Principles of Political Economy Part 23

The moderns have frequently inequitably neglected the doctrine of consumption. Thus it appears to be a very characteristic fact that in _Adam Smith's_ great book, there is no division bearing the t.i.tle "consumption," and in the Basel edition of 1801, that word does not occur in the index. _Droz_ says that in reading the works of certain of his followers, one might think that products were not made for the sake of man, but man for their sake. But, on the other hand, there came a strong reaction with _Lauderdale_, Inquiry, ch. 5; _Sismondi_, N. Principes, L., II, pa.s.sim; _Ganilh_, Dictionnaire a.n.a.lytique, 93 ff., 159 ff.; but especially, and with important scientific discoveries, _Malthus_, Principles, B. II. _St. Chamans_, Nouvel Essai sur la Richesse des Nations, 1824, is an exaggerated caricature of the theory of consumption. For instance, he resolves the income of individuals into foreign demand or the demand of strangers (29); considers the first condition of public credit to lie in the making of outlay (32); and even calls entirely idle consumers productive, for the reason that they elevate by their demand a _utilite possible_, to the dignity of a _utilite reelle_ (286 ff.) The view advocated by Mirabeau, and referred to above, again represented by _E. Solly_, Considerations on Political Economy, 1814, and by _Weishaupt_, Ueb. die Staatsausgaben und Auflagen, 1819. And so according to _Carey_, Principles, ch. 35, -- 6, the real difficulty does not lie in production, but in finding a purchaser for the products. But he overlooks the fact here that only the possessor of other products can appear as a purchaser. From another side, most socialists think almost exclusively of the wants of men, and scarcely consider it worth their while to pay any attention to the means of satisfying them.]

SECTION CCXV.

NECESSITY OF THE PROPER SIMULTANEOUS DEVELOPMENT OF PRODUCTION AND CONSUMPTION.

Hence, one of the most essential conditions of a prosperous national economy is that the development of consumption should keep equal pace with that of production, and supply with demand.[215-1] The growth of a nation's economy naturally depends on this: that production should always be, so to speak, one step in advance of consumption, just as the organism of the animal body grows from the fact that the secretions always amount to something less than the amount of additional nutrition.

A preponderance of secretions would here be disease; but so would be a too great preponderance of nutrition. Now, the politico-economical disease which is produced by the lagging behind of consumption and by the supply being much in advance of the demand, is called a commercial (market) crisis. Its immediate consequence is, that for a great many commodities produced, no purchasers can be found. The effect of this is naturally to lower prices. The profit of capital and wages diminish. A transition into another branch of production, not overcrowded, is either not possible at all or is attended with care, great difficulties and loss. It is very seldom that all these disadvantages are confined to the one branch in which the disease had its original seat. For, since the resources of the one cla.s.s of producers have diminished, they cannot purchase as much from others as usual. The most distant members of the politico-economic body may be thereby affected.[215-2]

[Footnote 215-1: _Boisguillebert_ lays the greatest weight on the harmony of the different branches of commerce.

_L'equilibre l'unique conservateur de l'opulence generale_; this depends on there being always as many sales as purchases. The moment one link in the great chain suffers, all the others sympathise. Hence he opposes all taxation of commodities which would destroy this harmony. (Nature des Richesses, ch. 4, 5, 6; Factum de la France, ch. 4; Tr. des Grains I, 1.) _Canard_ Principes d'E. politique, ch. 6, compares the relation between production and consumption in national economy with that between arteries and veins in the animal body. On the other hand, _Sismondi_, N. Principes I, 381, describes the bewilderment and want which are wont to arise when one wheel of the great politico-economical machine turns round more rapidly than the others.]

[Footnote 215-2: Thus, for instance, an occasional stagnation of the cotton factories of Lancashire has frequently the effect of "making all England seem like a sick man twisting and turning on his bed of pain." (_L.

Faucher._)]

SECTION CCXVI.

COMMERCIAL CRISES IN GENERAL.--A GENERAL GLUT.

