Knut Wicksell: Selected Essays in Economics

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Knut Wicksell: Selected Essays in Economics

KNUT WICKSELL Knut Wicksell was one of the most influential economists of the twentieth century, making major contribut

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KNUT WICKSELL

Knut Wicksell was one of the most influential economists of the twentieth century, making major contributions to price theory, monetary theory, fiscal policy and capital theory. A prolific and diverse thinker, his ideas were to inspire the Stockholm School, the Austrian School and mainstream neoclassical economics. Although most of his major books have now been translated into English, relatively few of his essays have. This volume and its predecessor help rectify this omission, making many of Wicksell’s most important contributions accessible to the English-speaking reader for the first time. This volume contains translations of articles originally written in Swedish and German which focus on: • monetary theory; • population; • Wicksell’s book reviews, including reviews of Léon Walras, Ludwig von Mises and John Bates Clark. Bo Sandelin is affiliated to the University of Gothenburg. He has published on the economics of housing, the economics of crime, capital theory and the history of economic thought, especially Wicksell’s capital theory. He has published several books in Sweden, and edited The History of Swedish Economic Thought (Routledge, 1991).

KNUT WICKSELL Selected essays in economics

Edited by Bo Sandelin

VOLUME II

London and New York

First published 1999 by Routledge 11 New Fetter Lane, London EC4P 4EE This edition published in the Taylor & Francis e-Library, 2003. Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 © 1999 Bo Sandelin All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data Wicksell, Knut, 1851–1926. {Essays. English. Selections} Knut Wicksell: essays in economics/edited by Bo Sandelin. p. cm. Translated from German or Swedish. Includes bibliographical references and index. 1. Economics. I. Sandelin, Bo, 1942–. II. Title. HB34.W48213 1996 330–dc20 96–9038 CIP ISBN 0-203-44355-1 Master e-book ISBN

ISBN 0-203-75179-5 (Adobe eReader Format) ISBN 0-415-15513-4 (Print Edition)

CONTENTS

Preface

vii Part IV Money and prices

14 ON USURY FROM THE PERSPECTIVE OF ECONOMIC THEORY

3

15 THE MONETARY PROBLEMS OF THE FUTURE

12

16 STABILIZING THE VALUE OF MONEY: A MEANS OF PREVENTING CRISES

32

17 THE MONEY RATE OF INTEREST AND COMMODITY PRICES

40

18 THE REGULATION OF THE VALUE OF MONEY

46

19 THE GOLD RESERVE OF THE RIKSBANK

53

20 THE RATE OF EXCHANGE AND THE BANK RATE

60

21 THE SCANDINAVIAN MONETARY SYSTEM AFTER THE {FIRST WORLD} WAR

71

Part V Population 22 A FEW REMARKS ON THE CHIEF CAUSE OF SOCIAL MISFORTUNES AND THE BEST MEANS TO REMEDY THEM, WITH PARTICULAR REFERENCE TO DRUNKENNESS

83

23 OVERPRODUCTION—OR OVERPOPULATION?

117

24 CAN A COUNTRY BECOME UNDERPOPULATED?

125

v

CONTENTS

25 FROM THE EMIGRATION INQUIRY, APPENDIX 18: STATEMENTS BY SWEDISH MEN OF SCIENCE

136

Part VI Book reviews 26 LÉON WALRAS, ÉTUDES D’ÉCONOMIE SOCIALE {STUDIES IN SOCIAL ECONOMY}

171

27 LÉON WALRAS, ÉTUDES D’ÉCONOMIE POLITIQUE APPLIQUÉE {STUDIES IN APPLIED ECONOMICS}

175

28 CHARLES GIDE, NATIONALEKONOMIENS GRUNDDRAG {THE PRINCIPLES OF ECONOMICS} 181 29 FERNANDO LINDERBERG, KARL MARX OG DEN HISTORISKE SOCIALISME {KARL MARX AND HISTORICAL SOCIALISM}

185

30 EDWIN R.A.SELIGMAN, THE SHIFTING AND INCIDENCE OF TAXATION

193

31 JOHN BATES CLARK, THE DISTRIBUTION OF WEALTH: A THEORY OF WAGES, INTEREST AND PROFITS, and JOHN A.HOBSON, THE ECONOMICS OF DISTRIBUTION

205

32 GEORG FRIEDRICH KNAPP, DIE STAATLICHE THEORIE DES GELDES {THE STATE THEORY OF MONEY}

210

33 LUDWIG VON MISES, THEORIE DES GELDES UND DER UMLAUFSMITTEL {THE THEORY OF MONEY AND CREDIT}

220

34 KARL HELFFERICH, DEUTSCHLANDS VOLKSWOHLSTAND 1888–1913 {GERMANY’S NATIONAL WEALTH 1888–1913}

225

35 GOETZ BRIEFS, UNTERSUCHUNGEN ZUR KLASSISCHEN NATIONALÖKONOMIE {STUDIES IN CLASSICAL ECONOMICS}

230

36 JOHN STUART MILL, OM FRIHETEN {ON LIBERTY}

236

Index

241

vi

PREFACE

This is the second of Routledge’s two volumes of essays by the Swedish economist Knut Wicksell, originally published in Swedish or German. The first volume was published in 1997 and contains writings on marginalism and capital theory, on income, taxes and duties, and on unemployment. The first part of the present volume contains eight essays on money and prices, which was one of Wicksell’s main areas of research. It is followed by four pieces on the question of population, the first of which builds on a public lecture which made Wicksell known as a subversive, an epithet that his subsequent participation in public debate, continuing into old age, did nothing to render invalid. The contents of the last part are a number of book reviews, from which we learn how Wicksell looked upon the works of some of his great contemporaries. The essays in this volume have been translated by Dr Timothy Chamberlain. The Swedish Council for Research in the Humanities and Social Sciences has financed the translation. Both deserve special thanks. Bo SANDELIN

vii

Part IV MONEY AND PRICES

14 ON USURY FROM THE PERSPECTIVE OF ECONOMIC THEORY

As is well known, in the present year’s session the Riksdag has passed a government bill for a new law against usury’, which has subsequently been published and the first paragraph of which contains the statement that ‘any person who, in advancing money or allowing the payment of a debt to be deferred, exploits any other person’s straitened circumstances, imprudence or recklessness so as to obtain or to stipulate for him or herself or another person pecuniary advantages clearly in excess of what might be regarded as constituting a reasonable rate of interest in the circumstances, shall be… liable to a fine…of up to one thousand crowns or imprisonment for a maximum of one year, where no penalty is fixed for the offence in the general Criminal Code’. The auspices under which this law came into being were not particularly favourable. What prompted the government bill, in the first instance, was a Riksdag paper dating from 1898; but this paper was hardly the result of any generally perceived need for legislation on the subject, it was due rather to the passing sensation caused by a few startling cases of usury which had occurred in the capital in the previous year, especially the well-known Thavenius case. The bill was drafted by the legal department, leaning heavily on the German usury law from 1880, but the division of the Supreme Court that was charged with subjecting it to a preliminary review, in accordance with the Constitution, recommended unanimously that it be rejected, chiefly on the grounds that the provisions of the law were considered to be too unclear and vague to be successfully applied by the courts. Nevertheless, the original bill was presented by the government to the Riksdag, with a single small, though not unimportant, amendment. The majority in the Standing Committee on Civil Law Legislation recommended the rejection of the government bill for about the same reasons as the Supreme Court; in the First Chamber, one of our foremost legal authorities, Supreme Court Justice Afzelius, who had not taken part in the review of the bill by the Supreme Originally published as ‘Om ocker ur nationalekonomisk synpunkt’, Ekonomisk Tidskrift, 1901.

3

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Court, spoke out against the bill in detail and in very severe terms; the Uppsala lawyer Prof. Trygger agreed with him, and the Chairman of the Standing Committee on Civil Law Legislation, Mr Hasselrot, attached to the proposed law the prediction that it would scarcely lead to a single conviction. However, the law was passed by both Chambers, though with a significant deletion, to which we shall return in the following. Whether or not the severe verdicts I have cited and the unfavourable forecast for the future of the law were justified in every respect, may be left an open question here. As stated, the law is a quite faithful copy of the equivalent German law.1 But of course not so very few people have been found guilty under this German law in the course of the years, even if the percentage of acquittals has been abnormally large. However, it may be of interest to see how the science of economics, especially in our day, judges the phenomena that are generally summed up in the concept of usury, a concept which is not easily defined. In general, classical economics took a dismissive attitude towards all legislation against usury, as it did, on the whole, towards any restrictions on free contracts. Adam Smith makes the well-known, subtle observation that prohibiting people from taking interest forces them to charge a higher rate— since along with the usual charge for the use of his money, the lender also has to be specially compensated for the risk he runs of perhaps being brought up before the law for violation of the sections on usury; as Smith puts it, he has to insure himself against the law. Oddly enough, and quite inconsistently, Adam Smith was nevertheless no opponent of the legal maximum interest rate, which in his time was 5 per cent in England; his sole demand was that this maximum should be somewhat above the normal market rate. If, in contrast, the interest rate were set completely free, Smith feared that the country’s capital would be diverted from the calm, secure course in which it had tended to run until then and instead be dealt into the hands of ‘prodigals and projectors’. It was left to Smith’s younger contemporary Jeremy Bentham, the famous philosopher—lawyer, to make the decisive breach in the wall of established ideas on this subject, by his masterly little book with the provocative title Defence of Usury. And just as Bentham’s influence generally has been vast, indeed, paramount, in all modern legislation, on this point, too, his views have come off victorious both in scientific circles and among statesmen and the legislative authorities, until in the very most recent period something of a reaction has made itself felt—whether rightly or wrongly remains to be seen. However, this much can probably be said with certainty, that to a substantial extent, the general way of thinking about usury has been and still is based on a failure to recognize the true laws governing economic phenomena. This becomes particularly clear if one looks at the changes that the concept of usury has undergone in the course of time. Throughout the Middle Ages, all direct interest-taking was prohibited and was stigmatized as usury; in 4

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etymological terms of course the word means quite simply growth, yield, and therefore interest.2 This legal interpretation, certainly, had grown up in Canon Law under the aegis of the Church; but this does not mean one is entitled to imagine that it was based exclusively on religious or ethical foundations; it was in fact the product of a primitive, but in itself quite consistent, interpretation of economic affairs. The only possible source of a legitimate profit or yield, it was thought, was live productive forces, nature or human labour; it was considered unnatural and unlawful for an inanimate thing in itself, in contrast, money or a finished good, to be the object of lucrum [profit]. In complete consistency with this view, the prohibition of interest was extended at times to become a prohibition of all kinds of intermediate trade; in one of Charlemagne’s capitularies it is declared that anyone buying up wine or corn in order to sell them at a higher price is guilty of criminal usury.3 Similarly, it was considered that when an artisan supplied his own raw materials, which was rather uncommon in the early Middle Ages incidentally, he ought certainly to be compensated in the price of the finished good for the costs he had incurred, in addition to the wages of his labour, but he should not receive anything more, any commercial profit in the true sense of the word. We know now that this whole way of looking at things was mistaken. It was due to a failure to see, first, the increase in value that can be brought about by the very movement of goods in space, and second and above all, the significance of the time element or, which is the same thing, of capital for all production. From the perspective of economic science, saving, accumulating capital and producing for the future are the same thing and involve quite simply the insertion of a space of time between the beginning of production and its completion, which gives the live productive forces, human labour and the powers of nature, the opportunity to take on such forms as sometimes make them many times as effective as they are in their raw, immediate form. However simple and clear this truth may appear now, it has nevertheless required centuries to become generally accepted by the public mind and by science; indeed, it is only in the very most recent times that it has actually been, as it were, installed in the seat of honour in the science of economics, as the principal explanation of the phenomena associated with capital, and even today there is no lack of pretenders to the throne who want to knock it down from there. In practical life, however, it has long since thrust itself to the fore on its own merits; even in medieval times there was covert interest-taking, in many different guises, and in, and as a result of, the Reformation, lending money at interest was recognized almost everywhere as a lawful business; only that which exceeded ‘reasonable’, i.e. normal, interest was regarded as usury. The legal maximum rate of interest was set at different levels at different times; in England, for example, it was first 10, then 8, then 6 and finally 5 per cent. But even this restriction involves a failure to recognize economic laws. The productive power of capital is the source of the return on capital, but the 5

MONEY AND PRICES

size of the share in the yield of production that the owner of the capital is able to claim, in free competition, is determined in each individual case by the state of the market, by supply and demand, or, as it is expressed these days, by the marginal productivity of capital. If there is a scarcity of capital, then each new addition to the capital is welcome and makes a considerable contribution to production; accordingly, the share of the products that the capital can receive is high. If in contrast capital is in excess supply, then to be sure, regarded in its entirety, capital still has the same great significance for the yield of production; but the new additional capital can now only make a more modest contribution to the product, and for this reason it has to make do with a smaller share of the products. However, by competing with the old capital it depresses its share too: the interest on capital falls all along the line. In actual fact, this whole process of levelling is purely mechanical in nature; in itself, the phenomenon has nothing to do with justice or morality; in economic terms this is the way it is and it cannot be otherwise, at all events not as long as free competition prevails. As stated, during the past century this tenet has also gradually thrust itself to the fore in the public mind and in the legislation; virtually all interest rate barriers have fallen, one after another; those that still remain in the legislation, for example in our own law, can nowadays be regarded as outdated. The way our Riksdag treated §4 of the proposed usury law is characteristic in this respect. Originally, this section directed that certain provisions of the new law should also be applied in the cases of ‘usury’ referred to in chap. 9, §6 of the Commercial Code, namely, where someone charges a higher rate of interest than 6 per cent for mortgages, or for longer than six months, or else charges compound interest. After the criticism of the Supreme Court, the last words cited were omitted from the government bill, as they would have been too flagrantly at odds with, inter alia, the lending practice of the building societies. The Riksdag in turn struck out the whole paragraph, with the express purpose that Commercial Code 9, §6 ought to completely disappear from our law as soon as possible. Thus far, then, economic science, the legislation and public opinion are in fairly good accord with one another; but this can scarcely be said of the following point. The so-called natural or real rate of interest on capital, by which, in theory, the money or loan rate of interest is regulated, is, of course, fundamentally merely an abstract concept, an average of the real yield of capital in all existing commercial enterprises, of which some in fact yield returns many times in excess of this average, others less, while still others, not so few in number, even make a loss. Which of these categories a contemplated investment of capital will turn out to belong to in reality can unfortunately not be determined in advance, and even if the lender can here protect himself from losses in various ways, his security is still never absolute. In a word: all credit entails risk and consequently all loan rates of interest include a risk premium, which may be larger or smaller. And this is probably recognized by people in general; but because of a haziness in their ideas, they 6

USURY AND ECONOMIC THEORY

imagine that the risk premium must necessarily stand in a certain modest relation to the average real return to capital or, which amounts to about the same thing, to the interest demanded on loans where the risk is virtually zero. However, these two things have nothing to do with one another, and while the rate of interest on safe loans never exceeds a few per cent, except perhaps in times of crisis, there are absolutely no limits to the size of the risk premium other than the mathematically calculated risk itself. An example. The geologists have certain reasons to suppose that the coalbearing formations in Scania continue to the west and south, i.e. off the coast of Scania beneath the Sound {Oresund} or the Baltic Sea. So let us imagine that one or more companies were established with a view to locating and working these supposed deposits. To sell the shares in a company of this kind would possibly be easy enough, since although the chances of success would probably be extremely small, if successful, the enterprise would certainly yield large profits. But now let us modify our example and assume that after some preliminary work has been carried out, in order to avoid the necessity of sharing its expected profits, the company attempts to procure the working capital it needs not by issuing new shares but by borrowing against bonds or promissory notes. Now at what rate would a prudent businessman be able to accept these papers? Would he be able to accept them at a capital discount of 50 per cent, where, therefore, the company undertook to return 100 crowns, in addition to normal interest, for every 50 it had borrowed? On the part of the lender, this would be sound business solely on the assumption that the chances of the company succeeding were 1:1; in one case out of two he then has the prospect of getting his capital back with the great profit mentioned; but on the other hand, his prospects of losing the lot are equally large. Here, therefore, from a mathematical perspective, it is reasonable to play double or quits; if in contrast the company’s chances of success appear a priori to be only 1:10 or perhaps even just 1:100, the capital discount required would, rationally, be so high and the interest on the money, if the attempt succeeded, so exorbitant, that it would be many times in excess of anything one has heard reported in the most outrageous cases of usury. Even at a capital discount of 50 per cent, if the loan, for example, were set for repayment after 5 years, the average interest would be as much as 25–30 per cent, and would thus look like usury to most people’s mind; and yet, as we have already pointed out, such a lending operation could come about only in conditions that, relatively, greatly favoured the lender. The application of this analysis to an affair that has been much discussed in recent times presents itself too immediately to be completely passed over. Without otherwise entering into the various phases of this matter, about which so much has been written, I wish to state that in my opinion, the general indignation reported in this case has not actually been unjustified but has certainly been misdirected. What has been obscurely felt or sensed here is probably fundamentally that it is wrong that private individuals should be 7

MONEY AND PRICES

able to put themselves in a position to monopolize natural wealth, to a value of millions and millions, that belongs to the society; but observations of this kind obviously belong on another plane entirely. In a case like this it would also be completely absurd to leave it to a court of law to decide ‘what might be considered to constitute reasonable interest in the circumstances’. To business contracts in the real sense of the word, the new usury law is clearly just as inapplicable as the old, nor, surely, is it intended to apply to such cases. But if the popular aversion to usury is thus founded largely on erroneous presuppositions, this does not mean that it is devoid of any real basis. I believe, to the contrary, that here too we are dealing with an instinct that, though essentially justified, is hazy and therefore often fanatical in its expression. What has always made the usurer hateful and his victim the object of pity has been the feeling of the danger that lurks for us all in the universal human quality known as improvidence—the underestimation of future needs and overestimation of future resources, compared with the present. As a result of this, a loan of money all too frequently turns out a deceptive business, above all if it is taken out purely for the purposes of consumption; it lacks the quality of mutual benefit to both parties that distinguishes sound business transactions; it is often merely of apparent benefit to the borrower, but in reality to his detriment, to be given the opportunity to enhance his present status at the expense of the future. Where he is concerned, this may be true whether usurious rates of interest are charged or not; but as regards the lender, the stipulation of a high rate of interest in such cases is naturally an indication that he has intended to exploit the opposite party’s imprudence or recklessness. Here, then, we have an area where a law against usury such as the one promulgated at present may possibly be of some benefit. It cannot push the rate of interest on usurious loans down, but it may be able to prevent such transactions coming about at all in some of the cases where it is desirable in the borrower’s own interest that the expedient of loans be closed off to him, and he be thrown upon his own economic resources. Nevertheless, the question can be raised whether even in such cases alternative, more direct, legislation would not be in place, all the more so since the consequences of usury are often suffered not so much by the borrower himself as by other people. Not infrequently, as Mr Afzelius emphasized in his speech in the First Chamber, the borrower’s prospects of repaying the loan in the future are slim or non-existent and the only security the lender has lies in the pressure he hopes to be able to bring to bear on relations or friends of the borrower in the future, in order to save the latter from ‘catastrophe’. I surmise that here the speaker principally had in mind the cases that so often occur in the money-lending business in which the promissory note against which the loan is made is endorsed with a false name. From the point of view of the legal interpretation, an affair of this kind assumes a most peculiar complexion; it becomes, so to speak, a parody of law and justice. In 8

USURY AND ECONOMIC THEORY

reality, the actual crime of falsification is a mere fiction; for there is really no question of the wool being pulled over anyone’s eyes, since the lender is just as happy to accept the false bill or promissory note as a genuine one, or even prefers to do so. For him, the draconian provisions of the Criminal Code are merely a means of extorting money from utterly innocent people, parents, siblings or friends of the reckless person who has put his honour, and the honour of his near and dear, at stake. The attempt has been made, though so far without success, to turn the law against the usurer himself in such cases, using section 12, §6 of the Criminal Code; yet it is probably uncertain whether this is practicable even in formal terms, since after all, a person can scarcely be said to be ‘using’ a paper that he merely keeps in his bureau drawer. But at all events, it is surely evident that in effect, the difficulty of substantiating the charge makes this expedient virtually worthless, while a law against extortion (blackmail) would appear to be the only fully appropriate and effective remedy here. As is quite generally recognized, our Criminal Code, unlike that of other countries, lacks adequate provisions in this respect. What remain to be considered are the quite numerous cases in which the need for the loan, in itself, is fully legitimate, but for want of security acceptable to a bank, the borrower is unable to turn to any of the regular credit institutions and instead falls into the hands of a usurer. To expect any help here from a law against usury, however ingeniously it may be framed, is naturally futile; such a law only results in limiting still further the circle of lenders to whom such a person can turn, thereby driving the interest rate he has to pay up instead of pushing it down. Instead, here we must look in the very opposite direction for help, by boldly releasing the legal interest rate from its restraints, as it were rehabilitating legitimate and beneficial usury so as to put a stop to harmful usury.4 A few years ago I attempted to propagandize for this idea in a Stockholm newspaper—I was motivated by the very usury scandals in our capital I have mentioned previously. I pointed out that the complaints that used to be so common about pawnbrokers fleecing their customers had died away more or less completely after pawnbroking ceased to be a despised, furtive trade and was instead made the object of a completely open, orderly business activity, large-scale and directed by the local authorities. The same approach ought to be adopted in order to combat usury; it should be beaten by its own weapons on its own ground; banks ought to be opened, or existing banks ought to establish a line of business, the aim of which, quite openly, should be to lend money against inadequate security, but at a correspondingly higher interest rate. A few days later I had the satisfaction of reading an article in the same newspaper, submitted by the signatory ‘Bank Clerk’, from which it was apparent that this idea had actually long been discussed in banking circles, indeed, that an attempt had once been made to put it into practice, namely in the so-called Tjänstemannabanken [Clerical Bank], though the attempt had foundered as a result of practical difficulties, particularly the fact that a normal bank management does not possess the extensive and 9

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thorough knowledge of character required for such delicate work. The author of the article, moreover, specified various means by which, in the absence of security acceptable to a bank, guarantees could be sought for the personal trustworthiness of the loan applicant, first, testimonials from older, credible persons, second and above all, the degree of orderliness with which he had paid his taxes in the previous years. Whether the matter has since made any progress towards a solution in practice, I do not know. I cannot conclude these remarks without touching in a few words upon the kind of credit that is so often met with in university cities in particular, but also elsewhere, namely, the loans that students are compelled to take out in order to be able to continue with their studies. Always dubious, this type of consumer credit becomes still more so by the form in which it is generally supplied by the banks. For this form is that of the promissory note circulating with at most six months notice, or else, and perhaps still more frequently, that of the three-month bill. However, it is obvious that both of these forms of loans are designed to meet quite different credit needs than those that are to be satisfied here; the discounting of bills in particular is of course intended to facilitate the cash purchase of goods by the sale of which to his customers the trader—borrower in turn obtains money with which to redeem the bill. Now nothing can be more ridiculous and more absurd, or more accurately, it would be if it were not so pitiful and sad, than to see these poor students, who are engaged in more or less extensive bill-brokering, almost like wholesalers, though of course without any foundation of goods sold, and who day by day and hour by hour are obliged to set their minds to finding expedients for obtaining the means to redeem or renew these perpetually maturing bills. That the loans themselves become extremely dear as a result of the commission charged for renewing bills and the protesting of bills is almost the least of the evils involved; but in many cases, the sacrifice of time, labour and peace of mind that such loan operations require makes them as ruinous as the most ruthless usury. What such a student really needs is about the diametrical opposite of loans against bills. He needs a smallish sum of money, paid out periodically, e.g. once a month or once a quarter, to cover his living expenses; but he cannot pay off, and therefore ought not to commit himself to paying off, either the principal or the interest on it until a few years after the conclusion of his studies, when he ought to be in a position to repay the amount of the loan together with the interest due, in relatively small instalments. Admittedly, such loans, too, would be expensive, for obvious reasons, though hardly more expensive than the present loans; but in compensation, they would present the borrower with the invaluable benefit of being able to pursue his studies in peace and quiet, and they would certainly never amount to the incredible sums for which many a student now manages to get himself into debt, thereby destroying his entire future. Why, then, are study loans not instituted with this goal in mind, and in just this form? Among other things, surely, because this would come into direct conflict with 10

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Commercial Code 9, §6, which I have mentioned above, and which is still formally in force; the loans would of course run with more than six months notice, and to charge more than 6 per cent per year for them, and also compound interest, would probably be unavoidable in many cases. Here we have one of the many examples of how irrational legislation not merely fails to achieve its own purpose, but actually promotes the very phenomena it was supposed to work against. It is to be hoped that with the repeal of this section of the law, which I have referred to several times, a repeal that is presumably imminent, necessary reforms in the respect discussed here may not be slow in following. Let me summarize briefly. To the extent that usurious loans really exist and are not merely the necessary expression of a higher degree of commercial risk, they can be divided into two classes: those in which the expedient of loans ought to be wholly closed off, and those in which to the contrary it ought to be made more easily accessible than at present. In the former case the usury law that has now been passed may perhaps do some good, though even here more direct legislation aimed at the actual abuse, particularly a law against extortion, would be preferable. In the latter case, which is in all certainty far more widespread, it is just as impossible to imagine the new usury law doing any good as the old, though it may certainly do the opposite. The remedy here lies rather—apart from in direct measures to raise the general level of social prosperity—on the part of the legislation, in an abolition of the prohibitions of interest that still exist, on the part of the credit institutions, in suitable initiatives and the institution of new forms of loans on the basis of these, and on the part of the general public, in ridding themselves of their unjustified prejudices against usury.

NOTES 1 2 3 4

However, the rendering of the word ‘Nothlage’ {distress} as ‘straitened circumstances’ is surely rather inexact and perhaps not unproblematic. Wicksell’s etymological point refers of course to the Swedish word for usury, ocker, which is cognate with the German Wucher and Middle English oker (translator’s note). W.Lexis, article ‘Wucher’ in Handwörterbuch der Staatswissenschaften. To be sure, as A.Wagner emphasizes, direct measures to prevent distress are still more effective here: insurance against illness, old age, unemployment, etc. This goes without saying, but really belongs to a different set of reflections.

11

15 THE MONETARY PROBLEMS OF THE FUTURE

The dispute about the most suitable metal or standard for money, about ‘die Währung’, as the Germans call it, using a word which is untranslatable into Swedish, this dispute that has so occupied politicians, financiers and economists in past decades, has concluded with a virtually complete victory for one of the competing systems, gold monometallism. If Austria-Hungary, as expected, adopts the convertibility of its notes into gold, as of this current year, the pure gold standard, or monetary systems that in practical terms coincide with the gold standard in all essential respects, will prevail in all the major European countries, as in most modern societies outside our continent; and since the abundant production of gold continues to place large stocks of gold at the world’s disposal every year, it can be taken for granted that Austria—Hungary’s example will gradually be followed by all other countries, both those that still use a depreciated paper currency and the few remaining silver-standard countries, to the extent that their financial strength permits it. One of these silver countries, namely, British India, can already be said to be on the gold standard now, though still with gold reserves that would normally be regarded as far too limited, and the transition from silver to gold as the measure of value has been made there in a fashion so simple that it is bound to occasion surprise, not to say admiration. For since the Indian mints were closed to the free minting of rupees, about 10 years ago, with rupees now being coined only for the account of the State, and since the English gold sovereign was declared legal tender in India in 1899, at a fixed rate of £1 sterling to 15 rupees, there has actually existed in India, at least in principle, approximately the same monetary system as in the Latin Monetary Union or in the Netherlands, namely the ‘limping’ bimetallic standard, where because of the suspension of coinage, the silver coins, like our own petty coins, acquire a fictitious value independent of the value of the metal and at present far in excess of this value, while the value of the gold coins, which may still be freely minted, is strictly in proportion to the value of the unminted metal— and of course in fact, this is equivalent to being on the gold standard or having a gold ‘Währung’. To be sure, the Indian state has not yet undertaken Originally published as ‘Framtidens myntproblem’, Ekonomisk Tidskrift, 1904.

12

THE MONETARY PROBLEMS OF THE FUTURE

to pay gold for rupees on demand (which, incidentally, the French state does not do with its five-franc pieces either) but by means of a cautious minting policy it has nevertheless succeeded in recent years in keeping the rupee to the maximum value provided for by the law, 16 pence in gold, without the continued fall in the value of silver bullion being able to hinder this. Here, therefore, as 20 years previously in the Netherlands, a couple of legislative measures are all that has been required in order to accomplish the transition from silver to gold currency—in the twinkling of an eye, almost—without any concurrent financial operations involving the buying up or borrowing of large reserves of gold. It would be no wonder if this example induced the remaining silver-using countries to follow suit; reportedly, they have already begun to take steps towards attempts to join the gold standard, probably in the same way; this is particularly true of Mexico and China, though in the latter country it will be necessary to this end first to establish an actual coinage, since in everyday business silver is still accepted there by weight, as in early antiquity or in the old giro banks. It should, however, be added that in India itself, this governmental conjuring trick has not met with unqualified enthusiasm, since when the value of the rupee was raised in just a few years from 13 pence (1894–5) to 16 (1898 onwards), by the suspension of free minting, in some degree this was of course equivalent to all taxes and interest payments rising by nearly 25 per cent. However, at most, this objection can be made to the ratio of gold to silver that was chosen, not to the actual measure in itself. But if anyone now imagines, as many people in fact do, that this means the final word has been said in monetary policy, that future generations have now merely to reap the benefits of their forefathers’ wisdom and that with the question of money now having been definitively solved, economists will henceforth be able to devote their undivided energies to other tasks, then perhaps a none too distant future will prove them mistaken yet. In reality, the victory of monometallism has been won not so much in theory as in fact, in practice; it is not, at least not solely or principally, by the weight of its arguments that monometallism has gained general acceptance, it is rather, above all, because of new discoveries of gold and because of technical progress in gold production, developments that together have made a total mockery of the pessimistic predictions in the 1880s regarding the future of gold production; in a word, the victory has been won in the Transvaal and the Klondike, Colorado and Australia, not at the green baize tables of the monetary conferences or by discussions between men of science. To some extent, therefore, the system is built on the foundation of external contingencies, and this foundation is treacherous. There is no doubt that gold monometallism is the simplest and most easily managed of all monetary systems, particularly if it is elevated into a universal system, which is what now appears to be happening. It requires no international agreements, no anxious supervision of banks and monetary 13

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institutions on the part of the government, everything proceeds quite automatically, at least in times of peace: a certain quantity by weight of a substance that is identical in its composition throughout the world, gold, is the universal measure of value and the means of payment in all those international transactions that cannot be settled even more simply by cancelling credits against debits. The only thing each nation needs to do is to see to it that it acquires and holds a sufficient quantity of this universal means of payment, but essentially, even this generally occurs completely automatically by means of the well-known effect of an efflux of gold on the interest rates of the banks and in all likelihood also on commodity prices. And for domestic trade, too, gold monometallism presents great advantages, even if they may have been somewhat exaggerated. To be sure, the silver coins necessary for relatively small payments have to be minted below their metallic value, so as not to be driven from circulation by a temporary rise in the value of silver bullion, but if their minting is kept within due limits, they retain their fictitious value relative to gold without the least difficulty, as experience has shown time and again, whereas in a country where silver is the principal coin and is freely minted, it would undeniably be more difficult, if not impossible, to endow the gold coins with a value distinct from the value of bullion, so as to maintain a fixed relation between gold and silver coins. If both metals are freely minted, in turn, there is always the risk that one kind of coin will wholly or partially drive the other out of circulation. It is therefore solely by gold monometallism that one secures a suitable proportion of both gold and silver coins for the requirements of circulation. But with these advantages, we have come more or less to the end of the list of the virtues of gold monometallism; the most important thing of all, namely, the preservation of the constancy of the measure of value with respect to that which is to be measured, commodities, is unfortunately accomplished just as little by gold monometallism as by any of the systems competing with it, and temporarily eliminated by it, or indeed even less so; as far as such things are at all possible, it guarantees the constant value of money in space, but not in time. After all, the whole principle is to make a certain good, and a single such good, namely, the metal gold, the standard of value for all other goods; but since this good, in common with other goods, is affected by production and consumption, the prerequisite for the stability of the value of money in a monometallic system is in actual fact that the metal in question shall always be produced in the quantity demanded by the needs of trade at constant prices, while this goal will eo ipso be missed as soon as output becomes either too large or too small relative to what is required. But since output just matching need can be regarded, figuratively speaking, almost as a mathematical point or as a very short segment of a line stretching without limit in both directions, the chances of success here are obviously extremely small. It must be remembered that when it comes to all other goods, production and consumption limit one another by means of the price or exchange 14

THE MONETARY PROBLEMS OF THE FUTURE

value, acting as mediator; here, on the other hand, it would be a question of keeping the ‘price’, i.e. the purchasing power of gold with respect to goods, unchanged, in spite of disturbances in production and consumption, which is as it were an economic contradiction in terms. The first of the two dangers referred to, the only one with which people have really occupied themselves until now, namely, the risk of the goldfields drying up, with the result that the production of gold would no longer be sufficient to meet requirements, certainly seems rather remote at present. In our day, the output of gold is larger by far than it has ever been before; it appears to be still on the way up, now that the temporary drop due to the Boer War is in the process of being turned round, and in contrast to production in the 1850s and 1860s, modern gold production, as is well known, is based only to a minor extent on panning in riverbeds and alluvial deposits, and instead relies mainly on real mining, which probably means that continued production is guaranteed for a considerable time into the future. However, predictions about the production of precious metals have been proved wrong so many times that there might be some justification for taking even this possibility into consideration; and those who claim that gold monometallism is the only monetary system imaginable ‘for future ages beyond reckoning’, had better have arguments in stock to deal with this eventuality, too. To be sure, it is true that the reserves of gold coin already accumulated—somewhat in excess of twenty thousand million crowns, it is estimated—are so colossal that with prudent management, they ought to suffice to maintain the gold standard and the level of prices for a good long time, even if the output of gold were to decline considerably. After all, the example of the Netherlands and India shows that it is possible to change to and maintain the gold standard even with quite limited reserves of gold, and perhaps even more telling evidence to this effect is provided by our own country, where the convertibility of banknotes into metal, first into silver and since 1873 into gold, has been maintained perfectly for almost 70 years, while the quantity of metal held has been extremely small, in relative terms. If other countries were to take up the technique of issuing notes of relatively low denomination that is used in our country as well as in the United States and, in part, in Scotland and Ireland and various other countries, then it is fairly certain that the gold coins now in the hands of the general public, which in total far exceed the stocks held by the banks, would flow into the banks in exchange for notes, which are far more convenient. Further, in so far as the population of France gives up its conservative and more than a little outdated custom of holding large private funds of ready cash, and instead switches, to the same extent as England and Germany, to the use of banks as middlemen in making payments, then from this source, too, a vast stock of gold coins would become available. It is hard to imagine any real inconvenience attaching to such a centralization of the stocks of gold; the goal so eagerly sought after 50 years ago, that the general public should have hard coin in its hands, was probably essentially 15

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more or less an illusion; the individual sums of money in the hands of the public are in any case too small to form any real reserve fund—except possibly in France. As for the concern that if the circulation within the country consists mainly of notes, these might suddenly lose all or most of their value if their convertibility into gold cannot be maintained, as a result of political difficulties or the like, this is surely only conceivable on the assumption that the state were then to forget to declare a compulsory rate of exchange for the notes, which is not very likely. In our own monetary legislation, incidentally, this measure has already been taken in advance for the notes issued by the Riksbank. But if a compulsory rate of exchange is declared, then of course it is more or less a matter of indifference to the general public whether the small sums that each individual has in his hands and with which he has to make his purchases in the immediate future consist of gold, silver, copper or paper. However, the inconveniences arising from a reduction in the quantity of gold should still not be regarded too light-heartedly. All the measures mentioned require changes, and far-reaching changes, both in the general way of looking at things and in the legislation; a substantial reduction in the supplies of gold might possibly come so quickly that these changes could not be carried through in good enough time. If the output of gold were to fall as low as to the levels that prevailed in the mid-1880s, or lower, so that it only matched the needs of industrial consumption, which might have undergone great expansion in the meantime, then we should certainly witness a renewed, and much larger-scale, ‘battle of the banks for gold’, such as was talked about so much in the recent past, with attendant rises in discount rates and falling commodity prices, which in combination would exercise a paralysing effect on industrial enterprise. And among the projects to improve this state of affairs that would then see the light of day, it is not improbable that the rehabilitation of silver, international bimetallism, which had long been thought dead and buried, would raise its head anew. However, as I have said, at the present time this whole assumption is, if anything, counterfactual. It is far more probable that developments will proceed in quite the contrary direction, that supplies of gold will become larger and larger and ultimately greatly overabundant. Already in the 1890s, the effects of a glut of gold of this kind made themselves felt with some force; but the surfeit soon disappeared again, since Russia, Austria and the United States, to some extent also India and Japan, were amassing large stocks of gold at this time in the process and for the purpose of a transition to or consolidation of the gold standard. At present, however, as far as I am aware, no such deliberate, large-scale accumulation of gold is under way, nor do such conditions now exist as did in the 1860s, when gold forced its way into circulation in the bimetallic countries of its own accord and there displaced silver. The silver now in the world in minted form mostly has a fictitious value, far higher than its value as bullion, and can therefore not automatically 16

THE MONETARY PROBLEMS OF THE FUTURE

be driven out by gold. The conclusion would therefore seem to be that for the most part, the supplies of new gold are piling up in the strongrooms of the European and American banks, which are already well stocked with gold; and as the present output of gold is already in excess of one thousand million crowns per year, of which only a quarter is thought to go to industry, the sums involved are evidently far from small; the money stock is increasing at a far faster rate than the population or the need of currency for trade purposes. A progressive rise in commodity prices, a fall in the purchasing power of money ought, it would seem, to be an inevitable consequence of this development. By and large, such a decline in the value of money has to be regarded as just as serious a problem as a rise in its value. It entails an unmerited advantage for those who for one reason or another have money to pay, and equally undeserved suffering for those who have money to claim, whether as wages, pensions or interest on money loaned. One should be very careful not to confuse the last-mentioned category with the so-called capitalist class proper. Large-scale capital has mostly taken on the form of fixed capital or durable stocks and is therefore of course unaffected by a fall in the value of money; forests, mines, agricultural land, buildings, machinery, railways, etc. naturally rise in price at the same time as the products or productive services that they yield. The capital loaned out in the form of money—deposits in banks and savings banks, mortgages on real property, together with the holding of bonds and government securities (on a large scale, in foreign countries)—money claims, in a word, consist, at least to a very considerable extent, of common people’s assets, the means of support of widows and orphans, money put aside by labourers for their old age, and so on. A fairly substantial fall in the purchasing power of money therefore means more or less severe privations and sufferings for all these people, just as it means a sudden and undeserved lowering of the social standing of all those who have fixed money incomes— the wage-earning class, pensioners, and so on. If one were therefore to completely abandon the value of money and its variations to their fate, and to wait for the production and consumption of gold to finally come back into equilibrium, though perhaps at prices 50 or 100 per cent higher than at present (and this is what the adherents of pure gold monometallism must in consistency demand), then every country would at least have to take measures to alleviate or remedy the most serious of these economic problems; all wages and in fairness all pensions, too, ought to be raised correspondingly, all institutions maintained by endowments that had become unable to pay their debts on account of the diminished purchasing power of money, and that were therefore unable to carry on their operations, would have to be subsidized, etc., and in order to be able to do this, the state would have to increase its revenues by a considerable rise in all direct and indirect taxes. And after making all these adjustments, the country may be confronted with new changes, tending either in the same direction, or, which would almost be even worse, in the opposite 17

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direction: it may perhaps prove impossible to sustain the production of gold at the maximum level it has reached, prices decline once more and with commodity prices at this lower level, the increased taxes and higher wages become a heavy burden on the population. Let no one call this a mere fantasy: the history of money has plenty of pages that cast a glaring light on the social problems associated with sharp changes in the value of money, but what it has no counterpart to is a national economy so utterly penetrated by and based on money as the exclusive means of payment and standard of value as is the national economy of our time, and for this reason, a change in the value of money would now be felt far more intensely in all strata of the population, from the highest to the lowest. For the leading, trend-setting nations of our continent there are also additional, more selfish, but that does not mean less compelling, motives to seek to prevent a fall in the value of money. England and France in particular, but also Germany, to some extent, receive a substantial part of their revenues from the interest on capital invested abroad, and inasmuch as what is involved are money claims with fixed interest rates (bonds, government securities, etc.), a drop in the value of money would considerably reduce these revenues and thereby the prosperity of the nations in question. If, therefore, as does not seem improbable, a real surfeit of gold and an unmistakable advance in all commodity prices were to make itself felt, in the very near future, it would probably not be very long before the satisfaction with the state of affairs now achieved, which in many people’s opinion is ideal, seriously cooled off and once again we started to hear talk of proposals for a rational regulation of the value of money. One proposal of this kind, which has already been made in the past and which is at least sufficiently radical, involves the nationalization of gold production, after which this production, if excessively abundant by nature, would be limited by international agreements to the necessary level—of course, if the mines became less productive than might be desired, the nationalization of mining operations would not be of any help. Such a measure would naturally be extremely hard to carry through and moreover, if private interests were not to be abused in the most violent way, extremely expensive; from a broader economic perspective, it would have the additional failing of unnecessarily reducing in quantity and raising in price the raw material of an industry that, after all, is not completely insignificant or unimportant—unless it were possible to come up with some method of maintaining one price for gold for industrial purposes and another, higher price for the purposes of coinage, just as it is normal to have different prices for coal-gas, alcohol and even common salt, all depending on how they are to be used. Another conceivable method, as Prof. Davidson has pointed out in the article I have cited [elsewhere] (Ekonomisk Tidskrift 1901, p. 535), might consist in legislation to limit or hinder the use of so-called money substitutes—unbacked notes, especially those of low denomination, plus in 18

THE MONETARY PROBLEMS OF THE FUTURE

general the use of credit within the monetary system—which would leave more room for the new gold. However, as Davidson himself notes, as soon as they were not dictated by a real need in terms of the greater security and solidity of the monetary system, such measures would be felt to be an oppressive constraint on business life. And in addition, as he also observes with every reason, from a broader economic perspective, this would have the unfortunate consequence that the check upon an excessive increase in the production of gold that the rise in prices would otherwise entail would now be lost, so that labour and capital that could otherwise have been put to far better use would continue to be wasted on digging and blasting for gold, which in essence is utterly unproductive. Moreover, it cannot be taken for granted that those countries that have hitherto been able to get by without any inconvenience using inexpensive money substitutes would take upon themselves the sacrifices involved in acquiring large quantities of gold—or are they perhaps supposed to be subsidized for this purpose by other, richer countries? On the other hand, there is one measure that is undeniably rather obvious— though of course one exposes oneself to the signal disapproval of the orthodox monometallists merely by mentioning it—and unlike those just referred to, it has the advantage that if need be, it can be implemented even by a single country, independently of the others, and this would be—the suspension of the free minting of gold for private account. If a state, such as our own, reserved for itself the exclusive right to mint even the principal coin, thereby also releasing the national bank, not from the obligation to redeem its own notes in gold coin, but certainly from its present obligation to buy all unminted gold offered to it by private persons at the full value in coins or notes, after the deduction of minting costs, then it would lie completely in the power of the state subsequently to regulate the value of money in such a way that the prices of goods and services within the country were kept at an unchanging average level, completely independent of fluctuations in the market value of gold bullion—assuming that this value, as seems likely, goes down, not up, relative to the present purchasing power of gold in terms of goods. This would free the country of all those inconveniences of a declining value of money that I have just described. That it can be done is now surely beyond all reasonable doubt: it is not on theoretical grounds alone that such a claim is founded, but on the very recent and quite unanimous experience of the effects of suspending the free minting of silver. When for example Holland, which had previously been a silver-standard country, prohibited the minting of silver for private account in 1873, and did this without taking any immediate measures to introduce the gold standard, the remarkable thing happened that the value of a Dutch silver guilder rose not merely higher than its bullion value at the contemporary price of silver, which had already sunk somewhat by then, but even substantially higher than its original value, its old par of 1:15 1/2 relative to an equal quantity of gold by weight. One English pound 19

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sterling, which of old was worth 12 Dutch silver guilders, now came to be worth just 11.6 guilders, and so on. But of course at the same time, in its external relations, a country making this experiment would lose all the advantages of a currency that is constant vis-à-vis the neighbouring countries that the present monetary system confers. If subsequently one country after another were to suspend the free minting of gold, with a few years’ interval in each case and with the value of gold continuing to fall, then in the first instance, even if their gold coins were completely identical in size and fineness, they would come to present as large disparities in value as for example the West European silver coins, on the one hand, and the Austrian silver gulden, the Russian silver rouble, the Indian rupee and the Mexican dollar, on the other hand. At all events, if no special measures were taken for the purpose, but each country instead regulated the value of its own money independently, the great benefit of a standard of value common to the whole world would once again be lost, the exchange rates between the different countries would come to exhibit the same unpredictable swings as in older times, when fixed mint pars and ‘gold points’ were still unknown. In these circumstances, perhaps some people will be ready to dismiss the whole idea as a chimera without further ado; yet it has apparently already been discussed in the press. In his work Das Geld [Money],1 to which I shall shortly return, K.Helfferich informs us that in the mid-1890s, when a very great surfeit of gold made its effects felt on the European market and the market discount rate in London sank to a level which it has never even been close to either before or since, as an annual average, namely to 0.81 per cent (1895), the idea of suspending the minting of gold was actually mooted in English newspapers. To be sure, he adds that this proposal ‘was not taken seriously anywhere, at least not by people who themselves can be taken seriously’. Since I am not familiar with the newspaper debate in question, I am unable to determine to what extent this rather dismissive verdict is justified; at all events, the issue had been raised prematurely, for the surplus very soon disappeared as a result of the purchasing of gold by the countries mentioned above, particularly America, together with the increased need for circulating media occasioned by the sharp economic upturn that followed shortly thereafter. But out of sight is not necessarily out of mind; for all their conservatism, the English are given to surprising the world, and since England is undoubtedly the country that has the greatest interest in maintaining the value of money at its current level, it is not inconceivable that if the occasion arises, the question may be raised once more, even by people whom everyone has to take seriously. The advantage of sharing a common medium of exchange and standard of value with the whole world is probably only of secondary interest to England: after all, for lengthy periods England has been the sole country on the gold standard, while the entire rest of the world had either silver currency or at most bimetallic systems. 20

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But without doubt, the very best thing would be if it were possible to preserve all the advantages of the present system while avoiding its drawbacks, i.e. for the medium of exchange and measure of value to combine universality with constancy of value. That this is actually not impossible I shall attempt to show in what follows, after first taking a brief look at the position that is adopted on these questions by the author of one of the most valuable works on the subject to have come out in recent times, Karl Helfferich. Helfferich’s book Das Geld [Money], which has been referred to more than once, came out last year {1903} in the well-known Frankenstein series. The author has made a favourable impression previously by a number of essays in the monetary field and particularly by a detailed, two-volume account of the German monetary reform. If it is mainly practical and historical issues that are the subjects treated in those works, in the book under discussion here he shows that he is also an acute and clear-headed theorist, who always manages to get to the very heart of the so manifold phenomena of the monetary system. In addition, he commands an uncommonly readable style; the account does not lack breadth, but is free from that interminable reasoning about matters of common knowledge that so frequently encumber the works of German authors. For me personally, it has been a great satisfaction to acquaint myself with Helfferich’s book, since both in his positive account and in his critique of other authors, his theoretical standpoint agrees in all principal respects with the perspective I myself adopt in my work Geldzins und Güterpreise {Interest and Prices} (which, however, he does not seem to know). Thus, we agree on the purely formal nature of money, its essential difference as money from goods, and the derivation of its value from its very function as a medium of exchange or store of value, a point on which he refutes a number of muddled, fanciful ideas in an especially convincing manner. On other issues, where in my opinion he has not gone so far as he might, his way of thinking still constantly proceeds in the right direction and pulls up short only of conclusions or generalizations that are all too bold or abstract in nature. However, alongside this clear and consistent theoretical thinking, as soon as practical issues are touched upon there runs in Helfferich, so to speak, an undercurrent with its source in older viewpoints, consisting particularly in the overrating of the established order that is so common among his countrymen, especially if it bears a German hallmark. In his capacity as historian of the German monetary reform, Helfferich has acted on several previous occasions as an unconditional defender of this measure against attacks from various quarters; and he continues to do so, even where the defence cannot really be reconciled with the theoretical convictions that he himself now proclaims. As is well known, there has been a quite general inclination to see in Germany’s conversion to monometallism the initial impetus to the steep decline in the value of silver, which in time made the free minting of silver impossible in those countries that had hitherto been on the 21

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bimetallic or silver standard, and which in our day has degraded silver to a mere token coinage. The economic difficulties of every kind that followed this demonetizing of silver, and were no doubt also partially caused by it, including the sharp general fall of prices on the world market, are well known; many people are of the opinion that they could have been completely avoided if Germany had instead joined the bimetallic system of the Latin Monetary Union, as it seems actually to have intended to do immediately prior to the {Franco-Prussian} war. This much at least is probably certain: apart from a certain exaggerated idea of the advantages that gold monometallism has brought England, what decided Germany in favour of the system that was ultimately adopted there was also and not least the newly aroused national hatred of its French neighbour. The old stories Helfferich now trots out about the Germans not daring to enter into a monetary union with France on account of the discovery of the rather slapdash working methods of the French mints, and so on, seem to be little more than excuses. However, Helfferich denies all this; according to him, the pure gold standard would ultimately have worked its way to the fore in any case, on the strength of its own inherent advantages— i.e. quite apart from the sharp rise in the output of gold that later took place— whereas bimetallism, even in the most favourable form imaginable, is declared to be untenable and impracticable as a general international system. Yet he himself is unable to actually indicate any advantages other than that gold coins are relatively manageable and silver coins relatively unwieldy when making large payments. Now certainly this fact is incontestable: anyone who doubts it can undertake the experiment of walking around with just a few hundred crowns in silver in his pockets, and yet if silver coins were of full weight, they would weigh more than twice as much as now. But more convenient than both silver and gold in this respect are notes; for large payments, for sums of a few thousand crowns or more, notes are of course simply indispensable or if replaced, it must be by cheques and the like; but even for small-scale business, notes can be substituted for metal coins with advantage. As for the question of the practicability or impracticability of bimetallism, this subject, as I have said, is no longer relevant and might therefore just as well be passed over; however, Helfferich’s arguments seem to me rather too slight. As against the generally recognized doctrine that it was by means of French bimetallism that the relative values of gold and silver were kept almost unchanged for the first three-quarters of the nineteenth century, particularly between 1851 and 1872, Helfferich advances the alleged fact that for the greater part of the eighteenth century, England was bimetallic, i.e. permitted the free minting of both metals at fixed relative values, yet without this being able to prevent gold having a lower and silver, consequently, a higher value on the metals market during this entire period than corresponded to the statutory English ratio. But first, England had no real bimetallism during this period, its silver coins were worn in the extreme and could therefore not be exported so as to bring the ratio between the values of the metals into 22

