Marshall on The Growth of Free Industry and Enterprise

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Source: Appendix to Marshall's Principles of Economics (London: Macmillan and Co. 8th ed. 1920).


8sect; 1. The last section of the first chapter of Book I. describes the purpose of Appendices A and B; and may be taken as an introduction to them.

Although the proximate causes of the chief events in history are to be found in the actions of individuals, yet most of the conditions which have made these events possible are traceable to the influence of inherited institutions and race qualities and of physical nature. Race qualities themselves are, however, mainly caused by the action of individuals and physical causes in more or less remote time. A strong race has often sprung, in fact as well as in name, from some progenitor of singular strength of body and character. The usages which make a race strong in peace and war are often due to the wisdom of a few great thinkers who have interpreted and developed its customs and rules, perhaps by formal precepts, perhaps by a quiet and almost unperceived influence. But none of these things are of any permanent avail if the climate is unfavourable to vigour: the gifts of nature, her land, her waters, and her skies, determine the character of the race's work, and thus give a tone to social and political institutions.

These differences do not show themselves clearly so long as man is still savage. Scanty and untrustworthy as is our information about the habits of savage tribes, we know enough of them to be sure that they show a strange uniformity of general character, amid great variety of detail. Whatever be their climate and whatever their ancestry, we find savages living under the dominion of custom and impulse; scarcely ever striking out new lines for themselves; never forecasting the distant future, and seldom making provision even for the near future; fitful in spite of their servitude to custom, governed by the fancy of the moment; ready at times for the most arduous exertions, but incapable of keeping themselves long to steady work. Laborious and tedious tasks are avoided as far as possible; those which are inevitable are done by the compulsory labour of women.

It is when we pass from savage life to the early forms of civilization that the influence of physical surroundings forces itself most on our notice. This is partly because early history is meagre, and tells us but little of the particular events and of the influences of strong individual characters by which the course of national progress has been guided and controlled, hastened onwards or turned backwards. But it is chiefly because in this stage of his progress man's power of contending with nature is small, and he can do nothing without her generous help. Nature has marked out a few places on the earth's surface as specially favourable to man's first attempts to raise himself from the savage state; and the first growth of culture and the industrial arts was directed and controlled by the physical conditions of these favoured spots1 .

Even the simplest civilization is impossible unless man's efforts are more than sufficient to supply him with the necessaries of life; some surplus over them is required to support that mental effort in which progress takes its rise. And therefore nearly all early civilizations have been in warm climates where the necessaries of life are small, and where nature makes bountiful returns even to the rudest cultivation. They have often gathered around a great river which has lent moisture to the soil and afforded an easy means of communication. The rulers have generally belonged to a race that has recently come from a cooler climate in a distant country or in neighbouring mountain lands; for a warm climate is destructive of energy, and the force which enabled them to rule has almost in every case been the product of the more temperate climate of their early homes. They have indeed retained much of their energy in their new homes for several generations, living meanwhile in luxury on the surplus products of the labour of the subject races; and have found scope for their abilities in the work of rulers, warriors, and priests. Originally ignorant, they have quickly learnt all that their subjects had to teach, and have gone beyond them. But in this stage of civilization an enterprising intellectual character has almost always been confined to the ruling few, it has scarcely ever been found in those who have borne the main burden of industry.

The reason of this is that the climate which has rendered an early civilization possible has also doomed it to weakness2 . In colder climates nature provides an invigorating atmosphere; and though man has a hard struggle at first, yet as his knowledge and riches increase he is able to gain plentiful food and warm clothing; and at a later stage he provides himself with those large and substantial buildings which are the most expensive requisites of a cultured life in places in which the severity of the weather makes it necessary that nearly all domestic services and meetings for social intercourse should have the protection of a roof. But the fresh invigorating air which is necessary to the fullness of life cannot be obtained at all when nature does not freely give it3 . The labourer may indeed be found doing hard physical work under a tropical sun; the handicraftsman may have artistic instincts; the sage, the statesman or the banker may be acute and subtle: but high temperature makes hard and sustained physical work inconsistent with a high intellectual activity. Under the combined influence of climate and luxury the ruling class gradually lose their strength; fewer and fewer of them are capable of great things: and at last they are overthrown by a stronger race which has come most probably from a cooler climate. Sometimes they form an intermediate caste between those whom they have hitherto ruled and their new rulers; but more often they sink down among the spiritless mass of the people.

Such a civilization has often much that is interesting to the philosophical historian. Its whole life is pervaded almost unconsciously by a few simple ideas which are interwoven in that pleasant harmony that gives their charm to Oriental carpets. There is much to be learnt from tracing these ideas to their origin in the combined influence of race, of physical surroundings, of religion, philosophy and poetry; of the incidents of warfare and the dominating influence of strong individual characters. All this is instructive to the economist in many ways; but it does not throw a very direct light on the motives, which it is his special province to study. For in such a civilization the ablest men look down on work; there are no bold free enterprising workmen, and no adventurous capitalists; despised industry is regulated by custom, and even looks to custom as its sole protector from arbitrary tyranny.

The greater part of custom is doubtless but a crystallized form of oppression and suppression. But a body of custom which did nothing but grind down the weak could not long survive. For the strong rest on the support of the weak, their own strength cannot sustain them without that support; and if they organize social arrangements which burden the weak wantonly and beyond measure, they thereby destroy themselves. Consequently every body of custom that endures, contains provisions that protect the weak from the most reckless forms of injury4 .

In fact when there is little enterprise and no scope for effective competition, custom is a necessary shield to defend people not only from others who are stronger than themselves, but even from their neighbours in the same rank of life. If the village smith can sell his ploughshares to none but the village, and if the village can buy their shares from no one but him, it is to the interest of all that the price should be fixed at a moderate level by custom. By such means custom earns sanctity: and there is nothing in the first steps of progress that tends to break down the primitive habit of regarding the innovator as impious, and an enemy. Thus the influence of economic causes is pressed below the surface, where they work surely and slowly. They take generations instead of years to produce their effect: their action is so subtle as easily to escape observation altogether, and they can indeed hardly be traced except by those who have learnt where to look for them by watching the more conspicuous and rapid workings of similar causes in modern times5 .

8sect; 2. This force of custom in early civilizations is partly a cause and partly a consequence of the limitations of individual rights in property. As regards all property more or less, but especially as regards land, the rights of the individual are generally derived from and limited by, and in every way subordinate to those of the household and the family in the narrower sense of the term. The rights of the household are in like manner subordinate to those of the village; which is often only an expanded and developed family, according to traditionary fiction if not in fact.

It is true that in an early stage of civilization few would have had much desire to depart far from the practices that were prevalent around them. However complete and sharply defined had been the rights of individuals over their own property, they would have been unwilling to face the anger with which their neighbours would regard any innovation, and the ridicule which would be poured on any one who should set himself up to be wiser than his ancestors. But many little changes would occur to the bolder spirits; and if they had been free to try experiments on their own account, changes might have grown by small and almost imperceptible stages, until sufficient variation of practice had been established to blur the clear outline of customary regulations, and to give considerable freedom to individual choice. When however each head of a household was regarded as only senior partner and trustee for the family property, the smallest divergence from ancestral routine met with the opposition of people who had a right to be consulted on every detail.

And further in the background behind the authoritative resistance of the family was that of the village. For though each family had sole use for a time of its cultivated ground, yet many operations were generally conducted in common, so that each had to do the same things as the others at the same time. Each field when its turn came to be fallow, became part of the common pasture land; and the whole land of the village was subject to redistribution from time to time6 . Therefore the village had a clear right to prohibit any innovation; for it might interfere with their plans for the collective cultivation; and it might ultimately impair the value of the land, and thus injure them when the time came for the next redistribution. In consequence there often grew up a complex network of rules, by which every cultivator was so rigidly bound, that he could not use his own judgment and discretion even in the most trivial details7 . It is probable that this has been the most important of all the causes which have delayed the growth of the spirit of free enterprise among mankind. It may be noticed that the collective ownership of property was in harmony with that spirit of quietism which pervades many Eastern religions; and that its long survival among the Hindoos has been partly due to the repose which is inculcated in their religious writings.

It is probable that while the influence of custom over prices, wages and rent has been overrated, its influence over the forms of production and the general economic arrangements of society has been underrated. In the one case its effects are obvious, but they are not cumulative; and in the other they are not obvious, but they are cumulative. And it is an almost universal rule that when the effects of a cause, though small at any one time, are constantly working in the same direction, their influence is much greater than at first sight appears possible.

