Principles of Political Economy

The Project Gutenberg EBook of Principles Of Political Economy by John Stuart Mill This eBook is for the use of anyone anywhere at no cost and with almost no restrictions whatsoever. You may copy it, give it away or re-use it under the terms of the Project Gutenberg License included with this eBook or online at http://www.gutenberg.org/license Title: Principles Of Political Economy Author: John Stuart Mill Release Date: September 27, 2009 [Ebook #30107] Language: English Character set encoding: UTF-8 ***START OF THE PROJECT GUTENBERG EBOOK PRINCIPLES OF POLITICAL ECONOMY*** Principles Of Political Economy By John Stuart Mill Abridged, with Critical, Bibliographical, and Explanatory Notes, and a Sketch of the History of Political Economy, By J. Laurence Laughlin, Ph. D. Assistant Professor of Political Economy in Harvard University A Text-Book For Colleges. New York: D. Appleton And Company, 1, 3, and 5 Bond Street. 1885 CONTENTS Preface. Introductory. A Sketch Of The History Of Political Economy. Books For Consultation (From English, French, And German Authors). Preliminary Remarks. Book I. Production. Chapter I. Of The Requisites Of Production. § 1. The requisites of production. § 2. The Second Requisite of Production, Labor. § 3. Of Capital as a Requisite of Production. Chapter II. Of Unproductive Labor. § 1. Definition of Productive and Unproductive Labor. § 2. Productive and Unproductive Consumption. § 3. Distinction Between Labor for the Supply of Productive Consumption and Labor for the Supply of Unproductive Consumption. Chapter III. Of Capital. § 1. Capital is Wealth Appropriated to Reproductive Employment. § 2. More Capital Devoted to Production than Actually Employed in it. § 3. Examination of Cases Illustrative of the Idea of Capital. Chapter IV. Fundamental Propositions Respecting Capital. § 1. Industry is Limited by Capital. § 2. Increase of Capital gives Increased Employment to Labor, Without Assignable Bounds. § 3. Capital is the result of Saving, and all Capital is Consumed. § 4. Capital is kept up by Perpetual Reproduction, as shown by the Recovery of Countries from Devastation. § 5. Effects of Defraying Government Expenditure by Loans. § 6. Demand for Commodities is not Demand for Labor. Chapter V. On Circulating And Fixed Capital. § 1. Fixed and Circulating Capital. § 2. Increase of Fixed Capital, when, at the Expense of Circulating, might be Detrimental to the Laborers. § 3. —This seldom, if ever, occurs. Chapter VI. Of Causes Affecting The Efficiency Of Production. § 1. General Causes of Superior Productiveness. § 2. Combination and Division of Labor Increase Productiveness. § 3. Advantages of Division of Labor. § 4. Production on a Large and Production on a Small Scale. Chapter VII. Of The Law Of The Increase Of Labor. § 1. The Law of the Increase of Production Depends on those of Three Elements—Labor. Capital, and Land. § 2. The Law of Population. § 3. By what Checks the Increase of Population is Practically Limited. Chapter VIII. Of The Law Of The Increase Of Capital. § 1. Means for Saving in the Surplus above Necessaries. § 2. Motive for Saving in the Surplus above Necessaries. § 3. Examples of Deficiency in the Strength of this Desire. § 4. Examples of Excess of this Desire. Chapter IX. Of The Law Of The Increase Of Production From Land. § 1. The Law of Production from the Soil, a Law of Diminishing Return in Proportion to the Increased Application of Labor and Capital. § 2. Antagonist Principle to the Law of Diminishing Return; the Progress of Improvements in Production. § 3. —In Railways. § 4. —In Manufactures. § 5. Law Holds True of Mining. Chapter X. Consequences Of The Foregoing Laws. § 1. Remedies for Weakness of the Principle of Accumulation. § 2. Even where the Desire to Accumulate is Strong, Population must be Kept within the Limits of Population from Land. § 3. Necessity of Restraining Population not superseded by Free Trade in Food. § 4. —Nor by Emigration. Book II. Distribution. Chapter I. Of Property. § 1. Individual Property and its opponents. § 2. The case for Communism against private property presented. § 3. The Socialists who appeal to state-help. § 4. Of various minor schemes, Communistic and Socialistic. § 5. The Socialist objections to the present order of Society examined. § 6. Property in land different from property in Movables. Chapter II. Of Wages. § 1. Of Competition and Custom. § 2. The Wages-fund, and the Objections to it Considered. § 3. Examination of some popular Opinions respecting Wages. § 4. Certain rare Circumstances excepted, High Wages imply Restraints on Population. § 5. Due Restriction of Population the only Safeguard of a Laboring-Class. Chapter III. Of Remedies For Low Wages. § 1. A Legal or Customary Minimum of