study of social and economic facts ; for history alone, by teaching us how economic and social institutions have been formed and are being transformed, can enlighten us as to their real character. Now social institutions, when studied from this historical stand- 28 PRINCIPLES OF POLITICAL ECONOMY. point, are seen to be exceedingly changeable, varying, indeed, from nation to nation, and ceaselessly undergoing mutations in the very midst of any one individual people. In this manner the historical school claims to blow to the winds that double character of universality and of permanence which the classical school used to attribute to economic phenomena and used to gild with the name of natural laws. We must therefore cease to look for any general laws which regulate man as an abstract being, but must rather seek for the historical laws that govern the relations of men living in a specified society. Hence the name sometimes bestowed on this school, that of the "national-politico-economical" school. Whilst the classical school regards landed property and the wages system as definitive institutions which arise from necessary and general causes, the historical school merely looks on them as simple "historical categories," which spring from diverse causes and assume very variable forms according to the country and to the age. As regards its tendencies, this realistic school altogether rejects the principle of laisser faire ; in its opinion economic science has a practical aim to reach ; when a social science is in question, it thinks that the old distinctions between an "art" and a "science" are out of duty, and in this manner resorts to the conception enter- tained by the earliest economists (see page 2). It holds that we can only hope to modify economic institutions in the direction pointed to us by history, and that therefore the science includes the art in the same manner as the past contains the future. " What is, what will be, what ought \.o be," are to this school inseparable terms. Precisely because of the little weight it allows to the notion of natural law, it attaches a proportionately greater importance to the positive laws emanating from the legislator, and beholds in them one of the most important factors of social evolution. To quote M. De Laveleye {E/e??ients d^economie politique, page 17), "The laws with which political economy is concerned are not the laws of nature ; they are those laid down by the legislator. The former elude the will of man ; the latter proceed from it." Hence it is led to considerably extend the functions of the State, GENERAL NOTIONS. 29 and on this point does not in the least share the antipathy or the distrust felt by the liberal school. This tendency has earned for the new school, or at least a section of it, the name of State Socialists. This school has of late greatly influenced not only men's thoughts, but likewise legislation. Most of the laws promulgated during the last twenty years, which are known as "labor legislation," as well as the powerful movement in favor of the international regulation of labor, are in large measure its work. It has certainly rendered great service to the science by broad- ening the narrow, factitious, studiedly simple, and vexatiously optimistic point of view at which the classical school has always remained stationed. It has conferred on it a new life by reju- venating its somewhat empty theories with new materials drawn from history, the comparison of laws, and statistics. This school has caused pohtical economy to quit that systematic abstention in which it was wont to enclose itself; and to the question men have so long been propounding, "What is to be done?" it has sought another reply than a sterile laisser faire. As regards the deUcate matter of State interference, we thor- oughly agree with the new school in recognizing an historical fact in the incessant development of State functions, which, perhaps, is precisely one of those natural laws whose very existence is disputed by the school in question. Like it, too, we believe that the State's mission is to develop more and more the social solidarity (or the cohesion of society) of which it is the living image, even though for the accomplishment of this end it may have to exercise its authority and impose according to its discretion sacrifices on some for the benefit of others. Too often, alas, the State has shown itself unfit for the right exercise of this high social function ; for in the past it has only served as an instrument in the interest of one class, and indeed, in the democratic governments of to-day, for the benefit of one party. Such a procedure has thus given some weight to the arguments of the liberal school. However, the education of States is gradually progressing ; more rapidly, indeed, than that of individuals, who are ceaselessly carried off by death. 30 PRINCIPLES OF POLITICAL ECONOMY. There is, therefore, reason to hope that when the State has been founded on more scientific bases, when pohtical economy aids it in marking out its road, and when practical questions talce the place of sterile political questions, on that day the State will be able to exercise in economics a more rational and efificacious influence than it has hitherto done. It is with regard to its method that this new school is the most vulnerable and open to criticism. The result of its desire to be realistic and descriptive is, that it appears to have lost sight of the true character of the science, which, in spite of all endeavors, must remain in the nature of an abstraction. Chevreul, the French scientist, who recently died, having passed the age of a hundred years, used to say, " Every fact is an abstrac- tion." ^ Though this dictum seems a strange one at the first glance, yet it is easily understood if we only consider that what we call a fact is previously something which has had to be separated out of a host of other connected facts, and for the observation of which abstraction has had to be made of many other things. Thus, in scoffing at the procedure and the methods of the de- ductive school, the new school exhibits much affectation and some ingratitude ; for, in fine, it still lives and moves in the categories which were laid down by the old school. It has not exactly re- made the science ; it has merely informed it with a new spirit. By applying its attention to the observation of facts and the varia- tions shown in various nations and at various times, its tendency is to fall into erudition, and to lose sight of the general conditions which everywhere determine economic phenomena. If it were necessary to renounce any attempt at discovering permanent re- lations and laws under the changing manifestations of phenomena, we should be obliged definitely to abandon our attempts to form a science of political economy ; however dangerous to the science rash hypotheses might be, they would be infinitely less serious than such a confession of weakness. 1 Or, as has been said by Professor Edward Caird, ' There is only One Fact, and every part of it taken separately is an abstraction.' — J. B. BOOK I. WEALTH AND VALUE. CHAPTER I. WEALTH. I. The Desire for Wealth. To be rich, in the popular sense of the term, is for a man to have the means of obtaining for himself good food, good clothes, good housing, and careful nursing if he falls ill ; to be able to keep sufficiently warm in winter and agreeably cool in summer, to have easy means of access and of transit to wherever he wishes to go, and to partake of all the pleasures offered by civilized Ufe to those who can profit by them. It is, too, to be exempt from the necessity of working for a livelihood, to be free to do as he pleases, and to follow his tastes and his fancy. Finally, it is to be released from all anxiety as to his future or that of his children. Wealth considered from this point of view depends on the qii^an- tity of goods that a man possesses, and is synonymous with abun- dance. But the word " wealth " presupposes something more than this ; it indicates a state of superiority, and consequently impHes ine- quality of conditions. It points out the privileged position of a man by which he is enabled to command the labor of a multitude of his fellow-creatures, or what comes to the same thing, to dis- pose of the products of their labor. "■ Riches is power," said Hobbes, and such, in truth, is the etymological meaning of the 31 32 PRINCIPLES OF POLITICAL ECONOMY. word {Reich, empire, power). Considered from this point of view wealth is a purely relative state, and depends far less on the quantity of goods possessed by a man than on thai possessed by Ms felloius. If they have less than he has, he is rich ; if they have as much as he has, he is not rich. It is clear that if every one was rich, there would be no more rich men. It is not surprising, then, that from time immemorial wealth has always been ardently coveted by men ; although the opinion is permissible that this desire, now raised to the rank of a passion, is beginning to assume a somewhat excessive development in certain societies, especially in those in which we hve ; although it may be salutary for a more austere system of morality to strive, hitherto without much success, to moderate so exaggerated a passion, yet we have no hesitation in declaring that this desire is natural and even legitimate. To proceed : a distinction must be drawn between the motives which incite man to seek wealth ; they are of two different kinds, and correspond to the two aspects under which the idea of wealth is presented. Men seek wealth, both to satisfy their wants and to mark themselves off from their fellows ; they are urged in the former direction by the desire for well-being, in the latter by the desire for inequality. The legitimacy of the first of these motives can be the more easily established. Man has the right, and even is bound by the duty of trying, to satisfy all those wants which lead to the preser- vation and development of his being in the broadest sense of these words. What may be blamable in the matter is not so much the desire for wealth as the means employed for its obtainal, and especially the use that is made of it. If wealth in this world were always the result of personal labor, if it were always -directed towards the greatest good of man, physical, intellectual, and moral, its effects would be ever beneficial, never baneful ; there would never be too much of it ; nay, there would never be enough. Unhappily, it is far too certain that in the whole world, and even in our modern societies, which are so proud of their knowledge WEALTH AND VALUE. 33 and so vain of their luxury, the vast majority of men do not pos- sess even that minimum of wealth which constitutes daily bread, far less that amount of comfort the absence of which always lowers human dignity. The unequal distribution of wealth may deceive us on this point ; but if a division could be made, the mis- erable share which would fall to each would dismay the observer. We should then be thankful that we are rather richer than our fathers, and make bold to hope that our children may be much richer than we are. If the day comes, as we must hope, when wealth will be so increased as to amply provide for the material wants of all, then it will be time to call a halt, and humanity at large will henceforward be able to devote its strength and its time to the pursuit of goods of a more noble kind. The legitimacy of the second motive seems to be more dis- putable, and it is fair to hold that the desire for inequality is not a beneficent feeling. Yet it hardly appears that it could be sup- pressed or even much reduced without gravely injuring civilization ; probably without it the source of wealth would soon be dried up. Indeed, for the multiplication of wealth we must not trust only to the former of these two motives, the desire for well-being ; this feeling is not innate in man's breast, as we are too apt to suppose — witness those primitive societies which live in eternal poverty without ever seeking to emerge therefrom. It is the desire for inequality, or, if you will, what comes exactly to the same thing, the desire to rise above the common level, which is the cease- less goad of man's natural idleness. Mr. Mallock, an English author, has devoted a whole volume. Social Equality, to the development of this idea, which he de- fines, perhaps not without some exaggeration, in the following for- mula : " All productive labor that rises above the lowest, is always motived by the desire for social inequaUty." — Social Equality, pages 35, 36. 34 PRINCIPLES OF POLITICAL ECONOMY. II. The Wants of Man. There is no living being that has not certain wants, were it only that of food, which must be satisfied for the creature to live and attain its ends. The higher we go in the scale of life, the more complicated and sensitive is the organism, and the more complex and multiple do the wants become ; for the being which occupies the summit of the hierarchy, for man, they are legion. Could we come to know a being superior to man, we should certainly dis- cover that he possessed an infinitude of wants of which we in this world can form no idea whatever. If the progression of wants is so marked on turning from lower to higher beings, it is no less striking on passing up from savage to civilized man. Had we to point out the most characteristic feature of that social state which is denoted by the somewhat in- definite term, civilization, the most noteworthy, perhaps, would be the multiplicity of wants. The art of civilizing a people consists in implanting in it new wants ; this is proved by the example of savage communities. The wants of humanity are like those of a child. The child, at birth, needs nothing except a little milk and a warm covering ; but little by little he comes to require more varied food, more com- plicated garments, and, moreover, toys ; each year arises some new want, some new desire. We, to-day, are sensible of a thousand wants which were unknown to our grandfathers, relating to com- fort, hygiene, cleanliness, education, travel, social intercourse; and it is certain that our grandchildren will have further needs. The more we see, the more we learn, the more our curiosity awakens, and the more, too, do our desires increase. and multiply. Each in- vention, each idea that is born into the world, engenders a whole generation of new wants. Doubtless, some of the number do not continue, and after having lasted for a few generations, or perhaps only for a few days, sink like dead leaves falling from the tree ; maybe the very caprice that gave them birth abandons them, as with the ephemeral creations of fashion ; maybe a new and con- WEALTH AND VALUE. 35 flicting want dethrones its predecessor. But in a general way, the number of wants which disappear far from balances the tale of those which arise, and just as with the generations of men we have a crowd which goes on multiplying from age to age. A school of moralists which dates from a very high antiquity, reckoning among its founders Diogenes with his tub, regards this progressive and indefinite multiplication of wants as a great evil, which pohtical economy should apply itself to stop. But, for our part, we can see in the development of these wants nothing more than the normal development of human beings ; we think that an attempt to restrict the former would be to rob the latter, and that for the suppression of wants we should first of all have to suppress ideas. Without doubt, among these wants, which are ceaselessly spring- ing up among the generations of man, there are many which are frivolous or even harmful, and which far from favoring man's development only serve to retard it ; e.g. the taste for alcoholic liquors. But we must observe that for the efficacious eradication of any want whatever, the best means is to substitute another one. Indeed, to combat this very alcoholism, temperance societies have found that the best mode is to open establishments in which an attempt is made to accustom consumers to drink tea or coffee. There is reason to hope that in the future, when man's aims are m.ore enlightened and his desires are conformable only to his true nature, he will be able to follow them without arriere-pensee, and to strive to satisfy them without experiencing remorse. Even admitting that in certain cases contentus sua sorte may be the motto of a philosopher, it should never be the watchword of a people. Woe to the races which are too easily satisfied, whose desires do not stretch beyond the narrow circle of the bounding horizon, and whose only requisites are a handful of ripe fruit for food and a nook in a wall where they may sleep shaded from the sun ! They will not be long in vanishing from an earth the capa- bilities of which they have not turned to advantage. The school of moralists, of which we have just spoken, starts 36 PRINCIPLES OF POLITICAL ECONOMY. from the idea that the fewer wants a people has, the more time will it devote to intellectual speculations. But experience shows that in reality, the inverse order of things comes to pass, and that the fewer wants that races have, they are, in general, the more idle, ignorant, and swayed by the grossest appetites. It is easy to understand in virtue of what law the wants of man tend to develop in this wise. A want, still timid and ill-defined, arises first of all in the bosom of one single man, or in the hearts of a small group of men ; in those, only, who from their privileged position have already been able to amply satisfy the primary necessities of life, and who then turn their desires to a new hori- zon. But man, before all, is an imitative being ; by imitaiion the want is immediately propagated. Like an epidemic it speeds from neighbor to neighbor. Every one feels it, or fancies he does, and applies himself to find some means for satisfying it. In pro- portion as the progress of industry allows the gratification of this satisfaction with greater ease and at less expense, the imitators continuously increase in numbers, and what was at first merely a caprice of luxury, reserved for those favored by fortune, soon penetrates the lowest strata of society. This subject is treated in an interesting way in M. Tarde's book Les Lois de Vimita- tion, to which we have previously referred. From another side, in addition to having surface extension, the want also gains in depth. Man is not only an imitative being, he is also a being with habits ; desire, once felt and regularly satis- fied, gradually becomes fixed, takes root, and can no longer be torn away without a painful shock. As is so well expressed in popular language, it becomes second nature. At one time work- men wore neither linen nor foot-gear, had neither coffee nor tobacco, and ate neither meat nor wheaten bread ; nowadays these wants have become so inveterate, that the workman who was unable to satisfy them and was suddenly reduced to the condition of his fellows in the times of Saint Louis or Good King Henry would certainly die. If we add that a habit which has been transmitted through a WEALTH AND VALUE. 3/ long series of generations is not slow in becoming fixed by means of heredity, and that the senses grow more subtle and more exact- ing, we shall be able to appreciate the despotic power acquired in the long run by a want which at its origin appeared to be the most futile or the ixiost insignificant. It would be impossible to give a complete classification of the wants of man, but most of them can be ranked under these four heads : food, housing (including furniture, heating, and lighting) , clothing, and 07'nament. The first two are shared by man with the animals ; the last two are peculiar to him. The last of all, whatever may be said as to it, is as natural to man as the preceding are ; in fact, it might even be placed before clothing. As Theophile Gauthier has remarked, the Papuans, who go about stark naked and eat earthworms, hang colored berries from their necks and ears, and cover their bodies with tattoo-marks. Very nearly all the wealth to be found in all countries exists only to satisfy these material wants, particularly the first one, food ; and this holds even in societies which have reached a high pitch of prosperity and might be thought to have done with these first necessities of existence. [Let the quantity of nourishment necessary for each Frenchman be on the average ten pence a day — by no means an exaggerated amount ; this represents, for the whole of the French population, a yearly consumption of ^560,000,000 sterling, or probably more than half the entire production of France !] Yet education, the taste for the beautiful, the need of social intercourse or of travel- ling from place to place, the desire for always knowing the latest news, or for amusement, nay, for fighting, which is more fashion- able than ever, — all these call into existence a number of impor- tant articles of wealth in the shape of libraries, telegraphs, and telephones, carriages, tramways, omnibuses, newspapers, theatres, pictures, music, cannon, and ironclads. 38 PRINCIPLES OF POLITICAL ECONOMY. III. The Definition of Wealth. In the vocabulary of political economy, the word " wealth " has not altogether the same meaning as it has in popular speech. It does not exactly denote a certain state, a certain fortune, the fact of being rich, but it points out certain things, all those things the possession of which can obtain for us any satisfaction whatever, independently of any idea of quantity or of opulence. In this sense, a bit of bread, a pin, a farthing-piece, is from the economist's point of view as much wealth as is an estate, a diamond necklace, or a certificate of government stock. The first condition necessary for a thing to be termed wealth is that it should serve to satisfy some want or desire, in other words, that we should judge it to be useful ; for utility is nothing but the correlation we establish between certain things and our wants. The judgment that we thus pass on the utility of things may chance to be gravely erroneous.^ Relics of more or less authentic- ity have been for many centuries, and to-day even in some coun- tries are still regarded as incomparable wealth, on account of certain virtues which are attributed to them. Many mineral waters and pharmaceutical preparations are much in request, though their healing properties are far from being proved. No matter ; whether useful or not, the mere fact of our judging them to be such con- stitutes them wealth. Generally, however, our judgment is not altogether blind, and our holding a thing to be useful arises from our having reason to beheve that it really is so, from our discovery of some relation between its physical properties and some one of our wants. Bread is useful, partly because we have need of nourishment and partly because corn contains just those elements which are specially fit- ting for our food. The diamond is so highly prized because it is in the nature of man, as well as in that of some animals, to expe- rience pleasure on looking at shining objects, and the diamond, in virtue of its powers of refraction, which excel those of any other 1 i.e. from the point of view of a riper wisdom. — J. B. WEALTH AND VALUE. 39 known substance, has just this property of shedding incomparable beams. It is for science to enhghten our judgments by instructing us as to the properties of bodies and the laws of nature. In this way, thanks to discovery and invention, the patrimony of humanity is ] increased every day by some new conquest: at one time, out of- the clay which constitutes the mud of our streets, human industry makes the sparkling, solid, and at the same time light metal, which we call aluminium ; at another, it converts the foul waste of coal into colors which are more splendid than Tyrian purple. Yet the hst of the things that we make use of is still exceedingly small, when compared with the immense number of those that we turn to no account. Of the 140,000 known species of the vegetable kingdom,, less than 300 are used in farming ; of the millions of species reck- oned in the animal kingdom, there are scarcely 200 that we have turned to any service ; and with inorganic bodies the proportion is not more favorable (De CandoUe, Origine des plantes cultivees, page 366). But the list of our riches is lengthened every day, and there is every reason to beheve that, were our knowledge per- fect, this vast world would not contain one blade of grass, one grain of sand, in which we had not been able to discover some/ measure of utility. However, to be able to reckon a thing in the number of our riches, it is not enough to know that it is useful ; it is also neces- sary that we should be able to utilize it. Knowledge is power, as the saying goes, but that is not always true ; our knowledge may remain in the purely speculative stage and not supply us with any practical means of reaching our ends. We know that the dia- mond is a crystal of carbon, but we have not yet succeeded in making diamonds out of coal ; we know that in China or in Ton- quin there are very rich coal mines, that on the African plateaux there are fertile and healthful tracts and probably gold mines, but for various reasons neither the ones nor the others are within our reach, and we cannot work them. They are, therefore, not wealth, at least for the present, any more than are the fertile tracts or 40 PRINCIPLES OF POLITICAL ECONOMY. precious metals which the astronomer, by aid of telescope or spec- trum analysis, might discover on Mars or on Venus. Those primary conditions indicated above are beyond the reach of discussion ; but there are two others which have for long excited famous controversies among the learned, though fortunately they are merely questions as to words. The first question is, Does the definition of wealth necessarily imply the idea of materiality ? In the eyes of all the older econo- mists, and of the greater portion even now, this further condition appeared to be as indispensable as the two primary ones ; and it is certain that in current speech the word " wealth " necessarily awakens the idea of a " thing " {res^ which is perceptible by our senses, can be touched, can be counted, can be weighed. We may certainly say that virtue, talent, and savoir /aire are wealth, but we shall be thought to speak in metaphor. However, it is our opinion, though not formed without some hesitation, that this condition is not indispensable, and that the metaphor is in fact the reality. Everything that is of a nature to answer to any desire felt by man and to obtain for him certain advantages, everything that in his eyes is worth the trouble of being paid for, either at the price of a personal effort or by the sacrifice of a sum of money, necessarily falls within the sphere of political economy and constitutes " wealth." The opinion given by the physician is wealth by absolutely the same right as the morphia he administers to his patient ; the instruction that a professor gives his pupils is wealth in exactly the same way as the book he publishes and exhibits for sale at the bookseller's. If the barber's pole or shaving-dish which is exposed as his sign outside his door is regarded as wealth, surely we should consider as wealth of a like nature the name and the social standing of a business firm or a banking house. Besides, if this terminology be found to clash too violently with our inherited habits of speech, nothing prevents us from restrict- ing the term "wealth " to "things" properly so called, and to give the name oi" services^^ to every act of man which is able to pro- WEALTH AND VALUE. ' 4I cure any satisfaction for his fellows, in a direct manner and without intermediate incorporation in a material object. However, some very recent writers — e.g. Clark, Pantaleoni, and Mazzola — have remarked, not without considerable subtlety, that to give a man any gratification, he must be acted on by means of his senses, and consequently by the intermediation of some material object, — the sound-vibrations of the air in motion, the luminous vibrations of the ether. Thus the words of the lecturing professor would not reach us in a vacuum, nor would the facial expressions of the actor be visible in an unlit night. From this point of view, then, we may say that there cannot be any ''non-material " wealth.^ We now come to the second question, Does the definition of wealth necessarily imply the idea of value ? This condition is no more indispensable than the other. The idea of value is not necessarily bound up with the idea of wealth ; for surely a fertile soil, a mild climate, a fine network of navigable rivers, and safe and deep roadsteads are the earnest of wealth for a country ; and yet they have no exchange-value. It is even possible to estabhsh an antithesis between these two terms; "wealth" corresponding to the idea of abundance, "value" answering to the idea of scarcity. Let us suppose, for example, that by a lucky miracle worked by human industry all products were to be so multiplied as to become as abundant as spring water or the sand of the shore ; should we not have to regard this marvellous multipli- cation as an increase of wealth, nay, as the climax of wealth? Yet according to the above hypothesis, all things, precisely on account of their superabundance, would have lost all value ; they would have neither more nor less value than that very spring water or those grains of sand with which we just compared them. This, however, is the question which J. B. Say thought to be the ^ This argument alone would drive us back to the position which the author, perhaps too hastily, abandoned. The arguments against regarding good-will of a business, etc., as wealth, over and above the particular things and services to which they relate, are given by Dr. Bohra-Bawerk, in his Rechfe und Vei-haltnisse (1881). — J. B, 42 PRINCIPLES OF POLITICAL ECONOMY. most difficult in political economy, and which he set forth thus : "Wealth being made up of the value of things which are pos- sessed, how can it come about that a nation will be the richer by lowering the price that is asked for those things? " — Cours d' eco- nomic politique, Part III, Chap. V. Proudhon in his Contradic- tions econoviiques raised again the same questions and defied " any serious economist " to answer it. This contradiction is only arbi- trary, and arises solely from a certain double meaning of the term " wealth," of which we have already warned our readers {inde page 31 seq.^. As far as the word "wealth " means satiety, comfort, it is connected only with the idea of abundance, and is completely independent of the idea of value in exchange. It is considered under this aspect when we treat of a country, or better still, of humanity at large. But when " wealth " signifies inequality, the relation of superiority of one individual to another, in this sense the idea of wealth is inseparable from the idea of value. A vine- yard proprietor, for instance, is rich not in proportion to the greater or less abundance of the vintage, but in proportion to its greater or less degree of value. If he were the only person who had grown wine that year, his wealth would be at its maximum ; but if wine was as plentiful as spring water, he would be ruined. Madame de Sevign^ expressed this most picturesquely when she wrote from Grignan (October, 1673) : "This whole place is bursting with corn, and I have not a farthing. Seated on a heap of corn I shriek, ' I am starving.' " ^ If we repeat our previous supposition, that all products became superabundant, in that land of plenty there would clearly be no more rich persons ; for henceforward all men would be equal before the valuelessness of things, just as Rothschild and the beggar are equal under the light of the sun. We might get clear of our difficulty by being careful to use the word " goods " {bona) instead of " wealth " whenever the term is used in an absolute sense to denote abundance, welfare, and to 1 See the article " Abundance " in Palgrave's Dictionary of Political Economy. — J. B. WEALTH AND VALUE. 43 reserve the word " wealth " for the cases in which it is taken in its relative sense, as denoting a certain social situation. Yet it happens that, as in practice wealth is only regarded from the point of view of the relations of individuals with individuals, the second acceptation of the term is by far the more widespread ; hence in ordinary speech the idea of wealth is always associated with the idea of value. This latter, however, is a distinct idea, and now requires our separate study. CHAPTER 11. VALUE. I. What is Value ?i When we know that a thing is suitable to procure for us any satisfaction whatever, it thereupon becomes the object of our desires. But even of the things which are of a nature to obtain for us certain satisfactions, all are not equally desired or equally desirable. We do not place them casually on the same footing, but we arrange them in a sort of hierarchy. Some we prize very highly, others we think of Uttle worth ; in a word, we have preferences. Now, the order of these preferences, this unequal place in our esteem which we attribute to them, is precisely what is expressed by the word " value." To say that gold has more value than silver, or, more generally, that gold has a great value, simply states the fact that for one reason or another (which reason we shall try and find by and by) we judge that gold is more desirable than silver, or more desirable than any other object. Value, then, which is the dominating idea in all political economy, denotes nothing more than a fact which in itself is very simple, the fact that a thing is more or less desired. Were the word French, we should only have to say, " Value is desirability T It is much to be wished that this word, '"ough a trifle barbarous, may be allowed to be added to the vocabulary of political economy, which up to the present is by no means rich. 1 This section would perhaps have been clearer, if the author had seen his way to adopt the distinction between Subjective and Objective Value drawn by the Austrian Economists and corresponding roughly to the old-fashioned distinction between Value in Use, and Value in Exchange. — J. B. 44 WEALTH AND VALUE. 45 But from this idea, however simple it be, some very important consequences spring. Section i. Since value arises from desire, it proceeds from us rather than from things ; as we say nowadays, it is subjective far more than objective. It is not attached to objects as a quality which can be perceived ; it is born at the moment when desire awakes, and vanishes when it dies out. Like a butterfly, desire flutters from thing to thing, and value abides only where desire rests. Doubtless if an article of wealth is one of those which answer to the permanent wants of the human race, say corn or iron, it will be able to maintain its value throughout the ages ; but if it is one of those which only correspond to those changing wants that are daily turned topsy-turvy by the caprices of fashion or the dis- coveries of science, then its value is as ephemeral and fugitive as the want which created it. Dresses that are no longer worn, books that are no longer read, pictures that have ceased to be looked at, remedies that no longer cure, — how long the list would be of those riches which have lost their value ! But yet, if by chance the desire of the collector, perhaps the most intense of all desires, happens to settle on these dead riches, they will receive a new lease of life and will immediately obtain perhaps a far higher value than they had in the course of their previous exis- tence. But value varies not only at different times, but also from country to country and even from individual to individual. We all know the proverb de gustibus non disputandum : let us add " and values " ; for they too depend on each man's tastes. Nor is this all : value may vary in each individual according to circumstances. A starving man will rank food as the first in the order of his preferences, and like Esau will sacrifice^?, t^ortune in exchange for a mess of pottage ; but when once fille-'r' iie will give not a farthing for it. Yet an objection presents itself. If value has thus a purely subjective, individual character, does it not appear that each thing ought to have as many different values a's there are individuals ? But such is not the case ; in the market corn is sold at the same 46 PRINCIPLES OF POLITICAL ECONOMY. price for every one : the starving man will pay neither more nor less than he who is filled to repletion. We are so accustomed to this fact that it seems perfectly natural ; yet it is somewhat surpris- ing. It is explained by the competition which takes place in the same market between the sellers and buyers, and which brings it about that no one, however strong his desire may be for a thing, will consent, usually speaking, to pay more for it than his neighbor. The value of the sack of corn does not precisely depend on the desire any person may have for this particular sack, but on the general desire all the persons in the market may have for the sacks of corn there on sale. See for this matter "The Effects produced on Value by Competition." However, if we satisfy ourselves with averages and neglect indi- vidual cases, it would not be difficult to conceive a classification of articles of wealth, arranged according to men's preferences in a fixed time and country ; on this all articles of wealth would appear in their order of value, from the diamond which is worth about ;^20oo a grain down to water which is worth a fraction of a penny a ton. It is under this form that the idea of values should be represented, and assuredly such tables would be very instructive and suitable for informing us as to the manners and ideas of different races and different times. Section II. It results, then, from our definition that the notion of value is purely relative, consisting as it does in a preference given to one thing over another. It therefore necessarily pre- supposes a comparison between the two things. It is a notion of the same class as size or weight. To say that a thing is worth would be unintelligible if we did not add "is worth moix or less than other things " ; and when we use, without any addition, the current phrase that some object, say diamond, has " a great value," the term of comparison, though understood, exists none the less. We mean to say, either that it has a great value relatively to the unit of money, in which case it is compared with that specific object which we call pieces of money ; or that it takes a high place in the scale of wealth, in WEALTH AND VALUE, 47 which case it is compared with all other wealth considered col- lectively. Similarly, when we say that a body, e.g. platinum, is very heavy, without expressing any comparison, we mean either that it represents a considerable number of kilogrammes, — that is to say, we compare it with the weight of a litre of water, — or that on making out the list of all bodies known to us, it would take the first place from the point of view of weight. Section III. It follows, then, from our definition that we ought never to speak of a rise or fall of a// values : such a proposition would be meaningless. For if value is nothing more than an order or classification established between articles of wealth, how is it conceivable that all values can at one and the same time rise or descend? In order that some may rise in the scale, they must take the place of others, which consequently must fall. It is just as if the candidates who are admitted to the £{:o/e Polytechnique or the Ecole Norniak, and classed according to order of merit, were to ask if they could not all at the same time have obtained a higher place. [However, as we shall see presently, a general rise or fall of prices is a perfectly intelligible and indeed very frequent phenomenon.] 11. What is the Cause of Value ? We have just stated that things have greater or less. value according as we desire them more or less ; in fact, that the order of values is none other than the order of our preferences. But that is not enough : we should like to penetrate deeper and discover the rationale of these desires and preferences. Why do we prefer one thing to another? If we can answer this question, we shall have lighted on the cause, the essential element of value. Unfortunately this is the most difficult inquiry to be met with in all political economy. If we are dealing with two objects which answer to the same want, then we have not much trouble in find- ing our reply; we shall certainly prefer the one which by virtue of its quahties appears the better fitting to satisfy our want ; i.e. which is the more useful : of two fruits of the same species we shall choose 48 PRINCIPLES OF POLITICAL ECONOMY. the more luscious, of two sheep the fatter, of two pictures the better painted, of two rooms the more comfortable, of two pieces of land the more fertile ; in fact, of any two commodities whatever we shall choose that which is of the better quaUty. If the two objects satisfy the same want equally well, then they must have the same value. On this hypothesis, then, utility seems to be the raison d'etre of our preferences, and therefore the true foundation of value. But now let us consider two objects which answer to different wants, say a loaf of bread and a hat. How shall we find the reason for our preferences? The guiding thread escapes our grasp. Here, indeed, we have no longer to compare two objects, but two wants ; but our wants have no common measure. Are we, then, to say that our wants can be accurately classified from the point of view of reason, morals, or hygiene ? that thence we prefer, or ought to prefer, the objects which correspond to the most essential wants? in fact, just what is expressed in popular parlance every time anything is said to fall under the category of necessary, or useful, or agreeable, or superfluous objects? Then utility would still stand as the reason for our preferences and the foundation of value, but only on condition that we use this word "utility " in its common sense ; i.e. that we interpret it as meaning an object's property of answering to some more or less rational and more or less legitimate want. We should then have to say that our loaf has more value than our hat, because it is more essential for man to obtain nourishment than to cover his head. But this conclusion suffices of itself to prove the futility of such a train of reasoning ; we know well enough that a loaf is not worth more than a hat, but that the opposite is the case. The merest, nay, the most perfunctory, glance at all the things which make up our valuables will sufficiently show us that their value is most often not in direct, but far rather in inverse ratio to their rational utility. For what are the objects which fill the lowest places in the scale of values? Corn, coal, iron, water (if the last named, indeed, can WEALTH AND VALUE. 49 receive any value), the very objects which answer to men's most essential wants and for lack of which they would be bound to perish ! What, then, are those which occupy the most exalted stations in this hierarchy of values ? Gold, diamonds, lace, perhaps a broken piece oi faience in some collection, or an edition of some old book which no one has ever read, or will ever read ; that is to say, the objects which serve only to satisfy our curiosity or to flatter our vanity. However, it might be rejoined that if instead of comparing a diamond and a bushel of corn as particular bodies, we were to draw a comparison between diamonds and co7-n as kinds, our conclusions would be different. It is evident that though an individual would not hesitate to prefer a diamond to a bushel of corn, yet the human race, or indeed any people, were they compelled to choose, would not hesitate to prefer corn to diamonds ; and as a matter of fact, the total value of the corn cir- culating in the world is far higher than the total value of the dia- monds. That simply shows that for value, just as for wealth, there is a social or general point of view which differs from the indi- vidual point of view. But it is this individual point of view which alone concerns each one of us ; we have never to buy or sell any but concrete objects. The total value of corn or of any other commodity in the world interests no one but the statistician. Let it not be said that matters take this course because men are senseless, and that if they were wise their preferences would be dictated by reason, and the scale of values would coincide with the scale of utilities. Firstly, it is no use inquiring into what men's preferences should be in this matter ; the value of things is deter- mined by what men actually desire, and not at all by what they ought to desire. Moreover, the objection is groundless. It may be correct to say that men are wrong in attributing too high a value to trifles, but no one could assert that they err in ascribing no value at all to a glass of water; were the whole earth peopled by none but wise men, the value of water would certainly be not a farthing the more. Let us put our question again, and try to find another answer. 50 PRINCIPLES OF POLITICAL ECONOMY. Here are a loaf and a garment ; what makes us prefer one to the other? However little we may reflect, we shall not hesitate in replying, " It depends upon circumstances." Man's wants cannot be placed in an invariable order like the seven prismatic colors ; they are incessantly changeable, and sometimes one, sometimes another, comes to the front. If we are hungry, we shall prefer the loaf; if we are well filled, but feel cold, we shall choose the gar- ment. If we are neither hungry nor cold, we shall think of future rather than of present wants, and shall decide our action by the following considerations. If our larder is well provisioned, we shall choose the garment ;. if our wardrobe is amply supplied, our choice will fall on the loaf. In fine, other things being equal, we shall always prefer that one of the two objects with 7uhich we are the less well pjwided. Why do we argue m this fashion? for the very simple reason that no one of our wants is unlimited, and when we have enough wealth to satisfy it, we have no motive for desiring any more of the commodity. Of what use would a surplus be? We should not know what to do with it. Perhaps it may be said that we should always be able to dispose of it, and, as a matter of fact, people are not often seen to refuse any article of wealth because they have got enough of it. On the contrary, we consider it a wise plan always to accept. True enough ; but only when others have need of that commodity of which we have too much, and when we therefore know that we shall be able to dispose of it profitably. The circumstance that certain men are not sufficiently provided with this commodity establishes that it is desired by them, and that it therefore acquires some value. But if it exists in such a quantity that each man is sufficiently provided with it, it is clear that no one will want more of it, either for himself, for he would not know what to do with it ; or to dispose of it to others, for he would no longer find any purchasers. If, as we have shown, value has desire as its foundation, it can- not exist where there is satiety ; for desire, then, is also absent. Each of man's wants requires a certain quantity of wealth, but not WEALTH AND VALUE. 5 I an unbounded quantity; there is a limit to it. As long as the limit is not reached, the desire subsists, though the nearer it is approached, the weaker does the desire become, and value sub- sists and decreases together with it. As soon as the limit is reached, the desire is extinguished and the value vanishes at the same moment. It is even possible, as Jevons very subtly remarks, that when once this limit has been passed, the desire we have for the thing is converted into repulsion. It is just like those series, so well known to mathematicians, which diminish as far as zero, and then begin to increase below zero, but with a negative value. Limitation in quantity, or scarcity, comes then after utility and along with it as the decisive reason for our preferences. If scarcity holds such a place in our decisions, we ought not to wonder at it or regard it as the effect of some caprice similar to that of a col- lector-maniac, who seeks for a rare article purely that he may be able to say that he is its only possessor. By no means ; if limi- tation in quantity constitutes the reason for value, — that is, because it is itself a consequence of the physical and moral nature of man, — its foundation rests on that physiological and psychological law according to which every want is limited. This doctrine was first taught by Condillac in his fine work Le Commerce et le Gou- vernement (1776);^ but it has been taken up again and most ingeniously developed by Stanley Jevons in his Theory of Political Economy (18 71). But limitation in quantity is not itself an absolute fact. There is not a thing in the world, even among products of nature, and in still larger measure, among the products of human industry, the quantity of which is so rigorously fixed that it cannot be increased by the expenditure of some effort. When we say that diamonds are rare, we do not mean that nature has put into circulation only a fixed number of specimens and has then destroyed the mould ; 1 e.g. ch. I. " Abundance, superabundance, and scarcity dwell rather in our opinion about quantities than in the quantities themselves; but they dwell in the opinion, only because they are supposed to dwell in the quantities." — J.B. 52 PRINCIPLES OF POLITICAL ECONOMY. we merely mean that it requires much trouble or much luck to find more of them, and that therefore the existing quantity can be increased but with difficulty. When chronometers are said to be rare, it is not meant that between the ends of the earth there only exists a fixed amount of numbered samples : an unbounded num- ber can be produced. But, as the construction of a good chro- nometer requires considerable time and special skill, the quantity is limited by the available time and labor. It is not probable that in France there are fewer trousers than waistcoats ; yet trousers may be said to be rarer than waistcoats. For as they require more material and more time for their making, the former of these gar- ments are not so easy to multiply as the latter, and for this very reason are generally clearer. The limitation in quantity or the scarcity of any commodity depends, then, solely on the greater or less difficulty experienced in obtaining it. It is easy now to explain why air and water have no value. Yet are they not especially useful articles? Undoubtedly, in the sense that they answer to the most imperious of wants ; but, however useful they may be, they are not desired ; for their abundance is such that we have always enough of them, and to renew our sup- ply, if we need air, we have but to open our mouths and draw in a breath ; if water, to bend over the brook and drink. Then who troubles about a glass of water in such countries as ours? We have always enough and to spare, as is capitally said. For one lost, we can find ten to replace it. It is true that if we were in the desert, in " the land of thirst," or in a place where a glass of water was not easily procurable, it miglit become a highly desirable article ; but then, too, it would be capable of acquiring a value which might be said to be unbounded, and higher than that of any other object in the world. And why so? precisely because on such an hypothesis the supply of water would be found to be insufficient. If in our part of the earth water has generally no value, it is as drinking-water, with regard to its use for quenching the thirst ; for from that point of view it is superabundant. But when it is required for purposes of irrigation or for pleasure, or as WEALTH AND VALUE. 53 a motor force, it usually has sorne value, and even a considerable one. Why? Because for such uses it does not exist in large enough quantities to satisfy the wants of proprietors ; hence it is rendered desirable and receives a value. In the same way we can explain why diamonds or fine pearls, which answer to such futile wants, take so high a place in the scale of values. It is because their quantity is so very small that the immense majority of mankind possess none of them, though they desire them keenly (I speak at least of the feminine half of the species), and that even the favored owners are not usually so well provided with them as not to be able to desire more. That limit- ing point where satiety begins and desire dies is never reached with this kind of wealth. But if chemistry ever succeeds, as it reckons on doing, in converting carbon into diamonds, then as each man would be able to obtain as many of them as he wished, the desire would fall to zero and drag down the value in its fall. Even if the existing quantity was not destined to be considerably modified, yet the mere possibility of increasing that quantity at will would serve to chill desire and keep down value. To recapitulate : we can answer, in the following manner, the question, "What is the cause of value?" Things have more or less of value according as we desire them more or less keenly. We desire them more or less keenly according as their quantity is more or less insufficient for our wants. Their quantity is more or less insufficient according as it is in our power to multiply them more or less easily. We may add that an excellent criterion for measuring the utility of a thing may be derived from a consideration of the degree of suffering or of annoyance that we should receive from the priva- tion of a small portion of this thing. According as this suffering is nil or sUght or intense, the utility of the thing in question will be ?iil or slight or very great. Take the utility of water. Does the reader reply that is great, nay, incalculable ? By no means ; for consider the suffering that will be entailed by the privation of 54 PRINCIPLES OF POLITICAL ECONOMY. a glass of water ; it is absolutely nothing. The value of water, therefore, is likewise nought. Similarly, the value of bread can be shown to be very slight. This theory, which has recently become celebrated under the name of final utility or limited utility, and which is taught by most economists, e.g. Jevons, Walras, and Menger, seems to have been discovered in 1854 by Gossen, a German writer, whose book on the subject was long utterly unknown, or perhaps even before him by Dupuit, a French engineer.^ III. Critical Examination of the Various Theories of Value. Economists have always sought for the causes of value, and each school, according to its respective tendencies, has fastened on to one or other of them. Utility, scarcity, difficulty of attain- ment, and labor are the principal ones which have been specially pointed out as the real cause or causes. Utilitv has often been put forward as sufficient in itself to ex- plain value, and therefore rendering unnecessary an attempt to find other causes. The chief exponents of this have been Condillac, J. B. Say, and Stanley Jevons. To the obvious objection that many very useful things have no value, this school replies that utility cannot be conceived apart from a certain limitation in quantity, and that to speak mathematically, it is necessarily a " function " of quantity. If a thing is in excess, e.g. water, no por- tion of it (say a glass of water) can be said to be useful ; it is not useful, for no one thinks aught of it. What is superabundant is necessarily superfluous, and what is superfluous is necessarily useless. This doctrine comes very near the truth, and, indeed, closely resembles the opinion we have set forth. Yet we must observe that by employing the word "utility" in a somewhat dif- ferent sense from its ordinary acceptation, and by attributing to it 1 Gossen was only one out of a number. See Jevons' Political Econotiiy, Preface and Supplement to second and later editions. For the relation of Jevons to the Austrian Economists (who avoid the use of Mathematics), see the Harvard Quarterly Journal of Economics, October, 1888. — J. B, WEALTH AND VALUE. 55 many things it does not mean, this doctrine forces language and seems to tm-n on the point of a verbal ambiguity. The mathematical school — for instance, M. Walras — gives the preference to scarcity ; for here this school finds that especial advantage for those who wish to introduce mathematical methods into economic science, the being able to base the theory of value on the mathematical idea par excellence, the idea of quantity. Scarcity is limitation in quantity, but, they add, it also impUes utility ; for does not calling a thing scarce mean that it is sought for and consequently is useful? If it served no purpose, no one would want it ; and, if no one wanted it, it could not be said to be scarce were it otherwise unique ; as, for instance, a letter written by a peasant who had never written but one in his whole life. We must reply, however, that the idea of scarcity is not strong enough to stand alone unless we read into this word many things it does not say ; for, to use a well-known example, cherries are no less scarce in July than in May, but as they are not then early fruit, i.e. are no longer desired, their value is gone. The classical school in England preferred to choose difficulty of attainme^it ; certainly the amount of difficulty that we experience in procuring a thing is a condition of its value, but it is by no means the cause. Corn draws its value, not from the circumstance that it requires long labor and exhausting work, but from the fact that we suffer hunger and that this grain is especially fitting for our nourishment. The amount of difficulty that we experience in producing corn only acts upon its value in the proportion in which it affects our satisfying of our hunger. Finally, another school teaches that labor is the real cause of value. This theory, which has been set forth in rather varied forms, has now some position in the science ; first expounded by Ricardo, it has gathered round its standard economists of the most opposite schools from Bastiat to Karl Marx. In reality, this theory does not deny that utihty — that is to say the property of satisfying any human want or desire — is the primor- dial condition of all value. Of course we should have to have lost 56 PRINCIPLES OF POLITICAL ECONOMY. our senses before entertaining the idea that a thing which is of no use can have any value, whatever amount of labor it may have entailed. But according to this school, if utility is the condition of value, it is not its cause or its measure. The basis of value, according to Ricardo, its substance, according to Karl Marx, is man's labor, and each thing has more or less worth according as it has required more or less labor. The cause of this theory attracting so many generous minds is, that differing from the preceding group, which rests value on a purely natural fact, utility or scarcity, it grounds value upon a moral act, — labor. Could it be proved that the value of all our possessions, e.g. land, is in proportion to the labor they have cost us, we might be justified in concluding that every man's property or fortune is in direct ratio to his labor, and thus the social organi- zation would be firmly seated on a principle of justice. Yet this doctrine, like Joseph Prudhomme's legendary sword, may be used to combat existing institutions as well as to defend them. While the school of Bastiat employs it to show that each man's fortune is proportional to his labor, Karl Marx's followers, on the other hand, seek to jDrove by its aid that the values possessed by the wealthy classes are due entirely to the labor of the workmen who have been basely robbed of them ; thence the conclusion is drawn that these values must be returned to those who have created them. The theory certainly contains a portion of the truth. No one disputes that the labor necessary for the production of things has a considerable influence on their value, and this follows from the very circumstance we sought to explain in our analysis of value. We agreed that value ultimately depends on the greater or less facility we experience in multiplying things ; now, as labor is the principal factor of production, it is clear that the degree of facihty we have in multiplying things will in the ultimate analysis depend on the amount of labor they require for their production. But it follows from this very train of reasoning that labor can act on the value of things only indirectly, and purely as regards WEALTH AND VALUE. 57 quantity. Of itself it has no influence on value, and this is shown clearly enough by facts that can be noticed every day. 1. If the value of a thing had for its cause or substance the labor expended in its production, this value would necessarily have to be immutable ; for, as Bastiat himself grants, " Past .labor is not c- isceptible of increase or decrease." Now we know, on the con- trary, that the value of an object varies constantly and ceaselessly ; it is evident, then, that these variations are absolutely independent of the labor of production. For a priori reasons, moreover, it is absurd to think that the value of a thing can thus depend on a fact which is over and done. The matter is finished, there is no harking back to it, and we must say, like Lady Macbeth, " What is done cannot be undone " ; let us speak no more of it. 2. If labor were the cause of value, equal values would always correspond to equal labors, and unequal to unequal. Now every moment we see objects which have cost the same amount of labor selling at very different prices {e.g. a fillet of beef and the tongue or the tail of the same ox) ; and inversely, objects which have required far different amounts of labor selling at the same price {e.g. one gallon of wine produced on an estate which yielded i8o gallons per acre, and one gallon of wine of the same quality pro- duced on an estate which yields 1800 gallons per acre). Ricardo did not deny this fact, for on it he based his famous theory of Rent (see below, " Distribution ") ; but the explanation he gives merely establishes the incontestable fact that two objects of the same quality, i.e. of the same utility, have necessarily the same value, however unequal be the respective amounts of labor they have cost. 3. If labor were the cause of value, where there had been no labor there would be no value. Now there are innumerable things which possess a value, and often a very high one, without having required any labor ; such as a spring of mineral water or petro- leum, guano deposited by sea-birds, a sandy beach in the south of France which has been ploughed only by the wind from the open sea and which is sold at a very high price for the plantation 58 PRINCIPLES OF POLITICAL ECONOMY". of vines, a few yards of ground in the Champs-Elys^es, etc. Nor do Ricardo and his school deny (for the fact is not capable of denial) that there are certain objects " whose value depends only on scarcity, since no labor can increase their quantity." Yet he considers these to be insignificant, and only gives as examples valuable pictures, statues, etc. In reality, these objects form an enormous body of exceptions and nullify the rule. 4. Lastly, if labor is the cause of value, what is to be the cause of the value of the labor itself? For labor has certainly a value; it is bought and sold, or, if the term is preferred, is hired every day at a certain price. It is easy to explain the value of labor by the value of its products, just as the value of a piece of land is determined by the value of the crops it can yield. But if we explain the value of products by the value of the labor which has formed them, we but argue in a circle whence there is no exit.^ Ingenious attempts have been made to fit in this theory with the various difficulties of fact which we have just pointed out. Carey says that the value of any object depends, not precisely on the amount of labor expended in its production, but on the labor necessary to produce a similar object ; i.e. the labor of reproduction. Bastiat says that the matter to be considered is not the labor done by the person who has produced the object, but the labor spared the would-be acquirer. As, according to Bastiat, the sparing a person of a certain amount of labor is to render him a service, the author of the Harmonies proceeds then to define value as the relation between tivo services exchanged, and to declare that a service rendered is the cause and the measure of value. This for- mula, in spite of its popularity for some time, is a pure tautology. To the question, "Why has a diamond a greater value than a pebble?" it answers, "Because when I am handed a diamond, a greater service is done me than when I am handed a pebble." ^ There is a full discussion of the " Labour theories of Value " in Dr. Bohm- Bawerk's book on Capital and Interest, Vol. I. (English translation by W. Smart, 1890), pp. 297 seq. — J. B. WEALTH AND VALUE, 59 No one disputes so puerile a proposition, but it is enough to reply, that if the service rendered by the transfer of a diamond is greater than that rendered by the transfer of a mere pebble, it follows simply from the diamond possessing a greater value than the pebble. So we have only reversed our position. In reality, it is not the service rendered by the person who yields me the object that determines its value ; but it is the value of the object yielded which determines and measures the importance of the service rendered. See in the Revue cVeconomie politiqii-e, May-June, 1887, an examination we have made of this theory. Karl Marx declares that we have no concern with the individual labor which may have been expended in producing any object, but must deal with the social labor, or, rather, the average labor necessary for the production of this commodity in general. These various theories cannot be discussed here ; we shall con- fine ourselves to remarking that all these theories derived from the idea of labor conflict more or less with the same difficulties as the fundamental theory, and that they lack the merit which it pos- sessed of satisfying the idea of justice. We have agreed that there would be harmony if it could be proved that the value of an object is proportional to the amount of effort that must be expended for its production ; but this harmony vanishes or becomes very doubtful if we content ourselves with showing that the value of an object is only proportional to the labor necessary for reproducing -a similar object (as Carey says) ; or to the efforts that must be made to procure a like object (as Bastiat says) ; or to the average amount of labor required for the industrial production of this class of objects (as Karl Marx says). To recapitulate : the numberless theories which have been pro- pounded for the explanation of the phenomena of value may be divided into two distinct groups or tendencies. The one is bound up with the idea of utility, and rests value on man's wants ; the other is bound up with the idea of labor, and rests value on man's efforts. The first is, in our opinion, the expression of what is ; in fact, 60 PRINCIPLES OF POLITICAL ECONOMY. the value of things is proportional to our wants or desires. The second is the expression of luhat should he ; in point of equity it is to be wished that value might be proportional to our efforts or labor. It would prove us to possess an unscientific mind if we were to think that the natural law of values can ever be changed ; but we are not debarred from hoping that in spite of or by means of this law we may succeed some day in making fact more conform- able with equity ; that is to say, in rendering value more and more proportional to labor. IV. Variations in Value. That imaginary list on which we supposed all articles of wealth to be ranged in order of preference has, we are aware, no stability about it. The value of each thing — I mean its place relatively to the others — constantly varies. The reason for this is evi- dent ; for value springs from our desires, and what could be more changeable than they are? Even granting that we are dealing with some physiological want, such as the need of food, yet, since there is an infinite variety of objects capable of satisfying that want, our desire can turn from one to another, and can make all of them in turn ascend or descend on the scale of values. Can we trace any general principles or laws which regulate these movements ? We can ; and such an investigation is of the greatest interest. If, as we have previously said, utility and limitation in quantity are the two elements of value, the moving springs of our desires, it follows that, if both or one of these elements happen to vary, value will necessarily vary. Firstly, If the utility of a thing constantly increases, its value will increase in like manner. This is the case with land, whether a building site in town, or cultivable ground in country, the utility of which increases regularly in proportion as a growing society has need of more room and more food. Therefore the value of ground, except in temporary crises, is in a state of constant progression (see Book IV, " On the Surplus Value of Land "). WEALTH AND VALUE. 