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ON THE MODERN SCIENCE
OF ECONOMICS.
HENRY DUNNING MACLEOD, M.A
READ APRIL 20rn, 1887.
JOHN HEYWOOD,
DKANSliATE AND RlDGEFIELD, MAKCHKBTKR
AND 11, PATKRNOSTER BUILDIM.S,
LONDON.
1887.
MANCHESTER STATISTICAL SOCIETY.
On the Modern Science of Economies.
BY HENRY DUNNING MACLEOD, M.A.
Read April 20th, 1887.
IT is a matter of common notoriety that while economists, in this
country at least, have during the last three-quarters of a century
achieved a series of great successes, the science of Political Economy
itself, or Economics as it may more aptly, and is now becoming
more usually termed, is in a most unsatisfactory state ; and, indeed,
a very large number of persons deny that there is any intelligible
science of Economics at all.
As a matter of fact, economists throughout the world are
divided into two camps one division holds that it is the science
which treats of the production, distribution, and consumption of
wealth ; but the other division, which is now enlisting new
adherents every day, and is gradually gaining the ascendency
throughout the world, defines it as the science of commerce or
exchanges.
I shall show you a little further on that these two expressions
originally meant exactly the same thing, and the main question
which I shall submit for your determination is, which of these
two expressions is the more suitable for the science in its state of
development at the present day ?
It is very commonly supposed that Adam Smith was the
founder of political economy. A once-prominent politician is
reported to have said that political economy and free trade sprang
complete from the head of Adam Smith, as Minerva did from the
B
74 MR. HENRY D. MACLEOD ON
head of Jupiter ; but such ideas are wholly erroneous. Political
economy was founded by a series of illustrious philosophers in
France, in the middle of the last century, and it was they who
devised the expression, Production, Distribution, and Consumption
of Wealth ; and I shall show you that the present deplorable state
of the science is due to modern writers having entirely mis-
apprehended its original meaning.
But, at all events, all economists are agreed that their science
treats exclusively about wealth, and that it is the science of wealth
We have then to inquire, What i& a science 1 and what is the
science of wealth ?
What, then, is a science 1 A science is a body of phenomena or
facts, all based upon some single general idea or quality ; and it is
a fundamental law of natural philosophy that all quantities what-
ever which possess that quality, however diverse they may be in
other respects, must be included in that science ; and the object
of the science is to discover and ascertain the laws which govern
the phenomena, or govern the relations of the quantities of which
the science consists.
If, then, economics is the science of wealth, the first thing to
be done is to determine what that single general quality is which
constitutes things wealth, then to discover all the various kinds of
quantities which possess that single quality, and then to determine
the laws which govern the relations of all these various quantities.
ON THE DEFINITION OF WEALTH.
And in submitting to your consideration the true definition of
the word wealth, I hope that you will not think that I am going
to amuse you with vain logomachy or curious speculation. On
the contrary, this word is not only the basis of a great science,
but there is none, probably, which has so seriously influenced the
history of the world and the welfare of nations, according to the
meaning given to it at various periods.
THE MODERN SCIENCE OF ECONOMICS. 75
For many centuries the legislation of every country in Europe
was moulded by the meaning of the word wealth. The eminent
French economist, J. B. Say, says that during the two centuries
preceding his time, fifty years were spent in wars directly
originating out of the meaning given to this word.
Another economist, Storch, speaking of the mercantile system
which prevailed so long, says, " It is no exaggeration to say that
there are few political errors which have produced more mischief
than the mercantile system. ... It has made each nation
regard the welfare of its neighbours as incompatible with its own :
hence their reciprocal desire of injuring and impoverishing one
another, and hence that spirit of commercial rivalry which has
been the immediate or remote cause of the greater number of
modern wars. ... In short, where it has been the least
injurious, it has retarded the progress of national prosperity :
everywhere else it has deluged the earth with blood, and has
depopulated and ruined some of those countries whose power and
opulence it was supposed it would carry to the highest pitch."
So Whately says : " It were well if the ambiguities of this
word had done no more than puzzle philosophers. ... It has
for centuries done more, and perhaps for centuries to come will do
more, to retard the progress of Europe than all other causes put
together."
Now, certainly, we may be very sure that no wars in future
times will ever again be caused by the meaning of the word wealth.
But for all that, is all danger over 1 ? Far from it. On the contrary,
if possible, we are menaced with a more terrible danger still.
Because that dread spectre of Socialism, which now threatens war
and revolution to every country on the Continent, and from which
this country is not entirely free, is entirely based, as the Socialists
themselves say, on the doctrines of wealth put forward by Adam
Smith and Ricardo.
These considerations, which are nothing but the literal truth,
show you the gravity and the importance of the inquiry to which
76 MB. HENRY D. MACLEOD ON
I now invite you. I hope that this evening we may entirely clear
uway this reproach, and that the words I am going to say may not
vanish from your miuds aa if they were written in sand on the
seashore ; but rather that they may be as if they were written
with an iron pen, and graven on the rock for ever.
We have now, then, to search for that single general quality
which constitutes things wealth.
More than two thousand years ago Aristotle said, " xp^ara Se
Aeyo/xev Travra ocrwv r) dia vo/uoY*,a,Ti /xeT/setrat : "
By the term wealth we mean all things whose value can be
measured in money.
Thus Aristotle makes exchangeability, or the capability of
being bought or sold, to be the sole essence and principle of wealth.
Consequently, everything which can be bought or sold is wealth,
whatever its nature or its form may be.
Now, here we have a perfectly good general definition, which
contains only one general idea, and which is therefore fitted to
form the basis of a great science. This single sentence is, in fact,
the germ out of which the whole science of economics is to be
evolved, just as the huge oak tree is developed out of the tiny
acorn.
We have next to discover how many distinct orders of quantities
there are which can be bought and sold, or whose value can be
measured in money, i.e., possess the quality of exchangeability.
In the first place there are material things of a multitude of
different kinds, such as land, houses, cattle, corn, money, &c.,
which can all be bought and sold, which every one now admits to
be wealth.
There are, however, other kinds of quantities whose value can
be measured in money, which we have now to consider.
ANCIENT DIALOGUE TO SHOW THAT LABOUR is WEALTH.
There is a remarkable ancient work extant, which is, as far as
I am aware, the earliest regular treatise on an economical question.
THE MODERN SCIENCE OF ECONOMICS. 77
It is termed the " Eryxias," or " On Wealth." The purport of this
dialogue is this. The Syracusans had sent an embassy to Atheus,
and the Athenians had sent a return embassy to Syracuse. As
the ambassadors were entering the city, on their return from
Syracuse, they met Socrates and a party of his friends, with whom
they entered into conversation. Eryxias, one of the envoys, said
that he had seen the richest man in all Sicily. Socrates imme-
diately started a discussion on the nature of wealth. Eryxias said
that he thought upon the subject as every one else did, and that
to be wealthy meant to have much money. Socrates asked him
what kind of money he meant, and he described the money of
various countries. At Carthage they used as money leather discs,
in which something was sewn up, but no one knew what it was,
and he who possessed the greatest quantity of this money at
Carthage was the richest man there ; but at Athens he would be
no richer than if he had so many pebbles from the hill. At
Lacedsemon they used iron as money, and that useless iron. He
who possessed a great quantity of this at Sparta would be wealthy,
but anywhere else it would be worth nothing. In ^Ethiopia again,
they used carved pebbles, which were of no use anywhere else.
Thus Socrates showed that money is wealth only in those places
where it is exchangeable, or has purchasing power. In those
places where it is not exchangeable, or has not purchasing power,
it is not wealth.
Socrates then asked, " Why are some things wealth, and some
things are not wealth V " Why are some things wealth in some
places and not in others, and at some times and not others ?" He
then showed that whether thiugs are wealth or not depends
entirely upon human wants and desires ; that everything is wealth
where it is wanted and demanded ; and that it is not wealth where
it is not wanted and demanded.
