Notes on Economic History (12) (1961)

From the October 1961 issue of the Socialist Standard

Malthus on Poverty

From his law of population, Malthus infers that Governments should, on the one hand, remove all obstacles to the cultivation of the soil and, on the other, favour preventative checks, especially the postponement of marriage. The following passage from the 1803 edition is interesting: "A man born into a world already possessed, if he cannot get subsistence from his parents on whom he has a just demand, and if society do not want his labour, has no claim of right to the smallest portion of food, and in fact has no right to be where he is. At nature's mighty feast, there is no vacant cover for him. She tells him to begone and will quickly execute her own orders if he does not work upon the compassion of her guests."

Malthus therefore recommends the reduction of paupers' relief to a minimum. Money used to support the poor or destitute, he argues, us taken from the other classes in society, and especially from that section of the working class that is only just outside of destitution. For this poor relief, says Malthus, increases demand, and thus raises the price of food, clothing and shelter.

Malthus' main demand is for "moral restraint." He writes: "It is clearly the duty of each individual not to marry till he has the prospect of supporting his children: but it is at the same time to be wished that he should retain undiminished his desire of marriage, in order that he may exert himself to realise this prospect, and be stimulated to make provision for the support of greater numbers."

Arising from this, it was proposed to put legal difficulties in the way of marriage. The poor who had no prospects of being able to support a family were to be forbidden to marry.

The Malthusian doctrine attracted widespread attention, and was accepted almost without qualification by many scientists. It also made a strong impression on governments, and its effects were seen in the increased stringency of the marriage laws. Down to 1918 vestiges of this persisted in Bavaria and the Austrian Tyrol, where marriage could not be entered into without the permission of the commune.

The astonishing fact about the Malthusian theory is its persistence in face of evidence that confutes it. To go to the core of the question, we can say there is no evidence to warrant the assumption that there is any tendency in population to increase faster than subsistence. The facts stated by Malthus to show this tendency, simply show that where, owing to a small population in a new country. or where, owing to the unequal distribution of wealth, as among the working class in the old country, human life is occupied with physical necessity of existence, the tendency to reproduce is at a rate which, if unchecked, would at some time exceed subsistence. But it is not correct to infer from this that the tendency to reproduce would show itself to the same extent where population was sufficiently dense, and where wealth was distributed in such a way as to lift the whole community above the necessity of devoting their energies to a struggle for mere existence. Nor can it be assumed that the tendency to reproduce, by causing poverty, must prevent the existence of such a community: for this obviously would be assuming the very point at issue and be reasoning in a circle. And even if it be admitted that the tendency to multiply must ultimately cause poverty, it cannot be stated of existing that it is due to this cause until it is shown that there are no other causes which can account for it.

The Malthus theory has persisted, and will persist, because it does not in any way oppose or antagonise any powerful interest. It is soothing and reassuring to the class who, wielding the power of wealth, largely dominate thought. Indeed, at a time when men were beginning to question an examine society, it came to the aid of the ruling class. The Essay on Population was written as an answer to William Godwin's Inquiry concerning Political Justice, a book which dealt with the principle of human equality, and the effect of Malthus' book was to justify the existing inequality by shifting responsibility for it from the laws of society to some kind of God-given laws.

The Socialist of today still has to contend with Malthusian ideas, in a modern form. They become more prevalent in times of large-scale unemployment, and are also use as an excuse to justify poverty in such places as India, Africa, the Latin countries of America. The answer to Malthus, and the modern exponents of his teachings, is to be found in the method of ownership of the means of producing wealth.

Poverty, as dealt with by Malthus, is not in fact the result  of excessive breeding. It is the chaotic nature of the capitalist system which must be blamed. Its solution is obvious—remove the cause which the Socialist claims is the private property relation in the means of production. Make this property common property, and the common access to wealth which follows such a change will provide the answer to poverty, present or future.

Bob Ambridge

Notes on Economic History (11) (1961)

From the September 1961 issue of the Socialist Standard

The Theory of Population

As Adam Smith's doctrine spread, it was elaborated and modified. Attempts to develop his ideas led to endeavours to explain the poverty and misery of the working class and all the defects that had become apparent during the rapid development of Capitalism, from the time of publication of his Wealth of Nations.

Two contrasted attitudes appeared. One was a condemnation and a criticism of conditions—this led to ideas about Socialism. The other was a pessimistic resignation, accepting the conditions and declaring them to be the result of the working of natural laws. This was the views held by Malthus. Malthus was responsible for two important works; in 1820 his Principles of Political Economy was published preceding by some 22 years his Essay on the Principle of Population, first published in 1798, and for ever associated with his name.

Malthus begins his statement on population with an account of the "tendency of all life to increase beyond the amount of nourishment available to it." In illustration he quotes Benjamin Franklin—"It is observed by Dr. Franklin that there is no bounds to the prolific nature of plants or animals, but what is made by their crowding and interfering with each other's means of subsistence. Were the face of the earth, he says, vacant of other plants, it might be gradually sowed and overspread with one kind only, as, for instance, with fennel; and were it empty of other inhabitants, it might, in a few ages, be replenished from one nation only as, for instance, with Englishmen." It follows from this, he says, that population has a constant tendency to increase beyond the means of subsistence.

Studying the increase of population in America, where there was an ample supply of good fertile and virgin land, and where there were few natural checks to growth of numbers. Malthus arrived at the conclusion that during about one hundred and fifty years the population had doubled itself every 25 years. The natural increase of population therefore took place like the increase in a series of numbers—1, 2, 4, 8, 16, 32, 64, 128, 256. In short, population, when its growth is unhindered, tends to increase in geometrical progression.

On the other hand, says Malthus, it is impossible to increase the produce of the soil in such a ratio. Under favourable conditions we may suppose that by improving the land already under cultivation, and by utilising the comparatively poor and neglected land, it would be possible to increase yields considerably. But the increase in twenty-five year periods (those in which population can double) could not be expected to be more rapid than is represented by the series of numbers—1, 2, 3, 4, 5, 6, 7, 8, 9. "It may be fairly pronounced . . .  that, considering the present average state of the earth, the means of subsistence, under circumstances the most favourable to human industry, could not possibly be made to increase faster than in an arithmetical ratio." To sum up, whereas population can increase in geometrical progression, the means of subsistence can increase only in arithmetical progression.

