Charles Dunoyer’s book, which appeared in 1845,[698] and which bears the significant title of De la Liberté du Travail, ou simple Exposé des Conditions dans lesquelles les Forces humaines s’exercent avec le plus de Puissance, exactly marks this era of politico-economic Liberalism. But although Dunoyer’s book is a eulogy of liberty in all its forms, especially its competitive aspects, the optimistic note is not so marked as it is in another much more celebrated work which appeared about the same date—Les Harmonies économiques of Bastiat (1850). The Harmonies and the other works of Bastiat contain all the essential traits of the Liberal doctrine. His extreme optimism and his belief in final causes have been disavowed by a great many of the Liberal economists, but he remains the best known figure of the Optimistic Liberal group, and possibly of the whole French school.
Another economist whose name is inseparably linked with the Optimistic doctrine, and of whom we have already made some mention, is the American Carey.[699] In many respects Carey ought to be given first place, were it only because of his priority as a writer, and especially, perhaps, since he accuses Bastiat of plagiarism. In his treatment of certain aspects of the subject, such as the question of method, in the logical consistency of his argument, and in the scope of his discussion of such a problem as that of rent, he displays a marked superiority. In our exposition of Bastiat’s doctrine we shall give to Carey’s the attention which it deserves. Our decision to give Bastiat and not Carey the central position in this chapter is due in the first place to the consideration that we are writing primarily for French students, who will be more frequently called upon to read Bastiat than Carey; and in the second place to the fact that the works of the American economist appeared at a time when economic instruction scarcely existed in the United States, and consequently his writings never exercised the same influence as those of the French economist, which appeared just when the war of ideas was at its fiercest. Finally, Carey’s doctrine is lacking in the beautiful unity of conception of the Harmonies, so that alongside of the advocacy of free competition among individuals is presented an outline of national Protection. Thus we have been forced to divide our treatment of Carey into two sections. The heterogeneous, not to say contradictory, character of his doctrines accounts for his appearing in two different chapters.
Bastiat,[700] both at home and abroad, has always been regarded as the very incarnation of bourgeois political economy. Proudhon, Lassalle in his famous pamphlet Bastiat Schulze-Delitzsch, Cairnes, Sidgwick, Marshall, and Böhm-Bawerk all think of him as the advocate of the existing order. None of them considers him a scientific writer. They treat his writings as a kind of amplification of Franklin’s Poor Richard’s Almanac, where apologues take the place of demonstration and a much-vaunted transparency of style is simply due to absence of thought.
Bastiat deserves a juster estimate. The man who wrote that “if capital merely exists for the advantage of the capitalist I am prepared to become a socialist,” or who declared that “one important service that still requires to be done for political economy is to write the history of spoliation,” was not a mere well-to-do bourgeois. It is true that he carried the “isms” of the French school to absurd lengths. An unkind fate decreed that his contribution should mark the culminating-point of the doctrine, to be followed by the inevitable reaction. To the force of that reaction he had to bow, and his whole work was demolished.
Bastiat’s arguments against socialism are somewhat antiquated, but so are the peculiar forms of socialist organisation which he had in view when writing. This is not true of the arguments dealing with Protection. These have not been entirely useless. Though they failed to check the policy of Protection, they definitely invalidated some of its arguments. If modern Protectionists no longer speak of the “inundation of a country” or of an “invasion of foreign goods,” and if the old and celebrated argument concerning national labour is less frequently invoked as a kind of final appeal, we too often forget that all this is due to the small but admirable pamphlets written by Bastiat. Such were The Petition of the Candle-makers and The Complaint of the Left Hand against the Right. No one could more scornfully show the laughable inconsistency of tunnelling the mountains which divide countries, with a view to facilitating exchange, while at the same time setting up a customs barrier at each end; or expose the patent contradiction involved in guaranteeing a minimum revenue to the landed proprietors and capitalists by the establishment of protective rights, while refusing a minimum wage to the worker. No one has better emphasised the difficulty of justifying an import duty as compared with an ordinary tax, for a tax is levied upon the individual for the benefit of all, while a duty is levied upon all for the benefit of the few.
