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dwelt upon, being one of those which it is exceedingly easy to assent, to when presented in general terms, but somewhat difficult to keep fast hold of, in the crowd and confusion of the actual facts of society. It is also very much opposed to common doctrines. There is not an opinion more general among mankind than this, that the unproductive expenditure of the rich is necessary to the employment of the poor. Before Adam Smith, the doctrine had hardly been questioned; and even since his time, authors of the highest name and of great merito have contended, that if consumers were to save and convert into capital more than a limited portion of their income, and were not to devote to unproductive consumption an amount of means bearing a certain ratio to the capital of the country, the extra accumulation would be merely so much waste, since there would be no market for the commodities which the capital so created would produce. I conceive this to be one of the many errors arising in political economy, from the practice of not beginning with the examination of simple cases, but rushing at once into the complexity of concrete phenomena. Every one can see that if a benevolent government possessed all the food, and all the implements and materials, of the community, it could exact productive labour from all capable of it, to whom it allowed a share in the food, and could be in no danger of wanting a field for the employment of this productive labour, since as long as there was a single want unsaturated (which material objects could supply), of any one individual, the labour of the community could be turned to the production of something capable of satisfying that want. Now, the individual pos. sessors of capital, when they add to it by fresh accumulations, are doing precisely the same thing which we suppose to be done by a benevolent government. As it is allowable to put any case by way of hypothesis, let us imagine the most extreme case conceivable. Suppose that every capitalist * For example, Mr. Malthus, Dr. Chalmers, M. de Sismondi,
came to be of opinion that not being more meritorious than a well-conducted labourer, he ought not tofare better; and accordingly laid by, from conscientious motives, the surplus of his profits; or suppose this abstinence not spontaneous, but imposed by law or opinion upon all capitalists, and upon landowners likewise. Unproductive exenditure is now reduced to its lowest imit: and it is asked, how is the increased capital to find employment? Who is to buy the goods which it will produce 2 There are no longer customers even for those which were produced before. The goods, therefore, (it is said) will remain unsold; they will perish in the warehouses; until capital is brought down to what it was originally, or rather to as much less, as the demand of the consumers has lessened. But this is seeing only onehalf of the matter. In the case supposed, there would no longer be any demand for luxuries, on the part of capitalists and landowners. . But when these classes turn their income into capital, they do not thereby annihilate their power of consumption; they do but transfer it from themselves to the labourers to whom they give employment. Now, there are two possible suppositions in regard to the labourers; either there is, or there is not, an increase of their numbers, proportional to the increase of capital. If there is, the case offers no difficulty. The production of necessaries for the new population, takes the place of the production of luxuries for a portion of the old, and supplies exactly the amount of employment which has been lost. But suppose that there is no increase of population. The whole of what was previously expended in luxuries, by capitalists and landlords, is distributed among the existin labourers, in the form of additiona wages. We will assume them to be already sufficiently supplied with necessaries. What follows? That the labourers become consumers of luxuries; and the capital previously employed in the production of luxuries, is still able to employ itself in the same manner: the difference being, that the juxuries are shared among the comamunity generally, instead of being confined to a few. The increased accumulation and increased production might, rigorously speaking, continue, until every labourer had every indulgence of wealth, consistent with continuing to work; supposing that the power of their labour were physically sufficient to produce all this amount of indulgences for their whole number. Thus the limit of wealth is never deficiency of consumers, but of producers and productive power. , , Every, addition to capital gives to labour either additional employment, or additional remuneration; enriches either the country, or the labouring class. If it finds additional hands to set to work, it increases the aggregate produce: if only the same hands, it gives them a larger share of it; and perhaps even in this case, by stimulating them to greater exertion, augments the produce itself.
§4. A second fundamental theorem respecting Capital, relates to the source from which it is derived. It is the result of saving. The evidence of this Iies abundantly in what has been already said on the subject. But the proposition needs some further illustration.
