Cyclopædia of Political Science, Political Economy, and the Political History of the United States

Edited by: Lalor, John J.
(?-1899)
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First Pub. Date
1881
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New York: Maynard, Merrill, and Co.
Pub. Date
1899
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Includes articles by Frédéric Bastiat, Gustave de Molinari, Henry George, J. B. Say, Francis A. Walker, and more.
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CONSUMPTION OF WEALTH

I.291.1

CONSUMPTION OF WEALTH. I. The consumption of wealth is one of the great divisions of political economy, according to J. B. Say, who is followed here by several other economists, authors of general systematic treatises on the subject. Storch, de Tracy, James Mill, M'Culloch, Florez Estrada, Skarbek, Dutens and Droz. This last part of the science treats of all questions relating to the employment and use of acquired wealth, either in production or in the satisfaction of the wants of the person or of the family of the producer, and also questions connected with the public outlay and the resources necessary to meet that outlay, viz., taxes and loans. Hence there are two subdivisions of the subject, one treating of questions relating to private consumption, and the other of questions relating to public consumption.

I.291.2

—These two kinds of consumption have themselves been subjected to subdivision. In accord with J. B. Say and Adam Smith, reproductive consumption has been defined as advances made to production; and unproductive consumption, as not only all kinds of consumption that are a pure loss, but those destined to satisfy the wants and the pleasures of man, in contradistinction to reproductive consumption. The same distinction has been made in the case of public consumption; but a somewhat different sense has been attached to the words here.

I.291.3

—Rossi did not admit the subdivision consumption in his teaching. In the first lesson of his published Course, he says: "We have studied the science in its two great divisions, the production and distribution of wealth; and, if we have not specially concerned ourselves with a third branch, which is called in the books consumption, it is because we consider this branch included in the other two. What is called productive consumption is nothing else than the employment of capital, the consumption sought to be called unproductive—taxes—enters directly into the subdivision distribution of wealth; the rest belongs to hygiene and morals."

I.291.4

—Rossi is right, in certain respects. Productive consumption is, indeed, the employment of capital, as we have just said, and taxes are one of the parts of the national revenue, expended in a more or less productive and legitimate manner. It is also quite true that political economy should rely on hygiene and morals when it warrants this or that employment of private wealth; but this is no argument against grouping the phenomena of the consumption of wealth together, as well as those of the production, circulation, exchange and distribution of wealth, the better to understand them by comparison and analogy. Properly speaking, political economy exists, as a whole, either in the doctrine of production or in that of exchange; but we must not forget that it is by classification of knowledge that we succeed in more clearly comprehending what it is given to man to know.

I.291.5

—II. Nature of reproductive and non-reproductive Consumption and of private Consumption. To consume is to make use of the values inherent in products, but to make use of products is to transform their utility and its resultant value, or to change it, or to destroy it altogether. To produce is not to create matter, but so to dispose it as to endow it with utility and so to consume is not to destroy matter (a thing as impossible as it is to create it): it is to transform or destroy the qualities which render matter useful and exchangeable. The importance, therefore, of consumption should not be valued so much by the quantity or dimensions of the matter consumed as by the value which it represents.

I.291.6

—Everything produced is intended for consumption; and why should a price be put on, or a value given to, a useless thing? Consumption is the only object of production, and every product is consumed; that is to say, its utility is enjoyed, and in this enjoyment is found the recompense for the trouble expended in producing it; for, if the producer does not himself consume the thing which he has produced, he consumes that which he receives in exchange for it.

I.291.7

—The slowness or rapidity with which different kinds of consumption take place does not change their nature: the jewel which lasts for centuries, the garment which lasts for years, the fruit or immaterial product which lasts but an hour, all lose their value in analogous ways.

I.291.8

—Exported products should be considered as consumed; for by exportation they become, so to speak, raw material used in the manufacture of other products. In like manner, if we were estimating the value of the production of a country, its imports should be included.

