The Theory of Political Economy

CHAPTER I

INTRODUCTION

Repeated reflection and inquiry have led me to the somewhat novel opinion, that
value depends entirely upon utility. Prevailing opinions make labour rather than utility the origin of value; and there are even those who distinctly assert that labour is the
cause of value. I show, on the contrary, that we have only to trace out carefully the natural laws
of the variation of utility, as depending upon the quantity of commodity in our possession, in order to arrive at a satisfactory theory of exchange, of which the ordinary laws of supply and demand are a necessary consequence. This theory is in harmony with facts; and, whenever there is any apparent reason for the belief that labour is the cause of value, we obtain an explanation of the reason. Labour is found often to determine value, but only in an indirect manner, by varying the degree of utility of the commodity through an increase or limitation of the supply.

These views are not put forward in a hasty or ill-considered manner. All the chief points of the theory were sketched out seventeen years ago; but they were then published only in the form of a brief paper communicated to the Statistical or Economic Section of the British Association at the Cambridge Meeting, which took place in the year 1862. A still briefer abstract of that paper was inserted in the Report of the Meeting,
*22 and the paper itself was not printed until June 1866.
*23 Since writing that paper, I have, over and over again, questioned the truth of my own notions, but without ever finding any reason to doubt their substantial correctness.

Mathematical Character of the Science.

To me it seems that
our science must be mathematical, simply because it deals with quantities. Wherever the things treated are capable of being
greater or less, there the laws and relations must be mathematical in nature. The ordinary laws of supply
and demand treat entirely of quantities of commodity demanded or supplied, and express the manner in which the quantities vary in connection with the price. In consequence of this fact the laws are mathematical. Economists cannot alter their nature by denying them the name; they might as well try to alter red light by calling it blue. Whether the mathematical laws of Economics are stated in words, or in the usual symbols,
x,y,z,p,q, etc., is an accident, or a matter of mere convenience. If we had no regard to trouble and prolixity, the most complicated mathematical problems might be stated in ordinary language, and their solution might be traced out by words. In fact, some distinguished mathematicians have shown a liking for getting rid of their symbols, and expressing their arguments and results in language as nearly as possible approximating to that in common use. In his
Système du Monde, Laplace attempted to describe the truths of physical astronomy in common language; and Thomson and Tait interweave their great
Treatise on Natural Philosophy with an interpretation in ordinary words, supposed to be within the comprehension of general readers.
*24

Confusion between Mathematical and Exact Sciences.

Many persons entertain a prejudice against mathematical language, arising out of a confusion between the ideas of a mathematical science and an exact science. They think that we must not pretend to calculate unless we have the precise data which will enable us to obtain a precise answer to our calculations; but, in reality, there is no such thing as an exact science, except in a comparative sense. Astronomy is more exact than other sciences, because
the position of a planet or star admits of close measurement; but, if we examine the methods of physical astronomy, we find that they are all approximate. Every solution involves hypotheses which are not really true: as, for instance, that the earth is a smooth, homogeneous spheroid. Even the apparently simpler problems in statics or dynamics are only hypothetical approximations to the truth.
*25

We can calculate the effect of a crowbar, provided it be perfectly inflexible and have a perfectly hard fulcrum,—which is never the case.
*26 The data are almost wholly deficient for the complete solution of any one problem in natural science. Had physicists waited until their data were perfectly precise before they brought in the aid of mathematics, we should have still been in the age of science which terminated at the time of Galileo.

When we examine the less precise physical sciences, we find that physicists are, of all men, most bold in developing their mathematical theories in advance of their data. Let any one who doubts this examine Airy’s “Theory of the Tides,” as given in the
Encyclopædia Metropolitana; he will there find a wonderfully complex mathematical theory which is confessed by its author to be incapable of exact or even approximate application, because the results of
the various and often unknown contours of the seas do not admit of numerical verification. In this and many other cases we have mathematical theory without the data requisite for precise calculation.

Capability of Exact Measurement.

