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nothing useless, absurd, or fantastical, in the common course of
their education. They are taught what their parents or guardians
judge it necessary or useful for them to learn, and they are
tauglit nothing else. Every part of their education tends
evidently to some useful purpose — either to improve the natural
attractions of their person, or to form their minds to reserve, to
modesty, to chastity, and to economy ; to render them both,
likely to become the mistresses of a family, and to behave
properly when they have become such. In every part of her
life a woman feels some convenience or advantage from every
part of her education.'

Although ' the obvious and simple system of natural liberty *
is the foundation of Smith's whole system, though he regarded
it as the law of the beneficent Author of Nature, it turns out
that he applied it only to one-half of mankind. The reason is
that ths law and the exception alike came to him from the age
in which he lived, and the ideas of a yet earlier state of society.
The insurrection against the oppressive and unequal economic
regime of the past was as yet only on the part of men; and the
very theory of the Law of Nature which men invoked for their
own emancipation, as it was the offspring of the speculation of
the ancient world, so it bore the impress of its narrowness and
injustice.



IV.

'SOME LEADING PRIXCIPLES OF POLITICAL ECONOMY
NEWLY EXPOUNDED/ BY PROFESSOR CAIRNES.*

Any new work by Mr. Cairnes would be sure of a siicces cVestime,
but the present is one, tlie importance of whicli the economist
most opposed to some of the principles it expounds with so much
force, clearness, and skill, will not call in question. Its very
importance, on the other hand, the high reputation of its author,
a,nd the consummate literary art it displays, impose on a re-
viewer the duty of sifting it closely. Mr. Cairnes himself sets
an example of independent criticism. Thus he speaks of Mr.
Mill's doctrine of cost of production as 'radically unsound,
confounding things in their own natui'e distinct and even anti-
thetical, setting in an essentially false light the incidents of
production and exchange, and leading to practical errors of a
serious kind, not merely with regard to value, but also with
regard to some other important doctrines of the science.'

As we, for our own part, think not a few of Mr. Cau-nes'
•own positions, including his doctrine of the relation of cost of
production to value, untenable, we must claim for ourselves like
independence of judgment and freedom of speech. Mr. Cairnes,
we may observe, overestimates sometimes the amount of authority
opposed to his own views, sometimes the amount on their side.
In the case just referred to he too hastily assumes that the
view he dissents from ' has the general concurrence of econo-
mists.' The English market for economic publications is ex-
tremely limited ; the works on the subject are necessarily few ;
but it is notorious that various doctrines to be met with in the



« The Academy, June 27, 1874.



42 Cairnes' ' Leading Frinciples of

Eng-lisli text-books have often been questioned in lectures^
articles, discussions, and private conversation ; and that the
general concurrence even of English economists — of whom
alone English economists are apt to take account — ought not
to be assumed from the agreement of those books. In the
second place, the definition of cost of production vi^hich Mr.
Cairnes puts forward had, in fact, been set forth in very similar
terms in a treatise which has gone through many editions.
Mr. Senior, criticising Malthus for terming profit a part of the
cost of production, says, ' Want of the term abstinence has
led Mr. Malthus into inaccuracy ... an inaccuracy pre-
cisely similar to that committed by those who term wages a
part of the cost of production.' Mr. Senior proceeds to define
cost of production as ' the sum of the labour and abstinence
necessary to production,' Mr. Senior's analysis is, indeed, de-
fective in omitting the element of risk, but that defect is beside
the question, and in respect to it we may observe that Mr.
Cairnes too narrowly limits it, in the case of the labourer, to
risk to mental and bodily faculties. The labourer often shares
the pecuniary risks of the capitalist's enterprise ; he runs the
risk of being thrown out of work and wages at a critical time \
and this is only one of a number of facts inconsistent with the
assumption of an equality of wages, even within the limits
which Mr. Cairnes sets to it.