He has not been quite so happy in his exposition of individualism. The problem has been over-simplified: individual and international exchange have been treated as if they were on all fours. Analogies, more amusing than solid, are employed to show that the advantages of international trade are greater if a country has an unfavourable balance against it, and that international exchange benefits poor countries most.[701]
The thesis of the constructive portion of his work is as follows: “The general laws of the social world are in harmony with one another, and in every way tend to the perfection of humanity.” A priori, however, are we not confronted with rank disorder everywhere? To that he replies in his well-known apologue, “Things are not what they seem,” pointing out that we cannot always trust what we see, and that what is not seen is very often true. Apparent antagonisms on closer view often reveal harmonious elements. But man’s freedom sometimes breaks the harmony and destroys the liberty of others. Especially is this the case with spoliation, which Bastiat never attempts to justify, but denounces whenever he has the chance. But around man and within him are diverse forces which must lead him the way of the good, deviate he never so often, and which will finally and automatically re-establish the harmony. “My belief is that evil, far from being antagonistic to the good, in some mysterious way promotes it, while the good can never end in evil. In the final reckoning the good must surely triumph.”[702]
It is quite evident that this doctrine goes far beyond the conception of “natural laws,” and implies a belief in a Providential order. Bastiat never shrinks from this position. He never misses an opportunity of declaring his faith in language much clearer than that of the Physiocrats. “God,” he writes, “has placed within each individual an irresistible impulse towards the good, and a never-failing light which enables him to discern it.”[703]
Auguste Comte has delivered an eloquent protest against the vain and irrational disposition to think that only the spontaneous can be regarded as conforming to the “order” of nature. Were this the case any practical difficulty “that presented itself in the course of industrial development could only be met with a kind of solemn resignation under the express sanction of political economy.”[704]
Even as an exposition of the Providential order Bastiat’s faith is not easy to justify. It by no means agrees with the Christian teaching on the point. For we cannot forget that although Scripture teaches us that both man and nature were declared good when first created by God, it also teaches that both have been entirely perverted by man’s iniquity, and that never will they become good of their own accord, since there is no natural means of salvation.[705] Christian people are exhorted to kill the natural man within them and to foster the growth of the new man. Christianity promises a new heaven and a new earth—an infinitely more revolutionary doctrine than that of the economic Optimists. Bastiat’s God is, after all, just “Le Dieu des bonnes gens” whose praises are sung by Béranger.
What are the facts of this pre-established harmony? What are its laws, and where are they operative? They are in evidence everywhere, Bastiat thinks—in value and exchange, in the institution of private property, in competition, production and consumption, etc. We shall content ourselves with a consideration of the circumstances under which Bastiat thought it was most clearly seen.
First of all we have the law of value, “which is to political economy what numbers are to arithmetic.”[706]
Ricardo taught that value was determined by the quantity of labour necessary for production. This theory is entirely at one with Bastiat’s, and he would have felt no compunction about inserting it in the Harmonies, for a theory of value which showed that every form of property is really based upon labour seemed to accord with the requirements of justice. But although Bastiat’s method was almost exclusively deductive, and as little realistic as possible, he could never content himself with an explanation which was all too clearly in conflict with the facts. Such a theory could never explain why the value of a pearl accidentally discovered should equal the value of another laboriously brought from the depths of the sea. Accordingly he sought another explanation, juster, and more in accordance with facts, than Ricardo’s.
