The real distinction between Political Economy and physical science must be sought in something deeper than the nature of the subject-matter; which, indeed, is for the most part common to both. Political Economy, and the scientific grounds of all the useful arts, have in truth one and the same subject-matter; namely, the objects which conduce to man’s convenience and enjoyment: but they are, nevertheless, perfectly distinct branches of knowledge.
If we contemplate the whole field of human knowledge, attained or
attainable, we
find that it separates itself obviously, and as it were spontaneously,
into two divisions,
which stand so strikingly in opposition and contradistinction to one
another, that
in all classifications of our knowledge they have been kept apart.
These are, physical
science, and moral or psychological science.
From the above considerations the following seems to come out as the
correct and
complete definition of Political Economy:–“The science which treats of
the production
and distribution of wealth, so far as they depend upon the laws of
human nature.”
Or thus–“The science relating to the moral or psychological laws of the
production
and distribution of wealth.”
Or the truths with which political economy has been enriched by Mr. Ricardo, none has contributed more to give to that branch of knowledge the comparatively precise and scientific character which it at present bears, than the more accurate analysis which he performed of the nature of the advantage which nations derive from a mutual interchange of their productions.
It is established, that the advantage which two countries derive from
trading with
each other, results from the more advantageous employment which thence
arises, of
the labour and capital–for shortness let us say the labour–of both
jointly. The circumstances
are such, that if each country confines itself to the production of one
commodity,
there is a greater total return to the labour of both together; and
this increase
of produce forms the whole of what the two countries taken together
gain by the trade.
It is the purpose of the present essay to inquire, in what proportion
the increase
of produce, arising from the saving of labour, is divided between the
two countries.
This question was not entered into by Mr. Ricardo, ....
Suppose, for example, that 10 yards of broad cloth cost in England as
much labour
as 15 yards of linen, and in Germany as much as 20. If England sends 10
yards of
broad cloth to Germany, and is able to ex-change them for linen
according to the
German cost of production, she will get 20 yards of linen, with a
quantity of labour
with which she could not have produced more than 15; and will gain,
therefore, 5
yards on every 15, or 33a per cent. But in this case Germany would
obtain only 10
yards of cloth for 20 of linen. Now, 10 yards of cloth cost exactly the
same quantity
of labour in Germany as 20 of linen; Germany, therefore, derives no
advantage from
the trade, more than she would possess if it did not exist. So, on the
other hand,
if Germany sends 15 yards of linen to England, and finding the relative
value of
the two articles in that country determined by the English costs of
production, is
enabled to purchase with 15 yards of linen 10 yards of cloth; Germany
now gains 5
yards, just as England did before,–for with 15 yards of linen she
purchases 10 yards
of cloth, when to produce these 10 yards she must have employed as much
labour as
would have enabled her to produce 20 yards of linen. But in this case
England would
gain nothing: she would only obtain, for her 10 yards of cloth, 15
yards of linen,
which is exactly the comparative cost at which she could have produced
them.
When each country produced both commodities for itself, 10 yards of
broad cloth exchanged
for 15 yards of linen in England, and for 20 in Germany. They will now
exchange for
the same number of yards of linen in both. For what number? If for 15
yards, England
will be just as she was, and Germany will gain all If for 20 yards,
Germany will
be as before and England will derive the whole of the benefit. If for
any number
intermediate between 15 and 20, the advantage will be shared between
the two countries.
The problem is, what are the causes which determine the proportion in
which the cloth
of England and the linen of Germany will exchange for each other?
The law, however, cannot be precisely the same as in the common cases.
When two articles
are produced in the immediate vicinity of one another, so that, without
expatriating
himself, or moving to a distance, a capitalist has the choice of
producing one or
the other, the quantities of the two articles which will exchange for
each other
will be, on the average, these which are produced by equal quantities
of labour.
But this cannot be applied to the case where the two articles are
produced in two
different countries; because men do not usually leave their country, or
even send
their capital abroad, for the sake of those small differences of profit
which are
sufficient to determine their choice of a business, or of an
investment, in their
own country and neighbourhood.
It is well known that the quantity of any commodity which can be
disposed of, varies
with the price. The higher the price, the fewer will be the purchasers,
and the smaller
the quantity sold. Whatever be the commodity–the supply in any market
being given,
there is some price at which the whole of the supply exactly will find
purchasers,
and no more.
This, then, is what we mean, when we say that price, or exchangeable
value, depends
on demand and supply. We should express the principle more accurately,
if we were
to say, the price so regulates itself that the demand shall be exactly
sufficient
to carry off the supply. Let us now apply the principle of demand and
supply, thus
understood, to the interchange of broadcloth and linen between England
and Germany.
As exchangeable value in this case, as in every other, is proverbially
fluctuating,
it does not matter what we suppose it to be when eve begin; we shall
soon see whether
there be any fixed point about which it oscillates–which it has a
tendency always
to approach to, and to re-main at.
Let us suppose, then, that by the erect of what Adam Smith calls the
higgling of
the market, 10 yards of cloth, in both countries, exchange for 17 yards
of linen.
The demand for a commodity, that is, the quantity of it which can find
a purchaser,
varies, as we have before remarked, according to the price. In Germany,
the price
of 10 yards of cloth is now 17 yards of linen; or whatever quantity of
money is equivalent
in Germany to 17 yards of linen. Now, that being the price, there is
some particular
number of yards of cloth, which will be in demand, or will find
purchasers, at that
price. There is some given quantity of cloth, more than which could not
be disposed
of at that price,–less than which, at that price, would not fully
satisfy the demand.
Let us suppose this quantity to be, 1000 times 10 yards.
Let us now turn our attention to England. There, the price of 17 yards
of linen is
10 yards of cloth, or whatever quantity of money is equivalent in
England to 10 yards
of cloth. There is some particular number of yards of linen, which, at
that price,
will exactly satisfy the demand, and no more. Let us suppose that this
number is
1000 times 17 yards.
As 17 yards of linen are to 10 yards of cloth, so are 1000 times 17
yards to 1000
times 10 yards. At the existing exchangeable value, the linen which
England requires,
will exactly pay for the quantity of cloth which, on the same terms of
interchange,
Germany requires. The demand on each side is precisely sufficient to
carry off the
supply on the other. The conditions required by the principle of demand
and supply
are fulfilled, and the two commodities will continue to be
interchanged, as we supposed
them to be, in the ratio of 17 yards of linen for 10 yards of cloth.
But our supposition might have been different. Suppose that, at the
assumed rate
of interchange, England had been disposed to consume no greater
quantity of linen
than 800 times 17 yards; it is evident that, at the rate supposed, this
would not
have sufficed to pay for the 1000 times 10 yards of cloth, which we
have supposed
Germany to require at the assumed value. Germany would be able to
procure no more
than 800 times 10 yards, at that price. To procure the remaining 200,
which she would
have no means of doing but by bidding higher for them, she would offer
more than
17 yards of linen in exchange for 10 yards of cloth; let us suppose her
to offer
18. At that price, perhaps, England would be inclined to purchase a
greater quantity
of linen. She could consume, possibly, at that price, 900 times 18
yards. On the
other hand, cloth having risen in price, the demand of Germany for it
would, pro-bably,
have diminished. If, instead of 1000 times 10 yards, she is now
contented with 900
times ten yards, these will exactly pay for the 900 times 18 yards of
linen which
England is willing to take at the altered price the demand on each side
will again
exactly suffice to take off the corresponding supply; and 10 yards for
18 will be
the rate at which, in both countries, cloth will exchange for linen.
