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MANUAL
OF
POLITICAL ECONOMY
BY THE LATE
Rt. Hon. HENEY FAWCETT, M.P., D.C.L., F.R.S.
FELLOW OF TRINITY HALL, AND PROFESSOR OF POLITICAL ECONOMY
IN THE UNIVERSITY OF CAMBRIDGE
EIGHTH EDITION
London
MACMILLAN AND CO., Limited
NEW YORK: THE MACMILLAN COMPANY
1907
All rights reserved
In an introductory chapter it is better to give a general description of Political Economy, rather than to attempt an accurate definition of the science—Political Economy investigates the laws which regulate the production, the distribution and the exchange of wealth—Popular prejudice considers that Political Economy is hard-hearted and selfish—This fallacy explained and refuted—Any commodity which has an exchangeable value is wealth—The civilisation of a country determines to what extent its natural resources can be classed as wealth—Fallacies now known as the Mercantile System explained. |
PAGES 3—9 |
Chapter II. The Requisites of Production.
The production of wealth has three requisites: land, labour, and capital—Capital defined to be wealth which is saved, and applied to the future production of wealth |
10—11 |
Chapter III. Labour as an Agent of Production.
The simplest commodity cannot be made available for consumption without the application of many different kinds of labour—All labour does not contribute to the production of wealth—Hence labour is classed as productive and unproductive—Labour is productive when it either directly or indirectly embodies utilities in material objects—The most useful labour may be sometimes unproductive—As an example, a railway may be partly made and never opened—Labour which is unproductive may yet be very useful—Mr. Mill's definition of productive labour would make the labour of the schoolmaster to be unproductive, and this may be obviated by a wider definition—Consumption also may be either productive or unproductive. |
12—16 |
Chapter IV. Of Capital.
It is sometimes fallaciously supposed that capital consists of money, to the exclusion of any other kind of wealth—The entire capital of the country can never be simultaneously employed—A most useful commodity, such as wheat, need not necessarily be employed as capital— An individual does not increase the capital of the coontry by spending
wealth upon his own enjoyments— hence, the man who saves, and not the spendthrift, is the labourer's best friend — This consideration is expressed in too paradoxical a form when it is asserted that a demand for commodities is not a demand for labour — The Science of Political Economy often only affirms tendencies, and therefore the results deduced from its principles do not always come into immediate opera- tion — It is fallacious to suppose that there can be a glut of capital, and that consequently, without the unproductive expenditure oi the rich, the poor could not be adequately employed— Wealth can only perform the functions of capital by being wholly or partially con- sumed—Foregoing principles illustrated by examples— The rapidity with which a country recovers from a devastating war explained — The consequences of raising revenue by loans investigated — The effects of loans and taxation compared, with especial re^rence to India— The distinction between circulating and fixed capital— The former is consumed by a single use, the latter may continue to perform its functions for a long period ; food consumed by labourers is circu- lating capital ; whereas fixed capital consists of machinery, buildings, railroads^ &c. — The conversion of circulating into fixed capital may temporarily injure the labourers, and may in certain cases per- manently injure some classes of labourers pages 17 — 44 Chapter V. On the ProdiLctive Power of the Three Requisites of Production, Political Economy would embrace a great number of sciences, if it investigated all the causes upon which depend the productiveness of land, labour, and capital. Hence a definition of Political Economy is required in order that some limit may be placed upon the scope of the science — The most fertile land may be unproductive of wealth — The chief causes which determine the productiveness of labour — The fallacy of estimating the productiveness of capital by the profits realised— All questions relating to profits concern the distribution and not the production of wealth —Division of labour makes labour far more productive — This proved by Adam Smith's illustration with regard to pin-making — He thinks that division of labour increases its productiveness for the three following reasons : ist. The dexterity of the workman is increased ; 2nd. Time is saved if the workman does not pass from one employment to another ; 3rd. When industry is divided into special processes, suitable machinery is more likely to be invented and applied — The first of these three causes produces the principal effect— Many writers think that Adam Smith attributes too much importance to the second cause— The application of machinery often enforces a certain division of labour — Mr. Babbage has shown that Adam Smith has not pointed out that labour is economised when divided, since each workman can be solely employed upon the work for which he is best qualified — The demand for a commodity determines the extent to which division of labour can be carried— The combination or cooperation of labour is essential to its efficiency — Mr. Wakefield has classified the cooperation of labour as simple and complex— The first occurs when several workmen combine to do the same thing — ^The second when one industry is assisted by another — Mr. Wakefield explained the mischief of permitting a young colony Contents. xv to be occupied by scattered Bettlements : the growth of the town population ought always to be encouraged — Mr. Wakefield's theory of colonisation corroborated by the effects of the ^Id discoveries in Australia — There cannot be cooperation between different industrieSi unless the means of communication are good — Division of labour is an instance of the complex cooperation of labour pages 45 — 64 Chapter VI. Production on a Large and on a Small Scale. The advantage of producing on a large scale becomes greater as the use of machinery is extended ^This is exemplified at the present time in the increasing size of our manufactories and warehouses— The extent of the demand must influence the scale of production — The advan- tages and disadvantages of the joint-stock principle — Joint-stock companies are very beneficial to a country — Farming on a large and on a small scale compared — The increased use of machinery in agriculture makes farming on a large scale more advantageous — Why small farming is beneficial in certain special cases, such as dairy fanning 65-73 Chapter VIL On the Laws which determine the Increase of Production. If we suppose the agents of production to be in their most efficient state, then the production of wealth cannot be increased, unless either land, labour, or capital is increased — In the absence of agricultural improvements, more land is not brought into cultivation, unless the value of agricultural produce is increased ; this proposition is the basis of Ricardo*s Theory of Rent — In Political Economy, the fertility or productiveness of land varies inversely with the amount of labour and capital which is required to make its produce available for con- sumption—As the population of the country increases, unless the . additional food required con be obtained by foreign importation or by improved agriculture, less fertile land has to be cultivated, and there- fore agricultural produce has a tendency to become more expensive. would accompany the present increase in her population, has been counteracted, partly by agricultural improvements, but principally by foreign importations of corn, consequent on Free Trade and improved means of transport— A rise in wages usually accompanies an increased demand for labour ; this rise in wapes creates an increased supply of labour by discouraging emigration, and by encouraging mar- riages amongst the poor— Meat and dairy produce must rise in price as the population of a country increases, as long as these com- modities are difficult and expensive to import from a distance... 74— 84 Chapter VIII. On the Increase of Capital. An increase of capital implies increased saving— Two principal motives induce saving : ist, a prudent foresight with regard to the future ; 2nd, a desire to make wealth by an advantageous investment — The Digitized by Google xvi Contents, first motive operates with regard to the bulk of the capital accuma- lated ; but upon the second motive depend the fluctuations in the amount of this capital — In Political Economy, as in Mathematics, the causes which produce fluctuations and disturbances often create phenomena which are independent of causes more constant in their effects — Each class of society has a recognised standard of living ; if, therefore, the commodities of ordinary use are cheapened, a greater amount of capital will be saved — A large portion of the capital saved in England is invested in foreign countries ; consequently, by check- ing the amount sent abroad, an amount which is practically unlimited may be obtained for any eli|;ible home investment — Different conse- quences produced by the raising of loans in countries which do not export capital — This illustrated by the effect produced in France by the loans raised in France in consequence of the Franco-German war — The economical condition of England and India contrasted ; the former requires cheap food ; the latter, capital— How India may be economically benefited by England's rule — The West Indies neither want land nor capital^ but are deficient in labour — The objection to the Coolie traffic — The striking feature of America's economical con- dition is the