Carey effected just the needed correction of the Ricardian theory, by propounding another ingenious explanation, namely, that value is determined, not by the quantity of labour actually employed in production, but by the quantity of labour saved. This would account for those facts that refused to fit in with the Ricardian theory, and the chance pearl was no longer a stumbling-block. Bastiat was evidently attracted by this theory.[707] But his satisfaction was by no means complete, for it is not quite clear how a value which is proportional to the amount of labour saved—that is, to labour which never has been and never will be undertaken—can be considered as an economic harmony. But a ray of light illumines the darkness. The labour saved is a kind of service rendered to the person who acquires the commodity. The long-sought explanation is found at last! “Value is the ratio between two exchanged services.”[708] And, seeing that individual property and private fortunes represent sums of values, we might say that a person’s property is merely the sum of the services rendered by him. Herein lies the harmony. Nothing better could be wished for, and Bastiat exults in his discovery. Everything becomes quite clear, every contradiction is removed, every difficulty solved, if we take for our starting-point the crux of economic theory—namely, why diamonds are considered more valuable than water. The diamond is more valuable simply because the person who gives it to me is rendering me a greater service than he who merely gives me a glass of water. This was not the case on the Medusan raft, but even in that instance, seeing that the service rendered was incalculable, the value must have been immense.
Every solution propounded by economists—utility, scarcity, difficulty of acquisition, cost of production, labour—is included within this conception of service, and “economists of all shades of opinion ought to feel satisfied.” “My decision is favourable to every one of them, for they have all seen some aspect of the truth; error being on the other side of the shield.”[709] Moreover, the word “service” has the advantage of including, besides value properly so called (that is, the price of goods), the price of all productive services such as appear under the heads of loans, rent, discount, and interest—in short, “everything that can be said to render a service.”[710]
One cannot help smiling at Bastiat’s naïve exultation, for he never realises that his formula is so comprehensive and includes everything within itself simply because it is an empty form—a mere passe-partout. It really amounts to saying that value depends upon desirability, and we are not so much farther on after all.[711] On closer view, it even lacks that apologetic tone which evidently attracted Bastiat to it. It legitimises neither value nor property, and even if it did it would simply be by the help of a hypocritical formula, for the word “service” gives rise to the belief that all value implies a benefit for those who receive it and a virtue in those who give it. But very frequently it is nothing of the kind. The owner of a house or of a piece of land in the city of London which is let or sold at a fabulous price, the capitalist who lends money to a needy borrower at a usurious rate, or the politician even who in return for an enormous bribe secures some financial concession, cannot be said to be rendering any real service, for all these have either been solicited or demanded, or perhaps even extorted under pressure. Such abnormal rates of discount, interest, or rent can find no place in Bastiat’s formula. From a moral and ethical point of view it is equally futile. It is a mere mask which affords protection as well to the worst exploiter as to the honest tradesman: all are thrown promiscuously into the “universal harmony.”[712]
Despite the justness of these criticisms, and although Bastiat’s attempt to explain value by employing the term “service” must be regarded as futile, the word has not remained a mere ingenious epithet. On the contrary, it has won for itself a permanent place in economic terminology. We shall again meet with it in the vocabulary of that school which prides itself upon the exactness of its method, namely, the Hedonistic and Mathematical school. These later writers constantly make use of the term “productive services,” and would find it hard to discover another word having a sufficiently wide connotation.[713] It is true that the word “service” with all the noble associations of unselfish interest and professional honour which cling to it (compare the phrase “his Majesty’s service”), may lead us astray as to the economic arrangements of society, and that a recollection of the less distinguished uses of the term may cause us to doubt the wisdom of Bastiat’s choice. Still, it is the best that we can imagine when speaking of the society of the future. It is employed in the same sense as Auguste Comte used the term “social function,” or as the equivalent of Marshall’s “economic chivalry.”[714] In attempting to present to ourselves the society of the future, or at least the society of our dreams, we must hope that the present incentive to economic activity, which is merely the desire for profit, will gradually give place to the idea of social service. When that day dawns a statue ought to be erected to the memory of Bastiat.
Ricardo’s law of rent was the optimist’s nightmare. Should it by any chance prove true, then the institution of property must be abandoned altogether, and victory must lie with the socialists, whom the economists regarded as somewhat of a social nuisance. It was necessary, then, at all costs, to show that this law had in reality no foundation, and with this end in view Bastiat attempts to defend the paradox that nature or land gratuitously gives its products to all men. But must we really say that corn and coal, the products of soil and mine, literally do not pay for the trouble of getting them? In other words, have they no value? Bastiat replies that they doubtless possess some value, but that the price paid for them does not cover the natural utility of those products. It merely covers cost of production, and is only just sufficient to reimburse the proprietor for the expense incurred.