The greater number of such crises are doubtless special; that is, it is only in some branches of trade that supply outweighs demand. Most theorists deny the possibility of a general glut, although many pract.i.tioners stubbornly maintain it.[216-1] J. B. Say relies upon the principle that in the sale of products, as contradistinguished from gifts, inheritances, etc., payment can always be made only in other products. If, therefore, in one branch there be so much supplied that the price declines; as a matter of course, the commodity wanted in exchange will command all the more, and, therefore, have a better vent.

In the years 1812 and 1813, for instance, it was almost impossible to find a market for dry goods and other similar products. Merchants everywhere complained that nothing could be sold. At the same time, however, corn, meat and colonial products were very dear, and, therefore, paid a large profit to those who supplied them.[216-2] Every producer who wants to sell anything brings a demand into the market exactly corresponding to his supply. (_J. Mill._) Every seller is _ex vi termini_ also a buyer; if, therefore production is doubled, purchasing power is also doubled. (_J. S. Mill._) Supply and demand are in the last a.n.a.lysis, really, only two different sides of one and the same transaction. And as long as we see men badly fed, badly clothed, etc., so long, strictly speaking, shall we be scarcely able to say that too much food or too much clothing has been produced.[216-3]

[Footnote 216-1: When those engaged in industrial pursuits speak of a lasting and ever-growing over-production, they have generally no other reason for their complaints than the declining of the rate of interest and of the undertaker's profit which always accompany an advance in civilization.

Compare _J. S. Mill_, Principles, III, ch. 14, 4. However, the same author, I, 403, admits the possibility of something similar to a general over-production.]

[Footnote 216-2: _Say's_ celebrated Theorie des Debouches, called by McCulloch his chief merit, Traite, I, ch. 15. At about the same time the same theory was developed by _J.

Mill_, Commerce defended, 1808. _Ricardo's_ express adhesion, Principles, ch. 21. Important germs of the theory may be traced much farther back: _Melon_, Essai politique sur le Commerce, 1734, ch. 2; _Tucker_, On the Naturalization Bill, 13; Sketch of the Advance and Decline of Nations, 1795, 182.]

[Footnote 216-3: Precisely the same commercial crisis, that of 1817 seq., which more than anything else led _Sismondi_ to the conclusion that too much had been produced in all branches of trade, may most readily be reduced to _Say's_ theory.

There was then a complaint, not only in Europe but also in America, Hindoostan, South Africa and Australia, of the unsaleableness of goods, overfull stores, etc.; but this, when more closely examined, was found to be true only of manufactured articles and raw material, of clothing and objects of luxury; while the coa.r.s.er means of subsistence found an excellent market, and were sold even at the highest prices. Hence, in this case, there was by no means any such thing as over-production. The trouble was that in the cultivation of corn and other similar products, too little was produced. There was a bad harvest even in 1816.

The most important authorities in favor of the possibility of a general glut are _Sismondi_, N. Principes, IV, ch. 4, and in the Revue encyclopedique, Mai, 1824: Sur la Balance des Consommations avec les Productions. Opposed by Say in the same periodical (Juilliet, 1824); where the controversy was afterwards reopened in June and July, 1827, by _Sismondi_ and _Dunoyer_. Compare Etudes, vol. I; _Ganilh_, Theorie, II, 348 ff.; _Malthus_, Principles, II, ch. 1, 8.

Compare _Rau_, _Malthus_ and Say, uber die Ursachen der jetzigen Handelsstockung, 1821. _Malthus'_ views were surpa.s.sed by _Chalmers_, On Political Economy in Connexion with the moral State of Society, 1832. But even _Malthus_ himself in his Definitions, ch. 10, No. 55, later, so defined a "general glut" that there could be no longer question of his holding to its universality. For an impartial criticism, see especially _Hermann_, Staatsw.

Untersuchungen, 251, and _M. Chevalier_, Cours, 1, Lecon, 3.]

SECTION CCXVII.

COMMERCIAL CRISES IN GENERAL.