comparative dearness of labour, and the comparative cheapness of land — Why high farming is not remunerative in America — Commerce between Englimd and America must be especially beneficial to both countries pages 85 — 97 BOOK 11. . DISTRIBUTION. Chapter I. Private Property and Socialism, The distribution of wealth implies the existence of rights of property, and the rights of property cannot be maintained without law — Property has not the same rights in one age or country as in another ; for instance, the privilege of entailing property may exist in one age» but not in another — Men may determine according to what laws wealth should be distributed, but from any particular method of distribution certain consequences must inevitably follow, and it per- tains to Political Economy to investigate these consequences in each particular case — If private property is permitted, there must ensue great inequalities in wealth ; this fact has suggested socialism — Socialism, therefore, as far as possible, limits the rights of private property — The impracticability of socialism in the present state of mankind explained — The two schemes of socialism which have received the greatest attention are those of St. Simon and Fourier — These two schemes explained, and their impracticability pointed out —The scheme of Fourier is the most skilfully designed — The schemes of Fourier, St. Simon, and Robert Owen were voluntary in their character— Cooperation is one of the most favourable results of these schemes —The influence of the State is sometimes used to enforce a form of socialism upon the country, e.g, the Poor Law — Compulsory socialism is open to objections that do not apply to voluntary socialism— Free education and the nationalisation of the land would be cases of compulsory socialism loi — ill Digitized by Google Contents. xvii Chapter IL The Classes among whom Wealth is distributed. Wealth is distributed between rent, wages and profits : these three shares represent respectively the value of the services rendered to the production of wealth by land, labour and capital — In En^^land, rent, wages and profits are generally received by distinct individuals, termed landlords, labourers and employers— Two of the portions or even the three portions into which wealth is distributed, may belong to one individual ; this illustrated by the case of a peasant- proprietor — The laws which regulate the distribution of manufactured produce are similar to those which apply to agricultural produce — The distribution of wealth is regulated either by competition or custom ; as a nation advances, custom ahows a greater tendency to succumb to competition — Labourers not injured by competition PAGES 112— 1 18 Chapter III, Rents as determined by Competition. Origin of Rent— Statement and proof of Ricardo's theory of Rent — Dr. Wheweirs objections to this theory — How rents are affected by various circumstances, such as the following : a reduction in the average rate of profit ; the introduction of improved implements ; increMed importation from other countries ; a rise in agricultural wages — In wnat sense the interest of the landlord is opposed to that of the farmer and labourer — Rents may be raised more by an increase of population than by any other cause— The profit arising from capital spent in improving land, is rent — Tne drainase companies— Rent is not an element in the cost of producing food 119-135 Chapter IV. On Wages. Wages are determined by a ratio between capital and population — Controversy on the waees fund theory — In opposition to those who contend that there has been no improvement in the condition of the labourer during the last forty years, when there has been a great increase in the production of wealth, facts are adduced to show that his condition has decidedly improved— The diminution in cost of living enables a period of trade depression to be more easily tided over — Why the condition of the labourer has not more improved explained — The influence on wages of an increase of population, of an extended use of labour-saving machinery, and of an export of capital — Malthus's Essay on PoptUation affirms that checks on population are positive and preventive— The five causes which, according to Adam Smith, produce different rates of wages in different trades — An explanation of the different rates of wages in the same employ- ment in different localities illustrated by the difference in agricultural wiu;es in Dorsetshire and Yorkshire — With an advance in education and improved means of communication this difference in wages tends to diminish— How wages are affected by good and bad trade 136—162 Digitized by Google xviii Contents, Chapter V. Profits, Profits are composed of the three following elements: interest on capital ; compensation for risk ; wages of superintendence— E^h trade has a certain rate of profit peculiar to itself — This is termed the natural rate of profit— The profits realised in each trade constantly approximate to the natural rate — How profits are restored to the natural rate when they are temporarily raised above it or depressed below it — The causes which determine the general average rate of profit — In what sense Ricardo's proposition is true, that the rate of profit depends on wages— The rate of profit really depends upon the cost of labour — The high rate of profit prevailing in Australia explained— Cost of labour is a function of the three following variables : the efficiency of labour ; the amount of wages estimated in produce ; and the cost at which this produce can be purchased — The effect of each of these three causes upon the rate of profit illustrated — Capitalists and labourers are both benefited by an increase of the efficiency of labour and by a diminution of the cost of the necessaries of life — The benefit to the labourer will only be temporary if an increase of population is stimulated — The influence exerted on profits and wages by the export of capital PAGES 163—186 Chapter VI. Peasant-Proprietors, Distinction between a peasant-proprietor and a small tenant-farmer — When land is rented, large farms are more advantageous in England than small farms — Peasant-proprietors of Flanders and Norway — The testimony of Arthur Young, Mr. Thornton and others, concerning peasant-proprietors— The aggregation of land in England is promoted partly by artificial and partly by natural causes— The effects of the laws of primogeniture and entail considered, also the influence exerted by the costly system of conveyancing — The effect of the law of entail has been moaified bv the Settled Land Act of 1882 — The social effects of peasant-proprietorship considered — The condition of our own agricultural labourers and that of the peasant-proprietors of the Continent contrasted — Mr. Jones's opinion refuted, that peasant- proprietors are imprudent with regard to marriage — It is erroneous to suppose that the advocates of the system of peasant properties desire the introduction of the French law of compulsory subdivision — The combined advantages resulting from large farming and peasant properties may be secured if land is owned and cultivated by associations of labourers— The emancipation of the serfs in Russia will extend upon a vast scale the system of peasant properties — The land reforms, carried out in Prussia by Stein and Hardenoerg, quoted to show the advantages Russia may anticipate from the emancipation of her serfs— The Irish Land Act, 1881, is likely to effect a great improvement in the character of the Irish peasantry by conferring on them certain proprietary rights in the land they cultivate — Inter- ference between landlord and tenant is to be justified on grounds of public interest rather than as giving protection to a special class of traders 187 — 210 Digitized by Google Contents. xix Chapter VII. Metayers and Cottiers, and the Economic aspects of Tenant-Right Metayer and Cottier tenancy described — In the metayer tenure the rent paid is always a fixed portion of the produce, but not always one-half — In Tuscany the metayer rent is two-thirds of the produce — The metayers who cultivate the most fertile land enjoy a beneficial interest — Fixed customs reflate the conditions of the metayer tenure, although these conditions vary in different countries — ^The contradictoryopinions with regard to the effects of metayer tenure explained— Why metayer farming is bad in France and extremely good in Italy — The condition of Irish cottiers most deplorable — Cottier rents are regulated by the competition of population, and are therefore often so high that they can never be paid — The Irish tenure termed * conacre' explained — The Ulster tenant-right is a premium paid for the good-will of a farm by the incoming to the outgoing tenant ; tenant-rieht is also often understood to mean compensation for unexhausted improvements — The Irish Land Acts of 1870 and 188 1 — Tenant-right m England — Permissive tenant-right was sought to be established in England by the Agricultural Holdings Act 1875 — Tenant-right, especially in such a country as Elngland, is chiefly to be justified not on the ground of protection to tenants but that the public are interested in the more efficient cultivation of the soil which is thus promoted — The Tenants' Improvements Act 1883 PAGES 211—230 Chapter VIII. National Education and other Remedies for Low Wages, The average wages are determined by a ratio between capital and the number of the labouring population — If this ratio remains constant, waffes cannot be increased, unless profits are diminished, or labour is made more efficient — Any advance in wages in a particular trade, which reduces the profits of that trade below the current rate, cannot be permanent— A law to regulate wages must either be mischievous or nuffatory — Equally unsatisfactory