“For that which is common to the greatest number has the ...business.uni.edu/mccormick/Historyofthoughtquotes.doc · Web viewAnd when all this fine philosophy was over, when all

History of Economic ThoughtSelected quotations

Aristotle, from The Politics

On usury

There are two sorts of wealth-getting, as I have said; one is a part of household management, the other is retail trade: the former necessary and honorable, while that which consists in exchange is justly censured; for it is unnatural, and a mode by which men gain from one another. The most hated sort, and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural object of it. For money was intended to be used in exchange, but not to increase at interest. And this term interest ["tokos" in Greek, literally meaning "offspring"], which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent. Wherefore of all modes of getting wealth this is the most unnatural.

On property held in common

For that which is common to the greatest number has the least care bestowed on it. Everyone thinks chiefly of his own, hardly at all of the common interest; and only when he is himself concerned as an individual. For besides other considerations, everybody is more inclined to neglect the duty which he expects another to fulfill;…Each citizen will have a thousand sons who will not be his sons individually, but anybody equally the son of anybody, and will therefore be neglected by all alike.

Marcus Aurelius, from Meditations

On Nature as a coherent whole

Always think of the universe as one living organism, with a single substance and a single soul; and observe how all things are submitted to the single perceptivity of this one whole, all are moved by its single impulse, and all play their part in the causation of every event that happens. Remark the intricacy of the skein, the complexity of the web.

Universal Nature's impulse was to create an orderly world. It follows, then, that everything now happening must follow a logical sequence; if it were not so, the prime purpose towards which the

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impulse of the World-Reason are directed would be an irrational one. Remembrance of this will help you to face many things more calmly.

On the goodness of Nature

It is not Nature's way to bring anything upon that which is under her government, except what is specifically designed for its good.

Everything that happens is as normal and expected as the spring rose or the summer fruit; this is true of sickness, death, slander, intrigue, and all the other things that delight or trouble foolish men.

In the ways of Nature there is no evil to be found.

On living (and dying) in harmony with Nature

For a human soul, the greatest of self-inflicted wrongs is to make itself (so far as it is able to do so) a kind of tumor or abscess on the universe; for to quarrel with circumstances is always a rebellion against Nature.

Just as we say, “Aesculapius has prescribed horseback exercise, or cold baths, or going barefoot,” so in the same way does the World-Nature prescribe disease, mutilation, loss, or some other disability. In the former case, prescribing meant ordering a specific treatment, in the interests of the patient’s health; similarly in the latter, certain specific occurrences are ordered, in the interests of our destiny. We may, in fact, be said to “meet with” these misfortunes in the same sense as masons say that the squared stones in walls or pyramids “meet with” each other when they are fitted closely together to make the unified whole. This mutual integration is a universal principle. As a myriad bodies combine into the single Body which is the world, so a myriad causes combine into the single Cause which is destiny. … Let us accept such things, then, as we accept the prescriptions of Aesculapius; for they too, have often a harsh flavor, yet we swallow them gladly in the hope of health. The execution and fulfillment of Nature’s decrees should be viewed in the same way as we view our bodily health; even if what befalls is unpalatable, nevertheless receive it gladly, for it makes for the health of the universe, … It is not Nature’s way to bring anything upon that which is under her government, except what is specifically designed for its good.

O man, citizenship of this great world-city has been yours. Whether for five years or fivescore, what is that to you? Whatever the law of that city decrees is fair to one and all alike. Wherein, then, is your grievance? You are not ejected from the city by any unjust judge

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or tyrant, but by the selfsame Nature which brought you into it; just as when an actor is dismissed by the manager who engaged him. "But I have played no more than three of the five acts." Just so; in your drama of life, three acts are all the play. Its point of completeness is determined by him who formerly sanctioned your creation, and today sanctions your dissolution. Neither of those decisions lay within yourself. Pass on your way, then, with a smiling face, under the smile of him who bids you go.

From The Bible

On worrying about material wealth

Do not, then, be anxious, saying, “What shall we eat? “ or “What shall we drink?” or “What are we to wear?” For on all these things pagans center their interest while your heavenly Father knows you need them all. But you, seek first His kingdom and all these things will be added to you. [Matthew 6:31-33]

On the corrupting influence of wealth

It is easier for a camel to go through the eye of a needle, than for a rich man to enter into the Kingdom of God. [Matthew 19:24]

For the love of money is the root of all evil. [1 Timothy 6:10]

Charge them that are rich in this world, that they be not highminded, nor trust in uncertain riches, but in the living God, who giveth us richly all things to enjoy; that they do good, that they be rich in good works, ready to distribute, willing to communicate. [1 Timothy 6:17-18]

On usury

If thou lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer, neither shalt thou lay upon him usury. [Exodus 22:25-26]

And if you treat well those who treat you well, what credit is that to you? Sinners do that much. And if you lend to those from whom you expect a return, what credit is that to you? Sinners lend to sinners as well, to get back an equal amount. But love your enemies; do good and lend without prospect of return. [Luke 6:33-35]

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On work

If any would not work, neither should he eat. [2 Thessalonians 3:10]

St. Augustine, from The City of God

On wealth

We have wandered far from God; and if we wish to return to our Father’s home, this world must be used, not enjoyed…that by means of what is material and temporary we may lay hold upon that which is spiritual and eternal.

Men are not made good by possessing these so-called good things, but if men have become good otherwise, they make these things to be really good by using them well.

On avarice

Thou didst at first desire a farm; then thou wouldest possess an estate; thou wouldest shut out thy neighbors; having shut them out, thou didst set thy heart on the possessions of other neighbors; and didst extend thy covetous desires till thou hadst reached the shore: arriving at the shore, thou covetest the islands: having made the earth thine own, thou wouldest happily seize upon heaven.

On usury

How detestable, odious, and execrable a thing it is, I believe that even usurers themselves know.

Lao Tzu, from Tao Te Ching

On laissez-faire

The more taboos there are in the empireThe poorer the people; ….I take no action and the people are transformed of themselves; I prefer stillness and the people are rectified of themselves;

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I am not meddlesome and the people prosper of themselves; [57]

Whoever takes the empire and wishes to do anything to it I see will have no respite. The empire is a sacred vessel and nothing should be done to it. Whoever does anything to it will ruin it; whoever lays hold of it will lose it. [29]

It is always through not meddling that the empire is won. Should you meddle, then you are not equal to the task of winning the empire. [48]

The people are hungry;It is because those in authority eat up too much in taxesThat the people are hungry.The people are difficult to govern;It is because those in authority are too fond of actionThat the people are difficult to govern. [75]

The best of all rulers is but a shadowy presence to his subjects.…When his task is accomplished and his work is doneThe people all say, ‘It happened to us naturally.’ [17]

Chuang-Tzu, from Chuang-Tzu

On laissez-faire

I have heard of letting the world be, of leaving it alone; I have never heard of governing the world. You let it be for fear of corrupting the inborn nature of the world; you leave it alone for fear of distracting the Virtue of the world. If the nature of the world is not corrupted, if the Virtue of the world is not distracted, why should there be any governing of the world?

Lao Tan said, "The government of the enlightened king? His achievements blanket the world but appear not to be his own doing. His transforming influence touches the ten thousand things but the people do not depend on him. With him there is no promotion or praise -- he lets everything find its own enjoyment. He takes his stand on what cannot be fathomed and wanders where there is nothing at all."

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Geoffrey Chaucer, from Canterbury Tales

God ordained that some folks should be more high in estate and in degree, and some folks more low, and that each should be served in their estate and in degree.

Thomas Aquinas, from Summa Theologica

On the proper role of material goods

Man’s happiness clearly cannot consist in natural riches. For they are sought for the sake of something else, namely the support of human life, and so are subordinate to its ultimate end, not the end itself…. That money can do everything is the mass-opinion of silly people who recognize only the material goods which can be bought…. Anything for sale can be had for money, but not spiritual values, which cannot be bought. Hence, in Proverbs it is written, ‘What doth it avail a fool to have riches, since he cannot buy wisdom?’

On private property

The common possession of things is to be attributed to natural law, not in the sense that natural law decrees that all things are to be held in common and that there is to be no private possession, but in the sense that there is no distinction of property on grounds of natural law, but only by human agreement…. Thus private property is not opposed to natural law, but is in addition to it, devised by human reason.

On usury

To accept usury for the loan of money is in itself unjust; because this is selling what does not exist, and must obviously give rise to inequality, which is contrary to justice. For the better understanding of this point it should be noted that there are some things whose use lies in their consumption, as, for example, wine is consumed when it is used as drink….In such cases the use of the thing and the thing itself cannot be separately taken into account, so that whenever the use of the thing itself is granted to someone the thing itself is given at the same time…. If a man were to sell separately both the wine and the use of the wine he would be selling the same thing twice over…. For the same reason he commits an injustice who requires two things in

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return for the loan of wine or wheat, namely the return of an equal quantity of the thing itself and the price of its use. This is what is called usury.

Thomas Mun, from England’s Treasure by Foreign Trade

On obtaining a positive balance of trade by importing raw materials

Thus may we plainly see, that when this weighty business is duly considered…, it is found much contrary to that which most men esteem thereof, because they search no further than the beginning of the work, which mis-informs their judgments, and leads them into error: For if we only behold the actions of the husbandman in the seed-time when he casteth away much good corn into the ground, we will rather account him a mad-man than a husbandman: but when we consider his labours in the harvest which is the end of his endeavours, we find the worth and plentiful increase of his actions.

John Locke, from Some Considerations of the Consequences of the Lowering of Interest, and Raising the Value of Money

On the consequences of a ceiling on interest rates

1. It will make the difficulty of borrowing and lending much greater, whereby trade…will be obstructed…. 2. It will be a prejudice to none, but those who most need assistance and help; I mean widows and orphans, and others uninstructed in the arts and management of more skillful men, whose estates lying in money, they will be sure, especially orphans, to have no more profit of their money, than what interest the law barely allows.

John Locke, from Of Civil Government

On private property

Though the earth and all inferior creatures be common to all men, yet every man has a property in his own person: this nobody has any right to but himself. The labor of his body and the work of his hands, we may say, are properly his. Whatsoever then he removes out of the state nature provided, and left it in, he has mixed his labor with, and joined to it something that is his own, and thereby makes it his property. It being removed by him from the common state nature has placed it in, it has by this labor something annexed to it that excludes

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the common right of other men. For this labor being the unquestionable property of the laborer, no man but he can have a right to what that is once joined to, at least where there is enough and as good left in common for others.