6l Secondly, When, on the contrary, the utiHty diminishes, other things being equal, value must fall. This is the case with the precious metals, and especially with silver, which daily loses in value, not only because the more refined taste of the present day does not require it so much in the shape of plate or jewelry, but mainly because the improvement in instruments of credit gradually impairs its utility as money (see Book II, " How we can manage to do without Money "). Thirdly, When the quantity increases, other things being equal, value must diminish. This is the case with manufactured products, which machinery enables us to multiply daily with growing ease. Fourthly, When the quantity diminishes, other things being equal, value must increase. This is the case with game, which, after having formed the usual food of man when societies were in their infancy, has so diminished in quantity, in consequence of the opening up and the putting into cultivation of land, that in all civilized countries it is nowadays merely an article of luxury reserved for the table of the rich. The same, perhaps, will happen some day with butchers' meat ; for in every civilized country the same causes are tending to restrict more and more the amount of land devoted to the pasturage and the breeding of cattle, and con- sequently, the quantity of cattle in proportion to the population. Of all commodities, it is meat which rises the most rapidly in price. But besides these variations that we might call secular, because in the course of ages they slowly, and uniformly displace articles of wealth in the scale of values, and which will be more easy to understand after we have studied the laws of production, there is another class of variations to which every value is subject : these might better be styled oscillations, for they recur after short intervals, sometimes in one direction, sometimes in another. Ex- pressed in terms of money, they can be read in the variations of the market rates of commodities as they are daily quoted in the newspapers. These variations, though perhaps less interesting for the economist, are of far more consequence to the business man and the manufacturer, for on these depend their profits or their loss. 62 PRINCIPLES OF POLITICAL ECONOMY. For instance, fish has what may be called a normal value, re- sulting on the one hand from the utility of this food, that is to say, from the degree of taste that consumers have for this kind of nourishment ; and on the other hand from the limitation in its quantity, according as the country has a larger or smaller coast- line, according as its seas are better or worse stocked with fish, and according as a larger or smaller number of its inhabitants devote themselves to this particular fishery. But, over and above this normal value, itself a variable one, yet varying but slowly and then generally in the direction of a rise, the value of fish when in the market is liable to a host of temporary variations. Thus on fast days in Catholic countries fish rises in value, acquiring on such days a new utility on account of the decrees of the Church, which permit no other animal food. Inversely, its value will fall if the haul has been especially abundant. These oscillations are usually said to be regulated by f/ie law of supply and demand. This celebrated formula was for long regarded as the fundamental law of political economy, and was employed to explain any sort of phenomenon. Since then, how- ever, it has been much criticised and has incurred some discredit. In its most simple sense this formula means : the price of every commodity in a market depends on the relation which exists between the quantity offered by the sellers and the quantity de- manded by the buyers. If the demand is greater than the supply, the price rises ; if the supply is greater than the demand, the price falls. In this sense the proposition is evident. But, really, this formula contains nothing more than the two elements of value we are already acquainted with, viz., utility and scarcity, regarded as acting at a fixed time and place. It is clear, then, that the larger or smaller quantity of goods that the sellers may offer in the market constitutes what we have called scarcity, whilst the larger or smaller quantity demanded by the consumers depends on the degree of intensity of their wants or desires ; in other words, on the degree of utility that the particular commodity may possess for them. This proposition does not throw any great light WEALTH AND VALUE. 63 on the explanation of phenomena, but it has the advantage of inckiding some rather complex ideas in a short and simple for- mula. Nothing more than this must be sought from it. People have discredited it just through ascribing to it a precision it does not admit of. For example, it has been erroneously expressed in the following mathematical formula : " Value varies in direct ratio of the quan- tities demanded, and in inverse ratio of the quantities offered." This means to say, that if the demand is doubled, then, the supply remaining the same, the value will be doubled ; and that, inversely, if the supply is doubled, then, the demand remaining the same, the value will be reduced by half. In such terms as these, the proposition is absolutely false, as was long ago proved by John Stuart Mill and by Cournot. People forget that though supply and demand act on value, yet value, in its turn, reacts on supply and demand, and tends to re-establish that equilibrium between them which had been momentarily disturbed. When demand exceeds supply, value certainly rises ; but the very result of this rise in value is to reduce demand from the side of the buyers, and to increase supply from the sellers ; so that the quantities supplied and demanded are not long in regaining their equality. The simplest observation is enough to prove this. Let us take some stock on the Bourse, — say the three per cents, — and let it be at 95. Continually a cer- tain quantity of government stock is offered, and a certain quantity demanded. At the opening of the Bourse, suppose the stock demanded to be double the figure offered. Who would be so foolish as to imagine that the price of the stock ought consequently to be doubled, and rise to 190? Yet that is precisely what ought to occur if the above formula was correct ; but in reality the price of the stock may not rise in the least, and that for the very simple reason that by far the larger number of the would-be purchasers at 95 withdraw when the price rises. It is clear that if the amount of stock demanded diminishes in proportion to the rise in price, at the same time, and for the same reason, the amount offered 64 PRINCIPLES OF POLITICAL ECONOMY. increases. A moment, then, will necessarily come when the de- creasing demand and the growing supply will become equalized ; and at that moment equilibrium will be re-established. A rise of a few pence is generally sufficient to bring about this result. Inversely, it is not impossible, in certain exceptional cases, for supply and demand to entail far more than proportional variations in value. Gregory King's Law, established two centuries ago by numerous observations on the price of corn in England, showed that the slightest variation in quantity caused more than propor- tional variations in price. Thus, if the crop was diminished by half, the price per bushel was multipUed almost by five. However, this law has now lost almost all its importance, in consequence of international trade in cereals. We have to remark, indeed, that, thanks to that system of exchange which brings together in one market the produce of countries situated on all the zones, not only is the bad harvest of one land compensated for by the good harvest of another, but also the production of corn, instead of being intermittent, becomes continuous ; for there is not a day in the year, so to speak, on which harvesting is not going on in some portion of the globe. V. The Effects produced on. Value by Competition. When each individual in a country is at liberty to take the action he considers the most advantageous for himself, whether as regards the choice of an employment or the disposal of his goods, we are said to live under the regime of competition. This regime, under which at the present day nearly all civilized societies live, exercises a decisive influence on all economic phe- nomena, and especially on value. As far as regards value, competition has the following effects : — Firstly, It tends to equalize the values of all similar products. Desires and wants being different in the case of each man, it would follow that the same object ought to have a particular value for each individual ; that, for instance, in a corn market there WEALTH AND VALUE. 65 ought to be as many different prices as there are buyers. But competition prevents the accomplishment of such a result ; in reality, in our corn market there will be only one price for all the sacks of corn. Why ? Because if a particular one of the buyers chanced to offer for a particular sack a price higher than that current in the market, all the sellers would hasten to offer him their sacks at a lower price, and would compete with one another till the price had fallen down again to the general level. Inversely, if a seller agreed to dispose of his sack below the market price, all the buyers would press round him and outbid one another, till the price had been forced up again to the general level. Stanley Jevons calls this law, which states that there is never but one price for objects of the same quality, the law of indifference. By this he means that all the objects being, according to the hypothesis, of the same quality, buyers have no motive for preferring some to others, and that in this state of indifference the slightest variation in value is enough to provoke outbiddings in one direction or the other, which would restore the equilibrium. Secondly, It tends to restore the value of all products to a minimum level, determined by the cost of production. When we come to production, we shall see, that to produce any article of wealth a certain quantity of wealth must necessarily be consumed. The value of the wealth produced is as a general rule higher than that of the wealth consumed ; for, if it were otherwise, the producer would incur a loss. Unless, then, the unexpected comes to pass, there will always be a difference, or a margin, between the two values ; and it is this very difference which constitutes the profits of the enterprise. It is clearly to the interest of the producer to extend this margin as much as possible, by trying either to lower the value of the wealth consumed (raw material, wages, etc.), or to raise the value of the wealth produced. But the competition of the producers acts in just the inverse direction; the buyers, vying with one another, each producer strives to attract them to him by reducing as much as possible the margin between the cost price and the 66 PRINCIPLES OF POLITICAL ECONOMY. selling price, until that minimum limit is reached beneath which it would be no longer worth while to produce. There is a wide- spread notion that the cost of production and value stand to one another in the relation of cause and effect ; in other words, that things possess a value on account of their particular cost of pro- duction, and that this value is always determined by this cost of production. This is altogether a sophism. True enough, under the action of that external cause which is called competition, value and cost of production bear a constant relation one to the other ; but it is not correct to say that cost of production determines the value of the product. On the contrary, it would be more correct to say that // is the value of the product which determines the cost of production. Before incurring any expenses in the production of a thing, every producer first asks himself, "What will be the value of the product?" If he con- siders that this value will be enough to cover the expenses and leave him a margin of profit besides, he ventures on the enterprise. In the opposite case, he refrains. If he happens to err in his predictions, it will be so much the worse for him ; and all the expenses he may have incurred will not be able to raise the value of the product a farthing above the value determined by the law of supply and demand. Moreover, it is a petitio principii to say that the cost of produc- tion is the cause of the value of things. For, as the cost of pro- duction is, as we have seen, nothing but the value of the wealth consumed in the course of production, such a train of argument would merely explain value by value. The cost of production may greatly vary, not only, as is obvious, for different products, but also for products of the same sort. From the latter circumstance arises an economic problem which is sufficiently remarkable, and the solution of which is extremely important. Let us consider some hundreds of sacks of corn offered for sale in a market. It is evident that they have not all been pro- duced under identical conditions. Some have been raised by WEALTH AND VALUE. 6/ means of manuring and labor ; others have grown almost sponta- neously on fertile soil. These hail from San Francisco, and have doubled Cape Horn on their way; those come from the next farm. If, then, each sack was to have fixed on a ticket its own peculiar cost price, there would, perhaps, not be two on which the same price could be read. Let us suppose, for instance, that these cost prices ranged from lo to 20 shillings. Under these conditions what will be the market price? will it be equal to the cost price of the sack which cost the most, or of that which cost the least, or of some intermediate sack ? Will it be fixed at 20 or 10 or 15 shillings? In other words, will the value, on this hypothesis, be regulated by the maximum cost of produc- tion, or by the minimum, or by the average? Here we must draw distinctions. If we are speaking of products which cannot be multiplied at will, or only in a very restricted measure, — and this is just what occurs with corn, — the market price will have to be regulated by the cost price of the sack which has been the most expensive to produce, 20 shillings in our example ; that is to say, the value is regulated by the maximum cost of production. For if we suppose, as we are bound to do, that all the sacks in the market are abso- lutely necessary for the food- supply, and that none of them can be dispensed with, we shall certainly have to make up our minds to pay a price high enough for none of these sacks to have been produced at a loss ; for if any one of them was so circumstanced, its production would be discontinued, and thence there would be a deficit in the supply of corn. If, on the other hand, we are speaking of products which can be actually or virtually multiplied at will, — e.g. yards of cotton- stuff, or hundreds of nails, — the market price would probably fall, if not all at once, at any rate after a short time, to the level of the lowest cost price ; that is to say, the value tends to be regu- lated by the minimum cost of production. In fact, it will be to the interest of the producer whose cost price is the lowest to profit 68 PRINCIPLES OF POLITICAL ECONOMY. by his privileged position to lower his prices to a limit very near to his cost price, in order to undersell his competitors and extend his sale as much as possible. If he happens to be of sufficient weight to supply the market by himself alone, his less-favored rivals will have nothing to do but disappear : there is no further need of them. (See, for the application of this principle, " The Monopoly of the Landed Proprietor.") To recapitulate : Whenever we are dealing with a product which cannot be multiplied at will, it is the maximum cost of production which determines the market value. Whenever we are dealing with a product which can be multiplied at will, it is the minimum cost of production which determines the market value.^ VI. Whether Competition is Cheapness. There is a very wide-spread notion that competition always pro- duces cheapness, and monopoly dearness. Thus, competition is considered by the public to be a power which is beneficent, demo- cratic, and always conducing to the general welfare, whereas monop- oly is regarded as a public scourge. Many people even think that all political economy can be reduced to this axiom. Yet it is not an absolute truth. Undoubtedly the ordinary effect of competition, as we have seen in the preceding chapter, is to lower the value of products to the level of the cost of production, which is advantageous for the public. But competition, after passing a certain hmit, may produce a precisely inverse effect. If it raises up a number of producers or middlemen out of proportion to men's wants, — e.g. two or three railway lines where one would have sufficed, or a hundred bakers in a town which was previously content with ten, — then the gen- eral expenses increase in considerable proportions ; that is to say, ^ i.e. if (after what our author has said on page 66) it is right to say that cost determines value at all. — J. B. WEALTH AND VALUE. 69 each single article produced requires for its production a larger consumption of wealth (in the shape of wages, raw material, imple- ments, sites, etc.), and, the cost of production rising, the value of the product rises in a parallel manner.^ This does not mean that competition does not bring about here, too, its usual effect of maintaining the value of the product at the level of the cost of production, by reducing profits. On our pres- ent hypothesis, producers are only too well aware that their profits are reduced to the minimum ; but the reduction of profits, instead of resulting from a fall in the selling price, which would be advan- tageous for the public, comes from a rise in the cost price which is detrimental to all concerned. (For the inconveniences of a multiplicity of middlemen, see below, "Traders "). If competition does not necessarily lead to cheapness, it follows, a contrario, that monopoly does not necessarily produce dearness. It has the disadvantage, it is true, of allowing the producer who is invested with this particular monopoly to realize exceptional profits, but it may enable him, also, to reduce his prices, through economy in his general expenses ; thus a trifling disadvantage would be compensated by a great advantage. The equalization of incomes is certainly a good thing to aim at, but economy in production is better. Observe, too, that it is altogether erroneous to imagine that a producer who possesses a monopoly has the power of fixing prices according to his own will, and that the public must submit to his good pleasure. In reality, the value of his products is determined by the same laws as every other value, i.e. by the demand of the public. As this demand, in obedience to a constant economic law, grows in direct ratio to the lowering of prices, it is for the most part the monopolist's interest to fix his prices at a very low figure, and as near as possible to the cost price, in order to attain the greatest possible sale. Such a course is usually pursued by 1 Even vvifh the explanation which follows, this position seems paradoxical, and the views of Value not quite consistent with that of Sect, IV, and V. — J.B. "JO PRINCIPLES OF POLITICAL ECONOMY. intelligent producers who hold a monopoly either de jure or de facto. To sell cheaply in order to sell largely, and thus recoup yourself from the quantity sold, has become the favorite motto of present-day commerce. (For this question of monopoly read Cournot's remarkable chapters, either in his Principes mathhna- 'tiqiies de la theorie des richesses or in his Revue Sotnmaire des doctrines economiques, 1877.) Finally, it must not be forgotten that in certain special cases, — notably, every time a monopoly is established by law, — the law can fix tariffs ; and thus are obtained the advantages of large pro- duction, while the disadvantages of excessive profits are avoided. This is done when the working of railway lines is granted to one or more privileged companies ; and the results of such a system are often far superior to those afforded by competition. Thus it is very clear that the tendency of modern industry is not towards competition, but towards monopoly, a real monopoly which is exercised by powerful companies, which may either work on their own lines, or form part of a syndicate. Trade, transport, manufacture, mines, are becoming concentrated in the hands of large associations, which are in their turn showing a tendency to federate as associations of the second degree. Of late years these have become well known as Cartels, " Trusts," " Rings," and so forth. As a rule they are not favorably regarded by the public or by respective governments, and they are often stigmatized as mo- nopolists. This severe judgment is well merited when their only object is avowed speculation, but as a new form of industrial organi- zation they may be of great use by preventing a waste of produc- tive power, by making production more regular, by keeping up prices, and thus warding off crises and enforced lack of work. Still their action will render even more necessary a certain amount of State interference. We may refer to Professor Foxwell's article on Monopolies in the Revue d'econoviie politique for 1889.^ There ^ ' Growth of Monopoly,' a paper read to the Economic Section of the British Association, 7th Sept., 18S8, and translated in the September number oi i\it Revue d^economie politique (1889), of which Profeggof Gide is an editor. -J-B. WEALTH AND VALUE. 7I is also a tendency to monopolies exercised directly by the State, as in the case of the post-office, telegraphs, railways, banks of issue, and by municipaUties in the matters of gas and the electric light, omnibuses, and tramways. CHAPTER III. PRICE. I. How Value is measured by Exchange. Many economists hold it to be an indisputable principle that the idea of value cannot be conceived apart from exchange (Stanley Jevons even proposes to suppress the term "value," and to replace it by " ratio of exchange "). Our analysis, on the contrary, proves that the idea of value pre- cedes exchange, both in order of time and in order of importance. The idea of value means nothing more than a preference granted one thing over another, a comparison, the weighing of two desires'. The idea, then, is not necessarily bound up with exchange. Rob- inson Crusoe had his preferences, but I confess that they were in the latent state, and that the conditions of his isolated existence were not suitable to reveal them to others, or even to himself. If he had been asked to point them out, and to class the articles of wealth composing his modest property according to the values he ascribed to them, he would have found the task embarrassing. At the most, he would have been able to class them roughly in two or three groups, according as they corresponded to more or less essential wants. Yet we can imagine some occasion which might cause this confused and indistinct notion of value to rise suddenly out of his inner consciousness, and compel it to take a definite shape. Such an occasion, for instance, arose even in the first few days after his landing. When he had to rescue each article of wealth singly from the ship, which was on the point of sinking (for the storm did not leave him time to save all, but only enough to rescue some of them), he must have been obliged to make a choice and determine which one he preferred to save first. The order in 72 WEALTH AND VALUE. 73 which he successively brought them to land, perfectly showed the order of his preferences, and consequently, too, the respective values he ascribed to them. Let us confess that in reality it is almost solely exchange which causes the idea of value to rise from the inner consciousness in which, so to speak, it was slumbering, which determines it and measures it. In every exchange, and in present-day societies ex- changes are innumerable, two articles of wealth are laid side by side, and each exchanger weighs in his mind the article he must give up and the article he desires to acquire. Though this is not the place for us to discuss exchange, — for we shall find it later on in dealing with the organization of production of which it is one of the principal springs, — yet we ought to show in what way exchange determines and measures value. As we know, the value of a thing is nothing but the more or less keen desire with which it inspires us. But it may be asked. How are desires to be measured ? Just like any other force, — by their effects. Now we know that each party to an exchange is called upon to make some sacrifice for the satisfaction of his desire ; he must give up a certain quantity of the wealth he possesses in order to attain what he covets. Clearly, the extent of the sacrifice he is disposed to make can serve to measure the intensity of his desire. The exchange of ten sheep for one ox proves that men, for one reason or another, consider an ox to be ten times more desirable than a sheep. The keener the desire with which an object inspires us, the more distant will be the limit at which we shall consent to part with it. The higher the place it holds in the order of our preferences, the greater will be the quantity of any other article that must be offered us in order to arouse in our minds a desire opposite in airection and equal in intensity, and to make the scale turn to the side of the latter desire. The expression, then, is perfectly correct, that '' the value of a thing is determined by the quantity of other things for which it can be exchanged " ; or, more briefly, that the value of a thing is determined by its purchasing power. But we must not say, as is too often done, that it is the purchas- 74 PRINCIPLES OF POLITICAL ECONOMY. ing power which constitutes value. Value is constituted by our preferences alone. The purchasing power is only an effect of value, just as the power of attraction of an electro-magnet is merely the effect of the current which penetrates it. If, then, in exchange for an ox I can have 8, lo, or 12 sheep, I can say that the value of an ox is 8, 10, or 12 times greater than that of a sheep ; or, inversely, that the value of a sheep is 8, 10, or 12 times smaller than that of an ox. This can be expressed thus : " The respective values of any two commodities are in inverse ratio to the quantities exchanged." The more of a thing that has to be given up, the less is it worth ; the less of it that has to be given in exchange for another thing, the more is it worth. It is just as in weighing. When the balance is in equi- librium, the weights of the objects can be said to be in inverse ratio to the quantities weighed. If we have to put ten sheep into one scale to balance one ox in the other, that is because the weight of a sheep is only the tenth of the weight of an ox. II. On the Choice of a Common Measure of Values. To obtain a clear idea of size, weight, value, and all other quantitative notions, it is not enough to compare objects two at a time, as we have just done ; we must compare all things with one specific object, which shall always be the same ; we need one single term of comparison ; in a word, we require a common measure. For measuring lengths, the term of comparison chosen has been some part of the human body, such as a foot, a thumb (inch), or a forearm's length (cubit), or a specific fraction of the circumference of the globe. For measuring weights, the term of comparison chosen in the metric system has been a fixed weight of distilled water. For measuring value we must certainly take as our term of comparison the value of some object or other ; but which are we to choose ? It is a remarkable fact that nations have almost unanimously agreed in choosing as their measure of values, as their standard, WEALTH AND VALUE. 75 the value of the precious metals, gold, silver, copper, but especially those of the first two. They have all made use of a httle ingot of gold or silver, to which they have given the name of franc, pound sterling, mark, dollar, rouble, etc. For measuring the value of any object it is compared with the value of that small weight of gold or silver which serves as the unit of money ; that is to say, we try to find how many of these tiny ingots must be given up for us to acquire the commodity in question. If, for instance, ten are needed, we say that the commodity is worth ten francs, or ten dollars, etc. Why have the precious metals been taken as the common measure of values? Because, as they had already been chosen, on account of some remarkable properties, to act as instruments of exchange (for the reasons which have caused the precious metals to be chosen as instruments of exchange, see the chapter on Exchange, entitled, " On the Choice of a Commodity as a Common Third "), and as exchange is, as we have shown, the very transaction which serves to measure values, the precious metals were naturally marked out to fulfil this high function. Yet these two functions, although always confounded in practice, are theo- retically quite distinct, and could, indeed, if we wished, be per- fectly well separated (see Stanley Jevons on Money). For instance, the collectivists, in the social organization which they are sketching out, propose to suppress exchange and consequently the instrument of exchange, but they never dream of suppressing the measure of values ; on the contrary, they propose a certain measure of values which would consist of labor notes. Inasmuch as these two functions of money are perfectly distinct, we have thought it right to discuss them in two different parts of this work, and, though we have been blamed for this separation, we have thought it right to retain it as a perfectly logical one. However, it is right to recognize that though the precious metals are far better suited, by their natural properties, to serve as instruments of exchange than as a measure of values, yet they possess two special properties which enable them to fulfil this 76 PRINCIPLES OF POLITICAL ECONOMY. second function in a manner which, if not perfect, is at least superior to the use of any other imaginable measure of value. These two properties are, firstly, their very great facility of transport ; secondly, their almost indefinite durability. Thanks to the first of these two properties, the value of the precious metals is, of all values, that which fluctuates least from place to place ; thanks to the second, that which fluctuates least from year to year. It is this double invariability (relatively speaking) in space and in time which is the essential condition of every common measure. If the difficulty of transport could be altogether overcome in the case of any one commodity, and if the gift of ubiquity could be granted it, the result would be that its value would be practi- cally the same in all places. Let its value be supposed to be less high in one part of the world than in another ; then men would soon come to seek it at this first place in order to transport it to the second ; and, as by our hypothesis, the carriage would present no difficulty and require no expense, the slightest difference in value would be enough to make the enterprise a profitable one. The equilibrium, if we suppose it to have been broken, would then be instantaneously re-established, just as the level is instantly restored in the case of a liquid whose molecules are perfectly fluid. Now, the precious metals being of all commodities, except precious stones, those which have the greatest value in the small- est volume, they are also those whose carriage is the easiest, and whose value, therefore, will the most rapidly recover its normal level. For one per cent of its value, freight and insurance in- cluded, a mass of gold or of silver can be conveyed from one end of the world to the other, whilst the same weight of corn would have to pay, according to circumstances, 20, 30, or even 50 per cent of its value. It might seem to follow from this, that save for this one per cent, the value of the precious metals would be the same in all parts of the world : yet such a conclusion would be considerably too broad ; for it is certain that the value WEALTH AND VALUE. 77 of the precious metals is not the same everywhere, and that in particular it is more depreciated in the places where they are found and worked, i.e. in mining countries (a fact that explains the very high prices prevalent in those districts) ; nevertheless we may say that the value of these metals satisfies well enough the first condition, viz., invariability in space. It complies far less satisfactorily with the second condition, in- variability in time ; yet even from this point of view the precious metals are superior to most other commodities for the second reason we have given, namely, their very great durability. The principal cause of the value of an object fluctuating from one epoch to another is the variation in its quantity. If we imagine a product to be of such a nature that its quantity is liable to vary from zero up to a very considerable figure, the variations in its value will be extreme. This is the case with corn. Before harvest the granaries may be absolutely empty ; after harvest, they will be full, and the difference between a good and a bad year may be immense. Hence, too, there are enormous variations in the value of this article, and they would be still greater, were it not that facility of carriage and international trade brought about a sort of equilibrium in production (see above, page 64). But because of their durabihty, which enables the same particles of metal, coined and recoined over and over again, to pass down the ages, the precious metals possess quite other characteristics. They accumulate little by little into a huge mass, into which the annual production pours as if into a reservoir which is continu- ously growing, and in which, therefore, accidental fluctuations become of smaller and smaller proportionate amount and impor- tance. In a headlong torrent the slightest increases in volume are manifested by enormous changes of level, but the level of Lake Geneva is only raised in imperceptible proportions even by the greatest swellings of the Rhone. The same holds with values. Let the corn crop for one particular year be doubled throughout the whole world.. Then, as the stock is hkewise doubled, the 78 PRINCIPLES OF POLITICAL ECONOMY. depreciation in prices will be terrible. But let the output of gold or silver mines happen to double during one year; then, as this output does not, at the most, represent more than two or three per cent of the existing stock, the effect produced will be but trifling. Yet these variations end by being very perceptible in the long run ; for at the rate of two or three per cent per annum, the stock would become doubled in twenty-four or thirty-six years. If, then, the value of the precious metals offers substantial enough guarantees of stability in time, when short periods only are under consideration, it altogether fails in this respect when long periods of time are included, say twenty or twenty-five years, not to speak of several centuries. In this regard, then, our proposed measure of value is extremely defective. Could a better one be found ? Well, several have been pro- posed as such. Here are a few of the most noteworthy : the value of corfi, or the wages for a day's labor ; again, in quite another order of thought, it has been proposed to measure the value of things by the number of hours of labor necessary for their production. Let us discuss the respective merits of each of these. Firstly, the value of com. On first thoughts this is a most astonishing choice ; for if we consider the value of this commodity in different places or at different times, we find not only that it is not invariable, but also that there are few values whose fluctuations are more marked. At the same moment a bushel of corn may be sold for ^3 los. in France, and for ^i or 30 shillings in some of the Western States of America. According as the year is good or bad, the value of corn may also vary in enormous proportions, though these variations may have been diminished by the facility of exchange. But it is replied that, though the value of corn is incompar- ably more variable than that of the precious metals, when only short spaces of time are considered, yet is far more stable when we extend our observation to long periods. Throughout its sharp and numerous oscillations the value of corn would appear WEALTH AND VALUE. 79 to tend always to remain equal to itself; and these would seem to be the reasons for such a curious property. I. Say its supporters, the utility of corn may be regarded as constant ; for, on the average, does not a man always require the same quantity of corn as food, to-day as yesterday, to-morrow as to-day? Corn, then, answers to a want which is constant and always equal to itself, provided that man's physical constitution does not undergo radical modifications. Again, its scarcity, that is to say, the relation between the quantity produced and the quan- tity demanded, should equally be regarded as constant from one century to another. That quantity of corn is and will always be pro- duced which is necessary to support the inhabitants of a country ; for beneath that limit they would die of hunger : but no greater quantity will be produced, for above that limit it would be super- fluous, and superabundance would entail an immense depreciation. No doubt this equilibrium may be disturbed by the vicissitudes of the seasons, but the more violent the displacement, the stronger is its tendency to recovery. Now if utility and scarcity, the two essential elements of the value of corn, as of every other value, can be regarded as con- stants, the value of corn itself might be regarded as a fixed point whence we might measure all other values. Unfortunately, these are mere abstractions. It is not a fact that men nowadays eat the same quantity of corn as their forefathers did, at least, if we speak of wheat ; nay, they eat far more ; for in the last century they mainly lived on cereals of inferior quality. On the other hand, it is possible that in the future, if the consumption of meat or vegetables increases, the consumption of corn may decrease. Even admitting that the utility of corn might remain constant, there would still be an element in its value which would continue to be variable ; namely, the greater or less ease with which we obtain it, whether directly by means of agriculture, or indirectly through international trade. Nevertheless, from the point of view of its fluctuations in value, corn certainly possesses qualities and defects which are exactly 80 PRINCIPLES OF POLITICAL ECONOMY. inverse to those characteristic of the precious metals. For this reason it may be used, side by side with them, as a valuable enough means of checking them. 2. The value of a day's labor, choosing the least re77mnera- tive labor. This theory rests on a double idea : on the one hand, that the essential and indispensable wants of human exist- ence are the same for each man ; on the other, that in every society there is a certain class of men who from their wages can only just provide for these primal necessaries of life (see Book IV, "The Iron Law"). If these elementary wants represent a "con- stant," the least amount of wages required to satisfy them should also represent a constant value. But this hypothesis is even more chimerical than the preceding one. In the first place, it is not absolutely proved that in every society there is inevitably a part of the population which is reduced to the bare necessaries of life ; in any case it is clear that these bare necessaries are not the same for the serf of the twelfth cen- tury as for the French peasant of to-day, the same for the Ameri- can laborer as for the Chinese coolie. The one would live and have enough to spare on what would but leave the other to die of hunger. 3. The quantity of labor. This doctrine, which was set forth by Adam Smith and Ricardo, has been powerfully developed by Karl Marx. We must not confound this theory with the preceding one, as too many economists have done, with Adam Smith, perhaps, at their head. It is one thing to take as the measure of the value of objects the value of labor, the price of manual labor, wages, in a word, the proposal we were discussing just above. It is quite another thing to take as the measure of their value the quantity of labor, the pains taken in producing them, as is the proposal now before us. The originality of this theory lies in its attempting to measure values not by another value, but by a quantity of quite a different order; this method, then, is radically different from those we WEALTH AND VALUE. 51 have heretofore considered. Its principle is, that between the value of any object and the quantity of labor devoted to its pro- duction there is a constant relation, so that the one can be meas- ured by the other. If, then, we ask how are we to measure the quantity of labor itself, the reply is : By its duration, by the number of days or hours devoted on an average to this particular labor. Thus we hght on a very simple common measure. This theory is naturally connected with the doctrine which regards labor as the cause of value, a doctrine we have already rejected. But still the present theory is not, as is generally believed, a necessary consequence of the former doctrine. While rejecting the idea that labor is the cause of value, we might still allow that it can serve as its measure. The theory requires the following modifications. It can correctly be asserted that men take the more pains in producing an object they desire the more ; in other words, that they attribute to it a higher value. Just as up to the present we have measured the value of things by the sacrifice a person is willing to make for their obtainal, i.e. by the amount of money given up by the buyer ; so, too, we can measure it (value) by the sacrifice of their time and trouble men are willing to make for their production. In this sense Adam Smith's fine saying can be accepted, — " Labor was the first price, the original purchase- money, that was paid for all things." — Wealth of Nations, I, v, 14. On this theory, then, labor appears to us no longer as the cause, but, on the contrary, as the effect of value, or rather of that desire which constitutes value. Now, once admitting that labor is an effect of value, nothing could be more scientific than the measur- ing of a cause by its effects. Heat is measured by the expansion of bodies, starting from the principle that each increase in length of the thermometric column must be proportional to each increase in temperature. Why not grant likewise that the amounts of labor are proportional to the respective natures of the articles ? Yet this theory will always encounter two difficulties : firstly, that the amount of labor, the amount of trouble taken, is but 82 PRINCIPLES OF POLITICAL ECONOMY. very imperfectly measured by the time occupied ; secondly, that even granting that the amount of labor might be gauged by its duration, we should still be without any practical means of calcu- lating the average amount of time necessary for the production of any one article of wealth. (For the development of this objection, see in Part IV the chapter " The Different Systems of Sharing.") III. What is Price? The value of a thing can be expressed in a thousand different ways. Homer says that Diomede's armor was worth a hundred oxen. A Japanese would have said, a few years ago, that it was worth so many hundredweight of rice ; an African negro, so many yards of cotton stuffs ; a Canadian trapper, so many fox or otter skins ; a Frenchman or an American of the nineteenth century will say it is worth so many francs or dollars. Each of these expressions indicates in its way a measure of value ; but the last only, which measures the value of a thing by the value of a certain quantity of pieces of gold or silver, bears the name of price. The price of an object, then, is the expression of the relation which exists between the value of that object and the value of a certain weight of gold or silver, or more briefly, its value expressed in terms of money ; and as in every civilized country money is the only measure of values, the word "price" has become synony- mous with the word " value." Indeed, it is the only expression for value that we actually employ, though theoretically we may use a host of others. In the same way, for measuring lengths we never speak except of yards, etc., although we may just as well express a particular length by comparing it with a man's size, the height of a tree, or any other length. Nevertheless, we must not altogether confound price and value, as is popularly done, and "believe, for instance, that because the price of a thing is the same in two different places its value must necessarily be the same ; or, inversely, believe that because the WEALTH AND VALUE. 8^ price of a thing has varied, its value must necessarily have varied in the same proportion. That might be a gross blunder. If we suppose that the value of the precious metals has not remained the same from yesterday up to to-day, it is" clear that the value of every object measured by means of these precious metals will be found to have altered ; that is to say, its price will have varied, and that in inverse ratio to the fluctuations in value of the precious metals. If the length of a metre, or rather the length of the earth's cir- cumference of which the metre is but a subdivision, were through some startHng phenomenon reduced by a tenth, is it not clear that all objects measured by us henceforward would appear to be one-tenth longer or higher? Yet no such change would have occurred ; it would be merely an illusion produced by the shorten- ing of the unit of measure. Similarly, if money, or, rather, the precious metals which constitute it, happened to lose about a tenth of their value in consequence of some far less extraordi- nary phenomenon, say their superabundance, it is clear that the price of all objects, that is to say, their value expressed in money, would seem to us to have risen by a tenth. We can therefore lay down the following formula : " every variation in the value of money involves an inversely proportional variation in prices." Would the reciprocal be equally true, and might we say that every variation in prices presupposes an inverse variation in the value of money? Our answer is, "Yes, if the variation in prices is absolutely general ; no, if it is not so." In the latter case the variation in the prices of certain objects evidently depends on causes peculiar to these objects. Now as the prin- cipal factor which influences the value of money is the greater or less quantity of money in the shape of coin, a second formula can be laid down, which, however, is not so absolutely true as the first one, — " every variation in the quantity of money involves a directly proportional variation in prices." Thus if the quantity of money in a country happens to double, it is probable that, other things being equal, prices will rise considerably, though it would 84 PRINCIPLES OF POLITICAL ECONOMY. be rash to say that they will double. We admit that this second formula is not absolutely true, for quantity is not the only factor which influences the value of money. The development of com- merce, the increase in population, the substitution of instruments of credit for metallic money, may act in different ways on the utility of money, and consequently on its value, irrespective of any vari- ation in its quantity. (See M. Milet's article " un aphorisme or- thodoxe, mais inexact sur la monnaie " in the Revue d' Economic politique, March-AjDril, 1890.) IV. Whether the Measure of Value be not an Insoluble Problem. The function of a common measure is to enable us to compare objects situated in different places, and therefore incapable of a direct comparison, or to compare the same object at different points of time and ascertain whether it has varied, and, if so, in what proportions. By the use of the yard-measure I am able to compare the stature of Lapps with that of Patagonians, and to measure exactly how much taller the latter are than the former. If the yard-measure is in use, or even known, some million years hence, it would enable me to compare man of that date with man as he is to-day, and to ascertain whether he has degenerated in stature. But it is clear that our conclusions will be accurate only so long as we are certain that the length of the yard-measure used as our standard is exactly the same in Lapland and in Patagonia, and that a thousand years hence it will be just what it is to-day. Inva- riability of the magnitude chosen as a common measure, invaria- bility in space and in time, appears then to be an indispensable condition ; or, at any rate, if this magnitude varies, we must be able to determine, and consequently to correct, these variations. We require the same utility from a common measure of values ; that is to say, from money. By its aid we wish to be able to com- pare the values of commodities situated in different places, or to WEALTH AND VALUE. 85 compare the value of one particular commodity at different times. Is it not of great interest to a corn-merchant to know whether corn has a higher value in France than in Russia, if he has more this year than he had last year? But of what use would our calcu- lations be, if the value of the commodity we take as our unit {i.e. the value of money) was not the same in Russia as in France, not the same this year as last year ? Is it not, then, necessary for the value of money, also, to satisfy the condition indispensable for every common measure, — namely, invariability in space and in time ? Now we know from our previous explanation that the value of each thing varies, and that of the precious metals likewise, although in smaller proportions than in the case with the others. Thus the attempt to discover a measure of values would seem to be an insoluble, nay, contradictory problem, a very squaring of the circle for political economy ; this, in truth, is the almost unanimous opinion of economists. Yet we cannot join them. It is true that we must abandon the hope of finding an invariable unit of measure, but this condition is not absolutely indispensable. In no sphere of work, in fact, have men been able to discover a rigorously invariable standard. Even the metre [3.280 feet] of platinum and iridium, which was cast with great trouble and at great expense at the Conservatoire des Arts et Metiers to serve as standard for all countries which have adopted the metric system, even this varies in length for each degree of temperature. But the coefficient of expansion is known and the necessary rectifica- tions are made. The litre [1.760 pints] of distilled water, which serves as unit of measure for weight, under the name of kilogramme [2.204 pounds avoirdupois], has really a weight which varies for each degree of latitude or each yard of altitude. But we know the law of these variations and can reckon for them. In the same way we should care little for our type of value varying, if only we could discover arid dete?'mine those variations : that once accomplished, nothing would be easier than the making of the necessary correctioixs. 86 PRINCIPLES OF POLITICAL ECONOMY. The whole question, then, resolves itself into this : can we dis- cover and determine these fluctuations? Let us suppose that to-day a list was to be carefully prepared of the price of all commodities, not one being omitted. Ten or a hundred years hence let a new list of prices be compiled ; if on comparing this with the former one it be found that all prices, without exception, have increased fifty per cent, on such an hypothesis we can affirm that the value of money has actually fallen thirty-three per cent. For henceforward everything that used to cost two shillings costs three ; that is to say, three shillings are only worth what two used to be, and therefore money as coin has lost a third of its value. But it may be asked, what authorizes us to draw such a con- clusion ? The following line of argument : Such a phenomenon as a general and uniform rise of prices permits of but two possible explanations : we can admit — either that things are what they seem to be, i.e. that all commodities have undergone an upward move- ment, which is both universal and identical ; — or that the value of one thing only, say money, has been subjected to a downward movement, no change whatsoever having occurred in the value of all other commodities. Which of these explanations are we to choose ? Common sense does not allow a moment's hesitation. In proportion to the simplicity and ease of the second explana- tion is the improbability of the first, in consequence of the mar- vellous combination of circumstances which it requires. How are we to conceive a cause capable of acting simultaneously and equally on the value of ihe most dissimilar objects, as regards their utility, their quantity, and their mode of production? How imagine a cause able to raise at exactly the same time and in pre- cisely identical proportions, the value of silk and of coal, of corn and of diamonds, of lace and of wines, of land and of manual labor, and of all other things which are not bound up with one another, and in fact are absolutely independent ? The choice of such an explanation would be just as irrational as to hold that the WEALTH AND VALUE. 8/ motion of the stars is better explained by the system of Ptolemy than by that of Copernicus. This movement may be interpreted in two ways, either by the displacement of the entire heavenly vault from east to west ; or, perfectly easily, by the displacement of our earth in the contrary direction. Now, in spite of the lack of any direct proof, we do not doubt for a moment which is the prefer- able and real explanation. It is absurd to imagine that heavenly bodies, so different in nature, and so enormously distant from one another as the sun, moon, planets, bright stars, and nebulous stars, could execute such a movement, preserving their respective places and mutual distances as if they were soldiers on parade. An identical line of argument must be used to account for the upward movement of prices ; it can be rationally understood only as a sort of optical illusion ; it is an apparent movement caused by the actual and inverse movement of money, which discloses it to us and measures it at one and the same time (see Cournot, op. cit). In reality, the circumstances are not so simple as we have sup- posed them to be for the sake of argument. An absolutely gen- eral and uniform rise of prices will never be shown to occur ; as the value of each individual object depends on its particular causes of variation, we shall only find that certain prices have risen, but in very different proportions ; that others have remained stationary, and that some have even fallen. Yet if skilfully managed calculations could strike a general aver- age, say a rise of ten per cent, this could only be explained, for the reasons given above, by an equal (and inverse) fall in the value of money. This may be paralleled by another analogy borrowed from as- tronomy. The stars, which are inaccurately termed fixed stars, have been discovered, in reality, to change their positions in very divergent directions. Yet astronomers believe they have discov- ered a mean alteration of all these movements towards a specific point in the sky. No other way of accounting for this general movement has been found, than that it should be regarded as an optical illusion, produced by a slipping movement of our solar 88 PRINCIPLES OF POLITICAL ECONOMY. system towards an exactly opposite point. An attempt has even been made to measure this latter movement. We can now easily miderstand how variations of the standard could be calculated from variations in prices, and how tables of these fluctuations could be pubHshed at fixed times, to serve as an official guide for the correction of the errors which arise from the use of money as the measure of values ; thus debtors who had borrowed a hundred pounds might be discharged from their obli- gations on the payment of only ninety, or inversely might be com- pelled to pay one hundred and ten, according as the computation showed a rise or a fall of ten per cent in the value of money. Similar tables of reference have been previously proposed in 1822 by Lowe, in 1833 by Scrope. (See Jevons on Money, page 328.) V. Whether Money should be reckoned as Wealth. Popular opinion would give a ready answer to this question. Always — we might almost add everywhere — men have given money a quite exceptional place in their thoughts and desires. They have regarded it, if not as the only wealth, as at any rate by far the most important, and, truth to tell, they appear to esteem all other wealth only in proportion to the quantity of money that can be acquired for it. The value a tradesman places on his goods in taking stock of his wealth means nothing, so long as they are not realized (as he would express it) ; that is to say, are not sold. Thus, in his opinion, wealth goes for nothing except when it exists in the shape of coin. For a man to be rich, he must possess either money or the means of obtaining it. It would be interesting to trace through history the various shapes taken by this idea which confounds gold with wealth. There were the attempts of the mediaeval alchemists to transmute all metals into gold and thereby accomplish what they termed the magiiutn opus, which would have been far less a chemical discovery than an economic revolution. There was the enthu- siasm kindled in the Old World on the arrival of the first galleons WEALTH AND VALUE. 89 from America, convincing men that in fabled Eldorado an end would be found for all miseries. The same idea was manifested in the efforts made by governments to establish that ingenious " Mercantile System " that was to cause money to flow into the countries that had it not, and to prevent it quitting those lands which were possessed of it. Even to-day this old confusion is still extant ; it is visible in the anxious care with which statesmen and financiers watch th^ goings-out and the comings-in of coin, as they appear to result from the balance between exports and imports. But on turning to economists we shall receive quite another answer ; for it was by a protest against this very idea, which it termed a prejudice, that political economy first manifested its existence. ' Political economy was but new born and was still stam- mering with Boisguillebert when it sent forth from his lips this utterance : " It is quite certain that money is not a good of itself, and its quantity does not create the opulence of a country." — Economistes du XVIIP siede. Edit. Guillaumin, Tome I, page 209. Since Boisguillebert's days every economist has regarded coin with absolute contempt, and has stated it to be a mere com- modity like everything else, and even much inferior to any other article ; for by itself it is incapable of satisfying any want or of affording us any enjoyment, and, indeed, is the only thing whose abundance and scarcity can be said to be matters of perfect indif- ference. If there are few pieces of money in a country, each one will have a greater purchasing power ; if there are many, the pur- chasing power of each coin will be less. What does it matter to us ? These two opinions can be easily reconciled, however contra- dictory they may appear to be. The public, as usual, only takes the individual point of view, and is correct according to its own lights ; the economists are right from the general point of view. Every piece of money must be regarded as an " order " or ticket which is valid as regards the sum-total of existing wealth, and gives its holder the right of claiming as his own, and at his own choice, 90 PRINCIPLES OF POLITICAL ECONOMV. any portion of this wealth, until the value of the coin has been reached. Moreover, as may be seen in MacLeod's works, this " order " possesses an advantage over credit papers, in that it carries its own security with it ; for it is guaranteed by the value of the metal that composes the coin. Naturally each one of us desires to have the greatest possible number of these orders, and the more we have, the richer we are. We know well enough that, in themselves, these orders can neither stay our hunger nor slake our thirst. We are not so stupid as to think that ; and ages before economists had lighted on this truth, legend had taught it in its tale of King Midas dying of hunger while surrounded by wealth which his own folly had turned into gold. Yet even the contemplation of such a fate has not prevented us from regarding these " orders " as far more convenient than any other kind of wealth, and we are quite right in thinking so. For, in society as it is, every one who desires to obtain an ob- ject he has not produced himself (and the immense majority of people are thus situated) can only obtain it by a double process : firstly, by exchanging the products of his labor, or his labor itself, for money — this is called " to sell " ; secondly, by exchanging this money for the objects he desires — i.e. " to buy." The second of these processes, purchase, is very simple ; by means of money a wished-for object is always easily obtained. The first process, sale, is infinitely more difficult ; money is not always readily procurable for any article. Thus the possessor of money is in a far better position than the possessor of any other commodity : for the satis- faction of his wants the former has but one stage to clear, and that an easy one ; the latter has two, and one of them, an awkward bit of ground, presents considerable difficulty. It has been well said that any article of wealth corresponds only to a special and deter- mi7iate 'wa7it, while money corresponds to a general and nnivetsal want. The owner of some commodity may not know what to do with it. The possessor of money will have no trouble of that kind ; he will always find some one to take it from him. If by chance he is not able to make use of it at the moment, he has the handy WEALTH AND VALUE. 9I expedient of keeping it for a more favorable opportunity. Few other goods can be kept in that fashion. But the possession of money carries with it what is perhaps an even greater advantage ; for he who has money can make sure of being able to fulfil his engagements : no other wealth enjoys this remarkable quality ; for in the eyes of the law, just as in the un- written law of custom, money is regarded as the only means of discharging liabilities. There is no business man or manufacturer who does not always owe more or less considerable amounts. Now his having in stock goods worth more than the sum-total of his debts might be useless (and in cases of failures it sometimes happens, when all reckonings have been made, that the assets exceed the habilities) ; ^ unless at the desired time he is able to get his signature honored by that particular form of wealth which we call " hard money," he is declared bankrupt. Is it surprising, then, that so great importance is attached to a commodity on the possession of which our credit and our honor may at any moment be dependent ? If we turn from the position of the individual man, and con- sider the whole mass of individuals who constitute society, the point of view changes, and there is more correctness in the econo- mists' thesis that the amount of money in a country is a matter of indifference. It would be no use to me to have the amount that I hold multiplied by ten, if the same thing happened for all the other 77iembers of society. On that hypothesis I should be no richer ; for wealth is purely relative, and I should not be able to obtain a larger measure of satisfaction than I previously had. For as there is no increase in the sum-total of wealth from which these " orders " are payable, each order will entitle me to a share, which is ten times less. In other words, the purchasing power of each coin will be ten times less ; or again, all prices will be multiplied by ten, — and my position will be as it was. However, in their mutual relations, countries, like individuals, 1 In the crisis in the London Money Market, November, 1890, the great House most seriously affected is said at the time of its stoppage to have had assets exceeding its liabilities b} no less than ;^4,o>"io,ooo sterling. — J. B. 92 PRINCIPLES OF POLITICAL ECONOMY. gain by being well provided with money, but rather less, however. As exchange relations and credit transactions between countries are not so numerous as they are between individuals, money, whether as the instrument of purchase or of payment, is not so important a factor in such relations. Still, the increasing solidarity of the nations will tend to proportionally enhance the power of money in this field. If we were to multiply by ten the amount of money in France, there would be no change in the respective position of Frenchman as against Frenchman (the increase being premised to be propor- tional for all) ; but France would not be on the same terms as regards foreign countries, and so obvious a fact is erroneously denied by economists in their struggle against the mercantile sys- tem. Their very abundance would cause pieces of money to be depreciated in France, but not elsewhere ; they would retain intact their purchasing power in foreign markets, and France might thus obtain an increase of satisfaction which would be in proportion to her increase of money. However, as we shall show when dealing with international trade, this privileged position could not last long. The economists' dogma, that the quantity of money is a matter of indifference, does not become perfectly true till we not only extend our view over all individual men, and over all countries, but embrace in our observations the human race at large. We might then assert with absolute accuracy that the discovery of gold mines, a hundred times more valuable than those we are now cognizant of, would not benefit man in the least. Nay, we should rather be inconvenienced ; for, as gold would be worth no more than copper, we should be compelled to load our pockets with as cumbrous a form of money as that which Lycurgus sought to force upon the Lacedaemonians. BOOK II. PRODUCTION, Part I, — The Conditions of Individual Production. THE FACTORS OF PRODUCTION. Our first study will be the conditions of individual production, that is to say, such conditions as every man is subject to, even though he be alone in the vi^orld, like Robinson Crusoe on his island. After that we shall study the conditions of social pro- duction, the conditions experienced by men living in society, which only arise, or at any rate develop, with the progress of civilization. Thanks to a tradition which has nowadays become altogether classical, production has three agents attributed to it, — land, labor, and capital. This threefold division possesses the advantages of simplicity and ease ; its demerit is that it does not state what should be stated, and does state what should not be stated. To begin with, it errs in placing on a footing of equality ele- ments of production which are extremely unequal in importance, and are very different in their mode of action ; it ranks together labor, which is actually the agent of production, and capital, which is oniy an instrument ; it puts on the same grade labor and nature, which are the original factors of all production, and capital, which is merely a factor of the second order, being a derivative product of the two first, 93 94 PRINCIPLES OF POLITICAL ECONOMY. Again, it is incomplete ; for it omits certain conditions of pro- duction which are as important as those it enunciates, e.g. time, the environment, and so forth. The process of individual production should be represented as follows : — Man is the sole agent of production, understanding the word " agent " to mean that it is he alone who can take the initiative in every productive enterprise. This activity of man, in so far as it is employed for the production of wealth, is called labor. But this energy cannot work in the void ; it does not emanate from a creative fiat ; for its fertility it requires certain external conditions which we shall now enumerate. They are five in number. 1. Rait' material. Man, as we have just said, cannot make anything out of nothing. This is then a sine qua non — as it is, indeed, for the wealth that is wrongly called non-material, or services rendered. Human speech is only air in motion. 