CHAPTER II: THE APOGEE AND DECLINE OF THE CLASSICAL SCHOOL. JOHN STUART MILL
While the French economists, alarmed at the consequences involved in the theories of Malthus and Ricardo, strove to transmute the Brazen laws into Golden ones, the English economists pursued their wonted tasks, never once troubled by the thought that they were possibly forging a weapon for their own destruction at the hands of socialists.
The thirty years which separate the publication of Ricardo’s Principles of Political Economy (1817) from Mill’s book bearing the same title are occupied by economists of the second rank, who apply themselves, not to the discovery of new principles, but to the development and co-ordination of those already formulated. Of course we must not lose sight of the mass of critical work bearing upon certain aspects of current doctrines, which was produced by English economists just about this time. But their ideas attracted as little attention as did Cournot’s in France or Gossen’s in Germany.[742]
These were the days when Miss Martineau and Mrs. Marcet gave expositions of political economy in the form of tales, or conversations with “young Caroline,”[743] when MacWickar, writing his First Lessons in Political Economy for the use of Elementary Schools, expressed the belief that the science was already complete. “The first principles of political economy,” he wrote, “are mere truisms which children might well understand, and which they ought to be taught. A hundred years ago only savants could fathom them. To-day they are the commonplaces of the nursery, and the only real difficulty is their too great simplicity.”[744]
We cannot attempt the individual study of all the economists of this period.[745] However, one of them, Nassau Senior,[746] certainly deserves more space than we can give him in this history, and is perhaps the best representative of the Classical school, showing its good and bad points better than any other writer. He removed from political economy every trace of system, every suggestion of social reform, every connection with a moral or conscious order, reducing it to a small number of essential, unchangeable principles. Four propositions seemed sufficient for this new Euclid,[747] all necessary corollaries being easily deducible from one or other of these. Senior’s ambition was to make an exact science of it, and he deserves to be remembered as one of the founders of pure economics.
He is responsible for the introduction into political economy of a new and hitherto neglected element, namely, an analysis of abstinence or saving. (The former word, which is Senior’s choice, is the more striking and precise term.) It is true enough, as Senior remarks, that abstinence does not create wealth, but it constitutes a title to wealth, because it involves sacrifice and pain just as labour does. Hitherto the income of capital had been the least defensible of all revenues, for Ricardo had only discussed it incidentally, and had represented it as a surplus left over after paying wages. The claim of capital was believed to be as evident as that of land or labour, and there was no need for any further inquiry. But has it any real right to separate remuneration, seeing that, unlike the other two agents, it is itself a product of those two and not an original factor of production? Here at last is its title, not in labour, but in abstinence.
But if on the one hand Senior succeeds in establishing the claim of interest, he invalidates the claim of most other capital revenues on the other. Let us follow his argument. Cost of production is made up of two elements, labour and abstinence, and wherever free competition obtains, the value of the products is reduced to this minimum. Where competition is imperfect, where there is a greater or less degree of monopoly, then between cost of production and value lies a margin which constitutes extra income for those who profit by it. This revenue by definition of labour and abstinence is independent of every sacrifice or personal effort. This revenue Senior calls rent, and his theory is thus a mere extension of the Ricardian. Rent is not the result of appropriating the better situated or the more fertile lands only. It may be due to the appropriation of some natural agent or to the possession of some personal quality such as the artiste’s voice or the surgeon’s skill,[748] or it may simply be the result of social causes or fortuitous circumstances. Senior shows that rent, far from being an exceptional phenomenon, is really quite normal. This kind of revenue which is wanting in title—drawn, but not earned—is extremely important, and absorbs a great share of the total wealth. Indeed, Senior goes much further, and states that whenever, as in the case of death, capital passes from the hands of those who have earned it into the possession of others, it immediately becomes rent. The inheritor cannot plead abstinence—the virtue is not transmissible, and he has no title to his fortune except just good luck.[749]
No revolutionary socialist could ever have invented a better argument for the abolition of the existing order. And how different from the “natural order”! But Senior is quite unmoved, and the superb indifference with which economists of the Ricardian school affirm their belief in their doctrines without taking any account of the consequences which might uphold or might destroy those very beliefs has a peculiar scientific fascination for us.
Also, it was Senior who laid stress upon scarcity as the basis of economic value. But a thing to possess value must be not merely rare, it must also satisfy some want. It must be a rare utility. It is the same term, “scarcity,” that was employed by Walras.
The Classical doctrines were taught during the first half of the nineteenth century, not in England alone, but in every country of the world. In Germany they were expounded by von Thünen, of whom we have already spoken, and by his contemporary Rau.[750] In France, despite the growing influence of the optimistic politico-liberal creed considered in our last chapter, English Classical economics was still taught by a large number of economists, among whom Rossi deserves special mention. His Cours d’Économie politique, published in 1840, enjoyed a fair success, due, not to any originality in the contribution itself, but to the somewhat oratorical style of the work.[751]
But to proceed to the central figure of this chapter—John Stuart Mill.[752] With him Classical economics may be said in some way to have attained its perfection, and with him begins its decay. The middle of the nineteenth century marks the crest of the wave. What makes his personality so attractive is his almost dramatic appearance, and the consciousness that he was placed between two schools, even between two worlds. To the one he was linked by the paternal ties which bound him to the Utilitarian school, wherein he was nurtured; the other beckoned him towards the new horizons that were already outlined by Saint-Simon and Auguste Comte. During the first half of his life he was a stern individualist; but the second found him inclined to socialism, though he still retained his faith in liberty. His writings are full of contradictions; of sudden, complete changes, such as the well-known volte-face on the wages question. Mill’s book exhibits the Classical doctrines in their final crystalline form, but already they were showing signs of dissolving in the new current.
