Henry Dunning Macleod.

Economics for beginners online

. (page 1 of 14)
Online LibraryHenry Dunning MacleodEconomics for beginners → online text (page 1 of 14)
Font size
QR-code for this ebook


LIBRARY

OF THE

UNIVERSITY OF CALIFORNIA.

GIFT OF



. .0., JvC-....S>OKV(^^
Class




I /







ECONOMICS FOR BEGINNERS



WORKS BY THE SAME AUTHOR.



A DICTIONARY OF POLITICAL ECONOMY:

Biographical, Bibliographical, Historical, and Practical.

Vol. I. Second Edition. {Preparing.

Vol. II. Completing the Work. [In progress.

H.

THE THEORY AND PRACTICE OF BANKING.

Third Edition. 2 vols. price 26s.

in.

THE ELEMENTS OF BANKING. Fourth Edition.
Crown 8vo. price 5$.

IV.

Adopted by M. CHEVALIER at the College de France.
THE PRINCIPLES OF ECONOMICAL PHILOSOPHY.

Second Edition.
Vol. I. Price 15*.

Vol. II. Part I. Price 12^. Completing Pure Economics.
Vol. II. Part II. [In preparation.



ECONOMICS FOR BEGINNERS. Crown 8vo. 2s. 6d.



ECONOMICS FOR BEGINNERS



BY



HENRY DUNNING MACLEOD, M.A.

d

OF TRINITY COLLEGE, CAMBRIDGE, AND THE INNER TEMPLE, BARRISTER-AT-LAW,

SELECTED BY THE ROYAL COMMISSIONERS FOR THE DIGEST OF THE

LAW TO PREPARE THE DIGEST OF THE LAW OF BILLS

OF EXCHANGE, BANK NOTES, ETC.



SECOND EDITION.




LONDON

LONGMANS, GREEN, AND CO.
1879

All rights reserved



LONDON : PRINTED BY

SPOTTISWOODE AND CO., NEW-STREET SQUARE
AND PARLIAMENT STREET



TO THE

REVEREND STEPHEN HAWTREY, M.A.

FORMERLY HEAD MATHEMATICAL MASTER AT ETON COLLEGE.



MY DEAR MR HAWTREY,

I inscribe this little work with your name in memory
of the benefit I derived from your teaching long long ago.

If I. have been able to do anything for the Science of
Economics, it is mainly due to the thorough and constant
drilling in Euclid which you gave the little band who used
to meet in your room forty years ago, when Mathematics
were an exotic at Eton.

The Great Geometer certainly never had a more zealous
hierophant than yourself, and I hope that no sacrilegious
hand will ever be^able to molest his ancient reign.

I would fain believe that you may be pleased to hear that
the Theory of Algebraical Signs, which was then a Cambridge
novelty, and which you took such pains to indoctrinate us with,
has cleared up a point in the Theory of Credit which has
puzzled jurists and divines for 1300 years, and has hitherto
been an insoluble enigma to Economists.

Hoping that you may long have health and strength to
enjoy your well-earned repose, and that, happy in the esteem
of many generations of Etonians, it may be said of you
hereafter that a good Providence

da)K diafjiTrepes fjiwra iravra
CLVTQV pep XtTrapo)? yrjpaa-KCfjLfv eV peydpoicriv

Believe me,

Your ancient and affectionate Pupil,
H. D. MACLEOD.

183970



PREFACE.



THE MOST ADVANCED ECONOMISTS in the world are now
satisfied that ancient Authors were right in holding Ex-
changeability to be the sole essence and principle of Wealth :
that everything which can be bought and sold, whatever its
nature may be, is Wealth : and consequently that the Science
of Political Economy, or, as it may more aptly be termed,
Economics, is the Science of Exchanges or of Commerce.

This little work is an exposition of the broad outlines of
the Science according to this vie\v, which is that of the
Third School of Economists, whose doctrines are now
rapidly gaining the ascendency throughout the world.

