Chapter XXXIX: Book II: , chap. 4 (2)

His life was that of the publicist rather than the scholar. He was not a bookworm, although he had read Say before he was nineteen, and Franklin’s _Poor Richard’s Almanac_ soon afterwards. He was very enthusiastic about the merits of Franklin’s works, and Franklin’s influence upon his writings, even upon his personal appearance and behaviour, is very marked. “With his long hair, his small cap, his long frock-coat, and his large umbrella, he seemed for all the world like a rustic on a visit to town.” (Molinari in the _Journal des Économistes_, February 1851.)

These biographical details should not be lost sight of, especially by those who accuse him of lacking scientific culture and of being more of a journalist than an economist.

Despite the fact that he has been severely judged by foreign economists, he is still very popular in France. His wit is a little coarse, his irony somewhat blunt, and his discourses are perhaps too superficial, but his moderation, his good sense, and his lucidity leave an indelible impression on the mind. And we are by no means certain that the _Harmonies_ and the _Pamphlets_ are not still the best books that a young student of political economy can possibly read. Moreover, we shall find by and by that the purely scientific part of his work is by no means negligible.

[701] On this question of who benefits by international trade see our discussion of Mill’s treatment of the problem (pp. 364-365).

[702] _Harmonies_, p. 21. Our quotations are taken from the tenth edition of the _Œuvres complètes_.

[703] “Economic phenomena are not without their efficient cause and their Providential aim.” (_Harmonies_, last page.)

“Looking at this harmony, the economist can join with the astronomer and the physiologist and say: _Digitus Dei est hic_.” (_Ibid._, chap. 10, p. 39.)

“If everyone would only look after his own affairs, God would look after everybody’s.” (_Ibid._, chap. 8, p. 290.)

[704] Auguste Comte, _Cours de Philosophie positive_, vol. iv, p. 202.

[705] The liturgy of the Reformed Church reads as follows: “We acknowledge and confess our manifold sins.” See our chapter on _Doctrines that owe their Inspiration to Christianity_.

[706] _Harmonies_, chap. 5, p. 140.

[707] “I have attempted to show that value is based not so much upon the amount of labour which a thing has cost the person who made it, as upon the amount of labour it saves the persons who obtain it. [He ought to have acknowledged his indebtedness to Carey in this matter.] Hence I have adopted the term ‘service,’ which implies both ideas.” (_Ibid._, chap. 9, p. 341.)

[708] _Ibid._, chap. 5, p. 145.

[709] _Harmonies_, chap. 5, p. 193.

“Socialists and economists, champions of equality and fraternity, I challenge you, however numerous you may be, to raise even a shadow of objection to the legitimacy of mutual service voluntarily rendered, and consequently against the institution of private property as I have defined it. With regard to both these considerations, men can only possess values, and values merely represent equal services freely secured and freely given.” (_Ibid._, chap. 8, pp. 265, 268.)

Had the limits of this work permitted us to speak of the Italian economists we should have had to refer to Ferrara, professor at Turin from 1849 to 1858, whose theory of value and economic harmony link him to his contemporaries Carey and Bastiat. The whole economic edifice, according to Ferrara, was built upon cost of production. The value of a commodity is not measured by the amount of labour which it really has cost to produce, but by the amount of labour that would be required to produce another similar commodity, or, if the commodity in question be absolutely limited in quantity, such as is the case with an old work of art, by the labour necessary to produce a new one that would satisfy the same need equally well—an application of the principle of substitution which had not been formulated when Ferrara wrote. The progress of industry gradually reduces the cost of labour and dispenses with human effort; hence harmony.

Everything, including the earth and its products, even capital, are subject to this same law, and a gradual diminution of rent and a lowering of the rate of interest are thus assured.

Ferrara’s principal writings consist of prefaces to Italian translations of the works of the chief economists. They were published in a collection known as _Biblioteca dell’ Economista_ (Turin, 1850-70, 26 vols.).

[710] _Harmonies_, chap. 7, p. 236. The controversy between Bastiat and Proudhon in 1849 concerning the legitimacy of interest was published under the title of _Gratuité du Crédit_, but the argument is scarcely worth examining here. Bastiat’s argument is based upon the supposition that the person who lends money performs some service or other, and that the service, whenever given, should be paid for; in other words, he maintains that capital is productive. A plane means more planks produced, and it is only just that the owner of the plane should get some of them. Proudhon replies that he does not deny the legitimacy of interest under present conditions, but that interest itself is just a historical category—to use a phrase that only became current after Proudhon’s time—and that it will be quite unnecessary under the new _régime_. The Exchange Bank was to be the parent of the new order. The two combatants never really come to blows. They keep on arguing about nothing. The result is that this discussion is very trying and brings little honour to either.

