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closely investigated before the sociologist can be in a condition to
lay down universal canons ; and after these are reached, much
will remain for inquiry respecting the special development of
particular races and nations.

A science of society thus does not exist in the sense of
* knowledge in its clearest and most absolute form, of which the
test is prediction.' That, however, is not a scientific definition
of science, and the sociologist may answer it with Bacon's words,
pncdens hitcrrogatio dimidmm scicntice. Nor is it the science
of society in its entirety only that is yet in its youth, and has a
long and arduous future before it ; it is so also with the
department of it relating to the economic condition of mankind
in different countries and ages. The labourer in this field, too,
must go to work in a modester frame of mind than that of
' the Political Economist,' as he called himself in capitals, of
twenty years ago. Mr. Lowe arrogates ' triumphs' for his own
economic method : those he refers to were achieved by the
opposite method of reasoning from observation and experience.
But the scientific spirit is not a triumphant and boastful one,
fired with a sort of intellectual Chauvinism, seeking polemical
distinction and a path to promotion in the field of party war.
A cavah-y officer of the period before the Crimean War, when
that branch of the army was distinguished by the glory of a
moustache, used to say that no man could conceive the pitch
to which human conceit could soar unless he had served in a
light dragoon regiment. He was, however, mistaken. There
was a being yet more elate with a sense of superiority over his
fellow-creatures in the economist who had Bastiat at his fingers*



220 Political Economy and Sociology.

ends, and who looked on political economy as a weapon by
which he could discomfit political adversaries, and on free
trade as a personal triumph ; though he had as much claim to
renown for it as a passenger in a Cunard steamer to the fame
of Columbus.

Some of the earlier economists — Adam Smith, Malthus,
Tooke, and John Mill — had a true claim to honour and repu-
tation as discoverers. But the generalizations and conceptions
that do credit to one period may discredit the next, just as it
would disgrace the navigators of our time to follow the same
course, and sail in the same kind of ship, as Columbus. The
deductive economists of the present generation have contented
themselves with the repetition of doctrines and formulas which
once caused the light of science to dawn where all had been
confusion and darkness. Clouds of abstraction and a iwiorl
reasoning nearly extinguished the promise of day ; but fresh
light is beginning to break. A few years ago Mr. Ingram's
Address could hardly have been delivered, and the ' orthodox '
economist, who now receives it with sullen respect, would have
scoffed at it. It is suggested, indeed, by way of diminishing
its effect, that its author is a follower of Auguste Comte ; but it
expresses the views of many who, like the present writer, are
not, however highly some of them, like him, may think of
Comte's genius.



XVII.

THE KNOWN AND THE UNKNOWN IN THE
ECONOMIC WORLD.*

The most characteristic feature of the commercial situation for
more than a year past has been not so much the depth of the
depression — for there have been worse times in that respect ; or
its extent — for the stagnation was as general throughout Eui'ope,
and much more widely felt throughout France thirty years ago —
as the sense of being in the dark, and surrounded, as it were,
by the unknown. Yet it is the consciousness only of not seeing
their way on the part of people that is new. Trade has long
been carried on blindly, and people as little knew what was
before them when it was said to be advancing by leaps and
bounds as they do now that these are found to have been leaps
in the dark. Temporary circumstances have added to the
gloom and uncertainty, and it is ascribable in part to a false
economic theory ; but to get a ray of light we must first recognize
that the obscurity of the present crisis has arisen in a great
measure from causes inherent in the constitution of the modern
economic world. It is not the writer's purpose to inquire
whether, in the most vital sense, the present depression is
temporary or permanent. Our manufactures and commerce
may or may not recover their vigour and supremacy ; our
agriculture may or may not be overborne finally by American
competition. The chief point to which attention is sought here
is that, even in the most f avom-able event, elements of disorder,
difl&culty, and recurring disaster, which have been growing



* Fortnightly Eevleiv, June ist, 1879.



