Synopsis

The best we can do is to say that wealth is material welfare. The fact that the material shades gradually into the non-material does not prevent it from being convenient to have a separ ate department of science for the study of wealth. §~. If man be imagined as living in isolation, his wealth will depend partly on his original qualities . 5 § 3. Partly on what he has done to himself and his surroundings in the past . 7 § 4. Partly on the soundness of his decisions between different courses 10 § s. And partly on the extent to which he is willing to sacrifice wealth for other things . 17 § 6. 'the wealth of society depends partly on the original qualities of its members 17 § 7. Partly on improvements effected in men and their surroundings in the past . 18 § 8. Partly on the soundness of decisions between different courses 22 § 9. Partly on. the extent to which wealth is sacrificed for other things 25 § 10. Partly on the ages of the people, the degree in which they co-operate, and their numbers 25 xiii xiv SYNOPSIS CHAPTER II CO-OPERATION, OR COMBINATION AND DIVISION OF LABOUR PAGE § I ..The difference between combination and division of labour. 27 § 2. Division of labour enables the different qualities of different areas to be utilized 28 § 3. It enables the different original qualities of individuals to be better utilized. 34 § 4. It enables more skill and dexterity to be acquired . 36 § 5. It enables more knowledge to be acquired and retained • 38 § 6. It enables tools and machinery to be economized 39 CHAPTER III POPULATION § I. More people, less land per head 40 In the absence of co-operation, larger popula tion, which means less land per head, would be inimical to wealth. But the greater the number of people the greater the advantage which can be drawn from co-operation. Hence the disadvan tage of less land per head may be more than coun terbalanced by the greater advantage drawn from co-operation § 2. The possibilities of multiplication observed and used as an argument against Utopias 43 A dispute about the population of the ancient world directed attention to the progressive rapidity with which the population would grow if restrained by nothing more than lack of human fecundity.

This led Wallace to argue that no Utopia was pos sible, since it would be overcrowded. § 3. Malthus' theory that population tends to outrun subsistence 45 SYNOPSIS xv PAGE Malthus said that there must always be a diffi culty in providing subsistence, because population could, so far as the reproductive faculties of man kind alone a~e concerned, double itself every twenty-five years, while the annual supply of sub sistence could not be made to increase more rapidly than by an equal amount every twenty-five years. He did not explain why a larger population should not be able to produce as much per head as a smaller one. § 4. "The law of Diminishing Returns It 48 Turgot's excellent statement of the law in 1768 was unnoticed. § s. The theory that growth of population had caused an actual diminution of returns in agriculture So In England about 1814 it was believed that the returns to agriculture had recently diminished, and that this was a general rule throughout the history of civilization.

§ 6. The theory that growth of population had made returns in agriculture less than they other wise would have been, and this sufficiently to overbalance increase of returns in other industry . 54 Later expositions only asserted a tendency to diminution of returns, and admitted that the ten dency might be defeated for a time by " improve ments." This was thought enough to show that increase of population must be a bad thing, since it was assumed that in its absence "improve ments" would increase produce per head. But we cannot tell what improvements would have been made if population had taken some other course from that which it has taken. There is, too, no ground for assuming that if returns to agriculture have diminished, the returns to all kinds of industry, including agriculture, must have diminished, nor consequently for assuming that everything which tends to diminish returns in agriculture must tend to diminish them in all industries taken together.

xvi SYNOPSIS PAGE § 7. The point of maximum return to all industries taken together 56 In manufacture as in agriculture a large aggre gate production has its advantages and its disad vantages. In each of them taken separately, and in both taken together, there is a point at which it can be said that the productiveness of labour is greater than it would be if the ~ggregate produc tion were either greater or less than it is. From this it follows that there is at every given time a particular population which is neither too small nor too great. A departure from this point either upwards or downwards is. unfavourable to the pro ductiveness of labour. The law of diminishing returns should be so expressed as to be universally true. § 8. The optimum, or best possible population 59 In thinking of the best possible population we must remember (1) that the point of maximum return is not fixed, but is continually being shifted, (2) that population cannot be altered quickly, so that the practical ideal must be to get the right movement rather than the right absolute magni tude, and (3) that population theory must not be applied to subdivisions of mankind without great caution.

CHAPTER IV THE SOCIAL ORDER § I. Society at present not chaotic but organized. 63 In order to obtain wealth it is necessary for Society to be well organized; our existing condi tion is far from chaos, though it is also far from perfection. The present organization depends on various institutions. § 2. The Family 67 The Family inures young persons to labour, and for the most part determines their allocation be tween the various employments. a.nd its economic solidarity affects population.