THE MONETARY PROBLEMS OF THE FUTURE

balance, and second, at this time, England was not alone in maintaining a legal ratio between gold and silver coins—such a ratio existed in France too, and it was considerably lower, i.e. more unfavourable to gold, than the English ratio. Now if two major countries have each independently decided on different ratios between the values of the two kinds of coins, then of course the relative prices of gold and silver on the metals market cannot agree with both these ratios, as this is a logical impossibility; according to the theory of bimetallism, the price ratio would settle somewhere in between the two—and this is precisely what happened; that the ratio between the values settled closer to the French ratio was probably due to the fact that France actually possessed full-weight coins, namely, gold coins, which were melted down and shipped out in large quantities, in return for which silver from the mines poured into France. This merely in passing. On the subject of the future of the monetary system and the potential for bringing about a more rational organization of it than the present system, which is completely and utterly dependent on the contingencies and unpredictable fortunes of gold production, Helfferich takes a sceptical, not to say purely dismissive position, for a variety of reasons. Above all he claims (p. 494)—and wants this to be understood as the outcome of his own theoretical analysis—‘that there is scarcely any other good for which the decisive factors regulating its exchange rate guarantee, by their total effect, so great a stability as is present in the case of money, on account of its unique economic position and also, above all, on account of the organization of money in its modern state’. After a careful reading of his book, I am unable to concede that Helfferich has really accomplished the proof of this assertion; but even had he done so, this cause for consolation seems to me rather feeble. That the substance that is to measure all other values and be the foundation of all economic calculations cannot be permitted to be subject to the same violent fluctuations as can occasionally affect every individual kind of good is surely obvious, after all; if we do not demand far more than this we are certainly much too easily satisfied. Moreover, the price statistics of the past few decades, though perhaps not reliable in every detail, surely show that significant and economically fateful disturbances in the purchasing power of money and the general level of commodity prices are not precluded even in the modern monetary system. If one takes longer periods of time into account, then already Adam Smith of course points out that, quite the contrary, money is near enough the most unstable of all objects of value, though to be sure, as I have emphasized previously, this has no very great significance in practice. Again, against all proposals for a thoroughly worked out regulation of the monetary system, Helfferich advances in the first place and of course with some justification, the maxim ‘non liquet’: our knowledge of the laws governing changes in the value of money, he says, is still far too imperfect and rudimentary for us to be able to base any very farreaching practical measures on it; any attempt in this direction is therefore 23

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largely a leap in the dark. Further, he stresses the great practical difficulties involved in realizing all such plans. As a form for the regulation of the monetary system, what he has in mind principally here is the introduction of a paper currency that is inconvertible and therefore independent of the value of bullion; for as he himself emphasizes, in purely theoretical respects, paper money is the most perfect expression of the very idea of money, even if in reality and in practice it has generally been more or less the opposite. But he points out, and quite rightly so, that if the issuing of a paper currency of this kind were simply left to each individual state, no approximately stable relationship between the values of different countries’ money could endure, and the uniformity in the measure of value and medium of exchange among the different countries, which has been achieved at such great sacrifice in our time, would once more go to waste. The regulation of the paper currency would therefore have to be uniform, common to all states, and it would have to be issued from a single central source. But, he adds, the prerequisites for a paper currency of this kind are about the same as for perpetual peace. However, there are a number of gaps in the chain of reasoning here. To start at the end, I think it can hardly be claimed that an international monetary agreement presupposes uninterrupted peaceful relations between countries (though it can certainly be said that it would make a major contribution to the maintenance of peaceful relations). Surely a nation does not deprive itself of the possibility of drawing the sword if need be, just because it uses the same kind of money as other peoples, even if this money is made of paper. Nor would it be possible for a power at war to derive any illegitimate advantage from this state of affairs, unless it actually took to counterfeiting, which can probably be regarded as out of the question in the current state of our civilization. In fact, both monetary unions and other economic agreements of at least equal importance, e.g. customs unions with joint collection of duties, have existed between nations that have not merely been potential wartime enemies, but have actually gone to war with one another, and they have even remained in force while the war raged on. But what is more, the notion of so far-reaching a centralization as a single note-issuing bank for the whole world would constitute, quite needlessly complicates a problem that can probably be solved far more simply. Moreover, it will be a long time before there can be any question at all of actual paper money, whether national or international, since of course in many countries, trade and the banks are already glutted with gold; one can go so far as to say that by the normal rules of commerce, it would never be possible to get rid of this gold, since if free minting were generally suspended—which would unfailingly mean that bullion would fall very substantially in value with respect to minted gold and goods— then to melt the gold coins down and sell the metal could never be profitable as a private enterprise, even if it would be a gain from a higher, more general economic perspective. Further, since trade in the major civilized countries has already become accustomed to the use of hard coins, even if the minting 24

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of such coins for private account were prohibited, gold coin would probably still be retained as legal tender and the measure of value in each individual country for a long time, with a superstructure of notes and credit built on this foundation, just as at present. At any rate, it seems simplest to go on this assumption. The time for paper currency may come later, particularly if gold again becomes scarce. The task then becomes twofold; first, to endow this currency, as yet ‘fictitious’, with the additional quality of being an international means of payment, i.e. to maintain an unchanging mint par between the different countries, and second, to give this currency a constant purchasing power with respect to goods, in all countries, as far, that is, as this problem can be solved at all. It is of course conceivable that the former goal could be achieved by an international monetary union of the same kind as now exists between France, Belgium, Switzerland, Italy and some other countries, but in that case obviously each individual country’s right to mint gold would have to be limited to a certain amount, e.g. a quantity in a certain proportion to the population; otherwise, of course, an individual country would be able to exploit the cheap price of gold by minting coins over and above its own requirements and swamping the other states with its gold coins as a cheap means of payment for imported goods. However, such an agreement would be difficult, among other things because of the great real difference in the amount of hard coin needed by different countries. It seems to me that the matter could be solved far more easily simply by means of an agreement between the major monetary institutions in all countries always to redeem one another’s notes or money-orders at par in their own country’s notes or coins—naturally this would apply to gold coins too, though for the most part this would then be unnecessary. In other words, each country’s coins would be legal tender only within the country itself, but there would be no obstacle to its notes or money-orders being used in international payments too, since in other countries, they would always be redeemed at par by the major principal banks and perhaps also by other banks. As is well known, such an agreement already exists between the central banks of the Scandinavian countries, and it can be said to exist in nuce between other countries, too; after all, in reality it would only constitute an extension, a further development of a custom the banks have long since found compatible with their interests, namely, the maintenance of balances in foreign banks in order to be able to draw on these instead of sending gold when the need arises. In general, as is well known, international payments are being gathered into the hands of the banks more and more with each passing day; the entire system would therefore not be an innovation at all, but merely a further application of what we already have now. And since the risk of such balances being depleted, or more accurately, the necessity of paying interest on the credits by which new balances of this kind could be created, would necessarily influence the interest policy of the banks themselves in just the 25

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same way as does the risk of losing gold from their cash reserves under present circumstances, it is obvious that in this manner, the balance of payments of the different countries would automatically remain in equilibrium with one another, just as efficiently as now, when the minting of gold is free. An excessive issue of coins or notes, an overextension of credit, etc., in one particular country, with an ensuing deterioration in its trade balance, would bring in precisely the same effect on the discount rates of the banks as now, until equilibrium was restored. The second task, to keep the currency at a constant value with respect to goods and services, is naturally far more difficult. In actual fact, the solution to this problem as it is generally formulated involves an impossibility, a logical inconsistency. It goes without saying that there can be no question of each individual good constantly maintaining the same money price; the most that can be gained or aimed for is rather a constant average price level or average purchasing power of money. But average is a vague concept: there are many kinds of averages, and in order to know which to choose, one first has to know the purpose for which the average is to be calculated. In this case, the goal is evidently to find an average price that would have unchanging significance for us, no matter how the prices of individual goods may change; but such an average price does not exist. The same average price means different things to different individuals, different social classes and different places, not to mention different countries, and no matter how small the interval between the points in time that are to be compared may be, production and consumption patterns have often undergone such radical changes in the meantime that in part, the comparison would be dealing with incommensurable quantities. On the other hand, this failing cannot be remedied either by making something more personal than money, e.g. labour or the working day, the actual measure of value, as has sometimes been proposed, so that the value of money would be so regulated that the wages of common, plain labour always remained the same in money terms. For since labour is not equally productive and nor, therefore, is the real wage at the same level in different countries, an artificially imposed uniformity of money wages would be achieved at the expense of prices instead, which would then come to exhibit untenable differences: the identical commodity would have different prices on opposite sides of a duty-free international border, which is an impossibility. But if a regulation of the purchasing power of money and the level of prices therefore inevitably takes on a rather approximate and even a purely conventional character, particularly if it is to occur for all countries jointly, that does not mean that we could just as well do without it or entrust it to external contingencies as at present. Such changes in the value of money as are the result of an abnormal increase or reduction in the output of precious metals, and which manifest themselves in a simultaneous rise or fall in the prices of nearly all goods and services, have effects that are obvious to everyone 26

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and for reasons we have elaborated earlier they should undoubtedly be prevented as far as possible. As we have seen in the preceding, even after the suspension of the free minting of gold the same necessity would still remain as now for each individual country to keep its price level in equilibrium with that of other countries, and thus, at the same time, to ensure balance in its balance of payments, by time and again making adjustments to the banks’ interest rates. But by their nature, such measures are relative: they always occur on the basis of the interest rates prevailing in other countries at the same time and can therefore, fundamentally, be achieved in two separate ways. An efflux of gold, for example from England to Germany, can be arrested by the English money market raising its interest rates, but equally well by the German market lowering its rates. Consequently, the entire system still retains a degree of freedom, as the expression goes in mechanics; alongside the reciprocal raising or lowering of interest rates, which is intended to maintain the mint par and the relative value of money, there can occur a general raising or lowering of interest rates undertaken jointly by all or most countries, with a view to influencing the absolute value of money, its average purchasing power with respect to goods. Here, then, we return to our point of departure, the connection between the money rate of interest and the prices of goods.2 On this issue, Helfferich adopts a standpoint that, though cautious, is nonetheless perfectly clear and unambiguous. In his opinion, a rise in the loan rate of interest, if sufficiently large, at least, always has an inherent tendency to lower, and a lowering of the loan rate of interest always has a tendency to raise prices. However, Helfferich here understands changes in the money rate of interest as a more or less passive, automatically operating link between the quantity of money, on the one hand, and prices, on the other hand. If the quantity of money diminishes while the volume of goods traded remains unchanged, or if it remains constant while the quantity required for business increases, to some extent the vacuum can be filled, and in reality is indeed filled, by an increased recourse to credit, a more intensive use of money by means of credit. But this can only be done up to a certain limit: the supply of credit reacts to the increased demand by higher interest rates, and ultimately the interest rate can become so high that it appears more advantageous to the borrower to procure the money he needs by hastening the sale of his goods or other possessions, which results in a fall in the price of goods. On the other hand, a relative increase in the quantity of money initially leads to a diminished need for credit; money is made available for borrowing at declining interest rates, and the rate of interest can ultimately fall so low that it appears more advantageous to the lender to attempt to put his money to productive use himself by demanding more goods and services, with the consequence that prices rise. This description of Helfferich’s is probably rather too succinct: the decline in prices in the former case is due on his 27

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account to an increased supply, the rise in prices in the latter case to an increased demand for goods and services. It is surely likely that if interest rates are abnormally high, the borrower will also restrict his demand for goods as far as possible at the same time as or even before he hastens his own supply, and also that when money becomes abnormally ‘cheap’, he increases his demand for goods and services and at the same time reduces the supply of his own goods, waiting for better prices in the future, since of course he can in any case cover all his needs by means of the easy credit. The result would then be an influence on prices that is more intensive and more multifaceted than that indicated by Helfferich, but in other respects tending in the same direction. However, according to Helfferich, the actual quantity of money, too, and therefore a fortiori the loan rate of interest, have only a subsidiary or secondary effect on prices. He points out the fact that on many occasions—most recently at the end of the 1880s and beginning of the 1890s—an increased quantity of money, e.g. as a result of a rise in the output of gold, has had no demonstrable effect on prices and that as far as the money rate of interest is concerned, as I indicated in my previous article, price statistics and interest rate statistics in combination reveal unambiguously that rising prices have most often coincided with rising interest rates and falling prices with a falling discount rate at the banks and on the open market. The most important, or at least the most immediate, cause of price changes must consequently, he says, be something other than the factor just described, and he seeks this cause, like many before him, in the ‘trade cycle’, the alternation of good and bad times. Unfortunately, in his book we do not get to know much about what he himself imagines the connection to be between cause and effect here. For him, a favourable state of the market is a time when the demand for goods and services suddenly rises, so that it cannot be satisfied by the available supply; by means of the rise in prices that this induces, he says, the spirit of enterprise and commercial speculation is aroused, and an upward price movement is initiated, upon which the greater recourse to credit, the more intense exploitation of money with the higher interest rates that ensue, can at most exercise a retarding effect (pp. 525–6). Conversely in the case of unfavourable states of the market, bad times. It almost appears from this as if for Helfferich, the increased demand for commodities intended for the requirements of consumption were the primary factor in this process, in other words, as if according to him, a boom in business were initiated by everybody suddenly beginning to live beyond their means and demanding goods and services in greater quantities than justified by their incomes up to this point. But matters really cannot be thought of in this way. Admittedly, the variations in the state of the market and in particular the psychological factor that is undoubtedly closely associated with them are an area that has yet to be researched; nevertheless, there must be some real foundation underlying such phenomena as business booms in most cases, 28

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and this can surely be nothing other than the existence, or apparent existence, of an increase in the yield of production—which means, in the first instance, an increase in the share of capital in production—by means of technical advances, the opening of new communications and markets, and so on. In other words, the fundamental cause is probably a rise—actual or prospective—in the natural, real rate of return on capital, and hence a greater incentive to employ capital. However, this is not enough in itself to cause a rise in prices; the increased employment of capital requires new capital, and capital is normally accumulated by saving, which is the same thing as diminished or postponed consumption. If, therefore, the increased demand for goods and services for use in capitalistic production goes hand in hand with a diminished consumer demand on the part of those who are accumulating capital, the savers, there will not necessarily be any surplus of demand over the supply of goods and services, on the whole, or, therefore, any rise in prices, either. Nor, then, do the entrepreneurs, who can only provide an incentive for the necessary increase in saving and capital accumulation by offering higher interest rates, obtain any special additional profit or find themselves in a position to propose higher prices than usual. If, on the other hand, the demand of entrepreneurs for loan capital is either satisfied by means of purchasing power, represented by large stocks of money laid up in advance and withheld from circulation, or, which in our times is probably even more important, if monetary institutions create the necessary pecuniary means by providing credit, whether in the form of notes, cheques or giros, and if as a result of all this the loan rate of interest only slowly rises as high as the increased rate of return on capital, then the stimulus to new enterprise will be unabated or as good as unabated, and the pecuniary demand for goods and services will grow in one quarter without any corresponding simultaneous reduction, as a result of increased saving and voluntarily diminished consumption, in some other quarter. If the matter is understood in this way, if we dot the i, as it were, by distinguishing in due form between the loan rate of interest and the natural rate of interest on capital, then no dualism or inconsistency of any kind arises; the entire phenomenon is governed by a single law. A rise in prices—to limit the discussion to this—is always caused by increased pecuniary purchasing power, whether this is due to an increased quantity of money or in the heightened exploitation of money, the accelerated physical or virtual circulation of money that arises above all when credit is offered on unusually cheap terms relative to the borrower’s expected profit. And this conforms to the generally accepted way of thinking in economics, according to which in economic equilibrium, the money rate of interest is merely a guise, a form assumed by the real rate of interest on capital. If a difference then arises between the two, the equilibrium must also be disturbed, and the disturbance ought to tend in the same direction, whether it is the money rate of interest that has sunk while the rate of interest on capital has remained constant or 29

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the rate of return on capital that has risen while the money rate of interest has remained unchanged. But even ignoring this argument, which may perhaps seem excessively abstract, the result in terms of the practical regulation of the value of money is about the same as above. For the influence good and bad times exercise on prices is always of limited scope, and it is in the nature of things that the effects tending in opposite directions here alternate with one another, while if we ascribe any influence on prices at all to a spontaneous lowering or raising of the money rate of interest, it exercises this influence continuously in the same direction, as long as it itself persists. In a word, its effect [as I have already emphasized elsewhere], is cumulative and therefore ultimately surpasses all other effects; in the same way as a sharp increase or reduction in the output of gold, when minting is free, always makes itself irresistibly felt in terms of the general price level in the long run, even if it can be counteracted for a while by other forces. Our conclusion is therefore that in a jointly undertaken raising or lowering of their interest rates, the major banking institutions in the different countries would have a fully adequate means of keeping the general price level at a constant average or at least of protecting it from excessively pronounced and persistent fluctuations, though naturally, as long as minted gold remains the measure of value, they must be supported in this by the governments’ own monetary policy; and fundamentally, there is nothing artificial about this system, since as long as the theory is correct, the rates around which the money rate of interest in each individual country would thus come to oscillate would be nothing but the level of the natural rate of return on capital. As we have already seen, Helfferich does not deny the possibility of a regulation of this kind, but he raises two objections to its feasibility in practice, in addition to those we have already cited. First, it could bring in its train difficulties and dangers for the business world; what, for example, would have happened, he says, if the attempt had been made in Germany during the last economic boom, 1897–9, to counteract the general rise in prices by artificially limiting the circulation of money, at a time, moreover, when the official discount rates were periodically as high as 6 or 7 per cent. To this, however, the reply is, first, that if the banks had raised their interest rates in time, these nervous jumps in the discount rate (which only occurred by way of exception, however) would probably have been unnecessary; and second, that a regulation of the value of money ought naturally to be brought in gradually and gently—violently forcing the level of prices up or down in times of crisis is of limited interest. Further, supporting his argument on the history of inconvertible paper currencies, Helfferich stresses that such price regulation from above, on the part of the government, for example, generally becomes the subject of vehement party conflicts, since the big businessmen are always interested in ‘cheap money’, both in the sense of low interest rates and in the sense of rising commodity prices, while other interest groups in the 30

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country conversely desire to get as much as possible for their money. This may indeed be true, but when Helfferich draws from it the conclusion that it is therefore, after all, best on the whole when the value of money is regulated, as now, by factors extrinsic to party conflicts, i.e. by changes in the output of gold, this is surely barely more rational than settling dubious issues by drawing lots, allowing chance to decide. Fortunately there is also a third factor here, namely science, whose voice always makes itself heard in the end, even if it can be drowned out for a while by the din of party conflicts. To the extent that price statistics and, more generally, commercial statistics have developed so far that it can be ascertained with reasonable certainty if and when changes in the purchasing power of money have occurred in reality, we have acquired an objective basis for attempts to prevent such changes by rational methods. It has to be admitted that even then, it is no easy task that lies before the combined forces of economic science and economic practice; but provided only the theorists are done with their part of the task, the practitioners will surely find ways to apply their teachings—to the extent, that is, that they are forced to do so by necessity. If the production of gold were once again to be limited, or the need for gold to rise in an unexpected degree, it may of course be a long time before this necessity arises; but if production continues on the same scale as now or perhaps rises still further, while the need for gold increases but little, then these questions will probably become uncomfortably relevant sooner than anyone suspects.

NOTES 1 2

K.Helfferich, Das Geld, Leipzig, Hirschfeld, 1903. Cf. my essay ‘Den dunkla punkten’ [The obscure point] in the December issue of Ekonomisk Tidskrift, 1903.

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16 STABILIZING THE VALUE OF MONEY A means of preventing crises

In the December 1906 issue {of Ekonomisk Tidskrift}, there is an essay by the editor entitled ‘A few words on the concept of “the value of money”’, the main content of which is a critique of the proposal that I presented in the second volume of my published lectures, as previously in my book Geldzins und Güterpreise [Interest and Prices], for giving money, as far as possible, a constant exchange value or purchasing power. Some of the remarks that Prof. Davidson thus makes deal with certain questions of a rather abstract kind concerning the actual meaning of the concept referred to; in my opinion, it would still be premature to say that any particular doctrine had settled these issues conclusively—for the time being, I suppose we shall have to be content to allow the discussion to be the answer to the question, as the phrase goes. Others, however, are of direct practical significance, and where these are concerned, I should like to attempt to continue to defend my point of view a little longer. In so doing, I am motivated particularly by the ongoing and sadly topical debate about crises and their causes, and for this reason, I beg to return to the subject, albeit belatedly, in this essay. Davidson’s criticisms can probably be summed up in three principal points. First, he comments that the very act of equating the concept of the value of money with the purchasing power of money with respect to goods and services involves a logical inconsistency, since the standard of measurement thus comes to depend on the object to be measured. Second, he disputes the claim that it is desirable for money to have a constant purchasing power whatever the circumstances, and criticizes in particular my failure to provide any conclusive evidence for this assertion of mine; I have only postulated it. Finally, and this criticism I consider to be the most important, he attempts to show that in certain circumstances, the regulation of the purchasing power of money or the general level of commodity prices Originally published as ‘Penningvärdets stadgande, ett medel att förebygga kriser’, Ekonomisk Tidskrift, 1908.

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that I propose, by means of the raising or lowering of the bank rate, is ‘not merely superfluous, but actually harmful’, since, he claims, it would introduce a disturbing and upsetting element in a market where economic equilibrium had hitherto prevailed; in such cases, therefore, it would be ‘unnatural’ and the effect it exercised would be apt to be ‘a harmful check or unhealthy stimulus to business activity’. I shall not say much regarding the first of these criticisms, since Davidson himself does not actually make it the basis for his ensuing critique and moreover concedes that the definition of the value of money I advance is the most prevalent both in scholarly usage and in daily life. That it is ‘inconsistent’ I have difficulty in seeing; surely all that is involved is rather the necessary relativity of all standards of any kind whatsoever. This applies even to the measurement of length that Davidson adduces in a note by way of comparison: the metre is defined either as a certain fraction of the quadrant of the earth or as a certain part of the length of the seconds pendulum at a certain point on the earth’s surface, but at the same time, of course, both these and all other distances are given in metres. It would be perfectly conceivable, even if not particularly practical, to define the metre instead as an average of the varying length of the pendulum at different latitudes, and then we should have a perfect counterpart to the so-called ‘multiple standard’ or ‘general index number’ that is used as the standard for measuring the value of goods. However, if the concept of the value of money is to be invested with anything else or anything more, for example the subjective significance money has for the individual, then perhaps it would be best to completely avoid the term ‘the exchange value of money’ and instead simply talk about its purchasing power, which is surely a more or less clear and unambiguous concept. Turning to Davidson’s second criticism, I do not mind admitting that in the passage in the Lectures to which he refers I was over-succinct in my evidence for the desirability of a stable price level. However, in an essay {in Ekonomisk Tidskrift} on ‘The Monetary Problems of the Future’ (1904, pp. 88 ff.) I have argued for this view of mine at some length and, it seems to me, with quite telling reasons; I emphasized in particular—and of course this fact is very obvious—that the large category of citizens who are dependent for their support on more or less fixed money incomes is evidently subject to great suffering, mostly through no fault of their own, whenever the general level of commodity prices undergoes any marked rise. Certainly, to some extent these problems can be remedied by bringing in wage regulation, etc.—of course by rights, when prices rise, all pensions should also be increased, all institutions maintained by endowments subsidized, etc.—but even as far as it goes, this assistance is very far from perfect, for after the implementation of wage regulation, prices may rise again, and wages then have to be readjusted, or else, which is almost worse, there follows a price movement in the opposite direction, and the 33

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disproportionately high wages, which cannot be reduced very easily, become a heavy burden on the tax-paying public. And yet these are only some of the difficulties that a fluctuating value of money brings for economic life. I shall return in what follows to its influence on the business world and enterprise. Nevertheless, cases are undoubtedly conceivable in which, even taking a general view, a fall or a rise in the level of prices would bring predominantly beneficial effects. Such a case is the one given prominence by Davidson, where the change in prices is caused by a rise, or alternatively a fall, in general productivity. In such circumstances it can naturally be said that those who do not participate directly in material production but instead enjoy fixed money incomes, whether on the basis of employment or from the interest on a small capital sum that they have loaned out,1 ought also to benefit in some way from an increase in productivity, or share in the inconveniences of a decrease in productivity, which is what would happen if prices varied inversely with productive capacity. But it is truly hard to imagine how a factor that is so subtle and so subject to variation from case to case could be duly taken into account when the regulation of prices is contemplated.2 A further and, as far as I can see, insuperable difficulty arises in this connection from the international nature of money. In one country, for example a colony, productivity may have grown extremely rapidly, in another, old country it may have remained stationary or even have declined as a result of the depletion of natural resources; in the former, the level of commodity prices ought to go down, while at the same time going up in the latter; but this is surely unthinkable, since of course disregarding customs duties and freight, a single good cannot have more than one price on the international market. However, I do not want to dwell on this point at any greater length. In principle, I completely agree with Davidson here: as far as practicable, when prices are regulated, all those with any interests involved that are at all legitimate ought to be looked after as best possible. What seems more important to me, as I have said, is Davidson’s third criticism. Here, too, his point of departure is that an increase in production while the monetary mechanism remains unchanged has pushed prices down. Naturally, once this process has run its course, and the unchanged quantity of money is therefore sufficient to meet all the needs of the increased volume of trade at the lower prices that have resulted, everything has come back into equilibrium. But on Davidson’s view, even during the actual period of transition, the relation between the lending rate of interest offered by the banks and business profits would remain completely normal the whole time. If, however, the banks had reduced their interest rates in order to counteract the drop in prices, the ratio between the two factors referred to would, in contrast, have been disturbed, and as a result, the even course of 34

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business life would have been disrupted in an unhealthy and harmful manner; and the same thing would apply, mutatis mutandis, in the case of a rise in prices caused by diminished productivity. It is not easy to answer such an objection in a few words; the whole causal relationship is far too complicated and hypothetical for that. The simplest way of answering it would require that I could again adopt the position I took in Geldzins und Güterpreise. There, I thought myself able to advance the thesis that the immediate precondition of and reason for every change of price, of any kind whatsoever and no matter what its ultimate causes might be, is always a disproportion that has come into being between the money rate of interest and the natural or real rate of interest on capital. In the case, for example, of a rise in prices caused by an increase in the output of gold, the course of events would, in detail, be as follows: the new quantities of gold go to the great trading nations and are there deposited in the banks; since the banks thus have increased means available for lending, they put their interest rates down, while the natural rate of return on capital remains unchanged; and it is only on account of the rise in prices that results from this state of affairs that the increased quantities of gold come out into circulation and the reserves held by the banks are reduced, so that sooner or later, they are forced to return to their original, normal interest rates. Conversely, if the production of gold and the increase in the quantity of gold failed to keep pace with increases in the production of goods, this would not mean prices would fall immediately; instead, with the demand for and supply of goods both higher, prices would initially be kept constant by means of credit, and only in so far as the increased demand for hard coin or cash occasioned by the rise in turnover began to erode the stocks held by the banks, and they then raised their interest rates in consequence, would a drop in prices be brought about by this change in interest rates. On this interpretation, which of course closely coincides with the view of the classical authors, e.g. Ricardo, it was therefore out of the question that the relation between business profits and the banks’ lending rates could be normal during a period of rising or falling prices; a change in prices always indicated and was caused by an abnormal ratio between these two factors, and a raising or lowering of the bank rate with a view to counteracting the change in prices eo ipso always meant a restoration, not a disturbance of economic equilibrium. Now admittedly it is true that I have found myself obliged to modify my views somewhat on this point. Most of the gold that is sent here from the countries where it is produced is probably not capital destined for lending but rather quite simply payment for the goods imported by the goldproducing countries; there is therefore every reason to believe that it has a more direct influence on prices, or rather that this influence originates already in the demand for goods on the part of the gold-producing countries themselves, a demand that permanently exceeds their supply of goods, and 35

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very greatly so when the production of gold is high. But even if this circumstance complicates the problem, I fail to see that it changes its general character; for in so far as the new gold does not have the effect of pushing the banks’ lending rates down, its effect will instead be to raise business profits, in that business-men will always be able to sell in a dearer market having bought in a cheaper market, and in consequence, the tension between the two factors, the loan rate of interest and the natural rate of interest on capital, would still be about equally great. And the same thing is true in the converse case, when the production of gold decreases and no longer meets the needs of turnover for new gold. Now certainly in the example chosen by Davidson, it might seem as if the rise in profits due to increased productivity and their diminution as a result of the pressure on prices that this would cause, on his assumption, would exactly cancel out. But this would surely only be the case if the movement of prices could be surveyed and predicted in advance, or else if it were so even and had continued so long that it had come to be accepted by the public mind as something constant. However, in general the private businessman probably makes his calculations for the future and thus sets his demand for labour, raw materials and credit on the basis of the prices that are now in force; a continued rise in prices therefore becomes a source of large profits, which easily arouse an excessively optimistic mood on the market, while continued pressure on prices becomes a source of losses, which discourage entrepreneurs and in many cases destroy their economic existence.3 Generally speaking, therefore, measures of any kind whatever that are apt to ensure that money retains a constant value are likely to be, at the same time, a means of stabilizing, not disturbing, the steady course of business life, and in particular, to the benefit of the general public, of considerably reducing the risk premium that now necessarily has to be a part of all business profits precisely because of uncertainty about the general level of prices. That this would eliminate all the risks involved in business life it would of course be absurd to imagine—among other things because the prices of individual commodities cannot be kept constant—and I suspect that quite different measures would be required to even out social injustices. But as far as the domain of the reform in question extends, it seems to me to be a definite and unambiguous good. As stated, these questions have particular relevance at present in so far as the stabilization of the value of money would constitute a means of precluding crises. In the authors who have treated the history of crises in the greatest detail, the reflection constantly recurs that the outbreak of these various crises could have been prevented or substantially mitigated if the leading banks had raised their interest rates in time. By this measure, they would have reined in excessively speculative undertakings, encouraged thrift instead of waste, and when the relative stagnation set in that on the whole probably always has to follow on a period of increased financial investment, 36

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they would have possessed adequate working capital to be able to succeed in calming crises and panics and likewise to be able to lower their interest rates vigorously and in good time, during a period when the business world had to make do with reduced opportunities for profit. All this may well be quite correct, but as already suggested in my essay in the February issue [1908], the difficulty here lies, first, in determining when the time has come to make a reasonable change in the interest rates and according to which criteria it shall be determined that this time has come, and, second, in the question as to whether there is any possibility at all of the banks being able to implement such an interest rate policy in present conditions. With respect to the first question, as far as I can see, the only reasonably reliable and available sign that overspeculative activity is impending or has already set in is precisely a general rise in prices, which can be diagnosed using price statistics, albeit these statistics unfortunately still leave much to be desired. According to the principle principiis obsta, the banks ought to intervene already at that juncture and not to wait for the point that generally comes much later when they begin to notice that their own stocks of coins or notes are dwindling and when their portfolio of bills of exchange becomes unhealthily swollen. If they did so, the feverish stage of the boom, with prices rising and credit being extended beyond all proportion and bounds, would probably never occur, and the banks would be in a position to put their interest rates down again earlier than is now the case, perhaps even at a point in time at which they now tend to make their most drastic raises. Naturally, I do not mean to claim that solving this problem in monetary practice would prove to be quite so simple as the present description suggests; it is possible, even likely, that it would be necessary somewhat to reduce both the prices of raw materials and money wages during a period of recession, in order to facilitate production for stock, building enterprises, etc., and, in compensation, to raise these prices moderately during a boom. These adjustments would probably soon sort themselves out in practice, provided only there was agreement on the principle itself. But all this presupposes that the banks or the authorities in charge of monetary administration do actually have the power to regulate the general level of prices. In all my writings on money, and especially in the more recent ones, I have expressed a clear reservation to this effect, which Davidson does not touch upon in his criticisms. As long as gold bullion continues to be our measure of value, in other words, as long as the free minting of gold continues, the banks or governments do not have this power, or their power is at least so narrowly circumscribed that it is of no practical value. Heavy production of gold will inevitably raise prices, a considerably diminished output of gold relative to demand will equally unavoidably lower prices; any attempt to delay these developments artificially would merely lead to a revolution in prices later on that was all the more severe. For us in Sweden, 37

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who almost never see a gold coin, the truth of this fact may not seem very obvious; but then our influence on world prices is minimal. If, in contrast, one takes into account the great commercial nations, where in spite of their enormous volume, the reserves of gold held by the banks only constitute a minor part of the quantity of gold circulating in general trade, it is apparent that there can hardly be any reasonable doubt about the accuracy of this statement. The necessary, but also the sufficient condition for the feasibility of the whole plan would therefore be a stop to the free minting of gold, a measure that ought, however, also to be supplemented, in the event of a new decline in the production of gold, by the issuing of notes of relatively low denomination, as in our country, after which it would be no great step to the introduction of pure credit money as the ultimate system. That this is not a Utopian vision ought to be evident to anyone who considers the total success with which exactly the same procedure was carried out 20 to 30 years ago with regard to silver, even in countries that still use silver as their principal coin or one of their principal coins. I do not want to go into the more precise regulations, preferably of an international kind, that ought to accompany this step, in any further detail here; for these, I refer the reader instead to my earlier writings, in particular to the essay from 1904 referred to previously and to the Lectures. Should a new international monetary conference come about, as recently proposed by the well-known Italian economist Prof. Luzzatti, it seems to me more than likely that this question will be brought up in earnest for discussion, and thus the first and most indispensable step will be taken towards the introduction of a completely rational monetary system and towards—the prevention of crises.

NOTES 1 2

3

As I stated in the essay mentioned above, large-scale capital proper is generally unaffected by such changes in prices, since it mostly takes on the form of durable stocks or else of fixed capital goods or land ownership. In opposition to Davidson, I must insist that if the value of money varied in exact proportion to productive capacity, in the case of a relation of indebtedness between two persons, the creditor would reap the entire benefit of increased productivity. To be sure, as D. points out, the debtor-producer may also make a profit, but if so, this accrues to him not in his capacity as debtor but rather as a producer and precisely to the extent that he is not in debt. If his debt amounts to the whole of his property, the increased profit would in any case be of no benefit to him at all; his creditor would take the lot. If my view is correct, in the example cited by Davidson, the rise in productivity, which of course is always primarily a thing of the future, would be understood by the entrepreneurs to offer prospects of higher profits and would therefore induce them to increase their demand for labour, raw materials and credit. Since this would mean that wages, the prices of raw materials and also the loan rate of

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interest would shoot up, their own profit margins would shrink accordingly, and when reversals set in in the form of falling prices for their products, the anticipated profit would turn into a loss. This seems to me the most probable course of events. If I am mistaken in this, however, I should very much like to hear how Davidson imagines the same phenomenon would go if the output of gold were so high or the monetary system so elastic that commodity prices could be kept unchanged in spite of the rise in productivity.

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Although I very much fear that the majority of Ekonomisk Tidskrift’s readers lack the requisite interest in protracted theoretical disputes, I nevertheless beg to make a brief response to a few of the criticisms set forth by Professor Davidson in the previous issue [1908] with regard to my theory or hypothesis about the regulation of prices by means of the money rate of interest. For it seems to me as if Prof. Davidson has in part misunderstood what I mean, and since a similar misunderstanding has found expression in a recently published work by a younger Swedish economist,1 I am obliged to assume that the source of the error is some obscurity on my part, which I should very much like to clear up. And, indeed, I find that in my previous response (1908, no. 4) I did not express myself with sufficient rigour throughout—the subject is not terribly easy, and if one fails to keep all its details in mind at all times, one runs a certain risk of losing the logical thread. However, on one point Prof. Davidson and I are in perfect agreement and since it provides common ground, I shall choose this point—which occurs at the very end of his essay, incidentally—as the point of departure for my remarks. What is at issue is the influence that a rise in productivity that is not accompanied by a corresponding rise in the loan rate of interest would exercise on the prices of goods; in my opinion, it would always bring in its train a continuous rise in commodity prices. Professor Davidson grants that I am right in some cases, but not in all. It is these various cases that I want to examine here. We therefore assume, first, that the increase in production is accompanied by an equally large increase in the stock of gold. In such a case, even in the very beginning, there would not necessarily be any fall in prices as a result of the increased turnover of goods, and since the extra profits the entrepreneurs made would entice them to expand their business and demand more labour (and raw materials), as long as the workers were previously fully employed, Originally published as ‘Penningränta och varupris’, Ekonomisk Tidskrift, 1909.

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this would result in a general rise in wages and prices, unless the banks immediately raised their interest rates in conformity with the increased return to capital. As far as I can see, Davidson admits this without reserve (p. 24). A second case would arise if the quantity of gold, to be sure, had not increased, but instead the monetary system were so elastic that it did not react to increased demands for the necessities of trade. This would happen, for example, if everybody kept a bank account, and all deposits and disbursements were made by means of transfers between these accounts, and if, further, neither the legislation nor prevailing banking practice placed any obstacle in the way of an expansion of the business the banks could carry out with unchanged reserves of gold. This case Prof. Davidson appears to subsume under the first, so that here, too, there is complete agreement between his view and mine. In passing, it is precisely this assumption of an absolutely elastic monetary system that I for my part always have up my sleeve as an ultimate, theoretical recourse, even if I do not always insist on it, in order to avoid unnecessary deviations from reality. But now let us assume, in the third case, that the monetary system is not completely elastic (and nor has the quantity of gold increased sufficiently), so that here, the increased quantity of goods would, in itself, have the effect of depressing prices. In this case, too, if we still presuppose an unchanged money rate of interest, I maintain that the rise in productivity would nevertheless bring about a rise in prices, and from the very outset at that, the reason being that in most cases, the increased production is only a thing of the future, but the enhanced prospects for profits take effect immediately and lead the producers to raise their demand for raw materials and labour (possibly also for luxury and other consumer goods for themselves). Davidson does not appear to have any real objection to this argument, either; on the other hand, he claims (p. 23) that I recommend that the loan rate of interest be lowered in this case. This must be a misunderstanding. Since a rise in prices sets in here from the start, the banks ought naturally, in my opinion, to raise, not lower their interest rates. And indeed ultimately they are forced to raise their interest rates, often by an excessive amount, but generally too late, perhaps not until the increased quantity of goods has been brought to market and would in itself have the effect of depressing prices. I should imagine it is this case that is of the greatest interest in practice. The inventions, etc., on which the increased productivity depends first have to be financed, extensive preparatory work has to be done, new machinery, new factory premises, etc. have to be made ready before the technical innovations can enter into use; in the interim, they yield no return, but nevertheless constitute a powerful spur to increased entrepreneurial activity, increased demand for raw materials and labour, which causes the price level to rise—unless the banks raise their rates of interest on loans and deposits at the same time. In that case, first, entrepreneurial initiatives are kept within narrower bounds and, second, and equally importantly, saving is encouraged, 41

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so that the higher demand of one sector for goods and labour is matched by the lower demand of another.2 This leaves only a fourth case, where there seems to be a genuine difference of opinion between Prof. Davidson and myself. This case would arise if the technical inventions could be taken into operation without substantial preparatory work, so that the increase in the output of goods manifested itself immediately or within a very short space of time. In such a case it might certainly be thought that their initial effect on prices would be to depress them. In my Geldzins und Güterpreise [Interest and Prices] I did not overlook this objection, but believed I could answer it by noting that this fall in prices would generally be very small and above all would occur once and once only (unless further increases in output took place), whereas the rise in prices occasioned by the difference between the rates of interest referred to continues without interruption and is therefore bound to overtake the former effect before long.3 If, for example, output grew by two per cent on average, at most this could lead to a 2 per cent fall in prices, once and once only, but as long as the difference between the rates of interest persisted, prices might subsequently rise just as much, indeed, far more, every year.4 Here, therefore, the drop in prices could be likened to the step back that a gymnast takes when he is getting set to run forward. However, Prof. Davidson objects that if commodity prices fall to begin with, entrepreneurial profits have also gone down, or in other words, the natural, real rate of interest is again on a par with the money rate of interest, so that everything will now come into equilibrium at the lower prices that have thus arisen. I regret that I failed to analyse this point properly last time. If it were correct, this objection would suggest a real lacuna in my theory (or hypothesis). But is it correct? As far as I can see, it depends on the tacit assumption that real capital has also grown at the same rate as productivity. For Davidson obviously has the idea that the workers’ money wages remain unchanged; therefore, if prices have fallen, their real wages have gone up, but how can they do so without increased real capital? From the point of view of the old wages fund theory it is simply impossible, and nor does the augmented wages fund theory represented by Böhm-Bawerk bring any essential change in this respect, nor, equally, does the modern theory of marginal productivity. Indeed, even accepting Davidson’s assumption that the workers quite simply force employers to pay higher wages by union action, on the grounds that productivity has risen, the outcome is the same; for in economic terms, this of course means that the workers are able to force the entrepreneurs or capitalists to add to the real capital, out of which wages always have to be paid, after all, whenever the finished product is not available until some point in the future. But if real capital increases, the real rate of interest declines at all events, even if prices remain unchanged (and wages therefore also rise in money terms). To be sure, businesses still yield somewhat higher returns, even after 42

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the higher wages have been paid out, but these returns now constitute merely the normal, usual rate of interest on the increased capital. However, my assumption is naturally that ‘all other things are equal’, i.e. that real capital and real wages do not undergo any change. If prices fall, money wages must therefore also fall, and the entrepreneur will therefore still have the same high return on his (own or borrowed) capital as when prices are constant. For we must be careful to remember that what is at issue here is a general, average increase in productivity; however, if the increase has occurred only in one particular branch of business, it is naturally only too possible that the increased supply of goods may lead to lower prices, which (with wages now unchanged) cancel out the entrepreneur’s anticipated extra profit, and indeed, turn it into a loss. Consequently, I think my reasoning passes muster even in the case indicated by Davidson, with the exception of its initial phase, to be sure, when a temporary fall in prices would take place, due not to the difference between interest rates but to the inadequate elasticity of the monetary system. It seems to me that a strong indication that this must be how things are is provided by economic continuity itself. If I have understood him correctly, Davidson concedes that if the quantity of gold has increased to keep abreast with the increased productivity, i.e. by 2 per cent, for example, an unbounded rise in prices will ensue, unless the banks raise their interest rates (which they are naturally compelled to do sooner or later, unless the monetary system is further assumed to be absolutely elastic). How can it then be imagined that if the quantity of gold had remained unchanged, this whole rise in prices would fail to take place and it would all result in a definitive lowering of prices? If the banks raise their interest rates’, says Davidson (p. 23), ‘according to Wicksell’s theory, there will be a fall in prices.’ No. To the contrary, according to my theory, they have to raise their interest rates sooner or later in this case too, if an unbounded rise in prices is not to be the result. As for the issue of the position the banks ought to take in this case with respect to the preliminary lowering of prices referred to, it seems to me to have no practical significance. If they lower their rates, it will in any case be merely for a moment, while they will subsequently have to raise them permanently above their previous level, if prices are not to rise sky-high. If, therefore, this was all that Prof. Davidson wanted to say, that a change in the bank rate intended to check a change in prices that by its very nature will soon pass, is unnecessary, and perhaps harmful, then I have no wish to dispute that he may be right. But in the next breath, he seems to want to claim that the fall in prices could be definitive here, and stable prices thus prevail at an unchanged money rate of interest, in spite of the rise in productivity that had occurred. This is what I dispute. Increased productivity without any change in real capital inevitably means a higher real rate of return on capital, and there can never be equilibrium on the market unless 43

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the money rate of interest is brought into line with this, i.e., in this case, is raised. So much, surely, we may allow to the classical economists—see the interesting passage in Ricardo brought up by Prof. Davidson! I shall pass over Professor Davidson’s other remarks, since I do not believe that they strike at the heart of the matter, however instructive they may be in themselves. If, for example, the entrepreneur himself is a capitalist, it can certainly happen, as Davidson elaborates (p. 9), that he suffers from the rise in prices, if he has turned his inventory into money before it sets in. But this loss then affects him in his quality as capitalist, not as an entrepreneur, and nor can it therefore prevent him from going through the same cycle the following year, though perhaps he will then proceed somewhat more cautiously in selling his goods. Equally, it is true that if the banks have a direct interest in industry, the height of their lending rate no longer affects the volume of the loans they make. After all, this interest rate is then merely nominal, basically, since in part, the bank is lending to itself. But in this case the rate of interest on deposits will probably set the norm instead. If this rate is raised by the appropriate amount, there will be no rise in prices, and of course ultimately it has to be raised, when the metal reserves begin to drain from the bank or its portfolio of bills of exchange, albeit this too is largely ‘nominal’, has exceeded its legal maximum. I should be glad if I have succeeded in making my line of thought more comprehensible and more plausible by what I have said. If not, I shall have to console myself with the reflection that I have never regarded it as more than an attempt, a hypothesis, which I am prepared to throw overboard at any time, if a more probable one can be devised. That its practical consequences cannot take on any very great significance as long as gold bullion remains the measure of value, I have pointed out on a number of occasions.

NOTES 1 2

3 4

Fritz H. Brock, Om den ekonomiska fördelningen och kriserna [On economic distribution and crises], p. 172 ff. In response to Brock, I should like to emphasize that I have never attempted to explain the very ups and downs of the market, booms and busts, on the basis of the difference to which I have referred several times between the natural and the loan rate of interest; I consider the real cause of these phenomena to lie in the sporadic nature of technical progress itself, seconded by certain psychological factors. But I certainly believe that the origins of excessive speculation and the associated switch from boom to bust, i.e. the crisis in its narrower sense, are to be found in the monetary sphere, in the wrong choice of monetary and banking policy. Dr. Brock quotes only the first half of this sentence in his book. Prof. Davidson states (p. 7 n.) that he is unable to understand why I have restricted the potential expansion in turnover to the same amount as the rise in productivity. However, on my assumption there would be no real expansion, since all workers

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would already be fully employed; there would merely be attempts at expansion by the different branches of business, which would result in a general rise in wages and prices. In the first year this would have to keep within the bounds of the actual rise in output. The reason is of course that once wages had gone up by this amount, as long as entrepreneurs can only count on unchanged prices their extra profit would be gone or, more accurately, would appear to them to be gone, and then they would naturally have no reason to attempt to expand their business and demand more labour. However, this is assuming that the production period is only a single year, as in my example. In reality, it is generally likely to be far longer and then, as I pointed out in G. u. G. the potential rise in prices is also considerably greater, even in the beginning. If prices have continued to rise for several years and the entrepreneurs therefore begin to count on rising sales prices, then, as I also stated there, a far faster, ultimately vertiginous rise in prices can result—and in that case an abnormal increase of the bank rate is eventually required in order to stop it.

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The interesting critique Professor Davidson devotes in the last issue [of Ekonomisk Tidskrift] to Irving Fisher’s well-known proposal for regulating the purchasing power of money has led me to think of a circumstance that, if I understand it rightly, must entail that the actual principal purpose of this proposal, too, can scarcely be achieved in the way or to the extent that its author appears to have imagined. For Fisher overlooks the fact that the seigniorage he advocates would merely bring about a sharp reduction in the newly produced quantity of gold—in other words, in the quantity of coins or gold certificates that would be given in exchange for this gold—and consequently would only have an indirect and far lesser effect on the total accumulated quantity of coin or money, which of course is what determines the level of prices, according to the quantity theory. His comparison between his own method and a recoinage at a higher weight of the entire mass of coins in circulation therefore halts in the extreme: in the latter case, after all, the nominal value of the entire accumulated quantity of money would actually be reduced by a certain percentage or fraction, and the level of commodity prices would then retreat by the same amount; in Fisher’s method, however, the reduction made is only a fraction of the fraction and its effect on prices must therefore be correspondingly minimal. If we suppose, to make matters really simple, that all other conditions were completely stationary, then in so far as the quantity theory is correct, an increase of one or a few per cent in the quantity of gold would of course bring about an equally large rise in commodity prices; to attempt to impede this advance in prices and keep prices constant by Fisher’s method would be completely impracticable unless the seigniorage were set so high that it prevented all coinage, so that the newly produced gold went in its entirety to industry—since of course the moment even the very least part of it were minted, the quantity of money would have risen and prices with it. If, in turn, the seigniorage were set at just 1 per cent, then if the newly produced gold similarly amounted to 1 per cent of the quantity of gold previously in Originally published as ‘Penningvärdets reglerande’, Ekonomisk Tidskrift, 1913.

