Intersting Extracts from
Political Economy
by J.C.L. Simonde de Sismondi
1815
Political economy is the name given to an important division of the science of government.
The physical well-being of man, so far as it can be produced by his government, is the object of Political Economy. All the physical wants of man, for which he depends on his equals, are satisfied by means of wealth.
Mercantile System
Two great French ministers, Sully under Henry IV, and Colbert under Louis XIV, were the first who threw
any light on the subject (Political economy) till then regarded as a secret of state, in which mystery had engendered and concealed the greatest absurdities.
Sully gave his chief protection to agriculture. He used to say that pasturage and husbandry wee the two beasts of the state.
Colbert, descended from a family engaged in the cloth trade, studied above all to encourage manufactures and commerce. He furnished himself with the opinion of merchants, and asked their advice on all
emergencies. Both statesmen opened roads and canals to facilitate the exchange of commodities: both protected the spirit of enterprise, and honoured the industrious activity which diffused plenty over their country.
Colbert reduced it (the subject) to a body of doctrines. He had a system, however, in regard to national wealth: he required one to give uniformity to his plans, and delineate clearly before his view the object he
wished to attain. His system was probably suggested by the merchants whom he consulted. It is now generally known by the epithet mercantile, sometimes also by the name Colbertism. Not that Colbert was its author, or unfolded it in any publication; but because he was beyond comparison the most illustrious of its professors; because, notwithstanding the errors of his theory, the applications he deduced from it were highly advantageous; and because, among the numerous writers who have maintained the same opinion, there is not one who has shown enough of talent even to fix his name in the reader's memory. It is but just, however, to separate the mercantile system altogether from the name of Colbert. It was a system invented by trading subjects, not by citizens; it was a system adopted by all the ministers of absolute governments, when they happened to take the trouble of thinking on finance, and Colbert had no other share in the matter than that of having followed it without reforming it.
Governments would gladly have increased the merchant's profit, on condition of obtaining a share of it. Imagining that nothing more was necessary than to second each other's views, they offered him force to support industry. and since the advantage of the merchant consists in selling dear and buying cheap, they thought it would be an effectual protection to commerce, if the means were afforded of selling still dearer and buying still cheaper. The merchants whom they consulted eagerly grasped at this proposal; and thus was founded the mercantile system.
Territorial System
For a century, the mercantile system was universally adopted by cabinets; universally favoured by traders and chambers of commerce; universally expounded by writers, as if it had been proved by the most unexceptionable demonstration, no one deeming it worth while to establish it by new proofs.
After the middle of the eighteenth century, Quesnay opposed it in his Tableau Economique. It was afterwards expounded by Mirabeau and the Abbe de Riviere, enlarged by Dupont de Nemours, and adopted by a numerous sect which arose in France, under the name of Economists.
In Italy too this sect gained some distinguished partisans. Its followers have written more about the science than those of any other sect; yet they have admitted Quesnay's principles with such blind confidence, and maintained them with such implicit fidelity, that one is at a loss to discover any
difference of principle, or any progress of ideas in their several productions.
Thus Quesnay founded a second system in political economy, still named the territorial system, or more precisely the system of the economists. He begins by asserting that gold and silver, the signs of wealth, the means of exchange, the price of all commodities, do not themselves constitute the wealth of states;
and that no judgment can be formed concerning the prosperity of a nation, from the abundance of its precious metals. He next proceeds to survey the different classes of men, all of whom, occupied in gaining money, and causing wealth to circulate, even when acquiring it for themselves, are not, according to him,
occupied with any thing besides exchange. He endeavours to distinguish the classes possessed of a creative power; it is amongst them that wealth must originate, all the transactions of commerce appearing to be nothing else but the transmission of that wealth from hand to hand.
Differing Prescriptions on Role of Government
The plans, which these two sects recommended to governments, differed not less than their principles. While the mercantilists wished authority to interfere in every thing, the economists incessantly repeated laissez faire et laissez passer (let every man do as he pleases, and every thing take its course;) for as
the public interest consists in the union of all individual interests, individual interest will guide each man more surely to the public interest than any government can do.
Adam Smith - The Third System
Adam Smith, author of this third system, which represents labour as the sole origin of wealth, and economy as the sole means of accumulating it, has, in one sense, carried the science of political economy to perfection, at a single step.