If any readers should wish to see a fuller exposition of
the reasoning upon which its conclusions are founded, I may
refer them to my * Principles of Economical Philosophy,' or
my Lectures given in the University of Cambridge with the
Recognition of thq Board of Moral Sciences, in which I
have traced the rise and progress of Economical ideas from
the earliest antiquity to the present time.

H. D. M.



CONTENTS



INTRODUCTION.

ON THE MEANING OF THE TERM POLITICAL ECONOMY AND
ON THE THREE SCHOOLS OF MODERN ECONOMISTS.

SECT. PAGE

! . Changes in the meaning of Political Economy i

2. Importance of the Meaning of Wealth . . . . . 2

3. Meaning of saying that Political Economy is a Physical

Science .......... 2

4. Origin of the term Political Economy . . . 4

5. Meaning of the word Wealth in ancient times ... 4

6. Rise of Economical Ideas in modern times . . 5

7. Rise of the First School of Economists ..... 6

8. Meaning of * Production, Distribution, and Consumption of

Wealth' 6

9. The Physiocrate doctrine of Productive labour ... 8

10. Reaction against the Physiocrates : Rise of the Second School

of Economists . . . . . . . . . 10

11. Inconsistencies of Smith on Wealth . . . . .12

12. The Second School include Labour and Rights as Wealth . 12

13. Reaction against the Second School of Economists : Rise of

the Third School 14

14. Economics is the Science of Exchanges . . . . . 16

15. Instances of the superiority of this definition . . . .16

1 6. How Economics is a Physical Science . . . . . 17

17. It is also a Moral Science . 18

1 8. Definition of Economics 18



Contents.



CHAPTER I.

DEFINITION OF TERMS USED IN ECONOMICS.

SECT. PAGE

1. Meaning of Economics . .... 20

2. Meaning of Wealth, or an Economic Quantity . . . . 20

3. On the Three Species of Economic Quantities . . .21

4. Commerce or Economics consists of Six distinct Kinds of Ex-

change . . . . . . . . . . 22

5. Meaning of the word Property ...... 23

6. Right of Property and Right of Possession . . . . 24

7. Words which mean Rights and not Things . . . .24

8. Three distinct Kinds of Property . . . . . . 25

9. Application of the Positive and Negative Signs to Property . 26

10. On Jura in Res and Jura in Personas . . . 27

1 1 . On Property as ' Goods and Chattels ' 30

12. Definition of Value . . . . . . . . 30

13. On Money and Credit . . . . . . , .31

14. Money is a form of Credit . . . . . . 33

15. Credit is a Right to Demand something to be Paid or Done . 34

1 6. On Sale or Circulation . . . . . . . . 35

17. On Circulating Medium ....... 36

1 8. Meaning of Currency . . . . . . . 36

19. Different Species of Currency ...... 39

20. On Price, Discount, and Interest . . . . . 39

21. On Production and Consumption; or Supply and Demand . 41

22. The Three Kinds of Production . . . . . . 42

23. On Cost of Production ....... 43

24. On profit 43

25. On Productive and Unproductive Labour . . . .44

26. On Rent and Hire 44

27. On Capital 45

28. How Capital increases 47

29. On Fixed and Floating Capital 48

30. On Payment and Satisfaction . . . . . . . 50

31. Meaning of Persona and Res in Roman Law . . . .51



Contents. xf



CHAPTER II.

ON VALUE.

ECT. I AGE

1 . What the Theory of Value comprises 53

2. Definition of Value . . . . . . . . 53

3. Values of Different Quantities . .... 54

4. There may a general rise or fall of Prices, but not of Values . 55

5. On the Error of the Expression Intrinsic Value . . . 56

6. On Diminution in Value and Depreciation . . . -57

7. The Origin, Source, or Cause of Value . . . . . 58

8. Error of Doctrine that Labour is the Cause of all Value . 59

9. The General Law of Value : or the General Equation of

Economics . . . . . . . 59



CHAPTER III.

ON THE COINAGE.