Like other theorists of the “Pure” school, he declared that there was no room in political economy for the comparative judgment of the moralist, but it was he also who wrote: “If, therefore, the choice were to be made between communism with all its chances and the present state of society with all its sufferings and injustices; if the institution of private property necessarily carried with it as a consequence that the produce of labour should be apportioned as we now see it, almost in an inverse ratio to the labour—the largest portions to those who have never worked at all, the next largest to those whose work is almost nominal, and so in a descending scale, the remuneration dwindling as the work grows harder and more disagreeable, until the most fatiguing and exhausting bodily labour cannot count with certainty on being able to earn even the necessaries of life; if this or communism were the alternative, all the difficulties, great or small, of communism, would be but as dust in the balance.”[753]
It was Mill the utilitarian philosopher who declared that a person of strong conviction “is a social power equal to ninety-nine who have only interests.” It was he also who wrote that “competition may not be the best conceivable stimulus, but it is at present a necessary one, and no one can foresee the time when it will not be indispensable to progress.” But he also admits that “co-operation is the noblest ideal,” and that it “transforms human life from a conflict of classes struggling for opposite interests to a friendly rivalry in the pursuit of a good common to all.”[754]
Mill, it has been said, was simply a gifted popular writer. But this is to under-estimate his ability. It is true that, unlike Ricardo, Malthus, or Say, his name is not associated with any economic law, but he opened up a wider prospect for the science which will secure him a reputation long after the demise of these so-called laws. His fame is doubly assured, for in no other work on political economy, not excepting even the Wealth of Nations, are there so many pages of fine writing, so many unforgettable formulæ which will always be repeated by everyone who has to teach the science. It is not for nought that the Principles has served as a text-book for half a century in most of the English universities.
Before examining the changes in the Classical doctrines which Mill himself effected, we must give a brief outline of those theories as they appeared in all their inflexible majesty towards the middle of the nineteenth century, during the period between the publication of the Principles and the death of John Stuart Mill, between 1848 and 1873. This was the period when the Classical Liberal school believed that its two old rivals, Protectionism and socialism, were definitely crushed. Reybaud, in his article on socialism in the Dictionnaire d’Économie politique of 1852, wrote as follows: “To speak of socialism to-day is to deliver a funeral oration.” Protection had just been vanquished in the struggle that led to the repeal of the English Corn Laws, and was to suffer a further check, alike in France and in the other countries of Europe, as a result of the treaties of 1860. The future lay with the Classics. It was little thought that 1867 would witness the publication of Kapital, that in 1872 the Congress of Eisenach would reassemble, when the treaties of 1860 would be publicly denounced.
Let us profit by its hour of glorious existence to give an exposition of the doctrines which it taught. The treatment must necessarily be very summary, seeing that we are not writing a treatise on political economy, and that our attention must be confined to writers who are definitively members of the Liberal school.
I: THE FUNDAMENTAL LAWS
A belief in natural laws was always an article of faith with the Classical school. Without some such postulate it seemed to them that no collection of truths, however well attested, could ever lay claim to the title of science. But these natural laws had none of that “providential,” “finalistic,” and “normative” character so frequently dwelt upon by the Physiocrats[755] and the Optimists. They are simply natural laws like those of the physical order, and are clearly non-moral. They may prove useful or they may be harmful, and men must adapt themselves to them as best they can. To say that political economy is a “dismal science” because it shows that certain laws may have unfortunate results is as absurd as it would be to call physics a “dismal science” because lightning kills.
Far from being irreconcilable with individual liberty, these laws are among its direct results. They are the spontaneous links which bind together all free men. Freedom is always subject to conditions. Men are not free in the matter of eating or not eating, and if they would eat they must cultivate the soil. Freedom is limited not only by the actions of other human beings, but also by the laws of the physical world which surrounds us.
These laws are universal and permanent, for the elementary needs of mankind are always and everywhere the same. Economics is in quest of such permanent laws, and has no concern with the merely temporary. It is only by seeking the more general and consequently the more nearly universal laws that economics can apprehend truth or hope to become a science. It must study man, not men—the type, not the individual—the homo œconomicus stripped of every attribute except self-interest. It does not deny the existence of other qualities, but merely relegates them to the consideration of other sciences.
It now remains to see what those natural laws were.