Population for Malthus, therefore, is limited by the means of subsistence. As a result of the tension inherent in the contrast between these two rates of increase, there is a tendency for population to increase beyond the means of subsistence. The result is that population increases in any country when the means of subsistence increase, whether as a result of more intensive agriculture, the import of food, or changes in the distribution of national wealth. Insufficiency of the means of subsistence, on the other hand, makes itself felt in the form of checks. These checks are of two kind—positive and preventive.

The positive checks are those which set by destroying existing population: the most obvious are wars, diseases, and famines, but they include every cause, whether arising from ignorance, vice or misery, which in any way helps to shorten the natural span of life. Preventive checks are those which are deliberately undertaken, such as refusal to marry and what Malthus calls the postponement of marriage, moral restraint. "By moral restraint I  . . .  mean a restraint of marriage from prudential motives, with a conduct strictly moral during the period of restraint."

The fact that the produce of land is uncertain and irregular was embodied in the "Law of Diminishing Returns." In the cultivation of land, assuming that the technique remains unchanged, Malthus argued that each successive addition of capital and labour applied to it beyond a certain amount (the optimum expenditure upon a particular technique) produces a smaller increment of yield. Accordingly, beyond the optimum expenditure further increments of capital and labour no longer produce equal additions of yield, but progressively diminishing ones. To put the matter in more general terms—the conditions remaining unchanged, additions of expenditure prove less profitable. If, for instance, the expenditure of 1,000 of additional capital produces an additional product of 500, the expenditure of a second 1,000 will produce an additional product of only 300: that of a third 1,000 will produce no more than 200, and so on.

This "law" has in fact been shown to be fallacious. It assumes that the productive technique remains unchanged, an assumption which is contrary to all evidence. In fact, Malthus himself says that this "law" is valid only so long as agricultural techniques remain unchanged. It would be difficult to find a period since Malthus wrote the essay, during which advanced countries' techniques of production has not been continuously changing and must, as man's knowledge increases, continue to change.

Bob Ambridge

Notes on Economic History (10) (1961)

From the August 1961 issue of the Socialist Standard

The Value of Labour-power

Adam Smith wavers in his analysis of commodities and there is confusion regarding the determination of exchange value. He determines the value of a commodity by the labour time contained in it, but then relegates the principle to older or more simpler times. What seems to him to be true about a simple commodity does not apply to the more complex forms of capital—wage labour, and rent. The value of commodities, he says, used to be measured by labour time.

There is also confusion in his analysis of commodities about which he varies regarding the determination of exchange value. He makes the exchange value of labour, wages, the measure of the value of commodities. Thus, wages are equal to the amount of commodities purchased by a stated amount of living labour, or to the quantity of labour which can be bought by a given quantity of commodities. The value of labour, or rather labour power, varies, like all other commodities, and in this respect does not differ in kind from the value of other commodities. And so value itself becomes both the measure and the explanation of value and we go round in a circle.

Marx has demonstrated the fallacy of this reasoning. He also said, very appropriately, "It is one of the chief failings of classical economy that it has never succeeded, by means of its analysis of commodities, and in particular of their value, in discovering that form under which value becomes exchange-value. Even Adam Smith and Ricardo, the best representatives of this school, treat the form of value as a thing of no importance, as having no connection with the inherent nature of commodities. The reason for this is not solely because their attention is entirely absorbed in the analysis of the magnitude of value. It lies deeper. The value form of the product of labour is not only the most abstract, but it is also the most universal form taken by bourgeois production, and stamps that production as a particular species of social production and thereby gives it its historical character."

Adam Smith also saw that profit sprang from the exploitation of labour, for he says: "The value which the workmen add to the materials therefore resolves itself in this case into two parts, of which the one pays their wages, the other the profits of their employer upon the whole stock of materials and wages which he advances." But he also confused surplus value and profit.

Smith was the product of the early manufacturing period in this country. He made a valuable contribution to political economy, and was one of the most painstaking and critical of the small band who tried before Marx to find out what makes society tick.

Bob Ambridge

Notes on Economic History (9) (1961)

From the July 1961 issue of the Socialist Standard

What is Economic Life? 

Adam Smith's ideas on the development of economic life led him to make a clean sweep of all feudal ties and servitudes. The abolition of serfdom, the introduction of freedom of occupation and industry, freedom of movement, political autonomy; these were the inevitable corollaries of the new doctrine.

A demand heavy with consequences, the demand for free trade, formed a logical and essential part of the demand for the abolition of all restrictions upon production and distribution. Smith's theory of free trade was as follows:—

If trade be freed from all restraints, through the working of competition, it will come to pass in the long run that every country will produce those commodities which its natural facilities enable it to produce most cheaply. Thus there will arise a natural international division of labour, which will rebound to the maximum benefit of each nations, for each will be able to buy all it wants in the world market at the lowest possible prices: while selling there to the greatest advantage those things which it is exceptionally fitted to produce. It is the maxim of every prudent master of a family never to make at home what it will cost him more to make than to buy. (Wealth of Nations.)

In regard to the applying of these free trade principles, Smith was prepared to compromise. He agreed to the need of excise duties as a source of revenue, as also to the expediency of retaliatory duties imposed upon imports from countries whose policy was protectionist, and for duties for special purposes, for instance where an industry was judged to be essential for the safety of a country and was in need of protection. Smith, not being the dogmatist, as those who subsequently opposed his doctrines declared, was very cautious in practical matters.

Much of present day opinion of Smith's views is based upon the modifications his teachings underwent at the hands of Ricardo, and later still in the eighteen-thirties by the Manchester School of Free-traders. It is necessary to point out that Smith was not hostile to the landowning class. On the contrary, he considered that the interest of those who lived by rent was "strictly and inseparably connected with the general interest of Society" for their income increased proportionately to an increase in the general welfare.

Of the capitalist class he wrote that its interest had not the same connection with the general interest of Society as that of the landowners and wage-earners. For, he said, the rate of does not, like rent and wages, rise and fall with the booms and slumps that affect society. On the contrary, it is low in times of boom, and high in times of slump. Smith says it is always highest in countries that are going to ruin. To him, the interest of the second order, that of those who live by wages, is as strictly connected with the interest of the society as that of the landowning class. He advocated high wages and freedom of combination, but he deprecated State interference in wage contracts.

