,1 i sl|l ^^^^^^H| LIBRARY THE HISTORY OF ECONOMICS WORKS ON ECONOMICS BY THE AUTHOR ELEMENTS OF POLITICAL ECONOMY. 1858. A DICTIONARY OF POLITICAL ECONOMY. Vol. I. 1862. THE PRINCIPLES OF ECONOMICAL PHILOSOPHY. Being the Second Edition of the "ELEMENTS." 2 vols. 1872-75. LECTURES ON CREDIT AND BANKING. Delivered at the request of the Council of the Institute of Bankers in Scotland. 1882. The above works are out of print. THE THEORY AND PRACTICE OF BANKING. Two vols. Fifth Edition. 1892-93. Vol. I., price 12s.; Vol. II., price 14^. THE ELEMENTS OF ECONOMICS. Being the Third Edition of the " ELEMENTS OF POLITICAL ECONOMY.'' Two vols. Price js. 6d. each volume. 1 88 1-86. THE ELEMENTS OF BANKING. One vol. Twelfth Edition. Price y. f>d. 1895. ECONOMICS FOR BEGINNERS. One vol. Fifth Edition. Price 2s. 6d. 1895. THE THEORY OF CREDIT. Two vols. Vol. I., second edition, price io.y. net. Vol. II., Part I., second edition, price los. net. Vol. II., Part II., price los. 6d. 1894. BIMETALISM. One vol. Price 5*. net. 1894. THE HISTORY OF ECONOMICS HENRY DUNNING MACLEOD, M.A. OF TRINITY COLLEGE, CAMBRIDGE, AND THE INNER TEMPLE BARRISTER-AT-LAW Selected by the Royal Commissioners for the Digest of the Lain to Prepare the Digest of the Law of Bills, Notes, &*c. Honorary Member of the Juridical Society of Palermo, and nf the Sicilian Society of Political Economy Corresponding Member of the Socifti D' Economic Politiijiie of Paris, and of the Royal Academy of Jurisprudence and Legislation of Madrid LONDON BLISS, SANDS AND CO. 1896 PLYMOUTH WILLIAM BRENDON AND SON PRINTERS CONTENTS PAGE PRELIMINARY REMARKS . . ix I. ON THE NATURE AND HISTORY OF ECONOMICS CHAPTER I. ON THE METHOD OF INVESTIGATION PROPER TO ECONOMICS. I. Socrates discouraged the study of Physical Science . 3 2, Bacon proclaims the doctrine of the Continuity of Science . . 3 3. He says that Natural Philosophy is the Mother of all Science . . 5 4. The Inductive Method applicable to Moral Science . 6 5' Physical Inductive Science must precede Moral Inductive Science . 6 6. Function of Logic . . . ... 7 7. Newton and Butler say the same . . ... 8 8. The Economists declared that there is a Natural Moral Science . . 9 9. Generally admitted that Physical Science is the true basis of all Science 10 10. Self-contradiction of John Stuart Mill as to the method of Investigation proper to Economics . . . 10 II. He says that the Inductive is the true method to investigate Economics 12 12. Unanimous opinion that Economics is an Inductive Science . .12 13. Self-contradiction of Mill. He says that the a priori method is the only proper one to investigate Economics . . . . 13 14. Mill's assertion erroneous . . t . . 14 15. Mill's reason for asserting that Economics is an i\ priori Science . . 16 1 6. Mill's arguments untenable . . . 17 17. Argument from Feigned Cases . . . 18 1 8. Experimental and Experiential Philosophy . . 1 8 19. The Principles of Inductive Logic applicable to Experiential Philosophy 19 20. Economics admitted to be a Physical Science . . . . 19 vi Contents CHAPTER II. ON THE NATURE OF A PHYSICAL SCIENCE ; AND ON THE FORMATION OF GENERAL CONCEPTS AND AXIOMS. PAGE ^ I. On the Nature of a Physical Sicence . . . . 20 $ 2. Definition of a Physical Science . . . 20 3. Mechanics . . . . . vv . . 20 4. Chemistry . . . ... 21 5. Optics and Heat . . . . ... 21 $ 6. Requisites of a Physical Science . . . ..21 \ 7. Meaning of a Physical Moral Science . . . . 21 8. Not capable of same perfection as Physical Science . . 22 9. Which Moral Science approaches most nearly to a Physical Science . 22 \ IO. How Economics may be made a Physical Science . . . 22 $il. An Economic Quantity . . . ... 23 12. Economic Quantities of divers natures . . . 23 $13. Science consists of two parts General Concepts and General Axioms. 24 14. Relation between these and Reality . . ... 24 $15. Alleged distinction between minds in Science . . . . 24 16. The Formation of Concepts and Axioms subject to General Laws . 25 17. On the Formation of General Concepts . . . . 25 1 8. On the Formation of General Axioms . . 29 19. On the Law of Continuity . . . , . . 32 20. Plan of the Work . . . ... 34 CHAPTER III. HISTORY OF ECONOMICS. Erroneous notions as to the origin of the Science of Economics . -35 The Theory of Money . . . . ... 36 Foundation of Economics as a Science . . . .' . 40 The Economists . . . . . 41 Outline of the Doctrine of the Economists - . . . . 43 Doctrine of the Economists regarding Commerce or Exchanges 45 Meaning of the expression "Production, Distribution, and Consumption of Wealth" . . . . ... 47 Definition of Wealth by ancient writers . . . 5 J Three Species of Wealth or Economic Quantities . . . . 5 2 Contents vii PAGE Demosthenes shows that Personal Credit is Wealth . . 53 The Roman and Greek Jurists show that Abstract Rights and Rights of Action are Wealth . . . ... 54 Sketch of the History of the Theory of Credit . . 57 The Economists on Money . . . ... 58 The Economists on the Balance of Trade . . . . 61 The Economists on Productive Labour, and on Sterile or Unproductive Labour . . . . . ... 62 Dogma of the Economists that Labour and Credit are not to be admitted to be Wealth . . . . ... 63 The Economists founded a New Order of Sciences . . 66 Reaction against the Economists Condillac . . . 68 Adam Smith . . . . 73 Free Trade on a Moral and Economical basis . . 75 Fallacy of Reciprocity and Retaliation . . . . . 82 Adam Smith's Definition of Wealth . . ... 86 Smith classes Human Abilities or Labour as Wealth . . 88 Smith admits that Rights are Wealth . . ... 88 Confusion of Smith on Value . . . ... 92 Smith's chief merits . . . . ... 96 His chief defects . . . . . . 97 Ricardo . . . . . . . 100 Whately . . . . . .... 107 The Economics of Jean Baptiste Say and John Stuart Mill . . . in System of J. B. Say . . . . ...113 John Stuart Mill . . . . . . . . 120 Mill on Value '. . . . . . . 128 Reaction against the Economics of Jean Baptiste Say and John Stuart Mill . 135 Frederic Bastiat , . . . . . . 135 The Author . . . . ; . . '. 139 Arthur Latham Perry . . . . . , . 1 54 Stanley Jevons . . . . . . . 1 56 Economics is a Physical Science . . . . . . . 161 On the best Name for the Science . . . ' . , ' . 164 Economics as a Liberal Science . . 166 Vlll Contents M. THE FUNDAMENTAL CONCEPTS AND AXIOMS. OF ECONOMICS Acceptilation Accommodation Paper Annuity . . " . Assignable Instruments . Bailment and Debt Balance of Trade . Bank . . . Banking Bill of Exchange . Bill of Lading Capital . . . Cash Credit . Channel of Circulation Cheque Chose-in-Action . Circulating Medium, or Currency 261 Clearing House . Coin . ... Compensation Confusio . '.''". Consumption Copyright Cost of Production Credit . . . . Currency Principle Debt . ... Deposit Depreciation and Diminution in Value Discount Distribution . '. Dock Warrant Draft . . . ... V Estate . ... Exchange ; Farm . ... Funds, The PAGE PAGE 171 Goodwill . . . 446 179 Gresham's Law . 448 189 192 Interest 463 Issue . . 470 193 196 Labour . . 471 2OO Lend Loan ... 479 205 222 Market Price of Gold and Silver 483 225 Mint Price of Gold and Silver . 484 Money . ... 4*6 225 246 Negative Quantities in Economics 501 256 Negotiable Instruments . 522 259 Novation 524 260 26l Patent . . '. 53.6 293 Payment and Satisfaction 528 298 Persona . . . 53i 304 Pound ? What is a 533 307 Practice 535 308 Price . . . . 536 319 Production 539 320 Productive and Unproductive 342 Labour 545 368 Profit, Rate of . 556 Promissory Note . 564 370 Property 565 398 Rent . ... 57i 402 Res . . . . 608 405 Rights . 609 407 407 Shares in Commercial Companies 619 408 Tithes . . . . 620 409 Trade Secrets 621 411 Value . ... 621 426 426 Wealth. 670 PRELIMINARY REMARKS IF there be one set of men more than another to whom the undying gratitude of mankind is pre-eminently due, it is that illustrious band of thinkers in France, Italy, Great Britain, and Spain, who during the last century founded the Science now usually called Economics, and brought about that great revolution in opinion which, after a long and arduous struggle, finally established the doctrines of Free Trade in this country. Lord Macaulay observes that the two greatest and most salutary social revolutions which have taken place in England, were those which in the thirteenth century put an end to the tyranny of nation over nation, and which, some generations later, put an end to the property of man in man ; but to these may be added a third not less great, and not less salutary than the other two that great revolution in the ideas of the age, which abolished for ever the property of one set of men in the industry of others. But however deep the gratitude which is due to these immortal thinkers, and however warmly we may acknowledge it, it is given to no men, however illustrious, to arrest the progress of thought, and to impose limits upon science. It is the sacred duty of those in succeeding generations who would aspire to walk in their steps, to sift and examine their doctrines by the light of further experience, even as they examined the doctrines of their predecessors, and to carry on the science from where they left it. It has thus happened that nearly every science has undergone a complete transformation from the mode in which it was conceived by its founders, and there is besides in every science a certain stage x Preliminary Remarks at which it becomes necessary to introduce more powerful and refined methods of investigation, more comprehensive forms of expression, and more minute and exact observations. Highly as we may esteem the great Economists of this and other countries, it is essential to remember the character of the great Economical contests up to the present time. They have been almost entirely destructive. The first Economists found the public mind and the administration infected with an immense mass of rooted prejudices, errors, and abuses. Their first efforts were, therefore, naturally directed to sweep these away; to beat down and abolish false doctrines of all sorts; to extirpate bad and mischievous laws interfering with the natural order of things ; to abolish legislative interference with wages, with prices, with the interest of money, and with the commercial intercourse of nations ; to establish, in fact, freedom of contract and exchange. And in this Economists of all nations are agreed. The repeal of the Corn and Navigation Laws in England may be regarded as the consummation of the destructive era of Economical Science in this country. We have now arrived at a new and distinct phase of the Science; that, in fact, at which the period of destruction has ended, and that of construction has come. With that great practical work before them, which it required three-quarters of a century to accomplish in this country, it is not very surprising that Economists have not hitherto given any very close attention to settle the exact foundations of the Science. The early treatises are filled with long controversies and discussions, which, though indispensably necessary at that time, may now be dismissed in a few lines. But while Economists of all schools are agreed on what was the destructive portion of their Science, when we come to the positive, or constructive, Science, this agreement is at an end. Nothing can be more lamentable or astonishing than the differences of doctrine and the antagonism of Economists on almost every point in the Science, so as to create a widely-spread impression that there is no such intelligible Science at all as Economics. Preliminary Remarks xi It is well known that each of the physical sciences which have attained such magnitude and extent in modern times, and which have produced such admirable results, have been brought to their present state of perfection by extraordinary labour having been bestowed in ascertaining and settling their first elements, namely, their definitions and axioms, or accurate conceptions and expressions of the objects they treat about, and the general laws which regulate their relations to each other. But it has not always been so. These wonderful sciences were once in a very different state. The modern plan of teaching a science only in its existing state, no doubt imparts a vast amount of actual knowledge. But as a mental discipline, or as a matter of education, the History of Science is of enormous value, and, we venture to say, is far too much neglected. Many persons can acquire a considerable amount of actual know- ledge, and yet derive but little benefit from it. But to study the History of Ideas on the subject, to understand clearly the principles of the different controversies which have been waged, to com- prehend why one set of ideas prevailed over another, is an educational exercise of immense utility, which is almost entirely neglected. Few persons are aware of the wrecks of the fierce controversies which lie buried beneath the calm and placid surface of modern Science, like those of mighty armaments beneath the summer sea. Many persons are apt to think that controversies in Economics are mere logomachy, vain and unprofitable disputes about words, and of no real consequence. They are apt to think that the Physical Sciences treat about things, and Economics only about words, but those who think so display a total want of knowledge of the History of Science. The early history of all sciences is full of controversies about the meaning of words. Many may think that Physical Science being about things, there is no difficulty in giving a name to what is seen so readily. This is a lamentable error. On the contrary, it almost invariably happens that names get into a science, and acquire a position in it, before anyone can give an xii Preliminary Remarks exact definition of their meaning. Thus the words Momentum, Vis Viva, Uniform Force, Accelerating Force, and several others acquired a position in Mechanics before anyone could tell what they really meant, and all the philosophical world of the day was engaged in the wordy war to settle their meaning, and obtain true definitions : consequently, it is an entire error to suppose that controversies in Physical Science are not about words. On the contrary, it was in the true definitions of words that the whole foundations of the sciences were laid, and it was just because all the great mathema- ticians of the day so thoroughly understood the supreme importance of ascertaining the true meaning of words, and fought out the meaning of each separate term with such perseverance, that they at length arrived at such an unanimity of agreement, and these contro- versies have now been almost forgotten. There was a time, then, when what are called the exact sciences had not attained that rank. They were once matters of opinion, and not of demonstration, and they only attained the rank of demonstrative truth, because each separate word and each separate principle was thoroughly discussed and settled. And why has Economics not yet attained the same rank as Mechanics as an exact Science ? Because the same care has never yet been given to settle its definitions and axioms. Economics is now like Mechanics in its early stages, overrun and infested with words whose meaning has never yet been settled on certain prin- ciples, and which are never almost used by any two writers in the same sense nay, even none of the most popular writers are con- sistent with themselves. The men who have cultivated Economics are probably of as great natural ability as those who have cultivated Physical Science, of course with the exception of a few unapproach- able examples. Why, then, have they not come to the same unanimity of opinion as their brethren ? The simple reason is that they have not adopted the only means which could by any possi- bility ensure success, namely, a thorough discussion and settlement of the meaning of words. Nay, they have systematically despised it. Now what the words Momentum, Vis Viva, &c., were to Preliminary Remarks xiii Mechanics in its early stages, that Wealth, Value, Currency, Credit, Capital, &c., are at the present day to Economics. And it is for this very reason that many suppose that Economics cannot be made an exact Science, because the only means by which it can be made so have been systematically neglected. Many suppose that there is no need for such a thing : matters will go on just the same, they think, for all the disputes. But the same may be said of Physical Science. A man may be an excellent seaman, and yet be entirely ignorant of the mechanical principles which govern the progress of his ship. But is there no use in the Science of Mechanics ? So, doubtless, a man may be an excellent practical banker, and a very successful merchant, without any knowledge of Economics : and yet is there no use in the Science of Economics? Now Economics is based upon certain fundamental concepts or definitions, and axioms or general laws, just as Mechanics is, and by settling these with as great care, as is done in Physical Science, it may be raised to the rank of an exact Science. And yet there are writers of no mean acquirements, too who entirely discourage such a course of proceeding ; who consider such attempts as pedantic, and mere waste of time ; who would admit that in every other branch of human knowledge clear and precise technical terms are absolutely indispensable; and yet, in Economics alone, think that there is no need of anything of the sort. Besides the nature and extent of the Science itself, and the method of investigation proper to it, the fundamental concepts are Wealth, Value, Credit, Capital, Production, Consumption, Currency, Money, Price, and many others. It might naturally have been expected that, as these terms are means by which discussions are carried on, Economists would have been agreed upon all of them. On the contrary, there is no agreement among Economists upon any one of them. They are entirely at variance with each other, not only as to the nature and extent of the Science, but even as to the method of investigation proper to it. No Economist has, hitherto, xiv Preliminary Remarks attempted to fix the fundamental concepts of Economics on sure and certain scientific principles, as those of Mechanics have been done. Excellent as are many of their refutations of previous errors, they have never yet made any attempt to give an exposition of the facts of the Science to form the foundation of a theory. Now, as the phenomena of Economics are all produced by the actions of men, if the same care were taken to ascertain these facts and to express their relations in the same accurate and generalised language as is done with regard to those of Physical Science, Economics might be made a science as certain as any Physical Science. The first thing, then, that is wanted, is to introduce into the Science the spirit of true Generalisation the generalisation of its fundamental concepts, and the generalisation of its axioms or its general principles, by the acknowledged canons of Inductive Logic. When Galileo began to study Natural Philosophy, he put aside Mathematics, not thinking that there could be any connection between the two a sentiment which appears, too, in Bacon. Many persons at the present day think that there is no connection between Economics and Natural Philosophy. They are in just as great an error as Galileo and Bacon were. Economics is a science of causes and effects numerically measured, produced by the properties of men, and its types and standards of reasoning are to be found in the sciences which treat of the causes and effects produced by the properties of material substances. In both equally the Inductive Logic reigns supreme. The same general method of investigation is common to both, and there is the same hope and encouragement to expect success that the Athenian orator gave to his countrymen because their failure arose, not from the nature of the thing, but from their own errors. So it is with Economics. The lamentable state in which it is at present does not arise from the nature of the Science itself, but from its method of treatment. By paying the same attention as Physicists have done to obtain true concepts and axioms from reality itself by proper methods, and Preliminary Remarks xv not by arbitrary dogmatism ; by proceeding step by step, definition by definition, axiom by axiom, principle by principle, in due and proper order ; by maintaining a proper unity of conception and principle from the beginning to the end, it will be found that a vast and magnificent edifice of Demonstrative science may be built up. Economics will emerge from the turbid regions of con- troversy as clear and precise, as sharply defined, and as capable of being erected into an exact science, as any other whatever; it will attain a grandeur, a precision, and a compass never yet thought of. A new Inductive Science, the connecting link between Physical and Moral Science, will be created, and a new monument raised to the everlasting glory of the Monarch of Philosophy. BOOK I. ON THE NATURE AND HISTORY OF ECONOMICS CHAPTER I. ON THE METHOD OF INVESTIGATION PROPER TO ECONOMICS. SOCRATES BACON J. B. SAY J. S. MILL. Bacon proclaims the Doctrine of the Continuity of Science. 1. WHEN the greatest Moral Philosopher of antiquity attempted to master the Physical Science of his day, he found that it was a mere chaos of confusion, a mass of baseless dogmatising and vain speculation. He called off his disciples in blank despair from such unprofitable labour, and bade them devote themselves to the study of Moral Science, which was within their comprehension, and to learn just so much of Natural Science as to know when to sow, and to reap, and to sail. Nay, he considered those who engaged in such objects of contemplation as wanting in good sense. He used to inquire whether such persons thought they already knew enough of human affairs before they proceeded to such subjects of medita- tion. He thought that men could never come to a satisfactory conclusion on such points, because those who most prided themselves on their knowledge were altogether at variance with each other. He asked whether those even who studied celestial phenomena, and discovered the laws which governed all things, fancied they would be able to produce, at their pleasure, wind, rain, changes of the seasons, as men who have learnt mechanical arts can produce what they want. As for himself, he would abandon all such vain speculations, which could never have any practical utility, and turn his attention entirely to moral and civil philosophy, and all things which concerned mankind. Thus Physical and Moral Science were utterly divorced in ancient times, and for twenty centuries it was supposed that there was no connection between them. 2. But our Bacon, greatly wiser and for this he has never received the thousandth part of the credit that is due to him had the marvellous sagacity to perceive that in Natural Science are to be 4 On the Nature and History of Economics [BK. I. found the types and standards of reasoning which are to guide us in Moral and Political Science. He inculcates the study of Physical Science, it is true, for its own sake, but not for its own sake only, but as the foundation of Moral Science. It is his transcendant merit to have perceived and proclaimed with the voice of a trumpet the grand doctrine of the continuity of the Sciences. And we must be the more earnest in defending the just title of Bacon to this glorious discovery, because the admirers of Auguste Comte have claimed for him the originality of the idea. But we shall shew abundantly that Bacon was the true discoverer of the doctrine. With Physical Science not in a very much better state than it was in the days of Socrates, Bacon not only did not discountenance it, but he had the miraculous sagacity to perceive that the way to true and certain reasoning in Moral Science lay through Physical Science. He complains bitterly of the mutual damage to the Sciences by their separation, and the neglect of Natural Philosophy as the great nursing mother of them all. "And it is a matter of common discourse of the chain of sciences, how they are linked together, in- somuch as the Greeks, who had terms at will, have fitted it of a name of circle-learning. Nevertheless, I that hold it for a great impediment to the advancement and further invention of knowledge that particular arts and sciences have been disincorporated from general knowledge, do not understand one and the same thing, which Cicero's discourse and the note and conceit of the Grecians in their word circle-learning do intend. For I mean not that use which one science hath of another for ornament or help in practice, as the orator hath of knowledge of affections for moving, or as military science may have use of geometry for fortifications ; but I mean it directly, of that use by way of supply of light and information, which the particulars and instances of one science do yield and present for the framing or correcting of the axioms of. another science in their very truth and notions. And therefore that example of oculists and title lawyers doth come nearer to my conceit than the other two : for sciences distinguished have a dependence or universal knowledge to be augmented and rectified by the superior light thereof, as well as the parts and members of a science have upon the maxims of the same science, and the mutual light and consent which one part receiveth from another And these are no allusions, but direct communities, the same delights of the mind being to be found not only in music, rhetoric, but in Moral Philosophy, policy, and other knowledges, and that obscure in the one which is more apparent in the other ; yea, and that discovered in the one which is CH. I.] On the Method of Investigation 5 not found at all in the other ; and so one science greatly aiding to the invention and augmentation of the other. And therefore with- out this intercourse the axioms of the sciences will fall out to be neither full nor true." l 3. Again, after shewing that one cause of the backward state of the sciences was the short period during which they had been studied, he says " In the second place there presents itself that cause of great weight in every way, namely, that during those very ages in which the genius and learning of men have chiefly flourished, Natural Philosophy obtained the least part of human labour. And nevertheless this very thing ought to be held to be the great Mother of Sciences. For all arts and sciences if torn from this root, though perhaps they may be polished, and made fit for use, yet they will make no further progress And the age during which Natural Philosophy was seen to flourish in Greece, was but a very brief in- terval of time, for both in the more ancient times, the seven who were called the wise men, all except Thales, applied themselves to Moral Philosophy and civil affairs, and in later times when Socrates drew down philosophy from heaven to earth, Moral Philosophy prevailed more and more, and turned the minds of men from the Philosophy of Nature." 2 So again "To this it is to be added that Natural Philosophy, even among those very men, who have nurtured it, has scarcely ever obtained the whole leisure and employment of any one, especially in these later times ; except perhaps some instances of a monk in his cell, or a gentleman speculating in his country house. But the Philosophy of Nature has been made as it were a passage and a bridge to something else. And so this great Mother of the Sciences has been with wonderful indignity thrust down to the office of a handmaid Meanwhile let no one expect much progress in the sciences (especially in the practical part of them) unless Natural Philosophy be applied to each individual science, and each particular science be referred again to Natural Philosophy. Hence it is that astronomy, optics, music, most of the mechanical arts, medicine itself, and what one might more wonder at MORAL AND POLITICAL PHILOSOPHY, logical sciences have scarcely any depth, but only glide over the surface of a multitude of things, because, after these separate sciences have been once distributed and erected, they are no longer nourished by Natural Philosophy. Therefore it is not the least strange if sciences make no progress when they are torn from their roots." 3 1 Valerius Terminus, c. 8. " Nov. Org. bk. i. aph. 79. 3 Nov. Org. bk. i. aph. 80. 6 On the Nature and History of Economics [BK. L 4. So also " And here it may be repeated what was said above, about the application of Natural Philosophy, and that each separate science must be referred to that again, that the sciences may not be severed and cut off from the trunk. For without this little progress is to be hoped for." 1 And again "Some, too, may doubt rather than object, whether we speak of Natural Philosophy only, or that the other sciences, logic, ethics, politics, are also to be brought to perfection by the same method. But most assuredly we mean what we said to apply to them all ; and as the common logic which acts by syllogism affects not only the natural, but all sciences, so also ours which proceeds by induction, embraces them all. For we form a history, and tables of discovery of anger, fear, shame, and the like, also of examples in Politics, so also of affections of the mind, &c." 2 So again " Let us now come to that knowledge to which the oracle of old leads us namely, the knowledge of ourselves, upon which, as it touches us the more nearly, the more diligence is to be bestowed. This knowledge is for men, the aim and the object of all knowledges, but it is only a portion of Nature. And let this be laid down as a general rule, that all divisions of sciences be so understood and applied that they may rather mark and distinguish them, than separate and divide them, so that we may always avoid a break of continuity in the sciences. For the contrary mode has made each separate science barren, empty, and erroneous, since they were not nourished, supported, and corrected by the common fountain and aliment." 3 "We have laid down that this is the function of Natural Philosophy, to be the common mother of the sciences." 4 5. It was, then, the matchless and undivided merit of Bacon to discover that the same great fundamental principles of reasoning govern all departments of human knowledge, and that general principles of Logic govern particular sciences with a higher authority than belong to these particular sciences. It has long been observed that the genius of the Platonic Philosophy is essentially Inductive. Only Plato applied the Inductive method to the ideas of the Moral world ; Bacon in the first instance to those of the Physical world. But the genius of the Philosophy of each is identical. The sublime discovery of Bacon was that Physical Inductive Science must precede Moral Inductive Science : that Natural Science is the nursing mother of all science, and that in it are to be found the types and standards of reasoning to which all other reasoning is to be referred ; that it is the TraiSaywyos to lead us to the study of Moral 1 Nov. Org. bk. i. aph. 107. 2 Nov. Org. bk. i. aph. 127. J De Azigmentis, lib. i. c. i. 4 De Augm. lib. iii. c. 4. CH. I.] On the Method of Investigation 7 Science. He proclaimed the union between Ideas and Reality, to which nothing earthly was comparable, which was the sole hope of attaining true science, and in consequence of the divorce between them, the whole fabric of human knowledge as then existing was like some magnificent structure without any foundations. 6. It has indeed been the fashion of some writers, lately, systematically to depreciate the merits of Bacon, and some almost seem to go the length of denying him any merit at all, because it cannot be shown that the Novum Organum had any direct influence on the progress of physical discovery. He made no discovery himself, and the progress of physical science would have been just as great if he had never written. Even if these assertions were true, it would not in the least diminish the lustre of that work. No one can fairly appreciate the merit of that work who is not well acquainted with the absurdity of the grounds upon which the established opinions of his day rested. Bacon saw through this, and discovered the weakness of the grounds of the current belief with a clearness and penetration truly surprising. One reason, perhaps, why he may not have received his due share of credit is, that he overrated the power of his Logic; and supposed that by its means discoveries could be made, so that almost all minds could be brought nearly to the same level, and make discoveries as equally as they could draw circles by compasses. That he entirely failed in this is true, and it is probable that his failure in that instance has had some effect in making his real merits less thought of than they deserve. But he failed in this instance by not observing his own rules. For he has laid down that the conceptions of a science are to be framed with exactly the same care as the axioms, or general principles. And he fell into exactly the same error himself as he charged upon the Aristotelians, namely, considering Logic as an instrument of discovery. Whereas the fundamental conception of Logic is not the science of discovering truth, but the science of judging whether or not certain alleged discoveries are true. Logic is the science of Judgment, and not an art of discovery, nor even an art of reasoning. The faculty of proposing notions, or ideas, or laws, or reasons, belongs to the Imagination or the Invention; but all these ideas, conceptions, or laws, must be submitted to the tribunal of the Reason, or Logic, before they can be finally admitted to be true. And it is the province of Logic to discover and apply the tests which any conception, or axiom, must satisfy before it can be admitted to be true. Cicero has described once, and for ever, the true function of Logic. "In hac arte, si modo est hac ars, 8 On the Nature and History of Economics [BK. I. nullum est preceptum quo mo do verum inveniatur, sed tantum est quo modo JUDiCETUR." 1 When, therefore, we separate what falls within the limits of this conception from what transgresses it; when we consider that in his day there was not a single science from which he could draw his observations, there is no candid mind but must be astonished at his penetration and sagacity in anticipating and constructing the Science of Sciences. For the Novum Orgamim is not the science or the art of discovery, but it is the Theory of Theorizing, or the Theory of Generalization : it is the science and the art of judging and deciding whether the conceptions and the axioms of the various sciences are true. Bacon did something far higher than creating any single science; he CREATED THE SCIENCE OF CREATING SCIENCES. No one can dispute the merit of Aristotle in discovering the syllogistic mode of reasoning, nor can blame him because his injudicious followers pushed it far beyond what he ever intended. But Aristotle founded his system inductively : he framed it by observing what examples of reasoning were acknowledged to be valid by common consent. Bacon founded his system a priori, with no single instance of an Inductive Science in existence. He made no claim to have created a science, but only to have proclaimed the only true method by which a science could be created. And though no doubt additions have been made to Inductive Logic in modern times, yet the amount of success he achieved is truly marvellous. By a curious whim of fortune, the chief of the school of a priori reasoners founded his system inductively : the chief of the school of Inductive Logic founded his system a priori. 7. And this great discovery, first seen and proclaimed by Bacon, has been repeatedly enforced by the most eminent men since. Thus, Newton says that an extension of our knowledge of the laws of Natural Philosophy would certainly extend our knowledge of the laws of Moral Philosophy. So Bishop Butler says "There is much more exact correspondence between the natural and the moral world than we are apt to take notice of." And the most celebrated metaphysical writers of the last century held the same doctrine. 8. The earliest school of Economists in modern times acknow- ledged the same principles. Seeing, as is explained in a subsequent section, the intolerable misery under which their country groaned, a few righteous and generous philosophers struck out the idea that there must be some natural science, some principles of eternal truth, with regard to the social relations of mankind, the violation of which was the cause of that hideous misery which afflicted their native 1 De Oratore, ii. 38. CH. I.] On the Method of Investigation 9 land. Although they did not in all respects succeed, and were somewhat hasty in laying down general principles, so that in fact they gave their philosophy too much the air of ci priori dogmatism, they nevertheless acknowledged the doctrine that there is a Natural Moral Science, whence they were called PHYSIOCRATES. But this doctrine was proclaimed with much more earnestness and effect by J. B. Say, the French Economist, who however had read Bacon with such extraordinary carelessness as to say " The Chancellor Bacon, who was the first to teach that to understand the processes of Nature we must consult, not the writings of Aristotle, but Nature herself, by judicious observations and well-contrived experiments, was entirely ignorant that the same method was applicable to moral and political sciences, and that it would obtain the same success in them ! ! " l Passing over, however, this extraordinary statement, he says : " In Political Economy, as in Physics, and in everything else, men have made systems before establishing truths; that is, they have published as truth unfounded conceptions and pure assertions. Afterwards they applied to this science the methods which have contributed so much, since the time of Bacon, to the progress of all the others, that is, the method of experiment, which essentially consists in not admitting as true anything of which observation and experience have not proved the reality, and as general truths only such conclusions as naturally flow from them. This entirely excludes those prejudices and those authorities which in science, as in morals, in literature, and in government, intrude themselves between man and the truth." 