But however great was the influence of custom in early civilization the spirit of Greeks and Romans was full of enterprise, and more interest attaches to the inquiry why they knew and cared so little for those social aspects of economic problems which are of so great interest to us.

8sect; 3. The homes of most of the earlier civilizations had been in great river-basins, whose well-watered plains were seldom visited by famine; for in a climate in which heat is never lacking, the fertility of the soil varies almost directly with its moisture: the rivers also offered means of easy communication that were favourable to simple forms of trade and division of labour, and did not hinder the movements of the large armies by which the despotic force of the central government was maintained. It is true that the Phœnicians lived on the sea. This great Semitic race did good service by preparing the way for free intercourse among many peoples, and by spreading the knowledge of writing, of arithmetic, and of weights and measures: but they gave their chief energies to commerce and manufacture.

It was left for the genial sympathies and the fresh spirit of the Greeks to breathe in the full breath of freedom over the sea: and to absorb into their own free lives the best thoughts and the highest art of the Old World. Their numberless settlements in Asia Minor, Magna Græcia, and in Hellas proper, developed freely their own ideals under the influence of the new thoughts that burst upon them; having constant intercourse with one another, as well as with those who held the keys of the older learning; sharing one another's experiences, but fettered by no authority. Energy and enterprise, instead of being repressed by the weight of traditional usage, were encouraged to found a new colony and work out new ideas without restraint.

Their climate absolved them from the need of exhausting work; they left to their slaves what drudgery had to be done, and gave themselves up to the free play of their fancy. House-room, clothing and firing cost but little; their genial sky invited them to out-of-door life, making intercourse for social and political purposes easy and without expense. And yet the cool breezes of the Mediterranean so far refreshed their vigour, that they did not for many generations lose the spring and elasticity of temper which they had brought from their homes in the North. Under these conditions were matured a sense of beauty in all its forms, a subtle fancy and an originality of speculation, an energy of political life, and a delight in subordinating the individual to the State, such as the world has never again known8 .

The Greeks were more modern in many respects than the peoples of Mediæval Europe, and in some respects were even in advance of our own time. But they did not attain to the conception of the dignity of man as man; they regarded slavery as an ordinance of Nature, they tolerated agriculture, but they looked on all other industries as involving degradation; and they knew little or nothing of those economic problems, which are of absorbing interest to our own age9 .

They had never felt the extreme pressure of poverty. Earth and sea, and sun and sky had combined to make it easy for them to obtain the material requisites for a perfect life. Even their slaves had considerable opportunities of culture: and had it been otherwise, there was nothing in the Greek temper, and nothing in the lessons that the world had up to that time learnt, to make them seriously concerned. The excellence of Greek thought has made it a touchstone by which many of the leading thinkers of after ages have tried every new inquiry: and the impatience with which the academic mind has often regarded the study of economics is in a great measure due to the impatience which the Greeks felt for the anxious cares and plodding work of business.

And yet a lesson might have been learnt from the decadence of Greece; which was brought about by the want of that solid earnestness of purpose which no race has ever maintained for many generations without the discipline of steady industry. Socially and intellectually they were free: but they had not learnt to use their freedom well; they had no self-mastery, no steady persistent resolution. They had all the quickness of perception and readiness for new suggestions which are elements of business enterprise; but they had not its fixity of purpose and patient endurance. A genial climate slowly relaxed their physical energies; they were without that safeguard to strength of character which comes from resolute and steadfast persistence in hard work; and at last they sank into frivolity.

8sect; 4. Civilization still moving westwards had its next centre in Rome. The Romans were a great army, rather than a great nation. They resembled the Greeks in leaving business as much as possible to slaves: but in most other respects were a contrast to them. In opposition to the fresh fulness of the life of the Athenians, to the youthful joy with which they gave free play to all their faculties and developed their own idiosyncrasy, the Romans showed the firm will, the iron resolution, the absorption in definite serious aims of the mature man10 .

Singularly free from the restraints of custom, they shaped their own lives for themselves with a deliberate choice that had never been known before. They were strong and daring, steady of purpose and abundant in resource, orderly in habit, and clearsighted in judgment; and thus, though they preferred war and politics, they had in constant use all the faculties required for business enterprise.

Nor was the principle of association inactive. Trade gilds had some vigour in spite of the paucity of artisans who were free. Those methods of combined action for business purposes, and of production on a large scale by slave labour in factories, in which Greece had been the pupil of the East, gained new strength when imported into Rome. The faculties and the temper of the Romans fitted them especially well for the management of joint-stock companies; and a comparatively small number of very wealthy men, with no middle class, were able, with the aid of trained slaves and freedmen, to undertake large contracts by land and by sea at home and abroad. They made capital hateful; but they made it powerful and efficient; they developed the appliances of money-lending with great energy; and partly in consequence of the unity of the imperial power, and the wide extent of the Roman language, there was in some important respects more freedom of commerce and of movement throughout the civilized world in the days of the Roman Empire than even now.

When, then, we recollect how great a centre of wealth Rome was; how monstrous the fortunes of individual Romans (and they have only recently been surpassed); and how vast the scale of her military and civil affairs, of the provision needed for them and of the machinery of her traffic; we cannot wonder that many writers have thought they found much resemblance between her economic problems and our own. But the resemblance is superficial and illusory. It extends only to forms, and not to the living spirit of national life. It does not extend to the recognition of the worth of the life of the common people, which in our own time is giving to economic science its highest interest11 .

In ancient Rome industry and commerce lacked the vital strength which they have attained in more recent times. Her imports were won by the sword; they were not bought with the products of skilled work in which the citizens took a worthy pride, as were those of Venice or Florence or Bruges. Traffic and industry alike were pursued almost with a sole eye to the money gains to be derived from them; and the tone of business life was degraded by the public disdain which showed itself in the "legal and practically effective restriction12 " of the Senators from all forms of business except those connected with the land. The Equites found their richest gains in farming the taxes, in the plunder of provinces, and, in later times, in the personal favour of the Emperors, and did not cherish that spirit of probity and thorough work which are needed for the making of a great national trade; and at length private enterprise was stifled by the ever-growing shadow of the State13 .

But though the Romans contributed but little directly to the progress of economic science, yet indirectly they exerted a profound influence over it, for good and evil, by laying the foundations of modern jurisprudence. What philosophic thought there was in Rome was chiefly Stoic; and most of the great Roman Stoics were of Oriental origin. Their philosophy when transplanted to Rome developed a great practical power without losing its intensity of feeling; and in spite of its severity, it had in it much that is kindred to the suggestions of modern social science. Most of the great lawyers of the Empire were among its adherents, and thus it set the tone of the later Roman Law, and through it of all modern European Law. Now the strength of the Roman State had caused State rights to extinguish those of the Clan and the Tribe in Rome at an earlier stage than in Greece. But many of the primitive Aryan habits of thought as to property lingered on for a long while even in Rome. Great as was the power of the head of the family over its members, the property which he controlled was for a long time regarded as vested in him as the representative of the family rather than as an individual. But when Rome had become imperial, her lawyers became the ultimate interpreters of the legal rights of many nations: and under Stoic influence they set themselves to discover the fundamental Laws of Nature, which they believed to lie in concealment at the foundation of all particular codes. This search for the universal, as opposed to the accidental elements of justice, acted as a powerful solvent on rights of common holding, for which no other reason than that of local usage could be given. The later Roman Law therefore gradually but steadily enlarged the sphere of contract; gave it greater precision, greater elasticity, and greater strength. At last almost all social arrangements had come under its dominion; the property of the individual was clearly marked out, and he could deal with it as he pleased. From the breadth and nobility of the Stoic character modern lawyers have inherited a high standard of duty: and from its austere self-determination they have derived a tendency to define sharply individual rights in property. And therefore to Roman and especially Stoic influence we may trace indirectly much of the good and evil of our present economic system: on the one hand much of the untrammelled vigour of the individual in managing his own affairs; and on the other not a little harsh wrong done under the cover of rights established by a system of law, which has held its ground because its main principles are wise and just.