results would ensue if the length of a day's work were regulated by law — Associations of labourers when carrying on business on their own account have an opportunity of showing whether men who now suffer from excessive employment could do as much if they worked a smaller number of hours each day — The State cannot find work for all the unemployed, unless population is restrained by law— No remedy for low wages can exert any decided permanent influence unless it increases the efficiency of labour and improves the social and moral condition of the labourers — Hence National Education is not only the most effectual but also an essential remedy — Since the introduction of National Education there has been a considerable decrease in crime, pauperism and drunkenness — Explanation of the way in which education directly increases the efficiency of labour — Emigration may be a most efficient remedy for low wages— The advantages resulting from the allotment system — The enclosure of commons has often inflicted great injury not only on the poor but also on the general public— These enclosures Digitized by Google XX Gontents. ought generally in future to be resisted — The test of the efficiency of •any means of raising the condition of the poor is this : Will it tend to make the poor ultimately rely more upon self-help ? PAOBS 231 — 245 Chapter IX. Trades* -Uniona and Strikes, An explanation of the functions of a trades' union — Trades* unions pro- duce their greatest effect upon wages if they restrict the number of workmen employed in a trade — This is attempted to be done by limiting the number of apprentices— Such restrictions, if carried into effect, inflict great injustice on the labouring class ; they also raise the price of commodities, and may jeopardise the existence of an industry — As an example of this, the effects of the trades' unions at Birmingham may be quoted — Trades' unions not necessarily connected with strikes— Workmen have a right to combine and to join a strike if they use neither intimidation nor violence in support of their combination — The majority of intelligent artizans are in favour of trades' unions— Their effect on wages described — They could exert no influence on wages if the effect of competition were instantaneous — But competition acts slowly, and in some cases, as with the wages of some agricultural labourers, it is neutralised for an indefinitely long period — Wages are fixed in the same way as a bargain carried on by the buyer and seller of a commodity— In order to improve their position in adjusting this bargain, employers and employed form combinations with others of their class — They are thus placed in a position of equality— Bargaining implies antagonism of interest — As long as wages are fixed by a bargain, strikes will continue to occur, because in settling the terms of a bargain it must often happen that one party will refuse to accept the price offered by the other — Conciliation and arbitration are not effectual remedies for strikes, because they do not remove the antagonism of interest between employers and employed — This is effected by copartnership— The principle of copartnership defined— Its benefits extend both to employers and employed— There are many collateral advantages connected with copartnership —It has been adopted with great success by M. Leclaire and others — it is well suited to agriculture — The experiment of Lord George Manners at Newmarket — The pro- gress of the movement will be greatly assisted by national education 246—262 Chapter X. Cooperation. Cooperation exists in its complete form, when labourers supply the capital which their industry requires — Many of the so-called coopera> tive stores are not truly cooperative, because they distribute the profits between the shareholaers and the customers, and give no portion of them to labour — ^The origin of the cooperative movement in England — ^The history of the Kochdale Pioneers' store — In the Rochdale store the ordinary retail prices are charged, and the profits are distributed among the customers in proportion to the amount of their purchases at the end of each quarter — In the Civil Service stores the customers receive their share of the profits by being charged a reduced price for goods — Cooperative stores give no credit — Qreat advantages result from this — The Wholesale Society Digitized by Google Contents. xxi was established to supply goods to cooperative stores — This society manufactures many of the goods it sells — The Scotch wholesale — Cooperative production — The progress of cooperative production in the cotton trade — The question of the right of labour to a share in the profits of cooperative societies is still unsettled — It is much ' easier to apply cooperation to distribution than to production — Co- operative production has been carried out on a larger scale in Paris than in England— Cooperative Dairying in Denmark and Ireland — Cooperative banking— A description of the cooperative banks in Germany founded by M. Schulze-Delitzsch — The Kaiffeisen Banks — The legislative enactments which have impeded cooperation in England — A description of some undertakings which are partly cooperative in their character, such as building societies PAOBS 263—287 Chapter XI. State Socialism and the NationMisation of the Land. The characteristic of modern socialism is its reliance on the State — Schulze-Delitzsch and Lassalle the founders of two opposite schools of social reformers— Schulze-Delitzsch advocates schemes based on self- help such as cooperation — Lassalle is the advocate of increased State assistance — He was the founder of the International — The most impor- tant scheme of State socialism is the Nationalisation of the Land — Special attention has been directed to the subject in England by Mr. Wallace's and Mr. Henry George's books — The difference pointed out between the State re-appropriating land which it had relinquished and retaining possession of existing rights — This illustrated by perma- nent settlement in India — The importance of the State not surrenderinff the whole of its proprietary rights in the lands— This illustrated by land sales in Australia— If nationalisation carried out on the plan of giving no compensation or inadequate compensation the scheme is unjust— if full compensation were given great pecuniary loss would result, which would have to be borne by general body of tax-payers —Nationalisation involves this dilemma — If the land were let at less than market price then an unlimited opportunity would be offered for State favouritism ; if the market price is charged the cultivators would not be benefited — lleasons against State appropriation of the unearned increment in the value of land— The policy of the Government undertaking the construc- tion of public works considered, with special reference to India and to France — Harm would be done to cooperation if cooperative institutions obtained State loans — Some of the disadvantages pointed out of using public funds for the creation of a class of peasant proprietors — The effects likely to be produced by the State or municipality undertaking to erect houses for the working-classes — Among other disadvantskges it would discourage the efforts the working classes are now making to supply themselves with better houses through the agency of buildinsr societies— The scheme of Prince Bismarck for providing insurance and annuities for workmen by a special tax upon employers — This tax must either wholly or in large part ultimately fall upon the employed — Therefore the scheme is one of compulsory insurance — The disadvan- tages of compulsory thrift — The State may legitimately offer facilities for saving, but any institution, such as the Post Office Savings' Bank, should be self-supporting — It is not safe to condemn a scheme because it is socialistic— Thus the English poor law is based on socialism but Digitized by Google xxii Contents. its abolition would bring into operation worse evils than those which are caused by a poor law when properly administered — The reasons against free education pages 288—310 Chapter XTI. On the Economic Aspects of Slavery. Owing to the termination of the American War many remarks made in t?Us chapter are no longer pertinent to the p^'esent time. It has however for vartoua reasons been thought desirable not to omit the chapter. Slaves are a portion of the cultivator's capital ; hence, in slave cultiva- tion, the produce is distributed between rent and profits — The ultimate abolition of slavery chiefly turns upon economic considerations — The late Professor Cairnes, in his work entitled **The Slave Power," affirms that slave-labour has the three following defects : it is given reluctantly ; it is unskilful ; it is wanting in versatility — ^The conse- quences of these defects traced — Slave-labour can only be profitably employed when labour can be concentrated— No skilled labour can be carried on by slaves— Mr. Olmstead's testimony — No parallel between the condition of slaves in Greece and the slaves of the present day — Slave-labour impoverishes the soil, hence fertile virgin soils are required — The acquisition of new territory is therefore mdispensable to slavery— Slavery will gradually cease to be profitable, and tnerefore will be ultimately extermmated if restricted to a definite area 3 14 — 318 BOOK III. EXCHANGE. Chapter I. On Value and Price. Why it is advantageous to discuss the production and distribution of wealth, before considering the exchange of wealth — Value and price defined— Value is a relative expression, and implies comparison — Price is the value of a commodity estimated in money — There cannot be a general rise in values, but there can be a ffeneral rise in prices— When the value of one commodity is compared with that of another, it