The doctrine of cost of production involves the whole theory
of wages and profit : and an immense superstructure which has
been built on what Mr. Caii-nes would call the orthodox theory,
must stand or fall with that theory. The subject may be con-
veniently approached by an examination of the doctrine of * the
Wages Fund ' and an ' average rate of wages,' for which Mr.
Cairnes contends. An instance has just been noticed of an
over-estimate, on his part, of the amount of difference between
his own views and those of other economists : we here meet with
one of an over-estimate of the amount of support from autho-
rity which Mr. Cairnes is entitled to claim for his own view.
He terms his own side of the question with respect to the Wages
Eund ' the orthodox side.' If orthodoxy in economics is to be



Political Economy Newly Uxjjounded.^ 43

determined by authoritj, some weight surely is to be attached to
continental authority. And in Germany, as Dr. Gustav Cohn
has lately pointed out, the doctrine of a Wages Fund was con-
troverted more than fifty years ago, and has been repeatedly
assailed since ; nor does it now form, we believe we may affirm,
an article of the creed of any scientific school of German
economists. It is condemned by M. Emile de Laveleye, of
Belgium, to whom Mr. Cairnes will not deny a place in the
front rank of European economists. French economists have
never been polled on the question, but it is at least certain
that the notion that there is an aggregate national wages fund,
the proportion of which to the entire number of labourers
determines the general rate of wages, is incompatible with the
exposition which M. Leonce de Lavergne — who, it is needless
to say, combines the highest theoretical attainments with the
most extensive knowledge of the actual economic phenomena of
his own country — has given of the diversity of the rates of
wages and the causes determining them, in different parts of
France. In England the doctrine was, after mature considera-
tion, abandoned by Mr. Mill ; it has been vigorously assailed by
Mr. Thornton ; it is repudiated by Mr. Jevons ; and among
other economists in this country the present reviewer long ago
combated it. On the whole, we believe that the chief weight
of European authority is against the doctrine, and that it is a
heresy, if that constitutes one. But the terms orthodoxy and
heresy are singularly inappropriate in philosophical discussions.
What philosophy seeks is reason and truth, not authority ; and
we will briefly state some of the grounds of reason and fact on
which we take our stand in maintaining that an aggregate
wages fund and an average rate of wages are mere fictions —
fictions which have done much harm, both theoretically and
practically, by hiding the real rates of wages, the real causes
which govern them, and the real sources from which wages
proceed. In every country in Europe, the rates of wages even
in the same occupation vary from place to place ; in other words,
the same amount of labour and sacrifice of the same kind is
differently remunerated in different localities. The Devonshire,



44 Cairnei ' Leading Principles of

Somersetshire, or Dorsetshire labourer has heen earning for the
last fifty years less than half what the same man might have
earned in Northumberland ; the pay of Belgian farm labour is
three times higher in the valley of the Meuse than in the
Campine, and twice as high as in Flanders ; it varies likewise
prodigiously in Grermany, even in adjoining districts. Whence
these diversities ? The reason, obviously, is that distinct and
dissimilar conditions determine wages in different parts of each
country. Mr. Cairnes urges : ' A rise of wages, let us suppose,
occurs in the coal trade : does anyone suppose that this could
continue without affecting wages, not merely in other mining
industries in full competition with coal mining, but in industries
the most remote from coal mining — industries alike higher and
lower in the industrial scale ? Most undoubtedly it could not.'

We answer, most undoubtedly it could, and actually did.
Wages rose continuously for a century in mining and other in-
dustries in some counties in England, while in others the earn-
ings of the agricultural labourer remained stationary through-
out the whole period. In 1850, Mr. Caird found the rate of
agricultural wages in one northern parish 16s. a week, in another
parish in the south only 6s. a week. In the former parish,
mines and manufactures competed with farming for labour ; in
the latter, the one employer was a farmer holding 5000 acres.
Would it be reasonable to say there was an average rate in the
two parishes of lis. a- week, resulting from the ratio of the
aggregate wages fund to the number of labourers in both ?
What share had the southern labourer in the funds from which
his fellow in the north earned his 16s. a- week ? In like manner
the funds expended in wages in the Rhine Province no more
govern the price of labour in Pomerania and Posen than in
Cornwall or Kent. A farm labourer in Flanders earns 1 fr.
50 c. a-day ; an inferior labourer in another part of Belgium
may earn 3 fr. 50 c. and upwards. Why ? Because the
Fleming no more shares in the funds which afford such high
wages around Charleroi and Liege than a provincial journalist
does in the funds from which the writers of the ' Times ' are
remunerated. Moreover, to speak of the ratio of an aggregate



