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stewards and bailiffs — a class far too numerous already. Again,
the master can stop the amount of the duties at the time
he pays his servants their wages, whereas a trader's premises
may be burnt down, or he may become bankrupt a week after
his rates and taxes are paid, and before the sale of any part of
his stock : the payment, indeed, may be the last straw that
breaks an overburdened back. Many men in trade, during the
last four years, have failed to recover their taxes in prices,
because they have failed altogether.

Adam Smith's economic theory was mainly a theory of
production and abundance, or, in his own words, of ' the great
multiplication of the productions of the different arts in con-
sequence of the division of labour, which occasions that universal



Mr. H. Sidgwick, Fortnightly Mevieiv, February, 1879, p. 304.



In the Economic World. 231

opulence which extends itself to the lowest ranks of tlie people. *
With distribution by means of exchange he was concerned
chiefly as promoting the division of labour, and thereby the
plenty and variety of commodities. With Eicardo distribution,
as he states in his preface, became the chief problem, and he
elaborated a theory of exchange values, wages, profits, and
prices, irreconcilable with the fundamental principles of Adam
Smith's theory of production. Industrial liberty and the di-
vision of labour, the two pillars of Adam Smith's system,
produce an economic world, the vastness, complexity, and in-
cessant changes of which are absolutely incompatible with the
main postulates of the Ricardian theory, that the advantages
and disadvantages of all the different occupations are known,
that competition equalizes the rewards of both labour and
abstinence, and that the prices of commodities therefore are
determined by the respective cost of production. The whole
deductive theory of distribution rests on that postulate. It is,
indeed, because so much has been built on it that scrutiny of
the ground it stands on is resisted and resented. The system
rests on the wrong end, the superstructure supporting the foun-
dation. For though it is true in logic, as in mechanics, that
nothing is stronger than its weakest part, it is not so in matters
of opinion, whether in politics, religion, or philosophy. A
seemingly symmetrical system has in itself charms for many
minds, and the interests bound up with orthodox economics are
various and strong. The opponent of direct taxation, for in-
stance, is well pleased with a system which teaches that taxes
on trade and commodities fall with perfect equality ; and had
not their inequality been thus put out of sight, Mr. Gladstone
could hardly have dreamt of the enterprise of aboHshing the
income tax.

In Adam Smith's time a revolt against the blundering in-
terference of the State led by reaction, in both England and
France, to an overweening trust in the enlightenment and
sagacity of individual interest, with which the notion of keen
insight into the condition of every employment was in har-
mony. But there was also in a comparatively small, simple,



232 The Known and the Unknown

and stationary economic world better reason to assume the
existence of such insight. It might, for example, be not irra-
tionally conjectured that in a little village at the present day
every man knows all his neighbours' affairs. To jump from
that to the conclusion that everybody in England knows the
affairs of everybody else is the leap that Eicardo and his fol-
lowers have made. The present writer, after personal inquiry
some years ago in villages and small towns within the United
Kingdom and on the Continent, was led to doubt that even in
a modern village is there such a knowledge of profits as the
deductive economist assumes. The village innkeeper, publican,
or shopkeeper, who is making a small fortune, does not invite
competition by telling his neighbours of his profits ; and the
man who is not doing well does not alarm his creditors by ex-
posing the state of his affairs. If you take a whole country
like England, it becomes a matter of accident, situation, and
personal history and connexion, what a man knows about the
state of any particular business. There are people in London
and elsewhere who know more about the state of trade and the
openings for capital and enterprise in California, China, and
Japan, or some South American State, than in their own
country, and who could more easily make their own way, or
push on their sons or their nephews, in a place some thousand
miles off, than in their own town. The distinction which Mr.
Mill has drawn between international trade and home trade, in
respect of the transferability of labour and capital and the
equalization of wages and profit, if it had once some founda-
tion when trade at home was simpler and better known, and
when foreign countries were almost wholly unknown, cannot
now be sustained. Not that the doctrine of the equality of
profits and of the determination of comparative prices by com-
parative cost of production is now applicable to both, but that
it is applicable to neither. It was a step in the right direc-
tion to recognise its inapplicability to the exchanges between
different countries, but the further step is now required of
abandoning it altogether.

