IV.4. How Commercial Wealth Follows the Growth of Revenue

The seller has no means of his own of extending his sales that does not react upon his fellow sellers. He disputes with them a given quantity of revenue which must replace his capital; and the more of it he succeeds in keeping for himself, the less he leaves for the others. The increase of this revenue does not depend on him; but whenever such an increase takes place he profits by it, and he himself becomes one of the agents through whom the general prosperity is spread. Now, as we have already said several times, national revenue is made up of the share of the rich, namely the profit arising from all fixed and circulating capitals, and the share of the poor, namely the price of their labour exchanged against circulating capital. Every consumption that is not exchanged against a revenue is a loss to the state; every consumption that is exchanged against a new revenue is a source of new prosperity. A new revenue arises for the state from every fixed or circulating capital newly formed by saving and suitably employed in calling forth a new production that is in demand.

A new revenue arises, again, from every new labour that a circulating capital causes to be done in proportion to demand. This labour, fully paid, calls into being or employs workers who did not exist before or who were idle.

Every new circulating capital that finds a suitable employment, or calls forth a production whose consumption is assured without harm to any other, thus lets society profit by two new revenues: one for the rich, through the increase that this capital will undergo in its circulation; the other for the poor, through the labour to which it will give value. Each of these revenues will be exchanged against a new consumption and will increase the sales of the sellers by so much.

But a revenue that has merely changed hands is not a new revenue. The merchant who increases his revenue by all that his rivals lose does not make the nation richer by it; the manufacturer who increases his revenue by all the wages he cuts from his workers adds nothing to the national revenue; and in the same way the public official who raises his salary by all that taxes take from the taxpayer does not thereby create new wealth. Each of them, by his consumption, will no doubt procure an advantageous sale for commerce and stimulate a certain production; but they will only replace the consumption of other citizens whose revenue has passed into their hands.

Just as it is not a matter of indifference for the happiness of citizens whether everyone’s share of comfort and enjoyments approaches equality, or whether a small number have all the superfluity while a great number are reduced to bare necessities, so these two distributions of revenue are not a matter of indifference for the progress of commercial wealth either. Equality of enjoyments must always result in giving greater extent to the producers’ market; inequality, in narrowing it more and more. The same revenue is well employed by the rich man and by the poor, but it is not employed in the same way. The former replaces much more capital and much less labour than the latter; he favours population much less, and consequently serves much less for the reproduction of wealth.

When large-scale farming succeeded small, more capital was perhaps absorbed by the land and reproduced by it, and more wealth than before may have been divided among the whole mass of agriculturists; but the consumption of one family of rich farmers, joined to that of fifty families of wretched day labourers, is not worth as much to the nation as that of fifty families of peasants, none of whom was rich and none of whom lacked an honest sufficiency. In the same way, in the towns, the consumption of a millionaire master manufacturer who sets to work under his orders a thousand workers reduced to bare necessities is not worth as much to the nation as that of a hundred far less wealthy manufacturers, each of whom employs only ten far less poor workers.

It is quite true that a hundred thousand livres of revenue, whether they belong to one man or to a hundred, will always be equally destined for consumption; but this consumption is not of the same nature. The very rich man cannot put to his use infinitely more things than the poor man, but he uses infinitely better ones. He wants much more finished work, much more precious materials brought from much further away. It is he above all who encourages the perfecting of a few workers, who complete a small number of works with rare skill, and it is he who pays them exorbitant wages. It is he again who chiefly rewards those workers we have called unproductive, because they procure him only fleeting enjoyments which can never, by accumulating, form part of the national wealth.

A hundred families in easy circumstances would have fed on the best bread and the best meat; they would have drunk the best wine or the best beer of the country, and so would have encouraged the national agriculture. They would also have dressed in the best cloths manufactured in the country; they would have made their luxury consist in having several suits of clothes and a sufficient supply of linen for changing, so that they would have given a powerful encouragement to the national manufactures.

If the same revenue is distributed among ninety-nine very wretched families and one very opulent one, the encouragement they give to national industry will be infinitely smaller. The first will live on potatoes and milk, and will consequently consume the fruits of a piece of land ten times smaller; they will dress in the cheapest cloths, and consequently in those that require the least labour, and they will have far fewer changes of clothes; they will therefore occupy the national manufactures for much less time than the others did.

If there is to be no interruption of work and no general suffering, the single opulent family, which has gathered to itself the whole revenue formerly divided among the hundred, must make up to the land and to the manufactures for all the consumption that ninety-nine of them no longer make. No doubt it will keep a certain number of servants who will help it consume the fruits of the earth; yet it will be much less the agriculture of the country than that of the most distant climates that it encourages by its subsistence. It will bring its wines from the famous vineyards of France, Spain, Hungary and Africa, its liqueurs from the islands, its spices from India; and instead of employing the lands whose fruits the ninety-nine other families can no longer consume, it will detach only a portion of them, where skilled gardeners will display all their industry. The rest will have to look for new consumers. So too with its clothing and furnishings: the opulent family will never be able to put to its use all the cloth that the ninety-nine others will no longer buy; but it will send for carpets from Persia and Turkey, shawls from Kashmir and muslins from India; it will employ embroiderers and milliners; it will magnificently reward the industry, the elegance and the taste of a single worker, and it will leave without employment nine-tenths of the national manufactures that the families in easy circumstances have ceased to occupy.