Every product contains two layers of superimposed utilities. The one is begot of onerous toil and must be paid for. It constitutes what we call value. The other, which is thrown into the bargain, is a gift of nature, and as such is never paid for. This lower stratum, though it is of considerable importance, is ignored simply because it is not revealed in price. It is invisible because it is free.
But whenever a commodity is free, like air, light, or running water, it is the common possession of everybody. The same idea may be expressed by saying that below the apparent layer of value which constitutes individual property there lies an invisible layer of common property which benefits everybody alike. “What Providence decreed should be common has remained so throughout the whole history of human transactions.”
“This,” says Bastiat, “is the essential law of social harmony.” The proprietor, who in the Ricardian theory figures as a kind of dragon, jealously guarding the treasures of national wealth, which can only be enjoyed on payment of a fine, or who in Proudhon’s passionate invectives is denounced as an interceptor of the gifts of God, appears to Bastiat as a mere intermediary between nature and consumer. He is like a good servant who draws water from a common fount, and receives payment, not for the water drawn, but solely for the trouble of drawing it.[715]
But there is a still greater degree of harmony. Of the two elements—the onerous and the gratuitous—which enter into the composition of all forms of wealth, the former gradually tends to lose its importance relatively to the latter. It is a general law of industry that as invention progresses the human effort necessary to obtain the same satisfaction diminishes. New labour is almost always more productive than old, and this is true with regard to all products, whether corn or coal, steel or cotton. It is true not only of the products of the land, but also of the land itself. The cost of clearing new land is diminishing, just as the expense of making new machinery is decreasing. The natural utility, on the contrary, is never diminished. Corn has to-day exactly the same utility as it had on the morrow of the Deluge.
Property being nothing more than a sum of values, every diminution of value must be interpreted as a constant restriction of the rights of property.
Hence this result, “which reveals a most important fact for the science, a fact, if I mistake not, as yet unperceived,”[716] namely, that in every progressive society common or gratuitous utility never stops growing, while the more arduous portion, which is usually appropriated, gradually contracts. Present society is already communistic, and is becoming more so every day.
The idea is indeed an attractive one. Individual property is like a number of islands surrounded by a vast communal sea which is continually rising, fretting their coasts and reducing their areas. When labour has become all-powerful and when science has dispensed with effort the last islet of property will sink beneath the wave of free utility. And so Bastiat triumphantly exclaims: “You communists dream of a future communism. Here you have the actual thing. All utilities are freely given by the present social order provided we facilitate exchange.”[717]
Bastiat, usually so logical, seems inclined to be sophistical here. If we seek beneath this brilliant demonstration we shall merely find the statement that rent is non-existent because the value of commodities—including all natural products—can never exceed cost of production. This cost of production is being continually lowered, and so the value of goods must be falling.
But the statement requires proof. There is nothing to show how the price of natural goods under the influence of competition would tend to fall to the level of cost of production—still less to the minimum level. There is no refutation either of the differential or monopolistic theory of rent. There is doubtless this much truth in it: nature does not create value, nor does it demand payment for it. No one would to-day say that a single cent of the price of corn or coal was meant as payment for the alimentary properties of the one or the calorific capacity of the other. But although it is true that nature asks nothing in return, it is not correct to say that the landowner demands nothing except payment for trouble and expenditure incurred. And this extra gain he never relinquishes unless under pressure of competition. But this very seldom happens, and economic theorists have to be content merely with showing how the sale price usually exceeds the cost of production, and how this excess is variously known as rent, profits, or surplus value.
Bastiat was fully conscious of the weakness of his argument. He saw quite clearly that possession of a suitable piece of land in the Champs-Élysées would earn something more than mere payment for labour and outgoings. It is then that he takes refuge in his theory of value, and attempts to show that the proprietor will never draw more than the price of the service rendered. This may be true. But the mere fact of possessing a natural source of wealth permits of the raising of the price of these goods a great deal, and then what becomes of community of interests, and of the theory that the goods are handed on by the proprietor free of any charge?
