Henry Dunning Macleod.

A dictionary of political economy: biographical, bibliographical ..., Volume 1 online

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rising. And the very same thing is true of most
of the works of the deceased English masters.
Pictures which they parted with for mere trifles,
comparatively speaking, now fetch immense
prices. It Is well understood now that a well-
selected gallery of pictures is an excellent in-
vestment for money. And this arises from the
constantly Increasing taste of the English people
for works of Art We see, therefore, that Malthus
was in error when he said that mental capital
could not be valued. We have only to take the
incomes of all the artists, sculptors, authors, &o.,
to discover the value of such capital.

138. We now come to the fourth class, in
which the capital, or source, of the revenue is
immaterial, or intellectual, and the product is also

This comprehends the professions of the law,
and medicine, and the Church, composers, actors,
and performers of all sorts, and education.

A lawyer, or a doctor, may write his opinions,
or prescriptions, but it is clear that their pro-
ducts are essentially immaterial. All of these
persons undergo a long course of education, in
many cases very expensive. All bestow an im-

mense deal of labor in perf(Bcting themselves {<x
their various duties. And that labor and exp^ise
produce them a revenue, just as much as any
material source. It is, therefore, capitaL And
it can quite easily be valued, just like any other
species of capital, namely, by the income It pro-
duces. The mind of a great lawyer produces
him a revenue of £10,000 a year, it is manifestly
capital to him. It is manifestly, also, capital to
the nation, because they require and pav for such
products. Enumerate the incomes of all the law-
yers, all the doctors, all the clergy, aU the com-
posers, all the performers of all sorte, and there is
the value of all these Incorporeal estates, as easily
ascertained as the value of all the land. Koi
only can the value of this capital be ascertained,
but it is taxed just the same as any other ci^iHtal.

139. But we have a further objection to the
criterion proposed by Malthus and M.Baudrillart
We have, we think, shewn that they are mistaken
when they say that immaterial capital cannot be
valued in a catalogue, or iuvent(»ry, of the pro-
perty of the nation. Now, we object to this
mode of valuing the wealth of the nation. The
mode of estimating the wealth of a country by
the amount of commodities existing in it at any
particular time would lead to very erroneous
conclusions. A country may In reality be a great
deal richer when there are much less of actually
existing conunodities In it, than when there are
more. The explanation of this apparent para-
dox is extremely simple. In f<Miner times It took
fifteen days to convey goods from Manchester to
London. Consequently it was absolutely neces-
sary to have fifteen days* supply of any given
demand constantly in existence, and on the way.
Canals were then introduced, which reduced the
time of transport to five days. It became then
manifestly necessary to have only five days' ooa-
sumption in existence, and on the road. The
railroad reduced the time to one day. Conse-
quently It is only necessary to have one day's
consumption on the road. Now, it would be a
very grievous error to suppose that the nation is
less wealthy because tiiere is a less amount of
commodities in actual existence, at any given
time, than formerly. On the contrary, the mition
increases faster in wealth on that v^ account
Because it is a great waste of capital to call so
much into existence, and to wait so long beftM^
the returns come In. Now, although there need
not be so many commodities actuiUly in exist-
ence, they can be called Into existence in a much
shorter space of time than formerly. Any given
demand can be supplied much quicker than for-
merly. And that Is the true test of the wealth of
a country. It is to be judged of, not by the
quantity of goods it may have in stock at any
given instant, but by the speed with which It can
supply any given demand. (Communication;

140. In the preceding paragraphs we have
endeavoured to establish a fact that has escaped
the notice of almost all Economists, via., that a
Right is an Economic Element. J. B. Say was,
we believe, the first to recognise the existence of
Rights, as Economic Elements. He was the ftvt
to acknowledge that the ^'custom*' or '^ good-
will ** of a shop is capital. But he has not deve-
loped the subject at sufficient length or ade*
quately seen^ its importance, nor the enormous

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mass of property which fietlls under that principle.
Lawyers lutve been immensely in advance of
Economists on this point. Dr. Whately is, we
believe, the first Economist who has seen the
matter in its tme Ught. He says, Lectures on
Political Economy^ p. 6, "I think it more con-
venient, on the whole, to describe Political Eco-
nomy as concerned, nniyersally and conclusively,
about exchanges,

"It was once proposed, indeed, to designate it
the 'Philosophy of Commerce;* but this, though
etymologically quite unexceptionable, being in-
deed comcident with the description just given,
b open to the objection, that the word Commerce
has been in popular use arbitrarily limited to one
class of exchanges.