222 The Knotvn and the Unhioivn

with the growth of our trade, will remain, unless new sources of
light can be discovered. Another point that should not be left
unnoticed is, that the economic world is not bounded by its
trade, and has other regions in which to add to the known and
diminish the unknown ought to be the economist's aim.

The full knowledge and foreknowledge lately claimed for
political economy in modern commercial society can exist only
at an opposite stage of development, at which human business
and conduct are determined, not by individual choice, or
the pursuit of wealth, or commercial principles, but by
immemorial ancestral custom. All that relates to the occu-
pations and movements of a nomad tribe in Central Asia
is known and foreknown by all its members, who possess
the power of prediction, which Mr. Lowe calls the test of science.
' Every tribe and every awl,' says a recent traveller among the
Kirghis, ' follows year after year the same itinerary, pursuing
the same paths, stopping at the same wells as their ancestors
did a thousand years ago. No awl ever mistakes its way. The
regularity and exactitude of the movement is such that you can
predict to a day where, in a circuit of several hundred miles,
any awl will be at any season of the year.' At the more
advanced stages of early agricultural society the power of
prediction continues, and is not destroyed by disturbing causes
of a more abnormal and violent character than the follower of
the a priori method of political economy has in view in the
phrase. Dynasties rise and fall, conquerors come and go,
empires are shattered above the head of the village community ;
yet it survives unchanged. The village itself may be burned,
its lands laid waste, the inhabitants driven away for a genera-
tion ; but another generation returns and resumes the old life,
each man following the occupation of his fathers, pursuing the
same methods, and seldom being either richer or poorer than
they. It is in what Mr. Bagehot called a pre-economic state,
thovigh it is more properly regarded as an early state of the
economic world among stationary communities — ' where the
thing that hath been it is that which shall be, and that which
is done is that which shall be done, and there is no new thing



In the Economic World. 223

under the sun ' — that ' knowledge in its most perfect form, as
tested by prediction,' exists. And just in proportion as tlie
stationary passes into the progressive condition, as industry and
commerce are developed, does the social economy become com-
plex, diversified, chaugeful, uncertain, unpredictable, and hard
to know, even in its existing phase, at any given time. In the
primitive village community the prices of commodities and the
gains of producers are not only known, but foreknown, because
they are customary prices. But when a market grows upon the
border, when dealings with strangers are unrestricted by the tie
of kinship or community, or by usage, the prices at which things
are bought and sold can no longer be known beforehand, and
are not even necessarily known to everyone afterwards. Another
element of uncertainty, introducing itself so soon as traffic with
the outer world begins, is that production can no longer be
exactly adjusted to consumption, supply to demand, both the
number and the means of customers from without being un-
known. And as industrial development proceeds ; as labour is
subdivided, and occupations multiply, and the methods of
production improve ; as commerce enlarges its borders and
changes its paths, the unknown more and more takes the place
of the known. The desire of wealth, or of its representative —
money — instead of enabling the economist to foretell values and
prices, destroys the power of prediction that formerly existed,
because it is the mainspring of industrial and commercial
activity and progress, of infinite variety and incessant alteration
in the structure and operations of the economic world. For
more than a hundred years before Adam Smith's birth the rate
of wages might have been nearly foretold throughout most of
Scotland, and in parts of the Highlands down to the time when
the ' Wealth of Nations ' was written. But so soon as com-
mercial activity began to stir in the Lowlands, the price of
labour became variable and uncertain. The Philosopher relates :
'In the last century the most usual day-wages of common
labour through the greater part of Scotland were sixpence in
summer and fivepence in winter. Three shillings a- week, the
same price very nearly, still continues to be paid in some parts



22 d The Known and the Unhioivn

of the Highlands and Western Islands. Through the greater
part of the low country the most usual wages of common labour
are now eightpence a-day ; tenpence, sometimes a shilling, in
the counties which border on England, and in a few other places
where there has lately been a rise in the demand for labour —
about Glasgow, Carron, &c.' Had Arthur Young foretold the
rates of agricultural wages in England in 1868 from those
which he found prevalent in 1768, the prediction would have
proved nearly correct in the stationary southern counties, though
utterly false in the mining and manufacturing counties north
of the Trent.