Socrates then showed that things are xp' l/ !f JLara ^ or wealth, only
when and where they are XPWW - that is, where they are wanted
and demanded.
78 MR. HENRY D. MACLEOD ON
Thus, though some persons might be puzzled at the meaning
of the word wealth, there is no possibility of mistake when we refer
to the Greek, because xPW a > which is one of the most usual words
for wealth in Greek, comes from x/ 00 " 3 /* - 1 * to want or demand ;
consequently the word XP^S or wealth, means simply anything
whatever which is wanted and demanded, no matter what its nature
or its form may be.
It is, then, human wants and desires which alone constitute
anything as wealth : anything whatever which men want and demand,
and are willing to pay for, is wealth, whatever its nature may be :
anything which no one wants and demands is not wealth.
Socrates then showed that anything else which enables us to
purchase what we w^ant and demand is wealth, for exactly the
same reason that gold and silver are.
He instanced professors and persons who gained their living by
giving instruction in the various sciences. He said that persons
got what they wanted in exchange for this instruction, just as
they did for gold and silver; and consequently, he said,
the sciences are wealth cu eTrorT^/zcu xp 7 ?f taTa ovcrai ; and that
those who are masters of such sciences are so much the richer
TrXovcriu>Tpoi etcrt.
Now, in instancing the sciences as wealth, that of course is a
general term for labour, because labour, in economics, is any
exertion of human ability, or thought, which is wanted, demanded,
and paid for. Now, labour or thought cannot be seen or handled,
but it can be bought and sold : its value can be measured in
money, and therefore, by Aristotle's definition, it is wealth.
Socrates, in this dialogue, shows that the mind has wants and
demands as well as the body, and that the services which are
wanted and demanded by the mind, and are paid for, are equally
wealth, as those material commodities which satisfy the wants and
demands of the body and are paid for.
Thus Socrates shows that personal qualities are wealth, and
a person makes an income by the exertion of his skill and labour
THE MODERN SCIENCE OF ECONOMICS. 79
as an advocate, a physician, an engineer, or the manager of a great
company, just in the same way as another person makes an income
by selling material commodities.
DEMOSTHENES SHOWS THAT PERSONAL CREDIT is WEALTH.
But personal qualities may be used as purchasing power in
another way besides that of labour. If a merchant enjoys good
" credit," as it is termed, he may go into the market and buy
goods, not with money, but by giving his promise to pay
money at a future time that is, he creates a right of action ot twu^
against himself. The goods become his actual property, exactly
as if he had paid for them with money in fact, this righ^"
of action is the price he pays for them, and this right of action
is termed a credit, because it is not a right to any specific sum of
money, but only a general right against the person of the
merchant to demand a sum of money at some future time.
Hence a merchant's credit has purchasing power exactly as
money has. When a merchant purchases goods with his credit,
instead of with money, his credit can be valued in money exactly
as his labour may be ; and therefore, by Aristotle's definition,
personal credit is wealth ; and so also Demosthenes says
HV ayaOolv OVTOLV irXovrov re KCU TOV irpos aTravras 7ricrrevecr#cu,
(TTL TO T^S 7Tt(TTCOS VTTap^OV rjfJ.IV.
There being two kinds of property, money and general credit,
our greatest property is credit.
Also he says Et Be TOVTO ayvoets on TTIo/op), or capital.
80 MR. HENRY D. MACLEOD OX
Thus, though credit, like labour, cannot be seen, nor touched,
nor handled, yet it may be bought and sold, or exchanged its-
value can be measured in money, and therefore it is wealth.
Thus it is now clearly shown that personal qualities, both in
the form of labour of all kinds, and also in the form of the credit of
our merchants and traders, of all sorts, is national wealth, and it
also follows that the credit of the state itself is also national
wealth.
ALL JURISTS SHOW THAT RIGHTS ARE WEALTH.
But there is yet another order of quantities which can be
bought and sold, or exchanged, and whose value can be measured
in money, and which are therefore wealth by the definition, and
it is to this order of quantities that I would specially direct your
attention, because it is in respect of them that modern economists
are chiefly at fault, and it is with them that the most important
questions in modern economics are chiefly concerned.
Suppose that I pay a sum of money into my account with my
banker. What becomes of that money 1 It becomes the absolute
property of my banker. I transfer to him the absolute property
in the money. But I do not make him a present of it. I get
something in exchange for it. And what is that something 1 In
exchange for the money my banker gives me a credit in his
books that is, he gives me a right of action to demand an equal
sum of money from him at any time I please.
This right of action is termed a credit, and it is the price the
banker pays for the money ; and if I write that right of action
down on paper in the form of a cheque, that cheque may circulate
in commerce and effect exchanges, exactly like so much money,
until it is paid off and extinguished.
So also, if a merchant buys goods on credit, by giving in pay-
ment for the goods a right of action against himself to demand so
much money at a future time, that right of action is the payment
for the goods, and the owner of it may write it down on paper in
THE MODERN SCIENCE OF ECONOMICS. 81
ihe form of a bill of exchange; and that bill of exchange may
circulate in commerce and effect exchanges exactly like so much
money until it is paid off and extinguished.
Thus a right of action written on paper, in the form of a cheque
or a bill of exchange, is itself an independent exchangeable article
of property, or a vendible commodity, and may be bought and
sold exactly like a piece of money, or a house, or a watch, or any
other material commodity.
These rights of action are termed credit, because they are not
a title to any specific sum of money, but they are merely abstract
rights to demand a sum of money from a debtor ; and anyone who
buys them does so only because he has the belief, or confidence, or
trust, that the debtor can pay them at the proper time.
It will also be convenient to state here that they are also
called debts. To go into the whole question of credit and debt
would be too long here ; but it must be sufficient to state that the
words credit and debt are used perfectly indiscriminately in
English law and common usage to mean the creditor's right of
action to demand a sum of money from a person.
But there are a great many other kinds of abstract rights
which receive different names according to the subject to which
they refer, which may all be bought and sold, and are therefore
also vendible commodities.
Suppose that the state wants money for some public purpose,
such as a great war or to execute some public work. It buys
money from any person who is willing to sell it to it, and in
exchange for the money it gives the subscribers certain rights to
demand a series of future payments from the nation. These
rights, in popular language, are termed the funds or consols ; and
the public creditors may sell these rights to any one else they
please. These rights may be bought and sold like any material
commodity. They are vendible commodities, and therefore wealth
by the definition. Suppose that any person wishes to subscribe to
the capital of a public company banking, railway, canal, dock, or
82 MR. HENRY D. MACLEOD ON
any other. The money he pays becomes the absolute property of
the company, as a distinct person in its corporate capacity,
and in exchange for the money he receives certain rights to share
in the future profits to be made by the company. These rights
are termed shares, and the shareholder may sell his rights to any
one else. These shares may be bought and sold like any material
chattels. They are vendible commodities, and therefore wealth by
the definition.
Suppose that a trader establishes a successful business of any
sort. Besides the house or premises in which the business is
carried on, and the material goods in his shop, he has the right to
receive the future profits to be made by the business. This abstract
right is termed the goodwill of the business, and the goodwill is
part of the trader's assets, over and above the material goods in
the shop, and he can sell it for money to any one else. It is a
vendible commodity, and therefore wealth.
So when an author publishes a work, he has the exclusive right
of publishing that work, and receiving the profits made by it for a
certain time. That right is termed copyright, and is a property
quite separate from the printed volumes of the work. And the
author may sell that copyright to anyone he pleases like a material
chattel. It is therefore a vendible commodity, and wealth by the
definition.
There are also a considerable number of other abstract rights,
of a similar nature, which it would be too long to enumerate,
because I do not want to enumerate every separate right, but to
call your attention to a particular class of saleable quantities.
Now all these rights of various sorts cannot be handled, nor
seen, in that form, but they can all be bought and sold, their
value can be measured in money, and therefore they are all
wealth.
