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Title: A History of Economic Doctrines
Author: Rist, Charles, Gide, Charles
Language: English
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                              A HISTORY OF
                           ECONOMIC DOCTRINES
                           TO THE PRESENT DAY

                             BY CHARLES GIDE


                              CHARLES RIST

                      AND AUGMENTED EDITION OF 1913

                     UNDER THE DIRECTION OF THE LATE
                         PROFESSOR WILLIAM SMART

                            R. RICHARDS B.A.
                               NORTH WALES

                         D. C. HEATH AND COMPANY
                         BOSTON NEW YORK CHICAGO

                          _All rights reserved_

          _Printed in Great Britain at THE BALLANTYNE PRESS by
                   SPOTTISWOODE, BALLANTYNE & CO. LTD.
                       Colchester, London & Eton_


Gide’s _Principles of Political Economy_, of which there are several
translations, is probably better known to English students than any
similar work of foreign origin on the subject, and many readers of that
book will welcome an opportunity of perusing this volume which Professor
Gide has produced in collaboration with Professor Rist.

The remarkable dearth of literature of this kind in English may be
pleaded in further extenuation of the attempt to present the work in
an English garb, and readers of the Preface will be able to contrast
the position in this country with the very different condition of
things prevailing across the Channel. The contrast might even be
carried a stage farther, and it would be interesting to speculate upon
the historical causes which have made Germany supreme in the field of
economic research and history, which influenced France in her choice of
the history of theory, and which decreed that England should on the whole
remain faithful to the tradition of the “pure doctrine.” Can it be that
something like a “territorial division of labour” applies in matters
intellectual as well as economic?

Be that as it may, we can hardly pretend to be satisfied with the
position of our country in this matter of doctrinal history. Of the nine
names mentioned in the Preface, only two are English, namely, Ashley
and Ingram; and it is no disparagement to Ashley’s illuminating study
of mediæval England to say that the main interest of his work is not
doctrinal, and that Cunningham’s name might with equal appropriateness
have been included in the list.

Omitting both Ashley and Cunningham, whose labours have been largely
confined to the realm of economic history, we are thus left with Ingram’s
short but learned work as the sole contribution of English scholarship to
the history of economic thought.

English readers may possibly be puzzled by the omission of any
references, except a stray quotation or two, to Cannan’s _History of
the Theories of Production and Distribution_. But the microscopic care
with which the earlier theories are examined and elucidated in that work
have resulted in its being regarded as a most valuable contribution to
economic theory itself, and under the circumstances the absence of any
reference to it in the Preface is not altogether surprising.

Our apparent indifference to the development which theory has undergone
in the course of the last 150 years is all the more difficult to explain
when we recall the fact that England has always been the classic home
of theory, both orthodox and socialist, and our backwardness in this
respect contrasts very unfavourably with the progress made in the kindred
study of economic history during the last twenty-five years under the
inspiration of writers like Ashley, Cunningham, Maitland, Round, and

Most critics are by this time agreed that Ingram’s work, lucid and
learned though it is, is somewhat marred by being written too exclusively
from the standpoint of a Positivist philosopher who thought he saw in
the rapid rise of the Historical school an indisputable proof of the
soundness of the Comtean principles and a presage of their ultimate

Complete impartiality in the writing of history, even were it attainable,
may not be altogether desirable, and the present authors have hastened
to disclaim any such qualification. Notwithstanding this, some of their
readers will possibly feel that certain French schools, both ancient
and modern, have been dealt with at disproportionate length, and that
scarcely enough attention has been paid to certain English and American
writers. But it will surely do us little harm occasionally “to see
ourselves as others see us.”

The chief interest of the present volume will probably be found to
consist in the attempt made to give us something like a true perspective
of certain modern theories by connecting them with their historical
antecedents; and we can imagine its later pages being scanned with a
great deal of justifiable curiosity. After all, the verdict of history
upon the achievements of Smith, the measure of his indebtedness to his
immediate predecessors, and the extent to which the “car of economic
progress” was accelerated or retarded in its movements at the hands of
Ricardo and his contemporaries is fairly well established by this time.
On one point only do the present writers seem to challenge that verdict,
namely, in their designation of Ricardo and Malthus as Pessimists.

It is otherwise with the more modern writers, however. Their work has not
the distinctness of that of the earlier writers, partly because we are
not sufficiently removed from it as yet, and partly because some of it
is obscured by the haze of party strife. But it may help us to a better
understanding of their relative positions to learn, for example, that
the Historical school, which set out on its career of conquest with a
considerable flourish of trumpets, has not yet succeeded in giving us a
new science of Political Economy; that the Marxian doctrine is already
antiquated, in the opinion of certain members of that school; that the
Socialism of the Fabian Society is merely a recrudescence of Ricardian
economics, and that Anarchism is nothing but a violent form of Liberalism.

       *       *       *       *       *

I cannot hope to have succeeded in retaining in this translation the
freshness and vivacity of the original. But I have endeavoured to make
the rendering as accurate as possible; and with this object in view
considerable trouble has been taken to verify the quotations.

As the title-page implies, the work was originally begun at the
suggestion of the late Professor Smart of Glasgow, and to-day more than
ever I am conscious of what I owe to his kindly criticism and genial

The passage of the book through the press has been watched with assiduous
care by Mr. C. C. Wood, who is also responsible for the Index at the end
of the volume. I can scarcely express the measure of my indebtedness to
him. To my friends Mr. W. H. Porter, M.A., and Mr. J. G. Williams, M.A.,
both of Bangor, I am also indebted for reading some of the proofs.

                                                              R. RICHARDS


In the economic curricula of French universities much greater stress
is laid upon the history of economic theory than is the case anywhere
else. Attached to the Faculty of Law in each of these universities is a
separate chair specially devoted to this subject; at the examination for
the doctor’s degree a special paper is set in the history of theory, and
if necessary further proof of competence is demanded from the student
before his final admission to the degree. At the Sorbonne, where there
is only one chair in economics, that chair is exclusively devoted to the
history of doctrines, and the same is true of the chair recently founded
at the École des Hautes Études.

Such prominence given to the history of theory must seem excessive,
especially when it is remembered that in economic history, as distinct
from the history of economics, there is not a single chair in the whole
of France. Those who believe that the French people are somewhat prone
to ideology will not fail to see in this fact a somewhat unfortunate
manifestation of that tendency. Elsewhere the positions are reversed,
the premier place being given to the study of facts rather than ideas.
Extreme partisans of the historical method, especially the advocates of
historical materialism, regard doctrines and systems as nothing better
than a pale reflection of facts. It is a part of their belief that facts
are the only things that matter, and that the history of the evolution of
property or the rise of the wage system may prove quite as instructive as
the history of the controversies concerning the nature of the right of
property or the wages-fund theory.

Such views as we have just expressed, however, are not altogether devoid
of exaggeration, though of a kind directly opposite to that which we
would naturally impute to them. The influence exerted by the economic
environment, whence even the most abstract economist gets material for
reflection and the exercise of his logical acumen, is indisputable. The
problems which the theorist has to solve are suggested by the rise of
certain phenomena which at one moment cut a very prominent figure and at
another disappear altogether. Such problems must vary in different places
and at different times. The peculiar economic condition in which England
found herself at the beginning of the nineteenth century had a great
deal to do in directing Ricardo’s thought to the study of the problems
of rent and note issue. But for the advent of machinery, with the
subsequent increase in industrial activity and the parallel growth of a
proletarian class, followed by the recurrence of economic crises, we may
be certain that neither the doctrine of Sismondi nor that of Karl Marx
would ever have seen the light of day. It is equally safe to assume that
the attention which economists have recently bestowed upon the theory of
monopoly is not altogether unconnected with the contemporary development
of the trust movement.

But, while recognising all this, it is important that we should
remember that facts alone are not sufficient to explain the origin of
any doctrines, even those of social politics, and still less those
of a purely scientific character. Ideas even are not independent of
time and place. Similar conditions in the same epoch of history have
not infrequently given rise to heterogeneous and even antagonistic
theories—J. B. Say’s and Sismondi’s, for example, Bastiat’s and
Proudhon’s, Schulze-Delitzsch’s and Marx’s, Francis Walker’s and those
of Henry George. With what combination of historical circumstances are
we to connect Cournot’s foundation of the Mathematical school in France,
or how are we to account for the simultaneous discovery in three or four
countries of the theory of final utility?

Although anxious not to seem to make any extravagant claims for the
superiority of the history of theory, we are not ashamed of repeating
our regrets for the comparative neglect of economic history, and we are
equally confident in claiming for our subject the right to be regarded
as a distinct branch of the science.[1] We shall accordingly omit all
reference to the history of economic facts and institutions except in so
far as such reference seems indispensable to an understanding of either
the appearance or disappearance of such and such a doctrine or to the
better appreciation of the special prominence which a theory may have
held at one moment, although it is quite unintelligible to us to-day.
Sometimes even the facts are connected with the doctrines, not as causes,
but as results, for, notwithstanding the scepticism of Cournot, who was
wont to declare that the influence exerted by economists upon the course
of events was about equal to the influence exerted by grammarians upon
the development of language, it is impossible not to see a connection
between the commercial treaties of 1860, say, and the teachings of the
Manchester school, or between labour legislation and the doctrine of
State Socialism.

To write a history of economic doctrines which should not exceed the
limits of a single volume was to attempt an almost impossible task, and
the authors cannot pretend that they have accomplished such a difficult
feat. Even a very summary exposition of such doctrines as could not
possibly be neglected involved the omission of others of hardly less

But in the first place it was possible to pass over the pioneers by
taking the latter part of the eighteenth century as the starting-point.
There is no doubt that the beginnings of economic science lie in a
remoter past, but the great currents of economic thought known as the
“schools” only began with the appearance of those two typical doctrines,
individualism and socialism, in the earlier half of the nineteenth
century.[2] Moreover, the omission is easily made good, for it so happens
that the earlier periods are those most fully dealt with in such works as
have already appeared on the subject. For the period of antiquity we have
the writings of Espinas[3] and Souchon; the mediæval and post-mediæval
periods, right up to the eighteenth century, are treated of in the works
of Dubois and Rambaud; while, in addition to these, we have the writings
of Ashley, Ingram, Hector Denis, Brants, and Cossa, to mention only a
few. Modern theories, as contrasted with those of the earlier periods,
have received comparatively little attention.

Not only have we been obliged to confine our attention to certain
periods, but we have also had to restrict ourselves to certain countries.
We would claim the indulgence of those of our readers who feel that
French doctrines have been considered at disproportionate length,
reminding them that we had French students chiefly in view when writing.
Each author is at liberty to do the same for his own particular country,
and it is better so, for readers generally desire to learn more about
those things of which they already know something. But, despite the
prominence given to France, England and Germany were bound to receive
considerable attention, although in the case of the latter country we
had to make considerable omissions. With regard to the other countries,
which we were too often obliged to pass by in silence or to mention
only very casually in connection with some theory or other, we are most
anxious not to appear indifferent to the eminent services rendered
by them, and especially Italy and the United States, to the cause of
economic science, both in the past and in the present.

But, notwithstanding such restrictions, the field was still too wide, and
we were obliged to focus attention on the minimum number of names and
ideas, with a view to placing them in a better light. Our ambition has
been, not to write as full or detailed a history as we possibly could,
but merely to draw a series of pictures portraying the more prominent
features of some of the more distinct epochs in the history of economic

Such choice must necessarily be somewhat arbitrary, for it is not always
an easy matter to fix upon the best representative of each doctrine.
Especially is this the case in a science like economics, where the
writers, unknown to one another, not infrequently repeat the same ideas,
and it becomes a matter of some difficulty to decide the claim to
priority. But although it may be difficult to hit upon the exact moment
at which a certain idea first made its appearance, it is comparatively
easy to determine when such an idea attracted general attention or took
its place in the hierarchy of accepted or scarcely disputed truths. This
has been our criterion. With regard to those whose names do not figure
in our list, although quite worthy of a place in the front rank, we
cannot believe that they will suffer much through this temporary eclipse,
especially in view of the partiality of the age for the pioneers. That
we are not unduly optimistic in this matter may be inferred from the
numerous attempts recently made to discover the _poetæ minores_ of the
science, and to make amends for the scant justice done them by the more
biased historians of the past.

Not only was selection necessary in the case of authors, but a similar
procedure had to be applied to the doctrines. It must be realised,
however, that a selection of this character does not warrant the
conclusion that the doctrines dealt with are in any way superior to
those which are not included, either from the standpoint of moral value,
of social utility, or of abstract truth, for we are not of the number
who think with J. B. Say that the history of error can serve no useful
purpose.[4] We would rather associate ourselves with Condillac when he
remarks: “It is essential that everyone who wishes to make some progress
in the search for truth should know something of the mistakes committed
by people like himself who thought they were extending the boundaries
of knowledge.” The study of error would be thoroughly well justified
even though the result were simply a healthy determination to avoid it
in future. It would be even more so if Herbert Spencer’s version of the
saying of Shakespeare, that there is no species of error without some
germ of truth in it, should prove correct. One cannot, moreover, be said
to possess a knowledge of any doctrine or to understand it until one
knows something of its history, and of the pitfalls that lay in the path
of those who first formulated it. A truth received as if it has fallen
from the sky, without any knowledge of the efforts whereby it has been
acquired, is like an ingot of gold got without toil—of little profit.

Moreover, it is to be remembered that this book is intended primarily for
students, and that it may be useful to show them in what respects certain
doctrines are open to criticism, either from the point of view of logic
or of observation. We have attempted to confine such criticism within the
strictest limits, partly because we did not wish the volume to become
too bulky, and partly because we felt that what is important for our
readers are not our own opinions, but the opinions of the masters of the
science with which we deal. Wherever possible these have been given the
opportunity of speaking for themselves, and for this reason we have not
been afraid to multiply quotations.

A special effort has been made to bring into prominence such
doctrines—whether true or false—as have contributed to the formation of
ideas generally accepted at the present time, or such as are connected
with these in the line of direct descent. In other words, the book is an
attempt to give an answer to the following questions: Who is responsible
for formulating those principles that constitute the framework—whether
provisionary or definitive it is not for us to determine—of economics
as at present taught? At what period were these principles first
enunciated, and what were the circumstances which accounted for their
enunciation just at that period? Thus we have thought it not altogether
out of place to pay some attention to those ideas which, although only
on the borderland of economics, have exercised considerable influence
either upon theory itself, upon legislation, or upon economic thought in
general. We refer to such movements as Christian Socialism, Solidarism,
and Anarchism. Had we considered it advisable to retain the official
title by which this kind of work is generally known, we should have had
to describe it as _A History of the Origin and Evolution of Contemporary
Economic Doctrines_.

The plan of a history of this kind was a matter that called for some
amount of deliberation. It was felt that, being a history, fairly close
correspondence with the chronological order was required, which meant
either taking a note of every individual doctrine, or breaking up the
work into as many distinct histories as there are separate schools. The
former procedure would necessitate giving a review of a great number
of doctrines in a single chapter, which could only have the effect
of leaving a very confused impression upon the reader’s mind. The
alternative proposal is open to the objection that, instead of giving
us a general outline, it merely treats us to a series of monographs,
which prevents our realising the nature of that fundamental unity that
in all periods of history binds every doctrine together, similar and
dissimilar alike. We have attempted to avoid the inconveniences and to
gain something of the advantages offered by these alternative methods
by grouping the doctrines into families according to their descent,
and presenting them in their chronological order. This does not mean
that we have classified them according to the date of their earliest
appearance; it simply means that we have taken account of such doctrines
as have reached a certain degree of maturity. There is always some
culminating-point in the history of every doctrine, and in deciding
to devote a separate chapter to some special doctrine we have always
had such a climacteric in mind. Nor have we scrupled to abandon the
chronological order when the exigencies of the exposition seemed to
demand it.

The first epoch comprises the end of the eighteenth and the beginning of
the nineteenth centuries. It deals mainly with the founders of Classical
political economy, with the Physiocrats, Smith and Say, and with Malthus
and Ricardo, the two writers whose gloomy forebodings were to cloud the
glory of the “natural order.”

The second epoch covers the first half of the nineteenth century. The
“adversaries” include all those writers who either challenged or in
some way disputed the principles which had been laid down by their
predecessors. To these writers five chapters are devoted, dealing
respectively with Sismondi, Saint-Simon, the Associative Socialists,
List, and Proudhon.

A third epoch deals with the middle of the nineteenth century and the
triumph of the Liberal school, which had hitherto withstood every attack,
though not without making some concessions. It so happened that the
fundamental doctrines of this school were definitely formulated about
the same time, though in a very different fashion, of course, in the
_Principles_ of Stuart Mill in England and the _Harmonies_ of Bastiat in

The second half of the nineteenth century constitutes a fourth period.
Those who dissented from the Liberalism of the previous epoch are
responsible for the schisms that began to manifest themselves in four
different directions at this time. The Historical school advocates the
employment of the inductive method, and the State Socialists press the
claims of a new social policy. Marxism is an attack upon the scientific
basis of the science, and Christian Socialism a challenge to its ethical

A fifth epoch comprises the end of the nineteenth century and the
beginning of the twentieth. The heading “Recent Doctrines” includes
several theories that are already well known to us, but which seem
transfigured—or disfigured, as some would prefer to put it—in their new
surroundings. The Hedonistic doctrine and the theory of rent represent a
kind of revision of the Classical theories. Solidarism is an attempt to
bridge the gap that exists between individualism and socialism, whilst
Anarchism can only be described as a kind of impassioned Liberalism.

This order of succession must not be taken to imply that each antecedent
doctrine has either been eliminated by some subsequent doctrine or else
incorporated in it. The rise of the Historical school in the middle of
the nineteenth century, for example, happened to be contemporaneous with
the triumph of the Liberal school and the revival of Optimism. In a
similar fashion the new Liberalism of the Austrian school was coincident
with the advent of State intervention and the rise of Collectivism.

We cannot, however, help noticing a certain rhythmical sequence in this
evolutionary process. Thus we find the Classical doctrine, as it is
called, outlined in the earliest draft of the science, but disappearing
under the stress of more or less socialistic doctrines, to reappear
in a new guise later on. There is no necessity for regarding this as
a mere ebb and flow such as distinguishes the fortunes of political
parties under a parliamentary _régime_. Such alternation in the history
of a doctrine has its explanation not so much in the character of the
doctrine itself as in the favour of public opinion, which varies with the
fickleness of the winds of heaven.

But doctrines and systems have a vitality of their own which is
altogether independent of the vagaries of fashion. It were better to
regard their history, like all histories of ideas, as a kind of struggle
for existence. At one moment conflicting doctrines seem to dwell in
harmony side by side, content to divide the empire of knowledge between
them. Another moment witnesses them rushing at each other with tumultuous
energy. It may happen that in the course of the struggle some of the
doctrines are worsted and disappear altogether. But more often than not
their conflicting interests are reconciled and the enmity is lost in the
unity of a higher synthesis. And so it may happen that a doctrine which
everybody thought was quite dead may rise with greater vigour than ever.

The bibliography of the subject is colossal. In addition to the general
histories, which are already plentiful, the chapters devoted to the
subject in every treatise on political economy, and the numerous
articles which have appeared in various reviews, there is scarcely an
author, however obscure, who is not the subject of a biography. To have
attempted to enumerate all these works would merely have meant increasing
the bulk of the book without being able to pretend that our list was
exhaustive. It is scarcely necessary to add that this meant that we had
to confine ourselves to the work done by the “heroes” of this volume.
Their commentators and critics only came in for our attention when
we had to borrow either an expression or an idea directly from them
or when we felt it necessary that the reader should fill up the gaps
left by our exposition. This accounts for the number of names which
had to be relegated to the foot-notes. But such deliberate excision
must not prevent our recognising at the outset the debt that we owe to
the many writers who have traversed the ground before us. They have
facilitated our task and have a perfect right to regard themselves as our
collaborators. We feel certain that they will find that their labours
have not been ignored or forgotten.

Although this book, so far as the general task of preparation and
revision is concerned, must be regarded as the result of a collective
effort on the part of the two authors whose names are subjoined, the
actual work of composition was undertaken by each writer separately. The
Contents will sufficiently indicate the nature of this division of labour.

The authors refuse to believe that collaboration in the production of
a scientific history of ideas need imply absolute agreement on every
question that comes up for consideration. Especially is this the case
with the doctrines of political and social economy outlined herein;
each of the authors has retained the fullest right of independent
judgment on all these matters. Consequently any undue reserve or any
extravagant enthusiasm shown for some of these doctrines must be taken
as an expression of the personal predilection of the signatory of the
particular article.

                                                             CHARLES GIDE
                                                             CHARLES RIST



                          BOOK I: THE FOUNDERS

  CHAPTER I: THE PHYSIOCRATS (M. GIDE)                                   1


    I. THE NATURAL ORDER                                                 5

   II. THE NET PRODUCT                                                  12

  III. THE CIRCULATION OF WEALTH                                        18


    I. TRADE                                                            27

   II. THE FUNCTIONS OF THE STATE                                       33

  III. TAXATION                                                         38


  CHAPTER II: ADAM SMITH (M. RIST)                                      50

    I. DIVISION OF LABOUR                                               56

   II. THE “NATURALISM” AND “OPTIMISM” OF SMITH                         68



  CHAPTER III: THE PESSIMISTS (M. GIDE)                                118

    I. MALTHUS                                                         120

       THE LAW OF POPULATION                                           121

   II. RICARDO                                                         138

       1. THE LAW OF RENT                                              141

       2. OF WAGES AND PROFITS                                         157

            OF MONEY                                                   163

       4. PAPER MONEY, ITS ISSUE AND REGULATION                        165

                        BOOK II: THE ANTAGONISTS

    (M. RIST)                                                          170

    I. THE AIM AND METHOD OF POLITICAL ECONOMY                         173


         AND OF CRISES                                                 186

        OF DOCTRINES                                                   192

    OF COLLECTIVISM (M. RIST)                                          198

    I. SAINT-SIMON AND INDUSTRIALISM                                   202



  CHAPTER III: THE ASSOCIATIVE SOCIALISTS                              231

    I. ROBERT OWEN (M. GIDE)                                           235

       1. THE CREATION OF THE MILIEU                                   237

       2. THE ABOLITION OF PROFIT                                      239

   II. CHARLES FOURIER (M. GIDE)                                       245

       1. THE PHALANSTÈRE                                              246

       2. INTEGRAL CO-OPERATION                                        248

       3. BACK TO THE LAND                                             251

       4. ATTRACTIVE LABOUR                                            252

  III. LOUIS BLANC (M. RIST)                                           255

    ECONOMY (M. RIST)                                                  264


         PROTECTIONIST DOCTRINES                                       277

  III. LIST’S REAL ORIGINALITY                                         287




  III. THE EXCHANGE BANK THEORY                                        307

   IV. PROUDHON’S INFLUENCE AFTER 1848                                 320

                          BOOK III: LIBERALISM

  CHAPTER I: THE OPTIMISTS (M. GIDE)                                   322

    I. THE THEORY OF SERVICE-VALUE                                     332

   II. THE LAW OF FREE UTILITY AND RENT                                335

  III. THE RELATION OF PROFITS TO WAGES                                340


    V. THE LAW OF SOLIDARITY                                           344

    STUART MILL (M. GIDE)                                              348

    I. THE FUNDAMENTAL LAWS                                            354


  III. MILL’S SUCCESSORS                                               374

                         BOOK IV: THE DISSENTERS

    (M. RIST)                                                          370




  CHAPTER II: STATE SOCIALISM (M. RIST)                                407

    I. THE ECONOMISTS’ CRITICISM OF LAISSEZ-FAIRE                      410

         LASSALLE                                                      414

       1. RODBERTUS                                                    415

       2. LASSALLE                                                     432

  III. STATE SOCIALISM—PROPERLY SO CALLED                              436

  CHAPTER III: MARXISM (M. GIDE)                                       449

    I. KARL MARX                                                       449

       1. SURPLUS LABOUR AND SURPLUS VALUE                             450

       2. THE LAW OF CONCENTRATION OR APPROPRIATION                    459

   II. THE MARXIAN SCHOOL                                              465

  III. THE MARXIAN CRISIS AND THE NEO-MARXIANS                         473

       1. THE NEO-MARXIAN REFORMISTS                                   473

       2. THE NEO-MARXIAN SYNDICALISTS                                 479

    (M. GIDE)                                                          483

    I. LE PLAY’S SCHOOL                                                486

   II. SOCIAL CATHOLICISM                                              495

  III. SOCIAL PROTESTANTISM                                            503

   IV. THE MYSTICS                                                     510

                        BOOK V: RECENT DOCTRINES

  CHAPTER I: THE HEDONISTS (M. GIDE)                                   517


   II. THE PSYCHOLOGICAL SCHOOL                                        521

  III. THE MATHEMATICAL SCHOOL                                         528

   IV. CRITICISM OF THE HEDONISTIC DOCTRINES                           537



         MEANS OF TAXATION                                             558

  III. SYSTEMS OF LAND NATIONALISATION                                 570


  CHAPTER III: THE SOLIDARISTS (M. GIDE)                               587


   II. THE SOLIDARIST THESIS                                           593


   IV. CRITICISM                                                       607

  CHAPTER IV: THE ANARCHISTS (M. RIST)                                 614

         INDIVIDUAL                                                    616



   IV. REVOLUTION                                                      637

  CONCLUSION (MM. GIDE AND RIST)                                       643

  INDEX                                                                649



Political Economy as the name of a special science is the invention
of one Antoine de Montchrétien, who first employed the term about the
beginning of the seventeenth century. Not until the middle of the
eighteenth century, however, does the connotation of the word in any
way approach to modern usage. A perusal of the article on Political
Economy which appeared in the _Grande Encyclopédie_ of 1755 will help
us to appreciate the difference. That article was contributed by no
less a person than Jean Jacques Rousseau, but its medley of politics
and economics seems utterly strange to us. Nowadays it is customary to
regard the adjective “political” as unnecessary, and an attempt is made
to dispense with it by employing the terms “economic science” or “social
economics,” but this article clearly proves that it was not always devoid
of significance. It also reveals the interesting fact that the science
has always been chiefly concerned with the business side of the State,
especially with the material welfare of the citizens—“with the fowl in
the pot,” as Henry IV put it. Even Smith never succeeded in getting
quite beyond this point of view, for he declares that “the object of the
political economy of every nation is to increase the riches and the power
of that country.”[5]

But the counsels given and the recipes offered for attaining the desired
end were as diverse as they were uncertain. One school, known as the
Mercantilist, believed that a State, like an individual, must secure the
maximum of silver and gold before it could become wealthy. Happy indeed
was a country like Spain that had discovered a Peru, or Holland, which,
in default of mines, could procure gold from the foreigner in exchange
for its spices. Foreign trade really seemed a quite inexhaustible mine.
Other writers, who were socialists in fact though not in name—for that
term is of later invention—thought that happiness could only be found in
a more equal distribution of wealth, in the abolition or limitation of
the rights of private property, or in the creation of a new society on
the basis of a new social contract—in short, in the foundation of the
Utopian commonwealth.

It was at this juncture that Quesnay appeared. Quesnay was a doctor
by profession, who now, when on the verge of old age, had turned his
attention to the study of “rural economy”—the problem of the land and
the means of subsistence.[6] Boldly declaring that the solution of the
problem had always lain ready to hand, needing neither inventing nor
discovering, he further maintained that all social relations into which
men enter, far from being haphazard, are, on the contrary, admirably
regulated and controlled. To those who took the trouble to think, the
laws governing human associations seemed almost self-evident, and the
difficulties they involved no greater than the difficulties presented by
the laws of geometry. So admirable were these laws in every respect that
once they were thoroughly known they were certain to command allegiance.
Dupont de Nemours cannot be said to have exaggerated when, in referring
to this doctrine, he spoke of it as “very novel indeed.”[7]

It is not too much to say that this marks the beginning of a new
science—the science of Political Economy. The age of forerunners is
past. Quesnay and his disciples must be considered the real founders
of the science. It is true that their direct descendants, the French
economists, very inconsiderately allowed the title to pass to Adam Smith,
but foreign economists have again restored it to France, to remain in
all probability definitely hers. But, as is the case with most sciences,
there is not very much to mark the date of its birth or to determine
the stock from which it sprang; all that we can confidently say is
that the Physiocrats were certainly the first to grasp the conception
of a unified science of society. In other words, they were the first
to realise that all social facts are linked together in the bonds of
inevitable laws, which individuals and Governments would obey if they
were once made known to them. It may, of course, be pointed out that such
a providential conception of economic laws has little in common with
the ordinary naturalistic or deterministic standpoint of the science,
and that several of the generalisations are simply the product of their
own imaginations. It must also be admitted that Smith had far greater
powers of observation, as well as a superior gift of lucid exposition,
and altogether made a more notable contribution to the science. Still,
it was the Physiocrats who constructed the way along which Smith and the
writers of the hundred years which follow have all marched. Moreover,
we know that but for the death of Quesnay in 1774—two years before the
publication of the _Wealth of Nations_—Smith would have dedicated his
masterpiece to him.

The Physiocrats must also be credited with the foundation of the earliest
“school” of economists in the fullest sense of the term. The entrance of
this small group of men into the arena of history is a most touching and
significant spectacle. So complete was the unanimity of doctrine among
them that their very names and even their personal characteristics are
for ever enshrouded by the anonymity of a collective name.[8]

Their publications follow each other pretty closely for a period of
twenty years, from 1756 to 1778.[9]

Turgot was the only literary person among them, but like his _confrères_
he was devoid of wit, though the age was noted for its humorists. On
the whole they were a sad and solemn sect, and their curious habit of
insisting upon logical consistency—as if they were the sole depositaries
of eternal truth—must often have been very tiresome. They soon fell an
easy prey to the caustic sarcasm of Voltaire.[10] But despite all this
they enjoyed a great reputation among their more eminent contemporaries.
Statesmen, ambassadors, and a whole galaxy of royal personages, including
the Margrave of Baden, who attempted to apply their doctrines in his
own realm, the Grand Duke Leopold of Tuscany, the Emperor Joseph II of
Austria, Catherine, the famous Empress of Russia, Stanislaus, King of
Poland, and Gustavus III of Sweden, were numbered among their auditors.
Lastly, and most unexpectedly of all, they were well received by the
Court ladies at Versailles. In a word, Physiocracy became the rage.
All this may seem strange to us, but there are several considerations
which may well be kept in view. The society of the period, _raffiné_ and
licentious as it was, took the same delight in the “rural economy” of the
Physiocrats as it did in the pastorals of Trianon or Watteau. Perhaps
it gleaned some comfort from the thought of an unchangeable “natural
order,” just when the political and social edifice was giving way beneath
its feet. It may be that its curiosity was roused by that terse saying
which Quesnay wrote at the head of the _Tableau economique_: “Pauvres
paysans, pauvre royaume! Pauvre royaume, pauvre roi!” or that it felt in
those words the sough of a new breeze, not very threatening as yet, but a
forerunner of the coming storm.

An examination of the doctrine, or the essential principles as they
called them, must precede a consideration of the system or the proposed
application of those principles.



The essence of the Physiocratic system lay in their conception of the
“natural order.” _L’Ordre naturel et essential des Societés politiques_
is the title of Mercier de la Rivière’s book, and Dupont de Nemours
defined Physiocracy as “the science of the natural order.”

What are we to understand by these terms?

It is hardly necessary to say that the term “natural order” is meant
to emphasise the contrast between it and the artificial social order
voluntarily created upon the basis of a social contract.[11] But a purely
negative definition is open to many different interpretations.

In the first place, this “natural order” may be conceived as a state
of nature in opposition to a civilised state regarded as an artificial
creation. To discover what such a “natural order” really was like man
must have recourse to his origins.

Quotations from the Physiocrats in support of this view might easily be
cited.[12] This interpretation has the further distinction of being in
accord with the spirit of the age. The worship of the “noble savage”
was a feature of the end of the eighteenth century. It pervades the
literature of the period, and the cult which began with the tales of
Voltaire, Diderot, and Marmontel reappears in the anarchist writers of
to-day. As an interpretation of the Physiocratic position, however, it
must be unhesitatingly rejected, for no one bore less resemblance to a
savage than a Physiocrat. They all of them lived highly respectable lives
as magistrates, _intendants_, priests, and royal physicians, and were
completely captivated by ideas of orderliness, authority, sovereignty,
and property—none of them conceptions compatible with a savage state.
“Property, security, and liberty constitutes the whole of the social
order.”[13] They never acquiesced in the view that mankind suffered loss
in passing from the state of nature into the social state; neither did
they hold to Rousseau’s belief that there was greater freedom in the
natural state, although its dangers were such that men were willing to
sacrifice something in order to be rid of them, but that nevertheless in
entering upon the new state something had been lost which could never
be recovered.[14] All this was a mere illusion in the opinion of the
Physiocrats. Nothing was lost, everything was to be gained, by passing
from a state of nature into the civilised state.

In the second place, the term “natural order” might be taken to mean
that human societies are subject to natural laws such as govern the
physical world or exercise sway over animal or organic life. From this
standpoint the Physiocrats must be regarded as the forerunners of the
organic sociologists. Such interpretation seems highly probable because
Dr. Quesnay through his study of “animal economy” (the title of one of
his works) and the circulation of the blood was already familiar with
these ideas. Social and animal economy, both, might well have appeared
to him in much the same light as branches of physiology. From physiology
to Physiocracy was not a very great step. At any rate, the Physiocrats
succeeded in giving prominence to the idea of the interdependence of all
social classes and of their final dependence upon nature. And this we
might almost say was a change tantamount to a transformation from a moral
to a natural science.[15]

Even this explanation seems to us insufficient. Dupont, in the words
which we have quoted in the footnote below, seems to imply that the laws
of the beehive and the ant-hill are imposed by common consent and for
mutual benefit. Animal society, so it seemed to him, was founded upon
social contract. But such a conception of “law” is very far removed
from the one usually adopted by the natural sciences, by physicians and
biologists, say. And, as a matter of fact, the Physiocrats were anything
but determinists. They neither believed that the “natural order” imposed
itself like gravitation nor imagined that it could ever be realised in
human society as it is in the hive or the ant-hill. They saw that the
latter were well-ordered communities, while human society at its present
stage is disordered, because man is free whereas the animal is not.

What are we to make of this “natural order” then? The “natural order,” so
the Physiocrats maintained, is the order which God has ordained for the
happiness of mankind. It is the providential order.[16] To understand it
is our first duty—to bring our lives into conformity with it is our next.

But can a knowledge of the “order” ever be acquired by men? To this they
reply that the distinctive mark of this “order” is its obviousness. This
word occurs on almost every page they wrote.[17] Still, the self-evident
must in some way be apprehended. The most brilliant light can be seen
only by the eye. By what organ can this be sensed? By instinct, by
conscience, or by reason? Will a divine voice by means of a supernatural
revelation show us the way of truth, or will it be Nature’s hand that
shall lead us in the blessed path? The Physiocrats seem to have ignored
this question, for every one of them indifferently gives his own answer,
regardless of the fact that it may contradict another’s. Mercier de
la Rivière recalls the saying of St. John concerning the “Light which
lighteth every man that cometh into the world.” This may be taken to be
an internal light set by God in the heart of every man to enable him to
choose his path. Quesnay, so Dupont affirms, “must have seen that man had
only to examine himself to find within him an inarticulate conception
of these laws. In other words, introspection clearly shows that men are
unwittingly guided by an “inherent” knowledge of Physiocracy.”[18] But,
after all, it seems that this intuitive perception is insufficient to
reveal the full glory of the order. For Quesnay declared that a knowledge
of its laws must be enforced upon men, and this afforded a _raison
d’être_ for an educational system which was to be under the direct
control of the Government.

To sum up, we may say that the “natural order” was that order which
seemed obviously the best, not to any individual whomsoever, but to
rational, cultured, liberal-minded men like the Physiocrats. It was not
the product of the observation of external facts; it was the revelation
of a principle within. And this is one reason why the Physiocrats showed
such respect for property and authority. It seemed to them that these
formed the very basis of the “natural order.”

It was just because the “natural order” was “supernatural,” and so raised
above the contingencies of everyday life, that it seemed to them to be
endowed with all the grandeur of the geometrical order, with its double
attributes of universality and immutability. It remained the same for
all times, and for all men. Its fiat was “unique, eternal, invariable,
and universal.” Divine in its origin, it was universal in its scope, and
its praises were sung in litanies that might rival the _Ave Maria_.[19]
Speaking of its universality, Turgot writes as follows: “Whoever is
unable to overlook the accidental separation of political states one
from another, or to forget their diverse institutions, will never treat
a question of political economy satisfactorily.”[20] Referring to its
immutability, he adds: “It is not enough to know what is or what has
been; we must also know what ought to be. The rights of man are not
founded upon history: they are rooted in his nature.”

It looked as if this dogmatic optimism would dominate the whole Classical
school, especially the French writers, and that natural law would usurp
the functions of Providence. To-day it is everywhere discredited, but
when it first loomed above the horizon its splendour dazzled all eyes.
Hence the many laudatory remarks, which to us seem hyperbolical, if
not actually ridiculous.[21] But it was no small thing to found a new
science, to set up a new aim and a fresh ideal, to lay down the framework
which others were to fill in.

It was the practical results, however, that revealed the full powers of
the “natural order.” It so happened that the mass of regulations which
constituted the old _régime_ fell to the ground before its onslaughts
almost immediately, and it all came about in this fashion.

Knowledge of the “natural order” was not sufficient. Daily life must also
conform to the knowledge. Nothing could be easier than this, for “if the
order really were the most advantageous”[22] every man could be trusted
to find out for himself the best way of attaining it without coercion of
any kind.[23]

This psychological balance which every individual was supposed to carry
within himself, and which, as the basis of the Neo-Classical school, is
known as the Hedonistic principle, is admirably described by Quesnay.[24]
“To secure the greatest amount of pleasure with the least possible
outlay should be the aim of all economic effort.” And this was what the
“order” aimed at. “When every one does this the natural order, instead
of being endangered, will be all the better assured.” It is of the very
essence of that order that the particular interest of the individual can
never be separated from the common interest of all, but this happens
only under a free system. “The movements of society are spontaneous and
not artificial, and the desire for joy which manifests itself in all its
activities unwittingly drives it towards the realisation of the ideal
type of State.”[25] This is _laissez-faire_ pure and simple.[26]

These famous formulæ have been so often repeated and criticised since
that they appear somewhat trite to-day. But it is certain that they were
not so at the time. It is easy to laugh at their social philosophy, to
mock at its _naïveté_ and simplicity, and to show that such supposed
harmony of interests between men does not exist, that the interests of
individuals do not always coincide with those of the community, and
that the private citizen is not always the best judge even of his own
interests. It was perhaps necessary that the science should be born of
such extreme optimism. No science can be constructed without some amount
of faith in a pre-established order.

Moreover, _laissez-faire_ does not of necessity mean that nothing will
be done. It is not a doctrine of passivity or fatalism. There will be
ample scope for individual effort, for it simply means leaving an open
field and securing fair play for everyone, free from all fear lest his
own interests should injure other people’s or in any way prejudice
those of the State. It is true that there will not be much work for
the Government, but the task of that body will by no means be a light
one, especially if it intends carrying out the Physiocratic programme.
This included upholding the rights of private property and individual
liberty by removing all artificial barriers, and punishing all those who
threatened the existence of any of these rights; while, most important
of all, there was the duty of giving instruction in the laws of the
“natural order.”


Every social fact had a place within the “natural order” of the
Physiocrats. Such a wide generalisation would have entitled them to
be regarded as the founders of sociology rather than of economics.
But there was included one purely economic phenomenon which attracted
their attention at an early stage, and so completely captivated their
imaginations as to lead them on a false quest. This was the predominant
position which land occupied as an agent of production—the most erroneous
and at the same time the most characteristic doctrine in the whole
Physiocratic system.

Every productive undertaking of necessity involves certain outgoings—a
certain loss. In other words, some amount of wealth is destroyed in the
production of new wealth—an amount that ought to be subtracted from the
amount of new wealth produced. This difference, measuring as it does the
excess of the one over the other, constitutes the net increase of wealth,
known since the time of the Physiocrats as the “net product.”

The Physiocrats believed that this “net product” was confined to one
class of production only, namely, agriculture. Here alone, so it seemed
to them, the wealth produced was greater than the wealth consumed.
Barring accidents, the labourer reaped more than he consumed, even if
we included in his consumption his maintenance throughout a whole year,
and not merely during the seasons of harvest and tilth. It was because
agricultural production had this unique and marvellous power of yielding
a “net product” that economy was possible and civilisation a fact.[27] It
was not true of any other class of production, either of commerce or of
transport, where it was very evident that man’s labour produced nothing,
but merely replaced or transferred the products already produced.
Neither was it true of manufacture, where the artisan simply combined or
otherwise modified the raw material.[28]

It is true that such transfer or accretion of matter may increase the
value of the product, but only in proportion to the amount of wealth
which had to be consumed in order to produce it; because the price of
manual labour is always equal to the cost of the necessaries consumed by
the worker. All that we have in this case, however, is a collection of
superimposed values with some raw material thrown into the bargain. But,
as Mercier de la Rivière put it, “addition is not multiplication.”[29]

Consequently, industry was voted sterile. This implied no contempt
for industry and commerce. “Far from being useless, these are the
arts that supply the luxuries as well as the necessaries of life, and
upon these mankind is dependent both for its preservation and for its
well-being.”[30] They are unproductive in the sense that they produce no
“extra” wealth.

It may be pointed out, on the other hand, that the “gains,” both in
industry and commerce, are far in excess of those of agriculture. All
this was immaterial to the Physiocrats, for “they were gained, not
produced.”[31] Such gains simply represented wealth transferred from
the agricultural to the industrial classes.[32] The agricultural classes
furnished the artisans not only with raw material, but also with the
necessaries of life. The artisans were simply the domestic servants, or,
to use Turgot’s phrase, the hirelings of the agriculturists.[33] Strictly
speaking, the latter could keep the whole net product to themselves, but
finding it more convenient they entrust the making of their clothes, the
erection of their houses, and the production of their implements to the
artisans, giving them a portion of the net product as remuneration.[34]
It is possible, of course, that, like many servants in fine houses, the
latter manage to make a very good living at their masters’ expense.

The “sterile classes” in Physiocratic parlance simply signifies those who
draw their incomes second-hand. The Physiocrats had the good sense to
try to give an explanation of this unfortunate term, which threatened to
discredit their system altogether, and which it seemed unfair to apply
to a whole class that had done more than any other towards enriching the

It is a debatable point whether the Physiocrats attributed this virtue of
furnishing a net product solely to agriculture or whether they intended
it to apply to extractive industries, such as mining and fishing. They
seem to apply it in a general way to mines, but the references are rare
and not infrequently contradictory. We can understand their hesitating,
for, on the one hand, mines undoubtedly give us new wealth in the form
of raw materials, just as the land or sea does; on the other hand, the
fruits of the earth and the treasures of the deep are not so easily
exhausted as mines. Turgot put it excellently when he said, “The land
produces fruit annually, but a mine produces no fruit. The mine itself
is the garnered fruit,” and he concludes that mines, like industrial
undertakings, give no net product, that if any one had any claim to that
product it would be the owner of the soil, but that in any case the
surplus would be almost insignificant.[35]

This essential difference which the Physiocrats sought to establish
between agricultural and industrial production was at bottom theological.
The fruits of the earth are given by God, while the products of the
arts are wrought by man, who is powerless to create.[36] The reply is
obvious. God would still be creator if He decreed to give us our clothes
instead of our daily bread. And, although man cannot create matter, but
simply transform it, it is important to remember that the cultivation of
the soil, like the fashioning of iron or wood, is merely a process of
transformation. They failed to grasp the truth which Lavoisier was to
demonstrate so clearly, namely, that in nature nothing is ever created
and nothing lost. A grain of corn sown in a field obtains the materials
for the ear from the soil and atmosphere, transmuting them to suit its
own purpose, just as the baker, out of that same corn, combined with
water, salt, and yeast, will make bread.

But they were sufficiently clear-sighted to see that all natural
products, including even corn, were influenced by the varying condition
of the markets, and that if prices fell very low the net product
disappeared altogether. In view of such facts can it still be said
that the earth produces real value or that its produce differs in any
essential respects from the products of industry?

The Physiocrats possibly thought that the _bon prix_—_i.e._ the price
which yielded a surplus over and above cost of production—was a normal
effect of the “natural order.” Whenever the price fell to the level of
the cost of production it was a sure sign that the “order” had been
destroyed. Under these circumstances there was nothing remarkable in the
disappearance of the net product. This is doubtless the significance
of Quesnay’s enigmatic saying: “Abundance and cheapness are not
wealth, scarcity and dearness are misery, abundance and dearness are

But if the _bon prix_ simply measures the difference between the value of
the product and its cost of production, then it is not more common in
agriculture than in other modes of production. Nor does it extend over a
longer period in the one case than in the other, provided competition be
operative in both cases; on the contrary, it will become manifest in the
one case as easily as in the other, especially if there be any scarcity.
It remains to be seen then whether monopoly values are more prevalent in
agricultural production than in industrial. In a very general way, seeing
that there is only a limited quantity of land, we may answer in the
affirmative, and admit a certain degree of validity in the Physiocratic
theory. But the establishment of protective rights and the occurrence
of agricultural crises clearly prove that competition also has some
influence upon the amount of that revenue.

The net product was just an illusion. The essence of production is not
the creation of matter, but simply the accretion of value. But it is
not difficult to appreciate the nature of the illusion if we recall the
circumstances, and try to visualise the kind of society with which the
Physiocrats were acquainted. One section of the community, consisting
solely of nobility and clergy, lived upon the rents which the land
yielded. Their luxurious lives would have been impossible if the earth
did not yield something over and above the amount consumed by the
peasant. It is curious that the Physiocrats, while they regarded the
artisans as nothing better than servants who depended for their very
existence upon the agriculturists, failed to recognise the equally
complete dependence of the worthless proprietor upon his tenants.
If there had existed instead a class of business men living in ease
and luxury, and drawing their dividends, it is quite possible that
the Physiocrats would have concluded that there was a net product in
industrial enterprise.

So deeply rooted was this idea of nature, or God operating through
nature, as the only source of value that we find traces of it even
in Adam Smith. Not until we come to Ricardo do we have a definite
contradiction of it. With Ricardo, rent, the income derived from land,
instead of being regarded as a blessing of nature—the _Alma Parens_—which
was bound to grow as the “natural order” extended its sway, is simply
looked upon as the inevitable result of the limited extent and growing
sterility of the land. No longer is it a free gift of God to men, but a
pre-imposed tax which the consumer has to pay the proprietor. No longer
is it the net product; henceforth it is known as rent.

As to the epithet “sterile,” which was applied to every kind of work
other than agriculture, we shall find that it has been superseded, and
that the attribute “productive” has been successively applied to every
class of work—first to industry, then to commerce, and finally to the
liberal professions. Even if it were true that industrial undertakings
only yield the equivalent of the value consumed, that is not enough to
justify the epithet “sterile,” unless, as Adam Smith wittily remarks, we
are by analogy to consider every marriage sterile which does not result
in the birth of more than two children. To invoke the distinction between
addition and multiplication is useless, because arithmetic teaches us
that multiplication is simply an abridged method of adding.

It seems very curious that that kind of wealth which appeared to the
Physiocrats to be the most legitimate and the most superior kind should
be just the one that owed nothing to labour, and which later on, under
the name of rent, seems the most difficult to justify.

But we must not conclude that the Physiocratic theory of the net product
possessed no scientific value.

It was a challenge to the economic doctrines of the time, especially
Mercantilism. The Mercantilists thought that the only way to increase
wealth was to exploit neighbours and colonists, but they failed to see
that commerce and agriculture afforded equally satisfactory methods. Nor
must we forget the Physiocrats’ influence upon practical politics. Sully,
the French minister, betrays evidence of their influence when he remarks
that the only two sources of national wealth are land and labour. Let us
also remember that, despite some glaring mistakes, agriculture has never
lost the pre-eminence which they gave it, and that the recent revival of
agricultural Protection is directly traceable to their influence. They
were always staunch Free Traders themselves, but we can hardly blame
them for not being sufficiently sanguine to expect such whole-hearted
acceptance of their views as to anticipate some of the more curious
developments of their doctrines. It is almost certain that if they were
living to-day they would not be found supporting the Protectionist
movement. At least this is the opinion of M. Oncken, the economist, who
has made the most thorough study of their ideas.[38]

Although the Physiocratic distinction between agriculture and industry
was largely imaginary, it is nevertheless true that agriculture does
possess certain special features, such as the power of engendering the
forces of life, whether vegetable or animal. This mysterious force,
which under the term “nature” was only very dimly understood by the
Physiocrats, and still is too often confused with the physico-chemical
forces, does really possess some characteristics which help us to
differentiate between agriculture and industry. At some moments
agriculture seems inferior because its returns are limited by the
exigencies of time and place; but more often superior because agriculture
alone can produce the necessaries of life. This is no insignificant fact;
but we are trenching on the difficult problems connected with the name of


The Physiocrats were the first to attempt a synthesis of distribution.
They were anxious to know—and it was surely a praiseworthy ambition—how
wealth passed from one class in society to another, why it always
followed the same routes, whose meanderings they were successful in
unravelling, and how this continual circulation, as Turgot said,
“constituted the very life of the body politic, just as the circulation
of the blood did of the physical.”

A scholar like Quesnay, the author of the work on animal economy[39]
and a diligent student of Harvey’s new discovery, was precisely the
man to carry the biological idea over into the realm of sociology. He
made use of the idea in his _Tableau économique_, which is simply a
graphic representation of the way in which the circulation of wealth
takes place. The appearance of this table caused an enthusiasm among
his contemporaries that is almost incredible,[40] although Professor
Hector Denis declares that he is almost ready to share in Mirabeau’s

We know by this time that this circulation is much more complicated than
the Physiocrats believed, but it is still worth while to give an outline
of their conception.[42]

Quesnay distinguishes three social classes:

1. A productive class consisting entirely of agriculturists—perhaps also
of fishermen and miners.

2. A proprietary class, including not only landed proprietors, but also
any who have the slightest title to sovereignty of any kind—a survival
of feudalism, where the two ideas of sovereignty and property are always
linked together.

3. A sterile class, consisting of merchants and manufacturers, together
with domestic servants and members of the liberal professions.

The first class, being the only productive class, must supply all that
flow of wealth whose course we are now to follow. Let us suppose,
then—the figures are Quesnay’s and seem sufficiently near the facts—that
the value of the total wealth produced equals 5 milliard francs. Of this
5 milliards 2 milliards are necessary for the upkeep of the members of
this class and its oxen during harvest and sowing. This portion does
not circulate. It simply remains where it was produced. The produce
representing the remaining 3 milliards is sold. But agricultural
products alone do not suffice for the upkeep of Class 1. Manufactured
goods, clothes, and boots also are required, and these are got from the
industrial classes, for which a milliard francs is given.

There remain just 2 milliards, which go to the landowners and the
Government in rents and taxes. By and by we shall see how they attempted
to justify this apparent parasitism.

Let us pass on to consider the propertied class. It manages to live upon
the 2 milliards which it receives by way of rents, and it lives well. Its
food it must obtain from the agricultural class (unless, of course, the
rents are paid in kind), and for this it possibly pays a milliard francs.
It also requires manufactured goods, which it must get from the sterile
class, and for which it pays another milliard francs. This completes
their account.

As to the sterile class, it produces nothing, and so, unlike the
preceding class, it can only get its necessaries second-hand from the
productive class. These may be got in two ways: a milliard from the
agricultural class in payment for manufactured goods and another milliard
from the landed proprietors. The latter milliard being one of the two
which the landed proprietors got from the agriculturists, has in this way
described the complete circle.

The 2 milliards obtained as salaries by the sterile class are employed
in buying the necessaries of life and the raw material of industry.
And since it is only the productive class that can procure these
necessaries and raw materials, this 2 milliards passes into the
hands of the agriculturists. The 2 milliards, in short, return to
their starting-point. Adding the milliard already paid by the landed
proprietors to the 2 milliards’ worth of products unsold, the total of 5
milliards is replaced in the hands of the productive class, and so the
process goes on indefinitely.[43]

This _résumé_ gives but a very imperfect idea of the vast complexities
and difficulties involved in tracing the growth of revenues—an evolution
which the Physiocrats followed with the enthusiasm of children. They
imagined that it was all very real.[44] The rediscovery of their
millions intoxicated them, but, like many of the mathematical economists
of to-day, they forgot that at the end of their calculations they only
had what they had assumed at the beginning. It is very evident that the
table proves nothing as to the essential point in their system, namely,
whether there really exist a productive and a sterile class.[45]

The most interesting thing in the Physiocratic scheme of distribution is
not the particular demonstration which they gave of it, but the emphasis
which they laid upon the fact of the circulation of wealth taking place
in accordance with certain laws, and the way in which the revenue of each
class was determined by this circulation.

The singular position which the proprietors hold in this tripartite
division of society is one of the most curious features of the system.

Anyone examining the table in a non-Physiocratic fashion, but simply
viewing it in the modern spirit, must at once feel surprised and
disappointed to find that the class which enjoys two-fifths of the
national revenue does nothing in return for it. We should not have
been surprised if such glaring parasitism had given to the work of the
Physiocrats a distinctly socialistic tone. But they were quite impervious
to all such ideas. They never appreciated the weakness of the landowners’
position, and they always treated them with the greatest reverence. The
epithet “sterile” is applied, not to them, but to manufacturers and
artisans! Property is the foundation-stone of the “natural order.” The
proprietors have been entrusted with the task of supplying the staff of
life, and are endued with a kind of priestly sacredness. It is from their
hands that all of us receive the elements of nutrition. It is a “divine”
institution—the word is there.[46] Such idolatry needs some explanation.

One might have expected—even from their own point of view—that the
premier position would have been given to the class which they termed
productive, _i.e._ to the cultivators of the soil, who were mostly
farmers and _métayers_. The land was not of their making, it is true.
They had simply received it from the proprietors. This latter class takes
precedence because God has willed that it should be the first dispenser
of all wealth.[47]

There is no need to insist on this strange aberration which led them
to look for the creator of the land and its products, not amid the
cultivators of the soil, but among the idlers.[48] Such was the logical
conclusion of their argument. We must also remember that the Physiocrats
failed to realise the inherent dignity of all true labour simply because
it was not the creator of wealth. This applied both to the agricultural
labourer and the industrial worker, and though the former alone was
considered productive it was because he was working in co-operation with
nature. It was nature that produced the wealth and not the worker.

Something must also be attributed to their environment. Knowing only
feudal society, with its economic and political activities governed and
directed by idle proprietors, they suffered from an illusion as to the
necessity for landed property similar to that which led Aristotle to
defend the institution of slavery.[49]

Although they failed to foresee the criticisms that would be
levelled against the institution of private property, they were very
assiduous—especially the Abbé Baudeau—in seeking an explanation of its
origin and a justification of its existence. The reasons which they
advanced are more worthy of quotation than almost any argument that has
since been employed by conservative economists.

The most solid argument, in their opinion—at least the one that was
most frequently used—is that these proprietors are either the men who
cleared and drained the land or else their rightful descendants. They
have incurred or they are incurring expenditure in clearing the land,
enclosing it and building upon it—what the Physiocrats call the _avances
foncières_.[50] They never get their revenues through some one else
as the manufacturers do, and they are anything but parasites. Their
portion is _optimo jure_, in virtue of a right prior and superior even to
that of the cultivators, for although the cultivators help to make the
product, the proprietors help to make the land. The three social classes
of the Physiocratic scheme may be likened to three persons who get their
water from the same well. It is drawn from the well by members of the
productive class in bucketfuls, which are passed on to the proprietors,
but the latter class gives nothing in return for it, for the well is of
their making. At a respectable distance comes the sterile class, obliged
to buy water in exchange for its labour.[51]

The Physiocrats failed to notice the contradiction involved in this. If
the revenue which the proprietor draws represents the remuneration for
his outlay and the return for his expenditure it is no longer a gift of
nature, and the net product vanishes, for, by definition, it represented
what was left of the gross product after paying all initial expenses—the
excess over cost of production. If we accept this explanation of the
facts there is no longer any surplus to dispose of. It is as capitalists
pure and simple and not as the representatives of God that proprietors
obtain their rents.

Must we really believe that although these outlays afford some
explanation of the existence of private property they supply no means of
measuring or of limiting its extent? Is there no connection between these
outlays and the revenues which landed proprietors draw?

Or must we distinguish between the two portions of the revenue—the one,
indispensable, representing the reimbursement of the original outlay, and
in every respect comparable to the revenue of the farmer, and the other,
being a true surplus, constituting the net product? How can they justify
the appropriation of the latter?

There is another argument held in reserve, namely, that based upon social
utility. They point out that the cultivation of land would cease and the
one source of all wealth would become barren if the pioneer were not
allowed to reap the fruits of his labour.

The new argument is a contradiction of the old. In the former case land
was appropriated because it had been cultivated. In the present case land
must be appropriated before it can be cultivated. In the former labour
is treated as the efficient cause, in the latter as the final cause of

Finally, the Physiocrats believed that landed proprietorship was
simply the direct outcome of “personal property,” or of the right of
every man to provide for his own sustenance. This right includes the
right of personal estate, which in turn involves the right of landed
property. These three kinds of property are so closely connected that
in reality they form one unit, and no one of the three can be detached
without involving the destruction of the other two.[52] They were full
of veneration for property of every description—not merely for landed
property. “The safety of private property is the real basis of the
economic order of society,” says Quesnay.[53] Mercier de la Rivière
writes: “Property may be regarded as a tree of which social institutions
are branches growing out of the trunk.”[54] We shall encounter this cult
of property even during the terrible days of the French Revolution and
the Reign of Terror. When all respect for human life was quite lost there
still remained this respect for property.

The defence of private property was already well-nigh complete.[55] But
if they were strong in their defence of the institution they did not
fail to impose upon it some onerous duties—which counterbalanced its
eminent dignity. Of course, every proprietor should always be guided by
reason and be mannerly in his behaviour, and he should never allow mere
authority to become the rule of life.[56] Their duties are as follows:

1. They must continue without fail to bring lands into cultivation,
_i.e._ they must continue the _avances foncières_.[57]

2. They must dispose of the wealth which the nation has produced in such
a way as to further the general interest; this is their task as the
stewards of society.[58]

3. They must aim during their leisure at giving to society all those
gratuitous services which they can render, and which society so sorely

4. They must bear the whole burden of taxation.

5. Above all they must protect their tenants, the agriculturists, and be
very careful not to demand more than the net product. The Physiocrats
never go the length of advising them to give to their tenants a portion
of the net product, but they impress upon them the importance of
giving them the equivalent of their annual expenditure and of dealing
liberally with them. It does not seem much, but it must have been
something in those days. “I say it boldly,” writes Baudeau, “cursed be
every proprietor, every sovereign and emperor that puts all the burden
upon the peasant, and the land, which gives all of us our sustenance.
Show them that the lot of the worthy individuals who employ their own
funds or who depend upon those of others is to none of us a matter of
complete indifference, that whoever hurts or degrades, attacks or robs
them is the cruellest enemy of society, and that he who ennobles them,
furthers their well-being, comfort, or leisure increases their output
of wealth, which after all is the one source of income for every class
in society.”[59] Such generous words, which were none too common at the
time, release the Physiocrats from the taunt of showing too great a
favour to the proprietors. In return for such privileges as they gave
them they demanded an amount of social service far beyond anything that
was customary at the time.


So far we have considered only the Physiocratic theory. But the
Physiocratic influence can be much more clearly traced if we turn to
applied economics and examine their treatment of such questions as the
regulation of industry, the functions of the State, and the problems of


All exchange, the Physiocrats thought, was unproductive, for by
definition it implies a transfer of equal values. If each party only
receives the exact equivalent of what it gives there is no wealth
produced. It may happen, however, that the parties to the exchange are
of unequal strength, and the one may grow rich at the expense of the
other.[61] In giving a bottle of wine in exchange for a loaf of bread
there is a double displacement of wealth, which evidently affords a
fuller satisfaction of wants in both cases, but there is no wealth
created, for the objects so exchanged are of equal value. To-day the
reasoning would be quite different. The present-day economist would
argue as follows: “If I exchange my wine for your bread, that is a proof
that my hunger is greater than my thirst, but that you are more thirsty
than hungry. Consequently the wine has increased in utility in passing
from my hands into yours, and the bread, likewise, in passing from your
hands into mine, and this double increase of utility constitutes a real
increase of wealth.” Such reasoning would have appeared absurd to the
Physiocrats, who conceived of wealth as something material, and they
could never have understood how the creation of a purely subjective
attribute like utility could ever be considered productive.

We have already had occasion to remark that industry and commerce were
considered unproductive. This was a most significant fact, so far as
commerce was concerned, because all the theories that held the field
under Mercantilism, notably the doctrine that foreign commerce afforded
the only possible means of increasing a country’s wealth, immediately
assumed a dwindling importance. For the Mercantilists the prototype of
the State was a rich merchant of Amsterdam. For the Physiocrats it was
John Bull.

And foreign trade, like domestic, produced no real wealth: the only
result was a possible gain, and one man’s gain is another man’s loss.
“Every commercial nation flatters itself upon its growing wealth as
the outcome of foreign trade. This is a truly astonishing phenomenon,
for they all believe that they are growing rich and gaining from one
another. It must be admitted that this gain, as they call it, is a most
remarkable thing, for they all gain and none loses.”[62] A country must,
of course, obtain from foreigners the goods which it cannot itself
produce in exchange for those it cannot itself consume. Foreign trade
is quite indispensable, but Mercier de la Rivière thinks that it is a
necessary evil[63] (he underlines the word). Quesnay contents himself
with referring to it merely as a _pis aller_.[64] He thought that the
only really useful exchange is one in which agricultural products pass
directly from producers to consumers, for without this the products would
be useless and would simply perish in the producer’s hands. But that
kind of exchange which consists in buying products in order to resell
them—trafficking, or a commercial transaction, as we call it—is sheer
waste, for the wealth instead of growing larger becomes less, because a
portion of it is absorbed by the traffickers themselves.[65] We meet with
the same idea in Carey. Mercier de la Rivière ingeniously compares such
traders to mirrors, arranged in such a way that they reflect a number
of things at the same time, all in different positions. “Like mirrors,
too, the traders seem to multiply commodities, but they only deceive the

That may be; but, admitting a contempt for commerce, what conclusions
do they draw from it? Shall they prohibit it, or regulate it, or shall
they just let it take its own course? Any one of these conclusions would
follow from their premises. If commerce be as useless as they tried to
make out, the first solution would be the best. But it was the third that
they were inclined to adopt, and we must see why.

It seems quite evident that the Physiocrats would have condemned both the
Mercantile and the Colbertian systems. Both of these aimed at securing
a favourable balance of trade—an aim which the Physiocrats considered
illusory, if not actually immoral. But if they thought all trade was
useless it is not easy to understand their enthusiasm for Free Trade.
Those economists who nowadays favour Free Trade support it in the belief
that it is of immense benefit to every country wherein it is practised,
and that the more it is developed the richer will the exchanging
countries become. But such was not the Physiocratic doctrine. It is a
noteworthy fact that they are to be regarded as the founders of Free
Trade, not because of any desire to favour trade as such, but because
their attitude towards it was one of disdainful _laissez-faire_. They
were not, perhaps, altogether free from the belief that _laissez-faire_
would lead to the disappearance of commerce altogether. They were Free
Traders primarily because they desired the freedom of domestic trade,
and we must not lose sight of those extraordinary regulations which
completely fettered its movements at this time.[67]

The “natural order” also implied that each one would be free to buy or
sell wherever he chose, within or without the country. It recognised
no frontiers,[68] for only through “liberty” could the “good price” be
secured. The “good price” meant the highest price and not the lowest,
dearth and not cheapness. “Free competition with foreign merchants
can alone secure the best possible price, and only the highest price
will enable us to increase our stock of wealth and to maintain our
population by agriculture.”[69] This is the language of agriculturists
rather than of Free Traders. It is the natural result of thinking about
agricultural problems, and especially about the question of raising corn;
and since Free Trade at this time gave rise to no fears on the score of
importation, free exchange meant free exportation. Oncken points out that
the commercial _régime_ which the Physiocrats advocated was identical
with that in operation in England about this time, where in case of
over-abundance exportation was encouraged in order to keep up the price,
and in case of dearth importation was permitted in order to ensure a
steady supply and to prevent the price rising too much.[70]

In a word, Free Trade meant for the Physiocrats the total abolition of
all those measures which found so much favour with the Mercantilists, and
which aimed at preventing exportation to places outside the country and
checking the growth of free intercourse within it.[71] Narrow as their
conception of Free Trade at first was, it was not long in growing out
of the straitened circumstances which gave it birth, and it developed
gradually into the Free Trade doctrine as we know it, which Walras
expressed as follows: “Free competition secures for every one the maximum
final utility, or, what comes to the same thing, gives the maximum
satisfaction.” We no longer admit that international trade is a mere _pis
aller_. But all the arguments which have been used in its defence on the
Free Trade side were first formulated by the Physiocrats. We shall refer
to a few of them.

The fallacy lurking behind the “balance of trade” theory is exposed with
great neatness by Mercier de la Rivière. “I will drown the clamour of all
your blind and stupid policies. Suppose that I gave you all the money
which circulates among the nations with whom you trade. Imagine it all in
your possession. What would you do with it?” He goes on to show how not a
single foreign country will any longer be able to buy, and consequently
all exportation will cease. The result of this excessive dearness will
be that buying from foreign countries will be resorted to, and this will
result in the exportation of metallic currency, which will soon readjust

The contention that import duties are paid by the foreigner is also
refuted. Nothing will be sold by the foreigner at a lower price than that
which other nations would be willing to give him. An import duty on such
goods will increase the real price, which the foreigner will demand, and
this import duty will be paid by those who buy the goods.[73]

There is also a refutation of the policy known as reciprocity. “A nation
levies an import duty upon the goods of another nation, but it forgets
that in trying to injure the selling nation it is really checking the
possible consumption of its own goods. This indirect effect, of course,
is inevitable, but can nothing be done to remedy this by means of
reprisals? England levies a heavy duty on French wines, thereby reducing
its debit account with France very considerably, but more French wine
will not be bought if a tax is also placed upon the goods which England
exports to France. Do you think that the prejudice which England has
taken against France can be remedied in this way?”

We have multiplied instances, for during the whole of the hundred years
which have since elapsed has anyone deduced better arguments?

These theories immediately received legal sanction in the edicts of 1763
and 1766 establishing free trade in corn, first within the country and
then without, but some very serious restrictions were still retained.
Unfortunately Nature proved very ungrateful to her friends. For four or
five years she ran riot with a series of bad harvests, for which, as
we may well imagine, the Physiocratic _régime_ and its inspirers were
held responsible. Despite the protests of the Physiocrats, this liberal
act was repealed in 1770. It was re-established by Turgot in 1774, and
again repealed by Necker in 1777—a variety of fortune that betokens a
fickleness of public opinion.

This new piece of legislation, and, indeed, the whole Physiocratic
theory, was subjected to severe criticism by an abbot of the name of
Galiani. Galiani was a Neapolitan monsignor residing at the French court.
At the age of twenty-four he had written a remarkable work in Italian
dealing with money, and in 1770, written in splendid French, appeared his
_Dialogues sur le Commerce des Blés_. It was an immediate success, and it
won the unqualified approval of Voltaire, who was possibly attracted more
by the style than by the profundity of thought. Galiani was not exactly
opposed to _laissez-faire_. “Liberty,” he wrote, “stands in no need of
defence so long as it is at all possible. Whenever we can we ought to be
on the side of liberty.”[74] But he is opposed to general systems and
against complete self-surrender into the hands of Nature. “Nature,” says
he, “is too vast to be concerned about our petty trifles.”[75] He shares
the realistic or historical views of the writers of to-day, and thinks
that before applying the principles of political economy some account
should be taken of time, place, and circumstances. “The state of which
the Physiocrats speak—what is it? Where is it to be found.”[76]

Along with Galiani we must mention the great financier Necker, who in a
bulky volume entitled _La Législation et le Commerce des Grains_ (1775)
advocates opportunistic views almost identical in character with those of
Galiani, and who, as Minister of State (1776-81 and 1788-90), put an end
to free trade in corn.

In monetary matters, especially on the question of interest, the
Physiocrats were willing to recognize an exception to their principle
of non-intervention. Mirabeau thought that whenever a real increase of
wealth resulted from the use of capital, as in agriculture, the payment
of interest was only just. It was simply a sign or symbol of the net
product. But in trade matters he thought it best to limit if not to
prohibit it altogether. It often proved very harmful, and frequently was
nothing better than a tax levied by order of “the corrosive landowners.”
Quesnay could not justify it except in those cases where it yielded a
net product, but he was content simply to suggest a limitation of it.
The Physiocrats are at least logical. If capital sunk in industrial and
commercial undertakings yields no income it is evident that the interest
must be taken from the borrower’s pocket, and they condemned it just as
they condemned taxing the industrial and commercial classes.

Turgot[77] is the only one of them who frankly justifies taking interest.
The reason that he gives is not the usual Physiocratic argument, but
rather that the owner of capital may either invest it in the land or
undertake some other productive work—capital being the indispensable
basis of all enterprise[78]—and that, consequently, the capital will
never be given to anyone who will offer less than what might have been
made out of it did the owner himself employ it. This argument implies
that every undertaking is essentially a productive one, and indeed one
of the traits which distinguishes Turgot from the other Physiocrats is
the fact that he did not think that industry and commerce were entirely


Seeing that the Physiocrats believed that human society was pervaded by
the principle of “natural order,” which required no adventitious aid
from any written law, and since Nature’s voice, without any artificial
restraint, was sufficient guide for mankind, it might have been expected
that the trend of Physiocracy would have been toward the negation of all
legislation, of all authority—in a word, toward the subversion of the

It is certain that the Physiocrats wished to reduce legislative activity
to a minimum, and they expressed the belief—which has often been repeated
since by every advocate of _laissez-faire_—that the most useful work
any legislative body can do is to abolish useless laws.[79] If any new
laws are required they ought simply to be copies of the unwritten laws
of Nature. Neither men nor Governments can make laws, for they have
not the necessary ability. Every law should be an expression of that
Divine wisdom which rules the universe. Hence the true title of lawgiver,
not law-maker.[80] It is in this connexion that we meet with those
anecdotes—some of more than doubtful authenticity it is true—that have
gathered round their names. Of these the best known is that which tells
of Mercier de la Rivière’s visit to St. Petersburg, and his laconic reply
to Catherine the Great. He had been invited there to advise the Empress
about a new constitution for the country. After dilating upon the great
difficulties of the undertaking and the responsibilities it involved, he
gave it as his opinion that the best way of achieving her object was just
to let things take their course. Whereupon the Empress promptly wished
him good-bye.

But it would be a great mistake to think of the Physiocrats as
anarchists. What they wanted to see was the minimum of legislation with
a maximum of authority. The two things are by no means incompatible. The
liberal policy of limitation and control would have found scant favour
with them. Their ideal was neither democratic self-government, as we have
it in the Greek republics, nor a parliamentary _régime_ such as we find
in England. Both were detested.[81]

On the other hand, great respect was shown for the social hierarchy, and
they were strong in their condemnation of every doctrine that aimed at
attacking either the throne or the nobility. What they desired was to
have sovereign authority in the guise of a hereditary monarchy. In short,
what they really wanted—and they were not frightened by the name—was

“The sovereign authority should be one, and supreme above all individual
or private enterprise. The object of sovereignty is to secure obedience,
to defend every just right, on the one hand, and to secure personal
security on the other. A government that is based upon the idea of a
balance of power is useless.”[83]

This should help us to realise the distance separating the Physiocrats
from the Montesquieuian idea of the distribution of the sovereign
authority, and from the other idea of local or regional control. There
is no mention of representation as a corollary of taxation. This form of
guarantee, which marks the beginnings of parliamentary government, could
have no real significance for the Physiocrats. Taxation was just a right
inherent in the conception of proprietary sovereignty, a territorial
revenue, which was in no way dependent upon the people’s will.

It seems strange that such should be the opinion of a future President of
the Constituent Assembly. How can we explain this apparent contradiction
and such love of despotism among the apostles of _laissez-faire_?

Despotism, in the eyes of the Physiocrats, had a peculiar significance
of its own. It was the work of freedom, not of bondage. It did not
signify the rule of the benevolent despot, prepared to make men happy,
even against their own will. It was just the sovereignty of the “natural
order”[84]—nothing more. Every reasonable person felt himself bound to
obey it, and realised that only through such obedience could the truth be
possibly known.

It is quite different from the despotism of the ancient maxim, _Sicut
principi placuit legis habet vigorem_.[85] They would never have
subscribed to the doctrine that the king’s word is law, but they were
equally energetic in rejecting the claim of the popular will.[86] They
are as far from modern democracy as they are from monarchical absolutism.

This despotism was incarnate in the person of the sovereign or king. But
he is simply an organ for the transmission of those higher laws which are
given to him. They would compare him with the leader of an orchestra,
his sceptre being the baton that keeps time. The conductor’s despotism
is greater than the Tsar’s, for every musician has to obey the movement
of the hand, and that immediately. But this is not tyranny, and whoever
strikes a false note in a spirit of revenge is not simply a revolter, but
also an idiot.

Sovereignty appealed to the Physiocrats in the guise of hereditary
monarchy, because of its associations with property under the feudal
_régime_, and since hereditary rights were connected with landed property
so must royalty be. The sovereign who best represents the Physiocratic
ideal is perhaps the Emperor of China.[87] As the Son of Heaven he
represents the “natural order,” which is also the “divine order.” As an
agricultural monarch he solemnly puts his hand to the plough once a year.
His people really govern themselves; that is, he rules them according to
custom and the practice of sacred rites.[88]

In practice there will be nothing of great importance for the despot to
do. “As kings and governors you will find how easy it is to exercise
your sacred functions, which simply consist in not interfering with the
good that is already being done, and in punishing those few persons who
occasionally attack private property.”[89] In short, the preservation
of the “natural order” and the defending of its basis—private
property—against the attacks of the ignorant and the sacrilegious is the
first and most important duty of the sovereign. “No order of any kind is
possible in society unless the right of possession is guaranteed to the
members of that society by the force of a sovereign authority.”[90]

Instruction is the second duty upon which the Physiocrats lay special
stress. “Universal education,” says Baudeau, “is the first and only
social tie.” Quesnay is specially anxious for instruction on the “natural
order,” and the means of becoming acquainted with it. Further, the only
guarantee against personal despotism lies in well-diffused instruction
and an educated public opinion. If public opinion, as Quesnay said, is to
lead, it should be enlightened.

Public works are also mentioned. A wise landlord has good roads on his
property, for good roads and canals improve it. These represent a species
of _avances foncières_, similar to those undertaken by proprietors.

This is by no means all.[91] There are a number of duties recognised as
belonging to the State, of which every economist of the Liberal school up
to Bastiat and M. de Molinari approves.

We will add one other trait. Like the Liberal school, the Physiocrats
were whole-hearted “internationalists.” In this respect they differ from
their prototypes, the Chinese. They believed that all class distinctions
and all international barriers ought to be removed in the interest of
political development, as well as in that of scientific study.[92] The
peace advocates of to-day would do well to make the acquaintance of their
illustrious predecessors.


The bulk of the Physiocratic system is taken up with the exposition of
a theory of taxation, which really forms one of the most characteristic
portions of their work. Though inextricably bound up with the theory
of the net product and with the conception of landed proprietorship,
curiously enough, it has survived the rest of their doctrine, and quite
recently has been given a new lease of life.

In the table showing the distribution of the national income three
participators only are mentioned—the landed proprietor, the farmer, and
the artisan. But there is also a fourth—the Physiocratic sovereign, who
is none other than the State itself, and who thoroughly deserves a share.
This benevolent despot, whose duties we have just mentioned, cannot be
very exacting, for, having little to do, his demands must be moderate.
In addition to his double mission of maintaining security and giving
instruction, he must also contribute towards increasing the productivity
of the land by establishing public works, making roads, etc.[93] Money is
required for all this, and the Physiocrats argued that taxes ought to be
paid liberally,[94] and not grudgingly, as is too often the case under a
parliamentary _régime_. Where is this money to come from?

The reply is obvious if we have grasped their system. The only available
fund is the net product, which is the only new wealth that is really
dispensable—the rest is necessarily absorbed in the repayment of the
advances made for the upkeep of the agricultural and industrial classes.
Were taxation to absorb a proportion of the revenues that are devoted to
production it would gradually drain away the source of all wealth. So
long as it only takes the surplus—the true net product, which is a mere
tributary of the main stream—no harm will be done to future production.

All this is quite clear. But if taxation is to absorb the net product
the question arises as to who is to pay it. It is equally evident that
it can only be taken from those who already possess it, namely, from the
landed proprietors, who must bear the whole burden of taxation. Just now
we were amazed at the privileges which the Physiocrats so light-heartedly
granted them: this is the ransom, and it is no light one. The next
problem is how to assess this tax.

The Physiocrats were extremely loth to rob the gentry of their incomes,
and a number of pages in their writings are devoted to a justification
of their claims upon them. Not only were they willing to leave them
everything that was necessary to compensate them for the outlay of
capital and labour, but also all that might be required to make the
property thoroughly valuable and the position of the landowner a most
enviable one.[95] The preference shown for the landowner is just the
result of the social importance attributed to him by the Physiocrats.
“If some other class were preferable,” says Dupont de Nemours, “people
would turn their attention to that.” They would no longer spend their
capital in clearing or improving the land. But if the possession of
land be so desirable, is there not some danger lest everybody should
become a landlord and neglect the other walks of life? The Physiocrats
thought not, for, since Nature has set a limit to the amount of land in
existence, there must also be a limit to the number of landowners.

A third of the net product, or, if we accept Baudeau’s figures,
six-twentieths, _i.e._ 30 per cent., was to be paid in taxes. Taking
the net product at 2 milliard francs, which is the figure given in the
_Explication du Tableau économique_, this gives us exactly 600 million
francs as the amount of the tax.[96]

The proprietors, who were then for the most part free from taxation, felt
that this was a very considerable contribution, and that the Physiocrats
demanded a heavy price for the high honour which they had conferred
upon them. Even to-day a tax of 30 per cent. on the gross revenue of
landlords would cause some consternation. The Physiocrats anticipated
this objection, and in reply brought forward an argument which shows that
they possessed exceptionally keen economic insight. They argued that none
would feel the burden, seeing that no one was really paying it. Land
would now be bought at 70 per cent. of its former value, so that the 30
per cent. nominally paid by the proprietor was in reality not paid by
him at all.[97] Land let at £10,000 would be valued at £200,000. But
with a tax of £3000 it is really only yielding £7000, and its value will
be £140,000. The buyer who pays this price, despite the fact that he
has paid a tax of £3000, will enjoy all the revenue to which he has any
claim, for he can only lay claim to what he has paid for, and he did not
pay for that portion of the revenue which is affected by the tax. It is
exactly as if he had only bought seven-tenths of the land, the remaining
three-tenths being the State’s. And if at some later time this tax should
be abolished, it would merely mean making him a present of £3000 a
year—the equivalent of a lump sum of £60,000.[98]

The reasoning was excellent for those buying land after the tax had
been levied. It had, however, a much wider import than the Physiocrats
thought, for it might be applied not merely to taxes on land, but also
to taxes on capital. But this gave little consolation to those who were
to have the honour of inaugurating the new _régime_, and the first task
evidently was to convert them.[99]

The sovereign’s position in the main is like that of the landed
proprietors, which is in agreement with the Physiocratic conception of
sovereignty. The landed proprietors and the king in reality form one
class of fellow landowners, with the same rights, the same duties, and
the same revenues. Hence the sovereign’s interests are completely bound
up with those of his country.[100]

The Physiocrats attached the greatest practical importance to their
fiscal system, and were thoroughly convinced that the misery of the
people was due to the unequal distribution of the burden of taxation.
They thought that this was the true source of injustice—in short,
that this was the social problem. To-day we ascribe misery to unequal
distribution of wealth rather than to any particular fiscal system, and
consequently the Physiocratic view seems to us somewhat extreme. Still,
it was perhaps not so difficult to justify, in view of the frightful
conditions of fiscal organisation under the old _régime_.

The objections which a single tax, levied only on the landed interest,
was bound to provoke were not unforeseen by the Physiocrats, nor did they
neglect to answer them.

To the objection that it was unjust to place the burden of taxation
upon the shoulders of a single class of the nation,[101] instead of
distributing it equally among all classes, the Physiocrats replied that
the statesman’s ideal was not equal taxation, but the complete abolition
of all taxation. This could only be achieved by taxing the “net product.”

Suppose that we agree that the taxes should be paid by some other class.
The question then is to determine what class of the community should be

Shall we say that the farmer must pay them? But after deducting the “net
product” what remains for the farmer is just the bare equivalent of his
original outlay. Consequently, if we take 600 millions from the farmers
by way of taxation there will be so much less capital for the land,
resulting in a smaller gross product the following year,[102] unless they
agitate for a reduction of 600 millions in their rents. If they succeed
this will leave the proprietors in the position of having paid over
the 600 millions to the State. But we must also reckon the losses and
friction incurred in every deviation from the “natural order.” Suppose
we decide that the sterile classes should pay the taxes. This class is
_ex hypothesi_ sterile—that is, it produces the exact equivalent of what
it consumes. To take 600 millions from this class is tantamount to a
reduction of its consumption by 600 millions, or an equivalent limitation
of its purchases of raw material. The result would be a diminished
product in the future, unless the industrial classes succeeded in
increasing prices by an equivalent amount. Even in that case the landed
proprietors will have to bear the brunt of it: firstly, they will have
to reduce their own consumption, and secondly, their tenants’, whose
efficiency will thereby be impaired.[103]

This process of reasoning seems to imply that the revenues of the
agricultural and industrial classes are not squeezable because they
represent the indispensable minimum necessary for the expenses of
production. This seems to be an anticipation of the notorious “iron
law.” Turgot’s formula incisively stating this law, but containing no
attempt at a justification, is known to most people.[104] Long before
his day, however, it had been stated by Quesnay in terms no less
pronounced, though perhaps not so well known. “It is useless to urge
that wage-earners can pay the tax so levied upon them, by restricting
consumption and depriving themselves of luxuries without thereby causing
the burden to fall upon the classes who pay the wages. The rate of
wages, and consequently the amount of comfort and luxury which wages
can purchase, are fixed at the irreducible minimum by the action of the
competition which prevails among them.” This is quite a characteristic
trait.[105] The author of the “natural order,” without any hesitation,
admits that the direct outcome of the establishment of that order would
be to reduce the life of the wage-earners to a level of bare subsistence.

It is also remarkable that in their study of the industrial classes wages
should have claimed the exclusive attention of the Physiocrats. Profits
even then were by no means unsqueezable, but curiously enough they failed
to realise this. Voltaire’s rich banker would have proved embarrassing
here. They would have had some difficulty in showing how a reduction of
his extravagance could possibly have endangered production. But they
might have replied that since he had so little difficulty in squeezing
the 400,000 _livres_ out of his fellow-citizens he would not experience
much more trouble in getting another 400,000 out of them and paying them
over to the State.

Another objection consists in the insufficiency of a single tax to meet
all the needs of the State. “In some States it is said that a third, a
half, or even three-fourths of the clear net revenue from all sources
of production is insufficient to meet the demands of the Treasury, and
consequently other forms of taxation are necessary.”[106]

In reply to this the Physiocrats would point out that the mere
application of their fiscal system would result in such an increase in
the net product that the yield from the tax would progressively grow. We
must also take account of the economies resulting from the simplicity of
the tax, and the almost complete absence of expenses of collection. But
the most interesting point of all is that they thought the State should
adapt its needs to meet its revenue, and not _vice versa_. The great
advantage of the Physiocratic _impôt_, however, was that it was regulated
by a natural norm, which gave the amount of the net product. Without
this, taxation becomes arbitrary.[107] At bottom the system affords a
barrier against the autocracy of the sovereign—a barrier that is much
more effective than a parliamentary vote.

One of the disciples of Quesnay put the theory to the test of practice.
The Margrave of Baden had the advantage of being a prince, and he
proceeded to experiment on his own subjects. The system was tried in
three communes of his principality, but, like most social experiments,
failed. In two of the communes it was abandoned at the end of four years.
In a third, despite its evil effects, it was prolonged until 1802.
The increase in the land tax caused a veritable slump in the value of
property just when the remission of taxes upon consumption was resulting
in the rapid multiplication of wineshops and beerhouses.[108] It is
unnecessary to add that the failure of the experiment did nothing to
weaken the faith of the Margrave or his fellow Physiocrats. An experiment
on so small a scale could not possibly be accepted as decisive. This is
the usual retort of innovators when social experiments prove failures,
but we must recognise the element of truth contained in their reply.

But if we wish to see the real results of the Physiocratic system we must
look beyond the private experiments of a prince. Elsewhere the effects
were much more far-reaching.

The fiscal aspect of the French Revolution owed its guiding inspiration
to their ideas. Out of a budget of 500 million francs the Constituent
Assembly decreed that about half of it—that is, 240 millions—should be
got out of a tax levied upon land, equal to a tax of 2400 million francs
nowadays; and the greatest part of it was to be raised by direct taxation.

Distrust of indirect taxation, and of all taxes on commodities, is also a
consequence of the Physiocratic system—a distrust that is bound to grow
as society becomes more democratic. Most of the arguments in favour of
direct taxation are to be found in the Physiocratic writings. But the
chief one employed nowadays—namely, that indirect taxes often bear no
proportion to the amount of the revenue, but weigh heaviest upon those
who have least, is not among them. This concern about proportionality,
which is merely another word for justice, was quite foreign to their

At a later stage of this work it will be our duty to call attention
to the enthusiasm aroused by this old theory of an _impôt unique_ as
advocated in the works of an eminent American economist,[110] who renders
homage to the Physiocrats for inspiring him with ideals altogether
opposed to those of the landed proprietors. And a similar movement under
the very same name—the single-tax system—is still vigorous in the United


A brief _résumé_ of the contributions made to economic science by the
Physiocrats will help us to realise their great importance.

From the theoretical point of view we have:

1. The idea that every social phenomenon is subject to law, and that the
object of scientific study is to discover such laws.

2. The idea that personal interest if left to itself will discover what
is most advantageous for it, and that what is best for the individual is
also best for everybody. But this liberal doctrine had many advocates
before the Physiocrats.

3. The conception of free competition, resulting in the establishment of
the _bon prix_, which is the most advantageous price for both parties,
and implies the extinction of all usurious profit.

4. An imperfect but yet searching analysis of production, and of the
various divisions of capital. An excellent classification of incomes and
of the laws of their distribution.

5. A collection of arguments which have long since become classic in
favour of landed property.

From a practical point of view we have:

1. The freedom of labour.

2. Free trade within a country, and an impassionate appeal for the
freedom of foreign trade.

3. Limitation of the functions of the State.

4. A first-class demonstration of the superiority of direct taxation over

It is unjust to reproach the Physiocrats, as is sometimes done, with
giving us nothing but social metaphysics. A little over-systemisation may
prove useful in the early stages of a science. Its very faults have some
usefulness. We must admit, however, that although their conception of the
“natural order” supplied the foundation, or at least the scaffolding, for
political economy, it became so intertwined with a kind of optimism that
it nullified the work of the Liberal school, especially in France.[111]

But the greatest gap in the Physiocratic doctrine is the total absence of
any reference to value, and their grossly material, almost terrestrial,
conception of production. They seldom mention value, and what little they
do say is often confused and commonplace. Herein lies the source of their
mistakes concerning the unproductive character of exchange and industry,
which are all the more remarkable in view of the able discussions of this
very question by a number of their contemporaries. Among these may be
mentioned Cantillon,[112] who resembles them in some respects and whose
essay on commerce was published in 1755; the Abbé Galiani, who dealt with
the question in his _Della Moneta_ (1750); and the Abbé Morellet, who
discussed the same topic in his _Prospectus d’un Nouveau Dictionnaire du
Commerce_ (1769). More important than any of them, perhaps, is Condillac,
whose work _Du Commerce et du Gouvernement_ was unfortunately not
published until 1776; but by that time the Physiocratic system had been
completed, and their pre-eminence well established.

Turgot, though one of their number, is an exception. He was never a
thoroughgoing Physiocrat, and his ideas concerning value are much
more scientific.[113] He defines it as “an expression of the varying
esteem which man attaches to the different objects of his desire.” This
definition gives prominence to the subjective character of value, and the
phrases “varying esteem” and “desire” give it greater precision.[114] It
is true that he also added that besides this relative attribute value
always implied “some real intrinsic quality of the object.” He has
frequently been reproached for this, but all that he meant to say was
that our desire always implies a certain correctness of judgment, which
is indisputable unless every judgment is entirely illusory. But Turgot
would never have admitted that.

It is possible that Turgot inspired Condillac, and that he himself
owed his inspiration to Galiani, whose book, which appeared twenty
years earlier, he frequently quotes. This work contains a very acute
psychological analysis of value, showing how it depends upon scarcity on
the one hand and utility on the other.

Besides a difference in his general standpoint, there are other
considerations which distinguish Turgot from the members of the
Physiocratic school, and it would have been juster to him as well as more
correct to have devoted a whole chapter to him.[115] Generally speaking,
his views are much more modern and more closely akin to Smith’s. In view
of the exigencies of space we must be content to draw attention to the
principal doctrines upon which he differs from the Physiocrats.

1. The fundamental opposition between the productivity of agriculture
and the sterility of industry, if not altogether abandoned, is at least
reduced in importance.

2. Landed property is no longer an institution of divine origin. Even the
appeal to the “ground expenses” is dropped. As an institution it rests
merely upon the fact of occupation and public utility.

3. Movable property, on the other hand, holds a prominent place. The
function of capital is more carefully analysed and the legitimacy of
interest definitely proved.

But we must turn to Condillac’s book if we want to see how the
Physiocratic doctrine should be completed and expurgated of its errors.
Condillac was already well known as a philosopher when, in his sixtieth
year, he published this new work in 1776. This admirable book, entitled
_Le Commerce et le Gouvernement considérés relativement l’un à l’autre_,
contains an outline of most modern problems. The title gives no adequate
indication of the character of the work, and possibly accounts for the
oblivion into which the book has fallen.

It is a genuine economic treatise, and not a medley of economic and
political suggestions concerning social science, with an admixture
of ethics and jurisprudence. Value is regarded as the foundation of
the science, and the Physiocrats are thus out-classed from the very
first.[116] Value itself is considered to be based upon utility, which
is stripped of its popular meaning, and given a scientific connotation
which it has never lost. It no longer implies an intrinsic, physical
property of matter, but connotes a degree of correspondence between a
commodity and a given human want. “Value is not an attribute of matter,
but represents our sense of its usefulness, and this utility is relative
to our need. It grows or diminishes according as our need expands or
contracts.” This is the foundation of the psychological theory of

But this is not all—though a great deal. He clearly realises that utility
is not the only determinant of value; that quantity, _i.e._ scarcity
or abundance, also exercises an important influence. With admirable
judgment he seizes upon the connection between them, and shows how the
two statements are united in one, for quantity only influences value
according as its action upon utility intensifies or weakens demand.
“But since the value of things is based upon need it is natural that a
more keenly felt need should endow things with greater value, while a
less urgent need endows them with less. Value increases with scarcity
and diminishes with plenty. In case of plenty it may even disappear; a
superabundant good will be valueless if one has no use for it.”[118]
This could not be put more clearly to-day. Here we have the germ of the
theories of Jevons and the Austrian school, though it took a long time to

We might naturally expect a superior treatment of exchange following upon
this new theory of value. If value is simply the satisfaction of want,
exchange creates two values when it satisfies two needs at the same time.
The characteristic of exchange is that each of the two parties yields
what it has in superabundance in return for what it needs. But what is
given up is superabundant, is useless, and consequently valueless; what
is demanded has greater utility, and consequently greater value. Two
men come to market each with a useless thing, and each returns with a
useful one.[119] Consequently the Physiocratic saying that exchange means
no gain to anyone, or at least that the gain of one only compensates
for the loss of the others, is seen to be radically false. The
Physiocrats—notably Trosne—attempted a reply, but, for reasons already
given, they never succeeded in realising the subjective character of

This same theory should have carried Condillac a stage further, and
helped in the rectification of the Physiocratic error concerning
production. If value is simply utility and utility itself is just the
correspondence between things and our demand for them, what is the agency
that produces this harmony between things and desires? It is very seldom
that nature succeeds in establishing it. “Nature is frequently fertile in
things we have no desire for and lavish of what is useless”—a profound
remark that ought to have cooled the Physiocrats’ love of the _Alma
Parens_. “Matter is transformed and made useful by dint of human labour.
Production means giving new form to matter.”[120] If this be true, then
there is no difference between agricultural and industrial production,
for they both transform what already exists.[121]

Moreover, the theory proves very clearly that if artisans and proprietors
are dependent upon the agriculturists—as, indeed, they are—the latter in
their turn are nothing but artisans. “If someone asks whether agriculture
ought to be preferred to manufacture or manufacture to agriculture, we
must reply that we have no preferences, and that the best use should be
made of both.”[122]

Lastly, his definition of wages, short as it is, is of immense
significance. “Wages represent the share of the product which is due to
the workers as co-partners.”[123] Wages only “represent” the share that
is due to the workers. In other words, the wage-earner, either through
want of will or of power, cannot exercise his rightful claim to his own
work, and simply surrenders the claim in return for a money price. This
constitutes his salary, which is regulated, like every other price, by
competition between buyers and sellers. Condillac makes no reference to
an iron law of wages, but regards them as determined by the forces of
demand and supply. He does, however, hint at the implicit alliance which
exists between capital and labour.[124]

From a practical standpoint also, especially in his defence of free
labour and his condemnation of corporations, Condillac is more
categorical than the Physiocrats. “All these iniquitous privileges,”
he writes, “have no claim to a place in the order beyond the fact
that they are already established.” He is as persistent as Turgot in
his justification of the taking of interest and in his demand for the
determination of the rate by competition. This very elegant argument
is employed to show its similarity to exchange: Exchange implies
compensation for overcoming the drawbacks of distance, whether of place
or of time.[125] Exchange generally refers to place, interest to time,
and this is really the foundation of the modern theory.