All these allegations are undoubtedly true, in so far as the whole world is considered one great economic system, and the aggregate of all goods, including the medium of circulation, is borne in mind. The consolation which might otherwise lie herein is made indeed to some extent unrealizable by these conditions. It must not be forgotten in practice that men are actuated by other motives than that of consuming as much as possible.[217-1] As men are const.i.tuted, the full consciousness of this possibility is not always found in connection with the mere power to do, to say nothing of the will to do.[217-2] There are, everywhere, certain consumption-customs corresponding with the distribution of the national income. Every great and sudden change in the latter is therefore wont to produce a great glut of the market.[217-3] The party who in such case wins, is not wont to extend his consumption as rapidly as the loser has to curtail his; partly for the reason that the former cannot calculate his profit as accurately as the latter can his loss.[217-4]

Thus laws, the barriers interposed by tariffs, etc., may hinder the too-much of one country to flow over into the too-little of another.

England, for instance might be suffering from a flood of manufactured articles and the United States from an oppressive depreciation in the value of raw material; but the tariff-laws places a hermetic dike between want on one side and superfluity on the other. Strong national antipathies and great differences of taste stubbornly adhered to may produce similar effects; for instance between the Chinese and Europeans.

Even separation in s.p.a.ce, especially when added to by badness of the means of transportation may be a sufficient hinderance especially when transportation makes commodities so dear that parties do not care to exchange. In such cases, it is certainly imaginable that there should be at once a want of proper vent or demand for all commodities; provided, we look upon each individual cla.s.s of commodities the world over as one whole, and admit the exception that in individual places, certain parts of the whole more readily find a market because of the general crisis.

Lastly, the mere introduction of trade by money destroys as it were the use of the whole abstract theory.[217-5] So long as original barter prevailed, supply and demand met face to face. But by the intervention of money, the seller is placed in a condition to purchase only after a time, that is, to postpone the other half of the exchange-transaction as he wishes. Hence it follows that supply does not necessarily produce a corresponding demand in the real market. And thus a general crisis may be produced, especially by a sudden diminution of the medium of circulation.[217-6] And so, many very abundant harvests, which have produced a great decline in the value of raw material, and no less so a too large fixation of capital which stops before its completion,[217-7]

may lead to general over-production. In a word, production does not always carry with itself the guaranty that it shall find a proper market, but only when it is developed in all directions, where it is progressive and in harmony with the whole national economy. To use Michel Chevalier's expression, the saliant angles of the one-half must correspond to the re-entrant angles of the other, or confusion will reign everywhere. Even in individual industrial enterprises, the proper combination of the different kinds of labor employed in them is an indispensable condition of success. Let us suppose a factory in which there are separate workmen occupied with nothing but the manufacture of ramrods. If these now exceed the proper limits of their production and have manufactured perhaps ten times as many ramrods as can be used in a year, can their colleagues, employed in the making of the locks or b.u.t.t-ends of the gun, profit by their outlay? Scarcely. There will be a stagnation of the entire business, because part of its capital is paralyzed, and all the workmen will suffer damage.[217-8] [217-9]

[Footnote 217-1: As _Ferguson_, History of Civil Society, says, the person who thinks that all violent pa.s.sions are produced by the influence of gain or loss, err as greatly as the spectators of Oth.e.l.lo's wrath who should attribute it to the loss of the handkerchief.]

[Footnote 217-2: If all the rich were suddenly to become misers, live on bread and water, and go about in the coa.r.s.est clothing, etc., it would not be long before all commodities, the circulating medium excepted, would feel the want of a proper market--all, including even the most necessary means of subsistence, because a mult.i.tude of former consumers, having no employment, would be obliged to discontinue their demand. Over-production would be greater yet if a great and general improvement in the industrial arts or in the art of agriculture had gone before. Compare, _Lauderdale_ Inquiry, 88. This author calls attention to the fact that a market in which the middle cla.s.s prevails must put branches of production in operation very different from those put in operation where there are only a few over-rich people, and numberless utterly poor ones: England, the United States--the East Indies, and France before the Revolution. (Ch. 5, especially p. 358.)]