(1) The Law of Self-interest. This law has since been named the Hedonistic principle—a term that was never employed by the Classical school. Every individual desires well-being, and so would be possessed of wealth. Similarly he would, if possible, avoid evil and escape effort. This is a simple psychological law. Could anything be more universal or permanent than this law, which is simply the most natural and the most rational (using the term in its Physiocratic sense) statement of the law of self-preservation? In virtue of this fundamental principle the Classical school is frequently known as the Individualist school.
But individualism need imply neither egoism nor egotism. This confusion, which is repeatedly made with a view to discrediting the Classical writers, is simply futile. No one has displayed greater vigour in protesting against this method of treating individualism than Stuart Mill. To say that a person is seeking his own good is not to imply that he desires the failure of others. Individualism does not exclude sympathy,[756] and a normal individual feels it a source of gratification whenever he can give pleasure to others.
But this did not prevent Ricardo and Malthus showing the numerous instances in which individual interests conflict, where it is necessary that one interest should be sacrificed to another. And Mill, far from denying the existence of these conflicts, has taken special pains to emphasise them. The Classical writers, together with the Optimists, reply that such contradictions are apparent only, and that beneath these appearances there is harmony; or they point out that these antinomies are due to the fact that both individualism and liberty are only imperfectly realised, and as yet not even completely understood, but that as soon as they are securely established the evils which they have momentarily created will be finally healed.[757] Liberty is like Achilles’ lance, healing the wounds it inflicts. Other individualists, such as Herbert Spencer, declare that the conflict of individual interests is not merely advantageous to the general interests of society, but is the very condition of progress, weeding out the incapable to make room for the fittest.
(2) The Law of Free Competition. Admitting that each individual is the best judge of his own interests, then it is clearly the wisest plan to let everyone choose his own path. Individualism presupposes liberty, and the Individualist school is also known as the Liberal school. This second title is more exact than the first, and is the only one which the French school will accept. It emphatically repudiates every other, whether Individualist, Orthodox, or Classical.[758]
The English school is equally decisive in its preference for “Liberalism.” The terms “Manchesterism” and “Manchesterthum” have also been employed, especially by German critics, in describing this feature of their teaching.
But the Classical school itself thought of laissez-faire neither as a dogma nor a scientific axiom. It was treated merely as a practical rule which it was wise to follow, not in every case, but wherever a better had not been discovered. Those who act upon it, in Stuart Mill’s opinion, are nearer the truth nineteen times out of twenty than those who deny it.[759] This practical Liberalism is intended to apply to every aspect of economic life, and their programme includes liberty to choose one’s employment, free competition, free trade beyond as well as within the frontiers of a single country, free banks, and a competitive rate of interest; and on the negative side it implies resistance to all State intervention wherever the necessity for it cannot be clearly demonstrated, as in the case of protective or parental legislation.
In the opinion of Classical writers, free competition was the sovereign natural law. It was sufficient for all things. It secured cheapness for the consumer, and stimulated progress generally because of the rivalry which it aroused among producers. Justice was assured for all, and equality attained, for the constant pursuit of profits merely resulted in reducing them to the level of cost of production. The Dictionnaire d’Économie politique of 1852, which may perhaps be considered as the code of Classic political economy, expressed the opinion that competition is to the industrial world what the sun is to the physical. And Stuart Mill himself, the author of Liberty, no longer distinguishing between economic and political liberty, in less poetic but equally conclusive terms states that “every restriction of competition is an evil,” but that “every extension of it is always an ultimate good.”[760] On this point he was a stern opponent of socialism, although in other respects it possessed many attractions for him. “I utterly dissent,” says he, “from the most conspicuous and vehement part of their teaching, their declamations against competition.”
But the Classical school, despite its glorification of free competition, never had any intention of justifying the present régime. The complaints urged against it on this score, like the similar charge of egoism, are based upon a misconception. On the contrary, the Classics, both new and old, complain of the imperfect character of competition. Senior had already pointed out what an enormous place monopoly still holds in the present régime. A régime of absolutely free competition is as much a dream as socialism, and it is as unjust to judge competition by the vices of the existing order as it would be to judge of collectivism by what occurred in the State arsenals.
(3) The Law of Population also held an honourable place among Classical doctrines, so honourable, indeed, that even the Optimists never dared contradict it. And of all economists Mill seems most obsessed by it.[761] In his dread of its dire consequences he surpasses Malthus himself. And he reveals a far greater regard for moral considerations than was ever shown by the latter. Mill was already a Neo-Malthusian in the respect which he felt for the rights and liberty of women, which are too seldom consulted when maternity is forced upon them.[762] A numerous family appeared to him as vicious and almost as disgusting as drunkenness.[763] Time and again he declares that the working classes can hope for no amelioration of their lot unless they check the growth of population. One reason for his favourable view of peasant proprietorship is the restraint which it exercises upon the birth-rate. “The rate of increase of the French population is the slowest in Europe,” he writes, and this result he thought very encouraging.
To exorcise this terrible demon he would even sacrifice the principle of liberty which everywhere else he is at so much pains to defend. He was prepared to support a law to prohibit the marriage of indigents,[764] a proposal to which Malthus was absolutely opposed. His plea for this measure of restraint is expounded, not in the Principles, but in another of his works entitled Liberty. It is, of course, possible that Liberty may owe something to the collaboration of Mrs. Stuart Mill.