Political Economy Netvly Expounded? 45

wages fund to the number of labourers as determining wages in
each country surely implies that the sum expendible in wages at
any given time is a fixed quantity ; and, accordingly, M.deLave-
leye remarks that one of many facts which give a practical refuta-
tion to the doctrine is that wages have recently risen in some parts
of Belgium at the expense of rent. The demand for labour in
manufactures on the one hand, and the novel attitude of the
Belgian farm labourer on the other, have compelled farmers in
certain districts to raise wages to a poiut at which farming has
become a losing business ; rents, therefore, are falliug. It was
seriously urged against trade-unions and combinations of
labourers in England a few years ago by some advocates of the
doctrine of the wages fund, that wages could not be raised by
combination in one trade or locality without a proportionate fall
of wages elsewhere, there being only a certain aggregate fund
to be distributed. Mr. Heath's statement, however, is incontro-
vertible, that the mere report of the formation of an agricultural
labourers' union in Warwickshire raised wages immediately
in several neighbouring counties, and it will hardly be con-
tended that there was a corresponding fall in other counties.

It is evident that the result has been mistaken for the cause;
that the aggregate amount of wages is nothing but the sum of
the particular amounts in all particular cases taken together ;
and that it would be as rational to say that the income of each
individual in the United Kingdom depends on the proportion
of the total national income to the number of individuals, as to
say that the wages of each labourer in every place and in every
occupation depend on the ratio of the sum total of wages to the
total number of labourers. The statistician may find some
interest in calculating the average rate resulting from the ratio
of the aggregate amount of wages, if it could be ascertained, to
the number of labourers in the kingdom; but the economist
deludes himself and misleads others by representing this as the
problem of wages. If farm wages be 10s. a- week in Devonshire,
and 20s. in Northumberland, to say that the average rate is 15s.
a-week is to speak of a rate which has no existence in either,
and to withdraw attention from the causes of the real rates in



40 Cairnes' ' Leading Principles of

both. In every country, instead of an average or common rate
of wages, there is a great number of different rates, and the real
problem is. What are the causes v^^hich produce these different
rates ? Hence we are driven to conclude that Mr. Cairnes is
not 'justified,' to use his own words, 'in generalizing the various
facts of wages into a single conception, and in discussing
" general " or " average wages." '

At this point we are brought to inquire whether there is any
better reason for maintaining the existence of an average rate
of profit. The doctrine of average profit is closely connected in
Mr. Cairnes' exposition with that of average wages. While
contending, erroneously as we have shown, for an equality of
wao-es throughout all similar occupations in the same country,
he admits that working classes of very different degrees of skill
do not compete, and may be paid at different rates for equal
sacrifice and exertion. But, he adds, 'though labourers in
certain departments of industry are practically cut off from
competition with labourers in other departments, the competition
of capitalists is effective over the whole field. The communica-
tion between the different sections of industrial life, which is not
kept open by the movements of labour, is effectually maintained
by the action of capital constantly moving towards the more
profitable employments. In this way our entire industrial
organization becomes a connected system, any change occurring
in any part of which will extend itself to others, and entail
complementary changes.'