SYNOPSIS § 3. Property Property in movable objects and dwelling-places arose out of the dislike of being ousted. from the possession of anything. Property in land is of later origin, and at first is indistinguishable from territorial sovereignty. The efiect of the institution of property is to prevent many destructive actions, and also to make it the interest of various persons to perform produc tive operations. It also obliges people to co-operate, and facilitates co-operation by enabling it to rest upon innumerable separate agreements between individuals. It enables world-wide co-operation to take place, although there is no world-wide authority. § 4. The State States were at first representative of groups of persons, but have become territorial. They some times fight, and even in peace they often carry out anti-social policies in regard to each other, but on the whole their general policy may be said to be one of co-operation.

Inside its own limits each is an important factor in economic organization. Laissez !aire never was nor could have been practised. The States arrange for means of communication and many other services. xvii PAGE 6g 77 CHAPTER· V MONEY § I. Selling and buying 88 Civilized man lives chiefly by getting money for his work -or property and buying what he wants with the money so obtained. § 2. Metallic money: coins • 90 Quantities of metal were used as money and coinage certified the weight and fineness of pieces of metal. § 3. Bimetallism, or the Double Standard 9~ The attempt to treat both gold and silver as standard mc;mey was unsuccessful. w. B xviii SYNOPSIS 95 PAGE 93Standard and subsidiary coins Eventually the plan was adopted of making one metal the standard and keeping coins of other metals at· a fixed ratio of value with it by means of limitation of supply. Notes: convertible and inconvertible Bankers issued paper promises to pay, which circulated because they were more convenient than coins, and maintained their value because they were limited in quantity by their redeemability.

When people had become used to this kind of cur rency, it was possible to induce them to accept notes which purported to be sums of money but were not in fact redeemable. These usually depre ciated because their issue was not limited suffi ciently to maintain them at par. § 6. Bank accounts 99 Transfers of large sums of money are now almost always effected by entries in bank books instead of by handing over coins or notes. § 5· CHAPTER VI THE CONTROLLING POWER OF DEMAND § I. Different ways of getting money 100 Under the influence of existing institutions people work and allow their property to be used, not to satisfy their own wants directly, but to get money. Some sell objects or " commodities U and some sell services direct to the consumer; others lend land, money, or other objects for money-payments. Intermediaries have placed themselves between workers and owners on the one side and consumers on the other side, and call the gains made by their occupation .. profits," generally calculating these profits as a percentage on their" capital." This has led to the present organization being called II capitalistic," but the intermediaries have no real control over what is produced, their action, like that of others, being controlled by demand.

SYNOPSIS xix 113 PAGE 107The connection between value and utility Value and utility used to be contrasted, but there is a close connection between them in the fact that the amount which a person will give for a small additioIl. to the amount of a commodity sup .. plied to him, varies with the utility of that addition to him. The connection between wants and demand Therefore, so far as a single person, a number of persons with equal wants and means, or a number between whom means are distributed in propor tion to wants are concerned, wants may be said to control production; but where a number of per sons with different means which do not correspond with their different wants are concerned, we can only say that production is controlled by demand. Demand postulates ability to pay as well as want. § 4. Elasticity of demand I I 7 The demand for different things is of different " elasticity," and it is according to this elasticity that the price of anything rises and falls~ much or little, with variations in the quantity of it offered for sale, thus offering stronger or weaker induce ments to further production.

§ 5. Institutions as well as individuals exercise power of demand 120 §2. CHAPTER VII THE CONTROL OF PROVISION FOR THE FUTURE § I. Why and how provision for the future is made 122 The improvements in material surroundings which are made by man are mostly made because it pays to make them in consequence of the de mand created by the investment of savings. § 2. Savings made chiefly in order to secure future income I2S Though some persons save merely in order to have the savings to spend at some future time" the bulk of saving is done in order to get interest"

xx SYNOPSIS PAGE profit or rent in the future. The higher the ratio of future income to present savings, the stronger the incentive to save. § 3. Circumstances other than the rate of interest which affect the amount of saving . 130 The chief of these are the strength of desire to improve the future and the ability to save. § 4. The determination of the rate of· return on savings . 134 If all other changes were excluded, the rate would fall simply as more and more savings were accumulated, and the degree of the fall would depend on the magnitude of the field for the em ployment of savings at each different rate .. But increase in the number of people is a coun teracting force, and invention and discoveries are continually altering the relative advantages of the methods which require, and the methods which do not require saving, so that they sometimes tend to lower and sometimes to raise the rate.