[711] “The relative importance of any service must vary with the circumstances. This will depend upon its utility, and the number of people who are willing to give the amount of labour, of ability or training necessary to produce it, as well as the amount of labour which it will save us.” (_Harmonies_, chap. 5, p. 146.)

[712] Bastiat himself was obliged to recognise this. “I have not taken the trouble to ask whether all these services are real and proper or whether men are not sometimes paid for services which they never give. The world is full of such injustices.” (_Ibid._, chap. 5, p. 157.)

But if the world is full of people who are paid for services which they have never given or for merely imaginary and improper work, what is the use of speaking of value and property as if they were founded upon service rendered?

See Gide’s article on _La Notion de la Valeur dans Bastiat_, in the _Revue d’Économie politique_, 1887.

[713] J. B. Say had already employed the term “service” without giving it any normative significance, simply using it to distinguish between wealth which consists of acts and wealth which consists of material products.

[714] _Social Possibilities of Economic Chivalry_, in _Economic Journal_, March 1907.

[715] “And I also declare that you have not intercepted any of the gifts of God. It is true that you received them free out of nature’s hand. But it is equally true that you have handed them on freely, reserving nothing for yourself. Fear not, but live in peace and freedom from every qualm.” (_Harmonies_, chap. 8, p. 257.)

“Coal is free for everyone. There is neither paradox nor exaggeration in that. It is as free as the water of the brook, if we only take the trouble to get it, or pay others for getting it for us.” (_Ibid._, chap. 10.) Bastiat would not regard the shareholders’ dividends as payments for the trouble which the shareholders have taken in getting the coal. The dividends simply pay for the trouble taken to save the money which made the exploitation possible.

Say spoke of free natural agents. What he meant to refer to was such natural commodities as air and water, which are at the disposal of everyone.

[716] _Harmonies_, chap. 8, p. 256.

[717] _Ibid._, chap. 5, p. 142.

[718] Bastiat does not seem to have studied rent. The chapter of the _Harmonies_ on this subject was never completed. Fontenay, one of his disciples, wrote a brilliant book called _Du Revenu foncier_ (1854), which is almost forgotten to-day. He attempted to show:

(1) That Ricardian or differential rent would not exist were all the land equally fertile and suitably cultivated.

(2) That it is incorrect to speak of the rent of natural fertility, as Adam Smith and the Physiocrats did, if all utility (and not merely value) is the product of human labour. A fish, a grape, a grain of wheat, a fat ox, all of them have been created by human industry. Nature is for ever incapable of doing this. This is quite true if we say nature alone, but it is equally true of labour taken by itself.

[719] Carey, _Principles of Social Science_.

[720] Even in Algeria, for example, where Carey’s theory was at first true, now that the fertile plain of the Mitidja has been cultivated by two generations of colonists it is certain that there is only second-class land available.

[721] “Wealth consists of the right to command the services of nature, which are always free.” (Carey, _Principles of Social Science_, vol. i, chap. 13.)

“As man’s power over nature grows, his power over his fellow-men seems to dwindle and equality becomes possible.” (_Ibid._, vol. iii, p. 122.)

Compare, for example, the relative equality of comfort enjoyed by those who travel by rail irrespective of class distinctions (which are only to be found in some countries) with the former method of travelling by post-chaise.

[722] “Capitalists and workers, don’t look at one another with an air of defiance and vengeance.” (_Harmonies_, p. 252.)

[723] A lowering of the rate of interest from 5 to 3 per cent. means that what formerly cost £60 and yielded 3 per cent. will now cost £100. There is no decrease of the revenue and there is an increase in the capital. It is quite a good bargain. A lowering of the rate of interest will simply reduce the amount of capital in those instances where the borrower can effect a conversion to his own advantage.

[724] This truth is so obvious that Rodbertus, as we shall see by and by, took the opposite point of view and attempted to argue on the strength of the “iron law” that capital’s share is always increasing, while labour’s is decreasing. This thesis seems to have no better foundation than the other. See an article by Rist entitled _Deux Sophismes économiques_, in the _Revue d’Économie politique_ for March 1905.