<' The only difficulty I can foresee, as attendant
on the language I have now been using, is one
which vanishes so readily on a moment's reflec-
tion, as to be hardly worth mentioning. In many
cases, where an exchange really takes phice, the
fact is liable (till the attention is called to it) to
be overlooked, in consequence of our not seeing
any actual transfer from hand to hand of a mate-
rial object For instance, when the copyright of
a book is sdd to a bookseller, the article trans-
ferred is not the mere paper covered with writing,
but the exclusive Pbtviusgs of printing and
publishing. It is plain, however, on a moment's
thought, that the transaction is as real an ex-
change, as that which takes place between the
bookseller and his customers, who buy copies of
the work. The payment of rent for land is a
transaction of a similar kind ; for thouffh the land
itself is a material object, it is not tiiis that is
parted with to the tenant, but the Right to till
it, or to make use of it in some other specified
manner. Sometbnes, for instance, rent is paid
for a right of way through another's field ; or for
liberty to erect a booth during a fiiir ; or to race
<»r exercise horses,** &c. And in a note to the
part of thispassage relating to the sale of a copy-
right. Dr. Whately says, — " This instance, by the
way, evinces the impropriety of limiting the term
Wealth to material objects.** In this passage Dr.
What^y fully acknowledges the principle we
have been endeavouring to enforce in the preced-
ing paragraphs. Now the &ct is, not only are we
to acknowledge the existence of Rights as Eco-
nomical elements, but it is the fundamental con-
ception of the whole subject, that —

' Wherever a new exchangeable Right is created,
there is a new Pnmerty. Where no Right is
created, thare is no Property. Goods may pass
into the possession of a man, and yet no right to
them, or Property in them, pass with them. The
property may remain with some one else.

And this distinction between the transfer of
the possession of a thing, and the transfer of the
property in it, has never received sufficient atten-
tion from Economists. And yet it is one of the
most important points in the whole subject, and
is the basis of the Theory of Credit.

Thus for instance, I may put my watch into my
fHend*s hand, and he may put thirty guineas into
mine. That operation may transfer the poeseenon
of these things, but it does not transfer the pro-
perhf. There is no transfer of the property until

there is an agreement, a consent of our two jmnds^
that the property in each article shall pass to the
other. Thus in all cases, transfer of the possession
is an operation of the body, but a transfer of the
property is purely an opxbatioh or thb Mnrn.

When I deposit my furniture &c. in a ware-
house and receive a ticket, or warrant, to certify
my right to it, and entitle me to get it back, there
is a transfer of possession, but no transfer of pro*
perty. The property in the goods still remains
m me, and the ticket and the goods are Onb
property, or right. There is no new right created.

But if I deposit my money in a bank and re-
ceive an instrument of credit, entitling me to
demand an equal sum back at will, there is a
transfer of possession and of property to the
banker, and the instrument of credit and the
money are totally separated, and form TWO pro*
perties. There is a new right created.

This is the basis of the Theory of Credit

141. We shall find that this sreat conceptioQ
will throw a blaze of light over the obscurest and
most controverted points in Political Economy.
It has been a great stumbling-block to many per-
sons to understand how a thing which does not
yet exist can be an Economical Element, or
Wealth, which must be something pbbsbnt. The
true interpretation of the word Property clears
up the difficulty. The property is not the t^ng
itself, but the right to it And although the thing
itself may not exist, the Right to possess it, when
it does come into existence is Pbbsbnt, and is an
Economical Element, or Wealth. We have already
seen what liffht this throws on the theory of the
value of land, commercial shares, copyrights, &c.
We shall now see what a flood oi light it will
throw upon two of the most controverted and
least understood portions of Political Economy —
Cbbdit, and the Funbs. We shall flnd that this
conception will unravel some of the most subtle
perplexities, and point out the error in some of
the most widespread and dangerous fkUacies in
Political Economy.

