PRINCIPLES OF POLITICAL ECONOMY.

INTRODUCTION.

§ 1. Definition of Political Economy. As it is impossible to compress a treatise into a sentence, it follows that a preliminary definition of any science can be neither adequate nor exhaustive. At the same time it seems as reasonable as it is usual to indicate in an introductory chapter the nature of the subject-matter, the objects to be attained, and the methods to be adopted, in the systematic treatment of any department of knowledge. Such a preliminary statement is especially desirable in the case of political economy, in which both the adjective and the substantive naturally suggest what most writers carefully exclude, for political economy is usually held to have little or nothing to do with general politics on the one hand or domestic economy on the other. Its province may, perhaps, be best described provisionally in the words of Adam Smith, as an (inquiry into the nature and causes of the wealth of nations. This short title has been amplified and formalised by later writers into the science which treats of the laws of the production, distribution, and exchange of wealth. To this description some have added a department of consump tion, and others the principles of governmental control, or the art of political economy. It is noteworthy, however, that on the whole, at any rate in the case of English writers, the field has been contracted. Many topics have

dropped from systematic treatment which were included by Adam Smith, as, for example, the expense of justice, of defence, and of education both secular and religious. The subject, it may be alleged, has gained in exactness what it has lost in breadth, and has only obeyed the tendency to specialisation common to all sciences. There has, unquestionably, been a gain in exactness, especially since the application of mathematical ideas; but the natural reaction against this abstract treatment threatened at one time to break down all boundaries, and to make political economy as wide and vague as general sociology. In the present work an attempt will be made to state with precision the general theory without reducing it to a branch of applied mathematics, and to build on the broad foundations of Adam Smith and Mill without trenching unduly on the domain of ethics, jurisprudence, or politics. The abundance of material is so great that the main difficulty is in selection and rejection, or, in one word, in proportion. There is not a chapter in the Wealth of Nations which could not now be enriched from the subsequent labours of historians, philosophers, and jurists as well as of professed economists.

The history of any progressive nation reveals great differences in the variety and the amount of its wealth at different times; it shows fundamental changes in the methods of production, distribution, and exchange. A comparison of existing nations, scattered over the world, furnishes living examples of the records of the past. Religion, art, government, morality, and other forces have influenced, and continue to influence, nations both as regards the nature and the causes of their wealth; but that the phenomena of wealth are capable of separate classification, and the causes of separate investigation, the extensive literature of political economy gives abundant testimony. With the Wealth of Nations more than a century old, it is absurd to go about to prove that it could not have been written.

§ 2. The Popular Conception of Wealth. But what is wealth? At first sight it seems sufficient to reply in the words of Mill, that every one has a notion sufficiently correct for common purposes of what is meant by wealth. It may, however, be said, with a similar impatience of metaphysical nicety, that every one has for common purposes an equally adequate idea of right and wrong according to the laws of his country, and ignorance of the law is never admitted as a justification of the transgressor. Yet the author of a celebrated law book did well to advise the student in the first place to get rid of every idea that he had formed on the subject; and, for the acquisition of almost every art and science, it is generally recognised that it is better for the mind to be at the outset a tabula rasa than impressed by the runic characters of popular opinion. Mill himself after the passage quoted at once proceeds to show by the example of the Mercantile system that an erroneous view of the nature and uses of wealth gave, for many generations, a false direction to the commercial policy of Europe. To Mill the error appeared so glaring that he goes on to say: "It often happens that the universal belief of one age of mankind - a belief from which no one was, nor without an extraordinary effort of genius and courage could, at the time, be free- becomes to a subsequent age so palpable an absurdity, that the only difficulty, then, is to imagine how such a thing can ever have appeared credible." As regards the particular policy1 which called forth this expression of opinion, there is little doubt that Mill was guilty of exaggeration, but there can be no doubt as to the truth of the general position. In the picturesque language of Bacon: "The idols of the market-place are the most troublesome of all those, namely, which have entwined themselves round the understanding from the associations of words and names. For men imagine that their reason governs words whilst, in

1 Cf. Roscher, Geschichte der National-Oekonomik in Deutschland; and Cunningham, Growth of Industry and Commerce, Vol. II.

fact, words react upon the understanding; and this has rendered philosophy and the sciences sophistical and inactive." And in political economy, above all the sciences, we may expect the idols of the market-place to abound. Industrial history is full of examples of stubborn fallacies which would at once have been loosened by a Socratic induction, and altogether dispelled by a scientific analysis. It is only the deceptive familiarity of common discourse which conceals similar errors at the present time. Accordingly, in the opinion of the present writer, it is still one of the main functions of the economist to discover what ideas the words stand for, and to analyse vague and complex notions into their component elements. It was soon observed that the term wealth required a critical exposition of this kind, and considerable labour has been devoted to the task.

The first

of the

§ 3. The Economic Conception of Wealth. siftings again to adopt Baconian language popular usage of the term wealth by half a century of systematic writers resulted in the definition adopted by Mill. "Wealth," he writes, "may be defined all useful or agreeable things which possess exchangeable value; or, in other words, all useful or agreeable things which cannot be obtained in the quantity desired without labour or sacrifice." The object of this definition was to make explicit in common language what was supposed to be implicit in common thought as to the nature of wealth. At once, however, the question arose: Does this definition exclude or include more or less of the things which are as a matter of fact embraced in the popular classification or inventory of wealth? In the language of logicians: Does the denotation correspond to the connotation? This

1 "What we gain by discussing a definition is often but slightly represented in the superior fitness of the formula that we ultimately adopt; it consists chiefly in the greater clearness and fulness in which the characteristics of the matter to which the formula refers have been brought before the mind in the process of seeking it."-SIDGWICK, Principles, Bk. I., Ch. II., § 1.

general question was again resolved into a number of special tests, of which the following are prominent examples: Does the term "things" include immaterial as well as material things? Does exchangeable value imply that the things must be actually capable of transference themselves, or is it merely a right which is transferred? Is exchangeable value essential to the wealth of a nation as distinct from that of an individual? Must the things be comparatively permanent and capable of accumulation? Are things of no use to any one but the owner a part of his wealth? Is labour a necessary foundation? Is the wealth of the nation simply the sum total of the wealth of individuals? These questions—and they are only typical, and taken almost at random-were clinched by an appeal to particular instances; and much ingenuity was displayed in considering such examples as skill, credit, wild animals, minerals in the bowels of the earth, bank money not in the vaults of the bank, break-waters, industrial organisation, the natural and indestructible powers of the soil, the song of a prima donna, and the advertising connection. of a newspaper. Nor is it sufficient to say of science as of law de minimis non curat, for in ideas as in creatures the border line of species is often most instructive.

The conflict of answers suggested the necessity of a deeper analysis, and it soon appeared that the definition contained conceptions which demanded a more careful explication than wealth itself. Things were no longer described as useful or agreeable, but were said to possess utility. Common thought, aided by a vague reminiscence of Bentham, and the utilitarian philosophy, might acquiesce in the definition of utility as the capacity to satisfy a desire or serve a purpose,' however trivial, ornamental, or wasteful; but when economists generally adopted the distinction made by Jevons between final and total utility, they passed the extreme limits of popular phraseology and comprehension.

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Again, as regards the characteristic of exchangeable