Notwithstanding the originality and vigour displayed by the Physiocrats,
they can only be regarded as the heralds of the new science. Adam
Smith,[126] it is now unanimously agreed, is its true founder. The
appearance of his great work on the _Wealth of Nations_ in 1776
instantly eclipsed the tentative efforts of his predecessors. To-day the
Physiocratic doctrines scarcely do more than arouse historical curiosity,
while Smith’s work has been the guide for successive generations of
economists and the starting-point of all their speculation. Even at the
present day, despite many changes in the fundamental principles of the
science, no economist can afford to neglect the old Scotch author without
unduly narrowing his scientific horizon.

Several reasons account for the commanding position held by this book—a
position which no subsequent treatise has ever successfully rivalled.

First is its supreme literary charm. It is above all an interesting book,
bristling with facts and palpitating with life. The burning questions
of the hour, such as the problems presented by the colonial _régime_,
the trading companies, the mercantile system, the monetary question, and
taxation, supply the author with congenial themes for his treatment.
His discussion of these questions is marked by such mastery of detail
and such balance of judgment that he convinces without effort. His facts
are intermixed with reasoning, his illustrations with argument. He is
instructive as well as persuasive. Withal there is no trace of pedantry,
no monotonous reiteration in the work, and the reader is not burdened
with the presence of a cumbersome logical apparatus. All is elegantly
simple. Neither is there the slightest suggestion of the cynic. Rather
a passion of genuinely human sympathy, occasionally bordering upon
eloquence, breathes through the pages. Thanks to rare qualities such as
these we can still feel something of the original freshness of this old

In addition to this, Smith has been successful in borrowing from his
predecessors all their more important ideas and welding them into a
more general system. He superseded them because he rendered their work
useless. A true social and economic philosophy was substituted for
their fragmentary studies, and an entirely new value given to their
contributions. Taken out of their isolation, they help to illustrate his
general theory, becoming themselves illuminated in the process.

Like most great writers, Smith knows how to borrow without impairing
his originality. Over a hundred authors are quoted in his book, but
he does not always acknowledge them. The names of some of the writers
who exercised such influence over him, and opened up the path which he
afterwards followed, deserve more than a passing reference.

The first place among these belongs, perhaps, to Hutcheson, Smith’s
predecessor in the chair of Moral Philosophy at Glasgow. The divisions
of the subject are almost identical with those given by Hutcheson, and
many of Smith’s best known theories can be traced in the _System of Moral
Philosophy_ published by Hutcheson in 1755, but which we know was written
long before. Hutcheson laid great stress upon the supreme importance of
division of labour, and his views on such questions as the origin and
variations in the value of money and the possibility of corn or labour
affording a more stable standard of value closely resemble those of the
_Wealth of Nations_.

David Hume is a near second. Smith refers to him as “by far the most
illustrious philosopher and historian of the present age,”[127] and
from 1752 onward they were the closest of friends. Hume was already the
author of some essays on economic questions, the most important among
them dealing with money, foreign trade, the rate of interest, etc. These,
along with several other writings, were published in the _Political
Discourses_ in 1752. Hume’s examination of these problems displays his
original penetrative thought, and there is evident the profundity and
lucidity of treatment characteristic of all his writings. The absurdity
of the Mercantile policy and of interfering with the natural tendency
of money to adapt itself to the needs of each community, the sophistry
of the balance of trade theory, and the impious consequences resulting
from commercial jealousy among nations are exposed with admirable force
in these essays. No doubt the essays left a great impression upon Smith.
He quoted them in his lectures at Glasgow, and Hume consulted him before
bringing out a second edition. It is true that Smith eventually became
the stauncher Liberal of the two. Hume, in his essay on the _Balance of
Trade_, recognized the legitimacy of certain protective rights which
Smith wished removed altogether. Still it was to Hume that Smith owed his
conversion to the Liberal faith.

On this matter of commercial liberty there was already, towards the
end of the seventeenth and the beginning of the eighteenth centuries,
a small but a growing band of Mercantilists who had begun to protest
against the irksomeness of the Customs regulations. They were, of course,
still largely imbued with mercantile prejudice, but they are rightly
classed as “Liberals.” Just as in France Boisguillebert had foreshadowed
the Physiocrats, so in England Child, Petty, Tucker, Dudley North, and
Gregory King had been preparing the way for a more liberal policy in
foreign trade.[128]

In addition to Hutcheson and Hume one other writer must be mentioned in
this connection, namely, Bernard de Mandeville. He was not an economist
at all, but a doctor with considerable philosophical interests. In 1704
he had published a small poem, which, along with a number of additions,
was republished in 1714 under the title of _The Fable of the Bees; or,
Private Vices Public Benefits_. The fundamental idea of the book, which
caused quite a sensation at the time, and which was seized by order of
the Government, is that civilisation—understanding by that term not only
wealth, but also the arts and sciences—is the outcome, not of the virtues
of mankind, but of what Mandeville calls its vices; in other words, that
the desire for well-being, comfort, luxury, and all the pleasures of life
arises from our natural wants. The book was a sort of apology for the
natural man and a criticism of the virtuous.

Smith criticised Mandeville in his _Theory of Moral Sentiments_,[129]
and reproached him particularly for referring to tastes and desires as
vices though in themselves they were nowise blameworthy. But despite his
criticism Mandeville’s idea bore fruit in Smith’s mind. Smith in his turn
was to reiterate the belief that it was personal interest (in his opinion
no vice, but an inferior virtue) that unwittingly led society in the
paths of well-being and prosperity. A nation’s wealth for Smith as well
as for Mandeville is the result, if not of a vice, at least of a natural
instinct which is not itself virtuous, but which is bestowed upon us by
Providence for the realisation of ends that lie beyond our farthest ken.

Such are the principal writers in whose works we may find an outline of
some of the more important ideas which Smith was to incorporate in a true

Mere systematisation, however, would not have given the _Wealth of
Nations_ its unique position. Prior to Smith’s time attempts had been
made by Quesnay and the Physiocrats to outline the scope of the science
and to link its various portions together by means of a few general
principles. Although he was not the first to produce a connected
scientific treatise out of this material, he had a much greater measure
of success than any of his predecessors.

Smith owed much to the Physiocrats, but he had little personal
acquaintance with them beyond that afforded by his brief stay in Paris
in 1765. Slight as the intimacy was, however, there is no doubt about
the influence they had upon him. It is also very improbable that he had
read all their works: Turgot’s _Réflexions_, for example, written in
1766, but only published in 1769-70, was probably not known to him. But
frequent personal converse with both Turgot and Quesnay had helped him
in acquiring precise first-hand knowledge of their views. We can easily
guess which ideas would attract him most.

On one point at least he had no need to be enlightened, for in the matter
of economic liberalism he had long been known as a doughty champion. But
the ardent faith of the Physiocrats must have strengthened his own belief
very considerably.

On the other hand, it appears that he borrowed from the Physiocrats the
important idea concerning the distribution of the annual revenue between
the various classes in the nation. In his lectures at Glasgow he scarcely
mentions anything except production, but in the _Wealth of Nations_ an
important place is given to distribution. The difference can hardly be
explained except upon the hypothesis of Smith’s growing acquaintance with
the _Tableau économique_ and the theory of the “net product.”

But admitting that he borrowed what was most characteristic and most
suggestive in their teaching, his treatment of its many complicated
aspects is altogether superior to theirs. The Physiocrats were so
impressed by the importance of agriculture that they utterly failed to
see the problem in its true perspective. They scanned the field through
a crevice, and their vision was consequently narrow and limited. Smith,
on the other hand, took the whole field of economic activity as his
province, and surveyed the ground from an eminence where the view was
clearest and most extensive.

The economic world he regarded as a vast workshop created by division
of labour, one universal psychological principle—the desire of everyone
to better his lot—supplying unity to its diverse phenomena. Political
economy was at last to be based, not on the interests of a particular
class, whether manufacturing or agricultural, but upon a consideration
of the general interest of the whole community. Such are the directing
principles that inspire the whole work, the guiding lines amidst what
had hitherto seemed a mere chaos of economic facts. Contemporaries
never counted upon the difficulties which the new science was bound to
encounter, so great was their enthusiasm at having a fixed standpoint
from which for the first time the complex interests of agriculture,
industry, and commerce might be impartially surveyed. With Smith the
study emerged from the “system” stage and became a science.

Our examination of Smith’s views will be grouped around three points:

(I) Division of labour.

(II) The “natural” organisation of the economic world under the influence
of personal interest.

(III) Liberalism.


It was Quesnay who had propounded the theory that agriculture was the
source of all wealth, both the State’s and the individual’s.[130] Adam
Smith seized upon the phrase and sought to disprove it in his opening
sentence by giving to wealth its true origin in the general activity of
society. “The annual labour of every nation is the fund which originally
supplies it with all the necessaries and conveniences of life which it
annually consumes, and which consist always either in the immediate
produce of that labour or in what is purchased with that produce from
other nations.”

Labour is the true source of wealth. When Smith propounded this
celebrated theory, which has given rise to so many misunderstandings
since, it was not intended that it should minimise the importance
of natural forces or depreciate the part which capital plays in
production.[131] No one, except perhaps J. B. Say, has been more
persistent in emphasising the importance of capital, and to the land, as
we shall presently see, he attributed a special degree of productivity.
But from the very outset Smith was anxious to emphasise the distinction
between his doctrine and that of the Physiocrats. So he definitely
affirms that it is human activity and not natural forces which produces
the mass of commodities consumed every year. Without the former’s
directing energy the latter would for ever remain useless and fruitless.

He is not slow to draw inferences from this doctrine. Work, employed in
the widest sense, and not nature, is the parent of wealth—not the work
of a single class like the agriculturists, but the work of all classes.
Hence all work has a claim to be regarded as productive. The nation’s
annual income owes something to everyone who toils. It is the result
of their collaboration, of their “co-operation” as he calls it. There
is no longer any need for the distinction between the sterile and the
productive classes, for only the idle are sterile.

A nation is just a vast workshop, where the labour of each, however
diverse in character, adds to the wealth of all. The passage in which
Adam Smith expresses this idea is well known, but no apology is needed
for quoting it once again.[132] “What a variety of labour too is
necessary in order to produce the tools of the meanest of those workmen!
To say nothing of such complicated machines as the ship of the sailor,
the mill of the fuller, or even the loom of the weaver, let us consider
only what a variety of labour is requisite in order to form that very
simple machine, the shears with which the shepherd clips the wool. The
miner, the builder of the furnace for smelting the ore, the feller
of the timber, the burner of the charcoal to be made use of in the
smelting-house, the brick-maker, the brick-layer, the workmen who attend
the furnace, the mill-wright, the forger, the smith, must all of them
join their different arts in order to produce them. Were we to examine,
in the same manner, all the different parts of his dress and household
furniture, the coarse linen shirt which he wears next his skin, the shoes
which cover his feet, the bed which he lies on, and all the different
parts which compose it, the kitchen-grate at which he prepares his
victuals, the coals which he makes use of for that purpose, dug from the
bowels of the earth, and brought to him perhaps by a long sea and a long
land carriage, all the other utensils of his kitchen, all the furniture
of his table, the knives and forks, the earthen or pewter plates upon
which he serves up and divides his victuals, the different hands employed
in preparing his bread and his beer, the glass window which lets in
the heat and the light, and keeps out the wind and the rain, with all
the knowledge and art requisite for preparing that beautiful and happy
invention, without which these northern parts of the world could scarce
have afforded a very comfortable habitation, together with the tools
of all the different workmen employed in producing those different
conveniencies; if we examine, I say, all these things, and consider what
a variety of labour is employed about each of them, we shall be sensible
that without the assistance and co-operation of many thousands, the
very meanest person in a civilized country could not be provided, even
according to, what we very falsely imagine, the easy and simple manner in
which he is commonly accommodated.”

Division of labour is simply the spontaneous realisation of a particular
form of this social co-operation. Smith’s peculiar merit lies in placing
this fact in its true position as the basis of his whole work. The book
opens upon this note, whose economic and social importance has been so
frequently emphasised since that it sounds almost commonplace to-day.

This division of labour effects an easy and natural combination of
economic efforts for the creation of the national dividend. Whereas
animals confine themselves to the direct satisfaction of their individual
needs,[133] men produce commodities to exchange them for others more
immediately desired. Hence there results for the community an enormous
increase of wealth; and division of labour, by establishing the
co-operation of all for the satisfaction of the desires of each, becomes
the true source of progress and of well-being.

In order to illustrate the growth in total production as the outcome of
division of labour, Smith gives an example of its effects in a particular
industry. “The effects of the division of labour, in the general business
of society, will be more easily understood by considering in what manner
it operates in some particular manufactures.” It is in this connection
that he introduces his celebrated description of the manufacture of
pins. “A workman not educated to this business (which the division of
labour has rendered a distinct trade), nor acquainted with the use of the
machinery employed in it (to the invention of which the same division
of labour has probably given occasion), could scarce, perhaps, with his
utmost industry, make one pin in a day, and certainly could not make
twenty. But in the way in which this business is now carried on, not
only the whole work is a peculiar trade, but it is divided into a number
of branches, of which the greater part are likewise peculiar trades.
One man draws out the wire, another straights it, a third cuts it, a
fourth points it, a fifth grinds it at the top for receiving the head;
to make the head requires two or three distinct operations; to put it
on, is a peculiar business, to whiten the pins is another; it is even a
trade by itself to put them into the paper; and the important business
of making a pin is, in this manner, divided into about eighteen distinct
operations, which, in some manufactories, are all performed by distinct
hands, though in others the same man will sometimes perform two or three
of them. I have seen a small manufactory of this kind where ten men only
were employed, and where some of them consequently performed two or three
distinct operations. But though they were very poor, and therefore but
indifferently accommodated with the necessary machinery, they could, when
they exerted themselves, make among them about twelve pounds of pins in a

Such is the picture of man as we find him in society. Division of labour
and exchange have resulted in augmenting production a hundredfold, and
thus increasing his well-being, whereas left to himself he could scarcely
supply his most urgent needs.

In a subsequent analysis Smith ascribes the gain resulting from division
of labour to three principal causes: (1) The greater dexterity acquired
by each workman when confined to one particular task; (2) the economy of
time achieved in avoiding constant change of occupation; (3) the number
of inventions and improvements which suggest themselves to men absorbed
in one kind of work.

Criticism has been levelled at Smith for his omission to mention the
disadvantages of division of labour which might possibly counterbalance
its many advantages. The omission is the result of his method of
treating the whole question, and it is not of much real importance.
The disadvantages, moreover, were not altogether lost sight of, and it
would be difficult to find a more eloquent plea for some counteracting
influence than that which Smith puts forward in the fifth book of the
_Wealth of Nations_. “In the progress of the division of labour,” he
remarks, “the employment of the far greater part of those who live by
labour, that is, of the great body of the people, comes to be confined
to a few very simple operations; frequently to one or two.” But “the man
whose whole life is spent in performing a few simple operations, of which
the effects too are, perhaps, always the same, or very nearly the same,
has no occasion to exert his understanding, or to exercise his invention
in finding out expedients for removing difficulties which never occur.
He naturally loses, therefore, the habit of such exertion, and generally
becomes as stupid and ignorant as it is possible for a human creature to

This passage seems in contradiction with the ideas expressed above.
At one moment constant application to one particular kind of work is
regarded as the mother of invention, at another the unremitting task
is branded as a fertile cause of stupefaction. The contradiction is,
however, more apparent than real. An occupation at first stimulating to
the imagination may, if constantly pursued, result in mental torpor.
Smith’s conclusions are at any rate interesting. In order to remove the
inconveniences resulting from over-specialisation he emphasises the need
for bringing within reach of the people, even of imposing upon them, a
system of education consisting of the three R’s[136]—such education to
be supplied through institutions partly supported by the State. We can
imagine the shock which such heterodoxy must have given to the prophets
of _laissez-faire_. Fortunately it was not the only one they had to bear.

Smith next proceeds to indicate the limits of this division of labour. Of
such limits he mentions two: (1) In the first place it must be limited by
the extent of the market. “When the market is very small, no person can
have any encouragement to dedicate himself entirely to one employment,
for want of the power to exchange all that surplus part of the produce
of his own labour, which is over and above his own consumption, for such
parts of the produce of other men’s labour as he has occasion for.”[137]
This is why foreign trade, including trade with the colonies, by
extending the market for some products is favourable to further division
of labour and a further increase of wealth. (2) The other consideration
which, according to Smith, limits division of labour is the quantity
of capital available.[138] The significance of this observation is not
quite so obvious as that of the former one. Here it seems to us that a
conclusion drawn from one particular trade has been applied to industry
as a whole. It may be true of a private manufacturer that he will be
able to push technical division of labour further than any of his rivals
provided he has more capital than they; but taking society as a whole
it is clear that the existence of division of labour enables the same
product to be produced with less capital than is necessary for the single

Such is an outline of Adam Smith’s theory of division of labour—a theory
so familiar to everyone to-day that we are often unable to realise its
importance and to appreciate its originality, and this despite the fact
that certain sociologists like Durkheim have hailed it as supplying the
basis of a new ethic. Juxtaposed with the Physiocratic theory, it is not
very difficult to realise its superiority.

To the Physiocrats the economic world was a hierarchy of classes. The
agriculturist in some mysterious way bore the “whole weary weight of
this unintelligible world” upon his own shoulders, giving to the other
classes a modicum of that sustenance which he had wrested from the soil.
Hence the fundamental importance of the agricultural classes and the
necessity for making the whole economic system subordinate to them. Adam
Smith, on the other hand, attempted to get a view of production as a
whole. He regarded it as the result of a series of joint undertakings
engineered by the various sections of society and linked together by the
tie of exchange. The progress of each section is bound up with that of
every other. To none of these classes is entrusted the task of keeping
all the others alive; all are equally indispensable. The artisan who
spares the labourer the task of building his house or of making his shoes
contributes to the accumulation of agricultural products just as much as
the ploughman who frees the artisan from turning the furrow or sowing
the seed. The progress of national wealth cannot be measured in terms of
a single net product; it must be estimated by the increase in the whole
mass of commodities placed at the disposal of consumers.

One very evident practical conclusion follows; namely, that taxation
should fall, not upon one class, as the Physiocrats wished, but upon all
classes alike. As against the _impôt unique_, Smith advocates multiple
taxation which shall strike every source of revenue equally, labour and
capital as well as land; and the fundamental rule which he lays down is
as follows: “The subjects of every State ought to contribute towards
the support of the Government, as nearly as possible, in proportion to
their respective abilities; that is, in proportion to the revenue which
they respectively enjoy under the protection of the State.”[140] This
is his famous maxim of equality so frequently quoted in every financial

It is very curious that Smith should have failed to make the best
possible use of this theory. Its full significance was lost upon him.
The theory of division of labour alone was sufficient to dispose of the
whole Physiocratic system. Nevertheless, in the last chapter of Book IV
we find him still valiantly struggling to disprove the conclusions of
the Physiocrats, by the aid of arguments not always very convincing.
Forgetting his principle of division of labour, he even adopts a part
of their thesis and finds himself entangled by the invalid distinctions
which they had drawn between productive and unproductive workers. He
simply gives another definition and describes as unproductive all works
which “perish in the very instant of their performance, and seldom leave
any trace or value behind them for which an equal quantity of service
could afterwards be procured.”[142] All these services, which comprise
the labours of domestic servants, of administrators and magistrates,
of soldiers and priests, of counsellors, doctors, artists, authors,
musicians, etc., Say classed together as “immaterial products.” By
restricting the term “productive” to material objects only, Smith gave
rise to a very useless controversy on the nature of productive and
unproductive works—a controversy that was first taken up by Say and
revived by Mill, but which to-day seems to be decided against Smith,
thanks to a more exact interpretation of his own doctrines. It is,
indeed, quite clear that all these services constitute a part of the
annual revenue of the nation, and that “production” in a general sense
would be diminished if some persons did not exclusively devote themselves
to the performance of such tasks.

After criticising the Physiocratic distinction drawn between the
wage-earning classes and the productive, Smith immediately admits that
the labour of artisans and traders is not as productive as that of
farmers and agricultural labourers, for the latter not only return the
capital employed by them together with profits, but they also furnish the
proprietor with rent.[143]

Whence this hesitation on the part of Smith? Where did he come by the
idea of the special and superior productivity of agriculture? An attempt
to account for it may prove interesting, and it will help us to give
Smith his true place in a history of economic doctrines.

Notwithstanding his recantation, Smith was never quite rid of
Physiocratic influence. Writing of the Physiocratic system, he described
it as perhaps “the nearest approximation to the truth that has yet been
published.”[144] So indelible was the impression which the Physiocrats
left upon him that both they and their doctrines, even when the latter
are directly opposed to his own, are always spoken of with the greatest
respect. The most important evidence of their power over him is the
thesis just mentioned which he attempted to defend, namely, that between
agriculture and other industries lies an essential distinction, because
in industry and commerce the forces of nature are never brought into
play, whereas in agriculture they always collaborate with man. “No
equal quantity of productive labour employed in manufactures can ever
occasion so great a reproduction. In them nature does nothing; man does
all; and the reproduction must always be in proportion to the strength
of the agents that occasion it.”[145] We almost think we are dreaming
when we read such things in the work of a great economist. Water, wind,
electricity, and steam, are they not natural forces, and do they not
co-operate with man in his task of production?

Considerations such as these were allowed to pass quite unheeded, and
Smith persisted in his error because he believed that this new doctrine
furnished him with an explanation of rent, that strange enigma which
had puzzled English economists for so long. How was it that while other
branches of production gave a return only sufficient to remunerate
the capital and labour employed, agriculture, in addition to these
two revenues, yielded a supplementary income known as rent? It was
because “in agriculture nature labours along with man: and though her
labour costs no expence, its produce has its value as well as that
of the most expensive workman.” Thus “rent may be considered as the
produce of those powers of nature, the use of which the landlord lends
to the farmer.”[146] Had Smith arrived at a true theory of rent this
recourse to the natural powers of the soil to furnish an explanation
of the proprietor’s revenue would have been quite unnecessary, and in
all probability he would not have so easily accepted the idea of the
special productivity of the soil. But this false conception of nature
has persisted in economic theory, and in it Smith thought he saw an
additional reason for adhering to those errors which the Physiocrats had
first induced him to commit.[147]

Apart from his personal attachment to the Physiocrats we must also
remember that Smith more than shared their predilection for agriculture.

Nothing can be more incorrect, though it is frequently done, than to
regard Smith as the prophet of industrialism and to contrast him with
the Physiocrats, the champions of agriculture. When the _Wealth of
Nations_ appeared in 1776 the economic transformation known to history
as the Industrial Revolution, which consisted in the rapid substitution
of machine production for the old domestic _régime_, had as yet
scarcely begun. Hargreaves and Arkwright had doubtless some inventions
to their credit. The one had produced the spinning jenny in 1765, and
the other had perfected the water frame in 1767, improvements that had
given considerable impetus to the cotton trade. James Watt,[148] who
was known to Smith, took out a patent for a steam-engine in 1769. But
these inventions were as yet quite novel, and required time before they
could modify the industrial system. The more important among them,
Crompton’s “mule”[149] and Cartwright’s weaving machine, were as yet of
the future. These dates are significant; they prove conclusively that
the Industrial Revolution had scarcely begun when Smith’s great work
appeared. Moreover, several of the more important themes treated of in
the _Wealth of Nations_ may be discovered in the course of lectures which
Smith delivered at Glasgow about 1759, so that it is quite impossible
to establish anything like an exact connection between the Industrial
Revolution which was just beginning and the ideas embodied in the _Wealth
of Nations_. One cannot even say that Smith was particularly enamoured
of the manufacturing _régime_—apart from the mechanical advance which
it implied. For, as Marx says,[150] the characteristic trait of English
economic life, despite the undisputed advance that industry was making
at that time, was commercial rather than industrial.[151] Especially was
this true of Glasgow, where Smith made most of his observations. Glasgow
then was an essentially commercial town, principally engaged in the
importation of American tobacco.[152]

Far from constituting a prophetic manifesto of the new age, Smith’s
work reveals even to the most superficial reader a thorough abhorrence
of traders and manufacturers. All his sarcasm is reserved for them, all
his criticism levelled at them. While the interest of landed proprietors
and workers appears to him always to accord with a country’s general
interest, that of traders and manufacturers “is never exactly the same
with that of the public,” the manufacturers having “generally an interest
to deceive and even to oppress the public, and who accordingly have, upon
many occasions, both deceived and oppressed it.”[153]

Again, when it comes to choosing between capitalists and workmen the
issue is not long in doubt. It is quite clear from more than one
passage that Smith’s sympathy was wholly with the workers. Several
paragraphs could be cited in proof of this. Suffice it to recall the
very sympathetic way in which he speaks of the high wages of workmen
and contrast it with his discussion of profits. “Is this improvement in
the circumstances of the lower ranks of the people to be regarded as
an advantage or as an inconveniency to the society? The answer seems
at first sight abundantly plain. Servants, labourers and workmen of
different kinds, make up the far greater part of every great political
society. But what improves the circumstances of the greater part can
never be regarded as an inconveniency to the whole. No society can
surely be flourishing and happy, of which the far greater part of the
members are poor and miserable. It is but equity, besides, that they
who feed, cloath, and lodge the whole body of the people, should have
such a share of the produce of their own labour as to be themselves
tolerably well fed, cloathed, and lodged.”[154] The tune changes when
he comes to speak of profits. He is of opinion that high profits raise
the price of commodities much more than high wages, and he dismisses the
consideration of the problem with this ironical remark: “Our merchants
and master-manufacturers complain much of the bad effects of high wages
in raising the price, and thereby lessening the sale of their goods
both at home and abroad. They say nothing concerning the bad effects of
high profits. They are silent with regard to the pernicious effects of
their own gains. They complain only of those of other people.”[155] The
contrast is significant. It is still more deeply marked in that phrase
which one is surprised not to see more frequently quoted by the champions
of labour legislation. “Whenever the legislature attempts to regulate the
differences between masters and their workmen, its counsellors are always
the masters. When the regulation, therefore, is in favour of the workmen,
it is always just and equitable; but it is sometimes otherwise when in
favour of the masters.”[156]

This is not the tone of most of his contemporaries. Nor do we meet with
this note in the writings of the appointed champions of the industrial
system—the MacCullochs, the Ures, and the Babbages of the next fifty
years. His words ring with that generous pity which proved a source of
inspiration to Lord Shaftesbury and Michael Sadler in their efforts to
secure the passing of the Factory Act of 1833.

Smith cannot, accordingly, be regarded as the herald of dawning
industrialism. He clung to agriculture with all the tenacity of his
nature, and no opportunity of showing his preference was ever missed.
The difficulties of agriculture are quite beyond those of any other
craft. “After what are called the fine arts, and the liberal professions,
however, there is perhaps no trade which requires so great a variety
of knowledge and experience.”[157] Not only is it more difficult, but
it is also more useful. Between agriculture, manufacture, and commerce
he draws a long comparison (to which we shall have to make reference
again) purporting to show that of all employments agriculture is the
most profitable field of investment, and the one most in accord with the
general interest. For the more progressive nations “the natural course
of things” would seem to suggest the investment of capital firstly in
agriculture, in the second place in industry, and finally in foreign
trade. The whole of Book III is an endeavour to show how the policy of
European nations had for many centuries been hostile to agriculture and
how the natural order had been inverted in the interests of merchants
and artisans. Agriculture had always been the victim. In his theory
of taxation he shows how a portion of the taxes on profits and wages
ultimately falls upon property. In his discussion of duties on imported
corn—those duties which aroused the indignation of Ricardo against the
landlords—he reveals the same partiality. And he even goes the length
of saying that it is not because of their personal interest, but owing
solely to a badly conceived imitation of the doings of merchants and
manufacturers, that “the country gentlemen and farmers of Great Britain
so far forgot the generosity which is natural to their station, as to
demand the exclusive privilege of supplying their countrymen with corn
and butchers’-meat.”[158]

Smith’s preference for agriculture and agriculturists need not be further
insisted upon. Despite his own theory of division of labour, he still
cherished a secret regard for the Physiocratic prejudice. He never
subjected agriculture to the indignity of equal treatment along with
other forms of economic activity. In his work at least it still retains
its ancient pre-eminence.


In addition to the conception of the economic world as a great natural
community created by division of labour, we can distinguish in Smith’s
work two other fundamental ideas, around which his more characteristic
theories group themselves. First is the idea of the spontaneous origin of
economic institutions, and secondly their beneficent character—or, more
briefly, Smith’s naturalism and optimism.

The two ideas, though frequently intermingled and sometimes even confused
in Smith’s work, must be carefully distinguished by the historian of
economic thought.

Spontaneity and beneficence were intimately connected for Smith. In
the eighteenth century anything natural or spontaneous was immediately
voted good, and the terms “natural,” “just,” and “advantageous” were
often used as synonymous. Smith did not escape the confusion of ideas.
Having shown the natural origin of economic institutions, he imagined
that at the same time he had demonstrated their useful and beneficent
character.[159] The confusion is no longer permissible. To give a
scientific demonstration of the origin of social institutions and to
gauge their value from the point of view of the general interest are
two equally legitimate but very different intellectual pursuits. We may
agree with Smith that our economic organisations, both in their origin
and functions, participate of the spontaneity of natural organisms,
but we may at the same time reserve judgment as to their real worth.
Pessimism no less than optimism may be engendered by contemplation of the
spontaneous character of economic institutions. While this conception
of the spontaneity of economic institutions seems to us just and
fruitful, the demonstration given of their beneficent character appears
insufficient and doubtful. The former conception is a commonplace with
all the greatest economists; the latter is rejected by the majority of

These two ideas which have played such an important part in the history
of economic doctrines must be separately examined.

The conception of spontaneity is the one to which Smith refers most
frequently. _Il mondo va da se._ Here at any rate he and the Physiocrats
were entirely at one. There is no need for organisation, no call for the
intervention of any general will, however far-seeing or reasonable, and
no necessity for any preliminary understanding between men. Such are the
reflections that the study of the economic world suggests ever anew to
our author. The present aspect of the economic world is the result of the
spontaneous action of millions of individuals, each of whom follows his
own sweet will, taking no heed of others, but never doubting the ultimate
result. The noble outlines of the economic world as we know it have been
traced, not by following a plan issuing complete from the brain of an
organiser and deliberately carried out by an intelligent society, but by
the accumulation of numberless deeds designed by a crowd of individuals
in obedience to an instinctive force wholly unconscious of the work which
it was encompassing.

This idea of the spontaneous constitution of the economic world is in
some aspects analogous to the conception of an “economic law” of a
later period. Both ideas suggest the presence of something superior to
individual wills, and imposed upon them even despite their resistance.
The differences are equally marked, however, the scope of the former
being far greater than that of the latter. The words “natural law,”
in the first place, suggest regularity and repetition—the constant
recurrence of the same phenomena under similar conditions. This is not
the aspect that particularly struck Smith. He insists less upon the
constancy of economic phenomena and more on their spontaneity, their
instinctive and natural character. Say’s delight was to compare the
economic and the physical worlds. Smith loves to regard the economic
world as a living organism which creates for itself its own indispensable
organs. Nowhere is the term “economic law” employed, but his delineation
of the chief economic institutions and the account of their functions
always results in the same conclusion.

First of all take division of labour, which we have just studied, and
which more than any other institution contributes to the increase of

This marvellous institution is “not originally the effect of any human
wisdom, which foresees and intends that general opulence to which it
gives occasion.” “It is the necessary, though very slow and gradual,
consequence of a certain propensity in human nature which has in view no
such extensive utility; the propensity to truck, barter, and exchange one
thing for another.”[160] This tendency itself is the outcome of personal
interest. “Man has almost constant occasion for the help of his brethren,
and it is in vain for him to expect it from their benevolence only. He
will be more likely to prevail if he can interest their self-love in his
favour, and show them that it is for their advantage to do for him what
he requires of them. Whoever offers to another a bargain of any kind,
proposes to do this: Give me that which I want, and you shall have this
which you want, is the meaning of every such offer; and it is in this
manner that we obtain from one another the far greater part of those
good offices which we stand in need of. It is not from the benevolence
of the butcher, the brewer, or the baker that we expect our dinner,
but from their regard to their own interest. We address ourselves, not
to their humanity, but to their self-love, and never talk to them of
our own necessities, but of their advantages.”[161] This gives rise to
exchange, and with exchange comes division of labour. “And thus the
certainty of being able to exchange all that surplus part of the produce
of his own labour, which is over and above his own consumption, for such
parts of the produce of other men’s labour as he may have occasion for,
encourages every man to apply himself to a particular occupation, and
to cultivate and bring to perfection whatever talent or genius he may
possess for that particular species of business.” Division of labour is
the outcome of a tendency common to all men, the tendency to barter; and
this tendency itself is spontaneously developed under the influence of
personal interest, which acts simultaneously for the benefit of each and

Next comes money, and nothing has so facilitated exchange or so greatly
increased wealth. Every economic treatise since Smith’s has demonstrated
its advantages in terms almost identical with his. But how did money
first come to be employed? It was not by the act of a public body, nor
was it the outcome of a nation’s reflective judgment. It is simply the
result of the operation of a collective instinct. Some men who were
keener than others saw the inconveniences of the truck system. And “in
order to avoid the inconveniency of such situations, every prudent man in
every period of society, after the first establishment of the division
of labour, must naturally have endeavoured to manage his affairs in such
a manner, as to have at all times by him, besides the peculiar produce
of his own industry, a certain quantity of some one commodity or other,
such as he imagined few people would be likely to refuse in exchange
for the produce of their industry.”[162] Money is thus the product
of the simultaneous though not concerted action of a great number of
people, each obeying his personal inclination. The intervention of the
public authority is much later, and its object is merely to guarantee by
means of a design the weight and purity of such coins as are already in

Take another well-known phenomenon—capital.[163] With the exception of
division of labour and the invention of money, Smith thought there was no
phenomenon of greater importance and no more essential fount of national
wealth than capital. The larger the store of capital, the greater
the number of productive workers, makers of tools and machinery—the
essentials of increased productivity—the further will division of labour
extend. To increase a nation’s capital is to expand its industry and
to further its well-being.[164] In some passages the growth of wealth
appears not merely as the chief but as the only method of augmenting
a nation’s wealth. “The industry of the society can augment only in
proportion as its capital augments, and its capital can augment only in
proportion to what can be gradually saved out of its revenue.”[165] In
short, capital limits industry,[166] a phrase that was destined to become
classic, and one that was repeated by every economist down to Mill.
Capital is the true source of economic life. Let capital increase and
industry will expand in every direction; diminish it and a bar is set to
all improvement. Capital fertilises the earth, whereas the labour of man
simply leaves it a weary waste.

Criticism has been freely levelled at this extravagant importance
which capital is made to assume. It is certainly somewhat curious that
labour should now be treated as altogether subordinate to capital,
whereas earlier in the volume labour alone was regarded as the great
wealth-producing agent. But we are not here concerned with the revival
of these threadbare controversies.[167] We merely wish to note that Smith
finds in this accumulation of capital a new illustration of spontaneity.
The saving of capital is not the result of any foresight on the part of
society, but is solely due to the simultaneous and concurrent actions
of thousands of individuals. These individuals, urged on by a desire to
better their situation, are spontaneously urged to save their earnings
and to employ those savings productively.

“The principle which prompts to save, is the desire of bettering our
condition, a desire which, though generally calm and dispassionate, comes
with us from the womb, and never leaves us till we go into the grave.…
An augmentation of fortune is the means by which the greater part of men
propose and wish to better their condition. It is the means the most
vulgar and the most obvious; and the most likely way of augmenting their
fortune, is to save and accumulate some part of what they acquire.” This
desire is so powerful that even the greatest follies perpetrated by
Governments have never succeeded in annulling its beneficial effects.
“The uniform, constant, and uninterrupted effort of every man to better
his condition, the principle from which public and national as well as
private opulence is originally derived, is frequently powerful enough
to maintain the natural progress of things toward improvement, in spite
both of the extravagance of government, and of the greatest errors of
administration. Like the unknown principle of animal life, it frequently
restores health and vigour to the constitution, in spite, not only of the
disease, but of the absurd prescriptions of the doctor.”[168]

But the idea of the spontaneity of economic institutions finds its most
interesting illustration in the theory of demand and supply, upon which
we must dwell a little.

In a society based upon division of labour, where everyone produces for
a market without any previous arrangement with his fellow producers and
without any external direction, the great difficulty lies in adapting
the amount of goods supplied to the amount demanded. How, as a matter
of fact, are these producers to know at any particular moment what they
ought to produce and in what quantities? Moreover, who is to direct
and who can restrain them? It is true that Smith was careful to point
out that they are not concerned with the satisfaction of all needs, of
whatever kind they may be. Their duty lies towards what he calls the
“effectual,” not the “absolute,” demand. By effectual demand we are to
understand the demand of those who are capable of offering not merely
something in exchange for the products which they desire, but of offering
at least enough to cover the expenses of raising those products.[169]
Society founded upon division of labour and exchange implies that nothing
can be gratuitous and every loss involves a sacrifice on the part of
some person or other.[170] But if production is carried on in this
haphazard fashion how are we to avoid an occasional over-production or an
accidental under-supply?

Before we can understand this we must acquaint ourselves with Adam
Smith’s theory of prices.

In the preceding chapter we had occasion to note how Condillac in 1776
put forward a theory of value which was altogether superior to the
Physiocrats’. Smith’s book, also published in 1776, betrays not the least
sign of Condillac’s influence, and the new theory never comes up for
discussion. The very success of the _Wealth of Nations_ had eclipsed the
fame of the French philosopher, and Smith’s theory, though quite inferior
to Condillac’s, held the field for so many years simply because it won
the allegiance of the English economists, whose influence was paramount
throughout the first half of the nineteenth century. Its popularity only
waned with the publication of the works of Walras, Jevons, and Menger.
Its historic interest is further enhanced by the fact that it had the
singular good fortune to win the approval both of the socialists and the
Liberal economists. It is the fate of writers like Smith, remarkable
for wealth of ideas rather than for logical presentation, to impel
minds along different and sometimes even opposite paths. Unfortunately
the theory of value is not the only one that presents a somewhat hazy
outline. We cannot here enter into the details of the theory, but must
content ourselves with a mere sketch of it. Even this, however, will
immediately enable us to understand its insufficiency, and appreciate the
twofold influence which it exercised upon subsequent doctrines.

Smith opens his treatment by emphasising the fundamental distinction
which exists between “value in use” and “value in exchange.”[171] By
value in use he means almost[172] exactly what we understand by utility,
or what other writers call subjective value, desirability, or ophelimity.

Present-day economists when treating of prices—the exchange value
of things—chiefly rely upon this conception of “value in use.” The
explanation of the “ratio of exchange” of commodities is based upon a
previous analysis of their utility for those who exchange them. Smith
proceeds in a different fashion. “Value in use” is mentioned, but only
for the purpose of contrasting it with value in exchange. It is then
dismissed without further consideration. The two notions seem to have
no point of contact. Value in exchange was the only one that was of any
interest to Smith; hence there was all the more reason for denying its
derivative character.[173]

Thus from the very first the only avenue that might have led to a
satisfactory solution of this problem of prices was closed. One could
easily have predicted that this was bound to land Smith in difficulty; as
a matter of fact he is doubly involved.[174] Two different but equally
erroneous solutions have been successively adopted by him, but he has
never actually decided between them. The socialists and economists who
are to follow will be engaged in the same task, and the cleavage between
them will be marked by their adoption of one or other of these two

Smith was led to the study of prices because he wished to know something
of the constant oscillation which is such a feature of their history. The
actual or market price is unstable because of the unstable connection
between demand and supply,[175] or, as he puts it, “It is adjusted,
however, not by any accurate measure, but by the higgling and bargaining
of the market, according to that sort of rough equality which, though not
exact, is sufficient for carrying on the business of common life.”[176]
It seemed impossible that their perpetual fluctuation should represent
the true value of the commodity. Its real value could not vary from
this moment to the next or from one place to another. Underneath the
constantly oscillating market price may be discerned another price,
referred to by Smith as the real or sometimes as the natural price.
The discovery of a more stable and a more constant element beneath the
continual fluctuations of price movements still constitutes the great
problem of pure economics.[177]

Smith’s first theory makes the true value of any commodity depend
upon the amount of labour or effort it has taken to produce. “Labour,
therefore, is the real measure of the exchangeable value of all
commodities.” “The real price of every thing, what every thing really
costs to the man who wants to acquire it, is the toil and trouble
of acquiring it.”[178] Labour—that is, the effort expended upon the
production of a commodity—is both the origin and the measure of its
exchange value. The theory that labour or effort is the cause of value
(if value can be said to have a cause) was first formulated by the father
of political economy himself. It is curious to think that it was this
same theory that was used with such good effect by Karl Marx in his
attack upon capitalism.

This first attempt to find a firmer foundation for exchange value than
that afforded by the shifting sands of demand and supply was scarcely
made before Smith became aware of some difficulties in the path. For
example, how was this work and the value dependent upon it to be
measured? “There may be more labour in an hour’s hard work than in two
hours’ easy business; or in an hour’s application to a trade which
it cost ten years’ labour to learn, than in a month’s industry at an
ordinary and obvious employment. But it is not easy to find any accurate
measure either of hardship or ingenuity.”[179] A second objection arises
when the theory is applied to civilized society. Work by itself cannot
produce anything; something must be contributed by both land and capital.
But neither of these is a free good, and they must cost something to
those who employ them. Accordingly primitive societies[180] are the only
ones where “the quantity of labour commonly employed in acquiring or
producing any commodity is the only circumstance determining its value.”
We must nowadays take some account of land and capital. So that labour
is not the only source of value, nor is it its sole measure.

Another hypothesis becomes necessary forthwith. This time cost of
production is hit upon as the likely regulator of value. Hitherto the
“real” price has signified the price that is based upon labour. Now the
“natural” price is defined as the price of goods valued at their cost
of production. The change of name is not of any great significance.
What Smith was in search of on both occasions was that true value which
always kept in hiding behind the fluctuations of market prices. It is the
same problem, but with a new solution. Just now we were informed that
if a commodity sold at a price representing the labour which it cost to
produce, that price would also represent its real cost. With no less
assurance we are now told that a commodity sold at cost of production
“is then sold precisely for what it is worth, or for what it really
costs the person who brings it to market.”[181] The true value of goods
corresponds to their cost of production. By this we are to understand a
sum sufficient to pay at normal rates the wages of labour, the interest
of capital, and the rent of land, all of which have collaborated in the
production of the particular commodity.

Smith, having discarded labour, finds a new determinant of value in
cost of production, and if socialists rallied to his first hypothesis
the great majority of economists right up to Jevons have clung to his
second. As for Smith himself, he never had the courage to choose between
them. They remain juxtaposed in the _Wealth of Nations_ because he
never made up his mind which to adopt. As a result his work is full of
contradictions which it would be futile to try to reconcile. For example,
land and capital in one place are regarded as sources of new values,
adding to and increasing the value which labour creates, and producing
normally an element of profit and rent, which, together with the wages of
labour, makes up the cost of production. In another connection they are
treated as deductions made by capitalists and landlords from the value
created by labour alone.[182] Some writers accordingly argue that Smith
must have been a socialist. On the whole the cost of production theory
prevailed, and the natural price of commodities is taken to mean that
price which coincides with their cost of production. As to market price,
he makes the remark that it is higher or lower than the natural price
according as the quantity offered diminishes or increases as compared
with the quantity demanded.

Such is Smith’s theory of prices. The element of truth which it contains,
namely, that the prices of goods tend to coincide with their cost of
production (the remark is not originally Smith’s at all), must not blind
us to its many faults. It is open to at least two very serious objections.

An attempt is made to explain the price of goods by referring to the
price of the services (wages, interest, and rent) which make up the
cost of production. When the cost of those services comes up for
consideration it is assumed that their cost is dependent upon the price
of the goods. Wages, for example, are determined by the selling price
of the commodities which labour has produced. Escape from the vicious
circle is only possible by availing ourselves of the modern theory
of economic equilibrium. That theory shows us how prices generally,
whether of goods or of services, are interdependent; all being determined
simultaneously—like the unknown in an algebraical formula—just when the
exchange is taking place. But this theory of economic equilibrium was, of
course, unknown to Smith.

Cost of production being the regulator of price, it is very important
that an analysis of cost of production and a study of the causes which
determine the rates of wages, profit, and rent should be made. One might
have expected that this study would have cleared away any obscurity
that still clung to the theory of prices. But this analysis is one of
the least satisfactory portions of Smith’s work. We have already had
occasion to note the unsatisfactory character of his theory of rent. That
of profits—which Smith fails to distinguish from interest—is equally
useless;[183] and his theory of wages is hopelessly inconsistent. He
hesitates between the subsistence theory of wages and the other theory
which makes them depend upon the relations between demand and supply,
without ever making a final choice.

We cannot agree with Say in considering Smith’s theory of distribution
one of his best claims to fame. His treatment of this problem, which
afterwards became the kernel of Ricardian economics, is altogether
inferior to his handling of production. We also know that this is the
least original part of his work. It was simply added as a kind of
afterthought, the original intention being to deal only with production.
This becomes evident if we compare the _Wealth of Nations_ with the
Glasgow course of 1763, the whole of which is devoted to production.
The addition of a theory of distribution to the original skeleton was
probably due to the Physiocrats, with whom in the meantime he had become
acquainted; and the hesitations and uncertainties which mar this part of
the work merely go to prove that Smith had not thought it out as clearly
as the other sections.

The subject cannot be pursued here. We can only point to the inference
which Smith draws from his theory of value, and how it is made to support
the contention that demand adapts itself spontaneously to the conditions
of supply. This is how Smith explains the continual oscillation of
prices: “When the quantity brought to market exceeds the effectual
demand, it cannot be all sold to those who are willing to pay the whole
value of the rent, wages and profit, which must be paid in order to
bring it thither. Some part must be sold to those who are willing to
pay less, and the low price which they give for it must reduce the price
of the whole. The market price will sink more or less below the natural
price according as the greatness of the excess increases more or less the
competition of the sellers, or according as it happens to be more or less
important to them to get immediately rid of the commodity.” The reverse
will happen when demand exceeds supply. “When the quantity brought to
market is just sufficient to supply the effectual demand and no more, the
market price naturally comes to be either exactly, or as nearly as can
be judged of, the same with the natural price. The whole quantity upon
hand can be disposed of for this price, and cannot be disposed of for
more. The competition of the different dealers obliges them all to accept
of this price, but does not oblige them to accept of less.” Thus “the
quantity of every commodity brought to market naturally suits itself to
the effectual demand.”[184]

And this very remarkable result is simply the outcome of personal
interest. “If at any time it exceeds the effectual demand, some of the
component parts of its price must be paid below their natural rate. If it
is rent, the interest of the landlords will immediately prompt them to
withdraw a part of their land; and if it is wages or profit, the interest
of the labourers in the one case, and of their employers in the other,
will prompt them to withdraw a part of their labour or stock from this
employment. The quantity brought to market will soon be no more than
sufficient to supply the effectual demand. All the different parts of its
price will rise to their natural rate, and the whole price to the natural

And so, in the majority of cases at least, this natural and spontaneous
mechanism secures a constant balancing of the quantities of goods
produced and the quantities effectively demanded. The circumstances under
which such a result does not follow are really quite exceptional—although
Smith does not deny that sometimes they do exist. Whenever such
conditions obtain—that is, when the market price remains for a
considerable length of time above the natural price—we find that it is
always due to the capitalists’ action in concealing the high rate of
profits which they draw, or in retaining possession of some patent or
natural monopoly, such as wine of a special quality. It occasionally
happens also as the result of an artificial monopoly.[185] But these are
mere exceptions, their rare occurrence confirming the fundamental rule
concerning the spontaneous adaptation of the quantity offered to the
quantity demanded, thanks to this oscillation of the market price about
the natural.

This theory of adaptation, we know, is one of the most important in the
whole of political economy. Since Smith wrote it has been reproduced by
almost every economist, and without any very substantial alteration. It
remains even to this day the basis of our theory of production.

It is interesting to note the manner in which Smith makes use of his
theory to illustrate his thesis. We shall refer to two cases which are
intrinsically important as well as affording admirable illustrations of
that spontaneity upon which Smith laid such stress.

The first concerns population. Population, like commodities, may be
superabundant or it may be insufficient. What regulates its numbers? “The
number of people,” Smith replies, “depends upon the demand of society,
and this is how it works. Among the proletariat, generally speaking,
children are plentiful enough. It is only when wages are very low that
poverty and misery cause the death of many of them; but when wages are
fairly high several of them manage to reach maturity.” “It deserves to be
remarked, too,” he continues, “that it necessarily does this as nearly as
possible in the proportion which the demand for labour requires. If this
demand is continually increasing, the reward of labour must necessarily
encourage in such a manner the marriage and multiplication of labourers
as may enable them to supply that continually increasing demand by a
continually increasing population. If the reward should at any time
be less than what was requisite for this purpose, the deficiency of
hands would soon raise it; and if it should at any time be more, their
excessive multiplication would soon lower it to this necessary rate. The
market would be so much under-stocked with labour in the one case, and
so much over-stocked in the other, as would soon force back its price
to that proper rate which the circumstances of the society required.
It is in this manner that the demand for men, like that for any other
commodity, necessarily regulates the production of men; quickens it when
it goes on too slowly, and stops it when it advances too fast.”[186]

The second case relates to the demand for money and its supply. We have
already seen how the problem of its origin is solved. Alongside of that
problem is now placed another, namely, how is the quantity in circulation
regulated to meet the requirements of exchange? Smith’s first task was
to expose the popular fallacy concerning this topic.[187] According
to one school of thinkers, money was wealth _par excellence_, and it
was all the more important that he should get rid of this view seeing
that it constituted the very foundation of the Mercantile theory, the
overthrow of which was the immediate object in publishing the _Wealth of
Nations_. The Mercantilists contended that a country should export more
than it imports, receiving the balance in money. If it can be proved that
this balance is useless because money is a mere commodity possessing
no greater and no less utility than any other, then the Mercantilist
foundation is completely destroyed. Smith thought that money was less
indispensable than some other goods, seeing that we are anxious to pass
it on as often as we can. The disdain with which Smith regarded money
was the result of a reaction against Mercantilism, and it led some of
his followers to over-emphasise his point of view and to misconceive
the special character of monetary phenomena. A nation’s true wealth
“consists,” Smith tells us, “not in its gold and silver only, but in
its lands, houses, and consumable goods of all different kinds.”[188]
“It is the annual produce of the land and labour of the society.”[189]
Hence in evaluating a country’s net revenue we must omit money because
it is not consumed. It only serves as an instrument for the circulation
of wealth and for the measurement of value. It is the “great wheel of
circulation.”[190] In virtue of this title, although Smith himself
classed money along with circulating capital, he remarks that it might be
likened to the fixed capital of an industry, to machinery or workshops.
The greater the economy in the use of fixed capital, provided there is
no diminution in production, the better, for the larger will be the
net product. This is equally true of money—a necessary but a very
costly instrument of social production. “Every saving in the expence of
collecting and supporting that part of the circulating capital which
consists in money is an improvement of exactly the same kind”[191] as
that which reduces the fixed capital of industry.[192]

This is why bank-notes—the circulation of which diminishes the quantity
of money needed—have proved such a precious invention. What they do is to
set free a certain quantity of gold and silver which may be sent abroad
to pay for machinery and other instruments of production, and which will
in turn increase the true revenue of the country. Smith’s parable in
which he illustrates these advantages, has long since become classic:
“The gold and silver money which circulates in any country may very
properly be compared to a highway, which, while it circulates and carries
to market all the grass and corn of the country, produces itself not a
single pile of either. The judicious operations of banking, by providing,
if I may be allowed so violent a metaphor, a sort of waggon-way through
the air; enable the country to convert, as it were, a great part of its
highways into good pastures and cornfields, and thereby to increase very
considerably the annual produce of its land and labour.”[193]

The conclusion is that every policy—the Mercantilist, for example—which
aims at increasing the quantity of money within the country, whether
by direct or indirect methods, is absurd, for money, far from being
indispensable, is really an encumbrance.

It is not only absurd, but also useless. Have we not seen already that
money is a mere commodity designed to facilitate circulation and that
the demand for it is entirely determined by that object? But the supply
of any commodity usually adapts itself spontaneously to the demand for
it. No one concerns himself with supplying the nation with wine or
with crockery. Why trouble about money?[194] If the quantity of goods
diminishes, exchange slackens and a part of the money becomes useless.
But “the interest of whoever possesses it requires that it should
be employed.”[195] Accordingly “it will, in spite of all laws and
prohibitions, be sent abroad, and employed in purchasing consumable goods
which may be of some use at home.”

On the other hand, as the prosperity of a nation grows it necessarily
attracts the precious metals because a multiplication of exchanges leads
to a growing demand for money. These exportations and importations will
depend, as Hume[196] had already shown, upon the relative cheapness or
dearness of money. What is true of metallic money is also true of a
special kind of money known as bank-notes. Smith has given us a vivid
description of the functions of banks, and especially of the fortunes of
the most famous bank of this period, the Bank of Amsterdam. This afforded
him another opportunity of demonstrating how the quantity of notes
offered spontaneously adapts itself to the quantity demanded. If banks
issue more notes than the circulation warrants prices will rise. Buying
from foreign countries will be resorted to and the notes will be returned
to the banks to be exchanged for gold and silver—the only international
money. The banks clearly have no interest in issuing too many notes,
because it involves a greater metallic reserve as the result of the more
frequent demands for payment which they will have to face. Of course,
“every particular banking company has not always understood or attended
to its own particular interest, and the circulation has frequently been
over-stocked with paper money.”[197] But this does not affect the main
principle, and we have one further proof of the spontaneous activity of
the economic mechanism.

We have now reviewed some of Smith’s principal themes, and we have
seen how every phenomenon impresses him in the same fashion. Had space
permitted we might have cited other examples all pointing to the same
conclusion.[198] This conception of spontaneity and wise beneficence is
by no means the product of mere _a priori_ thinking. It was no abstract
theory that needed the backing of a rigid demonstration. It was a belief
gradually borne in upon him in the course of his review of the economic
field. This is characteristic of all his thought, and with every new
vista we are reminded of it. The conclusion is hinted at again and
again, and the impression left upon the reader’s mind is that no other
conclusion could ever be possible. Smith thought of the economic order
as an organism—the creation of a thousand human wills unconscious of the
end whither they are tending, but all of them obedient to the impulse of
one instinctive, powerful force. This force, the root of all economic
activity, its constancy and uniformity triumphant over every artificial
obstacle and giving unity to the whole system, what is it?

We have already encountered it on more than one occasion. It is personal
interest, or, as Smith prefers to call it, “the natural effort of every
individual to better his own condition.”[199] Hidden deep in the heart
of every individual lies this essential spring of human life and social

Doubtless it is not the only one. Smith is never exclusive. He knew
that there were other passions[200] besides self-interest, and he is
not afraid of naming them, as when he attributes an economic revolution
which had such beneficial effects as the emancipation of the rural
classes to “the most childish vanity of proprietors.”[201] Neither did
he omit to point out that personal interest is not equally strong in the
breast of every one, and that there is the greatest diversity in human
motives. All this he had forgotten, according to some of his critics,
while others charge him with the creation of the _homo œconomicus_, a
poor representation of reality and a mere automaton exclusively guided by
material interests. Someone has remarked that if you add to this figure
a tinge of patriotism you have a faithful picture of the Englishman and
Scotsman of his day. Had he been acquainted with Germans or Frenchmen,
with their less sordid attachment to material gain, he might have judged
differently. It may be that our reading of him is incorrect. He seems
to have taken care to note that his remarks do not apply to _all_, but
only to the generality of men. He continually recalls the fact that he
is speaking of men of common understanding,[202] or of those gifted
with common prudence.[203] He knew well enough that the principles of
common prudence do not always govern the conduct of _every_ individual,
but he was of opinion that they always influenced that of the majority
of every class and order.[204] His reasoning is applicable to men _en
masse_, and not to individuals in particular. Moreover, he does not deny
that man may be unacquainted with or may even entirely ignore his own
interest. We have just quoted a passage wherein he remarks that bankers
who temporarily issue too many notes are at that moment ignorant of their
own interests.

These reservations notwithstanding, and full account being taken of all
the exceptions to the principle as laid down by Smith, it is still true
to say that as a general thesis he considers “the natural effort of every
individual to better his own condition”—that is, personal interest—as
the fundamental psychological motive in political economy. Any reference
to the case of business men who are really actuated by a desire to take
general welfare as their guide in matters of conduct is treated with a
measure of scepticism which it is difficult not to share. “I have never
known much good done by those who affected to trade for the public good.
It is an affectation, indeed, not very common among merchants, and
very few words need be employed in dissuading them from it.”[205] Not
that sentiment does not play a part, and a very important part, in the
philosophy of Smith; but sentiment, or sympathy, as he calls it, has
the domain of morality for its own, while interest dominates that of
economics. All his thinking led him to a firm belief in a spontaneous
economic order founded and guided by self-interest.

Comparison with the Physiocratic doctrine concerning the natural and
essential order of societies is illuminating. To the Physiocrats the
“natural order” implied a system—an ideal. It required a genius to
discover it, and only an enlightened despotism could realise it. For
Smith the “spontaneous order” was a fact. It was not a thing to be
brought into being. It already existed. It was doubtless held in check
by a hundred imperfections, including, among others, the stupidity of
human legislation.[206] But it was triumphant over them all. Beneath
the artificial constitution of society lay the natural constitution
which completely dominated it. This natural constitution, which for the
Physiocrats was nothing more than an ideal, Smith discovered in actual
operation, and he was able to describe its _modus operandi_. Political
economy, which with Quesnay was nothing better than a system of rules and
regulations, became in Smith’s hands a natural science based upon the
observation and analysis of existing facts. In a passage written in his
usual lucid style Smith shows the superiority of his system over that of
the Physiocrats. “Some speculative physicians seem to have imagined that
the health of the human body could be preserved only by a certain precise
regimen of diet and exercise, of which every, the smallest, violation
necessarily occasioned some degree of disease or disorder proportioned to
the degree of the violation.… Mr. Quesnai, who was himself a physician,
and a very speculative physician, seems to have entertained a notion of
the same kind concerning the political body, and to have imagined that it
would thrive and prosper only under a certain precise regimen, the exact
regimen of perfect liberty and perfect justice. He seems not to have
considered that in the political body, the natural effort which every
man is continually making to better his own condition, is a principle
of preservation capable of preventing and correcting, in many respects,
the bad effects of a political œconomy in some degree both partial and
oppressive. Such a political œconomy, though it no doubt retards more or
less, is not always capable of stopping altogether the natural progress
of a nation towards wealth and prosperity, and still less of making it
go backwards. If a nation could not prosper without the enjoyment of
perfect liberty and perfect justice, there is not in the world a nation
which could ever have prospered. In the political body, however, the
wisdom of nature has fortunately made ample provision for remedying many
of the bad effects of the folly and injustice of man; in the same manner
as it has done in the natural body, for remedying those of his sloth and

This passage leads us to his second thesis, namely, the excellence of
these economic institutions. As we have already remarked, these two
ideas of spontaneity and excellence, though confused by Smith, ought to
be treated apart. His naturalism and optimism are inseparable, and both
of them find expression in the same paragraph. The passage just quoted
affords a proof of this. Personal interest not only creates and maintains
the economic organism, but at the same time ensures a nation’s progress
towards wealth and prosperity. The institutions are not only natural,
but are also beneficial. They interest him not merely as objects of
scientific curiosity, but also as the instruments of public weal. Herein
lies their chief attraction for him, for political economy to him was
more of a practical art than a science.[208]

But this is hardly emphatic enough. Natural economic institutions are not
merely good: they are providential. Divine Providence has endowed man
with a desire to better his condition, whence arises the “natural” social
organism: so that man, following where this desire leads, is really
accomplishing the beneficent designs of God Himself. By pursuing his own
interest, man “is in this as in many other cases” (he is writing now of
the employment of capital) “led by an invisible hand to promote an end
which was no part of his intention.”[209] The Physiocrats could hardly
have improved upon that.

We can scarcely share in his optimism to-day. But it has played too
prominent a _rôle_ in the history of ideas not to detain us for a moment.
We must examine the arguments upon which it is based and endeavour to
grasp their import.

Let us note, in the first place, that every example hitherto deduced with
a view to proving the spontaneity of economic institutions at the same
time furnishes a demonstration of the beneficial effects of personal
interest. Owing to a coincidence by no means fortuitous every institution
mentioned by Smith as owing its existence to the prevalence of action of
this kind is at the same time favourable to economic progress. Division
of labour, the invention of money, and the accumulation of capital are so
many natural social facts that also increase wealth. The adaptation of
demand and supply, the distribution of money according to the need for
a circulating medium, the growth of population according to the demand
for it, are so many spontaneous phenomena which ensure the efficient
working of economic society. A perusal of Smith’s work leaves us with the
impression that these spontaneous institutions must also be the best.

The general proof of this thesis is scattered throughout the whole book.
But there was one point especially upon which Smith was very anxious
to show complete accord between public and private interest. This was
in connection with the investment of capital. In his opinion capital
spontaneously seeks, and as spontaneously finds, the most favourable
field for investment—most favourable, that is to say, to the interest
of society in general. This proof at first sight seems to apply only to
one special fact, but it really has a more general import. We know the
great stress which Smith laid upon capital. Division of labour depends
upon it, and so does the abundance or scarcity of produce. It determines
the quantity of work and fixes the limit of population. To show that the
investment of capital conforms to the general interest is to show that
all production is organised in the manner most favourable to national

Smith distinguishes between four methods of investing capital: in
agriculture, in industry, in the wholesale and in the retail trades.
Wholesale industry is further divided into three classes: domestic trade;
foreign trade, furnishing the nation with foreign products; and the
carrying trade which transports those goods from one country to another.
Smith maintained that the order in which these various forms of activity
were mentioned was also the order of their utility, agriculture being the
most advantageous, industry the second best, etc.

He also proposes two criteria for testing this hierarchy: (1) the
quantity of productive labour put into operation by means of the capital
employed by each; (2) the amount of exchange value annually added to the
revenue by each of these employments. As we pass from agriculture to the
other branches, the quantity of productive labour brought into operation
and the amount of exchange value obtained gradually decreases, and with
this decrease goes a diminishing utility for the country. Smith thought
that a nation ought to employ its capital in the way he had suggested.
It ought to give the preference to agriculture, and engage in the other
branches only as the accumulation of capital permitted.

But this is precisely what the capitalists would do were they entirely
free. Every one of them, in fact, is interested in keeping his capital
as near home as possible, with a view to better supervision. Only as
a last resource does he venture to engage in foreign commerce. Again,
even among the industries carried on in his own country every capitalist
will preferably choose that which will result in the production of the
greatest exchange value, seeing that his profit varies with the amount
of this exchange value. His investments will accordingly be made in
the order mentioned, an order which roughly corresponds to the greater
or lesser quantity of exchange values produced by each industry. And
finally, when contemplating investment in foreign trade he will for the
same reason follow the order specified above—the order of greatest
general utility. Thus the double desire of keeping one’s capital within
one’s reach and of finding for it the most lucrative field of investment
leads every capitalist to employ his capital in the fashion which is most
advantageous for the nation. Such is the argument, whatever its value.

Even if we adopted his criteria it is obvious that his classification is
altogether too arbitrary. How, for example, can we justify the statement
that an industrial enterprise or the carrying trade employs less capital
than agriculture? The exact contrary would be nearer the truth, and
agriculture ought to be given a much more modest position. Moreover, the
conception of such a hierarchy does not accord very well with the theory
of division of labour, which seeks to put the various forms of human
activity more nearly on an equality.

As a matter of fact we cannot even accept a criterion which takes the
amount of exchange values furnished by an industry as the test of its
social utility. This increase in the quantity of exchange values simply
proves that the demand for the goods concerned is stronger than the
demand for some others. When capital flows into certain industries
it only points to the spontaneous satisfaction of social demand. But
social demand and social utility are not necessarily the same. Demand
is the outcome of human desires, and its intensity depends upon the
revenue drawn by the individual. But we can neither regard these desires
in themselves or the system of distribution that makes such desires
“effective” as sufficient tests of social utility. And to say that
production follows demand is to prove nothing at all. Smith himself
seems to have realised this; hence his other criterion—the quantity of
productive labour employed by capital. According to this test those
industries that employ the least amount of machinery and the greatest
amount of hand labour are the most useful—quite an untenable view.

A demonstration of a somewhat similar character has been attempted by the
Hedonistic school. They have shown how free competition always tends to
direct production into such channels as will result in maximum utility,
or, in other words, that it affords the best method of satisfying the
actual demands of the market. But they have been very careful to note
that social utility and ophelimity are two very different expressions
that must never be confused, and that they have failed to find any
scientific test of social utility.

Smith’s argument is unsatisfactory, and its foundation untrustworthy.
We do not forget that his optimism is based not so much upon this
specious demonstration as upon the great number of observations which
he had occasion to make in the course of his work. This idea of a
harmony between private interest and the general well-being of society
was not put forward as a rigidly demonstrable _a priori_ theory,
open to no exceptions. It was rather a general view of the whole
position—the conclusion drawn from repeated observations, the _résumé_
of a detailed inquiry which had covered every corner of the economic
field. A particular process of reasoning may have helped to confirm this
conclusion, but the reasoning itself was largely based upon experience,
the universal experience of history. It was the study of this experience
that led to the discovery of a “vital” principle of health and progress
in the “body social.” Smith would have been the first to oppose the
incorporation of his belief in any dogma. He was content to say that
“most frequently” and in a “majority of cases” general interest _was_
satisfied by the spontaneous action of private interest. He was also the
first to point out instances—in the case of merchants and manufacturers,
for example—where the particular and the general interest came into
conflict. We might cite many characteristic passages in which he takes
pains to qualify his optimism.

Absolute his optimism was not, neither was it universal. In fact, it
would not be difficult to prove that it was never intended to apply to
anything other than production. Nowhere does the great Scotch economist
pretend that the present distribution of wealth is the justest possible—a
trait that distinguishes him from the optimists of Bastiat’s school. His
optimism deserted him when he reached that portion of his subject. On the
contrary, he showed that landed proprietors as well as capitalists “love
to reap where they have not sown,” that inequalities in social position
give masters an advantage in bargaining with their men.[210] In more than
one passage he speaks of interest and rent as deductions from the produce
of labour.[211] Smith, indeed, might well be regarded as a forerunner of
socialism. There is no difficulty in believing, so far as the experience
of old countries goes, that “rent and profit eat up wages and the two
superior orders of people oppress the inferior one.”[212]

It is especially important that we should make a note of the opinions
of those people who think that Smith intended his optimism to extend
to distribution as well as to production. As a matter of fact he was
too level-headed to entertain any such idea. Even Say himself in the
last edition of his _Treatise_ expresses some doubts as to the equity of
the present system of distribution.[213] Smith was not really concerned
with the question at all. It is only at a much later date, when the
socialists had demonstrated the importance of the problem, that we hear
of this belief in the beneficence of economic institutions. It really
represents a reaction against the socialistic teaching and an attempt at
a justification of the present methods of distribution.

We must beware of confusing Smith’s optimism with that of modern
Hedonism, or of identifying it with Bastiat’s answer to the socialists.
It lacks the scientific precision of the one and has none of the
apologetic tone of the other. It is little more than a reflection
prompted by the too naïve confidence of the eighteenth century in the
bounty of “nature,” and an expression of profound conviction rather than
the conclusion of a logical argument.


The practical conclusion to which naturalism leads and to which Smith’s
optimism points is economic liberty. So naturally does it proceed from
what we have just said that the reader finds himself quite prepared for
Smith’s celebrated phrases: “All systems 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.
Every man, as long as he does not violate the laws of justice, is left
perfectly free to pursue his own interest his own way, and to bring both
his industry and capital into competition with those of any other man,
or order of men.” As to the Government, or “sovereign,” as Smith calls
him, “he is completely discharged from a duty, in the attempting to
perform which he must always be exposed to innumerable delusions, and
for the proper performance of which no human wisdom or knowledge could
ever be sufficient; the duty of superintending the industry of private
people, and of directing it towards the employments most suitable to the
interests of the society.”

Smith, following the Physiocrats, but in a more comprehensive and
scientific fashion, finds himself driven to the same conclusion, namely,
the wisdom of non-intervention by the State in matters economic.[214]

But here, as elsewhere in his work, the sense of the positive and the
concrete, so remarkable in Smith, prevents his being content with a
general demonstration. He is not satisfied with proving the inefficiency
of intervention as compared with the efficiency of those institutions
which are spontaneously created by society itself, but he attempts
to show that the State, by its very nature, is unfitted for economic
functions. His arguments have been the arsenal from which the opponents
of State intervention have been supplied with ammunition ever since.

Let us briefly recall them.

“No two characters seem more inconsistent than those of trader and
sovereign.”[215] Governments are “always, and without any exception, the
greatest spendthrifts in the society.”[216] The reasons for this are
numerous. In the first place, they employ money which has been gained by
others, and one is always more prodigal of the wealth of others than of
one’s own. Moreover, the Government is too far removed from the centres
of particular industries to give them that minute attention which they
deserve if they are going to prosper. “The attention of the sovereign
can be at best but a very general and vague consideration of what is
likely to contribute to the better cultivation of the greater part of
his dominions. The attention of the landlord is a particular and minute
consideration of what is likely to be the most advantageous application
of every inch of ground upon his estate.”[217]

This necessity for a thorough cultivation of the soil and for the best
employment of capital, for direct and careful superintendence, is an idea
to which he continually reverts. He regrets, among other things, that
the growth of public debts causes a portion of the land and the national
capital to pass into the hands of fund-holders, who are doubtless
interested in the good administration of a country, but “are not
interested in the good condition of any particular portion of land, or in
the good management of any particular portion of capital stock.”[218]

Lastly, the State is an inefficient administrator because its agents
are negligent and thriftless, not being directly interested in
administration, but paid out of public funds. Should the administration
of the land pass into the hands of the State he exclaims that not a
fourth of the present produce would ever be raised, because of “the
negligent, expensive, and oppressive management of his factors and
agents.”[219] On the contrary, he proposes that the remainder of the
common land should be distributed among individuals. On this point
European Governments have followed his advice somewhat too closely.[220]
For the same reason—the necessity for stimulating personal interest
wherever possible—he commends, instead of a fixed salary for public
officers, payment by those who benefit by their services, such payment in
every case to be in strict proportion to the zeal and activity displayed.
This was to apply, for example, to judges and professors.[221]

State administration is accordingly a _pis aller_, and intervention
ought to be strictly limited to those cases in which individual action
is impossible. Smith recognises three functions only which the State
can perform, namely the administration of justice, defence, “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;
because the profit could never repay the expence to any individual or
small number of individuals, though it may frequently do much more than
repay it to a great society.”[222]

We must beware, however, lest we exaggerate this point. Although Smith,
in the majority of cases, preferred individual action, we must not
conclude from this that he had unlimited confidence in individuals.
Smith’s individualism was of a particular kind. It was not a mere blind
preference for every private enterprise, for he knew that industry
frequently falls a prey to the spirit of monopoly. “People of the same
trade seldom meet together, even for merriment and diversion, but
the conversation ends in a conspiracy against the public, or in some
contrivance to raise prices.”[223] In order that a private enterprise
may be useful for the community two conditions are necessary. The
_entrepreneur_ must be: (1) actuated by personal interest; (2) his
actions must by means of competition be kept within the limits of
justice. Should either of these two conditions be wanting, the public
would run the risk of losing as much by private as they would by State

Thus Smith throughout remains very hostile to certain collective
enterprises of a private nature, such as joint-stock companies,[224]
because of the absence of personal interest. The only exceptions which he
would tolerate are banks, insurance companies, and companies formed for
the construction or maintenance of canals or for supplying great towns
with water, for the management of such undertakings can easily be reduced
to a kind of routine, “or to such a uniformity of method as admits of
little or no variation.”[225]

His opposition to every kind of monopoly granted either to an individual
or to a company is even more pronounced. A whole chapter is devoted to an
attack upon the great trading companies of the seventeenth and eighteenth
centuries, which were created with a view to the development of colonial
trade, and of which the East India Company was the most famous.

One other observation remains to be made. Non-intervention for Smith was
a general principle, and not an absolute rule. He was no doctrinaire,
and he never forgot that to every rule there are some exceptions. An
interesting list could be made, giving all the cases in which, according
to Smith, the legitimacy of State intervention was indisputable—legal
limitation of interest,[226] State administration of the post-office,
compulsory elementary education, State examinations as a condition of
entry into the liberal professions or to any post of confidence whatever,
bank-notes of a minimum value of £5, etc.[227] In a characteristic
phrase he gave expression to his feeling on the question of restricting
the liberty of banks. “Such regulations may, no doubt, be considered as
in some respects a violation of natural liberty. But those exertions
of the natural liberty of a few individuals, which might endanger the
security of the whole of society, are, and ought to be, restrained by
the laws of all governments; of the most free, as well as of the most
despotical.”[228] Despite these reservations it is still very evident
that the whole of Smith’s work is a plea for the economic freedom of the
individual. It is an eloquent appeal against the Mercantilist policy and
a violent attack upon every economic system inspired by it.

On this point there is absolute agreement between the work done by Smith
in England and that carried on at the same time by the Physiocrats in
France. Both in foreign and domestic trade producers, merchants, and
workmen were hemmed in by a network of restrictions either inherited
from the traditions of the Middle Ages or imposed by powerful party
interests and upheld by false economic theories. The corporations still
existed in the towns; although their regulations could not be applied to
industries born after the passing of Elizabeth’s famous law concerning
apprenticeship. The Colbertian system, with its mob of officials
entrusted with the task of superintending the processes of production,
of examining the weight, the length, and the quality of the material
employed, was still a grievance with the woollen manufacturers.[229] The
fixing of the duration of apprenticeship at seven years, the limitation
of the number of apprentices in the principal industries, the obstacles
put in the way of the mobility of labour by the Poor Law and by the
series of statutes passed since the reign of Elizabeth, fettered the
movement of labour and the useful employment of capital. Smith opposed
these measures with the whole of his energy. England, unlike France, had
fortunately escaped internal restrictions upon trade, but the restraints
placed upon foreign trade still kept England and Ireland commercially
separated. These checks upon foreign trade proved as irksome in England
as they did everywhere else. Manufactured goods from foreign countries
were heavily taxed or were prohibited entrance altogether. Certain
natural products, _e.g._ French wine, were similarly handicapped; the
importation of a number of commodities necessary for national industry
was banned; a narrow and oppressive policy regarded the colonies as
the natural purveyors of raw materials for the mother-country and
the willing buyers of its manufactured goods. Against all this mass
of regulations, destined, it was thought, to secure the supremacy of
England among other commercial nations, Smith directed his most spirited
onslaughts. The fourth book of the _Wealth of Nations_ is an eloquent
and vigorous attack upon Mercantilism, admirable alike for the precision
and the extent of its learning. It was this section of his work that
interested his contemporaries most. For us it would have been the least
interesting but for its theory of international trade and its criticism
of Protection in general. On this account, however, it is of considerable
importance in the study of economic doctrines.

In the struggle for Free Trade, as on other points, Smith was forestalled
by the Physiocrats. But again has he shown himself superior in the
breadth of his outlook. Physiocratic Liberalism was the result of
their interest in agriculture, foreign trade being of quite secondary
importance. Smith, on the other hand, considered foreign trade in itself
advantageous, provided it began at the right moment and developed
spontaneously.[230] Although his point of view is far superior to that
of the Physiocrats, even Smith failed to give us a satisfactory theory.
It was reserved for Ricardo and his successors, particularly John Stuart
Mill, to find a solid scientific basis for the theory of international
trade. The doctrine of the Scotch economist is somewhat lame. But the
hesitancy of a great writer is often interesting, and some of his
arguments deserve to be recalled.

Already in our review of his theory of money we have become familiar
with Smith’s criticism of the balance of trade theory. But the balance
of trade theory is not the whole of Protection, and we find in Smith
something more than its mere refutation. In the first place, we have a
criticism of Protectionism in general considered in its Mercantilistic
aspect, followed by an attempt to demonstrate the positive advantages of
international commerce.

The first criticism that he offers might be summed up in the well-known
phrase: “Industry is limited by capital.” “The general industry of the
society can never exceed what the capital of the society can employ.”
But Protection, perhaps, increases the quantity of capital? No, “for it
can only divert a part of it into a direction into which it might not
otherwise have gone.” But the direction spontaneously given to their
capital by individuals is the most favourable to a country’s industry.
Has not Smith demonstrated this already? Protection, consequently, is not
merely useless; it may even prove injurious.[231]

The argument does not appear decisive, especially when we recall the
criticism of Smith’s optimism given above. To borrow an expression of M.
Pareto, it is the maximum of ophelimity and not the maximum of utility
that is realised by the capitalists under the action of personal interest.

A second and a more striking argument shows the absurdity of
manufacturing a commodity in this country at a great expense, when a
similar commodity might be supplied by a foreign country at less cost.
“It is the maxim of every prudent master of a family, never to attempt
to make at home what it will cost him more to make than to buy.… What is
prudence in the conduct of every private family, can scarce be folly in
that of a great kingdom.”[232] It is foolish to grow grapes in hothouses
in Scotland when better and cheaper can be got from Portugal or France.
Everybody is convinced of that. But a similar stupidity prevails when
we are hindered by tariffs from profiting by the natural advantages
which foreign nations possess as compared with ourselves. All “the mean
rapacity and the monopolizing spirit of merchants and manufacturers”[233]
was necessary to blind men to their true interests on this point.
According to Smith, there exists a natural distribution of products
among various countries, resulting in an advantage to all of them. It
is Protection that hinders our sharing in the advantages. This is the
principle known as the “territorial division of labour.”

But the argument is inconclusive, for capital and labour do not circulate
from one nation to another in the same way as they do within a country.
The distribution of industry among the various nations is regulated, not
by absolute cost of production, but by relative cost of production. The
credit of having shown this belongs to Ricardo.

Smith’s demonstration of the inconveniences of Protection is incomplete,
and we feel the incompleteness all the more when he attempts to prove the
advantages of international trade.

The real and decisive argument in favour of free exchange turns upon a
consideration of the consumer’s interests. Increased utilities placed at
his disposal mark the superiority of free exchange, or as John Stuart
Mill puts it, “the only direct advantage of foreign commerce consists in
the imports.”[234] With Smith this is the point of view developed least
of all. True, he wrote that “consumption is the sole end and purpose
of all production. But, in the mercantile system, the interest of the
consumer is almost constantly sacrificed to that of the producer.”[235]
This criticism, however, was placed at the end of his examination of the
Mercantilist system in chap. 8 of Book IV. It is not found in the first
edition of the work, and was only added in the third.[236]

It is the point of view of the producer that Smith invariably adopts when
attempting to illustrate the advantages of international trade.[237]

Just now foreign trade seemed to afford a means of disposing of a
country’s surplus products, and this extension of the market, it
was argued, would lead to further division of labour and increased
productivity.[238] But one is led to ask why, instead of producing the
superfluous goods which it must export, it does not produce those things
which it is obliged to import.

Smith, being now desirous of showing that international trade necessarily
benefits both countries, bases his argument upon the fact that the
merchants in both countries must make a profit—_i.e._ get an additional
exchange value, which must be added to the others. To this Ricardo justly
replied that the profits of a merchant do not necessarily increase the
sum of utilities possessed by any country.

Here again, in striking contrast with the attitude of the Physiocrats,
Smith, despite himself, has championed his own adversaries. As yet he is
not sufficiently rid of Mercantilist prejudice not to be concerned with
the welfare of the producer, and in his great work we find excellent
argument and debatable points of view placed side by side. It does not
appear that he himself realised this incompatibility. An irresistible
tide was sweeping everybody before it in the direction of a more liberal
policy. It proved too powerful for his contemporaries, who were not
concerned to give a careful consideration to every part of his thesis.
Enough that they found in him an ardent champion of an attractive cause.

We have already noticed more than once the hesitation which Smith
displays when he comes to apply his principle, and we must again refer to
it in this connection.

Theoretically a champion of absolutely free exchange, he mitigates his
belief in practice, and mentions an exception to his policy which seemed
to him a mere matter of common sense. “To expect, indeed, that the
freedom of trade should ever be entirely restored in Great Britain, is as
absurd as to expect that an Oceana or Utopia should ever be established
in it. Not only the prejudices of the public, but what is more
unconquerable, the private interests of many individuals, irresistibly
oppose it.”[239] Facts have belied this prophecy, like many others.
England of the nineteenth century succeeded in realising this Utopia of
free exchange—almost to perfection.

Without any illusion as to the future, his condemnation of the past was
not altogether unqualified. He justified some of the acts that were
inspired by Mercantilism. “The act of navigation[240] is not favourable
to foreign commerce,” said he; “as defence, however, is of much more
importance than opulence, the act of navigation is, perhaps, the wisest
of all the commercial regulations of England.”[241] In another instance
he justifies an import duty where a tax is levied upon goods similar to
those imported. Here an import duty merely restores that normal state of
competition which was upset by the imposition of the Excise. Retaliation
as a means of securing the abolition of foreign duties is not altogether
under his ban.[242] And he finally admits that liberty is best introduced
gradually into those countries in which industry has long enjoyed
Protection or where a great number of men are employed.[243]

His practical conclusion is somewhat as follows: Instead of innumerable
taxes which hinder importation and hamper production, England ought to
content herself with the establishment of a certain number of taxes of a
purely fiscal character, placed upon commodities such as wine, alcohol,
sugar, tobacco, cocoa. Such a system, though perfectly consonant with
a great deal of free exchange, would yield abundant revenue to the
Treasury, and would afford ample compensation for the losses resulting
from the introduction of Free Trade.[244]

England has followed his advice, and her financial system is to-day
founded on these bases. Few economists can boast of such a complete
realisation of their projects.


The eighteenth century was essentially a century of levelling down. In
Smith’s conception of the economic world we have an excellent example
of this. Its chief charm lies in the simplicity of its outlines, and
this doubtless accounted for his influence among his contemporaries.
The system of natural liberty towards which both their political
and philosophical aspirations seemed to point were here deduced
from, and supported by, evidence taken direct from a study of human
nature—evidence, moreover, that seemed to tally so well with known
facts that doubt was out of the question. Smith’s work still retains
its irresistible charm. Even if his ideas are some day shown to be
untenable—a contingency we cannot well imagine—his book will remain as
a permanent monument of one of the most important epochs in economic
thought. It must still be considered the most successful attempt made at
embracing within a single purview the infinite diversity of the economic

But its simplicity also constituted its weakness. To attain this
simplicity more than one important fact that refused to fit in with the
system had to remain in the background. The evidence employed was also
frequently incomplete. None of the special themes—price, wages, profits,
and rent, the theory of international trade or of capital—which occupy
the greater portion of the work, but has been in some way corrected,
disputed, or replaced. But the structure loses stability if some of the
corner-stones are removed. And new points of view have appeared of which
Smith did not take sufficient account. Instead of the pleasant impression
of simplicity and security which a perusal of Smith’s work gave to the
economists of the early nineteenth century, there has been gradually
substituted by his successors a conviction of the growing complexity of
economic phenomena.

To pass a criticism on the labours of Adam Smith would be to review
the economic doctrines of the nineteenth century. That is the best
eulogy one can bestow upon his work. The economic ideas of a whole
century were, so to speak, in solution in his writings. Friends and
foes have alike taken him as their starting-point. The former have
developed, extended, and corrected his work. The latter have subjected
his principal theories to harsh criticism at every point. All with tacit
accord admit that political economy commenced with him. As Garnier, his
French translator, put it, “he wrought a complete revolution in the
science.”[245] To-day, even although the _Wealth of Nations_ may no
longer appear to us as a truly scientific treatise on political economy,
certain of its fundamental ideas remain incontestable. The theory of
money, the importance of division of labour, the fundamental character
of spontaneous economic institutions, the constant operation of personal
interest in economic life, liberty as the basis of rational political
economy—all these appear to us as definite acquisitions to the science.

The imperfections of the work will be naturally demonstrated in the
chapters which follow. In order to complete our exposition of Smith’s
doctrines it only remains to show how they were diffused.

The rapid spread of his ideas throughout Europe and their incontestable
supremacy remains one of the most curious phenomena in the history of
ideas. Smith persuaded his own generation and governed the next.[246]
History affords us some clue. To attribute it solely to the influence of
his book is sheer exaggeration. A great deal must be set to the credit of
circumstances more or less fortuitous.

M. Mantoux remarks with much justice that “it was the American War
rather than Smith’s writings which demonstrated the decay of the ancient
political economy and compassed its ruin. The War of Independence proved
two things: (1) The danger lurking in a colonial system which could
goad the most prosperous colonies to revolt; (2) the uselessness of a
protective tariff, for on the very morrow of the war English trade with
the American colonies was more flourishing than ever before. “The loss
of the American colonies to England was really a gain to her.” So wrote
Say in 1803, and he adds: “This is a fact that I have nowhere seen
disputed.”[247] To the American War other causes must be added: (1) The
urgent need for markets felt by English merchants at the close of the
Napoleonic wars; they were already abundantly supplied with excellent
machinery. (2) Coupled with this was a growing belief that a high price
of corn as the result of agricultural protection increased the cost of
hand labour. These two reasons were enough to create a desire for a
general lowering of the customs duties.

Subsequent events have justified Smith’s attitude on the question of
foreign trade. In the matter of domestic trade he has been less fortunate.

The French Revolution, which owed its economic measures to the
Physiocrats, gave a powerful impulse to the principle of liberty. The
influence of the movement was patent enough on the Continent. Even in
England, where this influence was least felt; everybody was in favour of
_laissez-faire_. Pitt became anxious to free Ireland from its antiquated
system of prohibitions, and he succeeded in doing this by his Act of
Union of 1800. The regulations laid down by the Elizabethan Statute of
Apprentices, with its limitation of the hours of work and the fixing of
wages by justices of the peace, became more and more irksome as industry
developed. Every historian of the Industrial Revolution has described the
struggle between workers and masters and shown how the former clung in
despair to the old legislative measures as their only safeguard against
a too rapid change, while the latter refused to be constrained either in
the choice of workmen or the methods of their work.[248] They wished to
pay only the wages that suited them and to use their machines as long as
possible. These repeated attacks rendered the old Statute of Apprentices
useless, and Parliament abolished its regulations one after another, so
that by 1814 all traces of it were for ever effaced from the Statute Book.

But Smith did not foresee these things. He did not write with a view to
pleasing either merchants or manufacturers. On the contrary, he was never
weary of denouncing their monopolistic tendencies. But by the force of
circumstances manufacturers and merchants became his best allies. His
book supplied them with arguments, and it was his authority that they
always invoked.

His authority never ceased growing. As soon as the _Wealth of Nations_
appeared, men like Hume, and Gibbon, the historian, expressed to Smith
or to his friends their admiration of the new work. In the following
year the Prime Minister, Lord North, borrowed from him the idea of
levying two new taxes—the tax on malt and the tax on inhabited houses.
Smith was yet to make an even more illustrious convert in the person of
Pitt. Pitt was a student when the _Wealth of Nations_ appeared, but he
always declared himself a disciple of Smith, and as soon as he became
a Minister he strove to realise his ideas. It was he who signed the
first Free Trade treaty with France—the Treaty of Eden, 1786.[249] When
Smith came to London in 1787, Pitt met him more than once and consulted
him on financial matters. The story is told that after one of these
conversations Smith exclaimed: “What an extraordinary person Pitt is! He
understands my ideas better than myself.”

While Smith made converts of the most prominent men of his time, his book
gradually reached the public. Four editions in addition to the first
appeared during the author’s lifetime.[250] The third, in 1784, presents
important differences in the way of additions and corrections as compared
with the first. From the date of his death in 1790 to the end of the
century three other editions were published.[251]

Similar success attended the appearance of the work on the Continent. In
France he was already known through his _Theory of Moral Sentiments_.
The first mention of the _Wealth of Nations_ in France appears in the
_Journal des Savants_ in the month of February, 1777. Here, after a brief
description of the merits of the work, the critic gives expression to the
following curious opinion: “Some of our men of letters who have read it
have come to the conclusion that it is not a book that can be translated
into our language. They point out, among other reasons, that no one would
be willing to bear the expense of publishing because of the uncertain
return, and a book-seller least of all. They are bound to admit, however,
that the work is full of suggestions and of advice that is useful as well
as curious, and might prove of benefit to statesmen.” In reality, despite
the opinion of those men of letters, several translations of the work did
appear in France, as well as elsewhere in Europe. In little more than
twenty years, between 1779 and 1802, four translations had appeared.
This in itself affords sufficient proof of the interest which the book
had aroused.[252]

Few works have enjoyed such complete and universal success. But despite
admiration the ideas did not spread very rapidly. Faults of composition
have been burdened with the responsibility for this, and it is a reproach
that has clung to the _Wealth of Nations_ from the first. Its organic
unity is very pronounced, but Smith does not seem to have taken the
trouble to give it even the semblance of outward unity. To discover its
unity requires a real effort of thought. Smith whimsically regarded it
as a mere discourse, and the reading occasionally gives the impression
of conversation. The general formulæ which summarise or recapitulate
his ideas are indifferently found either in the middle or at the end
of a chapter, just as they arose. They represent the conclusions from
what preceded as they flashed across his mind. On the other hand, a
consideration of such a question as money is scattered throughout the
whole work, being discussed on no less than ten different occasions. As
early as April 1, 1776, Hume had expressed to Smith some doubts as to the
popularity of the book, seeing that its reading demanded considerable
attention. Sartorius in 1794 attributed to this difficulty the slow
progress made by Smith’s ideas in Germany. Germain Garnier, the French
translator, gave an outline of the book in order to assist his readers.
It was generally agreed that the work was a striking one, but badly
composed and difficult to penetrate owing to the confused and equivocal
character of some of the paragraphs. When Say referred to it as “a
chaotic collection of just ideas thrown indiscriminately among a number
of positive truths,”[253] he expressed the opinion of all who had read it.

But a complete triumph, so far as the Continent at least was concerned,
had to be the work of an interpreter. Such an interpreter must fuse
all these ideas into a coherent body of doctrines, leaving useless
digressions aside.[254] This was the task that fell into the hands of
J. B. Say. Among his merits (and it is not the only one) is that of
popularising the ideas of the great Scotch economist on the Continent,
and of giving to the ideas a somewhat classical appearance. The task of
discrediting the first French school of economists and of facilitating
the expansion of English political economy fell, curiously enough, to the
hands of a Frenchman.

J. B. Say was twenty-three years of age in 1789.[255] At that time he was
Clavières’ secretary. Clavières became Minister of Finance in 1792, but
at this period he was manager of an assurance company, and was already
a disciple of Smith. Say came across some stray pages of the _Wealth of
Nations_, and sent for a copy of the book.[256] The impression it made
upon him was profound. “When we read this work,” he writes, “we feel that
previous to Smith there was no such thing as political economy.” Fourteen
years afterwards, in 1803, appeared _Le Traité d’Économie politique_.
The book met with immediate success, and a second edition would have
appeared had not the First Consul interdicted it. Say had refused to
support the Consul’s financial recommendations, and the writer, in
addition to having his book proscribed, found himself banished from the
Tribunate. Say waited until 1814 before republishing it. New editions
rapidly followed, in 1817, 1819, and 1826. The treatise was translated
into several languages. Say’s authority gradually extended itself; his
reputation became European; and by these means the ideas of Adam Smith,
clarified and logically arranged in the form of general principles from
which conclusions could be easily deduced, gradually captivated the more
enlightened section of public opinion.

It would, however, be unjust to regard Say as a mere populariser of
Smith’s ideas. With praiseworthy modesty, he has never attempted to
conceal all that he owed to the master. The master’s name is mentioned in
almost every line, but he never remains content with a mere repetition
of his ideas. These are carefully reconsidered and reviewed with
discrimination. He develops some of them and emphasises others. Amid
the devious paths pursued by Smith, the French economist chooses that
which most directly leads to the desired end. This path is so clearly
outlined for his successors that “wayfaring men, though fools, could
not err therein.” In a sense he may be said to have filtered the ideas
of the master, or to have toned his doctrines with the proper tints. He
thus imparted to French political economy its distinctive character as
distinguished from English political economy, to which at about the same
time Malthus and Ricardo were to give an entirely new orientation. What
interests us more than his borrowing is the personal share which he has
in the work, an estimate of which we must now attempt.

(1) In the first place, Say succeeded in overthrowing the work of the

The work of demolition was not altogether useless. In France there
were many who still clung to the “sect.” Even Germain Garnier, Smith’s
translator, considered the arguments of the Physiocrats theoretically
irrefutable. The superiority of the Scotch economist was entirely in the
realm of practice.[257] “We may,” says he, “reject the _Economistes’_
theory [meaning the Physiocrats’] because it is less useful, although
it is not altogether erroneous.” Smith himself, as we know, was never
quite rid of this idea, for he recognised a special productiveness of
land as a result of the co-operation of nature, and doctors, judges,
advocates, and artists were regarded as unproductive. But Say’s admission
was the last straw. Not in agriculture alone, but everywhere, “nature is
forced to work along with man,”[258] and by the funds of nature was to
be understood in future all the help that a nation draws directly from
nature, be it the force of wind or rush of water.[259] As to the doctors,
lawyers, etc., how are we to prove that they take no part in production?
Garnier had already protested against their exclusion. Such services must
no doubt be classed as immaterial products, but products none the less,
seeing that they possess exchange value and are the outcome[260] of the
co-operation of capital and industry. In other respects also—_e.g._, in
the pleasure and utility which they yield—services are not very unlike
commodities. Say’s doctrine meets with some opposition on this point,
for the English economists were unwilling to consider a simple service
as wealth because of its unendurable character, and the consequent fact
that it could not be considered as adding to the aggregate amount of
capital. But he soon wins over the majority of writers.[261] Finally
Say, like Condillac, discovered a decisive argument against Physiocracy
in the fact that the production of material objects does not imply
their creation. Man never can create, but must be content with mere
transformation of matter. Production is merely a creation of utilities, a
furthering of that capacity of responding to our needs and of satisfying
our wants which is possessed by commodities; and all work is productive
which achieves this result, whether it be industry, commerce, or
agriculture.[262] The Physiocratic distinction falls to the ground, and
Say refutes what Smith, owing to his intimacy with his adversaries, had
failed to disprove.

(2) On another point Say carries forward Smith’s ideas, although at the
same time superseding them. He subjects the whole conception of political
economy and the _rôle_ of the economist to a most thorough examination.

