Page:The New International Encyclopædia 1st ed. v. 16.djvu/221

* POLITICAL ECONOMY. 185 POLITICAL ECONOMY. any other economist in the history of the science. Kioni the scientific standpoint, the most impor- tant use made of the Malthusian proposition was in the Ricardian theory of distribution. Dmid Ricurdo (1772-1823) held that as a country grew and population increased .society Mould be forced to resort to poorer and poorer soils to obtain its supply of food, the i«»' of diminishing returns would set in, and as. the margin of cultivation was forced down an increasini; share of the ])roduct of industry would go to the hmdlord in the shape of ccunomic rent — tile difference between the natural productivity of the better land and the worst land in cultiva- tion. Excluding rent, the division of the re- mainder of the product between the laborer and the capitalist was determined by a corollary of the ilaltliusian principle — the 'iron law of wages.' In the long run, Eicardo held, wages would tend to equal the cost or price of the food, necessaries, and conveniences required for the support of the laborer and his family in their accustomed style of living. Profits, naturally, consisted of the product minus rent and wages; tlicy were 'the leavings of w-ages.' Ricardo's theory of 'progress,' then, is clear. With the passage of time and the settlement of the coun- try, rent would absorb a larger share of the prod- uce, increasing both absolutely and relatively; wages would absorb a larger share, increasing relatively, but remaining constant in amount (with a tendenej', however, to decrease as rents rose higher and higher) ; while profits would necessarily decrease both absolutely and rela- tively. This theory of distribution was de- veloped as an integral part of his famous cost of production theory of value, i.e. that com- modities will tend to exchange in quantities pro- portional to the respective expenses of producing them. In stating this theory Rieardo at times spoke as if all the expenses of production could be resolved into the toil and sacrifice of labor — commodities, he was fond of saying, tend to ex- change for each other according to the respective amounts of labor embodied or realized in each. He tlius supplied the socialists with their cele- brated labcr theory of value, according to which labor is the sole cause of value, and in conse- quence is entitled to the whole produce of in- dustry. To a great extent Rieardo molded the economic thought of the day, and has greatly influenced the later economists. The socialists took from it, illogically perhaps, the iron law of ■wages and the labor theory of value. Henry George took from it, but logically in this case, the doctrine that progress itself means poverty so long as private property in land is permitted. Finally, Ricardo's theory shifted the centre of economic interest from the land-owning classes to the capitalist class. English Political Eco>roiiT Since Ricardo. The narrow scope, the deductive method, and the- oretical nature of the classical economy were all intensified and formally indorsed bv N. W. Senior (1790-1804), the most influential En- glish economist between Ricardo and the younger Mill. Within the limits of classical economics Senior did notable work ; he cleared up many of the latent obscurities in the Ricard- ian theory of distribution, propounded the absti- nence theory of interest, and formulated the fa- mous doctrine of the wnyes fund. ( latent in the work of Smith, Ricardo, and others) that the average rate of wages is the (|uutient secured by dividing the number of workmen into the fund of capital set aside bj* the capitalists for the employment of labor. With the exception of the Malthusian principle, this doctrine probably con- tributed more than anything else to make po- litical economy the 'dismal science.' Senior is remarkable also for his exposition of the extent to which the monopoly element enters into ordi- nary economic life. Under perfect competition, he declares, prices of eonimodities would ac- curately measure "the aggregate amount of tiie labor and abstinence necessary to continue their production." But he points out repeatedly that differential advantage of any kind in jiroduetion gives rise to a monopolistic rent, which includes all income obtained without a proportionate sac- rifice of labor or abstinence. In his abstinence theory Senior deprived the socialists of much ef the comfort offered them in the classical economy, but in his analysis of monopoly he clearly defines the element in distribution which supplies them with a real grievance. John Stuart Mill (1806-73) typifies the transition in England from the classical to the modern system of economic thought. He began his career as a Ricardian of the Rieardians. but in the later years of his life he came under the influence of Auguste Comte and the socialistic thought of his time, and in 1848 his principal economic treatise appeared under the title Prin- ciples of Political Economy with Some of Their Applications to Social Philosophi/ — a queer com- promise between the Ricardian economies, which he had learned in his youth, and the warm desire to find some means to improve the condition of the masses, which had come to him from the ob- servations of his maturer 3'ears. The compro- mise was not fortunate from the standjioint of logic. ilost economists since Jlill. and Jlill himself in his later years, recognized that the book was inconsistent ; but it was superbly writ- ten, alive with the desire to improve the condi- tion of the masses, and exercised an enormous influence upon the subsequent development of English economic thought. The modifications of the old doctrine which Mill introduced exercised probably a greater influence than the old theories which he incorporated in his Principles. He pre- served the old doctrines of rent and profits, and advocated laissez-faire as a general princi|ile of political expediency, but made so many excep- tions that at times they seem more important than the rule, ilill also indorsed the doctrine of the wage fund ; but in his later years he aban- doned his belief in this theory, and advocated '"views of the taxation and regulation of in- heritance and bequest which would break down large fortunes and bring about a wider dilTusion of property." The development of English economic thought since I8.1O has been profoundly affected by the reaction against the classical system described below, and only a few words can he devoted to the subject here. The logical successors of Ri- cardo and Senior w-ere Cairnes. Bagehot. and Fawcett (to whom might be added Professor Marshall of Cambridge). It is impossible to characterize at length the work of these men. but all have been ardent defenders of the orthodox school, though they have recognized and ably ex- pounded its limitations as a theoretical science. They stand as the modern defenders (Fawcett an