ads:
Essays
on
Some Unsettled Questions
of
Political Economy
By
John Stuart Mill
Second Edition
Batoche Books
Kitchener
2000
ads:
Second Edition
London, Longmans, Green, Reader, And Dyer, 1874
First Edition
London, John W. Parker, 1844
Contents
Preface to the First Edition ................................................................ 5
Essay I: Of The Laws of Interchange Between Nations; And The
Distribution of The Gains of Commerce Among The Countries of
The Commercial World ............................................................... 7
Essay II: Of the Influence of Consumption on Production............... 37
Essay III: On the Words Productive and Unproductive ................... 56
Essay IV: On Profits, And Interest................................................... 66
Essay V: On the Definition of Political Economy; and on the Method
of Investigation Proper to It....................................................... 86
Notes ...............................................................................................115
ads:
Preface to the First Edition
Of these Essays, which were written in 1829 and 1830, the fifth alone
has been previously printed. The other four have hitherto remained in
manuscript, because, during the temporary suspension of public inter-
est in the species of discussion to which they belong, there was no in-
ducement to their publication.
They are now published (with a few merely verbal alterations) un-
der the impression that the controversies excited by Colonel Torrens’
Budget have again called the attention of political economists to the
discussions of the abstract science: and from the additional consider-
ation, that the first paper relates expressly to the point upon which the
question at issue between Colonel Torrens and his antagonists has prin-
cipally turned.
From that paper it will be seen that opinions identical in principle
with those promulgated by Colonel Torrens (there would probably be
considerable difference as to the extent of their practical application)
have been held by the writer for more than fifteen years: although he
cannot claim to himself the original conception, but only the elabora-
tion, of the fundamental doctrine of the Essay.
A prejudice appears to exist in many quarters against the theory in
question, on the supposition of its being opposed to one of the most
valuable results of modern political philosophy, the doctrine of Freedom
of Trade between nation and nation. The opinions now laid before the
reader are presented as corollaries necessarily following from the prin-
ciples upon which Free Trade itself rests. The writer has also been care-
ful to point out, that from these opinions no justification can be derived
for any protecting duty, or other preference given to domestic over for-
eign industry. But in regard to those duties on foreign commodities which
6/John Stuart Mill
do not operate as protection, but are maintained solely for revenue, and
which do not touch either the necessaries of life or the materials and
instruments of production, it is his opinion that any relaxation of such
duties, beyond what may be required by the interest of the revenue it-
self, should in general be made contingent upon the adoption of some
corresponding degree of freedom of trade with this country, by the na-
tion from which the commodities are imported.
Essay I: Of The Laws of Interchange Between
Nations; And The Distribution of The Gains of
Commerce Among The Countries of The
Commercial World
Or the truths with which political economy has been enriched by Mr.
Ricardo, none has contributed more to give to that branch of knowledge
the comparatively precise and scientific character which it at present
bears, than the more accurate analysis which he performed of the nature
of the advantage which nations derive from a mutual interchange of
their productions. Previously to his time, the benefits of foreign trade
were deemed, even by the most philosophical enquirers, to consist in
affording a vent for surplus produce, or in enabling a portion of the
national capital to replace itself with a profit. The futility of the theory
implied in these and similar phrases, was an obvious consequence from
the speculations of writers even anterior to Mr. Ricardo. But it was he
who first, in the chapter on Foreign Trade, of his immortal Principles of
Political Economy and Taxation, substituted for the former vague and
unscientific, if not positively false, conceptions with regard to the ad-
vantage of trade, a philosophical exposition which explains, with strict
precision, the nature of that advantage, and affords an accurate measure
of its amount.
He shewed, that the advantage of an interchange of commodities
between nations consists simply and solely in this, that it enables each
to obtain, with a given amount of labour and capital, a greater quantity
of all commodities taken together. This it accomplishes by enabling each,
with a quantity of one corn modify which has cost it so much labour and
capital, to purchase a quantity of another commodity which, if pro-
8/John Stuart Mill
duced at home, would have required labour and capital to a greater
amount. To render the importation of an article more advantageous than
its production, it is not necessary that the foreign country should be able
to produce it with less labour and capital than ourselves. We may even
have a positive advantage in its production: but, if we are so far favoured
by circumstances as to have a still greater positive advantage in the
production of some other article which is in demand in the foreign coun-
try, we nay be able to obtain a greater return to our labour and capital
by employing none of it in producing the article in which our advantage
is least, but devoting it all to the production of that in which our advan-
tage is greatest, and giving this to the foreign country in exchange for
the other. It is not a difference in the absolute cost of production, which
determines the interchange, but a difference in the comparative cost. It
may be to our advantage to procure iron from Sweden in exchange for
cottons, even although the mines of England as well as her manufacto-
ries should be more productive than those of Sweden; for if we have an
advantage of one-half in cottons, and only an advantage of a quarter in
iron, and could sell our cottons to Sweden at the price which Sweden
must pay for them if she produced them herself, we should obtain our
iron with an advantage of one-half, as well as our cottons. We may
often, by trading with foreigners, obtain their commodities at a smaller
expense of labour and capital than they cost to the foreigners them-
selves. The bargain is still advantageous to the foreigner, because the
commodity which he receives in exchange, though it has cost us less,
would have cost him more. As often as a country possesses two com-
modities, one of which it can produce with less labour, comparatively to
what it would cost in it foreign country, than the other; so often it is the
interest of the country to export the first mentioned commodity and to
import the second; even though it might be able to produce both the one
and the other at a less expense of labour than the foreign country can
produce them, but not less in the same degree; or might be unable to
produce either except at a greater expense, but not greater in the same
degree.
On the contrary, if it produces both commodities with greater facil-
ity, or both with greater difficulty, and greater in exactly the same de-
gree, there will be no motive to interchange.
“If the cloth and the corn, each of which required 100 days’ labour
in Poland required each 150 days’ labour in England; it would follow,
that the cloth of 150 days’ labour in England, if sent to Poland, would
Unsettled Questions of Political Economy/9
be equal to the cloth of 100 days’ labour in Poland: if exchanged for
corn, therefore, it would exchange for the corn of only 100 days’ labour.
But the corn of 100 days’ labour in Poland, was supposed to be the
same quantity with that of 150 days’ labour in England. With 150 days’
labour in cloth, therefore, England would only get as much corn in Po-
land as she could raise with 150 days’ labour at home; and she would, in
importing it, have the cost of carriage besides In these circumstances no
exchange would take place.
“If, on the other hand, while the cloth produced with 100 days’
labour in Poland was produced with 150 days’ labour in England, the
corn which was produced in Poland with 100 days’ labour could not be
produced in England with less than 200 days’ labour; an adequate mo-
tive to exchange would immediately arise. With a quantity of cloth which
England produced with 150 days’ labour, she would be able to purchase
as much corn in Poland as was there produced with 100 days’ labour;
but the quantity, which was there produced with 100 days’ labour, would
be as great as the quantity produced in England with 200 days’ labour.
“The power of Poland would be reciprocal. With a quantity of corn
which cost her 100 days’ labour, equal to the quantity produced in En-
gland by 200 days’ labour, she could in the supposed case purchase in
England the produce of 200 days’ labour in cloth.” But “the produce of
150 days’ labour in England in the article of cloth would be equal to the
produce of 100 days’ labour in Poland.”
1
The remainder of what Mr. Ricardo has done for the philosophical
exposition of the principles of foreign trade, is to show, that the truth of
the propositions now recapitulated is not affected by the introduction of
money as a medium of exchange; the precious metals always tending to
distribute themselves in such a manner throughout the commercial world,
that every country shall import all that it would have imported, and
export all that it would have exported, if exchanges had taken place, as
in the example above supposed, by barter.
To this branch of the subject we shall, in the sequel of this essay,
return. At present it will be more convenient that we should continue to
suppose, that exchanges take place by the direct trucking of one com-
modity against another.
It is established, that the advantage which two countries derive from
trading with each other, results from the more advantageous employ-
ment which thence arises, of the labour and capital—for shortness let us
say the labour—of both jointly. The circumstances are such, that if each
10/John Stuart Mill
country confines itself to the production of one commodity, there is a
greater total return to the labour of both together; and this increase of
produce forms the whole of what the two countries taken together gain
by the trade.
It is the purpose of the present essay to inquire, in what proportion
the increase of produce, arising from the saving of labour, is divided
between the two countries.
This question was not entered into by Mr. Ricardo, whose attention
was engrossed by far more important questions, and who, having a sci-
ence to create, had not time, or room, to occupy himself with much more
than the leading principles. When he had done enough to enable any one
who came after him, and who took the necessary pains, to do all the rest,
he was satisfied. He very rarely followed out the principles of the sci-
ence into the ramifications of their consequences. But we believe that to
no one, who has thoroughly entered into the spirit of his discoveries,
will even the minutiae of the science offer any difficulty but that which
is constituted by the necessity of patience and circumspection in tracing
principles to their results.
Mr. Ricardo, while intending to go no further into the question of
the advantage of foreign trade than to show what it consisted of, and
under what circumstances it arose, unguardedly expressed himself as if
each of the two countries making the exchange separately gained the
whole of the difference between the comparative costs of the two com-
modities in one country and in the other. But, the whole gain of both
countries together, consisting in the saving of labour; and the saving of
labour being exactly equal to the difference between the costs, in the
two countries, of the one commodity as compared with the other; the
two countries taken together gain no more than this difference: and if
either country gains the whole of it, the other country derives no advan-
tage from the trade.
Suppose, for example, that 10 yards of broad cloth cost in England
as much labour as 15 yards of linen, and in Germany as much as 20. If
England sends 10 yards of broad cloth to Germany, and is able to ex-
change them for linen according to the German cost of production, she
will get 20 yards of linen, with a quantity of labour with which she
could not have produced more than 15; and will gain, therefore, 5 yards
on every 15, or 33a per cent. But in this case Germany would obtain
only 10 yards of cloth for 20 of linen. Now, 10 yards of cloth cost
exactly the same quantity of labour in Germany as 20 of linen; Ger-
Unsettled Questions of Political Economy/11
many, therefore, derives no advantage from the trade, more than she
would possess if it did not exist.
So, on the other hand, if Germany sends 15 yards of linen to En-
gland, and finding the relative value of the two articles in that country
determined by the English costs of production, is enabled to purchase
with 15 yards of linen 10 yards of cloth; Germany now gains 5 yards,
just as England did before,—for with 15 yards of linen she purchases
10 yards of cloth, when to produce these 10 yards she must have em-
ployed as much labour as would have enabled her to produce 20 yards
of linen. But in this case England would gain nothing: she would only
obtain, for her 10 yards of cloth, 15 yards of linen, which is exactly the
comparative cost at which she could have produced them.
This, which was not an error, but a mere oversight of Mr. Ricardo,
arising from his having left the question of the division of the advantage
entirely unnoticed, was first corrected in the third edition of Mr. Mill’s
Elements of Political Economy. It can hardly, however, be said that Mr.
Mill has prosecuted the inquiry any further; which, indeed, would have
been quite as inconsistent with the nature of his plan as of Mr. Ricardo’s.
1. When the trade is established between the two countries, the two
commodities will exchange for each other at the same rate of interchange
in both countries—bating the cost of carriage, of which, for the present,
it will be more convenient to omit the consideration. Supposing, there-
fore, for the sake of argument, that the carriage of the commodities from
one country to another could be effected without labour and without
cost, no sooner would the trade be opened than, it is self-evident, the
value of the two commodities, estimated in each other, would come to a
level in both countries.
If we knew what this level would be, we should know in what pro-
portion the two countries would share the advantage of the trade.
When each country produced both commodities for itself, 10 yards
of broad cloth exchanged for lo yards of linen in England, and for 20 in
Germany. They will now exchange for the same number of yards of
linen in both. For what number? If for 15 yards, England will be just as
she was, and Germany will gain all If for 20 yards, Germany will be as
before arid England will derive the whole of the benefit. If for any num-
ber intermediate between 15 and 20, the advantage will be shared be-
tween the two countries. If, for example, all of cloth exchange for 15 of
linen, England will gain an advantage of 3 yards on every 15, Germany
will save 2 out of every 20.
12/John Stuart Mill
The problem is, what are the causes which determine the proportion
in which the cloth of England and the linen of Germany will exchange
for each other?
This, therefore, is a question concerning exchangeable value. There
must be something which determines how much of one commodity an-
other commodity will purchase; and there is no reason to suppose that
the law of exchangeable value is more difficult of ascertainment in this
case than in other cases.
The law, however, cannot be precisely the same as in the common
cases. When two articles are produced in the immediate vicinity of one
another, so that, without expatriating himself, or moving to a distance, a
capitalist has the choice of producing one or the other, the quantities of
the two articles which will exchange for each other will be, on the aver-
age, these which are produced by equal quantities of labour. But this
cannot be applied to the case where the two articles are produced in two
different countries; because men do not usually leave their country, or
even send their capital abroad, for the sake of those small differences of
profit which are sufficient to determine their choice of a business, or of
an investment, in their own country and neighbourhood.
The principle, that value is proportional to cost of production, be-
ing consequently inapplicable, we must revert to a principle anterior to
that of cost of production, and from which this last flows as a conse-
quence,—namely, the principle of demand and supply.
In order to apply this principle, with any advantage, to the solution
of the question which now occupies us, the principle itself, and the idea
attached to the term demand, must be conceived with a precision, which
the loose manner in which the words are used generally prevents.
It is well known that the quantity of any commodity which can be
disposed of, varies with the price. The higher the price, the fewer will be
the purchasers, and the smaller the quantity sold. The lower the price,
the greater will in general be the number of purchasers, and the greater
the quantity disposed of. This is true of almost all commodities what-
ever: though of some commodities, to diminish the consumption in any
given degree would require a much greater rise of price than of others.
Whatever be the commodity—the supply in any market being given,
there is some price at which the whole of the supply exactly will find
purchasers, and no more. That, whatever it be, is the price at which, by
the effect of competition, the commodity will be sold. If the price be
higher, the whole of the supply will not be disposed of, and the sellers,
Unsettled Questions of Political Economy/13
by their competition, will bring down the price. If the price be lower,
there will be found purchasers for a larger supply, and the competition
of these purchasers will raise the price.
This, then, is what we mean, when we say that price, or exchange-
able value, depends on demand and supply. We should express the prin-
ciple more accurately, if we were to say, the price so regulates itself that
the demand shall be exactly sufficient to carry off the supply.
Let us now apply the principle of demand and supply, thus under-
stood, to the interchange of broadcloth and linen between England and
Germany.
As exchangeable value in this case, as in every other, is proverbi-
ally fluctuating, it does not matter what we suppose it to be when eve
begin; we shall soon see whether there be any fixed point about which it
oscillates—which it has a tendency always to approach to, and to re-
main at.
Let us suppose, then, that by the erect of what Adam Smith calls the
higgling of the market, 10 yards of cloth, in both countries, exchange
for 17 yards of linen.
The demand for a commodity, that is, the quantity of it which can
find a purchaser, varies, as we have before remarked, according to the
price. In Germany, the price of 10 yards of cloth is now 17 yards of
linen; or whatever quantity of money is equivalent in Germany to 17
yards of linen. Now, that being the price, there is some particular num-
ber of yards of cloth, which will be in demand, or will find purchasers,
at that price. There is some given quantity of cloth, more than which
could not be disposed of at that price,—less than which, at that price,
would not fully satisfy the demand. Let us suppose this quantity to be,
1000 times 10 yards.
Let us now turn our attention to England. There, the price of 17
yards of linen is 10 yards of cloth, or whatever quantity of money is
equivalent in England to 10 yards of cloth. There is some particular
number of yards of linen, which, at that price, will exactly satisfy the
demand, and no more. Let us suppose that this number is 1000 times 17
yards.
As 17 yards of linen are to 10 yards of cloth, so are 1000 times 17
yards to 1000 times 10 yards. At the existing exchangeable value, the
linen which England requires, will exactly pay for the quantity of cloth
which, on the same terms of interchange, Germany requires. The de-
mand on each side is precisely sufficient to carry off the supply on the
14/John Stuart Mill
other. The conditions required by the principle of demand and supply
are fulfilled, and the two commodities will continue to be interchanged,
as we supposed them to be, in the ratio of 17 yards of linen for 10 yards
of cloth.
But our supposition might have been different. Suppose that, at the
assumed rate of interchange, England had been disposed to consume no
greater quantity of linen than 800 times 17 yards; it is evident that, at
the rate supposed, this would not have sufficed to pay for the 1000
times 10 yards of cloth, which we have supposed Germany to require at
the assumed value. Germany would be able to procure no more than
800 times 10 yards, at that price. To procure the remaining 200, which
she would have no means of doing but by bidding higher for them, she
would offer more than 17 yards of linen in exchange for 10 yards of
cloth; let us suppose her to offer 18. At that price, perhaps, England
would be inclined to purchase a greater quantity of linen. She could
consume, possibly, at that price, 900 times 18 yards. On the other hand,
cloth having risen in price, the demand of Germany for it would, pro-
bably, have diminished. If, instead of 1000 times 10 yards, she is now
contented with 900 times ten yards, these will exactly pay for the 900
times 18 yards of linen which England is willing to take at the altered
price the demand on each side will again exactly suffice to take off the
corresponding supply; and 10 yards for 18 will be the rate at which, in
both countries, cloth will exchange for linen.
The converse of all this would have happened if instead of 800
times 17 yards, we had supposed that England, at the rate of 10 for 17,
would have taken 1200 times 17 yards of linen. In this case, it is En-
gland whose demand is not fully supplied; it is England who, by bidding
for more linen, will alter the rate of interchange to her own disadvan-
tage; and 10 yards of cloth will fall, in both countries, below the value
of 17 yards of linen. By this fall of cloth, or what is the same thing, this
rise of linen, the demand of Germany for cloth will increase, and the
demand of England for linen will diminish, till the rate of interchange
has so adjusted itself that the cloth and the linen will exactly pay for one
another; and when once this point is attained, values will remain as they
are.
It may be considered, therefore, as established, that when two coun-
tries trade together in two commodities, the exchangeable value of these
commodities relatively to each other will adjust itself to the inclinations
and circumstances of the consumers on both sides, in such manner that
Unsettled Questions of Political Economy/15
the quantities required by each country, of the article which it imports
from its neighbour, shall be exactly sufficient to pay for one another. As
the inclinations and circumstances of consumers cannot be reduced to
any rule, so neither can the proportions in which the two commodities
will be interchanged. We know that the limits within which the variation
is confined are the ratio between their costs of production in the one
country, and the ratio between their costs of production in the other. Ten
yards of cloth cannot exchange for more than 10 yards of linen, nor for
less than 15. But they may exchange for any intermediate number. The
ratios, therefore, in which the advantage of the trade may be divided
between the two nations, are various. The circumstances on which the
proportionate share of each country more remotely depends, admit only
of a very general indication.
It is even possible to conceive an extreme case, in which the whole
of the advantage resulting from the interchange would be reaped by one
party, the other country gaining nothing at all. There is no absurdity in
the hypothesis, that of some given commodity a certain quantity is all
that is wanted at any price, and that when that quantity is obtained, no
fall in the exchangeable value would induce other consumers to come
forward, or those who are already supplied to take more. Let us suppose
that this is the case in Germany with cloth. Before her trade with En-
gland commenced, when 10 yards of cloth cost her as much labour as
20 yards of linen, she nevertheless consumed as much cloth as she wanted
under any circumstances, and if she could obtain it at the rate of 10
yards of cloth for 15 of linen, she would not consume more. Let this
fixed quantity be 1000 times 10 yards. At the rate, however, of 10 for
20, England would want more linen than would be equivalent to this
quantity of cloth. She would consequently offer a higher value for linen;
or, what is the same thing, she would offer her cloth at a cheaper rate.
But as by no lowering of the value could she prevail on Germany to take
a greater quantity of cloth, there would be no limit to the rise of linen, or
fall of cloth, until the demand of England for linen was reduced by the
rise of its value, to the quantity which one thousand times ten yards of
cloth would purchase. It might be, that to produce this diminution of the
demand, a less fall would not suffice, than one which would make 10
yards of cloth exchange for 15 of linen. Germany would then gain the
whole of the advantage, and England would be exactly as she was be-
fore the trade commenced. It would be for the interest, however, of Ger-
many herself, to keep linen a little below the value at which it could be
16/John Stuart Mill
produced in England, in order to keep herself from being supplanted by
the home producer. England, therefore, would always benefit in some
degree lay the existence of the trade, though it might be in a very trifling
one.
But in general there will not be this extreme inequality in the degree
in which the demand in the two countries varies with variations in the
price. The advantage will probably be divided equally, oftener than in
any one unequal ratio that can be named; though the division will be
much oftener, on the whole, unequal than equal.
2. We shall now examine whether the same law of interchange, which
we have shown to apply upon the supposition of barter, holds good after
the introduction of money. Mr. Ricardo found that his more general
proposition stood this test; and as the proposition which we have just
demonstrated is only a further development of his principle, we shall
probably find that it suffers as little, by a mere change in the mode (for
it is no more) in which one commodity is exchanged against another.
We may at first make whatever supposition we will with respect to
the value of money. Let us suppose, therefore, that before the opening of
the trade, the price of cloth is the same in both countries, namely, six
shillings per yard.
2
As 10 yards of cloth were supposed to exchange in
England for 15 yards of linen, in Germany for 20, we must suppose that
linen is sold in England at four shillings per yard, in Germany at three.
Cost of carriage and importer’s profit are left as before, out of consider-
ation.
In this state of prices, cloth, it is evident, cannot yet be exported
from England into Germany. But linen can be imported from Germany
into England. It will be so, and, in the first instance, the linen will be
paid for in money.
The efflux of money from England, and its influx into Germany,
will raise money prices in the latter country, and lower them in the former.
Linen will rise in Germany above three shillings per yard, and cloth
above six shillings. Linen in England being imported from Germany,
will (since cost of carriage is not reckoned) sink to the same price as in
that country, while cloth will fall below six shillings. As soon as the
price of cloth is lower in England than in Germany, it will begin to be
exported, and the price of cloth in Germany will fall to what it is in
England. As long as the cloth exported does not suffice to pay for the
linen imported, money will continue to flow from England into Ger-
many, and prices generally will continue to fall in England, and rise in
Unsettled Questions of Political Economy/17
Germany. By the fall, however, of cloth in England, cloth will fall in
Germany also, and the demand for it will increase. By the rise of linen in
Germany, linen must rise in England also, and the demand for it will
diminish. Although the increased exportation of cloth takes place at a
lower price, and the diminished importation of linen at a higher, yet the
total money value of the exportation would probably increase, that of
the importation diminish. As cloth fell in price and linen rose, there
would be some particular price of both articles at which the cloth ex-
ported, and the linen imported, would exactly pay for each other. At this
point prices would remain, because money would then cease to move
out of England into Germany. What this point might be, would entirely
depend upon the circumstances and inclinations of the purchasers on
both sides. If the fall of cloth did not much increase the demand for it in
Germany, and the rise of linen did not diminish very rapidly the demand
for it in England, much money must pass before the equilibrium is re-
stored; cloth would fall very much, and linen would rise, until England,
perhaps, had to pay nearly as much for it as when she produced it for
herself. But if, on the contrary, the fall of cloth caused a very rapid
increase of the demand for it in Germany, and the rise of linen in Ger-
many reduced very rapidly the demand in England from what it was
under the influence of the first cheapness produced by the opening of the
trade; the cloth would very soon suffice to pay for the linen, little money
would pass between the two countries, and England would derive a large
portion of the benefit of the trade. We have thus arrived at precisely the
same conclusion, in supposing the employment of money, which we
found to hold under the supposition of barter.
In what shape the benefit accrues to the two nations from the trade,
is clear enough. Germany, before the commencement of the trade, paid
six shillings per yard for broadcloth. She now obtains it at a lower price.
This, however, is not the whole of her advantage. As the money prices
of all her other commodities have risen, the money incomes of all her
producers have increased. This is no advantage to them in buying from
each other; because the price of what they buy has risen in the same
ratio with their means of paying for it: but it is an advantage to them in
buying anything which has not risen; and still more, anything which has
fallen. They therefore benefit as consumers of cloth, not merely to the
extent to which cloth has fallen, but also to the extent to which other
prices have risen. Suppose that this is one-tenth. The same proportion
of their money incomes as before, will suffice to supply their other wants,
18/John Stuart Mill
and the remainder, being increased one-tenth in amount, will enable them
to purchase one-tenth more cloth than before, even though cloth had not
fallen. But it has fallen: so that they are doubly gainers. If they do not
choose to increase their consumption of cloth, this does not prevent then
from being gainers. They purchase the same quantity with less money,
and have more to expend upon their other wants.
In England, on the contrary, general money-prices have fallen. Linen,
however, has fallen more than the rest; having been lowered in price, by
importation from a country where it was cheaper, whereas the others
have fallen only from the consequent efflux of money. Notwithstanding,
therefore, the general fall of money prices, the English producers will be
exactly as they were in all other respects, while they will gain as pur-
chasers of linen.
The greater the efflux of money required to restore the equilibrium,
the greater will be the gain of Germany; both by the fall of cloth, and by
the rise of her general prices. The less the efflux of money requisite, the
greater will be the gain of England; because the price of linen will con-
tinue lower, and her general prices will not be reduced so much. It must
not, however, be imagined that high money-prices are a good, and low
money-prices an evil, in themselves. But the higher the general money-
prices in any country, the greater will be that country’s means of pur-
chasing those commodities which, being imported from abroad, are in-
dependent of the causes which keep prices high at home.
3. We have hitherto supposed the carriage to be performed without
labour or expense. If we abandon this supposition, we must correct the
statement of the case in a slight degree. The prices of the two articles
will no longer, when the trade is opened, be the same in both countries,
nor will the articles exchange for one another at the same rate in both.