We have already noticed that the conception of the “natural order”
underwent considerable modification during the period which intervened
between the writings of the Physiocrats and the appearance of the _Wealth
of Nations_. The Physiocrats regarded the “order” as one that was to be
realised, and the science of political economy as essentially normative.
For Smith it was a self-realising order. This spontaneity of the economic
world is analogous to the vitality of the human body, and is capable
of triumphing over the artificial barriers which Governments may erect
against its progress. Practical political economy is based upon a
knowledge of the economic constitution of society, and its sole aim is to
give advice to statesmen. According to Say, this definition concedes too
much to practice. Political economy, as he thinks, is just the science of
this “spontaneous economic constitution,” or, as he puts it in 1814, it
is a study of the laws which govern wealth.[263] It is, as the title of
his book suggests, simply an exposition of the production, distribution,
and consumption of wealth. It must be distinguished from politics, with
which it has been too frequently confused, and also from statistics,
which is a simple description of particular facts and not a science of
co-ordinate principles at all.

Political economy in Say’s hands became a purely theoretical and
descriptive science. The _rôle_ of the economist, like that of the
savant, is not to give advice, but simply to observe, to analyse, and
to describe. “He must be content to remain an impartial spectator,” he
writes to Malthus in 1820. “What we owe to the public is to tell them
how and why such and such a fact is the consequence of another. Whether
the conclusion be welcomed or rejected, it is enough that the economist
should have demonstrated its cause; but he must give no advice.”[264]

In this way Say broke with the long tradition which, stretching from the
days of the Canonists and the Cameralists to those of the Mercantilists
and the Physiocrats, had treated political economy as a practical art
and a guide for statesmen and administrators. Smith had already tried
to approach economic phenomena as a scientist, but there was always
something of the reformer in his attitude. Say’s only desire was to
be a mere student; the healing art had no attraction for him, and so
he inaugurates the true scientific method. He, moreover, instituted a
comparison between this science and physics rather than between it and
natural history, and in this respect also he differed from Smith, for
whom the social body was essentially a living thing. Without actually
employing the term “social physics,” he continually suggests it by
his repeated comparison with Newtonian physics. The principles of the
science, like the laws of physics, are not the work of men. They are
derived from the very nature of things. They are not established; they
are discovered. They govern even legislators and princes, and one never
violates them with impunity.[265] Like the laws of gravity, they are not
confined within the frontiers of any one country, and the limits of State
administration, which are all-important for the student of politics, are
mere accidents for the economist.[266] Political economy is accordingly
based on the model of an exact science, with laws that are universal.
Like physics, it is not so much concerned with the accumulation of
particular facts as with the formulation of a few general principles from
which a chain of consequences of greater or smaller length may be drawn
according to circumstances.

A delight in uniformity,[267] love of universality, and contempt for
isolated facts, these are the marks of the savant. But the same qualities
in men of less breadth of view may easily become deformed and result in
faults of indifference or of dogmatism, or even contempt for all facts.
And are these very faults not produced by the stress which he lays upon
these principles? Was not political economy placed in a vulnerable
position for the attacks of Sismondi, of List, of the Historical school,
and of the Christian Socialists by this very work of Say? In his radical
separation of politics and economics, in avoiding the “practical”
leanings of Adam Smith, he has succeeded in giving the science a greater
degree of harmony. But it also acquired a certain frigidity which his
less gifted successors have mistaken for banality or crudity. Rightly or
wrongly, the responsibility is ascribed to Say.

(3) We have just seen the influence which the progress of the physical
sciences had upon Say’s conception of political economy; but he was also
much influenced by the progress of industry. Between 1776, the date of
the appearance of the _Wealth of Nations_, and the year 1803, when Say’s
treatise appeared, the Industrial Revolution had taken place. This is a
fact of considerable importance for the history of economic ideas.

When Say visited England a little before 1789, he found machine
production already in full swing there. In France at the same date
manufactures were only just beginning. They increased rapidly under the
Empire, and the progress after 1815 became enormous. Chaptal in his work
_De l’Industrie française_ reckons that in 1819 there were 220 factories
in existence, with 922,200 spindles consuming 13 million kilograms of
raw cotton. This, however, only represented a fifth of the English
production, which twenty years later was quadrupled. Other industries
were developing in a similar way. Everybody was convinced that the
future must be along those lines—an indefinite future it is true, but
it was to be one of wealth, work, and well-being. The rising generation
was intoxicated at the prospect. The most eloquent exposition of this
debauchery will be found in Saint-Simonism.

Say did not escape the infection. While Smith gives agriculture the
premier place, Say accords the laurels to manufactures. For many years
industrial problems had been predominant in political economy, and
the first official course of lectures given by Say himself at the
Conservatoire des Arts et Métiers was entitled “A Course of Lectures on
Industrial Economy.”

In that hierarchy of activities which Smith had drawn up according to
the varying degree of utility each possessed for the nation, Smith had
placed agriculture first. Say preserved the order, but placed alongside
of agriculture “all capital employed in utilising any of the productive
forces of nature. An ingenious machine may produce more than the
equivalent of the interest on the capital it has cost to produce, and
society enjoys the benefit in lower prices.”[268] This sentence is not
found in the edition of 1803, and appears only in the second edition.
Say in the meantime had been managing his factory at Auchy-les-Hesdins,
and he had profited by his experience. This question of machinery, which
was merely touched on by Smith in a short passage, finds a larger place
in every successive edition of Say’s work. The general adoption of
machinery by manufacturers both in England and France frequently incited
the workers to riot. Say does not fail to demonstrate its advantages.
At first he admits that the Government might mitigate the resulting
evils by confining the employment of machinery at the outset to certain
districts where labour is scarce or is employed in other branches of
production.[269] But by the beginning of the fifth edition he changed his
advice and declared that such intervention involved interference with the
inventor’s property,[270] admitting only that the Government might set up
works of public utility in order to employ those men who are thrown out
of employment on account of the introduction of machinery.

The influence of these same circumstances must be accounted responsible
for the stress which is laid by Say upon the _rôle_ of an individual
whom Smith had not even defined, but one who is henceforth to remain an
important personage in the economic world, namely, the _entrepreneur_. At
the beginning of the nineteenth century the principal agent of economic
progress was the industrious, active, well-informed individual, either
an ingenious inventor, a progressive agriculturist, or an experienced
business man. This type became quite common in every country where
mechanical production and increasing markets became the rule. It is he
rather than the capitalist properly so called, the landed proprietor,
or the workman, who is “almost always passive,” who directs production
and superintends the distribution of wealth. “The power of industrial
_entrepreneurs_ exercises a most notable influence upon the distribution
of wealth,” says Say. “In the same kind of industry one _entrepreneur_
who is judicious, active, methodical, and willing makes his fortune,
while another who is devoid of these qualities or who meets with very
different circumstances would be ruined.”[271] Is it not the master
spinner of Auchy-les-Hesdins who is speaking here? We are easily
convinced of this if we compare the edition of 1803 with that of 1814,
and we can trace the gradual growth and development of this conception
with every successive edition of the work.

Say’s classic exposition of the mechanism of distribution is based upon
this very admirable conception, which is altogether superior to that
of Smith or the Physiocrats. The _entrepreneur_ serves as the pivot of
the whole system. The following may be regarded as an outline of his

Men, capital, and labour furnish what Say refers to as productive
services. These services, when brought to market, are given in exchange
for wages, interest, or rent. It is the _entrepreneur_, whether merchant,
manufacturer, or agriculturist, who requires them, and it is he who
combines them with a view to satisfying the demand of consumers. “The
_entrepreneurs_, accordingly, are mere intermediaries who set up a claim
for those productive services which are necessary to satisfy the demand
for certain products.” Accordingly there arises a demand for productive
services, and the demand is “one of the factors determining the value of
those services.” “On the other hand, the agents of production, both men
and things, whether land, capital, or industrial employees, offer their
services in greater or less quantities according to various motives, and
thus constitute another factor which determines the value of these same
services.”[272] In this fashion the law of demand and supply determines
the price of services, the average rate of interest, and rent. Thanks
to the _entrepreneur_, the value produced is again distributed among
these “various productive services,” and the various services allotted
according to need among the industries. This theory of distribution is in
complete accordance with the theory of exchange and production.

Say’s very simple scheme of distribution constitutes a real progress.
In the first place, it is much more exact than the Physiocrats’, who
conceived of exchange as taking place between classes only, and not
between individuals. It also enables us to distinguish the remuneration
of the capitalist from the earnings of the _entrepreneur_, which
were confounded by Adam Smith. The Scotch economist assumed that the
_entrepreneur_ was very frequently a capitalist, and confused the
two functions, designating his total remuneration by the single word
“profit,” without ever distinguishing between net interest of capital
and profit properly so called. This regrettable confusion was followed
by other English authors, and remained in English economic theory for a
long time. Finally, Say’s theory has another advantage. It gave to his
French successors a clear scheme of distribution which was wanting in
Smith’s work, just at the time when Ricardo was attempting to overcome
the omission by outlining a new theory of distribution. According to
Ricardo, rent, by its very nature and the laws which give rise to it,
is opposed to other revenues, and the rate of wages and of profits must
be regarded as direct opposites, so that the one can only increase if
the other diminishes—an attractive but erroneous theory, and one which
led to endless discussion among English economists, with the result that
they abandoned it altogether. Say, by showing this dependence, which
becomes quite clear if we regard wages and profits from the point of
view of demand for commodities, and by his demonstration that rent is
determined by the same general causes—viz. demand and supply—as determine
the exchange value of other productive services, saved political economy
in France from a similar disaster. It was he, also, who furnished Walras
with the first outlines of his attractive conception of prices and
economic equilibrium. This explains why he never attached to the theory
of rent the supreme importance given to it by English economists. In this
respect he has been followed by the majority of French economists. On
the other hand, and for a similar reason, he never went to the opposite
extreme of denying the existence of rent altogether by regarding it
merely as the revenue yielded by capital sunk in land. In this way he
avoided the error which Carey and Bastiat attempted to defend at a later

(4) So far it is Say’s brilliant power of logical reasoning that we have
admired. But has he contributed anything which is entirely new to the

His theory of markets was for a long time considered first-class work.
“Products are given in exchange for products.” It is a happy phrase, but
it is not in truth very profound. It simply gives expression to an idea
that was quite familiar to the Physiocrats and to Smith, namely, that
money is but an intermediary which is acquired only to be passed on and
exchanged for another product. “Once the exchange has been effected it is
immediately discovered that products pay for products.”[274] Thus goods
constitute a demand for other goods, and the interest of a country that
produces much is that other countries should produce at least as much.
Say thought that the outcome of this would be the advent of the true
brotherhood of man. “The theory of markets will change the whole policy
of the world,” said he.[275] He thought that the greater part of the
doctrine of Free Trade could be based upon this principle. But to expect
so much from such a vague, self-evident formula was to hope for the

Still more interesting is the way in which he applied this “theory of
markets” to a study of over-production crises, and the light which that
sheds upon the nature of Say’s thought. Garnier had already pointed out
that a general congestion of markets was possible. As crises multiplied
this fear began to agitate the minds of a number of thinkers. “Nothing
can be more illogical,” writes Say. “The total supply of products and the
total demand for them must of necessity be equal, for the total demand
is nothing but the whole mass of commodities which have been produced:
a general congestion would consequently be an absurdity.”[276] It would
simply mean a general increase of wealth, and “wealth is none too
plentiful among nations, any more than it is among individuals.”[277] We
may have an inefficient application of the means of production, resulting
in the over-production of some one commodity or other—_i.e._ we may have
partial over-production.[278] Say wishes to emphasise the fact that we
need never fear general over-production, but that we may have too much
of some one product or other. He frequently gave expression to this
idea in the form of paradoxes. We might almost be led to believe that
he denies the existence of crises altogether in the second edition of
his work.[279] In reality he was very anxious to admit their existence,
but he wished to avoid everything that might prove unfavourable to an
extension of industry.[280]

He thought that crises were essentially transient, and declared that
individual liberty would be quite enough to prevent them. He was
extremely anxious to get rid of the vague terrors which had haunted
those people who feared that they would not be able to consume all this
wealth, of a Malthus who thought the existence of the idle rich afforded
a kind of safety-valve which prevented over-production,[281] of a
Sismondi who prayed for a slackening of the pace of industrial progress
and a checking of inventions. Such thoughts arouse his indignation,
especially, as he remarks, when it is remembered that even among the
most flourishing nations “seven-eighths of the population are without a
great number of products which would be regarded as absolute necessities,
not by a wealthy family, but even by one of moderate means.”[282] The
inconvenience—and he is never tired of repeating it—is not the result
of over-production, but is the effect of producing what is not exactly
wanted.[283] Produce, produce all that you can, and in the natural course
of events a lowering of prices will benefit even those who at first
suffered from the extension of industry.

In this once famous controversy between Say, Malthus, Sismondi, and
Ricardo (the latter sided with Say) we must not expect to find a clear
exposition of the causes of crises. Indeed, that is nowhere to be found.
All we have here is the expression of a sentiment which is at bottom
perfectly just, but one which Say wrongly attempted to state in a
scientific formula.

J. B. Say plays a by no means negligible part in the history of
doctrines. Foreign economists have not always recognised him. Dühring,
who is usually perspicacious, is very unjust to him when he speaks
of “the labour of dilution” to which Say devoted his energies.[284]
His want of insight frequently caused him to glide over problems
instead of attempting to fathom them, and his treatment of political
economy occasionally appears very superficial. Certain difficulties
are veiled with pure verbiage—a characteristic in which he is very
frequently imitated by Bastiat. Despite Say’s greater lucidity, it is
doubtful whether Smith’s obscurity of style is not, after all, more
stimulating for the mind. Notwithstanding all this, he was faithful in
his transmission of the ideas of the great Scotch economist into French.
Happily his knowledge of Turgot and Condillac enabled him to rectify
some of the more contestable opinions of his master, and in this way he
avoided many of the errors of his successors. He has left his mark upon
French political economy, and had the English economists adopted his
conception of the _entrepreneur_ earlier, instead of waiting until the
appearance of Jevons, they would have spared the science many useless
discussions provoked by the work of a thinker who was certainly more
profound but much less judicious than Say, namely, David Ricardo.[285]


A new point of view is presented to us by the economists of whom we
are now going to speak. Hitherto we have heard with admiration of the
discovery of new facts and of their beneficent effects both upon nations
and individuals. We are now to witness the enunciation of new doctrines
which cast a deepening shadow across the radiant dawn of economics,
giving it that strangely sinister aspect which led Carlyle to dub it “the
dismal science.”

Hence the term “Pessimists,” although no reproach is implied in our use
of that term. On the contrary, we shall have to show that the theories
of the school are often truer than those of the Optimists, which we
must study at a later stage of our survey. While nominally subscribing
to their predecessors’ doctrine concerning the identity of individual
and general interests, the many cogent reasons which they have adduced
against such belief warrants our classification. The antagonism existing
between proprietors and capitalists, between capitalists and workmen,
is a discovery of theirs. Instead of the “natural” or “providential”
laws that were to secure the establishment of the “order” provided
they were once thoroughly understood and obeyed, they discovered the
existence of other laws, such as that of rent, which guaranteed a
revenue for a minority of idle proprietors—a revenue that was destined
to grow as the direct result of the people’s growing need; or the “law
of diminishing returns,” which sets a definite limit to the production
of the necessaries of life. That limit, they asserted, was already being
approached, and mankind had no prospect of bettering its lot save by
the voluntary limitation of its numbers. There was also the tendency of
profits to fall to a minimum—until it seemed as if the whole of human
industry would sooner or later be swallowed up by the stagnant waters of
the stationary State.

Lastly, they deserve to be classed as pessimists because of their utter
disbelief in the possibility of changing the course of these inevitable
laws either by legislative reform or by organised voluntary effort. In
short, they had no faith in what we call progress.

But we must never imagine that they considered themselves pessimists
or were classed as such by their contemporaries. This verdict is
posterity’s, and would have caused them no little surprise. As for
themselves, they seem to stand aloof from their systems with an
insouciance that is most disconcerting. The “present order of things”
possessed no disquieting features for them, and they never doubted the
wisdom of “Nature’s Lord.” They believed that property had been put upon
an immovable basis when they demonstrated the extent of its denotation,
and that the spirit of revolt had been disarmed by impressing upon the
poor a sense of responsibility for their own miseries.[286]

The best known representatives of the school are Malthus and Ricardo.
They claimed to be philanthropists and friends of the people, and we
have no reason to suspect their sincerity.[287] Their contemporaries,
also, far from being alarmed, received the new political economy with the
greatest enthusiasm. A warm welcome was extended to its apostles by the
best of English society,[288] and ladies of distinction contended with
one another for the privilege of popularising the abstract thoughts of
Ricardo in newspaper articles and popular tales.[289]

Neither should we omit to pay them full homage for the eminent services
rendered to the science, and among these not the least important
was the antagonism which their theories aroused in the minds of the
working classes. Pessimists unwittingly often do more for progress than
optimists. To these two writers fell the task of criticising economic
doctrines and institutions, a task that has been taken up by other
writers in the course of the century, but which seems as far from
completion as ever. Karl Marx, another critic, is intellectually a scion
of the Ricardian family. It would be a mistake to imagine that all their
theories savour of pessimism, but their reputation has always been more
or less closely linked with the gloomier aspect of their teaching.


Malthus is best known for his “law of population.” That he was a great
economist, even apart from his study of that question, might easily be
proved by reference to his treatise on political economy, or by a perusal
of the many miscellaneous articles which he wrote on various economic
questions. A consideration of many of these theories, notably the theory
of rent, must be postponed until we come to study them in connection with
the name of Ricardo.


Twenty years had elapsed since the publication of Smith’s immortal work,
without economics making any advance, when the appearance of a small
anonymous volume, known to be the work of a country clergyman, caused
a great sensation. Even after the lapse of a century the echo of the
controversy which it aroused has not altogether passed away. At first
sight one might be led to think that the book touches only the fringe of
economics, seeing that it is chiefly a statistical study of population,
or demography, as the science is called to-day. But this new science,
of which Malthus must be regarded as the founder, was separated from
the main trunk of economics at a much later date. Furthermore, we shall
find that the influence of his book upon all economic theories, both
of production and distribution, was enormous. The essay might even be
considered a reply to that of Adam Smith. The same title with slight
modification would have served well enough, and James Bonar wittily
remarks that Malthus might have headed it _An Essay on the Causes of the
Poverty of Nations_.

The attempt to explain the persistence of certain economic phenomena by
connecting them with the presence of a new factor, biological in its
character and differing in its origin both from personal interest and
the mere desire for profit, considerably expanded the economic horizon
and announced the advent of sociology. We know that Darwin himself
acknowledged his indebtedness to the work of Malthus for the first
suggestion of what eventually became the most celebrated scientific
doctrine of the nineteenth century, namely, the conception of the
struggle for existence and the survival of the fittest as one of the
mainsprings of progress.

There is no necessity for thinking that the dangers which might result
from an indefinite growth of population had not engaged the attention of
previous writers. In France Buffon and Montesquieu had already shown some
concern in the matter. But a numerous population was usually regarded as
advantageous, and fear of excess was never entertained inasmuch as it
was believed that the number of people would always be limited by the
available means of subsistence.[291] This was the view of the Physiocrat
Mirabeau, stated in his own characteristic fashion in his book _L’Ami
des Hommes_, which has for its sub-title _Traité de la Population_. Such
a natural fact as the growth of population could possess no terrors for
the advocates of the “natural order.” But in the writings of Godwin
this “natural” optimism assumed extravagant proportions. His book on
_Political Justice_ appeared in 1793 and greatly impressed the public.
Godwin, it has been well said, was the first anarchist who was also
a doctrinaire. At any rate he seems to have been the first to employ
that famous phrase, “Government even in its best state is an evil.” His
illimitable confidence in the future of society and the progress of
science, which he thought would result in such a multiplicity of products
that half a day’s work would be sufficient to satisfy every need, and
his belief in the efficacy of reason as a force which would restrain
personal interest and check the desire for profit, really entitles him to
be considered a pioneer. But life having become so pleasant, was there
no possibility that men might then multiply beyond the available means
of subsistence? Godwin was ignorant of the terrible intricacies of the
problem he had thus raised, and he experienced no difficulty in replying
that such a result, if it ever came to pass, must take several centuries,
for reason may prove as powerful in controlling the sexual instinct as in
restraining the desire for profit. Godwin even goes so far as to outline
a social State in which reason shall so dominate sense that reproduction
will cease altogether and man will become immortal.[292]

Almost at the same time there appeared in France a volume closely
resembling Godwin’s, entitled _Esquisse d’un Tableau historique des
Progrès de l’Esprit humain_, written by Condorcet (1794). It displays the
same confidence in the possibility of achieving happiness through the
all-powerful instrumentality of science, which, if not destined actually
to overcome death, was at least going to postpone it indefinitely.[293]
This optimistic book, written by a man who was about to poison himself
in order to escape the guillotine, cannot leave us quite unmoved. But,
death abolished, Condorcet finds that he has to face the old question
propounded to Godwin: “Can the earth always be relied upon to supply
sufficient means of subsistence?” To this question he gives the same
answer: either science will be able to increase the means of subsistence
or reason will prevent an inordinate growth of population.

It was inevitable, in accordance with the law of rhythm which
characterises the movements of thought no less than the forces of nature,
that such hasty optimism should provoke a reaction. It was not long in
coming, and in Malthus’s essay we have it developed in fullest detail.

To the statement that there are no limits to the progress of mankind
either in wealth or happiness, and that the fear of over-population
is illusory, or at any rate so far removed that it need cause no
apprehension, Malthus replied that, on the contrary, we have in
population an almost insurmountable obstacle, not merely looming in
the distant future, but pressing and insistent[294]—the stone of
Sisyphus destined to be the cause of humanity’s ceaseless toil and final
overthrow. Nature has planted an instinct in man which, left to itself,
must result in starvation and death, or vice. This is the one fact that
affords a clue to men’s suffering and a key to the history of nations and
their untold woes.

Everyone, however little acquainted with sociological study, knows
something of the memorable formula by which Malthus endeavoured to show
the contrast between the frightful rapidity with which population grows
when it is allowed to take its own course and the relative slowness in
the growth of the means of subsistence. The first is represented by a
geometrical series where each successive number is a multiple of the
previous one. The second series increases in arithmetical progression,
that is, by simple addition, the illustration being simply a series of
whole numbers:

  1  2  4  8  16  32  64  128  256
  1  2  3  4   5   6   7   8    9

Every term corresponds to a period of twenty-five years, and a glance
at the figures will show us that population is supposed to double every
twenty-five years, while the means of subsistence merely increases by an
equal amount during each of these periods. Thus the divergence between
the two series grows with astonishing rapidity. In the table given
above, containing only nine terms, the population figure has already
grown to twenty-seven times the means of subsistence in a period of 225
years. Had the series been extended up to the hundredth term a numerical
representation of the divergence would have required some ingenuity.

The first progression may be taken as correct, representing as it
does the biological law of generation. The terms “generation” and
“multiplication” are not used as synonyms without some purpose. It is
true that doubling supposes four persons to arrive at the marriageable
age, and this means five or six births if we are to allow for the
inevitable wastage from infant mortality. This figure appears somewhat
high to those who live in a society where limitation of the birth-rate
is fairly usual. But it is certain that among living beings in general,
including humankind, who are least prolific, the number of births where
no restraint of any kind exists is really much higher. Women have been
known to give birth to twenty or even more children. And there are no
signs of diminishing capacity among the sexes, for population is still
growing. In taking two as his coefficient Malthus has certainly not
overstepped the mark.[295]

The period of twenty-five years as the interval between the two terms is
more open to criticism.[296] The practice of reckoning three generations
to a century implies that an interval of about thirty-three years must
elapse between one generation and another.

But these are unimportant details. It is immaterial whether we lengthen
the interval between the two terms from twenty-five to thirty-three
years, or reduce the ratio from 2 to 1½, or even to something between 1¼
and 1¹/₁₀. The movement will be a little slower, but it is enough that
its geometrical character should be admitted, for however slow it moves
at first it will grow by leaps and bounds until it surpasses all limits.
These corrections fail to touch the real force of Malthus’s reasoning
concerning the law of reproduction.

The series representing the growth of the means of subsistence is also
open to criticism. It is evidently of a more arbitrary character, and
we cannot say whether it is simply supposed to represent a possible
contingency like the first, or whether it pretends to represent reality.
At least it does not correspond to any known and certain law, such as the
law of reproduction. As a matter of fact it rather seems to give it the
lie; for, in short, what is meant by means of subsistence unless we are
to understand the animal and vegetable species that reproduce themselves
according to the same laws as human beings, only at a much faster rate?
The power of reproduction among plants, like corn or potatoes, or among
animals, like fowls, herrings, cattle even, or sheep, far surpasses that
of man. To this criticism Malthus might have replied as follows. This
virtual power of reproduction possessed by these necessaries of life is
in reality confined to very limited areas of the habitable globe. It
is further restricted by the difficulty of obtaining the proper kind
of nourishment, and by the struggle for existence. But if we admit
exceptions in the one case why not also in the other? It certainly
seems as if there were some inconsistency here. As a matter of fact we
have two different theses. The one attempts to show how multiplication
or reproduction need not of necessity be less rapid among plants or
animals than it is among men. The other expresses what actually happens
by showing that the obstacles to the indefinite multiplication of men
are not less numerous than the difficulties in the way of an indefinite
multiplication of vegetables or animals, or, in other words, that the
former is a function of the latter.

In order to grasp the true significance of the second formula it must
be translated from the domain of biology into the region of economics.
Malthus evidently thought of it as the amount of corn yielded by a given
quantity of land. The English economists could think of nothing except
in terms of corn! What he wished to point out was that the utmost we can
expect in this matter is that the increase in the amount of the harvest
should be in arithmetical progression—say, an increase of two hectolitres
every twenty-five years. This hypothesis is really rather too liberal.
Lavoisier in 1789 calculated that the French crop yielded on an average
about 7¾ hectolitres per hectare. During the last few years it has
averaged about 16, and if we admit that the increment has been regular
throughout the 120 years which have since elapsed we have an increase of
2 hectolitres per 25 years. This rate of increase has proved sufficient
to meet the small increase which has taken place in the population of
France. But would it have sufficed for a population growing as rapidly
as that of England or Germany? Assuredly not, for these countries,
despite their superior yields, are forced to import from outside a great
proportion of the grain which they consume. The question arises whether
France can continue indefinitely on the same basis during the course of
the coming centuries. This is, indeed, unlikely, for there must be a
physical limit to the earth’s capacity on account of the limited number
of elements it contains. The economic limit will be reached still earlier
because of the increasing cost of attempting to carry on production at
these extreme limits. Thus it seems as if the law of diminishing returns,
which we must study later, were the real basis of the Malthusian laws,
although Malthus himself makes no express mention of it.

It is a truism that the number of people who can live in any place
cannot exceed the number of people who can gain subsistence there. Any
excessive population must, according to definition, die of hunger.[297]
This is just what happens in the animal and vegetable kingdoms. Germs are
extraordinarily prolific, but their undue multiplication is pitilessly
retarded by a law which demands the death of a certain proportion, so
that life, like a well-regulated reservoir, always remains at a mean
level, the terrible gaps made by death being replenished by a new flow.
Among savages, just as among animals, which they much resemble, a large
proportion literally dies of hunger. Malthus devoted much attention to
the study of primitive society, and he must be regarded as one of the
pioneers of prehistoric sociology—a subject that has made much headway
since then.

He proceeds to show how insufficient nourishment always brings a thousand
evils in its train, not merely hunger and death, but also epidemics and
such terrible practices as cannibalism, infanticide, and slaughter of the
old, as well as war, which, even when not undertaken with a definite view
to eating the conquered, always results in robbing them of their land
and the food which it yielded. These are the “positive” or “repressive”

But it may be replied that both among savages and animals the cause of
this insufficiency of food is an incapacity for production rather than an
excess of population.

Malthus has no difficulty in answering this objection by showing how
savage customs prevailed among such civilised people as the Greeks. And
even among the most modern nations the repressive checks, somewhat
mitigated it is true, are never really absent. Famine in the sense of
absolute starvation is seldom experienced nowadays, except in Russia
and India, perhaps, but it is by no means a stranger even to the most
advanced communities. Tuberculosis, which involves such terrible bodily
suffering, is nothing but a deadly kind of famine. Lack of food is also
responsible for the abnormally high rate of infant mortality and for the
premature death of the adult worker. As for war, it still demands its
toll. Malthus was living during the wars of the Revolution and the First
Empire—bloody catastrophes that caused the death of about ten million
men, all in the prime of life.

In civilized communities equilibrium is possible through humaner
methods, in the substitution of the preventive check with its reduced
birth-rate for the repressive check with its abnormal death-rate. Here
is an expedient of which only the rational and the provident can avail
themselves, an expedient open only to man. Knowing that his children are
doomed to die—perhaps at an early age—he may abstain from having any.
In reality this is the only efficacious way of checking the growth of
population, for the positive check only excites new growth, just as the
grass that is mown grows all the more rapidly afterwards. The history of
war furnishes many a striking illustration of this. The year following
the terrible war of 1870-71 remains unique in the demographic annals of
France on account of the sudden upward trend of the declining curve of

It was in the second edition of his book that Malthus expanded his
treatment of the preventive checks, thus softening the somewhat harsher
aspects of his first edition. It is very important that we should grasp
his exact meaning. We therefore make no apology for frequently quoting
his views on one point which is in itself very important, but upon
which the ideas of the reverend pastor of Haileybury have been so often

The preventive check must be taken to imply moral restraint. But does
this mean abstaining from sexual intercourse during the period of
marriage after the birth, say, of three children, which may be taken as
sufficient to keep the population stationary or moderately progressive?
We cannot find that Malthus ever advocated such abstention. We have
already seen that he considered six children a normal family, implying
the doubling of the population every twenty-five years. Neither is it
suggested that six should be the maximum, for he adds: “It may be said,
perhaps, that even this degree of prudence might not always avail, as
when a man marries he cannot tell what number of children he shall have,
and many have more than six. This is certainly true.” (P. 536.)

But where does moral restraint come in? This is how he defines
it: “Restraint from marriage which is not followed by irregular
gratifications may properly be termed moral restraint” (p. 9); and
to avoid any possible misunderstanding he adds a note: “By moral
restraint I would be understood to mean a restraint from marriage from
prudential motives with a conduct strictly moral during the period
of this restraint, and I have never intentionally deviated from this
sense.” All this is perfectly explicit. He means abstention from all
sexual intercourse outside the bonds of marriage, and the postponement
of marriage itself until such time as the man can take upon himself the
responsibility of bringing up a family—and even the complete renunciation
of marriage should the economic conditions never prove favourable.

Malthus unceremoniously rejected the methods advocated by those who
to-day bear his name, and expressly condemned all who favoured the free
exercise of sexual connection, whether within or without the marriage
bond, through the practice of voluntary sterilization. All these
preventive methods are grouped together as vices and their evil effects
contrasted with the practice of moral restraint. Malthus is equally
explicit on this point. “Indeed, I should always particularly reprobate
any artificial and unnatural modes of checking population. The restraints
which I have recommended are quite of a different character. They are not
only pointed out by reason and sanctioned by religion, but tend in the
most marked manner to stimulate industry.” (P. 572.) And he adds these
significant words, so strangely prophetic so far as France is concerned:
“It might be easy to fall into the opposite mistake and to check the
growth of population altogether.”

It is quite needless to add that if Malthus thus made short work of
conjugal frauds he all the more strongly condemned that other preventive
method, namely, the institution of a special class of professional
prostitutes.[298] He would similarly have condemned the practice of
abortion, of which scarcely anything was heard in his day, but which
now appears like a scourge, taking the place of infanticide and the
other barbarous practices of antiquity. Criminal law seems powerless to
suppress it, and it has already received the sanction of a new morality.

But apart from the question of immoral practices, did Malthus really
believe that moral restraint as he conceived of it would constitute an
effective check upon population?

He doubtless was anxious that it should be so, and he tried to rouse
men to a holy crusade against this worst of all social evils. “To the
Christian I would say that the Scriptures most clearly and precisely
point it out to us as our duty to restrain our passions within the
bounds of reason.… The Christian cannot consider the difficulty of
moral restraint as any argument against its being his duty.” (P. 452.)
And to those who wish to follow the dictates of reason rather than the
observances of religion he remarks: “This virtue [chastity] appears to
be absolutely necessary in order to avoid certain evils which would
otherwise result from the general laws of nature.” (P. 452.)[299]

At bottom he was never quite certain as to the efficacy of moral
restraint. The threatening hydra always peered over the fragile shield
of pure crystal with which he had hoped to do battle.[300] He also felt
that celibacy might not merely be ineffective, but would actually
prove dangerous by provoking the vices it was intended to check. Its
prolongation, or worse still its perpetuation, could never be favourable
to good morals.

Malthus was faced with a terrible dilemma, and the uncompromising ascetic
is forced to declare himself a utilitarian philosopher of the Benthamite
persuasion. He has now to condone those practices which satisfy the
sexual instinct without involving maternity, although at an earlier stage
he characterised them as vices. It seemed to him to be the lesser of two
evils, for over-population[301] is itself the cause of much immorality,
with its misery, its promiscuous living and licence. All of which is
very true.[302] At the same time the rule of conduct now prescribed is
no longer that of “perfect purity.” It is, as he himself says, the grand
rule of utility. “It is clearly our duty gradually to acquire a habit
of gratifying our passion, only in that way which is unattended with
evil.” (P. 500.) These concessions only served to prepare the way for the

Malthus gives us a picture of man at the cross-roads. Straight in front
of him lies the road to misery, on the right the path of virtue, while
on the left is the way of vice. Towards the first man is impelled by a
blind instinct. Malthus warns him to rein in his desires and seek escape
along either by-road, preferably by the path on his right. But he fears
that the number of those who will accept his advice and choose “the
strait road of salvation” will be very small. On the other hand, he is
unwilling to admit, even in the secrecy of his own soul, that most men
will probably follow the road that leads on to vice, and that masses will
rush down the easy slope towards perdition. In any case the prospect is
anything but inviting.

       *       *       *       *       *

No doctrine ever was so much reviled. Imprecations have been showered
upon it ever since Godwin’s memorable description of it as “that black
and terrible demon that is always ready to stifle the hopes of humanity.”

Critics have declared that all Malthus’s economic predictions have been
falsified by the facts, that morally his doctrines have given rise to the
most repugnant practices, and not a few French writers are prepared to
hold him responsible for the decline in the French birth-rate. What are
we to make of these criticisms?

History certainly has not confirmed his fears. No single country has
shown that it is suffering from over-population. In some cases—that
of France, for example—population has increased only very slightly.
In others the increase has been very considerable, but nowhere has it
outstripped the increase in wealth.

The following table, based upon the decennial censuses, gives the _per
capita_ wealth of the population of the United States, the country from
which Malthus obtained many of his data:

  Year          Dollars

  1850            308
  1860            514
  1870            780
  1880            870
  1890           1036
  1900           1227
  1905           1370

In fifty years the wealth of every inhabitant has more than quadrupled,
although the population in the same interval also shows a fourfold
increase (23 millions to 92 millions).[303]

Great Britain, _i.e._ England and Scotland, at the time Malthus wrote
(1800-5), had a population of 10½ millions. To-day it has a population of
40 millions. Such a figure, had he been able to foresee it, would have
terrified Malthus. But the wealth and prosperity of Great Britain have in
the meantime probably quadrupled also.

Does this prove the claim that is constantly being made, that Malthus’s
laws are not borne out by the facts? We think that it is correct to
say that the laws still remain intact, but that the conclusions which
he drew from them were unwarranted. No one can deny that living beings
of every kind, including the human species, multiply in geometrical
progression. Left to itself, with no check, such increase would exceed
all limits. The increase of industrial products, on the other hand, must
of necessity be limited by the numerous conditions which regulate all
production—that is, by the amount of space available, the quantity of raw
material, of capital and labour, etc. If the growth of population has not
outstripped the increase in wealth, but, as appears from the figures we
have given, has actually lagged behind it, it is because population has
been voluntarily limited, not only in France, where the preventive check
is in full swing, but also in almost every other country. This voluntary
limitation which gave Malthus such trouble is one of the commonest
phenomena of the present time.

Malthus’s apprehensions appear to involve some biological confusion.
The sexual and the reproductive instincts are by no means one and the
same;[304] they are governed by entirely different motives. Only to
the first can be attributed that character of irresistibility which he
wrongly attributes to the second. The first is a mere animal instinct
which rouses the most impetuous of passions and is common to all men.
The second is frequently social and religious in its origins, assuming
different forms according to the exigencies of time and place.

To the religious peoples who adopted the laws of Moses, of Manu, or of
Confucius to beget issue was to ensure salvation and to realise true
immortality.[305] For the Brahmin, the Chinese, or the Jew not to have
children meant not merely a misfortune, but a life branded with failure.
Among the Greeks and Romans the rearing of children was a sacred duty
laid upon every citizen and patriot. An aristocratic caste demanded
that the glories of its ancestors and founders should never be allowed
to perish for the want of heirs. Even among the working classes, whose
lot is often miserable and always one of economic dependence, there are
some who are buoyed up by the hope that the more children they have the
larger will be their weekly earnings and the greater their power of
enlisting public sympathy. And in every new country there is a demand
for labourers to cultivate its virgin soil and to build up a new people.

The reproductive instinct, on the other hand, may be thwarted by
antagonistic forces—by the selfishness of parents who shun their
responsibilities, or of mothers who dread the pains and perils of
child-bearing; by the greed of parents who would endow old age rather
than foster youth; by the desire of women to enjoy independence rather
than seek marriage; by the too early emancipation of children, which
leaves to the parents no gains and no joys beyond the cost and trouble of
upbringing; by insufficient house-room or exorbitant taxation, or by any
one of a thousand causes.

Thus the considerations that influence reproduction are infinitely
varied, and being of a social character they are neither necessary nor
permanent, nor yet universal. They may very well be defeated by motives
that belong to the social order, and this is just what happens. And it is
at least possible to conceive of a state of society where religious faith
has vanished and patriotism is dead, where the family lasts only for one
generation, and where all land has been appropriated so that the calling
of the father is denied to the son; where existence has again become
nomadic and suffering unbearable, and where marriage, easily annulled by
divorce, has become more or less of a free union. In such a community,
with all incentives to reproduction removed and all antagonistic forces
in full operation, the birth-rate would fall to zero. And if all nations
have not yet arrived at this stage they all seem to be tending towards
it. It is true that a new social environment may give rise to new
motives. We believe that it will, but as yet we are ignorant of the
nature of these promptings.

Paradoxical as it may seem, the sexual instinct plays quite a secondary
_rôle_ in the procreation of the human species. Nature doubtless has
united the two instincts by giving them the same organs, and those who
believe in final causes can admire the ruse which Nature has adopted for
securing the preservation of the species by coupling generation with
sexual attraction. But man has displayed ingenuity even greater than
Nature’s by separating the two functions. He now finds that (since he has
known how to get rid of reproduction) he can gratify his lust without
being troubled by the consequences. The fears of Malthus have vanished:
the other spectre, race suicide, is new casting a gloom over the land.

Malthus’s condemnation of such practices was of little avail. Other
moralists more indulgent than the master have given them their sanction
by endeavouring to show that this is the only way in which men can
perform a double function, on the one hand giving full scope to sexual
instinct in accordance with the physiological and psychological laws of
their being, and on the other taking care not to leave such a supreme
duty as that of child-bearing to mere chance and not to impose upon
womankind such an exhausting task as that of maternity save when freely
and voluntarily undertaken. This is quite contrary to the pastor’s
teaching concerning moral restraint. The Neo-Malthusians, on the other
hand, consider his teaching very immoral, as being contrary to the
laws of physiology, infected with ideas of Christian asceticism, and
altogether worse than the evil it seeks to remedy. His rule of enforced
celibacy might, in their opinion, involve more suffering even than want
of food, and late marriages simply constitute an outrage upon morality
by encouraging prostitution and increasing the number of illegitimate
births. The Neo-Malthusians[306] persist in regarding themselves as
his disciples because they think that he clearly demonstrated, despite
himself perhaps, that the exercise of the blind instinct of reproduction
must result in the multiplication of human beings who are faced by want
and disease and liable to sudden extinction or slow degradation, and that
the only way of avoiding this is to check the instinct.

There is reason to believe, however, that were Malthus now alive he
would not be a Neo-Malthusian. He would not have willingly pardoned his
disciples the perpetration of sexual frauds which enable man to be freed
from the responsibilities which Nature intended him to bear. Nevertheless
we must recognise that the concessions which he made prepared the way for
this further development.

Malthus did not seem to realise the full import of these delicate
questions which contributed so powerfully to the overthrow of his
doctrine. Especially is this true of the emphasis which he laid upon
chastity, involving as he thought abstention from the joys of marriage.
Such celibacy he would impose only upon the poor.[307] The rich are
obviously so circumstanced that children cannot be a hindrance. We know
well enough that it was in the interests of the poor themselves that
Malthus imposed his cruel law “not to bring beings into the world for
whom the means of support cannot be found.” But that does not prevent its
emphasising in the most heartless fashion imaginable the inequality of
their conditions, forcing the poor to choose between want of bread and
celibacy. Malthus gave a quietus to the old song which eulogises love
in a cottage as the very acme of happiness. It is only just to remark,
however, that he does not go so far as to put an interdict upon marriage
altogether, which is actually the case in some countries. The old liberal
economist asserts himself here. He sees clearly enough that, leaving
aside all humanitarian considerations, the remedy offered would be worse
than the evil, for its only result would be a diminution in the number of
legitimate children and an increase in the number of those born out of

When telling the poor that they themselves were the authors of their
misery,[309] because of their improvident habits, their early marriages,
and their large families, and that no written law, no institution, and
no effort of charity could in any way remedy it, he failed to realise
that he was furnishing the propertied classes with a good pretext for
dissociating themselves from the fate of the working classes.[310] And
during the century which has passed since he wrote the way to every
comprehensive scheme of socialistic or communistic organisation has
been barred and every projected reform which claimed to ameliorate the
condition of the poor effectively thwarted by the argument that the only
result would be to increase the number of participators as well as the
amount to be distributed, and that consequently no one would be any the
better off.

Whatever opposition Malthus’s doctrines may have aroused, his teaching
has long since become a part and parcel of economic science. Occasionally
it has thwarted legitimate claims, while at other times it has been used
to buttress some well-known Classical doctrine, such as the law of rent
or the wages fund theory. On more than one occasion it has done service
in the defence of family life and private property, two institutions
which are supposed to act as effective checks upon the growth of
population, because of the responsibilities which they involve.[311]

The population question has lost none of its importance, although it has
somewhat changed its aspect. What Malthus called the preventive check
has got such a hold of almost every country that modern economists and
sociologists are concerned not so much with the question of an unlimited
growth of population as with the regular and universal decline of the
birth-rate. Everyone is further agreed that the causes must be social.

It is not enough to say that the cause is a deliberate determination
of parents to have no children or to have only a limited number. The
question is, Why do they decide to have none or to limit their family to
a certain number only? Why is this limitation more marked in France than
elsewhere, and why is it more pronounced there to-day than it was say two
or three generations ago? The special causes which apply to the France of
to-day must somehow be discovered, and such causes may be expected to be
less active elsewhere. It may be that Paul Leroy-Beaulieu is right when
he claims that the progress of civilisation must always mean a declining
birth-rate, because the fresh needs and desires and the extra expenditure
which it necessarily involves are incompatible with the duties and
responsibilities of maternity. It is possible that it diminishes as
democracy advances, because the latter strengthens the telescopic
faculty and quickens the desire to rise in the social scale as rapidly
and as effectively as possible. M. Dumont, who advocates this view,
has happily named it the law of capillarity. More precise causes are
sometimes invoked, but they vary according to the particular school that
formulates them. Le Play thinks that it is due to the practice of social
inheritance. Paul Bureau takes it as a sign of the weakening of moral
and religious belief, and of the growth of intemperate habits of every
kind—alcoholism, debauchery, etc. Unfortunately none of the explanations
given seem quite satisfactory, and a second Malthus is required to open
up a new chapter in the history of demography.[312]


Next to Smith, Ricardo is the greatest name in economics, and fiercer
controversy has centred round his name than ever raged around the
master’s. Smith founded no school, and his wisdom and moderation saved
him from controversy. Hence every economist, whatever his views, is found
sitting at his feet straining to catch the divine accents as they fall
from his lips.

But Ricardo was no dweller in ethereal regions. He was in the thickest
of the fight—the butt of every shaft. In discussions on the question of
method the attack is always directed against Ricardo, who is charged
with being the first to lead the science into the fruitless paths of
abstraction. The Ricardian theory of rent affords a target for every
Marxian in his general attack upon private property. The Ricardian theory
of value is the starting-point of modern socialism—a kinship that he
could never have disavowed, however little to his taste. The same thing
is true of controversies concerning banks of issue and international
trade: Ricardo’s place was ever with the vanguard.

His defects are as interesting as his merits, and have been equally
influential. Of his theories, especially his more characteristic ones,
there is now little left, unless we recall what is after all quite as
important—the criticisms they aroused and the adverse theories which they
begot. The city banker was a very indifferent writer, and his work is
adorned with none of those beautiful passages so characteristic of Smith
and Stuart Mill. No telling phrase or striking epithet ever meets the
eye of the reader. His principal work is devoid of a plan, its chapters
being mere fragments placed in juxtaposition. His use of the hypothetical
method and the constant appeal to imaginary conditions makes its reading
a task of some difficulty. This abstract method has long held dominion
over the science, and it is still in full activity among the Mathematical
economists. His thoughts are penetrating, but his exposition is
frequently obscure, and a remark which he makes somewhere in speaking of
other writers, namely, that they seldom know their own strength, may very
appropriately be applied to him. But obscurity of style has not clouded
his fame. Indeed, it has stood him in good stead, as it did Marx at a
later date. We hardly like to say that a great writer is unintelligible—a
feeling prompted partly by respect and partly arising out of fear lest
the lack of intelligence should really be on our side. The result is an
attempt to discover a profound meaning in the most abstruse passage—an
attempt that is seldom fruitful, especially in the case of Ricardo.

It is clearly impossible to outline the whole of this monumental work. We
shall content ourselves with an attempt to place the leading conceptions
clearly before our readers.[313]

Speaking generally, Ricardo’s chief concern is with the distribution of
wealth. He was thus instrumental in opening up a new field of economic
inquiry, for his predecessors had been largely engrossed with production.
“To determine the laws which regulate this distribution is the principal
problem in political economy.” We have already some acquaintance with the
tripartite division of revenues corresponding with the threefold division
of the factors of production—the rent of land, the profits of capital,
and the wages of labour. Ricardo wanted to determine the way in which
this division took place and what laws regulated the proportion which
each claimant got. Although unhampered by any preconceptions concerning
the justice or injustice of distribution, we can easily understand how
he ushered in the era of polemics and of socialistic discussion, seeing
that the natural laws pale into insignificance when contrasted with the
influence wielded by human institutions and written laws. The latter
override the former, and individual interests which may co-operate in
production frequently prove antagonistic in distribution.

We shall follow him in his exposition of the laws of rent, wages, and
profits, but especially rent, for according to him the share given to
land determines the proportions which the other factors are going to

One would imagine that an indispensable preliminary to this study would
be an examination of the Ricardian theory of value, especially when we
recall the importance of his theory of labour-value in the history of
economics doctrine and how it prepared the way for the Marxian theory of
surplus value, which is the foundation-stone of contemporary socialism.
Despite all this we shall only refer to his theory of value incidentally,
and chiefly in connection with the laws of distribution. We have
Ricardo’s own authority for doing this: “After all, the great problem
of rent, of wages, or of profits might be elucidated by determining
the proportions in which the total product is distributed between
the proprietors, the capitalists, and the workers, but this is not
necessarily connected with the doctrine of value.”[314]

It is, moreover, probable that Ricardo himself did not begin with an
elaborate theory of value from which he deduced the laws of distribution,
but after having discovered, or having convinced himself that he had
discovered, the laws of distribution he attempted to deduce from them a
theory of value. One idea had haunted him his whole life long, namely,
that with the progress of time nature demanded an ever-increasing
application of human toil. No doubt it was this that suggested to him
that labour was the foundation, the cause, and the measure of value. But
he never came to a final decision on the question, and his statements
concerning it are frequently contradictory. We must also confess that
his theory of value is far from being his most characteristic work. In
the elucidation of that difficult question, vigorous thinker though
he was, he has not been much more fortunate than his predecessors. He
himself acknowledged this on more than one occasion, and shortly before
his death, with a candour that does him honour, he recognised his failure
to explain value.[315]


Of all Ricardian theories that of rent is the most celebrated, and it
is also the one most inseparably connected with Ricardo’s name. So well
known is it that Stuart Mill spoke of it as the economic _pons asinorum_,
and it has always been one of the favourite subjects of examiners.

The question of rent—that is, of the return which land yields—had
occupied the attention of others besides Ricardo. It was the burning
question of the day. The problem of rent dominated English political
economy during the first half of the nineteenth century, and a later
period has witnessed a revival of it in the land nationalisation
policy of Henry George. In France there was but a feeble echo of the
controversy, for France even long before the Revolution had been a
country of small proprietors. Landlordism was far less common there, and
where it existed its characteristics were very different. That threefold
hierarchy which consisted of a worker toiling for a daily wage in the
employ of a capitalist farmer who draws his profits towered over by a
landlord in receipt of rents formed a kind of microcosmic picture of the
universal process of distribution, but it was seldom as clearly seen in
France as it was in England.

The first two incomes presented no difficulties. But how are we to
explain that other income—that revenue which had created English
aristocracy and made English history? The Physiocrats had named it the
“net product,” and they argued a liberality of nature and a gift of
God. Adam Smith, although withholding the title of creator from nature
and bestowing it upon labour, nevertheless admits that a notable
portion—perhaps as much as a third of the revenue of land—is due to the
collaboration of nature.[316]

Malthus had already produced a book on the subject,[317] and Ricardo
hails him as the discoverer of the true doctrine of rent. Malthus takes
as his starting-point the explanation offered by the Physiocrats and
Adam Smith, namely, that rent is the natural outcome of some special
feature possessed by the earth and given it by God—that is, the power of
enabling more people to live on it than are required to till it. Rent
is the result, not of a merely physical law, but also of an economic
one, for nature seems to have a unique power of creating a demand for
its products, and consequently of maintaining and even of increasing
indefinitely both its own revenue and value. The reason for this is that
the population always tends to equal and sometimes to surpass the means
of subsistence. In other words, the number of people born is seldom less
than the maximum number that the earth can feed. This new theory of rent
is a simple deduction from Malthus’s law concerning the constant pressure
of population upon the means of subsistence.

Malthus emphasised another important feature of rent, and it was this
characteristic that especially attracted Ricardo. Seeing that different
parts of the earth are of unequal fertility, the capitals employed in
cultivation must of necessity yield unequal profits. The difference
between the normal rate of profit on mediocre lands and the superior rate
yielded by the more fertile land constitutes a special kind of profit
which is immediately seized by the owner of the more fertile land. This
extra profit afterwards became known as differential rent.

To Malthus, as well as to the Physiocrats, this kind of rent seemed
perfectly legitimate and conformed to the best interests of the public.
It was only the just recompense for the “strength and talent” exercised
by the original proprietors. The same argument applies to those who have
since bought the land, for it must have been bought with the “fruits of
industry and talent.” Its benefits are permanent and independent of the
proprietor’s labour, and in this way the possession of land becomes a
much-coveted prize, the _otium cum dignitate_ which is the just reward of
meritorious effort.

Ricardo enters upon an entirely new track. He breaks the connection
with Smith and the Physiocrats—a connection that Malthus had been most
anxious to maintain. All suggestion of co-operation on the part of
nature is brushed aside with contempt. Business-man and owner of property
as he was, he had no superstitious views concerning nature, whose work
he contemplated without much feeling of reverence. As against the
celebrated phrase of Adam Smith he quotes that of Buchanan: “The notion
of agriculture yielding a produce and a rent in consequence because
nature concurs with human industry in the process of cultivation is a
mere fancy.”[318] He proceeds to defend the converse of Smith’s view and
to show how rent implies the avarice rather than the liberality of nature.

The proof that the earth’s fertility, taken by itself, can never be the
cause of rent is easily seen in the case of a new country. In a newly
founded colony, for example, land yields no rent, however fertile, if
the quantity of land is in excess of the people’s demand. “For no one
would pay for the use of land when there was an abundant quantity not yet
appropriated, and therefore at the disposal of whosoever might choose to
cultivate it.”[319] Rent only appears “when the progress of population
calls into cultivation land of an inferior quality or less advantageously
situated.” Here we have the very kernel of Ricardo’s theory. Instead of
being an indication of nature’s generosity, rent is the result of the
grievous necessity of having recourse to relatively poor land under the
pressure of population and want.[320] “Rent is a creation of value, not
of wealth,” says Ricardo—a profound saying, and one that has illuminated
many a mystery attaching to the theory of rent. In that sentence he
draws a distinction between wealth born of abundance and satisfaction and
value begotten of difficulty and effort, and he declares that rent is of
the second category and not of the first.

Still, this cannot be accepted as the final explanation. It is difficult
to understand how a purely negative condition such as the absence of
fertile land could ever create a revenue. It were better to say that the
want of suitable land supplies the occasion for the appearance of rent,
although it is not its cause. The cause is the high price of agricultural
products—say corn—due to the increased difficulty of cultivating the less
fertile lands.[321] In short, the cause and the measure of the rent of
corn-land are determined by the quantity of labour necessary to produce
corn under the most unfavourable circumstances, “meaning by the most
unfavourable circumstances the most unfavourable under which the quantity
of produce required renders it necessary to carry on production.”[322]

Let us assume, as Ricardo did, that first-class land yields a bushel of
corn as the result of ten hours’ work, the corn selling for ten shillings
a bushel.[323] In order to supply a population that is increasing in
accordance with the Malthusian formula, land of the second class has to
be cultivated, when the production of a bushel requires fifteen hours’
work. The value of corn will rise proportionately to fifteen shillings,
and landed proprietors of the first class will draw a surplus value or
a bonus of five shillings per bushel. So rent emerges. Presently the
time for cultivating lands of the third class will approach, when twenty
hours’ labour will be necessary for the production of a bushel. The price
of corn goes up to twenty shillings, and proprietors of the first class
see their gift increased or their rent raised from five to ten shillings
per bushel, while the owners of the second-class land obtain a bonus
of five shillings per bushel. This marks the advent of a new class of
rent-receivers, who modestly take their place a little below the first
class. The third class of landowner will receive a rent whenever the
cultivation of fourth-class land becomes a necessity.[324]

It has been said in criticism of the theory that the hierarchy of lands
has simply been invented for the purpose of illustrating the theory. But
what Ricardo has really done is to put in scientific language what every
peasant knows—what has been handed down to him from father to son in
unbroken succession, namely, that all land is not equally fertile.

Ricardo, so often represented as a purely abstract thinker, was in
reality a very practical man and a close observer of those facts that
were then occupying the attention of both public and Parliament. High
rents, following upon high prices, constituted the most important
phenomenon in the economic history of England towards the end of the
eighteenth and the beginning of the nineteenth centuries. Right through
the eighteenth century—that is, up to 1794—the highest price paid for
corn was only a few pence above 60s. per quarter. But in 1796 the price
rose to 92s., and in 1801 it reached 177s.—nearly three times the old
price. The exceptionally high price, due to extraordinary causes, chief
among them being the Napoleonic wars and the Continental blockade, could
not last long, although the average during the years 1810-13 remained as
high as 106s.[325]

This high price of corn was not entirely due to accidental causes.
Something must be attributed to the fact that the available land was
insufficient for the upkeep of the population, and that new land had
to be cultivated irrespective of situation or degree of fertility. The
pastures which had formerly covered England were daily disappearing
before the plough. It was the period of the iniquitous Enclosure Acts,
when landlords set their hearts upon enclosing the common lands.
Professor Cannan has drawn up an interesting chart to show the close
correspondence between the progress of the enclosure movement and the
high price of corn.[326]

In 1813 a Commission appointed by the House of Commons to inquire into
the price of corn—for the proprietors dreaded the day when the return
of peace would allow of importation—came to the conclusion that new
lands could not produce corn at a less cost than 80s. a quarter. What an
argument for Ricardo’s theory![327]

But is there no possible means of avoiding the cultivation of lands
of the second and third order? Intensive cultivation might doubtless
do something to swell the returns on the older lands, but only up to
a certain point. It would be absurd to imagine that on a limited area
of land an unlimited quantity of subsistence can be produced. There
must be a limit somewhere—an elastic limit perhaps, and one which the
progress of science will push farther and farther away, even beyond our
wildest hopes. But the cultivator stops long before this ideal limit
is reached, for practice has taught him that the game is not worth the
candle, because the outlay of capital and labour exceeds the profits on
the return. This practical limit is determined for him by the law of
diminishing returns.[328]

That law is indispensable to an understanding of the Ricardian theory,
and is implied in Malthus’s theory of population. Its discovery is still
earlier, and we have an admirable statement of it in Turgot’s writings:
“It can never be imagined that a doubling of expenditure would result
in doubling the product.” Malthus, unconsciously no doubt, repeated
Turgot’s dictum.[329] It is evident, says he, that as cultivation
extends, the annual addition made to the average product must continually
diminish.[330] Ricardo witnessed the operation of the law under his
very eyes, and he frequently hinted at the decreasing returns yielded
by capital successively applied to the same land. Even in cases of that
kind, where recourse to new lands was impossible, rents were bound to

Taking again land No. 1, which yields corn at 10s. a bushel, let us
imagine that there is an increased demand for wheat. Instead of breaking
up land No. 2 an attempt might be made to increase the yield on No. 1,
but nothing will be gained by it because the new bushel produced on
No. 1 will cost 15s., which is just what it would cost if raised on
second-class land. Furthermore, the price will now rise to 15s., and the
two bushels will be disposed of for 30s., thus giving the proprietor a
rent of 5s., because they have only cost 25s. to produce.[331]

There is still another possibility, however. Resort might be had to
emigration and colonists might be encouraged to cultivate the best soils
of distant lands, soils equal in fertility to those in the first class.
The products of such lands would be got in exchange for the manufactured
goods of the home country, to which the law of diminishing returns does
not apply. But some account of the cost of transport, which increases the
cost of production, must be taken, and this leads to the same result,
namely, a rent for those nearest the market, because of the advantages
of a superior situation. Distance and sterility, as J. B. Say remarks,
are the same thing. If land in America yields corn at 10s. a bushel and
freightage equals 5s., it is clear that corn imported into England must
sell for 15s.—exactly the same condition of things as if land of the
second order had been cultivated, and English landlords of the first
class will still draw a rent of 5s. This third possibility was scarcely
mentioned by Ricardo, and he could hardly have foreseen the wonderful
developments in transportation that took place during the next fifty
years, which resulted in a reversal of the law of diminishing returns and
the confuting of the prophets.[332]

The great Ricardian theory, _prima facie_ self-evident, is in reality
based upon a number of postulates to which we must pay more attention.
Some of them must be regarded as economic axioms, but the validity of
others is somewhat more doubtful.

In the first place there is the assumption that the produce of lands
unequally fertile and representing unequal amounts of labour will always
sell at the same price, or, in other words, will always possess the same
exchange value. Is this proposition demonstrably sound? It is true when
the product in question—for example, corn—is of uniform quality and
kind. When the goods offered on the same market are so much alike that
it is a matter of indifference to the buyer whether he takes the one or
the other, then it is true that he will not pay a higher price for the
one than he will for the other. This is what Jevons called the “law of
indifference.”[333] In the second place it is implied that this exchange
value, uniform for all identical products, is determined by the maximum
amount of labour required for its production, or, in other words, by the
amount of labour necessary for the production of the more costly portion.

This brings us to the Ricardian theory of value. We know that he
considered that the value of everything was determined by the amount of
labour necessary for its production.[334] Adam Smith had already declared
that value was proportional to the amount of labour employed, but that
this was the case only in primitive societies. “In civilised society,
on the contrary, there is a still smaller number [of cases] in which it
consists altogether in the wages of labour.” Labour was regarded by Smith
as one of the factors determining value—though by no means the only one,
land and capital being obviously the others.

But Ricardo simplified matters, as abstract thinkers frequently do, by
neglecting the last-named factors. This leaves us only labour. Land is
dismissed because rent contributes nothing to the creation of value, but
is itself entirely dependent upon value.[335] Corn is not dear because
land yields rent, but land yields rent because corn is dear. “The
clearly understanding this principle is, I am persuaded, of the utmost
importance to the science of political economy.” As for capital, why
should we make a special factor of it, seeing that it is only labour?
Its connotation might be extended so as to include “the labour bestowed
not on their immediate production only, but on all those implements or
machines required to give effect to the particular labour to which they
were applied.”[336] But Ricardo was not thoroughly satisfied with this
identification of capital and labour, and, great capitalist that he was,
it must have caused him much searching of heart. Furthermore, it was
not very easy to apply the conception to such commodities as timber and
wine, which increase in value as they advance in age. In a letter to
McCulloch he admits the weakness of his theory. After all the study that
he had given to the matter, he had to confess that the relative value of
commodities appeared to be determined by two causes: (1) the relative
quantity of labour necessary for its production; (2) the relative length
of time required to bring the commodity to market. He seems to have had
a presentiment of the operation of a new and distinct factor, to which
Böhm-Bawerk was to ascribe such importance.

The usual method of stating the Ricardian theory of value is to say that
value is determined by cost of production. It is also the correct way,
inasmuch as he stated it thus himself. It is, however, quite a different
thing to say on the one hand that value is determined by labour and on
the other that it depends upon the sum of wages and profits (supposing
we omit rent).[337] On this point, as on several others, obscurity of
thought alone saves Ricardo from the reproach of self-contradiction.

Suppose we proceed a step farther. The statement that value is determined
by labour is not enough to account for the phenomenon of rent. Let us
imagine a market where three sacks of corn are available for sale. Let us
further suppose that the production of each involved a different quantity
of labour, one being produced on land that was very fertile, the other
on soil that was less generous, etc. Every sack will sell at the same
price, but the question is, which of those different quantities of labour
is the one that determines the price? Ricardo replies that it is the
maximum quantity, and the value of the corn is determined by the value
of that sack which is produced under the greatest disadvantages. But why
should it not be determined by the value of the sack grown under the most
favourable circumstances, or by the value of that other sack raised under
conditions of average difficulty?

That is impossible. Let us imagine that the three sacks of corn
came from three different kinds of land, A, B, and C, where the
necessary quantities of labour were respectively 10, 15, and 20. It is
inconceivable that the price should fall below 20, the cost of production
of corn grown on C, for if it did C would no longer be cultivated; but
the produce of C is _ex hypothesi_ indispensable. The market price cannot
rise above 20, for in that case lands of the fourth class would be
brought under cultivation, and their yield would be added to the quantity
already on the market. The supposition is that the quantity of corn on
the market is already sufficient to meet the demand, and the increase
in supply would soon cause the price to fall again to the irreducible
minimum of 20.

We cannot but admire the ingenuity of a demonstration that seeks to
explain a phenomenon like rent—which is a revenue obtained independently
of all labour—by the aid of a generalisation which regards labour as
the one source of value. But the explanation is ingenious rather than
convincing, for it is quite clear that only in the case of one of the
sacks do value and amount of labour actually coincide. In the two other
instances the quantity of labour and exchange value are absolutely and
indefinitely divergent.

Most contemporary economists, while denying that value is solely the
product of labour and preferring to regard it as a reflection of human
preferences, would willingly recognise the element of truth contained
in the Ricardian view. But it must be understood in the sense that
competition, although tending to reduce price to the level of cost of
production, cannot reduce it below the maximum cost of production, or
the price necessary to repay the expenses of producing the most costly
portion of the total amount demanded by the market.[338] In this sense it
is true not only of agricultural but also of all other products, and it
has a wider scope than was at first ascribed to it by its authors. Rent
is nowadays recognised as an element which enters into all incomes. But
with an extension of sway has gone attenuation, and the term has lost
something of its original significance and precision. To-day rent is
treated as the outcome of certain favourable conjunctures, which are to
be found in all stations in life, and it is no uncommon thing to speak of
consumer’s rent even.

The Ricardian theory, moreover, presupposed the existence of a class of
land which yielded no rent, the returns which it gave being only just
sufficient to cover cost of production. In other words, Ricardo only
recognised the existence of differential rents, and dismissed the other
cases mentioned by Malthus.

It really seems as if Malthus were in this instance more correct than
Ricardo. It is quite possible that in the colonies, for example, there
may be lands which yield no rent because of the superabundance of fertile
land. Or the same thing may occur in an old country because of the
extreme poverty of the land. But it is quite evident that in a society
having a certain density of population the mere fact that there exists
only a limited amount of land is enough to give to all lands and to their
products a scarcity value independent of unequal returns. Nor would the
case be materially different if all lands were supposed to be of equal
fertility, for who would be willing to cultivate land which only yielded
the bare equivalent of the expenses of production?

Ricardo’s unwillingness to recognise this other class of rent, which
depends solely upon the limited quantity of land, was due to the
fact that it would have contradicted his other theory that there is
no value except labour. It is true that he made an exception of some
rare “products,” such as valuable paintings, statuary, books, medals,
first-class wines, etc., the quantity of which could not be increased by
labour. Nobody would have taken any notice of such a slight omission as
that, but had he left out such an important item of wealth as the earth
itself there would be great danger of the whole theory crumbling to

       *       *       *       *       *

Such is the theory of rent, celebrated above all economic doctrines, and
concerning which it might be said that no doctrine, not even that of
Malthus, has ever excited such impassioned criticism. For this there are
several reasons.

In the first place, it led to an overthrow of the majesty of the “natural
order” by simply depicting some of its gloomier aspects. Men had been led
to believe that the “order” was for ever beyond challenge. Now, however,
it seemed that if the new doctrine was true then the interests of the
landed proprietors were opposed not only to those of every other class
in the community—for sharing always begets antagonism—but also to the
general interest of society as a whole.

For what are the real interests of proprietors? First, that population
and its demands should increase as rapidly as possible in order that men
may be forced to cultivate new lands, and that these new lands should be
as sterile as possible, requiring much toil and thus causing an increase
in rents. Exhaustive labour bestowed upon the cultivation of land that is
gradually becoming poorer and poorer would soon make the fortune of every

As a class, proprietors have every interest in retarding the progress of
agricultural science, a paradox which the slightest reflection will show
to be true. Every advance in agricultural science must mean more products
from the same amount of land and a check upon the law of diminishing
returns, resulting in lower prices and reduced rents, since it would
no longer be necessary to cultivate the poorer soils. In a word, since
rent is measured by reference to the obstacles which thwart cultivation,
just as the level of water in a pond is determined by the height of the
sluice, everything that tends to lower this obstacle must reduce the
rent. In mitigation of this charge it must, however, be noted that, taken
individually, every proprietor is of necessity interested in agricultural
improvement, because he may have an opportunity of benefiting by larger
crops before the improvements have become general enough to lower prices
and to push back the margin of cultivation. If every proprietor argued
in this way, individual interest would finally cheat itself, to the
advantage of the general public. But this is nothing to be very proud of.

Ricardo set out to demonstrate the antagonism,[340] and with what a
vigorous pen does he not picture it! The study of this question of
rent made of him a Free Trader stauncher than Adam Smith, more firmly
convinced than the Physiocrats. Free Trade was for them founded upon
the conception of a general harmony of interests, while Ricardo built
his faith upon one clearly demonstrated fact—the high price of corn
and its concomitant, high rents. Free Trade seemed to be the means of
checking this disastrous movement. The free importation of corn implied
the cultivation of distant lands as rich as or even richer than any in
Britain. All this meant avoiding the cultivation of inferior lands and
reducing the high price of corn.

He was also desirous of proving to the proprietors that the practice of
free exchange, even though it might involve some loss of revenue to them,
was really to their interest. Their opposition, he thought, was very
short-sighted. “They fail to see,” he writes, “that commerce everywhere
tends to increase production, and that as a result of this increased
production general well-being is also improved, although there may be
partial loss as the result of it. To be consistent with themselves they
ought to try to arrest all improvement in agriculture and manufacture and
all invention of machinery.”[341]

The theory of rent, in the second place, endangered the reputation of
landowners by showing that their income is not the product of labour,
and is consequently anti-social. No wonder that it has been so severely
criticised by conservative economists. Ricardo himself, however,
seemed quite unconscious of the nature of the blow thus aimed at the
institution of private property. His indifference, which appears to us
so surprising, is partly explained by the fact that the theory absolved
the proprietor from all responsibility in the matter. Unlike profits and
wages, rent does not figure in cost of production because it makes no
contribution to the price of corn, but is itself wholly determined by
that price.[342] The landed proprietor thus appears as the most innocent
of the co-partners, playing a purely passive _rôle_. He does not produce
rent, but simply accepts it.

That may be; but the fact that the proprietor plays no part in the
production of rent, whilst exonerating him from complicity in its
invidious consequences, spells ruin to his title of proprietor—that is,
if we consider labour to be the only title to proprietorship. It was
just this aspect of the question that drew the attention of Ricardo’s
contemporary James Mill. Mill advocated the confiscation of rent or its
socialisation by means of taxation.[343] He thus became a pioneer in the
movement for land nationalisation, a cause that has since been championed
by such writers as Colins, Gossen, Henry George, and Walras.

Finally, the theory of rent seems to give colour to certain theories
which predict an extremely dark future for the race, corroborating the
gloomy forebodings of Malthus. As society grows and advances it will be
forced to employ lands that are less fertile and means of production that
are more onerous. It seems as if the curse uttered in Genesis has been
scientifically verified. “Thorns also and thistles shall it bring forth
to thee; … in the sweat of thy face shalt thou eat bread.”

True, he did not carry his pessimism so far as to say that as the result
of this fatal exhaustion of this most precious instrument of production
the progress of mankind would for ever be arrested by the ravages of
famine. Other beneficent forces, the progress of agricultural science and
a larger employment of capital, would surmount the difficulty. “Although
the lands that are actually being cultivated may be inferior to those
which were in cultivation some years ago, and consequently production is
becoming more difficult, can anyone doubt that the quantity of products
does not greatly exceed that formerly produced?”

Ricardo’s theory does not involve a denial of progress. But it shows
how the struggle is becoming more and more difficult, and how scarcity
and want, if not actual famine, must lie in the path along which we are
advancing. Suppose Great Britain were now to attempt to feed her 45
million inhabitants from her own soil, would there be much doubt as to
the correctness of Ricardo’s prophecy?

It is an easy matter to reproach Ricardo[344] with his failure to
foresee the remarkable development in the methods of transport and cheap
importation which resulted in the arrest, if not the reversal, of the
upward movement of the rent curve. The complaints of landlords both in
England and Europe seem to belie the Ricardian theory.[345] But who can
tell whether the peril is finally removed or not? The inevitable day will
arrive when new countries will consume the corn which to-day they export.
This may not come about in the history of England and Europe for some
centuries yet, but when it does happen, rent, instead of being stationary
and retrogressive, as it has been so long, will again resume its upward

It is true that we may reckon upon the aid of agricultural science even
if foreign importation should fail us. Ricardo was ever mindful of the
great possibilities of human industry. Other economists, notably Carey
and Fontenay, one of Bastiat’s disciples, have propounded a theory which
is the exact antithesis of the Ricardian, namely, that human industry
in its utilisation of natural forces always begins with the feeblest as
being more easily tamed, the more powerful and recalcitrant forces only
coming in for attention later on. The earth is no exception to the rule,
and agricultural industry might well become not less but more productive.

This thesis, which implies a negation of the law of diminishing returns,
is based upon a very debatable analogy.

When speaking of the future of industry it is well to remember that
forces now seldom used, and perhaps seldom thought of, such as the
energies liberated by chemical and intermolecular action, may hold
infinite resources in reserve for mankind. But agriculture is different.
Admitting that with nitrogen got from the atmosphere, or with phosphorus
extracted from the subsoil, we may enrich the land indefinitely, still we
are continually confronted with the limitations of time and space, which
must determine the development of living things, and of agricultural
products among them. When albumen can be scientifically produced then
will the Ricardian theory become obsolete. Until then it holds the field.


Let us now approach these two laws of Malthus and Ricardo—the law of
population and the law of rent—and ask what effect they are likely to
have upon the condition of the worker and the amount of his wages. The
answer is not very reassuring. On the one hand there is an indefinite
increase in the numbers of the proletariat—the result of unchecked
procreation, for “the moral restraint” can hardly be said to have
influence at all. The inevitable result is the degradation of human
labour. On the other hand, the law of diminishing returns causes a
continuous rise in the price of necessaries. Between low wages on the one
hand and high prices on the other, the worker feels himself crushed as
between the hammer and the anvil.

Turgot had long since given utterance to the tragic thought that the
wages of the worker are only just sufficient to keep him alive. His
contemporary Necker gave expression to the view in terms still more
melancholy. “Were it possible,” writes Necker, “to discover a kind of
food less agreeable than bread but having double its sustenance, people
would then be reduced to eating only once in two days.” These must be
looked upon as mere isolated statements, sufficiently well attested
by contemporary facts, perhaps, but laying no claim to be considered
general, permanent, and inevitable laws such as Ricardo and Malthus would
have regarded them.

And Ricardo still more emphatically declares that “the natural price of
labour is that price which is necessary to enable the labourers one with
another to subsist and to perpetuate their race without either increase
or diminution.” Note the last words, “without increase or diminution”;
that is, if a working man has more children than are necessary for
replacing their parents, then their wages will fall below the normal
rate until increased mortality shall have again established equilibrium.

This is not tantamount to saying that nominal wages measured in terms
of money cannot increase. Indeed, it is absolutely necessary that they
should increase, seeing that the price of commodities is continually
rising. If they were to remain the same the workman would soon be reduced
to starvation. Wages accordingly will show a tendency to rise in sympathy
with the rising price of corn, so that the workman will always be able to
procure just the same quantity of bread, no more and no less. It is his
real wages measured in corn that remain stationary, and upon this depends
the well-being of the working class.

But do they really remain stationary? Ricardo does not seem to think
so. “In the natural advance of society the wages of labour will have a
tendency to fall, as far as they are regulated by supply and demand;
for the supply of labourers will continue to increase at the same rate,
whilst the demand for them will increase at a slower rate.”[346]

It is even possible that an increase in nominal wages may hide a decrease
in real wages. In that case, of course, wages will appear to rise, but
“the fate of the labourer will be less happy; he will receive more money
wages it is true, but his corn wages will be reduced.” Only when the
working classes are sufficiently thoughtful to limit the number of their
children will it be possible to hope for a preservation of the _status
quo_. “It is a truth which admits not a doubt, that the comforts and
well-being of the poor cannot be permanently secured without some regard
on their part or some effort on the part of the legislature to regulate
the increase of their numbers, and to render less frequent among them
early and improvident marriages.”

In other words, there will always be a demand for a certain number of
individuals in order to supply the needs of industry. So long as this
indispensable minimum is not exceeded the wages even of the very lowest
order must be sufficient to maintain existence, for they must all be kept
alive at any rate. But should the working population exceed this demand
nothing can prevent wages falling even below the minimum necessary for
existence, for there will no longer be any necessity for keeping them all

It must be remarked here that on this question, as on that of rent,
Malthus is less pessimistic than Ricardo. Far from maintaining that
every rise in wages of necessity involves an excess of population and
a consequent lowering of wages, Malthus believed that a capacity for
forethought, which constitutes the most efficacious check upon the
operation of blind instinct, may be engendered even among the working
classes, and that a high standard of life once secured may become
permanent. All this may be very true, but the reasoning involves us in
a vicious circle. In order that a high rate of wages may produce its
beneficial effects it must first of all be established, but how can it
possibly be established as long as the working classes remain steeped in
the misery caused by not exercising this forethought?

An exit from the circle is only possible by recalling the fact that the
market wage incessantly oscillates about the natural wage according to
the exigencies of demand and supply. If this accidental rise could be
prolonged a little it might become permanent and modify the workman’s
standard of life.[347]

Such is the law of wages, which has long since passed into an axiom,
and whose authority is invoked in every discussion on social reform. To
every socialistic scheme, to every proposal for social reform, there is
always one answer: “There is no means of improving the lot of the worker
except by limiting the number of his children. His destiny is in his own
hands.”[348] Latter-day socialism, commencing with Lassalle, makes a
careful study of the law, and returns to the charge against the existing
economic order by affirming that in no respect is it a natural law, but
merely a result of the capitalist _régime_, upon which it supplies an
eloquent commentary.

We must not fail to note that in the Ricardian theory there is not what
we can exactly call antagonism between the landed proprietor and the
proletarian. To the latter it is a matter of indifference whether rents
be high or low, for his money wages move in sympathy with the price of
corn, but his real wages never change. The proprietor on his side is
equally indifferent to rising or falling wages, for they never affect his
receipts. His rent, as a matter of fact, is determined by the quantity of
labour employed on the least fertile lands, but this quantity of labour
has nothing to do with the rate of wages. The landlords are the grandees
of a different order.[349]

The real struggle lies between capitalist and worker. Once the value
of corn has been determined by the cost of producing it on the least
favoured land, the proprietor seizes whatever is over and above this,
saying to both worker and capitalist, “You can divide the rest between
you.” This clearly is Ricardo’s view.[350] “Whatever raises the wages of
labour lowers the profits of stock.” Wages can only rise at the expense
of profits, and _vice versa_—a terrible prophecy that has been abundantly
illustrated by the fortunes of the labour movement, but never more
clearly than at the present moment.

But the mere statement of the fatal antagonism between capitalist and
workman must have caused both grief and surprise to those economists who
had endeavoured to demonstrate the solidarity of interests between them
as between brothers. Bastiat was one of these, and he tried to show that
in the course of economic evolution the share of each factor tends to
grow, but that labour’s shows the greatest increase.

There can be no objection to Ricardo’s method of stating the law. The
whole thing is so evident that it is almost a truism. A cake is being
shared between two persons. If one gets more than his due share is it
not evident that the other must get less? It may be pointed out, on the
other hand, that the amount available for distribution is continually on
the increase, so that the share which each participant gets may really
be growing bigger. But that is hardly the problem to be solved.[351]
Increase the cake tenfold, even a hundredfold, but if one person gets
more than half of it the other must have less. Ricardo’s implication is
just that. His law deals with proportions and not with quantities.

Admitting that the proportion which one of the two factors receives can
be increased only if the other is lessened, the problem is to discover
which of the two, capital or labour, has the bigger portion. It really
seems as if it were labour, for Ricardo speaks of another law of profits,
namely, “the tendency of profits to a minimum.” Here is another thesis
which has had a long career in the history of economics, but what are the
reasons that can be adduced in support of it? The natural tendency of
profits, then, is to fall; “for in the progress of society and wealth the
additional quantity of food required is obtained by the sacrifice of more
labour.” It is determined by the same cause as determined rent—the system
is a solid piece of work at any rate.

But how does the cultivation of inferior land affect the rate of profits?
We have already seen how the worker’s share, the minimum necessary
for keeping body and soul together, goes to swell the high price of
corn.[352] But the manufacturer cannot transfer the cost of high wages to
the consumer, for the rate of wages has no effect on prices. (Labour has,
but wages have none.) As a consequence, the capitalist’s share must be
correspondingly reduced. We must remember that the workman gains nothing
by the high rate of wages, for his consumption of food is limited by
nature, but this does not hinder the capitalist losing a great deal by it.

And so there must come a time when the necessary wage will have absorbed
everything and nothing will remain for profit. There will be a new era
in history, for every incentive to accumulate capital will disappear
with the extinction of profit. Capital will cease growing, no new
lands will be cultivated, and population will be brought to a sudden
standstill.[353] The stationary state with its melancholy vistas will
be entered upon. Mill has described it in such eloquent terms that we
are almost reconciled to the prospect. But it could hardly have been
a pleasant matter for Ricardo, who was primarily a financier and had
but little concern with philosophy. He was very much attached to his
prophecies, and there is a delicate piece of irony in the thought that
the tendency of profits towards a minimum should have been first noted
by this great representative of capitalism. At the same time he felt a
little reassured when he thought of the opposing forces which might check
its downward trend and arrest the progress of rent. In both instances the
best corrective seemed to lie in the freedom of foreign trade.

The general lines of distribution are presented to us in a strikingly
simple fashion. The demonstration is neater even than the famous _Tableau
économique_, and it has the further merit of being nearer the actual
facts as they appeared in Ricardo’s day, for they are no longer quite the
same. It may be represented by means of a diagram consisting of three

At the top is an ascending line representing rent—the share of Mother
Earth. The proprietor’s rent reveals a double increase both of money and
kind, for as population and its needs grow it requires an increasing
quantity of corn at an increased price. Still, the high price cannot be
indefinitely prolonged, for beyond a certain point a high price of corn
would arrest the growth of population and at the same time the growth of
rent; then it would no longer be necessary to cultivate new lands.

In the middle is a horizontal line representing wages—labour’s share.
The real wages of labour remain stationary, for it simply receives the
quantity of corn necessary to keep it alive. It is true that as the corn
is gradually becoming dearer the worker’s nominal wages increase, but
with no real benefit to him.

Below this is a descending line representing profits—capital’s
share.[354] It shows a downward trend for the simple reason that it
finds itself squeezed between the proprietor’s share, which tends to
increase, and the labourer’s, which is stationary. The capitalist is
brought to our notice in the guise of an English farmer who is obliged
to raise his servants’ wages as the corn becomes dearer, but who gains
nothing by this rise because the extra revenue is taken by the proprietor
in the form of higher rent. But profits cannot fall indefinitely, for
beyond a certain point it would involve an end to the employment of
old capital and the formation of new capital. This would hinder the
cultivation of new lands, and would arrest the high price of corn and
lower rent.


Such are the more characteristic of Ricardo’s doctrines—at any rate,
those that left the deepest impression upon his successors and caused the
greatest stir among his contemporaries. There are other doctrines besides
which, regarded as contributions to the science, are much more important
and more definite; but just because they figured almost directly in the
category of universally accepted truths whose validity and authorship
have never been questioned they have contributed less to his fame. Such
are his theories of international trade and banking, where the theorist
becomes linked to a first-rate practical genius. Here at any rate there
is no note of pessimism and no suggestion of conflicting interests. On
the contrary, he was able to point out that “under a system of perfectly
free commerce the pursuit of individual advantage is admirably connected
with the universal good of the whole.”

In the matter of international trade he showed himself a more resolute
Free Trader than either Smith or the Physiocrats. It seemed to him that
the only way of arresting the terrible progress of rent and of checking
the rising price of corn and the downward tendency of profits was by the
freest importation of foreign corn.[355]

In addition to this twofold argument in favour of Free Trade, Ricardo
brings forward another which is of considerable importance even at the
present time. This argument is based upon the advantages which accrue
from the territorial division of labour. “By stimulating industry, by
rewarding ingenuity, and by using most efficaciously the peculiar powers
bestowed by Nature, it distributes labour most effectively and most

It may be worth while remarking that his illustrious contemporary Malthus
remained more or less of a Protectionist.[356] It might seem strange
that Malthus, continually haunted as he was by the spectre of famine,
should refuse to welcome importation. But his point of view was doubtless
largely that of the modern agricultural Protectionist, who believes that
the surest way of preserving a country from famine is not to abandon its
agriculture to the throes of foreign competition, but, on the contrary,
to strengthen and develop the home industry by securing it a sufficiently
high price for its products. We must also remember that Malthus’s
theory of rent differed somewhat from Ricardo’s, and that he was not so
violently opposed to State intervention.[357]

But Ricardo’s principal contribution to the science was his discovery of
the laws governing the movements of commodities and the counter-movements
of money from one place to another, and the admirable demonstration which
he has given us of this remarkable ebb and flow.

As soon as the balance of commerce becomes unfavourable to France,
let us say—that is, as soon as importation exceeds exportation say by
£1,000,000—money is exported to pay for this excessive importation. Money
becomes scarce, its value rises, and prices fall. But a fall in price
will check foreign importation and will encourage exportation, so that
imports will show signs of falling off while exports will grow. Money
will no longer be sent abroad, and the current will begin to run the
other way, until the £1,000,000 sent abroad is returned again. Moreover,
the £1,000,000 sent abroad will cause a movement in the opposite
direction—superabundance and a depreciation in the value of money,
high prices, a premium on importation and a check upon exportation.
Accordingly economic forces on both sides will conspire to bring back
the balance of commerce to a position of equilibrium—that is, to that
position where each country will possess just the quantity of money that
it needs.

It might be pointed out, on the other hand, that this somewhat
complicated mechanism can only operate very slowly, and that considerable
time must elapse before the prices of goods begin to respond to the
change in the quantity of money. But as a matter of fact it is not
necessary to wait until this phenomenon becomes established, for another
striking feature precedes it and announces its approach so to speak,
and this is, as Smith had already noted, a change in the value of bills
drawn on foreign countries. The foreign exchanges are so sensitive that
the slightest rise is enough to stimulate exportation and to check

Accordingly money seldom leaves a country, or only leaves it for a short
time. In other words, contrary to the generally accepted opinion, silver
and gold in international trade do little more than oil the wheels of
commerce. The trade is carried on as if the metals were non-existent. In
short, it is essentially of the nature of barter.[358]

The explanation is very schematic. Every incidental phenomenon is
omitted, and the whole theory implies the validity of the quantity theory
of money, which is now open to considerable criticism as being altogether
inadequate for an explanation of the facts involved. But this theory of
the automatic regulation of the balance of trade by means of variations
in the value of money, although already hinted at by Hume and Smith,
is none the less a discovery of the first order, and one that has done
service as a working hypothesis for a whole century.[359]

Its explanation turns upon a particular theory of international trade
which we can only mention in passing, but which we shall find more fully
developed in Stuart Mill’s theory of international values.


The enunciation of the principles which should govern the conduct of
bankers in issuing paper money is another debt that we owe to the genius
of Ricardo. The Bank Act of 1822, and that of 1844 especially, which laid
down the future policy of the Bank of England, represent an attempt on
the part of the Government to put his principles into practice.

Ricardo was an eye-witness of the great panic of February 26, 1797, when
the reserves of the Bank of England fell from ten millions to a million
and a half, necessitating an Order in Council suspending cash payments.
The suspension, which was supposed to be a temporary expedient, extended
right up to 1821. The depreciation in the value of the bank-note averaged
about 10 per cent., but at one period towards the end of the Napoleonic
wars it rose as high as 30 per cent. He also witnessed the suffering
which such depreciation caused. Landlords demanded the payment of their
rents in gold, or claimed an increase in the rent equal to the fall in
the value of the note.

Ricardo tried to unravel the causes of this depreciation in his pamphlet
entitled _The High Price of Bullion_, published in 1809, and came to the
conclusion that there was only one cause, namely, an excessive supply
of paper. At this distance of time it might not be thought such an
extraordinary discovery after all. Still, he had the greatest difficulty
in getting people to admit this, and in refuting the absurd explanations
which had previously been suggested. He showed how a depreciation in
the value of the note necessarily resulted in the exportation of gold,
although most of his contemporaries, on the contrary, believed that the
exportation of gold was the cause of all the mischief which they sought
to check by an Act of Parliament. “The remedy which I propose for all
the evils in our currency is that the Bank should gradually decrease the
amount of their notes in circulation until they shall have rendered the
remainder of equal value with the coins which they represent, or in other
words till the prices of gold and silver bullion shall be brought down to
their Mint price.”[360]

But if that is the case why not cut the Gordian knot and suppress paper
money altogether? The reply shows how well Ricardo had studied Smith:
“A well-regulated paper currency is so great an improvement in commerce
that I should greatly regret if prejudice should induce us to return
to a system of less utility.” “The introduction of the precious metals
for the purposes of money may with truth be considered as one of the
most important steps towards the improvement of commerce and the arts
of civilised life; but it is no less true that with the advancement of
knowledge and science we discover that it would be another improvement
to banish them again from the employment to which, during a less
enlightened period, they had been so advantageously applied.”[361]

Proceeding, he points out that where you have only metallic money it
might happen that the production of gold fails to keep pace with the
growth of population, in which case you have a rise in the value of
gold accompanied by a fall in prices. This danger might be obviated by
a careful issue of notes in accordance with the demands of society. In
short, Ricardo is so little disposed to abandon the system of paper
money and to return to the previous system of metallic money that, on
the contrary, he would prefer to abolish the metallic system altogether,
taking good care that paper money did not become superabundant.

So convinced was he of the superiority of paper money that he had no
desire to see the Bank resume cash payment. The result of the resumption
would be a demand on the part of the public for a conversion of their
paper money, “and thus, to indulge a mere caprice, a most expensive
medium would be substituted for one of little value.”

But if the notes are not convertible into cash, what is there
to guarantee their value or to regulate their issue and prevent
depreciation? This can be done merely by keeping a reserve of gold at the
bank, not necessarily in the form of money, but in the form of ingots.
The bank would not be allowed to issue any notes beyond the value of
these ingots. This regulation would have the effect of keeping the value
of the note at par, for bankers and money-dealers would immediately
proceed to convert these notes into gold as soon as they showed any signs
of depreciation. This would not mean, however, that the public at large
would again return to the use of metallic money, for these ingots would
be of little use for purposes of everyday life.

It is a curious system. One would hardly expect the great champion of
Liberal political economy to outline a banking system which could only
operate through a State bank. This was clearly his opinion, however.
He declared himself utterly opposed to the free banking system, and
doubted the ability of such a system to regulate the currency. “In that
sense there can be no excess whilst the bank does not pay in specie,
because the commerce of the country can easily employ and absorb any sum
which the bank may send into circulation.”[362] This shows what little
confidence a Liberal individualist like Ricardo had in the liberty of
individuals and their ability to judge of the kind of money that is most

       *       *       *       *       *

Ricardo’s disciples are legion, and among them is every economist
of standing of the earlier part of the nineteenth century. The best
known among these are the three writers who immediately follow
him in chronological order: James Mill, the father of John Stuart
Mill (_Elements of Political Economy_, 1821), his friend McCulloch
(_Principles of Political Economy_, 1825), and Nassau Senior (_Political
Economy_, 1836).

The two first-named writers contented themselves with a vigorous defence
of the master’s views without contributing anything very new. We have
already referred to the very different conclusions which James Mill
draws from the theory of rent, and how he became an advocate of land
nationalisation. McCulloch also was one of the earliest advocates of the
right to strike.

Senior deserves a few pages to himself, for his work in systematising the
Classical doctrines. We shall deal with him in our chapter on John Stuart


With the completion of the work of Say, Malthus, and Ricardo it really
seemed as if the science of political economy was at last definitely

It would, of course, be extravagant to imagine that these three writers
were unanimous on all questions. There were several points that still
remained obscure, and more than one theory that was open to discussion.
Despite its apparent rigidity, it would not have required much critical
ability to detect flaws in the symmetrical doctrine so recently
elaborated and to predict its ultimate discredit.

Hardly, indeed, was their task completed before the new doctrine found
itself subjected to a most formidable attack, which was simultaneously
directed against it from all points of the compass. The criticisms and
objections advanced against the new science of political economy form the
subject-matter of this second book.

First comes Sismondi, a purely critical mind, with a haunting catalogue
of the sufferings and miseries resulting from free competition. Spirits
still more daring will essay the discovery of new principles of social
organisation. The Saint-Simonians will demand the suppression of private
property, the extinction of inheritance, and the centralised control
of industry by the arm of an omniscient government. The voluntary
socialists—Owen, Fourier, Louis Blanc—will claim the substitution of
voluntary co-operation for personal interest. Proudhon will dream of the
reconciliation of liberty and justice in a perfect system of exchange
from which money shall be excluded. Finally, the broad cosmopolitanism
of the Classical writers is to find a formidable antagonist in Friedrich
List, and a new Protectionism, based on the sentiment of nationality, is
to regild the old Mercantilism which seemed so hopelessly battered under
the blows of Adam Smith and the Physiocrats.

These very diverse doctrines, along with much that is fanciful and
erroneous, contain many just ideas, many original conceptions. They
never succeeded in supplanting the doctrine of the founders; but they
demonstrated, once for all, that the science, apparently complete, was in
reality far from perfection. To the Orthodox school they flung the taunt
which Hamlet cast at Horatius: “There are more things in heaven and earth
than are dreamt of in your philosophy.” In this way fruitful discussions
were frequently raised, and the public proved sympathetic listeners. The
economists who were still faithful to the Classical creed began to doubt
the validity of their deductions and were forced to modify their methods
and to overhaul their conclusions.

Let us now attempt to realise the importance of the part which these
critics played.


The first thirty years of the nineteenth century witnessed profound
transformations in the structure of the economic world.

Economic Liberalism had everywhere become triumphant. In France the
corporation era was definitely at an end by 1791. Some manufacturers,
it is true, demanded its re-establishment under the First Empire; but
they were disappointed, and their demands were never re-echoed. In
England the last trace of the Statute of Apprentices, that shattered
monument of the Parliamentary _régime_, was removed from the Statute
Book in 1814. Nothing remained which could possibly check the advent of
_laissez-faire_. Free competition became universal. The State renounced
all rights of interference either with the organisation of production
or with the relations between masters and men, save always the right of
prohibiting combinations in restraint of trade, and this restriction
was upheld with a view to giving free play to the law of demand and
supply. In France the Penal Code of the Empire proved as tyrannous as
the old _régime_ or the Revolution; and although freedom of combination
was granted in England by an Act of 1825, the defined limits were so
narrow that the privilege proved quite illusory. The general opinion of
the English legislator is well expressed in the report of a Commission
appointed by the House of Commons in 1810, quoted by Mr. and Mrs.
Webb.[363] “No interference of the legislature with the freedom of trade,
or with the perfect liberty of every individual to dispose of his time
and of his labour in the way and on the terms which he may judge most
conducive to his own interest, can take place without violating general
principles of the first importance to the prosperity and happiness of the
community.” In both countries—in England as well as in France—a _régime_
of individual contract was introduced into industry, and no legal
intervention was allowed to limit this liberty—a liberty, however, which
really existed only on the side of the employers.

Under this _régime_ the new manufacturing industry, born of many
inventions, was wonderfully developed. In Great Britain Manchester,
Birmingham, and Glasgow, in France Lille, Sedan, Rouen, Elbeuf, Mulhouse,
became the chosen centres of large-scale production.

Alongside of these brilliant successes we have two new phenomena
which were bound to draw the attention of observers and to invite the
reflection of the thoughtful. First we have the concentration in the
great centres of wealth of a new and miserable class—the workers; and,
secondly, we have the phenomenon of over-production.

