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as efficient as the vast accumulations of great capitalists. The aggregate thus formed is made to do its full part in supplying the lungs of industry, keeping it alive and active, and maldng all the parts of the body politic and social contribute to the sustenance and growth of the whole. The twenty-three millions in the Savings' Banks, and the fifty-seven millions of capital in the banks of deposit and circulation, (I speak only of Massachusetts,*) do not rest there, but are at this moment circulating around us, — driving the wheels of our factories, supplying our mechanics with tools and our tradesmen with goods, building and freighting our ships, bringing to us the productions of all habitable climes, hurrying from one task to another with indefatigable ardor, and assuming a thousand different forms and hues, according to our necessities and desires.
"Whatever a person saves from his revenue," says Adam Smith, "he adds to his capital, and either employs it himself in maintaining an additional number of productive hands, or enables some other person to do so, by lending it to him for an interest, that is, for a share of the profits." "What is annually saved is as regularly consumed as what is annually spent, and nearly in the same time too; but it is consumed by a different set of people. That portion of his jevenue which a rich man annually spends is, in most cases, consumed by idle guests and menial servants, who leave nothing behind them in return for their consumption. That portion which he annually saves, as, for the sake of the profit, it is immediately employed as a capital, is consumed in the same manner, and nearly in the same time too, but by a different set of people; by laborers, manufacturers, and artificers, who reproduce, with a profit, the value of their annual consumption."
* The rapid increase of capital in Massachusetts, as indicated by the Bank Returns, deserves notice. The statistics to illustrate the passage in the text were first collected in 1850; and then, the amount lodged in the Savings' Banks was only about thirteen millions, and the aggregate capital in the banks of deposit and circulation was but thirty-seven millions. Hence, in five years, the savings of people of moderate means have increased seventy-seven per cent, and bank capital has received an addition of fifty-four per cent.
THE AIMS AND ADVANTAGES OF POLITICAL ECONOMY. 13
THE AIMS, THE LIMITATIONS, AND THE ADVANTAGES OF THE STUDY OF POLITICAL ECONOMY: THE "LAISSEZ-FAIRE," OR "LET-ALONE" PRINCIPLE.
We are now entitled to assume, that the theory of wealth is a large and complicated one, embracing many curious and difficult problems, and resting upon many general principles or laws, the discovery and development of which constitute a distinct and important science. One of these laws or general facts — the transmutations of capital — has been pointed out and briefly elucidated. And we perceive that it is a fruitful one, pregnant with important conclusions and inferences respecting the institution of property and the modes of favoring industry and increasing national wealth. If the science has been successfully cultivated, many more such general laws must have been discovered in it, a knowledge of which is all important to the statesman, the merchant, and the philanthropist. As Political Economy is expounded in the books, whether by Adam Smith, RAcardo, Sismondi, or Mill, it may, or may not, be well founded and trustworthy in all its parts. Authorities differ on many points. But these men have not been studying a mere chimera, or wasting their energies in a vain pursuit. There are general laws affecting the production and distribution of wealth, whether they have been discovered or not, and a knowledge of these laws is a very different thing from the practical knowledge, the acquaintance with details, and the natural shrewdness, which enable a man to acquire property, and to take good care of it when acquired.
And this leads me to remark, that Political Economy is not, as many suppose, the art of money-making, any more than meteorology is the art of predicting the weather. It is no art at all, but a science; for its immediate end is knowledge, not action, or the guidance of conduct. The meteorologist says that the phenomena of the atmosphere and the weather, irregular as they are in their occurrence, and obscure as to their immediate causes, must depend on the general principles of gravity and the equilibrium of fluids, and must be referable to general laws, which are legitimate objects of investigation. He may have studied these laws successfully, and still not be so able as an old sea-captain is, who never opened a book on meteorology in his life, to tell what the weather will be the next hour or the next day. It is a point of as much interest and importance to know how a storm occurs, as to know when it will occur. So, after one of those storms in the commercial world which are known as "commercial crises," we may reasonably seek an explanation of the phenomenon, or the cause of its occurrence, though this knowledge should not enable us to tell when another and similar disturbance will happen.