(4) The Law of Demand and Supply—the law that determines the value of products and of productive services, such as labour, land, and capital—is usually stated in the following terms: Price varies directly with demand, inversely with supply. One of the most important contributions which Mill made to the science was to show that this apparently mathematically precise formula was merely a vicious circle. If it be true that demand and supply cause a variation of price, it is equally true that price causes a variation of demand and supply. Mill corrects the dictum by saying that price is fixed at a margin where the quantity offered is equal to the quantity demanded. All price variations move about this point, just as the beam of a balance oscillates about a point of equilibrium.[765] He thus gave to the law of demand and supply a scientific precision which it formerly lacked, and by substituting the conception of equilibrium for the causal relation he introduced a new principle into economics which was destined to lead to some important modifications.
The law of demand and supply explains the variations of value, but fails to illuminate the conception of value itself. A more fundamental cause must be sought, which can be found in cost of production. Under a régime of free competition the fluctuations in value tend toward this fixed point, just as “the sea tends to a level; but it never is at one exact level.”[766]
A temporary, unstable value dependent upon the variations of demand and supply, a permanent, natural, or normal value regulated by cost of production, such was the Classical law of value. Mill was entirely satisfied with it, as will be seen from the following phrase, which seems rather strange, coming from such a cautious philosopher. “Happily,” says he, “there is nothing in the laws of value which remains for the present or any future writer to clear up; the theory of the subject is complete.”[767]
The law which regulates the value of goods applies also to the value of money. Money also has a temporary value, determined by the quantity in circulation and the demand for it for exchange purposes—the celebrated quantity theory. But it also has a natural value, determined by the cost of production of the precious metals.
(5) The Law of Wages. A similar law determined wages—the price of hand-labour. Here again is a double law. Temporary wages depend upon demand and supply—understanding by supply the quantity of capital available for the upkeep of the workers, the wages fund, and by demand the number of workers in search of employment.[768] This law was more familiarly expressed by Cobden when he said that wages rose whenever two masters ran after the same man, and fell whenever two men ran after the same master.
Natural or subsistence wages in the long run are determined by the cost of production of labour—by the cost of rearing the worker. The oscillations of temporary wages always tend to a position of equilibrium about this point.
This “brazen law,” as Lassalle calls it, well deserves its title. According to it wages depend entirely upon causes extraneous to the worker, and bear no relation either to his need or to the character of his work or his willingness to perform it. He is at the mercy of a fatalistic law, and is as helpless to influence his market as a bale of cotton. And not only is the law independent of him, but no intervention, legal or otherwise, no institution, no system, can alter this state of things without influencing one or other of the two terms of the equation, the quantity of capital employed as wages—the wage fund—or the numbers of the working population in search of work. “Every plan of amelioration which is not founded upon this principle is quite illusory.” Only by encouraging the growth of capital by means of saving, or by discouraging the growth of population and restraining the sexual instinct, can the terms of the equation be favourably modified. Upon final analysis there are only two chances of safety for the workers, and of these the first is beyond their power,[769] while the second means the condemnation to celibacy or onanism of all proletarians, as they are ironically called.
And thus Mill, who formulated the law with greater rigour than any of his predecessors, found himself alarmed at its consequences. He was specially impressed by the courageous but impotent efforts of trade unionism, then at the beginning of its career. Mill and the economists of the Liberal school were as strongly in favour of the removal of the Combination Laws as they were persistent in their demands for the repeal of the Corn Laws; but of what use was the right of association and combination when a higher law frustrated every attempt to raise wages? Just at this time Longe, writing in 1866, and Thornton, in his volume on Labour, began to question the validity of the wage fund theory. They experienced no difficulty in converting John Stuart Mill, who followed with his famous recantation in the pages of the Fortnightly. His defection caused a remarkable stir, and was thought almost an offence against the sacred traditions of the Classical school. The conversion was not quite complete, however, for the last edition of the Principles still contains the passages we have already quoted, as well as others equally discouraging to the working classes, and equally fatal to the hopes which they had reasonably placed in their own efforts.[770]
The wage fund theory, though badly shaken as a result of Mill’s defection, was not abandoned by all the Classical writers, and some recent American publications have attempted a revival of it.[771]
(6) The Law of Rent. The law of competition tends to reduce the selling price until it is equal to the cost of production. But suppose, as is often the case, that there are two costs of production, which of the two will determine the price? The higher will be the determinant, and so there exists a margin for all similar products whose cost of production is less. Ricardo showed that this was the case with agricultural products as well as with certain manufactured goods.[772] Mill included personal ability, and though the conception of rent was thus very considerably extended, it had not the scope which it had with Senior.
(7) The Law of International Exchange. According to the Liberal economists Ricardo and Dunoyer (see [p. 346]), international trade is subject to the laws regulating individual exchange, and the results in the two cases are almost identical, namely, a saving of labour to both parties. One party exchanges a product which has cost fifteen hours’ labour for another which, had an attempt been made to produce it directly, would have involved a labour of twenty hours. The gain is credited to the importing side, for exportation is merely the means whereby it is obtained. Its measure is the excess of the imported value over the value exported.
