Blackwood's Edinburgh Magazine, Vol. 64 No. 396 October 1848

"This general law of agricultural industry is the most important proposition in political economy. Were the law different, nearly all the phenomena of the production and distribution of wealth would be other than they are. The most fundamental errors, which still prevail on our subject, result from not perceiving this law at work underneath the more superficial agencies on which attention fixes itself; but mistaking these agencies for the ultimate causes of effects of which they may influence the form and mode, but of which it alone determines the essence." – (Vol. i. p. 212.)

It is to this physical law, underlying, as it were, the commercial and industrial energies of man, that we must finally attribute that gradual diminution of profits, observable in advanced and opulent countries. This is popularly attributed, we believe, and has been assigned, by some political economists, to over-production; to a general glut of the market, or, in other words, a preponderance of supply over demand. Over-production in this or that article may very easily, for a time, take place; but general over-production, a general over-balance in the supply, and deficiency in the demand, may be demonstrated to be impossible.

The simple but convincing argument against a general glut or over-balance between supply and demand, which we believe Mr Mill senior first originated, is this, – that as each producer produces in order to part with his produce – in order, in fact, to exchange, to purchase, he must necessarily bring into the market a demand equivalent to the supply he furnishes. "All sellers," as our present author expresses it, "are ex vi termini buyers. Could we suddenly double the productive powers of the country, we should double the supply of commodities in every market; but we should, by the same stroke, double the purchasing power. Every body would bring a double demand as well as supply; every body would be able to buy twice as much, because every one would have twice as much to offer in exchange." – (Vol. ii. p. 91.) Of certain articles, there may, of course, be a superfluity; of certain others a deficiency; but such a thing as a general over-balance between supply and demand cannot take place.

The argument, if it laid claim to a sort of mathematical precision, might be open to an ingenious cavil. The exchange of commodities, it might be said, is effected through the instrumentality of money; now, it is one of the peculiar advantages of money that it enables the vender to sell at one time and purchase at another; it gives him a command over future markets; it enables him to postpone indefinitely one half of the operation of barter. Men who come into a market, wishing to dispose of their commodities now, but not intending to select what commodity they shall take in exchange, till some future time, postponing indefinitely the other half of the operation of barter, and seeking only for money, for that token which will give them or their children a claim on subsequent markets – do not bring with them a demand equivalent to their supply.

The answer to the objection lets us more fully into the real facts of the case. Those only who wished to sell their produce in order to hoard, would fall under the description of men who bring a present supply into the market, postponing indefinitely their demand. But the producer is almost always a man desirous of increasing his wealth – he does not hoard; he immediately lays out his capital in some productive manner, in the purchase of food for labourers, and of the raw materials of industry. But these articles, it happens, cannot be supplied to him with the increasing abundance he demands; and thus we fall back upon the ultimate law to which we have alluded. The manufacturer finds, that every additional demand he makes for these is supplied at a greater cost. What has limited the profits of the agricultural capitalist limits his profits also. He cannot sell his goods at the accustomed advantage. He exclaims that there is a glut in the market. What he takes for a glut is a deficiency. It is quite natural and permissible, however, that this phenomenon of the diminution of profits should be spoken of as the result of a superabundance of capital, provided only it be understood why the later accumulations of capital fail to bring the same return as the earlier.

A simple law of nature, therefore, is the true cause of this commercial phenomenon. Countries, after a certain progress in the career of wealth, must cease to accumulate; – the diminished profit on capital affording no longer any motive for frugality and toil; – and they arrive at what may be called the stationary state. "When a country," says Mr Mill, "has long possessed a large production, and a large net income to make savings from, and when, therefore, the means have long existed of making a great annual addition to capital, (the country not having, like America, a large reserve of fertile land still unused,) it is one of the characteristics of such a country, that the rate of profit is habitually within, as it were, a hand's breadth of the minimum, and the country, therefore, on the very verge of the stationary state. By this, I do not mean that this state is likely, in any of the great countries of Europe, to be soon actually reached, or that capital does not still yield a profit considerably greater than what is barely sufficient to induce the people of these countries to save and accumulate. My meaning is, that it would require but a short time to reduce profits to the minimum, if capital continued to increase at its present rate, and no circumstances having a tendency to raise the rate of profit occurred in the mean time." – (Vol. ii. p. 287.)