The strong sense of duty which Stoicism brought with it from its Oriental home had in it something also of Eastern quietism. The Stoic, though active in well-doing, was proud of being superior to the troubles of the world: he took his share in the turmoil of life because it was his duty to do so, but he never reconciled himself to it: his life remained sad and stern, oppressed by the consciousness of its own failures. This inner contradiction, as Hegel says, could not pass away till inward perfection was recognized as an object that could be attained only through self-renunciation; and thus its pursuit was reconciled with those failures which necessarily accompany all social work. For this great change the intense religious feeling of the Jews prepared the way. But the world was not ready to enter into the fulness of the Christian spirit, till a new tone had been given to it by the deep personal affections of the German race. Even among the German peoples true Christianity made its way slowly: and for a long time after the fall of Rome there was chaos in Western Europe.

8sect; 5. The Teuton, strong and resolute as he was, found it very difficult to free himself from the bonds of custom and of ignorance. The heartiness and fidelity14 which gave him his special strength, inclined him to cherish overmuch the institutions and customs of his family and his tribe. No other great conquering race has shown so little capacity as the Teutons have done for adopting new ideas from the more cultured, though weaker, people whom they conquered. They prided themselves on their rude strength and energy; and cared little for knowledge and the arts. But these found a temporary refuge on the Eastern coasts of the Mediterranean; until another conquering race coming from the south was ready to give them new life and vigour.

The Saracens learnt eagerly the best lessons that the conquered had to teach. They nurtured the arts and sciences, and kept alive the torch of learning at a time when the Christian world cared little whether it went out or not; and for this we must ever owe them gratitude. But their moral nature was not so full as that of the Teutons. The warm climate and the sensuality of their religion caused their vigour rapidly to decay; and they have exercised very little direct influence on the problems of modern civilization15 .

The education of the Teutons made slower but surer progress. They carried civilization northwards to a climate in which sustained hard work has gone hand in hand with the slow growth of sturdy forms of culture; and they carried it westwards to the Atlantic. Civilization, which had long ago left the shores of the rivers for those of the great inland sea, was ultimately to travel over the vast ocean.

But these changes worked themselves out slowly. The first point of interest to us in the new age is the re-opening of the old conflict between town and nation that had been suspended by the universal dominion of Rome; which was indeed an army with head-quarters in a town, but drawing its power from the broad land.

8sect; 6. Until a few years ago complete and direct self-government by the people was impossible in a great nation: it could exist only in towns or very small territories. Government was necessarily in the hands of the few, who looked upon themselves as privileged upper classes, and who treated the workers as lower classes. Consequently the workers, even when permitted to manage their own local affairs, were often wanting in the courage, the self-reliance, and the habits of mental activity, which are required as the basis of business enterprise. And as a matter of fact both the central Government and the local magnates did interfere directly with the freedom of industry; prohibiting migration, and levying taxes and tolls of the most burdensome and vexatious character. Even those of the lower classes who were nominally free, were plundered by arbitrary fines and dues levied under all manner of excuses, by the partial administration of justice, and often by direct violence and open pillage. These burdens fell chiefly on just those people who were more industrious and more thrifty than their neighbours—those among whom, if the country had been free, the spirit of bold enterprise would gradually have arisen to shake off the bonds of tradition and custom.

Far different was the state of people in the towns. There the industrial classes found strength in their numbers; and even when unable to gain the upper hand altogether, they were not, like their brethren in the country, treated as though they belonged to a different order of beings from their rulers. In Florence and in Bruges, as in ancient Athens, the whole people could hear, and sometimes did hear, from the leaders of public policy a statement of their plans and the reasons for them, and could signify their approval or disapproval before the next step was taken. The whole people could on occasion discuss together the social and industrial problems of the time, knowing each other's counsel, profiting by each other's experience, working out in common a definite resolution and bringing it into effect by their own action. But nothing of this kind could be done over a wide area till the invention of the telegraph, the railway and the cheap press.

By their aid a nation can now read in the morning what its leaders have said on the evening before; and, ere another day has passed, the judgment of the nation on it is pretty well known. By their aid the council of a large trades union can at a trifling cost submit a difficult question to the judgment of their members in every part of the country and get their decision within a few days. Even a large country can now be ruled by its people; but till now what was called "popular Government" was of physical necessity the government by a more or less wide oligarchy. Only those few who could themselves go frequently to the centre of Government, or at least receive constant communication from it, could take part directly in government. And though a much larger number of people would know enough of what was going on to make their will broadly effective through their choice of representatives, yet even they were a small minority of the nation till a few years ago; and the representative system itself is only of recent date.

8sect; 7. In the Middle Ages the history of the rise and fall of towns is the history of the rise and fall of successive waves on the tide of progress. The mediæval towns as a rule owed their origin to trade and industry, and did not despise them. And though the wealthier citizens were sometimes able to set up a close government in which the workers had no part, they seldom retained their power long: the great body of the inhabitants frequently had the full rights of citizens, deciding for themselves the foreign and domestic policy of their city, and at the same time working with their hands and taking pride in their work. They organized themselves into Gilds, thus increasing their cohesion and educating themselves in self-government; and though the Gilds were often exclusive, and their trade-regulations ultimately retarded progress, yet they did excellent work before this deadening influence had shown itself16 .

The citizens gained culture without losing energy; without neglecting their business, they learnt to take an intelligent interest in many things besides their business. They led the way in the fine arts, and they were not backward in those of war. They took pride in magnificent expenditure for public purposes; and they took equal pride in a careful husbanding of the public resources, in clear and clean State budgets, and in systems of taxes levied equitably and based on sound business principles. Thus they led the way towards modern industrial civilization; and if they had gone on their course undisturbed, and retained their first love of liberty and social equality, they would probably long ago have worked out the solutions of many social and economic problems which we are only now beginning to face. But after being long troubled by tumults and war, they at last succumbed to the growing power of the countries by which they were surrounded; and indeed when they had obtained dominion over their neighbours, their own rule had often been harsh and oppressive, so that their ultimate overthrow by the country was in some degree the result of a just retribution. They have suffered for their wrong-doings: but the fruit of their good work remains, and is the source of much that is best in the social and economic traditions that our age has inherited from its predecessors.

8sect; 8. Feudalism was perhaps a necessary stage in the development of the Teutonic race. It gave scope to the political ability of the dominant class, and educated the common people in habits of discipline and order. But it concealed under forms of some outward beauty much cruelty and uncleanness, physical and moral. The practices of chivalry combined extreme deference to women in public with domestic tyranny: elaborate rules of courtesy towards combatants of the knightly order were maintained by the side of cruelty and extortion in dealing with the lower classes. The ruling classes were expected to discharge their obligations towards one another with frankness and generosity17 . They had ideals of life which were not devoid of nobility; and therefore their characters will always have some attractiveness to the thoughtful historian, as well as to the chronicler of wars of splendid shows and of romantic incidents. But their consciences were satisfied when they had acted up to the code of duty which their own class required of them: and one article of that code was to keep the lower classes in their place; though indeed they were often kind and even affectionate towards those retainers with whom they lived in daily contact.

So far as cases of individual hardship went, the Church strove to defend the weak and to diminish the sufferings of the poor. Perhaps those finer natures who were attracted to its service might often have exercised a wider and a better influence, if they had been free from the vow of celibacy, and able to mingle with the world. But this is no reason for rating lightly the benefit which the clergy, and still more the monks, rendered to the poorer classes. The monasteries were the homes of industry, and in particular of the scientific treatment of agriculture: they were secure colleges for the learned, and they were hospitals and alms-houses for the suffering. The Church acted as a peace-maker in great matters and in small: the festivals and the markets held under its authority gave freedom and safety to trade18 .

Again, the Church was a standing protest against caste exclusiveness. It was democratic in its organization, as was the army of ancient Rome. It was always willing to raise to the highest posts the ablest men, in whatever rank they were born; its clergy and monastic orders did much for the physical and moral wellbeing of the people; and it sometimes even led them in open resistance to the tyranny of their rulers19 .

But, on the other hand, it did not set itself to help them to develop their faculties of self-reliance and self-determination, and to attain true inner freedom. While willing that those individuals who had exceptional natural talents should rise through its own offices to the highest posts, it helped rather than hindered the forces of feudalism in their endeavour to keep the working classes as a body ignorant, devoid of enterprise, and in every way dependent on those above them. Teutonic feudalism was more kindly in its instincts than the military dominion of ancient Rome; and the laity as well as clergy were influenced by the teachings, imperfectly understood as they were, of the Christian religion with regard to the dignity of man as man. Nevertheless the rulers of the country districts during the early middle ages united all that was most powerful in the Oriental subtlety of theocratic caste and in the Roman force of discipline and resolution; and they used their combined strength in such a manner as on the whole to retard the growth of strength and independence of character among the lower orders of the people.