It may be considered, therefore, as established, that when two
countries trade together
in two commodities, the exchangeable value of these commodities
relatively to each
other will adjust itself ... in such. We know that the limits within
which the variation
is confined are the ratio between their costs of production in the one
country, and
the ratio between their costs of production in the other. Ten yards of
cloth cannot
exchange for more than 10 yards of linen, nor for less than 15. But
they may exchange
for any intermediate number. The ratios, therefore, in which the
advantage of the
trade may be divided between the two nations, are various. The
circumstances on which
the proportionate share of each country more remotely depends, admit
only of a very
general indication.
The question naturally suggests itself, whether any country, by its own
legislative
policy, can engross to itself a larger share of the benefits of foreign
commerce,
than would fall to it in the natural or spontaneous course of trade.
The answer is, it can. By taxing exports, for instance, we may, under
certain circumstances,
produce a division of the advantage of the trade more favourable to
ourselves. In
some cases, we may draw into our corners, at the expense of foreigners,
not only
the whole tax, but more than the tax: in other cases, we should gain
exactly the
tax,–in others, less than the tax. In this last case, a part of the tax
is borne
by ourselves: possibly the whole, possibly even, as we shall show, more
than the
whole.
It is true ... of every particular producer or dealer, that a great
demand, a brisk
circulation, a rapid consumption, of the commodities which he sells at
his shop or
produces in his manufactory, is important to him. The dealer whose shop
is crowded
with customers, who can dispose of a product almost the very moment it
is completed,
makes large profits, while his next neighbour, with an equal capital
but fewer customers,
gains comparatively little.
It was natural that, in this case, as in a hundred others, the analogy
of an individual
should be unduly applied to a nation: as it has been concluded that a
nation generally
gains in wealth by the conquest of a province, because an individual
frequently does
so by the acquisition of an estate; and as, because an individual
estimates his riches
by the quantity of money which he can command, it was long deemed an
excellent contrivance
for enriching a country, to heap up artificially the greatest possible
quantity of
the precious metals within it.
The capital, whether of an individual or of a Nation, consists, ... of
all matters
possessing exchangeable value, which the individual or the nation has
in his or in
its possession for the purpose of reproduction, and not for the purpose
of the owner’s
unproductive enjoyment.
The number of producers, or dealers, who turn over their capital, as
the expression
is, in the shortest possible time, is very small. There are few who
have so rapid
a sale for their wares, that all the goods which their own capital, or
the capital
which they can borrow, enables them to supply, are carried out as fast
as they can
be supplied. ... there is, of necessity, a great quantity of capital
which remains
fixed in the shape of implements, machinery, buildings, etc., whether
it is only
half employed, or in complete employment: and every dealer keeps a
stock in trade,
to be ready for a possible sudden demand, though he probably may not be
able to dispose
of it for an indefinite period.
This perpetual non-employment of a large proportion of capital, is the
price we pay
for the division of labour. The purchase is worth what it costs; but
the price is
considerable.
In the present state of the commercial world, mercantile transactions
being carried
on upon an immense scale, but the remote causes of fluctuations in
prices being very
little understood, so that unreasonable hopes and unreasonable fears
alternately
rule with tyrannical sway over the minds of a majority of the
mercantile public;
general eagerness to buy and general reluctance to buy, succeed one
another in a
manner more or less marked, at brief intervals. Except during short
periods of transition,
there is almost always either great briskness of business or great
stagnation; either
the principal producers of almost all the leading articles of industry
have as many
orders as they can possibly execute, or the dealers in almost all
commodities have
their warehouses full of unsold goods.
In this last case, it is commonly said that there is a general
superabundance; and
as those economists who have contested the possibility of general
superabundance,
would none of them deny the possibility or even the frequent occurrence
of the phenomenon
which we have just noticed, it would seem incumbent on them to show,
that the expression
to which they object is not applicable to a state of things in which
all or most
commodities remain unsold, in the same sense in which there is said to
be a superabundance
of any one commodity when it remains in the warehouses of dealers for
want of a market.
There can never, it is said, be a want of buyers for all commodities;
because whoever
offers a commodity for sale, desires to obtain a commodity in exchange
for it, and
is therefore a buyer by the mere fact of his being a seller. The
sellers and the
buyers, for all commodities taken together, must, by the metaphysical
necessity of
the case, be an exact equipoise to each other; and if there be more
sellers than
buyers of one thing, there must be more buyers than sellers for
another. This argument
is evidently founded on the supposition of a state of barter; and, on
that supposition,
it is perfectly incontestable. When two persons perform an act of
barter, each of
them is at once a seller and a buyer. He cannot sell without buying.
Unless he chooses
to buy some other person’s commodity, he does not sell his own. If,
however, we suppose
that money is used, these propositions cease to be exactly true. It
must be admitted
that no person desires money for its own (unless some very rare cases
of misers be
an exception), and that he who sells his commodity, receiving money in
exchange,
does so with the intention of buying with that same money some other
commodity.
Interchange by means of money is therefore, as has been often observed,
ultimately
nothing but barter. But there is this difference–that in the case of
barter, the
selling and the buying are simultaneously confounded in one operation;
you sell what
you have, and buy what you want, by one indivisible act, and you cannot
do the one
without doing the other. Now the effect of the employment of moneys,
and even the
utility of it, is, that it enables this one act of interchange to be
divided into
two separate acts or operations; one of which may be performed now, end
the other
a year hence, or whenever it shall be most convenient.
Although he who sells, really sells only to buy, he needs not buy at
the same moment
when he sells; and he does not therefore necessarily add to the
immediate demand
for one commodity when he adds to the supply of another. The buying and
selling being
now separated, it may very well occur, that there may be, at some given
time, a very
general inclination to sell with as little delay as possible,
accompanied with an
equally general inclination to defer all purchases as long as possible.
This is always
actually the case, in those periods which are described as periods of
general excess.
And no one, after sufficient explanation, will contest the possibility
of general
excess, in this sense of the word. The state of things which we have
just described,
and which is of no uncommon occurrence, amounts to it.
It is true that this state can be only temporary, and must even be
succeeded by a
reaction of corresponding violence, since those who have sold without
buying will
certainly buy at last, and there will then be more buyers than sellers.
But although
the general over-supply is of necessity only temporary, this is no more
than may
be said of every partial over-supply. An overstocked state of the
market is always
temporary, and is generally followed by a more than common briskness of
demand.
In order to render the argument for the impossibility of an excess of
all commodities
applicable to the case in which a circulating medium is employed, money
must itself
be considered as a commodity. It must, undoubtedly, be admitted that
there cannot
be an excess of all other commodities, and an excess of money at the
same time.
The profits of stock are the surplus which remains to the capitalist
after replacing
his capital: and the ratio which that surplus bears to the capital
itself, is the
rate of profit. The gross profits from capital, the gains returned to
those who supply
the funds for production, must suffice for these three purposes. They
must afford
a sufficient equivalent for abstinence, indemnity for risk, and
remuneration for
the labour and skill required for superintendence.
