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§ 6. To return to our fundamental | few ships and machines; and even theorem. Everything which is pro- these would not in most cases have duced is consumed; both what is saved survived so long, if fresh labour had and what is said to be spent; and the not been employed within that period former quite as rapidly as the latter. in putting them into repair. The land All the ordinary forms of language tend subsists, and the land is almost the to disguise this. When people talk of only thing that subsists. Everything the ancient wealth of a country, of which is produced perishes, and most riches inherited from ancestors, and things very quickly. Most kinds of similar expressions, the idea suggested capital are not fitted by their nature to is, that the riches so transmitted were be long preserved. There are a few, produced long ago, at the time when and but a few productions, capable of they are said to have been first ac- a very prolonged existence. Westquired, and that no portion of the minster Abbey has lasted many cencapital of the country was produced turies, with occasional repairs; some this year, except as much as may have Grecian sculptures have existed above been this year added to the total two thousand years; the Pyramids amount. The fact is far otherwise. perhaps double or treble that time. The greater part, in value, of the But these were objects devoted to unwealth now existing in England has productive use. If we except bridges been produced by human hands within and aqueducts (to which may in some the last twelve months. A very small countries be added tanks and embankproportion indeed of that large aggre- ments), there are few instances of any gate was in existence ten years ago; edifice applied to industrial purposes -of the present productive capital of which has been of great duration; the country scarcely any part, except such buildings do not hold out against farm-houses and manufactories, and a wear and tear, nor is it good economy

dividuals, 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 by 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 consequence forego 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 quantity of the article, a return increased by the whole of what the spendthrift 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.

to construct them of the solidity | knowledge which they had before, with necessary for permanency. Capital their land and its permanent improvekept in existence from age to age ments undestroyed, and the more durnot by preservation, but by perpetual able buildings probably unimpaired, or reproduction: every part of it is used only partially injured, they have nearly and destroyed, generally very soon after all the requisites for their former it is produced, but those who consume amount of production. If there is as it are employed meanwhile in produc- much of food left to them, or of valuing more. The growth of capital is ables to buy food, as enables them by similar to the growth of population. any amount of privation to remain Every individual who is born, dies, but alive and in working condition, they in each year the number born exceeds will in a short time have raised as the number who die: the population, great a produce, and acquired collectherefore, always increases, though not tively as great wealth and as great a one person of those composing it was capital, as before; by the mere contialive until a very recent date. nuance of that ordinary amount of exertion which they are accustomed to § 7. This perpetual consumption employ in their occupations. Nor does and reproduction of capital affords the this evince any strength in the princiexplanation of what has so often excited ple of saving, in the popular sense of wonder, the great rapidity with which the term, since what takes place is not countries recover from a state of devas-intentional abstinence, but involuntary tation; the disappearance, in a short privation. time, of all traces of the mischiefs done Yet so fatal is the habit of thinking by earthquakes, floods, hurricanes, and through the medium of only one set of the ravages of war. An enemy lays technical phrases, and so little reason waste a country by fire and sword, and have studious men to value themselves destroys or carries away nearly all the on being exempt from the very same moveable wealth existing in it: all the mental infirmities which beset the vulinhabitants are ruined, and yet in a gar, that this simple explanation was few years after, everything is much as never given (so far as I am aware) by it was before. This vis medicatrix any political economist before Dr. naturæ has been a subject of sterile Chalmers; a writer many of whose astonishment, or has been cited to ex- opinions I think erroneous, but who has emplify the wonderful strength of the always the merit of studying phenomena principle of saving, which can repair at first hand, and expressing them in a such enormous losses in so brief an in-language of his own, which often unterval. There is nothing at all won- covers aspects of the truth that the rederful in the matter. What the enemy ceived phraseologies only tend to hide. have destroyed, would have been destroyed in a little time by the inhabitants themselves: the wealth which they so rapidly reproduce, would have needed to be reproduced and would have been reproduced in any case, and probably in as short a time. Nothing is changed, except that during the reproduction they have not now the advantage of consuming what had been produced previously. The possibility of a rapid repair of their disasters, mainly depends on whether the country has been depopulated. If its effective population have not been extirpated at the time, and are not starved afterwards; then, with the same skill and

§ 8. The same author carries out this train of thought to some important conclusions on another closely connected subject, that of government loans for war purposes or other unproductive expenditure. These loans, being drawn from capital (in lieu of taxes, which would generally have been paid from income, and made up in part or altogether by increased economy) must, according to the principles we have laid down, tend to impoverish the country: yet the years in which expenditure of this sort has been on the greatest scale, have often been years of great apparent prosperity: the wealth

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 extraor dinary 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

* On the other hand, it must be remem

bered that war abstracts from productive 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 expendi ture. 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 diverted hundreds of millions of capital from

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.

yearly income; and that it is much | ment, but with the new accumulations better to require of them a small pay- constantly making from income, and ment every year in the shape of interest, often with a part of them which, if not than so great a sacrifice once for all. so taken, would have migrated to coloTo which his answer is, that the sacri- nies, or sought other investments fice is made equally in either case. abroad. In these cases (which will Whatever is spent, cannot but be be more particularly examined heredrawn from yearly income. The whole after*), the sum wanted may be ob and every part of the wealth produced tained by loan without detriment to the in the country, forms, or helps to form, labourers, or derangement of the nathe yearly income of somebody. The tional industry, and even perhaps with privation which it is supposed must advantage to both, in comparison with result from taking the amount in the raising the amount by taxation; since shape of taxes, is not avoided by taking taxes, especially when heavy, are alit in a loan. The suffering is not most always partly paid at the expense averted, but only thrown upon the of what would otherwise have been labouring classes, the least able, and saved and added to capital. Besides, who least ought, to bear it: while all in a country which makes so great the inconveniences, physical, moral, yearly additions to its wealth that a and political, produced by maintaining part can be taken and expended untaxes for the perpetual payment of the productively without diminishing capiinterest, are incurred in pure loss. tal, or even preventing a considerable Whenever capital is withdrawn from increase, it is evident that even if the production, or from the fund destined whole of what is so taken would have for production, to be lent to the State become capital, and obtained employand expended unproductively, that ment in the country, the effect on the whole sum is withheld from the labouring classes is far less prejudicial, labouring classes: the loan, therefore, and the case against the loan system is in truth paid off the same year; the much less strong, than in the case first whole of the sacrifice necessary for supposed. This brief anticipation of a paying it off is actually made: only it discussion which will find its proper is paid to the wrong persons, and place elsewhere, appeared necessary to therefore does not extinguish the claim; prevent false inferences from the preand paid by the very worst of taxes, a mises previously laid down. 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

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§ 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.

E

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.

Almost

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. 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

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