2 Again "The manner how things are and how they happen constitute what is called the nature of things, and exact observation of the nature of things is the only foundation of all truth. Thence spring, too, different kinds of sciences : sciences which may be called descriptive, which consist in naming and classifying objects, like Botany and Natural History. Then the Experimental Sciences, which teach us the reciprocal actions which things exercise upon each other, or, in other words, the connection between effects and their causes, such as Physics and Chemistry. These last require that we should study the very nature of things, because it is by virtue of their nature that they act and produce their effects : it is because it is the nature of the sun to be luminous, and of the moon to be opaque, that when the moon passes before the sun the latter is eclipsed. A careful analysis sometimes is enough to inform us of the nature of a thing : sometimes it is only 1 Cours d' tconomie politique, vol. ii. p. 55- 2 Trait f d' fconomie politique. Discours Prtliniinaire^ p. 3. io On the Nature and History of Economics [BK. I. clearly made known to us by its effects ; and when we cannot devise experiments on purpose, observation is in every case necessary to confirm what analysis can teach us. "These principles which have guided me will assist me to distinguish two sciences which have been almost always confounded Political Economy, which is an experimental science, and Statistics,, which is only a descriptive science. "Political Economy, as it is studied at present, is entirely founded on facts : because the nature of things is a fact, as well as the result which flows from it. ... Political Economy is established on impregnable foundations as soon as its fundamental principles are rigorous deductions from general undoubted facts." 9. We have now, we think, offered ample evidence to shew that the great doctrine discovered and proclaimed by Bacon, that Physical Science is the true basis of all science, was admitted and acknowledged to be true by a long line of illustrious men, and among others by the cultivators of the new science which was rising into existence Political Economy. How far they succeeded in realizing this conception is quite another matter. The great point was that the principle was admitted, and carried within itself the method of judging and correcting any special errors that might be made in any particular science. Self-contradiction of John Stuart Mill as to the Method of Investigation proper to Economics. I. Mill says that the Inductiue is the only proper Method to investigate Economics. 10. The doctrine, then, that the same spirit of philosophizing is common to physical and moral science, had now become one of the recognised dogmas of Philosophy. We need not quote others, but we may observe that Mill follows exactly the same strain as the preceding writers. He says "The backward state of the Moral Sciences can only be remedied by applying to them the methods of Physical Science duly extended and generalized." 1 And again " In scientific investigation, as in all other works of human skill, the way of attaining the end is seen, as it were instinctively, by superior minds, in some comparatively simple case, and is then, by judicious generalization, adapted to the variety of complex cases. We learn to do a thing in difficult circumstances by attending to the manner in which we have spontaneously done the same thing in easy ones. 1 Logic, book vi. Table of Contents. CH. I.] On the Method of Investigation n "This truth is exemplified by the history of the various branches of knowledge which have successively, in the ascending order of their complication, assumed the character of sciences, and will doubtless receive fresh confirmation from those of which the scien- tific constitution is yet to come, and which are still abandoned to the uncertainties of vague and popular discussion. Although several other sciences have emerged from this state, at a comparatively recent date, none now remain in it, except those which relate to man himself, the most complex and most difficult subject of study, on which the human mind can be engaged. " Concerning the Physical nature of man as an organized being though there is still much uncertainty and much controversy, which can only terminate by the general acknowledgment and employment of stricter rules of Induction than are commonly recognized, there is, however, a considerable body of truths, which all who have attended to the subject consider to be fully established : nor is there now any radical imperfection in the method observed in this department of science, by its most distinguished modern teachers. But the laws of Mind, and even in a greater degree those of Society, are so far from having attained a similar state of even partial recognition, that it is still a controversy whether they are capable of becoming subjects of science in the strict sense of the term ; and among those who are agreed upon this point, there reigns the most irreconcileable diversity on almost every other. Here, therefore, if anywhere, the principles laid down in the preceding Books may be expected to be useful. " If on matters so much the most important with which the human intellect can occupy itself, a more general agreement is ever to exist among thinkers ; if what has been pronounced the ' proper study of mankind,' is not destined to remain the only subject which philosophy cannot succeed in rescuing from empiricism the same processes, through which the laws of many simple phenomena have by general acknowledgment been placed beyond dispute, must be consciously and deliberately applied to these more difficult inquiries. If there are some subjects on which the results obtained have finally received the unanimous assent of all who have attended to the proof, and others on which mankind have not yet been equally successful ; on which the most sagacious minds have occupied themselves from the earliest date, and have never succeeded in establishing any considerable body of truths, so as to be beyond denial or doubt ; it is by generalizing the methods successfully followed in the former inquiries and adapting them 12 On the Nature and History of Economics [BK. I. to the latter, that we may hope to remove this blot in the face of Science." l 11. In another place Mill has given a more particular exemplifi- cation of the analogy between Natural and Moral Science " Although the scientific arrangements of organic matter affords as yet the only complete example of the true principles of rational classification, whether as to the formation of groups or of series, these principles are applicable to all cases in which mankind are called upon to bring the various parts of any extensive subject into mental co-ordination. They are as much to the point when objects are to be classed for purposes of art or business as for those of science. The proper arrangement, for example, of a code of laws, depends on the same scientific conditions as the classifications in Natural History, nor could there be a better preparatory discipline for that important function than the study of the principles of a natural arrangement, not only in the abstract but in their actual application to the class of phenomena for which they were first elaborated, and which are still the best school for learning their use." 2 And again "These aberrations in medical theory have their exact parallel in politics." 3 12. Here, at last, we might hope that we had attained a solid foundation. The preceding extracts contain as explicit and distinct an acknowledgment as it is possible for language to do, that in Mill's opinion the Science of Society of which Political Economy is one branch is to be investigated by methods exactly analogous to those which have already been adopted, and led to such distin- guished success in Physical Science, and that the only hope of raising Social Science to the rank of a Demonstrative Science is by doing so. And when Bacon, Newton, Butler, Locke, J. B. Say, Herschell, and Mill are unanimous that Economic Science, as one of the Moral Sciences, is an Inductive Science, we might hope that the question as to the method of investigation proper to it was finally set at rest. We might naturally expect that Mill, who at one time was a disciple of Comte's, and who on this point so clearly maintained the same doctrine, would at last exemplify the doctrine in practice, and give us a treatise on Political Economy, really framed after the manner of a Physical Science, consciously and deliberately. 1 Logic, bk. iv. c. 8, 5. " Logic, bk. v. c. 6, 5. 3 Logic, bk. vi. c. I. Cn. I.] On the Method of Investigation 13 V II. Mill says the a. priori is the only proper Method to investigate Economics. 13. What, then, is our astonishment to read : "With the con- sideration of the definition of a science is inseparably connected that of the philosophic method of the science ; the nature of the process by which its investigations are to be carried on, its truths to be arrived at. "Now, in whatever science there are systematic differences of opinion which is as much as to say in all the Moral or Mental Sciences, and in Political Economy among the rest; in whatever science there exist, among those who have attended to the subject, what are commonly called differences of principle, as distinguished from differences of matter of fact, or detail the cause will be found to be a difference in their conceptions of the philosophic method of the sciences." x Also : " In the definition we have attempted to frame of the Science of Political Economy, we have characterised it as assentially an abstract science, and its method as the method a priori. Such is undoubtedly its character as it has been understood and taught by all its most distinguished teachers. It reasons, and as we contend it must necessarily reason, from assumptions, not from facts. It is built upon hypotheses, strictly analogous to those which, under the name of definitions, are the foundations of the other abstract sciences." 2 Again : "This ought not to be denied by the Political Economist. If he deny it, then, and then only, he places himself in the wrong. The a priori method which is laid to his charge, as if his employment of it proved his whole science to be worthless, is, as we shall presently shew, the only method by which any truth can possibly be attained in any department of the Social Science!!" 3 Also: "But we go farther than to affirm that the method a priori is a legitimate mode of philosophical investigation in the Moral Sciences we contend that it is the only mode. We affirm that the method a posteriori, or that of specific experience, is altogether inefficacious in these sciences as a means of arriving at any considerable body of valuable truth; though it admits of being usually applied in aid of the method a priori, and even forms an indispensable supplement to it." 4 14. Now, we simply place these extracts before our readers, and ask Is it not astonishing that they should proceed from the same writer, who enjoys a reputation as a logician? 1 Essays upon some unsettled questions of Political Economy, p. 141. - Ibid. p. 143. 3 Ibid. p. 145. * Ibid. p. 146. 14 On the Nature and History of Economics [BK. I. "Can such things be, And overcome us like a summer's cloud, Without our special wonder ? " We shall postpone the consideration of the reasons alleged by Mill for maintaining this extraordinary doctrine, so plainly contra- dictory to what he himself had set forth in the previous extracts, until we have examined his assertion as to a matter of fact. He asserts that all the most distinguished Economists have treated it as an a priori science. We have already shewn that this assertion is utterly contrary to fact. J. B. Say, as we have shewn, expressly declares it to be an experimental science, and says that it is entirely founded on facts, and so far from sanctioning the a priori method of treating Political Economy, he expressly condemns those who do so. He says : " Other considerations not less delicate relate to what precedes. Some writers of the eighteenth century, and of the dog- matic school of Quesnay, as well the English Economists of the school of David Ricardo, without employing algebraical formulae evidently inapplicable to Political Economy, have wished to intro- duce into it a kind of reasoning, which as a general rule all sciences reject, which acknowledge no foundations but experience, I mean reasoning which rests on abstractions When we admit as a basis, instead of a well-observed fact, a principle which is only founded on disputation, we are in danger of imitating the schoolmen of the Middle Ages, who disputed about words instead of discussing facts, and who proved to be quite beside the truth." 1 And he gives instances where he considers, and in one at least justly, Ricardo and McCulloch to have fallen into error by adopting this method, and he dwells on the mischief produced in the Science by adopting this method. Speaking of Quesnay, he says: "Instead of first observing the nature of things namely, the way in which things really happen, classifying observations and educing general principles from them they began by laying down abstract generalities, which they called Axioms, and which they taught were absolutely self-evident. They then tried to bring particular facts into accord with them, and deduced rules from them. This entangled them in the defence of maxims evidently contrary to good sense, and to the experience of ages." 2 While fully acknowledging their excellence as men, and also the real services they performed to the State, he says: "But, on the other hand, the Economists did harm by decrying several useful maxims, by making it be thought by their sectarian spirit, by the dogmatic and abstract language of most of their writings, by their TraitS (f economic politiqne, p. 15. 2 Ibid. p. 24. CHAP. I.] On the Method of Investigation 15 oracular tone, that all those who employed themselves in such researches were only dreamers, whose theories, however good they might seem in books, were inapplicable in practice." 3 He then points out that Adam Smith pursued exactly the opposite method namely, the inductive method of educing principles from facts : " When we read Smith as he deserves to be read, we perceive that there was no Political Economy before him." Again: "Before Smith many true laws had been brought forward. He was the first to shew why they were true. He did more : he has given the true method of pointing out errors : he has applied to Political Economy the new method of treating the Sciences, in not searching out their principles abstractedly, but in going to facts most constantly ob- served, to the general laws of which they are a consequence. As soon as a fact may have a cause, the spirit ofsystem decides that it is the cause. The analytical spirit wishes to know why such a cause produces such an effect, and to satisfy itself that it could not have been produced by any other cause. Smith's work is a collection of demonstrations which have raised many propositions to the rank of undoubted principles, and have plunged a greater number in the gulf where vague ideas and hypotheses, extravagant imaginations, struggle a short time, before being swallowed up for ever." Thus we see that Mill's assertion that all the most distinguished Economists have considered Political Economy as an a priori science, and have treated it so, is entirely disproved. Whether we agree on all points with Say is another matter, but every one must admit him to be a distinguished Economist, and we see plainly that he not only declares, in the most emphatic language, that it is an experimental and an inductive science, but he condemns by anticipation the very doctrines Mill has put forth in the extracts given above, and points out the mischievous effect they had already produced. We entirely concur in and adopt these views of Say. So far from all the most distinguished Economists having adopted the a priori method, it is only Ricardo and his followers who have done so in this country, and, as we shall shew in the subsequent part of this work, with the most pernicious consequences. 15. Having thus shewn that Mill is completely in error in his allegations of fact, and contradictory to himself on the method of investigation proper to the subject, we shall now examine the reasons he alleges for his last-mentioned doctrine. He says " There is a property common to almost all the moral sciences, and by which they are distinguished from many of the physical ; that is, 3 Ibid, p 25. 1 6 On the Nature and History of Economics [BK. I. that it is seldom in our power to make experiments in them. In chemistry and natural philosophy, we can not only observe what happens under all the combinations of circumstances which nature brings together, but we may also try an indefinite number of new combinations. This we can seldom do in ethical and scarcely ever in political science. We cannot try forms of government, and systems of national policy, on a diminutive scale, in our laboratories ; shaping our experiments as we think that they may most conduce to the advancement of knowledge. We therefore study Nature under circumstances of great disadvantage in these sciences, being confined to the limited number of experiments which take place (if we may so speak) of their own accord, without any preparation or manage- ment of ours, in circumstances, moreover, of great complexity, and never perfectly known to us, and with the far greater part of the processes concealed from our observation. " The consequence of this invariable defect in the materials of this induction, is that we can rarely obtain what Bacon has quaintly, but not inaptly, termed an experimentum crucis." l Also " Since, therefore, it is vain to hope that truth can be arrived at, either in Political Economy or in any other department of the Social Science, while we look at the facts in the concrete, clothed in all the complexity with which Nature has surrounded them, and endeavour to elicit a general law by a process of induction from a comparison of details ; there remains no other method than the a priori one, or that of abstract speculation."* 1 6. And that this opinion is no hasty or ill considered one, is evident, because Mill repeats the very same argument in his later work " We have thus already come within sight of a conclusion which the progress of the inquiry will, I think, bring before us with the clearest evidence, namely, that in the sciences which deal with phenomena, in which artificial experiments are impossible (as in the case of Astronomy), or in which they have a very limited range (as in Physiology, Mental Philosophy, and the Social Science) ; induction from direct experience is practised at a disadvantage generally equivalent to impracticability, from which it follows that the methods in these sciences, in order to accomplish anything worthy of attainment, must be, to a great extent, if not principally, deductive. This is already known to be the case with the first of the sciences we have mentioned, astronomy ; that it is not generally recognised as true of the others, is probably one of the reasons why they are 1 Essays upon some unsettled questions in Political Economy, p. 146. 2 Ibid. p. 148. CH. I.] On the Method of Investigation 17 still in their infancy." l And we must protest against Mill's doctrine " The deductive method, which in the present state of knowledge is destined henceforth irrevocably to predominate in the cause of scientific investigation. A revolution is peaceably and progressively effecting itself in Philosophy, the reverse of that to which Bacon has attached his name. That great man changed the method of the sciences from deductive to experimental, and it is now rapidly reverting from experimental to deductive." 2 Of this doctrine we shall have something more to say hereafter. 17. Mill's reason, therefore, for maintaining in exact opposition to what he had done before, that Political Economy is not an Inductive Science, is that it is not possible to perform an unlimited number of experiments in it, as may be done in some physical sciences. The slightest reflection will show that this argument is quite untenable. It is not possible to perform experiments in Mental Philosophy, yet all the most distinguished cultivators of Psychology in modern times, have unanimously declared it to be an Inductive Science. It is not possible to perform experiments in Comparative Philology, and yet, Max Muller strenuously urges that Comparative Philology is a physical Inductive Science. And it certainly would be most monstrous to declare that Comparative Philology is an a priori science. The power of performing experiments at will is by no means an essential feature of an Inductive Science, though, no doubt, it gives enormous advantages in some cases. It is rarely possible to perform experiments in Geology, yet if any one were to maintain that Geology is an abstract a priori science, few people now-a-days would care to listen to such a person. Mill's example of astronomy is scarcely relevant, because modern astronomy is undoubtedly founded on induction, and is only a branch of mechanics, which is certainly an Inductive Science. And there are many other sciences to which the preceding remarks are applicable. It is perfectly true that in Economics it is not generally possible to make experiments, except by those at the head of the State. We may therefore at once admit that a solitary inquirer has not the power of making an unlimited number of arbitrary experiments, and that he can only watch by direct observation those performed by the State, and these will be found to be amply sufficient for the purpose. But in Economics and the Moral Sciences generally we can have what are in all respects equivalent to experiments namely Feigned Cases. It is perfectly well known that when the application of a legal principle is doubtful, it is customary to feign a 1 Logic, bk. iii. c. 7, 3. s Logic, bk. iii. c. 13, 7. 1 8 On the Nature and History of Economics [BK. I. case, for the purpose of clearing up doubtful points, and the same is true of the Moral Sciences generally, and gave rise to the great Science of Casuistry, or Cases of Conscience. We can argue from feigned cases, and educe principles from them, with exactly the same degree of certainty as if they were real cases ; and also with the same degree of certainty as principles are tested by real experiments in experimental science. 1 8. But there is one point which must be particularly attended to, in arguing from feigned cases, drawn from the very analogy of experiments. The feigned cases devised for the purpose of eliciting principles must be possible. An experiment from its very nature is a possible combination of circumstances. Now in Economics or in any Moral Science, no true principle can be elicited from an impossible case. It is not possible to predicate any result at all in such a case. Nor is this palpable truth of small importance. Writers who have adopted the a priori method have often argued from feigned cases, but they have not always observed this rule. We may cite one conspicuous example of the violation of this principle. In some attempts that have been made to show that an increase of the currency can have no effect in increasing the production of wealth, but would only raise the price of existing commodities, it is sometimes argued in this way " Suppose," it is said, " people were to awake some morning, and find all their money doubled in quantity, what would be the effect? Simply that the prices of all commodities would be doubled." But the answer to this mode of arguing is, that it is an impossible case, and no principle can be educed from such a case. It is not possible that such a thing should happen, and all results attempted to be deduced from such an example must be discarded as futile. If we would educe principles of any worth from a supposed case of the doubling of the quantity of the currency, we must strictly suppose it to be doubled in the way it would really happen. 19. There are then two great divisions of Inductive Science Physical and Moral, both absolutely identical in their genius, both to be followed and cultivated by the same method. Now Physical Inductive Science often receives a name from the character of the method by which its general laws, or axioms, are proved, that is by observation and Experiment, and from this it is often called Experimental Philosophy. Now it seems to be of advantage to have a distinctive name for Moral Inductive Science, or that great branch of Inductive Science, whose axioms are tested by observation and feigned cases, or human Experience, and the name of CH. I.] On the Method of Investigation 19 Experiential Philosophy seems not inappropriate. Hence we have Inductive Science divided into two great provinces, Physical and Moral, which may be respectively called Experimental and Experiential Philosophy, and then we have this principle What Experiments are to Experimental Science, possible Feigned Cases are to Experiential Science. 20. As soon as we admit this, it follows that the whole of that great body of Inductive Logic, the foundations of which were so widely and grandly and securely laid by Bacon, and to which many additions and extensions have been made, as new principles of Inductive Logic were evolved in the gradual formation of the various Inductive Sciences, for the purpose of framing conceptions, and testing axioms or general principles, by due experiments, is applicable to frame the conceptions and axioms of Experiential Science by properly devised feigned cases, if experiments cannot be had. Thus we have only to substitute " feigned cases " for "experiments" throughout, and we obtain an Inductive Logic for Experiential Philosophy. 21. Economics, then, being admitted to be a Physical Science, we have next to inquire what is the nature of a Physical Science, and what are the indispensable methods necessary to be observed to build up and erect a great Inductive Science of Economics on solid and durable foundations ? CHAPTER II. ON THE NATURE OF A PHYSICAL SCIENCE ; AND ON THE FORMATION OF GENERAL CONCEPTIONS AND GENERAL AXIOMS. 1. As it is now generally admitted that Economics is a Physical Science, and is to be constructed in a manner analogous to that in which the various Physical Sciences have been constructed, it will be of advantage to make some general remarks on the nature of a Physical Science, and to lay down some general principles of reason- ing which will assist us to decide various controversies in Economics which we shall have to consider. 2. A Physical Science is the body of laws which govern the phenomena relating to some single idea, or quality, of the most general nature appertaining to material substances ; and whatever material quantity possesses that quality is an Element in that science, no matter what other qualities it possesses. Thus, every substance which possesses divers qualities will be an element in as many sciences as it has qualities. And single qualities may exist in quantities of the most divers natures. It thus happens that in every science there are elements of divers forms and natures. Thus the science of Arithmetic, or Algebra, is the science of number or measure ; and, consequently, whatever can be numbered or measured is an Arithmetical or Algebraical, Quantity. Thus quantities of the most divers natures are brought under the dominion of Arithmetic or Algebra, simply from their capability of being measured. Thus time, space, velocity, material substances of all sorts, which have no other property in common but the capability of being measured, are all Arithmetical or Algebraical Quantities. 3. So the Science of Mechanics in its most general form treats of Forces. And these Forces are of the most divers forms and natures, and agree in nothing except that their effects can be measured. CH. II.] On the Nature of a Physical Science 21 The general definition of Force in Mechanics is Anything which causes, or tends to cause, motion. Thus some forces are material and corporeal, such as men, animals, &c. Others are incorporeal, invisible, and intangible, like gravity, electricity, magnetism, &c. Other forces are explosives, like gunpowder, &c. There is also the force of the wind, steam, and others. Now, all these forces of the most divers natures are all Mechanical Quantities, because they all satisfy the mechanical definition of Force. 4. So Chemistry is the science of the combination of molecules, and there are bodies of divers forms, solid, liquid, and aeriform. 5. So in Optics and Heat, we have to consider how all sorts of bodies or substances, solid, liquid, or aeriform, affect Light, or are affected by Heat. 6. Now, as these are all experimental sciences, or sciences of causes and effects, the fundamental condition of any body of phenomena being capable of being erected into a science is that some method must be discovered of measuring the effects. Thus Heat could never have been erected into a science without the invention of the thermometer. The whole certainty of the belief in Physical Science rests upon this, that the Creator has impressed or endowed material substances with certain fixed, uniform, and unchangeable qualities, and that similar causes will always "produce similar effects or phenomena, and when once the laws which govern the phenomena are ascertained by observation and experiment, and truly expressed in accurate language, we are always able to predict the consequences or effects that will follow from definite causes. 7. Now if there be, as is asserted, a Moral Philosophy composed of a number of distinct Moral Sciences, as Physical Philosophy is composed of distinct Physical Sciences, what can it mean ? And how is a Moral Science to be created on the analogy of a Physical Science ? It can only mean this That man, like physical substances, is endowed with divers moral qualities, properties, or passions, such as Hope, Fear, Anger, Shame, Desire, Resentment, &c. Certain causes acting upon these different passions, or qualities, produce effects in men. Now, if these passions or qualities were as uniform and invariable in men as the properties or qualities are in physical substances, and if the same causes produced the same effects uniformly and invariably on each of these qualities in men, and 22 On the Nature and History of Economics [BK. I. if any means could be discovered of measuring these effects if, in short, we could invent a THUMOMETER, as well as a THERMOMETER then each of these qualities or passions might be made the subject of a distinct Moral Science, as certain as a Physical Science, and we should have a body of Moral Philosophy as certain as, and analogous to, Physical Philosophy. 8. Men, however, it is well known, are not endowed with these moral qualities in the same uniform and invariable manner that physical substances are. A person deeply conversant with human nature may, no doubt, prognosticate the effects that will be produced on masses of men by certain causes, and on this knowledge of human nature is founded the power of the Statesman, the Orator, and the Poet. But it is not certain that each separate man will be amenable to these influences. It is a common observation that it is much easier to know human nature in general than any man in particular. It is also well known that these effects produced in men are not capable of any numerical measurement. Though, therefore, it is undoubtedly true that the general principles of reasoning are the same in Moral as in Physical Science, yet, from the want of uniformity in the properties or passions, and the impossibility of devising a means of measuring their effects, they are not capable of being carried to the same state of perfection as the Physical Sciences. 9. Nevertheless, if there be any Moral Science founded on any quality of men which prevails, and has prevailed, among men of all ages, countries, and varieties, with the same uniformity and invariability as the qualities of physical substances do and more especially if its effects can be measured numerically such a Moral Science may be erected into a science closely approximating to the precision and the certainty of a Physical Science : and a Moral Inductive Science may be created by observing the phenomena relating to that quality, and following the same course of generalizing the Laws which govern these phenomena, in all respects analogous to a great Physical Inductive Science. 10. Now, Political Economy, or Economics, is declared to be a Moral Science and an Inductive Science, and it is contended that it is to be constituted and erected into a science in the same manner as a Physical Science. What can this mean ? and how is this to be done? It is perfectly well agreed now by all Economists that Economics is the Science which treats of things so far as they are Wealth. It is the science which treats of the Laws which govern the phenomena of wealth. CH. II.] On the Nature of a Physical Science 23 Now, without inquiring yet what wealth is, and what that quality of things is which constitutes them "Wealth," we may lay down these preliminary considerations which must govern the course of the inquiry, and the method of constructing the science. The quality which constitutes things "Wealth," must be some SINGLE quality of the most general nature ; and the Science of Wealth must be the science of the phenomena resulting from that quality. 11. Following the analogy of Physical Science, we may lay this down, that whatever quality that may be defined to be which constitutes a thing Wealth without at present in the slightest degree anticipating what it may be we may say that in whatever that quality may be found to exist it must be technically WEALTH, whatever its nature be, and whatever other qualities it may possess. Arguing from the strictest analogy of Physical Science, we may say that whatever satisfies the Economic definition of Wealth, is an Economic Quantity, or Wealth whatever other qualities it may possess. And Economics treats exclusively of the phenomena relating to that quality, and takes no notice whatever of any other qualities the quantity may possess, or of the phenomena relating to them. Just as we may consider man purely as a mechanical force, and without reference to any other qualities he may possess, moral or physical. 12. So much for the general conception of the science. We have to search for, and ascertain what that quality is which constitutes things Wealth, and then we have to search for and discover all the different species of quantities which satisfy that definition. Thus, with respect to glass, diamonds, oils, and other things, we know the qualities which bring them under the dominion of Chemistry, Optics, Heat, Electricity, &c., but what is that quality which brings them under Economics, or makes them Economic Quantities ? Now, arguing from the general analogy of Physical Science, and without in the least anticipating any controversies we may hereafter find to prevail on the subject, we may say that we may naturally expect that there will be found to be quantities of several divers and distinct natures which will satisfy the Economical definition of Wealth, and consequently be Economic Quantities. And it is clear that we must take care to search for and ascertain all these different species of quantities, because if we omit any, those conceptions and principles which may be founded on contemplating only certain species will probably be found to be partial and erroneous, and not true as general conceptions and general laws, and they will vitiate 24 On the Nature and History of Economics [BK. I. the results obtained. It is infinitely better to commence at first by ascertaining that we have included all species in our Conceptions and Axioms, than afterwards to have to pull down, widen, enlarge, and re-construct our system from careless omissions in the first instance. Thus we see clearly the nature of a science. Our future object will be to discover to what body of phenomena the name of Political Economy, or Economics, is applicable. On the Formation of Central Concepts and General Axioms, or General Principles. 13. The nature of a science being thus determined, the next point is to construct it, or to discover the laws which govern its phenomena, or in other words to be able to explain the phenomena. Every science consists of two parts ist, General Concepts or Definitions, or a due classification of the quantities it treats about, and 2ndly, the Laws which govern their relations, called by Bacon, Newton, and many others, Axioms or General Principles. 14. By that mysterious correlation which holds between reasoning and reality, it is invariably found that if concepts of things are framed which are true to nature, and results are calculated according to reasoning which is also true to nature, they will be found to correspond to reality. That is, if true Concepts are framed, and truly reasoned about, results may be predicted. But if results are calculated, and it is found that they do not correspond to nature, but are palpably and notoriously erroneous, then we are imme- diately certain that either the concept or the reasoning must be erroneous. 15. Bacon says that there is a great and almost radical distinction between minds in regard to Philosophy and Science ; that some are more apt to perceive the difference of things, and others the resemblances. This distinction, though often insisted upon as fundamental, will perhaps, appear to be less radical if we consider that to do each accurately, depends upon the same general power of the mind, namely, that of separating complex terms into their elementary ideas, and discerning which are the subordinate ones. When the leading qualities in quantities are identical, they must be classed together, even although some of the subordinate ones are opposite. On the other hand, when the leading properties are opposed, there is a fundamental distinction between the quantities, even though some of the subordinate ones are similar. Thus the CH. I.] On the Nature of a Physical Science . 25 same general analytical power of the mind enables us to annihilate spurious identities, and also to detect latent similarities. Now, all true classification, which is as much as to say all true science, is based upon perceiving fundamental analogies beneath superficial differences, and fundamental distinctions beneath superficial re- semblances. 1 6. Now, the formation of Definitions, or Concepts, is not arbi- trary, or dependent on the will of the writer. Their formation as well as that of Axioms, or General Laws, is strictly subject to certain general Philosophic Laws. We may state two canons of fundamental importance : /. The Fundamental Concepts and Axioms of every Science must be perfectly general. II. No General Concept and no General Axiom, must contain any term, involving more than one Fundamental Idea. The truth of this latter canon is manifest, because if any term involve more than one fundamental idea, it limits the Concept or Axiom, which is contrary to the first canon. Consequently, if we wish to bring Economics to the state of an exact science, we must carefully examine all its fundamental Concepts and Axioms, and reduce them to the state of generality and simplicity, required by the above canons. Hence, if we meet with Concepts and Axioms which violate them by containing several ideas, we must apply the general principles of Inductive Logic to discover which is the true general idea, and eliminate all other accidental, particular, or intrusive ideas. On the Formation of General Concepts. 