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• Principles of Political Economy: Book III: Exchange
• Chapter I: Of Value
• Chapter II: Aofa Demand and Supply, In Their Relation to Value
• Chapter III: Of Cost of Production, In Its Relation to Value
• Chapter IV: Ultimate Analysis of Cost of Production
• Chapter V: Of Rent, In Its Relation to Value
• Chapter VI: Summary of the Theory of Value
• Chapter VII: Of Money
• Chapter VIII: Of the Value of Money, As Dependent On Demand and Supply
• Chapter IX: Of the Value of Money, As Dependent On Cost of Production
• Chapter X: Of a Double Standard, and Subsidiary Coins
• Chapter XI: Of Credit, As a Substitute For Money
• Chapter XII: Influence of Credit On Prices
• Chapter XIII: Of an Inconvertible Paper Currency
• Chapter XIV: Of Excess of Supply
• Chapter XV: Of a Measure of Value
• Chapter XVI: Of Some Peculiar Cases of Value
• Chapter XVII: Of International Trade
• Chapter XVIII: Of International Values
• Chapter XIX: Of Money, Considered As an Imported Commodity
• Chapter XX: Of the Foreign Exchanges
• Chapter XXI: Of the Distribution of the Precious Metals Through the Commercial World
• Chapter XXII: Influence of the Currency On Athea Exchanges and On Foreign Trade
• Chapter XXIII: Of the Rate of Interest
• Chapter XXIV: Of the Regulation of a Convertible Paper Currency
• Chapter XXV: Of the Competition of Different Countries In the Same Market
• Chapter XXVI: Of Distribution, As Affected By Exchange
• Book IV: Influence of the Progress of Society On Production and Distribution
• Chapter I: General Characteristics of a Progressive State of Wealth
• Chapter II: Influence of the Progress of Industry and Population On Values and Prices
• Chapter III: Influence of the Progress of Industry and Population, On Rents, Profits, and Wages
• Chapter IV: Of the Tendency of Profits to a Minimum
• Chapter V: Consequences of the Tendency of Profits to a Minimum
• Chapter VI: Of the Stationary State
• Chapter VII: On the Probable Futurity of the Labouring Classes
• Book V: On the Influence of Government
• Chapter I: Of the Functions of Government In General
• Chapter II: Aona the General Principles of Taxation
• Chapter III: Of Direct Taxes
• Chapter IV: Of Taxes On Commodities
• Chapter V: Of Some Other Taxes
• Chapter VI: Comparison Between Direct and Indirect Taxation
• Chapter VII: Of a National Debt
• Chapter VIII: Of the Ordinary Functions of Government, Considered As to Their Economical Effects
• Chapter IX: The Same Subject Continued
• Chapter X: Of Interferences of Government Grounded On Erroneous Theories
• Chapter XI: Of the Grounds and Limits of the Laisser-faire Or Non-interference Principle
• Appendices
• Appendix a
• Appendix B
• Appendix C
• Appendix D
• Appendix E
• Appendix F: the Ms of the Principles
• Appendix G: John Stuart Mill—harriet Taylor Mill Correspondence
• Appendix H: John Stuart Mill—john E. Cairnes Correspondence and Notes
• Appendix I: Bibliographic Index of Persons and Works Cited In the Principles, With Variants and Notes

Appendix H

John Stuart Mill—John E. Cairnes Correspondence and Notes

the central and most detailed part of the long and friendly correspondence between John Stuart Mill and John E. Cairnes concerns the suggestions which Cairnes made, on Mill’s request, about the revision for the 6th edition of the Principles. This appendix draws on that correspondence (both sides of which are in the Mill-Taylor Collection, London School of Economics),¹ and on two sets of notes written by Cairnes to accompany his letters. The first of these, hereafter called “Notes on the Principles” (Mill-Taylor Collection) deals with technical criticisms of isolated passages in the 5th edition; the second, hereafter called “Notes on Ireland” (National Library of Ireland), supplies information about land tenure and population in Ireland.

The “Notes on the Principles” were sent in two batches, with Cairnes’ letters of 29 Nov. and 6 Dec., 1864. The “Notes on Ireland” were also sent in two batches, on 23 and 24 Dec., 1864. The material is arranged below in chronological order, with the Notes attached at the end of the relevant letters. It has been necessary to limit quotation from the letters to passages concerning the revision of the Principles, although other economic and political matters are discussed at great length in this very interesting correspondence. All the letters between 3 Oct., 1864, and 27 March, 1865, are here represented in part, except for Cairnes’ letters of 17 and 20 March, which contain no reference to revision. The passage from Cairnes’ letter of 2 June, 1865, is given merely as a conclusion. As in Appendix G, the form of the dates has been regularized; a series of seven dots has been used to indicate omitted passages not dealing with the revisions, and superscripts have been lowered.

The “Notes on the Principles” are given in full, with editorial notes in square brackets at the end of each note, indicating the relevant passages in the present edition, and noting (by the words “Altered” and “Unaltered”) whether Mill changed the passage as a result of Cairnes’ criticism. The following editorial liberties have been taken: the separate notes are each headed by a centred number, and the page reference to the present edition is given at the beginning of each note, followed by Cairnes’ reference to the 5th edition in parentheses. Cairnes’ numbering of his folios has been ignored; his square brackets have been altered to round; punctuation has been supplied where necessary for abbreviations; and superscripts (as in “w^d” and “sh^d”) have been lowered. Square brackets within the text, unless otherwise noted, indicate tears in the manuscript or (as there is no chance of confusion) references to the present edition where Cairnes has references to the 5th edition. (At two places references to the present edition replace Cairnes’ references to folios in this manuscript.) Cairnes’ footnotes are given at the bottom of the page; occasionally the exact placing of the footnote indicator in the text has been difficult, because Cairnes places them in the margin against passages; they are here placed after the most appropriate word. One curious matter: the manuscript is very delicate, and the British Library of Political Science and Economics has a photostat copy which actually contains readings no longer preserved in the manuscript, because of the latter’s deterioration.

The “Notes on Ireland” have not been reproduced in full; most of them are summaries of books and articles on Ireland (a list is given at II.1075n), and what appears below is Cairnes’ final version of his own opinions and findings, which appears in the collection as a discrete item. (There is also an earlier version.) The same editorial liberties have been taken, where appropriate, as in the case of the “Notes on the Principles,” and footnotes added to indicate the passages incorporated by Mill into the 6th edition.

1.

MILL TO CAIRNES

• Saint Véran, Avignon

3 Oct., 1864.

We shall be here till January. I have much work cut out for me to do during this autumn and winter, part of which is that of correcting my Political Economy for a new edition. I should be very glad to make any improvement in it which you can suggest, and especially to know if there is anything which you think it would be useful to say on the present state of Ireland. My speculations on the means of improvement there have been in a state of suspended animation, from which it is almost time that they should emerge.

2.

CAIRNES TO MILL

• Stameen, Drogheda

13 Oct., 1864.

I assure you I feel very deeply gratified by your wish for suggestions from me for the forthcoming edition of your Political Economy, with which I shall be only too happy to comply. In about a month I go down to Galway to put in a course of lectures there, and I purpose to take that opportunity to make a careful perusal of your Political Economy. I shall then make notes of any points that occur to me as at all deserving of your consideration, and will send them to you. I do not anticipate, however, that I can make any suggestion of the least importance. There is one portion of the subject indeed in which I should like to see the nomenclature considerably recast—that which deals with the causes affecting the phenomena of the Money Market, including the subjects of the loan fund, credit &c., but even should you approve of my views on this point, the gain from the change would form no kind of compensation for the trouble it would involve. I have a paper on this subject partly written² (which I had intended as one of the essays which were to form that volume of which I spoke to you some time ago) and, as soon as I can find time to finish it, I should be very glad to submit it to you. I shall hope to have both it and the notes ready before Xmas. With regard to Ireland, I think you have exactly hit the true state of the case in the remark in the last edition of your Pol. Economy in which you say that the time has passed for heroic remedies.³ Further improvement is I think to be effected by such measures as Land Law reform, with a view principally to facilitating the transfer and acquisition of land in small portions, diffusion of agricultural knowledge, and lastly—a point to which I attach some importance—the inculcation through the press and otherwise of sound opinions on the subject of land tenure with a view to the creation of a public opinion capable of controlling landlords in the exercise of their legal rights. All such measures, however, appear to me to be quite as much needed for England as for this country. As for land-compensation schemes I have no faith in them.

As regards the actual condition of Ireland, I hope to be able in the course of a month to furnish you with at least the materials for forming a sound opinion. My friend Judge Longfield, of whom I have just spoken, is at present preparing an address for the opening of the approaching Session of our Statistical Society on this subject;⁴ and I know no one on whose judgment, from his long and extended acquaintance with the subject, the soundness of his economic views (he was the first Whately Professor) and his entire freedom from prejudice, I should for my part be more disposed to rely. I expect a very valuable address from him, and you may depend upon me to lose no time in sending you a copy.

3.

MILL TO CAIRNES

• Saint Véran, Avignon

8 Nov., 1864.

Your letter of the 13th October was as your letters always are, extremely interesting to me. I am very desirous of any suggestions that may occur to you for the improvement of this edition of my Political Economy, as it will be the foundation of a cheap popular edition which will be stereotyped. I have just heard from the publisher that the old edition is so nearly out, as to require that the new one should be got on with sooner than I expected when I wrote to you, and I am therefore obliged to lay aside what I was writing (a paper on Comte for the Westminster Review)⁵ to set about the revision. Consequently, the sooner I can have even a part of your remarks, the better: but what is not ready for the revision may easily be in time to be made use of in the proofs.

I expect to learn much respecting the state of Ireland from Judge Longfield’s address. But I at present feel considerably puzzled what to recommend for Ireland. It cannot be said any longer that the English system of landlords, tenant farmers, and hired labourers is impossible in Ireland, as it was in the days before the famine. But it does not seem to me to suit the ideas, feelings, or state of civilization of the Irish. And I cannot see that the changes, great as they are, have abolished cottierism. They have diminished competition for land, and the evil of rackrents, and tenants always in arrear. But I do not see that the tenant has an atom more of motive to improve, or inducement to industry and frugality than he had. He finds all this in America: if he could find it at home, he probably would not emigrate.

4.

CAIRNES TO MILL

• Galway

29 Nov., 1864.

You will think it strange that you have not heard from me sooner in reply to your letter of the 8th inst. It reached me at a time when I was working under much pressure, and, not having any notes in such a state that I could send them to you, I have deferred writing till I could get some material ready. I now send you some ten pages of notes set down in the order which I happened to have them most forward in preparation. You will see that I have in several instances made bold to criticise you: for the most part my criticisms do not pass beyond verbal questions; but even when they go no further than this I offer them with the most sincere deference: much more do I feel distrust of my conclusions when I venture to differ from you on points of doctrine. I hope to send you another batch of notes in about a week, the remainder will consist in what I have to say on Ireland & on the theory of money and interest.⁶

Ere this reaches you, you will probably have seen Judge Longfield’s address, and possibly will detect my hand in some articles in the Daily News,⁷ setting forth his views. I expect you will be somewhat disappointed with his address. I certainly do not agree with much of his argument on the subject of “fixity of tenure,” which I think is pervaded by the fallacy of transferring what is true from an individual point of view to a point of view of a general kind. However his suggestions are I think very valuable. I have just received from him a bundle of M.S., from which I hope to extract a good deal of information to send you with my next despatch.

Notes on the Principles of Political Economy (Fifth Edition)

1

I.58.6-7 (I.71). “This mode of levying taxes, therefore, limits unnecessarily the industry of the country.” This, I think, is only true where the Govt keeps in hand larger funds than the requirements of the public service call for; and where the Govt does this, the observation holds in whatever way taxation be imposed. [This note cancelled by Cairnes. Unaltered.]

2

I.65-6 (I.81). To the instances given here of industry falling short of the development rendered possible by the state of capital might perhaps be added the case of “unemployed capital” referred to ante p. 70 [I.57]. [Unaltered.]

3

I.70.11 (I.87). “To consume less than is produced, is saving”.—Might it not be well to add “the balance being employed productively”—with a view to distinguish “saving” from “hoarding”. Without this distinction two good terms seem to be thrown away in expressing the same conception. (I observe in the next paragraph this distinction is maintained.) [Unaltered. The “next paragraph” is at I.70.17ff.]

4

I.78.32 (I.98). Fourth fundamental theorem:—“Demand for commodities is not demand for labour.” It seems to me that this is rather a different mode of stating the third fundamental theorem (p. 87 [I.70.20-3])—“that the result of saving is consumed, though by persons other than he who saves”, than a separate and distinct proposition, and that there wd, with a view to clearness of exposition, be an advantage in connecting the discussion of this doctrine with that—the third theorem. I say with a view to clearness; because if the fact be once firmly seized, that saving, as compared with unproductive spending, involves the distinction, that in the former case [pro]ductive labourers consume, while in the latter the consumption is performed by the owner of the wealth (and the fact is so simple that it has only need to be fairly presented to the mind in order to be apprehended)—I say if this simple distinction be once firmly seized, I think all that follows with the important consequences which attach to it cannot but be accepted. In short to establish the doctrine that “demand for commodities is not demand for labour”—i.e. does not benefit the labouring classes—all that is needed is the two assumptions 1. that he who profits by (i.e. enjoys) wealth is he who consumes it, and 2. that productive labourers consume saved wealth, while wealth unproductively spent is consumed wholly by the unproductive consumers.

Perhaps the best practical reductio ad absurdum of the opposite doctrine is afforded by the Poor Law. If it be equally for the benefit of the poorer classes whether I consume my wealth unproductively or set aside a portion in the form of wages or alms for their direct consumption, then on what ground can the policy be justified of taking my money from me to support paupers? wd not my unproductive expenditure have equally benefitted them, while I shd have enjoyed it too? If society can both eat its cake and have its cake, why shd it not be permitted to indulge in the double luxury? Whately said somewhere⁸ that the only difference between giving money in alms and spending it for one’s own pleasure, was, that in one case you paid a man for doing something, while in the other you paid him for doing nothing. Now let us test this by a simple case. I have a sixpence and am in doubt whether to purchase a cake with it for my own eating or to give it to a beggar. By purchasing the cake, according to Whately, I pay a man for making a cake; by giving it to the beggar I pay a man for doing nothing; therefore on the principle of encouraging industry, I am bound to eat the cake. But suppose the beggar were to plead that he meant to purchase & consume the very same sweetmeat? &c &c

[Altered. At I.84^r-r Mill adopts, mostly in Cairnes’ words, the material contained in the paragraph beginning: “Perhaps the best practical. . . . ” The passage above in quotation marks, beginning: “that the result of saving . . .” is not a direct quotation.]

5

I.8.26-8 (I.9). “Wealth as applied to the possessions of an individual, and to those of a nation or of mankind”. The distinction might be carried further—to capital, and even to the subdivisions of capital. Thus the rent paid by the farmer is a portion of his capital, but it is not capital to the nation or to mankind. Again Surplus Wages—i.e. wages in excess of what is necessary “for the strictly indispensable” requirements of the labourer, is capital to his employer, but not in the general sense;—in short all the limitations specified at pp. 70-71 [I.57-8] wd be met by this distinction.^* Further the same distinction may be traced in the subdivisions. e.g. Money is, regarded from an individual point of view, “circulating capital”, but it is “fixed capital” in a national sense. (I rather think Adam Smith has made a remark to this effect).¹⁰ It may be regarded as a machine for effecting the exchanges of the nation. To that portion however which passes from country to country, and which in times like the present when gold & silver are increasing is very large the remark of course does not apply. [Unaltered in specified places.]

6

I.97^b-b (I.120). “I doubt if there could be found a single example of a great increase of fixed capital at a time and place where circulating capital was not rapidly increasing also.” I think Ireland during the last four years wd furnish such a case. That her total agricultural wealth has greatly diminished is proved by the Registrar General’s returns—Mr Gladstone estimated the loss at £27,000,000—and during the same time the conver[sion] of tillage into pasture has been rapidly progressing. The coincidence of the two occurrences has no doubt powerfully stimulated the emigration. [Altered.]

7

I.99.18-19 (I.122). “Capital as to its destination” which “is not yet capital in actual exercise”:—Might we not conveniently distinguish the former as “potential capital”? “Potential capital” in the largest sense wd include all the capital which the credit of an individual or of a nation, if forced to the utmost, cd command. [Unaltered.]

8

I.100-15 (I.124-41). Should not the strength of “abstinence”, or (what is the positive aspect of the same principle) of the “effective desire of accumulation” have a place among the causes on which “the degrees of productiveness” depend? [Unaltered.]

9

I.120.1-3 (I.147). “There is no inconsistency between this doctrine and the proposition we before maintained that a market for commodities does not constitute employment for labour.” This statement appears irreconcileable with the admission made in note * to p. 107. [I.87^w-w] where this very case is regarded as “a limitation” of the proposition in question.^* [The] latter seems to me the more correct view, and with this limitation I think might be combined others. I wd state the doctrine and its limitations thus:—The generalprinciple is, that demand for coms determines merely the direction of labour and the kind of wealth produced, not the quantity or efficiency of the labour or the aggregate of wealth. The exceptions are:—

1. Where labour is supported but not fully occupied, an increase of demand may stimulate the labour thus supported to increased exertions—to full activity—of which the result may be an increase of wealth; the producers obtaining a share of this increase. But note—even in the supposed case this result will only happen when the new demand is based upon a new creation of commodities directly applicable to human purposes. An increase of demand based on an increase of money (whether paper or gold) wd not have this effect:^* it wd only issue in a general rise of prices; the motives to industry being the same as before. An increase of money might indeed have the effect of stimulating partially employed labour into increased exertion if money were an object of desire for its own sake, as in hoarding countries (it would here become “directly applicable to human purposes”). It is probable that the increased production of the precious metals of late years may have in this way contributed to the augmentation of wealth in certain semi-civilized countries—e.g. India.

2. There is another case in which increase of demand may increase the aggregate of wealth and benefit the productive classes—namely, where this increase renders possible an increased development of the principle of division of labour, and thus a more effective distribution of the productive forces of society.

Communities having a certain density of population are more favourably situated for the production of wealth and therefore for the remuneration of the productive classes than some in which population is extremely sparse. The benefit obtained in this case is effected through an increased demand for commodities. Note This is not identical with the last exception: the advantage in that case was obtained by calling into greater activity labour which had previously been but partially employed: in the latter instance the labour may have been all fully employed, but exerted inefficiently through lack of that market for its products which was requisite to allow of its due division.

3. A third exception occurs in the case noticed post p. 410 [I.338]—the case described by the common saying that “wages are high when trade is good”. It is true that in this case the proximate agency in the benefit conferred on the labouring classes is the capital applied to the purchase of their labour, but this capital is called into activity through the demand for commodities. [Unaltered at I.120, but I.87 altered and moved to text, incorporating Cairnes’ wording; see I.87^x-x. For Cairnes’ second case, see I.87^y-y88; the passage indicated in his third case (I.338) is unaltered.]