Ten yards of cloth will purchase in Germany a quantity of linen greater
than in England by a percentage equal to the entire cost of conveyance
both of the cloth to Germany and of the linen to England. The money-
price of linen will be higher in England than in Germany, by the cost of
carriage of the linen. The money-price of cloth will be higher in Ger-
many than in England, by the cost of carriage of the cloth.
The expense of the carriage is evidently a deduction pro tanto from
the saving of labour produced by the establishment of the trade. The
two countries together, therefore, have their gains by the trade dimin-
ished, by the amount of the cost of carriage of both commodities. But
here the question arises, which of the two countries bears this deduc-
Unsettled Questions of Political Economy/19
tion, or in what proportion it is divided between them.
At the first inspection it would appear that each country bears its
own cost of carriage, that is, that each country pays the carriage of the
commodity which it imports. Upon this supposition, each country would
gain whatever share of the joint saving of labour would otherwise fall to
its lot, minus the cost of bringing from the other country the commodity
which it imports. This solution is rendered plausible by the circum-
stance just now mentioned, that the price of the commodity will be higher
in the country which imports it, than in the country which exports it, by
the amount of the cost of carriage. If linen is sold in England at a higher
price than in Germany, by a percentage equal to the cost of carriage of
the linen, it appears obvious that England pays for the carriage of the
linen, and Germany, by parity of reason, for that of the cloth.
But if we apply to these questions the principles already explained,
we shall see that this is not by any means a universal law: the fact may
correspond with it, or it may not.
For suppose that the prices have adjusted themselves, no matter
how, and that the imports and exports balance one another, each com-
modity, of course, being dearer by the cost of carriage, in the country
which imports than in that which exports it: and suppose now that the
cost of carriage, both of the one and of the other, were suddenly and
miraculously annihilated, and that the commodities could pass from
country to country without expense. If each country bore its own cost of
carriage before, each country will save its own cost of carriage now.
Cloth, in Germany, will in that case fall exactly to what it is in England;
linen in England, to what it is in Germany.
Now this fall of price, supposing it to happen, will probably affect
the demand on both sides; and it will either affect it alike in both coun-
tries, or it will affect it unequally. It will affect it alike, if the fall of price
does not affect the demand at all, or if it affects it equally in both coun-
tries. If either of these results should take place, the cloth and the linen
would continue to balance each other as before: no money would pass
from one country to the other; prices in both would continue at the point
to which they had fallen, and each country would exactly save the cost
of carriage on the commodity which it imports from the other.
But the result might be, that the fall of price might not have an
effect exactly equal, on the demand in the two countries. Suppose, for
instance, that the fall of cloth in Germany owing to the saving of the
cost of carriage, did not increase the demand for cloth in Germany; but
20/John Stuart Mill
that the fall of linen in England from a like cause, did increase the de-
mand for linen in England. The linen imported would be more than
could be paid for by the cloth exported: the difference must be paid in
money: the change in the distribution of the precious metals between the
two countries would lower the price of cloth in England, (and conse-
quently in Germany), while it would raise the price of linen in Germany,
(and consequently in England). Germany, therefore, by the annihilation
of cost of carriage, would save in price more than the cost of carriage of
the cloth; England would save less in price than the cost of carriage of
the linen. But if by the miraculous annihilation of cost of carriage, En-
gland would not save the whole of the carriage of her imports, it follows
that England did not previously pay the whole of that cost of carriage.
Thus, the division of the cost of trade, and the division of the advan-
tage of trade, are governed by precisely the same principles; and the
only general proposition which can be affirmed respecting the cost is,
that it is pro tanto a deduction from the advantage. It cannot even be
maintained that the cost is shared in the same proportion as the advan-
tage is; because the increase of the demand for a commodity as its price
falls, is not governed by any fixed law. Suppose, for instance, that the
advantage happened to be divided equally: this must be because the
greater cheapness arising from the establishment of the trade, either did
not affect the demand at all, or affected it in an equal proportion on both
sides. Now, because such is the eject of the degree of increased cheap-
ness resulting from importation burthened with cost of carriage, it would
not follow that the still greater degree of cheapness, produced by the
additional saving of the cost of carriage itself would also affect the de-
mand of both countries in precisely an equal degree. But we cannot be
said to bear an expense, which, if saved, would be saved to somebody
else, and not to us. Two countries may have equal shares of the clear
benefit of the trade, while, if the cost of carriage were saved, they would
divide that saving unequally. If so, they divide the gross gain in one
unequal ratio, the cost in another unequal ratio, though their shares of
the cost being deducted from their shares of the gain leave equal remain-
ders.
4. The question naturally suggests itself, whether any country, by
its own legislative policy, can engross to itself a larger share of the
benefits of foreign commerce, than would fall to it in the natural or
spontaneous course of trade.
The answer is, it can. By taxing exports, for instance, we may,
Unsettled Questions of Political Economy/21
under certain circumstances, produce a division of the advantage of the
trade more favourable to ourselves. In some cases, we may draw into
our corners, at the expense of foreigners, not only the whole tax, but
more than the tax: in other cases, we should gain exactly the tax,—in
others, less than the tax. In this last case, a part of the tax is borne by
ourselves: possibly the whole, possibly even, as we shall show, more
than the whole.
Suppose that England taxes her export of cloth: the tax not being
supposed high enough to induce Germany to produce cloth for herself.
The price at which cloth can be sold in Germany is augmented by the
tax. This will probably diminish the quantity consumed. It may dimin-
ish it so much, that even at the increased price, there will not be required
so great; a money value as before. It may diminish it in such a ratio, that
the money value of the quantity consumed will be exactly the same as
before. Or it may not diminish it at all, or so little, that, in consequence
of the higher price, a greater money value will be purchased than be-
fore. In this last case, England will gain, at the expense of Germany, not
only the whole amount of the duty, but more. For the money value of her
exports to Germany being increased, while her imports remain the same,
money will flow into England from Germany. The price of cloth will
rise in England, and consequently in Germany; but the price of linen
will fall in Germany, and consequently in England. We shall export less
cloth, and import more linen, till the equilibrium is restored. It thus
appears, what is at first sight somewhat remarkable, that, by taxing her
exports, England would, under some conceivable circumstances, not
only gain from her foreign customers the whole amount of the tax, but
would also get her imports cheaper. She would get them cheaper in two
ways,—for she would obtain them for less money, and would have more
money to purchase them with. Germany, on the other hand, would suf-
fer doubly: she would have to pay for her cloth a price increased not
only by the duty, but by the influx of money into England, while the
same change in the distribution of the circulating medium would leave
her less money to purchase it with.
This, however, is only one of three possible cases. If, after the im-
position of the duty, Germany requires so diminished a quantity of cloth,
that its total money value is exactly the same as before, the balance of
trade will be undisturbed: England will gain the duty, Germany will lose
it, and nothing more. If, again, the imposition of the duty occasions such
a falling off in the demand, that Germany requires a less pecuniary
22/John Stuart Mill
value than before, our exports will no longer pay for our imports, money
must pass from England into Germany, and Germany’s share of the
advantage of the trade will be increased. By the change in the distribu-
tion of money, cloth will fall in England; and therefore it will, of course,
fall in Germany. Thus Germany will not pay the whole of the tax. From
the same cause, linen will rise in Germany, and consequently in En-
gland. When this alteration of prices has so adjusted the demand, that
the cloth and the linen again pay for one another, the result is, that
Germany has paid only a part of the tax, and the remainder of what has
been received into our treasury has come indirectly out of the pockets of
our own consumers of linen, who pay a higher price for that imported
commodity, in consequence of the tax on our exports, while at the same
time they, in consequence of the efflux of money and consequent fall of
prices, have smaller money incomes wherewith to pay for the linen at
that advanced price.
It is not an impossible supposition that, by taxing our exports, we
might not only gain nothing from the foreigner, the tax being paid out of
our own pockets, but might even compel our own people to pay a sec-
ond tax to the foreigner. Suppose, as before, that the demand of Ger-
many for cloth falls off so much on the imposition of the duty, that she
requires a smaller money value than before, but that the case is so dif-
ferent with linen in England, that when the price rises the demand either
does not fall off at all, or so little that the money value required is greater
than before. The first effect of laying on the duty is, as before, that the
cloth exported will no longer pay for the linen imported. Money will,
therefore, flow out of England into Germany. One effect is to raise the
price of linen and, consequently, in England. But this, by the supposi-
tion, instead of stopping the efflux of money, only makes it greater,
because the higher the price, the greater the money value of the linen
consumed. The balance, therefore, can only be restored by the other
effect, which is going on at the same time, namely, the fall of cloth in the
English, and, consequently, in the German market. Even when cloth has
fallen so low that its price with the duty is only equal to what its price
without the duty was at first, it is not a necessary consequence that the
fall will stop; for the same amount of exportation as before will not now
suffice to pay the increased money value of the imports; and although
the German consumers have now not only cloth at the old price, but
likewise increased money incomes, it is not certain that they will be
inclined to employ the increase of their incomes in increasing their pur-
Unsettled Questions of Political Economy/23
chases of cloth. The price of cloth, therefore, must perhaps fall, to re-
store the equilibrium, more than the whole amount of the duty; Ger-
many may be enabled to import cloth at a lower price when it is taxed,
than when it was untaxed: and this gain she will acquire at the expense
of the English consumers of linen, who, in addition, will be the real
payers of the whole of what is received at their own custom-house under
the name of duties on the export of cloth.
Such are the extremely various effects which may result to our-
selves, and to our customers, from the imposition of taxes on our ex-
ports
3
and the determining circumstances are of a nature so imperfectly
ascertainable, that it must be almost impossible to decide with any cer-
tainty, even after the tax has been imposed, whether we have been gain-
ers by it or losers. It is certain, however, that whatever we gain, is lost
by somebody else, and there is the expense of the collection besides: if
international morality, therefore, severe rightly understood and acted
upon, such taxes, as being contrary to the universal weal, would not
exist. Moreover, the imposition of such a tax frequently will, and al-
ways may, expose a country to lose this branch of its trade altogether, or
to carry it on with diminished advantage, in consequence of the compe-
tition of untaxed exporters from other countries, or of the domestic pro-
ducers in the country to which it exports. Even on the most selfish prin-
ciples, therefore, the benefit of such a tax is always extremely precari-
ous.
5. We have had an example of a tax on exports, that is, on foreign-
ers, falling in part on ourselves. We shall, therefore, not be surprised if
we find a tax on imports, that is, on ourselves, partly falling upon for-
eigners.
Instead of taxing the cloth which we export, suppose that we tax the
linen which we import. The duty which we are now supposing must not
be what is termed a protecting duty, that is, a duty sufficiently high to
induce us to produce the article at home. If it had this effect, it would
destroy entirely the trade both in cloth and in linen, and both countries
would lose the whole of the advantage which they previously gained by
exchanging those commodities with one another. We suppose a duty
which might diminish the consumption of the article, but which would
not prevent us from continuing to import, as before, whatever linen we
did consume.
The equilibrium of trade would be disturbed if the imposition of the
tax diminished in the slightest degree the quantity of linen consumed.
24/John Stuart Mill
For, as the tax is levied at our own custom-house, the German exporter
only receives the same price as formerly, though the English consumer
pays a higher one. If, therefore, there be any diminution of the quantity
bought, although a larger sum of money may be actually laid out in the
article, a smaller one will be due from England to Germany: this sum
will no longer be an equivalent for the sum due from Germany to En-
gland for cloth, the balance therefore must be paid in money. Prices will
fall in Germany, and rise in England; linen will fall in the German mar-
ket; cloth will rise in the English. The Germans will pay a higher price
for cloth, and will have smaller money incomes to buy it with; while the
English will obtain linen cheaper, that is, its price will exceed what it
previously was by less than the amount of the duty, while their means of
purchasing it will be increased by the increase of their money incomes.
If the imposition of the tax does not diminish the demand, it will
leave the trade exactly as it was before. We shall import as much, and
export as much; the whole of the tax will be paid out of our own pock-
ets.
But the imposition of a tax on a commodity, almost always dimin-
ishes the demand more or less; and it can never, or scarcely ever in-
crease the demand. It may, therefore, be laid down as a principle, that a
tax on imported commodities, when it really operates as a tax, and not
as a prohibition, either total or partial, almost always falls in part upon
the foreigners who consume our goods: and that this is a mode in which
a nation may be almost sure of appropriating to itself, at the expense of
foreigners, a larger share than would otherwise belong to it of the in-
crease in the general productiveness of the labour and capital of the
world, which results from the interchange of commodities among na-
tions.
It is scarcely necessary to observe, that no such advantage can re-
sult from the duty, if it operate as a protecting duty; if it induce the
country which imposes it, to produce for herself that which she would
otherwise have imported. The saving of labour—the increase in the gen-
eral productiveness of the capital of the world—which is the effect of
commerce, and which a non-protecting duty would enable the country
imposing it to engross, could not be engrossed by a protecting duty,
because such a duty prevents any such increased production from exist-
ing.
With a view to practical legislation, therefore, duties on importation
may be divided into two classes: those which have the effect of encour-
Unsettled Questions of Political Economy/25
aging some particular branch of domestic industry, and those which
have not.
The former are purely mischievous, both to the country imposing
them, and to those with whom it trades. They prevent a saving of labour
and capital, which, if permitted to be made, would be divided in some
proportion or other between the importing country and the countries
which buy what that country does or might export.
The other class of duties are those which do not encourage one
mode of procuring an article at the expense of another, but allow inter-
change to take place just as if the duty did not exist—and to produce the
saving of labour which constitutes the motive to international as to all
other commerce. Of this kind, are duties on the importation of any com-
modity which could not by any possibility be produced at home; and
duties not sufficiently high to counterbalance the difference of expense
between the production of the article at home, and its importation. Of
the money which is brought into the treasury of any country by taxes of
this last description, a part only is paid by the people of that country; the
remainder by the foreign consumers of their goods.
Nevertheless, this latter kind of taxes are in principle as ineligible
as the former, although not precisely on the same ground. A protecting
duty can never be a cause of gain, but always and necessarily of loss, to
the country imposing it, just so far as it is efficacious to its end. A non-
protecting duty on the contrary would, in most cases, be a source of
gain to the country imposing it, in so far as throwing part of the weight
of its taxes upon other people is a gain; but it would be a means of gain
which it could seldom be advisable to adopt, being so easily counter-
acted by a precisely similar proceeding on the other side.
If England, in the case already supposed, sought to obtain for her-
self more than her natural share of the advantage of the trade with (Ger-
many, by imposing a duty upon cloth, Germany would only have to
impose a duty upon linen, sufficient to diminish the demand for that
article about as much as the demand for cloth had been diminished in
England by the tax. Things would then be as before, and each country
would pay its own tax. Unless, indeed, the sum of the two duties ex-
ceeded the entire advantage of the trade; for in that case the trade, and
its advantage, would cease entirely.
There would be no advantage, therefore, in imposing duties of this
kind, with a view to gain by them, in the manner which has been pointed
out. But so long as any other kind of taxes on commodities are retained,
26/John Stuart Mill
as a source of revenue, these may often be as unobjectionable as the
rest. It is evident, moreover, that considerations of reciprocity, which
are quite unessential when the matter in debate is a protecting duty, are
of material importance when the repeal of duties of this other descrip-
tion is discussed. A country cannot be expected to renounce the power
of taxing foreigners, unless foreigners will in return practice towards
itself the same forbearance. The only mode in which a country can save
itself from being a loser by the duties imposed by other countries on its
commodities, is to impose corresponding duties on theirs. Only it must
take care that these duties be not so high as to exceed all that remains of
the advantage of the trade, and put an end to importation altogether;
causing the article to be either produced at home, or imported from
another and a dearer market.
It is not necessary to apply the principles which we have stated to
the case of bounties on exportation or importation The application is
easy, and the conclusions present nothing of particular interest or im-
portance.
6. Any cause which alters the exports or imports from one country
into another, alters the division of the advantage of interchange between
those two countries. Suppose the discovery of a new process, by which
some article of export, or some article not previously exported, can be
produced so cheap as to occasion a great demand for it in other coun-
tries. This of course produces a great influx of money from other coun-
tries, and lowers the prices of all articles imported from them, until the
increase of importation produced by this cause teas restored the equilib-
rium. Thus, the country which acquires a new article of export gets its
imports cheaper. This is not a case of mere alteration in the division of
the advantage; it is a new advantage created by the discovery.
But suppose that the invention, to which the nation is indebted for
this increase of the return to its industry, comes into use also in the other
country, and that the process is one which can be as perfectly and as
cheaply performed in the one country as in the other. The new exporta-
tion will cease; trade will revert to its old channels, the money which
flowed in will again flow out, and the country which invented the pro-
cess will lose that increase of its gain by trade, which it had derived
from the discovery.
Now the exportation of machinery comes within the case which we
have just described.
If the fact be, that by allowing to foreigners a participation in our
Unsettled Questions of Political Economy/27
machinery, we enable them to produce any of our leading articles of
export, at a lower money price than we can sell those articles, it is cer-
tain that unless we possess as great an advantage in the production of
the machinery itself as we have in the production of other articles by
means of machinery, the permitting of its exportation would alter to our
disadvantage the division of the benefit of trade. Our exports being di-
minished, we should have to pay a balance in money. This would raise,
in foreign countries, the price of everything which we import from thence:
while our incomes, being reduced in money value, would render us less
able to buy those articles even if they had not risen. The equilibrium of
exports and imports would only be restored, when either some of the
latter became so dear that we could produce them cheaper at home, or
some articles not previously exported became exportable from the fall
of prices. In the one case, we lose the benefit of importation altogether,
and are obliged to produce at home, at a greater cost. In the other case,
we continue to import, but pay dearer for our imports.
Notwithstanding what has now been observed, restrictions on the
exportation of machinery are not, in our opinion, justifiable, either on
the score of international morality or of sound policy. It is evidently the
common interest of all nations that each of them should abstain from
every measure by which the aggregate wealth of the commercial world
would be diminished, although of this smaller sum total it might thereby
be enabled to attract itself a larger share. And the time will certainly
come when nations in general will feel the importance of this rule, and
will so direct their approbation and disapprobation as to enforce obser-
vance of it. Moreover, a country possessing machines would consider
that if a similar advantage were extended to other countries, they would
employ it above all in the production of those articles, in which they had
already the greatest natural advantages; and if the former country would
be a loser by their improvements in the production of articles which it
sells, it would gain by their improvements in those which it buys. The
exportation of machinery may, however, be a proper subject for adjust-
ment with other nations, on the principle of reciprocity. Until, by the
common consent of nations, all restrictions upon trade are done away, a
nation cannot be required to abolish those from which she derives a real
advantage, without stipulating for an equivalent.
7. The case which we have just examined, is an example in how
remarkable a manner every cause which materially influences exports,
operates upon the prices of imports. According to the ancient theory of
28/John Stuart Mill
the balance of trade, and to the associations of the generality of what are
termed practical men to this day, the sole benefit derived from com-
merce consists in the exports, and imports are rather an evil than other-
wise. Political economists, seeing the folly of these views, and clearly
perceiving that the advantage of commerce consists and must consist
solely of the imports, have occasionally suffered themselves to employ
language evincing inattention to the fact, that exports, though unimpor-
tant in themselves, are important by their influence on imports. So real
and extensive is this influence, that every new market which is opened
for any of our goods, and every increase in the demand for our com-
modities in foreign countries, enables us to supply ourselves with for-
eign commodities at a smaller cost.
Let us revert to our earliest and simplest example, but which dis-
plays the real law of interchange more luminously than any formula into
which money enters; the case of simple barter. We showed, that if at the
rate of 10 yards of cloth for 17 of linen, the demand of Germany amounted
to 1000 times 10 yards of cloth, the two nations will trade together at
that rate of interchange, provided that the linen required in England be
exactly 1000 times 17 yards, neither more nor less. For the cloth and the
linen will then exactly pay for one another, and nobody on either side
will be obliged to offer what he has to sell at a lower rate, in order to
procure what he wants to buy.
Now if the increase of wealth and population in Germany should
greatly increase the demand in that country for cloth, the demand for
linen in England not increasing in the same ratio,—if, for instance, Ger-
many became willing, at the above rate, to take 1000 times 10 yards; is
it not evident, that to induce :England to take in exchange for this the
only article which Germany by supposition has to give, the latter must
offer it at a rate more advantageous to England—at 18, or perhaps 19
yards, for 10 of cloth? So that the division of the advantage becomes
more and more favourable to a country, in proportion as the demand for
its commodities increases in foreign countries.
It is not even necessary that the country which takes its goods, should
supply it with any commodity whatever Suppose that a country should
be opened to our merchants, disposed to buy from us in abundance, but
which can sell to us scarcely anything, as every commodity which it
affords could be got cheaper by us from some other quarter. Neverthe-
less, our trade with this country will enable us to obtain from all other
countries their commodities at a lower price. At the first opening of this
Unsettled Questions of Political Economy/29
commerce of mere exportation, we must have received in payment a
large quantity of money; for which our customer will have been indem-
nified by other countries, in exchange for her commodities. Prices must
consequently be lower in all other countries, and higher with us, than
before the opening of the new branch of trade; and we therefore obtain
the commodities of other countries at a less cost, both as we pay less
money for them, and as that money is lower in value.
8. Another obvious application of the same principle will enable us
to explain, and to bring within the dominion of strict science, the rivality
of one exporting nation and another, or what is called, in the language of
the mercantile system, Overselling: a subject which political economists
have taken little trouble to elucidate, from the habit before alluded to of
disregarding almost entirely, in their purely scientific inquiries, those
circumstances which affect the trade of a country by operating immedi-
ately upon the exports.
Let us revert to our old example, and to our old figures. Suppose
that the trade between England and Germany in cloth and linen is estab-
lished, and that the rate of interchange is 10 yards of cloth for 17 of
linen. Now suppose that there arises in another country, in Flanders, for
example, a linen manufacture; and that the same causes, the working of
which in England and Germany has made 10 yards exchange for 17,
would in England and Flanders, putting Germany out of the question,
have made the rate of interchange 10 for 18. It is evident that Germany
also must give 18 yards of linen for 10 of cloth, and so carry on the
trade with a diminished share of the advantage, or lose it altogether. If
the play of demand in England and Flanders had made the rate of inter-
change not 10 for 18 but 10 for 21, (10 to 20 being in Germany the
comparative cost of production), it is evident that Germany could not
have maintained the competition, and would have lost, not part of her
share of the advantage, but all advantage, and the trade itself.
It would be no answer to say, that Germany could probably still
have found the means of importing cloth from England, by exporting
something else. If she had purchased cloth with anything else, she would
have purchased it dearer: as it proved by the fact, that having free choice,
she found it most advantageous to purchase it with linen. When she
could get 10 yards of cloth for 17 of linen, that was the mode in which
she could get it with least labour. Being pressed by competition, she
gave successively 17½, 18, 18½; but rather than give 19 yards of linen,
she perhaps would prefer to give, as costing her rather less labour, 10
30/John Stuart Mill
yards of silk (which we will suppose to be the quantity which in En-
gland will purchase 10 yards of cloth). It is obvious that, although Ger-
many has found the means of supplying herself with cloth, by exporting
a different article from that in which she was undersold, yet the advan-
tage of the trade between her and England is now shared in a proportion
much less favourable to Germany.
There is no difficulty in showing that the same series of consequences
takes place in exactly the sane manner through the agency of money.
The trade in cloth and linen between England and Germany being sup-
posed to exist as before, Flanders produces linen at a lower price than
that at which Germany has hitherto afforded it. The exportation from
Germany is suspended; and Germany, continuing to import cloth, pays
for it in money. By so doing she lowers her own prices, and raises those
in England: she has to pay more money for cloth, and to pay it in a
currency of higher value. She thus supers more and more as a consumer
of cloth, until by the fall of her prices she can either afford to sell linen
as cheap as Flanders, or to export some other commodity which she
could not export before. In either case, leer trade resumes its course, but
with diminished advantage on her side.
4
It is in the mode just described, that those countries which formerly
supplied Europe with manufactures, but which owed their power of
doing so not to any natural and permanent advantages, but to their more
advanced state of civilization as compared with other countries, have
lost their pre-eminence as other countries successively attained an equal
degree of civilization. Lombardy and Flanders, in the middle loges, pro-
duced some descriptions of clothing and ornament for all Europe: Hol-
land, at a much later period, supplied ships, and almost all articles which
came in ships, to most other parts of the world. All these countries have
probably at this moment a much larger amount of capital than ever they
had, but having been undersold by other countries, they have lost by far
the greater part of the share which they had engrossed to themselves of
the benefit which the world derives from commerce; and their capital
yields to them in consequence a smaller proportional return. We are
aware that other causes have contributed to the same effect, but we
cannot doubt that this is a principal one.
As much as is really true of the great returns alleged to have been
made to capital during the last war, must have arisen from a similar
cause. Our exclusive command of the sea excluded from the market all
by whom we should have been undersold.
Unsettled Questions of Political Economy/31
The adoption by France, Russia, the Netherlands, and the United
States, of a more severely restrictive commercial policy, subsequently
to 1815, has done great injury undoubtedly to those countries; for the
duties which they have established are intended to be, and really are, of
the class termed protecting; that is to say, such as force the production
of commodities by more costly processes at home, instead of suffering
them to be imported from abroad. But these duties, though chiefly inju-
rious to the countries imposing them, have also been highly injurious to
England. By diminishing her exportation, or preventing it from increas-
ing as it would otherwise have done, they have kept up the prices of all
imported commodities in England, above what those prices would have
fallen to if trade had been left free.
By another obvious application of the same reasoning, it will be
seen, that there is a real foundation for the notion, that a country may be
benefited by receiving from another country the concession of what used
to be termed commercial advantages, or by restraining its colonies from
purchasing goods of any comity except itself. In the figured illustration
last used, it is evident, that if England had been bound by a treaty with
Germany to buy linen exclusively from her, Germany would have re-
tained the trade which we supposed her to lose, and would have contin-
ued to purchase cloth at a comparatively cheap rare from England, in-
stead of producing it by a more costly process at home. Suppose that
England had been a colony of Germany, and we see that by compelling
colonies to deal at her shop, she may obtain a real advantage, though of
a nature which we may hazard the assertion that the founders of our
colonial policy little dreamt of.