2. A certain extent of ground. For the production of anything some place is required, were it only sufficient to hold a work-bench or a loom. 3. A certain du ratio fi of time. Man's activity is limited by time as much as by space. No act of production can be instan- taneous. We shall see that this condition, like the preceding one, far from being purely metaphysical, has consequences which are of serious economic importance and of great practical interest. 4. Certain tools. In production man cannot dispense with those implements which, as has been well said, play for him the part of supplementary organs. Of the. numerous definitions which have been proposed for distinguishing man from animals, " maker of tools " is certainly one of those which fit him best. 5. A favorable etivirontnent, which is composed of climatic, geographical, and geological conditions. Man's activity, like that of every other living being, is subordinated to the environment in which he lives and should evolve. Such is the order in which the conditions of individual pro- duction should be analyzed. Still, although persisting in regarding PRODUCTION. 95 the old tripartite division as a vexatious one, we have been obliged to adhere to it at least in form. Indeed, for us, in a book like this, to break with a classification which has been unan- imously adopted in all books and in courses of instruction,^ would be to confuse our readers. All that we can do is to try and fit these conditions into the classical frame as well as is possible, though some, indeed, do not easily lend themselves to such an attempt. We will now take in succession land, or rather nature, labor, and capital, and seek under each of these three heads for the various conditions just enumerated. 1 Dr. Bohm-Bawerk, Kapital-Zitis, Vol. II, 83, recognizes only two pro- ductive forces — Nature and Man. See Harvard Quarterly Journal of Eco- nomics, April, 1889, page 337. — J. B. CHAPTER I. NATURE. By the word "nature" we must not understand a fixed factor' of production, for that would be meaningless, but rather the whole body of the pre-existing elements supplied to us by the environ- ment in which we live. The term "land" was formerly employed instead of "nature." The expression, indeed, is equivalent in extent, if we are to under- stand by it not simply cultivable ground, but the terrestrial globe. No doubt, our planet, and merely the superficial crust of that, is the only portion of the universe which can serve as the field for our economic activity. Still, as savage tribes have been known to make use of the crude iron they have discovered in fallen aerolites, and as we directly borrow the sun's light for our photographic pro- cesses and its heat for " Mouchot " machines, taking all in all, the term " nature " is the more accurate. Now, for man to produce aught, nature, as shown in the previ- ous section, must provide him with a favorable environment, a large enough extent of ground, and raw material which can be utilized. Ground might be said to be included in our term, " environment." It is so philosophically, but not so, economically : for ground is an object of property, whereas the environment is not : thus ground is a separate element. She also supplies him with the natural forces which work his machines. We will say a few words on each of these four ways in which nature collaborates with man. I. The Environment. It is possible that some historians or philosophers like Mon- tesquieu may have exaggerated the influence of the geographical environment on the social and political development of peoples, 96 PRODUCTION. 97 but it would be difficult to exaggerate this influence so far as it concerns economic development and productive power. Air, water, and land have all had a decisive influence on the evolution of human societies. Le Play's school builds up the whole of social science from this question as to the environment. It distinguishes three kinds of ground which give rise to the three types of primitive societies : the steppe to the pastoral races, the seashore to the fisher tribes, \}i\t forest \.o the /^/////ifr peoples. These are the fundamental types of simple societies, i.e. those which subsist purely on the spontane- ous products of the soil ; but Le Play's school goes further and derives from them by relation of necessary affiliation, all the complex, or, in other words, civilized societies. Thus from the primitive state of the soil it accounts for the origin of the establish- ment of property, of the family, etc. This system has been treated in a very interesting manner by M. Demolins in the Revue de la science sociale, 1886. I. The climatic situation. Tropical lands may have witnessed the growth of brilliant civilizations, but they have never been favored with laborious and industrially fertile races. For there Nature seems to discourage productive activity both by her gener- osity and by her outbursts of violence. In those blissful climates where " bread grows like a fruit," and clothing and even housing are scarcely required in consequence of the warm temperature, man comes to rely upon nature and spares himself all effort. On the other hand, in those regions physical forces are so exceed- ingly violent, their various manifestations, torrential rains, floods, earthquakes, cyclones, are so irresistible, that man is cowed and does not even conceive the audacious idea of conquering them and turning them to his own ends : he scarcely dreams of meas- ures of self-defence. In our temperate lands Nature is niggard and severe enough to compel man to rely in great measure upon his own efforts ; but the forces she displays are not so awe-inspir- ing as not to allow human industry to tame her. In this way she may be said to favor productive activity both by what she refuses and by what she gives. 98 PRINCIPLES OF POLITICAL ECONOMY. 2. Geographical configuration. Were it not for her insular position, who would ever dream that England would have become the first maritime and commercial power in the world ? If a proof were necessary of the dominant part this factor has played in the destinies of England, it would be supplied by the curious feeling of terror which possessed her lately at the mere prospect of being united to the Continent by a submarine tunnel. Why has the continent of Africa, known to man from the remotest antiquity and the seat of the earliest of all civilizations, that of Egypt, remained to this very day out of the sphere of all economic movements? why, on the other hand, are the two Americas, the dis- coveries of a mere yesterday, cut in all directions by the currents of commerce ? The chief reason is to be found in the difference of their river inter-communication. The rivers of the New World flow into the ocean by huge estuaries, and are joined together by such an intricate network, that we can pass from the tributaries of the River Plata into those of the Amazon and thence to those t)f the Orinoco, and in the northern continent from the basin of the Mississippi to the Great Lakes, almost without leaving the water- way ; but all the African rivers, though no less large, greet the explorer at the lower parts of their course with a barrier of impass- able cataracts or of pestilential swamps. 3. The geological constitution of the soil and sub-soil exerts no less influence ; for it is this which creates agricultural and metallurgical wealth. The dread with which England calculates the time when her coal mines may begin to fail her, shows well enough how much she owes them for her industrial development. China has her "yellow" earth, and Russia is no less a debtor for her rich "black earths" — r/V/; literally, not merely figuratively ; for according to statisticians they contain nitrogen to the value of 640,000,000 pounds sterling. It would appear at first sight that man is unable to modify the environment with which nature has surrounded him, that his only resource is to adapt himself to it as best he can. Yet he does succeed in exercising some modifying influence on this very envi- PRODUCTION. 99 ronment, though it, perforce, is extremely limited. As regards geology, he camiot create mines where there are none, but by judicious agricultural improvements he can remake the cultivable soil in detail, and make arable tracts of the sites once occupied by marshes, stagnant ponds, and even gulfs of the sea. As regards geography, he cannot alter the great marking lines drawn by Nature, but with a little favor on her part he can succeed in modi- fying them. Thus he can complete a network of inland water- communications, can overcome the barriers raised by mountains and arms of the sea, by constructing roads either above or, bet- ter still, beneath them ; and greatest of all, can separate Africa from the Old World continent, and South America from the New World, thus turning these two peninsulas into two islands. Cli- mate certainly cannot be changed ; but by plantations on a large scale, by fitting cultivation, perhaps, too, by other means, the secret of which we have not yet guessed, human industry will be able to advantageously modify the sway of rain and even of the winds. Thus some scientific men have proposed to alter the course of the great maritime currents, such as the Gulf Stream, for the purpose of distributing heat or coolness among the conti- nents, just as water and gas are distributed in towns. II. The Ground.! Man needs a certain amount of space on land, were it only to stand on. He requires rather more to sleep on, still more to build his house on, and far larger room for the sowing of his corn or the pasturing of his flocks and herds. Now this question of room becomes very serious as soon as the population of a country has grown sufficiently dense. When human beings, in obedience to 1 The word " land," which is ordinarily used, is a very complex combination of ideas ; first comes a siiperficial extension, which we represent by the word "ground" ; then there are i-mv niaterials exempHfied by the elements which compose the soil and the subsoil; finally come a number of physical and che7nical agencies which are ever at work in cultivated ground in the form of light, heat, humidity, electricity, and so forth. lOO PRINCIPLES OF POLITICAL ECONOMY. their sociable instincts, group together in one of those huge ant- hills called London or Paris, New York or Hankow, the necessary space for housing them ends by becoming deficient ; then plots of land acquire a higher value than that of the buildings which cover them, even were they palaces made of marble ; and as we shall see when dealing with house-rent, the resulting social conse- quences are most deplorable for the working-classes. However, we need not fear that one day there may not be room enough on the earth for men to live on ; yet it is not unreasonable to ask whether there will always be enough space for men to obtain food from. For the portion of ground necessary to supply food for one man is of considerable size, and this portion is always being diminished by the progress of civilization and agricultural methods. For hunter peoples several square leagues are needed per head ; for pastoral races some square miles ; for agricultural nations a few acres are enough ; and the limit falls as men pass from cultivating the land far and wide to cultivating it thoroughly and deeply ; i.e. from extensive to intensive cultivation. In China this latter mode of cultivation, which has almost become kitchen-gardening, enables several men to subsist on the produce of two and one-half acres. Yet this defect, though considerably lessened, still con- tinues, and tends to make the human race somewhat anxious as to its future. No doubt, when the required space begins to fail him, man will be able to seek it elsewhere. The discovery of the New World, of South Africa, and of Australia has enormously extended his territory and renders certain enough room for many generations still to come. Yet these reserves stored up for the future will be exhausted some day. Now if we are already somewhat anxiously estimating the amount of coal we still have to burn, we can reckon far more easily the amount of earth that remains over for us to lay hands on. There is no hope of discovering any new lands. Though the surface of the globe is not yet entirely occu- pied nor even known to us, still it is all measured out. Before another century has passed away the last vacant spot will have PRODUCTION. lOI been filled up, the last landmark will have been planted, and henceforward the human race will have to content itself with its fifty-two million square miles, without the hope of increasing it by new conquests. Its only consolation then will be to repeat the line that Regnard inscribed, with a presumption the future has falsified, upon a rock in Lapland, " £t stetimtis tandem ubi defuit orbis,^'' III. The Raw Material. The inorganic substances which compose the earth's crust to the slight depth to which we have been able to penetrate, and the organic bodies which proceed from the vegetable or animal living creatures which people its surface, supply industry with the raw material that is indispensable to it, and form the original elements of all wealth. Some of these materials Nature has spread about with lavish profusion ; of others she has been excessively sparing. Among the former may be mentioned some of the constituents of the earth's crust, — granite, chalky matters, clay, and the fresh or salt water which covers three-quarters of the earth's surface. But those carbon-crystals we call diamonds, and even some metals, such as gold or mercury, are found in exceedingly small quantities. Even the substances that exist in large quantities may be scarce if some one particular region be considered. No doubt there are enough stone-quarries in the world to build thousands of capitals like Paris, but all the same they may be absent from the required site of some city, say Nineveh of old time, or London to-day. Sea-salt is unbounded in amount, but is scarce enough in Central Africa to be used for money. Fresh water is the typical example of wealth which is unlimited in supply, yet we need not go as far as the Sahara to find places where water is scarce, and can only be obtained with much engineering toil. In fact, there is only one body which is ubiquitous and immeasurable ; to wit, the atmospheric air which surrounds and envelops the entire globe 102 PRINCIPLES OF POLITICAL ECONOMY. with a uniform layer. But even this air is not within the reach of every one, if special conditions of salubrity, coolness, or heat are required. An arid plot at Cannes or Nice sells for ;^4 a yard. Why? Because what is paid for is not merely the right to the ground, but the right to an atmosphere and a sun that are not found elsewhere. As regards the materials which are superabundant but unequally distributed, human ingenuity can remedy such a disadvantage by removing the substances and transporting them to spots where they are lacking. Hence, as we shall see later on, transportation is really an act of production. But since matter, owing to its weight and inertia, opposes a powerful resistance to any attempt at removal, and since the labor and expense necessary for the overcoming of this resistance increase in proportion to the dis- tance to be covered, industry is not all-powerful, and can only relatively harmonize the inequalities of nature. Nevertheless, men are now so well furnished with implements for this kind of labor, that the effect produced is by no means small. It is clear that man cannot increase in amount substances which are really restricted in quantity. It is not for him to create one atom of matter. Yet, by the aid of chemical combinations or decompositions, he can build up the bodies he requires. If the stock of diamonds ever runs short, he may be able to manufacture more by crystalhzing coal ; or if coal, in its turn, ever becomes exhausted, he may succeed in extracting it from the carbonates of lime which are so very common in the earth's crust. In other cases, human industry will have to restrict itself to discovering some substitute ; i.e. some substance possessed of properties analo- gous to those of the missing body. This search is usually more or less successful ; for there is such an infinite variety of organic substances and lifeless matter, that some can be found which possess common characters, and can therefore, to a certain extent, supply one another's place. Animal ivory is threatening to become extinct in consequence of the wasteful and destructive mode of elephant-hunting ; but in the forests by the Amazon a substitute has been found in a vegetable ivory. PRODUCTION. 103 IV. Motive Forces. The work of production consists purely of changing the place or the form of matter. We have seen that, because of its vis inertice, matter resists this treatment, and man's muscular strength is not very great. Nevertheless, by the invention of tools, man has been able to create artificial organs which have wonderfully added to his strength and dexterity. Thus, by means of a hydraulic press, a child can exert unlimited pressure ; and Archimedes justly boasted that with a lever and a fulcrum he could raise the earth. Yet some mathematicians have taken the trouble to calculate, that, even if he had found his missing fulcrum, he could have raised the world only to an infinitesimally small height, even by work- ing for some million years. For it is a law of mechanics that when using tools man loses in time what he gains in strength. By them he can lift a weight a thousand times heavier than he could by his arms alone, but he will have to take a thousand times as long over the process. Now, time being a very precious element, which we should be chary about wasting, the practical advantage of the use of tools is comparatively limited. On the other hand, the employment of machines multiplies strength indefinitely. In all times, therefore, and especially since the abolition of slavery has denied him the gratuitous employment of the strength of his fellows, man has striven to fortify his weakness by the aid of certain motive forces supplied to him by nature. There are not very many of them, though too favorable reckonings have been made. In truth, there are only four which man has been able to use in production : the muscular stretigth of animals ; the motive force of winds and of water ; and, best of all, the expan- sive power of vapors, especially of steam. It should be observed that in proportion to the powerfulness of these natural forces have been the time and trouble necessary for man to expend before succeeding in utilizing them and turning them to his ends. This is natural ; for resistance increases in 104 PRINCIPLES OF POLITICAL ECONOMY. direct ratio to the force. These results have been effected by the aid of machines. A machine is but a tool or implement, which instead of being moved by the hand of man, is worked by a natural force (water power, steam, etc.). Now a difficult problem in mechanics is involved in this handling of a natural force which is sometimes irresistible, sometimes unseizable, so as to compel it to turn a wheel, push a plane, or work a shuttle. The domestication of various animals, such as the horse, camel, elephant, reindeer, and Esquimau dog, supplied mankind with the first natural force they used for carrying, draught, and tillage. That of itself was a valuable conquest ; for an animal is propor- tionally stronger than man. A horse's strength is estimated as seven times greater than a man's, and the food he requires is by no means of greater cost. But the number of such animals in a country is restricted in proportion to the increase of population, for they require much space whence to obtain food ; thus the motive force they afford is, relatively speaking, not of any great account. The motive force of the wind and of rivers has always been used for carriage, and at a later date, though still at a high an- tiquity, for turning mills. These, indeed, are most powerful agen- cies. The motive power of streams in France alone, which is uselessly expended in wearing out pebbles, has been calculated to amount to thirty millions horse-power ; that is to say, to a force equal to the strength of all the men of an age fit for work, who are to be found on earth at the present moment. One single waterfall, such as Niagara, would feed all the factories in England. In the few hours of its devastating existence, a cyclone develops enough motive force to keep going all the workshops in the world for a thousand years, if we only knew how to use it. The waves into which the wind furrows the bosom of the sea, the tides which twice a day break on thousands of leagues of coast-hne, form literally inexhaustible reservoirs of force. Unfortunately up to the present man has found no mode of turning them to account. They are still in a savage or untamed state, sometimes too power- PRODUCTION. 105 ful or too weak, too irregular or too intermittent. Thus the forces which might raise the world are even now scarcely used but to turn a few wretched mills. The expansive power of vapors, or rather the heat generated by combustion, of which this force is only a transformation, grants man the priceless advantage of being able to develop it where, when, and as he will. It is mobile, portable, continuous, large or small according to demand. We raise it from one up to ten atmospheres, and theoretically, at least, there is no limit. If water was heated to 516 degrees Centigrade, a not exceedingly high temperature, we should develop a pressure of 1,700,000 atmos- pheres, which is more than sufficient to raise the Himalayas. The only difficulty would be the discovery of a strong enough envelope. In fact, this force is artificial, being created not by nature, but by man : he has made it for his own use and works it as he wishes. No more obedient slave has ever bowed under a master's yoke. The prehistoric inventor, whose name will forever remain un- known, but whom the gratitude of mankind has deified as Pro- metheus, he who first caused a spark to spring from the friction of two pebbles, never suspected when he looked on this flame, which was certainly due far more to chance than to his genius, what mar\^ellous power he was granting to human industry. First of all, no doubt, fire ministered only to the humblest wants of domestic life. Later on it was used for the extraction, the found- ing, and the working of metals. Its utilization as a motive force' dates from the time that men discovered the explosive power a spark could communicate to some substances, i.e. gunpowder, and in this form it is still employed, not only to propel projectiles for a mile or two, but also to bore tunnels. But it was not till New- comen, in 1705, and James Watt, in 1769, had used it for dilating steam confined in a chamber, and had thus created the wonderful instrument of modern industry which we call the steam-engine, that fire, or rather heat, became the guiding spirit of industry. I say that the steam-engine is a " wonderful " instrument, for the sake of the services it has rendered us. In reality it is very I06 PRINCIPLES OF POLITICAL ECONOMY. defective ; for it utilizes only a small part, at most a tenth, of the heat generated by the combustion of the coal. There is great waste from the furnace to the boiler, and further, though smaller, waste between the boiler and the engine proper. Hence the remark of M. Le Bon, an engineer, " I hope that before twenty years have passed, the last specimen of this rude machine will have taken its proper place in museums, side by side with the stone hatchets of our primitive ancestors." It will be seen from the following that anxious speculations may justifiably be made as what would happen to human industry if, the supply of coal ever failing, furnaces had to be extinguished, and it could no longer generate at will that heat which is indis- pensable to it as the source of motive power. People sometimes try to set their minds at ease by such foolish proposals as that of replacing heat by electricity, though the only practical means we have of producing electricity on a large scale is precisely the steam-engine. Men are already beginning to ask whether it is not possible to utilize the immense forces whose activity is displayed in those movements of the atmosphere and of the waters, to which we referred just now, or if it will be necessary to draw the heat which we require from the source of all force, the sun itself. There, in truth, is a really incalculable fount of force, which is estimated to be equal to g^ millions of horse-power per square mile. This is already used by the Mouchot machine, but in a practically insuffi- cient manner. Even admitting the success of such an attempt, this force borrowed frcm the sun will have the disadvantage com- mon to it with the other natural forces, of not possessing the property of being generated where, when, and as we wish. It will not be manageable. The sun does not shine always or every- where. If on that orb is to fall the task of keeping our workshops going, England will be doomed as a manufacturing and industrial power ; the fogs of the North Sea will become her winding-sheet, and men will henceforward have to journey into the heart of the Sahara to build their industrial capitals ! PRODUCTION. 107 Still, to be able to avail ourselves of these natural forces, we only require to find the secret, on the one hand, of ti'ansporting them for long distances, so as to apply them to the point where they can be utilized, and, on the other hand, of storing up those forces which are developed only intermittently, so as to employ them at the moment when they are required. Electricity seems capable of rendering us this double service. The fact is already established that force can be transported, just as a despatch, by a simple telegraphic wire, but one made of copper and somewhat larger than the ordinary wires. Moreover, electricity can be stored up in accumulators that are already used to propel steamers, tramways, and balloons. In that quarter, perhaps, lies the germ of a beneficent revolution in industry. If some day motive force could be distributed from house to house, like water or gas, and could be obtained by the mere turning of a tap,^ we should see no more of those huge work- shops, which to the laboring classes are as unhealthy quarters, from the hygienic as they are from the moral point of view, and which, together with other disadvantages, render family life impossible. ^ This is being done even now, to some extent, in Germany, where the small concerns still employ more hands than the large (in 1882, four millions as against three millions). See an article by Dr. Albrecht of Berlin in Schmoller's Jahrbuch fur Gesetzgebung (18S9), 13th series. Part II. — J. B. CHAPTER 11. LABOR. I. On the Part played in Production by Labor. To achieve its ends, and principally to satisfy the necessities of existence, every living thing is obliged to do a certain amount of work. The seed has to toil to raise its covering, the hardened crust of the earth, and then breathe the air and feel the light. While clinging to its bed, the oyster opens and closes its shell in order to draw from the surrounding water the first elements of nourishment. The spider spins its web, the fox and wolf labor while they hunt their prey. Man is not exempt from this univer- sal law ; he, too, has to persevere and toil in order to supply his wants. As Xenophon says, " The gods sell us all good things at the price of our labor." Among plants this striving is unconscious, among animals instinctive ; with man it becomes a voluntary and conscious act, and its name is labor. But is there not some wealth that man can obtain without work, such wealth as nature lavishly bestows on him ? It must first of all be observed that there is not a single product which does not in some measure presuppose the intervention of labor. That follows from the meaning of the word "product," prodiictu7n, " drawn from somewhere," But what could have performed this drawing or extraction except the hand of man? For the application of fruits to the satisfying of our wants, even those fruits which nature has given us, such as the bread-tree fruit, the banana, dates, or those shellfish which in southern lands are called sea-fruit, man must have given himself the trouble of gathering them. Now, this gathering is clearly labor, and under certain circumstances work of an exceedingly laborious nature. io8 PRODUCTION. 109 It should further be remarked that a just conception is not usu- ally made of the important part played by labor, even in the for- mation of those products which are often very inaccurately termed " natural." We are too ready to believe that everything which grows on the earth — cereals, vegetables, fruit — all are due to the generosity of that alma pai-ens rerum. As a matter of fact, most of the plants which supply man with food have been, if not created, at any rate so modified by the cultivation and the labor of hun- dreds of generations, that botanists cannot discover their original types. Wheat, maize, lentils, beans, have been found nowhere in the wild state. Even such species as are met with in a state of nature are wonderfully different from their cultivated congeners. Between the acid berries of the wild vine and our grapes, between the edible vegetables and succulent fruits of our kitchen-gardens and orchards and the tough roots and the bitter or even poison- ous berries of wild varieties, there is a vast difference ; so great, indeed, that these fruits and vegetables may be regarded as arti- ficial products ; that is to say, as actual creations of human indus- try. Here is the proof. If the constant labor of cultivation be relaxed for a few years, these products speedily degenerate ; i.e. they revert to a state of nature, losing all those virtues with which human industry had endowed them. It is true, however, that some wealth is not the product of labor, precisely because it is not a product ; i.e. it pre-exis/s before any act of production. I refer to the earth and all the organic matter or inorganic substances with which it supplies us, — the bubbling spring of water or petroleum, the growing forest, the natural prairie, the stone-quarry, the coal or metal mine, the waterfall suitable to turn a mill-wheel, the guano-bed deposited by sea- birds, the fishery banks teeming with fish, shellfish or coral ; in a word, the original source of the elements of all our wealth. These, surely, constitute wealth, and of the first rank in order of importance, but they clearly exist independently of any labor done by man. Still for a just conception of the part played by labor in pro- duction, we must add two further points. no PRINCIPLES OF POLITICAL ECONOMY. 1. Such wealth does not exist, qua wealth, i.e. as useful and valuable objects, until human intelligence has been able, firstly, to discover their existence, and furthermore to perceive that they possess qualities which render them fit to satisfy any of our wants. Let us take, for example, any piece of land, say a corn-land in America. Why is this wealth ? Because some explorer or pioneer, following the course Christopher Columbus first opened out, has discovered the existence of this particular spot. Now the fact of discovery, whether it be applied to a New World or to mushrooms in a wood, always presupposes a certain amount of labor. 2. Again, such wealth cannot be utilized, i.e. employed for the satisfaction of man's wants, until they have been subjected to more or less labor : in the case of virgin soil, till it has been cleared and opened out ; with a mineral spring, till it has been secured and bottled ; wijh mushrooms or shells, till they have been gathered. Thus even with wealth which is termed natural, labor is seen to be a real agent of production ; for without it, such objects would be virtually non-existent for us, inasmuch as they would serve no purpose for us. In a word, it is labor which discovers and utilizes them. Of course, we do not imply by this that natural wealth obtains all its value from labor; we have already rejected that theory. According to Bastiat, all natural wealth is gratuitous, i.e. valueless, because such objects are the free gift of nature, and may be held to preserve that character in all the successive transactions through which they may pass. But the most ordinary observation suffices to give the He to that theory, which, indeed, was merely conceived to defend landed property from the reproach the socialists bring against it, of monopolizing the gifts of nature which should be the common property of all men. As value is based on utility, ajl natural wealth, such as virgin soil, gold-bearing strata, guano, etc., possesses a value which exists before any act of labor. For a long time the government of Peru has had no other income but the sale of its guano. PRODUCTION. Ill II. How Labor produces. When we survey the infinite variety of products which rise from under the fairy fingers of human industry, we are apt to imagine that labor is a power which is infinitely complex in its methods, and which defies all analysis. Yet it is nothing of the sort. Labor is merely a muscular force directed by some superintending intelligence : it can have no effects but those of a motive force, and that, a very weak one ; viz., a movemetit, a change of place. This displacement may be a change of place of the object itself, or of its component parts. In the latter case, we say that there is a change of form, but every transformation amounts to a displacement. The exquisite shapes assumed by clay under the hand of the potter or the statuary, the rich and ingenious patterns wrought on lace by the fingers of the lace-maker, have no other cause than the arrangements, or rather,* the displacements, of the molecules of clay or the threads of the tissue. All that man's labor can do is to stir, separate, reunite, insert, superpose, and arrange effects which are only different modes of motion. Take the production of bread, and pass in review the various acts of this production, — ploughing, sowing, reaping, winnowing, grind- ing, sifting, kneading, putting in the oven, — they are nothing but movements and changes of place effected upon matter. Analyze any other industry, and no other factor will be found ; for this is the only part man plays in the work of production, this is the limit of his power. All the profound transformations which are effected in the constitutions of bodies and which by modifying their physical or chemical properties conduce to production, — the mysterious evolution of a plant from its seed, the fermentation which turns a sugary syrup into alcohol, the chemical combination which turns out steel from the furnace iron, — these are not man's work. His part has been limited to placing the materials in the required order : the corn in the earth, the vintage in the vat, the ore in the furnace ; nature has done the rest. Yet, however feeble this motive force may be, it is strong 112 PRINCIPLES OF POLITICAL ECONOMY. enough to transform the world ; for it is exerted by an inteUigence which knows how to turn it to the best possible use. Man's strength is relatively feeble when compared with that of animals. For instance, it is one-seventh of a horse's, though a horse is not seven times heavier, and is certainly not seven times larger. Still, we must say, that though man has less muscular force than the animals, he has generally more dexterity, and this he especially owes (as the very name shows) to that marvellous organ we call the hand. Every physical labor, properly so-called, must be preceded by a purely intellectual labor which we term "invention" ; this consists in discovering the practical means of turning to our ends the forces we have power over, and the objects to which they can be applied. Invention is not, as might be believed, a rare gift which can only be displayed by a few learned men ; on the contrary, it is intimately bound up with every act of production. The Paris knick-knack maker who fabricates for the shops some fresh New Year's Day toy at a farthing apiece, the joiner who tries to make the best use of a plank, are also inventors in the accurate sense of the word. There is no movement of a workman's arms or fingers, there is no combination or organization of labor, which has not been originally invented by some artisan. From this point of view we can say that human intelligence is the first, nay, the only agent of production. However, when once made, invention has the power of serving as the basis of an unlimited number of acts of production, or, rather, of re- production ; hence the difficulty which the legislator experiences in regulating and protecting the inventor's right of ^property. The words " invention " and " discovery " should not be confounded, and, indeed, popular speech has well distinguished between them. It is correct enough to say that Christopher Columbus discovered America, but we should laugh if we were told that he had invented it. Discovery is the revealing of the existence of an object which was previously unknown (such as a PRODUCTION. 113 land, a substance, a star, or a new property of some already dis- covered body) . Invention is the conceiving of some new mode of turning to account elements of which we are cognizant and over which we have power. Thus discovery may be regarded as the initial act in the process of production, the first link of the chain from which all the others are hung. Every land now under cultivation, all the wealth that we use, each force that we employ, must at some time or other have undergone this process of discovery. III. What Kinds of Labor should be called Productive ? Economic doctrines on this question of productive labor possess a very curious history. The title of " productive," which was primarily reserved for a single class of labor, has gradually been extended in its application, and has ended in being indiscrimi- nately bestowed on all species of work. The school of the physiocrats confined the epithet "produc- tive " to agricultural labor (including therein, hunting, fishing, and mining), and denied it to every class of labor, even to manu- facture. The reason assigned was, that it is, the first-named industries alone that furnish the materials for all wealth, and that all other labor is merely engaged in the working of these materials. This definition of the physiocrats was clearly too narrow. Raw material, as it is handed over to us by agricultural labor or extrac- tive industry, is usually altogether unfit for consumption ; it has to undergo numerous modifications which are effected by mami- facturing industry. Manufacture is the indispensable complement of the former labors, and without it the process of production is as incomplete as a play with the last acts suppressed. Of what use would the ore be at the pit's mouth, if it were not to go thence to the forge or the foundry? Of what use would corn be, if it had not to pass through the hands of the miller and the baker? Were it not for the weaver's labor, flax would be no more useful than the nettle. How, then, can we refuse to these labors the 114 PRINCIPLES OF POLITICAL ECONOMY. • title of " productive "? for without them all these kinds of wealth would be useless to us ; in other words, would not be wealth at all. It is altogether a mistake to think that agricultural and extrac- tive industries create wealth, whilst manufacture only transforms it. As we have already shown, the agriculturist himself merely transforms the simple elements he has borrowed from the soil and from the air. He makes corn from water, potassium, silicon, phosphates, and nitrogen, just as the soap-maker fabricates his soap from soda and fatty bodies. Hence, from Adam Smith onwards no one .has hesitated to include manufacture in productive labor. There has been a longer hesitation as to the labor of transport, for the act of transport does not appear to effect any modification in the object. The bale of goods is the same at the station where it arrives as at the station whence it came. That, it is said, is a characteristic distinction from manufacturing industry. The drawing of such a distinction is scarcely philosophical, for every act of displacement effects an essential modification in bodies ; indeed, as we have just seen, is the only modification we can cause in matter. What we call transformation in manufac- ture is nothing but an arrangement ; in other words, a change of place of the component parts of substances. If we were to deem a displacement not to be a sufficient modification to be termed productive, we should have to refuse that appellation to extractive industries ; for what is the miner's work save the transporting of ore or coal from the bottom of the shaft to the surface of the ground ? Now what distinction can be established between such labor and the wagoner's work in taking this ore or coal from the pit's mouth and carrying it to the works, — unless we assert that displacement is productive when it is exercised vertically, but is no longer so when horizontal ? Besides, it is scarcely necessary to add, that just as manufacture is the indispensable complement of the agricultural and extractive industries, so, too, the labor of transporting is the requisite complement of its predecessors. What would be the use of stripping bark trees in Brazilian forests, PRODUCTION. 115 of extracting guano from the Peruvian islands, of hunting elephants for their tusks in South Africa, if we had no sailors and carriers to convey these products to the places where they are to be used? What profits it a landowner to have the finest crop in the world, if the lack of a road prevents him transporting it? It is just as if he had no crop at all. With regard to commercial industry the hesitation has been even longer. For it may be noted, that the process of trade reduced to its lowest terms, i.e. to the act of buying for the purpose of selling again (for that is its legal meaning), does not imply any creation of wealth. No doubt those who engage in it may make much money, but that does not add to the general wealth ; in truth, we shall see that the multiplication of business men and middlemen may become a veritable scourge for modern societies. Thus, if commerce can be classed among productive labor, that can only be done with great reservations. On the other hand, we must observe that men of business are most usually occupied with the transport of goods, as is the case with shipowners who carry on the export or the import trade. In a certain measure,, too, merchants may be regarded as the actual directors of transport all the world over : the carrying industry only executes their orders. Moreover, they preserve goods in the shape of stock in hand. They even subject them to certain modifications : the cloth merchant cuts his strips, the grocer roasts his coffee, etc. It is through them that the commodity comes into the hands of the consumer, and thus the cycle of pro- duction is closed. Finally, discussion has been keenest with regard to services rendered, such as those afforded by the liberal professioiis ; for it may seem strange to call "productive" the labor of the surgeon who amputates a leg, or of the executioner who cuts off a head. However, this last step has also been taken, and now without halting at antiquated and pedantic distinctions, we have come to place under the heading of productive labor all labor that in any wav whatever contributes to the satisfaction of the wants of man. Il6 PRINCIPLES OF POLITICAL ECONOMY. It is a logical consequence of the theory we have expounded, that services rendered, as well as material objects, should be placed in the list of articles of wealth. However, it is of little importance whether this new departure be accepted or not, and if material objects alone are allowed to rank as wealth. The term " produc- tive " should be taken in the widest possible sense. In the social organism, thanks to the law of the division of labor, there is such a solidarity between the labors of men, and they are so closely related, that it is impossible to separate them. Take the production of bread. We need not hesitate about classing as productive labor the respective toil of ploughmen, sowers, reapers, wagoners, millers, and bakers, beginning with Triptolemus, the legendary inventor of corn, and all his successors who have discovered the varieties of cereals and have invented the rotation of crops, or the methods of intensive agriculture. But we cannot restrict ourselves to pure manual labor. It is clear that the labor of the farmer or of the lord of the manor, though he may not himself have put his hand to the plough, is very useful for the production of corn, just as the shepherd joins in the production of wool though he does not shear the sheep himself. Neither can we ignore the work of the engineer who has prepared the plan of a system of irrigation, or of the architect who has constructed the farm-buildings and the barns. Must we stop here ? We might ; but have not the following also contributed to the production of corn, and should not their work, too, be termed productive ? I refer to the county police- man who has frightened away robbers, to the public prosecutor who has prosecuted them, and to the judge who has sentenced them ; nor should I forget the soldier who has protected the year's crop from even worse ravagers ; viz., foreign armies. What shall we say of the labor of those who have moulded the agriculturist and his men, of the instructor who has taught them their ideas of agriculture or has put them in the way of obtaining such knowl- edge, of the doctor who has kept them in good health? Is it a matter of indifference for the production of corn or any other PRODUCTION. 117 wealth, that the workers be well taught and of sound constitution ? Are we to disregard the question as to whether they are well ad- ministered and governed, are in possession of order and security, and enjoy the benefits of a good government and good laws? Are we justified in putting aside the kinds of labor which are the most alien from agricultural pursuits, those of writers, poets, and artists ? Are we to think that the taste for agricultural labors, and conse- quently the production of corn, cannot be usefully developed in a society by novelists who depict scenes of country life, or by poets who celebrate the pleasures of rural occupations and teach us to repeat, after the author of the Georgics, — " Fortunatos nimium sua si bona norint Agricolae"? Where, then, are we to stop ? We see the circle of productive labor extending to infinity, to the farthest bounds of society, like those concentric circles which spread on the surface of the water round the centre we have agitated, and which are' lost in the dis- tance, without the eye being able to perceive the limit where they stop. No doubt the various kinds of labor we have just passed under review have not contributed to the production of corn in the same way ; some have acted directly, some only indirectly ; but none of them, beginning with the ploughman's toil and reach- ing to the occupation of the President of the Republic, could be suppressed without the cultivation of corn suffering therefrom. Still, though we cannot make definite distinctions between these various kinds of labor, yet, proceeding from the centre to the cir- cumference, we can establish a sort of hierarchy arranged, not in order of dignity, but according to their economic utility. The most important for the wealth of a country are labors of discovery and invention ; then come agricultural pursuits, next manufacture, after that the labor of transport, and last of all com- merce and official employments. The fewer the people engaged in these last two kinds of labor, the better it will be. However elementary this classification may appear to be, its Il8 PRINCIPLES OF POLITICAL ECONOMY. exposition is not a needless one ; for every day it is utterly misun- derstood by customs and by laws. Thus governments spend mil- lions on developing means of transport without first finding out whether there is anything to transport ; and thus, too, the number of people engaged in retail trade or in official employment in- creases every day, while agricultural pursuits are more and more abandoned. IV. On Pain as a Factor of Labor. All productive labor presupposes a certain amount of toil, and this is a law of supreme importance in political economy. Indeed, if labor was not a toil, pain or difficulty, all economic phenomena would be other than they now are. For instance, if men worked for pleasure, there would no longer be any raison d'etre for individ- ual property so far as it may be regarded as the just recompense for labor and the necessary stimulus to human activity, which indeed is its principal basis. In that case the most serious objec- tion that can be brought against communism would fall to the ground. Fourier, the socialist, perfectly understood this : thus the pivot he gave to the future society that he proposed to organize was attractive labor. He asserted that labor was painful solely on account of a flaw in the organization of our modern societies, and he boasted in his phalanstery that he would make labor attractive for all men by free choice of avocations, variety of occupations, shortness of tasks, esprit de corps, emulation, and a hundred other combinations, some of them ingenious, some fantastic. Why not? it may be said. Labor, taken as a whole, is only a form of human activity ; now activity has nothing painful about it. To act is to live ; it is absolute inaction which is a torture, and so cruel an one that when it is too prolonged iri solitary confinement, it will kill the sufferer or turn him rnad. There is no essential difference between labor and a number of exercises which are regarded as pleasures, though they eften require an expenditure of PRODUCTION. 119 strength higher than that iteeded by labor ; e.g. mountaineering, boating, gardening, even dancing. If Candide took his pleasure in cultivating his garden, and Louis XVI his in making locks, why cannot all men reach this stage of working for the love of it ? The answer is, that man only takes pleasure in action in so far as he can obtain satisfaction from the mere exercise of this activity, in so far as this exercise is a natural function. But when this activity is seen in the light of ^/le conditiofi of an ulterior enjoyment, as the effort which he must make to achieve an -aim fixed before- hand, — and that is the very essence of labor, — then it becomes painful. Between a boating man who rows for pleasure and a boatman who rows to earn his living, between a tourist who climbs a mountain and the guide who accompanies him, between a girl who spends her evening at a ball and the dancer who appears in a ballet, I see only one difference : the first in each pair row, climb, or dance solely to row, climb, or dance ; the others do so to earn their living. This difference, though a purely subjective one, causes the same modes of activity to be regarded as a pleasure by the former, as a toil by the latter. The man who follows a road only for a walk may take pleasure in it, if it presents any attractions, but he who passes over it night and morning only to reach a fixed point always finds it long and wearisome. Now for almost all mankind labor is a path upon which they enter for the necessity of living, and therefore, in accordance with the old curse in Genesis, they have labored " in the sweat of their face." Doubtless even the humblest labor has its joys, the joys of duty fulfilled and of a natural law voluntarily accepted ; but these austere pleasures will never be felt except by a few chosen spirits, and we should fall into the most chimerical optimism if we flattered ourselves with the hope of one day seeing all men labor solely for pleasure ; i.e. without requiring the stimulus of self- interest or the orders of compulsion. In order, then, to induce man to work and to counterbalance the feeling of pain which is occasioned by all labor, a higher force 120 PRINCIPLES OF POLITICAL ECONOMY. is needed : for the slave this is the scourge, for the free laborer it is the desire of satisfying his wants. Thus every man who labors is the prey to two conflicting feelings : on the one hand, the desire to satisfy some want or to obtain some enjoyment ; on the other, the wish to escape the pain caused by his work. According as one or other of these desires turns the scale, he will continue or will abandon his labor. As Stanley Jevons ingeniously observes, the pain endured by the worker incessantly increases in proportion to the prolongation of the labor, while the pleasure he derives from it constantly di- minishes in proportion as his most pressing wants begin to be satisfied. Thus out of the two desires, the one requiring him to work, the other inviting him to stop, it is clear that the latter will sooner or later gain the day. Take a laborer drawing buckets of water from a well. Fatigue increases with each fresh bucket he has to draw ; on the other hand, the utility of each bucket decreases ; for if the first was necessary for drinking and cooking purposes, the second will only serve for watering cattle, the third for cleaning purposes, the fourth for watering the garden, the fifth for sprinkling the road, etc. At what number is he to stop ? That depends partly on his power of supporting fatigue, but chiefly on the scale of his wants. The Esquimau, who only uses water to quench his thirst, will stop at the first or second pail ; the Dutch- man, who cleanses his house right up to the roof, may have to draw fifty buckets before he thinks he is sufficiently provided with water. Productive activity can be greatly increased if the stimulus of future requirements is added to that of present and actual needs ; if, for example, in a land where water is scarce, the worker thinks of filling a cistern in readiness for the days of drought. But this faculty of weighing together an immediate pain and a distant satisfaction — a faculty which is really called foresight — belongs only to civilized races. It is characteristic of the French peasants, a stock which is laborious though frugal ; a fact which shows that they labor less to satisfy their present needs, which are very few, PRODUCTION. 121 than to provide for future wants, whether those of old age or of their famiUes. V. On Time as a Factor of Labor. If all labor involves a certain amount of pain, it also requires a certain expenditure of time. We have already seen that this is one of the essential conditions of all production, a condition which is absolutely universal ; for Nature herself, as far as she is associated with man in the labor of production, is equally subject to it; there must be long months of waiting before the seed, slumbering in the furrow, can become the ear, and long years before the acorn develops into the oak. Between the moment when labor begins and the date when it gives the expected results, there is a more or less long lapse of time ; but we may hold it to be a general law, that the longer this period is, the more productive the work should be. It may be short (a few hours are enough) for labors which enable man to live from day to day, from hand to mouth, such as hunting, fishing, or the plucking of wild fruits ; but for agricultural works, large industrial enterprises, or those engineering achievements which do honor to our time, such as mines, artesian wells, railways, tun- nels, canals, — for such as these the requisite time becomes enormous and proportionate to the hugeness of the results.^ How many years will go by between the first stroke of the pickaxe on the Isthmus of Panama and the passage of the first ship through the proposed canal? This condition of all productive undertakings is, as we shall see, one of the very chief causes of the importance of capital and of the privileged position of the holders of capital. Indeed, as he must live while he is waiting for the result of his work, the laborer can attempt nothing without the aid of certain advances, and these are supplied by the capitalist. ^ This point is worked out in full detail by Dr. Bohm-Bawerk in his Kapital- Zins, Vol. II (1889). — J. B. 122 PRINCIPLES OF POLITICAL ECONOMY. It is not enough to state that time is an indispensable factor of all production ; we must add, further, that man has only a limited amount of time to dispose of, not only because his life is short, but because numerous deductions have to be made from that. We must take into consideration the following : Firstly. Man cannot work evoj hour in the day. We must certainly deduct time for sleep and for meals, and experience has proved that nothing is gained from the point of view of production by extending the duration of the working-day. Custom and even law fix this at ten or twelve hours, and the famous formula of the " Three Eights " now tends to a general reduction to eight hours, which would give only a third of the day for labor. Compare with this the refrain of the old English song, — " Eight hours to work, eight hours to play, Eight hours to sleep, eight shillings a day," which has been brought into fashion again by the recent dis- cussions as to the limitation of the hours of labor. As a matter of fact, if we assign a third of the day for sleep, a third for labor, that is to say, for the requirements of economics, and the remain- ing third for the satisfaction of wants of another kind, but which are no less important for man's development, viz. the duties de- manded by family life, social intercourse, education, physical and intellectual recreation, — if such a portioning out of time is to be the normal one, there will obviously be no more space left for labor. Secondly. Man cannot work every day in the year, and there is no country in which there are not a certain number of holidays. England and America rigorously obey the order to observe the Sabbath ; the English, moreover, take Saturday afternoon ; all this, with some other holidays thrown in, amounts to rather more than eighty days a year. Russia, with its numerous saints' days, has even more. Countries which, like France, pride themselves in being above the sabbatical superstition, gain nothing by that ; for if they do not keep Sunday as a day of rest, they compensate for PRODUCTION. 123 that by taking Monday, which is observed as a hohday in many French trades.^ It is rare for even the most industrious of Parisian workmen to reach an average of 300 days' labor a year. Moreover, days of illness must be reckoned for. Here, again, we must remark that to increase the number of working-days and restrict the days of rest, would only result in a useless expenditure of man's productive strength. Thirdly. Man cannot 'work for all the years of his life ; we have in all cases to deduct the years of infancy, and also those of old age wherever that state is reached. Let us suppose that the normal length of life is 70 years ; let us suppose, again, that the period of productive labor begins at 18 and ends at 60, — both estimates being certainly exaggerated ; then, even granting such conditions, we should have to subtract 28 years out of the 70, or 40 per cent. It is clear that the power of productive labor of any individual depends on the relation between the two periods of his life : on the one hand, the unproductive period, with its two sections, childhood and old age ; on the other hand, the productive period. While really young or really old, an individual not only does not produce, but also consumes. From a purely economical point of view, it would be by far the best for each man to die just at the end of his productive, and before entering on his unproductive, period. If he dies before this, so much is stolen from his years of production ; if he dies after this, his unproductive years are added to. It is in accordance with this line of argument that some peo- ples slay their graybeards. In all countries, without exception, the average length of man's life is far from reaching the above- mentioned figure, viz. seventy. It usually varies between forty and fifty years as the maximum. Thus the time during which the productive powers are exercised represents a half or at the most three-fifths of a man's life. 1 This practice, which the French term " fSter le lundi," is represented by the "St. Monday" of English compositors. — Translator's Note. 124 PRINCIPLES OF POLITICAL ECONOMY. From this point of view, the most favored country is that which can show the largest number of men between the ages of eighteen and sixty, or in the period of " useful life," as the saying is. Thus regarded, France is not unsatisfactorily situated. This distribu- tion of ages depends in particular on the average duration of life in any society. The longer that is, the greater the chance of a large number of adults. Yet highly erroneous conclusions might be reached from following too closely this line of argument. If in one country half the children died unweaned, and in another country the same number of children died at the age of fifteen, the latter country would certainly possess a higher average of duration of life, but still would be far worse off from a productive standpoint. In it the proportion of useless mouths would be much greater. Both on economical and even sentimental grounds, it would be better that every child lost at the age of fifteen had ceased to live when six months old.^ To recapitulate : Let us take a man who has worked from the age of 1 8 to 60 at the rate of 300 days a year and eight hours a day. When he reaches the age of 70, and looks back on the past, he will surely be able to say that he has spent his life well, yet he will have worked only 100,800 hours out of the 613,200 he has lived, or rather less than a sixth. After these considerations, it is not surprising that man seeks to economize time, and that the most active peoples of our day have taken as their motto, " Time is money." 1 This argument seems to prove too much. There is no reason for stopping at six months, /u^ vvai rhv aKavra viKa \6yov. — J. B. CHAPTER HI. CAPITAL. I. On the Part played in Production by Capital. It would appear that man's labor, aided by nature, ought to be sufficient for production. Animals, sure enough, have to meet the necessities of their existence by their own activity and the objects supphed to them by nature. Yet observation shows that if man's labor and nature are left alone face to face, they are extremely likely to remain eternally sterile. For human industry something more is needed ; to wit, a certain amount of wealth which has been previously acquired. Numerous authors have told the stories of men of the Robinson Crusoe type, and have striven to show us man grappling, unaided, with the necessities of existence ; but there is not one of them who has neglected to endow his hero with some tools or pro- visions which are usually saved from a shipwreck. These writers know well enough that without this precaution the story would have to stop after its second page, for their hero's life could last no longer. What was it that these Crusoes lacked? Had they not the resources of their labor and the treasures of a fruitful though virgin nature ? Yes ; but there was still something want- ing, and as they could not do without it, the writer had to see to their obtaining it. What was it? Why, pre-existing wealth, the acre. Secondly. It grievously shackles foreign trade, for by reducing the importation of goods it reduces exports in the same proportion ; it is therefore in most flagrant opposition to the efforts that nations are making to facilitate communication, to pierce through moun- tains, to cut through isthmuses, to furrow the seas with lines of subsidized steamboats and telegraph cables, to open international exhibitions, to establish monetary conventions, and so forth. Thirdly. It does the greatest harm to industrial production by raising the cost of production, either directly by the increased dearness of raw material, or indirectly by the increased dearness of manual labor. Hence spring permanent and insoluble con- flicts between the various branches of production : if import duties are put on wools or silks to protect the producers of sheep or silkworm cocoons, there arise outcries for the silk-weavers and wool-spinners ; if import duties are put on wool, silk, or cotton threads, the weaving industries are ruined. The complicated mechanism of the treatment of "goods for re-exportation" is an altogether inefficacious palliative. Fourthly. It does still greater harm to the material production by removing the stimulus of foreign competition. In a political speech Prince Bismarck spoke of those pike that are put in carp- ponds to keep the carp active and to prevent them burying themselves in the mud. That simile is especially appropriate 266 PRINCIPLES OF POLITICAL ECONOMY. here. If we desire — and that is the protectionist's desire — a country to maintain its position as a great industrial and commer- cial power, it must be compelled constantly to renew its tools and machinery and its methods of work, ceaselessly to eliminate worn- out or obsolete organs, just as the snake which renews its youth by casting its skin. As this operation is always a disagreeable one, it is doubtful whether producers would submit to it with a good grace, were they not obliged to do so by an exterior power. Fifthly. Finally, and above all, it nurses in the country a fatal illusion, in causing it to regard as a gain what is really a burden. The advocates of protective duties assert, in fact, that as import duties are laid on foreigners, they do not burden the country at all ; nay, that they actually add to the income of the state. This illusion, the benefits of which the protective system has reaped, has made its fortune, but ought really to be enough to condemn it. For the effect of import duties is to add to the price of com- modities, not only of the imported goods, but also of similar articles which are consumed at home, so that the public pays out from its pocket, in the shape of higher prices, ten times the sum that is gained by the State. Let us suppose that 10,000,000 hun- dredweight of foreign corn enter France, worth on their arrival 1 7 shillings the hundredweight. In consequence of the competi- tion of this foreign corn the 80,000,000 hundredweight of corn, which are approximately the production of France, are also sold only at i 7 shillings, and this is the precise subject of complaint. Let us then put a duty of four shillings on the importation of foreign corn. From the custom-house receipts the State (pre- mising that this duty does not reduce the quantity imported) will gain 10,000,000 X 4 = ^2,000,000. Now let us see how the pubhc fares ; not only will it pay four shillings more for each hun- dredweight of foreign corn, that is to say, ;^2,ooo,ooo, which is exactly equal to what the State receives, but also it will pay four shillings more for every hundredweight of corn produced in France, the French producers naturally hastening to sell their corn at the same price as the foreign producers ; that is to say, PRODUCTION. 