142. And now that we are come to the great
subject of Cbbdit, we need hardly remind our
readers, that it is one of the most controverted in
Political Economy. In this place, however, we
shall abstain firom all controversy. We shall not
even describe all the eff(9cts of credit. That is
fWly done under Cbbdit, where we have col-
lected and examined the opinions of Economists
on the subject, and shewn their astonishing self-
contradictions. In this place we shall merely
examine shortly into the nature of Cre^t, and
determine how it is to be classed.

143. We have seen above, that Adam Smith,
J. B. Say, Mr. Senior, and Mr. J. S. Mill have
all admitted that the natural and acquired abili-
ties and education of men are to be reckoned as
part of the fixed capital of the nation. Aristotle
calls men living instruments, and J. B. Say,
allows them to li^ accumulated capital. And we
have, we think, shewn that this is not a meta-
phorical, but a literal truth. The industry,
therefore, and expense that a man bestows upon
acquiring a profession, or a knowledge of trade,
is as bond fide Capital, as the industry and
expense he bestows upon improving and culti-
vating the soil.

Every man engaged in business may therefore
be considered as an instrument, cm* source pro*

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duciog profit. And not only has produced profits,
but is coNTiifUALLT producing them, like any
other similar capital. His fatnre productiyitj,
therefore, is an ficonomical Element, which may
be dealt with in precisely the same manner as
the fhtare productivity of the land, or a com-
mercial company. And the right to its future
produce may be sold just as much as the right to
the future produce of land.

But though a man*s future productivity may be
profitable to himself, in order to make it mar-
ketable, or saleable, it is absolutely necessary
that it should be believed in by others. — It is
therefore called his CREDIT.

144. The money that a man possesses is the
fruits of his past industry, just as the actually
existing products of the land are the accumula-
tion of its past powers of productiveness. Now,
not only may the property, or right, to these be
sold and exchanged, as we have seen, but the
Til VERSE operation may be performed, and the
Propebtt, or Right, to the future products may
be sold. So a man may not only sell the pro-
perty, or right, to his actual money, but he may
perform the hivekse operation, and sell the Pbo-
PEBTT, or Right, to the future products of his

Thus a trader expects that there will be a cer-
tain demand for the produce he deals in by which
he will make profits. Not having the ready
mone^ to pay for the produce to the merchant,
he oners him the Right to receive payment at a
future time. The time is calculated on the ex-
pectation that he will have sold the produce, and
reaped the profit. The merchant believing in his
character and capacity to pay, or fulfil his
engagement, sells him the actual produce, in ex-
change for the Right to receive payment at
a future time. And this operation is called

146. And now, we must particularly observe
this, that this transaction is not a loan but a per-
fect and complete Sale, just as much as if the
exchange haa been for money itself. The entire
proper^ in the goods passes from the merchant to
the trader, in as complete a manner as if he had
received money for them, and the Right to de-
mand future payment is itself an independent
Economic Entity, which is considered as the equi-
valent of the goods, at the time they are sold.
Now, though the Right to demand &ture pay-
ment is itself an incorporeal entity, it is so likely
to be disputed, or lost, that it is usual to embody
the evidence of it on paper. And that paper is
called an instrument of credit. These instru-
ments are of two different forms, orders to pay,
called Bills of Exchange, and promises to pay,
called Peomissoet Notes.. But as these differ-
ences of form are of no consequence whatever in
considering the general nature of the subject,
we may call them engagements to pay, or instru-
ments of credit.

146. We must also observe that the paper
instrument is only evidence of the right, and not
the right itself. The right itself would be equally
valid, and equally real, if it existed in the purely
incorporeal form of a mere debt. If a man owes
me money, my right is just the same, whether
that right is recorded on paper or not. A man
is equSly the shareholder in a public company
whether he has lost the certificate of his share or

not In all cases the Pbopbbtt resides in the
person^ and is transferred by the will, or mntual
consent, of the parties.