Mr Mill then states what are the counteracting circumstances which arrest this downward tendency of profits. He mentions the waste of capital in periods of over-trading and rash speculation, the expenditure of an unproductive kind, and the perpetual overflow of capital into colonies and foreign countries, to seek higher profits than can be obtained at home. This last has a twofold operation. "In the first place, it does what a fire, or an inundation, or a commercial crisis, would have done, – it carries off a part of the increase of capital from which the reduction of profits proceeds. Secondly, the capital so carried off is not lost, but is chiefly employed either in founding colonies, which become large exporters of cheap agricultural produce, or in extending, and perhaps improving, the agriculture of older communities. It is to the emigration of English capital that we have chiefly to look for keeping up a supply of cheap food and cheap materials of clothing, proportional to the increase of our population; thus enabling an increasing capital to find employment in the country, without reduction of profit, in producing manufactured articles with which to pay for this supply of raw produce. Thus, the exportation of capital is an agent of great efficacy in extending the field of employment for that which remains; and it may be said truly that, up to a certain point, the more capital we send away, the more we shall possess and be able to retain at home." – (Vol. ii. p. 297.)

This last observation we have quoted is well deserving of attention. It is an instance of what we mentioned in the outset, of the science correcting as it advances its own errors. What follows is a still more striking instance, and still more worthy of attention. It occurs in the chapter entitled, —Consequences of the tendency of profits to a minimum. To such observations we have wished to draw the especial attention of our readers, but could not do so till the previous exposition had been gone through.

"The theory of the effect of accumulation on profits, laid down in the preceding chapter, materially alters many of the practical conclusions which might otherwise be supposed to follow from the general principles of political economy, and which were, indeed, long admitted as true by the highest authorities on the subject.

"It must greatly abate, or, rather, altogether destroy, in countries where profits are low, the immense importance which used to be attached, by political economists, to the effects which an event or a measure of government might have in adding to, or subtracting from, the capital of the country. We have now seen that the lowness of profits is a proof that the spirit of accumulation is so active, and that the increase of capital has proceeded at so rapid a rate, as to outstrip the two counter agencies, improvements in production, and increased supply of cheap necessaries from abroad: and that unless a considerable portion of the annual increase of capital were either periodically destroyed, or exported for foreign investment, the country would speedily attain the point at which further accumulation would cease, or at least spontaneously slacken, so as no longer to overpass the march of invention in the arts which produce the necessaries of life. In such a state of things as this, a sudden addition to the capital of the country, unaccompanied by any increase of productive power, would be but of transitory duration; since, by depressing profits and interest, it would rather diminish, by a corresponding amount, the savings which would be made from income in the year or two following, or it would cause an equivalent amount to be sent abroad, or to be wasted in rash speculations. Neither, on the other hand, would a sudden abstraction of capital, unless of inordinate amount, have any real effect in impoverishing the country. After a few months or years there would exist in the country just as much capital as if none had been taken away. The abstraction, by raising profits and interest, would give a fresh stimulus to the accumulative principle, which would speedily fill up the vacuum. Probably, indeed, the only effect that would ensue, would be that, for some time afterwards, less capital would be exported, and less thrown away in hazardous speculation.

"In the first place, then, this view of things greatly weakens, in a wealthy and industrious country, the force of the economical argument against the expenditure of public money for really valuable, even though industrially unproductive purposes. If for any great object of justice or philanthropic policy, such as the industrial regeneration of Ireland, or a comprehensive measure of colonisation or of public education, it were proposed to raise a large sum by way of loan, politicians need not demur to the abstraction of so much capital, as tending to dry up the permanent sources of the country's wealth, and diminish the fund which supplies the subsistence of the labouring population. The utmost expense which could be requisite for any of these purposes, would not, in all probability, deprive one labourer of employment, or diminish the next year's production by one ell of cloth or one bushel of grain. In poor countries the capital of the country requires the legislator's sedulous care; he is bound to be most cautious in encroaching upon it, and should favour to the utmost its accumulation at home, and its introduction from abroad. But in rich, populous, and highly cultivated countries, it is not capital which is the deficient element, but fertile land; and what the legislator should desire and promote, is not a greater aggregate saving, but a greater return to saving, either by improved cultivation, or by access to the produce of more fertile lands in other parts of the globe. In such countries, the government may take any moderate portion of the capital of the country and convert it into revenue, without affecting the national wealth; the whole being rather drawn from that portion of the annual saving which would otherwise be sent abroad, or being substracted from the unproductive expenditure of individuals for the next year or two, since every million sent makes room for another million to be saved, before reaching the overflowing point. When the object in view is worth the sacrifice of such an amount of the expenditure that furnishes the daily enjoyment of the people, the only well grounded economical objection against taking the necessary funds directly from the capital, consists of the inconveniences attending the process of raising a revenue, by taxation, to pay the interest of a debt.