Richard Cantillon, from Essay on the Nature of Commerce

On population growth

Men multiply like Mice in a barn if they have unlimited Means of Subsistence; and the English in the Colonies will become more numerous in proportion in three generations than they would be in thirty in England, because in the Colonies they find for cultivation new tracts of land from which they drive the [inhabitants].

Adam Smith, from The History of Astronomy

First Use of The Invisible Hand Metaphor

Fire burns and water refreshes; heavy bodies descend, and lighter substances fly upward, by necessity of their own nature; nor was the invisible hand of Jupiter ever apprehended to be employed in these matters.

Adam Smith, from The Theory of Moral Sentiments

On the Principle of Sympathy

How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.

On action based on the love of what is honorable and noble

Let us suppose that the great empire of China, with all its myriads of inhabitants, was suddenly swallowed up by an earthquake, and let us consider how a man of humanity in Europe, who had no sort of connection with that part of the world, would be affected upon receiving intelligence of this dreadful calamity. He would, I imagine, first of all, express very strongly his sorrow for the misfortune of that unhappy people, he would make many melancholy reflections upon the precariousness of human life, and the vanity of all the labours of man, which could thus be annihilated in a moment. He would too, perhaps, if he was a man of speculation, enter into many reasonings concerning

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the effects which this disaster might produce upon the commerce of Europe, and the trade and business of the world in general. And when all this fine philosophy was over, when all these humane sentiments had been once fairly expressed, he would pursue his business or pleasure, take his repose or his diversion, with the same ease and tranquility, as if no such accident had happened. The most frivolous disaster which could befall himself would occasion a more real disturbance. If he was to lose his little finger tomorrow, he would not sleep tonight; but, provided he never saw them, he will snore with the most profound security over the ruin of a hundred millions of his brethren, and the destruction of that immense multitude seems plainly an object less interesting to him, than this paltry misfortune of his own. To prevent, therefore, this paltry misfortune to himself, would a man of humanity be willing to sacrifice the lives of a hundred millions of his brethren, provided he had never seen them? Human nature startles with horror at the thought, and the world, in its greatest depravity and corruption, never produced such a villain as could be capable of entertaining it. But what makes this difference? When our passive feelings are almost always so sordid and so selfish, how comes it that our active principles should often be so generous and so noble? When we are always so much more deeply affected by whatever concerns ourselves, than by whatever concerns other men; what is it which prompts the generous, upon all occasions, and the mean upon many, to sacrifice their own interests to the greater interests of others? It is not the soft power of humanity, it is not that feeble spark of benevolence which Nature has lighted up in the human heart, that is thus capable of counteracting the strongest impulses of self-love. It is a stronger power, a more forcible motive, which exerts itself upon such occasions. It is reason, principle, conscience, the inhabitant of the breast, the man within, the great judge and arbiter of our conduct. It is he who, whenever we are about to act so as to affect the happiness of others, calls to us, with a voice capable of astonishing the most presumptuous of our passions, that we are but one of the multitude, in no respect better than any other in it; and that when we prefer ourselves so shamefully and so blindly to others, we become the proper objects of resentment, abhorrence and execration. It is from him only that we learn the real littleness of ourselves, and of whatever relates to ourselves, and the natural misrepresentations of self-love can be corrected only by the eye of the impartial spectator…. It is not the love of our neighbor, it is not the love of mankind, which upon many occasions prompts us to the practice of those divine virtues. It is a stronger love, a more powerful affection, which generally takes place upon such occasions; the love of what is honorable and noble, of the grandeur, and dignity, and superiority of our own characters.

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On the Stoic philosophers

The ancient Stoics were of opinion, that as the world was governed by the all-ruling providence of a wise, powerful and good God, every single event ought to be regarded, as making a necessary part of the plan of the universe, and as tending to promote the general order and happiness of the whole: that the vices and follies of mankind, therefore, made as necessary a part of this plan as their wisdom or their virtue; and by that eternal art which educes good from ill, were made to tend equally to the prosperity and perfection of the great system of nature.

On the tendency to over-rate differences in situations

The great source of both misery and disorders of human life, seems to arise from over-rating the differences between one permanent situation and another. Avarice over-rates the difference between poverty and riches: ambition, that between a private and a public station: vain-glory, that between obscurity and extensive reputation. The person under the influence of any of those extravagant passions, is not only miserable in his actual situation, but is often disposed to disturb the peace of society, in order to arrive at that which he so foolishly admires. The slightest observation, however, might satisfy him, that, in all the ordinary situations of human life, a well-disposed mind may be equally calm, equally cheerful, and equally contented. Some of those situations may, no doubt, deserve to be preferred to others: but none of them can deserve to be pursued with that passionate ardour which drives us to violate the rules either of prudence or of justice; or to corrupt the future tranquility of our minds, either by shame from the remembrance of our own folly, or by remorse from the horror of our own injustice…. What the favourite of the king of Epirus said to his master, may be applied to men in all the ordinary situations of human life. When the King had recounted to him, in their proper order, all the conquests which he proposed to make, and had come to the last of them; And what does your Majesty propose to do then? Said the Favourite.---I propose then, said the King, to enjoy myself with my friends, and endeavor to be good company over a bottle.---And what hinders your Majesty from doing so now? replied the Favourite.

On the effect of the tendency to admire the rich and powerful

This disposition to admire, and almost to worship, the rich and powerful, and to despise, or, at least, to neglect persons of poor and mean condition, though necessary both to establish and to maintain

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the distinction of ranks and the order of society, is, at the same time, the great and most universal cause of the corruption of our moral sentiments. That wealth and greatness are often regarded with the respect and admiration which are due only to wisdom and virtue; and that the contempt, of which vice and folly are the only proper objects, is often most unjustly bestowed upon poverty and weakness, has been the complaint of moralists of all ages.

On how, for common people, virtue and material success can go together

In the middling and inferior stations of life, the road to virtue and that to fortune, to such fortune at least, as men in such stations can reasonably expect to acquire, are, happily in most cases, very nearly the same. In all the middling and inferior professions, real and solid professional abilities, joined to prudent, just, firm and temperate conduct, can very seldom fail of success.

On how the same is not true for the political and social elite

In the superior stations of life the case is unhappily not always the same. In the courts of princes, in the drawing-rooms of the great, where success and preferment depend, not upon the esteem of intelligent and well-informed equals, but upon the fanciful and foolish favour of ignorant, presumptuous, and proud superiors; flattery and falsehood too often prevail over merit and abilities. In such societies the abilities to please, are more regarded than the abilities to serve. In quiet and peaceable times, when the storm is at a distance, the prince, or great man, wishes only to be amused, and is even apt to fancy that he has scarce any occasion for the service of any body, or that those who amuse him are sufficiently able to serve him…. When the duke of Sully was called upon by Lewis the Thirteenth, to give his advice in some great emergency, he observed the favourites and courtiers whispering to one another, and smiling at his unfashionable appearance. ‘Whenever your majesty’s father,’ said the old warrior and statesman, ‘did me the honor to consult me, he ordered the buffoons of the court to retire into the antechamber.’

On the paradox of wealth accumulation

The poor man’s son, whom heaven in its anger has visited with ambition, when he begins to look around him, admires the condition of the rich. He finds the cottage of his father too small for his accommodation, and fancies he should be lodged more at his ease in a palace. He is displeased with being obliged to walk a-foot, or to endure

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fatigue of riding on horseback. He sees his superiors carried about in machines, and imagines that in one of those he could travel with less inconveniency. He feels himself naturally indolent, and willing to serve himself with his own hands as little as possible; and judges, that a numerous retinue of servants would save him from a great deal of trouble. He thinks if he had attained all these, he would sit still contentedly, and be quiet, enjoying himself in the thought of the happiness and tranquility of his situation. He is enchanted with the distant idea of this felicity. It appears in his fancy like the life of some superior rank of beings and, in order to arrive at it, he devotes himself for ever to the pursuit of wealth and greatness. To obtain the conveniencies which these afford, he submits in the first year, nay in the first month of his application, to more fatigue of body and more uneasiness of mind than he could have suffered through the whole of his life from the want of them. He studies to distinguish himself in some laborious profession. With the most unrelenting industry he labours night and day to acquire talents superior to all his competitors. He endeavours next to bring those talents into public view, and with equal assiduity solicits every opportunity of employment. For this purpose he makes court to all mankind; he serves those whom he hates, and is obsequious to those whom he despises. Through the whole of his life he pursues the idea of a certain artificial and elegant repose which he may never arrive at, for which he sacrifices a real tranquility that is at all times in his power, and which, if in the extremity of old age he should at last attain to it, he will find to be in no respect preferable to that humble security and contentment which he had abandoned for it. It is then, in the last dregs of life, his body wasted with toil and diseases, his mind galled and ruffled by the memory of a thousand injuries and disappointments which he imagines he has met with from the injustice of his enemies, or from the perfidy and ingratitude of his friends, that he begins at last to find that wealth and greatness are mere trinkets of frivolous utility…. Power and riches appear then to be, what they are, enormous and operose machines contrived to produce a few trifling conveniencies to the body, consisting of springs the most nice and delicate, which must be kept in order with the most anxious attention, and which in spite of all our care are ready every moment to burst into pieces, and to crush in their ruins their unfortunate possessor. They are immense fabrics, which it requires the labour of a life to raise, which threaten every moment to overwhelm the person that dwells in them, and which while they stand, though they may save him from some smaller inconveniencies, can protect him from none of the severer inclemencies of the season. They keep off the summer shower, not the winter storm, but leave him always as much, and sometimes more exposed than before, to anxiety, to fear, and to sorrow; to diseases, to danger, and to death.…

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And it is well that nature imposes upon us in this manner. It is this deception which rouses and keeps in continual motion the industry of mankind. It is this which first prompted them to cultivate the ground, to build houses, to found cities and commonwealths, and to invent and improve all the sciences and arts, which ennoble and embellish human life; which have entirely changed the whole face of the globe, have turned the rude forests of nature into agreeable and fertile plains, and made the trackless and barren ocean a new fund of subsistence, and the great high road of communication to the different nations of the earth. The earth by these labours of mankind has been obliged to redouble her natural fertility, and to maintain a greater multitude of inhabitants. It is to no purpose, that the proud and unfeeling landlord views his extensive fields, and without a thought for the wants of his brethren, in imagination consumes himself the whole harvest that grows upon them. The homely and vulgar proverb, that the eye is larger than the belly, never was more fully verified than with regard to him…. The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ, be gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species [emphasis added].