10

I.119.17ff. (I.146). If an actual illustration be preferred to a hypothetical one, one will be found in Vol. IV, pp. 11-12 of Grote’s History of Greece (new ed.),¹¹ where the historian describes the stimulating effect on Athenian agriculture of the accession of a large number of “metics” to the population of Athens and its neighbourhood on the occasion of the building the fortifications of the Piræus after the expulsion of the Persians. [Unaltered.]

11

I.118-22 (I.145-50). It seems to me that in this passage more is attributed to “separation of employments” than is fairly due to it. In the imaginary case of the settlement, a separation of empls is no doubt coincident with the advantages which arise from the accession of new settlers; but I cannot see that separation of employments is the cause of this gain in such a sense as wd justify one in saying that the separation being effected the result must follow. The true cause, I should prefer to say, was the increase of population coupled with an accession of industrial skill and knowledge. Now with a view to the practical application of the illustration this is an important distinction; for if we adopt the former view, that the benefit is the result of separation of emplts, the natural conclusion wd be that, in order to secure the benefit, we have only to effect the separation. This was the conclusion which Wakefield drew, and he consistently advocated measures which had for their object to compel the population of new settlements into towns, overlooking, or at least regarding as of subordinate importance, their aggregate increase. But if we adopt the latter [view] the practical conclusion will be very different. Recognizing in the advantages gained the effect of increased numbers and superior industrial skill, we should direct our attention, as the main business, to rendering by every means the colony attractive, and attractive especially to persons in possession of industrial skill, trusting that when the conditions of society occurred in which separation of employments was profitable, separation wd take place. Thus in considering the question of a “sufficient price” for colonial land, we should decide it exclusively with a view to what wd render the colony attractive to the greatest number of the right sort of people, without complicating the problem by introducing the consideration of “separation of employments.” I am fully alive to the immense services which Wakefield has rendered to the cause of colonization; but his system, as he himself conceived it, appears to me to commit the mistake of seeking to accomplish by giving increased complexity to the machinery of society—multiplying the social valves and cranks—what can only be accomplished and can be completely and effectually accomplished by augmenting the motive power. It may be added that, with a view to the end contemplated by Wakefield, even granting the importance of separation of employments, there wd be no necessity in the present state of the world for the local separation of employments which he was anxious to enforce. The “territorial” separation—foreign trade—wd furnish the stimulus in an intensified form. This is in truth contained in the remarks on the best means of promoting the prosperity of India pp. 149-50. [I.121-2.] [Unaltered.]

12

I.135-7 (I.168-9). Among the advantages which the Joint Stock plan enjoys over individual management is its incident of publicity. In banking especially publicity is, I should think, a most important a [sic] condition towards securing confidence—perhaps as much so as a large subscribed capital. A heavy loss occurring to a private bank may be kept secret; even though it were of such magnitude as to occasion the ruin of the bank, the copartners may nevertheless go on for years trying to retrieve its position, only to fall in the end with a greater crash; but this cannot happen in the case of a joint stock company whose accounts are published periodically. The accounts indeed may be, as they often are, cooked; but they do exercise some check. Hence the public repose greater confidence in joint stock management in the case of banks. I observe it stated in a financial article in the D. News that nearly all new accounts are opened with the joint stock banks. The most striking testimony to the superiority of the joint stock principle in banking yet furnished has been furnished within the present year, by the amalgamation of three of the oldest private banking houses in London—those of Messrs Masterman & Co., of Messrs Hankey & Co. and Heywood & Kennard & Co., and of Messrs Jones Lloyd & Co., with joint stock concerns—viz. the first with “the Agra & United Service Bank”, the two next with “the Consolidated Bank”, and the last with “the London & Westminster Bank”. See Daily News, 18 April 1864.¹² [Altered; see I.136^g-g.]

13

I.155.19ff. (I.194). “ephemeral theories of a different law of increase &c.” I observe the Spectator frequently of late¹³ bringing forward what it regards as a “decisive fact” against the practical deduction from the doctrine of Malthus—namely that even where men defer marriage they generally choose young wives; and that such marriages—the man say being 40 and the woman 20—are as prolific—indeed I believe the statement is are more prolific—than where both parties are young: hence the Spectator argues the deferring of marriage tends to accelerate the rate of human increase. The insufficiency of the premiss for the conclusion based on it is obvious enough; but how far are there physiological grounds for the statement? And wd it be worth while to dispose of the so called “refutation” in a foot note? [Unaltered.]

14

I.172.12-15 (I.214) as compared with p. 230 [I.186.3]. There seems to be here a verbal contradiction. In the former passage are the words:—“the second requisite, increase of capital, shows no tendency to become deficient. So far as that element is concerned, production is susceptible of an increase without assignable limits”; while in the latter “the limit to the increase of production” is stated as “twofold; from deficiency of capital or of land.” The context in the former passage shows that, in speaking of capital you there had in view the mental principle on which the accumulation of capital depends—abstinence or the effective desire of accumulation; which, as you show, becomes stronger with the advance of human society; while in the latter passage the reference is obviously to the material substances which form the prerequisites of production. The verbal difficulty appears to me to arise from the imperfect analysis of the agents of production contained in the formula—“land, capital, and labour”—capital being itself wealth in its most complex form: to explain the law of its increase is to explain the law of the increase of wealth; and, were the word throughout chap. XI employed in the sense in which it had been previously defined, nothing wd be gained by the analysis towards the simplification of the problem; but the word is throughout the argument I think plainly used as convertible with the principle of the “effective desire of accumulation.” This is so manifestly the case that I do not think any intelligent reader cd be led astray: still perhaps it wd be better—it wd certainly I think be more accurate—to make the analysis of industrial agents into land, the effective desire of accumulation, and labour. All verbal confusion wd thus be avoided. What we want I think is some word which wd express both the purpose and the self-denial—the desire to accumulate and the sacrifice in the form of abstinence which the satisfaction of that desire entails. [Unaltered.]

15

I.414.22-5 (I.503). “The cost of labour is a function of three variables: the efficiency of labour; the wages of labour (meaning thereby the real reward of the labourer); and the greater or less cost at which the articles composing that real reward can be produced or ^* purchased.”

The analysis here, it seems to me, is incomplete; “the cost of the real reward of the labourer” involving the very conception—“cost of labour”—which it is the purpose of the analysis to elucidate. Or look at it in this way—The “cost of the real reward” depends in part on “the efficiency of labour”, which element forms the first branch of the division, and is thus included twice. I have always found great difficulty in getting students to take in this statement of the theory of profits, so much so that I have attempted to throw it into another form, which I will here state for what it is worth.

I Take first the simplest conceivable case—an act of production in which the whole process is performed by labour, and in which the return from that labour is in commodities the same in kind as that of which the outlay is composed. For example, 100 quarters of corn are applied to the support of workmen who, while consuming them, produce 120 quarters. Here it is plain the rate of profit, which is obviously 20 per cent, depends upon two conditions and upon two conditions only—1. the real wages necessary to command the labour of the men who produce the 120 quarters^† ; and 2. the productiveness of their industry in raising corn. Diminish the productiveness of their industry, their real wages remaining the same, and you will diminish the rate of profit; and vice versa.

II Take now a slightly more complex case:—another set of workmen, who also receive 100 qrs of corn, are employed in producing not corn, but silk: while consuming those 100 qrs they produce, say, 200 lbs of manufactured silk. What will determine the rate of profit in this case? The outlay and the return not being homogeneous, they cannot be directly compared: we must look at them through their values. The rate of profit will plainly depend on the ratio which the value of the 200 lbs of silk will bear to the value of the 100 qrs of corn which formed the means of effecting their production. What will determine the value of the silk? The cost of its production; but this by hypothesis is equal to the cost of 120 qrs of corn; for it required the same outlay to produce both—viz. 100 qrs of corn. Hence it follows that the rate of profit in the silk manufacture will be the same as in agriculture. And this will be the case whatever may be the productiveness of industry in the former branch of production. For if the silk weavers in the supposed case were only to produce 100 lbs of silk instead of 200, or were to produce 400, this wd not affect the question; since in all cases alike the cost of production being the same, the value of the return, large or small, wd be the same: its ratio to the value of the outlay wd therefore be the same; and, therefore, also the rate of profit.

It thus appears that the law of profit which we found to operate in the simplest case operates also in that which we may describe as of the first degree of complexity: the rate still depends on the real remuneration of the labourer as compared with the productiveness of his industry in producing his own remuneration.

III We may now introduce a second element of complication. Suppose the outlay to consist only partly in advances to labourers, and for the rest in the purchase of raw materials & machinery. I then proceed to show, as in pp. 500-501 [I.412], that the latter advances are resolvable into wages.

IV Lastly, Suppose a portion of the outlay to consist in the purchase of a natural agent—e.g. the rent paid by the farmer to the landowner. This is then shown not to alter the case, rent representing merely surplus profits—the diffce between the returns on the worst soils cultivated and the return from the better. Rent, in short, merely brings down the rate of profit on the better soils to the general level.

The law of profit is thus found under all circumstances to be that which we found it in the simplest case: it varies inversely—other things being the same—with the real remuneration of the labourer; directly with the productiveness of his industry in producing that real remuneration. But the latter condition—the productiveness of the labourer’s industry—is resolvable into two elements—1. the efficiency of his industry, & 2. the fertility of the natural agents to which it is applied; or since rent, for the reason stated, must be eliminated, rather the fertility of the least fertile of the natural agents &c. I am thus brought by my method to the conclusion that the rate of profit is “a function of three variables”—viz. 1. the real remuneration of the labourer; 2. the efficiency of his industry in producing his own remuneration; and 3. the fertility of the [least fertile] natural agents to which this industry is applied. It seems to me that these three elements contain all that is included in your “cost of labour”, while they are at the same time, so far as I see, independent and distinct.

A further case of complication arises through foreign trade. By this means the efficiency of industry in obtaining labourers’ commodities may be increased by improvements in industry in other departments of production, or by occurrences in foreign countries which may affect foreign demand. Increased efficiency of industry in manufacturing silk, or in raising the more expensive wines, might thus tend to raise profits in the country in which this occurred, if by means of the cheapened silk or wine, the industry of the country was made more efficient in obtaining labourer’s [sic] coms. So also the discovery of gold in one country might lead to a rise of profits in another.

The only objection, I see, to the above mode of stating the theory of profits is that it presupposes a knowledge of the laws of value and rent. And in reply to this I can only say that I have found it much easier to state the latter laws without reference to the law of profits, than to reverse the process. In fact I have never yet succeeded in making the law of profits intelligible to a student till I had first made him familiar with the doctrine of value; and I accordingly now always send my students to your chapter on value before bringing them to grapple with the former problem. I do not at all think that it wd be desirable on this account to alter the general arrangement of your book; but perhaps it might be worth considering—supposing you shd concur in the above criticisms—whether it wd not be well to confine the exposition of the doctrine in Chap. XV to the simplest case of production (No. I on the other side),¹⁴ and reserve the full exposition till after the chapter on “Value”. You have adopted a similar course in other instances. [The text is unaltered at this point. The word “purchased” objected to in Cairnes’ footnote is changed to “procured”.]

16

I.422.7 (I.512). “The truths of political economy are truths only in the rough.” Would it not be better to say that they express tendencies which are liable to be counteracted? The expression “truths only in the rough” seems to give up the scientific pretension of political economy. [Altered; see I.422^i-i.]

17

II.459.33-7ff. (I.531). “A general rise or general fall of prices. . . . is a matter of complete indifference save in so far as it affects existing contracts &c.”—save also in so far as it affects the interests of those who produce money—e.g. Australia & California are interested in maintaining a low range of general prices. Whatever tends to keep up the value of money benefits them, and in the same degree injures the rest of the world—so far at least as its trade with those countries is concerned. The point may be turned to account in showing the way in which the gold discoveries affect the world within and without the auriferous regions. [Altered; see II.459^d-d.]

18

II.808-9 (II.387-8). I ventured to advocate (Economist 4 May 1861)¹⁵ the principle of a graduated property tax as a set off against the undue pressure of indirect taxation on the lower class of incomes. Considering that the bulk of our indirect taxation is raised from a few leading articles—tea, sugar, tobacco, malt liquor, and spirits—all of which are staple articles of consumption with the lower middle class, it must be allowed that our indirect taxation presses with undue weight on this section of the people. The proportion of an income of £3 or £400 a year which is spent on such commodities is plainly much larger than that of an income of £3 or £4000. Quoad indirect taxation, therefore, the lower class of incomes are mulcted more heavily than the higher; and this, I think, constitutes for the lower incomes a claim for special consideration in the imposition of direct taxation. The principle has already been recognized in the distinction made in favour of incomes below £200 in laying on the income tax; but the allowance seems to me to be altogether inadequate to meet the justice of the case. I should be disposed to exempt altogether incomes under £200 a year, and carry the reduced rate of charge up at least to £500 a year. This of course wd necessitate a higher rate on the incomes above this level; and this is only I think what the principle of equality demands. I regard this as the most important reform now to be effected in the direction of financial equality. [Unaltered. The date of Cairnes’ article in the Economist is supplied by JSM in pencil.]

19

II.813 (II.390-1). I must confess myself unable to go with you here in your concessions to the popular argument in favour of the justice of a uniform income tax: it seems to me that such a tax does “arithmetically violate the rule that taxation ought to be in proportion to means”. What are a man’s “means”? Surely they are not to be confined to that portion of his possessions which he decides to apply to his expenditure in a given year. I cannot understand on what principle it can be said that a man making £1000 a year at a profession or in trade has in a given year the same “means” as a man in possession of a fee simple property which yields the same annual sum. Suppose the latter were to make up his mind to sell his estate and to expend the proceeds in a single year, this determination cd scarcely be said to add to his “means”; yet in this case, tried by what standard you please, his “means” in this year wd exceed the “means” during the same period of the professional man or trader earning yearly £1000. [Unaltered.]

20

II.813.31 (II.390). “It capitalizes the incomes, but forgets to capitalize the payments.” But why shd the payments be capitalized? The reason for capitalizing the income is to ascertain what its owner is worth in a given year: the thing to be compared with this is the payment in that year—not the capitalized value of the payments in future years. [Unaltered; but see II.814^f-f.]

21

II.814.14-17 (II.391). “I wonder it does not occur . . . that precisely because this principle of assessment wd be just in the case of a payment made once for all, it cannot possibly be just for a permanent tax”. Here again I am unable to follow: on the contrary my inference is exactly the reverse. If a deduction from all incomes in proportion to their capitalized values produce an equality of sacrifice this year, I cannot see why a deduction carried out on the same principle next year shd not produce the same result for that year; nor why this argument may not be applied to all future years. [Unaltered.]

22

II.814.27-9 (II.392). “It is not because the temporary annuitant has smaller means, but because he has greater necessities, that he ought to be assessed at a lower rate.” But why has the temporary annuitant greater necessities? I see no answer to this except “because he has smaller means”. The means of the perpetual annuitant has enabled him to make the provision for his posterity which the means of the temporary annuitant has not yet allowed him to make. The necessity of the temporary annuitant to provide for his family seems to me to be merely another way of saying that he is wanting in the means which the perpetual annuitant commands.

At the risk of appearing dense or perverse I have stated broadly my inability to follow your reasoning on this doctrine of capitalization of incomes; at the same time I do not adopt that principle as affording a solution of the practical problem of equalizing direct taxation. Its grand defect, as it seems to me, is that it fails to distinguish between human requirements of very different urgency—the portion of income which goes for necessaries or comforts which, if not strictly necessaries in a physical sense, are at least essential to the maintenance of a standard of decent living among the masses, and that which is expended on mere superfluities. “Equality of sacrifice” is I am sure the sound principle; and this can only be attained by resolving income into its parts—that required for necessaries, that for comforts, that for luxuries &c., and dealing with each portion on a distinct principle; the sacrifice, as you point out, involved in a curtailment of necessaries being quite incommensurable with that which a curtailment of mere luxuries involves. For such distinctions the “capitalization” plan affords no field: the whole means of every man is regarded as standing in the same relation to his happiness—which is I think palpably a fallacious position. [Unaltered.]

23

II.831.35-6 (II.413). “Rents, salaries, annuities, and all fixed incomes, can be exactly ascertained”; and these, it is important to note, yield, I think, more than three-fourths of the proceeds from the tax. This fact, I think, considerably attenuates the practical force of the objection founded on the demoralizing tendency of the tax. [Unaltered.]

24

II.839.30-2 (II.423). “The necessity of advancing the tax obliges producers and dealers to carry on their business with larger capitals than wd otherwise be necessary”. Ricardo I think has pointed out¹⁶ that this does not constitute (as it might at first sight seem to do) a case of “taking more out of the pockets of taxpayers than the State receives”; since the State gets the benefit of the advance: it is thus enabled to dispense with Exchequer bills to the same amount, the interest of which is saved to the community. [Altered by the addition of footnote (II.840n) incorporating Cairnes’ wording.]

25

II.841.4-5 (II.424). “the compensation being of course at the expense of profits”. It appears to me that the compensation wd be partly at the expense of rent. The rise in wages, taking place through an action on population, less food wd be required; the area of cultivation wd be curtailed; corn rents wd fall—but, on consideration, corn being more valuable by reason of the tax, money rents wd I believe remain as before. I suppose profits would bear the whole compensation. [This note cancelled by Cairnes. Unaltered.]

26

II.850ff. (II.437). § 6. I venture to point out what appears to me to be an important condition overlooked in the reasoning in this section,—a condition which, taken account of, invalidates I think altogether, or nearly altogether, the application here made of the principle of the “Equation of International Demand” to the subject of taxation.

In reasoning on taxation—at all events on taxation as it imposed [sic] in civilized countries—it is proper I think to assume that a tax is only imposed or retained where the revenue it yields is indispensable. It follows that, in discussing the effects of a tax, we are not at liberty to consider those effects apart from the indispensableness of the revenue which the tax yields—in other words we are bound always to take account of this, that the imposition or retention of any given tax will relieve the community from taxation in some other direction. Now if this be admitted, the conclusion seems to follow that a rise in the price of a commodity consequent on the imposition of a tax does not necessarily (and as I think I can show will not generally) “lessen the demand for it.”

Let us suppose that the country requires an additional million of revenue, and that in raising it the choice lies between an increased duty on beer and an increased duty on tobacco. By adopting the latter method, it is said, we should raise the price and thus check the demand for a foreign commodity, alter international demand in our favour, and thereby obtain our imports from the foreign country which produces tobacco on better terms: we shd in short by this means throw a portion of our taxation [on] a foreign country. Now granting that this reasoning is sound, the question still remains whether precisely the same result wd not be reached by laying the tax upon beer. Supposing the tax laid on beer, the price of tobacco no doubt wd not rise, but the margin of the consumer’s means available for the purchase of tobacco wd be diminished in the same proportion as the rise in the price of tobacco in the former case. The price of his tobacco was then higher, but he had an undiminished income to meet it: he has now his tobacco at an unenhanced price, but then his available means of purchase have been reduced by the necessity of paying more for his beer.