The military force of feudalism was however for a long time weakened by local jealousies. It was admirably adapted for welding into one living whole the government of a vast area under the genius of a Charles the Great: but it was equally prone to dissipate itself into its constituent elements as soon as its guiding genius was gone. Italy was for a long time ruled by its towns, one of which indeed, of Roman descent, with Roman ambition and hard fixity of purpose held its water-ways against all attack till quite modern times. And in the Netherlands and other parts of the Continent the free towns were long able to defy the hostility of kings and barons around them. But at length stable monarchies were established in Austria, Spain and France. A despotic monarchy, served by a few able men, drilled and organized the military forces of vast multitudes of ignorant but sturdy country folk; and the enterprise of the free towns, their noble combination of industry and culture, was cut short before they had had time to outgrow their early mistakes.

Then the world might have gone backwards if it had not happened that just at that time new forces were rising to break up the bonds of constraint, and spread freedom over the broad land. Within a very short period came the invention of printing, the Revival of Learning, the Reformation, and the discovery of the ocean routes to the New World and to India. Any one of these events alone would have been sufficient to make an epoch in history; but coming together as they did, and working all in the same direction, they effected a complete revolution.

Thought became comparatively free, and knowledge ceased to be altogether inaccessible to the people. The free temper of the Greeks revived; the strong self-determining spirits gained new strength, and were able to extend their influence over others. And a new continent suggested new problems to the thoughtful, at the same time that it offered a new scope to the enterprise of bold adventurers.

8sect; 9. The countries which took the lead in the new maritime adventure were those of the Spanish Peninsula. It seemed for a time as though the leadership of the world, having settled first in the most easterly peninsula of the Mediterranean, and thence moved to the middle peninsula, would settle again in that westerly peninsula which belonged both to the Mediterranean and the Atlantic. But the power of industry had by this time become sufficient to sustain wealth and civilization in a northern climate. Spain and Portugal could not hold their own for long against the more sustained energy and the more generous spirit of the northern people.

The early history of the people of the Netherlands is indeed a brilliant romance. Founding themselves on fishing and weaving, they built up a noble fabric of art and literature, of science and government. But Spain set herself to crush out the rising spirit of freedom, as Persia had done before. And as Persia strangled Ionia, but only raised yet higher the spirit of Greece proper; so the Austro-Spanish Empire subdued the Belgian Netherlands, but only intensified the patriotism and energy of the Dutch Netherlands and England.

Holland suffered from England's jealousy of her commerce, but still more from the restless military ambition of France. It soon became clear that Holland was defending the freedom of Europe against French aggression. But at a critical time in her history she was deprived of the aid she might reasonably have expected from Protestant England; and though from 1688 onwards that aid was liberally given, her bravest and most generous sons had then already perished on the battle-field, and she was overburdened with debt. She has fallen into the background: but Englishmen above all others are bound to acknowledge what she did, and what more she might have done for freedom and enterprise.

France and England were thus left to contend for the empire of the ocean. France had greater natural resources than any other northern country, and more of the spirit of the new age than any southern country; and she was for some time the greatest power of the world. But she squandered in perpetual wars her wealth, and the blood of the best of those citizens whom she had not already driven away by religious persecution. The progress of enlightenment brought with it no generosity on the part of the ruling class towards the ruled, and no wisdom in expenditure.

From revolutionary America came the chief impulse towards a rising of the oppressed French people against their rulers. But the French were strikingly wanting in that self-controlling freedom which had distinguished the American colonists. Their energy and courage was manifested again in the great Napoleonic wars. But their ambition overleaped itself, and ultimately left to England the leadership of enterprise on the ocean. Thus the industrial problems of the New World are being worked out under the direct influence, as to some extent those of the Old World are under the indirect influence, of the English character. We may then return to trace with somewhat more detail the growth of free enterprise in England.

8sect; 10. England's geographical position caused her to be peopled by the strongest members of the strongest races of northern Europe; a process of natural selection brought to her shores those members of each successive migratory wave who were most daring and self-reliant. Her climate is better adapted to sustain energy than any other in the northern hemisphere. She is divided by no high hills, and no part of her territory is more than twenty miles from navigable water, and thus there was no material hindrance to freedom of intercourse between her different parts; while the strength and wise policy of the Norman and Plantagenet kings prevented artificial barriers from being raised by local magnates.

As the part which Rome played in history is chiefly due to her having combined the military strength of a great empire with the enterprise and fixedness of purpose of an oligarchy residing in one city, so England owes her greatness to her combining, as Holland had done on a smaller scale before, much of the free temper of the mediæval city with the strength and broad basis of a nation. The towns of England had been less distinguished than those of other lands; but she assimilated them more easily than any other country did, and so gained in the long run most from them.

The custom of primogeniture inclined the younger sons of noble families to seek their own fortunes; and having no special caste privileges they mixed readily with the common people. This fusion of different ranks tended to make politics business-like; while it warmed the veins of business adventure with the generous daring and romantic aspirations of noble blood. Resolute on the one hand in resistance to tyranny, and on the other in submission to authority when it is justified by their reason, the English have made many revolutions; but none without a definite purpose. While reforming the constitution they have abided by the law: they alone, unless we except the Dutch, have known how to combine order and freedom; they alone have united a thorough reverence for the past with the power of living for the future rather than in the past. But the strength of character which in later times made England the leader of manufacturing progress, showed itself at first chiefly in politics, in war, and in agriculture.

The English archer was the forerunner of the English artisan. He had the same pride in the superiority of his food and his physique over those of his Continental rivals; he had the same indomitable perseverance in acquiring perfect command over the use of his hands, the same free independence and the same power of self-control and of rising to emergencies; the same habit of indulging his humours when the occasion was fit, but, when a crisis arose, of preserving discipline even in the face of hardship and misfortune20 .

But the industrial faculties of Englishmen remained latent for a long time. They had not inherited much acquaintance with nor much care for the comforts and luxuries of civilization. In manufactures of all kinds they lagged behind the Latin countries, Italy, France and Spain, as well as the free cities of northern Europe. Gradually the wealthier classes got some taste for imported luxuries, and England's trade slowly increased.

But there was for a long time no sign on the surface of her future commerce. That indeed is the product of her special circumstances as much as, if not more than, of any natural bias of her people. They had not originally, and they have not now, that special liking for dealing and bargaining, nor for the more abstract side of financial business, which is found among the Jews, the Italians, the Greeks and the Armenians; trade with them has always taken the form of action rather than of manœuvring and speculative combination. Even now the subtlest financial speculation on the London Stock Exchange is done chiefly by those races which have inherited the same aptitude for trading which the English have for action.

The qualities which have caused England in later times under different circumstances to explore the world, and to make goods and carry them for other countries, caused her even in the Middle Ages to pioneer the modern organization of agriculture, and thus to set the model after which most other modern business is being moulded. She took the lead in converting labour dues into money payments, a change which much increased the power of everyone to steer his course in life according to his own free choice. For good and for evil the people were set free to exchange away their rights in the land and their obligations to it. The relaxation of the bonds of custom was hastened alike by the great rise of real wages which followed the Black Death in the fourteenth century; and by the great fall of real wages which, in the sixteenth century, resulted from the depreciation of silver, the debasement of coin, the appropriation of the revenues of the monasteries to the purposes of court extravagance; and lastly by the extension of sheep-farming, which set many workers adrift from their old homes, and lowered the real incomes and altered the mode of life of those who remained. The movement was further extended by the growth of the royal power in the hands of the Tudors, which put an end to private war, and rendered useless the bands of retainers which the barons and landed gentry had kept together. The habit of leaving real property to the eldest son, and distributing personal property among all the members of the family, on the one hand increased the size of landed properties, and on the other narrowed the capital which the owners of land had at their own command for working it21 .

