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• Preface
• Editorial Note
• I.: Biographical Sketch
• II.: Early Economic Writings: 1804-1808
• An Essay of the Impolicy of a Bounty On the Exportation of Grain
• Introduction
• Essay On the Corn Laws
• Chap. I: Of the History of the Corn Laws
• Chap. II: Influence of the Principle of Population Upon the Corn Trade
• Chap. III: Effects of the Bounty On the Rent of Land
• Chap. IV: Effects of the Bounty On the Profits of the Farmer
• Chap. V: Effects of the Bounty On the Value of Silver
• Chap. VI: Exportation
• Chap. VII: Importation
• Chap. VIII: Landlords, Farmers, and Corn-dealers
• Postscript to Essay On Impolicy
• Commerce Defended.
• Introduction
• Chapter I: On the Security Or Insecurity of the British Commerce
• Chapter II: On Land, As a Source of Wealth
• Chapter III: Of the Definition of the Terms Wealth and Prosperity
• Chapter IV: Of Manufactures
• Chapter V: Commerce
• Chapter VI: Consumption
• Chapter VII: Of the National Debt
• Chapter VIII: General Reflections
• Smith On Money and Exchange
• III.: James Mill and David Ricardo
• Elements of Political Economy,
• Preface
• Preface (to the 2nd Edn.)
• Introduction the Subject—its Limits—and Division
• Chapter I: Production
• Chapter II: Distribution
• Chapter III: Interchange
• Chapter IV: Consumption
• Mill On Scope and Method
• Whether Political Economy Is Useful London Review, Jan. 1836, Vol. Ii, Pp. 553–572.
• V.: James Mill and India
• Book Ii of the Hindus
• Chapter I: Chronology and Ancient History of the Hindus
• Chapter II: Classification and Distribution of the People
• Chapter III: The Form of Government
• Chapter IV: The Laws
• Chapter V: The Taxes
• Bibliography

CHAPTER IV

CONSUMPTION

Of the four sets of operations, Production, Distribution, Exchange, and Consumption, which constitute the subject of Political Economy, the first three are means. No man produces for the sake of producing, and nothing farther. Distribution, in the same manner, is not performed for the sake of distribution. Things are distributed, as also exchanged, to some end.

The end is Consumption. Things are produced that they may be consumed; and distribution and exchange are only the intermediate operations for bringing the things, which have been produced, into the hands of those who are to consume them.

section I

Of Productive andUnproductiveConsumption

Of Consumption, there are two species; the distinctive properties of which it is of great importance to comprehend.

These are, 1st, Productive Consumption; 2dly, Unproductive Consumption.

1. That production may take place, a certain expenditure is required. It is necessary, that the labourer should be maintained; that he should be provided with the proper instruments of his labour, and with the materials of the commodity which it is his business to produce.

What is thus expended, for the sake of something to be produced, is said to be consumed productively.

In productive consumption, three classes of things are included. The first is, the necessaries of the labourer, under which term are included all that his wages enable him to consume, whether these confine him to what is required for the preservation of existence, or afford him something for enjoyment. The second class of things consumed for production is machinery; including tools of all sorts, the buildings necessary for the productive operations, and even the cattle. The third is the materials of which the commodity to be produced must be formed, or from which it must be derived. Such is the seed from which the corn must be produced, the flax or wool of which the linen or woollen cloth must be formed, the drugs with which it must be dyed, or the coals which must be consumed in any of the necessary operations.

Of these three classes of things, it is only the second, the consumption of which is not completed in the course of the productive operations. The machinery and buildings, employed in production, may last for several years; the necessaries, however, of the labourer, and the materials, either primary or secondary, of the commodity to be produced, are all completely consumed. Even of the durable machinery, the wear and tear amount to a partial consumption.

2. Thus it is, that men consume for the sake of production. They also consume, however, without producing, and without any view to production. The wages which a man affords to a ploughman, are given for the sake of production; the wages which he gives to his footman and his groom, are not given for the sake of production. The flax which the manufacturer purchases, and converts into linen, he consumes productively; the wine which he purchases, and uses at his table, he consumes unproductively. These instances are sufficient to illustrate what is meant, when we speak of unproductive consumption. All consumption, which does not take place to the end that an income or revenue may be derived from it, is unproductive consumption.

From this explanation, it follows, that productive consumption is itself a means; it is a means to production. Unproductive consumption, on the other hand, is not a means. This species of consumption is the end. This, or the enjoyment which is involved in it, is the good which constituted the motive to all the operations by which it was preceded.

From this explanation, it also follows, that, by productive consumption, nothing is lost: no diminution is made of the property, either of the individual, or of the community; for if one thing is destroyed, another is by that means produced. The case is totally different with unproductive consumption. Whatever is unproductively consumed, is lost. Whatever is consumed in this manner, is a diminution of the property, both of the individual and of the community; because, in consequence of this consumption, nothing whatever is produced. The commodity perishes in the using, and all that is derived is the good, the pleasure, the satisfaction, which the using of it yields.

That which is productively consumed is always capital. This is a property of productive consumption, which deserves to be particularly remarked. A man commences the manufacture of cloth with a certain capital. Part of this capital he allots for the payment of wages; another part he lays out in machinery; and with what remains he purchases the raw material of his cloth, and the other articles, the use of which is required, in preparing it for the market. It thus appears, that the whole of every capital undergoes the productive consumption. It is equally obvious that whatever is consumed productively becomes capital; for if the manufacturer of cloth, whose capital we have seen to be productively consumed, should save a portion of his profits, and employ it in the different kinds of productive consumption required in his business, it would perform exactly the functions performed by his capital, and would, in truth, be an addition to that capital.45

The whole of what the productive powers of the country have brought into existence, in the course of a year, is called the gross annual produce. Of this the greater part is required to replace the capital which has been consumed; to restore to the capitalist what he has laid out in the wages of his labourers and the purchase of his materials, and to remunerate him for the wear and tear of his machinery. What remains of the gross produce, after replacing the capital which has been consumed, is called the net produce; and is always distributed, either as profits of stock, or as rent.

This net produce is the fund, from which all addition to the national capital is commonly made. If the net produce is all consumed unproductively, the national capital remains unaltered. It is neither diminished nor increased. If more than the net produce is consumed unproductively, it is taken from the capital; and so far the capital of the nation is reduced. If less than the net produce is unproductively consumed, the surplus is devoted to productive consumption; and the national capital is increased.

Though a very accurate conception may thus be formed of the two species of consumption; and the two species of labour; productive, and unproductive; it is not easy to draw the line precisely between them. Almost all our classifications are liable to this inconvenience. Between things, which differ the most widely, there are almost always orders of things, which approach by insensible gradations. We divide animals into two classes, the rational and irrational: and no two ideas can be more clearly distinguished. Yet beings may be found, of which it would be difficult to say, to which of the two classes they belonged. In like manner, there are consumers, and labourers, who may seem, with some propriety, to be capable of being ranked, either in the productive, or the unproductive class. Notwithstanding this difficulty, it is absolutely necessary, for the purposes of human discourse, that classification should be performed, and the line drawn somewhere. This may be done, with sufficient accuracy both for science and for practice. It is chiefly necessary that the more important properties of the objects classified should be distinctly marked in the definition of the class. It is not difficult, after this, to make allowance, in practice, for those things which lie, as it were, upon the confines of two classes; and partake, in some degree of the properties of both.

section II

That which is Annually Produced is Annually Consumed

From what we have now ascertained of the nature of production and consumption, it will easily be seen, that the whole of what is annually produced is annually consumed; or, that what is produced in one year, is consumed in the next.

Every thing, which is produced, belongs to somebody, and is destined by the owners to some use. There are however, but two sorts of use: that for immediate enjoyment, and that for ultimate profit. To use for ultimate profit, is to consume productively. To use for immediate enjoyment, is to consume unproductively.

We have just observed, that what is used for ultimate profit, is laid out, as expeditiously as possible, in wages of labour, machinery, and raw material. This is a fact of primary importance; and many errors of those who reason loosely in Political Economy, arise from the neglect of it. Whatever is saved from the annual produce, in order to be converted into capital, is necessarily consumed; because to make it answer the purpose of capital, it must be employed in the payment of wages, in the purchase of raw material to be worked into a finished commodity, or, lastly, in the making of machines, effected in like manner by the payment of wages, and the working up of raw materials. With respect to that part of the annual produce, which is destined for unproductive consumption, there is less frequently any mistake. As it would be attended with a loss to lay in a greater stock of articles of this class than is required, for immediate use, all of them, except a few, of which the quality is improved by their age, are always expeditiously consumed, or put in a course of consumption.

A year is assumed, in political economy, as the period which includes a revolving circle of production and consumption. No period does so exactly. Some articles are produced and consumed in a period much less than a year. In others, the circle is greater than a year. It is necessary, for the ends of discourse, that some period should be assumed as including this circle. The period of a year is the most convenient. It corresponds with one great class of productions, those derived from the cultivation of the ground. And it is easy, when we have obtained forms of expression, which correspond accurately to this assumption, to modify them in practice to the case of those commodities, the circle of whose production and consumption is either greater or less than the standard to which our general propositions are conformed.

SECTION III

That Consumption isCo-Extensive withProduction

It requires only a few explanations to show, that this is a direct corollary from the proposition established in the preceding section.

A man produces, only because he wishes to possess. If the commodity, which he produces, is the commodity which he desires to possess, he stops when he has produced as much as he desires; and his supply is exactly proportioned to his demand. The savage, who makes his own bow and arrows, does not make bows and arrows beyond what he wishes to possess.

When a man produces a greater quantity of any commodity than he desires for himself, it can only be on account; namely, that he desires some other commodity which he can obtain in exchange for the surplus of what he himself has produced. It seems hardly necessary to offer any thing in support of so necessary a proposition; it would be inconsistent with the known laws of human nature to suppose, that a man would take the trouble to produce any thing without desiring to have any thing. If he desires one thing, and produces another, it is only because the thing which he desires can be obtained by means of the thing which he produces, and better obtained, than if he had endeavoured to produce it himself.

After labour has been divided and distributed, to any considerable extent, and each producer confines himself to some one commodity or part of a commodity, a small portion only of what he produces is used for his own consumption. The remainder he destines for the purpose of supplying him with all the other commodities which he desires; and when each man confines himself to one commodity and exchanges what he produces for what is produced by other people, it is found that each obtains more of the several things, which he desires, than he would have obtained, had he endeavoured to produce them all for himself.

So far as a man consumes that which he produces, there is, properly speaking, neither supply nor demand. Demand and supply, it is evident, are terms which have reference to exchange; to a buyer and a seller. But in the case of the man who produces for himself, there is no exchange. He neither offers to buy anything, nor to sell any thing. He has the property; he has produced it; and does not mean to part with it. If we apply, by a sort of metaphor, the terms demand and supply to this case, it is implied, in the very terms of the supposition, that the demand and supply are exactly proportioned to one another. As far then as regards the demand and supply of the market, we may leave that portion of the annual produce, which each of the owners, consumed in the shape in which he produces or receives it, altogether out of the question.

In speaking here of demand and supply, it is evident that we speak of aggregates. When we say of any particular nation, at any particular time, that its supply is equal to its demand, we do not mean in any one commodity, or any two commodities. We mean, that the amount of its demand, in all commodities taken together, is equal to the amount of its supply in all commodities taken together. It may very well happen, notwithstanding this equality in the general sum of demands and supplies, that some one commodity or commodities may have been produced in a quantity either above or below the demand for those particular commodities.

Two things are necessary to constitute a demand. There are, 1st, a wish for the commodity; 2dly, an equivalent to give for it. A demand means the will to purchase, and the means of purchasing. If either is wanting, the purchase does not take place. An equivalent is the necessary foundation of all demand. It is in vain that a man wishes for commodities, if he has nothing to give for them. The equivalent which a man brings is the instrument of demand. The extent of his demand is measured by the extent of his equivalent. The demand and the equivalent are convertible terms, and the one may be substituted for the other. The equivalent may be called the demand, and the demand the equivalent.

We have already seen, that every man, who produces, has a wish for other commodities, than those which he has produced, to the extent of all that he brings to market. And it is evident, that whatever a man has produced, and does not wish to keep for his own consumption, is a stock which he may give in exchange for other commodities. His will, therefore, to purchase, and his means of purchasing, in other words, his demand, is exactly equal to the amount of what he has produced and does not mean to consume.

But each man contributes to the general supply the whole of what he has produced and does not mean to consume. In whatever shape any part of the annual produce has come into his hands, if he proposes to consume no part of it himself, he wishes to dispose of the whole; and the whole, therefore, becomes matter of supply: if he consumes a part, he wishes to dispose of all the rest, and all the rest becomes matter of supply.

As every man's demand, therefore, is equal to that part of the annual produce, or of the property generally, which he has to dispose of, and each man's supply is exactly the same thing, the supply and demand of every individual are of necessity equal.

Demand and supply are terms related in a peculiar manner. A commodity which is supplied, is always, at the same time, a commodity which is the instrument of demand. A commodity which is the instrument of demand, is always, at the same time, a commodity added to the stock of supply. Every commodity is always, at one and the same time, matter of demand, and matter of supply. Of two men who perform an exchange, the one does not come with only a supply, the other with only a demand; each of them comes with both a demand and a supply. The supply, which he brings, is the instrument of his demand; and his demand and supply are of course exactly equal to one another.

But if the demand and supply of every individual are always equal to one another, the demand and supply of all the individuals in the nation, taken aggregately, must be equal. Whatever, therefore, be the amount of the annual produce, it never can exceed the amount of the annual demand. The whole of the annual produce is divided into a number of shares, equal to that of the people to whom it is distributed. The whole of the demand is equal to as much of the whole of the shares as the owners do not keep for their own consumption. But the whole of the shares is equal to the whole of the produce. The demonstration, therefore, is complete.

How complete soever the demonstration may appear to be, that the demand of a nation must always be equal to its supply, and that it never can be without a market sufficiently enlarged for the whole of its produce, this proposition is seldom well understood, and is sometimes expressly contradicted.

The objection is raised upon this foundation, that commodities are often found to be too abundant for demand.

The matter of fact is not disputed. It will easily, however, be seen, that it affects not the certainty of the proposition which it is brought to oppugn.

Though it be undeniable, that the demand, which every man brings, is equal to the supply, which he brings, he may not find in the market the sort of purchaser, which he wants. No man may have come desiring that sort of commodity, of which he has to dispose. It is not the less necessarily true, that he came with a demand equal to his supply; for he wanted something in return for the goods which he brought. It makes no difference to say, that perhaps he only wanted money; for money is itself goods; and, besides, no man wants money but in order to lay it out, either in articles of productive, or articles of unproductive consumption.

Every man having a demand and a supply, both equal; if any commodity be in greater quantity than the demand, some other commodity must be in less.

If every man has a demand and supply both equal, the demand and supply in the aggregate are always equal. Suppose, that of these two equal quantities, demand and supply, the one is divided into a certain number of parts, and the other into as many parts, all equal; and that these parts correspond exactly with one another; that as many parts of the demand as are for corn, just so many parts of the supply are of corn; as many of the one as are for cloth, so many of the other are of cloth, and so on: it is evident, in this case, that there will be no glut of any thing whether the amount of the annual produce be great or small. Let us next suppose, that this exact adaption to one another of the parts of demand and supply is disturbed; let us suppose that, the demand for cloth remaining the same, the supply of it is considerably increased: there will of course be a glut of cloth, because there has been no increase of demand. But to the very same amount there must of necessity be a deficiency of other things46 ; for the additional quantity of cloth, which has been made, could be made by one means only, by withdrawing capital from the production of other commodities, and thereby lessening the quantity produced. But if the quantity of any commodity is diminished, a demand equal to the greater quantity remaining, the quantity of that commodity is defective. It is, therefore impossible, that there should ever be in any country a commodity or commodities in quantity greater than the demand, without there being, to an equal amount, some other commodity or commodities in quantity less than the demand.

The effects, which are produced, in practice, by the want of adaption in the parts of demand and supply, are familiar. The commodity which happens to be in superabundance, declines in price; the commodity, which is defective in quantity, rises. This is the fluctuation of the market, which every body sufficiently understands. The lowness of the price, in the article which is superabundant, soon removes by the diminution of profits, a portion of capital from that line of production: The highness of price, in the article which is scarce, invites a quantity of capital to that branch of production, till profits are equalized, that is, till the demand and supply are adapted to one another.

The strongest case, which could be put, in favour of the supposition that produce may increase faster than consumption, would undoubtedly be that, in which, every man consuming nothing but necessaries, all the rest of the annual produce should be saved. This is, indeed, an impossible case, because it is inconsistent with the laws of human nature. The consequences of it, however, are capable of being traced; and they serve to throw light upon the argument, by which the constant equality has been demonstrated of produce and demand.

