and resources of the country, instead of diminishing, have given every sign of rapid increase during the process, and of greatly expanded dimensions after its close. This was confessedly the case with Great Britain during the last long Continental war; and it would take some space to enumerate all the unfounded theories in political economy, to which that fact gave rise, and to which it secured temporary credence; almost all tending to exalt unproductive expenditure, at the expense of productive. Without entering into all the causes which operated, and which commonly do operate, to prevent these extraordinary drafts on the productive resources of a country from being so much felt as it might seem reasonable to expect, we will suppose the most unfavourable case possible: that the whole amount borrowed and destroyed by the government, was abstracted by the lender from a productive employment in which it had actually been invested. The capital, therefore, of the country, is this year diminished by so much. But unless the amount abstracted is something enormous, there is no reason in the nature of the case

why next year the national capital should not be as great as ever. The loan cannot have been taken from that

portion of the capital of the country which consists of tools, machinery, and buildings. It must have been wholly drawn from the portion employed in paying labourers: and the labourers will suffer accordingly. But if none of them are starved; if their wages can bear such an amount of reduction, or if charity interposes between them and absolute destitution, there is no reason that their labour should produce less in the next year than in the year before. If they produce as much as usual, having been paid less by so many millions sterling, these millions are gained by their employers. The breach made in the capital of the country is thus instantly repaired, but repaired by the privations and often the real misery of the labouring class. Here is ample reason why such periods, even in the most unfavourable circumstances, may easily be times of great

gain to those whose prosperity usually passes, in the estimation of society, for national prosperity.*

This leads to the vexed question to which Dr. Chalmers has very particularly adverted; whether the funds required by a government for extraordinary unproductive expenditure, are best raised by loans, the interest only being provided by taxes, or whether taxes should be at once laid on to the whole amount; which is called in the financial vocabulary, raising the whole of the supplies within the year. Dr. Chalmers is strongly for the latter method. He says, the common notion is that in calling for the whole amount in one year, you require what is either impossible, or very inconvenient; that the people cannot, without great hardship, pay the whole at once out of their

bered that war abstracts from productive

*On the other hand, it must be remem

employment not only capital, but likewise labourers, that the funds withdrawn from the remuneration of productive labourers are partly employed in paying the same or other individuals for unproductive labour; and that by this portion of its effects, war expenditure acts in precisely the opposite manner to that which Dr. Chalmers points out, and, so far as it goes, directly counteracts the effects described in the text. So far as labourers are taken from production to man the army and navy, the labouring classes are not damaged, the capitalists are not benefited, and the general produce of the country is diminished by war expenditure. Accordingly, Dr. Chalmers's doctrine, though true of this country, is wholly inapplicable to countries differently circumstanced; to France, for example, during the Napoleon wars. At that period the draught

on the labouring population of France, for a long series of years, was enormous, while the funds which supported the war were mostly supplied by contributions levied on the countries overrun by the French arms,

a very small proportion alone consisting of French capital. In France, accordingly, the wages of labour did not fall, but rose; the employers of labour were not benefited, but injured; while the wealth of the country was impaired by the suspension or total loss of so vast an amount of its productive labour. In England all this was reversed. England employed comparatively few additional soldiers and sailors of her own, while she productive employment, to supply munitions of war and support armies for her Continental allies. Consequently, as shown in the text, her labourers suffered, her capitalists prospered, and her permanent productive resources did not fall off.

diverted hundreds of millions of capital from

yearly income; and that it is much better to require of them a small payment every year in the shape of interest, than so great a sacrifice once for all. To which his answer is, that the sacrifice is made equally in either case. Whatever is spent, cannot but be drawn from yearly income. The whole and every part of the wealth produced in the country, forms, or helps to form, the yearly income of somebody. The privation which it is supposed must result from taking the amount in the shape of taxes, is not avoided by taking it in a loan. The suffering is not averted, but only thrown upon the labouring classes, the least able, and who least ought, to bear it: while all the inconveniences, physical, moral, and political, produced by maintaining taxes for the perpetual payment of the interest, are incurred in pure loss. Whenever capital is withdrawn from production, or from the fund destined for production, to be lent to the State and expended unproductively, that whole sum is withheld from the labouring classes: the loan, therefore, is in truth paid off the same year; the whole of the sacrifice necessary for paying it off is actually made: only it is paid to the wrong persons, and therefore does not extinguish the claim; and paid by the very worst of taxes, a tax exclusively on the labouring class. And after having, in this most painful and unjust way, gone through the whole effort necessary for extinguishing the debt, the country remains charged with it, and with the payment of its interest in perpetuity.