I answer, in the first place, that nothing is less warranted in science than an uninquiring and unhoping
spirit. In matters of this kind, those who despair are almost invariably those who have never tried to succeed. A man might be despondent had he spent a lifetime on a difficult task without a gleam of encouragement; but the popular opinions on the extension of mathematical theory tend to deter any man from attempting tasks which, however difficult, ought, some day, to be achieved.

If we trace the history of other sciences, we gather no lessons of discouragement. In the case of almost everything which is now exactly measured, we can go back to the age when the vaguest notions prevailed. Previous to the time of Pascal, who would have thought of measuring
doubt and
belief? Who could have conceived that the investigation of petty games of chance would have led to the creation of perhaps the most sublime branch of mathematical science—the theory of probabilities? There are sciences which, even within the memory of men now living, have become exactly quantitative. While Quesnay and Baudeau and Le Trosne and Condillac were founding Political Economy in France, and Adam Smith in England, electricity was a vague phenomenon, which was known, indeed, to be capable of becoming greater or less, but was not measured nor calculated: it is within the last forty or fifty years that a mathematical theory of electricity, founded on exact data, has been established. We now enjoy precise quantitative notions concerning heat, and can measure the temperature of a body to less than 1/5000 part of a
degree Centigrade. Compare this precision with that of the earliest makers of thermometers, the Academicians del Cimento, who used to graduate their instruments by placing them in the sun’s rays to obtain a point of fixed temperature.
*27

De Morgan excellently said,
*28 “As to some magnitudes, the clear idea of measurement comes soon: in the case of length, for example. But let us take a more difficult one, and trace the steps by which we acquire and fix the idea: say
weight. What weight is, we need not know…. We know it as a magnitude before we give it a name: any child can discover the
more that there is in a bullet, and the less that there is in a cork of twice its size. Had it not been for the simple contrivance of the balance, which we are well assured (how, it matters not here) enables us to poise equal weights against one another, that is, to detect equality and inequality, and thence to ascertain how many times the greater contains the less, we might not to this day have had much clearer ideas on the subject of weight, as a magnitude, than we have on those of talent, prudence, or self-denial, looked at in the same light. All who are ever so little of geometers will remember the time when their notions of an angle, as a magnitude, were as vague as, perhaps more so than, those of a moral quality; and they will also remember the steps by which this vagueness became clearness and precision.”

Now there can be no doubt that pleasure, pain, labour, utility, value, wealth, money, capital, etc., are all notions admitting of quantity; nay, the whole of our actions in industry and trade certainly depend upon comparing quantities of advantage or disadvantage. Even the theories of moralists have recognised the quantitative character of the subject. Bentham’s
Introduction to the Principles of Morals and Legislation is thoroughly mathematical in the character of the method. He tells us
*29 to estimate the tendency of an action thus: “Sum up all the values of all the pleasures on the one side, and those of all the pains on the other. The balance, if it be on the side of pleasure, will give the good tendency of the act upon the whole, with respect to the interests of that individual person; if on the side of pain, the bad tendency of it upon the whole.” The mathematical character of Bentham’s treatment of moral science is also well exemplified in his remarkable tract entitled, “A Table of the Springs of Action,” printed in 1817, as in p. 3, and elsewhere.

“But where,” the reader will perhaps ask, “are your numerical data for estimating pleasures and pains in Political Economy?” I answer, that my numerical data are more abundant and precise than those possessed by any other science, but that we have not yet known how to employ them. The very abundance of our data is perplexing. There is not a
clerk nor book-keeper in the country who is not engaged in recording numerical facts for the economist. The private-account books, the great ledgers of merchants and bankers and public offices, the share lists, price lists, bank returns, monetary intelligence, Custom-house and other Government returns, are all full of the kind of numerical data required to render 5Economics an exact mathematical science. Thousands of folio volumes of statistical, parliamentary, or other publications await the labour of the investigator. It is partly the very extent and complexity of the information which deters us from its proper use. But it is chiefly a want of method and completeness in this vast mass of information which prevents our employing it in the scientific investigation of the natural laws of Economics.