But all these rights may be written down on some material,
such as paper or parchment ; and then they may bs transferred by
manual delivery, like any other material commodity like money
or any other goods.
THE MODERN SCIENCE OF ECONOMICS. 83
And because all these rights can be bought and sold, because
their value can be measured in money, all jurists expressly class
them under the terms "wealth," "goods," "goods and chattels,'
or "vendible commodities."
Thus in the great code of Roman law named the Pandects it
is laid down as a fundamental definition : "Pecunise nomine non
solum numerata pccunia, sed omnes res, tarn soli quarn mobiles, et
tarn corpora quam j^ra continentur."
Under the term wealth, not only ready money but all things
both immovable and movable, both corporeal things and rights, are
included.
Also "Rei appollatione et Causce et Jura continentur."
Under the term property both rights of action and rights are
included.
"^Eque bonis adnumerabitur si quid est et actionibus."
Rights of action are justly reckoned under the term goods and
chattels.
So the eminent jurist Ulpian says: "Nomina eorum qui
sub conditione vel in diem debent et eniere et vendere solemus.
Ea enim Res est quse emi et venire potest."
We are accustomed to buy and sell debts payable at a certain
event or on a certain day, for that is wealth which can be
bought and sold.
So Colquhoun, in his "Summary of Roman Law," says
that under the term Merx is included anything whatever
which can be bought and sold, no matter whether it is movable
or immovable, corporeal or incorporeal, existent or nonexistent,
such as a horse, or a right of action, servitude, or thing to be
acquired, or the acquisition where it depends on chance.
Thus I have shown you that in Roman law abstract rights of
all sorts are included under the terms pecunia (wealth), lona
(goods and chattels), Res (property), and merx (merchandise).
The Pandects were published in the year 530 A.D., at
Constantinople, but while the official language was Latin, the
84 ME. HENRY D. MACLEOD ON
people were Greek, consequently the Latin Pandects very soon
fell into desuetude. They were superseded by Greek translations,
and treatises, and at last, in the ninth and tenth centuries,
under the Basilian dynasty, they were entirely superseded and
set aside as obsolete. A new digest or revised code was pub-
lished in Greek, called the Basilica, which has remained to the
present day as the common law of all the Greek population in
, the East.
And in the Basilica these definititions of wealth are repeated :
Tw OVO/JKXTC TWI> \pt] fj,drwv ov fjiovov ra ^prj[jiara t aAAd Travra ra
KivrjTa Kal a/av^ra, Kal TO, traytaTiKa Kal TO, Sc/ccua SfjXovTat.
Under the term x/ 3 ^A taTa or wealth, rights are included.
Also, Try TOV Trpay/xaros Trpocrrjyopia Kal Africa Kal SiKaia Trept^erat:
Under the term goods and chattels, rights of action and rights
are included. So in Greek law, abstract rights are included under
dya6a (goods), owri'a (estate), oupoppr) (capital) ; and they are
termed ova-ia a&avrjs, invisible wealth.
It is exactly the same in English law. In the old law of
Normandy it is expressly said that rights of action are included
under the term chattels. It was resolved in a case in the time of
Elizabeth that personal actions are included under the word
goods in an Act of Parliament. So in a well-known case it was
said, "But goods and chattels include debts." Things in action
are considered as "goods and chattels."
Every tiro in law knows perfectly that it is laid down in every
elementary text-book of English law that pure abstract rights are
termed goods and chattels, personal chattels, incorporeal chattels,
and incorporeal wealth.
Thus in every system of jurisprudence in the world, Roman,
Greek, and English, abstract rights of all sorts debts, rights of
action, bank notes, bills of exchange, the funds, shares in com-
mercial companies, copyrights, patents, &c. are termed pecunia,
res, bond, merx x/ 3v 7/ xaTa > Trpay/zara, ayafla, ovcria,
goods, chattels, vendible commodities, and wealth.
THE MODERN SCIENCE OF ECONOMICS. 85
I have now shown you, as I said before, that for the space of
1,300 years the ancients unanimously held that exchangeability is
the sole essence and principle of wealth : that everything is
wealth which can be bought and sold, or exchanged, or whose
value can be measured in money. They also showed that there
are three distinct orders of quantities which possess the quality of
exchangeability, or which can be bought and sold, namely, material
things, services or labour, and abstract rights.
And reflection will show that there is nothing which can be
bought and sold which is not of one of these three forms either it
is a material chattel, or it is a service of some kind, or it is an
abstract right.
tJ"~~~^
I have now, then, shown you that there are three, and only
three, orders of exchangeable or economic quantities, and you will
at once see that these can be exchanged in six different ways :
1. A material thing can be exchanged for a material thing, as
when gold money is exchanged for corn or jewelry.
2. A material thing can be exchanged for labour, as when
gold money is paid for labour.
3. A material thing can be exchanged for a right, as when
gold money is given to purchase a bill of exchange, shares, or the
goodwill of a business, a copyright, &c.
4. Labour can be exchanged for labour, as when two persons
agree to render each other services.
5. Labour can be exchanged for a right, as when wages are
paid in bank notes or cheques.
6. A right can be exchanged for a right, as when a banker
discounts a bill of exchange, by giving a credit in his books that
he buys one right by giving another right.
And these six distinct kinds of exchange constitute the science
of exchanges, or of commerce in its widest extent, and in all its
forms and varieties.
And if any of the great Roman lawyers, with the materials he
had before him, had ever conceived the idea of constructing a
86 MR. HENRY D. MACLEOD ON
complete scientific exposition of the mechanism of the mighty
system of commerce, the science of economics would have been
1,500 years in advance of its present state, and it would have
saved centuries of misery, bad legislation, and bloodshed to the
world.
Now, the law which regulates the exchangeable relations of
these quantities is called the law of value ; and the least acquain-
tance with the principles of natural philosophy shows that there
can only be one grand general law of value, which governs all
exchanges in all their multiplicity and complexity.
And I will now complete this part of the subject by bringing
before you the doctrine which is the basis of the theory of credit,
and of all other kinds of incorporeal property. It is this : that
every future profit, from whatever source it arises, whether from
land or from personal industry, has a present value, and that
present value can be bought and sold, or can be measured in
money, and therefore, by the definition which the ancients unani-
mously held for 1,300 years, that present right, or the present
value of the future payment, is itself an independent article of
wealth, quite separate and distinct from the future payment
itself.
Thus a bank note or. a bill of exchange is simply the right to a
future payment, and every one knows that bank notes and bills of
exchange circulate and are exchanged in commerce, by hundreds
of millions, quite independently of the money they may
ultimately be paid in ; and in fact, in modern commerce, bank
notes and bills of exchange are very rarely paid in money at all,
but by other methods which are too long to explain here.
So shares, copyrights, the funds, the goodwill of a business,
patents, owi'a, &c.,
or wealth, property, goods and chattels, or commodities.
And when we see that the great problem in the science is to
discover the single general law, which governs all their variable
relations, anyone with the slightest mathematical feeling can at
once perceive that we have here the materials of a great mathe-
matical science, because we have a distinct order of variable
quantities, and it is perfectly clear that the same general principles
of reasoning must govern the relations of this order of variable
quantities that govern the relations of all other variable
quantities.
We must now bid adieu to those halcyon days when all the world
was unanimous, and pass through centuries of war and con-
troversy, till we shall find that at last modern economists have
come to the same doctrine as the ancients.
ON THE MEANING OF WEALTH IN MODERN TIMES.
We have now to investigate the meaning of wealth in modern
times, and I must ask you to pretend to forget all that I have
already said, because it was totally unknown until I brought it to
light
For many centuries money was held to be the only wealth. Men
saw that money could purchase everything that while most other
things decayed away and perished money remained. Every nation
held it to be of the greatest importance to accumulate as much
money as possible. For centuries the legislation of every country
in Europe was moulded to encourage the importation and to
prevent the exportation of money as much as possible.