Let me state the principle in a more general form. A man has £1000 a year, and with this sum he obtains annually necessaries comforts and luxuries in certain proportions. His power of commanding these things is curtailed to a certain extent by taxation; but the amount thus deducted from his income being given, I contend that the character of his expenditure will not be affected by the mode in which the deduction is made. If £50 a year be taken in the form of remitted taxes from the price of necessaries, and placed in the form of new taxes on the price of luxuries; or if both necessaries and luxuries are relieved at the expense of a direct deduction from his income—so long as the total amount taken from him is the same, I cannot see (apart from objections to particular taxes on other grounds) why this shd affect the proportions in which he consumes commodities. His means of commanding commodities remains in all cases the same, and if his tastes also remain the same, why shd the mode of taxation affect the quality of his demand? It is conceivable indeed that for a time, the expenditure of people on particular commodities having been regulated with reference to a certain scale of prices, any sudden change in relative prices might induce them to alter the character of their expenditure; but I imagine they wd very soon ascertain what their most urgent wants were, and find also the means of distributing their expenditure in such a way as most effectually to satisfy them.

The above argument proceeds upon the assumption that the taxes, between which the alternative lies, fall upon the same persons. In practice this is substantially the case in this country (unless where the alternative lies between direct & indirect taxation); our indirect taxation now being confined to a few grand staples which are consumed by all above the worst paid classes. So far as this is the case I think it must be allowed, that the inference contended for in §6 [II.850ff.] cannot be sustained. A given revenue being indispensable, it cannot be admitted that a tax on a foreign commodity will lessen the demand for it, nor therefore that it will alter the “Equation of International Demand.”

Even in the other case—where the option lies between taxes which fall upon different classes in the community—or in different proportions on different classes—say between a tax on wine and a tax on paper—even in this case the soundness of the inference, at least with a view to a practical policy, is I think more than questionable. For 1st. Suppose a customs’ duty on wine were substituted for an excise duty on paper—the wine drinkers not being identical with the paper consumers, the substitution, it may be granted, wd check the demand for wine; but then the effects of the substitution wd not end here: as the expenses of the wine drinkers increased, those of the consumers of paper wd be diminished: a portion of the income of the latter wd be set free, of which portion it is possible, and I suppose not improbable, that a share wd be applied to the purchase of foreign commodities—say tea and sugar. [So] far as this was the case, what was gained for the Equation of International Demand [by(?)] the retrenchment on wine wd be lost in the increased expenditure on the foreign articles of a different [kind thus(?)] brought into increased requisition. Further, even supposing something were gained for [the(?) Equa]tion of International Demand by this mode of distributing taxation, still I think it [might be(?)] questioned if this wd be a gain to the community. To show this, let us take the case which wd be most favourable for your argument—a tax transferred from a commodity of domestic production to one of foreign, so similar in its nature that one may become a substitute for the other; a substitution of a customs’ duty on cheap French wines in lieu of an excise duty on light ale will furnish an example in point. Now the effect of such a change wd probably be to check the demand for the foreign commodity, and so far as this was the case to alter international demand in our favour. We shd get consequently our imports on better terms; but this wd not be clear gain. It wd be accomplished at the expense of forcing people by an artificial arrangement of price, to consume an inferior liquor, or one at least less suited to their tastes: it wd be an artificial interference with the natural course of human desires. The case wd not, so far as I can see, differ in principle from a protective duty: the distinction wd be this, that whereas a protective duty gives artificial encouragement to the production at home of a commodity which cd be obtained more cheaply from abroad, an import duty of the kind we are considering wd encourage the home production, not indeed of a commodity which cd better be obtained from foreign countries, but of an inferior substitute for such a commodity.

The principle, of which I have endeavoured to exhibit some of the applications—the principle that the operation of a tax must properly be regarded in relation to the whole income of the community as affected by taxation—has other important bearings in connexion with the theory of taxation. If the position which I have taken be sound it leads to this conclusion, that the question of encouraging particular modes of expenditure is not one which it is competent to a financial minister to entertain; for, as I have shown, this can only be done by shifting the burden of taxation from one class to another; and as regards the relative pressure of taxation, the rule for him is equality. It seems to me therefore that the objection to a tax that it is a tax on knowledge is not a sound objection; for supposing the persons affected by the paper duty paid no more than their fair proportion to the revenue, justice wd require that the tax [removed?] from paper shd be reimposed on the same persons in another form; and provided this were done the increased cheapness of paper wd not in the least increase their ability to acquire knowledge. In practice I believe that the abolition of the paper duty was a good financial measure; because, the duty not being reimposed on them at least not to its full extent in any other form—the real substitution for the duty being the retention of a higher rate of income tax than wd otherwise have been necessary—the effect of the abolition was to relieve the classes who were the chief payers of the duty. But I think the true grounds on which to have put the case wd have been the undue pressure of taxation on the lower middle classes. Equal encouragement to knowledge wd I believe have been afforded by a reduction of the duty on tea and sugar.

I think it therefore important to insist on this principle, as enabling us to clear financial discussions from many irrelevant topics.

See Ricardo’s Works (McCulloch’s edition), pp. 141-142, more particularly note to p. 142.¹⁷ [Unaltered at indicated place. The square brackets at II.1054.25 indicate a faded word, and at II.1053.21 “[on]”, which was mistakenly cancelled by Cairnes in a minor revision, has been inserted.]

5.

MILL TO CAIRNES

• Saint Véran, Avignon

1 Dec., 1864.

Am I right in thinking that among the improvements consequent on the Irish famine and emigration, the desuetude of cottier tenancy is not one? My impression is that the land is still mainly let direct to the labourer, without the intervention of a capitalist farmer—and if so, other things in Ireland being as they are, all the elements of the former overpopulation are still there, though for the present neutralized by the emigration. I very much wish to hear from you whether I am right.

Have you formed any opinion, or can you refer me to any good authority, respecting the ordinary rate of mercantile and manufacturing profit in the United States? I have hitherto been under the impression that it is much higher than in England, because the rate of interest is so. But I have lately been led to doubt the truth of this impression, because it seems inconsistent with known facts respecting wages in America. High profits are compatible with a high reward of the labourer through low prices of necessaries, but they are not compatible with a high cost of labour; and it seems to me that the very high money wages of labour in America, the precious metals not being of lower value there than in Europe, indicates a high cost as well as a high remuneration of labour. Supposing profits to be lower than in Europe instead of higher, it is yet quite intelligible that interest might be higher. There is, I apprehend, in America, scarcely any unoccupied class, living on interest: almost everybody is in active business, needing all his own capital and more too. In New England even the banks have scarcely any deposits, the class who in England would be depositors being there shareholders. Consequently the loan market is hardly supplied at all from native sources, except the capital and notes of the banking companies: and when there is a great demand for loans it has to be supplied from the European money market, and therefore at a rate of interest so high as to be a temptation to foreigners. I should be much indebted to you if you could help me on this subject, as, if I have been misleading the readers of my Political Economy, it is very desirable that the error should be corrected in this edition.

I have been obliged to read, with a view to my new edition, the most recent & most voluminous of Carey’s writings, his “Principles of Social Science”:¹⁸ because his attacks on the Ricardo political economy and on free trade are, some of them, if not new, at least made in a new shape, and I have thought it good to give a brief refutation of them, the rather as the book is a good deal thought of by some of the French political economists, and is helping to muddle their ideas. The parts of his speculations which I have had to attack are really the best parts, as it was not worth while to notice any of his errors but those which had some affinity with truths. But it really would be a useful exercise for any clearheaded and painstaking student of political economy to shew up the book, for I think I never met with any modern treatise with such an apparatus of facts and reasonings, in which the facts were so untrustworthy and the interpretations of fact so perverse and absurd. I do not imagine that it would be worth your while any more than mine to take the trouble of reviewing it, but I should very much like to see it properly done. To give a really adequate exposure of the book would be out of the question, for there would be something requiring comment in every page: but a selection might be made, in a moderate compass, which would suffice to destroy any authority the book might have. Withal I cannot dislike the man, for his feelings, and his way of thinking on general subjects, so far as I can perceive, are usually right.

I have not yet had any application from Longman to begin printing, but I think it will not be long before I have.

6.

CAIRNES TO MILL

• Galway

6 Dec., 1864.

Your letter of the 1st. inst. reached me here yesterday. I hope in about a week to be able to answer your questions pretty fully and accurately. Meantime, however, I will state my impression on the points to which you refer. I believe there is no doubt that the class of cottier tenants has been immensely reduced in Ireland, and that the causes now in operation are tending rapidly to its entire extinction. I gave some figures from the census of 1861 illustrating this point in an article on “Ireland” in the Edin. Review of last Jany—;¹⁹ and it is quite certain that the movement has made great progress since 1861. That “the elements of over population” however, still exist in Ireland is, I regret to say, but too undeniable. They exist in the wretched morale of the agricultural population brought almost to the level of the brute by centuries of neglect and oppression, and which I fear it will take more than one generation of good influences to effect any substantial change in; and they exist also in that recklessness of mind which dependence on the labour market—the condition of all the ex-cottiers who have not died or emigrated—seems in my mind inevitably to engender. So much so that I see for my part no hope of effectually elevating the mass of the Irish working population than by measures which may ultimately have the effect of dissociating them altogether from their present mode of life. Something may I think be done in this way by facilitating the acquisition of land in small parcels—i.e. by encouraging the growth of a peasant proprietary; more by developing manufactures or other non-agricultural pursuits, such as mining, and bringing to bear upon the people thus brought together the influences which are now working such wonders in the manufacturing districts of England. Lastly the extensive conversion of the land to grass will render a smaller population necessary; and, now that the emigration movement is in full swing, this may be effected without severe suffering. By such means I think the number of the population dependent on the agricultural labour market may be greatly reduced, while those which are drawn off will be brought within the range of ameliorative influences. Up to the present, however, I think you may take this for granted that, so far as cottiers have been converted into labourers, no good has been done. For the present the rate of wages may be somewhat higher than formerly; but if it were not for the emigration it might be confidently predicted that within a generation it would be reduced once more to the starvation point—even with the emigration I dont feel very sanguine that they will be avoided. In these remarks I speak of the cottier & labouring class: with the class above them—the farmer class, and such a class is beyond question growing up in Ireland, the case is much more hopeful. Real progress has I think already been made here; and I think it only needs such measures as Judge Longfield has advocated to accelerate this progress greatly. But on this, as well as the former point I hope to write to you more fully and with greater confidence after I have returned to Dublin and conversed with the Judge and some others whose practical acquaintance with the country is far more extensive than mine.

As to the rate of mercantile and manufacturing profit in the U.S., I have written to a quarter from which I have good hopes of getting information. I have indeed hitherto taken the supposed high rate of profit in the U.S. for granted. The high rate of money wages certainly would make one suspect the correctness of this view, but the fact is not conclusive. The precious metals may not be lower in value in America than in Europe, but their cost is certainly lower; the only question is whether it is so much lower as to render the high rate of money wages which prevails consistent with a rate of profit also higher than, or as high as, in this country. In what you say on the rate of interest in its relation to profit I entirely concur. You will find something on this point in my notes.²⁰

I send by this post a second batch of notes which I submit to you for what they are worth—I do not at all expect you will find them of any real use, but I rejoice at the opportunity of passing my speculations under your eye. I shall learn whether there is any value in them: should you think so, and turn it to account in any way, it will be to me a source of real gratification.

I should like to write to you on other topics you refer to, but I am anxious not to lose this post, and will therefore bring this to a close. . . .

I hope you received the batch of notes sent with a letter about a week ago. With those now sent I send also a number of the N. British Review with an article of mine on Capital & Currency,²¹ which perhaps you will do me the favour of reading.

[Further Notes on the Fifth Edition of the Principles]

1

II.647-59 (Book III, Chap. xxiii). The doctrine laid down here is that the rate of interest is “a question of demand and supply” [II.647.22] . . . “The rate of interest will be such as to equalize the demand for loans with the supply of them” [II.647.24-5]. Thus far I agree; but loans of what? You say of “capital”—Here I join issue with you. It cannot be denied that the thing lent is money—the medium of exchange; but you say that, though money passes formally, in reality it is “capital” which in such transactions is passed from hand to hand. I maintain, on the contrary, 1. that in the case of a large class of loans “capital” does not pass in any sense other than that in which the word is identified either with the medium of exchange or with commodities consumed unproductively—that is to say, in which either “capital” and “currency” or “capital” and “non-capital” are confounded; 2. that where in a certain sense “capital” may be said to pass—i.e., where the money borrowed is employed in the purchase of “capital”—this does not entitle us to call the money, “capital”,—to say that the transaction is one in which “capital”, not money, is borrowed, or, if it does, then in an ordinary sale we ought to speak of the commodity sold being exchanged for capital, when the money obtained in exchange is applied in the same manner—in short according to this way of speaking, all that portion of the circulating medium which is employed in effecting exchanges of “capital” shd be called “capital”; 3. that the straining of nomenclature, as is done in such explanations, is prejudicial to a clear apprehension of the monetary phenomena, introducing verbal inconsistencies which react on our conceptions, and preventing us from perceiving, or causing us to perceive but obscurely, the operation of some powerful, but not obvious, influences on the course of the Money Market.

I will take these points in order, and set down what occurs to me on each head.

1. I say that in a large class of loans “capital” does not pass in any sense other than &c. This, I think, is involved in your admission at p. 192 [II.648] where you distinguish loans into those for productive and those for unproductive uses. Taking the case of money lent to a Govt to be expended in war, or to a spendthrift to be expended in profligacy—the money itself is here not “capital”, if any distinction between capital and currency is to be preserved; nor are the things on which it is spent “capital”, unless we obliterate the distinction between productive and unproductive wealth. Apply your own test—“the mind” of the person owning the wealth—and I think you must admit that the loan belongs to the category—“not capital”. (Vol. I, pp. 68-70 [I.55-7]). I can imagine still another ground taken: it may be said that the money borrowed by Govt or by the spendthrift wd, but for their competition, have passed into the hands of productive borrowers, and that it may therefore be regarded as so much capital withdrawn from the market. But, first, the statement is not strictly true: a portion—I fancy no inconsiderable portion—of the money obtained by Govt is attracted to the loan market by the enhanced rate of interest caused by Govt demand, and wd but for this inducement have been employed unproductively: so far as this is the case, the effect of the Govt loan is merely to substitute one kind of unproductive expenditure for another; and, secondly, this way of describing the operation appears to me to obscure its real character, for an analysis of which see N.B. article pp. 204-205.²²

2. I cannot see why, because the money borrowed is afterwards applied to the purchase of “capital”, it shd therefore be said that “capital” is borrowed. We do not use language in this way in speaking of purchase and sale, why shd we do so in speaking of loans. Besides the way of using language is open to the serious of [sic] objection of comprising, and in fact confounding, under the same description two perfectly distinct acts—acts which are often separated by a considerable interval of time. The lending of the money produces a certain effect—an effect which is realized whether the subsequent purchase takes place or not: the purchase also when it takes place produces an effect, but this effect wd be quite the same though the money had not been borrowed. A nomenclature which precludes the possibility of distinguishing effects distinct in their character, and separated in point of time must I think be pronounced especially vicious.

3. I say the received mode of stating the doctrine involves verbal inconsistencies which react on our conceptions, and are prejudicial to a clear apprehension of monetary phenomena. I will give a few instances. In describing at pp. 37-38 [II.528-9] the nature of the service performed by banks of deposit, you say that they collect together the scattered “sums” which individuals wd otherwise have to keep as reserves; the aggregate of which being more than sufficient, when collected into one fund, as a reserve against the liabilities it has to provide for, the greater part is lent out to producers and dealers; “thereby”, you say, “adding the amount, not indeed to the capital in existence, but to that in employment, and making a corresponding addition to the aggregate production of the community.” Now here it seems to me there is verbal inconsistency. The “sums” which individuals hold in reserve against liabilities are clearly money, not capital; and all that your description proves is that Banks of deposit add to the money in employment, yet, without assigning reason for the change in the phraseology, you substitute the word “capital” for “sums”, which I think must be regarded as meaning “money”. But further it seems to me that this use of language not merely obscures the real nature of the function performed by banks of deposit, but has even led you into a slight inaccuracy of doctrine. For the true nature of the process, I take it, is this. The Banks by collecting together the stagnant money of the country and rendering it active, cause an effect on prices, which results in increased importation, the money rendered redundant, through the economy effected by the banks, passing out of the country. The result of the whole is a larger amount of consumable commodities in the country and less money. The addition of consumable commodities may be employed productively, or they [sic] may not:^* if they are not, then the banks have neither increased capital in the country, nor have they rendered it more active: if the new commodities are employed productively, then the banks have added to the aggregate amount of capital in the country. In no case can I see that banks have any tendency to render “capital” more active. They render “money” more active, by this means economize “money”, thereby enable us to dispense with a portion and get capital in exchange, and add to the aggregate amount of capital in the country in which they are established: ultimately, if the cause be traced to its last result, as it is in another passage by you, they add to the capital in existence by superseding the necessity of a portion of that which is employed in producing money, & thus setting it free for other purposes. Perfectly analogous is the effect of the economy of credit—e.g. bank notes. The credit instruments cannot [like coin(?)] go abroad; but in proportion as they are economized or as cheaper forms of credit are substituted for dearer, a smaller amount of capital is required for carrying on the business of circulation in a country, and the portion saved is set free for other occupations.

Further I have said that this straining of nomenclature prevents us from perceiving, or causes us to perceive but obscurely, the operation of some powerful influences on the Money Market.—On consideration I will reserve this topic till I have stated my view of the causes governing the rate of interest, or rather my view of the best mode of stating those laws.

The first point, and that which is the most fundamental in the whole matter, is to establish the relation in which the rate of interest stands to the productive powers of capital. That relation is this: (1) the productive powers of capital are the condition which render [sic] it possible that interest should be permanently paid: consequently the productiveness of capital sets the limit within which the rate of interest over long periods must confine itself; (2) since “more will be given for the use of money when more can be made with money”, the rate of interest will tend^† to rise and fall with the rate of profit. These two propositions, I think, express adequately the relation in which the rate of interest stands to capital. The fundamental importance of appreciating that relation I fully admit; but I do not admit that the importance of securing this result justifies in [sic] so stating the doctrine as to shut out from view the relation in which the same phenomenon stands to money. This I think the received formula does. The rate of interest, then, though permanently limited by the productiveness of capital, and though tending to follow the variations in that productiveness, is temporarily not limited by any thing, but the actual pecuniary means of borrowers at the time of effecting the loan, and does not, with any general conformity follow the fluctuations in the rate of profit, often rising when profit—i.e. the productiveness of capital—is falling, & vice versa; the tendency noticed being constantly more or less neutralized and frequently wholly overcome by influences of an opposite kind. What then are the proximate causes on which the rate of interest depends?—I answer simply—on “the demand & supply of the community in relation to the amount of its money^* (using the word in a large sense to include circulating medium of every kind which practically possesses purchasing or paying power according to the purpose for which the loan is made) disposable on loan.” (This statement of the doctrine differs in words only from that given by Tooke in his tract on the Currency 1826—for my view of which I refer you to N.B. Review, pp. 199-201.)²⁴ This mode of stating the doctrine brings me directly into conflict with the proposition which you lay down p. 197 [II.653^b-b657]—viz. “An increase of the currency has in itself no effect, and is incapable of having any effect on the rate of interest.” I venture to maintain as against this, that “an increase of the currency is capable of affecting the rate of interest, and as a matter of fact almost invariably does affect it in one direction or the other.” Let us consider this point.