In both home trade and international trade the migration of



In the Economic World. 233

labour and capital has some effect on wages and profits, and the
comparative cost of producing different commodities some effect
on their comparative value and price ; but in both cases the
effect is uncertain, irregular, and incalculable. In neither case
is there an equalization of either wages or profits ; in neither
case do prices conform to the Ricardian law of cost. If a
particular business is known or believed to be flourishing,
capital flows into it; but it also flows into businesses that are,
in reality, very unprosperous. One has only to keep one's eyes
open in the streets of London to see, year after year, shops fail,
disappear, and reappear with another name over the window,
though the locality evidently does not support them. Save in
so far as the prosperity of their own business depends on that
of others, the people in one trade know little or nothing of the
condition of other trades, or no more than the newspapers tell
them. So far, too, is the producer of one article from knowing
the cost of every other, that often he does not know what the
cost of his own commodity is to other producers in the same
business. That varies with the method they follow, their
situation, connexion, and the rapidity of their returns; the
solvency of the people they give credit to, and the number of
bad debts ; their own credit ; the economy, the skill, care, and
invention exerted by both themselves and those under them ;
luck, and many other conditions. Ricardo and his followers
have assumed labour to be the only element in the cost of
production, and the only productive power : and the notion has
had pernicious consequences. Capitalists have been led by it to
look to reduction of wages as the only means of keeping up
profit, and labourers to suppose that every increase of profit
must have arisen from their own work, and be at their own
cost. All the sophistry in the literature of Socialism has not
given birth to a more mischievous fallacy than that contained
in the Ricardian dogma : " The rate of profit is never increased
by a better distribution of labour, by the invention of machinery,
or by any means of abridging labour, either in the manufacture
-or the conveyance of goods. These are causes which operate on



234 The Knoivn and the TJnlmown

price, and are beneficial to consumers ; but they have no effect
whatever on profit. On the other hand, every diminution in
the wages of labour raises profit.' * A capitalist, no less than a
statesman, may, by taking thought, add a cubit to his stature.
He may diminish his outgoings and augment his returns without
lowering wages. The soil, the seed, the animals, the coal, the
machinery, the chemical agents that capitalists employ, have
productive powers ; their own brains have productive powers ;
and all these forces may be made, by skill and economy, to
produce more at less cost. . Mr Mill made, doubtless, an
important correction of Ricardo's language in saying that the
rate of profit depends, not on wages, but on the cost of labour ;
but the cost of labour is only one of several conditions affecting
the result.

What is or may be known generally, with respect to com-
modities, is not the cost — still less the profit — of producing
them, but their actual market price. People in a particular
trade may further know what profit a particular price yields to
themselves, though the same price may give very different
profits to different producers. People outside the trade, again,
may know whether the present prices of the things produced in
it are above or below the usual level. But not even the people
in the trade can know what the price will be six months hence.
When the price of an article — say coal or iron — is above the
usual level, capital is attracted to its production, and bills
increase in the business ; but no examination of the entire field
of employment is known or attempted. In truth, the choice
of employment runs in a very narrow groove. There is, no
doubt, a tendency of trades to localize themselves, like cotton
manufacture in Lancashire, in the places with the best natural
aptitudes for them. But in the degree and manner in which
this localization takes place it is largely the result of want of
information, and want of originality and enterprise, and is far
from effecting the best distribution of industry. Men follow
each other, like sheep, in flocks, though the sheep are not wise in

* Eicardo's TForks, ed. M'Culloch, p. 49.