This being the definition of profits, it might seem natural to adopt,
as a sufficient
theory in regard to the rate of profit, that it depends upon the
productive power
of capital. Some countries are favoured beyond others, either by nature
or art, in
the means of production. If the powers of the soil, or of machinery,
enable capital
to produce what is necessary for replacing itself, and twenty per cent
more, profits
will be twenty per cent; and so on.
This, accordingly, is a popular mode of speaking on the subject of
profits; but it
has only the semblance, not the reality, of an explanation. The
“productive power
of capital,” though a common, and, for some purposes, a convenient
expression, is
a delusive one. Capital, strictly speaking, has no productive power.
The only productive
power is that of. labour; assisted, no doubt, by tools, and acting upon
materials.
That portion of capital which consists of tools and materials, may be
said, perhaps,
without any great impropriety, to have a productive power, because they
contribute,
along with labour, to the accomplishment of production. But that
portion of capital
which consists of wages, has no productive power of its own. Wages have
no productive
power; they are the price of a productive power. Wages do not
contribute, along with
labour, to the production of commodities, no more than the price of
tools contributes
along with the tools themselves. If labour could be had without
purchase, wages might
be dispensed with. That portion of capital which is expended in the
wages of labour,
is only the means by which the capitalist procures to himself, in the
way of purchase,
the use of that
We need not, on this account, altogether proscribe the expression,
“productive power
of capital;” but we should carefully note, that it can only mean the
quantity of
real productive power which the capitalist, by means of his capital,
can command.
We have hitherto spoken of tools, buildings, and materials, as
essentials of production,
co-ordinate with labour, and equally indispensable with it. This is
true; but it
is also true that tools, buildings, and materials, are themselves the
produce of
labour; and that the only cause (cases of monopoly excepted) of their
having any
value, is the labour which is required for their production,
In the ultimate analysis, therefore, labour appears to be the only
essential of production.
The circumstances which regulate the rate of interest have usually been
treated,
even by professed writers on political economy, in a vague, loose, and
unscientific
manner. It has been felt ... that the fluctuations in the market-rate
of interest
from day to day, are determined, like other matters of bargain and
sale, by demand
and supply. It has, therefore, been considered as an established
principle, that
the rate of interest varies from day to day according to the quantity
of capital
offered or called for on loan; but conforms on the average of years to
a standard
determined by the rate of profits, and bearing some proportion to that
rate–but a
proportion which few attempts have been made to define.
The class of borrowers may be considered as unlimited. There is no
quantity of capital
that could be offered to be lent, which the productive classes would
not be willing
to borrow, at any rate of interest which would afford them the
slightest excess of
profit above a bare equivalent for the additional risk, incurred by
that transaction,
of the evils attendant on insolvency. The only assignable limit to the
inclination
to borrow, is the power of giving security: the producers would find it
difficult
to borrow more than an amount equal to their own capital. If more than
half the capital
of the country were in the hands of persons who preferred lending it to
engaging
personally in business, and if the surplus were greater than could be
invested in
loans to Government, or in mortgages upon the property of unproductive
consumers;
the competition of lenders would force down the rate of interest very
low. A certain
portion of the monied class would be obliged either to sacrifice their
predilections
by engaging in business, or to lend on inferior security; and they
would accordingly
accept, where they could obtain good security, an abate-ment of
interest equivalent
to the difference of risk.
The amount of borrowers being given (and by the amount of borrowers is
here meant
the aggregate sum which people are willing to borrow at some given
rate), the rate
of interest will depend upon the quantity of capital owned by people
who are unwilling
or unable to engage in trade. The circumstances which determine this,
are, on the
one hand, the degree in which a taste for business, or an aversion to
it, happens
to be prevalent among the classes possessed of property; and on the
other hand, the
amount of the annual accumulation from the earn-ings of labour. Those
who accumulate
from their wages, fees, or sala-ries, have, of course, (speaking
generally) no means
of investing their savings except by lending them to others: their
occupations prevent
them from personally superintending any employment. Upon these
circumstances, then,
the rate of interest depends, the amount of borrowers being given. And
the counter-proposition
equally holds, that, the above circumstances being given, the rate of
interest depends
upon the amount of borrowers.
In any supposable case, however, the issue of paper money by bankers
increases the
proportion of the whole capital of the country which is destined to be
lent. The
rate of interest must therefore fall, until some of the lenders give
over lending,
or until the increase of borrowers absorbs the whole.
The production of wealth; the extraction of the instruments of human subsistence and enjoyment from the materials of the globe, is evidently not an arbitrary thing. It has its necessary conditions. Of these, some are physical, depending on the properties of matter, and on the amount of knowledge of those properties possessed at the particular place and time. These Political Economy does not investigate, but assumes; referring for the grounds, to physical science or common experience. Combining with these facts of outward nature other truths relating to human nature, it attempts to trace the secondary or derivative laws, by which the production of wealth is determined; in which must lie the explanation of the diversities of riches and poverty in the present and past, and the ground of whatever increase in wealth is reserved for the future.
Unlike the laws of Production, those of Distribution are partly of human institution: since the manner in which wealth is distributed in any given society, depends on the statutes or usages therein obtaining. But though governments or nations have the power of deciding what institutions shall exist, they cannot arbitrarily determine how those institutions shall work. The conditions on which the power they possess over the distribution of wealth is dependent, and the manner in which the distribution is effected by the various modes of conduct which society may think fit to adopt, are as much a subject for scientific enquiry as any of the physical laws of nature.
The laws of Production and Distribution, and some of the practical consequences deducible from them, are the subject of the following treatise.
We now advance to the second great question in political economy; on what the degree of productiveness ... depends. For it is evident that their productive efficacy varies greatly at various times and places. Some of the causes which contribute to this difference of productiveness are obvious; others not so much so. We proceed to specify several of them.
The most evident cause of superior productiveness is what are called natural advantages. These are various. Fertility of soil is one of the principal. With each advance towards the south, or, in the European temperate region, towards the east, some new branch of agriculture becomes first possible, then advantageous;.... Nor is it in agriculture alone that differences of climate ae important. Their influence is felt in many other branches of production: in the durability of all work which is exposed to the air; of buildings, for example. Among natural advantages, besides soil and climate, must be mentioned abundance of mineral productions, in convenient situations, and capable of being worked with moderate labour. But perhaps a greater advantage than all these is a maritime situation, especially when accompanied with good natural harbours; and, next to it, great navigable rivers. These advantages consist indeed wholly in saving of cost of carriage. But few who have not considered the subject, have any adequate notion how great an extent of economical advantage this comprises; nor, without having considered the influence exercised on production by exchanges, and by what is called the division of labour, can it be fully estimated. So important is it, that it often does more than counterbalance sterility of soil, and almost every other natural inferiority; especially in that early stage of industry in which labour and science have not yet provided artificial means of communication capable of rivalling the natural. In the ancient world, and in the Middle ages, the most prosperous communities were not those which had the largest territory, or the most fertile soil, but rather those which had been forced by natural sterility to make the utmost use of a convenient maritime situation; as athens, Tyre, Marseilles, Venice, the free cities on the Baltic, and the like.
So much for natural advantages; the value of which, caeteris paribus, is too obvious to be ever underrated. But experience testifies that natural advantages scarcely ever do for a community, no more than fortune and station do for an individual, anything like what it lies in their nature, or in their capacity, to do. Successful production, like most other kinds of success, depends more on the qualities of the human agents, than on the circumstances in which they work: and it is difficulties, not facilities, that nourish bodily and mental energy.