These causes tended to establish the relation of landlord and tenant in England: while the foreign demand for English work and the English demand for foreign luxuries led, especially in the sixteenth century, to the concentration of many holdings into large sheep-runs worked by capitalist farmers. That is, there was a great increase in the number of farmers who undertook the management and the risks of agriculture, supplying some capital of their own, but borrowing the land for a definite yearly payment, and hiring labour for wages: in like manner as, later on, the new order of English business men undertook the management and the risks of manufacture, supplying some capital of their own, but borrowing the rest on interest, and hiring labour for wages. Free enterprise grew fast and fiercely, it was one-sided in its action and cruel to the poor. But it remains true that the English large farm, arable and pastoral, worked with borrowed capital, was the forerunner of the English factory, in the same way as English archery was the forerunner of the skill of the English artisan22 .

8sect; 11. Meanwhile the English character was deepening. The natural gravity and intrepidity of the stern races that had settled on the shores of England inclined them to embrace the doctrines of the Reformation; and these reacted on their habits of life, and gave a tone to their industry. Man was, as it were, ushered straight into the presence of his Creator, with no human intermediary; and now for the first time large numbers of rude and uncultured people yearned towards the mysteries of absolute spiritual freedom. The isolation of each person's religious responsibility from that of his fellows, rightly understood, was a necessary condition for the highest spiritual progress23 . But the notion was new to the world, it was bare and naked, not yet overgrown with pleasant instincts; and even in kindly natures individuality showed itself with a hard sharpness of outline, while the coarser natures became self-conscious and egotistic. Among the Puritans especially, the eagerness to give logical definiteness and precision to their religious creed was an absorbing passion, hostile to all lighter thoughts and lighter amusements. When occasion arose they could take combined action, which was made irresistible by their resolute will. But they took little joy in society; they shunned public amusements, and preferred the quieter relaxations of home life; and, it must be confessed, some of them took an attitude hostile to art24 .

The first growth of strength had then something in it that was rude and ill-mannered; but that strength was required for the next stage upwards. It needed to be purified and softened by much tribulation; it needed to become less self-assertive without becoming weaker, before new instincts could grow up around it to revive in a higher form what was most beautiful and most solid in the old collective tendencies. It intensified the affections of the family, the richest and fullest of earthly feelings: perhaps there never has been before any material of texture at once so strong and so fine, with which to build up a noble fabric of social life.

Holland and other countries shared with England the great ordeal which was thus opened by the spiritual upheaval that closed the middle ages. But from many points of view, and especially from that of the economist, England's experiences were the most instructive and the most thorough; and were typical of all the rest. England led the way in the modern evolution of industry and enterprise by free and self-determining energy and will.

8sect; 12. England's industrial and commercial characteristics were intensified by the fact that many of those who had adopted the new doctrines in other countries sought on her shores a safe asylum from religious persecution. By a sort of natural selection, those of the French and Flemings, and others whose character was most akin to the English, and who had been led by that character to study thoroughness of work in the manufacturing arts, came to mingle with them, and to teach them those arts for which their character had all along fitted them25 . During the seventeenth and eighteenth centuries, the court and the upper classes remained more or less frivolous and licentious; but the middle class and some parts of the working class adopted a severe view of life; they took little delight in amusements that interrupted work, and they had a high standard as to those material comforts which could be obtained only by unremitting, hard work. They strove to produce things that had a solid and lasting utility, rather than those suited only for the purpose of festivities and ostentation. The tendency, when once it had set in, was promoted by the climate; for, though not very severe, it is specially unsuited to the lighter amusements; and the clothing, house-room and other requisites for a comfortable existence in it, are of a specially expensive character.

These were the conditions under which the modern industrial life of England was developed: the desire for material comforts tends towards a ceaseless straining to extract from every week the greatest amount of work that can be got out of it. The firm resolution to submit every action to the deliberate judgment of the reason tends to make everyone constantly ask himself whether he could not improve his position by changing his business, or by changing his method of doing it. And, lastly, complete political freedom and security enables everyone to adjust his conduct as he has decided that it is his interest to do, and fearlessly to commit his person and his property to new and distant undertakings.

In short, the same causes which have enabled England and her colonies to set the tone of modern politics, have made them also set the tone of modern business. The same qualities which gave them political freedom gave them also free enterprise in industry and commerce.

8sect; 13. Freedom of industry and enterprise, so far as its action reaches, tends to cause everyone to seek that employment of his labour and capital in which he can turn them to best advantage; and this again leads him to try to obtain a special skill and facility in some particular task, by which he may earn the means of purchasing what he himself wants. And hence results a complex industrial organization, with much subtle division of labour.

Some sort of division of labour is indeed sure to grow up in any civilization that has held together for a long while, however primitive its form. Even in very backward countries we find highly specialized trades; but we do not find the work within each trade so divided up that the planning and arrangement of the business, its management and its risks, are borne by one set of people, while the manual work required for it is done by hired labour. This form of division of labour is at once characteristic of the modern world generally, and of the English race in particular. It may be merely a passing phase in man's development; it may be swept away by the further growth of that free enterprise which has called it into existence. But for the present it stands out for good and for evil as the chief fact in the form of modern civilization, the kernel of the modern economic problem.

The most vital changes hitherto introduced into industrial life, centre around this growth of business Undertakers26 . We have already seen how the undertaker made his appearance at an early stage in England's agriculture. The farmer borrowed land from his landlord, and hired the necessary labour, being himself responsible for the management and risks of the business. The selection of farmers has not indeed been governed by perfectly free competition, but has been restricted to a certain extent by inheritance and by other influences, which have often caused the leadership of agricultural industry to fall into the hands of people who have had no special talents for it. But England is the only country in which any considerable play has been given to natural selection: the agricultural systems of the Continent have allowed the accident of birth to determine the part which every man should take in cultivating land or controlling its cultivation. The greater energy and elasticity obtained by even this narrow play of selection in England, has been sufficient to put English agriculture in advance of all others, and has enabled it to obtain a much larger produce than is got by an equal amount of labour from similar soils in any other country of Europe27 .

But the natural selection of the fittest to undertake, to organize, and to manage has much greater scope in manufacture. The tendency to the growth of undertakers in manufactures had set in before the great development of England's foreign trade; in fact traces of it are to be found in the woollen manufacture in the fifteenth century. But the opening up of large markets in new countries gave a great stimulus to the movement, both directly and through its influence on the localization of industry, that is, the concentration of particular branches of production in certain localities.

The records of mediæval fairs and wandering merchants show that there were many things each of which was made in only one or two places, and thence distributed north and south, east and west, over the whole of Europe. But the wares whose production was localized and which travelled far, were almost always of high price and small bulk: the cheaper and heavier goods were supplied by each district for itself. In the colonies of the new world, however, people had not always the leisure to provide manufactures for themselves: and they were often not allowed to make even those which they could have made; for though England's treatment of her colonies was more liberal than that of any other country, she thought that the expense which she incurred on their behalf justified her in compelling them to buy nearly all kinds of manufactures from herself. There was also a large demand for simple goods to be sold in India and to savage races.

These causes led to the localization of much of the heavier manufacturing work. In work which requires the highly trained skill and delicate fancy of the operative, organization is sometimes of secondary importance. But the power of organizing great numbers of people gives an irresistible advantage when there is a demand for whole ship cargoes of goods of a few simple patterns. Thus localization and the growth of the system of capitalist undertakers were two parallel movements, due to the same general cause, and each of them promoting the advance of the other.

The factory system, and the use of expensive appliances in manufacture, came at a later stage. They are commonly supposed to be the origin of the power which undertakers wield in English industry; and no doubt they increased it. But it had shown itself clearly before their influence was felt. At the time of the French Revolution there was not a very great deal of capital invested in machinery whether driven by water or steam power; the factories were not large, and there were not many of them. But nearly all the textile work of the country was then done on a system of contracts. This industry was controlled by a comparatively small number of undertakers who set themselves to find out what, where and when it was most advantageous to buy and to sell, and what things it was most profitable to have made. They then let out contracts for making these things to a great number of people scattered over the country. The undertakers generally supplied the raw material, and sometimes even the simple implements that were used; those who took the contract executed it by the labour of themselves and their families, and sometimes but not always by that of a few assistants.

As time went on, the progress of mechanical invention caused the workers to be gathered more and more into small factories in the neighbourhood of water power; and when steam came to be substituted for water power, then into larger factories in great towns. Thus the great undertakers who bore the chief risks of manufacturing, without directly managing and superintending, began to give way to wealthy employers, who conducted the whole business of manufacturing on a large scale. The new factories attracted the attention of the most careless observer; and this last movement was not liable to be overlooked by those who were not actually engaged in the trade, as the preceding movement had been28 .