I.291.9

—Consumption has been classed with reference to its objects and the returns obtained from it. J. B. Say has termed unproductive or sterile the consumption which has for its object the well-being resulting from a satisfied want, and reproductive consumption that which is devoted to the production of an amount of wealth equal or superior to the value consumed, and which constitutes a real exchange, in which one gives acquired wealth or the services of implements of labor, land, labor or capital, to acquire new wealth. J. B. Say was not mistaken in the value of these expressions; he understood perfectly well that a consumption which satisfies our wants is neither unproductive nor sterile, since it produces a satisfaction which is a real good; but he employs these expressions for want of better. This nomenclature has been generally adopted. No great objection can be made to the expression reproductive; as to the other, unproductive, it does not seem to have been successfully replaced by sterile or destructive, which Dutens proposes but could we not say with less inexactness, non-reproductive consumption?

I.291.10

—Senior proposes to call that consumption productive which is intended for the support of producers, and unproductive only that which has not this object in view.

I.291.11

—Reproductive consumption is nothing else than production. We shall therefore refer the reader to that word, and limit ourselves here to the consumption which results from the employment of capital.

I.291.12

—But, outside of industrial phenomena proper, we have to consider the total of consumption, especially nonproductive; consumption proper, private consumption.

I.291.13

—Here arises the question of determining those kinds of consumption which are the more desirable and judicious.

I.291.14

—The question would not be difficult if the decision had to be made between productive and non-productive consumption. The former evidently is preferable because it increases the wealth of the country, since it gives birth to subsequent products, while the characteristic mark of other kinds of consumption is that they furnish enjoyment to no one but the consumer. But what are productive and unproductive consumption? M'Culloch answers by the just observation that the question has been obscured, by considering the kind of consumption, while the results should rather have been considered. "Evidently," he says, "it is not enough, in order to prove that a certain quantity of wealth has been employed productively, to say that it has been expended in improving the soil, digging a canal, etc., for this wealth may have been applied without judgment, or in such a manner that it can not be reproduced; and, on the other hand, it is not sufficient proof that a certain amount of wealth has been employed unproductively, to say that it has been expended in carriages and in pleasures; for the desire to incur these expenses may have been the original cause of the production of the wealth, and the desire to incur expenses of the same kind may involve, as a consequence, the production of a still greater amount of wealth. If we wish, then to arrive at an exact conclusion on such questions, we should carefully examine, not only the immediate but the remote consequences of the expense; affirming that it is productive when, by direct or indirect action, it gives occasion to the reproduction of an identical or greater amount of wealth, and unproductive when this is not completely replaced."

I.291.15

—According to J. B. Say, the most judicious and desirable consumption is that which satisfies real wants, which is slow rather than rapid. Slow consumption had already been recommended by Adam Smith. It is recommended by the greater number of economists. J. B. Say understands, by real wants, not only those of prime necessity, but also those which civilization gives rise to.

I.291.16

—Senior remarks that certain things are susceptible only of unproductive consumption. Such, for example, are laces, embroideries, jewels and other ornaments which do not protect the person against the rigor of the weather. He places in the same category tobacco and other stimulants, the least evil of which, he says, is that frequently they are not harmful. Senior further observes that the distinction between consumers is drawn with still less difficulty than the distinction between their consumption. All men being at the same time consumers more or less productive and unproductive, each individual may be put in the one class or the other according as the greater part of his expenses belong to one kind of consumption or the other. Besides, he adds, every personal expense which goes beyond what is strictly necessary is not absolutely unproductive.

I.291.17

—Florez Estrada, having, with J. B. Say, spoken in praise of the consumption which serves to satisfy real wants, and of slow consumption, or that of durable wealth, also recommends consumption in common, in which certain expenses are avoided, and with which, relatively speaking, the greatest possible amount of enjoyment can be procured.

I.291.18

—Although the preceding observations are not without value, they yet show that it is impossible to fix the measure of individual expense. Consumers, therefore, are alone capable of being, and should be, the sole judges as to how much they shall consume. Doubtless a certain number may squander their property; but the greater number endeavor to increase it. Good sense enables every man to decide whether a want is real or imaginary, and whether it ought to be satisfied or not. The man who buys superfluities will, as Franklin makes "Poor Richard" say, end by selling necessaries; but to distinguish the superfluous from the necessary there is no aid except that afforded by a good moral education and sound sense.