If all persons were to expend in perSonal indulgences all that they produce, and all the income they receive from what is produced by others, capital could not increase. All capital, with a trifling exception, was originally, the result of saving. I say, with a trifling exception; because a person who labours on his own account, may spend on his own account all he produces, without becoming destitute; and the provision of necessaries on which he subsists until he has reaped his harvest, or sold his commodity, though a real capital, cannot be said to have been saved, since it is all used for the supply of his own wants, and perhaps as speedily as if it had been consumed in idleness. We may imagine a number of individuals or families settled on as many separate pieces of land, each living on what their own labour produces, and consuming the whole pro
duce. But even these must wave (that is, spare from their personal consum tion) as much as is necessary for ". Some saving, therefore, there must have been, even in this simplest of all states of economical relations; people must have produced more than they used, or used H. than they produced. Still more must they do so before they can employ other labourers, or increase their production beyond what can be accomplished by the work of their own hands. All that any one employs in supporting and carrying on any other labour than his own, must have been originally brought together by saving; somebody must have produced it and forborne to consume it. We may say, therefore, without material inaccuracy, that all capital, and especially all addition to capital, are the result of saving. In a rude and violent state of society, it continually happens that the person who has capital is not the very person who has saved it, but some one who, being stronger, or belonging to a more owerful community, has possessed É. of it by plunder. And even in a state of things in which property was protected, the increase P capital has usually been, for a long time, mainly derived from privations which, though essentially the same with saving, are not generally called by that name, because not voluntary. The actual producers have been slaves, compelled to produce as much as force could extort from them, and to consume as little as the self-interest or the usually very slender humanity of their taskmasters would permit. This kind of compulsory saving, however, would not have caused any increase of capital, unless a part of the amount had been saved over again, voluntarily, by the master. If all that he made his slaves produce and forbear to consume, had been consumed by him on personal indulgences, he would not have increased his capital, nor been enabled to maintain an increasing number of slaves. To maintain any slaves at all, implied a previous saving; a stock, at least of food, provided in advance. This saving may not, however, have been made by any self-imposed privation of the master; but more probably by that of the slaves themselves while free; the rapine or war, which deprived them of their personal liberty, having transferred also their accumulations to the conqueror. There are other cases in which the term saving, with the associations usually belonging to it, does not exactly fit the operation by which capital is increased. If it were said, for instance, that the only way to accelerate the increase of capital is by increase of saving, the idea would probably be suggested of greater abstinence, and increased privation. But it is obvious that whatever increases the productive power of labour, creates an additional fund to trake savings from, and enables capital to be enlarged not only without additional privation, but concurrently with an increase of personal consumption. Nevertheless, there is here an increase of saving, in the scientific sense. Though there is more consumed, there is also more spared. There is a greater excess of production over consumption. It is consistent with correctness to call this a greater saving. Though the term is not unobjectionable, there is no other which is not liable to as great objections. To consume less than is produced, is saving; and that is the process by which capital is increased; not necessarily by consuming less, absolutely. We must not allow ourselves to be so much the slaves of words, as to be unable to use the word saving in this sense, without being in danger of forgetting that to increase capital there is another way besides consuming less, namely, to produce more,
§ 5. A third fundamental theorem respecting Capital, closely connected with the one last discussed, is, that although saved, and the result of saving, it is nevertheless consumed. The word saving does not imply that what is saved is not consumed, nor even necessarily that its consumption is deferred; but only that, if consumed immediately, it is not consumed by the o who saves it. If merely laid y for future use, it is said to be hoarded; and while hoarded, is not consumed at all. But if employed as
capital, it is all consumed; though not by the capitalist. Part is exchanged for tools or machinery, which are worn out by use: part for seed or materials, which are destroyed as such by being sown or wrought up, and destroyed altogether by the consumption of the ultimate product. The remainder is paid in wages to productive labourers, who consume it for their daily wants; or if they in their turn save any part, this also is not, generally speaking, hoarded, but (through savings banks, benefit clubs, or some other channel) re-employed as capital, and consumed. The principle now stated is a strong example of the necessity of attention to the most elementary truths of our subject: for it is one of the most elementary of them all, and yet no one who has not bestowed some thought on the matter is habitually aware of it, and most are not even willing to admit it when first stated. To the vulgar, it is not at all apparent that what is saved is consumed. To them, every one who saves, appears in the light of a person who hoards; they may think such conduct permissible, or even laudable, when it is to provide for a family, and the like ; but they have no conception of it as doing good to other people: saving is to them another word for keeping a thing to oneself; while spending appears to them to be distributing it among others. The person who expends his fortune in unproductive consumption, is looked upon as diffusing benefits all around; and is an object of so much favour, that some portion of the same popularity attaches even to him who spends what does not belong to him; who not only destroys his own capital, if he ever had any, but, under pretence of borrowing, and on promise of repayment, possesses himself of capital belonging to others, and destroys that likewise. This popular error comes from attending to a small portion only of the consequences that flow from the saving or the spending; all the effects of either which are out of sight, being out of mind. The eye follows what is saved, int n imaginary strong box, and there loses sight of it; what is spent, it fol.