I hesitate to say that men will ever have the means of measuring directly the feelings of the human heart. A unit of pleasure or of pain is difficult even to conceive; but it is the amount of these feelings which is continually prompting us to buying and selling, borrowing and lending, labouring and resting, producing and consuming; and
it is from the quantitative effects of the feelings that we must estimate their comparative amounts. We can no more know nor measure gravity in its own nature than we can measure a feeling; but, just as we measure gravity by its effects in the motion of a pendulum, so we may estimate the equality or inequality of feelings by the decisions of the human mind. The will is our pendulum,
and its oscillations are minutely registered in the price lists of the markets. I know not when we shall have a perfect system of statistics, but the want of it is the only insuperable obstacle in the way of making Economics an exact science. In the absence of complete statistics, the science will not be less mathematical, though it will be immensely less useful than if it were, comparatively speaking, exact. A correct theory is the first step towards improvement, by showing what we need and what we might accomplish.

Measurement of Feeling and Motives.

Many readers may, even after reading the preceding remarks, consider it quite impossible to create such a calculus as is here contemplated, because we have no means of defining and measuring quantities of feeling, like we can measure a mile, or a right angle, or any other physical quantity. I have granted that we can hardly form the conception of a unit of pleasure or pain, so that the numerical expression of quantities of feeling seems to be out of the question. But we only employ units of measurement in other things to facilitate the comparison of quantities; and if we can compare the quantities directly, we do not need the units. Now the mind of an individual is the balance which makes its own comparisons, and is the final judge of quantities of feeling. As Mr. Bain says,
*30 “It is only an identical proposition to affirm
that the greatest of two pleasures, or what appears such, sways the resulting action; for it is this resulting action that alone determines which is the greater.”

Pleasures, in short, are, for the time being, as the mind estimates them; so that we cannot make a choice, or manifest the will in any way, without indicating thereby an excess of pleasure in some direction. It is true that the mind often hesitates and is perplexed in making a choice of great importance: this indicates either varying estimates of the motives, or a feeling of incapacity to grasp the quantities concerned. I should not think of claiming for the mind any accurate power of measuring and adding and subtracting feelings, so as to get an exact balance. We can seldom or never affirm that one pleasure is an exact multiple of another; but the reader who carefully criticises the following theory will find that it seldom involves the comparison of quantities of feeling differing much in amount. The theory turns upon those critical points where pleasures are nearly, if not quite, equal. I never attempt to estimate the whole pleasure gained by purchasing a commodity; the theory merely expresses that, when a man has purchased enough, he would derive equal pleasure from the possession of a small quantity more as he would from the money price of it. Similarly, the whole amount of pleasure that a man gains by a day’s labour hardly enters into the question; it is when a man is doubtful whether to increase his
hours of labour or not, that we discover an equality between the pain of that extension and the pleasure of the increase of possessions derived from it.

I must here point out that, though the theory
presumes to investigate the condition of a mind, and bases upon this investigation the whole of Economics, practically it is an aggregate of individuals which will be treated. The general forms of the laws of Economics are the same in the case of individuals and nations; and, in reality, it is a law operating in the case of multitudes of individuals which gives rise to the aggregate represented in the transactions of a nation. Practically, however, it is quite impossible to detect the operation of general laws of this kind in the actions of one or a few individuals. The motives and conditions are so numerous and complicated, that the resulting actions have the appearance of caprice, and are beyond the analytic powers of science. With every increase in the price of such a commodity as sugar, we ought, theoretically speaking, to find every person reducing his consumption by a small amount, and according to some regular law. In reality, many persons would make no change at all; a few, probably, would go to the extent of dispensing with the use of sugar altogether so long as its cost continued to be excessive. It would be by examining the average consumption of sugar in a large population that we might detect a continuous variation, connected with the variation of price by a constant law. It would not, of necessity, happen that the law would be exactly the same in the case of aggregates and individuals, unless all those individuals were of the same character and position as regards wealth and habits; but there would be a more or less regular
law to which the same kind of formulæ would apply. The use of an average, or, what is the same, an aggregate result, depends upon the high probability that accidental and disturbing causes will operate, in the long run, as often in one direction as the other, so as to neutralise each other. Provided that we have a sufficient number of independent cases, we may then detect the effect of any
tendency, however slight. Accordingly, questions which appear, and perhaps are, quite indeterminate as regards individuals, may be capable of exact investigation and solution in regard to great masses and wide averages.
*31

Logical Method of Economics.