How superior is Carey’s theory, both in its scientific value and in its social import! Carey follows Ricardo step by step, whereas it seems that Bastiat had only a very imperfect acquaintance with the Ricardian theory.[718] In reply to the statement that the value of corn rises progressively because the more fertile lands are occupied first, and the less fertile have to be utilised afterwards, Carey points out that, on the contrary, cultivation begins with the poorer land first, and that the richest is the last to be cultivated. The consequence is just the reverse of what Ricardo predicted. As production increases, the price of corn will be lowered. The process of reasoning by which this reversal of the order of cultivation is demonstrated is very interesting. The domestication of land, if the phrase be permissible, like the utilisation of all natural forces, takes place according to the inverted order of their strength. Animals are domesticated before man harnesses wind or water, and water and wind are employed before there is any thought of vapour or electricity. The same is true of land. Fertile land in its natural state is either overrun with vegetation, which must be grubbed up, or is covered with water, which must be drained off. “Rich land is the terror of the emigrant.”[719] Its virgin forests must be felled, its wild animals destroyed, its marshes drained, and its pestilential miasmas rendered innocuous if it is not to become a mere graveyard. And not until several generations have given of their toil will it be of much use. Rather than undertake the task the earliest emigrant seeks the lighter soils of the hill-side, which are better adapted to his feeble means, as well as safer and more easily defended.
That this theory is well founded may be very clearly seen if we watch the progress of cultivation or the colonisation of new lands, or glance at the general history of civilisation. Men group themselves in villages on the higher levels or build their castles on the slopes of the hills, and only descend slowly and carefully into the lower plains. How many are the localities in France where the new town may be seen overspreading the plain close to the old city which still crests the hill! The various national gods—Hercules, for example, who stifled the hydra of Lerna in his arms and shot the birds of Stymphalus’s pool with his arrows—are in all probability just the men who first dared break up the alluvial soils.
This theory, again, is open to the same objection as Ricardo’s. It applies to some cases only, and under certain conditions. Ricardo’s theory explained the facts relative to England, where population presses heavily upon the limited area of a small island already well occupied. Carey’s theory is equally well adapted to an immense continent, with a thinly scattered population, occupying only a few cultivated islets amid the vast ocean of virgin forest and prairie. The two theories are not contradictory. They apply to two different sets of conditions, or to successive phases of economic evolution. And seeing that Ricardo’s applies to the more advanced stage of civilisation, it certainly ought to have the last word. If Carey were writing now he would probably express himself somewhat differently, for it is no longer true even of the United States that the more fertile lands are still awaiting cultivation. Only the poorer and the more arid plains remain uncultivated, and here dry farming has to be resorted to. So that even in the “Far West” Ricardo’s theory is closer to the facts than Carey’s. Rents are rising everywhere, and not a few American millionaires owe their fortunes to this fact.[720]
It is just possible that Bastiat had some knowledge of Carey’s theory, for the theory is outlined in The Past, the Present, and the Future, published by Carey a little before Bastiat’s death, as well as in his Social Science, which appeared ten years later. At any rate, let us render thanks to both of them for the suggestive thought that as human power over nature increases, effort, difficulty, and value, which is the outcome of difficulty, will disappear, and that, consequently, the sum total of real wealth at the disposal of everyone will increase, but that the poor will be those who will benefit most.[721]
The law of rent was not the only discordant note. That other law which stated that profits vary inversely with wages was also dissonant and needed refuting. Bastiat emphasises the contrast between it and his new law of harmony, according to which the interests of capital and labour are one, their respective shares increase together, and the proportion given to labour grows more rapidly even than capital’s.[722]
That is the conclusion which Bastiat wishes to illustrate by means of the following table:
| Total Product | Capital’s Share | Labour’s Share | |||
|---|---|---|---|---|---|
| First period | 1000 | 500 | (50 per cent.) | 500 | (50 per cent.) |
| Second period | 2000 | 800 | (40 ”) | 1200 | (60 ”) |
| Third period | 3000 | 1050 | (35 ”) | 1950 | (65 ”) |
| Fourth period | 4000 | 1200 | (30 ”) | 2800 | (70 ”) |
This law he speaks of as “the great, admirable, comforting, necessary, and inflexible law of capital.”