is always done by comparing their prices — Hence we depart from the method usually pursued, and proceed at once to consider the laws which determine the price, and not the value, of commodities — The assumption is, in the first instance, made, that any alteration in the price of a commodity is not produced by a change in the value of the precious metals 321 — 324 Chapter II. On the Causes which Regulate the Price of Commodities. Commodities, when their price is investigated, are divided into three classes : the first class comprises those commodities whose supply is absolutely limited ; the second class comprises those commodities which become more expensive as their supply is increased ; the third class embraces those commodities whose supply can be increased uigitized by Google Contents. xxiii without their becoming more expensive — Articles of virtu, agricultural produce, and manufactured produce, are representatives of these three classes — The laws of pnce which apply to the first class illus- trated by considering how the price of one of Turner's pictures is determined ; it would be usually said that the price of such a picture is regulated by a ratio between the demand and the supply— This is erroneous ; the price must be such as to equalise the demand to the supply — 'Effectual Demand* defined — Value is composed of two elements; represented by value in use, and by the difficulty of obtaining an article — These elements symbolised by letters U and D— No article can have an exchange value unless u and D are both present — The price of almost every commodity depends upon D, the element U being only partially operative— U exerts its full influence with regard to those commodities which are comprised in the first class above enumerated pages 325— 332 Chapter III. On the Price of Agricultural and Mineral Produce, The price of agricultural produce must be such as to give the farmer the ordinary profit for his capital and for his labour of superintendence — If, therefore, the rent of land increases without a dimmution in the farmer's other expenses, the price of agricultural produce must rise in order that the farmer may be compensated— Ricardo's theory proves that rents must rise if, as population increases, worse land has to be cultivated ; but if rents rise, the price of agricultural produce must rise — The land which is on the margin of cultivation only pays a nominal rent ; and the price of agricultural produce must be always such as to ffive the ordinary rate of profit for cultivating this land — From this last proposition it follows that the price of agricultural produce is not affected by the payment of rent, but by the demand for agricultural produce, since the demand determines how far the margin of cultivation must descend— The rise in the price of agri- cultural produce consequent on an increase in population may be counteracted either by agricultural improvements or by the importa- tion of com— The price of mineral produce is resulated by laws similar to those which determine the price of agricultural produce — A commodity is said to be at its natural price, when its price is such as to equalise the supply to the demand — The natural pnce denotes a position of equilibrium — A parallel drawn between this position and the elliptic planetary orbits— An increase or decrease in the demand does not necessarily produce a proportiontUe increase or decrease in price — Under certain circumstances an increase in the demand, say of 10 per cent., may produce a rise in price of 50 per cent. — This cir- cumstance explains the great rise in the price of coal — The extremely heavy burden cast upon the community by this rise in the price of coal — The proprietors and lessees of coal-mines probably gained not less than 40,000,000/. a year at the expense of the general consumer— Increased economy in the use of coal is the only compensation which the nation can derive from this rise in the price of coal — The great rise in the price of coal was succeeded by a fall — The causes of this fall examined — The fall was partly due to a general depression of trade, and partly to the increased production of coal, stimulated by exceptional^ high profits and wages 333—344 Digitized by LjOOQIC xxiv Contents. Chapter IV. On the Price of Manufactured Commodities. Why the laws of price which apply to agricultural produce do not apply to manufactured produce — An increased demand for a manufactured commodity may economise some of the processes of manufacture and thus diminish the price of a commodity — This illustrated hy Mr. Thompson's invtotion for boat-building — The competition of capital causes a certain average rate of profit to belong to each branch of industry — Hence the price of a commodity must have a constant tendency to be such as to give this particular rate of profit— Conse- quently the price of a manufactured commodity constantly approxi- mates to its cost of production — Cost of production incluaes the profits of the producer — Sudden fluctuations in the demand or supply may cause the price of a commodity to vary c^reatly from its cost of production — These variations in price, though great, are, however, only temporary, since the competition of capital is constantly tending to make the price again equivalent to the cost of production — This illustrated by an example of a sudden demand for rifles — There is' a constant tendency in operation to equalise the demand for a commodity to its supply, both when the price of the commodity is regulated by its cost of production, and when its price is disturbed by sudden fluctuations in the demand and supply p AG ES 345 — 3 56 Chapter V. On Money. Why we discussed the price of commodities before we considered the subject of money — Money provides a medium of exchange, thus obviating barter, and money also serves as a general standard of value — It is not necessary, but it is most convenient, that money should be made of the precious metals — Any substance may be chosen as a general measure or standard of value ; if wheat be thus selected, the price of all commodities must be estimated in wheat — The substance which is chosen as money ought, as far as possible, to possess the following qualities : its value should be uniform ; it should possess an intrinsic value of its own ; it should contain a great value in small bulk — Gold and silver do not vary much in value, because the cost of obtaining these metals is not liable to any creat changes, and, except on rare occasions, the supply of these metals b not suoject to sudden fluctuations— The quantity of gold and silver which is used for other purposes, besides being coined into money, is comparatively small, and therefore the Quantity of gold required for such purposes does not vary greatly — Gold and silver have always possessed an intrinsic value of their own, since no other substances are so well qualified for ornaments ; the brightness of these metals gives them beauty ; they can be long preserved, and their malleability makes them easily worked into artistic forms — These metals have always been scarce— Hence they possess the third requisite for money, since they contain great value in small bulk — Copper money is used for the convenience of making small payments — The inconvenience of a double standard or bi-metallism~if gold and silver are both made a standard of value, then this standard is subject to increased variations— The arrange- Digitized by Google Contents xrv ments adopted by our own Mint explained— Gold is in our own country the only standard of value, since silver and copper money are merely subsidiary coins pages 357 — 370 Chapter VI. On the Value of Money, ' Value of money ' is an ambiguous expression — It is popularly used to describe the current interest, as represented by the JBank-rate of dis- count — In Political Economy, value of money means the purchasing Sower of money— Hence the value of money increases as general prices ecline, and vice verad — The value of cold in bullion must be the same as the value of gold when converted into money — The fallacy of oon- siderinff that the value of gold has remained unchanged, beciEiuse the price of gold never varies — The value of money is determined by the same laws as those which regulate the value or price of all mineral produce — <jk>ld is devoted to two distinct purposes : first, it is coined into money ; secondly, it is employed for purposes of art and manu- facture—The quantity of gold required for the last of these two pur- puses does not varv greatly from year to year — Hence any increase in the quantity of gold produced must be almost entirely converted into coin — The amount of money any country requires partly depends upon the amount of its wealth, and partly upon the number of times which any commodity is bought and sold for money — The amount of money which a country kee])s in circulation is no accurate measure of its national wealth — A country requires a greater amount of money in circulation as its wealth and population increase — In the case of an ordinary commodity, the demand is equalised to the supply, by either a rise or fall in the price of the commodity — But the price of gold is a meaningless expression ; hence, in the case of money, the demand is equalised to the supply by a rise or fall in the value of the precious metals — The demand for a commodity varies with its price, but the . ratio of this variation cannot be precisely defined, for it varies greatly with different commodities — This last proposition illustrated by examples— The demand for the precious metals varies, eceterU paribuAf precisely in the inverse ratio of their value, if uniformity in general prices is preserved — If we suppose that the precious metals are solely employed as money, a nation has a demand for a greater or less amount of money, in order to maintain general prices unchanged — Hence, if the wealth and population of a country increase, the demand for money will increase —It is most important that the value of gold, or, in other words, that general prices, should fluctuate as little as possible— The supply of gold is cceteris paribus increased if the value of gold advances, because gold-mining becomes more profit- able — But an increase in the value of gold is caused by a deficiency in its supply— Hence an increased demand for sold stimulates an increased supply ; consequently the demand is equalised to the supply, and thus a tendency is brought into operation to preserve uniformity in general prices — This process of equalisation is analogous to that which takes place with regard to every other commodity — In the absence of any counteracting circumstances, the value of the precious metals must increase if the cost of obtaining them is increased, and vice verad their value must decrease if the cost of obtaining them is diminished by the discovery of more productive mines. 