On Bernard Mandeville

Though the notions of this author are in almost every respect erroneous, there are, however, some appearances in human nature, which, when viewed in a certain manner, seem at first sight to favour them. These, described and exaggerated by the lively and humorous, though coarse and rustic eloquence of Dr. Mandeville, have thrown upon his doctrine an air of truth and probability which is very apt to impose upon the unskillful.

Adam Smith, from The Wealth of Nations

On the fundamental determinants of the wealth of a nation

The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it

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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.

According, therefore, as this produce, or what is purchased with it, bears a greater or smaller proportion to the number of those who are to consume it, the nation will be better or worse supplied with all the necessaries and conveniences for which it has occasion.

But this proportion must in every nation be regulated by two different circumstances; first, by the skill, dexterity, and judgement with which its labour is generally applied; and secondly, by the proportion between the number of those who are employed in useful labour, and that of those who are not so employed. Whatever be the soil, climate, or extent of territory of any particular nation, the abundance or scantiness of its annual supply must, in that particular situation, depend upon those two circumstances.

An example of how the division of labor increases productivity

To take an example, therefore, from a very trifling manufacture; but one in which the division of labor has been very often taken notice of, the trade of the pin-maker; a workman not educated to this business (which the division of labour has rendered a distinct trade), nor acquainted with the use of the machinery employed in it (to the invention of which the same division of labour has probably given occasion), could scarce, perhaps, with his utmost industry, make one pin in a day, and certainly could not make twenty. But in the way in which this business is now carried on, not only the whole work is a peculiar trade, but it is divided into a number of branches, of which the greater part are likewise peculiar trades. One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on, is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations…. I have seen a small manufactory of this kind where ten men only were employed, and where some of them consequently performed two or three distinct operations. But though they were very poor, and therefore but indifferently accommodated with the necessary machinery, they could, when they exerted themselves, make among them about twelve pounds of pins in a day. There are in a pound upwards of four thousand pins of a middling size. Those ten persons, therefore, could make among them upwards of forty-eight thousand pins in a day.

On the role of self-interest in exchange

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In civilized society he stands at all times in need of the co-operation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons…. But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them…. It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.

On the diamond-water paradox

The word value, it is to be observed, has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called 'value in use;' the other, 'value in exchange.' The things which have the greatest value in use have frequently little or no value in exchange; and, on the contrary, those which have the greatest value in exchange have frequently little or no value in use. Nothing is more useful than water: but it will purchase scarce anything; scarce anything can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it.

On natural vs. market price

The natural price, therefore, is, as it were, the central price, to which the prices of all commodities are continually gravitating. Different accidents may sometimes keep them suspended a good deal above it, and sometimes force them down even somewhat below it. But whatever may be the obstacles which hinder them from settling in this center of repose and continuance, they are constantly tending towards it.

A publick mourning raises the price of black cloth.

On Collusion

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise price. It is impossible indeed to prevent such meetings, by any law which either

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could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies, much less to render them necessary.

On the interests of landlords, workers and employers vs. the interest of society

The whole annual produce of the land and labour of every country, or what comes to the same thing, the whole price of that annual produce, naturally divides itself, it has already been observed, into three parts; the rent of land, the wages of labour, and the profits of stock; and constitutes a revenue to three different orders of people; to those who live by rent, to those who live by wages, and to those who live by profit. These are the three great, original and constituent orders of every civilized society, from whose revenue that of every other order is ultimately derived.

The interest of the first of those three great orders, it appears from what has been just now said, is strictly and inseparably connected with the general interest of the society. Whatever either promotes or obstructs the one, necessarily promotes or obstructs the other. When the publick deliberates concerning any regulation of commerce or police, the proprietors of land never can mislead it, with a view to promote the interest of their own particular order; at least, if they have any tolerable knowledge of that interest. They are, indeed, too often defective in this tolerable knowledge. They are the only one of the three orders whose revenue costs them neither labour nor care, but comes to them, as it were, of its own accord, and independent of any plan or project of their own. That indolence, which is the natural effect of the ease and security of their situation, renders them too often, not only ignorant, but incapable of that application of mind which is necessary in order to foresee and understand the consequences of any publick regulation.

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 first. The wages of the labourer, it has already been shewn, are never so high as when the demand for labour is continually rising, or when the quantity employed is every year increasing considerably. When this real wealth of the society becomes stationary, his wages are soon reduced to what is barely enough to enable him to bring up a family, or to continue the race of labourers. When the society declines, they fall even below this…. But though the interest of the labourer is strictly connected with that of the society, he is incapable either of comprehending that interest, or of understanding its connection with his own. His condition leaves him no time to receive the necessary information, and his education and habits are commonly such as to

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render him unfit to judge even though he was fully informed. In the publick deliberations, therefore, his voice is little heard and less regarded, except upon particular occasion, when his clamour is animated, set on, and supported by his employers, not for his, but their own particular purposes.

His employers constitute the third order, that of those who live by profit. It is the stock that is employed for the sake of profit, which puts into motion the greater part of the useful labour of every society. The plans and projects of the employers of stock regulate and direct all the most important operations of labour, and profit is the end proposed by all those plans and projects. But the rate of profit does not, like rent and wages, rise with the prosperity, and fall with the declension of the society. On the contrary, it is naturally low in rich, and high in poor countries, and it is always the highest in the countries which are fastest going to ruin. The interest of this third order, therefore, has not the same connection with the general interest of the society as that of the other two. Merchants and master manufacturers are, in this order, the two classes of people who commonly employ the largest capitals, and who by their wealth draw to themselves the greatest share of the publick consideration. As during their whole lives they are engaged in plans and projects, they have frequently more acuteness of understanding than the greater part of country gentlemen. As their thoughts, however, are commonly exercised rather about the interest of their own particular branch of business, than about that of the society, their judgement, even when given with the greatest candour (which it has not been upon every occasion) is much more to be depended upon with regard to the former of those two objects, than with regard to the latter. Their superiority over the country gentlemen is, not so much in their knowledge of the publick interest, as in their having a better knowledge of their own interest than he has of his. It is by this superior knowledge of their own interest that they have frequently imposed upon his generosity, and persuaded him to give up both his own interest and that of the publick, from a very simple but honest conviction, that their interest, and not his, was the interest of the publick. The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the publick. To widen the market and to narrow the competition is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the publick; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon their fellow-citizens. The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most

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scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the publick, and who accordingly have, upon many occasions, both deceived and oppressed it.

On saving and capital accumulation

Capitals are increased by parsimony, and diminished by prodigality and misconduct.…

Parsimony, and not industry, is the immediate cause of the increase of capital. Industry, indeed, provides the subject which parsimony accumulates. But whatever industry might acquire, if parsimony did not save and store up, the capital would never be the greater.

On what came to be known as Say’s Law

What is annually saved is as regularly consumed as what is annually spent, and nearly in the same time too; but it is consumed by a different set of people. That portion of his revenue which a rich man annually spends, is in most cases consumed by idle guests, and menial servants, who leave nothing behind in return for their consumption. That portion which he annually saves, as for the sake of profit it is immediately employed as a capital, is consumed in the same manner, and nearly in the same time too, but by a different set of people, by labourers, manufacturers, and artificers, who re-produce with a profit the value of their annual consumption.

On why security of property is required for prosperity

Order and good government, and along with them the liberty and security of individuals, were, in this manner, established in cities at a time when the occupiers of land in the country were exposed to every sort of violence. But men in this defenceless state naturally content themselves with their necessary subsistence; because to acquire more might only tempt the injustice of their oppressors. On the contrary, when they are secure of enjoying the fruits of their industry, they naturally exert it to better their condition, and to acquire not only the necessaries, but the conveniencies and elegancies of life.

Commerce and manufactures can seldom flourish long in any state which does not enjoy a regular administration of justice, in which the people do not feel themselves secure in the possession of their property, in which the faith of contracts is not supported by law, and in

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which the authority of the state is not supposed to be regularly employed in enforcing the payment of debts from those who are able to pay.

On laissez-faire and the efficient allocation of capital

As every individual, therefore, endeavours as much as he can both to employ his capital in support of domestick industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the publick interest, nor knows how much he is promoting it. By preferring the support of domestick to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the publick good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.

What is the species of domestick industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him. The stateman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. [emphasis added]

On the doctrine of the balance of trade

Nothing, however, can be more absurd than this whole doctrine of the balance of trade, upon which, not only these restraints, but almost all the other regulations of commerce are founded. When two places trade with one another, this doctrine supposes that, if the balance be even, neither of them either loses or gains; but if it leans in any degree to one side, that one of them loses, and the other gains…. Both suppositions are false…. But that trade which, without force or

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constraint, is naturally and regularly carried on between any two places, is always advantageous, though not always equally so, to both.

In every country it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it cheapest. The proposition is so very manifest, that it seems ridiculous to take any pains to prove it; nor could it ever have been called in question, had not the interested sophistry of merchants and manufacturers confounded the common sense of mankind. Their interest is, in this respect, directly opposite to that of the great body of the people.

On the probability of actually implementing a policy of laissez-faire

To expect, indeed, that the freedom of trade should ever be entirely restored in Great Britain is as absurd as to expect that an Oceana or Utopia should ever be established in it. Not only the prejudices of the publick, but what is much more unconquerable, the private interests of many individuals, irresistibly oppose it…. The member of parliament who supports every proposal for strengthening [any existing] monopoly, is sure to acquire not only the reputation of understanding trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance. If he opposes them, on the contrary, and still more if he has authority enough to be able to thwart them, neither the most acknowledged probity, nor the highest rank, nor the greatest publick services can protect him from the most infamous abuse and detraction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists.

On the limited role of the government in a free economy

All systems either of preferences or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men. The sovereign is completely discharged from a duty, in attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society. According to the system of natural liberty, the sovereign has only three duties to attend to; three

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duties of great importance, indeed, but plain and intelligible to common understandings: first, the duty of protecting the society from the violence and invasion of other independent societies; secondly, the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice; and, thirdly, the duty of erecting and maintaining certain publick works and certain publick institutions, which it can never be for the interest of any individual, or small number of individuals, to erect and maintain; because the profit could never repay the expence to any individual or small number of individuals, though it may frequently do more than repay it to a great society.