Bastiat’s thesis may also be seen in Carey. The Liberal school has clearly adopted it. See Paul Leroy-Beaulieu’s _Répartition der Richesses_.

[725] See Gide’s _Political Economy_, p. 599 (English translation), and Colson’s _Political Economy_, vol. iii, p. 366. According to Colson, capital’s share has quadrupled since 1820, while labour’s has only increased in the proportion of 1:3½.

[726] “Just as the earth is the great reservoir of electricity, so the public or the consumer is the one source of any gain or loss which the producer makes or suffers. Everything comes back to the consumer. Consequently every important question must be studied from the consumer’s point of view if we want to get hold of its general and permanent results.” (_Harmonies_, chap. 11, p. 414.)

[727] See one of Bastiat’s best known pamphlets, _La Vitre cassée_.

[728] _Harmonies_, chap. 6, p. 419.

[729] Quoted by his friend Paillottet in his preface to the _Œuvres complètes_.

[730] _E.g._ Yves Guyot in the _Journal des Économistes_ for 1904 _et passim_. See p. 326.

[731] The word is not his invention. That honour is claimed by Pierre Leroux. See p. 235.

[732] _Harmonies_, chap. 21, p. 624.

“There is not a man living whose character has not been determined by a thousand factors entirely beyond his control.” (_Ibid._, p. 623.)

“All profit by the progress of the one, and the one by the progress of the many.” (_Ibid._, chap. 11, p. 411.)

[733] “Solidarity implies a kind of collective responsibility. And so solidarity as well as responsibility is a force that makes for progress. It is a system that is admirably calculated to check evil and to advance the good.” (_Ibid._, chap. 21, pp. 622-626.)

[734] “Workers must understand that these collective funds [pension funds] must be voluntarily contributed by those who are to have a share in them. It would be quite unjust, as well as anti-social, to raise them by means of taxation—that is, by force—from the classes who have no share in the benefits.” (_Harmonies_, chap. 14, p. 471.)

“A peasant marries late in the hope of having a small family, and we force him to rear other people’s children. He has to contribute towards the rearing of bastards.” (_Ibid._, chap. 20, pp. 617, 618.)

Speaking of sharing in the benefits, he remarks: “That is really not worth talking about.” (_Ibid._, chap. 14, p. 457.)

[735] “Organisms in nature have their rank and degree of perfection determined by the number of organs which they possess and the amount of difference which exists between each of them.” (_Social Science_, vol. iii, p. 461.)

“Life has been defined as an exchange of mutual obligations, but if there were no difference between the various objects how could the exchange take place?” (_Ibid._, vol. i, pp. 54-55.)

“The more perfectly co-ordinated the whole is, the better developed will be each of its parts.” (_Ibid._, vol. iii, p. 462.)

[736] Charles Dunoyer was Bastiat’s senior. The first edition of _De la Liberté du Travail_, to which we have already referred, dates from 1825, and the last edition from 1845. He took an active part in opposing the Restoration Government, but he became prefect and subsequently Conseiller d’État under Louis Philippe.

[737] Molinari, a modern French economist, holds similar views.

[738] If a person died intestate he was in favour of equal division of wealth. The arguments which he employed are very interesting, especially those directed against the upholders of primogeniture. They thought that by depriving the younger sons of their inheritance they became more industrious and thoughtful. Dunoyer replies by asking whether it would not be an advantage to deny the right of succession to the eldest son as well, “for it is obviously unfair that he should be deprived of that kind of training which is so profitable to his younger brothers.” Dunoyer forgot that it would have gone ill with his arguments if the socialists had taken him at his word.

[739] “Labour is the only source of productive power. Capital is a human creation, and land is simply a form of capital.” (_De la Liberté du Travail_, Book VI.)

[740] Say had already recognised the claims of immaterial wealth alongside of material, and he had employed the term “services” in describing them. In this way he considered that the professor, the doctor and the actor had claims to be regarded as producers. Dunoyer, while accepting his conclusion, criticises his way of putting it. He recognises no distinction between material and immaterial wealth. There is nothing but utility. “It is true that taste, education, etc., are immaterial, but so is everything that man produces.” But he is entirely wrong when he says that a good teacher is a producer of enlightened men and a doctor a producer of healthy persons. We are at a loss to explain why at one moment he refuses to recognise the material element in production, while at another he grossly exaggerates the material results of purely intellectual labour.