It is very worthy of note that while the effect of the increase of capitals is in general to concentrate work in very large manufactories, the effect of great riches is to exclude the products of these very large manufactories almost entirely from the consumption of the rich. Each time an object formerly produced by the skill of a worker becomes the work of a blind mechanism, it loses something of its perfection, and also of its credit in the eyes of fashion. The invention of tulle may be good for moderate fortunes, but it does not replace lace for the rich; and the same is true of all the products of machines.

Thus, through the concentration of fortunes in the hands of a small number of proprietors, the home market contracts more and more, and industry is more and more reduced to seeking its outlets in foreign markets, where it is threatened by greater upheavals.

All the states whose production exceeds their consumption turn their eyes alike towards this foreign market, and since its bounds are unknown, its extent seems unlimited. Yet since navigation has been perfected, roads opened and security better guaranteed, people have begun to notice that the market of the universe is bounded as that of each nation was before; that a general confidence of all producers that they would sell to foreigners has everywhere raised production above demand; and that, since the offer of a great reduction in price that the producers of one country come to make to the consumers of another is at the same time a death sentence they pronounce against the producers of that same country, resistance to this commercial war has been violent and disorderly, but almost always popular, however contrary it may seem at first sight to the interest of the consumers, who nevertheless include all the inhabitants of the country.

Thus what we saw at the beginning of this chapter, that the home market could extend only through national prosperity and the increase of national revenue, becomes true again of the market of the universe for every nation that destines its products for foreigners and aims at the commerce of the world: the increase of universal sales can result only from universal prosperity. Only as men acquire new revenues will they be able to satisfy new needs and buy what we wish to sell them.

The manufacturer’s market can therefore be extended, and it is the noblest wish of the statesman that it should be, through the progress of civilisation, comfort, security and happiness among barbarous nations. Europe has reached the point of having in all its parts an industry and a manufacture greater than its needs. But if a false policy did not lead it constantly to check the progress of civilisation among its neighbours; if Egypt had been left in the hands of a people that needed the arts of Europe; if Greece and Asia Minor were freed from the oppression under which they groan; if the victories won over the Barbary states had been turned to account by restoring the coasts of Africa to social life; if Spain had not been subjected to a despotism that destroys and ruins its population; if the independents of Spanish America were protected so as to let them enjoy the advantages to which nature calls them; if the Indians subject to Europe were amalgamated with the Europeans, and if the Franks were encouraged to settle among them instead of being driven away; then consumption in these various countries would increase quickly enough to employ all the superabundant labour that Europe today does not know what to do with, and to put an end to the distress into which the poor are plunged.

Look through the commercial reports, the newspapers, the accounts of travellers: everywhere you will see proofs of this superabundance of production that outruns consumption; of this manufacture that proportions itself not to demand but to the capitals people wish to employ; of this activity of merchants that drives them to throw themselves in crowds into each new outlet, and exposes them by turns to ruinous losses in every trade from which they expected profits. We have seen goods of every kind, but above all those of England, the great manufacturing power, abound in all the markets of Italy in a proportion so far above demand that the merchants, to recover part of their funds, have been obliged to part with them at a loss of a quarter or a third instead of a profit. The torrent of commerce, driven back from Italy, threw itself upon Germany, Russia and Brazil, and soon met the same obstacles there.

The latest newspapers announce similar losses in new countries. In August 1818 there were complaints at the Cape of Good Hope that all the warehouses were full of European goods, offered at lower prices than in Europe, without finding buyers. In June, at Calcutta, the complaints of the merchants were of the same nature. A strange phenomenon had been seen at first: England sending cotton cloths to India, and so succeeding in working more cheaply than the half-naked inhabitants of Hindustan by reducing its own workers to a still more wretched existence. But this odd direction given to commerce did not last long; today English products are cheaper in the Indies than in England itself. In May the European goods that had been carried to New Holland in too great abundance had to be re-exported. Buenos Aires, Colombia, Mexico and Chile are likewise already overflowing with goods. Mr Fearon’s journey in the United States, completed only in the spring of 1818, shows this spectacle more strikingly still. From one end to the other of that vast and so prosperous continent there is not a town, not a small village, where the quantity of goods offered for sale is not infinitely greater than the means of the buyers, although the merchants try to tempt them with very long credits and every kind of facility for payments, which they accept at term and in produce of every sort. No fact presents itself to us in more places, or under more aspects, than the disproportion between the means of consumption and those of production; than the impossibility for producers of giving up an industry because it is declining; than the certainty that their ranks are never thinned except by bankruptcies. How is it that philosophers will not see what on every side leaps to the eyes of the common people?