On the need for publicly funded education

In the progress of the division of labour, the employment of the far greater part of those who live by labour, that is, of the great body of the people, comes to be confined to a few very simple operations; frequently to one or two. But the understandings of the greater part of men are necessarily formed by their ordinary employments. The man whose whole life is spent in performing a few simple operations, of which the effects too are, perhaps, always the same, or very nearly the same, has no occasion to exert his understanding, or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him, not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgement concerning many even of the ordinary duties of private life. Of the great and extensive interests of his country, he is altogether incapable of judging; and unless very particular pains have been taken to render him otherwise, he is equally incapable of defending his country in war…. His dexterity at his own particular trade seems, in this manner, to be acquired at the expence of his intellectual, social, and martial virtues. But in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.

Though the state was to derive no advantage from the instruction of the inferior ranks of people, it would still deserve its attention that they should not be altogether uninstructed. The state, however, derives no inconsiderable advantage from their instruction. The more they are instructed, the less liable they are to the delusions

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of enthusiasm and superstition, which, among ignorant nations, frequently occasion the most dreadful disorders. An instructed and intelligent people besides are always more decent and orderly than an ignorant and stupid one. They feel themselves, each individually, more respectable, and more likely to obtain the respect of their lawful superiors, and they are therefore more disposed to respect those superiors. They are more disposed to examine, and more capable of seeing through, the interested complaints of faction and sedition, and they are, upon that account, less apt to be misled into wanton or unnecessary opposition to the measures of government. In free countries, where the safety of government depends very much upon the favourable judgement which the people may form of its conduct, it must surely be of the highest importance that they should not be disposed to judge rashly or capriciously concerning it.

Science is the great antidote to the poison of enthusiasm and superstition….

Smith’s Principles of Taxation

I. The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state….

II. The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person….

III. Every tax ought to be levied at the time, or in the manner in which it is most likely to be convenient for the contributor to pay it….

IV. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible, over and above what it brings into the publick treasury of the state. A tax may either take out or keep out of the pockets of the people a great deal more than it brings into the publick treasury, in the four following ways. First, the levying of it may require a great number of officers, whose salaries may eat up the greater part of the produce of the tax… Secondly, it may obstruct the industry of the people, and discourage them from applying to certain branches of business which might give maintenance and employment to great multitudes… Thirdly, by the forfeitures and other penalties which those unfortunate individuals incur who attempt unsuccessfully to evade the tax, it may frequently ruin them, and thereby put an end to the benefit which the community

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might have received from the employment of their capitals. An injudicious tax offers a great temptation to smuggling. But the penalties of smuggling must rise in proportion to the temptation. The law, contrary to all the ordinary principles of justice, first creates the temptation, and then punishes those who yield to it… Fourthly, by subjecting the people to the frequent visits, and the other odious examination of the tax-gatherers, it may expose them to much unnecessary trouble, vexation, and oppression; and though vexation is not, strictly speaking, expence, it is certainly equivalent to the expence at which every man would be willing to redeem himself from it.

Why Great Britain should get rid of its colonies (but won’t)

In those two wars [1739 and 1763] the colonies cost Great Britain much more than double the sum which the national debt amounted to before the commencement of the first of them. Had it not been for those wars that debt might, and probably would by this time, have been completely paid; and had it not been for the colonies, the former of those wars might not, and the latter certainly would not have been undertaken…. The rulers of Great Britain have, for more than a century past, amused the people with the imagination that they possessed a great empire on the west side of the Atlantic…. it is surely time that Great Britain should free herself from the expence of defending those provinces in time of war, and of supporting any part of their civil or military establishments in time of peace, and endeavour to accommodate her future views and designs to the real mediocrity of her circumstances.

No nation ever voluntarily gave up the dominion of any province, how troublesome soever it might be to govern it, and how small soever the revenue which it afforded might be in proportion to the expence which it occasioned. Such sacrifices, though they might frequently be agreeable to the interest, are always mortifying to the pride of every nation.

Thomas Robert Malthus, from An Essay on the Principle of Population

Malthus's Thesis

I think I may fairly make two postulata.First, that food is necessary to the existence of man.Secondly, that the passion between the sexes is necessary and

will remain nearly in its present state.

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These two laws, ever since we have had any knowledge of mankind, appear to have been fixed laws of our nature, and, as we have not hitherto seen any alteration in them, we have no right to conclude that they will ever cease to be what they now are….

I do not know that any writer has supposed that on this earth man will ultimately be able to live without food. But Mr. Godwin has conjectured that the passion between the sexes may in time be extinguished. As, however, he calls this part of his work a deviation into the land of conjecture, I will not dwell longer upon it at present than to say that the best arguments for the perfectibility of man are drawn from a contemplation of the great progress that he has already made from the savage state and the difficulty of saying where he is to stop. But towards the extinction of the passion between the sexes, no progress whatever has hitherto been made. It appears to exist in as much force at present as it did two or four thousand years ago….

Assuming, then, my postulata as granted, I say that the power of population is indefinitely greater than the power of the earth to produce subsistence for man.

Population, when unchecked, increases in a geometrical ratio. Subsistence increases only in an arithmetical ratio. A slight acquaintance with numbers will show the immensity of the first power in comparison to the second.

By that law of our nature which makes food necessary to the life of man, the effects of these two unequal powers must be kept equal.

This implies a strong and constantly operating check on population from the difficulty of subsistence. This difficulty must fall somewhere and must necessarily be severely felt by a large portion of mankind.

…. I see no way by which man can escape from the weight of this law which pervades all animated nature. No fancied equality, no agrarian regulations in their utmost extent, could remove the pressure of it even for a single century. And it appears, therefore, to be decisive against the possible existence of a society, all the members of which should live in ease, happiness, and comparative leisure, and feel no anxiety about providing the means of subsistence for themselves and families.

Consequently, if the premises are just, the argument is conclusive against the perfectibility of the mass of mankind.

Changing the Poor Laws

To this end, I should propose a regulation to be made, declaring that no child born from any marriage, taking place after the expiration of a year from the date of the law, and no illegitimate child born two years from the same date, should ever be entitled to parish assistance....The clergyman of each parish should, after publication of

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the banns, read a short address stating the strong obligations on every man to support his own children; the impropriety, and even immorality, of marrying without a prospect of being able to do this; the evils which had resulted to the poor themselves from the attempt which had been made to assist by public institutions in a duty which ought to be exclusively appropriated to parents; and the absolute necessity which had at length appeared of abandoning all such institutions, on account of their producing effects totally opposite to those which were intended [Malthus, 1976, 135].

Jeremy Bentham, from An Introduction to the Principles of Morals and Legislation

On pain and pleasure

Nature has placed mankind under 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 law. Systems which attempt to question it deal in sounds instead of sense, in caprice instead of reason, in darkness instead of light. [Italics in the original]

….By the principle of utility is meant that principle which approves

or disapproves of every action whatsoever, according to the tendency which it appears to have to augment or diminish the happiness of the party whose interest is in question …. I say of every action whatsoever; and therefore not only of every action of a private individual, but of every measure of government.

On what came to be known as Utilitarianism

The interest of the community is one of the most general expressions that can occur in the phraseology of morals: no wonder that the meaning is often lost. When it has a meaning, it is this. The community is a fictitious body, composed of the individual persons who are considered as constituting as it were its members. The interest of the community then is, what? -- the sum of the interests of the several members who compose it.

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It is in vain to talk of the interest of the community, without understanding what is the interest of the individual. A thing is said to promote the interest, or to be for the interest, of an individual, when it tends to add to the sum total of his pleasures: or, what comes to the same thing, to diminish the sum total of his pains.

An action then may be said to be conformable to the principle of utility, or, for shortness sake, to utility, (meaning with respect to the community at large) when the tendency it has to augment the happiness of the community is greater than any it has to diminish it.

A measure of government (which is but a particular kind of action, performed by a particular person or persons) may be said to be conformable to or dictated by the principle of utility, when in like manner the tendency which it has to augment the happiness of the community is greater than any which it has to diminish it. [Italics in the original]

Jeremy Bentham, from The Psychology of Economic Man

On pain and pleasure

Among all the several species of psychological entities, …the two which are as it were the roots, -- the main pillars or foundations of all the rest, -- the matter of which all the others are composed … [are] Pleasures and Pains. Of these, the existence is a matter of universal and constant experience. [Italics in the original]

On Rationality

As to the proposition that passion does not calculate, this, like most of these very general oracular propositions, is not true. When matters of such importance as pain and pleasure are at stake, and these in the highest degree (the only matters, in short, that can be of importance) who is there that does not calculate? Men calculate, some with less exactness, indeed, some with more: but all men calculate. I would not say, that even a madmen does not calculate.

On self-interest

My notion of man is, that, successfully or unsuccessfully, he aims at happiness, and so will continue to aim as long as he continues to be man, in every thing he does.

In the general tenor of life, in every human breast, self-regarding interest is predominant over all other interests put together.

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That principle of action is most to be depended on, whose influence is most powerful, most constant, most uniform, most lasting, and most general among mankind. Personal interest is that principle: a system of economy built on any other foundation, is built upon a quicksand.

Excerpt from Jeremy Bentham’s Last Will and Testament

My body I give to my dear friend Doctor Southwood Smith to be disposed of in a manner hereinafter mentioned, and I direct ... he will take my body under his charge and take the requisite and appropriate measures for the disposal and preservation of the several parts of my bodily frame in the manner expressed in the paper annexed to this my will and at the top of which I have written Auto Icon. The skeleton he will cause to be put together in such a manner as that the whole figure may be seated in a chair usually occupied by me when living, in the attitude in which I am sitting when engaged in thought in the course of time employed in writing. I direct that the body thus prepared shall be transferred to my executor. He will cause the skeleton to be clad in one of the suits of black occasionally worn by me. The body so clothed, together with the chair and the staff in my later years bourne by me, he will take charge of and for containing the whole apparatus he will cause to be prepared an appropriate box or case and will cause to be engraved in conspicuous characters on a plate to be affixed thereon and also on the labels on the glass cases in which the preparations of the soft parts of my body shall be contained ... my name at length with the letters ob: followed by the day of my decease. If it should so happen that my personal friends and other disciples should be disposed to meet together on some day or days of the year for the purpose of commemorating the founder of the greatest happiness system of morals and legislation my executor will from time to time cause to be conveyed to the room in which they meet the said box or case with the contents therein to be stationed in such part of the room as to the assembled company shall seem meet .Queens Square Place, Westminster, Wednesday 30th May, 1832. 