1. Meaning of Bullion 61

2. Meaning of Coins . . . . . . . . . 61

3. Meaning of Mint Price of Bullion . . . . .62

4. To alter the Mint Price of Bullion means to alter the legal

weight of the Coins . . . . . . . . 62

5. Meaning of Market Price of Bullion 63

6. Gresham's Law of the Coinage 64

7. What is a Pound ? 65

8. Mint Price of Gold fixed at 3/. 17^. \Q\d. per ounce . . . 66

9. Gold adopted as legal Measure of Value . . . .66
10. Silver and Bronze Coinage . . . . . . . 67



CHAPTER IV.

THE THEORY OF CREDIT.

1. The Theory of Credit developed by the Roman Lawyers . 68

2. On the Nature of Credit 69

3. Application of the Positive and Negative Signs to Economics 70



xii Contents.

SECT. PAGE

4. If a Product which has been produced is Positive, a Product

which is to be produced is Negative . . . . . 72

5. The terms Positive and Negative used by Jurists . . 73

6. If the Right to demand ioo/. be denoted by ( + ioo/.) the Duty

to pay ioo/. is denoted by ( ioo/.) . . . . . 74

7. The Theory of the Value of Land 74

8. If Money is Positive Capital, Credit is Negative Capital . . 76

9. Three Ambiguities in the Theory of Credit . . . -77

10. Debts as Negative Quantities . . . . . . . 82

11. Debts as Goods and Chattels 83

12. On the Transfer of Credit or Debts 84

13. On the Extinction of Obligations 85

14. On Release or Acceptilation . . . . . . . 86

15. When + ioo/. cancels ioo/. 87

1 6. On Payment in Money . . 88

17. On Renewal or Transfer, or Novation 89

1 8. On Set-off, or Compensation 89

19. Two Branches of the System of Credit 90



CHAPTER V.

ON COMMERCIAL CREDIT.

1. Operations in Commerce giving rise to Bills of Exchange . 92

2. Circulation of Bills ........ 93

3. Extinction of Bills by Compensation . . . . . 94

4. Traders who buy Debts ....... 94

5. Credit employed to form New Products . . . 95

CHAPTER VI.

THE THEORY OF BANKING.

1. Origin and Meaning of the word Bank .... 96

2. Exposition of the Mechanism of Banking . . . . 96

3. Definition of a Banker . . . , . . -97

4. Bankers' Notes 99

5. Methods of operating on accounts 99

6. On Cash Credits , . . . ioo



Contents. xiii



CHAPTER VII.
ON PROFITS.

SECT. PAGE

1. Definition of Profit and Rate of Profit . . . .103

2. Profits and Wages 104

3. Profits of Country Traders 106

4. An Expression of Senior's inadequate . . . 107

5. Interest and Discount ....... 108

6. Value of Property depending on the Rate of Interest . . 109

7. Instances of Rate of Interest ...... 109



CHAPTER VIII.

ON RENT.

1. Definition of Rent . . . . . . . . in

2. Rent does not raise the price of corn 113

3. Circumstances which Determine Kent 113

4. Rent of Shops . . . . . . . , 1 1 7



CHAPTER IX.

ON LABOUR, OR IMMATERIAL WEALTH, AND WAGES.

1. Definition of Labour . . . . . . . .119

2. On Wages . . . . . . . . . . 120

3. The Wages Fund 121

4. On Rate of Wages 122

5. On the Division of Labour . . . . . .126

6. On the Workman's Share of the Price 129

7. On Co-operation . . . . . . . .132

8. On Trades Unions, Strikes, and Lock-outs . . . . 133

9. On the Droit-au-travail . . . . . . .134

10. Working Men do not create Wealth 137



xiv Contents.



CHAPTER X.

ON RIGHTS, OR INCORPOREAL WEALTH.