Wages, with a Guarantee of Employment. § 2. —Would Require as a Condition Legal Measures for Repression of Population. § 3. Allowances in Aid of Wages and the Standard of Living. § 4. Grounds for Expecting Improvement in Public Opinion on the Subject of Population. § 5. Twofold means of Elevating the Habits of the Laboring-People; by Education, and by Foreign and Home Colonization. Chapter IV. Of The Differences Of Wages In Different Employments. § 1. Differences of Wages Arising from Different Degrees of Attractiveness in Different Employments. § 2. Differences arising from Natural Monopolies. § 3. Effect on Wages of the Competition of Persons having other Means of Support. § 4. Wages of Women, why Lower than those of Men. § 5. Differences of Wages Arising from Laws, Combinations, or Customs. Chapter V. Of Profits. § 1. Profits include Interest and Risk; but, correctly speaking, do not include Wages of Superintendence. § 2. The Minimum of Profits; what produces Variations in the Amount of Profits. § 3. General Tendency of Profits to an Equality. § 4. The Cause of the Existence of any Profit; the Advances of Capitalists consist of Wages of Labor. § 5. The Rate of Profit depends on the Cost of Labor. Chapter VI. Of Rent. § 1. Rent the Effect of a Natural Monopoly. § 2. No Land can pay Rent except Land of such Quality or Situation as exists in less Quantity than the Demand. § 3. The Rent of Land is the Excess of its Return above the Return to the worst Land in Cultivation. § 4. —Or to the Capital employed in the least advantageous Circumstances. § 5. Opposing Views of the Law of Rent. § 6. Rent does not enter into the Cost of Production of Agricultural Produce. Book III. Exchange. Chapter I. Of Value. § 1. Definitions of Value in Use, Exchange Value, and Price. § 2. Conditions of Value: Utility, Difficulty of Attainment, and Transferableness. § 3. Commodities limited in Quantity by the law of Demand and Supply: General working of this Law. § 4. Miscellaneous Cases falling under this Law. § 5. Commodities which are Susceptible of Indefinite Multiplication without Increase of Cost. Law of their Value Cost of Production. § 6. The Value of these Commodities confirm, in the long run, to their Cost of Production through the operation of Demand and Supply. Chapter II. Ultimate Analysis Of Cost Of Production. § 1. Of Labor, the principal Element in Cost of Production. § 2. Wages affect Values, only if different in different employments; “non-competing groups.” § 3. Profits an element in Cost of Production. § 4. Cost of Production properly represented by sacrifice, or cost, to the Laborer as well as to the Capitalist; the relation of this conception to the Cost of Labor. § 5. When profits vary from Employment to Employment, or are spread over unequal lengths of Time, they affect Values accordingly. § 6. Occasional Elements in Cost of Production; taxes and ground-rent. Chapter III. Of Rent, In Its Relation To Value. § 1. Commodities which are susceptible of indefinite Multiplication, but not without increase of Cost. Law of their Value, Cost of Production in the most unfavorable existing circumstances. § 2. Such commodities, when Produced in circumstances more favorable, yield a Rent equal to the difference of Cost. § 3. Rent of Mines and Fisheries and ground-rent of Buildings, and cases of gain analogous to Rent. § 4. _Résumé_ of the laws of value of each of the three classes of commodities. Chapter IV. Of Money. § 1. The three functions of Money—a Common Denominator of Value, a Medium of Exchange, a “Standard of Value”. § 2. Gold and Silver, why fitted for those purposes. § 3. Money a mere contrivance for facilitating exchanges, which does not affect the laws of value. Chapter V. Of The Value Of Money, As Dependent On Demand And Supply. § 1. Value of Money, an ambiguous expression. § 2. The Value of Money depends on its quantity. § 3. —Together with the Rapidity of Circulation. § 4. Explanations and Limitations of this Principle. Chapter VI. Of The Value Of Money, As Dependent On Cost Of Production. § 1. The value of Money, in a state of Freedom, conforms to the value of the Bullion contained in it. § 2. —Which is determined by the cost of production. § 3. This law, how related to the principle laid down in the preceding chapter. Chapter VII. Of A Double Standard And Subsidiary Coins. § 1. Objections to a Double Standard. § 2. The use of the two metals as money, and the management of Subsidiary Coins. § 3. The experience of the United States with a double standard from 1792 to 1883. Chapter VIII. Of Credit, As A Substitute For Money. § 1. Credit not a creation but a Transfer of the means of Production. § 2. In what manner it assists Production. § 3. Function of Credit in economizing the use of Money. § 4. Bills of Exchange. § 