The Principles of Political Economy
The State of the Text
At present we have the text of the third book of the
Principles, but the footnotes are not yet linked in, and
the cross reference links are not yet made. The rest of the text has
been digitized, but not yet proofread. We will do the notes and
cross-references for book III first, then add the rest of the text.
The Source of the Text
This text was digitized from the Second (1887) edition published by
MacMillan and Company, London. (This was the final edition, so far as
I know [Paul Lyon]).
Table of Contents
THE PRESENT STATE OF ECONOMIC CONTROVERSY IN ENGLAND
THE SPECIAL AIM OF THE PRESENT WORK.
- Section 1.
During the last thirty years Political Economy in England has risen
from the state of controversy on fundamental principles and method
into that of an apparently established science, and again relapsed
into the state of controversy.
- Section 2.
My special aim is to eliminate needless polemics by a guarded
restatement of traditional doctrines, with due recognition of the
advances made in economic theory by recent writers.
THE SCOPE OF POLITICAL ECONOMY.
- Section 1.
Is Political Economy a Science, concerned with what is, or an Art,
concerned with what ought to be done?
- Section 2.
Originally it was conceived as an Art, and is formally so defined
by Adam Smith ; but the substance of the latter's doctrine inevitably
rendered his exposition mainly that of a science;
- Section 3.
but not entirely, since the doctrine of laisser faire,
characteristic of Adam Smith and his school, belongs to Art;
- Section 4.
and, in the department of Production, the line between
Science and Art is difficult to draw.
- Section 5.
In this treatise, all questions as to proper governmental
interference in economic matters are treated separately (in Book III.)
as questions belonging to the `Art of Political Economy'.
THE METHOD OF ECONOMIC SCIENCE.
- Section 1.
The ordinary treatment of the Theory of Production is mainly
inductive and analytical---e.g. Mill's treatment is so.
- Section 2.
The traditional method of determining the Laws of Distribution. and
Exchange is primarily deductive and hypothetical, but obviously
requires for application to concrete cases the aid of induction.
- Section 3.
Both the general legitimacy of this method and its necessary
limitations may be briefly shown by considering its chief hypotheses.
- Section 4.
In using the method, quantitative precision should be attained as
far as possible; but the limits of attainable precision should also be
THE ART OF POLITICAL ECONOMY.
- Chapter 1.
The Art of Political Economy, as here treated, consists mainly of
the theory of what ought to be done by government to improve
Production or Distribution, and to provide for governmental expenditure.
THE SYSTEM OF NATURAL LIBERTY CONSIDERED IN RELATION
- Section 1. The general
argument in favour of leaving industry alone has much force, but needs
important qualifications and exceptions,
- Section 2. even in the most
abstract theoretical treatment, owing to divergence between utility to
the individual and utility to society; illustrated generally in
reference to Bequest and Contract;
- Section 3. exemplified
further by special cases, in which the utility of socially useful
services cannot be adequately appropriated by the persons who might
- Section 4. also where the
gain of a change is largely counterbalanced by loss; and in the case
of monopoly, especially monopoly resulting from combination.
- Section 5. Sometimes, however,
governmental intervention is needed to secure such combined action or
abstinence as is socially advantageous:
- Section 6. Note also the
imperfectly employed labour that competition normally involves, and
the labour spent in attracting business:
- Section 7. also the case of
utilities distant in time.
- Section 8. Hence complete
laisser faire is not to be taken as a political ideal: the
problem for the statesman is to balance its disadvantages against the
disadvantages of extending the sphere of government.
- Section 9. Our reasoning so far
has left unassailed the assumption that the individual is a better
judge than government of his economic interests: but this assumption
is not completely true, nor even tending to become so.
THE RELATIONS OF GOVERNMENT TO INDUSTRY.
- Section 1. The strictly
economic interferences of government are to be distinguished from its
interferences with industry in the exercise of its necessary
- Section 2. Such interferences
are of various kinds and degrees of intensity,
- Section 3. may take place for
- Section 4. for protection of
life, health, reputation of individual citizens, adults or
- Section 5. or for protection
from theft or fraud. Observe, too, that governments have importantly
restricted their enforcement of contracts---e.g. by bankruptcy
laws---and, under the guise of judicial interpretation, have
practically determined the conditions of ordinary engagements.
- Section 6. Again many important
questions as to the limits of the right of property have to be
determined by government; e.g. in the case of land, patents,
IMPORTANT CASES OF GOVERNMENTAL INTERFERENCE TO
- Section 1. Governments (central
or local) have interfered specially in businesses concerned with
transfer; partly from their tendency to become monopolies, partly from
the importance of their indirect utilities:
- Section 2. as in the case of
- Section 3. of railways and
- Section 4. and the
post-office. On somewhat similar grounds they have intervened in the
provision for gas and water.
- Section 5. Coining is obviously
adapted for governmental management, on various grounds; but there
seems no reason why it should not pay its expenses.
- Section 6. A bimetallic
currency may be maintained under certain conditions and has certain
- Section 7. The establishment of
a Tabular Standard would much reduce fluctuations in the value of
deferred payments: but it would be a matter of difficulty.
- Section 8. The issue of
convertible notes should be at least regulated, and there are
important advantages in its being undertaken by government;
- Section 9. which render it
desirable that government should form a special connexion with a bank;
but not that it should undertake ordinary banking business-though
certain kinds of lending seem suited to government.
- Section 10. There are certain
other departments in which governments have intervened partly with a
view to production: thus in providing for education and culture they
have partly aimed at making labour more efficient.