[Footnote 217-3: If England, for instance, became bankrupt as a nation, the country would not therefore become richer or poorer. The national creditors would lose about 28,000,000 per annum, but the taxpayers would save that sum every year. Now, of the former, there are not 300,000 families; of the latter there are at least 5,000,000. Hence, the loss would there amount to 100 a family per annum, and the gain here to not 6 per family. We may therefore a.s.sume with certainty that the two items would not balance each other as to consumption. The creditors of the nation, a numerous, and hitherto a largely consuming cla.s.s, now impoverished, would be obliged to curtail their demand for commodities of every kind to a frightful extent; while a great many taxpayers would not feel justified in basing an immediate increase of their demand on so small a saving.

Other revolutions, more political in character, may operate in the same direction by despoiling a brilliant court, a luxurious n.o.bility or numerous official cla.s.ses of their former income.]

[Footnote 217-4: The above truth has been exaggerated by Malthus and his school into the principle that a numerous cla.s.s of "unproductive consumers," who consume more than they produce, is indispensable to a flourishing national economy. From this point of view, the magnitude of England's debt especially has been made a subject of congratulation.

Compare _Malthus_, Principles, II, ch. 1, 9. Similarly _Ortes_, E. N., III, 17, to whom even the _impostori mezzani_ and _ladri_ seem to be a kind of necessity. (III, 23.) _Chalmers_, Political Economy, III ff. If it was only question of consumption here, all that would be needed would be to throw away the commodities produced in excess. Those writers forget that a consumer, to be desirable, should be able to offer counter-values.]

[Footnote 217-5: _Malthus_, Principles, II, ch. 1, 3.]

[Footnote 217-6: Let us suppose a country which has been used to effecting all its exchanges by means of $100,000,000. All prices have been fixed, or have regulated themselves accordingly. Let us now suppose that there has been a sudden exportation of $10,000,000, and under such circ.u.mstances as to delay the rapid filling up of the gap thus created. In the long run, the demand of a country for a circulation may be satisfied just as well with $90,000,000 as with $100,000,000; only it is necessary in the first instance that the circulation should be accelerated or that the price of money should rise 10 per cent. But neither of these accommodations is possible immediately. In the beginning, sellers will refuse to part with their goods 10 per cent. cheaper than they have been wont to. But so long as those engaged in commercial transactions have not become completely conscious of the revolution which has taken place in prices, and do not act accordingly, there is evidently a certain ebb in the channels of trade, and simultaneously in all. Demand and supply are kept apart from each other by the intervention of a generally prevailing error concerning the real price of the medium of circulation, and there must be, although only temporarily, buyers wanted by every seller, except the seller of money. In a country with a paper circulation, every great depreciation of the value of the paper money not produced by a corresponding increase of the same, may produce such results. _Say_ is wrong when he says that a want of instruments of exchange may be always remedied immediately and without difficulty.]

[Footnote 217-7: Suppose a people, the country population of which produce annually $100,000,000 in corn over and above their own requirements, and thus open a market for those engaged in industrial pursuits to the extent of $100,000,000. And suppose that in consequence of three plentiful harvests, and because of an inability to export, the market should grow to be over-full, to such an extent that the much greater stores of corn have now (-- 5, 103) a much smaller value in exchange than usual. The latter may have declined to $70,000,000. Hence the country people now can buy from the cities only $70,000,000 of city wares. The cities, therefore, suffer from over-production. That people dispensing with the use of money should establish an immediate trade between wheat and manufactured articles, in which case the latter would exchange against a large quant.i.ty of the former, is not practicable, because no one can extend his consumption of corn beyond the capacity of his stomach, and the storage of wheat with the intention of selling it when the price advances is attended with the greatest difficulties.]

[Footnote 217-8: If, for instance, there are too many railroads in process of construction, all other commodities may in consequence lose in demand, and when the further construction begins to be arrested on account of a superfluity of roads, the new rail factories, etc. are involved in the crisis.]