37 '-386 Digitized by Google xxvi Gontents. Chapter VII. Foreign CoviTnerce or International Trade. Foreiffn commerce enables the capital and labour of a country to be applied to those branches of inaustry for which it possesses special advantages — The advantages of foreign commerce were, while the mer- cantile system prevailed, estimated by the amount of money brought into the country — Hence exports were encouraged by bounties and various restraints were imposed upon imports — A system of protec- tion was the natural development of the mercantile system— If two countries produce commodities at a different relative cost, foreign trade becomes profitable to them both — Hence, it is possible that foreign trade may be profitable to two countries, although all the commodities exchanged might be produced cheaper in one country than in the other — The bargain of international trade is adjusted by equalising the supply of a commodity to the demand for it — The profit arising from foreign commerce is shared between two trading countries in the inverse ratio of the demand which each has for the commodities imported from the other — If England exports iron to France, and imports wheat, and if the cost of producing iron is cheapened in England, but not in France, the terms of the inter- national trade must be again adjusted, so as to equalise the demand to the supply — It is quite possible, under the circumstances just supposed, that the cost to f'rance of the iron she imports may be reduced by an amount exceeding the diminution in the cost of produc- ing this iron in England — The gain which results from international trade is distributed amongst the consumers of the commodities im- ported, and cannot be appropriated, either by the producers of exported commodities, or by the merchants who carry on foreign trade — Foreign trade will generally cause the price of a commodity which is exported to rise in the home market — The home producers of a commodity may temporarily suffer loss, if the price of a com- modity is reduced in consequence of foreign importations — But ine(][ualitie8 in the rate of profit in any industry will always be ultimately removed by the competition of capital — The rent oi land may be permanently reduced, if agricultural produce is cheapened by foreign importations— Foreign trade affects the price, both of the im- ported and exported commodity — The equation of international trade, therefore, requires a very complicated process of adjustment, since the price both of the imported and exported commodity must be such as to equalise the supply to the demand for these commodities in both the trading countries — Foreign commerce raises the price of the commodities exported, and reduces the price of those imported — It may appear that if the commodities exported are necessaries, the labourers may be injured by the rise in their price, but they are more than compensated by an increase in their money wages, because foreign commerce economises labour and capital, and therefore enables higher wages to be paid without encroaching upon profits — A consideration of the arguments in favour of protection which are current in the United States and in Australia— The fallacy explained of what is called * reciprocity in free trade' — Commercial treaties involve a certain departure from the principles of free trade — The cost of exporting and importing commodities may be borne in different Digitized by Google Contents, xxvii ratios in two different countries — The greatest portion of this cost of carriage would be borne by the country whose demand is least diminished by the commodity bein^ increased in price, in conse- nDce of the cost of carriage — If it is assumed that there is perfect trade between the two countries, then there cannot be a greater difference in the price of any commodity in the two countries than is equiTalent to the cost of carriage — The principles investigated in tius chapter are equally true when a great number of commodities are interohansed, and when foreign commerce is not restricted to two countries — when it is said that, in order to satisfy the equation of international trade, the commodities which a country imports must be equivalent in value to those which she exports, it is assumed that a country has no other payments to make to other countries except for goods imported, and no other payments to receive except for goods exported — If a country is a debtor of other countries, then her exports will exceed in value her imports by an amount equivalent to this indebtedness — If a country is a creditor of other countries, then her imports will exceed in value her exports by an amount equivalent to the net indebtedness of other countries to her — These principles explain why the exports of India always greatly exceed her imports, and why, on the other hand, the imports of England greatly exceed her exports paoes 387 — 419 Chapter VIII. On the Transmission of the Precious Metals from One Country to Another, In a note at the beginning of this chapter, it is shown that the value of the metal selected as Sie standard currency is the same whether in bullion or in coin, when the Government makes no charge for coinage — The precious metals are distributed in two ways : first, they are exported from the mining countries as an ordinary commodity of commerce; secondly, they are transmitted from one country to another in the form of money — The value of the precious metals is regulated by laws identical with those which regulate the value of any other commodity which is exchanged in foreign commerce — The precious metals are constantly transmitted in the form of money from one country to another, because, in the first place, they contain great value in a small bulk, and secondly, every kind of wealth can be purchased by gold and silver — England is to a ffreat extent the emporium ot gold ; a great portion of the gold which is produced in Australia, California, &c., is in the first instance sent to her, and then distributed by her to the various countries of the world — Although England imports and exports so much gold, yet the value of gold is kept in England approximately constant— This constancy in value is maintained, because it is impossible to obtain an undue amount of the precious metals, without producing a decline in the value of gold, or, in other words, a rise in general prices — If general E rices rise in one country comparatively more than in another, the alance of trade is at once disturbed ; tne exports from the country are diminished, and her imports increased, and a drain of specie, consequently, at once commences — There is, therefore, a constant agency at work, which causes the precious metals to be equally distributed over the world 420 — 4^ Digitized by VjOOQIC Xxviii Contents, Chapter IX. Foreign Exchavges. The commodities bought and sold in foreign commerce are usually paid for by bills of exchange : this course is adopted in order as far as possible to obviate the transmission of specie — A bill of exchange is a written acknowledgment given to a creditor, that a debt due to him shall be paid on a particular day — If the exports sent to a particular country are equivalent in value to the imports received from a par- ticular country, bills of exchanse enable the transmission of specie to be as completely obviated as if the exports were exchanged for the imports by barter — If the imports from France exceed in value the exports from England to France, English merchants will have a ereater demand for bills drawn upon France, than French merchants for bills drawn upon England— bills drawn upon France will conse- quently be at a premium — When this is the case, the exchange is said to be against England, and in favour of France — A country has con- sequently to export specie when the exchange is against her — Hence the expressions * favourable' and 'unfavourable' exchange are remnants of the mercantile system — If the exchange is against a country, its money will be depreciated in value, when compared with the money of a country which has a favourable exchange — When a scarcity of gold is anticipated, bills may rise to a greater premium or fall to a greater discount than is represented by the cost of carriage — As an example, bills drawn on France rose lo per cent, when it was known that Napoleon had landed from Elba — If an unfavourable exchange always required specie to be actually exported, the premium upon bills would always closely approximate to the cost of trans- mitting specie — There are, however, constant fluctuations in the premium upon bills, because an unfavourable exchange may be rapidly succeeded by a favourable exchange — An unfavourable ex- change cannot be of long continuance, because it exerts a tendency to diminish the imports, and to iucrease exports — An export of the precious metals, as ordinary commodities of commerce, does not necessarily denote an unfavourable exchange pages 427 — 436 Chapter X. The Functions of Credit Credit si^ifies borrowing and lending, and therefore implies confidence — Credit is said to be good when there is confidence in those. who borrow — The credit of an individual, as well as the credit of a State, is measured by the rate of interest paid for money borrowed — The oft-repeated maxim, that credit is capital, is u meaningless expression — Credit greatly assists the production of wealth, because wealth which is employed as capital is often borrowed from those who would not themselves employ productively the wealth which they lend — The deposit accounts which are held by banks illustrate the extent to which credit increases the capital of a country — Large public works, such as railways, could not be carried out if credit did not exist ; the capital which they require is so large, that it must be borrowed from a great number of individuals— Credit enables all wealth which is saved to be applied to the most productive purposes. 