Smith's teaching brought about an entirely different way of looking at political economy. It did this, first of all, by showing investigators that the source of wealth is not a simple matter. He regarded labour as the primary source of wealth, but the conditions under which labour had to operate were of vital importance, and especially the increase of productiveness by the division of labour. Smith regarded everything from the outlook of exchange in the market, he conceived of economic phenomena as centering in exchange in the processes of "trade", and his explanation of the motive force of economics was derived from this conception.

Smith's chief contribution to economic doctrines was his neatly rounded and bold notion that economic life was a series of processes of exchange linked to each other. Herein lay such originality as he possessed. He finalised the physiocratic idea of the natural order, that is the harmonious encounter of numberless individual self-seeking economic activities. In his doctrine, exchange, the trading intercourse of separate economic agents, became the central manifestation of economic life. His system was not a theory of production, but a theory of price and value which he considered determined production just as much as distribution.

Like all economists worth considering, Smith endorsed the physiocratic concept of the average wage, termed by him the natural price of labour: "a man must always live by his work, and his wages must at least be sufficient to maintain him. They must even upon most occasions be somewhat more: otherwise it would be impossible for him to bring up a family and the race of such workmen could not last beyond the first generation". The fact that the development of the productive powers of labour brought no benefit to the worker is stressed by Adam Smith. Smith notes that the productive power of labour underwent no really important development until labour was transformed into wage labour, and until the means of production had taken the form of private ownership, either of land or of capital. Thus, labour's productive powers did not begin to develop until the worker was no longer able to take for himself the results of development.

Bob Ambridge

Notes on Economic History (8) (1961)

From the June 1961 issue of the Socialist Standard

Adam Smith's theories of Income

Adam Smith establishes an elaborate theory of the formation of value and of price, arguing that under primitive conditions, when there is little capital and when rent has not yet come into existence, the value of goods is determined solely by the amount of labour embodied in them. Things, like water, which a have a great use-value, have no exchange-value; and conversely, things with very little use-value, like diamonds, have a very high exchange-value. It follows that as the measure of the exchange-value of goods it is their "natural price" that matters. Not the utility of an article, but the amount of labour that has been expended in producing it.

In accordance with the fluctuations of supply and demand this market price swings to one side or the other of the labour expenditure price. The various items out of which the actual or market price is made up are the outcome of private property and the existing legal order, consisting of (a) wages, (b) the share payable to capital, and (c) rent, which may be regarded as interest paid for the use of land (equivalent to the difference between the price of the produce of the land, on the one hand and, on the other, the expenditure of the farmer upon wages, plus profit on his farming capital).

From this is deduced a theory of distribution, or of the formation of income (Smith uses the term "revenue"), for inasmuch as production is carried on with an eye to the market on the basis of the division of labour, the product is distributed in accordance with the laws of the formation of prices in the market. The distribution of wealth is effected in accordance with the constituents of every price; the worker receives the equivalent for his labour, and the capitalist and the landlord receive equivalent for the co-operation of capital and land.

Thus all the commodities which compose the whole annual produce of the labour of every country must resolve themselves into the same three parts, and be distributed among the different inhabitants of the country, either as wages, profit on capital, or rent for land. "Wages, profits and rent are the three original sources of all revenues as well as of all exchange-value. All other revenue is ultimately derivable from one or the other of these." Wealth of Nations (Book 1, Ch. VI).

Smith's theories on the laws of distribution may be briefly phrased as follows. rates of wages are determined, like market prices in general, by supply and demand, due to whose operation they vary to one side or the other of a subsistence wage:

The more capital there is in a country, the greater is the demand for labour, and the higher therefore are wages. The profit of capital has the opposite trend. The more capital there is, the lower is its rate of profit; the more capitalists there are, the greater is the tendency to underbid one another. Consequently, the more labour there is in a country, and the richer it therefore is, the lower in general is the profit of capital. (Book 1. Ch. IX.)

In the matter of land rent, a more complicated machinery is at work:

Increase in the productiveness of labour the division of labour and the expansion of manufacture leads to a fall in the prices of the products of industry. To the extent to which this happens, the products of agriculture automatically exchange for larger quantities of industrial products; that is, the former become dearer. This rise in agriculture prices is attended or followed by a rise in rent. (Book 1. Ch. XI.)

Rent also rises concurrently with an increase in capital, for since more capital and labour are applied to land, and land is therefore used more effectively, the income from land necessarily increases.

According to Smith economic life develops best when it is left alone. The main business of the State is to keep order. Economic activities when perfectly free develop harmoniously, and free competition must be left to do its work. Competition forces everyone to follow his own economic aims, to develop all his forces, and to produce as cheaply as possible. Consumers are supplied with goods at the lowest prices, capitalists can devote their energies to their tasks unhindered, and workers can seek employment wherever wages are highest. In this way a condition of social harmony is attained. At the same time, it results that everyone engages in the occupation which comes most natural to him. Division of labour takes place along the lines that are most economical.

By virtue of its own mechanism, society can get the better of that selfish outlook which is (primarily) hostile to society. Everyone becomes enabled, by the pursuit of his own advantage, to enjoy his natural rights.

Bob Ambridge

Notes on Economic History (7) (1961)

From the May 1961 issue of the Socialist Standard

Wealth of Nations

Since England was the first country in which modern large-scale industry developed, it was only to be expected that capitalist political economy would appear and flourish here. The introduction of spinning machinery (Wyatt 1783, Lewis Paul 1741, Arkwright 1769); the steam engine (Watt 1765 and 1770); and later of the power loom (Cartwright 1785, Jacquard 1802); and similar transformations in the methods of industrial production, indiced changes that led to an enormously accelerated growth of large scale industry.

Adam Smith was the man, who, under these conditions, established a new system of economic doctrine. Smith spent three years in France, where he became known personally to the physiocrats, and was greatly influenced by them. For ten years after his return from France, he devoted himself to economic study and to writing his book Inquiry into the Nature and Causes of the Wealth of Nations published in 1776.

Adam Smith defines the wealth of a nation in the opening of his inquiry.