17. Socrates, says Aristotle, was the first to frame general definitions, because he saw that all systematic reasoning must be based upon definitions ; and every philosopher of note, from that day to this, has repeated the same thing. The chief charge alleged by Bacon against the Logic of the schools was, that it was wholly incapable of penetrating the recesses of nature. "The Syllogism consists of propositions, propositions of words, but words are the tokens and signs of Concepts. So that, if the very conceptions of the mind (which are, as it were, the soul of words and the foundation of this superstructure and edifice) are badly and inconsiderately formed from the facts, vague, nor sufficiently definite and limited, faulty in short in every way, it ruins every thing." 1 1 Distributio Operh. . . 26 On the Nature and History of Economics [BK. I. Over and over again he repeats that the formation of Concepts, or Definitions, and Axioms, or General Laws, by true induction is the only way of expelling fallacies. So, in affirming that the Concepts and Axioms of his own day were utterly worthless, he says : " The discoveries already made in the sciences are of such a sort as scarcely to be below the surface of the vulgar notions ; but, in order to penetrate to the deep recesses of nature, both Concepts and Axioms must be derived from facts, by a more certain and guarded method." 1 Again: "The formation of Concepts and Axioms, by a true induction, is assuredly the true remedy to drive away and expel fallacies. And of those fallacies, the fallacies of language (Idola fort), which men gain from one another by common discourse, are the most troublesome of all. For the ill and unfit choice of words wonderfully obstructs the understanding. For words plainly exert a power over the understanding, and throw everything into confusion, and lead men away into numberless empty controversies and phantasies ; for men believe that their understanding controls their language, but it is also true that language re-acts and turns back its power over the understanding, which is the very thing which has rendered philosophy and the sciences sophistical and inactive. But words are commonly framed by the capacity of the vulgar, and divide things according to the lines which are most obvious to the minds of the vulgar. And whenever a clearer intellect and a more careful observation wishes to shift these lines to a truer agreement with nature, words cry out against it. Thus it happens that great and important discussions of learned men often turn into controversies about words and names, with which, according to the wise custom of mathematicians, it would be more prudent to begin, and so bring them into order by Definitions." 2 Again "The formation of ideas or true Concepts and Axioms by true induction is, no doubt, the proper remedy to be applied for the keeping off and clearing away fallacies. To point them out is of great use ; for the doctrine of fallacies is to the interpretation of nature what the doctrine of the refutation of sophisms is to common Logic." 3 Also "The fallacies which words impose upon the understanding are of two sorts. They are either names of things which do exist, but are confused and ill defined, and hastily and irregularly formed from the facts. And this class which is formed by a bad and unskilful abstraction is intricate and deeply rooted." 4 1 Nov. Org. bk. i. aph. 1 8. 2 Nov. Org. bk. i. aph. 89. 3 Nov. Org. bk. i. aph. 40. 4 Nov. Org. bk. i. aph. 60. CH. II.] On the Nature of a Physical Science 27 " And the assistance of this induction is to be used, not only in discovering general laws, but also in the formation of concepts. And assuredly in this induction the chief hope lies." 4 Bacon then places the foundation of all science in the extirpa- tion of Fallacies (Idols) and the obtaining true general Concepts (Ideas) from nature and reality itself by genuine induction, which are not to be fanciful fictions of the mind. He maintains that Concepts are to be obtained in the same manner as Axioms or General Laws. But he has not given any examples of his method, nor indeed was it possible that he should do so. No Logic can shew how it can be done. It is the part of Imagination, or Invention, to devise and suggest fundamental conceptions, and of Logic to determine whether they be true or not. The Baconian method of induction has been far more generally applied to General Laws than to Concepts. From whence some have drawn the con- clusion that his method is practically useless. We hope that we shall be able to shew that this is not so, but that the Baconian, or Inductive, Logic may be applied with decisive effect in determining the controversies which prevail up to the present hour as to every single General Concept in Economics. And most men eminent as clear thinkers since the days of Bacon have dwelt upon the importance of true conceptions. Thus Hobbes says " In the right definition of names lies the first use of speech, which is the acquisition of science. And in wrong or no definitions, lies the first abuse from which proceed all false and senseless tenets." And again "Every man who aspires to true knowledge should examine the definitions of former authors, and either correct them, or make them anew." 1 One of the most valuable parts of Locke's Essay, is that in which he dwells upon and enforces the necessity of accurate general terms, and the importance of refining and polishing common language for philosophical purposes. And he especially notes the mischievous consequences that follow from the inconstant use of them " It is hard to find a discourse written upon any subject, especially of controversy, wherein one shall not observe, if he read with attention the words (and those commonly the most material in the discourse and upon which the argument turns) used sometimes in one collec- tion of simple ideas, and sometimes for another, which is a perfect abuse of language. Words being intended for signs of my ideas to make them known to others, not by any natural signification, but by a voluntary imposition, it is plain cheat and abuse, when I make 1 Nov. Org. bk. i. aph. 105. 2 Leviathan, pt. i. c. 4. 28 On the Nature and History of Economics [BK. I. them stand sometimes for one thing and sometimes for another ; the wilful doing whereof, can be imputed to great folly, or greater dis- honesty." 1 Again "Knowledge and reasoning require precise determinate ideas. The multiplication and obstinacy of disputes, which have so laid waste the intellectual world, is owing to nothing more than to this ill use of words. For though it is generally believed that there is great diversity of opinions, in the volumes and variety of controversies the world is distracted with, yet the most I can find that the contending learned men of different parties do, in their arguings one with another, is, that they speak different languages." 2 Locke then says that by proper attention being paid to language, Moral Science may be reduced to demonstration. " Upon this ground it is, that I am bold to think that Morality is capable of demonstration, as well as mathematics ; since the precise real essence of the things moral words stand for may be perfectly known. . . . And, therefore, the negligence and perverse- ness of mankind cannot be excused, if their discourses in morality be not much more clear than those in Natural Philosophy. . . . Yet this, the least that can be expected, that in all discourses, wherein one man pretends to instruct or convince another, he should use the same word constantly in the same sense ; if this were done, which nobody can refuse without great disingenuity, many of the books extant might be spared : many of the controversies in dispute would be at an end, several of these great volumes, swollen with ambiguous words now used in one sense, and by and bye in another, would shrink into a very narrow compass." 3 How true all this is of Economics, any one who has read the subject can tell ! So also Mill perfectly acknowledges in a general way the im- portance of true conceptions. "How to define a name may not only be an inquiry of considerable difficulty and intricacy, but may involve considerations going deep into the nature of the things which are denoted by the name." 4 Again "Few people have reflected how great a knowledge of things is required to enable a man to affirm that any given argument turns wholly upon words. There is, perhaps, not one of the leading terms of philosophy which is not used in almost innumerable shades of meaning, to express ideas more or less widely different from one another. Between two of these ideas a sagacious and penetrating mind will discern, as it were intuitively, an unobvious link of connection, upon which, though perhaps unable to give a logical account of it, he will found a 1 Essay, bk. iii. c. 10, 5. s Essay, bk. iii. c. 10, \ 22. 3 Essay t bk. iii. c. 2, 16, 17, 26. 4 Logic, bk. i. c. 8, 7 CH. II.] On the Nature of a Physical Science 29 perfectly valid argument, which his critic, not having so keen an insight into the things, will mistake for a fallacy turning on the double meaning of a term. And the greater the genius of him who safely leaps over the chasm, the greater will probably be the crowing and vain glory of the mere logician who, hobbling after him, evinces his own superior wisdom by pausing on its brink, and giving up as desperate his proper business of bridging it over." * And concluding the chapter, he says "And since upon the result of this inquiry respecting the causes of the properties of a class of things, there incidentally depends the question what shall be the meaning of a word, some of the most profound and most valuable investigations which philosophy presents to us have been introduced by, and have offered themselves under the guise of inquiries into the definition of a name." 2 After so distinctly recognizing the importance of true definitions, it might naturally be expected that Mill should bestow extra- ordinary care on the ascertainment and settlement of the Fun- damental Concepts of Economics, the obscurity and confusion of which, every one knows, have given rise to the greater part of the controversies in the subject. But just as in the former case, where Mill, after having amply acknowledged that Moral Science is to be cultivated in the spirit and method of Physical Science, when he comes to Economics in particular, turns his back upon himself, and maintains that it is an a priori science ; so here, after amply ack- nowledging the importance of true Philosophical Concepts, when he comes to Economics 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." 3 But what definition in Economics is as deter- minate as practical purposes require ? Not a single one ! And in a subsequent chapter we shall see how contradictory are many of Mill's definitions. On the Formation of General Axioms. 1 8. Having obtained General Concepts or Definitions of Quan- tities treated about, our next purpose is to discover the General Law which governs their relations to each other, and in searching for this, we must observe that, there can be but ONE General Theory at the basis of all phenomena. In particular classes of cases, there may undoubtedly be other circumstances which may aggravate, neutralize, or overpower, and seemingly reverse the 1 Logic, bk. i. c. 8, 7. * Logic, bk. i. c. 8, 7. 3 Pol. Econ. p. 2. 30 On the Nature and History of Economics [BK. I. General Theory ; but for all that, it is there, and acts universally. In several different sciences no doubt different General Theories have prevailed, such as in Astronomy, Optics, Heat, Electricity, &c. ; but no Physical Philosopher ever dreamt of explaining every different class of phenomena by a distinct theory. No one ever thought of writing a book on Astronomy, in which one chapter was written on the Ptolemaic Theory, another chapter on the Copernican Theory, and another chapter on Tycho Brahe's Theory. No one ever thought of writing a book on Optics, one part of which was based upon the Emission Theory, and another on the Wave Theory of Light, and so on of the other sciences. It has always been clearly understood that there could be but ONE General Theory which governed all phenomena, though liable to be modified by disturbing causes in particular cases. And the business of the Physical Philoso- pher has always been to discover which is the true General Theory ; and the grand business of the Baconian, or Inductive, Logic, has been to discover and lay down the principles which are to decide which is the true Theory. In politics, no doubt, we require the spirit of compromise, and many contradictions are tolerated for the sake of general peace. But in science, toleration and compromise are impossible. It is always a mortal combat between rival theories. All but one must perish ; and it is the business of Inductive Logic to pronounce the doom of Life or Death. Now without even yet determining what Economics is, we may lay this down, that if it be a Physical Science, as is so often asserted, there can be but ONE General Theory of the relations between Economic Quantities. To break up Economic phenomena into distinct classes of cases, and to maintain that there is a distinct fundamental Theory, or Axiom, or Law, governing each class of cases, would be utterly abhorrent to the fundamental principles of Natural Philosophy. Bacon gives abundant precepts for the determination of the truth of rival theories, and he enforces the necessity of carefully devised experiments (and in the Moral Sciences possible feigned cases), and the attention necessary to contrive a variety of them, and to extend the inquiry generally. " For no one successfully investigates the nature of a thing in the thing itself." And he advises us to imitate the Divine Wisdom, which in the first day created light only. So we must endeavour to gather from all sorts of experience, and to discover true causes and general principles, and to devise " experi- menta lurifera" for this purpose, or instances contrived with the express view of testing general principles before we go to practice. CH. II.] On the Nature of a Physical Science 31 For he says that all true knowledge consists in knowing true causes, and that which in Theory is the cause, in Practice is the rule. " For though we are chiefly in pursuit of the practical and active part of science, we must wait for the time of the harvest, and not reap the moss or the green corn. For we well know that general principles, once rightly discovered, will carry whole troops of works with them, and will produce effects not in single instances, but in multitudes." * Some writers of eminence, indeed, seem to think that Bacon has neglected too much, or even omitted, the deductive part of science, or the explanation of phenomena by general principles. But we cannot agree to this. He has clearly and repeatedly asserted that his Philosophy consists, first, of the eliciting general conceptions and general axioms from particular cases the Inductive part the ascending to abstract principles from concrete cases ; and, secondly, the descending part, or the application of general principles, so obtained by Induction, to the explanation of phenomena. "Axioms duly and orderly formed from particulars, easily discover the way to new particulars, and thus render sciences active." 2 " The true method of experience, on the contrary, first lights the candle, and then by means of the candle, shews the way; commencing as it does with experience duly ordered and digested, not bungling or erratic, and from it educing Axioms, and from established Axioms again new experiments." 3 " From the new light of Axioms, which, having been educed from these particulars by a certain method and rule, shall in their turn point out the way again to new particulars, greater things may be looked for. For our road does not lie on a level, but ascends and descends ; first ascending to Axioms, then descending to works." 4 "And the truth is that the knowledge of simple natures well examined and defined is light ; it gives entrance to all the secrets of nature's workshop, and virtually includes and draws after it whole bands and troops of works, and opens to us the source of the noblest axioms." 5 It clearly appears, therefore, that Deduction was not only an essential part of the Baconian Philosophy, but its very aim and object, because it was the practical part of it. The very aim of Bacon was, by discovering true science or the knowledge of causes, to be able to govern the world of reality, or effects. To say, there- fore, that Bacon omitted the Deductive part is manifestly as great an error as that of J. B. Say, who declared that Bacon was quite 1 Distributio Operis. a Nov. Org. bk. i. aph. 24. 3 Nov. Org. bk. i. 84. * Nov. Org. bk. i. aph. 103. 5 Nov. Org. bk. i. aph. 121. 32 On the Nature and History of Economics [BK. L ignorant that the method of his Philosophy was applicable to any- thing but Physical Science. Mill is, therefore, also in error when he says that a revolution in science is peaceably taking place, and that we are reverting from the Inductive to the Deductive method. Even if it were true, it is not a revolt from, but the express fulfilment of, the Baconian Philosophy. And we think the example Mill has selected peculiarly unfortunate, because the practical triumphs of the astronomer are entirely due to the Theoretical, or Inductive, dis- covery of the fundamental Laws of Mechanics. Astronomy is nothing whatever but a practical example of the general laws of Mechanics, and is the most sublime proof of the truth of the Baconian Philosophy. 12. One of the great fundamental Laws of Inductive Logic per- vading every part of the Novum Organum, and expressing its very spirit, is called the Law of Continuity, and is thus described by Whewell, Nov. Org. Renov. p. 221 : "A quantity cannot pass from one amount to another by any change of conditions, without passing through all the intermediate magnitudes y according to the intermediate conditions" " This Law may often be employed to correct inaccurate deduc- tions, and to reject distinctions which have no real foundation in nature. For example : The Aristotelians made a distinction between motion according to nature (as that of a body falling vertically down- wards) and motion contrary to nature (as that of a body moving along a horizontal plane) ; the former they held became naturally quicker and quicker, the latter naturally slower and slower. But to this it might be replied that a horizontal line may pass by gradual motion through various inclined positions to a vertical position, and thus the retarded motion may pass into the accelerated ; and hence there must be some inclined plane on which motion is naturally uniform, which is false, and therefore the distinction of such kinds of motion is unfounded." That is to say, there is no point whatever at which one kind of motion passes into another. Again : " The evidence of the Law of Continuity resides in the universality of those Ideas, which enter into our apprehension of Laws of Nature. When of two quantities one depends upon the other, the Law of Continuity necessarily governs the dependence. Every philosopher has the power of applying this Law, in proportion as he has the faculty of apprehending the Ideas which he employs in his Induction, with the same clearness and steadiness which belong to the fundamental Ideas of Quantity, Space, and Number. To those who possess this faculty, the Law is a rule of very wide and decisive application. Its CH. II.] On the Nature of a Physical Scien-ce 33 use, as has appeared in the above example, is seen rather in the dis- proof of erroneous views, and in the correction of false propositions, than in the invention of new truths. It is a test of truth rather than an instrument of discovery" 1 which, we may observe, is the true function of all Logic, both Aristotelian and Baconian formal and inductive. The Law of Continuity is one of the most powerful weapons of Inductive Logic, and is of very wide application in Physical research. It has been employed with immense effect in settling the fundamen- tal conceptions of Mechanics, Electricity, Geology, and indeed of every other science. Its capability of being applied to settle the fundamental Concepts and Axioms of Economics has never yet, that we are aware of, even been suspected ! And yet we shall shew that it is capable of absolutely deciding and determining once and for ever, the greater portion of the controversies in Economics. The great philosophers who founded the Physical Sciences instinctively obeyed the Laws of the Baconian, or Inductive, Logic, which are undoubtedly true in the main. In fact this Logic, must have been necessarily evolved in the process of the formation of those sciences. Because in all controversies it is necessarily assumed that there is some supreme power which is admitted to be capable of deciding authoritatively on all scientific discussions, which must be yielded to by both parties, or else there is no prospect or possi- bility of bringing the discussions to a final end. And that supreme power is the REASON, the Divine AOF02, or LOGIC the common property of GOD and MAN. 2 " Know that in the soul Are many lesser faculties that serve REASON as chief; among these Fancy next Her office holds ; of all external things, Which the five watchful senses represent, She forms imaginations, eary shapes, Which Reason, joining or disjoining, frames All which we affirm or what deny, and call Our knowledge or opinion ; then retires Into her private cell, when Nature rests. Oft in her absence mimic Fancy wakes To imitate her ; but, misjoining shapes, Wild work produces oft 111 matching words and deeds." The wonderful sagacity of Bacon was that he anticipated this natural process, and first created that science of sciences, which rules every particular science with supreme power. All controversies in 1 WHEWELL, Nov. Org. jKenov. p. 223. a CICERO, de Legibus, l>k. i. 5. D 34 On the Nature and History of Economics [BK. I. Economics, both as to Concepts and Axioms, must be brought to the tribunal of this supreme power, and must be decided by exactly the same general principles of Inductive Logic, as have already decided finally the controversies in Physical Science. 20. We shall endeavour in the following chapter to show the application of the principles we have been considering. In the first Book we shall give a narrative of the differences of opinion, or a History of the Ideas that have prevailed as to the nature and limits of the science of Economics itself, and employ the principles of Inductive Logic to determine which is the true one. We shall frame a Definition, or precise Conception of the Science, clearly expressing the body of phenomena, whose laws it is our business to discover. The second Book investigates the Fundamental Concepts of the Science, and brings together various controversies and dis- cussions which have been held on each of them, and shews the application of Inductive Logic to determine which are the true General Concepts. This completes the Inductive, or Theoretical, portion of the Science, in which true Concepts and Axioms are obtained by genuine Induction from Nature itself. CHAPTER III. HISTORY OF ECONOMICS. IT was until very recently an assured opinion in this country that Adam Smith was the founder and creator of the Science of Political Economy or Economics, as it is now more usually termed and of Free Trade. A once prominent politician is reported to have said that Political Economy and Free Trade sprang perfect and complete from the brain of Adam Smith, as Minerva did from the head of Jupiter. Such ideas, however, show a complete ignorance of the history of Economics, and are now quite abandoned by all persons who have studied the subject. In fact, it is contrary to nature that it should have been so. Great sciences are not created at once by a single book. They invariably arise from small beginnings, just as the mighty Danube flows from a spring in the garden of a German burgher. Some men begin to observe the phenomena connected with some single fundamental concept. Then other observers bring in a larger number of phenomena based upon the same fundamental concept ; and so at last, by the contributions of an increasing number of observers, it grows into a great science, just as the Danube, from a tiny spring, is swollen into a mighty river by multitudinous contributory streams. Every one with a scientific instinct can at once perceive that Adam Smith's work is pervaded with a combative air ; that every part of it is evidently written at something preceding, and that it is intended to overthrow a prior system. As a matter of fact, as we shall presently show, Economics was founded as a Science by an illustrious sect of philosophers in France in the middle of the last century, who were the first to perceive and declare that there is a positive and definite Science of Economics, based upon demonstrative reasoning, just as the various physical sciences are. The Science of Economics, like medicine, has arisen out of the D 2 36 On the Nature and History of Economics [BK. I. calamities and misery of mankind, caused by the violation of true Economic principles ; and every advance in Economic theory has- originated in some great pressing practical evil. The Theory of Money. The first department of Economics to be reduced to scientific principles, and established on solid and enduring foundations, was the Theory of Money. Charlemagne, about the end of the eighth century, founded the system of coinage which was adopted in all the countries of Western Europe. The coinage of the Romans had fallen into great disorder, and Charlemagne adopted the French pound weight of silver as the unit, and divided it into 240 deniers, or pennies, 12 of which were called a solidus, or shilling, in account; and twenty solidi made a pound. For a considerable time the French sovereigns maintained the standard, but every petty count and proprietor claimed the right of coining on his own account, and deluged the country with base and degraded coin. Louis VI. seems to have been the first sovereign to issue a very debased coinage, and this was constantly done by succeeding kings. They claimed the right of issuing debased coin and diminishing the weight of the standard coin as much as they pleased, and forcing their subjects to accept the debased and diminished coin at the same value as good coin. Moreover, they complicated matters by introducing a gold coinage in the twelfth century, and they claimed the right of changing the weight of the coins, and their rating with respect to each other, as often as they pleased, so that whenever they had debts to pay they cried the coin up, and when they had debts to receive they cried the coin down. In my Dictionary of Political Economy, Art. " Coinage of France," p. 509, I have given a table of the variations in the Mint prices of the marcs of gold and silver from the year 1113 to the revolution. Philip le Bel was especially notorious for these evil practices, and was singled out by Dante as a false coiner. 1 " Li si vedra il duol che sopra Senna Induce falseggiando la moneta." There shall be seen the woe that he shall pour Along the Seine by uttering coin debased. These evil practices were adopted in every country in Europe, and were called morbus numericus. They became worse than ever under the disastrous reign of John. Between 1351 and 1360, the 1 Paradise^ canto xix. CH. III.] History of Economics 37 rating of the livre, or pound, was altered 7 1 times. The State was in the lowest depression when Charles V., justly surnamed the Wise, succeeded to the Crown. He perceived that the shameful state of the coinage had been the cause of innumerable commotions and misery, and had driven away foreign trade from the country, and that the only way to bring back prosperity was to restore the coinage. He referred the whole matter to one of his wisest and most trusted councillors, Nicolas Oresme, afterwards Count Bishop of Lisieux, who, in answer to the appeal of his Sovereign, produced about 1366 his now justly celebrated Treatise on Money, entitled, Traictie de la premiere invention des Monnoies, in twenty - six chapters, which may be justly said to stand at the head of modern Economic literature. This treatise laid the foundations of Monetary Science, which are now accepted by all sound Economists. Thus to France is due the honour of having produced the first great treatise on an Economical subject. But Oresme's treatise was merely a Report addressed to his Sovereign, and did not become public. These -evil practices continued to flourish in all countries in Europe. They were carried to less extremes in England than in any other. In 1526, Sigismund I., King of Poland, of which Prussia then formed a part, being anxious to restore the coinage of Prussia, which had fallen into great disorder, applied to Copernicus, who was a member of the Prussian Diet, and he drew up a masterly treatise on Money, entitled, Monetce cudendce Ratio, which was only discovered in 1815, and has been included in the magnificent edition of his works published at Warsaw in 1854. Copernicus had no knowledge of Oresme's treatise, written 160 years before his own, but he came to exactly the same conclusions as Oresme had done. They both held that the Prince, or the Law, had no power to regulate the relative value of gold and silver ; that the sole duty of the Prince is to maintain the weight, the purity, and the denomination of the coins ; to change either of them is robbery. That in regulating the relative value of the coins, the Law must strictly conform to the relative market value of the metals. For the coins are only pieces of bullion impressed with a stamp to certify their weight and fineness, and the changes in their relative value must follow the changes in the relative value of the metals. That bad coin and good coin cannot circulate together, but the bad coin invariably drives out the good coin from circulation, and alone remains current. That if the legal ratio of the coins does not con- form to the relative market value of the metals, the coin which is underrated disappears from circulation ; it is either hoarded away, 38 On the Nature and History of Economics [BK. I. or it is melted down into bullion, or it is exported. That attempting to maintain coins in circulation at a legal ratio differing from the relative market value of the metals, only enures to the benefit of the bullion dealers, who buy up and melt down the underrated coin, to the great loss of the community. Oresme said that if the Prince can regulate the value of gold and silver, he can regulate the value of everything else ; and Copernicus said that there cannot be more than one measure of value in a country, any more than there can be more than one measure of length, weight, or capacity. That if good new coin is to be issued from the Mint, all the bad, base, and degraded coin must first be withdrawn from circulation, or the value of the good coin will become debased, and it will at once disappear from circulation. In England the sovereigns had never debased the purity of the coins, except during a short period by Henry VIII., Mary, and Edward VI. ; but they had successively diminished their weight. They allowed vast quantities of base and counterfeit foreign coin to circulate in the country, and even the native coin to be clipped and degraded. They never took any measures to withdraw the base and degraded coin from circulation before issuing the good coin. The consequence was, that all the good coin disappeared from circula- tion as soon as it was issued from the Mint. This phenomenon was the puzzle of financiers and statesmen, and gave rise to numerous debates in Parliament. But they could devise no remedies except denouncing penalties of death and mutilation against persons who melted down and exported the good coin. They had no Oresme or Copernicus to explain to them the true causes of this, and, as they never discovered the true master-secret of the case, their measures were wholly ineffectual. At last, Sir Thomas Gresham explained to Queen Elizabeth that allowing base and degraded coin to circulate along with good coin caused it to disappear ; that bad coin and good coin cannot circulate together; but that the bad coin invariably and necessarily drives out good coin from circulation, and alone remains current. Seeing the immense importance of this Law, I suggested, in my Elements of Political Economy, p. 477, published in 1857, that it should be known by the name of " Gresham's Law," and this sugges- tion has now been universally accepted. But in 1864 my friend, M. Wolowski, published the Treatises of Oresme and Copernicus, by which it appeared that these great men had fully explained the matter 160 and 32 years respectively previous to Gresham, so that this great Law, which is as well and CH. III.] History of Economics 39 firmly established as the Law of Gravitation, should be called the Law of Oresme, Copernicus, and Gresham. This Law may be stated in the following terms : " The worst form of currency in circulation regulates the value of tfie whole currency, and drives all other forms of currency out of circu- lation:' This was the first great fundamental Law established in Eco- nomics, and it is now recognized that it governs all discussions on Money and Coinage. Oresme and Copernicus had laid down that the legal ratio between gold and silver coins should strictly conform to the market ratio of the metals, and that the ratio of the coins should never be changed, except in consequence of a change in the market ratio of the metals. But it was found impossible to follow this rule in practice. The ratio between gold and silver sometimes rose above, and sometimes fell below, the legal ratio ; and it was found that when these fluctuations took place, the metals alternately drove each other out of circulation as they rose above or fell below the legal ratio. And how was it possible to be constantly calling in and recoining the money according to every change in the market ratio of the metals ? At the close of the seventeenth century Sir William Petty, one of the most scientific men of the age, and Locke, in a masterly and unanswerable treatise, shewed that one metal only should be adopted as the standard unit and measure of value, and coins of other metals should be only sub- sidiary to the standard, and should only be allowed to be current at their market value in relation to that standard. This doctrine was enforced in the middle of the last century by Harris, and was fully developed in the great master treatise on the subject, the unanswered and unanswerable Treatise on the Coins of the Realm, by Lord Liverpool, published in 1805, to which the Government of India, after forty years of bitter experience of attempting to keep gold and silver coins in circulation at a fixed legal ratio, declared their entire adhesion in 1806, and which was finally adopted in this country at the great recoinage in 1816; and England now enjoys the most perfect system of coinage ever devised by the ingenuity of man. Every country in Europe has seen that the British system of coinage is the only true one, and has followed it. This was the first great Law of Economics, which was established before the foundation of Economics as a Science by the Economists. 