§ S. How good is the control? 139 Inequality of means between individuals forms an obstacle to correspondence between the aggre gate amount saved and the amount which would be saved by a society exercising perfect judgment. Moreover, saving does not constitute the whole of the provision made for the future, as it can only be applied to things capable of being property. CHAPTER VIII CONTINUOUS POWER TO DEMAND, OR INCOME § I. Receipts of money and "money's worth H 143 Income is the great source of power to demand. I t is conceived as the money coming in to the re ceiver, but we add the money value of receipts in kind when they can be easily valued. § 2. Exclusion of certain illicit and casual gains and of double reckonings 148 § .3. Subtraction of expenses necessary for workin& and maintaining property 151 SYNOPSIS PAGE § 4. Subtraction of expenses, except those of education and training, necessary for securing income from labour 158 § 5. Summary of the sense in which the term income is commonly used • 160 § 6. The income of institutions 161 The income of many institutions may be added to the income of individuals to form a total or aggregate income, but it is better not to attempt to add something conceived to be the income of States and their territorial subdivisions.

§ 7. Power to demand roughly proportionate to magnitude of income 165 Persons with property can for a time exert a power of demand in excess of that given by their income, if they choose to part with their property and spend the proceeds, but the total so spent is not very large.· The power to demand given by income is often transferred by means of gifts and allowances, but it may then be regarded as exer cised by deputy. Subject to these modifications, the power to demand is distributed approximately in proportion to income. CHAPTER IX THE CLASSIFICATION OF INCOMES § I. Adam Smith's division of income into wages, profit and rent 168 The classification of incomes into wages. profits, and rent was appropriate to England in the eigh teenth century. § 2. Or income from labour, capital and land 171 Adam Smith endeavoured to identify wages with income derived from labour, profits with income derived from capital, and rent with in come derived from land.

§ 3. Profit divided between CI interest II or income derived from capital, and CI earnings of man agement " or income denved from the labour of working a business 174 xxii SYNOPSIS PAGE Smith and his successors shirked the difficulty arising from the fact that his " undertaker" gets his profits both from labour and from capital, but in recent years the classification has been made fourfold instead of threefold by the division of the old If profits" into cc interest" of the capitalist and earnings of the entrepreneur. § 4. Income from land and other property classed together, .and total income divided into income from property and income from labour. 175 The distinction between interest (in the new sense) and rent has been made much less marked by Marshall's conception of " quasi-rent," so that the way is now open for a twofold division into income derived from property and income derived from labour.

CHAPTER X THE DIVISION OF INCOME BETWEEN OWNERS AND WORKERS § I. Aggregate income and its division merely convenient fictions 179 § 2. The relative position of owners and workers not the same thing as the proportions in which the aggregate is divided . 180 § 3: The proportions dependent on the number as well as on the value of units of property and work 182 § 4. Causes of change in the proportions 183 § 5. What has happened and will happen? 186 CHAPTER XI INCOMES FROM OWNERSHIP OF PROPERTY § I. Inequality of inheritance 189 This is the most powerful cause of inequality of incomes derived from property. Law and custom sometimes encourage and sometimes discourage dispersion of property on the death of its owner.

SYNOPSIS § 2. Inequality of savings This is chiefly due to the inequality of incomes from which the savings have to be made, and partly to the varying magnitude of the claims of dependents. §3. Inequality of good fortune in investment Fortuitous alterations often take place in the value of property once acquired. xxiii PAGE 193 194 CHAPTER XII INCOMES FROM WORK § I. Inequality of industry and ability • 196 Difference in income received from work is not all a question of value, since the quantity of work done is a factor. The quantity varies from indi vidual to individual with industry and ability § 2. Occupational inequalities 197 The income derived from different occupations by persons of average industry and ability working at them depends on the value of the work done. Labour does not create value. We might expect competition to arrange the comparative number of persons in the various occupations so that the outputs would be of the precise value which would yield the ..same remuneration for the average per son in every different occupation.

But we could see that(1) There would always be deviations from this level, some of which might be of long duration. (2) Occupations offering large prizes to per sans of exceptional success would yield less than the others to the average person. (3) Disagreeable occupations would be better paid than agreeable ones. (4) Irregular employments would be' better paid for the periods during which work 18 actually carried on, and also, if un certainty was a deterrent, on the whole.

xxiv SYNOPSIS PAGB (5) Occupations for which expensive training or long postponement of earnings is necessary would bring in higher incomes during working life. If this were a true picture, we could say that not the earnings but the whole advantageousness of all occupations was equal. But it is not a true picture, because even if proper sums for original cost of training, etc., are deducted from earnings, a large balance of advantageousness remains in favour of the trades which require expensive train ing and long postponement of earnings. This comes about because the rearing of children is not a matter of business carried out for profit, but is left to the family, charity, the Church, and the State. Hence differences in earnings from labour are much more largely hereditary than they would be if they depended only upon the inheritance of natural qualities. § 3. Inequality between the sexes. 210 There is considerable difference in the remunera tion of the two sexes owing to their having different qualities and the field for employment of women being for various reasons smaller than that for the employment of men.