In Mr. Cairnes' view, if wages were below par in any trade
or locality, although the labourers there might not be able to
migrate, a movement of capital seeking cheap labour would at
once set in. It might almost be a sufiicient refutation of this
doctrine, in relation both to wages and to profit, to point out
that no migration of capital has equalized the wages of agricul-
tural labourers in any country in Europe. What migration
there has been — and it has been altogether inadequate to produce
an approach to equality of wages — has been almost altogether
a migration of labour. Moreover, if in a single occupation so
simple as that of agricultural labour there has been no such



Political Economy Newly Expounded.'^ 47

effective competition as Mr. Cairnes assumes, there seems some
antecedent reason for suspecting error in the assumption of such
an effective competition among capitalists as to equalize the
rates of profit in all the countless employments of capital.
There is something like a circular movement in Mr. Cairnes'
reasoning on this subject. He first argues — 'Each competitor,
aiming at the largest reward in retui'n for his sacrifices, will he
drawn towards the occupations which happen at the time to be
the best remunerated ; while he will equally be repelled from
those in which the remuneration is below the average level.
The supply of products proceeding from the better paid employ-
ments will thus be increased, and that from the less remunera-
tive reduced, until supply, acting on price, corrects the inequality,
and brings remuneration into proportion with the sacrifices
undergone.'

But afterwards we read — ' The one and sufficient test of the
existence of an effective industrial competition is the corre-
spondence of remuneration with the sacrifices undergone — a
substantial equality, that is to say, making allowance for the
different circumstances of different industries, of profits and
wages. Such a test applied to domestic transactions shows the
existence of a very large amount of effective industrial competi-
tion throughout the various industries carried on witliin the
limits of a single country. The competition of different capitals
within such limits may be said to be universally effective.'

Is not this very like arguing that the equality of profits is
proved by the fact that there is an effective competition of
capital, and that the equality of profits proves the fact of an
effective competition? Nor is this the only seeming flaw in
Mr. Cairnes' logic. In proof of the equalization of profits, he
urges that capital deserts or avoids occupations which are known
to be comparatively unremunerative ; while if large profits are
known to be realized in any investment, there is a flow of capital
towards it. Hence it is inferred that capital finds its level like
water. But surely the movement of capital from losing to
highly profitable trades proves only a great inequality of profits.
There is, in like manner, a considerable emigration of labourers



48 Cairnes' ' Leading Princijjles of

from Europe to America : does that prove that wages are
equalized over the two continents? Let Mr. Cairnes himself
answer—' Great as has been the emigration from Europe to the
United States, it may be doubted if any appreciable efEect has^
been produced on the rates of wages in the latter country.
Throughout the Union, wages remain in all occupations very
considerably higher than in the corresponding occupations in
this country.'

Elsewhere he estimates American wages at twice the
English, and four times the German rate. The emigration
of labour, thus, is neither sign nor cause of an equality of
wages ; it is, on the contrary, consequence and proof of their
inequality; and the migration of capital from losing or un-
profitable to promising businesses, in like manner, only lands
those who refer to it in evidence of the equalization of profits
in an ignomtto eknchi. Mr. Cairnes, it seems clear, has not
taken into consideration the main objections to the doctrine he
espouses. The only objections he notices are the difficulty of
transferring buildings, plant, and material from one use to
another, and of learning a new branch of business. The fact
is, that there are, in the first place, no means whatever of
knowing the profits and prospects of all the occupations and
investments of capital. No capitalist knows so much as the
names, or even the number of the trades in the London Direc-
tory, only a part of the trades of the kingdom ; and their
number and names are yearly increasing. If, again, there
were any statistics showing the actual gains of the different
trades, they would show that the profits of the individual
members of each trade vary immensely.

The business of insurance used to be thought one in which
there was a certain general rate of profit. But a few years ago
the subject was investigated by Mr. Black, and also in the
' Economist,' and the result arrived at was the fact of ' extremes
of success and disaster in the experience of companies still
underwriting.' Mr. Cairnes' reasoning assumes that the profits
of every business are well known ; but as they vary greatly
with different companies and different individuals, the assump-