40 On the Nature and History of Economics [BK. I. Foundation of Economics as a Science. For many centuries all Governments enacted laws regarding trade without suspecting that there are any fixed principles on the subject. Sometimes they favoured Free Trade, sometimes Protection ; some- times they cockered up one species of industry, sometimes another, according to the whim of the moment, or according as they thought that one species of industry was the most advantageous for the country. They never seem to have had the faintest idea that the only true principle is to leave every industry alone, and allow each one to develop itself according to its own natural tendencies. At length, in the fulness of time, the sublime conception of Bacon was realised, and a new order of sciences came into existence the Sciences of Society. Every one has heard of the glories of the reign of Louis XIV., but few, probably, have any idea of the terrible reaction and the incredible disasters and misery at the close of his reign. These may be learnt from contemporary writers, and also from Taine's History of the Ancient Regime, and many other works. Before his death, John Law, whose scheme of Paper Money had been rejected by the Scottish Parliament in 1705, came to France, and endeavoured to induce Desmarets, the Minister of Finance, to adopt it; but Desmarets would have nothing to do with it, and Law was ordered to quit France. Soon after the death of Louis XIV. Law went back to France, and persuaded the Regent Orleans to allow him to found a Bank. Now Law was not a rogue and a swindler, as is too often thought. Barring his unfortunate theory of Paper Money, he was the most consummate financier of the age. He addressed fifteen letters on Banking and Credit to the Regent Orleans, which are perfectly sound, and shewed that he understood the nature of Credit and Banking better than any one else of his day. The B.egent accordingly allowed him to establish his Bank, and it was a marvellous success. In three years he raised France from the lowest state of misery and depres- sion to the height of prosperity, so that foreign nations sent to congratulate the Regent upon the restored condition of France. Now Law has explained his whole theory in a work, Money and Trade Considered. He thoroughly understood the powers of Credit, but he saw that the powers of Credit are limited, and he wished to create a Paper Money beyond the limits of Credit. His ideas seem very plausible, and have been adopted in several countries ; but they have invariably produced the most frightful CH. III.] History of Economics 41 catastrophes, because they are in direct violation of the fundamental concept of Monetary Science (Money). It would be quite im- possible to give any account of the Mississippi scheme here, but I have given a full account of Law's banking career in my Dic- tionary of Political Economy, Art. Banking in France. This catastrophe in France was not only important in itself, but was the origin of the foundation of Economics as a Science. In 1749 Turgot, then a young man of twenty-two, began to reflect upon this terrible calamity, and endeavoured to discover the error of Law's system, and the nature of Credit, in a letter to the Abbe de Gee", in which he did not succeed which is not surprising, as he knew nothing of the Pandects of Justinian, in which the whole Juridical Theory of Credit is set forth. Turgot associated with himself Gournay, who was an eminent merchant, and a keen advocate of Free Trade. They enlisted Quesnay, the King's physician, Le Trosne, Mirabeau pere, the Abbe Baudeau, Merciere de la Riviere, Dupont de Nemours, and many others, who formed themselves into a powerful sect, under the name of the Economists. These men were the first to perceive and declare that there is a positive and definite Science of Economics, founded upon demon- strative reasoning, just as the physical sciences are. They found France divided into a number of separate and semi- independent provinces, each surrounded with custom houses, which were an intolerable barrier and obstruction to commercial inter- course; every species of industry was loaded with minute and oppressive legislation, and on the slightest infraction of these regulations, the manufactures were destroyed by the Government inspectors ; a very large portion of the human race was groaning under the bonds of slavery; and in every country persons were relentlessly persecuted for their religious opinions. The Economists held that these Commercial, Personal, and Religious oppressions were contrary to the fundamental rights of mankind. They proclaimed as the indefeasible rights of mankind the Freedom of Person, the Freedom of Opinion, and the Freedom of Commerce, or Exchange. Quesnay, who was the real head of the sect, and the founder of Economics as a Science, and his followers, reflecting on the intolerable misery they saw around them, struck out the idea that there must be some great Natural Science, some principles of eternal truth, founded in Nature itself, with regard to the social relations of mankind, the violation of which was the cause of the hideous misery they saw around them in their native land. The name which 42 On the Nature and History of Economics [BK. I. Quesnay first gave to it was Natural Right ; and his object was to discover and lay down an abstract science of the natural rights of men in all their social relations towards Government, towards each other, and towards Property. The term Politique in French might have expressed this science, but the word in common usage was so exclusively appropriated to the art of Government, that they gave it the name of "Political Economy," or Economical Philosophy," and hence they took the name of the " Economists." Dupont de Nemours, one of their number, proposed the name of Physiocratie, or the government of the nature of things, and hence they came to be called also the Physiocrats; but the word having been appropriated to certain doctrines of the sect which are now shewn to be erroneous, and abandoned by all Economists of repute, has fallen into disuse, and the term Political Economy, or Economics, which is now more generally used, has survived. Now it is evident that this wide and extensive scheme comprehends not only a single science, but a whole multitude of sciences, and we shall henceforth confine ourselves strictly to that department of their philosophy which relates to Commerce, or Exchanges. The sect of the Economists was constituted in 1750. Quesnay's first publication, Le Droit Naturel, contains a general inquiry into these natural rights ; and he afterwards, in another work called Maximes Generates du Gouvernement Economique d'un Royaume Agricole, endeavoured to lay down, in a series of thirty maxims, or general rules, the whole basis of the economy or organisation of society. The 23rd of these maxims declares that a nation suffers no loss by trading with foreigners. The 24th declares the fallacy of the Balance of Trade (Balance of Trade). The 25th says : "Let entire freedom of commerce be maintained; for the regulation of commerce, both internal and external, the most sure, the most exact, the most profitable to the nation, and to the State, consists in entire freedom of competition" In every country in Europe there were numerous enlightened persons who advocated Free Trade as beneficial ; but the Economists were the first to lay it down as one of the fundamental rights of mankind, and as the corner-stone of their Science. These maxims were adopted as a Code by the sect, and were published in 1759 as the embodiment of their doctrines, which at once disposes of the idea that Adam Smith was the originator and creator of Free Trade. The Maxims of Quesnay entirely overthrew the prevailing system of CH. III.] History of Economics 43 Economics. This was the work of Quesnay and his associates ; and, notwithstanding certain errors and shortcomings mentioned below, they are unquestionably entitled to be acknowledged as the founders of Economics and Free Trade. Outline of the Doctrine of the Economists. We may now give a brief abstract of the doctrine of the Economists, by which they vindicated the principle of liberty, and the right of property. The Creator has placed man upon the earth with the evident intention that the race should prosper; and there are certain physical and moral laws which conduce, in the highest degree, to ensure his preservation, increase, well-being, and improvement. The correlation between these physical and moral laws is so close, that if either be misunderstood, through ignorance or passion, the others are also. Physical nature, or matter, bears to mankind very much the relation which the body does to the mind. Hence the perpetual relation of physical and moral good and evil to each other. Natural justice is the conformity of human laws and actions to natural order; and this collection of physical and moral laws existed before any positive institutions among men. And while their observance produces the highest degree of prosperity and well-being among men, the non-observance or transgression of them is the cause of the extensive physical evils which afflict mankind. If such a natural order exists, our intelligence is capable of under- standing it ; for if not, it would be useless, and the sagacity of the Creator would be at fault. As, therefore, these laws are instituted by the Supreme Being, all men and all States ought to be governed by them. They are immutable and irrefragable, and the best possible laws ; they are necessarily the basis of the most perfect government, and the fundamental rule of all positive laws, which are only for the purpose of upholding that natural order, which is evidently the most advantageous for the human race. The evident object of the Creator being the preservation, the increase, the well-being, and the improvement of the race, man necessarily received from his origin, not only intelligence, but instincts conformable to that end. Every one feels himself endowed with the triple instincts of well-being, sociability, and justice. He under- stands that the isolation of the brute is not suitable to his double nature, and that his physical and moral wants urge him to live in the society of his equals in a state of peace, goodwill, and concord. 44 On the Nature and History of Economics [BK. I. He also recognizes that other men, having the same wants as himself, cannot have less rights than himself, and, therefore, he is bound to respect their rights, so that other men may observe a similar obligation towards him. These three ideas the necessity of work, the necessity of society, and the necessity of justice imply three others liberty, property, and authority which are the three essential terms of all social order. How could man understand the necessity of labour, or obey the irresistible instinct of self-preservation, without perceiving, at the same time, that the instruments of labour, the physical and intellectual qualities with which he is endowed by Nature, belong exclusively to himself, that he is master, and the absolute proprietor of his own person, that he is born, and should remain, free? But the idea of liberty cannot spring up in the mind without associating with it that of Property, in the absence of which the first would only represent an illusory right without an object. The freedom the individual has of acquiring useful things by labour includes necessarily the right of preserving them, of enjoying them, and of disposing of them without reserve, and also of bequeathing them to his family, who prolong his existence indefinitely. Thus liberty conceived in this manner involves, and is dependent on, the idea of property, which may be conceived in two aspects, as it regards movable goods, and as it regards the earth, which is the source from which labour ought to draw them. At first property was principally movable, but when the cultivation of the earth was necessary for the preservation, increase, and im- provement of the race, individual appropriation of the soil became necessary, because no other system is so proper to draw forth from the earth all the mass of utilities it can produce; and, secondly, because collective property would have produced many incon- veniences as to the sharing of the fruits, which would not arise from the division of the land, by which the rights of each are fixed in a clear and definite manner. Property in land is, therefore, the necessary and legitimate consequence of the principle of personal and movable property. Every man has, therefore, centred in him by the laws of Providence certain Rights and Duties the right of enjoying himself to the utmost of his capacity, and the duty of respecting similar rights in others. This perfect protection of reciprocal rights and duties conduces to production in the highest degree, as well as to the greatest amount of physical enjoyments. Thus the Economists established freedom and property as the CH. III.] History of Economics 45 fundamental right of mankind Freedom of Person, Freedom of Opinion, and the Freedom of Commerce or Exchanges ; and the violation of these they maintained to be contrary to the laws of Providence, and therefore the cause of all evil to men. Doctrine of the Economists regarding Commerce or Exchanges. Having now explained how the Economists cleared the way for the consideration of the positive Science, by sweeping away all obstructions to the freedom of Commerce or Exchanges, we must now see how they endeavoured to construct the positive Science of Commerce or Exchanges. While they expressly declared that Exchanges, or Commerce, was one department of Economical Philosophy and it is to- this department of it that the name of Economics is now restricted they unfortunately devised another and an alternative name for it which, being misinterpreted by a very distinguished French Economist, has been the cause of all the mischief and confusion in the Science, and of the lamentable state into which it has fallen at present. They termed the department of Economical Philosophy relating to Commerce, or Exchanges, the "Production, Distribution, and Consumption of Wealth." It might not be very apparent to the general reader how the two expressions " Commerce " or " Exchanges " is identical with that of the " Production, Distribution, and Consumption of Wealth ;" and we must now explain the meaning of this latter expression given to it by its authors. They defined the word " Wealth " to be the material products of the earth which are brought into Commerce and Exchanged, and those only. The products of the earth which were consumed by their owners, and without being exchanged, they termed Biens, but not Richesse. Thus Quesnay says, " We must distinguish between goods (Biens) which have value in use and not value in exchange, and Wealth (Richesse} which has both value in use and value in exchange. For instance, the savages in Louisiana enjoy many Biens, such as wood, game, the fruits of the earth, &c., which are not Richesse, because they have no value in exchange. But since some kinds of commerce have been established between them and the French, the English, the Spaniards, &c., part of these Biens have acquired a value in exchange, and are become Richesse" 46 On the Nature and History of Economics [BK. I. So Baudeau says, "Useful and agreeable objects proper for our enjoyment are called Biens, because they conduce to the preserva- tion, the propagation, and the well-being of men on the earth. " But sometimes these Biens are not Richesse, because they cannot be exchanged for other goods, or be used to procure other enjoy- ments. The products of Nature or the works of Art, the most necessary or the most agreeable, cease to be Richesse when you lose the power of exchanging them and of procuring other enjoyments by means of this Exchange. One hundred thousand feet of the most beautiful oak in the world would not be Richesse to you in the interior of North America, where you could not divest yourself of its possession by means of an Exchange. " The title Richesse, therefore, supposes two things : First, useful qualities, which render them Biens ; secondly, the possibility of exchanging them, which enables these Biens to procure you others, which constitutes them Richesse." So also Le Trosne says, " Man is surrounded by wants which are renewed every day. . . . Whatever they are, it is only from the earth that he can draw the means of supplying them. This physical truth, that the earth is the source of all Biens, is so self-evident that no one can doubt it. ... But it is not sufficient to estimate products by their useful qualities : we must consider the property they have of being exchanged against each other. . . . Products acquire, therefore, in a state of society, a new Quality, which springs from the communication of men with each other. This Quality is Value, which makes the products become Richesse ; and so there is nothing superfluous, because the excess becomes the means to obtain what one wants. "Value consists in the Relation of Exchange which exists be- tween such and such products. ... In a word, the Quality of Richesse supposes not only a useful property, but also the possibility of Exchange ; because Value is nothing but the Relation of Ex- change. The earth in truth only gives products which have the physical qualities to satisfy our wants : it is Exchange which gives them Value a quality relative and accidental. But as it is the products themselves which are the sole matter of exchange, it follows that we can say, with truth, that the earth produces not only all Biens, but all Richesse." Thus, the definition of Wealth by the Economists was perfectly clear and intelligible : it was the material products of the earth which are brought into Commerce and Exchanged, and these only. The Economists steadfastly adhered to this doctrine (Wealth). CH. III.] History of Economics 47 In the first place, they declared that Economics has nothing to do with Value in use or Utility, but only with Value in exchange ; and, secondly, they restricted the term Wealth to the material products of the earth only. They steadfastly refused to admit that Labour and Credit, i.e. Rights of Action, Credits or Debts, and other Rights, are Wealth, because they alleged that to admit that Labour and Credit are Wealth would be to maintain that Wealth can be created out of nothing. They constantly maintained that man can create nothing, and that ex nihilo nihil fit. Meaning of "Production, Distribution, and Consumption of Wealth." By Production the Economists meant obtaining the rude produce from the earth, and bringing it into Commerce (Production). But this rude produce is scarcely ever fit for human use. It has to be fashioned and manufactured in a multitude of ways, and to be transported from place to place, and perhaps sold and resold more than once, before it is ultimately purchased for use and enjoyment. All these intermediate operations of manufacture, transport, and sale between the original Producer and the ultimate purchaser, the Economists termed traffic, or Distribution (Distribution), and all the persons engaged in them they termed Distributors. Consommation, or Consumption in the language of the Economists, and all French writers before them, and also Adam Smith, meant simply Purchase or Demand ; it involved no idea of destruction. Great confusion has been caused by the two French words, Consommation and Consomption, being represented by only one English word, Consumption. Now Consommation comes from consommer, which comes from the Latin consummare, to complete ; and Consomption comes from consumer, the Latin consumere, to destroy. Consommation is the Latin consummatio, consummation, or completion (Consumption). The final purchaser who bought the product for his own use and enjoyment, and so took it out of commerce, the Economists termed the Acheteur-consommateur, because he consummated or completed the transaction. The Consommateur, or Consumer, was the person for whose benefit all the preceding operations took place. Production was only for the sake of Consumption, or Demand ; and Consumption, or Demand, was the measure of reproduction, because products 48 On the Nature and History of Economics [BK. I. which remain without Consumption, or Demand, degenerate into superfluities without value. The complete passage of a product from the original Producer to the ultimate Consumer, or Purchaser, through all its intermediate stages, the Economists termed Commerce, or Exchange ; and as any man, who wished to consume, or purchase, any product, must have some product of his own to give in exchange for it, he was also a producer in his turn. Hence, in an exchange, things are produced and consumed (consomme), or purchased, on each side. An Exchange has only two essential terms, a Producer, or Seller, and a Consumer, or Buyer. These are the only two persons necessary to commerce, and they often exchange directly between themselves without any intermediate agents. Hence the " Production, Distribution, and Consumption of Wealth," as defined by the Economists, meant simply the Com- merce, or the Exchanges, of the material products of the earth, and of these only. But Distribution was often used as synonymous with Consumption. Hence " Production, Distribution, and Consumption," " Production and Distribution," and "Production and Consumption," all meant exactly the same thing the Commerce or Exchange of the material products of the earth, and of these only. It must be carefully observed that these expressions are one and indivisible ; they must not be separated into their component terms. They all simply meant Supply and Demand. The Economists, by restricting the term Wealth to the material products of the earth, made materiality and labour the accessories or accidents of Wealth, but they did not make them the essence or principle of Wealth. The Essence or Principle of Wealth they held to consist in Exchangeability, because they expressly excluded from the term Wealth all the material products of the earth which were not brought into commerce and exchanged. Now considering that the Economists admitted and declared that there is a definite and positive Science of Exchanges, or Commerce, how is it possible to restrict it to the Commerce, or Exchanges, of the material products of the earth only? It must evidently and necessarily comprehend all Exchanges and all Commerce, in its widest extent, and in all its forms and varieties. There is a gigantic commerce in Labour ; there is a colossal commerce in Rights and Rights of Action, Credits, or Debts, Public Securities, and other forms of Incorporeal Property; in fact, this is the most extensive department of Commerce, or Exchanges. How CH. III.] History of Economics 49 is it possible to exclude the commerce in Labour and the com- merce in Rights and Rights of Action from the general Science of Exchanges, or Commerce ? But even supposing that the Science of Economics were restricted to the commerce in material things only, it cannot be confined to the products of the earth only. The land itself is an article of commerce. Persons buy and sell land. How is it possible to speak of the "Production, Distribution, and Consumption" of land? Moreover, the expression " Production, Distribution, and Con- sumption of Wealth" comprehends a whole series of Exchanges. When the farmer produces corn, and offers it for sale to the miller, that is an Exchange ; when the miller grinds the corn into flour, and sells it to the baker, that is an Exchange ; when the baker bakes the flour into bread, and sells it to the customer, that is an Exchange. When ships and carriers transport the products from one place to another, that is an Exchange, for they receive payment in exchange for their services. When merchants and manufacturers sell goods to wholesale dealers, that is an Exchange; when wholesale dealers sell goods to retail dealers, that is an Exchange ; when retail dealers sell goods to their customers, that is an Exchange. Thus the whole series of transactions which the Economists included under Distribution are simply a series of Exchanges. The basis of the Science of Economics is the meaning of the word Wealth. The Economists admitted that Exchangeability is the essence and principle of Wealth ; but they clogged it with the limitation that it only applies to material products which are exchanged, and denied it to Labour and Credit (including all species of Rights), which equally possess the quality of Exchange- ability. But this is contrary to the fundamental principles of Natural Philosophy. Bacon long ago pointed out that when the Quality x or Concept, which is the basis of the Science, is once determined, all Quantities whatever which possess that Quality, however diverse in form they may otherwise be, must be included among the constituents, or elements, of that Science, even though they possess no other Quality in common, except that one which is the basis of the Science. This is what Plato calls the one in the many, i.e., the same Quality appearing in many diverse forms. It would be just as rational to restrict the term Force to the force of men and animals, and to exclude gravitation from the term force, as to restrict the term Wealth to the exchangeable material products of the earth, and to exclude Labour and Rights, which equally possess the quality of Exchangeability, from the term Wealth. E 5O On the Nature and History of Economics [BK. I. Contemporary, mercantile, and general writers were dead against the Economists on the question of excluding Credit from the term Wealth. They all included Credit under the term Wealth (Credit, Wealth). Thus the restriction of the term Wealth to the material products of the earth is quite untenable, and we have now to see what other writers have said on the subject. And it must be understood that the determination of the true meaning of the 'word Wealth is not merely a matter of vain logo- machy and curious speculation. On the contrary, not only is this word 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. For many centuries the legislation of every nation in the world was moulded by the meaning given to 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? 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 them- CH. III.] History of Economics 5 1 selves say, on the doctrines of Wealth, put forward by Adam Smith and Ricardo. These considerations, which are nothing but the literal truth, shew the gravity and the importance of the inquiry, and we hope that we shall succeed in removing this stumbling-block to the progress and apprehension of Economic Science. Definition of Wealth by Ancient Writers. Ancient writers for 850 years held that Exchangeability, pure and simple, is the sole essence and principle of Wealth that every- thing whatever which can be bought and sold, or exchanged, is Wealth, whatever its nature or its form may be. Thus Aristotle says (Nicomac. Ethics, book v.) : " X/ 37 //* "" 01 ^ Aeyo/zev ITavra ocrcuv rj dia vo/uoyxcm /xerpetTat." " By the term Wealth we mean all things whose value can be measured in money" So the great Roman jurist Ulpian says : " Ea enim Res est quse emi et venire potest." " for that is Wealth which can be bought and sold." In accordance with this J. S. Mill says (Prin. of Pol. Econ. Pre- liminary Remarks) : " Everything, therefore, forms a part of Wealth which has a Power of Purchasing." Now in these sentences we have a fundamental Concept of the widest generality, which is fitted to be the basis of a great science. Out of this single sentence of Aristotle's the whole Science of Economics is to be evolved, just as the great oak-tree is developed out of the tiny acorn. This is the definition which we adopt as the basis of the Science. A Quantity means anything whatever which can be measured ; hence, an Economic Quantity means Anything whatever which can be bought and sold, or exchanged ; which possesses the Quality of Exchangeability ; or whose value can be measured in money ; no matter what its form or its nature may be. The sole criterion, then, of anything being Wealth is Can it be bought and sold? Can it be exchanged separately and independently of anything else ? Can it be valued in money ? This criterion may seem very simple; but, in fact, to apply it properly, to discern what is, and what is not, separate and independent Exchangeable Property, requires a thorough knowledge of some of the most abstruse branches of Law and Commerce. E 2 52 On the Nature and History of Economics f BK. L Three Species of Wealth or Economic Quantities. Adopting, then, this definition of Wealth, or of an Economic Quantity, as Anything whatever which can be bought and sold, or exchanged, or whose Value can be measured in money, which, from its generality, is fitted to form the basis of a great Science, we have next to discover how many Species, or Orders of Quantities, there are which satisfy this definition, as possessing the Quality of Exchangeability, or which can be bought and sold, or exchanged, or whose Value can be measured in money. I. Material, or Corporeal Wealth. There are material things of all sorts, such as lands, houses, money, corn, cattle, timber, herds of all sorts, jewellery, minerals, and innumerable other material things,, which can be bought and sold, or exchanged, and whose Value can be measured in money ; therefore they are Wealth by the definition. II. Immaterial Wealth. There exists a remarkable work of antiquity, which is the earliest treatise on an Economical question that we are aware of. It is a dialogue named the Eryxias, or, On Wealth. It is attributed to ^schines Socraticus, one of the most distinguished disciples of Socrates, but critics deny this. Very high authorities consider that it was written in the early Peripatetic period. In this dialogue Socrates is made to discuss the nature of Wealth. He asks, Why are some things Wealth at some places, and not at others ? And at some times, and not at others ? Why are different kinds of money Wealth at some places, and not at others ? Socrates shows that whether things are Wealth or not depends on the Demand (xpeta) for them. He shows that money is only valuable, 'and Wealth, in those places where it can purchase other things; and that where it cannot purchase, or be exchanged for, other things, it is not Wealth. He shows that if any other things can purchase other things, they are Wealth, for just the same reason that money is. He instanced persons who gained their living by giving instruction in the various sciences. They were able to purchase the necessaries of life in exchange for their lessons in science, just in the same way as they could with money. Therefore, said Socrates, the Sciences are Wealth at iTricmjjuai ^/D^ara o&rai; and that those who possess them are richer TrAowiwrepoi eri. When Socrates in this dialogue is made to say that the Sciences are Wealth, that, of course, is a general term for Labour; for Labour in Economics is any exertion of human thought or abilities which is wanted, demanded, and paid for. Socrates in this dialogue shows CH. III.] History of Economics 53 that the Mind has wants and demands, as well as the body ; and that things which are wanted and demanded for the Mind, and are paid for, are equally Wealth as the things which satisfy the wants and demands of the body, and are paid for. Labour cannot be seen, nor touched, nor transferred by manual delivery j but it can be bought and sold, its Value can be measured in money, and therefore it is Wealth. Hence, each of the great Sciences and Professions is a great Estate, which produces Utilities which are wanted, demanded, and paid for, as much as any material products ; and are consequently Wealth, just as much as any material chattels are, because their Value is measured in money. Thus, as will be seen hereafter, the author of this dialogue antici- pated Adam Smith by 1200 years. Thus, Personal Qualities in the form of Labour were demonstrated to be Wealth. Demosthenes shoivs that Personal Credit is Wealth. But Personal Qualities may be used as Purchasing Power, or Wealth, in another form 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 against himself. It is a Sale or an Exchange. The goods become his actual property, exactly as if he had paid for them with money. This Right of Action is the price he pays for the goods. It is termed a Credit in French, a Creance because it is not the Right to any specific sum of money ; but only a Right of Action to demand a sum of money from the merchant at some future time, and any one who buys it, or takes it in exchange for goods, does so only in the belief or confidence that the merchant can pay his Debt at the stipulated time. Hence, a merchant's Credit is Purchasing Power, exactly as Money is. A merchant's Purchasing Power is his Money and his Credit. They are both equally Wealth, by Mill's own definition. When a merchant purchases goods with his Credit, instead of with money, his Credit is valued in money, because the seller of the goods accepts his Credit as equal in value to money ; his Credit is valued in money, exactly as his Labour may be. Hence, by Aristotle and Mill's definition of Wealth, which is now universally accepted, the merchant's Personal Credit is Wealth. 54 On the Nature and History of Economics [BK. I. Thus Demosthenes says (Against Leptines, 484, 20) : " SVOLV dyaOoiv OVTOIV ITAovrov re /ecu Tr/aos aVavras nrreveo-0cu, //,ei6v ecrrt TO TT^S IltcrTews virdp^ov ?;/ztv." " 7>fcr) TWV 7rao"c3v rrt /ieyiVr^ TT^OS x/ 37 ?A AaTtcr f tov Trav av dyvo^o-etas." " If you were ignorant of this, that Credit is the greatest Capital of all towards the acquisition of Wealth, you would be utterly ignorant." Thus Demosthenes shows that Personal Credit is dyadd Wealth, Property, Goods, Chattels and dav^s, &C. Now, Rights and Rights of Action in the abstract form are not visible to the eye, nor can they be touched, nor transferred by manual delivery ; but, like Labour and Credit, they can be bought and sold or exchanged, their Value can be measured in money ; therefore, they are Wealth by the now universally received 56 On the Nature and History of Economics [BK. I. definition. Rights and Rights of Action in the abstract form are termed Incorporeal Property, or Incorporeal Wealth. It is thus seen that the ancients possessed the true scientific spirit. They saw that Exchangeability is the true essence and principle of Wealth, and they searched out all the quantities which possess this quality. The author of the Eryxias showed that Labour is Wealth, because it can be bought and sold. Demosthenes showed that Personal Credit is Wealth, because it is Purchasing Power ; and the Roman jurists showed that Rights and Rights of Action are Wealth, because they can be bought and sold. Thus, after a period of 800 years, the ancients conquered the whole field of Economics, because there is nothing which can be bought and sold or ex- changed, or whose Value can be measured in money, which is not of one of these three forms : Either it is (i) a Material Commodity, or it is (2) a Personal Quality in the form of Labour or Credit, or it is (3) an Abstract Right or Right of Action. Hence, they showed that there are three orders of Exchangeable, or Economic, Quanti- ties, and there are no more. Hence, the Science was now complete, for these are all its constituent elements, and the whole of pure Economics consists of the Exchanges of these three orders of Economic Quantities. And as these three orders of Economic Quantities can be exchanged two and two, in six different ways, it follows that all Commerce, in its widest extent and in all its different forms and varieties, consists in these six species of exchanges. This Science may be designated as Pure, or Analytical, Economics. The relation which any one of these quantities bears to any of the others is termed its Value with respect to them. As the object of the Science is to ascertain the Laws which govern the relations of these Quantities to each other, and their changes of relation, it is evidently a mathematical science, for it is a Science of Variable Quantities ; and its Laws must be brought into harmony with the Laws of all other Sciences of Variable Quantities ; that is, there can only be one great General Law which governs their relations. And if any of the great Roman Lawyers, with the materials he had before him, had ever conceived the idea of constructing a complete scientific exposition of the principles and mechanism of the mighty system of Commerce, and the Laws which govern it, Economics might have been the eldest born of all the Sciences. It would have been 1500 years in advance of its present state, and it would have saved centuries of misery, bad legislation, and bloodshed to the world. CH. III.] History of Economics 57 But it was not to be. There was at that time no Physical Science in existence to serve as the guide for the construction of a Science of Variable Quantities, such as Economics. The Science of Economics will remain a monument to the eternal glory of Bacon, who strenuously insisted that it was indispensable to create the Physical Sciences, before it was possible to construct the Sciences of Society. Although no ancient writer ever conceived the idea of creating a great general Science of Economics, or of Commerce, there was one department of it which they carried to great perfection, namely, the Commerce in Rights of Action, Credits, or Debts. The Roman Jurists elaborated the great Juridical Theory of Credit. The following is a brief sketch of the History of the Theory of Credit. Demosthenes was the first to perceive and declare that Credit is Wealth and Capital. But Concrete Practice always precedes Abstract Theory. The Romans invented the business which in modern language is termed Banking ; the Roman bankers invented Cheques, and Bills of Exchange ; and the Roman jurists elaborated the great Juridical Theory of Credit. In the times of the Republic, all the possessions belonged to the family as a whole, but the Dominus, or the Head of the house, alone exercised all rights over them. He was accordingly required to keep a great family ledger, in which all the incidents of his life were recorded. He was obliged to enter in it all the possessions of the family, all his trade profits and losses, all his revenues and profits, his outgoings and expenses of every description, all sums borrowed and lent, so that the family might see how he had dealt with the family property. The Romans thus became accustomed to the Transfer of Debts. These family ledgers were legal evidence of debts among Roman citizens, receivable in Courts of Justice. The Dominus was obliged to swear to the truth of his books every five years before the Censor, and then they were preserved as heirlooms in the family ; and it was from these family ledgers that the whole of the modern system of book - keeping and Credit has been developed. Some of the elementary principles of Credit were set forth in Gaius, which was the elementary text-book for students from the age of the Antonines till Justinian. But after Gaius, the jurists Paulus, Ulpian, Modestinus, Javolenus, and Papinian the greatest jurists the world ever saw worked out 58 On the Nature and History of Economics [BK. I. the complete juridical Theory of Credit, except only on one point. And from the emphatic way in which certain elementary principles are laid down, it is quite evident that there were silly persons who chattered about Credit at Rome, just as there are at the present day. The principles elaborated by these jurists were incorporated in the Pandects of Justinian, and in the Basilica, and have been the mercantile law of Europe. They are contained in every Continental text of Jurisprudence. But upon this subject English legal text- books are lamentably defective ; and no scholastic Economist ever had any more notion of them than a child of six years old has of the triple expansion engines of the Campania. These principles have, by a statute which came into operation in 1875, been enacted as Law in England. The doctrines of the Roman Jurists were, however, inadequate for the complete Theory of Credit, as they chiefly regarded the subject from the Creditor's side, and only very slightly from the Debtor's side. But in every Obligation there are two sides the Creditor's, or the Active or Positive side, and the Debtor's, or the Passive or Negative side. Now it is evident that the complete Theory of Credit must be developed simultaneously, both from the Creditor's and the Debtor's side. But the latter requires principles of mathematics which have only been fully understood by mathematicians them- selves, and introduced into popular treatises, within the last sixty years. I have now laid bare the foundations of Economic Science. Like Botta and Layard at Nineveh ; Schliemann at Troy, Argos, and Mycenae ; Petrie, and many other explorers in Egypt I have swept away the rubbish and folly which has accumulated over the doctrines of the ancients for centuries, and laid bare the solid and impregnable foundations upon which the majestic structure of Economic Science is to be erected. Continuation of the Doctrine of the Economists. The Economists on Money. One of the most important services the Economists rendered to Economics was to re-establish the true doctrine of the nature and use of Money. The Mercantile System held that Money is the only species of Wealth ; the evident absurdity of this doctrine was so great that it naturally led to reaction, and, as