The general principles of any science are obtained only by abstraction, — by leaving out of view many of the details and particulars which actually belong to the case, and thus so far simplifying it that we can reason about it with facility. The conclusions at which we arrive by this process are very comprehensive, but do not admit of immediate application. They are true only with certain qualifications and restrictions. They are involved in all the phenomena to which they relate, and have a share in producing them; but they do not determine the whole of these phenomena.
Political Economy, Mr. Mill remarks, is a deductive science, so far as it reasons from assumptions, not from facts. "It supposes an arbitrary definition of a man, as a being who invariably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labor and physical self-denial with which
they can be obtained in the existing state of knowledge
It predicts only such of the phenomena of the social state as take place in consequence of the pursuit of wealth. It makes entire abstraction of every other human passion or motive, except those which may be regarded as perpetually antagonizing principles to the desire of wealth, — namely, aversion to labor, and desire of the present enjoyment of costly indulgences. These it takes, to a certain extent, into its calculations, because these do not merely, like other desires, occasionally conflict with the pursuit of wealth, but accompany it always, as a drag or impediment, and are therefore inseparably mixed up in the consideration of it. Political Economy considers mankind as occupied solely in acquiring and consuming wealth; and aims at showing what is the course of action into which mankind, living in a state of society, would be impelled, if that motive, except in the degree in which it is checked by the two perpetual counter-motives above adverted to, were absolute ruler of all their actions. Not that any one was ever so absurd as to suppose that mankind are really thus constituted, but because this is the mode in which the science must proceed.
"Political Economy, therefore, reasons from assumed premises, — from premises which might be totally without foundation in fact, and which are not pretended to be universally in accordance with it. The conclusions of Political Economy, consequently, like those of Geometry, are only true, as the common phrase is, in the abstract; that is, they are only true under certain suppositions, in which none but general causes — causes common to the whole class of cases under consideration — are taken into the account In proportion as
the actual facts recede from the hypothesis, the Political Economist must allow a corresponding deviation from the strict letter of his conclusion; otherwise, it will be true only of things such as he has arbitrarily supposed, not of such things as really exist. That which is true in the abstract is always true in the concrete, with proper alloivances. "When a certain cause really exists, and, if left to itself, would infallibly produce a certain effect, that same effect, modified by all the other concurrent causes, will correctly correspond to the result really produced." *
All legislation which is designed to affect the economical interests of society, or which relates immediately to its commerce, agriculture, or manufactures, is in truth an application of the principles of some system of Political Economy to practice, be that system a wise or a mistaken one. It is often a very injurious application of them, because the circumstances which actually limit the principles are lost sight of, and the abstractions by which they were obtained are forgotten. Mischief results; and " practical men," seeing that the consequent ces do not square with the theory, call in question the science itself, instead of attributing the error to the faulty application of it. Hence arises an unhappy dissension between theory and practice, to the lasting detriment of both.
* Mill's Essays on some Unsettled Questions of Political Economy, pp. 137 - 145.
The Political Economists themselves are somewhat to blame for this result, by pressing too eagerly for the reduction of their favorite doctrines to practice, without regard to the particular circumstances of each case. The general doctrine of Free Trade, for instance, which may be correct when applied to two nations which are similarly situated in every respect, which have grown up under the same institutions and the same laws, and in which the profits of capital, the wages of labor, and the ratio of population to territory are nearly on a level, is extended by a hasty generalization to two countries that are contrasted with each other in all these respects, and in its application to which, to say the least, the correctness of the principle is very doubtful. We have in this country the largest extension of the system of free trade which the world has ever witnessed; we have free trade between Maine and Louisiana, between California and Massachusetts; and no one doubts that the system is equally beneficial to all these States. But before the system is carried out between England and the United States, we may reasonably inquire whether it will not necessarily tend to an equalization of profits and wages in the two countries, and whether it is desirable here to hasten the operation of the causes which are rapidly reducing the rates of both to the English standard. This subject will be considered hereafter; but I may say here, that the question does not relate to the correctness of the general principle in economical science, but only to its applicability under particular circumstances. That all terrestrial bodies gravitate to the centre of the earth, is a general law, which is not disproved by the floating of a cork in a basin of water.
Another prejudice against Political Economy has arisen from an error of an opposite character; ■— from too strict a limitation of it to the causes affecting the increase of national wealth, the other interests of a people being undervalued or left out of sight. The English Economists of Eicardo's school have most frequently fallen into this error; looking merely to the creation of material values, they have tacitly assumed that