Chapter II: Part 2

According to the law which I have already mentioned, as regulating the progress of knowledge, Political Economy, when, in the 17th century, it first attracted notice as a subject of separate study, was treated as an art. At that time human happiness was considered as dependent chiefly on wealth, and wealth, as I have previously remarked, was supposed to consist of gold and silver. The object which the political economist proposed to himself and to his reader, was the accumulation within his own country of the utmost possible amount of the precious metals. The questions which now agitate society, as to the distribution of wealth, were unregarded. All that was aimed at, was its acquisition and retention in a metallic form. As respects the countries possessing native deposits of the precious metals, the means of effecting this were supposed to be obvious and easy. They had only to promote the extraction of silver from mines, and that of gold from auriferous sands, and to prohibit the exportation of either. This was the policy of Spain and Portugal. The countries not possessing a native supply, could obtain it only by what was called a favourable balance of trade, that is to say, by exporting to a value exceeding that of their imports, and receiving the difference in money. And the money so acquired, they were taught to retain, by prohibiting its exportation. The prevailing opinion shows itself in the preamble of the 5 Rich. II. stat. 1. cap. 2., one among the many statutes and proclamations by which this prohibition was for centuries enforced. “For the great mischief which this realm suffereth, and long hath done, for that gold and silver are carried out of the realm, so that, in effect, there is none thereof left, which thing, if it should longer be suffered, would shortly be the destruction of the same realm, which God prohibit;” and the statute proceeds to forbid such exportation on pain of forfeiture. The merchants, however, who were necessarily the first to test the effects of this prohibition, found it inconvenient. Some trades, particularly those with the East, could be carried on only by the constant exportation of gold or silver, and in all others it was occasionally useful. They did not venture to attack the theory that the prosperity of a country depends on its accumulation of money. Few of them, probably, doubted its truth. But they maintained that the means by which the legislature endeavoured to promote this excellent result, in fact defeated it. “Allow us,” they said, “to send out silver to Asia, and we will bring back silks and calicos, not for our own consumption, which of course would be a loss, but to sell on the Continent for more silver than they cost, and we shall add annually to the national treasure.” This was assented to, and after more than four centuries of prohibition, the export of bullion was allowed by the 15 Car. II. cap. 17. “Forasmuch,” says the act, “as several considerable foreign trades cannot be conveniently driven without the species of money and bullion, and that it is found, by experience, that the species of money and bullion are carried in greatest abundance, as to a common market, to such places as give free liberty of exporting the same, _and the better to keep in and increase the current coins of this kingdom_, be it enacted, that it shall be lawful to export all sorts of foreign coin and bullion, first entering the same at the custom-house.”

The art of Political Economy now became more complex. Its object, indeed, was a very simple one, merely to increase the current coin of the country; but this was to be effected, not by restraining every trade which carried out bullion, but only those which carried out more than they brought in. But how were such trades to be detected? A test was supposed to be applied, by ascertaining whether their imports were intended for home consumption, or for re-exportation. In the former case, the trade, whether profitable or not to the merchant, was obviously mischievous to the country.

In the second case the trade, if profitable to the merchant, must also benefit the country, as it would receive more money than it sent out. “It is not,” says Sir James Stewart[B], “by the importation of foreign commodities, and by the exportation of gold and silver, that a nation becomes poor; it is by consuming those commodities when imported. The moment the consumption begins, the balance turns. Nations which trade to India by sending out gold and silver for a return of superfluities of a most consumable nature, the consumption of which they prohibit at home, do not spend their own specie, but that of their neighbours, who purchase the returns of it for their own consumption. Consequently a nation may become immensely rich by the constant exportation of specie and importation of consumable commodities. But she would do well to beware not to resemble the milliner who took it into her head to wear the fine laces which she used to make up for her customers. While a favourable balance is preserved upon foreign trade, a nation grows richer daily; and when one nation grows richer, others must be growing poorer.”

[B] An Inquiry into the Principles of Political Economy, book
ii. ch. xxix. pp. 418, 419, and 422.

Sir James Stewart’s work was published in 1767, and as he says that it was the work of eighteen years, it must have been written between that year and the year 1749. Though he calls Political Economy a science, he treats it as an art, and has the merit of having first given to it limits clearly separating it from the other moral and political arts. “Its object is,” he says, “to secure a certain fund of subsistence for all the inhabitants, to obviate every circumstance which may render it precarious, to provide every thing necessary for supplying the wants of the society, and to employ the inhabitants in such a manner as naturally to create reciprocal relations and dependencies between them, so as to make their several interests lead them to supply one another with their reciprocal wants.”[C] This agrees with my second proposal, namely, to define Political Economy as “the art which points out the institutions and habits most conducive to the production and accumulation of wealth.” As incidental to the art, he was forced to examine the science, and a considerable portion of his work consists of inquiries into the laws which regulate the production and distribution of wealth. The extracts which I have read, show that he did not escape the prevalent errors of his times. And these errors were so grave, as to render the practical portion of his treatise not merely useless for its intended purposes, but positively injurious. A legislator following his precepts, would waste the wealth of the richest country, and destroy the diligence of the most industrious. But the scientific part of the work, particularly the chapters on population, and on the influence of taxation on wages, contains truths of great importance, which were unknown to his contemporaries, and cannot be said to be generally recognised even now.