usual in such cases, opinion went CH. III.] History of Economics 59 to the other extreme. It was held that Money is not Wealth at all, but only the Sign, or Representative, of Wealth. This naturally led to the doctrine that as Money is only the means of obtaining other things, it is wholly indifferent what it is made of, and that it is only the command of the Sovereign which gives it Value. It was maintained that the Prince might diminish the quantity of metal in the coin, or even debase it, as much as he pleased, and still affix any value he pleased to it. The Economists shewed that Money is neither all Wealth, nor is it not Wealth ; but it is simply a species of merchandise, which is used for a particular purpose, to facilitate commerce. It is found more convenient in commerce, instead of exchanging products directly for one another, to exchange them for some intermediate merchandise, which is itself universally exchangeable. Such an operation is termed a Sale. Any merchandise whatever might have been chosen for this purpose, but there are many reasons why Gold and Silver are superior to all other species. The merchandise which is used for this purpose is termed Money. But this kind of exchange differs in no way from any other, and the Money given in exchange is the Equivalent of the mer- chandise. Thus, though every one agrees to take Money in exchange for products, it is not the Sign, or Representative, of the products, but their Equivalent. Money is, therefore, nothing but one species of merchandise, and any other merchandise might have been made money. Hence, though money has uses of its own, yet its Value, or exchangeable power, depends upon exactly the same laws as the value of any other merchandise. Money, therefore, is Wealth in itself, but only a very small part of the general Wealth. The Economists only admitted an Exchange to be a transaction in which each party obtained a satisfaction, or something which he desired for use : that is, when the desire of each party was con- summated, or completed. Such an Exchange is termed Barter. But in the intercourse of society such Exchanges are comparatively rare. Persons want usually to obtain things from others, while those others want nothing from them. To obviate the inconveniences which would take place if no one could get what he wanted unless he had something at the same time to offer the other party which he wanted, people hit upon the plan of adopting some particular kind of merchandise which should be universally exchangeable. The buyer, therefore, gave the seller of the product an equivalent quantity of this universally 60 On the Nature and History of Economics [BK. I. exchangeable merchandise, so that he could get any satisfaction he pleased from someone else. The person, however, who has received the Money has not got a Satisfaction ; his desire is not Consummated, or Completed. In order to obtain a satis- faction, he must exchange away the money for something else he does desire. Hence the Economists called a Sale a Demi- Exchange. Le Trosne says : " There is this difference between an Exchange and a Sale, that in the Exchange everything is completed (consomme) for each of the parties ; they have the thing which they desired to obtain, and have only to enjoy it. In the Sale, on the contrary, it is only the buyer who has gained his object, because it is only he who is in a condition to enjoy. But everything is not ended for the seller." And again : " Exchange arrives directly at its object, which is completion (consommatiori) : there are only two terms, and it is ended in a single contract. But a contract in which money inter- venes is not completed (consomme), because the seller must become a buyer either by himself, or by the interposition of him to whom he shall transfer his money. There are, therefore, to arrive at the completion (consommatiori), which is the final object, at least four terms and three parties, one of whom intervenes twice." In fact, although Money is an Equivalent merchandise to the product it is exchanged for, its real use and purpose is to be a Right or Title to obtain anything else which its possessor desires. Hence its true nature is that of a Bill of Exchange on the general community. Thus Baudeau says : " This coined Money in circulation is nothing, as I have said elsewhere, but Effective Titles on the general mass of useful and agreeable enjoyments which cause the well-being and propagation of the human race. " It is a kind of Bill of Exchange, or Order, payable at the will of the bearer. " Instead of taking his share in kind of all matters of subsistence, and all raw produce annually growing, the Sovereign demands it in Money, the Effective Title, the Order, the Bill of Exchange/' Hence the Economists saw clearly that Money is only the highest form of Credit, a truth which we have shown a long line of Jurists and Economists have seen (Money). Money, then, being only an Order, or Bill of Exchange, on all the products of the country, and its only use being to facilitate the exchanges of products, a substitute may be found for it. The CH. III.] History of Economics 6 1 Economists showed that instead of the quantity of Money in a country being the measure of its wealth, it is generally the contrary. In rich countries the valuable paper of rich merchants supplies the place of money, and is itself an object of commerce just like money. It is only in poor and barbarous countries, where no one has con- fidence in his neighbour, that a large stock of money is required. The use of more money than is absolutely required is a great loss to a country, because it can only be purchased with an equivalent amount of products, and their value is thus withdrawn from being employed in productive operations. Any country which has plenty of products can at any time purchase any amount of money it may require. The Economists, therefore, strongly urged the entire abolition of all restrictions on the free export of money, and also the entire abolition of usury laws. The Economists termed a Sale a Demi-Exchange. The Exchange was completed when the seller of the product, who had obtained money for it himself, procured some object for it which he desired. Thus, a wine-merchant may have sold wine to his clients, and got paid for it in money. But he can make no direct use of the money: he can neither eat it, nor drink it, nor clothe himself with it. It is only when he has got the food, clothes, books, etc., which he wants, that the Exchange is completed. For this reason Money is called the Medium of Exchange. But the Economists also called a Sale Circulation, and the number of sales was the amount of the Circulation. Hence, Money was also called the Medium of Circulation, or the Circulating Medium. The Economists on the Balance of Trade. During the prevalence of the Mercantile System, Money was held to be the only wealth, from which doctrine the consequence naturally followed that in every exchange one side must gain and the other side must lose. This doctrine was the cause of many commercial wars. The Economists held that in an Exchange neither side gains or loses. This was an advance on the preceding doctrine of the Balance of Trade, and they proclaimed the falsity of that doctrine as then held. They held that there is always an Exchange of equal value for equal value. From this doctrine, which they maintained with unflinching pertinacity, they drew the most extraordinary con- sequences, as we shall have to show immediately. 62 On the Nature and History of Economics [BK. I. The Economists on Productive Labour, and on Sterile or Unproductive Labour. We have now to notice a remarkable and distinctive doctrine of the Economists. They denned Productive Labour to be Labour which left a Profit after defraying its Cost. They maintained that agriculture and Labour, that is, Labour employed in obtaining all sorts of raw produce from the earth, is the only species of Productive Labour ; or the only one which leaves a surplus Profit after defraying its Cost. The surplus of the raw produce of the earth, after it has defrayed all the Cost of its Production, the Economists termed the Produit Net ; and they alleged that it is the sole augmentation of National Wealth, and that all Taxation should come out of it. They maintained that all other Labour expended on the raw produce of the earth, either in fashioning it, or in manufacturing it, or in transporting it from place to place, or in selling and re-selling it, is Sterile and Unproductive, and adds nothing to the Wealth of the Nation. And they maintained that neither the Labour of artisans, nor the operations of Commerce in any way enrich the country. They alleged that the Labour of artisans is Sterile, or Unpro- ductive, because, though their Labour adds to the value of the product, yet during the process of the manufacture the labourer consumes his subsistence, and the value added to the product only represents the value of the subsistence destroyed during the Labour. Hence in this case, though there is an augmentation of Value, there is no augmentation of Wealth. Again, they maintained that Commerce cannot enrich a country, because it is always an exchange of equal value for equal value. Over and over again the Economists alleged that Commerce being only an exchange of equal values, neither side can gain or lose. They held that the only use of Commerce is to vary and multiply the means of enjoyment, but that it does not add to national Wealth, or, if it does, it is only by giving a value to the products of the earth which might otherwise fail in finding a market. They contended also that as all exchanges are mere equal value for equal value, the same principles apply to sales, and that the gains which traders make are no increase of Wealth to the nation. The Economists maintained these doctrines through long and CH. III.] History of Economics 63 repeated arguments, and they came to be known as their distinctive doctrines. How men of the ability of the Economists could maintain that neither the Labour of artisans nor Commerce can enrich a nation, with the examples of Tyre, Carthage, Venice, Florence, Holland, England, and innumerable other places before them, is incomprehensible. With such patent, glaring facts before them, it is surprising that they were not led to suspect the truth of their reasoning. It is one of the aberrations of the human intellect which we can only wonder at and not explain. With such views they held that the internal Commerce of a country conduces nothing to its Wealth, and foreign Commerce very little. They called foreign Commerce only a pis-aller. One truth, however, they perceived. They saw that Money is the most unprofitable merchandise of any to import, and that merchants never import Money when they can import products. Therefore they called the import of Money in foreign Commerce only the pis-aller of a pis-aller. Dogma of the Economists that Labour and Credit are not to be admitted to be Wealth, The Economists restricted the term Wealth to the material products of the earth which are brought into commerce and exchanged. That is, they admitted that Exchangeability is the real essence and principle of Wealth, but that only material Ex- changeable Quantities are to be included under that title. From this it is evident that they were not students of Bacon, or they would have seen that the immortal creator of Inductive Philosophy expressly lays down that when once the Quality, or Concept, has been determined as the basis of a great Science, all quantities whatever which possess that quality, or attribute, must be included in the science, however diverse in form or matter. They alleged that to admit Labour and Credit, both as Personal Credit and Rights of Action, to be Wealth, would be to admit that Wealth can be created out of Nothing. They repeated a multitude of times that Man can create Nothing, and that Nothing can come out of Nothing. We have already seen that the ancients demonstrated that Labour and Credit of both forms are Wealth, in sublime defiance of the dogma that Nothing can come out of Nothing. Le Trosne endeavours to point out why Labour, or Personal Services, are not Wealth. Because, he says, they are only relative to the person ; they are not transmissible, nor inheritable, nor transfer- 64 On the Nature and History of Economics [BK. I. able ; they do not result in a product which can be transferred, and whose value can be determined by competition ; whereas pro- ducts have a value in themselves, and acquire one by industry, which may be resold. But the answer to this is clear. The essence and principle of Wealth is solely Exchangeability, and if a quantity can be exchanged once, and is paid for, it is Wealth. There is no necessity that it should be transmissible, or inheritable, or transferable. By the Law of Continuity, if it is Exchangeable once it is as much Wealth as if it were transferable a hundred times, and inheritable. A baker bakes a bun, and a customer comes in and buys it, and eats it. It is destroyed, and cannot be resold or inherited ; it was only exchanged once. But had it no value ? And was it not Wealth ? Suppose a person does a service, and is paid a pound for it, and a baker sells a pound's worth of bread, is not the service equal in value to the bread ? What does it matter to either of these persons how soon their product is destroyed, so long as they are paid for it ? Le Trosne's argument is a direct violation of the Law of Continuity. Le Trosne is equally unsuccessful in his endeavour to exclude Credit from the title of Wealth. He admits that .the quality of Wealth depends purely on Ex- changeability, but distinguishes between Money, which has Intrinsic value, and bills which have only value from the presumed solvency of the debtor. Le Trosne himself says that Value is not a quality absolute and inherent in things, but proceeds entirely from Exchangeability. Hence, to speak of Money having Intrinsic Value is evidently a contradiction in terms (Value). Money has no value except what people agree to give in exchange for it ; and if it were placed among a people who would give nothing for it, it would have no value, as the author of the Eryxias pointed out long ago. A bill has value for precisely the same reason that money has, namely, that the debtor is bound to give money for it at a certain time. It is true that if the debtor fails the bill loses its value, but that is just what happens to money if it is placed where it cannot be exchanged. Hence, both money and a bill have value for the same reason, and lose their value under the same circumstances. Hence, it is clear that the value of money is only more general than that of a bill. It is only a difference in degree, but not in kind. Moreover, a Credit in any form, written or unwritten, may endure for any length of time until it is paid off and extinguished ; it may be transferred any number of times, and it is inheritable. CH. III.] History of Economics 65 Now it is not surprising that Quesnay, who was a physician, should not have rightly apprehended the nature of Credit. But Le Trosne was an advocate; he must have studied Roman Law. He must have known that Incorporeal Property of all sorts, Rights and Rights of Action, are expressly included under Pecunia, Bona, Res, Merx, in Roman and in every system of Law ; and, therefore, we may well feel surprised at his difficulty in admitting Credit to be Wealth. In fact, the Economists fell into exactly the same error with regard to Credit as they had delivered the world from with regard to Money. In the reaction against the Mercantile System, it was said that Money is only a Sign, or Representative, of wealth. The Economists shewed that Money is not a Sign, or Representative, of Wealth, but an actual species of Wealth, or merchandise, itself. But they saw that though a species of Wealth itself, its use is to be exchanged for other things. Hence, they repeatedly called it an Order, or Bill of Exchange, or a Title to be paid in money. Now, Le Trosne says that Credit is not Wealth, but only a Title to be paid in Wealth. It is somewhat remarkable that it escaped the sagacity of the Economists that if Money be an Order, or Title, or Bill of Exchange, it follows that a Bill of Exchange, or other form of Credit, must be a species of Money. For Credit bears the same relation to Money that Money does to goods, as the great American Jurist, Daniel Webster, found out long ago. And as Money is not a Sign, or Representative, of goods, but is exchangeable for them, so neither is Credit the Sign, or Representative, of Money, but is separate and independent merchandise, which is exchangeable for Money. Incorporeal Property of all sorts is a mass of Exchangeable Property, or merchandise, and is the subject of the most gigantic commerce in modern times, and can by no possibility be excluded from the general Science of Exchanges, or Commerce. Under the article Wealth, we have shown what a facile answer can be given to the dogma of the Economists that man can create Nothing, and that Nothing can come out of Nothing, The doctrine of the Economists that agricultural Labour is the only species of Productive Labour was not mere logomachy. They based their whole theory of taxation upon it ; they maintained that all taxation should be laid directly on the Produit Net of land, and that all other classes of persons should be exempt. But we may say that as they maintained that all commercial profits are made at the expense of the State, it seems very strange to hold that all these F 66 On the Nature and History of Economics [BK. I. profits should be exempted from contributing to the wants of the State. And further, as they held that all these profits are obtained at the expense of the original producers, it seems very hard that all taxation should be laid on the unfortunate producers, and that all those who made profits at their expense should go free. Agricultural producers had, therefore, the greatest interest in inquiring if the doctrine of the Economists was true, that agriculture is the only form of Productive Labour. One great merit the Economists had, they clearly defined every term they used. Their doctrines seemed to be logically unassailable, provided that their fundamental dogmas were right. But their doctrines provoked inquiry and reaction ; men who were labouring in all sorts of vocations which were useful to the community, were roused to indignation at being stigmatised as sterile and unproductive. Men were astounded to hear that a nation cannot be enriched by Labour and Commerce. The consequences which the Economists drew from their doctrine were so startling, and so contrary to patent, undeniable facts, that clear-sighted men began to inquire, Is it true that in an Exchange, or Commerce, neither side gains ? The Economists founded a New Order of Sciences. The Economists have the immortal glory of having founded a New Order of Sciences, and having realised the conception of Bacon, that the Sciences of Society must be studied with exactly the same care, and by the same methods, as the Physical Sciences are, and that the study of the Physical Sciences must precede the study of the Sciences of Society. They established absolute freedom of Commerce in every particular on a great moral basis as the fundamental right of mankind, proved to be true equally by reasoning and experience ; and they only missed the glory of seeing it established as national policy by the French Revolution. In 1774, Turgot, the most illustrious friend of Quesnay, was appointed Prime Minister of France, and had the satisfaction of abolishing all restrictions on the internal commerce and export of corn, and was thus enabled to gladden the heart of his dying master by seeing the first-fruits of his philosophy. And although this great man was driven from power by the selfish aristocracy whom he would probably have saved from the catastrophe which was impending over them, Free Trade doctrine had made such progress, that in 1786 Mr. Pitt concluded a treaty with France, by which all im- pediments to the free intercourse between the nations and all their CH. III.] History of Economics 67 possessions were abolished, and only subject to the payment of moderate duties. But the deluge of the French Revolution swept away this beneficent work, and replunged the nations into Economic darkness, from which England only began to emerge in 1822 ; and the glory of finally assuring the triumph of Commercial liberty in England accrued to the disciples of Adam Smith. It is sometimes urged that the Economists made the science of Political Economy too dogmatic, or a priori. But this censure must be taken with a qualification. If we knew all the true principles of all things, then science would be entirely a priori. As Bacon long ago pointed out, the very perfection of science is to attain the d priori state ; and the more true principles are discovered, the more it approaches the a priori state. Now the Economists, contemplating the position of man on the earth, and the evident intention of the Creator, arrived at the principle inductively that Freedom of Person, Opinion, and Contract, or Exchange, are the fundamental rights of mankind, most conducive to human happiness, increase, and improvement, and that all violations of them are injurious to the human race. Adopting, then, these fundamental principles, they found a state of society existing, altogether violating these rights, and, therefore, afflicted with innumerable evils. And has not history amply vindicated their doctrines ? For what have brought the greatest evils on men ? Slavery, Religious Persecution, and Commercial Restrictions. During the last 1800 years, what have been the causes of the greatest number of wars? History answers Religion and Commerce. If the doctrines proclaimed by the Economists had always been held to be true, as they now are by all enlightened persons, nine-tenths of the wars which have desolated the earth during the last eighteen centuries, would never have occurred. The great speculators of the middle ages held the material world in low esteem, as unworthy of the attention of philosophers. But it is the glory of the Baconian Philosophy to have extended the dominion of mind over matter, and brought into subjection and turned to profit, the forces of Nature. The philosophers who proclaimed that Law is of Divine institution, and that there is a system of law which is innately right, anterior to all human laws, confined their ideas to moral rights. But it is the glory of the Quesnayan, or Economical Philosophy, to have shewn that there is a great moral relation existing, not only among men, but connecting man with the material world, most intimately connected with the F 2 68 On the Nature and History of Economics [BK. I. well-being of the human race, which is capable of being discovered and established by human reason, as well as any of the other sciences, which are rightly considered as the triumphs of the human intellect. Thus Bacon extended the dominion of mind over matter, and Quesnay ascertained the rights of man relating to matter. The Philosophy of the Economists differs from all others in taking the individual man as the basis of society. Almost all other systems hold the individual as subordinate to society, and it is certain that individual property is not that which originally prevailed throughout the world. But instead of sacrificing man to society, the Economists declared that society is only instituted for the purpose of preserving and defending the rights of the individual. " Governments," says Turgot, " are apt to immolate the well-being of individuals to the pretended right of society. They forget that society is only made for individuals, and that it was only instituted to protect the right of all in insuring the performance of mutual duties." How much in advance of their age the Economists were, can only be appreciated by those who will take the pains to acquire a knowledge of the state of society and opinion, when they lived. It is manifestly quite impossible to give any adequate picture of that in the limits of this work. It is sufficient to say that they were the leaders of mankind in that great change or movement, as it has been called, of society from Status to Contract, and their principles are constantly gaining influence throughout the world. Therefore, although certain portions of their doctrines may be erroneous, and have been set aside by subsequent Economists, they are entitled to imperishable glory in the history of mankind. CondillacAdam Smith. The amazing doctrine of the Economists, that neither the industry of artisans nor commerce enriches a nation so contrary to the plainest facts of history, but which they maintained with incomprehensible obstinacy naturally produced a reaction against them. Men began to inquire whether their dogma, that in an exchange neither side gains or loses, upon which these assertions rested, was true. Moreover, men who were performing services for the public were indignant at being stigmatised as sterile and unproductive. The first to declare against them were the Italian Economists ; but in so very general an outline as this we have no space to give an account of them, as they never formed a distinct school. There was a cluster of writers, such as Verri, CH. III.] History of Economics 69 Beccaria, Genovesi, Delfico, and many others, who ardently advo- cated Freedom of Trade, but they never formed a school, as the French and English Economists did; and no Italian work was ever adopted as a national text-book, as Adam Smith, Ricardo, and Mill were in England, or J. B. Say was in France. In the same year, 1776, appeared simultaneously two works which were expressly designed to overthrow the system of the Economists, viz., Adam Smith's Wealth of Nations > and Condillac's Le Commerce et le Gouvernement. These works, though apparently different in name, were similar in conception. They both begin by taking the Theory of Value, or of free commerce, as the natural order of things, and then afterwards consider the effects of interference by Government. They were the friends and as- sociates of the Economists, and emanated from their school ; but they both revolted against the doctrine that manufacturing and commercial industry do not enrich a nation. Moreover, they both maintained that in an exchange both sides gain. Smith's work attained immediate popularity, but Condillac's fell stillborn from the press, and never attracted the slightest attention, 1 and the whole subject of Economics was entirely forgotten in France after the fall of Turgot. Condillac's is a very remarkable work, and deserves attention. It is called Le Commerce et Le Gouvernement consideres relativement /' un a P autre. It is tinged in a few places with the errors of the Economists, but he rebelled against their classing artisans, manufacturers, and merchants as unproductive labourers. He also argued against the doctrine of the Economists, that in an exchange neither side gains or loses ; on the contrary, he maintains that both sides gain, which Boisguillebert, the morning star of modern Economics, had asserted before him. Condillac intended to have published three divisions of his work the first, in which the principles of Economic Science, or Com- merce, are explained; the second, in which the relations of Commerce, or Economics, to the Government, and their reciprocal influence over each other, are investigated and under this division comes Taxation; and the third, containing a collection of practical examples showing the application of the principles developed in the two preceding parts. Unfortunately, the third part was never published. Condillac begins at once by sayirtg that Economic Science is 1 M. Michel Chevalier did me the honour to say that I had discovered Condillac. /o On the Nature and History of Economics [BK. I. the Science of Commerce or Exchange, thereby only expressing the idea of the Economists as to the " Production, Distribution, and Consumption of Wealth" in a much more simple and in- telligible form, and also, which is a great advantage, in one which is General; for the Science of Commerce must necessarily embrace all branches of Commerce. He begins by investigating the foundation of the Value of things, and shows that it originates entirely from the wants and desires of men. This want, or estimation, is called Value. As people feel new wants they learn to make use of things which they did not before. They give, therefore, value at one time to things to which at another time they do not. Thus Condillac, in accordance with the ancients and all the Italian Economists (Value), places the origin and source of Value in the human mind, and not in labour, which is the ruin of English Economics. But people have come to regard Value as an absolute quality which is inherent in things, independently of the opinion we have of them ; and this confusion of ideas is the source of bad reasoning. Value is founded on Estimation. Value, therefore, exists before an Exchange. Condillac blames the Economists for saying that Value consists in the relation of one thing exchanged for another. This criticism of Condillac's, how- ever, is overstrained, because, unless there be an exchange, there is no manifestation of Value, there is no phenomenon which can be the subject of Economic Science. Economics has nothing to do with impotent desires of the mind which have no external manifestation, but only with effective desires which produce a phenomenon, or an effect. So dynamics has nothing to do with latent forces which give no outward sign of their existence, but only with the phenomena produced by forces. So Credit, in the popular sense, means the estimation of a man's solvency held by the public, but Economic Science has nothing to do with a man's Credit until he produces an Economic phenomenon by making a purchase with it. That is, until he makes a purchase by giving a Promise to pay in exchange for goods or services, and then that promise to pay, or right to demand payment, or Debt, is Credit in its legal, commercial, and economic sense. Condillac lays down as a fundamental doctrine : "A thing has not value because it has cost much, as people suppose, but money is spent in producing it because it has Value." Every one of common sense will give his assent to this doctrine, and it is the CH. III.] History of Economics 7 r one by which Whately sent a deadly shaft into the Economics of Smith and Ricardo. Condillac then shows that all variations in Value are caused by the variations in what is called the Law of Supply and Demand ; and, therefore, there is no such thing as absolute price. The price varies from market to market, and is always settled by competition ; and it is useless and dangerous to prevent these variations. Condillac then shows how commerce augments the mass of riches. What, then, do merchants effect if, as is commonly said, an exchange is an equal value given for an equal value? If that were true, it would be useless to multiply exchanges, and there would always be the same mass of riches. It is, however, false that in an exchange the values are equal. On the contrary, each party gives less and receives more. If not, there could be no gain on either side. But both sides gain, or ought to do so, for this reason, that Value has no reference except to our wants, and that which is more to one is less to the other, and reciprocally. The source of error is in supposing that things have an absolute Value, and, therefore, people think that in an Exchange they give and receive an equal Value. Each, however, gives less and receives more, because he gives what he wants less, and receives what he wants more. Condillac then discusses wages, and shows why wages differ in different employments. He defends the right of property and bequest. He discusses the nature and uses of Money, and agrees with the Economists. He observes that the use of Money as a measure of Value has given rise to the confusion about value. If men had continued to traffic by way of barter, they would have seen clearly that they always gave less and received more. But as soon as Money was introduced, they naturally thought that it was an exchange of equal values, because each was then valued at the same quantity of Money. By means of Money the respective values of quantities of corn and wine may be measured, and then men see nothing in their values except the Money, which is their measure. All other con- siderations are lost sight of; and because this quantity is the same, they think that each of the quantities is equal in value. But the comparative gains of the parties are to be estimated by the intensity of their relative wants, and not by the absolute amount of Money. The merchant buys things wholesale, and sells in detail, and receives back the price. Thus continual small sales replace the sum spent in purchasing in gross; and when this replacement is made, purchases are again made in gross, to be replaced in detail. 