In such a case, what come to every man's share of the annual produce, bating his own consumption of necessaries, would be devoted to production.47 All production would of course be directed to raw produce and a few of the coarser manufactures; because these are the articles for which alone there would be any demand. As every man's share of the annual produce, bating his own consumption would be laid out for the sake of production, it would be laid out in the articles subservient to the production of raw produce and the coarser manufactures. But these articles are precisely raw produce and a few or the coarser manufactures themselves. Every man's demand, therefore, would consist wholly in these articles; but the whole of the supply would consist also in the same articles. And it has been proved, that the aggregate demand and aggregate supply are equal of necessity; because the whole of the annual produce, bating the portion consumed by the shareholders, is brought as the annual produce, with the same abatement, is brought as supply.

It appears, therefore, by accumulated proof, that production can never be too rapid for demand. Production is the cause, and the sole cause, of demand. It never furnishes supply, without furnishing demand, both at the same time, and both to an equal extent.

48 It has been objected,49 that, for the validity of the argument it is necessary to suppose, ‘that new tastes and new wants spring up with the new capital.’ A single reflection will, I think, make it clear that the taste and wants, in question, are essentially and necessarily implied in the very existence of the capital.

The new capital is all to be laid out in the purchase of something, according to the plans of the owner. It is of infinite importance to observe, that every creation of capital is the creation of a demand. It is surprising that this material point is so frequently overlooked. It seems to be little less than self evident, and if admitted, it carries in itself an answer to every argument that has been, or that can be adduced, in favour of the glut.

What is it that we mean, when we say the demand of a nation, speaking of the aggregate, and including a definite circle of production and consumption, such as that of a year? Do we, or can we, mean any thing but its power of purchasing? And what is its power of purchasing? Of course, the goods which come to market. What, on the other hand, is it we mean, when, speaking in like manner aggregately, and including the same circle, we say the supply of the nation? Do we, or can we mean any thing, but the goods which come to market? The conclusion is too obvious to need to be drawn.

What produces the confusion of ideas, which so often occurs in the consideration of this subject, is the glut, which may, and does take place, of particular commodities. Does it follow from this, that there can be a glut of commodities in the aggregate, when it is necessarily true that there cannot be an aggregate supply without an equal aggregate demand, equal both in quantity and in value?

To the argument, which shows that to the same degree, in which one or more commodities may be in such abundance as exceeds the demand, some other commodities must fall short of the demand, it has been replied, that the commodities which are supplied in superabundance fall in value, that this involves all the evil of the glut, and is therefore a reply to the whole of the argument which denies its existence.

This is a reply in words only. What is maintained in my argument is, that there can be no glut of commodities in the aggregate, though there may be in particular instances. The answer made to me is, that there may be a glut in particular instances.

In the very words of the pretended reply, the certainty of the disputed fact is admitted. The value, it is said, of the goods, which are in the state of superabundance, falls. If this is not a play upon the word, it implies the very thing which it is brought to dispute, that whenever one set of goods is supplied above the demand, another is supplied below the demand.

What is it that is necessarily meant, when we say that the supply and the demand are accommodated to one another? It is this: that goods which have been produced by a certain quantity of labour, exchange for goods which have been produced by an equal quantity of labour. Let this proposition be duly attended to, and all the rest is clear.

Thus, if a pair of shoes is produced with an equal quantity of labour, as a hat, so long as a hat exchanges for a pair of shoes, so long the supply and demand are accommodated to one another. If it should so happen that shoes fell in value, as compared with hats, which is the same thing as hats rising in value compared with shoes, this would imply that more shoes had been brought to market, as compared with hats. Shoes would then be in more than the due abundance. Why? Because in them the produce of a certain quantity of labour would not exchange for the produce of an equal quantity. But for the very same reason hats would be in less than the due abundance, because the produce of a certain quantity of labour in them would exchange for the produce of more than an equal quantity in shoes.

What is true of any one instance is true of any number of instances. It is therefore universally true, that, as the aggregate demand and aggregate supply of a nation never can be unequal to one another, so there never can be a superabundant supply in particular instances, and hence a fall in exchangeable value below the cost of production, without a corresponding deficiency of supply, and hence a rise in exchangeable value, beyond cost of production, in other instances. The doctrine of the glut, therefore, seems to be disproved by reasoning perfectly conclusive.

Let us recapitulate the points. A glut, as it is supposed in this doctrine, namely an excess of production in the aggregate, can take place only by a continued increase of production. Let us imagine that we have just come to the supposed point, when, the supply being full, any additional production will be so much of glut. The additional production takes place, and comes to market. What is the consequence? This new product seeks an equivalent. That is to say, it is a new demand. How then is it possible to say that every new supply is a glut, when a new demand is created equal to it? It is obviously nugatory to say, that this new supply may not find purchasers, or the new demand may not find the commodities to which it is directed; for this is only to say that in particular instances there may, from miscalculation, be superabundance or defect. The natural effects, in such a case, may be easily traced, and they afford decisive evidence. The commodities, of which the additional production consists, may be naturally supposed to consist of some of the sorts which are previously in the market. By supposition, the goods previously in the market were accommodated to one another, no species being either in defective, or superabundant supply. The addition which is made to some sorts of these goods, by the new production, would render them superabundant, if there was not a new demand created. These goods would fall in exchangeable value as compared with others, others would rise in exchangeable value as compared with them. But there is a new demand created; for the owner of the new produce, as he has come into the market to sell goods of some kinds, so he has come to buy goods of some other kinds. As the supply, which he brought, of certain kinds of goods tended to reduce their value, so the demand, which he brings, for other kinds tends to increase their value. The result is, that now there are certain kinds of goods, which it is less profitable than usual to produce; others, which it is more profitable than usual to produce: and this is an inequality, which tends immediately to correct itself. This is the mode, in which every addition is made to the productions of a country, and it is a mode, which is evidently the same at every stage of the progress, from the greatest defect, to the greatest excess, of national riches. It commonly, of course, happens, that the man, who brings into the market an addition of produce, endeavours to bring it in goods that are in defective supply, and to purchase goods that are in superabundant supply; and the state of the market generally enables him to do so: so that an addition of produce brought into the market may just as often remedy a glut as be in any degree the cause of it.

The doctrine of Mr Malthus, on the subject of the glut, seems, at last, to amount to this: that if saving were to go on at a certain rate, capital would increase faster than population; and that if capital did so increase, wages would become very high, and profits would sustain a corresponding depression. But this, if it were all allowed, does not prove the existence of a glut; it only proves another thing, namely, that there would be high wages and low profits. Whether such an increase of capital, scarcely coming within the range even of a rational supposition, would be a good thing or an evil thing, it would infallibly produce its own remedy, as the power of capital to increase is diminished with the diminution of profits.

Mr Malthus further says, that the high wages thus produced would generate idleness in the class of labourers. The prediction may be disputed; but, allowed to be correct, what is its import? If, wages continuing the same, less work is done, this is higher pay for an equal quantity of labour; it is therefore the same thing as a rise of wages. It would merely accelerate that diminution of profits, which must in time retard and finally stop the increase of capital, in consequence of which wages would naturally fall. This, therefore, is not a different objection from the former; it is precisely the same objection, only in a different form.

Mr Malthus, thus, totally failing to prove a glut, even from a continued increase of capital greater than the greatest increase of population, substitutes, for arguments to prove that effect, arguments to prove certain other effects.

He says, that were the annual produce thus to go on increasing, its value would be diminished. But this is merely a play upon the word. He says, I call the value of a commodity the number of days' wages it is equal to. If then wages are more than doubled, though you double the amount of your commodities, and have twice as much of every thing, yet you will have less value. An arbitrary change, however, in the meaning of a word proves nothing. The facts, and their relations, remain the same, whatever Mr Malthus, or I, may choose to call them. The facts still are merely these, that society would have the supposed amount of commodities, and all its benefits, and that wages would be very high.

Mr Malthus further says, that this rapid increase of capital would tend to diminish production. That on which the increase of production depends, is the increase of its two instruments, capital and labourers. By the very supposition which Mr Malthus himself has made, and on which he is reasoning, both of these instruments are increasing at their most rapid possible rate. It seems therefore a most extraordinary supposition, that production should not be increasing at its most rapid possible rate.

If it be true, as Mr Malthus supposes, that the high wages supposed would diminish labour, it will be true that less work will be done, and less production effected, than if every man worked more. Let us suppose that the diminution of labour goes on gradually, as wages increase, till at last each man does only half as much work as before, what then is the consequence? Merely this, that if population is going on at its greatest possible rate, doubling itself in twenty years, there will not be a greater increase of production from labour, than there would be if it doubled itself only in forty years, and each man performed twice as much work. This would still be a more rapid rate than that at which capital increases, except in some very rare and extraordinary circumstances. But, if labour were so very dear, and capital so abundant, the consequence would be, that as little as possible of production would be performed by man's labour, as much as possible by machinery and cattle. Ingenuity would be racked to find the means of superseding the most costly instrument. Machines would be multiplied and improved without end; and a much greater proportion of the annual produce would be the result of capital, a much less the result of immediate labour. The diminution of production would not therefore be nearly in proportion to the diminution of each man's labour.

The supposed effects therefore are really of no importance, otherwise it might still be questioned how far the inference is warranted, that high wages tend to diminish industry. Experience seems to be very full on the opposite side. Where wages are excessively low, as in Ireland, there is no industry; where excessively high, as in the American United States, there is the greatest. What does Mr Malthus himself mean by the stimulus which he says is given to industry by an enlargement of the market?

section IV

In WhatMannerGovernmentConsumes

All consumption is either by individuals, or by the government. Having treated of the consumption of individuals, it only remains that we treat of that which has government for its cause.

Although the consumption by government, as far as really necessary,50 is of the highest importance, it is not, unless very indirectly, subservient to production. That which is consumed by government, instead of being consumed as capital, and replaced by a produce is consumed, and produces nothing. This consumption is, indeed, the cause of that protection, under which all production has taken place; but if other things were not consumed in a way different from that in which things are consumed by government, there would be no produce. There are reasons for placing the expenditure of government under the head of unproductive consumption.

The revenue of government must be derived from rent, from profits of stock, or from wages of labour.

It is, indeed, possible for government to consume part of the capital of the country. This, however, it can only do for one year, or for a few years. Each year in which it consumes any portion of the capital, it so far reduces the annual produce; and, if it continues, it must desolate the country. This, therefore, cannot be regarded as a permanent source of revenue.

If the revenue of government must always be derived from one or more of three sources; rent, profits, wages; the only questions requiring an answer, are; in what manner, and in what proportion, should it be taken from each?

The direct method is that which most obviously suggests itself. It shall, therefore, first, consider what seems to be most important in the direct mode of deriving a revenue to government from rent, profits, and wages; and, secondly, I shall consider the more remarkable of the expedients which have been employed for deriving it from them indirectly.

section V

Taxes onRent

It is sufficiently obvious, that the share of the rent of land, which may be taken to defray the expenses of the government, does not affect the industry of the country. The cultivation of the land depends upon the capitalist; to whom the appropriate motive is furnished, when he receives the ordinary profits of stock. To him it is a matter of perfect indifference; whether he pays the surplus, in the shape of rent, to an individual proprietor; or, in that of revenue, to a government collector.

In Europe, at one period, the greater part of, at least, the ordinary expenses of the sovereign was defrayed by land, which he held as a proprietor; while the expense of his military operations was chiefly defrayed by his barons, to whom a property in certain portions of the land had been granted on that express condition. In those times, the whole expense of the government, with some trifling exception, was therefore, defrayed from the rent of land.

In the principal monarchies of Asia, almost the whole expenses of the state have in all ages been defrayed from the rent of land; but in a manner somewhat different. The land was held by the immediate cultivators, generally in small portions, with a perpetual and transferable title; but under an obligation of paying, annually, the government demand; which might be increased at the pleasure of the sovereign; and seldom amounted to less than a full rent.

If a body of people were to migrate into a new country, and land had not yet become private property, there would be this reason for considering the rent of land as a source peculiarly adapted to supply the exigencies of the government51 ; that industry would not, by that means, sustain the smallest repression; and that the expense of the government would be defrayed without imposing any burden upon any individual. The owners of capital would enjoy its profits; the class of labourers would enjoy their wages; without any deduction whatsoever; and every man would employ his capital, in the way which was really most advantageous, without any inducement from the mischievous operation of a tax, to remove it from a channel in which it was more, to one in which it would be less productive to the nation. There is, therefore, a peculiar advantage in reserving the rent of land as a fund for supplying the exigencies of the state.

There would be this inconvenience, indeed, even in a state of things, in which land had not been made private property; that the rent of the land, in a country of a certain extent, and peopled up to a certain degree, would exceed the amount of what government would need to expend. The surplus ought undoubtedly to be distributed among the people, in the way likely to contribute the most to their happiness; and there is no way, perhaps, in which this end can be so well accomplished, as by rendering the land private property. As there is no difficulty, however, in rendering the land private property, with the rent liable for a part of the public burdens; so there seems no difficulty in rendering it private property, with the rent answerable for the whole of the public burdens. It would only in this case require a greater quantity of land to be a property of equal value. Practice would teach its value as accurately, under these, as under present circumstances; and the business of society would, it is evident, proceed without alteration in every respect.

Where land has, however, been converted into private property, without making rent in a peculiar manner answerable for the public expenses; where it has been bought and sold upon such terms, and the expectations of individuals have been adjusted to that order of things, rent of land could not be taken to supply exclusively the wants of the government, without injustice. It would be partial and unequal taxation; laying the burden of the state upon one set of individuals, and exempting the rest. It is a measure, therefore, never to be thought of by any government, which would regulate its proceedings by the principles of justice.

That rent, which is bought and sold, however, that rent, upon which the expectations of individuals are founded, and which, therefore, ought to be exempt from any peculiar tax, is the present rent; or at most the present, with the reasonable prospect of improvement. Beyond this, no man's speculations, either in making a purchase, or in making provision for a family, are entitled to extend. Suppose, now, that, in these circumstances, it were in the power of the legislature, by an act of its own, all other things remaining the same, to double that portion of the produce of the land which is strictly and properly rent: there would be no reason, in point of justice, why the legislature should not, and great reason, in point of expediency, why it should, avail itself of this, its own power, in behalf of the state; should devote as much as might be requisite of this new fund to defray the expenses of the government, and exempt the people. No injury would be done to the original landowner. His rent, such as he had enjoyed it, and to a great degree such even as he had expected to enjoy it, would remain the same. A great advantage would at the same time accrue to every individual in the community, by exemption from those contributions for the expense of the government, to which he would otherwise have had to submit.52

The legislature may, without any straining of language, be said to possess that power, which I have now spoken of only as a fiction. By all those measures which increase the amount of population and the demand for food, the legislature does as certainly increase the net produce of the land, as if it had the power of doing so by a miraculous act.53 That it does so by a gradual progress in the real, would do so by an immediate operation in the imaginary case, makes no difference with regard to the result. The original rent, which belonged to the owner, that upon which he regulated his purchase, if he did purchase, and on which alone, if he had a family to provide for, his arrangements in their favour were to be framed, is easily distinguishable from any addition capable of being made to the net produce of the land, whether it be made by a slow or a sudden process. If an addition made by the sudden process might, without injustice to the owner, be appropriated to the purposes of the state, no reason can be assigned why an addition by the slow process might not be so appropriated.

It is certain, that, as population increased, and as capital is applied with less and less productive power to the land, a greater and a greater share of the whole of the net produce of the country accrues as rent, while the profits of stock proportionally decrease. This continual increase, arising from the circumstances of the community, and from nothing in which the landholders themselves have any peculiar share, does seem a fund no less peculiarly fitted for appropriation to the purposes of the state, than the whole of the rent in a country where land had never been appropriated. While the original rent of the land-holder, that upon which alone all his arrangements, with respect both to himself, and his family, must be framed, is secured from any peculiar burden, he can have no reason to complain, should a new source of income, which cost him nothing, be appropriated to the service of the state; and if so, it evidently makes no difference to the merits of the case, whether this new source is found upon the land, or found any where else.

If we assume with Mr M'Culloch,54 that the whole of what the land can ever yield, is conferred, in the case supposed, on the owner of the land by the previous legislation, there is an end of the question; for it is impossible for any one to express a more decided opinion, than I entertain, against partial taxation; against imposing burthens upon the property of any one class more than upon the property of another class. The real question is, whether any thing, beyond a certain amount of annual benefit, namely, what is at present derived, with such increase as can be rationally anticipated within the number of years' purchase for which the land would sell, can, in a really equitable, excluding a merely technical, mode of considering the subject, be regarded as the property of the land-owner. The considerations, which I have adduced, seem to me to establish, that no point of utility would be violated by such a restriction of the meaning of the term as I have proposed.

I utterly disallow the parallelism of the case of capital, which Mr M'Culloch has adduced; and if because increased profits of stock ought not to be exclusively taxed, therefore the rent, which accrues in the manner above supposed, could not be justly appropriated to the service of the state. Nobody is more aware of the fundamental differences between profits of stock and rent of land than Mr M'Culloch: it is, therefore, the more surprising that he should have founded his argument on an agreement between them, which does not exist.