[C] Book I. Introduction.

Among the contemporaries of Stewart were the French Economists, or, as they have lately been called, the Physiocrats, forming the school founded by Quesnay. With the exception, however, of Turgot, they wrote on the whole art of government. Their works, indeed, contain treatises on Political Economy according to my third proposed definition, that is to say, “on the institutions and habits most conducive to that production, accumulation, and distribution of wealth, which is most favourable to the happiness of mankind;” but they contain much more. Quesnay and his followers lived in a country subject to political institutions, of which many were mischievous, more were imperfect, and all were unsettled. That the existing system of government was bad, every one acknowledged. The economists believed that they had discovered why it was bad. They believed that they had discovered that agriculture is the only source of wealth, and rent the only legitimate source of public revenue. And they proposed, therefore, to substitute for the innumerable taxes on importation, on exportation, on transit, on production, on sale, on consumption, and on the person of man, which then formed the fiscal system of France, a single tax on the rent of land. So far their precepts were founded on the science of Political Economy. But when they proposed the separation of legislative and judicial functions, and required the whole legislative power to center in an absolute hereditary monarch, they drew their premises from other branches of mental science. I have said that Turgot was an exception; and it is remarkable, that the only man among the disciples of Quesnay who was actually practising Political Economy as an art, is the only one who treated its principles as a science. His “Réflexions sur la Formation, et la Distribution des Richesses,” published in 1771, is a purely scientific treatise. It contains not a word of precept; and might have been written by an ascetic, who believed wealth to be an evil.

We now come to Adam Smith, the founder of modern Political Economy, whether it be treated as a science or as an art. He considered it as an art. “Political Economy,” he says, in the introduction to the fourth book, “proposes two distinct objects: first, to provide a plentiful revenue or subsistence for the people, or, more properly, to enable them to provide such a revenue or subsistence for themselves; and, secondly, to supply the state or common weal with a revenue sufficient for the public service. It proposes to enrich both the people and the sovereign.” The principal purpose of his work was to show the erroneousness of the means by which political economists had proposed to attain these two great objects. And in the then state of knowledge, this could be done only by proving that many of them mistook the nature of wealth, and all of them the laws according to which it is produced and distributed. The scientific portion of his work is merely an introduction to that which is practical.

Of the five books into which the work is divided, it occupies only the first and second. The third is an historical sketch of the progress of national opulence. The fourth, the longest in the whole work, considers the direct interferences by which governments have attempted to lead or force their subjects to become rich; and decides, “that every system which endeavours, either by extraordinary encouragements, to draw towards a particular species of industry a greater share of the capital of the society than would naturally go to it, or, by extraordinary restraints, to force from a particular species of industry some share of the capital which would otherwise be employed in it, is in reality subversive of the great purpose which it means to promote. It retards, instead of accelerating, the progress of the society towards real wealth and greatness; and diminishes, instead of increasing, the real value of the annual produce of its land and labour.”

“All systems,” he adds, “either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. According to that system, the sovereign has only three duties to attend to: first, the duty of protecting the society from the violence and invasion of other independent societies; secondly, the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice; and, thirdly, the duty of erecting and maintaining certain public works and certain public institutions, which it can never be for the interest of any individual, or small number of individuals, to erect and maintain.”

The fifth book, which points out the means by which the duties of the sovereign may best be performed, and the necessary public revenue provided, is, in fact, a treatise on the art of government. It treats of the subsidiary arts of war, of jurisprudence, and of education. It considers the advantages and disadvantages of religious endowments, and even the details of the opposed systems of patronage and popular election, and of equality and inequality of benefices. It considers at great length the modes and effects of taxation and of public loans, and concludes by an elaborate plan for diminishing the taxation of Great Britain, by requiring all the British dependencies, of which Ireland and North America then formed part, to contribute directly to the imperial treasury.

I have often doubted whether we ought not to wish that Adam Smith had published his fifth book as a separate treatise with an appropriate title. It is by far the most amusing and the easiest portion of the “Wealth of Nations,” and must have attracted many readers whom the abstractions of the first and second books, if they had formed a separate work, would have repelled. On the other hand, the including by so great an authority, in one treatise, and under one name, many subjects belonging to different arts, has certainly contributed to the indistinct views as to the nature and subjects of Political Economy, which appear still to prevail.