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existence, the total stock of money would, as I have said, be reduced by merely 1 per cent of 1 per cent, i.e. by a factor of 0.0001 and the influence on the level of prices would naturally be completely imperceptible.1 An example that is more nearly true to real life, yet by and large leads to the same result, is the following. We assume that the world’s accumulated stocks of gold coin are precisely 30 thousand million crowns, presupposing for simplicity that all extant gold ingots have already been minted. Now in the course of somewhat more than two years, we shall further assume, so much gold is produced that the portion available for the purposes of coinage comes to 3 thousand million crowns, calculated at the present value or minting ratio. (The figures given probably do not depart much from current circumstances.) However, on account of population growth and more intense business activity over and above this, there is naturally a certain annual need for new gold just to keep prices constant; we shall assume that for the whole of the period in question, this makes up 4 per cent of the quantity of money already in existence, i.e. 1,200 million crowns. Consequently, circulation and the banks would be able to absorb this large a proportion of the newly produced gold without any effect on the level of commodity prices. But the quantity of gold in excess of this, 1,800 million crowns, will, if freely minted, have the effect of raising prices, which according to the quantity theory would therefore go up by nearly 6 per cent in a little more than two years. Now in order to prevent this advance in prices by Fisher’s method, it is absolutely essential to see to it that only 1.2 thousand million of the 3 thousand million referred to are coined, or, which amounts to the same thing, are redeemed in gold certificates to the same value, after which the surplus gold (or in the latter case all the new gold) is laid aside in the coffers of the State without adding to the money in circulation either indirectly or directly, for the time being. The seigniorage would therefore be no less than 60 per cent! And what is more, this tax would have to be imposed from the very beginning; to raise it gradually by 2 1/2 per cent per month, for example, would obviously not lead to the result intended.2 As for being able to arrive at this goal by a series of small, careful steps of 1 or at most 2 per cent per quarter, as Fisher imagines, this is of course utterly absurd; such a measure, as can easily be worked out, would leave the advance in prices essentially untouched. That Fisher himself has failed to observe so gaping a lacuna in his argument is probably due to the fact that he has not set out from the standpoint of the quantity theory, even though he himself is one of the most zealous and successful champions of this theory. With all its deficiencies, this theory at least provides a solid point of departure for our thinking on monetary issues and protects us against over-extravagant conclusions. Instead he has started out from the completely unfounded assumption that bullion would somehow preserve a fixed purchasing power with respect to goods. To be sure, as Davidson points out, he concedes that this would not 47

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be entirely true. In his third appendix he assumes, though without giving any reason for doing so, that if all countries simultaneously employ the method in question, the influence on the value of bullion (with respect to goods) might possibly be so powerful that at each adjustment, this value fell by half of the seigniorage imposed. But even this is obviously far too optimistic. In reality, if the above reflections are correct, the value of bullion would fall by near enough the entire amount of the seigniorage imposed, whereas its effect on the purchasing power of gold coin would initially be virtually zero. Thus, Fisher’s hope of perhaps achieving the goal of keeping prices constant by means of a seigniorage twice as high as the (quarterly) advance in prices that is expected or has already occurred, also comes to nothing; for though two times one half is certainly one whole, twice zero is still zero. Nevertheless, in the long run, Fisher’s method would undoubtedly make a powerful contribution towards stopping the advance in prices that is now in progress, and more generally hindering the price fluctuations that are due to the output of gold. For even if it had little impact on these phenomena to begin with, its effect would be all the more powerful on the value of bullion and thus on gold production itself, which of course ultimately, like all other production, is dependent on the exchange value of its own good relative to other goods. When, after successive rises in the seigniorage, the diminished production of gold merely sufficed just to meet the previously mentioned, natural and necessary requirement of increased circulating media at the lower redemption price, the advance in prices would cease—considerably earlier, therefore, than if everything were left unchanged as it is now, when of course the advance in prices must also peak in the end.3 The same thing would apply if prices subsequently began to move in the opposite direction, assuming of course that the output of gold does not become so inadequate in future that the seigniorage has to be made zero or negative, in which case, as Fisher himself emphasizes, his method would fail to be of service. But any notion that it would be possible to keep the average level of commodity prices near enough stable in this way—and of course this is the fundamental idea of the whole plan—probably has to be banished to the land of dreams.4 And this brings me to an observation that occurred to me the very first time I studied Fisher’s plan, and that has also been made by a Belgian economist, Ansiaux. As everyone admits, changes in the quantity of gold are not the sole cause of fluctuations in the level of prices; short-term fluctuations are also produced by expansions and contractions of credit, particularly during so-called good and bad times. Now Fisher is of the opinion that whichever of these two causes lay behind a change in prices, it could always be prevented by his method, which is thus supposed to be a kind of panacea for all instability in the value of money. But the principal condition for this naturally has to be that the method takes effect sufficiently 48

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rapidly (though as we have seen, it cannot be imagined that this would be the case). For otherwise, far from smoothing out crises, as Fisher hopes, it would, to the contrary, have the effect of intensifying them in a not insubstantial degree. For since credit contracts violently during and after a crisis, it is precisely gold, or notes, etc. based on gold, that is required in order to fill the vacuum in the circulation of money. But now, according to Fisher’s proposal, governments would have gradually managed to reduce the stock of coin and notes during the upward business cycle with its rising prices, and this reduction could not be undone in a hurry. In other words, the supply of legal tender would have been made short at the very time when it ought to have been most abundant. If we add that, as Davidson points out, speculation in gold on the part of note-issuing and other banks at the expense of the state could scarcely be wholly prevented, and that the obligation of the state to redeem its gold coins or gold certificates in bullion could assume troubling dimensions if the seigniorage were high, I fear that Fisher’s project has too many weaknesses or uncertainties to be accepted at all. I am afraid there is no helping it: if a rational regulation of the value of money is to be possible, we shall have to take a determined decision to retire gold as the measure of value and transfer this function from it to the banknote or, more generally, to the unit in which bank accounts are kept. To endow this with a constant value with respect to the average of goods and services5 is a problem that can probably suitably be left to the great central banks to solve by their concerted efforts. After all, even now it can be said that even if it is mostly unaware of it, every central bank is to some extent faced with this task and indeed solves it, too, as far as its own country is concerned—relative, that is, to the value of money and price level in other countries. If the level of prices in a certain country becomes too high relative to the price level in other countries, the balance of trade and payments is skewed, and if it does not correct itself automatically—though to be sure, this is probably what happens to a large extent—and gold threatens to flow abroad, the central bank is obliged to restrict the credit it extends, usually by raising its discount rate. The converse measure is taken if prices within the country have fallen too low, so that gold pours in and the vaults of the central bank are filled to excess with gold. In my opinion, there can be little doubt that measures of this kind, undertaken simultaneously and in the same direction by all central banks, would be all that was needed to regulate the general level of commodity prices with as much precision as might be considered desirable. Of course there would be no need for this common credit policy to come into conflict with the measures taken by each individual country to protect its balance of payments (or, under present conditions, its reserves of gold) against other countries; if a rise in prices occurred and required a temporary raising of discount rates all along the 49

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line, it ought to be permissible for a country that had actually come to have an excessively ‘favourable’ exchange rate and was therefore on the point of lowering its discount rate, now merely to refrain from doing so without, or without fully, participating in the general raising of discount rates—and vice versa when prices were falling. But in actual fact, in such circumstances there would be no difficulty in keeping the exchange rate completely steady too, in that instead of being required to redeem their notes or other obligations in gold, the principal banks could be made liable to redeem them at par, on demand, in sight bills, payable on all major banking centres, more or less as has been the case with the Bank of Austria in recent years, and as is far more appropriate in our time. What would then take the place of the rather pointless gold transports would be the varying balances held by the principal banks with each other or more generally with foreign banks: whenever these declined or increased too much, the bank in question would have precisely the same cause to raise or lower its interest rates as it has now in the case of an efflux or influx of gold—independently of the raising or lowering of the bank rate mentioned before, which would be undertaken by joint consent with a view to influencing the average level of commodity prices. How quickly this latter means would take effect in correcting a disturbance in the level of prices, only experience can show, it is true, but that it would be an unfailingly effective means—in other words, that even a small lowering or raising of the discount rates, other things being equal, may be capable of bringing prices up or pushing them down by any amount whatsoever—this is a proposition for which I believe I have provided perfectly valid reasons in my writings on this topic. Since, in addition, under such circumstances a disturbance of prices would no longer be produced by extrinsic, alien factors (as it is at present by changes in the output of gold), but would be caused solely by the willingness to grant credit having gone too far or not far enough relative to the need of circulating media, it would appear that an influence directly counteracting this, the sole active factor, would bring prices back to normal with great rapidity, and indeed, would be able to prevent any very significant deviations from the norm. Nor would this system involve anything in the least artificial, unless the purely abstract nature of the means of exchange itself is to be counted as such; fundamentally, the object of the method would merely be to bring the money rate of interest into agreement with the real rate of interest—the marginal productivity of waiting, or however one wants to put it—towards which, after all, it always in fact tends, and in these circumstances, this would be the very thing required to keep the level of prices at a constant height. With regard to gold, I see no real obstacle to it still being able to be minted freely, just as at present, the only difference being that it would no longer be legal tender, and that in return for the undertakings referred to above the 50

THE REGULATION OF THE VALUE OF MONEY

banks would be relieved of their obligation to exchange their notes for gold and vice versa at a fixed rate. If desired, gold could of course continue to be used as the currency for trade, as used to be the case even in the silver-standard countries; if, as Fisher claims, businessmen are so extremely anxious to hang on to gold, there would be nothing to prevent them from stipulating that payments between them were to be made in gold coin. But I strongly suspect that this expedient would come into very limited use; in all certainty, the ‘faith in gold’ is merely a superstition; given the strong nexus of credit that binds together all the countries in the world these days, as an international means of payment gold has in fact become the fifth wheel. K.Helfferich emphasizes that in our day, it is the needs of the internal market far more than of the external market that cause trouble for the gold policy of the banks; but of course our own monetary system, inter alia, provides incontrovertible proof that the internal market can manage perfectly well without gold. I take the liberty of summing up my own proposal for the regulation of the purchasing power of money in the following points, which I gladly submit for discussion: 1 All central banks shall be entitled to issue notes of such denominations as they consider appropriate, and for as large an amount as is necessary for them to be able to fulfil their obligations under points 3 and 4 below. 2 At least as long as the banks fulfil these their obligations, these notes shall be legal tender in the country in question and its sole (unlimited) legal tender. 3 Every central bank shall be liable to redeem its notes at par on demand, in bills payable on all major foreign banking centres. (This par may be either the present mint par or, perhaps better, a slightly adjusted version of it, giving e.g. £1=20 M.=25 frcs=5 dollars=18 kr.=9 1/2 roubles, and so on.) 4 All central banks shall engage to act jointly, when a specially appointed, permanent committee has established the changes that have occurred in the average level of commodity prices, to restore this level to its normal height by simultaneously raising their interest rates when prices have gone up, and lowering them when prices have gone down, and to retain, each individually, the rate of interest they have thus adopted, or if necessary to raise or lower this rate still further, until prices have returned to their normal level. The central bank of an individual country shall be exempted from participating in this alteration of interest rates if it can provide evidence that on this occasion, because of the position of its balance of payments, it is faced with the necessity of adjusting its interest rates in the opposite direction. 5 Gold shall be minted freely for private account in the same manner as today, but gold coins shall not be legal tender, nor, as long as they fulfil 51

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their obligations under points 3 and 4, shall the banks be liable to redeem their notes in gold coin or to accept gold at a fixed rate in exchange for their notes or for (open) deposit. Naturally, an international agreement of this kind would require rather more paragraphs than those drafted here—among other things agreement would of course have to be reached on what was to be regarded in future as the normal level of prices. But this and many other difficulties involved ought not to surpass the scope of practical reason. The most important thing, probably, is that the men of theory reach agreement, and that a general consensus comes about that something ought to be done to stabilize the level of commodity prices.

NOTES 1

2

3

4 5

I am assuming here that, broadly speaking, the problem is tackled simultaneously by the entire commercial world, which is what Fisher ultimately has in view. For one country in isolation, in contrast, the method would probably prove fully effective; it would then quite simply function roughly as a barrier to coinage and bullion would turn to other countries, where it could be freely minted at the normal ratio. Though naturally, so colossal a seigniorage would greatly increase the industrial consumption of gold. A very small seigniorage, in contrast, would in all likelihood have a quite negligible effect on industrial consumption, perhaps none at all initially. We have therefore completely ignored this factor in what follows or imagine it to be subsumed under the reduction in the production of gold in which the system would undoubtedly results. It is no deficiency of the plan that if it were implemented, the public treasuries would be filled with a mass of gold that at least temporarily did no good at all, since of course the present quantity of gold does not just do no good, it actually does harm. Fisher’s tables and diagrams, showing the extremely small price fluctuations that would supposedly have occurred if his method had been applied in recent decades, naturally fail to prove anything if the theory itself is untenable. How this average ought rightly to be chosen is a very difficult question, as is well known; indeed, if scientific accuracy is required, it is even an insoluble question. There will always be something conventional about its solution in practice, particularly if the average is to encompass all countries. But this has no direct relevance to the issue of the desirability or feasibility of regulating the value of money, for whatever standard is decided on, the important thing is that it should be possible to implement it, to have it available for use, and the manner in which this should be done is identical in every case.

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19 THE GOLD RESERVE OF THE RIKSBANK

In the issue of the Economist dated 5 September 1914, there was a note that was said to come from ‘a high authority in Stockholm’ to the effect that it would be desirable if Swedish businessmen could be granted English credit on a temporary basis, in order to relieve the present shortage of currency available for use in foreign transactions. For at present, he explains, it is impossible to export gold from Sweden: ‘the 103 millions of kronen in the Swedish Riksbank are needed for the banknote issue, though our bank has suspended gold payments, following the example of all other countries except England.’ The point is presumably supposed to be that these hundred millions are intended to make the redemption of notes possible at that point in the future when convertibility can be resumed without risk. Of course this may sound quite plausible, but is it correct? Has the size of our gold reserve any real significance for the convertibility of our notes into gold? If one looks over the figures on the size of the stock of banknotes and the gold reserve that have been published in Ekonomisk Tidskrift every month for the past 14 years, one discovers the remarkable fact that while the stock of notes undergoes continuous, significant fluctuations, often by 10 per cent, indeed up to 15 per cent or even more, from month to month, the gold reserve remains well nigh totally steady month after month, for years on end; the variations are so small that on a medium-sized diagram, they are hardly even perceptible. Yet at the same time, the gold reserve undergoes repeated expansions, generally by a million or a couple of million crowns at a time, obviously at the initiative of the Riksbank itself and with the intention of bringing the gold reserve into the ratio prescribed by law to the quantity of notes, which on average, for all its oscillations, has steadily gone up. As a result of these measures, in the period referred to, the balance of gold present in the country has gradually risen from less than 40 millions in 1899 to the current sum of upwards of 100 millions, while at the same time the quantity of notes outstanding has increased from 130–140 million crowns (the total note issue of the Riksbank and the private banks at that time, taken together) Originally published as ‘Riksbankens guldkassa’, Ekonomisk Tidskrift, 1914.

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to the present 220–240 millions, ignoring the latest expansion in the Riksbank’s note issue that has been prompted by the {First World} war and the crisis. On only a single occasion during this entire period has our gold reserve been subjected to any real strain, namely in late autumn, 1907, when the noted American ‘gold-suction’ appears to have extended a sucker even to our far-off land, with the result that the Riksbank lost some 6 millions of the 77 it then had in the last two months of that year. The Riksbank responded to this attack by raising its discount rate to 7 per cent, after which the withdrawals of gold ceased. In the summer and autumn of the following year the exported gold returned, and the growth of our gold reserves has since continued time after time, in the same way as before. It can therefore probably be said that in our country, in reality, the size of the gold reserve has no significance at all for the banknote issue or the maintenance of the parity between notes and gold. This parity is regulated instead exclusively by the discount mechanism, a process that in turn takes place quite automatically on the basis of the status of the balance of payments and the exchange rate at each individual point in time. The demand for gold on the part of the general public that is felt in other countries whenever business needs more circulating media and which, according to K.Helfferich, is now the true cause of fluctuations in gold reserves, is unknown in our country, since of course gold is not used at all in the general circulation. This being the case, it may be asked what purpose holding a store of gold that is so very large and that entails an annual loss of interest of some 5 million crowns is actually meant to serve. Naturally, our monetary system requires an emergency reserve of currency that can be used in foreign payments. But this emergency reserve would obviously be equally serviceable if it were invested with foreign banks or bankers or in easily saleable bonds and other securities; indeed, in that case, with the same annual sacrifice, it could be twice as large as now, since its credits or securities would always yield some interest, even if not very high interest. In a way, though, by maintaining this gold reserve we do the duty expected of us by a kind of international code of honour: as long as gold remains the measure of value, the existence of large accumulations of gold is a sorry necessity, in the absence of which the exchange value of gold would soon become as unstable as that of, e.g., copper or pig-iron. And this being so, it can of course be said that every country ought to take on its share of the common burden. As far as this argument goes, the size of our gold reserve is probably not open to objection; to the contrary, it can easily be shown that (including the gold reserves held by private parties) we keep a relatively small amount of gold compared with most other countries, so that in this respect we are still, so to speak, ‘getting a free ride’ at the expense of the major commercial nations. But on the other hand, it is surely self-evident that a reserve exists in order sometimes to be used: to wish to lay it down, as a universal rule, that the gold 54

THE GOLD RESERVE OF THE RIKSBANK

reserve or a certain part of it may never be touched under any conditions, is quite out of place—after all, it is not a fetish or a charm, but quite simply a fund of media of exchange, the purpose of which is to be used in exchange in case of need. I think we face such a need at this very moment. A large part of our industries have been compelled to cut back or completely discontinue their usual foreign exports and are therefore threatened by the necessity of wholly or partially suspending their operations, unless they can be put in a position to work for stock. But at the same time there can be no reasonable doubt that in future—let us hope, in the near future—they will be able to sell at favourable prices not merely what they manufacture in future, but in addition all the stocks they have succeeded in amassing in the meantime. Certainly, the destruction of capital caused by the war will undoubtedly substantially reduce the potential consumption of a good many luxury items for some little time; but the demand for iron and wood is bound to be enormous when everything is to be put in order that is now being destroyed. Paper pulp will probably also sell, since although the ‘hunger for news’—and hence the circulation of the newspapers—will fall drastically after a peace settlement, the large stocks of newsprint that foreign newspapers generally maintain are likely to have been seriously depleted and will need to be built up again. This will probably be the case in France especially; the well-known magazine Revue des deux mondes comes out as a slender little pamphlet these days—for lack of paper. One thing that has been reported is that our quarrying industry is at a complete standstill. If this is true, it is not only regrettable but also irrational, since if anything is needed after the war it will surely be stone, when all the harbour installations and pier-heads that have been blown up or flung down into seas and rivers will need to be repaired—as will fortifications, etc., too, I suppose, more’s the pity. Moreover, a large labour of a similar kind, though purely peaceful in nature, is planned in Holland: the entire Zuiderzee is to be dyked in, a dam some tens of kilometres in length is to be raised to hold back the sea and is to be encased in cement and stone…In other words, there has probably never been a more favourable time than the present to work up stocks of our durable export goods, provided only ‘capital’ can be raised, i.e. ultimately, food to maintain the workers together with the foreign materials and coal needed for operations. In purely economic terms, therefore, nothing would be more to our advantage than to be able at this very moment to exchange this barren fund of 100 millions in gold for foreign goods capable of bearing fruit; we should then not merely be in a position to keep our industrial working population’s heads above water for the time being, but when peace came and the coasts had been cleared of mines, by shipping out the stocks of goods that had been produced and saved up we should be able, first, to retrieve all the gold and second, to earn a good deal in profits, perhaps as much again. Timid souls will probably object that the gold reserve must stay where it is now so that it can be used in case of extreme necessity, e.g. if ‘an enemy 55

MONEY AND PRICES

invaded our country’. But it is obvious that if such a misfortune occurred, our salvation—if it were to be sought in military measures—would necessarily depend far more on the stocks of weapons, ammunition, horses, etc., that might be assembled in the country, and not least on the physical condition of the country’s young working men at the time, than on anything we could swiftly obtain from outside, for money. Moreover, if an enemy had invaded the country, I do not suppose our gold reserve would be very safe from attack anywhere in the land; it would surely be better if it, or at least a part of it, were on foreign soil, in the hands of powers with which we were not at war. In writing as I do, I by no means presume to give our businessmen or politicians any practical advice, I am only too well aware of my own lack of extensive practical experience for that. My desire has merely been to speak out against the exaggerated view of gold, which is so widespread, and which is actually inherited from the days of mercantilism, namely, that it is an economic power endowed with special, mysterious properties, and is therefore the very last thing one should dispose of. Gold is a power of this kind, but only as long as it is allowed free passage in exchange for goods and services; otherwise its power is void. A gold reserve that is shut away, barred from circulation, is about the most useless thing that exists and might just as well consist of brass. It therefore seems to me, further, that our Riksbank would have acted more wisely if it had followed England’s example instead of that of France and Germany, and had continued to pay gold for notes instead of stopping this practice as soon as the bank lost just a few millions in gold during the crisis at the outbreak of the world war. (In reality, of course, this money was not lost, it belongs to the Riksbank just as much after as before, whether it has been exchanged for notes—in which case the Riksbank’s debt to the general public has been reduced by a corresponding amount in notes—or has been handed out in the form of loans granted against satisfactory security.) In spite of its free encashment of notes, the Bank of England is known to have larger reserves of gold at present than ever before, quite independently of the temporary issue of £1 and 10 shilling notes undertaken by the English government at the same time. (On this subject, see the addendum at the end of this essay.) But even if the Riksbank had had its gold reserve reduced to just half, indeed just a quarter, of its customary size, in the days of the panic or as a result of payments to foreign parties, we should have continued in possession of the inestimable advantage that as long as the convertibility of notes were maintained, our notes would still have been equal in value to gold, while at the present time, nobody can really say what these notes are actually worth—any more than they can say what mark or franc notes are worth.1 It is impossible to exaggerate this advantage: anyone who has travelled abroad knows that in Berlin and London, Swedish notes have generally actually fetched more than Swedish gold in recent years, and this favourable 56

THE GOLD RESERVE OF THE RIKSBANK

state of affairs would presumably have remained more or less unchanged if it had been known that our Riksbank were completely determined to do its utmost to keep up the convertibility of its notes. Of course it would have been better still if an agreement to this effect could have been reached between all the Scandinavian central banks. But, perhaps it will be asked, what if this had meant the Riksbank losing all its holdings of gold? Well, then it would naturally be obliged to obtain more, and as far as I know, it has the same expedients available as usual for doing so, since gold production still continues—and what is more, in countries that have been affected by the war only slightly or not at all—and as long as the great central depot for providing the world with gold, the Issue Department of the Bank of England, still remains open. How these conditions will be modified in the course of the war it is of course impossible to foresee, but this much is absolutely certain: after the war there will not be the least difficulty in replacing all the gold we have disposed of in the meantime. The world’s accumulated stocks of gold will be as large then as before, or to be more accurate, larger—gold, after all, can be said to be the only object of value that is not used up in war—and it will be offered to us with enthusiasm in exchange for our stocks of goods, provided only that we have any such stocks to sell. If we lock up our hoard of gold, on the other hand, well, then of course we shall have it intact when peace comes, but at the same time we shall find ourselves without saleable goods that could be far higher in value and at the same time, perhaps, our working population may be weakened or decimated by hunger and privation. As I say, I do not venture to give any concrete advice. But as the conclusion to which the above remarks lead, as long as they are correct, I should like to advance the general proposition: let the gold reserve go! It won’t go far, or at any rate not for long; and the only decisive obstacle to the realization of this plan that I can think of is that it may perhaps already have been carried out in secret—though I have no reason to suppose this is the case. As for the opinion expressed—without any explicit reason—in the well-known memorandum of the Standing Committee on Banking (no. 17), namely, that the gold reserve ought always to be kept at a certain minimum sum, ‘not less than 100,000,000 crowns’, it seems rather meaningless. It reminds me a little of the miserly farmer who gave each of his sons a 16-skilling note with which to amuse themselves at the fair, but added the stern admonition that they must bring the money home with them again afterwards. We can guess how much fun they had at the fair.

ADDENDUM When I first wrote up this essay, I was still under the impression that the phenomenal increase in the Bank of England’s gold reserves during the war 57

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was probably due in part to the temporary issue of £1 and 10 shilling notes, which enabled the bank to gather in gold out of the general circulation. However, as I have subsequently discovered, this is not the case. For one thing, it is not the Bank but the Government that has issued these small notes, though the Bank has undertaken to cash them in gold just as it does its own notes. As of 21 October 1914, about £30 million in such ‘currency notes’ were outstanding. The government appears to have deposited £8 1/2 million in the Bank in order to guarantee their convertibility, but this gold is not counted as part of the Bank’s metal reserves but is instead entered in the books separately.2 The entire growth in the Bank’s gold reserve, about £20 million since 22 July, has therefore come from abroad (partly in the shape of gold deposited for the Bank’s account in Canada and South Africa). What is more, in the period referred to, the influx of gold from outside amounted to all of £31 million net.3 The surplus 11 millions have therefore partly been used to create the special redemption fund for small notes mentioned above, and have partly gone out into circulation, so that in reality the stock of gold present in England outside the central bank has not declined but rather increased. All this may appear paradoxical, but perhaps the explanation is simple enough. A place where the whole world can obtain gold at any time necessarily also becomes the place to which one and all send the gold they possess but do not at present require. Sweden is not England, but by the force of circumstances we too have had no small volume of international payments to negotiate and continue to do so. If our Riksbank, therefore, had not taken the timid measure of closing its tills to withdrawals of gold at the beginning of the crisis, it seems highly probable that after the initial scare had passed, we should have found our gold reserve growing instead of shrinking—just as in England—and this would have relieved us of a good part of the difficulties we have now had to suffer in obtaining credit. During the initial wave of panic, up to 7 August 1914, the Bank of England too lost no less than about £13 million in gold, which was nearly a third of its stocks of gold at the time; and at the same time, its reserve fund (at the Banking Department) fell from £29 million to just under £10 million. But unworried by this, it continued to pay out gold, with the consequence that since then the gold reserve has risen virtually without interruption and is now, as I have said, larger than it has ever been. As the Economist points out in its highly interesting account (in the 24 October 1914 issue), the Bank quite simply followed ‘the old matter of fact philosophy’, which experience has shown to be the only course that is safe and that inspires unqualified confidence: to discount all satisfactory bills— naturally at a suitably enhanced rate of interest—and to pay out gold to the last half-sovereign.

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NOTES 1

2 3

According to Le Temps, a one-hundred-franc note, which is worth 81 Reichsmark at par, fetched 86 marks on the market a couple of weeks ago, but presumably both mark and franc notes have depreciated with respect to gold and therefore also against English banknotes. In the account in the Economist mentioned below, it is described as being ‘earmarked against the Currency Notes’. According to the figures given in the Economist. According to other sources available to Prof. Davidson, however, this figure ought by rights to be increased by a further £5 million, in which case the surplus would be all of £16 million (instead of the £11 million mentioned in the text).

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20 THE RATE OF EXCHANGE AND THE BANK RATE

The gratifying decline that has recently {1914–15} occurred in our rates of exchange on London, Amsterdam, Paris and New York1 once again prompts the question whether our Scandinavian central banks might not now be ready to go all the way, to open their counters to the redemption of notes, thereby at the same time wiping out the remaining 2–3 per cent gap in the exchange rate against countries that have always had the sense to keep their currencies up to par. By doing so, we should put a definitive stop to a paper money regime that is unworthy of a modern monetary system such as our own, even though its legality can no longer be contested now that the constitutional question has been brought to a successful close. But unfortunately our own banking authorities still hold out no hope in this respect. In the report despatched to His Majesty by the Governing Board of the Riksbank on 9 April this year {1915}, it is asserted that the ‘political situation, which is uncertain in both political and financial respects, appears to preclude the possibility of resuming the redemption of banknotes in the immediate future’. The Swedish Riksbank, they add, has ‘particular reason to act with caution in this regard’, in that since the very beginning of the {First World} war our circulation of notes has been about 60 million crowns higher than ‘can be considered normal’. In the opinion of the Governing Board of the Riksbank, the surplus notes are still being hidden away (hoarded) by the general public, and if convertibility is resumed before these notes have returned to the Riksbank, ‘it is to be feared that to the extent that the notes have been used for the purposes of hoarding, they would be exchanged for gold, which in turn would be stashed away’ etc. It would amuse me to know whether, at this present moment, the members of the Board are acquainted with a single real case of this alleged ‘hoarding’, which is so much at odds with our economic habits. After all, there is a circumstance that is perfectly capable of explaining the augmented need for notes without us being compelled to resort to this hypothesis, namely, the drastically raised price of all or most commodities. Other things being equal, Originally published as ‘Växelkurs och bankränta’, Ekonomisk Tidskrift, 1915.

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the need for cash must vary in proportion to commodity prices, and since these have risen by 20, 30, 50 per cent or even more, there is nothing surprising about an increase of approximately 25 per cent in the quantity of notes in circulation. But even assuming that a number of million crowns in notes were still hidden away in strongboxes, not being put to any immediate employment—it is of course quite likely that this was the case during the mood of panic that prevailed at the beginning of the war—what reason is there to believe that any very considerable amount of them would be exchanged for gold if the redemption of notes were resumed? That the notes issued by the Riksbank are hidden away shows that in spite of everything, people have faith in these notes, and this faith would probably be confirmed, not undermined, if their payability in gold on demand were to become a fact once more. Moreover, it would surely be no great disaster anyway if a few millions in gold came out into private hands or into circulation. Finally, just as Governor Moll has done previously, in a newspaper article, the Board of the Riksbank talks about ‘the general international regulation of the financial system that awaits us at the end of the war’, which in their opinion ‘may make demands on the gold reserve held by the Riksbank [that] at present defy all calculation’. Of course, it is hard for an outsider to determine what these rather mysterious hints are really referring to. However, a priori, I think it highly improbable that we shall not be in a perfectly good position after the war to retain or if necessary reacquire all the gold we need and may have any use for—assuming, of course, that we succeed henceforth as hitherto in resisting all temptations to allow ourselves to be drawn into the vortex. Here, therefore, my comment would be, ‘let’s cross that bridge when we come to it’ or to quote an old saying, ‘the burial fees won’t worry us, just so long as we’re spared’.2 However, if a return to the pure gold standard is considered too dangerous at present, it could at least be demanded that the Riksbank see to it that its ‘little brother’, the system based on the so-called gold exchange standard, be taken into use in our country, too. This system is successfully used as a substitute for the gold standard in India, Mexico and some other non-European countries, and is probably the monetary regime under which France, Holland and several other countries actually live at present. Out in India, there is no obligation to redeem rupees and rupee notes in gold, but since 1908, the government has adopted the practice of selling sterling bills for rupees in Calcutta at a fixed price of 1 shilling 3 29/32 pence per rupee. Since the value of the rupee at par is 1 shilling 4 pence nowadays, this obviously means that the exchange rate of the rupee against gold can never drop more than about 1/2 per cent below par. When our government recently authorized the Riksbank to continue to hold on to its gold until 1 October this year {1915}, it would have been extremely beneficial if it had added an admonition to the Riksbank to make available to the general public in the meantime, as far as possible, sight bills on London or New York at, say, at most 1/4 or 1/2 per 61

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cent below par, respectively! Then there would have been no bad feelings, as it were, for of course we have long been used to never laying eyes on the country’s gold coins in corpore, and if the worst comes to the worst, we can continue in this state indefinitely. But does the Riksbank actually have the power to do this, and if so, ought it to use this power that it has? As is well known, this question has been the subject of a protracted dispute between the Governor of the Riksbank and Professor Cassel in the columns of the newspaper Svenska Dagbladet, a dispute in which I am bound to say that as far as I can see, Cassel is right in virtually every detail—I am not thinking so much of the legal rights of the matter, though until a few weeks ago he was in a position to invoke them too. As for the arguments Governor Moll adduces in his defence, they seem to me neither consistent nor, in any case, indicative of any very far-reaching or profound economic views. However, it must be admitted that the situation has been rather difficult, very liable to test the nerves of the governor of a bank, and the mistakes of which, in my opinion too, the leadership of our Riksbank has been guilty, it has after all committed in a very numerous and impressive company—so perhaps a somewhat less aggressive tone on Cassel’s part would have been appropriate, all the more so since to begin with, he himself adopted a standpoint that was in quite close agreement with the position of the Riksbank, a fact that Governor Moll has naturally not been slow to point out. Had the measure referred to been taken, so that the sterling rate, for example, had always been kept at par, then naturally the exchange rate against the mark would have sunk about as low in our country as in Amsterdam and New York, at which places it has on occasion been as low as 15 per cent below par. However, Mr Moll maintains that if the mark rate, which is already ‘absurdly low’, had been ‘pushed down further still’, ‘the dissatisfaction of our exporters with this state of affairs {would} have grown and [would] have been directed against the Riksbank, and with good reason’. One hardly believes one’s eyes, when one reads such a statement. If the Riksbank had been at all capable of keeping up the convertibility of its notes into gold—and if it had, to do so would have been not merely its right, but its absolute obligation from both a legal and a moral point of view—then of course in that case too the mark rate would have fallen to its minimum; but does it make sense to say that our esteemed exporters would have had good reason to complain to the Riksbank about this? Surely the only institution that can be blamed is the German Reichsbank. Moreover, our exporters would probably have been able to secure themselves against losses by raising the mark prices of their goods or else demanding payment in crowns, i.e. in gold. For good measure, Mr Moll communicates the interesting information that complaints have been made to the Riksbank about both the high sterling rate and the low mark rate—all that is lacking is for him to express the opinion that there is ample justification for both these complaints. The only 62

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thing there was good reason to criticize was of course the high pound and dollar (or franc and Dutch guilder) rates—if, that is, the Riksbank was in any position to sell these currencies at par. And just what is the situation, in this respect? Well, here Governor Moll undeniably vacillates quite markedly. At one moment he talks about the difficulty of acquiring sterling, at the next about how easy it was to do so by means of the German balances that ‘were available the whole time’ and that ‘could without difficulty {sic!} be changed directly into dollars, guilders and Swiss francs, and via these currencies into pounds and francs on Paris, shortly after the outbreak of the war, when the arbitrage business had got going again’. Splendid—but then why didn’t it happen? Well, in fact it did happen, but— and here, Cassel has undoubtedly put his finger on the sore point in his polemic, while Governor Moll carefully avoids entering into the issue—if the Riksbank had sold these bills of exchange on the pound, the dollar, etc. at par or thereabouts, it would obviously have made a net loss of perhaps 10 per cent, on average, on each such ‘conversion’, and thus would also have lost a large part of its profit for the year 1914.3 The Bank preferred to let the consumer public in Sweden pay the greater part of this deficit by allowing the sterling and dollar rates to rise well above par, while until very recently the mark rate was allowed to stop about halfway between its value at par and the value that it assumed relative to those countries that were effectively on the gold standard, and that it would have assumed in our country too if our own currency had been kept at a par with gold. That this way of going about things can hardly be defended without reserve seems self-evident to me. By lack of foresight—a lack, incidentally, that should probably not be criticized too severely, since I do not suppose anyone was capable of predicting the course world events were to take over the last few months—our Riksbank happened to find itself in possession of a balance of 100 millions or thereabouts in a country that allowed its currency to depreciate by more than 10 per cent. This being so, it ought to have borne the inevitable loss that thus arose itself. To pass it on to the general public, which was not to blame at all for what had happened, and which had entrusted its assets to the safekeeping of the Riksbank without suspicion and now gets them back with 6 or 7 per cent deducted—this was surely unfair. Now of course it can be said—and presumably the Board of the Riksbank will defend itself by this argument—that since the Bank is a public institution, its loss is eo ipso a public loss, and may therefore be cancelled out just as well in this way as in the usual manner, by taxation. But first, the ‘ancient right of the Swedish people to tax itself has surely not been transferred to the Riksbank, and second, the upshot of it all, excuses notwithstanding, is that for the sake of mere appearances, in order, as it were, to hide an inescapable loss in the books, a reality has been sacrificed, namely, the credit of the country, which has surely quite inevitably suffered from our inability to maintain a fixed rate of exchange against the gold-standard countries. 63

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To what extent the Riksbank could have kept the gold rate of our own notes at par in the recent past by the simple measure of resolutely writing off this loss it had made, in other words by allowing the mark rate to fall to its natural minimum, is an open question. Given that this rate has improved so much lately of its own accord, perhaps nothing more would have been required. But this is uncertain, and in any case, a question of great theoretical and practical interest arises here: by which factors are the exchange rates regulated in a country that no longer redeems its notes in gold, and to what extent can its central bank influence these rates even without releasing gold? Though this is very much at odds with what he has otherwise said, Mr Moll avers that the central banks merely ‘state’ the exchange rates; on his view these are therefore actually determined by other factors. Which?4 Most people would probably be inclined to answer: by the supply and demand for bills of exchange, but this answer is not quite right, or at any event, the way things are connected here is less simple than in the case of, e.g., the supply of and demand for goods. If the production of a certain good declines, and if the supply of it is therefore no longer able to meet the demand at the normal price, then the price rises, the demand declines and at the same time production of the good may increase, enticed by the higher price; in other words, supply and demand come back into equilibrium, but at a higher price. But here, of course, what are involved, in the first instance, are not goods but certificates of indebtedness. The supply of foreign bills is dependent on the volume of the claims we have due for payment abroad at a certain point in time, or during a certain period, and similarly, the demand for bills depends on the magnitude of those of our debts that mature at the same time. But neither of these two sums of debts changes in size because of rises or falls in the exchange rate; it might therefore seem as if there might be no limit to the amount by which the exchange rate could rise or fall without equilibrium ensuing on the market for bills of exchange, i.e. without this having the least effect on the ratio between those of our accounts receivable and accounts payable that have fallen due—always assuming that shipments of gold to or from the country do not even out the difference. Yet that cannot be the way things stand, and the best proof of this is that even under normal circumstances, when the central banks pay gold for their notes on demand, shipments of gold are very rarely made, and from our country in particular are virtually never made, for the purpose of balancing the balance of payments. There must therefore be other means of achieving this goal, which are naturally available even if the banks refrain on principle from paying out gold. And indeed such means do exist, and they are of many kinds, but they all have one and the same end in view: to postpone the impending trade liability until the balance of trade has had time to correct itself automatically, which is what it generally tends to do. 64

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Often this postponement, too, occurs quite automatically, without the intervention of the banks, but not infrequently it has to be supported by an alteration of the discount rate. If we raise our interest rates, foreigners become more inclined to lend us money, if we lower them, they withdraw their capital, and some of our own capital may go in quest of foreign markets. Therefore: the exchange rate is regulated by the discount rate, and it is solely by the banks omitting to employ this means that it can come to deviate by any very substantial amount from par.5 Now is it conceivable that an economic law that is so simple and so well known should completely cease to apply during a time of crisis such as the present? Mr Moll says so, but he has provided no reasons for his claim. He makes fun of the idea that raising the interest rate by one per cent in this country would improve our position in terms of payments to and from other countries. Alluding to Cassel’s admonition to the general public to cut back on its consumption of relatively inessential foreign goods, e.g. coffee, during these hard times, he exclaims, ‘I ask Prof. Cassel, is it likely that raising the discount rate by 1 per cent per annum would inhibit the unnecessary imports that a sterling rate 7 per cent above par is powerless to prevent? Here, without a doubt, the discount mechanism is of no effect.’ Of course this is nothing but an argumentum ad ignorantiam, and Cassel has not even bothered to answer it in detail; nevertheless, coming from such a quarter it ought perhaps not to be left unanswered. Certainly, a rise of 1 per cent in the discount rate has very little influence on people’s inclination to drink coffee and therefore on the volume of coffee imports, particularly in the very short run; however, it undoubtedly has a very substantial effect on the ability of coffee importers to pay their foreign trade debts. If we raise the interest rate, the foreign supplier lets us have the coffee on credit for the time being (it is irrelevant whether this happens directly or indirectly) and the coffee importers no longer need to fight for bills of exchange on the market; if we keep the rate of interest low, he demands immediate remittance and the exchange rate shoots up. As is well known, one of the most common ways of attracting capital from abroad and thereby improving the balance of payments consists in the sale of securities. In normal conditions, a security trades at practically the same price in all countries where it has any market at all, since if it were cheaper in one country than in another it would be purchased in the first and sent to be sold in the second, and this would necessarily even out the difference. Now it is a familiar fact that in times of crisis and war all securities fall in value, principally because, for one reason or another, a great many people attempt to obtain cash. But an additional factor involved is the increased distrust between nations, which means that other things being equal, a security generally falls more sharply in foreign countries than in the country of issue. At such times, countries that, like ours, have more liabilities than assets abroad are therefore subject to the threat of being invaded by 65

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their own securities, which is obviously likely to cause their balance of payments to deteriorate. In order to prevent this, the interest rate has to be raised, and in a country that pays out gold this happens quite automatically, since the central bank is compelled to raise its interest rates as soon as its reserves of gold begin to dry up. If, on the other hand, one lives under a paper money regime—as we and most other countries unfortunately do at present—there are two alternatives. The bank can either raise the rate of interest, which then acts—precisely as in the previous case—to depress the price of securities, so that the invasion from outside is prevented and perhaps replaced by an export of securities. Or else it can allow the interest rate to remain unchanged; after all, gold is not leaving the country in any case, since it is now locked away; but then the exchange rate rises instead, until it has reached so high a level that it creates a barrier to any further invasion of securities, as can easily be calculated. But as stated, this is merely one alternative and obviously the worse alternative. By means of an appropriate increase in the rate of interest, precisely the same effect could be achieved without any rise in the exchange rate. If we suppose a case where the Riksbank raised its discount rate by the single little per cent that has been discussed, i.e. from 5 1/2 to 6 1/2 per cent, then if this increase in the interest rate took full effect immediately—though to be sure, it would be an exaggeration to imagine it doing so—all securities here in Sweden would fall by the ratio of 13:11, i.e. by more than 15 per cent, and such a decline in prices would probably be sufficient to transform even the most vigorous import of securities into an equally vigorous export. Naturally, its effect would not be quite this powerful, but even if it stopped short at less than half, it would accomplish as much as a 6 or 7 per cent rise in the exchange rate. Indeed, probably even more, since there is no doubt that the deterioration of our currency in itself produces augmented distrust towards us in other countries and hence a further decline in the rate at which our securities trade abroad. Moreover, raising the rate of interest works to the same end in various other ways. If it becomes more expensive to borrow money in this country, both private individuals and corporate bodies increasingly use the foreign credit that they either possess or are able to obtain, which all goes to improve the balance of payments. ‘In this sphere’, Governor Moll himself says, ‘nothing is impossible, as long as the costs do not need to be taken into account.’ I should prefer to say, provided only one is willing to pay what things cost and what they have to cost on account of the economic situation. Finally, in all probability, a higher rate of interest will result in domestic prices going down or being prevented from rising, whereby the export of goods will be encouraged and the import of goods counteracted. In this respect, too, to some extent it provides an alternative to a rise in the exchange rate, which of course at least to begin with, before all prices in our 66

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country have risen accordingly, has the effect of encouraging the export of goods and obstructing imports. To be sure, these are all theoretical, a priori arguments—though supported by no little experience from bygone days—academic wisdom, if you will, indeed, I have no other wisdom to offer; and if Governor Moll or some other man with practical experience is willing to show us theorists why and to what extent these old propositions need to be modified in order to fit modern reality, I for my part shall accept such instruction with the utmost gratitude. But when people attempt to brush us aside with empty slogans, claims that ‘that may all be very well under normal conditions, but it doesn’t apply during wars or crises’ and so on, or with cheap arguments like the one cited above, we may be excused if we do not feel terribly impressed. However, it is not only in Sweden that this unsavoury conflict between practice and theory makes itself felt; almost everywhere these days, old prejudices in this field, which were thought to have been killed off long ago, are rearing their heads, above all, of course, the ‘superstitious faith in gold’—as a member of the Second Chamber called it the other day. In the newspaper Politiken there was an article in the leader column a while ago entitled ‘Guldet’ [Gold], which presumably aimed to initiate the general public into the finer points of the present monetary system, but which in truth made the impression of deriving from the very darkest days of mercantilism. ‘Gold’, we read there, ‘is a country’s reserve of last resort, which it pays with only when all other means of payment, bills of exchange and cheques, securities and interest certificates, have been used up,’ and if a country relinquishes any part of its gold worth mentioning, it thereby undermines its credit, for ‘this is interpreted as meaning that it has no ready money available for foreign payments’. Yet at the same time, the author of this article informs us that even in the countries that have the greatest wealth in gold, the metal reserves of the banks constitute little more than one per cent of the national wealth; nevertheless, this tiny fraction, or a small change in it, supposedly ‘clinches it’ where a country’s credit is involved! Where private persons are concerned, at any event, nobody argues in this way. When the multimillionaire Baron Dickson died, the inventory of the estate he left apparently recorded no more than about 90 crowns in cash—and even that was probably just notes and small change— yet there has been no word about this having any unfavourable influence on the credit of the estate. On the other hand, however rich Baron Dickson was, it would certainly have impaired his own credit if he had sometimes been in the habit of deducting 6 or 7 per cent when paying his debts, as the Scandinavian central banks are now doing, during the war! The article culminates in the claim that ‘after the war, gold will pile up in the hands of the power or powers that take the trick and cash their winnings’. What these victors are then to do with the heaps of gold they have 67

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piled up the author does not intimate; the last Franco-Prussian war {1870– 1}, when Germany did actually make France pay out part of its war indemnity in gold, is the worst example he could have chosen, for at that time Germany was of course on the point of converting to the gold standard and was reluctant to throw its entire reserve of silver on to the market all at once in exchange for gold. Naturally, this is a completely different case. Well, but even in present-day Germany, perhaps someone will object, the Reichsbank is attempting to rake in and lock away all the gold it can get at, and as great an authority as Helfferich (quoted by Mr Moll) has stated that at the present time, this is far more important than keeping up the value of the Reichsmark abroad. Yet I very much wonder whether it is Helfferich the man of science who is speaking here—at all events, I find it difficult to reconcile this position with the one he has taken in his writings on money, which I, too, esteem highly— or whether he is not instead acting here as an obedient adjutant to the General Staff, which in the absolute power it presently enjoys appears to have brought German economic science, too, under its sway. On the desk before me there lies a book, Grundlagen der Kriegstheorie {Fundamentals of the Theory of War} by Reinhold Wagner, Lieutenant-Colonel, retd. (1912), in which the entire system that Germany has now adopted in the monetary field is described down to the most minute detail. Among other things, the author argues that in the case of war, the Reichsbank ought to collect as much gold as possible in its vaults, since, he says, it will be possible to issue all the more notes without them falling in value, as long as they have a certain percentage of cover in gold—he seems to think one-third is enough. Of course this is sheer nonsense, and experience has already refuted it in the most forceful manner possible. Like Mr Moll, I feel convinced that Germany could very well have kept up its gold currency, at best by quite simply continuing to redeem its notes, like England, and I do not even believe that this would have required any very large shipments of gold out of Germany; for if this great and powerful nation had shown itself to be completely resolved not to allow its notes, on any account, to fall below their face value in gold, I think it is very likely that its familiar 100 and 1000 mark notes would have been accepted as happily as gold in other countries—perhaps even in hostile countries. Now, in contrast, it is extremely risky to invest in either mark notes or in mark denominated securities, since no one can predict whether and when they will be redeemed at their full value; and that this fact must have above all greatly augmented Germany’s own economic difficulties during the war seems self-evident to me. German military men are no doubt extremely skilful in their area of expertise; but when it comes to the principles of economic science, I rely more on Adam Smith and Ricardo.

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NOTES 1 2

3

4

5

The rate of exchange is the number of Swedish crowns per unit of foreign currency, so that its ‘decline’ is a mark of the crown’s increasing strength, and is therefore ‘gratifying’ (translator’s note). During the debate on the investment of the cash funds held by the National Debt Office, a speaker in the Second Chamber claimed (21 April this year [1915]) that ‘we have surely hardly known a time when it has been as easy to take in gold as it is just now’. This seems paradoxical, since of course as matters now stand, gold cannot possibly enter our country in the way of normal payment. It cannot come from Western Europe (or America), since the exchanges there are against us, and if anyone in Germany wants to dispose of gold in order to pay a debt in Sweden, it is bound to be cheaper for him to send this gold to Amsterdam, for example, and buy bills of exchange on Sweden there. Some form of premium must therefore have been paid for the gold that has been ‘taken in’ here, and of course this may have been worthwhile if the gold was destined to move onwards, e.g. to England. But in that case, it ought to have been possible to acquire gold from Germany all the more safely and at no additional expense if the exchange rates had been allowed to follow their natural course—by the opening of the Bank’s counters to the redemption of notes. The same speaker was full of praise for the practice of keeping an extra gold reserve at the National Debt Office, which he said would ‘enable the State to make its foreign payments and to export gold for this purpose without this being evident from the records (my italics), a fact that according to this speaker ‘may have very great significance in certain specific situations’. Openness in matters of business does not appear to be at a premium at present! According to Memorandum No. 1 published by the Standing Committee on Banking, the book value in crowns of the Riksbank’s foreign balance was approximately 114 million crowns on 30 June 1914, which included approximately 94 million Reichsmark, but according to figures given by Cassel in Sv. Dbl. (national edition, 23 April 1915), by 25 July 1914, that balance had risen to no less than 143.6 million crowns, ‘placed overwhelmingly in Reichsmarks’. At the end of the year, the Riksbank’s total foreign balance came to approximately 51 million crowns, including approximately 48 million Reichsmark. Admittedly, these figures do not make it clear with any certainty how large amounts of our mark balances were converted into other currencies in the manner described above, nor does the memorandum provide any information about this elsewhere. At any event, the sums involved must have been very substantial if Governor Moll’s statement that we have large exports to Germany and few imports from there at present (Sv. Dbl. national edn, 25 April 1915) is also approximately true of the preceding period of the war. At any event, it is surely obvious, at least, that the facts of the matter cannot be as stated by Mr Moll in this connection, namely, that ‘the exchange rate against a given currency is determined by our balance of trade with the country in question (my italics). For this would require the complete absence of exchange arbitrage, which would be at odds with Mr Moll’s explicit assurance regarding conditions even during the war. In order to be fully effective, the interest rate policy pursued by the central bank ought to be supported by the other banks, the so-called open market. Governor Moll notes, not without reason, that the discount market is disorganized at present, even in England, the interest rates on the open market having stood well below the rate of the Bank of England ever since war broke out, and seeming on

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the whole to be unaffected by it. In normal circumstances, as is well known, in such cases the Bank of England generally captures a portion of the funds the market has available for lending by selling consols, thus forcing the market to raise its interest rates. Why the Bank does not employ the same method on this occasion is unknown to me; it is possible that it does not want to directly contribute to depressing the rate for government bonds. However, it is obvious that this selling of securities is generally equivalent to the Bank taking in deposits on which it undertakes to pay interest; and the question might be asked whether it would not then be simplest if a central bank itself explicitly granted an appropriate rate of interest on deposits, when compelled to raise its lending rate higher than normal.

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21 THE SCANDINAVIAN MONETARY SYSTEM AFTER THE {FIRST WORLD} WAR

Of all kinds of international cooperation in the economic sphere, a common monetary system is undoubtedly the one that is easiest to accomplish from a theoretical point of view, and also the one where the greatest progress has already been made in practical, real terms. It can even be said without exaggeration that before the outbreak of this disastrous war, the entire civilized world had already achieved a state in which it lived under a single monetary system. The varying size and value of the gold coins used in the countries that had adopted the gold standard naturally had little significance, even if their adjustment in line with somewhat simpler arithmetical ratios would have been a gain of the same kind as, for example, the possible acceptance of the metric system by the Anglo-American world. However, the most important point had been won by the general transition to a common monetary metal, since of course by this means the potential variation in the value of currencies from their respective par values was necessarily confined within the bounds of the so-called gold points, which became narrower and narrower as communications improved. For those countries, in turn, which had not yet adopted or fully succeeded in implementing the gold standard in the strict sense of the term—India, Mexico, Austria, and so on—the system of the gold exchange standard, which is of such great theoretical interest, proved to be a very valuable substitute. In these circumstances, the even closer monetary association that some groups of nations succeeded in carrying through, such as the countries of the Latin Monetary Union and from 1873–5 onwards the Scandinavian countries, was, in itself, of no very great importance. The decision that each country’s gold coins should quite simply be legal tender in the other countries belonging to the group in question of course entailed that the expense of sending gold was limited to just transportation and insurance costs, so that the ‘gold points’ Originally published as ‘Det skandinaviska penningväsendet efter kriget’, Bidrag till frågan om ett ekonomiskt närmande mellan de skandinaviska länderna. Inlägg av skandinaviska ekonomer, 1917.