Only a few lines before, in the same passage, he recognizes such a distinction between rent and profits, as in my opinion is fatal to his argument. ‘The circumstance,’ he says, ‘of rent unavoidably rising in the progress of society, inclines us to think that it would be good policy for the governments of countries, such as the United States, which are possessed of large tracts of fertile and unappropriated land, to retain the property of this land in their own hands:’ that is, in other words, to reserve the rent for the service of the state. The case of profits is not only different, but the reverse. Instead of rising, in the progress of society, they decrease. Land exists by the gift of nature; capital is the product of human industry. Land is originally not the property of any man; capital always is. The profits of stock must be secured to the owner to afford a motive for its preservation and augmentation. For the preservation of the land, or the augmentation of its produce, it is not of the least importance to whom the rent is consigned. Profits are in reality, the fund, out of which rent is always taken; and every increase of rent, in the progress of society, is a deduction from profits, in other words, may be regarded as a tax upon profits, not for the benefit of the state, but that of the landlords.

section VI

A Tax onProfits

A direct tax on profits of stock offers no question of any difficulty. It would fall entirely upon the owners of capital, and could not be shifted upon any other portion of the community.

As all capitalists would be affected equally, there would be no motive to the man, engaged in any one species of production, to remove his capital to any other. If he paid a certain portion of his profits, derived from the business in which he was already engaged, he would pay an equal portion, derived from any other business to which he could resort. There would not, therefore, in consequence of such a tax, be any shifting of capital from one species of employment to another. The same quantity of every species of goods would be produced, if there was the same demand for them. That there would, on the whole, be the same aggregate of demand, is also immediately apparent. The same capital is supposed to be employed in the business of production; and if part of what accrued to the capitalist was taken from him, lessening to that extent his means of purchasing, it would be transferred to the government, whose power of purchasing would be thence to the same degree increased.

There would, therefore, be the same demand, and the same supply: there would also be the same quantity of money, and the same rapidity of circulation; and therefore the value of money would remain the same as before.

section VII55

A Tax onWages

If wages are already at the lowest point, to which they can be reduced; that is, just sufficient to keep up the number of labourers, and no more; the state of wages which seems to have been contemplated, by Mr Ricardo, throughout his disquisitions on political economy, and which the tendency of population to increase faster than capital, undoubtedly leads us to regard as the natural state; no tax can fall upon the labourer; and if any tax is imposed upon wages, it is easy to trace in what way it must produce a corresponding rise of wages. If wages are as low as is consistent with the preservation of the number of labourers, take any thing away from those wages, and the number of labourers must be reduced. The reduction of the number of labourers must be followed by a rise of wages, and this process must continue till wages rise sufficiently high to be consistent with the preservation of the number of labourers; in other words, just as high as they were before the tax was imposed.

If wages are not at this lowest rate; if they are sufficiently high to afford the labourers something more than what is necessary to keep up their numbers, something which may be retrenched without a diminution of their numbers, they may, to this extent, be made subject to taxation.

Wages, like the price of any other commodity, rise or fall, in proportion as the demand for labour rises or falls, compared with the supply.

When wages are so low as barely to keep up the number of labourers, wages must rise to the amount of any tax imposed upon them, because there is a continued diminution of the supply of labourers till this rise is effected.

In the case of wages above this level, there is no necessary reduction of the number of labourers in consequence of a tax imposed upon wages. There is no alteration, therefore, in the state of supply. From this it follows, that if there is not an increase of demand for labourers, in consequence of such a tax, there can be no rise of wages; and if there be no rise of wages, the tax must fall upon the labourers. The solution, therefore, of the question, whether a tax upon wages falls upon the labourer, depends upon the inquirey, whether there is, or is not, such increase of demand.

An increase of demand for labour can arise from two causes only; either from an increase of capital, the fund destined for the employment of labour; or a difference in the proportions between the demand for the produce of fixed capital and that of immediate labour.

The first of these causes needs no illustration. The operation of the second we proceed to trace. As the demand of a nation consists of a great number of demands of a great number of individuals, the case of one individual will exemplify the whole.

Suppose a man with a certain income; to determine our ideas, let us call it 1000l. per annum; this is his demand. Let us suppose it divided into two portions, the one of which constitutes his demand for the produce of fixed capital; the other his demand for that of immediate labour: and let us suppose that these proportions are different at two different times. We have to examine what are the consequences.

Let us suppose that, first, he spends 500l. of this income on the produce of fixed capital; 500l. on that of immediate labour.

In the first case he purchases commodities only; in the second he purchases either commodities or services, but gives the same employment to labour whether he purchases the one or the other. If a man makes a basket in a day, for which you pay him a shilling, or weeds in your garden a day at a shilling's wages; in both cases the demand you furnish for labour is precisely the same. The 500l. expended in the produce of immediate labour, is a demand for that number of labourers, whose wages for a year amount to 500l.; say for 1000 labourers.

If the commodities, made with fixed capital, on which he spends the other 500l., are made purely with fixed capital; an imaginary case, but which we may suppose, for the sake of illustration; this portion of his income presents no demand for labour at all. The price of the commodities which are thus purchased is wholly made up of profits. It is the result of labour formerly expended, and, with the portion of labour now in the market it has nothing to do.

Suppose that of this 500l. one half is turned, by a change in the taste of the owner, from the purchase of commodities, the produce of fixed capital, to the purchase of the produce of immediate labour. Two things happen: a demand is created for 250l. worth of mere labour: a demand is annihilated for 250l. worth of the produce of fixed capital; that is to say, as much of the capital of the country as yielded 250l. of profits, becomes useless. This is entirely distinct from a fall in the rate of profits. Such a fall may or may not accompany such a change in the two species of demand. This is a loss of capital. Capital, to this extent, ceasing to be employed, ceasing to be needed, is, to any useful purpose, destroyed. Along with it there is destroyed a productive power to the extent of 250l. per annum. This is not compensated by any new production: for by the supposition the number of labourers is not increased. Every labourer that is employed, under the new application of this 250l. of the supposed income, would have been employed if the new application had not taken place, if the capital had not been destroyed.

Under the new distribution of the 1000l. income, as much is awarded to the class of labourers, as is taken from the class of capitalists. 250l. were formerly awarded as profits, which are now awarded as wages. So far, there is no absolute loss, as much being gained by one, as lost by another. The loss arises from this, that, while no new labour is brought into employment, and no addition is made to the productive powers of labour, nor of course to its produce, a portion of capital is thrown out of employment, its productive powers are lost, and the annual produce of the country is diminished.

This case is reversed when machinery is invented which performs the work of immediate labour. Let us make the same supposition of the extreme cases as before; that the machine invented performs the functions of labour without the aid of labour, that the produce is purely the result of capital. Let us suppose a capital of 10,000l.; wholly, in the first instance, employed in the payment of wages. Let us suppose that this 10,000l. is afterwards expended in making a machine which produces the same commodity, and the same quantity of it. In this case the whole of the labourers who received the 10,000l. of wages, are deprived of their old employment. The consequence is, not that they are thrown out of employment, but that they increase the supply of labour in the market and reduce wages. The labourers, in this case, do not necessarily cease to produce; they produce just as much as before. The whole of the produce of the machine, therefore, is a new production, an addition to the former amount of the annual produce.

Compare now the two cases; the case where the demand for the produce of fixed capital is diminished, and that for immediate labour is increased; and the case where the demand for the produce of fixed capital is increased, and that for immediate labour is diminished. In the first there is a rise of wages, and a diminution of profits, and so far there is compensation: but there is besides this a defalcation of production to the extent of the productive powers of all the capital superseded; and this is a dead loss. In the second case, there is a fall of wages, and a rise of profits, so far again there is compensation; but in this case there is an increase of production to the extent of the productive powers of the whole of the fixed capital created. This is a new fund for the employment of labour, and as far as it goes, prevents the fall of wages.

Having thus illustrated the only case in which an increase of demand for labour can take place, without an increase in the amount of capital, which in the case before us is not supposed, we are prepared to see where an increase of demand for labour, in consequence of a tax upon wages, can, and where it cannot, exempt the labourer from the tax.

The effect of a tax upon wages, when wages are so high as to be capable of being affected by a tax, is to transfer a certain power of commanding the produce of labour and capital from the class of labourers to the government. With the amount of the tax, before it was taken from the labourers, they presented a demand for so much of the operations of fixed capital, so much of those of immediate labour. Where the same amount is transferred to the government, the government presents in like manner a demand for so much of the operations of fixed capital, so much of those of immediate labour. If the proportions of the demand for the produce of fixed capital and immediate labour were the same in both cases, there would be no alteration in the demand for labour, in consequence of the tax, and the whole of it would fall upon the labourers. If the government presented a greater demand for the produce of immediate labour, less for that of fixed capital, than was presented by the labourers, there would so far be an increase of demand for labour, and a rise of wages, which would so far be a compensation to the labourer for the tax, at the expense, however, of profits, and with an uncompensated loss to the extent of all the produce which the superseded capital would have yielded.

Properly speaking, however, this rise of wages is not an effect of the tax upon wages. It is the effect of a very different cause; of a supposed peculiarity in the nature of the government expenditure. When we are talking, therefore, of the effect of a tax upon wages, in increasing or diminishing the demand for labour, this extraneous circumstance, which may or may not be concomitant, ought to be left out of the account. The only essential effect of a tax upon wages is to take so much from the labourer, just as a tax upon profits takes so much from the capitalist, a tax upon rent takes so much from the landlord.

It is further essential to this question to observe, that the effect of the government expenditure in raising wages, by furnishing a greater demand for immediate labour, less for the produce of fixed capital, would take place equally if the tax were levied upon profits, or upon rent. If this is the effect of the expenditure of government, upon whatever source of income the tax is levied, to lay the tax upon wages is only to prevent the labourer from reaping the benefit of that rise of wages, the full benefit of which he would otherwise enjoy. In this sense, therefore, also, and, when this is included, all are included, it is evident that the tax really falls upon the labourer.

The argument may be shortly stated thus. Before the tax, a certain demand existed for labour; arising, in part from the funds of the landlord, in part from those of the capitalist, and in part from those of the labourer. After the tax the two former remain the same. But the demand arising from the funds of the labourer is diminished. If this loss of demand were not compensated, the labourer would sustain two evils in consequence of the tax. He would pay the tax; and his wages would fall. The second of these evils he does not sustain, because the diminution of demand on the part of the labourers is compensated. The increase of demand on the part of government is exactly equal to the diminution of the demand on the part of the labourers. This prevents wages from falling, but it does no more. It yields nothing in compensation for the tax.

section VIII12

DirectTaxes which areDestined to fallEqually upon allSources ofIncome

Assessed taxes, poll taxes, and income taxes, are of this description. After what has been said, it is not difficult to see upon whom, in each instance, the burden of them falls.

In as far as they are paid by the man, whose income is derived from rent, or the man whose income is derived from profits of stock the burden of them is borne by these classes. No additional demand arises from the tax; and, therefore, neither can landlords raise their rents, nor capitalists the price of their commodities.

In respect to the labourer, the result is different in different cases. If his wages are already at their lowest rate, no portion of such tax can fall upon him. His wages will rise, and throw his share upon the capitalist. If the wages of the labourer are sufficiently high, he will sustain his share of the burthen.

The effect of these taxes upon prices may be easily ascertained. A tax upon rent would produce no alteration in the price of any thing. Rent is the effect of price; and the effect cannot operate upon the cause. A tax upon profits would alter prices, only as a tax upon wages alters them.

Of the tax upon wages, there are two cases; that in which it raises wages, and that in which it does not raise them. In the case in which it does not raise them it will hardly be supposed that any alteration of prices should ensue. The capital of the country is not supposed to undergo any alteration, nor, of course, the quantity of produce. With respect to the demand, a portion of the power of purchasing, which belonged to the labourers, is taken from them: but the whole of what is taken from them is transferred to the government. Government may send abroad the amount of the tax. If we suppose, however, that it sends it abroad in goods, it is evident, that no diminution of prices will ensue. And if it sends it abroad in bullion, the case, in the long run, is the same; for as the vacuity which is thus made in the bullion market, is to be supplied, goods must go abroad to purchase it. The exportation of the bullion, if it diminishes the quantity of money, will produce a temporary depression of price. But the same effect would follow from the same cause on any other occasion.

In the case in which wages do rise, it may also be seen, that the capital and produce of the country remain the same, the amount of demand and supply the same, and the value of money the same. The aggregate of prices, therefore, one thing being compensated by another, is the same. That change, indeed, which takes place in the relative value of certain kinds of commodities, as often as wages rise and profits fall, is necessarily produced on this occasion. Those commodities, which are chiefly produced by fixed capital, and where little payment of wages is required, fall in price, as compared with those in producing which immediate labour is the principal instrument, and where little or nothing of fixed capital is required. The compensation, however, is complete; for as much as the one of these two sets of commodities falls in price, the other rises; and the price of both, taken aggregately, or the medium of the two, remains the same as before.

The several species of property, which in the ordinary and coarse application of language, pass under the name of income, are exceedingly different. This gives occasion to a question, whether it is equitable to levy the same rate of tax upon all incomes. The question, however, in what proportion taxes ought to fall, is rather a question of general policy, than of political economy; which, in regard to taxes, confines itself to two questions: first, on which of the three original shares of the annual produce, rent, wages, or profits, a tax falls: and next, whether it operates unfavourably on production. As this question however, is generally introduced into books on political economy, it is proper here to point out the way to its solution.

The grand distinction of incomes, as regards this question, seems to be, the value of them. All property may, with trifling exceptions, be regarded as income. But the value of incomes depends upon two circumstances: first, upon what is called their amount, as 100l. per annum, or 1000l. per annum; secondly, their permanence and certainty. Thus the value of a man's property is ten times as great, if he has 1000l. year, as if he has 100; but that only if the permanence and security are equal; for if 100l. a year is secure for ever, while 1000l. a year is only to endure for a few years, the 100l. a year will be the more valuable property of the two. That, on the occasion of imposing a tax, property is to be estimated, according to one of the elements of its value, and not according to all of them, is a proposition which ought not to be admitted except on very substantial grounds.

Let us suppose, that one man's income is 100l., the rent of land; that another man's income is 500l., the salary of his office, depending not only upon his life and health, but in some degree upon the pleasure of his employers. The first will be worth 30 years' purchase; the last, in certain circumstances, not worth more than six. The real value of the property of these two men will, in these circumstances, be the same; and upon the principle of equal burthens upon equal property, the tax upon these ought to be the same.

It is true that, if the tax, proportional to the amount, is paid for 30 years upon the 100l. and six years upon the 500l. the amount of tax will be the same. But this, as a principle of taxation, is liable to this objection; that it excludes from consideration that, to which all consideration should tend, individuals, and their feelings.

There is another point of view in which we must consider the question. The period of enjoyment of the man whose income is 100l. in rent, may be as short as that of the man whose income is 500l. in salary; the life of the first may not be worth a greater number of years' purchase than the salary of the second.

In this way, undoubtedly, all incomes may be regarded as measured by the life of the individual.

It may also be affirmed, that, in like manner as the income of the man, who draws rent, passes to his descendants; so the income of the man who draws salary, passes to his successors. Strictly speaking, the two species of income are both equally permanent: the rent flows in a permanent stream, through one generation after another, and so does the salary. It would follow, therefore, that if rent were taxed at one rate, salaries at another, there would be two perennial streams of income, taxed in different degrees, the one more, the other less heavily.

This is true, and the only reason for such difference is, the difference of those who succeed to the incomes. In the case of income derived from land or from capital, the income passes to a man's children, to the persons most dear to him: in the case of salaries, it passes to those, with whom the man has no connexion. Whether this reason is sufficient, requires to be considered. There can be no doubt that in regard to feelings, in regard to the happiness of the individuals, it makes a great difference, whether their incomes are to pass to their children at their deaths, or to their successors, in their offices, or their professions. On this score it would seem to be required by the principle of all good legislation, that a corresponding difference should be observed in the imposition of taxes.

This, however, would be a step, it is said, towards the equalizing of fortunes. It would lessen the incomes of the descendants of the owners of permanent incomes, in order to increase those of the descendants of persons with life incomes. This is liable to the same objections as raising the scale of taxation, in proportion to the scale of income; taxing commodities, for example, higher to the man of 1000l., than to the man of 100l. a year. It would lessen the motive to make savings, by lessening the value of great accumulations. It is to be inquired whether this allegation is well founded.

A tax, to operate fairly, ought to leave the relative condition of the different classes of contributors the same, after the tax, as before it. In regard to the sums required for the service of the state, this is the true principle of distribution.

In the case of incomes of different permanency, what does leave the relative condition the same?