The annual labour of every nation is the fund which originally supplies it with all the necessities and conveniences of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations.

To this he makes an important reservation. Labour which is not devoted to the production of useful things, which have an exchange value is to Smith unproductive. Thus, services of all kinds are unproductive. The wealth of a nation is greater accordingly as a larger proportion of its inhabitants are engaged in useful labour. This in turn depends upon the amount of capital devoted to the employment of workers (the wage fund), but above all, upon the productiveness of labour.

According to Smith the productiveness of labour is increased mainly by the division of labour. Consequently, the division of labour is the chief cause of prosperity. He illustrates this thesis by the many processes required for the manufacture of such a simple thing as a pin. The further the division of labour is carried, the more is production carried on with a view to marketing.

Now for the purpose of the market there must develop an acceptable means of exchange, or instrument of trade—in other words, money. Money, as explained by Smith, arises out of indirect exchange. Commodities are exchanged in the market by means of money as the medium of exchange, and thus originates an exchange-value or price of goods, as distinct from their use-value. We see, then, that the division of labour is the starting point of the economic process and its development; it is the cause of the exchange of goods, for no one can live upon the product of his own activity. But exchange is effected in accordance with exchange-value (price) and the exchange value is therefore decisive (a) for the distribution of the goods, since it settles the question who can buy them; and (b) for their production inasmuch as this is guided by the expectation of the price to be realised.

Upon this premise Adam Smith builds up his economic system, and so do all the capitalist schools that follow him. The laws that regulate the formation of exchange-value are held to be also laws in accordance with which the wealth of nations comes into being; they are, according to Smith, the primary laws of economic motion.

By formulating this conception of the nature of political economy, Smith made an important step forward in capitalist theory. He gave a new turn to economic thought. Whereas both the Mercantilists and the Physiocrats had made productive circulation the basis of their reasoning, now for the first time a study of the laws of exchange-value was undertaken. Thenceforward the theory of value and the theory of prices became the basis of economic theory in general. For since prices are the determinants of the production of goods, the law of prices decides what goods shall be produced; and since prices decide which would-be purchaser has sufficient purchasing power, the laws of prices are also the laws of distribution. In a word, the laws of price are also the laws of distribution. As a result, therefore, the theory of distribution is developed as a theory of particular prices (wages, rent, etc).

Bob Ambridge

Notes on Economic History (6) (1961)

From the April 1961 issue of the Socialist Standard

The Physiocratic School

No examination of the ideas of physiocracy would be complete without a reference to those who took up and developed Quesnay's teachings. They called themselves "economites". This school acquired great influence in France. Turgot, one of the members of this group and author of an important work on on the subject of physiocracy (Reflections on the Formation and Distribution of Wealth) was appointed Controller-General of the Finances in 1774. Another of Quesnay's pupils who became political chief of the physiocratic school, was Marquis Victor de Mirabeau, generally known as Mirabeau the elder. Others were quick to espouse physiocracy in the land of its birth.

The physiocratic doctrine soon spread from France to other countries, but mage little impression in England. It had immense in Germany, where Karl Friedrich Margrave of Baden, aided by Schlettween, the most distinguished among the German physiocrats, made an unsuccessful attempt to put in practice the physiocratic principles of taxation. Leopold I, Grand Duke of Tuscany, endeavoured to introduce a "land tax" in his duchy. Joseph II, Catherine, and most of the other monarchs of the period, were affected and influenced by physiocratic ideas. The doctrine found adherents also in Italy, Poland, Sweden and elsewhere.

After Quesnay's death in 1774, dissensions broke out among the French physiocrats, chiefly because of Condillac, who insisted that commerce and industry were "fruitful" as well as agriculture, which was unorthodox to other physiocrats. The disputes that followed paved the way for the collapse of the movement. The dismissal of Turgot from office as a result of the poor condition of the State treasury, the bad harvest of 1775, the rise in the price of bread, and the bread riots all over the country, all helped this collapse.

Finally, the French revolution, bringing the birth of Modern Capitalism to France, relegated the idea of physiocracy to the realm of the past.

The ideas of the Physiocrats did not escape criticism, even in the country of its origin. Of particular interest are the works of Linquet, (Legislation on Trade, 1769) and Necker, (Grain Legislation and Trade, 1775 and the Administration of the Finances of France, 1785).

Linquet, who wrote ironically about conditions of the period, appears to defend chattel slavery against wage slavery, and ridicules all the physiocratic ideas of property. The following quotes from his writing of 1767 illustrate this. The first quotation is the answer to the physiocrats.

It is the impossibility of gaining a livelihood in any other way which forces our day labourers to till the soil whose fruits they will never eat, and our masons to raise buildings in which they will never dwell. It os poverty which drives them to market to dance attendance upon the masters who might wish to buy them. It is this which compels them to kneel before the rich, and to beg of them permission to enrich them.

And on freedom—a boast of the physiocrats:

What is this apparent liberty with which you have invested them? They can live only by renting their hands. They must find someone to rent them or die.

To the economists of his time he said this about the workers.

Do you not see that the obedience, the abjection—let us say it—of this numerous flock, is the wealth of the shepherds? If the sheep who comprise it were ever to lower their heads to the dog who herds them, would they not be dispersed and destroyed, and their masters ruined? Believe me, for his interest, and for your own, and even for theirs, leave them in the persuasion where they now are, that this cur which bays at them has more power itself alone than all they together. Let them flee at the mere sight of his shadow. Every one will be the gainer. You will find them easier to round up for the fleecing. They are more easily kept from being devoured by the wolves. It is true that this is only so they can be eaten by men. But then, that is their lot from the first moment they enter the fold. Before talking of releasing them, overturn their fold, society.

Necker in his work shows that the development of the productive forces if the workers merely permits the worker to devote less time to the reproduction of his own wages and more to the enrichment of his employer. The importance of this is that Necker derives profit and rent, the wealth of the capitalist class, from surplus labour. But he sees it only as relative surplus value, produced not by the prolongation of the working day but by a reduction of the necessary labour time. The following quote from his Administration of French Finances shows the class position of his time.

That class in society whose fate seems as though fixed by social laws is composed of all those who, living by the labour of their hands, receive the imperious law of the proprietors and are forced to content themselves with the simplest necessities of life. Their mutual competition and the urgency of their wants constitutes their dependency; and these circumstances can in no way change.