David Ricardo, from The Principles of Political Economy and Taxation

On Rent

If all land had the same properties, if it were unlimited in quantity, and uniform in quality, no charge could be made for its use, unless where it possessed peculiar advantages of situation. It is only,

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then, because land is not unlimited in quantity and uniform in quality, and because, in the progress of population, land of an inferior quality, or less advantageously situated, is called into cultivation, that rent is ever paid for the use of it. When, in the progress of society, land of the second degree of fertility is taken into cultivation, rent immediately commences on that of the first quality, and the amount of that rent will depend on the difference in the quality of these two portions of land.

On Value

The value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labour which is necessary for its production, and not on the greater or less compensation which is paid for that labour.

On Wages

Labour, like all other things which are purchased and sold, and which may be increased or diminished in quantity, has its natural and its market price. The natural price of labour is that price which is necessary to enable the labourers, one with another, to subsist and to perpetuate their race, without either increase or diminution.

The power of the labourer to support himself, and the family which may be necessary to keep up the number of labourers, does not depend on the quantity of money which he may receive for wages, but on the quantity of food, necessaries and conveniences become essential to him from habit which that money will purchase. The natural price of labour, therefore, depends on the price of food, necessaries and conveniences required for the support of the labourer and his family. With a rise in the price of food and necessaries, the natural price of labour will rise; with the fall in their price, the natural price of labour will fall.

On the gains from trade

Under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employments as are most beneficial to each. This pursuit of individual advantage is admirably connected with the universal good of the whole. By stimulating industry, by rewarding ingenuity, and by using most efficaciously the peculiar powers bestowed by nature, it distributes labour most effectively and most economically: while, by increasing the general mass of productions, it diffuses general benefit, and binds together, by one common tie of interest and intercourse, the universal society of nations throughout the civilised world. It is this principle

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which determines that wine shall be made in France and Portugal, that corn shall be grown in America and Poland, and that hardware and other goods shall be manufactured in England.

David Ricardo, from Works and Correspondance, Vol. 4

On what has come to be known as Ricardian Equivalence

Suppose a country to be free from debt, and a war to take place, which should involve it in an annual additional expenditure of twenty millions. There are two modes by which this expenditure may be provided for; first, taxes may be raised to the amount of twenty millions per annum, from which the country would be totally freed on the return of peace; or secondly, the money might be annually borrowed and funded; in which case, if the interest agreed upon was 5 percent, a perpetual charge of one million per annum taxes would be incurred for the first year’s expence, from which there would be no relief during peace, and so on for every year that the war might last. At the end of twenty years, if the war lasted so long, the country would be perpetually encumbered with taxes of twenty million per annum…. In point of economy, there is no real difference in either of the modes; for twenty millions in payment and one million per annum forever are precisely of the same value.

Thomas Robert Malthus, from Principles of Political Economy

On underconsumptionism

Adam Smith has stated, that capitals are increased by parsimony, that every frugal man is a public benefactor, and that the increase of wealth depends upon the balance of produce above consumption. That these propositions are true to a great extent is perfectly unquestionable. No considerable and continued increase of wealth could possibly take place without that degree of frugality which occasions, annually, the conversion of some revenue into capital, and creates a balance of produce above consumption; but it is quite obvious that they are not true to an indefinite extent, and that the principle of saving, pushed to excess, would destroy the motive to production. If every person were satisfied with the simplest food, the poorest clothing, and the meanest houses, it is certain that no other sort of food, clothing and lodging would be in existence; and as there would be no adequate motive to the proprietors of land to cultivate well, not only the wealth derived from conveniences and luxuries would be quite at an end, but if the same divisions of land continued,

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the production of food would be prematurely checked, and population would come to a stand long before the soil had been well cultivated. If consumption exceed production, the capital of the country must be diminished, and its wealth must gradually be destroyed from its want of power to produce; if production be in a great excess above consumption, the motive to accumulate and produce must cease from the want of an effectual demand in those who have the principle means of purchasing. The two extremes are obvious; and it follows that there must be some intermediate point, though the resources of political economy may not be able to ascertain it, where, taking into consideration both the power to produce and the will to consume, the encouragement to the increase of wealth is the greatest.

John Stuart Mill, from Utilitarianism

In defense of Utilitarianism

Now, such a theory of life excites in many minds, and among them some of the most estimable in feeling and purpose, inveterate dislike. To suppose that life has (as they express it) no higher end than pleasure -- no better and nobler object of desire and pursuit -- they designate as utterly mean and grovelling; as a doctrine worthy only of swine, to whom the followers of Epicurus were, at a very early period, contemptuously likened; and modern holders of the doctrine are occasionally made the subject of equally polite comparisons by its German, French and English assailants.

When thus attacked, the Epicureans have always answered that it is not they, but their accusers, who represent human nature in a degrading light; since the accusation supposes human beings to be capable of no pleasures except those of which swine are capable. …. The comparison of the Epicurean life to that of beasts is felt as degrading, precisely because a beast's pleasures do not satisfy a human being's conceptions of happiness. Human beings have faculties more elevated than animal appetites, and, when made conscious of them, do not regard anything as happiness which does not include their gratification.

….It may be objected that many who are capable of the higher

pleasures, occasionally, under the influence of temptation, postpone them to the lower. But this is quite compatible with a full appreciation of the intrinsic superiority of the higher. Men often, from infirmity of character, make their election for the nearer good, though they know it to be less valuable; …. They pursue sensual indulgences to the injury of health, though perfectly aware that health is the greater good.

….

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I must again repeat, what the assailants of utilitarianism seldom have the justice to acknowledge, that the happiness which forms the utilitarian standard of what is right in conduct is not the agent's own happiness, but that of all concerned. As between his own happiness and that of others, utilitarianism requires him to be as strictly impartial as a disinterested and benevolent spectator. In the golden rule of Jesus of Nazareth we read the complete spirit of the ethics of utility. To do as you would be done by, and to love your neighbor as yourself, constitute the ideal perfection of utilitarian morality.

J. S. Mill, from Principles of Political Economy

On capitalism vs. socialism

If, therefore, the choice were to be made between Communism with all its chances, and the present [1852] state of society with all its sufferings and injustices; if the institution of private property necessarily carried with it as a consequence, that the produce of labour should be apportioned as we now see it, almost in an inverse ratio to the labour—the largest portions to those whose work is almost nominal, and so in a descending scale, the remuneration dwindling as the work grows harder and more disagreeable, until the most fatiguing and exhausting bodily labour cannot count with certainty on being able to earn even the necessaries of life; if this or Communism were the alternative, all the difficulties, great or small, of Communism would be as dust in the balance. But to make the comparison applicable, we must compare Communism at its best, with the regime of individual property, not as it is, but as it might be made. The principle of private property has never yet had a fair trial in any country; and less so, perhaps, in this country than in some others. The social arrangements of modern Europe commenced from a distribution of property which was the result, not of just partition, or acquisition by industry, but of conquest and violence: and not withstanding what industry has been doing for many centuries to modify the work of force, the system still retains many large traces of its origin.

On limiting inheritances

Each person should have power to dispose by will of his or her whole property; but not to lavish it in enriching some one individual, beyond a certain maximum, which should be fixed sufficiently high to afford the means of comfortable independence. The inequalities of property which arise from unequal industry, frugality, perseverance, talents, and to a certain extent even opportunities, are inseparable from the principle of private property, and if we accept the principle, we must bear with these consequences of it: but I see nothing

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objectionable in fixing a limit to what any one may acquire by the mere favours of others, without any exercise of his faculties, and in requiring that if he desires any further accession of fortune, he shall work for it…. Wealth which could no longer be employed in over-enriching a few, would either be devoted to objects of public usefulness, or if bestowed on individuals, would be distributed among a larger number. While those enormous fortunes which no one needs for any personal purpose but ostentation or improper power, would become much less numerous, there would be a great multiplication of persons in easy circumstances, with the advantages of leisure, and all the real enjoyments which wealth can give, except those of vanity.

[In a footnote Mill writes: Munificent bequests and donations for public purposes, whether charitable or educational, form a striking feature in the modern history of the United States, and especially of New England. Not only is it common for rich capitalists to leave by will a portion of their fortune towards the endowment of national institutions, but individuals during their lifetime make magnificent grants of money for the same objects.]

On the source of profit

The cause of profit is, that labour produces more than is required for its support…. The reason why capital yields a profit, is because food, clothing, materials, and tools, last longer than the time which was required to produce them; so that if a capitalist supplies a party of labourers with these things, on condition of receiving all they produce, they will, in addition to reproducing their own necessaries and instruments, have a portion of their time remaining, to work for the capitalist. We thus see that profit arises, not from the incident of exchange, but from the productive power of labour; and the general profit of the country is always what the productive power of labour makes it, whether any exchange takes place or not.

On Say’s Law

A third fundamental theorem respecting capital, closely connected with the last one discussed, is, that although saved, and the result of saving, it is nevertheless consumed. The word saving does not imply that what is saved is not consumed, nor even necessarily that its consumption is deferred; but only that, if consumed immediately, it is not consumed by the person who saves it. If merely laid by for future use, it is said to be hoarded; and while hoarded, is not consumed at all. But if employed as capital, it is all consumed; though not by the capitalist. Part is exchanged for tools or machinery, which are worn out by use; part for seed or materials, which are destroyed as

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such by being sown or wrought up, and destroyed altogether by the consumption of the ultimate product. The remainder is paid in wages to productive labourers, who consume it for their daily wants.

On the labour theory of value

Happily, there is nothing in the laws of value which remains for the present or any future writer to clear up; the theory of the subject is complete.

J. S. Mill, from On the Definition of Political Economy

On economics and human behavior

[Political economy] does not treat of the whole of man's nature as modified by the social state, nor of the whole conduct of man in society. It is concerned with him solely as a being who desires to possess wealth, and who is capable of judging of the comparative efficacy of means for obtaining that end. It predicts only such of the phenomena of the social state as take place in consequence of the pursuit of wealth. It makes entire abstraction of every other human passion or motive; except those which may be regarded as perpetually antagonizing principles to the desire of wealth, namely, aversion to labour, and desire of the present enjoyment of costly indulgences.

Karl Marx, from A Contribution to the Critique of Political Economy

On Nature vs. Nurture

It is not the consciousness of men that determines their existence, but, on the contrary, their social existence that determines their consciousness.