Such an advantage, however, being gained at the expense of an-
other country, is, at the least, simply equivalent to a tax, or tribute.
Now, if a country has just grounds, or deems superiority of popover a
sufficient ground, for exacting a tribute from another country, the most
direct mode is the best. First, because it is the most intelligible, and has
least of trick or disguise. Secondly, because it allows the people of the
country paying the tribute, to raise the money in whatever way they
consider least oppressive to themselves. Thirdly, because the indirect
mode of taxing a country, by restrictions on its commerce, disturbs the
distribution of industry most advantageous to the world at large, and
occasions a greater loss to the restricted country, and to the other coun-
tries with which that country would have traded, than gain to the coun-
try in whose favour the restrictions are imposed. And lastly, because a
32/John Stuart Mill
country never could obtain such privileges from an independent nation,
and has seldom been so undisguised an oppressor as to demand them
even from its colonies, without subjecting itself to restrictions in some
degree equivalent, for the benefit of those whom it has thus taxed. Each
country, therefore, usually pays tribute to the other; and to produce this
fruitless reciprocity of exaction, the industry and trade of both countries
are diverted from the most advantageous channels, and the return to the
labour and capital of both is diminished, in pure loss.
9. The same principles which have led to the above conclusions,
also suggests a remark of some importance with respect to the probable
effect of a change from a restricted to a comparatively free trade.
There is no doubt that our prohibiting the importation of a particu-
lar article, which, but for the prohibition, would have been imported,
enables us to obtain our other imports at smaller cost. The article for
which we have the greatest demand, and for which our demand is most
increased by cheapness, is that which we should naturally import pref-
erably to any other; now of this article we should import the quantity
necessary to pay for our exports, on terms of interchange less advanta-
geous to us than in the case of any other commodity. If our legislature
prohibits this commodity, the other country will be obliged to offer any
other article on easier terms, in order to force a sufficient demand for it
to be an equivalent to what she purchases from us.
The steps of the process, money being used, would be these:—We
prohibit the importation of linen. The exportation of cloth continues,
but is paid for in money. Our prices rise, those in Germany fall, until
silk, or some other article, can be imported from Germany cheaper than
it can be produced at home, and in sufficient abundance to balance the
export of cloth. Thus by sacrificing the cheapness of one commodity,
we gain the cheapness of another: but we sacrifice a greater cheapness
to gain a less, and we sacrifice cheapness in the article which we most
want, and would import by preference, while our compensation is cheap-
ness in an article which we either could produce more advantageously
at home, or which we have so little desire for, that it requires a species
of bounty on the article to create a demand.
Restrictions on importation do, however, tend to keep down the value
and price of our remaining imports, and to keep up the nominal or money
prices of all our other commodities, by retaining a greater quantity of
money in the country than would otherwise be there. From this it obvi-
ously follows, that if the restrictions were removed, we should have to
Unsettled Questions of Political Economy/33
pay rather more for some of the articles which we now import, while
those which we are now prevented from importing would cost us more
than might be inferred from their present price in the foreign market.
And general prices would fall; to the benefit of those who have fixed
sums to receive; to the disadvantage of those who have fixed sums to
pay; and giving rise, as a general fall of prices always does, to an ap-
pearance, though a temporary and fallacious one, of general distress.
5
It is right to observe that the measures of the British Legislature
which have been falsely characterised as measures of free trade, must,
from their extremely insignificant extent, have produced far too little
effect in increasing our importation, to have actually led, in any degree
worth mentioning, to the results specified above.
It is of greater importance to take notice, that these effects may be
entirely obviated, if foreign countries can be prevailed upon simulta-
neously to relax their restrictive systems, so as to create an immediate
increase of demand for our exports at the present prices. It is true that
exports and imports must, in the end, balance one another, and if we
increase our imports, our exports will of necessity increase too. But it is
a forced increase, produced by an efflux of money and fall of prices;
and this fall of prices being permanent, although it would be no evil at
all in a country where credit is unknown, it may be a very serious one
where large classes of persons, And the nation itself, are under engage-
ments to pay fixed sums of money of large amount.
10. The only remaining application of the principle set forth in this
essay, which we think it of importance to notice specially, is the effect
produced upon a country by the annual payment of a tribute or subsidy
to a foreign power, or by the annual remittance of rents to absentee
landlords, or of any other kind of income to its absent owners. Remit-
tances to absentees are often very incorrectly likened in their general
character to the payment of a tribute; from which they differ in this very
material circumstance, that tribute, if not paid to a foreign country, is
not paid at all, whereas rents are paid to the landlord, and consumed by
him, even if he resides at home. The two kinds of payment, however,
have a perfect resemblance to each other in such parts of their effects we
are about to point out.
The tribute, subsidy, or remittance, is always in goods; for, unless
the country possesses mines of the precious metals, and numbers those
metals among its regular articles of export, it cannot go on, year after
year, parting with them, and never receiving them back. When a nation
34/John Stuart Mill
has regular payments to make in a foreign country, for which it is not to
receive any return, its exports must annually exceed its imports by the
amount of the payments which it is bound so to make. In order to force
a demand for its exports greater than its imports will suffice to pay for,
it must offer them at a rate of interchange more favourable to the for-
eign country, and less so to itself, than if it had no payments to make
beyond the value of its imports. It therefore carries on the trade with less
advantage, in consequence of the obligations to which it is subject to-
wards persons resident in foreign countries.
The steps of the process are these. The exports and imports being in
equilibrium, suppose a treaty to be concluded, by which the country
binds itself to pay in tribute to another country, a certain sum annually.
It makes, perhaps, the first payment by a remittance of money. This
lower prices in the paying country, and raises them in the receiving one:
the exports of the tributary country increase, its imports diminish. When
the efflux of money has altered prices in the requisite degree, the exports
exceed the imports annually, by the amount of the tribute; and the latter,
being added to the sum of the payments due, restores the balance of
payments between the two countries. The result to the tributary country
is a diminution of her share in the advantage of foreign trade. She pays
dearer for her imports, in two ways, because she pays more money, and
because that money is of higher value, the money incomes of her inhab-
itants being of smaller amount.
Thus the imposition of a tribute is a double burthen to the country
paying it, and a double gain to that which receives it. The tributary
country pays to the other, first, the tax, whatever be its amount, and
next, something more, which the one country loses in the increased cost
of its imports, the other gains in the diminished cost of its own.
Absenteeism, moreover, though not burthensome in the former of
these ways, since the money is paid whether the receiver be an absentee
or not, is yet disadvantageous in the second of the two modes which
have been mentioned. Ireland pays dearer for her imports in consequence
of her absentees; a circumstance which the assailants of Mr. M’Culloch,
whether political economists or not, have not, we believe, hitherto thought
of producing against him.
11. If the question be now asked, which of the countries of the world
gains most by foreign commerce, the following will be the answer.
If by gain be meant advantage, in the most enlarged sense, that
country will generally gain the most, which stands most in need of for-
Unsettled Questions of Political Economy/35
eign commodities.
But if by gain be meant saving of labour and capital in obtaining the
commodities which the country desires to have, whatever then be; the
country will gain, not in proportion to its own need of foreign articles,
but to the need which foreigners have of the articles which itself pro-
duces.
Let us take, as an illustration of our meaning, the case of France
and England. Those two nations, in consequence of the restrictions with
which they have loaded their commercial intercourse, carry on so little
trade with each other, as may almost, regard being had to the wealth and
population of the two countries, be called none at all. If these fetters
were at once taken off, which of the two countries would be the greatest
gainer? England without doubt. There would instantly arise in France
an immense demand for the cottons, woollens, and iron of England;
while wines, brandies, and silks, the staple articles of France, are less
likely to come into general demand here, nor would the consumption of
such productions, it is probable, be so rapidly increased by the fall of
price. The fall would probably be very great before France could obtain
a vent in England for so much of her exports as would suffice to pay for
the probable amount of her imports. There would be a considerable
flow of the precious metals out of France into England. The English
consumer of French wine would not merely save the amount of the duty
which that wine now pays, but would find the wine itself falling in prime
cost, while his means of purchasing it would be increased by the aug-
mentation of his own money income. The French consumer of English
cottons, on the contrary, would not long continue to be able to purchase
them at the price they now sell for in England. He would gain less, as the
English would gain more, than might appear from a mere comparison
between the present prices of commodities in the two countries.
Various consequences would flow from opening the trade between
France and England, which are not expected, either by the friends or by
the opponents of the present restrictive system. The wine-growers of
France, who imagine that free trade would relieve their distress by rais-
ing the price of their wine, might not improbably find that price actually
lowered. On the other hand, our silk manufacturers would be surprised
if they were told that the free admission of our cottons and hardware
into the French market, would endanger their branch of manufacture:
yet such might very possibly be the effect. France, it is likely, could
most advantageously pay us in silks for a portion of the large amount of
36/John Stuart Mill
cottons and hardware which we should sell to her; and though our silk
manufacturers may now be able to compete advantageously, in some
branches of the manufacture, with their French rivals, it by no means
follows that they could do so when the efflux of money from France,
and its influx into England, had lowered the price of silk goods in the
French market, and increased all the expenses of production here.
On the whole, England probably, of all the countries of Europe,
draws to herself the largest share of the gains of international com-
merce: because her exportable articles are in universal demand, and are
of such a kind that the demand increases rapidly as the price falls. Coun-
tries which export food, have the former advantage, but not the latter.
But our own colonies, and the countries which supply us with the mate-
rials of our manufactures, maintain a hard struggle with us for an equal
share of the advantages of their trade; for their exports are also of a kind
for which there exists a most extensive demand here, and a demand
capable of almost indefinite extension by a fall of price. Contrary, there-
fore, to common opinion, it is probable that our trade with the colonies,
and with the countries which send us the raw materials of our national
industry, is not more but less advantageous to us, in proportion to its
extent, than our trade with the continent of Europe. We mean in respect
to the mere amount of the return to the labour and capital of the country;
considered abstractedly from the usefulness or agreeableness of the par-
ticular articles on which the receivers may choose to expend it.
Essay II: Of the Influence of Consumption on
Production
Before the appearance of those great writers whose discoveries have
given to political economy its present comparatively scientific charac-
ter, the ideas universally entertained both by theorists and by practical
men, on the causes of national wealth, were grounded upon certain gen-
eral views, which almost all who have given any considerable attention
to the subject now justly hold to be completely erroneous.
Among the mistakes which were most pernicious in their direct con-
sequences, and tended in the greatest degree to prevent a just conception
of the objects of the science, or of the test to be applied to the solution of
the questions which it presents, was the immense importance attached
to consumption. The great end of legislation in matters of national wealth,
according to the prevalent opinion, was to create consumers. A great
and rapid consumption was what the producers, of all classes and de-
nominations, wanted, to enrich themselves and the country. This object,
under the varying names of an extensive demand, a brisk circulation, a
great expenditure of money, and sometimes totidem verbis a large con-
sumption, was conceived to be the great condition of prosperity.
It is not necessary, in the present state of the science, to contest this
doctrine in the most flagrantly absurd of its forms or of its applications.
The utility of a large government expenditure, for the purpose of en-
couraging industry, is no longer maintained. Taxes are not now esteemed
to be “like the dews of heaven, which return again in prolific showers.”
It is no longer supposed that you benefit the producer by taking his
money, provided you give it to him again in exchange for his goods.
There is nothing which impresses a person of reflection with a stronger
sense of the shallowness of the political reasonings of the last two cen-
38/John Stuart Mill
turies, than the general reception so long given to a doctrine which, if it
proves anything, proves that the more you take from the pockets of the
people to spend on your own pleasures, the richer they grow; that the
man who steals money out of a shop, provided he expends it all again at
the same shop, is a benefactor to the tradesman whom he robs, and that
the same operation, repeated sufficiently often, would make the
tradesman’s fortune.
In opposition to these palpable absurdities, it was triumphantly es-
tablished by political economists, that consumption never needs encour-
agement. All which is produced is already consumed, either for the pur-
pose of reproduction or of enjoyment. The person who saves his income
is no less a consumer than he who spends it: he consumes it in a different
way; it supplies food and clothing to be consumed, tools and materials
to be used, by productive labourers. Consumption, therefore, already
takes place to the greatest extent which the amount of production admits
of; but, of the two kinds of consumption, reproductive and unproduc-
tive, the former alone adds to the national wealth, the latter impairs it.
What is consumed for mere enjoyment, is gone; what is consumed for
reproduction, leaves commodities of equal value, commonly with the
addition of a profit. The usual effect of the attempts of government to
encourage consumption, is merely to prevent saving; that is, to promote
unproductive consumption at the expense of reproductive, and diminish
the national wealth by the very means which were intended to increase
it.
What a country wants to make it richer, is never consumption, but
production. Where there is the latter, we may be sure there is no want of
the former. To produce, implies that the producer desires to consume;
why else should he give himself useless labour? He may not wish to
consume what he himself produces, but his motive for producing and
selling is the desire to buy. Therefore, if the producers generally pro-
duce and sell more and more, they certainly also buy more and more.
Each may not want more of what he himself produces, but each wants
more of what some other produces; and, by producing what the other
wants, hopes to obtain what the other produces. There will never, there-
fore, be a greater gain produced, of commodities in general, than there
are consumers for. But there may be, and always are, abundance of
persons who have the inclination to become consumers of some com-
modity, but are unable to satisfy their wish, because they have not the
means of producing either that, or anything to give in exchange for it.
Unsettled Questions of Political Economy/39
The legislator, therefore, needs not give himself any concern about con-
sumption. There will always be consumption for everything which can
be produced, until the wants of all who possess the means of producing
are completely satisfied, and then production will not increase any far-
ther. The legislator has to look solely to two points: that no obstacle
shall exist to prevent those who have the means of producing, from
employing those means as they find most for their interest; and that
those who have not at present the means of producing, to the extent of
their desire to consume, shall have every facility afforded to their ac-
quiring the means, that becoming producers, they may be enabled to
consume.
These general principles are now well understood by almost all who
profess to have studied the subject, and are disputed by few except those
who ostentatiously proclaim their contempt for such studies. We touch
upon the question, not in the hope of rendering these fundamental truths
clearer than they already are, but to perform a task, so useful and need-
ful, that it is to be wished it were oftener deemed part of the business of
those who direct their assaults against ancient prejudices,—that of see-
ing that no scattered particles of important truth are buried and lost in
the ruins of exploded error. Every prejudice, which has long and exten-
sively prevailed among the educated and intelligent, must certainly be
borne out by some strong appearance of evidence; and when it is found
that the evidence does not prove the received conclusion, it is of the
highest importance to see what it does prove. If this be thought not
worth inquiring into, an error conformable to appearances is often merely
exchanged for an error contrary to appearances; while, even if the result
be truth, it is paradoxical truth, and will have difficulty in obtaining
credence while the false appearances remain.
Let us therefore inquire into the nature of the appearances, which
gave rise to the belief that a great demand, a brisk circulation, a rapid
consumption (three equivalent expressions), are a cause of national pros-
perity,
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.
40/John Stuart Mill
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 influence
depends, not solely upon the quantity 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 com-
modities 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 analogy
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 quan-
tity of money which he can command, it was long deemed an excellent
contrivance for enriching a country, to heap up artificially the greatest
possible quantity of the precious metals within it.
Let us examine, then, more closely then has usually been done, the
case from which the misleading analogy 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 expla-
nation of which will suffice to clear up all other cases which fall within
the same principle. Suppose that a number of foreigners with large in-
comes 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,
Unsettled Questions of Political Economy/41
coats and shoes, and all the other articles which he was desirous to
consume, it would not be pretended that his eating, drinking, and wear-
ing them, on our shores rather than on his own, could be of any advan-
tage 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 accumulate, can
always find employment, since the fact that he has accumulated it proves
that he had an unsatisfied desire; and if he cannot find anything to pro-
duce 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 shows, 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 nobody 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 reason-
ing, 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 analyse with precision the real nature of the
advantage which a producer derives from an addition to the number of
his customers.
42/John Stuart Mill
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 re-
sulted 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 in-
dividual 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 en-
joyment. All unsold goods, therefore, constitute a part of the national
capital, and of the capital of the producer or dealer to whom they be-
long. It is true that tools, materials, and the articles on which the labourer
is supported, are the only articles which are directly subservient to pro-
duction: 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 di-
rectly to that end. But the food, machinery, etc., 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, ei-
ther in its existing shape, or indirectly by a previous (or even subse-
quent) 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 com-
pleted: 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 dis-
posable.
When we have thus seen accurately what really constitutes 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 anything approaching in magnitude to what it might be if all the
Unsettled Questions of Political Economy/43
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, com-
posed 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 out 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 in-
dustry and commerce are practiced with greatest success, the contriv-
ances of banking enable the possessor of a larger capital than he can
employ in his own business, to employ it productively and derive a rev-
enue from it notwithstanding. Yet even then, there is, of necessity, a
great quantity of capital which remains fixed in the shape of imple-
ments, machinery, buildings, etc., whether it is only half employed, or in
complete employment: and every deader 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 cus-
tomers, and be enabled to turn over his capital more quickly. Another is,
44/John Stuart Mill
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 volun-
tary sacrifice of profits: they expect by the consequent overflow of cus-
tomers 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 cus-
tomer, 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 laborers 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 por-
tion 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 classes, 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
Unsettled Questions of Political Economy/45
previously have dealt, to the same amount, with some other dealers; but
this is erroneous, since they could only have obtained the means of pur-
chasing by being previously enabled to sell. By their compact, each
would gain a customer, who would call his capital into fuller employ-
ment; 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 com-
mence business, and with many to the end of their lives), is in this pre-
dicament simply for want of some one with whom to exchange his com-
modities; and as there are such persons to about the same degree prob-
ably 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
assistance might bring their capital into more full employment.
We are now qualified try 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 con-
stantly 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 superintendence.”
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 addi-
tional 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 superintendence on a larger amount
of capital.
This, it will be found, is a complete account of all the gains which a
deader in any commodity can derive from an accession to the number of
46/John Stuart Mill
those who deal with him: and it is evident to every one, that these advan-
tages 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 unproduc-
tive 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 analogical 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 so-
journers there, live unproductively upon their means. Inlet 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 class is, so far, benefited. It is true that
the labourers thus employed by sojourners are probably, in part or alto-
gether, withdrawn from productive employment. But this is far from
being an evil; for either the situation of the labouring classes is im-
proved, 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 passes into the hands of the receiv-
ers, 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 econo-
mists; who have invariably set apart the gains of all persons coming
under the class of domestic servants, as real advantages arising to a
place from the residence there of an increased number of unproductive
consumers.
Unsettled Questions of Political Economy/47
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 superintendence 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 com-
parison 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 passage 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, com-
modities which existed or which were habitually produced in that coun-
try are deprived of a market, or can only find one at a price not suffi-
cient 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
48/John Stuart Mill
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 arrange-
ment of which, the remittance can be made. There is no capital, for-
merly 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 show 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 con-
veniently than elsewhere. Consequently the capital of a place will be
such as is sufficient
1st. To produce all commodities which from local circumstances
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 pro-
duced, we may add, or stored.
2nd. To produce and retail the commodities which are consumed by
the inhabitants of the towel, 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. Until this additional capi-
tal has arrived, the producers and dealers already on the spot will enjoy
great advantages. Every particle of their own capital will be called into
the most active employment. What their capital does not enable them to
supply, be got from others at a distance, who cannot supply, it on such
favourable terms; consequently they will be in the predicament of pos-
sessing a partial monopoly—receiving for everything a price regulated
by a higher cost of production than they are compelled to pay. They
also, being in possession of the market, will be enabled to make a large
portion of the new capital pass through their hands, and thus to earn
Unsettled Questions of Political Economy/49
wages of superintendence upon it.
If, indeed, the place from whence the strangers came, previously
traded with that where they have taken up their abode, the effect of their
arrival is, that the exports of the town will diminish, and that it will be
supplied from abroad with something which it previously produced at
home. In this way an amount of capital will be set free equal to that
required, and there will be no increase on the whole. The removal of the
Court from London to Birmingham would not necessarily, though it
would probably,
6
increase the amount of capital in the latter place. The
afflux of money to Birmingham, and its efflux from London, would
render it cheaper to make some articles in London for Birmingham con-
sumption; and to make others in London for home consumption, which
were formerly brought from Birmingham.
But instead of Birmingham, an exporting town, suppose a village,
or a town which only produced and retailed for itself and its immediate
vicinity. The remittances must come thither in the shape of money; and
though the money would not remain, but would be sent away in ex-
change for commodities, it would, however, first pass through the hands
of the producers and dealers in the place, and would by them be ex-
ported in exchange for the articles which they require—viz., the materi-
als, tools, and subsistence necessary for the increased production now
required of then, and articles of foreign luxury for their own increased
unproductive consumption. These articles would not displace any for-
merly made in the place, but on the contrary, would forward the produc-
tion of more.
Hence we may consider the following propositions as established:
1. The expenditure of absentees (the case of domestic servants ex-
cepted), is not necessarily any loss to the country which they leave, or
gain to the country which they resort to (save in the manner shown in
Essay I): for almost every country habitually exports and imports to a
much greater value than the incomes of its absentees, or of the foreign
sojourners within it.
2. But sojourners often do much good to the town or village which
they resort to, and absentees harm to that which they leave. The capital
of the petty tradesman in a small town near an absentee’s estate, is
deprived of the market for which it is conveniently situated, and must
resort to another to which other capitals lie nearer, and where it is con-
sequently outbid, and gains less; obtaining only the same price, with
greater expenses. But this evil would be occasioned, if, instead of going
50/John Stuart Mill
abroad, the absentee had removed to his own capital city.
If the tradesman could, in the latter case, remove to the metropolis,
or in the former, employ himself in producing increased exports, or in
producing for home consumption articles now no longer imported, each
in the place most convenient for that operation; he would not be a loser,
though the place which he was obliged to leave might be said to lose.
Paris undoubtedly gains much by the sojourn of foreigners, while
the counteracting loss by diminution of exports from France is suffered
by the great trading and manufacturing towns, Rouen, Bordeaux, Lyons,
etc., which also suffer the principal part of the loss by importation of
articles previously produced at home. The capital thus set free, finds its
most convenient seat to be Paris, since the business to which it must
turn is the production of articles to be unproductively consumed by the
sojourners.
The great trading towns of France would undoubtedly be more flour-
ishing, if France were not frequented by foreigners.
Rome and Naples are perhaps purely benefited by the foreigners
sojourning there: for they have so little external trade, that their case
may resemble that of the village in our hypothesis.
Absenteeism, therefore, (except as shown in the first Essay) is a
local, not a national evil; and the resort of foreigners, in so far as they
purchase for unproductive consumption, is not, in any commercial coun-
try, a national, though it may be a local good.
From the considerations which we have now adduced, it is obvious
what is meant by such phrases as a brisk demand, and a rapid circula-
tion. There is a brisk demand and a rapid circulation, when goods, gen-
erally speaking, are sold as fast as they can be produced. There is slack-
ness, on the contrary, and stagnation, when goods, which have been
produced, remain for a long time unsold. In the former case, the capital
which has been locked up in production is disengaged as soon as the
production is completed; and can be immediately employed in further
production. In the latter case, a large portion of the productive capital of
the country is lying in temporary inactivity.
From what has been already said, it is obvious that periods of “brisk
demand” are also the periods of greatest production: the national capital
is never called into full employment but at those periods. This, however,
is no reason for desiring such times; it is not desirable that the whole
capital of the country should be in full employment. For, the calcula-
tions of producers and traders being of necessity imperfect, there are
Unsettled Questions of Political Economy/51
always some commodities which are more or less in excess, as there are
always some which are in deficiency. If, therefore, the whole truth were
known, there would always be some classes of producers contracting,
not extending, their operations. If all are endeavouring to extend them,
it is a certain proof that some general delusion is afloat.. The common-
est cause of such delusion is some general, or very extensive, rise of
prices (whether caused by speculation or by the currency) which per-
suades all dealers that they are growing rich. And hence, an increase of
production really takes place during the progress of depreciation, as
long as the existence of depreciation is not suspected; and it is this which
gives to the fallacies of the currency school, principally represented by
Mr. Attwood, all the little plausibility they possess. But when the delu-
sion vanishes and the truth is disclosed, those whose commodities are
relatively in excess must diminish their production or be ruined: and if
during the high prices they have built mills and erected machinery, they
will be likely to repent at leisure.
In the present state of the commercial world, mercantile transac-
tions being carried on upon an immense scale, but the remote causes of
fluctuations in prices being very little understood, so that unreasonable
hopes and unreasonable fears alternately rule with tyrannical sway over
the minds of a majority of the mercantile public; general eagerness to
buy and general reluctance to buy, succeed one another in a manner
more or less marked, at brief intervals. Except during short periods of
transition, there is almost always either great briskness of business or
great stagnation; either the principal producers of almost all the leading
articles of industry have as many orders as they can possibly execute, or
the dealers in almost all commodities have their warehouses full of un-
sold goods.
In this last case, it is commonly said that there is a general super-
abundance; and as those economists who have contested the possibility
of general superabundance, would none of them deny the possibility or
even the frequent occurrence of the phenomenon which we have just
noticed, it would seem incumbent on them to show, that the expression
to which they object is not applicable to a state of things in which all or
most commodities remain unsold, in the same sense in which there is
said to be a superabundance of any one commodity when it remains in
the warehouses of dealers for want of a market.
This is merely a question of naming, but an important one, as it
seems to us that much apparent difference of opinion has been produced
52/John Stuart Mill
by a mere difference in the mode of describing the same facts, and that
persons who at bottom were perfectly agreed, have considered each other
as guilty of gross error, and sometimes even misrepresentation, on this
subject.
