interests of the nation, and illusory theories invented to justify arbitrary interference with the natural order. To sweep away the whole system, to leave the greatest possible liberty to the natural development of industry, to take away the grasp of the tax-gatherer from the minute vessels of circulation, and to send him directly to the original sources of wealth, was the object of the economists. Such an attempt indicates an advance in the philosophical conception of the study, as it harmonised naturally with their other theories of a philosophical reconstruction of the political order. Unluckily their method was still erroneous, and the error which vitiated Quesnay's arguments was indorsed with curious unanimity by his able followers.

23. What is the distinction, they asked, between productive and unproductive, or, as Quesnay called it, sterile' labour? The answer seemed to follow from some obvious reflections. Political economy begins with the division of labour; the division of labour implies exchange of the products of labour; and an article which is exchangeable is said to have value. Political economy, then, must be the science of value, value being the common quality of all the objects with which it deals. But in this simple theory there already lurks a fallacy. One of Adam Smith's most important remarks consists in the distinction between intrinsic value and exchangeable value. The worth of anything, according to one definition, is what it will fetch; its worth, according to the other, depends upon the number and importance of wants which it will supply. Things which have the highest value in one sense may have the lowest in the other. Air, according to the familiar illustration, has no exchange value, because everybody can get as much as he wants; and has the highest intrinsic value, because nobody can do without it. The two conceptions are radically distinct, though most intimately connected; and a theory of political economy which neglects the distinction must be defective in essential points. The French economists constantly overlook the difference, and the error is characteristic of the stage of speculation. The economists had seen through the vulgar fallacy which identified wealth with money. Gold and silver, they perceived, were merely articles of commerce, and formed but an insignificant item in the whole wealth of a

nation. But when for money they had substituted the abstract conception, value, the statement, though apparently more philosophical and leading to very simple conclusions, was still tainted by the old fallacy. An increase of value, like an increase of money, might be significant not of a real increase of national resources, but of an increased power of one part of the community over another. The French reasoners had ceased to regard the world through the eyes of shopkeepers. They had not yet risen to a thoroughly scientific point of view. A complete sociology, in fact, would exhibit the relations of different parts of the organism as ultimately determined by the external conditions to which it is subject, or, in other words, by the mode in which the wants of men must derive satisfaction from the external world. It must, that is, take into account the intrinsic, as ultimately determining the exchange, values of commodities. Men who regard political economy not as a branch of sociology, but as a theory of catallactics,' implicitly assume that it is unnecessary to look outside of the organism itself to determine the conditions of exchange. They, therefore, take the relative term to have an absolute value; and hold that the value, which is merely an index of the difficulty of obtaining a certain useful commodity, is a sort of inherent quality, indicative of a certain natural 'pre-eminence' of that commodity over others.

24. The confusion manifests its nature so soon as we endeavour to determine a law of value from this conception. Turgot, for example, states with perfect clearness that theory of the relation of supply and demand which had been given in his own phraseology by Locke, and which is, in fact, nothing but a generalisation of the familiar truth, known in the days of Joseph, that scarcity and plenty correspond to dearness and cheapness. The inadequacy of the statement to supply a true law of price is obvious from a simple consideration. The formula, in fact, that price must equalise supply and demand gives a condition of equilibrium, but does not fix the point at which equilibrium will be established. It tells us that, given a certain demand, the supply and the price will regulate themselves accordingly; but it does not help us to determine what the demand will be under any given circumstances. To solve this problem we have to take into ac

count another order of conditions, and, in fact, to consider the intrinsic value of the various commodities under consideration. We must pass, that is, from the 'catallactic' to the sociological point of view. Locke, for example, had already pointed out the very important fact that a diminution of supply would generally raise the price of necessaries more than the price of luxuries.1 Since everybody must have bread and water, the effect of straitening the supplies will be much more conspicuous in such cases than in the case of some luxury with which men can dispense at the cost of a little vanity instead of actual starvation. The remark leads the way to a whole series of observations, which lie beyond the sphere of pure catallactics. We have to examine the limitations imposed upon the growth of a given population by the limits of its territory, the alterations of its internal constitution by the appropriation of certain parts of that territory, the varying difficulty of raising different kinds of produce, and, in short, to solve a number of problems which imply that the doctrines of Smith must be supplemented by those of Malthus and Ricardo.