147. Now, though we shall abstain from all
controversy here, we think it especially necessary
to call the reader's attention to this, because it
has been the real source of all the confusion on
the subject. As soon as the trader has parted
with the Right to demand a future payment to
another person, that Right itself is an Economic
Element, and is what is called CaEDir. It is not
the transfer of the goods which is credit, but the
disposal of the 'right to demand a future payment.

It is also to be specially observed that^ because
a trader sells the right to demand a future pay-
ment from him, it is no diminution of his present
possessions. The future payment is to come out
of the future produce. Just as when a farmer
takes a fleurm and promises to pay a rent annually,
those engagements to pay are no diminution of
his present possessions. Those engagements are
manifestly intended to be paid out of future pro-

148. We thus obtain this conception — That
just as the future productivity of the land is
a saleable Economic Entity, over and above the
past products of the land, so the future producti-
vity of a trader is a distinct and marketable
Economic Entity, over and above the realised
fruits of his past industry.

Now all the qualities which are necessary to
make this future productivity marketable, skill,
industry, and integrity, may be snmmed up in
one word— character.

149. These considerations immediately shew
the fnndamentid distinction between instruments
of credit of all sorts, and Bills of Lading and Dock
Warrants. (Bamx Note ; Bill or Exchange ;
Bill of Lading; Dock Wabbant; Pbomissobt
Note.) This may truly be called the Pons Asi-
norvm of Political Economy. It is one of the most
subtle and important points in the whole subject.
It is upon a confusion of the distinct nature of
these species of documents that Law's theory of
money is founded.

150. We have seen in the case of traders, that
they bny goods in exchange for the right of de-
manding a future payment. The quantity of
credit brought into commerce by these means is
enormous in this country. But that is only one
division of the subject.

There is a class of persons called Bankers,
whose sole business consists in creating these
" engagements to pay " by purchasing money, and
also the '' engagements to pay ** of traders.

When a man deposits money with a banker,
the property in the money immediately passes
from the depositor to the banker, and the banker
gives in exchange for it a *' promise to pay**
money on demand, or a bight to demand money.
And the property in this right to demand money,
or credit, passes from the banker to the customer.
The banker, having the entire property in the
money, may use it as he pleases, and the customer
having the entire property in the right to demand
payment may use it as he pleases. Each there-
fore may put his property into circulation, and
they form two distinct and separate Economical

151. Moreover, when a merchant has sold
goods to a trader in exchange for a right to de-

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mand a fntare payment, the latter right is not
very convenient, because it is not so saleable as
a right to demand immediate payment of money.
The merchant therefore haying a stock of these
rights, or instruments of credit, goes to his banker
who buys them, and gives in exchange for them
a right to demand immediate payment ; that is, by
creating new credit. And these rights circnlate
just like any other Economic Elements, and are
independent quantities. Here, therefore, we have
goods sold for rights, and these rights sold for
other rights, and each of these is independent and
separate property.

152. Commercial credit is usually embodied
in the form of Bills of Exchange, and more rarely
in Promissory Notes.

A banker is a person who buys money and
credit, nsnally rights to demand a future payment
at a fixed time, with credit, usually a right to
demand immediate payment.

A banker buys this money and credit, by
creating a credit in his books in favor of his

That credit created in the banker*s books is
called a Dsposit.

Many persons might imagine that the money
deposited in a bank is the deposit. But this is a
very ffreat error. The deposit is the credit
created in the banker's books ; it is also called a
Bank Credit, and is what was called Bank Money,
or Moneta di Banco, in the great foreign banks,
such as those of Venice, Amsterdam, &c. (Bank
Monet ; Bullion Report, § 23 ; Banking in
America, § 451 ; Deposit.)

153. Traders' and bankers' engagements to pay
are therefore separate and independent property.
With the clear and distinct comprehension of this,
the whole subject of credit becomes intelligible
and simple. It is the want of understanding this
that has plunged it into such obscurity and con-

154. Now, having shewn the separate existence
of credit as property, we are entitled at once to
draw the conclusion that it is capital. Mr. Mill
says, that anything which may be exchanged may
be capital as much as money. Instruments of
credit, or simply credit, is exchangeable, and
therefore it may be capital as much as money.