267 80,000,000x4 = ^16,000,000. That is to say, these protective duties will have brought altogether ^2,000,000 into the State coffers, and ;^i 6,000,000 into the pockets of home producers, but will have cost consumers ^18,000,000. That is the decisive argument against import duties, and in spite of its efforts, the pro- tectionist system has never succeeded in refuting it. The usual answer is to assure us that import duties are paid by the foreign producers, and that the price of the imported com- modity will not be increased. Allowing for one moment that this reply is a valid one, yet we should have to conclude from it that, since prices will not be changed, the national industry will not be protected one whit, and the criticisms we have just made on the system of protective duties will receive a last and even more clenching argument, " import duties are of no avail." However, though this reply of the protectionists may be a sound one in certain particular cases, it cannot be accepted in a general way. In consequence of a law, which is well known in this matter of imports under the name of the "law of transference," every tax paid by a producer or a merchant is laid by him on his goods, and thus falls upon the consumer. A fortiori this will be the case with the foreign producer. For how can it be reasonably sup- posed that a country has the power of throwing back on the for- eigner all or part of its imports ? Were such a pleasant receipt to exist, it is clear that each country would hasten to have its duties paid by its neighbors, and consequently no one would be a whit better off. Yet this notion is constantly reproduced : people are never tired of saying that the United States, thanks to their protective system, have been skilful enough to make foreigners pay the interest on their national debt, and even the greater part of the principal. It must be confessed that the Americans have espe- cially aided the spreading of this opinion by expressing it them- selves in the most naive manner. It can be judged from the following extract from a speech of Mr. Lawrence, Comptroller of 268 PRINCIPLES OF POLITICAL ECONOMY. the United States Treasury : " By our customs tariff we inform the foreign manufacturer that he may send his products here, but that he must pay for this privilege. He is therefore compelled to reduce his prices and his profits, and to aid in the formation of that revenue which enables us to wipe out our public debt, and to pension off our soldiers who were maimed or wounded during the Civil War. This is distributive justice, since we force England and France to pay their share of the expenses of a rebellion which they maliciously encouraged." (Quoted in the Economiste fran- ^ais, 1882, Vol. I, page 441.) Similarly, when Russia resolved that, to renew her stock of money, customs duties should henceforward be paid only in gold, she evidently imagined that foreigners, when sending her their goods, would at the same time send the quantity of gold necessary for the payment of these duties. That was won- derfully innocent ! It was the Russian buyers who were obliged to obtain the necessary gold, and not a piece more entered the country ! The argument of the protectionists may be sound, however, in one case which has been especially noted by John Stuart Mill. Every rise in price involves a reduction in consumption. The foreign producer will then have to ask himself whether it is not necessary for him to make a sacrifice and lower the price of his articles by a sum equal to the amount of the duty, in order to keep his custom by adhering to his former prices. The duty which falls on his products leaves him, therefore, on the horns of this unpleasant dilemma : either he must restrict the amount of his sales, or he must suffer a sacrifice in prices. It is not impos- sible that, when all is said and done, his interests may lead him to choose the second alternative, i.e. to burden himself with all or part of the duty. However, two conditions are requisite for his resigning himself to this extremity : firstly, his cost price may enable him to do so ; secondly, he is unable to send his products to another market. It would be chimerical to base one's actions on such an eventuality ; in any case, if this was realized by chance, the mark aimed at by the establishment of the protective duty is PRODUCTION. 269 missed. It is impossible to escape from this dilemma. Besides, observation of facts shows, at least in a general way, that protective duties induce a corresponding rise in price. V. Why the Bounty System is Preferable. If, then, a state judges that, under certain particular circum- stances, it is useful to protect the national industry, it should resort not to the system of import duties, but to the far simpler and more candid system of bounties, whether in the shape of guarantees of interest or of direct subventions. This method presents none of the disadvantages which we have shown to be inherent in the import duty system. Firstly. It can be graduated at will, so as to protect only those who really need protection, and no others. It may be said, " that will be arbitrary." The system of protective duties is also arbi- trary, the arbitrariness of a blind man ; whereas this may be that of an intelligent one. Secondly. It lays no shackles on foreign trade, and allows the full development both of imports and of exports, since it does not enhance the price of products. Thirdly. It does not interfere with production, for it does not make raw materials dearer and does not raise the cost of produc- tion ; on the contrary, it lowers it. It is true that, by granting a certain measure of security to the national industries, it may favor routine. That is an evil inherent in every possible system of pro- tection ; still, bounties may be established under certain condi- tions calculated to stimulate the progress of the protected industry. Thus the bounties granted by the law of 1881 to merchant ship- ping are more or less considerable, according as the ship is a sail- ing-vessel or a steamship, made of wood or of steel, and propor- tionate to its speed. Fourthly. Finally, and above all, this system only professes to be what it really is — a sacrifice imposed on the country for a reason of public utility. It allows no illusion as to this, and gives 270 PRINCIPLES OF POLITICAL ECONOMY, rise to no ambiguity. The public knows that it pays for this pro- tection, and knows exactly the price that it pays. Thus it may be held to be certain that a State will only resort to such measures in so far as their utility is clearly perceived, and that in all cases they will not be extended beyond foreseen contingencies, nor pro- longed beyond the fixed limit or term. Therein lies the economic and moral superiority of this system. This it is that is little realized by the protectionists, and hence they rarely ask for the application of this system. They would have too much trouble in obtaining it. Yet the bounty system is practised in France in the shape of bounties for merchant ship- ping, both for building and for navigation, and is justly preferred to surcharges on foreign ships. In new countries it happens often epough that the State guarantees a certain interest on capital sunk in various industrial undertakings. Thus Brazil has granted a guasantee of six per cent on sugar manufactories, and a bill has been discussed in the Argentine Republic for granting a similar guarantee on " frozen meat " works. VI. On Some Moderate Forms of Protection. Some years ago a party was formed, which, demanding protec- tion in a general way, asked for reciprocity in the matter of customs tariffs. This is called in England fair t}-ade, in antithesis to free trade. If the system is employed by way of reprisals to compel a pro- tectionist country to lower its duties, — if, for example, England answered the prohibitive tariffs of the United States by heavily taxing American produce, — in that case it might very well be justified. As a matter of fact, though, such a question is political rather than economical. If we go further, and attempt to discover in it a scientific theory, it is left without a leg to stand on. If the protective system is held to be beneficial, it should be adopted ; if it is regarded as an evil, it should be rejected ; but whether neighboring countries PRODUCTION. 271 adopt it or not is their affair, not ours. No doubt, were England to lay duties on American products, she would injure the United States, but she would hurt herself too ; and the bad turn we are able to do our neighbor cannot be held to compensate for the harm we do ourselves. Another revised system is that of countervailing duties. Its ad- vocates assert that when a country bears a heavier load of taxes than foreign countries, to re-estabhsh equahty in competition it should burden foreign products with duties which are equivalent to the charges borne by its citizens. This argument is entirely based on the notion that customs duties are borne by the foreign producers. If, as we have at- tempted to show, that is a pure illusion, and if these duties really fall upon our own people in the shape of a rise in prices, then we can appreciate the wonderful originality of this so-called compen- sation, which, under pretence of equalizing the struggle, doubles the burdens of the public. Now if it is merely meant that foreign products ought to be laden with duties equal to those paid by the same products within the country, no one will contradict that principle of fiscal equality. Yet this equality is not always observed, even in protectionist countries. Thus one of the great grievances at the present moment (1888) of the vineyard proprietors and wine merchants in the South of France is, that Spanish and ItaHan wines enter the coun- try with four or five litres of alcohol added per hectolitre, and pay only 2/6 (half-a-crown) import duty, whereas in France each litre of alcohol pays 1/4 (one shilling and four pence) as excise. That is an unjust privilege to the profit of foreign producers, and has been well called a sort of protection turned upside down. CHAPTER VII. CREDIT. I. Credit Operations. However ingenious exchange may be, it is an arrangement that cannot answer all needs ; for, in order to obtain anything by ex- change, one must be able to give in exchange an equal value. Now not every one is in a position to supply this value ; if each person who required lodgings was obliged to buy a house, it is easy to understand how extremely awkward such a state of affairs would be. Men have therefore been led to conceive an arrangement which is akin to exchange, but which is nevertheless different, to wit : lendhig, by means of which I can obtain a thing provisionally and make use of it for a certain space of time, on condition of merely giving to the person who surrenders it to me an annuity propor- tional to the time I have enjoyed the use of his article. The name given to this annuity varies according to circumstances, such as farm-rent, house-rent, interest. This is not the place to discuss the legitimacy or illegitimacy of this annuity ; that will be dealt with when we come to speak of the distribution of wealth. In popular speech, however, the word " credit " has a more restricted sense. It is applied not to the loan of anything whatso- ever, say a piece of land or a house, but only to the loan of a sum of money. This is easily explained by the fact that, as money in modern societies is the form in which all capital is seen, every loan of capital usually takes the shape of a loan of money ; but we ought further to note that the loan of money has a special charac- i teristic which radically marks it off from the loan of a piece of land or of a house. 272 PRODUCTION. 273 This special characteristic lies in the circumstance that the thing lent can only be utilized by the borrower on the condition that it is consumed, i.e. annihilated by him. The man who borrows cap- ital in the form of a bag of money must evidently, whatsoever use he may wish to make of it, empty the bag down to the last shilling. Similarly the borrower of a sack of corn, whether he borrows to sow it or to eat it, is compelled to destroy the corn, whether he intends to put it in the ground or grind it under the millstone. This characteristic is not specially confined to money ; it is pos- sessed by all things which in legal language are res fiingibiles {vide Hunter, Ro^nan Law, page 141), i.e. which are consumed at the first time of using. The feature just discussed introduces into the contract now under analysis serious modifications, as much for the borrower as for the lender. Firstly. The lender, to take him first, is exposed to far more considerable risks. The lender of a house or of a piece of land knows that it will be restored to him at the expiration of the lease ; for he, so to speak, does not lose sight of it while it is in the pos- session of the borrower ; but the lender of a res fungibilis, on the contrary, knows that he is irrevocably deprived of it ; he knows that it is about to be destroyed, and that such is its destination. The Roman jurisconsults had excellently remarked that the thing given ifi niutuum had to be alienated, thus differing from the thing given in conimodatu??i, which is merely lent. For when the date fell due, the borrower was not bound to return the thing, for it no longer existed, but had to transfer the proprietorship of something equivalent. The lender, true enough, reckons on an equivalent wealth to re- place that which he has lent, but this wealth is still non-existing ; it must be produced for that purpose, and everything that is future is ipso facto uncertain. Legislators, therefore, have exercised their ingenuity to guarantee the lender against all danger ; and the pre- cautions they have thought out to that end constitute one of the most important branches of civil law ; to wit, guaranty, mortgages, 274 PRINCIPLES OF POLITICAL ECONOMY. joint responsibility, etc. Nevertheless, a certain amount of trust is also required on the part of the lender, that is to say, an act of faith, and this is precisely the reason why men have confined to this particular form of loan the name " credit," which, by its ety- mological origin, presupposes an act of faith {creditum, credere) . Second/)'. To turn to the borrower : he is not merely bound, like the farm-tenant or the lodger, to preserve the thing lent to him and to keep it in good condition, so as to return it at the expiration of the fixed time ; after having used it, that is to say, destroyed it, he must labor so as to build up from it an equivalent, so as to wipe out his obligation at the appointed date. It is necessary, therefore, that he should be extremely careful ^o employ this wealth m a productive manner. If he is unlucky enough to consume it unproductively, say on personal expenses, or even if for any reason he fails to reproduce a wealth which is at least equivalent to that lent him, he is ruined. In fact, the history of all countries and of all ages is an actual martyrology of borrowers who have been ruined through credit. Credit, therefore, is an infinitely more dangerous instrument of production than those we have heretofore considered, and is a tool that should only be used by very experienced hands. It is sometimes said that credit only diifers from exchange in having for its object, not any commodities whatsoever, but merely capital. That is correct, for we know that we must regard as capi- tal all wealth that is employed in the reproduction of new wealth. Now, as the operation just analyzed demands the productive employment of lent effects, it is right to say that the wealth which is the object of lending is or should be regarded as capital. So much the worse, then, for the borrower, if he is foolish enough to treat it as an income. He misunderstands the meaning of the contract, and for that reason the contract becomes for him a snare. It is also said sometimes that credit differs from exchange in that it consists not in the exchange of two existing wealths, but in the exchange of a presetit for a future wealth. That, too, is a PRODUCTION. 275 correct statement, for we have just seen that the lender surrenders his article, in order to receive in exchange for it, at the date when his loan expires, an article which is at present non-existent, and which must be created during the interval. Later on we shall find in this the explanation of interest and dis- count. There is another credit operation which holds an important place in commercial transactions, and is known under the name of " sale for a payment at a future date," or deferred payment. At first sight we might be led to think that sale for payment at a future date is nothing but a sale, and ought therefore to fall within our chapter on exchange. Yet it is nothing of the sort, for the buyer, in exchange for the article handed over to him, gives nothing, prob- ably because he has no money ; he merely acknowledges himself to be a debtor for the value received, just as if he had borrowed it. He is bound to apply himself to reproduce this value before the appointed date, if he desires to be able to pay it back. This clearly shows the feature alluded to above — the exchange of present wealth for future wealth. Still, one might say the bor- rower pays interest, whilst the buyer for deferred payment pays nothing of the kind. That is erroneous. The price of an article sold for deferred payment is also higher than the price of ready money sales. The difference, which is called discount, exactly represents the interest on the capital lent to the buyer. The above are the fundamental credit operations. II. Credit Papers. Yet these operations required a further improvement. If it was very advantageous for the borrower, whether in the case of a loan, or of sale for deferred payment, to have capital at his disposal for a certain time, on the other hand it was exceedingly disadvan- tageous for the lender to be obliged to do without that capital for the same period of time. A manufacturer has daily to make pur- chases and pay wages. He renews day by day the capital which he requires by the sale of his goods, but if he sells these goods for 2/6 PRINCIPLES OF POLITICAL ECONOMY. deferred payment, it certainly appears that he must abandon the hope of obtaining his cash, and that he will find it impossible to carry on his business. What is to be done? Could it perhaps be brought about that the same capital should at one and the same time be at the dis- posal of two different persons, the man who has lent it and the man who has borrowed it ? Yes, that can be managed. It is by means of credit that this apparently insoluble problem is solved. In exchange for the capital surrendered by him, the lender or the seller for deferred payment receives a document, i.e. a piece of paper in various forms, a note to order, a bill of exchange, etc., and this document represents a value which, like all other values, can be sold. If, then, the lender wishes to re-obtain his capital, nothing is simpler. It is enough for him to sell, or, as the phrase goes, to negotiate his paper. The following are the two principal forms of credit docu- ments : — Firstly, the note to order, which is drawn up in this fashion : " On ninety days from date I will pay to Brown, or to his order, the sum of ;^400, the value received in goods. April i, 1888. (Signed) Jones." Secojidly, the bill of exchange, after this fashion : " On ninety days from date pay to Robinson, or to his order, the sum of ^400, value received in goods. April i, 1888. (Signed) Jones." The note to order, then, is simply a promise to pay, made by the debtor to his creditor. The bill of exchange is a little more complicated. It is an order to pay, addressed by the creditor to his debtor, an order to pay not to himself, the creditor, but to a third party. It is thanks to this form that the bill of exchange is especially employed to settle transactions between one place and another, or between different countries. Each credit operation, then, gives birth to a credit paper. Since in every busy society these credit operations are exceedingly numerous, in consequence of the fact that e-ach commodity is PRODUCTION. 277 often sold three or four times (each sale being for deferred pay- ment, and therefore giving rise each time to a new credit paper), the credit papers which exist in a country like France or England represent an enormous mass of value, perhaps ^400,000,000 higher in any case than the value of any class of goods whatsoever. III. Whether Credit can create Capital. Credit has attained such importance in our modern societies that we are tempted to attribute to it powers that are miraculous. By speaking every moment of great fortunes that are founded on credit, by stating that the largest enterprises of modern industry have credit for their base, we are persuaded into the belief that credit is an agent of production, which, just like land or labor, can create wealth. Yet that is a phantasmagoric construction. Credit is not an agent of production; what is a far different thing, it is a special mode of production, just like exchange, just hke division of labor. As we have seen, it consists of the transferring of wealth, of capi- tal, from one hand to another, but to transfer is not to create. Credit creates capital not a whit more than exchange creates commodities. This illusion has been fostered by the existence of credit papers. We have seen that each loan of capital is represented in the lender's hands by a negotiable paper of equal value. Hence it seems that the act of lending has the marvellous power of making two capitals out of one. The former capital of ;^ioo which has passed into your hands, and the new capital which is represented in my hands by a bill for p^ioo, do not they make two? From the subjective point of view that paper is capital. It is so for me, but it is not so for the country ; for it is obvious that it can only be negotiable while another person is willing to surrender to me in exchange capital which he possesses in the shape of money or of goods. This paper, then, is not capital per se, but it simply affords me the possibility of procuring other capital in lieu of that 2/8 PRINCIPLES OF POLITICAL ECONOMY. which I have given up. Besides, it is evident that whatever use I wish to make of this bill that I keep in my safe, whether I wish to devote it to the payment of my expenses or to productive pur- poses, I shall only be able to do this by converting this paper into objects of consumption or instruments of production which are already in the market. It is then with this wealth afforded by nature, not with these bits of paper, that I shall produce new wealth or merely obtain nutrition. Mr. MacLeod has earned special distinction as advocate of this thesis, that credit papers constitute real wealth and actual capital. He is logical enough in his conclusions, for he defines wealth as " everything which has an exchangeable value." Now as credit papers have incontestably an exchangeable value, they must certainly be reckoned as wealth. But it is the definition that cannot be admitted. If every credit paper, i.e. if every claim, were actually wealth, were each Frenchman to lend his fortune to his neighbor, by this one act the wealth of France would be simultane- ously and instantly doubled ; i.e. would rise from ^8,000,000,000 to ;^i 6,000,000,000 sterling. Mr. MacLeod insists on the state- ment that these papers at least represent future tuealih. No doubt ; but it is precisely because they are future that they can serve for nothing, and should not be reckoned as existing wealth. They will be reckoned as soon as they have begun to exist. Till that time there will always be this difference between present and future wealth : the former exists, the latter does not exist. We produce and live by means of existing ; we could neither live nor produce with wealth in nubibus. It would be as sensible as, when making the census of the population of France, to add, as an earnest of the future members of society, all those who will be born twenty years hence ! Yet, though credit cannot be termed productive, in the sense that it does not create capital, nevertheless it renders eminent services to production in the following manner : — Firstly, by utilizing existing capital to the best possible advan- tage. For if capital could not pass from one person to another. PRODUCTION. 279 and if each man were reduced to making a direct use of those he possessed, an enormous amount of capital would lie idle. In fact, in all civilized societies there are a number of people who cannot work their own capital : To wit, those who have too much ; for as soon as a fortune ex- ceeds a certain figure it is not easy for its owner to obtain the full profit from it by his unaided strength, without taking into consideration the circurtistance that usually, in such cases, the possessor has no inclination to make such an effort : Those who have not enough ; for workmen, peasants, domestic servants, who make small savings, cannot of themselves produc- tively employ such tiny capital. Still, when once these savings are combined, they may make hundreds of thousands of pounds : Those who, by reason of their age, their sex, or their profession, cannot themselves employ . their capital in industrial enterprises. This is the case with minors, women, persons who have devoted themselves to a liberal profession, such as lawyers, doctors, mili- tary men, clergymen, public servants, and employes of all classes. To reverse the picture : there are people in the world, such as promoters, inventors, agriculturists, nay, even workmen, who could easily make a good use of capital, if they only had it. Unfortu- nately they have not. But if, by means of credit, capital can pass from the hands of those who cannot or will not put it to account to the hands of those who are capable of employing it productively, that will be of great profit to each one of them, and to the whole country. Now, in every country, we can count by millions of pounds the value of capital withdrawn in this manner, either from sterile hoarding or from unproductive consumption, thus fertilized by credit. Secondly, by causing the formation of netv capital. For if peo- ple were unable to look forward to the employment of their sav- ings in loans, many persons, especially those just enumerated, would no longer be anxious to save, no possible future use being open to them. As to this point, see further on, " The Conditions 28o PRINCIPLES OF POLITICAL ECONOMY. Necessary for Saving." In fact, credit is to capital what exchange is to wealth. We have previously seen that by transferring wealth from one possessor to another, exchange certainly does not create wealth, but none the less utilizes it and incites to its production. Thirdly, by allowing the saving of a certain amount of metallic motley. This function of credit has already been discussed by us at length. We need not repeat the discussion here. IV. Banks. We saw above that exchange of commodities was scarcely pos- sible without the aid of certain middlemen whom we call traders. In the same way trade in capital would be impossible without the assistance of certain intermediaries who are termed bankers. Bankers are just like other business men. Business men as a class deal with commodities ; bankers deal with capital, in the shape either of credit papers or of coin. The former buy in order to sell again, and make their profits by buying as cheaply as pos- sible to sell as dearly as possible. The latter borrow in order to lend, and make their profits by borrowing as cheaply as possible in order to lend as dearly as possible. Here, then, are the two fundamental operations of all banking business, borrowing and lend- ing ; and as these borrowings are usually effected in the form of deposits and these loans in the form of discounts, they are gen- erally called deposit ajid discount banks. However, there is a third operation which is very different from the other two, though fundamentally it, too, is a mode of borrow- ing. We refer to the issuing of bank notes. But this operation is not essential to banks ; nay, in most countries it is an exceptional and privileged function which belongs only to certain banks which are called banks of issue. The history of banks is closely connected with the history of commerce ever since the Middle Ages. The creation of each great bank marks a new stage of commercial development. The first banks were those of the Italian Republics, Venice (? 1156) PRODUCTION. 281 and Genoa (1407). Commercial pre-eminence then passed to Holland, and we come to the great and celebrated Bank of Am- sterdam (1609), speedily followed by those of Hamburg and Rot- terdam. Finally, the creation of the Bank of England in 1694 teaches us that that nation is about to succeed to the commercial supremacy of the world. The Bank of France did not rise till much later, only at the beginning of the present century. Never- theless, in 1 716, Law had founded a famous bank, the sad termi- nation of which is well known to all the world. ^ Let us now examine in succession these three different opera- tions — Deposits, Discount, and the Issuing of Notes, V. Deposits. The banker's first task is to obtain capital. No doubt he can make use of his own capital or of those more considerable sums which may be furnished by association, and which in our great loan-societies may rise to some thousand millions pounds sterling. But if the banker carried on his operations only with his own pri- vate capital or that of the association, he would make but small profits and even would render little service to society : we shall soon see the reason for this. He is obliged, then, to carry on his operations by means of the money of the general public, and for that reason has to borrow it from them. (Many large banks never use their own capital in their business ; they invest it, either in real property or in stock, as a reserve or a guarantee to their clients. This is done by the Bank of France.) But how does the banker borrow this money from the pubhc? Not after the fashion of a government or a corporation, or even an industrial society, which borrows for a long date, in the shape of stocks, debentures, or shares, the capital which its owners seek to invest. No ; such a mode of borrowing demands too high a rate of interest for the banker to find any profit on such transactions. What the banker 1 See Dictionary of Political Economy, edited by R. H. Inglis Palgrave, article "Banks " (1891). — J. B. 282 PRINCIPLES OF POLITICAL ECONOMY. asks from the public is that circulating, floating capital which exists in the shape of coin in our trousers-pockets or in ihe drawers of our safes. In every country there is to be found in this form a considerable amount of capital, which is in nowise fixed, does noth- ing, produces nothing, and waits for the moment of employment. The banker says to the public, " Entrust it to me till you have found some employment for it. I will keep it for you, and will return it you when you require, at the first demand. While you thus wait I will give you a low interest on it, say i|- or 2 per cent. This will be always more than it produces for you ; for whilst it is in your strong-box it yields you no returns, and in any case you will avoid the trouble and anxiety of keeping it. Nay, if you wish it, I will do you the service of being your banker, of collecting your yearly income, cashing your coupons, and of paying your creditors, according to the instructions you give us, all which will be very convenient to you." Where this language is heard and understood by the public, bankers can obtain in this way, on very easy terms, a large amount of capital, by draining, so to speak, from circulation, the coin which is scattered about the country. The Journal of the Statistical Society of London for September, 1884, reckons that the sum total of the deposits thus received by the banks of the whole world amounted to ^^2, 508,000,000, ;^965, 000,000 of which were for England and her colonies com- bined. Sometimes, however, bankers pay no interest on deposits. Cer- tain banks, such as the Bank of England or the Bank of France, refuse to give any interest, for they consider that they render a sufficient service to the depositors whose money they receive ; and no doubt they are right, for they obtain enormous sums on deposit. A step further, too ; in former days, the deposit banks, those time- honored banks, for instance, whose names we gave a page or two back, actually demanded interest to be paid them by the depositors as recompense for keeping safely, as remuneration for services rendered. But most modern banks are accustomed to give their depositors PRODUCTION. 283 a small interest, in order to attract, by means of that bounty, the largest possible amount of deposits. Naturally enough, the in- terest is a httle higher if the depositor agrees not to demand back his money for a certain period, say six months, a year, five years, etc. We have already observed more than once that in England, for example, it is customary for wealthy people to keep no money in their own houses, but to deposit it all with their bankers. If they have a payment to make to a tradesman or any other creditor, they simply send this creditor to receive payment at their banker's, by giving him an order of payment drawn up on a sheet detached from a note-book with perforations, which is called a check. This custom is beginning to become universal in all countries. But we should note that the check is not, properly speaking, a credit paper ; it is an order to pay from funds which the banker should have in hand for his customer's account. VI. Discount. Once that this floating capital has been borrowed by the bank at a cheap rate, it is the banker's business to turn it to account by lending it to the public. But how? The banker cannot lend it for a long date, say, by way of mortgage or of advancing funds for a sleeping-partnership in industrial enterprises. He is obhged not to forget that he only holds this capital on deposit ; that is to say, he may be obliged to reimburse it at a moment's notice ; he con- sequently can only let it out of his sight for short-dated transac- tions, which merely deprive him of the disposal of this capital for a short time, and which therefore in some measure allow it to remain within his grasp and beneath his eyes. What loan operation can fulfil these conditions ? There is one which complies with them admirably. When a merchant has sold his goods for deferred payment, according to the usage of commerce, if he happens to have need of money before the expiration of the time, he turns to the banker. The latter then advances the merchant the sum which is 284 PRINCIPLES OF POLITICAL ECONOMY. due to him for the sale of his goods, making a deduction of a small sum which constitutes his profits, and receives in exchange the claim of the merchant upon his purchaser, i.e. his bill of exchange. The banker keeps this bill of exchange in his. safe, and on the day fixed for the expiration of the bill he sends it to the debtor to be exchanged for cash ; in this way he recoups himself for the capital he had advanced. The above process is what is called discount. It is, we may say, a form of loan ; for it is clear that the banker who, in return for a bill of exchange for ^50, payable in three months, advances to the merchant ^48 5^, to receive from the debtor at the expir- ation of the bill the full sum of ^50, has in fact lent his money for a period of three months at an interest of six per cent or rather more. Moreover, it is always a short-dated loan ; for not only are the bills of exchange negotiated by the bank payable within a time which rarely exceeds three months, but this is a maximum which, in average cases, is never reached. The nego- tiators are not always able to negotiate their bills of exchange on the day after they have been sold ; they may have to keep them docketed for some time : it is even possible that they may not be called upon to negotiate them till the eve of the expiration of the bill. At the Bank of France the average period during which bills of exchange are kept is from forty to forty-five days. It is therefore only for a very short space that the banker deprives himself of the money be has received on deposit, for in the short period of six weeks on the average every shilling which has left returns to his safe. It would be difficult to find a loan operation which better com- plies with the exigencies of deposit. Let the demands for re- imbursement of deposits be grouped together during a period of above six weeks, and the banker, thanks to his own cash receipts, will always be able to cope with the demands. Now it is scarcely probable that these demands will be so frequent, at any rate during normal times. Still we must not conceal the fact that the banker has certain risks to run. If all the depositors were to arrange to come and PRODUCTION. 285 ask for their money on one and the same day, the bank would obviously be unable to satisfy them, for their money is at that moment here, there, and everywhere. True enough, it will speedily return to the banker's keeping, but there is always this difference between capital borrowed by the bank as deposits and capital lent by it as discount : The former can always be demanded back from the bank at a moment's notice, whereas it can only ask for the latter to be returned at the end of a fixed period ; and that difference is enough, at any particular time, to cause bankruptcy. But is this problematical danger a sufficient reason to deter banks from making use of the capital they receive on deposit, and to oblige them to keep such moneys as actual deposits, after the fashion of the old banks of Venice or of Amsterdam? Certainly not. Every one would be discontented. Firstly. The depositors themselves ; for it is clear that if the bank was compelled to keep their money in its vaults without employing it, instead of being able to give them a bonus in the form of interest, it would be the bank that would have to require the payment of interest, to compensate for the cost of keeping. It is better, then, for the depositors to run the risk of having to wait a few days for reimbursement, than to hoard their money at home unproductively, or to be obliged to pay for its safe keeping elsewhere. Secondly. Society, too ; for the social utility of banks consists in combining scattered and unproductive capital in the form of coin, so as to make out of it active and productive capital. This social function would evidently disappear from the moment that banks were unable to make use of their deposits. Banks, then, do not hesitate to use the sums confided to their charge ; but in order to face any possible demands or runs, they are always careful to keep a certain reserve. It is impossible to prescribe a priori any proportion between the amount of the reserve and the sum total of the deposits. A bank's reserve should always be the larger, the slighter its credit and the more numerous itg large deposits. It should, in particular, 286 PRINCIPLES OF POLITICAL ECONOMY. Strengthen its reserve during commercial crises, on the advent of the issues of government stock, or of debentures, — in a word, under all circumstances when it can foresee that the depositors will require their money. Contrary to the usual belief, the amount of the reserve of the Bank of France is not fixed by law. It might be nil, but it is usually excessive. However, discount is not the only way in which banks can make use of their capital. They lend them also — Firstly. In the shape of advances on bills ; i.e. by taking in pledge movable property, and being careful that the sum lent shall be sufficiently lower than the value of the goods or stock- exchange securities. This process is one of the most important lines of business of the Bank of France. Secondly. In the shape of credit that they open for their cus- tomers. When they have a rmining account with it, the bank can allow them to withdraw more than they have deposited ; in other words, it practically gives them a loan. Still, as this method of loan (lying tnicovered, as the term goes) is exceedingly dangerous, and presents no guarantees, some banks refuse to practise it. It is absolutely forbidden by the regulations of the Bank of France. VII. On the Issuing of Bank Notes. As with all other business men, it is to the banker's interest to extend his operations as much as possible. By doubhng them, he doubles his profits. How is this effected? The banker does not generally find it difficult to find a use for the capital he holds. There are always plenty of people who desire to borrow. By lowering the rate of discount he can nego- tiate as much paper as he wishes. But, before being able to lend capital, a prior condition is necessary ; namely, to possess capital. There's the rub ! In fact, it is not so easy to find lenders as it is to meet with borrowers. It is necessary that the public should bring their money to deposit, and it may happen that they are not very eager to do so. PRODUCTION. 287 Now if the banker could create capital de novo in the form of coin, instead of having to wait patiently till the public is willing to bring it to him, nothing would prevent him from extending his operations indefinitely. Some bankers, then, conceived the ingenious idea of thus creating the capital they needed by the issue of simple promises to pay, i.e. bank notes, and experience has proved the excellence of the device by its perfect success. This ingenious invention is attributed to Palmstruch, who founded the Bank of Stockholm in 1656. It is true that the Italian and Amsterdam banks issued many notes, but these merely represented the money the bankers had in their safes ; in other words, were only receipts for deposits.. In return for commercial bills which are presented to them to discount, the banks, instead of paying in money, give notes. But it may be asked. How is the public brought to accept this combination? In return for a bill of exchange which he comes to have discounted, the business man receives merely another credit paper ; that is to say, a bank note. What use is it to him ? He wants money, not credit papers ; for as regards paper he might just as well have kept that which has passed into his own hands. It is enough to remark that, though the bank note is really only a credit paper, just like the bill of exchange, yet it is far more convenient paper. The following characteristics differentiate it from credit papers, and particularly from bills of exchange : — Firstly, it yields no interest, not a whit more than a coin. Its value, therefore, is always the same and is not liable to vary according to the distance from the day when it falls due. Secondly, it is transferable to bearer, just like a coin, and is not subjected to the formalities and responsibilities of endorsement. We are all aware that the transference of credits, and especially the question of knowing when this transfer was possible, was one of the most delicate questions in Roman Law. In the French Civil Law such a transference is still subjected to somewhat com- 288 PRINCIPLES OF POLITICAL ECONOMY. plicated formalities. Even in Commercial Law, though these for- maUties have been simplified as much as possible, it is still neces- sary for the transference of a commercial bill to John Smith that the lender should write on the back, " Pay to the order of John Smith," together with his signature and the date, and thus himself becomes liable in case of non-payment. This is what is known as endorsement. Thirdly, it is payable at sight, i.e. at any time whatsoever, whereas a commercial bill is payable only at a specific date. Fourthly, it is ahaays payable on demand, whereas credit papers are payable only on maturity. Fifthly, it is for a round su?n, thus harmonizing with the current money systems, ten pounds or one thousand francs or fifty dollars, whereas other credit papers, which represent commercial transac- tions, usually involve fractional amounts. Sixthly. Lastly, it is issued a?td signed by a well-known bank, the name of which is usually familiar to every one, even to those of the public who are not versed in commercial matters ; for in- stance, the Bank of France or the Bank of England ; whilst the names of the signatories of bills of exchange are scarcely known except by those persons who deal with them. Observe, however, that when the particular promise to pay is destined to circulate like a bank note, the solvency of the debtor is not so keenly scrutinized as when it is a bill intended to be docketed, such as a certificate of stock, a share, or a debenture. Indeed, this holder for a day has no need to trouble as to future solvency : his affair is merely present solvency. All the above considerations cause the bank note to be really accepted by the public as ready money and to become pure paper money. In France and England, too, the bank note is also legal tender, just as gold pieces and the five-franc silver piece ; but we must not fall into the common error of comparing legal tender with forced currency.^ A bill is legal tender when creditors, or ^ It is impossiljle to reproduce the play upon words of the original, " cours legal et coursyi?ra'." — Translator's note. PRODUCTION. 289 sellers cannot refuse it in payment. A bill has forced currency when holders have not the right to demand from the bank its reimbursement in cash. Forced currency always presupposes legal tender, but the reciprocal does not hold good. Bank notes are legal tender in France and in England, but they do not possess forced currency. Every one is obliged to accept them, but every one, if he likes, can have them cashed by the bank. It is obvious, now, that banks must derive great benefit from the issuing of notes. On the one hand it provides them with the resources necessary for indefinitely extending their operations, but within those limits that prudence dictates, and which we will exam- ine presently. On the other hand, this capital which they obtain in the shape of notes is far more profitable to them than what they receive as deposits ; for the latter, as we have seen, costs them one or two per cent interest, whereas the former merely costs the expenses of manufacture, which are of no importance. But we must not conceal the fact that, though this operation may give bankers splendid profits, it is also capable of causing them serious dangers. For the sum total of notes in circulation which can at any moment be presented for reimbursement represents a debt which is immediately payable, on demand, just as the capital resulting from deposits. Consequently, the bank is henceforward exposed to a twofold peril : it has to meet at the same time the reimbursement of its deposits and the cashing of its notes. If the necessity of a reserve forced itself upon bankers, when they had only to meet the reimbursement of deposits, a fortiori is it felt when to the debt payable at sight, resulting from its de- posits, is added this further debt that amounts to the sum of the notes the bank has in circulation. Unfortunately, as money that lies idle in cellars gives no profits, the self-interest of banks pushes them to reduce their reserve to the minimum, and they find it difficult to resist the temptation. If the Bank of France, for instance, was a private bank and was exempt from the rigorous provisions of the law, it is certain that the shareholders would protest energetically against the locking 290 PRINCIPLES OF POLITICAL ECONOMY. up of its two millions of francs in hard money, and would clamor for their employment as discount or in any other lucrative manner. VIII. The Differences between the Bank Note and Paper Money. Bank notes and paper money resemble one another so closely that the public scarcely understands the difference between them. Both of them stand for money ; but the bank note possesses three charactistics, or rather presents three guarantees, which are absent from paper money. Firstly. In the first place and above all, the bank note is always payable in cash, i.e. convertible into specie, at the holder's will, whereas paper money is not. The latter, indeed, has the appear- ance of being a promise to pay a certain sum, and the holder may entertain the hope that one day or other the State, when in better circumstances, will reimburse the value of its paper ; but this more or less distant prospect (in Russia, in truth, it has not been real- ized for over a century) scarcely affects those who receive these notes and have no intention of keeping them. Secondly. Again, the bank note is issued in the course of com- mercial transactions, and only to the extent necessitated by those operations, — e.g. for an equal value (less discount) to that of bills of exchange which are presented for discounting, — whereas paper money is issued by the government for the purpose of meeting its expenses, and this emission has no other limits or rules than the financial necessities of the moment. Thirdly. Finally, as the name itself shows, the bank note is issued by a bank, that is to say, by a company which, though per- haps called a government bank or a public bank, is none the less a company whose principal object is the carrying on of business transactions ; whereas paper money is issued by a government. Thus the bank note is very distinct from paper money. Still it may sometimes approach remarkably close to the latter, through losing all or some of the characteristics described above. PRODUCTION. 291 Firstly. It may happen that the bank note may have forced currency, i.e. be no longer payable in cash, at any rate for a longer or a shorter period. This occurs at times of crisis for the notes of almost all the great banks. In that case there still remain between the bank note and paper money the two other differences we have pointed out, particularly the second one. The quantity issued is neither unlimited nor fixed in an arbitrary manner. It is always regulated by the actual needs of commerce. That is a powerful guarantee. Secondly. It may happen that the bank note not only receives forced currency, but that, instead of being issued to supply com- mercial transactions, it is issued merely for the purpose of making advances to the government, and of enabling it to pay its expenses. This is how the affair is usually managed. The government needs money. It says to the bank, " Make us some hundred million notes, which you must lend us, and we will cover you by granting them forced currency." In this case the second guarantee disappears. The emission of notes has then no other limit than the necessities of the govern- ment, and in such circumstances we must confess that the bank note remarkably resembles paper money. This is just what occurred during the Franco-German War of 1870. The French government borrowed from the Bank of France, by various instalments, a total sum of ;^5 8,800,000, but its first step was to declare them forced currency. Still, even in such cases as this, the third difference subsists, and it of itself is enough to render the bank note, even under these conditions, far less subject to depreciation than is paper money. This has been so thoroughly proved by experience that States usu- ally abandon the right of directly issuing paper money, and have recourse to the intermediary services of banks. For the public thinks that the bank will resist as long as possible any exaggerated issue of notes that may be attempted to be forced on it, since that is the road to ruin. The public also believes, and unfortunately not without reason, that the solicitude of a financial company. 292 PRINCIPLES OF POLITICAL FXONOMY. which has to guard its own moneys, is more vigilant and more tenacious than that of a government or financial minister which has only to look to the interests of the State. IX. The Rate of Exchange. The safes of all great banking houses, at any rate of those whose operations extend abroad, are crammed with bundles of bills of exchange, payable at all places in the world. They stand for effects worth many million pounds, and are the object of a very active trade. They are called paper on London, paper on New York, etc., according to the place at which the paper is payable. The bankers who hold them and who deal in them are clearly nothing but middlemen. We must ask then, from whom do they buy such goods, and to whom they sell them ? First of all, from whom do the Frsnch bankers buy them? From those who produce them, that is to say, from all those per- sons who, for one reason or another, are creditors of foreigners ; e.g. from French merchants and producers who have sold goods to foreigners, and who, on the conclusion of the sale, have drawn a bill of exchange on their purchaser in London or New York. If it happens that the merchant needs money before the bill be- comes due, or merely if he finds it inconvenient to send bis bill abroad to be settled, he will pass it on to his banker, who will buy it from him ; I mean, will discount it for him. To whom, now, do the bankers sell it? To all who need it, and they are a numerous class. This paper is much in demand with all persons who have payments to make abroad ; e.g. French merchants who have bought goods from foreign houses. If they have not been able to make the seller draw a bill on them, they will be obliged to send in cash the sum total of the price right away to the residence of their creditor ; but, if they are able to obtain paper payable on the place where their creditor lives, they have then a far easier and less costly mode of setthng their debts. PRODUCTION. 293 It would appear that this paper ought to be sold, or negotiated, as the phrase goes, for a price that is always equal to the sum of money it gives the right of obtaining. Thus a bill of exchange for ;£ioo ought to be worth ^100, neither more nor less. As a matter of fact, nothing of the sort happens. It is obvious that important conditions which cause the value of the paper to vary are the amount of confidence reposed in the signature of the debtor, and the nearness or distance of the date when the bill falls due. But, even after abstracting these self-evident causes of variation, even supposing that the paper is payable at sight and above suspicion, still its value will vary every day according to the oscillations of supply and demand, just as the value of any other commodity. These variations are what are called the ra^e of exchange, which is quoted in the papers like the Bourse (Stock Exchange) rate. It is easy to understand what is meant by supply and demand as applied to commercial bills. Let us suppose that the claims of France abroad, whether for her exports or for any other cause, amount to ^40,000,000. Let us further suppose that the debts of France abroad, whether for her imports or for any other cause, amount to ^80,000,000. It is probable that there will not be enough paper for all who require it, for the supply cannot exceed ^40,000,000, and the demand may rise to ^80,000,000. All people, therefore, who require this paper to settle their accounts, will bid highly for it. Foreign paper will rise in value, that is to say, a bill of ^100, payable in Brussels or in Rome, will, in- stead of being sold for ;^ioo, be sold for ;£i02 or ,^105. Thus, as the term goes, it will be above par ; i.e. will ?'ise to a premium. The business of measuring and quoting these variations in the rate of exchange has been raised to the height of a science. The unit usually taken for the bill of exchange is a hundred monetary units, — francs, dollars, roubles, marks, florins, etc., — and the ques- tion is to discover whether the quoted price is less or higher than the nominal value. For instance, let there be a bill of exchange on Hamburg for 100 marks: as the mark is worth i franc 22 294 PRINCIPLES OF POLITICAL ECONOMY. centimes, the nominal value of this bill is 122 francs. Still, in the exchange on London the unit taken is the one-pound bill of exchange, the actual value of which in French money is 25 francs 22 centimes. The exchange on London, therefore, is at par every time that on the Paris Bourse paper on London is quoted at 25 francs 22 centimes. Now let us look at the converse. If we suppose that the claims of France abroad rise to ^80,000,000 sterling, whilst the debts contracted abroad by France only reach ;2{^40,ooo,ooo, it is probable that paper will be superabundant, for there will be ;^8o,ooo,ooo to dispose of and the settlement of the exchanges will absorb only ^^40,000,000. A great number of bills, then, cannot be negotiated and can be only utilized by being sent abroad to be cashed. Bankers, therefore, will strive to get rid of such papers by disposing of them even below their actual value. Thus the hundred-pound bill on Brussels will be disposed of at 99.8 or 99.5 ; i.e. it will fall beloiv par. Every time that in any country, say France, paper payable abroad is quoted above par, the exchange is said to be unfavor- able to this country, France, as regards specie. What does this mean ? That the price of the paper is unfavorable to the buyers ? No ; for then we should have to say that this rate is favorable to the sellers. The meaning is that the rate of exchange, under these conditions, shows that the claims France holds abroad are not sufficient to balance her debts contracted abroad, that conse- quently, to settle the difference, she will have to send abroad a certain quantity of coin. The rise in the rate of exchange, other- wise called dearness of foreign paper, presages, as an infallible symptom, a going out of coin, and therefore we use the expression " unfavorable exchange." Liversely, whenever in France foreign paper is quoted below par, the exchange is said to be favorable to France, and the train of reasoning is the same. The fall in the price of foreign paper shows that when all reckonings have been made, the balance is to the credit of France, and is therefore followed by entries of coin. PRODUCTION. 295 No doubt we must not use these words "favorable " and "un- favorable " in an absolute sense, for we know that the fact of a country having to send much coin abroad, or to receive it there- from, constitutes neither a great peril nor a great advantage, and that in any case the circumstance is merely temporary. But from the banker's point of view this situation is of very great importance, for if money has to be sent abroad, it will be taken from the chests of the banks. All the premonitory signs, therefore, are of capital importance to bankers, and they always keep their eyes fixed on the rate of exchange, just as sailors watch the barometer. (See the next section, "The Raising of the Rate of Discount.") Still, we must observe that variations in the price of paper are confined within far narrower limits than are those of ordinary commodities. This price, at any rate during normal periods, save for the exceptions about to be noted, is never quoted either much above or much below par. This fact is explained by two reasons. Firstly. Why does the business man, who is a debtor of the foreigner, seek for bills of exchange? Merely to save the expenses of sending over coin. But, as soon as it becomes clear that the premium he would have to pay to obtain the bill is higher than the cost of transporting coin, he would no longer have any reason for buying. For their part, too, the merchant who is a creditor of the foreigner, and the banker who acts as middleman, only seek to negotiate these bills of exchange to avoid the trouble of having to send them abroad to be cashed, and the subsequent carriage of the coin. But clearly, rather than sell these bills at a low price, the merchant or banker would prefer the above cumbrous method of procedure. To sum up, as the trade in paper money has no other aim than to serve to economize the cost of transporting coin, it is easy to understand that this trade will cease to have any raison d'etre as soon as it becomes more expensive for the parties concerned than the direct sending of coin ; i.e. as soon as the variations in price, whether above or below par, exceed the cost 296 PRINCIPLES OF POLITICAL ECONOMY. of carriage. Now these expenses, even with insurance thrown in, are extremely small ; extremely small, therefore, must also be the variations in the rate of exchange. Secondly. But these variations are limited by another cause, which at one and the same time is more remote and more subtle. Let us suppose that the price of the foreign bill of exchange rises above par, i.e. that the merchant who has drawn upon his foreign buyer a bill for ^100 can sell it for ^m. It is clear, then, that those ^\ I are so much added to his profits on the sale. Instead of gaining 10 per cent, as he perhaps expected, he gains 11 per cent. These additional profits for all those who have sold abroad will induce a large number of merchants to follow their example ; in other words, " the rise in the rate of exchange acts as a pre- mium on exportation." For instance, after the war of 1870 the exports of France increased enormously for several years. Why ? Because, the huge payments that the French had to make to Germany having caused foreign paper to rise greatly above par, the profits that exporters obtained from the paper they drew on their foreign debtors were such that they could content themselves with an extremely small profit on the price of their goods, and could, if necessary, sell them at a loss. Thus the French had come to sell to the foreigner, less in order to gain on the price of the goods than to gain on the price of the bill. Now, in direct ratio to the increase of exports will be the mul- tiplication of the bills of exchange to which they give rise, and the value of these bills, according to the general law of supply and demand, will fall progressively, until it has descended below par. Inversely, if the paper falls below par, it is easy to prove by the same reasoning that this depreciation will entail a loss on the mer- chants who have sold goods abroad, and will consequendy tend to reduce exports, and then by reaction to reduce the supply of foreign paper, until its value has risen again' to par. In the whole matter there is nothing more than the ordinary mechanism of supply and demand, which, whenever the value of PRODUCTION. 297 a commodity is disturbed from its equilibrium, tends to bring it back to that position, eitlier by an increase or by a restriction of production. Nevertheless, this general law produces in this instance a very curious effect, the consequences of which are very important from the point of view of international trade. Whenever the balance of trade is unfavorable to a country, i.e. when its imports exceed its exports, the resulting rise in the rate of exchange tends to reverse the position, and to make the balance of trade favorable by increasing exports and reducing imports. The rate of exchange, then, constantly acts on trade like those regulators of steam- engines, which always tend to restore the velocity of the engine to a state of equilibrium, and a variation of a few pence is thus enough to restore to equilibrium balances which amount in value to many thousand miUions sterling. We said that in exceptional cases the rate of exchange may vary in considerable and even unlimited proportions. Here are the circumstances : — Firstly. When the place on which the paper is payable is very distant, or the means of communication with it are difficult, as the cost of sending coin is much larger, the variations in the price of bills of exchange will also be far more marked. Paper on Khar- toum or even on Samarkand will certainly be accepted, even if the taker has to pay 10 or 12 per cent above its nominal value, and, reciprocally, it will always be to the creditor's interest to negotiate it, even at 10 or 12 per cent below par. Secondly. But it is especially when we are dealing with a coun- try whose money is depreciated, that the variations in the rate of exchange may become excessive and, relatively speaking, un- bounded. Here is a bill of exchange on St. Petersburg for 100 roubles; the real value at par would be 400 francs (^^16), the rouble being worth 4 francs. • Yet, if we consult the rate of ex- change, we shall see that paper on St. Petersburg (July, 1890) costs 286 francs, or a huge depreciation of 30 per cent. How could it be otherwise? Such is exactly the depreciation of the money 298 PRINCIPLES OF POLITICAL ECONOMY. current in Russia, the paper rouble, and naturally a bill payable in that money must undergo an equal depreciation. It is enough, then, to read the rates of exchange, even if we have no other acquaintance with the economic and financial state of the different countries, to be able to perfectly understand their situation, and to divine whether they buy more than they sell, or sell more than they buy, whether their currency is depreciated, and what is the exact amount of that depreciation. Thirdly. Whenever, for one cause or another, the debtor finds it hard to obtain money, — either because his credit is limited or be- cause the banks make difficulties about discounting for him, — the rate of exchange may rise greatly above par. For example, after the payment of the five milliards war indemnity to Germany, France, as is easily seen, had some trouble in obtaining that enor- mous ransom, and the French government, in order to extricate itself, sought everywhere for paper on Germany, or even on Lon- don, in order to pay by way oi arbitrage ; in consequence the rate of exchange on Germany and even on London for long continued to be above par. This arbitrage is only a more complicated operation of exchange. Here is the explanation. It is not only at Paris that paper on London is to be found ; it is obtainable at all the commercial cen- tres of the world. If, then, it is too dear at Paris, an attempt may be made to find a place where, in consequence of different circumstances, it is cheaper. Now this operation, which consists in buying paper where it is cheap to sell it again where it is dear, is what is called arbitrage. It produces the interesting effect of extending through all countries facilities of payment by means of compensatio. For dearness of paper points to a place where debts exceed credits, the former of which, consequently, cannot be liquidated by means of compensatio alone. But by the aid of the paper which the practisers of arbitrage seek to obtain abroad (which they seek for in places that are in the converse position, i.e. where claims exceed debts, for there only can the paper be got cheap), equilibrium can be re-established and the sum-total of debts can be settled by way of compensatio. PRODUCTION. 299 X. The Raising of the Rate of Discount. There is one case in which banks are Uable to have to reimburse a great quantity of their notes ; viz. whenever they have to make considerable payments abroad. As these payments must be made not in notes, but only in coin, the bank will be applied to to con- vert the notes into specie. If, after a bad harvest, some million hundredweight of corn have to be bought abroad, a large sum of money, amounting to a good many millions sterling, will have to be sent to America or Russia, and the bank may be certain that the larger part, if not the whole, of this sum will be fetched from its chests. As we have seen, the safe-rooms of the bank are the reservoir in which accumulates the largest portion of the floating capital of the country in the shape of coin, and the only one that can be drawn on in cases of urgency. Such a situation may be dangerous for the bank, if its reserve, especially of gold, is not very large. Happily, it receives prior warning of this situation by a sign which is safer than that given by the barometer to the sailor or by the " manometer " to the mechanician, — in a word, by the rate of exchange. Thus, if the exchange becomes unfavorable, i.e. if foreign paper is negoti- ated above par, that is a proof that the debtors who have payments to make abroad are very numerous, far more numerous than those who have payments to receive, and that consequently, inasmuch as the balance cannot be settled by means of ccmpensatio , coin must be sent abroad to make up the difference (see a few pages back) . Now that the danger has been perceived, the bank can take its precautions. To guard against this eventuality of too heavy cash payments, it must take the measures necessary either for increasing the re- serve or for diminishing the quantity of its notes in circulation, the latter of which comes to the same thing as the former, and is more easily executed. For the bank, in truth, cannot increase its reserve, but it can refuse to issue any more notes, i.e. it can refuse to make any more loans to the public in the shape of advances, or as dis- 300 PRINCIPLES OF POLITICAL ECONOMY. count, by which two modes we are aware that the bank issues notes. It is clear that such a course of action would achieve the desired end ; for, on the one hand, the issue of notes being stopped, the quantity already in circulation would not be increased. On the other hand, the commercial bills docketed at the bank successively falling due would each day cause the return of a considerable quantity, either of notes, which would proportionately diminish their circulation, or of coin, which would proportionately increase the reserve.