§ 4. Great influence of heredity 216 CHAPTER XIII THE RELATION BETWEEN INDIVIDUAL INCOME AND INDIVIDUAL WEALTH § I. Many goods and services are not reckoned as income 218 § 2. § 5· Much income is transferred by the recipients to other persons So far as income is saved, it is not enjoyed . Differences in wants prevent equal incomes from yielding equal material welfare Judgment in the laying out of income varies. 220 222 223 225 SYNOPSIS xxv PAGE § 6. The conditions under which incomes axe obtained. differ 226 § 7. The utility of units of income declines as the income grows . 227 § 8. Comparison of incomes at dissimilar times and places is futile 231 CHAPTER XIV TRADE BETWEEN COUNTRIES § I. The false ideal of a favourable balance of trade 234 It was long commonly thought that the great thing necessary for national wealth was the acqui sition and retention of a stock of bullioD, and that proper regulations were necessary to secure this end. The earliest plan was to make laws allowing bullion to come into the country, but forbidding its being carried out. Later it was argued that all that was wanted for the acquisition and reten tion of bullion was a "fa'tourable balance of trade."

This was true subject to proper allowances being made for (I) cost of carriage, (2) payments for other services, (3) payments for the use of pro perty, (4) investments, and (5) various non-com mercial payments. If exact figures had been available for imports and exports, and also for the necessary allowances, fears would have been removed in most countries. As no such figures were available, each nation thought itself in danger of losing its money unless it made proper regulations encouraging exports and discouraging imports. § 2. The policy of indiscriminate Protection • 243 When eventually these regulations were seen to be perfectly futile for the purpose for which they were intended, a great system of prohibitions, duties, and bounties had grown up, and the doc trine of " protection " was invented in the interest of the parties who would be hurt by the abandon ment of the system.

Popular support of Protection arises chiefly from the belief that i~ gives employment, but this belief is founded on falIaci,pus reasoning.

xxvi SYNOPSIS § 3. The policy of discriminating Protection . More enlightened protectionists argue that Pro tection will cause a better selection of industries by the protected country, which is unlikely. § 4. The attempt to tax the foreigner . Protection is sometimes supported on the ground that it enables a country to tax people living out side it: this is sometimes possible, but seldom worth doing. § 5. Actual results of foreign trade policies The effects of fiscal policy are not likely to appear in the form of perceptible differences in the condi tion of the working-classes of different countries. PAGE 249 254 260 CHAPTER XV THE WEALT~ OF THE INHABITANTS OF DIFFERENT TERRITORIES § I. The conception of a rl'ation and its wealth 263 The wealth of a nation was at one time regarded as its aggregate riches: modem discussion assumes that it is greater or less according as the average or typical member of the nation has more or less.

It takes the members of the nation to be the in habitants of an area, and the area discussed is usually a customs area, not necessarily the territory of a sovereign State, but this is accidental rather than fundamental. § 2. The wealth of the inhabitants of small areas. 267 To discover the causes of differences in the wealth of nations we should begin by considering the differences in the wealth of small groups in habiting very small areas. § 3. The wealth of the inhabitants of larger areas. 269 Then consider the wealth of larger groups, such as the inhabitants of English counties.

SYNOPSIS xxvii PAGE § 4. The wealth of the inhabitants of national territories 279 Applying what is thus learnt to nations, we find that the 'comparative wealth of nations depends uPOn- . (1) The natural and acquired qualities of the people. (2) Their occupations. (3) The value of the property which they own inside and outside their country. (4) The degree in which their country is .. new." INDEX • 288 CHAPTER I THE FUNDAMENTAL CONDITIONS OF WEALTH § I. The Meaning of Wealth, or the Nature of the Subject-matter of Economics. WEALTH has so generally been identified with the subject-matter of economics that we need not hesitate to treat the question, It What is wealth ? U as exactly the same question as It What is it most convenient to take as the subject-matter of eco nomics? U Most convenient, I say, because eco nomics is a department of science, and therefore the question what should be included in it is a question of the most convenient delimitation of the different departments of science.