Thus at length general attention was called to the great change in the organization of industry which had long been going on; and it was seen that the system of small businesses controlled by the workers themselves was being displaced by the system of large businesses controlled by the specialized ability of capitalist undertakers. The change would have worked itself out very much as it has done, even if there had been no factories: and it will go on working itself out even if the retail distribution of force by electric or other agencies should cause part of the work that is now done in factories to be taken to the home of the workers29 .

8sect; 14. The new movement, both in its earlier and later forms, has tended constantly to relax the bonds that used to bind nearly everyone to live in the parish in which he was born; and it developed free markets for labour, which invited people to come and take their chance of finding employment. And in consequence of this change the causes that determine the value of labour began to take a new character. Up to the eighteenth century manufacturing labour had been hired, as a rule, retail; though a large and fluid labour class, which could be hired wholesale, had played a considerable part in the industrial history of particular places on the Continent and in England before then. In that century the rule was reversed, at least for England; and the price of labour ceased to be dominated by custom, or by bargaining in small markets. During the last hundred years it has ever more and more been determined by the circumstances of supply and demand over a large area—a town, a country, or the whole world.

The new organization of industry added vastly to the efficiency of production; for it went far towards securing that each man's labour should be devoted to just the highest kind of work which he was capable of performing well, and that his work should be ably directed and supplied with the best mechanical and other assistance that wealth and the knowledge of the age could afford. But it brought with it great evils. Which of these evils was unavoidable we cannot tell. For just when the change was moving most quickly, England was stricken by a combination of calamities almost unparalleled in history. They were the cause of a great part—it is impossible to say of how great a part—of the sufferings that are commonly ascribed to the sudden outbreak of unrestrained competition. The loss of her great colonies was quickly followed by the great French war, which cost her more than the total value of the accumulated wealth she had at its commencement. An unprecedented series of bad harvests made bread fearfully dear. And worse than all, a method of administration of the poor law was adopted which undermined the independence and vigour of the people.

The first part of last century therefore saw free enterprise establishing itself in England under favourable circumstances, its evils being intensified and its beneficial influences being hindered by external misfortunes.

8sect; 15. The trade customs and the gild regulations, by which the weak had been defended in past times, were unsuitable to the new industry. In some places they were abandoned by common consent: in others they were successfully upheld for a time. But it was a fatal success; for the new industry, incapable of flourishing under the old bonds, left those places for others where it could be more free30 . Then the workers turned to Government for the enforcement of old laws of Parliament prescribing the way in which the trade should be carried on, and even for the revival of the regulation of prices and wages by justices of the peace.

These efforts could not but fail. The old regulations had been the expression of the social, moral and economic ideas of the time; they had been felt out, rather than thought out; they were the almost instinctive results of the experience of generations of men who had lived and died under almost unchanged economic conditions. In the new age changes came so rapidly that there was no time for this. Each man had to do what was right in his own eyes, with but little guidance from the experience of past times: those who endeavoured to cling to old traditions were quickly supplanted.

The new race of undertakers consisted chiefly of those who had made their own fortunes, strong, ready, enterprising men: who, looking at the success obtained by their own energies, were apt to assume that the poor and the weak were to be blamed rather than to be pitied for their misfortunes. Impressed with the folly of those who tried to bolster up economic arrangements which the stream of progress had undermined, they were apt to think that nothing more was wanted than to make competition perfectly free and to let the strongest have their way. They glorified individuality of character, and were in no hurry to find a modern substitute for the social and industrial bonds which had kept men together in earlier times.

Meanwhile misfortune had reduced the total net income of the people of England. In 1820 a tenth of it was absorbed in paying the mere interest on the National Debt. The goods that were cheapened by the new inventions were chiefly manufactured commodities of which the working man was but a small consumer. As England had then almost a monopoly of manufactures, he might indeed have got his food cheaply if manufacturers had been allowed to change their wares freely for corn grown abroad; but this was prohibited by the landlords who ruled in Parliament. The labourer's wages, so far as they were spent on ordinary food, were the equivalent of what his labour would produce on the very poor soil which was forced into cultivation to eke out the insufficient supplies raised from the richer grounds. He had to sell his labour in a market in which the forces of supply and demand would have given him a poor pittance even if they had worked freely. But he had not the full advantage of economic freedom; he had no efficient union with his fellows; he had neither the knowledge of the market, nor the power of holding out for a reserve price, which the seller of commodities has, and he was urged on to work and to let his family work during long hours, and under unhealthy conditions. This reacted on the efficiency of the working population, and therefore on the net value of their work, and therefore it kept down their wages. The employment of very young children for long hours was no new thing: it had been common in Norwich and elsewhere even in the seventeenth century. But the moral and physical misery and disease caused by excessive work under bad conditions reached their highest point among the factory population in the first quarter of the century. They diminished slowly during the second quarter, and more rapidly since then.

After the workmen had recognized the folly of attempts to revive the old rules regulating industry, there was no longer any wish to curtail the freedom of enterprise. The sufferings of the English people at their worst were never comparable to those which had been caused by the want of freedom in France before the Revolution; and it was argued that, had it not been for the strength which England derived from her new industries, she would probably have succumbed to a foreign military despotism, as the free cities had done before her. Small as her population was she at some times bore almost alone the burden of war against a conqueror in control of nearly all the resources of the Continent; and at other times subsidized larger, but poorer countries in the struggle against him. Rightly or wrongly, it was thought at the time that Europe might have fallen permanently under the dominion of France, as she had fallen in an earlier age under that of Rome, had not the free energy of English industries supplied the sinews of war against the common foe. Little was therefore heard in complaint against the excess of free enterprise, but much against that limitation of it which prevented Englishmen from obtaining food from abroad in return for the manufactures which they could now so easily produce.

And even trades-unions, which were then beginning that brilliant though chequered career which has been more full of interest and instruction than almost anything else in English history, passed into the phase of seeking little from authority except to be left alone. They had learnt by bitter experience the folly of attempting to enforce the old rules by which Government had directed the course of industry; and they had as yet got no far-reaching views as to the regulation of trade by their own action: their chief anxiety was to increase their own economic freedom by the removal of the laws against combinations of workmen.

8sect; 16. It has been left for our own generation to perceive all the evils which arose from the suddenness of this increase of economic freedom. Now first are we getting to understand the extent to which the capitalist employer, untrained to his new duties, was tempted to subordinate the wellbeing of his workpeople to his own desire for gain; now first are we learning the importance of insisting that the rich have duties as well as rights in their individual and in their collective capacity; now first is the economic problem of the new age showing itself to us as it really is. This is partly due to a wider knowledge and a growing earnestness. But however wise and virtuous our grandfathers had been, they could not have seen things as we do; for they were hurried along by urgent necessities and terrible disasters31 .

We must judge ourselves by a severer standard. For, though England has recently been called on to struggle once more for national existence, her powers of production have been immensely increased; free trade and the growth of steam communication have enabled a largely increased population to obtain sufficient supplies of food on easy terms. The average money income of the people has more than doubled; while the price of almost all important commodities except animal food and house-room has fallen by one-half or even further. It is true that even now, if wealth were distributed equally, the total production of the country would only suffice to provide necessaries and the more urgent comforts for the people, and that as things are, many have barely the necessaries of life. But the nation has grown in wealth, in health, in education and in morality; and we are no longer compelled to subordinate almost every other consideration to the need of increasing the total produce of industry.

In particular this increased prosperity has made us rich and strong enough to impose new restraints on free enterprise; some temporary material loss being submitted to for the sake of a higher and ultimate greater gain. But these new restraints are different from the old. They are imposed not as a means of class domination; but with the purpose of defending the weak, and especially children and the mothers of children, in matters in which they are not able to use the forces of competition in their own defence. The aim is to devise, deliberately and promptly, remedies adapted to the quickly changing circumstances of modern industry; and thus to obtain the good, without the evil, of the old defence of the weak that in other ages was gradually evolved by custom.

Even when industry remained almost unchanged in character for many generations together, custom was too slow in its growth and too blind to be able to apply pressure only when pressure was beneficial: and in this later stage custom can do but little good, and much harm. But by the aid of the telegraph and the printing-press, of representative government and trade associations, it is possible for the people to think out for themselves the solution of their own problems. The growth of knowledge and self-reliance has given them that true self-controlling freedom, which enables them to impose of their own free will restraints on their own actions; and the problems of collective production, collective ownership and collective consumption are entering on a new phase.

