§14. We are now in a position to sum up the development of the theory of distribution between 1848 and 1871. The theory of value, the key to many, though not to all, the problems of distribution, remained practically in the state in which Adam Smith and Ricardo had left it. In spite of Mill's complacency in regard to it, it was still in a very rudimentary condition. Consequently the theories of wages per head, interest per cent., and rent per acre were almost as incomplete in 1871 as in 1848. The problem of determining" the proportion of the whole produce of the earth which will be allotted" to the various factors of production-" the principal problem in Political Economy," according to Ricardo-had hardly yet been tackled in earnest, though Mill, Carey, Bastiat, and Marx had all nibbled at it. Mill, however, had done much to clear up the causes of differences of earnings in different employments and had done still more useful work in emphasising the immense influence upon distribution between persons of the variable institution of private property. His discussion of property, and in particular of the laws of inheritance and bequest, might have been expected to lead to a great development of this side of the theory of distribution. But no such development had begun 1871, nor even, as we shall presently see, in 1918. in Roscher was alive to the fact that a consideration of the relative incomes of persons is just as much a part of any full theory of disution as a consideration of wages per head, interest per cent., and rent per acre, but his discussion of the inequality of individual incomes was rather trivial. One further point should be noted. Neither Carey, Bastiat, nor Marx drew any sharp distinction between land and capital. They recognised only two factors of production,1 not three like Adam Smith, Ricardo, and Mill. The idea of three factors was characteristic of the English school, and of the economic conditions of England in their day. The idea of two factors only was natural to Carey as an American,' to Bastiat as a follower of Carey, and to Marx as an opponent of all private property. It is also more appropriate to a broad theory of distribution. For the only genuine ground of distinction between land and capital is that, whereas the supply of land is limited by nature, the supply of capital is not, and this fact is often unimportant. But the distinction between labour and property is fundamental. " 1 Marx, of course, would not have agreed that capital was a factor of production at all. But the point is that he included land in the " category of capital. For in America landowners never forned a class sharply separated both from other property owners and from workers, as in England. Compare J. B. Clark, Essentials of Economic Theory, p. 159. G CHAPTER VI FIFTH PERIOD: 1871-1890. §1. Jevons, in his Theory of Political Economy, stated certain first principles with a brilliant precision of which none of his predecessors had been capable. "In the last few months," he wrote to his brother in 1860, "I have fortunately struck out what I have no doubt is the true Theory of Economy, so thorough-going and consistent that I cannot now read other books on the subject without indignation." A few weeks later he wrote that he hoped his forthcoming book would "re-establish the science on a sensible basis." In 1871 the Theory of Political Economy was published. In 1882, at the age of forty-six, Jevons was drowned while bathing. His early death was a serious loss to economic science. He left behind him, indeed, in addition to his Theory, and various less important writings, two other books which will always rank as economic classics, namely, The Coal Question and Investigations in Currency and Finance. But he had scarcely begun the book which he regarded as the "work of his life," and which he intended to call The Principles of Economics: a Treatise on the Industrial Mechanism of Society. Of this project we have only a table of contents and a few chapters and fragments of chapters. The chapters on distribution are among those that were planned but never written. An edition 1 Letters and Journals of W. S. Jevons, p. 151. Ibid, p. 154. of these fragmentary Principles was published in 1905 by Mr. Higgs.1 Jevons nowhere discusses the relation of property laws to distribution, though he might have done so, had he lived to finish his Principles. On this point, however, his work, as it stands, is inferior to that of Mill. §2. His Theory, he thought, would "hardly meet with ready acceptance among those who regard the science of Political Economy as having already acquired an almost perfect form." "I have sketched out," he continues, "almost irrespective of previous opinions, the form which the science, as it seems to me, must ultimately take." The conclusion to which I am ever more clearly coming is that the only hope of attaining a true system of economics is to fling aside, once and forever, the mazy and preposterous assumptions of the Ricardian school. Our English economists have been living in a fool's paradise." "The so-called wage fund theory" he regarded "as purely delusive," the "natural rate of wages as an absurdity, the cost of production theory of value and the proposition that rent forms no part of the cost of production as simply false. Rent, interest, and wages, he held, were determined by the same laws and stood in the same relation to value. 1 Mr. Higgs gives the following happy characterisation of Jevons "Among the economists of all time Jevons unquestionably stands in the first rank. Alert, original, exact, profound, he brought to the study of economic theory a mind trained in the processes of logic and of mathematical analysis, while his powers of observation and coordination were quickened by a large acquaintance with the principles and the details of natural science. Exceptionally familiar with the work of the early English and French economists, a pioneer in pure theory, an authoritative writer upon such practical matters as Money and Banking, Currency and Finance, the State in Relation to Labour, Methods of Social Reform, the Coal Question, etc., he was one of the few professed economists who have in this country secured respect alike in Parliament, in the City, and in the closet." Theory, Preface, p. v. 4 • Ibid, p. xlix. When at length a true system of economics comes to be established, it will be seen that that able but wrong-headed man, David Ricardo, shunted the car of economic science on to a wrong line, a line, however, on which it was further urged towards confusion by his equally able and wrong-headed admirer, John Stuart Mill. It will be a work of labour to pick up the fragments of a shattered science and to start anew.” In working out the "mechanics of self-interest and utility," Jevons makes fundamental "the great principle of the ultimate decrease of the final degree of utility of any commodity." This principle, of course, is that which later economists have called the law of diminishing marginal utility. Thus an intelligent person lays out his income in such a way as to make the marginal utilities of all commodities as nearly equal as possible and, therefore, "so far as is consistent with the inequality of wealth in every community, all commodities are distributed by exchange so as to produce the maximum of utility." Similarly, every commodity tends to be distributed between different uses, and to be distributed in time, in such a way as to equalise its marginal utilities in different uses and at different points of time." As regards the theory of value, "repeated reflection and inquiry have led me to the somewhat novel opinion that value depends entirely upon utility." This statement is nearer to the truth than Ricardo's, that value depends entirely upon cost of production, but it is still one-sided and incomplete. The correct view, of course, 2 Ibid, Chapters II. and III. 1 Ibid, p. lvii. • Jevons observes on p. 43 that Senior's law of variety" is equivalent to the law of diminishing marginal utility. It may indeed be said that the meaning of the latter law is merely that men desire variety in their consumption. A still earlier reference to desire for variety as a determinant of value will be found in Adam Smith, (Lectures on Justice, Police, and Arms, pp. 159-160). • Ibid, p. 153. Ibid, pp. 63 and 77. • Ibid, p. I |