[Footnote 217-9: On the special pathology and therapeutics of this economic disease, compare _Roscher_, Die Productionskrisen, mit besonderer Rucksicht auf die letzen Jahrzente in the Gegenwart, Brockhaus, 1849, Bd., III, 721 ff., and his Ansichten der Volkswirthschaft, 1861, 279 ff.]

SECTION CCXVIII

PRODIGALITY AND FRUGALITY.

Prodigality is less odious than avarice, less irreconcilable with certain virtues, but incomparably more detrimental to a nation's economy. The miser's treasures, even when they have been buried, may be employed productively, at least, after his death; but prodigality _destroys_ resources. So, too, avarice is a repulsive vice, extravagance a seductive one. The practice of frugality[218-1] in every day life is as far removed from one extreme as the other. It is the "daughter of wisdom, the sister of temperance and the mother of freedom." Only with its a.s.sistance can liberality be true, lasting and successful. It is, in short, reason and virtue in their application to consumption.[218-2]

[218-3]

[Footnote 218-1: Negatively: the principle of sparing; positively: the principle of making the utmost use of things. (_Schaffle_, Kapitalismus und Socialismus, 27.)]

[Footnote 218-2: Admirable description of economy in _B.

Franklin's_ Pennsylvanian Almanac, How poor Rich. Saunders got rich; also in _J. B. Say_, Traite, III, ch. 5. _Adam Smith_, W. of N., II, ch. 3, endeavors to explain why it is that, on the whole and on a large scale, the principle of economy predominates over the seductions of extravagance.

This, however, is true only of progressive nations.]

[Footnote 218-3: The Savior Himself in His miracles, the highest pattern of economy: _Matth._, 14, 20; _Mark_, 6, 43; 8, 8; _Luke_, 9, 17; _John_, 6, 12. That He did not intend to prohibit thereby all n.o.ble luxury is shown by pa.s.sages such as _Matth._, 26, 6 ff.; _John_, 2, 10.]

SECTION CCXIX.

EFFECT OF PRODIGALITY.

Prodigality destroys goods which either were capital or might have become capital. But, at the same time, it either directly or indirectly increases the demand for commodities. Hence, for a time, it raises not only the interest of capital, but the prices of many commodities.

Consumers naturally suffer in consequence; many producers make a profit greater than that usual in the country until such time as the equilibrium between supply and demand has been restored by an increase of the supply of the coveted products. But the capital of spendthrifts is wont to be suddenly exhausted; demand suddenly decreases, and producers suffer a crisis. As Benjamin Franklin says, he who buys superfluities will at last have to sell necessities. Thus the extravagance of a court may contribute to the rapid prosperity of a place of princely residence.[219-1] But it should not be forgotten that all the food-sap artificially carried there had to be previously withdrawn from the provinces. The clear loss caused by the destruction of wealth should also be borne in mind.[219-2] [219-3]

[Footnote 219-1: A rapid change of hands by money, as it is called in every day life. See, _per contra_, _Tucker_, Sermons, 31, 1774.]

[Footnote 219-2: Only the superficial observer is apt to notice this apparent prosperity of the capital much more readily than the decline of the rest of the country, which covers so much more territory. In like manner, many wars have had the appearance of promoting industry, for the reason that some branches grew largely in consequence of the increased demand of the state; but they grew at the expense of all others which had to meet the increased taxes. Compare _Jacob_ in _Lowe_, England nach seinem gegenwartigen Zustande, 1823, cap. 2, 3; _Nebenius_, Oeffentlicher Credit, I, Aufl., 419 ff.; _Hermann_, department of the Seine, amounted, in 1850, to 497,000,000 francs; in the department of the Bouches du Rhone, to 39,000,000 francs; in 1855, on the other hand, they were, on account of the war, 887,000,000 francs and 141,000,000. (Journal des Econ., Juil., 1857, 32 ff.)]