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were brought still closer together, though they did not completely disappear. But this was also the only gain. Bearing in mind that the extra costs for sending gold under normal conditions were so inconsiderable, since foreign gold coins were often accepted by the banks at their full value without recoining if they were of full weight, it may well be said that before the war all of Europe, indeed, the whole civilized world, was broadly speaking in a single monetary union. Where the Scandinavian countries are concerned, however, the monetary convention had brought certain consequences that were considerably more far-reaching than its own resolutions. Apart from small change, the general population does not use hard coin in its daily business, particularly not in Sweden; it uses only notes, which are not legal tender beyond the individual country’s borders. However, as long as the notes are redeemable in gold coin on demand, and this gold can be freely exported, it goes without saying that one country’s notes are bound to some extent to circulate as a means of payment in the other countries too, at least in the border regions, e.g. western Scania and Copenhagen, where these notes can of course be exchanged, if desired, for the neighbouring country’s gold coins, which are legal tender in one’s own country, at any time and at little expense. Moreover, this circumstance, which came about quite naturally, was greatly encouraged by the decision of the three Nordic central banks to redeem one another’s notes without any charge to make up inequalities of value, and by the mutual agreement already reached in 1885, and put down in writing, though not confirmed by law, that each should allow the others to draw on it without calculating any exchange rate. By these agreements, the Scandinavian countries had in fact come to coalesce, as it were, into a single land in monetary respects, and there was no more need to send gold between them for private account than there generally is to send gold within each individual country. Apart from the advantages this brought for the business world and communications, this arrangement was obviously of a nature to endow the Scandinavian monetary system with a correspondingly increased strength in external terms, since to some extent the gold reserves of the three countries could be regarded as a single joint fund. But obviously the prerequisite for all this—though this does not always seem to have been sufficiently borne in mind—was the strict maintenance not merely of the resolutions of the monetary convention but also and above all of the gold standard itself: the unrestricted redemption of notes and the unhindered export of specie, at any event from bank to bank. Now, the {First} World War has put an end to all the circumstances described above, in the cruellest and, we might surely add, the most irrational fashion, and has caused the laboriously constructed edifice of what we may call the worldwide gold standard, which was the pride of our era, to suddenly collapse in a chaos of rubble and wreckage, from which it will probably be an anything but easy task to re-erect an orderly global monetary system. The Scandinavian 72

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countries, too, though spared the war itself, have not been left untouched. The decision at the beginning of the war to suspend the redemption of notes in Sweden and prohibit exports of gold—a decision that was over-hasty, in my view, and was actually opposed by Norway, which, however, did not consider itself capable of preventing it on its own—resulted in time in an increasingly untenable situation for monetary relations between the Scandinavian countries, since no other measures were taken to preserve the relative values of their currencies; thus, the agreements referred to above regarding the redemption of notes and unrestricted drawing on one another had to be set aside, one by one, and at present even the monetary convention itself can be considered to be suspended. At the same time, our experiences during the war, not least our experiences in the monetary sphere, have taught us certain lessons, which it will be the task of the future to turn to due account. For the proponents of modern monetary theory these lessons have not presented any new and surprising features, to the contrary, they have confirmed their theoretical predictions in every particular. This makes them all the fitter for forcefully refuting the standpoint that monetary and banking policy has hitherto generally adopted and clung to with great stubbornness in its practice, a standpoint that can briefly be described as an unfounded, semi-mystical overestimation of the significance of gold for the preservation of the value of money. People have imagined that gold possesses an inherent constancy of value all of its own, which it is capable of communicating to notes and other money surrogates, in some inexplicable way, provided only that a sufficient quantity of gold coin is accumulated in the strongrooms of the banks, i.e. even if this gold ceases for a shorter or longer time to be paid out in exchange for notes or other balances with the bank. A typical example of this are the views stated by J.Riesser—the well-known editor of Bankarchiv—in the work he published a few years before the war on Germany’s preparedness for war, which seems to have been made the foundation for every aspect of the monetary policy pursued by the Central Powers during the war, and by some of the Allied Powers too. However, these views, which among other things regard the strict maintenance of so-called one-third cover as a perfect means of preserving the value of money, no matter how many notes etc. are issued by the banks, have been refuted in the most forcible manner possible by the events of the war. The accumulation of gold in the vaults of the German Reichsbank, pursued by every conceivable means, has proved unable to prevent mark notes from falling in value by several tens of percentage points relative to gold, i.e. relative to the money used by countries where encashment in gold is still unrestricted, and the same thing applies in a still greater degree to Austrian and Russian banknotes. But still more remarkable is the sharp fall in the value of gold it self that has taken place during the war. To be sure, this decline had already begun a couple of decades before the war and had proceeded by perhaps 2 per cent 73

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per year on average over this period. As is well known, during the war, and particularly during the last two years of the war, the decline has been far more rapid, so that the purchasing power of gold relative to goods and services is at present little more than half what it was when war broke out. That the reduction in the value of money, and thus the rise in the level of prices, has not been quite so great in our country is mainly due to the fact that our notes currently stand higher in value than the bullion to which they are nominally equivalent, which has been made possible, as is well known, by the suspension until further notice of the free minting of gold and the buying of bullion at a fixed price in notes by the central banks. It therefore has to be said that the upshot of all these various and often extremely painful experiences is that they completely confirm the truth of the opinion that the only real cause of fluctuations in the value of money within each individual country lies in the quantity of money—relative to the requirements of turnover at constant prices—or, in a deeper and more comprehensive perspective, the nature of the conditions on which the central banks and other banks make their credit available to the general public— and not least to the state. However, if the gold standard is maintained, to some extent this limits the freedom of the individual country in its issue of notes and other aspects of its banking policy, and as a result the value of its money and level of its prices cannot depart much from corresponding values in those countries that have likewise retained the gold standard—whereas for all such countries taken together, the wrong credit policy can only too easily lead to general inflation, a general decline in the value of gold and money. If the gold standard is also abandoned, so that redeemable notes are replaced by an inconvertible paper currency, then there is just as little to prevent the monetary unit of each individual country sinking in value now, by any amount whatsoever, as at the time of the French assignats or the Napoleonic Wars. The question that now arises is how one is to imagine these lessons are to be applied after the war, especially by our Scandinavian countries, which have already taken an important, though unfortunately still very incomplete step towards putting them into practice by barring gold in the spring of 1916. The very best thing would undoubtedly be if a monetary congress involving as many countries as possible could be convoked immediately following the conclusion of peace, or in conjunction with the peace negotiations themselves, for the purpose of reaching agreements and decisions both concerning certain essential temporary rules in the immediate post-war years and regarding the definitive regulation of the world’s monetary system in future. The feelings of animosity between nations that the war has unfortunately fostered would perhaps render it more difficult to bring about a congress of this kind but ought not to constitute an insurmountable obstacle, particularly since the matter involved is more neutral in nature than most economic issues, while at the same time being of the utmost importance. If, as I think likely, such a 74

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congress agrees to adopt the views set forth above, about the correctness of which the war has provided evidence that allows of so little misinterpretation, it could hardly stop at just wanting to restore the system of the simple gold standard or gold exchange standard as it existed prior to the war. A more rational arrangement is required, on the basis of the idea that the maintenance of the value of money—not merely in international terms, but also in absolute terms, with respect to goods and services—is to be clearly understood and firmly established as a task for the common monetary and credit policy of the different countries and their central banks. The monetary system of the Scandinavian countries would then obviously have to conform to such a global association, as one link in the chain: to the extent that it still possessed any justification at all, our monetary convention would then have to undergo certain necessary modifications. Nevertheless, a more intimate cooperation between these countries, complementing the general regulations agreed upon for the whole world, would naturally by no means be precluded. But unfortunately it is also conceivable that the cooperation between the great trading nations suggested here will not come about at all or not even be attempted, or else that it might be confined to collaboration within the different groups that have faced one another as enemies in the battlefield during these calamitous years. In that case, the difficult and complex problem would arise for the Scandinavian countries, either singly or in association, of ordering their own monetary system independently in the best way possible. On one condition, however, this task they face would be comparatively simple. It is of course possible—whether it is also likely is another question—that the nations at war, which now, with the exception of England (and America), all have more or less depreciated paper currencies, might put all their efforts after the war into making possible a speedy return to the redemption of notes in gold and restoration, likewise, of the circulation of gold among the general public, such as prevailed before the war, by retiring notes and procuring more gold. In such a case, gold would obviously rapidly rise in value and the level of prices would fall correspondingly in the gold-standard countries too. Our own rate of exchange on these countries, e.g. Holland, England and America, would then soon rise to par, gold would begin to flow out of our central banks, and even if, taking the present abnormal magnitude of our reserves of gold into account, we ought to be able to regard such an efflux of gold, if of moderate dimensions, without any misgivings, indeed, to welcome it as being definitely to our advantage—since we should receive useful and much desired goods in exchange—as time went on it would naturally force our central banks to stir from the almost completely passive discount policy they have pursued during the war and to take the traditional measures to protect the gold reserve. In other words, for our part we should then have returned to about the same conditions as before the war, with which our bankers are well acquainted. 75

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But for a number of reasons, such an outcome appears rather unlikely to me—increasingly so the longer the war goes on. The withdrawal from circulation of the excess quantity of notes would after all require the states referred to to take out large new loans for the enormous sums that they have already undertaken to pay interest on, and for those that they would still have to negotiate in order, after the war, to be able to resume their manufactures, which have now been so greatly disrupted, and to make good what has been destroyed during the war. In addition, in these countries, from the point of view of the state and the taxpayer, a rise in the value of money, i.e. a decline in the level of prices, would make the interest payments on and amortization of the loans taken out doubly burdensome. Therefore, if one does not assume that everything will be ‘put on a sound basis’ by the kill-orcure remedy of state bankruptcy, all the evidence seems to argue that for the time being, these countries will retain their inconvertible paper currency in more or less unchanged form and may perhaps instead use the funds of gold they have accumulated but do not at present need to purchase goods from abroad, a policy that already appears to have been initiated to some extent in a more or less disguised form. Moreover, the countries referred to would derive a twofold advantage from the continued inflation that this would cause in the gold-standard countries: first, they would somewhat raise their own paper currency relative to the gold countries, and second, as Professor Cassel has ingeniously and I believe quite rightly pointed out in his interesting work Dyrtid och sedelöverflöd [High Prices and Overabundant Banknotes], they would stimulate the market for loans in those countries and thereby obtain those countries’ goods equally by means of loans and by payment in gold, a process that to a great extent has occurred in this very way in the neutral countries during the war. For the gold-standard countries the question would of course then arise whether they should simply accept this state of affairs or whether they might prefer to follow the example we have set during the war and shut themselves off from the import of gold by barring the free minting of gold, which would actually result in a demonetization of gold analogous to the demonetization of silver that was undertaken in the 1870s, after the Franco-Prussian war. Faced by these various possibilities, I think it is impossible to emphasize too strongly that in fact, as our own experiment during the war shows, it lies in the power of every sovereign country to regulate its monetary affairs and to determine the average value and purchasing power of its monetary unit independently, by itself. If this can be done in concert with other countries, so much the better. If not, the country in question has in fact merely a choice between two evils: to give up the mint and exchange parity against other countries that is undeniably very convenient in many respects, or else to retain this parity—as would be the case under the regime of a universal gold standard—but then also to be at the mercy not only of the whims of gold production but also of the effects of a mistaken credit and 76

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banknote policy on the part of foreign countries, which can only too easily lead to a harmful inflation even when the gold standard is retained. Which of these it ought to choose depends of course on the circumstances, but nowadays we ought in any case not to have to hear price movements and the rise or fall of the value of money being talked about near enough as natural phenomena, with respect to which the measures taken by states in the monetary sphere are futile—a view that unfortunately still has numerous adherents, not just among men of the practical world but also among theoretical economists, even those who claim to have made monetary phenomena the object of their particular study. Naturally we have no influence on the level of prices in other countries, but this has no direct significance for us either, since it is the price of goods in crowns not in dollars or marks that is what matters to us. Similarly, we are powerless in the face of such a misfortune as the goods we need to buy from abroad becoming particularly dear there while the goods we generally export have fallen very low in value; however, as long as the prices of goods remain approximately steady relative to one another, it is of no importance to us at all how high these prices may be in marks or francs, provided the value of the Swedish crown relative to marks or francs has risen at the same rate. I repeat: after the suspension of the free minting of gold where it is concerned, it lies completely in the power of each individual country, and therefore of each and every one of the Scandinavian countries separately, to regulate the value of its money and the level of its prices freely, though this naturally presupposes the definitive annulment of the monetary convention. However, in this area, the conformity of interests among the Scandinavian countries seems to me to be so great and the advantages of a united stance towards other countries so palpable that at least an attempt should at all events be made to restore and adhere to a joint monetary policy in the revised form suggested above. But if this is to be possible in all the scenarios referred to above, there will be a definite need for new institutions to regulate and supervise this joint action. Until now there have been no such institutions at all, nor were they very necessary as long as the foundation of the whole system consisted of the simple regime of the gold standard, which worked more or less automatically. It is another matter entirely if this foundation continues to be lacking in future, whether temporarily or definitively. What is then required instead is obviously a joint credit policy on the part of the Nordic central banks, which would manifest itself above all in common interest rates, set by mutual consent, though this does not mean they would always be identical. The minimum requirement here would be regular, even if otherwise informal, consultations between the heads of the banks concerning the level of these interest rates and their periodical adjustment. However, it appears to me it would be still better to organize a standing inter-Scandinavian commission, with full powers to determine these rates of interest. A model 77

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for this could be found in the so-called Federal Reserve Board that has been appointed in the United States, an institution that without running banking operations itself has the authority to prescribe both the level of the discount rates at the eight to twelve central banks that have been newly established in the Union and also whether and to what extent they are obliged to agree to rediscount one another’s bills. It goes without saying that such an arrangement would only be provisional in nature; if it were abused or if it failed to lead to the anticipated result each state would be entitled to unilaterally resign from it. Finally—though this may be a thought for the future—I cannot really see any decisive obstacle to the establishment of a true central bank for all three countries, with its seat in Gothenburg, for example. In my opinion, such a bank ought, first, to be a purely state (i.e. here, interstate) institution. The peculiar amphibious breed, part public, part private, that the majority of central banks at present are may be explicable from the perspective of their historical development, but they seem to me to have very little inherent justification. Nor, second, ought it to be a body engaged in business in the true sense of this word; it should rather put into practice the idea expressed by the philosopher Hume in his famous essay Of Money by understanding its task of supervising and arranging credit as a function that is purely to the benefit of society without any regard to direct profit, in the same way as is now the case with education, defence, the judicial system, etc., in many places also with large parts of the transportation system, such as major roads, canals, subsidized steamboat lines, etc. In that case it could endeavour to allow the system of cheques and giros, which is undeniably more perfect in theory, to increasingly replace the present circulation of notes and for this purpose could set a rate of interest on deposits that was only very slightly lower, or preferably no lower at all, than the rate of interest the bank itself asked on the loans that it made (the latter measure of course presupposes that the bank’s expenses be paid out of public funds, to which the three countries would each contribute a given proportion). On the whole, I see no real reason for the traditional state of affairs, in many places fixed by law, according to which central banks ought not to grant any interest on deposits, or should do so only by way of exception. I should think that the strongest of the reasons, comparatively speaking, that have generally been adduced for this regulation is probably that a central bank that itself accepted money on deposit would be tempted to cast itself into risky lending operations in order to earn the interest it had thus committed itself to paying. However, if the free minting of gold has ceased, and it is therefore impossible to force the Riksbank to accept unlimited quantities of gold in the way of deposits, such a situation cannot even conceivably arise—still less so if, as in our country, the general circulating medium is made up of notes issued by the central bank and, to the extent that these are reduced in quantity, of cheques. The sum of the bank’s deposit accounts would then necessarily be 78

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less than that of the loans it had made; in other words, there could be no question of the central bank suffering any damnum emergent {newly arising loss}, but rather at most of a lucrum cessans {unrealized gain}, and for a true public institution, fundamentally, such a thing of course plays very little role, if any. On the other hand, the granting of a sufficiently high interest rate on deposits would obviously be an extremely powerful tool by which the central bank could gather into its own hands all those credit transactions that were not associated with any particular risk and that should not therefore be left to private initiative. The bank’s control over the money market of the country (or countries), which at present often seems to be too weak, would become absolute, and the influence it can exert on the level of commodity prices by adjusting the discount rate, which I personally consider to lie at the very heart of all its operations, would proceed in a far more rapid and safer manner than is now possible—unless the other banks, out of pure patriotism or interest in the cause itself, on all occasions follow the example or directions of the central bank in this respect. These final reflections are obviously equally significant whether cooperation between the Scandinavian states is achieved in this area or not. There is probably no denying that even though the Swedish Riksbank, for example, has unquestionably demonstrated a greater wealth of initiative and fixity of purpose during the war years than at least an outsider, such as the present writer, could ascribe to the leaders of the other two central banks,1 it could undoubtedly have proceeded far further along the path it had entered upon, to the benefit of the country, if it had not been held back by the concern, which is very understandable under present conditions, that it should be able to present a balance sheet to its master, the Riksdag, that had as much in its favour and as little to its disadvantage as possible. In the interests of this concern, the far more important and more directly justified demand of the general public that the currency be kept up, in the stricter sense of this word, i.e. that the domestic purchasing power of money be preserved, has in the main been the thing to suffer and be sacrificed. But in this regard too, it seems to me that joint future action by the Scandinavian countries on monetary matters is likely to offer good prospects. For it is virtually self-evident that in such a case more minor considerations— whether this means a few million more or less to the Treasury or the demands made by certain speculators for ‘cheap interest’ and their disinclination to accept any change in the level of commodity prices other than a continued rise in them, for the benefit of business profits—would have to play second fiddle to the great and general goal of all rational monetary systems, which strictly speaking is already implicit in the very concept of a measure of value: the preservation—in so far as the resources of economic statistics put us in any position at all to formulate this problem—of the value and purchasing power of money.2 79

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NOTES 1

2

Though I still make an exception for the measures taken when war first broke out, when, as stated previously, the leadership of the Bank of Norway displayed greater presence of mind than their colleagues in Stockholm and Copenhagen, as must surely be admitted now, in retrospect. With regard to a number of points that it has only been possible to hint at above, I beg to refer the reader to the more detailed presentation that I made of them last spring in a lecture to the Norwegian Economics Association, which ought soon to be available in print in Statsøkonomisk Tidsskrift.

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Part V POPULATION

22 A FEW REMARKS ON THE CHIEF CAUSE OF SOCIAL MISFORTUNES AND THE BEST MEANS TO REMEDY THEM, WITH PARTICULAR REFERENCE TO DRUNKENNESS

Einstweilen, bis den Bau der Welt Philosophie zusammenhält, Erhält sich das Getriebe Durch Hunger und durch Liebe. Schiller1

The lecture here submitted to a broader public, at the urging of some members of the audience, was first given at a meeting of a temperance society in Uppsala, in answer to the question, ‘Which are the most general causes of the vice of drunkenness, and how can they be eradicated?’ It was subsequently repeated in somewhat expanded form in the great Gille Hall in the same city. In writing up the lecture for publication, with the exception of a few minor additions I have followed the oral presentation almost word for word, which I hope may incline the benevolent reader to excuse the rather unusual form in which it now issues from the press. The Author

The story is told of a bishop whose wife was railing vehemently against a boozy old curate at the dinner table one day, until at length he interrupted his better half with the following words: ‘You’re always going on about how Originally published as Några ord om samhällsolyckornas vigtigaste orsak och botemede med särskildt afseende på dryckenskapen, 1880.

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much men drink, but you never say a word about how thirsty they are.’ From this little anecdote we can learn two things: first, that even a man of the cloth can sometimes feel called upon to defend a drunkard, and second, that although all are entitled to find fault, not all are capable of exercising discernment when they do so. Nothing is easier than to paint the effects of drunkenness in glaring, repellent colours, they are right before our eyes, night and day; but if we desire to investigate the causes of this deplorable vice, we find that lectures and writings on temperance generally provide only meagre and unsatisfactory information. And yet it is not difficult to see that this very inquiry is of necessity the most important of all questions for the cause of temperance. The attempt to better drunkards or incipient drunkards by convincing them of the error of their ways is no doubt laudable in itself, and is probably even successful at times; but it would succeed far more often if what were really involved here were to instil a conviction not already held. However, you will hardly find a drunkard, at least not a drunkard who retains any sense at all of his human dignity, who fails to see only too well the whole magnitude of the wretchedness into which he has sunk, and who does not, in his better moments, make a thousand virtuous resolutions for the future; but the hour of temptation comes, and the weakness of his will overcomes the strength of his virtuous resolutions. Yet it must be a terrible power that can enable weakness to overcome strength in this way; a mighty influence that is capable of overthrowing the best thing a human being possesses, namely, good intentions. And to hunt out and if possible eliminate this influence must be the very most important task the friend of humanity can take on. This truth was not unknown to that friend of our race who taught us to pray—not, in the first place, ‘Make us able to resist temptation’, but rather, ‘Lead us not into temptation’. So how can it be that even the most sincere friends of temperance have taken this matter so little to heart? For my part, I can find only one explanation, namely, that in the attempt to penetrate a question of the kind indicated, the eye may happen suddenly to slide into an abyss from which the natural feeling recoils, so that henceforth, one dares not tread its brink. Anyone who, like myself, has followed with interest the proceedings of the Federation that has been founded in Stockholm by philanthropic men and women, with the most deserving purpose in mind, has had the opportunity to make a similar observation in a related area in recent days. Some time ago, the newspapers reported that this society had decided to apply to the Swedish Medical Practitioners Association for assistance in investigating a question of importance for public morals, namely, the advice young men receive from doctors in certain cases. However, this decision seems to have been premature, for no further reports have since followed about any such request. On the other hand, according to a later newspaper report, a number 84

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of members of the Federation have had a private meeting with some doctors to discuss the same question. At this meeting, in the view of the members of the Federation, the doctors were able to adduce only weak arguments in support of their opinion, but the general public did not receive the least information as to what these arguments were. Yet to proceed in such a way is reprehensible from every point of view. In truth, the faint-hearted cannot expect to win the day. For the practical philanthropist, too, Benjamin Höijer’s words apply to the full: ‘Seek the truth, and though the way lead to the gates of hell, knock on the door!’ Still, it may be that some people think they already know the answer to a question such as, ‘What are the causes of the vice of drunkenness?’ Perhaps it will be said, It is quite simple: intoxicating beverages give pleasure, and human beings seek pleasure.’ But by your leave, this matter is really not so straightforward. Human beings are undoubtedly pleasure-seeking by nature, but so are animals—and we do not see that their cravings generally lead to any effects that are harmful to them. Pleasure-seeking alone suffices only to explain such a use of intoxicants as is generally considered completely harmless; to believe that a healthy human being leading a natural life would, of his own accord, strive for pleasures that destroy the health of his body and soul would be too gross a denial of the most fundamental quality of all living things, which is the instinct of self-preservation. If a person is sick, it is a different matter. We all know how irresistible a desire a sick person often feels for a medicine that is capable of alleviating his pains for the moment, even if he knows quite well that it will only worsen his future condition. I have no medical expertise, but I believe any doctor will be obliged to admit that there is a definite similarity between the inebriate’s thirst for liquor and the irrepressible longing of the morphinist for the drug that he once began to use as a cure for severe insomnia and has since been unable to do without. Now it is claimed that in dealing with such cases, doctors frequently employ the stratagem of giving the patient pure water, in one form or another, while leading him to believe that it is morphine; and this puts him to sleep—sometimes. I would like to compare this method in medical science with the procedure adopted by those friends of temperance who argue that all one needs to do is to close the public houses, prohibit intoxicating drinks and persuade the imbibing public that they can have just as much fun anyway. But both doctor and patient would probably have been happier if the former had managed in time to trace and cure the illness that originally caused the insomnia and all the other trouble. In the same way, I believe that it gets us nowhere to regard and treat drunkenness as an isolated evil, arising independently; it has to be understood as a symptom of a more general ill, of a sickness, which, if it attacks a substantial part of the population, can reasonably be termed an ‘epidemic’. Now just as when an epidemic occurs, the principal concern must always be to attempt to stop up the source of infection so as to protect the 85

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healthy (though certainly, the care of the sick and dying ought not to be neglected, either), so it is in this case, too. Now in my opinion, we do not need to search for long in order to find the name of the sickness to which I have alluded. In actual fact it is well known, and known not merely by one name but by several. Sometimes it is called physical debilitation resulting from overexertion or malnutrition, sometimes it is called worry and disappointment, sometimes general apathy and dejection. But if you want to know its proper name, the name by which it is, as it were, resident and registered in our midst (though inadequately assessed), its name is poverty. And note that when I say poverty I do not mean merely sheer, ragged destitution (this would still be limiting the concept unduly). No, I call any person poor who does not possess and has no reasonable prospect of acquiring what he direly needs. If the word is understood thus, I think we will be forced to admit that the poor among us are not few, but legion. People who are ‘comfortably off, as the phrase goes, are generally inclined to cherish the brightest hopes for the human race and its future. Among other things, one often hears it claimed by such people that although we unfortunately still have quite a lot of poverty among us, we have nevertheless, thank goodness, come so far that in a civilized country, no one need actually starve to death. Now if one tells these blissful souls that in our neighbouring country, Finland, well over 2,000 people died of pure starvation in a single winter, and far more died of the disease known as famine-fever, they are taken aback and say, ‘But this must have happened in the distant past?’ Yet it was not in ancient times that it happened, it was twelve years ago, in the wake of the famine of 1867; and the fact that this event has already been forgotten in Sweden is a great proof of people’s heedlessness. But if it be claimed that what happened at that time in Finland cannot occur in our country too, at any time, then I would dearly like to know on what grounds such optimism is founded. It would seem to me that since our country has now experienced a period of no less than eleven successive years favourable to agriculture, but in spite of this our prosperity has hardly increased (indeed, it appears instead to have diminished), one does not need to be a prophet to be able to predict that in the first year of widespread crop failure there will be no saving a large part of this country’s population from starvation. Moreover, it is not true that hunger does not claim victims every day, even under present conditions. Every district medical officer will be able to attest that one of the commonest causes of sickness and death among the poorer elements of the population is inadequate and inappropriate nutrition; and finally, if people wish to draw a line between dying of hunger and dying from lack of food, then on the other hand, it has to be admitted that the distinction is rather fine. But what the poor man in our country lacks most is a home, a home where 86

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he can feel comfortable, to which he can retire after completing his day’s work, in order to enjoy at least some small part of the good things of this life with his nearest and dearest. And it is precisely this lack that, according to my most sincere conviction, more than anything else contributes to filling our public houses. I have seen extremely charming and well fitted-out working-class homes, but they have mostly been in illustrations in books, and just as the clichés behind such images are usually not of Swedish manufacture, nor does any home in our country, if indeed in any country, appear to have provided the model for them. In contrast, I have seen with my own eyes pictures of a quite different character, of which I shall here adduce just one. If I had any skill in drawing, I should dearly like to embellish one or other of our illustrated journals with this scene, though the reproduction would have to remain incomplete, since it is impossible to depict with the engraver’s tool what was here the most salient feature, namely, the impression on the sense of smell. A few years ago I went to visit a shoemaker, who lived not far from me on the outskirts of town. When I opened the door to his abode, a dense white vapour at once gushed forth, and the air that met me was so very stifling and unwholesome that for a good while I really had to gasp for breath. When I finally plucked up courage and went in, I found before me a room not much larger than my own, small student’s room, but literally packed full of people. In the middle of the floor, the master himself sat working with an apprentice, surrounded by as many of his numerous children as were not at school. Finally, at the stove, his wife was busy with a couple of other women working on a large mass of boiled sugar, of which they were to make Danish caramels for sale; and I assure you, ladies and gentlemen, the strong smell of burnt sugar, combined with an equally strong stench of wet leather, particularly when supplemented by the inevitable odour given off by so many people, made up a total impression to which my nose, at least, was insufficiently inured. I therefore hurried as fast as I could to complete my business and get away from there, but the memory I took with me I will not forget so easily. And yet what I had seen was by no means extreme or unusual distress, but merely plain, common poverty. Now I should like to ask all thinking fellow beings: can one be surprised even for a moment if, as soon as he has an hour free from his work, this shoemaker hurries away from this home, from this noxious hole he is obliged to call his home, to the only sanctuary that generally stands open to him, namely, the public house? You may say what you like about the public house, it is still a veritable paradise compared with his abode; for if a single room is to serve at one and the same time not only as a bedroom, kitchen and diningroom for a good many people, but also as a workshop for a diversity of trades, this room will have to be extraordinarily spacious if it is not to become highly unpleasant. I believe that workers who work away from home during the day are 87

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generally not much better off. Many of them do not even own a home, but instead, to save money, have to take lodgings in the homes of other poor families, who for their part, for the same reason, are obliged to share their meagre space with one or more lodgers of this kind. During the working week, I suppose this arrangement will more or less do, for a person returning home exhausted in the evening perhaps seeks no more than a place where he can lie down and sleep. But then comes Saturday evening, and all day Sunday, and again I ask, can it be demanded, is it even conceivable, that two or three fully grown men should be happy to sit cooped up all day Sunday in a tiny house among women and children of whom even the smallest has mastered the art of shrieking? Perhaps they sit there half the day, but in the afternoon they prefer to take a stroll through the city streets, and when they grow tired of walking, their home is not exactly an appealing refuge, so they go to the public house instead. Who would not do just the same thing in their situation? And anyone who wishes to confront these working men at the door, proclaiming a ban on public houses, and saying, ‘Back! Get off home!’ ought at least first to inform himself what this home is like. Now all this applies even to the strong and healthy worker; but how many workers are strong and healthy? Some trades can hardly be called anything short of perilous; most of them are of a kind such that no one can be strenuously employed in them for an extended period without serious disturbance to his health. But we should bear in mind, and no friend of temperance should ever forget, that it is precisely this kind of worker, who is weakened by overexertion or sickness and is no longer really capable of toiling for himself and his family, upon whom liquor casts its strongest spell. What a temptation for this poor, debilitated wretch to drown his sorrows for a few moments in the bottle, to feel himself reborn, after just a few swigs, to feel brave, capable of enduring hardships and exertions of every kind! What a temptation! Yet it is precisely on him that intoxicating drinks also have the most treacherous effect, and they will soon cast him into misery many times more profound than that in which he already finds himself. My friends! Since we stand confronted by a distress so general, so deep, and, I make bold to say, so little of the victims’ own making, ought we not, if we cannot proffer any real help, at least observe a respectful silence? For to a man who feels no respect for misfortune, surely nothing on earth is sacred. But how many people perceive this? From the fact that one or two poor men actually succeed in scrambling up out of the mire, indeed, even in attaining an emi-nent position in society, people draw the conclusion, in defiance of every law of logic, that all poor men should quite easily be able to do the same, and if this fails to occur the reason must be either idleness or a lack of good will. And when the working man complains of his distress, he is handed to help him a kind of amulet to wear upon the breast, a little scroll on which can be read the magic formula ‘work and pray’. This may be well meant, but is little better than a cruel taunt. As far as a human observer can judge, 88

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people pray not less but more in this country than they used to do. On Sundays, and even in between, the temples are filled with pious multitudes; everywhere in the country, new meeting-houses and chapels are sprouting up far more rapidly than the rate of population growth would lead one to expect; and we are also told that in every part of the country, a far deeper, far more widespread religious interest is making itself felt among the populace than for a long time past. So are people not working hard enough? Go to the factories and see if the worker is standing around idle! Find out how much time he has left over for himself and his family each day! Or go out into the fields where he is tilling the soil and say to the farm-hand, ‘Not like that! This is the way to handle a hoe and a spade!’… One of the authors of the New Testament likens this life to a racecourse and admonishes the Christians so to run that they obtain the prize. With equally good cause, though in a different way, the present time could be likened to a racecourse, or rather, a racing circus, to which both racehorses and plain simple working jades are admitted, and where the prize consists of the necessities of life. But in a race, there must be jockeys, too, must there not? Yes indeed, there are jockeys here, too, and they generally have a rather better time of it than the horses. When these poor nags, gasping and ready to drop, happen to have fallen a few lengths behind the lucky prize-winners, and so are about to lose out on their prize, the jockeys keep on cracking their whips, digging their spurs into the animals’ bleeding flanks and yelling, ‘Hey! Come on! Work and pray!’ Now I expect this whole argument will meet an objection that at first sight appears to be well founded. It will perhaps be said, ‘From the way you portray the causes of drunkenness, it seems as if you want us to believe that it is only the very most wretched and impoverished people who drink to excess, whereas we know perfectly well that a good deal of drunkenness flourishes in the prosperous social classes too. Just to take one obvious example, how many students are there not who barely deserve to be called anything but drunkards! Yet the students,’ it will be said, ‘cannot generally adduce their poverty as an excuse; after all, most of them possess all they need!’ But this is the very thing that is not true. The student may well be called more fortunate than many of his brethren; but he by no means possesses what he needs. I am not talking about the fact that for many students, their university career is a continuous struggle with neediness and worry, a struggle some contest with honour sustained until the very end, while others fight on for a time but are then exhausted and succumb. What I am talking about is rather a want that with hardly any exceptions worth mentioning is common to all students. According to a calculation carried out a few years ago, the average age of students in Uppsala is no less than 25 years. In general, then, they are no longer children, these ‘varsity lads’. Most of them have reached a fairly mature age. But what a man who has reached maturity 89

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needs, what the directions of nature herself declare him to need, we are aware. It is to live together with a woman he loves, to establish a family and have children. But for virtually all students this is an utter impossibility, not merely during the long years of their studies, but for many years more after graduating. And this unnatural situation is growing worse year by year. As the statistical data reveal only too well,2 the number of marriages contracted relative to the population is steadily declining, while the average age for entering into wedlock is steadily rising, both for men and for women; and in this area, at least as far as the men are concerned, the educated classes are worst off. There is probably no need for me to point out to the majority of my listeners the emptiness this unnatural situation and the feeling that it cannot be remedied engender in the student’s life. Even in the best case, it produces the great lack of enthusiasm and optimism that older people are surprised to observe in the present generation of students. But that is not all. Deprived of the refreshing influence of family life, often without the least family contact, the student is bound to be attracted to the noisy diversions of life with his fellows, with bottles and cards in plenty, but rarely any great profit for his better self; and since the enlivening, invigorating companionship of a good woman is denied him, since he hardly dares to raise his eyes to look upon the young girl he encounters in society, because if he is an honourable man, he cannot set about chaining a young woman’s entire hope in life to his uncertain and at all events remote prospects—when all these factors come together, and more besides, in general (and I am afraid this now occurs not as an exception, but as the rule) he will seek consolation in the arms of a prostitute. A vile substitute, terribly vile, the worst conceivable! But have you considered the fact that it is the only substitute he is offered? ‘Except the consolation of religion’, perhaps some will put in. ‘Is that now to be utterly forgotten?’ Not by me, at least. I am not unaware of the power of religion, I know it can achieve much, for some people infinitely much; but are you absolutely certain that it can solve everything for everyone in this case, too? Shall we strike out the words of the apostle Paul, who has never acquired a reputation for flattering human frailties, yet still declares, in a verse that cannot be misunderstood, ‘it is better to marry than to burn’? Quite so! But what if someone is burning and yet cannot marry—what is his best course then?—Let he who would cast the first stone pause for thought, for he himself is required to be without sin. What has been said here about students applies to a greater or lesser extent to nearly all young men in the so-called middle class: engineers, clerks, book-keepers, young civil servants, indeed, even craftsmen; they are all, or nearly all, condemned to the same fate. All of them, or nearly all, have to pass through the most vigorous years of their life, the years that should be the fairest and best, and on almost to the verge of old age, without ever having felt the heart of a woman they love beat against theirs. If this is not poverty, then I confess I have never understood 90

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the meaning of the word, and if the circumstance I have discussed here is not in itself more than enough to explain the increasing tendency towards the excesses of drunkenness and other debauchery that marks the youth of our times, I shall cease to believe in any such thing as a connection between cause and effect. One of the most brilliant women of our century has declared, ‘To understand all is to forgive all’, and in truth, in our world many are called criminals, who in fact are martyrs. Here I anticipate, or would like at least to take up and respond to, one of those claims that people with good intentions so often make, but which by their total absence of reflection are capable of causing a logically disposed mind to despair. More often than not, people say, ‘If our young men were willing to work and save more than they do now and did not ask so much of life, they would be able to marry.’ Of course in response it could be objected, first and foremost, that in general it is far easier to exhort others to practise industry and thrift than to exercise these virtues oneself, and that the married people who are generally the source of this admonishment frequently themselves fail to set such an example of industry and thrift as to entitle them in any way to be regarded as justified in admonishing other people. However, I do not wish to dwell on this point. On the contrary, I do not mind admitting both that our young men could save more and, in general, that it would do them no harm to work rather more than they do at present, indeed, I think they would be very wise to do so, since it would enable them to make better provision for their old age. But when people go so far as to claim that young men in our day could marry if they were more industrious and thriftier, I deny this most emphatically, for such a claim has never been supported by any reliable figures at all. I have no intention, either, of coming out with any statistics, which I might not be able to defend in detail; but am I mistaken when I say that all a young man in his early twenties could manage to save in a year by increased industry and thrift, would generally barely suffice to pay the increased costs he would incur in the support of a family for a month? So can he marry? ‘No, no,’ they will reply, ‘not now, but in the future.’ Fine! Most people do marry in the future; and if they have then worked and exercised self-denial unceasingly all through their youth they will thus, when their time at last comes, be able to marry one or two years earlier than otherwise. But from the moral perspective, it really does not matter very much whether a man is able to marry at the age of thirty-five or whether he is compelled to wait until he is thirty-six or thirty-seven (after all, by this time his character and way of life ought in any case to be more or less steady-going); what is important, indeed, decisive for the public morals of a nation is whether its young men are to be able to marry at the age of twenty-five or not until they are thirtyfive. Now if anyone should think they can blunt the point of these contentions by adducing examples from their own or other people’s experience of one or 91

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two, or even a whole dozen individuals who, without wealth of their own or dowry, have been able to enter into wedlock at an early age, and should then wish to draw the conclusion that most other people ought to be capable of doing the same thing, I should like to inform them that an inference of this kind is forbidden in logic, since it is the complete reverse of what is known as logical induction. If it were possible to say, ‘Since 990 men in a certain position in society have been able to marry when young, a further 10 should also be able to do so’, then as I understand it, no objection could be made to this type of inference. But to claim that because a thing has happened in a few cases, it must also be feasible in a far larger number of similar cases, is to make a type of inference that is really utterly unjustified. Finally—and this is what actually decides the issue—no one should imagine that if we young people now made a concerted effort and managed to bring down the average age for marriage by one or two years, our children would be able to do a little better still by making a similar effort. Regrettably, it is only too easy to show that the very opposite would be the result. For if the number of marriages were to increase, for one reason or another, then if no other change occurred at the same time, the number of children born would only become greater, and as I shall attempt to elaborate in the sequel, this would necessarily make it not less but far more difficult for the next generation to enter into marriage than for the present generation. Perhaps I have dwelt on this matter too long, but I wanted to give an example to show that it is sometimes possible to do youth an injustice, too. How many people can there be, who, instead of concurring with the general line and blaming young men for their unwillingness to get married, possess sufficient powers of reflection and love of truth to pity them for their inability to marry? Incidentally, even people of whose judgement one ought to be able to expect something quite different, sometimes tend to follow a very superficial line of reasoning when it comes to this issue, as I should like to show you by reading the following passage from a recently published statistical study. The author quotes without reservation Montesquieu’s well-known words, ‘Wherever a family is able to support itself, a marriage is contracted’, and then continues on the next page: Incidentally, it would be foolish to deny that the decline in the rate of marriage, both in our country and elsewhere, is also to some extent a consequence of a more general moral slackness, and of the egoism that shrinks from marital bonds in order to ‘enjoy the good things in life’, as the phrase goes, more fully and more undisturbed. In passing, it must be pointed out that these bachelor’s plans involve a terrible miscalculation, since there is proof that in all age groups over the age of 20, mortality is sharply higher precisely for members of the unmarried state, particularly those of the male sex. 92

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It is truly astonishing that a respected statistician is capable of confusing cause and effect to such an extent. The author believes that moral slackness arising for some unknown reason is the cause of the diminished rate of marriage; he does not admit the possibility of the contrary idea, namely, that an involuntary unmarried status might be the cause of the slackness in morals observed. (Compare this with the quotation from Montesquieu!) And if the author of the work quoted here has personally known some bachelor who, though in a position to marry, has nevertheless refrained from doing so for reasons of convenience, for my part, I have to confess that I have never been lucky enough to make the acquaintance of so rare a bird. I have also asked my friends about this, but the most they have been able to come up with is the name of some old bachelor or another. But if a man of fifty or more finally reaches a position to marry, there is good reason to ask whether he does not display moral fortitude by remaining unmarried, and laxity if he enters into marriage at so advanced an age. Finally, in my opinion, the author fails truly to understand the bachelors of our time, if he believes that they generally entertain any very great fear of death. For a certainty, death can only be welcome if it puts a quick end to a life that for most people must feel a complete failure. I shall refrain from attempting to depict the influence which the unfortunate conditions I have discussed here (and for which young people truly bear the least responsibility) exercise on the other half of our species, on women, who suffer without daring to breathe a word, because their very complaints would make them the object of derision and humiliation—I refrain from this, for it belongs only in a lesser degree to my subject. And even if it were of greater relevance, I hardly know if I would possess the courage to tear the veil from misery so deep, so bottomless. For even when I reflect in private solitude on the lot of the fallen woman, which is often more wretched than that of the beast, or the virtue of the woman of steadfast character, which in the great majority of cases receives neither encouragement nor reward, and only undermines her health and spirits…I cannot always restrain myself from tears. And who would not weep, when he finds the world to be such that for many people virtue itself becomes a curse? Ought we perhaps to be satisfied with the hope that after all, all will be made good ‘above the clouds’? Indeed, most people are unselfish enough not to begrudge their neighbour the peace of heaven, with all their heart, as long as they are permitted to retain for themselves the earth, and life and carefreeness! I have now, in a way I believe to be correct, advanced to the boundary of the first part of my inquiry, and this boundary is found to be a wall, a wall too high to be leapt, too strong to be knocked down, even by all the rams’ horn trumpets of Israel. It remains to be seen whether it can be levelled with the ground in the usual way, by being torn down stone by stone. In other words, if poverty in all its forms, of which one is the involuntary unmarried state, 93

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has to be regarded as the most general cause of both drunkenness and other debauchery, is there any prospect of this poverty being susceptible of remedy or at least alleviation? To ask whether anyone has pondered this question before would be superfluous. In fact, it is all mankind has ever done. The remedies for poverty that have been suggested up until our day are not just numerous, they are so numerous that one might perhaps be inclined to conclude from the fact that the malady still persists that it is actually incurable. But if that were the case, if poverty were eternal, if the misfortunes we now suffer could not be eliminated by any means, then I truly do not know why the present point in time might not be as suitable as any other for the implementation of a proposal made in complete earnest by one of Germany’s most brilliant men, namely, that mankind ought to put an end to its course on earth by universal suicide. After all, for a man who is irretrievably bankrupt, suicide is by no means an unusual end. But it cannot be so. Poverty cannot be eternal; otherwise it would have to have existed at all times and among all peoples. But fortunately that is not the case. When Christianity was first introduced in our country, there were no paupers here at all, and it makes an almost pathetic impression to learn from contemporary accounts that when the first Christians wanted to give alms, in accordance with the prescripts of the new religion, they were obliged to send them abroad, since there was hardly anyone who wanted to receive or who needed alms here at home. And even in our day, there are countries that in comparison with our own land exhibit little or no poverty. But on closer examination of the remedies suggested for poverty, one generally finds that they are either so superficial or so remotely connected with the malady they were intended to cure that it ought to have been possible to see in advance that they were completely useless. It also becomes evident that when some people propose one remedy, its opposite is generally advanced by another party as the right thing to do. Then years are spent arguing about which is right, one measure is tried out for a while, then the other—and poverty remains. To take just one example, we all know how passionately the quarrel between free-traders and protectionists has flared up in our day. Now it is claimed on both sides—and on both sides there are men of honest conviction—that the position of the poorer classes would become more tolerable than at present if one system or the other were adopted. Perhaps in fact both of them are equally harmless. Maybe the free-traders would give us less work and cheaper bread, the protectionists the reverse, but whether the numbers of the poor would be increased or reduced thereby I really do not know; for there are countries that impose high tariffs and countries with almost no tariffs, and in both kinds of countries there is more or less the same amount of poverty. However, one remedy has been proposed, which has at least this advantage over others: that no expert any longer dares to put forward its direct opposite 94

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as a cure for poverty. Further points in its favour are that it is sufficiently farreaching as at least to bear comparison with the malady to be cured, and that it has a fully scientific foundation, built on extensive studies of the causes and nature of poverty. Finally, it also has the merit of having been put into practice for a good number of years in at least one large country, and has yielded distinctly favourable results there. This remedy is based on the view of the causes of poverty that is named after the English clergyman and economist Malthus;3 not because he was the first to advance it (in fact, its roots reach all the way back to Aristotle and Plato), nor because the modern adherents of this view follow Malthus in every respect, but because by numerous and profound statistical studies he provided once and for all a firm foundation for the theory to build on, whereas it had previously been based more on guesswork and probability. I should like now, in what follows, ladies and gentlemen, to explain in simple terms, as far as possible, the essential features of Malthusianism—which in fact are all I know of this doctrine. These essential features can be summed up in the following words: we are poor, because there are too many of us. In every country of old cultivation, the population, if left to itself, has a natural tendency to grow at a far more rapid rate than the means of subsistence. The consequence of this is poverty with its customary attendants, vice and crime, and although it can by no means be claimed that these misfortunes derive from overpopulation alone, all means to remedy them will nevertheless prove powerless unless population growth is regulated at the same time, in such a way that the development of the food supply can keep pace with it.4 As a remedy for poverty, besides thrift, industry and prudence (means that ought always to be used, but that will never be adequate to the purpose in isolation)—Malthus recommends delayed marriages and strict self-restraint. However, since, as I have attempted to indicate in the preceding section, for most people these latter solutions are an evil that can only be compared with neediness and want, and there is therefore little to be hoped of them, it can safely be asserted that Malthusianism, in the form advanced by its originator himself, leads to pessimism, and that indeed was the opinion among Malthus’s contemporaries. However, Malthus shrank from more far-reaching measures. More particularly, he condemned in no uncertain terms, as being unnatural, a measure about which I shall say a few words later on, and which first seems to have been proposed by the famous Frenchman Condorcet. At the time when Malthus appeared on the scene, the views prevalent almost everywhere among the leading men of Europe were diametrically opposed to his. The well-being of a country was held to be directly in proportion to population density. Governments competed in stimulating population growth by every conceivable means. Immigration was encouraged, rewards and other benefits were conferred on parents rearing large families, and since the inhabitants of almost all European countries had already begun 95

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to show a tendency to emigrate, it was believed that nothing was more urgently required than attempts to check emigration, indeed, even to prohibit it on pain of death. Such attempts led one economist (J.B.Say) to declare that if the inhabitants of a country are not allowed to leave amicably from the ports, they will instead sneak out by the gateway of death. Among countries where the ban on emigration was maintained particularly rigorously we may mention Bavaria, but there is no evidence that any good came of the system there and it has now been abandoned, in Bavaria as in most other countries. Experience therefore appears to have proved Malthus right, at least on this point, and his opponents these days5 are generally more effective in ‘hushing up’ his doctrine than in refuting it. In spite of innumerable ferocious attacks, the ‘law of population’ remains as unrefuted as a mathematical theorem. John Stuart Mill calls it an ‘axiom’. In our own country, Malthus’s theory has not attracted much attention. Among his defenders, however, we encounter at least one name of good repute, namely E.G.Geijer. In the well-known nine essays on the question of poor relief, from the year 1839, at which time the abhorrence of Malthus appears to have reached its peak,6 Geijer intervened ardently in his defence and argued for his own part that it was essential to distinguish clearly between two kinds of population increase, one for good and the other for ill. But with his own characteristic distaste for statistics,7 Geijer stopped far short of drawing the full consequences of Malthus’s theory. But even if no well-informed person dares to claim these days that unlimited population growth is possible in a country, at no risk, this view is all the more common among the uninformed. One often hears it argued that a country can never become overpopulated, since if the number of people increases, the number of working hands also grows at the same rate. Now if one points out to people who make these kinds of claims that their view, taken to its logical conclusion, must entail that two families can support themselves as easily as one on a single croft, since two ought always to be able to perform twice as much work as one, or rather, because of the division of labour, somewhat more than twice as much—then they take refuge instead in talk of inventions and the progress of science. ‘The world is advancing day by day,’ they say, ‘one can hardly pick up a newspaper without reading about how a new invention has been made somewhere or other in the world. But all these inventions’—they have learned this lesson by rote—‘are so many gifts of immeasurable value to the human race, they will increase its prosperity incalculably, and it would almost seem that our race might not be able to multiply fast enough to allow as many as possible to enter into possession of these blessings.’ But all this is just groundless twaddle. Most people barely do more in their entire lifetime than to earn bread for themselves and their families, and if the progress of civilization depended on their activities, it would certainly not have come far. The world does not advance of its own accord; instead, if it is 96

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to go forward at all, it must be driven on, and those who have taken on this mission are the great geniuses and inventors. But great geniuses and inventors are not many in number, they are few, and few are also the inventions that increase the prosperity of mankind so much that our numbers may be multiplied in any considerable degree with no ill effects. In addition, the following circumstance ought not to be forgotten. As soon as a new invention, e.g. the use of steam power in industry, has been made, as a direct consequence of the greater ease in finding profitable work that the invention affords, the population rapidly increases. But once this increase in numbers has reached a certain point, the same invention is then necessary just to maintain this number alone. It is incapable of producing further growth unless new applications are found, i.e. new inventions are made. Now to be sure, it is impossible to calculate what scientific and industrial progress the future holds in store. And it is natural to hope that progress will occur at a great pace, preferably at a prodigious rate. But however fast progress may be, whether slow or rapid, it is powerless against the force of natural population growth, which overwhelms all other forces. In order to demonstrate this fact, I must ask you, ladies and gentlemen, to accompany me in some numerical calculations, though fortunately they are of the simplest kind. If all inhabitants in a country, e.g. our country, were able to marry at an early age, it is no exaggeration to claim that on average, four or five children from every family would reach adulthood. The population of our country would then double in about 25 years. At the present time, our population is growing far more slowly, but then more than a third of the adult population here is unmarried, and although the average number of children in each family is at present between four and five, not all these children reach adulthood. Emigration also contributes to some extent, though not much, to the abatement of growth. However, the fact that population growth so rapid as to entail doubling in 25 years is by no means impossible in itself, is borne out by fully corroborated examples from recent times,8 and although we lack statistical data from earlier periods, there is every reason to suppose that in many places the growth rate has been even faster after devastating plagues or great wars. Let us therefore assume for a moment that over an extended period, conditions in our country might be sufficiently favourable as to induce population growth as rapid as that mentioned above. Our population is at present about 4 1/2 million. After 25 years it would therefore have risen to 9 million, after 50 years to 18 million, after another 25 years to 36 million, and when a century had elapsed, we would have 72 million inhabitants, or almost as many as Germany and France combined at the present time, which of course would be rather gratifying. The position would be still more gratifying a century later, but even more so after the addition of a further 50 years, for by then our population would have increased more than a thousandfold. Thus, after the passage of as much time as from the death of 97

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Gustavus Adolphus in the Battle of Lützen until our day, our little patch on the earth’s surface would hold more than 4,500 million people, many times more than currently inhabit all the countries of the world combined. In order to house so many people we would be compelled to build a big city, and even if the city were as densely populated as Stockholm, it would still extend from Haparanda in the north to Ystad in the south, and from Öregrund in the east to the Norwegian border in the west. However, since we would then not have any earth at all left on which to sow and harvest crops, it might be best to build this city in the clouds—and in the clouds it will probably remain, not just for the next 250 years, but for several centuries more besides, since in reality the population of our country is not now doubling as quickly as in 25 years. But as this, according to what many people claim, is due at least in part to a lack of virtue among the populace, it has to be conceded that on the other hand, every cloud has a silver lining. These observations become still more instructive if they are instead applied to the ages our race has already lived. I shall assume that the human race is descended from a single pair of parents, who lived 6,000 years ago; for with reference to this figure, both theologians and geologists are in perfect harmony—that it is at least not too high. I shall further assume that this pair of parents and their descendants were able without impediment to comply with the divine exhortation, ‘Be fruitful, and multiply, and replenish the earth’. With the growth rate we have just taken as our point of departure, 750 years would have been sufficient to bring the numbers of the human race up considerably higher than the present figure (though admittedly, this figure is not known with complete accuracy). But if so promising a beginning had proved sustainable from the time of Adam all the way down to our day, then the human race would not, as some might guess, stand packed together on this earth like sardines’—that would be nothing. No, the present generation would form a continuous mass, akin to a swarm of bees, which, with the earth as its centre, would stretch out in all directions, past the sun, past the planets, past all the fixed stars, whose incredible remoteness it has been the privilege of our time to be the first to measure—and about another million times further still. Ladies and gentlemen, I do not know if you are inclined to smile at such an idea; for me it is the most terrible, but at the same time the most instructive truth I can ever remember learning; for it demonstrates unambiguously that in its sojourn on this earth, the human race has had the looming scourge of overpopulation swung over its shoulders not just here and there, or now and then, but always and every where, a scourge whose deadly blows mankind has been compelled to seek to avoid at any cost, if the entire race was not to pass away. I therefore make bold to say that there is not a single important event in history that is not incompletely explained if this weighty factor has been neglected, not a single one of the most terrifying scenes of ancient times that does not emerge into a truer and at 98

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the same time more human light, if it is seen from the perspective of impending overpopulation. We really have no right to regard our ancestors as savages and barbarians; they were undoubtedly people of a not dissimilar character to ourselves, but people who, through having been exposed frequently to famine, had become less scrupulous about the expedients they resorted to. During a bad harvest, our forefathers are said to have sacrificed their king, Domalde; and taking a broader perspective, a severe famine has been the spark that set off more than one revolution. Thus, unless one prefers variety to truth, it appears that it would not be inappropriate to introduce virtually every chapter in the book of history with the following words: At the time when the people had become so numerous that they were threatening to eat one another up, it came to pass… Can things go so far that a person kills and eats up a fellow human being? We know that this gruesome custom has been common among many savage tribes, indeed, that it has survived until our day on some of the Pacific islands. But we know, too, that the same thing can occur among Europeans, e.g. in shipwrecks, when the crew of a boat has long been collectively exposed to the horrors of hunger. And if someone in such circumstances has committed so terrible an act, he can hardly be held responsible for it later, since severe hunger often induces delirium and madness, and an insane person is not considered accountable for his acts. But the population of an island in the ocean is well-nigh comparable with a crew of this kind. The coconut palms only provide food for a certain number of people, the inhabitants are constantly multiplying, and if they want to move, they have to move out to sea. It can therefore hardly be doubted that the first origins of so atrocious a custom as cannibalism are to be sought in a periodically recurring, gnawing famine. When Europeans take possession of such islands, their first concern is to attempt to induce the population to refrain from this and other inhuman customs. And not infrequently they succeed, for even cannibals do not necessarily have hearts of stone. But there is one thing the whites forget: they forget that all these ancient practices, which inspire horror in them, are so many expedients by which, for centuries, the population has kept itself down on a level with the means of subsistence. And the consequence of their abolition has inevitably been that the savage tribes have mostly been enfeebled by starvation and have dropped like flies. It ought not to come as a surprise that in the process, the vices of the white man, drunkenness and indecency, have also fallen in fertile soil. In this respect, missionary history can display pages that in truth are suited to quite different ends than religious edification. We have given these savages the Cross to kiss and then dispatched them into eternity, without pity. It is not in order to work upon your imagination, ladies and gentlemen, that I bring all these horrors before you; it is in order to awaken your minds, 99

