A Treatise on Political Economy

Contents

1. Introduction 1 h 41 min 53

   Say defines political economy as the experimental science of how wealth is produced, distributed and consumed, separate from politics and from statistics. It rests on general facts drawn from observation, not on systems or mathematics. He surveys earlier writers: the ancients, Italian and Spanish authors, the French “economists” (physiocrats), Turgot and Smith. Smith founded the science, but he erred in tracing value to labour alone, in excluding immaterial products, and in neglecting distribution, consumption and method. Say criticises Ricardo’s abstraction, attacks prejudice and self-interest, and ends by arguing that a knowledge of economics serves citizens as well as statesmen.

2. I.1 Of What Is to Be Understood by the Term, Production 7 min 7

   Wealth consists in things that have value, and value is recognised when others will give something in exchange. Value comes from utility, the capacity to satisfy human wants. Since people cannot create matter, production means creating utility by giving matter a new form or use. Price measures value only when nothing but utility affects it: a trading monopoly or a tax raises prices without adding utility, and simply transfers money from consumers to privileged traders or the treasury.

3. I.2 Of the Different Kinds of Industry, and the Mode in Which They Concur in Production 19 min 15

   Industry takes three forms, agricultural, manufacturing and commercial, and all of them produce by using natural agents to give things utility. Say rejects the physiocrats’ claim that only agriculture is productive and manufacturers merely replace what they consume. He also rejects Raynal’s denial that commerce produces, and Condillac’s view that exchange itself creates value: trade adds value by transport. Against Steuart and Forbonnais, who held that one nation gains only what another loses, he argues that wealth is created within each nation.

4. I.3 Of the Nature of Capital, and the Mode in Which It Concurs in the Business of Production 6 min 7

   Industry cannot work without capital: tools, the workers’ subsistence while they work, and raw materials, together with improvements to land, livestock and money in circulation. Money is only a small part of a nation’s capital, like oil in a machine. Estimates of the French and British coinage show it is trifling beside the value of buildings, stock and goods. Capital is consumed in production and reappears in the product; its concurrence with industry is the “productive agency of capital”.

5. I.4 On Natural Agents That Assist in the Production of Wealth, and Specially of Land 10 min 7

   Besides capital, industry uses natural agents: soil, sun and rain, and physical laws such as gravity, elasticity and heat. Machinery puts these powers to work, and nature becomes man’s fellow-labourer. Say argues that Smith wrongly credited the division of labour with the abundance that natural agents produce, and wrongly concluded that wealth is accumulated labour. Some natural agents, like land, can be appropriated, which encourages investment; others remain free to all. Appropriated agents earn their owners a revenue.

6. I.5 On the Mode in Which Industry, Capital, and Natural Agents Unite in Production 7 min 4

   Industry, capital and land must all concur in production, but they need not belong to the same person. Each can be lent, and its use is paid for: wages for industry, interest for capital, rent for land. Some producers own all three; even poor workmen advance a little capital. Manufactures need little land, so a nation’s industry is limited by its capital rather than its territory, as Geneva, the Jura and Venice show. Poor nations sell at a disadvantage because they cannot grant credit.

7. I.6 Of Operations Alike Common to All Branches of Industry 17 min 9

   Every industry involves three operations: theory, the study of nature’s laws by the scientist; application, the use of that knowledge by the farmer, manufacturer or merchant; and execution, the manual work of the labourer. A nation needs all three. Science spreads easily across borders, but skill in application and execution benefits only those who have it, which explains Britain’s wealth. Say discusses the risks of experiment in each branch and argues that the rich, or the government, should pay for it.

8. I.7 Of the Labour of Mankind, of Nature, and of Machinery Respectively 17 min 9

   All labour that helps to create a product is productive, including that of the scientist and the entrepreneur. Natural agents and capital also do productive work, and machines are devices for harnessing natural powers. New machinery throws some workers out of work, but its introduction is slow, building it creates jobs, and consumers gain from cheaper goods. Machine-breaking only drives trade abroad. The printing press, cotton machinery and mills show that output and employment usually expand, and consumers gain most.

9. I.8 Of the Advantages and Disadvantages Resulting from Division of Labour, and of the Extent to Which It May Be Carried 22 min 12

   Following Smith’s pin factory, Say explains how the division of labour raises output through dexterity, saved time and invention. Competition passes the gain to consumers. Division requires a large market and much capital, which is why it flourishes in cities and manufactures and less in agriculture or luxury trades. It has costs: the worker confined to one operation is degraded as a person, and loses the independence to bargain with his employer over his share of the product.