It is clear that each party gains by the transaction. It is not quite clear, nor is it altogether probable, that the advantages are equally distributed. But it is generally believed that if any inequality does exist the greater gain goes to the poorer country—to the one that is less gifted by nature or less fitted for industrial life. The latter country by very definition would experience great difficulty in attempting the direct production of the imported goods, and would even, perhaps, find it quite impossible. On this point the English Classical or the Manchester school is in complete agreement with the French school.[773]
It might possibly be pointed out that under a régime of free competition all values would be reduced to the level of cost of production, and products would be exchanged in such a fashion that a given quantity of labour embodied in one commodity would always exchange for an equal quantity embodied in any other. But in such a case where would be the advantage of exchanging? Ricardo had already anticipated this objection, and had shown that if the rule of equal quantity in exchange for equal quantity were true of exchange between individuals, it did not hold of exchange between different countries, for the equalising action of competition no longer operated, because of the difficulty of moving capital and labour from one to the other. A comparison should be made, not of the respective costs of the same product in the two countries, but of the respective costs of the imported and the exported products in the same country. Another buttress to strengthen the theory which measures the advantages of international commerce by the amount of labour economised![774]
But the value of the exchanged product is still undetermined. It lies somewhere between the real cost of production of the goods exported and the virtual cost of production of the goods imported, in such a way that each country gains something. That is all we are able to say. Mill has gone a step farther. He has abandoned the comparison of costs of production, which is purely abstract, and can afford no practical measure of the advantages, preferring to measure the value of the imported product by the value of the product which must be given in exchange for it.[775] We require to find the causes that enable a country like England to obtain a greater or a lesser quantity of wine in exchange for her coal. In other words, the law of international values no longer involves a comparison of costs of production, but is simply the law of demand and supply. The prices of the two goods arrange themselves in such a fashion that the quantities demanded by the respective countries exactly balance. If there is a greater demand for coal in France than there is for wine in England, England will obtain a great quantity of wine in exchange for her coal, and will consequently find herself in a very advantageous position.
Mill’s theory[776] constitutes a real advance as compared with Ricardo’s, for it affords a means of gauging the strength of the foreign demand, and of judging of the circumstances favourable to a good bargain. Mill was of the opinion that a poor country stood to benefit most by the transaction—thus confirming Bastiat’s belief. A rich country will always have to pay more for its goods than a poor one.[777]
Protectionists affect the opposite belief, holding that it is the poor country that is duped. The English trade with Portugal is one of their favourite illustrations. But it is simply an illustration, and it can never take the place of actual proof.
Notwithstanding these divergent views, Mill is more sympathetic to the Protectionists than any other economist of the Liberal school. His theory provides them with at least one excellent argument. Seeing that the advantages of international commerce depend upon demand and supply, a country may make it operate to its own advantage by merely pursuing a different policy. New industries might be developed whenever there is a considerable demand for new products, and that demand might easily be so considerable that the price would be lowered.[778] Mill recognises the justice of merely temporary protection, set up with a view to naturalising a new industry, and considers it logically deducible from his principles.[779]
Although Mill may in this way have done something to lighten the task of the Protectionists, we must never forget that he himself remained an entirely faithful adherent of the Free Trade doctrine and, except in the case of infant industries, vigorously denounced all protective rights. “All is sheer loss.… They prevent the economy of labour and capital, thereby annihilating a general gain to the world which would be shared in some proportion between itself and other countries.”[780]
The Free Trade doctrine has not remained where it was any more than the other special doctrines of the Classical school. It gave birth to one of the most powerful movements in economic history, which led to the famous law of June 25, 1846, abolishing import duty on corn. This law was followed by others, and ended in the complete removal of all tariff barriers. But the eloquence of Cobden, of Bright, and of others was necessary before it was accomplished. A national Anti-Corn League had to be organised, no less than ten Parliamentary defeats had to be endured, the allegiance of Peel and the approval of the Duke of Wellington had to be secured before they were removed. All this even might have proved futile but for the poor harvest of 1845. This glorious campaign did more for the triumph of the Liberal economic school and for the dissemination of its ideas than all the learned demonstrations of the masters. Fourteen years were still to elapse before Cobden and Michel Chevalier were able to sign the treaty of 1860. Even this was due to a personal act of Napoleon III, and Cobden was not far wrong when he declared that nine-tenths of the French nation was opposed to it.