Projects for great and sudden changes are now, as ever, foredoomed to fail, and to cause reaction; we cannot move safely, if we move so fast that our new plans of life altogether outrun our instincts. It is true that human nature can be modified: new ideals, new opportunities and new methods of action may, as history shows, alter it very much even in a few generations; and this change in human nature has perhaps never covered so wide an area and moved so fast as in the present generation. But still it is a growth, and therefore gradual; and changes of our social organization must wait on it, and therefore they must be gradual too.

But though they wait on it, they may always keep a little in advance of it, promoting the growth of our higher social nature by giving it always some new and higher work to do, some practical ideal towards which to strive. Thus gradually we may attain to an order of social life, in which the common good overrules individual caprice, even more than it did in the early ages before the sway of individualism had begun. But unselfishness then will be the offspring of deliberate will; and, though aided by instinct, individual freedom will then develop itself in collective freedom:—a happy contrast to the old order of life, in which individual slavery to custom caused collective slavery and stagnation, broken only by the caprice of despotism or the caprice of revolution.

8sect; 17. We have been looking at this movement from the British point of view. But other nations are hastening in the same direction. America faces new practical difficulties with such intrepidity and directness that she has already attained leadership in some economic affairs; she supplies many of the most instructive instances of the latest economic tendencies of the age, such as the development of speculation and trade combination in every form, and she will probably before long take the chief part in pioneering the way for the rest of the world.

Australia also shows signs of vigour, and she has indeed some advantage over the United States in the greater homogeneity of her people. For, though the Australians—and nearly the same may be said of the Canadians—come from many lands, and thus stimulate one another to thought and enterprise by the variety of their experiences and their habits of thought, yet nearly all of them belong to one race: and the development of social institutions can proceed in some respects more easily, and faster than if they had to be adjusted to the capacities, the temperaments, the tastes, and the wants of peoples who have little affinity with one another.

On the Continent the power of obtaining important results by free association is less than in English-speaking countries; and in consequence there is less resource and less thoroughness in dealing with industrial problems. But their treatment is not quite the same in any two nations: and there is something characteristic and instructive in the methods adopted by each of them; particularly in relation to the sphere of governmental action. In this matter Germany is taking the lead. It has been a great gain to her that her manufacturing industries developed later than those of England; and she has been able to profit by England's experience and to avoid many of her mistakes32 .

In Germany an exceptionally large part of the best intellect in the nation seeks for employment under Government, and there is probably no other Government which contains within itself so much trained ability of the highest order. On the other hand the energy, the originality and the daring which make the best men of business in England and America have but recently been fully developed in Germany; while the German people have a great faculty of obedience. They thus differ from the English; whose strength of will makes them capable of thorough discipline when strong occasion arises but who are not naturally docile. The control of industry by Government is seen in its best and most attractive forms in Germany; and at the same time the special virtues of private industry, its vigour, its elasticity and its resource are beginning to be seen in full development there. In consequence the problems of the economic functions of Government have been studied in Germany with great care, and with results that may be very instructive to English-speaking people; provided they recollect that the arrangements best suited for the German character are perhaps not quite the best for them; since they could not, if they would, rival the Germans in their steadfast docility, and in their easy contentment with inexpensive kinds of food, clothing, house-room and amusements.

And Germany contains a larger number than any other country of the most cultivated members of that wonderful race who have been leaders of the world in intensity of religious feeling and in keenness of business speculation. In every country, but especially in Germany, much of what is most brilliant and suggestive in economic practice and in economic thought is of Jewish origin. And in particular to German Jews we owe many daring speculations as to the conflict of interests between the individual and society, and as to their ultimate economic causes and their possible socialistic remedies.

But we are trenching on the subject of Appendix B. Here we have seen how recent is the growth of economic freedom, and how new is the substance of the problem with which economic science has now to deal; we have next to inquire how the form of that problem has been fashioned by the progress of events and the personal peculiarities of great thinkers.

[1.]On the general question of the influence of physical surroundings on race character, both directly and indirectly, by determining the nature of the dominant occupations, see Knies, Politische Œkonomie, Hegel's Philosophy of History, and Buckle's History of Civilization. Compare also Aristotle's Politics, and Montesquieu's Esprit des Lois.

[2.]Montesquieu says quaintly (Bk. XIV. ch. II.) that the superiority of strength caused by a cold climate produces among other effects "a greater sense of superiority—that is, less desire of revenge; and a greater opinion of security—that is, more frankness, less suspicion, policy, and cunning." These virtues are eminently helpful to economic progress.

[3.]This may have to be modified a little, but only a little, if F. Galton should prove to be right in thinking that small numbers of a ruling race in a hot country, as for instance the English in India, will be able to sustain their constitutional vigour unimpaired for many generations by a liberal use of artificial ice, or of the cooling effects of the forcible expansion of compressed air. See his Presidential Address to the Anthropological Institute in 1887.

[4.]Comp. Bagehot's Physics and Politics, also the writings of Herbert Spencer and Maine.

[5.]Thus the "moderate level" at which custom fixes the price of a ploughshare will be found when analysed to mean that which gives the smith in the long run about an equal remuneration (account being taken of all his privileges and perquisites) with that of his neighbours who do equally difficult work; or in other words, that which under the régime of free enterprise, of easy communications and effective competition, we should call a normal rate of pay. If a change of circumstances makes the pay of smiths, including all indirect allowances, either less or more than this, there almost always sets in a change in the substance of the custom, often almost unrecognized and generally without any change in form, which will bring it back to this level.

[6.]The Teutonic Mark system is indeed now known to have been much less general than some historians had supposed. But where it was fully developed one small part, the home mark, was set aside permanently for living on, and each family retained its share in that for ever. The second part or arable mark was divided into three large fields, in each of which each family had generally several scattered acre strips. Two of these were cultivated every year, and one left fallow. The third and largest part was used as grazing land by the whole village in common; as was also the fallow field in the arable mark. In some cases the arable mark was from time to time abandoned to pasture, and land to make a new arable mark was cut out of the common mark, and this involved a redistribution. Thus the treatment of its land by every family affected for good or ill all the members of the village.

[7.]Compare the Duke of Argyll's account of Runrig cultivation in Unseen Foundations of Society, ch. IX.

[8.]Compare Neumann and Partsch, Physikalische Geographie von Griechenland, ch. I., and Grote's History of Greece, Part II. ch. I.

[9.]See above, p. 4. Thus even Plato says:—"Nature has made neither boot-makers nor blacksmiths; such occupations degrade the people engaged in them, miserable mercenaries excluded by their very position from political rights." (Laws, XII.) And Aristotle continues:—"In the state which is best governed the citizens ... must not lead the life of mechanics or tradesmen, for such a life is ignoble and inimical to virtue." (Politics, VII. 9; see also III. 5.) These passages give the key-note of Greek thought with regard to business. But as there were few independent fortunes in ancient Greece, many of her best thinkers were compelled to take some share in business.

[10.]This fundamental opposition between the Greek and Roman tempers was made clear by Hegel in his Philosophy of History. "Of the Greeks in the first genuine form of their freedom we may assert that they had no conscience; the habit of living for their country without further analysis or reflection was the principle dominant among them ... Subjectivity plunged the Greek world into ruin"; and the harmonious poetry of the Greeks made way for "the prose life of the Romans," which was full of subjectivity, and "a hard dry contemplation of certain voluntary aims." A generous, though discriminating, tribute to the services which Hegel indirectly rendered to Historical Economics is given by Roscher, Gesch. der Nat. Œk. in Deutschland, § 188. Compare also the chapters on Religion in Mommsen's History, which seem to have been much influenced by Hegel; also Kautz, Entwickelung der National-Œkonomie, Bk. I.

[11.]See above, ch. I. § 2. The misunderstanding is in some measure attributable to the influence of the generally acute and well-balanced Roscher. He took a special delight in pointing out analogies between ancient and modern problems; and though he also pointed out differences, yet the general influence of his writings tended to mislead. (His position is well criticized by Knies, Politische Œkonomie vom geschichtlichen Standpunkte: especially p. 391 of the second edition.)