I.291.19

—A word here on consumption of articles purchased on credit. Credit-consumption, as a means of supporting an individual or a family, can be justified only by unavoidable necessity. Buying on credit is the cause of greater outlay, of higher prices of goods, of excessive profit by the seller at the expense of the buyer, and, later, of the insolvency, discouragement, immorality and dissipation of the consumer.

I.291.20

—III. The statistical law of Consumption. Consumption is not, as Sismondi said it was when he objected to the employment of machines, a fixed, invariable quantity. It is as elastic as the wants of man, and these are limited only by the means of satisfying them. But these means, once given, satisfy more wants in proportion as they may purchase more products, and, consequently, as the price of the products is low.

I.291.21

—This has been observed whenever, through decrease of import duties or other taxes, or through progress in manufacturing, the prices of products have been diminished in a noticeable degree. In 1824 coffees from the colonies, on reaching England, paid one shilling duty; one and six pence if from India; and two shillings, from foreign countries. Huskisson reduced these duties one-half; and in 10 years the consumption had quadrupled, and increased from 3,000,000 to 32,000,000 pounds. At this same epoch, and after the reforms of Sir Robert Peel, many similar phenomena were observed. In 1839 postal reform was introduced; instead of one shilling average postage on a letter, a sum a little less than one-sixteenth of that amount was paid. The consequence was that the number of letters had quadrupled in 1847, and rose from 1,252,000, in 1839, to 4,837,000, in 1847.

I.291.22

—This phenomenon is easily explained. It depends on this, that the low price of products and services enables the lower classes, which are the most numerous, to extend their consumption. In reality, as Adam Smith remarked, almost all the capital of every country is distributed among these classes in the shape of wages; and, in addition, they spend the income of their little capital.

I.291.23

—IV. Producer and Consumer—Importance of the Consumer. Consumption, in the last analysis, is the only object, the only end of production, and we should never occupy ourselves with the interest of the producer except in so far as it is necessary to advance the interest of the consumer. Adam Smith lays down this fundamental maxim as self-evident, but he merely enunciates it incidentally in discussing the mercantile system. And, indeed, every man is a consumer; his interest is the general interest, the interest of the greatest number, the interest of the poorest, the interest of producers taken all together as a body; while the producers are subdivided into an indefinite number of classes, with different, special and multifarious interests. If privileges are granted to these they can not be granted equally. Some will be benefited at the expense of others, and at the expense of the mass of consumers. Liberty alone is capable of doing justice to all interests, and the only remuneration to which the various branches of production have a right, is that which they can draw from the trunk of consumption.

I.291.24

—It is to be regretted that the founder of the science of political economy did not give a demonstration of the proposition referred to in the preceding paragraph. Frederic Bastiat more than once undertook to prove it. In the first pages of his Sophismes économiques he brought out clearly the natural antagonism existing between the interests of producers and consumers, and the social necessity of protecting the latter from the retrograde tendencies of the former. "Let us take," he says, "a producer of any class, what is his immediate interest? It consists in two things: 1, that the number of persons occupied in the same industry as himself shall be as small as possible; 2, that the greatest possible number of persons shall demand the product of his kind of labor, which is expressed more briefly by political economy in the following terms: that the supply shall be very limited, and the demand very great; in other words, limited competition and an unlimited market.

I.291.25

—What, on the other hand, is the immediate interest of the consumer? That the supply of the product in question shall be great, and the demand limited. Since these two interests are in direct opposition, one of them must necessarily coincide with the social or general interest, and the other antagonize it. But, if legislation is to favor either, in the interest of the public good, which of the two should it be? To discover this, it suffices to inquire what would happen if the secret desires of men were realized. We must confess that the desires of every man, so far as he is a producer, are anti-social in their nature. The wine producer might not regret a frost. A manufacturer of iron would wish to see no other iron in the market than his own, however much the public might be in need of iron."