An increase of the currency (understanding by currency for the present simply circulating medium in any form which practically possesses purchasing & paying power) must take effect in one or other of two ways:—either through the medium of a loan, or through that of purchase: the persons into whose hands the new currency first comes either lend it, or spend it. Now in either case I contend that the augmentation will tend to affect the rate of interest. I observe you draw a distinction (p. 198 [II.653^b-b657]) between issues “as currency” and issues “as loans.” But this distinction seems to me exactly to beg the question in dispute. You say the issue are “loans”—no doubt—but loans of what?—of capital? This I deny and refer you back on this point to my previous arguments. I say that they are “loans of currency” just as truly as money handed over the counter in exchange for a commodity is payment in currency. Well if I am right in this it certainly follows that an increase of currency is capable of affecting the rate of interest—further the illustration shows, that, when the increase takes place by way of loan, its tendency is to depress the rate of interest. In conformity with the doctrine as stated above:—the supply of money disposable on loan being increased, while the demand by hypothesis remains the same, the rate of interest falls. Now take the other case, suppose the increase of the currency to take place through the medium of purchase, here again the rate of interest will be affected, though in an opposite direction. For the effect of an augmentation of the currency by means of purchase is to raise prices. Now as prices rise, the pecuniary needs of borrowers will increase, the demand for money on loan will therefore increase; but the supply of disposable money, according to our hypothesis, remaining as before, the rate of interest will rise. Another consideration, noticed by you, will tend to strengthen this tendency: if the depreciation of the circulating medium be so rapid as to be perceptible, this will affect the inclination of those in possession of money to lend: thus at the same time that the demand for money on loan will increase, the supply will diminish; both changes operating in the same direction—towards an elevation of the rate.

And now, reverting to the question as I left it at [II.1060.22ff.], let us try the two theories by the only effective test—the ability of each to explain the phenomena, and for this purpose let us take first the effect of the gold discoveries on the rate of interest. Viewing the occurrence through the received theory the judgment of economists was I think in general to the effect, that the increased supplies of gold wd have no tendency to disturb the rate of interest. The argument urged by you p. 197 [II.653^b-b657] was employed. The theory directed attention to “capital”, as distinguished from currency; and it not being apparent that the increased supplies of gold wd have any speedy effect in altering the demand for capital as compared with the supply, the decision was as I have stated. Now I think it cannot be denied that the increased supplies of gold have in the event profoundly affected the money-markets of the world; and further I think the doctrine, as I have stated it above, wd if applied to the known facts of the case, have indicated generally the course which the fluctuations have taken. Thus that doctrine wd at once have suggested this inquiry:—into whose hands will the new money first come?—into the hands of persons who will spend it, or into the hands of persons who will lend it? So far as it promised to fall into the possession of the former class we might have expected the rate of interest to rise—so far as it promised to fall into the possession of the latter, we might have expected it to fall. Now in the gold countries, whither people went, not to live on their income, but to make money rapidly, spending wd clearly be the rule; and in these we might accordingly have expected the rate of interest rapidly to rise and to remain constantly nearly as high as the productiveness of capital wd admit: this in fact is what happened both in Australia & California: in the latter country especially money on loan was scarcely to be had on any terms: in both countries interest was for a time computed by the month, not by the year. I do not know whether this is still the case. On the other hand, we might have expected the rates for loans to have taken an opposite course in Gt Britain. The new money first reached this country principally through the hands of large capitalists. The rising demand in the gold countries wd of course lead them to extend their operations; but meanwhile the new gold wd find its way to the banks and show itself in an increase of their reserves. Even when their operations had reached the full limits of the expanding demand, still, economized as coin is in this country, the extended business wd be far from absorbing the whole of the new money, which wd still continue a dead weight on the loan market. This is, as you will remember what happened. From 1852 down to the breaking out of the Russian war the rate of interest in England was quite abnormally low—so low as to tempt Mr Gladstone to attempt a conversion of the 3 per cents into 2½ per cent stock—an operation in which he failed solely through the unexpected turn of our relations with Russia. No doubt it may be said that all this is merely wisdom after the event; but I submit that there is nothing in the above beyond the reach of fair inference from the theory of the rate of interest as I have stated it taken in connexion with the known facts of the case.

Again, I will give another example of the way in which, as it seems to me, the received mode of stating the law of interest the real operation of causes affecting the money market [sic]. Take a case which has occurred lately in which, owing to the sudden failure of a leading staple, there has happened a great derangement in the course of trade. The effect of such a derangement invariably is to cause a rise in the rate of interest. Why? I really do not clearly see how the fact wd be explained on the principles of the received doctrine. I do not think it cd be done at all without a very violent straining of words. But I will state how I wd explain it on my mode of conceiving the theory. In the case supposed—a derangement of trade from the failure of a leading staple—the rate of interest tends to rise chiefly from a diminution in the supply of lendable money, but this tendency may be strengthened by a simultaneous increase of demand; though it is possible also that the effect on demand may be in the opposite direction; and may in some degree neutralize the tendency of the other agent in the change. The effect on the demand for money on loan depends upon this—will the aggregate sum applied to the purchase of the staple be increased or the contrary? The price may so rise as to check the demand very greatly, so that on the whole the sum applied to the purchase of the scarce article will be less than before: this was I believe the case for some time with cotton on the first breaking out of the American war; but, speaking from memory, the Board of Trade returns have lately shown a larger aggregate expenditure on cotton than in the times of its abundance. In the latter state of affairs, the pecuniary requirements of borrowers in cotton manufacturing will be augmented; consequently the effect of the failure must be to increase the demand for money on loan: in the former state, of course the effect wd be the opposite. So far as to demand. But in all circumstances a derangement of trade from the cause supposed, indeed from any cause, wd be to diminish for a considerable time the supply of lendable money. For its effect is to send us to other countries in search of the staple which has failed us in its usual field. Now when a trade is opened for the first time with a new country it is an almost invariable rule that for a time, more or less extended, it is carried on, on one side, in the precious metals. It wd be an extraordinary circumstance if the failure which in 1856 & 57 sent us to China for silk shd have synchronized with an accident which shd have sent the Chinese to us for goods to the same value. It may therefore be assumed as a rule that a derangement in trade necessitates a larger use of gold and silver international transactions. Where is this gold & silver to come from? In the main it must come from the stocks which are held as the disposable reserve in commercial countries. The supply of money on loan is thus diminished, and a rise in the rate of interest is the natural result.^* The above conditions supply I think all the elements for a solution of the problem: can it be said that the received doctrine supplies those elements? That doctrine wd, I think, direct the attention of the inquirer to the loss of “capital” incident to the failure of the staple. Now though the phenomena which result may no doubt be traced back to this fact, these phenomena take their shape & character, not at all from the fact itself, but from the way in which the occurrence happens to affect the pecuniary apparatus by which trade is carried on. For example, supposing the loss were one which could be repaired by a diversion of production within the limits of our own country, or within some civilized country, not given to hoarding and with tastes already formed for our commodities—in this case, although we were quite as slow in repairing the loss, the effect on the rate of interest wd be very different from that which wd be experienced if we were obliged to resort for the deficient article to a semi-barbarous country. Nor wd the circumstance that the failing staple were an element of “capital” affect the result in the least: if it were a finished manufacture suited only to luxurious consumption the effect wd, or at least might be, quite the same.

I could multiply these illustrations very considerably, but probably I have now said enough to give you a fair idea of the view for which I seek to obtain a hearing. If I were asked to characterize it by a word I should say that it regards the rate of interest as essentially a “monetary” phenomenon; whereas it has hitherto been represented as expressing a relation of “capital”, as distinguished from money. Monetary science in short, as a department of political economy, resolves itself, according to my notion, into two leading departments—prices and the rate of interest—or, as we might describe them, the value of money in relation to commodities at a given time, and its value in relation to itself at different times. All classifications of the circulating medium shd I think be made with reference to the convenience of interpretation in regard to these two classes of phenomena.

As an example of what I mean I will venture to lay before you a speculation as to the definition of money, which I had hoped before now to have brought before the Pol. Economy Club.

Let me first state what I understand to be the true criteria of a definition in Political Economy. The purpose of definition in P.E. is, I think, altogether analogous to its purpose in the physical sciences, say in Chemistry—namely to classify phenomena with a view to their interpretation. That classification of economic phenomena will be best, & therefore those definitions will be best, which mark those relations in the facts of wealth which are most important in determining the laws of its production and distribution. (I may observe here by the way that, if this view be sound, definitions in Pol. Economy should not be regarded, as Senior regards them, as the bases of our reasoning, and as final, but merely as provisional expedients to be constantly modified with the progress of our economic knowledge—as, in short, registers of the state of that knowledge.) The business of defining in P.E., therefore, is more than a verbal affair: it involves a question as to the relative importance of external facts. It is also indeed in some degree a question of words, inasmuch as P.E. deals in popular language, and it will always be desirable, as far as possible, to use words in such a sense that they shall suggest the right ideas. Well, keeping these two criteria of sound definition in view the question I have to consider is—What is the best definition of money?

The purpose of a definition of money, agreeably to the foregoing view, will be to assist the interpretation of monetary phenomena: these phenomena resolve themselves into two grand divisions—prices, and (according to my notions) the rate of interest. Confining ourselves, for the present, to the first class of phenomena, let us observe the relation in which the several portions of the circulating medium stand to them. And first we may note this fact, that in one point all the elements of the circulating medium agree;—they are all capable of affecting prices; and further none of them affect prices unless so far as they are actually employed as instruments of purchase. I need not illustrate this position as I know you will accept it. But, secondly, there is this difference between certain elements of the circulation and others, that the action of some upon prices is what, for want of a better word, I will call “unconditional”, while that of others is “conditional”. One condition indeed must be satisfied in all cases—the circulating medium, whatever its nature, must be used—used I mean as an instrument of demand. But assuming this condition to be fulfilled, one portion of the circulating medium is capable, not only of raising prices but of permanently sustaining them at the enhanced level; while other portions may raise prices, but whether they are capable of keeping them up or not depends on the fulfilment of a condition which has no place in the former case. Thus an increase of coin (on the assumption only that the persons into whose hands it comes be willing to use it) will, other things being the same, not merely raise prices for once, or keep them up for a time, but will permanently maintain them at the level to which it has raised them; the same may be said of inconvertible bank notes; but it is otherwise with credit in all its forms. So long as the credit circulation is trusted, it is perfectly efficacious in its action on price, but distrust at once smites it with impotence. The power of the credit circulation in every form (bank notes included) to uphold price depends upon the condition that the promise which it implies be performed, or at least that there be belief that this shall be done.

Now this distinction suggests some important inferences. It follows from it, for example, that, while any cause calculated to cheapen coin or to augment the supply of inconvertible notes tends to raise permanently the level of prices over the field throughout which these media circulate, and thus permanently to depreciate the currency over this area; an increased facility of creating credit instruments, even though resulting in an increased supply of these instruments, has no such tendency. Temporarily indeed an effect on prices may be produced, but whether that effect be permanently sustained depends, not on the facilities of creating credit media of exchange, but on the possibility of maintaining a sufficient supply of that commodity—gold or silver—in which the credit instruments are made payable, to enable the promises embodied in those instruments to be made good. Thus a discovery of gold or silver mines tends with certainty to raise prices and to depreciate those metals. But improvements in banking have no tendency permanently to depreciate the currency in the country in which they occur. They may indeed depreciate it slightly for a time till the excess in the circulation be got rid of; but so soon as this happens prices will return to their ordinary gold or silver level. The distinction again will throw light upon a point around which in the early days of the Bank Charter Act discussion much vehement controversy took place. In those days the stereotyped explanation of the monetary phenomena incident to all periods of speculative excitement was—the banks forced their issues into circulation; prices were driven up &c., &c. The evidence indeed of all competent bankers showed conclusively that the banks had no power of the kind attributed to them; but in spite of reiterated denials, the explanation was still put forward, still apparently believed in by those who advanced it, and I think was generally accepted by loose thinkers as satisfactory. The plausibility of the explanation consisted, I think, in this:—It was certain that the banks were anxious to find employment for their reserves: the low rate of interest proved this: now this anxiety on the part of the banks implied the power on the part of all persons in fair credit to obtain the command of purchasing power. In fact the credit, whether of the banks or of individuals, represented purchasing power; and it was assumed that this undefined store of purchasing power being left free from all legislative restraint wd surely be used. Such an inference wd be perfectly just if the purchasing power consisted in gold and silver. If the Banks, for example, had each a gold mine in its vault, and the large capitalists each a Fortunatus’ purse in his pocket, purchasing power of this sort wd quite certainly be brought into exercise and force up prices; but purchasing power resting on credit differed from purchasing power resting on coin in this, that it cd not be put in operation without bringing those who employed it under an obligation to make good the amt at some time or other in specie. Individuals and institutions, accordingly, who were in good credit, sensible of this, wd of course refuse to employ their credit in unproductive expenditure, and were deterred from employing it in productive operation unless where they saw their way or thought they saw their way to turning their capital with a profit. Hence the justification of the position maintained with so much ability by Tooke, that overtrading and speculative extravagance were due, not to the facilities afforded by credit establishments, but to the prospects, well-founded or delusive, of turning increased capital (I use the word in the received sense) with a profit.

There is also another position of Tooke, in his treatment of it assuming sometimes I think a paradoxical character, which receives elucidation from the same distinction. Tooke maintained that “the prices of commodities do not depend on the quantity of money as indicated by the amount of bank notes, nor upon the amount of the whole circulating medium, but, on the contrary, that the amount of bank notes & of the circulating medium is the consequence of prices.”²⁵ The doctrine encountered abundant ridicule from Colonel Torrens and other writers of his school: nevertheless I have not the least doubt that the principle laid down is both true and important. The whole plausibility of the objection to the doctrine depends upon one ignoring the distinction which I am contending for. The statement wd be palpably absurd if made with regard to coin, or inconvertible currency: it seems to me to be not less clearly true when the allegation is confined to a credit circulation. The truth which the proposition embodies is this, that in a country like England, where the great mass of the circulation consists of instruments of credit, the proximate cause of prices is opinion—the opinion of merchants and dealers as to the value of commodities estimated in gold: when, for example the price of a given commodity rises, the fact indicates that, in the opinion of the dealers in that commodity, its value, until the present stock of it be consumed or until an increased supply be obtained, may be maintained at that level in relation to gold and silver or, what comes to the same thing, paper convertible into gold or silver: the judgment to this effect once being formed by those who have credit at their command, this credit is (to borrow an expression of yours) “coined” into bills, cheques and other convenient forms. The advance in price is thus not caused by an increase of the circulating medium, but on the contrary the increase in the circulating medium is caused by the advance of price. (I think, by the way, that this analysis shows that credit may influence prices potentially—I mean without being actually offered for commodities: the belief that it wd be offered or that at some future time it will be offered is sufficient to induce the holders of the commodity to raise their terms. The same qualification must, I rather think, be applied also in the case of coin.)

Once more, the distinction for which I contend enables us to answer a question about which much confused argument was put forward some years ago—the question whether in estimating the probable effects of the gold discoveries we should compare the new increments of gold with the stock of the metal in existence, or with the composite aggregate of metal, circulating paper, and credit of all kinds. I remember M. Leon Faucher²⁶ maintained that it was with the latter body that the comparison shd be made; and the same position was maintained in the Times no longer ago than a year²⁷ by less known names. But with the distinction which I have stated in view, it is quite plain that the position is fallacious. The (gold & silver) prices which at present prevail in commercial countries are, as permanent phenomena, the consequence of the quantity of gold & silver which is maintained there, not at all of the quantity of credit in circulation; this being, on the contrary as we have seen, the effect, instead of the cause of prices.

I have now pointed out one important distinction between coin and inconvertible notes on the one hand, & credit media of circulation on the other—the circumstance that the one class act “unconditionally” on prices and are therefore capable of “permanently” sustaining them, while the sustaining power of the other is conditional & liable at any moment to break down. Closely connected with this is another important distinction—the elasticity of credit as compared with coin (as compared also with inconvertible notes). This elasticity may conduce, in a certain state of public feeling, to intensify oscillations of price; but it may also, (and this is its more frequent though less noticed effect), be made the means of moderating such oscillations.^* By following up this line of speculation we shd be led to the true conditions on which the stability of a credit system depends—those conditions being—(1) sound views amongst the mercantile community as to the causes affecting the supply and demand of commodities, (2) entire freedom in the use of credit, and lastly (3) the habitual maintenance of a large reserve of gold or silver. The Bank Act of 1844, founded as it is on a theory of currency essentially unsound, so far as it has any operation, tends, as I conceive, to aggravate all the causes which conduce to instability. On this point I refer to N.B. Review, pp. 211 et seq.²⁸

The result of the foregoing investigation has been, to show that, as regards the phenomena of price, the most important distinction among the elements of the circulating medium lies between coin and inconvertible notes^† on the one hand and instruments of credit on the other. This distinction I wd mark by confining the term “money” to the two former; of money therefore there wd be two sorts—metallic and paper money (the latter being inconvertible notes): all the rest wd come under the general head of “credit.” We might, agreeably with this view, define money as consisting of those kinds of exchange media of which the purchasing & paying power is unconditional, or of which the power of sustaining prices can never suffer defalcation. I have treated the question so far solely with reference to the phenomena of price, but it is plain that an examination of it with reference to those of the rate of interest wd lead us to precisely the same conclusion; the purposes for which circulating medium is borrowed having always direct regard to its purchasing and paying power. (Supposing this definition to be adopted, it wd be necessary to substitute in the statement of the law governing the rate of interest (as given ante II.1060-1) for “money”, the words circulating medium possessing at the time of the loan purchasing or paying power.) [Altered; see e.g. II.650^c-c, 651^a-a, 651^c-c, 651^d, 651^f-f652, 653^a-a, 653^b-b657.]