In assessing the value and place of physiocracy in any history of political economy, we must take into account the economic development of France and other countries where the doctrine was accepted. Physiocracy is first and foremost the ideas of an agricultural economy; it is the philosophy of Feudalism gradually transforming into Capitalism. Its importance fades with the French Revolution.

For us today, physiocracy can be seen as a link in the chain that leads up to, and influences, later economists. Adam Smith was influenced by it, as were several others after him. The Henry George School of modern times is also a reflection of the old physiocrats. The liberal ideas of laissez-faire, freedom of competition, likewise flow from this source.

Finally, its weakness has been shown by Marx in Volume 2 of Capital, as already mentioned in these notes.

Bob Ambridge

Notes on Economic History (5) (1961)

From the March 1961 issue of the Socialist Standard

The Physiocrats

Although the Mercantile system was abundantly criticised, it was a long time before opposition to it became formed into a new doctrine. Such a new system of economic thought arose in France, its chief advocate being François Quesnay. He gave his doctrine the name Physiocracy—the rule of nature.

François Quesnay (1694-1774) was the son of a lawyer. He graduated as a doctor of medicine and became a physician to Madame de Pompadour and Louis XVth, His principal writings are the Economic Tables, 1758, and General Maims, 1758.

Quesnay's teaching is something more than economics; it appears to be part of a general philosophy. Setting out from the materialist notions of his time, he wanted to have social and moral phenomena regarded as being no less "natural" than physical phenomena; and the laws governing the former as well as the latter were to be seen as mechanical laws of nature.

The natural right of human beings in primitive society, he argues was the right to property—that is the right to the free disposal of goods which the individual has made or appropriated by means of his own labour. When at a later stage, men, for the better safeguarding of their natural rights, entered into the social contract, it was essential that they should not lose the right each of them had to earn his own living. Bound up in this right is another natural right of the individual—the right to foster his own economic interest and to shape his own future as best suited to him. This following of self-interest, according to Quesnay, leads to the establishment of a "natural order" in the economic association of human beings.

This doctrine of self-interest was eventually erected by Quesnay into a finished system. He endeavoured to study the laws of the economic "natural order", which were to be deduced by reason from the general plan of nature. This doctrine of "natural order" is important to him for two reasons. First, inasmuch as the pursuit of self-interest is regarded as an idea of natural right, a system of economic individualism is for the first time established. Secondly, the persons who, in their economic life, act consistently because they are guided by motives of self-interest, resemble atoms with fixed properties. The phenomena that result from their mutual contacts (in the market and elsewhere in society) are mechanically determined like those that result from the mutual contacts of the atoms. It follows, says Quesnay, that political economy, like the realm of material nature, is governed by natural laws.

To the question of what activity of the individual it is that regulates the economic machinery, and upon what foundation economic life depends. Quesnay answers—upon natural economic activities, namely agriculture. Agriculture is for him the source of all the wealth of the nation. Not money, trade, traffic and industry, but the tilling of the soil is the true source of public welfare. The former activities merely transform matter and move it from place to place; they are not creative. The agriculturist renders them possible by nourishing those who engage in them, and he supplies the raw material without which they cannot be undertaken. Commerce, industry and transport are to be considered as dependent upon agriculture.

The Physiocrats put the matter thus. The countryman gets hides, leather, and in the end his boots and other articles from his oxen; wood, and in the end his tools, from the trees on his farm; and so on. But, they said, to avoid the wasting of materials and energy, it is better that he should not himself undertake the work that transforms these basic materials, but should have it done for him by various specialists (the tanner, bootmaker, joiner, etc.) whom he must support of his agricultural surpluses.

The only productive, the only creative labour is, therefore, labour on the land. It is true that work which transforms materials derived from land, or moves them from place to place, can enhance the value of these things, but the cost of the supplementary labour is really defrayed by the agriculturist, who must feed the workers who perform it. The increase in value this produced is, therefore, according to the cost of the labour and is equal to the expense of maintaining the workers who do it. Such labour is once again covered and made good by labour on the land. The tanner, joiner, etc. who shape the raw material derived from land work merely earn their own keep in the form of wages; they make nothing new. All they do, says Quesnay, is to "add" not to "create". The agriculturist's work is a work of creation; the industrial workers perform only a work of addition, of transformation, or of transport.

Thus the class of landowners (consisting in those days chiefly of tenant farmers as contrasted with the landowning nobility) appear to Quesnay to be the only "productive" class. The land owners, on the other hand, form an "owning" or "distributive" class, while the industrialists and craftsmen comprise a "sterile" class.

These three classes are considered to be the "active" classes of the population, whilst the wage earners make up a fourth, a "passive" class, with no economic activity of its own.

Agriculture cannot continue to be prosperous, adds Quesnay, unless grain realises high prices, for only then can agriculture provide a large "net product"* and thus become able to provide large incomes for the landowning class, the manufacturers, and the working class, and in this way diffuse general prosperity. It was essential, therefore, to do away with all restriction upon the export of grain—Quesnay completely rejected the mercantilist theory of the balance of trade. The demand for free trade was an inevitable result of his views.

The Physiocratic system also gave a picture of the formation of value and of price. In certain connections Quesnay emphasized the nature of value as utility but with his doctrine of net product, value and price and derived from cost. In his view the transformative labour of industry added to goods only so much value as this labour itself consumed—only an amount of value therefore equivalent to its own cost. It follows from this that for Quesnay wages represent nothing other than the cost of replacement of the labour power that has been expended. Wages are merely the equivalent of subsistence.

Bob Ambridge

* Quesnay uses the term "Produit Nett" as signifying the surplus of the raw produce of the earth left after defraying the cost of its production.

Notes on Economic History (4) (1961)

From the February 1961 issue of the Socialist Standard

Before the Physiocrats

Sir William Petty (1623-1687)

Marx, in Volume 1 of Capital, says: "Once for all, I may add that by classical political economy I understand that economy which since the time of W. Petty has investigated the real relations of production in bourgeois society, in contradiction to vulgar economy, which deals with appearances only".

This is a tribute to the genius and originality of Sir William Petty, the founder of modern political economy. It is in his Treatise of Taxes and Contribution, London 1662, that we find the first idea of surplus value.