437—444 Digitized by Google Contents. XXIX Chapter XI. The Influence of Credit on Prices. BillB of exchange, telegraph drafts, bank-notes, and cheques may be regarded as instruments of credit — A bill of exchange is a written promise to pay a certain amount at a fixed date ; a oank-note is a promise to pay a certain amount upon demand — Different bankers exchange their cheques and bills at the Clearing House, and the con- venience of this course is great — Bills of exchange, baiik-notes, and cheques provide substitutes for money — Hence the influence exerted b^ credit on prices — When commodities are bought and sold through bills of exchange, the use of monev is as completely dispensed with as if commodities were exchanged by barter — If bills of exchange were not employed, one of two things would happen; either the money in circulation must be increased, or specie would rise in value — It is credit, and not the particular form m which credit is given, which provides a substitute for money — Book-credits, for instance, althougn not existing in a transferable form, may provide as complete a substitute for money as bills of exchange — Bills of exchange cause the amount of credit which is given in a country to be much greater than it would be, if book credits were alone employed — A bank-note is a more complete substitute for money than bills of exchange, because if bank-notes did not exist, money must be employed in most of the transactions which are carried on by bank-notes — If bank-notes did not exist, either more money must be brought into circulation or general prices would decline— A country requires a smaller amount of money if it employs bank-notes; nence bank-notes economise wealth, because gola and silver are valuable commodities — No effect is exerted on prices by bank-notes, if they simply occupy the place of a corresponding amount of money— General prices are advanced by a bank-note circulation if bank-notes are added to the circulation with- out causing a corresponding amount of money to be withdrawn-- Credit increases the purchasing power of each individual, and in this way exerts a great effect on prices — The effect, though great, is, however, temporary — Credit-purchases may enormously increase the demand for a commodity, and hence raise its price — But this rise in price is only temporary, because the price of commodities, the supply of which can be increased, ultimately approximates to their cost of production— The treat purchasing power which mi^ be exerted by credit illustrated oy the tea speculations in 1839 — The provisions of the B^k Charter Act explained —Speculative purchases which lead to a panic are not in the first instance made by bank-notes ; hence restrictions upon the issue of bank-notes do not prevent commercial panics — In the latter stages of a panic, the demand for bank-notes and other money increases because credit collapses — Hence it has frequently been necessary to suspend the Bank Charter Act after a panic has continued some time — When trade is in its ordinary state, the bank-note circulation would not be increased if the Baink Act were repealed — The impression that the Bank Act will be suspended in a commercial crisis, increases the uncertainty and distrust pre- valent at such a period — Creditors may be defrauded, and general prices may be raised without limit, if inconvertible notes are made a Ufa! tender — These serious consequences do not occur if incon- vertible notes are not made a legal tender pages 445 — 466 Digitized by Google XXX Contents. Chapter XII. On the Rate of Interest, Th^ current rate of interest is determined by the price of Funds, because these securities involve no risk— In this chapter, two questions have to be investigated ; in the first place, the causes which determine the normal or average current rate of interest must be explained, and secondly, the daily fluctuations in the current rate of interest must be accounted for — The current rate of interest must be such as will equalise the demand for loans to the supply— The average current rate of interest may be affected by national character, because some nations are more prudent, and therefore satisfied with a smaller rate of interest than others— If the average rate of profit advances, the current rate of interest must also rise— The rate of profit depends on the cost of labour ; the cost of labour increases if food becomes more expensive — If the current rate of interest advances, the price of securities and the price of land will decline — The causes which advance the rate of interest generally exert an influence to diminish the rent of land— Different rates of interest may prevail in different countries, because the people of one country will not invest their capital in another country without receiving some additional remuneration — Temporary fluctuations in the rate of discount or in the rate of interest are caused by variations in the demand for money — An increase in the demand for money is generally produced by contraction of credit pages 467—476 Chapter XIII. On the Tendenxyy of Profits to fail as a Nation advances, Adam Smith erroneously supposed that the rate of profit depended upon general prices — A rise" or fall in general prices need not necessarily affect the rate of profit — Adam Smith was led into the error above alluded to by misinterpreting the phenomena connected with the depression and activity of trade— The average rate of profit is partly the cause and partly the effect of the amount of capital accumulated— When a country advances in population and wealth, two agencies operate to reduce profits : in tne first place, food becomes more expensive, and the cost of labour is increased ; and secondly, a greater capital is accumulated in proportion to the profits which can be realised upon it — The decline in the rate of profit in England retarded by the great amount of capital which we invest in foreign countries— Industrial improvements, and the importation of cheap food, may prevent the cost of labour increasing as a country advances in population — This explains the fact that the rate of profit has only very slishtly declined in England, althou|^h her population and wealth have both greatly increased — A nation is said to be in a stationary state when the rate of profit is so low that the accumula- tion of capital does not further increase — The stationary state was more likely to be attained in the i8th century than at the present time — Surplus capital is absorbed, or rather destroyed, in a com- mercial panic ; thus an influence is exerted to sustain the average rate of profit— A high rate of profit prevails in a colony, because fertile land is abundant — Agriculture must be the staple industry of a young colony — The returns to agriculture must be great when only the most fertile soils need be cultivated — Hence, in a colony, wages and profits are both generally high 477—488 Digitized by Google Contents. xxxi Chapter XIV. Of Over-Production or Excess of Supply, Malthus, Chalmers, and Sismondi feared over-production, and, there- fore, affirmed that some moral restraint ought to be exercised with regard to the accumulation of capital— Over-production has two meanings ; it may either signify that commodities produced cannot be sold at remunerative prices, or it may signify that commodities are produced which are really not wanted — Over-production in its first signiHcation will cause the profits of a particular trade to be low: the trade is then said to be dull or depressed, but such depression can only be temporary — The Lancashire Cotton Trade would have exhibited this first kind of over-production, if the American Civil War had not occurred — This excessive supply of cotton goods would not be wasted ; they would be readily purchased, if sold at sufficiently low prices— The accumulation of capital may reduce profits, but never causes more commodities to be produced than can be consumed — If capital continues to be accumulated, the wages of labourers would be increased — As an extreme case, it may be supposed that wages are so much increased, that all the wants of the labourer are satisfied ; if, then, his wages are still further Increased, he will shorten his hours of toil pages 489 — ^494 Chapter XV. The Gold Discoveries. The annual supply of gold was trebled by the discoveries in Australia and California — The expectation that this increased supply would cause a great fall in the value of gold was not fulfilled — There was only a moderate decline in its value, and during the ten years ending 1883 it was thought by some that in consequence of a falling-off in