J.C.L. Simonde de Sismondi explained the system of Adam Smith in detail under the six heads:
Formation and Progress of Wealth
Territorial Wealth
Commercial Wealth
Money
Taxes and
Population.
Formation and Progress of Wealth
Man brings into the world with him certain wants, which he must satisfy in order to live; certain desires which lead him to expect happiness from particular enjoyments; and a certain industry or aptitude for labour, which enables him to satisfy the requisitions of both. His wealth originates in this industry: his
wants and desires are its employments. All that man values is created by his industry; all that he creates is destined to be consumed in satisfying his wants and desires. But, between the moment of its production by labour, and its consumption by enjoyment, the thing destined for man's use may have an existence more or less durable. It is this thing, this accumulated and still unconsumed fruit of labour, which is called wealth.
The history of this man is the history of the human race: labour alone has created all kinds of wealth. However great the beneficence of nature, she gives nothing gratuitously to man; though, when addressed by him, she is ready to lend her assistance in multiplying his powers to an indefinite extent. The history of wealth is, in all cases, comprised within the limits now specified - the labour which creates, the economy which accumulates, the consumption which destroys.
Thus labour and economy - the true sources of wealth - exist for the Solitary as well as for the social man, and produce the same kind of advantage to both. The formation of society, however, and with it the introduction of commerce and exchange, were necessary both to augment the productive power of labour, by dividing it, and to afford a more precise aim to economy, by multiplying the enjoyments which wealth procures. Thus men, combined in society, produced more than if each had laboured separately; and they preserve better what they have produced, because they feel the value of it better.
Exchange first arose from superabundance: "Give me that article, which is of no service to you, and would be useful to me,,, said one of the contacting parties, "and I will give you this in return, which is of no service to me, and would be useful to you."
Much more work was executed in the world by the division of labour; but, at the same time, much more was required to supply the consumption. The wants and the enjoyments of the Solitary, who laboured for himself, were both very limited. Food, clothing, and lodging, he indeed required; but he did not so much as think of the delicacies, by which the satisfaction of those wants might be converted into pleasure; and still less of the artificial desires, induced by society, which in their gratification become new sources of enjoyment. The Solitary's aim was merely to amass, that he might afterwards repose. Before him at no great distance, was a point in the accumulation of wealth, beyond which it would have been foolishness to accumulate more, because his consumption could not be increased proportionably. But the wants of the
social man were infinite, because the society's labour offered him enjoyment infinitely varied. Whatever wealth he might amass, he could never have occasion to say it is enough; he still found means to convert it into pleasure, and to imagine at least that he applied it to his service.
The formation of society, the introduction of exchange, allowed him almost indefinitely to multiply this seed, - this fruit-bearing portion of accumulated wealth. It is what we name capital.
The annual distribution of the wealth, annually reproduced, among all the citizens composing the nation, constitutes the national revenue. It consists of all the value, by which the re-production surpasses the consumption that produced it.
The labour of man created wealth; but wealth, in its turn, created the labour of man. Wherever wealth offered a profit, a wage, a subsistence, it produced a class of men, eager to acquire them.
Society requires something more than wealth; it would not be complete if it contained nothing but productive labourers. It requires administrators, judges, lawgivers; men employed about
its general interests; soldiers and sailors to defend it. No one of those classes produces any thing; their labour never assumes a material shape; it is not susceptible of accumulation. Yet without their assistance all the wealth arising from productive labour would be destroyed by violence; and work would cease, if
the labourer could not calculate on peaceably enjoying its fruits. To support this guardian population, a part must be deducted from the funds created annually by labour. But as the service done to the community, by such persons, how important soever it be, is felt by no one in particular; it cannot, like
other services, be an object of exchange. The community itself was under the necessity of paying it by a forced contribution from the revenues of all. It was not long, indeed, till this contribution came to be regulated by the persons destined to profit from it; and hence the contributors were loaded without
measure; civil and military offices were multiplied far beyond what the public weal required; there was too much government, too much defence of men, who were forced to accept those services, and to pay them, superfluous or even burdensome as they might be; and the rulers of nations, established to protect wealth, were often the main authors of its dilapidation.
