During the first half of the nineteenth century English economic thought influenced foreigners far more strongly than that of foreigners influenced Englishmen. Both Adam Smith and McCulloch, for example, were far more widely read on the Continent than was any foreign economist in this country. Yet notable work was being done on the Continent in those days. Thus von Thünen in his Isolated State (Der Isolirte Staat), the first volume of which was published in 1826,1 enunciated a theory of payment, both for capital and labour, according to marginal productivity.2 Cournot, again, whose Recherches sur les Principes Mathématiques de la Théorie des Richesses appeared in 1838, played an important part in the development of economic method. For he was the first to apply, with any success, the forms and symbols of mathematical analysis to economic problems. Only one out of his twelve chapters has much bearing on distribution, but his methods influenced later writers and were applied by them to all branches of economic theory. Cournot's influence was not immediate. For nearly forty years he remained unknown, till first Jevons and then a train of other writers acknowledged the value of his work, which, according to Professor Edgeworth, "is still the best statement in mathematical form of some of the highest generalisations in economic science." §8. We may now turn back to the doctrine of the 1 Subsequent volumes appeared in 1850 and 1863, but von Thünen states that his marginal theories, though only appearing in the later volumes, had been present in his mind in 1826, but had seemed too radical for publication! Compare Haney, op. cit., p. 285 n. Both Marshall (Principles, p. 523 n.) and Professor J. B. Clark (Distribution of Wealth, p. 324 n.) have testified to von Thünen's originality on this point. Ch. XI. De la Revenue Sociale. • Theory of Political Economy; see also Marshall, Principles, Preface, p. xix., and p. 101 n. 5 Palgrave's Dictionary of Political Economy, Vol. I., p. 445. wages fund, which forms a link between our third and fourth periods. For though, as has been observed, its parentage is doubtful,1 it was certainly born during our third, and lived on into our fourth, period, being at first adopted by John Stuart Mill, by whom it was afterwards put to death, as it richly deserved. According to this doctrine, as generally understood, not only did the rate of wages depend solely in the long run upon the ratio of capital to population—a comparatively harmless fallacy-but the total sum payable in wages at any given time was represented to be a fixed quantity. The first part of the doctrine led merely to the conclusion that it was to the interest of labour to increase the supply of capital and to reduce the birth-rate, but the second part led to the further conclusion that no attempts by Trade Unions to raise aggregate wages could possibly succeed. For the most that a Trade Union could effect was a transference of wages from one group of workers to another. It is difficult to conceive a doctrine more likely to deaden the efforts of the working classes to improve their lot, or to excuse employers in repressing such efforts in the alleged interests of the workers themselves. But the latter, happily, were even less aware then than now of current economic teaching, nor, in any case, is it likely that their leaders would have been much impressed by such reasoning. The doctrine of the wages fund, therefore, did less practical harm than might have been expected. 1 Various commentators have fathered it upon Malthus, Ricardo, James Mill, McCulloch and Senior, and such, or somewhat such, a doctrine was apparently held by all these writers. " Cairnes, Leading Principles, Part II., Ch. I., and Taussig, Wages and Capital, Part II., Ch. XI., have attempted to "interpret the doctrine, so as to secure for it a respectable resurrection. CHAPTER V FOURTH PERIOD: 1848-1871. §1. In 1848 John Stuart Mill published his Principles of Political Economy, believing that the time had now come when "the field of political economy should be resurveyed in its whole extent." For such a task he was better equipped than his predecessors in certain important respects. He had received a very thorough and varied education, though an odd one. Moreover, "their most vital fault," says Marshall of Ricardo and his immediate followers," was that they did not see how liable to change are the habits and institutions of industry. In particular they did not see that the poverty of the poor is the chief cause of that weakness and inefficiency which are the causes of their poverty; they had not the faith that modern economists have in the possibility of a vast improvement in the condition of the working classes." But no such fault can be charged against Mill, who, by 1840, had come to regard "all existing institutions and social arrangements as merely provisional, and whose opinions grew more and more advanced as he grew older. His Principles consist of five Books, dealing respectively with Production, Distribution, Exchange, the Influence of the Progress of Society on Production and Distribution, and the Influence of Government. 1 Principles (Ashley's edition), p. xxvii. * See the almost pathetic first chapters of his Autobiography. " In the course of some preliminary remarks he observes that, "unlike the laws of Production, those of Distribution are partly of human institution; since the manner in which wealth is distributed in any given society, depends on the statutes or usages therein obtaining. But though governments or nations have the power of deciding what institutions shall exist, they cannot arbitrarily determine how those institutions shall work." This passage, though not very happily worded, contains an important and much neglected truth. Law in general, and particularly laws relating to property and the conduct of industry, have profound effects upon the distribution of income between persons. But such effects have escaped the notice of a great multitude of later economists, whose Theories of Distribution are mere offshoots of their Theories of Value. A correct Theory of Value is, indeed, a necessary basis for a correct Theory of Distribution, but a complete Theory of Distribution is far more than a few particular applications of a general Theory of Value.2 §2. Mill begins his Book on Distribution with two remarkable chapters on Property which, under the joint influence of his wife and the Socialists, underwent considerable changes in successive editions. The quotations which follow are from the text of the seventh edition, the last to be revised by Mill, which was published in 1871. "If," he writes, "the choice were to be made between Communism with all its chances, and the present state of society with all its sufferings and injustices, all the difficulties, great or small, of Com 1 Principles (Ashley's edition), p. 21. * The curious narrowness of many subsequent Theories of Distribution is partly due, no doubt, to a perception by later writers that Mill's attempt to deal with such matters as the general level of wages, before he had set forth the general determinants of value, was bound to fail. Compare Marshall, Principles, p. 824. But such explanations are not justifications. munism would be but as dust in the balance. But . the principle of private property has never yet had a fair trial in any country; and less so, perhaps, in this country than in some others. The laws of property have never yet conformed to the principles on which the justification of private property rests. They have made property of things which never ought to be property, and absolute property where only a qualified property ought to exist. They have not held the balance fairly between human beings, but have heaped impediments upon some, to give advantage to others; they have purposely fostered inequalities, and prevented all from starting fair in the race. That all should indeed start on perfectly equal terms is inconsistent with any law of private property; but if as much pains as has been taken to aggravate the inequality of chances arising from the natural working of the principle, had been taken to temper that inequality by every means not subversive of the principle itself; if the tendency of legislation had been to favour the diffusion, instead of the concentration, of wealth-to encourage the subdivision of the large masses, instead of striving to keep them together; the principle of individual property would have been found to have no necessary connection with the physical and social evils, which almost all Socialist writers assume to be inseparable from it."1 This classical passage goes right to the heart of the problem of distribution between persons. Private property," Mill continues, " in every defence made of it, is supposed to mean the guarantee to individuals of the fruits of their own labour and abstinence. The guarantee to them of the fruits of the labour and abstinence of others, transmitted to them without any merit or exertion of their own, is not of the essence of the institution. 1 Principles, pp. 208-9. |