5. Promissory Notes. § 6. Deposits and Checks. Chapter IX. Influence Of Credit On Prices. § 1. What acts on prices is Credit, in whatever shape given. § 2. Credit a purchasing Power, similar to Money. § 3. Great extensions and contractions of Credit. Phenomena of a commercial crisis analyzed. § 4. Influence of the different forms of Credit on Prices. § 5. On what the use of Credit depends. § 6. What is essential to the idea of Money? Chapter X. Of An Inconvertible Paper Currency. § 1. What determines the value of an inconvertible paper money? § 2. If regulated by the price of Bullion, as inconvertible Currency might be safe, but not Expedient. § 3. Examination of the doctrine that an inconvertible Current is safe, if representing actual Property. § 4. Experiments with paper Money in the United States. § 5. Examination of the gain arising from the increase and issue of paper Currency. § 6. _Résumé_ of the subject of money. Chapter XI. Of Excess Of Supply. § 1. The theory of a general Over-Supply of Commodities stated. § 2. The supply of commodities in general can not exceed the power of Purchase. § 3. There can never be a lack of Demand arising from lack of Desire to Consume. § 4. Origin and Explanation of the notion of general Over-Supply. Chapter XII. Of Some Peculiar Cases Of Value. § 1. Values of commodities which have a joint cost of production. § 2. Values of the different kinds of agricultural produce. Chapter XIII. Of International Trade. § 1. Cost of Production not a regulator of international values. Extension of the word “international.” § 2. Interchange of commodities between distance places determined by differences not in their absolute, but in the comparative, costs of production. § 3. The direct benefits of commerce consist in increased Efficiency of the productive powers of the World. § 4. —Not in a Vent for exports, nor in the gains of Merchants. § 5. Indirect benefits of Commerce, Economical and Moral; still greater than the Direct. Chapter XIV. Of International Values. § 1. The values of imported commodities depend on the Terms of international interchange. § 2. The values of foreign commodities depend, not upon Cost of Production, but upon Reciprocal Demand and Supply. § 3. —As illustrated by trade in cloth and linen between England and Germany. § 4. The conclusion states in the Equation of International Demand. § 5. The cost to a country of its imports depends not only on the ratio of exchange, but on the efficiency of its labor. Chapter XV. Of Money Considered As An Imported Commodity. § 1. Money imported on two modes; as a Commodity, and as a medium of Exchange. § 2. As a commodity, it obeys the same laws of Value as other imported Commodities. Chapter XVI. Of The Foreign Exchanges. § 1. Money passes from country to country as a Medium of Exchange, through the Exchanges. § 2. Distinction between Variations in the Exchanges which are self-adjusting and those which can only be rectified through Prices. Chapter XVII. Of The Distribution Of The Precious Metals Through The Commercial World. § 1. The substitution of money for barter makes no difference in exports and imports, nor in the Law of international Values. § 2. The preceding Theorem further illustrated. § 3. The precious metals, as money, are of the same Value, and distribute themselves according to the same Law, with the precious metals as a Commodity. § 4. International payments entering into the “financial account.” Chapter XVIII. Influence Of The Currency On The Exchanges And On Foreign Trade. § 1. Variations in the exchange, which originate in the Currency. § 2. Effect of a sudden increase of a metallic Currency, or of the sudden creation of Bank-Notes or other substitutes for Money. § 3. Effect of the increase of an inconvertible paper Currency. Real and nominal exchange. Chapter XIX. Of The Rate Of Interest. § 1. The Rate of Interest depends on the Demand and Supply of Loans. § 2. Circumstances which Determine the Permanent Demand and Supply of Loans. § 3. Circumstances which Determine the Fluctuations. § 4. The Rate of Interest not really Connected with the value of Money, but often confounded with it. § 5. The Rate of Interest determines the price of land and of Securities. Chapter XX. Of The Competition Of Different Countries In The Same Market. § 1. Causes which enable one Country to undersell another. § 2. High wages do not prevent one Country from underselling another. § 3. Low wages enable a Country to undersell another, when Peculiar to certain branches of Industry. § 4. —But not when common to All. § 5. Low profits as affecting the carrying Trade. Chapter XXI. Of Distribution, As Affected By Exchange. § 1. Exchange and money make no Difference in the law of Wages. § 2. In the law of Rent. § 3. —Nor in the law of Profits. Book