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an awakening I believe the majority of you are in fair need of, and which I here provide, not out of arrogance nor because I have any exaggerated sense of my own importance, but quite simply because on this subject, I myself have been ‘awakened’ from the unsuspecting slumber I previously slept with everyone else. When confronted by so tangible an example as the one above of the distress and vices overpopulation can induce, one really has no right to thrust this explanation aside as impossible or unnecessary when the same kinds of phenomena show up in one’s own country. Now admittedly, it is true that if it is easy to determine what should be called overpopulation on a small island in the ocean, inhabited by savages, it is correspondingly difficult to arrive at an equivalent judgement where a large, civilized country is involved, with the many, interdependent branches of its economy. After all, this would require a comprehensive assessment of our resources and our needs, and at present nobody can carry out such a task. It would therefore be possible to argue interminably about whether a country like Sweden is overpopulated or not, if one were not satisfied with following the old rule: the tree is known by its fruit. If prosperity is general in a country, if numerous marriages are contracted, and at an early age, and if, as a result, the population leads a sober and virtuous life, then we may be certain that that country is not overpopulated, even if it is as densely inhabited as, e.g., France. Conversely, if the opposite is the case in all these respects—and I leave it to each of you individually to judge where Sweden stands in this connection—then although it is not logically certain (since of course all these things could be due to casual causes), it is surely at least highly probable that the country is overpopulated, even if it is as sparsely inhabited as our own territories in Lapland; and if, in addition, the statistics reveal a worsening trend in some or all of these areas, it can be inferred with equal probability that the population is growing too rapidly and its growth ought to be restricted in some way.9 Perhaps some tender soul may here be inclined to ask, ‘Is all this possible? Can it be possible that God has failed to invest nature with some power capable of automatically undoing so appalling an evil?’ To this, there can be no answer but that there is no such power invested in nature. And as a general point, one ought never to let go of the idea that it is the task not of nature but of mankind to spread happiness and justice on earth, for ultimately, it is this idea that is the motive behind all noble acts. To be sure, nature possesses remedies for overpopulation, but they are so terrible that they only bear comparison with the evil itself, indeed, they are in fact only another aspect of this evil, for their names are plague and famine. Wherever the population of a country becomes too numerous to be able to support itself, these angels of death sally forth, sometimes separately, but more frequently in union. Each year, contagious epidemics spread from the Indian subcontinent—fertile, but home to 200 million people—to larger or smaller parts of the adjacent territories, often far into Europe; and I do not 100

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suppose the indescribable famine which ravaged that part of the world six years ago has been utterly forgotten yet. In China, the most fertile land on earth, but equally proverbial for its population density, famine is now said to be—permanent. So have human societies themselves had recourse in the past to any measures to counter these impending dangers? Yes, but these, too, have generally been of so ungentle a character that as I now pass on to describe them, I must beseech you, ladies and gentlemen, to steel yourselves with all your courage, for we have here before us the very darkest pages in the history of the human race. The great remedy human societies have found for overpopulation has been war. Not long ago, it was reported in the press that the man acknowledged to be the greatest military authority of the present day, Field Marshal Count Moltke, had declared in a letter to a German compatriot that in his view, even the most successful war was a national misfortune. This opinion is not exactly novel. The prophet Isaiah said something similar long ago, though he may have employed different words. But to make matters worse, it is not true either, at least no more than partially true. After all, it would be remarkable, to say the least, if mankind, which has been taught so much by experience in the course of its long sojourn on earth, had still not learned this fact, if it were really true. But it is not true. A war, even the most devastating war, can certainly be, if not a blessing for a country, then at least a relief—in moments of despair, that is, when the hands available for work mean nothing compared with the mouths to be fed; and such moments have not been uncommon on earth. Now it is no doubt true that the relief war brings is not felt immediately, since of course some of those whose labour would otherwise support the rest of the population are lost in the war; the relief only comes somewhat later, when those who are thus left without a provider have had time to starve to death. And indeed, we see how quickly the wounds of even the bloodiest war heal, how science and industry regain momentum after such a war, like vegetable life bursting forth in the soil after a thunderstorm, or the renewed strength of a man returning to health after being ill with a fever. Naturally, when I say this, I do not mean to deny that the happiest event imaginable would be if conditions could arise on earth in which the evil of war were no longer a necessary evil. Another remedy for overpopulation that human societies have employed, though far more sparingly than the previous expedient, and usually in combination with it, has been emigration. I do not suppose anyone will wish to deny that emigration, particularly when able to take place peacefully (though this has seldom been the case), is a far lesser evil than war, at least for the emigrants themselves and their families; for those left at home and for the country as a whole, the difference is probably not so substantial, since of course emigration, too, mainly carries off the stronger elements of the population, while leaving behind those who are infirm and unfit for work. 101

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An obvious example of this is provided by the recent history of Ireland. As a result of emigration to America, its population has declined in the last 40 years by about three million. But although no one is likely to deny that the Irish emigrants are far better off in their new homeland than they would have been if they had remained in Ireland, recent events seem to indicate that the situation of the population at home is, in contrast, still far from satisfactory. As for the other remedies human societies employed in older times against overpopulation, perhaps I may be excused from a detailed account if I say that of all of them, the one that was least inhuman to our way of thinking was the exposure and destruction of infants. We know how common this practice still is among all savage or semi-civilized peoples (how innocent we ourselves can be said to be in this respect, I shall investigate later), but in ancient times it was quite universal, indeed, it was even elevated to a political principle. Plato and Aristotle both advocated abortion and, in case of need, permitted infanticide, and we really have no right to ascribe statements of this kind by these men merely to wicked and immoral motives.10 It ought therefore not to arouse astonishment if we find that even among one of the most moral peoples of ancient times, the Jews, infanticide was not merely common, it was even, as a number of utterances in the Prophets compel us to assume, originally ordained in the law. The apparent contradiction between two such regulations as in Exodus 13, verses 2 and 13 would then be explained by the assumption that when the Pentateuch was composed after the Babylonian captivity, by which time human sacrifice had already been abolished, although no one dared to alter the wording of an ancient law, its effect was annulled by the insertion of a new commandment concerning the redemption of human firstborn.11 And yet alongside commandments of this kind, we encounter in Mosaic Law those numerous statutes bearing witness to the most loving care of the poor and lowly, indeed, even of domestic animals, that make this Law one of the most humane there has ever been, and a worthy preparation for the gospel that at a future time was to be preached to the poor! After Christianity became the state religion, infanticide was forbidden in the Roman world. Did the church replace it with some other remedy for the threat of overpopulation, which remained as immediate as ever? That the church, under the direction of numerous pious benefactors, became one great institution for poor relief in its early centuries; that its priests took on the sign of the slave (the shaven head), not in order to play the saint, but to make known their will to be the servants of all, in accordance with their master’s command—this we know, and it will eternally redound to the honour of that church. But it would still have had little effect. For even the most comprehensive poor relief can only distribute resources more evenly, it can never permanently do away with poverty. In fact, the church resorted to a far more powerful tool: the encouragement of general chastity.12 102

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It would be foolish to attempt to deny the practical significance of monasticism in all areas of life in the Middle Ages, and equally foolish to express astonishment at the ease with which the Catholic countries in more modern times have been able to support a priesthood many times as large as in our Protestant countries. Even if these priests and monks, without exception, were idlers and loafers, as they are often, though incorrectly, imagined to be, this would still be more than counterbalanced by the relief their voluntary celibacy affords the population, whose too rapid growth it does something to hinder. But that the celibacy of the church, in itself, was a counsel of despair, that it led, and necessarily so, to terrible disorders—this, too, cannot surprise anyone who is acquainted with the human heart, and usually, all that this requires is an honest look at oneself. Luther was unable to endure the loneliness of the monk’s cell and, since he found nothing in the Holy Bible that required it, he broke his monastic vow and married (his wife was a former nun). In general, Protestant clergy have followed his example, and for this I at least have no wish to blame them. It almost goes without saying that the expedient of chastity was anyway far from adequate. Consequently, it was inevitable that the other social and natural remedies for overpopulation would again come into play—and so they did. The Middle Ages had more than enough wars and plagues. In the crusades, for example, we behold the saddest of all emigrations, for of course in general, those hordes of adventurers went only to meet their death.13 Now since most of this devastation inevitably struck the male sex, a surplus of females that at times must have been simply unbearable must have been the result, and since, among the Christians, this surplus did not, as among the Mohammedans, find an outlet in polygamy, it instead gave rise to the atrocious prostitution that marks the Middle Ages, which, fortunately, not even our era has been able to match. But that is not all. Although I am well aware that a mere guess on the part of a person with little knowledge of history cannot be of any great value, nevertheless, I make bold to suggest that it is in the same circumstance that we ought to seek the explanation of a movement which testifies to the most violent hatred of womankind, the movement that has become known by the name of the witch trials. The number of women burned as witches in the fifteenth and sixteenth centuries runs into the millions. The female population of entire villages was wiped out; and from what is known of the formalities surrounding these trials it is perfectly clear that their main purpose was by no means to get to the bottom of an obscure issue, but rather quite simply to ‘ensnare’ the poor ‘witches’ and kill them. Now to talk about religious fanaticism or suchlike in this case is merely an indirect admission of one’s inability to explain the matter, for even if it may appear to a casual observer as if, on some occasions, entire 103

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nations were seized by a sudden madness, it must nevertheless be assumed, when so large a part of our race is involved, that there was at least, as Polonius says of Hamlet, a certain ‘method in this madness’. Ladies and gentlemen, I am sure you have had enough of all these horrors by now, and yet I still have one more picture to display: our own era. What expedients do we presently possess for use against overpopulation? Or can it be true that in our age, this scourge of our species has been broken at last? Only a frivolous mind can dare to make such a claim. Are our women less fertile than in the past? There is no evidence to justify such an assumption. Are wars and epidemics more devastating in our day than in times gone by? The opposite is the case. Is emigration of any great significance for most European countries? No! Does any significant proportion of the male population live in voluntary chastity? No! What remedies do we then possess for excessively rapid population growth? We have poverty, late marriages, drunkenness, prostitution and secret infanticide. To what extent the last of these expedients is employed in our time, is probably not reliably known. However, strange rumours circulate in the civilized world. In some great cities, above all New York, it is said that doctors carry out infanticide almost as an open industry, even if in a somewhat milder form.14 In our own country, infanticide is forbidden by law; the punishment used to be the wheel. It has now been softened to 4 to 10 years of penal servitude. Some people may find this punishment too lenient. For my part—though armchair politics ought to be avoided by amateurs in legislative issues—I cannot refrain from saying that I consider the penalties in this case, with their unequal treatment of men and women (for on how many occasions can the father be absolved of responsibility for the murder?), to be one of the greatest injustices in the statute book, indeed, a veritable disgrace to the male sex, which here, too, has clearly demonstrated its incapacity to see that justice is done, without bias, between itself and womankind. It is a mistake to believe that in general, infanticides are unusually callous creatures. I am sure most of them differ from other human beings only in that they are poorer and more helpless than they are. A clergyman whose word I trust has assured me that during his years of service as chaplain at one of our houses of correction for women, the numerous infanticides there constituted by far the most rewarding congregation he had ever had in his care during the whole course of his life as a clergyman. Those who wish to do so may ascribe this fact to the remorse and contrition that are bound to follow so great a crime—if this were the explanation, surely similar reports should be forthcoming from our other prisons. All I wish to assert is that if it were possible to assemble the fathers of these murdered children, who now walk at liberty in our midst, unpunished for their irresponsibility and with no public stigma attached to them, and if these men were formed into a congregation and a priest were charged with attempting to soften their 104

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hardened hearts and trying to make them see that even if legally exempt from punishment, it is still not right for a father to abandon the mother of his child: then the contrast between these men in their apathy and the mothers in their contrition would be so striking that everyone would surely be amazed at the thought that such atrocious injustice, such shabby and cowardly tyranny, can be concealed behind a paragraph in the law-book of a civilized country. Most people recognize that this is so; and it should be gratefully acknowledged that both in older and more recent times, an enlightened government has done much to ease the lot of indigent young mothers. But if anyone claims that the penalty in its present form is a necessary evil, then I ask, ‘What good does anyone believe is achieved by legislation of this kind?’ The usual answer to this question is, ‘The honour of society must be salvaged, society has not merely a right, it has a duty to protect the life of all its members, even those that lie in the cradle.’ I fail to understand how anyone can seriously utter such hollow words. Do you say that society has a duty to protect the life of these infants? Are you deaf and blind? Do you not realize what she will do, this unnatural or destitute mother (for this is generally the same thing), who can only be prevented from taking the life of her newborn child by the threat of the law? Ten to one, she will let it starve to death. A hundred to one, she will be able to do this without any kind of intervention on the part of the law, since the police cannot station spies beside infants’ beds. And a hundred to one again, that having done this with her first child, she will repeat it with the next, and the one after that, until, transformed into a cold-blooded murderess, she perhaps pursues the crime as a trade and becomes the kind of woman who also takes other women’s children into her care, i.e. into her neglect. No pastor who knows his flock can deny that this is true. No one who studies the statistical reports, or who merely browses through the lists of deaths in our newspapers, can fail to discover that among illegitimate children mortality is nearly twice as high as among legitimate children, and in general is far too high to be explained in any satisfactory way. There is no doubt that a large proportion of these children are killed, whether quite deliberately or as a result of the mother’s indifference or neglect—it makes no real difference here. The fate of the children is the same in either case. But the whimpering of infants does not penetrate the nursery walls. And graves are dumb. There they lie now, in their little coffins, these poor victims of futile cruelty. Society has protected their lives—and they have died in agony. But the honour of society is saved—if you like. Society can safely raise its ancient escutcheon to the skies, for when the sun of wealth and power shines upon it, there is no need to see that the shield is tarnished, indeed, that it still drips and steams each day with the blood of poor, innocent, guiltless infants, who have been tortured to death. But everyone who possesses a heart and a conscience calls this image of society by its true name, and its name is— ‘Moloch’. 105

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If, on the other hand, we desire not merely to forbid infanticide on paper, as is now done, but actually to prevent it, if we desire to protect these little ones from sufferings they have done nothing to deserve, then there is only one means to this end, and as long as human beings are human beings there will be but a single means: and this is to make it possible for every mother to give birth to and to bring up at least one or two children, in honour and decency. There is no doubt that this would remedy not merely the misfortune discussed here, but most of the calamities we suffer at present. And a goal so great, so blessed, can actually be realized; but of course it cannot be realized without sacrifice, and this sacrifice is that generally speaking, under such circumstances, no woman in the entire country will be able to have more than two or three children. In other words, if we want a renewed increase in the number of our families, which is now steadily declining—and no foundation has ever been laid for the morals of a society other than the family—then this cannot be done unless, in future, a corresponding reduction is made in their size! At present, the average number of children in each family is four or five; it must be limited to two or three. Why these numbers precisely? For the following, extremely simple reason. If each woman in the country gave birth to two children, then even if all these children reached adulthood, our population would be stationary, or rather it would slowly decline (since more boys than girls are always born). However, if each woman had 3 children, and these reached adulthood, our population would grow, not just as quickly as at present, but far faster. Consequently, the one correct average compatible with a healthy increase in the population must be found somewhere between two and three, and in future we must strive to meet this goal, if we are to have any hope of permanent relief from poverty and all social misery.15 Now is a limitation of this kind conceivable? It is not merely conceivable, it has in fact been implemented, at least approximately, for nearly a century in one European country, and what is more, in a country that by and large undeniably occupies one of the most prominent positions in terms of both general prosperity, and sobriety and morality. That country is France. In France, the native land of wine, where ‘nature herself bids the happy to make merry’, the vice of drunkenness is said to be well-nigh unknown. In France, gay, frivolous France, the number of children born out of wedlock, relative to the population, is considerably less than in our country. In this regard even the metropolis of Paris, in spite of the misfortune of having become a meeting-place for upper-class scum from all over the world, is at about the same level as our own dear Uppsala, but is much better than Stockholm. But then in France, only a quarter of the adult population is unmarried, in Sweden more than a third, and while in the former country the number of marriages is steadily increasing, as I have said before, in our country the opposite is the case. At the same time, in French families, the average number of children has undergone an uninterrupted decline from the beginning of 106

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this [nineteenth] century on, so that these days, in rural parts one does not usually find more than three children in any family, in Paris rarely more than two.16 Some people have wanted to see the low birth rate in France as evidence that the population is growing increasingly feeble, but it is probably far closer to the truth to assert that the reduction has occurred on a voluntary basis and is motivated by wise forethought or rather by a tender concern for the children’s future. I have no doubt this is what the French farmer thinks: If I have one son and one daughter, my son will be able to take over the farm when I am gone, and I shall still have saved enough to be able to provide my daughter with a decent dowry when she marries. If I have three children, maybe everything will still turn out well, though not so well. But if I have four or five, my little plot of land will be incapable of supporting so many. Some of my children will then be obliged to swell the numbers of unattached labourers, and, who knows, they might fall into beggary and prostitution. I do not want that. I do not want to make my children unhappy, nor do I want others to become unhappy on their account, so I will not have more than two or three children’. But what of the Swedish cottar, the impoverished Swedish labourer, who sees himself surrounded in his hovel by his five or six—indeed, up to eight or ten—children, for whose future he is generally unable to make the least provision, and of whom, perhaps not he himself, but anyone else can confidently predict that at least one of the sons will be impelled by necessity to become a beggar and a drunkard, at least one of the daughters will be forced by necessity to take up the most ignominious, the most unhappy of livelihoods? What he thinks, I do not know, and I would like to assume, for the sake of his honour, that he has not devoted much thought to the matter. For I am unwilling to believe that he only takes an interest in some of his children, e.g. the strongest and most gifted, and is unconcerned about the fate of the others. But be that as it may, he has done these children a terrible injustice. For to bring up a large family is no great feat, even in a pauper’s hovel. Education is free, clothes, too, can sometimes be obtained free of charge, and even when they are quite small, the children are capable of helping with occasional jobs around the house. Later, of course, when they have grown up, they are supposed to be able to ‘earn their own living’, as the phrase runs. But it is precisely at this point that the misery begins in earnest. It is at this point, when all these children emerge into the world and there encounter the large broods produced by other families, that it becomes evident that there are too many of them. It is then that the bitter struggle to make a living begins, the struggle in which the vanquished are called the poor and become the others’ slaves; it is then that drunkenness and prostitution claim their countless victims—and trample them underfoot. Do I then want only the poor man to be limited to just a few children, while the rich may have as many as he pleases or as he is able to bring up? In actual fact, to allow this would not be so dangerous, for I believe the rich 107

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have always had fewer children than the poor. This is because the rich man knows that the wealth he leaves will no longer be a fortune if it has to be divided into too many portions. But the poor man thinks that since he leaves nothing at all, what he leaves cannot be diminished if it is divided among more. Yet he is mistaken in this belief, for he has given his children something more besides, which for many is worse than nothing at all, namely life. However, those who are more fortunate ought in this respect, more generally than is now done, to set the poor a good example. And above all, let no one believe he has done all that righteousness requires if, by providing his children with a careful upbringing, he has placed in their hands the means to forge their way through life more successfully than others. For even if this gives his own children a firm footing in life, this will only make them all the more certain, independently of their future behaviour, simply by the space they take up, of driving other human beings to the brink of ruin, and down into its depths. (I by no means wish to dispute the fact that exceptions to this rule can occur; but precisely because they are exceptions, no one is entitled to assume they will occur in his family.) Therefore, once their eyes have been opened to these facts, every married couple ought to regard it as a sacred duty, indeed, as the most sacred of all duties, not to increase their family to more than two or three children without careful consideration. I have no doubt that for many, this will prove an excessively burdensome duty, especially, say, for a man and woman who marry when young, and who love one another dearly, which is highly desirable from every other point of view. (Imagine a young working-class couple: they already have a few young children, they see one another every day, perhaps have only a single room. It will probably be conceded that if such a demand as the one above were made of them, without further ado, the loftiest idealism could easily become the height of inhumanity.) If there is therefore any means, if doctors, guided by their science, are able to indicate any way of making this duty, for some, less burdensome, for others, perhaps, possible to fulfil at all, in other words, some way of making conjugal relations possible without the woman becoming pregnant—then in truth, they ought to hasten in this case, too, to place their knowledge in the service of suffering humanity. They ought to do this without regard to such prejudices as have always opposed every beneficial innovation, every new blessing for the human race, but in support of which, as they should be in the best position to judge, not a single reason, ethical, rational or religious, can ultimately be advanced.17 If people are unwilling to do anything at all about this matter, then in truth, it is not difficult to see what kind of future awaits us. Poverty, with all the misfortunes and vices that issue from it, will increase, boozing will grow more common, debauchery will spread terribly. Temperance 108

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societies and societies for the promotion of morality will appeal to heaven, but no one will hear them, for heaven has kindled the light of reason in man’s soul, and if he is unwilling to let it shine, he will wait in vain for help from above. Now perhaps it will be said, even if all this were both true and desirable, we still see no way in which it can be carried out in practice. For there will surely never be any legal possibility of compelling anyone to forgo his natural right to have as large a family as he wants and is able to bring up. I do not wish to dispute the issue of whether this is everyone’s natural right; but what I am talking about here is not rights, it is what we ought to do out of Christian charity for our fellow men and for posterity. For I can only call that man a true Christian who, when he sees what will further the wellbeing of his fellow men, does not hesitate to relinquish some of what he calls his rights. It is only by so doing that we become true disciples of the master who commanded, ‘all things whatsoever ye would that men should do to you, do ye even so to them’. But of the Pharisees he said, ‘they bind heavy burdens and grievous to be borne, and lay them on men’s shoulders; but they themselves will not move them with one of their fingers’. And in the future, when I hope the views I have attempted to put forward here will be more generally accepted than they are now, it will be possible to say the same thing of the man who brings up a large family, in spite of recognizing that by having such a family he is bound to add to the sum of crime and misery in the world. And should anyone protest in indignation, ‘But tell me the name of the person whom I condemn to misfortune by having a large number of children!’—I answer him, ‘I cannot tell you his name, for he may not yet have a name; perhaps it is the very child your wife will bear you next year. Or else it is someone else’s child: perhaps the present generation will only suffer a small part of the consequences of your incontinence, while the next generation will suffer all the more. In vain you shall stop up your ears and say, “I do not believe it, I do not believe it”; for you cannot fail to see it; and if you do not follow your convictions, your conscience will give you no peace on earth. In vain you shall protest, “I shall work for my children, I shall pray to God for them”; you know that it is not permitted to tempt God. In vain you shall say, “My children have free will, they can choose for themselves between good and evil”; for by depriving them of the conditions which make a virtuous life possible you have offended these little ones.’ I do not expect that legislation, at least at present, will be able to do anything for this cause; but I place all the more hope in the individual spirit of self-sacrifice. If temperance societies can arise, whose members renounce all use of strong drinks, even the most innocent, out of pure charity, in order to set a good example to others, I really do not see why a society could not also be founded with the purpose of promoting selfrestraint in a matter in which we must all be ‘friends of moderation’, if 109

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some are not to be forced to be ‘total abstainers’; for in this connection, total abstinence is not a good thing. I do not know if my words will fall on deaf ears, but I cannot forbear to address an earnest appeal to the young adults of Uppsala, whether they are studying or working for a living, to form one or more societies for the above-mentioned purpose. For it is the young who must take the initiative in this matter, since they are the ones who will carry it out, some day. And reprehensible as it may be for the young importunately to seek to seize by force a share in the power and counsels of their elders, it must, conversely, be esteemed just as praiseworthy if they decide to observe common sense and moderation in an affair that concerns them and their descendants. Each member of a society of this kind would have to take a pledge not to increase the family he has or may in future acquire beyond the number of three children, as long as he belonged to the society. If anyone broke this pledge, no punishment would be meted out to him other than exclusion from the society. Voluntary resignation from the society would also have to be permitted, for the principle of liberty ought to be adhered to in all things. But above all, such a society ought to work by means of the spoken and written word; and here I am thinking especially of the students. During the vacations, these students visit their home parts; many of them will return there as teachers, public officials or clergymen. They will then have the opportunity to promote this cause in many kinds of ways, in private conversations or public speeches. For I consider no place, not even the pulpit itself, to be too exalted for the preaching of these doctrines. For my own part, I did not feel I was profaning the hall consecrated to prayer where I first gave this lecture, by explicitly discussing what I am convinced will do more than anything else that can at present be done to better the moral status of our people. But whatever is to be done, it has to be done soon, for we are threatened by dire need, or more accurately, we have long been in a state of dire need. Not that I believe the present generation itself might be able to enjoy any great share in the results of its undertakings in this respect. On the contrary, we who are willing to lead the way will probably have to bear all the danger and inconvenience associated with breaking ground for a new idea, even though the idea be as peaceful and unrevolutionary in character as this one. Only the next generation and still more, those that follow it, will rightly perceive and bless the fruits of our prudent consideration. But for anyone who loves his country and his people, for anyone who does not place his own personal well-being above all else in the world, for any such man it cannot be a matter of indifference whether those who come after us shall be plunged deeper and deeper into misery and despair, on our account, or whether they shall be able, enlightened by our example, to march on with fresh vigour on the path of healthy progress. 110

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NOTES 1

2

3

4

5

Until philosophy shall serve This world we live in to preserve, It bustles on from hour to hour Sustained by love’s and hunger’s power. See on this subject ‘Några grunddrag af Sveriges befolkningsstatistik for åren 1748–1875. Bihang till Statistiska Central-Byråns underdåniga berättelse för år 1876’ {‘A brief outline of Swedish population statistics, 1748–1875. Appendix to the annual report of the National Statistics Office, 1876’}, intro. p. vi ff. Thomas Robert Malthus was born in 1766, near Dorking in Surrey, not far from London. He received his earliest education at home, under the supervision of his father, Daniel Malthus, who was a friend and correspondent of Rousseau. He later went up to Jesus College, Cambridge, where he was elected to a fellowship, and then became curate of a small parish in Surrey. His first published work appeared (anonymously) in 1798, under the title An Essay on the Principle of Population; it was subsequently greatly enlarged and amended, and went through many editions. In 1799, he visited Norway, Sweden and Russia, which were then the only countries on the Continent accessible to the travelling Englishman. After the Peace of Amiens, he visited France, and everywhere collected new data illuminating the law of population. At his death in 1834 he was professor of political economy and modern history at Haileybury College, and a member of the French Academy of Moral and Political Sciences and of the Royal Academy in Berlin. If the annual surplus of births over deaths leads to the population of a country doubling in a given number of years, the same cause, other things being equal, will necessarily entail a further doubling in the same number of years. The population of a country, says Malthus, therefore has a tendency to grow like the numbers 1, 2, 4, 8, 16 etc., or in a geometrical progression, as it is known, and it would do so in reality, if the means of subsistence could be made to grow equally rapidly. Now it is hardly possible to misunderstand this theory more grossly than by claiming, like the author of the statistical work of which I gave an excerpt above, that experience has disproved Malthus because no country on earth has been able to exhibit a population growing in a geometrical progression. Far from this being a valid objection to Malthus, the very opposite would be a refutation of his doctrine. For if any country on earth had been able to display a population growing in a geometrical progression over an extended period, then, since people cannot live on nothing, this would have proved that the sources of subsistence in that country had also increased in a geometrical progression. But this is the very thing Malthus denies is possible. To make matters worse, this absurd claim has been allowed to appear unamended in a Swedish encyclopaedia that is currently in press (in the article ‘Population’), and will thus contribute in the immediate future to misleading the general public as to Malthus’s actual opinion. Such a phenomenon, incidentally, is not unique to Sweden. Of his older opponents, it is said that the foremost was Carey. I am not familiar with Carey’s works, but I have been assured that this author is almost unparalleled in the groundlessness, not to say unscrupulousness, of his arguments. As a sample let me adduce the fact that when Carey wants to prove, contra Malthus, that slow population growth in a country leads to poverty, he

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takes France as an example, and when he wants to show that, conversely, rapid growth leads to prosperity he cites—Ireland! As for Carey’s so-called physiological objections to the ‘law of population’, these are said to be arbitrary in the extreme. He assumes that human beings necessarily become less fertile in proportion as their intelligence grows. From this he infers that if population growth needs to be limited at some time in the future, this will happen of its own accord, as long as we have made sufficient provision for the dissemination of intelligence. Verbum sap! {a word is sufficient for a wise person, i.e. further comment is unnecessary}. 6 What probably contributed more than anything else to this was the unreasonable way in which Malthusianism was put into practice in England. When it began to be obvious to everyone there that the poor themselves contributed to making their position worse by having numerous children, the opinion soon gained a footing that far from encouraging people to rear large families, the attempt should be made to prevent this by making life miserable for the poor. This rather inhumane idea was the origin of the notorious English workhouses, which Dickens has portrayed in such appalling images in Oliver Twist. 7 He speaks with a certain disdain of Malthus’s so-called ‘series’ (the geometrical series we have already talked about, and the arithmetical series, by which Malthus wishes to provide an indication of the tendency of the food supply to grow at a slower rate), and considers them capable of influencing only those who are willing ‘to take figures for proof. However, this willingness can only be open to criticism when it comes to the abuse of figures as proof. For I do not suppose anyone will deny that in the course of the ages, a few things of importance have been proved, really and truly proved—by figures. 8 In the United States of America, the population has doubled in 25 years on several occasions, even disregarding immigration. 9 One often hears it claimed that a country cannot be overpopulated as long as it still possesses unexploited economic resources. This claim is due to a failure to observe the distinction between absolute and relative overpopulation. A country would be overpopulated in absolute terms if it could never, ever be in a position to maintain as large a population as it presently has. Such a situation probably does not exist anywhere on earth. On the other hand, any land is overpopulated in relative terms where the economic resources available at a given time do not match the needs of the inhabitants. Naturally, it is in this latter sense that I have employed the word ‘overpopulation’ in the previous passage. 10 On the other hand, Seneca undeniably verges on immorality, to the modern mind, when he recommends the destruction of old, infirm slaves as ‘good economy’. How little human life was worth in those days, particularly the life of a slave, is evident from statutes laid down in ancient Roman law such as the following: that if a master killed his slave, he was exempt from punishment, but if, conversely, a slave killed his master, not only the murderer but all his fellow slaves, often up to several hundred in number, were to be executed without delay. (Erratum. The ‘advice to dispose of old slaves was given by Cato the elder, not Seneca. However, it was in Seneca’s time that the punitive measures discussed were promulgated; moreover, they also applied to manumitted slaves. See on this point Geijer, Fattigvårdsfrågan {The Question of Poor Relief}, second essay.) 11 If only the male sex was sacrificed, this may have been connected with the practice of polygamy, which was common among the Jews in ancient times. In itself, too, polygamy is a means to counter overpopulation, though to be sure, as

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such it is far surpassed by its counterpart, the practice still said to predominate in Tibet, where several men, e.g. several brothers, share a single wife. Incidentally, since my above interpretation of Exod. 13 has met with some opposition, I take the liberty of here quoting what the man who is indubitably the foremost authority in the field of Biblical criticism in our country, Dr. V. Rydberg, says on the same subject. ‘We learn from the prophets who lived at the time of the exile that at that time, human sacrifice was still practised. “Truly,” says Jeremiah (3:23–4), “in vain is salvation hoped for from the hills, the mountains. For shame hath devoured the labour of our fathers from our youth; their flocks and their herds, their sons and their daughters.” “Behold,” he cries out in the name of Jehovah, “I will bring evil upon this place, because they have filled it with the blood of innocents; they have built also the high places of Baal, to burn their sons with fire for burnt offerings unto Baal, which I commanded not, nor spake it, neither came it into my mind” (19:3–5). The latter words, repeated in several places, are apparently directed against an opinion then existing that Jehovah had commanded these sacrifices, although they were now offered to Baal. This opinion was shared by the prophet Ezechiel in so far as he considered that human sacrifices had been imposed on the Israelites by Jehovah as a punishment for their disobedience. He has Jehovah say of the Israelites in the wilderness (20:25–6), “I gave them also statutes that were not good, and judgments whereby they should not live; and I polluted them in their own gifts, in that they caused to pass through the fire all that openeth the womb (all the firstborn), that I might make them desolate, to the end that they might know that I am the Lord.” These “statutes that were not good” are included among the laws compiled by the reformers, namely, in Exod. 13:2, where it is written, “whatsoever openeth the womb among the children of Israel, both of man and of beast: it is mine”, and in Exod. 22:29–30, “the firstborn of thy sons shalt thou give unto me. Likewise shalt thou do with thine oxen, and with thy sheep: seven days it shall be with his dam; on the eighth day thou shalt give it me”. However, the sting is taken out of these ancient commandments, in which the human and the animal firstborn are placed side by side, in part by a new explanation of their origin, in part by the ordinance that the firstborn of man (and of the ass) shall be redeemed with money (Exod. 13:12 ff.), and in part, finally, by the declaration that “Jehovah has taken the Levites unto himself instead of the firstborn of the children of Israel” (Num. 8:13 ff.). Some have wanted to infer from this declaration that since of course the Levites were not sacrificed, neither had the firstborn been sacrificed, in whose place the Levites became Jehovah’s possession. But when it came to doing away with an abhorrent religious practice, people were probably not so particular about the logical consistency of the justification of its abolition. Anyone who reads the story of the sacrifice of Isaac attentively will be able to understand the following words of an older prophet, Micah, in which he movingly depicts the doubts and (ultimately triumphant) inner struggle of a pious servant of Jehovah, under the influence of this sacrifical practice: “Wherewith shall I come before the Lord, and bow myself before the high God? shall I come before him with burnt offerings, with calves of a year old? Will the Lord be pleased with thousands of rams, or with ten thousands of rivers of oil? shall I give my firstborn for my transgression, the fruit of my body for the sin of my soul? [author’s emphasis]. He hath shewed thee, O man, what is good; and what doth the Lord require of thee, but to do justly, and to love mercy, and to walk humbly with thy God?” (Micah 6:6 ff.)…. After a victory over the Ammonites, Jephthah, because of a vow to Jehovah, sacrificed his daughter; this was not done in haste, for she received two months

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time to prepare herself for her sacrificial death, and we are not told that a single voice was raised to save her during this time…. The expression that recurs a number of times in the sources, that people were hanged or quartered “before Jehovah in Gilgal”, “Jehovah in Gibeah”, etc., is not susceptible of unforced explanation other than by the practice of sacrificing human beings to him on the hills…. According to Exod. 29:37, any non-priest touching the altar of burnt offerings was to be “holy” or “consecrated” (sacer, qadasch), i.e. consecrated to death; cf. Exod. 30:29, Lev. 6:18, Num. 18:2–3…. The power ascribed to human sacrifices is evident from 2 Kings 3:27. A joint army from Israel, Judah and Edom had surrounded the Moabite fortress Kir-haraseth. The garrison, which was suffering from a lack of water, made a sortie in an attempt to break through the besieging army, but was thrown back. In these dire straits, the king of Moab “took his eldest son that should have reigned in his stead, and offered him for a burnt offering upon the wall”. And the text continues, “And great indignation came over Israel: and they departed from him, and returned to their own land.” This retreat from a fortress that was close to falling into their hands, leaving their mission unaccomplished, can only be explained by the army’s conviction that all efforts against it would now be futile. The indignation that came over Israel is to be interpreted as the wrath of the national god of the Moabites against the enemies of his people, aroused by the sacrifice, not as anger felt by the Israelites at the sacrifice. Such a feeling would surely have spurred the besiegers on to storm the fortress, rather than persuading them to abandon a victory that was already almost won…. The custom of “devoting” captured enemies and their belongings to Jehovah after successful sieges and battles bears the unmistakable signs of human sacrifice. Before the siege, the Israelites promised Jehovah to devote the enemy city to him, if he gave it into their hand {author’s emphasis}. It was thus an exchange of services. Sometimes on such occasions everything that had life and breath was slaughtered as a sacrifice to Jehovah: men, women, children and cattle. A law written in Lev. 27:28 ff., concerning such sacrifices, commanded: “no devoted thing, that a man shall devote unto the Lord of all that he hath, both of man and beast, and of the field of his possession, shall be sold or redeemed; every devoted thing is most holy unto the Lord. None devoted, which shall be devoted of men, shall be redeemed; but shall surely be put to death {author’s emphasis}”’ (V.Rydberg, Jehovah-tjensten hos hebreerna {The Service of Jehovah among the Hebrews}, p. 54n). 12 That widespread self-restraint had become an urgent necessity among the Jews in the time of Jesus, we can infer from, among other things, a memorable utterance of our Saviour’s, where he talks about how this virtue, which is so hard to exercise, was forced on some people by the cruellest of measures. People are now inclined to doubt that the self-mutilation alluded to later in the same verse should really be understood literally, as a religious practice among ascetics (in which case it was the most appalling of all such practices). However, we know that one of the noblest of the Fathers of the Church was not only of this opinion, he even committed an act of violence against himself that one cannot think of without a shudder. 13 By the nature of my subject, I have had to point out one specific, and hitherto rather neglected, aspect of some historical events. However, it would be a great misunderstanding to impute to me the least desire to deny that there were also other sides to these events, to which in any other connection it would have been of equal or greater importance to draw attention. 14 Judging by some evidence in recent American publications, abortion seems to some extent to be accepted by the public consciousness there as something excusable. There can be no doubt that this is an unfailing sign of

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overpopulation. Certainly, a hundred years ago no mother in America sought to destroy her foetus before term. ‘But’, perhaps it will be asked, ‘if there really is overpopulation in some parts of North America, why do the inhabitants not move to less populated regions of that continent?’ This mystery probably has an extremely simple solution: they cannot afford to do so. To move costs money, and these days land costs money even in America. 15 ‘Little improvement can be expected in morality until the producing of large families is regarded with the same feelings as drunkenness or any other physical excess. But while the aristocracy and clergy are foremost to set the example of this kind of incontinence, what can be expected of the poor?’ (J.Stuart Mill, Principles of Political Economy. London 1876, crown 8vo, p. 226n). Although these words of the man who is quite generally recognized as the greatest economist of recent times were written principally with English conditions in mind, they can surely be applied to our own country, too. 16 Average number of children in each marriage in France: 1800–1815:3.93 1820–1830:3.70 1831–1835:3.48

1836–1840:3.25 1841–1845:3.21 1846–1850:3.18

1851–1855:3.10 1856–1860:3.02 1861–1864:3.08

Legoyt, La France et l’étranger, études de statistique comparée, quoted by Kautsky, Der Einfluss der Volksvermehrung. For the sake of comparison, I provide the following table showing the rise in the incidence of marriage in France (taken from Hellstenius, Studier i jemförande befolkningsstatistik). Number of married persons per 10,000 members of the population: 1806:3,584

1836:3,699

1851:3,894

1866:4,045.

17 (When this lecture was given for the first time, in a somewhat shorter form, at a temperance gathering, the author considered that he ought not to go into this undeniably sensitive issue in greater detail. However, since, shortly afterwards, he was subjected to violent attacks in the press, on account of this very point, the following words were added on the second occasion the lecture was given.) Now if anyone says in response to this, ‘I do not want to discuss a subject like this, I think it is disgusting, it offends my moral sensibility,’ then I cannot urge him too earnestly to avoid pangs of conscience by following this moral sensibility of his, as far as it is his own, and to attempt to realize the goal that must be shared by all by self-restraint, for his part. But if he demands that what he calls his moral sensibility should also be the principle guiding other people’s behaviour, then it is indisputably incumbent upon him to put forward in support of the morality of this sensibility something other than a mere subjective opinion. But whatever these supports, I undertake to show that they are false, and in doing so I shall employ the kind of proof known as ‘deductio in absurdum’, i.e. the demonstration that the opponent’s view leads to consequences that everyone can see are absurd. We are surely in agreement that the moral worth of an act is determined by the state of the will. If, therefore, the measures hinted at above are regarded as immoral, then any conjugal relations not intended to lead to pregnancy (e.g. when a woman already is, or can be assumed to be, pregnant) must also be immoral. But though this may be what the idealists and Christians of our day believe, the teacher of the Church, Luther, and the apostle Paul at least have both spoken out firmly against such a view. Where the latter is concerned, if one reads

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through the advice to married couples contained in the first Epistle to the Corinthians, chapter 7, one has to admit that there he clearly expresses the view that conjugal relations in themselves are moral, in that they are a not insignificant factor in the love and intimacy that ought to prevail between spouses. Possibly our idealists find this view of Paul’s worldly; but I believe that in his worldliness he was far more humane than these gentlemen with their abstract theories. I am therefore unable to see anything other than sheer prejudice in the opposition to this matter, and that such prejudice can be overcome I know from my own experience. For several years ago, when I first heard that precautions of the kind I have hinted at were customary in France, my reaction was one of extreme disgust, since all I saw in them was sophisticated frivolity. I have since learned to look upon things with different eyes and have realized that it is not a question of sophisticated pleasures, but of self-denial, of a sacrifice made in the noblest of all causes: concern for the well-being of coming generations. Let us therefore leave this matter to the conscience of each individual; and then, if you feel as I do, we shall say no more about it. But above all, let us not have two kinds of morality: a public morality, which sets a stigma on everything and everyone without further inquiry, and a private morality, which equally casually turns a blind eye to all kinds of things and people. For of all vices to which a nation can be subject, I do not know if any is more despicable than widespread hypocrisy.

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23 OVERPRODUCTION—OR OVERPOPULATION?

I Under the heading, ‘Die wirtschaftliche Überproduktion und die Mittel zu ihrer Abhilfe’ [Economic overproduction and the means by which it may be remedied], Mr E.d’Avis has published an article in the Jahrbücher für Nationalökonomie und Statistik (vol. 17, no. 5) that illuminates various aspects of this much discussed problem in a manner I consider very valuable. The findings that emerge as the theoretical result of d’Avis’s exposition are in striking agreement with phenomena actually observed in the present economic period. If we add that his argument is distinguished at almost every point by logical stringency, it seems hardly possible that his practical conclusions, too, his criticism of the standard proposals for eliminating the problem and the remedies he himself suggests, can command anything other than immediate acceptance. And yet precisely the practical consequences of his theory seem to me of such a kind that they can hardly meet with any response from specialists in the field but muted disbelief. Mr d’Avis speaks first of the numerous arrangements between manufacturers to secure higher prices by curtailing production, and traces the cause of their failure to the fact that ‘the restriction of production as such is certainly not a way for our world to eliminate general overproduction, i.e. overproduction without corresponding underproduction in some other sector’. Naturally, one can only concur with his general thesis when formulated in this way. However, as far as I can see, there is no basis whatever for his claim that the present overproduction, particularly in Germany, is of just this kind, ‘where, as it were, too much is produced in all branches of industry and too little in no branch’. He himself mentions ‘coal and minerals, iron, steel, jute, paper, liquor’, etc., as being produced in excess of the real need; but of course all these goods and raw materials are intended largely for foreign export. In Originally published as ‘Überproduktion oder Überbevölkerung’, Zeitschrtft für die gesamte Staats-wissenschaft, 1890.

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contrast, no one is likely to claim that Germany’s production of common consumer goods and the raw materials they require—meat, cereals, wool, timber, etc.—is also in excess of real needs, so that although his thesis is quite correct in itself, the prime condition for applying it is absent. In fact, the truth of the matter is probably that the production of all these goods in Germany lags far behind the need, so that Germany is forced to procure a part of its requirements from abroad. Now if Germany had a natural or other monopoly in the production of certain goods in any branch of industry, it might very well be the case that a cutback in this particular output, if previously excessive, could lead by way of raised prices in other countries to increased gross returns, and would therefore benefit the national economy, too (as, e.g., the experience of the export trade in timber from Sweden and the other Nordic countries seems to prove); or at any rate to increased net returns, in which case the manufacturers at least would obtain larger profits. If experience shows that cartels have little success, this is probably mainly because monopolies are in fact impossible, and domestic and foreign competition is already too great in all branches of industry. In my view, there is no justification at all for believing instead, as Mr d’Avis does, that the reason why cutting back on production is bound to fail to achieve the intended effect is simply that ‘the reduction in the quantity of goods that employees and workers [who have been dismissed because of the cutbacks] are able to buy and consume, is precisely equal to the decline in the total sum of goods resulting from the curtailment of production’. This is a well-known socialist argument, which has now apparently also found its way into German economics literature proper, though without being subjected to an adequate critique. First, of course, as we have seen, only a very small proportion of the workers’ consumption is oriented towards the kinds of goods whose manufacture is now suffering from overproduction. But second, what is the basis for equating ‘the consumption of the workers and employees’ with the value of the entire sum of goods they assist in manufacturing?! What would be left, in that case, for the consumption of all those who live not just on their labour, but also, directly or indirectly, on their capital: people of private means, pensioners, soldiers, widows and orphans, civil servants, etc., not to mention the manufacturers themselves? It is probably not inaccurate to assume that a good half of the total sum of products goes to those living on their capital. The other, smaller half then remains for wages. And what is more, the smaller the portion received by the workers, the larger, naturally, will be the non-workers’ share. If the workers could be had for nothing at all, then of course the position of both the manufacturers and the non-working consumers would be absolutely splendid. So I consider d’Avis’s line of thought here completely mistaken. In individual branches of industry it may indeed occasionally happen that the value of the products replaces only the wages and nothing more, but then, as Mr d’Avis appears to concede, a curtailment of production in just this branch is the most suitable way to 118

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secure better prices. For overall output such a condition is simply impossible, unless there is such an abundance of capital that it can be made available at no cost at all—in which case capital would have to be content without any share in the yield of production.

II Mr d’Avis’s position on sales of goods to foreign countries is rather vacillating. He says at first that an increase in such sales would be ‘even less’ of a way to eliminate general overproduction—to be sure, he adds ‘taken in isolation’, but I fail to see what he really means by these words. However, he later declares that an increase in foreign sales is actually ‘not quite such a bad thing’ (as curtailing production). But in his opinion this expedient, too, is bad enough. And unfortunately, one can only agree with him. But here, too, he seems to have missed the real cause of the problem. He talks about unemployment in other countries and the resultant intense competition of those countries with Germany. However, as everyone knows, the true purpose of international trade is to exchange for one another the characteristic products of different countries. So in itself, this competition would do no harm at all; on the contrary, the rivalry of the nations in marketing the product of their labour and providing their workers with employment might be purely beneficial to all those involved—if, that is, the different countries in the world market really did differ in the kinds of goods they produced, so that most of them applied themselves primarily to raising crops and livestock, and just a few lived mainly on industry. Now the real problem is that in our time, this is no longer the case; with few exceptions, the countries of Europe have all gradually entered the ranks of predominantly industrial nations. Now since exchanges between two industries, of iron for iron, coal for coal, etc., are more or less pointless and senseless, all these countries increasingly have to seek their markets in the transoceanic countries, which are still predominantly agricultural. Even in itself this is very unfortunate, but it is bound to engender a state of near desperation when several of these newly colonized countries, such as the United States of America, evince an increasing tendency, as their populations grow, to use their own abundant means to aid the emergence of domestic industries. It may perhaps be objected that cereals, too, have sunk in price and that satisfying the European demand for cereals still presents no difficulty. But those who make this objection forget that the so-called European ‘demand’ for grain is not what Europe may need, but simply what it is able to buy. To be sure, cereals have sunk in price. But they have not sunk so low, nor are they likely to sink so low, as to allow every cottar, every day labourer in Germany, Austria, Italy, etc., to eat his fill of bread, even when ‘fully employed’. A real surplus of food on our continent is therefore completely out of the question.1 119

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III Let us now turn our attention to d’Avis’s positive proposals. In his opinion, neither limiting production, nor continuing to compete with foreign countries, but rather encouraging internal commerce is the means best suited to mastering the hard times. In his own words, ‘All that is needed, therefore, is that the money that has been saved, and is therefore available for use, be spent in some way in exchange for some thing—and all who have suffered will be assuaged’ (p. 485). If only we could believe it! How large a sum do these ‘savings’, which in Mr d’Avis’s view ‘could serve to provide employment and income’ to all those who are now suffering privation, actually come to? Mr d’Avis speaks of ‘hundreds of millions’ of marks. That is not much. At most, such a sum might suffice to ‘provide employment and income’ to those who are presently unemployed or semi-employed in Germany/or a half or perhaps a whole year. (It should be recalled how short a time the French billions have lasted.) But with what means are all these people to be employed and paid in the next year, and the years after that? It would be all right if a few hundred million marks were saved annually, for lack of a suitable use! But that is quite out of the question, for of course in that case, there would now be not hundreds but thousands of million marks of available capital, since according to what d’Avis himself states, the present conditions in the capital and labour market have already persisted for 10 or 14 years. However, Mr d’Avis seems to assume that if only the available money were spent on ‘something’, it would necessarily soon reappear on the money market in the form of new savings, of its own accord, as it were. I think this assumption is wholly erroneous. Certainly, if the money is placed in productive investments, in a few years it may be saved up again and thus be able to purchase labour again. But if this does not happen, or cannot happen for lack of such investment opportunities, and instead the money is simply spent on more or less unproductive luxuries, then obviously it will never reappear on the money market in the form of new savings. For how and by whom should it be saved? It will simply carry on circulating, or rather, since it serves increased consumption of foods and the like, which are not produced in sufficient quantity in the home country, it will flow abroad.

IV In my opinion, the main error in d’Avis’s essay lies in the fact that the author has completely neglected to consider the question of population, which is an economic factor of the greatest importance. To use John Stuart Mill’s terminology, he understands the problem of economic equilibrium purely as a static problem, whereas in this century, in the national economies of the 120

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European peoples, only a dynamic equilibrium can come into question—or at least this has been the case so far. In every country where the number of inhabitants is increasing (and of course this has been the case almost everywhere in Europe and America for the past century), the sources of sustenance and income obviously have to be steadily added to, if a general impoverishment of the population is not to be the inevitable result. But particularly in the countries of old culture, such an expansion of the sources of sustenance, if possible at all, requires a corresponding quantity of more or less lengthy and costly preparatory work, which, since it provides no immediate yield, can only be made possible by the annual savings of a part of the population. Therefore, while Mr d’Avis may certainly be quite right in describing the savings made and the new capital goods produced in the period 1850–75 as exceptional occurrences, if this is so, by the same token one is forced to conclude that the increase in the population of Europe that was able to take place at that time and continued immediately afterwards was also nothing short of exceptional and must now be replaced by a state of the population closely approximating the stationary. However, it must be observed, first, that experience consistently shows that of all social changes this is the very one that a nation as a whole has the greatest difficulty in resolving on. Second, even if the number of marriages and births were to adjust immediately to the changed economic conditions, the children who have already been born are still there, and the size of the groups that each year reach the age at which they are fit for work, and eager to marry and find employment, will continue to grow for many years to come, as previously, even when the population as a whole is no longer growing as quickly as before or is not growing at all. These two circumstances will necessarily lead to a series of phenomena that may correspond superficially to those described by Mr d’Avis, but whose fundamental causes lie considerably deeper than he seems to believe. Let us suppose, for example, that in prosperous times, year in, year out, approximately 10 per cent of the available labour is employed in the preparatory work we have talked about; and by this means, we shall further assume, the overall output of the country grows in value by an average of 1 per cent per year; then, the population will be able to increase at the same rate (1 per cent) without any inconvenience, and this is probably what will happen. But now the time comes when preparatory work of this kind is not as profitable as before. The most essential railways, canals and ships have already been built, the most promising land improvements or plant investments have already been accomplished, and so on. Undertakings of this kind will probably not cease completely, but they will only be continued with on a very limited scale; let us say, in future they will only be able to employ half the previous labour, i.e. only 5 per cent of total labour. The first consequence of this will naturally be that the other half, i.e. 5 per cent of all workers, will 121

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be without employment for the time being. However, this consequence is neither the only one, nor, by a long way, the worst. Of course, to begin with, all these workers could be employed in manufacturing (luxury) consumer goods, as d’Avis recommends, or a reduction in working hours could take place; and in a stationary society, if the ‘exceptional’ works were already completed, one or other of these remedies (or a combination of the two) would undoubtedly be resorted to and would prove adequate. But it is another matter entirely if the population, and in particular the size of the rising generations, is constantly increasing! For the enforced cessation of a part of the preparatory work entails a restriction of the future potential for production, and therefore also the potential for consumption, of at least equal scope, and given our assumptions, this must necessarily induce steady growth in the numbers of redundant workers and consumers. Even if the redundancy is initially rather small (in line with the numerical example above, it would come to about one half per cent per year), it is nonetheless a steadily growing magnitude: in ten years it would constitute 5 per cent, in twenty years as much as 10 per cent of the total number of workers (calculated exactly, even a little more)—and in accordance with our assumption it will be compensated by nothing. It is very much to be feared, or rather, it can hardly be doubted, that the present unemployment and the sufferings of the workers of Germany derive from precisely this source and consequently require remedies that are quite different, and more powerful, than the one discussed by Mr d’Avis.