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II.665 (II.208-9). I understand you to admit here that the contrivance of the Act—i.e. the separation of departments combined with the restriction placed on the power of issue—does in some degree “prevent the ultimate aggravation of the severity” of a commercial crisis. I cannot but think that in doing so you make a concession which the facts of the case do not call for. I cannot see that the “retardation” of a crisis must necessarily or would probably, aggravate its severity. If the retardation occurred during the “ascending period”, obviously enough it wd have this effect. Doubtless too it wd have this effect if it took place during the “quiescent state”. But the highest point having been reached and the descent having commenced, I should expect that the more gradual the descent, the more it wd allow time for the disentangling of sound from unsound speculation; and that, on the contrary, a very abrupt collapse of the markets wd be well calculated to bring down solvent and insolvent houses, solid and bubble schemes, in one general ruin—in fact to produce a crisis which otherwise might never have happened. There is a phrase that is frequently in the mouths of the admirers of the Act—that of “clearing the air”; but experience seems to show that those sudden oscillations in the rate of interest which the Act produces, while they are quite sufficient to send into the Gazette men who are afterwards able to pay 20s. in the £, are very far from being certainly efficacious in searching out the rotten parts of our commercial economy. How many bubble schemes have been exploded in times of commercial quiescence; while the very worst and most disgraceful speculations which the country has seen have lived through all the rigours of the most violent crisis. To mention one instance, that gigantic scheme of complicated fraud organized in the leather trade survived the crisis of 1857, though now known to have been at that time in a state of bankrupcy—survived “the clearing of the air” of that time to succumb in the comparatively mild season of some years ago. The truth, as I fancy, is, that the detection and explosion of rotten schemes depends less upon the stringency of the money market than on the private knowledge of creditors as to the position of persons and houses with whom they have transactions. In a period of alarm suspicion is generally undiscriminating, so that it becomes a good deal a matter of chance on whom the pressure falls. In connexion with the point now under discussion I venture to think that you do not sufficiently advert to the fact, that neither at this stage—the commencement of the decline—any more than at any other stage, does the Act make any provision that the Bank shall not continue its advances until its reserve is absolutely exhausted: if the Bank contracts its operations a moment before this consummation is reached, it is in deference to its own discretion, not at all to any restraint imposed by the law. This is in truth a vital point in connexion with the theoretical justification of the Act, because the doctrine originally laid down, and still frequently assumed as realized in practice, was that the Act took the management of the currency out of the reach of individual discretion and placed it under a self-acting law: in fact nothing is more certain than that the stability of our currency rests now as much on the discretion of individuals as it ever did. This has indeed become so apparent that the defence of the Act is now generally shifted—at least by its more judicious advocates—from theoretical to practical grounds—practical grounds which directly negative its theoretical pretensions. It is said that the Act virtually compels the Bank to raise the rate of interest under a drain at an earlier period than it otherwise wd do. Doubtless it does: if the Bank did not raise the rate of interest sooner now than under the old system, the certain result wd be that it wd find itself, at what under the old system wd be an early stage of the movement, at the end of its resources. But does this constitute a practical justification of the Act? It creates an artificial pitfall, and because efforts are made, more or less successfully, to avoid the snare, its admirers take credit for having added to our security, and point triumphantly to the strainings of the endangered parties as conclusive evidence of the wisdom and benevolence of the law! What those who undertake to defend the Act on practical grounds ought to show, is, either that it renders the task of maintaining the stability of our credit system more easy than formerly, or, failing this, that it provides for the exercise on the part of the Bank directors of a larger and surer discretion. The former end it certainly has not accomplished: on the contrary the separation of the departments by splitting the reserve in two combined with the restriction on issue has enormously enhanced the difficulty of the problem; while, as regards the latter point, though public criticism has done something towards quickening the discretion of the Bank directors (as it wd with the progress of monetary knowledge under any system), this cannot be ascribed in any degree to the influence of the Act of 1844, the teaching of whose promoters was, as the Times once put it, that “it was for bankers to look to their own interest, leaving the currency under Sir. R. Peel’s Act, to take care of itself.”³⁰ [Unaltered in specified place.]

3

II.649-50 and 667-8 (II.194 and 212-13). In the former passage p. 194 [II.649-50], you enumerate, as constituting the elements of “the general loan fund of the country”—“the disposable capital deposited in banks or represented by bank-notes (I am not quite clear whether the expression “or represented by bank notes” is intended to qualify “disposable capital”, or “disposable capital deposited in banks”—in other words whether you intend it as an equivalent expression for “deposited in banks”, or as denoting a particular form in which such deposits may be made), together with the funds of those who . . . live upon the interest of their property” [II.649.42-650.5]; and in the reasoning in pp. 212-13 [II.667-8] these seems [sic] to be the only elements of the loan fund which you contemplate. But surely there is another very important one—the credit of bankers,^* as distinct both from the sums lodged with them on deposit, and from the notes which they hold, or under the present law, may issue. The reasoning in pp. 212-13 [II.667-8] appears to proceed upon the assumption that when a bank discounts a bill, it must either issue notes to the person from whom the bill is obtained, or encroach (in order to discount the bill) on the money lying with them in deposit. But, as I understand the matter, the bank may, and in the great majority of instances does, adopt neither of these courses: may it not simply place the amount to the credit of the person from whom it receives the bill, leaving him to draw against it at his convenience; and may not the cheques thus drawn be lodged again in the bank, the amt being simply transferred from the credit of drawer to that of the drawee? or if not lodged in the bank which originally discounted the bill, it might be lodged in [some (?)] other, with whom an exchange wd be effected through the Clearing House. If I correctly conceive the process, it seems to me that the banks possess an indefinite fund from [wh (?)] to extend monetary accomodation to the public, without sensibly increasing their issue, or touching the funds left with them in deposit—a fund of which the only limit is the prudence [of (?)] the managers of each institution. Supposing my notion to be right as to what happens in a large class of [cases when (?)] a bill is discounted, I presume the sum, written down by the bank to the credit of [the (?)] person presenting the bill, wd be regarded as a “deposit”. I have no authoritat[ive] knowledge as to how the matter stands, but I presume this is so. If so, it is a ver[y im]portant consideration; for “deposits” are commonly supposed to represent reso[urces(?)] of the bank as well as liabilities; but a deposit occurring in the way I hav[e] described wd represent a liability only. I think it wd be very desirable if this point were cleared up, but I have not here access to any one sufficiently informe[d] to enlighten me. [Altered; see II.650^c-c and ^b-b (referring to “disposable capital”).]

4

II.668.4ff. (II.212). “But the mode in which they are really objectionable &c &c . . . The rate of interest is [not] prevented from rising.” I do not follow this reasoning: it seems to me the effect on the rate [of] interest wd be the same in either case. What really happens, and happens alike in bo[th] cases, is this:—a certain amt of circulating medium formerly existing in the state of mo[ney(?)] disposable on loan is withdrawn from this state and employed in circulating commo[—] Supposing the bank to make the loan out of actual funds lodged with it, the lending abili[ty(?)] of the bank and of the country is diminished by so much, and a certain portion of [—] demand for purchasing or paying power is satisfied: supposing the depositors to draw the funds out themselves, an equal encroachment is made on the loan fund of the bank and of the country, and an equal portion of the demand for loans is satisfied. I cannot see that either the demand or the supply of money on loan wd be affected by the mode in which this result—the same in each case—was brought about; nor therefore why, one course shd affect the rate of interest more than the other. In practice I believe there wd be a difference; because I believe that in practice the bank wd make the loan not out of funds actually in its possession, but out of its general credit in the way indicated above. Made in this way the rate of interest wd not be affected in the same degree as if made in the other; but why? because a refusal to [discount(?)] by the bank wd be a refusal to extend its credit further: it wd therefore be equivalent to a curtailment effected in the available loan fund of the country.

Supposing I am right in the view above advanced I think it must be admitted that the considerations urged attenuate indefinitely, if they do not entirely remove, the force of the concession made to the supporters of the Act on pp. 213-14 [II.670.12ff.]. “I am compelled to think that the being restricted from increasing their issues is a real impediment” &c. . . . If the restrictions of the Act of 1844 were no obstacle to the advances of the banks in the interval preceding the crisis, why were they found an insuperable obstacle during the crisis”? I answer, because in the former period a credit with the Bank—to be used by means of cheques and not involving any important increase of issue—answered the purpose of those who borrowed; whereas in the latter period—owing to the extensive collapse in the mean time in the ordinary media of circulation—actual notes were required. See the quotation from Fullarton p. 216. [II.671.17ff.] [Altered; see II.668^q-q and ^r-r, and 670^y-y.]

5

II.678 (II.225). “Every drain for exportation. . . . . is now compulsorily drawn from that source alone—the bank-note circulation.” [II.678^o-o.] This I think is only true when we include as part of the “circulation” the notes or gold held in the banking department of the bank, as well as other “reserves” existing through the country; but these “reserves” are not “circulation” in the sense in which the word is used by Mr Fullarton in the passages previously quoted. In those passages the word “circulation” is restricted to “that portion of the metallic wealth of the nation which really circulates” (224 [II.677.7-8]), as distinguished from “the hoards”, or stagnant metallic wealth only to be called into activity by the attraction of a high rate of interest. Restrict the term “circulation” equally in its application to our monetary system, and it is not true that every drain for exportation is drawn from “the bank-note circulation”. As you point out in the next paragraph “the first operation (and I venture to add not merely the first but almost the entire operation) of the drain is on the banking department, “the deposits” in [sic] which, as you add, “constitute the bulk of the unemployed and disposable capital of the country.” The drain therefore does not fall on the “circulation” in Fullarton’s sense of that word. The true analogue in our system for the hoards which exist under a metallic currency are clearly I think the bank reserves, or more generally lendable money wherever it is to be found. The objection to the Act of ’44, it seems to me, is, not that it throws a drain upon a part of the currency on which it wd not fall under a metallic system, but that it curtails the dimensions of the available reserve: this it does by the separation of departments; the effect of which is to lock up in the Issue department a vast quantity of gold which really answers no practical purpose whatever. In the passage (p. 224 [II.677.24]) beginning “In a country &c . . . [sic] the word “reserve” of the Bank of England seems [to be(?)] used to cover the gold in both departments. Reasoning on the principles of the Act I do not [think(?)] this use of “reserve” is justifiable. The gold in the Issue department wd not I think be regarded by those who framed the Act, as “reserve”, but as “circulation”—the notes actually circulating being mere tickets representing it. [Altered; see II.678^o-o.]

7.

MILL TO CAIRNES

• Saint Véran, Avignon

12 Dec., 1864.

I do not know how sufficiently to thank you for all you have done for me. That you should have taken the trouble to write out your thoughts so fully on so many points, only for my use, is a favour such as I should never have presumed to ask from you. It is like nothing but the philosophic correspondences in which the thinkers of the 16th and 17th centuries used to compare notes and discuss each other’s opinions before or after publication—of which we have so many interesting specimens in the published works of Descartes. I shall keep the notes carefully and return them to you, for I do not like that so much thought, so clearly worked out on paper, should have no reader but me: besides, it enables me with a better conscience to use their contents.

On most of the minor points I think you are right, and shall profit by your suggestions. On Ireland I shall cancel all I had newly written on that subject, and wait for the further communication you kindly promise.³¹ On the few points of doctrine on which our opinions differ, you have not, thus far, convinced me, though you have taught me much. Among these I do not count the theory of the rate of interest, for I agree entirely with your explanation of the phenomena, and the article in the North British Review appears to me excellent. I had, even before I heard from you, inserted a passage pointing out how the new gold, as long as it continues to flow in, must tend to keep down the rate of interest [II.651^f-f652]. We differ, I believe, only on a question of nomenclature, and at present it seems to me that the objections to your phraseology are stronger than to mine. But I have not done thinking on the subject, and I shall in any case have to modify several expressions, if nothing more.

In the matter of the operation of duties on international values, I see that I have omitted one of the elements of the question, viz. the competing demands of other commodities on the purse of the consumer; but it does not seem to me that this omission materially affects the conclusion. Suppose that I have a given sum, say £10 a year, the expenditure of which I am determined, whatever happens, to divide between two commodities, A and B. I conceive that even then, if A rises in price and B falls, the effect in the average of cases will be that I shall buy more of B and less of A.

On the Wakefield system I scarcely understand your argument. In the supposed case of the settlers, and in every other, I apprehend the separation of employments to be a real cause and indispensable condition of a larger production. It is true that territorial separation of employments, by international trade, often suffices: but the main justification of Wakefield’s system is, that this trade does not take effect when families settle, each of them many miles from its next neighbour in the wilderness.

The point on which we seem to differ most, & to be least likely to come to an agreement, is the income tax. You think it fair to take from different people in a single year, an equal percentage of what their incomes, whether permanent or temporary, would sell for in that year: because (you say) the payment in each year should be compared with what the income is worth in that year to its owner. In this I agree; but I answer, that the income is, in that year, worth to him its capitalized value only on the supposition that he actually capitalizes it, and spends the whole value within the year. Then, indeed, he will have been fairly taxed: but then, he will not have to pay the tax in any future year, for the income will have passed into other hands. On any other supposition the income is only worth to him its capitalized value spread over the whole of its duration, that is, in each year the total amount divided by the number of years. I agree in what you say about equality of sacrifice, but in estimating this, I only exclude necessaries. I do not think a distinction can be fairly made between comforts and luxuries, or that I am entitled to call my tea and coffee by the one name, and another person’s melons and champagne by the other. I allow for nothing but what is needed to keep an average person alive and free from physical suffering.

I have read with the greatest interest Judge Longfield’s address, and two of your articles on it in the Daily News.³² There may be others which I have missed, as the paper is often stopped at the French post office. Though I thought the Judge wrong in much of what he said on fixity of tenure, I agreed with, I think, every part of his address which was praised in your articles, and I think it altogether a most important paper. I give him the greatest credit for speaking out so plainly, and so much to the purpose. It is particularly timely, coming so soon after the speech in which Gladstone included remedial measures for Ireland among the things which he put in the front of his policy.³³ We see there, as usual in Gladstone, the man who speaks from his own convictions, and not from external influences. No other minister would have put forward Ireland, any more than Reform, just at this time, when there is no public outcry about it.

8.

MILL TO CAIRNES

• Saint Véran, Avignon

20 Dec., 1864.

I wrote to you some days ago a letter addressed Dublin and “to be forwarded”, thanking you for the two packets of notes you kindly sent and remarking generally on their purport. I have since carefully revised all the passages you referred to, and there are very few of the notes by which I have not, to some extent, profited. In a great many cases I have entirely adopted your view. I have rewritten the fourth section of the chapter on the Rate of Interest and have much enlarged it [II.653-8]; completing my exposition of the causes on which the rate of interest depends, by adopting nearly all you have said on the subject that involves doctrine. In what merely involves the mode of stating the theory, I still prefer my own: but I see that the whole truth of the subject may be expressed in either way, and may usefully be so in both. Your remarks on the definition of money I have not used, for a different reason: I cannot, in conscience, take without necessity what belongs to you. When it is for the correction of an error I have less scruple, but all I have said on this matter tended to your opinion, though less thorough and conclusive. Even on the Interest question, I should like, if you will permit me, to acknowledge my obligations to you in a note.

9.

CAIRNES TO MILL

• 74 Lower Mount St. (Dublin)

23 Dec., 1864.

I have received both your letters—that of the 20th inst. this day—which have caused me, I needly not say, very sincere gratification. That you should have modified your book in any degree in deference to suggestions of mine is a compliment which I shall never cease to prize, coming as it does from one to whom I lie under the deepest intellectual obligations. It brings me the comforting assurance that I have so appropriated your principles and methods that I can now apply them for myself. I shall not affect to deny that I shall be proud of any reference you may make to me in your work; but be assured that whatever I have done (and in truth you very greatly overrate this) has been a labour of love, for which I have thought of no other acknowledgment than its being received and considered by you.

I must apologize for the delay which I have allowed to elapse in forwarding you the results of my inquiries into the state of Ireland. You will accept my assurance that it has been quite unavoidable. I have now got on paper, and hope to forward you by next post [sic], the most material items of such information as I have been able to obtain. So far as the facts go, I think you may accept them as trustworthy. When not taken from official documents or from my own experience they are given on the authority of informants in whom I have every confidence, of whom the principal have been Judge Longfield, Mr Thom (of Thom’s Almanack)³⁴ and Mr Jonathan Pim³⁵ —the last a merchant of this city connected with the Quaker body & author of a very good book on Ireland which, together with another in the compiling of which he took part, he has (as you will see by his letter which I enclose) requested me to forward to you. I have also had the advantage of conversing much with an intimate friend, Mr M^cDonnell,³⁶ Examiner in Judge L’s Court, than whom I dont know any one more thoroughly familiar with the present state of land tenure in Ireland or more anxious to impart his knowledge truthfully. A good deal of what I send is in the nature of speculation, and of the value of this you will judge yourself.

I have read with great interest what you have said on my criticisms, but before replying to this part of your letter, I prefer to wait till I have time to consider some of the points you have urged more carefully than since the receipt of your letter I have had time to do.

Notes on the State of Ireland (1864) for J.S.M.³⁷

That cottierism has undergone an extensive reduction in Ireland is quite beyond question. The fact is conclusively indicated in the statistics of holdings quoted at p. 18 of the article sent herewith.³⁸ The causes which have brought about this reduction are numerous and powerful, and are still in active operation. At the head of these I would place free trade. The cottier class, on the scale on which it has been known in modern Irish history, had its origin in the transition of Ireland from a grazing to a corn-producing country, which occurred in the latter half of the 18th century: the phenomenon was connected with the same group of causes under the influence of which England from being an exporter became an importer of grain: and the cottiers have always been identified with the system of agriculture under which they arose. Free trade has effectually shattered, and already in great part overthrown, that system, by throwing the country upon its special capabilities which (speaking generally) are pastoral. It is curious to note how exactly the process which was in operation a century ago is now being reversed. Tillage was then rapidly taking the place of pasture; the labourers employed in this conversion being paid (in the absence of circulating capital) in land. At the commencement of the movement, which we may date at 1754, the population of Ireland, which for quarter [sic] of a century had scarcely moved, having been 2,309,000 in 1726, was 2,372,634 persons: by 1788 it was upwards of 4,000,000; in 1805 it was 5,395,456.^*Now a contrary impulse is causing tillage to give way to pasture: the labour^† of the cottiers is every year less and less required; on the other hand the land which they hold can be turned to good account in grass. The circulating capital which came into existence a century ago contemporaneously with the cottier system is now going back into the fixed form; and with the decline in the country’s circulating capital, the population is also declining. Free trade, it must be confessed, has been injurious to Ireland if the maintenance of an immense agricultural population in the condition of the cottiers was a good.

I have placed free trade at the head of the causes tending to the reduction of cottierism, because I think that it is the fundamental agency in the movement, and would even alone have led sooner or later to this result. Of course the tendency thus developed was immensely accelerated by the famine: it has also been aided by other causes:—Amongst these the principal are the lesson of experience; the universal breakdown of the system in 1847 has shown landlords that the system is as ruinous to them as it is demoralizing to the peasantry; 2. the commercial ideas infused into agricultural society through the medium of the new men who have purchased land in the Encumbered and Landed Estates Court. Land is every day coming more and more to be looked at in the light of an investment; and from this point of view cottiers are an abomination. Lastly, the increased facilities of intercourse and communication with America and other new countries have opened the door of escape to the superfluous population, and allowed the movement to go forward at a rate which without this wd be impossible. It may be too much to say that cottierism is tending towards entire extinction; but I think there need be no hesitation in saying that the dimensions of the phenomenon will soon be so reduced that it will cease to be important.

