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ported to pay for the French silks. He forgets that the necessaries, conveniences, &c., of the British weavers are as much British commodities and employ as much industry to produce them as do the commodities which pay for the French silks in the other case. The only difference is, that in one case the British weavers are deprived of their support, and in the other case they are not. Everything else remains the same, except that the consumer may get the French silks a trifle cheaper, – a matter altogether too trivial to be compared with the national loss.

Professor Cairnes, in his book entitled “Some Leading Principles of Political Economy,” repeats this mistake, and props it up with the remark that if it be an error, “we seem to have made a mistake in repealing our protective laws; nor were protectionists, after all, so very wrong in seeking to encourage native industry by compelling expenditure towards domestic productions !” See part ii. chap. i., note at the end.

Mr. Mill makes use of the error to prop up the free-trade doctrine, and Professor Cairnes makes use of the free-trade doctrine to prop up the error.

Let us now examine another specimen of reasoning: the doctrine that a universal glut of all commodities is impossible, — not a permanent glut, but any glut. This doctrine makes a business man open his eyes wide with astonishment. They get at it in this way:

1st.“ Human desires are unlimited.
2d. “ Commodities are paid for by commodities.

3d. “He who has produced a commodity has therefore the means of purchasing the other commodity he desires. Double the number of products, and everybody would bring a double demand as well as supply. It is a sheer absurdity that all things should fall in value, and that all producers should, in consequence, be insufficiently remunerated.”

Thus says Mr. John Stuart Mill; and Professor J. E. Cairnes, in his work entitled " Some Leading Principles of Political Economy,” before alluded to, maintains that with regard to commodities, demand and supply, as general phenomena, as aggregates, cannot be discriminated. He says:

“ An article is produced and is offered in the market: it is now supply; but the possession of the article confers upon the owner a purchasing power, and this power being exercised, the article becomes a source of demand ; nor is there any other source from which demand can spring. Demand as an aggregate cannot increase without supply, nor supply without demand. This,” he says, “is fundamental in the theory of exchange ; and all assumptions to the contrary must be regarded as baseless and absurd.”

Now, every business man knows that the aggregate demand for commodities is sometimes greater and sometimes less; so much so, that the quantities in stock are sometimes greatly reduced and sometimes greatly increased, - even to the extent that is called a glut. What, then, has perplexed the abstract reasoners? The doctrine of value appears to be the culprit. The value of anything, they say, is what it will exchange for in other things ; it is a ratio ; and so, of course, it is absurd to say that all values can rise or all fall together. Hence Mr. Mill and Professor Cairnes maintain that the supply of commodities cannot outrun the demand. But it is just here, in applying to commodities the arguments applicable to values, that the reasoning breaks down, and is found to consist in changing the subject. That all values cannot rise or fall together may be perfectly true; but it does not follow that all commodities — the total annual product — may not rise or fall in exchangeable value; because the totality of commodities does not constitute the totality of values. Besides commodities, there are the rights to incomes, and the totality of fixed capital, the possession of which gives incomes. The annual product in the United States being taken at 6,000,000,000, those other values are estimated at 30,000,000,000; and, in fixing their minds upon commodities alone,, the eminent authors in question overlooked five-sixths of the values which the money power has constantly to measure. Let no one suppose that Messrs. Mill and Cairnes intended to include all these under the term “ commodities.” They meant to include nothing beyond the annual product, as would be abundantly evident if there were space to copy their arguments in extenso. They argued the case as if there existed

nothing besides commodities, and as if men had no desires for anything else, – overlooking that most pervasive and persistent instinct of man to increase his income or better his condition, of which Adam Smith remarks, “ that it comes with man when he issues from the womb, and continues with him until he enters the grave.”