It is thus a fundamental error of the a priori or deductive-
political economy that it takes no cognizance of the cardinal
fact that the movement of the economic world has been one
from simplicity to complexity, from uniformity to diversity^
from unbroken custom to change, and, therefore, from the
known to the unknown. The origin of the error is in part
traceable to the extreme slowness and almost imperceptible
character of the movement down to the age of steam. Adam
Smith's own theory of wages, profits, and prices, rested on the
assimiption that employments in general were long established,
well known, and undergoing no change, and was expressly
restricted to such. The immobility of the world he lived in
shows itself in an observation of his great contemporary,
Hume :— 'In five hundred years the posterity of those in the
coaches and those on the boxes will probably have changed
places.' Hume seems to have taken for granted that five
centuries after his time the same sort of coaches would travel on
the same sort of road, the only change being in the places of the
passengers inside and out. An age of ii'on, however, succeeded
to his age of wood ; the age of iron is ah'eady giving place to
an age of steel ; and who now attempts to forecast the modes of
conveyance five centuries, or even five generations hence ? ' De
minimis non curat lex,' said Mr. Mill in the House of
Commons, citing the legal maxim adroitly in reference to the
small importation of meat little more than a decade ago. Now,
nearly one-fourth of the animal food consumed in the kingdom



In the Economic World. 225

comes from abroad, and even live beasts are largely imported.
The extension, again, of the area of trade has brought with it
liability to countless unforeseen and sudden changes, rendering
it impossible to adjust supply to demand. Not on4y a great
war, like the Franco- German, disturbs the calculations of
merchants and manufacturers ; the outbreak of the present Zulu
war led to the sudden countermanding of large orders for sheep-
shears, wire-fencing, and edge-tools for the Cape. Credit adds
another unknown quantity. It springs from the growth of
confidence between man and man, and of foresight in one sense ;
yet it greatly augments the uncertainty of trade, the difficulty
of anticipating the future, and the chance of expectations being
frustrated by fraud. So long as goods are sold only for cash,
prices are fixed by the pecuniary means of purchasers, and are
subject to comparatively little variation of demand ; as soon,
too, as the sale is effected, the amount of the seller's profit is
certain. But when once promises to pay acquire a purchasing
power, the fluctuations of prices have no assignable limit, and a
promised payment may never be made ; so that after parting
with his goods the producer's profit still remains doubtful.
Not only the future, but even the present, becomes inscrutable
in a highly advanced community. The number of employments
is so great, each of them is so intricate a business, and affected
by such a variety of conditions, the fortunes of the individuals
engaged in them are so diverse, that no one dreams of surveying
the entire field ; he often cannot tell even how the peoj)le he
deals with himself, and to whom he is perhaps making large
advances, are doing. The banker of fifty years ago, in
Mr. Bagehot's words, ' formed his judgment of the solvency
of those to whom he lent. And when Loudon was by
comparison a small city this practice might have been safe ;
but now that London is enormous, and that no one can watcli
anyone, such a trade would be disastrous : at present it would
hardly be safe in a country town.' In the same work, ' Lombard
Street,' Mr. Bagehot lays stress on the extent, beyond the
conception of our ancestors, to which English trade is carried on
by borrowed capital. It is a surprising instance of the force of