the supply of gold, accompanied by an increased demand, there was a rise in its value — The disadvantages which result to a country from a variation in the value of the substance which it uses as money — Difficulty of estimating the change in the value of ffold by a com- parison of prices at different periods — It is probable that there was a rise in general prices after the gold discoveries of about 15 per cent. — This opinion was supported by the late Prof. Cairnes and by the late Prof. Jevons— The value of the precious metals is determined by the same laws which govern the price of agricultursd produce, but because mining is a more speculative industry than agriculture a decline in the value of gold and silver will not so rapidly lead to the abandonment of the least productive mines as a fall in the value of agricultural produce will throw the least fertile soils out of cultiva- tion — The absorption of the large additional supplies of gold, without producing a great fall in its value, affords conclusive evidence that the value of gold would have risen if these additional supplies had not been forthcoming — The increase of commerce consequent on free trade and the development of the railway system absorbed much of the new gold — There was also a large additional demand for silver : great quantities of silver were sent to India during the American civil war to purchase cotton and also for the construction of public works— As there was until 1870-80 but a slight increase in the annual supply of silver, the additional silver required for the East was to a Digitized by Google xxxii Contents. considerable extent supplied from the currencies of France, Germany and other countries ; gold partlv took the place of this silver ; there was thus an increased demand for gold, ana another influence was in this way broucht into operation to maintain the value of gold — As there is much uncertainty about the future value of gold and silver, arraneemente which involve fixed pecuniary payments over a Ions period of years should as far as possible be avoided— Why the gold discoveries have exerted a special influence in promoting the pros- perity of Australia— Gold-digging is not more profitable than other kinds of industry, but a gold discovery acts more powerfully than any other cause to attract labour and capital to a colony — Other kinds of industry in a young colony involve, in the first instance, great risks; a supply of labour must be insured, and much fixed capital has to be expended in constructing roads, etc.— These obstacles impede gold-digging less than any other industry. PAGES 495—510 Chapter XVI. The Depreciation in tlie Value of Silver, The supply of silver remained almost stationary until about 1870, when it very greatly increased — Silver has rapidly declined in price— The rapidity of the fall when compared with the slight and gradual fall in the value of gold explained oy the circumstance that when the gold discoveries were made there was a great additional demand for gold ; whereas there has been a great falling-off in the demand for silver at the verv time when its supply was increased — The falling-off in the demand for silver has been partly produced by the demonetisation of silver in Germany and other European countries — There has been a great falling-off in the demand for silver in India — The quantity exported during the last ten years is less than a third what it was during the ten years previously— This falling-off in the demand is chiefly produced by the increasing proportion of the Indian Revenue which is spent in England— The depreciation in silver may be estimated in two ways : first by comparing its value with that of cold, and secondly by considering its general purchasing power— The fall in the value of silver has not yet oeen accompanied bv a general rise of prices in India— This rise in prices will probably however occur, because it vrill become exceptionally profitable to purchase goods in India and exceptionally unprofitable for the people of India to purchase goods abroad— This will stimulate the export of silver to India — India suffers peculiar inconvenience and loss from a deprecia- tion in the. value of silver, because a large portion of her revenue is fixed in pecuniary amoimt and is paid in silver, and she has annually to pay a large sum to England in gold — A sold currency is wholly unsuitable to India — The importance of guarding against fluctuations in the value of gold and silver — India has to bear a serious loss from the depreciation of silver, which must be met by increased economy. 511-529 Digitized by Google Contents. xxxiii BOOK IV. TAXATION. Chapter I. On the Oeneral Principles of Taxation. Mr. Mill and others give to this portion of the subject the general title 'The influence of €k>vernment' — We think it aavisable to limit this portion of our subject to an inquiry into taxation — Adam Smith's four rules, or * canons' of taxation are the following — ist. Taxation should be equal; 2nd. Taxation should be certain in its amount; 3rd. Taxes should be levied at the time and in the mode which cause the least inconvenience to the tax -paver ; 4th. A tax ought to obtain for the Government as much as possiole of the whole amount which is levied from the tax-payer— Equality of taxation is impracticable, if it means taxing people in proportion to their means ; this illustrated by the case of two individuals possessing equal incomes, one of whom is married, and the other not — With the view of obtaining equality of taxation, it would be useless to attempt to tax people in proportion to the protection which they derive from Government— The first principle of taxation is enunciated by Adam Smith in very ambiguous language ; he affirms that when there is equality of taxation, people are taxed in proportion to their ability to pay — Equality of taxation will not be secured, if it is attempted to apply this principle to one special tax — Equality of taxation is best secured by a rough process of compensation — A consideration of the policy of reducing national debts, either by devotion of the surplus and the immediate cancelling of debt, or by the creation of terminable annuities ....pages 533 — 542 Chapter II. On Ike Income-tax, The proposal that temporary incomes should be taxed at a lower rate than permanent incomes is supported, by some persons, first upon arithmetical grounds, and secondly, upon the general principles of taxation— The arithmetical argument is conclusive, that temporary incomes ought to be taxed at the same rate as permanent incomes, if it is assumed that the income-tax is uniform in amount, and permanent — Temporary and permanent incomes ought to be taxed at a different rate, if the continuance of the income-tax could ever be restricted to a definite peri(M — Experience proves that this is impos- sible — The difficulty and expense of collectmg the income-tax would be greatly increased, if an equitable rating of temporary and perma- nent incomes should be attempted — It is generally affirmed that the income-tax ought to be so adjusted, that each person shall contribute to it in proportion to his means — This principle, even if it could be carried out, would not necessarily secure equality of taxation ; this proposition illustrated by considerins the remission of the tax upon small incomes— Various other diffictuties described, which render the Digitized by Google xxxiv Contents. adjustment of the income-tax almost impracticable — Objections to a graduated or progressive income-tax — The incidence of a tax distin- guishes the real from the nominal payer of the tax — The incidence of the income-tax will partly fall on the labourers, if any portion of the tax is paid out of capital-^The wealth of a country may be seriously afTected by an income-tax, if the tax diminishes the national capital — Hence, in India an income-tax would produce very serious conse- quences, because there capital is accumulated very slowly — K the income-tax is remitted upon incomes of less than lool, a year, this amount ought to be deducted from all larger incomes, and only the remainder should be taxed — One serious inequality affecting the income-tax, is caused by the power which dishonest people have of evading it— The advantages of an income-tax in such a country as England outweigh the diwkd vantages pages 543 — 563 Chapter III. Taxes on ConiTnodities and other Indirect Taxes. Distinction between a direct and an indirect tax ; the former is really paid by the person from whom it is levied ; the latter is levied from one person and paid bv another — A tax is often made indirect by custom ; for instance, tne poor rates are often paid bv farmers, and are, therefore an indirect tax — Poor rates might be paid by the land- lord ; they would then be a direct tax — None of our taxes on commodities are protective — Taxes on commodities must be generally characterised by inequality, because they can rarely be made ad valorem — Taxes on commodities are generally certain in their amount, and therefore obey Adam Smith's second rule — ^As far as the con- sumer is concerned, taxes on commodities are always paid at a convenient time, and, therefore, obey Adam Smith's third rule— Some taxes, such as the tax on hops, were obliged to be levied from the g reducer at a very inconvenient time — The convenience of bonding ouses — Taxes on commodities ought, as far as possible, to be made consistent with Adam Smith's last rule — Customs duties are most inexpensive to levy in an island, because a land frontier is more difficult to protect against smuggling — Excise and customs duties should be confined to a few articles of consumption — The most serious objection against taxes on commodities is due to the fact that a tax increases the price of a commodity by an amount which