The English writers who have succeeded Adam Smith, have generally set out by defining Political Economy as a science, and proceeded to treat it as an art.

Thus Mr. M‘Culloch states, as the proper subjects of Political Economy, “the laws which regulate the production, accumulation, distribution, and consumption of the articles or products possessing exchangeable value.” Political Economy, then, is a science. But he goes on to say, that “the object of Political Economy is to point out the means by which the industry of man may be rendered most productive of wealth, the circumstances most favourable to its accumulation, and the mode in which it may be most advantageously consumed.” So defined, Political Economy is an art,--a branch, in fact the principal branch, of the art of government.

Mr. James Mill says that he has in view merely to ascertain the laws of production, distribution, and consumption. His treatise, therefore, ought to be merely scientific. But when he says that Political Economy ought to be to the state what domestic economy is to the family, and that its object is to ascertain the means of multiplying the objects of desire, and to frame a system of rules for applying them with the greatest advantage to that end, he turns it into an art.

Mr. Ricardo is, however, an exception. His great work is little less scientific than that of Turgot. His abstinence from precept, and even from illustrations drawn from real life, is the more remarkable, as the subject of his treatise is distribution, the most practical branch of Political Economy, and taxation, the most practical branch of distribution.

The modern economists of France, Germany, Spain, Italy, and America, so far as I am acquainted with their works, all treat Political Economy as an art.

Many of them complain of what they call the abstractions of the English school, and others accuse it of narrow views, and of an exclusive attention to wealth; criticisms which must arise from an opinion that Political Economy is a branch of the art of government, and that its business is to influence the conduct of a statesman, rather than to extend the knowledge of a philosopher.

It appears, from this hasty sketch, that the term Political Economy has not yet acquired a definite meaning, and that, whichever of the three definitions I adopt, I shall be free from the accusation of having unduly extended or narrowed the field of inquiry which the statute founding this professorship has laid open to me.

There is much in favour of the third definition, that which defines Political Economy as the art which teaches what production, distribution, accumulation, and consumption of wealth is most conducive to the happiness of mankind, and what are the habits and institutions most favourable to that production, distribution, accumulation, and consumption.

It raises the political economist to a commanding eminence. The most extensive, though perhaps not the most important, portion of human nature, lies within his horizon.

The possession of wealth is the great object of human desire, its production is the great purpose of human exertion. The modes and the degree in which it is distributed, accumulated, and consumed, occasion the principal differences between nations. The philosopher who could teach such an art, would stand at the head of the benefactors of mankind.

But the subject is too vast for a single treatise, or indeed for a single mind. This will be evident if we consider the extent of one of its subordinate branches, the limits to be assigned to posthumous power. On the death of a proprietor, ought his property to revert to the state, as it does in Turkey, or to go to his children, as it does in France, or to be subject to his disposition by deed or by will? If it be subjected to his disposition, ought he to have merely the power of appointing his immediate successors, or of entailing it for one generation, or for two, or for ever? Is it advisable that he should have the power, not only of appointing a successor to his property, but of directing how that successor shall employ it? And ought such a power to be unlimited, or to be confined to certain purposes, or within a certain period? Ought the laws of succession and of testamentary power to be the same as respects land and movables, or to differ totally, or in any, or what, particulars? Ought these questions to be resolved differently in an old country and in a colony, in a monarchy, in an aristocracy, and in a republic? If Political Economy be a branch of the art of government, these inquiries form a branch, though a very small one, of Political Economy.

But there is scarcely any one of them which it would not require a long treatise to answer satisfactorily. How many, for instance, are the considerations which must be attended to in a discussion as to the propriety of enabling individuals to found permanent institutions for the purposes of religion, of education, and of charity, and as to the period for which they ought to be allowed to govern them from the grave?

It is almost impossible to overrate the importance of the art of government. With the exception, perhaps, of morality, it is the most useful of the mental arts; but, with no exception whatever, it is the most extensive. Too much attention cannot be given to it; but that attention should be subdivided. Too many minds cannot be employed on it, but each should select a single province; and the narrower the province, of course the more completely is it likely to be mastered.

My second definition, that which defines Political Economy as the art which teaches what are the institutions and habits most favourable to the production and accumulation of wealth, is not liable to similar objections. It opens a field of inquiry, positively indeed wide, but comparatively narrow. The object proposed by the political economist is no longer human happiness, but the attainment of one of the means of human happiness, wealth.