From the doctrine that only money is wealth, it naturally
followed that what one side gained the other lost. And this idea
88 MR. HENRY D. MACLEOD OX
was held by the wisest statesmen, and was the cause of innumer-
able commercial wars for centuries.
At last, however, somewhere about the end of the 1 7th century,
men began to see the folly of holding money to be the only wealth,
and the word was extended to mean all the material products of
the earth which conduce to the comfort and welfare of mankind.
During all this time there were a few farsighted spirits who
saw through the fallacy of the whole thing, and advocated freedom
of trade between countries, but they were solitary lights shining
in darkness, and the darkness apprehended them not But in this
brief outline I must pass over their names, because though they
advocated freedom of trade as a good thing, none of them -ever
perceived that there is such a thing as a definite positive science
of economics.
ORIGIN OF POLITICAL ECONOMY IN MODERN TIMES.
I will now relate the circumstances which gave rise to a sect
of illustrious philosophers who founded economics as a science.
In 1721, John Law's theory of paper money had been tried in
France, and produced that terrible catastrophe which you all know
by the name of the Mississippi scheme.
And here I may make a few passing remarks upon Law. It is
too often the custom to regard him as a mere rogue and swindler
and charlatan, but that is a most profound error. He was the
ablest and most profound financier of his age. When France was
in the lowest depths of misery at the death of Louis XIV., he
addressed a series of fifteen letters on credit and banking to the
Kegent Orleans, which show an infinitely greater knowledge of the
subject that any other writer of his day possessed.
In 1718 he was allowed to found the Bank of Paris, and in
three years he had restored the country to such a state of pros-
perity that foreign nations sent ambassadors to congratulate the
Regent.
THE MODERN SCIENCE OF ECONOMICS. 89
With regard to the principles of mere credit lie was perfectly
bound. But he saw that the powers of credit are limited, and he
conceived the unfortunate idea of issuing a paper money based
upon land beyond the limit of credit. He maintained that if an
inconvertible paper money were issued upon land to the amount of
twenty years' purchase, it would maintain a par value with specie.
He had previously brought his plan before the Scotch Parliament,
in 1705, but they, with a wise instinct, rejected it. Having,
however, achieved such marvellous success with his bank, he was
allowed and urged to carry out his scheme of paper money, with
the result so well known.
In speaking of Law, then, you must always remember that his
exposition of banking and credit and his scheme of paper money
are two totally distinct things. Nor was his scheme of paper
money a mere swindle, as is so often thought ; on the contrary, it is
founded on a definite theory which he has fully explained.
Unfortunately the theory is entirely erroneous, and it is quite
easy to show that the consequences must necessarily have resulted
ft omit.
&
His ideas are so far from being dead and gone that they have
plenty of believers at the present day. The Bank of England is
partly founded on Lawism. The fifteen millions of notes which the
Bank is allowed to issue against public securities is an example of
pure Lawism. The first increases of the National Debt were all
loans from the Bank, which was on each occasion allowed to issue
an increased amount of notes to an equal extent. If that principle
had been carried out to the present day, we should have had a
National Debt of eight hundred millions, and also eight hundred
millions of notes, which I need hardly say would have landed us
in as great a catastrophe as the Mississippi scheme.
Many eminent bankers at the present day advocate the issue
of notes on public securities. Let me assure them that they are
true disciples of Law. This was tried on a large scale in America
in 1837-8-9, and the result was that in 1839 every bank in America
* *
90 MR. HBNBY D. MACLEOD ON
stopped payment. The fact is that issuing notes upon land and
upon public securities are identically the same in principle ; and if
only pushed far enough lead to the same results.
Let us now, however, resume the thread of our discourse. The
Mississippi catastrophe first turned the attention of Turgot, then
a very young man, to economics, but that was far from being the
only circumstance. It is scarcely possible to realise the picture of
the misery of the French people, given by contemporary writers,
from the effect of the wars of Louis XIV., the grinding system of
taxation, and the feudal privileges. Each province was a separate
jurisdiction fenced round with custom-houses, so that there was no
freedom of internal commerce : the minutest process of every
manufacture was regulated by law ; and on the slightest infraction
of these regulations the manufactures were destroyed by the
Government inspectors. The greater part of the world was sunk in
slavery, and the slightest disrespect of the ecclesiastical authorities
was punished with breaking on the wheel.
It was in 1750 that a sect of illustrious philosophers, Turgot,
Quesnay, and many others directed their attention to these things $
and they maintained that there is a science of natural right,
and that the misery they saw around them was caused by the
violation of this natural right. They maintained that there is a
science of the relations of men towards the State, towards each
other, and towards property. In 1759 they published a code of
doctrine in which they declared that freedom of person, freedom
of opinion, and freedom of commerce or exchange, are the
natural rights of mankind, and they also declared the fallacy of
the doctrine of the balance of trade. This science they termed
political economy.
It was the economists then who first declared that there is a
science of political economy, and not merely advocated freedom of
trade as a beneficial thing, but proclaimed it as the natural
right of mankind. It was they who devised the expression,
"production, distribution, and consumption of wealth," and I
THE MODERN SCIENCE OP ECONOMICS. 91
must ask your earnest attention to the meaning of that expression
as explained by its originators.
They defined the term " wealth " to be the material products of
the earth which are brought into commerce and exchanged, and
those only. The products which the owners consumed them-
selves they termed Biens j those only which they exchanged away
they termed Richesses.
Hence, as the ancients did, the founders of economics in
modern times held that exchangeability is the essence of wealth
as a technical term. But they restricted it to material products.
They refused to admit that labour and credit are wealth, because
they said that to do that would be to admit that wealth can be
created out of nothing, and they constantly repeated ex nihilo
niliil fit. They therefore held that the earth is the sole source
of wealth.
Now, it is contrary to the laws of natural philosophy to admit
that exchangeability is the principle of wealth, and then to restrict
it to material products. Bacon repeatedly points out that when
you have once settled upon the principle or quality which is the
basis of a science, you must search for and include all quantities
whatever, however diverse their forms may be, which contain that
quality, and as labour and credit are both exchangeable, it is
contrary to the laws of natural philosophy to exclude them from
the term wealth.
I will now explain the meaning of the expressions "Production,"
'' Distribution," and " Consumption " of wealth.
They denned Production to be the obtaining the raw produce
from the earth and bringing it into commerce and offering it for
sale.
But this raw produce is seldom fit for immediate use ; it has
to undergo several intermediate processes of manufacture and
transport before it is brought to the person who ultimately
purchases it.
92 MR. HENRY D. MACLEOD OX
All the persons engaged in these intermediate processes they
termed Distributors.
The person who finally purchased the finishsd product for use
and enjoyment, and took it out of commerce, they termed the
Consommateur', because consommer in French means to complete
or terminate, and the purchaser is the person who completes the
transaction.
The whole transaction the bringing the produce into com-
merce, the various changes of form and place it underwent, and its
final purchase for use, or consommation the economists termed
Commerce or Exchange.
An exchange, however, may take place between two parties ;
and distribution was often used as equivalent to consommation.
Consequently, "production, distribution, and consumption,"
"production and distribution," "production and consumption,"
were all equivalent expressions, and never meant anything else, as
explained by the economists, than Commerce or Exchange.
Production and consumption never meant any thing but supply
and demand, and supply and demand constitute commerce or
exchange.
Thus the expression "production, distribution, and consump-
tion" is one and indivisible, and it must not be separated into its
component parts.
Now, this is the whole point in the contest between the modern
schools of economists considering that these two expressions,
"production, distribution, and consumption" of wealth, and Com-
merce or Exchange, were absolutely equivalent at their first use,
which is the better conception for the science at the present day,
in its enlarged state.