What is the state of things that is taking its place? This is indicated by the statistics already referred to. The farms between 15 and 30 acres and those above 30, have increased pari passu with the diminution of those below 15 acres. The usual course of proceeding is much as follows:—A landlord finds his estate encumbered with a number of small cottiers holding from 1 to 9 or 10 acres. He has no occasion for their services as labourers; for he finds he can turn what land he farms himself to better account in grass; nor for the same reason can they procure employment from the larger farmers in the neighbourhood. For any other purpose than that of mere labourers they are utterly unfit: they are ignorant unenterprising and generally largely in arrear of rent. Improvement of his estate, or the rendering of it profitable in any way, is manifestly impossible while they are on it. He comes to the most hopeless amongst them, urges them to give up the land, offers to remit all arrears of rent, suggests emigration, and occasionally offers to contribute something towards the expenses of the journey. While this is going forward those poor people are probably plied at the same time with invitations from their friends on the other side of the Atlantic to join them; their invitations being seconded by remittances to pay their passage money out. Then the movement once set on foot is contagious. The cottiers are thus rapidly passing away, and the landlord, once rid of them, will not be anxious to submit his back again to the burden. He will proceed to consolidate several of the small holdings, and, according to circumstances, will either take the land into his own hands, or look out for a solvent tenant of some substance to whom he can let the whole: very frequently the plan adopted is to add the land thus liberated to the holdings of the most promising of the existing tenants.^*

I have referred above to the beneficial influence exercised on land tenure in Ireland through the commercial ideas of the new proprietory: it must be confessed that this agency is not without its drawbacks.⁴¹ A class of men, not very numerous, but sufficiently so to do much mischief, have through the Landed Estates Court, got into possession of land in Ireland who of all classes are least likely to recognize the duties of a landlords position. These are small traders in towns, who by dint of sheer parsimony frequently combined with money lending at usurious rates have succeeded in the course of a long life in scraping together as much money as will enable them to buy 50 or 100 acres of land. These people never think of turning farmers, but proud of their position as landlords, proceed to turn it to the utmost account. An instance of this kind came under my notice lately in the neighbourhood of Drogheda. The tenants on the property were at the time of the purchase, some 12 years ago, in a tolerably comfortable state. Within that period their rent has been raised three several times; and it is now, as I was informed last night by the priest of the district, nearly double its amount at the commencement of the present proprietor’s reign. The result is that the people who were formerly in tolerable comfort, are now reduced to poverty: two of them have left the property and squatted near an adjacent turf bog where they exist trusting for support to occasional jobs. In the end, if this man is not shot, he will injure himself through the deterioration of his property, but meantime he has been getting 8 or 10 per cent on his purchase money. This is by no means a rare case. The worst evil is that the scandal which such occurrences cause casts its reflection on transactions of a wholly different & perfectly legitimate kind, such as I have described above, where the removal of the tenants is simply an act of mercy for all parties.

I have indicated above the causes which are conducing to the decline of cottierism. Simultaneously with the movement thus induced, there is an opposite process going on. The anxiety of landlords to get rid of cottiers is to some extent neutralized by the anxiety of middlemen to get them. To understand this it should be remembered that about one fourth of the whole land of Ireland is held under long leases; the rent reserved, where the lease is of long standing, being generally greatly under the real value of the land. It rarely happens that the land thus held is cultivated by the owner of the lease: instead of this he sublets it at a rack rent to small men, and lives on the excess of the rent which he receives over that which he pays. These leases are constantly running out; and as they draw towards their close, the middleman has no other interest in the land than at any cost of permanent deterioration to get the utmost out of it during the unexpired period of the term. In this purpose the small cottier tenants precisely answer his turn. Middlemen in this position are as anxious to obtain cottiers as tenants as the landlords are to be rid of them; and the result is a transfer of this sort of tenant from one class of estates to the other. The movement is of limited dimensions, but it does exist, and so far as it exists, neutralizes the general tendencies. Perhaps it will here occur that this system will reproduce itself; that the same motives which led to the existence of middlemen will perpetuate the class; but there is no danger of this. Landowners are now perfectly alive to the ruinous consequences of this system however convenient for a time; and a clause against subletting is now becoming a matter of course in every lease.

We see then that the cottier class are rapidly diminishing in Ireland, absorbed chiefly in the emigration; not however altogether: to some extent they pass into the position of ordinary labourers. So far as the latter lot has been theirs, I do not believe that any sensible improvement has been effected in their condition. For a time their wages may rise under the influence of a good harvest and the drain of population to America: in the last 20 years the rates at large over the country have probably risen from 20 to 40 or 50 per cent; but this mode of stating the case is I believe misleading; the improvement in real wages not at all corresponding to this nominal rise. Potatoes, which was almost their sole subsistence in former years, and is still their main subsistence, have in recent times sold at 2 or 3 or 4 times their former price. In this year potatoes are exceptionally low, but are probably twice their price as it stood 20 years ago, or nearly so. The 4d or 6d a day which in remote parts of the country was a common rate of wage twenty years ago cd not now by any means subsist a man. Money wages, therefore, have necessarily risen: I dare say too that on the whole looking at the lowered prices of tea sugar and clothing during the time in question, real wages have risen; but I see no indications in any direction of an advance in the standard of comfort. In the part of the country that I know best—the Co. Meath & more especially the neighbourhood of Drogheda—the ordinary course of things is for men to marry at the age of three or four and twenty, often earlier, the women being somewhat younger, and their joint wage frequently not exceeding 1s/6d a day, rarely exceeding 2s/6d. A man of good character earning 2s/6d a day is thought to be a catch. Any hope of permanent improvement therefore by the conversion of cottiers into labourers I regard as quite chimerical.^*

The cottier class, as the statistics of holdings show are giving place in a large degree to the class of farmers immediately above them—those holding from 15 to 30 or 40 acres. What are the prospects of improvement amongst these? One cannot represent them as very hopeful: still the horison in this direction is not altogether dark. One fact is noteworthy. Within the last 20 years a very large increase has taken place in the private balances and deposits in the banks of the country. In 1840 the aggregate of these moneys was, on the last day of the year, £5,568,000: in 1862 it had risen to £14,389,000: it is probably now more than three times its amount at the former date. During this period the deposits in savings banks, after falling at the time of the famine from nearly three to little over one million, have on the whole undergone little change: In 1861 they stood almost exactly at the same amount as in 1841. With regard to the former item—the deposits in banks—there seems good reason for believing that the increase is mainly due to the accumulations of the small farmers. The banks in which the increase has been most marked are, as I have been informed by Mr. Jon. Pim, the Provincial and National banks, which are also the banks of which the branches in the rural districts are most numerous. Now it is not likely that these accumulations wd come from the larger class of farmers—the so called “gentlemen-farmers”:—these, when they have made money, look out for investments of a different kind—as railways mining speculations and stocks of various kinds: on the other hand the rural traders, accustomed to larger profits, wd be dissatisfied with the low rate of interest allowed by the banks. The small farmer class is the only one whose ideas on the subject of pecuniary return are so limited and moderate as to be content with this sort of investment. For the most part they look upon the bank as the only alternative to the thatch.

The last remark will suggest a qualification of the inference which wd at first view suggest itself on contemplating the statistics just quoted. A good part of the ten millions added in the last fourteen years to the aggregate of bank deposits has been undoubtedly merely transferred from hoards—the form which the savings of the same class formerly assumed; and this process is still going on. A priest—the same to whom I have referred as my informant on another point—told me that, only a few months ago, he received 600 sovereigns from a small farmer to be lodged in a bank at Drogheda: these had all been concealed in the thatch of his cottage—the sum of the savings of a life time. Nevertheless, making all due allowance for accessions from this source, a considerable portion of the ten millions of new deposits will doubtless represent new accumulations. We are justified therefore in concluding, notwithstanding the symptoms of poverty that still everywhere abound, that wealth is growing among this class.

And here the question occurs, why with agriculture in its present backward state, do not these people invest their savings in the most obvious way—the improvement of their farms? The tenant-righter has a reply at hand—want of security. But, plausible as this solution is, it may be met by a practical answer. It is an unquestionable fact that many of the worst cultivated farms in the country are held under long and profitable leases; it is a common saying amongst country people—such a man can “afford” to farm badly—i.e. even below the low standard which generally prevails. Further, though it is probably true that in the Northern districts where “tenant-right” prevails, cultivation is on the whole somewhat better than in other parts of the country, the superiority after all is not very great; while, such as it is, it may be sufficiently accounted for by the superior energy which generally characterises the people in the Northern part of the island. This view of the case is confirmed by what I am told is an admitted fact—admitted even by R. Catholic landlords—that Protestants form the best tenants, and are invariably preferred. In dealing with the case I think we should distinguish between proximate and ultimate causes. Proximately I think it is beyond question that the bad state of cultivation is to be referred to the low industrial morale of the farming population. With the vast majority the one idea of farming which prevails is to take as much as they can out of the land and to put as little as they can into it. The notion of considerable outlay with a view to improvement of a permanent kind, whatever be the interest of the cultivator in the land, hardly occurs to an Irish farmer. But I think it is not the less true that this low conception of the farmer’s functions—this fear to cast his bread upon the waters—is the result of causes among which insecurity of tenure holds a prominent place. Insecurity of tenure has long been and is still the rule in Ireland; and the state of feeling generated under this condition of things, has not only, as frequently happens, in a great degree detached itself from and become independent of its original cause, but has influenced opinion far beyond the reach of its direct action. The standard of farming which prevails generally becomes the standard for the few who are placed under circumstances more favourable than those which generally prevail. The conclusion to which I come is that the remedy is to be sought in many directions. Security of tenure I regard as an indispensable condition, and this I think an improved public opinion in connexion with the reforms suggested by Judge Longfield wd substantially accomplish;^* but this should go hand in hand with general and specific instruction. As regards instruction, the National Board have attempted something in this direction: in 1862 altogether 134 agricultural school farms were in operation, of which 19 were school farms of the first class under the exclusive control of the Commissioners; but, so far as I can discover, the instruction imparted in these schools has not yet reached the farming classes to any sensible extent:^† the function which these schools have hitherto performed has been the training of stewards for the gentry, through whom it is possible some knowledge may have trickled down to the classes beneath them. The means of instruction which has hitherto been found most efficacious is that described in the “Irish Landlords” letter in The Gardener’s Chronicle—a combination of example, precept, and coercion. Another mode which has been tried, but not with success, is the introduction of Irish & Scotch farmers on the lands obtained from the emigrating cottiers. The want of local knowledge, both of places and character, and the jealousy of the native population of “foreigners” has generally succeeded in defeating experiments of this kind.

In connexion with this part of the subject—the condition of the small farmers in the rank above the cottiers—you will be curious to know what is the prospect of a class of peasant proprietors arising in Ireland. The prevailing opinion amongst those with whom I have conversed on the subject is that there is no likelihood of this. This is Judge Longfield’s opinion, who founds himself upon the following considerations:—1. that, wherever in Ireland substantial interests exist in land, the owner of such interests almost invariably sublets; 2—(and this is plainly but another aspect of the fact just mentioned)—that the natural disposition of the Irish people is careless improvident given to dash and show—in a word the opposite in all respects of that mental type which is the characteristic of peasant proprietors, and which seems to be indispensable to the keeping up of peasant-properties; 3. that the peasant-proprietor régime belongs to an early and primitive condition of society, and may be expected to disappear before the influences developed by the increase of intercourse amongst peoples, commercial progress and other modern forces; and that therefore the introduction of peasant proprietors wd be a movement antagonistic to strong modern tendencies. These reasons do not seem to me to be conclusive: 1. The disposition evidenced by the practice of subletting is only the natural and inevitable consequence of former social and political conditions—conditions which are now rapidly passing away. Landlords have admittedly felt the force of this change, and are every day coming to look at their estates less and less through the medium of feudal and mediæval, and more and more through that of commercial and modern, ideas. Why should not the same influences reach the classes below them, and neutralize in them too the mere “landlord” passion? 2. No doubt the Irish disposition is careless and improvident; but why are we to suppose that these qualities are ineradicable? Has there not been quite enough in the history of the country to account for them? And if they be eradicable, what more effectual means of accomplishing their extirpation than by bringing the Irish people under the influence of a system which in every quarter of Europe among various races of men is found invariably accompanied with exactly opposite traits of mind? Regarded from this point of view, peasant proprietorship appears to me to be exactly the specific for the prevailing Irish disease. With regard to the third consideration adverted to above, it wd certainly seem, if we confined our view to a few countries, as if the pursuits connected with land moved in a sort of cycle, commencing with pastoral industry, passing into agriculture carried on by peasant proprietors, and issuing in the large farm system carried on by capitalist farmers, and in which pasture wd in Ireland at least occupy a large place. Thornton has traced this course of things in the case of the Jews, Greeks, Romans and English.⁴² But there are patent facts which suggest the doubt whether there be any thing normal or necessary in this sequence of affairs. Peasant proprietorship exists extensively all over the Continent of Europe: in France its definitive establishment and greatest extension have been directly connected with the triumph and growth of democratical ideas—emphatically a modern power. In the United States, industrially the most advanced country in the world, the cultivators of the soil are I believe every where throughout the free states its owners. I am not aware that in the more advanced countries of Europe where peasant proprietorship exists, there are any indications of a decline of this form of tenure. The greatly higher prices obtained for land when sold in small than when sold in large quantities seems, on the contrary, to point to a tendency towards increased growth. I do not think therefore that experience wd warrant us in assuming the existence of a law in social progress inconsistent with the permanence (or at all events the maintenance for some generations) of a peasant-proprietory system: indeed I should rather be inclined to regard the tenor of affairs in England as an exception to the prevailing order of democratic progress than as indicating the rule. But, however this may be, the state of Ireland is so backward as compared with countries which are now cultivated by peasant proprietors that, even supposing the ultimate tendency was as is alleged, it might, and I conceive would, still be good policy to encourage this system as a transitional expedient to help Ireland forward in its course.

But leaving these general considerations, what are the prospects in the actual state of things in Ireland of the land getting in any large extent into the hands of the actual cultivators? To some, but I believe to a very limited extent, this has been, or at least was, realized.⁴³ On the sale some eight or ten years ago of the Thomond, Portarlington, and Kingston estates in the Encumbered Estates Court, it was observed that a considerable number of occupying tenants purchased the fee of their farms. I have no knowledge of the localities where these properties are situated, and have not been able to obtain any information as to what followed that proceeding—whether the purchasers continued to farm their small properties, or under the mania of landlordism tried to escape from their former mode of life. But there are other facts which have a bearing on this question which I will mention here. In those parts of the country where tenant-right prevails, the prices given for the good will of a farm are enormous. The following figures, taken from the schedule of an estate in the neighbourhood of Newry, now passing through the Landed Estates Court, will give an idea, but a very inadequate one, of the prices which this mere customary right generally fetches.

Statement showing the prices at which the tenant-right of certain farms near Newry sold.

The prices here represent on the whole about three years purchase of the rental; but this, as I have said, wd give but an altogether inadequate idea of that which is frequently, indeed of that which is ordinarily, paid. The right being purely customary will vary in value with the confidence generally reposed in the good faith of the landlord. In the present instance circumstances have come to light in the course of the proceedings connected with the sale of the estate which give reason to believe that the confidence in this case was not high: consequently the rates above given may be taken as considerably under those which ordinarily prevail. Cases, as I am informed on the highest authority, have in other parts of the country come to light, also in the Landed Estates Court, in which the price given for the tenant right was equal to that of the whole fee of the land. Now here is a very remarkable fact, that people shd be found to give say 20 or 25 year’s purchase for land which is still subject to a good round rent: why is it, it will be asked, that they do not purchase land out and out for the same or a slightly larger sum. I believe the true answer is that the cost of transferring land in small parcels is even in the Landed Estates Court very great, very great that is to say as compared with the purchase money; while the good will of a farm may be transferred without any cost at all. The cheapest conveyance that cd be drawn in the Landed Estates Court wd, irrespective of stamp duties, cost £ 10, which wd represent a year’s or two year’s purchase of a small peasant estate: a conveyance to transfer a thousand acres might not cost more, and wd probably not cost much more. This is the case of land sold in the Landed Estates Court, where all expenses of investigating title are avoided: where those must be incurred, of course the expense is wholly inconsistent with the transfer of property in any but large lots.

The heavy expenses incident to the sale & purchase of land have thus obviously the effect of placing an immense premium upon large dealings in land; and while this is the state of the law, the experiment of peasant proprietorship it is plain cannot fairly be tried. The facts, however, which I have stated, show I think conclusively that there is no obstacle to the introduction of this system in the disposition of the people.

That the fortunes of Ireland must, at all events for a considerable future, turn upon her agriculture is manifest on looking to the limited extent to which her other industries have yet been carried. Taking manufacturing industry proper, including cotton, woollen and worsted, flax, jute, silk,—the total number of persons (i.e. of males & females, old & young—[sic] employed in all these branches was in 1862 only 37,872. Of these 33,525 were employed in Flax factories, situated almost exclusively in Ulster, and chiefly in the counties of Antrim, Down and Armagh; 2,734 in Cotton factories (one half of these—viz. 1,412 being employed in one factory in Waterford, and the rest in the North); 1,039 in Woollen and Worsted factories; the remainder being distributed among the Jute and Silk factories. The only other industry of any moment is mining, and this is of moment rather for the possibilities it may have in store, than for any results which it has yet achieved. The following figures will give some idea of the present state of mining industry in Ireland.^* In 1861 the number of collieries at work in Ireland were 46: these turned out altogether 123,070 tons of coal. Of iron almost nothing has been produced. Copper in the same year (1861) was raised, chiefly in Cork and Waterford, to the value of £132,535. Of lead ore in the same year 2,403 tons were turned out, yielding 1,592 tons of metal. Lastly silver was raised, chiefly in Wicklow, to the value of £14,575. So inconsiderable are the results yet accomplished. As to the future all is conjecture & speculation. I have not been able to obtain any opinion on the subject on which I am disposed to place the least reliance; there being a general disposition among those who know most of the matter to conceal their knowledge.