V Nor are matters any different if we adopt the perspective of those who have accumulated savings. It could be thought that the owners of money might prefer to spend it on ‘something’ in the domestic market, so as at least to bring it back into circulation, rather than letting their monetary capital lie ‘idle’, or investing it in foreign securities. This idea is by no means novel: the Englishmen Malthus and Chalmers have preceded Mr d’Avis in expressing an opinion of this kind, though they evince a far livelier comprehension than their German successor of the necessity of restricting population growth at the same time. However, in a society that is ‘advancing’—which should here be taken to mean only multiplying its numbers—this advice will necessarily fall on deaf ears. Savers will not want to part with their (more or less) hard-earned money in exchange for luxury items. This is not, as Mr d’Avis believes, because they are not ‘offered anything that quite suits them’, but simply because in general they have many children and want to make sure their children’s future lot turns out no worse than their own. They do not want consumer goods, however ‘beautiful, fine, decorative or pleasurable’ they 122

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may be; they want capital goods that yield a monetary return, or promise to do so in future, and if such goods are no longer to be had, either at home or abroad, they want at least to preserve the money, in order to place it at the disposal of their offspring. Is this not obvious enough? And would this bring them into conflict with the true interests of the workers? I think not. Up to a point, the interests of all social classes clearly go hand in hand in making use of the circulating capital in domestic production, rather than investing it in all kinds of foreign securities, which provide their own country with nothing but a certain (or uncertain) amount of interest. After all, the great majority of ‘capitalists’ are not Rothschilds: they live not only on what their property yields, but also, mostly, on the wages of their labour. It will therefore obviously lie in their own interest (or at least in their ‘class interest’) to prefer home to foreign investments, even when the direct yield of home investments is somewhat lower. But even when the point we have mentioned has been passed, when savers, deterred by the poor results of their domestic investments or attempted investments, turn increasingly to foreign stocks, even then it seems very possible that by and large, this application of unused funds, apart from now seeming ‘natural’ to the capitalist, might actually turn out to be the most advantageous for the entire national economy. At least if one considers the fact that the countries capable of turning the surplus capital of the old countries to best account are the very ones to which the stream of emigrants from these same countries flows—then one is bound to admit that it is better, after all, if emigrating workers, supported by emigrating capital, devote themselves to more profitable activities abroad, than if they persist in attempting to squeeze a few more drops from their own country’s resources, which for the most part are already fully exploited. In the end, this expedient, too, will be cut off, because of course the colonized countries are approaching more and more closely the condition of the old countries. When this happens, it will certainly often be the case that the money that is saved will have to be simply preserved in the first instance, and will then gradually re-enter circulation by a reduction of the loan rate of interest and increased consumption of luxuries; but it is not obvious that this delay in the expenditure of the money deprives the workers of any real benefit that could otherwise accrue to them in any way. At any rate, as I have attempted to demonstrate above, this benefit could only be enjoyed once and would soon pass. In brief, without productive savings, without a steady expansion of the sources of sustenance and income, there is no help for a growing or already excessive population in the long run. And so, in the circumstances described, the best course of action for the workers (and indeed, the whole population) is actually to endeavour to limit the size of their families, and if possible also to emigrate—and to do these things sooner rather than later. 123

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*** In a word: the true mark of our present economic period is not overproduction but overpopulation. What appears to be general overproduction proves on closer inspection to be merely a glut of those kinds of goods in producing which European countries are encountering more and more competition. They themselves had no need of such quantities of these goods, it was just that producing them in larger and larger quantities seemed the easiest course. People failed to realize the impossibility of finding a market for them. And thus, too, the presence of large, unoccupied capital funds, the apparent ‘surplus of money’, is only the other side of the difficulty of producing new, interest-bearing capital goods, and is therefore a sure sign—though unfortunately often misunderstood—of the approach of the stationary state. The more this truth, expressed by specialists in the field, makes headway among the masses—the better.

NOTE 1

Not to mention the fact that a large part of this ‘demand’, particularly in England, is not settled by goods, but by the payment of interest on loans made in earlier, more prosperous times, which are now apparently being collected to the last farthing.

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24 CAN A COUNTRY BECOME UNDERPOPULATED?

The word depopulation is one of those alarming expressions that have a bewitching or hypnotic effect on people’s minds, and for most seem to render all discussion superfluous. If a measure is liable—or if it is suspected of being liable—to ‘depopulate’ the land, it is considered to stand selfcondemned as being exceedingly injurious to the country, and pernicious. And yet of course a moment’s reflection is enough to tell us that depopulation can often be a highly beneficial and even necessary thing— whenever, that is, a country’s population, by the force of circumstances, has become excessively large. And that it can become too large surely no one can deny without being prepared to reject the evidence of all history. Nor is it obvious that a reduction of the population, having once begun, will necessarily continue to complete annihilation. On the contrary, once it has achieved its purpose it will cease of its own accord and make room for a population that will either remain stationary or resume its growth, depending on the circumstances. There is little doubt that this is what has happened at all times and in all countries, though the exact numerical proof can only be provided in a few cases, because of the almost total lack of population statistics from older periods. In more modern times we admittedly have just a single significant instance of population decrease to point to, namely, the case of Ireland, whose population at present {1914} amounts to merely half of that living’ in the country in the 1840s. But surely no reasonable person can either blame or even pity the people of Ireland for this fact. To be sure, economic conditions there are still far from satisfactory—the high rents Ireland still has to pay to its absentee landlords have the same effect as a heavy foreign debt—but certainly nothing comparable to conditions in the 1840s exists any longer. I believe it is Cliffe Leslie, the well-known economist, who tells stories from his youth about the horrific scenes in Ireland at that time, of which he was an eyewitness. Whole families lay dead of starvation or famine-fever in their miserable mud hovels, and either because there was no time for burial in the Originally published as ‘Kan ett land få för litet folk?’, Ekonomisk Tidskrift, 1914.

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usual sense of the word, or else because people were afraid of infection, compassionate neighbours would climb up on the roof of the hovel and trample the whole thing down, turning it into both a grave for and a monument to its unfortunate inhabitants. Compared with such scenes, Ireland’s present condition can be seen as a golden age. Nonetheless, its population is still decreasing by emigration, especially to America, but I do not suppose even Professor Fahlbeck imagines that the Emerald Isle will ultimately be completely uninhabited; there are probably stronger grounds for fearing that the optimism aroused by the social and political reforms currently under way in Ireland will engender renewed population growth, perhaps at a more rapid rate than is actually desirable. At all events, it is remarkable that these reforms, which the Irish fought for in vain when they were almost as numerous as the English, have proved possible to push through now, when the Irish number merely about one ninth of the population of England. However, it may certainly be observed, and with good reason, that in this instance, as in equivalent cases in older times, we are not really dealing with a voluntary reduction of the population. To be sure, Ireland’s birth rate is one of the lowest in Europe, but this is not owing to diminished fertility within marriage, but to the extremely low frequency of marriage, which in turn is probably connected, at least in part, with the great emigration of young people of marriageable age to America. In these circumstances, renewed population growth can naturally be expected as soon as emigration ceases, or economic conditions in the home country improve. It is a different matter, in some people’s opinion, if practices have established themselves in a society such that parents regulate the size of their families as they themselves see fit. In that case, it is claimed, there is no longer any guarantee that family egoism may not lead to a constantly declining population, even below the lower limit that would represent the most desirable population for the nation as a whole. The abstract possibility of such a result should probably not be disputed. The motives that lead individual families to reduce their size have no direct connection with the country’s need of young people; it is therefore conceivable, in this as in other similar cases, that individual and collective interests might come into conflict. Thus, for example, if everyone were free to contribute as much or as little as he pleased towards public revenue requirements, in all probability most people would pay so little in taxes that the state and municipalities would have to discontinue their activities—to the detriment of each and every individual. Here, therefore, the collective will clearly has to replace the individual will, or more correctly, the decisions of individual citizens about the level of taxes have to be taken collectively, in consultation, either among themselves or among their representatives. A country could conceivably be compelled to proceed in a similar way in the case at issue here: the state, which of course even now considers itself to have a direct stake in the physical and intellectual upbringing of the young, might bring its interest to bear not 126

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only on the quality, but also on the quantity of the rising generation—e.g. by providing large families with economic support and encouragement. However, there are some indications that intervention of this kind on the part of the state would probably prove unnecessary, even assuming that in all strata of society, blind animal instinct as an incitement to population increase had been replaced by fully deliberate control of the number of children. For if we examine more closely the motives that at present prompt many parents to be satisfied with a very small number of children, then apart from a few cases of reluctance to assume the trouble of giving birth to or bringing up children—cases which have perhaps been more the subject of outcry than of actual observation—they probably fall mainly into two categories: the desire to keep the children’s future inheritance intact, and not split it up, whether this inheritance consists of landed property or capital, and the anxiety to provide the children with a careful upbringing, which will allow them to assume at least the same social station as the parents themselves, and if possible a higher station in society. The latter motive, however, points to a continued inadequacy in the measures undertaken by society itself for the education and upbringing of the young. Access to the higher and more important posts in the service of the state, of science, industry and the arts, ought not, as is now predominantly the case, to be reserved for those who happen to have seen the light of day in wealthy or at least moderately well-to-do homes. Natural ability alone ought to be decisive here, and it will readily be conceded that, purely from an economic perspective, the state has wasted great resources by failing to make better use of the genius that not infrequently, though stunted by lack of development, lies hidden beneath a cloth cap. It should not be forgotten that it was a simple French pattern maker, Zénobe-Théophile Gramme, who by his ingenious construction first transformed the electric motor from a mere physicist’s plaything into the mighty tool for industry with which we are all now familiar. Not to mention the English bookbinder’s apprentice, Michael Faraday, who revolutionized electrical science in its entirety after a lucky chance had enabled him to complete the studies in physics he had begun in the workshop. Many other such cases are known, of course: the great mathematician Gauss was born in very humble circumstances, and according to Cicero’s testimony the same thing was true of Archimedes. But for one genius of this kind that is discovered, probably ten or perhaps even a hundred are lost for want of nurture. As for the aspiration to guarantee one’s children a secure economic position, as a motive for limiting their numbers, its operation of course depends on the supposition that land and capital are not only the mighty means of production they will no doubt always remain, but that they also constitute the great source of income that at present decisively divides rich from poor. But in a society with a stationary population, and even more so if numbers are declining, this situation will undergo a radical change. The 127

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economy of such a society would very soon be saturated with capital. As is well known, the greater part of newly accumulated capital is converted into houses, household utensils and other equipment for each year’s additional population, particularly on account of the modern concentration of the population in urban areas, which itself—at least in the main—is an inevitable consequence of population increase. If the need for capital to meet this requirement falls away, while the capacity for saving and accumulating capital is obviously greater, not less, in such a society, then capital must necessarily soon become redundant and the interest on capital will fall so low that in spite of its undiminished importance, this factor of production will have to be satisfied with a very modest share of the future yield of production. Capitalists in France already find themselves faced with a peculiar dilemma. If they were to attempt to place their funds within the country, the rate of return to capital, which is already low in France, would infallibly sink considerably further still; they are therefore compelled to seek out more or less exotic markets for their capital investments, such as Russia and Mexico, but are generally not in a position to adequately check the borrower’s credit-worthiness or solvency, a fact that is said to have brought about the current crisis of capital in France. To be sure, the privileges of rent or land ownership will decline less rapidly. Indeed, it might even be feared that given an overabundance of circulating capital, rent, capitalized on the basis of a very low interest rate, would confer so high a value on agricultural properties and real estate in general that this would become an insuperable barrier between those who do and those who do not own land. But, on the other hand, as F.Brock has quite rightly pointed out, it is of course true that an abundance of circulating capital in combination with technical progress would presumably be able to increase the supply of fertile land so significantly that agricultural rents at any rate would fall considerably. Naturally, this would apply still more if the population were to decrease.1 The proprietors of expensive urban building sites will presumably also have to make some adjustment in their economically privileged position, inasmuch as convenient and inexpensive communications—which are also largely dependent on cheap interest rates—would accelerate the exodus from the central parts of the great cities that has already begun. In a word: the national product per capita would be greatly increased by all these factors working in combination, but at the same time, labour would now become the main factor in the creation of value, and the ‘product of labour’ would accrue to those who worked. On this assumption, parents’ worries about their children’s future would naturally be greatly alleviated, particularly if the public authorities, as suggested above, were to assume greater responsibility than at present for the instruction and training of the young for their future vocations: no one who was in a position to provide society with bright, healthy children would be deterred from doing so by private economic motives. In a word, we would acquire a new condition of 128

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social equality at a far higher level of social prosperity than at present, but without any tendency to put this prosperity at risk again by either too high or too low a birth rate. Admittedly, all this is merely hypothetical, though it seems to me extremely plausible; however, if it went amiss, it would therefore be the task of society to intervene in one way or another with measures to stimulate the birth rate— though only after a careful investigation, of which we have so far seen not a trace, had clearly revealed the benefit or necessity of a larger number of births. If we proceed from these rather theoretical observations to an examination of actual reality, then adopting in the first instance the perspective purely of national economic interests, it seems to me that intervention by the public authorities to regulate the birth rate—apart from an attempt to check excessive fertility, with its disastrous consequences—can only become a rational idea at some future time that is not yet within our view. In his article in the previous issue {Economisk Tidskrift}, which is the immediate occasion of these reflections of mine, Prof. Davidson mentions both the efforts made by the Australian government to encourage European immigration to Australia, and the measures that have long been urged from various quarters in France to raise that country’s birth rate, which is generally known to be low. Regarding the first of these cases, however, it seems very much open to question whether it is purely economic considerations that are the dominant factor. It is reported in the newspapers that the Australian government was actually motivated by its own rather unsuccessful land speculation; another explanation, which may be more plausible, is that people there want to stimulate European immigration, since they fear that otherwise, in the long run, they will be unable to turn away immigration from East Asia. In certain quarters in England, after all, people actually imagine that a Japanese invasion of Australia is imminent, however absurd such an idea may seem—see on this subject several essays in the latest number of the Economist, forexample. As for the population situation in France—the stock example cited by those who fear a declining birth rate—I wonder whether a single one of that country’s so-called ‘repopulators’, who have already won the French Senate and may shortly win the Chamber of Deputies for their plans, has any very clear idea as to whether France would gain anything at all in economic terms from an increase in its population. At least in the work of Bertillon to which Davidson refers, I have not found the least indication that a study of this kind has been carried out or even proposed. For my part, until I am shown some evidence to the contrary, I make bold to deny outright that this would be the case. Instead, it seems to me clear as day that if France reduced its population to as little as a half, or even a quarter of what it is at present—it would then still be denser than, for example, the population of Sweden (even discounting mountainous regions susceptible of cultivation) or that of the 129

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American Midwest—a tremendous improvement would take place for the remaining population, in both material and moral respects. In moral respects, too, for the most offensive and dangerous forms of immorality arise precisely on the borders or at points of contact between wealth and poverty, between the luxurious indolence that can find nothing to tempt its sated senses but pleasures bought by the degradation of other human beings, and those who, faced with the choice between such degradation and the hopeless daily grind to make ends meet do not have the strength of character to choose the latter. But if a condition of society is reached where each person is able to gain an ample living by labour,2 but at the same time, by and large, no one can survive without working, then at all events, the most important source of immorality would be blocked off. What is true of France is naturally true a fortiori of most other countries of old culture. If we look, for example, at Italy, a land so favoured by nature, but which nonetheless has perhaps the very poorest populace in Europe, surely no other explanation for this paradoxical situation can be given than the pressure of the population on the means of subsistence. According to Beloch’s calculations, in ancient Rome’s days of glory, the population of all Italy, slaves included, did not come to even a quarter of the present population of the same territory, and yet it is well known that a large part of ancient Rome’s population was maintained by grain paid in taxes by other parts of the Empire. At the present time, Italy is inundating the rest of the world with its organ grinders, balloon sellers and other more or less dubious types: the Italians call themselves the ‘proletarians of the world’. Yet as far as I know, the idea of putting a stop to this unhappy state of affairs by imposing rational limits on the birth rate is a thought that has not yet occurred to any Italian economist, though to be sure, fertility there, as in other countries, has actually declined quite considerably in recent years. Much the same thing can be said of Austria—Hungary, Switzerland, Belgium, and various other European countries. Germany, of course, is an exception in a way, since in spite of rapid population growth, it has even managed to bring its emigration to a halt, indeed, it has taken in a considerable number of immigrants from surrounding countries. But the exception only proves the rule. For a predominantly industrial country, where steadily increasing quantities of coal and other minerals can be shovelled up from the interior of the earth, at least for a certain period of time, there is actually no law of ‘diminishing returns’ as long as this situation continues, and as long as the rest of the world is able to absorb the products of its industry. But naturally, in the long run this is not possible, either. In the twenty years 1892–1912, Germany more than doubled its output of coal, and more than tripled both its production of lignite and its output of pig iron. One has only to imagine a development of this kind continued a few decades into the future for the purely exceptional nature of the whole phenomenon immediately to become strikingly obvious. 130

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As for England, its great, once incomparable, iron industry has now stagnated. On the whole, the surplus population of the English working class is increasingly turning away from industry to positions as ‘domestic servants’, waiters, hotel staff, etc., as England itself is being transformed from the foremost industrial workshop of the world into a ‘pleasure ground for the English-speaking people of the world’. In such circumstances, the fact that a powerful movement to reduce the birth rate is making itself felt, particularly among the better-placed members of the English working class, can surely only be welcomed. In a land such as Russia, where immense territories—the southern Russian steppes, Southern Siberia, etc.—have only recently become available for cultivation and, in general, western European industrial and agricultural methods are a relatively new phenomenon, it is obvious that in many respects, exceptional conditions are bound to prevail as regards the issue of population. However, it is extremely doubtful whether the feverish development that has taken place there in recent years—with the aid of western European, especially French, capital—can last very long. At any rate, it is self-evident that in the long run, Russia cannot continue, as now, to increase its population every other year by a number roughly equivalent to— Sweden’s entire population. A brief description of Japan’s economic situation has recently been provided by a native Japanese, a specialist in economics.3 Apparently, in spite of the sharp upturn in the economy that has quite naturally resulted from the opening up of Japan to European culture, for the great mass of the people this has hardly had any consequence other than that they have been ‘proletarianized’ in a higher degree than before. The Japanese labourer still lives in a condition of the utmost poverty, characterized among other things by an almost exclusively vegetarian diet, and even that of the most monotonous kind; wages, at least in Tokyo, have not kept pace with the advance in prices; while taxes—the price of Japan’s status as a great power— have been raised so high that, for example, a farmer with an annual income of 550–900 crowns (in our currency) has to pay nearly 30 per cent of his income in direct taxes. Craftsmen and others pay somewhat less, but are instead burdened so much the more heavily by indirect taxes, including the heavy duties on foods. Japan’s population is second in density per square kilometre only to that of Great Britain, but of course it does not possess anywhere near the industrial resources of that country. Nonetheless, it is adding to its already excessively numerous population at a rate of about 1 1/ 2 per cent per year, which corresponds to a doubling in less than fifty years; and Japanese statesmen are confronted with the problem, which is actually insoluble, of providing this surplus population with a means of livelihood, since of course the newly acquired territories of Korea, Formosa, etc., are already densely populated, and the entire rest of the world—whether rightly or wrongly I do not want to go into here—is closing itself off to ‘yellow’ 131

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immigration. Statistically, the number of stillbirths in Japan is more than twice as high as in any other known country, indeed, nearly four times as high as in Sweden, which presumably indicates that closet infanticide and abortion have become very prevalent there. It is probably not very worthwhile discussing the population situation in India and China. As far as is known, absolutely primitive conditions continue to prevail in these countries: an unchecked birth rate accompanied by enormously high mortality. A sharp drop in the former is obviously an indispensable condition for achieving a corresponding reduction in the latter, a point that is also true, incidentally, of the countries mentioned previously. Proceeding, finally—to confine ourselves to the eastern hemisphere—to our own country, if we are to believe the principal of the National Statistics Office, the way in which the birth rate in our country is sinking year by year is calculated to arouse ‘the gravest fears for the future’. However, we still have a natural population growth of over 50,000 people each year, presumably corresponding to an annual increase of about 30,000 men and women in the population over 20 years of age. Now is there anyone in Sweden that is prepared to show where this annual surplus could be placed in an economically advantageous way? Hardly anyone gives so much as a thought to this whole problem. ‘I expect that will sort itself out on its own,’ people say, but this is no answer to the question. Of course it ‘sorts itself out’, inasmuch as those who do not emigrate or otherwise disappear somehow manage to wedge themselves in among the rest of the population and there gain a scanty livelihood. But the question was whether this increase in the population is likely to raise the average level of social prosperity, or at least leave it unchanged. For my part, I am convinced of the contrary. Our agriculture does not appear to be in a position to absorb more people: to divide up well-run properties into so-called occupier-owned homes, which entails expelling the previous workers on the estate from their homes, is hardly a gain for the national economy worth mentioning. And industry? The bright spots our processing industries exhibit here and there, happily enough, can scarcely dispel the deep shadow cast over our most important resource extraction industries (with the sole exception of the ore fields in Norrland), above all over our logging industry. The well-known study of the forests of Värmland that has recently been published presents as its conclusion that even though the forests in that county are probably managed far more carefully than in most other parts of the country, annual cutting there exceeds actual exploitable new growth by about one-sixth. This confirms a point that admittedly was already beyond doubt—that a substantial reduction in our logging industry, and therefore in our entire timber industry, is imminent. Can anyone fail to realize that this must entail the most terrible blow for our entire economic life? And what means can be conceived of meeting this blow other than by reducing the number of those 132

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who will soon be obliged to seek their income from sharply diminished resources? Wherever I look, then, I cannot see other than that for a long, indeed, practically speaking an incalculable time into the future, we are likely to have to deal with the Malthusian problem in its genuine and original form— measures to check an excessively high birth rate. For it seems rather unlikely that Europe needs to fear excessive depletion by emigration; the major immigration countries, in particular the United States, will surely attend to that matter in the near future. The converse is quite certainly far more to be feared. In the preceding I have occupied myself exclusively with the purely economic aspects of the problem of population. However, there are other sides to the issue, too; indeed, it could probably be claimed that apprehensions about a decrease, or rather a reduced rate of increase, in the population almost never proceed from purely economic motives,4 least of all motives having to do with the national economy. The fear of falling behind rapidly growing neighbours in military terms, or in terms of political influence, has undoubtedly been the main consideration. However, it is obviously futile, indeed, absurd, to strive to compete in terms of population with nations that because of extrinsic circumstances—rich natural resources, newly opened-up territories for cultivation, an advantageous position for trade, etc.—possess the conditions for population growth that one’s own country may lack. In the latter respect it may suffice to call to mind how Germany, which for the most part used to be rather remote from the major arteries of trade and communication, now, because of the rise of the railways, finds itself at the very heart of this network. It is quite absurd to try to fight against these and similar natural forces or economic laws. Nor is there any real danger in the simple fact of a neighbour growing in strength; the danger arises only if it has grown beyond its own economic resources, if the pressure of the population on the means of subsistence in that country has mounted to a tension that is bound to lead, sooner or later, to an explosion—or expansion. But this merely goes to show that complete success in solving the problem of population, like all social issues, can only be achieved by international cooperation, not by individual countries. To raise the tension at home, in one’s own country, in order to maintain the balance with the forces pressing on one from without, would in truth be a very sorry solution; it is surely better to seek by suitable means to induce the neighbour, too, to adopt more rational social practices, which of course ultimately can only be to his own benefit. And in this regard I do not think there is any need for pessimism. After all, the old notion that only certain peoples or races are inclined to allow their birth rate to decline is utterly refuted both by the fact illuminated so clearly in Davidson’s essay that at the present time fertility is decreasing almost everywhere, and, second, by the remarkable historical fact that on average, over the past century and a half, the 133

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French nation in America, i.e. the French Canadians, have doubled their numbers—without immigration—every twenty-seventh year!5 It is rather civilization itself, together with the inevitable shortage of scope for expanding the means of subsistence in countries of old cultivation, that has caused the current decline in the birth rate. As for the struggle for global influence, such a contest cannot be praised too highly if it confines itself to the purely intellectual or cultural sphere, but in that case its outcome is dependent on factors quite other than numbers. As an attempt by one country to control or subjugate another, on the other hand, it has probably had its day, not merely in Europe, but also on the other continents, at least in the near future. The supremacy in South Africa, it has been said, will ultimately fall neither to the Boers nor to the English, but rather—to the Kaffirs; and the same thing is quite certainly true to a greater or lesser extent of all transoceanic countries presently under European rule. The thousands of Indians, for example, who are now in possession of an English university education are quite naturally beginning to find the old forms for England’s sovereignty in India antiquated and superfluous. However important Japheth’s role as guardian or educator of Shem and Ham may have been, the day must come when the ward is fully capable of taking affairs into his own hands; and this applies not just to the relatively few better educated inhabitants of these distant lands, but also to the great mass of the population, which has been so enslaved until now. Not just railways, newspapers and telephones, but also the modern workers’ movement (and the modern women’s movement) extend in our day to every part of the globe, and confronted with these social advances, the old political ideals seem rather worn. But once again we encounter Malthusianism—both as a condition for and a consequence of the rise of the hitherto suppressed classes. Julius Wolf notes that in Germany the birth rate in different parts of the country declines as the number of Social Democratic votes in national elections rises, a fact all the more remarkable since the leaders of the Social Democratic Party, as is well known, by no means exhibit any inclination to support this trend—quite the contrary. But then this development has considerably deeper foundations than in any social theories of a more or less utopian nature, namely in the fact that modern workers (like modern women) have wearied of being more or less mere animals—both beasts of burden and breeding stock—and want to feel that they are fully and completely human beings. To attempt to check this development would certainly be both futile and ignorant. The benefits it promises our species, among other things by its being apt to unite all the nations of the earth in concerted cooperation without envy or prejudice, can hardly be rated too highly. That like everything else, it may turn out to be encumbered by certain disadvantages, is possible, but if so, it will be the task of the future to remedy these. For the present, it probably deserves to be encouraged unconditionally and in every respect. 134

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NOTES 1

2

3 4

5

In this area, it does not take much to ‘upset the apple cart’, as is evident from a report in the Quarterly Journal of Economics some time ago, according to which the market value of land in the United States had risen as much in the last fifteen years as it had done previously ‘since the days of Columbus’. However, a major cause of this fact is the sharp rise in commodity prices in America, which in turn is probably mainly due to purely monetary factors. I anticipate that on the conditions mentioned, all things considered, the wages of labour in France would rise to at least three times their current level. At present, they remain at the bare minimum for life in many cases, even in that wealthy country. Die Entwicklung der japanischen Volkswirtschaft in der Gegenwart, by Dr Masao Kambe, Professor at the University of Kyoto. (Wirtschafts- und Verwaltungsstudien, ed. Georg Schantz, XLIX, Leipzig 1914, 49 pp.) I suppose it is true that those who themselves are ‘well off are impelled by a kind of instinct to oppose developments that are likely to diminish income from sources other than labour, or to curtail existing privileges in general; but it would probably be unfair to believe that they would therefore consciously try to thwart measures capable of leading to the economic bettering of the masses. Incidentally, it appears from Dr C.Drysdale’s well-known statistical compilation that even they would have done wisely to content themselves with a somewhat less extreme fertility. His statistics show that whereas both the birth rate and the death rate have declined in recent years in the whole of the rest of the statistically known world, in the province of Ontario in Canada (and also, if I remember rightly, in Japan) both these figures have risen at one and the same time.

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25 FROM THE EMIGRATION INQUIRY, APPENDIX 18 Statements by Swedish men of science

INTRODUCTION Having been invited by the director of the official Emigration Inquiry to comment on the issue of Swedish emigration, let me first point out that unfortunately, particularly in recent years, I have not been in a position to study the statistical aspects of this topic in any detail. In my opinion, it is not even possible for an individual researcher to undertake a successful investigation of the significance of emigration for our country at the present time, since the most important statistical data for assessing the issue are still lacking. Most emigrants are young unmarried people of both sexes, who have not yet gained steady employment or established homes of their own in their native land, together with, though in a lesser degree now than previously, parents accompanied by their children. The significance of these young people leaving the country, and the benefit or perhaps detriment that would have ensued had they stayed at home, must then depend above all on the economic prospects our country offers the rising generation, i.e., in the first instance, the extent of its as yet unexploited natural resources; but unfortunately, on this question, in the absence of detailed studies, a regrettable uncertainty prevails. In the very most recent times, to be sure, the public authorities, confronted by certain ominous prospects for the future, appear to have realized that studies of this kind are absolutely essential, but as yet they have hardly been begun, and in the best case it will probably be years before they produce definite results. In these circumstances, any statement on the Swedish emigration issue as a whole must necessarily take on an extremely hypothetical character. It can only have direct value in so far as certain considerations in assessing these questions are of a sufficiently elementary and general nature as to be equally relevant at all times and under all conditions; however, the real significance of such a statement consists in indicating the kinds of questions that must be Originally published as Emigrationsutredningen, bil 18.

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addressed to economic statistics in order to reach a clear understanding of the great problems of emigration. The actual answer to these questions, however, belongs to the statistician, not the economist. About 28 years ago, at a time when emigration, having been quite moderate for most of the 1870s, had again begun to exhibit colossally high figures, which have hardly been exceeded since, I attempted in a lecture, which was subsequently printed,1 to argue a view of this phenomenon that was rather sharply at variance with the opinions that were still predominant at the time among the public and in the press. Generally, even in so-called expert circles, emigration was still regarded in those days as a temporary phenomenon, which would soon pass, ‘an aberration, an epidemic that must run its course’, and so on. In opposition to this view, I attempted to make the point that the most general cause of emigration undoubtedly lay in the fact that in spite of the significant progress already being made in both agriculture and industry, our country’s economic development was quite simply unable to keep up with the growth of the population, which was rushing on even more rapidly. Having been barely four million at the beginning of the 1860s, by the time of speaking (November 1881), or in just twenty years, Sweden’s population had increased by more than 600,000, while a further 300,000 people had emigrated during the same period. The obvious assumption was therefore that, great though the economic development had been, it had failed to match the demands made on it by the natural population growth. As a direct cause of the emigration then in progress, I laid particular emphasis on the great surplus prevailing among those between 20 and 30 years of age. If it had not been for emigration, this age group, which numbered 630,000 at the end of 1871, would have amounted to all of 790,000 at the end of 1881, an increase of 25 per cent in just 10 years. This abnormal growth was primarily a result of the high birth rate in the 1850s; and since the first half of the 1860s also exhibited very high fertility, I considered myself in a position to predict that far from ceasing in the near future, as was then generally hoped, on the contrary, emigration would be high in the years immediately following, too. As is well known, this prediction came true, indeed, even more fully than I then anticipated, so that in the 1890s this age group, which is so significant for emigration, actually diminished in relative terms.2 As for the effects of emigration, I pointed out in the pamphlet referred to that seen as a constant phenomenon, emigration must naturally be considered to entail a steady drain on the country’s resources, in so far as, by and large, the capital invested in rearing the emigrants no longer benefits our country, but other countries instead. At how high a value one is inclined to assess this loss depends of course on the circumstances. In monetary terms, it certainly comes to a considerable sum, in round figures no doubt to as many million crowns by now as emigration numbers thousands of individuals. But it must be remembered here that by far the greater part of this capital consists of expenditure on food and clothing, etc., together with the care the parents 137

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have devoted to their children, and that it is ‘repaid’ chiefly by these children, when they have grown to be adults, in their turn taking care in similar fashion of the next generation of children, and, in case of need, of their own parents in old age. In neither of these respects can the capital invested in upbringing be said to have been completely lost as a result of emigration, except perhaps from the most narrow-minded nationalistic perspective. Even then, it is not always the case, since experience shows that children who have emigrated in general take care of their parents (and siblings) at home just as tenderly and often far more effectively than they would probably have been in a position to do if they themselves had stayed at home; it often seems as if this is what they take the greatest pride in.3 Nonetheless, it could of course be said that if these parents had been less eager to bring up future emigrants, in other words, if they had confined themselves to a smaller number of children, they would have been better able to look after both the rearing of their children and their own old age; and naturally, the expenditure of the state and municipalities on education would have been more adequate if it had been divided among a smaller number of children. This, however, is merely a part of the general perspective on population that in my opinion is by far the most important for the issue of emigration. I shall have more to say about this view of the matter later. However, if conditions compelling emigration have in fact arisen, then emigration, I asserted further, must be regarded from every point of view as a useful and good thing, and it would be extremely unwise to aim to prevent it by restrictive measures, of whatever kind they might be. For it has to be assumed not only that the emigrants themselves, by and large, and on average, are heading for a brighter economic future—after all, if this were not the case, there would be nothing to explain why emigration did not stop of its own accord—but also, and this is even more important from the purely national point of view, the lot of those remaining is improved, not merely by the monetary assistance the emigrants are able to send home, but also and above all in that the scope for earning a livelihood is expanded, relatively speaking, for those at home. In this latter important respect, too, the experience of the nearly three decades that have passed since my remarks appears to have completely and utterly confirmed my claims. On this point, let me refer to the interesting district investigations carried out by experts under the direction of the Commission of Inquiry on Emigration in those parts of our country that have been most ‘plagued’ by emigration. Nowhere in these reports is there any mention of deterioration, but consistently of an improvement in economic conditions, a finding all the more credible since the inspectors in question by no means seem to have been favourably disposed towards emigration in advance—if anything, quite the contrary. The investigation carried out on Öland seems to me particularly characteristic in this respect, and although the Commission of Inquiry on Emigration has reserved the 138

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right to present a summary of all the data collected at some future time, I cannot deny myself the satisfaction of citing a number of facts from this account. Among sizeable connected areas in our country, Öland is probably the one that has been most affected by emigration, in that the population there went down from 38,000 to less than 29,000 inhabitants between 1880 and 1907. Emigration to foreign countries (above all the United States), in combination with migration to the mainland, has therefore been sufficiently substantial not only to absorb the entire surplus of births that has arisen in this period but also, in addition, nearly 10,000 members of the island’s population, and it goes without saying that here, as everywhere, the overwhelming majority of those who have thus moved out have been persons in their most vigorous years, a fact that is also confirmed by the present abnormal over-representation of the older age groups among Öland’s population.4 If the old talk about emigration ‘wasting the country’s strength and vitality’ were ever to apply at all, it should therefore surely be here. Nonetheless, the reporter is forced to admit that the economic position on Öland ‘can now be described as good—in certain parts of the island, especially in the south-west, as very good—it has quite simply never been better than now’. The excessive division of land, often resulting in plots too small to support a normal family, which was a consequence of the rapid population growth in the first half of the nineteenth century, has abated, so that at least in the southern parts of the island, agriculture now feeds its man without difficulty and generally yields a handsome surplus; the agricultural proletariat that had previously grown up on the common land (backstugusittare), whose unspeakable misery is vividly depicted by the author at the beginning of his essay, has mostly disappeared. To be sure, the author greatly deplores the ‘backwardness’ of agriculture on Öland, which he ascribes above all to ‘the lack of working hands’, but that this socalled backwardness is merely relative—if not utterly non-existent, on closer inspection—seems evident both from the hints he himself provides about the island’s significant exports of grain, horses, young cattle, farm products, etc., and from his concession that projects for the improvement of the fields by drainage and other measures ‘are making progress’, in spite of the fact that the soil does not favour drainage: from one of the parishes it is reported that ‘more ditches have been dug in the last ten years than in the previous century’. If a more detailed study should happen to show that at the present time, Öland does not merely feed its population far better than it did 25 or 30 years ago, which seems to be beyond doubt, but that in addition, in spite of a diminished population—or perhaps, more accurately, precisely as a consequence of this—and although at present a large part of its agriculture has to be carried out by persons from older age groups who are not fully fit for work, it has a larger surplus of agricultural products to spare for the needs of the mainland and is therefore also a larger purchaser in both relative and absolute terms of the mainland’s industrial products (as is well known, 139

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there is no industry worth mentioning on the island itself)—then it is surely hard to deny that in this revealing case, both from a local and a national perspective, emigration has been overwhelmingly beneficial. Further, as an additional plus it is probably possible to add that the impoverished backstugusittare—from whose wretched dwellings with ‘floors of trodden earth and straw beds without sheets, the stench of the poor spread far and wide when the hovel door was opened even for a moment’—are now leading a happy and respectable life with their children in their new homeland, America.

AGRICULTURE AND THE HOME OWNERSHIP MOVEMENT Given the view of the problem of emigration that I presented in the occasional pamphlet referred to above—as a mere amateur, at that time, in the field of economics or sociology—but from which later, more comprehensive studies have by no means led me to depart, it is clear that I am bound to adopt a rather sceptical attitude towards the entire movement for the suppression or combating of emigration that among other things has given rise to this very Emigration Inquiry. The fundamental idea behind this movement certainly deserves all due respect: namely, that since the fact of emigration undoubtedly indicates the existence of certain unsatisfactory conditions in society, we ought to make every effort to discover what the problems are in order, if possible, to rectify them. But if, as generally happens, one persists uncritically in assuming that these problems are of a merely temporary nature and will soon pass, one is easily deluded into believing that if only we could find suitable ways of enticing the emigrant to stay at home now, thus temporarily arresting emigration, then subsequently everything would sort itself out just fine. Naturally, this is a fateful mistake if, in reality, the causes of emigration are of a far deeper and more permanent nature. In that case, all one has succeeded in doing is to postpone somewhat a consequence that in any case is inevitable, and the need for emigration, neutralized for the time being, will only manifest itself still more emphatically in a few years time. The best that can be said about these kinds of measures is therefore unfortunately that they generally prove inadequate for the purpose even in the short term. What I am thinking of here is primarily the so-called Home Ownership Movement, which, when first conceived and adopted by the Riksdag, was generally welcomed with great hopes—a view I, for my part, have never been able to share. First of all, the funds earmarked for this measure are obviously far too small. The natural population increase in Sweden at present amounts to just over 1 per cent per year. If we imagine this growth evenly distributed over the entire population, then for the adult population over the age of 21 140

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this would mean an annual increase of about 30,000 persons, men and women. Now since two adult persons make or at least commonly want to make one borne, preferably a home of their own, the annual need of new homes in our country would therefore come to about 15,000, and no matter how low a cost one is willing to estimate for each of these homes, it still has to be admitted that the total sum of money appropriated for loans by the Riksdag—originally two, now all of five million crowns per year—is almost grotesquely inadequate for the purpose; one might say that it meets the need of new occupier-owned homes for only a few weeks each year. But what is still worse, the size of these loans and, in connection with that, the maximum value of the intended occupier-owned homes have been set so low, particularly for agricultural residences, that it is as if the intention were to foster a new agricultural proletariat, new backstugusittare to replace those emigration had freed us from. It can therefore probably be said to be fortunate that although the applications for home ownership loans currently considerably exceed the available resources, these loans have proved attractive mainly for the construction of working-class homes in the vicinity of industrial communities, and as for agricultural loans, it seems they have been used mainly for the purchase of homes already in existence and occupied.5 To be sure, these loans have therefore substantially failed to fulfil their intended purpose, but this ought not to be regretted if, as I believe, the plan itself and its underlying idea were a mistake from the outset, since it aimed to achieve something that by the nature of the matter cannot be accomplished. It is a matter of course that in a country of old cultivation like our own, the land suitable for farming must in the main long since have been taken into use. Progress in agriculture is only possible to the extent that new discoveries and inventions in agricultural technology or new means of transport are capable of transforming the hitherto existing conditions for production and marketing in the agricultural sector; but when this occurs, it is mostly, as it were, of its own accord, under the influence of general economic forces. At any given state of the technology and the economy, the limits to farming in an old country are set not so much by a lack of capital or credit— for of course the way the credit institutions in particular have developed leaves little to be desired these days—as by a lack of land. It would be absurd here to cite the sparse population of our country—or more accurately, of its northern parts—compared with other, more southerly countries. Naturally, it is no accident that, e.g., Malmöhus County has more than 60 times or, if only rural parts are counted, more than 40 times as dense a population as Norrbotten County—the reason is climatic conditions, which we have no power to change. The hackneyed cliché in the newspapers about Norrland as our America, our land of the future’, etc., ought therefore to be abandoned. In fact, as is well known, Norrland currently exhibits a considerable surplus of out-migration, not just to foreign countries but now apparently also to the 141

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other parts of our country. It therefore seems to be far from capable even of supporting its own ‘natural’ population increase, its colossally high surplus of births—the only respect in which Norrland continues to exhibit any resemblance to a colony.6 In this connection I cannot forbear to pass some general remarks specifically on the issue of Swedish agriculture—I must leave it to the experts to elaborate them in detail and to criticize or correct them where this is found to be necessary. The first is that technical advances are not necessarily the same thing as economically profitable improvements, a fact that is very often forgotten when these topics are discussed. Even if there is conclusive proof that certain innovations in agricultural equipment or methods (subsoilers, pipe draining, seed drills, corrugated rollers, weeding, cement containers for manure and stale, etc.) contribute to raising the yield, this does not yet suffice to show that they raise the yield enough to match the increased costs, still less that this is the case at all times and in all circumstances. And even if the anticipated gains in output ultimately fully compensate for the costs, the further requirement of course remains that they yield as much interest over the whole of the intervening period as other employments of a capital of equal size over the same time. Otherwise, under the prevailing conditions, the enterprise will still be uneconomical, perhaps ruinous, even though it might possibly be wholly profitable in times of or in a country with a more abundant supply of capital and therefore lower lending rates. It has happened not once but a thousand times that farmers educated in technical science have miscalculated—or perhaps completely neglected to calculate—and have incurred extremely heavy losses from the introduction of expensive improvements that fail to fully pay their way. Perhaps, therefore, people should be rather less hasty in condemning out of hand farming methods that at first sight lag somewhat behind ‘the requirements of the present day’, as the phrase goes. Not infrequently, closer examination might reveal that, in reality, the farmer’s supposed backwardness is merely laudable caution with regard to the introduction of untested innovations, or is even grounded in a conviction born of experience that at present, in the case in question, what are extolled as improvements do not pay. The second remark, which is probably even more important, concerns the comparative advantages of intensive and extensive agriculture. The surprising results shown by intensively run small-scale farms in certain countries, e.g. Denmark, and the substantial profits reaped annually in the southern parts of our country by the similarly highly intensive sugar beet plantations (though these are artificially boosted by the tariff laws), have given many people the impression that intensive farming also has an advantage in absolute terms over more extensively organized agriculture. If the former fails to supersede the latter to a greater extent than actually happens, this is ascribed—apart from to ‘backwardness and ignorance’—above all to the supposed ‘lack of working hands’ in agriculture; indeed, people sometimes go so far as to claim 142

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that to some extent, industry impairs agriculture by ‘drawing hands’ away from it. In other words, people imagine that if industry (and emigration) ceased to draw workers, so that more labour was made available to the farms, agriculture would flourish and be more profitable than it is now, so that the general economic position would be improved. I am convinced that all this is merely a misunderstanding, indeed, strictly speaking, this claim even involves a contradiction in itself. However great his lack of labour’, there is nothing to prevent a farmer from adopting as intensive a mode of cultivating the soil as he pleases and finds profitable. After all, all he needs to do to this end is to concentrate the available labour— e.g. his own and his family’s—on a correspondingly limited part of his acreage and leave the remainder idle or dispose of it. If instead he prefers to spread this labour more or less evenly over the whole area he owns, then of course this shows that he realizes, or at any event considers, that in this way he obtains a higher yield from his labour and his land. The loss he suffers from the lack or dearness of hired labour can therefore only be relative: by the employment at a cheap price of an appropriate number of outside workers he would be able to farm all his land intensively, and would then perhaps reap a considerably larger profit as landowner than he does now. But this profit would obviously accrue to him at the expense of the wages of labour, since of course the average yield per unit of labour employed would necessarily be less and not more with the intensive methods than with the present, extensive system of farming.7 The difference between intensive and extensive farming is therefore quite simply that the former yields more per hectare, but the latter more per worker (assuming the land is cultivated rationally in other respects). In other words, the former is a last resort, and as such is extremely important and useful, in the event that a dense population that has already come into being in a country does not have any other source of livelihood than agriculture and does not have the option of emigrating, either; but in itself, its being resorted to is anything but desirable. Experience shows, too, that where it is possible to move away, this course of action is greatly preferred by a growing agricultural population to the division of land. This used to be the case in our own country, and it has been the case in America ever since it was first colonized. Similarly, according to a work by Schulze-Gävernitz that I reviewed a few years ago in Ekonomisk Tidskrift, among the German colonists on the southern Russian steppes the principle prevails never to allow the size of properties to sink below 30 dessiatines (about 33 hectares); in general they are even twice this size. Only one of the sons takes over the farm, the others emigrate to form new colonies, and a special self-help fund has been set up for this purpose. In the rest of Russia, it has been impossible to pursue this policy, for obvious reasons—with the exception of emigration to Siberia and to foreign countries. Instead, the plots of land become smaller and smaller as the population in each village community grows, but this has led to quite deplorable results. 143

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In itself, therefore, a reduction in the size of the portions of land available to each farming household for cultivation—even if susceptible to compensation under favourable circumstances by advances in agricultural technology, easier ways of bringing goods to market, etc.—always means a deterioration in the conditions for production and thus a decline in the average level of prosperity, i.e. the very opposite of what must surely be the goal of any sound economic policy. In the study of Öland that has been mentioned several times, we read (p. 44) that ‘the great majority of farmers asked have declared that a plot of land ought to be at least 1/4 of a mantal or more {i.e. 2–3 hectares} in order to feed a family of 5–6 persons’ and that ‘the smallest farm’ the author ‘has heard it said could provide an adequate living for a normal family was 1/8 of a mantal of 9–10 hectares of cleared land’. This being so, one is bound to feel some misgivings when the plots of land offered by the state to colonists in northern Norrland are assessed at ‘1/64 or at most 1/32 of a mantal’8 (nota bene without access to any forest resources over and above household needs). One more step in this direction and we are reduced to the conditions of ‘Lars at Kuja’, of which the poet {Gustaf Fröding} sings: In the farm of Byn, I’m willing to swear, They own, his old woman and he, A one-hundred-and-thirty-third share… It may be an attractive and heroic trait in a Lars at Kuja and his many companions in misfortune always to ‘believe in better days’, even though after the constable’s repeated visits he ‘can barely call the shirt on his back his own’—but it is obviously the opposite of a rational and provident government policy to want to place a large part of the population in such circumstances. I am afraid we are hereby committing exactly the same mistake as was made in the first half of the nineteenth century, when it was believed that removing all restrictions on the division of farms and making common land available for new settlements was an infallible means of promoting an upswing in agriculture and the prosperity of the populace. However, as early as 1833 no less a person than Esaias Tegnér as President of the Consistory of Växjö expressed some words of warning regarding this policy: The country is filled to overflowing with shacks housing a people who possess no other wealth than their labour; and even if this is able to sustain them in good years, when there is no lack of earnings, they are inevitably struck with famine and misery every time the harvest fails. The gains for the country’s agriculture that seem to have been expected of this populace have also failed to materialize for the most part, for they usually only amount to the clearing of a few rods of land for growing potatoes, which generally does more 144

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to damage the forests than to improve the land. By these means the population has risen and continues to rise each year, but poverty, too, is increasing at the same rate, or actually much faster, and the official population records are gradually being turned into a register of the poor. The numerical strength of the country is increasing, but its real strength, which is surely inseparable from prosperity, or at least full stomachs, is being undermined by the emergence of a people whose entire subsistence consists in the annual potato crop; and Sweden runs the risk of acquiring something that until now has not existed, at least not in the countryside—a proletariat9 disquieting in any society, but in particular in one such as ours, where legislation rests to a substantial extent in the hands of the peasantry. It is by no means my intention here to deny that measures could certainly be taken by the public authorities, too, to raise agricultural output in our country. In many, perhaps most parts of the country, agriculture suffers from a shortage of lime in the soil or inadequate drainage, or both. It is possible that systematically planned, large-scale soil improvements would prove worthwhile in this connection, though at present they cannot be realized because of the poverty of the local population or a lack of enterprising spirit. If this is the case, then it would be possible to consider covering the costs by allowing the public authority—the state, the county or the municipality—by whose agency the improvements in question were carried out, to compensate itself by collecting a tax calculated on an equitable basis on the rise in the value of the fields whose growing power had thus been enhanced. That public authorities, particularly the state, can greatly benefit agriculture in other ways too, by continuing to organize specialized education and by wise legislation, is beyond all doubt. Among measures of the latter kind I, for my part, count the abolition of agricultural tariffs—to be carried out with all requisite caution and consideration—since these tariffs can only benefit those who were owners of land at the time they were imposed (in actual fact only the larger landowners), but are to the detriment of all others, not only the consumers of agricultural products (who may be disregarded in this connection), but also all those who employ or wish to employ their labour or their economic resources in agriculture, i.e., first, all common agricultural labourers, and second, those who now (after the introduction of the agricultural tariffs) establish themselves as independent farmers by purchasing or leasing land. I do not consider this the appropriate place to elaborate the general economic principles of which these statements are corollaries; besides, in a case such as this experience speaks louder than theory, e.g. the experience of our neighbour to the south-west {Denmark}, where agriculture has undergone tremendous development without tariffs, and in part surely precisely on account of the lack of tariffs. 145

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Nonetheless, for several reasons—some of which have already been indicated and others of which shall be brought forward later—it would quite certainly be futile to expect measures of this kind, even enlisting the aid of all the resources of expert knowledge and inventive genius, to be able in any way to match needs that by their very nature are insatiable. To the extent, therefore, that the surplus of our agricultural population is unable to find employment within industry, it seems to me we ought not to combat but to aid and support the endeavours of that population to find ‘homes of their own’ in those parts of the world where such homes can still be acquired on reasonable terms. That agriculture in Sweden is of greater direct benefit to our country than similar agriculture in America, other things being equal, is naturally indisputable, but faced with the choice between a few tens or hundreds of thousands of Swedish families happily established on the American prairies and an equal number starving in shacks in this country, whether they are of the older type or newly established, it seems to me that from any point of view, we have to decide in favour of the former alternative. But as far as I know, not even in years of famine has the Swedish state ever contributed so much as an öre to this kind of home ownership movement, or devoted a single thought to it—other than to put short-sighted barriers in its way.