I.291.26

—Bastiat shows that if the wishes of all producers were realized, the world would quickly relapse into barbarism. The sailing vessel would endeavor to do away with the steamer, and the steamer with the sailing vessel; wool to exclude cotton, and cotton wool; and so on until a dearth of everything was reached. Considering, further, the interest of the consumer, he finds it in perfect harmony with the general interest, with what is demanded by the well-being of mankind. What does the consumer really wish for? Favorable seasons, fruitful inventions which reduce labor, time and expense. He wishes for a decrease of taxation, peace among nations, liberty in all international relations.

I.291.27

—Here an objection is made. It is said, that if these wishes were realized the labor of the producer would be restricted more and more, and would at last stop altogether, for want of support. To which it may be answered, that in this extreme case all wants and imaginable desires would be completely satisfied, and, on this hypothesis, laborious production would not be a matter of regret. Bastiat justly concludes, that to consult the immediate interests of production exclusively is to consult an anti-social interest; that to take the immediate interest of consumption as sole basis would be to take the general interest as basis.

I.291.28

—This reasoning strikes a direct blow at the heart of the protective and prohibitive system, and its partisans leave nothing undone to prevent an analysis of the various interests of the producer and consumer. They affirm that, as the producer and consumer are one, it is wrong to class men as producers and consumers. Of course economists do not pretend to establish as a principle the absurdity that the human race is divided into two distinct classes, one occupied only in producing, and the other only in consuming. But it is not a question of dividing the human race: it is a question of studying it under two very different aspects. All the sciences have their classifications, and it is evident that, so far as products and services are concerned, he who creates the product or renders the service is altogether distinct from him who purchases the product or the service.

I.291.29

—In order to show the value and the correctness of this distinction, Bastiat, in another work, (Les Harmonies économiques, 2nd ed., c. xi.), exhibits the producer and consumer face to face in the whole circle of their transactions. On the one hand is the producer producing the supply; on the other, the consumer causing the demand. Now, supply and demand are apparently not the same thing. Bastiat next gives us an ingenious analysis of the phenomena of production, by which he shows that the consumer or the public is, so far as the gain or the loss of a given class of producers is concerned, what the earth is to electricity, a great common reservoir. From that reservoir all proceeds, to it everything returns. After a time, and after having played some part in the phenomena of the world, economic results glide, so to speak, over the producer, on their way to the consumer; so that all great questions should be studied from the point of view of the consumer, if we wish to solve them in such a way as to grasp their general and permanent results. Bastiat finally bases on considerations of morality this same subordination of the rôle of the producer which he had already established on principles of utility. It is really the purchaser of products, the consumer, who must bear the responsibility of the use they are put to, and not the producer, who is influenced by the demand; for the producer has not to concern himself whether a good or a bad use is made of his wine, his iron, or his opium. Bastiat remarks that this is in perfect harmony with the principles of religion, which addresses to the rich, to the great consumers, a severe warning as to their immense responsibility.

I.291.30

—V. Consumption of Capital.

I.291.31

Waste of Capital. What employment is made of capital is of the utmost importance to society. The office of capital is to furnish the advances necessary to production, in whose results it re-appears under the form of other utilities and other values. All the questions of consumption of capital are in truth questions of production; and they are more naturally treated by analyzing the functions of capital and the nature of production. There is one, however, at which we must stop, in order to point out the difficulties it presents.

I.291.32

—Capital intended for reproduction is divided, according to Adam Smith, into fixed and circulating capital, one renders continual service remaining in the hands of its owner; the other renders a service only when it passes into other hands, or is transformed. It might be asked in what proportions these two kinds of capital, considered as an instrument of labor, should enter into a given industry; but it is plain that this question is not susceptible of a general answer. Every industry has its special character and needs, which vary according to place, time and circumstances. But if theory can give no satisfactory information on this point, it is none the less necessary that a business man should be able to form a correct estimate by consulting his own experience or the experience of others. The division of capital into these two branches is a point of departure of the highest importance, and if we seek to give an explanation of industrial catastrophes, it will be found that a great number of them had no other cause than an erroneous estimate in matters of this kind. Too much capital renders business slow, and too little capital stops it; too much circulating capital at the expense of fixed capital, and too much fixed capital at the expense of circulating capital, produce similar effects.