In order to afford the explanations, with which it is necessary to
take the doctrine of the impossibility of an excess of all commodities,
we must advert for a moment to the argument by which this impossibil-
ity is commonly maintained.
There can never, it is said, be a want of buyers for all commodities;
because whoever offers a commodity for sale, desires to obtain a com-
modity in exchange for it, and is therefore a buyer by the mere fact of
his being a seller. The sellers and the buyers, for all commodities taken
together, must, by the metaphysical necessity of the ease, be an exact
equipoise to each other; and if there be more sellers than buyers of one
thing, there must be more buyers than sellers for another.
This argument is evidently founded on the supposition of a state of
barter; and, on that supposition, it is perfectly incontestable. When two
persons perform an act of barter, each of them is at once a seller and a
buyer. He cannot sell without buying. Unless he chooses to buy some
other person’s commodity, he does not sell his own.
If, however, we suppose that money is used, these propositions cease
to be exactly true. It must be admitted that no person desires money for
its own (unless some very rare cases of misers be an exception), and
that he who sells his commodity, receiving money in exchange, does so
with the intention of buying with that same money some other commod-
ity. Interchange by means of money is therefore, as has been often ob-
served, ultimately nothing but barter. But there is this difference—that
in the case of barter, the selling and the buying are simultaneously con-
founded in one operation; you sell what you have, and buy what you
want, by one indivisible act, and you cannot do the one without doing
the other. Now the effect of the employment of moneys. and even the
utility of it, is, that it enables this one act of interchange to be divided
into two separate acts or operations; one of which may be performed
now, end the other a year hence, or whenever it shall be most conve-
nient. Although he who sells, really sells only to buy, he needs not buy at
the same moment when he sells; and he does not therefore necessarily
add to the immediate demand for one commodity when he adds to the
supply of another. The buying and selling being now separated, it may
very well occur, that there may be, at some given time, a very general
Unsettled Questions of Political Economy/53
inclination to sell with as little delay as possible, accompanied with an
equally general inclination to defer all purchases as long as possible.
This is always actually the case, in those periods which are described as
periods of general excess. And no one, after sufficient explanation, will
contest the possibility of general excess, in this sense of the word. The
state of things which we have just described, and which is of no uncom-
mon occurrence, amounts to it.
For when there is a general anxiety to sell, and a general disinclina-
tion to buy, commodities of all kinds remain for a long time unsold, and
those which find an immediate market, do so at a very low price. If it be
said that when all commodities fall in price, the fall is of no conse-
quence, since mere money price is not material while the relative value
of all commodities remains the same, we answer that this would be true
if the low prices were to last for ever. But as it is certain that prices will
rise again sooner or later, the person who is obliged by necessity to sell
his commodity at a low money price is really a sufferer, the money he
receives sinking shortly to its ordinary value. Every person, therefore,
delays selling if he can, keeping his capital unproductive in the mean-
time, and sustaining the consequent loss of interest. There is stagnation
to those who are not obliged to sell, and distress to those who are.
It is true that this state can be only temporary, and must even be
succeeded by a reaction of corresponding violence, since those who have
sold without buying will certainly buy at last, and there will then be
more buyers than sellers. But although the general over-supply is of
necessity only temporary, this is no more than may be said of every
partial over-supply. An overstocked state of the market is always tem-
porary, and is generally followed by a more than common briskness of
demand.
In order to render the argument for the impossibility of an excess of
all commodities applicable to the case in which a circulating medium is
employed, money must itself be considered as a commodity. It must,
undoubtedly, be admitted that there cannot be an excess of all other
commodities, and an excess of money at the same time.
But those who have, at periods such as we have described, affirmed
that there was an excess of all commodities, never pretended that money
was one of these commodities; they held that there was not an excess,
but a deficiency of the circulating medium. What they called a general
superabundance, was not a superabundance of commodities relatively
to commodities, but a superabundance of all commodities relatively to
54/John Stuart Mill
money. What it amounted to was, that persons in general, at that par-
ticular time, from a general expectation of being called upon to meet
sudden demands, liked better to possess money than any other commod-
ity. Money, consequently, was in request, and all other commodities
were in comparative disrepute. In extreme cases, money is collected in
masses, and hoarded; in the milder cases people merely defer parting
with their money, or coming under any new engagements to part with it.
But the result is, that all commodities fall in price, or become unsaleable.
When this happens to one single commodity, there is said to be a super-
abundance of that commodity; and if that be a proper expression, there
would seem to be in the nature of the case no particular impropriety in
saying that there is a superabundance of all or most commodities, when
all or most of them are in this same predicament:
It is, however, of the utmost importance to observe that excess of all
commodities, in the only sense in which it is possible, means only a
temporary fall in their value relatively to money; To suppose that the
markets for all commodities could, in any other sense than this, be over-
stocked, involves the absurdity that commodities may fall in value rela-
tively to themselves; or that, of two commodities, each can fall rela-
tively to the other, A becoming equivalent to B - x, and B to A - x, at the
same time. And it is, perhaps, a sufficient reason for not using phrases
of this description, that they suggest the idea of excessive production. A
want of market for one article may arise from excessive production of
that article; but when commodities in general become unsaleable, it is
from a very different cause; there cannot be excessive production of
commodities in general:
The argument against the possibility of general over-production is
quite conclusive, so far as it applies to the doctrine that a country may
accumulate capital too fast; that produce in general may, by increasing
faster than the demand for it, reduce all producers to distress. This propo-
sition, strange to say, was almost a received doctrine as lately as thirty
years ago; and the merit of those who have exploded it is much greater
than might be inferred from the extreme obviousness of its absurdity
when it is stated in its native simplicity. It is true that if all the wants of
all the inhabitants of a country were fully satisfied, no further capital
could find useful employment; but, in that case, none would be accumu-
lated. So long as there remain any persons not possessed, we do not say
of subsistence, but of the most refined luxuries, and who would world to
possess them, there is employment for capital; and if the commodities
Unsettled Questions of Political Economy/55
which these persons want are not produced and placed at their disposal,
it can only be because capital does not exist, disposable for the purpose
of employing, if not any other labourers, those very labourers them-
selves, in producing the articles for their own consumption. Nothing can
be more chimerical than the fear that the accumulation of capital should
produce poverty and not wealth, or that it will ever take place too fast
for its own end. Nothing is more true than that it is produce which
constitutes the market for produce, and that every increase of produc-
tion, if distributed without miscalculation among all kinds of produce in
the proportion which private interest would dictate, creates, or rather
constitutes, its own demand.
This is the truth which the deniers of general over production have
seized and enforced; nor is it pretended that anything has been added to
it, or subtracted from it, in the present disquisition. But it is thought that
those who receive the doctrine accompanied with the explanations which
we have given, will understand, more clearly than before, what is, and
what is not, implied in it; and will see that, when properly understood, it
in no way contradicts those obvious facts which are universally known
and admitted to be not only of possible, but of actual and even frequent
occurrence. The doctrine in question only appears a paradox, because it
has usually been so expressed as apparently to contradict these well-
known facts; which, however, were equally well known To the authors
of the doctrine, who, therefore, can only have adopted from inadvert-
ence any form of expression which could to a candid person appear
inconsistent with it. The essentials of the doctrine are preserved when it
is allowed that there cannot be permanent excess of production, or of
accumulation; though it be at the same time admitted, that as there may
be a temporary excess of any one article considered separately, so may
there of commodities generally, not in consequence of over-production,
but of a want of commercial confidence.
Essay III: On the Words Productive and
Unproductive
It would probably be difficult to point out any two words, respecting the
proper use of which political economists have been more divided, than
they have been concerning the two words productive and unproductive;
whether considered as applied to labour, to consumption, or to
expendture.
Although this is a question solely of nomenclature, it is one of suf-
ficient importance to be worth another attempt to settle it satisfactorily.
For, although writers on political economy have not agreed in the ideas
which they were accustomed to annex to these terms, the terms have
generally been employed to denote ideas of very great importance, and
it is impossible that some vagueness should not have been thrown upon
the ideas themselves by looseness in the use of the words by which they
are habitually designated. Further, so long as the pedantic objection to
the introduction of new technical terms continues, accurate thinkers on
moral and political subjects are limited to a very scanty vocabulary for
the expression of their ideas. It therefore is of great importance that the
words with which mankind are familiar, should be turned to the greatest
possible advantage as instruments of thought; that one word should not
be used as the sign of an idea which is already sufficiently expressed by
another word, and that words which are required to denote ideas of
great importance, should not be usurped the expression of such as are
comparatively insignificant.
The phrases productive laborer, and productive consumption, have
been employed by some writers on political economy with very great
latitude. They have considered, and classed, as productive labour and
productive consumption, all labour which serves any useful purpose—
Unsettled Questions of Political Economy/57
all consumption which is not waste. Mr. M’Culloch has asserted, toti-
dem verbis, that the labour of Madame Pasta was as well entitled to be
called productive labour as that of a cotton spinner.
Employed in this sense, the words productive and unproductive are
superfluous, since the words useful and agreeable on the one hand, use-
less and worthless on the other, are quite sufficient to express all the
ideas to which the words productive and unproductive are here applied.
This use of the terms, therefore, is subversive of the ends of lan-
guage.
Those writers who have employed the words in a more limited sense,
have usually understood by productive or unproductive labour, labour
which is productive of wealth, or unproductive of wealth. But what is
wealth? And here the words productive and unproductive have been
affected with additional ambiguities, corresponding to the different exten-
sion which different writers have given to the term wealth.
Some have given the name of wealth to all things which tend to the
use or enjoyment of mankind, and which possess exchangeable value.
This last clause is added to exclude air, the light of the sun, and any
other things which can be obtained in unlimited quantity without labour
or sacrifice; together with all such things as, though produced by labour,
are not held in sufficient general estimation to command any price in the
market. But when this definition came to be explained, many persons
were disposed to interpret “all things which tend to the use or enjoy-
ment of man,” as implying only all material things. Immaterial products
they refused to consider as wealth; and labour or expenditure which
yielded nothing but immaterial products, they characterised as unpro-
ductive labour and unproductive expenditure.
To this it was, or might have been, answered, that according to this
classification, a carpenter’s labour at his trade is productive labour, but
the same individual’s labour in learning his trade was unproductive
labour. Yet it is obvious that, on both occasions, his labour tended ex-
clusively to what is allowed to be production: the one was equally indis-
pensable with the other, to the ultimate result. Further, if we adopted the
above definition, we should be obliged to say that a nation whose arti-
sans were twice as skilful as those of another nation, was not, ceteris
paribus, more wealthy; although it is evident that every one of the re-
sults of wealth, and everything for the sake of which wealth is desired,
would be possessed by the former country in a higher degree than by the
latter.
58/John Stuart Mill
Every classification according to which a basket of cherries, gath-
ered and eaten the next minute, are called wealth, while that title is
denied to the acquired skill of those who are acknowledged to be pro-
ductive labourers, is a purely arbitrary division, and does not conduce
to the ends for which classification and nomenclature are designed.
In order to get over all difficulties, some political economists seem
disposed to make the terms express a distinction sufficiently definite
indeed, but more completely arbitrary, and having less foundation in
nature, than any of the former. They will not allow to labour or to any
expenditure the name of productive, unless the produce which it yields
returns into the hands of the very person who made the outlay. Hedging
and ditching they term productive labour, though those operations con-
duce to production only indirectly, by protecting the produce from de-
struction; but the necessary expenses incurred by a government for the
protection of property are, they insist upon it, consumed unproductively:
though, as has been well pointed out by Mr. M’Culloch, these expenses,
in their relation to the national wealth, are exactly analogous to the
wages of a hedger or a ditcher. The only difference is, that the farmer,
who pays for the hedging and ditching, is the person to whom the conse-
quent increase of production accrues, while the government, which is at
the expense of police officers and courts of justice, does not, as a neces-
sary consequence, get back into its own coffers the increase of the na-
tional wealth resulting from the security of property.
It would be endless to point out the oddities and incongruities which
result from this classification. Whether we take the words wealth and
production in the largest, or in the most restricted sense in which they
have ever yet been employed, nobody will dispute that roads, bridges,
and canals, contribute in an eminent degree, and in a very direct man-
ner, to the increase of production and wealth. The labour and pecuniary
resources employed in their construction would, according to the above
theory, be considered productive, if every occupier of land were com-
pelled by law to construct so much of the road, or canal, as passes
through his own farm. If, instead of this, the government makes the
road, and throws it open to the public toll-free, the labour and expendi-
ture would be, on the above system, clearly unproductive. But if the
government, or an association of individuals, made the road, and im-
posed a toll to defray the expense, we do not see how these writers could
refuse to the outlay the title of productive expenditure. It would follow,
that the very same labour and expense, if given gratuitously, must be
Unsettled Questions of Political Economy/59
called unproductive, which, if a charge had been made for it, would
have been called productive.
When these consequences of the purely arbitrary classification to
which we allude have been pointed out and complained of, the only
answer which we have ever seen made to the objection is, that the line of
demarcation must he drawn somewhere, and that in every classification
there are intermediate cases, which might have been included, with al-
most equal propriety, either in the one class or in the other.
This answer appears to us to indicate the want of a sufficiently
accurate and discriminating perception, what is the kind of inaccuracy
which generally cannot be avoided in a classification, and what is that
other kind of inaccuracy, from which it always may be, and should be,
exempt.
The classes themselves may be, mentally speaking, perfectly defi-
nite, though it may not always be easy to say to which of them a particu-
lar object belongs. When it is uncertain in which of two classes an ob-
ject should be placed, if the classification be properly made, and prop-
erly expressed, the uncertainty can turn only upon a matter of fact. It is
uncertain to which class the object belongs, because it is doubtful whether
it possesses in a greater degree the characteristics of the one class or
those of the other. But the characteristics themselves may be defined
and distinguished with the nicest exactness, and always ought to be so.
Especially ought they in a case like the present, because here it is only
the distinction between the ideas which is of any importance. That eve
be able with ease to portion out all employments between the two classes,
does not happen to be of any particular consequence.
It is frequently said that classification is a mere affair of conve-
nience. This assertion is true in one sense, but not if its meaning be, that
the most proper classification is that in which it is easiest to say whether
an object belongs to one class or to the other. The use of classification
is, to fix attention upon the distinctions which exist among things; and
that is the best classification, which is founded upon the most important
distinctions, whatever be the facilities which it may afford of ticketing
and arranging the different objects which exist in nature. In fixing, there-
fore, the meaning of the words productive and unproductive, we ought
to endeavour to render them significative of the most important distinc-
tions which, without too glaring a violation of received usage, they can
be made to express.
We ought further, when we are restricted to the employment of old
60/John Stuart Mill
words, to endeavour as far as possible that it shall not be necessary to
struggle against the old associations with those words. We should, if
possible, give the words such a meaning, that the propositions in which
people are accustomed to use them, shall as far as possible still be true;
and that the feelings habitually excited by them, shall be such as the
things to which we mean to appropriate them ought to excite.
We shall endeavour to unite these conditions in the result of the
following inquiry.
In whatever manner political economists may have settled the defi-
nition of productive and unproductive labour or consumption, the con-
sequences which they have drawn frown the definition are nearly the
sane. In proportion to the amount of the productive labour and con-
sumption of a country, the country, they all allow, is enriched in propor-
tion to the amount of the unproductive labour and consumption, the
country is impoverished. Productive expenditure they are accustomed
to view as a gain; unproductive expenditure, however useful, as a sacri-
fice. Unproductive expenditure of what was destined to be expended
productively, they always characterise as a squandering of resources,
and call it profusion and prodigality. The productive expenditure of that
which might, without encroaching, upon capital, be expended
unproductively, is called saving, economy, frugality. Want, misery, and
starvation, are described as the lot of a nation which annually employs
less and less of its labour and resources in production; growing comfort
and opulence as the result of an annual increase in the quantity of wealth
so employed.
Let us then examine what qualities in expenditure, and in the em-
ployment of labour, are those from which all the consequences above
mentioned really flow.
The end to which all labour and all expenditure are directed, is
twofold. Sometimes it is enjoyment immediately; the fulfilment of those
desires, the gratification of which is wished for on its own account.
Whenever labour or expense is not incurred immediately for the sake of
enjoyment, and is yet not absolutely wasted, it must be incurred for the
purpose of enjoyment indirectly or mediately; by either repairing and
perpetuating, or adding, to the permanent sources of enjoyment.
Sources of enjoyment may be accumulated and stored up; enjoy-
ment itself cannot. The wealth of a country consists of the sum total of
the permanent sources of enjoyment, whether material or immaterial,
contained in it: and labour or expenditure which tends to augment or to
Unsettled Questions of Political Economy/61
keep up these permanent sources, should, we conceive, be termed pro-
ductive.
Labour which is employed for the purpose of directly affording en-
joyment, such as the labour of a performer on a musical instrument, we
term unproductive labour. Whatever is consumed by such a performer,
we consider as unproductively consumed: the accumulated total of the
sources of enjoyment which the nation possesses, is diminished by the
amount of what he has consumed: whereas, if it had been given to him in
exchange for his services in producing food or clothing, the total of the
permanent sources of enjoyment in the country might have been not
diminished but increased.
The performer on the musical instrument then is, so far as respects
that act, not a productive, but an unproductive labourer. But what shall
we say of the workman who made the musical instrument? He, most
persons would say, is a productive labourer; and with reason; because
the musical instrument is a permanent source of enjoyment, which does
not begin and end with the enjoying, and therefore admits of being accu-
mulated.
But the skill of the musician is a permanent source of enjoyment, as
well as the instrument which he plays upon: and although skill is not a
material object, but a quality of an object, viz., of the hands and mind of
the performer; nevertheless skill possesses exchangeable value, is ac-
quired by labour and capital, and is capable of being stored and accu-
mulated. Skill, therefore, must be considered as wealth; and the labour
and funds employed in acquiring skill in anything tending to the advan-
tage or pleasure of mankind, must be considered to be productively
employed and expended.
The skill of a productive labourer is analogous to the machinery he
works with: neither of them is enjoyment, nor conduces directly to it,
but both conduce indirectly to it, and both in the same way. If a spin-
ning-jenny be wealth, the spinner’s skill is also wealth. If the mechanic
who made the spinning-jenny laboured productively, the spinner also
laboured productively when he was learning his trade: and what they
both consumed was consumed productively, that is to say, its consump-
tion did not tend to diminish, but to increase the sum of the permanent
sources of enjoyment in the country, by effecting a new creation of those
sources, more than equal to the amount of the consumption.
The skill of a tailor, and the implements he employs, contribute in
the same way to the convenience of him who wears the coat, namely, a
62/John Stuart Mill
remote way: it is the coat itself which contributes immediately. The skill
of Madame Pasta, and the building and decorations which aid the effect
of her performance, contribute in the same way to the enjoyment of the
audience, namely, an immediate way, without any intermediate instru-
mentality. The building and decorations are consumed unproductively,
and Madame Pasta labours and consumes unproductively; for the build-
ing is used and worn out, and Madame Pasta performs, immediately for
the spectators’ enjoyment, and without leaving, as a consequence of the
performance, any permanent result possessing exchangeable value: con-
sequently the epithet unproductive must be equally applied to the gradual
wearing out of the bricks and mortar, the nightly consumption of the
more perishable “properties” of the theatre, the labour of Madame Pasta
in acting, and of the orchestra in playing. But notwithstanding this, the
architect who built the theatre was a productive labourer; so were the
producers of the perishable articles; so were those who constructed the
musical instruments; and so, we must be permitted to add, were those
who instructed the musicians, and all persons who, by the instructions
which they may have given to Madame Pasta, contributed to the for-
mation of her talent. All these persons contributed to the enjoyment of
the audience in the same way, and that a remote way, viz., by the pro-
duction of a permanent source of enjoyment.
The difference between this case, and the case of the cotton spinner
already adverted to, is this. The spinning-jenny, and the skill of the cot-
ton spinner, are not only the result of productive labour, but are them-
selves productively consumed. The musical instrument and the skill of
the musician are equally the result of productive labour, but are them-
selves unproductively consumed.
Let us now consider what kinds of labour, and of consumption or
expenditure, will be classed as productive, and what as unproductive,
according to this rule.
The following are always productive:
Labour and expenditure, of which the direct object or erect is the
creation of some material product useful or agreeable to mankind.
Labour and expenditure, of which the direct effect and object are, to
endow human or other animated beings with faculties or qualities useful
or agreeable to mankind, and possessing exchangeable value.
Labour and expenditure, which without having for their direct ob-
ject the creation of any useful material product or bodily or mental fac-
ulty or quality, yet tend indirectly to promote one or other of those ends,
Unsettled Questions of Political Economy/63
and are exerted or incurred solely for that purpose.
The following are partly productive and partly unproductive, and
cannot with propriety be ranged decidedly with either class:
Labour or expenditure which does indeed create, or promote the cre-
ation of, some useful material product or bodily or mental faculty or qual-
ity, but which is not incurred or exerted for that sole end; having also for
another, and perhaps its principal end, enjoyment, or the promotion of en-
joyment.
Such are the labour of the judge, the legislator, the police-officer,
the soldier; and the expenditure incurred for their support. These func-
tionaries protect and secure mankind in the exclusive possession of such
material products or acquired faculties as belong to them; and by the
security which they so confer, they indirectly increase production in a
degree far more than equivalent to the expense which is necessary for
their maintenance. But this is not the only purpose for which they exist;
they protect mankind, not merely in the possession of their permanent
resources, but also in their actual enjoyments; and so far, although highly
useful, they cannot, conformably to the distinction which we have at-
tempted to lay down, be considered productive labourers.
Such, also, are the labour and the wages of domestic servants. Such
persons are entertained mainly as subservient to mere enjoyment; but most
of them occasionally, and some habitually, render services which must be
considered as of a productive nature; suck as that of cookery, the last stage
in the manufacture of food; or gardening, a branch of agriculture.
The following are wholly unproductive:
Labour exerted, and expenditure incurred, directly and exclusively
for the purpose of enjoyment, and not calling into existence anything,
whether substance or quality, but such as begins and perishes in the
enjoyment.
Labour exerted and expenditure incurred uselessly, or in pure waste,
and yielding neither direct enjoyment nor permanent sources of enjoy-
ment.
It may be objected, that expenditure incurred even for pure enjoy-
ment promotes production indirectly, by inciting to exertion. Thus the
view of the splendour of a rich establishment is supposed by some writ-
ers to produce upon the mind of an indigent spectator an earnest desire
of enjoying the same luxuries, and a consequent purpose of working
with vigour and diligence, and saving from his earnings, thus increasing
the productive capital of the country.
64/John Stuart Mill
It is true that mankind are, for the most part, excited to productive
industry solely by the desire of subsequently consuming the result of
their labour and accumulation. The consumption called unproductive,
viz., that of which the direct result is enjoyment, is in reality the end, to
which production is only the means; and a desire for the end, is what
alone impels any one to have recourse to the means.
But, notwithstanding this, it is of the greatest importance to mark the
distinction between the labour and the consumption which have enjoyment
for their immediate end, and the labour and the consumption of which the
immediate end is reproduction. Though the sight of the former may still
further stimulate bleat desire for the enjoyments afforded by wealth, which
the mere knowledge, without flue immediate view, would suffice to excite
(and without dwelling on the consideration that if the example of a large
expenditure excites one individual to accumulation, it encourages two to
prodigal expense); still, if we look only to the erects which are intended, or
to those which immediately follow from the consumption, and whose
connexion with it can be distinctly traced, it evidently renders a country
poorer in the permanent sources of enjoyment; while reproductive con-
sumption leaves the country richer in these same sources. Besides, if what
is spent for mere pleasure promotes indirectly the increase of wealth, it can
only be by inducing others not to expend on mere pleasure.
Before quitting the subject, one more observation should be added.
It must not be supposed that what is expended upon unproductive
labourers is necessarily, the whole of it, unproductively consumed. The
unproductive labourers may save part of their wages, and invest them in
a productive employment.
It is not unusual to speak of what is paid in wages to a labourer as
being thereby consumed, as if all profit and loss to the nation were to be
seen in the capitalist’s account-book. What is paid for productive labour
is said to be productively consumed; what is paid for unproductive labour
is said to be consumed unproductively. It would be proper to say, not
that it is productively or unproductively consumed, but productively or
unproductively emended; otherwise, we shall be obliged to say that it is
consumed twice over; the first time unproductively, perhaps, and the
second, it may be, productively.
To pronounce in which way the wages of the labourer are consumed,
we must follow them into the labourer’s own hands. As much as is
necessary to keep the productive labourer in perfect health and fitness
for his employment, may be said to be consumed productively. To this
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should be added what he expends in rearing children to the age at which
they become capable of productive industry. If the state of the market
for labour be such as to afford him more, this he may either save, or, as
the common expression is, he may spend it. If he saves any portion, this
(unless it be merely hoarded) he intends to employ productively, and it
will be productively consumed. If he spends it, the consumption is for
enjoyment immediately, and is therefore unproductive.
This suggests another correction in the established language. Political
economists generally define the “net produce” to be that portion of the
gross annual produce of a country which remains after replacing the capital
annually consumed. This, as they proceed to explain, consists of profits
and rent; wages being included in the other portion of the gross produce,
that which goes to replace capital. After this definition, they usually pro-
ceed to tell us that the net produce, and that alone, constitutes the fund from
which a nation can accumulate, and add to its capital, as also that which it
can, without retrograding in wealth, expand unproductively, or for enjoy-
ment. Now, it is impossible that both the above propositions can be true. If
the net produce is that which remains after replacing capital, then net pro-
duce is not the only fund out of which accumulation may be made: for
accumulation may be made from wages; this is in all countries one of the
great sources, and in countries like America perhaps the greatest source of
accumulation. If, on the other hand, it is desirable to reserve the name of net
produce to denote the fund available for accumulation or for unproductive
consumption, we must define net produce differently. The definition which
appears the best adapted to render the ordinary doctrines relating to net
produce true, would be this:
The net produce of a country is whatever is annually produced be-
yond what is necessary for maintaining the stock of materials and imple-
ments unimpaired, for keeping all productive labourers alive and in con-
dition for work, and for just keeping up their numbers without increase.