IV. Influence Of The Progress Of Society On Production And Distribution. Chapter I. Influence Of The Progress Of Industry And Population On Values And Prices. § 1. Tendency of the progress of society toward increased Command over the powers of Nature; increased Security, and increased Capacity of Co-Operation. § 2. Tendency to a Decline of the Value and Cost of Production of all Commodities. § 3. —except the products of Agriculture and Mining, which have a tendency to Rise. § 4. —that tendency from time to time Counteracted by Improvements in Production. § 5. Effect of the Progress of Society in moderating fluctuations of Value. Chapter II. Influence Of The Progress Of Industry And Population On Rents, Profits, And Wages. § 1. Characteristic features of industrial Progress. § 2. First two cases, Population and Capital increasing, the arts of production stationary. § 3. The arts of production advancing, capital and population stationary. § 4. Theoretical results, if all three Elements progressive. § 5. Practical Results. Chapter III. Of The Tendency Of Profits To A Minimum. § 1. Different Theories as to the fall of Profits. § 2. What determines the minimum rate of Profit? § 3. In old and opulent countries, profits habitually near to the minimum. § 4. —prevented from reaching it by commercial revulsions. § 5. —by improvements in Production. § 6. —by the importation of cheap Necessaries and Implements. § 7. —by the emigration of Capital. Chapter IV. Consequences Of The Tendency Of Profits To A Minimum, And The Stationary State. § 1. Abstraction of Capital not necessarily a national loss. § 2. In opulent countries, the extension of machinery not detrimental but beneficial to Laborers. § 3. Stationary state of wealth and population dreaded by some writers, but not in itself undesirable. Chapter V. On The Possible Futurity Of The Laboring-Classes. § 1. The possibility of improvement while Laborers remain merely receivers of Wages. § 2.—through small holdings, by which the landlord’s gain is shared. § 3. —through co-operation, by which the manager’s wages are shared. § 4. Distributive Co-operation. § 5. Productive Co-Operation. § 6. Industrial Partnership. § 7. People’s Banks. Book V. On The Influence Of Government. Chapter I. On The General Principles Of Taxation. § 1. Four fundamental rules of Taxation. § 2. Grounds of the principle of Equality of Taxation. § 3. Should the same percentage be levied on all amounts of Income? § 4. Should the same percentage be levied on Perpetual and on Terminable Incomes? § 5. The increase of the rent of land from natural causes a fit subject of peculiar Taxation. § 6. Taxes falling on Capital not necessarily objectionable. Chapter II. Of Direct Taxes. § 1. Direct taxes either on income or expenditure. § 2. Taxes on rent. § 3. —on profits. § 4. —on Wages. § 5. —on Income. § 6. A House-Tax. Chapter III. Of Taxes On Commodities, Or Indirect Taxes. § 1. A Tax on all commodities would fall on Profits. § 2. Taxes on particular commodities fall on the consumer. § 3. Peculiar effects of taxes on Necessaries. § 4. —how modified by the tendency of profits to a minimum. § 5. Effects of discriminating Duties. § 6. Effects produced on international Exchange by Duties on Exports and on Imports. Chapter IV. Comparison Between Direct And Indirect Taxation. § 1. Arguments for and against direct Taxation. § 2. What forms of indirect taxation are most eligible? § 3. Practical rules for indirect taxation. § 4. Taxation systems of the United States and other Countries. § 5. A _Résumé_ of the general principles of taxation. Chapter V. Of A National Debt. § 1. Is it desirable to defray extraordinary public expenses by loans? § 2. Not desirable to redeem a national Debt by a general Contribution. § 3. In what cases desirable to maintain a surplus revenue for the redemption of Debt. Chapter VI. Of An Interference Of Government Grounded On Erroneous Theories. § 1. The doctrine of Protection to Native Industry. § 2. —had its origin in the Mercantile System. § 3. —supported by pleas of national subsistence and national defense. § 4. —on the ground of encouraging young industries; colonial policy. § 5. —on the ground of high wages. § 6. —on the ground of creating a diversity of industries. § 7. —on the ground that it lowers prices. Appendix I. Bibliographies. Appendix II. Examination Questions. Footnotes PREFACE. An experience of five years with Mr. Mill’s treatise in the class-room not only convinced me of the great usefulness of what still remains one of the most lucid and systematic books yet published which cover the whole range of the study, but I have also been convinced of the need of such additions as should give the results of later thinking, without militating against the general tenor of Mr. Mill’s system; of