10. I.9 Of the Different Methods of Employing Commercial Industry, and the Mode in Which They Concur in Production 15 min 18

    Commerce produces by transport, carrying goods to where they are worth more, through wholesale, retail, banking and brokerage. The same principles govern foreign and domestic trade, but domestic trade is larger and more advantageous, so roads, canals and the removal of internal duties increase wealth. Speculative trade moves goods in time. Excluding foreign carriers only taxes one class to profit another. England’s Navigation Act served military rather than commercial ends, a policy Say expects to become obsolete.

11. I.10 Of the Transformations Undergone by Capital in the Progress of Production 11 min 4

    Say traces what happens to capital in production. A farmer’s buildings, tools, seed and wages are partly used up each year, yet the capital is preserved if the produce replaces their value after paying rent, interest and wages. In manufacture and commerce capital changes form repeatedly, from coin to goods to bills and back. Capital is always an advance for productive services, repaid by the value of the product, as the chain from miner to cutler shows.

12. I.11 Of the Formation and Multiplication of Capital 25 min 16

    Capital grows only by saving: re-employing in production more value than is consumed. A surplus buried, feasted away or spent on furniture adds nothing; reinvested, it yields a perpetual return. Saving does not reduce consumption, since saved value is spent productively. Say endorses Smith’s praise of the frugal man but doubts that modern opulence comes mainly from thrift. Much saving is wrung from the poor’s necessities, and equal inheritance will divide large fortunes.

13. I.12 Of Unproductive Capital 4 min 2

    Values may be hoarded instead of consumed or invested, which deprives the owner and industry of their use. Insecurity under despotism, as in the Ottoman Empire, drives people to hide wealth, and political upheaval contracts capital. Precious metals locked in ornaments and religious treasures are idle. The chapter closes by announcing immaterial products, values that perish as they are produced, as the next chapter’s subject.

14. I.13 Of Immaterial Products, or Values Consumed at the Moment of Production 23 min 17

    Say defines “immaterial products”: services such as a physician’s advice, a musician’s performance or an official’s work, which are sold but consumed as they are produced. Against Smith he counts them as wealth, while denying that they can be accumulated or that multiplying them is always a gain: intricate laws and needless offices are costs. Professional skill embodies capital spent on education; menial service does not. He extends the idea to houses, furniture and gardens, capital that yields utility rather than profit, and ends with praise of planting trees.

15. I.14 Of the Right of Property 10 min 11

    Political economy, Say argues, need not ask where property comes from; it values property because security of enjoyment is the strongest spur to production. Property is violated not only by seizure but by any restriction on how owners use land, capital or their own labour, and by taxation beyond strict necessity, even when voted by a parliament controlled through patronage. He allows rare exceptions, such as limits on masters’ power over slaves or compulsory mining. A government that protects property secures the conditions of all wealth, and the poor share that interest.

16. I.15 Of the Demand or Market for Products 21 min 20

    The famous chapter on the “law of markets”. Products are bought with products; money is only the vehicle of exchange, so “scarcity of money” really means scarcity of other goods. A product, once made, opens a market for others equal to its value. Gluts of particular goods arise from shortfalls elsewhere and correct themselves unless government interferes. Hence the more producers, the better the markets; each nation gains from its neighbours’ prosperity; imports do not hurt home industry; and encouraging consumption, rather than production, is the mark of bad government.

17. I.16 Of the Benefits Resulting from the Quick Circulation of Money and Commodities 7 min 3

    Rapid circulation is useful only when a product passes quickly from one stage of production to the next and finally to the consumer, since capital tied up longer costs more interest. Following a bale of Brazilian cotton from Lisbon to the French calico buyer, Say shows the saving. Mere reselling of goods without changing them adds cost, and speculation, war and insecurity obstruct circulation. The frantic spending during the collapse of the assignats was a flight from bad money, not a sign of prosperity.

18. I.17 Of the Effect of Government Regulations Intended to Influence Production 2 h 30 min 81

    Say’s longest chapter attacks government direction of production. Section I argues that forcing particular crops or manufactures wastes resources, and includes a digression demolishing the “balance of trade”: money is a commodity like any other, and no nation can sell without buying. Tariffs and prohibitions tax consumers for protected producers, and bounties pay foreigners to buy; Say allows only narrow exceptions, including temporary help to promising industries. Section II condemns guilds and apprenticeships but approves patents and fraud laws. Section III attacks chartered trading companies; Section IV defends free trade in corn, with cautious reserves.