The proof is very simple—too simple, perhaps. It rests entirely upon the law concerning the lowering of the rate of interest, noted by Turgot and other economists long before Bastiat’s time. If capital, instead of asking 5 per cent., only demands 3 per cent., then its share is diminished, and any further diminution of its share must mean an increase of the proportion available for labour.
But a relative diminution of this kind will not prevent capital drawing an absolutely greater share, provided the total produce goes on increasing, as is the case in every progressive community. Its total share, though on the increase, may be decreasing relatively to the share which goes to labour. For example, the total product may be tripled, capital’s share having doubled in the meantime, while labour’s portion is quadrupled. Unfortunately this is a purely sophistical argument. The figures given in the table are simply invented to meet the needs of the case. Even the universality of the law concerning the lowering of the rate of interest is open to dispute. Economic history seems to point to a series of periodic oscillations of the rate, and quite recently it has risen very considerably.
The so-called “law” becomes more than doubtful if, following Bastiat, we include under the term interest, not merely net interest, but also profits and dividends and all kinds of returns from capital.
But, even admitting that such a law is thoroughly established, does that prove that capital’s share is decreasing? A lowering of the rate of interest cannot affect the capital already invested in factories, mines, railways, State funds, etc. The latter will not draw a penny less, and a fall in the rate of interest will increase the value of all old capital. Every capitalist knows this and speculates on the chance of its happening.[723]
Only in the case of new capital, then, will a lower rate of interest reduce the capitalist’s share. If by any chance this new capital should prove less productive than the old it may then happen that the reduced rate of interest will mean an equal or even a greater rise in the remuneration of labour. This is quite a probable contingency, and the proof advanced by economists who believe in a gradual lowering of the rate of interest is just this very fact that new capital is generally less productive than old.
In short, the problem presented by the rate of interest, implying as it does a certain connection between the value of the capital and the value of the revenue, is entirely different from the question as to what share of the produce will eventually fall to the lot of the capitalist and what to the workers.[724]
Not only is the demonstration which Bastiat thought he had given false, but the thesis itself is very doubtful when tested by the facts. Statistics seem to show quite clearly—Bastiat’s law notwithstanding, and not depreciating the influence of other powerful factors, such as trade unions, strikes, and State intervention—that during the course of the nineteenth century the share of the social revenue which falls to the lot of capital has increased more rapidly than labour’s.[725]
Bastiat laid considerable stress upon this principle, but it is not easy to realise its harmonic significance.
The subordination of producer to consumer is nothing less than the subordination of private to general interest. Producers always consult their own interests, and are continually in search of profits. Still, everything invented with a view to increasing profits results in lowering prices, so that the consumer is the person who finally benefits by it.[726] And so economic laws, the law of competition and of value, constrain the producer who really wishes to be selfish to be altruistic, even despite himself. The laws outwit him, but his undoing benefits everyone else. While working for a maximum profit he is really toiling to satisfy the needs of others in the most economical fashion, and therein lies the harmony.
In all difficult economic problems the criterion should be this: What solution will prove most advantageous to consumers? Never ought we ask what will be most profitable for producers, although, unfortunately, this is the more usual question. In matters of international trade, when the interest of the producer is uppermost, Protection is established. If we only consulted the interest of consumers, Free Trade would become an immediate necessity. Or take the case of public or private expenditure. The producer can bring himself to excuse or even to approve of breaking windows or wasting powder,[727] but the consumer unceremoniously condemns all such destruction of wealth as useless consumption.