The third element which determines the productiveness of the labour of a community, is the skill and knowledge therein existing; whether it be the skill and knowledge of the labourers themselves, or of those who direct their labour. That the productiveness of the labour of a people is limited by their knowledge of the arts of life, is self-evident; and that any progress in those arts, any improved application of the objects or powers of nature to industrial uses, enables the same quantity and intensity of labour to raise a greater produce. One principal department of these improvements consists in the invention and use of tools and machinery.
But the effects of the increased knowledge of a community in increasing its wealth, need the less illustration as they have become familiar to the most uneducated, from such conspicuous instances as railways and steam-ships. A thing not yet so well understood and recognised, is the economical value of the general diffusion of intelligence among the people. The number of persons fitted to direct and superintend any industrial enterprise, or even to execute any process which cannot be reduced almost to an affair of memory and routine, is always far short of the demand ... The importance, even in this limited aspect, of popular education, is well worthy of the attention of politicians, ...
In the enumeration of the circumstances which promote the productiveness of labour, we have left one untouched, which, because of its importance, and of the many topics of discussion which it involves, requires to be treated apart. This is, co-operation, or the combined action of numbers. Of this great aid to production, a single department, known by the name of Division of Labour, has engaged a large share of the attention of political economists; most deservedly indeed, but to the exclusion of other cases and exemplifications of the same comprehensive law. Mr. Wakefield was, I believe, the first to point out, that a part of the subject had, with injurious effect, been mistaken for the whole; that a more fundamental principle lies beneath that of the division of labour, and comprehends it.
Co-operation, he observes, is "of two distinct kinds: first, such co-operation as takes place when several persons help each other in the same employment; secondly, such co-operation as takes place when several persons help each other in different employments. These may be termed Simple Co-operation and Complex Co-operation.
"The advantage of simple co-operation is illustrated by ... the lifting of heavy weights, for example, in the felling of trees, in the sawing of timber, in the gathering of much hay or corn during a short period of fine weather, ... in all these simple operations, and thousands more, it is absolutely necessary that many persons should work together, at the same time, in the same place, and in the same way."
This is the first step in social improvement." The second is, when "one body of men having combined their labour to raise more food than they require, another body of men are induced to combine their labour for the purpose of producing more clothes than they require, and with those surplus clothes buying the surplus food of the other body of labourers; while, if both bodies together have produced more food and clothes than they both require, both bodies obtain, by means of exchange, a proper capital for setting more labourers to work in their respective occupations." To simple co-operation is thus superadded what Mr. Wakefield terms Complex Co-operation. The one is the combination of several labourers to help each other in the same set of operations; the other is the combination of several labourers to help one another by a division of operations.
In the present state of society the breeding and feeding of sheep is the occupation of one set of people, dressing the wool to prepare it for the spinner is that of another, spinning it into thread of a third, weaving the thread into broadcloth of a fourth, dyeing the cloth of a fifth, making it into a coat of a sixth, without counting the multitude of carriers, merchants, factors, and retailers, put in requisition at the successive stages of this progress. All these persons, without knowledge of one another or previous understanding, co-operate in the production of the ultimate result, a coat.
Thus far of the separation of employments, a form of the combination of labour without which there cannot be the first rudiments of industrial civilization. But when this separation is thoroughly established; when it has become the general practice for each producer to supply many others with one commodity, and to be supplied by others with most of the things which he consumes; reasons not less real, though less imperative, invite to a further extension of the same principle. It is found that the productive power of labour is increased by carrying the separation further and further; by breaking down more and more every process of industry into parts, so that each labourer shall confine himself to an ever smaller number of simple operations. And thus, in time, arise those remarkable cases of what is called the division of labour, with which all readers on subjects of this nature are familiar.
The greatest advantage (next to the dexterity of the workmen) derived from the minute division of labour which takes place in modern manufacturing industry, is one not mentioned by Adam Smith, but to which attention has been drawn by Mr. Babbage; the more economical distribution of labour, by classing the work-people according to their capacity. Different parts of the same series of operations require unequal degrees of skill and bodily strength; and those who have skill enough for the most difficult, or strength enough for the hardest parts of the labour, are made much more useful by being employed solely in them; the operations which everybody is capable of, being left to those who are fit for no others. Production is most efficient when the precise quantity of skill and strength, which is required for each part of the process, is employed in it, and no more.
From the importance of combination of labour, it is an obvious conclusion, that there are many cases in which production is made much more effective by being conducted on a large scale. Whenever it is essential to the greatest efficiency of labour that many labourers should combine, even though only in the way of Simple Co-operation, the scale of the enterprise must be such as to bring many labourers together, and the capital must be large enough to maintain them. Still more needful is this when the nature of the employment allows, and the extent of the possible market encourages, a considerable division of labour. The larger the enterprise, the farther the division of labour may be carried. This is one of the principal causes of large manufactories.
As a general rule, the expenses of a business do not increase by any means proportionally to the quantity of business. Let us take as an example, a set of operations which we are accustomed to see carried on by one great establishment, that of the Post Office. Suppose that the business, let us say only of the London letter-post, instead of being centralized in a single concern, were divided among five or six competing companies. Each of these would be obliged to maintain almost as large an establishment as is now sufficient for the whole. Since each must arrange for receiving and delivering letters in all parts of the town, each must send letter-carriers into every street, and almost every alley, and this too as many times in the day as is now done by the Post Office, if the service is to be as well performed. Each must have an office for receiving letters in every neighbourhood, with all subsidiary arrangements for collecting the letters from the different offices and re-distributing them. To this must be added the much greater number of superior officers ....
Whether or not the advantages obtained by operating on a large scale preponderate in any particular case over the more watchful attention, and greater regard to minor gains and losses, usually found in small establishments, can be ascertained, in a state of free competition, by an unfailing test. Wherever there are large and small establishments in the same business, that one of the two which in existing circumstances carries on the production at greatest advantage will be able to undersell the other. The power of permanently underselling can only, generally speaking, be derived from increased effectiveness of labour; and this, when obtained by a more extended division of employment, or by a classification tending to a better economy of skill, always implies a greater produce from the same labour, and not merely the same produce from less labour: it increases not the surplus only, but the gross produce of industry. If an increased quantity of the particular article is not required, and part of the labourers in consequence lose their employment, the capital which maintained and employed them is also set at liberty; and the general produce of the country is increased by some other application of their labour.
Another of the causes of large manufactories, however, is the introduction of processes requiring expensive machinery. Expensive machinery supposes a large capital; and is not resorted to except with the intention of producing, and the hope of selling, as much of the article as comes up to the full powers of the machine. For both these reasons, wherever costly machinery is used, the large system of production is inevitable. But the power of underselling is not in this case so unerring a test as in the former, of the beneficial effect on the total production of the community. ... The machinery ... might answer perfectly well to the manufacturer, and enable him to undersell his competitors, though the effect on the production of the country might be not an increase but a diminution. It is true, the article will be sold cheaper, and therefore, of that single article, there will probably be not a smaller, but a greater quantity sold; since the loss to the community collectively has fallen upon the work-people, and they are not the principal customers, if customers at all, of most branches of manufacture. ... a mode of production does not of necessity increase the productive effect of the collective labour of a community, because it enables a particular commodity to be sold cheaper. The one consequence generally accompanies the other, but not necessarily.