What is required for these purposes, or, in other words, for keeping up
the productive resources of the country, cannot be diverted from its des-
tination without rendering the nation as a whole poorer. But all which is
produced beyond this, whether it be in the hands of the labourer, of the
capitalist, or of any of the numerous varieties of rent-owners, may be
taken for immediate enjoyment, without prejudice to the productive re-
sources of the community; and whatever part of it is not so taken, con-
stitutes a clear addition to the national capital, or to the permanent sources
of enjoyment.
Essay IV: On Profits, And Interest.
The profits of stock are the surplus which remains to the capitalist after
replacing his capital: and the ratio which that surplus bears to the capi-
tal itself, is the rate of profit.
This being the definition of profits, it might seem natural to adopt,
as a sufficient theory in regard to the rate of profit, that it depends upon
the productive power of capital. Some countries are favoured beyond
others, either by nature or art, in the means of production. If the powers
of the soil, or of machinery, enable capital to produce what is necessary
for replacing itself, and twenty per cent more, profits will be twenty per
cent; and so on.
This, accordingly, is a popular mode of speaking on the subject of
profits; but it has only the semblance, not the reality, of an explanation.
The “productive power of capital,” though a common, and, for some
purposes, a convenient expression, is a delusive one. Capital, strictly
speaking, has no productive power. The only productive power is that
of. labour; assisted, no doubt, by tools, and acting upon materials. That
portion of capital which consists of tools and materials, may be said,
perhaps, without any great impropriety, to have a productive power,
because they contribute, along with labour, to the accomplishment of
production. But that portion of capital which consists of wages, has no
productive power of its own. Wages have no productive power; they are
the price of a productive power. Wages do not contribute, along with
labour, to the production of commodities, no more than the price of
tools contributes along with the tools themselves. If labour could be had
without purchase, wages might be dispensed with. That portion of capi-
tal which is expended in the wages of labour, is only the means by which
the capitalist procures to himself, in the way of purchase, the use of that
Unsettled Questions of Political Economy/67
labour in which the power of production really resides.
The proper view of capital is, that anything whatever, which a per-
son possesses, constitutes his capital, provided he is able, and intends,
to employ it, not in consumption for the purpose of enjoyment, but in
possessing himself of the means of production, with the intention of
employing those means productively. Now the means of production are
labour, implements, and materials. The only productive power which
anywhere exists, is the productive power of labour, implements, and
materials.
We need not, on this account, altogether proscribe the expression,
“productive power of capital;” but we should carefully note, that it can
only mean the quantity of real productive power which the capitalist, by
means of his capital, can command. This may change, though the pro-
ductive power of labour remains the same. Wages, for example, may
rise; and then, although all the circumstances of production remain ex-
actly as they were before, the same capital will yield a less return, be-
cause it will set in motion a less quantity of productive labour.
We may, therefore, consider the capital of a producer as measured
by the means which he has of possessing himself of the different essen-
tials of production: namely, labour, and the various articles which labour
requires as materials, or of which it avails itself as aids. The ratio be-
tween the price which he has to pay for these means of production, and
the produce which they enable him to raise, is the rate of his profit. If he
must give for labour and tools four fifths of whet they will produce, the
remaining fifth will constitute his profit, and will give him a rate of one
in four, or twenty-five per cent, on his outlay.
It is necessary here to remark, what cannot indeed by any possibil-
ity be misunderstood, but might possibly be overlooked in cases where
attention to it is indispensable, viz., that we are speaking now of the rate
of profit, not the gross profit. If the capital of the country is very great,
a profit of only five per cent upon it may be much more ample, may
support a much larger number of capitalists and their families in much
greater affluence, than a profit of twenty-five per cent on the compara-
tively small capital of a poor country. The gross profit of a country is
the actual amount of necessaries, conveniences, and luxuries, which are
divided among its capitalists; but whether this be large or small, the rate
of profit may be just the same. The rate of profit is the proportion which
the profit bears to the capital; which the surplus produce after replacing
the outlay, bears to the outlay. In short, if we compare the price paid for
68/John Stuart Mill
labour and tools with what that labour and those tools will produce,
from this ratio we may calculate the rate of profit.
As the gross profit may be very different though the rate of profit be
the same; so also may the absolute price paid for labour and tools be
very different, and yet the proportion between the price paid and the
produce obtained may be just the same. For greater clearness, let us
omit, for the present, the consideration of tools, materials, etc., and con-
ceive production as the result solely of labour. In a certain country, let
us suppose, the wages of each labourer are one quarter of wheat per
year, and 100 men can produce, in one year, 120 quarters. Here the
price paid for labour is to the produce of that labour as 100 to 120, and
profits are 20 per cent. Suppose now that, in another country, wages are
just double what they are in the country before supposed; namely, two
quarters of wheat per year, for each labourer. But suppose, likewise,
that the productive power of labour is double what it is in the first coun-
try; that by the greater fertility of the soil, 100 men can produce 240
quarters, instead of 120, as before. Here it is obvious, that the real price
paid for labour is twice as great in the one country as in the other; but
the produce being also twice as great, the ratio between the price of
labour and the produce of labour is still exactly the same: an outlay of
200 quarters gives a return of 240 quarters, and profits, as before, are
20 per cent.
Profits, then (meaning not gross profits, but the rate of profit), de-
pend (not upon the price of labour, tools, and materials—but) upon the
ratio between the price of labour, tools, and materials, and the produce
of them: upon the proportionate share of the produce of industry which
it is necessary to offer, in order to purchase that industry and the means
of setting it in motion.
We have hitherto spoken of tools, buildings, and materials, as es-
sentials of production, co-ordinate with labour, and equally indispens-
able with it. This is true; but it is also true that tools, buildings, and
materials, are themselves the produce of labour; and that the only cause
(cases of monopoly excepted) of their having any value, is the labour
which is required for their production,
If tools, buildings, arid revere the spontaneous gifts of nature, re-
quiring no labour either in order to produce or to appropriate them; and
if they were thus bestowed upon mankind in definite quantity, and with-
out the possibility of being monopolized, they would still be as useful,
Unsettled Questions of Political Economy/69
as indispensable as they now are; but since they could, like air and the
light of the sun, be obtained without cost or sacrifice, they would form
no part of the expenses of production, and no portion of the produce
would be required to be set aside in order to replace the outlay made for
these purposes. The whole produce, therefore, after replacing the wages
of labour, would be clear profit to the capitalist.
Labour alone is the primary means of production; “the original pur-
chase-money which has been paid for everything.” Tools and materials,
like other things, have originally cost nothing but labour; and have a
value in the market only because wages have been paid for them. The
labour employed in making the tools and materials being added to the
labour afterwards employed in working up the materials by aid of the
tools, the sum total gives the whole of the labour employed in the pro-
duction of the completed commodity. In the ultimate analysis, therefore,
labour appears to be the only essential of production. To replace capi-
tal, is to replace nothing but the wages of the labour employed. Conse-
quently, the whole of the surplus, after replacing wages, is profits. From
this it seems to follow, that the ratio between the wages of labour and
the produce of that labour gives the rate of profit. And thus we arrive at
Mr. Ricardo’s principle, that profits depend upon wages; rising as wages
fat}, and falling as wages rise.
To protect this proposition (the most perfect form in which the law
of profits seems to have been yet exhibited) against misapprehension,
one or two explanatory remarks are required.
If by wages, be meant what constitutes the real affluence of the
labourer, the quantify of produce which he receives in exchange for his
labour; the proposition that profits vary inversely as wages, will be
obviously false. The rate of profit (as has been already observed and
exemplified) does not depend upon the price of labour, but upon the
proportion between the price of labour and the produce of it. If the
produce of labour is large, the price of labour may also be large without
any diminution of the rate of profit: and, in fact, the rate of profit is
highest in those countries (as, for instance, North America) where the
labourer is most largely remunerated. :For the wages of labour, though
so large, bear a less proportion to the abundant produce of labour, there
than elsewhere.
But this does not affect the truth of Mr. Ricardo’s principle as he
himself understood it; because an increase of the labourer’s real com-
forts was not considered by him as a rise of wages. In his language
70/John Stuart Mill
wages were only said to rise, when they rose not in mere quantity but in
value. To the labourer himself (he would have said) the quantity of his
remuneration is the important circumstance: but its value is the only
thing of importance to the person who purchases his labour.
The rate of profits depends not upon absolute or real wages, but
upon the value of wages.
If, however, by value, Mr. Ricardo had meant exchangeable value,
his proposition would still have been remote from the truth. Profits de-
pend no more upon the exchangeable value of the labourer’s remu-
neration, than upon its quantity. The truth is, that by the exchangeable
value is meant the quantity of commodities which the labourer can pur-
chase with his wages; so that when we say the exchangeable value of
wages, we say their quantity, under another name.
Mr. Ricardo, however, did not use the word value in the sense of
exchangeable value.
Occasionally, in his writings, he could not avoid using the word as
other people use it, to denote value in exchange. But he more frequently
employed it in a sense peculiar to himself, to denote cost of production;
in other words, the quantity of labour required to produce the article;
that being his criterion of cost of production. Thus, if a hat could be
made with ten days’ labour in France and with five days’ labour in
England, he said that the value of a hat was double in France of what it
was in England. If a quarter of corn could be produced a century ago
with half as much labour as is necessary at present, Mr. Ricardo said
that the value of a quarter of corn had doubled.
Mr. Ricardo, therefore, would not have said that wages had risen,
because a labourer could obtain two pecks of flour instead of one, for a
day’s labour; but if last year he received, for a day’s labour, something
which required eight hours’ labour to produce it, and this year some-
thing which requires nine hours, then Mr. Ricardo would say that wages
had risen. A rise of wages, with Mr. Ricardo, meant an increase in the
cost of production of wages; an increase in the number of hours’ labour
which goes to produce the wages of a days labour; an increase in the
proportion of the fruits of labour which the labourer receives for his
own share; an increase in the ratio between the wages of his labour and
the produce of it. This is the theory: the reasoning, of which it is the
result, has been given in the preceding paragraphs.
Some of Mr. Ricardo’s followers, or more properly, of those who
have adopted in most particulars the views of political economy which
Unsettled Questions of Political Economy/71
his genius was the first to open up, have given explanations of Mr.
Ricardo’s doctrine to nearly the same effect as the above, but in rather
different terms. They have said that profits depend not on absolute but
on proportional wages: which they expounded to mean the proportion
which the labourers en masse receive of the total produce of the coun-
try.
It seems, however, to be rather an unusual and inconvenient use of
language to speak of anything as depending upon the wages of labour,
and then to explain that by wages of labour you do not mean the wages
of an individual labourer, but of all the labourers in the country collec-
tively. Mankind will never agree to call anything a rise of wages, except
a rise of the wages of individual labourers, and it is therefore preferable
to employ language tending to fix attention upon the wages of the indi-
vidual. The wages, however, on which profits are said to depend, are
undoubtedly proportional wages, namely, the proportional wages of one
labourer: that is, the ratio between the wages of one labourer, and (not
tho whole produce of the country, but) the amount of what one labourer
can produce; the amount of that portion of the collective produce of the
industry of the country, which may be considered as corresponding to
the labour of one single labourer. Proportional wages, thus understood,
may be concisely termed the cost of production of wages; or, more con-
cisely still, the cost of wages, meaning their cost in the “original pur-
chase-money,” labour.
We have now arrived at a distinct conception of Mr. Ricardo’s theory
of profits in its most perfect state. And this theory we conceive to be the
basis of the true theory of profits. All that remains to do is to clear it
from certain difficulties which still surround it, and which, though in a
greater degree apparent than real, are not to be put aside as wholly
imaginary.
Though it is true that tools, and buildings (it is to be wished that
there were some compact designation for all these essentials of produc-
tion taken together), are themselves the produce of labour, and are only
on that account to be ranked among the expenses of production; yet the
whole of their value is not resolvable into the wages of the labourers by
whom they were produced. The wages of those labourers were paid by
a capitalist, and that capitalist must have the same profit upon his ad-
vances as any other capitalist; when, therefore, he sells the tools or
materials, he must receive from the purchaser not only the reimburse-
ment of the wages he has paid, but also as much more as will afford him
72/John Stuart Mill
the ordinary rate of profit. And when the producer, after buying the
tools and employing them in his own occupation, comes to estimate his
gains, he must set aside a portion of the produce to replace not only the
wages paid both by himself and by the tool-maker, but also the profits
of the tool-maker, advanced by himself out of his own capital.
It is not correct, therefore, to state that all which the capitalist re-
tains after replacing wages forms his profit. It is true the whole return to
capital is either wages or profits; but profits do not compose merely the
surplus after replacing the outlay; they also enter into the outlay itself.
Capital is expended partly in paying or reimbursing wages, and partly
in paying the profits of other capitalists, whose concurrence was neces-
sary in order to bring together the means of production.
If any contrivance, therefore, were devised by which that part of the
outlay which consists of previous profits could be either wholly or par-
tially dispensed with, it is evident that more would remain as the profit
of the immediate producer; while, as the quantity of labour necessary to
produce a given quantity of the commodity would be unaltered, as well
as the quantity of produce paid for that labour, it seems that the ratio
between the price of labour and its produce would be the same as be-
fore; that the cost of production of wages would be the same, proportional
wages the same, and yet profits different.
To illustrate this by a simple instance, let it be supposed that one-
third of the produce is sufficient to replace the wages of the labourers
who have been immediately instrumental in the production; that another
third is necessary to replace the materials used and the fixed capital
worn out in the process; while the remaining third is clear gain, being a
profit of 50 per cent. Suppose, for example, that 60 agricultural labourers,
receiving 60 quarters of corn for their wages, consume fixed capital and
seed amounting to the value of 60 quarters more, and that the result of
their operations is a produce of 180 quarters. When we analyse the
price of the seed and tools into its elements, we find that they must have
been the produce of the labour of 40 men: for the wages of those 40,
together with profit at the rate previously supposed (50 per cent) make
up 60 quarters.
The produce, therefore, consisting of 180 quarters, is the result of
the labour altogether of 100 men: namely, the 60 first mentioned, and
the 40 by whose labour the fixed capital and the seed were produced.
Let us now suppose, by way of an extreme case, that some contriv-
ance is discovered, whereby the purposes to which the second third of
Unsettled Questions of Political Economy/73
the produce had been devoted, may be dispensed with altogether: that
some means are invented by which the same amount of produce may be
procured without the assistance of any fixed capital, or the consumption
of any seed or material sufficiently valuable to be worth calculating. Let
us, however, suppose that this cannot be done without taking on a num-
ber of additional labourers, equal to those required for producing the
seed and fixed capital; so that the saving shall be only in the profits of
the previous capitalists. Let us, in conformity with this supposition,
assume that in dispensing with the fixed capital and seed, value 60 quar-
ters, it is necessary to take on 40 additional labourers, receiving a quar-
ter of corn each, as before.
The rate of profit has evidently risen. It has increased from 50 per
cent to 80 per cent. A return of 180 quarters could not before be ob-
tained but by an outlay of 120 quarters; it can now be obtained by an
outlay of no more than 100.
Here, therefore, is an undeniable rise of profits. Have wages, in the
sense above attached to them, fallen or not? It would seem not.
The produce (180 quarters) is still the result of the same quantity of
labour as before, namely, the labour of 100 men. A quarter of corn,
therefore, is still, as before, the produce of
10
/18 of a man’s labour for a
year. Each labourer receives, as before, one quarter of corn; each, there-
fore, receives the produce of
10
/18 of a year’s labour of one man, that is,
the same cost of production; each receives
10
/18 of the produce of his
own labour; that is, the same proportional wages; and the labourers
collectively still receive the same proportion, namely
10
/18, of the whole
produce.
The conclusion, then, cannot be resisted, that Mr. Ricardo’s theory
is defective: that the rate of profits does not exclusively depend upon the
value of wages, in his sense, namely, the quantity of labour of which the
wages of a labourer are the produce; that it does not exclusively depend
upon proportional wages, that is, upon the proportion which the labourers
collectively receive of the whole produce, or the ratio which the wages
of an individual labourer bear to the produce of his individual labour.
Those political economists, therefore, who have always dissented
from Mr. Ricardo’s doctrine, or who, having at first admitted, ended by
discarding it, were so far in the right; but they committed a serious error
in this, that, with the usual one-sidedness of disputants, they knew no
medium between admitting absolutely and dismissing entirely; and saw
no other course than utterly to reject what it would have been sufficient
74/John Stuart Mill
to modify.
It is remarkable how very slight a modification win suffice to render
Mr. Ricardo’s doctrine completely true. It is even doubtful whether he
himself, if called upon to adapt his expressions to this peculiar case,
would not have so explained his doctrine as to render it entirely unob-
jectionable.
It is perfectly true, that, in the example already made use of, a rise
of profits takes place, while wages, considered in respect to the quantity
of labour of which they are the produce, have not varied at all. But
though wages are still the produce of the same quantity of labour as
before, the cost of production of wages has nevertheless fallen; for into
cost of production there enters another element besides labour.
We have already remarked (and the very example out of which the
difficulty arose presupposes it) that the cost of production of an article
consists generally of two parts,—the wages of the labour employed,
and the profits of those who, in any antecedent stage of the production,
have advanced any portion of those wages. An article, therefore, may be
the produce of the same quantity of labour as before, and yet, if any
portion of the profits which the last producer has to make good to previ-
ous producers can be economized, the cost of production of the article is
diminished.
Now, in our example, a diminution of this sort is supposed to have
taken place in the cost of production of corn. The production of that
article has become less costly, in the ratio of six to five. A quantity of
corn, the means of producing which could not previously have been
secured but at an expense of 120 quarters, can now be produced by
means which 100 quarters are sufficient to purchase.
But the labourer is supposed to receive the same quantity of corn as
before. He receives one quarter. The cost of production of wages has,
therefore, fallen one-sixth. A quarter of corn, which is the remuneration
of a single labourer, is indeed the produce of the same quantity of labour
as before; but its cost of production is nevertheless diminished. It is now
the produce of
10
/18 of a man’s labour, and nothing else; whereas for-
merly it required for its production the conjunction of that quantity of
labour with an expenditure, in the form of reimbursement of profit,
amounting to one-fifth more.
If the cost of production of wages had remained the same as before,
profits could not have risen. Each labourer received one quarter of corn;
but one quarter of corn at that time was the result of the same cost of
Unsettled Questions of Political Economy/75
production, as 1
1
/5 quarter now. In order, therefore, that each labourer
should receive the same cost of production, each must now receive one
quarter of corn, plus one-fifth. The labour of 100 men could not be
purchased at this price for less than 120 quarters; and the produce, 180
quarters, would yield only 50 per cent, as first supposed.
7
It is, therefore, strictly true, that the rate of profits varies inversely
as the cost of production of wages. Profits cannot rise, unless the cost of
production of wages falls exactly as much; nor fall, unless it rises.
The proof of this position has been stated in figures, and in a par-
ticular case: eve shall now state it in general terms, and for all cases.
We have supposed, for simplicity, that wages are paid in the fin-
ished commodity. The agricultural labourers, in our example, were paid
in corn, and if we had called them weavers, we should have supposed
them to be paid in cloth. This supposition is allowable, for it is obvi-
ously of no consequence, in a question of value, or cost of production,
what precise article we assume as the medium of exchange. The suppo-
sition has, besides, the recommendation of being conformable to the
most ordinary state of the facts; for it is by the sale of his own finished
article that each capitalist obtains the means of hiring labourers to re-
new the production; which is virtually the same thing as if, instead of
selling the article for money and giving the money to his labourers, he
gave the article itself to the labourers, and they sold it for their daily
bread.
Assuming, therefore, that the labourer is paid in the very article he
produces, it is evident that, when any saving of expense takes place in
the production of that article, if the labourer still receives the same cost
of production as before, he must receive an increased quantity, in the
very same ratio in which the productive power of capital has been in-
creased. But, if so, the outlay of the capitalist will bear exactly the same
proportion to the return as it did before; and profits will not rise.
The variations, therefore, in the rate of profits, and those in the cost
of production of wages, go hand in hand, and are inseparable. Mr.
Ricardo’s principle, that profits cannot rise unless wages fall, is strictly
true, if by low wages be meant not merely wages which are the produce
of a smaller quantity of labour, but wages which are produced at less
cost, reckoning labour and previous profits together. But the interpreta-
tion which some economists have put upon Mr. Ricardo’s doctrine, when
they explain it to mean that profits depend upon the proportion which
the labourers collectively receive of the aggregate produce, will not hold
76/John Stuart Mill
at all; for that, in our first example, remained the same, and yet profits
rose.
The only expression of the law of profits, which seems to be cor-
rect, is, that they depend upon the cost of production of wages. This
must be received as the ultimate principle.
From this may be deduced all the corollaries which Mr. Ricardo
and others have drawn from his theory of profits as expounded by him-
self. The cost of production of the wages of one labourer for a year, is
the result of two concurrent elements or factors,—viz., 1st, the quantity
of commodities which the state of the labour market affords to him;
2nd, the cost of production of each of those commodities. It follows,
that the rate of profits can never rise but in conjunction with one or
other of two changes,—1st, a diminished remuneration of the labourer;
or, 2ndly, an improvement in production, or an extension of commerce,
by which any of the articles habitually consumed by the labourer may
be obtained at smaller cost. (If the improvement be in any article which
is not consumed by the labourer, it merely lowers the price of that ar-
ticle, and thereby benefits capitalists and all other people so far as they
are consumers of that particular article, and may be said to increase
gross profit, but not the rate of profit.)
So, on the other hand, the rate of profit cannot fall, unless concur-
rently with one of two events: 1st, an improvement in the labourer’s
condition; or, 2ndly, an increased difficulty of producing or importing
some article which the labourer habitually consumes. The progress of
population and cultivation has a tendency to lower profits through the
latter of these two channels, owing to the well known law of the applica-
tion of capital to land, that a double capital does not ceteris paribus
yield a double produce. There is, therefore, a tendency in the rate of,
profits to fall with the progress of society. But there is also an antago-
nist tendency of profits to rise, by the successive introduction of im-
provements in agriculture, and in the production of those manufactured
articles which the labourers consume. Supposing, therefore, that the
actual comforts of the labourer remain the same, profits will fall or rise,
according as population, or improvements in the production of food and
other necessaries, advance fastest.
The rate of profits, therefore, tends to fall from the following
causes:—1. An increase of capital beyond population, producing in-
creased competition for labour; 2. An increase of population, occasioning
a, demand for an increased quantity of food, which must be produced at
Unsettled Questions of Political Economy/77
a greater cost. The rate of profits tends to rise from the following
causes:—1. An increase of population beyond capital, producing in-
creased competition for employment; 2. Improvements producing in-
creased cheapness of necessaries, and other articles habitually consumed
by the labourer.
The circumstances which regulate the rate of interest have usually
been treated, even by professed writers on political economy, in a vague,
loose, and unscientific manner. It has, however, been felt that there is
some connexion between the rate of interest and the rate of profits; that
(to use the words of Adam Smith) much will be given for money, when
much can be made of it. It has been felt, also, that the fluctuations in the
market-rate of interest from day to day, are determined, like other mat-
ters of bargain and sale, by demand and supply. It has, therefore, been
considered as an established principle, that the rate of interest varies
from day to day according to the quantity of capital offered or called for
on loan; but conforms on the average of years to a standard determined
by the rate of profits, and bearing some proportion to that rate—but a
proportion which few attempts have been made to define.
In consequence of these views, it has been customary to judge of the
general rate of profits at any time or place, by the rate of interest at that
time and place: it being supposed that the rate of interest, though liable
to temporary fluctuations, can never vary for any long period of time
unless profits vary; a notion which appears to us to be erroneous.
It was observed by Adam Smith, that profits may be considered as
divided into two parts, of which one may properly be considered as the
remuneration for the use of the capital itself, the other as the reward of
the labour of superintending its employment; and that the former of
these will correspond with the rate of interest. The producer who bor-
rows capital to employ it in his business, will consent to pay, for the use
of it, all that remains of the profits he can make by it, after reserving
what he considers reasonable remuneration for the trouble and risk which
he incurs by borrowing and employing it.
This remark is just; but it seems necessary to give greater precision
to the ideas which it involves.
The difference between the profit which can be made by the use of
capital, and the interest which will be paid for it, is rightly characterized
as wages of superintendence. But to infer from this that it is regulated
by entirely the same principles as other wages, would be to push the
analogy too far. It is wages, but wages paid by a commission upon the
78/John Stuart Mill
capital employed. If the general rate of profit is 10 per cent, and the rate
of interest 5 per cent, the wages of superintendence will be 5 per cent;
and though one borrower employ a capital of 100,000 l., another no
more than 100 l., the labour of both will be rewarded with the same
percentage, though, in the one case, this symbol will represent an in-
come of 5 l., in the other case, of 5000 l. Yet it cannot be pretended that
the labour of the two borrowers differs in this proportion. The rule,
therefore, that equal quantities of labour of equal hardness and skill are
equally remunerated, does not hold of this kind of labour. The wages of
any other labour are here an inapplicable criterion.
The wages of superintendence are distinguished from ordinary wages
by another peculiarity, that they are not paid in advance out of capital,
like the wages of all other labourers, but merge in the profit, and are not
realized until the production is completed. This takes them entirely out
of the ordinary law of wages. The wages of labourers who are paid in
advance, are regulated by the number of competitors compared with the
amount of capital; the labourers can consume no more than what has
been previously accumulated. But there is no such limit to the remu-
neration of a kind of labour which is not paid for out of wealth previ-
ously accumulated, but out of that produce which it is itself employed in
calling into existence.