The logical method of Economics as a branch of the social sciences is a subject on which much might be written, and on which very diverse opinions are held at the present day (1879). In this place I can only make a few brief remarks. I think that John Stuart Mill is substantially correct in considering our science to be a case of what he calls
*32 the Physical or Concrete Deductive Method; he considers that we may start from some obvious psychological law, as for instance, that a greater gain is preferred to a smaller one, and we may then reason downwards, and predict the phenomena which will be produced in society by
such a law. The causes in action in any community are, indeed, so complicated that we shall seldom be able to discover the undisturbed effects of any one law, but, so far as we can analyse the statistical phenomena observed, we obtain a verification of our reasoning. This view of the matter is almost identical with that adopted by the late Professor Cairnes in his lectures on ” The Character and Logical Method of Political Economy.”
*33

The principal objection to be urged against this treatment of the subject, is that Mill has described the Concrete Deductive Method as if it were one of many inductive methods. In my Elementary Lessons in Logic (p. 258), I proposed to call the method the
Complete Method, as implying that it combines observation, deduction, and induction in the most complete and perfect way. But I subsequently arrived at the conclusion that this so-called Deductive Method is no special method at all, but simply induction itself in its essential form. As I have fully explained,
*34 Induction is an
inverse operation, the inverse of Deduction, and can only be performed by the use of deduction. Possessing certain facts of observation, we frame an hypothesis as to the laws governing those facts; we reason from the hypothesis deductively to the results to be expected; and we then examine these results in connection with the facts in question; coincidence confirms the whole reasoning; conflict
obliges us either to seek for disturbing causes, or else to abandon our hypothesis. In this procedure there is nothing peculiar; when properly understood it is found to be the method of all the inductive sciences.

The science of Economics, however, is in some degree peculiar, owing to the fact, pointed out by J. S. Mill and Cairnes, that its ultimate laws are known to us immediately by intuition, or, at any rate, they are furnished to us ready made by other mental or physical sciences. That every person will choose the greater apparent good; that human wants are more or less quickly satiated; that prolonged labour becomes more and more painful, are a few of the simple inductions on which we can proceed to reason deductively with great confidence. From these axioms we can deduce the laws of supply and demand, the laws of that difficult conception, value, and all the intricate results of commerce, so far as data are available. The final agreement of our inferences with
à posteriori observations ratifies our method. But unfortunately this verification is often the least satisfactory part of the process, because, as J. S. Mill has fully explained, the circumstances of a nation are infinitely complicated, and we seldom get two or more instances which are comparable. To fulfil the conditions of inductive inquiry, we ought to be able to observe the effects of a cause coming singly into action, while all other causes remain unaltered. Entirely to prove the good effects of Free Trade in
England, for example, we ought to have the nation unaltered in every circumstance except the abolition of burdens and restrictions on trade.
*35 But it is obvious that while Free Trade was being introduced into England, many other causes of prosperity were also coming into action—the progress of invention, the construction of railways, the profuse consumption of coal, the extension of the colonies, etc. etc. Although, then, the beneficent results of Free Trade are great and unquestionable, they could hardly be proved to exist à
posteriori; they are to be believed because deductive reasoning from premises of almost certain truth leads us confidently to expect such results, and there is nothing in experience which in the least conflicts with our expectations. In spite of occasional revulsions, due to periodical fluctuations depending on physical causes, the immense prosperity of the country since the adoption of Free Trade confirms our anticipations as far as, under complex circumstances, facts are capable of doing so. It will thus be seen that Political Economy tends to be more deductive than many of the physical sciences, in which closely approximate verification is often possible; but, even so far as the science is inductive, it involves the use of deductive reasoning, as already explained.