To recur to my former illustrations, he must, as in the former case, inquire whether, according to the principles of Political Economy, individuals ought to be enabled to direct how the property which they have acquired in life shall be employed after their deaths, in providing religious teaching, and to what extent, and for what periods, their posthumous legislation ought to be enforced; but he must stop far short of the point to which his inquiries, if he had adopted the former definition, would have extended. He must confine himself to the effect of such institutions on the production and accumulation of wealth. He has now no business to inquire whether endowments imply articles of faith, and articles of faith produce indifference or hypocrisy; whether the servility of a hierarchy be compensated by its loyalty, or the turbulence of sectarianism by its independence of thought. He has no longer to compare the moral and religious influence of an endowed, with that of an unendowed clergy. He does not inquire whether the morality of the one is likely to be ascetic, and that of the other latitudinarian; whether the one will have more influence over the bulk of the people, and the other over the educated classes; whether the one is likely to produce numerous contending sects, animated by zeal, but inflamed by intolerance, and the other an unreflecting apathetic conformity. These are matters beyond his jurisdiction. But he assumes, on the general principles of human nature, that every civilised society requires teachers of religion, and that these teachers must be paid for their services. He shows, on the principles of Political Economy, that in every such society there are revenues derived from land or from capital, which are consumed by a class not forced to take an active part in producing them, and enjoying, therefore, a leisure which they are tempted to waste in indolence or in frivolous occupation. He shows that to dedicate a portion of these revenues to the payment of the teachers of religion, is merely to substitute for a certain number of lay landlords, or lay fundholders, bound to the performance of no public duty, ecclesiastical fundholders, or ecclesiastical landlords, rendering, in return for their incomes, services which, under what is called the voluntary system, must be purchased by those who require them. He shows that such a dedication must diminish the number of idle persons, and therefore increase the productive activity of the community and diminish the subjects of necessary expenditure, and therefore increase its disposable income; and he infers that the wealth of a society may be augmented by allowing such endowments to be created. He may go on to show that such endowments may cease to be favourable to wealth, if the founder’s legislative power be unlimited, since the doctrines of which he has ordered the dissemination may have been originally unpopular, or may become so as knowledge advances. The political economist, therefore, may recommend that all such institutions be subjected to the control of the legislature, in order to prevent endowments from being wasted by providing teachers for whom there are no congregations, and that they be also subjected to periodical revision, in order to accommodate the supply of instruction to the demand.

He may proceed to consider the different forms of endowments, by tithes, by land, by rent-charges, and by the investment of money. He may show how the first is an obstacle to all improvement, and the second to improvement by the landlord; how the third diminishes with the progress of wealth, and the fourth may perish with the fund on which it is secured. And he may propose remedies for these different inconveniences. If he go further than this, he wanders from the art of wealth into the art of government.

I have introduced this rather long illustration, not only as an example of the different modes in which the _art_ of Political Economy must be treated, according to the definition with which the teacher sets out, but also as a specimen of the extent and variety of the details into which he must enter, even if he adopt the less extensive definition.

But this is not all. I have already remarked that all the practical arts draw their principles from sciences. If, however, the teacher of an art were to attempt to teach also the different sciences on which it is founded, his treatise would want unity of subject, and be inconveniently long. He generally, therefore, assumes his scientific principles as established, and refers to them as well known. The teacher of the art of medicine merely alludes to the facts which form the sciences of anatomy and chemistry; the teacher of rhetoric assumes that his pupil is acquainted with the science of logic and with that of grammar. Many of the sciences and of the arts which are subservient to the art of Political Economy, may be thus treated. The political economist, for instance, assumes that protection from domestic or foreign violence or fraud, is essential to any considerable production or accumulation of wealth, and he considers the means by which the expense of providing this protection may be best supported; but he does not inquire what are the necessary legal and military institutions. He leaves these to be pointed out by the arts of war and of penal and civil jurisprudence, and by the sciences on which those arts depend.

There is one science, however, to which this treatment cannot as yet be applied, and it is the science most intimately connected with the art of Political Economy, that is to say, the science which states the laws regulating the production, accumulation, and distribution of wealth, or, in other words, the science (as distinguished from the art) of Political Economy itself. The time I trust will come, perhaps within the lives of some of us, when the outline of this science will be clearly made out and generally recognised, when its nomenclature will be fixed, and its principles form a part of elementary instruction. A teacher of the art of Political Economy will then be able to refer to the principles of the science as familiar and admitted truths. I scarcely need repeat how far this is from being the case at present. Without doubt, many of the laws of the science have been discovered, and a few of them are generally acknowledged; and some of its terms have been defined, and the definitions accepted. Still, however, there remains, as I remarked in the first Lecture, much to explore and much to explain. We are still far from the bounds of what is to be known, and further still from any general agreement as to what is known. Every writer, therefore, on the art of Political Economy, is forced to prefix, or to interweave among his precepts, his own views of the science, and thus to add to the practical portion of his work a scientific portion of perhaps equal length. It appears to me, that the five years during which this professorship is tenable, is too short a period for so vast an undertaking. I propose, therefore, to take as my subject, not the art, but the much narrower province, the science; and to explain, in the following Lectures, the general laws which regulate the production, accumulation, and distribution of wealth, leaving it to writers with more leisure to point out what are the institutions most favourable to its production and accumulation, and to speculators of still wider views to say what production, accumulation, distribution, and consumption are most favourable to human happiness.