INDUSTRIAL PROGRESS The so-called physiocrats were of the opinion that in contrast to agriculture and other primary industries, manufacturing industries were to be regarded as unproductive, since in their view, they failed to bring the country any surplus over and above the costs of maintaining their own labour. This doctrine has few adherents these days, but this much of it, at least, was true, and still remains valid, that in ordinary, normal circumstances, agriculture must always be a country’s primary economic resource, the foundation, while industry is secondary, the superstructure raised on this foundation. After all, for human beings, as for all living creatures, the satisfaction of the demand for food is the primary, indeed, the only absolutely necessary condition for existence; only when this condition is fulfilled can the satisfaction of other, higher needs come into question at all. But, on the other hand, for this very reason industrial development becomes the measure of a country’s or a people’s cultural progress. Therefore, far from being alarmed that a growing quantity of labour is being ‘drawn away’ from agriculture in order instead to turn to industry, commerce, or the professions that have long been called liberal, we should rather be pleased about this development: it is a sign that agriculture is now capable of supporting an increasingly large number of people in excess of its own body of workers. Broadly speaking, this of course means that less and less of the labour available to society is needed in order to satisfy simple 146

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nutritional requirements, so that more and more labour is left to supply cultural needs and purposes. I disregard, in this connection, the problems that are unfortunately associated with the modern division of labour, which compels overspecialization, and with the massing of the populace in great cities and industrial communities. In my opinion, these problems are very substantial and are well worth attempting to remedy, but this question belongs to a different train of reflections than the one we are engaged in here. What I am talking about now, in the first instance, are ordinary, normal circumstances, i.e. I presuppose that each country, by and large, supplies itself with the bulk of its own requirements of both agricultural and industrial products, and that the international exchange of goods only takes place to the extent that for reasons of climatic and other differences, one country produces a surplus of goods that the other country needs but has no adequate way of producing, so that it is better off acquiring them by trade. In such circumstances, there is surely no need to fear that industrial development will be pushed too far; any excesses in this regard would of course backfire, and the correct equilibrium ratio would soon automatically be restored by means of the price formation for agricultural products, on the one hand, and industrial items, on the other hand, which acts as regulator of the whole process. But, admittedly, this means that industry would be unable to play any very substantial role as an outlet for a steadily growing population, as the ‘superstructure’ would only be able to grow in proportion as the foundation became broader or more solid. In a country of old cultivation—disregarding the revolutionary changes in methods of production that can occasionally be a consequence of epoch-making discoveries and inventions—both the foundation and the superstructure would evince only extremely slow, gradual growth. Thus, the overall picture in every community would be of a type exhibiting progress in its material culture, to be sure, but in terms purely of its population, essentially stationary. Though bound to arise in the long run, the conditions here postulated do not necessarily apply to the period in which we are now living, or perhaps more accurately, have been living for more than a century. The process of colonization, which is not yet fully completed, of the immense territories opened up to European civilization chiefly by the aid of steam, electricity and improved means of communication in general, has led to a global, worldwide division of labour, which may be impermanent and transitory by its very nature, but nonetheless actually exists now, since in the first stage of their development, these large colonial territories are necessarily predominantly agricultural10 and are dependent on the production of the old countries to meet their requirements of industrial commodities. It is on account of this circumstance that in our time, all western European countries to a greater or lesser extent, but generally in a significant degree, feed themselves on corn and other foodstuffs imported from transoceanic 147

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countries (and from eastern Europe), while at the same time finding a steadily growing market for their industrial products in those countries. It is for this reason that, over the past century, these old countries have been able to manifest population growth far in excess of what would have been possible purely on the basis of the development of western Europe’s own agriculture, no matter how splendid the progress has in fact been in the domain of agricultural technology (soil improvements, agricultural—chemical discoveries, selection of grain varieties and animal breeds, improved equipment and machinery, etc.). In other words, the industry of the western European countries has grown far beyond the proportions to which it would have been confined if it had still constituted merely a superstructure on domestic agriculture; it largely leads an independent life, based on the worldwide exchange of industrial items for agricultural products that I have referred to. Now an additional factor in making this development possible, and thus in enabling a considerable surplus population, living exclusively on industry, to arise in these countries, is the well-known fact that to a very large extent, both the raw materials for these industries (iron ore and other minerals, plus valuable types of earth), and its fuel source (coal) have been available readymade underground, and industry has been able to draw on these resources as required. Meanwhile, its supplementary raw materials, drawn from agriculture (wool, cotton, hides, etc., and in more recent times also rubber), have mostly been imported from the rapidly growing stocks of the newly colonized countries. However, no matter how familiar habit has made us with this development, fundamentally it is anything but natural and normal:11 in fact it is threatened by two dangers that reveal its purely temporary nature, and which it would be futile to attempt to ignore. The first and most immediate danger is that as the colonial countries themselves grow in population and all their valuable land becomes occupied, they will increasingly go over to industry and so will themselves become the chief consumers of their own agricultural output. And indeed, experience shows that to begin with, i.e. during the first stage of colonization, the colonial countries’ surplus of exports of corn and other foodstuffs and raw materials grows at the same rate as the population, or even faster; thereafter it continues to grow, to be sure, but at a slower rate than the population; and finally, it actually declines and ultimately completely disappears or turns into its opposite: a surplus of imports.12 It is revealing in this regard that the United States, which until recently was Europe’s foremost granary and the principal centre of the dreaded ‘transoceanic competition’ in the corn market, has now almost reached stagnation in its production of cereals, particularly of wheat, while Canada and still more so Argentina are making rapid advances, as are the areas in the south and east of Russia that have similarly only been colonized in recent times.13 When it comes to the export of maize, too, Argentina is not so far behind the United States these 148

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days, and the latter country also shows a significant surplus of imports of sugar, hides, wool, silk and rubber; only when it comes to cotton does it still retain its leading position among agricultural export countries. That this development is accelerated by the imposition of high tariffs on industrial goods by the colonial countries is only a minor point in this connection; even without any such measures it could never fail to occur in the long run, even though it could certainly be delayed somewhat. But in proportion as it continues, obviously both the opportunities western European countries have of selling their own industrial products and their prospects of meeting their own surplus demand for foodstuffs by means of imports from abroad, are diminished. The immediate future will no doubt show whether, in this respect, the sharp increase in the price of corn and other foodstuffs that has taken place in the last few years (to the extent that it exceeds the general rise in commodity prices due to increased imports of gold) has been, as it were, merely an ‘early warning’ or whether it may even be ‘the beginning of the end’, with the colonial countries no longer able fully to match the constantly rising demand for agricultural products in the rest of the world. The second danger, which is less immediate, yet not so far off as to obviate all need of taking it into account, and which, where it arises, is naturally still more decisive, consists in the actual depletion of the stocks of mineral raw materials and fossil fuels I have mentioned, which may come about if industrial production is pushed ahead too fast. This depletion, however, only has to be understood in relative terms, such that the increasing depth of the coal-mines, or the enforced transition to poorer grade mineral ores, etc., raises growing obstacles to profitable industrial production, without leading it to cease completely. Of course in the long run, this consequence is inevitable in all so-called extractive industries; there is no remedy for this other than the potential ability of inventive genius increasingly to surmount and perhaps even more than compensate for deteriorating natural conditions. Thus, the danger involved in the over-energetic exploitation of natural resources lies in the possibility that this deterioration may proceed more rapidly than the compensation afforded by improved technology. To discuss this question in greater detail with reference to the major industrial nations would lead me too far afield; however, I shall return to it when speaking of our own country’s industrial situation, to which we now proceed. What I here considered important to stress was merely a fact that is basically selfevident, but is so very often overlooked, namely, that even though the modern development or rather revolutionizing of European industry has in fact extended over a period of several generations, it is necessarily purely temporary by nature; a fact that moreover, as I have said, is self-evident on account of the absurd consequences that arise when one imagines it continuing on the same scale even for just a few more centuries into the future. 149

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SWEDISH INDUSTRY If we pass on from these general observations to examine our own industrial development and its significance for the problem of population in our country, particularly as a remedy for or counterbalance to emigration, we encounter a number of distinctive features in Swedish industry, some of which are reassuring, but others of which, on the contrary, are highly disturbing. As we do not possess any coal reserves worth mentioning, we do not need to fear their depletion, and our iron ore resources in Norrland would probably be sufficient for our own iron processing industry for a great length of time, even supposing this industry continued to grow at its present rate—provided only it were possible for us to use and process these ores ourselves. These consolations are therefore essentially of a negative kind. Of greater weight and significance is the fact that the industry that, in economic respects, is and must probably still long remain the most important, namely the timber industry, has a product as its raw material that is constantly renewed by the hand of nature, and the supplies of which can never be completely exhausted, or even become more inaccessible, as is the case with coal and ores; and the same thing is true of our natural source of power, the waterfalls, the ‘white coal’ that has already found such extensive application in our industry, but has still not been harnessed in anything like its entirety. Our usage of peat is probably also capable of further development; in particular, the ingenious system of building power stations directly on the peat bogs, where peat is shovelled directly into the ovens with no preparation other than the standard compression and air-drying, appears to the layman at least to be the simplest solution to the peat question imaginable—among other such power stations, there is a fine example of this here in Scania, in the vicinity of Svedala. However, these supplies are unfortunately not inexhaustible; where they have been most exploited until now, as in Scania, in many places there is not very much left to take these days. Finally, it would also seem that the exploitation of our natural waterways, which has endured a relative lull during the railway era, could be resumed with advantage. If, at the same time, one imagines the running water used as a source of power for electrically driven river and canal boats, and the whole system combined with the bulk transportation of lime and other means of soil improvement to the land alongside the watercourses, plus the shipping out, in the other direction, of the products of the timber yards and ironworks built beside the waterfalls, then it is not difficult to picture, with the aid of the imagination—roughly after the pattern of C.A. Agardh—an economic system grown up on a purely national basis, perfectly sound and within certain limits even capable of growth.14 No danger of the kind mentioned first in the previous section, namely, a lack of markets for the products of industry, is likely to exist at all in our case: on the contrary, unless hitherto unsuspected chemical or technical 150

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discoveries were able to create fully adequate substitutes for iron and wood in all their manifold applications, the increasing scarcity of precisely these substances should guarantee that what we are able to achieve in these areas will never lack a profitable market. However, if we move on from these visions of the future—in part probable, but in part perhaps rather speculative—to actual reality, as it is now, and ask ourselves whether Swedish industry in its present state of development will be capable of absorbing the greater part of our annual population surplus in the immediate future, as it has until now, then the answer, I am afraid, is in contrast very disheartening. In accordance with my previous remarks, it is essential here to distinguish clearly between two sectors or divisions of our industry—even if, by the nature of things, no sharp boundaries are evident between these sectors on the surface—namely, first, the industry that works mainly to meet the country’s own need of industrial goods, either directly or by means of exchange for industrial goods from foreign countries, and, second, the export industry as such, by means of which we acquire what we need in the way of foodstuffs and raw materials in excess of the country’s own production of such goods. As pointed out previously, the first of these industrial sectors can only grow in proportion to its natural foundation, the country’s own production of foodstuffs, and even then, if its raw materials have to be imported, as is mostly the case in the textile industries, for example, it would come up short if it were not assisted by the export industries; on its own, then, it cannot provide any very substantial outlet for the country’s excess population or raise the population above the stationary type. Only export industry as such is capable of this, and it is therefore almost exclusively to this sector that we have to direct our hopes, if these hopes envisage a growth of the country’s population on the same scale as hitherto, and in particular if it is hoped to check emigration. As I have said, one cannot expect to find any clear dividing line between these two sectors of our industry; on the contrary, in many ways they interlock with and support one another. However, that there is an essential difference between them becomes obvious if one studies the information about our exports and imports that is published in very considerable detail these days in the ‘Summary of our Official Statistics’. For there we find that of all the major industrial categories, strictly speaking, there is only one that shows a real surplus of exports. Admittedly, if the data is divided into smaller categories, several of these achieve a surplus of this kind. For example, our exports of ores, above all iron ore, at present amount to around 30 million crowns a year, and no imports of ore worth mentioning take place. But the category of ‘Minerals’ as a whole nevertheless shows a very substantial surplus of imports, chiefly because of the large-scale import of coal and coke. Similarly, the category ‘Metals: unprocessed or semi-processed’ contains several entries (iron) 151

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with a large surplus of exports and concludes as a whole in our favour; but if the next category, ‘Metals: finished products’, is added to it, the difference is entirely evened out, and if the category of ‘Vehicles, carriages, machinery’, etc. is also included, there arises a clear negative balance, a surplus of imports. To be sure, it should not be forgotten in this connection that imported goods, being burdened with freight, are listed in our statistics, as in those of most countries, at a relatively higher market value than an equivalent quantity of export goods of the same manufacturing value; thus, the difference is largely evened out by the freight earnings of Swedish vessels, i.e. this part of our transport industry ought by rights to be counted as well, in order to give a more accurate picture of our real so-called balance of trade. Nevertheless, the entire category of products derived from the mineral kingdom probably hardly yields us any real surplus, in the sense intended here; still less so the industrial products derived from the animal and vegetable kingdoms, hides and skins, oils, textiles, etc., with the exception of just a single category— one, but that one a lion—namely, wood and wood products, including paper and paper products; which category, as is well known, exhibits the most splendid export figures, without any equivalent entry on the import side worth mentioning. It might be said that from the perspective of the national economy, it is with our exports of wood and wood pulp (plus to a lesser extent furniture and paper) that we pay our entire surplus of imports of foods and luxuries— corn, colonial produce, etc.; and what is more, our manufacturing industries, too, are largely dependent on exports of wood for the acquisition of their raw materials, their machinery, and even their fuel. Nothing can be more misleading than to attempt to draw conclusions about the economic significance of our industries for our country from gross figures showing the manufacturing value of our industrial establishment. In a large number of cases, where the raw material is provided by the products of other industries or agriculture, sometimes, moreover, made more expensive by taxation, or where perhaps the raw materials, machinery and fuel have all been imported, these figures are completely empty, as it were, and can be ‘boiled down’ to a small fraction of their nominal sums before they acquire any relation to reality; in addition, the numerous industries that have only been called into being in our country by protective tariffs will probably never come to win a foreign market for their products. The significance of our industry as a source of livelihood to supplement agriculture and as a haven for our surplus population therefore lies exclusively in our natural export industries and among these above all, by far, in the timber industry. This is how matters stand at present; and it follows directly that our position is very disturbing. Our blue-eyed boy, the timber industry, is in a fair way to becoming a problem child, If there is any truth in the reports from expert quarters that to be sustained, and therefore still more so if it is to continue to grow, it requires quantities of timber far in excess of the annual new growth in our forests, as far as this is known or can be approximately estimated. 152

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Naturally, a thorough investigation of this highly important matter ought to have been organized long ago (in my small way, I have been trying for a good twenty years to draw attention to the need for a study of this kind).15 Apparently this is now, finally, going to take place; only on the results can a properly grounded opinion of our industrial future be based, provided the study is carried out in a more or less reliable way. At present, all that can be said is that this future appears to be at risk. If the study confirms the fear that the quantity of wood cut annually must necessarily be considerably reduced— and this fear is surely unlikely to be completely unfounded—then our first task will be to attempt to replace the present export of unprocessed or semiprocessed wood products with the export of more finished goods. After all, we do not lack the natural prerequisites for this kind of manufacturing; the most substantial obstacle to its establishment or development probably lies in the high tariffs imposed by foreign countries (with the exception of England) on finished wood products and on paper;16 things actually go so far that the last step in our production of wood pulp is to destroy the finished sheets by punching holes in them, because they would otherwise be treated by foreign customs as board. Now if we, for our part, attempted to counterbalance these tariff barriers by imposing a suitable export duty of our own on unprocessed or semi-finished goods, in my opinion, this policy could certainly be defended precisely from a free trade perspective, since we would thus merely be restoring the natural equality between our own processing industry and foreign processing industries. The fact that, in general, a great deal can be achieved by going in for the domestic processing of raw materials, even if a country does not possess so much of these raw materials, is proved, it seems to me, by the example of Norway: in spite of seriously depleted forest resources, Norway now employs far more workers in its wood products industry (particularly the sulphite industry) than it did in the days when it had larger forest resources but chiefly shipped out wood in the form of timber and planks. However, it is probably doubtful whether even adequate compensation can be attained in this way for the decline in this our main industry that is otherwise inevitable; and still dimmer, if not absolutely non-existent, are the prospects likely to be that it can continue to expand at the same rate as it has until now, which, of course, is what people would like most and is what would be required for the continuing absorption of our surplus population by industry. Further, as the Forestry School Committee points out in the introduction to its statement, year by year, a growing population quite naturally claims larger and larger quantities of wood for the domestic market, which, as is well known, in purely quantitative terms, even now considerably outweighs exports of wood. Nor is it easy to see how any other form of industrial activity could experience such a boom in the near future as to enable it to be anything like the mainstay of our national economy that the timber industry has been. Of 153

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course, in future, too, the inventive genius may have pleasant surprises in store for us—the electric smelting of our Norrland ores that is so keenly desired may one day be a happy fact; but on a sober estimation, on the basis of available data only, it is much more to be feared that our iron industry, too, will soon be among our declining industries, since after all, at the present rate of exploitation, it is to be expected that the iron reserves of central Sweden, which have been the main basis for our iron industry until now, will be more or less used up relatively very soon.17 If, therefore, an answer is required to the question of whether our industry is likely in the immediate future to be able to absorb the surplus population that will otherwise have to seek its way by emigrating, then on the basis of the facts now available this answer can hardly be anything but negative.

THE REAL QUESTION AT ISSUE I expect many people will call the view expressed in the preceding section ‘pessimistic’; but by using such a term they only reveal that they do not fully realize the true import of the problem at hand. For which view of the state of our population could possibly deserve to be called ‘optimistic’, in contrast to the one I have espoused? Presumably the opinion of those who declare for reasons with greater or lesser justification that we ‘still’ have plenty of room for all our people, if only we employ our resources well. But what is meant here by the word still? As already stated, Sweden’s natural population growth presently comes to somewhat more than 1 per cent per year, but this figure would be very much higher if all who wished to do so were able to set up their own homes, particularly if those who now emigrate, and who of course are mostly persons old enough or nearly old enough to marry, were able to stay at home and have families here. Those who consider that we ‘still’ have sufficient resources for all our inhabitants must therefore be prepared for a natural population growth at least as large as, for example, that in Denmark, Germany or the Netherlands, i.e. about 1 1/2 per cent per year, which we would then, in their opinion, be able to retain within our borders. However, this corresponds to a doubling of the population in less than 50 years. Now surely no one with any sense believes that it would be possible using any techniques yet known—such as reducing the amount of land allotted to each person, or clearing more land—to double either the population employed in agriculture or the total agricultural output every 50 years. Nor, equally, can anyone believe that we could double our industrial output every 50 years, when our natural resources are strictly limited and in part already overexploited. Not to mention the fact that even in the course of the first 50 years, we would have to convert generally to fossil fuels bought from abroad, or to the use of peat as fuel, as far as it can be used; otherwise the population would be obliged to freeze to death, even if it escaped starving to death. It is 154

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therefore unlikely that any discerning person can visualize the continued growth of our population on the scale advocated in reality by the ‘optimists’, and consequently, we would in any case be confronted by the same difficulties in the near future—though they would then probably be completely unsolvable. Thus, even supposing it were well-founded in other respects, this supposedly brighter view of the matter therefore consists in its entirety merely in that on this view, we could banish all thoughts of restricting our population growth for the time being, and leave worries about it to the future; and what is alarming about the doctrine of the ‘pessimists’ is actually nothing more than that a development that everyone admits is unavoidable in any case, sooner or later, indeed, very soon, relatively speaking, should prove to be somewhat closer at hand than people have hitherto wished to suppose. But that is not all: there is another side to the matter, which is even more important, but which is generally not touched upon at all when these questions are discussed. For if it is conceded that a population increase on the scale that optimistic voices presently advocate would ultimately prove to be simply impossible, is it not then natural to conclude that even if it is not quite impossible at the present point in time, it can nonetheless only be bought at the price of a deterioration in the nation’s economic and cultural standards; and in that case, what would be the benefit of an increase of this kind? Socrates in his wisdom was wont to say that those who pray to the gods for wealth, power and influence act foolishly: they could equally well, in his opinion, pray for ‘a turn with the dice or battles’—with no guarantee of the result. There are probably even better reasons for asserting that those who make rapid population growth their ideal, without scrutinizing the consequences, commit an act of folly; they ‘pray badly’, for in reality they may be praying for typhus and cholera, rickets and tuberculosis, poverty, ignorance and prostitution, prisons and hospitals filled beyond capacity, social dis-content and acts of violence by left-wing extremists…Or is there something so extraordinarily good about population growth as such as to be able to counterbalance and make us indifferent to even one of these probable consequences? It may of course be true that greater population density is preferable to a more sparse distribution in some respects, but in our age of telephones, steam locomotives and bicycles, how little significance—infinitely little, relatively speaking—the distances within each individual country now have! Of course, the advantages possessed by a large number of people, speaking the same language and governed by the same laws, compared with a people belonging to a smaller political or linguistic territory are of somewhat greater real substance. But the cultural significance of this factor, too, is probably greatly exaggerated. In actual fact, a small nation is obliged to renounce very few of the treasures or benefits of civilization simply on account of its smallness. Even the remote island of Iceland with its antiquated language and a population barely larger than that of the city of Malmö is not known to 155

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stand on a substantially lower cultural level than other civilized countries. Holland, with its five million inhabitants, probably does not lag behind either Germany, England or France in this respect—not to mention what the same Holland with a population several times smaller meant for Europe in the seventeenth century, or what the small Greek states meant for antiquity and all ages. When it comes to the Scandinavian countries, if they lag behind the major civilized countries in any respect, then this certainly has far more to do with our remoteness from generally trafficked routes than with a lack of numbers or the sparsity of our population. The factor that is most often referred to in this connection, and which, if true, is probably the most important, is the supposed security from external attacks that the larger military resources of a numerous population is considered to provide. However, fortunately methods other than brute force are increasingly coming to the fore in the settlement of international disputes, and in reality, for those nations that in any case are bound to remain dwarfs compared with their neighbours, these peaceful methods constitute the only means on which they can depend with any degree of confidence.18 There must, however, be some reason why purely instinctively, to most people’s mind, an advance in the numerical strength of the population seems to be a phenomenon inseparable from the idea of national health and happiness. If I am not mistaken, it is the desire for expansion, slumbering deep in human nature, that is the principal motivating force here. In itself, this desire is nothing unnatural, nor should it be suppressed; it ought merely to be guided by reason only into such channels as are compatible with peaceful, mutually beneficial international relations. These purposes include everything capable of furthering the collective association, indeed, the coalescence of the nations: joint or mutually influenced legislation, trade agreements or, better still, complete freedom of trade, together with an increase in international travel by individuals. In this respect, the masses, or, more accurately, the industrial working class, have actually made more progress than the leading social classes, in spite of the great obstacles to such progress that the absence of all instruction in foreign languages in the compulsory public schools means for precisely the workers. If the modern-day working class is comparatively free of chauvinistic tendencies—unfortunately, I do not suppose it is completely free of them—then this is due among other things to the fact that with their international congresses and their voluntary submission to the decisions of these congresses, the workers feel themselves to be a brotherhood spanning the whole world. The better-off members of society, the very classes whose mission ought to be the improvement of the material and intellectual culture, have come much less far than the workers; apart from science proper, and within science, in turn, primarily the natural sciences and medicine, most cultural movements, in the legislative, ecclesiastical, educational and other domains, retain a spirit of national isolationism. Even the development of communications is not always an 156

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exception. Let appropriate forms for association be sought in these areas, too, let common interests be sought out and cultivated, instead of brooding on and stirring up all kinds of wretched petty grievances, and it will become evident that the desire we have mentioned, which we may well term the desire for national expansion, has extremely extensive and promising fields before it. As for those for whom their own expansion is synonymous with the subjugation of others, they will gradually be forced to realize that there is no longer any place for their ambitions in the civilized world, and soon enough, perhaps, no place anywhere on earth. I have deliberately dwelt on this point, which might be thought somewhat peripheral, but which in reality, in my belief, is at the very heart of the matter. For as soon as one has come to see that aspirations after an increased and ever increasing population are the expression of obscure and misdirected instincts rather than the product of a fully conscious conviction, grounded on real positive arguments, one understands, too, that in practice, the most important issue relating to population is not the question of the (absolute or relative) maximum number the people are able to attain, but rather the question of the optimum number, the number that in the given conditions is best suited to the available natural resources and is therefore most compatible with the achievement of material well-being, which after all is the necessary basis for all other culture. However, even to approximate an accurate answer to the latter question, for our own country, for example, is impossible at present, all the more so since, to the best of my knowledge, this problem—incredible as it may sound— has never even been raised by any economist, still less made the object of any real study. Usually, people have worn themselves out in rather unfruitful speculations about the presence or absence of so-called overpopulation—i.e. a population no longer capable of supporting itself at all in a certain country— and the criteria for this condition. But these are all things that are merely of theoretical interest, indeed, barely even that, while people have been completely blind to the far more obvious question: what, with regard to the population density in a country at any given point in time, ought to be called enough, or too little, or too much. But in itself, this question, too, is difficult: to answer it requires a knowledge of all the branches of a country’s economy and the way they affect one another, a knowledge that far surpasses the resources of current economic statistics. However, this at least can probably be stated with confidence: the most advantageous population figure for our country, in the current circumstances, lies not above but rather far below the number actually present.19 Let us assume as our norm the private farm, run solely on the family’s own labour or an equivalent amount of labour, and let us suppose in accordance with what we have said previously that the acreage on which such a quantity of 157

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labour could be used most profitably would be about a quarter of a standard farm unit, or as an average for the whole country, 12–15 hectares of arable land plus some grazing land and enough woodland to meet household needs.20 Then, counting five persons, older and younger, per ‘family’, the land currently farmed in Sweden—3.6 million hectares of arable land and 1.34 million hectares of grazing land (though nearly half of this latter sum is in the counties north of Dalälven), all of which is divided into approximately 68,000 whole mantal—is enough to provide a good living and employment to an agricultural population of approximately 1,350,000 people, which is more than a million less than the part of the population that is now reported to support itself on farming (and fishing). As agriculture managed in this way ought to yield a considerably larger relative surplus over and above the farming population’s own consumption than agriculture does at present, this ‘foundation’ would be able to support a somewhat larger superstructure of industry for domestic needs, commerce, etc., than is now the case—at least in proportional terms, although in absolute terms, the size of this superstructure would naturally be reduced, in accordance with the reduction in the size of the agricultural sector. Since, further, our natural export industries would of course be kept up to the extent allowed by the natural resources under steady exploitation (though given the gradual rise in wages assumed here—in the first instance in agriculture and consequently also in industry—the least profitable branches or businesses would be abandoned), the population employed in trades other than agriculture (including the large category of retired persons and other miscellaneous persons) would probably be able to amount, as it does now, to the same or a somewhat larger number than those employed in agriculture. I am willing to assume that it could come to as many as 1,700,000 persons, so that the total population of the kingdom would number approximately three million—as was the case 70 years ago. Naturally, I attach no significance to these specific figures. Moreover, I by no means believe that the population optimum of which I have spoken is anywhere near this high at the present time; even with numbers limited as stated, the great mass of the population would only be able to gain a modest, though adequate living. But only in purely exceptional cases would any actual poverty need to occur, and above all, if the population went down to this figure and then remained there, it is reasonable to believe that our natural resources would prove inexhaustible: our forests would rise up again as quickly as they were harvested by the axe, and the domestic consumption of fuel and wood for household use would not be so large as to preclude a permanent and substantial surplus for our timber industry, year after year. If, as is no doubt likely, it subsequently turned out that at least some of the technical advances that as yet are no more than hopes and promises became a reality, or that the efforts of science and inventive genius succeeded in opening up for us quite new, previously unknown economic resources, then of course it is 158

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possible that the population might actually be too small to exploit these developments successfully; in that case, of course, it ought to increase again, and would surely also do so. However, what I maintain, quite definitely, is that for us, the path to economic progress now does not lie in an increase of our present numbers, but rather in an energetic reduction of the population, sustained over a prolonged period.

CONCLUSION I could close at this point, for since this programme conflicts so sharply with what is passed off as economic wisdom in daily conversation, in the press, and even by scientifically educated people, I do not suppose anyone will be inclined to listen to any further details. However, as I consider it overwhelmingly probable that whatever anyone thinks, unless factors come into play that no one can now foresee, a reduction, whether larger or smaller, of our present population is likely to be dictated by the very force of circumstances—because of the impending decline of one, if not two, of our foremost sources of income, as discussed above—I consider I ought to add a few more words. In the past century in Europe, a population decrease has only occurred in a single country, namely Ireland, whose population, as is well known, has diminished by nearly half since the 1840s and is still shrinking, albeit slowly. What has led to this reduction has been partly, in the beginning, pure starvation, and partly emigration undertaken on a very large scale, above all to the United States; in addition, in contrast to older times, Ireland now has the lowest natural population growth in Europe, apart from France, though this is chiefly because of an extremely low frequency of marriage, which in turn is probably due principally to the continuing large-scale emigration of young people. From the first of these ‘checks to population’ we may sincerely hope to be spared—though perhaps this is more than we can expect. The third of them, in turn, is a solution that cannot be regarded as any more desirable, or even any more feasible than the first. Unless it is actually the result of insufficient numbers in the cohorts reaching marriageable age, a reduction in the frequency of marriage is obviously associated with such significant risks in moral respects, and conflicts so greatly with the conditions required for a happy human life and with the strongest inclination of most human beings, next to the instinct of self-preservation, that it can neither be advocated (assuming it to be possible at all), nor even imagined on a scale sufficient for the purpose. If we suppose, for example, that the task were to bring the population down from approximately 5.4 million at present to the level it had in about 1840, or 3 million, exclusively by reducing the numbers of marriages and births, and that we could allow a period of about sixty years to this end, then (as can 159

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easily be calculated using a table of logarithms) this would require that over the entire period, the population were reduced each year by as much as it now increases each year on account of the surplus of births (disregarding emigration, that is), i.e. about 1 per cent or 10 per thousand of the existing population. Now as mortality in Sweden only amounts to approximately 15 per thousand of the population, the permissible birth rate, at least to begin with, would be reduced to merely 5 per thousand or 1/2 per cent per year, and would therefore only be a fifth of the present rate. To be sure, as time went on it could increase somewhat, since in these circumstances mortality would soon necessarily rise on account of the disproportionately large numbers of older people; but at all events, it ought to be evident from these calculations that this plan is virtually impossible to carry through. Even if the effects of a reduced frequency of matrimony were reinforced by lower fertility within marriage, a birth rate so absurdly low would obviously mean such strict renunciation of the joys either of marriage or of parenthood that it could only be implemented under extreme compulsion. In addition, such a change would gradually reduce the numbers in the age groups fit for work relative to those of a more advanced age in a troubling degree. It therefore appears self-evident that if a radical reduction of the present population is to be possible—and I repeat my assertion that such a reduction is not merely desirable from the point of view of the well-being of the population, but will probably actually be unavoidable in the near future— then the only satisfactory way to accomplish this is continued, and even considerably augmented, emigration. In my opinion, at the present hour, to support and even to induce such emigration by rational measures would be the most important and worthwhile task a government possessed of foresight and free of prejudice could set itself. Even if the future economic difficulties described above were highly exaggerated, or indeed completely unfounded, such a policy would not be amiss, since as Dr F. Kempe has recently rightly observed, if Swedish workers have an opportunity to look around in other countries and get to know the conditions there, it can only be of benefit both to them and to their country, and can never do any harm. For the emigrant, the homeward road is no longer than the road leading abroad, and in most cases it is far easier to take. If prospects here at home improve, we need not doubt that the stream of returning emigrants will soon swell, and indeed, experience has shown this to be so in such cases. In actual fact, the most troubling question is which destination could successfully be made the goal for emigration from our country at the present time. The United States will probably soon become a less favourable field for emigration, even if the prospects there are still outstandingly good for certain classes of workers, above all female servants. For farmers, however, the conditions are less good, since of course virtually all available land is now occupied. Opinions are divided about Canada’s suitability for large-scale immigration; at any event, there has not been very much immigration to 160

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Canada, other than from Great Britain and Ireland. The tropical and subtropical parts of North and South America are obviously unsuitable for Nordic emigrants; as yet, not even Argentina has received any addition to its population worth mentioning from our parts. Great efforts are presently being made by certain parts of Australia to attract increased immigration. Unfortunately I am in no position at all to judge whether the conditions there fully correspond to the florid descriptions conveyed by the brochures and advertisements. Perhaps it would be worth turning our attention to the east instead of the west or south. One receives the impression from books and travellers’ accounts that by reason of their natural conditions, the forested tracts of southern Siberia would be well-suited to Scandinavian immigrants, better even than to the Russian peasants who have grown up on the plains, but who are now almost alone in populating these tremendous expanses on a large scale. The question may at least be raised—and ought also to be investigated more closely—whether colonization, preferably joint colonization by the Scandinavian countries and Finland (which in my opinion are all in about equally great need of emigration), might not be feasible in these parts, with the permission of the Russian authorities. To be sure, in itself the idea of placing oneself under the rule of the Tsar cannot possibly be very tempting at the present time. But of course it is likely that in time, internal conditions in Russia, too, will improve, and reportedly, among the people of Siberia in particular, a much freer spirit prevails than in Russia proper—there, the Russian saying that ‘the Tsar is remote’ applies in an even higher degree and in a better sense. However, what can be done in these and similar respects ought to be done soon. It will not be long before the world is fully occupied, even if not au grand complet then at least as regards emigration. With each passing year, the congestion on the emigration market is sure to become more and more terrible. One need only consider the fact that these days, Italy alone sometimes contributes up to half a million people per year (1906) to transoceanic emigration.21 Not far behind in numbers of emigrants come Austria-Hungary and Russia, and as I have said, Russia, in addition, probably sends an even greater contingent of emigrants to the eastern parts of the Tsar’s empire. As if by a miracle, Germany has managed in recent years to retain and employ virtually the whole of its colossal surplus of births, which amounts to approximately 900,000 people per year—by pushing on the development of its industries and the exploitation of its natural resources at an almost feverish pace (in 20 years, its production of coal has more than doubled, of lignite quadrupled, of pig-iron tripled, etc.). However, it will probably soon be forced to resume the leading position it formerly held in the ranks of the emigrating nations—and then a real disaster will be inevitable. But in any case, such a disaster cannot be delayed for long. The great majority of emigrants still turn to the United States, even though 161

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this country, as I have pointed out, can no longer be considered a colonial country in the true sense of the word, i.e. it no longer possesses unoccupied land. Two conclusions can probably be drawn from this fact. First, that it is chiefly American industry that is now absorbing the immigration from Europe, so that instead of constituting a new ‘hinterland’ for European export industries, the emigrants are rather building up a fatal source of competition for these industries; and second, that since those countries where the land is not yet fully occupied are at present incapable of competing more effectively than they do with the old immigration country, the United States, they are unlikely to be in a position to provide an outlet for the entire surplus population of Europe when the United States—and this is surely bound to happen soon—inexorably ‘closes the door’. For those nations that still want to make sure of a share in what remains of the division of the world—and I am afraid this time the division will be definitive—the principal requirement is therefore probably to be quick off the mark. From all this, it is evident that even emigration can never be anything but a palliative for us, a temporary expedient on this occasion—and on this occasion alone. And if it is thus pretty certain that we cannot do without emigration in the immediate future, it is more certain by far that we cannot build our population policy on this factor in the long term, or even for any appreciable space of time. If we therefore set ourselves the goal of attempting to restrict our numbers to a figure that is better adapted to the economic well-being of the population than the present tally, with the intention of then maintaining the population at the reduced size it will thus attain until further notice, then it is of course quite evident that in addition, we must become used as soon as possible to the idea of bringing down the birth rate itself to the level at which the births and deaths are in balance. A limitation of this kind—in contrast to the one talked about before—by no means passes the bounds of what is practicably possible, as the example of France and several other modern countries shows. In such a case, the birth rate would not need to fall below the death rate, indeed, it would not even need to drop to the relative figure of the present death rate, since of course in a stationary population the percentage of deaths necessarily rises somewhat because of the large numbers in the older age groups relative to the number of children— provided, as is the case in Sweden, there is no excessive infant mortality.22 A reduction of the birth rate by about a third or from the present figure of approximately 26 per thousand to 17 or 18 per thousand is probably what would be required, but no more than this. Now if, in addition, emigration could be brought up in the immediate future to the same figure as Italian emigration, proportionally speaking, i.e. for our country 70 to 80 thousand people per year, then in a relatively short period of time, about 30–40 years or thereabouts, the population would be brought down to a number at which we could subsequently, on the basis exclusively of our own resources, offer our entire population a subsistence that though modest would yet be adequate. 162

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The technical advances that may be made before that time or subsequently ought to be used to further secure and deepen the national prosperity thus achieved, and only in the second place to support an increase in the population, if such a thing could occur without risk. However much this view may differ from the opinion generally proclaimed not only in our own but also in most other countries, I have no doubt that it will gradually come to command universal acceptance. This is vouched for both by its own scientific conclusiveness—against which its opponents actually advance and can advance nothing but preconceived ideas and confused expressions of emotion—and by the evidence of experience. Already, in wider and wider circles, not merely among the educated and economically more fortunate classes in society, but also among the broad masses of the population, the realization of the necessity or desirability of limiting the size of families is becoming quite apparent and is being applied in real life.23 But unfortunately these new social practices, fit for a new and better era, are still gaining ground much too slowly to have a sufficient impact on the society and the national economy, however beneficial they may be in each individual case. And in addition, as long as the change occurs independently of any general plan, indeed often, as it were, surreptitiously and in contravention of publicly declared opinions, there is the fact that has often been pointed out, and is troubling from the point of view of ‘eugenics’, that the propagation of the race will emanate in a relatively high degree from the ignorant and heedless, or else from the prejudiced and fanatical elements in society, in other words, from those to whom one would least desire to entrust this mission.24 And this is why the whole question should be regarded and dealt with as the great national concern it actually is; a matter on which the welfare of a whole people is so dependent should not be allowed to decline to the status of a ‘private affair’ or perhaps rather to the status of frivolity. ‘The maladies of society, like those of the body, can never be cured if they may not be discussed openly.’ These words of Mill (originally of Bacon) ought never to be forgotten by any modern sociologist. But above all, however, the important thing is to get away from the completely groundless idea that the development and progress of a country are the same thing as or in any way conditional on the steady growth of the nation’s numerical strength. The opposite is true. Except in certain exceptional cases, population growth is a hindrance to progress, the greatest and most decisive hindrance. The ignorance and prejudice that prevail in this respect among those who ought to enlighten and guide public opinion are perhaps the greatest danger facing society. It is not many weeks since we were obliged to read in a newspaper that is nonetheless considered one of the more enlightened, that the slowness of Sweden’s economic development was apt to arouse concern, since it meant the country would not be able to maintain its normal population growth. A little word like that perhaps does more damage 163

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than years of either scientific or philanthropical labour can put right. There is no such thing as ‘normal’ population growth! Any increase in the population is more or less abnormal, which does not prevent it being appropriate under abnormal conditions—for example after a preceding reduction of the population by war or other devastation, or because of far-reaching technical discoveries and inventions, or even more so, though this is out of the question these days, after the opening of large new continents to communications. However, the normal thing, and in the long run the only possible thing in our country as in all countries, is a population that is stationary in numerical terms, and what is more, such a population is the necessary condition for a land not remaining stationary or even going backwards in all other respects than the purely numerical. This is as certain and as self-evident as that two times two is four; and any calculation of the future, any economic policy, that does not build on this simple fact as its foundation, belongs to the realm of fantasies and dreams, not to the real world. The patriot may be permitted exalted ideas and even glorious dreams for the future of his country. But his hopes for the future ought not to be like the child’s, conflating the regions of poetry and reality, but rather like those that a father or mother dare to cherish for their children, after they have done all that lies in their power to clear and even the way for them and likewise, by uncompromisingly drawing their attention to the truth, even when the truth appears bitter, have attempted to steel their minds for the exigencies of life.

NOTES 1 Om utvandringen, dess betydelse och orsaker {On emigration, its significance and causes}, Stockholm: Bonnier, 1882. 2 However, the conventional observation in our population statistics of the size of the various age groups relative to the whole population at different points in time probably has little practical significance for the present question. No matter how large the number of old people and small children may be, this does not add to the opportunities for young adults to set up house and earn their keep if this group of young adults itself has grown so rapidly that the development of the country’s sources of livelihood has been unable to keep pace with it. The only really informative comparison, therefore, even if it is naturally not completely adequate, seems to me the comparison between the growth of the population group reaching adulthood each year, and the increase in the country’s sources of livelihood—though to be sure, the serious problem arises here that the latter term in this comparison is necessarily a more or less unknown quantity. 3 Apart from the telling evidence of the sums of money sent home, large and small, we may cite in support of this claim numerous statements from sources including the very accounts and letters from emigrants published in The Emigration Inquiry (which as a whole are highly interesting). Thus, for example, the true-hearted, if somewhat unpolished words of a recently emigrated youth in letter no. 9 (Appendix II, pp. 157–8), ‘…well, my dear brother, tell ma, now she’s the one who can decline to go out to work in the summer, she can tell the farmers to go

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4

5

6

7

8 9

to hell, it’s enough that pa and you have to slave for them; I’ll send them some money all right, the main thing is she can give up the daily grind for other people’s benefit’, etc. According to the 1900 census, per 1,000 inhabitants on Öland, 310 were age 0– 15, 410 age 15–50, and 280 (!) over age 50. The corresponding figures for the whole of Kalmar County were 319, 441 and 240; for all of Sweden, 324, 471 and 205; and for Western Europe as a whole, 331, 501 and 168 (!). According to the information given by Mr Juhlin in the bill he introduced in this year’s session of the Riksdag, the Home Ownership Board in Sörmland County had approved loans for a total of just 92 agricultural residences in the whole of the three-year period 1905–7. However, with the exception of 20 cases, all of these were already occupied, and therefore probably consisted of crofts split off from farms, and such like, in which case the gain purely from the point of view of cultivation must certainly have been rather small. But also in cases where a relatively large property is divided up and its parts inhabited as separate units, it would be very inaccurate to speak of these units as so many newly established agricultural holdings. If the land is farmed in about the same way as before— though now by more people—then of course no increase at all has occurred in production or in the number of hands employed. If, on the other hand, the process is associated with the adoption of more intensive methods of farming, then certainly there has been growth, but in that case the opportunities for earning a living that have been gained are measured only by the difference between the new yield of the land and the old. The cases in which home ownership loans have been used to settle truly new land in what was previously wild territory are probably rather few in number. According to the latest statistics, in the decade 1896–1905 the five Norrland counties had an annual surplus of births of between 14.06 and 19–67 per thousand, compared with 10.68 per thousand in the country as a whole, and this surplus rose further in 1906. But at the same time, out-migration increased so that in 1906 it came to nearly 4,000 to foreign countries and over 2,400 to ‘other places in the kingdom’ (both figures are net). During the decade referred to, in contrast, Norrbotten County still had a surplus of in-migration so high that it approximately counter-balanced the movement to other parts of the country (though not the emigration) from the rest of Norrland. However, during 1906, even Norrbotten County exhibits a surplus of out-migration, in that emigration to foreign countries came to 833 persons (net), or 5.5 per thousand of the population, while the surplus from migration within Sweden had sunk to three (sic!) people. For a so-called land of the future, and in a year in which economic conditions were good, moreover, this surely seems not a little disquieting. By this I do not exactly want to claim that the complaints about a lack of labour that are so common among landowners always and exclusively derive from base egoistic motives. This would be the case if the owner always had his farm free of debt and himself was of working age. But if he is burdened by heavy debts or finds his own labour impaired by increasing age, then there is no denying that a rise in agricultural wages is capable of making his economic position so distressing that in his individual case, his complaints are very understandable and can even engage our sympathies. But from the perspective of the society or the national economy, such arguments nonetheless completely lack justification. Statement of Mr Mörtsell in the Second Chamber in the debate of May 5 this year. In the original, ‘a rabble’, but this word has now acquired a directly, morally critical meaning, which it was probably not the author’s intention to convey.

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10 The results that can be achieved using modern agricultural machinery, given unlimited access to virgin land, are revealed by the following information, taken from an article in Schmollers Jahrbuch {Jahrbuch für Gesetzgebung, Verwaltung und Volkswirtschaft} (1902). According to this article, in Santa Fé or Cordoba in Argentina, a colonist aided by just a single worker is able annually to plough and sow no less than 128 hectares, and on this land he harvests about 2,000 hundredweight of wheat. No fertilizer is applied to the soil at all. 11 Cf. Prof. Heinrich Dietzel, ‘Der Streit um Malthus Lehre’ {The controversy about Malthus’s theory}, in Festgaben für Adolph Wagner. In opposition to a certain F. Oppenheimer, Dietzel there emphasizes (pp. 37 ff.) that the idea that the economy has the same scope for expansion in the future as in the past generation, with its totally exceptional business climate, is ‘practically inconceivable’. 12 In mathematical respects it could therefore be likened to a sum of two terms, of which the first is positive and has a large numerical coefficient and in other respects is (at least) in proportion to the size of the population, while the other is negative, with a relatively small coefficient, but to make up for this is proportional to a higher power of the population’s numerical strength, e.g. to its square. Though imperceptible to being with, as the population grows this latter term will gradually catch up with the positive term in magnitude, and ultimately overtake it. 13 Statistisches Jahrbuch für das deutsche Reich—Internationale Übersichten. Cf. Handwörterbuch der Staatswissenschaften, 3rd edn, articles ‘Getreideproduktion’ and ‘Getreidehandel’. 14 Perhaps it is even conceivable that at some future time, Norrland might come to fulfil the same function for us as Mongolia does for the Chinese, who transport semi-mature plants up there on river boats in the spring to grow to maturity during the short but intensive northern summer. 15 With all due respect for Dr F.Kempe’s expertise, I cannot subscribe to the view he has recently expressed, that the money invested in a careful assessment of our forest resources could have been put to better use in working to improve the forests themselves, e.g. by sowing or planting trees; and I would not recommend Dr Kempe to follow such a principle in his own economic affairs. The most important thing for a businessman is clearly to know what he himself owns, for only then can he judge what risks he is able to take on, and in general what business enterprises he can rightly embark upon; and the same thing holds true, only in a still higher degree, for the economy of a whole nation. 16 It is encouraging that the United States has recently abolished its tariffs on paper and paper pulp, though on conditions that may be difficult for us to fulfil. 17 Even now, for the extraction of a given quantity of iron ore, the mines in the older ore fields (in Uppsala, Stockholm, Värmland and Örebro Counties) require two or three times as many days’ work as the newer mines in Kopparberg County (Grängesberg), and four to seven times as many as the mines in Norrbotten County. 18 That they really can depend on them, moreover, seems to be proved by experience, since with the exception of Denmark (on account of its German provinces), not one of the small nations in northern or western Europe has been involved in a war with any great power for a hundred years. 19 To attempt to analyse the position of other countries in this respect does not lie within the scope of this short essay. But since the argument is constantly made that we ought to be able to match the achievements of other countries (Germany, Denmark, etc.) in terms of population, let me point out, first, that this claim is

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20

21 22 23

obviously not necessarily true, second, that the point is not what we may be able to do, but what we ought to do, and third, that the course of action other countries pursue is not necessarily wisely chosen, not even for them. The near future will show which nations have acted more wisely: those that, like France and some other countries, have already chosen to refrain from further adding to their population, or those that continue to let the population storm onwards like an express train—towards unknown economic destinies. That this cannot be too much should be evident also from a comparison with other countries in circumstances closely resembling our own. ‘In Brandenburg it is reckoned that normal agricultural holdings under 100 morgen (approx. 25 hectares) manage almost completely without the assistance of day labourers. Farms of 140–200 morgen keep one farmhand and one maid and generally employ day labourers only during the hay, grain and root vegetable harvests. Only in farming businesses of more than 240–280 morgen is it customary to employ a few labourers year round and keep them as permanent day labourers’ (M.Sehring, ‘Die innere Kolonisation im östlichen Deutschland’ {Internal colonization in eastern Germany}, Schriften des Vereins für Sozialpolitik LVI, p. 70. As is generally known, the size of an. American homestead farm is 160 acres or about 65 hectares; similarly, as stated, the farms of the German colonists on the south Russian steppe are generally around 66 hectares in size, sometimes just 33 hectares, etc. Not counting the hundreds of thousands it sends each year to other parts of Europe. Concerning this rather complicated question, however, the reader is referred to G.Sundbarg, Bevölkerungsstatistik Schwedens 1750–1900, p. 55. A particularly interesting example of this is provided by the statistics of the English benefit society ‘Hearts of Oak’, the largest of the English ‘friendly societies’. These statistics were cited already by S. and B. Webb (Industrial Democracy, 1903, pp. 693 ff.) and are reported by Mombert up to and including the year 1904 (Studien zur Bevölkerungsbewegung in Deutschland, pp. 135 ff.). The association consists exclusively of members from the higher levels of the English working class, since only persons of good reputation and who receive wages of at least 2 s. a week are granted admission. The benefits provided include an allowance of 30 s. a week for each confinement of a member’s wife. Now it has proved to be the case that although the number of members rose between 1880 and 1904 from 92,000 to 272,000, i.e. nearly tripled, the number of lying-in benefits, in contrast, has only increased from 22,740 to 31,752 per year, so that the percentage of confinements has fallen from 24.72 to 11.65 per 100 members, or to less than half. At the same time, the number of births for the total population of England and Wales has also gone down, though only from 34.2 per thousand in 1880 to 28.0 per thousand in 1904. The only conceivable source of error in these statistics would probably be if the age distribution among the members had undergone some substantial displacement upwards, in that members maintaining their membership had gradually advanced into the higher age groups. To some extent this really is the case. In the period under discussion, the average age of the members had increased from about 33 years to 37.5 years, and at the same time, the number of members under 45 years of age had gone down from 91 per cent in 1883 (the first year this figure is reported) to 76.09 per cent in 1904. However, this change is too small to affect the principal result very substantially. It is worth noting that the percentage of these benefits paid out in earlier years (1866–80) had, in contrast, been growing. The Webbs, as I suppose anyone is bound to do, see a connection between the change that had taken place, both

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here and in the English birth rate as a whole, and the neo-Malthusian propaganda that gained momentum at precisely that time in England, especially because of the legal persecution of Bradlaugh and Besant. 24 A similar danger, which is quite frequently pointed out as an objection, to emigration in particular, is that the emigrants who move away would be replaced by immigrants from nations of an inferior social and economic standing. However, it seems to me that if properly managed, legislation provides fully adequate protection against such a danger, if and to the extent that it exists. No country, least of all a country of old cultivation, can be considered to have an obligation to accept immigrants from other countries in greater numbers than correspond to the emigration of its own inhabitants to the country in question. As long as our own emigration to Austria—Hungary or European Russia is equal to zero, we obviously have no international duty to accept a mass immigration of ‘Galicians and Poles’ to our own territory. Essentially, each land must take care of its own population problem.

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26 LÉON WALRAS, ÉTUDES D’ÉCONOMIE SOCIALE {STUDIES IN SOCIAL ECONOMY}: THÉORIE DE LA RÉPARTITION DE LA RICHESSE SOCIALE Lausanne, F.Rouge, 1896

When Walras began to publish his Eléments d’économie politique pure, 23 years ago, he announced his intention of writing two further volumes subsequent to the purely theoretical part of his work. One of these was to treat ‘applied economics, or the theory of the agricultural, industrial and commercial production of wealth’, the other ‘social economics, or the distribution of wealth by property and taxation’. For reasons with which I am not familiar, but which presumably have something to do with the rather scant attention his chief work initially received, this plan was not carried out; at the present time, when Walras’s theoretical system has won recognition in full measure as a work both original in its conception and strictly logical in its execution, the author unfortunately lacks the energy to compose the two parts of his work that are still missing.1 However, in order to give some indication of what he would have liked to say, he has now brought together a number of shorter essays, some of them previously published, in two volumes, of which the one to be discussed here deals with distribution, and therefore roughly corresponds in content to the third volume of his Eléments, as originally planned. Although of course it does not form a satisfactory substitute for the exhaustive presentation of the subject that could have been expected from Walras in more favourable circumstances, the book will be welcomed by many readers. In particular, those who have hitherto resisted closer study of Walras on account of his extensive use of mathematics will be pleasantly surprised by the author’s perfectly clear and easily understandable, in places even brilliant exposition in this collection, where with a single exception no calculus is met with. Originally published in jahrbülcher für Nationalökonomie und Statistik, 1898.