Petty distinguishes the natural price of commodities from the market price, the "true price current". By natural price he means value. This is his main point, as the determination of surplus value depends on the determination of value itself. What, then, is value? Petty determines the value of commodities by the relative amounts of labour which they contain; he is concerned not with appearances, but with foundations.

In the following quotation from his Treatise of Taxes and Contributions we get the first definition of value:

If a man brings to London an ounce of Silver out of the earth in Peru, in the same time that he can produce a bushel of corn, then one is the natural price of the other; now if by reason of new and more mines a man can get two ounces of silver as easily as formerly he did one, then corn will be as cheap at ten shillings the bushel as it was before at five shillings, caeteris paribus (all things being equal).

The next quotation from the same work interests us, as it is the early examination of the value of labour;

The law . . . should allow the labourer but just the wherewithall to live; for if you allow double then he works but half so much as he could have done, and otherwise would; which is a loss to the publick of the fruit of so much labour.

In modern words, in receiving for six hours' labour the value of six hours, the labourer would receive double what he receives if he worked for twelve hours and got only the value of six. he would therefore not work more than six hours. Thus the value of labour is determined by the minimum necessary for subsistence. To induce the labourer to produce surplus value and to perform surplus labour, it is necessary to compel him to expend all the labour power of which he is capable, as the condition upon which he may earn the necessities of life.

Petty recognises two forms of surplus value, ground rent and money rent (interest). He divides the second from the first which, for him, as later for the Physiocrats, is the true form of surplus value. He depicts rent not as simple surplus of labour expended over and above necessary labour, but as a surplus, of the surplus labour of the producer himself over and above his wages and the replacement of his capital; as for example the following"

Suppose a man could with his own hands plant a certain scope of land with corn, that is, could dig, or plough, harrow, weed, reap, carry home, thresh and winnow so much as the husbandry of this land requires; and had withal seed wherewith to sow the same. I say that when this man has subtracted his food out of the proceed and given to others in exchange for clothes and other natural necessaries, that the remainder of the corn is the natural and true rent of the land for that year, and the medium of seven years, or rather of so-many years as make up the cycle, within which dearth and plenties make their revolution, doth give the ordinary rent of the land in corn.

To Petty, the value of the corn is determined by the labour time which it contains, while rent, equivalent to the total product after the deduction of wages and seed, equals the surplus labour represented by surplus product. Rent, therefore, includes profit which is inseparable from it.

Petty also shows that the individual character of the labour is of no consequence. Labour time is what matters.

As a final tribute, and summing up of Petty's contribution to political economy, we quote the following extract from Volume III, of Capital.

Petty . . .  and in general the writers who are closer to feudal times, assume that ground rent is the normal form of surplus value, whereas profit to them is still vaguely combined with wages, or at best looks to them like a portion of surplus value filched by the capitalist from the landlord. These writers take their departure from a condition, in which the agricultural population still constitutes the overwhelming majority of the nation, and in which the landlord still appears as the individual, who appropriates at first hand the surplus labor of the direct producers through his land monopoly, in which land therefore still appears as the chief requisite of production. These writers could not yet face the question, which, contrary to them, seeks to investigate from the point of view of capitalist production, how it happens that private ownership in land manages to wrest from capital a portion of the surplus-value produced by it at first hand (that is, filched by it from the direct producers) and first appropriated by it.

John Locke (1633-1704)
John Locke is probably better known for his philosophy than he is for his contribution to political economy. He follows William Petty in that he regarded human labour as the principal source of wealth, though Petty regarded both labour and land as the important factors. For Locke, nature was out of the prime importance. He believed that the laws of nature established personal labour as the natural limit of private property—the limit arising from the physical limitation on the amount of labour an individual can perform, and from the fact that no one should accumulate more than his needs.

Locke was opposed to the private ownership of land. In his opinion ground rent was no different from usury and, due to the unequal distribution of the means of production, was a transfer from one person to another of the profit that should have been the reward of one man's labour. The following quotation from his Consideration of the Lowering of Interest is an illustration of this:

Money, therefore, in buying and selling, being perfectly in the same condition with other commodities, and subject to all the same laws of value, let us next see how it comes to be of the same nature with land, by yielding a certain yearly income, which we call use or interest. For land produces naturally something new and profitable, and of value to mankind; but money is a barren thing, and produces nothing, but by compact transfers that profit that was the reward of one man's labour into another man's pocket.

Locke's importance is that he is the voice of the juridical theories of capitalist society as opposed to feudalism. His work in philosophy was the basis upon which the thinking of subsequent English economist rested.

Sir Dudley North (1641-1690)
Sir Dudley North is best known his Discourses upon Trade. This is mainly concerned with commercial capital, and as such is outside the scope of these notes. The importance of North is that he reflects in his writing the period in which he lived.

From 1663 to 1798, except for the years 1708 and 1709, wheat prices were falling. Landlords complained continuously about falling rents. Industrial capitalists and landowners were concerned about, and did in fact bring about, a reduction in the rate of interest. Up to 1760 it was considered to be in the national interest to maintain and increase the value of land. From 1760 onwards an economic investigation began into the rise in rents, about the increase in the price of land and corn, and of other consumer goods.

The years 1650 to 1750 were full of struggles between "monied interests" and "landed interests". The landowners gradually lost out to the money lenders and financiers of the period. The financiers, with the establishment of the credit system, and the system of State debt, became predominant in society.

Petty, in his works, refers to the complaints of the landlords regarding the fall of rents. He defended the monied interests against the landlords, and placed the rent of money and rent of land in the same category. North, in his writing, follows Petty. It was in this form that capital gave landed property its first set-back, since money-lending at interest was one of the main means for the accumulation of capital.

North seems to have been the first to understand interest correctly. He included both capital and money in "Stock". On price and money his observation that gold and silver serve not as gold and silver in themselves, but only as forms of exchange value, is, for his day, remarkable.

To sum up, the position of the economists before the physiocrats was that they had to try and understand the conditions in which the landlord was being forced out, to the advantage of finance capital which was growing.