But though I follow substantially the example of Turgot and Ricardo, I do not propose to follow it implicitly. Though I profess to teach only the theory of wealth, I do not refuse the right to consider its practical application. There is, indeed, something imposing and almost seductive in a work of pure science, especially if it be a science connected with human affairs. We admire the impartiality of the philosopher who discusses matters that agitate nations without mixing in the strife, or noticing the use that may be made of the truths which he scatters. And we admit, with comparative readiness, conclusions which do not appear to have been influenced by passion, the great disturber of observation and of reasoning. This was one of the great causes of the popularity of Ricardo. He was the first English writer who produced Political Economy in a purely scientific form. He is usually a logical reasoner, so that his conclusions can seldom be denied if his premises are conceded, and his premises must usually be conceded, for they are usually hypothetical. Men were delighted to find what appeared to be firm footing, in a new and apparently unstable science, and readily gave their assent to theories which did not obviously lead to practice. But though it be desirable that from time to time a writer should arise able and willing to treat the science in this severe and abstract manner, his treatise will be more serviceable to masters than to students. To those who are already familiar with the subject, to those who have already perceived how deeply mankind are interested in obtaining correct views as to the laws which regulate the production and distribution of wealth, a naked statement of those laws, though it should not possess the elegance of Turgot, or the originality of Ricardo, must still be useful, and even agreeable. A mere student would find it repulsive. He ought to be attracted to Political Economy by seeing from time to time its practical application. He should be taught that he is studying a science composed of principles which no statesman, no legislator, no magistrate, no member even of a board of guardians can safely disregard. And this will be best effected by putting before him examples of the good which has been done by adhering to those principles, and of the evil which has punished their neglect. These examples, therefore, I shall think myself at liberty to give. I shall think myself justified, for instance, in showing how the natural distribution of wealth may be affected by the institution of poor-laws. And I shall not confine myself to their effects upon wealth. I shall consider how far a well-framed poor-law may promote the moral as well as the material welfare of the labouring classes, and an ill-administered poor-law may produce moral, intellectual, and physical degradation. But these discussions must be considered as episodes. They form no part of the science which I profess. I shall enter into them, not as a political economist, but as a statesman or a moralist; and I shall expect from those who do me the honour of listening to them, not the full conviction which follows scientific reasoning, but the qualified assent which is given to the precepts of an art.

In the next Lecture I shall consider whether the science of Political Economy may be more conveniently based on positive or on hypothetical principles.

LECTURE IV.

THAT POLITICAL ECONOMY IS A POSITIVE, NOT AN HYPOTHETICAL SCIENCE.--DEFINITION OF WEALTH.

In the present Lecture I shall consider whether the science of Political Economy may be more conveniently based on positive or on hypothetical principles, and shall afterwards explain, more fully than I have as yet done, the sense in which I use the word wealth. Mr. John Mill, who has contributed much to Political Economy, as he has, indeed, to every science which he has touched, maintains that it is based on hypothesis. As it is impossible to change Mr. Mill’s language for the better, I shall extract the material parts of the passage in which he states and supports this opinion.