The error into which they have fallen depends entirely on this false principle: that in their eyes the annual production is the same thing as revenue. Mr Ricardo, following Mr Say, repeats and affirms it. “M. Say has, however, most satisfactorily shown”, he says, “that there is no amount of capital which may not be employed in a country, because a demand is only limited by production. No man produces but with a view to consume or sell, and he never sells but with an intention to purchase some other commodity, which may be immediately useful to him, or which may contribute to future production. By producing, then, he necessarily becomes either the consumer of his own goods, or the purchaser and consumer of the goods of some other person.”

With this principle it becomes absolutely impossible to understand or explain the best-established fact in the whole history of commerce: the glutting of markets. With this principle it is equally impossible to escape from the contradictions with which Messrs Say and Ricardo reproach each other over the sense to be given to the words value and wealth; it is impossible to explain how the profit of capitals and the rate of wages often fall at the same time as manufacture increases. The confusion of annual revenue with annual product throws a thick veil over the whole science; everything becomes clear, on the contrary, and all the facts agree with the theory, as soon as the two are disentangled.

It is essential to note that Adam Smith had avoided the errors into which his disciples fall; and so Mr Ricardo, throughout the chapter we have just quoted, is busy combating him.

Seven years have passed since the first publication of this work, and the commercial revolutions that have followed one another in that interval have confirmed more and more, in my eyes, the doctrine that among opulent nations production is often determined not by needs but by the abundance of capitals, and that then, soon outrunning consumption, it produces cruel distress.

The crisis that afflicted English commerce in 1819 had subsided, and the reviving prosperity of the manufactures was more than once put to me as a proof of my errors. I might have answered that a free, industrious and enlightened nation like England almost always has the strength to recover from its disasters; that immense capitals had been lost in 1819 and many families ruined, but that the opulence of the rest of the world had increased during the peace, and that a new and very considerable revenue, exchanged by foreigners against the products of England, had revived its industry. Another cause, however, was operating far more powerfully, and it deserves some explanation.

The opening of the immense market that Spanish America offered to industrious producers had seemed to me the event that could do most to relieve the English manufactures. The British government judged likewise; and in the seven years that have passed since the commercial crisis of 1818, an unheard-of activity has been exerted to carry English commerce into the most remote parts of Mexico, Colombia, Brazil, the Río de la Plata, Chile and Peru. Before the ministry had decided to recognise these new states, it took care to protect English commerce by frequent stations of ships of the line, whose commanders performed functions more diplomatic than military. It then braved the outcry of the Holy Alliance and recognised the new republics, at the very moment when all Europe, on the contrary, was plotting their ruin. But however immense the outlet that free America offered, it would still not have been enough to absorb all the goods England had produced beyond the needs of consumption, if the loans of the new republics had not suddenly increased beyond all measure their means of buying English goods. Each American state borrowed from the English a sum sufficient to set its government going; and although this was a capital, it spent it immediately, within the year, as a revenue, that is, it used it all to buy English goods on the public account or to pay for those that had been shipped on private account. At the same time numerous companies were formed, with immense capitals, to work all the mines of America; but all the money they spent has likewise come back to England to pay either for the machines they used directly or for the goods sent to the places where they were to work. As long as this singular commerce lasted, in which the English asked the Americans only to be so good as to buy English goods with English capitals and consume them for love of the English, the prosperity of the English manufactures seemed brilliant. It was no longer revenue but English capital that was used to stimulate consumption; the English, buying and paying for their own goods themselves and sending them to America, spared themselves only the pleasure of enjoying them. Never had the English manufactures had more orders than during the series of speculations of 1825 that so astonished the world; but when the capitals had been spent and the moment of payment came, suddenly the veil fell, the illusion ceased, and distress began again far worse than in 1818. For production had again increased beyond all measure, and the manufacturing population had never stopped growing; but an enormous mass of capitals, employed in hazardous speculations whose returns will at best be very slow, had been withdrawn from industry, and the foreign buyers, who in one or two years had eaten up these immense capitals, had fallen back into their original poverty, which forced them to economise, with an enormous debt besides.

So the crisis has returned, stronger than ever: no orders in the manufactories, no sales, inadequate wages offered to the workers, a great number of whom cannot find any work at all; the manufacturers’ capitals wholly tied up in their finished products, which crowd all their warehouses. Such are the signs of the present distress and of the growing disproportion between production and consumption. The suffering inflicted on the people is great, and may be long, for the false prosperity of last year has greatly aggravated England’s situation. The cries of joy with which the arrival of a few orders and the renewed activity of a few manufactories are celebrated must not deceive us. England has advanced £40,000,000 sterling (a thousand million francs) to the various states that have borrowed from it, and an equal sum to the various companies that have undertaken so many gigantic enterprises. These two thousand millions, spent in the last two or three years, not only cannot be spent again in the next two or three; it is very probable that even the interest on this imprudently placed money will be long in coming. There must therefore be an immense deficit in consumption, compared with the artificial activity that these advances of capital had given it. Yet I am far from saying that the evil is without remedy: the nation has great resources, and the ministry is very able. Only, so dearly bought an experience must at last spread some light. It must make people recognise that consumption is not the necessary consequence of production, and that the glutting of markets is, on the contrary, the inevitable result of the system into which they are rushing headlong.