Such, as nearly as I have been able to ascertain it, is our present position. The direction in which we are moving seems to be indicated with sufficient clearness. The figures already given show the large reduction which had been effected in the cottier class up to 1861. I have just learned from Mr. Thom that returns obtained within the last year show that since that time, the movement has gone forward with an accelerated pace. (A summary of these returns Mr Thom has promised to send me, and I hope to be able to transmit them with these notes). The emigration steadily increases. It nearly reached last year the figure of 90,000: this year it had up to October reached 90,000: there can be no doubt that before the year closes it will have exceeded 100,000. This has occurred in the face of the American civil war, and all the alarm which has been excited about compulsory enlistment. There can be little doubt that the effect of peace, whenever it comes, will be to swell considerably the tide. In view of these facts I look for a further considerable decrease in the population; this consummation seems to me at once inevitable and desirable: it is the effect of all those causes which are shortening the distance and facilitating the intercourse between nations acting upon a country surcharged with population under the influence of a bad economic and a worse moral and political system. The new and best parts of the world have, for the first time in history, been brought into practical competition with the old and exhausted portions. The result, I think, must be, as I have said elsewhere, “a greater dispersion and mixing of populations and a greater equalization of the conditions of wealth. It will no longer be a few favoured and conveniently situated spots on the earth’s surface, but the whole earth, that will be turned to the purposes of man.”⁴⁴

The same tendencies, which in the emigration exhibit themselves on a cosmopolitan scale, are traceable also in the internal economy of the country. Those portions of the country in which the natural advantages are greatest are advancing, not merely relatively to, but in some degree at the expense of, the less favoured parts. For example, Galway—the place in the West with which I am best acquainted—has beyond all question seriously retrograded within the last twenty years, and I think is still going back. The population has greatly declined, and I have no doubt the present reduced population is, man for man, poorer than the larger population of former years. I will mention a few facts connected with this town. When I first went to Galway some fifteen years ago—1849—things at that time having greatly declined from their former state under the shock of the famine—there were at work three distilleries, three breweries, several large grain storing establ[ishments,] several large corn mills, a paper manufactory, and I am sure other industrial establishments which now escape my memory. Every one of these has now either closed, or is carrying on a business so diminished that its closing is only a question of time. There was at this time an export trade in cattle, and previous to the famine there had been a considerable export trade in grain, chiefly oats. Both these branches of trade have wholly disappeared, and the sole seaward trade of Galway at present is an import of coal, chiefly for unproductive consumption; the return cargo being taken in ballast. Now this collapse is the more remarkable, as on no town in Ireland has the outlay of public money been so large as on Galway—this outlay occurring exactly during the period of its decline. 1. The Queen’s College was built, having been commenced about 1846. Besides the original outlay this has entailed a permanent expenditure in the town from the residence there of at the lowest computation some 200 persons of the better-off classes, connected with the College, some of these being persons maintaining domestic establishments on a considerable scale. 2. A very fine dry dock, and, connected with this, a ship canal (connecting Lough Corrib with the sea), both executed in the mostly [?] costly style, have been made during the same time by the Board of Works—both for all practical purposes as useless as the Irish round towers. 3. An extensive drainage was carried out during the same time all round the shores of Lough Corrib, also under the management of the Board of Works. Lastly (though it is true the funds in this case did not come from the public revenue) the Galway end of the Gt. Western Railway was made, in connexion with which an enormous hotel was built at the Galway terminus, the largest I believe in Ireland,—built in expectation of requirements which have never come to pass. Yet in spite of such adventitious aids Galway has retrograded. The causes are not far to seek. The grain export was the creature of the monopoly of the English market secured under the protective system. Free trade, followed by a succession of good harvests between 1849 & 53 gave the coup de grace to the corn growing interest in this part of the country. What free trade did for the export trade in grain the railway has done for the export trade in cattle. The live stock of all that part of the country westward of Roscommon which formerly found a port at Galway or Limerick is now carried by the railways to the Eastern coast. These two facts involved all the rest: the small cottiers who were identified with the grain-growing régime were the chief customers of the distilleries; the better class of farmers who dealt in cattle, and the merchants and traders whom this conflux of people supported, were the chief stays of the breweries. The larger population, from all these causes, supplied the paper manufactory with rags, for lack of which, I heard the other day, it was preparing to close. Galway is perhaps a palmary instance, but it is only an instance of a very general tendency. At Limerick, which I visited lately,—though things there are greatly better, two or three large manufactories being now maintained there in a flourishing condition—I heard also complaints of decay, and saw evidences of it. For example, what was once a staple export from Limerick—butter—is now all carried off to Cork by railway, from whence it is shipped to England, and largely to Australia.

Contemporaneously, therefore, with the decline of population in Ireland, I think there is going forward a redistribution of it—a redistribution which will be effected in a large degree at the expense of those parts of the country of which the natural advantages are least. This latter circumstance should be borne in mind, as it will serve to explain a good deal of what is conflicting in the accounts of the country.

10.

CAIRNES TO MILL

• 74 Lower Mount St.

25 Dec., 1864.

In writing to you yesterday I omitted in my haste to refer to your question respecting the rate of profit in the United States. I am sorry to say I am not able as yet to give you any satisfactory information upon this point. On receiving your letter I communicated with Mr. Ashworth of Bolton⁴⁵ with whom I occasionally correspond, and from whom,—as he is a thoughtful man, with large experience in business, and who has spent some time in the U. States on which he has also written a book—I had great hopes I should have been able to obtain the information I desired. I have had two letters from him on the subject: in the last referring to this point, he writes as follows:—“Your inquiry relating to the ordinary rate of mercantile profit in N. York and the other cities of the U. States is difficult to answer:—indeed I do not find from all the inquiries I have made that any definite answer can be given.” He then proceeds to describe a method by which the risk in mercantile transactions is provided against in N. York, which complicates in some degree the question of profit, and concludes with the remark that “The rates of profit on sale of goods and the fluctuations on the current credit of the buyer admit of no general estimate.” Let me state that the way I put the question was as to the rate of profit which a person about to engage in a business would regard as “fair”; his conception of “fairness” would of course be founded on his knowledge of what in that business was ordinarily obtained.

I wrote also to Mr Moran of the U. States Legation⁴⁶ on the subject, and have had a reply to this effect. “At this time I have no documents bearing upon the subject of the ordinary rate of mercantile & manufacturing profits in the U.S., but I will write this week (his letter is dated the 9th Dec.) to a friend at home for all the data he may be able to furnish.” He adds “Nearly all the manufactories of N. England are Joint Stock Concerns, and reports are furnished annually of their dividends. These I think I can get, & they may be useful.” Supposing that in striking these dividends an adequate reserve fund against risk is maintained, might they not be taken to represent the net profit on manufacturing undertakings? and would not railway reports give us the same element for this kind of investment? Combining these with the returns of a few more industrial departments, might we not obtain the average net profit on investments of a permanent kind (which of course would be quite distinct from the interest on mercantile bills?; and, this obtained, should we not have a basis for comparing American with English profits? For gross profits being made up of the reward to abstinence, indemnity for risk, & wages of superintendence, we should by this process obtain the first quantity, and the two latter—at all events the last—there would not be much difficulty in ascertaining with approximate accuracy. But, without going into a complicated calculation, if we know the net profit on a few of the leading investments of capital, we might I fancy with sufficient accuracy for your purposes, infer the rest. Supposing, for example, that railway dividends were found to be on the whole the same for the U. S. & England, I think it would be a sound inference that profits are higher in the former country, since the wages of superintendance [sic], which net profit does not cover are certainly higher, & the indemnity for risk is I suppose not less. The information promised by Mr Moran may be expected in about three weeks from this.

Having thought over your remarks in reply to my criticisms I may as well say now what occurs to me on the points between us. You say—“Suppose I have a given sum, £10 a year, the expenditure of which I am determined whatever happens to divide between two commodities A & B, I conceive that even then, if A rises in price and B falls, the effect in the average of cases will be that I shall buy more of B and less of A. If this position be sound I admit my point fails—at least to the extent of the “more” and “less”. But I cannot think that it is sound. Substitute for A & B, beer & tobacco. Suppose a man has £10 to spend on these luxuries, & that after the transference of the tax from one commodity to the other, his money will enable him to consume them in the same quantities & in the same proportion as before, is it conceivable that he will continue permanently to regulate the proportion of his smoking and drinking not by his tastes—his means being by hypothesis sufficient—but by the relative prices? I conceive that he might do so for a time under the influence of association; but this influence would be constantly diminishing, while his tastes & means would remain constant forces.

What I intended to say with reference to the Wakefield system was that the forcible separation of employments was unnecessary, and for this reason, that where the density of the population and the variety of industrial skill and knowledge are such as to render expedient a separation of employments, there a separation of employments will naturally take place; it seems to me that the tendency of Wakefield’s scheme for requiring a “sufficient-price” for land was to force on an artificial separation of employments at the cost of these conditions—density of population &c—under which alone separation of employments is expedient or indeed permanently possible; his test of “sufficiency” having reference, not to the satisfying of the requirements of the colony (on which its attractiveness to emigrants depends) but to the checking of the purchase of land. So far as this latter end is obtained without full compensation in the increased attractiveness of the colony, the effect must be to repel immigration—i.e. to prevent the realization of the conditions in which the separation of employment becomes expedient.

Lastly, with regard to the income tax question I do not think my position was (or if it was I did not correctly state my ideas) that “the payment in each year should be compared with what the income is worth in that year to the owner”. My position is that the payment in each year should be compared with what the payer is worth in that year; and that the payer is worth, not merely his income—that portion of his wealth which he allocates to current expenses, but also, that which he invests, or allows to remain invested. The latter, no less than the former, appears to me to be to the owner a real source of pecuniary power, as well as of present enjoyment—that enjoyment which arises from the sense of having provided against future contingencies. Were it not that you so decidedly reject what I have said on this point, I should be inclined to feel confident in it, and for this reason, that applying the principle, subject to a deduction for necessaries, it would I imagine bring us to precisely the same practical conclusion as your principle of “equality of sacrifice”. With regard to this, I should not think of insisting on the distinction between comfort & luxuries. In practice it could not evidently be carried out, though I think something might be said for it in speculation.

Pray do not think of troubling yourself by replying further to what I have said: in the end I dare say my errors will find me out. I hope the parcels sent yesterday & the day before will reach you safely.

11.

MILL TO CAIRNES

• Saint Véran, Avignon

5 Jan., 1865.

I have been too long in acknowledging the receipt of the very interesting things you last sent; but I was working against time on another subject, and had unwillingly to put by your last notes unread until this morning. I thank you most heartily for them. They are a complete Essay on the state and prospects of Ireland, and are so entirely satisfactory that they leave me nothing to think of except how to make the most use of them. For my new edition I must confine myself chiefly to the general results; but if I find it advantageous to transcribe certain paragraphs entire, will you allow me to name their real author? The article is a valuable supplement to the notes. The letter in the Gardener’s Chronicle I was already acquainted with, having read it in I forget what newspaper.⁴⁷ I beg you to offer my sincere thanks to Mr Pim for the books he so kindly sent, which I shall immediately read. His letter, inclosed [sic] in yours, is full of good sense.

Respecting the rate of profits in the United States, we must hope to learn something through the kind offices of Mr Moran. But it is, I imagine, very difficult to ascertain the real average rate of profit, or expectation of profit, in any country. It would, however, be something to have an answer to the more vague question, whether, in the opinion of Mr Ashworth, or other persons to whom business in both countries is familiar, the profits of capital in the United States are or are not, higher than in England.

Of the two or three points which we differ about, I will only touch upon one—the influence of price on demand. You say, if a tax is taken off beer and laid on tobacco in such a manner that the consumer can still, at the same total cost as before, purchase his usual quantity of both, his tastes being supposed unaltered, he will do so. Does not this assume that his taste for each is a fixed quantity? or at all events that his comparative desire for the two is not affected by their comparative prices. But I apprehend the case to be otherwise. Very often the consumer cannot afford to have as much as he would like of either: and if so, the ratio in which he will share his demand between the two may depend very much on their price. If beer grows cheaper and tobacco dearer, he will be able to increase his beer more, by a smaller sacrifice of his tobacco, than he could have done at the previous prices: and in such circumstances it is surely probable that some will do so. His apportionment of self-denial between his two tastes is likely to be modified, when the obstacle that confined them is in the one case brought nearer, in the other thrown farther off.

I take Macmillan, and was much interested by your article,⁴⁸ which makes more distinct the idea I already had of the contract system in the mining districts. Laing, in his Prize Essay, brought it forward many years ago as an example of the cooperative principle.

I have had a visit here from a rather remarkable American, Mr Hazard, of Peacetown, Rhode Island.⁴⁹ Do you know him, or his writings? If not, I shall have a good deal to tell you about him that will interest you.

12.

CAIRNES TO MILL

• 74 Lower Mount St., Dublin

9 Jan., 1865.

I am sincerely happy that you are pleased with my notes on the state of Ireland. As I said before, I shall not affect to deny that I shall be gratified by the appearance of my name on your pages wherever it may occur; at the same time I should be sorry that you introduced it if there were no other object for doing this but my gratification.

I will write to Mr. Ashworth putting the question respecting the rate of profit in the U. States in the relative form in which you suggest.

Touching the taxation question, after weighing carefully what you say I am still inclined to think that the position is substantially sound that “a man’s comparative desire for two commodities is not affected by their comparative prices”. The animal propensity towards beer and tobacco in certain proportions to each other depends on physical conditions: I can conceive that these may be overborne in some degree by the force of mental impressions; but then I think the mental impressions depending for their force on the principle of association are liable to become weak, while the force of the former is a constant quantity. At all events we have, I think, brought the question to a point at which it can only be decided by experiment, which, next to agreement, is the most satisfactory issue of an economic argument.

Mr. Hazard I am not acquainted with, or his writings, but I shall look forward to learning something of both from you at your leisure.

It occurs to me to call your attention to that passage in your Political Economy (I cannot this moment put my finger on it) in which you allow that Protection may in a conceivable case be justifiable as a means of helping manufacturing industry through its initial stage [II.918-19]. I know you have expressed yourself very guardedly: still it would seem that the concession is frequently turned to bad account. In a recent letter from the Times’ Australian correspondent,⁵⁰ the writer represents the protectionist party there as founding themselves on your authority. It occurs to me as questionable whether the theoretic value of the admission is worth the practical evil which its perversion involves.

I intended in a former letter to have suggested to you the advisability of adding an index to the new edition. I often myself feel the want of one.

13.

CAIRNES TO MILL

• 74 Lower Mount St., Dublin

24 Jan., 1865.

I received the enclosed from Mr. Moran two days ago, and have waited in hopes of getting the further information he promises; but as it has not yet arrived I think it better to forward you what has reached me. I have also had a letter from Mr. Ashworth in which he says:—“I make no doubt that the rate of profit upon commercial capital is greater in the United States than it is in this country, and this may be inferred not only from the higher rate of interest which prevails, but also from the extent of mercantile losses by bad debts which require to be covered by compensating profits, and by the evidence afforded in the household extravagance which prevails amongst the mercantile classes.” The reasoning is somewhat shaky, but I send you the remarks for what they are worth. He adds that he had, at the time of writing, written to an “eminent merchant and manufacturer in Boston who has long been engaged in business there, and has also resided 20 years in this country engaged in trading pursuits,” and that he hoped in a month or six weeks to be able to send me the opinion on the point in question of this gentleman. You may depend on my forwarding it the moment it is received.

14.

MILL TO CAIRNES

• Blackheath

4 Feb., 1865.

I have delayed answering your last letter, until I could at the same time inform you of my return here.

The Political Economy has gone to press, considerably improved as I think, and indebted to you for much of the improvement. I have availed myself of your permission to acknowledge this in the preface, and also in the chapter on the Irish question, a good deal of which I have given in inverted commas as a communication from you. I have endeavoured to correct the effect of the passage which has been used by Australian protectionists, not by omitting it, but by giving a fuller expression of my meaning [II.919-21]. The subject of an Index I had thought of, but most Indexes of philosophical treatises are so badly and stupidly done, that unless I could have made it myself or got it made by a political economist, I thought it better let alone. An index is less wanted for a systematic treatise than for a book of a miscellaneous character, as the general arrangement of topics, aided by the analytical table of contents, shews where to find the things most likely to be wanted.

15.

CAIRNES TO MILL

• 74 Lower Mount St., Dublin

5 Feb., 1865.

I have just received your letter informing me of your arrival in England. I am not certain from it whether you received mine in which I enclosed a communication from Mr. Moran (of the U. S. Legation) on the subject of profits in the U. States, and also sent an extract from a letter of Mr. Ashworth on the same subject. The opinion expressed by both writers was not very definite, and probably would be late for the purpose for which you desired it, but I may as well state that, in reply to your question as to the relative state of manufacturing and mercantile profits here and in the U. States, Mr. Ashworth expressed the opinion that the rate in the U. States was decidedly higher than here. The communication from Mr. Moran came from a correspondent in Chicago who said that mercantile profits in that town & district had been very high since the war had broken out—I forget the precise figures he named. Mr. Moran promised further information as did also Mr. Ashworth. In a letter since received from Mr. Ashworth he suggests Messrs Brown or Messrs Rathbone of Liverpool⁵¹ as the persons in this country most competent to give an opinion on the point in question. All this I expect will be quite late for any practical purpose; but should you wish for any further inquiries to be made I shall be happy to make them.

I am glad to hear that you have got the Political Economy to press. I have already said how gratified I shall feel for your reference in it to me, though I expect from what you tell me that it will not be without some sense of shame at the disproportion of my slender services to your acknowledgment.

What you say on the subject of an Index is quite true: it is no doubt far better there should be none than a bad one. Were there time, and had I a little more leisure than I am likely to have for the next two or three months I should have been very happy to have undertaken it, could you have entrusted it to me.

16.

MILL TO CAIRNES

• Blackheath

9 Feb., 1865.

As you supposed, your letter of Jan. 24 had not reached me when I last wrote to you, but it has been sent from Avignon since. I am much obliged to you for the trouble you have taken to get information respecting the rate of profit in the U. States, but I fear it is next to impossible to obtain any conclusive evidence on the subject. There is no more difficult point to ascertain in the whole field of statistics. The scientific question remains as great a puzzle to me as ever. Hitherto I have left the passage of my Pol. Economy exactly as it was; but I shall have to alter it more or less in the proof sheet.

I may perhaps get some light on the subject from Mr Hazard, (himself a New England manufacturer of great experience) whom I shall see tomorrow. I wish you had been already here, that I might have asked you to meet him. He leaves for America on the 25th.

17.

CAIRNES TO MILL

• Galway

1 March, 1865.

I have just received the enclosed from Mr. Pim. I send it to you, as he seems to wish that I should do so, though I do not expect that you will derive much new light from his remarks, even if it should reach you in time to enable you to turn it to practical account. Much of his criticism appears to me to be irrelevant, and more to be answered by reference to the date of the publication (for you will see that he writes from the 3rd edition) some of his remarks indeed—as for example his demand for an explanation of “cottier tenure”—would seem to argue that he had read the book with but little attention. However I send you his comments such as they have come to me.

18.

MILL TO CAIRNES

• Blackheath

5 March, 1865.

Your two letters, with their inclosures, arrived in time; the former of them only just in time. Mr. Pim’s remarks, as you anticipated, do not change any of my opinions, but they have enabled me to correct one or two inaccuracies, not so much of fact as of expression. On reading the proofs of the new matter I have inserted respecting Ireland for most of which I am indebted to you, and in which consequently your name is mentioned, I feel unwilling that it should see the light without your imprimatur. I have therefore taken the liberty of sending you by this post the two sheets of which it forms a part, and I shall not have them struck off until I hear from you that you do not object to anything they contain. Any addition or improvement you may kindly suggest will be most welcome.

The American information is very valuable, and I can hardly be thankful enough to Mr Ashworth and to his Boston correspondent for the trouble they have taken and the service they have done me. I beg you will convey to Mr Ashworth my grateful acknowledgements. From their statements it is clear that the ordinary notion of the extravagantly high rate of profit in the U. States is an exaggeration, and there seems some doubt whether the rate is at all higher than in England. But that does not resolve the puzzle, as even equality of profits, in the face of the higher cost of labour, indicated by higher money wages, is as paradoxical as superiority. This is the scientific difficulty I mentioned, and I cannot yet see my way through it. I have framed a question for the purpose of bringing it before the P. Ec. Club, which will perhaps be discussed at the April meeting & if not, at the July. I hope you may be present in either case. You were greatly missed on Friday last. Had not I shone in plumes borrowed from you, we should not have made much of it, and I regretted your absence the more, as the Chancellor of the Exchequer⁵² was present, and spoke.