In the Economic World. 235

inferring that wherever there is enough good grass for a few,
there must be plenty for the whole flock that goes after them.
Belfast is well situated for the manufacture of linen, and has a
trained population, with hereditary aptitudes ; but that is far
from affording adequate reason for the fact that almost everyone
there with capital has, for the last two generations, gone into
linen ; for the place and people have capacities for other manu-
factures. The Belfast people have put almost all tlieir eggs in
one basket. There has been a great over-production of linen ;
and the case is only one of many, showing that Chancellor
Oxenstiern's saying, ' Quantula sapientia regitur mundus,' is as
true of the commercial as it is of the political world.

Instead of the world of light, order, equality, and perfect
organization, which orthodox political economy postulates, the
commercial world is thus one of obscurity, confusion, haphazard,
in which, amid much destruction and waste, there is by no
means always a survival of the fittest, even though cunning be
counted among the conditions of fitness. ' The race is not to
the swift, nor the battle to the strong, nor yet riches to men of
understanding; but time and chance happen eth to them all.'
The part of chance in the matter is really so great, the venture
so often chiefly at other people's risk, and the ramifications of
commercial relations and credit, the sudden changes in the
activity of business and in demand, the fluctuations of prices,
make the trader's future dependent on so many other conditions
than his own skill and care, that not a few hardly try to exercise
judgment or foresight. The Duke of Wellington is said to
have replied to a lady who besought him to tell her how the
Battle of Waterloo was won : ' Well, madam, we pounded and
they pounded, and we pounded the hardest.' If the story is
correct, the Duke probably thought no better account of a battle
intelligible to a woman ; but many men nowadays seem of
opinion that the only way to succeed in the battle of life is to
pound the hardest as long as they can, especially if they can do
so with metal from other people's magazines. The very word
'speculation ' has undergone a perceptible change of meanings
denoting something much nearer gambling than it once did.



236 The Known and the Unknoivn

Adam Smitli spoke of certain employments in liis day as
lotteries — * the lottery of the law,' ' the lottery of the sea,' for
example — and of the absurd presumption of mankind in their
own good fortune in respect of such lotteries. Now almost
every trade has become a lottery, and human presumption has
in no respect diminished.

The ignorance and blindness with which modern trade is
carried on are, as the foregoing pages have shown, partly
inevitable and irremediable, resulting as they do, to a great
extent, from the consequences of industrial and commercial pro-
gress on the one hand, and the limitations of human faculties
on the other. So much could never be known, in a free and
progressive world, of the condition and prospects of every
employment, nor could the transfer of labour and capital
become so easy, as to produce an approximation to the equality
in the rate of profit imagined by the orthodox economist. His
system has, indeed, done much to defeat itself and to aggravate
the obscurity, disorder, and inequality. By assuming that the
laws determining profits, prices, and the division of employment,
are fully understood, and pursuing the method of deduction
from arbitrary assumptions to the neglect of the investigation
of facts, he has left us in darkness with respect to many matters
as to which the economic world might be less unknown than it
is. Arthur Young's ' Tours,' Tooke's ' History of Prices,'
Porter's ' Progress of the Nation,' Thorold Rogers' ' History of
Agriculture and Prices,' Caird's ' English Agriculture in 1850,'
the so-called ' Domesday Books ' — inaccurate as they are — the
'Agricultural Statistics,' and those relating to trade and to
income, together with the Reports of many Parliamentary
Committees, afford an example of the facts that might be
gathered, marshalled, and sifted. "We might by this time have
an almost complete industrial and commercial map of the king-
dom, showing, for the last forty years, the distribution of trades,
the changes in the methods of both manufacture and farming,
the migration of their sites, the new employments invented, the
number of persons in every employment in each successive year,
the fluctuations in the prices of both commodities and labour,