Karl Marx, from a letter to P. V. Annenkov

On the root cause of historical development

What is society, whatever its form may be? The product of man's reciprocal action. Are men free to choose this or that form of society? By no means. Assume a particular state of development in the productive faculties of man and you will get a particular form of commerce and consumption. Assume particular stages of development in production, commerce and consumption and you will have a corresponding organization of the family, of orders or of classes, in a word, a corresponding civil society….

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It is superfluous to add that men are not free to choose their productive forces---which are the basis of all their history---for every productive force is an acquired force, the product of former activity. The productive forces are therefore the result of practical human energy; but this energy is itself conditioned by the circumstances in which men find themselves, by the productive forces already acquired, by the social form which exists before they do, which they do not create, which is the product of the preceding generation. Because of this simple fact that every succeeding generation finds itself in possession of the productive forces acquired by the previous generation, which serve it as the raw material for new production, a coherence arises in human history, a history of humanity takes shape which is all the more a history of humanity as the productive forces of man and therefore his social relations have been more developed. Hence it necessarily follows that the social history of men is never anything but the history of their individual development, whether they are conscious of it or not. Their material relations are the basis of all their relations.

Frederick Engels, from a letter to Zasulich

On those who believe that they can choose the nature of society

People who boasted that they made a revolution have always seen the next day that they had no idea what they were doing, that the revolution made did not in the least resemble the one they would have liked to make. That is what Hegel called the irony of history.

Karl Marx, from Capital, Vol. 1

On the conditions for the proletarian revolution

As soon as this metamorphosis has sufficiently decomposed the old society throughout its depth and breadth, as soon as the workers have been turned into proletarians, and their means of labour into capital, as soon as the capitalist mode of production stands on its own feet, the further socialization of labour and the further transformation of the soil and other means of production into socially exploited and therefore communal means of production takes on a new form. What is now to be expropriated is not the self-employed worker, but the capitalist who exploits a large number of workers.

This expropriation is accomplished through the action of the immanent laws of capitalist production itself, through the centralization of capitals. One capitalist always strikes down many others. Hand in hand with this centralization, or this expropriation of many capitalists by a few, other developments take place on an ever-increasing scale, such as growth of the co-operative form of the labour process, the

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conscious technical application of science, the planned exploitation of the soil, the transformation of the means of labour into forms in which they can only be used in common, the economizing of all means of production by their use as the means of production of combined, socialized labour, the entanglement of all peoples in the net of the world market, and, with this, the growth of the international character of the capitalist regime. Along with the constant decrease in the number of capitalist magnates, who usurp and monopolize all the advantages of this process of transformation, the mass of misery, oppression, slavery, degradation and exploitation grows; but with this there also grows the revolt of the working class, a class constantly increasing in numbers, and trained, united and organized by the very mechanism of the capitalist process of production. The monopoly of capital becomes a fetter upon the mode of production which has flourished alongside and under it. The centralization of the means of production and the socialization of labour reach a point at which they become incompatible with their capitalist integument. This integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated.

William Stanley Jevons, from The Theory of Political Economy

On Utilitarianism

The Theory which follows is entirely based on a calculus of pleasure and pain; and the object of economics is to maximize happiness by purchasing pleasure, as it were, at the lowest cost of pain. The language employed may be open to misapprehension, and it may seem as if pleasures and pains of a gross kind were treated as the all-sufficient motives to guide the mind of man. I have no hesitation in accepting the utilitarian theory of morals which does uphold the effect upon the happiness of mankind as the criterion of what is right and wrong. But I have never felt that there is anything in that theory to prevent our putting the widest and highest interpretation upon the terms used.

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.

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On Value

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…. 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. [Italics in the original]

But though labour is never the cause of value, it is in a large proportion of cases the determining circumstance, and in the following way: Value depends solely on the final degree of utility. How can we vary this degree of utility? – By having more or less of the commodity to consume. And how shall we get more or less of it? – By spending more or less labour in obtaining a supply. According to this view, then, there are two steps between labour and value. Labour affects supply, and supply affects the degree of utility, which governs value, or the ratio of exchange. In order that there may be no possible mistake about this all-important series of relations, I will restate it in a tabular form, as follows:

Cost of production determines supply;Supply determines final degree of utility;Final degree of utility determines value.

But it is easy to go too far in considering labour as the regulator of value; it is equally to be remembered that labour is itself of unequal value. Ricardo, by violent assumption, founded his theory of value on quantities of labour considered as one uniform thing. He was aware that labour differs infinitely in quality and efficiency, so that each kind is more or less scarce, and is consequently paid at a higher or lower rate of wages. He regarded these differences as disturbing circumstances which would have to be allowed for; but his theory rests on the assumed equality of labour. This theory rests on a wholly different ground. I hold labour to be essentially variable, so that its value must be determined by the value of the produce, not the value of the produce by that of labour. I hold it to be impossible to compare a priori the productive powers of a navvy, a carpenter, an iron-puller, a schoolmaster and a barrister.

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[Italics in the original]

Eugen von Böhm-Bawerk, from The Positive Theory of Capital

On roundabout production methods

A peasant requires drinking water. The spring is some distance from his house. There are various ways in which he may supply his daily wants. First, he may go to the spring each time he is thirsty, and drink out of his hollowed hand. This is the most direct way; satisfaction follows immediately on exertion. But it is an inconvenient way…. Second, he may take a log of wood, hollow it out into a kind of pail, and carry his day's supply from the spring to his cottage. The advantage is obvious, but it necessitates a roundabout way of considerable length. The man must spend, perhaps, a day in cutting out the pail; before doing so he must have felled a tree in the forest; to do this, again, he must have made an axe, and so on. But there is still a third way; instead of felling one tree he fells a number of trees, splits and hollows them, lays them end for end, and so constructs a runnel or rhone which brings a full head of water to his cottage. Here, obviously, between the expenditure of the labor and the obtaining of the water we have a very roundabout way, but, then, the result is ever so much greater.

….Yet another example. I am short-sighted, and wish to have a pair

of spectacles. For this I require ground and polished glasses, and a steel framework. But all that nature offers towards that end is silicious earth and iron ore…. Work as I may, it is impossible for me to make spectacles directly… Here there is no immediate or direct method of production. There is nothing for it but to take the roundabout way, and, indeed, a very roundabout way. I must take silicious earth and fuel, and build furnaces for smelting the glass from the silicious earth; the glass thus obtained has to be carefully purified, worked, and cooled by a series of processes; finally, the glass thus prepared…is ground and polished into the lens fit for short-sighted eyes. Similarly, I must smelt the ore in the blast furnace, change the raw iron into steel, and make the frame therefrom….

The lesson to be drawn from all these examples alike is obvious. It is -- that a greater result is obtained by producing goods in roundabout ways than by producing them directly. Where a good can be produced in either way, we have the fact that, by the indirect way, a greater product can be got with equal labor, or the same product with less labor. But, beyond this, the superiority of the indirect way manifests itself in being the only way in which certain goods can be

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obtained; if I might say so, it is so much the better that it is often the only way!

Eugen von Böhm-Bawerk, from Capital and Interest

On myopia

It occurs frequently, I believe, that a person is faced with a choice between a present and a future satisfaction or dissatisfaction and that he decides in favor of lesser present pleasure even though he knows perfectly well, and is even explicitly aware at the moment he makes his choice, that the future disadvantage is the greater and that therefore his well-being, on the whole, suffers by reason of his choice. The "playboy" squanders his whole month's allowance in the first few days on frivolous dissipation. How clearly he anticipates his later embarrassment and deprivation! And yet he is unable to resist the temptations of the moment.

John Bates Clark, from The Distribution of Wealth

On capital vs. capital goods

Again, capital is perfectly mobile; but capital goods are far from being so. It is possible to take a million dollars out of one industry and put them into another. Under favorable conditions, it is possible to do this without waste. It is, however, quite impossible to take bodily out of one industry the tools that belong to it and put them into another. The capital that was once invested in the whale fishery of New England is now, to some extent, employed in cotton manufacturing; but the ships have not been used as cotton mills. As the vessels were worn out, the part of their earnings that might have been used to build more vessels was actually used to build mills. The nautical form of the capital perished; but the capital survived and, as it were, migrated from the one set of material bodies to the other. [Italics in the original]

The most distinctive single fact about what we have termed capital is the fact of permanence. It lasts; and it must last, if industry is to be successful…. Yet you must destroy capital-goods in order not to fail. Try to preserve capital-goods from destruction, and you bring on yourself the same disaster that you suffer when you allow a bit of capital to be destroyed. Stop the machines in your mill that they may not wear out, wrap and box them in order that they may not rust out, and the productive action of your capital stops. [Italics in the original]

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Capital-goods follow one another in an endless succession, and each one has its day. Capital, on the other hand, has no periods. It works incessantly; and there is no way of dividing its continuous life, except by using arbitrary divisions, such as days, months or years. There is nothing in the function of it that can make a basis for such divisions as we can trace in the life of capital-goods. Capital, as such, does not originate, mature and then exhaust itself, giving place to other capital. Goods do this, but funds do not.

On the distribution of income in a market economy

It is the purpose of this work to show that the distribution of the income of society is controlled by a natural law, and that this law, if it worked without friction, would give to every agent of production the amount of wealth which that agent creates. However wages may be adjusted by bargains freely made between individual men, the rates of pay that result from such transactions tend, it is here claimed, to equal that part of the product of industry which is traceable to the labor itself; and however interest may be adjusted by similarly free bargaining, it naturally tends to equal the fractional product that is separately traceable to capital. At the point in the economic system where titles to property originate, -- where labor and capital comes into possession of the amounts that the state afterwards treats as their own, -- the social procedure is true to the principle on which the right of property rests. So far as it is not obstructed, it assigns to every one what he has specifically produced.

The pay of labor in each industry tends to conform to the marginal product of social labor employed in connection with a fixed amount of social capital, as such. [Italics in the original]

Francis Ysidro Edgeworth, from Mathematical Psychics

On using techniques from the physical sciences in economics

'Mecanique Sociale' may one day take her place along with 'Mecanique Celeste,' throned each upon the double-sided height of one maximum principle, the supreme pinnacle of moral as of physical science. As the movements of each particle, constrained or loose, in a material cosmos are continually subordinated to one sum-total of accumulated energy, so the movements of each soul, whether selfishly isolated or linked sympathetically, may continually be realising the maximum energy of pleasure, the Divine Love of the universe.