Territorial Wealth
The riches proceeding from land should be the first to engage the attention of an economist or a legislator. They are the most necessary of all, because it is from the ground that our subsistence is derived; because they furnish the materials for every other kind of labour.
Commercial wealth is augmented and distributed by exchange; and even the produce of the ground, so soon as it is gathered in, belongs likewise to commerce. Territorial wealth, on the other hand, is created by means of permanent contacts. With regard to it, the economist's attention should first be directed to the progress of cultivation: next to the mode in which the produce of the harvest is distributed among those who contribute to its growth; and lastly, to the nature of those rights which belong to the proprietors of land, and to the effects resulting from an alienation of their property.
The progress of social order, the additional security, the protection which government holds out to the rights of all, together with the increase of population, induce the cultivator to entrust to the ground, for a longer or shorter period, the labour which constitutes his wealth.
For re-producing territorial wealth, it is sufficient, in general, that the use of the ground be transmitted to the industrious man, who may turn it to advantage, whilst the property of it continues with the rich man, who has no longer the same incitements or the same fitness for labour, and who thinks only of enjoyment. The national interest, however. sometimes also requires that property itself shall pass into hands likely to
make a better use of it. It is not for themselves alone that the rich elicit the fruits of the earth; it is for the whole nation; and if, by a derangement in their fortune, they suspend the productive power of the country, it concerns the whole nation to put their property under different managers. Personal interest is, indeed, sufficient to bring about this transmission, provided the law offers no obstacle.
Commercial Wealth
By labour man drew his first wealth from the earth, but scarcely had he satisfied his primitive wants, when desire made him conceive other enjoyments, not to be obtained without the aid of his fellows. Exchanges began. They extended to whatever had any value, to whatever could produce any; they comprised mutual services and labour, no less than the fruit of labour; and gave room to the formation and increase of a new kind of wealth, which
was no longer measured by the wants of him who produced it, but
by the wants of all those with whom he might transact exchanges,
- with whom he might carry on commerce; and hence we have named
it commercial wealth.
The solitary man was used to labour for his own wants, and
his consumption was the measure of his production; he fitted out
a place to produce him provisions for a year, for two years
perhaps; but afterwards he did not indefinitely augment it. It
was enough to renew the process, so as to maintain himself in the
same condition; and, if he had time to spare, he laboured at
acquiring some new enjoyment, at satisfying some other fancy.
Society has never done any thing by commerce, except sharing
among all its members what the isolated man would have prepared
solely for himself. Each labours, in like manner, to provide for
all, during a year, two years, or more; each labours, afterwards,
to keep up this provision, according as consumption destroys a
part of it; and since the division of labour and the improvement
of arts allow more and more work to be done, each, perceiving
that he has already provided for the reproduction of what has
been consumed, studies to awaken new tastes and new fancies which
he may satisfy.
But when a man laboured for himself alone, he never dreamt of
those fancies, till he had provided for his wants; his time was
his revenue; his time formed also his whole means of production.
There was no room to fear, that the one would not be exactly
proportioned to the other; that he would ever work to satisfy an
inclination that he did not feel, or which he valued less than a
want. But when trade was introduced, and each no longer laboured
for himself, but for an unknown person, the different proportions
subsisting between the desire and what could satisfy it, between
the labour and the revenue, between production and consumption,
were no longer equally certain; they were independent of each
other, and every workman was obliged to regulate his conduct by
guessing on a subject, concerning which the most skilful had
nothing but conjectural information.
The isolated man's knowledge of his own means and his own
wants, required to be replaced by a knowledge of the market, for
which the social man was labouring; of its demands and its
extent.
The number of consumers, their tastes, the extent of their
consumption, and their income, regulate the market for which
every producer labours. Each of these four elements is variable,
independently of the rest, and each of their variations
accelerates or retards the sale. The number of consumers may
decrease, not only by sickness or war, but also by obstacles
which policy may place in the way of their communication, or by
the avarice of new sellers. Their tastes may be changed by
fashion: an extraordinary consumption of one kind of merchandize,
brought about by some public calamity, may have reduced them to
be frugal in all the rest; and finally, their income may diminish
without a diminution of their number, and with the same wants,
the same means of satisfying them may no longer exist. Such
revolutions in the market are difficult to know with precision,
difficult to calculate; and their obscurity is greater for each
individual producer, because he but imperfectly knows the number
and means of his rivals, the merchants, who are to sell in
competition with him. But one single observation serves him,
instead of all them: he compares his price with that of the
buyer, and this comparison, according to the profit or loss which
it offers him, is a warning to increase or diminish his
production, for the following year.
