of the old French Individualist or "liberal" school, of which Bastiat may be regarded as the founder. It is the chief doctrine of this school that only the free play of economic forces can bring about economic improvement and that existing checks on "free competition" are the cause of poverty and all other economic evils. The "liberal" school are specially opposed to Protection and to Socialism, and in a lesser degree to most modern "social reforms." M. Colson, therefore, is no friend of "l'interventionisme," the inadequacy of which, he thinks, will merely irritate and disappoint the workers, who will go on to demand still more fundamental and disastrous changes in the social order. He holds that the inequality of incomes is justified by the inequality of participation in production, and that the latter inequality is even greater than the former. Moreover "natural economic laws" will defeat all attempts to equalise economic conditions by legislation. §16. An interesting analogy may be drawn between French Individualists and German Socialists. Both enunciate propositions too universal and simple to be true. To the former "free competition" is the philosopher's stone, to the latter " capitalism" is the universal bogey. The former argue that "free competition " must diminish inequality, the latter that "capitalism capitalism" must increase it. On analysis, "free competition and capitalism" appear to mean much the same thing, and the general arguments on both sides are seen to be hopelessly inadequate. There are, under modern conditions, certain forces at work which make for a diminu 1 Other modern members of this school are Leroy-Beaulieu, Pareto, Molinari, and Yves Guyot. The causes of the prevalence of this sterile type of economic thought in France are suggestively discussed by Professor Haney in his History of Economic Thought, PP. 237 and 504. See his Organisme Economique et Désordre Social (1912). • Cours d' Economie Politique, Vol. I., pp. 94 ff. tion, and certain others which make for an increase, in inequality. The balancing of the one against the other is a more delicate and difficult task than either fanatical Individualists or fanatical Socialists generally realise. §17. Socialists during the period now under review produced practically no distinctive theory. In England the opportunism of the Fabians was not backed by any general theory, though their conception of a National Minimum, as an object of public policy, is noteworthy.1 In Germany Herr Bernstein, himself a Social Democrat, published in 1899 his Voraussetzungen des Sozialismus,2 in which, by the aid of recent statistics, he conclusively refutes many of Marx's leading propositions. For instance, “it is quite wrong to assume that the present development of society shows a relative or indeed absolute diminution of the number of members of the possessing classes. If the working class waits till ' capital has put the middle classes out of the world, it might take a long nap."3 The realisation of Socialism and the success of the socialist movement, says Herr Bernstein, do not depend on the truth of Marx's theory. The latter may be false, but Socialism is still the final and desirable goal of economic progress. But suppose the victory of Socialism depended on a constant shrinkage in the number of capitalist magnates, social democracy, if it wanted to act logically, would have to support a heaping up of capital in ever fewer and fewer hands, or at least to give no support to anything that would stop this shrinkage. As a matter of fact social democracy does not act on this principle," as is shown by its attitude toward questions of taxation and other social reforms. " 1 See Webb, Industrial Democracy, pp. 766-784, and Socialism and the National Minimum. An English translation of this book under the title of Evolutionary Socialism was published in 1909. Evolutionary Socialism, pp. 48-51. "It is not social democracy which is wrong in this respect. The fault lies in the doctrine which assumes that progress depends on the deterioration of social conditions." This frank and commonsense criticism of the master infuriated the more faithful of his disciples. §18. Another book which has had an important and wholesome influence is Sir Leo Chiozza Money's Riches and Poverty, which was first published in 1905 and in five years ran through ten editions. It contains a vivid presentation of the statistics of distribution in the United Kingdom, the substantial accuracy of which has never been disproved. Sir Leo shows that, of the total income of the country before the war, half was received by about 12%, and more than a third by about 3%, of the population, while, of the total private property of the country, about two-thirds were owned by less than 2% of the population.2 These figures, very startling at first reading, help to give perspective to discussions of distribution. Who would have inferred such a state of things from a study of the laws of rent, interest, and wages, as expounded, for example, by Professor Clark, and from the reasoning which leads up to the proposition that, since “ each man gets his product," distribution is "honest " and justice reigns? §19. We may complete our survey of this period with some account of the writings of Professor Cannan. Though these are largely critical, they contain many valuable positive suggestions, to some of which, as I have already stated, the general form of the present volume is largely due. Professor Cannan traces the development of his own economic opinions in a sketch, which forms the intro1 Ibid, pp. 212-13. 2 In all these estimates the wives and children of wealthy men are included in the minority of wealthy persons, who form so small a percentage of the population. duction to a collection of essays reprinted in 1912 under the title of The Economic Outlook. In 1893 he published his History of the Theories of Production and Distribution in English Political Economy from 1776 to 1848, that is to say, from Adam Smith to Mill. His judgment of the "classical economists," based upon a highly detailed examination, is, on the whole, very unfavourable. He points out that, having dealt after a fashion with the causes of a greater or less production, they fixed their attention almost exclusively on the causes which determine wages per head, profits per cent. and rent per acre.1 These three enquiries constituted almost the whole of the classical theory of distribution. This theory Professor Cannan calls "Pseudo-Distribution," as distinguished from " Distribution Proper," which should deal with the following questions: first, "what determines the proportions in which the total produce is divided between the class of labourers, the class of capitalists, and the class of landlords, or, as it is put metaphorically, between Labour, Capital, and Land?" and second, "what determines the distribution of aggregate wages among individual labourers, aggregate profits among individual capitalists, and aggregate rent among individual landlords?" He holds that, with most of the early English economists, "practical aims were paramount, and the advancement of science secondary." Their theories were of small scientific value, but of great practical utility in combating such follies as the Corn Laws and the old Poor Law. These theories, however, proved harmful and misleading, when applied to the practical problems of more recent times, and the modern theories which are replacing them, though in many respects unsatisfactory, are at any rate more correct and less likely to lead to practical mistakes." 1 Op. cit., Chapter VII. 2 Ibid, P. 384. • Ibid, pp. 392 ff. In 1905 Professor Cannan published in the Quarterly Journal of Economics an article on the Division of Income, which marks a turning point in the development of economic theory. The article was written, as he elsewhere explains, at a moment when it seemed to him "that the old doctrines about wages, profits, and rent were in danger of being superseded by a very carefully thought-out theory which might not be incorrect in itself, but which answered no question which was of the least interest to mankind. Since 1905, however, there has been a change for the better, and the attempt to treat Distribution as subordinate to the discussion of Value is gradually being abandoned." The argument of this important article may be summarised as follows. The theory of distribution should furnish a general answer to the question, "why inside each community some individuals and families are above and others below the average in wealth." But the current theories do not, even approximately, do this. "Economists sometimes vaguely wonder why economic theory is so unpopular that books upon it have a very small sale, and in the greatest centres of population lectures on it by the best professors will attract at the most an audience of forty or fifty, and usually much fewer than that. Is there anything in this to excite surprise, if we reflect for a moment on the inadequacy of the answer furnished by the theory of distribution, as at present taught, to the questions in which the ordinary person is interested?" Professor Cannan then pictures, in amusing fashion, the feelings of an intelligent young man who, moved to economic study by dissatisfaction with the contrasts between riches and poverty, attends a course of lectures of the traditional type concerning wages per head, interest per This article is reprinted in The Economic Outlook, pp. 215-253. |