When these circumstances are duly weighed, it will be perceived,
that although profit may be correctly analyzed into interest and wages
of superintendance, we ought not to lay it down as the law of interest,
that it is profits scows the wages of superintendance. Of the two expres-
sions, it would be decidedly the more correct, that the wages of
superintendance are regulated by the rate of interest, or are equal to
profits relays interest. In strict propriety, neither expression would be
allowable. Interest, and the wages of superintendence, can scarcely be
said to depend upon one another. They are to one another in the same
relation as wages and profits are. They are like two buckets in a well:
when one rises, the other descends, but neither of the two motions is the
cause of the other; both are simultaneous ejects of the same cause, the
turning of the windlass.
There are among the capitalists of every country a considerable
number who are habitually, and almost necessarily, lenders; to whom
scarcely any difference between what they could receive for their money
and what could be made by it, would be an equivalent for incurring the
Unsettled Questions of Political Economy/79
risk and labour of carrying on business. In this predicament is the prop-
erty of widows and orphans; of many public bodies; of charitable institu-
tions; most property which is vested in trustees; and the property of a
great number of persons unused to business, and who have a distaste for
it, or whose other occupations prevent their engaging in it. How large a
proportion of the property lent to the nation comes under this descrip-
tion, has been pointed out in Mr. Tooke’s Considerations on the State
of the Currency.
There is another large class, consisting of bankers, bill-brokers, and
others, who are money-lenders by profession; who enter into that pro-
fession with the intention of making such gains as it will yield them, and
who would not be induced to change their business by any but a very
strong pecuniary inducement.
There is, therefore, a large class of persons who are habitually lend-
ers. On the other hand, all persons in business may be considered as
habitually borrowers. Except in times of stagnation, they are all desir-
ous of extending their business beyond their own capitals and are never
desirous of lending any portion of their capital except for very short
periods, during which they cannot advantageously invest it in their own
trade.
There is, in short, a productive class, and there is, besides, a class
technically styled the monied class, who live upon the interest of their
capital, without engaging personally in the work of production.
The class of borrowers may be considered as unlimited. There is no
quantity of capital that could be offered to be lent, which the productive
classes would not be willing to borrow, at any rate of interest which
would afford them the slightest excess of profit above a bare equivalent
for the additional risk, incurred by that transaction, of the evils atten-
dant on insolvency. The only assignable limit to the inclination to bor-
row, is the power of giving security: the producers would find it difficult
to borrow more than an amount equal to their own capital. If more than
half the capital of the country were in the hands of persons who pre-
ferred lending it to engaging personally in business, and if the surplus
were greater than could be invested in loans to Government, or in mort-
gages upon the property of unproductive consumers; the competition of
lenders would force down the rate of interest very low. A certain portion
of the monied class would be obliged either to sacrifice their predilections
by engaging in business, or to lend on inferior security; and they would
accordingly accept, where they could obtain good security, an abate-
80/John Stuart Mill
ment of interest equivalent to the difference of risk.
This is an extreme case. Let us put an extreme case of a contrary
kind. Suppose that the wealthy people of any country, not relishing an
idle life, and having a strong taste for gainful labour, were generally
indisposed to accept of a smaller income in order to be relieved from the
labour and anxiety of business. Every producer in flourishing circum-
stances would be eager to borrow, and few willing to lend. Under these
circumstances the rate of interest would differ very little from the rate of
profit. The trouble of managing a business is not proportionally increased
by an increase of the magnitude of the business; and a very small sur-
plus profit above the rate of interest, would therefore be a sufficient
inducement to capitalists to borrow.
We may even conceive a people whose habits were such, that in
order to induce them to lend, it might be necessary to offer them a rate of
interest fully equal to the ordinary rate of profit. In that case, of course,
the productive classes would scarcely ever borrow. But government,
and the unproductive classes, who do not borrow in order to make a
profit by the loan, but from the pressure of a real or supposed necessity,
might still be ready to borrow at this high rate.
Although the inclination to borrow has no fixed or necessary limit
except the power of giving security, yet it always, in point of fact, stops
short of this; from the uncertainty of the prospects of any individual
producer, which generally indisposes him to involve himself to the full
extent of his means of payment. There is never any permanent want of
market for things in general; but there may be so for the commodity
which any one individual is producing; and even if there is a demand for
the commodity, people may not buy it of him but of some other. There
are, consequently, never more than a portion of the producers, the state
of whose business encourages them to add to their capital by borrow-
ing; and even these are disposed to borrow only as much as they see an
immediate prospect of profitably employing. There is, therefore, a prac-
tical limit to the demands of borrowers at any given instant; and when
these demands are all satisfied, any additional capital offered on loan
can find an investment only by a reduction of the rate of interest.
The amount of borrowers being given (and by the amount of bor-
rowers is here meant the aggregate sum which people are willing to
borrow at some given rate), the rate of interest will depend upon the
quantity of capital owned by people who are unwilling or unable to
engage in trade. The circumstances which determine this, are, on the
Unsettled Questions of Political Economy/81
one hand, the degree in which a taste for business, or an aversion to it,
happens to be prevalent among the classes possessed of property; and
on the other hand, the amount of the annual accumulation from the earn-
ings of labour. Those who accumulate from their wages, fees, or sala-
ries, have, of course, (speaking generally) no means of investing their
savings except by lending them to others: their occupations prevent them
from personally superintending any employment.
Upon these circumstances, then, the rate of interest depends, the
amount of borrowers being given. And the counter-proposition equally
holds, that, the above circumstances being given, the rate of interest
depends upon the amount of borrowers.
Suppose, for example, that when the rate of interest has adjusted
itself to the existing state of the circumstances which affect the disposi-
tion to borrow and to lend, a war breaks out, which induces govern-
ment, for a series of years, to borrow annually a large sum of money.
During the whole of this period, the rate of interest will remain consid-
erably above what it was before, and what it will be afterwards.
Before the commencement of the supposed war, all persons who
were supposed to lend at the then rate of interest, had found borrowers,
and their capital was invested. This may be assumed; for if any capital
had been seeking for a borrower at the existing rate of interest, and
unable to find one, its owner would have offered it at a rate slightly
below the existing rate. He would, for instance, have bought into the
funds, at a slight advance of price; and thus set at liberty the capital of
some fundholder, who, the funds yielding a lower interest, would have
been obliged to accept a lower interest from individuals.
Since, then, all who were willing to lend their capital at the market
rate, have already lent it, Government will not be able to borrow unless
by offering higher interest. Though, with the existing habits of the pos-
sessors of disposable capital, an increased number cannot be found who
are willing to lend at the existing rate, there are doubtless some who will
be induced to lend by the temptation of a higher rate. The same tempta-
tion will also induce some persons to invest, in the purchase of the new
stock, what they would otherwise have expended unproductively in in-
creasing their establishments, or productively, in improving their es-
tates. The rate of interest will rise just sufficiently to call forth an in-
crease of lenders to the amount required.
This we apprehend to be the cause why the rate of interest in this
country was so high as it is well known to have been during the last war.
82/John Stuart Mill
It is, therefore, by no means to be inferred, as some have done, that the
general rate of profits was unusually high during the same period, be-
cause interest was so. Supposing the rate of profits to have been pre-
cisely the same during the war, as before or after it, the rate of interest
would nevertheless have risen, from the causes and in the manner above
described.
The practical use of the preceding investigation is, to moderate the
confidence with which inferences are frequently drawn with respect to
the rate of profit from evidence regarding the rate of interest; and to
shew that although the rate of profit is one of the elements which com-
bine to determine the rate of interest, the latter is also acted upon by
causes peculiar to itself, and may either rise or fall, both temporarily
and permanently, while the general rate of profits remains unchanged.
The introduction of banks, which perform the function of lenders
and loan-brokers, with or without that of issuers of paper-money, pro-
duces some further anomalies in the rate of interest, which have not, so
far as we are aware, been hitherto brought within the pale of exact
science.
If bankers were merely a class of middlemen between the lender and
the borrower; if they merely received deposits of capital from those who
had it lying unemployed in their hands, and lent this, together with their
own capital, to the productive classes, receiving interest for it, and pay-
ing interest in their turn to those who had placed capital in their hands;
the effect of the operations of banking on the rate of interest would be to
lower it in some slight degree. The banker receives and collects together
sums of money much too small, when taken individually, to render it
worth while for the owners to look out for an investment, but which in
the aggregate form a considerable amount. This amount may be consi-
dered a clear addition to the productive capital of the country; at least,
to the capital in activity at any moment. And as this addition to the
capital accrues wholly to that part of it which is not employed by the
owners, but lent to other producers, the natural effect is a diminution of
the rate of interest.
The banker, to the extent of his own private capital (the expenses of
his business being first paid), is a lender at interest. But, being subject
to risk and trouble fully equal to that which belongs to most other em-
ployments, he cannot be satisfied with the mere interest even of his whole
capital: he must have the ordinary profits of stock, or he will not engage
in the business: the state of banking must be such as to hold out to him
Unsettled Questions of Political Economy/83
the prospect of adding to the interest of what remains of his own capital
after paying the expenses of his business, interest upon capital depos-
ited with him, in sufficient amount to make up, after paying the ex-
penses, the ordinary profit which could be derived from his own capital
in any productive employment. This will be accomplished in one of two
ways.
1. If the circumstances of society are such as to furnish a ready
investment of disposable capital; (as for instance in London, where the
public funds and other securities, of undoubted stability, and affording
great advantages for receiving the interest without trouble and realizing
the principle without difficulty when required, tempt all persons who
have sums of importance lying idle, to invest them on their own account
without the intervention of any middleman;) the deposits with bankers
consist chiefly of small sums likely to be wanted in a very short period
for current expenses, arid the interest on which would seldom be worth
the trouble of calculating it. Bankers, therefore, do not allow any inter-
est on their deposits. After paying the expenses of their business, all the
rest of the interest they receive is clear gain. But as the circumstances of
banking, as of all other modes of employing capital, will on the average
be such as to afford to a person entering into the business a prospect of
realizing the ordinary, and no more than the ordinary, profits upon his
own capital; the gains of each banker by the investment of his deposits,
will not on the average exceed what is necessary to make up his gains on
his own capital to the ordinary rate. It is, of course, competition, which
brings about this limitation. Whether competition operates by lowering
the rate of interest, or by dividing the business among a larger number,
it is difficult to decide. Probably it operates in both ways; but it is by no
means impossible that it may operate in the latter way alone: just as an
increase in the number of physicians does not lower the fees, though it
diminishes an average competitor’s chance of obtaining them.
It is not impossible that the disposition of the lenders might be such,
that they would cease to lend rather than acquiesce in any reduction of
the rate of interest. If so, the arrival of a new lender, in the person of a
banker of deposit, would not lower the rate of interest in any consider-
able degree. A slight fall would take place, and with that exception things
would be as before, except that the capital in the hands of the banker
would have put itself into the place of an equal portion of capital be-
longing to other lenders, who would themselves have engaged in busi-
ness (e.g., by subscribing to some joint-stock company, or entering into
84/John Stuart Mill
commandite). Bankers’ profits would then be limited to the ordinary
rate chiefly by the division of the business among many banks, so that
each on the average would receive no more interest on his deposits than
would suffice to make up the interest on his own capital to the ordinary
rate of profit after paying all expenses.
2. But if the circumstances of society render it difficult and incon-
venient for persons who wish to live upon the interest of their money, to
seek an investment for themselves, the bankers become agents for this
specific purpose: large as well as small sums are deposited with them,
and they allow interest to their customers. Such is the practice of the
Scotch banks, and of most of the country banks in England. Their cus-
tomers, not living at any of the great seats of money transactions, prefer
entrusting their capital to somebody on the spot, whom they know, and
in whom they confide. He invests their money on the best terms he can,
and pays to them such interest as he can afford to give; retaining a
compensation for his own risk and trouble. This compensation is fixed
by the competition of the market. The rate of interest is no further low-
ered by this operation, than inasmuch as it brings together the lender
and the borrower in a safe and expeditious manner. The lender incurs
less risk, and a larger proportion, therefore, of the holders of capital are
willing to be lenders.
When a banker, in addition to his other functions, is also an issuer
of paper money, he gains an advantage similar to that which the London
bankers derive from their deposits. To the extent to which he can put
forth his notes, he has so much the more to lend, without himself having
to pay any interest for it.
If the paper is convertible, it cannot get into circulation permanently
without displacing specie, which goes abroad and brings back an equiva-
lent value. To the extent of this value, there is an increase of the capital
of the country; and the increase accrues solely to that part of the capital
which is employed in loans.
If the paper is inconvertible, and instead of displacing specie depre-
ciates the currency, the banker by issuing it levies a tax on every person
who has money in his hands or due to him. He thus appropriates to
himself a portion of the capital of other people, and a portion of their
revenue. The capital might have been intended to be lent, or it might
have been intended to be employed by the owner: such part, of it as was
intended to be employed by the owner now changes its destination, and
is lent. The revenue was either intended to be accumulated, in which
Unsettled Questions of Political Economy/85
case it had already become capital, or it was intended to be spent: in this
last case, revenue is converted into capital: and thus, strange as it may
appear, the depreciation of the currency, when effected in this way, op-
erates to a certain extent as a forced accumulation. This, indeed, is no
palliation of its iniquity. Though A might have spent his property
unproductively, B ought not to be permitted to rob him of it because B
will expend it on productive labour.
In any supposable case, however, the issue of paper money by bank-
ers increases the proportion of the whole capital of the country which is
destined to be lent. The rate of interest must therefore fall, until some of
the lenders give over lending, or until the increase of borrowers absorbs
the whole.
But a fall of the rate of interest, sufficient to enable the money mar-
ket to absorb the whole of the paper-loans, may not be sufficient to
reduce the profits of a lender who lends what costs him nothing, to the
ordinary rate of profit upon his capital. Here, therefore, competition
will operate chiefly by dividing the business. The notes of each bank
will be confined within so narrow a district, or will divide the supply of
a district with so many other banks, that on the average each will re-
ceive no larger amount of interest on his notes than will make up the
interest on his own capital to the ordinary rate of profit.
Even this way, however, the competition has the effect, to a certain
limited extent, of lowering the rate of interest; for the power of bankers
to receive interest on more than their capital attracts a greater amount of
capital into the banking business than would otherwise flow into it; and
this greater capital being all lent, interest will fall in consequence.
Essay V: On the Definition of Political Economy;
and on the Method of Investigation Proper to It
It might be imagined, on a superficial view of the nature and objects of
definition, that the definition of a science would occupy the same place
in the chronological which it commonly does in the didactic order. As a
treatise on any science usually commences with an attempt to express,
in a brief formula, what the science is, and wherein it differs from other
sciences, so, it might be supposed, did the framing of such a formula
naturally precede the successful cultivation of the science.
This, however, is far from having been the ease. The definition of a
science has almost invariably not preceded, but followed, the creation
of the science itself. Like the wall of a city, it has usually been erected,
not to be a receptacle for such edifices as might afterwards spring up,
but to circumscribe an aggregation already in existence. Mankind did
not measure out the ground for intellectual cultivation before they be-
gan to plant it; they did not divide the field of human investigation into
regular compartments first, and then begin to collect truths for the pur-
pose of being therein deposited; they proceeded in a less systematic
manner. As discoveries were gathered in, either one by one, or in groups
resulting from the continued prosecution of some uniform course of
inquiry, the truths which were successfully brought into store cohered
and became agglomerated according to their individual affinities. With-
out any intentional classification, the facts classed themselves. They
became associated in the mind, according to their general and obvious
resemblances; and the aggregates thus formed, having to be frequently
spoken of as aggregates, came to be denoted by a common name. Any
body of truths which had thus acquired a collective denomination, was
called a science. It was long before this fortuitous classification was felt
Unsettled Questions of Political Economy/87
not to be sufficiently precise. It was in a more advanced stage of the
progress of knowledge that mankind became sensible of the advantage
of ascertaining whether the facts which they had thus grouped together
were distinguished from all other facts by any common properties, and
what these were. The first attempts to answer this question were com-
monly very unskilful, and the consequent definitions extremely imper-
fect.
And, in truth, there is scarcely any investigation in the whole body
of a science requiring so high a degree of analysis and abstraction, as
the inquiry, what the science itself is; in other words, what are the proper-
ties common to all the truths composing it, and distinguishing them from
all other truths. Many persons, accordingly, who are profoundly con-
versant with the details of a science, would be very much at a loss to
supply such a definition of the science itself as should not be liable to
well-grounded logical objections. From this remark, we cannot except
the authors of elementary scientific treatises. The definitions which those
works furnish of the sciences, for the most part either do not fit them—
some being too wide, some too narrow—or do not go deep enough into
them, but define a science by its accidents, not its essentials; by some
one of its properties which may, indeed, serve the purpose of a distin-
guishing mark, but which is of too little importance to have ever of itself
led mankind to give the science a name and rank as a separate object of
study.
The definition of a science must, indeed, be placed among that class
of truths which Dugald Stewart had in view, when he observed that the
first principles of all sciences belong to the philosophy of the human
mind. The observation is just; and the first principles of all sciences,
including the definition of them, have consequently participated hitherto
in the vagueness and uncertainty which has pervaded that most difficult
and unsettled of all branches of knowledge. If we open any book, even
of mathematics or natural philosophy, it is impossible not to be struck
with the mistiness of what we find represented as preliminary and fun-
damental notions, and the very insufficient manner in which the propo-
sitions which are palmed upon us as first principles seem to be made
out, contrasted with the lucidity of the explanations and the conclu-
siveness of the proofs as soon as the writer enters upon the details of his
subject. Whence comes this anomaly? Why is the admitted certainty of
the results of those sciences in no way prejudiced by the want of solidity
in their premises? How happens it that a firm superstructure has been
88/John Stuart Mill
erected upon an unstable foundation? The solution of the paradox is,
that what are called first principles, are, in truth, last principles. Instead
of being the fixed point from whence the chain of proof which supports
all the rest of the science hangs suspended, they are themselves the re-
motest link of the chain. Though presented as if all other truths were to
be deduced from them, they are the truths which are last arrived at; the
result of the last stage of generalization, or of the last and subtlest pro-
cess of analysis, to which the particular truths of the science can be
subjected; those particular truths having been previously been ascer-
tained by the evidence proper to their own nature.
Like other sciences, Political Economy has remained destitute of a
definition framed on strictly logical principles, or even of, what is more
easily to be had, a definition exactly co-extensive with the thing defined.
This has not, perhaps, caused the real bounds of the science to be, in this
country at least, practically mistaken or overpassed; but it has occa-
sioned—perhaps we should rather say it is connected with—indefinite,
and often erroneous, conceptions of the mode in which the science should
be studied.
We proceed to verify these assertions by an examination of the most
generally received definitions of the science.
1. First, as to the vulgar notion of the nature and object of Political
Economy, we shall not be wide of the mark if we state it to be something
to this effect:—That Political Economy is a science which teaches, or
professes to teach, in what manner a nation may be made rich. This
notion of what constitutes the science, is in some degree countenanced
by the title and arrangement which Adam Smith gave to his invaluable
work. A systematic treatise on Political Economy, he chose to call an
Inquiry into the Nature and Causes of the Wealth of Nations; and the
topics are introduced in an order suitable to that view of the purpose of
his book.
With respect to the definition in question, if definition it can be
called which is not found in any set form of words, but left to be arrived
at by a process of abstraction from a hundred current modes of speak-
ing on the subject; it seems liable to the conclusive objection, that it
confounds the essentially distinct, though closely connected, ideas of
science and art. These two ideas differ from one another as the under-
standing differs from the will, or as the indicative mood in grammar
differs from the imperative. The one deals in facts, the other in precepts.
Science is a collection of truths; art a body of rules, or directions for
Unsettled Questions of Political Economy/89
conduct. The language of science is, This is, or, This is not; This does,
or does not, happen. The language of art is, Do this; Avoid that. Science
takes cognizance of a phenomenon, and endeavours to discover its law;
art proposes to itself an end, and looks out for sneaks to effect it.
If, therefore, Political Economy be a science, it cannot be a collec-
tion of practical rules; though, unless it be altogether a useless science,
practical rules must be capable of being founded upon it. The science of
mechanics, a branch of natural philosophy, lays down the laws of mo-
tion, and the properties of what are called the mechanical powers. The
art of practical mechanics teaches how we may avail ourselves of those
laws and properties, to increase our command over external nature. An
art would not be an art, unless it were founded upon a scientific know-
ledge of the properties of the subject-matter: without this, it would not
be philosophy, but empiricism; mpeira, not rcnh, in Plato’s sense.
Rules, therefore, for making a nation increase in wealth, are not a sci-
ence, but they are the results of science. Political Economy does not of
itself instruct how to make a nation rich; but whoever would be quali-
fied to judge of the means of making a nation rich, must first be a politi-
cal economist.
2. The definition most generally received among instructed persons,
and laid down in the commencement of most of the professed treatises
on the subject, is to the following effect:—That Political Economy in-
forms us of the laws which regulate the production, distribution, and
consumption of wealth. To this definition is frequently appended a fa-
miliar illustration. Political Economy, it is said, is to the state, what
domestic economy is to the family.
This definition is free from the fault which we pointed out in the
former one. It distinctly takes notice that Political Economy is a science
and not an art; that it is conversant with laws of nature, not with max-
ims of conduct, and teaches us how things take place of themselves, not
in what manner it is advisable for us to shape then, in order to attain
some particular end.
But though the definition is, with regard to this particular point,
unobjectionable, so much can scarcely be said for the accompanying
illustration; which rather sends back the mind to the current loose no-
tion of Political Economy already disposed of. Political Economy is
really, and is stated in the definition to be, a science: but domestic
economy, so far as it is capable of being reduced to principles, is an art.
It consists of rules, or maxims of prudence, for keeping the family regu-
90/John Stuart Mill
larly supplied with what its wants require, and securing, with any given
amount of means, the greatest possible quantity of physical comfort and
enjoyment. Undoubtedly the beneficial result, the great practical appli-
cation of Political Economy, would be to accomplish for a nation some-
thing like what the most perfect domestic economy accomplishes for a
single household: but supposing this purpose realised, there would be
the same difference between the rules by which it might be effected, and
Political Economy, which there is between the art of gunnery and the
theory of projectiles, or between the rules of mathematical land-survey-
ing end the science of trigonometry.
The definition, though not liable to the same objection as the illus-
tration which is annexed to it, is itself far from unexceptionable. To
neither of them, considered as standing at the head of a treatise, have we
much to object. At a very early stage in the study of the science, any-
thing more accurate would be useless, and therefore pedantic. In a merely
initiatory definition, scientific precision is not required: the object is, to
insinuate into the reader’s mind, it is scarcely material by what means,
some general preconception of what are the uses of the pursuit, and
what the series of topics through which he is about to travel. As a mere
anticipation or ébauche of a definition, intended to indicate to a learner
as much as he is able to understand before he begins, of the nature of
what is about to be taught to him, we do not quarrel with the received
formula. But if it claims to be admitted as that complete defintio or
boundary-line, which results from a thorough exploring of the whole
extent of the subject, and is intended to mark the exact place of Political
Economy among the sciences, its pretension cannot be allowed.
“The science of the laws which regulate the production, distribu-
tion, and consumption of wealth.” The term wealth is surrounded by a
haze of floating and vapoury associations, which will let nothing that is
seen through them be shown distinctly. Let us supply its place by a
periphrasis. Wealth is defined, all objects useful or agreeable to man-
kind, except suet as can be obtained in indefinite quantity without labour.
Instead of all objects, some authorities say, all material objects: the dis-
tinction is of no moment for the present purpose.
To confine ourselves to production: If the laws of the production of
all objects, or even of all material objects, which are useful or agreeable
to mankind, were comprised in Political Economy, it would be difficult
to say where the science would end: at the least, all or nearly all physical
knowledge would be included in it. Corn and cattle are material objects,
Unsettled Questions of Political Economy/91
in a high degree useful to mankind. The laws of the production of the
one include the principles of agriculture; the production of the other is
the subject of the art of cattle-breeding, which, in so far as really an art,
must be built upon the science of physiology. The laws of production of
manufactured articles involve the whole of chemistry and the whole of
mechanics. The laws of the production of the wealth which is extracted
from the bowels of the earth, cannot be set forth without taking in a
large part of geology.
When a definition so manifestly surpasses in extent what it pro-
fesses to define, we must suppose that it is not meant to be interpreted
literally, though the limitations with which it is to be understood are not
stated.
Perhaps it will be said, that Political Economy is conversant with
such only of the laws of the production of wealth as are applicable to all
kinds of wealth: those which relate to the details of particular trades or
employments forming the subject of other and totally distinct sciences.
If, however, there were no more in the distinction between Political
Economy and physical science than this, the distinction, we may ven-
ture to affirm, would never have been made. No similar division exists
in any other department of knowledge. We do not break up zoology or
mineralogy into two parts; one treating of the properties common to all
animals, or to all minerals; another conversant with the properties pecu-
liar to each particular species of animals or minerals. The reason is
obvious; there is no distinction in kind between the general laws of ani-
mal or of mineral nature and the peculiar properties of particular spe-
cies. There is as close an analogy between the general laws and the
particular ones, as there is between one of the general laws and another:
most commonly, indeed, the particular laws are but the complex result
of a plurality of general laws modifying each other. A separation, there-
fore, between the general laws and the particular ones, merely because
the former are general and the latter particular, would run counter both
to the strongest motives of convenience and to the natural tendencies of
the mind. If the case is different with the laws of the production of
wealth, it must be because, in this case, the general laws differ in kind
from the particular ones. But if so, the difference in kind is the radical
distinction, and we should find out what that is, and found our definition
upon it.