[741] “Labour and exchange belong to two categories of facts which are absolutely distinct in their nature. Labour implies production. Commerce and exchange imply nothing of the kind.” (_De la Liberté du Travail_, p. 599.)

[742] Seligman in the _Economic Journal_ for 1903, pp. 335-511, devotes two very interesting articles to such writers under the title of _Some Neglected British Economists_. One is astonished to find how many there are and the originality which they show, and to learn that several of the more important modern theories are simply rediscoveries.

[743] Mrs. Marcet’s _Conversations_ belong to 1817, Miss Martineau’s _Illustrations_ to 1832. The latter had a wonderful vogue.

[744] Quoted by Seager in a lecture on economics at Columbia University in 1908.

[745] We have already referred to McCulloch and James Mill, two of Ricardo’s immediate disciples. We must just add the names of Torrens and Gibbon Wakefield. Wakefield was the author of a book which had a great reputation at one time, but which was simply an attempt to apply the Ricardian principles to the practice of colonisation.

[746] Nassau Senior during a part of his life was Professor of Political Economy at Oxford. The Oxford chair, created in 1825, was the first chair of economics to be established in England. His writings, which treat of various subjects, belong to the period 1827-52. The bulk of his doctrine is contained in his _Political Economy_, contributed to the _Encyclopædia Britannica_ in 1836 and afterwards published separately. This small volume may be regarded as the earliest manual of political economy.

[747] The four principles were: (i) the Hedonistic Principle; (ii) the Principle of Population; (iii) the Law of Increasing Returns in Industry; (iv) the Law of Diminishing Returns in Agriculture.

[748] “But a considerable part of the produce of every country is the recompense of no sacrifice whatever; is received by those who neither labour nor put by, but merely hold out their hands to accept the offerings of the rest of the community.” (_Political Economy_, p. 89.) He takes the income of a successful doctor as an illustration, and divides it up as follows (_ibid._, p. 189):

Wages or payment for labour £40
Profit or payment for abstinence £960
Rent £3000

See _Senior’s Theory of Monopoly_, by Richard Ely (American Economic Association, 1899).

[749] This confusion between rent and the income of inherited wealth does little honour to Senior, for the two facts belong to entirely different categories. Rent is a purely economic phenomenon, resulting from the necessary conditions of exchange. It owes nothing to social organisation, not even to the institution of private property. Inheritance, on the other hand, is a purely juridical phenomenon, the product of civil law. Even if inheritance were abolished it would make no difference to the existence and growth of rent, whether obtained from the soil or from some other source; whereas under the hypothetical _régime_ of perfectly free competition, although rent would no longer be known, inheritance, together with all its privileges, might still continue to exist. Senior evidently understands by the term “rent” any kind of income that is not obtained by personal effort. But this is clearly a perversion of the original meaning.

[750] Rau’s treatise on political economy belongs to the years 1826-37, and von Thünen’s _Der Isolirte Staat_ appeared in 1826.

[751] Pellegrino Rossi, who became a naturalised Frenchman in 1833, was an Italian by birth. He succeeded Say as professor at the Collège de France. He afterwards became Lecturer on Constitutional Law, and his name is commemorated in one of the annual prizes. He eventually entered the diplomatic service, and was attached to the Papal See during the pontificate of Pius IX. He was assassinated at Rome in 1848.

[752] John Stuart Mill, born in 1806, was the son of James Mill the economist of whom we have already spoken. The system of education which his father planned for him can only be described as extraordinary. Practised on anyone else it would have been fatal. At the age of ten he was already well versed in universal history and in the literatures of Greece and Rome. At thirteen he had a fair grasp of science and philosophy, and had written a history of Rome. By the time he was fourteen he knew all the political economy that there was to know then. In 1829, then a young man of twenty-three, he published his first essays on political economy. In 1843 appeared his well-known _System of Logic_, which immediately established his fame. In 1848 he issued the admirable _Principles of Political Economy_. Mill was in the service of the East India Company up to the time when it lost its charter in 1858. From 1865 to 1868 he was a member of the House of Commons. After the death of his wife, who collaborated with him in the production of several of his works, especially _Liberty_ (1859), being unwilling to quit the spot where she lay buried, he spent the last years of his life, except those taken up by his Parliamentary work, at Avignon. His autobiography contains a precious account of his life and of his gradual conversion to socialistic views.