Factory life during the earlier half of the nineteenth century has
been the subject of countless treatises, and attention has frequently
been drawn to the practice of employing children of all ages under
circumstances that were almost always unhealthy and often cruel,[364] to
the habit of prolonging the working day indefinitely, to the inadequate
wages paid, to the general ignorance and coarseness of the workers, as
well as to the deformities and vices which resulted under such unnatural
conditions. In England, medical reports, House of Commons inquiries, and
the speeches and publications of Owen aroused the indignation of the
public, and in 1819 an Act of Parliament was passed limiting the hours of
work of children in cotton factories. This, the first rudiment of factory
legislation, was to be considerably extended during the course of the
century. J. B. Say, who in 1815 was travelling in England, declared that
a worker with a family, despite efforts often of an heroic character,
could not gain more than three-quarters and sometimes only a half of what
was needed for his upkeep.[365]

In France we must wait until 1840 to find in the great work of Dr.
Villermé a complete description of the heartrending life of the
workers and the martyrdom of their children. Here, for example, we
learn that “in some establishments in Normandy the thong used for the
punishment of children in the spinner’s trade appears as an instrument
of production.”[366] Even before this, in an inquiry into the state
of the cotton industry in 1828, the Mulhouse masters expressed their
belief that the growing generation was gradually becoming enervated under
the influence of the exhaustive toil of a day of thirteen or fifteen
hours.[367] The _Bulletin_ of the Industrial Society of Mulhouse of the
same year states that in Alsace, among other places, the general working
day averaged from fifteen to sixteen hours, and sometimes extended even
to seventeen hours.[368] And all evidence goes to show that things were
equally bad, if not worse, in other industrial towns.[369]

Crises supplied phenomena no less disquieting than the sufferings of
the proletariat. In 1815 a first crisis shook the English market,
throwing a number of workmen on to the street and resulting in riots and
machine-breaking. It arose from an error of the English manufacturers,
who during the war period had been forced to accumulate the stocks which
they could not export, so that on the return of peace their supplies far
exceeded the demands of the Continent. In 1818 a new commercial panic,
followed by fresh riots, again paralysed the English market. In 1825 a
third and more serious crisis, begot probably of the extensive credit
given to the newly opened markets of South America, caused the failure of
about seventy English provincial banks, bringing much ruin in its train,
as well as a shock to several neighbouring countries. During the whole
of the nineteenth century similar phenomena have recurred with striking
regularity, involving ruin to ever-widening areas, as production on a
large scale has extended its sway. No wonder some people were driven to
inquire whether the economic system beneath all its superficial grandeur
did not conceal some lurking flaw or whether these successive shocks were
merely the ransom of industrial progress.

Poverty and economic crises were the two new facts that attracted
immediate attention in those countries where economic liberty had secured
its earliest triumphs; and no longer could attention be diverted from
them. Henceforth they were incessantly employed by writers of the most
various schools as weapons against the new _régime_. In many minds they
gradually engendered a want of confidence in the doctrines of Adam
Smith. With some philanthropic and Christian writers they provoked
sentimental indignation and aroused the vehement protest of humanity
against an implacable industrialism which was the source of so much
misery and ruin. With others, especially with the socialists, who
pushed criticism to much greater lengths, even to an examination of the
institution of private property itself, they resulted in a demand for the
complete overthrow of society. All critics whatsoever rejected the idea
of a spontaneous harmony between private and public interests as being
incompatible with the circumstances which we have just mentioned.

Among such writers no one has upheld the testimony of these facts more
strongly than Sismondi.[370] All his interest in political economy, so
far as theory was concerned, was summed up in the explanation of crises,
so far as practice, in the amelioration of the condition of the workers.
No one has sought the explanation or striven for the remedy with greater
sincerity. He is thus the chief of a line of economists whose works never
ceased to exercise influence throughout the whole of the nineteenth
century, and who, without being socialists on the one hand or totally
blind to the vices of _laissez-faire_ on the other, sought that happy
mean which permits of the correction of the abuses of liberty while
retaining the principle. The first to give sentiment a prominent place in
his theory, his work aroused considerable enthusiasm at the time, but was
subjected to much criticism at a later period.


Sismondi began his career as an ardent supporter of economic Liberalism.
In 1803, the year that witnessed the production of Say’s treatise, he
published an exposition of the ideas of Adam Smith in a book entitled
_La Richesse commerciale_, a volume which achieved a certain measure
of success. During the following years he devoted himself to work
exclusively historical, literary, or political, and he only returned to
the study of political economy in 1818. “At this period,” he writes,
“I was keenly interested in the commercial crises which Europe had
experienced during the past years, and in the cruel sufferings of the
factory hands, which I myself had witnessed in Italy, Switzerland, and
France; and which, according to public reports, were at least equally
bad in England, Belgium, and Germany.”[371] It was at this moment that
he was asked to write an article on political economy for the _Edinburgh
Encyclopædia_. Upon a re-examination of his ideas in the light of
these new facts he found to his surprise that his conclusions differed
entirely from those of Adam Smith. In 1819 he travelled in England, “that
wonderful country, which seems to have undergone a great experience in
order to teach the rest of the world.”[372] This seemed to confirm his
first impressions. He took the article which he had contributed to the
_Encyclopædia_ and developed it. From this work sprang the treatise which
appeared in 1819 under the significant title of _Nouveaux Principes
d’Économie politique_ and made him celebrated as an economist. His path
was already clear. His want of agreement with the predominant school
in France and England was further emphasised by the appearance of his
studies in economics,[373] in which he illustrates and confirms the ideas
already expounded in the _Nouveaux Principes_ by means of a great number
of descriptive and historical studies bearing more especially upon the
condition of the agriculturists in England, Scotland, Ireland, and Italy.

Sismondi’s disagreement was not upon the theoretical principles of
political economy. So far as these were concerned he declared himself a
disciple of Adam Smith.[374] He merely disagreed with the method, the
aim, and the practical conclusions of the Classical school. We will
examine his arguments on each of these points.

First of all as regards method. He draws an important distinction
between Smith and his followers, Ricardo and J. B. Say. “Smith,” says
he, “attempted to study every fact in the light of its own social
environment,” and “his immortal work is, indeed, the outcome of a
philosophic study of the history of mankind.”[375] Towards Ricardo, who
is accused of having introduced the abstract method into the science,
his attitude is quite different, and much as he admired Malthus, who,
“possessed of a singularly forceful and penetrative mind, had cultivated
the habit of a conscientious study of facts,”[376] still his spirit
shrank from admitting those abstractions which Ricardo and his disciples
demanded from him.[377] Political economy, he thought, was best treated
as a “moral science where all facts are interwoven and where a false
step is taken whenever one single fact is isolated and attention is
concentrated upon it alone.”[378] The science was to be based on
experience, upon history and observation. Human conditions were to be
studied in detail. Allowance was to be made for the period in which a man
lived, the country he inhabited, and the profession he followed, if the
individual was to be clearly visualised and the influence of economic
institutions upon him successfully traced. “I am convinced,” says he,
“that serious mistakes have ensued from the too frequent generalisations
which have been made in social science.”[379]

This criticism was levelled not only at Ricardo and McCulloch, but it
also included J. B. Say within its purview, for Say had treated political
economy as an exposition of a few general principles. It also prepared
the way for that conception of political economy upon the discovery of
which the German Historical school so prided itself at a later date.
Sismondi, himself an historian and a publicist interested in immediate
reforms, could not fail to see quite clearly the effects that social
institutions and political organisation were bound to have upon economic
prosperity. A good illustration of his method is furnished by his
treatment of the probable effects of a complete abolition of the English
Corn Laws. The question, he remarks, could not be decided by theoretical
arguments alone without taking some account of the various methods of
cultivating the soil. A country of tenant farmers such as England would
find it difficult to meet the competition of feudal countries such as
Poland or Russia, where corn only costs the proprietor “a few hundred
lashes judiciously bestowed upon the peasants.”[380]

Sismondi’s conception of economic method is incontestably just so long as
the economist confines himself to the discussion of practical problems
or attempts to gauge the probable effects of a particular legislative
reform or is unravelling the causes of a particular event. But should the
economist wish to picture to himself the general aspect of the economic
world, he cannot afford to neglect the abstract method, and Sismondi
himself was forced to have recourse to it. It is true that he used it
with considerable awkwardness, and his failure to construct or to discuss
abstract theories perhaps explains his preference for the other method.
At any rate it does partly explain the keen opposition which his book
aroused among the partisans of what he was the first to call by the happy
title of the “Orthodox” school.

But to imagine anything more confused than the reasonings by which
he attempts to demonstrate the possibility of a general crisis of
over-production is difficult.[381] For his point of departure he takes
the distinction between the annual revenue and the annual production of a
country. According to him the revenue of one year pays for the production
of the following.[382] Accordingly, if the production of any one year
exceeds the revenue of the previous year a portion of the produce will
remain unsold and producers will be ruined. Sismondi reasons as if the
nation were composed of agriculturists who buy the manufactured goods
they need with the revenue received from the sale of the present year’s
crop. Consequently if manufactured products are superabundant, the
agricultural revenue will not be enough to pay a sufficient price.

But within the argument there lurks a twofold confusion. At bottom a
nation’s annual revenue is its annual produce, and the one cannot be
less than the other. Moreover, it is not the produce of two different
years that is exchanged, but the various products of the same year, or
rather (for this subdivision of the movements of the economic world into
annual periods has no counterpart in actual life) it is the different
products created at every moment that are being continually exchanged,
thus constituting a reciprocal demand for one another. At any one moment
there may be too many or too few products of a certain kind, resulting in
a severe crisis in one or more industries. But of every product, at one
and the same time, there can never be too much. McCulloch, Ricardo, and
Say victoriously upheld this view against Sismondi.[383]

It is not only on the question of method, but still more on the
question of aim, that Sismondi finds himself in opposition to the
Classical school. To them political economy was the science of wealth,
or chrematistics, as Aristotle called it. But the real object of the
science should be man, or at least the physical well-being of man. To
consider wealth by itself and to forget man was a sure way of making a
false start.[384] This is why he gave such prominence to a theory of
distribution alongside of the theory of production, which had received
the exclusive attention of the Classical writers. The Classical school,
it is true, might have retorted that they gave first place to production
because the multiplication of products was a _sine qua non_ of all
progress in distribution. But Sismondi regarded it otherwise. Wealth
only deserves the name when it is proportionately distributed. He could
not conceive of an abstract treatment of distribution, and consequently
could not appreciate it. In his own treatment of distribution he devoted
a special section to the “poor,” who live by their labour and toil
from morn till eve in field or workshop. They form the bulk of our
population, and the changes wrought in their way of life by the invention
of machinery, the freedom of competition, and the _régime_ of private
property was what interested him most. “Political economy at its widest,”
he says, “is a theory of charity, and any theory that upon last analysis
has not the result of increasing the happiness of mankind does not belong
to the science at all.”[385]

What really interested Sismondi was not so much what is called political
economy, but what has since become known as _économie sociale_ in France
and _Sozialpolitik_ in Germany. His originality, so far as the history
of doctrines is concerned, consisted in his having originated this
study. J. B. Say scorned his definitions, so different were they from
his own. “M. de Sismondi refers to political economy as the science
charged with guarding the happiness of mankind. What he wishes to say
is that it is the science a knowledge of which ought to be possessed by
all those who are concerned with human welfare. Rulers who wish to be
worthy of their positions ought to be acquainted with the study, but the
happiness of mankind would be much jeopardised if, instead of trusting
to the intelligence and industry of the ordinary citizen, we trusted to
governments.”[386] And he adds: “The greater number of German writers, by
following the false notions spread by the Colbertian system, have come to
regard political economy as being purely a science of administration.”


Deceived as to the best method to follow, mistaken in its conception
of the nature of the object to be kept in view, it is not surprising
that the “Chrematistic school” should have gone astray in its practical
conclusions. The teaching of the school gave an undoubted incentive to
unlimited production, for it was loud in its praise of free competition.
It preached the doctrine of harmony of interests, and considered that the
best form of government was no government at all. These were the three
essential points to which Sismondi took exception.

First as regards its immoderate enthusiasm for production. According
to the Classical writers, the general growth of production presented
no inconvenience, thanks to that spontaneous mechanism which
immediately corrected the errors of the _entrepreneur_ if he in any way
under-estimated the necessities of demand. Falling prices warned him
against a false step and influenced him in directing his efforts towards
other ends. In a similar way rising prices proved to the producers that
supplies were insufficient and that more must be manufactured. Hence the
evils committed would always be momentary and transient.

To this Sismondi replied: If instead of reasoning in this abstract
fashion economists had considered the facts in detail, if instead of
paying attention to products they had shown some regard for man, they
would not have so light-heartedly supported the producers in their
errors. An increased supply, if supply were already insufficient to
meet a growing demand, would injure no one, but would be profitable for
all. That is true. But the restriction of an over-abundant supply when
the needs grow at a less rapid rate is not so easily accomplished. Does
anyone think that capital and labour could on the morrow, so to speak,
leave a declining industry in order to engage in another? The worker
cannot quickly leave the work he lives by, to which he has served a
long and costly apprenticeship, and wherein he is distinguished for a
professional skill that will be lost elsewhere. Rather than consent
to leave it, he will let his wages fall, he will prolong the working
day, remaining at work for fourteen hours, and will toil during those
hours that would otherwise be spent in pleasure or debauchery; so that
the produce raised by the same number of workmen will be very much
increased.[387] As for the manufacturer, he will not be less loath than
the worker to quit an industry into the management and construction
of which he has put half or even three-quarters of his fortune. Fixed
capital cannot be transferred from one use to another, for even the
manufacturer is bound by custom—a moral force whose strength is not
easily calculated.[388] Like the worker, he is tied to the industry
which he has created and from which he draws a living. Consequently
production, far from being spontaneously restrained, will remain the
same or will even perhaps tend to increase. In the end, however, he
must yield, and adaptation will take place, but only after much ruin.
“Producers will not withdraw from that industry entirely, and their
numbers will diminish only when some of the workshops have failed and
a number of workmen have died of misery.” “Let us beware,” says he in
conclusion, “of this dangerous theory of equilibrium which is supposed
to be automatically established. A certain kind of equilibrium, it is
true, is re-established in the long run, but it is only after a frightful
amount of suffering.”[389] The dictum which was to some extent true in
Sismondi’s day controls the policy of every trust and _Kartel_ of the
present day.

Nowadays production chiefly grows as the result of the multiplication
of machinery, and Sismondi’s most telling attacks were directed against
machinery. Consequently he has been regarded as a reactionary and treated
as an ignoramus, and for half a century was refused a place among the

On the question of machinery the Classical writers were unanimous.[390]
Machinery they considered to be very beneficial, furnishing commodities
at reduced rates and setting free a portion of the consumer’s revenue,
which accordingly meant an increased demand for other products and
employment for those dismissed as a result of this introduction.
Sismondi does not deny that theoretically equilibrium is in the long
run re-established. “Every new product must in the long run give rise
to some fresh consumption. But let us examine things as they really
are. Let us desist from our habit of making abstraction of time and
place. Let us take some account of the obstacles and the friction of the
social mechanism. And what do we see? The immediate effect of machinery
is to throw some of the workers out of employment, to increase the
competition of others, and so to lower the wages of all. This results in
diminished consumption and a slackening of demand. Far from being always
beneficial, machinery produces useful results only when its introduction
is preceded by an increased revenue, and consequently by the possibility
of giving new work to those displaced. No one will deny the advantage of
substituting a machine for a man, provided that man can obtain employment

Neither Ricardo nor Say denies this; they affirmed that the effect of
machinery is just to create some part of this demand for labour. But
Sismondi’s argument is vitiated by the same false idea that, as we have
seen above, made him admit the possibility of general over-production—the
idea that increased production, if it is going to be useful, must always
be preceded by increased demand. He was unwilling to admit that the
growth of production itself created this demand. On the other hand, what
is true in Sismondi’s attitude—and we cannot insist too much on this—is
the protest he makes against the indifference of the Classical school in
the face of the evils of these periods of transition.

The Classical school regarded the miseries created by large-scale
production with that sang-froid which was to characterise the followers
of Marx amid the throes of the “inevitable Revolution.” Among many
similarities which may be pointed out between the writings of Marx
and the doctrines of the Classical school, this is one of the most
characteristic. The grandeur of the new _régime_ is worthy of some
sacrifice. But Sismondi was an historian. His interest lay primarily in
those periods of transition which formed the exit from one _régime_ and
the entrance into another, and which involved so much suffering for the
innocent. He was anxious to mitigate the hardships in order that the
process of transition might be eased. Nothing can be more legitimate than
a claim of this kind. J. B. Say recognised its validity to a certain
extent, and this is precisely the _rôle_ of social economics.

Sismondi makes another remark which is no less just. What disgusted him
was not merely that workmen should be driven out by machinery, but that
the workers who were retained only had a limited share of the benefits
which they procured.[392] For the Classical school it was enough that
workers and consumers should have a share in the general cheapening of
production. But Sismondi demanded more. So long as toil is as laborious
as it is to-day, is it not just that the workman should benefit by the
introduction of machinery in the way of increased leisure? In the social
system as at present existing, owing to the competition among workers as
the result of excessive population, machinery does not increase leisure,
but it rather strengthens competition, diminishes wages, provokes a more
intense effort on the part of the workman, and forces him to extend his
working day. Here again Sismondi appears correct. We cannot see why the
consumer alone should reap all the profit of improved machinery, which
never benefits the workman unless it affects articles which enter into
his consumption. There would be nothing very striking if the benefits
of progress, at least during a short time, were to be shared between
consumer and worker just as to-day they are shared between inventor,
_entrepreneur_, and society. This idea is the inspiring motive of certain
trade unions to-day, which only accept a new machine in exchange for less
work and more pay.

Sismondi’s method when applied to production and machinery leads to
conclusions very different from those of the Classics. This is also true
of his treatment of competition.

Adam Smith had written: “In general, if any branch of trade, or any
division of labour, be advantageous to the public, the freer and more
general the competition it will always be the more so.”[393] Sismondi
considered this doctrine false, and invoked two reasons of unequal value
in support of his view.

The first is a product of the inexact idea already mentioned above,
which regards any progress in production as useless unless preceded
by more intensive demand. Competition is beneficial if it excites the
_entrepreneur_ to multiply products in response to an increased demand.
In the opposite case it is bad, for if consumption be stationary, its
only effect will be to enable the more adroit _entrepreneur_ or the more
powerful capitalist to ruin his rivals by means of cheap sales, thus
attracting to himself their _clientèle_, but giving no benefit to the
public. This is the spectacle that in reality is too often presented to
us. The movements of our captains of industry are directed, not by any
concern for the presumed advantage of the public, but solely with a view
to increased profits.

Sismondi’s argument is open to the same objection as was made above.
Cheapened production dispenses with a portion of the income formerly
spent, and creates a demand for other products, thus repairing the evil
it has created. Concentration of industry gives to society the same
advantage as is afforded by machinery, and the same arguments may be used
in its defence.

But against competition Sismondi directs a still more serious argument.
Pursuit of cheapness, he remarks, has forced the _entrepreneur_ to
economise not only in the matter of stuff, but also of men. Competition
has everywhere enticed women and children to bear the burden of
production instead of adults. Certain _entrepreneurs_, in order to secure
a maximum return from human energy, have enforced day and night toil with
only a scanty wage in return. What is the use of cheapness achieved under
such circumstances? The meagre advantage enjoyed by the public is more
than counterbalanced by the loss of vigour and health experienced by the
workers. Competition impairs this most precious capital—the life-energy
of the race. He points to the workmen of Grenoble earning six or eight
sous for a day of fourteen hours, children of six and eight years working
for twelve or fourteen hours in factories “in an atmosphere loaded with
down and dust” and perishing of consumption before attaining the age of
twenty. He concludes that the creation of an unhappy and a suffering
class is too great a price to pay for an extension of national commerce,
and in an oft-quoted phrase he says, “The earnings of an _entrepreneur_
sometimes represent nothing but the spoliation of the workmen. A profit
is made not because the industry produces much more than it costs, but
because it fails to give to the workman sufficient compensation for his
toil. Such an industry is a social evil.”[394]

It is futile to deny the justice of the argument. When cheapness is only
obtained at the cost of permanent deterioration in the health of the
workers, competition evidently is a producer of evil rather than of good.
The public interest is no less concerned with the preservation of vital
wealth than it is with facilitating the production of material wealth.
Sismondi showed that competition was a double-edged sword, and in doing
so he prepared the way for those who very justly demand that the State
should place limits upon its use and prescribe rules for its employment.

We might be tempted to go farther and see in the passage just cited an
unreserved condemnation of profits even. That would involve placing
Sismondi among the socialists, and this is sometimes done, although, as
we think, wrongly.

In certain passages he doubtless expresses himself in a manner similar
to Owen, the Saint-Simonians, and Marx. Thus in his studies on political
economy we come across phrases such as the following: “We might almost
say that modern society lives at the expense of the proletariat, seeing
that it curtails the reward of his toil.”[395] And elsewhere: “Spoliation
indeed we have, for do we not find the rich robbing the poor? They draw
in their revenues from the fertile, easily cultivated fields and wallow
in their wealth, while the cultivator who created that revenue is dying
of hunger, never allowed to enjoy any of it.”[396] We might even say
that Sismondi enunciated the theory of surplus value, which was worked
out by Marx, when he makes use of the term _mieux value_.[397] But the
similarity is simply a matter of words. Sismondi, speaking of surplus
value, means to imply the value that is constantly growing or being
created every year in a progressive country, not by the effort of labour
alone, but by the joint operation of capital and labour.[398] Marx’s
idea that labour alone created value, and that consequently profit
and interest constituted a theft, is entirely foreign to Sismondi.
Sismondi, indeed, recognised that the revenues of landed proprietors
and capitalists were due to efforts which they themselves had never put
forth. He rightly distinguished between the wages of labour and the
revenues of proprietors, but to him the latter were not less legitimate
than the former, for, says he, “the beneficiaries who enjoy such revenues
without making any corresponding effort have acquired a permanent claim
to them in virtue of toil undertaken at some former period, which must
have increased the productivity of labour.”[399] When Sismondi says that
the worker is robbed he merely means to say that _sometimes_ the worker
is insufficiently paid; in other words, that he does not always receive
enough remuneration to keep him alive, and were it only for the sake of
humanity that he ought to be better paid. But he does not consider that
appropriation by proprietors or capitalists of a portion of the social
product is in itself unjust.[400] His point of view is not unlike that
adopted at a later period by the German socialists when they sought to
justify their social policy.

But although Sismondi’s criticism does not amount to socialism, he
causes considerable consternation among Liberals by the telling manner
in which he shows the falsity of the theory affirmed by the Physiocrats
and demonstrated by Smith, namely the natural identity of individual and
general interests. It is true that Smith hesitated to apply it except
to production. But Sismondi’s peculiar merit lies in the fact that he
examined its content in relation to distribution. Sismondi finds himself
forced by mere examination of the facts to dispute the very basis of
economic Liberalism. Curiously enough, he seems surprised at his own
conclusions. _A priori_ the theory of identity of interests appeared
to him true, for does it not, in fact, rest upon the two ideas, (1)
that “each knows his own interest better than an ignorant or a careless
Government ever can,” and (2) that “the sum of the interests of each
equals the interests of all”? “Both axioms are true.”[401] Why then is
the conclusion false?

Here we touch the central theme of Sismondi’s system, the point where
he leaves the purely economic ground to which the Classical writers had
stuck and approaches new territory—the question of the distribution of
property. Sismondi discovered the explanation of the contradiction which
exists between private and general interests in the unequal distribution
of property among men and the resulting unequal strength of the
contracting parties.[402]


Sismondi was the first writer to give expression to the belief that
industrial society tends to separate into two absolutely distinct
classes—those who work and those who possess, or, as he often put it, the
rich and the poor. Free competition hastens this separation, causing the
disappearance of the intermediate ranks and leaving only the proletariat
and the capitalist.[403] “The intermediate classes,” says he somewhere,
“have all disappeared: the small proprietor and the peasant farmer of
the plain, the master craftsman, the small manufacturer, and the village
tradesmen, all have failed to withstand the competition of those who
control great industries. Society no longer has any room save for the
great capitalist and his hireling, and we are witnessing the frightfully
rapid growth of a hitherto unknown class—of men who have absolutely no
property.”[404] “We are living under entirely new conditions of which as
yet we have no experience. All property tends to be divorced from every
kind of toil, and therein is the sign of danger.”[405]

This law of the concentration of capital which plays such an important
_rôle_ in the Marxian system, though true of industry, seems hardly
applicable to property, for a considerable concentration of labour is
not incompatible with a fairly even distribution of property. It was
a memorable exposition that Sismondi gave of this law, showing how it
wrought its ravages in agriculture, in industry, and in commerce all at
the same time. “The tillage of the 34,250,000 acres under cultivation in
England was, in 1831, accomplished by 1,046,982 cultivators, and now it
is expected that the number may be still further reduced. Not only have
all the small farmers been reduced to the position of labourers, but
a great number of the day labourers have been forced to abandon field
work altogether. The industry of the towns has adopted the principle
of amalgamation of forces, and capital has been added to capital with
a vigour greater than that which has joined field unto field. The
manufacturer with a capital of £1000 was the first to disappear. Soon
those who worked with £10,000 were considered small—too small. They
were reduced to ruin and their places taken by larger employers. To-day
those who trade with a capital of £100,000 are considered of an average
size, and the day is not far distant when these will have to face the
competition of manufacturers with a capital of £1,000,000. The refining
mills of the Gironde dispensed with millers; the cask mills of the
Loire ruined the coopers; the building of steamboats, of diligences,
of omnibuses and railways with the aid of vast capitals have replaced
the unpretentious industries of the independent boatman, carriage- or
wagon-maker. Wealthy merchants have entered the retail trade and have
opened their immense shops in the great capitals, where, in virtue of the
improved means of transit, they are able to offer their provisions even
to consumers who live at the very extremities of the empire. They are
well on the way towards suppressing the wholesale trader as well as the
retail dealer, and the petty shopkeeper of the provinces. The places of
these independent tradesmen will soon be taken over by clerks, hirelings,
and proletarians.”[406]

And now for the consequences of such a condition of things. In this
opposition existing between these two social classes which formerly lived
together harmoniously we shall find an explanation of the workman’s
misery and of economic crises.

The sufferings of workmen, whence do they spring, if not from the fact
that their numbers are in excess of the demand for their labour, thus
forcing them to be content with the first wage that is offered them, even
though it be opposed to their own interests and the interest of the whole
class?[407] But “whence the necessity of submitting to these onerous
conditions and of tolerating a burden that is ever becoming heavier under
pain of hunger and death?” The explanation lies in the separation of
property and toil.[408] Formerly the workman, an independent artisan,
could gauge his revenue and limit his family accordingly, for population
is always determined by revenue.[409] Robbed of his belongings, all his
revenue is to-day got from the capitalist who employs him. Ignorant
of the future demand for his products, as well as of the quantity of
labour that may be necessary, he has no longer any excuse for exercising
forethought, and accordingly he discards it. Population grows or
diminishes in accordance with the will of the capitalist. “Let there
be an increased demand for labour and a sufficient wage offered it and
workmen will be born. If the demand fails, the workmen will perish.”[410]

This theory of population and wages is really Smith’s, who tried to prove
that men, like commodities, extended or limited their numbers according
to the needs of production. Sismondi, rather than accept it as a proof of
the harmonious adaptation of demand to supply, emphasises the lamentable
effects of the separation of wealth from labour.[411] Smith and Sismondi
both fell into the error of Malthus and Ricardo, who imagined that high
wages of necessity increased population. To-day facts seem to show that
a higher standard of well-being, on the contrary, tends to limit it,
and the proletarians, who constitute the majority of the nation, can no
longer be treated as mere tools in the hands of the capitalists, to be
taken up or thrown aside according to fancy or interest.

What is true of industrial employees is no less true of the toilers
of the field. In this connection Sismondi introduces the celebrated
distinction between net and gross production which has occupied the
attention of many economists since then. If the peasants collectively
owned all the land they would at least of a certainty find both the
security and the support of their life in the soil. They would never let
the gross produce fall below what was sufficient to support them.[412]
But with great landed proprietors, and with the peasant transformed into
the agricultural labourer, things have changed. The large proprietors
have the net product only in view—that is, the difference between the
cost of production and the sale price. It matters little to them if the
gross produce is sacrificed for the sake of increasing the net produce.
Here you have land which, when well cultivated, brings gross produce of
the value of 1000 shillings to the farmer and yields 100 shillings in
rent to the proprietor. But the proprietor thinks that he would gain
110 shillings if he left it fallow or let it as unprofitable pasture.
“His gardener or vinedresser is dismissed, but he gains 10 shillings
and the nation loses 890. By and by the capital employed in producing
this plentiful supply will no longer be so employed, and there will
be no profit. The workers whose former toil produced these products
will no longer be employed and no wages will be paid.”[413] Examples
are plentiful enough. A number of the great Scotch proprietors, in
order to replace the ancient system of cultivation by the open pasture
system, sent the tenants from their dwellings and drove them into the
towns or huddled them on board ships for America. In Italy a handful of
speculators called the _Mercanti di tenute_, animated by similar motives,
have hindered the repopulation and cultivation of the Roman Campagna,
“that territory formerly so very fertile that five acres were sufficient
to provide sustenance for a whole family as well as sending a recruit
to the army. To-day its scattered homesteads, its villages, the whole
population, together with the farm enclosures, the vineyards, and the
olive plantations—products that require the continual loving attention
of mankind—have all disappeared, giving place to a few flocks of sheep
tended by a few miserable shepherds.”[414] The criticism is just, but is
directed rather against the abuse of private property than against the
principle of the net product, for this principle is incident to peasant
proprietorship as well. It is inevitable wherever production for a market
takes place.[415]

It is just this opposition between proprietorship and labour that
supplies an explanation of economic crises.

Sismondi holds the view that crises are partly due to the difficulty of
acquiring exact knowledge of a market that has become very extensive,
and partly to the fact that producers are guided in their actions by the
amount of their capital rather than by the demand of the market.[416]
But above all he thinks that they are due to the unequal distribution of
revenues. The consequence of the separation of property from labour is
that the revenues of those who possess lands increase while the incomes
of the workers always remain strictly at the minimum. The natural result
is a want of harmony in the demand for products. With property uniformly
divided and with an almost general increase in the revenue there would
result a certain degree of uniformity in the growth of demand. Those
industries which supply our most essential and most general wants would
experience a regular and not an erratic expansion. But as a matter of
fact at the present time it is the revenue of the wealthy alone that
increases. Hence there is a growing demand for the more refined objects
in place of a regular demand for the ordinary things of life; a neglect
of the more fundamental industries, and a demand for the production
of luxuries. If the latter do not multiply quickly enough, then the
foreigner will be called in to satisfy the demand. What is the result
of these incessant changes? The old, neglected industries are obliged
to dismiss their workmen, while the new industries can only develop
slowly. During the interval the workmen who have suffered dismissal are
forced to reduce their consumption of ordinary goods, and permanent
under-consumption, attended by a crisis, immediately follows. “Owing
to the concentration of wealth in the hands of a few proprietors, the
home market is contracted and industry must seek other outlets for its
products in foreign markets, where even more considerable revolutions are
possible.”[417] Thus “the consumption of a millionaire master who employs
1000 men all earning but the bare necessities of life is of less value
to the nation than a hundred men each of whom is much less rich but who
employ each ten men who are much less poor.”[418]

Sismondi’s explanation of crises, though adopted by many writers since
then, is not one of the best. The difficulty of adaptation would in
all probability not disappear even if wealth were to be more equally
distributed. Moreover, what he attempts to explain is an evil that is
chronic in certain industries and not the acute periodical crises. But
the theory has the merit of attempting to explain what still remains
obscure, and what J. B. Say and Ricardo preferred to pass over in silence
or regarded as of secondary importance under pretext that in the long run
equilibrium would always be re-established.


The principal interest of Sismondi’s book does not lie in his attempt to
give a scientific explanation of the facts that occupied his attention.
Indeed, these attempts have little that is altogether satisfactory, for
the analysis is frequently superficial, and even commonplace. His merit
rather lies in having placed in strong relief certain facts that were
consistently neglected by the dominant school of economists. Taken as
a whole, his doctrine must be regarded as pessimistic. He deliberately
shows us the reverse of the medal, of which others, even those whom we
have classed as Pessimists—Ricardo and Malthus—wished only to see the
brighter side. It is no longer possible to speak of the spontaneous
harmony of interests, or to forget the misery and suffering which lies
beneath an appearance of economic progress. Crises cannot be slipped
over and treated as transient phenomena of no great moment. No longer
is it possible to forget the important effects of an unequal division
of property and revenues, which frequently results in putting the
contracting parties in a position of fundamental inequality that annuls
freedom of bargaining. In a word, it is no longer possible to forget the
social consequences of economic transformations. And herein lies the
sphere of social politics, of which we are now going to speak.

The new point of view occupied by Sismondi enables him to see that the
free play of private interests often involves injury to the general
interest, and that the _laissez-faire_ doctrine preached by the school
of Adam Smith has no longer any _raison d’être_. On the contrary, there
is room for the intervention of society, which should set a limit to
individual action and correct its abuses. Sismondi thus becomes the first
of the interventionists.

State action, in the first place, ought to be employed in curbing
production and in putting a drag upon the too rapid multiplication of
inventions. Sismondi dreams of progress accomplished by easy stages,
injuring no one, limiting no income, and not even lowering the rate of
interest.[419] His sensitiveness made him timid, and critics smile at
his philanthropy. Even the Saint-Simonians, too sympathetic to certain
of his views, reproach him with having allowed himself to be misled by
it.[420] This state of mind was reflected by his habits in private life.
Sainte-Beuve[421] relates of him how he used to employ an old locksmith
who had become so useless and awkward that everybody had left him.
Sismondi remained faithful to the old man even to the very end, despite
his inefficiency, lest he should lose his last customer. He wished
society to treat the older industries in a similar fashion. He has been
compared to Gandalin, the sorcerer’s apprentice in the fable, who, having
unlocked the water-gate with the magic of his words, sees wave succeed
wave, and the house inundated, without ever being able to find the word
which could arrest its flow.

Governments ought to temper their “blind zeal” instead of urging on
production.[422] Addressing himself to the savants, he begs them
to desist from invention and recall the sayings of the economists,
_laissez-faire_, _laissez-passer_, by giving to the generations which
their inventions render superfluous at least time to pass away. For the
old _régime_, with its corporations and wardens, he had the sincerest
regard, while condemning them as being harmful to the best interests
of production. Still he wondered whether some lesson could not be
gleaned from them which might help us in fixing limits to the abuses of

Sismondi never seems to have realised that any restriction placed
upon production with a view to alleviate suffering might hinder the
progress and well-being of the very classes that interested him most.
The conviction that the production of Europe was enough to satisfy all
demands supported these erroneous views.[424] Sismondi never suspected
the relative poverty of industrial society, a fact that struck J. B.
Say very forcibly. Moreover, he felt that on this point the policy of
Governments was not so easily modified, a feeling that undermined his
previous confidence.

Since the causes of the evils at present existing in society are (1) the
absence of property, (2) the uncertainty of the earnings of the working
classes, all Government action ought to be concentrated on these points.

The first object to be aimed at, wherever possible, was the union of
labour and property, and Sismondi eulogises the movement towards a new
patriarchal state—that is, towards a revival of peasant proprietorship.
The _Nouveaux Principes_ contains a celebrated description of the
idyllic happiness of such a state. In industry he wished for a return
of the independent artisan. “I am anxious that the industries of the
town as well as country pursuits should be carried on by a great
number of independent workers instead of being controlled by a single
chief who rules over hundreds and even thousands of workers. I hope
to see manufactures in the hands of a great number of capitalists of
average means, and not under the thumb of one single individual who
constitutes himself master over millions. I long to see the chance—nay,
even the certainty—of being associated with the master extended to
every industrious workman, so that when he gets married he may feel
that he has a stake in the industry instead of dragging on through the
declining years of life, as he too often does, without any prospect of
advancement.”[425] This for an end.

But the means? On this point Sismondi shows extraordinary timidity.
Appeal to the legislator is not followed up by a plan of campaign, and
in moments of scepticism and despair he even doubts whether reform is
ever possible. He declares himself an opponent of communism. He rejects
the Utopias of Owen, of Thompson, and of Fourier, although he recognises
that their aim was his also. He failed to perceive that his “breaking
up” process was quite as illusory as the communistic Utopias which he
shunned. He rejected Owen’s system because he saw the folly of attempting
to substitute the interest of a corporation for that of the individual.
But he never realised that it had nothing to do with a corporation, and
it is possible that were he alive at the present time he would be an
ardent champion of co-operation.

But until the union of property and labour is realised Sismondi is
content with a demand for a simpler reform, which might alleviate
the more pressing sufferings of the working classes. First of all he
appeals for the restoration, or rather the granting, of the right
of combination.[426] Then follows a limitation of child labour, the
abolition of Sunday toil, and a shortening of the hours of labour.[427]
He also demanded the establishment of what he called a “professional
guarantee,” whereby the employer, whether agriculturist or capitalist,
would be obliged to maintain the workman at his own expense during
a period of illness or of lock-out or old age. This principle once
admitted, the employers would no longer have any interest in reducing
the wages of the workman indefinitely, or in introducing machinery or in
multiplying production unduly. Having become responsible for the fate
of the workers, they would then take some account of the effect which
invention might have on their well-being, whereas to-day they simply
regard them from the point of view of their own profits.[428] One might
be tempted to regard this as an anticipation of the great ideal which has
to a certain extent been realised by the social insurance Acts passed
during the last thirty years. But this is only partly so. Sismondi placed
the charge of maintenance upon the master and not upon society, and his
criticism of methods of relief, especially of the English Poor Law, was
that they tended to decrease wages and to encourage the indifference of
masters by teaching the workers to seek refuge at the hands of the State
rather than at the hands of the masters.

In short, his reform projects, like his criticism of the economists,
reveal a certain degree of hesitation, due, no doubt, to the perpetual
conflict between reason and sentiment. Too keen not to see the benefits
of the new industrial _régime_, and too sensitive not to be moved by some
of its more painful consequences, too conservative and too wise to hope
for a general overthrow of society, he is content to remain an astonished
but grieved spectator of the helplessness of mankind in the face of this
evil. He did not feel himself competent to suggest a remedy. He himself
has confessed to this in touching terms:

“I grant that, having indicated what in my opinion is the principle of
justice in this matter, I do not feel myself equal to the task of showing
how it can be realised. The present method of distributing the fruits of
industry among those who have co-operated in its production appears to
me to be curious. But a state of society absolutely different from that
with which we are now acquainted appears to be beyond the wit of man to

       *       *       *       *       *

It is a striking fact that most of the important movements in the
nineteenth century can be traced back to Sismondi’s writings. He was the
first critic whom the Classical school encountered in its march, and
he treats us to a full _résumé_ of its many heresies. In the bitter
struggle which ensued the heretics won the day, their nostrums taking
the place of the Classical doctrines in the public favour. But it seems
hardly possible that Sismondi’s work should have determined the course of
these newer tendencies. His immediate influence was extremely limited.
It scarcely told at all except upon the socialists. His book was soon
forgotten, and not until our own day was its importance fully realised.
It would be truer to say that in the course of the nineteenth century
there was a spontaneous revival of interest in the ideas promulgated
by Sismondi. None the less he was the first writer to raise his voice
against certain principles which were rapidly crystallising into dogmas.
He was the earliest economist who dared resist the conclusions of the
dominant school, and to point to the existence of facts which refused
to tally with the large and simple generalisations of his predecessors.
If not the founder of the new schools that were about to appear,
he was their precursor. They are inspired by the same feelings and
welcome the same ideas. His method is an anticipation of that of the
Historical school. His definition of political economy as a philosophy
of history[430] works wonders in the hands of Roscher, Knies, and
Hildebrand. His plea for a closer observation of facts, his criticism of
the deductive process and its hasty generalisations, will find an echo in
the writings of Le Play in France, of Schmoller in Germany, and of Cliffe
Leslie and Toynbee in England. The founders of the German Historical
school, in their ignorance of foreign writers, regarded him as a
socialist,[431] but the younger representatives of that school have done
full justice to his memory, and recognise him as one of their earliest

By his appeal to sentiment and his sympathy for the working classes, by
his criticism of the industrial _régime_ of machines and competition, by
his refusal to recognise personal interest as the only economic motive,
he foreshadows the violent reaction of humanitarianism against the stern
implacability of economic orthodoxy. We can almost hear the eloquence of
Ruskin and Carlyle, and the pleading of the Christian Socialists, who in
the name of Christian charity and human solidarity protest against the
social consequences of production on a large scale. Like Sismondi, social
Christianity will direct its attack, not against the science itself, but
against the easy _bourgeois_ complacency of its advocates. A charge of
selfishness will be brought, not against economic science as such, but
against its representatives and the particular form of society which it

Finally, by his plea for State intervention Sismondi inaugurated a
reaction against Liberal absolutism, a reaction that deepened in
intensity and covered a wider area as the century wore on, and which
found its final expression in State socialism, or “the socialism of the
chair.” He was the first to advocate the adoption of factory legislation
in France and to seek to give the Government a place in directing
economic affairs. The impossibility of complete abdication on the part
of the State would, he thought, become clearer every day. But it was
little more than an aspiration with him; it never reached the stage of a
practical suggestion.

Thus in three different ways Sismondi’s proposals were destined to give
rise to three powerful currents of thought, and it is not surprising that
interest in his work should have grown with the development of the new
tendencies which he had anticipated.

His immediate influence upon contemporary economists was very slight.
Some of them allowed themselves to be influenced by his warmheartedness,
his tenderness for the weak, and his pity for the workers, but they
never found this a sufficient reason for breaking off their connections
with the Classical school. Blanqui[432] in particular was a convert
to the extent that he admitted some exceptions to the principle of
_laissez-faire_. Theodore Fix and Droz[433] seemed won over for a moment,
and Sismondi might rightly have expected that the _Revue mensuelle
d’Économie politique_, started by Fix in 1833, would uphold his views.
But the days of the _Revue_ were exceedingly few, and before finally
disappearing it had become fully orthodox. Only one author, Buret, in his
work on the sufferings of the working classes in England and France,[434]
has the courage to declare himself a whole-hearted disciple of Sismondi.
The name of Villeneuve-Bargemont, author of _Économie politique
chrétienne_, must be added to these. His work, which was published in
three volumes in 1834, bears frequent traces of Sismondi’s influence.

Sismondi, though not himself a socialist, has been much read and
carefully studied by socialists. It is among them that his influence is
most marked. This is not very surprising, for all the critical portion
of his work is really a vigorous appeal against competition and the
inequalities of fortune. Louis Blanc read him and borrowed from him
more than one argument against competition. The two German socialists
Rodbertus and Marx are still more deeply indebted to him. Rodbertus
borrowed from him his theory of crises, and owes him the suggestion
that social progress benefits only the wealthier classes. Rodbertus
quotes him without any mention of his name, but Marx in his _Manifesto_
has rendered him full justice, pointing out all that he owed to his
penetrative analysis. The most fertile idea borrowed by Marx was that
which deals with the concentration of wealth in the hands of a few
powerful capitalists, which results in the increasing dependence of the
working classes. This conception is the pivot of the _Manifesto_, and
forms a part of the very foundation of Marxian collectivism. The other
idea of exploitation does not seem to have been borrowed from Sismondi,
although he might have discovered a trace of the surplus value theory in
his writings. Marx endeavours to explain profit by drawing a distinction
between a worker selling his labour and parting with some of his labour
force. Sismondi employs terms that are almost identical, and says that
the worker when selling his labour force is giving his life. Elsewhere he
speaks of a demand for “labour force.” Sismondi never drew any precise
conclusion from these ideas, but they may have suggested to Marx the
thesis he took such pains to establish.

Many a present-day socialist, without acknowledging the fact, perhaps
without knowing it, loves to repeat the arguments which Sismondi was the
first to employ, to stir up his indifferent contemporaries.


Sismondi, by supplementing the study of political economy by a study
of social economics, had already much enlarged the area traced for the
science by its founders. But while giving distribution the position of
honour in his discussion, he never dared carry his criticism as far as
an examination of that fundamental institution of modern society—private
property. Property, at least, he thought legitimate and necessary. Every
English and French economist had always treated it as a thing apart—a
fact so indisputable and inevitable that it formed the very basis of all
their speculations.

Suddenly, however, we come upon a number of writers who, while definitely
rejecting all complicity with the earlier communists and admitting
neither equality of needs nor of faculties, but tending to an agreement
with the economists in claiming the maximum of production as the one aim
of economic organisation, dare lay their hands upon the sacred ark and
attack the institution of property with whole-hearted vigour. Venturing
upon what had hitherto been holy ground, they displayed so much skill and
courage that every idea and every formula which became a commonplace of
the socialistic literature of the later nineteenth century already finds
a place in their system. Having definite ideas as to the end which they
had in view, they challenged the institution of private property because
of its effects upon the distribution and production of wealth. They
cast doubt upon the theories concerning its historical evolution, and
concluded that its abolition would help the perfection of the scientific
and industrial organisation of modern society. The problem of private
property was at last faced, and a recurrence of the discussion was
henceforth to become a feature of economic science.[435]

Not that it had hitherto been neglected. Utopian communists from Plato
and More up to Mably, Morelly, Godwin, and Babeuf, the eighteenth-century
equalitarians, all rest their case upon a criticism of property. But
hitherto the question had been treated from the point of view of ethics
rather than of economics.[436] The originality of the Saint-Simonian
treatment is that it is the direct outcome of the economic and political
revolution which shook France and the whole of Europe towards the end
of the eighteenth and the beginning of the nineteenth centuries. The
socialism of Saint-Simon is not a vague aspiration for some pristine
equality which was largely a creation of the imagination. It is rather
the naïve expression of juvenile enthusiasm in the presence of the new
industrial _régime_ begotten of mechanical invention and scientific
discovery. The modern spirit at its best is what it would fain reveal.
It sought to interpret the generous aspirations of the new _bourgeois_
class, freed through the instrumentality of the Revolution from the
tutelage of baron and priest, and to show how the reactionary policy
of the Restoration threatened its triumph. Not content, however, with
confining itself to the intellectual orbit of the _bourgeoisie_, it
sought also to define the sphere of the workers in future society and
to lay down regulations for their benefit. But its appeal was chiefly
to the more cultured classes—engineers, bankers, artists, and savants.
It was to these men—all of them members of the better classes—that the
Saint-Simonians preached collectivism and the suppression of inheritance
as the easiest way of founding a new society upon the basis of science
and industry. Hence the great stir which the new ideas caused.

Consequently Saint-Simonism appears to be a somewhat unexpected
extension of economic Liberalism rather than a tardy renewal of ancient
socialistic conceptions.

We must, in fact, distinguish between two currents in Saint-Simonism. The
one represents the doctrine preached by Saint-Simon himself, the other is
that of his disciples, the Saint-Simonians. Saint-Simon’s creed can best
be described as “industrialism” plus a slight admixture of socialism,
and it thus naturally links itself with economic Liberalism, of which
it is simply an exaggerated development. The disciples’ doctrine, on
the other hand, can only be described as collectivism. But it is a
collectivism logically deduced from two of the master’s principles which
have been extended and amplified. For a history of economic ideas it is
the theories of the disciples that matter most, perhaps. But it would be
impossible to understand these without knowing something of Saint-Simon’s
theory. We shall give an explanation of his doctrine, first attempting
to show the links which surely, though strangely enough, affiliate the
socialism of Saint-Simon with economic Liberalism.


Saint-Simon was a nobleman who led a somewhat dissolute, adventurous
life. At the early age of sixteen he took part in the American War of
Independence. The Revolution witnessed the abandonment of his claim
to nobility, but by successful speculation in national property he
was enabled to retrieve his fortune to some extent. Imprisoned as a
suspect at Sainte-Pélagie, set free on the 9th Thermidor, he attained a
certain notoriety as a man of affairs interested chiefly in travels and
amusements and as a dilettante student of the sciences. From the moment
of his release he began to regard himself as a kind of Messiah.[437]
He was profoundly impressed by what seemed to him to be the birth of a
new society at which he had himself assisted, in which the moral and
political and even physical conditions of life were suddenly torn up by
the roots, when ancient beliefs disappeared and nothing seemed ready
to take their place. He himself was to be the evangelist of the new
gospel, and with this object in view on the 4th Messidor, An. VI, he
called together the capitalists who were already associated with him
and, pointing out the great necessity for restoring public confidence,
proposed the establishment of a gigantic bank whose funds might be
employed in setting up works of public utility—a proof of the curious
way in which economic and philosophic considerations were already
linked together in his thoughts.[438] An ill-considered marriage which
was hastily broken off, however, was followed by a period of much
extravagance and great misery. By the year 1805 so reduced were his
circumstances that he was glad to avail himself of the generosity of one
of his old servants. After her death he lived partly upon the modest
pension provided him by his family and partly upon the contributions of
a few tradesmen, but he was again so miserable that in 1823 he attempted
suicide. A banker of the name of Olinde Rodrigues came to the rescue
this time and supplied him with the necessary means of support. He died
in 1825, surrounded by a number of his disciples who had watched over
the last moments of his earthly life. During all these years, haunted
as he was by the need for giving to the new century the doctrine it so
much required, he was constantly engaged in publishing brochures, new
works, or selections from his earlier publications, sometimes alone
and sometimes in collaboration with others,[439] in which the same
suggestions are always revived and the same ideas keep recurring, but in
slightly different forms.

Saint-Simon’s earlier work was an attempt to establish a scientific
synthesis which might furnish mankind with a system of positive morality
to take the place of religious dogmas. It was to be a kind of “scientific
breviary” where all phenomena could be deduced from one single idea, that
of “universal gravitation.” He himself has treated us to a full account
of this system, which is as deceptive as it is simple, and which shows us
his serious limitations as a philosopher whose ambition far outran his
knowledge. Auguste Comte, one of his disciples, attempted a similar task
in his _Cours de Philosophie positive_ and in the _Politique positive_,
so that Saint-Simon, who is usually considered the father of socialism,
finds himself also the father of positivism.

From 1814 up to his death in 1825 he partly relinquished his interest in
philosophy and devoted himself almost exclusively to the exposition of
his social and political ideas, which are the only ones that interest us

His economics might be summed up as an apotheosis of industry, using the
latter word in the widest sense, much as Smith had employed the term as
synonymous with labour of all kind.

His leading ideas, contained within the compass of a few striking pages,
have since become known as “Saint-Simon’s Parable.”

“Let us suppose,” says he, “that France suddenly loses fifty of her
first-class doctors, fifty first-class chemists, fifty first-class
physiologists, fifty first-class bankers, two hundred of her best
merchants, six hundred of her foremost agriculturists, five hundred
of her most capable ironmasters, etc. [enumerating the principal
industries]. Seeing that these men are its most indispensable producers,
makers of its most important products, the minute that it loses these
the nation will degenerate into a mere soulless body and fall into a
state of despicable weakness in the eyes of rival nations, and will
remain in this subordinate position so long as the loss remains and
their places are vacant. Let us take another supposition. Imagine that
France retains all her men of genius, whether in the arts and sciences
or in the crafts and industries, but has the misfortune to lose on the
same day the king’s brother, the Duke of Angoulême, and all the other
members of the royal family; all the great officers of the Crown; all
ministers of State, whether at the head of a department or not; all
the Privy Councillors; all the masters of requests; all the marshals,
cardinals, archbishops, bishops, grand vicars and canons; all prefects
and sub-prefects; all Government employees; all the judges; and on top
of that a hundred thousand proprietors—the cream of her nobility. Such
an overwhelming catastrophe would certainly aggrieve the French, for
they are a kindly-disposed nation. But the loss of a hundred and thirty
thousand of the best-reputed individuals in the State would give rise to
sorrow of a purely sentimental kind. It would not cause the community the
least inconvenience.”[440]

In other words, the official Government is a mere façade. Its action is
wholly superficial. Society might exist without it and life would be
none the less happy. But the disappearance of the savants, industrial
leaders, bankers, and merchants would leave the community crippled. The
very sources of wealth would dry up, for their activities are really
fruitful and necessary. They are the true governors who wield real power.
Such was the parable.

According to Saint-Simon, little observation is needed to realise that
the world we live in is based upon industry, and that anything besides
industry is scarcely worth the attention of thinking people. A long
process of historical evolution, which according to Saint-Simon commenced
in the twelfth century with the enfranchisement of the communes and
culminated in the French Revolution, had prepared the way for it.[441] At
least industry is the one cardinal feature of the present day.

The political concerns of his contemporaries were regarded with some
measure of despair. The majority of them were engaged either in
defending or attacking the Charter of 1814. The Liberals were simply
deceiving themselves, examining old and meaningless formulæ such as “the
sovereignty of the people,” “liberty,” and “equality”—conceptions that
never had any meaning,[442] but were simply metaphysical creations of
the jurists,[443] and they ought to have realised that this kind of work
was perfectly useless now that the feudal _régime_ was overthrown. Men
in future will have something better to do than to defend the Charter
against the “ultras.” The parliamentary _régime_ may be very necessary,
but it is just a passing phase between the feudalism of yesterday and the
new order of to-morrow.[444] That future order is Industrialism—a social
organisation having only one end in view, the further development of
industry, the source of all wealth and prosperity.

The new _régime_ implies first of all the abolition of all class
distinction. There will be no need for either nobles, _bourgeois_, or
clergy. There will be only two categories, workers and idlers—or the
bees and the drones, as Saint-Simon puts it. Sometimes he refers to
them as the national and anti-national party. In the new society the
second class[445] is bound to disappear, for there is only room for the
first. This class includes, besides manual workers,[446] agriculturists,
artisans, manufacturers, bankers, savants, and artists.[447] Between
these persons there ought to be no difference except that which results
from their different capacities, or what Saint-Simon calls their varying
stakes in the national interest. “Industrial equality,” he writes,
“consists in each drawing from society benefits exactly proportionate to
his share in the State—that is, in proportion to his potential capacity
and the use which he makes of the means at his disposal—including, of
course, his capital.”[448] Saint-Simon evidently has no desire to rob
the capitalists of their revenues; his hostility is reserved for the
landed proprietors.

Not only must every social distinction other than that founded upon
labour and ability disappear, but government in the ordinary sense of
the term will largely become unnecessary. “National association” for
Saint-Simon merely meant “industrial enterprise.” “France was to be
turned into a factory and the nation organised on the model of a vast
workshop”; but “the task of preventing thefts and of checking other
disorders in a factory is a matter of quite secondary importance and can
be discharged by subordinates.”[449] In a similar fashion, the function
of government in industrial society must be limited to “defending workers
from the unproductive sluggard and maintaining security and freedom for
the producer.”[450]

So far Saint-Simon’s “industrialism” is scarcely distinguishable from
the “Liberalism” of Smith and his followers, especially J. B. Say’s.
Charles Comte and Dunoyer, writing in their review, _Le Censeur_, were
advancing exactly similar doctrines,[451] sometimes even using identical
terms. “Plenty of scope for talent” and _laissez-faire_ were some of
the favourite maxims of the Liberal _bourgeois_. Such also were the
aspirations of Saint-Simon.

But it is just here that the tone changes.[452]

Assuming that France has become a huge factory, the most important task
that awaits the nation is to inaugurate the new manufacturing _régime_
and to seek to combine the interests of the _entrepreneurs_ with those
of the workers on the one hand and of the consumers on the other. There
is thus just enough room for government—of a kind. What is required is
the organising of forces rather than the governing of men.[453] Politics
need not disappear altogether, but “must be transformed into a positive
science of productive organisation.”[454] “Under the old system the
tendency was to increase the power of government by establishing the
ascendancy of the higher classes over the lower. Under the new system the
aim must be to combine all the forces of society in such a fashion as to
secure the successful execution of all those works which tend to improve
the lot of its members either morally or physically.”[455]

Such will be the task of the new government, where capacity will replace
power and direction will take the place of command.[456] Applying itself
to the execution of those tasks upon which there is complete unanimity,
most of them requiring some degree of deliberation and yet promptness
of action, it will gradually transform the character of politics by
concentrating attention upon matters affecting life or well-being—the
only things it need ever concern itself with.[457]

In order to make his meaning clearer, Saint-Simon proposes to confine
the executive power to a Chamber of Deputies recruited from the
representatives of commerce, industry, manufacture, and agriculture.
These would be charged with the final acceptance or refusal of the
legislative proposals submitted to them by the other two Chambers,
composed exclusively of savants, artists, and engineers. The sole concern
of all legislation would, of course, be the development of the country’s
material wealth.[458]

An economic rather than a political form of government, administering
things instead of governing men, with a society modelled on the workshop
and a nation transformed into a productive association having as its
one object “the increase of positive utility by means of peaceful
industry”[459]—such are the ruling conceptions which distinguish
Saint-Simon from the Liberals and serve to bring him into the ranks of
the socialists. His central idea will be enthusiastically welcomed by
the Marxian collectivists, and Engels speaks of it as the most important
doctrine which its author ever propounded.[460] Proudhon accepts it, and
as a practical ideal proposes the absorption of government and its total
extinction in economic organisation. The same idea occurs in Menger’s
_Neue Staatslehre_,[461] and in Sorel’s writings, where he speaks of
“reorganising society on the model of a factory.”[462]

It is this novel conception of government that most clearly distinguishes
Saint-Simon’s industrialism from economic Liberalism.[463]

But, despite the fact that he gave to socialism one of its most fruitful
conceptions, we hardly know whether to class Saint-Simon as a socialist
or not, especially if we consider that the essence of socialism consists
in the abolition of private property. It is true that in one celebrated
passage he speaks of the transformation of private property.[464] But it
is quite an isolated exception. Capital as well as labour, he thought,
were entitled to remuneration. The one as well as the other involved some
social outlay. He would probably have been quite content with a purely
governmental reform.

It would not be difficult, however, to take the ideal of industrialism as
outlined by Saint-Simon as the basis of a demand for a much more radical
reform and a much more violent attack upon society. Such was the task
which the Saint-Simonians took upon themselves, and our task now is to
show how collectivism was gradually evolved out of industrialism.


Saint-Simon’s works were scarcely ever read. His influence was
essentially personal, and the task of spreading a knowledge of his ideas
devolved upon a number of talented disciples whom he had succeeded in
gathering round him. Augustin Thierry, who was his secretary from 1814 to
1817, became his adopted son. Auguste Comte, who occupied a similar post,
was a collaborator in all his publications between 1817 and 1824. Olinde
Rodrigues and his brother Eugène were both among his earliest disciples.
Enfantin, an old student of the Polytechnic, and Bazard, an old Carbonaro
who had grown weary of political experiments, were also of the number.
Soon after the death of Saint-Simon his following founded a journal
called _Le Producteur_ with a view to popularising his ideas. Most of the
articles on economics were contributed by Enfantin. The paper lasted only
for one year, although the number of converts to the new doctrine was
rapidly increasing. All of them were persuaded that Saint-Simon’s ideas
furnished the basis of a really modern faith which would at once supplant
both decadent Catholicism and political Liberalism, the latter of which,
in their opinion, was a purely negative doctrine.

In order to strengthen the intellectual ties which already united them,
this band of enthusiasts set up among themselves a sort of hierarchy
having at its summit a kind of college or institution composed of the
more representative members of the group, upon whom the title “fathers”
was bestowed. The next lower grade was composed of “sons,” who were to
regard one another as “brothers.” It was in 1828, under the influence
of Eugène Rodrigues, that the Saint-Simonians assumed this character of
an organised sect. About the same time Bazard, one of their number, was
giving an exposition of the creed in a series of popular lectures. These
lectures, delivered during the years 1828-30, and listened to by many men
who were afterwards to play an important part in the history of France,
such as Ferdinand de Lesseps, A. Carrel, H. Carnot, the brothers Péreire,
and Michel Chevalier, were published in two volumes under the title
_Exposition de la Doctrine de Saint-Simon_. The second volume is more
particularly concerned with philosophy and ethics. The first includes the
social doctrine of the school, and according to Menger forms one of the
most important expositions of modern socialism.[465]

Unfortunately, under the influence of Enfantin the philosophical and
mystical element gained the upper hand and led to the downfall of the

The Saint-Simonians considered that it was not enough to take modern
humanity into its confidence and reveal to it its social destiny. It must
be taught to love and desire that destiny with all the ardour of romantic
youth. For the accomplishment of this end there must exist a unity of
action and thought such as a common religious conviction alone can
confer. And so Saint-Simonism became a religion, a cult with a moral code
of its own, with meetings organised and churches founded in different
parts of the country, and with apostles ready to carry the good tidings
to distant lands. A striking phenomenon surely, and worthy the fullest
study. It was a genuine burst of religious enthusiasm among men opposed
to established religion but possessed of fine scientific culture—the
majority of whom, however, as it turned out, were better equipped for
business than for the propagation of a new gospel.

Enfantin and Bazard were to be the popes of this new Catholicism. But
Bazard soon retired and Enfantin became “supreme Father.” He withdrew,
with forty of the disciples, into a house at Ménilmontant, where they
lived a kind of conventual life from April to December 1831. Meanwhile
the other propagandists were as active as ever, the work being now
carried on in the columns of _Le Globe_, which became the property
of the school in July 1831. This strange experiment was cut short by
judicial proceedings, which resulted in a year’s imprisonment for
Enfantin, Duverger, and Michel Chevalier, all of whom were found guilty
of forming an illegal association. This was the signal for dispersion.

The last phase was the most extravagant in the whole history of the
school, and naturally it was the phase that attracted most attention. The
simple social doctrine of Saint-Simon was overwhelmed by the new religion
of the Saint-Simonians, much as the Positivist religion for a while
succeeded in eclipsing the Positive philosophy. Our concern, of course,
is chiefly with the social doctrine as expounded in the first volume of
the _Exposition_. That doctrine is sufficiently new to be regarded as an
original development and not merely as a _résumé_ of Saint-Simon’s ideas.
Both Bazard and Enfantin had some hand in it. But it is almost certain
that it was the latter who supplied the economic ideas,[466] and that to
the formation of those ideas Sismondi’s work contributed not a little.
The work is quite as remarkable for the vigorous logical presentation of
the doctrine as it is for the originality of its ideas. The oblivion into
which it has fallen is not easily explicable, especially if we compare it
with the many mediocre productions that have somehow managed to survive.
There are not wanting signs of a revived interest in the doctrines, and
for our own part we are inclined to give them a very high place among the
economic writings of the century.

The _Doctrine de Saint-Simon_ resolves itself into an elaborate criticism
of private property.

The criticism is directed from two points of view—that of distribution
and that of the production of wealth, that of justice and that of
utility. The attack is carried on from both sides at once, and most of
the arguments used during the course of the century are here hurled
indiscriminately against the institution of private property. The
doctrines of Saint-Simon contributed not a little to the success of the

(_a_) Saint-Simon had already emphasised the impossibility of workers and
idlers coexisting in the new society. Industrialism could hold out no
promise for the second class. Ability and labour only had any claim to
remuneration. By some peculiar misconception, however, Saint-Simon had
regarded capital as involving some degree of personal sacrifice which
entitled it to special remuneration. It was here that the Saint-Simonians
intervened. Was it not perfectly obvious that private property in capital
was the worst of all privileges? The Revolution had swept away caste
distinctions and suppressed the right of primogeniture, which tended to
perpetuate inequality among members of the same family, but had failed
to touch individual property and its privilege of “laying a toll upon
the industry of others.” This right of levying a tax is the fundamental
idea in all their definitions of private property.[467] Property,
according to the generally accepted meaning of the term to-day, consists
of wealth which is not destined to be immediately consumed, but which
entitles its owner to a revenue. Within this category are included
the two agents of production, land and capital. These are primarily
instruments of production, whatever else they may be. Property-owners
and capitalists—two classes that need not be distinguished for our
present purpose—have the control of these instruments. Their function
is to distribute them among the workers. The distribution takes place
through a series of operations which give rise to the economic phenomena
of interest and rent.[468] Consequently the worker, because of this
concentration of property in the hands of a few individuals, is forced to
share the fruits of his labour. Such an obligation is nothing short of
the exploitation of one man by another,[469] an exploitation all the more
odious because the privileges are carefully preserved for one section of
the community. Thanks to the laws of inheritance, exploiter and exploited
never seem to change places.

To the retort that proprietors and capitalists are not necessarily
idle—that many of them, in fact, work hard in order to increase their
incomes—the Saint-Simonians reply that all this is beside the point.
A certain portion of the income may possibly result from personal
effort, but whatever they receive either as capitalists or proprietors
can obviously only come from the labour of others, and that clearly is

It is not the first time we have encountered this word “exploitation.”
We are reminded of the fact that Sismondi made use of it,[470] and the
same term will again meet us in the writings of Marx and others. None of
them, however, uses it in quite the same sense, and it might be useful to
distinguish here between the various meanings of a term which plays such
an important _rôle_ in socialist literature and which leads to so much

Sismondi, we know, regarded interest as the legitimate income of capital,
but at the same time admitted that the worker may be exploited.

Such exploitation, he thought, took place whenever the wages were barely
sufficient to keep the wage-earner alive, although at the same time
the master might be living in luxurious ease. In other words, there is
exploitation whenever the worker gets less than a “just” wage. It is
merely a temporary defect and not an ineradicable disease of the economic
system. It certainly does occur occasionally, although there is no
reason why it ever should, and it may be removed without bringing the
whole system to ruin. Conceived of in this vague fashion, what is known
as exploitation is as difficult to define as the “just price” itself.
It appears under several aspects, and is by no means peculiar to the
master-servant relation. An individual is exploited whenever advantage is
taken of his ignorance or timidity, his weakness or isolation, to force
him to part with his goods or his services at less than the “just price”
or to pay more for the goods or services of others than they are really

The Saint-Simonians, on the other hand, considered that exploitation
was an organic defect of our social order. It is inherent in private
property, of which it is an invariable concomitant. It is not simply an
incidental abuse, but the most characteristic trait of the whole system,
for the fundamental attribute of all property is just this right to
enjoy the fruits of labour without having to undergo the irksome task
of producing. Such exploitation is not confined to manual labourers; it
applies to every one who has to pay a tribute to the proprietor. The
_entrepreneur_, in his turn, becomes a victim because of the interest
which he pays to the capitalist, who supplies him with the funds which he

The _entrepreneur’s_ profit, on the other hand, is not the result of
exploitation. It represents payment for the work of direction. The master
may doubtless abuse his position and reduce the wages of the workers
excessively. The Saint-Simonians would then agree with Sismondi in
calling this exploitation. But this is not a necessity of the system.
And the Saint-Simonians look forward to a future state of society in
which exceptional capacity will always be able to enjoy exceptional
reward.[472] This is one of the most interesting elements in their theory.

Marx conceives of exploitation as an organic vice inherent in capitalism.
But with him the term has quite a different connotation from that
given it by the Saint-Simonians. Following the lead of certain English
socialists, Marx comes to the conclusion that the origin of exploitation
must be sought in the present method of exchanging wealth. Labour, in his
opinion, is the source of all value, and consequently interest and profit
must be of the nature of theft. The _entrepreneur’s_ revenue is quite as
unjust as the capitalist’s or landlord’s.[473]

This last theory, with its wholesale condemnation of income of every kind
save the worker’s wage, seems much more logical than any of the others.
But as a matter of fact it is much more open to criticism. If it can be
demonstrated that the value of products is not the mere result of manual
labour, then Marx’s idea falls to the ground. The Saint-Simonians were
never embarrassed by any theory of value. Their whole contention rests
upon the distinction between the income which is got from labour and the
revenue which is derived from capital, which every one can appreciate. It
was a distinction which had already been emphasised by Sismondi, and no
conclusion other than the illegitimacy of all revenue not derived from
labour can be drawn from the premises thus stated. Some basis other than
labour must be discovered if this revenue is ever to be justified, and a
new defence of private property must somehow be attempted.

The exigencies of production itself may supply such justification.
Private property and the special kind of revenue which is derived from
its possession justifies itself, in the opinion of a growing number of
economists, on account of the stimulus it affords to production and
the accumulation of wealth. This seems the most advantageous method of
defence, and it is one of the grounds chosen by the Physiocrats.[474]

But the Saint-Simonians from the very first set this argument aside and
attacked the institution of private property in the interests of social
utility no less than in the interest of justice. Production as well as
distribution, in their opinion, demanded its extinction.

(_b_) This brings us to the second point, which Saint-Simon did little
more than suggest, namely, whether the institution of private property
as at present existing is in the best interests of producers. The
Saint-Simonians hold that it clearly is not, so long as the present
method of distributing the instruments of production continues. At
the present moment capital is transmitted in accordance with the laws
of inheritance. Individuals chosen by the accident of birth are its
depositors, and they are charged with the most difficult of all tasks,
namely, the best utilisation of the agents of production. Social
interest demands that they should be placed in more capable hands and
distributed in those places and among those industries in which the
need for those particular instruments is most keenly felt, without any
fear of a scarcity in one place or a glut in another.[475] To-day it
is a blind chance that picks out the men destined to carry out this
infinitely difficult task. And all the efforts of the Saint-Simonians are
concentrated just on this one point—inheritance.

Their indignation is easily explained. There is certainly something
paradoxical in the fact to which they draw attention. If we accept
Smith’s view, that government “is in reality instituted for the defence
of those who have some property against those who have none at all”—a
very narrow conception of the function of government[476]—inheritance is
simply inevitable. On the other hand, if we put ourselves at the point
of view of the Saint-Simonians, who lived in an industrial society where
wealth was regarded, not as an end, but as a means, not merely as the
source of individual income, but as the instrument of social production,
it seems utterly wrong that it should be left at the disposal of the
first comer. The practice of inheritance can only be justified on the
ground that it provides a stimulus to the further accumulation of wealth,
or that in default of a truly rational system the chances of birth are
not much more open to criticism than any other.

Such scepticism was little to the taste of the Saint-Simonians. But they
were firmly convinced that all the disorders of production, whether
apparent or real, were due to the dispersion of property according to the
chances of life and death.

“Each individual devotes all his attention to his own immediate
dependents. No general view of production is ever taken. There is no
discernment and no exercise of foresight. Capital is wanting here and
excessive there. This want of a broad view of the needs of consumers and
of the resources of production is the cause of those industrial crises
whose origin has given rise to so much fruitless speculation and so many
errors which are still circulating in our midst. In this important branch
of social activity, where so much disturbance and such frequent disorder
manifests itself, we see the evil result of allowing the distribution of
the instruments of production to be in the hands of isolated individuals
who are at once ignorant of the demands of industry, of other men’s
needs, and of the means that would satisfy them. This and nothing else is
the cause of the evil.”[477]

Escape from such economic anarchy, which has been so frequently
described, can only become possible through collectivism—at least so
the Saint-Simonians thought.[478] The State is to become the sole
inheritor of all forms of wealth. Once in possession of the instruments
of production, it can distribute them in the way it thinks best for
the general interest. Government is conceived on the model of a great
central bank where all the wealth of the country will be deposited and
again distributed through its numerous branches. The uttermost ends of
the kingdom will be made fertile, and the necessaries of life will be
supplied to all who dwell therein. The best of the citizens will be put
to work at tasks that will call forth their utmost efforts, and their pay
will be as their toil. This social institution would be invested with
all the powers which are so blindly wielded by individuals at the present

We need not insist too much on this project or press for further details,
which the Saint-Simonians would have some difficulty in supplying.

Who, for example, is to undertake the formidable task of judging of the
capacity of the workmen or of paying for their work? They are to be the
“generals”—the superiors who are to be set free from the trammels of
specialisation and whose instinctive feelings will naturally urge them
to think only of the general interest. The chief will be he who shows
the greatest concern about the social destiny of the community.[480] It
is not very reassuring, especially when we remember that even with the
greatest men there is occasionally a regrettable confusion of general and
private interests.

But admitting the incomparable superiority of the “generals,” what of
obeying them? Will the inferiors take kindly to submission or will they
have to be forced to it? The first alternative was the one which they
seemed to favour, for the new religion, “Saint-Simonism,” would always be
at hand to inspire devotion and to deepen the respect of the inferiors
for their betters.[481] One is tempted to ask what would become of the
heretics if ever there happened to be any.

Further criticism of this kind can serve no useful purpose, and it
applies to every collective system, differing only in matters of
detail. Whenever it is proposed to set up an elaborate plan of economic
activity, directed and controlled by some central authority, with a view
to supplanting the present system of individual initiative and social
spontaneity, we are met at the threshold with the difficulty of setting
up a new code of morality. Instead of the human heart with its many mixed
motives, its insubordination and weaknesses, in place of the human mind
with all its failings, ignorance, and error, is to be substituted a heart
and mind altogether ideal, which only serve to remind us how far removed
they are from anything we have ever known. The Saint-Simonians recognised
that a change so fundamental could only be accomplished through the
instrumentality of religion. In doing this they have shown an amount of
foresight which is rare among the critics who treat their ideas with such

It is more important that we should insist upon another fact, namely,
that the Saint-Simonian system is the prototype of all the collectivist
schemes that were proposed in the course of the century.

The whole scheme is very carefully thought out, and rests upon that
penetrative criticism of private property which differentiates it from
other social Utopias. The only equality which the Saint-Simonians
demanded was what we call equality of opportunity—an equal chance and the
same starting-point for every one. Beyond that there is to be inequality
in the interests of social production itself. To each according to his
capacity, and to every capacity according to the work which it has
accomplished—such is the rule of the new society.[482]

An interesting _résumé_ of the Saint-Simonians’ programme, given in a
series of striking formulæ which they addressed to the President of the
Chamber of Deputies,[483] is worth quoting:

“The Saint-Simonians do not advocate community of goods, for such
community would be a manifest violation of the first moral law, which
they have always been anxious to uphold, and which demands that in
future every one shall occupy a situation becoming his capacity and be
paid according to his labour.

“In view of this law they demand the abolition of all privileges of birth
without a single exception, together with the complete extinction of the
right of inheritance, which is to-day the greatest of all privileges and
includes every other. The sole effect of this system is to leave the
distribution of social advantages to a chance few who are able to lay
some pretence to it, and to condemn the numerically superior class to
deprivation, ignorance, and misery.

“They ask that all the instruments of production, all lands and capital,
the funds now divided among individual proprietors, should be pooled
so as to form one central social fund, which shall be employed by
associations of persons hierarchically arranged so that each one’s task
shall be an expression of his capacity and his wealth a measure of his

“The Saint-Simonians are opposed to the institution of private property
simply because it inculcates habits of idleness and fosters a practice of
living upon the labour of others.”

(_c_) Critics of private property, generally speaking, are not
content with its condemnation merely from the point of view either of
distribution or production. They almost invariably employ a third method
of attack, which might be called the historical argument. The argument
generally takes the form of a demonstration of the path which the gradual
evolution of the institution of private property has hitherto followed,
coupled with an attempt to show that its further transformation along the
lines which they advocate is simply the logical outcome of that process.
The argument has not been neglected by the Saint-Simonians.

The history of this kind of demonstration is exceedingly interesting, and
the _rôle_ it has played in literature other than that of a socialist
complexion is of considerable importance. Reformers of every type,
whether the immediate objective be a transformation of private property
or not, always base their appeals upon a philosophy of history.

Marx’s system is really a philosophy of history in which communism is set
forth as the necessary consummation of all industrial evolution. Many
modern socialists, although rejecting the Marxian socialism, still appeal
to history. M. Vandervelde builds his faith upon it.[484] The authors of
that quite recent work _Socialisme en Action_ rely upon it, and so do
Mr. and Mrs. Sidney Webb and all the Fabian Socialists. Dupont-White’s
State Socialism is inspired by similar ideas, and so is the socialism
of M. Wagner. Friedrich List has a way of his own with history; and the
earliest ambition of the Historical school was to transform political
economy into a kind of philosophy of history. If we turn to the realm of
philosophy itself we find somewhat similar conceptions—the best known,
perhaps, being Comte’s theory of the three estates, which was borrowed
directly from Saint-Simon.[485]

This is not the place to discuss historical parallels. The point will
come up in a later chapter in connection with the Historical school. What
we would remark here is the good use which the Saint-Simonians made of
the argument. All the past history of property was patiently ransacked,
and the arguments of other writers who have extolled the merits of
collectivism were thus effectually forestalled.

“The general opinion seems to be,” says the _Doctrine de
Saint-Simon_,[486] “that whatever revolutions may take place in society,
this institution of private property must for ever remain sacred and
inviolable; it alone is from eternity unto eternity. In reality nothing
could be less correct. Property is a social fact which, along with other
social facts, must submit to the laws of progress. Accordingly it may be
extended, curtailed, or regulated in various ways at different times.”
This principle, once it was formulated, has never failed in winning the
allegiance of every reformer. Forty years later the Belgian economist
Laveleye, who has probably made the most thoroughly scientific study of
the question, used almost identical words in summing up his inquiry into
the principal forms of property.[487]

The Saint-Simonians feel confident that a glance at the progress of
this evolution is enough to convince anyone that it must have followed
the lines which they have indicated. The conception of property was at
first broad enough to include men within its connotation. But the right
of a master over his slaves gradually underwent a transformation which
restricted its exercise, and finally caused its disappearance altogether.
Reduced to the right of owning things, this right of possession was at
first transmissible simply according to the proprietor’s will. But the
legislature intervened long ago, and the eldest son is now the sole
inheritor. The French Revolution enforced equal distribution of property
between all children, and so spread out the benefits which the possession
of the instruments of production confers. To-day the downward trend of
the rate of interest is slowly reducing the advantages possessed by
the owners of property, and goes a long way towards securing to each
worker a growing share of his product.[488] There remains one last step
which the Saint-Simonians advocate, which would secure to all workers
an equal right to the employment of the instruments of production. This
reform would consist in making everybody a proprietor, but the State
the sole inheritor. “The law of progress as we have outlined it would
tend to establish an order of things in which the State, and not the
family, would inherit all accumulated wealth and every other form of what
economists call the funds of production.”[489]

These facts might be employed to support a conclusion of an entirely
different character. That equality of inheritance which was preserved
rather than created by the French Revolution might be taken as a proof
that modern societies are tending to multiply the number of individual
proprietors by dividing the land between an increasing number of its
citizens. But such discussion does not belong to a work of this kind. We
are entitled to say, however, that the Saint-Simonian theory is a kind
of prologue to all those doctrines that ransack the pages of history for
arguments in favour of the transformation, or even the suppression, of
private property.

Here again the Saint-Simonians have merely elaborated a view which their
master had only casually outlined. Saint-Simon, also believed that in
history we have an instrument of scientific precision equal to the best
that has yet been devised.

Saint-Simon, who owes something in this matter to Condorcet, regarded
mankind as a living being having its periods of infancy and youth, of
middle and old age, just like the individuals who compose it. Epochs of
intellectual ferment in the history of the race are exactly paralleled
by the dawning of intellectual interests in the individual, and the one
may be foretold as well as the other. “The future,” says Saint-Simon, “is
just the last term of a series the first term of which lies somewhere in
the past. When we have carefully studied the first terms of the series
it ought not to be difficult to tell what follows. Careful observation
of the past should supply the clue to the future.”[490] It was while
in pursuit of this object that Saint-Simon stumbled across the term
“industrialism” as one that seemed to him to express the end towards
which the secular march of mankind appeared to lead. From family to city,
from city to nation, from nation to international federation—such is
the sequence which helps us to visualise the final term of the series,
which will be some kind of “a universal association in which all men,
whatever other relations they may possess, will be united.”[491] In a
similar fashion the Saint-Simonians interpret the history of individual
property and predict its total abolition through a process of its gradual
extension to all individuals combined with the extinction of private

The doctrine of the Saint-Simonians may well be regarded as a kind of
philosophy of history.[492] Contemplation of the system fills them with
an extraordinary confidence in the realisation of their dreams, to
which they look forward not merely with confidence, but with feelings
of absolute certainty. “Our predictions have the same origins and are
based upon the same kind of foundations as are common to all scientific
discoveries.”[493] They look upon themselves as the conscious, voluntary
agents of that inevitable evolution which has been foretold and defined
by Saint-Simon.[494] This is one trait which their system has in common
with that of Marx. But there are two important differences. The Marxians
relied upon revolution consummating what evolution had begun, while the
Saint-Simonians relied upon moral persuasion.[495] The Saint-Simonians,
true children of the eighteenth century that they were, believed
that ideas and doctrines were sufficiently powerful agents of social
transformation, while the Marxians preferred to put their hope in the
material forces of production, ideas, in their opinion, being nothing
better than a pale reflection of such forces.[496]


The doctrine of the Saint-Simonians consists of a curious mixture of
realism and Utopianism. Their socialism, which makes its appeal to
the cultured classes rather than to the masses, is inspired, not by a
knowledge of working-class life, but by close observation and remarkable
intuition concerning the great economic currents of their time.

The dispersion of the school gave the leaders an opportunity of taking
an active part in the economic administration of their own country, and
we find them throwing themselves whole-heartedly into various schemes
of a financial or industrial character. In 1863 the brothers Péreire
founded a credit association which became the prototype of the financial
institutions of to-day. Enfantin took a part in the founding of the
P.L.M. Railway, which involved an amalgamation of the Paris-Lyons,
Lyons-Avignon, and Avignon-Marseilles lines. Enfantin was also the first
to float a company for the purpose of making a canal across the isthmus
of Suez. At the Collège de France Michel Chevalier defended the action of
the State in undertaking certain works of a public character. It was he
also who negotiated the treaty of 1860 with England, which was the means
of inaugurating the era of commercial liberty for France. Other examples
might be cited to show the important part which the Saint-Simonians
played in nineteenth-century economic history.[497]

More especially did they realise the enormous place which banks and
institutions of a similar nature were bound to have in modern industrial
organisation. And whatever views we may hold as to the rights of
property, we are bound to recognise how these deposit banks have already
become great reservoirs of capital from which credit is distributed in a
thousand ways throughout the whole realm of industry. Some writers, all
of them by no means of the socialist way of thinking, would reproach the
banks, especially in France, with their lack of courage in regulating
and stimulating industry, which, as the Saint-Simonians foresaw, is a
legitimate part of their duty.[498] The important part which they saw
international financiers playing in the domestic affairs of almost
every European nation during the Restoration period, coupled with their
personal knowledge of bankers, helped the Saint-Simonians in anticipating
the all-important _rôle_ which credit was to play in modern industry.

Equally remarkable was the foresight they displayed in demanding a more
rigorous control of production, and in emphasising the need for some
better method of adapting that production to meet the exigencies of
demand than is possible under a competitive system. The State obviously
has neither the ability nor the inclination to discharge such functions,
but so great are the inconveniences of competition that manufacturers are
forced to enter into agreements with one another in order to exercise
some such control. This is nothing less than a partial application of the
doctrine of Saint-Simon.

In addition to the considerable personal influence which they were
able to exercise over economic development, we have to recognise that
in their writings we have the beginnings both of the critical and of
the constructive contribution made by socialists to nineteenth-century
economics. Their doctrine is, as it were, little more than an index to
later socialist literature.

In the first place one must be struck by the number of formulæ to be
met with in their work which have since become the commonplaces of
socialism. “The exploitation of man by man” was a phrase that was
exceedingly popular up to 1848. The term “class war,” which has taken
its place since the time of Marx, expresses the same idea. They spoke of
“the organisation of labour” even before Louis Blanc, and employed the
term “instrument of labour” as a synonym for land and movable capital
long before it was so used by Marx. Although we have not considered
it necessary to group them with the Associationists, they have been
as assiduous as any in proclaiming the superior merits of producers’
associations. Moreover, they anticipated the use which the socialists
would make of the theory of rent. In a curious passage written long
before the time of Henry George they refer to the possibility of applying
the doctrines of Ricardo and Malthus to justify the devotion of the
surplus produce of good land to the general needs of society, thus
anticipating the theory of another prominent socialist thinker.[499]
Other ideas might be mentioned, though not of a specifically socialist
character. Thus the theory of profit-sharing, as far as our knowledge
goes, was first developed in an article in _Le Producteur_.[500]

The more one examines the doctrines of the Saint-Simonians the more
conscious does one become of the remarkable character of these
anticipations and of the injustice of the oblivion which has since
befallen them. Marx’s friend Engels called attention to the “genial
perspicacity of Saint-Simon, which enabled him to anticipate all the
doctrines of subsequent socialists other than those of a specifically
economic character.”[501] The specifically economic idea of which Engels
speaks and which Saint-Simon, in his opinion, did wrong to neglect was
the Marxian theory of surplus value. We are inclined to the opinion
that it was more of a merit than a fault to place socialism on its real
foundation, which must necessarily be a social one, rather than to found
it upon an erroneous theory of value.

But new formulæ are not their only contribution. Due note was taken
of that fundamental opposition which exists between economists and
socialists and which has caused all the conflicts and misunderstandings
that disfigure the history of the century and resulted in their speaking
an entirely different language. We shall try to define the nature of the
conflict, in order, if possible, to help the reader over the difficulties
that arise just where the bifurcation of economic thought takes place.

No attempt was made either by Adam Smith, Ricardo, or J. B. Say to make
clear the distinction between the science of political economy and the
fact of social organisation.[502] Property, as we have already had
occasion to remark, was a social fact that was accepted by them without
the slightest demur. The methods of dividing property and of inheriting
it, the causes that determined its rise and the consequences that
resulted from its existence, were questions that remained outside the
scope of their discussions. By division or distribution of wealth they
meant simply the distribution of the annual revenue between the various
factors of production. Their interest centres round problems concerning
the rate of interest or the rate of wages or the amount of rent. Their
theory of distribution is simply a theory concerning the price of
services. No attention was paid to individuals, the social product being
supposed to be divided between impersonal factors—land, capital, and
labour—according to certain necessary laws. For convenience of discussion
the impersonal occasionally becomes personal, as when they speak of
proprietors, capitalists, and workers, but that is not allowed to affect
the general trend of the argument.

For the Saint-Simonians, on the other hand, and for socialists in
general the problem of distribution consists especially in knowing how
property is distributed. The question is to determine why some people
have property while others have none; why the instruments of production,
land, and capital should be so unevenly distributed, and why the revenues
resulting from this distribution should be unequal. For a consideration
of the abstract factors of production the socialists are anxious to
substitute the study of actual living individuals or social classes and
the legal ties which bind them together. These differing conceptions of
distribution have given rise to two different problems, the one primarily
economic, the other social, and sufficient care has not always been taken
to distinguish between these two currents, which have managed to coexist,
much to the confusion of social thinking in the nineteenth century.

Another essential difference between their respective points of view
consists of the different manner in which economists and socialists
conceive of the opposition that exists between the general interest and
the interests of individuals.

Classical writers envisaged it as a conflict between the interests of
consumers, _i.e._ everybody, and the interests of producers, which are
more or less the interests of a particular class.

The Saint-Simonians, on the other hand—and in this matter their
distinction has met with the hearty approval of every socialist—think it
better to regard it as between workers on the one hand and idlers on the
other, or between workers and capitalists, to adopt the cramped formula
of a later period. The worker’s is the general interest; the particular
interest is that of the idler who lives at the former’s expense. “We
have on several occasions,” writes Enfantin, “pointed out some of the
errors in the classification adopted by most present-day economists.
The antithesis between producer and consumer gives a very inadequate
idea of the magnitude of the gap that lies between the various members
of society, and a better differentiation would be that which would
treat them as workers and idlers.”[503] The difference in the point of
view naturally results in an entirely different conception of social
organisation. Economists think that society ought to be organised from
the point of view of the consumer and that the general interest is fully
realised when the consumer is satisfied. Socialists, on the contrary,
believe that society should be organised from the standpoint of the
worker, and that the general interest is only fully achieved when the
workers draw their full share of the social product, which is as great as
it possibly can be.[504]

There is one last element of difference which is very important.
Classical writers made an attempt to reduce the apparent disorder of
individual action within the compass of a few scientific laws. By the
time the task was completed so struck were they with the profound harmony
which they thought they had discovered that they renounced all attempts
at amelioration. They were so satisfied with the demonstration which
they had given of the way in which a spontaneous social force, such
as competition, for example, tended to limit individual egoism and to
complete the triumph of the general interest that they never thought of
inquiring whether the action of these forces might not be rendered a
little less harmful or whether the mechanism might not with advantage be
lubricated and made to run somewhat more smoothly.

The Saint-Simonians, on the other hand—and in this matter it is necessary
to couple with theirs the name of Sismondi—are convinced of the slowness,
the awkwardness, and the cruelty with which spontaneous economic forces
often go to work. Consequently they are concerned with the possibility
of substituting a more conscious, carefully thought-out effort on the
part of society. Instead of a spontaneous reconciliation of conflicting
interests they suggest an artificial reconciliation, which they strive
with all their might to realise. Hence the innumerable attempts to set up
a new mechanism which might take the place of the spontaneous mechanism,
and the childish efforts to co-ordinate or combine economic forces.
These attempts, most of them of necessity unsuccessful, furnished the
adversaries of socialism with their best weapons of attack. All of them,
however, did not prove quite fruitless, and some of them were destined to
exercise a notable influence upon social development.

It is in the Saint-Simonian doctrine that we find these contrasts between
political economy and socialism definitely marked and in full detail.
It matters little to us to-day that the school was ridiculed or that
the eccentricities of Enfantin destroyed his propaganda work just when
Fourier was pursuing his campaign with great success. Ideas are the
things that stand out in a history of doctrines. To us, at any rate,
Saint-Simonism appears as the first and most eloquent as well as the
most penetrating expression of the sentiments and ideals that inspire
nineteenth-century socialism.[505]


The name “Associative Socialists” is given to all those writers who
believe that voluntary association on the basis of some preconceived plan
is sufficient for the solution of all social questions. Unfortunately the
plans vary very considerably, according to the particular system chosen.

They differ from the Saint-Simonians, who sought the solution in
socialisation rather than in association,[506] and thus became the
founders of collectivism, which is quite another thing. The advocates of
socialisation always thought of “Society” with a capital S, and of all
the members of the nation as included in one collective organisation.
The term “nationalisation” much better describes what they sought.
Associationism, on the other hand, more individualistic in character and
fearing lest the individual should be merged in the mass, would have him
safeguarded by means of small autonomous groups, where federation would
be entirely voluntary, and any unity that might exist would be prompted
from within rather than imposed from without.

On the other hand, the Associationists must be carefully distinguished
from the economists of the Liberal school. Fortunately this is not
very difficult, for by means of these very associations they claim to
be able to create a new social _milieu_. They are as anxious as the
Liberals for the free exercise of individual initiative, but they believe
that under existing conditions, except in the case of a few privileged
individuals, this very initiative is being smothered. They believe that
liberty and individuality never can expand unless transplanted into a
new environment. But this new environment will not come of itself. It
must be created, just as the gardener must build a conservatory if he
is to secure a requisite environment. Each one has his own particular
recipe for this, and none of them is above thinking that his own is the
best.[507] It is this conception of an artificial society set up in the
midst of present social conditions, bound by strict limitations which to
some extent isolate it from its surroundings, that has won for the system
its name of Utopian Socialism.

Had the Associationists only declared that the social environment can
and ought to be modified, despite the so-called permanent and immutable
laws, just as man himself is capable of modification, they would have
enunciated an important truth and would have forestalled all those who
are to-day seeking a solution of the social question in syndicalism, in
co-operation, and in the garden-city ideal.

On the other hand, had they succeeded in carrying out their plans on an
extensive scale, if we may judge by the desire to evade them on the part
of those experimented on, it seems probable that the new kind of liberty
would have proved less welcome than the liberty which is enjoyed under
the present constitution of society.

They would have been very indignant, however, if anyone had charged
them with desiring to create an artificial society. On the contrary,
their claim was that the present social environment is artificial, and
that their business was not to create but merely to discover that other
environment which is already so wonderfully adapted to the true needs of
mankind in virtue of its providential, natural harmony. At bottom it is
the same idea as the “natural order” of the Physiocrats, much as their
conception differs from that of the Physiocrats—an incidental proof that
the order is anything but “natural,” seeing that it varies with those
who define it. Some of their sayings, however, might very well have been
borrowed directly from Quesnay or Mercier de la Rivière—for example, that
of Owen’s in which he speaks of the commune as God’s special agent for
bringing society into harmony with nature. It is just the “good despot”
of the Physiocrats over again. Or take Fourier’s comparison in which he
ranks himself with Newton as the discoverer of the law of “attraction of
passion,” and believes that his “stroke of genius,” as Zola calls it,
lies in knowing how to utilise the passions which God has given us to the
best advantage.

What is still more interesting is that this newer socialism marks
a veritable reaction against the principles of 1789.[508] The
Revolutionists hated every form of association, and suspected it of being
a mere survival of the old _régime_, a chain to bind the individual. Not
only was it omitted from the Declaration of the Rights of Man,[509] but
it was formally prohibited in every province—prohibitions which have
been withdrawn only quite recently. It is difficult to imagine a greater
contrast to the spirit of the Revolution than the beliefs which inspired
Owen, Fourier, and Cabet, the founders of the new order.

But the men of 1789 were not so far wrong, nor were they deceived by
their recollections of corporations and guilds, when they expressed the
belief that any form of association was really a menace to liberty.
There is an old Italian proverb which states that every man who has an
associate has also a master. The Liberal school has to a certain extent
always shared these apprehensions, and ample justification might be found
for them in the many despotic acts of associates, whether capitalists or

But the “associative” socialists of the early part of the last century
were impressed, even more than Sismondi and Saint-Simon were, by the new
phenomenon of competition. The mortal struggle for profit among producers
and the keen competition for wages among working men which immediately
ensued upon the disappearance of the old framework of society seemed to
them to wear all the hideousness of an apocalyptic beast. With wonderful
perspicacity they predicted that such breakneck competition must
inevitably result in combination and monopoly.[510] Voluntary association
of a co-operative character (they paid hardly any attention to the
possibilities of corporative association) appeared to supply the only
means of suppressing this competition without either endangering liberty
or thwarting the legitimate ambitions of producers. And it is not very
clear as yet that they were altogether mistaken in their point of view.