But Bastiat is not content with giving the consumer mere economic pre-eminence. He is equally anxious to demonstrate his moral superiority. “If humanity is to be perfected, it must be by the conversion of consumers, and not by the moralising of producers,”[728] and so, he holds consumers responsible for the production of unnecessary or worthless commodities, such as alcohol.[729] Bastiat’s contribution to this subject is quite first-class, and may possibly be his best claim to a place among the great economists. He was not far wrong when on his death-bed he delivered to his disciples as his last instructions—his novissima verba, “Political economy should be studied from the consumer’s standpoint.” This distinguishes him from his famous antagonist, Proudhon, who always had the producer’s interest at heart.
The only things with which we can reproach Bastiat are a too persistent faith in natural harmonies and a belief in the efficacy of ordinary economic laws to bring about the supremacy of the consumer. In fact, the consumer’s reign has not yet come, and the economic mechanism is becoming more and more the tool of the profit-maker. The consumer has had to seek in organisation a method of defending his own interests and those of the public, with whose interests his own are often confused. This is why we have institutions like the co-operative society and the consumers’ league. His moralisation, moreover, is not entirely his own affair. Before the consumer realises the full measure of his responsibility and the extent of his duties a great deal of work will be necessary on the part of buyers’ social leagues, temperance leagues, etc.
Strangely enough, economists of the Liberal Individualist school view such institutions with a somewhat critical eye.[730]
We must not forget, as most writers on the subject seem to have done, that Bastiat was the first to give the law of solidarity—so popular in the economics of to-day—a position of honour within the science of political economy.[731] One of the unfinished chapters of the Harmonies, entitled “Solidarity,” was meant to expound the thesis that “society is just a collection of solidarities woven together.”[732]
The name is deceptive, however, and his conception of solidarity is quite different from the one current to-day, while the conclusions drawn are by no means similar.
The fundamental doctrine upon which the Solidarists of to-day would base a new morality is briefly this: Every individual owes all the good with which he is endowed, and all the evil with which he is encumbered, to others. So whether he is wealthy or poor, virtuous or vicious, it is his duty to share with those who are worse off, and he has a right to demand a share from those who are better off. Only in this way can we justify legal assistance, insurance, Factory Acts, education, and taxation. The doctrine is a negation, or at the very least a modification, of the strict principle of individual responsibility.
But Bastiat views it differently. He has no desire to weaken individual responsibility, for responsibility must be the indispensable corrective of liberty. And solidarity, because of the feeling of interdependence to which it gives rise, is so bewildering that Bastiat anxiously asks whether solidarity is actually necessary “in order to hasten or to secure the just retribution of deeds done.” A closer survey reconciles him to the prospect, for he sees in it a means of extending and deepening individual responsibility. Seeing that the results of good and bad deeds react upon everyone, everybody must be interested in furthering every good deed and in repressing the bad, especially since every deed reacts upon its author with its original force multiplied a thousand, and perhaps a million times.[733] The harmony just consists in that. Bastiat’s solidarity aims, not at the development of fraternity, but at the strengthening of justice. It does not urge upon society the duty of permitting no differences among its members, but it does emphasise the importance of handling the scourge or bestowing the palm with greater impartiality. And Bastiat, despite his law of solidarity—nay, possibly because of that very law—definitely rejects all legal assistance, even in the case of deserted children! National insurance, old age pensions, profit-sharing, free education, everything that is comprised under the term “social solidarity” is cast aside.[734]
It is a terribly individualistic conception of solidarity. Comparison with Carey’s ideas is again interesting. Carey may seem to ignore it altogether, inasmuch as he never mentions the name. But if the name was unknown to him he gave a good description of the principle itself when he referred to it as “the power of association.” And he was also probably the first to put the double character of solidarity, as we know it to-day, in a clear light:
(1) As the differences among mankind increase in number and intensity the more perfect will solidarity become.
(2) Individuality, instead of being weakened by it, is strengthened and intensified.[735]
Someone may perhaps point out that in our treatment of the Optimists’ attack upon the great Classical laws no mention has been made of that terribly discordant theme, Malthus’s law of population, which ascribes all vice and misery to the operation of a natural instinct. On this particular point Bastiat’s treatment is lacking in both vigour and originality. His reply merely amounts to showing that the preventive obstacles, such as shame and continence, religious feeling and the desire for equality, all of which limit the number of children, are equally natural, so that nature has placed a remedy alongside of the evil.
