Essays on some unsettled Questions of Political Economy Part 3

If every man produced for himself, or with his capital employed others to produce, everything which he required, customers and their wants would be a matter of profound indifference to him. He would be rich, if he had produced and stored up a large supply of the articles which he was likely to require; and poor, if he had stored up none at all, or not enough to last until he could produce more.

The case, however, is different after the separation of employments. In civilized society, a single producer confines himself to the production of one commodity, or a small number of commodities; and his affluence depends, not solely upon the quant.i.ty of his commodity which he has produced and laid in store, but upon his success in finding purchasers for that commodity.

It is true, therefore, of every particular producer or dealer, that a great demand, a brisk circulation, a rapid consumption, of the commodities which he sells at his shop or produces in his manufactory, is important to him. The dealer whose shop is crowded with customers, who can dispose of a product almost the very moment it is completed, makes large profits, while his next neighbour, with an equal capital but fewer customers, gains comparatively little.

It was natural that, in this case, as in a hundred others, the a.n.a.logy of an individual should be unduly applied to a nation: as it has been concluded that a nation generally gains in wealth by the conquest of a province, because an individual frequently does so by the acquisition of an estate; and as, because an individual estimates his riches by the quant.i.ty of money which he can command, it was long deemed an excellent contrivance for enriching a country, to heap up artificially the greatest possible quant.i.ty of the precious metals within it.

Let us examine, then, more closely than has usually been done, the case from which the misleading a.n.a.logy is drawn. Let us ascertain to what extent the two cases actually resemble; what is the explanation of the false appearance, and the real nature of the phenomenon which, being seen indistinctly, has led to a false conclusion.

We shall propose for examination a very simple case, but the explanation of which will suffice to clear up all other cases which fall within the same principle. Suppose that a number of foreigners with large incomes arrive in a country, and there expend those incomes: will this operation be beneficial, as respects the national wealth, to the country which receives these immigrants? Yes, say many political economists, if they save any part of their incomes, and employ them reproductively; because then an addition is made to the national capital, and the produce is a clear increase of the national wealth. But if the foreigner expends all his income unproductively, it is no benefit to the country, say they, and for the following reason.

If the foreigner had his income remitted to him in bread and beef, coats and shoes, and all the other articles which he was desirous to consume, it would not be pretended that his eating, drinking, and wearing them, on our sh.o.r.es rather than on his own, could be of any advantage to us in point of wealth. Now, the case is not different if his income is remitted to him in some one commodity, as, for instance, in money. For whatever takes place afterwards, with a view to the supply of his wants, is a mere exchange of equivalents; and it is impossible that a person should ever be enriched by merely receiving an equal value in exchange for an equal value.

When it is said that the purchases of the foreign consumer give employment to capital which would otherwise yield no profit to its owner, the same political economists reject this proposition as involving the fallacy of what has been called a "general glut." They say, that the capital, which any person has chosen to produce and to acc.u.mulate, can always find employment, since the fact that he has acc.u.mulated it proves that he had an unsatisfied desire; and if he cannot find anything to produce for the wants of other consumers, he can for his own.

It is impossible to contest these propositions as thus stated. But there is one consideration which clearly shews, that there is something more in the matter than is here taken into the account; and this is, that the above reasoning tends distinctly to prove, that it does a tradesman no good to go into his shop and buy his goods. How can he be enriched? it might be asked. He merely receives a certain value in money, for an equivalent value in goods. Neither does this give employment to his capital; for there never exists more capital than can find employment, and if one person does not buy his goods another will; or if n.o.body does, there is over-production in that business, he can remove his capital, and find employment for it in another trade.

Every one sees the fallacy of this reasoning as applied to individual producers. Every one knows that as applied to them it has not even the semblance of plausibility; that the wealth of a producer does in a great measure depend upon the number of his customers, and that in general every additional purchaser does really add to his profits. If the reasoning, which would be so absurd if applied to individuals, be applicable to nations, the principle on which it rests must require much explanation and elucidation.

Let us endeavour to a.n.a.lyse with precision the real nature of the advantage which a producer derives from an addition to the number of his customers.

For this purpose, it is necessary that we should premise a single observation on the meaning of the word capital. It is usually defined, the food, clothing, and other articles set aside for the consumption of the labourer, together with the materials and instruments of production.