The two best known representatives of this school are Robert Owen and
Charles Fourier. Although they were contemporaries—the one was born in
1771, the other in 1772[511]—it does not appear that they ever became
known to one another. Owen never seems to have paid any attention to
Fourier’s system, and Fourier never refers to “Owen’s communistic scheme”
without showing some trace of bitterness. Indeed, it is doubtful whether
he knew anything at all about it except from hearsay.[512]

Such reciprocal ignorance does little credit to their powers of
observation. Still it is easily explained. Despite a certain similarity
in their plans for social regeneration—for example, they both proceed
to create small autonomous associations, the microcosms which were to
serve as models for the society of the future, or the yeast which was
to leaven the lump—and notwithstanding that after their deaths they
were both hailed as the parents of one common offspring, co-operation,
they spent their whole lives in two very different worlds. Without any
rhetorical exaggeration and without making any invidious distinctions
we may truthfully say that Owen was a rich, successful manufacturer and
one of the greatest and most influential men of his day and country,
while Fourier was a mere employee in the realm of industry, or a
“shop-sergeant,” as he liked to call himself. Later on Fourier became
the recipient of a small annuity; but his reputation only spread slowly
and with much difficulty among a small circle of friends. Contrary to
what might have been expected, the millionaire manufacturer was the more
ardent socialist of the two. A militant communist and an anti-cleric,
he loved polemics, and advanced his views both in the Press and on the
platform. His humble rival was just a grown-up boy with the habits of an
old woman. He scarcely ever left his house except to listen to a military
band; he wrote sedulously, attempting to turn out the same number of
pages each day, and spent most of his life on the look-out for a sleeping
partner, who, unfortunately, never turned up.

Other writers of whom we shall have something to say in connection with
this school are Louis Blanc, Leroux, and Cabet.


Robert Owen of all socialists has the most strikingly original, not to
say unique, personality. One of the greatest captains of industry of his
time, where else have we such a commanding figure? Nor is his socialism
simply the philanthropy of the kind-hearted employer. It is true that
it is not revolutionary, and that he could not bring himself to support
the Chartist movement, which seems harmless enough now.[513] He never
suggested expropriation as an ideal for working men, but he exhorted
them to create new capital, and it is just here that the co-operative
programme differs from the collectivist even to this day. But for all
practical purposes Owen was a socialist, even a communist. Indeed, he was
probably the first to inscribe the word “socialism” on his banner.[514]

His passion for Utopias did not prevent him initiating a number of
reforms and establishing several institutions of a thoroughly practical
character. Special mention ought to be made of his interest in the
welfare of his workers, an inspiration that has been caught by several
manufacturers since.

Nor must we imagine, simply because we have placed him along with the
Associative socialists, that association was the only solution that met
with his approval. As a matter of fact there is scarcely a solution of
any description which was not to some extent tried by him.

Beginning with the establishment of model workshops in his factory at New
Lanark, there is hardly a suggestion incorporated in his exposition of
socialism which was not attempted and even successfully applied in the
course of his experiments there. Among them are included such important
developments as workmen’s dwellings, refectories, the appointment of
officials to look after the social and moral welfare of the workers, etc.

These experiments had the further distinction of serving as a model for
the factory legislation of the next fifty years. We have only to glance
at the following programme of reforms effected by him to realise this:

1. He reduced the hours of labour from seventeen to ten _per diem_.

2. No children under ten years of age were employed, but free education
was supplied them in schools built for the purpose.

3. All fines—then a common feature of all workshops—were abolished.[515]

Seeing that neither his experiments nor his prestige as an employer was
sufficient to influence his fellow employers, he now tried to gain the
sympathetic attention of the legislature. He turned first of all to the
British Government, and then to that of other countries, looking to
legislation to provide what he believed should have been supplied by the
goodwill of the ruling classes themselves.

Even before the days of Lord Shaftesbury he had inaugurated a campaign
in favour of limiting the hours of children working in factories. In
1819 the first Factory Act was passed, fixing the minimum age at which
children might be employed at nine years, although Owen himself would
have put it at ten.

Discouraged by the little support which he obtained for his projects,
and having satisfied himself as to the impotence both of patronage and
legislation as forces of social progress, he turned his attention to a
third possibility, namely, association. Association, he imagined, would
create that new environment without which no solution of the social
question was ever possible.


The creation of a social _milieu_ was the one impelling force that
inspired all Owen’s various experiments. This was his one desire,
whether he asked it of the masters, the State, or of the workers

He has thus some claim to be regarded as the father of etiology—etiology
being the title given by sociologists to that part of their subject which
treats of the subordination and adaptation of man to his environment.
His theory concerning the possibility of transforming the organism by
influencing its surroundings occupies the same position in economics
as Lamarck’s theory does in biology. By nature man is neither good
nor bad. He is just what his environment has made him, and if at the
present moment he is on the whole rather bad, it is simply because his
environment is so detestable. Scarcely any stress is laid upon the
natural environment which seemed of such supreme importance to writers
like Le Play. Owen’s interest was in the social environment, the product
of education and legislation or of deliberate individual action.[516]
Change the environment and the individual would be changed. He failed
to see that this meant begging the whole question. If man is simply the
product of his environment, how can he possibly change that environment?
It is like asking a man to raise himself by the hair of his head. But
the futility of such criticism will be readily appreciated if we remind
ourselves that it is to such insignificant beginnings as these that we
owe the conception of the garden city. It was Owen’s concern for the
worker and his great desire to provide him with a home where some degree
of comfort and some measure of beauty might be obtainable that gave the
earliest impetus to that movement.

From a moral point of view this deterministic conception resulted in the
absolute denial of all individual responsibility.[517] Every noble or
ignoble deed, every act, whether deserving of praise or blame, of reward
or punishment, reflects neither credit nor discredit upon its author, for
the individual can never be other than he actually is.

There was all the more reason, then, why all religious influences,
especially that of Christianity, should be excluded. This contempt for
religion explains why Owen found so little support in English society,
which revolted against what appeared like cynical atheism, although Owen
himself was really a deist.[518]

Economically, the doctrine of payment according to work rather than
capacity was to result in absolute equality. For why should higher
intelligence, greater vigour or capacity for taking pains entitle a man
to a greater reward if it is all a question of environment? Hence Owen’s
associations were to be communal.

We need not here detail the history of his experiments in colonisation.
It is the usual story of failure and disappointed hopes. At last Owen
himself was driven to the conclusion that his attempt to mould the
environment which was to recreate society had proved unsuccessful.
He renounced all his ambitions for building up a new social order,
and contented himself with an attempt to rid society as at present
constituted of some of the more potent evils that were sapping its
strength. And this brings us to his second essential idea, the abolition
of profit.


The first necessity, if the environment was ever to be changed, was to
get rid of profit. There was _the_ essential evil, the original sin.
Profit was the forbidden fruit which had compassed the downfall of man
and caused his expulsion from the Garden of Eden. Its very definition
conveyed an implication of injustice, for it was always defined as
whatever was over and above cost of production. Products ought to be sold
for what they cost; the net price is the only just price. But profit
is not merely an injustice, it is a perpetual menace. Economic crises
resulting from over-production, or rather from under-consumption,[519]
may always be traced back to an unhealthy desire for profit. The
existence of profit makes it impossible for the worker to repurchase the
product of his toil, and consequently to consume the equivalent of what
he produced. Immediately it is completed the product is snatched up by a
superior body which makes it inaccessible either to the maker or to the
men who could furnish an equivalent amount of labour or who could offer
as the price of acquiring it a value equal to that labour.

The problem is to abolish this parasitism, and the first question
that suggests itself is whether the ordinary operation of competition,
assuming it were altogether free and perfect, would be sufficient to
get rid of it. The economists declare that it would, and the Hedonistic
school makes bold to affirm that under a _régime_ of perfect competition
the rate of profit would fall to zero. But Owen believed nothing of the
kind.[520] He regarded competition and profit as inseparable, and if one
was war the other was simply the spoils of conflict.

Accordingly some form of combination must be devised which will suppress
profit, together with “all that gives rise to that inordinate desire
for buying in the cheapest market and selling in the dearest.” But the
instrument of profit is gold or money. Profits are always realised in the
form of money.[521] Gold is an intermediary in every act of exchange,
and its intervention goes a long way towards explaining the anomaly of
selling a commodity for more than cost price. The objective, then, must
be money, and it must be replaced by labour notes, which will supply us
with a measure of value altogether superior to money. Seeing that labour
is the cause and substance of value, it is only natural that it should
afford us the best means of measuring value. It is quite obvious that
ample homage is paid to the Ricardian theory of value, but conclusions
both novel and unproved are drawn from it.

The producer who wishes to dispose of his produce will be given labour
notes in proportion to the number of hours which he has worked. In the
same way the consumer who wishes to buy that product will be called
upon to pay an equivalent number of labour notes, and so profit will be

The condemnation of money was not new, but what was original was the
discovery that labour notes could supply the place of money, a discovery
which Owen considered “more valuable than all the mines of Mexico and
Peru.” It has truly been a wonderful mine, and has been freely exploited
by almost every socialist. But it hardly squares with Owen’s communistic
ideal, which aimed at giving to each according to his needs. The labour
notes evidently imply payment according to the capacity of each. Besides,
what is the use of any system of exchange that is not to be employed for
purposes of distribution?[522]

It remained to be seen whether this elimination of money could actually
be realised in practice. An experiment to that effect was tried in London
with the establishment of the National Equitable Labour Exchange. This
was the most interesting experiment in the whole movement, although Owen
himself was not very proud of his connection with it. It took the form
of a co-operative society with a central depot where each member of the
society could deposit the product of his labour and draw the price of it
in labour notes, the price depending upon the number of hours of work the
product had cost, which the member himself was allowed to state. These
products, or goods as they were now called, marked with a figure which
indicated the number of hours they had taken to produce, were at the
disposal of any member of the Exchange who wished to buy them. All that
a member had to do was to pay the ticketed price in labour notes. And so
every worker who had taken, say, ten hours to make a pair of stockings
was certain of being able to buy any other article which had also cost
ten hours’ labour. In this fashion everyone got whatever his product
had cost him, and every trace of profit automatically disappeared. The
profit-maker, whether industrial or commercial or merely an intermediary,
was effectively removed, because producers and consumers were brought
into direct contact with one another, and so the problem was apparently

The experiment, which had about the same measure of success as the
attempts to establish a communal colony in America, did not last very
long. The slightest acquaintance with the laws of value would have
convinced the reformer of the futility of his attempt. But it marks an
important departure in the history of economic doctrines as being the
first of a long line of experiments designed to solve the same problem,
but with very different methods. It is the same idea that inspires
Proudhon’s Bank and Solvay’s _Comptabilisme social_.

The particular mechanism wherewith the elimination of profit was essayed
is really of quite secondary importance. But the essential idea which
lay behind the whole attempt—namely, the abolition of profit—is at least
partly realised in that solid and useful institution which is now found
all over the world, and which was bequeathed to us by this experiment of
Owen’s—the co-operative stores. Their first appearance dates from 1832,
the year of the Bank of Exchange experiment, but it was not until ten
years later that they assumed their present form as the outcome of the
efforts of the Rochdale Pioneers.

The co-operative retail societies have as their rule either to make no
profits or to restore any profit that may accrue to their members in
proportion to the amount of their purchases at the stores. In reality
there is no profit, but simply a cancelling of insurance against risks
which has been shared in by all the members. The process of elimination
is strictly in accordance with Owen’s method of putting producer and
consumer in direct contact with one another with a view to getting rid
of the middleman. But the elimination of profit is accomplished without
eliminating money.[524] That close relation which Owen and a number of
other socialists believed to exist between money and profit is purely
imaginary. We know as a matter of fact that the highest profits are to be
got under the truck system, in the African equatorial trade, for example,
where guns are exchanged at five times their value for caoutchouc
reckoned at a third of its value, representing a profit of 1500 per cent.
The employment of money has brought such definiteness into the method of
valuation that the rate of profit per unit on a yard of cloth, say, has
become almost infinitesimal. Such exactness of calculation would have
been impossible under either the truck or the labour note system.

The co-operative association, with its system of no profits, will for
ever remain as Owen’s most remarkable work, and his fame will for ever
be linked with the growth of that movement. But he was hardly conscious
of the important part which he was playing in the inauguration of the
new movement. It is seldom that we meet with the word “co-operation” in
his writings, although that is not a matter of any great consequence,
because the term at that time had not the significance which it has
to-day, being then simply synonymous with communism. Not only was Owen
unwilling to assume any parental responsibility for the co-operative
society, his latest offspring, but he expressly refused to consider it
as at all representative of his system. Shops of that description seemed
to him little better than philanthropic institutions, quite unworthy of
his great ideal.[525] Before passing judgment upon him it is only fair to
remember that since those early days the character of the co-operative
stores has been completely changed. He lived to see the establishment of
the Rochdale society, with its twenty-eight pioneers, six of whom were
ardent disciples of Owen himself, and two of these, Charles Howarth and
William Cooper, were the very soul of that immortal association. But Owen
was by this time seventy-three years of age, and he scarcely realised
that a child had been born to him. This somewhat late arrival was to
perpetuate his name, and more than any of his other schemes was to save
it from oblivion.

Owen had founded no school, unless of course we consider that the
co-operators are deserving of the title. There were, however, a few
disciples who attempted to apply his theories. One of these was William
Thompson, whose writings, forgotten for many years, have recently come in
for a good deal of extravagant praise. His principal work, _An Inquiry
into the Principles of the Distribution of Wealth_, was published in
1824. As compared with Owen he reveals a greater depth of thought and
shows a more thorough acquaintance with economic science, and he ought
perhaps to be given premier place as the founder of socialism. But, as
we have pointed out in the Preface, we cannot readjust the judgment
of history, and we are bound to accept the names which tradition has
made sacred. And if a person’s rank in history is to be measured by his
influence rather than his talent, then Thompson’s influence was _nil_,
for at the time his work seems to have passed almost unnoticed.

We will only remark that Thompson’s grasp of the idea that labour does
not enjoy all it produces is much firmer than Owen’s. This meant opening
the way for a discussion of surplus value and unproductive labour, of
which more anon. He agrees with Owen in thinking that expropriation
would not remedy the evil, and he also would rather build up a new form
of enterprise in which the worker would be able to retain for himself
all the produce of his labour. This was precisely the co-operative


Owen’s practical influence has been much greater than Fourier’s, for most
of the important socialistic movements of the last century can easily be
traced back to Owen. But Fourier’s intellectual work, when taken as a
whole, though more Utopian and less restrained in character than Owen’s,
has a considerably wider outlook, and combines the keenest appreciation
of the evils of civilisation with an almost uncanny power of divining the

To some writers Fourier is simply a madman, and it is difficult not
to acquiesce in the description when we recall the many extravagances
that disfigure his work, which even his most faithful disciples can
only explain by giving them some symbolic meaning of which we may be
certain Fourier would never have thought.[528] The term “bourgeois
socialist” seems to us to describe him fairly accurately, but its
employment lays us open to the charge of using a term that he himself
would never have recognised. But what are we to make of one who speaks
of Owen’s communistic scheme as being so pitiable as to be hardly worth
refuting; who “shudders to think of the Saint-Simonians and of all
their monstrosities, especially their declamations against property and
hereditary rights[529]—and all this in the nineteenth century”; who
in his scheme of distribution scarcely drew any distinction between
labour, capital, and business ability, five-twelfths of the product
being given to labour, four-twelfths to capital (which is probably more
than it gets to-day), and three-twelfths to management; who outbid the
most brazen-faced company promoter by offering a dividend of 30 to 36
per cent., or for those who preferred it a fixed interest of 8 per
cent.;[530] who held up the right of inheritance as one of the chief
attractions that would be secured by the Phalanstère; and who finally
declared that inequality of wealth and “even poverty are of divine
ordination, and consequently must for ever remain, since everything that
God has ordained is just as it ought to be”?[531]

To the men of his time, and to every one who has not read him, which
means practically everybody, Fourier appears as an ultra-socialist or
communist. That opinion is founded not so much upon the extravagance of
his view or the hyperbolical character of his writing as upon the popular
conception of the Phalanstère, which was the name bestowed upon the new
association he was going to create. Visions of a strange, bewildering
city where the honour of women as well as the ownership of goods would be
held as common property are conjured up at the mention of that word. Our
exposition of his system must obviously begin with an examination of the
Phalanstère, upon the understanding of which everything turns.


As a matter of fact nothing could be more peaceful than the prospect
which the Phalanstère presents to our view. Anything more closely
resembling Owen’s New Harmony or Cabet’s Icaria or Campanella’s Civitas
Solis or More’s Utopia would be difficult to imagine. Externally it
looks for all the world like a grand hotel—a Palace Hotel on a gigantic
scale with 1500 persons _en pension_. One is instinctively reminded of
those familiar structures which have lately become such a feature of all
summer and winter resorts, containing all manner of rooms and apartments,
concert halls and lecture rooms, etc. All of this is described by Fourier
with the minutest detail. No restrictions would be placed upon individual
liberty. Anyone so choosing could have a suite of rooms for himself, and
enjoy his meals in the privacy of his own room—that is, if he preferred
it to the _table d’hôte_. Hotel life is generally open only to the few.
The Phalanstère would have rooms and tables at all prices to suit all
five classes of society, with a free table in addition.

A number of people living under the same roof and eating at the same
table, and adopting this as their normal everyday method of living, sums
up the element of communism which the scheme contained. And the question
is naturally asked, Why should Fourier attach such supreme importance
to this mode of existence as to make it the _sine qua non_ of his whole
system and the key to any solution of the problem? The answer lies in the
conviction, which he fully shared with Owen, that no solution is possible
until the environment is changed, and so changed that an entirely new
type of man will result from it.

Economically, of course, life under the same roof can offer to the
consumer the maximum of comfort at a minimum of cost. Cooking, heating,
lighting, etc., would under such conditions be cheaper and more
efficient, and all the worries and anxieties of individual housekeeping
would be swept aside.

Socially a common life of this kind would gradually teach different
persons to appreciate one another. Sympathy would take the place of
mutual antipathy, which under the present _régime_, as Fourier eloquently
remarks, shows an “ascending scale of hatred and a descending scale of
contempt.” Besides, the multiplicity of relations and interests, and even
of intrigues, which would occasionally enliven this little world would at
any rate make life more interesting.

On this double series of advantages Fourier is quite inexhaustible. He
reckons up the economies with the painstaking care of an old clerk, and
boasts the superiority of the _table d’hôte_ over the family meal with
the enthusiasm of an old bachelor. The social and moral advantages seem
somewhat more doubtful. It is not very obvious that contact with the
rich would make the poor more polished or amicable, nor is it very clear
that either would be much happier for it. Fourier’s Utopia is already
in operation in the United States, where, owing to the increase in the
cost of living, the economic advantages of a communal life are more
fully taken advantage of. Not only are there a great number of bachelors
living at the clubs, but young couples have recently made a practice of
taking up their abode at the hotels. They are already on the way to the

This shows that Fourier was considerably in advance of his time, and
those who hold that doctrines, after all, are always suggested by facts
would find it difficult to discover anything pointing towards such
communal experiments in the earlier part of the nineteenth century.

His solution of the servant problem, which is becoming more difficult
every day, is one that is likely to be adopted in the near future. His
suggestion was the substitution of collective for individual services
as being more compatible with human dignity and independence, and the
development of industrial rather than domestic production. This has
already taken place in the case of bread-making and laundry work, and
there are signs of its extension to house-sweeping (by means of the
vacuum cleaner), carpet-cleaning, etc. A further extension to the art of
cooking may also be expected.[532]


Careful scrutiny of the internal arrangements of the Phalanstère shows
it to be something other than an ordinary hotel after all. It may
perhaps be regarded as a kind of co-operative hotel, belonging to an
association and accommodating members of that association only. It is
much more thoroughgoing than the ordinary co-operative society, which
is just content to buy commodities as an association without making any
real attempt to practise communism, except in those rare cases where a
co-operative restaurant is set up alongside of a co-operative warehouse.

The “Phalange,” not content to remain a mere consumers’ association,
was to attempt production as well. Around the hotel was to be an area
of 400 acres, with farm buildings and industrial establishments that
were to supply the needs of the inmates. The Phalange was to be a small
self-sufficing world, a microcosm producing everything it consumed,
and consuming—as far as it could—all it produced. Occasionally, no
doubt, there would be occasional surpluses or some needs would remain
unsatisfied, and then recourse would be had to exchange with other
Phalanges. Every Phalange was to be established as a kind of joint-stock
company. Private property was not to be extinguished altogether, but
to be transformed into the holding of stock—a transformation of a
capitalistic rather than of a socialistic nature. M. de Molinari states
that the future will witness the almost universal application of the
joint-stock principle, and he for one would welcome its extension.
Fourier has forestalled his prophecy by three-quarters of a century,
with an insight that is truly remarkable for the time in which he wrote,
for joint-stock undertakings were then exceedingly rare. He enumerates
the many advantages which would result from such a transformation in
the nature of property, and he roundly declares that “a share in such
concerns is really more valuable than any amount of land or money.”

How were the extravagant dividends which he promised when propounding
his scheme to be paid out? The usual method in financial and commercial
transactions is to distribute them according to the holding of each
individual. But such was not to be his plan. Capital was to have a
third of the profits, labour five-twelfths, and ability three-twelfths.
“Ability,” which signifies the work of management, was to devolve upon
those individuals who were chosen by the society and were considered best
fitted for the work. Fourier never realised that there was a possibility
of the wrong man being chosen. He had no experience of universal
suffrage, and he believed that within such a tiny group the election
would be perfectly _bona-fide_.

Associations known as Phalanges have actually been established in Paris,
and to some extent at any rate they have realised the ideal as outlined
by Fourier. The profits are divided in almost strict accordance with
Fourier’s formula,[533] and in order to emphasise their descent from him
the members have caused a statue to be raised to his memory in their
quarter of the town—the Boulevard de Clichy.

Not content with giving us an outline of a co-operative productive
society, Fourier has also left us an admirably concise statement of the
problem that faces modern society. “The first problem for the economist
to solve,” says he, “is to discover some way of transforming the
wage-earner into a co-operative owner.”[534]

The necessity for such transformation consists in the fact that this
is the only way of making labour at once attractive and productive,
for “the sense of property is still the strongest lever in civilised
society.”[535] “The poor individual in Harmony who only possesses a
portion of a share, say a twentieth, is a part proprietor of the whole
concern. He can speak of _our_ land, _our_ palaces and castles, _our_
forests and factories, for all of them belong partly to him.”[536] “Hence
the _rôle_ of capitalist and proprietor are synonymous in Harmony.”[537]

The worker will draw his share of the profits not merely as a worker,
but also as a capitalist who is a shareholder in the concern, and as a
member of the directorate, in which every shareholder has a voice. The
administration of the business will form a part of his responsibilities.
It is just what we are accustomed to call co-partnership. He will,
moreover, participate in the privileges and management of the Phalange as
a member of a consumers’ association.

All this seems very complicated, but it was a part of Fourier’s policy to
transmute the divergent interests of capitalists, workers, and consumers
by giving to each individual a share in these conflicting interests.[538]
Under existing conditions they are in conflict with one another simply
because they are focused in different individuals. Were they to be
united in the same person the conflict would cease, or at any rate the
battle-ground would be shifted to the conscience of each individual,
where reconciliation would not be quite such a difficult matter.

A programme which aims, not at the abolition of property, but at the
extinction of the wage-earner by giving him the right of holding property
on the joint-stock principle, which looks to succeed, not by advocating
class war, but by fostering co-operation of capital with labour and
managing ability, and attempts to reconcile the conflicting interests of
capitalist and worker, of producer and consumer, debtor and creditor,
by welding those interests together in one and the same person, is by
no means commonplace. Such was the ideal of the French working classes
until Marxian collectivism took its place, and it is quite possible that
its deposition may be only temporary after all. The programme which the
Radical Socialists swear allegiance to, and which they set against the
purely socialistic programme, is the maintenance and extension of private
property and the abolition of the wage-earner. By taking this attitude
they are unconsciously following in the wake of Fourier.[539]


The title at the head of this section is to-day adopted as a motto by
several social schools. It also figured in Fourier’s programme long ago.
Fourier, however, employed the phrase in a double sense.

In the first place, he thought that there must be a dispersion of the
big cities and a spreading out of their inhabitants in Phalanstères,
which would simply mean moderate-sized villages with a population of
1600 people, or 400 families. Great care was to be exercised in choosing
a suitable site. Wherever possible the village was to be placed on
the bank of a beautiful river, with hills surrounding it, the slopes
of which would yield to cultivation, the whole area being flanked by
a deep forest. It was not, as some one has remarked, intended as an
Arcadia for better-class clerks.[540] It was simply an anticipation of
the garden cities which disciples of Ruskin and Morris are building
all over England. These are designed, as we know, not merely with a
view to promoting health and an appreciation of beauty, but also to
encouraging the amenities of life and to solving the question of housing
by counteracting the high rental of urban land.

In the second place, industrial work of every description, factory and
machine production of every kind, were to be reduced to the indispensable
minimum—a condition that was absolutely necessary if the first reform was
ever to become practicable. Contrary to what might have been expected,
Fourier felt no antipathy towards capitalism, but entertained the
greatest contempt for industrialism, which is hardly the same thing.[541]
A return to the land, if it was to mean anything at all, was to mean
more agriculture. But care must be taken not to interpret it in the old
sense of tillage or the cultivation of cereals. It was in no measured
terms that he spoke of the cultivation of corn and the production of
bread, which has caused mankind to bend under the cruellest yoke and for
the coarsest nourishment that history knows. The only attractive forms
of cultivation, in his opinion, were horticulture and arboriculture,
apple-growing, etc., joined, perhaps, with poultry-keeping and such
occupations as generally fall to the lot of the small-holder.[542] The
inhabitant of the Phalanstère would be employed almost exclusively in
looking after his garden, just as Adam was before the Fall and Candide
after his misfortunes.


The attractiveness of labour was made the pivot of Fourier’s system.
Wherever we like to look, whether in the direction of so-called civilised
societies or towards barbarian or servile communities, labour is
everywhere regarded as a curse. There is no reason why it should be, and
in the society of the future it certainly will not be, for men will then
labour not because they are constrained to either by force or by the
pressure of need or the allurement of self-interest. Fourier’s ideal was
a social State in which men would no longer be forced to work, whether
from the necessity of earning their daily bread or from a desire for
gain or from a sense of social or religious duty. His ambition was to
see men work for the mere love of work, hastening to their task as they
do to a gala. Why should not labour become play, and why should not the
same degree of enthusiasm be shown for work as is shown by youth in the
pursuit of sport?[543]

Fourier thinks this would be possible if everyone were certain that he
would get a minimum of subsistence by his work. Labour would lose all
its coercive features, and would be regarded simply as an opportunity
for exercising certain faculties, provided sufficient liberty were
given everyone to choose that kind of work which suited him best, and
provided also the labour were sufficiently diversified in character to
stimulate imagination and were carried on in an atmosphere of joy and
beauty. The sole object of the Phalanstère, as we have already seen, was
to make labour more attractive by creating a new kind of social life
in which production as well as distribution would be on a co-operative
basis and horticulture would take the place of agriculture. But Fourier
was not content to stop at that, and he proceeds to show the importance
of combining different kinds of employment. Some of his suggestions are
very ingenious; others, on the other hand, are equally puerile. The most
notable of these is his proposal to bring individuals together into what
he calls groups and series. A person would be allowed to join these
groups according to his own individual preferences, and as it would not
involve his spending his whole life in any one of them, he would be free
to “flit” from one to the other.

       *       *       *       *       *

But it is about time we took leave of our guide. We cannot pretend to
follow the twists and turns of his labyrinthine psychology, with its
dozen passions, of which the three fundamental ones are the desire for
change, for order, and for secrecy; nor can we bring ourselves to accept
his theodicy, nor his views on climatic and cosmogenic evolution, which
was some day to result in sweetening the waters of the ocean, in melting
the polar glaciers, in giving birth to new animals, and in putting us
in communication with other planets. Yet even this muddy torrent is not
without some grain of gold in it.

Take the question of education, for example, which holds a very prominent
place in his writings. Old bachelor that he was, he never cared very much
for children, but he nevertheless foreshadowed the development of modern
education on several important points. Froebel, who conceived the idea of
the kindergarten (1837), was among his disciples.[544]

His teaching on the sex question bears all the marks of lax morality, and
indicates the fallacy of thinking that untrained passions and instincts
can be morally justified.[545] His extreme views on this question,
which even go beyond the advocacy of free union, have contributed a
great deal to the downfall of Fourierism. Paul Janet remarks somewhere
that the socialists have not been very happy in their treatment of the
woman question, and we have already shown how this weakness led to the
downfall of Saint-Simonism. But even on this subject Fourier has penned a
few pithy sentences. “As a general rule,” he says, “it may be said that
true social progress is always accompanied by the fuller emancipation
of woman, and there is no more certain evidence of decadence than the
gradual servility of women. Other events undoubtedly influence political
movements, but there is no other cause that begets social progress or
social decline with the same rapidity as a change in the status of
women.”[546] Unfortunately his feminism was not so much inspired by
respect for the dignity of woman as by his hatred of family life, and the
liberty which he thought to be the true test of progress was generally
nothing better than free love.

The anti-militarists have good claim to regard him as a forerunner.
Speaking of present-day society, he said that “it consists of a minority
of armed slaves who hold dominion over a majority of disarmed.”

It was not Fourier’s intention to introduce men into the world of Harmony
at one stroke. He thought that as an indispensable preliminary they
should go through a stage of transition which he calls _Garantisme_,
where each one would be given a minimum of subsistence, security,
and comfort—in short, everything that is considered necessary by the
advocates of working-class reform.

Fourierism never enjoyed the prestige and never exercised the influence
which Saint-Simonism did, but its action, though less startling, and
confined as it was to a narrower sphere, has not been less durable.
Nothing has been heard of Saint-Simonism these last fifty years, but
there is still a Phalanstère school. It is not very numerous, perhaps,
if we are only to reckon those who formally adhere to the doctrine, but
if we take into consideration the co-operative movement, as we ought at
least to some extent, it is seen to be very powerful still. For a long
time Fourier’s ideas were scouted by everybody, but during the last
fifteen years much more sympathetic attention has been given them.[547]

Among his disciples there are at any rate two who deserve special
mention. Victor Considérant, one of the strongest advocates of
Fourierism, has left us the best exposition of the doctrine that we have,
in his book _Doctrine sociale_ (1834-44). Like Owen, he experimented in
American colonisation,[548] and gained a measure of notoriety in the
Revolution of 1848 by insisting upon the right to work as a necessary
compensation for the loss of property.

André Godin left a monument more permanent than books, in the famous
Familistère which was founded by him. It consists of an establishment
for the manufacture of heating apparatus at Guise, run entirely on
co-partnership lines, the profits being distributed in accordance with
the rules of the master.[549] It is not a new co-operative society of
the humdrum kind, however. Close to the works, right in the middle of
a beautiful park, are one or two huge blocks which contain the “flats”
where the co-partners live, as well as schools, _crèches_, a theatre, and
a co-operative stores. But despite its fame, and notwithstanding the fact
that it has become a kind of rendezvous for co-operators all the world
over, there is nothing very attractive about it, and if one wants to get
a good idea of what a real Phalanstère is like it is better to visit
either Bournville or Port Sunlight, or Agneta Park in Holland.


It is not the most original work that always attracts most attention.
Stuart Mill, writing of Saint-Simonism and Fourierism, claims that
“they may justly be counted among the most remarkable productions of
the past and present age.” To apply such terms to the writings of Louis
Blanc would be entirely out of place. His predecessors’ works, despite
a certain mediocrity, are redeemed by occasional remarks of great
penetration; but there is none of that in Louis Blanc’s. Moreover, his
treatment is very slight, the whole exposition occupying about as much
space as an ordinary review article.[550] And there is no evidence of
exceptional originality, for the sources of its inspiration must be
sought elsewhere—in the writings of Saint-Simon, of Fourier, of Sismondi,
and of Buonarotti, one of the survivors of the Babeuf conspiracy,[551]
and in the democratic doctrines of 1793. In short, Blanc was content to
give a convenient exposition of such socialistic ideas as the public had
become accustomed to since the Restoration.

Nevertheless, no sooner was the _Organisation du Travail_ published in
1841 than it was read and discussed by almost everybody. Several editions
followed one another in rapid succession. The title, which is borrowed
from the Saint-Simonians, supplied one of those popular formulæ which
conveniently summed up the grievances of the working classes in 1848, and
during the February Revolution Louis Blanc came to be regarded as the
best qualified exponent of the views of the proletariat. Even for a long
time after 1848 the work was considered to be the most characteristic
specimen of French socialistic writing.

Its success was in a measure due to the circumstances of the period.
The brevity of the book and the directness of the exposition made the
discussion of the theme a comparatively easy matter. The personal
notoriety of the author also had a great deal to do with the interest
which his work aroused. During the short career of the July monarchy,
Blanc, both in the press and on the platform, had found himself one
of the most valiant supporters of the advanced democratic wing. His
_Histoire de Dix Ans_ gave him some standing as a historian. Later on the
_rôle_ which he played as a member of the Provisional Government of 1848,
and afterwards at the inauguration of the Third Republic, contributed to
his fame as a public man. And, last of all, his unfortunate experience in
connection with the failure of the national workshops, for which he was
unjustly blamed, added to the interest which the public took in him.

All this, however, would not justify his inclusion in our history were
it not for other reasons which give to the _Organisation du Travail_
something more than a mere passing interest.

In no other work is the opposition between competition and association so
trenchantly stated. Every economic evil, if we are to believe Blanc, is
the outcome of competition. Competition affords an explanation of poverty
and of moral degradation, of the growth of crime and the prevalence of
prostitution, of industrial crises and international feuds. “In the first
place,” writes Blanc, “we shall show how competition means extermination
for the proletariat, and in the second place how it spells poverty and
ruin for the _bourgeoisie_.”[552] The proof spreads itself out over the
whole work, and is based upon varied examples gleaned from newspapers and
official inquiries, from economic treatises and Government statistics,
as well as from personal observations carried on by Blanc himself. No
effort is spared to make the most disagreeable facts contribute of their
testimony. Everything is arranged with a view to one aim—the condemnation
of competition. Only one conclusion seems possible: “If you want to get
rid of the terrible effects of competition you must remove it root and
branch and begin to build anew, with association as the foundation of
your social life.”

Louis Blanc thus belonged to that group of socialists who thought
that voluntary associations would satisfy all the needs of society.
But he thinks of association in a somewhat different fashion from his
predecessors. He dreams neither of New Harmony nor of a Phalanstère.
Neither does he conceive of the economic world of the future as a
series of groups, each of which forms a complete society in itself.
Fourier’s integral co-operation, where the Phalanstère was to supply
all the needs of its members, is ignored altogether. His proposal is a
social workshop, which simply means a co-operative producers’ society.
The social workshop was intended simply to combine members of the same
trade, and is distinguished from the ordinary workshop by being more
democratic and equalitarian. Unlike Fourierism, it does not contain
within itself all aspects of economic life. By no means self-contained,
it merely undertakes the production of some economic good, which other
folk are expected to buy in the ordinary way. Louis Blanc’s is simply the
commonest type of co-operative society.[553] The schemes of both Owen and
Fourier were much more ambitious, and attempted to apply the principle of
co-operation to consumption as well as to production.

Nor was the idea altogether a new one. A Saint-Simonian of the name of
Buchez had already in 1831[554] made a similar proposal, but it met with
little success. Workers in the same trade—carpenters, masons, shoemakers,
or what not—were advised to combine together, to throw their tools into
the common lot, and to distribute among themselves the profits which had
hitherto gone to the _entrepreneur_. A fifth of the annual profits was
to be laid aside to build up a “perpetual inalienable reserve,” which
would thus grow regularly every year. “Without some such fund,” says
Buchez, with an unerring instinct for the future, “association will
become little better than other commercial undertakings. It will prove
beneficial to the founders only, and will ban everyone who is not an
original shareholder, for those who had a share in the concern at the
beginning will employ their privileges in exploiting others.”[555] Such
is the destiny that awaits more than one co-operative society, where
the founders become mere shareholders and employ others who are simply
hirelings to do the work for them.

Whereas Buchez was greatly interested in _petite_ industry,[556] Blanc
was in favour of the great industry, and that seems to be the only
difference between his social workshop and an ordinary co-operative
society. But in Blanc’s opinion the social workshop was just a cell out
of which a complete collectivistic society would some day issue forth.
Its ultimate destiny did not really interest him very much. The ideal
was much too vague and too distant to be profitably discussed. The
important thing was to make a beginning and to prepare for the future in
a thoroughly practical fashion, but “without breaking altogether with
the past.” That seemed clearly to be the line of procedure. To give an
outline of what that future would be like seemed a vain desire, and would
simply mean outlining another Utopia.

It is just because his plan was precise and simple that Louis Blanc
succeeded in claiming attention where so many beautiful but quite
impossible dreams had failed. Here at last was a project which everyone
could understand, and which, further, would not be very difficult
to adopt. This passion for the concrete rather than the ideal, for
some practical formula that might possibly point the way out of the
morass of _laissez-faire_, may be discovered in more than one of his
contemporaries. It is very pronounced in Vidal’s work, for example.
Vidal was the author of an interesting book on distribution which
unfortunately seems to be now quite forgotten.[557] Much of the success
of the project, like that of the State Socialism of a later period, was
undoubtedly due to this feeling.

The projected reform seemed exceptionally simple. A national workshop
was to be set up forthwith in which all branches of production would
be represented. The necessary capital was to be obtained from the
Government, which was expected to borrow it. Every worker who could give
the necessary moral guarantee was allowed to compete for this capital.
Wages would be equal for everybody, a thing which is quite impossible
under present conditions, largely because of the false anti-social
character of a good deal of our education. In the future, when a new
system of education will have improved morality and begotten new ideas,
the proposal will seem a perfectly natural one. Here we come across a
suggestion that seems common to all the associationists, namely, the idea
of a new environment effecting a revolution in the ordinary motives of
mankind. As to the hierarchy of the workshop, that will be established
by election, except during the first year, when the Government will
undertake to conduct the organisation, because as yet the members will
hardly be sufficiently trained to choose the best representatives. The
net revenue will be divided into three portions, of which the first will
be distributed between the various members of the association, thus
contributing to a rise in their wages; the second portion will go towards
the upkeep of the old, the sick, and the infirm, and towards easing the
burdens of some other industries; while the third portion will be spent
in supplying tools to those who wish to join the association, which will
gradually extend its sway over the whole of society. The last suggestion
inevitably reminds us of Buchez’s “inalienable and perpetual capital.”

Interest will be paid on the capital employed in founding the industry,
such interest being guaranteed against taxation. But we must not conclude
that Blanc favoured this condition because he believed in the legitimacy
of interest, as Fourier did. He was too pronounced a disciple of the
Saint-Simonians ever to admit that it was legitimate. The time will
come, he thinks, when it will no longer be necessary, but he gives no
hint as to how to get rid of it. For the present at any rate it must be
paid, were it only to enable the transition to be made. “We need not
with savage impatience destroy everything that has been founded upon the
abuses which as a whole we are so anxious to remove.” The interest paid,
along with the wages, will form a part of the cost of production. The
capitalists, however, will have no share in the net profit unless they
have directly contributed to it.

It seems that the only difference between the social workshop and the
present factory is its somewhat more democratic organisation, and the
fact that the workers themselves seize all the profit (_i.e._ over and
above net interest), instead of leaving it, as was hitherto the case, to
the _entrepreneur_.

But this social workshop, as we have said, is a mere cell out of
which a new society is expected to form. The amusing feature is this,
that the new society can only come into being through the activity of
competition—competition purged of all its more abominable features,
that is to say. “The arm of competition must be strengthened in order
to get rid of competition.” That ought not to be a very difficult task,
for the “social workshop as compared with the ordinary private factory
will effect greater economies and have a better system of organisation,
for every worker without exception will be interested in honestly
performing his duty as quickly as possible.” On every side will private
enterprise find itself threatened by the new system. Capital and workers
will gravitate towards the social workshop with its greater advantages.
Nor will the movement cease until one vast association has been formed
representing all the social shops in the same industry. Every important
industry will be grouped round some central factory, and “the different
shops will be of the nature of supplementary establishments.” To crown
the edifice, the different industries will be grouped together, and,
instead of competing with one another, will materially help and support
each other, especially during a time of crisis, so that the understanding
existing between them will achieve a still more remarkable success in
preventing crises altogether.

Thus by merely giving it greater freedom the competitive _régime_ will
gradually disappear, to make way for the associative _régime_, and as the
social workshops realise these wonderful ideals the evils of competition
will disappear, and moral and social life will be cleansed of its present

The remarkable feature of the whole scheme is that hardly anything new is
needed to effect this vast change. Just a little additional pressure on
the part of Government, some capital to set up the workshops, and a few
additional regulations to guide it in its operations, that is all.

This is really a very important point in Louis Blanc’s doctrine, which
clearly differentiates it both from Owen’s and Fourier’s. They appeared
to think that the State was not necessary at all: private initiative
seemed quite sufficient. It was hoped that society would renew itself
spontaneously without any extraneous aid, and this is still the working
creed of the co-operative movement. Wherever the co-operative movement
has flourished the result has been entirely due to the efforts of its
members. But Louis Blanc’s attention was centred on the highly trained
artisan, and the problem was to find capital to employ him. Were they
to rely upon their own savings, they would never make a beginning.[558]
Moreover, somebody must start the thing, and power is wanted for this.
That power will be organised force, which will be employed, however,
not so much as an ally, but rather as a “starter.” Intervention will
necessarily be only temporary. Once the scheme is started its own
momentum will keep it going. The State, so to speak, “will just give it a
push: gravity and the laws of mechanics will suffice for the rest.” That
is just where the ingenuity of the whole system comes in, and as a matter
of fact the majority of the producing co-operative societies now at work
owe their existence to the financial aid and administrative ability of
public bodies, without which they could hardly keep going.

Louis Blanc, accordingly, is one of the first socialists to take care to
place the burden of reform upon the shoulders of the State. Rodbertus
and Lassalle make an exactly analogous appeal to the State, and for this
reason the French writer deserves a place among the pioneers of State

This appeal of the socialists is beautifully naïve. On the one
hand they invite the adherence of Government to a proposal that is
frankly revolutionary, in which case it is asked to compass its own
destruction—naturally not a very attractive prospect. On the other
hand the project seems harmless enough, and the support which the
Government is asked to extend further emphasises the modest nature of the
undertaking. State socialism cannot escape the horns of this dilemma by
proclaiming itself frankly conservative, as it has done in Germany.

Louis Blanc, like Lassalle after him, was much concerned with immediate
results, and he failed to notice this objection. He paid considerable
attention to another line of criticism, however, and one that he
considered much more dangerous. He sought a way of escape by using
an argument which was afterwards frequently employed by the State
Socialists, as we shall see by and by.

The question was whether State intervention is contrary to liberty or
not. “It clearly is,” says Louis Blanc, “if you conceive of liberty
as an abstract right which is conferred upon man by the terms of some
constitution or other. But that is no real liberty at all. Full liberty
consists of the power which man has of developing and exercising his
faculties with the sanction of justice, and the approval of law.”[559]
The right to liberty without the opportunity of exercising it is simply
oppression, and wherever man is ignorant or without tools he inevitably
has to submit to those who are either richer or better taught than
himself, and his liberty is gone. In such cases State intervention is
really necessary, just as it is in the case of inferior classes or
minors. Lacordaire’s saying is more pithy still: “As between the weak and
the strong, liberty oppresses and law sets free.” Sismondi had already
employed this argument, and much capital has been made of it by every
opponent of laissez-faire.[560]

In the writings of Louis Blanc may be found the earliest faint outline
of a movement that had assumed considerable proportions before the end
of the century. State socialism, which was as yet a temporary expedient,
by and by becomes an important economic doctrine with numerous practical

The events of 1848 gave Louis Blanc an opportunity of partly realising
his ideas. We shall speak of these experiments when we come to discuss
the misdirected efforts of the 1848 socialists. But the ideas outlined in
the _Organisation du Travail_ were destined to a more permanent success
in the numerous co-operative productive societies which were founded as
a result of its teaching. They are still quite popular with a certain
class of French working men.

Though inferior to both Fourier and Owen, Blanc gave considerable impetus
to the Associative movement, and quite deserves his place among the
Associative socialists.

       *       *       *       *       *

Beside Louis Blanc it may be convenient to refer to two other writers,
Leroux and Cabet, who took part in the same movement right up to the
Revolution of 1848.

Pierre Leroux exercised considerable influence over his contemporaries.
George Sand’s works are full of social dissertations, and she herself
declares that most of these she owed to Leroux. However, one can hardly
get anything of the nature of a definite contribution to the science from
his own writings, which are vaguely humanitarian in character. We must
make an exception, perhaps, of his advocacy of association,[561] and
especially of the idea of solidarity, a word that has been exceedingly
fortunate in its career. Indeed, it seems that he was the first to employ
this famous term in the sense in which it is used to-day—as a substitute
for charity.[562]

Apparently, also, he was the first to contrast the word “socialism” with
its antithesis “individualism.”[563] The invention of these two terms
is enough to save his name from oblivion in the opinion of every true

Cabet had one experience which is rare for a socialist: he had filled
the office of Attorney-General, though only for a short time it is true.
Far greater celebrity came to him from the publication of his novel,
_Le Voyage en Icarie_. There is nothing very original in the system
outlined there. He gives the usual easy retort to those who question him
concerning the fate of idlers in Icaria: “Of idlers in Icaria there will
be none.” In his enthusiasm for his ideal he went farther than either
Owen or Considérant by personally superintending the founding of a colony
in the United States (1848). Despite many a grievous trial the settlement
managed to exist for fifty years, finally coming to grief in 1898.[564]

Cabet is frankly communistic, and in that respect resembles Owen rather
than Fourier, although he always considered himself a disciple of the
latter. But this was perhaps due to his admiration for Fourier, with
whom he was personally very well acquainted. Although he was a communist
he was no revolutionist. He was a good-natured fellow who believed in
making his appeal to the altruistic feelings of men, and was sufficiently
optimistic to believe that moral conversion was not a difficult


By the middle of the nineteenth century the doctrine of Adam Smith had
conquered the whole of Europe. Former theories were forgotten and no
rival had appeared to challenge its supremacy. But during the course of
its triumphant march it had undergone many changes and had been subjected
to much criticism. Even disciples like Say and Malthus, and Ricardo
especially, had contributed many important additions and effected much
improvement. Through the influence of Sismondi and the socialists new
points of view had been gained, involving a departure from the narrow
outlook of the master in the direction of newer and broader horizons.

Of the principles of the Classical school the Free Trade theory was
the only one which still remained intact. This, however, was the most
important of all. Here the triumph had been complete. Freedom of
international trade was accepted as a sacred doctrine by the economists
of every country. In Germany as in England, in France as in Russia, there
was complete unanimity among scientific authorities. The socialists
at first neglected this topic, and when they did mention it it was to
express their complete approval of the orthodox view.[566] A few isolated
authors might have hinted at reservations or objections, but they never
caught the public ear.[567] It is true that Parliaments and Governments
in many countries hesitated to put these new ideas into practice. But
even here, despite the strength of the opposing forces, one can see the
growing influence of Smith’s doctrine. The liberal tariff of Prussia
in 1818, the reforms of Huskisson in England (1824-27), were expressly
conceived by their authors as partial applications of those principles.

However, there arose in Germany a new doctrine for which the peculiar
economic and political conditions of that country at the beginning of
the nineteenth century afforded a favourable environment. Although the
development was slow it was none the less startling. Friedrich List,
in his work entitled _Das Nationale System der Politischen Oekonomie_,
promulgated the theory of the new Protection. “The history of my book,”
he remarks in his preface, “is the history of half my life.” He might
have added that it was also the history of Germany from 1800 to 1840. It
was no mere coincidence that led to the creation of an economic system
based exclusively upon the conception of nationality in that country,
where the dominant political note throughout the nineteenth century
was the realisation of national unity. List’s work was a product of
circumstances, and these circumstances we must understand if we are to
judge of the author and his work.


The Germany of the nineteenth century presents a unique spectacle. Her
population was at first essentially agricultural, and the various states
politically and economically isolated. Her industry was fettered by the
corporative _régime_, and her agriculture was still in feudal thraldom.
Freed from these encumbrances, and having established first her economic
and then her political unity, she took her place during the last three
decades of the century among the foremost of industrial Powers.

The Act of Union of 1800 had ensured the economic unity of the British
Isles. The union of England and Scotland was already a century old, and
Smith regarded it as “one of the chief causes of the prosperity of Great
Britain.”[568] France had accomplished the same end by the suppression of
domestic tariffs in 1791. But Germany even in 1815 was still a congeries
of provinces, varying in importance and separated from one another by
tariff walls. List, in the petition which he addressed in 1819 to the
Federal Assembly in the name of the General Federation of German Trade
and Commerce, could reckon no less than thirty-eight kinds of tariffs
within the German Confederacy, without mentioning other barriers to
commerce. In Prussia alone there were no fewer than sixty-seven different
tariffs.[569] “In short,” says List in another petition, “while other
nations cultivate the sciences and the arts whereby commerce and industry
are extended, German merchants and manufacturers must devote a great part
of their time to the study of domestic tariffs and taxes.”[570]

These inconveniences were still further aggravated by the complete
absence of import duties. The German states were closed to one another,
but, owing to the absence of effective central control, were open to
other nations—a peculiarly galling situation on the morrow of the
Continental Blockade. The peace treaty was scarcely signed when
England—so long cut off from her markets and forced to over-stock her
warehouses with her manufactured goods—began to flood the Continent with
her products. Driven from France by the protective tariff established
by the Restoration Government, these goods, offered at ridiculously low
prices, found a ready market in Germany.

The German merchants and manufacturers became thoroughly alarmed, and
there arose a general demand for economic unity and a uniform tariff.
Public opinion urged a reform which appeared to be the first step in
the movement towards national unity. In 1818 Prussia secured her own
commercial unity by abolishing all internal taxation, retaining only
those duties which were levied at the frontier. Her new tariff of 10 per
cent. on manufactured goods, with free entrance for raw material, was not
regarded as prohibitive, and was actually approved of by Huskisson as a
model which the British Parliament might well imitate. But this reform,
confined as it was to Prussia alone, did nothing to improve the lot of
the German merchants elsewhere, for the Prussian tariff applied just as
much to them as to foreigners.

This particular reform, far from staying the movement towards uniform
import duties, only accelerated it. A General Association of German
Manufacturers and Merchants was founded at Frankfort in 1819 to urge
confederation upon the Government. The agitation was inspired by
Friedrich List. He had been for a short time professor at Tübingen
and was already well known as a journalist. He was nominated general
secretary of the association, and became the soul of the movement. He
wrote endless petitions and articles, and made personal application to
the various Governments at Munich, Stuttgart, Berlin, and Vienna. He was
anxious that Austria should take the lead. But all in vain. The Federal
Assembly, hostile as it was to every manifestation of public opinion,
refused to reply to the petition of the merchants and manufacturers.
List himself was soon taken up with other interests. He was named as the
deputy for Reutlingen, his native town, in the state of Würtemberg, in
1820, but was banished from the Assembly and condemned to ten months’
imprisonment for criticising the bureaucracy of his own country. After
seeking refuge in France he spent a few years travelling in England and
Switzerland, and then returned to Würtemberg, where he again suffered
imprisonment. Upon his release from prison he resolved to emigrate to
America, where Lafayette, whom he had met in Paris, promised him a warm

Returning to Germany in 1832, after having made numerous friends and
accumulated a fortune, he found the tariff movement for which he had
struggled thirteen years before just coming to a head. It was to be
established, however, in a fashion quite different from what he had
expected. It was not to be a general reform, and Austria was not to be
leader. Prussia was to be the pivot of the movement, which was to be
accomplished by means of a series of general agreements. In 1828 there
were formed almost simultaneously two Tariff Unions, the one between
Bavaria and Würtemberg, the other between Prussia and Hesse-Darmstadt.
Within the areas of both of these unions goods were to circulate freely,
and a common rate of duty was to be established at the frontiers. From
the very first there was a _rapprochement_ between the unions, but a
definite fusion in one Zollverein was only decided upon on March 22,
1833. The new _régime_ actually came into being on January 1, 1834. Even
before that date Saxony and some of the other states had already joined
the new union.

Thus by 1834 the commercial union of modern Germany was virtually
accomplished. The Zollverein united the principal German states,[571]
Austria excepted, and under this _régime_ industry, assured of a large
domestic market, increased by leaps and bounds. But a new problem
presented itself, namely, what system of taxation was to be adopted by
the union as a whole. In 1834 the liberal Prussian tariff of 1818 was
adopted without much opposition, but nothing more was attempted just
then. Many of the manufacturers, however, especially the iron-smelters
and the cotton and flax spinners, demanded a more substantial means of
protection against foreign competition. This clamour became more intense
as the need for iron and manufactured goods increased the demand for raw
material. Hence from 1841—the date of the completed Zollverein—a new
discussion arose between the partisans of the _status quo_, inclining
towards free exchange, and the advocates of a more vigorous protection.

List’s _National System_, advocating Protection, appeared at the
psychological moment. This delightfully eloquent work is full of
examples borrowed from history and experience. The peculiar condition
of contemporary Germany was the one source of List’s inspiration, and
since the work was written for the public at large it is remarkably free
from all traces of the “schools.” Germany’s industry, the sole hope of
her future greatness, had found scope for development only during the
peace which followed 1815. It was still in its infancy, and found itself
hard hit by the competition of England, with her long experience, her
perfected machinery, and her gigantic output. This was the all-important
fact for List. England, whose rivalry appeared so dangerous, had closed
her markets to German agriculturists by her Corn Laws, while industrial
competition was out of the question. Two other nations, France and the
United States, destined, like Germany, to become great industrial Powers,
indicated the path of emancipation. France, warned by the results of the
Treaty of Eden (1786) as to the evils of English competition, hastened
to defend her fortunes by means of prohibitive tariffs. Still more
significant was the example of the United States, whose situation was
in all respects comparable with that of Germany. In both cases economic
independence was hardly yet fully established, the natural resources
were abundant, the territory was vast, the population intelligent and
industrious, with the hope of a great political future. Though scarcely
free as yet, the Americans made the establishment of industry and the
shutting out of English goods by means of protective tariffs their first
care. Thus there was everywhere the same danger, the tyrannical supremacy
of England, and the same method of defence, Protection. Would Germany
alone stand aloof from adopting similar measures?

That is the essential point of List’s thesis. But these very practical
views tended to damage the well-known arguments of those economists whom
List refers to collectively as “the school.” The “school” maintained
that nations as well as individuals should buy in the cheapest markets
and devote all their energies to producing just those commodities which
yield them the greatest gain. Industry can only grow in proportion to the
amount of capital saved, but a protective _régime_ hinders accumulation
and so defeats its own end. To overcome these objections it is not
necessary to combat them one by one, for the discussion may be carried
to an entirely different field. The “school” adopts a certain ideal of
commercial policy as the basis of its thesis, namely, the increase of
consumable wealth, or, as List puts it, in an awkward enough fashion,
“the increase of its exchangeable values.”[572] This fundamental point of
view must be changed if we would avoid the consequences which naturally
follow from it. List realised this, and in his attempt to accomplish the
task he gave expression to new truths which make his book one of lasting
theoretical value and ensure for it an important place in the history of
economic doctrines.

In fact, he introduces two ideas that were new to current theory, namely,
the idea of nationality as contrasted with that of cosmopolitanism, and
the idea of productive power as contrasted with that of exchange values.
List’s whole system rests upon these two ideas.

(_a_) List accuses Adam Smith and his school of cosmopolitanism. Their
hypothesis rested on the belief that men were henceforth to be united
in one great community from which war would be banished. On such a
hypothesis humanity was merely the sum of its individuals. Individual
interests alone counted, and any interference with economic liberty could
never be justified. But between man and humanity must be interpolated the
history of nations, and the “school” had forgotten this. Every man forms
part of some nation, and his prosperity to a large extent depends upon
the political power of that nation.[573]

Universal _entente_ is doubtless a noble end to pursue, and we ought to
hasten its accomplishment. But nations to-day are of unequal strength and
have different interests, so that a definite union could only benefit
them if they met on a footing of equality. The union might even only
benefit one of them while the others became dependent. Viewed in this new
light, political economy becomes the science which, by taking account
of the actual interests and of the particular condition of each nation,
shows along what path each may rise to that degree of economic culture at
which union with other civilised nations, accompanied by free exchange,
might be both possible and useful.[574]

List distinguishes several “degrees of culture,” or what we would to-day
call “economic stages,” and he even claims actual historical sequence for
his classification into the savage, the pastoral, the agricultural, the
agricultural-manufacturing, and the agricultural-manufacturing-commercial
stage.[575] A nation becomes “normal”[576] only when it has attained
the last stage. List understands by this that such is the ideal that
a nation ought to follow. As a matter of fact he would allow it to
possess a navy and to found colonies only on condition that it kept
up its foreign trade and extended its sphere of influence. It is only
at this stage that a nation can nourish a vast population, ensure
a complete development of the arts and sciences, and retain its
independence and power. The last two ideas constitute the _sine qua
non_ of nationality.[577] Not all nations, it is true, can pretend to
this complete development. It requires a vast territory, with abundant
natural resources, and a temperate climate, which itself aids the
development of manufactures.[578] But where these conditions are given
then it becomes a nation’s first duty to exert all its forces in order
to attain this stage. Germany possessed these desiderata to a remarkable
degree. All that was needed was an extension of territory, and List
lays claim to Holland and Denmark as a portion of Germany, declaring
that their incorporation would be regarded even by themselves as being
both desirable and necessary. Accordingly, he wished them to enter the
Confederacy of their own free will.[579]

Hence the aim of a commercial policy is no longer what it was for Smith,
viz. the enriching of a nation. It is a much more complex ideal that List
proposes, both historically and politically, but an ideal which implies
as a primary necessity the establishment of manufactures.

(_b_) This necessity becomes apparent from still another point of
view. The estimate of a nation’s wealth should not be confined to one
particular moment. It is not enough that the labour and economy of its
citizens should at the present moment assure for it a great mass of
exchange values. It is also necessary that these resources of labour
and of economy should be safeguarded and that their future development
should be assured, for “the power of creating wealth is infinitely more
important than the wealth itself.” A nation should concern itself with
the growth of what List in a vague fashion calls its productive forces
even more than with the exchange values which depend upon them.[580]
Even a temporary sacrifice of the second may be demanded for the sake
of the first. In these expressions List merely wishes to emphasise the
distinction between a policy which takes account of a nation’s future as
compared with one which takes account only of the present. “A nation must
sacrifice and give up a measure of material property in order to gain
culture, skill, and powers of united production; it must sacrifice some
present advantages in order to ensure to itself future ones.”[581]

But what are these productive forces which constitute the permanent
source of a nation’s prosperity and the condition of its progress?

With particular insistence List first of all mentions the moral and
political institutions, freedom of thought, freedom of conscience,
liberty of the press, trial by jury, publicity of justice, control
of administration, and parliamentary government. All these have a
stimulating and salutary effect upon labour. He is never weary of
recalling to mind the loss of wealth caused by the Revocation of the
Edict of Nantes, or by the Spanish Inquisition, which, says he, “had
passed sentence of death upon the Spanish navy long ere the English and
the Dutch fleets had executed the decree” (p. 88). He unjustly[582]
accuses Smith and his school of materialism, and condemns them for
neglecting to reckon those infinitely powerful but perhaps less
calculable forces.

But of all the productive forces of a nation none, according to List,
can equal manufactures, for manufactures develop the moral forces of a
nation to a superlative degree. “The spirit of striving for a steady
increase in mental and bodily acquirements, of emulation and of liberty,
characterise a State devoted to manufactures and commerce.… In a country
devoted to mere raw agriculture, dullness of mind, awkwardness of body,
obstinate adherence to old notions, customs, methods, and processes, want
of culture, of prosperity, and of liberty prevail.”[583] Manufactures
permit of a better utilisation of a country’s products than is the case
even with agriculture. Its water-power, its winds, its minerals, and its
fuel supplies are better husbanded. The presence of manufactures gives
a powerful impetus to agriculture, for the agriculturist profits even
more than the manufacturer, owing to the high rent, increased profits,
and better wages that follow upon an increased demand for agricultural
products. The very proximity of manufactures constitutes a kind of
permanent market for those agricultural products, a market which neither
war nor hostile tariffs can ever affect. It gives rise to varied demands
and allows of a variation of cultivation, which results in a regional
division of labour. This enables each district to develop along the most
advantageous line, whereas in a purely agricultural country each one
has to produce for his personal consumption, which means the absence of
division of labour and a consequent limitation of production.[584]

Industry for List is not what it was for Smith. For him it is a social
force, the creator of capital and of labour, and not the natural result
of labour and saving. It deserves introduction even at the expense
of a temporary loss, and its justification is that of all liberal
institutions, namely, the impetus given to future production. In a
beautiful comparison which would deserve a niche in a book of classical
economic quotations he writes as follows: “It is true that experience
teaches that the wind bears the seed from one region to another, and that
thus waste moorlands have been transformed into dense forests; but would
it on that account be wise policy for the forester to wait until the wind
in the course of ages effects this transformation?”[585] The tariff,
apparently, is the only method of raising the wind.

By placing himself at this point of view List is able to defeat the most
powerful arguments used by his opponents. All we can say in reply is that
manufactures will not produce these effects if they have not already a
_raison d’ètre_ in the natural evolution of a nation—that is, if they
do not demand too costly a sacrifice. The land on which the settler sows
his corn can scarcely be regarded as ready to receive it if it lacks the
power to make it grow.

List’s Protectionism, as we may guess from what precedes, possesses
original features. It is not a universal remedy which may be
indifferently applied to every country at any period or to all its
products. It is a particular process which can only be used in
certain cases and under certain conditions. Subjoined are some of the
characteristic traits of this Protectionism which List himself has neatly

(1) The Protectionist system can only be justified when it aims at the
industrial education of a nation.[586] It is thus inapplicable to a
nation like the English, whose industrial education is already complete.
Nor should it be attempted by countries that have neither the aptitude
nor the resources necessary for an industrial career. The nations of the
tropical zone seem destined to the pursuit of agriculture, while those of
the temperate zone are accustomed to engage in many and varied forms of

(2) But a further justification is also necessary. It must be shown
that the nation’s progress is retarded by the competition of a powerful
manufacturing rival which has already advanced farther on the industrial
path.[588] “The reason for this is the same as that why a child or a boy
in wrestling with a strong man can scarcely be victorious or even offer
steady resistance.”[589] This was precisely the case with Germany in her
struggle with England. (It is interesting to come across a full account
of the process of “dumping” in List’s letters to Ingersoll. “Dumping,”
which has received much attention lately in connection with the trust
movement, consists in selling at a low price in foreign markets in order
to keep up prices in the home market.[590])

(3) Even in that case Protection can be justified “only until that
manufacturing Power is strong enough no longer to have any reason to fear
foreign competition, and thenceforth only so far as may be necessary for
protecting the inland manufacturing power in its very roots.”[591]

(4) Lastly, Protection ought never to be extended to agriculture.
The reasons for this exception are that on the one hand agricultural
prosperity depends to a great extent upon the progress of
manufactures—the protection of the latter indirectly benefits the
former—and on the other hand an increase in the price of raw materials or
of food would injure industry. Moreover, there exists a natural division
which is particularly advantageous to the system of cultivation pursued
by each country, a division dependent upon the natural qualities of their
soils, which Protection would tend to destroy. This territorial division
does not exist for manufactures, “for the pursuit of which every nation
in the temperate zone seems to have an equal vocation.”[592]

One might experience some difficulty in understanding the sudden
_volte-face_ of List in favour of free exchange in agriculture did we
forget the particular situation in Germany, to which his thoughts always
returned. This is equally true of many other points in his system.
Germany was an exporter of corn and suffered from the operation of the
English Corn Laws. German agriculture needed no protection, but suffered
from want of markets, and List would have been very happy to persuade
England to abandon her Corn Laws. Agricultural protection was only
revived in Germany towards the end of 1879, when the agriculturists
thought they were being threatened by foreign competition.


The question of the origin of List’s Protectionist ideas has frequently
been raised. The works of the Frenchmen Dupin and Chaptal undoubtedly
gave him some material for reflection, but he was really confirmed in
his opposition to _laissez-faire_ by the men whom he met in America.
While there he came into intimate contact with the members of a society
which had been founded at Philadelphia for the encouragement of national
industry. The founder of this society was an American statesman named
Hamilton, the author of a celebrated report upon manufactures, who as
far back as 1791 had advocated the establishment of Protection for
the encouragement of struggling American industries.[593] Hamilton’s
argument, as List fully recognised, bears a striking similarity to the
thesis of the _National System_.[594] The Philadelphian society, which
was then presided over by Matthew Carey (the father of the economist of
whom we shall have to speak by and by), immediately after List’s arrival
in America inaugurated an active campaign on behalf of a revision of the
tariffs. Ingersoll, the vice-president, persuaded List to join in the
campaign, which he did by publishing in 1827 a number of letters which
caused quite a sensation.[595] They are really just a _résumé_ of the
_National System_. The policy which in the course of a few years he was
to advocate in Germany he now recommended to the consideration of the

But facts were even more eloquent than books, and what chiefly struck the
practical mind and the observant eye of List was the material success
of American Protection, just as in Germany he had been impressed by the
beneficial effects which temporary Protection enforced by the Continental
Blockade had produced there.[596]

Far from being injurious to the economic development of the United
States, it seemed as if Protection had really helped it. What it actually
did was to quicken by the space of a few years an evolution which nature
herself was one day bound to accomplish. So vast was the territory, so
abundant the natural resources, and so advantageously were they placed
for the application of human energy that no system, however defective,
could long have delayed the accumulation of wealth. The similar condition
of Germany lent colour to the belief that the same experiment carried on
under similar circumstances would also succeed there.

Accordingly, List’s work, though not directly connected with any known
American system, is the first treatise which gives a clear indication of
the influence upon European thought of the economic experiences of the
New World.

In a beautiful paragraph in the _National System_ List has himself
confessed to this. “When afterwards I visited the United States, I cast
all books aside—they would only have tended to mislead me. The best
work on political economy which one can read in that modern land is
actual life. There one may see wildernesses grow into rich and mighty
states; and progress which requires centuries in Europe goes on there
before one’s eyes, viz. that from the condition of the mere hunter to
the rearing of cattle, from that to agriculture, and from the latter
to manufactures and commerce. There one may see how rents increase by
degrees from nothing to important revenues. There the simple peasant
knows practically far better than the most acute savants of the Old World
how agriculture and rents can be improved; he endeavours to attract
manufacturers and artificers to his vicinity. Nowhere so well as there
can one learn the importance of means of transport, and their effect on
the mental and material life of the people. That book of actual life I
have earnestly and diligently studied, and compared with the results of
my previous studies, experience, and reflections.”[597]

Though from this point of view List’s Protectionism seems closely
connected with the most modern of economic units, a still closer tie
links him to the Mercantilism of old. Nor did he ever dissemble his love
for the Mercantilists, especially for Colbert. He accused Smith and Say
of having misunderstood them, and he declared that they themselves more
justly deserved the title of Mercantilists because of their attempt to
apply to whole nations a very simple conception which they had merely
copied from a merchant’s note-book, namely, the advice to buy in the
cheapest and sell in the dearest market. He distinguishes between two
classes of Mercantilists according as they are influenced by one or other
of two dominating ideas. On the one hand we have those who emphasise the
importance of industrial education, which is the dominant note in List’s
philosophy. This idea has quite taken the place of the older idea of
a favourable balance of trade, and has been adopted by such a Liberal
thinker as John Stuart Mill, whereas the other has been definitely
rejected by the science. Furthermore, the Mercantilism of the seventeenth
century was a special instrument employed in the interests of a permanent
policy, which was exclusively national; while List’s Protection,
according to his own opinion, was merely a means of leading nations
towards the possibility of union on a footing of equality. It was a mere
transitory system, a policy dictated by circumstances.

List’s system cannot be regarded as the inspirer of modern Protection,
any more than he himself can be regarded as a direct descendant of the
old Mercantilists. Even in Germany, despite the great literary success
of his work, its influence was practically _nil_, unless we credit it
with the slight increase of taxation upon which the Zollverein decided in
1844, and couple with it the Protectionist campaign afterwards carried
on by List in the columns of his newspaper.[598] But the Liberal reforms
carried out by the English Parliament under the Premiership of Peel
were during that very same year crowned by the abolition of the Corn
Laws. This measure caused much consternation throughout Europe, and
the confirmation which Cobden’s ideas thus received influenced public
opinion a good deal and gave a Liberal trend to the commercial policy of
Europe during the next few years. The _régime_ of commercial treaties
inaugurated by Napoleon III was an outcome of this change of feeling.

Towards the end of 1879 a vague kind of Protectionism made its appearance
in Europe. Tariff walls were raised, but they never seemed to be high
enough. One would like to know whether these new tariffs, established
successfully by Germany and France, were in any way inspired by List’s

It does not seem that they were. Neither of the two countries which
have remained faithful to a thoroughgoing Protection any longer needs
industrial education. Both of them have long since arrived at that
complex state which, according to List, is necessary for the full
development of their civilisation and the expansion of their power.
Germany and the United States have no longer any cause to fear England.
Their commercial fleets are numerous, their warships powerful, and their
empires are every day expanding. Were he to return to this world to-day,
List, who so energetically emphasised the relative value of the various
commercial systems, and the necessity of adapting one’s method to the
changing conditions of the times and the character of the nation, but
always laid such stress upon the essentially temporary character of
the tariffs raised, would perhaps find himself ranged on the side of
those who demand a lowering of those barriers in the interest of a more
liberal expansion of productive forces. Has he himself not declared
that “in a few years the civilised nations of the world, through the
perfection of the means of transport, through the influence of material
and intellectual ties, will be as united, nay, even more closely knit
together, than were the counties of England a hundred years ago”?[599]
Even the profound changes in the international economic situation during
the last sixty years fail to supply a serious justification for the
Protectionist policy of the great commercial nations, and the essential
traits of this new _régime_ differ _toto cælo_ from the outlines supplied
by List. Far from allowing agriculture to develop naturally, there has
arisen the cry for some protection for the farmer, which has served as
a pretext for a general reinforcement of tariffs in a great number of
cases, notably in France and Germany. The competition of American corn
has hindered European agriculture from benefiting by the advancement of
industry as List had predicted. Modern tariffs, involving as they do the
taxation of both agricultural and industrial products, imply a conception
of Protection entirely different from List’s. He would have confined
Protection to the most important branches of national production—to
those industries from which the other and secondary branches receive
their supplies. Only on this ground would he have justified exceptional
treatment.[600] It is an essentially vigorous conception, and what
he sought of Protection was an energetic stimulant and an agent of
progress. But a tariff which indifferently protects every enterprise,
which no longer distinguishes between the fertilising and the fertilised
industries, and increases all prices at the same time, can have only
one effect—a loss for one producer and a gain for another. Their
relative positions remain intact. It is no longer a means of stimulating
productive energy; it is merely a general instrument of defence against
foreign competition, and is essentially conservative and timorous.

To speak the truth, tariff duties are never of the nature of an
application of economic doctrines. They are the results of a compromise
between powerful interests which often enough have nothing in common with
the general interest, but are determined by purely political, financial,
or electoral considerations. Hence it is futile to hope for a trace of
List’s doctrines in the Protective tariffs actually in operation. His
influence, if indeed it is perceptible anywhere, must be sought amid the
subsidiary doctrines which uphold them.

The only complete exposition of Protectionism that has been given us
since List’s is that of Carey,[601] the American economist. Carey was
at first a Free Trader, but in 1858 became a Protectionist, and his
ideas, which were expounded in his great work _The Principles of Social
Science_, published in 1858-59, bear a striking resemblance to those of
his German predecessor.

Carey, like List, directs his attack against the industrial pre-eminence
of England, and substitutes for the ideal of international division
of labour the ideal of independent nationality, each nation devoting
itself to all branches of economic activity, and thus evolving its own
individuality. According to him, Free Trade tends to “establish one
single factory for the whole world, whither all the raw produce has to be
sent whatever be the cost of transport.”[602] The effect of this system
is to hinder or retard the progress of all nations for the sake of this
one. But a society waxes wealthy and strong only in proportion as it
helps in the development of a number of productive associations wherein
various kinds of employments are being pursued, which increase the demand
for mutual services and aid one another by their very proximity. Such
associations alone are capable of developing the latent faculties of
man[603] and of increasing his hold upon nature. These two traits help
to define economic progress. Under a slightly different form we have a
picture of the normal nation or the complex State so dear to the heart
of Friedrich List—an ideal of continuous progress as the object of
commercial policy being substituted for one of immediate enrichment.

Following List, but in a still more detailed fashion, Carey sought to
show the beneficial effects that the proximity of protected industry
would have upon agriculture. But unfortunately there are other arguments
upon which Carey lays equal stress that are really of a much more
debatable character.

Protection, according to Carey, by furnishing a ready market for
agricultural products, would free agriculture from the burden of an
exorbitant cost of carriage to a distant place. This argument, which
List[604] merely threw out as a passing suggestion, continually recurs
with the American author. But, as Stuart Mill justly remarked,[605] if
America consents to such expenditure it affords a proof that she procures
by means of international exchange more manufactured goods than if she
manufactured them herself.

Another no less debatable point: The exportation of agricultural
products, says Carey, exhausts the soil, for the products being consumed
away from the spot where they are grown, the fertilizing agents which
they contain are not restored to the earth; a manufacturing population
in the immediate neighbourhood[606] would remedy this. But, as John
Stuart Mill again remarks,[607] and justly enough, it is not Free Trade
that forces America to export cereals. If she does so, it is because
exhaustion of soil appears to her an insignificant inconvenience compared
with the advantage gained by exportation.

Carey, finally, was one of the first to discover in Protection a means of
increasing wages. Once the complex economic State is established there
arises a keen competition between the _entrepreneurs_ who require the
service of labour—a competition which naturally benefits the workman. But
this advantage, granting that it does exist, is more than counterbalanced
by the increased price of goods.

We see that Carey, although sharing the fundamental conceptions of List,
employs arguments that are much less valid. Both in power of exposition
and in the scientific value of his work, the German author shows himself
vastly superior to his American successor. He is also much more moderate.
Carey is not content with industrial Protection; he demands agricultural
Protection as well, and the duties, though a little higher than those
proposed by List, seem hardly sufficient for him.

Despite all this similarity of views, Carey does not owe his inspiration
to List. He was acquainted with the _National System_ and he quoted it.
But American economic literature had already supplied him with analogous
suggestions. Even more than books, the economic life of America itself
as it evolved before his very eyes had contributed to the formation of
his ideas. It was the progress of America under a Protective _régime_,
it was the spectacle of a country as yet entirely new and sparsely
populated, increasing the produce of her soil as colonisation extended,
and multiplying her wealth as population became more dense, that inspired
him with the idea of a policy of isolation with a view to hastening the
utilisation of those enormous resources. More fortunate than List, he saw
his ideas accepted, if not by the scientific experts of his country (who
on the whole remained aloof), at least by the American politician, who
has applied his principles rather freely.[608]

Carey’s doctrine, accordingly, cannot be attributed directly to the
influence of List. It remains to be seen whether List had any influence
upon European doctrines.

He undoubtedly succeeded in forcing the acceptance of the idea of a
temporary Protection for infant industries even upon Free Traders. The
most notable convert to this view was John Stuart Mill.[609] But it was
a somewhat Platonic concession that he made. He thought it inapplicable
to old countries, for their education was no longer incomplete, and at
best useful only for new countries.

Can modern Protectionists claim descent from List? In the absence of
any systematic treatise dealing with their ideas, it is not always easy
to glean the significance of their doctrines from the various articles,
discourses, and brochures amid which they are scattered.[610] Neglecting
those writers who are merely content to reproduce the old fallacies
of the Mercantile arguments concerning the balance of trade,[611] the
majority of them appear to base their case more or less explicitly
upon two principal arguments: (1) the necessity for economic autonomy;
(2) the patriotic necessity of securing a national market for national
products.[612] These two points of view, which are more or less clearly
avowed and accepted as political maxims, would, if applied with logical
strictness, result in making all external commerce useless. Each nation
would thus be reduced to using just those resources with which Nature
had happened to endow it, but it could get little if any of the goods
produced by the rest of mankind. These two ideas were not absolutely
foreign to List’s thought, although they never assumed anything more than
a secondary or subordinate character. He never considered them as the
permanent supports of a commercial policy.

List frequently spoke of making a nation independent of foreign
markets by means of industry. He considered that nation highest which
“has cultivated manufacturing industry in all its branches within its
territory to the highest perfection, and whose territory and agricultural
production is large enough to supply its manufacturing population with
the largest part of the necessaries of life and raw materials which they
require.” But he also recognised that such advantages were exceptional,
and that it would be folly for a nation to attempt to supply itself by
means of national division of labour—that is, by home production—with
articles for the production of which it is not favoured by nature,
and which it can procure better and cheaper by means of international
division of labour, or, in other words, through foreign commerce.
Complete autonomy is accordingly an illusion. But we cannot deny that
some of his expressions seem to give credit to the false idea that a
country which obtains a considerable portion of its consumption goods
from foreigners must be dependent upon those foreigners.[613] In fact,
it is no more dependent upon the foreigner than the foreigner is upon
it. In the case of a buyer and seller who is the dependent person? There
is but one instance in which the expression is justified, and that is
when a foreign country has become the only source of supply for certain
commodities. Then the buyer does become dependent, and List rightly
enough had in view the manufacturing monopoly enjoyed by England—a
monopoly that no longer exists.

He also spoke of retaining the home market for home-made goods; but he
thought that this guarantee would of necessity have to be limited to the
period when a nation is seeking to create an industry for itself: at
a later period foreign competition becomes desirable in order to keep
manufacturers and workmen from indolence and indifference.[614]

At no period was List anxious to make economic autonomy or the
preservation of the home market the pivot of his commercial policy. The
creation of native industry is the only justification of protective
rights, but this is the one point which modern Protectionists cannot
insist upon without anachronism.

List left no marked traces of his influence either upon practical
politics or upon Protectionist doctrines. It is in his general views that
we must seek the source of his influence and the reason for the position
which he holds in the history of economic doctrines.


List’s method is essentially that of the pioneer. He was the first to
make systematic use of historical comparison as a means of demonstration
in political economy. Although he can lay no claim to be the founder of
the method, still the brilliant use which he made of it justifies us in
classifying him as the equal, if not the superior, of those who at the
same moment were attempting the creation of the Historical school and the
transformation of history into the essential organon of economic research.

List also introduced new and useful points of view into economics.
The principle of free exchange as formulated by Smith, and especially
by Ricardo and Say, was evidently too absolute and rested upon a
demonstration that was too abstract for the ordinary politician. If,
as List justly remarks, the practice of commercial nations has so long
remained contrary to a doctrine that all economists regard as admirable,
it is not without some just cause. As a matter of fact, can the statesman
ever place himself outside of the point of view of national interest of
which he is the custodian? It is not enough for him to know that the
interchange of products will in some degree increase wealth.[615] He
must be certain that this increased wealth will benefit his own nation.
He must be equally well assured that Free Trade will not result in too
sudden a displacement of population or industry, the social and political
results of which might be very harmful. In other words, political economy
must be subordinated to politics in general, and to-day there is no
single economist who does not recognise the impossibility of separating
them in practice.[616] There is none that does not perceive the influence
of political power on economic prosperity, and that consequently does not
recognise the necessity for the different complexion which the peculiar
circumstances of each country imposes upon the practical application of
the principle of commercial liberty.

This is not all. List by abandoning the favourite habit of
eighteenth-century writers who contrasted man and society, and by
giving us a picture of man as he really is, as a member of a nation,
has introduced a fruitful conception into economics of which we have
not yet seen the full results. He rightly treats of nations not merely
as moral and political associations created by history, but also as
economic associations. Just as a nation is politically strengthened by
the moral cohesion of its citizens, so its economic cohesion increases
the productive energy of each individual and enhances the prosperity of
the whole nation.

And Governments, while charged with maintaining the political unity of
a country, ought also to retain its economic unity by subordinating all
local interests to the general interest, by preserving intact the liberty
of internal trade, by organising railways and canals on a national basis,
by keeping watch over the central bank, and by aiming at a uniform code
of commercial legislation. This was the programme outlined by List in his
paper the _Zollvereinsblatt_.

This belief in the power which a unified economic organisation can bring
to a nation is by no means too common among individualists, who at bottom
are often particularists. But List possessed it in the highest degree.
He devoted many years of his life to advocating the establishment of a
German railway system, and it was he who traced the principal highways
which have since been established in Germany. Protection, in his opinion,
was one means of increasing the economic cohesion of Germany, because of
the solidarity of interests which would result from the presence of a
powerful industry.

With similar enthusiasm he devoted himself to two apparently
contradictory tasks—the suppression of inter-State duties and the
establishment of protective rights. To him there was no element of
contradiction in this, any more than there would be for us in a national
system of political economy with no protective rights.[617]

He also extended the political horizon of the Classical school and
substituted a dynamic for their purely static conception of national
development. His thorough examination of the conditions of economic
progress is a contribution to the study of international trade exactly
analogous to the contribution made by Sismondi to the study of national
welfare. But, unlike Sismondi, who wished to retard this progress, he is
anxious to stimulate it, and so he charges the State with the duty of
safeguarding the future prosperity of the country and with furthering its
production. The actual procedure, involving as it did the establishment
of protective rights, may appear to us to be unfortunate.[618] But the
idea which inspires it—the recognition that in the interests of the
future national power has a definitely economic _rôle_—is essentially
sound. To-day it is a mere commonplace, but when List enunciated it it
was quite a novel idea.

In attempting to define List’s real significance one feels that he
failed in the achievement of his chief aim. He has not succeeded in
breaking down the abstract theory of international trade. On the other
hand, he did make a real contribution to economic science, a contribution
which the whole of the nineteenth century seemed bent upon emphasising,
namely, that the Classical writers had been too ready to draw universal
conclusions from their doctrines, forgetting that in economics it is
never safe to pass from pure theory to practical applications without
taking account of the intermediate links and making allowance for change
of time and place—considerations which abstract theory rightly avoids.
List’s merit lies in his having emphasised this truth, especially in
the region of international trade, and in his doing it just at that
particular moment.


Proudhon comes next, though his place in the history of economic
doctrines is not easily defined. Like all socialists he begins with a
criticism of the rights of property. The economists had carefully avoided
discussing them, and political economy had become a mere _résumé_ of the
results of private property. Proudhon regarded these rights as the very
basis of the present social system and the real cause of every injustice.
Accordingly he starts with a criticism of property in opposition to the
economists who defended it.

But how can we reform the present system or replace it by a better?
Herein lies the difficulty. Born twenty years earlier, Proudhon, like
many others, would perhaps have invented a Utopia. But what was possible
in 1820 was no longer so twenty years later. Public opinion was already
satiated with schemes of reform. Owen, Saint-Simon, Fourier, Cabet,
and Louis Blanc had each in his turn proposed a remedy. The fancy of
reformers had roamed at will over the whole wide expanse of possible
reforms. Proudhon was well acquainted with all these efforts, and had
come to the conclusion that they were all equally useless. Hence he turns
out to be a critic of the socialists as well as of the economists.

Proudhon attempts the correction of the vices of private property without
becoming a party to what he calls the “crass stupidity of socialism.”
Every Utopian scheme is instinctively rejected. He cares nothing for
those who view society as they do machinery and think that an ingenious
trick is all that is needed to correct all anomalies and to reset the
machine in motion. To him social life means perpetual progress.[619] He
knows that time is required for the conciliation of those social forces
that are warring against one another. He was engrossed with his attempt
to find a solution for this difficult problem when the Revolution of
1848 broke out, and Proudhon, suddenly thrown into action, finds himself
forced to express his ideas in a concrete form, such that all could
understand. The critic has to try his hand at construction, and almost
despite himself he outlines another Utopia in his Exchange Bank.

Other writers had sought a solution in the complete overthrow of the
present methods of production and distribution. But Proudhon thought it
lay in improved circulation. It was an ingenious idea, and it deserves
mention in a history of economic doctrines because of the truth, mingled
with error, which it contains, and because it has become the type of
a series of similar projects. It is upon this conception that we wish
to dilate here. Leaving aside his other ideas, which are no whit less
interesting, we shall treat of Proudhon the philosopher, moralist, and
political theorist only in so far as these have influenced Proudhon the


The work that first brought Proudhon to the notice of the public was a
book published in 1840 entitled _Qu’est-ce que la Propriété?_ Proudhon
was then thirty-one years of age.[621] Born at Besançon, he was the son
of a brewer,[622] and was forced to earn his living at an early age. He
first became a proof-corrector, and then set up as a printer on his own
account. Despite hard work he became a diligent reader, his only guide
being his insatiable thirst for knowledge. The sight of social injustice
had sent the iron into his soul. Economic questions were faced with all
the ardour of youth, with all the enthusiasm of a man of the people
speaking on behalf of his brothers, and with all the confidence of one
who believes in the convincing force of logic and common sense. All this
is very evident in his brilliantly imaginative work. Mingled with it is
a good deal of that provoking swagger which was noted by Sainte-Beuve as
one of his characteristics, and which appears in all his writings.

Throughout this treatise from first page to last there periodically
flashes one telling phrase which sums up his whole argument, “Property is

The question then arises as to whether Proudhon regards all property
as theft. Does he condemn appropriation, or is it the mere fact of
possession that he is inveighing against? This is how the public at large
have viewed it, and it would be useless to deny that Proudhon owes a
great deal to this interpretation, and the consequent consternation of
the _bourgeoisie_. But his meaning is quite different. Private property
in the sense of the free disposal of the fruits of labour and saving is
in his opinion of the very essence of liberty. At bottom this is nothing
more than man’s control over himself.[624] But why attack property,
then? Property is attacked because it gives to the proprietor a right
to an income for which he has not worked. It is not property as such,
but the right of escheat, that forms the butt of Proudhon’s attack; and
following the lead of Owen and other English socialists, as well as the
Saint-Simonians, he directs his charges against that right of escheat
which, according to circumstances and the character of the revenue,
is variously known as rent, discount, money interest, agricultural
privilege, sinecure, etc.[625]

Like every socialist, Proudhon considered that labour alone was
productive.[626] Land and capital without labour were useless. Hence the
demand of the proprietor for a share of the produce as a return for the
service which his capital has yielded is radically false. It is based
upon the supposition that capital by itself is productive, whereas the
capitalist in taking payment for it literally receives something for

All this is simply theft. His own definition of property is, “The right
to enjoy the fruits of industry, or of the labour of others, or to
dispose of those fruits to others by will.”[628]

The theme is not new, and the line of thought will be resumed—by
Rodbertus among others. The originality of the work consists not so much
in the idea as in the brilliance of the exposition, the vehemence of the
style, and the verve of the polemics hurled against the old arguments
which based property upon labour, upon natural right, or upon occupation.
A German writer[629] has said that, published in Germany or in England,
the book would have passed unnoticed, because in both those countries the
defence of property had been much more scientific than in France.[630]

The whole force of the work lies, not in itself, but in the weakness of
the opposing arguments, and this fact is quite sufficient to give it a
certain permanent value. The treatise sent an echo through the whole
world, and its author may be said to have done for French socialism what
Lassalle did for German. The ideas set forth are not new, but they are
expressed in phrases of wonderful penetration.

There is also a wealth of ingenious remarks, which, if not, perhaps,
true, deserve retention because of their originality. How such spoliation
on the part of capitalists and proprietors can continue without a revolt
of the working men is a question which has been asked by every writer on
theoretical socialism, without its full import ever being realised. Is
there not something very improbable in this? The problem is a curious
one, indeed, and requires much ingenuity for its solution. Marx disposed
of it by his theory of surplus value. Rodbertus in a simpler fashion
showed the opposition between economic distribution as realised in
exchange and the social distribution which lurks behind it. Proudhon has
his own solution. There is, says he, between master and men continual
miscalculation.[631] The master pays each workman in proportion to
the value of his own individual labour, but reserves for himself the
product which results from the collective force of all—a product which
is altogether superior to that yielded by the sum of their individual
efforts. This excessive product represents profits. “It is said that
the capitalist pays his workmen by the day. But to be more exact we
ought to say that he pays a _per diem_ wage multiplied by the number of
workmen employed each day—which is not the same thing. For that immense
force which results from union and from the harmonious combination of
simultaneous efforts he has paid nothing. Two hundred grenadiers can deck
the base of the Louqsor statue in a few hours, a task which would be
quite impossible for one man though he worked two hundred days. According
to the capitalist reckoning the wages paid in both cases would be the
same.”[632] “And so the worker is led to believe that he is paid for
his work, whereas in reality he is only partly paid for it. Even after
receiving his wage he still retains a right of property in the things
which he has produced.”[633] His explanation, though very subtle, is none
the less erroneous.

The appearance of the pamphlet made Proudhon famous, not merely in the
eyes of the public, who knew little of him beyond his famous formula, but
also in the opinion of the economists. Blanqui and Garnier, among others,
interested themselves in his work. “It is impossible to have a higher
opinion of anyone than I have of you,” writes the former.[634] Blanqui by
his favourable report to the Academy of Moral Sciences was instrumental
in thwarting the legal proceedings which the Minister of the Interior
was anxious to take against Proudhon. And it was upon Garnier’s advice
that the publisher Guillaumin, although a strong adherent of orthodox
economics, consented to issue a new work by Proudhon in 1846. The book
was entitled _Les Contradictions économiques_, and Guillaumin was not a
little startled by it.[635]

The sympathy of the economists is easily explained. They realised from
the first that Proudhon was a vigorous opponent of their views, but it
was not long before they discovered that he was an equally resolute
critic of socialism. Let us briefly examine his attitude with regard to
the latter.

No one has ever referred to socialists in harsher terms. “The
Saint-Simonians have vanished like a masquerade.”[636] “Fourier’s system
is the greatest mystification of our time.”[637] To the communists he
writes as follows: “Hence, communists! Your presence is a stench in my
nostrils and the sight of you disgusts me.” Elsewhere he says: “Socialism
is a mere nothing. It never has been and never will be anything.”[638]
The violence of his attitude towards his predecessors springs from a
fear of being confused with them. The procedure is intended to put the
reader on his guard against all equivocation, and to afford him valuable
preparation for appreciating Proudhon’s solutions by showing how utterly
impossible the other solutions are.

His attack upon the socialists roughly amounts to a charge of failure
to realise that the destruction of the present _régime_ would involve
taking a course in the opposite direction. The difficult problem which
he set out to solve was not merely the suppression of existing economic
forces, but also their equilibration.[639] He never contemplated “the
extinction of such economic forces as division of labour, collective
effort, competition, credit, property, or even economic liberty.”[640]
His chief concern was to preserve them, but at the same time to suppress
the conflict that exists between them. The socialists aim merely at
destruction. For competition they would substitute an associative
organisation of labour; instead of private property they would set up
community of goods[641] or collectivism; instead of the free play of
personal interest they would, according to Fourier, substitute love, or
love and devotion, as the Saint-Simonians put it, or the fraternity of
Cabet. But none of these satisfies Proudhon.

He dismisses association and organisation as being detrimental to
the liberty of the worker.[642] Labour’s power is just the result of
“collective force and division of labour.” Liberty is the economic force
_par excellence_. “Economic perfection lies in the absolute independence
of the workers, just as political perfection consists in the absolute
independence of the citizens.”[643] “Liberty,” he remarks in an address
delivered to the electors of the department of the Seine in 1848, “is
the sum total of my system—liberty of conscience, freedom of the press,
freedom of labour, of commerce, and of teaching, the free disposal of the
products of labour and industry—liberty, infinite, absolute, everywhere
and for ever.” He adds that his is “the system of ’89,” and that he
is preaching the doctrines of Quesnay, of Turgot, and of Say. Indeed,
it would not be difficult to imagine ourselves reading the Classical
rhapsodies concerning the advantages of Free Trade over again.[644]

Communism as a juridical system is rejected no less energetically. There
is no suggestion of suppressing private property, which is the necessary
stimulant of labour, the basis of family life, and indispensable to all
true progress. His chief concern is to make it harmless and to place
it at the disposal of everyone.[645] “Communism is merely an inverted
form of private property. Communism gives rise to inequalities, but of a
different character from those of property. Property is the exploitation
of the weak by the strong, communism of the strong by the weak.”[646]
It is still robbery. “Communism,” he exclaims, “is the religion of
misery.”[647] “Between the institution of private property and communism
there is a world of difference.”[648]

Racial devotion or fraternity as possible motives for action are not
recognised. They imply the sacrifice and the subordination of one man
to another. All men have equal rights, and the freer exercise of those
rights is a matter of justice, not of fraternity. Proudhon thinks the
axiom so very evident that he takes no trouble to explain it, but merely
gives us a definition of justice. In his first _Mémoire_ it is defined
as “a kind of respect spontaneously felt and reciprocally guaranteed to
human dignity in any person and under all circumstances, even though the
discharge of that feeling exposes us to some risk.”[649]

His justice is tantamount to equality. If we apply the definition to
the economic links which bind men together, we find that the principle
of mutual respect is transformed into the principle of reciprocal
service.[650] Men must be made to realise this need for reciprocal
service. It is the only way in which equality can be respected. “Do unto
others as you would that others do unto you”—this principle of justice is
the ethical counterpart of the economic precept of mutual service.[651]
Reciprocal service must be the new principle which must guide us in
rearranging the economic links of society.

And so a criticism of socialism helps Proudhon to define the positive
basis of his own system. The terms of the social problem as it presents
itself to him can now be clearly followed. On the one hand there is the
suppression of the unearned income derived from property—a revenue which
is in direct opposition to the principle of reciprocal service. On the
other hand, property itself must be preserved, liberty of work and right
of exchange must be secured. In other words, the fundamental attribute
of property must be removed without damaging the institution of property
itself or endangering the principle of liberty.[652]

It is the old problem of how to square the circle. The extinction of
unearned incomes must involve the communal ownership of the instruments
of production, although Proudhon did not seem to think so. Hitherto the
reform of property had been attempted by attacking the production and
distribution of wealth. No attention was ever paid to exchange. But
Proudhon thought that in the act of exchange inequality creeps in and a
new method of exchange is needed. Towards the end of the _Contradictions
économiques_ he gives us an obscure hint of the kind of reform to be
aimed at. After declaring that nothing now remains to be done except
“to sum up all contradictions in one general equation,” he proceeds to
ask what particular form that equation is to take. We have already, he
remarks, been permitted a glimpse of it. “It must be a law of exchange
based upon a theory of mutual help. This theory of mutualism—that is,
of natural exchange—is from the collective point of view a synthesis
of two ideas—that of property and that of communism.”[653] No further
definition is attempted. In a letter written after the publication of
the _Contradictions_ he still refers to himself as a simple seeker, and
states that he has a new book in preparation, in which these propositions
are to be further developed.