These views appear to me strictly just, in so far as the value absorbed in loans would otherwise have been employed in productive industry within the country. The practical state of the case, however, seldom exactly corresponds with this supposition. The loans of the less wealthy countries are made chiefly with foreign capital, which would not, perhaps, have been brought in to be invested on any less security than that of the government: while those of rich and prosperous countries are generally made, not with funds withdrawn from productive employ

ment, but with the new accumulations constantly making from income, and often with a part of them which, if not so taken, would have migrated to colonies, or sought other investments abroad. In these cases (which will be more particularly examined hereafter*), the sum wanted may be ob tained by loan without detriment to the labourers, or derangement of the national industry, and even perhaps with advantage to both, in comparison with raising the amount by taxation; since taxes, especially when heavy, are al most always partly paid at the expense of what would otherwise have been saved and added to capital. Besides, in a country which makes so great yearly additions to its wealth that a part can be taken and expended unproductively without diminishing capital, or even preventing a considerable increase, it is evident that even if the whole of what is so taken would have become capital, and obtained employment in the country, the effect on the labouring classes is far less prejudicial, and the case against the loan system much less strong, than in the case first supposed. This brief anticipation of a discussion which will find its proper place elsewhere, appeared necessary to prevent false inferences from the premises previously laid down.

§ 9. We now pass to a fourth fundamental theorem respecting Capital, which is, perhaps, oftener overlooked or misconceived than even any of the foregoing. What supports and employs productive labour, is the capital expended in setting it to work, and not the demand of purchasers for the produce of the labour when completed. Demand for commodities is not demand for labour. The demand for commodities determines in what particular branch of production the labour and capital shall be employed; it determines the direction of the labour; but not the more or less of the labour itself, or of the maintenance or payment of the labour. These depend on the amount of the capital, or other funds

Infra, book iv. chaps. iv. v.

directly devoted to the sustenance and remuneration of labour.

Suppose, for instance, that there is a demand for velvet; a fund ready to be laid out in buying velvet, but no capital to establish the manufacture. It is of no consequence how great the demand may be; unless capital is at tracted into the occupation, there will be no velvet made, and consequently none bought; unless, indeed, the desire of the intending purchaser for it is so strong, that he employs part of the price he would have paid for it, in making advances to work-people, that they may employ themselves in making velvet; that is, unless he converts part of his income into capital, and invests that capital in the manufacture. Let us now reverse the hypothesis, and suppose that there is plenty of capital ready for making velvet, but no demand. Velvet will not be made; but there is no particular preference on the part of capital for making velvet. Manufacturers and their labourers do not produce for the pleasure of their customers, but for the supply of their own wants, and having still the capital and the labour which are the essentials of production, they can either produce something else which is in demand, or if there be no other demand, they themselves have one, and can produce the things which they want for their own consumption. So that the employment afforded to labour does not depend on the purchasers, but on the capital. I am, of course, not taking into consideration the effects of a sudden change. If the demand ceases unexpectedly, after the commodity to supply it is already produced, this introduces a different element into the question: the capital has actually been consumed in producing something which nobody wants or uses, and it has therefore perished, and the employment which it gave to labour is at an end, not because there is no longer a demand, but because there is no longer a capital. This case therefore does not test the principle. The proper test is, to suppose that the change is gradual and foreseen, and is attended with no waste of capital, the manufacture being dis

continued by merely not replacing the machinery as it wears out, and not reinvesting the money as it comes in from the sale of the produce. The capital is thus ready for a new employment, in which it will maintain as much labour as before. The manufacturer and his work-people lose the benefit of the skill and knowledge which they had acquired in the particular business, and which can only be partially of use to them in any other; and that is the amount of loss to the community by the change. But the labourers can still work, and the capital which previously employed them will, either in the same hands, or by being lent to others, employ either those labourers or an equivalent number in some other occupation.

This theorem, that to purchase produce is not to employ labour; that the demand for labour is constituted by the wages which precede the production, and not by the demand which may exist for the commodities resulting from the production; is a proposition which greatly needs all the illustration it can receive. It is, to common apprehension, a paradox; and even among political economists of reputation, I can hardly point to any, except Mr. Ricardo and M. Say, who have kept it constantly and steadily in view. Almost all others occasionally express themselves as if a person who buys commodities, the produce of labour, was an employer of labour, and created a demand for it as really, and in the same sense, as if he bought the labour itself directly, by the payment of wages. It is no wonder that political economy advances slowly, when such a question as this still remains open at its very threshold. I apprehend, that if by demand for labour be meant the demand by which wages are raised, or the number of labourers in employment increased, demand for commodities does not constitute demand for labour. I conceive that a person who buys commodities and consumes them himself, does no good to the labouring classes; and that it is only by what he abstains from consuming, and expends in direct payments to labourers in exchange for