Now, what the measurable amount of the future
productivity of traders may be, it is impossible to
say. Afl Economists, we are only concerned with
that portion of it which is actuall^ brought into
commerce ; and that portion, including all sorts of
it, cannot be less than X600,000,000, at the very
lowest computation.

155. The difficulty of even approximating to
its amount consists in this, that an enormous
amount of credit is never embodied in the form
of Bills of Exchange at all, but is locked up in
the books of traders. These rights, as we nave
shewn above, are just as real entities as when
embodied in circulating paper, but how is it pos-
sible to form even a conjecture of their amount ?
Of banks that publish their accounts we can of
course ascertain their ♦» deposits," or the amount
of credit created by them. But who can guess at
the amount of the deposits of all the private
bankers in England, some of the greatest of which
are understood to be fully as large as those of the
Joint-Stock Banks?

Nevertheless, whatever the amount of these


credits may be, they are all " property," sepa-
rate and distinct from all other property, and
they perform the functions of money, only in
much smaller sphere. They are, as we have
shewn ^Credit ; Currbnct), particular credit —
money is general credit.

156. And this affords ample proof, if, indeed,
any were necessary to any one familiar with
physical science, that materiality must be entirely
expelled from the general conception of an Eco-
nomic Element.

157. When a man has done a service to another,
and wants no immediate service in return, he re-
ceives, perhaps, a piece of money in return. And
what is this piece of money ? It is merely the
right of demanding some service from any one he
pleases. It is only a general right, or general
credit. But if, instead of receiving money, he
allows the debt to remain against the other, ho
has equally the right of demanding a future ser-
vice in exchange. The only difference is, he can
only demand it from his individual debtor. It is
therefore only particular credit. And this may
be embodied on paper, or may exist only as a
debt, or invisible right. We thus see that money
and instruments of credit of all sorts represent
the same fundamental idear-debt, — and are homo-
geneous. A debt has long been recognized by law
as personal property.

158. Such is the nature of Credit — or Debts.
For a full exposition of its effects, and an exami-
nation of the opinions held respecting it by the
most eminent Economists since it became a con-
troverted question, we must refer to Credit.
The only difficulty in the case is to understand
that a Right to demand a future payment is an
independent Economic Entity, entirely distinct
from any specific money or goods, and is capable
of circulating in commerce, and produces all the
effects of money : and it therefore may be capital.
As it depends upon the belief in a person's char-
acter, it IS moral capital.

Credit therefore is to the person of the trader,
what the ftiture productivity is to the land, what
copyright is to a work, what goodwill is to a
business, and is incorporeal capital, just as they
are. They all are founded on the same principle,
belief in the capacity of the respective sources to
produce future profits. It is by credit that the
immensely greater portion of modem commerce,
in all civilized counti'ies, is carried on.

159. Every writer who has seized the true idea
of the subject, has maintained the doctrine that
Credit, in both its forms of banking credit and
mercantile credit, is productive capital, though
some of those quoted below have contradicted
themselves in the most astonishing manner, as we
have shewn in Credit.

Thus Mr. Hamilton, the Secretary to the Trea-
sury of the United States, in the Report to Con-
fress, upon which the first Bank of the United
tates was founded, says (Banking in America,
§ 421). — '* The following are among the principal
advantages of a bank : — First, The augmentation
of the active ar productive capital of a country. ♦ ♦ ♦
This additional employment given to money, and
the faculty of a bank to lend and circulate a
greater sum than the amount in coin, are to all
the purposes of trade and industry an absolute in^
crease of capital.*'

And Mr. Webster, in his speech on the renewal

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of the Charter of the Bank of the United States
(Ibid, § 448), said,-—" Credit is the vital air of
modern commerce. It has done more, a thousand
times, to enrich nations than all the mines of all
the world. ♦ ♦ * Credit is to money what money is
to articles of merchandize." In this sentence Mr.

Online LibraryHenry Dunning MacleodA dictionary of political economy: biographical, bibliographical ..., Volume 1 → online text (page 93 of 180)