SECT. PAGE

1. Rights are Pecimia, Goods and. Chattels, and Wealth . . 140

2. Incorporeal Property of two kinds . . . . . 140

3. On Rights of Obligation . . . . . .141

4. On the Funds . . . 143

5. On Tithes 145

6. On Policies of Insurance . . . . . . . 146

7. On Rights of Expectation 146

8. On Shares in Commercial Companies . . ... 147

9. The Goodwill of a Business . . . . . .148

10. The Practice of a Professional Man . .... 148

11. On Copyrights ......... 149

12. On Patents . . . . . . . . . . 150

13. Advowsons and Benefices . . . . . . .150

14. Tolls and Ferries . . . 150

15. Shootings and Fishings . . . . . . .150

1 6. Street Crossings . . . . . . . 150



CHAPTER XI.

ON THE FOREIGN EXCHANGES.

1. The Foreign Exchanges 152

2. Meaning of an Exchange . . . . . 152

3. On the Nominal Exchange . . . . : 153

4. On the Real or Commercial Exchange . . . . . 154
Inland Exchange 154

5. Limits of the Variations of the Exchanges . . . . 156

6. On Foreign Exchange . . . . . . .156

7. On Exchange Operations . . . . . . . 158

8. Examples of Foreign Trade . . . . .- 1 58

9. On Foreign Loans, Securities, and Remittances as affecting

the Exchanges . . . . i .- . . . 161
10. On Monetary and Political Convulsions . . .161

ir. On the Means of Correcting an Adverse Exchange . . . 162

QUESTIONS FOR EXAMINATION 165




ECONOMICS FOR BEGINNERS.



INTRODUCTION.

On the Meaning of the Term Political Economy and on the
Three Schools of Modern Economists.

l. THE term Political Economy has undergone several
changes of meaning since it was first originated. The science
also of Political Economy, or Economics, as it may more aptly be
termed, has already undergone one transformation since it was
first created in modern times : and it is now undergoing another.
It is, therefore, necessary to state briefly these changes of
meaning of the term Political Economy, and also to give a
broad general outline of the development of the science in
modern times.

The three schools of modern Economists may be broadly
grouped according to the meaning they attribute to the word
Wealth : and, consequently, the clearest way in such a short
general outline as this is, is to give a brief exposition of the
meaning given to this word And it must not be supposed that
this is merely a matter of curious speculation or ingenious
logomachy. Not only is this word the basis of a great science,
but there is none which has so seriously influenced the history

B



2 Economics for Beginners.

of the world and the welfare of nations according to the meaning
given to it at various periods.

2. For many centuries the legislation of every country in
Europe was moulded by the meaning given to the word Wealth.
J. B. Say, the eminent French Economist, says that during the
250 years preceding his time, fifty were spent in wars directly
originating out of the meaning given to this word. Speaking of
the Mercantile System, which was expressly framed on a par-
ticular meaning of the word Wealth, Storch says, ' It is no
exaggeration to affirm that there are very few political errors
which have produced more mischief than the Mercantile Sys-
tem. ... It has made each nation regard the welfare of its
neighbours as incompatible with its own : hence their reciprocal
desire of injuring and impoverishing one another ; and hence
that spirit of commercial rivalry which has been the im-
mediate or remote cause of the greater number of modern
wars. ... In short, where it has been least injurious it has
retarded the progress of national prosperity : everywhere else it
has deluged the earth with blood : and has depopulated and
ruined some of those countries whose power and opulence it
was supposed it would carry to the highest pitch.'

So Whately says, ' It were well if the ambiguities of this
word had done no more than puzzle philosophers. ... It has
for centuries done more, and perhaps for centuries to come will
do more, to retard the progress of Europe than all other causes
put together/

These extracts, which are nothing but the literal truth, show
the gravity and the importance of the inquiry.

On the Meaning of saying that Political Economy ', or
Economics, is a Physical Science.

3, It is now universally admitted that Political Economy, or
Economics, or, as it is often called, the Science of Wealth, is a
Physical Science, and that investigations in it are to be pursued



Introduction. 3

in exactly the same manner, and its conclusions are to be tested
by the same principles, as those of other Physical Sciences.
We must say a few words to explain the meaning of this.