72 On the Nature and History of Economics [BK. I. Money is, therefore, always being scattered to be again collected into reservoirs, as it were, from which it is again spread by a multitude of small canals, which bring it back to its first reservoirs, whence it is again scattered, and to where it again returns. This continual movement, which collects it to scatter it, and scatters it to collect it, is called Circulation. And this Circulation mani- festly means an exchange at each movement. If there is no exchange, it is not Circulation. Mere transport of Money is not circulation. In circulation the money must, as it were, transform itself into something else. Credit, however, is used to a great extent instead of Money, and performs the same functions. Condillac earnestly advocates universal Free Trade. He ridicules the idea of a million of gold and silver being wealth any more than a million of other productions. Products are the first wealth. What will you do if other nations, who reason as ill as you do, wish also to draw your gold and silver to themselves? That is what they will try. Every nation will, therefore, try to prevent foreign merchandise from coming to them. And if they succeed, it is a necessary consequence that their own merchandise will not go anywhere else. For wishing to keep each to itself all the profits of trading, they will cease to trade with one another, and thus they will lose all profits. Such is the effect of prohibitions. Who yet dares to be sure that Europe will open its eyes ? I wish it would, but I know the force of prejudice, and I don't expect it. In short, commerce is not for Europe an exchange of works, in which each nation finds a profit ; it is a state of war in which each tries to rob the other. They think, as they did in times of barbarism, that nations can only grow rich by robbing their neighbours. Condillac having thus in the first part traced the grand outlines of Economic Science, and shown that universal Free Trade is the proper order of things, in the second part takes universal Free Trade as the basis of his argument, and examines in succession the mischievous consequences produced by all violations of, and attacks on, the principle. These are wars, custom houses, taxes on industry, privileged and exclusive companies, taxes on consumption, tamperings with the currency, government loans, paper money, laws about the export and import of corn, tricks of monopolists, the commercial jealousy of nations, and other things. The effects of each of these are examined with admirable skill. Such is a brief outline of the first two parts of this work. The third was, unfortunately, never written. Although we have been constrained by our limits to give but a few points, the analysis we CH. III.] History of Economics 73 have given will show the general scope of this excellent work, and its great importance is manifest, for it is the true foundation of modern Economics. Condillac expressly declares the true function of Economics to be the Science of Commerce. And in dealing with the subject, we see the immense superiority of a mathematical and metaphysical mind ; for he places the source of Value in the human mind, in wants and desires, or in Demand, as the ancients and the Italian Economists did ; and having done so, he naturally shows that all variations in Value depend on variations in Demand and Supply. That is, he instinctively, as a physical philosopher, never dreams that there can be more than one fundamental theory of Value. He, as every physicist who really paid attention to the subject, would have been utterly aghast at the notion that the science could be based on six or seven fundamentally conflicting theories of Value, as is the fashion at the present day. It is true that Condillac's work can by no means be considered as a complete treatise, and it requires immense development. But it lays down the broad, general outlines of true Economics. Smith's work and Condillac's were published in the same year. Smith's obtained universal celebrity in a very short time. Condillac's was utterly neglected, but yet in scientific spirit it is infinitely superior to Smith. It is beyond all question the most remarkable work that had been written on Economics up to that time, and it plays a most important part in the history of the science. The whirligig of time is now bringing about its revenges, for all the best European and American Economists are now gravitating to the opinion that Condillac's is the true conception of Economics. The beautiful clearness and simplicity, the instinct of the true physicist, are visible throughout ; at length he will receive justice, and, after the neglect of 1 20 years, he will emerge as the true founder of modern Economics. We have now to speak of Condillac's far more fortunate con- temporary, Adam Smith, whose work originated from the same causes as Condillac's, namely, the doctrine that in an Exchange neither side gains nor loses ; that no labour but agricultural is productive ; and that the labour of artisans, manufacturers, merchants, and traders is sterile and unproductive, and does not enrich a nation. Adam Smith, who first published a work on Economics which greatly influenced public opinion in this country, was born at Kirkcaldy, in Fifeshire, just opposite Edinburgh, on the 5th June, 74 On the Nature and History of Economics [BK. I. 1723, a posthumous son of the Comptroller of Customs there. He was sent to the University of Glasgow, where he gained a Snell exhibition to Balliol College, Oxford. He resided at Oxford seven years. In 1748 he delivered some lectures on rhetoric and belles lettres in Edinburgh, under the patronage of Lord Kames. In 1751 he was appointed Professor of Logic, and in the following year Professor of Moral Philosophy, in the University of Glasgow. In his lectures it is said that he advocated the doctrines of Free Trade, which were then widely adopted by the most enlightened men in France, Italy, and Spain. But no account of these lectures, not even one line of them, has been preserved, so that we have no means of comparing his views then with those he published in 1776. But even if he did teach Free Trade then, he was in no sense its creator. Many writers had advocated Free Trade long before him. The Economists published their code of doctrine in 1759, in which free exchange was asserted to be one of the fundamental rights of mankind, and there were numerous and powerful advocates of Free Trade in Italy and Spain, fifteen years before Smith published a line. Turgot carried out immense reforms in the direction of Free Trade in 1774. How did these writers and statesmen learn Free Trade from Smith, when his work was not published till 1776 ? Smith has himself done sufficient services to Economics, and his reputation does not require the advances and services done by other persons to be attributed to him. In 1759 he published his professional lectures on the Theory of the Moral Sentiments, a work which gained a rapid reputation, and attracted the attention of the guardians of the young Duke of Buccleugh to him. In 1760 he accepted the appointment of tutor to the Duke, and in March, 1764, he set out with him for the Continent. Passing through Paris, he resided for about eighteen months at Toulouse. It is impossible to say whether Smith had any knowledge of the doctrines of the Economists while he was at Glasgow ; but he must naturally have been attracted to them when in France. At Christmas, 1765, Smith and his charge went to Paris, where they stayed about a year. While there he formed an intimacy with the Economists, and held Quesnay, their chief, in such esteem, that he intended to have dedicated the Wealth of Nations to him, only he died before it was published. At the end of 1766 Smith returned to Scotland, and settled at Kirkcaldy, where he remained ten years, during which he was occupied with the composition of the Wealth of Nations, which was published in 1776. CH. III.] History of Economics 75 The Wealth of Nations is divided into five books, the first two of which only concern our present purpose, as giving the positive part of the Science as understood by him. The third book is on the different progress of opulence in different nations ; the fourth book is a formal refutation of the Mercantile system, and the doctrines of his friends, the Economists ; and the fifth is on the revenues of the State. We have given an account of the way in which Condillac refuted the doctrine of the Economists, that in an exchange there is neither loss or gain on either side, because his work is very little known. We cannot give a full account of Smith's reasoning, because it would be too long for such a work as this, and every one can see it in the work itself. It is sufficient to say that by a course of masterly reasoning, far superior to that of Condillac, he demonstrated that in commerce both sides gain ; and, therefore, that nations in multi- plying their commercial relations, multiply their profits, and multiply their wealth ; and that, as a necessary consequence, the labour of artisans, manufactures and commerce, all enrich a nation, and> therefore, that those who engage in them are productive labourers. Perhaps it may seem that the doctrine is so plain 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. Even if Adam Smith had never done anything else for Economics than this, he would have been entitled to immortal glory. Smith's doctrine is now the very corner-stone of Economics, and made a complete change in public opinion, and in international policy, which has for ever removed a perennial source of war from the world. Nations learnt that instead of destroying each other, and trying to ruin each other's commerce, it was their interest to promote each other's prosperity, and to multiply their commercial relations with each other. Free Trade on a Moral and Economical basts. The Economists established it as one of the fundamental rights of mankind that they should be allowed to exchange their products and services freely with one another. Now it is evident that when men agree to exchange their products and services, the arrangement of the price, or value, of the reciprocal products and services exchanged should be left entirely to the mutual agreement of the parties, the buyer and the seller. Who can tell so well as they what is the real 76 On the Nature and History of Economics [BK. I. value of the product, or service, to them ? Now when the price of the product, or service, is agreed upon and settled between the sole parties who are interested in it, suppose that some artificial force is suddenly directed against one of them, beyond what arises from their natural position, to oblige him to yield up more of his property to the other than he would do if the arrangement were left perfectly free such a force suddenly put at the disposal of either party, whatever its nature be, whether moral or material, would clearly be unjust in its very nature, and would be nothing more than a license enabling one party to rob the other. It may be asserted in the broadest possible terms that it is the natural right of every man to employ his industry, and the talents which Providence has given him, in the manner which he considers to be most for his own advantage, so long as it is not to the injury of his neighbour. He has the natural right to exchange the products of his industry with those of any other person who will agree to such an exchange, to buy from whom he will, and to sell to whom he can. A law which seeks to check the course of this free exchange is inherently wrong, and because inherently wrong, inherently mischievous. And though it may be permitted to take something from him for the necessi- ties of the State, which is the guardian of the interests of all, a law which deprives one class of the community of a part of their property, in order to bestow it upon another class, is an intolerable violation of natural justice. If a person forcibly takes away a part of his property from another person, without any equivalent, it is simple robbery. In the same way, if a man wishes to sell any article, and can by any means force the buyer to pay a higher price for it than he otherwise would, it is simply despoiling him of part of his property, and appropriating it to himself. Let us put this in a familiar way. Suppose that Richard Stubble lives in the country and grows corn, and that his friend John Smith carries on his business in town. Having some corn to sell, Richard proposes to have a transaction with his friend John. The free marketable value of the corn is, say, 403. per quarter ; but suppose that Richard has about a hundred times more influence over the Legislature than John has, and he gets them to pass a law by which he can compel John to pay him 503. for what he could buy elsewhere for 405. In that case he deprives John of IDS., representing so much of his industry, for which he gives him no equivalent, and takes it to himself. In the mediaeval ages CH. III.] History of Economics 77 great lords and barons used to keep armed retainers, whom they employed to plunder any unfortunate travellers who came within their power. In the nineteenth century, great lords and gentlemen passed laws by which they forced traders to surrender to them a considerable portion of their property against their will. Where is the moral difference between the cases ? When one man forcibly and unjustly deprives another man of his property, the precise method he may adopt for his purpose does not materially affect the moral aspect of the thing. It is no argument to say that till comparatively recent times the protective system was established in this country, that it is still in force in foreign countries, and that it was supported and adopted by men of unblemished character and integrity. It is absolutely necessary that we should not suffer our estimation of the moral character of men to influence our judgment as to the soundness of their opinions. There never prevailed a pernicious error in the world which was not supported by the authority of men of eminent personal excellence. It is, unfortunately, through the very excellence of the men who adopted them that most of the erroneous principles which have done so much mischief in the world derived their fatal influence. The real question is not whether the men who hold certain opinions are estimable, but whether the opinions themselves are right or wrong. The fact is that questions are examined with far greater care and intelligence nowadays than ever they were before ; and by this more com- prehensive investigation new considerations and relations are discovered, which may present them in very different lights than are apparent at first. Abstract right is every day obtaining greater influence in legislation, and many of the most beneficial reforms of the present day have been to abolish and set aside the partial and unjust laws which encumbered the statute-book. It is not so very long ago that public opinion in this country tolerated the slave trade, and men of eminent piety saw no harm in stealing men from their homes, and transporting them to foreign countries, to labour for the benefit of their masters. But public opinion became convinced of its abomination, and not only put it down, but declared it to be a great crime. What was considered to be legitimate traffic at the beginning of the century, is now declared by law to be piracy, and Englishmen who engage in it are liable to be dealt with as pirates. Little more than a hundred years ago, if a gale came on, it used to be the custom to pitch the negroes overboard, like cattle, and this was related in a court 78 On the Nature and History of Economics [BK. I. of law without eliciting the slightest comment. Now, at bottom, there is not much difference in the ideas involved in protection and the slave trade. They both seek to effect the same object by somewhat different methods. They are both for the purpose of enabling one set of men to appropriate to themselves the fruits of their neighbours' industry the one by the coarse method of fraud, the other by the somewhat more refined method of fraudulent taxation. The protective system is, therefore, nothing more than a method by which producers endeavour to force consumers to pay a higher price than they otherwise would do for their commodities. Now let us consider a different case. Suppose that the Legislature, being entirely composed of con- sumers, should pass a law forbidding the farmers to sell their produce above a certain price, or to export it to foreign countries, where they might find a better market for it. Or suppose that laws were made to prevent workmen demanding above a certain sum as wages, or compelling producers to bring their products to market, and accept a price for them much below what they would fetch if there were no such law. This would be a case on the part of consumers precisely analogous to what protection is on the part of producers. This form of injustice did formerly prevail to a certain extent in this country, but it never acquired a distinctive name in our language as it did in France. During the height of the French Revolution, in 1793, when the insecurity of property had scared away almost all sorts of produce from the market, the French Convention passed the severest laws to limit the price of com- modities, forbidding persons to sell their produce above a certain fixed price, whence they were called the laws of the Maximum. As might have been foreseen, these laws only aggravated the evil, and their disastrous effects are set forth with great minuteness in the third, fourth, fifth, and sixth volumes of Alison's History of Europe (seventh edition), though the author overlooks the fact that the very same objections apply against the system of pro- tection, of which he is so strong an advocate. Each of these systems, then, is erroneous, but in opposite directions that of Protection, by which the producer obliges the consumer to buy from him his produce at a price above its natural value; that of the Maximum, by which the consumer obliges the producer to sell to him his produce at a price below its natural market value. Now every law whatever which interferes CH. III.] History of Economics 79 with the natural course of trade, which attempts to regulate the wages of labour or the price of commodities, which attempts to meddle with the free exchange of industry or products between man and man, must necessarily fall under one of these forms of error. Every such law sins against natural justice, more or less, in one direction or the other, either as it assumes the form of Protection or the Maximum ; and it is just as clear as the sun at noonday that the only true, just, and proper course is to establish and maintain absolute freedom of exchange. The fact is, that both of these erroneous systems Protection and the Maximum as we pointed out forty years ago, and which is now generally recognised, are forms of Socialism. They are both especially designed for the very purpose of interfering with the natural value of commodities. Consequently, whichever of the parties is enabled to compel the other to part with his property at a different rate than what he would if unconstrained, is able to appropriate to himself a portion of the other's property. And this is the very essence of Socialism. Protection is the Socialism of producers ; the Maximum is the Socialism of consumers. And nothing is more natural than to find that where the one doctrine is popular with one party, the other doctrine is popular with the other party. Of this we may see examples in foreign countries, where Protection is the creed of the State, and Socialism is the .alarmingly-increasing creed of the people. Now, the idea which was at the root of all this legislation was that Cost of Production should regulate Value, and that those who had produced articles had the right to have remunerative prices secured to them by law. This idea was a very natural one to occur to producers, and when we think of the condition of Parliament when this species of legislation was in fashion, it is not surprising that it prevailed. In the last century, it is true, there were at various times laws enacted for disturbing the natural course of commerce ; but the corn laws, which lasted, with various modifications, until Sir Robert Peel abolished them, were enacted in 1815. Now, what was the state of Parliament at that time? One branch was entirely composed, as it still mostly is, of agriculturists ; the other principally of agriculturists and the nominees of agri- culturists, as well as great manufacturers, great merchants, great shipowners, and great producers of all sorts. It was entirely a Parliament of sellers a vast, close, and corrupt combination. The great body of the people, t'.e,, the consumers, had very little influence in the House of Commons. The sellers had a complete 8o On the Nature and History of Economics [BK. I. monopoly of law-making, and their legislation was exactly what might have been expected. All the producers, in turn, were permitted to plunder the public for their own benefit. It was nothing more than a gigantic conspiracy of all the sellers against all the buyers. These laws were a striking proof that no single interest can be entrusted with the power to frame laws for the whole community in a spirit of justice ; but, to ensure that, all interests must have a voice. These considerations are, we think, sufficient to place the doctrine of Free Exchange on an impregnable moral basis, and we have now to consider the effect of Adam Smith's grand demonstration, that in commerce both sides gain. The Economists keenly main- tained the right of free exchange ; but from their doctrine, that in commerce neither side gains, this was but a barren truth. But Smith's demonstration, that in commerce both sides gain, put the matter in a much more striking and practical light. This, of all the services he has done to Economics, may be considered as his chief achievement one which alone, from its stupendous consequences and effects on national policy, would entitle him to immortal glory. The essence of Adam Smith's doctrine is that the wider and more extensive commercial intercourse is among nations, the more prosperous and wealthy they all become. Every one, in seeking his own advantage, benefits others as well ; because if a man wants to acquire any object he must have to offer in exchange for it something which other people want. Different countries have different advantages for producing commodities for the enjoyment and satisfaction of mankind. It is the interest of the whole world that all commodities should be produced in those places where they can be obtained best and cheapest, and exported to those places where they can only be produced of inferior quality, and at a greater cost. Thus the whole world will obtain the greatest amount of enjoyments and satisfactions at the least labour and cost. Thus absolute freedom of commerce and exchange throughout the whole world is the true nature of things. But when hostile tariffs are interposed they act at once as a barrier, and diminish the commercial intercourse of nations, to their mutual impoverish- ment. Protective tariffs are expressly made for the purpose of forcing commerce out of its natural course and development, and that alone is sufficient to condemn them. This is so obvious that we need not dwell on it further. CH. III.] History of Economics 8 1 It is, however, necessary to correct an assertion which is by no means uncommon. It is well known that Cobden, in his wonderful campaigns, many times declared that if England would lead the way other nations would quickly adopt Free Trade. At that time there seemed every prospect that this hope would be realised. After his great victory in England, Cobden made a triumphal progress throughout Europe. Everywhere he was re- ceived like a great conqueror. The success of free trade legisla- tion in England gave an immense stimulus to free trade doctrines in France, the birthplace and cradle of Economics and free trade. In 1846 and 1847 numerous Economists, among whom Michel Chevalier and Frederic Bastiat were the most conspicuous leaders, got up an association and agitation in France on the model of the Anti-Corn Law League in England, and excited immense enthusiasm. The movement had the best prospect of success when the French Revolution of 1848 broke out, and quickly set all Europe in a blaze. That of course extinguished all hopes of Free Trade. When thrones were rocking to their foundations, and crowns were tumbling in the dust, statesmen could give no attention to Economics. Inter arma Economics silet. And instead of Economics, the wildest Socialism got the upper hand. The Socialists knew instinctively that true Economics was their deadly enemy, so they abolished all the chairs of Economics in France. Under the fatal advice of Louis Blanc they established the Ateliers Nationaux (of which I have given an account in my Dictionary of Political Economy), where every workman was to be provided with work out of the resources of the State. But though the State could pay workmen to produce articles, it could not provide pur- chasers to buy them, so that, to prevent bankruptcy, the Ateliers Nationaux had to be suppressed, at the cost of the most terrible civil war ever raised in any city. Napoleon III., with the advice and assistance of Rouher, Cheva- lier, Cobden, and Mallet, negociated a commercial treaty with England in 1860, which considerably relaxed the protection system then established. But this treaty was carried by the autocratic power of the Emperor, and was utterly distasteful to the great mass of the French people, who were now mainly protectionist and socialist, which are one and the same thing. And, alas ! France, which in the last century was the beacon to spread the light of free trade throughout the world, is now enveloped in the deepest darkness of protection and socialism ; nor does there seem any immediate prospect of her emerging from it. 82 On the Nature and History of Economics [BK. I. Fallacy of Reciprocity and Retaliation. Now, a considerable number of persons, seeing that other nations not only have not followed the example of England, but, on the contrary, have retrogressed, and are now even more protectionist than they were in 1847, and that up to this time Cobden's hopes have been falsified, have maintained that what Cobden only re- garded as a hopeful prospect was, in his view, the necessary corollary of England's adoption of free trade; and that as other nations have plunged deeper and deeper into protection and socialism, England should do so likewise. They clamour against what they are pleased to designate as one-sided free trade, and, under the specious names of reciprocity and fair trade, they are calling out for England to retaliate by enacting protective tariffs against those nations which have enacted protective tariffs against her, and so to do unto them as they do unto her. If this were carried out, England would have to revert to the darkest days of protection. It has been frequently said that if Cobden were alive now, and saw the falsification of his hopes, he would advocate reciprocity and fair trade, as they are pleased to term it. But those who say so never studied Cobden's doctrines. Constantly and uniformly he inculcated that England ought to adopt free trade whether other nations did so or not, and even if all the world were against her, as is very much the case at present. Having a perfect recollection of the great free trade discussions, I have no hesitation in saying that Cobden would have done nothing of the sort which the reciprocitarians and fair traders would attribute to him. His constant maxim was, that the true way to fight hostile tariffs is by free trade. No doubt all these hostile tariffs are extremely exasperating. They inflict incalculable injury, not only upon the wealth and prosperity of England, but upon the nations themselves, and all others in the world. But if, as some hotheaded and inconsiderate persons urge, England were to resort to reciprocity and retaliation, she would merely double the mischief. If the present hostile tariffs destroy an incalculable amount of commercial intercourse, a resort to reciprocity and retaliation would destroy it infinitely more. As Sir Louis Mallet pithily said, " If one tariff is bad, two are worse." If foreign nations smite us on one cheek by their hostile tariffs, if we followed the advice of the reciprocitarians, and retaliated, we should simply smite ourselves very hard on the other cheek. CH. III.] History of Economics 83 I will now endeavour to show that it is for the interest of this country to adopt free trade, irrespective of the policy of foreign nations, and that both the theories of retaliatory duties and reci- procity are erroneous. In order to demonstrate this, let us suppose two cases. First, let us suppose that England and France have very few duties, or none at all, on each other's productions, and under these laws a certain amount of commercial intercourse takes place. Let us now suppose that, for some reason or another, France takes umbrage at Eng- land, and, in order to punish her, imposes heavy duties on English products. Without at present stopping to inquire what are the effects of this conduct on France herself, it is evident that the result is to limit the demand for English goods. It manifestly cripples British industry, and by this means a certain amount of injury is done to England. England, being irritated, begins to think of revenge, and just at that moment in comes a protectionist in a fit of blind, unreasoning passion, and cries out, "We must retaliate ! Put a heavy tax on all French produce." In an evil hour England listens to protectionist advice, and places heavy retaliating duties on French produce, by way of punishing France. Suppose that from these duties ^"1,000,000 is raised. Who pays this 1,000,000 of duties ? The protectionist, seeing that this sum of money is raised from these goods which belong to Frenchmen, and come from France, by some incomprehensible jumble of ideas calls this "taxing the foreigner," and thinks that he is making the Frenchman pay. But let us examine the case carefully. In the first place, who pays the import duties? It is quite clear that it is not the Frenchman who pays them, but the British consumer. The import duties are charged in the price to the consumer, and, therefore, by placing import duties on goods, it is ourselves we tax, and not the foreigner. Thus, England being irritated at French ill-temper, gets in a passion, and immediately fines herself ^1,000,000. The price of French produce being thus raised, of course limits the demand for it, and it injures France so far by crippling their industry, but not by making them pay the tax upon it. As, there- fore, by placing retaliatory duties on French produce, we take less of it, they necessarily take less of ours in return ; and this also still further cripples British industry, throws British workmen out of employment, causes less demand for British shipping, and, in addition to all this, raises a large sum by way of taxation on the British consumer, besides the inconvenience of either making 84 On the Nature and History of Economics [BK. I. persons forego what they have been accustomed to, or by making them pay a higher price for it reducing their means of purchasing other articles. By the method of retaliatory duties, when the Frenchman smites us on one cheek, we immediately hit ourselves an extremely hard slap on the other. The Frenchman, by his duties, does us an injury, and we, by retaliating, immediately do ourselves a great deal more ; and, indeed, it would not be difficult to show that the country which imposes the duty does itself a great deal more injury than its antagonist. The same arguments, of course, apply to France. Now let us take another case. Suppose that France and Eng- land, being afflicted with protectionist ideas, have mutually imposed heavy duties, not absolutely prohibitive, on each other's produce. Suppose that under these duties a certain amount of trade takes place between them ; then England, being brought to understand that it is she herself, and not France, who pays the import duties, resolves to make a general reduction of her import duties without waiting for France to alter hers. By this means the price of French produce is lowered to British consumers, a greater demand for it takes place, and the French producers have more money to spend. Then they in turn take more goods from England, and this sets British industry in motion, gives employment to British workmen and to British shipping. Is it not clear, therefore, that it is for the advantage of England to lower her duties, whether France does so or not ? By lowering the duties we are taking the burden off our own backs, and not that of the foreigner, though of course it benefits him too, as it gives him more employment. If the foreigner could be induced to do so too, it would still further increase the mutual benefit. It may be laid down certainly, as a rule, that the country which raises or lowers its import duties injures or benefits itself much more than it injures or benefits its neighbour. And has not all this been found to be true by experience ? And now let us ask who are the true " friends to British industry " the protectionists or the free traders ? The first of these cases shows the mischievous operation of retaliatory duties, and the second the fallacy of the reciprocity theory, and they completely demonstrate the free trade axiom, which is so sore a puzzle to protectionists The true way to fight hostile tariffs is by free imports. Retaliation, then, is not to be thought of. England may justly fume and fret, but she must keep her temper and possess her soul in patience. There is no remedy but time and patience. CH. III.] History of Economics 85 When protectionist policy once gets the upper hand, the natural tendency of its advocates is to strain it till it cracks. When protectionists do not reap the benefits they expect from protection, their constant cry is for more, and always more, protection. We see this in Russia, Germany, France, Italy, and, most conspicuously, in the United States. In this last-mentioned country they at last perceived that they had bent the bow too far, and they have recently somewhat relaxed the strain ; but how long they will continue in this mood no human being can tell. But whatever other nations may do, England must endure to the end, and steadily keep the light of free trade burning amid despondency, gloom, and darkness, in the hope that time, experience, reflection, and example may bring other nations to a better frame of mind. We are happy to be able to support these views by a passage written by one of those illustrious Scots who were an undying honour to their own native land, and an unspeakable blessing to those nations they were called to rule Sir Thomas Munro, Governor of Madras. In 1825, writing to a friend, he says : " There is another point on which anxiety is shown where I think there ought to be none I mean that of other nations granting similar remissions on our trade. Why should we trouble ourselves about this ? We ought surely not to be restrained from doing ourselves good by taking their goods as cheap as we can get them, because they won't follow our example. If they will not make our goods cheaper, and take more of them, they will at least take what they did before ; so that we suffer no less on this, while we gain on the other side. I think it is better that we should have no engagements with foreign nations about reciprocal duties, and that it will be more convenient to leave them to their own discretion in fixing the rate, whether high or low." So wrote this sagacious Scot in 1825, by which it will be seen that he completely anticipated Cobden's arguments, and in other respects the ideas he put forth then are only now being realised in India. One example alone is sufficient to prove the truth of this policy. Even in former times, when all nations were protectionist, there were always a certain number of free cities, and their wealth and prosperity, while all nations were weighed down with protection, completely establish the truth of the doctrine of Sir Thomas Munro and Cobden. And if free cities were enabled to prosper, while all the rest of the world was protectionist, does not the same argument apply to England? If so be, England must continue to the end as the free port and market of the world. 86 On the Nature and History of Economics [BK. I. A war of tariffs is only one degree less injurious than a war of sabres and cannon. Thus we see how true Economics throws a clear and steady light on the path of national policy. On Smith's Definition of Wealth. Having thus set forth Adam Smith's magnificent services to Commerce in general, and their effects on international policy, we must now inquire more particularly into his conception of the positive science itself. The first book is on what he calls Pro- duction and Distribution, but in reality it is the Theory of Value, or of Commerce, in accordance with the meaning given to the expression by the Economists. And as the word Wealth is the basis of the whole science, we must investigate what Smith means by Wealth. It is somewhat strange that though Smith entitles his work " An Inquiry into the Nature and Causes of the Wealth of Nations" he nowhere tells us what he means by "Wealth. Whately has well observed that Smith's title supplies only a name for the subject matter, and not for the science itself. We must now endeavour to collect what Smith meant by " Wealth." We must remember that by Wealth the Economists meant the Material Products of the earth which are brought into Commerce and exchanged, and those only. They expressly ex- cluded Labour and Rights from the term Wealth ; thus, they made Labour, Materiality, and Exchangeability as neces- sary to Wealth, but of these they made Exchangeability as the real essence of Wealth, and Labour and Materiality only as the accessories or accidents of Wealth, because they excluded the material products of the earth which were not brought into commerce and exchanged from the term Wealth. Smith does not anywhere expressly define Wealth, but at the end of the Introduction he speaks of "the real Wealth of the country the annual proditce of the Land and Labour of the society " ; and from the number of times he repeats this phrase, we may assume that to be very much his idea of it, especially as it was an expression in common use by the Economists of other countries. But it is to be observed that Smith has entirely omitted Ex- changeability from his description of Wealth in this place. Now, upon examining this expression, it is very evident that CH. III.] History of Economics 87 it is ambiguous. It is not clear whether it means the annual produce of land alone, and the annual produce of labour alone, or the annual produce of land and labour combined. It is probable that he meant the latter. Whichever way the expression is interpreted, it is manifest that it is far too wide, because if it be laid down absolutely that "the annual produce of land and labour" either separately or combined, is Wealth, then every useless product of the earth is Wealth as well as the most useful the tares as well as the wheat. If a diver fetches a pearl oyster from the deep sea, the shell is as much the "produce of land and labour" as the pearl itself. So if a nugget of gold or a diamond is obtained from a mine, the rubbish it is found in, and brought up with, is as much the "produce of land and labour" as the gold or the diamond; and innumerable other instances of this sort might be cited. So also every useless work done would be Wealth. Thus, if a number of labourers were to raise a mound in Salisbury plain, or build a palace in the middle of the Sahara, that would be Wealth. The simplest example of the "produce of land and labour" is children making dirt pies; so that if this definition of Smith's is to be accepted, the way to augment the Wealth of the country would be to set all the dirty children in it to make mud pies ! Moreover, this definition is far too narrow. The land itself on which a city is built is Wealth. The owners of it obtain a great revenue by simply allowing other people to build houses on it. The land on which London is built is worth thousands of millions of money, and the land itself is certainly not the "annual produce of land and labour," either separately or combined. Moreover, cattle and flocks and herds are of great value, and are Wealth ; and how are flocks and herds and cattle the " annual produce of land and labour " ? There are besides many species of timber trees which are of great value as they stand on the ground, before any person has touched them. How are they the "annual produce of land and labour " ? unless, indeed, we agree with M'Culloch, that the growth of a tree is labour ! So, many other examples might be cited. On the Nature and History of Economics [BK. I. Smith classes Human Abilities, or Labour, as Wealth. Moreover, under the title of "Fixed Capital," Smith enumerates "the acquired and useful abilities of all the inhabitants or members of the society. The acquisition of such talents by the maintenance of the acquirer during his education, study, or apprenticeship, always costs a real expense, which is a Capital fixed and realised as it were in his person. These Talents as they make a part of his Fortune, so do they likewise of that of the society to which he belongs." So also he says : " The Property which every man has in his own Labour, as it is the original foundation of all other property, so it is the most sacred and inevitable. The Patrimony of the poor man lies in the strength and dexterity of his hands." These passages entirely coincide with the argument of the Eryxias, already cited, and given in the article Wealth in the following book. Thus it is seen that Smith expressly classes Human Abilities, or Labour, as Wealth. Now Human Abilities are certainly not the " produce of land," nor are they the " produce of land and labour " combined. It may be said that acquired abilities are the produce of Labour, but certainly natural abilities are not the produce of Labour, nor are abilities natural or acquired, the " annual produce of land and labour." Thus Smith has already broken away from the doctrine of the Economists that Wealth is to be restricted to the material products of the earth, because they especially excluded Labour from the title of Wealth. And now we see the inconvenience of the nomencla- ture of the Economists. Labour is an exchangeable commodity. It may be bought and sold, it has value, and its value may be measured in money. But how are we to speak of the "Production, Distribution, and Consumption" of Labour? Thus Smith, in these and many other passages, expressly acknow- ledges Labour, or the second order of Economic Quantities, to be Wealth ; and he has a chapter discussing Wages as the Price of Labour. Smith admits Rights to be Wealth. Hence the definition of the Science of Economics as the "Pro- duction, Distribution, and Consumption of Wealth" has received a very awkward wrench by admitting Labour into it as Wealth. But more remains behind. For under the term Circulating Capital, CH. III.] History of Economics 89 Smith expressly includes Bank Notes, Bills of Exchange, and other securities, which are merely Rights of Action recorded on paper. But these Rights of Action are Credit : hence Smith expressly includes Credit under Capital. He says " A particular banker lends among his customers his own Promissory Notes to the extent, we shall suppose, of a hundred thousand pounds. As these Notes serve all the purposes of money, his debtors pay him the same interest as if he had lent them so much money. This is the source of his gain. Though he has in general in circulation, therefore, notes to the extent of a hundred thousand pounds, twenty thousand pounds in gold and silver may frequently be a sufficient provision for answering occasional demands. By this operation, therefore, twenty thousand pounds in gold and silver perform all the functions which a hundred thousand would otherwise have performed. The same exchanges may be made, the same quantity of consumable goods may be circulated and distributed to their proper consumers by means of his promissory notes to the value