^ The quantity of notes in circulation can be compared to a cur- rent of water which, entering by one tap and leaving by another, is constantly renewed. The flow of notes enters into circulation by the " issuing " tap, t.f. by discount, and leaves circulation to return to the bank by the tap of " entries." If the bank closes the issuing tap while leaving the other open, it is obvious that cir- culation will speedily be completely dried up. Let us suppose that the bank holds commercial bills to the value of ;^40,ooo,ooo sterling, that its reserve amounts to ^^40,000,000 in coin, and that its notes in circulation come to the figure of ;;^8o,ooo,ooo. In such circumstances it is clear that if, in con- sequence of any unforeseen event, holders of notes were to come to have these changed for coin, the bank would be unable to do so. But, if it has reason to fear any such danger, its only step is to stop all discounting for the future. The actual way in which matters are done is as follows : As the bills of exchange, which it holds, successively fall due, it is bound to receive a sum of ;^40,ooo,ooo, coming in day by day from that moment, till ninety days hence at the latest. After that time what will be its position ? If these ^40,000,000 have been paid in coin, its reserve in coin will 1 It is, of course, to be remembered that advances may be made without notes being issued, and therefore may be stopped without notes being called in. See Professor Dunbar on " Deposits as Currency," Harvard Quarterly Journal of Economics, July, 1887, and the paper by Mr. Inglis Palgrave on "Note-circulation" read to the Manchester Statistical Society, March, 1887. -J.B. PRODUCTION, 301 then be ^80,000,000, or the very figure of its notes. In that case it will have nothing to fear. If the ^^40,000,000 have been paid in notes, then its notes in circulation will be only ^40,000,000, the precise amount of its reserve. In that case, too, it need have no apprehensions. If the ;2^40,ooo,ooo have been paid half in coin and half in notes, then its reserve will have been increased to ^60,000,000, and its notes in circulation reduced to ^60,000,000. Again there would be nothing to fear, and the same with all other conceivable combinations. Nevertheless, this complete stoppage of all advances and of all discounting would be too radical a measure. On the one hand, by suppressing all credit it would cause a terrible crisis in the country ; on the other hand, it would damage the bank itself, by putting an end to its operations and sharing its profits. But the bank could bring about the same result, though in smaller propor- tions, by merely restricting the amount of its advances and of its discountings ; for that, it is enough either to raise the rate of dis- count, or to be more diffident as to accepting paper presented to be discounted, by refusing paper which falls due at too remote a date or the signature on which does not appear to be sufficiently reliable. It is scarcely necessary to say that this measure is not highly agreeable to the business public, and this disagreeable feeling is heightened by the fact that the step being taken just at the moment when there is need of coin, money is rendered more difficult to obtain. Nay, the bank may often be accused of having provoked a crisis, and such a complaint may be well founded. It is certainly a heroic remedy, but in spite of that it is certainly the step that best suits the situation, and a prudent bank should not hesitate to resort to it to defend its reserve. It is called " turn- ing the screw." Its efficacy has been fully shown by experience. Not only is it beneficial to the bank, by warding off the blow which menaces it, but it is also salutary to the country, by favor- ably modifying its economic situation. Take a country which is obliged to make considerable remit- 302 PRINCIPLES OF POLITICAL ECONOMY. ♦ tances abroad. The rise in the rate of discount, effected at the fitting time, reverses its position, by rendering it the creditor of the foreigner for large sums, and consequently provokes an influx of gold from abroad, or at any rate prevents the efflux of the country's money. This is how matters pass : — The first result of the rise of the rate of discount is a deprecia- tion of all commercial paper. The same bill of exchange for ;^iooo, which was negotiated for ^970 when discount was 3 per cent, will, now that the rate of discount is 7 per cent, be nego- tiated for only ^930 ; that is, a depreciation of more than 4 per cent. Henceforward bankers of all countries, those who practise arbitrage, will not be slow in coming to purchase this paper in France, since it is cheap, and they will thus become debtors of France for the sum total of the moneys they have devoted to these purchases. The second result is the depreciation of all stock exchange securities. Every financier knows that the stock exchange is greatly affected by the rate of discount, and that a rise in dis- count nearly always entails a fall in stocks ; for stock exchange securities (especially those that are called international, because they are quoted on the principal European exchanges) do duty for commercial paper, and therefore share its fate. If you have a payment to make in London, the simplest thing to do is to obtain commercial paper payable in London, but, that failing, you can equally well make use of Italian Debt coupons, Lombard Rail- way debentures, Ottoman Bank bonds, etc., which are also payable in London. Business men who cannot turn their commercial paper into cash, or can only do so at a heavy loss, try to obtain ready money by selling their stock. But just as the fall in the value of paper incites demands from foreign bankers, so, too, a fall in stock exchange securities causes numerous purchases by foreign capitalists, and under this head the country in question, say France, again becomes the creditor of the foreigner for the large sums spent in these purchases. Finally, if the rise in discount is great and sufficiently prolonged, PRODUCTION. 303 it will bring about a third result, a fall in the prices of commodi- ties. Business men who are in need of money begin by procuring it through negotiating their commercial paper. That resource failing or becoming too expensive, they turn to all the stocks they have in their desks (that is to say, if they have any), and finally, if they are at the end of their tether, to obtain money they must realize, i.e. sell the goods they have in stock ; hence a general fall in prices. But this fall produces the same effect as the preceding falls, and on a larger scale ; i.e. it incites purchases by the foreigner, and consequently increases the exports of France, and therefore makes her the creditor of the foreigner. We may sura up all these effects by saying that the raising of the rate of discount creates an artificial scarcity of money. We call it artificial, but it matches a reality, or at least an eventuality which tends to become realized, viz. the flight of coin to foreign parts. The disease is cured on homoeopathic principles, similia similibus. This scarcity of money may cause a general fall in all stock, — an evil, no doubt, — but it also provokes, as a conse- quence, considerable demands from abroad, and hence, remittances of money therefrom, which is a benefit, and the very remedy that suits the situation. XI. Some Special Forms of Credit. There are three of these, in particular, which have been the objects of innumerable studies, and which have given rise to various institutions, i.e. Land Banks, Agricultural Banks, and People's Banks. I. "Credit Foncier." In order to become productive, present-day agriculture needs larger and larger capital ; but landed proprietors do not always possess such capital and, through this lack, they do not draw from their land all the profit that they should. It would therefore be highly desirable, both in their interests and in the interests of the community, that they should be able to find the capital necessary 304 PRINCIPLES OF POLITICAL ECONOMY. for drawing the full value from their land. This they should obtain from the ^rr (" Landed Credit" or "Land Banks"), which, if well organized, ought to furnish the desired capital. The simplest and most ancient form of credit on land is the loan on mortgage. From the lender's point of view, it presents a great advantage which has always made it much sought after by capitalists ; viz. its almost absolute security, land being a pledge which can neither perish nor be stolen. The sum total of mortgages on land in the whole of France is reckoned to amount to between ^520,000,000 and ^560,000,000 sterling, or 15 or 16 per cent of the total value of all the landed property in France. In some countries the two amounts are almost equal. However, to counterbalance this advantage, the mortgage sys- tem has great disadvantages for both of the parties ; for the borrower, because he is burdened with excessively high charges, the rate of interest being rarely less than 5 per cent, whilst the income derived from agricultural improvements is often inferior to this rate ; for the lender, also, because although loan on mort- gage gives him full security for his money, it does not enable him to recover it easily. It is no simple matter to find any one to take up his claim, and even when the term has expired, he is too often obhged to resort to a measure which is as disagreeable for the creditor as it is lamentable for the debtor ; viz. eviction. To remedy this disadvantage a proposal has been made to render mortgage credits negotiable by means of endorsement, just as commercial claims and bills ; and this system, which has been sometimes incorrectly called mobilization of landed property, has been ingeniously organized in some countries. Thus in Germany the proprietor can of himself lay on his land mortgages which he negotiates according to his requirements, just as a banker who draws checks on his own account. In Australia, under the work- ing of the Torrens Act, mortgages can be just as easily transferred. For further details, see M. Challamel On the Modes of Mobilizing Landed Property, M. Worms, etc. It must be observed that this remedy only affects the creditor, PRODUCTION. 305 and does not improve the position of the debtor, i.e. the proprie- tor. Further, it is exceedingly doubtful, as regards the mortgage- holding creditor himself, whether any system, however ingenious it may be, would allow him to negotiate this claim as if it were a commercial bill : that is contrary to the nature of things. A claim on mortgages will always participate to a certain degree in the nature of the land on which it is a lien. Another still more ingenious system consists in the institution of banks of a special nature, which are usually called " Land Banks" (Soci^t^s du Credit Foncier). These play the part of middlemen between capitalists and proprietors ; they borrow money from the former to lend it to the latter, and, although, as is obvious, they do not perform this service for nothing, yet they offer certain important advantages for both parties. To the capitalist they supply claims which are solid as mortgage claims, inasmuch as they have the sanre guarantee, which can be far more easily negotiated, since the pledge is not such and such a particular piece of land, but the whole body of the funds of the society. For it is the society itself, i.e. usually speaking a powerful company, which issues the credit papers, and they circulate as readily as certificates of government stock or as shares or debentures in railway companies. To land proprietors they afford a triple ad- vantage : firstly, a loan payable at a distant date, for example seventy-five years ; secondly, a reimbursement which is effected little by little and in an almost imperceptible manner by way of annuity ; and thirdly, usually by a relatively moderate rate of interest. In France there is only one society of this kind, and it has maintained a monopoly since 1852, under the name of the " Credit Foncier de France." This great corporation lends for a period of seventy-five years. The interest is not much less than 5 per cent, but this rate comprises an annuity, which is calculated to redeem the capital within a period of seventy-five years, so that at the expiration of the term the landed proprietor is freed of all debt, having, meanwhile, paid a smaller interest than would have 306 PRINCIPLES OF POLITICAL ECONOMY. been asked by an ordinary creditor. In spite of these ingenious combinations, the "Credit Foncier " has not been able to render very great services to agriculture ; the sum-total of the capital lent by it arises, indeed, to the imposing figure of nearly ;!^i20,- 000,000 sterling, but the greater part of this has been employed in building, and hardly a quarter has gone to country property. Without professing to lay down a general principle, we do not think that it is highly desirable to make the means of borrowing easier either for the small or for the large landowner : such a facility might bring him luck once, but might ruin him ten times oftener. Following an inverse tendency, we should be inclined rather to demand the adoption of certain measures, such as the Homestead Laivs in the United States, which, by preventing a landowner from borrowing, insure to him and his family the safe possession of his land. In virtue of this law, every American proprietor who cultivates his land himself, can declare exempt from seizure his house, together with a certain extent of land round it, this varying according to the particular laws of the respective States. Some- times, too, this exemption is not optional and is obligatory, and it appears to us that it can only be efficacious under the latter cir- cumstance. Of course the proprietor is debarred from finding credit, at any rate within the Hmits of his homestead. A proposal has recently been made to introduce this law into England and into France ; its aim is easy to understand, viz. the conservation of the family hearth, and the continuance of small proprietor- ship.' 2. Agricultural Credit. At first sight agricultural credit seems closely to resemble landed credit, for the object of both is to supply funds to landowners. Still, it differs from the latter in a clear enough way, — in its eco- nomic aims, its legal character, and the form of the institutions which represent it. ^ The followers of Le Play are probably in view. — J. B. PRODUCTION. 307 Its aim is to obtain for landowners, not precisely the capital which is necessary for their starting expenses, but the floating capi- tal which is required for the working expenses of cultivation. For it is in the nature of the agricultural industry only to give returns at the end of the year, or sometimes less often, while the expenses last throughout the year. The agriculturist, therefore, continually needs advances, and it is these advances that agricultural credit can supply. Its guaranties are not the land itself, as is the case with Landed Credit, but the working stock ; its only pledges are the raw mate- rial, the cattle, and the crops when once they have been got in ; to speak legally, it is a loan on movable and not on immovable property. In Germany and in Italy, agricultural credit is organized under the form of Mutual Loan Societies, between landowners who make loans one with another, and thus avail themselves of the credit given them by this association to obtain loans from third parties on advantageous terms. The most famous of these societies are what are known as Raiffeisen Banks^ and are of somewhat recent date ; their characteristic features are : firstly, that the members contribute no share to the society — it is therefore formed without capital ; secondly, they receive no profits ; thirdly, they are all jointly responsible on the security of all their effects. In France, however, agricultural credit is represented by no special institution, though such have frequently been talked of; in truth, there are none, and we only partially regret this lack. 3. People's Banks. The well-known proverb, " Only the rich receive loans," is easily verified every day. Yet the poor also may have need of credit even more than the rich. But how can they obtain it? The problem is most easily solved by means of association. An isolated laborer or an artisan, however honest and laborious ^ See English Blue Book on the " System of Co-operation in Foreign Coun- tries." (^Commei'cial, No. 20, 1886) pp. 36 and 63. — J. B. 308 PRINCIPLES OF POLITICAL ECONOMY. we may suppose him to be, camiot offer a lender a substantial guarantee, for want of work, or death may at any moment defeat the best intentions. But if these workmen or artisans are lo, loo, or looo in number, then being united in a sheaf, and bound to- gether by the constraining bond of a joint obligation, they will present a broader surface, and can easily obtain credit without resorting to the tender mercies of usurers. Besides, their indi- vidual contributions, however small they be, from their very num- ber constitute a substantial enough common fund which they- can lend to one another. It is especially in Germany, under the inspiration of Schulze Delitzsch, a man whose name will always be attached to this insti- tution, that these people's banks, otherwise called co-operative loan societies, have undergone an extraordinary development. More than 2000 of these banks are reckoned to exist in Germany, but there are no more than about 900 (the most important, it is true) the results of which are known. In 1887 they had a capital of their own of more than ^6,600,000 sterling, and a borrowed capi- tal of ;^20,5 20,000. Thus they could operate with a total capital of ^27,000,000 to _;^2 8,000,000. They borrowed at 3.81 per cent; they lent to their own members at 5.5 per cent, and also shared amongst them, in the shape of dividends, the profits thus realized. In France, however, in spite of several brilliant attempts (in particular the " people's banks " founded by Father Ludovic de Besse), this institution has never succeeded. Once more we find an easy consolation. Certainly such an institution may render some services to a particular class of society, such as small artisans and small shopkeepers ; all those, indeed, who work on their own account. But it has not great possibilities as regards the wage- receiving laborers, i.e. the bulk of the working classes ; therefore the name " popular " credit is not particularly well chosen. Usu- ally, when workmen resort to credit, it is to consume, not to pro- duce wealth ; what would they do with capital, since they are not called upon to work on their own account? At the most, a few PRODUCTION. 309 of them might be enabled to obtain the advances necessary for rising from being wage-receivers to the position of small employ- ers. This is clearly shown by the example of the German credit societies. Among their members, workmen, properly so-called, are only in the proportion of about 8 per cent ; small working artisans, traders, and shop-keepers amomit to 5 7 per cent ; small farmers, to 2 7 per cent ; the rest are clerks, domestic servants, and people of small but independent means.^ THE QUESTION OF MONOPOLY OR OF LIBERTY OF BANKING. The question before us is, ought the legislator to interfere in the organization of banks, especially as regards the issuing of notes, and if he does so, within what limits and in what manner? We may consider this under two aspects, or rather, the question becomes subdivided into two questions : — Firstly. Ought the legislator to reserve for one bank alone the privilege of issuing notes, or should the right be thrown open to all who care to use it? This is the question of monopoly vejsus competition. Secondly. Ought the legislator to allow banks (whether one or several matters nothing) to issue notes ad libitum, or should this right be submitted to certain restrictions? This is the question of what is called the currency principle versus the banking principle. I. On Monopoly or Competition in the Issuing of Notes. Both systems and all the intermediate systems are in use in various countries. In France, monopoly is the rule. Every one knows the great estabhshment which bears the name of the Bank of France, and is aware that it alone has the right of issuing bank notes. 1 Something might have been said of the Building Societies, so much in vogue, especially in England and in the United States. M. Raffalovich gives an account of them in his book, Le Logement de V Ouvrier (Paris), 1887. — J. B. 3IO PRINCIPLES OF POLITICAL ECONOMY. A digression on the Bank of France may be not uninteresting. The Bank of France was founded by Napoleon while he was yet First Consul. It was actually founded in 1800, but its privi- lege of issuing notes dates only from 1803. Even then it could only exercise that privilege in Paris and in towns where it had established branches ; and consequently other banks in the chief provincial towns received the same privilege. But from the Revo- lution of 1848, when these departmental banks were merged in the Bank of France, it has enjoyed the exclusive privilege, which has already been several times renewed for periods of thirty years, and expires in 1897. According to a bill proposed by the government, the monopoly is to be again renewed till 1920. However, the Bank of France is by no means a government institution. It is a joint-stock company, like any other company ; but instead of being merely administered by its shareholders, it has a governor and a deputy-governor, who are nominated by the State. In exchange for its privilege of issuing notes it is subjected to certain special obligations. Firstly. It is only permitted to discount bills of exchange bear- ing three signatures, and drawri for ninety days after date at the latest. Secondly. It is not allowed to give interest on its deposits. Thirdly. It can make advances on stocks and securities, or on bullion ; but it is not allowed to be " uncovered " in its running accounts with its customers, except with the government. To the latter, on the other hand, it is obliged to make large advances. Fourthly. It cannot issue notes to a larger amount than 3,500,- 000,000 francs. These obligations do not seem to be imperatively necessary, and they might probably be done away with without serious incon- venience. On the other hand, there is one obligation that might very well be laid upon it : the bank should have to share its profits with the State, above a certain fixed limit. This clause requiring sharing of profits is already inserted in the charters of French railway companies ; it holds good for the Belgian and German PRODUCTION. 311 banks. For it is just that every privilege should be paid for ; and no happier means of payment could be found than that the State, i.e. society as a whole, should share the profits accruing from that privilege. According to the bill referred to above, the bank will have to pay the government yearly a fixed sum of ;^I00,000. To return to the banking systems in vogue in various countries. Contrary to the example of France, the United States adopts the method of competition. Every bank can issue notes, provided that it complies with certain conditions presently to be enu- merated. As a matter of fact, there are upwards of 2,000 banks that exercise this right. In England the system is a mixed one, and is somewhat com- plicated. The Bank of England has no exclusive privilege for the issuing of its notes, save in London, for there are several hundred provincial banks which also issue notes. Still, the system is not one of free competition, for the number of note-issuing banks is definitely limited. Those alone can enjoy the privilege which already exercised the right in 1844, the date of a famous law as to the organization of banks, which established the present situa- tion, and was due to the initiative of Sir Robert Peel. Moreover, these private banks are not immortal ; for they are destined to disappear one day or other, and thenceforward the Bank of Eng- land will possess the monopoly, de facto as well as de jure. In- deed, the number of provincial banks which issue notes has greatly diminished since 1844. It is impossible in this place to pass under review the organiza- tion of banks in all countries ; the reader is referred for further details to the works of Walter Bagehot, Mr. Goschen, and Sir John Lubbock. Now, which are we to prefer of all these systems? The prin- cipal argument advanced in favor of competition is the classic argument that monopoly produces dearness, whilst competition causes cheapness. If the Bank of France had not the privilege, so it is said, the rate of discount would be lower, and the advan- 312 PRINCIPLES OF POLITICAL ECONOMY. tages to be drawn from credit by commerce and industry would consequently be considerably greater. It may be replied to this, that it is by no means proved that competition necessarily means cheapness, or monopoly dearness. To that economic principle there are numerous exceptions, even in the production of certain commodities, and in this particular case the principle is of very doubtful application. For experi- ence does not appear to show that where there is a multiplicity of banks discount is lowest. Moreover, we might reply that the argument here advanced is beside the question; for the subject of monopoly or competition is not here discussed with regard to banks in general, nor, in particular, to discount. No one denies the right of every bank to discount ; not only is competition here de jure, but it exists de facto in every country, even in France. Not only private banks, but powerful companies with immense capital, compete with the Bank of France in discounting as well as in every other banking operation. Thus for the last eight years the rate of dis- count of the Bank of France has rarely exceeded three per cent, which is below that of the Bank of England. We are here only concerned with the question of the issuing of notes. Now, in this question commerce as a whole is far less interested than is the general public, and the only system to be preferred is that which offers most guarantees to the public, i.e. which gives most stability to the value of the bank note. In the eyes of the public the bank note is merely money. Now, when we speak of the issuing of money, no one clamors for free competition. The State reserves to itself the right of coinage ; if the State does not exercise this right, too, as regards the bank notes, it is perfectly justified in delegating it in some fashion or other to a single establishment which possesses its own and public confidence. Regarded from this point of view the Bank of France note has proved its mettle. For ninety years past, even in the most dan- gerous crises, it has never fallen below par. There is, therefore, PRODUCTION. 313 for France at least, no serious reason whatever to hand over to free competition the issuing of bank notes, and the recent renewal of the privilege raised scarcely any opposition. Further, even granting that a multiplicity of banks does not always involve a depreciation of the notes, still it causes a highly inconvenient diversity of moneys, unless recourse is had to a sort of syndicate, as in Switzerland, or unless the State requires a uni- form type of note, as in the United States. On the other hand, there is reason to hope that, with a small number of great national banks, we might perhaps arrive at an international bank note, possessing cun'ency in all countries, which would be the realization of a long-sought ideal, an universal money, 11. As to Liberty or Regulation in the Issuing of Notes, Whatever opinion we may adopt as to the question of monopoly or competition, a further question remains : Ought the issuing of notes by these banks (whether one or many) to be left free, or ought it to be regulated? But, first of all, is it within the power of the legislator to insure the payment of bank notes, and is there any system of regulation which can guarantee it ? Three plans have been suggested, and all of them have been tried in different countries. Firstly. The first consists in requiring a certain propo7'tion between the sum total of the reserve and the amount of notes in circulation. This is what is called the currency principle, the principle of regulated circulation, in opposition to the banking principle, or principle of the liberty of banks, which we will investigate presently. This is the regime that was laid on the Bank of England by the famous Act of 1844. According to the terms of this law, the bank can only issue notes up to the total of the cumulative amount of its reserve and of its capital. As this capital is ;^i 6,200,000 ster- ling, this means to say that the sum of notes issued can never 314 PRINCIPLES OF POLITICAL ECONOMY. exceed the amount of the reserve by more than ;^ 16,000,000 odd. To insure the better observation of this regulation, the Bank of England is divided into two distinct departments, one charged with banking operations, deposits, and discount, which cannot issue any notes, and the other entrusted with the issuing of notes, which can transact no banking business. The latter hands over its notes to the other department according to requirements, but when it has delivered over notes to the value of ^16,000,000 odd, it can henceforward only deliver notes in exchange for specie or bullion. Evidently this limitation could be not regarded as offering any really substantial guarantee in the case of any other bank than the Bank of England, for the capital of a bank is not always immedi- ately capable of realizadon, and in this case in particular we may say that the guarantee is purely fictitious. In fact, it is repre- sented (at any rate, up to the sum of ;^i 1,000,000) by a mere claim upon the State, so that the ;^i 6,000,000 worth of notes, which can be issued above the amount of the reserve, are only a kind of paper money. Further, in practice, and precisely in times of crisis, this limita- tion has been found to be so seriously inconvenient that already on three separate occasions it has been necessary to suspend the law, and to allow the bank to exceed the fatal limit. It is easy to understand that, if the bank happens to have ;^20,ooo,ooo of reserve, and ;^36,ooo,ooo of liotes in circulation, it will be obliged to refuse all discount. For with what could it discount the bills presented to it ? With notes? But the limit of ^16,000,000 is already reached. With the cash it has in reserve? But if it reduces its reserve to ^19,999,999, as the circulation of notes still stands at ^36,000,000, the law will be equally violated. However, the Bank of England cannot refuse discount without involving the bankruptcy of half the business men of England. The legislator, therefore, hastens, in these circumstances, to step in to remove the barrier he himself has raised. PRODUCTION. 315 An analogous system has been applied in certain countries. Others have preferred to establish a fixed ratio, generally the ratio of a third, between the amount of the reserve and the value of the notes issued. The disadvantages are the same, and perhaps even greater. It is easy to prove that, with the fixed ratio of a third, not only discount, but even the payment of notes, may at any given moment be rendered impossible. Let there be ;^4,ooo,ooo of reserve and ^12,000,000 of issued notes. Evi- dently the bank cannot cash one note without causing the reserve to fall below the third of the sum total of the notes, for ^3,999,999 is not exactly the third of ;^i 2,000,000. Thus the danger to be exorcised is actually brought to pass. Secondly. The second plan is simply to fix a i?iaximum of issue. Without doubt this system is more elastic than the preceding one, and, as will be seen below (page 319), it has been resorted to in France since 1870, Its inconveniences, therefore, are less; but it must be confessed that it offers very few guarantees, for what does it matter that the bank can issue only a limited number of notes, if it can reduce its reserve to zero? How, then, is the public safeguarded? Thirdly. The third method is to compel banks to guarantee the notes they issue by securities — usually certificates of govern- ment stock — which are at least equal in value to the notes. This is the system used in the United States. Each bank, in return for the notes it wishes to issue (and these, by the way, are handed over to it by the State, for the bank itself is not permitted to fabricate notes), must deposit as a guarantee certificates of gov- ernment bonds, of a higher value than the notes by one-tenth. This system is useful for strengthening the credit of a bank in normal times, but at critical epochs, just when the remedy should be the most necessary, it is worthless. For under such circumstances all stock, government securities included,^ are naturally depreciated in value ; and if, to satisfy demands for the payment of notes, the 1 General Francis A. Walker remarks that the statement is not correct, if applied to the United States. 3l6 PRINCIPLES OF POLITICAL ECONOMY. banks were obliged to realize the enormous amount of stock held as security, they would fail to succeed. Such an operation would only ruin the credit of the State, without raising that of the banks. It can thus be seen that, taking all in all, no one of the sys- tems hitherto conceived can guarantee the payment of notes. The only efficacious method would be to oblige banks always to keep a reserve equal, not only to the total value of their notes in circulation, but also to the amount of their deposits. Then, indeed, the guarantee would be perfect ; but then, alas ! banks would be of no further use, except to avoid the accidental losses or the wear and tear of coin, which would be a very minute utility. They would no longer utilize the floating capital of the country, for they would confine themselves to uselessly heaping it up in their cellars. They would no longer serve to economize money, for the bank note would henceforth have but a representative character. Finally, they would no longer be credit institutions. If we wish to use credit, we must resign ourselves to its disadvan- tages. It is a mere attempt at the squaring of the circle, to seek to combine at one and the same time the advantages of credit and of ready money, for the two are mutually exclusive. Must we, then, seeing that all regulation appears to be useless, if it be not irksome or dangerous, adopt the principle of laissez /aire, and permit banks to issue notes after their own fashion and without control? Many writers do claim this liberty for banks, and their reasons are not without weight. The essential argument is, that there would never be grounds to fear an excessive issuing of notes. For, say they, the danger is chimerical ; the ordinary working of economic laws will restrain this issuing within due limits, even if the banks wished to overstep them, and the reasons for this are as follow : — Firstly. In the first place, bank notes are only issued in the course of banking operations ; that is to say, by discounts or by advances on bills. For a bank note, then, to enter into circu- lation, it is not sufficient for the bank to desire this entry ; there must also be some one who is disposed to borrow. Issues, there- fore, are regulated by the needs of the public, and not by the PRODUCTION. 317 desires of bankers. The amount of notes issued by the bank will depend upon the number of bills presented for discounting/ and the amount of these bills will depend on the state of business transactions. Secondly. Bank notes only enter into circulation for a short time ; a few weeks after issue, they return to the bank. We might say of them, in the words of Corneille, — " l^ejltix les apporta, le reflux les remporte." Take a ;^ioo note which is issued in exchange for a bill of ex- change ; in forty or fifty days, or ninety at the outside, when the bank is able to cash the bill of exchange, the ^100 note will return to it. Probably it will not be the same note, but what does that matter? It returns for the same amount as it was issued for. Thirdly. Even granting that the bank may issue an excessive quantity of notes, still it will be impossible for it to keep them in circulation ; for if the note is issued in superabundant quantity, it will necessarily be depreciated ; as soon as it becomes depreci- ated, however slightly, the holders of notes will hasten to bring them to the bank to demand their payment. It will be useless, then, for the bank to attempt to inundate the public with notes ; it will fail in its endeavors, being in its turn flooded with the notes. These considerations certainly contain part of the truth, and experience has confirmed them on more than one occasion. Banks have never succeeded in forcing into circulation more notes than the public needs required. Still, we must not disguise the fact that absolute freedom of issu- ing may entail grave dangers, in times of crisis, if not at normal times. Now crises are very frequent occurrences in the economic life of modern societies. No doubt it is true that in theory the amount of notes issued depends on the demand of the public, and not on the will of the banks. But observe, that if one bank alone seeks to attract cus- 1 But see note above, page 300 [on fact that advances need not be of notes]. — J. B. 3l8 PRINCIPLES OF POLITICAL ECONOMY. tomers and to compete with its rivals, it can always, by suffi- ciently lowering the rate of discount, succeed in largely increas- ing the extent of its operations, and consequently, also, of its issues. It is likewise true that the notes issued in excessive quan- tity by this imprudent bank will return to it for payment as soon as they become depreciated. But observe that this depre- ciation does not make itself felt immediately. It will only be at the end of a few days, perhaps a few weeks ; and, if, during this interval, the bank has issued an excessive quantity of notes, the day on which they return will be too late for it. It will no longer be able to pay them, and will be submerged under that ebb tide of circulation of which we just spoke. Certainly the bank will be the first to be punished for its imprudence, by failing. But how does that help us? Our business here is to ward off the crisis, and not to punish its authors. It is on this point that we find an argument for monopoly. There is reason to believe that a bank holding an eminent posi- tion in a country, and rendered strong by its history and by its traditions, will carry into the matter of the issuing of notes all the prudence that is desirable, and this of itself is the only really efficacious guarantee. Besides, experience confirms this way of regarding the matter in the case of all the great banks, and especially of the Bank of France ; for the latter, during its ninety years of existence, has allowed only one reproach to be brought against it — that of an excessive prudence — which has deprived its functions of part of their utility. At certain times the amount of its reserve has actually exceeded the value of the notes issued. Usually the issue of notes is greater than the amount of the reserve by not quite a fourth. Thus the balance of 1890 shows 2,850,- 000,000 francs of notes in circulation, as against 2,481,000,000 francs of coin in reserve, or ;,^i 14,000,000 as against ^90,000,000 sterling. Now the Bank of France has never been subjected to any regulation, so far as concerns the issuing of notes ; but for a short time past a maximum issue has been estabhshed of ;^ 1 40,000,000 sterling, — by the new bill this is to be raised to PRODUCTION. 319 ;^ 1 60,000,000. Still, as was said above, this maximum is of very recent date. It did not exist in the statutes of the bank, and was only introduced by surprise, we might say, in the Law on Finance of 1883. It formerly obtained only in the case of forced currency. Again, this limit of a maximum is a precautionary measure, taken far less against the bank than against the State. It was not dictated by the fear of the bank abandoning itself to excessive issues, but by the fear of the government demanding from it excessive advances. Inversely, in the United States, where reigns the system of free competition, the legislator multiplies regulations on the right of issue. Not only must the banks, as we observed above, give as a pledge for the notes they issue a higher value of government securities, but they must also show that they possess a certain capital ; they must keep in their safes in coin at least 15 per cent of the deposits confided to them ; they must always leave a certam sum in coin in the public treasury, etc., etc. To sum up, we must choose between these two systems — either monopoly, with the most perfect freedom as regards the issue of notes, or competition, with severe regulations as to issues. In either case we must sacrifice some freedom, and, in our opinion, there is less to suffer from the first system than there is from the second. Part III. — The Equilibrium between Production AND Consumption. CHAPTER I. INSUFFICIENCY IN PRODUCTION. I. The Increase of Population; the Laws of Malthus. Will production be always sufficient for the wants of man? That is a problem which never ceases to be disquieting. We must consider that, on the one hand, the number of men constantly multiplies in virtue of the physiological laws of popula- tion ; and that, on the other hand, the needs of each man increase even more rapidly, perhaps, in virtue of the psychological laws we have already analyzed. Human industry, then, has always to satisfy this double progression ; that is to say, to furnish a share of wealth which must ever be larger for each sharer therein, whilst the number of those who are sharers is ceaselessly aug- mented. Will human industry always be able to satisfy these demands ? We know that Malthus, in his famous formula, affirmed that " population tends to increase in a geometrical progression, whilst the means of subsistence can only increase in an arithmetical progression " at the best. He expressed this double law in this double formula, which he only intended to serve to illustrate his argument, and which has been wrongly taken literally : — Progression of population, i, 2, 4, 8, 16, 32, 64, 128, 256 . . . Progression of production , i, 2, 3, 4, 5, 6, 7, 8, 9 . . . 320 PRODUCTION, 321 Malthus calculated at twenty-five years the period of time which would .on the average elapse between two consecutive terms of these progressions. Thence he concluded that " at the end of two centuries, the population would be to the means of subsistence as 256 are to 9 ; at the end of three centuries, as 4906 to 13 ; and after 2000 years, the difference would be immense, and almost incalculable." Thus, far from hoping that production would increase equally with consumption, he asserted that production would always remain behind, and far behind. His conclusion was that the equilibrium could only be re-estabhshed by a kind of systematic shearing down of the human species, effected by means of wars, epidemics, famines, misery, and other similar scourges, which appeared to him in the light of actual providential laws.^ Still, he dared to hope that in the future men would have the wisdom to forestall the action of these scourges and render them useless, by themselves limiting of their own free will the increase of popula- tion. Malthus advised them, for this purpose, to practise moral restraint; that is to say, to marry as little as possible ; at any rate, as late as possible ; or at the very least, only to add to their families within the limits of their own individual resources. Although this doctrine of " moral restraint " may have highly immoral consequences, yet, in the way in which its author under- stood it, it perfectly deserved the epithet of " moral " ; and it would, therefore, be unjust to render Malthus responsible for the practices by which some of his disciples have sullied his doctrine and his name.^ In order, then, to maintain the equilibrium between the means of subsistence and the number of mouths to feed, he counted far less on the increase of production than on the limitation of population. ^ In the sense in which the consequences of our own actions, good and bad respectively, follow from these actions by laws which are as truly ordered by Providence as is the sequence of effects from any other causes. — J. B. ^ No doubt, as in the case of Robert Dale Owen, with the best intentions. -J. B. 322 PRINCIPLES OF POLITICAL ECONOMY. Nearly a century has passed since the pubhcation of this doc- trine ; and, up to the present, experience has failed to justify the pessimistic forecastings of Malthus. In certain countries, in spite of a rapid development of population, we have vi^itnessed the production of wealth developing even more rapidly. Still, it is perhaps too early for us to reassure ourselves ; and the fatal law yet remains ever suspended, at any rate, in a menacing position, over the heads of the human species. The rate of increase of population in civilized countries may be reckoned as about i per cent (more exactly, 9 out of 1000), which corresponds to a period of doubling in 72 years, and is thus far inferior to that predicted by Malthus.^ Thus, the yearly increase for Germany, England, and Russia is respectively 9, 10, and 13 per 1000 ; but it is less for some countries, especially for France, which is far in the rear. In this respect France is far too faithful to the doctrines of Malthus, for its yearly increase is but 2 for every 1000.^ On the other hand, some countries show an infinitely more rapid progression. For a century past the population of the United States has doubled in every 25 years, and that of the Australian Colonies in less than 10 years; the population of the United States was 4,000,000 in 1790, and about 62,480,000 in 1890; the population of New South Wales and Victoria was 29,800 in 182 1, when they formed but one colony, and in 1888 was more than 2,000,000. But this enormous increase has been due to immigration far more than to the excess of births over deaths, and consequently is beside the question. Yet, even at this apparently moderate rate of i per cent, the increase in population would be literally awful, and would lead to almost inconceivable results. Granting that the population of the world, which is now calculated to be 1,500,000,000, were to increase I per cent per annum, it would reach 3,000,000,000 by the middle 1 Ma-lthus asserted tendencies ; but he made no positive predictions. — J. B. 2 See Dr. Longstaff's Sindies in Statistics (London, 1 891), especially chap- ters V. and VI. — J. B. PRODUCTION. 323 of the next century, and 48,000,000,000 about the year 2240; that is to say, in only 360 years. A Uttle further prolongation of the progression would show that in about 800 years the whole earth would be as thickly populated as the environs of Paris, and that in 1200 years, which is really a short period in the history of the world, there would have to be one man for each square yard, which would not leave them room to live in or to move in ! No doubt it is perfectly certain that such results will not come to pass, but what causes will prevent them ? To know them would be to know the law of population, and we must confess that we are ignorant of that. However, biology has supplied us with a solu- tion, which, if proved, will be found to be a new contribution of that sister science. As ^t fertility of any species appears usually to vary in inverse ratio to the development of the iJidividuals of the species (for the lower species increase in infinitely larger proportions than do the higher animals, and man in particular), — as in the human species itself the lower classes have generally more children than the picked classes, — and further, as there appears to be a physio- logical law which would seem to establish an antagonism between generative activity and cerebral activity, we may hope that the fecundity of the human species is destined to slacken progressively in proportion to the intellectual and moral development of the individuals that compose it. (See Herbert Spencer's Biology, and The Evolution of Sex, by Professor Patrick Geddes.) II. On tlie Limitation of Productioa in Agriculture, and the Law of Decreasing Returns. We have seen how threatening can be the increase in consump- tion ; let us now consider what we can hope from increase in pro- duction. We are aware that Malthus admitted that the means of subsistence could increase in an arithmetical progression ; but that is far too favorable a supposition. At present France produces about 100,000,000 hectolitres of wheat. Seventy years ago, in 1820, the production was 50,000,000. Seventy years hence the 324 PRINCIPLES OF POLITICAL ECONOMY. yield may perhaps be 150,000,000. But how can we be per- suaded into believing that there will be a similar increase for each future period of seventy years? The supposition is altogether inadmissible. Moreover, the doubhng of the production between 1820 and the present day arises from two causes : the area of land sown with wheat has increased, and at the same time the yield per acre has been augmented. The production of a piece of land of given area is of course not unlimited. Not only does it not lie with the cultivator to increase indefinitely the elements capable of assimilation that the soil contains, but further, could he even, like the gardener with his pots, make altogether new an artificial plot of ground, it would not be within his power to cause an indefinite number of ears to grow upon a given area, or to give to each ear an indefinite num- ber of grains, or to hasten by one hour the time appointed for their coming to maturity. Vainly would it be replied, that by manuring or by more deeply ploughing the subsoil he can indefi- nitely enrich his plot. The depth of the stratum of earth in which the roots of plants can find nourishment is strictly limited, and so, too, is the quantity of natural and even of artificial manures that agriculture can employ. Indeed, some of the most indispensable, such as the phosphates, may be regarded as rare. Thus his power is absolutely limited by the biological laws which in a sovereign manner determine the constitution and the evolution of all living beings. Every creature, be it animal or plant, requires a certain space whence to obtain nourishment, and a certain time for its development ; and these two conditions are enough to shackle agricultural industry by a chain which manu- facturing industry has in a measure shaken off. Still everything induces us to believe that the limit is yet very far distant, for certainly the most improved agriculture of the pres- ent day does not utilize more than a minute portion of the raw materials and natural forces that exist on a given area of land. If the steam engine is still so imperfect that, according to the calcu- lations of engineers, it uses only 7 or 8 per cent of the heat gener- PRODUCTION. 325 ated by the combustion of coal, that machine which is called a potato field, a pasture land, a corn field, is defective in a radically- different way ; and if agricultural science were as skilled as the science of mechanics in determining the theoretical returns, we might doubtless prove that the actual yield is not the hundredth part of what might theoretically be produced. The agriculturist can always, if he likes, increase the returns of the soil ; but after having passed a certain stage in agriculture he can only do so at the pi'ice of a labor which constantly increases, so that a moment arrives when the effort required to increase the returns would be disproportionate to the result. Take an acre of land producing 20 bushels of corn, which is about the average for France. Let us suppose that these 20 bushels of corn stand for 100 days' work, or, if it is preferred, for ;^5 ; the proposition means that to produce on this land twice the quantity of wheat, or 40 bushels, we must spend ;«osed of gratuitously by gift or by bequest. This manner of employment, too, seriously affects distribution ; by allowing persons who have acquired wealth by their labor to transfer it to others, who have not worked to obtain it, this system may plant a do-nothing by the side of each worker, and create whole unproductive classes, who will accumulate wealth without having done aught to deserve \t,fruges constwiere nati. That is true ; but we cannot dream of depriving the owner of a thing of the right of giving it away during his lifetime' or after- wards. If he is allowed to destroy it, why should he not give it DISTRIBUTION. 433 away ? if he can consume it for his own gratification, perhaps in a senseless way, why should he not hand it over for others to con- sume ? The history of early societies teaches us that the gift or the present was one of the most ancient modes of disposing of wealth, and probably preceded exchange or sale. Now one of the principal advantages conferred by the right of property is the ability to communicate its benefits to others. Let our final and clenching argument be that which we urged in favor of the right to give ; to wit, the fear of irretrievably injuring productive activity by preventing owners from disposing of their property for the benefit of their children. For the honor of human nature, it must be said that there are very many men in the world who work and who save far less for themselves than for others. If we compel them to think only of themselves, they will work less and spend more. Think of the wealth that would then be wasted in unproductive consumption in consequence of the freer living that would ensue ! Think of the years that would be lost to productive labor through men retiring prematurely ! By depriving men of the right of disposing of the fruits of their own labors, we should break one of the most powerful springs of production. Things that we could no longer dispose of and that would be non-transferable would thereby lose a portion of their utility ; they would be less desired, and we should make less effort to produce them. Certainly we might try to draw fine distinctions between dona- tion and bequest, between the right to give during life and after death, by asserting that the rights of private property, and conse- quently the right of disposing of it, vanish with their original pro- ducer; but that would be a misapprehension of the rights of property. In the emphatic language of law, this right is real and not personal ; if it is to be based on labor, we must recognize that it ought to last as long as the result of the labor, that is to say, as long as the article produced. But if we refuse to grant the right to bequeath, on the ground that it only comes into effect after the death of the owner, we should likewise have to abolish alienation, 434 PRINCIPLES OF POLITICAL ECONOMY. the consequences of which clearly survive the disposer, and any form of disposal of a definitive character, such as those which law denies to usufructuaries. Moreover, the distinction would be almost impossible to apply ; for it may always be evaded by various combinations well known to lawyers, e.g. donation with reservation of usufruct. We have no reason to wish that the wealthy should less often dispose of their goods gratuitously ; nay, we should rather hope them to confirm this practice and to make it a rule to leave a space open in their wills for philanthropic or intellectual undertak- ings. In that way they would follow in the wake of wealthy Ameri- cans, who are already adding to the common estate of society by such methods. Section 3. As the right of property over a thing naturally lasts as long as the thing, the duration of the right must vary in accord- ance with the length of existence of the particular article. Now one kind of wealth — and, solitary as it is, it comprises more than half the total of all the wealth in the world — lasts forever ; we refer to land. Another class of wealth, of no less importance, also possesses a perpetuity that might be called artificial, for it springs less from the nature of the articles than from certain agreements entered upon by men. This includes the capital represented by share- warrants, certificates of government stock, and so forth. Therefore, as the right exists as long as the object over which it holds, the right of property over these various classes of goods must share the perpetuity of these goods. By this highly important attribute of the right of property, the distribution of wealth is powerfully affected. As, in this instance, the right must survive the person of the original holder, it has to pass to some other person, i.e. to a successor ; hence inheritance is seen to be a necessary consequence of the perpetuity which is characteristic of the right of property. Most socialists regard as one of the gravest vices of the social order, and as one of the most iniquitous of the injustices that obtain in the distribution of wealth, the principle of inheritance DISTRIBUTION. 435 which grants the children of the rich, even to the hundredth gen- eration, the privilege of being rich in their turn without having done aught to deserve it. We have already seen that Saint-Simon's school included the abolition of inheritance in its programme ; but, contrary to the usual opinion, Fourier and his school fully admitted the principle. The contemporary coUectivist school partly allows inheritance as a consequence of the right of private property. This concession ceases to be astounding if we only remember that collectivism excludes from the purview of private property both land and capi- tal, i.e. the only wealth which is perpetual, and the inheritance of which might have serious consequences. Inheritance is of trifling importance when restricted to objects of consumption, as under the coUectivist system. We shall see later on that this injurious effect of inheritance, the possible creation of an idle class, is counterbalanced by certain social advantages. Further, it would be childish to seek to pre- vent the inheritance of wealth, for we cannot dream of hindering the application of the principle of transmission by inheritance to many other privileges which are even more important than material fortune. We refer to health, talent, virtues, social esteem, and a mere surname which of itself alone is often worth a fortune. The law of heredity is assuredly the natural law par excellence. The following might be the most sensible mode of settling the complicated question of inheritance and of determining who ought to receive the goods which survive their original owners. Firstly. Whenever an owner has assigned his property by will, his desires should be respected, whatever they may be. We know that freedom to give and to bequeath is a natural attribute of the right of property. Further, if we confine ourselves to our criterion of a fair distribution of wealth, e.g. the placing of wealth in the hands of those who can use it best, it seems that no one is better fitted than the owner to point out the suitable persons. Secondly. Whenever the owner has not conveyed his property to any one, the property should fall to the government as unclaimed 436 I'RINCH'M'S OF POLITICAL IXONOMY. estates;' for society, as represented l)y the government, seems to be the natural heir of all persons who have not formally disposed of llu'ir goods. In fact, each of us who succeeds in the world and becomes an owner, owes part of his respective share of prosperity to the collaboration of all and lo llial connnon fund of ideas, inventions, means of action, and modes of transport from which we benefit. It is just, therefore, that at our death and in default of any other person to wiiom we have assigned our rights, our property should return to swell the social patrimony from which it has i)artly proceeded. To use legal pjuaseology, freedom of disposal by will, on the one hand, and the abolition of succession ah intcstato, on the other, should be the leading prin deceased has been due to mere negligence ' This W!\s advocated liy Jeremy I'.cnlhain in liis Supply '.vitJunU Biin/cn or FM-htat vice Taxation, 1705 (\'<,1. 11 ,,| his Woiks). The Inle M. (lodlin of r.uise included liiis and nun h more midci- the claim for " I'lieredite do I'clat," Willi whidi he idcniilicd himscU'. — J. B. DISTRIBUTION. 43/ or lack of foresight. Succession ab intcstato for children, parents, and even for brothers and sisters, should in all cases be admitted as a reasonable interpretation of the testator's intentions ; for if he had meant to disinherit them, he would have said so. But, when we come to a cousin in the twelfth degree, or even to a nephew, it would be absurd to apply the same reasoning and interpret the silence of the deceased as giving a right to the claimants. It is almost needless to remark that the right of succession ab intcstato can in no way stimulate productive activity, and that it is far more likely to encourage idleness by the " expectations " which it engenders. A heritage which comes from an uncle in America is a mode of acquisition which does not differ in the least from a drawing in a lottery, and exercises the same demoralizing influence both on the recipient and on those who envy him his good luck. The various schools think very differently as to our suggested methods. The socialists highly approve of abolition of succession ab iiitc'stafo, but will scarcely listen to the mention of freedom of disposal by will. It is odious to them inasmuch as it is one of the sovereign attributes of the right of property ; and further, it is regarded with suspicion because there is a fear that the testator, in the disposal of his property, might be inspired less by consid- erations of social utility than by his own personal preferences, and might thus revive all the injustice of the old order of things. The Catholic school approves of freedom of disposal, for that points to a re-establishment of paternal authority and (though the avowal is not openly expressed) may lead to a return to primo- geniture and the reconstruction of a landed aristocracy. But this school is entirely opposed to the abolition of succession ab in- tcstato, for it wishes to keep estates in the family — a desire shared by all legislators of conservative tendencies. The Liberal economic school is enamoured of neither of these principles. Freedom of disposal by will, so it thinks, may lead to a return to the old order and to that past which it hel])ed to destroy. In England and in France fathers do not avail themselves even of 438 PRINCIPLES OF POLITICAL ECONOMY, the narrow liberty they might find within the hmits of the shares allowable by law. Still less does the Liberal school sanction the abolition of succes- sion ab intesiato ; for it is horrified by the prospect of the State becoming the universal heir, and holds that, as regards social utility and the judicious employment of wealth, property had better fall into the first comer's hands rather than into the abyss of State budgets. The drawers of the Civil Code have obeyed opposing tendencies in turn. The levelling notions of the Revolution caused them to adopt the rule of equal division ; but, in accordance with the co-proprietorship of the family as a whole which obtained under the Old Regime, they extended inheritance ab intestato as far as cousins of the twelfth degree, and excluded wives. However, for some time greater definiteness has been observ- able in the double aim we have expounded. A number of econo- mists and of lawyers are making two simultaneous demands : firstly, a certain extension of freedom of disposal by raising the portion that can be bequeathed by will at least to a half of the whole estate ; secondly, a certain limitation of the right of succession ab intestato which would be confined to the fourth degree, or at the outside to the sixth degree. III. Over What Things should the Right of Property- extend ? In modern society private property extends over everything that can be seized or occupied by man. Almost the only objects that have still escaped its sway are those which from their very nature are not susceptible of such appropriation ; viz. the air, the sea, and great rivers. But facts are not necessarily in agreement with equity, and the mere fact of an object being appropriated does not prove that it can be rightfully appropriated. On this subject it seems wise to draw certain distinctions ; two have been proposed. Let us examine them in turn. DISTRIBUTION. 439 Section i. The Distinction between Capital and Objects of Con- sumption. The collectivist school concedes the right of private property over every article that is destined for consumption, but refuses it over all objects to be used in production ; that is to say (in the words of the programmes issued by that school), "the soil, the subsoil, buildings, machinery, and capital of every kind." This distinction has already been mentioned and criticised by us. It is hopeless to attempt to find any rational basis on which it might be built. Starting from the principle that private property must be grounded on labor, it cannot be denied that capital, whatever form it may take, consists only of the products of labor, which differ from other wealth in nothing but the employment to which they are put. That capital is originally the product of labor is not denied (for it cannot be denied) by Karl Marx himself in his Capital. He does not contest the legitimacy of the worker's ownership of the instrument of his labor. But the theory of his famous book is that capital, as it exists nowadays, is no longer related to the original accumulation which was the fruit of labor and of saving ; that the modern accumulation of capital has been built up by the expropriation of the original producers, and by the plundering of the workers effected by means of trade, of usury, and especially of the wages-system ; and that " capital has entered the world sweating blood and mud from every pore." In other words, the theory advocated by Karl Marx and the collectivists comes to this : certainly capital is the product of man's labor, but it is the product of the labor of the workers, and not of the labor of the capitalists. Therefore it must have been stolen by the latter from the former. We shall have to examine the legitimacy of this thesis when we deal with the conflict between capital and labor with regard to profits. At present we need not discuss it. ' Even if we were to grant that all capitahsts are robbers, the argument would not touch 440 PRINCIPLES OF POLITICAL ECONOMY. US ; for in this place we have not to determine whether capitalists are the rightful owners of the capital they possess ; our business is to discover whether capital can be the object of any lawful right of property whatsoever. That is quite another matter. Thus the argument that the collectivists adduce in favor of their distinction is rather a question of fact than a question of principle. They assert that, as it is impossible to dispense with capital in pro- duction/ possessors of capital will necessarily be placed in a pre- dominant position, which will enable them to impose their own terms on those of their fellow-men who are without capital ; there- fore they can compel them to work for their profit, whether as slaves, as serfs, or as wage-receivers. To this our answer must be that the possession of wealth of any kind — whether it be as capi- tal or as articles of consumption, it matters not — will always give a privileged position to the man who has been skilful enough to obtain that wealth, and will enable him in a certain measure to dic- tate his own conditions to the rest of mankind. The only means of obviating such a result would be to prohibit all large fortunes and to enforce a universal mediocrity of fortune ; in other words, to return to communism. In whatever direction collectivism seeks to ride, it always ends by being thrown into this ditch. It must further be observed that as soon as ever private prop- erty in capital is abolished, there will no longer be any motive for individual saving. But at the present day it is precisely this indi- vidual saving that, from its countless springs, incessantly feeds and renews the flood of capital within a country. If once these springs cease to flow, how can we insure the maintenance, the renewal, and the gradual increase of the capital of a country? Oh ! it is rejoined, the State will yearly deduct a reserve sum from the income of society, which would then be blended with its own. He would indeed be reckless who would allow the economic future of a country to depend upon the savings made by a gov- ernment ! 1 As it has been happily put by a German writer, their cry is not " away with that capital ! " but " here with that capital ! " — J. B. DISTRIBUTION. 