lows into the hands of tradespeople and dependents; but without reaching the ultimate destination in either case. Saving (for productive investment), and spending, coincide very closely in the first stage of their operations. The effects of both begin with consumption; with the destruction of a certain portion of wealth; only the things consumed, and the persons consuming, are different. There is, in the one case, a wearing out of tools, a destruction of material, and a quantity of food and clothing supplied to labourers, which they destroy by use; In the other case, there is a consumption, that is to say, a destruction, of wines, equipages, and furniture. Thus far, the consequence to the national wealth has been much the same ; an equivalent quantity of it has been destroyed in both cases. But in the spending, this first stage is also the final stage; that particular amount of the produce of labour has disappeared, and there is nothing left; while, on the contrary, the saving person, during the whole time that the destruction was going on, has had labourers at work repairing it; who are ultimately found to have replaced, with an increase, the equivalent of what has been consumed. And as this operation admits of being repeated indefinitely without any fresh act of saving, a saving once made becomes a fund to maintain a corresponding number of labourers in perpetuity, reproducing annually their own maintenance with a profit. It is the intervention of money which obscures, to an unpractised apprehenbion, the true character of these phenoamena. Almost all expenditure being carried on by means of money, the money comes to be looked upon as the main feature in the transaction; and since that does not perish, but only changes hands, people overlook the destruction which takes place in the case of unproductive expenditure. The money being merely transferred, they think the wealth also has only been handed cver from the spendthrift to other people. But this is simply confounding money with wealth. The wealth which has been destroyed was not the money, but the wines, equipages,
and furniture which the money pur. chased; and these having been destroyed without return, society collectively is poorer by the amount. It may be said, perhaps, that wines, equipages, and furniture, are not subsistence, tools, and materials, and could not in any case have been applied to the support of labour; that they are adapted for no other than unproductive consumption, and that the detriment to the wealth of the community was when they were produced, not when they were consumed. I am willing to allow this, as far as is necessary i. the argument, and the remark would be very pertinent if these expensive luxuries were drawn from an existing stock, never to be replenished. But since, on the contrary, they continue to be produced as long as there are consumers for them, and are produced in increased quantity to meet an increased demand; the choice made by a consumer to expend five thousand a year in luxuries, keeps a corresponding number of labourers employed from year to year in producing things which can be of no use to production; their services being lost so far as regards the increase of the national wealth, and the tools, materials, and food which they annually consume being so much subtracted from the general stock of the community applicable to productive purposes. In proportion as any class is improvident or luxurious, the industry of the country takes the direction of producing luxuries for their use; while not only the employment for productivelabourers is diminished, but the subsistence and instruments which are the means of such employment do actually exist in smaller quantity. Saving, in short, enriches, and spending impoverishes, the community along with the individual; which is but saying in other words, that society at large is richer by what it expends in maintaining and aiding productive labour, but poorer by what it consumes in its enjoyments.” * It is worth while to direct attention to several circumstances which to a certain ex§ 6. To return to our fundamental theorem. Everything which is produced is consumed; both what is saved and what is said to be spent; and the former quite as rapidly as the latter. All the ordinary forms of language tend to disguise this. When people talk of the ancient wealth of a country, of riches inherited from ancestors, and similar expressions, the idea suggested is, that the riches so transmitted were produced long ago, at the time when they are said to have been first acquired, and that no portion of the capital of the country was produced this year, except as much as may have been this year added to the total amount. The fact is far otherwise. The greater part, in value, of the wealth now existing in England has been produced by human hands within the last twelve months. A very small proportion indeed of that large aggregate was in existence ten years ago; —of the present productive capital of the country scarcely any part, except farm-houses and manufactories, and a