Bob Ambridge

Notes on Economic History (3) (1961)

From the January 1961 issue of the Socialist Standard

The Rise of the Merchants

The earlier feudal economy had to be curbed by the encouragement of manufacture through privileges and monopolies (thus breaking the power of the Guilds), through exemption from taxation, and through other forms of support. Skilled craftsmen were imported, industrial secrets were purchased or stolen. On the other hand, by official supervision of the whole process of production, industry was to be kept up to the mark, and at the same time the consumer was to be protected by subjecting the process of sale to inspection. Here the traditions and customs of the older urban economy showed their influence.

Another method adopted was the establishment of colonies and trading companies. The East India Company, founded in 1660, was given the right in 1661 to carry on war and make peace in non-Christian countries. Similar companies were set up by other Powers.

Attempts were made to provide cheap labour so as to promote and strengthen industry. One method was to encourage the increase of population (a special need in Germany in those days after the Thirty Years War); prohibitions on marriage was removed and payments made to fathers of large families. Another was to cheapen the necessaries of life, so that wages could be kept down. Foodstuffs were freed from import duty, while high levies were placed on exported grain, or its export totally forbidden. These measures were opposed to the interests of the agriculturalists but, though not openly advocated, were often put into practice, for example, in France by Colbert.

Finally the output of gold and silver was to be increased where possible by mining in the home-land, assisted by state subsidies if needed. The attraction of wealthy foreigners into the country, the prohibition of the export of precious metals, and similar measures, were to supplement and round off the expedients for increasing the national wealth.

A survey of mercantilist policy shows that its advocates placed great importance on money, but did not hold that money was an end in itself; they valued it for its productive effects. Thomas Mun, the mercantilist, wrote "money begets trade" and "trade increases money". Charles Davenant, of the same school, says "Foreign trade brings in the stock. This stock, well and industriously managed, betters land, and brings more products of all kinds for exportation; the returns of which growth and product are to make a country gainers in the balance". Colbert says the same thing from the outlook of the State financier: "If there be money in the country, the desire to turn it to advantage makes people set it in motion, and public funds benefit thereby".

It is necessary to remember that mercantilism differed greatly at different times and in different countries. In England, Holland and Italy, it was predominantly commercial; in France and Germany it was rather industrial. These variations notwithstanding, and allowing for differences in the details of application, all the European rulers and statesmen from the sixteenth to the eighteenth century were guided by the principles set out above.

In England, though agriculture and manufacture were not neglected, mercantilism had a strong commercial trend. Cromwell's Navigation Law of 1651 decreed that no merchandise from Asia, Africa or America should be imported, except in ships built in England, owned by English subjects, navigated by English captains, with at least three-fourths of the crew English. Sea-borne commerce from England to other European countries was to be carried either in English boats, or else in ships belonging to the country with which trade was being carried on.

These conditions meant a practical monopoly of the seas for the English, to the detriment of the Dutch carrying-trade. By a treaty of 1703, Portuguese ports were opened to British woollens in return for concessions to Portugal allowing the importation of wine into Great Britain.

In Germany and Austria, owing to the devastation of the Thirty Years War, the need to increase the population was of paramount importance. There could not be much endeavour to promote foreign trade. The main concern was to hinder imports from countries whose manufactured goods were so cheap that the compensation could not be met. A demand for laws to limit expenditure on clothes, food, furniture, etc. was a feature of mercantilism here.

In Italy, in conformity with the nature of the financial and commercial aristocracies of the republics of that period, the mercantilist school was especially interested in the balance of trade and monetary problems.

In France, Jean Baptiste Colbert was the most successful exponent of the mercantile system, especially after 1666 when he became controller general of the national finances. At the time he took office, French industry was a long way behind England, and even Germany, and the finances and administration were in a bad state. It was not long before internal customs dues had been largely abolished, canals had been made, and skilled workmen and contractors attracted from other countries. By such stimulants as State subsidies, protective duties, and the establishment of technical schools, French industry began to flourish.

Adam Smith considered the mercantilists as a school of united thinkers. This is not so. Mercantilism was essentially a vague principle of applied economics, stemming from the historical, economic, and political foundations of the period. The economists of those days, in order to further the advance from the feudal and localised urban economy to a unified national economy, had to put forward the ideas of the balance of trade, attach great importance to money, study the effects of customs tariffs, examine the source of national wealth, and thus come to form a durable though somewhat loosely organised unity.

It was the economics of early capitalism—the period of history in which Capitalists and Workers make their appearance, showing a difference in the form of the class struggle from the feudal period before it.

Bob Ambridge

Notes on Economic History (2) (1960)

From the December 1960 issue of the Socialist Standard

The Mercantile System

This was the beginning of the modern era. A new form of economic practice was developing, and new theories made their appearance in the form known as Mercantilism. This term (introduced by Adam Smith) is, however, a little misleading for its advocates were quite as concerned with industrial development as with the exchange of merchandise.

The term "Mercantile system" is loosely used to denote all the principles applied by the governments and traders of those days—though it is a fact that these principles have a general conformity. Mercantilism was a growth of its time. It was a system of political absolutism and centralization in favour of the burghers and mobile capital, to the detriment of the lords of the soil. To throw light on this we must glance at the economic process of this period.

The economic organisation of the Middle Ages was disrupted mainly by those political changes which led in Western Europe to the formation of the national states (France, Spain, Portugal and England); and in Germany, later in, to the formation of territorial princedoms. As a result, the Mediaeval economy, with its urban units, was replaced by larger units of different kind—the unified national economic areas. Political concentration in these areas resulted in money and wealth becoming elements of political power in a way very different from of old.

The idea of money as the nerve of the State was in many respects new. The State, which had been constituional (in the Feudalist sense) became absolute; a State army replaced the Feudal militia; and the centralisation of the administration established a paid civil service, judiciary, etc., where Feudal methods of self government had previously prevailed. The result was that military and civil concerns, taxation, and the processes of State credit, tended more and more to be carried on upon a monetary basis instead of by the payments in kind of the earlier economy. Money acquired a significance that was quite new.

These changes were accompanied by the economic upheavals that followed the discovery of America (1492) and the opening of the sea route to the East Indies (1498). New possibilities of world trade came into being, giving power to those traders situated on Western seaboards (the Spanish, the Portuguese, the Dutch and the English) but weakening those cut off from the new commerce. Trade, and the money standing behind trade, became important as sources of wealth and political power.