[753] _Principles_, Book II, chap. 1, § 3.

[754] _Ibid._, Book IV, chap. 7, § 7.

[755] Dupont de Nemours, writing very much in the spirit of the Classical school, had already given an excellent definition of natural law. “By natural law we are to understand those essential conditions that regulate all things in accordance with the design laid down by the Author of Nature. They are the ‘essential conditions’ to which men must submit if they would obtain all the benefits which the natural order offers them.” (Introduction to Quesnay’s works, p. 21.)

[756] Adam Smith, let us remember, also wrote a book on the _Theory of Moral Sentiments_ (see Book I, chap. 2), and Stuart Mill writes as follows: “In the golden rule of Jesus of Nazareth we read the complete spirit of the ethics of utility. To do as you would be done by and to love your neighbour as yourself constitute the ideal perfection of utilitarian morality.” (_Utilitarianism_, chap. 2.)

[757] This is how Mill views it: “It is only in a very imperfect state of the world’s arrangements that anyone can best serve the happiness of others by the absolute sacrifice of his own.” (_Utilitarianism_, chap. 2.) But it is scarcely necessary to add, seeing that the two propositions are necessarily complementary, that one of the best ways of securing happiness is to sacrifice one’s self in the cause of others. All that is required is a little patience. “Education and opinion will so use that power as to establish in the mind of every individual an indissoluble association between his happiness and the good of the whole.” Interpreted in this way, individualism is closely akin even to the most transcendent form of solidarity.

[758] One is sometimes asked to state the differences between the Classical, the Individualist, the Liberal, and the Optimist schools. The question does not seem to us to be a very important one, but we may answer it in this way:

(_a_) The Individualist school, according to the worst interpretation put upon it, thinks that egoism is the only possible system of ethics and that each for himself is the sole principle of action. But, naturally enough, everyone is anxious to avoid the taunt of selfishness, and the existence of such economic ties as exchange and division of labour make egoism impossible as an ethical system. According to the broadest interpretation of the term, individualism implies the recognition of individual welfare as the sole aim of every activity, whether individual or social, economic or political. But this does not take us very far, for every socialist and individualist would accept this interpretation. We seldom speak of the welfare of society _per se_ as an entity possessed of conscious feeling. This definition is much too wide. It includes solidarity and association, State intervention and labour legislation, provided the aim be to protect the individual against certain dangers. Self-sacrifice is not excluded, for what can strengthen individualism like self-sacrifice? This is the interpretation which Schatz puts upon it in his _L’Individualisme économique et social_. But the term “individualist” is too indefinite and we must avoid it whenever we can.

(_b_) The so-called Liberal school uses the term in a much more definite fashion. The individual is to be not merely the sole end of economic action, but he is also to be the sole agent of the economic movement, because no one else can understand his true interests or realise them in a better way. Interpreted in this fashion, it means letting the individual alone and removing every external intervention, whether by the State or the master.

According to the one definition, individualism is a creed which everyone can adopt; according to the other it is open to very serious objections. Experience shows that the individual, whether as consumer buying injurious, costly, or useless commodities, or as worker working for wages that ruin his health and lower his children’s vitality, is a poor judge of his own interest, and is helpless to defend himself, even where science and hygiene are on his side.

(_c_) If we push this interpretation a stage farther and admit not only that each individual is best qualified to speak for himself, but also that the social interest is simply the sum of the individual interests, all of which converge in a harmonious whole, then the Liberal school becomes the Optimistic. In France it has the tradition of a generation behind it, and an attempt has been made to revive it in certain recent works; still it may now be regarded as somewhat antiquated.

(_d_) When we speak of the Classical school we mean those who have remained faithful to the principles enunciated by the earlier masters of economic science. An effort has been made to improve, to develop, and even to correct the older theories, but no attempt has been made to change their essential aspects. Individualistic and liberal by tradition, this school has never been optimistic. It lays no claim to finality of doctrine or to the universality of its aim, but simply confines itself to pure science.

[759] _Auguste Comte and Positivism._

[760] _Principles_, Book IV, chap. 7, par. 7 (Ashley’s ed., p. 793). See the recent work of Molinari, or _La Morale de la Concurrence_, by Yves Guyot.

[761] “It is in vain to say that all mouths which the increase of mankind calls into existence bring with them hands. The new mouths require as much food as the old ones and the hands do not produce as much.” (_Principles_, Book I, chap. 11, § 2.)