Even supposing that the term " wealth " is to be restricted
to material things, a difficulty arises with respect to the first
expression. The land itself is a saleable commodity ; and how are
we to speak of the " production, distribution, and consumption,"
THE MODERN SCIENCE OF ECONOMICS.
of land 1 whereas it is quite usual to speak of the " supply and
demand " of land. Thus, even if wealth were restricted to material
things, the second expression is wider and more intelligible.
In fact, the first expression imposes a cast-iron limit on the
subject, and it was intended to do so there is no expansiveness on
it; while the second expression is expansive, and includes all
commerce in its widest extent.
The first economists were highly cultivated men, and had w r ide
and philosophical views, but they had no. practical experience of
commerce. While, therefore, they perceived the national advantage
of freeing commerce from all restraint, they never made any
attempt to exhibit its actual mechanism.
They refused to admit that credit is wealth, but many other
contemporary writers did.
The first writer in modern times who agreed with Demosthenes
in designating credit as wealth, was that acute metaphysician
Bishop Berkeley. In his " Querist " he has many searching queries
on economics ; one is "Whether power to command the industry of
others (i.e., credit) be not real wealth 1 ?" So all mercantile writers,
contemporary with the economists, seeing that credit has exactly
the same purchasing power as money, expressly class credit as
wealth. So Junius says, "Private credit is wealth."
PHYSIOCRATE DOCTRINE OF PRODUCTIVE LABOUR.
I have now to direct your attention to a remarkable doctrine of
the economists, which was, as I shall show, the cause of Smith's
work.
They defined productive labour to be labour which left a profit
after all expenses w r ere defrayed. They maintained that agricul-
tural is the only form of productive labour, i.e., that leaves a profit ;
and that profit they termed produit net, and held to be the only
revenue of the State.
They alleged that in commerce it is always an exchange of
equal values, and, therefore, that there is no profit on either side.
94 MR. HENRY D. MACLEOD ON
They admitted that manufactured articles are of greater value
than the raw material, but they said that that increased value
only replaced the maintenance of the workmen ; and so that, upon
the whole, there was no increase of value or of national wealth.
They maintained, therefore, that the agriculturists are the
only class of productive labourers, and that all others are sterile
or unproductive ; and that as the whole revenue of the State
consisted of the produit net of land, that all taxation should be
laid on the rent of land.
From these doctrines they drew the astounding conclusion, that
neither commerce nor manufactures can enrich a nation.
While, therefore, the doctrine before the economists was that
what one side gained in an exchange the other side lost, they
alleged that in an exchange neither side gains.
Now, the economists deserve this praise at least : in all their
reasonings they strictly defined their terms, and there was no
possibility of mistaking their meaning.
When they stigmatised all classes, except the agriculturists, as
sterile and unproductive, it aroused a most powerful reaction
against them ; and when the consequence of their doctrine, that in
an exchange neither side gains, led to the paradoxical conclusion
that neither commerce nor manufactures can enrich a nation, so
contrary to the plainest facts of history, a host of writers in all
countries rose up against them, and men of intelligence began to
inquire whether it is true that in an exchange neither side gains.
It was these doctrines which were the real origin of Smith's
"Wealth of Nations."
It has, indeed, been said that Smith taught at Glasgow the
same doctrines that he afterwards published in his work. But
not a line of Smith's teaching is in existence. It may possibly be
true that he advocated freedom of trade at Glasgow, but there
were numbers of other writers who did the same.
In 1763 Smith travelled abroad as tutor to the young Duke of
Buccleuchj and became acquainted with the economists, at Paris,
THE MODERN SCIENCE OF ECONOMICS. 95
then in the height of their fame. In 1766 he returned to Kirk-
caldy, his native place, and spent ten years in the composition of
hia work, which was published in 1776. Thus you see that it is
quite erroneous to suppose that Smith was either the founder of
political economy or the originator of free-trade. The code of
the economists was published in 1759, of which free-trade was a
cardinal principle. Smith's work was not published till 1776.
In the same year Condillac, the well-known metaphysician,
published a work entitled " Le Commerce et le Gouvernement"
written on much the same plan, and with the very same object as
Smith, namely, to prove that in an exchange both sides gain ; but
his proof is not very satisfactory. Smith alone proved, by irrefra-
gable reasoning, which, of course, is far too long and intricate to
explain here, that in commerce both sides gain, and, of course, as
the necessary consequence, that commerce and manufactures both
enrich a nation, and therefore that those who engage in them are
productive labourers.
Perhaps you may think that the doctrine is so j lain that it
needs no proof ; but that is far from being the case. At the time
Smith proved it, it was a perfect paradox, contrary to the universal
opinion of centuries. It is now the very corner-stone of economics,
and it made a complete change in the policy of nations, because
the doctrine formerly held was the cause of commercial wars for
centuries, while Smith's doctrine showed that every nation is
interested in the prosperity of its neighbours.
And that is one of Smith's titles to immortal fame.
He does not call his work a treatise on Political Economy : he
entitles it " An Inquiry into the Nature and Causes of the Wealth
of Nations." But most unfortunately he never gives throughout
the whole course of it any clear idea of what he means by wealth.
But in the early part he speaks of the real wealth of a country
as being the " annual produce of land and labour."
We have now to examine whether such a definition can be
accepted as the basis of economics as a great science.
96 MR. HENRY D. MACLEOD ON
' 111 the first place, it is to be observed that he has omitted the
quality of exchangeability from the definition which the economists
expressly insisted upon.
Now, it is perfectly obvious that the mere definition of wealth
as the " annual produce of land and labour " cannot be accepted as
a suitable definition of the term, because, if it were so, every useless
work -done would be wealth. If one were to build a pyramid on the
top of Ben Nevis, would that be wealth 1 The simplest form of the
" produce of land and labour " are children's mud pies. So that if
we accept that definition simply, the way to augment the wealth of
the country would be to set all the dirty children in it diligently to
make mud pies.
The medium price of an acre of land near the Bank of
England or the Royal Exchange is about a million sterling. Is
not that land wealth ? And how is that land itself the " produce
of land and labour ? "
Further on, Smith classes the natural and acquired abilities of
the inhabitants as fixed capital, and he treats labour as a
vendible commodity, and has a long discussion on the price of
labour or wages. Now, how are the "natural and acquired
abilities " of the people the "annual produce of land and labour?"
And how is labour itself the "annual produce of land and labour?"
Thus, you see that Smith has already broken away from the
dogma of the economists, who carefully excluded labour from the
term wealth.
After, for several hundred pages, filling the minds of his
readers that wealth is simply the produce of land and labour, he
admits that unless a thing is exchangeable it is not wealth. Thus,
after all, he admits that exchangeability is the real essence and
principle of wealth.
Further on, under the term "circulating capital/'' he enumerates
bank notes and bills of exchange. Now, bank notes and bills of
exchange are credit ; they are mere rights of action. Thus you
THE MODERN SCIENCE OF ECONOMICS. 97
see that Smith expressly includes credit under the term "wealth,"
which was what the economists expressly denied.
Now, how are bank notes and bills of exchange mere rights of
action the " annual produce of land and labour ? "
You will thus see that Smith extended the domain of econo-
mics : while the economists restricted it to the commerce of the
material products of the earth, Smith extended it to include the
commerce of labour, which he has discussed at great length. He
also admitted that bank notes and bills of exchange are capital,
but he never gave any exposition of the great scientific principles
and mechanism of the general system of credit. He also says that
the object of his work is to investigate the principles which regulate
the exchangeable value of commodities.
Thus, you see, that the subject matter of Smith's first two
books is, in reality, a treatise on commerce, or the theory of value .
and his editor, McCulloch, says in his note, this science might be
called the science of Values.
Condillac, who published his work in the same year, calls his
first book " Le Commerce : or, the Principles of Economic Science."
Forbonnais, who was an eminent contemporary of the economists
published the best treatise on commerce of his day, and he calls
it "Economic Principles."