In the Economic World. 237

not in the chief markets only, but in every town and parisli, and
the main changes that have taken place in the nature, amount,
and distribution of national wealth, and other causes. Mr.
Bagehot, criticising the plea of a German economist and statist,
Dr. Grustav Cohn, for a close investigation of all facts relating
to banking and other departments of industrial and commercial
economy, called it, by way of disparagement, ' tJie all-case
method,' affirming that no discovery was ever so made. It
would be nearer the truth to say that no discovery was ever
made by the no-case method. To imagine that a clever man,,
with his eyes shut, can think out the laws of the economic
world is as reasonable as to suppose that he could, in the same
manner, discover the laws of the physical \vorld. In chemistry,
in natural history, in physiology, in physical astronomy,
discoveries are made every year by the all-case method — by
neglecting no phenomenon as unworthy of observation, and
investigating every case that presents itself, with a view to
ascertaining its causes and laws. The economist might acquire
by this method something of the faculty of prediction which
Mr. Lowe claims for him. The relation, for example, between
the economy and the law of a country, and between the move-
ments of both, is one of the cases in which a power of prevision
may be acquired by the inductive method. When Mr. Lowe
affirms that political economy is the only department of political
and moral science in which prediction is possible, he forgets that
all the laws of civilized society are based on the assumption that
the conduct of the great majority of its members can be foretold,
that they will obey the laws, and that certain consequences,
moral, political, and economic, will ensue. Were it otherwise,
the desires of which the various kinds of wealth are the objects
would lead, not to industry and commerce, but only to plunder
and theft. In relation to the present depression of trade, an
instance may be given of the power of prediction the lawyer
possesses. As Auguste Comte well said, 'to predict the future
you must be able to predict the past, where your predictions can
be verified and your method put to the test.' The following
prediction of the past, proving a power of predicting the future,



238 The Knoivn and the UnJmotvn

is in point. Not long ago, an eminent economic authority,
Mr, Jevons, referred, in a letter in the ' Times,' to the number
of bankruptcies in the United States in 1878, in support of his
theory of a decennial solar cycle, resulting in regular periods of
depression and commercial crises. An eminent legal authority,
on the other hand, Mr. Francis Reilly, observed at once to the
present writer, that Mr. Jevons should have inquired whether
anything besides the number of sun-spots had changed, adding,
that the American bankruptcy law varied, and as in this
country the number of bankruptcies varied with the law, he
believed it would be found to be so in the United States. Soon
afterwards facts were published, proving that this prediction of
the past was well-founded, that the great number of American
bankruptcies last year arose from the desire of debtors to take
advantage of an expiring Act — too liberal to defaulting traders —
and that Mr. Reilly miglit draw an Act that would much
diminish the number of fraudulent bankruptcies in England,
and possibly baffle Mr. Jevons' solar cycle in 1888.

Again, although the modern commercial world is, hj its
nature and constitution, by the ever-increasing extent of its
area, not only one of perpetual change, but liable to sudden
and unforeseen disturbances, yet the very perception of this
fact and of its causes gives a power of prevision. A curious
and instructive example of the error of the a 2^nori economist
on this point will be found in Ricardo's chapter on natural and
market price. He could not shut his eyes altogether to the fact
that there were fluctuations in prices and profits, disturbing the
order and equality his theory assumed, and was compelled to
admit that the termination of the great war with France, for
example, had deranged the previous distribution of employments
in Europe, and destroyed some of the occupations of capital.*
But he proceeded at once to set aside such changes in his
exposition of the laws of wages, profits, and prices, on the
assumption that they were equally operative in all states of
society — an assumption absolutely false in itself, and assuredly

* Eicardo's Works, ed. M'Culloch, p. 48.