[762] “It is seldom by the choice of the wife that families are too numerous; on her devolves (along with all the physical suffering and at least a full share of the privations) the whole of the intolerable domestic drudgery resulting from the excess.” (_Principles_, Book II, chap. 13, § 2.)

[763] “While a man who is intemperate in drink, is discountenanced and despised by all who profess to be moral people, it is one of the chief grounds made use of in appeals to the benevolent that the applicant has a large family and is unable to maintain them.” (_Ibid._, Book II, chap. 13, § 1.) “Little improvement can be expected in morality, until the producing large families is regarded with the same feelings as drunkenness or any other physical excess. But while the aristocracy and clergy are foremost to set the example of this kind of incontinence what can be expected of the poor?” (_Ibid._, Ashley’s ed., p. 375, note.)

He complains that the Christian religion inculcates the belief that God in His wisdom and care blesses a numerous family.

[764] “The laws which in many countries on the Continent forbid marriage unless the parties can show that they have the means of supporting a family, do not exceed the legitimate powers of the State. They are not objectionable as violations of liberty.” (_Liberty_, chap. 5.)

On the other hand he thought that a law which limited the number of public-houses involved a violation of liberty because it meant treating the workers as children. (_Ibid._, chap. 5.)

[765] “The rise or the fall continues until the demand and supply are again equal to one another: and the value which a commodity will bring in any market is no other than the value which in that market gives a demand just sufficient to carry off the existing or expected supply.” (_Principles_, Book III, chap. 2, § 4.)

Cournot in his criticisms of the law of demand and supply had anticipated Mill. But it is very probable that Mill was not acquainted with the _Recherches_.

[766] _Principles_, Book III, chap. 3, § 1.

[767] _Ibid._, Book III, chap. 1, § 1.

[768] “Wages depend, then, on the proportion between the number of the labouring population and the capital or other funds devoted to the purchase of labour, and cannot under the rule of competition be affected by anything else.” (_Ibid._, Book II, chap. 11, parts 1 and 3.)

[769] Saving with a view to augmenting the wages fund is only possible for the rich, and Mill is as insistent upon their doing it as he is upon the workers refraining from marriage. He also tries to impress upon the workers the importance of saving, but his way of showing its advantages is often laborious and obscure.

[770] Stuart Mill admitted that trade unions might modify the relations between demand and supply, forgetting for the moment that this meant a contradiction of the Classical theory.

The unions might limit the number of available men. He feared that this would result in high wages for the small number of organised labourers and in low wages for the others. They might check the birth-rate, their members becoming accustomed to such a degree of comfort and well-being as would raise their standard of life. He was always a strict Malthusian.

[771] See the quarterlies of Harvard and Columbia. It was an American, however, Francis Walker, in his _Wages Question_ (1876), who did more than anyone to destroy the old wage fund theory.

[772] “The cost value of a thing means the cost value of the most costly portion of it.” (_Principles_, Book III, chap. 6, § 1, prop. 7.)

“The extra gains which any producer or dealer obtains through superior talents for business or superior business arrangements are very much of a similar kind. If all his competitors had the same advantages, and used them, the benefit would be transferred to their customers through the diminished value of the article: he only retains it for himself because he is able to bring his commodity to market at a lower cost while its value is determined by a higher.” (_Ibid._, Book III, chap. 5, § 4.)

Senior had already emphasised one important difference between agricultural and industrial production, namely that whilst the law of diminishing returns operates in the former case, the law of increasing returns is operative in the second. In other words, the cost of production diminishes as the quantity produced increases. The result is, as Mill points out elsewhere, that the industrial employer is anxious to reduce the sale price in order to produce more and to recoup himself for a reduction in price by a reduced cost of production.

[773] Ricardo, moreover, gives an exposition of the advantages of international trade in terms that Bastiat might have adopted. “Under a system of perfectly free commerce each country naturally devotes its capital and labour to such employments as are most beneficial to each. This pursuit of individual advantage is admirably connected with the universal good of the whole. By stimulating industry, by rewarding ingenuity, and by using most efficaciously the peculiar powers bestowed by nature, it distributes labour most effectively and most economically: while by increasing the general mass of productions it diffuses general benefit and binds together, by one common tie of interest and intercourse, the universal society of nations throughout the civilised world. It is this principle which determines that wine shall be made in France and Portugal, that corn shall be grown in America and Poland, and that hardware and other goods shall be manufactured in England.” (Ricardo, _Works_, p. 75.)