25. In the absence of any clear perception of this want, the French economists seem to be studying the action of the several forces without considering them as limited by a certain base of operations. They seem to assume that the internal laws of growth may be treated satisfactorily apart from any reference to the medium from which it derives its existence. Thus the organism appears to be, so to speak, in the air, and capable of extending with equal facility in every direction. Hence follows the peculiar dogma with which their name is generally associated. Locke and Davenant 2 had thrown out the opinion that all taxes fall ultimately upon the land. In their writings this merely indicated a vague perception of the solidarity of all industrial interests, and an impression that, as land was in some sense the basis of all wealth, and the ownership of land the base of political power, the landowners must be affected by every burden imposed upon other classes. By the French economists the doctrine was worked into the

Locke, iv. 31. See the same principle well stated by Sir J. Steuart, i. 388, and elsewhere.

2 Locke, iv. 55; Davenant, i. 77, 269.

foundation of a system. They tacitly assume that the distinction between productive and sterile' labour coincided with the distinction between labour which did or did not add value to its products. Taking value in the sense of utility, the definition might coincide sufficiently with that sanctioned by later writers. But the confusion already indicated vitiates their application of the test. Commerce, for example, appeared to them to be non-productive. The condition of exchange is equality of value; if we should not rather say that equality of value means that articles will exchange for each other. Commerce, then, cannot possibly add to value, or, in other words, is sterile. The error, it may be remarked, is the converse of that involved in the mercantile system. The English writers assumed that, as commerce was the only means by which a nation without mines could get money, it was the only means by which such a nation could gain the wealth which was identical with money. It followed that commerce was profitable only to the party which got most money, that is to say, to which the balance of trade inclined. The French economists, seeing that it was as advantageous to get money's worth as to get money, pronounced commerce to be profitable to neither party. The true theory, of course, is that commerce is useful to both parties, because by putting things where they are wanted it increases the efficiency of labour. The economists, indeed, admitted that commerce was in some sense useful, and should not be restricted; but, blinded by their prepossessions, they failed to see that the labour by which men weave bread on their looms, or hammer it on their anvils, may really increase the returns to labour as distinctly as the process by which they dig it out of the ground.

26. Commerce was thus regarded as analogous to the labour of menial servants, or as a mode of expenditure rather than a mode of production. At the opposite extreme was labour applied to land. Here it seemed there was an absolute creation of value. The seed was converted into bread partly by human labour, but partly also by the cooperation of natural forces. The part played by the earth and the air was more conspicuous than the analogous service rendered by natural forces in manufacturing operations.

The substance, as well as the forces, seemed to be altered. A certain quantity of corn being inserted into the social mill, three times as much comes out at the other end; but when a raw mass of iron is inserted, the same mass comes out changed in shape alone. As the direct products of the earth are essential to all men, it seemed that, in this respect too, agriculture had a certain natural 'pre-eminence' over other forces of industry. And the proof of these propositions lay in the really important fact, that the price of agricultural products supported two classes, both the actual labourers and the landlord, who contributes nothing directly to the result. The existence of the unearned increment' of rent, so frequently discussed by later economists, was thus recognised, though the explanation given implies a curious inversion of later theories. The supposed pre-eminence really indicates a defect rather than an excellence. In fact, the agriculturist depends upon the labour of other classes as they depend upon his. They co-operate in a total result, and though the intrinsic importance of the wants which they supply may be different, any attempt to measure the importance by the exchange value of the products is necessarily illusory. Rent, in fact, is merely the result of a partial monopoly, the most important of all monopolies, but not specifically different from others in its operation. The economists, regarding value as a kind of inherent quality, comparable to a chemical property of the products exchanged, attributed to some natural peculiarity what they would have seen on a closer analysis to be merely a result of the limited quantity of fertile land. In other words, they thought that a flow of the stream of wealth in one direction signified, not the existence of a certain obstacle, but a positive increase in its volume.

27. Here, then, in Turgot's language, was a 'disposable' revenue, a fund differing in kind from the wealth of other classes, and representing, in fact, the reservoir from which all others were supplied. Some difficulty was felt in regard to other parts of the national revenues. The artizan, like the merchant, might be regarded as a menial servant, simply paid for his labour, though his wages took the form of payment for its products. The profits of the capitalist might seem to be part of the disposable revenue; but, after ex