The producer establishes his price according to what the
merchandise has cost, including his profit, which ought to be
proportional to what might be obtained in any other kind of
industry. The price must be sufficient to repay the workmen's
wages, the rent of the land, or the interest on the fixed
capitals employed in production, the raw materials wrought by
him, with all the expenses of transport, and all the advances of
money. When all these reimbursements, calculated at the mean rate
of the country, are themselves repaid by the last purchaser, the
production may continue on the same footing. If the profits rise
above the mean rate, the producer will extend his enterprizes; he
will employ new hands and fresh capital, and, striving to benefit
by this extraordinary profit, he will soon reduce it to the
common level. If the buyer, on the other hand, pays a price too
low for compensating all the producer's reimbursements, the
latter will, of course, seek to reduce his production, but this
change will not be so easy as the other. The workmen employed by
him, rather than abandon what gains their bread, consent to work
at a lower price; for less even than the necessaries of life.
Fixed capitals, moreover, cannot be put to another use; he will
content himself with a smaller profit, and continue to work with
them till they produce next to nothing. Lastly, the manufacturer
himself must live by his industry, and never willingly abandons
it: he is ever disposed to attribute the decline of his last
year's trade to accidental causes; and the less he has gained,
the less is he willing to retire from business. Thus production
continues almost always longer than demand, unless the
manufacturer has, of his own accord, renounced his business to
attempt a new one.
The buyer's price, an the other hand, is fixed by
competition. He does not inquire what the article costs, but what
are the terms on which he may obtain another to serve in its
stead; he addresses himself to various merchants, who offer him
the same commodity, and bargains with him who will sell the
cheapest; or else he considers which will suit him best, among
several articles of a different nature, but capable of being
substituted for each other. As each is occupied solely with his
own private interest, each tends to the same object: all the
buyers, on one hand, all the sellers on the other, act as if in
concert: the sums asked, and the sums offered, are brought to an
equilibrium, and the mean price is established.
The seller's price should enable him to reproduce the article
sold, with a profit, under the same condition, in the same place.
His market, therefore, extends to every country where the mean
price established by commerce is no smaller than his. His
production is not limited by the consumption of neighbors or
countrymen; it is regulated by the whole number of those who,
whatever country they inhabit, find an advantage in purchasing
his goods, or for whom his producing price is not superior to the
buying price. It is this which properly constitutes the extent of
market.
scarcely had he satisfied his primitive wants, when desire made
him conceive other enjoyments, not to be obtained without the aid
of his fellows. Exchanges began. They extended to whatever had
any value, to whatever could produce any; they comprised mutual
services and labour, no less than the fruit of labour; and gave
room to the formation and increase of a new kind of wealth, which
was no longer measured by the wants of him who produced it, but
by the wants of all those with whom he might transact exchanges,
- with whom he might carry on commerce; and hence we have named
it commercial wealth.
The solitary man was used to labour for his own wants, and
his consumption was the measure of his production; he fitted out
a place to produce him provisions for a year, for two years
perhaps; but afterwards he did not indefinitely augment it. It
was enough to renew the process, so as to maintain himself in the
same condition; and, if he had time to spare, he laboured at
acquiring some new enjoyment, at satisfying some other fancy.
Society has never done any thing by commerce, except sharing
among all its members what the isolated man would have prepared
solely for himself. Each labours, in like manner, to provide for
all, during a year, two years, or more; each labours, afterwards,
to keep up this provision, according as consumption destroys a
part of it; and since the division of labour and the improvement
of arts allow more and more work to be done, each, perceiving
that he has already provided for the reproduction of what has
been consumed, studies to awaken new tastes and new fancies which
he may satisfy.
But when a man laboured for himself alone, he never dreamt of
those fancies, till he had provided for his wants; his time was
his revenue; his time formed also his whole means of production.