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'Mecanique Sociale,' in comparison with her elder sister, is less attractive to the vulgar worshipper in that she is discernible by the eye of faith alone. The statuesque beauty of the one is manifest; but the fairy-like features of the other and her fluent form are veiled. But Mathematics has long walked by the evidence of things not seen in the world of atoms (the methods whereof, it may incidentally be remarked, statistical and rough, may illustrate the possibility of social mathematics). The invisible energy of electricity is grasped by the marvelous methods of Lagrange; the invisible energy of pleasure may admit of a similar handling.

…. At least the conception of Man as a pleasure machine may justify and facilitate the employment of mechanical terms and Mathematical reasoning in social science.

Alfred Marshall, from Principles of Economics

On the nature and scope of economics

Political Economy or Economics is a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of wellbeing.

Thus it is on the one side a study of wealth; and on the other, and more important side, a part of the study of man. For man's character has been moulded by his every-day work, and the material resources which he thereby procures, more than by any other influence unless it be that of his religious ideals; and the two great forming agencies of the world's history have been the religious and the economic…. Religious motives are more intense than economic, but their direct action seldom extends over so large a part of life. For the business by which a person earns his livelihood generally fills his thoughts during by far the greater part of those hours in which his mind is at its best; during them his character is being formed by the way in which he uses his faculties in his work, by the thoughts and the feelings which it suggests, and by his relations to his associates at work, his employers or his employees.

On economic motivation

Economics is a study of men as they live and move and think in the ordinary business of life. But it concerns itself chiefly with those motives which affect, most powerfully and most steadily, man's conduct in the business part of his life. Everyone who is worth anything carries his higher nature with him into business; and there as

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elsewhere, he is influenced by his personal affections, by his conceptions of duty and his reverence for high ideals. And it is true that the best energies of the ablest inventors and organizers of improved methods and appliances are stimulated by a noble emulation more than by any love of wealth for its own sake. But, for all that, the steadiest motive to ordinary business work is the desire for the pay which is the material reward of work. The pay may be on its way to be spent selfishly or unselfishly, for noble or base ends; and here the variety of human nature comes into play. But the motive is supplied by a definite amount of money: and it is this definite and exact money measurement of the steadiest motives in business life, which has enabled economics far to outrun every other branch of the study of man.

On the purpose of economics as a discipline

Slavery was regarded by Aristotle as an ordinance of nature, and so probably was it by the slaves themselves in olden times. The dignity of man was proclaimed by the Christian religion: it has been asserted with increasing vehemence during the last hundred years: but, only through the spread of education during quite recent times, are we beginning to feel the full import of the phrase. Now at last we are setting ourselves seriously to inquire whether it is necessary that there should be any so-called "lower classes" at all: that is, whether there need be large numbers of people doomed at birth to hard work in order to provide for others the requisites of a refined and cultured life; while they themselves are prevented by their poverty and toil from having any share or part in that life.

The hope that poverty and ignorance may gradually be extinguished, derives indeed much support from the steady progress of the working classes during the nineteenth century. The steam-engine has relieved them of much exhausting and degrading toil; wages have risen; education has been improved and become more general; ….

This progress has done more than anything else to give practical interest to the question whether it is really impossible that all should start in the world with a fair chance of leading a cultured life, free from the pains of poverty and the stagnating influences of excessive mechanical toil; and this question is being pressed to the front by the growing earnestness of the age.

The question cannot be fully answered by economic science. For the answer depends partly on the moral and political capabilities of human nature, and on these matters the economist has no special means of information: he must do as others do, and guess as best he can. But the answer depends in great measure upon facts and

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inferences, which are within the province of economics; and this it is which gives to economic studies their chief and their highest interest.

On value

We might as reasonably dispute whether it is the upper or the under blade of a pair of scissors that cuts a piece of paper, as whether value is governed by utility or cost of production. It is true that when one blade is held still, and the cutting is effected by moving the other, we may say with careless brevity that the cutting is done by the second; but the statement is not strictly accurate, and is to be excused only so long as it claims to be merely a popular and not a strictly scientific account of what happens.

Alfred Marshall, from a letter to Arthur Lyon Bowley on the use of Mathematics in Economics (1906):

…. I had a growing feeling in the later years of my work at the subject that a good mathematical theorem dealing with economic hypotheses was very unlikely to be good economics: and I went more and more on the rules — (1) Use mathematics as a short-hand language, rather than as an engine of inquiry. (2) Keep to them till you have done. (3) Translate into English. (4) Then illustrate by examples that are important in real life. (5) Burn the mathematics. (6) If you can’t succeed in 4, burn 3. This last I did often.

I believe in Newton’s Principia Methods, because they carry so much of the ordinary mind with them. Mathematics used in a Fellowship thesis by a man who is not a mathematician by nature — and I have come across a good deal of that — seems to me an unmixed evil. And I think you should do all you can to prevent people from using Mathematics in cases in which the English language is as short as the Mathematical …

Henry George, from Progress and Poverty

On the evils resulting from rent

For this robbery is not like the robbery of a horse or a sum of money, that ceases with the act. It is a fresh and continuous robbery, that goes on every day and every hour. It is not from the produce of the past that rent is drawn; it is from the produce of the present. It is a

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toll levied upon labour constantly and continuously. Every blow of the hammer, every stroke of the pick, every thrust of the shuttle, every throb of the steam engine pays it tribute. It levies upon the earnings of the men who, deep underground, risk their lives, and of those who over white surges hang to reeling masts; it claims the just reward of the capitalist and the fruits of the inventor's patient effort; it takes little children from play and from school, and compels them to work before their bones are hard or their muscles firm; it robs the shivering of warmth; the hungry of food; the sick, of medicine; the anxious, of peace. It debases, and embrutes, and embitters. It crowds families of eight and ten into a single squalid room; it herds like swine agricultural gangs of boys and girls; it fills the gin palace and groggery with those who have no comfort in their homes; it makes lads who might be useful men candidates for prisons and penitentiaries; it fills brothels with girls who might have known the pure joy of motherhood; it sends greed and all evil passions prowling through society as a hard winter drives the wolves to the abodes of men; it darkens faith in the human soul, and across the reflection of a just and merciful Creator draws the veil of a hard, and blind, and cruel fate!

Thorstein Veblen, from The Place of Science in Modern Civilization

On the conception of humans as calculators of pleasure and pain

The psychological and anthropological preconceptions of the economists have been those which were accepted by the psychological and social sciences some generations ago. The hedonistic conception of man is that of a lightning calculator of pleasures and pains, who oscillates like a homogeneous globule of desire of happiness under the impulse of stimuli that shift him about the area, but leave him intact. He has neither antecedent nor consequent. He is an isolated, definitive human datum, in stable equilibrium except for the buffets of the impinging forces that displace him in one direction or another. Self-imposed in elemental space, he spins symmetrically about his own spiritual axis until the parallelogram of forces bears down upon him, whereupon he follows the line of the resultant. When the force of the impact is spent, he comes to rest, a self-contained globule of desire as before. Spiritually, the hedonistic man is not a prime mover. He is not the seat of a process of living, except in the sense that he is subject to a series of permutations enforced upon him by circumstances external and alien to him.

Thorstein Veblen, from The Theory of the Leisure Class

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On the social hierarchy of employments in barbarian society

The institution of a leisure class is found in its best development at the higher stages of the barbarian culture; as, for instance, in feudal Europe or feudal Japan. In such communities the distinction between classes is very rigorously observed; and the feature of most striking economic significance in these class differences is the distinction maintained between the employments proper to the several classes. The upper classes are by custom exempt or excluded from industrial occupations, and are reserved for certain employments to which a degree of honor attaches. Chief among the honorable employments in any feudal community is warfare; and priestly service is commonly second to warfare.

…. Manual labor, industry, whatever has to do directly with the everyday work of getting a livelihood, is the exclusive occupation of the inferior class.

….Under this ancient distinction the worthy employments are those

which may be classed as exploit; unworthy are those necessary everyday employments into which no appreciable element of exploit enters.

On the social hierarchy of employments in modern society

A distinction is still habitually made between industrial and non-industrial occupations; and this modern distinction is a transmuted form of the barbarian distinction between exploit and drudgery. Such employments as warfare, politics, public worship, and public merrymaking, are felt, in the popular apprehension, to differ intrinsically from the labor that has to do with elaborating the material means of life.

Employments fall into a hierarchical gradation of reputability. Those which have to do immediately with ownership on a large scale are the most reputable of economic employments proper. Next to these in good repute come those employments that are immediately subservient to ownership and financiering—such as banking and the law. Banking employments also carry a suggestion of large ownership, and this fact is doubtless accountable for a share of the prestige that attaches to the business. The profession of law does not imply large ownership; but since no taint of usefulness, for other than competitive purpose, attaches to the lawyer’s trade, it grades high in the conventional scheme. The lawyer is exclusively occupied with the details of predatory fraud, either in achieving or in checkmating chicanery, and success in the profession is therefore accepted as

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marking a large endowment of that barbarian astuteness which has always commanded men’s respect and fear. Mercantile pursuits are only half-way reputable, unless they involve a large element of ownership and a small element of usefulness. They grade high or low somewhat in proportion as they serve the higher or the lower needs; so that the business of retailing the vulgar necessities of life descends to the level of the handicrafts and factory labor. Manual labor, or even the work of directing mechanical processes, is of course on a precarious footing as regards respectability.

On dress as a common method of conspicuous consumption

In order to gain and hold the esteem of men it is not sufficient merely to possess wealth or power. The wealth or power must be put in evidence, for esteem is awarded only on evidence.

Other methods of putting one’s pecuniary standing in evidence serve their end effectually, and other methods are in vogue always and everywhere; but expenditure on dress has this advantage over most other methods, that our apparel is always in evidence and affords an indication of our pecuniary standing to all observers at the first glance. It is also true that admitted expenditure for display is more obviously present, and is, perhaps, more universally practiced in the matter of dress than in any other line of consumption. No one finds difficulty in assenting to the commonplace that the greater part of the expenditure incurred by all classes for apparel is incurred for the sake of a respectable appearance rather than for the protection of the person. And probably at no other point is the sense of shabbiness so keenly felt as it is if we fall short of the standard set by social usage in this matter of dress. It is true of dress in even a higher degree of most other items of consumption, that people will undergo a very considerable degree of privation in the comforts or the necessaries of life in order to afford what is considered a decent amount of wasteful consumption; so that it is by no means an uncommon occurrence, in an inclement climate, for people to go ill clad in order to appear well dressed. And the commercial value of the goods used for clothing in any modern community is made up to a much larger extent of the fashionableness, the reputability of the goods than of the mechanical service which they render in clothing the person of the wearer….