Q



226 The Known and the Unknown

a foregone conclusion that this acute thinker did not see how
inconsistent this fact was, by his own showing, with the doctrine
of an equality of profits, to which he adhered : — ' A new man,
with a small capital of his own, and a large borrowed capital,
can undersell a rich man, who depends on his own capital only.
The rich man wants the full mercantile rate of profit ; but the
poor man wants only interest on much of what he uses.' The
man who trades with his own capital thus can no longer count
on what Mr. Bagehot calls ' the full mercantile rate of profit.'
But the new system introduces much else that disturbs the old
order of things. Did ' the new man ' take as much care of the
capital he borrows as if it were his own, he would not treat the
whole surplus of his gross profit above interest, as at his disposal,
either to lower prices or to spend. He may be unexpectedly
called on to refund what he has borrowed ; his credit may be
shaken ; a hundred unlooked-for events may subject him to
pressure ; his position is far more precarious than that of the
man with funds of his own ; and he ought to provide an
insurance fund in proportion. But he risks other people's
money — not his own ; if he loses it all, he is, at the worst, no
poorer than when he began, after, perhaps, living like a lord in
the meanwhile ; and it will go hard with him if he does not save
something out of the fire for himself. At a much earlier stage
of the economic world a man ran some risk of being robbed of
all his money ; but he seldom ran any of losing it in a trade
speculation. We talk of modern security of property in com-
parison with the middle ages ; yet it would be much to say that
the wealth of a modern capitalist is as secure as that of a stout
franklin in the worst days of the Plantagenets.

Professor Nasse of Bonn, replying, in a recent essay, to the
socialistic doctrine that, under State regulation, production
might be so adjusted to consumption, and supply to demand, as
to render industrial crises impossible, observes that such an
adjustment, without individual freedom in respect either of
production or consumption, is not inconceivable, though on terras
involving the destruction of civilization and all that makes life
worth having. * But to reconcile it with individual freedom is



In the Economic World 227

a problem comparable only with the quadrature of the circle.
All the operations of fixed capital — ships, railways, factories,
mines— involve production for the future ; but how is the future
to be foreseen ? ' * One may add that the ' orthodox ' theory of
prices and profits is as inconsistent as the socialistic programme
with individual liberty. It is a curious characteristic of tlie
deductive political economy that, in spite of its show of logic,
its followers have never firmly grasped either their own premises
or their conclusions. With Mr. Senior and Mr. Lowe they
suppose, for the most part, that the assumption on which their
theory of value rests is a universal desire of wealth. Indeed,
some who no longer contend that the wliole economic world can
be isolated, for the investigation of its laws, from the moral and
political world, are still disposed to hold that there is a depart-
ment of economic phenomena, namely, that of commercial
exchanges, values, and prices, the laws of which may be deduced
from the single motive of pecuniary gain. No theory whatever,
nevertheless, is deducible from that motive alone. You mny
know that everybody j^ou meet between Belgrave-square and
the Bank loves wealth of some sort, and money, as the means of
purchasing all sorts; but what can you infer from that with
respect to anyone's part or conduct in either production or
distribution ? Can you infer, either, that the Duke of West-
minster will, or that he will not, sweep a crossing for sixpence ?
The late Lord Derby is said to have replied to an engineer who
urged that a particular line of railway would add ten thousand
a-year to his rental — ' How do you know that I care to have
ten thousand a-year added to my rental ? ' The economist,
however, need not ascend to too lofty a region, or perplex
himself with so transcendental a question. He may take it for
granted, like the engineer, that people do care for ten thousand
a-year. Mr. Lowe's doctrine is not wholly unfounded, that the
general love of money enables the economist to foretell human
conduct. Just as from the strength of the impulses to marriage,

* Ucbcr die Verhiltinif/ dcr Producllonshrlscn durch stmtliche Fiirsorjc. Von
Dr. Erwin Nasse. Holtzendorif-Brentano. Jahrbuch III. i.