such illustrations as should fit it better for American students, by turning their attention to the application of principles in the facts around us; of a bibliography which should make it easier to get at the writers of other schools who offer opposing views on controverted questions; and of some attempts to lighten those parts of his work in which Mr. Mill frightened away the reader by an appearance of too great abstractness, and to render them, if possible, more easy of comprehension to the student who first approaches Political Economy through this author. Believing, also, that the omission of much that should properly be classed under the head of Sociology, or Social Philosophy, would narrow the field to Political Economy alone, and aid, perhaps, in clearer ideas, I was led to reduce the two volumes into one, with, of course, the additional hope that the smaller book would tempt some readers who might hesitate to attack his larger work. In consonance with the above plan, I have abridged Mr. Mill’s treatise, yet have always retained his own words; although it should be said that they are not always his consecutive words. Everything in the larger type on the page is taken literally from Mr. Mill, and, whenever it has been necessary to use a word to complete the sense, it has been always inserted in square brackets. All additional matter introduced by me has been printed in a smaller but distinctive type. The reader can see at a glance which part of the page is Mr. Mill’s and which my own. It has seemed necessary to make the most additions to the original treatise under the subjects of the Wages Question; of Wages of Superintendence; of Socialism; of Cost of Production; of Bimetallism; of the Paper Money experiments in this country; of International Values; of the Future of the Laboring-Classes (in which the chapter was entirely rewritten); and of Protection. The treatment of Land Tenures has not been entirely omitted, but it does not appear as a separate subject, because it has at present less value as an elementary study for American students. The chapters on Land Tenures, the English currency discussion, and much of Book V, on the Influence of Government, have been simply omitted. In one case I have changed the order of the chapters, by inserting Chap. XV of Book III, treating of a standard of value, under the chapter treating of money and its functions. In other respects, the same order has been followed as in the original work. Wherever it has seemed possible, American illustrations have been inserted instead of English or Continental ones. To interest the reader in home problems, twenty-four charts have been scattered throughout the volume, which bear upon our own conditions, with the expectation, also, that the different methods of graphic representation here presented would lead students to apply them to other questions. They are mainly such as I have employed in my class-room. The use and preparation of such charts ought to be encouraged. The earlier pages of the volume have been given up to a “Sketch of the History of Political Economy,” which aims to give the story of how we have arrived at our present knowledge of economic laws. The student who has completed Mill will then have a very considerable bibliography of the various schools and writers from which to select further reading, and to select this reading so that it may not fall wholly within the range of one class of writers. But, for the time that Mill is being first studied, I have added a list of the most important books for consultation. I have also collected, in Appendix I, some brief bibliographies on the Tariff, on Bimetallism, and on American Shipping, which may be of use to those who may not have the means of inquiring for authorities, and in Appendix II a number of questions and problems for the teacher’s use. In some cases I have omitted Mr. Mill’s statement entirely, and put in its stead a simpler form of the same exposition which I believed would be more easily grasped by a student. Of such cases, the argument to show that Demand for Commodities is not Demand for Labor, the Doctrine of International Values, and the Effect of the Progress of Society on wages, profits, and rent, are examples. Whether I have succeeded or not, must be left for the experience of the teacher to determine. Many small figures and diagrams have been used throughout the text, in order to suggest the concrete means of getting a clear grasp of a principle. In conclusion, I wish to acknowledge my indebtedness to several friends for assistance in the preparation of this volume, among whom are Professor Charles F. Dunbar, Dr. F. W. Taussig, Dr. A. B. Hart, and Mr. Edward Atkinson. J. LAURENCE LAUGHLIN. HARVARD UNIVERSITY, CAMBRIDGE, MASSACHUSETTS, _September, 1884._