19. I.18 Of the Effect upon National Wealth, Resulting from the Productive Efforts of Public Authority 11 min 9

    When government runs factories, such as the Gobelins tapestry works, any loss falls on taxpayers, and its power as a buyer and seller disrupts prices. Some things, like warships, it must make itself. Its real contribution to production lies in roads, canals and harbours, in academies, schools and voyages of discovery, and above all in the security of persons and property, without which, as in the Ottoman lands, wealth disappears. Plunder of other nations, as practised by Rome, produces nothing.

20. I.19 Of Colonies and Their Products 28 min 25

    Say distinguishes ancient settler colonies, which grow rich quickly on fresh land, light government and thrift, from modern colonies of extraction worked by slaves. He concedes that slave labour is cheap to the master but argues that slavery degrades industry, as the contrast between free and slave states in America shows. Colonial monopolies transfer wealth from consumers to planters and merchants, and colonial wars and garrisons cost far more than they return. Britain gained by losing America; France loses nothing by losing colonies, since it still buys their produce with its own.

21. I.20 Of Temporary and Permanent Emigration, Considered in Reference to National Wealth 9 min 5

    A foreign traveller’s spending is not pure gain to a country, which only earns the profit on what it sells him; festivals staged to attract visitors waste the whole outlay. By contrast, immigrants who bring skill and capital are a lasting gain, as the Huguenots were to Brandenburg after Louis XIV revoked the Edict of Nantes. Emigration cannot be stopped by force, since capital escapes in goods. Just and free government is the only way to keep and attract people. The chapter introduces the following study of money.

22. I.21 Of the Nature and Uses of Money 2 h 24 min 78

    Say’s long chapter on money treats it as a commodity chosen by custom, not decreed by government, and valued like any other by supply and demand. He explains why gold and silver won out, how use as money raises their value, and what coinage adds. He then denounces centuries of royal debasement as legalised partial bankruptcy and denies that money is a “sign” or a “measure” of value. Further sections cover converting historical sums, the futility of fixing gold–silver ratios, and his proposal to name coins simply by their weight in grams. He ends with copper coinage, the best shape for coins, and who should bear the loss from wear.

23. I.22 Of Signs or Representatives of Money 53 min 25

    Say examines the substitutes for coin. Bills of exchange can settle foreign debts only to the extent of goods actually exported. Banks of deposit such as Amsterdam’s created a stable “bank money”. Banks of circulation issuing convertible notes save a nation part of its idle specie, a real but modest gain that requires short-dated, solid securities and independence from government. Inconvertible paper money, given forced circulation by authority, is a deterioration of the currency. Law’s bank, the Bank of England’s suspension and the revolutionary assignats illustrate its dangers.

24. II.1 Of the Basis of Value; and of Supply and Demand 27 min 12

    Opening Book II on distribution, Say defines value as the quantity of other goods an object will fetch: its current price. Wants are given data; natural wealth like air is free, while social wealth requires effort and secure property. Productive services draw their value from the utility of their products, not the reverse. Demand is limited by means, so price falls widen consumption. Price is the balance point of demand and supply. Legal maximum prices suppress production and reward hoarders. A closing aside treats priests and rulers as immaterial producers, worth their cost only if useful.

25. II.2 The Sources of Revenue 15 min 5

    Revenue, Say argues, springs from the productive means people own: industry, capital and natural agents such as land. He declines to ask how property in them arose, while calling property in labour and saved capital the most sacred. Productive services are exchanged for products, and revenue keeps its substance through every change of form until consumed. National revenue depends on the quantity of products, individual revenue on relative prices. Every saving in production enlarges revenue, first for the inventor and then for consumers.

26. II.3 Of Real and Relative Variation of Price 23 min 16

    Say separates real variations of price, caused by changes in cost of production, from relative ones, which only shift value between buyer and seller. Using stockings, sugar and printing, he argues that a real fall in prices enriches consumers without hurting producers and usually raises total output. Hence a country is rich in proportion as goods are cheap, against the physiocrats and Lauderdale. He closes by predicting free colonies in tropical Africa that will cheapen colonial produce.