tent diminish the detriment caused to the general wealth by the prodigality of individuals, or raise up a compensation, more or less ample, as a consequence of the detriment itself. One of these is that spendthrifts do not usually succeed in consuming all they spend. Their habitual carelessness as to expenditure causes them to be cheated and robbed on all quarters, often by persons of frugal habits. Large accumulations are continually made by the agents, stewards, and even domestic servants, of improvident persons of fortune; and they pay much higher prices for all purchases than people of careful habits, which accounts for their being popular as customers. They are, therefore, actually not able to get into their possession and destroy a quantity of wealth i. any means equivalent to the fortune which they dissipate. Much of it is merely transferred to others, by whom a part may be saved. Another thing to be observed is, that the prodigality of some may reduce others to a forced economy. Suppose a sudden demand for some article of luxury, caused by the caprice of a prodigal, which not having been calculated on beforehand, there has been no increase of the usual supply. The price will rise; and may rise beyond the means or the inclinations of some of the habitual consumers, who may in consequenceforego their accustomed indulgence, and save the amount. If they do not, but continue to spend as great a value as before on the commodity, the dealers in it obtain, for only the same quartity of the article, a return increased by the whole of what the
few ships and machines; and even these would not in most cases have survived so long, if fresh labour had not been employed within that period in putting them into repair. The land subsists, and the land is almost the only thing that subsists. Everythirg which is produced perishes, and most things very quickly. Most kinds of capital are not j by their nature to be long preserved. #. are a few, and but a few productions, capable of a very Fo existence. Westminster Abbey has lasted many centuries, with occasional repairs; some Grecian sculptures have existed above two thousand years; the Pyramids perhaps double or treble that time. But these were objects devoted to unproductive use. If we except bridges and aqueducts (to which may in some countries be added tanks and embankments), there are few instances of any edifice applied to industrial purposes which has been of great duration; such buildings do not hold out against wear and tear, nor is it good economy
pendthrift has paid; and thus the amount
which he loses is transferred bodily to them, and may be added to their capital : his increased personal consumption being made up by the privations of the other purchasers, who have obtained less than usual of their accustomed gratification for the same equivalent. On the other hand, a counter-process must be going on somewhere, since the prodigal must have diminished his purchases in some other quarter to balance the augmentation in this; he has perhaps called in funds employed in sustaining productive labour, and the dealers in subsistence and in the instruments of production have had commodities left on their hands, or have received, for the usual amount of commodities, a less than usual return. But such losses of income or capital, by industrious persons, except when of extraordinary amount, are generally made up by increased pinching and privation; so that the capital of the coinmunity may not be, on the whole, impaired, and the prodigal may have had his selfindulgence at the expense not of the permanent resources, but of the temporary pleasures and comforts of others. For in every case the community are poorer by what any one spends, unless others are in consequence led to curtail their spending. There are yet other and more recondite ways in which the profusion of some may bring about its compensation in the extra savings of others; but these can only be considered in that part of the Fourth Book, which treats of the limiting principle to the accumulation of capital.