The law of conspicuous waste guides consumption in apparel, as in other things, chiefly at the second remove, by shaping the canons of taste and decency. In the common run of cases, the conscious motive of the wearer or purchaser of conspicuously wasteful apparel is the need of conforming to established usage, and of living up to the accredited standard of taste and reputability. It is not only that one must be guided by the code of proprieties in dress in order to avoid the

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mortification that comes of unfavorable notice and comment, though that motive in itself counts for a great deal; but besides that, the requirement of expensiveness is so ingrained into our habits of thought in matters of dress that any other than expensive apparel is instinctively odious to us. Without reflection or analysis, we feel that what is inexpensive is unworthy. “A cheap coat makes a cheap man.”

For the great body of the people in any modern community, the proximate ground of expenditure in excess of what is required for physical comfort is not a conscious effort to excel in the expensiveness of their visible consumption, so much as it is a desire to live up to the conventional standard of decency in the amount and grade of goods consumed.

On dress as evidence of conspicuous leisure

The dress of women goes even farther than that of men in the way of demonstrating the wearer’s abstinence from productive employment. It needs no argument to enforce the generalization that the more elegant styles of feminine bonnets go even farther towards making work impossible than does the man’s high hat. The woman’s shoe adds the so-called French heel to the evidence of enforced leisure afforded by its polish; because the high heel obviously makes any, even the simplest and most necessary manual work extremely difficult. The like is true even in a higher degree of the skirt and the rest of the drapery which characterizes woman’s dress. The substantial reason for our tenacious attachment to the skirt is just this: it is expensive and it hampers the wearer at every turn and incapacitates her for all useful exertion. The like is true of the feminine custom of wearing the hair excessively long.

On why the desire to accumulate wealth is insatiable

The end sought by accumulation is to rank high in comparison with the rest of the community in point of pecuniary strength. So long as the comparison is distinctly unfavorable to himself, the normal, average individual will live in chronic dissatisfaction with his present lot, and when he has reached what may be called the normal pecuniary standard of the community, or of his class in the community, this chronic dissatisfaction will give place to a restless straining to place a wider and ever-widening pecuniary interval between himself and this average standard. The invidious comparison can never become so favorable to the individual making it that he would not gladly rate himself still higher relatively to his competitors in the struggle for pecuniary reputability.

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In the nature of the case, the desire for wealth can scarcely be satiated in any individual instance, and evidently a satiation of the average or general desire for wealth is out of the question. However widely, or equally, or “fairly,” it may be distributed, no general increase of the community’s wealth can make any approach to satiating this need, the ground of which is the desire of everyone to excel everyone else in the accumulation of goods. If, as is sometimes assumed, the incentive to accumulation were the want of subsistence or of physical comfort, then the aggregate economic wants of a community might conceivably be satisfied at some point in the advance of industrial efficiency; but since the struggle is substantially a race for reputability on the basis of an invidious comparison, no approach to a definitive attainment is possible.

Thorstein Veblen, from On the Nature of Capital

On interest as akin to rent

The unearned increment know as rent is produced by the growth of the community in numbers and in the industrial arts. The contention seems to be sound, and is commonly accepted; but it has commonly been overlooked that the argument involves the ulterior conclusion that all land values and land productivity, including the ‘original and indestructible powers of the soil,’ are a function of the ‘state of the industrial art.’ It is only within the given technological situation, the current scheme of ways and means, that any parcel of land has such productive powers as it has. It is, in other words, useful only because, and in so far, and in such manner, as men have learned to make use of it. This is what brings it into the category of ‘land,’ economically speaking. And the preferential position of the landlord as a claimant of the ‘net product’ consists in his legal right to decide whether, how far, and on what terms men shall put this technological scheme into effect in those features of it which involve the use of his parcel of land…. [But] all this argument concerning the unearned increment may be carried over, with scarcely a change of phrase, to the case of capital goods.

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A. F. Mummery and J. A. Hobson, from The Physiology of Industry

On underconsumptionism

We are thus brought to the conclusion that the basis on which all economic teaching since Adam Smith has stood, viz., that the quantity annually produced is determined by the aggregates of Natural Agents, Capital and Labour available, is erroneous, and that, on the contrary, the quantity produced, while it can never exceed the limits imposed by these aggregates, may be, and actually is, reduced far below this maximum by the check that undue saving and the consequent accumulation of over-supply exerts on production; i.e., that in the normal state of modern industrial communities, consumption limits production and not production consumption.

John Maynard Keynes, from The Economic Consequences of the Peace

Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.

John Maynard Keynes, from A Tract on Monetary Reform

On long-run analysis

But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.

John Maynard Keynes, from The General Theory of Employment, Interest and Money

On capital as having a yield, not as being productive

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It is much preferable to speak of capital as having a yield over the course of its life in excess of its original cost, than as being productive. For the only reason why an asset offers a prospect of yielding during its life services having an aggregate value greater than its initial supply price is because it is scarce; and it is kept scarce because of competition of the rate of interest on money. If capital becomes less scarce, the excess yield will diminish, without its having become less productive—at least in the physical sense. [Italics in the original]

On saving not causing investment

An act of individual saving means—so to speak—a decision not to have dinner today. But it does not necessitate a decision to have dinner or to buy a pair of boots a week hence or a year hence or to consume any specified thing at any specified date. Thus it depresses the business of preparing today’s dinner without stimulating the business of making ready for some future act of consumption….

The absurd, though almost universal, idea that an act of individual saving is just as good for effective demand as an act of individual consumption, has been fostered by the fallacy … that an increased desire to hold wealth … must, by increasing the demand for investments, provide stimulus for production; so that current investment is promoted by individual saving to the same extent as present consumption is diminished.

It is of this fallacy that it is most difficult to disabuse men’s minds. It comes from believing that the owner of wealth desires a capital asset as such, whereas what he really desires is its prospective yield. Now, prospective yield wholly depends on the expectation of future effective demand in relation to future conditions of supply. If, therefore, an act of saving does nothing to improve prospective yield, it does nothing to stimulate investment. … The creation of new wealth wholly depends on the prospective yield of the new wealth reaching the standard set by the current rate of interest. The prospective yield of the marginal new investment is not increased by the fact that someone wishes to increase his wealth, since the prospective yield of the marginal new investment depends on the expectation of a demand for a specific article at a specific date. (Emphases in the original).

On Animal Spirits

It is safe to say that enterprise which depends upon hopes stretching into the future benefits the community as a whole. But individual initiative will only be adequate when reasonable calculation is supplemented and supported by animal spirits, so that the thought of ultimate loss which often overtakes pioneers, as experience

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undoubtedly tells us and them, is put aside as a healthy man puts aside the expectation of death.

This means, unfortunately, not only that slumps and depressions are exaggerated in degree, but that economic prosperity is excessively dependent on a political and social atmosphere which is congenial to the average business man. If the fear of a Labour Government or a New Deal depresses enterprise, this need not be the result either of a reasonable calculation or of a plot with political intent;--it is the mere consequence of upsetting the delicate balance of spontaneous optimism. In estimating the prospects of investment, we must have regard, therefore, to the nerves and hysteria and even the digestions and reactions to the weather of those upon whose spontaneous activity it largely depends.

On the limitations of monetary policy

If, however, we are tempted to assert that money is the drink which stimulates the system to activity, we must remind ourselves that there may be several slips between the cup and the lip. For whilst an increase in the quantity of money may be expected, cet. par., to reduce the rate of interest, this will not happen if the liquidity-preferences of the public are increasing more than the quantity of money; and whilst a decline in the rate of interest may be expected, cet. par., to increase the volume of investment, this will not happen if the schedule of the marginal efficiency of capital is falling more rapidly than the rate of interest; and whilst an increase in the volume of investment may be expected, cet. par., to increase employment, this may not happen if the propensity to consume is falling off. Finally, if employment increases, prices will rise in a degree partly governed by the shapes of the physical supply functions, and partly by the liability of the wage-unit to rise in terms of money. And when output has increased and prices have risen, the effect of this on liquidity-preference will be to increase the quantity of money necessary to maintain a given rate of interest.

On how a boom becomes a crash

We have seen above that the marginal efficiency of capital depends, not only on the existing abundance or scarcity of capital-goods and the current cost of production of capital-goods, but also on current expectations as to the future yield of capital-goods. In the case of durable assets it is, therefore, natural and reasonable that expectations of the future should play a dominant part in determining the scale on which new investment is deemed advisable. But, as we have seen, the basis for such expectations is very precarious. Being

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based on shifting and unreliable evidence, they are subject to sudden and violent changes.

Now, we have been accustomed in explaining the “crisis” to lay stress on the rising tendency of the rate of interest under the influence of the increased demand for money both for trade and speculative purposes. At times this factor may certainly play an aggravating and, occasionally perhaps, an initiating part. But I suggest a more typical, and often predominant, explanation of the crisis is, not primarily a rise in the rate of interest, but a sudden collapse in the marginal efficiency of capital.

The later stages of the boom are characterized by optimistic expectations as to the future yield of capital-goods sufficiently strong to offset their growing abundance and their rising cost of production and, probably, a rise in the rate of interest also. It is of the nature of organised investment markets, under the influence of purchasers largely ignorant of what they are buying and of speculators who are more concerned with fore-casting the next shift of market sentiment than with a reasonable estimate of the future yield of capital-assets, that, when disillusion falls upon an over-optimistic and over-bought market, it should fall with sudden and even catastrophic force. Moreover, the dismay and uncertainty as to the future which accompanies a collapse in the marginal efficiency of capital naturally precipitates a sharp increase in liquidity-preference---and hence a rise in the rate of interest. Thus the fact that a collapse in the marginal efficiency of capital tends to be associated with a rise in the rate of interest may seriously aggravate the decline in investment.

On Keynes’s defense of advocating a larger role for the government

Whilst, therefore, the enlargement of the functions of government, involved in the task of adjusting to one another the propensity to consume and the inducement to invest, would seem to a nineteenth-century publicist or to a contemporary American financier to be a terrific encroachment on individualism, I defend it, on the contrary, both as the only practicable means of avoiding the destruction of existing economic forms in their entirety and as the condition of the successful functioning of individual initiative.

On the influence of dead economists

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are

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distilling their frenzy from some academic scribbler of a few years back.

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