of a hundred thousand pounds, as by an equal value of gold and silver money." Again, " Let us suppose, for example, that the whole circulating money of some particular country amounted at a particular time to one million sterling, that sum being then sufficient for circulating the whole annual produce of their land and labour. Let us suppose, too, that some time thereafter different banks and bankers issued promissory notes payable to bearer to the extent of one million, reserving in their different coffers two hundred thousand pounds for answering occasional demands. There would remain, therefore, in circulation eight hundred thousand in gold and silver, and a million of bank notes, or eighteen hundred thousand pounds of paper and money together." Again, "A paper money, consisting in bank notes issued by people of undoubted credit, payable on demand, without any condition, and, in fact, always readily paid as soon as presented, is, in every respect, equal in value to gold and silver money, since gold and silver money can at any time be had for it. Whatever is either bought or sold for such paper must necessarily be bought and sold as cheap as it could have been for gold and silver." These extracts are quite sufficient to prove the point we are enforcing, that Smith admits one class of Rights to be Circulating Capital, or Wealth. He puts a million of notes on exactly the same footing as an equal amount of gold and silver. He admits that bankers, by issuing a million of notes, augment the mass of go On the Nature and History of Economics [BK. I. exchangeable property to that amount. Now what are these Bank Notes ? They are simply so many circulating Rights of Action, Credits, or Debts. They are the species of Property termed Credit, and thus we see that Smith classes Credit under the term Capital. This class of Rights, however, is only one of a gigantic mass of various kinds of Rights, which, since Smith's time, have increased in a vastly greater ratio than material property. At the present time the property of this nature of different kinds amounts to scores of thousands of millions of money. It is termed Incorporeal Property, or Incorporeal Wealth. Now these Rights of Action, Credits, or Debts, as well as the gigantic mass of other kinds of Rights which are bought and sold, are certainly not the " annual produce of land and labour." Hence we see that Smith classes both Labour and Rights under the title of Wealth, which the Economists expressly excluded from that term ; and thus he completely overthrew the doctrine of the Economists and others, that the earth is the only source of Wealth. Thus we see that Smith's definition of Wealth as the "annual produce of land and labour" assuming that we have interpreted him correctly entirely fails. It is at once far too wide and far too narrow. It includes a mass of things which can by no means be called Wealth, and it excludes by far the greater portion of what Smith himself classes as Wealth. Such a definition of Wealth, too, is also open to another manifest objection, which is patent from his own work. For if it be laid down absolutely that the "annual produce of land and labour" is Wealth, it clearly follows that if anything be produced by "land and labour," it must be Wealth in all times and in all places : that what is once wealth must always be wealth. But universal experi- ence shews that such a doctrine is utterly erroneous : and it was one of the points expressly enforced by Socrates in the Eryxias that anything is Wealth only where it is wanted and Demanded, that is when and where it is x/ 37 ?" t / A ' / . And after laboriously inculcating through several hundred pages that Land and Labour are the essentials of Wealth, Smith admits this. He says "a guinea (which may be admitted to be the produce of land and labour) may be considered as a Bill (i.e. a Right) for a certain quantity of necessaries and conveniences upon all the tradesmen in the neighbourhood. The revenue of the person to whom it is paid does not so properly consist in the piece of gold as in what he can get for it, or in what he can exchange it CH. III.] History of Economics 91 for. If it could be exchanged for nothing it would, like a Bill upon a bankrupt, be of no more value than the most useless piece of paper." Thus, after all, Smith admits that Exchangeability is the real essence of Value and Wealth. The incongruity of Smith's conception of the very word, which is the basis of the whole Science, is thus apparent. For several hundred pages he contends that the "annual produce of land and labour " is absolute Wealth, and then at last he says that unless it is Exchangeable it is not Wealth at all. So far, however, he makes Labour and Materiality as necessary to Wealth, and in this he is still under the bondage of the Economists ; but afterwards he classes human abilities as Wealth, in which there is certainly no Materiality, nor does it seem accurate to class Labour itself as the produce of Labour; and after that again he classes Rights of action, credit, and of course other Rights as Wealth, in which there is neither Labour nor Materiality. It is manifest that these two fundamental concepts of Wealth do not coincide : for there are many things which are the produce of Land and Labour, which are not exchangeable : or which are exchangeable only in some places and not in others, and at some times and not at others : and there are stupendous masses of Exchangeable Property nay, in this great commercial country enormously the greater portion which are in no way whatever the "produce of land and labour." The utter incongruity of ideas in the beginning of Smith's work with these in the later half has often been observed. Ricardo has adopted the former half of the work, and Whately the latter half. Ricardo adopts Labour as the essence of Value and Wealth, and Whately adopts Exchangeability. The latter part of Smith's work is utterly incongruous with the first. In accordance with the unanimous doctrine of antiquity we adopt Exchangeability as the sole essence and principle of Wealth, and it follows that there are three orders of Economical, or Exchangeable, Quanti- ties as the ancients shewed, and as Smith has admitted. This is the second service Smith has done to Economics. He broke through the narrow dogma of the Economists that it was to be restricted to the Exchanger or Commerce of the material products of the earth only, and enlarged it so as to embrace all Exchangeable Quantities and all Exchanges. Smith also overthrew the dogma of the Economists that agri- cultural is the only productive labour ; he shewed that the labour of artisans, manufacturers, and commerce are all productive, and enrich a nation. 92 On the Nature and History of Economics [BK. \ Many persons might find a difficulty in understanding the scope and the purpose of Smith's first two books, but he himself says that his object is to investigate the principles which regulate the exchange- able value of commodities. Thus, it is seen that the subject-matter of the first two books of the Wealth of Nations is a treatise on com- merce, or the Theory of Value, and his Editor, McCulloch, says in a note, " this science might be called the Science of Values." Such are the main outlines of Smith's services to Economics. Confusion of Smith on Value. But, unfortunately, great as are Smith's services to Economics, it may be questioned whether the mischief he has done to the science does not, at least, counterbalance them. We have now to direct the student's attention to the irretrievable confusion he has caused to the science by his self-contradictions on Value in Book I. chap. v. Of this chapter, Horner says 1 : " We have been under the necessity of suspending our progress in the perusal of the Wealth of Nations, on account of the insurmountable difficulties, obscurity, and embarrassment, in which the reasonings of the fifth chapter are involved .... the discovery that I did not understand Smith, speedily led me to doubt whether Smith under- stood himself." From the earliest antiquity every writer has seen that the Value of a thing is something else external to itself, for which it can be exchanged. So in Book I. chap, v., Smith begins by saying that the Value of any commodity is equal to the Quantity of Labour which it enables him to command or purchase. Hence, if / denotes labour, A = /, 2/, 3/, 4/ . . . He then says in the next paragraph that is the same thing as say- ing that it is equal to the Produce of labour it enables him to purchase : or, denoting produce by p, we have A = A 2/1 3/> 4P And in the next paragraph he says that the Value of anything is more frequently estimated in Money than either in labour or com- modities : or, denoting Money by m, A = m, zm, yn, ^m 1 Memoirs and Correspondence of Horner, vol. i. p. 163. CH. III.] History of Economics 93 Now, though it has been pointed out that these modes of estimating the Value of a quantity are by no means identical, we observe that in this passage Smith defines the Value of a thing to be something external to itself. The Value of a thing is some other thing for which it can be exchanged. Hence, it is manifest that the Value of A must vary directly as /, /, or m. The greater the Quantity of /, /, or m that can be got for A, the more valuable is A : the less of /, p, or m that can be got for A, the less valuable is A. It is also perfectly clear that if any change whatever takes place in the exchangeable relations between A and these Quantities, the Value of A has changed. Hence Smith admits that Value, like distance, requires two objects : if any change takes place in the position of either of these, the distance between them has changed : no matter in which the change has taken place. So if the exchangeable relation between two Quantities changes, their value has changed, no matter in which the change takes place. Hence it is clear that there can be no such thing as Invariable Value. Nothing whatever can by any possibility have an Invariable Value unless the relations of all other things are fixed also. Hence we can at once see that by the very nature of things there can be no such thing as an invariable Standard of Value by which to measure the variations in value of other things, because, by the very nature of things, the very condition of anything being invariable in value is that nothing else shall vary in value : and consequently the very condition of there being an invariable standard is that there shall be no variations to measure. Nevertheless, a very large body of Economists have set out upon this wild-goose chase this search after an Invariable Standard which it is utterly contrary to the nature of things should exist at all. Directly after the passages we have referred to, Smith commences the search for that single thing which is to be the Invariable Standard of Value. He says that gold and silver will not do because they vary in their value sometimes they can purchase more and sometimes less labour and other commodities. Then he says : " But as a measure of quantity such as the natural foot, fathom, or handful, which is constantly varying its own quantity, can never be an accurate measure of the quantity of other things, so a commodity which is itself continually varying in its own value can never be an accurate measure of the value of other commodities. Equal Quantities of Labour, at all times and places, may be said to be of equal value to the 94 On the Nature and History of Economics [BK. I. labourer. In his ordinary state of health, strength, and spirits, in the ordinary degree of his skill and dexterity, he must always lay down the same portion of his ease, his liberty, his happiness. The price which he pays must always be the same, whatever the quantity of goods which he receives in return for it [which, by Smith's own definition, is the Value of his labour]. Of these, indeed, it may sometimes purchase a greater and sometimes a smaller quantity, but it is their Value which varies, not that of the labour which purchases them. At all times and places that is dear which is difficult to come at, or which costs much labour to acquire; and that cheap which is to be had easily, or with very little labour. Labour alone, therefore, never varying in its own value, is alone the ultimate and real standard by which the value of all commodities can at all times be estimated and compared. It is their real price : money is their nominal price only. ''''But though equal Quantities of Labour are always of equal value to the labourer (! !), yet to the person who employs him they appear sometimes to be of greater and sometimes of smaller value. . . . "Labour, therefore, it appears evidently, is the only universal, as well as the only accurate, measure of value, or the only standard by which we can compare the value of different commodities at all times and places." The utter confusion of ideas in these passages is manifest. A foot or a fathom is an absolute quantity, and of course may increase or decrease by itself : but Value, by Smith's own definition, is a Ratio : and therefore we might just as well say that because a foot, which is varying in its own length, cannot be an accurate measure of the length of other things ; therefore a quantity which is always varying its own Ratio cannot be an' accurate measure of the Ratio of other things. The utter confusion of ideas as to the whole nature of the thing is manifest. We may measure a tree with a yard, because they are each of them single quantities : but it is impossible that a Single Quantity can measure a Ratio. It is manifestly impossible to say a : b : : x. It is manifestly absurd to say that 4 is to 5 as 8, without saying as 8 is to what : just as it is absurd to say that a horse gallops at the rate of 20 miles, without saying in what time. Smith says that " Equal quantities of labour are always of equal value to the labourer." Now, by his own definition, the Value of a thing is what can be got in exchange for it ; consequently, if " equal quantities are always of equal value to the labourer," a man's labour must be of the same CH. III.] History of Economics 95 value to him whether he gets ;ioo for it, or ^50, or ;io, or nothing at all ! The contradiction of ideas in this chapter of Smith's is palpable. He first defines the value of A to be the quantity of things it will purchase, and therefore, of course, varying directly as that quantity : and then he suddenly changes the conception of value to be the quantity of labour in obtaining A : and says that the Value of A is invariable so long as it is produced by the same quantity of labour ! and that its Value is the same whatever quantity of other things it will purchase ! The word Value has been so misused by Economical writers, that it will be well to illustrate it by the use of another word of similar import whose meaning has not been so misused. Value, like Distance, requires two objects, and we may present Smith's ideas in this form. " As a measure of quantity, such as a foot, which is always varying its own length, can never be an accurate measure of the length of other things, so an object which is always varying its own distance can never be an accurate measure of the distance of other objects. But the Sun is always at the same distance. And though the earth is sometimes nearer the sun, and sometimes further off from it, the sun is always at the same distance. And though the earth is at different distances from the sun, it is the distance of the earth which has varied, and not that of the sun ; and the sun alone, never vary- ing its own distance, is the ultimate and real standard by which the distances of all things can at all times and places be estimated and compared." Such is a fair translation of Smith's ideas, merely substituting Distance for Value. No wonder that Francis Horner says : " We have been under the necessity of suspending our progress in the perusal of the Wealth of Nations on account of the insurmountable difficulties, obscurity, and embarrassment in which the reasonings of the fifth chapter are involved." But after saying that a thing produced by the same quantity of labour is always of the same value, no matter what it may exchange for : he says, speaking of Money in a subsequent passage, if it could be exchanged for nothing, it would be of no more value than the most useless piece of paper ! So, after all, Smith came back to Exchangeability as the test of value, and this confusion runs through the whole of Smith. One half the work is based upon Labour as the foundation of value, and the other half upon Exchangeability. 96 On the Nature and History of Economics [BK. I. Having thus shown the confusion and contradictions of Smith on the two fundamental concepts of Economics, \Afealth and Value, we have now to consider his notions on the Law of Value, or the Law which governs the exchangeable relations of Economic Quantities. On this point, Smith never had the slightest idea that there can only be one General Law of Value, or General Equation of Economics ; on the contrary, his work is full of a multiplicity of Theories of Value. He catches at a new Theory of Value for every class of cases he discusses. Consequently, his Theories of Value are a mass of contradictions, and, of course, he must sometimes be right. But his confusion and contradiction on the terms, Wealth and Value, and the Law of Value, which are the foundations of the whole science, render the work utterly useless as a general treatise on the science, fit to be placed in the hands of students. It was the necessity of determining general principles of Value which was one of the causes of Ricardo's work. Stated in a broad, general way, Smith's chief merits are 1. He shewed, by a course of masterly reasoning, which no one else approached, that in an exchange, both sides gain, which one or two Economists had casually observed before him, in contradiction to the doctrines that had prevailed before the Eco- nomists, that what one side gains the other loses ; and the doc- trine of the Economists, that in an exchange, neither side gains nor loses. This is one of Smith's titles to immortal glory; for it at once removed from the science a doctrine which had been the cause of innumerable commercial wars, and shewed how utterly the Economists had under-estimated the advantages of commerce. It created a complete reversal of the policy of nations, because it shewed that nations were not interested in the destruction of their neighbours, but in their prosperity. 2. He burst the bonds of the narrow dogmatism of the Econ- omists, that nothing but the material products of the earth are Wealth. In conformity with the doctrine which the author of the Eryxias had taught 2100 years before him, he recognised that Labour is Wealth, that it is a marketable commodity which may be bought and sold, and whose value may be measured in money. He has a long investigation of the Laws which govern Wages, or the price of Labour ; thereby making Labour a most important department of Economics, which no one before him had done, CH. III.] History of Economics 97 and which at the present day excites more discussion than any other department of Economics. 3. He demonstrates that the labour of merchants, traders, and artisans is productive, and enriches a nation; contrary to the doctrines of the Economists, who held that agricultural labour alone is productive. 4. He included Bank Notes, Bills of Exchange, &c., under the title of Circulating Capital, thus admitting that Credit is Capital. Now Bank Notes, Bills of Exchange, &c., are one class of Rights : they are Rights of Action, Credits, or Debts. He thus enlarged Economics to include all the three orders of Exchangeable, or Economic Quantities, as the ancients had done. He has besides a multitude of sagacious observations, which are too numerous to be specified in a general outline of the science, such as the present. In a broad and general way, his defects are 1. The title of the work conveys no intelligible idea of its scope and purpose. It is only by a critical investigation that it is seen that it is the Theory of Value, as Whately has pointed out. 2. It has no clear and distinct settlement of Definitions, by which only a science can be constructed, and by which propositions can be affirmed or denied. His definitions of Wealth and Value, to name only the two fundamental terms of the science, are quite contradictory and irreconcileable, and the doctrines founded on them are a mass of confusion and contradictions. 3. He never had any idea that there can be only a single General Law of Value governing all the phenomena of commerce or exchanges. He has a multitude of Theories of Value, which is contrary to the fundamental principles of Natural Philosophy. 4. That though he extended the term, Productive Labour, to include the labour of merchants, traders, and artisans, he restricted the term to labour which realises itself in some material product which endures after the labour is ended. Whereas Productive Labour, as was seen by the Economists, means Labour which produces a Profit. Thus, Productive Labour means Profitable Labour, and all Labour which produces a profit is productive, no matter whether it is embodied in a material product or not. Thus all labourers, who earn an income, and make a profit by their labour, no matter of what kind it may be, are productive; all labourers who produce anything whatever which is wanted, demanded, and paid for, are productive labourers. H 98 On the Nature and History of Economics [BK. I Sir Walter Scott enters a strong protest against Smith's doctrine, that Authors are not productive labourers, as well he, and innumer- able other authors, might. So Advocates, Physicians, Actors, Opera Singers and Dancers, Professors, Managers of commercial institutions, and multitudes of others, whose labours do not realise themselves in any material products, are all productive labourers, because their labours are wanted, demanded, and paid for, and thus produce them a profit. 5. Locke, as far as we are aware, originated the unhappy doctrine that Labour is the cause of all Value. Smith unfortunately com- mences his work by inculcating the doctrine that the wealth of a country is the annual produce of its " land and labour," and repeats this innumerable times through hundreds of pages. The doctrine that all Wealth and Value is the produce of Labour, and that working men are the creators of all Wealth, has been the canker and the ruin of English Economics, and, as the Socialists them- selves admit, is the foundation of that Socialism which has now assumed such a menacing aspect in so many countries. The Socialists have failed to observe that Smith has quite contradicted himself in the latter part of his work, where he admits that Exchangeability is the real essence and principle of Wealth, in accordance with the unanimous doctrine of the ancients. 6. The confusion and contradiction of Smith's ideas on all the fundamental concepts of Economics has exercised a fatal influence on the whole of his work ; it is nothing but a chaos of contradictions. One of these only has attracted much attention. In one part he affirms that the payment of rent enters into price, and thus causes an increase in the price of corn. In another part, he affirms that the payment of rent is the effect of price, and, therefore, does not raise the price. Hume was on his death-bed when the Wealth of Nations reached him, and he at once wrote to Smith to tell him that the payment of rent does not raise the price of corn. The same doctrine also was proved by Anderson, a practical farmer, who was an extensive writer on agricultural subjects, but Smith never made any alteration in his work. It was this glaring self-contradic- tion, among countless others, which was another of the causes which stimulated Ricardo to write his Principles of Political Economy. 7. Smith admitted that one class of Rights, Rights of Action, Credits, or Debts, are Circulating Capital, but he took no notice of other classes of Rights, which in recent times have increased at a much greater ratio than material property, and at the present day amount to scores of thousands of millions of valuable property. CH. III.] History of Economics 99 8. He never made any attempt to give an exposition of the principles and mechanism of commerce. Thus, while he admits that Bank-notes, Bills of Exchange, &c., are Circulating Capital, he never had the slightest idea of the great juridical principles and organisation of the system of Mercantile Credit, the colossal business of Banking, and the Theory of the Foreign Exchanges. Now, taking the very title of his own work as the Nature and Causes of the Wealth of Nations^ it is impossible to develope this without an exposition of the principles and mechanism of Credit, by which all Commerce and Trade is carried on ; and which,, as Daniel Webster has said, has done more to enrich nations a thousand times than all the mines of all the world. On two points Smith's sagacity has failed him, and he maintained doctrines which were directly contrary to his own general principles, and which subsequent experience has shown that he was in error. He strongly supported the Navigation Laws, which he admitted were contrary to the principles of Free Trade. But subsequent experience showed that they had become an intolerable nuisance, and were totally repealed in 1849, which was immediately followed by an enormous expansion of British commerce. He also strongly supported the Usury Laws. In this he was far behind his friends, the Economists Turgot, Quesnay, and others, who pointed out their utter futility, and advocated their total repeal. Smith's doctrines were refuted by Bentham, in his splendid Defence of Usury. It has been said that this tract convinced Smith of his error ; but yet he made no change in his work. The Usury Laws were totally condemned by a Committee of the House of Commons in 1819, and have now been entirely repealed in this country. The most important Economical problems of the present day Commercial Crises and Monetary Panics had not arisen in Smith's day, which indeed was not his fault. But to investigate these, and bring them under scientific control, requires a thorough inquiry to the nature of Economics and its fundamental concepts, and then it will be seen that they can only be treated scientifically by adopting the conception of Economics as the Science of Exchanges or of Commerce. Smith's work, then, can in no respect be considered as a work of Science ; it is, rather, a vast mass of raw material, to be subjected to strict Economical inquiry. It is not necessary to take notice of the three latter books of the Wealth of Nations in this place, because we are only concerned here with Smith's notion of the nature and objects of Economics. H 2 ioo On the Nature and History of Economics [BK. I. We have now to mention two writers (i) Ricardo, who adopted the doctrine of the commencement of Smith's work that Labour is the cause of Value, and (2) Whately, who adopted the doctrine of the latter part of it, that Exchangeability is the sole essence and principle of Wealth and Value. RICARDO. Ricardo, a very wealthy and highly-esteemed member of the Stock Exchange, first attained distinction as a writer in 1809. In that year the market, or paper, price of gold rose greatly above the Mint Price, and the Foreign Exchanges fell greatly. Ricardo published a pamphlet, entitled, The High Price of Bullion a proof of the Depreciation of Bank Notes, in which he revived the doctrine published by Lord King in 1804. Although this work commenced with several highly-erroneous statements, it most decisively proved its thesis. This gave rise to the appointment of the celebrated Bullion Committee in 1810, and its Report entirely adopted Ricardo's doctrine. But it aroused the warmest opposition from the Bank of England and the merchants, because it would have curtailed the nefarious profits of the Bank from issuing torrents of depreciated paper, and also the accommodation to the merchants. Under their influence, the House of Commons rejected the Report, and resolved that in public estimation a \ note and is. were equal to a \ note and 75. ; or, that 21 was equal to 27. This was followed by a stupendous controversy which has now sunk into oblivion. Nevertheless, the Report gradually won the assent c f the mercantile public, and the mercantile evidence before the Bullion Committees of 1819 was just as strong in its favour as it had been against it in 1810. Ricardo greatly distinguished himself by his masterly evidence before these Committees, and his doctrine is now universally accepted by all sane men. The Bullion Report is one of the great landmarks in Economics. Ricardo then published some minor pamphlets, which are now totally forgotten, but in 1817, encouraged by the reputation he had acquired, he adventured upon a much more extensive work, The Principles of Political Economy and Taxation, for which, un- fortunately, he was totally inadequate. Ricardo knew no classics, which are indispensable to the study of Economics, because almost all the fundamental concepts of Economics are to be found in Aristotle, the Eryxias, Demosthenes, and the Pandects of Justinian. He knew nothing of Mercantile CH. III.] History of Economics IOI Law, nothing of the great juridical principles and mechanism of the great system of Credit, nothing of the organisation of Banking. He had surprising quickness at figures and calculation, somewhat of the genius of the calculating boy, like Mr. Goschen. About twenty-five, he essayed mathematics, but he had no taste for it,. and entirely abandoned it when he began to write on Economics, which was a fatal error, as he should just then have most deeply studied mathematics and natural philosophy, because Economics, according to his own view, being the Theory of Value, is a pure science of Variable Quantities, and its laws must be brought, as Bacon pointed out long ago, into strict harmony with the Laws of other sciences of Variable Quantities. The incongruity of ideas on Wealth and Value in the Wealth of Nations, gave rise to two distinct classes of Economists, who adopt different halves of the work. Ricardo gives no definition of what he means by the word Wealth, which is the basis of the whole Science. He plunges at once into Value. In Chap. I., Sect. I., he defines the Value of a commodity as. " the quantity of any other commodity for which it will exchange." He then says, "Adam Smith, who so accurately defined the original source of exchangeable value, and who was bound in consistency to maintain that all things became more or less valuable in proportion as more or less labour was bestowed on their produc- tion, has himself another standard measure of value, and speaks of things being more or less valuable in proportion as they will ex- change for more or less of this standard measure. Sometimes he speaks of corn, at other times of labour as a standard measure, not the quantity of labour bestowed upon the production of any object, but the quantity it can command in the market ; as if these were two equivalent expressions, and as if because a man's labour had become doubly efficient, and he could therefore produce twice the quantity of a commodity, he would necessarily receive twice the former quantity in exchange for it." 4 Ricardo, therefore, deliberately rejects Exchangeability, and adopts Labour as the cause and measure of Value. / Now, the principles enforced by Bacon and common sense shew that if one wants to construct a general Theory it is necessary to collect all the facts of the case because, if even one be omitted, the little David, as Bacon calls it that single fact may upset a theory founded on all the others. To construct, then, a Theory of Value it is necessary to begin by IO2 On the Nature and History of Economics [BK. I. collecting all instances of Value. Now, as is shown under Value, Value is found in (i) Material Commodities, (2) Personal Qualities, {3) Abstract Rights. But Ricardo begins by confining his attention only to material commodities and not even all material commodities, but only those which are the product of human labour. That is, he proceeds to construct a General Theory upon only one particular department of Economics. Now, it is evident that such a proceeding is directly contrary to the fundamental principles of Natural Philosophy, and its results may easily be foreseen. Ricardo, then, having restricted his inquiry to material com- modities the result of Labour, maintains that Labour is the cause of Value, and Quantity of Labour is the measure of Value. Ricardo, then, having begun by defining the Value of a com- modity as " the quantity of any other commodity for which it will exchange," lands himself in the conclusion that the " Quantity of Labour " embodied in producing a commodity is its Value ! He then says that "the quantity of labour bestowed on a com- modity is, under many circumstances, an invariable standard, indicating correctly the variations of other things." Ricardo then starts on the search of the Invariable Standard of Value, which should itself be subject to none of the fluctuations to which other commodities are exposed. He says that it is impossible to be possessed of such a measure, because there is no commodity which is not subject to require more or less labour for its production. Afterwards he says, " If equal quantities of labour, with equal quantities of fixed capital, could at all times obtain from that mine which paid no rent, equal quantities of gold, gold would be as nearly an invariable measure of value as we could in the nature of things possess. The quantity would indeed enlarge with the Demand, but its value would be invariable, and it would be eminently well calculated to measure the varying value of all other things" In a subsequent part of his work he says, "The labour of a million of men in manufactures will always produce the same value. .... That commodity is alone invariable which at all times re- quires the same sacrifice of toil and labour to produce it." That is, Ricardo says, that the value of manufactures is always the same whether they sell for ;ioo, for ^10, for 5, or for nothing ! We doubt whether the manufacturers of Manchester would acquiesce in the doctrine that their manufactures are of just the same value whether they sell for large sums, or cannot be sold at all. CH. III.] History of Economics 103 And after beginning by defining and several times repeating that the value of a thing is the other things it will exchange for, he ends by saying, " I cannot agree with M. Say in estimating the value of a commodity by the abundance of other commodities for which it will exchange." Ricardo, therefore, begins by defining the value of a thing to be something external to it; and then he ends by describing it to mean the quantity of labour, or cost of production, bestowed on obtaining it. Ricardo's doctrine that Labour is the cause of all Value is a curious example of how able men can be blind to what is going on under their own eyes. Ricardo was a very wealthy man : and of what did the greater part of his wealth consist ? Evidently of stocks and shares, which were mere abstract Rights to future payment. And can Labour be the cause of the Value of Rights to future payment ? The very first day that Bentham read the book he wrote to Ricardo to tell him that it was all founded on a confusion between Cost and Value. We will now show the extraordinary conclusion into which Ricardo was logically led by his repeated declaration, that Labour is the cause of all Value. He says : " In contradiction to the opinion of Adam Smith, M. Say, in the fourth chapter, speaks of the value which is given to commodities by natural agents, such as the air, the sun, the pressure of the atmosphere, which are sometimes substituted for the labour of man, and sometimes concur with him in producing. But these natural agents, though they add greatly to Value in use, never add exchangeable value to a commodity . . . and they are serviceable to us by increasing the abundance of productions, by making men richer, by adding to value in use ; but as they perform their work gratuitously, as nothing is paid for the use of the air, of heat, and of water they afford to us, add nothing to Value in Exchange 1 " Now when logical reasoning from certain premisses leads to results which are notoriously false, and contrary to experience and fact, it is perfectly certain that these premisses must be erroneous. Nothing more is required to show the utter fallacy of the doctrine that human labour is the cause of all value than to consider the consequences it naturally leads to. If labour be, as Ricardo and other writers maintain, the cause of all value ; if a man plants an acorn, the full-grown oak tree IO4 On the Nature and History of Economics [BK. I. should be of no more value than the acorn, because human labour stops there ; the rest is the agency of Nature. According to this doctrine, cattle and fowls ought to have no value at all, because no human labour ever made an animal nor ever laid an egg. According to Ricardo's doctrine, the value of the harvest reaped should be no greater than the cost of the seed corn, the ploughing and labouring the ground, and the manure placed in the soil, because human labour stops there; the rest is the agency of nature. According to Ricardo, the fertilizing showers and the warmth of the sun add nothing to the value of the crops ; therefore, by the same doctrine, the want of a due amount of rain, or an absolute drought, or excessive deluges of rain, and the total absence of sunshine, would cause no diminution in the value of the crops ! We suspect that practical farmers would scarcely agree with this doctrine, and think that it must be a queer science which teaches it. It is a common observation that a day of fine sunshine in summer in certain stages of the crops is worth a million of money to the country. The doctrine of Smith and Ricardo, that the Value of a com- modity is the Quantity of Labour embodied in it, gave rise to the mischievous and absurd expressions, Intrinsic Value and a Standard of Value, which, considering that Value is a ratio, are impossible. Having thus shown Ricardo's self-contradiction and confusion on the definition and nature of Value, we have now to examine his doctrine on the Laws of Value. As shown above, he excludes Labour and Rights, and also all material commodities which are not the result of human labour from his consideration of the Law of Value ; that is, he excludes about 80 per cent, of valuable commodities from his Law of Value, which is contrary to the fundamental laws of Natural Philosophy, and therefore seals its condemnation. Commodities which are the result of human labour, he divides into three classes i. Those which are limited, and cannot be increased by human labour. He says that the value of these is governed solely by the Law of Supply and Demand. CH. III.] History of Economics 105 2. Those which can be increased indefinitely by the expenditure of equal amounts of money. The Value of these, he says, is determined exclusively by their Cost of Production. 