Thus all contemporary writers perfectly well understood that
though the economists bent their efforts to free commerce from
its impediments, economics itself is the science of commerce or
exchanges.
No doubt Smith did immense service to economics by
demonstrating that in commerce both sides gain, and by extending
its domain ; but the fatal defect of his work is that the former
part is entirely founded upon labour and materiality as being
the essence of wealth, and the latter half adopts exchangeability
pure and simple. It is also totally wanting in unity of principle
and consistency of doctrine. As has been said, it is wanting in
backbone.
MK. HENRY D MACLEOD ON
RlCARDO.
Bicardo was the first economist in this country who perceived
the necessity of reducing the laws of value to general principles.
He calls his work "The Principles of Political Economy and
Taxation." But the part relating to political economy is nothing
but a treatise on prices or on value.
But unfortunately it is not a treatise on the complete theory
of value, but only on a very small part of it. He deals only with
the value of material things, and only with a certain part of them
those only which are the produce of human labour. Having then
excluded everything from consideration except material things
produced by human labour, he lays down the dogma that labour
is the foundation of all value. This doctrine has been repeated by
numerous writers, and it is the doctrine, coupled with the incautious
statement at the beginning of Smith's work, that the real wealth
of a country is the " annual produce of land and labour," which, as
the Socialists themselves allege, is the foundation of their system.
They constantly maintain that working men are the creators of
all wealth.
Considering the enormous importance which the subject has
acquired, it is necessary to examine the truth of the doctrine that
labour is the cause of all value.
Labour certainly is associated with value in some material
things, but is it associated with value in all material things ? I
have already shown you that the space of ground upon which a
great city is built has enormous value, but is that value the result
.of labour]
Look, again, at the great cattle of the field, and flocks and
herds of all sorts; they are wealth, but are they the creation of
human labour ?
McCulloch says that if an object is the free gift of nature it
cannot have the smallest value.
THE MODERN SCIENCE OF ECONOMICS. 99
Test this doctrine by facts. In the Midland counties of
England there are many oak trees which are worth 100 as they
stand on the ground before anyone has touched them. Is their
value due to labour 1 ? It is stated that in 1810 an oak tree was
cut down at Gelenas, in Monmouthshire, the wood of which sold
for 670, and the bark for 240. Was that value due to human
labour 1
Some years ago a whale was cast ashore on the beach of the
Firth of Forth, and it sold as it lay there for 70. Was its value
due to labour 1
Some years ago it used to be the fashion for European ladies
to imitate their swarthy sisters of Central Africa, and pile huge
mountains of hair, termed chignons, on their heads. While this
rage lasted a young girl's hair sold for 5, 10, and 20, and
even much higher sums. Was the ^vSlue of the girl's hair due to
labour?
These and innumerable other .cases which might be cited
show that it is utterly erroneous to assert that labour is the cause
even o-f the value of material things.
But labour itself has value. If, then, labour is the cause of all
value, what is the cause of the value of labour 1
Again, take a Bank of England note, or a great merchant's
acceptance for 1,000. It has value. But is its value due to
labour ?
When a banker discounts a bill for a customer, he givfes him
a credit in his book for it that is, he buys one right of ^action
by creating another right of action, and by so doing he^gives
value for it. Is the value of the banking credit due to labour ?
As the strict logical conclusion of his doctrine that labour is
the cause of all value, Ricardo maintains that air, heat, and water
add nothing to the value of the crops. If this doctrine be true, it
\vould follow that if we were to plant a vineyard in Shetland, the
grapes, if they ever appeared, and the wine made from them,
100 MR. HENRY D. MACLEOD ON
would have exactly the same value as the grapes and the wine
produced in the vineyards of sunny France.
I am not aware whether any of those whom I have the honour
of addressing have ever paid much attention to the doctrines of
Ricardo. By some persons, indeed, he is regarded as an authority
not to be questioned ; but when I bring these doctrines plainly
before you in the light of day, I feel sure that you, as men of
business, will perceive that they are entirely erroneous.
Why has a bank note or a bill of exchange value ? Because it
is exchangeable because it will be paid at the proper time. I
have already shown you. that the author of the "Eryxias" saw
that money only has value when it is exchangeable. A bank note
and money, then, have value for exactly the same reason because
they can be exchanged away for other things.
Why have cattle, flocks, herds, timber trees value 1 Because
there is a demand for them. If all persons were to become
Vegetarians, the value of cattle, herds, flocks, &c., would at once
die off. What gives value to the vineyards of France, California,
and Australia 1 The demand for wine. If the whole world were
to become teetotallers, all value would at once die off from the
vineyards of France, California, and Australia.
Thus you see that it is utterly erroneous to assert that labour
is the cause of all value. Value manifestly proceeds from demand.
All the labour in the world cannot confer value on anything when
there is no demand for it. If all the warehouses in Manchester
were groaning with goods, and no one came to buy them, where
would their value be 1
You will at once perceive the importance of these obvious
truths ; for they at once cut away the ground from that dreaded
Socialism which is such a disturbing force at the present day.
Bead their own utterances, read that mass of incomprehensible
jargon Karl Max's " Capital," and you will see that all the claims
of the Socialists are founded on the exploded doctrines of Smith
and Ricardo that labour is the cause of all value, and that
THE MODERN SCIENCE OF ECONOMICS. 101
working men are the creators of all wealth. Is it working men who
create the great cattle of the field, or the trees of the forest 1 Did
working men create corn, or did they make it grow? Did
working men create the great sciences which have done so much
for mankind, and by which so much of their labour is directed ?
Did working men create the skill of our advocates, or physicians,
and other professional men 1 Did working men create the skill,
and the foresight, and the personal credit of our great merchants
and bankers, by whom the infinitely greater part of modern
commerce is carried on 1
The very labour of the working man himself has no value
unless there is a demand for it.
Thus you see of what supreme importance it is to rectify the
fundamental ideas of economics, and what boundless mischief
rash statements produce when repeated by incautious men.
The last writer I need cite here is Whately. In his lectures as
professor at Oxford, he points out the inconvenience of the name
of political economy. He points out that Smith's name for his
work only indicates the subject matter, and not the science itself.
He points out that it has only to do with things so far as they are
subjects of exchange. He therefore proposed to designate it as
Catallactics, or the science of exchanges.
You will now observe that up to this time it was perfectly well
understood by all economists that, as a positive science, economics
is the science of commerce, or of exchange, or the theory of value.
The expression production, distribution and consumption of wealth,
was an extremely awkward one, but still its originators clearly ex-
plained that they meant nothing but commerce or exchange by
it. Numerous other writers had simply defined it as the science
of commerce ; and so long as there was a general agreement as to
its fundamental nature there was good hope of progress, because
the ideas of its founders could be expanded, modified, developed,
and rectified.
102 MR. HENRY D. MACLEOD ON
It is well known that almost every one of the other great
sciences, Astronomy, Optics, Heat, Chemistry, and so on, have
undergone great revolutions of opinion, modification, rectification,
and expansion, and have thus been progressive sciences. And so
it might have been at the present day with economics, if econo-
mists had steadily kept in view the original conception of the
science. The first school of economists considered only the
commerce in the material products of the earth. Adam Smith
devoted great attention to the commerce of labour, but with the
exception of a few perfunctory remarks on bank notes and bills of
exchange he does not seem to have the slightest idea of the
magnitude and importance of the commerce in rights, which is the
most colossal branch of commerce at the present day, and includes
the whole principles and mechanism of credit, banking, and
the foreign exchanges.
Now you will at once perceive that so long as it was clearly
understood that economics is the science of commerce in general,
it was perfectly easy to introduce any new branch of commerce
which had not been fully developed.
Now, if the early economists had reflected on the nature of the
commerce in rights, if they had observed that Smith himself
classes bank notes and bills of exchange as circulating capital, they
would have seen that exchangeability is the sole essence and
principle of wealth ; they would have seen the absolute necessity
of discarding labour and materiality as necessary to value ; and
they would never have given rise to Socialism by maintaining
such erroneous doctrines.