I have already remarked, that the operations of agriculture are little susceptible of benefit from the division of labour. There is but little separation of employments even on the largest farm. The same persons may not in general attend to the live stock, to the marketing, and to the cultivation of the soil; but much beyond that primary and simple classification the subdivision is not carried. ... There is no particular advantage in setting a great number of people to work together in ploughing or digging or sowing the same field, or even in mowing or reaping it unless time presses. A single family can generally supply all the combination of labour necessary for these purposes. And in the works in which an union of many efforts is really needed, there is seldom found any impracticability in obtaining it where farms are small.
Production on a large scale is greatly promoted by the practice of forming a large capital by the combination of many small contributions; or, in other words, by the formation of joint stock companies. The advantages of the joint stock principle are numerous and important.
In the first place, many undertakings require an amount of capital beyond the means of the richest individual or private partnership. Next, there are undertakings which individuals are not absolutely incapable of performing, but which they cannot perform on the scale and with the continuity which are ever more and more required by the exigencies of a society in an advancing state. Individuals are quite capable of despatching ships from England to any or every part of the world, to carry passengers and letters; .... But when ... the public will no longer content themselves with occasional opportunities, but require the certainty that packets shall start regularly, ... it is evident that to afford an assurance of keeping up with punctuality such a circle of costly operations, requires a much larger capital and a much larger staff of qualified subordinates than can be commanded by an individual capitalist. Where the concern is large, and can afford a remuneration sufficient to attract a class of candidates superior to the common average, it is possible to select for the general management, and for all the skilled employments of a subordinate kind, persons of a degree of acquirement and cultivated intelligence which more than compensates for their inferior interest in the result.
Another advantage of joint stock or associated management, is its incident of publicity. This is not an invariable, but it is a natural consequence of the joint stock principle, and might be, as in some important cases it already is, compulsory.
These are some of the advantages of joint stock over individual management. But if we look to the other side of the question, we shall find that individual management has also very great advantages over joint stock. The chief of these is the much keener interest of the managers in the success of the undertaking.
The administration of a joint stock association is, in the main, administration by hired servants. Even the committee, or board of directors, who are supposed to superintend the management, and who do really appoint and remove the managers, have no pecuniary interest in the good working of the concern beyond the shares they individually hold, which are always a very small part of the capital of the association, and in general but a small part of the fortunes of the directors themselves; and the part they take in the management usually divides their time with many other occupations, of as great or greater importance to their own interest; the business being the principal concern of no one except those who are hired to carry it on. But experience shows, and proverbs, the expression of popular experience, attest, how inferior is the quality of hired servants, compared with the ministration of those personally interested in the work, and how indispensable, when hired service must be employed, is "the master's eye" to watch over it. Another of the disadvantages of joint stock concerns, which is in some degree common to all concerns on a large scale, is disregard of small gains and small savings.
[On the other hand it] must be further remarked, that it is not a necessary consequence of joint stock management, that the persons employed, whether in superior or in subordinate offices, should be paid wholly by fixed salaries. There are modes of connecting more or less intimately the interest of the employees with the pecuniary success of the concern. ... it is a common enough practice to connect their pecuniary interest with the interest of their employers, by giving them part of their remuneration in the form of a percentage on the profits.
[W]e next proceed to the share of the capitalist; the profits of capital or stock; the gains of the person who advances the expenses of production -- who, from funds in his possession, pays the wages of the labourers, or supports them during the work; who supplies the requisite building, materials, and tools or machinery. and to whom, by the usual terms of the contract, the produce belongs, to be disposed of at his pleasure. After indemnifying him for his outlay, there commonly remains a surplus, is his profit; the net income from his capital: the amount which he can afford to spend in necessaries or pleasures, or from which by further saving he can add to his wealth.
As the wages of the labourer are the remuneration of labour, so the profits of the capitalist are properly, according to Mr. Senior's well-chosen expression, the remuneration of abstinence. They are what he gains by forbearing to consume his capital for his own uses, and allowing it to be consumed by productive labourers for their uses. For this forbearance he requires a recompense. Very often in personal enjoyment he would be a gainer by squandering his capital, the capital amounting to more than the sum of the profits which it will yield during the years he can expect to live. But while he retains it undiminished, he has always the power of consuming it if he wishes or needs; he can bestow it upon others at his death; and in the meantime he derives from it an income, which he can without impoverishment apply to the satisfaction of his own wants or inclinations.
Of the gains, however, which the possession of a capital enables a person to make, a part only is properly an equivalent for the use of the capital itself; namely, as much as a solvent person would be willing to pay for the loan of it. This, which as everybody knows is called interest, is all that a person is enabled to get by merely abstaining from the immediate consumption of his capital, and allowing it to be used for productive purposes by others. The remuneration which is obtained in any country for mere abstinence, is measured by the current rate of interest on the best security; such security as precludes any appreciable chance of losing the principal. What a person expects to gain, who superintends the employment of his own capital, is always more, and generally much more, than this. The rate of profit greatly exceeds the rate of interest. The surplus is partly compensation for risk. By lending his capital, on unexceptionable security, he runs little or no risk. But if he embarks in business on his own account, he always exposes his capital to some, and in many cases to very great, danger of partial or total loss. For this danger he must be compensated, otherwise he will not incur it. He must likewise be remunerated for the devotion of his time and labour. The control of the operations of industry usually belongs to the person who supplies the whole or the greatest part of the funds by which they are carried on, and who, according to the ordinary arrangement, is either alone interested, or is the person most interested (at least directly), in the result. To exercise this control with efficiency, if the concern is large and complicated, requires great assiduity, and often, no ordinary skill. This assiduity and skill must he remunerated.
Meaning, by the word demand, the quantity demanded, and remembering that this is not a fixed quantity, but in general varies according to the value, let us suppose that the demand at some particular time exceeds the supply, that is, there are persons ready to buy, at the market value, a greater quantity than is offered for sale. Competition takes place on the side of the buyers, and the value rises: but how much? in the ratio (some may suppose) of the deficiency: if the demand exceeds the supply by one-third, the value rises one-third. By no means: for when the value has risen one-third, the demand may still exceed the supply; there may, even at that higher value, be a greater quantity wanted than is to be had; and the competition of buyers may still continue. If the article is a necessary of life, ... a deficiency of one-third may raise the price to double, triple, or quadruple. Or, on the contrary, the competition may cease before the value has risen in even the proportion of the deficiency. A rise, short of one-third, may place the article beyond the means, or beyond the inclinations, of purchasers to the full amount. At what point, then, will the rise be arrested? At the point, whatever it be, which equalizes the demand and the supply: at the price which cuts off the extra third from the demand, or brings forward additional sellers sufficient to supply it. When, in either of these ways, or by a combination of both, the demand becomes equal and no more than equal to the supply, the rise of value will stop.
Thus we see that the idea of a ratio, as between demand and supply, is out of place, and has no concern in the matter: the proper mathematical analogy is that of an equation. Demand and supply, the quantity demanded and the quantity supplied, will be made equal. If unequal at any moment, competition equalizes them, and the manner in which this is done is by an adjustment of the value. If the demand increases, the value rises; if the demand diminishes, the value falls: again, if the supply falls off, the value rises; and falls if the supply is increased. The rise or the fall continues until the demand and supply are again equal to one another, and the value which a commodity will bring in any market, is no other than the value which, in that market, gives a demand just sufficient to carry off the existing or expected supply.