About the same time he had laid out his plans for active propaganda in
the press. But the Revolution of 1848 threw him into the _mêlée_ of party
politics and hastened the publication of his theories.

In order to give a better idea of the place occupied by Proudhon’s ideas,
and to show how they were connected with the socialist experiments of the
time, we must say a few words about the Revolution itself.


Socialists of all shades of opinion, who from 1830 to 1840 had been
advocating radical reforms, were given a unique opportunity of putting
their theories to the test during the Revolution of 1848. During the
four months (February to June) which preceded the terrible ruin of the
socialist Republic by the _bourgeoisie_ projects of all kinds which
for many years had been discussed in books and newspapers appeared
to be on the point of bearing fruit. For a number of weeks nothing
seemed impossible. “The right to work,” “organisation of labour,” and
“association,” instead of being so many formulas, were by a mere stroke
of the magic wand to be translated into realities.

Enthusiasts were not wanting to attempt this task of transformation, but,
alas! only to find every scheme tumble into ruins. Every formula, when
put to the test, was found to be void. The malevolence of some people,
the impatience of others, the awkwardness and haste of the promoters
even, made the experiments odious and ridiculous. Public opinion was
at last thoroughly wearied and all the reformers were indiscriminately

The year 1848 is accordingly a memorable one in the history of social
ideas. The idealistic socialism of Louis Blanc, of Fourier, and of
Saint-Simon was definitely discredited. _Bourgeois_ writers thought
that it was utterly destroyed. Reybaud, who contributed the article on
Socialism to the _Dictionnaire d’Économie politique_ (edited by Coquelin
and Guillaumin) in 1852, writes as follows: “To speak of socialism
nowadays is to deliver a funeral oration. It has exhausted itself. The
vein is worked out. Should the human mind in its vertigo ever take it up
again it will be in a different form and under the influence of other

It fared scarcely better at the hands of subsequent socialists. Marx
referred to all his predecessors under the rather misleading title of
Utopians, and against their fantastic dreams he set up the “scientific
socialism” of _Das Kapital_. Between the two epochs lies a distinct
cleavage, marked by the Revolution of 1848. We must briefly see how this
was brought about, and rapidly review the more important experiments that
were made.

First of all there is “the right to work.” Fourier’s formula, which was
developed by Considérant and adopted by Louis Blanc and other democrats,
became extremely popular during the reign of Louis Phillipe. Proudhon
speaks of it as the only true formula of the February Revolution. “Give
me the right to work,” he declares, “and I will give you the right of

Workmen thought that the first duty of the Provisional Government
was to give effect to this formula. On February 25 a small group of
Parisian workmen came to the Hôtel de Ville to urge their claims, and
the Government hastened to recognise them. The decree drawn up by Louis
Blanc was as follows: “The Provisional Government of the French Republic
undertakes to guarantee the existence of every worker by means of his
labour. It further undertakes to give work to all its citizens.” The
following day another decree announced the immediate establishment
of national workshops with a view to putting the new principle into
practice. All that was necessary to gain admission was to have one’s name
inscribed in one of the Parisian municipal offices.

Louis Blanc in his book of 1841 had demanded the establishment of
“social” workshops. Public opinion, misled by the similarity of names,
and encouraged to persist in its error by the enemies of socialism,
thought that the national workshops were the creation of Louis Blanc.
Nothing could be more incorrect. The “social” workshops, as we know, were
to engage in co-operative production, whereas the national workshops
were to provide employment for idlers. Similar institutions had been
established during every crisis between 1790 and 1830, generally under
the name of “charity works.” Moreover, it was Marie, the Minister
of Public Works, and not Louis Blanc, who organised them. Far from
providing work as the socialists had hoped, the Government soon realised
that the workshops afforded an admirable opportunity for binding the
workmen together into brigades which might act as a check upon the
socialistic tendencies of the Luxembourg Commission, then presided
over by Louis Blanc. The workshops were placed under the management of
Émile Thomas, the engineer, who was an avowed opponent of the scheme.
In his _Histoire des Ateliers nationaux_, written in 1849, he tells us
how they were controlled by him in accordance with the wishes of the
anti-socialist majority of the Provisional Government.[655]

But they were mistaken in their calculations. Those who thought that
the national workshops could be used for their own political ends were
soon undeceived. The Revolution greatly increased the number of idlers,
already fairly considerable as the result of the economic crisis of 1847.
Moreover, the opening of the workshops brought the workmen from the
provinces into Paris. Instead of the estimated 10,000, 21,000 had been
enrolled by the end of March, and by the end of April there were 99,400.
They were paid two francs a day while at work, and a franc when there
was no work for them. In a very short time it became impossible to find
employment for so many. The majority of them, whatever their trade, were
employed upon useless earthworks, and even these soon proved inadequate.
Discontent soon became rife among this army of unfortunate workers,
humiliated by the nature of the ridiculous labour upon which they were
employed, and scarcely satisfied with the moderate salary which they
received. The wages paid, however, were more than enough for the kind
of work that was being done. The workshops became centres of political
agitation, and the Government, thoroughly alarmed, and acting under
pressure from the National Assembly, was constrained to abandon them.

Suddenly, on June 21, a summons was executed upon all men between
seventeen and twenty-five enrolled in the shops, ordering them to join
the army or to leave for the country, where more digging awaited them.
The exasperated workmen rose in revolt. Rioting broke out on June 23,
but it was crushed in three days. Hundreds of the workers died in the
struggle, and the country was terrorised into reaction.

That simple logic which is always so characteristic of political parties
held the principle of “the right to work” responsible for this disastrous
experience, and it was definitely condemned. This is quite clear from
the constitutional debates in the National Assembly. The constitutional
plan laid down by Armand Marrast on June 19, a few days before the riots,
recognised “the right to work.” “The Constitution,” says Article 2,
“guarantees to every citizen liberty, equality, security, instruction,
work, property, and public assistance.” But in the new plan of August
29—after the experience of June—the article disappeared. The right to
relief only was recognised. In the discussion on the article an amendment
re-establishing “the right to work” was proposed by Mathieu de la Drôme.
A memorable debate followed, in which Thiers, Lamartine, and Tocqueville
opposed the amendment, while the Radical Republicans Ledru-Rollin,
Crémieux, and Mathieu de la Drôme defended it.[656] The socialists had
become extinct. Louis Blanc was in exile, Considérant ill, while Proudhon
was afraid of startling his opponents and of compromising his friends.
Besides, the Assembly had already made up its mind. The amendment was
defeated, and Article 8 of the preamble to the Constitution of 1848 runs
as follows: “The Republic by means of friendly assistance should provide
for its necessitous citizens, either by giving them work as far as it
can, or by directly assisting those who are unable to work and have no
one to help them.”

During the reign of the July Monarchy “the organisation of labour” was
another phrase which divided the honours with “the right to work.” With
the spread of the Revolution came a similar menacing demand for its
realisation. By a strange coincidence the author of this formula was
also a member of the Provisional Government. And so when on February
28, three days after the recognition of “the right to work,” the workers
came in a body and claimed the creation of a Minister of Progress, the
organisation of labour, and the abolition of all exploitation, Louis
Blanc immediately seized the opportunity to urge his unwilling colleagues
to accede to their demands. He himself had pressed the Government to take
the initiative in social reform, and now that the Revolution had made him
a member of the Government how could he escape his responsibility? After
some difficulty his colleagues succeeded in persuading him to accept the
alternative of a Government commission on labour, of which he was to be
president. The commission was entrusted with the task of drawing up the
proposed reforms, which were afterwards to be submitted to the National
Assembly. To mark the contrast between the old and the new _régime_ the
commission carried on its deliberations in the Palais du Luxembourg,
where the Chambre des Paris formerly sat.

The Luxembourg commission was composed of representatives elected by
workmen and masters, three for each industry. The representatives met
in a general assembly to discuss the reports prepared by a permanent
committee of ten workers and an equal number of masters, to which Louis
Blanc had added a few Liberal economists and socialists, such as Le Play,
Dupont-White, Wolowski, Considérant, Pecqueur, and Vidal. Proudhon was
also invited, but refused to join. As a matter of fact, only the workers
took part in the sittings.

The commission, although it possessed no executive power, might have been
of some service. But Louis Blanc, as he himself confessed, regarded it
as “a golden opportunity where socialism had at its disposal a tribunal
from which it could address the whole of Europe.”[657] He still kept up
his _rôle_ of orator and writer, and devoted most of the sittings to an
eloquent appeal for the theories already outlined in his _Organisation
of Labour_.[658] Vidal and Pecqueur undertook the task of elaborating
the more definite proposals. In a lengthy report which appeared in the
_Moniteur_[659] they outlined a plan of State Socialism, with workshops
and agricultural colonies, with State depots and bazaars as places of
sale. Money in the form of warrants was to be borrowed on the security
of goods, and a State system of insurance—excepting life policies—was to
be established. Finally, the Bank of France was to be transformed into
a State bank. This was to extend the operation of credit, and to reduce
the rate of discount simply to insurance against risk. Vidal and not
Pecqueur is obviously the author of the report, for it contains some of
the projects that had already appeared in his book _De la Répartition des

None of the projects was even discussed by the National Assembly. The
only positive piece of work accomplished by Louis Blanc’s commission
was done under pressure from the workmen. This was the famous decree of
March 2, abolishing piece-work and reducing the working day to ten hours
in Paris and eleven hours in the provinces. This decree, though it was
never put into operation, marks the first rudiments of French labour
legislation. Louis Blanc was forced to grant it because the working-class
element on the commission refused to take part in its proceedings until
they were satisfied on this point. The commission must also be credited
with several successful attempts at conciliation.

Not only did the commission fail to do anything permanent, but its
degeneracy into a mere political club thoroughly alarmed the public. It
became involved in elections, and even intervened in street riots. It
finally took a part in the demonstration of May 15, which, under pretext
of demanding intervention in favour of Poland, resulted in an invasion of
the National Assembly by the mob. Louis Blanc had already retired. Since
the reunion of the National Assembly the Government had been replaced
by an executive commission, and Blanc, no longer a supporter of the
Government, sent in his resignation on May 13. After that the commission
was at an end, and, like the national workshops, it all resulted in
nothing save a general discredit of socialist opinion.

There still remained the “working men’s associations.” Every socialist
writer of the early nineteenth century was agreed on this principle
of association. Every reformer, with the exception of Proudhon,[660]
who always pursued a path of his own, regarded it as the one method of
emancipation. It was quite natural that it should be put to the test.

In its declaration of February 26 the Provisional Government stated that
besides securing the right to work, the workers must combine together
before they could secure the full benefit of their labour. The moment
Louis Blanc attained to power he sought to guide the energies of the
commission in this direction. The “Association” was to be of the nature
of a co-operative productive society, supported by the State. Under the
influence of Buchez, an old Saint-Simonian, a Republican Catholic and
the founder of the newspaper called _L’Atelier_, there had been formed
in 1834 an association of jewellers and goldsmiths.[661] But it was a
solitary exception.

Louis Blanc was more fortunate. He successively founded associations
of tailors, of saddlers, of spinners and lace-makers, and he secured
Government orders for tunics, saddles, and epaulettes for them.
Other associations followed, and by July 5 the National Assembly was
sufficiently interested in these experiments to vote the sum of three
millions to their credit. A good portion of this sum passed into the
hands of mixed associations of masters and men formed with the sole
purpose of benefiting by the Government’s liberality. The workmen’s
associations pure and simple, however, received more than a million, and
there was not a sou of it left by 1849.

The first co-operative movement inspired by the ideas of Louis Blanc
was of short duration. The National Assembly took good care to place
the new societies under Ministerial control by appointing a _Conseil
d’Encouragement_, nominated by the Ministry to fix the conditions under
which loans should be granted. The Conseil hastened to publish model
regulations which left the associations little scope for internal
organisation. So stringent were the rules that several of them were
immediately jeopardised, and every society which failed to conform to one
of the three models outlined in Article 19 of the Commercial Code was
obliged to dissolve. This meant every society which was not nominally
a collective society, a joint stock or a limited liability company. By
1855, according to the testimony of Reybaud, there remained only nine out
of those subsidised in 1848. Consumers’ co-operative societies, that is,
the societies which aimed at securing cheap commodities, established at
Paris, Lille, Nantes, and Grenoble, were also dissolved.

And so all these experiments—the only ones that had not already brought
reformers into discredit—were destined to fail in their turn. Their
extinction was partly due to political causes, partly to their founders,
who had not yet been trained in the difficult task of building up such

The social experiments of 1848 one after another foundered, bringing
a distrust of theories in their train. There still remained one other
experiment connected with Proudhon’s name—that of free credit. But it
also was destined to fail like the rest.


The Revolution of 1848 did not take Proudhon quite unawares, although he
considered the outbreak was rather sudden. He was soon convinced that the
real problem to be determined was economic rather than political, but he
also realised that the education of the masses was too backward to permit
of a peaceful solution. Proudhon, in this matter at one with his French
_confrères_, had hoped for such a solution.[662] He thought the February
Revolution was a child prematurely born.[663] In a striking article in
the columns of _Le Peuple_ he gave wistful expression to his fears as he
foresaw the Revolution impending. Its solution had been delivered to none
and its interpretation baffled the ingenuity of all.

“I have wept over the poor workman, whose daily bread is already
sufficiently uncertain and who has now suffered misery for many years. I
have undertaken his defence, but I find that I am powerless to succour
him. I have mourned over the _bourgeois_, whose ruin I have witnessed
and who has been driven to bankruptcy and goaded to opposition of
the proletariat. My personal inclination is to sympathise with the
_bourgeois_, but a natural antagonism to his ideas and the play of
circumstance have made me his opponent. I have gone in mourning and paid
penance for the spirit of the old Republic long before there were any
signs of its offspring. This Revolution which was to restore the public
order merely marks the beginning of a new departure in social revolution
which no one understands.”[664]

But the Revolution having once begun, Proudhon did not feel himself
justified in being behindhand. He had been a most severe critic of the
existing _régime_, and he felt that he was bound to attempt a solution
of the practical problems which suddenly came to the front. He became a
journalist and threw himself whole-heartedly into the struggle. Hitherto
he had been content with vague suggestions as to where the evil lay. But
now he was anxious to make reform practicable and to fill in the details
of the scheme; and so he invented the Exchange Bank.

Proudhon’s exposition of the scheme is contained in a number of
pamphlets, in newspapers, and in his books.[665] The explanations do
not always tally, and he is not always happy in stating exactly what he
thinks. This explains why he has been so often misunderstood. We shall
try to give a _résumé_ of his ideas before proceeding to criticise them
and to compare them with analogous projects formulated both before and
after his time. This will help us to understand where the originality of
the scheme lay.

The fundamental principle on which the whole scheme rests is somewhat as
follows: Of all the forms of capital which allow of a right of escheat to
the product of the worker, whether in the form of rent, of interest, or
of discount, the most important is money, for it is only in the form of
money that these dues are actually paid.[666] If we could suppress the
right of escheat in the case of this universal form of capital—in other
words, if interest were abolished—the right of escheat in every other
case would soon disappear.

Let us suppose that by means of some organisation or other money required
for the purchase of land, machinery, and buildings for industrial
purposes could be procured without interest. Were this the case the
required capital would then be obtained in that way instead of by payment
of interest or rent as is the case to-day. The suppression of money
interest would enable the worker to borrow capital gratuitously, and
would give him immediate control over all useful capital instead of
renting it. All attempts to hold up capital for the sake of receiving
interest without labour would thus be frustrated. The right of property
would be reduced to mere possession. Exchange would be reciprocal, and
the worker would secure all the produce of his labour without having to
share it with others. In short, economic justice would be secured.

This is all very well, but how can the necessary money be obtained
without paying interest? Everything depends upon that.

Proudhon invites us to consider what money really is. It is a mere medium
of exchange which is designed to facilitate the circulation of goods.
Proudhon, who had hitherto regarded money as capital _par excellence_,
now treats it as a mere instrument of exchange. “Money by itself is of
no use to me. I merely take it in order to part with it. I can neither
consume it nor cultivate it.”[667] It is a mere medium of exchange, and
the interest paid merely covers this cost of circulation.[668] But paper
money will fulfil this function quite as well and much more cheaply.
Banks advance money in exchange for commodities or supply bills which
are immediately transferable into cash. In exchange for this service the
banker receives a discount which goes to remunerate the shareholders who
have supplied the capital. Why not establish a bank without any capital
which, like the Bank of France, will discount goods with bills—either
circulation or exchange notes? The bills would be inconvertible, and
consequently would cost scarcely anything, and there would be no capital
to remunerate.

The service given would be equal to that given by the banks, but would
cost a great deal less. All that would be required to ensure the
circulation of the bills would be an understanding on the part of the
_clientèle_ of the new bank that they would accept them as payment for
goods. The bearer would thus be certain that they were always immediately
exchangeable, just as if they were cash. The clients would lose nothing
by accepting them, for the statutes would decree that the bank should
never trade in anything except goods actually delivered or under promise
of delivery. The notes in circulation would never exceed the demands
of commerce. They would always represent goods already produced and
actually sold, but not yet paid for.[669] Following the example of other
banks, the bank would advance to the seller of the goods a sum of money
which it would subsequently recover from the buyer. The merchants and
manufacturers would obtain not only their circulating capital without
payment of interest, but also the fixed capital necessary for the
founding of new industries. These advances obtained without interest
would enable them to buy and not merely to rent the instruments of
production which they needed.[670]

The consequences of a reform of this kind cannot be easily enumerated.
Not only would capital be freely placed at the disposal of everyone, but
every class distinction would disappear[671] as soon as the worker ceased
selling his products at cost price[672] and government itself would
become useless. The aim of all government is to check the oppression
of the weak by the strong.[673] But the moment fair exchange becomes
possible, free contract is sufficient to secure this; there is no longer
anyone who is oppressed. All are equally favoured, for the cause of
contention has been removed. “Once capital and labour are identified,
society will subsist of its own accord, and there will no longer be any
need for government.” Government has “its origin and its whole being
immersed in the economic system.” Proudhon’s system means anarchy—the
absence of government.[674]

Such is Proudhon’s plan, and such its consequences. To understand its
full significance we must inquire whether (1) the substitution of
exchange notes for bank-notes payable at sight is practicable, and, (2)
supposing it to be practicable, if it is likely to have the effects
anticipated by its author.

Proudhon states that his system merely involves the universal adoption of
exchange notes.[675] The Exchange Bank would merely append the manager’s
signature against the particular commodity discounted. But the issue of
bank-notes at the present time involves nothing more than this. Instead
of the bill of exchange which it now buys, and which enjoys only a
limited circulation because the signatories have only a very limited
credit, it is proposed that the Bank of France should substitute a note
bearing its own signature, which is universally known and testifies to
an illimitable amount of credit. In what respects, then, does Proudhon’s
circulating medium differ from a bank-note? It differs simply in the
fact that the signature of the Bank of France involves a promise of
reimbursement in metallic money, a commodity universally accepted and
demanded, while Proudhon’s Exchange Bank enters into no such definite
agreement, but merely undertakes to accept it in lieu of payment.

Theoretically, perhaps, the difference may appear insignificant, since
the signatures are the only guarantee of the solvency of the notes of
the Bank of France and the Exchange Bank alike. But in practice it is
enormous. The certainty that the note can be exchanged for money gives
it a wide currency and makes it acceptable to many people who rely
implicitly upon their confidence in the bank. They need give no thought
to the question of its solvency. A mere circulating medium, on the other
hand, in addition to transferring a claim to certain goods belonging
to clients of the bank, involves a certain amount of confidence in the
solvency of those clients—a confidence not always easily justified. A
note of this kind will only circulate among the bank’s _clientèle_. It
will never reach the general public as the bank-note actually does. The
clients themselves will keep their engagements just so long as the bank
continues to discount goods that have actually been delivered and never
refuses payment when it falls due. Failing this, the exchange notes,
instead of regularly returning to the bank, will remain in circulation.
A slight crisis or a little tension, and many of the clients will become
insolvent. The total nominal value of the exchange notes will quickly
surpass the actual value of the goods which they represent. There will be
a rapid depreciation, and clients even will refuse to take them.

It is just possible to conceive of the circulation of such exchange
notes, but the area of circulation will be a very limited one, and it
will be utterly impossible if all the clients are not perfectly solvent.

Let us, however, suppose that the practical difficulties have been
overcome, and that the exchange notes are already in circulation.
Interest will not disappear even then, and herein lies the essential
weakness of the system.

Why does the Bank of France charge a discount? Is it, as Proudhon
suggests, because it supplies cash in return for a bill of exchange,
so that “the seigneurial right of discount”[676] would disappear with
the adoption of a non-metallic currency? The bank charges discount
simply because it gives a certain quantity of merchandise immediately
exchangeable in return for a bill of exchange falling due some months
hence. It gives a tangible commodity in exchange for a promise—a present
good for a future. What the bank takes is the difference between the
present value of the bill of exchange and its value when it falls due. It
is not the mere whim of the banker or the employment of a particular kind
of money that gives rise to discount. It belongs to the very nature of
things. Proudhon notwithstanding, a sale for cash and a sale with future
payment must remain two different operations,[677] at least as long as
the actual possession of a good is judged to be more advantageous than
its future possession.

This difference, even in the case of the Exchange Bank, would very
soon reappear. The exchange notes would represent goods which were to
be sold at a certain date. Although the Bank may refuse to discount,
this will not lessen the advantage enjoyed by those merchants who are
paid in cash. In order to secure this advantage they will enter into
agreement with those buyers who pay cash either in the form of goods or
of precious metals (which are, after all, commodities), granting a slight
rebate on the paper price. There would thus be two sets of prices, the
paper prices of goods sold for future payment and the money price of
goods sold for cash. The first would be higher than the second, and the
difference—refused by the banks—would be pocketed by the sellers. Money
interest would then reappear under a new form.

To this Proudhon would reply that the clients of the bank, under the
terms of their agreement, are debarred from taking any such premiums. Of
course, if they remained faithful to their promises interest or discount
would be suppressed; but this would result, not from the organisation
of the Exchange Bank, but because of mutual agreement. This would be a
purely moral reform requiring no banking contrivance to aid it, but one
in which progress must inevitably be very slow.

The Bank of Exchange failing to suppress discount, or to check the right
of escheat in general, Proudhon’s other conclusions fall to the ground.

His theoretical error consists in his treating money at one moment as
capital _par excellence_, at another as a mere medium of exchange having
no value. He forgets that money is desired not merely for purposes of
exchange, but also as a store of value, as the proper instrument for
hoarding and saving; and although the exchange notes may replace it in
one respect, they fail in another. We may increase the circulating media
at pleasure, but we cannot multiply our capital. Money may be replaced
by goods, but this will not add a single franc to the capital which
already exists in society, of which money itself is a part. Nor will it
lessen the superior value of present as compared with future goods—a
superiority which gives rise to the phenomenon of interest. The only
result of multiplying the exchange notes without increasing the amount
of social capital would be to raise prices as a whole, the price of
land, houses, and machinery as well as the price of consumption goods.
Capital would be lent as before, and being less plentiful the high rate
of interest or rent would tend to maintain the high level of prices,
and these would in turn be still further increased—a strange outcome
of a reform intended to lower them! Proudhon, having exaggerated the
evil effects of gold, now accepts Say’s formula too literally. J. B.
Say allowed himself to be led into error by his own formula that “Goods
exchange for goods,” and it is interesting to note that the Exchange Bank
is the logical, though somewhat paradoxical, outcome of the reaction
against the Mercantilist ideas concerning money which can be traced to
Adam Smith and the Physiocrats.

This does not imply that Proudhon’s idea is devoid of truth. The false
ideal of free credit contains the germ of a true ideal, namely, mutual
credit. The Bank of France is a society of capitalists whose credit
is established by the public who accept their notes. They really deal
in public credit. Proudhon saw clearly enough that their notes are
ultimately guaranteed by the public. The public are the true signatories
of these commercial goods. Were the public insolvent the bank would
never recover its advances, which really constitute the security for the
bills. The shareholders’ capital is only a supplementary guarantee. The
Comte Mollien, the Financial Minister of Napoleon I, declared that in
theory a bank of issue should be able to operate without any capital. The
public lends money to itself through the intermediary, the bank. Why not
operate without the intermediary? Why not eliminate the _entrepreneur_ of
credit just as the industrial or commercial _entrepreneur_ is eliminated
in the case of the co-operative society? Discount would not disappear
altogether, perhaps, but the rate of discount for borrowers would be
diminished in proportion to the extent to which they stood to gain as
lenders. This is the principle of the mutual credit society, where the
initial capital is almost entirely superseded, its place being taken by
the joint liability of the co-operators. Proudhon’s initial conception
seems to be reducible to this very simple idea.[678]

It seems that Proudhon was merely following the idea of a co-operative
credit bank, just as in other parts of the work he copies other forms
of co-operation without ever showing much sympathy for the principle

In addition to a correct conception of the value of mutual credit,
there runs throughout his whole system a more fundamental idea which
helps to distinguish it from other forms of official socialism which
arose either before or after his time. This is his profound belief in
individual liberty as the indispensable motive of economic activity in
industrial societies. He realised better than any of his predecessors
that economic liberty is a definite acquisition of modern societies, and
that every true reform must be based on liberty. He has estimated the
strength of spontaneous economic forces more clearly than anyone else.
He has demonstrated their pernicious effects, but at the same time he
has recognised, as Adam Smith had done, that this was the most powerful
lever of progress. His passionate love of justice explains his hatred of
private property, and his jealous belief in liberty aroused his hostility
to socialism. Despite his famous formula, _Destruam et ædificabo_, he
destroyed more than he built. His liberalism rested on his profound hold
of economic realities, and the social problem of to-day, as Proudhon
clearly saw, is how to combine justice with liberty.

Proudhon’s project for an Exchange Bank must not be confused with
analogous schemes that have appeared either before or after his day. All
these schemes have a common basis in a reform of exchange as a remedy
for social inequalities. Apart from this one idea the resemblance is
frequently superficial, and the economic bases differ considerably.

(1) Proudhon’s idea has often been contrasted with Robert Owen’s labour
notes, and with the scheme prepared by Mr. Bray in 1839, in a work
entitled _Labour’s Wrongs and Labour’s Remedy_,[680] as well as with the
later system outlined by Rodbertus. Proudhon’s circulating notes have
nothing in common with the labour notes described by these writers. The
circulating notes represent commercial goods produced for the purpose
of private exchange. Prices are freely fixed by buyer and seller, and
they bear no relation to the labour time, as is the case with the labour
notes. The final result, doubtless, was expected to be the same. Proudhon
hoped that in this way the price of goods, now that it was no longer
burdened with interest on capital, would equal cost of production.
This result was to be obtained indirectly. The economic errors in the
two cases are also different. Proudhon’s error lay in his failure to
realise that metallic money is a merchandise as well as an instrument of
circulation. The error of Owen, of Bray, and of Rodbertus consisted of
a failure to see that the price of goods includes something more than
the mere amount of labour which they have cost to produce—an error which
Proudhon at any rate did not commit.

(2) Proudhon’s bank has also been confused with other banks of exchange
which are really quite different. The ideas underlying such schemes
had become prominent before Proudhon’s days, and numerous practical
experiments had been attempted along the lines indicated. These
banks aimed, not at the suppression of interest, but at a gradual
_rapprochement_ between producer and consumer, the goods offered for
sale being bought by the bank, and paid for in exchange notes upon an
agreed basis of calculation. Buyers in their turn would come to the
bank to obtain the necessaries of life, paying for them in exchange
notes. An experiment of this kind was made by a certain Fulcrand Mazel
in 1829.[681] In this case the bank was merely an _entrepôt_ which
facilitated the marketing of the goods produced. Such a system is open
to the objection that the value of the notes issued in payment for goods
would necessarily vary with the fluctuations in the value of these goods
during the interval which would elapse between the time they are taken
in by the bank and their eventual purchase by consumers. Proudhon’s plan
was to discount the goods already bought or actually delivered. The
bank would only advance what was actually promised, but would make no
charge for accommodation. Depreciation could only arise if the buyer were
insolvent. It could never result from a fall in price as a result of a
diminished demand for the product. Proudhon renounced all dealings with
solidarity when he dismissed Mazel’s project.[682]

(3) M. Solvay, a Belgian _entrepreneur_, has recently elaborated a scheme
of “social accounting.” He also proposes the suppression of metallic
money and the introduction of a perfect system of payment. Here, however,
the analogy ends.

What Solvay proposed was the replacement of metallic money, not by
bank-notes, but by a system of cheques and clearing-houses. His plan owes
its inspiration to the modern development of the clearing-house system.
Solvay thought that the system might be so extended as to make the
employment of money entirely unnecessary. To every such clearing-house
the State would hand over a cheque-book, covering a sum varying with
the amount of real or personal property which the house possessed. This
cheque-book was to have two columns, one for receipts, the other for
expenditure. Whenever any commodity was sold, the liquidation of debt
would be effected by the buyer’s stamping the book on the receipt side
and the seller’s stamping it on the expenditure side. As soon as the
total value of these transactions equalled the initial sum which the
cheque-book was supposed to represent the book would be returned to
the State bureau, where each individual account would be made up. “In
this way everybody’s receipts and expenditure will always be known with
absolute clearness.”[683]

The advantage of such a system would in the first place consist in the
economy of metallic money. In the second place it would furnish the State
with information as to the extent of everybody’s fortune. The State would
then be in possession of the information necessary for setting up an
equable scheme of succession duties which would gradually suppress the
hereditary transmission of acquired fortune. Such gradual suppression
would result in the total extinction of the fundamental injustice of
modern society, namely, the inequality of opportunity.[684] It would also
help the application of that other principle of distributive justice,
namely, “to each according as he produces.” The idea is Saint-Simon’s
rather than Proudhon’s.

The scope of the proposed reform is quite clear. Social accounting,
according to Solvay, is a mere element in a more general conception,
that of “productivism,” which in various ways is to result in increasing
productivity to its maximum.[685]

In all this it is impossible to see anything of Proudhon’s ideas.
With the exception of the suggestion of suppressing metallic money
the fundamental conceptions are utterly different. M. Solvay makes no
pretence to ability to suppress interest, and he never imagines that
money is the cause of interest. The cheque and clearing system is a mere
device for facilitating cash payment. It has nothing in common with the
Proudhonian system, whereby circulating notes are supposed to place
credit sales and cash payments on an equal footing.[686]

The most serious objection to Solvay’s system lies in the fact that
the suppression of money as a circulating medium must also involve its
suppression as a measure of value. It seems difficult to imagine that
the universal cheque bank with no monetary support would not result in
a rapid inflation of prices because of the superabundance of paper. But
although the particular process advocated by Solvay is open to criticism
there can be no objection to his desire to diminish the quantity of
metallic money or to further the ideal of equal opportunity for all.

The project was never successfully put into practice. Like the cognate
ideas of “the right to work,” “the organisation of labour,” and “working
men’s associations,” the idea of “free credit” has left behind it a mere
memory of a sudden check.

On January 31, 1849, Proudhon, in the presence of a notary, set
up a society known as the People’s Bank, with a view to showing
the practicability of free credit. The actual organisation differs
considerably from the theoretical outline of the Exchange Bank. The
Exchange Bank was to have no capital: the People’s Bank had a capital of
5,000,000 francs, divided into shares of the value of 5 francs each. The
Exchange Bank was to suppress metallic money: the People’s Bank had to
be content with issuing notes against certain kinds of commercial goods
only. The Exchange Bank was to suppress interest: the People’s Bank fixed
it at 2 per cent., expecting that it could be reduced to a minimum of ¼
per cent.

Despite these important changes the bank would not work. At the end of
three months the subscribed capital was only 18,000 francs, although the
number of subscribers was almost 12,000. Just at that moment—March 25,
1849—Proudhon was brought before the Seine Assize Court to answer for
two articles published on January 16 and 27, 1849, containing an attack
on Louis Bonaparte. He was sentenced to three years’ imprisonment and
fined 3000 francs. On April 11 he announced that the experiment would be
discontinued, and that “events had already proved too strong for it,”
which seemed to suggest that he had lost faith in the scheme.

From that moment free credit falls into the background, and political and
social considerations obtain first place in his later works.


It is extremely difficult to follow the influence of Proudhon’s thought
after 1848.

Karl Marx, who was almost unknown in 1848, became by the publication of
his _Kapital_ in 1867 practically the sole representative of theoretical
socialism. Marx’s _Misère de la Philosophie_,[687] published in 1847,
is a bitter criticism of the _Contradictions économiques_, and shows
how violently he was opposed to Proudhon’s ideas. To the champion
of collectivism the advocate of peasant proprietorship is scarcely
comprehensible; the theorist of class war can hardly be expected to
sympathise with the advocate of class fusion, the revolutionary with
the pacificist.[688] The success of Marx’s ideas after 1867 cast all
previous social systems into the shade. Proudhon, he thought, was a
mere _petit bourgeois_. When the celebrated International Working Men’s
Association was being founded in London in 1864 the Parisian workmen who
took part in it seemed to be entirely under the influence of Proudhon.
At the first International Congress, held at Geneva in 1866, a memorial
was presented which bore clear indications of Proudhon’s influence, and
its recommendations were adopted. At the following Congress, in 1867,
Proudhon’s ideas met with a more determined resistance, and by the time
of the Congress of Brussels (1868), and that of Basle (1869), Marx’s
influence had become predominant.

One might even doubt whether the Proudhonian ideas defended by the
Parisian workmen in 1866 were really those of the Proudhon of 1848.
They seemed much more akin to the thesis of his last work, _La Capacité
politique des Classes ouvrières_, published in 1865. This book was itself
written under the inspiration of a working men’s movement which had
arisen in Paris after 1862 as the result of a manifesto signed by sixty
Parisian workmen. This manifesto had been submitted to Proudhon as the
best known representative of French socialism. The attitude of the French
workmen at the opening of the “International,” then, was the effect of
a revival of Proudhonism as the outcome of the publication of this new
volume rather than a persistence of the ideas of 1848.[689]

The revival was of short duration. Since then, however, the Marxian
ideas have been submitted to very thorough criticism, and certain recent
writers have displayed an entirely new interest in Proudhon’s ideas.
These writers, chief among whom is M. Georges Sorel, combine a great
admiration for Marx with a no less real respect for Proudhon. But even
in this case it is difficult to speak of the movement as a revival of
Proudhon’s ideas. It is rather a new current which owes its inspiration
to syndicalism and combines French anarchy and German collectivism. In
any case, it is so recent that we cannot yet determine its full import.


It is time we returned to the Classical writers. Now that the combat
had grown fierce among its critics, we are anxious to know what the
Classical school itself was doing to repel the onslaughts of the enemy.
Its apparent quiescence must not mislead us into the belief that it was
already extinct. Although the great works of Ricardo, Malthus, and Say
were produced early in the century, it cannot be said that economic
literature even after that period, especially in England, had remained
at a standstill. But no work worthy of comparison with the writings of
the first masters or their eloquent critics had as yet appeared. Now,
however, the science was to captivate the public ear a second time, and
for a short period at least to unite its many votaries.

But the union was no true one. The Classical school itself was about to
break up into two camps, the English and the French. In no sense can they
be regarded as rivals, for they are defenders of the same cause. They are
both champions of the twin principles of Liberalism and Individualism.
But while the first, with John Stuart Mill as its leader, lent a
sympathetic ear to the vigorous criticism now rampant everywhere, which
claimed that the older theories ought to yield place to the new, the
French school, on the other hand, with Bastiat as its chief, struggled
against all innovation, and reaffirmed its faith in the “natural order”
and _laissez-faire_.

This divergence really belongs to the origin of the science. Traces of it
may be discovered if we compare the Physiocrats with Adam Smith, or J. B.
Say with Ricardo; but it was now accentuated, for reasons that we shall
presently indicate.

Our third Book naturally divides itself into two parts, the one devoted
to the French Liberal school, the other to the English.


The previous Book has shown us the unsettled state of economic science.
It has also indicated how the science was turned from its original
course by reverses suffered at the hands of criticism, socialism, and
interventionism, which were now vigorous everywhere. The time had come
for an attempt to bring economic science back into its true path and
to its old allegiance to the “natural order,” a position which it had
renounced since the days of the Physiocrats and Adam Smith. This was the
task more especially undertaken by the French economists.

The attitude of the French school is not difficult to explain, for
the French economists found themselves faced by both socialism and
Protection. We must never forget that France is the classic land of
socialism.[690] The influence exercised in England by Owen and in Germany
by Weitling or Schuster is unworthy of comparison with the exalted _rôle_
played by Saint-Simon, Fourier, or Proudhon in France. The latter writers
wielded a veritable charm, not merely over working men, but also over the
intellectuals, and on that account were all the more dangerous, in the
opinion of economists.

French Protection was never represented by such a prominent champion
as Germany had in List, but it was none the less active. Protection in
England succumbed after a feeble resistance to the repeal movement led
by Cobden, but in France it was powerful enough to resist the campaign
inaugurated by Bastiat. It is true that Napoleon III suppressed it, but
it soon reappeared, as vigorous as ever.

The French school had thus to meet two adversaries, disguised as one;
for Protection was but a counterfeit of socialism, and all the more
hateful because it claimed to increase the happiness of proprietors
and manufacturers—of the wealthy; while socialists did at least aim at
increasing the happiness of the workers—of the poor. Protection was
also more injurious, for being in operation its ravages were already
felt, whereas the other, happily, was still at the Utopian stage. But in
hitting at both adversaries at once the French school discovered that
it possessed this advantage: it was free from the reproach that it was
serving the interests of a particular class, and could confidently reply
that it was fighting for the common good.

A war of a hundred years can scarcely fail to leave a mark upon the
nation which bears the brunt of it, and we think that this affords
some explanation of the apologetic tendencies and of the normative and
finalistic hypotheses for which the French school has so often been

It is necessary that we should try to understand the line of argument
adopted by the French writers in defending the optimistic doctrines which
they so easily mistook for the science itself. They argued somewhat as

“Pessimism is the great source of evil. The sombre prophecies of the
pessimists have destroyed all belief in ‘natural’ laws and in the
spontaneous organisation of society, and men have been driven to seek for
better fortune in artificial organisation. What is especially needed to
refute the attacks of the critics, both socialists and Protectionists, is
to free the science from the compromising attitude adopted by Malthus and
Ricardo, and to show that their so-called ‘laws’ have no real foundation.
We must strive to show that natural laws lead, not to evil, but to good,
although the path thither be sometimes by way of evil; that individual
interests are at bottom one, and only superficially antagonistic; that,
as Bastiat put it, if everyone would only follow his own interest he
would unwittingly find that he was advancing the interests of all.” In a
word, if pessimism is to be refuted it can only be by the establishment
of optimism.

It is true that the French school protests against the adjective
“optimistic,” and refuses to be called “orthodox.” Its protests would
be justified if optimism implied quietism—that selfish contentment of
the well-to-do _bourgeois_ who feels that everything is for the best
in this best of all worlds—or the attenuated humanitarianism of those
who think that they can allay suffering by kind words or good deeds. It
is nothing of the kind. We have already protested against interpreting
_laissez-faire_ as a mere negation of all activity. It ought to be
accepted in the English sense of fair play and of keeping a clear field
for the combatants. The economists both of the past and of the present
have always been indefatigable wranglers and controversialists of the
first order, and they have never hesitated to denounce abuses. But their
optimism is based upon the belief that the prevalence of evil in the
economic structure is due to the imperfect realisation of liberty. The
best remedy for these defects is greater and more perfect liberty;[691]
hence the title “Liberal,” to which the school lays claim. The liberty of
the worker is the best guarantee against the exploitation of his labour
and the reduction of wages. M. Émile Ollivier, the author of the law
which suppressed combination fines, declared that freedom of combination
would put an end to strikes. Free loans would cause the disappearance of
usury. Freedom of trade would put an end to the adulteration of goods and
the reign of trusts. Competition would everywhere secure cheap production
and just distribution.[692]

This optimism, strengthened and intensified, deepened their distrust of
every kind of social reform undertaken with a view to protecting the
weak, whether by the masters themselves or through the intervention of
the State. Liberty, so they thought, would finally remedy the evils which
it seemed to create, while State intervention merely aggravated the evils
it sought to correct.[693]

What seems still more singular is their scant respect for
“associationism” as outlined in our previous chapter. It found just as
little favour as State control. They did not display quite the same
contempt for it as was shown by the Revolutionists. It was no longer
actually condemned, and they put forward a formal plea for the right
of combination, in politics, in religion, industry, commerce, and
labour. But they always interpreted it as a mere right of coalition
or association with a view to protecting or strengthening individual
activity. Association as an instrument of social transformation that
would set up co-operation in place of competition, and which in the name
of solidarity demanded certain sacrifices from the individual for the
sake of the community, was not to the liking of the Liberal Individualist
school. Even the less ambitious and less complete forms, such as the
co-operative and the mutual aid society, seemed to them to be full of
illusions and deceptions, if not actually vicious.[694]

The most striking characteristic of the French school is its unbounded
faith in individual liberty. This distinctive trait has never been
lacking throughout the century and a half that separates us from the
time of the Physiocrats. Its most eminent representatives, while spurning
the title Orthodox or Classical, have repeatedly declared that they wish
for no other name than Liberal.[695]

It is also marked by a certain want of sympathy with the masses in their
sufferings. Science, doubtless, does not make for sympathy. But what
we merely wish to note is the presence of a certain tendency—already
very pronounced in Malthus—to believe that people’s misfortunes result
from their vices or their improvident habits.[696] The Liberal school
was quite prepared to extend an enthusiastic welcome to the teaching
of Darwin. He pointed out that a necessary condition of progress was
the natural selection of the best by the elimination of the incapable,
and that the price paid is not a bit too high. Belief in the virtue of
competition led to the glorification of the struggle for life.

But the Liberal school failed to demonstrate the goodness of all natural
laws; neither did it succeed in arresting the progress of either
socialism or Protection. The end of the nineteenth century found it
submerged beneath the waters of both currents. Yet it never once lost
confidence. Its fidelity to principle, its continuity of doctrine,
its resolute, noble disdain of unpopularity, have won for it a unique
position; and it deserves better than the summary judgment of foreign
economists, who describe it as devoid of all originality, or at best as
only a pale reflection of the doctrine of Adam Smith.

In this chapter we are to study the period when Liberalism and Optimism
were at the height of their fame. It runs from 1830 to 1850. It was
during this epoch that the union of political and economic liberty took
place. Henceforth they are combined in a single cult known as Liberalism.
Economic liberty—that is, the free choice of vocation and the free
exchange of the fruits of one’s toil—no longer figured in the category
of necessary liberties, alongside of liberty of conscience or freedom of
the press. Like the others it was one of the successes already achieved
by democracy or civilisation, and to attempt to suppress it was as vain
as to try to make a river flow backward. It was just a part of the wider
movement towards freedom from all servitude.

The appearance of political economy at the time when the old _régime_
was showing signs of disintegration is not without significance. The
Physiocrats, who were the first Liberal Optimists, were unjustly ignored
and neglected by their own descendants, not because of their economic
errors so much as because of their political doctrines, especially their
acceptance of legal despotism, which seemed to the Liberals of 1830, if
not an actual monstrosity, at least a sufficiently typical survival of
the old _régime_ to discredit the whole Physiocratic system.[697]

Charles Dunoyer’s book, which appeared in 1845,[698] and which bears the
significant title of _De la Liberté du Travail, ou simple Exposé des
Conditions dans lesquelles les Forces humaines s’exercent avec le plus
de Puissance_, exactly marks this era of politico-economic Liberalism.
But although Dunoyer’s book is a eulogy of liberty in all its forms,
especially its competitive aspects, the optimistic note is not so marked
as it is in another much more celebrated work which appeared about the
same date—_Les Harmonies économiques_ of Bastiat (1850). The _Harmonies_
and the other works of Bastiat contain all the essential traits of the
Liberal doctrine. His extreme optimism and his belief in final causes
have been disavowed by a great many of the Liberal economists, but he
remains the best known figure of the Optimistic Liberal group, and
possibly of the whole French school.

Another economist whose name is inseparably linked with the Optimistic
doctrine, and of whom we have already made some mention, is the American
Carey.[699] In many respects Carey ought to be given first place, were it
only because of his priority as a writer, and especially, perhaps, since
he accuses Bastiat of plagiarism. In his treatment of certain aspects of
the subject, such as the question of method, in the logical consistency
of his argument, and in the scope of his discussion of such a problem
as that of rent, he displays a marked superiority. In our exposition
of Bastiat’s doctrine we shall give to Carey’s the attention which it
deserves. Our decision to give Bastiat and not Carey the central position
in this chapter is due in the first place to the consideration that we
are writing primarily for French students, who will be more frequently
called upon to read Bastiat than Carey; and in the second place to
the fact that the works of the American economist appeared at a time
when economic instruction scarcely existed in the United States, and
consequently his writings never exercised the same influence as those of
the French economist, which appeared just when the war of ideas was at
its fiercest. Finally, Carey’s doctrine is lacking in the beautiful unity
of conception of the _Harmonies_, so that alongside of the advocacy of
free competition among individuals is presented an outline of national
Protection. Thus we have been forced to divide our treatment of Carey
into two sections. The heterogeneous, not to say contradictory, character
of his doctrines accounts for his appearing in two different chapters.

Bastiat,[700] both at home and abroad, has always been regarded as
the very incarnation of _bourgeois_ political economy. Proudhon,
Lassalle in his famous pamphlet _Bastiat Schulze-Delitzsch_, Cairnes,
Sidgwick, Marshall, and Böhm-Bawerk all think of him as the advocate
of the existing order. None of them considers him a scientific writer.
They treat his writings as a kind of amplification of Franklin’s _Poor
Richard’s Almanac_, where apologues take the place of demonstration and a
much-vaunted transparency of style is simply due to absence of thought.

Bastiat deserves a juster estimate. The man who wrote that “if capital
merely exists for the advantage of the capitalist I am prepared to become
a socialist,” or who declared that “one important service that still
requires to be done for political economy is to write the history of
spoliation,” was not a mere well-to-do _bourgeois_. It is true that he
carried the “isms” of the French school to absurd lengths. An unkind fate
decreed that his contribution should mark the culminating-point of the
doctrine, to be followed by the inevitable reaction. To the force of that
reaction he had to bow, and his whole work was demolished.

Bastiat’s arguments against socialism are somewhat antiquated, but so
are the peculiar forms of socialist organisation which he had in view
when writing. This is not true of the arguments dealing with Protection.
These have not been entirely useless. Though they failed to check the
policy of Protection, they definitely invalidated some of its arguments.
If modern Protectionists no longer speak of the “inundation of a country”
or of an “invasion of foreign goods,” and if the old and celebrated
argument concerning national labour is less frequently invoked as a kind
of final appeal, we too often forget that all this is due to the small
but admirable pamphlets written by Bastiat. Such were _The Petition
of the Candle-makers_ and _The Complaint of the Left Hand against the
Right_. No one could more scornfully show the laughable inconsistency
of tunnelling the mountains which divide countries, with a view to
facilitating exchange, while at the same time setting up a customs
barrier at each end; or expose the patent contradiction involved in
guaranteeing a minimum revenue to the landed proprietors and capitalists
by the establishment of protective rights, while refusing a minimum wage
to the worker. No one has better emphasised the difficulty of justifying
an import duty as compared with an ordinary tax, for a tax is levied upon
the individual for the benefit of all, while a duty is levied upon all
for the benefit of the few.

He has not been quite so happy in his exposition of individualism. The
problem has been over-simplified: individual and international exchange
have been treated as if they were on all fours. Analogies, more amusing
than solid, are employed to show that the advantages of international
trade are greater if a country has an unfavourable balance against it,
and that international exchange benefits poor countries most.[701]

The thesis of the constructive portion of his work is as follows: “The
general laws of the social world are in harmony with one another, and
in every way tend to the perfection of humanity.” _A priori_, however,
are we not confronted with rank disorder everywhere? To that he replies
in his well-known apologue, “Things are not what they seem,” pointing
out that we cannot always trust what we see, and that what is not seen
is very often true. Apparent antagonisms on closer view often reveal
harmonious elements. But man’s freedom sometimes breaks the harmony
and destroys the liberty of others. Especially is this the case with
spoliation, which Bastiat never attempts to justify, but denounces
whenever he has the chance. But around man and within him are diverse
forces which must lead him the way of the good, deviate he never so
often, and which will finally and automatically re-establish the harmony.
“My belief is that evil, far from being antagonistic to the good, in some
mysterious way promotes it, while the good can never end in evil. In the
final reckoning the good must surely triumph.”[702]

It is quite evident that this doctrine goes far beyond the conception
of “natural laws,” and implies a belief in a Providential order. Bastiat
never shrinks from this position. He never misses an opportunity
of declaring his faith in language much clearer than that of the
Physiocrats. “God,” he writes, “has placed within each individual an
irresistible impulse towards the good, and a never-failing light which
enables him to discern it.”[703]

Auguste Comte has delivered an eloquent protest against the vain and
irrational disposition to think that only the spontaneous can be regarded
as conforming to the “order” of nature. Were this the case any practical
difficulty “that presented itself in the course of industrial development
could only be met with a kind of solemn resignation under the express
sanction of political economy.”[704]

Even as an exposition of the Providential order Bastiat’s faith is not
easy to justify. It by no means agrees with the Christian teaching on
the point. For we cannot forget that although Scripture teaches us that
both man and nature were declared good when first created by God, it also
teaches that both have been entirely perverted by man’s iniquity, and
that never will they become good of their own accord, since there is no
natural means of salvation.[705] Christian people are exhorted to kill
the natural man within them and to foster the growth of the new man.
Christianity promises a new heaven and a new earth—an infinitely more
revolutionary doctrine than that of the economic Optimists. Bastiat’s God
is, after all, just “_Le Dieu des bonnes gens_” whose praises are sung by

What are the facts of this pre-established harmony? What are its laws,
and where are they operative? They are in evidence everywhere, Bastiat
thinks—in value and exchange, in the institution of private property, in
competition, production and consumption, etc. We shall content ourselves
with a consideration of the circumstances under which Bastiat thought it
was most clearly seen.


First of all we have the law of value, “which is to political economy
what numbers are to arithmetic.”[706]

Ricardo taught that value was determined by the quantity of labour
necessary for production. This theory is entirely at one with
Bastiat’s, and he would have felt no compunction about inserting it
in the _Harmonies_, for a theory of value which showed that every
form of property is really based upon labour seemed to accord with
the requirements of justice. But although Bastiat’s method was almost
exclusively deductive, and as little realistic as possible, he could
never content himself with an explanation which was all too clearly in
conflict with the facts. Such a theory could never explain why the value
of a pearl accidentally discovered should equal the value of another
laboriously brought from the depths of the sea. Accordingly he sought
another explanation, juster, and more in accordance with facts, than

Carey effected just the needed correction of the Ricardian theory,
by propounding another ingenious explanation, namely, that value
is determined, not by the quantity of labour actually employed in
production, but by the quantity of labour saved. This would account for
those facts that refused to fit in with the Ricardian theory, and the
chance pearl was no longer a stumbling-block. Bastiat was evidently
attracted by this theory.[707] But his satisfaction was by no means
complete, for it is not quite clear how a value which is proportional
to the amount of labour saved—that is, to labour which never has been
and never will be undertaken—can be considered as an economic harmony.
But a ray of light illumines the darkness. The labour saved is a kind
of service rendered to the person who acquires the commodity. The
long-sought explanation is found at last! “Value is the ratio between
two exchanged services.”[708] And, seeing that individual property and
private fortunes represent sums of values, we might say that a person’s
property is merely the sum of the services rendered by him. Herein lies
the harmony. Nothing better could be wished for, and Bastiat exults in
his discovery. Everything becomes quite clear, every contradiction is
removed, every difficulty solved, if we take for our starting-point the
crux of economic theory—namely, why diamonds are considered more valuable
than water. The diamond is more valuable simply because the person who
gives it to me is rendering me a greater service than he who merely gives
me a glass of water. This was not the case on the Medusan raft, but even
in that instance, seeing that the service rendered was incalculable, the
value must have been immense.

Every solution propounded by economists—utility, scarcity, difficulty
of acquisition, cost of production, labour—is included within this
conception of service, and “economists of all shades of opinion ought to
feel satisfied.” “My decision is favourable to every one of them, for
they have all seen some aspect of the truth; error being on the other
side of the shield.”[709] Moreover, the word “service” has the advantage
of including, besides value properly so called (that is, the price of
goods), the price of all productive services such as appear under the
heads of loans, rent, discount, and interest—in short, “everything that
can be said to render a service.”[710]

One cannot help smiling at Bastiat’s naïve exultation, for he never
realises that his formula is so comprehensive and includes everything
within itself simply because it is an empty form—a mere _passe-partout_.
It really amounts to saying that value depends upon desirability, and
we are not so much farther on after all.[711] On closer view, it even
lacks that apologetic tone which evidently attracted Bastiat to it. It
legitimises neither value nor property, and even if it did it would
simply be by the help of a hypocritical formula, for the word “service”
gives rise to the belief that all value implies a benefit for those who
receive it and a virtue in those who give it. But very frequently it is
nothing of the kind. The owner of a house or of a piece of land in the
city of London which is let or sold at a fabulous price, the capitalist
who lends money to a needy borrower at a usurious rate, or the politician
even who in return for an enormous bribe secures some financial
concession, cannot be said to be rendering any real service, for all
these have either been solicited or demanded, or perhaps even extorted
under pressure. Such abnormal rates of discount, interest, or rent can
find no place in Bastiat’s formula. From a moral and ethical point of
view it is equally futile. It is a mere mask which affords protection as
well to the worst exploiter as to the honest tradesman: all are thrown
promiscuously into the “universal harmony.”[712]

Despite the justness of these criticisms, and although Bastiat’s
attempt to explain value by employing the term “service” must be
regarded as futile, the word has not remained a mere ingenious epithet.
On the contrary, it has won for itself a permanent place in economic
terminology. We shall again meet with it in the vocabulary of that
school which prides itself upon the exactness of its method, namely, the
Hedonistic and Mathematical school. These later writers constantly make
use of the term “productive services,” and would find it hard to discover
another word having a sufficiently wide connotation.[713] It is true that
the word “service” with all the noble associations of unselfish interest
and professional honour which cling to it (compare the phrase “his
Majesty’s service”), may lead us astray as to the economic arrangements
of society, and that a recollection of the less distinguished uses of the
term may cause us to doubt the wisdom of Bastiat’s choice. Still, it is
the best that we can imagine when speaking of the society of the future.
It is employed in the same sense as Auguste Comte used the term “social
function,” or as the equivalent of Marshall’s “economic chivalry.”[714]
In attempting to present to ourselves the society of the future, or at
least the society of our dreams, we must hope that the present incentive
to economic activity, which is merely the desire for profit, will
gradually give place to the idea of social service. When that day dawns a
statue ought to be erected to the memory of Bastiat.


Ricardo’s law of rent was the optimist’s nightmare. Should it by any
chance prove true, then the institution of property must be abandoned
altogether, and victory must lie with the socialists, whom the economists
regarded as somewhat of a social nuisance. It was necessary, then, at all
costs, to show that this law had in reality no foundation, and with this
end in view Bastiat attempts to defend the paradox that nature or land
gratuitously gives its products to all men. But must we really say that
corn and coal, the products of soil and mine, literally do not pay for
the trouble of getting them? In other words, have they no value? Bastiat
replies that they doubtless possess some value, but that the price paid
for them does not cover the natural utility of those products. It merely
covers cost of production, and is only just sufficient to reimburse the
proprietor for the expense incurred.

Every product contains two layers of superimposed utilities. The one is
begot of onerous toil and must be paid for. It constitutes what we call
value. The other, which is thrown into the bargain, is a gift of nature,
and as such is never paid for. This lower stratum, though it is of
considerable importance, is ignored simply because it is not revealed in
price. It is invisible because it is free.

But whenever a commodity is free, like air, light, or running water, it
is the common possession of everybody. The same idea may be expressed
by saying that below the apparent layer of value which constitutes
individual property there lies an invisible layer of common property
which benefits everybody alike. “What Providence decreed should be common
has remained so throughout the whole history of human transactions.”

“This,” says Bastiat, “is the essential law of social harmony.” The
proprietor, who in the Ricardian theory figures as a kind of dragon,
jealously guarding the treasures of national wealth, which can only be
enjoyed on payment of a fine, or who in Proudhon’s passionate invectives
is denounced as an interceptor of the gifts of God, appears to Bastiat
as a mere intermediary between nature and consumer. He is like a good
servant who draws water from a common fount, and receives payment, not
for the water drawn, but solely for the trouble of drawing it.[715]

But there is a still greater degree of harmony. Of the two elements—the
onerous and the gratuitous—which enter into the composition of all forms
of wealth, the former gradually tends to lose its importance relatively
to the latter. It is a general law of industry that as invention
progresses the human effort necessary to obtain the same satisfaction
diminishes. New labour is almost always more productive than old, and
this is true with regard to all products, whether corn or coal, steel
or cotton. It is true not only of the products of the land, but also of
the land itself. The cost of clearing new land is diminishing, just as
the expense of making new machinery is decreasing. The natural utility,
on the contrary, is never diminished. Corn has to-day exactly the same
utility as it had on the morrow of the Deluge.

Property being nothing more than a sum of values, every diminution of
value must be interpreted as a constant restriction of the rights of

Hence this result, “which reveals a most important fact for the science,
a fact, if I mistake not, as yet unperceived,”[716] namely, that in every
progressive society common or gratuitous utility never stops growing,
while the more arduous portion, which is usually appropriated, gradually
contracts. Present society is already communistic, and is becoming more
so every day.

The idea is indeed an attractive one. Individual property is like a
number of islands surrounded by a vast communal sea which is continually
rising, fretting their coasts and reducing their areas. When labour
has become all-powerful and when science has dispensed with effort the
last islet of property will sink beneath the wave of free utility. And
so Bastiat triumphantly exclaims: “You communists dream of a future
communism. Here you have the actual thing. All utilities are freely given
by the present social order provided we facilitate exchange.”[717]

Bastiat, usually so logical, seems inclined to be sophistical here.
If we seek beneath this brilliant demonstration we shall merely
find the statement that rent is non-existent because the value of
commodities—including all natural products—can never exceed cost of
production. This cost of production is being continually lowered, and so
the value of goods must be falling.

But the statement requires proof. There is nothing to show how the price
of natural goods under the influence of competition would tend to fall to
the level of cost of production—still less to the minimum level. There is
no refutation either of the differential or monopolistic theory of rent.
There is doubtless this much truth in it: nature does not create value,
nor does it demand payment for it. No one would to-day say that a single
cent of the price of corn or coal was meant as payment for the alimentary
properties of the one or the calorific capacity of the other. But
although it is true that nature asks nothing in return, it is not correct
to say that the landowner demands nothing except payment for trouble and
expenditure incurred. And this extra gain he never relinquishes unless
under pressure of competition. But this very seldom happens, and economic
theorists have to be content merely with showing how the sale price
usually exceeds the cost of production, and how this excess is variously
known as rent, profits, or surplus value.

Bastiat was fully conscious of the weakness of his argument. He saw quite
clearly that possession of a suitable piece of land in the Champs-Élysées
would earn something more than mere payment for labour and outgoings. It
is then that he takes refuge in his theory of value, and attempts to show
that the proprietor will never draw more than the price of the service
rendered. This may be true. But the mere fact of possessing a natural
source of wealth permits of the raising of the price of these goods a
great deal, and then what becomes of community of interests, and of the
theory that the goods are handed on by the proprietor free of any charge?

How superior is Carey’s theory, both in its scientific value and in its
social import! Carey follows Ricardo step by step, whereas it seems
that Bastiat had only a very imperfect acquaintance with the Ricardian
theory.[718] In reply to the statement that the value of corn rises
progressively because the more fertile lands are occupied first, and the
less fertile have to be utilised afterwards, Carey points out that, on
the contrary, cultivation begins with the poorer land first, and that
the richest is the last to be cultivated. The consequence is just the
reverse of what Ricardo predicted. As production increases, the price of
corn will be lowered. The process of reasoning by which this reversal
of the order of cultivation is demonstrated is very interesting. The
domestication of land, if the phrase be permissible, like the utilisation
of all natural forces, takes place according to the inverted order of
their strength. Animals are domesticated before man harnesses wind or
water, and water and wind are employed before there is any thought of
vapour or electricity. The same is true of land. Fertile land in its
natural state is either overrun with vegetation, which must be grubbed
up, or is covered with water, which must be drained off. “Rich land is
the terror of the emigrant.”[719] Its virgin forests must be felled, its
wild animals destroyed, its marshes drained, and its pestilential miasmas
rendered innocuous if it is not to become a mere graveyard. And not until
several generations have given of their toil will it be of much use.
Rather than undertake the task the earliest emigrant seeks the lighter
soils of the hill-side, which are better adapted to his feeble means, as
well as safer and more easily defended.

That this theory is well founded may be very clearly seen if we watch
the progress of cultivation or the colonisation of new lands, or glance
at the general history of civilisation. Men group themselves in villages
on the higher levels or build their castles on the slopes of the hills,
and only descend slowly and carefully into the lower plains. How many are
the localities in France where the new town may be seen overspreading
the plain close to the old city which still crests the hill! The various
national gods—Hercules, for example, who stifled the hydra of Lerna in
his arms and shot the birds of Stymphalus’s pool with his arrows—are in
all probability just the men who first dared break up the alluvial soils.

This theory, again, is open to the same objection as Ricardo’s. It
applies to some cases only, and under certain conditions. Ricardo’s
theory explained the facts relative to England, where population presses
heavily upon the limited area of a small island already well occupied.
Carey’s theory is equally well adapted to an immense continent, with
a thinly scattered population, occupying only a few cultivated islets
amid the vast ocean of virgin forest and prairie. The two theories are
not contradictory. They apply to two different sets of conditions, or
to successive phases of economic evolution. And seeing that Ricardo’s
applies to the more advanced stage of civilisation, it certainly ought to
have the last word. If Carey were writing now he would probably express
himself somewhat differently, for it is no longer true even of the United
States that the more fertile lands are still awaiting cultivation. Only
the poorer and the more arid plains remain uncultivated, and here dry
farming has to be resorted to. So that even in the “Far West” Ricardo’s
theory is closer to the facts than Carey’s. Rents are rising everywhere,
and not a few American millionaires owe their fortunes to this fact.[720]

It is just possible that Bastiat had some knowledge of Carey’s theory,
for the theory is outlined in _The Past, the Present, and the Future_,
published by Carey a little before Bastiat’s death, as well as in his
_Social Science_, which appeared ten years later. At any rate, let us
render thanks to both of them for the suggestive thought that as human
power over nature increases, effort, difficulty, and value, which is the
outcome of difficulty, will disappear, and that, consequently, the sum
total of real wealth at the disposal of everyone will increase, but that
the poor will be those who will benefit most.[721]


The law of rent was not the only discordant note. That other law which
stated that profits vary inversely with wages was also dissonant and
needed refuting. Bastiat emphasises the contrast between it and his new
law of harmony, according to which the interests of capital and labour
are one, their respective shares increase together, and the proportion
given to labour grows more rapidly even than capital’s.[722]

That is the conclusion which Bastiat wishes to illustrate by means of the
following table:

                Total Product   Capital’s Share      Labour’s Share
  First period      1000         500 (50 per cent.)    500 (50 per cent.)
  Second period     2000         800 (40    ”     )   1200 (60    ”     )
  Third period      3000        1050 (35    ”     )   1950 (65    ”     )
  Fourth period     4000        1200 (30    ”     )   2800 (70    ”     )

This law he speaks of as “the great, admirable, comforting, necessary,
and inflexible law of capital.”

The proof is very simple—too simple, perhaps. It rests entirely upon the
law concerning the lowering of the rate of interest, noted by Turgot
and other economists long before Bastiat’s time. If capital, instead
of asking 5 per cent., only demands 3 per cent., then its share is
diminished, and any further diminution of its share must mean an increase
of the proportion available for labour.

But a _relative_ diminution of this kind will not prevent capital
drawing an _absolutely_ greater share, provided the total produce goes
on increasing, as is the case in every progressive community. Its total
share, though on the increase, may be decreasing relatively to the share
which goes to labour. For example, the total product may be tripled,
capital’s share having doubled in the meantime, while labour’s portion
is quadrupled. Unfortunately this is a purely sophistical argument. The
figures given in the table are simply invented to meet the needs of the
case. Even the universality of the law concerning the lowering of the
rate of interest is open to dispute. Economic history seems to point to
a series of periodic oscillations of the rate, and quite recently it has
risen very considerably.

The so-called “law” becomes more than doubtful if, following Bastiat,
we include under the term interest, not merely net interest, but also
profits and dividends and all kinds of returns from capital.

But, even admitting that such a law is thoroughly established, does
that prove that capital’s share is decreasing? A lowering of the rate
of interest cannot affect the capital already invested in factories,
mines, railways, State funds, etc. The latter will not draw a penny less,
and a fall in the rate of interest will increase the value of all old
capital. Every capitalist knows this and speculates on the chance of its

Only in the case of new capital, then, will a lower rate of interest
reduce the capitalist’s share. If by any chance this new capital should
prove less productive than the old it may then happen that the reduced
rate of interest will mean an equal or even a greater rise in the
remuneration of labour. This is quite a probable contingency, and the
proof advanced by economists who believe in a gradual lowering of the
rate of interest is just this very fact that new capital is generally
less productive than old.

In short, the problem presented by the rate of interest, implying as it
does a certain connection between the value of the capital and the value
of the revenue, is entirely different from the question as to what share
of the produce will eventually fall to the lot of the capitalist and what
to the workers.[724]

Not only is the demonstration which Bastiat thought he had given false,
but the thesis itself is very doubtful when tested by the facts.
Statistics seem to show quite clearly—Bastiat’s law notwithstanding, and
not depreciating the influence of other powerful factors, such as trade
unions, strikes, and State intervention—that during the course of the
nineteenth century the share of the social revenue which falls to the lot
of capital has increased more rapidly than labour’s.[725]


Bastiat laid considerable stress upon this principle, but it is not easy
to realise its harmonic significance.

The subordination of producer to consumer is nothing less than the
subordination of private to general interest. Producers always consult
their own interests, and are continually in search of profits. Still,
everything invented with a view to increasing profits results in lowering
prices, so that the consumer is the person who finally benefits by
it.[726] And so economic laws, the law of competition and of value,
constrain the producer who really wishes to be selfish to be altruistic,
even despite himself. The laws outwit him, but his undoing benefits
everyone else. While working for a maximum profit he is really toiling to
satisfy the needs of others in the most economical fashion, and therein
lies the harmony.

In all difficult economic problems the criterion should be this: What
solution will prove most advantageous to consumers? Never ought we ask
what will be most profitable for producers, although, unfortunately,
this is the more usual question. In matters of international trade, when
the interest of the producer is uppermost, Protection is established. If
we only consulted the interest of consumers, Free Trade would become an
immediate necessity. Or take the case of public or private expenditure.
The producer can bring himself to excuse or even to approve of breaking
windows or wasting powder,[727] but the consumer unceremoniously condemns
all such destruction of wealth as useless consumption.

But Bastiat is not content with giving the consumer mere economic
pre-eminence. He is equally anxious to demonstrate his moral superiority.
“If humanity is to be perfected, it must be by the conversion of
consumers, and not by the moralising of producers,”[728] and so, he holds
consumers responsible for the production of unnecessary or worthless
commodities, such as alcohol.[729] Bastiat’s contribution to this subject
is quite first-class, and may possibly be his best claim to a place
among the great economists. He was not far wrong when on his death-bed
he delivered to his disciples as his last instructions—his _novissima
verba_, “Political economy should be studied from the consumer’s
standpoint.” This distinguishes him from his famous antagonist, Proudhon,
who always had the producer’s interest at heart.

The only things with which we can reproach Bastiat are a too persistent
faith in natural harmonies and a belief in the efficacy of ordinary
economic laws to bring about the supremacy of the consumer. In fact, the
consumer’s reign has not yet come, and the economic mechanism is becoming
more and more the tool of the profit-maker. The consumer has had to seek
in organisation a method of defending his own interests and those of the
public, with whose interests his own are often confused. This is why
we have institutions like the co-operative society and the consumers’
league. His moralisation, moreover, is not entirely his own affair.
Before the consumer realises the full measure of his responsibility and
the extent of his duties a great deal of work will be necessary on the
part of buyers’ social leagues, temperance leagues, etc.

Strangely enough, economists of the Liberal Individualist school view
such institutions with a somewhat critical eye.[730]


We must not forget, as most writers on the subject seem to have done,
that Bastiat was the first to give the law of solidarity—so popular
in the economics of to-day—a position of honour within the science
of political economy.[731] One of the unfinished chapters of the
_Harmonies_, entitled “Solidarity,” was meant to expound the thesis that
“society is just a collection of solidarities woven together.”[732]

The name is deceptive, however, and his conception of solidarity is quite
different from the one current to-day, while the conclusions drawn are by
no means similar.

The fundamental doctrine upon which the Solidarists of to-day would base
a new morality is briefly this: Every individual owes all the good with
which he is endowed, and all the evil with which he is encumbered, to
others. So whether he is wealthy or poor, virtuous or vicious, it is his
duty to share with those who are worse off, and he has a right to demand
a share from those who are better off. Only in this way can we justify
legal assistance, insurance, Factory Acts, education, and taxation. The
doctrine is a negation, or at the very least a modification, of the
strict principle of individual responsibility.

But Bastiat views it differently. He has no desire to weaken individual
responsibility, for responsibility must be the indispensable corrective
of liberty. And solidarity, because of the feeling of interdependence
to which it gives rise, is so bewildering that Bastiat anxiously asks
whether solidarity is actually necessary “in order to hasten or to secure
the just retribution of deeds done.” A closer survey reconciles him
to the prospect, for he sees in it a means of extending and deepening
individual responsibility. Seeing that the results of good and bad
deeds react upon everyone, everybody must be interested in furthering
every good deed and in repressing the bad, especially since every deed
reacts upon its author with its original force multiplied a thousand,
and perhaps a million times.[733] The harmony just consists in that.
Bastiat’s solidarity aims, not at the development of fraternity, but at
the strengthening of justice. It does not urge upon society the duty of
permitting no differences among its members, but it does emphasise the
importance of handling the scourge or bestowing the palm with greater
impartiality. And Bastiat, despite his law of solidarity—nay, possibly
_because_ of that very law—definitely rejects all legal assistance, even
in the case of deserted children! National insurance, old age pensions,
profit-sharing, free education, everything that is comprised under the
term “social solidarity” is cast aside.[734]

It is a terribly individualistic conception of solidarity. Comparison
with Carey’s ideas is again interesting. Carey may seem to ignore it
altogether, inasmuch as he never mentions the name. But if the name was
unknown to him he gave a good description of the principle itself when he
referred to it as “the power of association.” And he was also probably
the first to put the double character of solidarity, as we know it
to-day, in a clear light:

(1) As the differences among mankind increase in number and intensity the
more perfect will solidarity become.

(2) Individuality, instead of being weakened by it, is strengthened and

Someone may perhaps point out that in our treatment of the Optimists’
attack upon the great Classical laws no mention has been made of that
terribly discordant theme, Malthus’s law of population, which ascribes
all vice and misery to the operation of a natural instinct. On this
particular point Bastiat’s treatment is lacking in both vigour and
originality. His reply merely amounts to showing that the preventive
obstacles, such as shame and continence, religious feeling and the desire
for equality, all of which limit the number of children, are equally
_natural_, so that nature has placed a remedy alongside of the evil.

A more solid argument, borrowed from Carey, attempts to show how a
growing density of population allows of a growth of production, so
that the production of commodities may develop _pari passu_ with the
growth of population, or may even exceed it. Carey relied upon his own
observations. All over the vast American continent, especially on the
immense plains of the Mississippi, he noticed that the few encampments
of the poor tribes that dwelt there were being rapidly replaced by
large industrial centres. Such an increase of population in immediate
contiguity naturally resulted in a great amassing of wealth.

We have already noted the fact that the growth of wealth in the United
States has outstripped the increase in its population. The simultaneous
development of Germany, both in numbers and wealth, is still more

But Carey’s population theory is open to the same criticism as was urged
against his theory of rent. Up to a certain degree of density it is
undoubtedly true, but there is no ground for believing that it holds good
beyond this.

       *       *       *       *       *

Bastiat’s name is frequently linked with Dunoyer’s, to whom we have
already had occasion to refer.[736] Dunoyer was one of the most militant
of the politico-economic Liberals, and fully shared their belief that
free competition was a sufficient solution for every social problem.[737]
The obvious drawbacks of free competition, he thought, were due to its
imperfect character. No one was more opposed to State Socialism and to
intervention of every kind. He was opposed to labour legislation, to
Protection, to the regulation of the rights of property, and even to the
State management of forests. As we have already remarked, he was against
every kind of combination, because it stood as an obstacle in the path of
free competition.

Logically enough he was in favour of the free disposal of land, and
would not even make any reservations in favour of heirs. He refuses to
recognise the right of entail because the exercise of the testator’s
liberty necessarily involves the curtailment of the liberty of his

Some of the arguments which he employs in support of free exchange are
quite novel. The following is one of the most interesting. Admitting
that it is not to the advantage of a poor country to trade with another
which is wealthier or industrially superior, the same thing must apply
to the poorer districts of a country in their dealings with other
provinces that have suddenly become rich, or with rich provinces recently
acquired by conquest. But “as soon as they are annexed their superiority
presumably disappears.” The argument is amusing, but not very solid.
It is not impossible that free exchange, even within the bounds of the
same country, may have the effect of drawing capital and labour from the
poorer districts towards the richer, from Creuse or Corsica to Paris.
This is just what does happen. It is not, perhaps, a very serious evil,
because what France loses on the one hand she gains on the other; but
if Creuse or Corsica were independent states, anxious to preserve their
individuality, we could understand their taking measures to prevent this
drainage. It is true that it is not easy to see how protective rights
could accomplish this—a point which Dunoyer might well have emphasised.

We cannot speak of Dunoyer without saying a word about his theory of
production. Labour with him is everything. Nature and raw material are
nothing. He stands at the opposite pole to the Physiocrats,[739] and
supplied a handle to those socialists who before Marx’s day had thought
that labour was the only source of wealth, and that consequently all
wealth should belong to the worker. But he pays no very great attention
to this idea. His chief concern is with production, and not with

From this view of production he draws several interesting conclusions.

In the first place, it matters little to him whether labour is applied
to material objects or not. That makes no difference, so far as its
character or productivity is concerned, for in both cases what is
produced is an immaterial thing called utility. What the baker produces
is not bread, but the wherewithal to satisfy a certain desire. This
is exactly what the _prima donna_ produces. The so-called liberal
professions are placed in the same category as manual work, and in
this respect again Dunoyer takes up a position opposed to that of the

Contrary to what might have been expected, this large extension of the
concept production fails to include commerce. Dunoyer applies the title
productive to the singer, but refuses it to the merchant, and by this
strange reversal he arrives once again at the Physiocratic position.
Exchange is not productive[741] because buying and selling does not
involve any work, and where there is no work there is no production.
Exchange creates utilities, and it is not easy to understand what more
Dunoyer expects from it, seeing he admits that labour can do nothing
more. Exchange, he thought, was a purely legal transaction, and he was
loath to admit that any act of a “corporate will” without labour or
physical effort could create wealth, just as the Physiocrats found it
impossible to think of wealth other than as a product of the soil.


While the French economists, alarmed at the consequences involved in the
theories of Malthus and Ricardo, strove to transmute the Brazen laws into
Golden ones, the English economists pursued their wonted tasks, never
once troubled by the thought that they were possibly forging a weapon
for their own destruction at the hands of socialists.

The thirty years which separate the publication of Ricardo’s _Principles
of Political Economy_ (1817) from Mill’s book bearing the same title are
occupied by economists of the second rank, who apply themselves, not to
the discovery of new principles, but to the development and co-ordination
of those already formulated. Of course we must not lose sight of the mass
of critical work bearing upon certain aspects of current doctrines, which
was produced by English economists just about this time. But their ideas
attracted as little attention as did Cournot’s in France or Gossen’s in

These were the days when Miss Martineau and Mrs. Marcet gave expositions
of political economy in the form of tales, or conversations with
“young Caroline,”[743] when MacWickar, writing his _First Lessons in
Political Economy for the use of Elementary Schools_, expressed the
belief that the science was already complete. “The first principles of
political economy,” he wrote, “are mere truisms which children might
well understand, and which they ought to be taught. A hundred years ago
only savants could fathom them. To-day they are the commonplaces of the
nursery, and the only real difficulty is their too great simplicity.”[744]

We cannot attempt the individual study of all the economists of this
period.[745] However, one of them, Nassau Senior,[746] certainly deserves
more space than we can give him in this history, and is perhaps the best
representative of the Classical school, showing its good and bad points
better than any other writer. He removed from political economy every
trace of system, every suggestion of social reform, every connection with
a moral or conscious order, reducing it to a small number of essential,
unchangeable principles. Four propositions seemed sufficient for this new
Euclid,[747] all necessary corollaries being easily deducible from one or
other of these. Senior’s ambition was to make an exact science of it, and
he deserves to be remembered as one of the founders of pure economics.

He is responsible for the introduction into political economy of a new
and hitherto neglected element, namely, an analysis of abstinence or
saving. (The former word, which is Senior’s choice, is the more striking
and precise term.) It is true enough, as Senior remarks, that abstinence
does not create wealth, but it constitutes a title to wealth, because
it involves sacrifice and pain just as labour does. Hitherto the income
of capital had been the least defensible of all revenues, for Ricardo
had only discussed it incidentally, and had represented it as a surplus
left over after paying wages. The claim of capital was believed to be as
evident as that of land or labour, and there was no need for any further
inquiry. But has it any real right to separate remuneration, seeing that,
unlike the other two agents, it is itself a product of those two and
not an original factor of production? Here at last is its title, not in
labour, but in abstinence.

But if on the one hand Senior succeeds in establishing the claim of
interest, he invalidates the claim of most other capital revenues on
the other. Let us follow his argument. Cost of production is made up
of two elements, labour and abstinence, and wherever free competition
obtains, the value of the products is reduced to this minimum. Where
competition is imperfect, where there is a greater or less degree of
monopoly, then between cost of production and value lies a margin which
constitutes extra income for those who profit by it. This revenue by
definition of labour and abstinence is independent of every sacrifice
or personal effort. This revenue Senior calls rent, and his theory
is thus a mere extension of the Ricardian. Rent is not the result of
appropriating the better situated or the more fertile lands only. It may
be due to the appropriation of some natural agent or to the possession
of some personal quality such as the artiste’s voice or the surgeon’s
skill,[748] or it may simply be the result of social causes or fortuitous
circumstances. Senior shows that rent, far from being an exceptional
phenomenon, is really quite normal. This kind of revenue which is wanting
in title—drawn, but not earned—is extremely important, and absorbs a
great share of the total wealth. Indeed, Senior goes much further, and
states that whenever, as in the case of death, capital passes from the
hands of those who have earned it into the possession of others, it
immediately becomes rent. The inheritor cannot plead abstinence—the
virtue is not transmissible, and he has no title to his fortune except
just good luck.[749]

No revolutionary socialist could ever have invented a better argument for
the abolition of the existing order. And how different from the “natural
order”! But Senior is quite unmoved, and the superb indifference with
which economists of the Ricardian school affirm their belief in their
doctrines without taking any account of the consequences which might
uphold or might destroy those very beliefs has a peculiar scientific
fascination for us.

Also, it was Senior who laid stress upon scarcity as the basis of
economic value. But a thing to possess value must be not merely rare, it
must also satisfy some want. It must be a rare utility. It is the same
term, “scarcity,” that was employed by Walras.

The Classical doctrines were taught during the first half of the
nineteenth century, not in England alone, but in every country of the
world. In Germany they were expounded by von Thünen, of whom we have
already spoken, and by his contemporary Rau.[750] In France, despite the
growing influence of the optimistic politico-liberal creed considered
in our last chapter, English Classical economics was still taught by a
large number of economists, among whom Rossi deserves special mention.
His _Cours d’Économie politique_, published in 1840, enjoyed a fair
success, due, not to any originality in the contribution itself, but to
the somewhat oratorical style of the work.[751]

But to proceed to the central figure of this chapter—John Stuart
Mill.[752] With him Classical economics may be said in some way to have
attained its perfection, and with him begins its decay. The middle of
the nineteenth century marks the crest of the wave. What makes his
personality so attractive is his almost dramatic appearance, and the
consciousness that he was placed between two schools, even between two
worlds. To the one he was linked by the paternal ties which bound him
to the Utilitarian school, wherein he was nurtured; the other beckoned
him towards the new horizons that were already outlined by Saint-Simon
and Auguste Comte. During the first half of his life he was a stern
individualist; but the second found him inclined to socialism, though
he still retained his faith in liberty. His writings are full of
contradictions; of sudden, complete changes, such as the well-known
_volte-face_ on the wages question. Mill’s book exhibits the Classical
doctrines in their final crystalline form, but already they were showing
signs of dissolving in the new current.

Like other theorists of the “Pure” school, he declared that there was no
room in political economy for the comparative judgment of the moralist,
but it was he also who wrote: “If, therefore, the choice were to be made
between communism with all its chances and the present state of society
with all its sufferings and injustices; if the institution of private
property necessarily carried with it as a consequence that the produce of
labour should be apportioned as we now see it, almost in an inverse ratio
to the labour—the largest portions to those who have never worked at
all, the next largest to those whose work is almost nominal, and so in a
descending scale, the remuneration dwindling as the work grows harder and
more disagreeable, until the most fatiguing and exhausting bodily labour
cannot count with certainty on being able to earn even the necessaries of
life; if this or communism were the alternative, all the difficulties,
great or small, of communism, would be but as dust in the balance.”[753]

It was Mill the utilitarian philosopher who declared that a person of
strong conviction “is a social power equal to ninety-nine who have only
interests.” It was he also who wrote that “competition may not be the
best conceivable stimulus, but it is at present a necessary one, and no
one can foresee the time when it will not be indispensable to progress.”
But he also admits that “co-operation is the noblest ideal,” and that it
“transforms human life from a conflict of classes struggling for opposite
interests to a friendly rivalry in the pursuit of a good common to

Mill, it has been said, was simply a gifted popular writer. But this
is to under-estimate his ability. It is true that, unlike Ricardo,
Malthus, or Say, his name is not associated with any economic law, but
he opened up a wider prospect for the science which will secure him a
reputation long after the demise of these so-called laws. His fame is
doubly assured, for in no other work on political economy, not excepting
even the _Wealth of Nations_, are there so many pages of fine writing,
so many unforgettable formulæ which will always be repeated by everyone
who has to teach the science. It is not for nought that the _Principles_
has served as a text-book for half a century in most of the English

Before examining the changes in the Classical doctrines which Mill
himself effected, we must give a brief outline of those theories as
they appeared in all their inflexible majesty towards the middle of the
nineteenth century, during the period between the publication of the
_Principles_ and the death of John Stuart Mill, between 1848 and 1873.
This was the period when the Classical Liberal school believed that its
two old rivals, Protectionism and socialism, were definitely crushed.
Reybaud, in his article on socialism in the _Dictionnaire d’Économie
politique_ of 1852, wrote as follows: “To speak of socialism to-day is
to deliver a funeral oration.” Protection had just been vanquished in
the struggle that led to the repeal of the English Corn Laws, and was
to suffer a further check, alike in France and in the other countries
of Europe, as a result of the treaties of 1860. The future lay with the
Classics. It was little thought that 1867 would witness the publication
of _Kapital_, that in 1872 the Congress of Eisenach would reassemble,
when the treaties of 1860 would be publicly denounced.

Let us profit by its hour of glorious existence to give an exposition of
the doctrines which it taught. The treatment must necessarily be very
summary, seeing that we are not writing a treatise on political economy,
and that our attention must be confined to writers who are definitively
members of the Liberal school.


A belief in natural laws was always an article of faith with the
Classical school. Without some such postulate it seemed to them that no
collection of truths, however well attested, could ever lay claim to the
title of science. But these natural laws had none of that “providential,”
“finalistic,” and “normative” character so frequently dwelt upon by the
Physiocrats[755] and the Optimists. They are simply natural laws like
those of the physical order, and are clearly non-moral. They may prove
useful or they may be harmful, and men must adapt themselves to them
as best they can. To say that political economy is a “dismal science”
because it shows that certain laws may have unfortunate results is
as absurd as it would be to call physics a “dismal science” because
lightning kills.

Far from being irreconcilable with individual liberty, these laws are
among its direct results. They are the spontaneous links which bind
together all free men. Freedom is always subject to conditions. Men
are not free in the matter of eating or not eating, and if they would
eat they _must_ cultivate the soil. Freedom is limited not only by the
actions of other human beings, but also by the laws of the physical world
which surrounds us.

These laws are universal and permanent, for the elementary needs of
mankind are always and everywhere the same. Economics is in quest of such
permanent laws, and has no concern with the merely temporary. It is only
by seeking the more general and consequently the more nearly universal
laws that economics can apprehend truth or hope to become a science.
It must study man, not men—the type, not the individual—the _homo
œconomicus_ stripped of every attribute except self-interest. It does not
deny the existence of other qualities, but merely relegates them to the
consideration of other sciences.

It now remains to see what those natural laws were.

(1) _The Law of Self-interest._ This law has since been named the
Hedonistic principle—a term that was never employed by the Classical
school. Every individual desires well-being, and so would be possessed of
wealth. Similarly he would, if possible, avoid evil and escape effort.
This is a simple psychological law. Could anything be more universal or
permanent than this law, which is simply the most natural and the most
rational (using the term in its Physiocratic sense) statement of the
law of self-preservation? In virtue of this fundamental principle the
Classical school is frequently known as the Individualist school.

But individualism need imply neither egoism nor egotism. This confusion,
which is repeatedly made with a view to discrediting the Classical
writers, is simply futile. No one has displayed greater vigour in
protesting against this method of treating individualism than Stuart
Mill. To say that a person is seeking his own good is not to imply
that he desires the failure of others. Individualism does not exclude
sympathy,[756] and a normal individual feels it a source of gratification
whenever he can give pleasure to others.

But this did not prevent Ricardo and Malthus showing the numerous
instances in which individual interests conflict, where it is necessary
that one interest should be sacrificed to another. And Mill, far from
denying the existence of these conflicts, has taken special pains to
emphasise them. The Classical writers, together with the Optimists,
reply that such contradictions are apparent only, and that beneath these
appearances there is harmony; or they point out that these antinomies are
due to the fact that both individualism and liberty are only imperfectly
realised, and as yet not even completely understood, but that as soon
as they are securely established the evils which they have momentarily
created will be finally healed.[757] Liberty is like Achilles’ lance,
healing the wounds it inflicts. Other individualists, such as Herbert
Spencer, declare that the conflict of individual interests is not merely
advantageous to the general interests of society, but is the very
condition of progress, weeding out the incapable to make room for the

(2) _The Law of Free Competition._ Admitting that each individual is the
best judge of his own interests, then it is clearly the wisest plan to
let everyone choose his own path. Individualism presupposes liberty, and
the Individualist school is also known as the Liberal school. This second
title is more exact than the first, and is the only one which the French
school will accept. It emphatically repudiates every other, whether
Individualist, Orthodox, or Classical.[758]

The English school is equally decisive in its preference for
“Liberalism.” The terms “Manchesterism” and “Manchesterthum” have also
been employed, especially by German critics, in describing this feature
of their teaching.

But the Classical school itself thought of _laissez-faire_ neither as
a dogma nor a scientific axiom. It was treated merely as a practical
rule which it was wise to follow, not in every case, but wherever a
better had not been discovered. Those who act upon it, in Stuart Mill’s
opinion, are nearer the truth nineteen times out of twenty than those
who deny it.[759] This practical Liberalism is intended to apply to
every aspect of economic life, and their programme includes liberty to
choose one’s employment, free competition, free trade beyond as well as
within the frontiers of a single country, free banks, and a competitive
rate of interest; and on the negative side it implies resistance to
all State intervention wherever the necessity for it cannot be clearly
demonstrated, as in the case of protective or parental legislation.

In the opinion of Classical writers, free competition was the sovereign
natural law. It was sufficient for all things. It secured cheapness for
the consumer, and stimulated progress generally because of the rivalry
which it aroused among producers. Justice was assured for all, and
equality attained, for the constant pursuit of profits merely resulted
in reducing them to the level of cost of production. The _Dictionnaire
d’Économie politique_ of 1852, which may perhaps be considered as the
code of Classic political economy, expressed the opinion that competition
is to the industrial world what the sun is to the physical. And Stuart
Mill himself, the author of _Liberty_, no longer distinguishing between
economic and political liberty, in less poetic but equally conclusive
terms states that “every restriction of competition is an evil,” but
that “every extension of it is always an ultimate good.”[760] On this
point he was a stern opponent of socialism, although in other respects
it possessed many attractions for him. “I utterly dissent,” says he,
“from the most conspicuous and vehement part of their teaching, their
declamations against competition.”

But the Classical school, despite its glorification of free competition,
never had any intention of justifying the present _régime_. The
complaints urged against it on this score, like the similar charge of
egoism, are based upon a misconception. On the contrary, the Classics,
both new and old, complain of the imperfect character of competition.
Senior had already pointed out what an enormous place monopoly still
holds in the present _régime_. A _régime_ of absolutely free competition
is as much a dream as socialism, and it is as unjust to judge competition
by the vices of the existing order as it would be to judge of
collectivism by what occurred in the State arsenals.

(3) _The Law of Population_ also held an honourable place among Classical
doctrines, so honourable, indeed, that even the Optimists never dared
contradict it. And of all economists Mill seems most obsessed by it.[761]
In his dread of its dire consequences he surpasses Malthus himself. And
he reveals a far greater regard for moral considerations than was ever
shown by the latter. Mill was already a Neo-Malthusian in the respect
which he felt for the rights and liberty of women, which are too seldom
consulted when maternity is forced upon them.[762] A numerous family
appeared to him as vicious and almost as disgusting as drunkenness.[763]
Time and again he declares that the working classes can hope for no
amelioration of their lot unless they check the growth of population. One
reason for his favourable view of peasant proprietorship is the restraint
which it exercises upon the birth-rate. “The rate of increase of the
French population is the slowest in Europe,” he writes, and this result
he thought very encouraging.

To exorcise this terrible demon he would even sacrifice the principle of
liberty which everywhere else he is at so much pains to defend. He was
prepared to support a law to prohibit the marriage of indigents,[764]
a proposal to which Malthus was absolutely opposed. His plea for this
measure of restraint is expounded, not in the _Principles_, but in
another of his works entitled _Liberty_. It is, of course, possible that
_Liberty_ may owe something to the collaboration of Mrs. Stuart Mill.

(4) _The Law of Demand and Supply_—the law that determines the value of
products and of productive services, such as labour, land, and capital—is
usually stated in the following terms: Price varies directly with demand,
inversely with supply. One of the most important contributions which
Mill made to the science was to show that this apparently mathematically
precise formula was merely a vicious circle. If it be true that demand
and supply cause a variation of price, it is equally true that price
causes a variation of demand and supply. Mill corrects the dictum by
saying that price is fixed at a margin where the quantity offered
is equal to the quantity demanded. All price variations move about
this point, just as the beam of a balance oscillates about a point
of equilibrium.[765] He thus gave to the law of demand and supply a
scientific precision which it formerly lacked, and by substituting the
conception of equilibrium for the causal relation he introduced a new
principle into economics which was destined to lead to some important

The law of demand and supply explains the variations of value, but
fails to illuminate the conception of value itself. A more fundamental
cause must be sought, which can be found in cost of production. Under a
_régime_ of free competition the fluctuations in value tend toward this
fixed point, just as “the sea tends to a level; but it never is at one
exact level.”[766]

A temporary, unstable value dependent upon the variations of demand
and supply, a permanent, natural, or normal value regulated by cost
of production, such was the Classical law of value. Mill was entirely
satisfied with it, as will be seen from the following phrase, which seems
rather strange, coming from such a cautious philosopher. “Happily,”
says he, “there is nothing in the laws of value which remains for the
present or any future writer to clear up; the theory of the subject is

The law which regulates the value of goods applies also to the value of
money. Money also has a temporary value, determined by the quantity in
circulation and the demand for it for exchange purposes—the celebrated
quantity theory. But it also has a natural value, determined by the cost
of production of the precious metals.

(5) _The Law of Wages._ A similar law determined wages—the price of
hand-labour. Here again is a double law. Temporary wages depend upon
demand and supply—understanding by supply the quantity of capital
available for the upkeep of the workers, the wages fund, and by demand
the number of workers in search of employment.[768] This law was more
familiarly expressed by Cobden when he said that wages rose whenever two
masters ran after the same man, and fell whenever two men ran after the
same master.

Natural or subsistence wages in the long run are determined by the
cost of production of labour—by the cost of rearing the worker. The
oscillations of temporary wages always tend to a position of equilibrium
about this point.

This “brazen law,” as Lassalle calls it, well deserves its title.
According to it wages depend entirely upon causes extraneous to the
worker, and bear no relation either to his need or to the character
of his work or his willingness to perform it. He is at the mercy of a
fatalistic law, and is as helpless to influence his market as a bale of
cotton. And not only is the law independent of him, but no intervention,
legal or otherwise, no institution, no system, can alter this state of
things without influencing one or other of the two terms of the equation,
the quantity of capital employed as wages—the wage fund—or the numbers
of the working population in search of work. “Every plan of amelioration
which is not founded upon this principle is quite illusory.” Only by
encouraging the growth of capital by means of saving, or by discouraging
the growth of population and restraining the sexual instinct, can the
terms of the equation be favourably modified. Upon final analysis there
are only two chances of safety for the workers, and of these the first
is beyond their power,[769] while the second means the condemnation to
celibacy or onanism of all proletarians, as they are ironically called.

