in the second chapter of the fourth book of his "Inquiry into the Nature and Causes of the Wealth of Nations." The limits of space forbid the quotation of his whole chapter, which contains a great deal of rhetorical repetition; but nothing shall be passed over which demands reply.

In his first paragraph he calls protected industries monopolies. This they may have been in his time, when almost every trade and manufacture was a close guild; but this they are not in our time and country, with 50,000,000 of people free to exercise them. To use the word now is anything but complimentary to the intellect of the listener or reader.

His third paragraph maintains that

"The general industry of the society never can exceed what the capital of the society can employ. As the number of workmen that can be kept in employment by any particular person must bear a cer tain proportion to his capital, so the number of those that can be continually employed by all the members of a great society must bear a certain proportion to the whole capital of that society, and never can exceed that proportion. No regulation of commerce can increase the quantity of industry in any society beyond what its capital can maintain. It can only divert a part of it into a direction into which it might not otherwise have gone; and it is by no means certain that this artificial direction is likely to be more advantageous to the society than that into which it would have gone of its own accord."

But the number of workmen that can be kept in employment by any particular person does not bear a certain proportion to his capital. When the market for his products is dull, a large part of his capital is locked up in unsold goods; he must then lessen his production and dismiss some of his workmen. Quicken the demand for goods, and his ability to employ workmen increases; and the same is true of society taken together. In a normal condition of things there may be, for instance, a stock of goods equal to two months' consumption of the whole community, a value in the United States at the present time (1881) considerably exceeding a thousand millions of dollars. And observe that these stocks of commodities are the very things the food, the raiment, the tools, &c. which are requisite, and in fact used, in

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carrying out any new undertakings. The proposition, then, that industry never can exceed what the capital of the society can support" is totally irrelevant.* One-half of the capital normally unemployed is ample for the inauguration of gigantic enterprises, and these, if within the strength of the community, will not prevent anything being done which would otherwise have been done. On the contrary, the previously existing industries will be stimulated to larger production.

Let us suppose that the United States at the end of 1879 were producing and consuming commodities equal to a value of $6,000,000,000 for the year, and with a surplus stock equal to a value of $1,000,000,000. If at that time they commenced forming new instruments (mills, forges, farms, houses, and railroads) to an annual value of $300,000,000 over and beyond the regular and normal movement, there would be, as we see, $1,000,000,000 of unemployed floating capital out of which .to take the funds; but these funds would go to recompense the producers of the new instruments, and would be by them expended for the most part for commodities, thus relieving the capitalists of a portion of their stocks and placing them in a position to employ more labor for the sake of enlarging their production of commodities. But whatever they thus expended for labor would lead to the production of more than twice the value expended in labor,† and it might well have happened that at the end of 1880 the gap made in the stock of unemployed floating capital was quite repaired, and the country as ready to continue a similar movement in 1881 as it was to commence it a year before. Meanwhile, the extra recompense to labor during the year would have been not less than $600,000,000.

Vary the amounts if you please, but you will find that any

* It never can, for any considerable time, be nearly as great as the capital can support; for, if it were, there would be no stock of commodities, which would cause such high prices and such high rates of interest as must inevitably moderate the industrial movement.

† The census of 1870 gave, as the total value added to materials by the mechanical and manufacturing industries, $1,744,000,000, of which $776,000,000 went to labor.

new enterprise not out of proportion to the existing surplus stock of commodities will result, 1st, in an enlarged employment of laborers; and, 2d, in the creation of new subsidiary capital, or say rather of new instruments of production, which would not otherwise have come into existence. But a free-trader may say, How do you know that there is any surplus stock of commodities? and we should reply that, in the first place, we know it as a matter of fact, which can be verified, any day you please to take evidence, in State Street or Wall Street or anywhere else. But as our free-trade brethren do not like facts, nor believe in them unless they agree with conclusions deduced from postulates admitted by their own authors, we will try to show that in an industrial community there must be normally a stock of commodities or of unemployed capital.