A more solid argument, borrowed from Carey, attempts to show how a growing density of population allows of a growth of production, so that the production of commodities may develop pari passu with the growth of population, or may even exceed it. Carey relied upon his own observations. All over the vast American continent, especially on the immense plains of the Mississippi, he noticed that the few encampments of the poor tribes that dwelt there were being rapidly replaced by large industrial centres. Such an increase of population in immediate contiguity naturally resulted in a great amassing of wealth.
We have already noted the fact that the growth of wealth in the United States has outstripped the increase in its population. The simultaneous development of Germany, both in numbers and wealth, is still more striking.
But Carey’s population theory is open to the same criticism as was urged against his theory of rent. Up to a certain degree of density it is undoubtedly true, but there is no ground for believing that it holds good beyond this.
Bastiat’s name is frequently linked with Dunoyer’s, to whom we have already had occasion to refer.[736] Dunoyer was one of the most militant of the politico-economic Liberals, and fully shared their belief that free competition was a sufficient solution for every social problem.[737] The obvious drawbacks of free competition, he thought, were due to its imperfect character. No one was more opposed to State Socialism and to intervention of every kind. He was opposed to labour legislation, to Protection, to the regulation of the rights of property, and even to the State management of forests. As we have already remarked, he was against every kind of combination, because it stood as an obstacle in the path of free competition.
Logically enough he was in favour of the free disposal of land, and would not even make any reservations in favour of heirs. He refuses to recognise the right of entail because the exercise of the testator’s liberty necessarily involves the curtailment of the liberty of his successors.[738]
Some of the arguments which he employs in support of free exchange are quite novel. The following is one of the most interesting. Admitting that it is not to the advantage of a poor country to trade with another which is wealthier or industrially superior, the same thing must apply to the poorer districts of a country in their dealings with other provinces that have suddenly become rich, or with rich provinces recently acquired by conquest. But “as soon as they are annexed their superiority presumably disappears.” The argument is amusing, but not very solid. It is not impossible that free exchange, even within the bounds of the same country, may have the effect of drawing capital and labour from the poorer districts towards the richer, from Creuse or Corsica to Paris. This is just what does happen. It is not, perhaps, a very serious evil, because what France loses on the one hand she gains on the other; but if Creuse or Corsica were independent states, anxious to preserve their individuality, we could understand their taking measures to prevent this drainage. It is true that it is not easy to see how protective rights could accomplish this—a point which Dunoyer might well have emphasised.
We cannot speak of Dunoyer without saying a word about his theory of production. Labour with him is everything. Nature and raw material are nothing. He stands at the opposite pole to the Physiocrats,[739] and supplied a handle to those socialists who before Marx’s day had thought that labour was the only source of wealth, and that consequently all wealth should belong to the worker. But he pays no very great attention to this idea. His chief concern is with production, and not with distribution.
From this view of production he draws several interesting conclusions.
In the first place, it matters little to him whether labour is applied to material objects or not. That makes no difference, so far as its character or productivity is concerned, for in both cases what is produced is an immaterial thing called utility. What the baker produces is not bread, but the wherewithal to satisfy a certain desire. This is exactly what the prima donna produces. The so-called liberal professions are placed in the same category as manual work, and in this respect again Dunoyer takes up a position opposed to that of the Physiocrats.[740]
Contrary to what might have been expected, this large extension of the concept production fails to include commerce. Dunoyer applies the title productive to the singer, but refuses it to the merchant, and by this strange reversal he arrives once again at the Physiocratic position. Exchange is not productive[741] because buying and selling does not involve any work, and where there is no work there is no production. Exchange creates utilities, and it is not easy to understand what more Dunoyer expects from it, seeing he admits that labour can do nothing more. Exchange, he thought, was a purely legal transaction, and he was loath to admit that any act of a “corporate will” without labour or physical effort could create wealth, just as the Physiocrats found it impossible to think of wealth other than as a product of the soil.
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.
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.