Within the last year or two, much discussion has been raised concerning the Philosophical Method of Political Economy, by Mr. T. E. Cliffe Leslie’s interesting
Essay on that subject,
*36 as also by the recent address of Dr. Ingram at the Dublin Meeting of the British Association.
*37 I quite concur with these able and eminent economists so far as to allow that historical investigation is of great importance in Social Science. But, instead of converting our present science of economics into an historical science, utterly destroying it in the process, I would perfect and develop what we already possess, and at the same time erect a new branch of social science on an historical foundation. This new branch of science, on which many learned men, such as Richard Jones, De Laveleye, Lavergne, Cliffe Leslie, Sir Henry Maine, Thorold Rogers, have already laboured, is doubtless a portion of what Herbert Spencer calls Sociology, the Science of the Evolution of Social Relations. Political Economy is in a chaotic state at present, because there is need of subdividing a too extensive sphere of knowledge. Quesnay, Sir James Steuart, Baudeau, Le Trosne, and Condillac first differentiated Economics sufficiently to lead it to be regarded as a distinct science; it has since been loaded with great accretions due to the progress of investigation. It is only by subdivision, by recognising a branch of Economic Sociology, together possibly with two or three other branches of statistical, jural, or social science, that we can rescue our science from its
confused state. I have already endeavoured to show the need of this step in a lecture delivered at the University College, in October 1876,
*38 and I shall perhaps have a future opportunity of enlarging more upon the subject.

To return, however, to the topic of the present work, the theory here given may be described as
the mechanics of utility and self-interest. Oversights may have been committed in tracing out its details, but in its main features this theory must be the true one. Its method is as sure and demonstrative as that of kinematics or statics, nay, almost as self-evident as are the elements of Euclid, when the real meaning of the formulæ is fully seized.

I do not hesitate to say, too, that Economics might be gradually erected into an exact science, if only commercial statistics were far more complete and accurate than they are at present, so that the formulae could be endowed with exact meaning by the aid of numerical data. These data would consist chiefly in accurate accounts of the quantities of goods possessed and consumed by the community, and the prices at which they are exchanged. There is no reason whatever why we should not have those statistics, except the cost and trouble of collecting them, and the unwillingness of persons to afford information. The quantities themselves to be measured and registered are most concrete and precise. In a few
cases we already have information approximating to completeness, as when a commodity like tea, sugar, coffee, or tobacco is wholly imported. But when articles are untaxed, and partly produced within the country, we have yet the vaguest notions of the quantities consumed. Some slight success is now, at last, attending the efforts to gather agricultural statistics; and the great need felt by men engaged in the cotton and other trades to obtain accurate accounts of stocks, imports, and consumption, will probably lead to the publication of far more complete information than we have hitherto enjoyed.

The deductive science of Economics must be verified and rendered useful by the purely empirical science of Statistics. Theory must be invested with the reality and life of fact. But the difficulties of this union are immensely great, and I appreciate them quite as much as does Cairnes in his admirable lectures “On the Character and Logical Method of Political Economy.” I make hardly any attempt to employ statistics in this work, and thus I do not pretend to any numerical precision. But, before we attempt any investigation of facts, we must have correct theoretical notions; and of what are here presented, I would say, in the words of Hume, in his
Essay on Commerce, “If false, let them be rejected: but no one has a right to entertain a prejudice against them merely because they are out of the common road.”

Relation of Economics to Ethics.