It is quite clear, that the prospect for a man's children is one part of that condition. If a tax so operates upon two classes, as to reduce the condition of the children of the one class lower, as compared with the condition of the children of the other class, than it would otherwise be, it does not leave the relative condition of those two classes the same.

Suppose two men, each of 1000l. a year, the one rent, the other salary; the latter worth 15 years' purchase. Suppose that to make a provision for his children, the man with the salary saves one-half; the man with the rent spends all. With respect to expenditure, the man with the salary stands to the other in the relative condition of a man of half the income.

Next let us examine how it is with the children. The annual sum of 500l. saved for 15 years, at compound interest, would amount, say, to 10,000l. This at 5 per cent. interest, would afford a perpetual income to the children of the man with the salary of 500l. a year. The children of the man with the rent would have 1000l. In this way, as the father's condition was that of a man with half the income, so is that of the children.

It is perfectly plain, therefore, that if the one is taxed at more than one half the rate of the other, he is taxed too high. The salary we supposed to be worth 15 years' purchase: the rent is worth 30: one half is here also the proportion. It therefore points out the rule. If one income is worth half as many years' purchase as another, it ought to be half as much taxed; if it is worth one-third of as many years' purchase, it ought to be taxed one-third, and so on.

It may be said, that if the class who live upon salaries are loaded with more than their due share of the burthen, the balance will adjust itself; because, the situation having been rendered less desirable, fewer people will go into it, and the salaries will rise. This does not remove the objection. For, first of all, why should legislation disturb the natural proportion, in order that the force of things may restore it? In the next place, the restoration of the equilibrium in this case is a slow operation. It requires a generation to pass away before the diminution of the numbers of those who live upon salaries can raise their condition. A whole generation is therefore sacrificed.

section IX

Taxes onCommodities;Either someParticularCommodities; or allCommoditiesEqually

Taxes on commodities may either affect some particular kinds, or all commodities equally.

When a tax is laid on any particular commodity, not on others, the commodity rises in price, or exchangeable value; and the dealer or producer is reimbursed for what he has advanced on account of the tax. If he were not re-imbursed, he would not remain upon a level with others, and would discontinue his trade. As the tax is, in this case, added to the price of the goods, it falls wholly upon the consumers.

When a tax, in proportion to their value, is laid upon all commodities, there is this difference, that no one commodity rises in exchangeable value, or, as compared with another. If one yard of broad cloth was equal in value to four yards of linen, and if a duty of ten per cent. on the value were laid upon each, a yard of cloth would still be equal to four yards of linen.

An ad valorem duty upon all commodities would have the effect of raising prices, or their value in relation to money.

The members of the community would come to market, each with the same quantity of money as before. One-tenth of it, however, as it came into the hands of the producers, would be transferred to the government. But it would again be immediately laid out in purchases, either by the government itself, or by those to whom the government might dispose of it. This portion, therefore, would come into the hands of the producers oftener by once, after the tax was imposed, than before. Before the tax was imposed, it came once into the hands of the producers, from those of the purchasers of goods. After the tax was imposed, it would come into the hands of the producers in the same manner: but it would go from them to the government, and from the government come back into the hands of the producers a second time.

The producers, in this manner, would receive for their goods, not only the whole ten-tenths of the money of the country, as before; but they would receive one-tenth twice, where they received it only once before. This is the same thing exactly as if they had received eleven-tenths, or as if the money of the country had been increased one-tenth. The purchasing power of the money, therefore, is diminished one-tenth; in other words, the price of commodities has risen one-tenth.

Upon whom the tax would, in that case, fall, is abundantly obvious. The purchasers would come with the same quantity of money as before. The purchasing power of that money, however, would be reduced one-tenth, and they would be able to command one-tenth less of commodities than before. The tax would, of course, fall upon purchasers.

57 As this argument has not produced, in some minds whose decisions I highly respect, the same conviction which it has in my own, I will endeavour to render it still more perspicuous, by recurrence to one of the simplest possible cases.

Let us suppose a community of 10 persons, with only two species of commodities, bread, and meat. Let us suppose that 5 of those persons have 5 loaves to dispose of, and that the other 5 have 5 pounds of meat, the value of a loaf the same as that of a pound of meat. Let us suppose that the exchange takes place, as in a more complicated state of things, by the intervention of money; and, as the simplest possible case, let us suppose that the whole of the goods is exchanged against the whole of the money; in other words, that one exchange of the whole of the goods is performed by one operation of the money. If each loaf is worth 10 pence, and each pound of meat the same, it is necessary, under this supposition, that the 5 persons having the 5 loaves of bread should have 50 pence, and the persons having the 5 pounds of meat should have 50 pence.

It is obvious that the persons having the 5 loaves, going to market with 50 pence to buy the 5 pounds of meat, will pay for it at the rate of 10 pence per pound, and that the persons with the meat, going to market for the bread, will pay for it at the rate of 10 pence the loaf. If we suppose that the production of the loaves and the meat is perpetually renewed, it is evident that the same exchanges, at the same money price, may take place for ever. All this, I think, is clear.

Let us then suppose, that government taxes these commodities 10 per cent., and observe attentively what happens. When the first loaf of bread is sold for 10 pence, one penny out of the 10 pence received is paid by the seller to the government, and when one pound of meat is sold, one penny out of the 10 pence received is in like manner paid to the government. By the time that one exchange of all the commodities is effected, one-tenth of the money had been paid to government. With the money, government, as fast as it received it, has come into the market to purchase the same goods. The former purchasers came with all the former quantity, namely, with 100 pence, government came with a tenth more. For the same quantity of goods, therefore, for which 100 pence were paid before, 110 pence have been paid now; it is therefore proved that the price of goods is raised at the rate of the tax. The reason is, that one portion of the money which only performed one operation, in effecting one exchange of the goods, now performs two operations.

The case would be precisely the same, if we supposed the rapidity of circulation to be much greater, and that each piece of money had to perform 10 operations in order to effect one exchange of the whole of the commodities. It is necessary to observe that this is the only correct meaning of the term rapidity of circulation. This is the only meaning in which rapidity of circulation has any effect upon the value of the money. This is strictly, therefore, the sense in which the term is here employed. If we suppose that in order to perform one exchange of the whole of the commodities, the money has to be exchanged 10 times, it is obvious, as before explained, that it exchanges each time for precisely one-tenth of the goods. Let us conceive that the bread and the meat, supposed in the former case, are 10 times as great, the loaves 50, and the pounds of meat 50, the money remaining the same, but performing 10 operations to effect one exchange of the whole. It is very obvious that the effect which we have just explained, as taking place, in consequence of the tax, upon the whole of the goods, when the whole was exchanged by one operation of the money, will now take place upon the one-tenth of the goods which is exchanged by one operation of the money; it will be raised one-tenth in money value; each tenth will be so raised; and therefore by necessary consequence the whole.

section X

A Tax upon theProduce of theLand

A tax upon the produce of land, a tax upon corn, for example, would raise the price of corn, as of any other commodity. It would fall by consequence, neither upon the farmer, nor upon the landlord, but upon the consumer. The farmer is situated as any other capitalist, or producer; and we have seen sufficiently in what manner the tax upon commodities is transferred from him that produces to him that consumes.

The landlord is equally exempted. We have already seen that there is a portion of the capital employed upon the land, the return to which is sufficient to yield the ordinary profits of stock and no more. The price of produce must be sufficient to yield this profit, otherwise the capital would be withdrawn. If a tax is imposed upon produce, and levied upon the cultivator, it follows that the price of produce must rise sufficiently to refund the tax. If the tax is 10 per cent, or any other rate, upon the selling price, corn must rise in value one-tenth, or any other proportion.

In that case it is easy to see, that no part of the tax falls upon the landlord. It is the same as if one-tenth of the produce were paid in kind. In that case, it is evident, that one-tenth less of the produce would come to the landlord; but as it would rise one-tenth in value, his compensation would be complete. His rent, though not the same in point of produce, would be the same in point of value.

If, instead of a money-tax, varying according to price, it were a fixed money-tax upon the bushel, or the quarter, the money-rent of the landlord would still be the same. Suppose the land or capital, which, as explained above, yields no rent, to produce in all two quarters, that which does yield rent to produce six quarters; four quarters, in that case, are the share of the landlord. Suppose the tax per quarter to be 1l.; corn must rise 1l. per quarter. The farmer, before the imposition of the tax, paid the landlord the price of four quarters; after it, he pays him the price of four quarters, deducting 1l. per quarter for what he had paid as tax. But corn has risen 1l. per quarter. He, therefore, pays him the same sum as before.

section XI58

A Tax upon theProfits of theFarmer, and uponAgriculturalInstruments

If a tax were imposed upon the profits of the farmer, without being imposed upon the profits of any other class of producers, the following would be its effects.

It would in the first place raise the price of raw produce; because that price is determined by the produce of the capital which pays no rent, and which, if it sustains a tax, must rise like any other taxed commodity, to indemnify the producer.

In consequence of this rise of price, it would increase the rent of the landlords. Suppose that capital is employed on the land in this case under three degrees of productiveness: the most productive portion yielding 10 quarters, the second 8, and the last 6. A landlord who had land cultivated under these circumstances, would receive at the rate of 6 quarters of corn as rent, 4 produced by the first portion, and 2 by the second. Suppose a tax imposed such as to raise the price of corn 5 per cent.: it leaves the 6 quarters of corn, accruing to the landlord, the same as before; but the value of these 6 quarters is 5 per cent. higher; the landlord's rent, therefore, is increased 5 per cent.

The difference between this case, and those treated of in the preceding section, is, that the landlord's portion of the produce is not taxed, when the profits of the farmer are taxed.

A tax upon the instruments of agriculture, is the same thing in effect, as a tax upon the profits of the farmer. It raises the value of produce, without affecting the quantity which goes as rent to the landlord. Thus, if a tax is laid upon agricultural horses, it increases the expense of production to the farmer, just as a tax upon coals would increase the cost of production to the iron-founder. For this costs the farmer can only be indemnified by a rise in the price of the produce. The quantities, however, of the corn, the 10, the 8, the 6 quarters, yielded to the different portions of his capital, are not affected. Six quarters of corn are the rent of the landlord, the same as before. Not only, therefore, does the whole of the tax fall upon the consumer, but he is charged with another burthen, the additional rent which is paid to the landlord. The community is taxed, in part for the use of the government, in part for the benefit of the landlords.

section XII

Tithes andPoorRates

Tithes are a tax upon the produce of the land; a tenth of the produce, perfectly or imperfectly collected.

The operation, therefore, of this tax, has been already ascertained. It raises the price of produce, and falls wholly upon the consumer.

If the poor rate were levied in proportion to profits upon farmers, manufacturers, and merchants, it would be a tax upon profits. If it were levied in proportion to the rent of land, it would be a tax upon the rent of land. If it were levied upon the rent of houses, it would fall upon the inmates, and be a tax upon income. From the mode in which it is levied, it is drawn in part from all these sources. If it falls disproportionately upon the profits of any one class of capitalists, that class receives compensation. If the farmers, as is usually supposed, pay a higher rate for the maintenance of the poor than other producers, this as far as the excess extends, is the same thing as a separate and additional tax upon them. But if a separate tax is laid upon the farmers, we have already seen that it operates immediately to raise the price of corn sufficiently high to afford them compensation for the tax, and raises the rent of the landlords. It is to them a benefit, not a burthen.

Of all taxes which raise the price of corn, one effect is remarkable. As a certain quantity of corn is necessary to the subsistence of the labourer, his wages must be competent to the purchase of that quantity. They must often, therefore, rise as the price of that quantity rises. But we have already seen, that, in proportion as wages rise, profits fall. A tax upon corn, therefore, operates upon all men as consumers. Upon capitalists it is apt to operate in two ways; it is, first, a tax upon them as consumers; and, secondly, it has often the same effect upon them as a tax upon their profits.

section XIII

A Tax perAcre on theLand

We have already considered in what manner a tax, laid upon the land, and proportioned to the rent; in what manner a tax laid upon the land and proportioned to the produce; and in what manner a tax laid upon the land, and proportioned to the farmer's profits, would operate. The first would be a tax upon the landlord; the second would be a tax upon the consumer, and would not effect the landlord; the third would be a tax upon the consumer, and would benefit the landlord. A tax may also be laid upon the land at so much per acre.

We have seen that there is a portion of capital employed upon the land, the return to which is sufficient to afford the ordinary profits of stock, but nothing more. If any addition is made to the cost of producing, a rise of price must afford compensation. If no addition is made to such cost, price will not be affected.

If a tax is laid, at so much per acre, on land, both cultivated, and uncultivated, no addition will be made to the cost of producing. There are two cases in which portions of capital are employed on the land, without yielding more than the ordinary profits of stock; of course yielding nothing for rent: the one is, where, after two or more doses of capital have been bestowed upon land, each yielding less than the former, a third or a fourth comes to be employed; the other is, where, after land of the second or third degree of fertility has been exhausted, cultivation is forced upon land of a still inferior quality.

59 It is evident, immediately, that a tax on the acre does not affect the cost of production, when a subsequent dose of capital is employed upon the same land; because the tax is already paid; and it is, therefore the interest of the farmer to apply a second dose, as soon as the price of produce has risen sufficiently high to afford him a full profit and nothing more.

When capital is applied to new land of inferior quality, upon which the tax was previously paid, the cultivator receives his remuneration the moment produce rises sufficiently high to afford the profits of the stock which the cultivation may require; and no allowance is to be made for a tax which does not depend upon the cultivation.

When the tax is levied only on cultivated land; as capital passes downwards from the more fertile land which has been cultivated before, to the less fertile, which has not been cultivated, the tax likewise descends. The produce to be raised must yield, not only the ordinary profits of stock, but the tax also; such land will not be cultivated till the price of produce has risen sufficiently high to yield that accumulated return. The tax, therefore, is included in the price.

The consequence, with regard to the landlord, is beneficial. Suppose that land of the third degree of fertility is the last to which cultivation has descended; that such land yields at the rate of two quarters per acre, land of the next degree above it at the rate of four quarters, and land of the first degree of fertility six quarters; in this case, it is evident, that two quarters upon each acre affords both the tax, and the remuneration to the farmer. The landlord, therefore, may derive two quarters from the acre of second quality, four quarters from the acre of first. He draws this quantity of produce, in both cases; as well when such a tax is levied, as when it is not levied. But in the case of the tax, the price is raised, and each of his quarters of corn is of greater value. Such a tax would, therefore, raise upon the consumers, not only so much per acre to the government, but a great deal more for the benefit of the landlords.

One effect, however, of this tax would be, to retard the descent of capital to the inferior species of land. So long as fresh doses of capital, upon the land already in cultivation, were not diminished in productive power, to the whole extent of the tax, below what would be the productive power of capital employed upon the best of the uncultivated land, no capital would be employed upon it, and, during that interval, the cost of corn would be raised to the consumer, and additional rent would go to the landlord, without affording any revenue to the state.

When first imposed, such a tax would have the effect of throwing an inferior species of land out of cultivation, wherever an additional dose of capital, on the better land, would not in productive power fall below that, which had gone to the worse land, to an extent equal to the tax. This would still raise the price of corn, because, by the supposition, the last portion of capital would be less productive than before; it would also increase the rent of landlords, but not so much as the full operation of the tax.

section XIV

Taxes upon theTransfer ofProperty

Taxes upon the transfer of property are of several kinds; such as stamp duties upon purchase and sale, legacy duties, duties upon the writings required in the conveying of property, and others of the same nature.

In the case of all that property, which is the produce of labour and capital, the tax upon purchase and sale falls upon the purchaser, because the cost of production, including the profits of stock, must be afforded along with the tax.

Taxes upon the transfer of land, which is a source of production, and not the effect of labour and capital, fall upon the seller; because the purchaser considers what benefit he could derive from his capital employed in another way; and if the land will not afford him an equivalent, he will refuse to exchange it for the land.

Legacy duties, and duties upon free gifts, fall, it is evident, upon the receivers.

section XV

LawTaxes

Taxes upon proceedings at law are levied chiefly in the form of stamps, on the different writings employed in the business of judicature; and in that of fees on the several steps and incidents of the judicial procedure.

It is evident enough that they fall upon the suitors. It is equally evident that they are a tax upon the demand for justice.

Justice is demanded in two cases; either that, in which it is a matter of doubt to which of two persons a certain right belongs; or that, in which the right of some person has been violated, and a remedy is required.

There is no peculiar propriety in taxing a man, because he has a right, which, unfortunately for him is disputed. But there is the greatest of all improprieties in taxing a man, because he has sustained an act of injustice.

It is very evident that all such taxes are a bar in the way of obtaining redress of injury; and just in so far as any thing obstructs the redress of injury, injustice is promoted. A tax upon justice, therefore, is a premium upon injustice.

section XVI

Taxes onMoney, and thePreciousMetals

A tax upon money cannot be conveniently levied, excepting either upon the occasion of its coinage, or that of the first acquisition of the bullion. It might be levied upon the bullion, either upon its importation from abroad; or, if the mine were within the country, upon its issuing from the mine.