But, further, the recognised boundaries which separate the field of
Political Economy from that of physical science, by no means corre-
92/John Stuart Mill
spond with the distinction between the truths which concern all kinds of
wealth and those which relate only to some kinds. The three laws of
motion, and the law of gravitation, are common, as far as human obser-
vation has yet em tended, to all matter; and these, therefore, as being
among the laws of the production of all wealth, should form part of
Political Economy. There are hardly any of the processes of industry
which do not partly depend upon the properties of the lever; but it would
be a strange classification which included those properties among the
truths of Political Economy. Again, the latter science has many inquir-
ies altogether as special, and relating as exclusively to particular sorts
of material objects, as any of the branches of physical science. The
investigation of some of the circumstances which regulate flee price of
corn, has as little to do with the laws common to the production of all
wealth, as any part of the knowledge of the agriculturist. The inquiry
into the rent of mines or fisheries, or into the value of the precious met-
als, elicits truths which have immediate reference to the production solely
of a peculiar kind of wealth; yet these are admitted to be correctly placed
in the science of Political Economy.
The real distinction between Political Economy and physical sci-
ence must be sought in something deeper than the nature of the subject-
matter; which, indeed, is for the most part common to both. Political
Economy, and the scientific grounds of all the useful arts, have in truth
one and the same subject-matter; namely, the objects which conduce to
man’s convenience and enjoyment: but they are, nevertheless, perfectly
distinct branches of knowledge.
3. If we contemplate the whole field of human knowledge, attained
or attainable, we find that it separates itself obviously, and as it were
spontaneously, into two divisions, which stand so strikingly in opposi-
tion and contradistinction to one another, that in all classifications of
our knowledge they have been kept apart. These are, physical science,
and moral or psychological science. The difference between these two
departments of our knowledge does not reside in the subject-matter with
which they are conversant: for although, of the simplest and most el-
ementary parts of each, it may be said, with an approach to truth, that
they are concerned with different subject-matters—namely, the one with
the human mind, the other with all things whatever except the mind; this
distinction does not hold between the higher regions of the two. Take the
science of politics, for instance, or that of law: who will say that these
are physical sciences? and yet is it not obvious that they are conversant
Unsettled Questions of Political Economy/93
fully as much with matter as with mind? Take, again, the theory of
music, of painting, of any other of the fine arts, and who will venture to
pronounce that the facts they are conversant with belong either wholly
to the class of matter, or wholly to that of mind?
The following seems to be the rationale of the distinction between
physical and moral science.
In all the intercourse of man with nature, whether we consider him
as acting upon it, or as receiving impressions from it, the effect or phe-
nomenon depends upon causes of two kinds: the properties of the object
acting, and those of the object acted upon. Everything which can possi-
bly happen in which man and external things, are jointly concerned,
results from the joint operation of a law or laws of matter, and a law or
laws of the human mind. Thus the production of corn by human labour
is the result of a law of mind, and many laws of matter. The laws of
matter are those properties of the soil and of vegetable life which cause
the seed to germinate in the ground, and those properties of the human
body which render food necessary to its support. The law of mind is,
that man desires to possess subsistence, and consequently wills the nec-
essary means of procuring it.
Laws of mind and laws of matter are so dissimilar in their nature,
that it would be contrary to all principles of rational arrangement to mix
them up as part of the same study. In all scientific methods, therefore,
they are placed apart. Any compound effect or phenomenon which de-
pends both on the properties of matter and on those of mind, may thus
become the subject of two completely distinct sciences, or branches of
science; one, treating of the phenomenon in so far as it depends upon the
laws of matter only; the other treating of it in so far as it depends upon
the laws of mind.
The physical sciences are those which treat of the laws of matter,
and of all complex phenomena in so far as dependent upon the laws of
matter. The mental or moral sciences are those which treat of the laws
of mind, and of all complex phenomena in so far as dependent upon the
laws of mind.
Most of the moral sciences presuppose physical science; but few of
the physical sciences presuppose moral science. The reason is obvious.
There are many phenomena (an earthquake, for example, or the motions
of the planets) which depend upon the laws of matter exclusively; and
have nothing whatever to do with the laws of mind. Many, therefore, of
the physical sciences may be treated of without any reference to mind,
94/John Stuart Mill
and as if the mind existed as a recipient of knowledge only, not as a
cause producing effects. But there are no phenomena which depend ex-
clusively upon the laws of mind; even the phenomena of the mind itself
being partially dependent upon the physiological laws of the body. All
the mental sciences, therefore, not excepting the pure science of mind,
must take account of a great variety of physical truths; and (as physical
science is commonly and very properly studied first) may be said to
presuppose them, taking up the complex phenomena where physical
science leaves them.
Now this, it will be found, is a precise statement of the relation in
which Political Economy stands to the various sciences which are tribu-
tary to the arts of production.
The laws of the production of the objects which constitute wealth,
are the subject-matter both of Political Economy and of almost all the
physical sciences. Such, however, of those laws as are purely laws of
matter, belong to physical science, and to that exclusively. Such of them
as are laws of the human mind, and no others, belong to Political
Economy, which finally shins up the result of both combined.
Political Economy, therefore, presupposes all the physical sciences;
it takes for granted all such of the truths of those sciences as are con-
cerned in the production of the objects demanded by the wants of man-
kind; or at least it takes for granted that the physical part of the process
takes place somehow. It then inquires what are the phenomena of mind
which are concerned in the production and distribution
8
of those same
objects; it borrows from the pure science of mind the laws of those
phenomena, and inquires what erects follow from these mental laws,
acting in concurrence with those physical ones.
9
From the above considerations the following seems to come out as
the correct and complete definition of Political Economy:—“The sci-
ence which treats of the production and distribution of wealth, so far as
they depend upon the laws of human nature.” Or thus—“The science
relating to the moral or psychological laws of the production and distri-
bution of wealth.”
For popular use this definition is amply sufficient, but it still falls
short of the complete accuracy required for the purposes of the philoso-
pher. Political Economy does not treat of the production and distribution
of wealth in all states of mankind, but only in what is termed the social
state; nor so far as they depend upon the laws of human nature, but only
so far as they depend upon a certain portion of those laws. This, at least,
Unsettled Questions of Political Economy/95
is the view which must be taken of Political Economy, if we mean it to
find any place in an encyclopedical division of the field of science. On
any other view, it either is not science at all, or it is several sciences.
This will appear clearly, if, on the one hand, we talkie a general survey
of the moral sciences, with a view to assign the exact place of Political
Economy among them; while, on the other, we consider attentively the
nature of the methods or processes by which the truths which are the
object of those sciences are arrived at.
Man, who, considered as a being having a moral or mental nature,
is the subject-matter of all the moral sciences, may, with reference to
that part of his nature, form the subject of philosophical inquiry under
several distinct hypotheses. We may inquire what belongs to man con-
sidered individually, and as if no human being existed besides himself;
we may next consider him as coming into contact with other individuals;
and finally, as living in a state of society, that is, forming part of a body
or aggregation of human beings, systematically co-operating for com-
mon purposes. Of this last state, political government, or subjection to a
common superior, is an ordinary ingredient, but forms no necessary
part of the conception, and, with respect to our present purpose, needs
not be further adverted to.
Those laws or properties of human nature which appertain to man
as a mere individual, and do not presuppose, as a necessary condition,
the existence of other individuals (except, perhaps, as mere instruments
or means), form a part of the subject of pure mental philosophy. They
comprise all the laws of the mere intellect, and those of the purely self-
regarding desires.
Those laws of human nature which relate to the feelings called forth
in a human being by other individual human or intelligent beings, as
such; namely, the affections, the conscience, or feeling of duty, and the
love of approbation; and to the conduct of man, so far as it depends
upon, or has relation to, these parts of his nature—form the subject of
another portion of pure mental philosophy, namely, that portion of it on
which morals, or ethics, are founded. For morality itself is not a sci-
ence, but an art; not truths, but rules. The truths on which the rules are
founded are drawn (as is the case in all arts) from a variety of sciences;
but the principal of them, and those which are most nearly peculiar to
this particular art, belong to a branch of the science of mind.
Finally, there are certain principles of human nature which are pe-
culiarly connected with the ideas and feelings generated in man by liv-
96/John Stuart Mill
ing in a state of society, that is, by forming part of a union or aggre-
gation of human beings for a common purpose or purposes. Few, in-
deed, of the elementary laws of the human mind are peculiar to this
state, almost all being called into action in the two other states. But
those simple laws of human nature, operating in that wider field, give
rise to results of a sufficiently universal character, and even (when com-
pared with the still more complex phenomena of which they are the
determining causes) sufficiently simple, to admit of being called, though
in a somewhat looser sense, laws of society, or laws of human nature in
the social state. These laws, or general truths, form the subject of a
branch of science which may be aptly designated from the title of social
economy; somewhat less happily by that of speculative politics, or the
science of politics, as contradistinguished from the art. This science
stands in the same relation to the social, as anatomy and physiology to
the physical body. It shows by what principles of his nature man is
induced to enter into a state of society; how this feature in his position
acts upon his interests and feelings, and through them upon his conduct;
how the association tends progressively to become closer, and the co-
operation extends itself to more and more purposes; what those pur-
poses are, and what the varieties of means most generally adopted for
furthering them; what are the various relations which establish them-
selves among human beings as the ordinary consequence of the social
union; what those which are different in different states of society; in
what historical order those states tend to succeed one another; and what
are the effects of each upon the conduct and character of man.
This branch of science, whether we prefer to call it social economy,
speculative politics, or the natural history of society, presupposes the
whole science of the nature of the individual mind; since all the laws of
which the latter science takes cognizance are brought into play in a state
of society, and the truths of the social science are but statements of the
manner in which those simple laws take effect in complicated circum-
stances. Pure mental philosophy, therefore, is an essential part, or pre-
liminary, of political philosophy. The science of social economy em-
braces every part of man’s nature, in so far as influencing the conduct
or condition of man in society; and therefore may it be termed specula-
tive politics, as being the scientific foundation of practical politics, or
the art of government, of which the art of legislation is a part.
10
It is to this important division of the field of science that one of the
writers who have most correctly conceived and copiously illustrated its
Unsettled Questions of Political Economy/97
nature and limits,—we mean M. Say,—has chosen to give the name
Political Economy. And, indeed, this large extension of the signification
of that term is countenanced by its etymology. But the words “political
economy” have long ceased to have so large a meaning. Every writer is
entitled to use the words which are his tools in the manner which he
judges most conducive to the general purposes of the exposition of truth;
but he exercises this discretion under liability to criticism: and M. Say
seems to have done in this instance, what should never be done without
strong reasons; to have altered the meaning of a name which was appro-
priated to a particular purpose (and for which, therefore, a substitute
must be provided), in order to transfer it to an object for which it was
easy to find a more characteristic denomination.
What is now commonly understood by the term “Political Economy”
is not the science of speculative politics, but a branch of that science. It
does not treat of the whole of man’s nature as modified by the social
state, nor of the whole conduct of man in society. It is concerned with
him solely as a being who desires to possess wealth, and who is capable
of judging of the comparative efficacy of means for obtaining that end.
It predicts only such of the phenomena of the social state as take place
in consequence of the pursuit of wealth. It makes entire abstraction of
every other human passion or motive; except those which may be re-
garded as perpetually antagonizing principles to the desire of wealth,
namely, aversion to labour, and desire of the present enjoyment of costly
indulgences. These it takes, to a certain extent, into its calculations,
because these do not merely like other desires, occasionally conflict with
the pursuit of wealth, but accompany it always as a drag, or impedi-
ment, and are therefore inseparably mixed up in the consideration of it.
Political Economy considers mankind as occupied solely in acquiring
and consuming wealth; and aims at showing what is the course of action
into which mankind, living in a state of society, would be impelled, if
that motive, except in the degree in which it is checked by the two per-
petual counter-motives alcove adverted to, were absolute ruler of all
their actions. Under the influence of this desire, it shows mankind accumu-
lating wealth, and employing that wealth in the production of other wealth;
sanctioning by mutual agreement the institution of property; establish-
ing laws to prevent individuals from encroaching upon the property of
others by force or fraud; adopting various contrivances for increasing
the productiveness of their labour; settling the division of the produce
by agreement, under the influence of competition (competition itself being
98/John Stuart Mill
governed by certain laws, which laws are therefore the ultimate regula-
tors of the division of the produce); and employing certain expedients
(as money, credit, etc.) to facilitate the distribution. All these opera-
tions, though many of them are really the result of a plurality of mo-
tives, are considered by Political Economy as flowing solely from the
desire of wealth. The science then proceeds to investigate the laws which
govern these several operations, under the supposition that man is a
being who is determined, by the necessity of his nature, to prefer a greater
portion of wealth to a smaller in all cases, without any other exception
than that constituted by the two counter-motives already specified. Not
that any political economist was ever so absurd as to suppose that man-
kind are really thus constituted, but because this is the mode in which
science must necessarily proceed. When an effect depends upon a con-
currence of causes, those causes must be studied one at a time, and their
laws separately investigated, if we wish, through the causes, to obtain
the power of either predicting or controlling the effect; since the law of
the erect, is compounded of the laws of all the causes which determine
it. The law of the centripetal and that of the tangential force must have
been known before the motions of the earth and planets could be ex-
plained, or many of them predicted. The same is the case with the con-
duct of man in society. In order to judge how he will act under the
variety of desires and aversions which are concurrently operating upon
him, we must know how he would act under the exclusive influence of
each one in particular. There is, perhaps, no action of a man’s life in
which he is neither under the immediate nor under the remote influence
of any impulse but the mere desire of wealth. With respect to those parts
of human conduct of which wealth is not even the principal object, to
these Political Economy does not pretend that its conclusions are appli-
cable. But there are also certain departments of human affairs, in which
the acquisition of wealth is the main and acknowledged end. It is only of
these that Political Economy takes notice. The manner in which it nec-
essarily proceeds is that of treating the main and acknowledged end as if
it were the sole end; which, of all hypotheses equally simple, is the
nearest to the truth. The political economist inquires, what are the ac-
tions which would be produced by this desire, if, within the departments
in question, it were unimpeded by any other. In this way a nearer ap-
proximation is obtained than would otherwise be practicable, to the real
order of human affairs in those departments. This approximation is then
to be corrected by making proper allowance for the effects of any im-
Unsettled Questions of Political Economy/99
pulses of a different description, which can be shown to interfere with
the result in any particular case. Only in a few of the most striking cases
(such as the important one of the principle of population) are these cor-
rections interpolated into the expositions of Political Economy itself;
the strictness of purely scientific arrangement being thereby somewhat
departed from, for the sake of practical utility. So far as it is known, or
may be presumed, that the conduct of mankind in the pursuit of wealth
is under the collateral influence of any other of the properties of our
nature than the desire of obtaining the greatest quantity of wealth with
the least labour and self-denial, the conclusions of Political Economy
will so far fail of being applicable to the explanation or prediction of
real events, until they are modified by a correct allowance for the degree
of influence exercised by the other cause.
Political Economy, then, may be defined as follows; and the defini-
tion seems to be complete:—
“The science which traces the laws of such of the phenomena of
society as arise from the combined operations of mankind for the pro-
duction of wealth, in so far as those phenomena are not modified by the
pursuit of any other object.”
But while this is a correct definition of Political Economy as a por-
tion of the field of science, the didactic writer on the subject will natu-
rally combine in his exposition, with the truths of the pure science, as
many of the practical modifications as will, in his estimation, be most
conducive to the usefulness of his work.
The above attempt to frame a stricter definition of the science than
what are commonly received as such, may be thought to be of little use;
or, at best, to be chiefly useful in a general survey and classification of
the sciences, rather than as conducing to the more successful pursuit of
the particular science in question. We think otherwise, and for this rea-
son; that, with the consideration of the definition of a science, is insepa-
rably connected that of the philosophical method of the science; the
nature of the process by which its investigations are to be carried on, its
truths to be arrived at.
Now, in whatever science there are systematic differences of opin-
ion—which is as much as to say, in all the moral or mental sciences, and
in Political Economy among the rest; in whatever science there exist,
among those who have attended to the subject, what are commonly called
differences of principle, as distinguished from differences of matter-of-
100/John Stuart Mill
fact or detail,—the cause will be found to be, a difference in their con-
ceptions of the philosophic method of the science. The parties who dif-
fer are guided, either knowingly or unconsciously, by different views
concerning the nature of the evidence appropriate to the subject. They
differ not solely in what they believe themselves to see, but in the quar-
ter whence they obtained the light by which they think they see it.
The most universal of the forms in which this difference of method
is accustomed to present itself, is the ancient feud between what is called
theory, and what is called practice or experience. There are, on social
and political questions, two kinds of reasoners: there is one portion who
term themselves practical men, and call the others theorists; a title which
the latter do not reject, though they by no means recognise it as peculiar
to them. The distinction between the two is a very broad one, though it
is one of which the language employed is a most incorrect exponent. It
has been again and again demonstrated, that those who are accused of
despising facts and disregarding experience build and profess to build
wholly upon facts and experience; while those who disavow theory can-
not make one step without theorizing. But, although both classes of
inquirers do nothing but theorize, and both of them consult no other
guide than experience, there is this difference between them, and a most
important difference it is: that those who are called practical men re-
quire specific experience, and argue wholly upwards from particular
facts to a general conclusion; while those who are called theorists aim at
embracing a wider field of experience, and, having argued upwards from
particular facts to a general principle including a much wider range
than that of the question under discussion, then argue downwards from
that general principle to a variety of specific conclusions.
Suppose, for example, that the question were, whether absolute kings
were likely to employ the powers of government for the welfare or for
the oppression of their subjects. The practicals would endeavour to de-
termine this question by a direct induction from the conduct of particu-
lar. despotic monarchs, as testified by history. The theorists would refer
the question to be decided by the test not solely of our experience of
kings, but of our experience of men. They would contend that an obser-
vation of the tendencies which human nature has manifested in the vari-
ety of situations in which human beings have been placed, and espe-
cially observation of u hat passes in our own minds, warrants us in
inferring that a human being in the situation of a despotic king will
make a bad use of power; and that this conclusion would lose nothing of
Unsettled Questions of Political Economy/101
its certainty even if absolute kings had never existed, or if history fur-
nished us with no information of the manner in which they had con-
ducted themselves.
The first of these methods is a method of induction, merely; the last
a mixed method of induction and ratiocination. The first may be called
the method a posteriori; the latter, the method a priori. We are aware
that this last expression is sometimes used to characterize a supposed
mode of philosophizing, which does not profess to be founded upon
experience at all. But we are not acquainted with any mode of philoso-
phizing, on political subjects at least, to which such a description is
fairly applicable. By the method a posteriori we mean that which re-
quires, as the basis of its conclusions, not experience merely, but spe-
cific experience. By the method a priori we mean (what has commonly
been meant) reasoning from an assumed hypothesis; which is not a prac-
tice confined to mathematics, but is of the essence of all science which
admits of general reasoning at all. To verify the hypothesis itself a pos-
teriori, that is, to examine whether the facts of any actual case are in
accordance with it, is no part of the business of science at all, but of the
application of science.
In the definition which we have attempted to frame of the science of
Political Economy, we have characterized it as essentially an abstract
science, and its method as the method a priori. Such is undoubtedly its
character as it has been understood and taught by all its most distin-
guished teachers. It reasons, and, as we contend, must necessarily rea-
son, from assumptions, not from facts. It is built upon hypotheses, strictly
analogous to those which, under the name of definitions, are the founda-
tion of the other abstract sciences. Geometry presupposes an arbitrary
definition of a line, “that which has length but not breadth.” Just in the
same manner does Political Economy presuppose an arbitrary defini-
tion of man, as a being who invariably does that by which he may obtain
the greatest amount of necessaries, conveniences, and luxuries, with the
smallest quantity of labour and physical self-denial with which they can
be obtained in the existing state of knowledge. It is true that this defini-
tion of man is not formally prefixed to any work on Political Economy,
as the definition of a line is prefixed to Euclid’s Elements; and in pro-
portion as by being so prefixed it would be less in danger of being for-
gotten, we may see ground for regret that this is not done. It is proper
that what is assumed in every particular case, should once for all be
brought before the mind in its full extent, by being somewhere formally
102/John Stuart Mill
stated as a general maxim. Now, no one who is conversant with sys-
tematic treatises on Political Economy will question, that whenever a
political economist has shown that, by acting in a particular manner, a
labourer may obviously obtain higher wages, a capitalist larger profits,
or a landlord higher rent, he concludes, as a matter of course, that they
will certainly act in that manner. Political Economy, therefore, reasons
from assumed premises—from premises which might be totally without
foundation in fact, and which are not pretended to be universally in
accordance with it. The conclusions of Political Economy, consequently,
like those of geometry, are only true, as the common phrase is, in the
abstract; that is, they are only true under certain suppositions, in which
none but general causes—causes common to the whole class of cases
under consideration—are taken into the account.
This ought not to be denied by the political economist. If he deny it,
then, and then only, he places himself in the wrong. The a priori method
which is laid to his charge, as if his employment of it proved his whole
science to be worthless, is, as we shall presently show, the only method
by which truth can possibly be attained in any department of the social
science. All that is requisite is, that he be on his guard not to ascribe to
conclusions which are grounded upon an hypothesis a different kind of
certainty from that which really belongs to them. They would be true
without qualification, only in a case which is purely imaginary. In pro-
portion as the actual facts recede from the hypothesis, he must allow a
corresponding deviation from the strict letter of his conclusion; other-
wise it will be true only of things such as he has arbitrarily supposed,
not of such things as really exist. That which is true in the abstract, is
always true in the concrete with proper allowances. When a certain
cause really exists, and if left to itself would infallibly produce a certain
effect, that same effect, modified by all the other concurrent causes, will
correctly correspond to the result really produced.
The conclusions of geometry are not strictly true of such lines, angles,
and figures, as human hands can construct. But no one, therefore, con-
tends that the conclusions of geometry are of no utility, or that it would
be better to shut up Euclid’s Elements, and content ourselves with “prac-
tice” and “experience.”
No mathematician ever thought that his definition of a line corre-
sponded to an actual line. As little did any political economist ever imag-
ine that real had no object of desire but wealth, or none which would not
give way to the slightest motive of a pecuniary kind. But they were
Unsettled Questions of Political Economy/103
justified in assuming this, for the purposes of their argument; because
they had to do only with those parts of human conduct which have pecu-
niary advantage for their direct and principal object; and because, as no
two individual cases are exactly alike, no general maxims could ever be
laid down unless some of the circumstances of the particular case were
left out of consideration.
But we go farther than to affirming that the method a priori is a
legitimate mode of philosophical investigation in the moral sciences; we
contend that it is the only mode. We affirm that the method a posteriori,
or that of specific experience, is altogether inefficacious in those sci-
ences, as a means of arriving at any considerable body of valuable truth;
though it admits of being usefully applied in aid of the method a priori,
and even forms an indispensable supplement to it.
There is a property common to almost all the moral sciences, and
by which they are distinguished from many of the physical; this is, that
it is seldom in our power to make experiments in them. In chemistry and
natural philosophy, we can not only observe what happens under all the
combinations of circumstances which nature brings together, but we
may also try an indefinite number of new combinations. This we can
seldom do in ethical, and scarcely ever in political science. We cannot
try forms of government and systems of national policy on a diminutive
scale in our laboratories, shaping our experiments as we think they may
most conduce to the advancement of knowledge. We therefore study
nature under circumstances of great disadvantage in these sciences; be-
ing confined to the limited number of experiments which take place (if
we may so speak) of their own accord, without any preparation or man-
agement of ours; in circumstances’ moreover, of great complexity, and
never perfectly known to us; and with the far greater part of the pro-
cesses concealed from our observation.
The consequence of this unavoidable defect in the materials of the
induction is, that we can rarely obtain what Bacon has quaintly, but not
unaptly, termed an experimentum crucis.
In any science which admits of an unlimited range of arbitrary ex-
periments, an experimentum crucis may always be obtained. Being able
to vary all the circumstances, we can always take effectual means of
ascertaining which of them are, and which are not, material. Call the
effect B, and let the question be whether the cause A in any way contrib-
utes to it. We try an experiment in which all the surrounding circum-
stances are altered, except A alone: if the effect B is nevertheless pro-
104/John Stuart Mill
duced, A is the cause of it or, instead of leaving A, and changing the
other circumstances, we leave all the other circumstances and change A
if the effect B in that case does not take place, then again A is a neces-
sary condition of its existence. Either of these experiments, if accurately
performed, is an experimentum crucis; it converts the presumption we
had before of the existence of a connection between A and B into proof,
by negativing every other hypothesis which would account for the ap-
pearances.
But this can seldom be done in the moral sciences, owing to the
immense multitude of the influencing circumstances, and our very scanty
means of varying the experiment. Even in operating upon an individual
mind, which is the case affording greatest room for experimenting, we
cannot often obtain a crucial experiment. The effect, for example, of a
particular circumstance in education, upon the formation of character,
may be tried in a variety of cases, but we can hardly ever be certain that
any two of those cases differ in all their circumstances except the soli-
tary one of which we wish to estimate the influence. In how much greater
a degree must this difficulty exist in the affairs of states, where even the
canter of recorded experiments is so scanty in comparison with the va-
riety and multitude of the circumstances concerned in each. How, for
example, can we obtain a crucial experiment on the effect of a restric-
tive commercial policy upon national wealth? We must find two nations
alike in every other respect, or at least possessed, in a degree exactly
equal, of everything which conduces to national opulence, and adopting
exactly the same policy in all their other affairs, but differing in this
only, that one of them adopts a system of commercial restrictions, and
the other adopts free trade. This would be a decisive experiment, similar
to those which we can almost always obtain in experimental physics.
Doubtless this would be the most conclusive evidence of all if we could
get it. But let any one consider how infinitely numerous and various are
the circumstances which either directly or indirectly do or may influ-
ence the amount of the national wealth, and then ask himself what are
the probabilities that in the longest revolution of ages two nations will
be found, which agree, and can be shown to agree, in all those circum-
stances except one?