II: MILL’S INDIVIDUALIST-SOCIALIST PROGRAMME
Such were the doctrines taught by the Classical school about the middle of the nineteenth century. The writers in question, however, strongly objected to the term “school,” believing that they themselves were the sole guardians of the sacred truth. And we must admit that their doctrines are admirably interwoven, and present an attractive appearance. On the other hand, it must be confessed that the prospects which they hold out for anyone not a member of the landowning class are far from attractive. For the labourer there is promise of daily toil and bare existence, and at best a wage determined by the quantity of capital or the numbers of the population—causes which are clearly beyond the workers’ influence, and even beyond the assuaging influence of association and combination. And although the latter rights are generously claimed for the workers, the occasional antagonism between masters and men presages the eternal conflict between profits and wages. The possession of land is a passport to the enjoyment of monopolistic privileges, which the right of free exchange can only modify very slightly. Rent—the resultant of all life’s favourable chances—reserved for those who need it least, monopolises a growing proportion of the national revenue. Intervention for the benefit of the worker, whether undertaken by the State or by some other body, is pushed aside as unworthy of the dignity of labour and harmful to its true interests. “Each for himself” is set up as a principle of social action, in the vain hope that it would be spontaneously transformed into the principle of “Each for all.” The search for truth was the dominant interest of the school, and these doctrines were preached, not for the pleasure they yielded, but as the dicta of exact science. Little wonder that men were prepared to fight before they would recognise these as demonstrable truths. And just as it was Mill who so powerfully helped to consolidate and complete the science of economics that Cossa refers to his Principles as the best résumé, the fullest, most complete and most exact exposition of the doctrines of the Classical school that we have,[781] it was Mill also who, in successive editions of his book, and in his other and later writings, pointed out the new vistas opening before the science, freed the doctrine from many errors to which it was attached and set its feet on the paths of Liberal Socialism.
We might say without any suggestion of bias that Mill’s evolution was largely influenced by French ideas.[782] A singularly interesting volume might be written in illustration of this statement. Without referring to the influence of Comte, which Mill was never tired of recognising, and confining our attention only to economics, he has himself acknowledged his debt to the Saint-Simonians for the greater part of his doctrines of heredity and unearned increment, to Sismondi for his sympathy with peasant proprietorship, and to the socialists of 1848 for his faith in co-operative association as a substitute for the wage nexus.
It would hardly be true to say that Mill became a convert to socialism, although he showed himself anxious to defend it against every undeserved attack. To those who credit socialism with a desire to destroy personal initiative or to undermine individual liberty he disdainfully points out that “a factory operative has less personal interest in his work than a member of a communist association, since he is not, like him, working for a partnership of which he is himself a member,” and that “the restraints of communism would be freedom in comparison with the present condition of the majority of the human race.”[783] And although he expresses the belief that “communism would even now be practicable among the élite of mankind, and may become so among the rest,” and hopes that one day education, habit, and culture will so alter the character of mankind that digging and weaving for one’s country will be considered as patriotic as to fight for it,[784] still he was far from being a socialist. Free competition, he thought, was an absolute necessity, and there could be no interference with the essential rights of the individual.
The first blow which he dealt at the Classical school was to challenge its belief in the universality and permanence of natural law. He never took up the extreme position of the Marxian and Historical schools, which held that the so-called natural laws were merely attempts at describing the social relations which may exist at certain periods in economic history, but which change their character as time goes on. He draws a distinction between the laws which obtain in the realm of production and those that regulate distribution. Only in the one case can we speak of “natural” laws; in the other they are artificial—created by men—and capable of being changed, should men desire it.[785] Contrary to the opinion of the Classical school, he tries to show that wages, profits, and rent are not determined by immutable laws against which the will of man can never prevail.
The door was thus open for social reform, which was no small triumph. Of course it cannot be said of the Classical school, or even of the Optimists, that they were prepared to deny the possibility or the efficacy of every measure of social reform, but it must be admitted that they were loath to encourage anything beyond private effort, or to advocate the abolition of any but the older laws. Braun, speaking at a conference of Liberal economists at Mayence in 1869, expressed the opinion that “that conference had given rise to much opposition because it upheld the principle that human legislation can never change the eternal laws of nature, which alone regulate every economic action.” Similar declarations abound in the French works of the period. But, thanks to the distinction drawn by Mill, all this was changed. Though the legislator be helpless to modify the laws of production, he is all-powerful in the realm of distribution, which is the real battle-ground of economics.
But, as a matter of fact, Mill’s distinction is open to criticism, especially his method of stating it; and we feel that he is unjust to himself when he regards this as his most important and most original contribution to economic science. Production and distribution cannot be treated as two separate spheres, for the one invariably involves the other. And Mill himself is forced to abandon his own thesis when he advocates the establishment of co-operative associations or peasant proprietorship, for each of these belongs as much to the domain of production as to that of distribution. Rodbertus, at almost the same period, gave a much truer expression to Mill’s thought by emphasising the distinction which exists between economic and legal ties.[786] Even these may mutually involve one another; still we know that the economic laws which regulate exchange value or determine the magnitude of industrial enterprise are not of the same kind as the rules of law which regulate the transfer of property or lay down the lines of procedure for persons bound by agreement concerning wages, interest, or rent. The first may well be designated natural laws, but the latter are the work of a legislative authority.
Stuart Mill, not content with merely opening the door to reform, deliberately enters in, and, in striking contrast to the economists of the older school, outlines a comprehensive programme of social policy, which he formulates thus:[787] “How to unite the greatest individual liberty of action, with a common ownership in the raw material of the globe, and an equal participation of all in the benefits of combined labour.”
We may summarise his proposals as follows:
(1) Abolition of the wage system and the substitution of a co-operative association of producers.
(2) The socialisation of rent by means of a tax on land.