This, then, is the Law of Value, with respect to all commodities not susceptible of being multiplied at pleasure. Such commodities, no doubt, are exceptions. There is another law for that much larger class of things, which admit of indefinite multiplication. But it is not the less necessary to conceive distinctly and grasp firmly the theory of this exceptional case. In the first place, it will be found to be of great assistance in rendering the more common case intelligible. And in the next place, the principle of the exception stretches wider, and embraces more cases, than might at first be supposed.
Any commodity may be the subject of a monopoly: like tea, in this country, up to 1834; tobacco in France, opium in British India, at present. The price of a monopolized commodity is commonly supposed to be arbitrary; This is in one sense true, but forms no exception, nevertheless, to the dependence of the value on supply and demand. The monopolist can fix the value as high as he pleases, short of what the consumer either could not or would not pay'. but he can only do so by limiting the supply.
Again, though there are few commodities which are at all times and for ever unsusceptible of increase of supply, any commodity whatever may be temporarily so; and with some commodities this is habitually the case. Agricultural produce, for example, cannot be increased in quantity before the next harvest; the quantity of corn already existing in the world, is all that can be had for sometimes a year to come. During that interval, corn is practically assimilated to things Of which the quantity cannot be increased.
There is another case, the exact converse of this. There are some articles of which the supply may be indefinitely increased, but cannot be rapidly diminished. There are things so durable that the quantity in existence is at all times very great in comparison with the annual produce. Gold, and the more durable metals, are things of this sort; and also houses.
Finally, there are commodities of which, though capable of being increased or diminished to a great, and even an unlimited extent, the value never depends upon anything but demand and supply. This is the case, in particular, with the commodity Labour; ... and there are many cases besides, in which we shall find it necessary to call in this principle to solve difficult questions of exchange value. This will be particularly exemplified when we treat of International Values; ....
It appears to me impossible but that the increase of intelligence, of education, and of the love of independence among the working classes, must be attended with a corresponding growth of the good sense which manifests itself in provident habits of conduct, and that population, therefore, will bear a gradually diminishing ratio to capital and employment. This most desirable result would be much accelerated by another change, which lies in the direct line of the best tendencies of the time; the opening of industrial occupations freely to both sexes. The same reasons which make it no longer necessary that the poor should depend on the rich, make it equally unnecessary that women should depend on men; and the least which justice requires is that law and custom should not enforce dependence (when the correlative protection has become superfluous) by ordaining that a woman, who does not happen to have a provision by inheritance, shall have scarcely any means open to her of gaining a livelihood, except as a wife and mother. Let women who prefer that occupation, adopt it; but that there should be no option, no other career possible for the great majority of women, except in the humbler departments of life, is a flagrant social injustice. The ideas and institutions by which the accident of sex is made the groundwork of an inequality of legal rights, and a forced dissimilarity of social functions, must ere long be recognized as the greatest hindrance to moral, social, and even intellectual improvement. On the present occasion I shall only indicate, among the probable consequences of the industrial and social independence of women, a great diminution of the evil of over-population. It is by devoting one-half of the human species to that exclusive function, by making it fill the entire life of one sex, and interweave itself with almost all the objects of the other, that the animal instinct in question is nursed into the disproportionate preponderance which it has hitherto exercised in human life.
The political consequences of the increasing power and importance of the operative classes, and of the growing ascendancy of numbers, which, even in England and under the present institutions, is rapidly giving to the will of the majority at least a negative voice in the acts of government, are too wide a subject to be discussed in this place. But, confining ourselves to economical considerations, and notwithstanding the effect which improved intelligence in the working classes, together with just laws, may have in altering the distribution of the produce to their advantage, I cannot think that they will be permanently contented with the condition of labouring for wages as their ultimate state.
Hitherto there has been no alternative for those who lived by their labour, but that of labouring either each for himself alone, or for a master. But the civilizing and improving influences of association, and the efficiency and economy of production on a large scale, may be obtained without dividing the producers into two parties with hostile interests and feelings, the many who do the work being mere servants under the command of the one who supplies the funds, and having no interest of their own in the enterprise except to earn their wages with as little labour as possible. The speculations and discussions of the last fifty years, and the events of the last thirty, are abundantly conclusive on this point. If the improvement which even triumphant military despotism has only retarded, not stopped, shall continue its course, there can be little doubt that the status of hired labourers will gradually tend to confine itself to the description of work-people whose low moral qualities render them unfit for anything more independent: and that the relation of masters and work-people will be gradually superseded by partnership, in one of two forms: in some cases, association of the labourers with the capitalist; in others, and perhaps finally in all, association of labourers among themselves.
The first of these forms of association has long been practised, not indeed as a rule, but as an exception. In several departments of industry there are already cases in which every one who contributes to the work, either by labour or by pecuniary resources, has a partner's interest in it, proportional to the value of his contribution. It is already a common practice to remunerate those in whom peculiar trust is reposed, by means of a percentage on the profits: and cases exist in which the principle is, with excellent success, carried down to the class of mere manual labourers.
The form of association, however, which if mankind continue to improve, must be expected in the end to predominate, is not that which can exist between a capitalist as chief, and work-people 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. So long as this idea remained in a state of theory, in the writings of Owen or of Louis Blanc, it may have appeared, to the common modes of judgment, incapable of being realized, and not likely to be tried unless by seizing on the existing capital, and confiscating it for the benefit of the labourers; which is even now imagined by many persons, and pretended by more, both in England and on the Continent, to be the meaning and purpose of Socialism. But there is a capacity of exertion and self-denial in the masses of mankind, which is never known but on the rare occasions on which it is appealed to in the name of some great idea or elevated sentiment. Such an appeal was made by the French Revolution of 1848. For the first time it then seemed to the intelligent and generous of the working classes of a great nation, that they had obtained a government who sincerely desired the freedom and dignity of the many, and who did not look upon it as their natural and legitimate state to be instruments of production, worked for the benefit of the possessors of capital. Under this encouragement, the ideas sown by Socialist writers, of an emancipation of labour to be effected by means of association, throve and fructified; and many working people came to the resolution, not only that they would work for one another, instead of working for a master tradesman or manufacturer, but that they would also free themselves, at whatever cost of labour or privation, from the necessity of paying, out of the produce of their industry, a heavy tribute for the use of capital; that they would extinguish this tax, not by robbing the capitalists of what they or their predecessors had acquired by labour and preserved by economy, but by honestly acquiring capital for themselves. If only a few operatives had attempted this arduous task, or if, while many attempted it, a few only had succeeded, their success might have been deemed to furnish no argument for their system as a permanent mode of industrial organization. But, excluding all the instances of failure, there exist, or existed a short time ago, upwards of a hundred successful, and many eminently prosperous, associations of operatives in Paris alone, besides a considerable number in the departments.