44I Still, in certain measure, we may be able to make some conces- sion to the demands of the collectivists. The instruments of labor which are now used in large industry, under the name of capital and in the shape of factories, machinery, and mines, are too huge to be worked by a single person, as was the tool of the artisan of former days ; nay ! they demand the co-operation of several hun- dreds, and sometimes of several thousands, of men. Now, since production has to a certain extent become collective, it would be rational for ownership to be collective in the same degree. It would be advisable that the factory, the machines, the mine, instead of being the property of a single individual, the employer or the company, should become the collective property of all the individuals who co-operate in the undertaking. This is the aim that co-operative societies have in view, and, though difificult to realize, it is a perfectly legitimate end. But if ever this co-operative system is actually established, it will cer- tainly not involve the abolition of all property in capital ; it will only transfer this property from the hands of capitalists into the hands of workmen. Section 2. The Distinction between Land and Products. Another distinction has been proposed which seems to be far more reasonable : on one side it places all products — all movable goods, if that legal term be preferred — which, by the mere fact of being products, are necessarily the result of some labor, whether it be great or small. The phrase " movable goods " unfortunately excludes houses and other buildings, which are obviously the prod- ucts of labor and should therefore be included in this first class. On the other side is set the actual substratum of production, i.e. land and mines, which, from the single circumstance that it exists prior to any act of production, can only be the work of nature and cannot proceed from the labor of man. If we wish to adhere faithfully to our principle that bases private property upon labor, we must admit the lawfulness of the right of property over this first class of wealth, because such objects are artificial, but must 442 PRINCIPLES OF POLITICAL ECONOMY. declare it to be unlawful as regards the second category, because the components of that class are natural. The simplicity and the logic of this distinction strongly impress the mind. It is of very ancient date, for we shall presently see that it can be traced back to the first beginnings of property ; it is highly capable of application to the present, for in our time it has met with the approval, not only of socialists, but also of a number of contemporary economists and philosophers. It was the basis of the socialistic system of Colins, who is now dead, but whose school still exists in Belgium. Henry George in America and A. R. Wallace in England have also used it as the groundwork of their systems. Moreover, it has been adopted, though with some reservation, by Messrs. Herbert Spencer, De Laveleye, Walras, and Secretan. None of these is a socialist in the popular sense of the terra, and some of them are the leaders of the individualist or liberal school. But the optimistic school keenly attacks this distinction, which is capable of powerfully shaking the institution of landed property. This school asserts that land is a product of the labor of the agri- culturist in the same way as the clay vessel, which is fashioned by the hand of the potter, is a product of his labor. No doubt man has not created land, but neither has he created potter's clay. Labor never creates ; its task is restricted to modifying the mate- rials supplied to it by nature. Now this modifying action of labor is surely no smaller when it is exercised on land itself, than it is when exerted on the materials drawn from the earth's bosom. The optimistic school refers us to those patches of land which the peasants of the Valais or of the Pyrenees have literally constructed on the slopes of their mountains, by carrying all the earth for that purpose in baskets upon their backs. An ancient author tells us how a peasant was accused of sorcery because of the abundant crops that he obtained from his plot of land, whilst the neighbor- ing tracts were nothing but barren heaths. When he was cited to appear before the Roman prsetor, his only defence was to show his two arms, and cry," Veneficia mea haec sunt!''^ "These are DISTRIBUTION. 443 my only spells ! " To justify itself against the attacks of which it is the object, landed property has only to repeat the same proud answer. Thus the optimistic school. Though this line of argument certainly contains some truth, still that does not appear to be enough to overthrow the distinction between land itself and the wealth that it yields. No doubt man- kind and land have ever been bound together by the tie of daily labor, often labor of the severest kind, to express which the term was invented of laboring with the sweat of one's brow {labor, toil). But though land is the instrument, it is not the product, of labor. It exists before any labor exerted by man, and through it alone can that labor become productive. Besides, it is not lifeless mat- ter like clay in the hands of the potter : it lives, it produces, nay, it labors ; from it man receives the great treasure of natural forces — the sun, the rain, the dew, and, in particular, the situation, which we have already seen to be the condition indispensable for all production. Why, then, should not land possess a value and a utility which are independent of all human labor? We grant that by his labor man daily improves and modifies this wonderful instrument of production with which nature has supplied him, for the purpose of better adapting it to his own ends, and thus he clearly confers on it a new utility and a new value. But the primitive value of the ground can still be easily observed beneath the accumulated strata of human labor. This is discerned by the naked eye in the forest which has not yet been cleared, and the prairie which is still uncultivated. Yet these can be sold or let at a high price and at a high rental. It is visible in the tracts of sandy shore in the neighborhood of Aigues- Mortes at the mouth of the Rhone, which had only been ploughed by the sea-breeze ; yet the fortunes of their lucky possessors were made when it was discovered by chance that on such spots vines could be planted which escaped the phylloxera. Again, it can be perceived in building-sites in large towns which have never felt the plough, but the value of which is far higher than that of anv cultivated land. 444 PRINCIPLES OF POLITICAL ECONOMY. When the school of Bastiat attempts to show that the value of land proceeds solely from labor, it lays stress on the circumstance that where land is virgin soil, as in portions of America, it is value- less. The statement is correct, but the argument derived from it does not prove anything. The worthlessness of lands on the banks of the Amazon does not arise from their being virgin soil, but from their being situated in a desert ; and, where no men exist to utilize things, the very notion of wealth vanishes. It is obvious that land was valueless until the first man appeared upon its surface, and to that condition it will return when the last of our race has disappeared. Virginity of the soil has nothing to do with the matter. Here is a proof of it : if these tracts on the Amazon could by the stroke of some magic wand be transported to the banks of the Seine, their present condition being unchanged and their virginity left intact, they would probably be of as high a value as the oldest estates in France, in spite of the marks that the latter bear of the labor of a hundred generations. If this hypothesis seems to be too extravagant, let us take any chance plot of land in France and suppose it to be abandoned for a hundred years, till all traces of man's labor have been effaced and nature has given it a new virginity. Shall we be told that then that land will have lost all value, that neither a farmer nor a pur- chaser will be forthcoming for it? Surely not ; on the contrary, we may safely wager that, though it has been left in such a state, that land, a hundred years hence, will be far more valuable than it is to-day. This natural value of the ground, again, is plainly visible in the case of cultivated areas, and is shown by the unequal fertility of land. Thus two plots may have been the object of equal labor and of equal expenditure, but one of them may be worth a fortune while the other may not be worth a farthing. It also appears, as will be seen later on, in the unearned increment which land receives independently of human labor and from which the owner derives an income which constantly increases. We therefore hold that the distinction is justified in principle- DISTRIBUTION. 445 But do we mean by that, that landed property is to be condemned without our hearing any further evidence ? Before we pronounce so hasty a judgment, let us see how landed property took its rise. IV. The Historical Evolution of Landed Property. In modern societies, at least in the old European countries, private property extends over almost the entire surface of the land. Not only has this appropriation been sanctioned by all sys- tems of legislation, but, moreover, current opinion has come to regard it as the type of property. When we speak of " property " without using any qualifying term, we are always understood to mean landed property. But the numerous researches which have been made, especially of late years, justify us in holding that it has now been proved that landed property is an institution of relatively recent date. We learn that it was unknown in the earliest phases of civihzation, and that its formation was a matter of great difficulty. For long years men were cognizant of no other private property than that which related to movable goods and to houses, for those were the only articles which could be regarded as the product of individual labor. As Herbert Spencer says (^Principles of Sociology, Vol. II, page 635, 1882 edition) : " Records of the civilized show that with them in the far past, as at present with the uncivilized, private posses- sion, beginning with movables, extends itself to immovables only under certain conditions. We have evidence of this in the fact mentioned by Meyer, that ' the Hebrew language has no expression for landed property'' ; and again in the fact alleged by Mommsen of the Romans, that ' the idea of property was primarily associated, not with immovable estate, but with " estate in slaves and cattle " {familia pecicniaque')y^ Compare the etymology of the word " mancipatio," which evidently refers to movable goods. Six successive stages can be observed in the evolution of landed property, and these we propose to briefly indicate ; but we must 446 PRINCIPLES OF POLITICAL ECONOMY. not be understood to mean that at all times and in all places property has assumed each of these shapes in succession. Firstly. It is obvious that landed property cannot arise in a society which lives by the produce of the chase, or among pas- toral races who lead a nomadic existence. Agriculture is a prior condition. Even in the earliest phases of agricultural Ufe landed property is not yet instituted. In those days land is over-plenti- ful, and no one experiences the need of marking off his share ; moreover, agricultural methods are then in the embryonic stage, and the cultivator leaves his field as soon as it is exhausted and takes another one. The land is cultivated in common, or at least promiscuously ; it belongs to the society as a whole, or rather to the tribe. The fruits of the land are all that the producer obtains. Secondly. Gradually the population becomes more sedentary and settles more firmly on the land. It also grows denser and feels the necessity of resorting to a more productive method of cultivation. Thus the first stage is supplanted by a second phase ; namely, temporary possession together with periodical divisions. Arva per aiuios mutant, " they change their land yearly," is the famous phrase used by Tacitus when speaking of the ancient Germans.^ But of late years the meaning of the sentence has been contested, and a new and somewhat paradoxical translation has been proposed ; viz. " they change their rotation of crops yearly." This system of the tribe holding the land as its collec- tive property is still to be met with in the arch of the indigenous tribes of Algeria. Though the land is still regarded as belonging to the society, it is equally divided among the heads of families, not as yet definitively, but only for a certain time. First of all for a year, for in that is comprised the ordinary cycle of agricultural operations. Then, as methods of husbandry improve and cultivators require a longer space of time for the accomplishment and fruition of their ^ Tacitus, Germania, ch. 26. The interpretation of the passage is fully discussed in Dr. \V. Cunningham's Growth of English Industry and Commerce, 2d ed., 1890. — J. B. DISTRIBUTION. 447 labors, the division is gradually allowed to hold good for more and more lengthy periods. This plan of periodical division is still extant in Russia, and is well known as the mir. This mir, the community composed of the dwellers in each village, is the pos- sessor of the land, and distributes it amongst its members by divisions which are usually biennial, but the periodicity varies from one parish to another. The territory of the parish is of three kinds : the land which has been built over together with the gardens which constitute the hereditary property of the parish ; this is not subjected to division. The two other classes, the arable land and the meadow-land, are periodically divided into portions which are as equal as the number of inhabitants will allow. The assembly formed by the heads of families, the mir, has sovereign power over the distribution of the respective shares and the fit cropping. Further details can be found in M. Anatole Leroy-Beaulieu's La Russie and M. de Laveleye's La Proprieie. It has been maintained that these Russian village communities are tending to abandon this system in favor of the institution of private property. But the assertion has been by no means proved. Thirdly. At last a time comes when these periodical divisions fall into disuse, for skilful cultivators do not readily agree to an arrangement which periodically deprives them of the fruits of their labor in the interests 'of the whole community. Thus we arrive at proprietorship of the family as a whole, each family becoming henceforward the proprietor of its own portion. But private property is not yet established, for the right of disposal is still non-existent. The head of the family can neither sell the land, nor give it away, nor dispose of it after his death, for it is held to be a collective estate, and not a private property. This system can even now be observed in the family communities of Eastern Europe, especially among the Zadrugas of Bulgaria and Croatia, which consist of between fifty and sixty persons. But they are now somewhat rapidly disappearing in consequence of the spirit of independence manifested by the younger members of the family. (See M. de Laveleye's article in the Revue d^Eco- 448 PRINCIPLES OF POLITICAL ECONOMY. 7iomie politique iox August, 1888, entitled " Les communaut^s de famille et de village.") Fourthlv. The history of the evolution of landed property would be gravely incomplete, were we not to take into account a circumstance which, though it seems of the nature of an accident, has unfortunately occurred in the evolution of all human societies. I refer to conquest. There is probably not a single territory that has not, at some time or other, been taken away by force from the people that occupied it and been appropriated by the conquering race. As a proof of the influence conquest has had upon the evolution of landed property, Herbert Spencer makes the following interesting remark. The regions in which the ancient forms of collective property have been the best preserved, are precisely those poor and mountainous localities whose very situation has insured them against conquest. The conquerors, for their part, in virtue of their position as vic- tors and masters, have not troubled to cultivate the land, have merely assumed the legal ownership, the " superior lordship," as it used to be called, and have left the subjected people in posses- sion of the soil by what is called tenure. This tenure was more or less akin to actual ownership, but was always limited by the con- ditions of the concession made to the cultivator, by the servitudes which weighed heavily upon him, by the dues he was bound to pay to his overlord, and by the impossibility of alienating the land without the authority of his superior. For several centuries this " feudal system " was the foundation of the social and political constitution of Europe, and is still to be met with in several coun- tries, notably in England. In that country much property, theo- retically at least, is held in the form of a tenure as copyhold and is still shackled by a number of restrictions (entails, settlements, etc.), which it experiences great difificulty in shaking off. As Blackstone says, thus was established in English law the cardinal maxim with regard to possession of land : the king is the only master and the original owner of all the land in the kingdom. Fifthly. The development of individualism and of civil equality DISTRIBUTION. 449 and the abolition of the feudal system, particularly in those coun- tries which have felt the influence of the French Revolution, have led to a fifth stage, which has been realized in our times ; namely, the definitive institution oi freehold landed property, together with all the attributes involved in the rights of property. But this landed property, for example, as it is set forth in the Code Napoleon, is not yet altogether identical with personal prop- erty. It possesses numerous differentiating characteristics which are well known to lawyers, and are especially marked by the various degrees of difficulty to which the rights of alienation and acquisi- tion are subjected. Sufficient instances are the inahenability of the immovable estate of women married under the dowry system, the formalities required for the transfer of real estate, and the enormous succession duties which are levied for change of owners. Sixthly. Thus only one step further was required for the com- plete assimilation of landed property and personal property, and for the reaching of the last term in this evolution. This was the mobilization of landed property, by which each individual might be enabled not only to possess land, but also to dispose of it as easily as any article of personal property. This final step was taken in a new country, Australia, by the institution of the celebrated Torrens System. By this the owner of real estate is able, as it were, to docket his land in the shape of a sheet of paper, and to transfer it from one person to another with the same ease as if it were a bank note, or at least a bill of exchange. In the author's Etude sur PAct Toj'rens (1886), full details are given as to the Torrens Act, which is named after the statesman who caused its adoption in New South Wales about forty years ago. It has two essential features. The first is a register similar to the French civil register ; in this each real possession has its own page, which is devoted to its plan and its specification ; on the page, too, is related (as far as possible) the history of the realty from the date of its entrance into the domain of pri- vate property. The second is a title-deed, which is a fac-simile, sometimes even a photographic reproduction, of the leaf in the 450 PRINCIPLES OF POLITICAL ECONOMY. register. When this has been handed over to the owner, it abso- lutely stands for the realty itself, and can in its turn be yielded to others, given as security, and so forth. As Torrens himself said, the object of this system was to rid landed property of all the barriers that prevented free access to it, " like the portculHs, drawbridge, and moats which used to defend the approach to the casdes of our ancestors." The system was adopted in turn in all the Australian colonies and in some other English colonies, has lately been tried in Tunis, and is to be attempted in Brazil. Various legislative endeavors to introduce it into England have hitherto proved unsuccessful.^ Our review of the history of landed property might seem to justify us in drawing this final conclusion ; the reign of collective property has passed away forever, for we see the institution of property grow- ing more and more distant from that early stage and constantly mov- ing in a diametrically opposite direction. However, the future may belie that conclusion. It is not impossible that the evolution of landed property may have in store for us the same surprise as we have experienced from the study of the evolution of other institu- tions, e.g. a money and a mercantile class ; there may be some right-about-face movement which may bring our institution back to a spot not very distant from its starting-point. We may note that precisely the same predictions as ours have been set forth by Herbert Spencer, who has traced the history of landed property in a masterly manner, and who is one of the leaders, or rather Ir- reconcilables, of the individualist school ; for on pages 643, 644, of the second volume of his Principles of Sociology, we read : " So it seems possible that the primitive ownership of land by the com- munity, which, with the development of coercive institutions, lapsed in large measure or wholly into private ownership, will be revived as industrialism further develops." 1 Further references to the Torrens Act may be found in the Bulletin de la Societe de Legislation Coinparee, and in the Revue d'' Econoinie politique, June, 1890, " Le Systeme Torrens en Angleterre," by Charles Fortescue Brickdale. • — Author's Note. DISTRIBUTION. 451 V. The Legitimacy of Landed Property. We have now traced the course of landed property ; we have seen it gradually unfolding itself from the primitive community and taking the shape of free private property in ever-increasing likeness to personal property ; and we have observed how its suc- cessive transformations have followed in the wake of the progress of agriculture and the development of civilization. It will now be easy to determine the economic causes which have, so to speak, necessitated this establishment of landed property. One active force is the increase of population, which has com- pelled mankind to practise more intensive cultivation in order to obtain from the earth a larger and larger supply of articles of sub- sistence.^ In Canada it has been observed that the native races who live by the chase require the enormous area of fifteen square miles per head so that each man may continue to exist. Below this limit they are decimated by famine. But agriculture, as it is practised in Western Europe, can support from four to iive thou- sand times more. Secondly, to stimulate labor it is necessary to guarantee the cul- tivator a right not only over the produce of his land, but also over the land itself, as the instrument of his labor. This right is tem- porary at first, but it is continued longer and longer as the prog- ress of agriculture requires labor of longer duration, and finally it becomes perpetual. The right to the fruits of the earth carries with it the right to the earth itself, at least for a certain period. The man who has sown the seed must be given time to reap the harvest. The planter of vines must wait six or seven years for his first vintage ; half a century must elapse before the sower of the acorn can cut the oak. Moreover, even yearly cropping, if at all advanced in method, requires certain labors (such as manuring, improvements of the soil, drainage, and irrigation), which can only be recouped by the 1 This aspect of the increase of population was first fully treated by Mal- thus. — J. B. 452 PRINCIPLES OF POLITICAL ECONOMY. successive crops of ten, twenty, or even fifty years, The man who has performed such labors must be allowed the possibihty of repay- ing himself; otherwise it is certain that he will relinquish them.. Still we may ask if it was really necessary to. grant perpetuity to landed property. It was not indispensable for the successful culti- vation of the soil ; for surely man, the creature of a day, does not require all eternity for the execution of the largest labors.. This is shown by the fact that such enormous undertakings as the cutting of the railways and the canals at Suez and at Panama rest only on concessions for ninety-nine years. It is true that the logic of the right of property should lead to this consequence, for the rights of property last as long as the object possessed, and in this case the object is of perpetual dura- tion. Of all wealth land alone holds this privilege ; time, the destroyer of all things, tenipus edax re rum, lays his hand on the earth only to give her a new youth with each returning spring. As we shall see shortly, the extension of this perpetuity from the object to the right itself involves some troublesome consequences. Besides the economical it is obvious that other causes, some political, some moral, some even religious in origin, have presided over the genesis of landed property, and may even now, in a certain degree, be called to testify in its favor ; but in this place we have only to deal with economical causes. Have those two causes, which led to the creation in the past of private property in land, now lost their power of defending it against the attacks of its adversaries ? We think not. For, given on the one hand the more or less rapid but continu- ous increase in population, and on the other hand the insufficiency of the production of wealth, which we have so often observed, it is as necessary now as it w^as in early days to choose the mode of cultivating the land which shall allow of the nourishment of the largest possible number of men upon any given area. In our opinion private property best satisfies that need. It is useless for the collectivists to tell us that the collective proprietorship of land would now give far better results than those DISTRIBUTION. 453 obtained by private property, in consequence of that system alone enabling us to employ the methods of large production and to reap all their advantages. We have already seen that we must not expect from large production in agriculture the same advan- tages as it gives in manufacturing industry. It effects a reduction in general expenses, but it also produces a smaller quantity of articles required for our subsistence : now what we especially desire to obtain from the earth is the greatest possible amount of gross produce. A further question is the organization of this cultivation of the land under the system of collective ownership. On this point the collectivists are far from being of one mind. If this task is to fall to the lot of the State or of the various communes or parishes, we must confess that the results heretofore obtained in the few cases of which we are able to judge have scarcely been encouraging. We refer to State forestry and State railways, and to the administration of public land. The value of the state forests in France is estimated to be ;^5 0,5 00,000, but the net returns are scarcely ^480,000, or rather less than one per cent. Though the cost of the French State railways was ;2^3 2,000,000, the net returns have been rather less than ;^i 60,000, or slightly under one-half per cent. But to be candid, we must admit that in some countries, in Germany in particular, State property has yielded a much higher income. If we were to abide, then, by strict logic, land ought to belong to society ; but, as society as a whole cannot turn it to the best use, it concedes it to individual persons, and commissions them to cultivate it for the further benefit of all. Thus we regard landed property as based less upon natural rights than on civil law, — not on a principle of abstract justice, but on public utihty. This distinction between landed property and personal property is excellently shown in the new Servian Code in the following clauses : " The right of property over products and movables acquired by human exertion is based on Nature herself and is established by natural laws " ; " The right of property over realty 454 PRINCIPLES OF POLITICAL ECONOMY. and soil, whether cultivated or uncultivated, is confirmed by the constitution of the country and by civil laws." Still we may ask whether landed proprietorship has not grown to an excessive and mischievous extent in thus absorbing almost the whole of the land of a country, and whether it would not have been more rational to limit it according to the spread of the cultivation of the earth, since that is the only title which we grant it? Our views as to the limitation of landed property to land under cultivation happen to coincide with the Mussulman law. In this respect that system is more rational than the legislation which is derived from the Roman Law. It restricts private property to such land as has been the object of effective labor, and this it terms living land in contradistinction to uncultivated land or dead land which should continue to be collective property. " When any man has put life into dead land, says the prophet, it shall belong to none other, and he shall have exclusive right over it." The following are the labors which are thus to transfer land to private ownership : "To cause water to flow as a spring either for drinking or for watering the fields ; to divert water from submerged tracts ; to build upon uncultivated ground ; to make a plantation thereon ; to break it up by tillage ; to clear away the undergrowth which renders it unfit for cultivation ; to level the ground and remove stones therefrom." By the application of these principles in Algeria and Java, collective property in those countries is even now of great importance. In France there are 50,000,000 acres of land of this description (two-fifths of the whole area of France), but only 15,000,000 acres of this land still belong to the State or the various parishes. All the rest has been swallowed up by private proprietors. There are grave disadvantages, which have been more than once pointed out, in the absorption by private proprietors of such collective property as public lands, woods, and pasture land. No doubt, as this early shape of collective property tends to disappear, our present societies witness the growth and development of an DISTRIBUTION. 455 even larger form of collective property ; viz. railways belonging to the State, and gas, water, and tramway enterprises which are carried on by municipalities. But the new does not compensate for the loss of the old form. VI. The Law of Ground Rent. Landed property seems to consist wholly of advantages, and to be altogether free from disadvantages, when we observe it at its commencement and in its early stages, as may now be witnessed on the pampas of the Argentine Republic or in AustraUa. Hence it is that its institution is so easy. Since it only refers to lands that have already been cleared, and extends pari passu with the spread of cultivation, it appears to be sanctified by labor. At this stage it occupies but a small portion of the soil, and land is still over-plentiful j hence no monopoly is associated with its exist- ence, and the law of competition holds good as with all other undertakings. But, when the society develops, and population becomes denser, a change comes over the character of landed property. It gradu- ally assumes the appearance of a monopoly which continues to increase without Hmit, giving great gains to the owners of land, but doing great injury to society as a whole. This evolution was first expounded by Ricardo,^ in that profound theory which gave him fame, and has for half a century furnished a staple for the discussions of all economists. Originally, says Ricardo, as men were only obliged to put a small quantity of land under cultivation, they chose the best plots. Still, in spite of the fertility of this land, the holders do not receive from their cultivation a higher return than they could obtain from any other employment of their labor and capital. For, as there is still other land, the law of competition comes into effect, and brings down to the cost price the value of the produce even of this most fertile land. 1 Anderson and Malthus preceded him in teaching the received theory of Rent. Ricardo himself acknowledges his debt to the latter. — J. B. 456 PRINCIPLES OF POLITICAL ECONOMY. But a time comes when increase of population necessitates an increase of production, and as land of the first class has been appropriated in its entirety, less fertile land has to be put under cultivation ; i.e. land on which the cost of production is higher. Let us suppose that land of the first class yields 35 bushels of wheat per acre, at an outlay of ^12, or a little more than 6 shil- lings a bushel ; then land of the second class will only produce 25 bushels for the same expenditure, and the cost of production per bushel will be more than 9 shillings. Now it is clear that the owners of this land will not be able to sell their corn below this price, for in that case they would lose, and would refuse to pro- duce any more. But on our very supposition people cannot do without this land. It is no less evident that owners of land which was occupied first of all will not be so obliging as to sell their corn at a lower price than their neighbors. They too, then, will charge 9 shillings a bushel ; but as their corn cost them only a little over 6 shillings, as heretofore, they will therefore realize a profit of nearly 3 shillings a bushel, or ^5 55-. an acre. It is this profit which is called rent, both in Ricardo's theory, and in the vocabulary of political economists in which it has gained a place. By this is meant a return which is peculiar to landed property, and is due to natural or social causes which are independent of the labor or the expenditure of the owner. (For a clear under- standing of the above theory, the reader should turn again to our chapter on the " Effects produced on Value by Competition.") Our account of the theory clearly shows that it is 7wt the rent that determines the rise in price, hut, on the contrary, it is the rise in price that determines the irnt. At a later stage, as population continues to increase, and re- quires a further augmentation of the means of subsistence, men are obliged to cultivate land of even inferior quality, that will yield (say) only 20 bushels an acre. This means a cost price of 12 shillings a bushel, and, for the reasons shown above, will raise in the same proportions the price of all the bushels in the market. Henceforward the owners of land occupied in the first instance DISTRIBUTION. 457 will note a rise in their rents to ^9 an acre, and proprietors of land of the second class will now profit by a rent of ^7 an acre. This " progress of cultivation," as Ricardo calls it, may go on indefinitely, its universal effect being to raise the price of food, to the detriment of consumers, and to increase rent, to the benefit of the landlords, whose incomes are swollen without any exertion on their part, and whose prosperity is derived from the impover- ishment of the community. It has been objected, Are men always compelled to increase production by putting new lands under cultivation ? Cannot the required increase of production be effected on the good land? Certainly it can ; but in virtue of the law of disproportionate returns, every increase of returns above a certain limit will require a more than proportionate augmentation of expenditure, and will consequently involve a rise in the expenses of production. Thus if land which yielded 35 bushels an acre for ^12 is now required to bear 70 bushels, the additional quantity may be obtainable, but it will probably be necessary to spend ^35 to ^40, and the price of each bushel will therefore rise to ;£\ or more. Thus the final result will be the same. Our chapter on the " Law of Dispro- portionate Returns " should be read along with this account of Ricardo's theory. The theory is now somewhat out of favor, for it is held to be too pessimistic both by economists of the optimistic school and by socialists. At the present day so much confidence is felt in progress that men feel it difficult to believe that agricultural pro- duction is destined to go from good to bad, and from bad to worse. Although we ourselves have admitted the law of dispro- portionate returns which may at some future date justify Ricardo's sinister predictions, we have expressed the opinion that that day was still far distant and might be almost indefinitely postponed. A theory which was exactly the opposite to Ricardo's, and which won some favor in its day, was propounded by Carey, the American author. His attempt was to show that the progress of cultivation was carried out in precisely the reverse order. In 458 PRINCIPLES OF POLITICAL ECONOMY. his opinion the most fertile lands are the most difificult to clear in consequence of their very fecundity, which takes the shape of exuberant vegetation and huge forests and marshes with the con- comitant miasma and fever. To put these under cultivation, then, agriculture will have to be equipped with more powerful weapons and methods. This theory is true for a budding society : when Carey propounded it, it still held good for the United States ; but it is no longer applicable to the United States of to-day, and centuries ago our European countries passed beyond its scope. No one but a man who had lost his senses could now assert that in France or in England the most fertile land was that which still had to be put under cultivation. Although we may not entirely accept Ricardo's law and a his- torical " progress of cultivation," it is nevertheless incontestable that the value of land is destined to increase without limit in con- sequence of causes which have nothing to do with the existence of any landlord whatever. For land has three characteristics which no other tuealth possesses in the same degree : firstly, it answers to the essential and permanent wants of the human race ; secondly, it is limited in quantity ; thirdly, it lasts forever. From such facts we can easily perceive that its value must persistently tend to rise in proportion to social development. The increase in population is the principal cause ; for naturally the more men there are, the greater are the supplies of food that they require from the land, and the wider the space they need for their abodes. From the consideration of this has been drawn the somewhat too sweeping formula that the value of all land is in direct ratio to the number of men it bears upon its surface. Thus it has been calculated that by the mere fact of his arrival each emigrant in- creased by about $400 the value of the territory of the United States. As more than 13,000,000 emigrants have disembarked on those shores since the beginning of this century, that alone must have given to American land a surplus value of more than ^5,200,000,000. Other causes — namely, the general increase of wealth, the making DISTRIBUTION, 459 of roads and the cutting of railways, the growth of large towns, the development of order and of security — have inevitably con- tributed to heighten that surplus value of land which English economists call by the expressive name of unearned increment Naturally enough this surplus value of the earth has been the most strikingly shown in new countries such as the United States, for it is there that these diverse causes act with the greatest intensity. From the surplus value of the land has sprung the fabulous fortune of Mr. Potter Palmer, the Chicago millionnaire ; and from the same source have Henry George's theories derived so large an amount of credence. As was only to be supposed, the surplus value is less marked in older countries where the pre- disposing causes operate with less energy, and where the increase in population has much abated, as in France at the present day. Yet agricultural inquiries which were made in the years 185 1 and 1882 show that between those dates, that is to say within a space of only thirty years, the value of land in France rose from ;,^2,44o,ooo,ooo sterhng to ;,^3, 640, 000,000. The rent of land in England was calculated to be ^20,000,000 in the year 1800, and to be ;^6o,ooo,ooo in 18S0, having thus been trebled;^ in the same period the population of England alone had likewise been multiphed by three : the figures are 8,890,000 in 1801, and 24,850,000 in 1879. Only one cause tends to stop or even reverse this upward move- ment of the value of land. This is the competition of new coun- tries, which results from colonization on a large scale and from great improvements in the means of transport. At the present time this competition has assumed vast dimensions and has led many people to disbeheve in the law of" unearned increment." Economists of the optimistic school, those indeed who hold that land is the product of labor, are obliged to protest against a 1 Mr. Giffen's figures are, for 1885, ;^65,039,ooo; for 1875, ;^66,9 11,000; showing a decrease of more than a million in ten years {^Statistical Journal, March, 1890). — J. B. 460 PRINCIPLES OF POLITICAL ECONOMY. doctrine which regards the landowner as a sort of parasite who monopoHzes the gains of all social progress. They do not try to deny the fact of the surplus value or " unearned increment," for it is incontestable ; but they explain it away by the improvements made and the expenses incurred by the landlords, and go so far as to assert that if we could reckon up all the expenditure accu- mulated by successive owners, we should have to conclude that there is no land whose value is equal to what it has cost. The argument is an attractive one, but it is not accurate ; for statistics show that land which has been the object of no labors of improvement, such as natural meadows, or, better still, building sites, receive the same surplus value or unearned increment as is reaped by the owners of other kinds of land. For the agricultural statistics for the years 1852 and 1882 show that between those dates the value of fields and grazing-lands, in France, of the lowest class rose from ^22 i6s. per acre to ^^40 3^'., a rise of about 80 per cent ; whereas the value of arable land of the best description rose during the same period from ^36 ioj-. to ^54, or a rise of only 50 per cent. No doubt, if we were to add together all the expenditure made on any piece of French land, from the moment when it was first cleared by a Gaul in the times of the Druids, our total would be infinitely greater than the present value of the land ; but for our calculations to be accurate, we ought also to add in all the crops yielded from the same date onwards, and then we should probably find that the land had certainly given a rent which increased regularly with the advance of time. We often hear people say, " Land only returns 3 per cent or 2^ per cent. That is not much." They should be asked in turn, in accordance with what natural law is land bound to yield them an income of 3 per cent a year. No doubt they would reply, " Because we paid ;^iooo for our land, and it is only fair that it should bring in ^30 a year." They fail to see that that only begs the question. It is not because yjiooo has been paid for the land that it ought to yield ^30. In virtue of the monopoly of DISTRIBUTION. 461 landed property it gives its possessor a rent of ;^30, and it is for tliat reason tiiat ^1000 have to be paid for it. VII. The Nationalization of the Land. If we regard as proved the law of ground rent or the principle of the unearned increment, — that is to say, if we beUeve that a great portion, if not the whole, of the value of land is due to social causes, which are collective, and entirely independent of individual labor, — we are naturally tempted to conclude that it would be just to restore that portion to those who are entitled to it ; i.e. to society at large. For the attainment of this end several meas- ures have been proposed, which are usually termed systems of land nationalization. Firstly. One scheme would be to do away with perpetuity in landed property, and would make it resemble what lawyers call an emphyteusis, or, more simply, a temporary concession. The State, as nominal proprietor of the land, would grant it to indi- viduals for the purpose of working it, for periods of long duration, for fifty, seventy, or even ninety-nine years, as is the case with railway concessions. On the expiration of the term the State would re-enter in possession of the land (as it will about the year 1948 for the French railways), and would then grant it again for a fresh period. But the obtainers of the new concession would now have to pay the equivalent of the surplus value, by which they would benefit, either in the shape of a lump sum or as an annual rent. In this manner the State, as the representative of collective society, would receive the whole of the unearned incre- ment, which would sooner or later bring in an enormous revenue. Such a system would not be irreconcilable with an effective cul- tivation of the land, as is too hastily asserted, especially if care was taken to renew the concessions some time before the expira- tion of the term. Certainly such a system would be more con- ducive to successful farming than the actual state of things in countries such as Ireland, or even England, where almost the 462 PRINCIPLES OF POLITICAL ECONOMY. whole of the land is cultivated by tenants at will, who can lose their tenancies at the landlord's pleasure. The execution of such a project would meet with an insur- mountable obstacle in the prior operation of the buying back of the land, if that were done with due regard to equity, for that operation would be absolutely ruinous. Take the case of France. The total value of landed property in France may be estimated to be /^4,ooo,ooo,ooo sterling. Let us grant that the purchase could be effected at this price ; then it would be necessary to borrow that sum. Let us further suppose that so huge an issue of bonds would not damage the credit of the State, and that it could still borrow at 4 per cent. Even then ^^ 160,000,000 would have to be entered on the expenditure side of the accounts of the State. On the other hand, we should have henceforward to deduct from the receipts all the taxes that at present foil upon land, for these would clearly be wiped out by confiisio, the creditor and the debtor being one and the same. Thus the deficit would be nearly _;^20o,ooo,ooo. True enough, / = product ; then Wages = V«/. (See Roscher, JVat. Ok. Deutschland, p. 895.) In his Principii cf Eco7iomia pura, M. Pantaleoni has tried his hand at the problem. Less ambitious than Von Thiinen, he confines himself to an attempt to determine two fixed limits between which the amount of wages falls. His method is to find out the advantage which each of the parties (taken as isolated^ might have obtained. Say that Friday by himself could have filled 3 baskets of fish ; that figure, 3, is the lower limit of his claims. Say that Crusoe by himself could have procured 3 from his capital. Then under no circumstances will he give Friday more than 7, for in that case his collaboration with Friday would do him no good. Friday's wages, then, will be somewhere be- tween 3 and 7. But, if we make the feasible supposition that neither Crusoe nor Friday has obtained aught by his unaided 494 PRINCIPLES OF POLITICAL FXONOMV. efforts, that the vakie of the isolated capital, and the value of the isolated labor, is in each case zero, then the solution of the prob- lem is perfectly indeterminate. Under the present organization of economics labor is but a commodity which, under the name of manual labor, is bought and sold in the markets like any other article. More properly it is " hired " or " let " ; but the distinction has not that importance in economics which it possesses from a legal point of view. The price of manual labor, then, must be absolutely determined by the same laws as regulate the prices of other commodities. The complex laws which we discussed when considering value are summed up in the formula of supply and demand ; in brief, the value of things is determined by their utility and by their quantity. The price of manual labor, then, must depend both on its utility and on its rarity. Its utihty means the productive power of manual labor in a given country at a given time, and the need felt for its assistance ; its quantity signifies the number of laborers who have only their arms to depend on, and who offer them in the market. This is the expression of what is, not of what ought- to be ; we shall see that a reaction has set in against this natural law, and that the workers are beginning to escape from it. Various economists have expounded three great theories, each of which, respectively, has endeavored to express the law of wages by a single formula which connects it with one only cause. That, in our opinion, constitutes the incompleteness of all of the theories. As was the case with profits, we shall be confronted by the bat- tling theories of the socialist school and of the optimists. Section i. The Theory of the Law of Brass. The socialist school declares that, with the present organization of economics, wages can never rise above the minimum explained above ; and that this minimum is also the maximum that wages can attain. The following is the line of argument. Manual labor, or the power of labor {Arbeitskraff), is under present conditions merely a commodity which is sold and bought DISTRIBUTION. 495 in the market in the same way and according to the same laws as every other commodity : workmen are the sellers ; masters are the buyers. Now all commodities are subject to the law that, wherever competition can be freely exercised, their value is determined by their cost of production. This is what economists call natural p7-ice or normal value. The commodity, manual labor, cannot escape this rule. Its price, therefore, that is to say, wages, is determined by its cost of production. To quote Las- salle, Bastiat-Schitlze-Delitzsch (Chap. IV), "Just as the price of all other commodities, is the price of labor determined by the relations between supply and demand. But what is it that deter- mines the market price of each commodity, or the average rela- tion between the supply and demand of any article? The expenses necessary for their production." We must now learn the meaning of the words " cost of produc- tion " when applied to the laborer considered as a material object. In the case of any piece of machinery, the expenses of production consist (s) in the value of the coal it consumes, (J)) in the sum that must be yearly put by to redeem it ; i.e. to replace it by another one when it is worn out. Similarly, the cost of production of labor is composed (^) of the value of the food and other articles that the workman must con- sume in order to keep in good health, i.e. to be in a fit state to produce ; (^) of the redemption premium that is requisite to replace the laborer when he can no longer work, i.e. to rear a child till it is grown up. In brief, wages must be regulated by the value that is abso- lutely necessary for the support of the laborer and his family, or, more generally, for the subsistence and propagation of the laboring population. Such is the theory usually known as the Law of Brass. Enor- mous success has attended this sonorous term which was invented by Lassalle, and since then it has rung forth in all the manifestoes of the labor party as if it were a refrain of a Marseillaise of socialism. We must observe that though this theory was baptized and 496 PRINCIPLES OF POLITICAL ECONOMY. brought into public notice by the collectivist school, it was first formulated by the classical school. Turgot was the earliest author of the statement that " in every kind of labor the workman's wages must fall to a level solely determined by the necessities of existence." {Distribution des Richesses, § VI.) Almost identical words were used by J. B. Say and Ricardo, and greatly have they been blamed for them. Whoever originated the idea, the name is an excellent one if the theory is believed to be correct ; for it burdens the working classes with the hardest yoke that could be conceived, and reduces them to a truly hopeless position. For in what way can the workman improve his condition? Can he hope to gain more by working harder and better? By no means. As his wages are independent of the productivity of his labor, bis power of labor will produce only for the master who has bought it, and to whom alone its fruits will fall. Let him beware, then, of falling into the snares that will be set to induce him to make his labor more pro- ductive, — say the offer of work " by the job," or even a share in the profits. If he is victimized by these artifices, which are purely baits to wring from him the maximum of production, he will be simply playing the master's game without benefiting himself. But can he not trust that he will improve his position by keeping down his expenses and living soberly ? Again, let him beware, for that would make his lot the harder. Since the rate of wages is always on the level of the bare means of existence, as soon as the laborer learns to reduce them, wages will fall in Hke proportion. If the modern workman were simple enough to accustom himself to subsist on potatoes like the Irishman, ar on a handful of rice like the Chinese coolie, his wages would soon be merely the sum that is absolutely necessary for the purchase of a few sacks of potatoes or bushels of rice. His frugality and his thrift would be turned against him, and he would be ensnared by the very virtues which he is exhorted to practise. Can he not, at least, expect something from the progress made in production and the increase of wealth? No ! that would be DISTRIBUTION. 49/ the very worst of all for him. If scientific discoveries were to improve machinery, and thus lower the value of food and other necessary articles, his wages, which are regulated by them, would be decreased in the same degree. Were such progress to be made that an hour's labor would produce enough for one man's daily wants, the workman would still have to labor for twelve hours : in the first hour he would earn his wages, the other eleven would go to his employer's gain. This theory, which is impressive in appearance, is really a play upon words. If we take it literally as meaning that the workman's wages can never rise above what he absolutely requires to live on, it is obviously contradicted by facts. The purely material wants of animal life are, on the whole, of no very great importance for man. Irish peasants and French peasants, when far from towns, live on practically nothing. If, then, this indispensable minimum for the support of physical existence were to determine the normal rate of wages, wages would be far lower than what they actually are in all countries. A literal interpretation of the theory would not explain why the rate of wages should be higher in one employment than in another. Engravers and mechanical engineers receive twice or thrice as much as navvies. Do they require a greater quantity of nitrogen or carbon? Why are the wages of agricultural laborers lower in winter, when they are obliged to spend more on fires and clothing, and higher in summer, the very time of the year which renders life so much easier for the poor that poets have been justified in calling it " the poor man's season " ? It does not explain why wages are higher in France than they are in Germany, or higher in the United States than in England ; for there is no reason why a Frenchman should eat more than a German, or an American more than an Englishman. Nor does it account for the undeniable fact that wages to-day are higher than they were a century ago. Do we eat more than our forefathers did ? If we discard this literal interpretation, we are told that the law refers not only to the minimum which is requisite for the support 498 PRINCIPLES OF POLITICAL ECONOMY. of man's physical existence, and is almost as unchangeable as his physical constitution, but also to the minimum which is necessary for the satisfaction of the complex wants of man living in a civil- ized environment, a minimum which varies according to the par- ticular degree of civilization. In this broader sense, the theory becomes far more probable ; but at the same time it grows far less appalling ; indeed, it appears to be almost too reassuring. Does the theory merely mean that the workman's wages are regulated by the habits and standard of life of the laboring classes, by the whole body of physical and social, natural and artificial wants which characterize the environment in which he has to live ? Is it further granted that instead of being "brazen," this minimum is elastic, mobile, and variable according to the race, the climate, and to the age, and that it ceaselessly and inevitably tends to rise in proportion to the increase in number and kind of the wants, the desires, and the requirements of civilized man ? If so, we will not gainsay the theory ; and with all our hearts we hope that it is a true one, for in that case it should be called not the Law of Brass, but the Golden Law of wages. But the hope is too great a one. If we ask the disciples of Lassalle why the wages of French day- laborers in rural districts, which formerly only allowed them to eat black bread and wear wooden clogs, have not now risen so as to enable them to take to white bread and use shoes as foot-gear, we are told, " It is the new wants and the new habits which have caused the rise in wages." So be it ; but if they take to eating meat with their bread and to wearing flannel shirts under their waistcoats, are we to assume that their wages will rise so as to enable them to satisfy these new wants? If so, what a happy prospect they have ! Henceforth the workman's fare need not be adjusted to his wages ; his wages will be fixed according to what he eats and how he lives. Under this rosy light the Law of Brass has been set forth in Wealth and Progress, a book by Mr. Guns- ton, an American. As we have previously rejected the doctrine which bases the value of things upon their cost of production, we should be incon- sistent in admitting its application to the case of manual labor. DISTRIBUTION. 499 Section 2. The Theory of the Productivity of Labor, The optimistic school upholds the reverse principle that wages are regulated by the productivity of the workman's labor. The theory is quite a recent one. It was first set forth by General Francis Walker, the American economist, in his book on The Wages Question, and was adopted by Stanley Jevons. It also obtained the support of three of the author's colleagues, MM. Beauregard, Chevallier, and Villey, in three works on wages, which they simul- taneously published, and all of which were crowned by the Insti- tute of France, The workman is never tired of demanding " the whole of the product of his labor," the phrase which forms part of the platform of the labor party. Such a claim would only be justified if the laborer himself had supplied all the elements of production, not manual labor alone, but also the raw material and the implements which the autonomous producer does provide. Under the wages system these conditions are not fulfilled. Once at a pubhc meet- ing a workman shouted out the vulgar but vivid phrase, " The man who makes the soup should eat it ! " Quite correct ; but is it the workman who has made the soup ? No ! it is the employer who has provided the kettle, i.e. the instrument ; and the ox which gives the beef, i.e. the raw material j and none but he sets the pot boiling. Thus the workman's claim to have all the soup for him- self, to obtain the whole of the produce of his labor, is utterly unreasonable under present economic conditions. The present theory, however, does not assert that wages will be equal to the entire value produced by the workman's labor ; for in that case the employer would gain nothing, would doubtless lose, and would therefore abstain from business. It merely holds that the workman receives in the form of wages all that remains of the entire product after a deduction has been made of all the shares which are due to the other collaborators, e.g. after a deduc- tion of the interest on the capital which he does not supply, and of the insurance premium against the risks which he does not bear. 500 PRINCIPLES OF POLITICAL ECONOMY. According to this theory, the value of labor cannot be likened to the value of a commodity, which is subjected solely to the law of supply and demand as regulated by competition. It is granted that the laborer is an instrument of production, but it is added that the value of an instrument of production depends on its productivity. When a capitalist hires a piece of land, is not the rent which he has to pay calculated according to the productivity of the land ? When he hires labor, then, why should not the rate of wages be in proportion to the production of that labor? If this theory is a sound one, it should be as encouraging as the Brazen Law is discouraging. For if the rate of wages depends on the productivity of the workman's wages, his destiny can be carved by his own hands. The more he produces, the more he will gain ; his wages will infallibly be increased by everything that tends to increase and improve his productive activity ; viz. physi- cal development, moral virtues, technical education, inventions, and machinery. In fine, the results of the contract of wages would be even more advantageous than those of actual partnership or profit-sharing, for the workman, and none but he, would profit by the entire increase of the productivity of labor ; he would literally receive the whole of the produce of his labor, after the natural subtraction of interest on the capital which he does not supply, and of the insurance premium against the risks for which he is not liable. This harmonizes with Stanley Jevons's statement, that the laborer's wages always ultimately coincide with the product of his labor, after a deduction has been made of rent, taxes, and interest. The bare enumeration of these consequences shows us in what measure the theory is in opposition to actual facts. We have already granted that the productivity of labor influences the rate of wages ; for by increasing the general wealth of a country it swells the whole mass which is to be divided, and thus comes to augment the respective portion due to each of the sharers, in whom workmen are included. It further affects the rate of wages ; for as soon as labor is more productive, the demand for it should DISTRIBUTION. 5OI increase. But one of the most essential elements is left out of account, — the abundance or scarcity of manual labor, the effect of which is usually the most powerful of all. It is not probable that the productivity of labor in the United States is smaller now than it was twenty years ago ; but in that country the rate of wages has perceptibly fallen, for the proletariat class has been largely added to, both by the immigration of foreign laborers and by the appropriation of the available land. Section 3. The Theory of the Wages-Fund. For many years this was the classical theory, especially in the opinion of English economists ; but it is now beginning to be abandoned. Like the Brazen Law, it starts from the principle that the price of manual labor, that is to say, wages, is determined by the law of supply and demand, and these two factors it defines in the following terms. The supply is furnished by the workmen, the poorer classes, who seek for work whereby to earn their living, and offer the use of their arms for that purpose. The demand is composed of capitahsts who need investments ; for the only mode of employing capital productively is to devote it to the supplying of work to workmen. The ratio between these two elements will determine the rate of wages. In Cobden's picturesque and often quoted formula the law means that " whenever two workmen run after one master, wages fall ; whenever two masters run after one workman, wages rise." When couched in these terms the theory may be regarded as irrefutable, and virtually differs little from our own account of the matter. But the theory has been damaged by an attempt to ascribe to it an exactness which it does not possess, and to convert the law of wages into an arithmetical process. Take the circulating capital of a country, or the wages-fund, as the English term it, because they hold that its purpose is to sup- port the laborers during the course of their labor. Then take the number of laborers. Divide the first figure by the second, and 502 PRINCIPLES OF POLITICAL ECONOMY. the quotient will instantly give the sum total of wages. Let ;z^4oo,ooo,ooo be the circulating capital, and 10,000,000 be the number of the laborers, say in France, and the yearly average wages will be ;!{^40. This theory clearly demands that wages can vary only as one of the two factors varies. Therefore a rise in wages is possible only in the two following cases : — Firstly. If the wages-fund — i.e. the mass to be distributed, the dividend — happens to increase, and nothing but saving can increase it. Secondly. If the laboring population, i.e. the divisor, diminishes. Now it can only diminish in proportion as the workmen apply the principles of Malthus, and either abstain from marriage or have few children. The conclusion drawn by John Stuart Mill, the ablest exponent of the doctrine of the wages-fund, was that the only safeguard for wages-earners was a restriction of the increase in population. In this shape the theory is hardly more encouraging for the working classes than was the Law of Brass, and it practically amounts to the same result. In its opinion, the divisor (the num- ber of the working classes) must increase far more rapidly than the dividend (the amount of capital available) ; whence it follows that the quotient (wages) must tend to diminish, till it has fallen to the minimum, beneath which it cannot descend. The reason for this is, that the production of children is a far easier matter than the production of capital. The latter presupposes abstinence ; the former implies the reverse. Population is multiplied sponta- neously ; capital is not. This doctrine of the wages-fund is bound up with a conception of capital, with which we have previously disagreed. Every human society is supposed to possess a species of provision store, from which we can draw at will for the support of the laborers ; hence it is inferred that wages can be paid only out of the produce oi past labor, and never out of the produce oifutiire labor. As a matter of fact, what labor produces daily is enough to support labor. DISTRIBUTION, 503 We must also note that the professed exactness of the theory is altogether deceptive. In this arithmetical sum which we are asked to solve, the three terms of the problem are three un- knowns ; in the division we have to perform, the dividend, as well as the divisor, is represented by x. How, then, can we find the quotient ? The following is the real statement of the case : the dividend is not the amount of capital in the country, which could be calcu- lated, if need be ; but it is merely that portion of their capital which employers wish to spend in manual labor. The divisor is not represented by the total population of the country ; it is com- posed of those laborers who have to hire out the use of their arms, and from these we have to deduct all autonomous producers, who may be very numerous. Thus, on a nearer view, the theory is resolved into this : the rate of wages can be obtained by dividing the whole sum distributed in wages by the number of those who receive wages. There was no necessity to prove that. III. The Rise in Wages. The gradual rise in wages, especially for the last half-century, is an indisputable fact. MiUions of statistical observations, which have been collected in all European countries, justify the conclu- sion that in this space of time agricultural wages have about doubled, and that wages paid in manufactures have increased by two-thirds, or thereabouts. For this conclusion to have any real value it should be corrobo- rated by a mass of figures, inasmuch as nothing is proved by a few separate figures, which may have been arbitrarily chosen. The requisite tables cannot be given here, but in La Alain-d'' ceuvre et son prix, a book from the pen of M. Beauregard, Professor in the Faculty of Law of the University of Paris, they may be found, together with a mass of substantiating evidence. A general view of the subject will be obtained from the table prepared by M. de Foville, which we here subjoin. The income of a family of French 504 PRINCIPLES OF POLITICAL ECONOMY. agricultural laborers for a century past is thus set forth by M. de Foville : — 1788 £8 1852 /22 1813 , . . . 16 1862 28 165. 1840 20 1872 32 The rise has been much greater in the rural districts than in the towns, and in the provinces than in the capital ; this is explained by the constant emigration from the country into the towns, and from the provinces to the capital. Now, what are we to infer from this rise? According to the optimistic school, the improvement in the condition of the work- ing classes is certain, considerable, and indefinite ; further, it is spontaneously effected, and therefore, in the interests of the work- men themselves, the only policy is one of /aisser /aire. This view of the matter is not shared by the socialists, their leading principle being that under the present economic organiza- tion the rich always become richer, and the poor never cease to grow poorer. They cannot deny the material fact of the rise in wages, for it is incapable of denial ; but they assert that it proves nothing as regards the improvement of the lot of the working classes, and rest their case on the following reasons : Firstly. The rise in wages is nominal, and not actual ; it is merely an optical illusion occasioned by the depreciation of the value of money. If, during the last half century, money has lost half its value, how does the laborer gain by receiving as his wages a florin instead of a shilling? He is no better off for that. There is some truth in this assertion. It is a fact that money has lost a portion of its value, especially since the discovery of the Australian and Californian gold-fields, in the year 1850 and there- abouts ; this fall in value of the monetary standard has caused a general rise in prices, and consequently an income of ;^8o at the present day does not give double the ease and comfort which ^40 yielded in 1850. We must now see whether this deprecia- tion of the value of the money, or, what is the same thing, the general rise in prices, has been equal to the general rise in wages. DISTRIBUTION. 