“Political Economy,”[D] he says, “is concerned with man solely as a being who desires to possess wealth, and who is capable of judging of the comparative efficacy of means for obtaining that end. It predicts only such of the phenomena of the social state as take place in consequence of the pursuit of wealth. It makes entire abstraction of every other human passion or motive, except those which may be regarded as perpetually antagonising principles to the desire of wealth; namely, aversion to labour, and desire of the present enjoyment of costly indulgences. These it takes, to a certain extent, into its calculations, because these do not merely, like other desires, occasionally conflict with the pursuit of wealth, but accompany it always as a drag or impediment, and are therefore inseparably mixed up in the consideration of it. Political Economy considers mankind as occupied solely in acquiring and consuming wealth, and aims at showing what is the course of action into which mankind, living in a state of society, would be impelled, if that motive, except in the degree in which it is checked by the two perpetual counter-motives above adverted to, were absolutely ruler of all their actions. Under the influence of this desire, it shows mankind accumulating wealth, and employing wealth in the production of other wealth; sanctioning by mutual agreement the institution of property; establishing laws to prevent individuals from encroaching upon the property of others by force or fraud; adopting various contrivances for increasing the productiveness of their labour; settling the division of the produce by agreement, under the influence of competition (competition itself being governed by certain laws, which laws are therefore the ultimate regulators of the division of the produce), and employing certain expedients, as money, credit, &c., to facilitate the distribution. All these operations, though many of them are really the result of a plurality of motives, are considered by Political Economy as flowing solely from the desire of wealth. The science then proceeds to investigate the laws which govern these several operations, under the supposition that man is a being who is determined, by the necessity of his nature, to prefer a greater proportion of wealth to a smaller in all cases, without any other exception than that constituted by the two counter-motives already specified. Not that any political economist was ever so absurd as to suppose that mankind are really thus constituted, but because this is the mode in which science must necessarily proceed. When an effect depends upon a concurrence of causes, those causes must be studied one at a time, and their laws separately investigated, if we wish, through the causes, to obtain the power of either predicting or controlling the effect; since the law of the effect is compounded of the laws of all the causes which determine it. The law of the centripetal and that of the tangential force must have been known, before the motions of the earth and planets could be explained, or many of them predicted. The same is the case with the conduct of man in society. In order to judge how he will act under the variety of desires and aversions which are concurrently operating upon him, we must know how he would act under the exclusive influence of each one in particular. There is, perhaps, no action of a man’s life in which he is neither under the immediate nor under the remote influence of any impulse but the mere desire of wealth. With respect to those parts of human conduct of which wealth is not even the principal object, to these Political Economy does not pretend that its conclusions are applicable. But there are also certain departments of human affairs, in which the acquisition of wealth is the main and acknowledged end. It is only of these that Political Economy takes notice. The manner in which it necessarily proceeds is that of treating the main and acknowledged end as if it were the sole end; which, of all hypotheses equally simple, is the nearest to the truth. The political economist inquires, what are the actions which would be produced by this desire, if, within the departments in question, it were unimpeded by any other?

[D] Essays on some Unsettled Questions of Political Economy,
pp. 137, 138, 139, 140, 144, 145.

“It reasons, and, as we contend, 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 foundation of the other abstract sciences. Geometry presupposes an arbitrary definition of a line, ‘that which has length but not breadth.’ Just in the same manner does Political Economy presuppose an arbitrary definition of man, as a being who invariably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labour and physical self-denial with which they can be obtained in the existing state of knowledge. It is true that this definition of man is not formally prefixed to any work on Political Economy, as the definition of a line is prefixed to Euclid’s Elements; and in proportion as, by being so prefixed, it would be less in danger of being forgotten, we may see ground for regret that it is not done. It is proper that what is assumed in every particular case, should once for all be brought before the mind in its full extent, by being somewhere formally stated as a general maxim. Now, no one who is conversant with systematic treatises on Political Economy will question, that whenever a political economist has shown that, by acting in a particular manner, a labourer may obviously obtain higher wages, a capitalist larger profits, or a landlord higher rent, he concludes, as a matter of course, that they will certainly act in that manner. Political Economy, therefore, reasons from assumed premises--from premises which might be totally without foundation in fact, and which are not pretended to be universally in accordance with it. The conclusions of Political Economy, consequently, like those of geometry, are only true, as the common phrase is, in the abstract; that is, they are only true under certain suppositions, in which none but general causes--causes common to the whole class of cases under consideration--are taken into account.”

I have extracted this long passage because it is a clear statement of an original view of the science of Political Economy,--a view so plausible, indeed so philosophical, that I feel bound either to adopt it, or to state fully my reasons for rejecting it. I am not aware of any writer, except, perhaps, Mr. Merivale, who has expressed a formal concurrence in Mr. Mill’s doctrine; but Mr. Ricardo has practically assented to it.

His treatment of the science, indeed, is still more abstract than that proposed by Mr. Mill. He adds to Mr. Mill’s hypothesis other assumptions equally arbitrary; and he draws all his illustrations, not from real life, but from hypothetical cases. Out of these materials he has framed a theory, as to the distribution of wealth, possessing almost mathematical precision.

But neither the reasoning of Mr. Mill, nor the example of Mr. Ricardo, induce me to treat Political Economy as an hypothetical science. I do not think it necessary, and, if unnecessary, I do not think it desirable.

It appears to me, that if we substitute for Mr. Mill’s hypothesis, that wealth and costly enjoyment are the _only_ objects of human desire, the statement that they are universal and constant objects of desire, that they are desired by all men and at all times, we shall have laid an equally firm foundation for our subsequent reasonings, and have put a truth in the place of an arbitrary assumption. We shall not, it is true, from the fact that by acting in a particular manner a labourer may obtain higher wages, a capitalist larger profits, or a landlord higher rent, be able to infer the further fact that they will certainly act in that manner, but we shall be able to infer that they will do so in the absence of disturbing causes. And if we are able, as will frequently be the case, to state the cases in which these causes may be expected to exist, and the force with which they are likely to operate, we shall have removed all objection to the positive as opposed to the hypothetical treatment of the science.