The effects of these displacements of wealth was reinforced by a new process. Soon after the discovery of the New World a vast amount of gold and silver began to move from Spain across Europe. As a result, the purchasing power of these metals fell enormously, with a consequent tremendous rise in prices. It is true that the rise in prices began about 1510, whereas the increase in gold and silver began to make itself felt about 1520. This was the result of famine, plague, and other causes, but nonetheless, the superabundance of gold was a factor, and a major one, in the rise of prices. The influx of gold played a great part in undermining the foundations of the old feudal economy, for it favoured the diffusion of the means of credit, and laid the ground for the development of the capitalist system.

All these circumstances tended to emphasize the importance of money, to stress the importance of commercial wealth as compared with the wealth that changed hands in kind during the feudal period. Thus, whereas in earlier times there had been the endeavour to check the growth of a monetary economy, the opinion now was that money, of not the only source of wealth, was certainly of decisive importance.

The primary aim of the mercantilists was to achieve a favourable balance of trade. When exports exceed imports, when the value of the goods sold to buyers abroad exceeds the value of the goods purchased from such buyers, the amount of money entering a country will exceed the amount of money leaving it. Then the balance of trade is said to be favourable to the country in which money thus accumulates. To achieve this favourable balance (which was the desire of the mercantilists) it was necessary to stimulate export trade. With that end in view, it was essential to foster industries that created commodities for export and, on the other hand, to check as far as possible the import of commodities.

But if home industry was to be fostered, special attention had to be paid to internal communications. It was necessary to abolish or reduce tolls and the like, and to break down the barriers erected by the urban economy of the Guilds. Good roads had to be built, canals dug, internal communications facilitated, home markets established. Customs policy was, therefore, of supreme importance in the mercantile system. The champions of that system wanted to abolish export duties, and if necessary stimulate exports by subsidies; at the same time they aimed at reducing imports by a high import tariff, or by actual prohibition. Instances are in France, the unified import tariff in 1664, and the development towards such a tariff in England after 1692. As corollaries to the restriction of imports, there had to be freedom for the import of raw materials needed by home industries and prohibition of the export of such materials.

Bob Ambridge 

Notes on Economic History (1) (1960)

From the November 1960 issue of the Socialist Standard

Economics before Mercantilism

The object of these notes is to provide a general introductory guide for those who would like to know more about the subject of Political Economy. They cover the period from early times to Marx and set out the main developments and theories that arose during that time, using as a key the Materialist Conception of History.

Engels in his preface to the 1888 edition of the Communist Manifesto says: "The 'manifesto' being our joint production, I consider myself bound to state that the fundamental proposition which forms its nucleus belongs to Marx. That proposition is: that in every historical epoch the prevailing mode of economic production and exchange, and the social organisation necessarily following from it, form the basis upon which is built up, and from which alone can be explained, the political and intellectual history of that epoch."

That proposition is, in short, the Materialist Conception of History.

By the term economics is meant throughout these notes the study of the production and distribution of wealth. Such a study must take into consideration historical, geographical and many other factors, always bearing in mind that behind the abstractions are real people, who combine, deliberately or otherwise, to produce and distribute wealth.

Neither in classical antiquity, nor yet in the Middle Ages, did there arise any finished systems of economic thought. In those epochs, when men's thoughts were concerned with the heroic and supernatural, the economics of life was regarded as of little importance. Only when, as today, life is dominated by the forces of competition and struggle, is civilised life dominated by economic considerations to the extent we know it today. Even in those earlier ages, however, economic thought such as it was showed signs that it had arisen out of earlier forms of society, and developed and evolved with these societies.

It is an error to picture the course of economic development as though mankind has passed simply from a primitive form of society to a slave-owning form, then to a Feudal one, and finally to a Capitalist economy. At all times there have been lesser economic groups that formed integral parts of the larger, nation-wide or world-wide complexes.

During the primitive period of man, in the Stone Age, the exchange of things went on, and there are proofs of the existence of some form of primitive trading as far back as the Bronze Age, since the constituents of bronze (tin and copper) are not generally found together. At the beginning of historical times, in Babylon, Persia, Carthage, Egypt, Greece and Rome, there was a well-developed form of trade, with industry carried on for export, together with monetary systems and credit.

The beginnings of economic science itself go back to Plato and Aristotle. Plato (347 B.C.) and Aristotle (322 B.C.). made some contributions to economic science, but as far as economics is concerned, mention need only be made of Aristotle's remarks on money, interest and taxation. Aristotle saw the essential nature of money as this: "That it is an intermediary in the exchange of utilities, thus acting as a medium of exchange." To him, however, it is sterile; "it brings forth no children." It cannot of itself produce any goods; therefore interest is wicked. This teaching was to have a great influence in the later Feudal period.

The economic thought of the Middle Ages was dominated by the teachings of Thomas Aquinas (1274), who derived from Aristotle and the Roman civil and canon law the concept of a "just price." Aquinas held that there were two kinds of justice:

1. Distributive justice.
2. Compensatory justice, or the justice of exchange.

In the matter of price, justice is found in the equality of mutual benefit in an exchange. What determines income is not the supply and demand of labour, but a normal outlook, the customary and average mutual adjustments between the individuals who exercise functions. To quote Aquinas, "Wherever a good is to be found, its essence is due measure." Thus we get the idea of income that is "suitable" or "proper" to a man's position in society. Interest on money, or usury, is frowned upon. "Money is a medium of exchange, its use is in its consumption." Consequently, for the use of borrowed money it is wrong, or at least improper, to expect anything beyond simple repayment. Aquinas does make exception in the case of tenancy, hire and credit for goods supplied. In later years, missed opportunities for gain, and loss incurred by or injury to the lender, became good grounds for demanding interest.

The prohibition of interest or usury is basically designed for an economy based on land as property, that is Feudal society, which endeavoured to keep money, and those ideas that flow from an economy based on money, under control.

Economic ideas, and the practical application of them, show a gradual growth and conflict as the old Feudal society begins to decline. The development which economic science made after this period are bound up with the growth of towns and the increasing power of the traders. The early stage of these developments is generally known as the Mercantile period and this will be dealt with in our next issue.

Bob Ambridge