A Physical Science is a definite body of phenomena all based
upon a single idea, or quality, of the most general nature ; and
the object of the science is to investigate the laws which govern
those phenomena. And any Quantity whatever in which that
Quality is found is an element, or constituent, in that science,
no matter what other Qualities may be found in it. Hence
Quantities of the most diverse forms and natures, and agreeing
in no single other respect than the possession of that single
Quality, are all elements in that science.

Bacon says, 'Whosoever is acquainted with forms em-
braces the unity of nature in substances the most unlike. ... A
nature being given, we must first of all have a muster or pre-
sentation before the understanding of all known instances which
agree in the same nature, though in substances the most unlike.'

Let us consider the application of this canon to the best
known physical science, Dynamics. Dynamics is the science
of Force : and a Force is defined to be * Anything which causes,
or tends to cause, motion or change of motion.' This word
* anything ' is of a very wide nature, and includes Quantities
which agree in nothing else than in the Quality of Force. Some
Forces are material, like men and animals. Others are incor-
poreal, like gravity, electricity, and magnetism, if indeed these
are not merely different manifestations of the same force.
Others are explosive, like gunpowder, dynamite, &c. These
several things, though agreeing in no other single Quality, are
all Forces.

Hence when we are told that Political Economy, or the
Science of Wealth, is a Physical Science, we must first ascertain
what that Quality of things is which constitutes them ' Wealth : '
then we must ascertain how many diverse and distinct Quan-
tities there are which possess that Quality : and then the
Science of Wealth, or Economics, is the Science of the Laws
which govern the phenomena relating to that Quality.



4 Economics for Beginners.

On the Origin of the term Political

&. The term Political Economy is first used in the second
book of the Economics attributed to Aristotle, but which is un-
doubtedly spurious. Economy, or Economics, means in Greek
the means of raising a revenue : and the author says that there
are four kinds of Economics the Regal, the Satrapical, the
Political, and the Domestic. The word TroXis (polis) in Greek
means a free state ; hence the term Political Economy in this
passage means the method by which a free state raises a
revenue. We are not aware of the term being used again till
modern times.

On the Meaning of the word "Wealth in Ancient Times.

5. Ancient writers unanimously held that Exchangeability,

or the capability of being bought and sold, is the sole essence
and principle of Wealth ; and that whatever can be bought and
sold, or exchanged, is Wealth, whatever its nature may be.

Thus Aristotle says, i And we call "Wealth everything
whose Value can be measured in Money.' So Ulpian, a cele-
brated Roman jurist, says, ' That is "Wealth which can be
bought and sold.'

We have here a definition of the same wideness and gene-
rality as the definition of Force we have already given. Ancient
writers showed that there are three distinct kinds of things
which can be bought and sold, and they expressly classed all
these three distinct kinds of things under the term "Wealth.
Thus not only material things can be bought and sold, and are
therefore Wealth : but Labour can be bought and sold, and
was therefore classed as Wealth : and besides that, a vast
variety of abstract Rights, quite separate from any material
things, can be bought and sold : and were therefore classed as
Wealth. One of the fundamental definitions of Roman Law
says, ' Under the term "Wealth (pecunid) all things, both
movable and immovable, both corporeal and Rights, are in-



Introduction, 5

eluded.' And this doctrine is repeated several times in Roman
Law.

Ancient writers thus showed that there are three distinct
kinds, or orders, of Quantities, which can be bought and sold.
And reflection will show that there is nothing which can be
bought and sold which is not of one of these three forms.
Hence there are three, and only three, orders of Exchangeable
Quantities : and all Commerce in its widest extent consists of the
Exchanges of these three orders of Quantities.

And as these three orders of Quantities may be combined
two and two in Six different ways, it follows that Commerce in
its widest extent consists of six different kinds of Exchange.

Hence, as the Quality of things which constitutes them Wealth
is Exchangeability, it follows that Political Economy, or Eco-
nomics, or the Science of Wealth, is the Science of Exchanges,
or of Commerce in its widest extent.