(3) Lessening of the inequalities of wealth by restrictions on the rights of inheritance.
This threefold measure of reform possesses all the desiderata laid down by Mill. Moreover, it does not conflict with the individualistic principle, but would somewhat strengthen it. It involves no personal constraint, but tends to extend the bounds of individual freedom.
Let us briefly review these projects seriatim.
(1) Mill thought that the wages régime was detrimental to individuality because it deprived man of all interest in the product of his labour, with the result that a vast majority of mankind is living under conditions which socialism could not possibly make much worse.
It is necessary to replace this condition of things by “a form of association which, if mankind continue to improve, must be expected in the end to predominate, and is not that which can exist between a capitalist as chief and workpeople without a voice in the management, but the association of the labourers themselves on terms of equality, collectively owning the capital with which they carry on their operations, and working under managers elected and removable by themselves.”[788] This noble ideal of a co-operative community was borrowed, not from Owen, but from the French socialists. Mill had already eulogised the French movement, even before its brilliant but ephemeral triumph in 1848. He was not the only one to be attracted by the idea of a co-operative community, for the English Christian Socialists drew their inspiration from the same source.
Mill lived long enough to witness the decline of co-operative production in England, and of the Co-operative Consumers’ Union in France, but neither failure seems to have had any influence upon his projects.[789] Whatever the method might be, the object in his ideal was always the same, the self-emancipation of the workers.
(2) The rent of land, which Ricardo and his disciples accepted as a natural if not as a necessary phenomenon, appeared to Mill as an abnormal fact which was as detrimental to individuality as the wage system itself. Its peculiar danger was, of course, not quite the same. What rent did was to secure to certain individuals something which was not the result of their own efforts, whereas individualism always aimed at securing for everyone the fruits of his own labour—suum cuique. On the principle of giving to each what each produced, everything not directly produced by man himself was to be restored to the community. It is immaterial whether this extra product is due to the collaboration of nature, as Smith and the Physiocrats believed, or whether it is the result of the pressure of population, as Ricardo and Malthus thought, or the mere result of chance and favourable circumstance, as Senior put it. Nothing could be easier than to levy a land tax which would gradually absorb rent, and which could be periodically increased as rents advanced. The idea was a brilliant one, and Mill had learned it from his father. It soon became the rallying-cry of a new school of economists closely akin to the socialists.
The movement begot of this idea of confiscation deserves the fuller treatment which will be found in another chapter of this work.
Meanwhile, and until the larger and more revolutionary reform becomes practical, Mill would welcome a modest instalment of emancipation in the shape of peasant proprietorship. Like the co-operative ideal, this also was of French extraction. Admiration of the French peasant had been a fashionable cult in England ever since the days of Arthur Young.[790] Mill thought that among the principal advantages of peasant proprietorship would be a lessening of the injustice of rent, because its benefits would be more widely distributed. The feeling of independence would check the deterioration of the wage-earner, individual initiative would be encouraged, the intelligence of the cultivator developed, and the growth of population checked.
Mill inspired a regard for the frugal French peasantry in the English Radical party. To his influence are due the various Small Holdings Acts which have resulted in the establishment of small islets of peasant tillers amid the vast territories of the English aristocracy.
(3) Mill was equally shocked at our antiquated inheritance law, which permits people to possess wealth which they have never helped to produce. To Senior inheritance ranked with the inequality of rent, and he placed both in the same category. To Mill it appeared to be not merely antagonistic to individual liberty, but a source of danger to free competition, because it placed competitors in positions of unequal advantage. In this matter Mill was under the influence of the Saint-Simonians, and he made no attempt to hide his contempt for the “accident of birth.”
This right of bequest, he felt, was a very difficult problem, for the right of free disposal of one’s property even after death constituted one of the most glorious attributes of individuality. It implied a kind of survival or persistence of the human will. Mill showed considerable ingenuity in extricating himself from this difficult position. He would respect the right of the proprietor to dispose of his goods, but would limit the right of inheritance by making it illegal to inherit more than a certain sum. The testator would still enjoy the right of bequeathing his property as he wished, but no one who already possessed a certain amount of wealth could inherit it. Of all the solutions of this problem that have been proposed, Mill’s is the most socialistic. He puts it forward, however, not as a definite project, but as a mere suggestion.[791]
Mill might well have been given a place among the Pessimists, especially as he inherits their tendency to see the darker side of things. Not only did the law of population fill him with terror, but the law of diminishing returns seemed to him the most important proposition in the whole of economic science; and all his works abound with melancholy reflections upon the futility of progress. There is, for instance, the frequently quoted “It is questionable if all the mechanical inventions yet made have lightened the day’s toil of any human being.”[792] In his vision of the future of society he prophesies that the river of human life will eventually be lost in the sea of stagnation.
It is worth while dwelling for a moment on this idea of a stationary state. Though the conception is an old one, it is very characteristic of Mill’s work, and he feels himself forced to the belief that only by reverting to the stationary state can we hope for a solution of the social question.