Political Economy Neivh] Expounded.'' 49

tion implies that individual profits are known. If they were,
it would be seen that to speak of the average profits, even of a
single business, is idle. Moreover, even if the past profits of
every individual in every trade were known, it would be a
serious error on the part of capitalists, though one which they
often commit, to judge of the future from the past. The changes
in production and the conditions of trades, in international
competition, and in prices, the effects of speculation, fluctuations
of credit, and commercial crises, of scarce and abundant seasons,
wars and other political events, new discoveries and inventions,
would upset all these calculations. Curiously enough, Mr.
Cairnes himself has maintained that the new gold mines intro-
duced a disturbing element which will probably affect profits
for thirty or forty years. Eicardo admitted that at the very
time he was building a pile of theory on the assumption of an
equality of profits, the return of peace had made them in fact
very unequal. Had he looked back for a quarter of a centm-^-,
he would have found abundant proof that they had been very
unequal throughout the long war ; and had he been able to
foresee the immediate future, he would have learned from the
crisis of 1825, which Mr. Tooke so well described, how blindly
mercantile men often reason, how far they are from possessing
the knowledge, sagacity, and prescience his theory supposed.
So far, indeed, are men in business from knowing the conditions
on which future prices and profits depend, that they are often
ignorant, after the event, of the causes of their own past profits
and losses. Not a single farmer or corn merchant, no witness
whatever before the parliamentary committees save himself,
Mr. Tooke states, dreamt of referring the high prices of corn in
the early part of this century to the succession of bad harvests.
It is not even true that losing businesses are always abandoned.
Hope springs eternal in the human breast, and it is an old
saying that all the mines in Cornwall are worked at a loss —
that is to say, the average result is a balance on the wrong side.
Mr. Mill, indeed, has reduced the supposed equality to one not
of actual profits, but of expectations of profit. There is not
however, even this : no capitalist ever attempts to survey the



50 Cairnes' ' Leading Frincijjles 6f

whole field, or to estimate the probable relative gains of everj
investment.

The doctrine of average profit, like that of average wages,
thus falls to the ground, and with it falls the superstructure
built on it, including Mr. Cairnes' doctrine of value. * The
indispensable condition,' he states, ' to the action of cost of
production is the existence of an effective competition amongst
those engaged in industrial pursuits ' — that is to say, a com-
petition which equalizes profits ; and we have seen that no such
competition is possible. If we are, in economic theory, to
exhaust space and time of their contents, and to suppose a
vacuum in which no obstacles to the movements of labour and
capital in pursuit of gain exist within the limits of each country,
so that wages and profits are equalized, why not apply the same
supposition to international trade and international values ?
We might, in like manner, theorise about wages, profit, prices,
and rent at the bottom of the ocean on the supposition of the
absence of water. The truth is — and it is a truth which Mr.
Cairnes has missed, though he has made an important step
towards it — that the principle regulating domestic as well as
international values is not cost of production, but ' the equation
of demand,' or ' demand and supply ;' though the formula is
one which requires much interpretation, and by no means
contains in its very terms the full explanation of values and
prices which many people suppose.

But more than the superstructure of economic theory built
on the doctrine of cost of production falls to the ground along
with it. The method of deduction from assumption, conjecture,
and premature generalization falls too. Mr. Cairnes speaks in
his preface of certain ' assumptions respecting human character
and the physical conditions of external nature,' as constituting
* the ultimate premisses of economic science ;' and of the ' method
of combined deduction and verification by comparison with
facts,' as ' the only fruitful or, indeed, possible method of
economic inquiry.' But is a theorist likely to be very searching
in his verification of assumptions on which he has built his
whole science and his own reputation ? Have the economists



Political Economy Neivhj Expounded.'' 51

of the deductive school ever verified their doctrines respecting
the equality of profits and of wages ? If they are at liberty to
set aside as ' disturbing causes,' all the obstacles to the pursuit
of gain resulting from other principles of human nature, and
from external circumstances, and to theorise respecting wages,
profits, and prices in vacuo, what right have they to assume the
existence of the love of gain itself in such an imaginary world ?
The only facts in human nature, we may add, which abstract
political economy takes account of are far indeed from being
ultimate facts, or from being susceptible of treatment in economic
reasoning as simple, universal, and invariable principles. Self-
interest and the desire of wealth are both names for a multitude



Online LibraryT. E. Cliffe (Thomas Edward Cliffe) LeslieEssays in political economy → online text (page 5 of 41)