[774] The following apparent paradox may be deduced from Ricardo’s theory. A country is wise in importing not only those commodities which it can only produce at a disadvantage as compared with its rivals, but also those goods in which it has a distinct advantage in the matter of production, though not so great as the advantage enjoyed in some other case. Under those circumstances it is better that it should produce that product in the making of which it has the greater advantage and exchange it for some other product in which it has less.

“Two men can both make shoes and hats, and one is superior to the other in both employments; but in making hats, he can only exceed his competitor by one-fifth, or 20 per cent., and in making shoes he can excel him by one-third, or 33 per cent. Will it not be for the interest of both, that the superior man should employ himself exclusively in making shoes, and the inferior man in making hats.” (Ricardo, _Works_, p. 77, note.)

And so England might find it advantageous to exchange her coal for French cloths, although she may be able to produce those cloths cheaper herself.

[775] “The value of a thing in any place depends on the cost of its acquisition in that place; which in the case of an imported article means the cost of production of the thing which is exported to pay for it.” (_Principles_, Book III, chap. 18, § 1.)

[776] Mill first treated of the theory in his _Unsettled Questions of Political Economy_. A more complicated but more precise exposition is given in the _Principles_ Book III, chap. 18, § 7. The whole process of reasoning, based as it is upon the hypothetical conduct of two persons, is purely abstract, and is of very little practical use. What is really important is to know the relation between the advantages gained by either side. It is true that on the whole imports and exports balance one another, thanks to the operation of money, but that is another question.

[777] “It still appears, that the countries which carry on their foreign trade on the most advantageous terms are those whose commodities are most in demand by foreign countries, and which have themselves the least demand for foreign commodities, from which, among other consequences, it follows that the richest countries, _ceteris paribus_, gain the least by a given amount of foreign commerce, since, having a greater demand for commodities generally they are likely to have a greater demand for foreign commodities and thus modify the terms of interchange to their own disadvantage.” (_Principles_, Book III, chap. 18, § 8.) Note the phrase “a given amount of foreign commerce.” That is, although the rate of interchange is less advantageous for the rich country than it is for the poor, still, since the former exchanges much more than the latter it gains more on the whole transaction. Mill states this expressly elsewhere. The rich and the poor country are like the wholesale house and the little shop. The former gains very little on each article sold, but gains much on the whole turnover.

[778] _Ibid._, Book V, chap. 10, § 1.

[779] An even more important concession to the Protectionist view is his admission that the duties are not always borne by the home consumer in the form of higher prices, but that they are sometimes paid by the foreigner.

[780] _Principles_, Book V, chap. 10, § 1. The duty would check the demand of the importing country, and according to Mill’s own formula it ought to modify the exchange equation in its favour.

[781] _Histoire des Doctrines économiques_, p. 338.

[782] Mill was for many years resident in France, and died at Avignon. An article written by him in defence of the Revolution of 1848 has been translated into French and published in book form by M. Sadi Carnot.

[783] _Principles_, p. 210.

[784] _Representative Government_, chap. 3.

[785] “The laws and conditions of the production of wealth partake of the character of physical truths. There is nothing optional or arbitrary in them.… It is not so with the distribution of wealth. This is a matter of human institution solely. The things once there, mankind, individually or collectively, can do with them as they like.” (_Principles_, Book II, chap. 1, § 1.) Karl Marx, a little later than this, claimed that distribution is wholly determined by production.

[786] See Chatelain’s introduction to Rodbertus’s _Kapital_.

[787] See _Autobiography_, p. 133 (“Popular” edition).

[788] “If the improvement which even triumphant military despotism has only retarded, not stopped, shall continue its course there can be little doubt that the status of hired labourers will gradually tend to confine itself to the description of workpeople whose low moral qualities render them unfit for anything more independent, and that the relation of masters and workpeople will be gradually superseded by partnership in one of two forms: in some cases, association of the labourers with the capitalist; in others, and perhaps finally in all, association of labourers among themselves.” (_Principles_, Book IV, chap. 7, § 4.)

“In this or some such mode, the existing accumulations of capital might honestly and by a kind of spontaneous process become in the end the joint property of all who participate in their productive employment—a transformation which, thus effected, would be the nearest approach to social justice and the most beneficial ordering of industrial affairs for the universal good which it is possible at present to foresee.” (_Ibid._,