Economists, especially Ricardo, had insisted upon the tendency of profits to a minimum as a correlative of the law of diminishing returns. This tendency, it was believed, would continue until profits had wholly disappeared and the formation of new capital was arrested.[793] Mill took up the theory where Ricardo had left it, and arrived at the conclusion that industry would thus be brought to a standstill, seeing that the magnitude of industry is dependent upon the amount of available capital. Population must then become stationary, and all economic movement must cease. Though alarmed at the economic significance of this prospect, Mill acquiesced in its ethical import. On the whole he thinks that such a state would be a very considerable improvement on our present condition. With economic activity brought to a standstill the current of human life would simply change its course and turn to other fields.[794] The decay of Mammon-worship and the thirst for wealth would simply mean an opportunity for pursuing worthier objects. He hoped that the arrest of economic progress would result in a real moral advance, and in the appeasement of human desires he looked for a solution and for the final disappearance of the social problem. And as far as we can see the reformers of to-day have nothing better to offer us.
III: MILL’S SUCCESSORS
Mill’s influence was universal, though, properly speaking, he had no disciples. This was, no doubt, partly because writers like Toynbee, who would naturally have become disciples, were already enrolled in the service of the Historical school.
The Classical school failed to follow his socialistic lead. It still preached the old doctrines, but with waning authority, and no new work was produced which is at all comparable with the works which we have already studied. We will mention a few of the later writings, however, for, though belonging to the second class, they are in some respects excellent.
In the first place we have several books written by Cairnes,[795] notably Some Leading Principles of Political Economy (1874). Cairnes is generally regarded as a disciple of Mill, though as a matter of fact he was nothing of the kind. Cairnes was purely Classic, and shared the Classical preference for the deductive method, which he thought the only method for political economy. His preference for that method sometimes resulted in his abusing it, and he was curiously indifferent to all social iniquities. He accepted laissez-faire, not as the basis of a scientific doctrine, but simply as a safe and practical rule of conduct.[796] The old wage fund theory has in him a champion who attempted to defend it against Stuart Mill. It cannot be said that he made any new contribution to the science, unless we except his teaching concerning competition. He pointed out that competition has not the general scope that is usually attributed to it. It only obtains between individuals placed in exactly similar circumstances. In other words, it operates within small areas, and is inoperative as between one area and another. This theory of non-competing groups helps to throw some light upon the persistent inequality shown by wages and profits.
In France the most prominent representative of political economy during the Second Empire was Michel Chevalier, a disciple of Saint-Simon. He nevertheless remained faithful to the Classical tradition of Say and Rossi,[797] his predecessors at the Collège de France. He waged battle with the socialists of 1848, made war upon Protection, and had the good fortune to be victorious in both cases, sharing with Cobden the honour of being a signatory to the famous commercial treaty of 1860. He realised the important place that railways would some day occupy in national economy, and the great possibilities of an engineering feat like the Suez Canal. He was also alive to the importance of credit institutions, which were only at the commencement of their useful career just then.[798] Although connected with the Liberal school, he was not indifferent to the teaching of the Saint-Simonians on the importance of the authority and functions of the State, and he impressed upon the Government the necessity of paying attention to labour questions—a matter to which Napoleon III was naturally somewhat averse. Every subject which he handles is given scholarly and eloquent treatment.
About the same time Courcelle-Seneuil published a treatise on political economy which was for a long time regarded as a standard work. Seneuil was a champion of pure science—or “plutology,” as he called it, in order to distinguish it from applied science, to which he gave the name “ergonomy.” For a long time he was regarded as a kind of pontiff, and the pages of the Journal des Économistes bear evidence of the chastisement which he bestowed upon any of the younger writers who tried to shake off his authority. This was the time when Maurice Block was meting out the same treatment to the new German school in those bitterly critical articles which appeared in the same journal.
It is to be regretted that we cannot credit France with the Précis de la Science économique et de ses Principales Applications, which appeared in 1862. Cherbuliez, the author, was a Swiss, and was professor first at Geneva and then at Zurich. Cossa, in his Histoire, speaks of it as “undoubtedly the best treatise on the subject published in France,” and as being “possibly superior even to Stuart Mill’s.” Cherbuliez belonged to the Classical school. He was opposed to socialism, and wrote pamphlets à la Bastiat in support of Liberal doctrines and the deductive method. But, like the Mills before him, and Walras, Spencer, Laveleye, Henry George, and many others who came after, he found it hard to reconcile private property with the individualistic doctrine, “To each the product of his labour.” He reconciles himself to this position merely because he thinks that it is possibly a lesser evil than collective property.
The Liberal school had still a few adherents in Germany, although a serious rival was soon to make its appearance. Prince Smith (of English extraction) undertook the defence of Free Trade, pointing out “the absurdity of regarding it as a social question,” and “how much more absurd it is to think that it can ever be solved other than by the logic of facts.” Less a doctrinaire than a reformer, Schulze-Delitzsch, about 1850, inaugurated that movement which, notwithstanding the gibes of Lassalle, has made magnificent progress, and to-day includes thousands of credit societies; though up to the present it has not benefited anyone beyond the lower middle classes—the small shopkeeper, the well-to-do artisan, and the peasant proprietor.