I have said that the hypothetical treatment of the science, if unnecessary, is undesirable. It appears to me to be open to three great objections. In the first place it is obviously unattractive. No one listens to an exposition of what might be the state of things under given but unreal conditions, with the interest with which he hears a statement of what is actually taking place.

In the second place, a writer who starts from arbitrarily assumed premises, is in danger of forgetting, from time to time, their unsubstantial foundation, and of arguing as if they were true. This has been the source of much error in Ricardo. He assumed the land of every country to be of different degrees of fertility, and rent to be the value of the difference between the fertility of the best and of the worst land in cultivation. The remainder of the produce he divided into profit and wages. He assumed that wages naturally amount to neither more nor less than the amount of commodities which nature or habit has rendered necessary to maintain the labourer and his family in health and strength. He assumed that, in the progress of population and wealth, worse and worse soils are constantly resorted to, and that agricultural labour, therefore, becomes less and less proportionately productive; and he inferred that the share of the produce of land taken by the landlord and by the labourer must constantly increase, and the share taken by the capitalist constantly diminish.

This was a logical inference, and would consequently have been true in fact, if the assumed premises had been true. The fact is, however, that almost every one of them is false. It is not true that rent depends on the difference in fertility of the different portions of land in cultivation. It might exist if the whole territory of a country were of uniform quality. It is not true that the labourer always receives precisely the necessaries, or even what custom leads him to consider the necessaries, of life. In civilised countries he almost always receives much more; in barbarous countries he from time to time obtains less. It is not true that as wealth and population advance, agricultural labour becomes less and less proportionately productive. The corn now raised with the greatest labour in England is raised with less labour than that which was raised with the least labour three hundred years ago, or than that which is now raised with the least labour in Poland. It is not true that the share of the produce taken by the capitalist is least in the richest countries. Those are the countries in which it generally is the greatest. Mr. Ricardo was certainly justified in assuming his premises, provided that he was always aware, and always kept in mind, that they were merely assumed. This, however, he seems sometimes not to know, and sometimes he forgets. Thus he states, as an actual fact, that in an improving country, the difficulty of obtaining raw produce constantly increases. He states as a real fact, that a tax on wages falls not on the labourer but on the capitalist.

He affirms that tithes occasion a proportionate increase in the price of corn, and a proportionate increase of wages, and therefore are a tax on the capitalist, not on the landlord. Positions both of which depend on an assumed fixed amount of wages.

A third objection to reasoning on hypothesis is its liability to error, either from illogical inference, or from the omission of some element necessarily incident to the supposed case. When a writer takes his premises from observation and consciousness, and infers from them what he supposes to be real facts, if he have committed any grave error, it generally leads him to some startling conclusion. He is thus warned of the probable existence of an unfounded premise, or of an illogical inference, and if he be wise, tries back until he has detected his mistake. But the strangeness of the results of an hypothesis, gives no warning. We expect them to differ from what we observe, and lose, therefore, this incidental means of testing the correctness of our reasoning.

An illustration of this may be found in the eminently ingenious and eminently erroneous work of Colonel Torrens, called “The Budget.” Colonel Torrens supposes the commercial world to consist of only two countries, equal in wealth and civilisation, which he calls England and Cuba. He supposes that England has peculiar advantages for the production of woollens, and Cuba for that of sugar, and that the cloth of the one, and the sugar of the other, are freely exchanged in proportion to the labour which each has cost. He then supposes Cuba to impose a duty on English cloth, which would of course, to a certain extent, prevent its importation; and he states that the consequence would be, that England would have to send money to Cuba for sugar, until the exportation of money had impoverished England, and its importation had enriched Cuba.

Now if Colonel Torrens, instead of hypothetical, had taken real cases, if he had inquired, for instance, into the results of the prohibitive system of France, and had come to the conclusion that that system increases her wealth, the strangeness of such a result would have led him to suspect an error in his facts or in his reasoning. But the strangeness of the result of an imaginary case did not rouse his suspicion. The fact is, that his hypothetical argument is erroneous; and the error consists in his not having taken into account an element essentially incident to his supposed case, namely, the influence of commercial restrictions on the efficiency of labour. If he had taken this element into account, he would have found that Cuba, by her prohibitive system, would diminish the productive power of her labour, and consequently would find it her interest to import from England commodities which she previously produced at home; so that the ultimate result would probably be, rather an export of gold from Cuba than from England.