Since, therefore, it is vain to hope that truth can be arrived at, either
in Political Economy or in any other department of the social science,
while we look at the facts in the concrete, clothed in all the complexity
with which nature has surrounded them, and endeavour to elicit a gen-
Unsettled Questions of Political Economy/105
eral law by a process of induction from a comparison of details; there
remains no other method than the a priori one, or that of “abstract
speculation.”
Although sufficiently ample grounds are not afforded in the field of
politics, for a satisfactory induction by a comparison of the effects, the
causes may, in all cases, be made the subject of specific experiment.
These causes are, laws of human nature, and external circumstances
capable of exciting the human will to action. The desires of man, and
the nature of the conduct to which they prompt him, are within the reach
of our observation. We can also observe what are the objects which
excite those desires. The materials of this knowledge every one can prin-
cipally collect within himself; with reasonable consideration of the dif-
ferences, of which experience discloses to him the existence, between
himself and other people. Knowing therefore accurately the properties
of the substances concerned, we may reason with as much certainty as
in the most demonstrative parts of physics from any assumed set of
circumstances. This will be mere trifling if the assumed circumstances
bear no sort of resemblance to any real ones; but if the assumption is
correct as far as it goes, and differs from the truth no otherwise than as
a part differs from the whole, then the conclusions which are correctly
deduced from the assumption constitute abstract truth; and when com-
pleted by adding or subtracting the effect of the non-calculated circum-
stances, they are true in the concrete, and may be applied to practice.
Of this character is the science of Political Economy in the writings
of its best teachers. To render it perfect as an abstract science, the com-
binations of circumstances which it assumes, in order to trace their ef-
fects, should embody all the circumstances that are common to all cases
whatever, and likewise the circumstances that are common to any im-
portant class of cases. The conclusions correctly deduced from these
assumptions, would be as true in the abstract as those of mathematics;
and would be as near an approximation as abstract truth can ever be, to
truth in the concrete.
When the principles of Political Economy are to be applied to a
particular case, then it is necessary to take into account all the indi-
vidual circumstances of that case; not only examining to which of the
sets of circumstances contemplated by the abstract science the circum-
stances of the case in question correspond, but likewise what other cir-
cumstances may exist in that case, which not being common to it with
any large and strongly marked class of cases, have not fallen under the
106/John Stuart Mill
cognizance of the science. These circumstances have been called dis-
turbing causes. And here only it is that an element of uncertainty enters
into the process—an uncertainty inherent in the nature of these complex
phenomena, and arising from the impossibility of being quite sure that
all the circumstances of the particular case are known to us sufficiently
in detail, and that our attention is not unduly diverted from any of them.
This constitutes the only uncertainly of Political Economy; and not
of it alone, but of the moral sciences in general. When the disturbing
causes are known, the allowance necessary to be made for them detracts
in no way from scientific precision, nor constitutes any deviation from
the a priori method. The disturbing causes are not handed over to be
dealt with by mere conjecture. Like friction in mechanics, to which they
have been often compared, they may at first have been considered merely
as a non-assignable deduction to be made by guess from the result given
by the general principles. of science; but in time many of them are brought
within the pale of the abstract science itself, and their effect is found to
admit of as accurate an estimation as those more striking effects which
they modify. The disturbing causes have their laws, as the causes which
are thereby disturbed have theirs; and from the laws of the disturbing
causes, the nature and amount of the disturbance may be predicted a
priori, like the operation of the more general laws which they are said to
modify or disturb, but with which they might more properly be said to
be concurrent. The effect of the special causes is then to be added to, or
subtracted from, the eject of the general ones.
These disturbing causes are sometimes circumstances which oper-
ate upon human conduct through the same principle of human nature
with which Political Economy is conversant, namely, the desire of wealth,
but which are not general enough to be taken into account in the ab-
stract science. Of disturbances of this description every political econo-
mist can produce many examples. In other instances the disturbing cause
is some other law of human nature. In the latter case it never can fall
within the province of Political Economy; it belongs to some other sci-
ence; and here the mere political economist, he who has studied no sci-
ence but Political Economy, if he attempt to apply his science to prac-
tice, will fail.
11
As for the other kind of disturbing causes, namely those which op-
erate through the same law of human nature out of which the general
principles of the science arise, these might always be brought within the
pale of the abstract science if it were worth while; and when we make
Unsettled Questions of Political Economy/107
the necessary allowances for them in practice, if we are doing anything
but guess, we are following out the method of the abstract science into
minuter details; inserting among its hypotheses a fresh and still more
complex combination of circumstances, and so adding pro hic vice a
supplementary chapter or appendix, or at least a supplementary theo-
rem, to the abstract science.
Having now shown that the method a priori in Political Economy,
and in all the other branches of moral science, is the only certain or
scientific mode of investigation, and that the a posteriors method, or
that of specific experience, as a means of arriving at truth, is inappli-
cable to these subjects, we shall be able to show that the latter method is
notwithstanding of great value in the moral sciences; namely, not as
means of discovering truth, but of verifying it, and reducing to the low-
est point that uncertainty before alluded to as arising from the complex-
ity of every particular case, and from the difficulty (not to say impossi-
bility) of our being assured a priori that we have taken into account all
the material circumstances.
If we could be quite certain that we knew all the facts of the particu-
lar case, we could derive little additional advantage from specific expe-
rience. The causes being given, we may know what will be their effect,
without an actual trial of every possible combination; since the causes
are human feelings, and outward circumstances fitted to excite them
and, as these for the most part are, or at least might be, familiar to us,
we can more surely judge of their combined effect from that familiarity,
than from any evidence which can be elicited from the complicated and
entangled circumstances of an actual experiment. If the knowledge what
are the particular causes operating in any given instance were revealed
to us by infallible authority, then, if our abstract science were perfect,
we should become prophets. But the causes are not so revealed: they are
to be collected by observation; and observation in circumstances of com-
plexity is apt to be imperfect. Some of the causes may lie beyond obser-
vation; many are apt to escape it, unless we are on the look-out for
them; and it is only the habit of long and accurate observation which
can give us so correct a preconception what causes we are likely to find,
as shall induce us to look for them in the right quarter. But such is the
nature of the human understanding, that the very fact of attending with
intensity to one part of a thing, has a tendency to withdraw the attention
from the other parts. We are consequently in great danger of adverting
to a portion only of the causes which are actually at work. And if we are
108/John Stuart Mill
in this predicament, the more accurate our deductions and the more
certain our conclusions in the abstract (that is, making abstraction of all
circumstances except those which form part of the hypothesis), the less
we are likely to suspect that we are in error for no one could have looked
closely into the sources of fallacious thinking without being deeply con-
scious that the coherence, and neat concatenation of our philosophical
systems, is more apt than we are commonly aware to pass with us as
evidence of their truth.
We cannot, therefore, too carefully endeavour to verify our theory,
by comparing, in the particular cases to which we have access, the re-
sults which it would have led us to predict, with the most trustworthy
accounts we can obtain of those which have been actually realized. The
discrepancy between our anticipations and the actual fact is often the
only circumstance which would have drawn our attention to some im-
portant disturbing cause which we had overlooked. Nay, it often dis-
closes to us errors in thought, still more serious than the omission of
what can with any propriety be termed a disturbing cause. It often re-
veals to us that the basis itself of our whole argument is insufficient;
that the data, from which we had reasoned, comprise only a part, and
not always the most important part, of the circumstances by which the
result is really determined. Such oversights are committed by very good
reasoners, and even by a still rarer class, that of good observers. It is a
kind of error to which those are peculiarly liable whose views are the
largest and most philosophical; for exactly in that ratio are their minds
more accustomed to dwell upon those laws, qualities, and tendencies,
which are common to large classes of cases, and which belong to all
place and all time; while it often happens that circumstances almost
peculiar to the particular case or era have a far greater share in govern-
ing that one case.
Although, therefore, a philosopher be convinced that no general truths
can be attained in the affairs of nations by the a posteriori road, it does
not the less behove him, according to the measure of his opportunities,
to sift and scrutinize the details of every specific experiment. Without
this, he may be an excellent professor of abstract science; for a person
nary be of great use who points out correctly what effects will follow
from certain combinations of possible circumstances, in whatever tract
of the extensive region of hypothetical cases those combinations may be
found. He stands in the same relation to the legislator, as the mere geog-
rapher to the practical navigator; telling him the latitude and longitude
Unsettled Questions of Political Economy/109
of all sorts of places, but not how to find whereabouts he himself is
sailing. If, however, he does no more than this, he must rest contented to
take no share in practical politics; to have no opinion, or to hold it with
extreme modesty, on the applications which should be made of his doc-
trines to existing circumstances.
No one who attempts to lay down propositions for the guidance of
mankind, however perfect his scientific acquirements, can dispense with
a practical knowledge of the actual modes in which the affairs of the
world are carried on, and an extensive personal experience of the actual
ideas, feelings, and intellectual and moral tendencies of his own country
and of his own age. The true practical statesman is he who combines
this experience with a profound knowledge of abstract political philoso-
phy. Either acquirement, without the other, leaves him lame and impo-
tent if he is sensible of the deficiency; renders him obstinate and pre-
sumptuous if, as is more probable, he is entirely unconscious of it.
Such, then, are the respective offices and uses of the a priori and
the a posteriori methods—the method of abstract science, and that of
specific experiment—as well in Political Economy, as in all the other
branches of social philosophy. Truth compels us to express our convic-
tion that whether among those who have written on these subjects, or
among those for whose use they wrote, few can be pointed out who have
allowed to each of these methods its just value, and systematically kept
each to its proper objects and functions. One of the peculiarities of mod-
ern times, the separation of theory from practice—of the studies of the
closet from the outward business of the world— has given a wrong bias
to the ideas and feelings both of the student and of the man of business.
Each undervalues that part of the materials of thought with which he is
not familiar. The one despises all comprehensive views, the other ne-
glects details. The one draws his notion of the universe from the few
objects with which his course of life has happened to render him famil-
iar; the other haying got demonstration on his side, and forgetting that it
is only a demonstration nisi—a proof at all times liable to be set aside
by the addition of a single new fact to the hypothesis—denies, instead of
examining and sifting, the allegations which are opposed to him. For
this he has considerable excuse in the worthlessness of the testimony on
which the facts brought forward to invalidate the conclusions of theory
usually rest. In these complex matters, men see with their preconceived
opinions, not with their eyes: an interested or a passionate man’s statis-
tics are of little worth; and a year seldom passes without examples of
110/John Stuart Mill
the astounding falsehoods which large bodies of respectable men will
back each other in publishing to the world as facts within their personal
knowledge. It is not because a thing is asserted to be true, but because in
its nature it may be true, that a sincere and patient inquirer will feel
himself called upon to investigate it. He will use the assertions of oppo-
nents not as evidence, but indications leading to evidence; suggestions
of the most proper course for his own inquiries.
But while the philosopher and the practical man bandy half-truths
with one another, we may seek far without finding one who, placed on a
higher eminence of thought, comprehends as a whole what they see only
in separate parts; who can make the anticipations of the philosopher
guide the observation of the practical man, and the specific experience
of the practical man warn the philosopher where something is to be
added to his theory.
The most memorable example in modern times of a man who united
the spirit of philosophy with the pursuits of active life, and kept wholly
clear from the partialities and prejudices both of the student and of the
practical statesman, was Turgot; the wonder not only of his age, but of
history, for his astonishing combination of the most opposite, and, judg-
ing from common experience, almost incompatible excellences.
Though it is impossible to furnish any test by which a speculative
thinker, either in Political Economy or in any other branch of social
philosophy, may know that he is competent to judge of the application
of his principles to the existing condition of his own or any other coun-
try, indications may be suggested by the absence of which he may well
and surely know that he is not competent. His knowledge must at least
enable him to explain and account for what are, or he is an insufficient
judge of what ought to be. If a political economist, for instance, finds
himself puzzled by any recent or present commercial phenomena; if
there is any mystery to him in the late or present state of the productive
industry of the country, which his knowledge of principle does not en-
able him to unriddle; he may be sure that something is wanting to render
his system of opinions a safe guide in existing circumstances. Either
some of the facts which influence the situation of the country and the
course of events are not known to him; or, knowing them, he knows not
what ought to be their effects. In the latter case his system is imperfect
even as an abstract system; it does not enable him to trace correctly all
the consequences even of assumed premises. Though he succeed in throw-
ing doubts upon the reality of some of the phenomena which he is re-
Unsettled Questions of Political Economy/111
quired to explain, his task is not yet completed; even then he is called
upon to show how the belief, which he deems unfounded, arose; and
what is the real nature of the appearances which gave a colour of prob-
ability to allegations which examination proves to be untrue.
When the speculative politician has gone through this labour—has
gone through it conscientiously, not with the desire of finding his system
complete, but of making it so—he may deem himself qualified to apply
his principles to the guidance of practice: but he must still continue to
exercise the same discipline upon every new combination of facts as it
arises; he must make a large allowance for the disturbing influence of
unforeseen causes, and must carefully watch the result of every experi-
ment, in order that any residuum of facts which his principles did not
lead him to expect, and do not enable him to explain, may become the
subject of a fresh analysis, and furnish the occasion for a consequent
enlargement or correction of his general views.
The method of the practical philosopher consists, therefore, of two
processes; the one analytical, the other synthetical. He must analyze the
existing state of society into its elements, not dropping and losing any of
them by the way. After referring to the experience of individual man to
learn the law of each of these elements, that is, to learn what are its
natural effects, and how much of the effect follows from so much of the
cause when not counteracted by any other cause, there remains an op-
eration of synthesis; to put all these effects together, and, from what
they are separately, to collect what would be the effect of all the causes
acting at once. If these various operations could be correctly performed,
the result would be prophecy; but, as they can be performed only with a
certain approximation to correctness, mankind can never predict with
absolute certainty, but only with a less or greater degree of probability;
according as they are better or worse apprised what the causes are,—
have learnt with more or less accuracy from experience the law to which
each of those causes, when acting separately, conforms,—and have
summed up the aggregate effect more or less carefully.
With all the precautions which have been indicated there will still be
some danger of falling into partial views; but we shall at least have
taken the best securities against it. All that we can do more, is to en-
deavour to be impartial critics of our own theories, and to free our-
selves, as far as we are able, from that reluctance from which few in-
quirers are altogether exempt, to admit the reality or relevancy of any
facts which they have not previously either taken into, or left a place
112/John Stuart Mill
open for in, their systems.
If indeed every phenomenon was generally the effect of no more
than one cause, a knowledge of the law of that cause would, unless there
was a logical error in our reasoning, enable us confidently to predict all
the circumstances of the phenomenon. We might then, if we had care-
fully examined our premises and our reasoning, and found no flaw, ven-
ture to disbelieve the testimony which might be brought to show that
matters had turned out differently from what we should have predicted.
If the causes of erroneous conclusions were always patent on the face of
the reasonings which lead to them, the human understanding would be a
far more trustworthy instrument than it is. But the narrowest examina-
tion of the process itself will help us little towards discovering that we
have omitted part of the premises which we ought to have taken into our
reasoning. Effects are commonly determined by a concurrence of causes.
If we have overlooked any one cause, we may reason justly from all the
others, and only be the further wrong. Our premises will be true, and
our reasoning correct, and yet the result of no value in the particular
case. There is, therefore, almost always room for a modest doubt as to
our practical conclusions. Against false premises and unsound reason-
ing, a good mental discipline may effectually secure us; but against the
danger of overlooking something, neither strength of understanding nor
intellectual cultivation can be more than a very imperfect protection. A
person may be warranted in feeling confident, that whatever he has care-
fully contemplated with his mind’s eye he has seen correctly; but no one
can be sure that there is not something in existence which he has not
seen at all. He can do no more than satisfy himself that he has seen all
that is visible to any other persons who have concerned themselves with
the subject. For this purpose he must endeavour to place himself at their
point of view, and strive earnestly to see the object as they see it; nor
give up the attempt until he has either added the appearance which is
floating before them to his own stock of realities, or made out clearly
that it is an optical deception.
The principles which we have now stated are by no means alien to
common apprehension: they are not absolutely hidden, perhaps, from
any one, but are commonly seen through a mist. We might have pre-
sented the latter part of them in a phraseology in which they would have
seemed the most familiar of truisms: we might have cautioned inquirers
against too extensive generalization, and reminded them that there are
Unsettled Questions of Political Economy/113
exceptions to all rules. Such is the current language of those who dis-
trust comprehensive thinking, without having any clear notion why or
where it ought to be distrusted. We have avoided the use of these expres-
sions purposely, because we deem them superficial and inaccurate. The
error, when there is error, does not arise from generalizing too exten-
sively; that is, from including too wide a range of particular cases in a
single proposition. Doubtless, a man often asserts of an entire class
what is only true of a part of it; but his error generally consists not in
making too wide an assertion, but in making the wrong kind of asser-
tion: he predicated an actual result, when he should only have predi-
cated a tendency to that result—a power acting with a certain intensity
in that direction. With regard to exceptions; in any tolerably advanced
science there is properly no such thing as an exception. What is thought
to be an exception to a principle is always some other and distinct prin-
ciple cutting into the former: some other force which impinges against
the first force? and deflects it from its direction. There are not a law and
an exception to that law—the law acting in ninety-nine cases, and the
exception in one. There are two laws, each possibly acting in the whole
hundred cases, and bringing about a common erect by their conjunct
operation. If the force which, being the less conspicuous of the two, is
called the disturbing force, prevails sufficiently over the other force in
some one case, to constitute that case what is commonly called an ex-
ception, the same disturbing force probably acts as a modifying cause
in many other cases which no one will call exceptions.
Thus if it were stated to be a law of nature, that all heavy bodies fall
to the ground, it would probably be said that the resistance of the atmo-
sphere, which prevents a balloon from falling, constitutes the balloon an
exception to that pretended law of nature. But the real law is, that all
heavy bodies tend to fall; and to this there is no exception, not even the
sun and moon; for even they, as every astronomer knows, tend towards
the earth, with a force exactly equal to that with which the earth tends
towards them. The resistance of the atmosphere might, in the particular
case of the balloon, from a misapprehension of what the law of gravita-
tion is, be said to prevail over the law; but its disturbing effect is quite
as real in every other case, since though it does not prevent, it retards
the fall of all bodies whatever. The rule, and the so-called exception, do
not divide the cases between them; each of them is a comprehensive rule
extending to all cases. To call one of these concurrent principles an
exception to the other, is superficial, and contrary to the correct prin-
114/John Stuart Mill
ciples of nomenclature and arrangement. An effect of precisely the same
hind, and arising from the same cause, ought not to be placed in two
different categories, merely as there does or does not exist another cause
preponderating over it.
It is only in art, as distinguished from science, that we can with
propriety speak of exceptions. Art, the immediate end of which is prac-
tice, has nothing to do with causes, except as the means of bringing
about effects. However heterogeneous the causes, it carries the effects
of them all into one single reckoning, and according as the sum-total is
plus or minus, according as it falls above or below a certain line, Art
says, Do this, or Abstain from doing it. The exception does not run by
insensible degrees into the rule, like what are called exceptions in sci-
ence. In a question of practice it frequently happens that a certain thing
is either fit to be done, or fit to be altogether abstained from, there being
no medium. If, in the majority of cases, it is fit to be done, that is made
the rule. When a case subsequently occurs in which the thing ought not
to be done, an entirely new leaf is turned over; the rule is now done with,
and dismissed: a new train of ideas is introduced, between which and
those involved in the rule there is a broad line of demarcation; as broad
and trenchant as the difference between Ay and No. Very possibly, be-
tween the last case which comes within the rule and the first of the
exception, there is only the difference of a shade: but that shade prob-
ably makes the whole interval between acting in one way and in a totally
different one. We may, therefore, in talking of art, unobjectionably speak
of the rule and the exception; meaning by the rule, the cases in which
there exists a preponderance, however slight, of inducements for acting
in a particular way; and by the exception, the cases in which the prepon-
derance is on the contrary side.
T
HE END
Notes
1. Elements of Political Economy, by James Mill, Esq., 3rd edit., pp.
120–1.
2. The figures used are of course arbitrary, leaving no reference to any
existing prices.
3. We have not deemed it necessary to enter minutely into all the cir-
cumstanced which might modify the results mentioned in the text.
For example, let us revert to the first case, that in which the demand
for cloth in Germany is so little affected by the rise of price in conse-
quence of the tax, that the quantity bought exceeds in pecuniary value
what it was before. As the German consumers lay out more money in
cloth, they have less to lay out in other things; other money prices
will fall; among the rest that of linen; and this may so increase the
demand for linen in England as to restore the equilibrium of exports
and imports without any passage of money. But England’s treasury
will still gain from Germany the whole of the tax, and the English
people will buy their linen cheaper besides. Again, in the opposite
case, where the tax so diminishes the demand, that a smaller pecuni-
ary value is required than before. The German consumers have, there-
fore, more to expend in other things; these, and among the rest linen,
will rise; and this may so diminish the demand for linen in England,
as to restore the equilibrium without the transmission of money. But
the effect, as respects the division of the advantage, is still as stated
in the text.
4. The world at large, sellers and buyers taken together, is always a
gainer by underselling. If, in the case supposed, England were com-
pelled by a commercial treaty to exclude the linen of Flanders from
her market, the total wealth of the world, if affected at all, would be
116/John Stuart Mill
diminished.
For, what is the cause which enables Flanders to undersell Ger-
many? That Flanders, if she had the trade, would exchange linen for
cloth at a rate of interchange more advantageous to England. And
why can Flanders do so? It must be either because Flanders can pro-
duce the article with a less comparative quantity of labour than Ger-
many, and therefore the total advantage to be divided between the
two countries is greater in the case of Flanders than of Germany; or
else because, though the total advantage is not greater, Flanders ob-
tains a less share of it, her demand for cloth being greater, at the same
rate of interchanges than that of Germany. In the former ease, to
exclude Flemish linen from England would be to prevent the world at
large froth marking a greater saving of labour instead of a less. In the
latter, the exclusion would be inefficacious for the only end it could
be intended for, viz., the benefit of Germany, unless Flemish money
were excluded from England as well as Flemish linen. For Flanders
would buy English cloth, paying for it in money, until the fall of her
prices enabled her to pay for it with something else: and the ultimate
result would be that, by the rise of prices in England, Germany must
pay a higher price for her cloth, and so lose a part of the advantage in
spite of the treaty; while England would pay for German linen the
same price indeed, but as the money incomes of her own people mold
be increased, the same money price would imply a smaller sacrifice.
5. This last possible effect of a sudden introduction of free trade, was
pointed out in an able article on the Silk question, in a work of too
short duration, the Parliamentary Review.
6. Probably; because most articles of an ornamental description being
still required from the same makers, these makers, with their capital,
would probably follow their customers. Besides, from place to place
within the same country, most persons will rather change their habi-
tation than their employment. But the moving on this, score would be
reciprocal.
7. It would be easy to go over in the same manner any other case. For
instance, we may suppose, that, instead of dispensing with the whole
of the fixed capital, material, etc., and taking on labourers in equal
number to those by whom these were produced, half only of the fixed
capital and material is dispensed with; so that, instead of 60 labourers
and a fixed capital worth 60 quarters of corn, we have 80 labourers
and a fixed capital worth 30. The numerical statement of this case is
Unsettled Questions of Political Economy/117
more intricate than that in the text, but the result is not different.
8. We say, the production and distribution, not, as is usual with writers
on this science, the production, distribution, and consumption. For
we contend that Political Economy, as conceived by those very writ-
ers, has nothing to do with the consumption of wealth, further than as
the consideration of it is inseparable from that of production, or from
that of distribution. We know not of any laws of the consumption of
wealth as the subject of a distinct science: they can be no other than
the laws of human enjoyment. Political economists have never treated
of consumption on its own account, but always for the purpose of the
inquiry in what manner different kinds of consumption affect the pro-
duction and distribution of wealth. fender the head of Consumption,
in professed treatises on the science, the following are the subjects
treated of: 1st, The distinction between productive and unproductive
consumption; 2nd, The inquiry whether it is possible for too much
wealth to be produced, and for too great a portion of what has been
produced to be applied to the purpose of further Production; 3rd, The
theory of taxation, that is to say, the following two questions—by
whom each particular tax is paid (a question of distribution), and in
what manner particular taxes affect production.
9. The physical laws of the production of useful objects are all equally
presupposed by the science of Political Economy: most of them, how-
ever, it presupposes in the gross, seeming to say nothing about them.
A few (such, for instance, as the decreasing ratio in which the pro-
duce of the soil is increased by an increased application of labour) it
is obliged particularly to specify, and thus seems to borrow those
truths from the physical sciences to which they properly belong, and
include them among its own.
10. The science of legislation is an incorrect and misleading expression.
Legislation is making laws. We do not talk of the science of making
anything. Even the science of government would be an objectionable
expression, were it not that government is often loosely taken to sig-
nify, not the act of governing, but the state or condition of being
governed, or of living under a government. A preferable expression
would be, the science of political society; a principal branch of the
more extensive science of society, characterized in the text.
11. One of the strongest reasons for drawing the line of separation clearly
and broadly between science and art is the following:—That the prin-
ciple of classification in science most conveniently follows the classi-
118/John Stuart Mill
fication of causes, while arts must necessarily be classified accord-
ing to the classification of the effects, the production of which is their
appropriate end. Now an effect, whether in physics or morals, com-
monly depends upon a concurrence of causes, and it frequently hap-
pens that several of these causes belong to different sciences. Thus in
the construction of engines upon the principles of the science of me-
chanics, it is necessary to bear in mind the chemical properties of the
materials such as its liability to oxydize; in electrical and magnetic
properties, and so forth. From this it follows that although the neces-
sary foundation of all art is science, that is, the knowledge of the
properties or laws of the objects upon which, and with which, the art
does its work; it is not equally true that every art corresponds to one
particular science. Each art presupposes, not one science, but sci-
ence in general; or, at least, many distinct sciences.