In the Economic World. 239

not a reason for leaving- the phenomena in question out of
consideration, had it been true. ' Having,' he says, ' fully
acknowledged the temporary effects which, in particular em-
ployments, may be produced on the prices of commodities, as
well as on the wages of labour and the profits of stock, by
accidental causes, since these effects are equally operative in all
states of society, we will leave them entirely out of our con-
sideration, whilst we are treating of the laws which regulate
natural prices, natural wages, and natural profits.* That is to
say, in discussing the natural as distinguished from the posi-
tive laws governing the distribution of wealth, he ignored the
■essential difference between stationary and progressive society —
between the ancient economic world, with its simple and cus-
tomary methods and prices, and the modern, with its vastness,
complexity, incessant movement, and sudden vicissitudes and
fluctuations. The changes which he set aside as the results of
* accidental causes ' were mainly the natural and inevitable
consequences of the constitution and course of the economic
world in which he lived. But even distm-bances which arise
from political and other causes of a different nature ought to
be taken into account by both the theoretical economist and the
practical man of business, as inseparable from the world and
the age in which we live. The present depression of trade
has been attributed to various temporary causes — the Franco-
German War and its consequences, the war in Turkey, the im-
mense military expenditure through Europe, the demonetizing
of silver, a succession of bad harvests at home, and famines in
India and China. These are not, in truth, the only causes of
the depression which has arisen in a great measure, as already
explained, from conditions inherent in modern economy ; but
even the temporary occurrences referred to have nothing really
abnormal in their character : they are natural incidents of the
world and the age, and as such should have been included in
the speculations of both economists and men of business. It is
written, indeed, that ' he that observeth the winds shall not

» RicarJo's Works, ed. M«Culloch, p. 49.



240 The Known and the Unhiown

sow, and he that observeth the clouds shall not reap ; ' but he is-
a poor husbandman who reckons on nothing but fine weather.

The present article has kept the industrial and commercial
side of the world chiefly in view ; but it would be a fundamental
error to regard the economical world as bounded by commerce
and industry, or as containing no other phenomena whose laws
it is the object of political economy to investigate. The desires
for various kinds of wealth are not the only motives on which
the production and distribution of wealth depend ; the economist
must penetrate even into the most romantic passions and senti-
ments of the human heart. There, too, all is not unknown, or
beyond scientific, or even commercial, prevision. No writer of
his time had a keener insight into the secret springs of the
movements of society, when he was not in economic leading-
strings, than Mr. Bagehot, who has finely observed that ' the
range and force of some of the finest impulses and affections of
young hearts enter largely into the calculations and anticipated
profits of the speculative builder.' Stop for a twelvemonth
marriages of the most sentimental order — those of pure love —
and many builders and house-owners will be ruined ; many
clergymen, lawyers, and doctors impoverished ; and a generation
hence it will be felt in the labour market, and in every trade
and profession. But marriages for love will not stop for a
twelvemonth ; the calculation of the Begistrar-General will not
be defeated ; clerical, legal, and medical functionaries will be
employed, and five-and-twenty years hence sons of this year's
lovers will be found in every vocation. A critic has severely
rebuked the writer for having, in a previous article, controverted
Mr. Lowe's proposition that the desire of wealth is the single
motive in human affairs on which predictions can be founded, and
that * in love, war, and politics, prediction is impossible.' ' He ac-
tually,' the critic says, 'adduces the fact that we can predict, within
a certain small limit of probable error, the number of marriages,
for any year, as a proof that economic phenomena do not depend
on the operation of a single motive. He could not have chosen
a more unlucky examj)le; for the merest tyro in statistical
inquiry is aware how closely the number of marriages is con-



In the Economic World. 241

nected with the price of grain, and this in all countries. No
one can possibly look at the curves representing these two facts
without seeing that the price of grain determines the movement
of the marriages.'* The critic would appear to hold that the
single motive to marriage is to go share in a big loaf. But it
is true that, although only the poorest class is restrained by the
price of corn, when bread is dear many poor persons are unable
to marry for love. The curious thing is that in England,
among a nation of shopkeepers, marriages are more commonly
for love than in France, where the tender passion is supposed
to be more easily excited; and that if the love of money be
anywhere the single motive from which transactions in the
matrimonial market can be foretold, it is at the other side of
the Channel. In all countries, however, the forces by which
the economic world is moved are many and complex ; and it is



Online LibraryT. E. Cliffe (Thomas Edward Cliffe) LeslieEssays in political economy → online text (page 22 of 41)