It is quite evident that under the general term of commerce
it is quite as easy and natural to treat of the commerce of rights
as to treat of the commerce of material products or of labour.
THE SECOND SCHOOL OF ECONOMISTS.
Unfortunately, an economist of the highest distinction intro-
duced a fatal change in the fundamental conception of .the science,.
THE MODERN SCIENCE OF ECONOMICS. 103
which has thrown it into utter confusion, and has arrested its
progress up to the present time, but from which all the most
independent economists in the world are now emancipating
themselves.
All interest in political economy died out among our bright but
fickle neighbours in 1776, when Turgot was driven from power.
Condillac's work, which was published in that year, never attracted
the slightest attention.
In 1803, J. B. Say published his first treatise on political
economy, in which he defined it as the production, distribution, and
consumption of wealth, but unfortunately he quite departed from
the original meaning of that expression, which was one and in-
divisible, and meant nothing but commerce or exchange.
J. B. Say broke up the expression into its separate terms, and
completely changed the original meaning of production and con-
sumption ; for while the original meaning of production was
offering for sale, and consumption meant simply purchasing,
J. B. Say used production to mean adding value to anything and
consumption to mean the destruction of value. He also has
separate and independent chapters on production, distribution, and
consumption.
Now, if you will think for an instant, you will see that so long
as you retain commerce as the fundamental concept of economics,
it is a positive, distinct, and intelligible science, the fundamental
law of which is the law of value. But when you break it up into
three parts, you will see that it becomes utterly unintelligible as a
distinct science. It breaks the back of the whole science : it
utterly breaks the back of the theory of value.
I will now show the awkwardness of adopting that view of the
science.
Say himself designates instruments of credit, such as bank
notes and bills of exchange, the funds, the copyright of a book, a
professional practice, &c., as wealth.
104
MR. HENRY D. MACLEOD ON
Now, how is it possible to talk of the production, distribution,
and consumption of bank notes, bills of exchange, the funds, a
copyright, or a professional practice ? But it is quite usual to buy
and sell them.
J. B. Say has earnestly enforced the doctrine that abilities of
all sorts are wealth. He terms them immaterial wealth.
How is it possible to talk of the production, distribution, and
consumption of human abilities ? But they have a value which is
measured in money. It is quite usual to speak of the supply and
demand of labour.
J. B. Say's work has for nearly half a century moulded the
Continental view of political economy, and most of the usual
manuals and treatises are little more than adaptations from it,
with little variation.
Among others, M. Say has in a general way moulded the form
of Mill's treatise, though no doubt he varies from him to a certain
extent.
Mill treats political economy as the production, distribution,
and exchange of wealth. Now, in the original language of the
economists, that is simply exchange and exchange.
Mill's book, which, in a modified form, introduced Say's
system into England, was published in 1848, and was immediately
received with unbounded applause, and was supposed to have
brought political economy to its highest pitch of perfection ; and
for many years it was considered to be as futile to criticise Mill as
to criticise infalibility itself. Whatever Mill asserted was to be at
once accepted without doubt or question.
Now, Mill is a professed writer on logic, and we should naturally
expect that so distinguished a logician would at least be consistent
with himself.
In an eloquent passage in his logic he shows the prime necessity
of settling the fundamental concepts of a science. We might
naturally expect, therefore, that he would take especial care to
settle the definitions of economics, especially such a deeply-con-
UNIVERSITY
^ C ^LIFORN^
THE MODERN SCIENCE OF
tested one as wealth. After the very first paragraphs of his work
it is, therefore, rather surprising to read, " Every one has a notion
sufficiently correct for common purposes of what is meant by
wealth;" and he says, "It is no part of the design of this
treatise to aim at metaphysical nicety of definition where the ideas
suggested by a term are already as determinate as practical
purposes require."
Let us now see whether Mill himself has any clear idea of
what wealth is. A little further on he says, " Everything forms,
therefore, a part of wealth which has a power of purchasing."
Here at last, after 2,100 years, we have exactly Aristotle's defini-
tion of wealth, which ancient writers held unanimously for 1,300
years that everything which can be bought and sold, or whose
value can be measured in money, is wealth. This definition
manifestly includes all the three orders of exchangeable quantities :
(1) material things; (2) personal qualities, both as labour and
credit ; and (3) abstract rights.
But at the end of the same remarks he says, " The production
of wealth, the extraction of the instruments of human subsistence
and enjoyment from the materials of the globe." Is not that a
very startling change of conception "? Is everything which can be
bought and sold extracted from the materials of the globe 1 Are
personal qualities, are bank notes, bills of exchange, personal
credit, and banking credits extracted from the materials of the
globe ?
After going on for more than fifty pages, Mill comes to produc.
tive labour, which, he says, is labour productive of wealth; and
then it suddenly strikes him that he has at last to inquire what
wealth really is.
He then says that it " is essential to the idea of wealth to be
susceptible of accumulation," and that permanence is necessary to
wealth. Now, here is at once another change of idea, and it at
once excludes labour from the term "wealth." Labour perishes in
the very instant it is performed. We can accumulate the pro-
106 MR. HENIiY D. MACLEOD ON
ducts of labour, but we cannot accumulate labour itself; or. at
least, the only person who could probably accumulate labour itself
would be the Philosopher of Laputa, who bottled sunshine.
When the idea of permanence is introduced into the notion of
wealth it at once becomes altogether vague and uncertain. Things
are of all degrees of permanence, from the land which lasts for ever
to things of a constantly-diminishing degree of permanence, such
as money, jewelry, houses, clothes, food, till we come to labour.
At what degree of permanence is the line to be drawn between
things that are wealth and those that are not wealth 1
The law of continuity says, " That which is true up to the limit,
is true at the limit;" which shows that labour, which has the
least degree of permanence, must be included under the term
wealth equally with land, which has the greatest degree of
permanence.
We have now to examine more particularly Mill's doctrines
upon credit.
He says that anything which has purchasing power is wealth.
He then says, " The amount of purchasing power which a man
can exercise is composed of all the money in his possession or due
to him (i.e., any bills or notes he may have), and of all his credit.
" Credit, in short, has exactly the same purchasing power with
money."
And many other passages to the same effect.
Now, if it be said that "everything which has purchasing
power is wealth," and if it be said " credit is purchasing power,"
then the necessary inference is that " credit is wealth." That is
a syllogism in which Mill is safely padlocked, and from which there
is no escape.
Thus, by the clear admission of Mill, credit is wealth; and
how is credit material, or extracted from the materials of the
globe ?
THE MODERN SCIENCE OF ECONOMICS. 107
Now, there are numerous other self-contradictions in Mill as to
the nature of wealth, but those which I have given are quite
sufficient to show you that Mill himself had no clear ideas as to
what wealth is.
I have now taken only one of the definitions of economics, but
that the fundamental one, and shown you the self-contradictions
of economists from Smith to Mill. And how can you expect a
solid system of science to be founded on such self-contradictions ?
But there, in fact, 27 definitions in economics, and with respect to
each one of them there is exactly the same self-contradiction and
diversity of opinion.
No doubt the disciples of Smith have achieved a series of great
successes, but these have been chiefly destructive, to sweep away
what they considered mischievous laws ; and everyone can agree
upon that, but when it comes to a positive definite science the case
is wholly different.
The fundamental defect of economists, from Smith to Mill, is
that they profess to discuss wealth and the science of wealth.
They consider the production, distribution, and so on of wealth,
but they are unable to form a distinct and clear idea of what
wealth is. Is it not surprising that writers who perfectly admit
that personal credit, bills, and notes are wealth and capital in
some places, in others allege that all wealth is the produce of land
and labour, and extracted from the materials of the globe ?