exceeds the sum which the tax yields to the State — ^This objection ought to be, as far as possible, guarded against ; hence a manufactured commodity ought to be taxed in preference to the raw material — A tax on a manufactured commodity is objectionable, because it necessitates the enforcement of vexatious regulations by Government officers — It is intended that import and excise duties should be paid by the con- sumers, but an export duty is supposed to be mainly paid by foreigners— This, however, rarely happens: such a duty usually diminishes the export trade of a country, and thus decreases her national wealth— it would be most disastrous for England to impose an export duty on silk goods, because, as far as this branch of industry is concerned, we should be unable in foreign commerce to compete with other countries— The theory of intematibnal trade proves the impolicy of protective duties — Landowners are the only Digitized by Google Contents, xxxv class that can be permanently benefited by protective duties ; the value of the natural monopoly which they possess may be artificially increased by protection — Protective duties cannot, in the long run, increase the profits of any class of traders, because the competition of capital equalises profits in different trades — The Com Laws benefited the landowners, not the tenant-farmers — The increased prosperity of the country compensates landowners for the abolition of protective duties ; this illustrated by the rise in the rent of land in this country since the passing of free trade — An industry artificially fostered by protection may be destroyed by free trade ; but this cannot be ultimately a loss to a nation — A strong party in Australia are in favour of imposing protective import duties — They have supported this policy by a remark in Mr. MilFs Political Economy , in reference to an apparent exception which he makes in favour of protective duties in certain branches of industry in a young colony — Reasons against imposing protective duties, even as a temporary expedient — A comparison between direct and indirect taxation useless— Each system has its peculiar disadvantages ; hence equality of taxation is Mst secured by raising the revenue, partly by direct, and partly by indirect taxes pagbs 564—591 Chapter IV. On the Land-tax. The chief part of the revenue of India is raised by a land-tax — A land-tax is simply rent — When land is not cultivated by its owner a land-tax neither diminishes the profits of cultivation nor increases the price of agricultural produce— If a land-tax exceeds a rack-rent in amount, the price of agricultural produce must rise, and therefore the consumers of this produce will be virtually taxed — The impor- tation of produce will be encouraged if the land-tax exceeds a rack-rent; hence land will be thrown out of cultivation, and the land-tax will yield a smaller revenue— The land-tax in this country is small, because commuted at a fixed money payment — The tax- payers would have been benefited if the land-tax had not been thus commuted, but had been fixed at a certain definite proportion of the value of the land — A tithe may be regarded as a rent-charge, and tithes neither diminish the profits of the cultivator nor affect the price of agricultural produce — The Tithe Commutation Act was not quite fair to tithe-proprietors, because tithes are not affected by a rise in the price of stock — Agricultural improvements may be impeded if tithes are not commuted 592 — 597 Chapter V. The Poor Law and its Influence on Pauperism. An historical sketch of poor law legislation — The stringent laws against begging and vagrancy in the reign of Richard II. — Further legisla- tion imperatively required in the time of Henry VIII. in consequence of the suppression of monasteries, which had been centres of alms- giving — Various Acts, endeavouring to discriminate between volun- tary and involuntary pauperism and to control private charity, were passed. The experience gained of their working led to the passing Digitized by Google xxxvi Contents, of the poor law of Elizabeth, in 1601, which first definitely established the right of every destitute person to receive relief and at the same time provided efficient safeguards against voluntary pauperism — The Elizabethan poor law continued in operation virtually unchanged, save for Acts strengthening its principles, such as that which in 1723 established the workhouse test, till the latter half of the i8th century — Pauperism was at that time so insignificant in its proportions that it appears to have been thought unnecessary to maintain the strin- gency of Elizabeth's poor law — The workhouse test was abandoned — Gilbert's Act in 1782 and East's Act in 181 5 abolished nearly all the checks on voluntary pauperism — The consequence of these relaxations and of the encouragement given in various ways to immorality, thriftlessness and dependence brought England to the verge of national bankruptcy — Rates threatened to absorb more than the entire value of the soil— Pauperism became a more remunerative profession than honest labour— This disastrous state of things led to the appointment of the Poor Law Commission in 1832 and in 1834 to the passing of the New Poor Law re-enacting most of the Elizabethan checKS on voluntary pauperism— A comparison of the poor laws of England, Ireland and Scotland proves that the amount of pauperism depends to a very large degree on the restrictions placed upon the distribution of out-door relief — Until the restrictions upon out-door relief were relaxed in Ireland there was considerably less pauperism in proportion to the population than in England and Scotland— The Union Chargeability Act — The Metropolitan Poor Act discourages out-door relief in London, and has been most useful in diminishmg pauperism— The amount of pauperism in the various unions of Eng- land varies largely, and is in the main controlled by the degree of skill with which the existing law is administered— Proportion of pauperism to population in the unions of Whitechapet, Linton (Oambs.), Preston, Atcbam, Oxford and Cambridge (1883)— Nearly all the motives for economical administration of the poor law would disappear if there were a national poor-rate — The dangers associated with the poor law do not lead us to advocate its abolition — It is valuable in affording some control over unorganised and indiscrimi- nate private charity : it also protects the poorest classes from the desperation caused by the prospect of absolute destitution — Hence, though socialistic in its character, the poor law affords a safeguard against the extremes of revolutionary socialism — The influence of education, cooperation and thrift in preventing pauperism — Hind- rances to the employment of women encourage pauperism — Every occupation which is closed to women drives them, in additional numbers, into those occupations which remain open, and hence a tendency is exerted to depress wages already sufficiently low — The principle of the Factory Acts is just as applied to children, but is indefensible when applied to adult women ,. pages 598 — 617 Chapter VI. Local Taxation. In this country a great contrast exists between local and imperial finance — The imperial revenue has been of late years so prosperous that although the expenditure has been maintained at a very high rate, there have been repeated surpluses and constant remissions of taxation — In local finance the expenditure invariably exceeds the Digitized by Google Contents. xxxvii revenue, and the deficiency is made up by loans — Statement of the local finance of London in 1868— Local expenditure is increasing much more rapidly than the national wealth — Defects of administration arising from confused areas of rating and from multifarious rating bodies — The creation of many new rates — The demand for new rates is encouraged by the idea that an increase of local expenditure is of little consequence in a country so rapidly increasing in wealth as England — Fallacy of this explained — Arguments against meeting local expenditure by grants from the Ck>nsoli(mted Fund.... pages 61^—626 Chapter VII. The Incidence of Local Taocation, Local taxation consists almost entirely of rates on real property — Figures quoted to prove that rates in towns are generally much higher than in country districts— Land is contributing a constantly decreasing amount to local taxation in comparison with other kinds of property — In the case of cultivated land, although the rates are usually paid by the occupier, their real incidence is upon the owner of the land— In the case of houses, the incidence of by far the larger portion of the rates is upon the occupier ; a small portion only falling upon the owner of the land on which the house is built — If, however, the house possesses such exceptional advantages of situation that the rent is only in a small degree determined by the cost of building, then the incidence of the rates is almost entirely upon the owner of the ground — When a uniform and general rate is imposed on business premises the rate really falls on the consumer — When rates are exceptionally high in a particular district they are a special tax on the profits of trtule in that district — Rates imposed on railways and the railway passenger duty are a charge upon the profits of the shareholders and are not paid by railway passengers — The rates imposed upon water-works and gas-works are, except in certain exceptional cases, paid by the shareholders — The injustice explained of carrying out works of improvement by loans, the interest and capital of which are paid off in a fixed number of years, in the form of additional rates by the leasehold occupier, as aistinguished from the owner of houses, land, and other rateaole property 627 — 645 Index, 646 Digitized by Google |