Colonel Torrens’s book always reminds me of the suit of clothes which the Laputa tailor cut on hypothetical data. Unfortunately, however, for the credit of the Laputa artist, Gulliver tried them on, and the error which had slipped into the calculation showed itself in every form of misfit. Happily for Colonel Torrens, and happily for ourselves, we have not tried on his theory.

But though the objections against founding the science on hypothesis seem to me decisive, I do not give up hypothetical illustrations. Such illustrations not only make abstract reasonings more easily intelligible, they often expose their errors. Conclusions which appeared to be correct, when the vague terms of capital and labour, profit and wages, were used, are often found to be erroneous, when an hypothetical example embodies these abstractions, and endeavours to show the moral and physical processes by which the supposed result would be obtained. The absence of such illustrations is one of the great defects of Adam Smith. Perhaps this very defect contributed to the popularity of his work. Such illustrations, however useful, always give an appearance of stiffness and pedantry. The careless reader or hearer neglects them, and the real student is annoyed at having to learn the _dramatis personæ_ of an imaginary case. But if Smith had used them, he would probably have avoided some errors, and have preserved his successors from many more. His example in this and in some other respects, introduced a loose, popular mode of treating Political Economy, which has mainly retarded its progress.

It may be remarked, that I have as yet used the word wealth, without defining it. I have done so, because I employ it in its popular sense, and because the ideas usually attached to that word appear to me to be sufficiently precise, to prevent any danger of my hearers misunderstanding it. Having now, however, completed the introduction to the science of Political Economy, having marked out its province, and stated the mode in which I intend to treat it, I think it advisable formally to define the term which expresses its subject matter. And this for two reasons. First, because, in a scientific work, every technical term ought to be defined; and, secondly, because that term has been employed by many of those who have preceded me, in senses differing from that which I adopt.

In ordinary use, and I think it is the most convenient use, wealth comprehends all those things, and those things only, which, directly or indirectly, are made the subjects of purchase and sale, of letting and hiring. For this purpose, they must, in the first place, possess utility, or, in other words, be capable of affording pleasure or preventing pain, since no one would purchase or hire anything absolutely useless. In the second place, they must be limited in supply, since no one would buy anything of which he might acquire as much as he pleased by merely taking possession of it. The water in the open sea is practically unlimited in supply; any one who chooses to go for it, may have as much of it as he pleases. The portion of it which has been brought to London to supply salt water baths is limited, and cannot be obtained, therefore, without payment. In the third place, nothing is wealth that is not capable of appropriation. Fine weather is useful, and is limited in supply, but it is not wealth, since it cannot be appropriated. Some things are capable of appropriation only under peculiar circumstances. In an extensive, thinly inhabited plain, light and air are incapable of appropriation, every inhabitant may enjoy them equally; but in a town, one house intercepts them from another. A town house, surrounded by an open space, has more of them than one in a street. The possessor of such a house, and of the ground which surrounds it, has practically appropriated its peculiar advantages of light and air; they add to its value, and form, therefore, part of his wealth. He even may sell them without parting with his house, by selling the privilege of erecting buildings which will intercept them. Fourthly, as is implied by the definition, nothing can be wealth which is not directly or indirectly transferable. High birth is agreeable and rare, it may add to the happiness of its possessor, but, as it is absolutely incapable of transfer, it is not part of his wealth. Most of our personal qualities are only indirectly transferable; they are transferable, not in themselves, but embodied in the commodities which their possessor can produce, or in the services which he can render. The skill of a painter is transferable in the form of a commodity, his pictures; the skill of a surgeon in that of a service, the dexterity with which he performs an operation. Such qualities perish by the death of the possessor, or may be impaired or destroyed by disease, or rendered valueless by changes in the customs of the country, which put an end to the demand for their products. Even to the same person, and under the same circumstances in all other respects, they may become wealth, or cease to be wealth, merely in consequence of a change in the social position of their possessor. When Miss Linley became Mrs. Sheridan, her powers of action and song ceased to be wealth; they remained the delight of private societies, but were no longer objects of sale. If Sheridan had condescended to accept an income on such terms, his wife’s accomplishments would have enriched him. Subject, however, to these contingencies, personal qualities are wealth, and wealth of the most valuable kind. The amount of the revenue derived from their exercise in England, far exceeds the rental of all its land.

The words wealth and value differ as substance and attribute. All those things, and those things only, which constitute wealth, are valuable. As the meaning of the term value has been the subject of long and eager controversy, I shall, at a future period, consider at some length the different significations which have been given to it. It is enough to say at present that I use it in its popular acceptation, as signifying in anything the quality which fits it to be given and received in exchange, or, in other words, to be let or sold, hired or purchased.