A tax upon coinage is the same thing, in effect, with what has been called a seignorage. It is the paying of something more for the coins, than the quantity of bullion of which they are composed.

The effect of this is evident, when a currency consists entirely of the metals. No man will carry bullion to be coined, unless the metal in the coin is of as much more value than the bullion, as the amount of the tax. The currency, therefore, is raised in value; that is to say, the metal in the state of currency is raised in value, to an amount equal to that of the tax.

This is a tax which possesses the peculiar property of falling upon nobody. It falls not upon the man who carries bullion to be coined, because he carries it only when the coins are equal in value to the tax and bullion together. It falls not upon the persons to whom the coins are paid as the medium of exchange; because they are of the same value to them as if they contained the whole of the bullion for which they will exchange.

This is a tax, therefore, which ought always to be carried as far as the peculiar limit to which it is subject will admit. The limit to which it is subject, is the inducement to illicit coining. If the tax is raised so high as to pay the coiner for his expenses and the risk of detection, illicit coinage is ensured.

In a country, in which paper circulates along with gold, the paper has a tendency to prevent the effect of a seignorage.

It is the interest of those who issue paper, to maintain in circulation as great a quantity of it as they can. They may go on increasing the quantity, till it becomes the interest of those who hold their notes to bring the notes to them for coins.

It is the interest of those who are the possessors of notes, to carry them to the bank for coins, only when there is a profit by melting. The coins, as coins, are not more valuable than the paper, so long as they circulate, without a premium, along with the paper. But if the paper has been issued in great quantity, the value of the currency may be so reduced, that the metal in the coins may be of more value as bullion than as coin. Melting for the sake of this profit, is the only check upon the quantity of a paper money convertible into coins at the option of the holder.

It is very obvious, that if coins are issued under a seignorage, with the metal in the coins of greater value than the metal in the state of bullion, the coins can be retained of that value only if the currency is limited in amount. When paper is issued without restriction, that limit is removed. The paper issued increases the quantity of currency, till the metal in the coins is reduced, first to the same value as that in bullion, next to a less value. At that point it becomes the interest of individuals to demand coins at the bank, for the purpose of melting; and then it is the interest of the bank to contract its issues.

A very simple, however, and a very effectual expedient, is capable of being adopted, for preventing this effect of a paper currency. That is an obligation on the bank to pay for its notes, either in coins, or in bullion, at the option of the holder. Suppose that an ounce of gold is coined into 3l., deducting five per cent. for seignorage, and suppose that a bank which issues notes is bound to pay, on demand, not only 3l. of coins, but an ounce of bullion, if preferred; it is evident that the bank, in that case, has an interest in preventing the currency from sinking in value. If the currency is so high in value, that 3l. of currency is really equal in value to an ounce of bullion, the bank loses nothing by being obliged to give for it an ounce of bullion; if it is so depressed in value that 3l. is not worth an ounce of bullion, it does lose. The check upon the issue of paper is thus made to operate earlier.

A tax upon the precious metals, when imported, or extracted from the mines, would as far as the metals were destined to the ordinary purposes of use or ornament, fall upon the consumers: it would, as far as the metals were used for currency, fall upon nobody.

It would raise the exchangeable value of the metal. But a smaller quantity of a valuable metal is not less convenient as the medium of exchange, than a greater quantity of a less valuable. It would be expedient, therefore, to derive as much as possible from this source. The facility, however, of carrying and concealing a commodity which involves a great value in small dimensions, renders it a source from which much cannot be derived. Under a very moderate duty, illicit importation would be unavoidable.

Though a tax upon the precious metals, as imported, or issued from the mines, would, like all other taxes upon particular commodities, fall ultimately upon the consumer, it would not do so immediately. That which enables the producers, when a tax is laid upon any commodity, to throw the burden upon the consumers, is the power they have of raising the price, by lessening the supply. Of most commodities, the quantity in use is speedily consumed. The annual supply bears, therefore, a great proportion to the quantity in use; and if it is withheld, or only a part of it withheld, the supply becomes so far diminished as greatly to raise the price. The case is different with the precious metals. If the annual supply were wholly withheld, it would, for some time, make no great defalcation from the quantity in use. It would, therefore, have little effect upon prices. During that interval the sellers of the metals would not be indemnified. During that time, more or less of the tax would fall upon them.

The same observation applies to houses, and all other commodities of which the quantity in use is great in proportion to the annual supply.

section XVII

Effects of theTaxation ofCommodities upon theValue ofMoney, and theEmployment ofCapital

Capital is most advantageously employed, when no inducement whatsoever is made use of to turn it out of one employment into another. It is most advantageously employed, when it follows that direction which the interest of the owners would give to it of its own accord.

Suppose that broad cloth is in England twenty shillings per yard; that linen, if made at home, would be three shillings per yard; that in Germany, on the contrary, linen is at two shillings per yard; and that broad cloth, if made there, would be twenty-four shillings per yard.

It has been already seen, how, in these circumstances, it would be the interest of England to employ her labour in making broad cloth for Germany, instead of linen for herself; and that of Germany, in making linen for England, instead of broad cloth for herself.

If, in these circumstances, a tax in England were laid upon broad cloth, which raised the price to twenty-four shillings, what would be the consequence?

In the first place, it is evident, that no broad cloth could be exported to Germany. The price, however, of linen, would still be so low in Germany, that it would be imported into England. Money, instead of cloth, would go abroad to pay for it. Money, therefore would become comparatively scarce in England; and prices would fall. It would become comparatively abundant in Germany, and prices would rise. Linen would, therefore, become too dear to be imported into England; unless in the meantime some other commodity, in consequence of the increasing value of money, became cheap enough in England to allow exportation. In the first case, England would, by a tax upon her own broad cloth, be deprived of the advantage of obtaining cheap linen from Germany, and would be obliged to produce it for herself. In the other case, she would be compelled to export, in exchange for the linen, another commodity, which, by the supposition, she produced on less favourable terms than the first.

In this manner it is evident that, by a tax imposed upon broad cloth, the people of England would suffer, not only by paying the tax upon broad cloth, but by being obliged to pay more also for their linen.

The effect of this tax upon prices would be, to raise the money value of broad cloth, and to lower the money value of all other commodities: not to raise, at least permanently, the price of cloth to the whole amount of the tax; because it would send part of the money out of the country: to lower the price of all other commodities, because by this departure of the money, the value of money would be raised.

If, when the tax was imposed upon broad cloth, a drawback of the whole of the duty was allowed upon exportation, there would be no alteration in the trade with Germany: English broad cloth would be sent there, and linen would be imported, on the same terms as before. The people of England would sustain the burden of the tax, and would suffer no other injury. There would be no transit of the precious metals. The price of broad cloth would be raised in England; and the price of all other things would remain as before.

Even if no drawback were allowed, taxes have not a necessary tendency to lessen the quantity of foreign trade. Though England, as in the case already supposed, were hindered, by the tax on broad cloth, from exporting broad cloth; she might soon, by the transit of money, have it in her power to export some other commodity. The reason of this case, it will easily be seen, applies to all other cases. A highly taxed country may possibly export to as great an extent as if she had not been taxed at all. If care, however, has not been taken, and it seldom is taken, to compensate exactly for established duties by countervailing duties and drawbacks, it does not export with the same advantage.

There are two cases, in which the money cost of commodities may be raised by taxation: that in which commodities to any number are taxed one by one, as in the instance, just adduced, of broad cloth; and that in which all commodities are taxed by an ad valorem duty. In neither of these cases, it will be seen, has the high price of commodities, in other words, the low purchasing power of money, a necessary tendency to send money out of the country.60

In the case adduced above, the broad cloth alone was enhanced in price by the tax. The purchasing power of money was lessened, therefore, only in respect to broad cloth. But money could not go out of the country with any greater advantage to purchase broad cloth; because that commodity, on importation, would have to pay the tax; and there would not be a new distribution of the precious metal, if the tax were drawn back.

Neither would an ad valorem duty, though it would raise, in the manner already explained, the price of all commodities, and reduce the purchasing power of money, have a tendency to send money out of the country. Suppose the duty ten per cent.; and the purchasing power of money reduced as much below the level of the surrounding countries. It would be of no avail to the merchant that his money would purchase ten per cent. more goods abroad, if he were obliged to pay ten per cent. duty upon their importation. It thus appears, that, if drawbacks and countervailing duties are applied upon exportation and importation, the price of commodities in one country may be raised to any extent above their price in the surrounding countries.

IV.

MILL ON SCOPE AND METHOD

All of Mill's writings as a political scientist, educationist, historian and an economist were based on deeply-held convictions concerning the importance of ‘theory’ or abstract principles; and there is good reason to believe that he had considerable influence on the methodological thinking of two of the major contributors to the classical tradition, namely Ricardo and John Stuart Mill. Since there has been so much criticism of the classical writers for their adherence to a priori methods, and of Ricardo's ‘vice’ in this respect in particular, it may be of interest to consider James Mill's views on methodological questions here.

Mill's reviews of the works of others are replete with criticisms of those whom he regarded as having been insufficiently ‘philosophical’ or ‘speculative’.1 He regarded the inability to generalise or to move beyond immediate experience as an ‘infirmity of the mind’;2 and it was for his own highly-developed powers of ‘ratiocination’ that his works were praised by admirers and denounced by opponents. These powers are obvious in all his writings, not least in his History of British India where he agreed with Gibbon in regarding mere facts as the least interesting part of the historian's material.3 The ‘abstract’ quality of the Elements of Political Economy has already been noted. Indeed it is evident in the earliest of Mill's economic writings, his essay on the corn bounty, which was basically an attack on those who, like James Anderson, rely solely on arguments based on undigested ‘experience’.4 Mill saw no conflict between ‘theory’ or ‘abstract speculation’ and ‘practice’ or ‘experience’. As far as he was concerned, ‘good abstract principles are neither more nor less than the accumulated results of experience, presented in an exceedingly condensed and concentrated state’.5 The only distinction worth making was between ‘comprehensive and profound’ principles and ‘narrow and empirical’ ones.6 His son was taught at an early stage the fallacy of the popular view of this question.

I recollect also his indignation at my using the common expression that something was true in theory but required correction in practice; and how, after making me vainly strive to define the word theory, he explained its meaning, and showed the fallacy of the vulgar form of speech which I had used: leaving me fully persuaded that in being unable to give a correct definition of Theory, and in speaking of it as something which might be at variance with practice, I had shown unparalleled ignorance.7

Halévy has said that ‘Mill during the long walks which he loved to take with Ricardo was chiefly concerned to give him lessons in method’.8 This statement cannot be documented, but from the evidence of the Mill-Ricardo correspondence there is little doubt that Ricardo's eagerness to believe in the applicability of clear-cut principles made him the perfect subject for Mill's teachings. As Mill said proudly of his pupil: ‘as soon as your understanding is convinced, there is perfect certainty.’9 Ricardo and Mill were completely at one on questions of method. Ricardo's Reply to Bosanquet is conducted as an attack on those who claim to be ‘all for fact and nothing for theory’.10 He recognised that one of the crucial points separating him from Malthus was the different emphasis which they placed on theory and practice. ‘If I am too theoretical which I really believe is the case,—you I think are too practical. There are so many combinations,—so many operating causes in Political Economy, that there is great danger in appealing to experience in favour of a particular doctrine, unless we are sure that all the causes of variation are seen and their effects duly estimated.’11 He considered that one of Malthus's great mistakes lay in thinking that political economy was ‘not a strict science like mathematics’.12 Ricardo has been strongly criticised for the very qualities which Mill believed to be essential in a thinker, and which he did his best to encourage in Ricardo. Perhaps the first contemporary to make this criticism was J. L. Mallet, who distrusted Ricardo's ‘entire disregard of experience and practice’, and said of the Principles that it was ‘almost a sealed Book to all but men capable of pursuing abstract reasoning by a strict and mathematical analysis’.13 The only difference between Mill and Ricardo was that whereas Ricardo's confidence in ‘strong cases’ shows itself mainly on economic questions, Mill's confidence extended to every subject upon which he wrote. There seems little reason, therefore, to quarrel with Halévy's conclusion that Mill ‘did not so much give [Ricardo] a doctrine as develop in him the doctrinal leaning and make him a doctrinaire’.14

The extent of the direct influence of Mill on Ricardo must remain a matter for conjecture, but there is little doubt as to his influence on his son John's thinking on methodological questions. The emphasis of John's education was on equipping him with the tools of intellectual analysis, and so successful was this that John considered himself, in the early stages of his life, to be little more than a ‘reasoning machine’.15 As he wrote to John Sterling in 1831: ‘the only thing I believe I am fit for is the investigation of abstract truth, and the more abstract the better. If there is any science which I am capable of promoting, I think it is the science of science itself, the science of investigation-of method.’16

When John was going through his first ‘mental crisis’, with its accompanying estrangement from his father, Macaulay's famous attack on the Essay on Government appeared. Macaulay had set out ‘to expose the vices of a kind of reasoning utterly unfit for moral or political discussions’.17 It was an extremely effective critique of the a priori, deductive approach, which, as John admitted, gave him much to think about. He was not satisfied with his father's off hand response to Macaulay's strictures: he felt that it would have been better to admit that the Essay was a reform tract and not a ‘scientific treatise on government’. This line of argument would not have appealed to James Mill, for it opens up the gap between theory and practice; he would also have been the last to admit the truth of Macaulay's contention that ‘it is utterly impossible to deduce the science of government from the principles of human nature’.18 But John was more flexible, and did make efforts to come to terms with Macaulay's point of view in his essay ‘On the Definition and Method of Political Economy’, which later formed the basis for Book VI of his Logic. Perhaps the most interesting fact about these efforts is that John ended up far closer to his father's position than might have been expected. He admitted that his father's premises concerning the self-seeking propensity of men were too narrow, but held to the view ‘that politics must be a deductive science’; and in so doing rejected Macaulay's view that political science must be inductive or based on ‘experience’.19 He introduced the distinction between the ‘science’ of economics and the ‘art’ of legislation, and mentioned the possibility of using a posteriori methods in testing hypotheses; but he also upheld the a priori, abstract method as the only appropriate one for the moral sciences.20 As Professor Anschutz has indicated, John's refusal to give up his father's basic position, despite his sympathy for certain elements in the opposition's case, is due partly to his view that the deductive approach was sanctioned by the method of the natural sciences, and partly to his political assessment that such methods were more likely to serve the all-important cause of progress and reform.21

James Mill's fondness for the abstract deductive approach is amply illustrated in the other works reprinted in this volume. The following extract from a dialogue written by Mill at the very end of his life helps to make explicit his views on the importance of political economy as a guide to action. It also provides a full statement of Mill's ideas on the rôle of ‘theory’ in economics; he uses the term to denote what would be called a ‘model’ in modern parlance. Several points of interest emerge from the extract. The most striking, perhaps, is Mill's view that the science of political economy was virtually complete, and his consequent impatience with further controversy; the implication being that those who oppose ‘true’ doctrines do so through ignorance or because the truth is incompatible with their selfish interests. He puts forward no ‘external’ criteria for the establishment of truth, in terms, say, of empirical evidence; the truth seems to be simply what right-minded, qualified economists believe it to be.

WHETHER POLITICAL ECONOMY IS USEFUL
London Review, Jan. 1836, vol. II, pp. 553–572.

[After a preliminary exchange of definitions, A and B agree to debate the proposition that political economy ‘has not yet been allowed the benefit of science; that the propositions hitherto framed about it, are either untrue, or insignificant’.]

B.—We need not, I imagine, go far into the question whether any of the propositions in political economy are true; because it is easy to form true propositions, if the value be neglected, on any subject. Thus we may say, that labour produces commodities; that labour is painful, and only exerted with a view to some reward-that a man will execute more work with tools than without them: so also, we can say it is warmer in summer than in winter; an ox is commonly heavier than a sheep, and so on. The question you really propose is, whether there be in political economy, any proposition of great utility… It appears to me, here again, to be necessary to inquire, whether, when you employ the word utility, and I employ the word utility, we are both of us thinking of the same thing; not thinking, the one of us of one thing, the other of another… We shall proceed with much more satisfaction in our inquiry, if we first ascertain that point. And a few questions, I think, with your answers, will afford us the requisite information… I can anticipate your answer to the first question I shall put—whether you think all utility to be that which is represented by pounds, shillings, and pence? You will say you do not… You are, then, of opinion that there are more species of utility than one?

A.—Certainly.

B.—Shall we endeavour to ascertain its more general species—in this way, I mean; by asking ourselves if the nature of man does not consist of two parts, the body and the mind?

A.—It does.

B.—May we not, corresponding with these parts, consider as one class of useful things, those which conduce to the welfare of the body; another, those which conduce to the welfare of the mind?

A.—We may.