Q 2



228 The Known and the Unhiown

together ■with observations of their consequences, you may
predict that, other circumstances remaining the same, nearly
the same number of young men in business will marry this
year as last ; so from the strength in this country of pecuniary
interest, and the course of conduct it has been found for centuries
to lead to, you may predict that, if business does not greatly fall
off, about the same number of young men will go into it thi&
year as last. For fresh youth recruits the commercial world
every year — not every tenth year, as a cyclical theorist naively
persists. But you can no more predict from their love of money
what prices and profits the young men will get in their business
than from their love of fair women what fortune they will get
with their wives. And you might as well assume that, allowing
for difference of age, looks, family, and other attractions, the
fortunes the wives bring will be equal, as that, allowing,
according to the orthodox formula, for differences in the nature
of their employment, they will make equal rates of profit on
their capital. Here the real main postulate of the deductive
economist comes in. They cannot, he says, make a higher rate
of profit in one business than in another, because other people
will not allow that if they know it, but will cut in at once.
And he assumes that they do know it. He assumes that the
choice of occupations and investments, and the movements of
labour and capital, are determined by knowledge so accurate
that the result is the same percentage of profit on capital all
round, and a scale of comparative prices in proportion to the
quantity and quality of the labour and sacrifices required to
produce commodities, or their comparative cost of production.
He predicts, in short, that the price of any given article will be
such as to give average profit to its producers, after paying the
labourers average wages. If you object that prices fluctuate
in the most unforeseen manner— that producers, so far from all
getting ' average ' profits, meet with the most different fortunes,
some being ruined, and some becoming millionaires — his excuse
is ready. Political economy, he tells you, with an air of
olfended dignity, is a science of tendencies in the long run, and
in the absence of disturbing causes ; it does not predict in



In the Economic World. 229

individual cases. A great general used to say that a man who
was good at excuses was never good for anything else ; and
nearly as much may be said of a theory. But the deductive
economist has really no title to the excuse, such as it is.
His theory of profits and prices, when examined, will he found
to claim to be true, under all circumstances, in the case of every
individual in trade and of every particular aiticle, and to
foretell the exact rates at which goods will be sold. His theory
of taxation is an application of his theory of profits and prices ;
a,nd it proceeds on the assumption that prices will actually
conform to the cost of production, so nicely in every particular
case, that every special tax on any commodity will be recovered
by the producer from the consumer, with a profit on the
advance. No one was less disposed than Mr. Mill to strain the
orthodox system till it cracked ; and in his chapter on the
relation of cost of production to value it is somewhat vaguely
iaid down that, as a general rule, things tend to exchange at
such value, that is, to sell at such prices as will enable each
producer to be repaid the cost of production with ordinary
profit. But when he comes to taxes on commodities lie affirn:i?,
in accordance with the orthodox theory, that ' there are but two
cases in which duties on commodities can, in any degree or
any manner, fall on the producer.' The excepted cases do not
concern the question ; and in the case of customs and excise
duties, trade licenses, and various stamp duties, taxes, and rates,
the strict theory is, that a producer recovers all special taxation
with a profit in every particular instance. No disturbing causes
can be pleaded, nor can the trader obtain a postponement of
taxation until it becomes certain that he will be recouped by
his customers.

The orthodox, a priori, or deductive system thus postulates
much more than a general desire of wealth. It postulates, also,
such full knowledge of the gains in different employments,
and such facilities of choice and change of employment, that
any special tax can be evaded or shifted. A case where the
conditions seem sufficiently realized will illustrate the matter.
Indoor and outdoor servants meet in the same establishments.



230 The Known and the Unknown

and are in the closest relations ; they know each other's wages,
perquisites, and circumstances exactly ; and the classes recruiting
them both are the same, and equally well-informed. The son
of the gamekeeper, gardener, coachman, or groom, knows as
well as the butler and footman how the indoor servants are off ;
and he knows that, if the duties were abolished, the condition of
outdoor servants and labourers, who buy their own tea and beer,
would be improved. It is therefore a reasonable inference that
masters who supply these articles to their Mndoor servants give,
or may give if they like, lower wages in consequence of the
duties, and that indoor wages would rise if the duties were taken
off, so that their real incidence may be said to be on the servants.
To confound this case with that of indirect taxes in general, as
a recent writer has done,* is to fall into the fundamental error
of the a priori system of confounding the unknown with the
known in the economic world. The farmer, the merchant,
the manufacturer, the innkeeper, the grocer, the tobacconist, the
publican, do not know the profits of other businesses, and are, to
a very small extent, recruited from the same classes. Farmers,
for instance, as Mr. Bear says, ' as a rule do not go out of
farming until they are ruined.' Most of them know no other
means of getting a living, without sinking into the position of



Online LibraryT. E. Cliffe (Thomas Edward Cliffe) LeslieEssays in political economy → online text (page 21 of 41)