Thus it is seen that the ancients possessed the true scientific
instinct : they unanimously fixed upon one general Quality
namely, Exchangeability, or the capability of being bought and
sold as the sole essence of Wealth, and they searched out and
classed all the different kinds of Quantities which possess that
Quality, and classed them as Wealth.

On the Rise of Economical Ideas in Modern Times.

6. We must now very briefly trace the rise and progress of
Economical ideas in modern times : and the circumstances out
of which the first school of Economists arose : then the peculiar
doctrines which they held, which produced a reaction against
them, and gave rise to the second school of Economists. We
shall then state the advances made by the second school of
Economists, and the defects of their system which has produced
a reaction against them, and given rise to the third school of
Economists.

For many centuries it was held that Gold and Silver only
are Wealth ; and the legislation of every country in Europe was



6 Economics for Beginners.

directed to encourage the importation of these metals, and to
prevent their exportation by every possible means. About the
end of the seventeenth century it was perceived that it was absurd
to restrict the term Wealth to gold and silver only, and it was
enlarged to mean all the products of the earth which conduce
to the comfort and enjoyment of men.



Rise of the First School of Economists in France, called the
Physiocrates.

7. The first school of modern Economists arose in France
about 1750. At that time the country was suffering the most
grievous misery from the results of the wars of Louis XIV. ; the
failure of Law's scheme of paper money : and the system of pro-
hibitions and obstructions to commerce, or the free interchange
among nations of their products ; and the iniquitous system of
taxation. A few righteous philosophers, reflecting on the intoler-
able misery they saw around them, struck out the idea that there
must be some great natural science ; some principles of eternal
truth, founded in nature itself, with regard to the social relations
of mankind, the violations of which were the causes of that hideous
misery they saw around them. They named this the science of
Natural Right, and their object was to discover and lay down
an abstract science of the natural rights of men in all their social
relations. This science comprehended their relations towards
Government, towards each other, and towards Property.
They also called this great science Political Economy, or the
science of the regulation of the state. Hence they were called
the Economists ; and also Physiocrates, from the term Physio-
cratie, which one of their number called the science.

8. In this brief outline we can only notice their doctrines
relating to Property. This part of their system they called the
* Production, Distribution, and Consumption of Wealth.'

To understand the meaning of this phrase we must first state
the meaning they gave to the word Wealth.



The Economists, or Physiocrates. 7

They defined Wealth to be the material products of the
earth which are brought into commerce and exchanged, and
those only. They expressly excluded from the term Wealth
those products which the owners consumed for their own use
and enjoyment : these latter they termed biens : those only
which were exchanged they termed Richesses. They expressly
excluded Labour and Rights from the term Wealth : because
they alleged that to admit Labour and Rights to be Wealth
w:>uld be to admit that Wealth can be created out of nothing.
Itwas their fundamental dogma that the earth is the only source
of Wealth ; because, as they repeated a multitude of times, man
can create nothing, and Nothing can come out of Nothing.

We must now state what they meant by the ' Production,
Distribution, and Consumption of Wealth, because its true
ar.d original meaning has been quite misconceived by recent
witers. This phrase is one and indivisible, and meant the
Commerce or Exchange of the Material Products of the earth.

By Production the Physiocrates meant obtaining the raw
produce from the earth and bringing it into Commerce.

But this raw produce is scarcely ever in a fit state or in a
fit position to be used by men : it has to be manufactured and
transported from one place to another, and perhaps sold and
resold more than once, before it is ultimately used. All those
intermediate processes which took place between the original
producer and the ultimate buyer the Physiocrates termed
Traffic or Distribution.

The person who ultimately purchased the products so
fashioned for his own use and enjoyment they termed the
Acheteur-Consommateur, because this was the completion
(consommatioii) of the transaction.

The complete passage of the product from the original
Producer through all the intermediate stages to the Consumer,
die Physiocrates designated as Commerce or Exchange. And


1 3 4 5 6 7 8 9 10 11 12 13 14

Online LibraryHenry Dunning MacleodEconomics for beginners → online text (page 1 of 14)