B.—By conducive to the welfare, I mean things serving to yield pleasure, or ward off pain, and that whether directly, or mediately, and indirectly… One class of useful things, therefore, are those which serve to produce bodily pleasure, or ward off bodily pain: another, those which produce mental pleasure, or ward off mental pain… The next step of our inquiry, is this:—As some things give pleasure to the body, without producing any other effect, and are useful on that account; are there not certain things which give pleasure to the mind, and are held useful, without regard to any ulterior effect? I may allude to astronomy as a sufficient illustration. That science, beyond some of its more familiar results, yields no guidance for the affairs of life. It is contemplative, and the pleasure which it yields is purely mental. But the pleasure which the mind receives, when it comprehends within its grasp a multitude of great objects, and traces distinctly their mutual operations and dependencies, is known to be very great. You do not hesitate, I suppose, to admit this?

A.—Certainly not.

B.—This pleasure, therefore, is a good; and that which procures it is useful… We need not inquire scrupulously into the comparative value of this pleasure. It is well-known how small is the value of all the merely corporeal pleasures, when taken nakedly by themselves, and without the addition of anything mental. The man who relishes most the pleasures of eating and drinking, flies from a solitary meal, and confesses that his enjoyment in it is reduced to little. Of the pleasures of love, we see that the bodily part is little valued when stripped of the mental, and that it is only the lowest of our species, who are found to be seriously under its influence.

A.—All that is true.

B.—You see to what this train of thought leads.

A.—You mean the conclusion, that the purely mental pleasures, those which begin and end in the existence of pleasurable thoughts, hold a high rank among the enjoyments of our nature, and the causes of them among the things which we denominate useful.

B.—You have traced the consequences clearly and well. We have now, therefore, agreed in certain points, which I think may be applied with advantage to the inquiry we are engaged in.

A.—I shall be happy to hear in what way.

B.—The matters which form the subject of political economy are matters in the highest degree interesting to mankind. They are, in fact, the multifarious operations concerned in producing, distributing, and exchanging; placing, in a word, in the hands of the consumers, all the things which constitute the wealth of individuals and of nations: the things for which, almost exclusively, the labour, the schemes, the cares, of human beings are expended. These operations are of many kinds, and are connected together in a system of great complexity,—following one another according to certain laws, checking one another according to certain laws,—aided by one set of arrangements, impeded by another. This complicated tissue of causes and effects, subordinate to ends the most interesting to human kind, it cannot but be an agreeable exercise to an ingenious mind to explore,—to trace the course of such things,—to mark their concatenations. And if it succeed, by its meditations on the order of events, in discovering how they follow one another in trains, so as to reduce them all to a moderate number of trains, by which they can, as a whole, be held all at once in the mind's eye, and the mode in which every thing comes out can be distinctly comprhended; as a man raising himself to an eminence, from which he can look down upon a scene of the highest possible interest, not only beholds the numerous objects of which it consists, and their visible motions, but the causes of them, and the ends to which they are directed, and thence derives the highest delight;—is it not certain, that a similar commanding view obtained by the mind over a most interesting and complicated mental scene, must yield it a gratification of the highest value, even if no further consequence were to be derived from it?

A.—Undoubtedly, such a commanding view of so great a part of the field of human action, in which operations so multifarious, and tending to such interesting results, are taking place, cannot but yield a high degree of pleasure: and he must be one of the lowest of his species, who will not acknowledge that such a gratification of the highest part of our nature-the intellectual part, must hold a foremost place among the pleasures we are capable of receiving.

B.—I applaud this liberal declaration, and expected it from you. And now we, perhaps, have light to show us something of a matter which you, I expect, will acknowledge to be of the highest importance, but which is not often well understood; and by people who do not understand, and nevertheless are precipitate enough to judge without understanding, treated as of no importance.

A.—What is that?

B.—The connexion between that commanding view which we have been considering, and the kind of utility which these men understand,—the things which they can taste, handle, smell, and see,—the things, in short, which they can sell and buy in a market, and to which the term practical utility is by them appropriated. If this intellectual operation should be found to have a commanding influence even on this same practical or market utility, may we not expect them to change their opinion with respect to the value even of the mental process?

A.—Certainly, that which increases the utility of other things, is itself useful.

[They proceed to discuss the value of taking a ‘comprehensive view’ in other fields.]

B.—But a commanding view of a whole subject, in all its parts, and the connexion of those parts, is it anything but another name for the theory, or science of the subject? Theory θεωρια is literally view and science is scientia,knowledge: meaning view, or knowledge, not solely of this and that part, but, like that of the general with his army, of the whole.

A.—I see the inference to which you are proceeding: you mean to say, that the theory or science of political economy is a commanding view of the vast combination of agents and operations engaged in producing for the use of man, the whole of the things which he enjoys and consumes: in other words, the things which he denominates the matter of wealth—the great object to which almost all the toils and cares of human beings are directed.

B.—You have anticipated me correctly.

A.—You would farther proceed to ask me, I have no doubt, whether the innumerable operations which take place in subservience to that end, may not take place in more ways than one; in short, in a worse way, or in a better way? Whether it is not of importance that they should take place in the best way? And whether the difference between the best way and the worst way, is not likely to be very great?—great, I mean, in respect to the particular end, the production of the matter of wealth. And to all these questions I should answer in the affirmative.

B.—I should become in love with controversy, if I always met with such controvertists as you… Admitting, as you have done, that on the proper ordering and conducting of the great and numerous trains of operations, subservient to the production and use of wealth, a great deal depends; that between good ordering, and bad ordering, the difference in respect to beneficial results is immense; you will, I doubt not, allow, as you have done in general, that in this particular case, every thing cannot be well arranged without taking account of every thing; that the man who sees all is he alone who can arrange all—he alone who can discover if all the parts are, or are not, in co-operation; and how any change can be made in one part without affecting injuriously some other; in short, that the general, commanding, and complete view of the subject, which is properly denominated the science, is that alone which can with reason be looked to for the greatest of all possible benefits in the great affair, making everything concerned in it contribute in the highest degree to the attainment of the end.

A.—The conclusion seems to me to be incontrovertibly made out.

B.—I may now, then, reckon you a convert to my opinion—that the science of political economy is an important science?

A.—If there be such a science, and if that which goes by the name, instead of being that all-comprehensive view which you have been speaking of, and the importance of which I fully admit, be not mere scraps of a view—mostly incorrect, and leading to no useful conclusion.

B.—I grant to you most readily that it is a fair inquiry, whether the doctrine taught under the title of political economy deserves the name of science or not. In order to determine the question, perhaps you will point out which you think the criteria, or tests of a science—the marks or characters by which any combination of doctrines may be known to be, or not to be science…

[Two distinctive marks of a science are then put forward by A: that ‘the propositions be not disputed’ and ‘that they explain the whole of the subject’.]

B.—Is it not possible for a proposition to be true and yet to be disputed?

A.—I cannot deny that; yet truth, it is said, prevails in the long run.

B.—You remember, I doubt not, the saying of Hobbes, so often quoted and approved, that if the truths of mathematics had been opposed to the interests of men having power, they would have been disputed against and denied; and the people persecuted who maintained them?

A.—I do.

B.—When the men, whose power enables them to set the fashion in opinions, as in dress, deem a set of doctrines opposed to their interest, were it but the interest of their ease, calling upon them for a disagreeable exertion of thought to learn and understand them—do you not see the possibility of these propositions being disputed for a long time, however true they may be—of their being honestly rejected and deemed of no importance by the greater number of men?

A.—I see how often that occurs, and I cannot but admit that few men form their opinions upon the evidence of their truth; that the feeling of interest sways the minds of the greater number in what they believe or disbelieve, and to such a degree, that some men are under a sort of incapacity of thinking but as their interests direct; and I admit that the general supineness of men's minds makes them ready, even for the saving of trouble, and when the opinions do not concern any other interest, to take for granted the truth of those which are inculcated upon them, particularly by those who have an ascendancy, from their power, station, or reputation.

B.—I do not think, therefore, that you will insist upon it as a clear index against the scientific character of a set of opinions, that they are disputed, because we know that the Newtonian theory of astronomy was long disputed; that the utility of the Star Chamber was long maintained; that a government really representative of the people was long treated as a mischievous delusion.

A.—Let us change the term undisputed, to true; you will not object to truth as one of the tests?

B.—Certainly not, if I am enabled first of all to test the truth. Your two marks, according to the change you propose, will then be, 1st, That the propositions be truth; 2ndly, That they completely expound the subject. And nobody will deny that a set of true propositions, fully expounding a subject, are the science of that subject. But these marks avail us nothing till we have the means of determining what are true propositions, and whcther they do embrace the whole of the subject. Can you name any tests by which either of these points can be determined?

A.—I cannot; but are we then to rest in the opinion that it is impossible to determine whether there is any science or not?

B.—I should say not, if we can do anything better; and I think we should by all means inquire how far we can advance, in determining either that a proposition is true, or that a set of propositions contain the entire exposition of a subject. On the latter question it is easier to approach the point of assurance than on the former, which is a reason for considering that in the first place, if you see no objection… It appears to me, that a subject may be contained within a definition or description, in such a manner that it may appear little less than certain that no part of it is left out, though to attain that certainty the doubt may be incurred whether more is not included than enough… When the whole of a subject is thus before the inquirer, he may divide it into portions, and afterwards subdivide those portions into other portions, small enough and simple enough for easy and sure comprehension.… Propositions expounding those portions may therefore be made with tolerable ground of certainty; and when the propositions on all such portions are put together, they cannot but constitute a full exposition of the subject.… Let us apply to political economy the points we are thus agreed upon. Is it possible to make a defition or description of the subject of political economy, of which we may be sure, though it may include something which belongs not to the subject, that it leaves nothing out? As for example, if we say the subject of political economy is the system of operations concerned in the producing and using of the matter of wealth, may we not conclude, with some assurance, that our definition includes the whole of the subject? Let us consider thus:—In regard to any object of human pursuit, do not the end and the means comprehend all that we are interested in knowing about it? Thus, in regard to medicine, the end is the removal of diseases, the means the whole resources of the medical art. Well, then, the science of medicine is the knowledge of diseases, and of the means of cure… In what regards wealth, for which men watch and toil, and on the plentiful or scanty supply of which the happiness or misery, the power or weakness of nations so greatly depends, the use is the end, the production the means. The question is, whether the doctrines of political economy entirely embrace these objects. Let us first examine if they do so in regard to production. The two great instruments are human labour, and that with which, and upon which, labour is employed—the two last included under the term capital. If political economy, therefore, expounds the natural laws, according to which labour and capital are employed in production, they fully comprehend this part of the subject. Without going into details, I suppose we may assume, as this is not a controverted part of political economy, that the doctrines do embrace, without any omission, this part of the subject?… The first act of using, subsequent to production, is possessing, that is, reception of shares. The next act of using is, when that which is thus possessed by any one is not the article he wants, but may be, and is, exchanged for it. The next, and last act of using is consumption. Appropriation, exchange, and consumption are, therefore, the three divisions of this last portion of the subject of political economy. Though, with respect to the truth of all the expositions of these subjects, there is not a perfect agreement among inquirers, I believe there is no dispute as to the completeness with which they embrace them. There is no dispute, for example, that the whole of the annual produce falls into three shares—one to the labourers, one to the capitalists, and one to the owners of land. The great question is, what regulates these shares, and determines so much to one and so much to another. It is well known, that the attempts of philosophers to ascertain the principle of wages, the principle of profits of stock, and the principle of rent, are attempts towards the solution of that question, and that whether their conclusions are true or false, they embrace all the parts of it. Next, with regard to exchange—its two great divisions are, exchange of home commodities for one another, exchange of home for foreign commodities. And the questions are, what are the purposes to which these exchanges are respectively subservient; what are the laws which regulate them,—in other words, which determine the quantity of one commodity which shall be given in exchange for another, in the several cases of home and of foreign exchange; and what is the nature and principles of money, the great instrument of facilitating exchanges? Whatever difference of opinion there may be as to the conclusions which inquirers have come to upon these subjects, it is not doubted, I believe, that they comprehend the whole of what it is useful to know in regard to them. We come now to the last part of using, which is consumption. That is divided into two kinds. There is no doubt, that whatever part of the annual produce falls to the share of any man, he uses it in one or other two ways; either in the way of production, for the sake of what it may again yield, or for some purpose of necessity or pleasure to which it is sacrificed. And these two kinds of consumption, the productive, and the nonproductive, include everything; the wealth of every member of the state and by aggregation, of the state itself. The nature and consequences of these modes of consumption are embraced by the doctrines of political economy. And from this deduction it appears, that the science of the wealth of nations is entirely embraced by political economy… Political economy, therefore, possesses one of the qualities which you represented as essential to a science, that it should explain the whole of the subject to which it relates.

A.—It is so.

B.—The next of your essentials was, that the doctrines should be true. What, then, is the test to which we shall apply the doctrines of political economy, in order to know whether they are true?

A.—The disagreement about them, of political economists themselves, is a sufficient proof of the uncertainty, at least, of all their conclusions.

B.—Is it your opinion, that all doctrines which are disputed are untrue, or at least unproved?

A.—Not always, perhaps, but generally.

B.—Then, I claim the benefit of the exception for political economy; its doctrines are true, but not undisputed.

A.—How do you prove that it is an exception?

B.—How do you prove that it is not?

A.—I do not undertake to prove it; but I esteem disagreement a reason for disbelief.

B.—This, as a rule of conduct, would carry you far. There is disagreement on a question of right, in every case of litigated property. Do you conclude, in all such cases, that there is no right on either side? There was a time, when all the men and women in Europe believed the Pope to be infallible: was that proposition, then, true? A time came, when it was disputed: did it then cease to be true? When Galileo affirmed that the earth travelled round the sun, not the sun round the earth, his proposition was universally disputed: was it, then, untrue? It is now, in civilized countries, at least, universally believed: is it now, therefore, true?

A.—I do not say that, being disputed, makes a proposition false; it only shows that it is not proved to be true.

B.—Is it, then, your opinion, that truth is never disputed; never after it is proved? You would, in that case, reduce the number of established truths to a short catalogue. It is even denied that the establishment of property is useful, or the institution of government.

A.—I do not consider it a presumption against an opinion, that it is disputed by a few wrong-headed people.

B.—I will not suppose, also, that you hold it a presumption against an opinion, that it is opposed by a multitude of people, however great, if the subject be one which they cannot understand.

A.—No; the opinion of people who are capable of understanding the subject, and who have used the due means of understanding it, are the only people whose opinions afford a presumption either for or against any proposition or propositions regarding it.

B.—Then you think that the opinions of those who, with a due degree of intellect, have used the due means of understanding the doctrines of political economy, that is, of the political economists themselves, are the only opinions which afford any presumption either for or against the doctrines whicn go under that name?

A.—I think so.

B.—And, thinking so, I have no fear that you will run from the consequences… One is, that the doctrines of political economy are of great importance… You have said that the opinions, of sensible men, who have studied a subject, are the only opinions which form a presumption in favour of any proposition relating to it. Now all political economists, in whatever else they disagree, are all united in this opinion, that the science is one of great importance. There is, therefore, according to you, the strongest presumption of its importance.

A.—I do not dispute the importance it might be of, were a set of propositions embracing the whole subject actually established. But I am justified in holding it of no importance, so long as nothing important is established.

B.—Will you allow me to observe, that you have as yet offered no test of defective establishment, but a want of general concurrence. Do you not allow that a proposition is established, when it is proved?

A.—I allow that. But the proof may be supposed to be defective, when it is not generally admitted.

B.—You do not mean, when it is not admitted by the generality of those who know nothing about it?

A.—No; I mean of those who study it.

B.—But what proof have you that the generality of those who study and know political economy, are not agreed about its doctrines?

A.—See what contradiction there is, on almost all the leading points, among the writers on the subject.

B.—I believe you are here led into an error, by a superficial appearance.

A.—How do you mean?

B.—You take the proportion of the writers who oppose the standard doctrines, for the proportion of the well-instructed people who oppose them; but the fact is very different. The writers are some half-dozen individuals, or less. And who are the people who write in such a case? Why, any creature who takes it into his head that he sees something in a subject which nobody else has seen. On the other hand, they who, after studying the subject, see the truth of the doctrines generally taught, acquiesce in them, hold to them, act upon them, and do not write. Every creature who objects, writes: they who believe, do not write. You thus know all the objectors, you have the knowledge of them forced upon you; you are ignorant of the thousands who do not object. And what can be gathered unfavourable to any doctrine, from the circumstance that some half-dozen individuals are found, with vanity enough, to think that they are wiser on the subject than the sum of all the other men who have studied it? Are persons ever wanting of that description, to oppose any system of propositions, however well established?

A.—I acknowledge the weight of the observation thus far; that those who desire to make objections commonly print, those who receive the doctrines do not print; and that the believers, therefore, may be a much greater number than they appear. But we have very strong evidence, that the number of those who admit the objections is also great. Do not the members of the legislature, the greater part of them, not only disclaim all confidence in the doctrines of political economy, but treat its pretensions to science as imposture?