Jeremy Bentham put forward the Utilitarian theory in the most uncompromising manner. According to him, whatever is of interest or importance to us must be the cause of pleasure or of pain; and when the terms are used with a sufficiently wide meaning, pleasure and pain include all the forces which drive us to action. They are explicitly or implicitly the matter of all our calculations, and form the ultimate quantities to be treated in all the moral sciences. The words of Bentham on this subject may require some explanation and qualification, but they
are too grand and too full of truth to be omitted. “Nature,” he says,
*39 “has placed mankind under the governance of two sovereign masters—
pain and
pleasure. It is for them alone to point out what we ought to do, as well as to determine what we shall do. On the one hand the standard of right and wrong, on the other the chain of causes and effects, are fastened to their throne. They govern us in all we do, in all we say, in all we think: every effort we can make to throw off our subjection will serve but to demonstrate and confirm it. In words a man may pretend to abjure their empire; but, in reality, he will remain subject to it all the while. The
principle of utility recognises this subjection, and assumes it for the foundation of that system, the object of which is to rear the fabric of felicity by the hands of reason and of law. Systems which attempt to question it deal in sounds instead of sense, in caprice instead of reason, in darkness instead of light.”

In connection with this passage we may take that of Paley, who says, with his usual clear brevity,
*40 “I hold that pleasures differ in nothing but in continuance and intensity.”

The acceptance or non-acceptance of the basis of the Utilitarian doctrine depends, in my mind, on the exact interpretation of the language used. As it seems to me, the feelings of which a man is capable
are of various grades. He is always subject to mere physical pleasure or pain, necessarily arising from his bodily wants and susceptibilities. He is capable also of mental and moral feelings of several degrees of elevation. A higher motive may rightly overbalance all considerations belonging even to the next lower range of feelings; but so long as the higher motive does not intervene, it is surely both desirable and right that the lower motives should be balanced against each other. Starting with the lowest stage—it is a man’s duty, as it is his natural inclination, to earn sufficient food and whatever else may best satisfy his proper and moderate desires. If the claims of a family or of friends fall upon him, it may become desirable that he should deny his own desires and even his physical needs their full customary gratification. But the claims of a family are only a step to a higher grade of duties.

The safety of a nation, the welfare of great populations, may happen to depend upon his exertions, if he be a soldier or a statesman: claims of a very strong kind may now be overbalanced by claims of a still stronger kind. Nor should I venture to say that, at any point, we have reached the highest rank—the supreme motives which should guide the mind. The statesman may discover a conflict between motives; a measure may promise, as it would seem, the greatest good to great numbers, and yet there may be motives of uprightness and honour that may hinder his promoting the measure. How such
difficult questions may be rightly determined it is not my purpose to inquire here.

The utilitarian theory holds, that all forces influencing the mind of man are pleasures and pains; and Paley went so far as to say that all pleasures and pains are of one kind only. Mr. Bain has carried out this view to its complete extent, saying,
*41 “No amount of complication is ever able to disguise the general fact, that our voluntary activity is moved by only two great classes of stimulants; either a pleasure or a pain, present or remote, must lurk in every situation that drives us into action.” The question certainly appears to turn upon the language used. Call any motive which attracts us to a certain course of conduct, pleasure; and call any motive which deters us from that conduct, pain; and it becomes impossible to deny that all actions are governed by pleasure and pain. But it then becomes indispensable to admit that a single higher pleasure will sometimes neutralise a vast extent and continuance of lower pains. It seems hardly possible to admit Paley’s statement, except with an interpretation that would probably reverse his intended meaning. Motives and feelings are certainly of the same kind to the extent that we are able to weigh them against each other; but they are, nevertheless, almost incomparable in power and authority.

My present purpose is accomplished in pointing out this hierarchy of feeling, and assigning a proper
place to the pleasures and pains with which the Economist deals. It is the lowest rank of feelings which we here treat. The calculus of utility aims at supplying the ordinary wants of man at the least cost of labour. Each labourer, in the absence of other motives, is supposed to devote his energy to the accumulation of wealth. A higher calculus of moral right and wrong would be needed to show how he may best employ that wealth for the good of others as well as himself. But when that higher calculus gives no prohibition, we need the lower calculus to gain us the utmost good in matters of moral indifference. There is no rule of morals to forbid our making two blades of grass grow instead of one, if, by the wise expenditure of labour, we can do so. And we may certainly say, with Francis Bacon, “while philosophers are disputing whether virtue or pleasure be the proper aim of life, do you provide yourself with the instruments of either.”