19.

MILL TO CAIRNES

• Blackheath Park

11 March, 1865.

I thank you sincerely for your further favours in regard to my Political Economy. I have sent your new matter to press, and have profited to the full by your observations on what I had myself written. I am indebted to you for nearly all which will give to that chapter of the book, any present value.

Your solution of the difficulty as to American profits is perfectly scientific, and was the one which had occurred to myself. As far as it goes, I fully admit it; but my difficulty was, and still is, in believing that there can be so great a difference between the cost of obtaining the precious metals in America and in England, as to make the enormous difference which seems to exist in money wages, consistent with a difference the contrary way in the cost of labour. It is impossible to approfondir the subject in time for the present edition. I have contented myself, therefore, with qualifying the opinion I had previously expressed [I.414.20-1], so as to leave the subject open for further inquiry.

20.

CAIRNES TO MILL

• Galway

13 March, 1865.

You very much overrate my small services in reference to the “Political Economy”; but I should not easily exaggerate the satisfaction it has given me to have rendered even these small services. Had I thought of recompense, which I trust you will acquit me of, I have received it in copious measure in the terms in which you speak of me in the portion of your book of which you sent me the proof—terms of which I cannot help saying that one epithet included in them appears to me so disproportioned to its subject that, were the omission of this epithet easily feasible, I could almost wish it made: as for the latter you could have used none which I should have prized so highly. It is the highest compliment I have ever received; but it is much more than a compliment, it is a rich reward; and will be a powerful incentive. Pray excuse my having said this much on what perhaps I had better not to have referred to.

I see my observations on American wages and profits in their connexion with the theory of profit did not hit the mark; and I fear I must now relinquish the hope—I might say the ambition—of doing this, as on the assumption that the exposition I gave was correct—which you concede to me—I am unable to perceive where the difficulty lies: in short the scientific problem seems to me to be solved. For the rest, it is (to my apprehension) merely a matter of evidence whether money wages and profits are, at one and the same time, so high as is alleged: if they are—then the fact on the assumption that my exposition was correct is conclusive, as it seems to me, that the difference between the cost of obtaining the precious metals in America and in England is great enough to produce the results which we see. Am I guilty of arrogance in suspecting that the difference between us here—my inability to perceive the difficulty of which you are sensible—is due to the greater simplicity of the theory of profit through which I look at the phenomena?—I refer to that mode of stating the doctrine—differing from yours and Ricardo’s only in form—of which a sketch was contained in the papers I sent you.⁵³ Of course if the theory, thus stated, failed to embrace any essential condition, this would be simply its condemnation; but it appears to me to embrace all the conditions included in your doctrine of “cost of labour”, and it renders the phenomena in the case with which we are now concerned unless I deceive myself perfectly intelligible. Might I ask as a favour, when you come to deal with this question at your leisure, that you would consider once again that mode of stating the theory.

21.

MILL TO CAIRNES

• Blackheath

22 March, 1865.

I have again gone through your exposition of profits in the papers you so kindly took the trouble of writing for me; and I think, as before, that your mode of putting the doctrine is very good as one among others, and that there is no difference of opinion between us. I still, however, prefer my own mode of statement, for reasons which it would be long to state, and which I have not time at present to reconsider from the foundations. I am inclined to think that the real solution of the difficulty, and the only one it admits of, has been given by myself in a subsequent place, Book III, ch. xix, § 2 (vol. ii. p. 156 of the fifth edition.) [II.620.]

22.

CAIRNES TO MILL

• 3, Martello Terrace, Holywood, Belfast

27 March, 1865.

Thank you for looking over my note on profits again: I suppose it must be that I overrate the importance of my form of stating the theory, which indeed is in itself not unlikely—I have not a copy of the “Political Economy” at hand, but will not neglect to look up the passage you refer to.

23.

CAIRNES TO MILL

• 8 Duke St., St. James’s, S.W.

2 June, 1865.

Accept my warm thanks for your kind letter. I had frequently lately thought of writing to you, amongst other reasons to thank you for the much prized present of your “Political Economy”—the second copy of that work you have given me. . . .

[1 ]An account of this correspondence, with quotations, is given in George O’Brien, “J. S. Mill and J. E. Cairnes,” Economica, n.s. X (Nov., 1943), 273-85.

[2 ]This paper does not appear to have been published.

[3 ]See I.331c-c336.

[4 ]Mountifort Longfield, “Address by the President, Hon. Judge Longfield, at the Opening of the Eighteenth Session,” Journal of the Statistical and Social Inquiry Society of Ireland, IV, Part 24 (January, 1865), 129-46; “Appendix to the foregoing Address,” ibid., 146-54. The address was given on 26 November, 1864.

[5 ]“The Positive Philosophy of Auguste Comte,” Westminster Review, LXXXIII (Apr., 1865), 339-405, and “Later Speculations of Auguste Comte,” ibid., LXXXIV (July, 1865), 1-42; republished together as Auguste Comte and Positivism (London: Trübner, 1865).

[6 ]See below, II.1058ff.

[7 ]Unheaded leading articles, Daily News, 1 Dec., 1864, 4, and 3 Dec., 1864, 4.

[8 ]Richard Whately, Introductory Lectures on Political Economy (London: Fellowes, 1831), 164.

[* ]Had the distinction been kept in view by Senior it wd have saved his readers the tedious and unprofitable discussion on the question whether “houses and other articles of slow consumption” were “capital”—a discussion in which I think Adam Smith was plainly in the right.9

[10 ]Wealth of Nations, Book II, Chap. ii; in Wakefield’s ed., II, 266-340.

[* ]The conclusion from the illustration given at pp. 146-47 [I.119-20] seems to me, so far as it reaches directly to negative the general doctrine laid down at pp. 98-110 [I.78-89]. Substantially that doctrine amounted to this, that it is only by what a man abstains from consuming that he can benefit the labouring classes; while the illustration shows that those classes may be benefitted by the unproductive demand (or, to be more accurate, the demand for their own consumption) of other people.

[* ]It is important I think to insist on this by way of precaution against the popular currency fallacy.

[11 ]George Grote, History of Greece, IV (London, 1862), 11-12 (i.e., Chap. xliv).

[12 ]“Trade and Finance,” Daily News, 18 Apr., 1864, 4. The Daily News correctly reads “Loyd” not “Lloyd.”

[13 ]Reference not located.

[* ]“purchased”: this word appears to me to have a disturbing effect, suggesting the idea of price as equivalent to, or connected with, the “cost” just mentioned: perhaps “obtained” mi[ght] answer the purpose, & be free from this objection.

[† ]i.e., in other words, “proportional wages”—the statement is therefore entirely equivalent to the doctrine of Ricardo.

[14 ]See above, II.1048.

[15 ]“The Cause of the Inequalities in the Pressure of the Income Tax,” Economist, XIX (4 May, 1861), 481-3.

[16 ]David Ricardo, Principles of Political Economy and Taxation, in The Works of David Ricardo, Esq., M.P., with a Notice of the Life and Writings of the Author, by J. R. McCulloch (London: Murray, 1846), 230-1.

[17 ]Ricardo, Works (ed. McCulloch), 141-2. At 142n Ricardo quotes Say’s argument that a tax, by raising the price of a commodity, necessarily reduces its consumption.

[18 ]Henry Charles Carey, Principles of Social Science, 3 vols. (London: Trübner, 1858). This is the unnamed work by Carey referred to by JSM at II.919-21, in a passage added in 1865.

[19 ]“Ireland,” Edinburgh Review, CXIX (Jan., 1864), 279-304.

[20 ]See below, II.1060.

[21 ]Cairnes, “Capital and Currency,” North British Review, XXVIII (Feb., 1858), 191-230.

[22 ]Ibid., 204-5.

[* ]On consideration it is fair to suppose that the new commodities wd be employed productively; since the money, rendered active by the banks, wd get into the hands of “producers & dealers”. The prices first & principally affected wd be those of coms required by “producers & dealers”: the new commodities therefore wd chiefly belong to this class.

[† ]A tendency, however, which, as you point out in your letter of the 1st Dec. (just received)23 need not by any means necessarily be realized in fact, since other causes, such as those existing in the U.S. to which you advert, may more than neutralize it, leaving as the result a rate of interest in some places higher than in others where profits are higher.

[* ]“Money”. See as to this word post II.1064ff.

[24 ]Thomas Tooke, Considerations on the State of the Currency (London: Murray, 1826); Cairnes, “Capital and Currency,” 199-201.

[* ]A rise in the rate may, I think, be taken as the most usual result of a commercial derangement; but it is quite conceivable that it might have the opposite effect, and, so far as my memory now serves me, the early effect of the cotton famine was to depress the rate of interest. This will happen when the check given to demand by the advance in price is so great that the diminished requirements for money on loan more than balance the diminution in the supply. Further it shd be considered that the falling off in the demand will occur in a very early stage; while that in the supply will not happen till the new sources for repairing the deficiency in the staple have been opened.

[25 ]Tooke, Considerations; exact location not found, but cf. pp. 31 and 62.

[26 ]Léon Faucher, Recherches sur l’or et sur l’argent considérés comme étalons de la valeur (Paris: Librairie de Paulin, 1843).

[27 ]Reference not located.

[* ]The elasticity of a credit currency, and the power which in virtue of this quality it possesses of moderating the fluctuations in the value of a mixed currency of metal and paper, seems to have wholly escaped the “currency school” of writers. I observe you call attention to it at p. 211 [II.666-7].

[28 ]Cairnes, “Capital and Currency,” 211ff.

[† ]I have not thought it necessary to apply the reasoning to inconvertible notes, both because the application is very obvious, and because the argument will be found in the 4th Volume of Tooke’s History of Prices.29

[30 ]Quotation not located.

[* ]I observe that in the following paragraph p. 196[5?] [II.650.24-5] you take account of this element where you say “in speculative times money lenders, as well as other people, are inclined to extend their business by stretching their credit.”

[31 ]See below, II.1074ff.

[32 ]See note 7 above; JSM presumably read the reports of Longfield’s paper in the Daily News (“Statistical Society of Dublin,” DN, 29 Nov., 1864, 5, and “Judge Longfield on Ireland,” DN, 1 Dec., 1864, 2).

[33 ]Reference not located.

[34 ]Alexander Thom, Thom’s Irish Almanac and Official Directory of the United Kingdom of Great Britain and Ireland, for the year 1863 (Dublin: Thom, 1863).

[35 ]Jonathan Pim, of Pim Bros. and Co., author of On the Connection between the Condition of Tenant Farmers and the Laws respecting the Ownership and Transfer of Land in Ireland (Dublin, 1853), and The Land Question in Ireland (Dublin, 1867).

[36 ]A Randal McDonnell is mentioned in the accompanying material sent by Cairnes.

[37 ]In addition to the two versions of the “Notes on Ireland,” MS 8983 in the National Library of Ireland also has notes by Cairnes derived from (a) Thornton’s A Plea for Peasant Proprietors, (b) the notes Judge Longfield sent to Cairnes, (c) Lavergne’s Essai sur l’économie rurale de l’Angleterre, de l’Ecosse et de l’Irlande, (d) Edmund Spenser’s A View of the State of Ireland, Written Dialogue-Wise Betweene Eudoxus and Irenæus (Cairnes was probably using the reprint in A Collection of Tracts and Treatises, Illustrative of the Natural History, Antiquities, and the Political and Social State of Ireland, I [Dublin: Thom, 1860], 417-592), (e) Goldwin Smith’s Irish History and Irish Character (London: Parker, 1861), (f) William Henry Hardinge’s “Observations on the earliest known Manuscript Census Returns of the People of Ireland,” read 16 Mar., 1865, and printed in Transactions of the Royal Irish Academy, Part III, Antiquities, XXIV (1873), 317-28, (g) the Devon Commission’s Report and Evidence, Part I, (h) Henry Fawcett’s Manual of Political Economy (London: Macmillan, 1863), (i) various accounts of the Irish labouring population, drawn from the Social Science Transactions for 1859, 1860, 1862, 1863, and (j) “Co-operative Societies in 1864,” Edinburgh Review, CXX (Oct., 1864), 407-36. The surrounding MSS in the National Library of Ireland contain related material.

[38 ]Article not identified.

[* ]These figures are taken from Shaw Mason’s population returns of 1821 [?].39

[† ]The movement towards pasture is also favoured by the extreme inefficiency of the cottier’s labour—indeed of agricultural labour in every form in Ireland: this gives capital in the fixed form a constant pull as against capital in the circulating: it enhances the relative superiority of Ireland in respect to pasture.

[* ]Since writing the above I have been shown a letter in Gardener’s Chronicle which describes an actual case.40 I shall endeavour to obtain it, and if so will send it herewith. (The paper is sent.)

[41 ]The following passage, to “mercy for all parties.” (II.1077.36), and (omitting the next two sentences) from “The anxiety of landlords” to “in every lease.” (II.1078.23), is quoted by JSM at I.332n-333n. JSM alters the punctuation and spelling, and makes the following alterations: omits “in the neighbourhood of Drogheda”; substitutes “as I am informed” for “as I was informed last night”; omits “In the end”; omits “The worst evil is that”; omits “such as I have described above”; adds “also” after “cottiers is”; omits “To understand this it should be remembered that”; substitutes “rent received” for “rent reserved”; substitutes “Some of these leases are always” for “These leases are constantly”; substitutes “For this purpose” for “In this purpose”; substitutes “general tendency” for “general tendencies”; substitutes “Perhaps it may be thought” for “Perhaps it will here occur”.

[* ]I observe the Irish landlord writing in the Gardener’s Chronicle represents the change as resulting in a marked improvement. His evidence should certainly go for what it is worth; and I do not desire that mine shd go for more. My statements are based upon experience of two localities in Meath, the town of Galway, and the confirmatory observation of friends with whom I have conversed on the subject: I shd state however that some of those with whom I have talked take a more favourable view of the labourer’s position than I do—Judge Longfield for one.

[* ]Substantial security of tenure, coupled I would add with the extinction, once for all, of the hopes constantly kept alive by tenant-right agitation (in the revolutionary sense) of a wholesale confiscation of property in favour of existing cultivators. Judge Longfield’s treatment of this project seemed to me, as a matter of speculation, to be profoundly fallacious; but I do not think he has at all overstated the practical mischief which the constant agitation of these schemes produces in the unsettling of people’s minds.

[† ]I find it is Judge Longfield’s opinion (he is a member of the National Board) that the instruction given in these schools has been hitherto too high, and that simpler and more strictly practical courses, with a view to the actual exigencies of the small farmers, should be established. Some such change, it is probable, will soon be made.

[42 ]William Thornton, A Plea for Peasant Proprietors, 60ff.

[43 ]The following passage, to “disposition of the people.” (II.1083.49), is quoted by JSM at I.334-6. As above, JSM alters the punctuation and spelling, and here rewrites more freely, as follows: omits “have no knowledge of the localities where these properties are situated, and”; omits “which I will mention here”; substitutes “Newry was sold” for “Newry sold”; substitutes “gives but an inadequate” for “wd give but an altogether inadequate”; substitutes “It is a remarkable” for “Now here is a very remarkable”; substitutes “Why, it will be asked, do they . . . ?” for “why is it, it will be asked, that they do. . . . ”; substitutes “The answer to this question, I believe, is to be found in the state of our land laws. The cost” for “I believe the true answer is that the cost”; substitutes “portions is, relatively to the purchase money, very inconsiderable, even in the Landed Estates Court” for “parcels is even in the Landed Estates Court very great, very great that is to say as compared with the purchase money”; substitutes “in that Court, where the utmost economy, consistent with the present mode of remunerating legal services, is strictly enforced, would” for “in the Landed Estates Court wd”; substitutes “10l.—a very sensible addition to the purchase” for “£ 10, which would represent a year’s or two year’s purchase”; four sentences “But, in truth . . . of the evil.” replace the sentence “This is the case . . . lots.”; the changes in the last two sentences are so complex as to make direct comparison necessary.

[* ]These figures are taken from Thom’s Almanack.

[44 ]Cairnes, “Fragments on Ireland,” in Political Essays (London: Macmillan, 1873), 147.

[45 ]Henry Ashworth, author of A Tour in the United States, Cuba, and Canada (London: Bennett and Pitman, [1861]).

[46 ]Benjamin Moran, Secretary of the United States Legation in London from 1857 to 1875.

[47 ]Reference not located.

[48 ]Cairnes, “Co-operation in the Slate Quarries of North Wales,” Macmillan’s Magazine, XI (Jan., 1865), 181-90; reprinted in Essays in Political Economy, Theoretical and Applied (London: Macmillan, 1873), 166-86.

[49 ]Rowland Gibson Hazard, of Peacedale, Rhode Island, had just published Our Resources. A Series of Articles on the Financial and Political Condition of the United States (London, 1864). He later wrote Two Letters on Causation and Freedom in Willing, addressed to J. S. Mill (Boston, 1869).

[50 ]“Australia,” The Times, 14 Dec., 1864, 4. For JSM’s reaction, see Letter 14 below, and II.919u-u921.

[51 ]Brown, Shipley and Co., merchant bankers, and Rathbone Bros. and Co., cotton and general merchants.

[52 ]Gladstone.

[53 ]See above, II.1060ff.

[* ]Had the distinction been kept in view by Senior it wd have saved his readers the tedious and unprofitable discussion on the question whether “houses and other articles of slow consumption” were “capital”—a discussion in which I think Adam Smith was plainly in the right.9

[† ]A tendency, however, which, as you point out in your letter of the 1st Dec. (just received)23 need not by any means necessarily be realized in fact, since other causes, such as those existing in the U.S. to which you advert, may more than neutralize it, leaving as the result a rate of interest in some places higher than in others where profits are higher.

[† ]I have not thought it necessary to apply the reasoning to inconvertible notes, both because the application is very obvious, and because the argument will be found in the 4th Volume of Tooke’s History of Prices.29

[* ]These figures are taken from Shaw Mason’s population returns of 1821 [?].39

[* ]Since writing the above I have been shown a letter in Gardener’s Chronicle which describes an actual case.40 I shall endeavour to obtain it, and if so will send it herewith. (The paper is sent.)

[9]Nassau William Senior, An Outline of the Science of Political Economy (London: Clowes, 1836), 155ff.

[23]See above, II.1055-6.

[29]Tooke, History of Prices, IV, 171-97.

[39]William Shaw Mason, A Statistical Account or Parochial Survey of Ireland, Drawn Up From the Communications of the Clergy. 3 vols. (Dublin: Cumming, 1814ff.).

[40]“An Irish Landlord,” “Twenty-five Years’ Work in Ireland,” The Gardener’s Chronicle and Agricultural Gazette, 3 Dec., 1864, 1162-4.