B.—Of those members who disclaim all confidence in political economy, how many do you suppose speak with knowledge. how many without it?

A.—If I am to speak my opinion honestly, I doubt whether any. The greater part of them disclaim the knowledge, as well as the confidence; and those who do not so, leave nobody in doubt of the fact.

B.—But of those who know, and those who do not know a subject, of which are the opinions of any value? Were a blind man to give you his opinion upon the colours of any assortment of things placed before him, would you not treat the man as foolish, and his opinion good for nothing?

A.—The opinion of a man without knowledge must be allowed to be worth nothing at all. I think it ought not to be called an opinion: it is only so much unmeaning sound. He who utters the propositions, neither puts together nor separates ideas: he only puts together positive or negative terms.

B.—If ever so many people were to utter these unmeaning sounds—some on one, some on the other side of any question—they could not be considered as adding anything whatsoever to the presumptions on either. The people, therefore, in the legislature, void of knowledge, who say they distrust and despise political economy, make no presumption against the doctrines against which they vent only a senseless noise.

A.—I cannot but agree with you.

B.—Even with regard to the supposition on which they mainly build, that there is such a diversity of opinion among political economists as raises a presumption against their doctrines, the fact is the reverse. Among those who have so much knowledge on the subject as to entitle their opinions to any weight, there is a wonderful agreement, greater than on almost any other moral or political subject. On the great points, with hardly any exception, there is general concord; and even on those points on which controversy is maintained, the dispute is about words, the ideas being in almost all cases the same. Take a summary view of the subject. In the great doctrines concerning production, distribution, exchange, and consumption, you find perfect concurrence; it is only as to some of the minor questions involved in these great doctrines that there is any dispute; and I might undertake to show that in few instances is even that dispute other than verbal… There is no branch of human knowledge more entitled to respect; and the men who affect to hold it in contempt afford indication only against themselves.

V.

JAMES MILL AND INDIA

James Mill spent twelve labourious years writing the History of British India, and it was as its author that he was chiefly known to the contemporary reading public. It was largely as a result of his examination in this book, of Indian society and of the problems facing the British administration, that in 1819 he obtained the important position with the East India Company which he held for seventeen years.1 Mill was accused of having betrayed his principles by accepting an appointment with the Company, but at no stage did he ever question the value of the Company as an instrument of government. John Stuart Mill was simply upholding the family tradition when he fought (unsuccessfully) in 1858 to retain the body which he and his father had so faithfully served.2 As Professor Stokes's excellent study shows,3 utilitarianism exerted great influence on British rule in India during the nineteenth century. No volume devoted to James Mill would be complete which did not take some account of his involvement with Indian affairs.

For some reason the History of British India has been overlooked by historians of economic thought. As an attempt to remedy this state of affairs, it seemed worthwhile making a small selection from this massive work to illustrate Mill's attitude to Indian society in general, and his views on land tenure and revenue in particular. A selection has also been made from his evidence before the Select Committee on Indian Affairs in 1831–2, given when he was at the height of his powers and influence.

1. The History of British India

Mill's magnum opus was conceived and written according to the canons of ‘philosophical history’ popular towards the end of the eighteenth century. It shows clearly the influence exerted on Mill's intellectual outlook by his Scottish education: Hume, Robertson and Gibbon were Mill's models. He believed that the historian's task was to delineate the natural laws of man's progress in society and avoid ‘a dry statement of vulgar, historical facts’; that it was his duty to ‘inflame the public virtues’ and show ‘the natural rewards of virtue and the punishments of vice’.4 These aims were further justified in his letters, his reviews of the works of others, and above all, in the Preface to his History, which his son described as being ‘among the most characteristic of my father's writings’.5

Mill claimed to be attracted to Indian history by the mass of disconnected evidence on the subject, and by the indiscriminate mixture of fact and opinion to be found in the works of previous commentators. To produce order out of this chaos it was necessary to write a ‘critical’ or ‘judging’ history, which would weigh evidence carefully and distinguish between real and false causes, between good and bad ends; the incidental ‘ratiocinations’ required to support these judgments were to be as important as the narrative. To write this type of history the historian had to understand the laws of human nature and the ways in which ‘general laws of motion’ are modified by particular circumstances. ‘In short, the whole field of human nature, the whole field of legislation, the whole field of judicature, the whole field of administration, down to war, commerce, and diplomacy, ought to be familiar to his mind’.6 That Mill considered this aspect of his work to be its most important contribution is confirmed by his claim to Ricardo that ‘it would make no bad introduction to the study of civil society in general’.7

Mill's ‘critical disquisitions’ are spread throughout the work; but the heart of what Bain described as ‘a grand sociological display’ is to be found in Book II, ‘Of the Hindus’, from which the following extracts are taken. In this book he set out to establish the precise position occupied by the Hindus in the ‘scale of civilisation’ by means of a potent combination of Benthamite norms, classical political economy and the techniques of ‘conjectural history’ perfected by Scottish philosophers and historians. The whole of Book II is shot through with what has been described as ‘Europocentrism’; his object was to counter the view that the Hindus enjoyed or had ever enjoyed a high degree of civilisation by European standards.8 He was highly critical of the pro-Oriental school of writers, of whom Sir William Jones was the most distinguished, who, in his opinion, had become so enamoured of Hindu culture as to have abandoned all objectivity and common sense; virtues which he believed existed only among Europeans.9 The impartial European alone was capable of writing the history of India. What might have been an apology for never having been to India and for knowing no Indian languages was turned into a qualification by Mill. The close observer of the Indian scene was likely to be given to ‘partial impressions’, and to lack the detachment necessary for combining and ordering the diverse but limited observations of many commentators.

Book II opens with a summary dismissal of the legendary accounts of ancient Hindu civilisation. In the absence of accurate historical records, the historian who wishes to draw up an account of the state of society and culture achieved by the Hindus in the past and maintained to the present must resort to ‘philosophy’ or conjecture. This method of procedure was justified by Dugald Stewart as follows: ‘In examining the history of mankind…when we cannot trace the process by which an event has been produced, it is often of importance to be able to show how it may have been produced by natural causes.’ And he added that ‘it is of much more importance to ascertain the progress that is most simple, than the progress that is more agreeable to fact’.10 James Mill's opening section is fully in accord with the spirit of Stewart's remarks. The approach he adopts rests on the assumption that since human nature is much the same wherever it is to be found, universal laws of social development can be drawn up by the historian armed with philosophy, and shielded from the glare of apparent diversity.

Mill examines in turn all of the leading characteristics of Hindu society: the caste system, the form of government, the law, the method of taxation, the arts and sciences, religion and manners. The conclusion which he reaches after this extended exercise in social anthropology is that the Hindus are merely on a level with the antique civilisations of the past, and other Oriental civilisations of the present; and that this places them somewhat below the level achieved by Europe in its feudal period.11 This ‘scientific’ conclusion, he claimed, was of great practical importance to the British people.

If the mistake in regard to Hindu Society, committed by the British Nation, and the British government, be very great; if they have conceived the Hindus to be a people of high civilization, while they have in reality made but a few of the earliest steps in the progress of civilization, it is impossible that in many of the measures pursued for the government of that people, the mark aimed at should not have been wrong.12

His low estimate of the state of civilisation attained by the Hindus provided a justification for continued British rule, and supported the view that India should be governed according to civilised European standards, rather than those of the native population. In the course of preparing his History Mill wrote a number of articles on the East India Company which make his position with respect to British rule quite clear. As would be expected, he was strongly opposed to the continuance of the Company's trading monopoly; he believed there to be a prima facie case against all monopolies; they belonged to ‘an unenlightened and semi-barbarous age’, whereas ‘freedom is the offspring of civilization and philosophy’.13 He exposed the Company's case for retaining the monopoly as special pleading; exclusive privileges which were justifiable when the Company was first established were no longer necessary; unfettered competition would expand trade and serve both British and Indian interests better.14 He went to great pains to show that India, like other colonies, did not contribute to British wealth in the form of tribute; the gains of a few nabobs could not compensate for the fact that since 1797 there had been no surplus revenue after meeting the enormous expenses of government.15 India would always be a drain on Britain because of the continued need for military preparedness ‘where a small number of strangers’ ruled ‘an immense and widely extended population’.16

Despite these arguments, Mill considered that ‘the English government in India with all its vices, is a blessing of unspeakable magnitude to the population of Hindustan’.17 In their present state the Indians were unfit to govern themseves; ‘a simple form of arbitrary government, tempered by European honour and European intelligence’ was needed.18 After all, ‘even the utmost abuse of European power is better, we are persuaded, than the most temperate exercise of Oriental despotism… The wider the circumference of British dominion, the more extensive the reign of peace.’19

Mill praised the East India Company for the way in which it had discharged its governmental functions, and was opposed to any suggestion that India should be ruled directly by the British government; this would merely lead to neglect and corruption. He was in favour of encouraging British emigration to India because a large British population would exert ‘moral pressure’ on the natives and act as a civilising influence. He even went so far as to suggest what the flamboyant imperialist Disraeli later partially carried out, namely that, ‘instead of sending out a Governor General, to be recalled in a few years, why should we not constitute one of our Royal Family, Emperor of Hindustan with hereditary succession’.20

But Mill did not set out simply to provide a justification for British rule in India; this, after all, was not the main issue at stake. He was more anxious to demonstrate the virtues of the principle of utility as a guide to the conduct of affairs in India and, by implication, in Britain also. Mill's criticisms of Hindu law and government, and of a society based on caste, tradition and religious dogma, were derived from utilitarian norms. Furthermore, they are put in such generalised form as to make them applicable to supposedly advanced communities like Britain as well. As John Stuart Mill said of his father's History: ‘it was saturated…with the opinions and modes of judgment of a democratic radicalism then regarded as extreme’.21 James Mill himself was highly conscious of the radical content of his work and anticipated (one might almost say welcomed) hostile reactions from those whom he considered to be apologists for the status quo.22

While it is true, as Halévy says, that Mill's History was ‘an instrument of Benthamite propaganda’,23 this view must not be allowed to obscure the context within which Mill applied utilitarian standards of judgment. The basic format of the book was determined by Mill's belief in the idea of progress as a philosophy of history; a philosophy which he inherited from his Scottish mentors, but one to which Bentham does not appear to have subscribed. Although Bentham obviously appreciated Mill's efforts to further the cause of legal and administrative reform in India, he thought the History was badly written and claimed that the account of the ‘superstitions’ of the Hindus made him ‘melancholy’.24 It was to Scotland that Mill looked for recognition of his achievements as a philosophical historian.25

Mill's special contribution lay in combining the idea of progress with the principle of utility, thereby strengthening the normative or propagandist aspects of both traditions.26 In France, as Carl Becker has shown, the philosophes had made use of the idea of progress in their histoires raisonnées as a weapon to further the cause of a rationalist enlightenment.27 In Scotland too, such writers as Adam Smith, Hume, Robertson and Millar employed conjectural history for liberal and didactic purposes.28 But the Scottish writers laid far less emphasis than the French on reason as a determining force in history and human affairs; they depicted history as a blind social process in which order and gradual improvement occur without the conscious intervention of individual reason. The French writers in the same tradition saw the history of the race more as a clearsighted march towards perfection, in which man's reason inexorably overcame the forces of superstition, intolerance and tyranny.29

Mill considered himself to be furthering the tradition of ‘that sagacious contemplator of the progress of society’, John Millar, in carrying out a ‘comprehensive induction’ of the characteristics of Hindu society:

The writings of Mr Miller [sic] remain almost the only source from which even the slightest information on the subject can be drawn: one of the ends which has at least been in view during the scrutiny conducted in these pages, has been to contribute something to the progress of so important an investigation.30

But Mill's use of conjectural history was more explicitly radical than any of his Scottish forebears, including Millar, whose opinions had been considered dangerously liberal by many of his contemporaries. The contrast between Mill and Millar can be seen in their respective attitudes to social change. Millar has this to say on the subject in the Preface to his Origin of Ranks:

When these enquiries are properly conducted, they have likewise a tendency to restrain the wanton spirit of innovation which men are too apt to indulge in their political reasonings. To know the laws already established, to discern the causes from which they have arisen, and the means by which they were introduced; this preliminary step is essentially requisite, in order to determine upon what occasions they might be altered or abolished. The institutions of a country, how imperfect soever they may seem, are commonly suited to the state of the people by whom they have been embraced; and therefore, in most cases, they are susceptible to those gentle improvements, which proceed from a gradual reformation of the manners, and are accompanied with a correspondent change in the condition of society. In every system of law or government, the different parts have an intimate connection with each other. As it is dangerous to tamper with the machine, unless one is previously acquainted with the several wheels and springs of which it is composed; so there is reason to fear, that the violent alteration of any single part may destroy the regularity of its movements, and produce the utmost disorder and confusion.

This can be contrasted with Mill's characteristically confident statement in his correspondence with Ricardo that: ‘All great changes in society, are easily effected when the time is come’.31

Mill wished to change society and so, like the philosophes, he stressed the importance of reason in human affairs. The principle of utility provided a guide for a rational order and was the mark of high civilisation.

Exactly in proportion as Utility is the object of every pursuit, may we regard a nation as civilized. Exactly in proportion as its ingenuity is wasted on contemptible and mischievous objects, though it may be, in itself, an ingenuity of no ordinary kind, the nation may safely be denominated barbarous.32

Mill reinforced philosophical radicalism by philosophical history. Utilitarianism, in his hands, was more than a pragmatic test of the fitness of laws and institutions; it became a universal principle for judging all societies at all times.

Mill's History could not be described as a popular work, but it was undoubtedly a highly influential one. Soon after its publication we learn from Francis Place that it was being presented by the Directors of the East India Company ‘as a premium to all civil servants leaving the college [Haileybury] with éclat’33 ; and subsequently it became the standard textbook at the college. Such was its influence that the pro-Orientalists, represented by Horace Wilson, considered it necessary to bring out a new edition of the book later, correcting some of Mill's opinions on the low state of Indian civilisation. Although Wilson thought it was ‘the most valuable work upon the subject which has yet been published’, he held that ‘a harsh and illiberal spirit has of late years prevailed in the conduct and councils of the rising service in India, which owes its origin to impressions imbibed in early life from the History of Mr Mill’. The work, he said, was ‘calculated to destroy all sympathy between the rulers and the ruled; to preoccupy the minds of those issuing annually from Great Britain…with an unfounded aversion towards those over whom they exercise…power’.34 According to Mill's view of the matter, it was not the object of India's rulers to be popular; their job was to be clear-sighted and efficient.35

2. James Mill and the Indian Revenue System

Mill attached great importance to the ‘mode of providing for the pecuniary wants of the government’ in determining the character and condition of a society and its capacity for progress. As Professor Stokes has made clear, this view was especially justified in the case of the Indian land revenue system:

It was the heart of the British administrative system, and the one subject which brought British rule into intimate contact with the lives of the Indian peasantry… All the great issues, the union or separation of judiciary and executive, the law to be administered and the rights to be protected, hinged upon it. More than half of the revenue of the State was derived from the taxation of land; and the fact that the State demand absorbed almost the whole surplus produce of the soil, after allowing for the bare subsistence costs of the cultivator, made it the determining influence in shaping the structure of Indian society. Except in the cities, every class above the immediate cultivators lived upon allowances or alienations of land revenue. Consequently, the British as sovereigns held in their hands the most powerful agency affecting the composition of Indian society.36

We have noted earlier, when discussing Mill's treatment of taxes on rent in the Elements, that he saw no objection in principle to a system whereby the bulk of the state's revenue was derived from the annual produce of land. One might even say that in so far as the exactions of the state could be confined strictly to rent or the net produce after payment of wages and profits, he regarded it as the ideal system of taxation. But he was bitterly opposed to the existing Indian system, particularly as reflected in the reforms introduced by Lord Cornwallis in Bengal in 1793.

The British administration in India had inherited an incredibly confused, uncertain and corrupt system of assessing and collecting the state's portion of the land revenue. Property and tenure rights were ill-defined; and the revenue demand on the ryots or peasant cultivators and paid by them to zemindars or tax-farmers, varied almost at will. To regularise this situation, Cornwallis decided to set a permanent limit on the demand made by the government on the zemindars, who in turn were to make fixed settlements with the villages or individual ryots in their districts. In this way private property rights were vested in the zemindars in the hope that this would provide them with an incentive to make improvements. At the same time an element of protection was given to the ryots against rack-renting by the zemindars.