And thus Mill, who formulated the law with greater rigour than any of his
predecessors, found himself alarmed at its consequences. He was specially
impressed by the courageous but impotent efforts of trade unionism, then
at the beginning of its career. Mill and the economists of the Liberal
school were as strongly in favour of the removal of the Combination
Laws as they were persistent in their demands for the repeal of the
Corn Laws; but of what use was the right of association and combination
when a higher law frustrated every attempt to raise wages? Just at this
time Longe, writing in 1866, and Thornton, in his volume on _Labour_,
began to question the validity of the wage fund theory. They experienced
no difficulty in converting John Stuart Mill, who followed with his
famous recantation in the pages of the _Fortnightly_. His defection
caused a remarkable stir, and was thought almost an offence against
the sacred traditions of the Classical school. The conversion was not
quite complete, however, for the last edition of the _Principles_ still
contains the passages we have already quoted, as well as others equally
discouraging to the working classes, and equally fatal to the hopes which
they had reasonably placed in their own efforts.[770]

The wage fund theory, though badly shaken as a result of Mill’s
defection, was not abandoned by all the Classical writers, and some
recent American publications have attempted a revival of it.[771]

(6) _The Law of Rent._ The law of competition tends to reduce the selling
price until it is equal to the cost of production. But suppose, as is
often the case, that there are two costs of production, which of the two
will determine the price? The higher will be the determinant, and so
there exists a margin for all similar products whose cost of production
is less. Ricardo showed that this was the case with agricultural products
as well as with certain manufactured goods.[772] Mill included personal
ability, and though the conception of rent was thus very considerably
extended, it had not the scope which it had with Senior.

(7) _The Law of International Exchange._ According to the Liberal
economists Ricardo and Dunoyer (see p. 346), international trade is
subject to the laws regulating individual exchange, and the results
in the two cases are almost identical, namely, a saving of labour to
both parties. One party exchanges a product which has cost fifteen
hours’ labour for another which, had an attempt been made to produce
it directly, would have involved a labour of twenty hours. The gain is
credited to the importing side, for exportation is merely the means
whereby it is obtained. Its measure is the excess of the imported value
over the value exported.

It is clear that each party gains by the transaction. It is not quite
clear, nor is it altogether probable, that the advantages are equally
distributed. But it is generally believed that if any inequality does
exist the greater gain goes to the poorer country—to the one that is less
gifted by nature or less fitted for industrial life. The latter country
by very definition would experience great difficulty in attempting the
direct production of the imported goods, and would even, perhaps, find it
quite impossible. On this point the English Classical or the Manchester
school is in complete agreement with the French school.[773]

It might possibly be pointed out that under a _régime_ of free
competition all values would be reduced to the level of cost of
production, and products would be exchanged in such a fashion that a
given quantity of labour embodied in one commodity would always exchange
for an equal quantity embodied in any other. But in such a case where
would be the advantage of exchanging? Ricardo had already anticipated
this objection, and had shown that if the rule of equal quantity in
exchange for equal quantity were true of exchange between individuals, it
did not hold of exchange between different countries, for the equalising
action of competition no longer operated, because of the difficulty of
moving capital and labour from one to the other. A comparison should
be made, not of the respective costs of the same product in the two
countries, but of the respective costs of the imported and the exported
products in the same country. Another buttress to strengthen the theory
which measures the advantages of international commerce by the amount of
labour economised![774]

But the value of the exchanged product is still undetermined. It lies
somewhere between the real cost of production of the goods exported and
the virtual cost of production of the goods imported, in such a way
that each country gains something. That is all we are able to say. Mill
has gone a step farther. He has abandoned the comparison of costs of
production, which is purely abstract, and can afford no practical measure
of the advantages, preferring to measure the value of the imported
product by the value of the product which must be given in exchange for
it.[775] We require to find the causes that enable a country like England
to obtain a greater or a lesser quantity of wine in exchange for her
coal. In other words, the law of international values no longer involves
a comparison of costs of production, but is simply the law of demand and
supply. The prices of the two goods arrange themselves in such a fashion
that the quantities demanded by the respective countries exactly balance.
If there is a greater demand for coal in France than there is for wine in
England, England will obtain a great quantity of wine in exchange for her
coal, and will consequently find herself in a very advantageous position.

Mill’s theory[776] constitutes a real advance as compared with
Ricardo’s, for it affords a means of gauging the strength of the foreign
demand, and of judging of the circumstances favourable to a good bargain.
Mill was of the opinion that a poor country stood to benefit most by the
transaction—thus confirming Bastiat’s belief. A rich country will always
have to pay more for its goods than a poor one.[777]

Protectionists affect the opposite belief, holding that it is the poor
country that is duped. The English trade with Portugal is one of their
favourite illustrations. But it is simply an illustration, and it can
never take the place of actual proof.

Notwithstanding these divergent views, Mill is more sympathetic to the
Protectionists than any other economist of the Liberal school. His
theory provides them with at least one excellent argument. Seeing that
the advantages of international commerce depend upon demand and supply,
a country may make it operate to its own advantage by merely pursuing a
different policy. New industries might be developed whenever there is a
considerable demand for new products, and that demand might easily be
so considerable that the price would be lowered.[778] Mill recognises
the justice of merely temporary protection, set up with a view to
naturalising a new industry, and considers it logically deducible from
his principles.[779]

Although Mill may in this way have done something to lighten the task of
the Protectionists, we must never forget that he himself remained an
entirely faithful adherent of the Free Trade doctrine and, except in the
case of infant industries, vigorously denounced all protective rights.
“All is sheer loss.… They prevent the economy of labour and capital,
thereby annihilating a general gain to the world which would be shared in
some proportion between itself and other countries.”[780]

The Free Trade doctrine has not remained where it was any more than the
other special doctrines of the Classical school. It gave birth to one
of the most powerful movements in economic history, which led to the
famous law of June 25, 1846, abolishing import duty on corn. This law
was followed by others, and ended in the complete removal of all tariff
barriers. But the eloquence of Cobden, of Bright, and of others was
necessary before it was accomplished. A national Anti-Corn League had to
be organised, no less than ten Parliamentary defeats had to be endured,
the allegiance of Peel and the approval of the Duke of Wellington had
to be secured before they were removed. All this even might have proved
futile but for the poor harvest of 1845. This glorious campaign did more
for the triumph of the Liberal economic school and for the dissemination
of its ideas than all the learned demonstrations of the masters. Fourteen
years were still to elapse before Cobden and Michel Chevalier were
able to sign the treaty of 1860. Even this was due to a personal act
of Napoleon III, and Cobden was not far wrong when he declared that
nine-tenths of the French nation was opposed to it.


Such were the doctrines taught by the Classical school about the
middle of the nineteenth century. The writers in question, however,
strongly objected to the term “school,” believing that they themselves
were the sole guardians of the sacred truth. And we must admit that
their doctrines are admirably interwoven, and present an attractive
appearance. On the other hand, it must be confessed that the prospects
which they hold out for anyone not a member of the landowning class
are far from attractive. For the labourer there is promise of daily
toil and bare existence, and at best a wage determined by the quantity
of capital or the numbers of the population—causes which are clearly
beyond the workers’ influence, and even beyond the assuaging influence
of association and combination. And although the latter rights are
generously claimed for the workers, the occasional antagonism between
masters and men presages the eternal conflict between profits and wages.
The possession of land is a passport to the enjoyment of monopolistic
privileges, which the right of free exchange can only modify very
slightly. Rent—the resultant of all life’s favourable chances—reserved
for those who need it least, monopolises a growing proportion of the
national revenue. Intervention for the benefit of the worker, whether
undertaken by the State or by some other body, is pushed aside as
unworthy of the dignity of labour and harmful to its true interests.
“Each for himself” is set up as a principle of social action, in the
vain hope that it would be spontaneously transformed into the principle
of “Each for all.” The search for truth was the dominant interest of
the school, and these doctrines were preached, not for the pleasure
they yielded, but as the dicta of exact science. Little wonder that
men were prepared to fight before they would recognise these as
demonstrable truths. And just as it was Mill who so powerfully helped
to consolidate and complete the science of economics that Cossa refers
to his _Principles_ as the best _résumé_, the fullest, most complete
and most exact exposition of the doctrines of the Classical school that
we have,[781] it was Mill also who, in successive editions of his book,
and in his other and later writings, pointed out the new vistas opening
before the science, freed the doctrine from many errors to which it was
attached and set its feet on the paths of Liberal Socialism.

We might say without any suggestion of bias that Mill’s evolution was
largely influenced by French ideas.[782] A singularly interesting volume
might be written in illustration of this statement. Without referring to
the influence of Comte, which Mill was never tired of recognising, and
confining our attention only to economics, he has himself acknowledged
his debt to the Saint-Simonians for the greater part of his doctrines
of heredity and unearned increment, to Sismondi for his sympathy with
peasant proprietorship, and to the socialists of 1848 for his faith in
co-operative association as a substitute for the wage nexus.

It would hardly be true to say that Mill became a convert to socialism,
although he showed himself anxious to defend it against every undeserved
attack. To those who credit socialism with a desire to destroy personal
initiative or to undermine individual liberty he disdainfully points out
that “a factory operative has less personal interest in his work than a
member of a communist association, since he is not, like him, working for
a partnership of which he is himself a member,” and that “the restraints
of communism would be freedom in comparison with the present condition
of the majority of the human race.”[783] And although he expresses the
belief that “communism would even now be practicable among the _élite_
of mankind, and may become so among the rest,” and hopes that one day
education, habit, and culture will so alter the character of mankind that
digging and weaving for one’s country will be considered as patriotic
as to fight for it,[784] still he was far from being a socialist. Free
competition, he thought, was an absolute necessity, and there could be no
interference with the essential rights of the individual.

The first blow which he dealt at the Classical school was to challenge
its belief in the universality and permanence of natural law. He never
took up the extreme position of the Marxian and Historical schools, which
held that the so-called natural laws were merely attempts at describing
the social relations which may exist at certain periods in economic
history, but which change their character as time goes on. He draws a
distinction between the laws which obtain in the realm of production
and those that regulate distribution. Only in the one case can we speak
of “natural” laws; in the other they are artificial—created by men—and
capable of being changed, should men desire it.[785] Contrary to the
opinion of the Classical school, he tries to show that wages, profits,
and rent are not determined by immutable laws against which the will of
man can never prevail.

The door was thus open for social reform, which was no small triumph.
Of course it cannot be said of the Classical school, or even of the
Optimists, that they were prepared to deny the possibility or the
efficacy of every measure of social reform, but it must be admitted
that they were loath to encourage anything beyond private effort, or
to advocate the abolition of any but the older laws. Braun, speaking
at a conference of Liberal economists at Mayence in 1869, expressed
the opinion that “that conference had given rise to much opposition
because it upheld the principle that human legislation can never
change the eternal laws of nature, which alone regulate every economic
action.” Similar declarations abound in the French works of the period.
But, thanks to the distinction drawn by Mill, all this was changed.
Though the legislator be helpless to modify the laws of production,
he is all-powerful in the realm of distribution, which is the real
battle-ground of economics.

But, as a matter of fact, Mill’s distinction is open to criticism,
especially his method of stating it; and we feel that he is unjust to
himself when he regards this as his most important and most original
contribution to economic science. Production and distribution cannot
be treated as two separate spheres, for the one invariably involves
the other. And Mill himself is forced to abandon his own thesis when
he advocates the establishment of co-operative associations or peasant
proprietorship, for each of these belongs as much to the domain of
production as to that of distribution. Rodbertus, at almost the same
period, gave a much truer expression to Mill’s thought by emphasising the
distinction which exists between economic and legal ties.[786] Even these
may mutually involve one another; still we know that the economic laws
which regulate exchange value or determine the magnitude of industrial
enterprise are not of the same kind as the rules of law which regulate
the transfer of property or lay down the lines of procedure for persons
bound by agreement concerning wages, interest, or rent. The first may
well be designated natural laws, but the latter are the work of a
legislative authority.

Stuart Mill, not content with merely opening the door to reform,
deliberately enters in, and, in striking contrast to the economists of
the older school, outlines a comprehensive programme of social policy,
which he formulates thus:[787] “How to unite the greatest individual
liberty of action, with a common ownership in the raw material of the
globe, and an equal participation of all in the benefits of combined

We may summarise his proposals as follows:

(1) Abolition of the wage system and the substitution of a co-operative
association of producers.

(2) The socialisation of rent by means of a tax on land.

(3) Lessening of the inequalities of wealth by restrictions on the rights
of inheritance.

This threefold measure of reform possesses all the desiderata laid
down by Mill. Moreover, it does not conflict with the individualistic
principle, but would somewhat strengthen it. It involves no personal
constraint, but tends to extend the bounds of individual freedom.

Let us briefly review these projects _seriatim_.

(1) Mill thought that the wages _régime_ was detrimental to individuality
because it deprived man of all interest in the product of his labour,
with the result that a vast majority of mankind is living under
conditions which socialism could not possibly make much worse.

It is necessary to replace this condition of things by “a form of
association which, if mankind continue to improve, must be expected
in the end to predominate, and is not that which can exist between a
capitalist as chief and workpeople without a voice in the management,
but the association of the labourers themselves on terms of equality,
collectively owning the capital with which they carry on their
operations, and working under managers elected and removable by
themselves.”[788] This noble ideal of a co-operative community was
borrowed, not from Owen, but from the French socialists. Mill had already
eulogised the French movement, even before its brilliant but ephemeral
triumph in 1848. He was not the only one to be attracted by the idea of a
co-operative community, for the English Christian Socialists drew their
inspiration from the same source.

Mill lived long enough to witness the decline of co-operative production
in England, and of the Co-operative Consumers’ Union in France, but
neither failure seems to have had any influence upon his projects.[789]
Whatever the method might be, the object in his ideal was always the
same, the self-emancipation of the workers.

(2) The rent of land, which Ricardo and his disciples accepted as a
natural if not as a necessary phenomenon, appeared to Mill as an
abnormal fact which was as detrimental to individuality as the wage
system itself. Its peculiar danger was, of course, not quite the same.
What rent did was to secure to certain individuals something which was
not the result of their own efforts, whereas individualism always aimed
at securing for everyone the fruits of his own labour—_suum cuique_.
On the principle of giving to each what each produced, everything not
directly produced by man himself was to be restored to the community.
It is immaterial whether this extra product is due to the collaboration
of nature, as Smith and the Physiocrats believed, or whether it is the
result of the pressure of population, as Ricardo and Malthus thought, or
the mere result of chance and favourable circumstance, as Senior put it.
Nothing could be easier than to levy a land tax which would gradually
absorb rent, and which could be periodically increased as rents advanced.
The idea was a brilliant one, and Mill had learned it from his father. It
soon became the rallying-cry of a new school of economists closely akin
to the socialists.

The movement begot of this idea of confiscation deserves the fuller
treatment which will be found in another chapter of this work.

Meanwhile, and until the larger and more revolutionary reform becomes
practical, Mill would welcome a modest instalment of emancipation in
the shape of peasant proprietorship. Like the co-operative ideal,
this also was of French extraction. Admiration of the French peasant
had been a fashionable cult in England ever since the days of Arthur
Young.[790] Mill thought that among the principal advantages of peasant
proprietorship would be a lessening of the injustice of rent, because its
benefits would be more widely distributed. The feeling of independence
would check the deterioration of the wage-earner, individual initiative
would be encouraged, the intelligence of the cultivator developed, and
the growth of population checked.

Mill inspired a regard for the frugal French peasantry in the English
Radical party. To his influence are due the various Small Holdings Acts
which have resulted in the establishment of small islets of peasant
tillers amid the vast territories of the English aristocracy.

(3) Mill was equally shocked at our antiquated inheritance law, which
permits people to possess wealth which they have never helped to
produce. To Senior inheritance ranked with the inequality of rent,
and he placed both in the same category. To Mill it appeared to be
not merely antagonistic to individual liberty, but a source of danger
to free competition, because it placed competitors in positions of
unequal advantage. In this matter Mill was under the influence of the
Saint-Simonians, and he made no attempt to hide his contempt for the
“accident of birth.”

This right of bequest, he felt, was a very difficult problem, for the
right of free disposal of one’s property even after death constituted
one of the most glorious attributes of individuality. It implied a kind
of survival or persistence of the human will. Mill showed considerable
ingenuity in extricating himself from this difficult position. He
would respect the right of the proprietor to dispose of his goods, but
would limit the right of inheritance by making it illegal to inherit
more than a certain sum. The testator would still enjoy the right of
bequeathing his property as he wished, but no one who already possessed
a certain amount of wealth could inherit it. Of all the solutions of
this problem that have been proposed, Mill’s is the most socialistic.
He puts it forward, however, not as a definite project, but as a mere

Mill might well have been given a place among the Pessimists, especially
as he inherits their tendency to see the darker side of things. Not
only did the law of population fill him with terror, but the law of
diminishing returns seemed to him the most important proposition in the
whole of economic science; and all his works abound with melancholy
reflections upon the futility of progress. There is, for instance, the
frequently quoted “It is questionable if all the mechanical inventions
yet made have lightened the day’s toil of any human being.”[792] In his
vision of the future of society he prophesies that the river of human
life will eventually be lost in the sea of stagnation.

It is worth while dwelling for a moment on this idea of a stationary
state. Though the conception is an old one, it is very characteristic
of Mill’s work, and he feels himself forced to the belief that only by
reverting to the stationary state can we hope for a solution of the
social question.

Economists, especially Ricardo, had insisted upon the tendency of profits
to a minimum as a correlative of the law of diminishing returns. This
tendency, it was believed, would continue until profits had wholly
disappeared and the formation of new capital was arrested.[793] Mill took
up the theory where Ricardo had left it, and arrived at the conclusion
that industry would thus be brought to a standstill, seeing that the
magnitude of industry is dependent upon the amount of available capital.
Population must then become stationary, and all economic movement must
cease. Though alarmed at the economic significance of this prospect,
Mill acquiesced in its ethical import. On the whole he thinks that
such a state would be a very considerable improvement on our present
condition. With economic activity brought to a standstill the current of
human life would simply change its course and turn to other fields.[794]
The decay of Mammon-worship and the thirst for wealth would simply
mean an opportunity for pursuing worthier objects. He hoped that the
arrest of economic progress would result in a real moral advance, and in
the appeasement of human desires he looked for a solution and for the
final disappearance of the social problem. And as far as we can see the
reformers of to-day have nothing better to offer us.


Mill’s influence was universal, though, properly speaking, he had no
disciples. This was, no doubt, partly because writers like Toynbee, who
would naturally have become disciples, were already enrolled in the
service of the Historical school.

The Classical school failed to follow his socialistic lead. It still
preached the old doctrines, but with waning authority, and no new work
was produced which is at all comparable with the works which we have
already studied. We will mention a few of the later writings, however,
for, though belonging to the second class, they are in some respects

In the first place we have several books written by Cairnes,[795]
notably _Some Leading Principles of Political Economy_ (1874). Cairnes
is generally regarded as a disciple of Mill, though as a matter of fact
he was nothing of the kind. Cairnes was purely Classic, and shared
the Classical preference for the deductive method, which he thought
the only method for political economy. His preference for that method
sometimes resulted in his abusing it, and he was curiously indifferent
to all social iniquities. He accepted _laissez-faire_, not as the basis
of a scientific doctrine, but simply as a safe and practical rule
of conduct.[796] The old wage fund theory has in him a champion who
attempted to defend it against Stuart Mill. It cannot be said that he
made any new contribution to the science, unless we except his teaching
concerning competition. He pointed out that competition has not the
general scope that is usually attributed to it. It only obtains between
individuals placed in exactly similar circumstances. In other words, it
operates within small areas, and is inoperative as between one area and
another. This theory of non-competing groups helps to throw some light
upon the persistent inequality shown by wages and profits.

In France the most prominent representative of political economy during
the Second Empire was Michel Chevalier, a disciple of Saint-Simon. He
nevertheless remained faithful to the Classical tradition of Say and
Rossi,[797] his predecessors at the Collège de France. He waged battle
with the socialists of 1848, made war upon Protection, and had the good
fortune to be victorious in both cases, sharing with Cobden the honour of
being a signatory to the famous commercial treaty of 1860. He realised
the important place that railways would some day occupy in national
economy, and the great possibilities of an engineering feat like the
Suez Canal. He was also alive to the importance of credit institutions,
which were only at the commencement of their useful career just
then.[798] Although connected with the Liberal school, he was not
indifferent to the teaching of the Saint-Simonians on the importance
of the authority and functions of the State, and he impressed upon the
Government the necessity of paying attention to labour questions—a
matter to which Napoleon III was naturally somewhat averse. Every
subject which he handles is given scholarly and eloquent treatment.

About the same time Courcelle-Seneuil published a treatise on political
economy which was for a long time regarded as a standard work. Seneuil
was a champion of pure science—or “plutology,” as he called it, in
order to distinguish it from applied science, to which he gave the name
“ergonomy.” For a long time he was regarded as a kind of pontiff, and the
pages of the _Journal des Économistes_ bear evidence of the chastisement
which he bestowed upon any of the younger writers who tried to shake
off his authority. This was the time when Maurice Block was meting out
the same treatment to the new German school in those bitterly critical
articles which appeared in the same journal.

It is to be regretted that we cannot credit France with the _Précis de la
Science économique et de ses Principales Applications_, which appeared
in 1862. Cherbuliez, the author, was a Swiss, and was professor first
at Geneva and then at Zurich. Cossa, in his _Histoire_, speaks of it as
“undoubtedly the best treatise on the subject published in France,” and
as being “possibly superior even to Stuart Mill’s.” Cherbuliez belonged
to the Classical school. He was opposed to socialism, and wrote pamphlets
_à la_ Bastiat in support of Liberal doctrines and the deductive method.
But, like the Mills before him, and Walras, Spencer, Laveleye, Henry
George, and many others who came after, he found it hard to reconcile
private property with the individualistic doctrine, “To each the product
of his labour.” He reconciles himself to this position merely because he
thinks that it is possibly a lesser evil than collective property.

The Liberal school had still a few adherents in Germany, although a
serious rival was soon to make its appearance. Prince Smith (of English
extraction) undertook the defence of Free Trade, pointing out “the
absurdity of regarding it as a social question,” and “how much more
absurd it is to think that it can ever be solved other than by the logic
of facts.” Less a doctrinaire than a reformer, Schulze-Delitzsch, about
1850, inaugurated that movement which, notwithstanding the gibes of
Lassalle, has made magnificent progress, and to-day includes thousands of
credit societies; though up to the present it has not benefited anyone
beyond the lower middle classes—the small shopkeeper, the well-to-do
artisan, and the peasant proprietor.


With Bastiat economic Liberalism, threatened by socialism, sought
precarious refuge in Optimism. With Mill the older doctrines found new
expression in language scientific in its precision and classical in its

It really seemed as if political economy had reached its final stage and
that there could be no further excuse for prolonging our survey.

But just when Liberalism seemed most triumphant and the principles of the
science appeared definitely settled there sprang up a feeling of general
dissatisfaction. Criticism, which had suffered a temporary check after
1848, now reasserted its claims, and with a determination not to tolerate
any further interruption of its task.

The reaction showed itself most prominently in Germany, where the new
Historical school refused to recognise the boundaries of the science
as laid down by the English and French economists. The atmosphere of
abstractions and generalisations to which they had confined it was
altogether too stifling. It demanded new contact with life—with the life
of the past no less than that of the present. It was weary of the empty
framework of general terms. It was athirst for facts and the exercise of
the powers of observation. With all the ardour of youth it was prepared
to challenge all the traditional conclusions and to reformulate the
science from its very base.

So much for the doctrine. But there was one thing which was thought more
objectionable than even the Classical doctrine itself, and that was the
Liberal policy with which the science had foolishly become implicated,
and which must certainly be removed.

In addition to such critics as the above there are also the writers who
drew their inspiration from Christianity, and in the name of charity, of
morality, or of religion itself, uttered their protest against optimism
and _laissez-faire_. Intervention again, so tentatively proposed by
Sismondi, makes a bold demand for wider scope in view of the pressure
of social problems, and under the name of State Socialism becomes a
definitely formulated doctrine.

Socialism, which Reybaud believed dead after 1848, revived in its turn.
Marx’s _Kapital_, published in 1867, is the completest and most powerful
exposition of socialism that we have. It is no longer a pious aspiration,
but a new and a scientific doctrine ready to do battle with the
champions of the Classical school, and to confute them out of their own

None of these currents is entirely new. Book II has shown us where they
originated, and their beginnings can be traced to the earlier critical

But we must not forget the striking difference between the ill-fated
doctrines of the pre-1848 period and the striking success achieved by
the present school. Despite the sympathy shown for the earlier critics,
they remained on the whole somewhat isolated figures. Their protests were
always individualistic—Sismondi’s no less than Saint-Simon’s, Fourier’s
no less than Owen’s. Proudhon and List never seriously shook the public
confidence in Liberalism. Now, on the contrary, Liberalism finds itself
deserted, and sees the attention of public opinion turning more and more
in the direction of the new school.

The triumph, of course, was not immediate. Many of the doctrines were
formulated between 1850 and 1875, but victory was deferred until the last
quarter of the century. But when it did come it was decisive. In Germany
history monopolised the functions of economics, at least for a time.
Intervention has only become universal since 1880. Since then, also,
collectivism has won over the majority of the workers in all industrial
countries, and has exercised very considerable influence upon politics,
while Christian Socialism has discovered a way of combining all its most
fervent adherents, of whatever persuasion, in one common faith.

The advance of this new school meant the decline of the Classical
doctrine and the waning of Liberalism. Public interest gravitated away
from the teaching of the founders. But in the absence of a new and a
definite creed, what we find is a kind of general dispersion of economic
thought, accompanied by a feeling of doubt as to the validity of theory
in general and of theoretical political economy in particular. The old
feeling of security gave place to uncertainty. Instead of the comparative
unanimity of the early days we have a complete diversity of opinions,
amid which the science sets out on a new career.

In the last Book we shall find that certain eminent writers have
succeeded in renewing the scientific tradition of the founders. But every
connection with practical politics had to be removed and a new body of
closely knit doctrines had to be created before social thinkers could
have this new point of view from which to co-operate.


The second half of the nineteenth century is dominated by Historical
ideas, though their final triumph was not fully established until the
last quarter of the century. The rise of these ideas, however, belongs to
a still earlier period, and dates from 1843, when there appeared a small
volume by Roscher entitled _Grundriss_. We shall have to return to that
date if we wish to understand the ideas of the school and to appreciate
their criticisms.

The successors of J. B. Say and Ricardo gave a new fillip to the abstract
tendency of the science by reducing its tenets to a small number of
theoretical propositions. The problems of international exchange, of
the rate of profits, wages, and rent, were treated simply as a number
of such propositions, expressed with almost mathematical precision.
Admitting their exactness, we must also recognise that they are far
from being adequate, and could not possibly afford an explanation of
the different varieties of economic phenomena or help the solution of
the many practical problems which the development of industry presents
to the statesman. But McCulloch, Senior, Storch, Rau, Garnier,[799]
and Rossi, the immediate successors of Ricardo and Say in England and
France, repeated the old formulæ without making any important additions
to them. The new system of political economy thus consisted of a small
number of quite obvious truths, having only the remotest connection with
economic life. It is true that Mill is an exception. But the _Principles_
dates from 1848, which is subsequent to the foundation of the Historical
school. With this exception we may say, in the words of Schmoller, that
after the days of Adam Smith political economy seems to have suffered
from an attack of anæmia.[800]

Toynbee gives admirable expression to this belief in his article on
_Ricardo and the Old Political Economy_:[801] “A logical artifice became
the accepted picture of the real world. Not that Ricardo himself, a
benevolent and kind-hearted man, could have wished or supposed, had
he asked himself the question, that the world of his treatise actually
was the world he lived in; but he unconsciously fell into the habit of
regarding laws which were those only of that society which he had created
in his study for purposes of analysis as applicable to the complex
society really existing around him. And the confusion was aggravated by
some of his followers and intensified in ignorant popular versions of
his doctrines.” In other words, there was a striking divergence between
economic theory and concrete economic reality, a divergence that was
becoming wider every day, as new problems arose and new classes were
being formed. But the extent of the gap was best realised when an attempt
was made to apply the principles of the science to countries where the
economic conditions were entirely different from those existing either in
England or in France.

This divergence between theory and reality might conceivably be narrowed
in one of two ways. A more harmonious and a more comprehensive theory
might be formulated, a task which Menger, Jevons, and Walras attempted
about 1870. A still more radical suggestion was to get rid of all
abstract theory altogether and to confine the science to a simple
description of economic phenomena. This was the method of procedure that
was attempted first, and it is the one followed by the Historical school.

Long before this time certain writers had pointed out the dangers of a
too rigid adherence to abstraction. Sismondi—an essentially historical
writer—treated political economy as a branch of moral science whose
separation from the main trunk is only partial, and insisted upon
studying economic phenomena in connection with their proper environment.
He criticised the general conclusions of Ricardo and pleaded for a closer
observation of facts.[802] List showed himself a still more violent
critic, and, not content with the condemnation of Ricardian economics,
he ventured to extend his strictures even to Smith. Taking nationality
for the basis of his system, he applied the comparative method, upon
which the Historical school has so often insisted,[803] to the commercial
policy of the Classical school; but history was still employed merely
for the purpose of illustration. Finally, socialists, especially the
Saint-Simonians, whose entire system is simply one vast philosophy of
history, had shown the impossibility of isolating economic from political
and juridical phenomena, with which they are always intermingled.

But no author as yet had deliberately sought either in history or in the
observation of contemporary facts a means of reconstructing the science
as a whole. It is just here that the originality of the German school

Its work is at once critical and constructive. On the critical side we
have a profound and suggestive, though not always a just, analysis of the
principles and methods of the older economists, while its constructive
efforts gave new scope to the science, extended the range of its
observations, and added to the complexity of its problems.

Generally speaking, it is not a difficult task to give an exposition
of the critical ideas of the school, as we find them set forth in
several books and articles, but it is by no means easy to delineate the
conceptions underlying the positive work. Though implicit in all their
writings, these conceptions are nowhere explicitly stated; whenever
they have tried to define them it has always been, as their disciples
willingly admit, in a vague and contradictory fashion.[804] To add
further to the difficulty, each author defines them after his own
fashion, but claims that his definition represents the ideas of the whole

In order to avoid useless repetitions and discussions without number we
shall begin with a rapid survey of the outward development of the school,
following with a _résumé_ of its critical work, attempting, finally,
to seize hold of its conception of the nature and object of political
economy. From our point of view the last-named object is by far the most


The honour of founding the school undoubtedly belongs to Wilhelm Roscher,
a Göttingen professor, who published a book entitled _Grundriss zu
Vorlesungen über die Staatswirtschaft nach geschichtlicher Methode_
in 1843. In the preface to that small volume he mentions some of the
leading ideas which inspired him to undertake the work, which reached
fruition in the celebrated _System der Volkswirtschaft_ (1st ed., 1854).
He makes no pretence to anything beyond a study of economic history. “Our
aim,” says he, “is simply to describe what people have wished for and
felt in matters economic, to describe the aims they have followed and
the successes they achieved—as well as to give the reasons why such aims
were chosen and such triumphs won. Such research can only be accomplished
if we keep in close touch with the other sciences of national life,
with legal and political history, as well as with the history of
civilisation.”[805] Almost in the same breath he justifies an attack upon
the Ricardian school. He recognises that he is far from thinking that
his is the only or even the quickest way of attaining the truth, but
thinks that it will lead into pleasant and fruitful quests, which once
undertaken will never be abandoned.

What Roscher proposed to do was to try to complete the current theory
by adding a study of contemporary facts and opinions, and, as a matter
of fact, in the series of volumes which constitute the _System_, every
instalment of which was received with growing appreciation by the German
world of letters, Roscher was merely content to punctuate his exposition
of the Classical doctrines with many an erudite excursus in the domain of
economic facts and ideas.[806]

Roscher referred to his experiment as an attempt to apply the historical
method which Savigny had been instrumental in introducing with such
fruitful results into the study of jurisprudence.[807] But, as Karl
Menger[808] has well pointed out, the similarity is only superficial.
Savigny employed history in the hope of obtaining some light upon the
organic nature and the spontaneous origin of existing institutions.
His avowed object was to prove their legitimacy despite the radical
pretensions of the Rationalist reformers of the eighteenth century.
Roscher had no such aim in view. He was himself a Liberal, and fully
shared in their reforming zeal. History with him served merely to
illustrate theory, to supply rules for the guidance of the statesman or
to foster the growth of what he called the political sense.

Schmoller thinks that Roscher’s work might justly be regarded
as an attempt to connect the teaching of political economy with
the “Cameralist” tradition of seventeenth- and eighteenth-century
Germany.[809] These Cameralists were engaged in teaching the principles
of administration and finance to students who were to spend their lives
in administrative work of one kind or another, and they naturally took
good care to keep as near actual facts as possible. Even in England and
France political economy soon got involved in certain practical problems
concerning taxation and commercial legislation. But in a country like
Germany, which was industrially much more backward than either England or
France, these problems wore a very different aspect, and some correction
of the Classical doctrines was absolutely necessary if they were to bear
any relation to the realities of economic life. Roscher’s innovation was
the outcome of a pedagogic rather than of a purely scientific demand, and
he was instrumental in reviving a university tradition rather than in
creating a new scientific movement.

In 1848 another German professor, Bruno Hildebrand, put forward a much
more ambitious programme, and his _Die Nationalökonomie der Gegenwart
und Zukunft_ shows a much more fundamental opposition to the Classical
school. History, he thought, would not merely vitalise and perfect the
science, but might even help to recreate it altogether. Hildebrand
points to the success of the method when applied to the science of
language. Henceforth economics was to become the science of national

In the prospectus of the _Jahrbücher für Nationalökonomie und Statistik_,
founded by him in 1863, Hildebrand goes a step farther. He challenges
the teaching of the Classical economists, especially on the question
of national economic laws, and he even blames Roscher because he had
ventured to recognise their existence.[811] He did not seem to realise
that a denial of that kind involved the undoing of all economic science
and the complete overthrow of those “laws of development” which he
believed were henceforth to be the basis of the science.

But Hildebrand’s absolutism had no more influence than Roscher’s
eclecticism, unless we make an exception of his generalisation concerning
the three phases of economic development, which he differentiates as
follows: the period of natural economy, that of money economy, and
finally that of credit. Beyond that he merely contented himself with
publishing a number of fragmentary studies on special questions of
statistics or history, without, for the most part, making any attempt to
modify the Classical theory of production and distribution.

The critical study of 1848 hinted at a sequel which was to embody the
principles of the new method. But the sequel never appeared, and the
difficult task of carrying the subject farther was entrusted to Karl
Knies, another professor, who in 1853 published a bulky treatise bearing
the title of _Political Economy from the Historical Point of View_.[812]
But there is as much divergence between his views and those of his
predecessors as there is between Roscher’s and Hildebrand’s. He not only
questions the existence of natural laws, but even doubts whether there
are any laws of development at all—a point Hildebrand never had any
doubts about—and thinks that all we can say is that there are certain
analogies presented by the development of different countries. Knies
cannot share in the belief of either Hildebrand or Roscher, nor does
he hold with the Classical school. He thinks that political economy is
simply a history of ideas concerning the economic development of a nation
at different periods of its growth.

Knies’s work passed almost unnoticed, ignored by historians and
economists alike, until the younger Historical school called attention to
his book, of which a new edition appeared in 1883. Knies makes frequent
complaints of Roscher’s neglect to consider his ideas.

Such heroic professions naturally lead us to expect that Knies would
spare no effort to show the superiority of the new method. But his
subsequent works dealing with money and credit, upon which his real
reputation rests, bear scarcely a trace of the Historical spirit.

The three founders of the science devoted a great deal of time to a
criticism of the Classical method, but failed to agree as to the aim
and scope of the science and left to others the task of applying their

This task was attempted by the newer Historical school, which sprang up
around Schmoller towards the end of 1870. This new school possesses two
distinctive characteristics.

(1) The useless controversy concerning economic laws which Hildebrand
and Knies had raised is abandoned. The members of the school are careful
not to deny the existence of natural social laws or uniformities, and
they considered that the search for these was the chief object of the
science. In reality they are economic determinists. “We know now,”
says Schmoller,[813] “that psychical causation is something other than
mechanical, but it bears the same stamp of necessity.” What they do deny
is that these laws are discoverable by Classical methods, and on this
point they agree with every criticism made by their predecessors.

As to the possibility of formulating “the laws of development” upon which
Hildebrand laid such stress, they professed themselves very sceptical.
“We have no knowledge of the laws of history, although we sometimes
speak of economic and statistical laws,”[814] writes Schmoller. “We
cannot,” he regretfully says later, “even say whether the economic life
of humanity possesses any element of unity or shows any traces of uniform
development, or whether it is making for progress at all.”[815] This
very characteristic passage from Schmoller was written in 1904,[816] and
forms the conclusion of the great synthetic treatise. All attempts at a
philosophy of history are treated with the same disdain.[817]

(2) The newer Historical school, not content merely with advocating the
use of the Historical method, hastened to put theory into practice. Since
about 1860 German economists have shown a disposition to turn away from
economic theory and to devote their entire energy to practical problems,
sociological studies and historical or realistic research. The number of
economic monographs has increased enormously. The institutions of the
Middle Ages and of antiquity, the economic doctrines of the ancients,
statistics, the economic organisation of the present day, these are
some of the topics discussed. Political economy is lost in the maze of
realistic studies, whether of the present day or of the past.

Although the Historical school has done an enormous amount of work we
must not forget that historical monographs were printed before their
time, and that certain socialistic treatises, such as Marx’s _Kapital_,
are really attempts at historical synthesis. The special merit of the
school consists in the impulse it gave to systematic study of this
description. The result has been a renewed interest in history and in the
development of economic institutions. We cannot attempt an account of all
these works and their varied contents. We must remain satisfied if we
can catch the spirit of the movement. The names of Schmoller, Brentano,
Held, Bücher, and Sombart are known to every student of economic history.
Marshall, the greatest of modern theorists, has on more than one occasion
paid them a glowing tribute.[818]

The movement soon left Germany, and it was speedily realised that
conditions abroad were equally favourable for its work.

By the end of 1870 practical Liberalism had spent its force. But new
problems were coming to the front, especially the labour question,
which demanded immediate attention.[819] Classical economists had no
solution to offer, and the new study of economic institutions, of social
organisation, and of the life of the masses seemed to be the only hopeful
method of gaining light upon the question. Comparison with the past was
expected to lead to a better understanding of the present. The Historical
method seemed to social reformers to be the one instrument of progress,
and a strong desire for some practical result fostered belief in it. When
we remember the prestige which German science has enjoyed since 1871,
and the success of the Germans in combining historical research with the
advocacy of State Socialism, we can understand the enthusiasm with which
the method was greeted abroad.

Even in England, the stronghold of Ricardian economics, the influence of
the school becomes quite plain after 1870.

Here, as elsewhere, a controversy as to the method employed manifests
itself. Cairnes in his work _The Character and Logical Method of
Political Economy_ (1875[820]), writing quite in the spirit of the old
Classical authors, strongly advocates the employment of the deductive
method. In 1879 Cliffe Leslie, in his _Essays on Political and Moral
Philosophy_, enters the lists against Cairnes and makes use of the new
weapons to drive home his arguments. The use of induction rather than
deduction, the constant necessity for keeping economics in living touch
with other social sciences, the relative character of economic laws, and
the employment of history as a means of interpreting economic phenomena,
are among the arguments adopted and developed by Leslie. Toynbee, in
his _Lectures on the Industrial Revolution_, gave utterance to similar
views, but showed much greater moderation. While recognising the claims
of deduction, he thought that history and observation would give new life
and lend a practical interest to economics. The remoteness and unreality
of the Ricardian school constituted its greatest weakness, and social
reform would in his opinion greatly benefit by the introduction of new
methods. Toynbee would undoubtedly have exercised tremendous influence;
but his life, full of the brightest hopes, was cut short at thirty.

The lead had been given; the study of economic institutions and classes
was henceforth to occupy a permanent position in English economic
writings, and the remarkable works which have since been published,
such as Cunningham’s _Growth of English Industry and Commerce_,
Ashley’s _Economic History_, the Webbs’ _Trade Unionism and Industrial
Democracy_, Booth’s _Life and Labour of the People_, bear witness to the
profound influence exerted by the new ideas.

In France the success of the movement has not been quite so pronounced,
although the need for it was as keenly felt there. Although it did
not result in the founding of a French school of economic historians,
the new current of ideas has influenced French economic thought in a
thousand ways. In 1878 political economy became a recognised subject in
the various curricula of the Facultés de Droit. The intimate connection
between economic study and the study of law has given an entirely new
significance to political economy, and the science has been entirely
transformed by the infusion of the historical spirit. At the same time
professional historians have become more and more interested in problems
of economic history, thus bringing a spirit of healthy rivalry into the
study of economic institutions. Several Liberal economists also, without
breaking with the Classical tradition, have devoted their energies to the
close observation of contemporary facts or to historical research.[821]

Finally, we have a new group of workers in the sociologists. Sociology
is interested in the origin and growth of social institutions of all
kinds and in the influence which they have exerted upon one another.
After studying institutions of a religious, legal, political, or social
character it is only natural that they should ask that the study of
economic institutions should be carried on in the same spirit and with
the help of the same method. This object has been enthusiastically
pursued for some time. The mechanism and the organisation of the
economic system at different periods have been closely examined by the
aid of observation and history. Abstraction has been laid aside and a
preference shown for minute observation, and for induction rather than


Among so many writers whose works cover such a long period of time we
can hardly expect to find absolute unanimity, and we have already had
occasion to note some of the more important divergencies between them,
especially those separating the newer from the older writers of the
Historical school. We cannot here enter into a full discussion of all
these various shades of opinion, and we must be content to mention the
more important features upon which they are almost entirely at one,
noticing some of the principal individual doctrines by the way.

The German Historical school made its _début_ with a criticism of
Classical economics, and we cannot better begin than with a study of its
critical ideas.[823]

Although these ideas had already found expression in the writings of
Knies, Hildebrand, and Roscher, there was nothing like the discussion
which was provoked by them when the newer Historical school, at
a much later period, again brought them to public notice. The
publication of Karl Menger’s work, _Untersuchungen über die Methode der
Socialwissenschaften_, in 1883—a classic both in style and matter—ushered
in a new era of active polemics. This remarkable work, in which the
author undertakes the defence of pure political economy against the
attacks of the German Historical school, was received with some amount of
ill-feeling by the members of that school,[824] and it caused a general
searching of hearts during the next few years. We must try to bring out
the essential elements in the discussion, and contrast the arguments
advanced by the Historians with the replies offered by their critics.

Broadly speaking, three charges are levelled at the Classical writers.
(i) It is pointed out that their belief in the universality of their
doctrines is not easily justified. (ii) Their psychology is said to be
too crude, based as it is simply upon egoism. (iii) Their use, or rather
abuse, of the deductive method is said to be wholly unjustifiable. We
will review these charges _seriatim_.

The Historians held that the greatest sin committed by Smith and his
followers was the inordinate stress which they laid upon the universality
of their doctrines. Hildebrand applies the term “universalism” to this
feature of their teaching, while Knies refers to it as “absolutism” or
“perpetualism.” The belief of the Anglo-French school, according to their
version of it, was that the economic laws which they had formulated
were operative everywhere and at all times, and that the system of
political economy founded upon them was universal in its application.
The Historians, on the other hand, maintained that these laws, so far
from being categorically imperative, should be regarded always as being
subject to change in both theory and practice.

First with regard to practice. A uniform code of economic legislation
cannot be indifferently applied to all countries at all epochs of their
history. An attempt must be made to adapt it to the varied conditions
of time and place. The statesman’s art consists in adapting principles
to meet new demands and in inventing solutions for new problems. But,
as Menger points out, this obvious principle, which was by no means a
new one, would have met with the approval of Smith and Say, and even of
Ricardo himself;[825] although they occasionally forgot it, perhaps,
especially when judging the institutions of the past or when advocating
the universal adoption of _laissez-faire_.

The second idea, namely, that economic theory and economic laws have
only a relative value, is treated with even greater emphasis, and this
was another point on which the older economists had gone wrong. Economic
laws, unlike the laws of physics and chemistry, with which the Classical
writers were never tired of comparing them, have neither the universality
nor the inevitability of the latter. Knies has laid special stress on
this point. “The conditions of economic life determine the form and
character of economic theory. Both the process of argument employed
and the results arrived at are products of historical development. The
arguments are based upon the facts of concrete economic life and the
results bear all the marks of historical solutions. The generalisations
of economics are simply historical explanations and progressive
manifestations of truth. Each step is a generalisation of the truth as it
is known at that particular stage of development. No single formula and
no collection of such formulæ can ever claim to be final.”[826]

This paragraph, though somewhat obscure and diffuse, as is often the
case with Knies, expresses a sound idea which other economists have
stated somewhat differently, by saying that economic laws are at once
provisional and conditional. They are provisional in the sense that the
progress of history continually gives rise to new facts of which existing
theories do not take sufficient account. Hence the economist finds
himself obliged to modify the formulæ with which he has hitherto been
quite content. They are conditional in the sense that economic laws are
only true so long as other circumstances do not hinder their action. The
slightest change in the conditions as ordinarily given might cancel the
usual result. Those economists who thought of their theory as a kind of
final revelation, or considered that their predictions were absolutely
certain, needed reminding of this.

But Knies is hopelessly wrong in thinking that this relativity is enough
to separate the laws of economics from the laws of other sciences.
Professor Marshall justly remarks that chemical and physical laws
likewise undergo transformation whenever new facts render the old formulæ
inadequate. All these laws are provisional. They are also hypothetical in
the sense that they are true only in the absence of any disturbing cause.
Scientists no longer consider these laws as inherent in matter. They are
the product of man’s thought and they advance with the development of
his intelligence.[827] They are nothing more or less than formulæ which
conveniently express the relation of dependence that exists between
different phenomena; and between these various laws as they are framed by
the human mind there is no difference except a greater or lesser degree
of proof which supports them.

What gives to the laws of physics or chemistry that larger amount of
fixity and that greater degree of certainty which render them altogether
superior to economic law as at present formulated is a greater uniformity
in the conditions that give rise to them, and the fact that their action
is often measurable in accordance with mathematical principles.[828]

Not only has Knies exaggerated the importance of his doctrine of
relativity,[829] but the imputation that his predecessors had failed
to realise the need for it was hardly deserved. We shall have to refer
to this matter again. Mill’s _Principles_ was already published, and
even in the _Logic_, which appeared for the first time in 1843, and
several editions of which had been issued before 1853, the year when
Knies writes, we meet with the following sentence:[830] “The motive that
suggests the separation of this portion of the social phenomenon from
the rest … is that they do mainly depend at least in the first resort on
one class of circumstances only; and that even when other circumstances
interfere, the ascertainment of the effect due to the one class of
circumstances alone is a sufficiently intricate and difficult business
to make it expedient to perform it once for all and then allow for the
effect of the modifying circumstances.” Consequently sociology, of which
political economy is simply a branch, is a science of tendencies and
not of positive conclusions. No better expression of the principle of
relativity could ever be given.

Notwithstanding all this, modern economists have come to the conclusion
that the criticisms of the Historical school are sufficiently well
founded to justify them in demanding greater precision so as to avoid
those mistakes in the future. Dr. Marshall, for one, adopts Mill’s
expression, and defines an economic law as “a statement of economic

Even the founders of pure political economy, although their method is
obviously very different from that of the Historians, have taken similar
precautions. They expressly declare that the conclusions of the science
are based upon a certain number of preliminary hypotheses deliberately
chosen, and that the said conclusions are only provisionally true. “Pure
economics,” says Walras, “has to borrow its notion of exchange, of demand
and supply, of capital and revenue, from actual life, and out of those
conceptions it has to build the ideal or abstract type upon which the
economist exercises his reasoning powers.”[832] Pure economics studies
the effects of competition, not under the imperfect conditions of an
actual market, but as it would operate in a hypothetical market where
each individual, knowing his own interests, would be able to pursue
them quite freely, and in full publicity. The conception of a limited
area within which competition is fully operative enables us to study as
through a magnifying-glass the results of a hypothesis that really very
seldom operates in the economic life of to-day.

We may dispute the advantages of such a method, but we cannot say that
the economists ever wished to deny the relativity of a conclusion arrived
at in this fashion.

While willing to admit that the Historians have managed to put this
characteristic in a clear light just when some economists were in danger
of forgetting it, and that it is a universally accepted doctrine to-day,
we cannot accept Knies’s contention that it affords a sufficient basis
for the distinction between natural and economic laws. And such is the
opinion of a large number, if not of the majority, of economists.[833]

The second charge is levelled against the narrowness and insufficiency
of the psychology. Adam Smith treated man as a being solely dominated by
considerations of self-interest and completely absorbed in the pursuit
of gain. But, as the Historians justly point out, personal interest
is far from being the sole motive, even in the economic world. The
motives here, as elsewhere, are extremely varied: vanity, the desire for
glory, pleasure afforded by the work itself, the sense of duty, pity,
benevolence, love of kin, or simply custom.[834] To say that man is
always and irremediably actuated by purely selfish motives, says Knies,
is to deny the existence of any better motive or to regard man as a
being having a number of centres of psychical activity, each operating
independently of the other.[835]

We cannot deny that the Classical writers believed that “personal
interest”—not in the sense of egoism, which is the name given it
by Knies, and which somewhat distorts their view—held the key to
the significance and origin of economic life. But the claims of the
Historians are again immoderate. Being themselves chiefly concerned
with concrete reality in all its complexity of being, and with all its
distinctive and special features rather than its general import, they
forgot that the primary aim of political economy is to study economic
phenomena _en masse_. The Classical economists studied the crowd, not
the individual. If we neglect the differences that occasionally arise
in special cases, and allow for the personal equation, do we not find
that the most constant motive to action is just this personal desire
for well-being and profit? This is the opinion of Wagner, who on this
question of method is not quite in agreement with other members of the
school. In his suggestive study of the different motives that influence
economic conduct he definitely states that the only motive that is
really constant and permanent in its action is this self-interest. “This
consideration,” he says, “does something to explain and to justify the
conduct of those writers who took this as the starting-point of their
study of economics.”[836]

But having admitted this, we must also recognise, not that they denied
the changes occasionally undergone by self-interest under the pressure of
other motives, as Knies suggests, but that they have neglected to take
sufficient account of such modifications. Sometimes it really seems as if
they would “transform political economy into a mere natural history of
egoism,” as Hildebrand says.

We can only repeat the remark which we have already made, namely, that
when this criticism was offered it was scarcely justified. Stuart
Mill had drawn attention to this point in his _Logic_ ten years
previously.[837] “An English political economist, like his countrymen in
general, has seldom learned that it is possible that men in conducting
the business of selling their goods over the counter should care more
about their ease or their vanity than about their pecuniary gain.” For
his own part he ventures to say that “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.”[838]

It is evident that Mill did not think that self-interest was the one
unchangeable and universal human motive. Much less “egoism,” for, as we
have seen in the previous chapter, his “egoism” includes a considerable
admixture of altruism.

But here again the strictures of the Historians, though somewhat
exaggerated, have forced economists of other schools to be more precise
in their statements. The economists of to-day, as Marshall remarks, are
concerned “with man as he is; not with an abstract or ‘economic’ man,
but a man of flesh and blood.”[839] And if the economist, as Marshall
points out, pays special attention to the desire for gain among the
other motives which influence human beings, this is not because he is
anxious to reduce the science to a mere “natural history of egoism,”
but because in this world of ours money is the one convenient means of
measuring human motive on a large scale.[840] Even the Hedonists, whose
economics rest upon a calculus of pleasure and pain, are careful to
note that their hypothesis is just a useful simplification of concrete
reality, and that such simplification is absolutely necessary in order
to carry the analysis of economic phenomena as far as possible. It is an
abstraction—imposed by necessity, which is its sole justification, but an
abstraction nevertheless.

It is just here that the final reproach comes in, namely, the charge of
abusing the employment of abstraction and deduction, and greater stress
is laid upon this count than upon either of the other two.

Instead of deduction the new school would substitute induction based upon

Their criticism of the deductive method is closely connected with their
attack upon the psychology of the older school. The Classical economists
thought, so the Historians tell us, that all economic laws could be
deduced by a simple process of reasoning from one fundamental principle.
If we consider the multiplicity of motives actually operative in the
economic world, the insufficiency of this doctrine becomes immediately
apparent. The result is not a faithful picture, but a caricature of
reality. Only by patient observation and careful induction can we hope
to build up an economic theory that shall take full account of the
complexity of economic phenomena. “There is a new future before political
economy,” writes Schmoller in 1883, in reply to a letter of Menger,
“thanks to the use that will be made of the historical matter, both
descriptive and statistical, that is slowly accumulating. It will not
come by further distillation of the abstract propositions of the old
dogmatism that have already been distilled a hundred times.”[841]

The younger school especially has insisted on this; and Menger has
ventured to say that in the opinion of the newer Historical school “the
art of abstract thinking, even when distinguished by profundity and
originality of the highest order, and when based upon a foundation of
wide experience—in a word, the exercise of that gift which has in other
sciences resulted in winning the highest honour for the thinkers—seems
to be of quite secondary importance, if not absolutely worthless, as
compared with some elaborate compilation or other.”[842]

But the criticism of the Historical school confuses two things, namely,
the particular use which the Classical writers have made of the abstract
deductive method, and the method itself.

No one will deny that the Classical writers often started with
insufficient premises. Even when the premises were correct, they were too
ready to think and not careful enough to prove that their conclusions
were always borne out by the facts. No one can defend their incomplete
analysis, their hasty generalisations, or their ambiguous formulæ.[843]

But this is very different from denying the legitimacy of abstraction
and deduction. To isolate a whole class of motives with a view to a
separate examination of their effects is not to deny either the presence
or the action of other motives, any more than a study of the effect of
gravitation upon a solid involves the denial of the action of other
forces upon it. In a science like political economy, where experiment is
practically impossible, abstraction and analysis afford the only means
of escape from those other influences which complicate the problems
so much. Even if the motives chosen were of secondary importance, the
procedure would be quite legitimate, although the result would not be of
any great moment. But it is of the greatest service and value when the
motive chosen is one, like the search for gain or the desire for personal
satisfaction, which exercises a preponderant influence upon economic

So natural, we may even say so indispensable, is abstraction, if we
are to help the mind steer its way amid the complexity of economic
phenomena, that the criticism of the Historical school has done nothing
to hinder the remarkable development which has resulted from the use of
the abstract method during the last thirty years. But, although the
Neo-Classical school has succeeded in replacing the old methods in their
position of honour once more, it no longer employs those methods in the
way the older writers did. A more solid foundation has been given them
in a more exact analysis of the needs which personal interest ought to
satisfy.[845] And the mechanism of deduction itself has been perfected by
a more rigid use of the ordinary logical forms, and by the adoption of
mathematical phraseology.

Happily the controversy as to the merits of the rival methods, which
was first raised by the Historical school, has no very great interest
at the present moment. Most eminent economists consider that both are
equally necessary. There seems to be a general agreement among writers
of different schools to consider the question of method of secondary
importance, and to forget the futile controversies from which the
science has gained so little. Before concluding this section it may be
worth while to quote the opinion of men who represent very different
tendencies, but are entirely agreed with regard to this one subject.
“Discussion of method,” says Pareto, “is a pure waste of time. The aim of
the science is to discover economic uniformities, and it is always right
to follow any path or to pursue any method that is likely to lead to that
end.”[846] “For this and other reasons,” says Marshall, “there always has
been, and there probably always will be, a need for the existence side
by side of workers with different aptitudes and different aims.… All the
devices for the discovery of the relations between cause and effect which
are described in treatises on scientific method have to be used in their
turn by the economist.”[847]

These writers generally employ the abstract method. Let us now hear some
of the Historians. Schmoller is the author of that oft-quoted phrase,
“Induction and deduction are both necessary for the science, just as the
right and left foot are needed for walking.”[848]

More remarkable still, perhaps, is the opinion of Bücher, an author to
whom the Historical school is indebted for some of its most valuable
contributions. “It is therefore a matter of great satisfaction that,
after a period of diligent collection of material, the economic problems
of modern commerce have in recent times been zealously taken up again and
that an attempt is being made to correct and develop the old system in
the same way in which it arose, with the aid, however, of a much larger
store of facts. For the only method of investigation which will enable
us to approach the complex causes of commercial phenomena is that of
abstract isolation and logical deduction. The sole inductive process that
can likewise be considered—namely, the statistical—is not sufficiently
exact and penetrating for most of the problems that have to be handled
here, and can be employed only to supplement or control.”[849]


What made the criticism of the Historians so penetrating was the fact
that they held an entirely different view concerning the scope and aim
of economics. Behind the criticism lurked the counter-theory. Nothing
less than a complete transformation of the science would have satisfied
the founders, but the younger school soon discovered that so ambitious
a scheme could never be carried out. It is important that we should
know something of the view of those older writers on this question, and
the way they had intended to give effect to their plans. The positive
contribution made by the Historical school to economic study is even
more important than its criticisms, for it gives a clue to an entirely
different point of view with which we are continually coming into contact
in our study of economic doctrines.

The study of economic phenomena may be approached from two opposite
standpoints, which we may designate the mechanical and the organic. The
one is the vantage-ground of those thinkers who love generalisations, and
who seek to reduce the complexity of the economic world to the compass
of a few formulæ; the other of those writers who are attracted by the
constant change which concrete reality presents.

The earlier economists for the most part belonged to the former class.
Amid all the wealth and variety of economic phenomena they confined
their attention almost entirely to those aspects that could be
explained on simple mechanical principles. Such were the problems of
price fluctuations, the rate of interest, wages, and rent. Production
adapting itself to meet variation in demand, with no guide save personal
interest, looked for all the world like the intermolecular action of free
human beings in competition with one another. The simplicity of the idea
was not without a certain grandeur of its own.

But such a conception of economic life is an extremely limited one. A
whole mass of economic phenomena of the highest importance and of the
greatest interest is left entirely outside. The phenomena of the economic
world, as a matter of fact, are extremely varied and changeable. There
are institutions and organisations without number, banks and exchanges,
associations of masters and unions of men, commercial leagues and
co-operative societies. Eternal struggle between the small tradesman
and the big manufacturer, between the merchant and the combine, between
the peasant proprietor and the great landowner, between classes and
individuals, between public and private interests, between town and
country, is the common feature of economic life. A state rises to
prosperity again to fall to ruin. Competition at one moment makes it
superior, at another reduces its lead. A country changes its commercial
policy at one period to reintroduce the old _régime_ at another.
Economic life fulfils its purposes by employing different organs
that are continually modified to meet changing conditions, and are
gradually transformed as science progresses and manners and beliefs are

Of all this the mechanical conception tells us nothing. It makes no
attempt to explain the economic differences which separate nations and
differentiate epochs. Its theory of wages tells us nothing about the
different classes of workpeople, or of their well-being during successive
periods of history, or about the legal and political conditions upon
which that well-being depends. Its theory of interest tells us nothing of
the various forms under which interest has appeared at different times,
or of the gradual evolution of money, whether metallic or paper. Its
theory of profits ignores the changes which industry has undergone, its
concentration and expansion, its individualistic nature at one moment,
its collective trend at another. No attempt is made to distinguish
between profits in industry or commerce and profits in agriculture.
The Classical economists were simply in search of those universal and
permanent phenomena amid which the _homo œconomicus_ most readily
betrayed his character.

The mechanical view is evidently inadequate if we wish to delineate
concrete economic life in all its manifold activity. We are simply given
certain general results, which afford no clue to the concrete and special
character of economic phenomena.

The weakness of the mechanical conception arises out of the fact that
it isolates man’s economic activity, but neglects his environment. The
economic action of man must influence his surroundings. The character of
such action and the effects which follow from it differ according to the
physical and social, the political and religious surroundings wherein
they are operative. A country’s geographical situation, its natural
resources, the scientific and artistic training of its inhabitants, their
moral and intellectual character, and even their system of government,
must determine the nature of its economic institutions, and the degree of
well-being or prosperity enjoyed by its inhabitants. Wealth is produced,
distributed, and exchanged in some fashion or other in every stage of
social development, but each human society forms a separate organic unit,
in which these functions are carried out in a particular way, giving,
accordingly, to that society a distinctive character entirely its own.
If we want to understand all the different aspects of this life we must
make a study of its economic activity, not as it were _in vacuo_, but in
connection with the medium through which it finds expression, and which
alone can help us to understand its true nature.[850]

This was the first doctrine on which they laid stress: the other follows
immediately. This social environment cannot be regarded as fixed. It is
constantly undergoing some change. It is in process of transformation and
of evolution. At no two successive moments of its existence is it quite
the same. Each successive stage calls for explanation, which history
alone can give. Goethe has given utterance to this thought in a memorable
phrase which serves as a kind of epigraph to Schmoller’s great work,
the _Grundriss_. “A person who has no knowledge of the three thousand
years of history which have gone by must remain content to dwell in
obscurity, living a hand-to-mouth existence.” We must have some knowledge
of the previous stages of economic development if we are to understand
the economic life of the present. Just as naturalists and geologists
in their anxiety to understand the present have invented hypotheses to
explain the evolution of the globe and of living matter upon it, so must
the student of economics return to the distant past if he wants to get
hold of the industrial life of to-day. “Man as a social being,” says
Hildebrand, “is the child of civilisation and a product of history. His
wants, his intellectual outlook, his relation to material objects, and
his connection with other human beings have not always been the same.
Geography influences them, history modifies them, while the progress of
education may entirely transform them.”[851]

The Historians maintained that the earlier economists by paying exclusive
attention to those broader conclusions which had something of the
generality of physical laws about them had kept the science within too
narrow limits. Alongside of theory as they had conceived of it—some
Historians would say instead of it—there is room for another study more
closely akin to biology, namely, a detailed description and a historical
explanation of the constitution of the economic life of each nation. Such
is the positive contribution of the school to the study of political
economy, and it fairly represents the attitude of the present-day
Historians towards the older economists.

Their aim was a perfectly natural and legitimate one, and at first sight,
at least, seemed very attractive. But beneath its apparent simplicity
there is some amount of obscurity, and its adversaries have thought that
upon close analysis it is really open to serious objections.

In the first place, is it the aim of the science to present us with an
exact, realistic picture of society, as the Historians loved to think?
On the contrary, do we not find that a study can only aspire to the
name of a science in proportion as its propositions become more general
in their nature? There is no science without generalisation, according
to Aristotle, and concrete description, however indispensable, is
only a first step in the constitution of a science. A science must be
explanatory rather than descriptive.

Of course Historians are not always content with mere description. Some
Historians have attempted explanation and have employed history as their
organon. Is the choice a suitable one?

“History,” says Marshall, “tells of sequences and coincidences; but
reason alone can interpret and draw lessons from them.”[852]

Moreover, is there a single important historical event whose cause has
ceased to be a matter of discussion? It will be a long time before people
cease to dispute about the causes of the Reformation or the Revolution,
and the relative importance of economic, political, and moral influences
in determining the course of those movements has yet to be assigned.
The causes that led to the substitution of credit for money or money
for barter are equally obscure. Before narrative can become science
there must be the preliminary discovery by a number of other sciences
of the many diverse laws whose combination gives rise to concrete
phenomena.[853] Not history but the sciences give the true explanation.
The evolutionary theory has proved fruitful in natural history simply
because it took the succession of animal species as an established fact
and then discovered that heredity and selection afforded a means of
explaining that succession. But history cannot give us any hypothesis
that can rival the theory of evolution either in its scientific value
or in its simplicity. In other words, history itself is in need of
explanation. It gives no clue to reality and it can never take the place
of economics.[854]

The earlier Historians claimed a higher mission still for the historical
study of political economy. It must not only afford an explanation
of concrete economic reality, but it must also formulate the laws of
economic development. This idea is only held by a few of them, and even
the few are not agreed as to how it should be done. Knies, for example,
thinks that it ought to be sufficiently general to include the economic
development of all nations. Saint-Simon held somewhat similar views.
Others, and among them Roscher, hold that there exist parallelisms in
the history of various nations; in other words, that every nation in the
course of its economic development passes through certain similar phases
or stages. These similarities constitute the laws of economics. If we
were to study their movements in the civilisations of the past we might
be able to estimate their place in existing societies.[855]

Neither point seems very clear. Even if we admit that there is only
one general law of human development we cannot forecast the line of
progress, because scientific prediction is only applicable to recurrent
phenomena. They fail just when the conditions are new. Of course one
can always guess at the nature of the future, but divination is not
knowledge. And predictions of this kind are almost always false.[856]
Historical parallelism rests on equally shaky foundations. A nation,
like any other living organism, passes through the successive stages of
youth, maturity, and old age, but we are not justified in thinking that
the successive phases through which one nation has passed must be a kind
of prototype to which all others must conform. All that we can say is
that in two neighbouring countries the same effects are likely to follow
from the same causes. Production on a large scale, for example, has been
accompanied by similar phenomena in most countries in Western Europe. But
this is by no means an inevitable law. It is simply a case of similar
effects resulting from similar causes. Such analogies are hardly worthy
of the name of laws. The discovery of the law, as Wagner says,[857] may
be a task beyond human power; and Schmoller, as we have already seen, is
of the same opinion.

One remark before concluding. There is a striking similarity between the
ideas just outlined and those of a distinguished philosopher whose name
deserves mention here, although his influence upon political economy was
practically _nil_. We refer to Auguste Comte.

It is curious that the earliest representatives of the school should have
ignored him altogether, but just as Mill remained unknown to them, so
the _Cours de Philosophie positive_, though published in 1842, remained
a sealed book so far as they were concerned. Comte’s ideas are so very
much like those of Knies and Hildebrand that some Positivist economists,
such as Ingram and Hector Denis, have attempted to connect the Historical
tendency in political economy with the Positive philosophy of Comte.[858]

The three fundamental conceptions which formed the basis of the teaching
of the Historical school are clearly formulated by Comte. The first is
the importance of studying economic phenomena in connection with other
social facts. The analysis of the industrial or economic life of society
can never be carried on in the “positive” spirit by simply making an
abstraction of its intellectual, political, or moral life, whether of the
past or of the present.[859] The second is the employment of history as
the organon of social science. “Social research,” says he, “must be based
upon a sane analysis of the all-round development of the best of mankind
up to the present moment, and the growing predilection for historical
study in our time augurs well for the regeneration of political
economy.” He was fully persuaded that the method would foster scientific
prediction—a feature which is bound to fuse all those diverse conditions
which will form the basis of Positive politics.

Comte wished to found sociology, of which political economy was to be
simply a branch. The Historical school, and especially Knies, regarded
economics in the same spirit. Hence the analogies with which Knies had
to content himself, but which the younger school refused to recognise.
But there was a fundamental difference between their respective points of
view, and this will help us to distinguish between them.

Comte was a believer in inevitable natural laws, which, according to the
earlier Historians, had wrought such havoc. The Historical method also,
as he conceived of it, was something very different from what the older
or the newer Historical school took it to be.

Adopting a dictum of Saint-Simon, Comte speaks of the Historical method
as an attempt to establish in ascending or descending series the curve
of each social institution, and to deduce from its general outlines
conclusions as to its probable growth or decline in the future. This
is how he himself defines the process: “The essence of this so-called
historical spirit, it seems to us, consists in the rational use of what
may be called the social series method, or, in other words, in the due
appreciation of the successive stages of human development as reflected
in a succession of historical facts. Careful study of such facts, whether
physical, intellectual, moral, or political, reveals a continuous growth
on the one hand and an equally continuous decline on the other. Hence
there results the possibility of scientific prophecy concerning the
final ascendancy of the former and the complete overthrow of the latter,
provided always such conclusion is in conformity with the general laws
of human development, the sociological preponderance of which must never
be lost sight of.”[860] It was in virtue of this method that Saint-Simon
predicted the coming of industrialism and that Comte prophesied the
triumph of the positive spirit over the metaphysical and religious.

There is considerable difference between this attitude and the Historical
method as we know it,[861] and the attempt at affiliation seems to
us altogether unwarranted. But the coincidence between Comte’s views
and those of Knies and Hildebrand is none the less remarkable, and it
affords a further proof of the existence of that general feeling which
prompted certain writers towards the middle of the century to attempt a
regeneration of political economy by setting it free from the tyranny of
those general laws which had nearly stifled its life.

It seems to us, however, that the Historical school is mistaken if it
imagines that history alone can afford an explanation of the present or
will ever enable us to discover those special laws which determine the
evolution of nations.

On the other hand, it has a perfect right to demand a place beside
economic science, and it is undoubtedly destined to occupy a position
still more prominent in the study of economic institutions, in
statistical investigation, and above all in economic history. Not only is
a detailed description of the concrete life of the present of absorbing
interest in itself, but it is the condition precedent to all speculations
concerning the future. The theorist can never afford to neglect the
minute observation of facts unless he wills that his structure shall hang
in the void. Most abstract economists feel no hesitation in recognising
this. For example, Jevons, writing in 1879,[862] gave it as his opinion
that “in any case there must arise a science of the development of
economic forces and relations.”

This newer historical conception came to the rescue just when the science
was about to give up the ghost, and though they may have failed to give
us that synthetic reconstruction which is, after all, within the ability
of very few writers, its advocates have succeeded in infusing new life
into the study and in stimulating new interest in political economy by
bringing it again into touch with contemporary life. They have done
this by throwing new light upon the past and by giving us a detailed
account of the more interesting and more complex phenomena of the present
time.[863] Such work must necessarily be of a fragmentary character. The
school has collected a wonderful amount of first-class material, but it
has not yet erected that palace of harmonious proportions to which we in
our fond imagination had likened the science of the future. Nor has it
discovered the clue which can help it to find its way through the chaos
of economic life. This is not much to be wondered at when we remember
the shortcomings of the method to which we have already had occasion to
refer. Indeed, some of the writers of the school seem fully convinced
of this. Professor Ashley, in an article contributed to the _Economic
Journal_, employs the following words:[864] “As I have already observed,
the criticisms of the Historical school have not led so far to the
creation of a new political economy on historical lines: even in Germany
it is only within very recent years that some of the larger outlines of
such an economics have begun to loom up before us in the great treatise
of Gustav Schmoller.”

In view of considerations like these one might have expected that the
Historical school would have shown greater indulgence to the attempts
made both by the Classical and by the Hedonistic schools to give by a
different method expression to the same instinctive desire to simplify
matters in order to understand them better.[865]


The nineteenth century opened with a feeling of contempt for government
of every kind, and with unbounded confidence on the part of at least
every publicist in the virtue of economic liberty and individual
initiative. It closed amid the clamour for State intervention in all
matters affecting economic or social organisation. In every country the
number of public men and of economists who favour an extension of the
economic function of government is continually growing, and to-day such
men are certainly in the majority. To some writers this change of opinion
has seemed sufficiently important to warrant special treatment as a new
doctrine, variously known as State Socialism or “the Socialism of the
Chair” in Germany and Interventionism in France.

Really it is not an economic question at all, but a question of practical
politics upon which writers of various shades of economic opinion may
agree despite extreme differences in their theoretical preconceptions.
The problem of defining the limits of governmental action in the matter
of producing and distributing wealth is one of the most important in
the whole realm of political economy, but it can hardly be considered a
fundamental scientific question upon which economic opinion is hopelessly
divided. It is clear that the solution of the problem must depend not
merely upon purely economic factors, but also on social and political
considerations, upon the peculiar conception of general interest which
the individual has formed for himself and the amount of confidence which
he can place in the character and ability of Governments.[866] The
problem is always changing, and whenever a new kind of society is created
or a new Government is established a fresh solution is required to meet
the changed conditions.

How is it, then, that this question has assumed such extravagant
proportions at certain periods of our history?

Had the issue been confined to the limits laid down by Smith it is
probable that such passionate controversies would have been avoided.
Smith’s arguments in favour of _laissez-faire_ were largely economic.
Gradually, however, under the growing influence of individual and
political liberty, a kind of contempt for all State action took the place
of the more careful reasoning of the earlier theory, and the superiority
of individual action in matters non-economic became an accepted axiom
with every publicist.

This method of looking at the problem is very characteristic of Bastiat.
The one feature of government that interested him was not the fact that
it represented the general interest of the citizens, but that whenever it
took any action it had to employ force,[867] whereas individual action
is always free. Every substitution of State for individual action meant
victory for force and the defeat of liberty. Such substitution must
consequently be condemned. Smith’s point of view is totally different.
To appreciate this difference we need only compare their treatment of
State action. In addition to protecting the citizens from invasion and
from interference with their individual rights, Smith adds that the
sovereign should undertake “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; because the profit could never repay the expense to
any individual or small number of individuals, though it may frequently
do much more than repay it to a great society.”[868] The scope is
sufficiently wide, at any rate. If we turn to Bastiat, on the other hand,
we find that the Government has only two functions to perform, namely,
“to guard public security and to administer the common land.”[869] Viewed
in this light, the problem of governmental intervention, instead of
remaining purely economic, becomes a question of determining the nature,
aims, and functions of the State, and individual temperament and social
traditions play a much more important part than either the operation
of economic phenomena or any amount of economic reasoning. It is not
surprising that some writers thought that the one aim of economics was to
defend the liberty and the rights of the individual!

Such exaggerated views were bound to beget a reaction, and the defence of
State action assumes equally absurd proportions with some of the writers
of the opposite school. Even as far back as 1856 Dupont-White, a French
writer, had uttered a protest against this persistent depreciation of the
State, in a short work entitled _L’Individu et l’État_. His ideas are
so closely akin to those of the German State Socialists that they have
often been confused with them, and it is simpler to give an exposition
of both at the same time. But he was a voice crying in the wilderness.
Public opinion under the Second Empire was very little disposed to listen
to an individual who, though a Liberal in politics, was yet anxious
to strengthen the power and to add to the economic prerogative of the
Crown. More favourable circumstances were necessary if there was to be a
change of public opinion on the matter. The times had ripened by the last
quarter of the century, and the elements proved propitious, especially in
Germany, where the reaction first showed itself.

The reaction took the form not so much of the creation of a new doctrine
as of a fusion of two older currents, which must first be examined.

During the course of the nineteenth century we find a number of
economists who, while accepting Smith’s fundamental conception, gradually
limit the application of his principle of _laissez-faire_. They thought
that the superiority of _laissez-faire_ could not be scientifically
demonstrated and that in the great majority of cases some form of State
intervention was necessary.

On the other hand, we meet with a number of socialists who prove
themselves to be more opportunistic than their comrades, and though
equally hostile to private property and freedom of production, yet never
hesitate to address their appeals on behalf of the workers to existing

State Socialism represents the fusion of these two currents. It surpasses
the one in its faith in the wisdom of Governments, and is distinguished
from the other by its greater attachment to the rights of private
property; but both of them contribute some items to its programme. In
the first place we must try to discover the source of these separate
tendencies, and in the second place watch their amalgamation.


The doctrine of absolute _laissez-faire_ was not long allowed to go
unchallenged. From the time of Smith onward there is an uninterrupted
sequence of writers—all of them by no means socialists—who ventured
to attack the fundamental propositions of the great Scotsman and who
attempted to show that his practical conclusions were not always borne
out by the facts.

Smith based his advocacy of _laissez-faire_ upon the supposed
identification of public and private interests. He showed how competition
reduced prices to the level of cost of production, how supply adapted
itself to meet demand in a perfectly automatic fashion, and how capital
in an equally natural way flowed into the most remunerative occupations.

This principle of identity of interests was, however, rudely shaken by
the teachings of Malthus and Ricardo, although both of them remained
strong adherents of the doctrine of individual liberty.

Sismondi, who was the next to intervene, laid stress upon the evils of
competition, and showed how social inequality necessitated the submission
of the weak to the will of the strong. His whole book was simply a
refutation of Smith’s providential optimism.

In Germany even, as early as 1832, that brilliant economist Hermann was
already proceeding with his critical analysis of the Classical theories;
and after demonstrating how frequently individual interest comes into
conflict with public welfare, and how inadequate is the contribution
which it can possibly make to the general well-being, he declares his
inability to subscribe to the doctrine laid down by most of Smith’s
followers, namely, that individual activity moved by personal interest is
sufficient to meet all the demands of national economy. Within the bounds
of this national economy[870] he thinks there ought to be room for what
he calls the civic spirit (_Gemeinsinn_) as well.

The next critic, List, bases his whole case upon the opposition between
immediate interests, which guide the individual, and the permanent
interests of the nation, of which the Government alone can take account.

Stuart Mill, in the famous fifth book of the _Principles_, refuses
even to discuss the doctrine of identity of interests, believing it
to be quite untenable. On the question of non-intervention he admits
the validity of one economic argument only, namely, the superiority
of self-interest as an economic motive. But he is quick to recognise
its shortcomings and the exceptions to its universal operation—in the
natural incapacity of children and of the weak-minded, the ignorance of
consumers, the difficulty of achieving it, even when clearly perceived,
without the help of society as a whole, as in the case of the Factory
Acts. Mill also points out how this motive is frequently wanting in
modern industrial organisation, where, for example, we have joint stock
companies acting through the medium of a paid agency, or charitable
work undertaken by an individual who has to consider, not his own
interests, but those of other people. Private interest is also frequently
antagonistic to public interest, as in the case of the public supply of
gas or water, where the individual _entrepreneur_ is influenced by the
thought of a maximum profit rather than by considerations of general
interest. In matters of that kind Stuart Mill was inclined to favour
State intervention.[871]

M. Chevalier, from his professorial chair in the Collège de France,
extended his congratulations to Mill upon his successful restoration
of the legitimate duties of Governments.[872] Chevalier thought that
those who believed that the economic order could be set up simply by
the aid of competition acting through personal interest were either
illogical in their arguments or irrational in their aims. Government
was simply the manager of the national organisation, and its duty was
to intervene whenever the general interest was endangered. But the
duties and privileges of government are not exactly those of the village
policeman.[873] Applying this principle to public works, he points out
that they are more or less State matters, and the guarantee for good work
is quite as great when the State itself undertakes to perform it as when
it is entrusted to a private individual.

In 1863 Cournot, whose reputation was unequal to either Mill’s or
Chevalier’s, but whose penetrating thought, despite its small immediate
influence, is quite important in the history of economic doctrines,
treats of the same problem in his _Principes de la Théorie des
Richesses_. Going straight to the heart of the problem, he asks whether
it is possible to give a clear definition of this general interest—the
economic _optimum_ which we are anxious to realise—and whether the system
of free competition is clearly superior to every other. He justly remarks
that the problem is insoluble. Production is determined by demand, which
depends both upon the preliminary distribution of wealth and also upon
the tastes of consumers. But if this be the case, it is impossible to
outline an ideal system of distribution or to fix upon the kind of tastes
that will prove most favourable for the development of society. A step
farther and Cournot must have hit upon the distinction so neatly made by
Pareto between maximum utility, which is a variable, undefined notion,
and maximum ophelimity, “the investigation of which constitutes a clearly
defined problem wholly within the realm of economics.”[874]

But Cournot does not therefore conclude that we ought to abstain from
passing any judgment in the realm of political economy and abandon all
thought of social amelioration. Though the absolutely best cannot be
defined, it does not follow that we cannot determine the relatively good.
“Improvement or amelioration is possible,” says he, “by introducing a
change which operates upon one part of the economic system, provided
there are no indirect effects which damage the other parts of the
system.”[875] Such progress is not necessarily the result of private
effort. Following Sismondi, he quotes several instances in which the
interests of the individual collide with those of the public and in which
State intervention might prove useful.

Every one of these authors—in varying degrees, of course—admits the
legitimacy of State intervention in matters economic. Liberty doubtless
is still the fundamental principle. Sismondi was content with mere
aspiration, so great did the difficulties of intervention appear to
him. Stuart Mill thought that the _onus probandi_ should rest with the
innovator. Cournot considered liberty as being still the most natural and
simple method, and should the State find it necessary to intervene it
could only be in those instances in which science has clearly defined the
aim in view and demonstrated the efficacy of the methods proposed. Every
one of them has abandoned liberty as a scientific principle. To Cournot
it was an axiom of practical wisdom;[876] Stuart Mill upheld it for
political reasons as providing the best method of developing initiative
and responsibility among the citizens. They all agree that the State,
far from being a _pis aller_, has a legitimate sphere of action. The
difficulty is just to define this.[877] This was the task to which Walras
addressed himself with remarkable success in his lectures on the theory
of the State, delivered in Paris in 1867-68.[878]

And so we find that the progress of thought since the days of Adam Smith
had led to important modifications of the old doctrines concerning the
economic functions of the State. The publicists, however, were not
immediately converted. Even when the century was waning they still
remained faithful to the optimistic individualism of the earlier period.
The organon of State Socialism merely consists of these analyses
incorporated into a system. The authors just mentioned must consequently
be regarded, if not as the precursors of State Socialism, at any rate as
unconsciously contributing to the theory.


State Socialism is not an economic doctrine merely. It has a social
and moral basis, and is built upon a certain ideal of justice and a
particular conception of the function of society and of the State. This
ideal and this conception it received, not from the economists, but from
the Socialists, especially Rodbertus and Lassalle. The aim of these two
writers was to effect a kind of compromise between the society of the
present and that of the future, using the powers of the modern State
simply as a lever.

The idea of a compromise of this kind was not altogether new. A faint
suggestion of it may be detected more than once in the course of the
century, and an experiment of the kind was mooted in France towards the
end of the July Monarchy. At that time we find men like Louis Blanc and
Vidal—who were at least socialists in their general outlook—writing
to demand State intervention not merely with a view to repairing the
injustice of the present society, but also with a view to preparation for
the society of the future with as little break with the past as possible.
Louis Blanc was in this sense the first to anticipate the programme of
the State Socialists. But its more immediate inspirers were Rodbertus and
Lassalle, both of whom belonged to that country in which its effects were
most clearly seen.

Their influence upon German State Socialism cannot be exactly measured by
the amount of direct borrowing that took place. They were linked by ties
of closest friendship to the men who were responsible for creating and
popularising the new ideas, and it is important that we should appreciate
the personal influence which they wielded. Rodbertus formed the centre
of the group, and during the two years 1862-64 he carried on an active
correspondence with Lassalle. They were brought together by the good
offices of a common friend, Lothar Bucher, an old democrat of 1848 who
had succeeded in becoming the confidant of Bismarck. Strangely enough,
Bismarck kept up his friendship with Lassalle even when the latter was
most busily engaged with his propaganda work.[879] Wagner, also, the most
eminent representative of State Socialism, was in frequent communication
with Rodbertus, and he never failed to recognise his great indebtedness
to him. Wagner himself was on more than one occasion consulted by

But apart altogether from their connection with State Socialism,
Rodbertus and Lassalle would deserve a place in our history. Rodbertus
is a theoretical writer of considerable vigour and eloquence, and his
thoughts are extraordinarily suggestive. Lassalle was an agitator and
propagandist rather than an original thinker, but he has left a lasting
impression upon the German labour movement. Hence our determination to
give a somewhat detailed exposition of their work, especially of that of
Rodbertus, and to spare no effort in trying to realise the importance of
the contribution made by both of them.


In a history of doctrines Rodbertus has a place peculiarly his own. He
forms, as it were, a channel through which the ideas first preached
by Sismondi and the Saint-Simonians were transmitted to the writers
who belong to the last quarter of the century. His intellectual
horizon—largely determined for him by his knowledge of these French
sources[880]—was fixed as early as 1837, when he produced his
_Forderungen_, which the _Gazette universelle d’Augsburg_ refused to
publish. His first work appeared in 1842,[881] and the earliest of
the _Soziale Briefe_[882] belong to 1850 and 1851. At the time these
passed almost unnoticed. It was only when Lassalle in his treatise in
1862 referred to him as the greatest of German economists, and when
conservative writers like Rudolf Meyer and Wagner drew attention to
his work, that his books received the notice which they deserved. The
German economists of the last thirty years have been greatly influenced
by him. His ideas, it is true, are largely those of the earliest
French socialists, who wrote before the movement had lost its purely
intellectual tone and become involved in the struggle of the July
Monarchy, but his clear logic and his systematic method, coupled with his
knowledge of economics, which is in every way superior to that of his
predecessors, gives to these ideas a degree of permanence which they had
never enjoyed before. This “Ricardo of socialism,” as Wagner[883] calls
him, did for his predecessors’ doctrines what Ricardo had succeeded in
doing for those of Malthus and Smith. He magnified the good results of
their work and emphasised their fundamental postulates.

Rodbertus’s upbringing decreed that he should not become involved in
that democratic and radical socialism which was begotten of popular
agitation, and whose best-known representative is Marx. Marx considered
socialism and revolution, economic theory and political action, as
being indissolubly one.[884] Rodbertus, on the other hand, was a great
liberal landowner who sat on the Left Centre in the Prussian National
Assembly of 1848, and his political faith is summed up in the two phrases
“constitutional government” and “national unity.”[885] The success
won by the Bismarckian policy gradually drew him nearer the monarchy,
especially towards the end of his life.[886] His ideal was a socialist
party renouncing all political action and confining its attention solely
to social questions. Although personally favourably inclined towards
universal suffrage, he refused to join Lassalle’s _Arbeiterverein_
because Lassalle had insisted upon placing this article of political
reform on his programme.[887] The party of the future, he thought,
would be at once monarchical, national, and socialistic, or at any rate
conservative and socialistic.[888] At the same time we must remember that
“in so far as the Social Democratic party was aiming at economic reforms
he was with it heart and soul.”[889]

Despite his belief in the possibility of reconciling the monarchical
policy with his socialistic programme, he carefully avoided the
economic teachings of the socialists. His too logical mind could never
appreciate their position, and he had the greatest contempt for the
Socialists of the Chair. He would be the first to admit that in practice
socialism must content itself with temporary expedients, although he
cannot bring himself to believe that such compromise constitutes the
whole of the socialistic doctrine. He refers to the Socialists of
the Chair as the “sweetened water thinkers,”[890] and he refused to
join them at the Eisenach Congress of 1872—the “bog of Eisenach,” as
he calls it somewhere. He regarded the whole thing as a first-class
comedy. Even labour legislation, he thought, was merely a caprice
of the humanitarians and socialists.[891] So that whenever we find
him summing up his programme in some such sonorous phrase as _Staat
gegen Staatslosigkeit_[892] (“the State as against the No-State”)
we must be careful to distinguish it from the hazy doctrines of the
State Socialists.[893] Despite himself, however, he proved one of the
most influential precursors of the school, and therein lies his real

Rodbertus’s whole theory rests upon the conception of society as an
organism created by division of labour. Adam Smith, as he points out,
had caught a faint glimmer of the significant fact that all men are
linked together by an inevitable law of solidarity which takes them out
of their isolation and transforms an aggregate of individuals into a
real community having no frontiers and no limits save such as division
of labour imposes, and sufficiently wide in scope to include the whole
universe.[894] As soon as an individual becomes a part of economic
society his well-being no longer depends upon himself and the use which
he makes of the natural medium to which he applies himself, but upon
the activity of his fellow-producers. The execution of certain social
functions, which Rodbertus enumerates as follows, and which he borrows
partly from Saint-Simon, henceforth become the determining factors: (1)
The adaptation of production to meet demand; (2) the maintenance of
production at least up to the standard of the existing resources; (3) the
just distribution of the common produce among the producers.

Should society be allowed to work out these projects spontaneously, or
should it endeavour to carry out a preconceived plan? To Rodbertus this
was the great problem which society had to consider. The economists of
Smith’s school treated the social organism as a living thing. The free
play of natural laws must have the same beneficial effects upon it as
the free circulation of the blood has upon the human body. Every social
function would be regularly discharged provided “liberty” only was
secured. Rodbertus thought this was a mistake. “No State,” says he, “is
sufficiently lucky or perhaps unfortunate enough to have the natural
needs of the community satisfied by natural law without any conscious
effort on the part of anyone. The State is an historical organism, and
the particular kind of organisation which it possesses must be determined
for it by the members of the State itself. Each State must pass its
own laws and develop its own organisation. The organs of the State do
not grow up spontaneously. They must be fostered, strengthened, and
controlled by the State.”[895] Hence, after 1837 we find Rodbertus
proposing the substitution of a system of State direction[896] for the
system of natural liberty, and his whole work is an attempt to justify
the introduction of such a system. Let us examine his thesis and review
the various economic functions which we defined above. Let us also
watch their operation at the present day and see how differently these
functions would be discharged in a better organised community.

1. It is hardly correct to speak of production adapting itself to social
need under existing conditions, because production only adapts itself
to the effective demand, _i.e._ to the demand when expressed in terms
of money. This fact had been hinted at by Smith, and Sismondi had laid
considerable stress upon it; but Rodbertus was the earliest to point
out that this really meant that only those people who already possess
something can have their wants satisfied.[897] Those who have nothing
to offer except their labour, and find that there is no demand for that
labour, have no share in the social product. On the other hand, the
individual who draws an income, even though he never did any work for
it, is able to make effective his demand for the objects of his desire.
The result is that many of the more necessitous persons must needs go
unsatisfied, while others wallow in luxury.

Truer word was never spoken. Rodbertus had a perfect right to insist
on the fundamental fallacy lurking within a system which could treat
unemployment—that modern form of famine—as simply an over-production
of goods, and which found itself unable to modify it except through
public or private charity. His remedy consisted of a proposal to set
up production for social need as a substitute for production for
demand. The first thing to be done was to find out the time which each
individual would be willing to give to productive work, making a note of
the character and quantity of goods required at the same time.[898] He
thought that “the wants of men in general form an even series, and that
the kind and number of objects required can easily be calculated.”[899]
Knowing the time which society could afford to give to production, there
would be no great difficulty in distributing the products among the
various producers.

This is to go to work a little too precipitately and to shun the greatest
difficulty of all. The uniform series of wants of which Rodbertus speaks
exist only in the imagination. What we really find is a small number
of collective needs combined with a great variety of individual needs.
Social need is merely a vague term used to designate both kinds of wants
at once. The slightest reflection shows that every individual possesses
quite a unique series of needs and tastes. To base production upon social
need is to suppress liberty of demand and consumption. It implies the
establishment of an arbitrary scale of needs which must be satisfied and
which is to be imposed upon every individual. The remedy would be worse
than the evil.

But the opposition between social need and effective demand by no means
disposes of his argument. The opposition needs some proving, and some
explanation of the producers’ preference for demand rather than need
ought to be offered. The explanation must be sought in the fact that the
capitalistic producer of to-day manages his business in accordance with
the dictates of personal interest, and personal interest compels him to
apply his instruments to produce whatever will yield him the largest net
product. He is more concerned about the amount of profit made than about
the amount of produce raised. He produces, not with a view to satisfying
any social need, but simply because it yields him rent or profit.[900]

This contrast between profit-making and productivity deserves some
attention. Sismondi had already called attention to it by distinguishing
between the net and the gross product. A number of writers have treated
of it since, and it holds a by no means insignificant place in the
history of economic doctrines.[901]

The opposition is dwelt upon in no equivocal fashion by Rodbertus. This
pursuit of the maximum net product is clearly the producer’s only guide,
but the conclusions which he proceeds to draw from it are somewhat
more questionable. If we accept his opinion that the satisfaction of
social need and not of individual demand is the determining factor in
production, we are driven to the conclusion that modern society, actuated
as it is by this one motive, cannot possibly satisfy every individual
demand. But we have already shown that the phrase “social need” has no
precise connotation; neither has the term “productivity,” which is so
intimately connected with it. Further, if society has no desire to impose
upon its members an arbitrary scale of wants that must be satisfied—in
other words, if demand and consumption are to remain free—it can only be
by adopting that system which recognises a difference between the present
and the future “rentability” of the product. This difference between the
sale price and the real cost of production of any commodity must, it
seems to us, be recognised even by a collectivist society as the only
method of knowing whether the satisfaction which a commodity gives is in
any way commensurate with the labour involved in its production.[902]
Pareto has given an excellent demonstration of this by showing how
collectivist society will have to take account of price indications if
social demand is to be at all adequately supplied.

2. Turning to the other desideratum, namely, a fuller utilisation of
the means of production, Rodbertus contents himself with quoting the
criticisms of the Saint-Simonians concerning the absence of conscious
direction which characterises the present _régime_ and the hereditary
element which is such a common feature of economic administration. He is
in full agreement with Sismondi when the latter declares that production
is entirely at the option of the capitalist proprietor.[903] In this
matter he is content merely to follow his leaders, without making any
contribution of his own to the subject.

3. There still remains a third economic function which society ought
to perform, and which Rodbertus considered the most important of all,
namely, the distribution of the social product. An analysis of the
present system of distribution was one of the tasks he had set himself
to accomplish, believing with Sismondi and other socialists that a
solution of the problem of distribution and the explanation of such
phenomena as economic crises and pauperism constitute the most vital
problems which face the science at the present moment.

A just distribution, in Rodbertus’s opinion, should secure to everyone
the product of his labour.[904] But does not the present _régime_ of free
competition and private property accomplish this?

Let us watch the mechanism of distribution as we find it operating at the
present time. Rodbertus’s description of it is not very different from
J. B. Say’s, and it tallies pretty closely with the Classical scheme. On
the one hand we have the _entrepreneur_ who purchases the services of
labour, land, and capital, and sells the product which results from this
collaboration. The prices which he pays for these services and the price
he himself receives from the consumer are determined by the interaction
of demand and supply. What remains after paying wages, interest, and rent
constitutes his profits.[905]

The distribution of the product is effected through the mechanism of
exchange, and the result of its operation is to secure to the owner of
every productive service the approximate market value of that service.
Could anything be juster? Apparently not. But if we examine the social
and economic hinterland behind this mechanism what we do find is the
callous exploitation of the worker by every capitalist and landlord.
The various commodities which are distributed among the different
beneficiaries are really the products of labour. They are begotten
of effort and toil—largely mechanical. Rodbertus did not under-value
intellectual work or under-estimate the importance of directive energy.
But intelligent effort seemed to him an almost inexhaustible force, and
its employment should cost nothing, just as the forces of nature may be
got for nothing. Only manual labour implies loss of time and energy—the
sacrifice of something that cannot be replaced.[906] Consequently he does
not recognise the intellectual or moral effort (the name is immaterial)
involved in the postponement of consumption, whereby a present good
is withheld with a view to contributing to the sum total of future
good.[907] And he proceeds to define and to develop the opening paragraph
of Smith’s _Wealth of Nations_: “The annual labour of every nation is
the fund which originally supplies it with all the necessaries and
conveniences of life which it annually consumes, and which consist always
either in the immediate produce of that labour or in what is purchased
with that produce from other nations.”