Some of the manuals in popular use begin by admitting that
wealth is anything that is exchangeable, and then in a few sentences
after they say that all wealth is the produce of land, labour, and
capital. They themselves admit that labour itself is an ex-
changeable commodity. They admit that personal credit is wealth ;
and how is labour itself and how is personal credit the produce of
land, labour, and capital?
There was a time when the physical sciences were exactly in
the same state as economics is at present. They were simply
a mass of confusion and contradictions. The wisest moral
108 MR. HENRY D. MACLEOD ON
philosopher of antiquity, seeing that all the professors of the
physical sciences were at utter discord with themselves, called off
his disciples in blank despair from the study of physical science,
and bade them restrict themselves to moral science.
But if Socrates were to revisit the earth now, would he be of
the same opinion, and how has physical science been brought to
its present state of perfection? Simply by a careful settlement of its
definitions, a diligent observation of facts, and a sedulous attention
to bring language into harmony with nature, and economics can
only be delivered from the present disrepute into which it has
notoriously fallen, by strictly following the same methods by which
the modern physical sciences have been created.
And I will cite the authority of Mill himself for this view. He
says, very justly, "In the case of so complex an aggregation of
particulars as are comprehended in anything which can be called
a science, the definition we set out with is seldom that which a
more extensive knowledge of the subject shows to be most appro-
priate. Until we know the particulars themselves, we cannot fix
upon the most correct and compact mode of circumscribing them
with a general definition.
" Scientific definitions, whether they are definitions of scientific
terms or of common terms used in a scientific sense, are almost
always of the kind last spoken of; their main purpose is to serve
as the landmark of scientific classification. And since the classifi-
cations of any science are continually modified as scientific
knowledge advances, the definitions of the sciences are constantly
varying. . . What is true of the definition of any term of
science, is of course true of the definition of the science itself; and
accordingly the definition of a science must necessarily be progressive
and provisional"
Is it possible to have anything more exactly appropriate to the
present case. Those who still adhere to the definition of economics
as the production, distribution, and consumption of wealthy
THE MODERN SCIENCE OF ECONOMICS. 109
entirely forget that that definition was expressly restricted by its
originators to the commerce of the material products of the earth
and to those only. They expressly excluded labour and rights
from the term wealth. They, therefore, only considered one class
of economic quantities and only one kind of exchange.
But all modern economists now admit labour and rights to
be wealth, in accordance with the unanimous doctrine of ancient
writers, and the complete science treats of three orders of
exchangable quantities and six species of exchange.
The fact is that economics has burst the bonds of the
physiocrate nomenclature a definition which suits the exchange
of material products only becomes unintelligble when it is
stretched to include labour and rights. The attempt of economists
to discuss these subjects while retaining the old definition was
hopeless, and only led to confusion. It was like putting new
wine into old bottles. The fundamental concepts of the
physiocrates will no more fit economics in its present enlarged
state than the clothes of an infant will fit a full-grown man. As
economics now embraces all commerce, we must, in strict accordance
with the above extract from Mill, entirely reject the narrow and
restricted definition and adopt the enlarged one of commerce,
which includes all exchanges. And when we do that it is like
the transformation scene in a pantomime. Harmony, order, and
science are evolved out of incomprehensible chaos as from the
stroke of the enchanter's wand.
ON THE BEST NAME FOR THE SCIENCE.
Having then, I trust, satisfied you that there is a positive
definite science of commerce or exchanges, we have next to
determine what is the best name for it. The term "Political
Economy " has undergone many changes of meaning since it was
first invented. But at last, it having been appropriated in popular
110 MR. HENRY D. MACLEOD ON
use to the production, distribution, and consumption of wealth, and
this expression having been shown to be equivalent to commerce
or exchanges, a large body of economists have denned political
economy as the science of exchanges. But there is a general dis-
satisfaction among economists with such a name, because it naturally
suggests the idea that it has something to do with politics; whereas all
economists are agreed that it is entirely independent of politics and
forms of political government. Various other designations have been
proposed. Whately proposed Catallactics. That, no doubt, exactly
expresses its meaning. Others have proposed Plutology or Chre-
matology. Such names as these, however, would not be readily
accepted, and it is not expedient to deviate too far from popular use.
Economic science is so firmly rooted in the public mind that no ad-
vantage could be got by changing it. Moreover, it exactly expi esses
the nature of the science. Because CKKOS in Greek is absolutely
synonymous with TrAovros and ^pyjfjia. It is sometimes supposed
that OIKOS in Greek means a house, and that an economist is the
master of a house. But OIKOS has a much more extensive meaning
than that of a house only. Throughout the whole range of Greek
literature, from Homer to Ammonius, OIKOS means property or
estate of every description. It includes not only houses, lands,
money, and all material things, but also all such property as debts,
bank notes, bills of exchange, the funds, shares in commercial
companies, copyrights, patents, &c. It is the technical term in
Attic law for a person's whole property or estate of every descrip-
tion. The word " economy" is more usually appropriated to ideas of
thrift or parsimony. I therefore proposed to term it Economics,
which has a little peculiarity to distinguish it, and yet does not
differ in any way from popular usage. And I am happy to say
that this suggestion is now meeting with very general acceptance.
Wherever you turn now the term economics meets your eye.
Economics, then, is simply the science of exchanges, or commerce in
its widest extent, and in all its forms and varieties. It is the
theory of value.
THE MODERN SCIENCE OF ECONOMICS. Ill
1 myself have offered this definition Economics is the science
which treats of the laws which govern the relations of exchangeable
quantities.
And M. Michel Chevalier did me the honour to say that he
thought that was the best definition which had yet been proposed.
I venture to hope, then, that this name will meet with your
approbation, and that you will also adopt the name of economics
for the science of commerce.
ECONOMICS is A PHYSICAL SCIENCE.
We now, then, perceive how economics is a physical science.
One of the most distinguished physical philosophers of the day
expressed to me a doubt that economics is a physical science. But
that all depends upon its fundamental conception and definition.
So long as it was termed the "Production, Distribution, and
Consumption of Wealth," there was nothiug in the name or the
nature of the subject to suggest any resemblance to a physical
science ; but as soon as we adopt the alternative and equivalent
definition of the science as the science of commerce or exchanges,
it is at once seen how it is a physical science, because there being
three orders of exchangeable quantities, and therefore six species
of exchanges, the object of the science is to discover the
laws of the phenomena of these exchanges that is, to
determine the laws which govern their numerical relations
of exchange. We have, in fact, a new order of variable quantities,
and the laws which govern this new order of variable quantities
must be in strict harmony with the laws which govern the relations
of variable quantities in general. The laws which govern the
variable relations of economic quantities must be in strict harmony
with the laws which govern the varying relations of the stars in
their courses. Like astronomy, economics is a pure science of
ratios.
It is thus seen that economics is a distinct body of phenomena
all based upon a single idea. Another great body of particulars is
112 MR. H. D. MACLEOD ON THE MODERN SCIENCE OF ECONOMICS.
won from the vague, floating, and uncertain mass of knowledge
won from the void and formless infinite and fixed and circum-
scribed by a definition which separates it from all other bodies of
phenomena, and is therefore fitted to form a great demonstrative
science of the same rank as mechanics, astronomy, optics, or any
other physical science.
Thus it is clearly seen to be a physical science; but it is also a
moral science, because its laws are based upon the mores the
-tjBrj of men. For we find that the same general laws of exchange
or the principles of commerce hold good among all nations, among
the rudest and the most civilised in all ages and countries. The laws
of commerce are identically the same to-day as they were when com-
merce first sprang into being, and they will remain so to the end of
time. The laws of commerce, said Edmund Burke, are the laws
of Nature, and therefore the laws of God. That is why economics
is a physical science, because it is based upon principles of
human nature, which are as universal and as permanent as those
upon which the physical substances are based. And therefore
economics is a physical moral science, and the only moral science
which is capable of being raised to the rank of an exact science.
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