505 Now it is perfectly certain that prices have not doubled ; their average increase has not even been two-thirds ; the depreciation of money is usually calculated to be a third at the very outside. Therefore the workman who now receives ;^8o, or only ^67, instead of the ^40 he was paid forty years ago, enjoys an income which is not only larger in terms of money, but is also a more powerful instrument of purchase and of consumption. The rise in wages, though partly nominal, is also partly real. For a more accurate estimate of the improvement in general welfare that this increase in wages represents, we ought to analyze the workman's expenses, and examine what rise in price has been sustained by each of the principal articles in his budget. More than once already this task has been carefully performed, and the result shows a clear rise. Food, such as meat, vegeta- bles, wine, butter, and so forth, has largely increased in price, indeed, has more than doubled ; house rent has grown in even higher proportions ; and these two are very important items. But bread, which is the principal article in the budget, is not percepti- bly dearer ; manufactured goods, such as clothes, are considerably cheaper ; and there is a further decrease under the headings of transport, intercommunication, and education. Secondly. The socialists add : Even admitting that the rise in wages is partly real, in any case it is not in propoi'tion to the development of the general wealth, and to the increase of the incomes of the other classes of society. Let us suppose that fifty years ago the whole sum to be divided between the propertied classes and the proletariat was ^400,000,000 sterling, or ;z{^200. 000,000 for each. Yet the total, now, has risen to ^800,000,000, — the proleta- riat receiving^28o, 000,000, and the monied classes, ^5 20,000,000. Then the rise in wages, though real, would not mean an actual rise in condition ; for though the wages-earners' share would have increased by 40 per cent, the share of the other classes would have risen 160 per cent, or four times more. The wages-earners would be better off, but they would not feel richer ; for it must not be forgotten that we^vlth is purely relative, and such is man's 506 PRINCIPLES OF POLITICAL ECONOMY. nature that comfort itself is regarded as misery, if it is contrasted with the opulence of one's neighbors. This argument against the present social order is perhaps one of the strongest that the socialists keep in their armory; for, from the standpoint of social justice, the workers have a right not only to some improvement of their condition, but also to an increase of income at least equal to that gained by the other classes of society. As a matter of fact, this equal increase has not been made. If we look at the official list of the property transmitted in France by inheritance or donation, we find that the figures which were 2,509,000,000 francs in 1835, and 3,133,000,000 francs in 1856, rose, in 1885, to 6,429,000,000, though in 18S8 there was a slight fall to 6,330,000,000. As the yearly income was clearly in proportion to the entire sum, we may lay down that the total of all private fortunes has been more than trebled in fifty years, and more than doubled in thirty years. This increase is certainly far higher than the increase of wages ; for that, to take the most optimistic calculations, does not exceed 66 or 100 per cent. IV. Whether there are any Means of improving the Condition of the Wages-Earners. There are three ways by which an attempt can be made to improve the condition of the wages- earners, and each of them has been extolled by its particular school. There is the strike, or the conflict between workmen and employers. There is the laiv, or State interference. There is co-operation, either between the master and his men, or between the workmen themselves. Before we examine these modes, we should ask whether their efficacy can be depended on. The more rigid members of the Liberal school disbelieve in the efficacy of any of them. As in their opinion the rate of wages is determined by natural laws, it cannot be influenced by any DISTRIBUTION. 50/ artificial cause. To hold that wages can be made to rise by a combination of workmen, by a chapter of law, or by any form of association, is as absurd as to beUeve that fine weather can be caused by pushing forward the needle of the barometer with one's finger. If wages ever rise after a strike, that is because they were bound to rise in any case. The strike has only been the light tap on the glass of the barometer that stirs the always slug- gish needle to follow the movement of the mercury, and to assume more quickly its position of equilibrium. In fact, if the rate of wages is to rise at all, it will do so spontaneously ; if it has no inclination to rise, it cannot be forced up. In all normal societies the tendency is to rise. All that can be done is to aid this evolu- tion by giving freer play to the forces which have acted hitherto ; viz. competition and freedom of contract. This might be effected by the formation of the Labor Exchanges proposed by M. de Molinari, in which the supply of and demand for manual labor from all parts might be brought into touch, and from which labor might obtain a mobility equal to that possessed by capital. This tranquil mode of philosophizing has discredited the Liberal school more than anything else has, and it is justified neither by observation of facts nor by scientific reasoning. In reality, it is beyond question that the workman's condition has been greatly improved by strikes, or fears of strikes, or the formation of powerful bodies tending towards that end : this is decisively proved by the history of the laboring classes in Eng- land for the last fifty years. Further, it is beyond dispute that State interference has brought about the same result in all coun- tries, in Germany in particular. Although profit-sharing and co- operation have not yet borne much fruit, still the progress made allows us to count on their efficacy. As far as theory goes, we freely acknowledge that the rate of wages is determined by natural laws, — in a word, by the law of supply and demand j but that does not negative its possible modi- fication by the will of man as excited by combination, co-opera- tion, or State interference. To return to the figure used above, 5d8 principles of political economy. it would be ridiculous to profess to alter the movements of the barometer by pushing the needle with the finger ; but it is per- fectly legitimate and scientific to assert that it can be altered by a modification of its atmospheric surroundings, say by carrying it up a mountain or by putting it under the influence of a pneu- matic engine. Similarly we can lawfully attempt to modify the condition of wages-earners by effecting changes in their economic environment, and by acting on the causes which sometimes depress and sometimes elevate the rate of wages. Besides, even if the price of manual labor is, like the price of every other article, determined by the law of supply and demand, that does not prove that this state of things is normal ; on the contrary, it is abnormal, — we might even say, against nature. It is not natural that human labor, which is the agent in all production, should be merely a commodity which is quoted on the market and is subject to the same variations in price as are experienced by cottons and by coals. There is a reaction against this state of things, — a reaction in which the workmen are supported by public opinion and by law. They now claim to be treated not as things, but as men ; they demand not the price which the state of the market assigns for a bale, but the share which justice apportions to a collaborator or joint worker in the labors carried on by society as a whole. They therefore ask the other sharers to draw a little closer together and give them room. This idea that the wages- system should be a partnership — even though its outward forms should remain as they are — cannot but profoundly influence the nature of the contract of wages, and, consequently, the rate of wages. No doubt this rise in wages cannot be boundless, and its limits will be somewhat narrow, if we are to suppose that the produc- tion of wealth remains the same as it now is. We may simply in passing throw out the suggestion that perhaps a general rise of wages would enable the workman to make progress on all lines, and that consequently the productivity of labor, and therefore the amount to be shared, might both be increased. DISTRIBUTION. 509 If the whole amount to be divided is not augmented, a rise in wages can only be brought about by a reduction of profits ; if, then, we consider how greatly profits are diminished by competi- tion, and agree that the employer must be allowed to retain enough to recompense him for his risks, remunerate him for his labor, and pay the interest on his capital, we shall have to confess that the margin is somewhat narrow. Certainly, wages can rise without involving any diminution in profits, if only the price of the products is raised in proportion. That is what manufacturers naturally strive to do, for then the public has to pay for the increase in wages which they have been obliged to grant. But this rise in prices is borne by the con- sumer, and ultimately, perhaps, by the wages-earners, who form the bulk of consumers. V. Strikes. To strike is for men to concert together and refuse to continue work ; a strike, therefore, presupposes a prior understanding, i.e. combination. This right of combination has been only very recently recognized in various countries ; in France by the law of 1864. In rights, its legitimacy should be beyond dispute; for if we grant that labor is a commodity like any other article, every man should be free to refuse to surrender his commodity except on the conditions which satisfy him. Strikes are a mode of warfare, and therefore share the disad- vantages of war. They entail an enormous waste of productive force ; — the statistical department of the United States' Labor Bureau calculates that the losses caused by strikes and lockouts during the six years, 1881-1886, amounted to ^98,000,000; — they cause great sufferings, and leave to rankle in the hearts of the vanquished (be they workmen or employers) resentment which prepares the way for future conflicts. But it cannot be denied that this violent method has helped to bring up the rate of wages by compelling masters to give their men a larger share. 510 PRINCIPLES OF POLITICAL ECONOMY, The efficacy of strikes must not be gauged from the statistics of those which have succeeded or have failed. One successful strike may raise wages in a host of industries ; and moreover, the ever- present fear of a strike does more to raise the rate of wages than even an actual strike. We must observe that the success of a strike, just as the favorable issue of a war, demands previous preparation by a powerful organization. An accidental and tem- porary combination is not enough. Permanent and strong asso- ciations are needed, so that their method of action may be the threat of a strike, rather than a definite strike. The more power- ful these bodies are, and the easier their formation, the fewer strikes there will be ; just as war in Europe is largely prevented by the great armies kept up by every State. Thus the English Trade-Unions (which correspond to the chanibres syndicales d'oiivriers in France) have become a power in the country, and have greatly improved the condition of the working classes. The trade-unions are very wealthy and have many thousand members (the numbers of the Amalgamated Society of Working Engineers rising to 60,000) ; ^ they are directed by prudent and distinguished men, some of whom have been returned to the House of Commons, and their great Annual Congresses excite much interest. Up to the present, their influence has not been diverted into socialistic directions, but has been devoted to the more practical aim of an increase in wages or a diminution of the length of the working day. However, their methods have not always been of the most intelligent kind. They have shown moderation in their use of the formidable weapon, strikes ; but, being full of the idea that the price of manual labor depends solely on its scarcity, and failing to take into account the question of its productivity, they have striven to restrict the supply of manual labor in every possible way, by limiting the number of apprentices, by forbidding piece-work, and by discountenancing natural ways of developing the workman's power of labor. By thus closing ^ In 1890, the number was 65,210. See official Report of Twenty-third Annual Trades-Union Congress (published at Manchester, 1890). — J. B.* DISTRIBUTION. 5 II their ranks they have turned their members into a sort of aris- tocracy of labor ; but this has aUenated from them the working masses whose occupations require no period of apprenticeship, in fact, the class of unskilled laborers.^ The latter, therefore, have become more and more accessible to socialistic teaching, in pro- portion to the growing conservatism of the Trade>-Unions. (See Professor Brentano's article on the working classes in England in the Revue d' Economie politique for July-August, 1890.) The United States also possesses trade-unions, but besides these there is the well-known organization of the Knights of Labor, which admits all unskilled laborers. In France the chambres syndicales d''ouvriei's (workmen's unions) are far less well organized, and most of them are composed of a very minute portion of the respective trades. Unfortunately, they make up for this paucity of numbers by a strong tendency to violence ; and, the organization being weak, the working classes do not derive much benefit therefrom. Their masters generally refuse to deal with these bodies, and prevent their men from joining them. This is a mistaken action ; for, were these unions to embrace all the laboring classes, their aims would become far more practical. Still we cannot agree with the measure lately passed by the French Chamber of Deputies, which would oblige employers, whether they will or no, to keep workmen who have joined these unions. The efficacy of these fighting bodies arises from the fact that the workman who joins them holds a much stronger position as regards his employer. Under ordinary conditions, when a workman treats single-handed with an employer, the following reasons prac- tically compel him to accept the price offered him : — Firstly. The capitalist can wait ; but the workman cannot, for he is in the position of a trader who is absolutely obliged to sell 1 It is difficult to maintain this in face of the fact that the list of trades' societies represented at the Congress in 1890 included the three unions of Dock -laborers, together numbering more than 160,000 members. — J. B. 512 PRINCIPLES OF POLITICAL ECONOMY. his goods in order to get a livelihood. In this case the com- modity is manual labor. Secondly. The employer can usually do without a particular isolated workman ; but the converse is not equally true. Another workman can always be found • he can be brought from another district, or from abroad, if need be ; nay, machinery can be intro- duced in his stead. A fresh master cannot be found with the same ease ; he cannot be imported by rail or by steamer ; nor can a machine be put to do his work. Thirdly. The employer is better acquainted with the state of the market. He looks further ahead, and from a commanding position. But, as soon as our workman has joined together with his fel- lows in the same trade and has formed a union, the positions are equalized. Firstly. The workman is enabled to refuse to give his labor, and can be supported meantime by the funds of the society and the contributions of the members. Secondly. All the men in one factory become banded together, and the master has to deal with all, instead of with only one. Thirdly. The union starts intelligence-offices, and obtains com- petent and experienced managers, who are as well acquainted with the current state of affairs as the masters themselves. Hence, the society is prevented from making false moves. VI. State Interference. State interference for the improvement of the condition of the working classes can be carried on in many different ways. Section i. The most radical measure — the demand of the militant labor party — is to fix a minimum wage. In our opinion the proposal is somewhat absurd. It is not enough for workmen to be guaranteed this minimum wage ; they must also be assured of finding masters who will employ them at that price. Now, no power under heaven can force a capitaHst to employ laborers if DISTRIBUTION. $13 he does not derive sufificient profit therefrom. In spite of the repeated demands of the labor party, this experiment of fixing a minimum wage has not yet been made ; but history shows us that law has several times exercised its authority and fixed a maximum wage. Still more frequently the State has interfered and fixed a maximum price for some commodity or other (a bread-tax still exists in certain places). But the lack of success of these various legislative measures enables us to conclude a fortiori that the legislator is powerless to fix the price of manual labor. Section 2. There is a large collection of legislative proposals which do not touch the wages-system itself, and do not even profess to change the rate of wages. The end in view is to improve the condition of the wages-earners, either by duly limiting the dura- tion of their labor, or by guarding them against the grievous eventuahties which may proceed from their position. These meas- ures are now being brought to the fore in all the parliaments of Europe, under the name of labor legislation. The hmits of this book must restrict us to an enumeration of them. Five risks hang over the head of the wages-earner ; three of them he shares with the rest of mankind : namely, illness, old age, and death ; but two arise out of his peculiar circumstances, — lia- bility to accidents and ejiforced loss of work. By all these he is rendered incapable (either permanently or temporarily) of work- ing, and consequently of earning daily bread for himself and family. Through any of these risks the man of the proletariat, or those he leaves behind him, may be thrown into the ranks of pauperism, or even of crime. Setting aside, then, all considera- tions of justice, it is a social interest of the highest importance to guard against or mitigate the consequences of these risks. Now is individual initiative, when taking the shape of saving and of association, capable of meeting these dangers, or must we fall back on State interference ? To our mind saving, and especially the poor man's saving, is not enough. Still, the risk of illness can be sufficiently provided for by the formation of benefit societies. With the aid of a very small sub- 514 PRINCIPLES OF POLITICAL ECONOMY. scription, which does not usually amount to more than a shilling a month, these institutions are able to meet the expenses of doc- tors and dispensers and to grant a certain allowance for each day of sickness. There are large numbers of these benefit societies in all countries, particularly in France, and they are generally favored by law with certain privileges, which cannot be dealt with now. The premium of insurance against accidents is not much higher, but the workman would scarcely be inclined to pay it, even if he had the necessary funds ; for not very many even of the cultured classes are prudent enough to insure their limbs or lives against accidents. Insurance against old age, that is to say, the accumulation of sufficient capital to yield an annuity after the age of sixty or sev- enty-five, entails sacrifices which a laboring man's means are totally unable to support. The same may be said of the two other dangers, death and enforced idleness. It might be legitimately urged that some of these risks, especially injuries through accidents and old age, ought to be provided for by the master. As a matter of fact, some employers, especially large limited liability companies, have voluntarily organized com- pensation funds against accident, and superannuation funds for the aged. They bear the whole or most of the expenses of these, and the workmen have only to pay a small share, which is withheld from their wages. But this generous private action of certain masters has not found many imitators, either through want of sympathy or through lack of means, for the successful working of such institutions re- quires a large staff and a considerable amount of capital. According to the French law, the employer is only strictly liable for accidents which the workman has proved to be the former's fault ; this obligation of proof has made the workman's right practically invalid. But present public opinion now holds that the position should be reversed, and that the employer should always be held liable unless the accident is proved to have arisen DISTRIBUTION. 515 from the carelessness or recklessness of the workman. It will be seen that the German laws, presently to be spoken of, go so far as always to put the risk upon the master, who is regarded to be as much Uable for any deterioration of his staff as he is for deteri- oration of his plant, both of these entering into the general ex- penses of manufacture. This is called the theory of " professional risk." The object of such a proviso is to put a stop to the numer- ous law cases in which one side tries to throw the blame on the other side. Similarly, with a view to avoid all controversy as to compensation that has been fixed, once for all, as two-thirds of the wages. Were the French law equally severe on this point, em- ployers would speedily band together in insurance societies for the purpose of guarding against the expenses of such liabilities. That might be the best solution. The insufficiency of, or disinclination to, private action as to these questions has made men ask whether the State is not bound to interfere to guarantee the laboring classes against these risks, even as a measure of good administration ; for the smallest of these risks can plunge the working man into misery, and the class composed of the wretchedly poor is at one and the same time a danger and an expense to society. These considerations have induced the German government to promulgate a body of laws ^ which, in spite of the conflicting opin- ions as to their virtue, are the legislative event of late years. We have already referred to a portion of the scheme. The whole is a gigantic system of insurance against sickness, accidents, and old age, which is to procure the compulsory entrance of all masters and men, both in manufacture and in agriculture, into huge indus- trial and district corporations. The expenses of insurance against accidents are to be borne entirely by employers ; insurance against illness falls one-third to the masters and two-thirds to the men ; ^ The Act of 1883 established compulsory insurance against sickness, of 1884 against accident, and of 1889 compulsory provision for old age. See e.g. Professor Taussig's graphic sketch of all three in the Forimi for October, 1889.— J. B. 5l6 PRINCIPLES OF POLITICAL ECONOMY. insurance against old age and infirmities incapacitating from work is to be divided equally between employer and employed. When- ever the expenses are very large, the State comes to the aid of both parties, and promises to grant £,2 \os. (50 marks) a year to each superannuated person. It is still too early to judge of the value and useful results of this huge mechanism. In spite of its extraordinary complication, it will remain as a legislative monu- ment of our era, and as the boldest experiment of State socialism which has yet been tried. In France there has been since 1850 a State-estabhshed Na- tional Superannuation and Insurance Office, which gives workmen rather better terms than are granted by ordinary insurance com- panies ; but it has not been much used. Latterly various bills have been proposed, to form superannuation funds for the aged, after the German system. But association and insurance are not capable of exorcising that lack of work which present-day economic evolution brings upon us again and again with almost fatal periodicity. UnUke the other risks we have enumerated, this danger does not attack mere indi- viduals ; it assails in large bodies all the men in one factory, all the workers in one trade, sometimes, too, all the industries in a country ! No doubt the workingman can subsist for a brief space by eating up his small savings, if he has made any, or by pledging at the Mont-de-Piete the few movable goods he may possess ; but these are scanty resources. We may note that the French Motits- de-Piete are in a way the equivalent of the pawn-shop, as they lend money on pledged articles. Though they are philanthropic insti- tutions which are not worked for a profit, they are obliged by the very onerous nature of their business to lend at a very high rate of interest. Now, can the State do aught to guarantee the workman against the risk of losing all employment? This was once believed to be possible, and the government was urged to aid all men out of work by guaranteeing them the Right to Labor. This claim made a great stir during the French Revolution of 1848 ; and to meet this DISTRIBUTION. 51/ demand were formed those "National Workshops" in the Champ- de-Mars which provoked the sanguinary insurrection of the Days of June. This right is now somewhat out of fashion. It is certain that the State has not the power to assure to each man a special kind of work, — the work which suits him best, and least of all a productive form of labor, — unless, indeed, it turns itself into the universal employer in all industries, — in other words, steps boldly upon the path of collectivism. Indeed, men have scarcely yet come to recognize that the right to labor is anything more than a form of public relief. We shall return to this subject. Section 3. The State can attempt to improve the condition of the wage-earning classes, not by interfering with wages, but by reducing the duration of labor. This question has of late years given rise to quite a separate economic literature of its own. The Liberal school only admits limitation of labor as far as regards children, for they are minors and are unable to assert and defend their own rights themselves. There is no disagreement on this point ; and the laws of all countries in Europe, save for a few scandalous exceptions, prohibit children from working in factories till they have reached a certain age ; but the limit of age varies. In France, at present, it is twelve years, which is too low ; but a bill, which has not yet passed, will probably raise it to thirteen. The application of this restriction to men, and even to women, the Liberal school refuses to grant. In its opinion, men and women alike are the best judges of the use they ought to make of their time, and it would be a great disservice to prevent them working when they please, since their labor constitutes their liveli- hood. Society, too, would be injured ; for to limit labor would diminish the production of wealth. All the other schools, not only the socialists, properly so-called, but also the socialists of the Chair and the Catholic school, hold that the legislator has the right, and ought, to interfere, even in the case of men. The line of argument is that freedom of contract as applied to wages is nominal and not real. A workman labors 5l8 PRINCIPLES OF POLITICAL ECONOMY. twelve hours a day, not because he wants to do so, but because he cannot help himself. Further, a limitation of the hours of labor would not diminish the production of wealth, and, even if generally adopted, would not reduce wages. Nay, if it did lower wages, it would be better for workingmen to have smaller incomes and less deadening work. This assertion that wages would not be reduced may sound paradoxical, but it is the logical consequence of all the great theories we have examined. Socialists who hold that the rate of wages is always determined by the cost of maintenance of the laboring-man and his family, have no difficulty in showing that the number of hours he works cannot influence the rate of wages in the least. Nor can those who base wages on the law of supply and demand think that the limitation of the hours of labor can lower the rate of wages, for its effect would be to make manual labor scarce. With the length of the working- day reduced by a tenth, eleven men would have to be employed in the place of ten. Again, those who beheve that the productivity of labor is the sole regulator of the rate of wages, can still think that to reduce the hours of labor will not reduce wages, for experience shows that a man works far better when he is not overworked, and that the greater intensity of the labor amply compensates for the shorter time spent over it. This is shown in England and the United States, where the working-day is the shortest and labor is the most productive. However, it must be admitted that the economic solidarity of the present day, or rather the keen competition between nation and nation, would make it difficult for any one country to limit the length of its working-day without falling into a position of dangerous inferiority. For this reason a general agreement be- tween all civilized countries has appeared to be desirable, but the problem would thereby become international and none the more easy to solve. In April, 1890, an international conference on the matter was held at Berlin, and in this all the European countries took part. A number of resolutions were formulated ; but until DISTRIBUTION. 519 further steps are taken these will remain in the state of abstract resolutions. For the restriction of the hours of work for women, the argu- ments are very strong indeed. Female labor in the workshop practically destroys the home ; it causes mothers to neglect their children, and often drives the girls and younger women upon the streets. This compulsory neglect of children, if of early years, necessarily involves artificial rearing, and, with that, an appalling mortality of infants, — more than sixty per cent of those in their first year. The welfare of the community is therefore at stake. To remedy this frightful blot, creches (or common nurseries) have been established ; these are private institutions which take in chil- dren whose mothers have to leave them, and tend them on hygienic principles. Several countries have begun to restrict the hours of labor. In Switzerland and in Austria the working-day for men has recently been fixed at eleven hours. In France there is an unrepealed law dating from 1848 which assigns twelve hours as the limit; but this measure is a dead letter. Though women are not prohibited to labor and the hours are not Hmited, still the laws usually forbid them to work at night-time, in mines, or for a reasonable period before and after childbirth. Till recently, the restriction as to work in mines was the only one which obtained in France ; but a recent measure aims at further restrictions. VII. Co-operation. The third mode of improving the condition of the wages-earning classes is association, — either the partnership between the employer and his workmen which is called profit-sharing, or partnership of workmen among themselves in the form of producei-s' co-operative societies. Up to the present moment this has been the least fruitful in results of the three methods we have indicated above ; but none the less it is the one in which we ought to put most trust. It 520 PRINCIPLES OF POLITICAL ECONOMY. is as superior to the method of strikes as peace is to war ; it is better than State interference in the same way as Hberty is better than coercion. Section i. Profit-Sharing. This, as we have said, tends to modify the wages-system by putting in its stead association between employer and employed. Association we have already recognized to be, theoretically, the most perfect form of productive enterprise, and the removal of the practical difficulties which we have also granted is the aim of profit-sharing. This method is thoroughly French in origin. It was first prac- tised in 1842 by a house-painter named Leclaire. The measure of success he obtained has never been equalled since then ; but it can be explained by the special conditions of the founder's calling. The plan is now employed in at least 250 business houses ; and nearly all these experiments have turned to the advantage of the masters as well as of the men.* However, in most of these cases the profit-sharing has not been an actual partnership ; the differences lie in the following features : The workmen are always liable to be discharged by the employer ; in no wise do they take part in the management ; they do not bear any of the losses ; finally, they are paid in ordinary wages, and the share they receive from the profits is, treated merely as a supple- ment, a " condiment " (or relish in the food), as M. Leroy-Beaulieu calls it; indeed, in some cases, it is only a gratuity or present, which the employer fixes as he wills. Further, the amounts which the workmen receive from this system may be apportioned in different ways. They may be calculated according to the profits 1 A British Government return, drawn up by Mr. J. L. Whittle of the Patent Office and pubhshed in March, 1S9X, gives figures and facts about the leading cases of profit-sharing in Europe and the United States. The details given of the system of Laroche Joubert's Paper Manufactory are especially valuable. (Report to Board of Trade on Profit-Sharing, 1S91, C. 6267.) — J. B. DISTRIBUTION. 521 realized, or to the quantity of the goods produced, or even to the savings effected in the use of the raw material. Thus, some rail- v/ay companies give bonuses to their engine-drivers in proportion to the amount of coal they have succeeded in saving. It is probable that as this system develops, it will come more and more to coincide with a real partnership. Such as it is, it has already rendered very great services. It interests the work- man in the success of the business, and therefore incites him to exert all the energy of which he is capable. It unites the work- man's interests with the employer's, and thus prevents disputes and strikes. It keeps the workman in the same factory year after year, and tends to guarantee permanent employment. It en- courages thrift by splitting up the workman's income into two portions, — the weekly wages, which are devoted to current ex- penses ; and the dividend distributed at the end of the year, which makes a surplus that is quite ready for investment. Usually, indeed, the employer makes sure of this saving by withholding part of the dividend at the year's end, and carrying it forward to the workman's account in a special fund, — say a superannuation fund. The attitude ' which the classical school holds with regard to profit-sharing is one of ironical interest rather than of pronounced hostility. The following are the principal criticisms it passes : Workmen have no right to profits, for in every business it is the employer, and not his men, who really makes them ; they are the result, not of the actual process of manufacture, but of the sale of the products, and with this workmen have nothing whatever to do. — We need only rejoin that capitalists have even less to do with the creation of profits than workmen are supposed to have, and yet their participation in the profits of any business is regarded as perfectly natural, if only they are shareholders. • — The second criticism is, that it would be unjust for workmen to share in the profits, since their position ipso facto prevents them from bear- ing the losses. Our answer is, that this difficulty might be turned by the establishment of some insurance fund against risks which 522 PRINCIPLES OF POLITICAL ECONOMY. should be partly supported by a deduction made from the men's wages. Further, under the wages-system now in vogue there is injustice in a far different way. Though the workman has no share whatever in the profits, he does have to bear the losses ; for, if the business does badly, his wages are reduced ; and if it stops alto- gether and the works are closed, he is thrown out of employment and is deprived of all his wages. Section 2. Producers' Co-operative Societies. Association for production is a far more radical measure than profit-sharing ; the latter retains the employer, the former does away with the wages-system. Workmen, instead of laboring on a master's behalf, band together to produce on their own account and at their own risk and peril ; as they are, moreover, the owners of their instruments of production, they naturally keep for themselves the whole of the produce of their labor. This is the position of the autonomous producer whom we have already dis- cussed ; but here, instead of there being one solitary laborer, we have a group of laborers forming a unit, a transformation which has been rendered necessary by the requirements of large pro- duction. France is regarded as the classic land of these associations, and seems, indeed, to have taken the initiative in the matter, for the first French society fo: production dates as far back as 1833. Moreover, at the close of the Revolution of 1848, this movement assumed great vigor, and more than two hundred workmen's asso- ciations for production were started in France, many of them being in Paris ; but few of these have survived, nor has a more happy fate attended their successors. At the present time the number is about sixty, and in Germany and in England the figures are approximately the same. These producers' co-operative societies have several obstacles to encounter, and these only too fully ex- plain their want of success. The first and greatest lies in the working class's lack of economic DISTRIBUTION. 523 education. Thus laboring men are rarely able to find among themselves men who are of sufficient ability to manage an indus- trial business. Even if the fitting persons are found, they cannot be chosen to act as managers, for their very superiority too often serves to exclude them. Further, even supposing that the direc- tion of the business is confided to them, it is difficult to guarantee them a share in the produce of the undertaking that is propor- tionate to the services they render, for the superiority of intellec- tual work over manual labor is still insufficiently understood. We must hope that this economic education will be gradually acquired by the practice of association in its various forms, especially in producers' societies, but also in consumers' associations. The second drawback is the want of capital. We are aware that, even if the capitalist could be blotted out of the process of production, capital could never be made to disappear likewise ; for the system of large production now in vogue demands ever increasing supplies of capital. Now, how can plain workmen obtain these large sums ? From the pence that they might put by from their daily earnings ? That is possible ; it has been done in a few businesses occupied in small industry, but even then at the price of heroic sacrifices. We cannot reckon on any general accumulation of such tiny sums. Shall the workmen obtain the desired capital in the shape of loans from the government? The experiment was made in 1848, but the ^^i 20,000 sterling that were then distributed brought little luck to the societies that received them. Nothing is easier to waste than given money, especially when the State is the donor. Yet the socialists appear to favor this plan. Lassalle used to call upon the government to become sleeping partners in producers' co-operative societies and advance some millions sterling to them ; thus they would be powerfully organized and would be able to sustain a victorious struggle with businesses carried on by capitalist employers. However, this difficulty is not insurmountable. Workmen's asso- ciations, when once they have been substantially organized and have won their spurs, might easily be able to borrow all the capital 524 PRINCIPLES OF POLITICAL ECONOMY. they miglit require. Have not the Gennan co-operative credit societies been able to obtain their ^20,000,000 sterhng? Besides, the capital might be procured in a direct way by the prior con- stitution of consumers' co-operative societies ; the profits of the English societies of this kind amount to a score or so of millions sterling. The third danger is that they tend to reccnisfruct the veij insti- tutions it 7C>as their object to do away jvith, namely, the system of employer and wages-earner. So great is the difficulty of modi- fying any social structure ! For whenever these associations have proved successful they have closed their ranks, refused new members, and engaged hired workmen, so that they have become nothing more than companies carried on by small employers.^ We cannot gainsay the force of this accusation which socialists bring against co-operation. Still, we should attribute to work- ingmen the possession of a disinterestedness of a rare kind, if we were to expect those who have labored from the beginning and have founded a prosperous business through dint of persever- ance and by means of privation, to admit on a footing of equality those who wish to enter at the eleventh hour when the work is done. There is reason to hope that these obstacles may be at least partly smoothed away by a due course of preparation which can be effected in two ways : — Firstly. By profit-sharing ; if the master agrees to abdicate his place, as it were, by organizing the participation in such a manner that the workmen can become his partners during his life- time, and his successors on his death. To cite the most famous examples, this has been done by M. Godin in the case of the Familistere of Guise, and by Madame Boucicault for the Bon Marche ; Secondly. By consumers' co-operative associations ; these, when ^ This was true, for example, of the Rochdale Pioneers. Even now the productive works of the great English Co-operative Wholesale Society (though not those of the Scottish) are carried on by hired labor that has no share in either profits or management. — J. B. DISTRIBUTION. 525 sufificiently developed and interfederated, can start producers' co- operative societies, which they might supply, at one and the same time, with capital, with managers, and with a body of customers, — the very elements, be it noted, which have hitherto been wanting. In England consumers' societies have already adopted these tac- tics ; they have founded some co-operative industries and support others. Like profit-sharing, co-operative association is not regarded favorably either by economists of the Liberal school, who think that the existing social order is satisfactory and need not be changed, or by the extreme sociaHsts, who hold that The Revolu- tion is inevitable, and that it is therefore useless to play at political economy. Indeed, socialism generally is not greatly enamoured of co-operation, and regards it at the best as a transition measure. Though co-operative production aims at the abolition of the wages-system, it retains private property in capital as its basis, for its object is to make the laborers joint proprietors of their instruments of production. Now, collectivism has in view the " socializing " of all instruments of production ; that is to say, their withdrawal from all private appropriation, even from the laborers themselves. Our main objection to the socialistic programme is, that instead of putting an end to the wages-system, it is uncon- sciously tending to make it universal. For, as soon as society is the sole owner of all instruments used in production, it will be the only employer or master, and all men will be its hired and wage-earning laborers.^ In fine, in spite of all adverse criticism, co-operation is the sheet-anchor of those who hold that there is a social question to solve and a social revolution to avoid. 1 But see our author's own remarks at the beginning of Book IV, Chap. III. —J. B. CHAPTER IV. THE MAN WHO LIVES ON HIS INCOME. I. The Right to be Idle. In every society there is a certain class of persons who do nothing, but who, none the less, enjoy incomes which, usually speaking, are very large indeed. Does not the existence of this class of do-nothings appear to be in flagrant contradiction to our principle, "each man according to his own labor"? Seeing that they do not work, what right have they to live, and, what is more, to live well ? We are certainly entitled sHghtly to alter a line in the First Eclogue, and to ask these privileged mortals, who is the god who has granted them this ease : Deus vobis hcBC otia fecit ? The explanation is simple enough. These persons are owners of land, or of a house, or of some form of capital ; now, instead of working their land or capital for a profit, on their account, or instead of dwelling in their house, for one reason or another, — perhaps merely for the pleasure of doing nothing, — they let or lend their property to other people in return for a sum, which is payable annually, under the name of interest, land-rent, or house- rent. On this payment they live ; as the saying goes, they live on their income. Must they be debarred from so doing ? If so, by what right ? Of course, if we reject the principle of private property, the right to lend and the possibility of living on one's income vanish simul- taneously. But we have already accepted the principle ; and it is, therefore, difficult to see how we can refuse the producer the right to dispose of his article as he pleases, and especially the right to lend it or to let it in return for a fixed payment. 526 DISTRIBUTION. 52/ As we are aware, the coUectivist school denies this right. It certainly allows the producer to do what he will with the portion of wealth which he has legitimately gained, — to consume it, destroy it, give it away to the person of his choice, — but it forbids him to lend it, just as it prohibits him from making money out of it by means of workmen whom he pays in wages ; for in either case he would be living on the products of other people's labor. It is incontestable that the man of independent means does live on other people's labor; but he cannot be said to live at other people' s expense, if, by the operation of lending or letting, another man realizes a gain or effects a saving which is more than the interest or house-rent which he has to pay. Now, it is probable that this is the case ; for otherwise, why should the borrower, the tenant, or the lodger, strike the bargain ? The rejoinder is, that this argument might serve if the wealth lent by the do-nothing was really the product of his personal labor, and if he could be said to live on the results of his past labor. But that is not so. The landowner, who lives on his farm-rents, has not made the land ; the landlord, who lives on his house- rents, has not built the house, but has employed workmen to build it ; even the capitalist, who lives on his income, as often as not has not gained his capital himself; he has received it, already made, from those who have left it him as an inheritance. Our only answer can be to refer the reader to our previous explanation, which shows the extension of the rights of property, by a logical evolution, from the products of personal labor both to land, to possessions acquired by inheritance, and to the produce of all col- lective undertakings. It is legitimate to dispute the extension of the rights of property to these various kinds of wealth ; but when once the former have been granted, it would be out of the ques- tion to mutilate them by depriving them of one of their essential attributes. Thus, the existence of an " idle " class is easily explained as far as regards right. Is it more vulnerable when we look to social utility ? Yes, cries every socialist ; and John Stuart Mill was of 528 PRINCIPLES OF POLITICAL ECONOMY. the same opinion. The point is to discover whether this class serves any social purpose. The unoccupied are not necessarily the drones of the hive. Lack of occupation, or " idleness," may be fertile in result and fulfil a real social function. In its scientific sense, the epithet '' idle " does not exactly mean people who do nothing ; but desig- nates those persons whose position in life frees them from all anxiety as to their daily bread, and who can therefore turn to any occupation save productive or lucrative labor. In the opinion of the ancients, it was indispensable that citizens should have all their time free for the purpose of joining in public affairs. Even at the present day, the fitting management of certain social interests, the disentangling of the subtle threads of politics and of diplo- macy, the holding of the reins of government, the swaying of the sceptre of taste in the realm of arts and letters, require delicate hands which have not been hardened by daily toil, and minds which are not heavily burdened with anxious thoughts as to tasks that have to be completed and livings that have to be gained. Such high functions cannot be executed in odd hours snatched from the labors of the workshop or the counting-house. Under such conditions, idleness, or leisure from work, is merely a clear instance of division of labor ; and, if used in that manner, should by no means be proscribed, but should rather be regarded as the supreme recompense that can crown the aspirations of those who have labored enough and have produced enough. For long to come this privilege will only fall to the lot of a few men, because, as we have often had to observe, our modern societies are too poor to grant many of their number the blissful luxury of leisure. But the ranks of the sharers in this privilege will, we may fairly hope, be constantly reinforced. Two reservations must be made : We must learn whether those of us who exercise these high social functions strive their hardest to promote social welfare, or whether they endanger the pubHc interests by making no other use of their leisure than the in- vention of some new mode of squandering wealth. We must DISTRIBUTION. 529 further ascertain whether their share of the general distribution of wealth is really equitable. In France this portion cannot be less than ;^i 60,000,000 or ^200,000,000 sterling (say ^120,000,000 in interest, dividends, or fines for delayed payments ; ^40,000,000 in land-rent, and ^40,000,000 more in house-rent). For the ser- vices rendered, this amount is certainly a large one. We will now study in turn each of the three classes which com- pose the group of those who live on their incomes. II. The Rent of Land. Of the three classes, the landowner who lives on his rent is certainly the most open to attack. The weak point in his position is easily seen. We have already granted that the institution of landed property is indispensable for the development of agricultural production to the highest degree, and for obtaining from the soil the greatest possible returns. We have thus been led to consider landowners as invested with a real social function, in fact, as administrators to whom society has intrusted the cultivation of the soil, for which their fixed and final remuneration is to be the sum total of all that they may succeed in producing. So much we grant ; but the landowner scarcely seems to be carrying out his mission, when he neglects his charge of cultivating the soil and converts his land into an instrument of profit and a means of living without working. We cannot easily admit that landjias been distributed amongst a few men, hke the benefices or glebe-farms in the king's gift, merely that it may yield them a certain income. Thus the reasons which induced us to agree to the rights of property do not appear equally to justify land-rent. Further, we have seen that the inevitable effect of the laws of landed property and the progressive unearned increment of the soil is to continually raise the amount of farm-rentals. Thus this class of " idle " landlords obtain a constant rise in their income without having to bestir themselves in the least. This was the 530 PRINCIPLES OF POLITICAL ECONOMY. origin of the territorial aristocracy of the Enghsh noblemen and gentry. Accidental and temporary causes — for example, the present competition of American land — may arrest this tendency, but do not alter its direction. Again, agriculture is gravely damaged by the separation of the respective functions of owner and cultivator, which results from the system of leases. No man is able to get from his land all that he possibly can, unless he learns to love it and becomes attached to it. When land is merely let on lease, the landlord does not experience this feeling, for he does not live on this part of his estate, — is even, perhaps, altogether ignorant of it ; nor does the farmer cherish this sentiment, for he is only a bird of passage and feels that he is a stranger. Compare with this Michelet's descrip- tion of the peasant proprietor : " When thirty paces away, he stops, turns back, and casts upon his land a last look which is at once profound and sombre ; but for the keen-eyed observer that look is full of passion, love, and devotion." Land will never be looked on with such an eye of love, either by the farmer who occupies it, or by the owner who has let it as farm-land. On the other hand, M. Leroy-Beaulieu holds that a division of functions is formed between owner and farmer, which is very ad- vantageous to a satisfactory organization of production. In the first chapter of his Essai sur la repartition des richesses he writes, " The landowner represents the future or perpetual interests of the estate, whereas the farmer only stands for the present but tem- porary interests." That sentence is very well put ; but even if the landowner has that perfect understanding of the part he has to play, still it is possible that present and future interests may clash, and it would be better that the same person should preside over both. The ordinary farm-tenure does not show nearly so well as the system of metayer cultivation, the characteristics of a real partner- ship between owner and cultivator ; especially is this the case when under the method of metayage the landlord provides the capital as DISTRIBUTION. 53 1 well as the land. But the system of metayage loses all its merits when the owner is content with levying a yearly share in kind, and demands half the crops. In Algeria he takes as his share four- fifths of the produce. However, in spite of all arguments for and against, the power of farming out one's land is too intimately bound up with the right of private property for us to dream of abolishing it. When once we have acknowledged the rights of property to be legitimate, it is out of the question to deny the legitimacy of letting land on lease. Nay, the interests of agriculture might be endangered by a sup- pression of the method ; land, owing to the vagaries of circum- stance, may happen to be the property of persons who are totally unable to cultivate it themselves ; the reason may be their age, their sex, their profession, their forced absence, or the extent and multiplication of their estates. If such be the case, what better can be done than to let out the land in farms ? To minimize the disadvantages of the system, the lawgiver should turn his attention to two points. Firstly. He should strive to reduce as far as possible the custom of granting farm leases, and should, instead, favor the cultivation of the land by the owner direct. The French Civil Law contributes to this end by the assistance it gives to small ownership. In France 40 per cent of the cultivable land is held by farm leases, or under the metayer system, as against 60 per cent which is cultivated by the landowners themselves. That is a very fair proportion ; for in few countries (new lands and colonies excepted) does land held by lease occupy less than half the whole area. But the French law is far less felicitous when it multiplies the conditions of inalienability on real estate belonging to minors, to women, and to corporations. In such cases the holding of farms by lease is rendered obligatory, for the law hands over, the care of landed property to persons who are incapable of working it for a profit themselves. Thus the public interests are harmed 532 PRINCIPLES OF POLITICAL ECONOMY. under the pretext of preserving certain private interests. The administrators of such estates (guardians, husbands, and so forth) are forbidden by law to grant really long leases ; hence the evil is aggravated. Secondly. The second point is : wherever farm leases are un- avoidable, the law should require that the interests of agriculture should be fostered, either by long leases, or by giving the farmer the right to the surplus value which accrues from his labor. III. House-Rent. From a theoretical standpoint the right to house-rent escapes the objections that can be made to the institution of farm-rent, for it cannot be denied that a house is the product of labor. There may be controversy as to the site on which the house is erected, but none as to the building itself. From a practical point of view, also, this right is seen to rest on a firmer basis. There is no harm in the circumstance that some people build houses, not to live in themselves, but to let ; for in that way they render very great service to all those who require a dwelling. It might be more convenient, perhaps, if they did this gratuitously, or even agreed to pay the tenants care- takers' wages, as some socialists facetiously ask ; but, as in that case no one would build a house except for his own personal use, those who were not well enough off to own a house would be obliged to do without one and sleep in the open air. Yet of all persons who live on their income, no one is more cordially detested by the working classes than the " landlord," and no tax is more odious and burdensome to them than that which is expressed by the term which contains a world of sorrow, the " rent." The reason is, house property, even more than property in land, is becoming a monopoly ; all the social, economic, and political causes which urge our population to mass together in the great towns, viz. poHtical centralization, production on a large scale, DISTRIBUTION, 533 the development of the railway system, open-air entertainments, theatres, and music-halls — all these tend constantly to raise house-rent, to the great benefit of the owners of house property in towns, but to the great detriment of the public. Forty years ago the urban population of France was rather less than a quarter of the population of the whole country (24.42 per cent, to be exact) ; at the present day it is rather more than a third (35 per cent) . Thus the population of the towns has increased by nearly 50 per cent in the last forty years even in France, in which country the increase of town-population has been least large. This is one of the most grievous of all the consequences of the present evolution of economics. House-rent was unknown to the ancients ; in their days the house was not only the family hearth, but was also the shrine of the penates, the household gods, and each man, rich or poor, had his own dwelling. In our time, however, the exigencies of modern life have caused men to revert to a species of nomadic existence, and prevent them from taking a firm root in their native places. Hence the majority of them have to live in lodgings. The rich may survive this ; their sufferings will not be beyond bearing ; but it is quite another matter for the poor. The increase of house-rent, which has compelled the working classes to huddle together in wretched quarters, produces most deplorable effects as regards both health and morality. It is one of the chief causes of most of the vices that afflict the working classes, — relaxation of family ties, frequenting of public houses, and precocious de- bauchery, — nay, from it may spring some of the scourges of society ; for instance, excessive mortality and epidemical diseases. The only efficacious remedy would be an evolution in precisely the opposite direction, by which the growth of the great towns might be stopped, and the country districts be once more peopled by the inhabitants who have deserted them. We need not aban- don all hope of such a change, but at present it shows no signs of being realized. Still, great good may be done by conveyance at cheap rates, as by the omnibus, the tram-car, and railways between 534 PRINCIPLES OF POLITICAL ECONOMY. the heart of a town and its suburbs. By these means workmen and business employes can obtain more healthy and cheaper dwelHngs, which may be at some distance from the very centre of the city. Another remedy, which is the most practical of all, is to build houses which are to be let to workmen, and can finally become their property by payment of a small sum yearly. Various insti- tutions seek to reach this end, but full details cannot be given here. One of the most interesting of all is the association of workmen themselves for the building of these houses. However ridiculous we may think the saying attributed to Joseph Prud- homme, that " people who cannot pay their rent ought to have a house to themselves," the only solution of the problem will be found in giving the workman a domestic hearth and a real home. These building societies are very numerous in England and the United States ; and in Philadelphia they have been so success- ful that almost every workman has his own house, and the city has received the proud name of the " City of Homes." Moreover, in England, and also in France, there are many philanthropic undertakings which have been started for the pur- pose of building workmen's dwellings. The usual practice is to be satisfied with a return of four per cent on the capital, or to devote the whole of the rents received to the building of new houses. A proposal has been made to employ for this purpose the funds of savings banks, which in France are turned to no really beneficial use, and the experiment has been made lately at Marseilles. An investment of this kind would certainly be very safe to make, and would be of much utility. The socialists demand that these workmen's dweUings should be erected by the State or by municipal bodies. In the opinion of the collectivists, the State or the district authorities should expropriate (with or without compensation) all owners of house property, and should then let the houses, either at a rent equal to the cost of construction, or gratis. This is land nationalization applied to house property in towns. To such a proposal our answer must be the following : In the DISTRIBUTION, 535 first place, if the State exacts no house-rent, the earUest result will be public ruin ; and, further, the overgrowth of our great towns will continue to increase in even more lamentable proportions. It is clear that, if in Paris every one could live rent free, few persons would deny themselves that pleasure. Secondly, if the State does compel its tenants to pay their rent, and punctually too, it might speedily become as unpopular as any landlord under the existing system, and might have even greater trouble in obtaining payment. IV. Interest. The legitimacy of land-rent and house-rent was never attacked until men had begun to dispute the rightfulness of landed prop- erty and house property. But the legitimacy of interest was keenly assailed long centuries before any one ever dreamt of denying public property in capital, and ages before socialists began to exist. Its opponents have not merely been a few troubled spirits, but have comprised the most illustrious representatives of human knowledge, — ancient philosophy, with Aristotle ; the Cath- olic Church, with the Fathers ; the Reformed faith, with Luther ; Civil Law, with Pothier, — the list might never end if we were to enumerate all those who have fought against this form of income, and have branded it with the name of usury. For centuries pro- hibited in greater or less degree by civil and by canon law, loan for interest still bears the brand of this old-time reprobation in its limitation to five per cent by the French law of 1807. But no one has ever thought of fixing a tariff for landlord or house-rent. This law of 1807 had fixed the rate of interest at five per cent in civil matters, and six per cent in commercial matters. The latter restriction, which was practically a dead letter, was finally aboHshed in 1885. The limitation still subsists for loans made by other than business men, and it has long been debated whether this survival, too, ought not to be abohshed, and perfect freedom as to the rate of interest thus inaugurated. For more than a century the Liberal school has upheld this view, with the famous treatises of Bentham 536 PRINCIPLES OF POLITICAL ECONOMY. and Turgot among their earliest manifestoes. This final abolition of all restrictions would certainly be the logical solution ; but in some countries usury is still a public scourge, especially m rural districts, and its branding by law is by no means disadvantageous ; for, whatever may be said to the contrary, laws do help to form morals. There must have been some reason for this general disapproba- tion of usury, nor is it difficult to find. With farm-leases the income may be seen, so to speak, to pro- ceed from the earth itself in the shape of crops, and it is thus perceived that the rent paid to the landlord is not abstracted from the farmer's pocket. The latter only returns the produce of the instruments of production that have been entrusted to him ; and as he does not give back more than a portion, he must make some profit after all. With loans, however, the returns do not visibly proceed, as interest, from the money-bag that has been lent ; for as Aristotle said, " One coin has never given birth to another coin." Thus the borrower's pocket was regarded as the only source from which interest could spring. It was in accordance with this view that, in his comparison of the landlord and the capitalist. Saint John Chrysostom waxed wroth and asserted " that the lender practised a damnable form of agriculture, reaping where he had not sown." It may be rejoined, no more does a house produce anything, and the tenant has to pay the rent out of his own purse. Granted ; but, though it is unproductive, a house is not consumed, and when the lease falls in, the tenant need only give up the house as it is, and is then free of further liability ; whereas it is believed that capital is not only unproductive, but must necessarily be con- sumed. Thus, when the date of payment comes, the unfortunate borrower will have to draw upon his own property, not only for interest, but for the principal to boot. We must confess that this opinion was a sound one, both dur- ing antiquity and in the Middle Ages. For long centuries loans were almost exclusively loans for purposes of consumption. The DISTRIBUTION. 