First, then, take industry A. Those who commenced it did so for the sake of profit. But, so long as they obtained a satisfactory profit, the same motive would lead them to enlarge their production. If one man did not, another would; and so the increase of the industry would go on until it overran the demand. A stock would then accumulate, bringing down profits and locking up a portion of the producer's capital at the same moment. But what is true of industry A is true of B, C, D, &c.; and we thus arrive at the conclusion. that each carries along a surplus stock. When this stock is diminished by a novel or increased demand, prices rise, and the industry is stimulated; when the stock is increased, prices fall, and the industry is checked.

No economist, so far as we know, has noticed the vast aggregate amount of these stocks, nor the manner in which they regulate the play of the industrial forces; and yet, without knowing about them, it is impossible to understand what happens upon the commencement of a great war, or of a great industrial movement. When we have ascertained what the ordinary average stock is, whether equal to two or three or more months' consumption, it will become possible to form a rational opinion as to how far any industrial movement can be pushed without bringing on a scarcity of floating capital and a stringency in the money market.

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But, meanwhile, it is something to have satisfied ourselves. that such stocks must and do exist, and that systems framed in ignorance or disregard of them are necessarily erroneous. Such a system is that of Adam Smith in his third paragraph above quoted. He starts with a self-evident axiom that "the general industry of the society never can exceed what the capital of the society can employ." He then repeats the idea in different words three several times; and then, mistaking apparently this rhetorical artifice for logic, he draws his conclusion that "a regulation of commerce can only divert a portion of the capital of the society into directions into which it might not otherwise have gone." This conclusion will follow from his axiom, whenever an industrial community shall be found in which there exists no unemployed capital, and no funds, which, though originally intended for private expenditure, are capable of being diverted to the support of productive labor the moment a protective law affords a sufficient motive for doing so. Until such a community be found, the conclusion does not follow from the premises. His argument, if it can by any stretch of courtesy be called an argument, does not cohere.

In the next four paragraphs he argues from the supposed interests and motives of men that they would in certain cases act in accordance with the public interest, and he thence concludes that they are "led by an invisible hand to promote an end which was no part of their intention."

This is a stupendous generalization to be jumped at from a few very uncertain coincidences. Had he inquired, after the inductive method laid down by Bacon, as to whether the selfish private acts of men coincided generally with the interests of the society, he would have found that innumerable negative instances forbade any such conclusion.

His next paragraph argues that men can judge what is for their own interest better than any statesman can. This does not seem to be very evident, in light of the fact that over ninety per cent of business men fail; and, if it were evident, it has been noted already that there is no scientific basis for the assumption that individual private interests generally

coincide with those of the public. All that is evident is, that a statesman cannot undertake to attend to the private affairs of each individual, who, therefore, is left to manage for himself, under the restraint of general laws. These, however, forbid him to build unsafe ships or houses, to encroach upon or prevent the laying out of a public way, to set up lotteries or gambling-houses, to tie up property indefinitely, to use other than certain weights and measures, &c., ad infinitum. Uninstructed common sense recognizes everywhere that the immediate interest of the individual is, in an immense number of instances, quite opposite to the interest of the community; and one of the instances is, when the individual buys of the foreigner at the smallest difference of price, while his fellow-citizen, who could make the article, sits idle or becomes a charge upon the society.

In the next two paragraphs Adam Smith argues that

"It is the maxim of every prudent master of a family never to attempt to make at home what it will cost him more to make than to buy," and that "What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom. If a foreign country can supply us with an article cheaper than we can make it ourselves, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage. The general industry of the country, being always in proportion to the capital which employs it, will not thereby be diminished, no more than that of the above-mentioned artificers, but only left to find out the way in which it can be employed to the greatest advantage."

Here are two fallacies of confusion. The first is in comparing a nation which, by his own supposition, is not fully occupied, with an individual who, by his own supposition, is fully occupied. Let us correct this by supposing the individual to have employment only four days out of six. He will then be a very imprudent and thriftless master of a family if he sits idle two days in the week, because somebody else excels him in all save his special trade. He will set himself about something, will gradually acquire skill and become more independent; and his income all the time will be augmented. The second fallacy is introduced by the use of the word cost. We