3. Those which can be increased indefinitely, but only by a constantly increasing expense. The Value of the total quantity produced, he says, is governed by the last quantity produced at the greatest cost. Such a mode of determining the Laws of Value is contrary to the fundamental principles of Natural Philosophy, because Economics being a science of Variable Quantities, there can be only one general Theory of Value. But on this subject he has plunged into innumerable self- contradictions. For in Chap. i. Sect. i. he says, "The Value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative Quantity of Labour which is necessary for its production, and not on the greater or less compen- sation which is paid for that Labour" ; for he justly observes that the same quantity of labour may be paid at different rates at different times. Therefore, in this place, he expressly says that it is not Cost of Production that regulates Value, but only Quantity of Labour (Cost of Production). But when he comes to Chap, xxx., he has quite lost sight of the distinction he drew between Quantity of Labour and Cost of Pro- duction, and treats them as identical. He says, " It is the Cost of Production which must ultimately regulate the price of commodities, and not, as has often been said, the proportion between the Supply and Demand. . . . "The opinion that the price of commodities depends solely on the proportion of Supply to Demand, or Demand to Supply, has been almost an axiom in Political Economy, and has been the cause of much error in that science. ... Its natural price is the money Cost of Production." Then, after quoting Lord Lauderdale's Law of Value (Value), he says, " This is true of monopolised commodities, and, indeed, of the market price of all other commodities for a limited period." Now, this is a flat violation of the Law of Continuity, which says, " A Quantity cannot pass from one amount to another by any change of conditions without passing through all the intermediate magnitudes according to the intermediate conditions" Now, as every Economist admits that when prices are very high they are governed by the Law of Supply and Demand, and when io6 On the Nature and History of Economics [BK. I. they are very low that they are also governed by the same Law of Supply and Demand, it follows that they must be governed by the same general Law at all intermediate points. Thus Cost of Produc- tion never directly governs price ; it is only in one class of cases that it does so indirectly through the action of the Law of Supply and Demand, as we have shown under Cost of Production. But the Theory of Ricardo's which acquired the greatest notoriety is his Theory of Rent, which comes under his third class of com- modities. We cannot investigate that theory here, as we have fully discussed it under Rent. Shortly stated, it is that the cost of raising the last quantity of corn produced, regulates the value of the whole. Loose writers allege that Anderson discovered this theory before Ricardo. But this is absolutely incorrect. Anderson, who was a practical farmer, maintains exactly the contrary. He says that it is the price of corn which indicates the expense which can be afforded for raising the last quantity produced; and every- one who has the least knowledge of agricultural affairs can see at once that Anderson is right. No doubt, Ricardo's theory proves the point he wishes to estab- lish, that the payment of Rent does not raise the price of corn. But a theory is not necessarily true, because it leads to a right result. Many times truth has been built on erroneous theories. Anderson's theory, which is the direct reverse of Ricardo's, leads to exactly the same results. Under Rent, we have shown the absurd consequences of Ricardo's theory. Moreover, Ricardo contradicts himself; for though in one place he maintains that the payment of Rent does not raise the price of corn, in other places he alleges that it does. So that there is exactly the same contradiction in Ricardo as there is in Smith. Moreover, Ricardo alleges that Tithes are a tax on the consumer. This shows Ricardo's want of scientific instinct, because Tithes stand on exactly the same footing as Rent. The reason why neither Tithes nor Rent increase the price of corn is that they are not part of the Cost of Production, but a share of the profits ; and neither of them affects the Supply nor the Demand for corn, as we have shown under Rent. Thus the whole structure of Ricardo's work is laid in ruins, because it is contrary to facts, to experience, and to the funda- mental laws of Natural Philosophy. CH. III.] History of Economics 107 WHATELY. The last writer I think necessary to cite here is Whately, Professor of Political Economy at Oxford in 1832. He began his lectures by finding fault with the name of Political Economy as being a new term most unfortunately chosen, which, he says, almost implies a contradiction. According to etymology, the branches of science called TroXiTiKrj and OLKOVO^LK-IJ, seem naturally to have reference respectively to TrdAis and OIKOS, one treating of the affairs and regulation of a commonwealth, the other of a private family. This shews that Oxford scholarship in those days or at least Whately's left something to be desired. Because in Greek OIKOS does not mean only a private family or a house, but as we have shewn further on, it is the technical term for Property of all descriptions and natures. He justly says that to persons who are habituated to this employment of terms, the title of Political Economy is likely to suggest very confused and indistinct, and, in a great degree, incorrect notions. He says "A. Smith, indeed, has designated his work a treatise on the 'Wealth of Nations,' but this supplies a name only for the subject matter, not for the science itself. The name I should have preferred as the most descriptive, and, on the whole, least objection- able, is that of Catallactics, or the ' Science of Exchanges.' "Man might be defined 'An animal that makes Exchanges' ', no other, even of those animals which in other points make the nearest approach to rationality, having, to all appearances, the least notion of bartering, or in any way exchanging one thing for another. And it is in this point of view alone that Man is contemplated by Political Economy. This view does not essentially differ from that of A. Smith, since in this science the term Wealth is limited to exchangeable commodities, and it treats of them so far forth only as they are, or are designed to be, the subjects of exchange. But for this very reason it is, perhaps, the more convenient to describe Political Economy as the science of Exchanges, rather than as the science of National Wealth. For, the things themselves, of which the science treats, are immediately removed from its province, if we remove the possibility, or the intention, of making them the subject of exchange, and this, though they may conduce in the highest degree to happiness, which is the ultimate object, for the sake of which wealth is sought. A man, for instance, on a desert island, like Alex. Selkirk, or the personage his adventures are supposed to io8 On the Nature and History of Economics [BK. I. have suggested, Robinson Crusoe, is in a situation of which Political Economy takes no cognizance; though he might figuratively be called rich, if abundantly provided with food, raiment, and various comforts ; and though he might have many commodities at hand,, which would become exchangeable, and would constitute him, strictly speaking, rich, as soon as fresh settlers should arrive. "In like manner, a musical talent, which is wealth to a profes- sional performer who makes the exercise of it a subject of exchange, is not so to one of superior rank, who could not without degradation so employ it. It is in this last case, therefore, though a source of enjoyment, out of the province of Political Economy. " This limitation of the term Wealth to things contemplated as exchangeable, has been objected to on the ground that it makes the same thing to be wealth to one person and not to another. This very circumstance has always appeared to me the chief recommen- dation of such a use of the term, since the same thing is different to different persons. Even if we determine to employ the terms Wealth and Value in reference to every kind of possession, we must still admit that there is at least some very great distinction between the possession, for instance, of a collection of ornamental trees by a nurseryman, who cultivates them for sale, and by a gentleman who has planted them to adorn his grounds. "Since, however, the popular use of the term Wealth is not always very precise, and since it may require, just in the outset, some degree of attention to avoid being confused by contemplating the very same thing as being, or not being, an article of wealth, according to circumstances, I think it for this reason more convenient, on the whole, to describe Political Economy, as concerned universally and exclusively about exchanges." Whately then goes on to speak of cases in which nothing visible is transferred, but only a Right ; but he says that in such cases these are, in reality, exchanges, just as where material commodities are exchanged, which evinces the impropriety of limiting the term Wealth to material objects. Thus Whately agrees exactly with the unanimous doctrine of the ancients that exchangeability is the sole essence and principle of Wealth. That all things are Wealth only when and where they are exchangeable, that when and where they are not exchangeable they are not Wealth. This also agrees with the doctrine of the Economists, that things, however useful and agreeable they may be, are only technically to be termed Wealth when they are made the subjects of exchange. But while the Economists restricted the CH. III.] History of Economics 109 term only to material things when they are exchanged and excluded Labour and Credit, Whately includes all the three orders of Ex- changeable Quantities under the term Wealth. These are the fundamental concepts which we adopt. Thus the result is that the technical meaning of Wealth, in Economics, is simply anything whatever which is bought and sold or exchanged. Whately then (Lect. ix.) complains of the total want of clear and precise definitions in Economics, and censures those who avow their dislike of accurate and precise language on this subject, and object to the pedantic practice of defining terms, like Jones, many of them probably speak thus from really knowing no better from having a superficial and ill-cultivated mind. " Definitions, then (such, I mean, as shall serve to preclude ambiguity), are most wanted in those very cases where (as in Political Economy) both the reader and the writer are the most apt not to perceive the want, from the terms being such as are in common use. And there is this additional difficulty, that here it is necessary to define and use each term in some sense corre- sponding as nearly as possible to common use agreeably to some one, and, if possible, the most usual of the several popular mean- ings." He then warns against using the same word in different senses in different places, and gives several instances of such. " Let the student then consider correctness of the reasoning process, and, with a view to this, a clear definition of technical terms, and careful adherence to the sense defined, as the first the most important and the most difficult, in the science of Political Economy." Whately then makes some most important observations " It may be worth observing that in examining, framing, or altering definitions in Political Economy, you will find in most persons a tendency to introduce accidental along with or instead of essential circumstances. I mean that the notion they attach to each term, and the explanation they would give of it, shall embrace some circumstances generally, but not always, connected with the thing they are speaking of, and which might accordingly (by the strict account of an accident) be 'absent or present, the essential character of the subject remaining the same.' A definition framed from such circumstances, though of course incorrect, and likely at some time or other to mislead us, will [ not unfrequently obtain reception, from its answering the purpose of a correct one, at a particular time and place no On the Nature and History of Economics [BK. j. "A specimen of that introduction of accidental circumstances which I have been describing, may be found, I think, in the language of a great number of writers respecting Wealth and Value ; who have usually made Labour an essential ingredient in their definitions. Now it is true, it so happens, by the appointment of Providence, that valuable articles are, in almost all instances, obtained by Labour ; but still, this is an accidental, not an essential circumstance. If the aerolites which occasionally fall were diamonds and pearls, and if these articles could be obtained in no other way, but were casually picked up to the same amount as is now obtained by digging and diving, they would be of precisely the same value as now. In this, as in many other points in Political Economy, men are prone to confound cause and effect. It is not that pearls fetch a high price because men have dived for them ; but on the contrary, men dive for them because they fetch a high price." Thus Whately has sent a deadly shaft into the whole Economics of Smith and Ricardo. Smith begins his work by describing Wealth as the produce of "land and labour"; thus making materiality and labour as the essence of Wealth; and he entirely omits Exchangeability. Now, as a matter of fact, not twenty per cent, of Economic or Exchangeable quantities have any labour associated with them at all, and not five per cent, of Economic quantities have materiality and labour associated with them, which shows that materiality and labour are only the accidents of Wealth and Value. It is Exchangeability, which is the sole essence of Wealth, as the ancients unanimously held. The Eco- nomists also held that Exchangeability is the real essence of Wealth ; but they clogged it also with materiality, which is entirely inadmissible. Whately then said that pearls do not fetch a high price because men dive for them, but men dive for them because men give a high price for them ; that is, it is not Labour which is the cause of Value, but Value which is the inducement to Labour ; just as Condillac said before him ; and this is the entire boulversement of the Economics of Smith and Ricardo. Whately thus laid the foundation of that system of Economics which I have adopted and developed. CH. III.] History of Economics ill The Economics of Jean Baptiste Say and John Stuart Mill. JEAN BAPTISTE SAY. We have shewn in the series of writers we have cited that the universal idea of Economics was that it is the Science of Commerce, or Exchanges, or the Theory of Value, and though it was in a very imperfect, confused, and contradictory state, yet if that concept had been steadfastly adhered to, and worked out in all its extent, and subjected to the same critical inquiry and elaboration as all the other Physical Sciences had been treated with, all these blemishes might have been removed, and Economics might have been raised to the rank of a definite and positive science, of the same rank as the Physical Sciences. But unfortunately a very distinguished French writer threw it into utter confusion, and ruined it as the Science of Exchanges, or the Theory of Value. We have shown that while the Economists declared that Economics is the Science of Exchanges, or of Commerce, they most unfortunately devised an alternative definition of it as the " Production, Distribution, and Consumption of Wealth," by which, however, they explained that they meant the Commerce, or the Exchanges of the material products of the earth, and of those only. In 1803 Jean Baptiste Say published his first work, " Traite d 1 Economic Politique : ou simple exposition de la maniere dont se forment se distribuent et se consomment les richesses" In this he was the first to confine the name of Political Economy to the Pro- duction, Distribution, and Consumption of Wealth. "Politics properly so called, the science of the organization of societies, has long been confounded with Political Economy, which teaches how the riches which satisfy the wants of society are formed, distributed, and consumed. Yet wealth is essentially independent of political organisation. A state may prosper under all forms of government, if it is well administered." He complains justly that previous writers had thrown the subject into confusion by mixing up questions of Government with questions of Wealth. Say, then, enters into a highly philosophical dissertation on the nature and method of investigation proper to Economics. He says that men have made systems before establishing truths. He condemns severely the dogmatic and a priori method which had been followed by the school of Quesnay and Ricardo, who adopt a method of arguing which would not be allowed in any other 112 On the Nature and History of Economics [BK. I. science of experiment, which resembled that of the scholastics of the middle ages, who discussed words and not facts, which proved everything except the truth. By following this method Ricardo arrived at results which are contradicted by experience. This was followed by interminable controversies, often scarcely intelligible, which had the unfortunate effect of making men of the world, ignorant of the solid bases upon which Economics is built, think that they had again fallen under the empire of systems and private opinions which agreed in nothing. He says that the writings of the ancients shewed that they had no just ideas on the nature of Wealth. But in this Say is entirely mistaken, because the ancients unanimously held that Exchange- ability is the sole essence and principle of Wealth, an idea which is only just now beginning to be generally recognised by Economists at the present day. Say then observes that the Economists deserved general esteem because their writings favoured the most severe morality, and the freedom which every one ought to have to dispose of his person at will, of his talents and his possessions freedom without which individual and public prosperity were words void of sense. It was for this reason that nearly all French writers of repute, and those who studied matters analogous to Economics since 1760, were dominated by their ideas. Among them Condillac might be included, although he tried to make a system of his own, on a subject which he did not understand. There were, however, some good ideas amid the ingenious chatter of his book. This judgment of Say's on Condillac is most unfortunate, because Condillac under, stood the nature of Economics far better than Say himself did ; and his system, which is that of Commerce or Exchanges, according to the prevalent idea of the age, has now superseded that of Say among all the most advanced Economists of the present day. It must be admitted, however, that it is too much an abstract assertion of principles without a sufficient exposition of the facts of com- merce. He admits, however, that the Italian Economists, Beccaria, Verri, Filangieri, and others, excelled the French Economists. Say then recognises the importance of Adam Smith's work, and allows it great merit in some respects. But he condemns the con- fusion and total want of method which pervades it, and points out numerous deficiencies. Say emphatically asserts that Economics is essentially an Induc- tive Science, and to be constructed in exactly the same manner that all the Physical Sciences have been done. He says that some CH. III.] History of Economics 113 persons believe that only the Physical Sciences are capable of being reduced to certainty, and that there are no constant facts and undoubted truths in moral and political sciences: and, therefore, that they are not true sciences, but only a body of hypothetical opinions, more or less ingenious, but purely individual. These persons found their opinion upon the fact that the writers on it differ from each other, and some of them taught veritable extrava- gances. But it has been the same in every other science chemistry, physics, botany, mineralogy, physiology. Leibniz and Newton, Linnaeus and Jussieu, Priestley and Lavoisier, de Saussure and Dolomieu, had not been able to agree, but for all that did not these sciences exist? We have now, then, to see how Say realised his own ideas. System of J. B. Say. Unfortunately Say rejected the concept that Economics is the Science of Commerce, or Exchanges, or the Theory of Value, and he adopted the alternative definition of the Economists, that it is the Science of the Production, Distribution, and Consumption of Wealth, but he completely changed the meaning of these terms as used by the Economists. While the Economists used that expres- sion as one and indivisible, Say broke it up into its component terms, and divided his treatise into three parts (i) the Production of Wealth, (2) the Distribution of Wealth, (3) the Consumption of Wealth. The Traite is defective, because it begins by giving no definition of the term Wealth, which is the basis of the whole science, but in his Cours complet d' Economic Politique, which is a very greatly extended and developed edition of his Traite, he begins by dis- cussing the nature of Wealth. He says "The exclusive possession which, among a community of men, distinguishes the property of one man from others, is what is termed Wealth." And, among other things, he designates as Wealth, Rights of Action, Credits or Debts, and the Funds : he also adds a workman's labour, the skill of a physician, a theatrical per- formance, the clientelle of an advocate, the custom of a shop, the copyright of a book, and many other things of a similar nature, which he designates as Immaterial Wealth. But Say's definition is defective, because he enumerates all a man's possessions as Wealth, and he omits the fundamental property of Exchangeability. The Economists confined the term Wealth to a man's possessions which I 1 14 On the Nature and History of Economics [BK. I. are Exchangeable. If a man has possessions which he cannot exchange away, how are they any more Wealth to him than so many pebbles from the brook ? It is true he does afterwards recognise Exchangeability as necessary to Value, but that unfortunately creates a confusion between his fundamental concepts. He then inquires into the origin of Value, and entirely repudiates the doctrine of Smith and Ricardo, that Labour is the cause of Value. He alleges that Value can only reside in the thing itself, and, according to him, all Value is founded on Utility. But this is only one degree less erroneous than the idea that Labour is the cause of Value. We have shewn, under Value, how erroneous it is to say that Labour is the cause of Value, because if that were true, an isolated or single object could have Value, which is utterly impossible : because Value is a term of relation, and there can be no Value unless there are, at least, two objects. Moreover, if an object were once created by any amount of Labour, it could never change its Value, which is contrary to all experience. Utility is one degree less erroneous than Labour as the cause of Value, because if a thing is useful, it must be useful to some person. But, then, if Utility is the cause of Value, things must be valuable in proportion to their Utility, which, as we have shewn under Value, is utterly contrary to experience. Thus 1. A horn spoon or a glass tumbler is quite as useful as a solid gold spoon or a solid gold tumbler, but have they the same Value ? 2. A lindsey woolsey, or a serge dress, is quite as useful as one of Genoa velvet or brocaded silk, but would they have the same Value in the eyes of ladies ? 3. A steel watchguard is quite as useful as one of solid gold, but has it the same value? 4. If the works of two watches were of exactly equal quality, and if one were enclosed in a silver case, and the other in a case of solid gold studded with diamonds and rubies, they would be equally useful, but would they have the same Value? And similar instances might be multiplied to infinity. Say calls the Utility of a thing its Intrinsic Value. But in other places he says that Value is a Moral Quality. And how can a moral quality be an attribute of a material object, or an abstract Right ? It was this doctrine which the Economists earnestly warned their readers against. They constantly inculcated that Economics has CH. in.] History of Economics 115 nothing to do with Value in use, but only with Value in Exchange. Thus the whole basis of Say's system is shown to be erroneous, and the whole structure falls in ruin. We have said that Say adopted the alternative definition of the Economists, and styled Economics the science of the " Production, Distribution, and Consumption of Wealth." But that he completely changed the meaning of these terms. By Production the Economists meant bringing a material object into commerce, and offering it for sale, in strict conformity with the meaning of the Latin producere (Production). Littre says, Produire: pousser en avant. Faire voir, mettre sous les yeux ; and he gives several applications of this idea. But he gives no instance whatever of the word being used as creating or adding utility to an object. And he defines Production as action de produire, de mettre en avant. But Say says, " One cannot create objects : the mass of matter of which the world is composed cannot be increased nor diminished. All that we can do is to reproduce these matters under another form, which makes them fit for some use they had not before, or which augments the utility which they already had. Thus there is the creation, not of matter, but of Utility ; and since this utility gives them Value, there is the production of Wealth. It is thus we must understand the word production in Economics, and through the whole course of this work. Production is not the creation of matter, but the creation of utility. And in the definitions at the end of the Traite he says : " Production : produire to produce is to give anything a recog- nized Value, able to procure by exchange something else of equal value; it is also to augment the recognized value which anything already has." He also says that everything which is Produced is Consumed. How far this is true we shall have to inquire shortly. Now there is no warrant in any language for such a meaning of the word Production. It is a pure perversion of ideas, quite peculiar to Say, and totally inadmissible. Say's second book is on the Distribution of Wealth. Now by Distribution the Economists meant the intermediate sales or ex- changes an object undergoes between the person who first produces, or brings it into the market and offers it for sale, and the final purchaser or consumer who buys it for personal use and enjoyment, Ii6 On the Nature and History of Economics [BK. I. and takes it out of the market. Thus the Economists treated only of distribution by exchange. Say does not differ from this materially, for he says : "Distribution (of created values or of the value of products). It operates by the purchase by a manager of industry, of the productive services of his co-producers, or of a product which has not yet received the final form which it ought to receive. This purchase is an advance which the last undertaker, who is usually a retail dealer, is repaid by the consumer." Say has also quite perverted the meaning of the word Con- sommation or Consumption. The word Consommation was used by all French Economical writers previous to Say to mean simply purchase, or Demand. It means completion, from consommer, which comes from the Latin consummare, to complete or accomplish. The Producteur was the person who brought any object into com- merce and offered it for sale ; the Consommateur was the person who bought it for use and enjoyment, and took it out of commerce (Consumption). So also Adam Smith uses Consumer as equivalent to Purchaser. In the ordinary language of commerce the Producer is the person who offers any article for sale, the Consumer is the person who purchases it. So Burke says, "The meeting of Producer and Consumer makes market." So Smith says, " Consumption is the sole end and purpose of all Production," which is merely saying that things are offered for sale for the purpose of being sold. By the word Consumption, as used by all these writers, there never was any idea of destruction involved. Say says : " The reader must understand that as Production is not the creation of a matter, but the creation of Utility, so Consumption is not the destruction of Matter, but the destruction of utility. The utility of a thing once destroyed, the first foundation of its value, which made it sought for, which establishes the demand for it, is destroyed. Thenceforth it has no value, it is not a portion of wealth. " Hence to consume (consommer\ to destroy the value of things, to annihilate the value of things, are expressions whose meaning is absolutely the same, and corresponds to that of the words produce, give utility, create value, whose meaning is also the same. " All Consumption being the destruction of value is not measured by the volume, the number, or the weight of the products consumed but by their value." Also he says in the epitome at the end of the Traite : CH. III.] History of Economics 117 " Consommateur : is he who destroys the value of a product, either to produce another, or to satisfy his tastes or wants. " Consommation : Consommer : to consume (consommer) is to destroy the value of a thing, or a portion of its value, by destroying the utility which it had, or a portion of that utility. " We cannot consume (consommer) that which cannot be destroyed. Thus we can consume the service of an industry, and not the industrial faculty which has rendered this service : the service of land, but not the land itself. " A value cannot be consumed twice : for to say that a thing is consumed is to say that it does not exist any more. " Everything which is produced is consumed : therefore every value created is destroyed, and was only created to be destroyed." Again he says : " The most immediate effect of every kind of consumption (consommation) is the loss of value, and therefore of wealth, which follows for the possessor of the product consumed (consomme). This effect is constant, inevitable, and we must never lose sight of it in reasoning on these matters. A product consumed (consomme) is a value lost for all the world and for ever." And this meaning of consumption as destruction was adopted by other writers. Thus Malthus says, "Consumption, the destruction wholly or in part of any portions of Wealth," and "Consumption is the great purpose and end of all production." So McCulloch says: "By consumption is meant the annihilation of these qualities which render commodities useful, or desirable. To consume the products of arts or industry is to deprive the matter of which they consist of utility, and consequently of the exchangeable value communicated to it by labour. Consumption is, in fact, the end and object of human exertion : and when a commodity is in a fit state to be used, if its consumption be deferred, a loss is incurred." These sentences are a flagrant example of the thoughtless way in which Economical writers dump down doctrines in their works without the least reflection as to their consistency with facts and reality. It is astonishing that men of ability should maintain such a monstrous paradox as that everything which is produced is destroyed : that it is only produced for the purpose of being destroyed ; and that if it is not destroyed a loss is incurred. If Consumption is used in its proper sense it is true that Consumption is the object of all Production. Because, as said above, Production only means offering for sale, and things are offered for sale for the purpose of being sold. But are all things 1 1 8 On the Nature and History of Economics [BK. I _ produced destroyed? Are all things produced for the purpose of being destroyed ? And is a loss incurred if they are not destroyed as soon as produced ? A young man purchases a gold ring, enriched with diamonds and rubies, for his lady-love. The jeweller is the producer, and the young man is the consumer. Does he buy the ring for the purpose of destroying it ? Is there any necessity for its ever being destroyed ? It may last to the end of time. Is a loss incurred if it is not destroyed as soon as it is bought ? Men search for precious stones, diamonds, emeralds, rubies, etc., in the mines. They offer them for sale ; they are the Producers. Other persons purchase them, i.e. consume them. Are the diamonds, emeralds, and rubies, destroyed as soon as they are purchased ?" Were they sought for for the purpose of being destroyed? And is a loss incurred if they are not destroyed ? And innumerable other examples will occur to any reader. Say himself gives an example, showing the absurdity of his own doctrine : " The English succeed in making very fine glass for mirrors, and could supply them at a very moderate price, if the enormous duties laid on the manufacture of glass in England did not raise the product to a price which many consumers (consom- mateurs) cannot afford." "The consumers (consommateurs) of pro- ducts are their buyers." Now, did the consumers of the mirrors, i.e. their purchasers, smash them? Did they buy them for the purpose of smashing them ? And was loss incurred if they were not smashed as soon as they were bought ? It is such fatuous doctrines as these which led a good many persons to say with only too much truth, that Economics is only a mass of clotted nonsense. The fact is that Production and Consumption mean simply Supply and Demand, and together constitute Exchange or Com- merce. By breaking up Economics into three separate departments under the terms Production, Distribution, and Consumption, Say has com- pletely ruined Economics as the Science of Commerce or Exchanges, and broken the back of the Theory of Value. How is it possible to discuss the Theory of Value under the expression, Production, Dis- tribution, and Consumption of Wealth ? Say perfectly acknowledges that Labour is an Economic Quantity, and is bought and sold, and, like Adam Smith, has many interesting discussions on Wages or the price of Labour. Labour is bought CH. III.] History of Economics 119 and sold, and its value is determined by the general Law of Value. But what sense is there in speaking of the Production, Distribution, and Consumption of Labour? Again. Say acknowledges that Rights of Action, Credits and Debts, and the Funds, are Wealth. They are bought and sold or exchanged. He also acknowledges that a vast variety of other abstract Rights are Wealth. But how is it possible to speak of the Production, Distribution, and Consumption, of Bank Notes, Bills of Exchange, and the Funds ? The copyright of a book or a drama or a song is a saleable commodity. It may be bought and sold. But how are we to speak of the Production, Distribution, and Consumption of Copyrights? Say acknowledges that the practice of a professional man and the custom of a shop are saleable commodities, and may be bought and sold. But how are we to speak of the Production, Distribution, and Consumption of the practice of a profession or the custom of a shop ? And so on of a vast variety of other rights. The fact is that Say quite overlooked the fact that when the Economists devised the term, the Production, Distribution, and Consumption of Wealth, they expressly restricted it to material products, and so defined the terms as to mean the commerce or exchanges of the material products of the earth, and of these only. But when Labour and Rights are introduced into Economics, it becomes simply unintelligible jargon. With such a concept it is impossible to give an exposition of the principles and mechanism of the great system of Mercantile Credit, the colossal business of Banking, and the Foreign Exchanges, which all come naturally under the concept of Economics as the sciences of commerce or exchanges, because all these operations are commerce or exchanges* and come under the Theory of Value. One of the subjects on which Say's doctrine is the most notorious is his confusion on credit. He begins by recognizing that Rights of Action, Credits or Debts, are Wealth, and in a multitude of places he speaks of them as being capable of being employed as Capital, as well as any other commodities ; and he says that if a Bank can keep in circulation a greater amount of credit than the quantity of specie it holds in reserve, that is an augmentation of capital, and he inquires who gets the benefit of this new Capital. And yet this very same Say says elsewhere that to assert that Credit is Capital is to main- tain that the same thing can be in two places at once ! And multi- tudes of writers have repeated this silly sarcasm. Whence then is the origin of this flagrant contradiction ? It is simply that in these two I2O On the Nature and History of Economics [BK. I. places Say has contradictory notions of the fundamental concept of Credit. In one set of passages he treats Credit as the present right to a future payment, and then he allows that this may be bought and sold and employed as Capital. In the other passages he considers the Credit to be the goods " lent " i.e. sold ; and then he asks, How can the same goods be in two places at once, and serve two people at the same time ? We have fully exhibited Say's amazing confusion and self-contra- dictions under Credit. There are, no doubt, multitudes of philosophical observations and acute remarks throughout the whole of Say's work, which deserve attention ; but, as a whole, as a general treatise on the Science of Economics, it is a chaos of confusion and contradictions, and utterly impossible. JOHN STUART MILL. John Stuart Mill was the friend and disciple of Jean Baptiste Say, and having already published a small volume of Essays on some Unsettled Questions in Political Economy, published in 1 848 his Principles of Political Economy, which was immediately received with unbounded applause as the ne plus ultra of Economics. One writer in the Edinburgh Review went so far as to style it a KTrjfJ.0. e?