53/ Roman plebeian who borrowed from the patrician to buy bread, the knight of feudal times who borrowed from the Jew to pur- chase armor, both devoted the money they received to consump- tion which was personal, and therefore unproductive. Under such conditions lending could not but be an instrument of ruin, and hence the justification of so ancient and wide-spread a prejudice. But at the present day the circumstances are radi- cally altered. In old times the rich lent to the poor ; it is now the poor who lend to the rich. Thus the Suez Canal was made by the loans which the Company received from people of small means. Formerly men borrowed so that they might live ; nowa- days they borrow to make their fortunes. In past time it was considered necessary to protect borrowers against the rapacity of lenders ; in our days it might be more expedient to set about defending lenders against the sharp practices of borrowers. In fact, credit has now assumed its real character, and the only one it ought to possess in economic organization ; it has become a mode of production. We do not mean to say that the deplorable and ruinous forms manifested by credit in older days have yet entirely disappeared. They are still kept alive by the young men with " expectations " who sign promissory notes, by the badly off who buy on credit at retail shops, and most of all by the governments that issue loans so that their cannon may be fed ; but these are the exceptions. The largest part of the huge sums that daily pass from hand to hand through the instrumentality of credit is excellently employed in productive labor. Hence the old prejudice against the legitimacy of interest has grown to be out of date. Capital which is borrowed serves to produce, just as well as land which is leased as farms ; and the interest paid is only a share taken out of the profits that have been made, and is not a toll levied on the personal labor of the borrower. Further, we cannot call capital, like land, a sort of deposit which society has entrusted to the owner for him to turn to profitable use by means of his labor. Capital has not been 538 PRINCIPLES OF POLITICAL ECONOMY. thus entrusted to the capitalist by society ; it is the creation of the capitahst himself. When once we thoroughly understand the part that capital plays in production, the question as to the legitimacy of interest is virtu- ally settled, and it would be idle to discuss all the arguments for or against loan for interest which lawyers and theologians have accumulated in a long course of learned casuistry. Even the sociahsts have ceased to speak of them. But with them the con- troversy has been transferred to another quarter. They do not deny that interest is the necessary, and therefore the legitimate, consequence of private property in capital ; but they strike nearer home, and attach this very private property in capital. We can only refer to our previous discussion of this theory. It may not be inexpedient to summarize the arguments for and against interest. They have been recently revived by M. Modeste in his book Le pret a interet, derniere forme d'esclavage (Lending at interest, — the last form of slavery) . Putting aside the classical argument drawn from the unproductivity of capital, the two follow- ing are the best known. Firstly. It is said that by lending his capital the lender incurs no real privation, and that therefore he has no claim to any com- pensation in the shape of interest. This assertion has been fool- ishly answered by an attempt to prove that the lender does suffer harm ; but that is not the question, and it is no matter whether he deprives himself or not. What principle binds me to put gratuitously at the disposal of my fellow-men all the property that I cannot or do not wish to make use of myself? Must I allow other people to make their abode in my room because I am obliged to be away, or let them eat my dinner because I am not hungry? Such a claim would need to be based on the principle that a man has a right only to the amount of wealth that is neces- sary for his own consumption, and that the surplus belongs by right to the general bulk of mankind ; clearly, that is simple com- munism, and the whole argument is idle when once we have admitted the right to private property. DISTRIBUTION. 539 Secondly. The second argument states that perpetuity of inter- est is a monstrous thing. At the rate of five per cent (without reckoning compound interest) at the end of twenty years the lender will by the successive payments have recovered all his capital ; in forty years he will have received it twice over, and in a century five times over. Yet all the time he retains his right to the entire reimbursement of the capital. We must answer that payment of interest is by no means the same thing as repayment of the capital, any more than rent is the same as the purchase price of land. The two things are altogether unrelated. Interest is the price of a service rendered, the pay- ment for the use of an instrument of production for a certain time. Now, if the service rendered is constantly renewed and the use made of the instrument can be perpetual, why should not interest also be perpetual? We grant that capital does not last forever ; some capital is instantaneously extinguished, other capi- tal ceases to exist after a certain time. But every operation of production (if only it is well done) should either immediately, or sooner or later, reproduce a value equal to that of the capital con- sumed. Otherwise it would not be productive. Like the phoenix, capital eternally rises again from its own ashes. This question of the legitimacy of interest forms the subject of a discussion between Bastiat and Proudhon in the collected works of the former. V. Does the Rate of Interest tend to fall ? The progressive and continuous fall of the rate of interest is as well accredited as any theory in political economy, and economists of the classical school cite it as an example of a law which is both natural and harmonious. Their method of proof is as follows : — There are three elements in interest. Firstly, the price paid for the hire of capital. This is the essen- tial element, and is determined by the law of supply and demand ; that is to say, by the greater or less abundance of capital in the market. 540 PRINCIPLES OF POLITICAL ECONOMY. Secondly, the premium of insui-atice against risk. For, though the lender is not concerned in the business, and therefore need not be anxious about losses, he always runs one risk, namely, the insolvency of the debtor. Thirdly, a share in the produce of the business. Though the lender takes no actual part in the business, and consequently shares in the profits no more than he does in the losses, yet his portion will clearly be the larger, the more productive is the employment that the borrower makes of his capital. These variations in the three factors are measured by the rate of interest. We know that, other things being equal, the rate of interest is higher the scarcer capital is, or the greater the risk to be run, or the greater the facility of obtaining more productive em- ployment for the capital. The simultaneous action of these three causes in colonies or new countries, such as Australia and the United States, maintains the current rate of interest in those regions at eight or ten per cent, or even higher. Now, these causes, which tend to raise the rate of interest in a new society, ought to have the reverse effect in a society which is growing old, and should therefore induce a progressive lowering of the rate of interest. The exponents of this theory hold that the further we proceed, capital will undergo certain changes. It will be less productive, for the employments that are possible for it will grow scarcer and become less and less remunerative. It will be more plentiful, for it will have been accumulated in large quantities by a course of saving which has been carried on for many generations. It will be safer ; for a growing security — political, legal, and moral — will tend to arise from a calmer life, from more civihzed, if not more honesty customs, from a more regular administration, and from a government which obtains a readier obedience. Were this law of the progressive decrease of the rate of interest a really certain one, it would be highly beneficial both in the distribution and in the production of wealth. From a distributive point of view, as it would steadily reduce the levy made by capital on production as a whole, it would proportionately increase the DISTRIBUTION. 54I share that falls to labor. For we must remember that the rate of interest does not only determine the income of capitahsts ; it also indirectly determines the rate of proiits, house-rent, and agricultural rent ; in other words, the income of all the possessing classes. In the matter of production, the very fact that it would con- tinuously lower the price paid for capital and therefore the cost of production, would facilitate the execution of undertakings which up to the present have been impossible. For instance, take a piece of land that might be cleared, or houses that might be built for workmen's dwellings ; — they cannot yield more than three per cent. With the current rate of interest at five per cent, no capital could be found for such undertakings, or they could only be carried on at a loss. Hence they will not be attempted ; but if the rate of interest falls to two per cent, every one will hasten to take up such businesses. Turgot, in a celebrated figure, has compared this fall of the rate of interest to the gradual sinking of the waters through which new lands can be put under cultivation. Though we do not altogether deny the force of these arguments, we cannot consider that this law is sufficiently proved. The value of capital, like the value of land, of manual labor, or of any other article, is determined by its utility and its scarcity. The most rational forecasts show that capital must tend to become more and more plentiful, but we see no reason why it should become less and less useful. The supply can constantly increase ; but, given the exigencies of production, the demand should do the same. There is no proof that the risks incurred in producing are less than they used to be, or that they will grow less in the future in proportion to man's increasing boldness and enterprise ; say, when he travels by balloon instead of by rail or steamer. Nor is the theory in accordance with history ; at the fall of the Roman Empire, fifteen centuries ago, the rate of interest was almost the same as it is to-day ; and in the Low Countries, in the eighteenth century, it was perhaps rather below the present rate. Moreover, if the rate of interest is destined to fall in an unlimited progression, we ought 542 PRINCIPLES OF POLITICAL ECONOMY. to be logical to the end of the series, and say that some day it will fall to zero. Professor Foxwell, the English economist, has had the courage to do this ; he declares that the time will come when capitalists, instead of receiving interest from those to whom they entrust their money, will have to pay them for keeping it for them. Then will the socialists rejoice, for Proudhon's dream of "gratuitous credit " will have been realized; but wisely enough, they do not regard such a state of things as one of the certainties of the future. M. Paul Leroy-Beaulieu, who is one of the strongest defenders of this theory of the progressive fall of the rate of interest, relies mainly on the notion that business is destined to become less and less remunerative. This prediction is rash as far as regards manu- facture ; in agriculture its accuracy seems to follow from the law of diminishing returns, though M. Leroy-Beaulieu inconsistently refuses to accept that law. But the meaning of the law is, that to double the products, three or four times as much capital must be consumed ; therefore, the less generous to us land becomes, the more necessary and the more in request will capital be. CHAPTER V. THE INDIGENT. I. The Right to Relief. The various classes of persons that we have passed under review live either on the income they receive from some form of capital, or on the returns from their labor. But in every society there are a certain number of men who have neither of these resources to fall back on, for they own nothing and do not work. They are consequently in danger of starving. There may be three reasons for their not working. Fii'stly. They may not have the strength to work. This applies to children, to the aged, and to all those who suffer from chronic diseases or infirmities. Secondly. They may not possess the means of working. It is not enough to be wiUing to work ; a man must also be able to find work ; in other words, he must have at his disposal the neces- sary materials and implements. But in times of crisis and during a lockout both these conditions are wanting. Thirdly. They may not be willmg to work. All labor demands a more or less toilsome effort, so that many men, rather than make this effort, and what is worse, submit to the discipline that labor always requires, will prefer to run the chance of dying of hunger. Now, the presence of these three divisions of the indigent class cannot be ignored by society, and must claim attention. Common humanity of itself urges us to take care of the first category. In the natural order of things, the family should sup- port those of its members who are unable to keep themselves ; 543 544 PRINCIPLES OF POLITICAL ECONOMY. but in our days the family is often scattered, and in the case of natural children ( 70,000 or 80,000 of whom are born in France yearly) there is no such thing as a family. Society, then, must take its place. If a civilized society has to allow its children and the aged to die of hunger, it had better return to the savage state and kill them outright, for that would be less cruel. Society cannot neglect the second class, for it is partly responsi- ble for their position. Its own economic constitution causes this artificial, we might say unnatural, separation of the laborer from the instrument of his labor, and compels him to seek work in order to live. Crises and lockouts proceed from the very action of the law of progress, as manifested in large production, in mechanical inventions, in international trade, and in competition. It is fitting that society, which in its corporate form benefits by each step of progress and receives all the fruits of victory in the great battle of life, should also bear the burden of the fray, and succor those who are wounded and vanquished. The third category, though far less interesting than the fore- going, claims the attention of society because it constitutes a public danger. The vagabonds and the beggars are the recruiting- grounds of the army of crime. Whenever any of these commit any offence, society is obliged to house and feed them in jail ; and as nothing is more expensive than the supyjort of a prisoner, it is at once more prudent and more economical to aid possible prisoners before they actually become such. In the new model prisons in France each cell costs ^240. The right to be succored that these various classes of persons possess is called the right to relief, or the right to charity. Social- ists find something humihating in the former phrase, and prefer to use the terms, the right to existence, or the right to labor, for those who are able-bodied. These are fine words, but at bottom they mean nothing more than a man's right to demand of society, i.e. of his fellow-citizens, the wherewithal to live. Besides, this right to labor merely aims at the wages to be earned ; the work is only a means to that end. In reality labor is not a right, but DISTRIBUTION. 545 a duty. Now, there is nothing humiliating in a man being sup- ported by his fellows when he is unable to keep himself, and it may be legitimately claimed ; none the less, whatever name we give it, it is an act of relief. But when we employ the phrase, we must bring out its whole force, and note that its correlative is an obligation on the part of society, which arises from nature and also from law. Many economists think that charity or relief is a duty for society, but not a right for the needy ; but that is mere legal hair-split- ting. Whenever a person is in a certain state which the law has to determine, society ought not to be able to evade the obliga- tion of aiding him, and the necessary expenditure (for to that in practice is reduced the question whether the relief shall be bind- ing by law or optional) ought to be officially entered in the accounts of the State or the parish. The classical school, especially the adherents of Malthus, pro- test against legal rehef. Its arguments may be summed up in the familiar formula, " The numbers of the indigent tend to increase in direct ratio to the aid that they can reckon on," The following is the ordinary way of proving the dictum. Firstly. The right to relief tends to encourage improvidence. There are numbers of people who might perhaps have conquered their troubles had they had only themselves to depend on ; but they neglect to put by for their old age or to provide for their children, because they count on the State performing these offices for them. As the farm-hands say in England, — " Hang sorrow and cast away care ! The parish is sure to find us ! " Secondly. The right to rehef incites the pauper classes to increase their numbers. What have they to lose from having many children, if they are freed from the care of rearing them ? Nay ! they gain thereby, for the charity that is distributed is neces- sarily in proportion to the number of children. Thus, a kind of bounty is paid for the swelling of the numbers of the wretched, 546 PRINCIPLES OF POLITICAL ECONOMY. and in the lowest depths of society a stratum of paupers is formed. Their names are on the workhouse book, just as the names of all of independent means are on the income tax lists ; generation after generation they transmit the heirloom of their rights and of their vices. A despised race are they, who are too degraded to be dissatisfied with their lot and ever to aspire to rise above it. Thirdly. The right to relief tends to weaken the productive classes of society in the interests of the unproductive classes, and is thus in direct opposition to natural selection, which tends to improve the organism by causing the higher to prevail over the lower elements. It is obvious that paupers are not the healthiest or the most vigorous portion of the social organism. Now, society can only support them by means of taxes which it has to lay on the product of the labor of those who do produce. But as paupers increase ad libitum, the toll which they levy on the true workers will also grow heavier and heavier, and in the long run may hurl into pauperism this really industrious class. As there are many men who can only just make both ends meet, and who are on the verge of indigency, a slight pressure of this tax may drive them down beneath that fatal level to swell the numbers of the poor. In England small proprietors are sometimes unable to pay the poor-rate, if it grows too heavy, and are then turned out of their houses ; their means are exhausted, and they become recipients, instead of givers, of relief.^ This theory of the proportional increase of paupers is certainly too dogmatic, for it is now recognized (and statistics are not hostile to the assertion) that the number of recipients of relief in England is regularly diminishing year by year. These arguments only show that we cannot be too careful in the organization of public chanty, but they must not make us condemn the right to relief. 1 This has been largely the result of more stringent administration, i.e the relief has become less and less to be reckoned on. It has become more and more difficult to get. — J. B. DISTRIBUTION. 54/ It is true that a prospect of the receipt of a virtual income from pubUc charity may reduce productive activity or diminish saving ; but the same efifect is more surely brought about by the certainty of a pension, the hope of an inheritance, or the mere possession of a certificate of government stock. It is true that the economic evolution of the social organism may be injured by our supporting and keeping all those who are diseased, infirm, incapable, or idle, or who are only simpletons and careless of their affairs ; but moral evolution, which is of no less importance, would be seriously harmed if the guiding principle of any society was, " Blot out the wretched ! " Finally, it is true that the birth-rate is higher in the classes who receive relief than in those who support themselves ; but, if the children of the former can be made useful citizens, the apparent harm would be really a benefit, especially in France, where the wealthy classes either cannot or will not increase their numbers. II. The Organization of Public Relief. Public relief should be organized on the following principles : — Firstly. It should be carried out by the district or local au- thorities, or by the parish, as is the case in England. For, as the commune or district is usually a small society, it has far more facilities than the State for discriminating between those who are really in want and those who are not. Further, it is generally more saving of its money. Under this system no one has a right to relief except in the district or parish to which he belongs. This obligation of legal domicile has some disadvantages, for in partic- ular it stirs up interminable disputes between respective districts ; but in France it might have the special advantage of keeping agricultural laborers in the parishes of their birth, and of thus partially preventing the depopulation of the rural districts and the filling to repletion of large towns. The various parishes might be saved from a too great inequality of their expenses, if they were to amalgamate together as they do in England ; and if their 548^ PRINCIPLES OF POLITICAL ECONOMY. funds were really insufificient, the State might come to their aid. Secondly. Relief should be obligatory ; in other words, the expenses should be provided for by a special fund. This is not so in France ; of course, like every other civilized country, France has a system for distributing relief, and in this way more than ^2,000,000 are spent yearly, — the " Budget of Public Re- lief" amounting to ^1,600,000 for the local parishes (over half of which goes to Paris alone), and ^520,000 for the Central Gov- ernment. But this expenditure is in the main optional alike for communes, department, or government ; though there are two classes of paupers for whom expenditure is partially compulsory, namely, foundlings and the insane. No law has ever organized the right to relief in a positive way, though it has figured in most of the numerous Constitutions with which France has been blessed ; hence it has remained as an empty abstract principle. The main- springs of public relief in France are charity boards (bureaux de bienfaisance), hospitals, almshouses, homes {hospices), and asy- lums. The charity boards give outdoor relief to the needy ; the almshouses and asylums shelter the aged, children, and the help- less {i.e. the bhnd, deaf mutes, and the insane) ; the hospitals receive the sick. There are 15,780 charity boards in France; but as there are 36,117 communes in the country, more than half (but, we may observe, the least important of them) lack such useful institutions. Their income (including local subscriptions) amounts to about ;^2,ooo,ooo ; but, as they do not distribute very much more than ;z^i, 000,000 a year, and the recipients of relief exceed 1,400,000 in number, the average per head yearly is the preposterously small sum of 1 7^^. 6d., or so. Far ampler are the resources of the hospitals, asylums, etc., for these amount to more than ;^5, 000,000 (State and local contribu- tions being included) . Most of these institutions belong to their respective districts, though a iew are government property. The hospitals fulfil their requirements adequately, but the asylums and DISTRIBUTION. 549 almshouses are less satisfactory. This is especially so with alms- houses for tHe aged ; admittance into these can only be obtained on payment of board, or by orders which are very difficult to pro- cure. In fact, the condition of the aged poor in France is a dis- grace to the country. All these institutions are directed by administrative committees ; their main income is derived from property which they have acquired, either by gift or by bequest, in their capacity of charita- ble bodies ; besides the local subsidies, mentioned above, which are purely optional, they have a few other minor sources of revenue. For example, the State allows them the proceeds of a few small taxes, such as the ten per cent levied on the receipts of theatres and of public performances. In England, as in all other Protestant countries, public relief is obligatory. In that country it is organized by a series of laws, the first of which was passed in the reign of Queen Elizabeth, the whole body constituting an imposing edifice of legislation. Each parish provides for the necessary expenditure by a special tax known as the poor-rate, which amounts to about ^8,000,000.^ On this question of public relief and legislation thereon, Europe may be divided into two well-marked portions. All Protestant countries recognize the principle of compulsory legal relief; in Catholic countries public relief is only optional. There is a curious historical reason for this. During the whole of the Middle Ages, Catholic bodies, e.g. the monasteries, were entrusted with provision for the needy ; in the countries which accepted the principles of the Reformation, the State, on assuming the possession of the property of these religious bodies, also took over all their duties, including this duty of supplying relief. Thirdly. But this relief should so far as possible be carried on in special institutions, respectively adapted for the various classes of paupers. 1 For the year ending Lady Day, 1888, the amount actually expended in England on relief -was nearly ;^8,50o,ooo; in Scotland, ^^887,000; in Ireland, nearly ^1,391,000. — J. B. 550 PRINCIPLES OF POLITICAL ECONOMY. (a) It should be administered to the really helpless — children, the old, the blind, and so forth — in homes and'asylums, the places in which should always be in proportion to the requirements. (d) Able-bodied paupers, who have no work to do, should be received in workhouses, which they should be free to enter and free to leave ; in a more special manner, they should be drafted into agricultural colonies, and should be employed in field labor. We have previously refused to admit the right to work ; but when dealing with the relief of able-bodied paupers we must retain the obligation to work, which is quite a different thing. But it is not easy to find a productive form of labor, and it is particularly difficult to force the recipients of relief to execute it. Every one knows the barracks-like workhouses of England, the inmates of which have to perform work which is degrading by its very use- lessness ; such as making ropes out of tow, and then untwisting the ropes to reconvert them into tow. Far more satisfactory results have been obtained by the agri- cultural colonies or settlements in Holland and in Germany. In these places the paupers work more willingly ; they do not feel that they are pent up in prison, and, above all, their labor is infinitely more productive, for most of these institutions almost pay their own expenses. Further, and this is the essential aim of all relief, many of these needy folks are enabled to emerge from the pauper state, and become farmers or even landowners. Fuller details on this system and all the other various forms of public or private relief may be found in M. Robin's book on Hospitalite et Travail. (<:) Vagrants and beggars who refuse to work should be confined in houses of correction and should be compelled to work ; the period of confinement should be long enough to allow of the exercise of a moraland reforming influence. On this matter the French law is absurd. In the opinion of the Penal Code it is an offence to have no home or visible means of existence ; and every year sentences of a few days of imprison- ment are passed on tens of thousands of unfortunates, who are guilty of having neither hearth nor home. The kind prison grants DISTRIBUTION. 55 1 them these during their brief sojourn ; but when they leave, what can they do but begin again ? Thus they pass their hfe in a con- stant succession of convictions, until their ripe experience of prisons turns them into hardened criminals. Not until law has established asylums for all paupers will it be able to do away with beggars and punish vagabonds ; and then it must beware of shutting them up for a few days only, and especially of associating them with professional criminals. It must not be inferred from our suggestions that the public organization of charity should absolutely forbid outdoor relief; for that system has the great advantages of being far less costly and of not breaking up family life by enforced separation. But, generally speaking, public officials are unable to practise this form of relief with due discernment, and experience shows that in their hands the unworthy members of the poorer classes are favored, and that their numbers tend to increase to an unlimited extent. After a celebrated inquiry which was made in 1834, the English altogether abandoned the giving of outdoor relief, and confine- ment in the " Union " was prescribed as the necessary condition of all public assistance ; since then, however, this rigorous pro- vision has been gradually relaxed. We have already observed that the French charity boards were established solely for the purpose of outdoor relief. The foregoing discussion brings us to our last rule. Fourthly. Whenever public relief takes the outdoor form, pri- vate aid should be made use of as far as possible ; the necessary inquiries and the distribution of relief being entrusted to private individuals who are willing to help. Voluntary workers are always superior to agents who are offi- cially appointed by the local authorities, as in the case with the French charity boards, or who are chosen by committees such as are charged with these functions in England. From a felicitous union of public relief and of private charity arises the superiority of the famous Elberfeld system, an article on which appeared in 552 PRINCIPLES OF POLITICAL ECONOMY. the Revue d''Economie politique for 18S7 from the pen of M. Saint Marc.^ In all cases, however, outdoor reHef should be administered under the two following restrictions : — Firstly. It should be given not in money, but in kind ; for example, in tickets for public kitchens, or in food and other articles bought by the distributors of relief themselves. Secondly. A prior inquiry should always be made, and that the investigation should be thoroughly done it is necessary to have an office specially devoted to the obtaining of information. There exists in Paris an agency established by private initiative, which has rendered most valuable service in this respect. III. Is Pauperism on the Increase? It is a disputed question whether the indigent or pauper classes are or are not increasing in number. Naturally, the socialists assert that there is an increase, and consider it to be a demon- strable fact that the rich are always growing richer and the poor poorer. The optimists deny this, and show by statistics, espe- cially English statistics, that the poor are on the decrease. In this matter figures are of little value, for there is no more elastic a term than pauperism. An answer to the question must rather be found in a consideration of those various causes of poverty which we have previously pointed out. We divided the indigent or paupers into three classes : those who are prevented from working through weakness or infirmities ; those who might work if they had a chance, which they have not ; and those who do not want to work. As regards the first class, the progress of hygiene and of science as a whole ought to be able to reduce the numbers of those who are stricken with incurable infirmities. At any rate, some of them, such as the blind and the deaf mutes, should be put in the way of plying a productive calling. On the other hand, the ranks of ^ See the English Government Blue Book " Reports on the Elberfeld Poor Law System and German Workmen's Colonies" (C. 5341), 18S8. — J. B. DISTRIBUTION. 553 the insane are being terribly swollen by several causes, the chief of which is the abuse of drink. Another potent cause of pauperism, the birth of illegitimate children, is likewise on the increase. We must say without hesitation that the second class is exhibit- ing a tendency to grow ; the loss of work which results from mechanical inventions or from excess of production, the eco- nomic crises which spring from the evolution of large production and of international competition — these were unknown to our fathers, and are the peculiar characteristics of our own time. To take the third division : we might be justified in thinking that, with the progress of public education and under the influ- ence of the more sedentary customs of civilized life, we might get ,id of the idleness, love of roving, and pure rascality which were such potent factors in the social life of the Middle Ages and of antiquity, and still retain their power in the East. Yet we must not rely too much on the realization of such hopes. Vagabonds, tramps, and beggars still exist in our midst in huge numbers, nor do they show any signs of growing fewer ; and the occupation of " professional beggar " is becoming more lucrative than ever. Out of 119,000 offenders who appeared before the French police courts in 1886, 33,000 were classed as vagabonds or beggars. In Paris there are about 8000 people who take their night's rest in the streets or under the arches of the bridges. After full consideration, we are led to conclude that, in modern society, the causes which tend to develop pauperism are more active than those which might effect its diminution. But we will not add that pauperism will exist forever and be a constantly heavier burden. Unless we are utterly to despair of the future of our race, we must hope that some of the above-mentioned causes, and perhaps the most powerful of them, will be mitigated by the advance of time. Poverty, which arises from individual and natural causes, such as the feebleness of old age, disease and ill- ness, and physical and moral infirmities, may, perhaps, be relieved by a sound system of insurance. But the pauperism which is the result of general and economic causes can be put to flight only by radical alterations in the present social order. APPENDIX. THE PUBLIC FINANCES OF FRANCE. I. Public Expenditure. The constant increase in public expenditure is one of the characteristic features of the time. At the beginning of the pres- ent century and until the year 1830 or so, the public expenditure of France scarcely exceeded ^40,000,000 sterUng ; it has now reached the figure of ^130,000,000, and if we include the sepa- rate expenses incurred by the communes and departments, the whole will amount to ;^i 60,000,000. Thus, in less than a man's lifetime, it has more than trebled. We reproduce in an abridged form from M. de Foville's excel- lent statistical handbook. La France Econo?nique, a table which shows the successive increases of the French budget from the days of Saint Louis. FRANCS. Saint Louis (year 1243) . . ; 3,700,000 Francis I (year 151 5) 72,800,000 Henry IV (year 1607) 90,800,000 Louis XIV (year 1683) 226,000,000 Louis XVI (year 1 789) 475,000,000 Napoleon (year 1810) 1,007,000,000 Louis Philippe (year 1840) 1,363,000,000 Napoleon III (year 1869) 1,904,000,000 Republic (year 1891, estimated) 3,247,000,000 Now, the recent phases of this phenomenon may be partly explained by the general augmentation of wealth and the fall in the value of money ; but the enormous increase of public expen- diture cannot proceed from these causes alone. There must be 554 APPENDIX. 555 Others. A full examination of the question may be found in the book of M. Wuarin, a professor at Geneva, on " Le Contribuable, ou comment defendre sa bourse." ("The taxpayer and how to defend his pocket.") We must confine ourselves to the following. Fi?'stiy. One great cause is the g7'owth of the military spirit with all its consequences, i.e. war and an armed peace which is as costly as war. Nearly two-thirds of the ^130,000,000 spent by the French government are used in paying for past wars or in preparing for future wars. Forty million pounds are required for the French army and navy estimates, including the so-called ex- traordinary estimate, and the army pensions. Further, almost the whole of the arrears or interest on the public debt, which are ^44,000,000 yearly, are the result of loans which were made in the past to meet war expenses or to pay war indemnities. If the man in the moon, or rather an inhabitant of Mars, were to visit our planet, and learn that a civilized country like France was obliged to spend ;,{^4o,ooo,ooo a year to insure its safety, he would pity her for having such barbarous nations as neighbors ; but his astonishment would be unbounded if he were further told that these neighboring countries, which can justly claim to be as civilized as France, feel obliged in their turn to make almost as great sacrifices for their own defence against her. Under this head the new countries in America and Australia have but trifling burdens to bear ; for they have no neighbors, or rather their neighbors are (fortunately) savages. As has been sagely observed, this enormous inequality in expenses, in their favor, must finally give them a decisive economic superiority over our European lands. Secondly. A second potent cause is the gradual extension of the functions of the State, for each item in public expenditure corresponds to some function of the State. But one of the most disputed questions of the day is the precise determination of what duties the State should take upon itself, and how far its action should go. We know that the Liberal school would reduce this action to the very minimum ; in its opinion the State should con- 556 PRINCIPLES OF POLITICAL ECONOMY. fine itself to the protection of individual liberty by maintaining order at home and preserving peaceful relations abroad ; in other matters individual initiative will be far more successful. In his Precis d' Economie politique, M. Leroy-Beaulieu sums up the various shortcomings which in the opinion of the Liberal school should lead us to discourage any extension of the functions of the State. Firstly. In the first place, the State has less initiative and is less active than private persons, for it does not feel the spur of private interest, and has not to fear competition. Secondly. The State has no real superiority over individuals, either in ability, or in impartiality, or even in continuity in its plans and actions. This arises from the origin, working, and inevitable vicissitudes of any government under any system what- ever, but it is especially marked in the democratic 7-egi7tie which is now becoming the rule. These, arguments are not irrefutable. Individuals, no doubt, have given the world all inventions, discoveries, enterprises, above all, ideas, for a collective body is devoid of ideas. Still, many of these projects, — such as the abolition of slavery, of serfdom, of corporations, — have been effected by the State, and perhaps could not have been carried out by private persons. Yet, without requiring the State to enter into competition with individuals, still we can and ought to demand this much from it : it should repre- sent and guard the collective and social interests against the con- stant encroachments of individual interests. That, surely, is a large enough task ! The school called State Socialists does not accept the Liberal school's theory of the "State as policeman." It attributes to the State a far higher mission, — not merely the seeing that justice is done, but the inauguration of a reign of justice ; hence State in- terference can, and ought to be, extended to a host of points in our social system. Neither of these two schools represents the extremes of their respective lines of thought. APPENDIX. 557 Beyond the Liberal school we find the anarchists, who entirely do away with the State, and public expenses along with it. Push- ing to their extreme consequences the arguments urged by the Liberal school, the anarchists proceed to declare that individual initiative is perfectly capable of preserving order and security at home and abroad. Men are able to govern themselves ; and that, indeed, is the sine qua non of their freedom. In the matter of jus- tice, all crime can be repressed by an exercise of lynch law, and lawsuits can be settled by the appointment of arbitrators. Besides, the abolition of private property will do away with most offences and with all actions at law. The country can be thoroughly pro- tected from attacks by the levying of voluntary militia in case of need • and further, the abolition of distinctions between nations and the blotting out of frontiers (another item in the anarchist programme) will inevitably put a stop to all war. Beyond the State socialists we find the collectivists, who turn the State into the general supplier of all social and economic wants. The State will provide for the education of all children, will support the aged, will be the only landed proprietor, and be the sole carrier-on of all trade and all industry. Then, as all individual enterprise will be converted into a public service, and all private incomes become salaries, individual expenses will tend to be absorbed in the expenditure side of the State accounts. According, then, to the pet economic doctrine which a man chooses to adopt, public expenses can range from zero up to infinity, and it is curious to note that the schools which occupy the opposite poles of thought both demand socialism. We cannot here incidentally discuss the complex question of State interference. It is enough for us to note that all countries (England, the land of " self-help," included) are showing an increasingly marked tendency to widen the State's sphere of action. This is manifested not only in the large development of some branches of the public service, such as pubhc education or pubhc works, but also in the formation of new State offices, or at any rate, of important ministerial departments. Among these 558 PRINCIPLES OF POLITICAL ECONOMY, are offices or boards which deal with agricuhure and with trade. That which is concerned with labor is of very wide scope ; for it superintends manufactures, so as to insure the due observance of laws which restrict the hours of labor, or prescribe certain steps for the security of the employed and of the public. Besides having to deal with factory legislation in general, it has to issue statistical reports which relate to labor, such as the excellent publications of the Labor Bureaux in the United States. Public relief engages the attention of another office ; nor must we omit the board of public health, which is concerned with unsanitary dweUings, the prevention of epidemics, and the adulteration of food. Naturally enough, this further extension of the functions of the State necessitates a proportionate increase in pubhc expenditure. Indeed, it is the second cause which we assigned for that phe- nomenon, and it is far more easily justified than the first cause, the growth of the military spirit. It is right that the ex- penses incurred on behalf of the collective interests should be heightened as social organization develops, and as men perceive more clearly and appreciate more earnestly the solidarity which binds them together. This enlargement of the duties to be per- formed by the State might be dangerous if it ever deadened indi- vidual energy ; but up to the present the due bounds of the action of public authority do not seem to have been exceeded by any modern government. In most civilize-d countries the functions of the State fall under the following heads : — Firstly. The maintenance of order and the administration of justice at home. This duty falls, in England, to the Home Office ; in France, to the Ministries of the Interior, and of Justice. Secondly. The preservation of safety as against foreign powers. This is undertaken by the Foreign Office, the War Office, and the Admiralty. Thirdly. The furthering of the intellectual and moral develop- ment of society. This is provided for by the Education Office, and ministries relating to Public Worship and the Fine Arts. APPENDIX. 559 Fourthly. The development of the productive powers of a country. Such resources are superintended by government de- partments referring to Public Works, to the Postal and Telegraph services, to Agriculture, and to Trade. It is difficult to see which of these public functions could be subtracted from the list ; on the contrary, it could be easily swelled by the addition of departments relating to Labor, to Public Relief, and Public Health. In any case it would be unjust to saddle so-called State socialism with most of the responsibility for public burdens. If from the ^130,000,000 sterling which are spent by the French government we deduct the ^40,000,000 for the army and navy, the ^40,000,- 000 on the public debt (which is mainly the outcome of war), and the ;!^i6, 000,000 or ^20,000,000 which are the cost of the collec- tion of taxes, about ^30,000,000 of public expenses remain over for distribution amongst the various offices. When we remember that the total revenue of France is calculated to be ;^8oo,ooo,ooo to ^1,000,000,000 sterling, it scarcely seems excessive for three or four per cent of this sum to be devoted to expenses needed for the public welfare. Still, it is only fair to add the ^^3 2,000,000 to _;^36,ooo,ooo which represent the independent expenditure of the various departments and communes. Then the proportion of the collective expenses to the entire revenue is raised to seven or eight per cent. II. The Public Revenue. Private persons are obliged to regulate their expenses according to their income ; the State, on the contrary, usually fixes its re- ceipts according to its expenditure. As, in France, for example, it requires ^^i 30,000,000 for the accomphshment of its various functions, that is the very sum it will ask for from its taxpayers. The government has an incontestable right to make this demand, for it is just and indispensable that each member of every society should bear his share of expenses of a public nature. Of late 560 PRINCIPLES OF POLITICAL ECONOMY. years several learned treatises' have been published, especially in Germany, in Austria, and in Italy, on the economic theory of taxation, viz. : on the determining whether a tax is the price of a service rendered by the government. A complete summary may be found in Mazzola's Dati scientifici delle finanze. We, however, must proceed with our general discussion. It is not an easy matter to levy ^130,000,000 on a nation (or more than ^160,000,000, if we reckon the separate exjDenses of communes and departments), for that makes no less than ^4 a head for each Frenchman. Till the present day, statesmen and financiers have applied all their ingenuity to discovering sources of public revenue which shall burden the taxpayer as little as need be, and be imperceptible, if that can be possibly effected. Now, however, the tendency is to proceed on quite a different principle. We will now pass under review all the conceivable sources of public revenue. Section i. The Revenue derived from State Lands. If the State were in the position of a private individual who' has his own property, it might perhaps provide for all public expenses out of the revenue from its own possessions, and have no need to call upon the taxpayer ; for it would be self-sup- porting. Such was partly the case under the feudal system, and that state of things still subsists in semi-barbarous societies in which the private fortune of the sovereign and the property of the nation are scarcely distinguishable. The sovereign princes of India, like the former kings of France, support their armies from, and themselves depend in large measure on, the revenues of their own domains. But in civilized countries State lands, as a rule, have been reduced to a mere shadow of their former extent. In France nothing remains to the State save forests and a number of unproductive tracts. The gross returns from the whole are not more than a couple of million pounds, and the necessary expendi- APPENDIX. 561 tures on these estates would reduce that sum by half. That is a mere drop in the ocean of public expenses. However, in some countries, particularly in Prussia and the other German States, the revenue from the crown domains amounts to a good many million pounds ; but these estates are not merely forests, but also include farms, mines, and factories. If the current theories of land nationalization are ever actually applied, — for instance, if the governments of the United States and of the Australian colonies were to decide to reserve for themselves the proprietorship of public lands, and were only to grant them to private persons as temporary holdings, — in that case the future might witness the formation of State domains of large extent and the consequent abolition of all or some taxes. That is one of the chief arguments adduced in favor of the systems of land national- ization. Section 2. Revenues proceeding from Various Industries and Monopolies. For the State to be self-supporting, we are not obliged to con- ceive it as possessing estates and holding the position of a land- owner who lives on the income he derives from his property. We can equally well suppose that it founds an industry or starts a lucrative business, and thus earns its living like any ordinary person. This branch of the public revenue is of very considerable importance, and tends to increase daily in proportion to the development of State socialism. In France, in particular, the State carries on industries of the most varied kinds. It manu- factures money (in the shape of coin), tobacco, powder, playing- cards, porcelain (such as the Sevres ware), and carpets (for instance, the Gobelins). In its capacity of printer it carries on the If?iprime?'ie Nationale, and as a journalist it conducts the Journal Officiel. It works a partial system of State railways, and takes charge of all postal and telegraphic business. The returns from all these sources give a gross product of ;z/^30,ooo,ooo ; but as heavy expenses have to be met, the net product is far smaller 562 PRINCIPLES OF POLITICAL ECONOMY. and does not exceed ^,{^14,000,000. We give two of the principal items : — GROSS PRODUCT. NET PRODUCT. Tobacco (1884) 378,000,000 f. 305,000,000 f. (about £1 5,000,000) (about £ 1 2,200,000) rost-office and telegraphs (1885) . . 167,000,000 f. 30,000,000 f. (about ;^6,6oo,ooo) (about ^1,200,000) Thus very large profits are made from the tobacco industry by the side of a very small return from the working of the postal and telegraphic systems ; for the State rightly strives to make large gains in the former business, but only small profits from the latter. The particular businesses carried on by the State vary in dif- ferent lands. Thus in some countries private companies are the owners of the telegraph Hues, whereas in others, for example, in Germany, the State works most of the railways and some factories to boot. Again, municipal authorities often take charge of the gas and water supply. It has been recently proposed that the State should assume the control of a commercial enterprise which should yield at least ;^4o,ooo,ooo a year, namely, the sale of brandy. This scheme was suggested by M. Alglave, professor of Financial Science in Paris, but it has not been tried in France because the owners of small vineyards cannot be prevented from making brandy for themselves. However, other governments have embarked more or less deeply in similar enterprises. We have now to ask whether this class of revenue, like the revenue derived from State lands, frees the taxpayer from all burdens. Our answer must be a twofold one. If this industry in question is conducted under free compeiifion, and the profits made by the State are no higher than those that could be obtained by any private firm, then indeed no tax is really levied. But if the particular industry is managed under a system of monopoly, i.e. if the government prohibits all competition by private persons and makes use of its position to sell the article for a far higher price than the cost-price, then the additional price APPENDIX. 563 that the consumer has to pay is clearly a tax in disguise ; but the fact that it is disguised prevents the consumer from perceiving it. Now, most of the industries carried on by the French govern- ment, or at any rate the most important of them (tobacco, powder, post-office, and telegraphs), are worked under this monopolist system. Section 3. Indirect Taxes. Since the income that modern governments derive from the State lands and industries is far from sufficing requirements, further sources of revenue must be sought for. The laying of a duty on certain commodities was long ago found to be an impor- tant mode of obtaining revenue. This is certainly a tax, for the consumer will have to pay it in the shape of enhanced price, but it possesses two advantages. In the first place it is disguised in the very price of the article, and thus escapes the consumer's notice ; there are few people who on buying sugar at so much the pound can tell what portion of the price constitutes the tax. Secondly, the tax is in a manner optional, for it is only paid on purchase of the article on which it is levied, and every one is free either to abstain from buying it or to purchase it in whatever quantity he wishes. Under the same heading must fall customs duties which, legally speaking, do not differ from indirect taxes. Further, they appear to have the special advantage of causing payment of the tax to fall not on the citizens of the country, but on foreigners. That, if true, would be an ideal form of taxation, but as we have previously seen, the ideal in this case is not the real. Including customs duties, the indirect taxes in the French budget for 1884 amounted to rather over ^,^40, 000,000, or 1,074,000,000 francs, more than a third of the budget. The returns from the principal French indirect taxes are shown in the subjoined table : — Wines, spirits, and other beverages (1886) 439,000,000 f. Sugar (home grown and colonial) (1886) 138,000,000 f. Salt (1886) 32,000,000 f. Coffee (1885) 107,000,000 f. Petroleum and schist (1885) 27,000,000 f. Conveyance of passengers and goods by express trains (1886) 92,000,000 f. 564 PRINCIPLES OF POLITICAL ECONOMY. Section 4. Taxes on Legal Documents and Various Incidents of Daily Life. There is a limit to the number of the commodities on which a duty can be imposed ; for they require to be at one and the same time articles which are consumed in large quantities, so that the tax sliall have some scope, and not to be indispensable to exist- ence, for that would give a harsh character to the tax. Instead, therefore, of burdening commodities, financiers have resorted to the plan of taxing certain legal processes incidental to life, — such as successions, receipts, lawsuits, conveyance, etc., — by means of registration duties and stamp duties. From the governmental point of view these taxes have the further advantage of affecting the taxpayer only indirectly, or, at any rate, at the moment when he feels them least. The man who receives an inheritance, par- ticularly if it is a windfall, can very well bear to give up a portion of it to the State. The man who buys an estate is previously aware of the amount of succession duty that he will have to pay, and regulates accordingly the price he has to give. The penny stamp, which is the equivalent of the stamp required in France for every receipt above 8/6, does not inconvenience the buyer, because the trader usually pays it ; nor the shopkeeper, because he raises his price in proportion. From an economic point of view, howeve;, such duties, especially succession duties, are seriously inconvenient. In the French budget for 1886 they amounted to over ^27,000,000, or 682,000,000 francs, more than a fifth of the budget. Section 5. Direct Taxes. The sources of public revenue we have now studied are not fertile enough to meet all expenses. After all, then, we are com- pelled to touch the taxpayer directly by a personal and specific tax. Disguise is no longer possible ; the government demands from each taxpayer a particular sum ; and, if he refuses to pay, the A-PPENDIX. 565 ordinary methods of legal execution, i.e. distraint, are employed against him. Thus, of all classes of taxes this is the most burden- some and vexatious ; and governments which have reason to fear the effects of unpopularity avoid this method of obtaining money as long as they possibly can. For example, after the war of 1870, France required to raise an additional sum of ^28,000,000 a year ; and almost the whole of this amount was levied by means of indirect taxation. But everything now points to a radical change in men's opinions ; and, curiously enough, it is the very desire for popularity that induces present-day governments to reduce indirect taxes, and to seek to obtain the greater part, or, if need be, the whole, of the public revenue from direct taxation. We must explain this singu- lar change of tack. The object, nowadays, is not so much to find the most produc- tive or the least harassing tax, as to light upon the one which is most in conformity with justice. Nay ! there is even an exces- sive tendency to regard taxation less as a means of furnishing the government with its necessary supplies, than as a mode of setting right the unjust distribution of wealth. In fact, the fis- cal standpoint is being abandoned for a social standpoint ; and viewed in that light direct taxation is incontestably superior to any other form. As a matter of fact, in virtue of its personal character, it is the only mode of levying money which allows of the apportioning of the imposed burdens to the fortunes of those on whom the tax falls, and which enables the financier to cause the rich to pay more than the poor. No doubt, even with indirect taxes, the rich man will have to bear a heavier burden than the poor man, simply because he consumes more of the taxed article ; but the man who has an income of ^,"'400 a year does not consume a hundred times more salt, nor even a hundred times more salt or sugar or wine, than the workingman who earns £/^o a year, espe- cially if the latter has a numerous family. Of course, the wealthy man may spend a hundred times more money on wine, from the fact that he drinks better wine ; but our words were, consiimes 566 PRINCIPLES OF POLITICAL ECONOMY. more. Now, duties are proportional, not to the value of the articles consumed, but only to the quantity. There is just the same duty on Chateau-Lafitte as there is on public-house wine ; and, however unjust this equality may seem to be, there is no practical way of rectifying it, unless, indeed, the comptrollers of indirect taxes are to taste each sample of wine before they tax it. Further, from a moral and political point of view, the personal and disagreeable nature of this tax is an advantage ; for it is right, nay, it is indispensable, that every citizen of a free country should be compelled to feel directly, and in a manner which he cannot disregard, the consequences and results of all expenditures made by the government, i.e. by his chosen representatives. That is the soundest system of political education. The most natural form of direct taxation is a tax laid in pro- portion to a man's income. If each citizen's income could be calculated exactly, a simple sum in arithmetic would show the percentage that ought to be levied on that income in order to provide for the public expenses ; and then we might seem to have a fiscal system of perfect simplicity and irreproachable justice. But this principle is far from receiving universal approval, and is disputed by two sets of opponents. The first class declares that the tax should be laid not on income, but on capital. We may accept that statement for a few articles of wealth which yield no income, — such as country man- sions, picture-galleries, diamonds, etc., — though these are not of great importance. But the notion is altogether illogical when applied to wealth in general ; for, in the case of most classes of wealth, the value of the capital is determined only by the amount of the income. It would, therefore, be much simpler to tax in- comes directly. It has been urged that capital, which is wealth already formed, should be taxed in preference to an income which is wealth in process of formation. In our opinion, however, it would be radically unjust to exempt from taxation the gains which are made by a barrister or an opera-singer, even when they cease to possess any capital. Moreover, the valid points in this criticism APPENDIX. 567 could be easily met by taxing incomes derived from capital at a higher rate than incomes proceeding from labor. The other class of opponents demands that the tax shall be progressive, and not proportional ; in other words, not only the amount of the tax, but also the proportion of the tax, ought to vary according to respective fortunes. If, say, the proportion is 5 per cent on an income of ^400, it should be lowered to i per cent on an income of ^^o, and be raised to 25 per cent on ^^4000. The reason assigned is, that the privation that every tax causes the taxpayer to suffer is far greater for the poor man than for the rich man. For the man of means who has ;^400o a year, a tax of 10 per cent, or a deduction of ;^400, falls only on that por- tion of his wealth which is over and above the bare requirements of sustenance ; but those very means of subsistence are drawn upon when a tax of 10 per cent, or ^4, is levied on the man whose income is a mere ;^40. The observation is true enough, and may be confirmed by the fact that, usually speaking, social and collec- tive causes contribute more largely to the formation of large than of small fortunes ; the former, therefore, may be called upon to pay society more than the latter do ; in fact, it is a species of debt which they have to redeem. No objection of principle can be urged against progressive taxation, if its only aim is to estab- lish a proportionality which is more accurate than a purely arith- metical one ; moreover, it is already in force in some of the Swiss cantons. But the plan cannot be approved if, as the socialists pro- pose, it is to be used as a levelling instrument by means of which the wealthy classes are to be crushed with taxation, and the classes who live on their own labor completely freed from all burdens. We ought not to aim at an equalization of men's lots ; the sys- tematic cutting down of all fortunes which exceed an arbitrarily fixed limit would simultaneously maim all productive activity ; and to relieve the wages- earning classes of all share in expendi- ture arising from the conduct of public affairs would have deplor- able political results. For under a system of universal suffrage it is these very classes that really govern ; and the first principle 568 PRINCIPLES OF POLITICAL ECONOMY. of government is, that those who govern should bear the responsi- bihty of their acts. Moreover, there are further difficulties as to the application of a general tax on income. It is extremely hard to tell precisely what a man's income is ; if we are to abide by the declarations made by the taxpayers, there are strong reasons for thinking that the honest will have to pay for the dishonest, a result that would be scarcely conformable to our idea of justice ; if inquiries are to be made as to individual fortunes, the measures necessary for such an investigation of the secrets of private life would be exceedingly harassing, and might prove to be odiously tyrannical. Further, if the State wishes to draw all its revenue from an income tax, it will have to take a large share of each man's fortune. Let us sup- pose that the collected incomes of all Frenchmen amount to ^1,000,000,000 : in that case, in order to obtain the ;^i 60,000,000 they require, the government and the communes would have to put a tax of 16 per cent on every man's income, — in other words, deduct rather more than a sixth part. But such a levy of ^16 out of every hundred would be hterally crushing to the man of moderate means. If, as is probable, the poor, and perhaps also the working classes, were exempted from the tax, the share that the well-to-do classes would have to pay would be three or four times higher than the above-mentioned figure. Notwithstanding these difficulties of application, the income tax is the ideal mode of taxation which we should strive to reach ; it would be premature to require that tax to supply the whole of the public revenue, but it should contribute a large and ever-increas- ing share as compared with the other resources of the treasury. Its partial application would gradually overcome the difficulties we have referred to. The tax is already in operation and works well enough in a large number of countries, especially in England, in Germany, in Switzerland, and in Italy. In France there is no one general income tax, though that may come soon, but there are several X^xes which are laid only on certain specified sources of income. We will state the five principal ones. APPENDIX. 569 First. The land tax, which is levied on the income yielded by- all landed property, whether built on or not ; this was fixed according to a general survey of all the lands in France, which took forty years to make and would now need to be done all over again. Second. The door and window tax, which falls especially upon houses. Its curious name arises from the fact that the value of the houses is calculated according to the number of openings in them, though other matters are included in the estimate. After a laborious statistical valuation this tax is to be recast. Third. A tax on personal and movable property. It is this that most closely resembles a general income tax, for it is levied on the general income of the taxpayer ; but, instead of being cal- culated directly on incomes, it is rated according to the house- rent paid, or according to the letting-value for those who live in their own houses. Besides the general tax on incomes, the personal property tax includes a poll tax (ranging between \s. and 4J-. per head), which falls on every French citizen without regard to proportionality. But the smallness of the sum minimizes its irk- someness. Fourth. A tax on trade licenses, which affects all persons en- gaged in manufacture or trade of any sort. This again differs from an actual income tax by being estimated not on the profits of the business, but on rather complex factors ; e.g. the nature of the industry, the population of the town, the value of the premises, etc. Fifth. A tax on stocks. This is of quite recent date, being first imposed after the war of 1870. It is laid on the returns given by all stock save government securities ; that is to say, all shares and debentures quoted on the Bourse. The tax is four per cent on shares assigned to specified parties, and double that amount when they are payable to bearer. By adding to these five direct taxes some others of less impor- tance (such as those on horses and on carriages), we come to a total of some ^^20,000,000. 570 PRINCIPLES OF POLITICAL ECONOMY. We must make a few remarks on the foregoing. Taxes may be divided into direct taxes at a proportio7ial rate {itnpdts de reparti- tion') when the amount to be collected is fixed in advance by law and is then divided up amongst the taxpayers, and taxes at a fixed rate {ijnpots de quotite) when each man's share is fixed by local commissions, but the total has no limit assigned. Our first three direct taxes are of the proportional kind ; the tax on trade licenses is at a fixed rate. It is clear that taxes which are rated on each individual citizen are far more elastic than taxes at a pro- portional rate, which are almost invariable in their returns. In the budget the tax on stocks comes under the head of indirect taxa- tion, for it is not levied on specified individuals ; it falls on the stock itself and not on the capitalist who holds it. In the above we have confined ourselves to the public revenue of the State. But the revenue of the various communes and departments is also of great importance and reaches the sum of ;^36,ooo,ooo, though sometimes State and local receipts are devoted to the same purpose. The principal sources of this local revenue are the octrois (or city tolls), which yield more than ^11,000,000 (half of which is for Paris alone) and the "extra pence," {^centimes additionnels) which give more than ^14,000,000. This latter levy is a percentage which is added to the principal of the four direct taxes, and is collected at the same time as they are. The octrois need no explanation ; latterly they have been sharply attacked by similar arguments to those which have been urged against indirect taxes. III. The Public Debt. If most modern governments are unable to meet their ordinary expenses, for a stronger reason, still less are they able to supply the requisite funds for an extraordinary expenditure, say, for a war, or for large public works. Often, then, they are obliged to follow the example of all persons who live above their means, i.e. they run into debt. Hence the origin of public debts. There is APPENDIX, 571 not a single civilized country which has not a debt of some size or other; and for a barbarous nation to contract such liabilities is the usual proof that, to use the diplomatic phrase, it has entered the concert of European peoples. In fact, public debts have constantly increased in a greater and more starding degree than public expenses. A century ago the total was practically insignifi- cant ; the amount for the whole world is now reckoned to be P^6,ooo,o®o,ooo. Among all debt-owing countries France holds the bad pre-eminence, for its debt is more than ;^i, 200,000,000 ; and next to it come England and Russia. There are certain exceptions to this ; for instance, the enormous development in population and wealth of the United States, and their almost complete exemption from miUtary expenditure, have overfilled their budgets with large surpluses, which they do not know how to dispose of In spite of the apparent ease of the task, it is somewhat difficult exactly to calculate the capital of the French public debt. The registered debt {rentes inscrites) is divided into 435,000,000 francs' worth of 3 per cent stock, which at that rate stand for a nominal capital of 14,500,000,000 francs; 305,000,000 francs of 4|- /