I.291.33

—The change of times has frequently led business men into ruinous paths. In France, for example, after the events of 1814, young men, simple clerks, were able by very modest savings, energetic labor and irreproachable conduct to make a fortune, in the very houses in which their successors were ruined, although they began with the same moral qualities and frequently with greater intelligence. The latter lacked one thing, sufficient capital. We may often see in great cities the influence of fashion on many industries which are obliged, as it is said, to appeal to the eyes of the public. Such industries change the proportions of fixed and of circulating capital, induce the manufacturer to lessen the latter and to increase the former. They thus lead to his ruin. How many business houses have had to be closed because too large a proportion of their capital was consumed in ornamental façades, etc.

I.291.34

—A word now on the waste of capital. "Waste, which destroys capital, is opposed to saving, which increases capital. We waste capital when we devote, without judgment, to the satisfaction of our pleasures or our wants, values formerly employed in making advances to production. Let us suppose, in order to understand the part played by a spendthrift, two amounts of capital of $100,000 each; one, in the form of a factory belonging to the spendthrift; the other, in the form of coffee and sugar belonging to a merchant. The factory is sold by the spendthrift, and bought by the merchant. To effect the purchase, the latter withdraws his capital from trade and no longer buys coffee and sugar. A hundred thousand dollars are withdrawn from commerce, and this value is handed over to the spendthrift as the price of his factory, and converted by him into consumable articles, and destroyed without return. Thus of the two amounts of capital, only one remains; the value of the other is destroyed, because squandered capital is no longer capital. * * * There is also the capital which is wasted by the inexperience of men who begin enterprises which give back only a part of the capital invested in them, and which is as completely lost as if consumed by a spendthrift. The immaterial products of a teacher, a lawyer, or a priest, etc., may be wasted in the same way; that is to say, consumed in a non-reproductive manner. The imprudent, the unskillful, who do not value the cost of production or the value of the products of their industry, are also spendthrifts. To appreciate the disastrous consequences of waste, it suffices to remark, that a value saved becomes capital, the consumption of which is renewed unceasingly, while a wasted value is consumed but once." VI. Gratuitous or absolutely unproductive Consumption. There are various kinds of unproductive consumption, that are not only unproductive because they are not reproductive, but because they take place at the expense of certain members of the social body, and are effected by consumers who are altogether unproductive, who destroy utilities and values belonging to others. This is consumption at the expense of a production which is not even reproductive, and to which Skarbek has given the name of gratuitous or doubly unproductive consumption, and which Senior calls absolutely unproductive.

I.291.35

—If we seek to draw up a list of the kinds of this consumption, which is assuredly very harmful to society, we have, first of all, the consumption of criminals who are professional invaders of their neighbors' rights of property; next, the consumption of all those who carry on spoliation of any kind under the protection of abuse or artificial monopolies, unpunished or tolerated, or created by bad legislation. Following these are the paupers, who, without being criminals, live at the expense of others; both those who are permanently deprived of their physical or intellectual powers and those who are temporarily in this condition, such as the able-bodied poor, out of employment for the time being, and who have exhausted their resources, and even those who, although industrious and occupied, do not receive enough in exchange for their labor to give them the means of subsistence.—"The support of the poor," says Frederick Skarbek, "is doubly unproductive consumption, gratuitous, negative and made to the detriment of those who provide for them. So that the poverty of a greater or less number of people diminishes the productive forces of a nation, by producing a decrease of workmen, and preventing the accumulation of capital; for everything that is devoted to the support of the poor might be saved and amassed in the form of productive capital; and the poor, for the very reason that they are deprived of the means of labor, can not co-operate in the production of values, still less in the formation of capital." This is a refutation of the quietism of those who see in the support of the poor, by public or private charity, merely a distribution of social wealth which is desirable in many regards, and who forget that the wretchedness of the poor, by decreasing the income of the rich, diminishes the common stock of labor and engenders universal misery. Human society is decidedly a society of exchange of wealth or services, and not of benevolence. If men in society come together for mutual assistance, this can take place normally, without damage to any one, only when it is an exchange of services and values. All gratuitous consumption is a diminution of individual and social wealth.