This definition appears to us peculiarly liable to misapprehension; and much vagueness and some narrow views have, we conceive, occasionally resulted from its being interpreted with too mechanical an adherence to the literal meaning of the words.

The capital, whether of an individual or of a nation, consists, we apprehend, of all matters possessing exchangeable value, which the individual or the nation has in his or in its possession for the purpose of reproduction, and not for the purpose of the owner's unproductive enjoyment. All unsold goods, therefore, const.i.tute a part of the national capital, and of the capital of the producer or dealer to whom they belong. It is true that tools, materials, and the articles on which the labourer is supported, are the only articles which are directly subservient to production: and if I have a capital consisting of money, or of goods in a warehouse, I can only employ them as means of production in so far as they are capable of being exchanged for the articles which conduce directly to that end. But the food, machinery, &c, which will ultimately be purchased with the goods in my warehouse, may at this moment not be in the country, may not be even in existence.

If, after having sold the goods, I hire labourers with the money, and set them to work, I am surely employing capital, though the corn, which in the form of bread those labourers may buy with the money, may be now in warehouse at Dantzic, or perhaps not yet above ground.

Whatever, therefore, is destined to be employed reproductively, either in its existing shape, or indirectly by a previous (or even subsequent) exchange, is capital. Suppose that I have laid out all the money I possess in wages and tools, and that the article I produce is just completed: in the interval which elapses before I can sell the article, realize the proceeds, and lay them out again in wages and tools, will it be said that I have no capital? Certainly not: I have the same capital as before, perhaps a greater, but it is locked up, as the expression is, and not disposable.

When we have thus seen accurately what really const.i.tutes capital, it becomes obvious, that of the capital of a country, there is at all times a very large proportion lying idle. The annual produce of a country is never any thing approaching in magnitude to what it might be if all the resources devoted to reproduction, if all the capital, in short, of the country, were in full employment.

If every commodity on an average remained unsold for a length of time equal to that required for its production, it is obvious that, at any one time, no more than half the productive capital of the country would be really performing the functions of capital. The two halves would relieve one another, like the semichori in a Greek tragedy; or rather the half which was in employment would be a fluctuating portion, composed of varying parts; but the result would be, that each producer would be able to produce every year only half as large a supply of commodities, as he could produce if he were sure of selling them the moment the production was completed.

This, or something like it, is however the habitual state, at every instant, of a very large proportion of all the capitalists in the world.

The number of producers, or dealers, who turn over their capital, as the expression is, in the shortest possible time, is very small. There are few who have so rapid a sale for their wares, that all the goods which their own capital, or the capital which they can borrow, enables them to supply, are carried off as fast as they can be supplied. The majority have not an _extent of business_, at all adequate to the amount of the capital they dispose of. It is true that, in the communities in which industry and commerce are practised with greatest success, the contrivances of banking enable the possessor of a larger capital than he can employ in his own business, to employ it productively and derive a revenue from it notwithstanding. Yet even then, there is, of necessity, a great quant.i.ty of capital which remains fixed in the shape of implements, machinery, buildings, &c, whether it is only half employed, or in complete employment: and every dealer keeps a stock in trade, to be ready for a possible sudden demand, though he probably may not be able to dispose of it for an indefinite period.

This perpetual non-employment of a large proportion of capital, is the price we pay for the division of labour. The purchase is worth what it costs; but the price is considerable.

Of the importance of the fact which has just been noticed there are three signal proofs. One is, the large sum often given for the goodwill of a particular business. Another is, the large rent which is paid for shops in certain situations, near a great thoroughfare for example, which have no advantage except that the occupier may expect a larger body of customers, and be enabled to turn over his capital more quickly.

Another is, that in many trades, there are some dealers who sell articles of an equal quality at a lower price than other dealers. Of course, this is not a voluntary sacrifice of profits: they expect by the consequent overflow of customers to turn over their capital more quickly, and to be gainers by keeping the whole of their capital in more constant employment, though on any given operation their gains are less.