"The same considerations enable us to throw aside, as unworthy of regard, one of the common arguments against emigration as a means of relief for the labouring class. Emigration, it is said, can do no good to the labourers, if, in order to defray the cost, as much must be taken away from the capital of the country as from its population. That any thing like this proportion could require to be abstracted from capital for the purpose even of the most extensive colonisation, few, I should think, would now assert; but even on that untenable supposition, it is an error to suppose that no benefit could be conferred on the labouring class. If one-tenth of the labouring people of England were transferred to the colonies, and along with them one-tenth of the circulating capital of the country, either wages, or profits, or both, would be greatly benefited by the diminished pressure of capital and population upon the fertility of the land. There would be a reduced demand for food; the inferior arable lands would be thrown out of cultivation, and would become pasture; the superior would be cultivated less highly, but with a greater proportional return; food would be lowered in price, and, though money wages would not rise, every labourer would be considerably improved in circumstances – an improvement which, if no increased stimulus to population and fall of wages ensued, would be permanent; while, if there did, profits would rise, and accumulation start forward so as to repair the loss of capital. The landlords alone would sustain some loss of income; and even they, only if colonisation went to the length of actually diminishing capital and population, but not if it merely carried off the annual increase." – (Vol. ii. p. 999.)

Does not all this place the condition of England in a very striking aspect before us? We have a country here so wealthy, so nearly approaching that state where its accessions of capital can no longer be profitably employed, that it wastes its funds in ruinous speculations, building perhaps useless factories – and, if useless, how mischievous! – that it sends its money abroad to construct foreign railways, or throws it away upon South American republics. Yet the people of this country is degraded and brutalised for want of education, and it is threatened with political convulsions for want of a good system of emigration; and you call for education, and you call for colonisation, and the only obstacle that is opposed to you is – the want of money! Shame upon England, if this be so! With all her knowledge and civilisation, she will go down to ruin, rather than give, in the shape of taxes, for the most necessary as well as philanthropic purposes, that wealth which she can fling abroad or waste at home with the most reckless prodigality.

Of late the Irish landlord has been very justly held up to public reproof for the hard, unthinking, extortionate manner in which he has been in the habit of dealing with the soil – or allowing certain middlemen to deal with it – taking a famine-price for the land – permitting the miserable cottiers to bid against each other, instead of fixing an equitable rent, such as would finally have secured to himself better and more profitable tenants. For his thoughtlessness or cupidity, whichever it may be, both he and the country at large are paying a severe penalty. But the Irish landlords are not the only class that are to blame. That indiscriminate recoil from all taxation, whatever be its object, which characterises the upper and middling classes of society in England, is a sad blot in their escutcheon.6

Before quitting this subject of capital, we must quote a passage which occurs at an earlier part of the work, but which is in perfect harmony with the strain of observations we have been calling attention to. It serves to show and explain the elastic power there is in every thoroughly industrious country to revive from any temporary loss, or sacrifice, or calamity. Let but the people with their knowledge and habits, the soil and a little food, remain, and there is no effort, and no ruin or desolation from which it would not speedily recover. Moreover, it is a passage of a certain popular interest, and we are glad of the opportunity to relieve our pages by its quotation.

"Every thing which is produced is consumed; both what is saved and what is said to be spent; and the former quite as rapidly as the latter. All the ordinary forms of language tend to disguise this. When men talk of the ancient wealth of a country, of riches inherited from ancestors, and similar expressions, the idea suggested is, that the riches so transmitted were produced long ago, at the time when they are said to have been first acquired, and that no portion of the capital of the country was produced this year, except so much as may have been this year added to the total amount. The fact is far otherwise. The greater part, in value, of the wealth now existing in England, has been produced by human hands within the last twelve months. A very small proportion indeed of that large aggregate was in existence ten years ago; – of the present productive capital of the country, scarcely any part except farm-houses and factories, and a few ships and machines; and even these would not in most cases have survived so long, if fresh labour had not been employed within that period in putting them in repair. The land subsists, and the land is almost the only thing that subsists. Every thing which is produced perishes, and most things very quickly. Most kinds of capital are not fitted by their nature to be long preserved. There are a few, and but a few productions, capable of a very prolonged existence. Westminster Abbey has lasted many centuries, with occasional repairs; some ancient sculptures have existed above two thousand years; the Pyramids perhaps double or treble that time. But these were objects devoted to unproductive use. If we except bridges and aqueducts, (to which may sometimes be added tanks and embankments,) there are few instances of any edifice applied to industrial purposes which has been of great duration: such buildings do not hold out against wear and tear, nor is it good economy to construct them of the solidity necessary for permanency. Capital is kept in existence from age to age, not by preservation, but by perpetual reproduction: every part of it is used and destroyed, generally very soon after it has been produced; but those who consume it are employed meanwhile in producing more. The growth of capital is similar to the growth of population. Every individual who is born, dies, but in each year the number born exceeds the number who die; the population, therefore, always increases, although not one person of those comprising it was alive until a very recent date.