Now, the action of this instinct sometimes causes an increased demand for commodities, and sometimes a great diminution and a glut. When many possessors of property yielding an income arrive at the conclusion that the country has outgrown its fixed capital, — that it needs more houses, farms, mills, forges, &c., — they can descend into the market, sell or pledge a portion of their bonds, shares, or other property, and proceed to the construction of new railroads, houses, cities, mills, forges, &c.; and this movement will involve the fuller employment of the community, a consequent diminution in the stocks of commodities, and an advance in their exchangeable value. It seems to be of the nature of such movements to run to excess, as each onward step causes a larger and larger demand and stimulates more and more to an increased production by making the earlier enterprises profitable ; but, finally, just as the most prudent give up looking for a crash, it comes. It suddenly reveals itself to the community that more fixed capital has been formed than can for the time being be profitably used. Then comes a violent reflux of opinion. Men rush into the belief that more has been done in that direction than the country will require for twenty years. Every new enterprise falls into discredit; the population which was engaged in converting floating into fixed capital, – that is, engaged in converting a portion of the annual product into instruments designed to increase the future product, — this portion of the population is dismissed into idleness, and is thereby forced to diminish enormously its demand for commodities ; and here we find ourselves face to face with a glut. The productive energies, which had adapted themselves to meet the effective demand of a fully employed community, find themselves in cxcess in presence of the diminished demand of a community only par

tially employed. There is over-production or under-consumption; and, as a necessary consequence, the exchangeable value of the whole annual product suffers a great diminution. Those who had been producing upon borrowed capital find themselves unable to meet their obligations; there are failures, panic, forced liquidations. The possessors of fixed capital next find their incomes diminished. They, for the time being, are no longer able to save; no longer able even to maintain their previous scale of expenditures. These are next diminished, with the effect of throwing more people out of employment, diminishing still farther the aggregate demand for commodities, and consequently their aggregate exchangeable value. Next, or coincidently, all instruments of production decline; the productive energies adapt themselves after a while to the new conditions ; a new scale of exchangeable values is evolved; a smaller gross annual product, involving a smaller average annual net individual income, issues, and the community gradually and slowly settles itself upon a lower level, from which in time to take a fresh start. To trace the steps of recovery, and see how a progressive community, after a number of years, works back to its former level and beyond it, might or might not be interesting, but would exceed the limits and go beyond the object of this paper, which in this portion is simply to show, not that gluts do occur, for this everybody knows, but that just reasoning ought to have anticipated them, - ought to have seen that in the present state of our knowledge they are inevitable and likely to be of considerable duration. The panic of 1873 was not entirely over before 1879.

The next specimen of abstract reasoning is the free-trade argument published by Adam Smith in 1775, and repeated in a somewhat modified form by Mr. J. S. Mill three quarters of a century later.

It will shorten the examination if we first establish one or two preliminary points.

Between 1860 and 1865 the Northern States supplied the government with commodities or money, which, directly or indirectly, was converted into commodities of the value of about $4,000,000,000 in currency, or say $3,000,000,000 gold value, in four years. The inducement was government bonds promising a continuous income. Suppose, now, that instead of government bonds issued to carry on a war, there had been offered to the community new industries promising to yield as great an income. It is evident that in the same time $3,000,000,000 would have been forthcoming for the development of those industries, — a sum greater than the whole fixed and floating capital employed in 1860 in the manufacturing and mechanical industries of the United States. The country, then, could have doubled those industries in four years. That the annual product of commodities does not increase with this rapidity is not, then, because of the inability to find capital, but because men do not discover mutual wants so rapidly. Perhaps more than one-third of the annual product falls to the share of those who desire to save rather than increase their annual consumption. They must be tempted to spend by the discovery of new products or new services, or by the gradual growth of a more liberal scale of living. Failing this, a portion of the annual product remains in stock, diminishing profits and holding in check the expansion of the known industries. This it is which limits the field of industry in a community still possessed of a vast amount of undeveloped resources. Industry, then, as a matter of fact, is not held in check by the want of capital, but by the want of a sufficiently profitable field of employment, and by the accumulated stocks of finished products and of materials awaiting conversion. The legitimate loans of banks of issue are made chiefly upon these ; and these loans in the United States, we all know, exceed $1,000,000,000.

Mr. Mill recognized that these stocks of goods were unemployed capital ; but, in spite of this, he, as well as Adam Smith, argues the free-trade question upon the assumption that, in a normal condition of things, every atom of the actual and potential capital of a country is and must be fully employed upon productive industry, so that anything taken for new industries must be taken or withheld from the old.

We come now to the argument of Adam Smith, contained

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