The difference between his attitude and Marx’s is also interesting.
Marx was thoroughly well versed in political economy, and had made a
special study of the English socialists. His one object was to set
up a new theory of exchange, with labour as the source of all value.
Rodbertus, who drew his inspiration from the Saint-Simonians, focused
attention upon production, and treated labour as the real source of
every product—a simpler, a truer, but a still incomplete proposition.
Rodbertus never definitely commits himself to saying that labour by
itself creates value, but, on the other hand, he never denies it.[908]
Social progress, he always maintained, must consist in the greater degree
of coincidence[909] between the value of a product and the quantity of
labour contained in it. But this is a task which the future must take
in hand.[910] Again, if it be true that the worker creates the product,
but that the proprietors of the soil and the capitalists who have had no
share in its production are able to manipulate exchange in such a way as
to retain a portion of it for themselves, it is clear that our judgment
concerning the equity of the present system needs some revision. This
secret embezzlement for the profit of the non-worker and to the injury
of the diligent proceeds without any outward display of violence through
the free play of exchange operating within a system of private property.
Its sole cause lies in the present social system, “which recognises
the claim of private landowners and capitalists to a share of the
wealth distributed, although they have contributed nothing towards its

Hence his exposition of the twofold aspect of distribution. Economically
exchange attributes to each of the factors land, capital, and labour a
portion of the produce corresponding to the value of their respective
services as estimated in the market. Socially it often means taking away
from the real producers—from the workers—a part of the goods which their
toil has created. This portion Rodbertus refers to under the simple name
“rent,” which includes both the revenue of capitalists and the income of

No economist ever put the twofold aspect of the problem in a clearer
light. Laying hold of the eternal opposition between the respective
standpoints, he emphasises the difficulties which they present to so
many minds. Justice would relate distribution to merit, but society is
indifferent provided its own needs are satisfied. Society simply takes
account of the market value of these products and services without ever
showing the least concern for their origin or the efforts which they may
originally have involved—the weary day of the industrious labourer and
the effortless lounge of the lazy capitalist being similarly rewarded.
Rodbertus’s great merit was to separate this truth from the other issues
so frequently confused with it in the writings of the earlier economists
and to bring it clearly before the notice of his fellow economists.

Rodbertus’s criticism did not end there, although the demonstration which
we have just given of the distinction between the social and the purely
economic point of approach to distribution constitutes its essential
merit. We must not omit the practical conclusions which he draws from it.

What concerned Rodbertus most—at least, so we imagine from the standpoint
which he adopted—was not the particular way in which the rate of wages
or interest, high or low rents, are determined, but the proportion of
the revenue that goes to the workers and non-workers respectively. The
former question is a purely economic one of quite secondary importance
compared with this other social problem. Believing that he had already
shown the possibility of the workers being robbed, the problem now
was to determine whether this spoliation was likely to continue. Does
economic progress give any ground for hoping that rent or unearned
income will gradually disappear? Bastiat and Carey had replied in the
affirmative. The proportion that goes to capital, so they affirmed, is
gradually becoming less, to the great advantage of the labourer. Ricardo,
faced with the same dilemma, had come to the conclusion that with the
inevitable increase in the cost of producing food the landowner’s share
must be constantly growing. Say had asked himself the same question in
the earliest edition of his treatise, but had found no reply. Rodbertus
adopts none of their solutions, but independently arrives at the
conclusion that the worker’s share gradually dwindles, to the advantage
of the other participants.[912]

Theorist as he was, a simple deduction was all that was needed to
convince him of the truth of this view. The rate of wages, we have
already seen, is determined by the interaction of demand and supply in
the labour market. The market price of labour, however, like that of any
other product, is always gravitating towards a normal value—this normal
value being none other than Ricardo’s necessary wage. “The share of the
product that falls to the lot of the producer both in an individual
instance and as a general rule is not measured by the amount which he
himself has produced, but by that quantity which is sufficient for the
upkeep of his strength and the upbringing of his children.”[913] This
celebrated “brazen law” became the pivot of Lassalle’s propaganda,
although it was never definitely recognised by Marx.

Granting the existence of such a law, and admitting also that the amount
produced by labour is always increasing, so that the mass of commodities
produced always keeps growing, a very simple arithmetical calculation
suffices to show that the total quantity obtained by the workers always
remains the same, representing a diminished fraction of the growing

A similar demonstration affords a clue to the prevalence of crises. The
_entrepreneur_ keeps adding to the mass of commodities produced until he
touches the full capacity of social demand.[914] But while production
grows and expands the worker’s share dwindles, and thus his demand for
some products remains permanently below production level. The structure
is giving way under the very feet of the unsuspecting producer.[915]
This theory of crises is simply a re-echo of Sismondi,[916] and gives an
explanation of a chronic evil rather than of a crisis pure and simple.
Its scientific value is just about equal to Sismondi’s other theory
concerning proportional distribution.

This theory upon which Rodbertus laid such emphasis had already been
outlined in his _Forderungen_, and a fuller development is given in his
_Soziale Briefe_, where he expressly states it to be the fundamental
point of his whole system, all else being mere scaffolding. His one
ambition all his life long was to be able to give a statistical proof of
it, but its importance is not nearly as great as he imagined it to be.

In the first place, doubt as to the validity of the “brazen” or “iron
law of wages”—upon which the theory is based—is entertained not merely
by economists, but also by socialists. And even if it were true,
Rodbertus’s proof would still be inconclusive, for the workers’ share of
the total product depends not upon one fact alone, but upon two—the rate
of wages _and_ the number of workers. Rodbertus’s error and Bastiat’s are
very similar. Bastiat had tried to determine the capitalists’ share of
the total product by taking account of one fact only, namely, the rate of
interest, whereas he ought to have taken the amount of existing capital
into consideration as well.

But we must admit that although the arguments used by Rodbertus are
scarcely more reliable than Bastiat’s, his theory itself is nearer the
facts as judged by statistics. No amount of _a priori_ reasoning without
some recourse to statistics can ever solve the problem. Statistics
themselves seem to prove that labour’s portion, in some countries at
least, has shown signs of diminishing since the beginning of the present

This does not necessarily mean that the worker must be worse off, for it
may well happen that a diminution in the general share obtained by labour
is accompanied by a growth of individual wages. All that we can conclude
is that wages have not increased as rapidly as has capital’s share,[917]
but this has not prevented the workers sharing in the general growth of

Logically enough, Rodbertus proceeds to draw certain practical
conclusions, including the necessity for the suppression of private
property and of individual production. The community should be the sole
owner of the means of production. Unearned income must go. Everyone
should contribute something to the national dividend, and each should
share in the total produce in proportion to his labour. The value of all
commodities will depend upon the amount of time spent on them and effort
put into them; and since the supply will always adapt itself to the needs
of society the measure will be constant and exact, and equal distribution
will be assured.

But Rodbertus recoils from his own solution, and the ardent socialist
becomes a simple State Socialist. What frightens him is not the terrible
tyranny of a system under which production and even consumption would
be strictly regulated. “There would be as much personal freedom under a
system of this kind as in any other form of society,” he remarks,[918]
“society” evidently always implying some measure of restraint. His
apprehension was of a different kind. He had a perfect horror of any
revolutionary change, and stood aghast at the lack of education displayed
by the masses. He realised how unwilling they were to sacrifice even a
part of their wages in order to enable other men to have the necessary
leisure to pursue the study of the arts and sciences—the noblest fruits
of civilisation. Finally it seemed to him that illegal appropriation and
the rightful ownership which results from vigorous toil are too often
confused by being indiscriminately spoken of as private property. “There
is,” says he, “so much that is right mixed up with what is wrong that one
goads the lawful owner into revolt in trying to lay hold of the unlawful

Some kind of compromise should at all costs be effected. If private
property—one of the great evils of the present day—cannot be got rid of
without some inconvenience, cannot we possibly dispense with freedom
of contract, the other source of inequality? Let us assume, then,
that we have got rid of free contract while retaining the institution
of private property. By doing this, although we are not immediately
able to clear away unearned income, we shall have removed some of the
greatest inconveniences that result from it. We shall arrest the downward
trend of labour’s remuneration, and poverty and crises will disappear

Such an attempt might be made even now. Let the State estimate the
total value of the social product in terms of labour and determine
the fraction that should go to the workers. Let it give to each
_entrepreneur_ in accordance with the number of workers he employs a
number of wage coupons, in return for which the _entrepreneur_ shall be
obliged to put on the market a quantity of commodities equal in value.
Lastly, let the said workers, paid in wage coupons, supply themselves
with whatever they want from the public stores in return for these
coupons. The national estimate would from time to time be subject to
revision; and in order that the proportions should always be the same,
the number of coupons given to labour would have to be increased if the
number of commodities produced ever happened to increase. Rodbertus’s aim
was to give the workers a share in the general progress made, and such
was the plan which he laid down.[921]

There is no need to emphasise its theoretical, let alone its practical
difficulties. We were led to mention it for a double reason. In the first
place, it is interesting as an attempt to effect a compromise between the
society of the present and the collectivism of the future. Marx regards
the growing servility of the worker with a certain measure of equanimity
as a necessary preliminary to his final emancipation. Rodbertus would
speed the process of amelioration and would better his lot here and
now.[922] It also throws an interesting light upon his extraordinary
confidence in the all-powerful sovereignty of the State, and the ability
of government to bend every individual will, even the most recalcitrant,
to the general will. At the same time it reveals his utter indifference
to individual liberty as an economic motive.

This indifference gradually merges into extreme hostility, while his
confidence in the centralised executive becomes all the more thoroughly
established. His later historical works contain an exposition of an
organic theory of the State which is meant to justify such confidence.
Just as in the animal world the higher animals are found to possess
the most highly differentiated organs as well as the most closely
co-ordinated, so in history as we pass from the lower social strata to
the higher ones “the State advances both in magnitude and efficiency; and
its action, while increasing in scope, grows in intensity as well. The
State in its passage from one evolutionary stage to another presents
us not merely with a greater degree of complexity, each function being
to a greater and greater extent discharged by some special organ, but
also with an increasing degree of harmony. The social organisms, despite
their ever-increasing variation, are placed in growing dependence upon
one another by being linked to some central organ. In other words, the
particular grade that a social organism occupies in the organic hierarchy
depends upon the degree to which division of labour and centralisation
have been carried.”[923]

We are thus driven back upon the fundamental question set by Rodbertus
at the outset of his inquiry: Can the various social functions, acting
spontaneously, efficiently further the good of the social body, or should
these functions be discharged by the mediation of a special organ, the
State or Government? There is also the further question as to whether the
reply which he gives is entirely satisfactory.

We are immediately struck by a preliminary contradiction: the economic
boundaries of the community do not coincide with its political
boundaries. The one is the result of division of labour and is
coextensive with the limits set by division of labour, while the second
is the product of the changing conditions of history. It is only logical
that the economic functions of the State should be performed by other
organs than those of the political Government, since its sphere of action
is necessarily different. But it is to the State, as evolved in the
course of a long historical process, that Rodbertus would entrust this
directing power. Between Rodbertus’s description of the State’s economic
activity and his final recourse to a national monarchical State is an
element of contradiction which strikes us rather forcibly, especially
when he comes to speak of “national” socialism.

In order to demonstrate how inadequately the present social organisation
performs its duties, Rodbertus appeals to an ideal method of discharging
them which he himself has created, and he has not the slightest
difficulty in showing that hardly any of his ideal functions are being
performed at the present time. Production is not based upon social need,
nor is the wealth produced distributed in accordance with the labour
spent. But we must never forget that Rodbertus’s conception of the social
need was extremely hazy. His distribution formula, “to everyone according
as he produces,” if applied logically is impossible, and satisfies
neither the demands of humanity nor the needs of production. Had his
definition of social function been less ambitious, his argument, perhaps,
would have been more convincing.

Let us admit, however, that the existence of an economic society implies
the successful accomplishment of certain functions which we need not
trouble to define just now. The question then arises—a question that
implies the severest criticism of the present organisation: Can the
control and oversight which men ought to exercise over these functions
be performed otherwise than through the instrumentality of the State?
There was only one alternative for Rodbertus—extreme individualism or
State control. But nature and history both escape the dilemma. The
biological analogy has been carried too far, and most writers would
be content to abandon it altogether. Like most of his contemporaries,
Rodbertus imagined that economic individualism and personal liberty
were indissolubly bound together, and that it was impossible to check
individualism without endangering liberty. It is now realised, however,
that this association of ideas, like many another, is temporary and not
eternal, and the growth of voluntary associations intermediate between
the State and the individual is every day showing it to be false.

We are now in a better position to appreciate the kind of appeal which
this doctrine would make to State Socialists—people who are essentially
conservative, but nevertheless genuinely desirous of seeing a larger
element of justice introduced into our industrial _régime_. The
distinction drawn between politics and economic socialism makes a first
claim upon their respect. Then would follow the organic conception of
society, which is a feature of all Rodbertus’s writings. It was his
belief that production and distribution could only be regarded as social
functions, and that the breakdown of individualism implied a need for
greater centralisation or a greater degree of State control. On the
other hand, the State Socialists refuse to associate themselves with the
radical condemnation of private property and unearned income, both of
which are features of Rodbertus’s teaching. The State Socialists set out
to transform the Rodbertian compromise into a self-sufficing system, and
instead of regarding their doctrine as a diluted form of socialism they
are rather inclined to treat socialism as an exaggerated development of
their theory.[924]


Rodbertus’s efforts to establish a doctrine of State Socialism upon the
firm foundation of a new social theory had already met with a certain
measure of success, but it was reserved for Lassalle to infuse vitality
into these new ideas.

Lassalle’s brief but brilliant political career, ever memorable for
the natural vigour of his eloquence, at once popular and refined, and
its indelible impression of a strikingly original nature aflame with
a passion both for thought and action, together with the romantic,
dramatic character of his checkered existence, lent wonderful force to
his utterances. In 1848, at the early age of twenty-three, he was a
Marxian revolutionist. The revolutionary period was followed by a time
of enforced inactivity, when he devoted himself almost exclusively to
philosophical, legal, and literary pursuits. In 1862 the silence was at
last broken by his re-entry into the political arena. The whole political
life of Germany was at that moment convulsed by the half-hearted
opposition which the Prussian Liberal party was offering to Bismarck’s
constitutional changes. Lassalle declared war both upon the Government
and upon the _bourgeois_ Opposition—upon the latter more than the former,
perhaps. Turning to the working classes, he urged them to form a new
party which would avoid all purely political questions and to concentrate
upon their own economic emancipation. For two eventful years the whole of
Germany resounded with his speeches and his declamations before various
tribunals, while the country was flooded with his pamphlets advocating
the complete establishment of the _Allgemeiner deutscher Arbeiterverein_
(General Association of German Workers), which he had already founded at
Leipzig in 1863. The workers of the Rhineland received with open arms
the agitator who thus took up in their midst the tangled skein of a
broken career, and welcomed him with songs and decked him with garlands.
The Liberal press, on the other hand, thoroughly taken aback by his
unexpected onslaughts, mercilessly attacked him, even accusing him of
having secret dealings with the Government. Suddenly the clamour ceased:
Lassalle died on August 31, 1864, as the result of a wound which he had
received in a duel,[925] and only the _Deutscher Arbeiterverein_, the
earliest embryo of the great German Social Democratic party, remained as
a memento of those violent attacks upon individualist Liberalism.

As far as theory goes, Lassalle’s socialism is hardly distinguishable
from Marx’s. Social evolution is summed up in a stricter limitation of
the rights of private property,[926] which in the course of a century
or two must result in its total disappearance.[927] But Lassalle was
pre-eminently a man of action, bent upon practical results. At that
particular moment the German working class was only just waking up to
the possibility of political existence. The path that it should follow
was still undecided. In the year 1863 a number of workmen had tried to
persuade their comrades to meet together in a kind of general congress.
They further appealed to Lassalle and to other well-known democrats for
their advice concerning the labour question. This gave Lassalle the
opportunity he required for forming a political party of his own, with
himself as chief. The next question was to fix upon a programme. “Working
men,” says Lassalle, “must have something definite,”[928] and, on the
other hand, “it is almost impossible to get the public to understand the
final object which we must keep in view.”[929] So, without burdening his
propaganda with too remote an ideal, he concentrates all his efforts
upon two demands, the one political, the other economic—universal
suffrage on the one hand and the establishment of producers’ associations
supported by the State on the other. In order to win over the masses,
he invoked, not the doctrine of the exploitation of the workers by
the proprietors—which would have alienated the middle classes from
him[930]—but the “brazen law of wages,” which is the happy title by which
he chose to designate the Ricardian law of wages.

Rodbertus realised the necessity for distinguishing between an esoteric
and an exoteric Lassalle[931]—between the logical theorist of the study
and the opportunist politician of the public platform. Only to his
contemporaries was the latter Lassalle really known. But his letters,
which have been published since his death, go to show that there is at
least no need to attach any greater importance to his proposed reforms
than he was prepared to give them himself. It is not necessary to
emphasise the fact that his plan was really borrowed from Louis Blanc or
to call attention to the letter written to Rodbertus in which he declares
himself quite prepared to change his plan provided a better one can be
found. This idea of association was one that was by no means unknown to
the German Liberal party; nor was it the first time that it had been
preached to the working classes. Lassalle’s rival, Schulze-Delitzsch,
had begun an active campaign even as far back as 1849, and had succeeded
in establishing a great number of co-operative credit societies,
composed largely of artisans, and aiming at supplying them with cheap
raw materials. But such associations were to receive no support from the

What was new in Lassalle’s scheme was just this appeal for State
intervention. It was his energetic protest against eternal
_laissez-faire_ that impressed public opinion, and he himself was anxious
that it should be presented in this light. Speaking to the workers of
Frankfort on May 19, 1863, he declared that “State intervention is
the one question of principle involved in this campaign. That is the
consideration that has weighed with me, and there lies the whole issue of
the battle which I am about to wage.”[932]

He harks back to this fundamental idea in all his principal writings. It
was the theme of his first address delivered to the workers in Berlin in
1862. It is there presented with all his customary force. The _bourgeois_
conception of the State is contrasted with the true conception, which is
identical with the workers’. The _bourgeoisie_ seem to think that the
State has nothing to do except to protect the property and defend the
liberties of the individual—a conception of State action that would be
quite sufficient were everybody equally strong and intelligent, equally
cultured and equally rich.[933] But where such equality does not exist
the State is reduced to the position of a “night watchman,” and the weak
is left at the mercy of the strong. In reality the State exists for
quite other purposes. The history of mankind is the story of one long
struggle to establish liberty in the face of natural forces, to overcome
oppression of every kind, and to triumph over the misery, ignorance,
want, and weakness with which human nature has always had to reckon. In
that struggle the individual, in his isolation, is hopeless and union
becomes indispensable. This union is a creation of the State, and its
object is to realise the destiny of mankind, namely, the attainment of
the highest degree of culture of which humanity is capable. It is a means
of educating and of furthering the development of humanity along the path
of liberty.

The formula savours of metaphysics rather than of economics. There is
a striking similarity between it and the formula employed by Hegel,
the philosopher.[934] Lassalle was really a disciple of Hegel and
Fichte.[935] Through the influence of Lassalle the theories of the
German idealists came into conflict with the economists’, and his
incomparable eloquence contributed not a little to the rising tide of
indignation with which the Manchester ideas came to be regarded.


The years that elapsed between the death of Lassalle and the Congress
of Eisenach (1872) proved to be the decisive period in the formation of
German State Socialism.

Bismarck’s remarkable _coups d’état_ in 1866 and 1870 had done much to
discredit the political reputation of the leaders of the Liberal party,
who had shown themselves less than a match for the Chancellor’s political
insight. This reacted somewhat upon economic Liberalism, because it
so happened that the leaders of both parties were the same.[936] On
the other hand, the idea of a rejuvenated empire incarnate in the
Iron Chancellor seemed to add fresh lustre to the whole conception of
the State. The _Jahrbücher für Nationalökonomie_, first issued by the
Historical school in 1863, had by this time become the recognised organ
of the University Economists, and had done a great deal to accustom men’s
minds to the relative character of the principles of political economy
and to prepare their thoughts for an entirely new point of view.

Labour questions had also suddenly assumed an importance quite undreamt
of before this. The German revolution of 1848 was presumably political
in character: the great capitalistic industry had not reached that stage
of development which characterised it both in England and in France; and
it is a significant fact that the two great German socialists, Rodbertus
and Marx, had to go abroad to either of those two countries to get their
illustrations. But since 1848 German industry had made great strides. A
new working-class community had come into being, and Lassalle had further
emphasised this transformation by seeking to found a party exclusively
upon this new social stratum. The association which was thus founded
still survives. Another agitation, largely inspired by Marxian ideas,
was begun about the same time by Liebknecht and Bebel. In 1867 both of
them were elected to the Reichstag, and two years later they founded the
_Socialdemokratische Arbeiterpartei_ (Social Democratic party), which was
destined to play such an important part in the history of the next thirty

In this way labour questions suddenly attracted attention, just as they
had previously done in France during the July Monarchy; and just as in
France a new current of opinion—unceremoniously set aside by the _coup
d’état_, it is true—had urged upon the educated classes the importance
of abandoning the doctrine of absolute _laissez-faire_ and of claiming
the support of Government in the struggle with poverty, so in Germany
an increasing number of authors had persuaded themselves that a purely
passive attitude in face of the serious nature of the social problem
which confronted them was impossible, and that the establishment of some
sort of compact between the warring forces of capital and labour should
not prove too much of an undertaking for the rejuvenated vitality of a
new empire.

The new tendencies revealed themselves in unmistakable fashion at
Eisenach in 1872. A conference, which was largely composed of professors
and economists, of administrators and jurists, decided upon the
publication of a striking manifesto in which they declared war upon
the Manchester school. The manifesto spoke of the State as “a great
moral institution for the education of humanity,” and claimed that it
should be “animated by a high moral ideal,” which would “enable an
increasing number of people to participate in the highest benefits
of civilisation.”[937] At the same time the members of the congress
determined upon the establishment of the _Verein für Sozialpolitik_, an
association charged with the task of procuring the necessary scientific
material for this new political development. This was the beginning
of the “Socialism of the Chair,” as it was derisively named by the
Liberals on account of the great number of professors who took part in
this conference. The same doctrine, with a somewhat more radical bias,
became known as State Socialism. The imparting of such a bias was the
task undertaken by Wagner,[938] in his _Grundlegung_, which appeared in

Difficult though the task may prove, we must try to distinguish between
the work of the earlier economists and the special contributions
made by the State Socialists. Like all doctrines that purport to sum
up the aspirations of a group or an epoch and to supply a working
agreement between principles in themselves irreconcilable, it lacks the
definiteness of a purely individualistic or theoretical system. Its ideas
are borrowed from various sources, but it is not always scrupulous in
recognising this.

It is first and foremost a reaction, not against the fundamental
ideas of the English Classical school, as is generally believed, but
against the exaggerations of their second-grade disciples, the admirers
of Bastiat and Cobden—known to us as the “Optimists” and styled the
“Manchestrians” in Germany. The manifesto, drawn up by Professor
Schmoller at the Eisenach Congress, speaks of the “Manchester school,”
but makes no mention of the Classical writers.[940] It is true that
a great many German writers regard the expressions “Smithianismus”
and “Manchesterthum” as synonymous, but these are perhaps polemical
exaggerations upon which we ought not to lay too much stress. On the
other hand, Liberalism had nowhere assumed such extravagant proportions
as it had in Germany. Prince Smith, who is the best-known representative
of Liberalism after Dunoyer, was convinced that the State had nothing to
do beyond guaranteeing security, and denied that there was any element
of solidarity between economic agents save such as results from the
existence of a common market. “The economic community, as such, is a
community built upon the existence of a market, and it has no facility to
offer other than free access to a market.”[941]

The State Socialists, on the contrary, are of opinion that there exists
a moral solidarity which is much more fundamental than any economic tie
between the various individuals and classes of the same nation—such
solidarity as results from the possession of a common language,
similar manners, and a uniform political constitution. The State is
the organ of this moral solidarity, and because of this title it has
no right to remain indifferent to the material poverty of a part of
the nation. It has something to do besides protecting people against
internal or external violence. It has a real work of “civilisation and
well-being”[942] which it ought to perform. In this way State Socialism
becomes reconciled to the philosophic standpoint which Lassalle had
chosen for it. Lassalle’s insistence upon the mission of Governments and
the importance of their historic _rôle_ has been incorporated into its
system, and the attention that is paid to national considerations reminds
one of the teaching of Friedrich List.

It is impossible not to ask whether the State is capable of carrying
out the duties that have been entrusted to it. There is little use in
emphasising duty where there is no capacity for discharging it. The
State’s incapacity as an economic agent has long been a notorious fact.
Wagner and his friends were particularly anxious to correct this false
impression, and as far as their doctrine contains anything original it
may most conveniently be described as an attempt to rehabilitate the
State. Optimists of Bastiat’s genre looked upon the State as the very
incarnation of incapacity. The State Socialists, on the other hand,
regard government as an economic agent very similar to other agents
which the community employs, only a little more sympathetic perhaps.
Much of their argument consists of an attempt to create a presumption in
favour of government as against the ordinarily accepted opinion which
individualism had begotten. Such was the nature of the task which they

Their first action was to insist upon the weaknesses of individuals.
Following in the wake of Sismondi and other socialists, they emphasised
the social inconveniences of competition, which is, however, generally
confused with individual liberty.[943] They also insisted upon the
social inequality of masters and workers when it comes to a question of
wage-bargaining—a fact that had already been noted by Adam Smith—as well
as upon the universal opposition that exists between the weak and the
strong. The inadequacy of merely individual effort to satisfy certain
collective wants is another fact that was considerably emphasised.

As far back as the year 1856 Dupont-White, a Frenchman, had complained
bitterly that all the paths of civilisation remained closed merely
because of the existence of one obstacle—the infirmity and malignity
of the individual.[944] He also attempted to show how the collective
interests of modern society are becoming increasingly complex in
character and of such magnitude as to be utterly beyond the compass of
individual thought.[945] “There are,” says he in that excellent formula
in which he summarises the instances in which State intervention may
be necessary, “certain vital things which the individual can never do,
either because he has not the necessary strength to perform them or
because they would not pay him; or, again, because they require the
co-operation of everybody, which can never be got merely by common
consent. The State is the one person—the _entrepreneur_—who can undertake
such tasks.”[946] But his words went unheeded.

Writing in a similar vein, Wagner invokes the testimony of history in
support of his State doctrine, showing us how the State’s functions
vary from one period to another, so that one never feels certain about
prescribing limits to its action. Individual interest, private charity,
and the State have always had to divide the field of activity between
them. Never has the first of these, taken by itself, proved sufficient,
and in all the great modern states its place is taken by State action.
To conclude that this solution was useful and necessary and in accordance
with the true law of historical development only involved one further
step.[947] One almost unconsciously proceeds from the mere statement
of a fact to the definite formulation of a law. “Anyone,” says Wagner,
“who has appreciated the immanent tendencies of evolution (_i.e._ the
essential features of economic, social, or political evolution) may very
properly proceed from such a historical conception of social evolution
to the formulation of postulates relative to what ought to be.”[948] In
virtue of this conception there is a demand for the extension of the
State’s functions, which may easily be justified on the ground of its
capacity for furthering the well-being and civilisation of the community.
The influence of Rodbertus’s thought, especially his theory concerning
the development of governmental organs to meet the needs of a higher
social development,[949] is quite unmistakable in this connection.

The similarity between his views and those of Dupont-White, though
entirely fortuitous, perhaps, is sufficiently remarkable to justify our
calling attention to it. White is equally emphatic in his demand that the
State should exercise charity and act beneficently.[950] He shows how the
modern State has extended its dominion, substituting local government
for class dominion and parental despotism, taking women, children,
and slaves successively under its care, and adding to its duties and
responsibilities in proportion as civilisation grows and liberty broadens
downward. Fresh life requires more organs, new forces demand new
regulations. But the ruler and the organ of society is the State.[951] In
a moment of enthusiasm he even goes so far as to declare that “the State
is simply man minus his passions; man at such a stage of development
that he can commune even with truth itself, fearing neither God nor his
own conscience. However imperfect it may be, the State is still vastly
superior to the individual.”[952] Such writing is not without a touch of

Without going the extent of admitting, as M. Wagner would have us do,
that the simple demonstration of the truth of historical evolution is
enough to justify his policy, we must commend State Socialism for
the service it has performed in combating the Liberal contempt for
government. If we admit the right of a central power to regulate social
relations, it is difficult to understand why certain economic relations
only should be subjected to such supervision.

But the real difficulty, even when the principle is fully recognised, is
to define the spheres that should respectively belong to the State and to
the individual. How far, within what limits, and according to what rules
should the State intervene? We must at any rate, as Wagner says, begin
with a rough distribution of attributes. It is impossible to proceed
by any other method unless we are to assume, as the collectivists seem
to do, a radical change in human psychology resulting in the complete
substitution of a solicitude for the public welfare for private interest.

Dupont-White thought the problem insoluble,[953] and Wagner is equally
emphatic about the impossibility of formulating an absolute rule. The
statesman must decide each case on its merits. He does, however, lay down
a few general rules. As a first general principle it is clear that the
State can never completely usurp the place of the individual.[954] It can
only concern itself with the general conditions of his development. The
personal activity of the individual must for ever remain the essential
spring of economic progress. The principle is apparently the same as
Stuart Mill’s, but there is quite a marked difference between them. Mill
wished to curtail individual effort as little as possible, Wagner to
extend Government action as much as he could. Mill insists throughout
upon the negative _rôle_ of Government; Wagner emphasises the positive
side, and claims that it should help an ever-increasing proportion of the
population to share in the benefits of civilisation. No inconvenience,
Wagner thinks, would result from a little more communism in our social
life. “National economy should be transferred from the control of the
individual to the control of the community in general,” he writes, in a
sentence that might have been borrowed directly from Rodbertus.[955]
Both he and Mill are agreed that the limit of Government action must
be placed just at that point where it threatens to cramp individual

The practical application of these ideas would affect both the production
and the distribution of wealth. But on this question State Socialism has
done little more than seize hold of ideas that were current long before
its day.

In the matter of distribution it takes exactly the same standpoint as
Sismondi. There is no condemnation either of profits or interest as
a matter of principle, such as is the case with the Socialists, nor
is there any suggestion of doing away with private property as the
fundamental institution of society; but there is the expression of a
desire for a more exact correspondence between income and effort[957] and
for such a limitation of profits as the economic conjuncture will allow
of, and, on the other hand, for such an increase of wages as will permit
of a more humane existence. It is impossible to disguise the fact that
all this sounds very vague.[958]

The State would thus undertake to see that distribution conformed
to the moral sentiment of each period. Taxation was to be employed
as the instrument of such reforms. Dupont-White, in his _Capital et
Travail_,[959] which was written as early as the year 1847, had hit upon
the precise formula in which to describe these projects: “To levy a tax
such as will strike the higher classes and to apply the yield to help
and reward labour.” Wagner says just the same thing. “Logically State
Socialism must undertake two tasks which are closely connected with one
another. In the first place it must raise the lower strata of the working
classes at the expense of the higher classes, and in the second place it
must put a check upon the excessive accumulation of wealth among certain
strata of society or by certain members of the propertied classes.”[960]

In the matter of production State Socialism has simply been content to
reproduce the list given by Mill, Chevalier, and Cournot of the cases
in which there is no economic principle against the direct control or
management of an industrial enterprise by the State. Speaking generally,
Wagner is of the opinion that the State should take upon itself the
control of such industries as are of a particularly permanent or
universal character, or such as require either uniform or specialised
methods of control or are likely to become monopolies in the hands
of private individuals. The same argument would apply to industries
satisfying some general want, but in which it is almost impossible to
determine the exact advantage which the consumer derives from them.
The State administration of rivers, forests, roads, and canals, the
nationalisation of railways and banks, and the municipalisation of water
and gas, are justified on the same grounds.

Such are the essential features of State Socialism, which bases its
appeal, not on any precise criticism of property or of unearned income,
such as we are accustomed to get from the socialists, but entirely upon
moral and national considerations. A juster distribution of wealth
and a higher well-being for the working classes appear to be the only
methods of maintaining that national unity of which the State is the
representative. But it neither specifies the rules of justice nor
indicates the limits of the ameliorative process. The fostering of
collective effort affords another means of developing moral solidarity
and of limiting purely selfish action; but the maintenance of private
property and individual initiative seemed indispensable to the growth of
production—a consideration which renders it inimical to collectivism. Its
moral character explains the contrast between the precise nature of some
of its positive demands and the somewhat vague character of its general
principles, which may be applied to a greater or lesser extent according
to individual preferences. It is impossible to deny the essentially
subjective character of its criteria, and this affords some indication
of the vigorous criticism offered by the economists, who are above all
anxious for scientific exactitude, and the measure of enthusiasm with
which it has been welcomed by all practical reformers. It forms a kind
of cross-roads where social Christianity, enlightened conservatism,
progressive democracy, and opportunistic socialism all come together.

But its success was due not so much to the value of its principles as
to the peculiar nature of the political and economic evolution toward
the end of the century. Its most conspicuous representative in Germany
was Prince Bismarck, who was totally indifferent to any theory of State
Socialism, and who preferred to justify his policy by an appeal to the
principles of Christianity or the Prussian Landrecht.[961] One of his
great ambitions was to consolidate and cement the national unity which he
had succeeded in creating. A system of national insurance financed and
controlled by the State appealed to him as the best way of weaning the
working classes from revolutionary socialism by giving them some positive
proof of the sympathy of the Government in the shape of pecuniary
interest in the welfare of the empire. In a somewhat similar fashion the
French peasant became attached to the Revolution through the sale of
national property. “I consider,” says Bismarck, speaking of invalidity
insurance, “that it is a tremendous gain for us to have 700,000
annuitants among the very people who think they have nothing to lose, but
who sometimes wrongly imagine that they might gain something by a change.
These individuals would lose anything from 115 to 200 marks, which
just keeps them above water. It is not much, perhaps, but it answers
the purpose admirably.”[962] Such was the origin of those important
laws dealing with sickness, accidents, invalidity, and old age which
received the imperial seal between 1881 and 1889. But just because the
Chancellor did not consider that there was the same pecuniary advantage
to be derived from labour laws in the narrow sense of the term—that is,
in laws regulating the duration of labour, Sunday rest, the inspection of
factories, etc.—he was less favourably inclined towards their extension.
The personal predilection of the Emperor William II, as expressed in the
famous decrees of February 4, 1890, was needed to give the Empire a new
impetus in this direction.

Accordingly it was the intelligent conservatism of a Government almost
absolute in its power, but possessed of no definitely social creed, that
set about realising a part of the programme of the State Socialists. In
England and France and the other countries where political liberty is an
established fact similar measures have been carried out at the express
wish of an awakening democracy. The working classes are beginning to find
out how to utilise for their own profit the larger share of government
which they have recently secured. Progressive taxation, insurance,
protective measures for workmen, more frequent intervention of Government
with a view to determining the conditions of labour, are just the
expressions of a tendency that operates independently of any preconceived

The regulation of the relationship between masters and workmen gave to
State Socialism a legislative bias. Governments and municipalities have
long since extended their intervention to the domain of production,
the new character of social life rather than any social theory being
again the determining motive. Public works, such as canals, roads, and
railways, have multiplied enormously in the course of the nineteenth
century, thanks to the existence of new productive forces. The demand for
public services has increased because of the increasing concentration of
population. Communal life keeps encroaching upon what was formerly an
isolated, dispersive existence, and community of interest is extending
its sway in village and borough as well as in the great city and the
nation at large. Industry also is being gradually linked together, and
the area of free competition is perforce becoming narrower. In the labour
market, as well as in the produce and the money markets, concentration
has taken the place of dispersion. Monopoly is everywhere. Collective
enterprise, instead of being the exception, tends to be the rule, and
public opinion is gradually being reconciled to the idea of seeing the
State—the “collective being” _par excellence_—becoming in its turn

Under conditions such as these it was impossible that the doctrine of
State Socialism should not influence public opinion.

State Socialism has the peculiar merit of being able to translate the
confused aspirations of a new epoch in the history of politics and
economics into practical maxims without arousing the suspicions of the
public to the extent that socialism generally does. Legislators and
public men generally have been supplied with the necessary arguments with
which to defend the inauguration of that new policy upon which they had
secretly set their hearts. A common ground of action is found for parties
that are generally opposed to one another and for temperaments that are
usually incompatible. That is the outstanding merit of a doctrine that
seems eminently suitable for the attainment of tangible results.

And so by a curious inversion of functions by no means exceptional
in the history of thought, State Socialism at the end of the century
finds itself playing the part of its great adversary, the Liberal
Optimism of the early century. One of the outstanding merits of that
earlier Liberalism was the preparation it afforded for a policy of
enfranchisement or liberty, which was absolutely necessary for the
development of the industrial _régime_. And so it became the interpreter
of the great economic currents of the time. In pursuance of this
exclusive task all traces of its scientific origin disappeared, the
elaboration of economic theory was neglected, and the habit of close
reasoning so essential to systematic thinking was abandoned. In a
somewhat similar manner State Socialism has become the creed of all
those who desire to put an end to the abuses of economic liberty in its
extremer aspects, or such as are generally concerned about the miserable
condition of an increasing number of the working classes. Absorbed in
immediate matters of this kind, the promoters of State Socialism have
managed to influence practical politics without shedding much light
upon economic theory. And now they in their turn find their system
threatened by the fate which awaits all political doctrines. Even at the
present moment one is tempted to ask whether this growing multiplicity
of State function is not in danger of arousing on the part of consumers,
_entrepreneurs_, and workmen a general feeling of contempt for the
economic capacity of the State.

In conclusion, we must note another characteristic fact. Whereas during
the greater part of the nineteenth century the attacks of Socialism
were directed against Liberalism and economic orthodoxy, Neo-Marxian
syndicalism is concentrating its attention almost exclusively upon
State Socialism. Sorel emphasises the similarity that exists between
Marxism and Manchesterism, and on more then one point he finds himself
in agreement with a “Liberal” like Pareto. On the other hand, no words
are sufficiently vigorous to express his condemnation of the partisans
of social peace and interventionism, which appear to him to corrupt the
working classes. Syndicalist working men have on more than one occasion
shown their contempt for the State by refusing to avail themselves of
measures passed on their behalf—old-age pensions, for example. This
attitude is perhaps due to the influence of the anarchists upon the
leaders of French syndicalism.

The fusion of these two currents of ideas—the Neo-Marxian and the
anarchist—and their effect in turning the attention of the French working
classes away from State Socialism, is an interesting fact whose political
results will by no means prove negligible.[963]



Everyone knows of the spell cast over the socialism of the last forty
years by the doctrines of Karl Marx and the contempt with which this
newer so-called scientific socialism refers to the earlier or Utopian
kind. But what is even more striking than the success of Marxian
socialism is its want of sympathy with the heretical doctrines of its
predecessors the Communists and Fourierists, and the pride it takes in
regarding itself as a mere development or rehabilitation of the great
Classical tradition.

To give within the limits of a single chapter a _résumé_ of a doctrine
that claims to review and to reconstruct the whole of economic theory is
clearly impossible, and we shall merely attempt an examination of two of
Marx’s more essential doctrines, namely, his theory of surplus labour and
value and his law of automatic appropriation, more familiarly but less
accurately known as the law of concentration of capital. The first is
based upon a particular conception of exchange value and the second upon
a special theory of economic evolution. To employ Comtean phraseology,
the one belongs to the realm of economic statics, the other to the domain
of economic dynamics.


The laborious demonstration which follows will become clearer if we
remind ourselves of the objects Marx had in view. Marx’s aim was to
show how the propertied class had always lived upon the labour of the
non-propertied classes—the possessors upon the non-possessing. This was
by no means a new idea, as we have already made its acquaintance in the
writings of Sismondi, Saint-Simon, Proudhon, and Rodbertus. But the
essence of the criticism of these writers was always social rather than
economic, the institution of private property and its injustice being
the chief object of attack. Karl Marx, on the other hand, deliberately
directed the gravamen of the charge against economic science itself,
especially against the conception of exchange. He endeavours to prove
that what we call exploitation must always exist, that it is an
inevitable outcome of exchange—an economic necessity to which both master
and man must submit.

It is convenient to begin with an examination of economic value. Marx
lays down the doctrine that labour is not merely the measure and cause
of value, but that it is also its substance. We have already had occasion
to note how Ricardo was somewhat favourably inclined to the same view,
though hardly willing to adopt it. There is no such hesitation on the
part of Marx: it is all accepted in a characteristically thorough
fashion. Of course, he does not deny that utility is a necessary
condition of value and that it is really the only consideration in the
case of “value in use.” But utility alone is not enough to explain value
in exchange, since every act of exchange implies some common element,
some degree of identity between the exchanged commodities. This identity
is certainly not the result of utility, because the degree of utility is
different in every commodity, and it is this difference that constitutes
the _raison d’être_ of exchange. The common or homogeneous element which
is contained in commodities themselves heterogeneous in character is the
quantity of labour, great or small, which is contained in them. The value
of every commodity is simply the amount of crystallized human labour
which it contains, and commodities differ in value according to the
different quantities of labour which are “socially necessary to produce

Let us take the case of a working man, an employee in any kind of
industry, working ten hours a day.

What will be the exchange value of the produce of his labour? It will be
the equivalent of ten hours’ labour, whether the commodity produced be
cloth or coal or what not. And since the master or the capitalist, as
Marx always calls him, in accordance with the terms of the wage bargain,
reserves for himself the right of disposing of that commodity, he sells
it at its real value, which is the equivalent of ten hours’ labour.

The worker himself is cut off with a wage which simply represents the
price which the capitalist pays for his labour force (_Arbeitskraft_),
and the capitalist reserves to himself the right of disposing of the
commodity at his own good pleasure. Its value is determined in the same
way as that of every other exchangeable commodity. Labour-force or manual
labour is just a commodity, and its value is determined by the number of
hours of labour necessary for its production.[966]

“The quantity of labour necessary to produce the labour-force” is a
somewhat formidable expression, and it is very difficult for any one who
is beginning a study of Marx to appreciate its significance, but it is
very essential that we should try, since everything turns upon a clear
understanding of this phrase. But it is really not so mysterious after
all. Suppose that instead of the labour of an artisan we take the work
of a machine. No engineer would be surprised if we asked him the running
expenses of that machine, and he might reply that it was costing one or
two tons of coal per hour or eight or twelve _per diem_; and since the
value of the coal merely represents a certain amount of human labour on
the part of the coal-miner, there would be no difficulty in expressing
it in terms of labour. Under the wage system the labourer is simply a
machine, differing from the latter merely in the smaller quantity of
wealth which he produces. The value of an hour’s labour or a day’s toil
can be measured by the quantity of necessaries required to keep the
worker in full productive efficiency during that period. Every employer
who pays wages in kind—which is still the case in agriculture—always
makes that kind of calculation, and even when the worker is paid a money
wage things are much the same, for the money simply represents the cost
of those necessaries.

Let us proceed a step farther. The value of the commodities necessary for
the upkeep of labour is never equal to the value of the produce of that
labour. In the instance given it would not equal the value of ten hours’
labour—perhaps not even five. Human labour under normal conditions
always produces more than the mere value of the goods consumed.[967]

This is the crux of the problem. The mystery surrounding capitalist
production is at last solved. The value produced by the labourer passes
into the hands of the capitalist, who disposes of it and gives back to
the labourer enough to pay for the food consumed by him during the time
he was producing the commodity. The difference goes into the capitalist’s
pocket. The product is sold as the equivalent of ten hours’ labour, but
the labourer receives the equivalent of five hours only. Marx speaks of
this as surplus value (_Mehrwerth_), a term that has become exceedingly
popular since.[968]

Thus the capitalist gets ten hours’ labour out of the workman and only
pays him for five,[969] the other five hours costing him nothing at all.
During the first five hours the workman produces the equivalent of his
wages, but after the end of the fifth hour he is working for nothing.
The labour of this extra number of hours during which the surplus value
is being produced and for which the worker receives nothing Marx calls
surplus labour. By that he means the supererogatory labour which yields
nothing to the worker, but merely involves an extra tax upon his energies
and simply increases the capitalist’s fortune.

Naturally the capitalist’s interest is to augment this surplus value
which goes to swell his profits. This can be effected in a number of
ways, and an analysis of some of these processes is one of the most
characteristic features of the Marxian doctrine. This analysis may be
summed up under two main divisions.

1. The first method is to prolong the working day as much as possible in
order to increase the number of hours of surplus labour. If the number
of working hours can be increased from ten to twelve the surplus will
automatically grow from five to seven. This is exactly what manufacturers
have always tried to do. Factory legislation, however, has forced some
of them to limit the number of hours, and this has resulted in checking
the growth of surplus value somewhat. But this check applies only to a
limited number of industries.

2. A second method is to diminish the number of hours necessary to
produce the worker’s sustenance. Were this to fall from five to three
it is clear that the surplus would again rise from five to seven. Such
reduction is possible through the perfection of industrial organisation
or through a reduction in the cost of living, a result which is usually
effected by means of co-operation.[970] The capitalist also often
manages to bring this about by setting up philanthropic institutions or
by employing women and children, who require less for their upkeep than
adults. Women and children have been taken from the house and the task of
housekeeping and cookery has been left in the hands of the men. But laws
regulating the employment of women and children have again defeated these

Such is a very brief summary of Marx’s demonstration. Its real
originality lies in the fact that it does not consist of commonplace
recriminations concerning the exploitation of workers and the greed of
exploiters, but shows how the worker is robbed even when he gets all that
he is entitled to.[972] It cannot be said that the capitalist has robbed
him. He has paid him a fair price for his labour; that is, he has given
it its full exchange value. The conditions of the wage bargain have been
observed in every particular: equal value has been given in exchange for
equal value. Given the capitalistic _régime_ and the free competition
of labour, the result could not be otherwise. The worker, perhaps, may
be surprised at this unexpected result, which only secures him half the
value of his labour, but he can only look on like a bewildered spectator.
Everything has passed off quite correctly. The capitalist, no doubt, is a
shrewd person, and knows that when he buys labour power he has got hold
of a good thing, because it is the only merchandise which possesses the
mysterious capacity of producing more value than it itself contains.[973]
He knows this beforehand, and, as Marx says, it is “the source of
considerable pleasure to him.” “It is a particularly happy condition of
things when the buyer is also allowed to sell it wherever and whenever
he likes without having to part with any of his privileges as a vendor.”
The result is that the worker has no means of defence either legal or
economic, and is as helpless as a peasant who has sold a cow in calf
without knowing it.

Hitherto we have spoken only of labour. But the outstanding personage in
the book—the hero of the volume—is capital, whose name appears on the
title-page. Our exposition of the Marxian doctrine of production would
accordingly be very incomplete if we omitted to make reference to his
treatment of capital.

Taken by itself capital is, of course, sterile, for it is understood that
labour is the sole source of value. But labour cannot produce unless it
consumes a certain proportion of capital, and it is important that we
should understand something of the combination of capital and labour.

Marx distinguishes between two kinds of capital. The first serves for
the upkeep of the working-class population, either in the way of wages
or direct subsistence. The older economists referred to it as the Wages
Fund, and Marx calls it “variable capital.” If this kind of capital does
not directly take part in production, it is this fund, after all, when
consumed by labour that begets value and the surplus which is attached to

That other kind of capital which directly assists the productive activity
of labour by supplying it with machinery, tools, etc., Marx calls
“constant capital.” This latter kind of capital, which is not absorbed or
vitalized by labour, does not result in the production of surplus value.
It simply produces the equivalent of its value, which is the sum total of
all the values absorbed during the time when it was being produced. This
constant capital is evidently the crystallized product of labour, and
its value, like that of any other product, is determined solely by the
number of hours of labour it has taken to produce. This value, whether
it include the cost of producing the raw material or merely the cost
of labour employed in elaborating it, should be rediscoverable in the
finished product. But there is nothing more—no surplus. The economists
refer to this as depreciation, and everyone knows that depreciation
implies no profits at any rate.[974]

It seems quite obvious that it is to the interest of the capitalist to
employ only variable capital, or at least that it will pay him to reduce
the amount of constant capital used to the irreducible minimum.[975] But
we are here met with an anomaly which is the despair of all Marxian
commentators, and which must have caused Marx himself some amount of
embarrassment, if we may judge by the laborious demonstration which he

If fixed capital is really unproductive, how is it that modern
production is always increasing the quantity of fixed capital which it
employs, until this has now become one of its most familiar features?
Is it because it yields less profit than that yielded by the smaller
handicrafts or agriculture? Again, how are we to account for the
variation in the rates of profit in different industries according to
the different quantities of capital employed, seeing that it is an axiom
of political economy that under a _régime_ of free competition with
equal security for everybody the returns on different capitals should
everywhere be the same?

Marx replies by saying that the rate of profit is the same for all
capitalists within the country, but that this rate is the average of the
different rates in all the different industries. In other words, it is
the rate that would obtain if every industry in the country employing
varying amounts of fixed and circulating capital formed a part of one
whole. It must not be thought of as a kind of statistical average, but
simply as a kind of average which competition brings about. The result is
other than might have been expected.[977] Those industries which have a
large amount of variable capital—agriculture, for example—find themselves
with just the average rate of return, but draw much less in the way of
surplus value than they had expected, and so Marx refers to them as
undertakings of an inferior character. On the contrary, those industries
which possess a large amount of constant capital draw more than their
capital had led them to hope for, and Marx refers to them as industries
of a superior character.[978] Hence those industries which employ a
considerable amount of machinery expand at the expense of the others. It
is because the latter kind find themselves in a more favourable position,
or, in other words, realize greater profits, that they do employ surplus
labour, from which surplus value is naturally derived.[979]

While admiring the ingenuity of the dialectics, we must not blind
ourselves to the simple fact which Marx was so anxious to hide, but which
is nevertheless implicit in all this, namely, that the rate of profit,
which means also the value of the goods, is regulated by competition—that
is, by demand and supply—but bears no relation to the quantity of labour
employed. We must also remember that the _entrepreneur_, far from
seeing his profits diminish as he employs less human labour, finds them
increasing. This contradiction is just one of those flaws that finally
cause the downfall of the majestic edifice so laboriously raised by Marx.


The law of concentration of capital,[980] which can only be interpreted
in the light of economic history, is an attempt to show that the _régime_
of private property and personal gain under which we live is about to
give place to an era of social enterprise and collective property.[981]
Let us try to follow the argument as given by Marx.

Again must we cast back our thoughts to a period before the earliest
beginnings of capital in the sixteenth century—a period when, according
to the socialists, there existed neither capital nor capitalist. Capital
in the economic sense of a mere instrument of production must have
existed even before this time, but the socialists are of opinion that
it had quite a different significance then, and it is important that we
should appreciate their point of view. Their employment of the term is
closely akin to the vulgar use of the word as anything that yields a
rent, and yields the said rent as the result, not of the capitalist’s
labour, but of the toil of others. But under the guild system which
preceded this condition of things the majority of the workers possessed
most of the instruments of production themselves.

Then follows a description of a series of changes which we cannot attempt
to study in detail, but which forms a singularly dramatic chapter in the
writings of Marx. New means of communication are established and new
markets opened as the result of important mechanical discoveries coupled
with the consolidation of the great modern States. The rise of banks and
of trading companies, together with the formation of public debts, all
this resulted in the concentration of capital in the hands of a few and
the expropriation of the small proprietor.

But all this was only a beginning. If capital in this newer sense of an
instrument for making profit out of the labour of others was ever to come
into its own and develop, if the surplus labour and surplus value of
which we have given an analysis were really to contribute to the growth
and upkeep of this capital, it was necessary that the capitalist should
be able to buy that unique merchandise which possesses such wonderful
qualities in the open market. But labour-force can never be bought unless
it has been previously detached from the instruments of production
and removed from its surroundings. Every connexion with property must
be severed, every trace of feudalism and of the guild system must be
removed. Labour must be free—that is, saleable; or, in other words, it
“must be forced to sell itself because the labourer has nothing else
to sell.” For a long time the artisan was in the habit of selling his
goods to the public without the intervention of any intermediary, but a
day dawned when, no longer able to sell his products, he was reduced to
selling himself.[982]

The creation of this new kind of property based upon the labour of others
meant the extinction of that earlier form of property founded upon
personal labour and the substitution for it of the modern proletariat.
This was the task to which the _bourgeoisie_ resolutely set itself
for about three centuries, and its proclamation of the liberty of the
labourer and the rights of man is just its pæan of victory. Its task was
accomplished. The expropriated artisan who was already swelling the
ranks of the proletariat seemed an established fact.

In reality this end was only partially accomplished even in the more
capitalistic countries, but that there is a general movement in that
direction seems clear in view of the following considerations.

(_a_) The most suggestive fact in this connexion is the growth of
production on a large scale, resulting in the employment of machinery
and in the rise of new forms of organisation such as trusts and cartels,
new systems that were unknown in Marx’s day, but which have helped to
confirm his suspicions. These trusts and cartels are especially important
from a social point of view because they not only absorb the capital of
the small independent proprietor, but swallow the medium-sized industry
as well. This wonderful expansion of production on a large scale means a
corresponding growth in the numbers of the proletariat, and capitalism,
by increasing the number of wage-earners, helps to swell the ranks of its
own enemies. “What the _bourgeoisie_ produces, above all, therefore, are
its own gravediggers.”[983]

(_b_) Over-production is another fruitful method. A contraction of the
market results in a superabundance of workmen whose services are always
available. They form a kind of industrial reserve army upon which the
capitalist may draw at his pleasure—at one moment indiscriminately taking
on a number of them, and throwing them back on to the streets again as
soon as the demand shows signs of slackening.[984]

(_c_) The concentration of the rural population in towns is another
contributing factor. This movement itself is the result of the
disappearance of the small holder and the substitution of pastoral for
arable farming, the outcome of it all being an addition to the ranks
of the expropriated proletariat of an increasing number of hitherto
independent proprietors and producers.

Such is the advent and growth of capitalism. It comes into the world
“with bloody putrescence oozing out of every pore.” How different is
the real history of capital from the idyllic presentation to which we
are treated by the economists! They love to picture it as the slowly
accumulated fruit of labour and abstinence, and the coexistence of the
two classes, the capitalists and the workers, is supposed to date from an
adventure that befell them both a few days after creation, when the good
and the wise decided to follow the high road of capitalism and the idle
and vicious the stony path of toil.

In reality capitalism is the outcome of class struggle—a struggle
that will some day spell the ruin of the whole _régime_, when the
expropriators will themselves be the expropriated. We are given no
details as to how this is to be accomplished, and this abstention from
prophecy distinguishes Marx from the Utopian socialists of the last two
thousand years. His one object was to show how those very laws that
led to the establishment of the _régime_ would some day encompass its
ruin.[985] The force of circumstance seemed to make self-destruction
inevitable. “The capital _régime_,” writes one Marxian socialist, “begets
its own negation, and the process is marked by that inevitability which
is such a feature of all natural laws.”[986] The following facts are
deduced as proofs that this process of self-destruction is already in
course of being accomplished.

(_a_) Industrial crises, whether of over-production or under-consumption,
have already become a chronic evil. The fact that to some extent they
are to be regarded as the direct outcome of the capitalist system of
production cannot prevent their damaging that system. The continual
growth of fixed at the expense of circulating capital, involving as it
does the substitution of machinery for hand labour, must also involve a
continual reduction of the surplus value. In order to counteract this
tendency the capitalists find themselves forced to keep ahead with
production; they are driven to rely upon quantity, as they put it. The
workers, on the other hand, find that it is gradually becoming impossible
for them to buy the products of their labour with the wages which they
get, because they never get a wage which is equal to the value of the
product of their labour. Moreover, they periodically find themselves out
of employment altogether and almost on the verge of starvation. Proudhon,
as we have already seen, laid considerable stress upon this, and it is
one of the instances in which Marx is obviously influenced by Proudhon.

The idea which underlies the Marxian theory is that every crisis involves
a readjustment of the equilibrium between fixed and circulating capital.
The growth of the former, though continuous, is not always uniform,
and whole sections of it may occasionally be found to be without solid
foundation which would warrant such expansion. But the crises which
result in the destruction of these speculative accretions give a new
spirit to the creation of further surplus value, which results in the
creation of further fixed capital and more crises, and so the process
goes on.[987]

(_b_) The growth of pauperism, which is the direct outcome of crises and
want, is another factor. “The _bourgeoisie_ is unfit any longer to be
the ruling class in society, and to impose its conditions of existence
upon society as an overriding law. It is unfit to rule because it is
incompetent to assure an existence to its slave within his slavery,
because it cannot help letting him sink into such a state that it has to
feed him instead of being fed by him.”[988]

(_c_) The rapid multiplication of joint stock companies is the final
buttress with which the Marxians have strengthened their contention.
Under the joint stock principle the right of property is simply reduced
to the possession of a few strips of paper giving the anonymous owner the
right to draw dividends in some commercial concern or other. Profit is
seen in all its nakedness as a dividend which is wholly independent of
all personal effort and produced entirely as the result of the workers’
drudgery. The duty of personally supervising the methods of production
and of opening up new and better ways of manufacturing, which served to
disguise the real character of the individual employer and to justify his
existence, is no longer performed by the owner, but falls to the lot of
two new functionaries, the parasitic company director on the one hand and
the salaried official on the other.

Once the whole industry of a country becomes organized on a joint stock
basis—or, better still, once it passes over into the hands of a trust,
which is simply a manifestation of the joint-stock principle at its
highest—expropriation will be a comparatively simple matter. By a mere
stroke of the pen property hitherto held by private shareholders will be
transferred into the custody of the State with hardly a change in the
economic mechanism itself.

Thus the expropriation of the _bourgeoisie_ will be a much easier task
than was the expropriation of the artisan by the _bourgeois_ a few
centuries ago. In the past it was a case of the few subjugating the many,
but in the future the many will overwhelm the few—thanks to the law of

But what is to be the outcome of the Marxian programme (we cannot speak
of its aim or ideals, for Marx scorned such terms)? The general opinion
seems to be that it involves the abolition of private property, and
that the opinion is not altogether without foundation may be seen from
a perusal of the _Manifesto_, where we read that “the theory of the
Communists may be summed up in the single sentence: Abolition of private

The _Manifesto_ also explains in what sense we are to understand this.
The private property which so much needs suppressing is not the right of
the worker to the produce of his own toil, but the right of others to
appropriate for themselves the produce of that labour. This is private
property as they understand it. They think, however, it would be better
to call it _bourgeois_ property, and they feel quite confident that it
is destined to disappear under a collectivistic _régime_. As to a man’s
right to the product of his own labour, that surely existed formerly,
before the peasant and the craftsman were overwhelmed by capitalism and
replaced by the proletariat. Collectivism, far from destroying this kind
of property, will rather revive it, not in the antiquated individualistic
form of letting each man retain his own, which is obviously impossible
under division of labour and production on a large scale, but of giving
to every man a claim upon the equivalent of what he has produced.[990]

This twofold task can only be accomplished by undoing all that
capitalism has done; by taking from the capitalists the instruments of
production which they now possess and restoring them to the workmen,
not individually—that would be impossible under modern conditions—but
collectively. To adopt the formula which figures at the head of the
party’s programme, this means the socialisation of the means of
production—land, including surface and subsoil, factories and capital.
The produce of everyone’s labour, after allowing for certain expenses
which must be borne by the community as a whole, will be distributed
according to each one’s labour. Surplus labour and surplus value will
thus disappear simultaneously.

This expropriation of the capitalists will be the final stage, for,
unlike the preceding movements, it will not be undertaken for the benefit
of a single class—not even for the benefit of the workers. It will be
for the interest of everybody alike, for the benefit of the nation as a
whole. It will also be adequate to cope with the change which industry
has recently undergone; in other words, both production and distribution
will be on a collective basis.


After this summary exposition of the principal theories of Karl Marx, we
must now try to fix the general character of the school that bears his
name[991] and to distinguish it from the other socialist schools that we
have already studied.

(_a_) In the first place, it proudly claims for its teaching the title of
_scientific_ socialism, but much care must be exercised in interpreting
the formula. No economist has ever shown such contempt or betrayed such
passion in denouncing Phalanstères, Utopias, and communistic schemes
of every kind. To think that the Marxians should add to the number of
such fantastic dreams! What they claim to do, as M. Labriola points out
(may the shades of Fourier forgive their presumption!), is to give a
thoroughly scientific demonstration of the line of progress which has
actually been followed by civilised societies.[992] Their one ambition
is to gauge the significance of the unconscious evolution through which
society has progressed and to point the goal towards which this cosmic
process seems to be tending.

The result is that the Marxian school has a conception of natural
laws which is much nearer the Classical standpoint than that of its
predecessors. Of this there can be no doubt. The Marxian theories are
derived directly from the theories of the leading economists of the
early nineteenth century, especially from Ricardo’s. Marx is in the line
of direct succession. Not only is this true of the labour-value theory
and of his treatment of the conflict between profits and wages, but it
also applies to his theory of rent and to a whole host of Ricardian
doctrines that have been absorbed wholesale into the Marxian philosophy.
And, paradoxical as it may sound, his abstract dogmatic method, his
obscure style, which encourages disciples to retort that the critics
have misunderstood his meaning and to give to many a passage quite an
esoteric significance, is of the very essence of Ricardo.[993] Marx’s
theories are, of course, supported by a wealth of illuminating facts,
which unfortunately have been unduly simplified and drawn upon for purely
imaginary conclusions. We have already had occasion to remark that
Ricardo also owes a good deal more to the observation of facts than is
generally believed, and his practice of postulating imaginary conditions
is of course notorious. The impenitent Marxian who still wishes to
defend some of the more untenable theories of Marx, such as his doctrine
of labour-value, generally finds himself forced to admit that Marx had
supposed (the use of suppositions is an unfailing proof of Ricardian
influence) the existence of society wherein labour would be always
uniform in quality.[994]

Marxism is simply a branch grafted on the Classical trunk. Astonished
and indignant as the latter may well seem at the sight of the strange
fruit which its teaching has borne, it cannot deny the fact that it has
nourished it with its own life-blood. “_Das Kapital_,” as Labriola notes,
“instead of being the prologue to the communal critique, is simply the
epilogue of _bourgeois_ economics.”[995]

Not only has Marxism always shown unfailing respect for political economy
even when attacking individual economists, who are generally accused of
inability to grasp the full significance of their own teaching, but,
strangely enough, it betrays an equal affection for capitalism.[996] It
has the greatest respect for the task which it has already accomplished,
and feels infinitely grateful for the revolutionary part (such are the
words used) which it has played in preparing the way for collectivism,
which is almost imperceptibly usurping its place.[997]

But the Marxians have one serious quarrel with the older economists.
It seemed to them that the earliest writers on political economy never
realized the relatively transient nature of the social organism which
they were studying. This was possibly because they were conservative
by instinct and had the interest of the _bourgeois_ at heart. They
always taught, and they fully believed it, that private property and
proletarianism were permanent features of the modern world, and that
social organisation was for ever destined to remain upon a middle-class
foundation. They were at least unwilling to recognize that this also,
like the rest, was simply a historical category, and, like them, also was
destined to vanish.[998]

(_b_) The Marxian school also differs from every previous socialist
school in the comparative ease with which it has eschewed every
consideration of justice and fraternity, which always played such an
important _rôle_ in French socialism. It is interested, not in the ideal,
but in the actual, not in what ought to be, but in what is likely to
be. “The theoretical conclusions of the communists are in no way based
on ideas or principles that have been invented, or discovered by this
or that would-be universal reformer. They merely express, in general
terms, actual relations springing from an existing class struggle, from a
historical movement going on under our very eyes.”[999]

To economic facts they attributed an importance altogether transcending
their influence in the economic sphere. Their belief was that the
several links which unify the many-sided activities of society, whether
in politics, literature, art, morality, or religion, are ultimately
referable to some economic fact or other. None of them but is based upon
a purely economic consideration. Most important of all are the facts
relating to production, especially to the mechanical instruments of
production and their operation. If we take, for example, the production
of bread and the successive stages through which the mechanical operation
of grinding has passed from the hand-mill of antiquity to the water-mill
of the Middle Ages and the steam-mill of to-day, we have a clue to the
parallel development of society from the family to the capitalistic
system and from the capitalistic to the trust, with their concomitants
slavery, serfdom, and proletarianism. This affords a far better
explanation of the facts than any _bourgeois_ cant about “the growth of
freedom” or humbug of that nature. These are the real foundations upon
which every theory has to be reared. This materialistic conception of
history,[1000] implying as it does a complete philosophy of history, is
no longer confined to the purely economic domain.

Taken in the vulgar sense, it seems to involve the exclusion of every
moral and every humanitarian consideration. As Schäffle put it in that
oft-quoted phrase of his, it means reducing the social question to a
“mere question of the belly.” The French socialists find the doctrine
somewhat difficult to swallow, and they hardly display the same reverence
for Marx as is shown in some other countries.[1001]

The orthodox Marxians immediately proceed to point out that such
criticism is useless and shows a complete misunderstanding of Marx’s
position. Materialism in the Marxian sense (and all his terms have a
Marxian as well as the ordinary significance) does not exclude idealism,
but it does exclude ideology, which is a different thing. No Marxian has
ever advocated leaving mankind at the mercy of its economic environment;
on the contrary, the Marxian builds his faith upon evolution, which
implies man’s conscious, but not very successful, effort to improve his
economic surroundings.[1002] The materialistic conception of history
apparently is simply an attempt at a philosophy of human effort.[1003]
Criticism of such elusive doctrines is not a very easy task.

(_c_) The socialism of Karl Marx is exclusively a working-class gospel.
This is its distinctive trait and the source of the power it wields. To
some extent it also explains its persistence. Other socialist systems
have been discredited and are gone, but the Marxian gospel—no longer, of
course, the sublime masterpiece it was when its author first expounded
it—has lost none of its ancient vigour, despite the many transformations
which it has undergone.

The socialists of the first half of the nineteenth century embraced all
men without distinction, worker and _bourgeois_ alike, within their broad
humanitarian schemes. Owen, Fourier, and Saint-Simon reckoned upon the
co-operation of the wealthy governing classes to found the society of the
future. Marxism implies a totally different standpoint. There is to be
no attempt at an understanding with the _bourgeoisie_, there must be no
dallying with the unclean thing, and the prohibition is to apply not only
to the capitalists, but also to the intellectuals[1004] and to the whole
hierarchical superstructure that usually goes by the name of officialdom.
Real socialism aims at nothing but the welfare of the working classes,
which will only become possible when they attain to power.

It may, of course, be pointed out that socialism has always involved
some such struggle between rich and poor, but it is equally correct
to say that the battle has hitherto been waged over the question of
just distribution. Beyond that there was no issue. But in the Marxian
doctrine the antagonism is dignified with the name of a new scientific
law, the “class war”—the worker against the capitalist, the poor _versus_
the rich. The individuals are the same, but the _casus belli_ is quite
different. “Class war” is a phrase that has contributed not a little to
the success of Marxism, and those who understand not a single word of the
theory—and this applies to the vast majority of working men—will never
forget the formula. It will always serve to keep the powder dry, at any

“Class war” was not a new fact. “The history of all hitherto existing
society is the history of class struggles.”[1005] But although it has
always existed, it cannot continue for ever. And the great struggle that
is now drawing nigh and which gives us such a tragic interest in the
whole campaign will be the last. The collectivist _régime_ will destroy
the conditions that breed antagonism, and so will get rid of the classes
themselves. Let us note in passing that this prophecy is not without a
strong tinge of that Utopian optimism which the Marxians considered such
a weakness in the earlier French socialism.

(_d_) A final distinction of Marxism is its purely revolutionary or
catastrophic character, which is again unmistakably indicated by its
adoption of “class war” as its watchword. But we have only to remind
ourselves that the adjective “revolutionary” is applied by the Marxians
to ordinary middle-class action to realize that the term is employed in a
somewhat unusual fashion.

The revolution will result in the subjection of the wealthier classes
by the working men, but all this will be accomplished, not by having
recourse to the guillotine or by resorting to street rioting, but in a
perfectly peaceful fashion. The means may be political and the method
even within the four corners of the law, for the working classes may
easily acquire a majority in Parliament, seeing that they already form
the majority of the electors, especially in those countries that have
adopted universal suffrage. The method may be simply that of economic
associations of working men taking all economic services into their own

The final catastrophe may come in yet another guise, and most Marxians
seem to centre their hopes upon this last possibility. This would take
the form of an economic crisis resulting in the complete overthrow of
the whole capitalist _régime_—a kind of economic _felo de se_. We have
already noted the important place which crises hold in the Marxian

But if Marxism does not necessarily involve resort to violence, violent
methods are not excluded. Indeed, it considers that some measure of
struggle is inevitable before the old social forms can be delivered of
the new—before the butterfly can issue from the chrysalis. “Force is the
birth-pangs of society.”[1007]

This is not the place for false sentimentalism. Evil and suffering seem
to be the indispensable agents of evolution. Had anyone been able to
suppress slavery or serfdom or to prevent the expropriation of the worker
by the capitalist, it would have merely meant drying up the springs of
progress and more evil than good would probably have resulted.[1008]
Every step forward involves certain unpleasant conditions, which must
be faced if the higher forms of existence are ever to become a reality.
And for this reason the reform of the _bourgeois_ philanthropist and
the preaching of social peace would be found to be harmful if they
ever proved at all successful. There is no progress where there is no
struggle. This disdainful indifference to the unavoidable suffering
involved in transition is inherited from the Classical economists, and
provides one more point of resemblance between the two doctrines. Almost
identical terms were employed by the Classical economists when speaking
of competition, of machinery, or of the absorption of the small industry
by a greater one. In the opinion of the Marxians no attempt at improving
matters is worthy the name of reform unless it also speeds the coming
revolution. “But it can shorten and lessen the birth-pangs.”[1009]


To speak of Neo-Marxism, which is of quite recent growth, is to
anticipate the chronological order somewhat, but some such procedure
seems imperative in the interests of logical sequence. It has the further
merit of dispensing with any attempt at criticism, a task which the
Neo-Marxians[1010] have exclusively taken upon their own shoulders.

The two phases of the crisis must needs be kept distinct. The one, which
is predominantly critical—or reformative, if that phrase be preferred—is
best represented by M. Bernstein and his school. The other, which is more
or less of an attempt to revive Marxism, has become current under the
name of Syndicalism.


If we take Marx’s economic theories one by one as we have done, we shall
find that there is nothing very striking in any of them, and that even
the most important of them will not stand critical scrutiny. We might
even go farther and say that this work of demolition is partly due to
the posthumous labours of Marx himself. It was the publication of his
later volumes that served to call attention to the serious contradiction
between the later and the earlier sections of his work. Marxism itself,
it seems, fell a prey to that law of self-destruction which threatened
the overthrow of the whole capitalistic _régime_. Some of Marx’s
disciples have, of course, tried to justify him by claiming that the work
is not self-contradictory, but that the mere enumeration of the many
conflicting aspects of capitalistic production strikes the mind as being
contradictory.[1011] If this be so, then _Kapital_ is just a new edition
of Proudhon’s _Contradictions économiques_, which Marx had treated with
such biting ridicule. And if the capitalist _régime_ is really so full
of contradictions that are inherent in its very nature, how difficult
it must be to tell whether it will eventuate in collectivism or not
and how very rash is scientific prophecy about annihilation and a final

The fundamental theory of Marxism, that of labour-value, appears to
be abandoned by the majority of modern Marxians, who are gradually
veering round and adopting either the “final utility” or the “economic
equilibrium” theory.[1013] Even Marx himself, despite his formal
acceptance of the labour-value theory, is constantly obliged to admit—not
explicitly, of course—that value depends upon demand and supply.[1014]
Especially is this the case with profits, as we have already had occasion
to remark. What appears as an indisputable axiom in the first volume is
treated as a mere working hypothesis in the later ones.

But seeing that the other Marxian doctrines—the theories of surplus value
and surplus labour, for example—are mere deductions from the principle of
labour-value, it follows that the overthrow of the first principle must
involve the ruin of the other two. If labour does not necessarily create
value, or if value can be created without labour, then there is no proof
that labour _always_ begets a surplus value and that the capitalist’s
profit must largely consist of unremunerated labour. The Neo-Marxians in
reply point to the fact that surplus labour and surplus value do exist,
else how could some individuals live without working? They must obviously
be dependent upon the labour of others.[1015] All this is very true, but
the fact had been announced by Sismondi long before, and the evil had
been denounced both by him and the English critics. It is the old problem
of unearned increment which formed the basis of Saint-Simon’s doctrine
and Rodbertus’s theory, and which has been taken up quite recently by the
English Fabians.

It is difficult to see what definite contribution Marx has made to the
question, and the old problem as to whether workers are really exploited
or not and whether the revenues obtained by the so-called idle classes
correspond to any real additional value contributed by themselves still
remains unsettled. We can only say that his historical exposition
contains several very striking instances which seem to prove this
exploitation, and that this is really the most solid part of his work.

Passing on to the law of concentration—the vertebral column of the
Marxian doctrine—we shall find upon examination that it is in an equally
piteous condition. The most unsparing critic in this case has been a
socialist of the name of Bernstein, who has adduced a great number of
facts[1016]—many of them already advanced by the older economists—which
go to disprove the Marxian theory. It may be impossible to deny that
the number of great industries is increasing rapidly and that their
power is growing even more rapidly than their numbers, but it certainly
does not seem as if the small proprietors and manufacturers were being
ousted. Statistics, on the contrary, show that the number of small
independent manufacturers (the artisans who, according to Marxian
theory, had begun to disappear as far back as the fourteenth century) is
actually increasing. Some new invention, such as photography, cycling,
or the application of electricity to domestic work, or the revival of an
industry such as horticulture, gives rise to a crowd of small industries
and new manufactures.

But concentration as yet has scarcely made an appearance even in
agriculture, and all the efforts of the Marxians to make this industry
fit in with their theory have proved utterly useless. America as well as
Europe has been laid under tribute with a view to supplying figures that
would prove their contention. The statistics, however, are so confusing
that directly opposite conclusions may be drawn from the same set of
figures. The amount of support which they lend to the Marxian contention
seems very slight indeed. On the whole they may be said to lend colour
to the opposite view that the number of businesses is at least keeping
pace with the growth of population. Were this to be definitely verified
it would set a twofold check upon the Marxian theory. Not only would it
be proved that _petite culture_ is on the increase, but it would also be
found that it is on the increase simply because it is more productive
than “the great industry.”

But suppose for the sake of hypothesis that we accept the law of
concentration as proved. That in itself is not enough to justify
the Marxian doctrine. To do this statistics proving an increasing
concentration of property in the hands of fewer individuals are also
necessary; but in this case the testimony of the figures is all in the
opposite direction. We must not be deceived by the appearance of that
new species, the American millionaire. There are men who are richer than
the richest who ever lived before, but there are also more men who are
fairly rich than ever was the case before. The number of men who make a
fortune—not a very great one, perhaps, but a moderate-sized or even a
small one—is constantly growing. Joint stock companies, which according
to the Marxian view afforded striking evidence of the correctness of his
thesis, have, on the contrary, resulted in the distribution of property
between a greater number of people, which proves that the concentration
of industry and the centralisation of property are two different
things. Or take the wonderful development of the co-operative movement
and reflect upon the number of proletarians who have been transformed
into small capitalists entirely through its instrumentality. To think
that expropriation in the future will be easier because the number of
expropriated will be few seems quite contrary to facts. It looks as if
it were the masses, whose numbers are daily increasing, who will have
to be expropriated, after all. More than half the French people at the
present day possess property of one kind or another—movable property,
land, or houses. And yet the collectivists never speak except with the
greatest contempt of these rag-ends and tatters of property, fondly
imagining that when the day of expropriation comes the expropriated will
joyfully throw their rags aside in return for the blessings of social
co-proprietorship. Apparently, however, the Marxians themselves no
longer believe all this. Their language has changed completely, and just
now they are very anxious to keep these rags and tatters in the hands of
their rightful owners.

The changes introduced into the programme as a result of this have
transformed its character almost completely. When it was first drawn
up and issued as a part of the _Communist Manifesto_ nearly fifty
years ago everybody expected that the final disappearance of the small
proprietor was a matter of only a few years, and that at the end of
that time property of every description would be concentrated in the
hands of a powerful few. This continuous expropriation would, of course,
swell the ranks of the proletariat, so that compared with their numbers
the proprietors would be a mere handful. This would make the final
expropriation all the easier. With such disparity in numbers the issue
was a foregone conclusion, no matter what method was employed, were it a
revolution or merely a parliamentary vote.

Unfortunately for the execution of this programme, not only do we find
the great capitalist still waxing strong, which is quite in accordance
with the orthodox Marxian view, but there is no evidence that the small
proprietor or manufacturer is on the wane. The Marxian can scarcely
console himself with the thought that the revolution is gradually
being accomplished without opposition when he sees hundreds of peasant
proprietors, master craftsmen, and small shopkeepers on every side of
him. Nor is there much chance of forcing this growing mass of people,
which possibly includes the majority of the community even now, to change
its views. We can hardly expect them to be very enthusiastic about a
programme that involves their own extinction.

A distinction has obviously been drawn between two classes of
proprietors. The socialisation of the means of production is only to
apply to the case of wealthy landowners and manufacturers on a large
scale—to those who employ salaried persons. But the property of the
man who is supporting himself with the labour of his own hands will
always be respected. The Marxians defend themselves from the reproach
of self-contradiction and opportunism by stating that their action is
strictly in accordance with the process of evolution. You begin by
expropriating those industries that have arrived at the capitalistic and
wage-earning stage. The criterion must be the presence or otherwise of a
surplus value.

The conclusion is logical enough, but one would like to know what
is going to become of the small independent proprietor. Will he be
allowed to grow and develop alongside of the one great proprietor—the
State? We can hardly imagine the two systems coexisting and hopelessly
intermingled, as they would have to be, but still with freedom for the
individual to choose between them. The collectivists have at any rate
made no attempt to disguise the fact. They look upon it merely as a
temporary concession to the cowardice of the small proprietor, who will
presently willingly abandon his own miserable bit of property in order to
share in the benefits of the new _régime_, or who will at any rate be put
out of the running by its economic superiority. But since the prospects
do not seem very attractive to those immediately concerned, it may be as
well to dispense with any further consideration of the subject.

But there is another question. What has become of the class struggle in
Neo-Marxism? The doctrine, though not altogether denied, is no longer
presented as a deadly duel between two classes and only two, but as a
kind of confused _mêlée_ involving a great number of classes, which
makes the issue of the conflict very uncertain. The picture of society
as consisting merely of two superimposed layers is dismissed as being
altogether too elementary. On the contrary, what we find is increasing
differentiation even within the capitalist class itself. There is
a perpetual conflict going on between borrower and lender, between
manufacturer and merchant, between trader and landlord, the last of which
struggles is especially prominent in the annals of politics. It has a
long history, but in modern times it takes the form of a political battle
between the Conservative and Liberal parties, between Whigs and Tories.
These undercurrents complicate matters a great deal, and on occasion
they have a way of dramatically merging with the main current, when both
parties seek the help of the proletariat. In England, for example, the
manufacturers succeeded in repealing the Corn Laws, which dealt a hard
blow at the landed proprietors, who in turn passed laws regulating the
conditions of labour in mines and factories. In both cases the working
classes gained something—_tertius gaudens_! Then there are the struggles
among the working classes themselves. Not to speak of the bitter
animosity between the _syndicats rouges_ and the _syndicats jaunes_,
there is the rivalry between syndicalists and non-syndicalists, between
skilled workmen and the unskilled. As Leroy-Beaulieu remarks, not only
have we a fourth estate, but there are already signs of a fifth.

And what of the great catastrophe? The Neo-Marxians no longer believe
in it. The economic crises which furnished the principal argument in
support of the catastrophic theory are by no means as terrible as they
were when Marx wrote. They are no longer regarded as of the nature of
financial earthquakes, but much more nearly resemble the movements of the
sea, whose ebb and flow may to some extent be calculated.

And the materialistic conception of history? “Every unbiased
person must subscribe to that formula of Bernstein: The influence
of technico-economic evolution upon the evolution of other social
institutions is becoming less and less.”[1017] What a number of proofs
of this we have! Marxism itself furnishes us with some. The principle of
class war and the appeal to class prejudice owe much of the hold which
they have to a feeling of antagonism against economic fatalism. In other
words, they draw much of their strength from an appeal to a certain
ideal. It is, of course, true that facts of very different character,
economic, political, and moral, react upon one another, but can anyone
say that some one of them determines all the others? Economists have
been forced to recognise this, and the futile attempt to discover cause
or effect has recently given place to a much more promising search for
purely reciprocal relations.

It is by no means easy to determine how much Marxism there is in
Neo-Marxism. “Is there anything beyond the formulæ which we have quoted,
and which are becoming more disputable every day? Is it anything more
than a philosophical theory which purports to explain the conflicts of
society?”[1018] Bernstein tells us somewhere that socialism is just a
movement, and that “the movement is everything, the end is nothing.”[1019]


Doctrinaire Marxism seemed languishing when a number of professed
disciples found a fresh opportunity of reviving its ideals and of
justifying its aims in a new movement of a pre-eminently working-class
character known as Syndicalism.

Our concern is not with the reformist movement, occasionally spoken of as
Trade Unionism, which constitutes the special province of M. Bernstein
and the Neo-Marxians of his school,[1020] but rather with militant
syndicalism, which as yet scarcely exists anywhere except in France and
Italy, and which in France is represented by the Confédération générale
du Travail.

What connection is there between Marxism and syndicalism? Of conscious,
deliberate relationship there is scarcely any. The men who direct the
Confédération have never read Marx, possibly, and would hardly concern
themselves with the application of his doctrines. On the other hand, we
have recently been told that the programme of the Confédération générale
du Travail (C.G.T.) is in strict conformity with the Marxian doctrine;
that since the reforming passion has so seized hold of the Neo-Marxians
as to drive them to undermine the older doctrine altogether, it is
necessary to turn to the new school to find the pure doctrine. They
make the further claim of having aroused new enthusiasm for the Marxian

(_a_) In the first place they have re-emphasised the essentially
proletarian character of socialism. Not only is there to be no dealing
with capitalist or _entrepreneur_, but no quarter is to be given to the
intellectuals or the politicians. The professional labour syndicate is to
exclude everyone who is not a workman, and it has no interest at heart
other than that of the working class.[1021] Contempt for intellectualism
is a feature of Marxism, and so is the emphasis laid upon the beauty and
worth of labour, not of every kind of labour, but merely of that labour
which moulds or transforms matter—that is, of purely manual labour.

No institution seems better fitted to develop class feeling—that is, the
sense of community of interests binding all the proletarians together
against the owners—than the _syndicat_. Organisation is necessary if
social consciousness is to develop. This is as true in the economic as
it is in the biological sphere, and this is why the _syndicat_ is just
what was needed to transform the old socialistic conception into real
socialism. Marx could not possibly have foreseen the vast potentialities
of the _syndicat_. If he had only known it how his heart would have
rejoiced! The Neo-Marxians can never speak of syndicalism without going
into raptures. No other new source of energy seems left in this tottering
middle-class system. But syndicalism has within it the promise of a new
society, of a new philosophy, even of a new code of morality which we may
call producers’ ethics, which will have its roots in professional honour,
in the joy that comes from the accomplishment of some piece of work, and
in their faith in progress.[1022]

(_b_) New stress has been laid upon the philosophy of class war, and
a fresh appeal has been made for putting it into practice. The only
real, sensible kind of revolution is that which must sooner or later
take place between capitalists on the one hand and wage-earners on the
other, and this kind of revolution can only be effected by appealing to
class feeling and by resorting to every instrument of conflict, strikes,
open violence, etc. All attempts at establishing an understanding with
the _bourgeois_ class, every appeal for State intervention or for
concessions, must be abandoned. Explicit trust must be placed in the
method of direct action.[1023]

Strife is to be the keynote of the future, and in the pending struggle
every trace of _bourgeois_ legalism will be ruthlessly swept aside. The
fighting spirit must be kept up, not with a view to the intensification
of class hatred, but simply in order to hand on the torch.

The struggle has hitherto been the one concern of the revolutionary
syndicalists. Unlike the socialists, they have never paid any attention
either to labour or to social organisation. All this has, fortunately,
been done by the capitalist, and all that is required now is simply to
remove him.[1024]

(_c_) Nor has the catastrophic thesis been forgotten. This time it has
been revived, not in the form of a financial crisis, but in the guise
of a general strike. What will all the _bourgeois_ generalship, all the
artillery of the middle class, avail in a struggle of that kind? What
is to be done when the worker just folds his arms and instantly brings
all social life to a standstill, thus proving that labour is really the
creator of all wealth? And although one may be very sceptical as to the
possibility of a general strike—the scepticism is one that is fully
shared in by the syndicalists themselves—still this “myth,” as Sorel
calls it, must give a very powerful stimulus to action, just as the
Christians of the early centuries displayed wonderful activity in view of
their expectation of the second coming of Christ.

The word “myth” has been a great success, not so much among working men,
to whom it means nothing at all, but among the intellectuals. It is very
amusing to think that this exclusively working-class socialism, which is
not merely anti-capitalist, but also violently anti-intellectual, and
which is to “treat the advances of the _bourgeoisie_ with undisguised
brutality,” is the work of a small group of “intellectuals” possessed
of remarkable subtlety, and even claiming kinship with Bergsonian
philosophy.[1025] A myth perhaps! But what difference is there between
being under the dominion of a myth and following in the wake of a star
such as guided the wise men of the East, or being led by a pillar of
flame or a cloud such as went before the Israelites on their pilgrimage
towards the Promised Land?[1026] Such faith and hope borrowed from the
armoury of the triumphant Church of the first century, such a conception
of progress which swells its followers with a generous, almost heroic
passion, puts us out of touch with the historic materialism so dear
to the heart of Marx and brings us into line with the earlier Utopian
socialists whom he so genuinely despised. Sorel recognises this. “You
rarely meet with a pure myth,” says he, “without some admixture of


Everyone who knows the Bible at all or has the slightest acquaintance
with the writings of the early Fathers must have been struck by the
number of texts which they contain bearing upon social and economic
questions. And one has only to recall the imprecations of the prophets
as they contemplate the misdeeds of merchants and the greed of
land-grabbers, or strive to catch the spirit of the parables of Jesus or
the epistles of the Fathers concerning the duty of the rich towards the
poor—a point emphasised by Bossuet in his sermon on _The Eminent Dignity
of the Poor_—or dip into the folios of the Canonists or the Summa of
Aquinas, to realise how imperative were the demands of religion and with
what revolutionary vehemence its claims were upheld.[1027]

But not until the middle of the nineteenth century do we meet with
social doctrines of a definitely Christian type, and not till then do
we witness the formation of schools of social thinkers who place the
teaching of the Gospel in the forefront of their programme, hoping
that it may supply them with a solution of current economic problems
and with a plan of social reconstruction.[1028] It is not difficult to
account for their appearance at this juncture. Their primary object
was to bear witness to the heresy of socialism, and the nature of the
object became more and more evident as socialism tended to become more
materialistic and anti-Christian. It became the Church’s one desire to
win back souls from the pursuit of this new cult. It was the fear of
seeing the people—her own people—enrol themselves under the red flag of
the Anti-Christ that roused her ardour.[1029] But to regard it as a mere
question of worldly rivalry would be childish and misleading. Rather must
we see in it a reawakening of Christian conscience and a searching of
heart as to whether the Church herself had not betrayed her Christ, and
in contemplation of her heavenly had not forgotten her earthly mission,
which was equally a part of her message; whether in repeating the Lord’s
Prayer for the coming of the Kingdom and the giving of daily bread she
had forgotten that the Kingdom was to be established on earth and that
the daily bread meant, not charity, but the wages of labour.

Both doctrines and schools are of a most heterogeneous character, ranging
from authoritative conservatism to almost revolutionary anarchism, and it
will not be without some effort that we shall include them all within the
limits of a single chapter. But it is not impossible to point to certain
common characteristics, both positive and negative, which entitle us to
regard them all as members of one family.

As a negative trait we have their unanimous repudiation of Classical
Liberalism. This does not necessarily imply a disposition to invoke State
aid, for some of them, as we shall see, are opposed even to the idea of
a State. Neither does it imply a denial of a “natural order,” for under
the name of Providence and as a manifestation of the will of God the
“order” was a source of perennial delight to them. But man was to them an
outcast without lot or portion in the “order.” Fallen and sinful, bereft
of his freedom, it was impossible that of himself he should return to his
former state of bliss. To leave the natural man alone, to deliver him
over to the pursuit of personal interest in the hope that it might lead
him to the good or result in the rediscovery of the lost way of Paradise,
was clearly absurd. It was as futile in the economic as it was in the
religious sphere. On the contrary, the Christian schools maintained that
the “natural” man, the old man, the first Adam of the New Testament,
must somehow be got rid of before room could be found for the new man
within us. Every available force, whether religious, moral, or merely
social, must be utilised to keep people from the dangerous slope down
which egoism would inevitably lead them.[1030]

The new doctrines are also distinct from socialism, despite the fact
that their followers frequently outbid the socialists in the bitterness
of their attacks upon capital and the present organisation of society.
They refuse to believe that the creation of a new society in the sense
of a change in economic conditions or environment is enough. The
individual must also be changed. To those who questioned Christ as
to when the Kingdom of God should come, He replied, “The kingdom of
God cometh not with observation … for, behold, the kingdom of God is
within you,” and His answer is witness to the fact that social justice
will only reign when it has achieved victory over human hearts. Social
Christianity must never be compared with the socialism of the Liberals
or the Associationists, for the latter believed man to be naturally
good apart from the deteriorating effects of civilisation. Nor must
it ever be classed with the collectivism of Marx, which has its basis
in a materialistic conception of history and class war. Some of these
Christian authors, it is true, regard State Socialism with a certain
degree of favour and would possibly welcome co-operation, but to most
of them legal coercion does not seem very attractive and they prefer to
put their faith in associations such as the family, the corporation,
or the co-operative society. We could hardly expect otherwise, seeing
that every church is an organisation of some kind or other. The Catholic
Church especially, whatever opinion we may have of it, is at once the
greatest and the noblest association that ever existed. Its bonds are
even stronger than death. The Church militant below joins hands with the
Church triumphant above, the living praying for the dead and the dead
interceding for the living.

From a constructive standpoint they defy classification. They have a
common aspiration in their hope of a society where all men will be
brothers, children of the one Heavenly Father,[1031] but many are the
ways of attaining this fraternal ideal. In the same spirit they speak
of a just price and a fair wage much as the Canonists of the Middle
Ages did. In other words, they refuse to regard human labour as a mere
commodity whose value varies according to the laws of supply and demand.
The labour of men is sacred, and Roman law even refused to recognise
bartering in _res sacræ_. But when it becomes a question of formulating
means of doing this, the ways divide. Numerous as are the Biblical texts
which bear upon social and economic questions, they are extraordinarily
vague. At least they seem capable of affording support to the most
divergent doctrines.

Some might consider it a mistake to devote a whole chapter to these
doctrines, seeing that they are moral rather than economic, and
that, with perhaps the exception of Le Play, who is only indirectly
connected with this school, we have no names that can be compared with
those already mentioned. But not a few intellectual movements are of
an anonymous character. The importance of a doctrine ought not to be
measured by the illustrious character of its sponsor so much as by the
effect which it has had upon the minds of men. No one will be prepared to
deny the influence which these doctrines have exercised upon religious
people, an influence greater than either Fourier’s, Saint-Simon’s,
or Proudhon’s. Moreover, they are connected with the development of
important economic institutions, such as the attempt to revive the system
of corporations in Austria, the establishment of rural banks in Germany
and France, the development of co-operative societies in England, the
growth of temperance societies, the agitation for Sunday rest, etc. Nor
must we forget that the pioneers of factory legislation, the founders
of workmen’s institutes, men like Lord Shaftesbury in England, Pastor
Oberlin, and Daniel Legrand the manufacturer, were really Christian


Le Play’s[1032] school is very closely related to the Classical Liberal,
some of its best known representatives actually belonging to both.
There is the same antipathy to socialism and the same dread of State

But it is not difficult to differentiate from the more extreme Liberal
school which finds its most optimistic expression in the works of certain
French writers. The cardinal doctrine of that school, namely, that
individual effort is alone sufficient for all things, finds no place in
Le Play’s philosophy. Man, it seemed to him, was ignorant of what his
own well-being involved. In the realm of social science no fact seemed
more persistent or more patent than error. Every individual appeared to
be born with a natural tendency to evil, and he picturesquely remarks
that “every new generation is just an invasion of young barbarians that
must be educated and trained. Whenever such training is by any chance
neglected, decadence becomes imminent.”[1033]

Among the errors more particularly denounced by Le Play were the special
idols of the French _bourgeois_—the “false dogmas of ’89” as he calls
them.[1034] It seemed to him that no society could ever hope to exist for
any length of time and still be content with the rule of natural laws,
which merely meant being ruled by the untamed instincts of the brute.
It must set to and reform itself. Hence his book is entitled _Social
Reform_, and the school which he founded adopted the same title.

Some kind of authority is clearly indispensable; the question is what it
should be. The old paterfamilias relation immediately suggests itself
as being more efficacious than any other, seeing that it is founded in
nature and not on contract or decree, and springs from love rather than
coercion. The family group under the authority of its chief, which was
the sole social unit under the patriarchal system, must again be revived
in the midst of our complex social relations. But parental control cannot
always be relied upon, for the parent is frequently engrossed with
the other demands of life, and there is positive need for some social
authority. This new social authority will not be the State—that is, if Le
Play can possibly avoid it. The first chance will be given to “natural”
authorities—those authorities which rise up spontaneously. The nobility
is well fitted for the task where it exists. In the absence of nobility,
or where, as was unfortunately the case in France, they were impervious
to a sense of duty, society must fall back upon the landed proprietors,
the employers, and persons of ripe judgment—men who hardly deserve the
title of savants, but nevertheless with considerable experience of
life. Failing these it could still appeal to the local authorities,
to those living nearest the persons concerned, to the parish rather
than the county, the county rather than the State. State intervention
is indispensable only when all other authorities have failed—in the
enforcement of Sunday observance, for example, where the ruling classes
have shown a disposition to despise it. The necessity for State
intervention is evidence of disease within the State, and the degree of
intervention affords some index of the extent of the malady.[1035]

Seeing that he attaches such importance to the constitution of the
family, Le Play is also bound to give equal prominence to the question of
entail, which determines the permanence of the family. Herein lies the
kernel of Le Play’s system. He distinguishes three types of families:

1. The patriarchal family. The father is the sole proprietor, or, more
correctly, he is the chief administrator of all family affairs. At
his death all goods pass by full title to the eldest son. Such is the
most ancient form of government of which we have any record. It is the
political counterpart of the pastoral _régime_, an