[12.]Friedländer, Sittengeschichte Roms, p. 225. Mommsen goes so far as to say (History, Book IV. ch. XI.):—"Of trades and manufactures there is nothing to be said, except that the Italian nation in this respect persevered in an inactivity bordering on barbarism.... The only brilliant side of Roman private economics was money dealing and commerce." Many passages in Cairnes' Slave Power read like modern versions of Mommsen's History. Even in the towns the lot of the poor free Roman resembled that of the "mean white" of the Southern Slave States. Latifundia perdidere Italiam; but they were farms like those of the Southern States, not of England. The weakness of free labour at Rome is shown in Liebenam's Geschichte des römischen Vereinswesens.

[13.]One aspect of this is described by Schmoller in his short but excellent account of the Trading Companies of Antiquity. After showing how trading groups of which all the members belong to one family may thrive even among primitive peoples, he argues (Jahrbuch für Gesetzgebung, XVI. pp. 740-2) that no form of business association of the modern type could flourish long in such conditions as those of ancient Rome unless it had some exceptional privileges or advantages as the Societates Publicanorum had. The reason why we moderns succeed in bringing and keeping many people "under the same hat" to work together, which Antiquity failed in doing, "is to be sought exclusively in the higher level of intellectual and moral strength, and the greater possibility now than then of binding together men's egoistic commercial energies by the bonds of social sympathy." See also Deloume, Les Manieurs d'Argent à Rome; an article on State control of Industry in the fourth century by W. A. Brown in the Political Science Quarterly, Vol. II.; Blanqui's History of Political Economy, chs. V. and VI.; and Ingram's History, ch. II.

[14.]Hegel (Philosophy of History, Part IV.) goes to the root of the matter when he speaks of their energy, their free spirit, their absolute self-determination (Eigensinn), their heartiness (Gemüth), and adds, "Fidelity is their second watchword, as Freedom is the first."

[15.]A brilliant eulogy of their work is given by Draper, Intellectual Development of Europe, ch. XIII.

[16.]What is true of the great free towns, that were practically autonomous, is true in a less degree of the so-called free boroughs of England. Their constitutions were even more various than the origins of their liberties; but it now seems probable that they were generally more democratic and less oligarchic than was at one time supposed. See especially Gross, The Gild Merchant, ch. VII.

[17.]But treachery was common in Italian cities, and was not very rare in northern castles. People compassed the death of their acquaintances by assassination and poison: the host was often expected to taste the food and drink which he offered to his guest. As a painter rightly fills his canvas with the noblest faces he can find, and keeps as much in the background as possible what is ignoble, so the popular historian may be justified in exciting the emulation of the young by historical pictures in which the lives of noble men and women stand out in bold relief, while a veil is drawn over much of the surrounding depravity. But when we want to take stock of the world's progress, we must reckon the evil of past times as it really was. To be more than just to our ancestors is to be less than just to the best hopes of our race.

[18.]We are perhaps apt to lay too much stress on the condemnation by the Church of "usury" and some kinds of trade. There was then very little scope for lending capital to be used in business, and when there was, the prohibition could be evaded by many devices, some of which were indeed sanctioned by the Church itself. Though St Chrysostom said that "he who procures an article to make profit by disposing of it entire and unaltered, is ejected from the temple of God"; yet the Church encouraged merchants to buy and sell goods unaltered at fairs and elsewhere. The authority of Church and State and the prejudices of the people combined to put difficulties in the way of those who bought up large quantities of goods in order to sell them retail at a profit. But though much of the business of these people was legitimate trade, some of it was certainly analogous to the "rings" and "corners" in modern produce markets. Compare the excellent chapter on the Canonist Doctrine in Ashley's History and the notice of it by Hewins in the Economic Review, Vol. IV.

[19.]Indirectly it aided progress by promoting the Crusades; of which Ingram well says (History, ch. II.) that they "produced a powerful economic effect by transferring in many cases the possessions of the feudal chiefs to the industrial classes, whilst by bringing different nations and races into contact, by enlarging the horizon and widening the conceptions of the populations, as well as by affording a special stimulus to navigation, they tended to give a new activity to international trade."

[20.]For the purposes of statistical comparison the well-to-do yeoman must be ranked with the middle classes of to-day, not with the artisans. For those who were better off than he were very few in number; while the great mass of the people were far below him; and were worse off in almost every respect than they are now.

[21.]Rogers says that in the thirteenth century the value of arable land was only a third of the capital required to work it; and he believes that so long as the owner of the land was in the habit of cultivating it himself, the eldest son often used various devices for alienating a part of his land to his younger brothers in exchange for some of their capital. Six Centuries of Work and Wages, pp. 51, 2.

[22.]This parallelism is further developed in Book VI.; see especially ch. IX. § 5.

[23.]The Reformation "was the affirmation ... of Individuality.... Individuality is not the sum of life, but it is an essential part of life in every region of our nature and our work, in our work for the part and for the whole. It is true, though it is not the whole truth, that we must live and die alone, alone with God." Westcott's Social Aspects of Christianity, p. 121. Comp. also Hegel's Philosophy of History, Part IV. section iii. ch. 2.

[24.]The licentiousness of some forms of art created in serious but narrow minds a prejudice against all art; and in revenge socialists now rail at the Reformation as having injured both the social and the artistic instincts of man. But it may be questioned whether the intensity of the feelings which were engendered by the Reformation has not enriched art more than their austerity has injured it. They have developed a literature and a music of their own; and if they have led man to think slightingly of the beauty of the works of his own hands, they have certainly increased his power of appreciating the beauties of nature. It is no accident that landscape painting owes most to lands in which the Reformed religion has prevailed.

[25.]Smiles has shown that the debt which England owes to these immigrants is greater than historians have supposed, though they have always rated it highly.

[26.]This term, which has the authority of Adam Smith and is habitually used on the Continent, seems to be the best to indicate those who take the risks and the management of business as their share in the work of organized industry.

[27.]In the latter half of the eighteenth century, especially, the improvements in agriculture moved very fast. Implements of all kinds were improved, draining was carried out on scientific principles, the breeding of farm animals was revolutionized by Bakewell's genius; turnips, clover, rye-grass, etc. came into general use, and enabled the plan of refreshing land by letting it lie fallow to be superseded by that of "alternating husbandry." These and other changes constantly increased the capital required for the cultivation of land; while the growth of fortunes made in trade increased the number of those who were able and willing to purchase their way into country society by buying large properties. And thus in every way the modern commercial spirit spread in agriculture.

[28.]The quarter of a century beginning with 1760 saw improvements follow one another in manufacture even more rapidly than in agriculture. During that period the transport of heavy goods was cheapened by Brindley's canals, the production of power by Watt's steam-engine, and that of iron by Cort's processes of puddling and rolling, and by Roebuck's method of smelting it by coal in lieu of the charcoal that had now become scarce; Hargreaves, Crompton, Arkwright, Cartwright and others invented, or at least made economically serviceable, the spinning-jenny, the mule, the carding machine, and the power-loom; Wedgwood gave a great impetus to the pottery trade that was already growing rapidly; and there were important inventions in printing from cylinders, in bleaching by chemical agents, and in other processes. A cotton factory was for the first time driven directly by steam power in 1785, the last year of the period. The beginning of the nineteenth century saw steam-ships and steam printing-presses, and the use of gas for lighting towns. Railway locomotion, telegraphy and photography came a little later. See for further details a brilliant chapter by Professor Clapham in the Cambridge Modern History, Vol. X.

[29.]See Held's Sociale Geschichte Englands, Bk. II. ch. III.

[30.]The tendency of industries to flee away from places where they were overregulated by the gilds was of old standing, and had shown itself in the thirteenth century, though it was then comparatively feeble. See Gross' Gild Merchant, Vol. I. pp. 43 and 52.

[31.]In times of peace no one ventures openly to rank money as of high importance in comparison with human lives; but in the crisis of an expensive war money can always be used so as to save them. A general who at a critical time sacrifices lives in order to protect material, the loss of which would cause the loss of many men, is held to have acted rightly, though no one would openly defend a sacrifice of soldiers' lives in order to save a few army stores in time of peace.

[32.]List worked out with much suggestiveness the notion that a backward nation must learn its lessons not from the contemporary conduct of more forward nations, but from their conduct when they were in the same state in which it is now. But, as Knies well shows (Politische Œkonomie, II. 5), the growth of trade and the improvement of the means of communication are making the developments of different nations tend to synchronize.