The reasoning cited in the earlier part of this paper, to show the uselessness of a mere purchaser or customer, for enriching a nation or an individual, applies only to the case of dealers who have already as much business as their capital admits of, and as rapid a sale for their commodities as is possible. To such dealers an additional purchaser is really of no use; for, if they are sure of selling all their commodities the moment those commodities are on sale, it is of no consequence whether they sell them to one person or to another. But it is questionable whether there be any dealers in whose case this hypothesis is exactly verified; and to the great majority it is not applicable at all. An additional customer, to most dealers, is equivalent to an increase of their productive capital. He enables them to convert a portion of their capital which was lying idle (and which could never have become productive in their hands until a customer was found) into wages and instruments of production; and if we suppose that the commodity, unless bought by him, would not have found a purchaser for a year after, then all which a capital of that value can enable men to produce during a year, is clear gain--gain to the dealer, or producer, and to the labourers whom he will employ, and thus (if no one sustains any corresponding loss) gain to the nation. The aggregate produce of the country for the succeeding year is, therefore, increased; not by the mere exchange, but by calling into activity a portion of the national capital, which, had it not been for the exchange, would have remained for some time longer unemployed.

Thus there are actually at all times producers and dealers, of all, or nearly all cla.s.ses, whose capital is lying partially idle, because they have not found the means of fulfilling the condition which the division of labour renders indispensable to the full employment of capital,--viz., that of exchanging their products with each other. If these persons could find one another out, they could mutually relieve each other from this disadvantage. Any two shopkeepers, in insufficient employment, who agreed to deal at each other's shops so long as they could there purchase articles of as good a quality as elsewhere, and at as low a price, would render the nation a service. It may be said that they must previously have dealt, to the same amount, with some other dealers; but this is erroneous, since they could only have obtained the means of purchasing by being previously enabled to sell. By their compact, each would gain a customer, who would call his capital into fuller employment; each therefore would obtain an increased produce; and they would thus be enabled to become better customers to each other than they could be to third parties.

It is obvious that every dealer who has not business sufficient fully to employ his capital (which is the case with all dealers when they commence business, and with many to the end of their lives), is in this predicament simply for want of some one with whom to exchange his commodities; and as there are such persons to about the same degree probably in all trades, it is evident that if these persons sought one another out, they have their remedy in their own hands, and by each other's a.s.sistance might bring their capital into more full employment.

We are now qualified to define the exact nature of the benefit which a producer or dealer derives from the acquisition of a new customer. It is as follows:--

1. If any part of his own capital was locked up in the form of unsold goods, producing (for a longer period or a shorter) nothing at all; a portion of this is called into greater activity, and becomes more constantly productive. But to this we must add some further advantages.

2. If the additional demand exceeds what can be supplied by setting at liberty the capital which exists in the state of unsold goods; and if the dealer has additional resources, which were productively invested (in the public funds, for instance), but not in his own trade; he is enabled to obtain, on a portion of these, not mere interest, but profit, and so to gain that difference between the rate of profit and the rate of interest, which may be considered as "wages of superintendance."

3. If all the dealer's capital is employed in his own trade, and no part of it locked up as unsold goods, the new demand affords him additional encouragement to save, by enabling his savings to yield him not merely interest, but profit; and if he does not choose to save (or until he shall have saved), it enables him to carry on an additional business with borrowed capital, and so gain the difference between interest and profit, or, in other words, to receive wages of superintendance on a larger amount of capital.

This, it will be found, is a complete account of all the gains which a dealer in any commodity can derive from an accession to the number of those who deal with him: and it is evident to every one, that these advantages are real and important, and that they are the cause which induces a dealer of any kind to desire an increase of his business.

It follows from these premises, that the arrival of a new unproductive consumer (living on his own means) in any place, be that place a village, a town, or an entire country, is beneficial to that place, if it causes to any of the dealers of the place any of the advantages above enumerated, without withdrawing an equal advantage of the same kind from any other dealer of the same place.

This accordingly is the test by which we must try all such questions, and by which the propriety of the a.n.a.logical argument, from dealing with a tradesman to dealing with a nation, must be decided.

Let us take, for instance, as our example, Paris, which is much frequented by strangers from various parts of the world, who, as sojourners there, live unproductively upon their means. Let us consider whether the presence of these persons is beneficial, in an _industrial_ point of view, to Paris.