The groundwork for Mill's attack on Cornwallis's permanent settlement is laid in his chapter on taxes in Book II of his History. After specifying the general qualities desirable in a tax system—that as little as possible should be taken in a way that does least harm to the people—he gives an histoire raisonnée of the establishment of property in a primitive society, in which he implies that the zemindar is an interloper with no property or tenure rights. His account of the Cornwallis system in operation is given later in Book VI. In Mill's opinion this scheme was based on ‘aristocratical prejudices’ in favour of private landlordism, a complete miscalculation of the character of the zemindars, and a failure to foresee the likely effect of the system upon the ryots. Mill's antagonism to the whole principle of aristocracy needs little further documentation here. Apart from any question of the legality of the zemindar's property rights, he believed that it was pointless to expect them to behave as paternalistic, improving landlords. Large land-owners relying on rent income were the same world over; their extensive possessions blunted the incentive to make profitable improvements; they relished power over their tenants rather than money; they were spenders and not accumulators. The real hope for improvements lay in the immediate cultivators, those who possessed little and relied on their own labour and capital. It was precisely this class, the ryots, that Cornwallis's settlement had sacrificed to the zemindar. In his account of the Cornwallis system in practice Mill dwelt consistently on its failures.37

After twelve years' service with the Company Mill's views were unchanged. He was given a full opportunity to air his criticisms and to expound an alternative solution in his evidence before the Select Committee on the Affairs of the East India Company in 1831–2. The Committee was appointed as a preliminary to the renewal of the Company's Charter in 1834. Since the last renewal in 1813 a good many complaints against the Company's handling of India's internal affairs, and of the monopoly of the China tea trade in particular, had accumulated. As Chief Examiner in charge of the correspondence with India relating to political, judicial and revenue matters, Mill was the star witness for the defence. In August 1831, for example, he appeared before the Committee on no less than eight complete sittings. When the Committee was re-convened in 1832, he was questioned on four more occasions. The evidence, together with his memoranda, covers a wide field, but does not deal with the China tea monopoly, which was outside Mill's province. The extracts reprinted below have been selected chiefly with the intention of illustrating Mill's views on revenue questions. To get some idea of the extent of Mill's responsibilities and of his grasp of affairs, it would also be necessary to consider his evidence on the machinery of government, the judicial system and the political questions involving relations between various Indian states.

With respect to land revenue in India, the solution favoured by Mill was for the government to be reinstated as the universal landlord dealing directly with the ryots, and eliminating the middle-man. The ownership of land should never have been handed over to the zemindars in return for a fixed contribution to the state. By so doing the government had created private rent income out of what might legitimately and harmlessly have furnished the revenue of the state. In his evidence Mill explains in precise, dogmatic terms the desirability of obtaining government revenue from land; the means by which land nationalisation could be effected; and the importance of the rent doctrine in assessing the revenue demand. By relying on pure rent as a source of income ‘the wants of the government are supplied without any drain either upon the produce of any man's labour, or the produce of any man's capital’. To eliminate the abuses of a system which left the ryot at the mercy of the zemindar, the government should gradually purchase zemindary estates and confirm the ryots as hereditary occupants. A tax settlement based on a calculation of the net produce of every ryot holding, inclining to leniency in case of doubt, would serve the interests of the government without discouraging the immediate cultivator from undertaking improvements.

Apart from his antagonism to the zemindari as a class, Mill was opposed to the principle of permanency embodied in the original Cornwallis settlement. A standard tax assessment levied on all land regardless of fertility offended against the pure rent doctrine; it penalised land of low rent yield and created private rent income on land of higher fertility. This objection applied equally to a permanent ryotwari settlement as to a permanent zemindari settlement. Mill proposed that the ryots should become lease-holders with sufficient permanency of tenure to encourage improvements; but it would still be necessary to make periodic reassessments of the leases to keep the revenue demand in line with the rent-yielding capacity of land. This would allow the ryot to enjoy the ‘profits of stock’ and to accumulate capital, but would not permit him to succumb to the temptations inherent in the receipt of a rent income. Moreover, permanency of settlement entailed ‘an alienation of the great source of the revenue of government’.38

Mill was fully aware of the practical difficulties involved in reaching a settlement with individual peasant cultivators in a country where the population had been demoralised by previous exactions. Nevertheless, he maintained that the fundamental principle was perfectly clear, and no effort should be spared to bring an end to the old system and move in the direction indicated.39 It should be noted in passing that John Stuart Mill, who considered his father to be the ‘originator of all sound statesmanship’ in India, followed him implicitly in this matter.40

The two other major sources of revenue in India were the Company's monopoly of the manufacture of salt and of sales of opium; and Mill was called upon to answer criticisms of the desirability and of the mode of operating these monopolies. His answers to a questionaire on these and other tax matters have been included because they contain a good deal of basic economic reasoning, combined with comments on the practical difficulties of revenue collection in an underdeveloped country.41

In conclusion, as evidence of the utilitarian mind at work in India, and to show how little Mill's attitude towards the native population had changed since he wrote his History, a short extract is included which gives his views, in a nutshell, on the question of employing Indians in the Company's service.42

Exracts from the HISTORY OF BRITISH INDIA

Note on the Text

The following extracts from the History of British India are all taken from volume I, Book II, chapters I to V of the 3rd edition (1826), the last to appear in Mill's lifetime. In preparing the extracts the procedure adopted has been to omit most of the detailed evidence by which Mill supported his ‘ratiocinations’. In so doing, of course, the wealth of scholarship which went into the History is lost; but since the main strength of Book II lay in its deductive structure, it is hoped that much of the powerful flavour of Mill's work has been retained.

BOOK II OF THE HINDUS

[45][Ricardo commented: ‘Whether the producer of cloth can add to his capital, from that part of his cloth which belongs to him as profits, depends upon the ability he may have of exchanging this portion of his cloth for food, raw materials, tools and labour.’ Works, vol. IX, p. 131.]

[46][Ricardo commented: ‘I cannot agree with this, for the additional quantity of cloth might be made by an additional capital saved from last year's revenue, and not from a capital withdrawn from other employments. I agree with the conclusion, but not with the statement. The clothier who produces the cloth with his saved capital, as I have supposed, and for which there is not an adequate demand, did it as a means to an end, he wished to sell his cloth and purchase some other thing. It is that other thing which he ought to have produced, and then there would not have been a glut of any commodity. There cannot be a glut of any thing but from an accident, almost always from miscalculation.’ Works, vol. IX, p. 132.]

[47][Ricardo commented: ‘This does not answer the objection usually made. If every man was intent on saving, more food and necessaries, (the materials which are chiefly employed in procuring labour), would be produced than could be consumed. The supply above the demand would produce such a glut, that with the increased quantity you could command no more labour than before. All motive to save would cease, for it could not be accomplished, but the precise reason of this is, that capital increases faster than population, and consequently that the labourers would be in a condition to command a very great quantity of the net produce. This could only last till the population was increased when labour would again fall, and the net produce be more advantageously distributed for the capitalist. During the period of very high wages, food and necessaries would not be produced in such quantities as to occasion a glut, for it would be the interest of the producer to produce such things as were in demand, and suited to the tastes of those who had high wages to expend.’ Works, vol. IX, p. 131.]

[48][The rest of this section was added in the 2nd edition.]

[49][In the 2nd edition William Blake was mentioned as the source of the objection and the following footnote appended: ‘Observations on the Effects produced by the Expenditure of Government, during the Restriction of Cash Payments, by W. Blake, Esq. F.R.S. (p. 59); a pamphlet in which Mr Blake has very ably illustrated his own view of several important topics.’]

[50][To get some idea of the moral fervour which Mill could inject into his discussion of ‘unnecessary’ government expenditure the reader should consult his ‘state of the Nation’, Westminster Review, Oct. 1826, vol. VI, pp. 254–5.]

[51][Ricardo commented: ‘There would be a period, more or less long, in which there would be no rent, and consequently there could be no public revenue.’ Works, vol. IX. p. 132.]

[52][Ricardo commented: ‘An objection may be made against this tax that it would tend to arrest improvement or would finally in some cases fall on the consumer of raw produce; I mean in the case of a landlord expending a great deal of capital on his land for which he receives a return not under the name of profit, but under the name of rent. These expences would not be incurred, unless by a rise in the price of raw produce the capitalist should have reason to think that he should be repaid for the peculiar disadvantage to which he was exposed. Under such a system of taxation great encouragement would be given to gambling. On the approach of war land would fall in proportion to the expectation of the duration of the war, and with every battle or treaty people would speculate according as their hopes or fears predominated. Land would be so uncertain a property that no safe provision could by means of the possession of it be made for children. On the whole I should greatly prefer the present system of taxation. If land is to be peculiarly the subject of taxation it would be desirable to adopt the Asiatic mode, and consider the government at all times, both in war and peace, the sole possessor of the land, and entitled to all the rent.’ Works, vol. IX, pp. 132–3.]

[53][Ricardo commented: ‘Is it true to say that the legislature does possess the power of increasing the productions of the state? By good laws it may take away all the impediments in the way of increasing them,—it may secure to industry all the fruits of its labour etc. etc., but the legislature does not by these laws actually increase productions.’ Works, vol. IX, p. 133.]

[54]See a very masterly article on Taxation in the Supplement to the Encyclopaedia Britannica p. 617. [The rest of this section was added in the 2nd edition to meet McCulloch's criticism as published in the Supplement (1824).]

[55][This section was completely rewritten for the 2nd edition.]

[56][This section appeared for the first time in the 2nd edition, and is one of the most interesting in this chapter. On the quasi-legal questions of permanency and security of different forms of income, and their bearing on tax equity, Mill was able to call upon his Benthamism to supplement his Ricardianism. For similar but less fully-developed views on this matter, see Bentham's Proposal for a Mode of Taxation in his Economic Writings (ed. W. Stark), vol. I, pp. 316–17.]

[57][The rest of the section was added in the 2nd edition.]

[58][This section appeared for the first time in the 2nd edition.]

[59][The rest of this section was rewritten for the 3rd edition.]

[60][Ricardo suggested that Mill should add ‘provided an equal tax were laid upon all similar commodities when imported’. Works, vol. IX, p. 133.]

[1]See e.g. his remarks on Sir James Steuart quoted above, pp. 24–25.

[2]See History of British India, London, 1826 in 6 volumes, vol. I, p. iv, and vol. II, p. 72.

[3]For further comment on this see below, p. 384.

[4]See above, p. 46–49.

[5]Monthly Review, Apr. 1813, vol. LXX, p. 412.

[6]Loc. cit.

[7]Autobiography, p. 22. A version of the conversation which made such a mark on John's memory can be found in James Mill's article, ‘Theory and Practice’, Westminster Review, Apr. 1836, vol. XXV, pp. 223–34.

[8]Growth of Philosophical Radicalism, p. 272.

[9]Works, vol. VII, p. 363.

[10]Works, vol. III, p. 160, 181–2, 239, 252.

[11]Works, vol. VI, p. 295.

[12]Works, vol. VIII, p. 331.

[13]Political Economy Club; Centenary Volume, 1921, p. ix and p. 224.

[14]Op. cit., p. 282. See also T. W. Hutchinson, ‘James Mill and the Political Education of Ricardo’, Cambridge Journal, Nov. 1953, vol. VII, pp. 81–100.

[15]Autobiography, p. 76.

[16]See The Earlier Letters of J. S. Mill (ed. F. E. Mineka), vol. I, pp. 78–79.

[17]Miscellaneous Writings, 1860, vol. I, p. 317.

[18]Op. cit., p. 317.

[19]Autobiography, pp. 110–13.

[20]See Essays on Some Unsettled Questions in Political Economy, London, 1844, p. 146.

[21]The Philosophy of J. S. Mill, Oxford University Press, 1953, espec. pp. 17–19; 62; 81–96.

[1]See above, pp. 17–18.

[2]See Autobiography, pp. 169–70.

[3]The English Utilitarians and India, Oxford University Press, London, 1959.

[4]Review of C. J. Fox's History of James II in the Annual Review and History of Literature for 1808, vol. VII, pp. 99–101.

[5]Autobiography, p. 17.

[6]History of British India, London, 3rd edn., 1826, in six volumes, vol. I, p. xviii.

[7]Letter to Ricardo, 19 Oct. 1817, Works, vol. VII, p. 195. Mill was offered an opportunity by Joseph Hume to review his own work in the Asiatic Journal; he refused, but gave the following indication of what he would have liked to say: ‘Having first laughed inwardly at Hume's proposing me to puff myself—well I said to myself if I were to set about it what should I find to say… I knew that I had endeavoured to go deeper than the surface which is spread over the pages of the vulgar historians, I may say of all historians to a greater degree who have yet written, and that if I have succeeded my book will form a kind of era in the writing of history and render it impossible to acquire reputation by such flimsy things as have hitherto been applauded for history.’ Letter to Place, 6 Jan. 1818. B.M. Add. MSS. 3513, f. 34.

[8]For an excellent discussion of this aspect of the book see D. Forbes, ‘James Mill and India’, Cambridge Journal, Oct. 1951, vol. V, pp. 19–33.

[9]In the Edinburgh Review Mill commended a recent book on China as ‘one of the most valuable which European good sense and intelligence (there really seems to be no other) has produced, upon the state of the Asiatic nations’ (Jul. 1809, vol. XIV, p. 429). Italics supplied. See also Eclectic Review, vol. I, Jan. 1814, pp. 140–55, and Monthly Review, Jan. 1814, vol. pp. 1–17.

[10]Collected Works, vol. X, p. 37.

[11]History of British India, vol. II, pp. 186–90.

[12]Ibid., p. 135.

[13]Monthly Review, Jan. 1813, vol. LXX, p. 23.

[14]See Edinburgh Review, Apr. 1810, vol. XVI; Jul. 1812 and Nov. 1812, vol. XX; Monthly Review, Jan. 1813 and Apr. 1813, vol. LXX; Feb. 1815, vol. LXXVI.

[15]See Edinburgh Review, Apr. 1810; Eclectic Review, Jan. 1814, vol. I, p. 147; and ‘Colony’ in Supplement to Encyclopaedia Britannica, as separately reprinted, p. 19.

[16]Edinburgh Review, Apr. 1810, p. 149.

[17]Ibid., Jan. 1810, p. 171.

[18]Ibid., Apr. 1810, p. 155.

[19]Ibid., Jan. 1810, p. 171 and again in Apr. 1810: ‘…whatever may be our sense of the difficulties into which we have brought ourselves, by the improvident assumption of such a dominion, we earnestly hope for the sake of the natives, that it will not be found necessary to leave them to their own direction’ (p. 154).

[20]Edinburgh Review, Apr. 1810, p. 156.

[21]Autobiography, p. 17.

[22]See e.g. his letter to Ricardo, 27 Dec. 1817, Works, vol. VII, pp. 233–4. As one reviewer put the matter, the main imperfection of the work ‘is the author's disposition to undervalue the laws and constitution of his native country’. British Review and London Critical Journal, Aug. and Nov. 1818, vol. XII, p. 525.

[23]Growth of Philosophical Radicalism, p. 302.

[24]See Bentham's Works (ed. Bowring), vol. X, p. 450.

[25]Mill wrote to MacVey Mapier for the Edinburgh opinion of his History because ‘as I reckon the best judges to be with you, I am proportionately anxious to know what I am thought of among you’. Letter, 30 Apr. 1818, Bain, op. cit., p. 170.

[26]See D. Forbes, op. cit., p. 25.

[27]Carl Becker, The Heavenly City of the Eighteenth Century Philosophers, Yale University Press, 1932, chapter III.

[28]See D. Forbes, ‘scientific Whiggism: Adam Smith and John Millar’, Cambridge Journal, Aug. 1951, vol. VII, pp. 643–70; and D. Horn, ‘Principal William Robertson D.D.’, University of Edinburgh Journal, Autumn 1956, pp. 155–68, where Hume and Robertson are compared with Voltaire.

[29]The contrast has been stressed in F. A. Hayek's Constitution of Liberty, Routledge and Kegan Paul, 1960, chapters III and IV. See also Lois Whitney, Primitivism and the Idea of Progress, Johns Hopkins U.P., 1934, pp. 145–53.

[30]History of British India, vol. II, book II, chapter X, p. 139n.

[31]Letter to Ricardo, 19 Oct. 1817, Works, vol. VII, p. 198. See also the letter quoted above, p. 187.

[32]History of British India, vol. II, p. 134.

[33]Letter, 27 Dec. 1817, B.M. Add. MSS. 3513–33.

[34]History of British India, fourth edition, 1846–8, with notes and continuation by H. Wilson, pp. xii–xiii.

[35]See e.g. Mill's answers to Qq. 4193–7 and Q. 400 below, pp. 442–3.

[36]E. Stokes, op. cit., pp. 75–76. For the full background to Mill's ideas on this question the reader should consult chapter II of Professor Stokes's work. The treatment given here is intended only to make the extracts from Mill's writings and evidence intelligible.

[37]History of British India, vol. VI, book VI, chapters 5 and 6. See also his replies to questions 3136–9, below, pp. 424–6.

[38]See below, Q. 3434.

[39]See below, Q. 3555.

[40]Principles of Political Economy, book III, ch. IX, sec. 4.

[41]See below, pp. 435–41.

[42]See below, pp. 441–3.