This criticism was levelled not only at Ricardo and McCulloch, but it also included J. B. Say within its purview, for Say had treated political economy as an exposition of a few general principles. It also prepared the way for that conception of political economy upon the discovery of which the German Historical school so prided itself at a later date. Sismondi, himself an historian and a publicist interested in immediate reforms, could not fail to see quite clearly the effects that social institutions and political organisation were bound to have upon economic prosperity. A good illustration of his method is furnished by his treatment of the probable effects of a complete abolition of the English Corn Laws. The question, he remarks, could not be decided by theoretical arguments alone without taking some account of the various methods of cultivating the soil. A country of tenant farmers such as England would find it difficult to meet the competition of feudal countries such as Poland or Russia, where corn only costs the proprietor “a few hundred lashes judiciously bestowed upon the peasants.”[380]
Sismondi’s conception of economic method is incontestably just so long as the economist confines himself to the discussion of practical problems or attempts to gauge the probable effects of a particular legislative reform or is unravelling the causes of a particular event. But should the economist wish to picture to himself the general aspect of the economic world, he cannot afford to neglect the abstract method, and Sismondi himself was forced to have recourse to it. It is true that he used it with considerable awkwardness, and his failure to construct or to discuss abstract theories perhaps explains his preference for the other method. At any rate it does partly explain the keen opposition which his book aroused among the partisans of what he was the first to call by the happy title of the “Orthodox” school.
But to imagine anything more confused than the reasonings by which he attempts to demonstrate the possibility of a general crisis of over-production is difficult.[381] For his point of departure he takes the distinction between the annual revenue and the annual production of a country. According to him the revenue of one year pays for the production of the following.[382] Accordingly, if the production of any one year exceeds the revenue of the previous year a portion of the produce will remain unsold and producers will be ruined. Sismondi reasons as if the nation were composed of agriculturists who buy the manufactured goods they need with the revenue received from the sale of the present year’s crop. Consequently if manufactured products are superabundant, the agricultural revenue will not be enough to pay a sufficient price.
But within the argument there lurks a twofold confusion. At bottom a nation’s annual revenue is its annual produce, and the one cannot be less than the other. Moreover, it is not the produce of two different years that is exchanged, but the various products of the same year, or rather (for this subdivision of the movements of the economic world into annual periods has no counterpart in actual life) it is the different products created at every moment that are being continually exchanged, thus constituting a reciprocal demand for one another. At any one moment there may be too many or too few products of a certain kind, resulting in a severe crisis in one or more industries. But of every product, at one and the same time, there can never be too much. McCulloch, Ricardo, and Say victoriously upheld this view against Sismondi.[383]
It is not only on the question of method, but still more on the question of aim, that Sismondi finds himself in opposition to the Classical school. To them political economy was the science of wealth, or chrematistics, as Aristotle called it. But the real object of the science should be man, or at least the physical well-being of man. To consider wealth by itself and to forget man was a sure way of making a false start.[384] This is why he gave such prominence to a theory of distribution alongside of the theory of production, which had received the exclusive attention of the Classical writers. The Classical school, it is true, might have retorted that they gave first place to production because the multiplication of products was a sine qua non of all progress in distribution. But Sismondi regarded it otherwise. Wealth only deserves the name when it is proportionately distributed. He could not conceive of an abstract treatment of distribution, and consequently could not appreciate it. In his own treatment of distribution he devoted a special section to the “poor,” who live by their labour and toil from morn till eve in field or workshop. They form the bulk of our population, and the changes wrought in their way of life by the invention of machinery, the freedom of competition, and the régime of private property was what interested him most. “Political economy at its widest,” he says, “is a theory of charity, and any theory that upon last analysis has not the result of increasing the happiness of mankind does not belong to the science at all.”[385]
What really interested Sismondi was not so much what is called political economy, but what has since become known as économie sociale in France and Sozialpolitik in Germany. His originality, so far as the history of doctrines is concerned, consisted in his having originated this study. J. B. Say scorned his definitions, so different were they from his own. “M. de Sismondi refers to political economy as the science charged with guarding the happiness of mankind. What he wishes to say is that it is the science a knowledge of which ought to be possessed by all those who are concerned with human welfare. Rulers who wish to be worthy of their positions ought to be acquainted with the study, but the happiness of mankind would be much jeopardised if, instead of trusting to the intelligence and industry of the ordinary citizen, we trusted to governments.”[386] And he adds: “The greater number of German writers, by following the false notions spread by the Colbertian system, have come to regard political economy as being purely a science of administration.”
II: SISMONDI’S CRITICISM OF OVER-PRODUCTION AND COMPETITION
Deceived as to the best method to follow, mistaken in its conception of the nature of the object to be kept in view, it is not surprising that the “Chrematistic school” should have gone astray in its practical conclusions. The teaching of the school gave an undoubted incentive to unlimited production, for it was loud in its praise of free competition. It preached the doctrine of harmony of interests, and considered that the best form of government was no government at all. These were the three essential points to which Sismondi took exception.
First as regards its immoderate enthusiasm for production. According to the Classical writers, the general growth of production presented no inconvenience, thanks to that spontaneous mechanism which immediately corrected the errors of the entrepreneur if he in any way under-estimated the necessities of demand. Falling prices warned him against a false step and influenced him in directing his efforts towards other ends. In a similar way rising prices proved to the producers that supplies were insufficient and that more must be manufactured. Hence the evils committed would always be momentary and transient.
To this Sismondi replied: If instead of reasoning in this abstract fashion economists had considered the facts in detail, if instead of paying attention to products they had shown some regard for man, they would not have so light-heartedly supported the producers in their errors. An increased supply, if supply were already insufficient to meet a growing demand, would injure no one, but would be profitable for all. That is true. But the restriction of an over-abundant supply when the needs grow at a less rapid rate is not so easily accomplished. Does anyone think that capital and labour could on the morrow, so to speak, leave a declining industry in order to engage in another? The worker cannot quickly leave the work he lives by, to which he has served a long and costly apprenticeship, and wherein he is distinguished for a professional skill that will be lost elsewhere. Rather than consent to leave it, he will let his wages fall, he will prolong the working day, remaining at work for fourteen hours, and will toil during those hours that would otherwise be spent in pleasure or debauchery; so that the produce raised by the same number of workmen will be very much increased.[387] As for the manufacturer, he will not be less loath than the worker to quit an industry into the management and construction of which he has put half or even three-quarters of his fortune. Fixed capital cannot be transferred from one use to another, for even the manufacturer is bound by custom—a moral force whose strength is not easily calculated.[388] Like the worker, he is tied to the industry which he has created and from which he draws a living. Consequently production, far from being spontaneously restrained, will remain the same or will even perhaps tend to increase. In the end, however, he must yield, and adaptation will take place, but only after much ruin. “Producers will not withdraw from that industry entirely, and their numbers will diminish only when some of the workshops have failed and a number of workmen have died of misery.” “Let us beware,” says he in conclusion, “of this dangerous theory of equilibrium which is supposed to be automatically established. A certain kind of equilibrium, it is true, is re-established in the long run, but it is only after a frightful amount of suffering.”[389] The dictum which was to some extent true in Sismondi’s day controls the policy of every trust and Kartel of the present day.