We exclude from the consideration that portion of the strangers' incomes which they pay to natives as direct remuneration for service, or labour of any description. This is obviously beneficial to the country. An increase in the funds expended in employing labour, whether that labour be productive or unproductive, tends equally to raise wages. The condition of the whole labouring cla.s.s is, so far, benefited. It is true that the labourers thus employed by sojourners are probably, in part or altogether, withdrawn from productive employment. But this is far from being an evil; for either the situation of the labouring cla.s.ses is improved, which is far more than an equivalent for a diminution in mere production, or the rise of wages acts as a stimulus to population, and then the number of productive labourers becomes as great as before.

To this we may add, that what the sojourners pay as wages of labour or service (whether constant or casual), though expended unproductively by the first possessor, may, when it pa.s.ses into the hands of the receivers, be by them saved, and invested in a productive employment. If so, a direct addition is made to the national capital.

All this is obvious, and is sufficiently allowed by political economists; who have invariably set apart the gains of all persons coming under the cla.s.s of domestic servants, as real advantages arising to a place from the residence there of an increased number of unproductive consumers.

We have only to examine whether the purchases of commodities by these unproductive consumers, confer the same kind of benefit upon the village, town, or nation, which is bestowed upon a particular tradesman by dealing at his shop.

Now it is obvious that the sojourners, on their arrival, confer the benefit in question upon some dealers, who did not enjoy it before. They purchase their food, and many other articles, from the dealers in the place. They, therefore, call the capital of some dealers, which was locked up in unsold goods, into more active employment. They encourage them to save, and enable them to receive wages of superintendance upon a larger amount of capital. These effects being undeniable, the question is, whether the presence of the sojourners deprives any others of the Paris dealers of a similar advantage.

It will be seen that it does; and nothing will then remain but a comparison of the amounts.

It is obvious to all who reflect (and was shown in the paper which precedes this) that the remittances to persons who expend their incomes in foreign countries are, after a slight pa.s.sage of the precious metals, defrayed in commodities: and that the result commonly is, an increase of exports and a diminution of imports, until the latter fall short of the former by the amount of the remittances.

The arrival, therefore, of the strangers (say from England), while it creates at Paris a market for commodities equivalent in value to their funds, displaces in the market other commodities to an equal value. To the extent of the increase of exports from England into France in the way of remittance, it introduces additional commodities which, by their cheapness, displace others formerly produced in that country. To the extent of the diminution of imports into England from France, commodities which existed or which were habitually produced in that country are deprived of a market, or can only find one at a price not sufficient to defray the cost.

It must, therefore, be a matter of mere accident, if by arriving in a place, the new unproductive consumer causes any net advantage to its industry, of the kind which we are now examining. Not to mention that this, like any other change in the channels of trade, may render useless a portion of fixed capital, and so far injure the national wealth.

A distinction, however, must here be made.

The place to which the new unproductive consumers have come, may be a town or village, as well as a country. If a town or village, it may either be or not be a place having an export trade.

If the place had no previous trade except with the immediate neighbourhood, there are no exports and imports, by the new arrangement of which, the remittance can be made. There is no capital, formerly employed in manufacturing for the foreign market, which is now brought into less full employment.

Yet the remittance evidently is still made in commodities, but in this case without displacing any which were produced before. To shew this, it is necessary to make the following remarks.

The reason why towns exist, is that _ceteris paribus_ it is convenient, in order to save cost of carriage, that the production of commodities should take place as far as practicable in the immediate vicinity of the consumer. Capital finds its way so easily from town to country and from country to town, that the amount of capital in the town will be regulated wholly by the amount which can be employed there more conveniently than elsewhere. Consequently the capital of a place will be such as is sufficient

1st. To produce all commodities which from local circ.u.mstances can be produced there at less cost than elsewhere: and if this be the case to any great extent, it will be an exporting town. When we say _produced_, we may add, or _stored_.

2nd. To produce and retail the commodities which are consumed by the inhabitants of the town, and the place of whose production is in other respects a matter of indifference. To the inhabitants of the town must be added such dwellers in the adjoining country, as are nearer to that place than to any other equally well furnished market.

Now, if new unproductive consumers resort to the place, it is clear that for the latter of these two purposes, more capital will be required than before. Consequently, if less is not required for the former purpose, more capital will establish itself at the place.