- Section 11. They have partly on
similar grounds assisted emigration:
- Section 12. and arranged the
sale of unoccupied lands on other than strictly commercial
- Section 13. Even in fully
occupied countries, there are reasons for keeping certain portions of
land under governmental management, as forests for restricting private
property in mines;
- Section 14. and
perhaps---though this is more doubtful---for interference with the
tenure of agricultural land, in order to promote production.
- Section 1. Temporary
Protection, though not practically to be recommended, is under certain
circumstances defensible in abstract economic theory;
- Section 2. even from a
cosmopolitan point of view: especially to foster a new industry:
- Section 3. still more from a
purely national point of view, in spite of important drawbacks.
- Section 4. And Free Trade may
tend, in certain cases, to be accom panied by a displacement of
population between the trading communities.
THE PRINCIPLES OF DISTRIBUTIVE JUSTICE.
- Section 1. The present
individualistic organization of society cannot be maintained to be
theoretically just, on account of its long duration, or unjust on
account of its origin.
- Section 2. The institution of
private property, as extended to land, cannot be defended as strictly
`realizing freedom', or `securing the fruits of labour'; though the
gain to labour in the aggregate from the accumulation of capital that
the institution has caused vastly outweighs its loss through exclusion
from appropriated land.
- Section 3. It does not however
appear that private property and free contract together tend to give
each labourer the wages he deserves. But exact remuneration of desert
seems an unattainable ideal.
- Section 4. It has been believed
that laisser faire gives, or will give, the greatest possible
equality of opportunities to labour: but it certainly leaves room for
serious inequality from monopoly and combination, from fluctuations of
- Section 5. from the unearned
increment in the value of land,
- Section 6. from the large
earnings of owners of capital, and from the payment of interest, which
would not be required if capital were accumulated by the
community. The grounds for not removing these inequalities by
governmental interference are productional, not
- Section 1. A more equal
distribution of wealth tends prima facie to increase
- Section 2. but we have to allow
for loss through increased idleness, decreased saving, lessened
efficiency of capital, pressure of population, checked growth of
- Section 3. It seems impossible
to dispense, as Communism seeks to do, with the individualistic
stimulus to labour and care, and check to population.
- Section 4. But the ideal of
Socialism is not open to the same objections; and a certain advance in
the direction of this ideal, by a judicious and gradual extension of
governmental functions, is not opposed to sound economic theory.
- Section 5. The chief
communistic institution, actually established in England, is the
provision for poor-relief; this, however might perhaps be made in
- Section 6. Other distributional
interferences have been usually---and rightly---designed also to
benefit production. In determining the proper limits of such
interference, one important consideration is the efficiency of
voluntary provision for social needs.
- Section 7. In determining a
`fair' division of produce between opposing combinations, an arbitrary
point of departure is necessary: political economy can only assist in
showing how `fairness' arbitrarily defined is to be maintained under
- Section 1. We have to treat
generally of the provision for public expenditure (the amount of which
must partly depend on the possibilities of conveniently providing for
- Section 2. The commodities
required for the use of government are generally obtained by free
purchase; though under certain circumstances it is more economical to
obtain services---especially of soldiers---by direct compulsion.
- Section 3. The funds for such
purchases may come from (1) Rents, or (2) Loans---which are under
certain circumstances legitimate, whether for productive employment,
or as a means of lightening an occasional burden by spreading it over
a longer period,
- Section 4. or (3) from
payments for commodities supplied by government---the price of which,
when they are monopolised, may be determined on various
- Section 5. Taxes, commonly so
called, can be only to a very limited extent treated as payments for
services rendered by government.
- Section 6. Distinguishing
`taxes proper' from such payments, we may note the complexity of
considerations, political and economical, productional and
distributional, which ought to have weight in the selection of
- Section 7. We should aim at
proportioning taxation mainly to that part of the income which is not
spent in necessaries, nor in ways socially useful, nor saved: the
adjustment can at best be rough, especially if taxes be largely laid
on commodities---a method however which is on several grounds to be
- Section 8. The incidence of
taxes is hard to determine, from the varying degrees of completeness
and rapidity with which their burden tends to be transferred:
illustrated by taxes on Incomes, taxes on Land,
- Section 9. and taxes on
Production---which as `indirect' taxes are sometimes thought to be
transferred completely to the consumers; but the rapidity and even the
extent of the transference varies much according to
- Section 10. Such taxes are
liable to cause an extra loss to consumers, over and above the gain to
- Section 11. Taxes on
inheritance require special and separate treatment.
POLITICAL ECONOMY AND PRIVATE MORALITY.
- Section 1. Political economy
tends to influence the common notion of fair dealing especially in
respect of taking advantage of (a) ignorance,
- Section 2. and (b)
need. Properly understood, it does not generally justify a man in
exacting more than the normal competitive price for his service; but
it shows the danger of condemning any one for taking full advantage of
competition, except in case of extreme need, when humanity requires
some gain to be foregone.
- Section 3. Economic teaching
has had a doubtful effect on the current dislike of `rings' and other
combinations---and the severer censure commonly passed on `making
work', `scamping work,' &c.
- Section 4. The egoistic
influences of the individualistic organisation of industry need to be
counteracted: hence the moral value of Cooperation.
- Section 5. Political economy
has exploded the fallacy that the luxurious expenditure of the rich
benefits the poor; but it has also drawn attention to the dangers of
Methods of Sidgwick
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