I.291.36

—Senior includes in this class consumers who produce absolutely nothing in return for what they consume; that is to say, men rich enough to live without working and without rendering any service to society. But the number of such men is very small. The proper employment of capital and the preservation of property, so useful to society, demand incessant care on the part of those who have them. On the other hand, in proportion as nations become enlightened, the men we have here in view are impelled to engage in some occupation, frequently in one very productive by its nature, either through love of accumulation or of power, or the love of study, or the desire of distinction, or by the still nobler want of being useful to their kind.

I.291.37

—VII. Balance of Consumption and Production. Consumption being the end and sole object of production, there is naturally an intimate relation between these two great social phenomena.

I.291.38

—From the point of view of private or non-industrially reproductive consumption, it is evident that the decay of a nation depends on the balance of national consumption and reproduction. It is by the excess of wealth produced over wealth consumed that capital increases; and capital is here synonymous with the means or instruments of labor and with the well-being of the population.

I.291.39

—VIII. Public Consumption. Whatever is consumed in the interest of the whole nation, constitutes governmental or public consumption.

I.291.40

—The character of the consumer does not change the nature of the consumption. Nations, provinces, associations of every kind, consume in a way precisely similar to private persons, and these kinds of consumption may either be productive or unproductive; but here the terms have a little different meaning from that which they have in the case of private consumption. Unless a state carries on an industry itself (and in this case it almost always makes a monopoly of it), its expenses are not positively reproductive; that is, it does not find the capital advanced in the results obtained. But, in the form of security, of justice, of administration, of the police power, in the use of roads, in the enjoyment of works of art, of monuments, and other services, it finds utilities representing more or less fully a return for the capital expended.

I.291.41

—In the discussion of public consumption or outlay we must begin by determining what are the necessities of the state which determine this consumption or outlay, and also by determining what are the taxes, loans and other resources intended to meet them. The majority of economists who have written methodical treatises on the science discuss all these questions in the last part of their works, which thus become treatises on finance.

I.291.42

—It is especially with reference to public expenses that it is proper to point out the abuse of the sophism that every expense, no matter what its object, or how unproductive it may be, "is good for business," hastens circulation and production. Men go so far as to believe that in times of crisis and stagnation caused by political disturbances public outlay is a powerful agency to enliven industry, provide employment for labor, and bring things back to the condition they were in previous to the crisis. Some public men, dupes of the sophism, others to satisfy popular prejudice and quiet the popular mind, others with personal interests and position in view, have recourse to this pretended remedy; and this is one of the causes of the increase of outlay which enlarges the budget. Fétes, festivals, official rejoicings, perfunctory receptions by public officials, in times of sadness or misfortune, are useless expenses as a stimulant to business; they irritate more than they calm the suffering class of society; they force the families who take part in these festivals and receptions to ruinous expenses; they give an artificial encouragement to certain industries at the expense of certain others: they are, therefore, a pure loss to the community. For an economic phenomenon to be both the cause and effect of prosperity, it should be produced in the inverse direction; the impulse to prosperity should come from the family, the well-being of families should render the satisfaction of wants possible, and produce an increase of consumption.

I.291.43

—The error which we have just pointed out is found, in another form, in the public outlay which the authorities frequently allow themselves to make, when, in times of difficulty, they have to come to the aid of the needy classes, deprived of labor and wages, and thus dangerous to public tranquillity and security. What matter, it is said, under these circumstances, if the works about to be begun are without utility? what matter if the useful effect produced is less than the expenses incurred? "it is good for business;" and, in consequence of this false reasoning, a great amount of labor is consumed unproductively, and a considerable amount of capital swallowed up, as has been witnessed in many countries, and in France especially, during the crises of the first revolution, the revolution of July, 1830, and the revolution of 1848.

JOSEPH GARNIER.

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