"This perpetual consumption and reproduction of capital affords the explanation of what has so often excited wonder – the great rapidity with which countries recover from a state of devastation; the disappearance in a short time of all traces of the mischief done by earthquakes, of floods, hurricanes, and the ravages of war. An enemy lays waste a country by fire and sword, and destroys or carries away nearly all the movable wealth existing in it: all the inhabitants are ruined; yet in a few years after, every thing is much as it was before. This vis medicatrix naturæ has been a subject of sterile astonishment, or has been cited to exemplify the wonderful strength of the principle of saving, which can repair such enormous losses in so brief an interval. There is nothing at all wonderful in the matter. What the enemy have destroyed would have been destroyed in a little time by the inhabitants themselves; the wealth which they so rapidly reproduce would have needed to be produced, and would have been reproduced in any case, and probably in as short an interval." – (Vol. i. p. 91.)

One of the most interesting portions of the work is that devoted to questions touching the cultivation of the land – as whether large or small farms are most advisable. Mr Mill appears to advocate the latter, and enlarges much on the industry universally displayed by the peasants of those countries who either cultivate land of their own, or in which they have a certain and permanent interest. Additional value is given to these chapters, from the bearing they are made to have on the vexed questions of the causes and the remedies of the lamentable state of that unhappy country, Ireland.

We remember well the impression made upon us on reading, some time, ago, these passages in Sismondi's work which Mr Mill quotes on this occasion, where the habits and life of the peasant proprietors of Switzerland are so minutely, and apparently so faithfully described. Coupling his description with what our own hasty observation had taught us of this country, we were disposed to believe that nowhere, and under no circumstances, does human life wear a more enviable aspect than amongst these small proprietors, this rustic aristocracy of Switzerland. But we regarded it, as we still do, as one of those instances of compensation so general in the moral world. All the wealth of England could not purchase this sort of pastoral happiness. At all events, only here and there such a primitive state of things could exist. It was not necessary for our Norman ancestors to have added manor to manor: a wealthy commercial state, which gives origin to great fortunes, must inevitably give origin to large properties. The same wealth which decides for us that the land shall be cultivated in large farms, would also decide that it should be divided amongst large proprietors. It is well to keep in mind that neither of these facts is, to any material extent, owing to any peculiarity in the history or the laws of England, but to its commercial opulence.

Meanwhile we may be permitted to admire "the picture of unwearied industry, and what may be called affectionate interest in the land;" the patience, frugality, and prudence in entering into marriage, that almost always characterise the class of small proprietors cultivating their own soil. Our own yeomen, at that distant and almost fabulous epoch when our country obtained the name of "merry England," were of this description of men. We wish we had space to transfer to our pages some of the extracts which our author has drawn together from French, and German, and English writers, all showing the hearty, incessant, and, as one author calls it, the "superhuman" industry of the peasant proprietor.

A great number of such properties England cannot be expected to have; there may, too, be reasons for not desiring their existence; but one fact is placed beyond all controversy, both by the testimony of travellers, and the known operations of the common feelings of our nature, that they are the most indefatigable of all labourers. If you wish to convert an idle and improvident man into an industrious and frugal one, give him a piece of land of his own: the recipe may fail; but if this does not reform him, nothing else will.

It is on the condition of Ireland, as we have intimated, that this description of the peasant proprietor is made particularly to bear. To substitute for the wretched cottier system, some system under which the Irish peasant, having a substantial interest in the improvement of the soil, would be placed under strong motives to industry and providence, is the great remedy which Mr Mill proposes for the unhappy state of that country.

The evils of the cottier system are notorious. A peasantry who have no resource but the potato field, and who are multiplying as only utter poverty can multiply, bid against each other for the possession of the land. They promise rents they cannot possibly pay. They are immediately and continually in debt; but being there upon the soil, they can first feed themselves; this they do, and the rest, whatever it may be, is for the landlord.

"In such a condition," writes Mr Mill, "what can a tenant gain by any amount of industry or prudence, and what lose by any recklessness? If the landlord at any time exerted his full legal rights, the cottier would not be able even to live. If by extra exertion he doubled the produce of his bit of land, or if he prudently abstained from producing mouths to eat it up, his only gain would be to have more left to pay to his landlord, while, if he had twenty children, they would still be fed first, and the landlord would only take what was left. Almost alone among mankind, the Irish cottier is in this condition, – that he can scarcely be either better or worse off by any act of his own. If he was industrious or prudent, nobody but his landlord would gain; if he is lazy or intemperate, it is at his landlord's expense. A situation more devoid of motives to either labour or self-command, imagination itself cannot conceive. The inducements of free human beings are taken away, and those of a slave not substituted. He has nothing to hope and nothing to fear, except being dispossessed of his holding; and against this he protects himself by the ultima ratio of a civil war." – (Vol. i. p. 374)