There was no room to fear, that the one would not be exactly
proportioned to the other; that he would ever work to satisfy an
inclination that he did not feel, or which he valued less than a
want. But when trade was introduced, and each no longer laboured
for himself, but for an unknown person, the different proportions
subsisting between the desire and what could satisfy it, between
the labour and the revenue, between production and consumption,
were no longer equally certain; they were independent of each
other, and every workman was obliged to regulate his conduct by
guessing on a subject, concerning which the most skilful had
nothing but conjectural information.
The isolated man's knowledge of his own means and his own
wants, required to be replaced by a knowledge of the market, for
which the social man was labouring; of its demands and its
extent.
The number of consumers, their tastes, the extent of their
consumption, and their income, regulate the market for which
every producer labours. Each of these four elements is variable,
independently of the rest, and each of their variations
accelerates or retards the sale. The number of consumers may
decrease, not only by sickness or war, but also by obstacles
which policy may place in the way of their communication, or by
the avarice of new sellers. Their tastes may be changed by
fashion: an extraordinary consumption of one kind of merchandize,
brought about by some public calamity, may have reduced them to
be frugal in all the rest; and finally, their income may diminish
without a diminution of their number, and with the same wants,
the same means of satisfying them may no longer exist. Such
revolutions in the market are difficult to know with precision,
difficult to calculate; and their obscurity is greater for each
individual producer, because he but imperfectly knows the number
and means of his rivals, the merchants, who are to sell in
competition with him. But one single observation serves him,
instead of all them: he compares his price with that of the
buyer, and this comparison, according to the profit or loss which
it offers him, is a warning to increase or diminish his
production, for the following year.
The producer establishes his price according to what the
merchandise has cost, including his profit, which ought to be
proportional to what might be obtained in any other kind of
industry. The price must be sufficient to repay the workmen's
wages, the rent of the land, or the interest on the fixed
capitals employed in production, the raw materials wrought by
him, with all the expenses of transport, and all the advances of
money. When all these reimbursements, calculated at the mean rate
of the country, are themselves repaid by the last purchaser, the
production may continue on the same footing. If the profits rise
above the mean rate, the producer will extend his enterprizes; he
will employ new hands and fresh capital, and, striving to benefit
by this extraordinary profit, he will soon reduce it to the
common level. If the buyer, on the other hand, pays a price too
low for compensating all the producer's reimbursements, the
latter will, of course, seek to reduce his production, but this
change will not be so easy as the other. The workmen employed by
him, rather than abandon what gains their bread, consent to work
at a lower price; for less even than the necessaries of life.
Fixed capitals, moreover, cannot be put to another use; he will
content himself with a smaller profit, and continue to work with
them till they produce next to nothing. Lastly, the manufacturer
himself must live by his industry, and never willingly abandons
it: he is ever disposed to attribute the decline of his last
year's trade to accidental causes; and the less he has gained,
the less is he willing to retire from business. Thus production
continues almost always longer than demand, unless the
manufacturer has, of his own accord, renounced his business to
attempt a new one.
The buyer's price, an the other hand, is fixed by
competition. He does not inquire what the article costs, but what
are the terms on which he may obtain another to serve in its
stead; he addresses himself to various merchants, who offer him
the same commodity, and bargains with him who will sell the
cheapest; or else he considers which will suit him best, among
several articles of a different nature, but capable of being
substituted for each other. As each is occupied solely with his
own private interest, each tends to the same object: all the
buyers, on one hand, all the sellers on the other, act as if in
concert: the sums asked, and the sums offered, are brought to an
equilibrium, and the mean price is established.
The seller's price should enable him to reproduce the article
sold, with a profit, under the same condition, in the same place.
His market, therefore, extends to every country where the mean
price established by commerce is no smaller than his. His
production is not limited by the consumption of neighbors or
countrymen; it is regulated by the whole number of those who,
whatever country they inhabit, find an advantage in purchasing
his goods, or for whom his producing price is not superior to the
buying price. It is this which properly constitutes the extent of
market.
To expanded further.
References
Short urls
http://knol.google.com/k/-/-/2utb2lsm2k7a/542
Narayana Rao - 25 Apr 2011