The same admirable qualities by which the associations were carried through their early struggles, maintained them in their increasing prosperity. Their rules of discipline, instead of being more lax, are stricter than those of ordinary workshops; but being rules self.imposed, for the manifest good of the community, and not for the convenience of an employer regarded as having an opposite interest, they are far more scrupulously obeyed, and the voluntary obedience carries with it a sense of personal worth and dignity. With wonderful rapidity the associated workpeople have learnt to correct those of the ideas they set out with, which are in opposition to the teaching of reason and experience. Almost all the associations, at first, excluded piece-work, and gave equal wages whether the work done was more or less. Almost all have abandoned this system, and after allowing to every one a fixed minimum, sufficient for subsistence, they apportion all further remuneration according to the work done: most of them even dividing the profits at the end of the year, in the same proportion as the earnings.
It is the declared principle of most of these associations, that they do not exist for the mere private benefit of the individual members, but for the promotion of the co-operative cause. With every extension, therefore, of their business, they take in additional members, not (when they remain faithful to their original plan) to receive wages from them as hired labourers, but to enter at once into the full benefits of the association, without being required to bring anything in, except their labour: the only condition imposed is that of receiving during a few years a smaller share in the annual division of profits, as some equivalent for the sacrifices of the founders. When members quit the association, which they are always at liberty to do, they carry none of the capital with them: it remains an indivisible property, of which the members for the time being have the use, but not the arbitrary disposal: by the stipulations of most of the contracts, even if the association breaks up, the capital cannot be divided, but must be devoted entire to some work of beneficence or of public utility. A fixed, and generally a considerable, proportion of the annual profits is not shared among the members, but added to the capital of the association, or devoted to the repayment of advances previously made to it: another portion is set aside to provide for the sick and disabled, and another to form a fund for extending the practice of association, or aiding other associations in their need. The managers are paid, like other members, for the time which is occupied in management, usually at the rate of the highest paid labour: but the rule is adhered to, that the exercise of power shall never be an occasion of profit.
The vitality of these associations must indeed be great, to have enabled about twenty of them to survive not only the anti-socialist reaction, which for the time discredited all attempts to enable workpeople to be their own employers -- not only the tracasseries of the police, and the hostile policy of the government since the usurpation -- but in addition to these obstacles, all the difficulties arising from the trying condition of financial and commercial affairs from 1854 to 1858. Of the prosperity attained by some of them even while passing through this difficult period, I have given examples which must be conclusive to all minds as to the brilliant future reserved for the principle of cooperation.
It is not in France alone that these associations have commenced a career of prosperity. To say nothing at present of Germany, Piedmont, and Switzerland (where the Konsum-Verein of Zurich is one of the most prosperous cooperative associations in Europe), England can produce cases of success rivalling even those which I have cited from France. Under the impulse commenced by Mr Owen, and more recently propagated by the writings and personal efforts of a band of friends, chiefly clergymen and barristers, to whose noble exertions too much praise can scarcely be given, the good seed was widely sown; the necessary alterations in the English law of partnership were obtained from Parliament, on the benevolent and public.spirited initiative of Mr Slaney; many industrial associations, and a still greater number of cooperative stores for retail purchases, were founded. Among these are already many instances of remarkable prosperity, the most signal of which are the Leeds Flour Mill, and the Rochdale Society of Equitable Pioneers. It is not necessary to enter into any details respecting the subsequent history of English Co-operation; the less so, as it is now one of the recognized elements in the progressive movement of the age, I must not, however, omit to mention the last great step in advance in reference to the Cooperative Stores, the formation in the North of England (and another is in course of formation in London) of a Wholesale Society, to dispense with the services of the wholesale merchant as well as of the retail dealer, and extend to the Societies the advantage which each society gives to its own members, by an agency for cooperative purchases, of foreign as well as domestic commodities, direct from the producers.
It is hardly possible to take any but a hopeful view of the prospects of mankind, when, in two leading countries of the world, the obscure depths of society contain simple working men whose integrity, good sense, self-command, and honourable confidence in one another, have enabled them to carry these noble experiments to the triumphant issue which the facts recorded in the preceding pages attest. From the progressive advance of the co-operative movement, a great increase may be looked for even in the aggregate productiveness of industry.
[C]ooperation tends ... to increase the productiveness of labour, consists in the vast stimulus given to productive energies, by placing the labourers, as a mass, in a relation to their work which would make it their principle and their interest -- at present it is neither -- to do the utmost, instead of the least possible, in exchange for their remuneration. It is scarcely possible to rate too highly this material benefit, which yet is as nothing compared with the moral revolution in society that would accompany it: the healing of the standing feud between capital and labour; the transformation of human life, from a conflict of classes struggling for opposite interests, to a friendly rivalry in the pursuit of a good common to all; the elevation of the dignity of labour; a new sense of security and independence in the labouring class; and the conversion of each human being's daily occupation into a school of the social sympathies and the practical intelligence.
Such is the noble idea which the promoters of Co-operation should have before them. But to attain, in any degree, these objects, it is indispensable that all, and not some only, of those who do the work should be identified in interest with the prosperity of the undertaking. Associations which, when they have been successful, renounce the essential principle of the system, and become joint-stock companies of a limited number of shareholders, who differ from those of other companies only in being working men; associations which employ hired labourers without any interest in the profits (and I grieve to say that the Manufacturing Society even of Rochdale has thus degenerated) are, no doubt, exercising a lawful right in honestly employing the existing system of society to improve their position as individuals, but it is not from them that anything need be expected towards replacing that system by a better.
Under the most favourable supposition, it will be desirable, and perhaps for a considerable length of time, that individual capitalists, associating their work-people in the profits, should coexist with even those cooperative societies which are faithful to the cooperative principle. Unity of authority makes many things possible, which could not or would not be undertaken subject to the chance of divided councils or changes in the management. A private capitalist, exempt from the control of a body, if he is a person of capacity, is considerably more likely than almost any association to run judicious risks, and originate costly improvements. Co-operative societies may be depended on for adopting improvements after they have been tested by success, but individuals are more likely to commence things previously untried. Even in ordinary business, the competition of capable persons who in the event of failure are to have all the loss, and in the case of success the greater part of the gain, will be very useful in keeping the managers of cooperative societies up to the due pitch of activity and vigilance.
When, however, cooperative societies shall have sufficiently multiplied, it is not probable that any but the least valuable work-people will any longer consent to work all their lives for wages merely; both private capitalists and associations will gradually find it necessary to make the entire body of labourers participants in profits. Eventually, and in perhaps a less remote future than may be supposed, we may, through the cooperative principle, see our way to a change in society, which would combine the freedom and independence of the individual, with the moral, intellectual, and economical advantages of aggregate production; and which, without violence or spoliation, or even any sudden disturbance of existing habits and expectations, would realize, at least in the industrial department, the best aspirations of the democratic spirit, by putting an end to the division of society into the industrious and the idle, and effacing all social distinctions but those fairly earned by personal services and exertions. Associations like those which we have described, by the very process of their success, are a course of education in those moral and active qualities by which alone success can be either deserved or attained. As associations multiplied, they would tend more and more to absorb all work-people, except those who have too little understanding, or too little virtue, to be capable of learning to act on any other system than that of narrow selfishness. As this change proceeded, owners of capital would gradually find it to their advantage, instead of maintaining the struggle of the old system with work-people of only the worst description, to lend their capital to the associations; to do this at a diminishing rate of interest, and at last, perhaps, even to exchange their capital for terminable annuities. In this or some such mode, the existing accumulations of capital might honestly, and by a kind of spontaneous process, become in the end the joint property of all who participate in their productive employment: a transformation which, thus effected, (and assuming of course that both sexes participate equally in the rights and in the government of the association) would be the nearest approach to social justice, and the most beneficial ordering of industrial affairs for the universal good, which it is possible at present to foresee.