27. II.4 Of Nominal Variation of Price, and of the Peculiar Value of Bullion and of Coin 22 min 15

    Say turns to the value of money itself. Like any commodity, gold and silver can change in real value (their cost of production) and in relative value (against other goods), while coin can also change nominally when its name is attached to a different weight of metal. The American mines lowered silver to about a quarter of its former value, not a tenth, because trade and luxury raised demand at the same time. Say corrects Locke and the Encyclopédie on this point, explains why coin rarely rises above bullion, and argues that richer nations need relatively less coin, since money circulates faster and credit replaces it.

28. II.5 Of the Manner in Which Revenue Is Distributed amongst Society 20 min 11

    This chapter sets out how the value of every product is divided among those who helped make it. Land, capital and labour sell their “productive agency”; the entrepreneur buys it and is repaid by the consumer. Following a watch from mine to wearer, Say shows each producer being reimbursed by the next. Each class receives its share as rent, interest or wages, and any other income is a gift or a theft. Against the Physiocrats he holds that a nation’s revenue equals its gross product, not a net surplus. He also argues that money is not revenue but only the form revenue passes through.

29. II.6 Of What Branches of Production Yield the Most Liberal Recompense to Productive Agency 9 min 4

    Why are some branches of production better paid than others? Say argues that goods of common, everyday use yield the steadiest and largest profits, because the demand for them is permanent and grows with population. Luxuries depend on a few fickle buyers and are the first thing cut in hard times. Lace-makers and gold-embroiderers are among the poorest workers, while Paris butchers and bakers retire rich. The Eden Treaty with Britain shows plain earthenware beating Sèvres porcelain in trade. A nation, he concludes, should prefer to export goods of general use rather than luxuries.

30. II.7 Of the Revenue of Industry 54 min 26

    The longest chapter of Book II treats the revenue of industry. Wages vary with how unpleasant, irregular and skilled the work is, and training counts as capital that must earn interest. Scientists are poorly paid because knowledge spreads freely. The entrepreneur earns more because his job needs funds, credit, judgement and the ability to bear risk. Unskilled wages tend to subsistence, including the cost of raising children, and women’s wages fall lower still. Say rejects Sismondi’s scheme to make masters maintain their workers. He closes by contrasting the ancient poor, dependent on patrons, with modern workers made independent by industry.

31. II.8 Of the Revenue of Capital 47 min 25

    Say analyses interest as a price for the use of capital plus a premium against the risk of loss. The history of usury laws shows that bans only raise interest by adding to the risk. He gives the Jewish lenders of King John’s France and Athenian sea loans as examples. Interest depends on the supply of disposable capital relative to its uses, not on the quantity of money, and credit cannot multiply capital. Against Smith, capital performs a productive service distinct from labour. Investment in domestic agriculture benefits a nation most, and the carrying trade benefits it least.

32. II.9 Of the Revenue of Land 25 min 14

    Land is the one natural agent that has been appropriated, and Say defends this on the grounds that it is limited and fixed. The profit of land arises when demand raises the price of its produce above what repays capital and labour. Land too far from markets yields none. Rent is usually set at the full profit of land, because landlords hold a kind of monopoly over competing tenants and gain from every road, canal and improvement. Say praises long, secure leases, credits English tenants with votes, and condemns sharecropping (métayage) as the system of an agriculture in its infancy.

33. II.10 Of the Effect of Revenue Derived by One Nation from Another 7 min 7

    A short chapter on revenue that passes between nations. Emigrants who take their capital home harm the country they leave, and returning exiles enrich their own. Borrowing from abroad for productive use is a gain, while borrowing for war or court extravagance only burdens the nation with interest. The form in which revenue is remitted does not matter: the East India Company’s men sent their fortunes home as goods, not coin. Bans on exporting specie are therefore pointless.

34. II.11 Of the Mode in Which the Quantity of the Product Affects Population 37 min 30

    Say links population to production. Like all living things, people multiply up to the limit of their means of subsistence, so only greater production can raise numbers lastingly. Premiums for marriage are useless, plagues are quickly made up, and bad government kills by destroying capital. Famine strikes hardest where the poor live at the bare minimum, as in China and India. He contrasts British dependence on foreign markets with French under-production and wastefulness. In the second section he explains how towns, manufactures and agriculture support one another, and why no city can be created by decree.

35. III.1 Of the Different Kinds of Consumption 12 min 8

    Book III opens by defining consumption as the destruction of utility and value, not of matter. Consumption can be quick or gradual, voluntary or accidental, and land and human faculties cannot themselves be consumed. Capital lasts because its value reappears in new products. National consumption, like production, is counted gross: exports are consumed, imports produced. Say divides consumption into public and private, productive and unproductive, and rejects Steuart’s praise of Spartan self-denial: many wants, with the means to satisfy them, are better.