I agree, then with the Socialist writers in their conception of the form which industrial operations tend to assume in the advance of improvement; and I entirely share their opinion that the time is ripe for commencing this transformation, and that it should by all just and effectual means be aided and encouraged. But while I agree and sympathize with Socialists in this practical portion of their aims, I utterly dissent from the most conspicuous and vehement part of their teaching, their declamations against competition. With moral conceptions in many respects far ahead of the existing arrangements of society, they have in general very confused and erroneous notions of its actual working; and one of their greatest errors, as I conceive, is to charge upon competition all the economical evils which at present exist. They forget that wherever competition is not, monopoly is; and that monopoly, in all its forms, is the taxation of the industrious for the support of indolence, if not of plunder. They forget, too, that with the exception of competition among labourers, all other competition is for the benefit of the labourers, by cheapening the articles they consume; that competition even in the labour market is a source not of low but of high wages, wherever the competition for labour exceeds the competition of labour, as in America, in the colonies, and in the skilled trades; and never could be a cause of low wages, save by the overstocking of the labour market through the too great numbers of the labourers' families; while, if the supply of labourers is excessive, not even Socialism can prevent their remuneration from being low. Besides, if association were universal, there would be no competition between labourer and labourer; and that between association and association would be for the benefit of the consumers, that is, of the associations; of the industrious classes generally.
I do not pretend that there are no inconveniences in competition, or that the moral objections urged against it by Socialist writers, as a source of jealousy and hostility among those engaged in the same occupation, are altogether groundless. But if competition has its evils, it prevents greater evils. It is the common error of Socialists to overlook the natural indolence of mankind; their tendency to be passive, to be the slaves of habit, to persist indefinitely in a course once chosen. Let them once attain any state of existence which they consider tolerable, and the danger to be apprehended is that they will thenceforth stagnate; will not exert themselves to improve, and by letting their faculties rust, will lose even the energy required to preserve them from deterioration. 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. Even confining ourselves to the industrial department, in which, more than in any other, the majority may be supposed to be competent judges of improvements; it would be difficult to induce the general assembly of an association to submit to the trouble and inconvenience of altering their habits by adopting some new and promising invention, unless their knowledge of the existence of rival associations made them apprehend that what they would not consent to do, others would, and that they would be left behind in the race.
Instead of looking upon competition as the baneful and anti-social principle which it is held to be by the generality of Socialists, I conceive that, even in the present state of society and industry, every restriction of it is an evil, and every extension of it, even if for the time injuriously affecting some class of labourers, is always an ultimate good. To be protected against competition is to be protected in idleness, in mental dulness; to be saved the necessity of being as active and as intelligent as other people; and if it is also to be protected against being underbid for employment by a less highly paid class of labourers, this is only where old custom, or local and partial monopoly, has placed some particular class of artisans in a privileged position as compared with the rest; and the time has come when the interest of universal improvement is no longer promoted by prolonging the privileges of a few. If the slopsellers and others of their class have lowered the wages of tailors, and some other artisans, by making them an affair of competition instead of custom, so much the better in the end. What is now required is not to bolster up old customs, whereby limited classes of labouring people obtain partial gains which interest them in keeping up the present organization of society, but to introduce new general practices beneficial to all; and there is reason to rejoice at whatever makes the privileged classes of skilled artisans feel that they have the same interests, and depend for their remuneration on the same general causes, and must resort for the improvement of their condition to the same remedies, as the less fortunately circumstanced and comparatively helpless multitude.
For what reason ought equality to be the rule in matters of taxation? For the reason, that it ought to be so in all affairs of government. As a government ought to make no distinction of persons or classes in the strength of their claims on it, whatever sacrifices it requires from them should be made to bear as nearly as possible with the same pressure upon all, which, it must be observed, is the mode by which least sacrifice is occasioned on the whole. If any one bears less than his fair share of the burthen, some other person must suffer more than his share, and the alleviation to the one is not, caeteris paribus, so great a good to him, as the increased pressure upon the other is an evil. Equality of taxation, therefore, as a maxim of politics, means equality of sacrifice.
But … it is not admissible that the protection of persons and that of property are the sole purposes of government. The ends of government are as comprehensive as those of the social union. They consist of all the good, and all the immunity from evil, which the existence of government can be made either directly or indirectly to bestow.
... a tenth part taken from a small income is a heavier burthen than the same fraction deducted from one much larger: and on this is grounded the very popular scheme of what is called a graduated property tax, viz. an income tax in which the percentage rises with the amount of the income. On the best consideration I am able to give to this question, it appears to me that the portion of truth which the doctrine contains, arises principally from the difference between a tax which can be saved from luxuries, and one which trenches, in ever so small a degree, upon the necessaries of life. To take a thousand a year from the possessor of ten thousand, would not deprive him of anything really conducive either to the support or to the comfort of existence; and if such would be the effect of taking five pounds from one whose income is fifty, the sacrifice required from the last is not only greater than, but entirely incommensurable with, that imposed upon the first. The mode of adjusting these inequalities of pressure, which seems to be the most equitable, is that recommended by Bentham, of leaving a certain minimum of income, sufficient to provide the necessaries of life, untaxed.
The principle of graduation (as it is called,) that is, of levying a larger percentage on a larger sum, though its application to general taxation would be in my opinion objectionable, seems to me both just and expedient as applied to legacy and inheritance duties.
No income tax is really just, from which savings are not exempted.
From the present date, or any subsequent time at which the legislature may think fit to assert the principle, I see no objection to declaring that the future increment of rent should be liable to special taxation;…
[Among] cases to which the principal objection to government interference does not apply, [we may include] a variety of cases, in which important public services are to be performed, while yet there is no individual specially interested in performing them, nor would any adequate remuneration naturally or spontaneously attend their performance. Take for instance a voyage of geographical or scientific exploration. The information sought may be of great public value, yet no individual would derive any benefit from it which would repay the expense of fitting out the expedition; and there is no mode of intercepting the benefit on its way to those who profit by it, in order to levy a toll for the remuneration of its authors. Such voyages are, or might be, undertaken by private subscription; but this is a rare and precarious resource. Instances are more frequent in which the expense has been borne by public companies or philanthropic associations; but in general such enterprises have been conducted at the expense of government, which is thus enabled to entrust them to the persons in its judgment best qualified for the task. Again, it is a proper office of government to build and maintain lighthouses, establish buoys, &c. for the security of navigation: for since it is impossible that the ships at sea which are benefited by a lighthouse, should be made to pay a toll on the occasion of its use, no one would build lighthouses from motives of personal interest, unless indemnified and rewarded from a compulsory levy made by the state. There are many scientific researches, of great value to a nation and to mankind, requiring assiduous devotion of time and labour, and not unfrequently great expense, by persons who can obtain a high price for their services in other ways. If the government had no power to grant indemnity for expense, and remuneration for time and labour thus employed, such researches could only be undertaken by the very few persons who, with an independent fortune, unite technical knowledge, laborious habits, and either great public spirit, or an ardent desire of scientific celebrity.