36. III.2 Of the Effect of Consumption in General 6 min 3

    Every act of consumption destroys value. Unproductive consumption gives satisfaction in return, while productive consumption gives a new value. Say warns against confusing spending money with consuming. The value is lost only when the goods are used up, so the argument that “the money remains in the country” proves nothing, and keeping coin at home cannot preserve wealth.

37. III.3 Of the Effect of Productive Consumption 8 min 4

    Productive consumption uses up capital to create new value. Say explains that paying wages involves two consumptions: the employer consumes the labourer’s work productively, and the labourer consumes the wage unproductively. Savings in materials or productive agency are as valuable as greater output, and competition soon passes them on to consumers. Reckless projectors waste wealth as surely as spendthrifts. From here on, “consumption” alone means unproductive consumption.

38. III.4 Of the Effect of Unproductive Consumption in General 15 min 7

    Unproductive consumption only exchanges existing wealth for satisfaction. It cannot stimulate production, since demand comes from the possession of products, a restatement of the law of markets. Say ranks the most judicious kinds of consumption: real wants before ostentation; durable, good-quality goods before passing fashions; collective provision; and moral uses. He blames extreme inequality and the example of extravagant governments for waste, and counts wars of vengeance or glory, like Louis XIV’s against the Dutch, as the worst consumption of all.

39. III.5 Of Individual Consumption—Its Motives and Its Effects 31 min 15

    Say turns to private consumption. A household prospers by spending less than its income, and true economy lies between avarice and prodigality. Of the two, prodigality is worse for society, since it destroys capital. Luxury, defined as consumption of dear things for display, only diverts demand from one trade to another. It is wrong to say that consumption creates production, a view Say traces to mercantilists, Physiocrats, merchants, poets and the rich. The chapter ends against those who praise poverty as a spur to labour: wants grow as they are satisfied, and comfortable workers work as well or better.

40. III.6 On Public Consumption 1 h 20 min 55

    Public consumption destroys value exactly as private consumption does. Taxes spent by government are not “refunded” to the nation, and the same rules of economy apply to states as to families. Say then surveys the main heads of public spending. Civil and judicial officers should be paid well enough to attract talent, and offices should not be sold. Modern war has become costly, and Say expects enlightened self-interest to reduce it. Public money should support only research and elementary schooling for all. Relief institutions risk depressing wages. Public works should be judged by rent, interest and upkeep against their benefit.

41. III.7 Of the Actual Contributors to Public Consumption 7 min 4

    A short chapter on who pays for public consumption. Some comes from private munificence, from public lands and, in antiquity, from tribute. Most comes from national and local taxes. Say lays down the benefit principle: each class should pay in proportion to what it gains from public spending. So defence, central government and justice belong to national taxation, and local institutions to local revenues. These are best administered by officials chosen by local taxpayers, which gives small states an advantage.

42. III.8 Of Taxation 1 h 28 min 59

    Say’s chapter on taxation. Taxes transfer value to the state, which then consumes it, and they never enrich a nation. The best taxes are moderate, cheap to collect, equal, least harmful to accumulation and favourable to morals. Say argues for progressive rates, criticises taxes on transfers and capital, and defends taxes on luxuries. He then compares direct and indirect taxes and analyses who really bears a tax: consumers and producers share it, but landowners bear a land tax entirely. He criticises the Physiocrats’ preference for early direct taxes, taxation in kind, and England’s fixed land tax.

43. III.9 Of National Debt 31 min 18

    Governments, unlike private borrowers, borrow to consume, so a public loan destroys the capital lent while taxpayers keep paying interest on it. Say rejects Melon’s claim that debt is owed by the right hand to the left. He describes the forms of public borrowing, their effect in raising interest rates, and the arguments made for debt. He then discusses public credit, which representative governments command best; sinking funds, which he calls a delusion while borrowing continues; the effects of a British bankruptcy; and treasure hoarded by states that cannot borrow.

44. Appendix 1 min 1

    Appendix A is the “synoptical table” promised in III.9. It divides a nation’s productive funds into four equal portions and follows a loan to the state. One portion is lent and consumed, a second’s revenue goes in taxes to the lenders, and so the three remaining portions yield only two portions of revenue.