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Walras himself terms his general standpoint synthetism: he strives for reconciliation between the political opposites of the present day, above all between communism and individualism, and he pursues this goal not merely by proposing practical compromises, but rather by giving each of these movements its full due, while attempting to eliminate their untenable claims by disproving them scientifically. He is not deterred even by the most farreaching visions of the socialist parties, but he is equally disinclined to relinquish an iota of the demand for individual freedom of action or to permit any form of intervention by the state in proprietary rights as currently recognized. In general, I for my part can only applaud this attitude and believe just as firmly as Walras in the possibility of solving the grand problem that here presents itself. But unfortunately, it seems to me he has settled far too prematurely for an idea about whose practicability, to put it mildly, great doubts can be entertained, namely, the purchase by the state of all landed property. Since the essay in which this idea is elaborated (‘Réalisation de 1’idéal social. Théorie mathématique du prix des terres et de leur rachat par 1'état’— previously printed in Théorie mathématique de la richesse sociale, Lausanne 1883) is also in Walras’s opinion the real centre of his book, to which the rest of the contents either lead up or refer back, a rather more detailed discussion of this essay would seem to be appropriate here. The idea of a confiscation of land rent or a part of it for the benefit of the state, which derives from James Mill and was later propagated by Henry George and others, meets with no approval from Walras, for reasons already indicated. But he takes all the livelier an interest in another plan, originally developed by H.H.Gossen, according to which the state ought, without expropriation or compulsion, to gradually acquire land at the going market rate by amicable agreement with the landowners, in order subsequently to lease it to the highest bidder. The means to pay the interest on and to amortise the state loans that would initially be required would gradually be provided by the ground rent itself, which would now accrue to the state and which it is assumed would rise in future. Of course, in so far as it can be foreseen, this increase in the ground rent would in some degree be anticipated already at the present time and be added into the sales price of the plots of land—to this extent, the result of Walras’s extensive calculations concerning the feasibility of amortising the state loans is purely negative, as he himself admits. In reality, however, as Walras emphasizes, the future ground rent is not a quantity given in advance: rather, ‘by skilful measures and wise government’, the state itself could provide a powerful stimulus to a more rapid increase in rent, or turn rents that are now stationary or declining into rising rents. Once the amortisation is completed, the state would ultimately, in uncurtailed possession of the net produce of all land, be in a position to defray all its expenses out of this revenue and—abolish all taxes. 172

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A splendid prospect, indeed! Walras has come to cherish this thought so dearly that all other tax reforms—which he formerly made many sound observations on in essays of an older date—now seem to him mere palliatives of utterly subordinate and passing significance. However, first of all, it can be questioned whether this plan, thought of purely as a fiscal measure, would really succeed. After all, the height of the ground rent depends not only on the gross yield of the land (which, besides, cannot grow ad infinitum), but also and above all on the density of the population and (when it comes to urban rents) on its concentration into the cities. Now should the state, in the interest of its revenue from rents, incessantly seek to encourage these two factors making for higher rents? Walras is surely too much of a Malthusian, too much, may I say, a friend of enlightened ideas, to advocate something of this sort so easily, and not to perceive the mark of true progress as lying, perhaps, in a tendency leading in completely the opposite direction instead. But if, as does not exactly seem improbable—for what is at stake here is by no means just the immediate future, but the centuries to come—if future developments were to lead to more moderate population density and to a more even population distribution over the area of the various countries, then it could easily happen that in spite of all material progress, the ground rent, instead of growing, declined. And this process would deprive one of the most important pillars of Walras’s amortisation plan of its foundation. However, it is worth emphasizing that precisely on the assumption of such a development, it would be possible to count all the more certainly on another circumstance, which Walras does not mention, and which is obviously favourable to the chances of his project proving practicable, namely, a progressive accumulation of circulating capital and consequently a gradual decline in the rate of interest on capital. Assuming a steadily declining interest rate, the present value of a perpetual rent can even be infinite, and that being so, the state could never pay too high a price for the ownership of land. Now admittedly, as we shall see in a moment, the incessant contraction of debts by the state would tend precisely to counteract such a decline in the interest rate and to delay it, at least to begin with, and perhaps for a longer period; but in the long run this decline can hardly fail to occur, as long as peaceful international relations are maintained. But even conceding that the Gossen—Walras plan might succeed in fiscal respects, i.e. that it could be implemented without any particular burden on the taxpayers, this would only half solve the problem—though neither of them seems to have noticed this; for the further question now arises as to the indirect influence these colossal monetary transactions would have on the prosperity of the people, and in particular on the situation of the poorer classes. The entire plan is actually founded on the assumption that the landowners would cede their permanent property to the state for the sake of somewhat higher present incomes. But this presupposes that they also intend 173

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to consume their surplus income, or at least a part of it, today; otherwise the transaction would have no point for them, and they would have done just as well (or even better) to keep their property. But ceteris paribus, increased consumption on the part of individual social classes necessarily leads to diminished consumption by other classes. However, the owners of the circulating capital would not be among these other classes; rather, the enormous borrowing by the state would present them with the opportunity to invest part of their capital more profitably. The workers would have to foot the bill, quite simply in that for a very long time the interest on capital would assume a much higher level than it would otherwise have been able to do, at the expense of the wages of labour—either by actually rising or by being delayed in a decline that would be of such benefit to the workers (other things being equal). This, at least, is how the plan appears to me in its most general features. To be sure, I do not claim to be capable of surveying and assessing its course in detail. But a plan that for a period extending at least over several generations is apt to make the potential of the propertied classes for consumption greater and that of the unpropertied classes smaller than they would otherwise be— this I for my part am unable to consider a satisfactory solution of the social problem, however splendid it may promise to make the more distant future of the masses. A further objection to Walras’s proposal is that it allots to those for whose sake it is supposed to be implemented a completely passive role. I am quite convinced that on the contrary, the ‘realization of the social ideal’ must in the first instance proceed from the broad strata of society, the workers themselves—though this is not the place to elaborate how. If there is willingness from above to cooperate with their efforts, so much the better. That these endeavours should be guided by science and to that extent supported by the higher classes is certainly essential. But to want to do everything for the workers and nothing through the workers—this I consider an illusion.

NOTE 1

At least this is what he himself asserts. His brisk production in recent years, e.g. the interesting article on free trade in the Revue d’économie politique, July of this year, does not exactly seem to confirm this claim.

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27 LÉON WALRAS, ÉTUDES D’ÉCONOMIE POLITIQUE APPLIQUÉE {STUDIES IN APPLIED ECONOMICS}: THÉORIE DE LA PRODUCTION DE LA RICHESSE SOCIALE Lausanne, F.Rouge, 1898

This book is the second of two collections of older and more recent essays Walras has published in the last few years as a kind of substitute for the second and third parts of his Elements that he planned but never carried out. The first of these collections, Études d’économie sociale, has already been reviewed in this journal. The second, to be discussed here, consists mostly of essays of a more recent date and seems to me even more significant than the preceding volume. Strictly speaking, Walras’s essays in the present volume, or at least the majority of them, converge around two issues of scholarly dispute, namely, first, the question of the causes determining the value of money, together with the practical steps required for measuring or stabilizing that value, and second, the equally urgent and difficult question of the true significance of free trade, and the justification or lack of justification for state intervention in free trade, in short, the rational differentiation between the appropriate domains for individualism and collectivism. Walras has so many interesting and stimulating things to say on both these issues that there is surely good reason for a fairly detailed discussion of both the relevant parts of his work. Walras’s studies in the monetary field culminate in his well-known proposal to use silver in limited quantities as a regulative coinage (‘billon régulateur’). While in his opinion the international means of payment and even the currency for internal commercial trade ought to continue to consist exclusively in gold, the silver coinage, either in itself or in the form of notes fully covered by silver (roughly after the pattern of the American silver certificates or treasury notes) would take care of other internal transactions—and unlike token money, Originally published in jahrbücher für Nationalökonomie und Statistik, 1899

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it would be legal tender for sums of money of any size whatsoever. When prices were falling, governments, by common accord, but each on its own account, would buy up silver on the market, mint it as ‘regulation coinage’, and bring it into circulation, or issue treasury notes backed by the silver. Conversely, when commodity prices showed a tendency to rise, governments would withdraw a portion of the silver coinage, or the equivalent amount in treasury notes, melt the metal and sell it on the market. Of course, at the current market value of silver, a sale of this kind would always mean a nominal loss to the state. On the other hand, buying up silver for coinage or to support notes would involve a profit; in Walras’s opinion these two operations would therefore more or less balance one another, as far as the state is concerned. To be sure, this seems less than certain but may be disregarded as a subordinate point, particularly since the supposed loss would actually be a gain in terms of the national economy, as we shall discuss shortly. In this way, according to Walras, the value of money would by and large maintain a constant level, the ‘average value of the social wealth’, even if it were not delivered from all kinds of fluctuations—e.g. fluctuations due to crises, which Walras incidentally considers inevitable and even necessary. In my view, most of the objections raised against this plan from various quarters are without foundation; Walras has already disposed of some of them in his characteristic, pithy style. Indeed, I believe that if this simple yet acute idea had become generally known and been adopted 30 years ago, most of the monetary problems that have marked the last three decades and caused both theorists and practitioners so much trouble would have been avoided. In spite of this, I am unable to acknowledge Walras’s plan as the ideal solution to the problem of money. First, as Walras concedes, this plan would only retain its effect within certain bounds. On the one hand, if a boom in the economy coincided with the exhaustion of the gold mines, it could very easily happen that silver would be purchased in such quantities that its market value reached the bimetallic (West European) par. If that happened, then of course from this point on Walras’s measure would fail to do its job; the value of money and commodity prices would once again be at the mercy of the whims of precious metal production. On the other hand, if the advances in gold production that we have witnessed in recent years were to persist still longer, then given the present organization of the monetary system, a tendency for prices to rise is certainly inevitable. To be sure, according to Walras’s plan this tendency could be retarded for a considerable time by France, the United States and perhaps also India demonetizing their enormous stocks of silver and melting them down, and indeed, even though this operation would mean a loss to the state, it would entail a great gain to the national economy, in that these quantities of silver would henceforth be placed at the disposal of industry. However, once all the silver had been melted down, governments would be left without any means of preventing a further rise in prices in the future. Walras himself imagines that as a last resort in this 176

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admittedly rather remote eventuality, the mines could be nationalized for the purpose of limiting the production of precious metals, but this is surely a rather dubious idea. However, a more important question is whether the expansion or reduction of the stock of coins would have a sufficiently prompt effect on the value of money and on commodity prices. As we have seen, Walras does not claim to be able to prevent the price fluctuations attendant on crises. But it appears that an upward price movement is in itself a major factor in crises, sometimes perhaps the sole cause of a crisis, and that the consequences of the crisis are often quite unnecessarily aggravated by the subsequent sharp contraction in prices. If it were possible to nip price rises in the bud and energetically counteract price contractions where necessary, general crises would probably be barely perceptible. The extent to which Walras’s measure would prove useful in these and similar cases of course depends above all on whether the exact connection he claims between prices and the size of the stock of precious metals really does exist. On this point, I find Walras’s proof rather unsatisfactory. Admittedly, he concedes that the first and each enlarged emission of uncovered bank notes or government bills will exercise a certain influence on the value of money, as will each augmentation in the use of counter-balancing and the clearing system, but he claims and even ‘proves’ mathematically that other things being equal, the level of commodity prices must rise and fall with each enlargement or reduction of the quantity of metallic money, to be precise, in proportion to this quantity. He argues that the trade in cheques only has the effect of reducing the amount of cash businesses would otherwise need to hold by a certain fraction. As for the uncovered bank notes, Walras points out that they mostly come into circulation via the discounting of bills of exchange; these bills, however, represent a ‘well defined’ part of the national wealth, so that the value of the notes issued by the banks in exchange for the bills depends on the status of commodity prices at that moment, i.e. is an effect but not the cause of the level of prices. This level is then determined solely by the size of the cash holdings in metal (or in fully covered bank notes) at each point in time, i.e. by the stock of precious metal. However, the various links in this chain of reasoning seem rather fragile. In point of fact, the domain within which credit instruments can be used probably has very elastic bounds; both its extension and the level of commodity prices depend in my view, as I have recently attempted to show (Geldzins und Güterpreise {Interest and Prices}, Jena 1898), above all on the price at which credit itself is offered, in other words on the relation between the bank (loan) rate and the natural rate of interest on capital, the real rate of return to capital in production. But if this is the case, the appropriate mechanism for regulating prices would lie instead in an agreement between countries or their major banks to coordinate raises or cuts in their interest rates—to raise them when prices show a rising trend, and to cut them when prices are falling. 177

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Walras’s plan, incidentally, would work towards precisely this goal, since other things being equal, an enlargement or a decrease in the quantity of money necessarily has a tendency to engender a lowering or raising respectively of the interest rate; but whether with sufficient promptness is precisely the question. Walras’s other remarks on uncovered bank notes, and on the use of cheques and clearing—expedients he would apparently like to see completely abolished—do not seem very convincing to me. He describes, undoubtedly quite correctly, how dangerous they are, particularly when used carelessly, but the possibility of misuse does not preclude their use, and even his own ‘billon régulateur’ would of course ultimately only be credit money. Above all, I am inclined to describe his fear that certificates of credit would lose most of their value in the event of some breach of the peace or other, a revolution or the like, as exaggerated and refuted by experience. To be sure, wars and revolutions have always been the chief cause of the devaluation of paper money, but surely only because they have misled governments into issuing too much of this kind of money: for the sake of convenience, they have used the bank-note press for purposes that by their nature obviously belong in the domain of taxation or interest-bearing government bonds. We now come to the second major topic discussed by Walras: the significance and regulation of free trade. What he writes on this subject in various essays, some of them from the last few years, is often very worthwhile. Unfortunately his ideas on this issue are coloured almost throughout by a misconception to which both Walras himself and a number of his followers have fallen victim, namely the idea that free competition, provided only that it is universal, is in itself apt to lead to the greatest possible satisfaction of needs that is, first, possible at all given the existing distribution of property, and, second, compatible with the condition that for each good or productive service of the same kind only a single price can obtain on the market. As I have shown on several occasions (in most detail in two reviews of Pareto in the Austrian Zeitschrift für Volkswirtschaft und Verwaltung), and as Böhm-Bawerk demonstrated with complete clarity still earlier, in his polemic against Schäffle (‘Grundzüge der Theorie des wirtschaftlichen Güterwerts’, in this journal, 1886), this idea is due to a failure to distinguish between two quite closely related yet fundamentally different things. It is characteristic of free competition, as conceived in theory, that at the equilibrium prices it creates each person is able to exchange up to the point of satiety, i.e. he is in a position to give up as much of his own commodity and to acquire as many goods produced by others as he pleases. The conclusion is then drawn that free competition also brings in its train the greatest possible satisfaction for each individual, or at least for the totality of those exchanging, that could be reached at any uniform price or system of prices; but this inference is false. The incorrectness or rather absurdity of the former alternative (that each 178

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individual enjoys the greatest possible satisfaction) becomes evident as soon as one reflects even for a moment on what it means. But nor does the totality attain a maximum of pleasure; rather, it can be proved with complete stringency that free competition never has this quality except in very special cases, e.g. when all exchanging parties are in precisely the same economic position. Otherwise it is always possible (to the extent that the utility or marginal utility of different people can be compared with one another at all) to set up a system of prices, and uniform prices at that, at which the total satisfaction would be greater than at the prices arising under free competition. It would lead us too far afield to show how this error, once committed, frustrates Walras’s reasoning time and again; he is always on the right path to knowledge, but every time that unfortunate idea comes between him and the truth. Thus, for example, when he rejects without closer examination J.B.Say’s undoubtedly quite accurate observation that a public enterprise, e.g. a canal, can prove completely unprofitable under private management and yet be of the greatest benefit to the national economy in the hands of the state; or again, concerning the question of labour, where he shows no understanding for the drawbacks of labour-saving machines to which already Ricardo had drawn attention. When it comes to free trade, Walras himself adduces an example where the lifting of certain barrier tariffs would only be of advantage to the wealthy landowner, but would be decidedly disadvantageous to the indigent worker; but he virtually brushes this highly interesting example aside without inspection and continues to claim that once the owners of productive services have switched over to the export industries in sufficient numbers, the introduction of free trade would only bring benefits, without losses to anybody at all. In all these cases Walras’s verdict would surely have had to be quite different if his predisposition in the issue of dogma referred to had not clouded his view. In spite of all this, all the essays in the volume amply repay detailed study. Even those of them whose results might seem less significant or even somewhat dubious are distinguished by the clear methodical disposition in which Walras excels, and in many cases by a refreshing wit and verve, too. In his major work, Walras is undoubtedly the greatest synthesist of his time, perhaps of all time. Prior to him, no one had conceived and carried out the magnificent plan of presenting all the factors in the national economy in a single logical whole; no one has insisted with the same uncompromising resolve as he that the number of known logical relations (or, as he calls them, equations) must always be the same as the number of quantities to be defined, since of course otherwise all inferences would necessarily lead in a circle or beg the question. As an analytical thinker he is—with the exception of his theory of value—less outstanding in my view; on the whole he contents himself with the traditional material, without closer scrutiny. This is true of the overestimation of free competition I have referred to, which of course, strictly 179

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speaking, is characteristic of the whole of the free trade school; it is true of his theory of capital, where to his detriment he continues to struggle along with the rather clumsy definition of capital used by his father; it is true, finally, of his adoption of the rigid quantity theory of money. It will be the task of a future generation of economists to fill out the framework given by Walras with more usable material where required; but it will hardly be possible to invent a better and, in economic terms, more fruitful form and method for this project than the one he has created, and for this reason his works will probably always be rated as classics. Uppsala, September 1899

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28 CHARLES GIDE, NATIONALEKONOMIENS GRUNDDRAG {THE PRINCIPLES OF ECONOMICS} By permission of the author translated and partially revised by Georg Schauman and Axel v. Christierson, Helsinki, G.V.Edlund, 1897

If one goes over the list of foreign works on economics that have become naturalized in our literature in the course of time, one cannot help being reminded of what B jörnson wrote about the Swedish nation: Oh people of the heart and fancy, Of yearning and of poesy, etc. A fertile imagination, idealistic visions, vast, preferably infinite perspectives— this, above all, is what public taste and the business instincts of the publishers demand of a writer on economics, in our country; inner coherence, conclusive argumentation, reliably corroborated facts, etc., are of merely secondary importance, in so far as they are not actually abhorred as tedious pedantry. Thus, while writers like Carey, Henry George, F.List and others have not needed to wait long for translators, not a single one of the classical authors, in contrast, as far as is known—not even Adam Smith or John Stuart Mill— has been deemed worthy of appearing in Swedish garb. All the greater the pleasure one is bound to take in the opportunity given to our reading public by two young Finnish scholars to acquaint itself, in our own language, with a work as deserving as Charles Gide’s Principes d’économie politique. Without being a great or, in the true sense of the word, an original writer, Gide commands in a high degree the art of elegant and concise presentation that seems to be the privilege of French textbook authors, and in addition, he is free of, or at least attempts to keep himself free of, on Originally published in Ekonomisk Tidskrift, 1899.

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the one hand, all flights of fancy, and on the other hand, the dogmatic rigidity that, sadly enough, has become so widespread in French economics and has estranged it from real life. In a word, his book is replete with sound and lucid, though in places perhaps somewhat superficial bon sens. The translation would have been still more deserving of thanks, in my opinion, if it had come out 10 or 15 years ago. The fact is, the science is undergoing rapid development these days, and it cannot be denied that, in spite of going through many editions, partially revised, Gide’s work, which was a real event in the literature of his country when it first appeared, has now begun to appear rather outdated in various points. To be sure, the translators have not stopped at a mere reproduction, they have also undertaken to revise the original; however, in places more thorough revision could have been desired. If we look, for example, at the important chapter on wages (p. 430 ff.), which according to the notice in the preface is one of the chapters revised by the translators, it seems at least to this reviewer rather unsatisfactory. It is stated on pp. 435–6 that ‘to ascertain the laws governing wages…is one of the cardinal problems of economies’, but then on p. 445 we are given the discouraging information that ‘at present, economists in general make no attempt to discover the grand principle comprising the law governing wages’, a judgment that may possibly have had some validity 10 years or so ago, but hardly at the present time.1 Nor does the critique of older theories given in the pages in between seem particularly pertinent to me. The classical ‘wages fund theory’, which may certainly be subject to legitimate objections in its original form, is criticized on the grounds that ‘this theory is…not very encouraging for the working class. For it implies that the divisor (i.e. the numerical strength of the working population) has a tendency to increase more rapidly than the dividend (i.e. the available capital), from which it necessarily follows that the quotient (i.e. wages) must tend to diminish all the way down to a certain minimum beneath which it can fall no further’ (p. 438). However, it is difficult to see how the wages fund theory can be said to ‘imply’ anything of the kind; it says nothing at all about any tendencies in any direction, it claims solely to provide a rule determining wages under given, actual circumstances. There again, if one takes the view, as Gide appears to do, judging by the lines immediately following, that a tendency of this kind really exists, that the working population, in brief, strives to multiply more rapidly than the sources of livelihood and the capital possessed by the country, then it is surely likely that the depression of wages will be the inevitable consequence, no matter what one’s theoretical standpoint may be. To be sure, further down on the same page (439), Gide states that ‘the demand for hands depends on the level of industrial activity, and this in turn depends more on the hopes of the entrepreneurs than on the amount of capital they have’; but I do not suppose the workers can be paid with mere hopes… 182

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The next theory is Lassalle’s well-known so-called iron law of wages, which Gide renders in the form that the wages of labour, in common with the price of every other good in free competition, are determined by the costs of production, i.e. here, the minimum amount of commodities that are just required to meet the subsistence needs of the worker and his family; and he claims that ‘J.B.Say and Ricardo expressed themselves in more or less the same terms’. However, this is not the case. It was under the influence of Marx that Lassalle later adopted the unfortunate formulation of his thesis given above; the original formulation, which occurs in his ‘Offenes Antwortschreiben’ {Open Letter}, and which does in fact agree with the doctrine of the classical economists, indicated only that wages tend to a minimum because of the inclination of the working class to increase their numbers without limit as soon as they are given the opportunity. This is of course another thing entirely, for the depression of wages is then no longer a consequence of free competition but of excessively rapid population increase. Finally, the theory of the American F.A.Walker is mentioned, according to which wages necessarily grow at the same rate as the productivity of labour, since the worker ‘receives in the form of wages all that remains of the total yield after the subtraction of the shares accruing to the other participants in the enterprise (interest, entrepreneurial profit, rent)’. Of course this theory does not mean very much, nor, though oddly enough supported by Jevons, has it managed to establish itself among modern economists. On the other hand, there is a quite different theory, which can in point of fact be said to be the dominant theory within modern economics, namely the thesis—put forward already by v. Thünen, incidentally—that wages are determined by the marginal productivity of labour, i.e. by the increment in the product due to the last worker employed in production. However, this theory is passed over by Gide and his translators without a word, and there is equally little mention of the attempt made by Böhm-Bawerk and others to reconstruct and further develop the old wages fund theory on a really scientific basis. As a result, the subsequent, more practical arguments in the book come to lack in a palpable degree what Marshall calls the backbone of strong reasoning. On the subject of monetary value, Gide states (p. 93) that since one ‘can transport a quantity of gold or silver from one end of the world to the other for 1 per cent of its value, freight and insurance included’, it should really follow ‘that the exchange value or price of the precious metals ought to vary by no more than 1 per cent over the entire globe’. ‘However’—he adds—‘this conclusion would be exaggerated.’ The real fact of the matter is of course that the conclusion is utterly false, since it is not merely the transportation costs of the precious metals that need to be considered here, but also and above all the cost of shipping the goods sent in exchange for these metals. And it is this very circumstance that explains the fact that commodity prices can be much higher, and the exchange value of the precious metals therefore much lower, at their place of production than elsewhere in the world. 183

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It would be easy to point out various other more or less important errors or oversights, too (e.g. a misleading statement on p. 357 of the size of the discount deducted on the purchase of bills of exchange); but they are nevertheless unable to overturn our verdict that on the whole, the book offers healthy and nourishing food for the mind and can therefore be warmly recommended to all those who, while lacking the opportunity for more detailed studies in economics, wish to acquire a brief and clear overview of the most important issues in this science and their modern treatment. The translation appears to have been carried out with great care.

NOTE 1

Incidentally, in my edition of Gide (the second), these words are not to be found; whether they are of later origin or were added by the translators, I do not know.

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29 FERNANDO LINDERBERG, KARL MARX OG DEN HISTORISKE SOCIALISME {KARL MARX AND HISTORICAL SOCIALISM} Copenhagen, Lehman & Stage, 1899

The Danish author Fernando Linderberg has taken upon himself the task of propagating among the middle classes of his fatherland an interest in and understanding of the modern socialist labour movement, towards which he himself appears to adopt about the same point of view as that held by the socalled National Social Union in Germany, which is led by Pastor Naumann, i.e. he acknowledges the principal aims of the movement in warm terms and strongly emphasizes the social evils that have given rise to it, while otherwise doing his best to bridge the gap between socialist and traditional perspectives. Naturally, these endeavours are worthy of all respect and have apparently met with a favourable reception in broad circles in the author’s homeland, especially among representatives of the Church and the Folk High School. The book that has been sent to Ekonomisk Tidskrift for review is the first part of a work that is to deal with Karl Marx and Historical Socialism, and itself bears the subtitle ‘Marx’s Position in History’. The book contains a predominantly sympathetic account of Karl Marx’s life and intellectual development, and also of some of his precursors, particularly the German labourer Wilhelm Weitling. It does not bear witness to any very profound penetration into the subject; thus, Marx is described as the successor of SaintSimon in the area of social politics, just as Auguste Comte was his disciple in philosophy (pp. 33–4). This claim hardly holds good; in fact, the only points of contact between the Saint-Simonists and Marx are those that are shared by all kinds of socialist movements or perhaps even by all radical political systems. Marx’s true precursors are rather Proudhon and Rodbertus; between Rodbertus and Marx in particular, there is virtually no difference at all in theoretical respects, however unalike they were in temperament and style. However, there is not a single mention of Rodbertus in the book, and the Originally published in Ekonomisk Tidskrift, 1899.

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author’s only source of information about Saint-Simonism appears to have been a couple of pages in Höffding’s Den nyere Filosofis Historie {History of Modern Philosophy}. A more serious point, however, is that in the chapter entitled ‘Den klassiske Nationalökonomi og den videnskabelige Socialisme’ {Classical economics and scientific socialism}, Mr Linderberg, as if to set Marx off all the more clearly, treats the founders of classical economics, Adam Smith, Ricardo and Malthus, in a manner that is anything but impartial and, moreover, is exceedingly superficial. He states as the quintessence of their doctrine that according to them: Development will bring forth harmony, provided only that the eternal laws of Nature are allowed to reign freely and without restriction. The principal law of Nature finds expression in supply and demand, which control the prices of all commodities. Consequently, since human labour is a commodity, it is subject to the same law, which therefore determines the level of wages and thereby rules over both life and death. From this he proceeds to a presentation of the well-known so-called iron law of wages, which is supported by the following quotation from Smith: It is in this manner that the demand for men, like that for any other commodity, necessarily regulates the production of men; quickens it when it goes on too slowly, and stops it when it advances too fast. It is this demand which regulates and determines the state of propagation in all the civilized [should read: all the different] countries of the world. The quotation is accurate enough—in passing, the book is extremely rich in quotations, but revealingly, not always at first hand; but just when has either Smith or any other person in his or her right mind described such a state of affairs as desirable or given it the name of harmony? In general, the idea of a harmonious interaction between economic factors and interests is alien to classical economics; as is well known, it was propounded by Bastiat, but only towards the end of his life, when he had broken with classical economics and embraced the extravagant notions of the American Carey. As for the iron law of wages itself, or the view that in the long run wages are always bound to decline to the bare minimum necessary to support life, it is certainly true that this doctrine is encountered in Adam Smith, who, as I have indicated in an earlier article in this journal, can be regarded with good reason as a pessimist or fatalist with regard to the working class. Smith perceived clearly that the level of wages is ultimately dependent on the supply of labour not growing more rapidly than the demand for labour; but he was apparently incapable 186

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of imagining that population growth in the poorer classes of society could be regulated by anything other than the lack of food or by any means other than by increased mortality, particularly among infants—and this of course implies, that with few and very temporary exceptions, the living conditions of the working class must remain stuck, with no hope of change, at the very threshold of subsistence. But what is true of Smith is not necessarily true of Malthus and Ricardo. On the contrary, it is to Malthus’s eternal credit to have shown the workers a way—in the long run, the only fully effective way—in which they can avoid falling victim to the iron consequences of the ‘law of wages’, namely, marital continence. As for Ricardo, it is well known that on this point he entirely agreed with Malthus, and it therefore makes peculiar reading when Marx, as Mr Linderberg mentions, describes Ricardo politely as ‘the most distinguished economist of our century’, while he is at a loss to find taunts scornful enough for Malthus. Mr Linderberg, too, for some unknown reason, seems anxious above all to discredit Malthus’s theory of population; characteristically, in so doing he does not tackle it head on with objective arguments; instead he chooses what is known as argumentum ad hominem, attempting to portray Malthus, first, as an insignificant and unoriginal writer, and second, as a contemptible fortunehunter, who in spite of knowing better spoke and wrote in the interests of the propertied classes. The attack is so insidious—by this I do not mean to say that it is undertaken in bad faith—and so likely to seem convincing to readers without expert knowledge, that I hope I may be allowed to respond to it in some detail. The author writes, among other things: Malthus lived long enough to experience the first crises. He therefore came to know from personal observation that instead of underproduction, what obtained here was overproduction, and he saw that this relative overproduction was bound to disappear in proportion as the workers gained an increased capacity to consume it; he saw that the growing productive forces made it possible for the workers to obtain more free time and, with that, the opportunity for intellectual development. But his theory of population prevented him from perceiving anything that might be of benefit to the workers. Fearing overpopulation, but confronted by the fact of overproduction, he set forth the following proposals for using up the surplus produce: 1 an increasingly large number of people of culture and property must refrain from all participation in productive activity and can devote themselves to pleasure; 2 the number of unproductive consumers ought to be increased; 187

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3 the State ought therefore to: a appoint as many civil servants and soldiers as possible; b maintain its sinecures; c refrain from paying off its debts, since the interest on these contributes to the formation of a new middle class of rentiers. A gospel more pleasing to the ears of the rich could hardly have been preached! The fact that an economist, and, what is more, a clergyman, was capable of preaching such a gospel reveals how thoroughly the demands of responsibility were struck dumb when confronted by the high and mighty, how the wealthy had nothing to offer the working class but utter hopelessness. One cannot blame Marx for holding this kind of science in such contempt.1 Now first and foremost, it has to be pointed out here that the statements of Malthus’s referred to play no part in his theory of population, or what is colloquially known as Malthusianism; they are to be found in his Principles of Political Economy, which came out in 1820, and their immediate intention is to attempt to explain the crisis in production that broke out in England shortly after the conclusion of peace in 1815. However, there is of course nothing to prevent a surplus of unsaleable products piling up, along with temporary unemployment, in certain states of the market, even though the volume of production in the country is normally insufficient or only just sufficient to meet the needs of the population. Whether the facts indicated by Malthus here, his attempt to explain them, and his proposals for remedying the problems, are correct or not, his theory of population is therefore not materially affected. Second, it may be worth emphasizing that the statements cited above were not, in reality, made by Malthus; they are a condensed and, moreover, unfairly exaggerated account of his teachings, for which, however, the party responsible is not Mr Linderberg but Prof. Heinrich Herkner in the Handwörterbuch der Staatswissenschaften (article: ‘Crisis’). Malthus by no means advocated increasing unproductive consumption quand même; but he certainly spoke out against the excessively abrupt retrenchment of this kind of consumption that took place after the conclusion of peace and in which, perhaps not entirely without reason, he saw a cause of the ensuing economic difficulties; and in the same way and for the same reasons, he opposed paying off the national debt in too much of a hurry, but he did not oppose its reduction in general. As far as Malthus’s principal position in this matter is concerned, namely, his opinion that a certain amount of unproductive consumption is necessary (also from the point of view simply of sales) if the national product, in a system of free competition, is to be able to attain its maximum possible volume—in all essentials, this doctrine is probably correct or at least contains 188

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an extremely important, though frequently overlooked, economic factor, which the socialists should be the last to neglect. The simplest way to render Malthus’s in reality rather complicated line of reasoning is to picture the economic social unit as a large estate, whose owner (= the propertied classes) first, employs on the property a number of farm workers, as well as the craftsmen, etc., required to supply these workers’ needs or otherwise necessary in production (= the productive classes), and second, uses the surplus from production (= rent and interest) to maintain a number of servants and luxury workers for his own account (= the unproductive classes). Further, we assume that the property is so well populated and so well run as to yield the greatest possible product. Now if this landowner, motivated e.g. by a Spartan contempt for pleasure or else with a view to amassing wealth for his descendants, were to renounce all personal luxuries and therefore dismiss all his servants and other unproductive consumers, then of course the consequence would merely be that these people would lose their means of earning their daily bread and would be compelled to emigrate or starve to death, or else would have to be supported by poor relief, while at the same time, unsaleable stores of food would pile up in the landowner’s barns and warehouses. It is no use objecting that the luxury workers thus dismissed could now turn to productive trades instead; for according to our assumption, production, and especially the production of foodstuffs, would already have been pushed virtually to its limits. The increment of produce that would arise if additional labour were applied to the land would therefore be insufficient even to support this new labour itself. An expedient that appears to be more promising, at first sight, is the one that so often crops up in the modern discussion of questions of this kind, and which Mr Linderberg also alludes to, namely, that the productive workers should attempt to obtain by force higher wages for their work: for this would put them themselves in possession of the surplus from production, or a part of it, and they would thus be in a position to consume some luxury items and so employ on their own account the luxury workers for whom the landowner no longer had any use. Alternatively, they might prefer to have more free time, shorter working hours, and in this way make room for more workers in the productive sector proper. Indeed, it might be thought that these results, particularly the first, would inevitably ensue if wages, as generally happens, are paid out in money; for the stocks of foodstuffs that had accumulated would of course soon be sold at reduced prices, so that even with unchanged money wages, the workers would have more commodities at their disposal (higher real wages). However, Malthus shows in an extremely acute fashion that neither of these two consequences can ensue unless free competition and the freedom to contract agreements are utterly abolished. For in free competition, as he clearly demonstrates—although he does not use the actual term, which has only 189

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arisen more recently—the marginal productivity decides the level of wages: the product of the last worker engaged in an agricultural or other productive enterprise determines not just the wages he himself receives but also, as a result of competition between the workers, the wages all workers are paid. Now if wages, either in money or in kind, came to exceed this sum, it would obviously be uneconomical for the employer to continue to employ workers whose contribution to output no longer covered the costs and he would therefore confine his operations to the more profitable parts and dismiss the greater or lesser number of workers who were now no longer required. But of course under these circumstances, the rise in wages could no longer remain in force: competition from the excluded workers would soon bring wages down to their previous level, and what is more, the competition would now come from the part of the luxury workers who had been dismissed, so that pay would be pushed down still further to sheer starvation wages. Substantially the same thing would apply in the case of shorter working hours. Only if the workers were so resolute in their solidarity that they were able to determine not merely the level of wages but also the number of workers in each productive enterprise, would it be possible to forestall these otherwise inevitable consequences of diminished unproductive consumption. However, Malthus considered solidarity of this kind totally improbable, and of course even in the labour organizations of our day it has nowhere near been achieved. Yet even in this connection it is not true that Malthus ‘had nothing to offer the workers but utter hopelessness’; here, as everywhere else, he emphasizes that the prosperity of the working class is the highest of all social goals, higher even than the growth of output or of ‘national wealth’. And in his opinion, the achievement of this goal was wholly in the hands of the workers, even without any particular organization: simply by rearing a smaller family each individual worker could better his own economic position substantially; and in addition, as rational marital principles came to prevail among a larger part of the working class, there would be the rise in wages that must necessarily follow on a diminished supply of labour. Whether the workers could attain all that they can reasonably demand in this way, or whether in actual fact the distribution of wealth by the private economy is beset by a radical failing that can only be remedied by some sort of collective system, is a question into which we cannot enter here. What is certain, however, is that the Malthusian rule is in any case a necessary condition both for achieving and still more for sustaining all social progress. That Malthus put forward his theories and proposals merely in the interests of the propertied classes, as the author claims in several places, is an accusation that collapses by its own absurdity. To be sure, conditions can arise that make a reduction of the working-class population of interest to the propertied classes too, namely, when wages by and large have already sunk beneath the subsistence level, so that a number of people who are capable of working become a burden to poor relief. But as long as this point has not been reached, 190

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the availability of plentiful cheap labour is obviously a vital necessity to the propertied classes as such, while the direct opposite, i.e. a supply of labour that keeps below the level of demand, is a vital necessity to the workers. In the long run, even the most perfect workers’ organization can do nothing against these elementary economic forces, and it has happened not once but a thousand times that the fruits of organization have been lost as a result of competition from the hordes of people hungry for work, brought forth in the meantime by population increase outside the ranks of the organization. When will the day dawn when those who wish the weal of the working classes and have their ear finally open their eyes to these obvious truths? Concerning capital, the author states that all the classical economists share the view that the formation of capital is due to diligence and thrift, and sets up against this Marx’s well-known utterance that so idyllic a formation of capital prevails only in the world of theory, while in historical reality conquest, subjugation, slavery and violence play the major role. A better target for this criticism, too, would be the so-called harmony economists from the middle of the century, whose foremost object was to gloss over the inequities of the existing distribution of property by portraying both rent and interest as a fruit of the owner’s or his forefathers’ labour and selfdenial. However, the classical economists are not a party to this embellishment of the truth, least of all Smith or Ricardo. With reference to rent in particular, which to a far greater extent than is commonly imagined makes up a part of what is generally called interest, Smith rejects from the outset every attempt to explain it as being in its entirety a reimbursement of the expenses the owner has incurred in bringing the land into cultivation. His well-known saying about the landlords as people who love to reap where they never sowed’ tends in the same direction. But moreover, however much one may be inclined to agree with Marx and his adherents in this case, and however important the question of the process by which the capital was originally formed may be in ethical and social respects, in purely economic respects, for settling the issue of individualism versus socialism it means nothing. No matter how murky the origins of the ownership of capital may in many cases be, this has no effect on the importance and significance of capital as a factor of production. To say that the role of capital in production is also quite simply an appropriation of unpaid labour, as Marx does, is unwarranted and the only result can be to obscure the reader’s understanding of the true connections between economic phenomena. It is probably evident from what I have said that in his zeal to defend Marx, Mr Linderberg has been guilty of significant injustice towards men who have done at least as much for the science of economics and for humanity as any socialist writer. It may of course serve to excuse him that in some cases he has made his attacks in good faith without adequate specialist knowledge, but this is undeniably a rather poor excuse. At all events, it makes a sorry impression when even after a hundred years, authors who belong to world 191

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literature are subjected to judgements that are apt to portray them, both in terms of character and intelligence, as the very reverse of what they actually were.

NOTE 1

The author adds in a note that ‘among those elements that, flying in the face of truth and justice, are inculcated and prevail at the universities, Malthusianism is one of the worst’, a statement that from more than one point of view seems not a little peculiar.

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30 EDWIN R.A.SELIGMAN, THE SHIFTING AND INCIDENCE OF TAXATION Second edition, completely revised and enlarged, New York, Macmillan

The second edition of any work on economics is an uncommon enough phenomenon, and when the work is a monograph on a subject as abstract as tax shifting, a second edition is certainly an extraordinary rarity. Let me say at once that in this case the success of the work seems to me thoroughly deserved. Seligman is a master of popular presentation, in structure and linguistic formulation he almost always hits the nail on the head; as for the content, he knows as few do how to steer a middle course between too little and too much, between, on the one hand, those barren commonplaces that make the reader neither wiser nor better, but to which so many recent writers in this very field confine their remarks and, on the other hand, the overly abstruse discussion of minor points in a matter confronted with which the present state of our knowledge fails to yield any very precise information. These virtues were perhaps still more evident in the first edition than in the new one, for in the latter the author has made a number of changes and additions, some of which in my opinion cannot be considered unquestioned improvements, or which at least fall rather too far outside the framework of the original plan. The latter objection is surely true for example of the detailed historical discussion of older theories of tax incidence that has been inserted in the new edition. To be sure, in itself this is one of the most valuable parts of the book. In the accompanying bibliography Seligman lists no less than about 200 works prior to Adam Smith; he has apparently taken upon himself the enormous labour of reading through and comparing all the most important of these works. This survey gives the reader a very interesting insight into that period of ferment in economics out of which the works of the physiocrats and Smith’s School were to emerge as the clarified product, and one learns to Originally published in Jahrbücher für Nationalökonomie und Statistik, 1900.

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appreciate more fully the achievements of the men who were capable of bringing order and coherence into this chaos of obscure conceptions and merely half-complete trains of thought. The second section, which deals with the more recent theories, has been enlarged with a chapter on the physiocrats. This whole section, too, is one of the most worthwhile pieces that has ever been written on the subject in question; a very substantial body of material of universally acknowledged difficulty is here mastered with effortless ease, without, as far as I am able to judge, injustice being done to any theory or any author—with the possible exception of the so-called mathematical school, to which we will return later— and without any essential point being neglected. The only criticism that could be raised is that some of his terms are poorly chosen, e.g. ‘the absolute theory’ for Adam Smith’s and Ricardo’s doctrines, ‘the socialistic theory’ for Lassalle’s opinions, and so on. The term ‘capitalization or amortisation theory’ is still more inappropriate, since of course it does not constitute a general conception of or approach to the whole subject at all, but rather encompasses only a single dogma within the theory of tax incidence and should therefore not be placed on the same level as the other, general theories. But these are all minor points, which cannot detract from our admiration for the masterly way in which the author treats this very intricate subject. We now come to the second, theoretical part of the book, where Seligman develops his own opinions, and aims more generally to present the modern position of scholarship on the question of tax shifting. This section also has great merits, but at the same time it also provides cause for serious criticism, as I will attempt to show below. First, a general remark, though one that applies not so much to this particular author as to the standard view in these matters. On this view, which Seligman endorses in the very first lines of his theoretical section, tax shifting and its result, tax incidence, are essentially a question of prices, a matter between seller and buyer, producer and consumer. If the price of an object of consumption rises when it is taxed, then it is the consumers who are made to bear the tax. If it does not rise, or if it rises by less than the full rate of the tax, then it is the producers who are obliged to bear the portion of the tax not covered by the price increase; it should be noted that what is meant by ‘producers’ here are actually only the entrepreneurs who have invested their capital in the business in question. In my Finanztheoretische Untersuchungen, published in 1896, I have indicated the inadequacy of this whole approach, and the studies I have subsequently made of the monetary system have only confirmed me in this opinion. Let us assume for a moment that the tax affects all kinds of commodities approximately equally. Then, first, the reciprocal prices or exchange values of commodities would not undergo noticeable change. It might be thought that all money prices would necessarily rise, and that the general level of commodity prices would therefore go up; but even this would probably not 194

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be the case, for a development of that kind depends on the relation between the commodity market and the money or credit market and this relation would not be significantly influenced by the tax, at least in so far as it affects domestic products. To be sure, the taxation of foreign products tends to encourage an influx of gold and therefore to raise domestic prices; but if it is assumed that other countries adopt a similar tax policy, or if an isolated economy or the world economy is made the object of examination, then this cause of a price increase is also precluded. Consequently, not only the relative prices but also the absolute or money prices of commodities would probably remain virtually unchanged. If this is the case, the consumers as such are obviously completely unaffected by the tax and the entire burden of the tax is borne by the producers. But of course it is not just borne by the entrepreneurs: all the factors of production—landowners, capitalists and workers, in other words, the entire or almost the entire population—will be hit by the tax in the form of curtailed incomes. However, the way in which the tax would be distributed among the different categories of producers is another problem altogether, which is completely passed over by the standard theory of tax shifting. For it is not probable, as might be expected on the conventional view, that the tax would be spread completely evenly under these conditions, in proportion to the various incomes. In actual fact, of course, only some kinds of commodities are taxed, and at very uneven rates, but this makes no essential difference. To be sure, under these conditions the objects subjected to tax will mostly rise in price; but since we are entitled to assume, for the reasons already given, that the general level of prices will remain unchanged, the other, untaxed items must fall in price in a corresponding degree—a fact that is almost never taken into account.1 Now if the consumption of all items, whether taxed or untaxed, were approximately evenly distributed among the various classes of society (which of course is never the case), then here too the consumers would be essentially unaffected by the tax, since of course they would be compensated by the lower prices of untaxed items for the higher prices of taxed commodities. The entire tax would still be borne by the producers as such—to be specific, by the producers both of taxed and of untaxed articles. But if consumption is unevenly distributed, as is almost always the case, then as long as only taxes on domestic production are involved, the situation can be pictured as follows. First, the entire sum of taxes is divided among the producers, and then each person as a consumer either suffers an aggravation of the tax burden or enjoys a ‘tax refund’, in certain circumstances even a dividend—all according to their consumption patterns. In both cases, incidentally, a greater or lesser sacrifice is also required of the national economy as a result of the changed and generally less advantageous patterns of production and consumption; but this sacrifice is to no purpose whatever, entailing no benefit at all to the treasury. 195

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Now of course in many cases the final result will be more or less the same, whether the process is understood in this way or in the conventional manner, and where isolated, heavily taxed items, such as brandy, are chiefly consumed by a single class of the population, it would probably be mere pedantry to insist on applying the complicated method described here when analysing the incidence of a tax. However, there are plenty of issues in taxation, indeed, issues of the very greatest practical importance, for which the older approach has produced very meagre results, whereas the method I propose seems far more promising. These issues include, above all, the taxation of foreign products. This topic is dispatched by Seligman with striking brevity, in just four pages, approximately, and it almost appears that he is inclined to endorse Nicholson’s pessimistic view that in such matters ‘the only answer is that an answer is impossible’. But obviously where foreign products and foreign products only are taxed, the question as to the incidence of the tax is by no means exhausted by an examination of relations between producers and consumers; the changes undergone by domestic production, foreign trade relations, etc., also have to be taken into account. After all, the advocates of protective tariffs go so far as to claim that the workers as producers of the protected commodities regain all they have lost as consumers of these commodities on account of the raised prices, and more besides. Seligman does not utter a single word on this important issue, a burning question in almost every country. We shall attempt to provide an answer to it by discussing in turn two typical cases: first, when a protective tariff on agricultural products is introduced in a country that is chiefly dependent on industry, and second, when a protective tariff is imposed on industrial goods in a colony, where the natural conditions (on the conventional view) make the production of raw materials the most profitable course. For the sake of simplicity we assume that the protective tariff is so high that it functions as a barrier,2 which of course is the ideal the advocates of protective tariffs always long for, even if it is only imperfectly attained. Then, in the first place, we have to reckon with a stoppage in the importation of foreign products, which in the long run will necessarily bring about a corresponding reduction in the purchasing power and demand of other countries. The next consequence will therefore be enhanced demand and higher prices for the protected domestic products, together with a fall in the prices of the country’s export goods. At the same time, a portion of the capital and labour, and if possible also of the land, that has previously been employed in the export industries will switch over into the protected branches of production that have now become more profitable. By means of this transfer, certainly, an ironing-out of the initial price differential will be effected, but, as experience shows, and as can easily be proved a priori, this process will never be complete. Instead, the change that has occurred will entail consequences of three kinds. First, as has often been emphasized by the free trade school, overall 196

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national output, measured by any objective standard, will be reduced, since production has been forcibly diverted into more or less unnatural channels; however, as far as individual persons or classes are concerned, this consequence may be completely or partially concealed by the two other results, to which I now proceed. Second, the price displacement I have discussed will necessarily hurt those consumers whose consumption is composed predominantly of the protected articles, while benefiting the other consumers in a corresponding degree. Third, the position of producers with respect to one another will also be affected, but not in such a way as to give all producers in the protected branch of production a permanent advantage over producers in the unprotected branch; this will only be true of a single class of producers, namely, the owners of natural forces, of land, and, though in a lesser degree, the owners of fixed capital, while wages and the interest on circulating capital will necessarily adjust to a common level in the various businesses. Now if the cost element land plays approximately the same role in both kinds of production, then in the protected type of production the demand for land and therefore also the ground rent will rise, but in the unprotected type of production they will fall in a corresponding degree; these two effects will counterbalance one another, so that labour and circulating capital receive about the same remuneration as previously. But if, as in the cases we are considering, land plays a more prominent role in one branch of production than in the other, then, depending on whether this branch is the protected or the unprotected one, either the landowners as a class will pocket a profit at the expense of the capitalists and workers, or, conversely, rent will fall back and interest and wages will go up instead. In our first main case, i.e., where agriculture is provided with protective tariffs, it is immediately obvious that the workers in the country concerned will be hurt in all three respects. The first factor mentioned is of course a general misfortune for the whole population, as far as its effects reach. In terms of consumption, it is well known that the consumption of the working class consists to an overwhelming extent of agricultural products or, more generally speaking, of relatively unprocessed raw materials, in which ground rent is therefore the most important cost element; the consumption of the propertied classes, in contrast, is made up to a far greater extent of finished articles, in which the cost element labour predominates. Finally, the third factor mentioned will necessarily encourage the raising of rent and the reduction of the wages not just of industrial labourers, but of all workers in general. The landowners—the major ones, that is, who can live wholly on their rents—will obtain the twofold advantage of larger revenues and cheaper consumption, although as a result of the first factor (the general loss of utility), this advantage, regarded from an objective point of view, can never completely match the disadvantage to the unpropertied classes. Finally, as far as the capitalists are concerned, the ultimate result may be more open to doubt, 197

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since they suffer a loss as producers but, in so far as they belong to the richer classes, gain as consumers. Perhaps, therefore, it is simplest to conceive of them, taken as a class, as unaffected by the change that has taken place. In the second main case envisioned, however, where industrial tariffs are introduced in an agricultural country, the result must, or at least can, be very different. The ground rent must sink, or an otherwise impending rise due to population growth be prevented, and this fact benefits the workers at least, and probably also the capitalists. The workers also gain as consumers on account of the decline in the prices of agricultural products, while the rise in the prices of industrial commodities is in general far less significant for them. They therefore gain at the expense of the landowners. To be sure, here too, if the land were evenly distributed or, still more so, if production in its entirety were run collectively for the common account, a national economic loss would arise in the sense that a predominance of agriculture combined with the unhindered importation of foreign industrial products would still be the most advisable course. But under conditions as they actually are, the entire advantage arising from this arrangement and more besides would fall into the lap of a single class, and a minority at that, whereas the majority of the population would lose rather than gain. Now although the tax problems actually encountered are bound to give rise to a great variety of modifications of the simple model described, this model probably still accurately represents the decisive underlying conditions. Evidently, once the appropriate approach has been adopted, these conditions can be pursued a significant way in theory—about as far as any question of tax incidence at all. It goes without saying that I do not blame Seligman for paying no attention to a theory only sketched out in rough form; but in other respects he might perhaps have done well to place somewhat more trust in the results arrived at by the ‘mathematical’ school (which, incidentally, he discusses in a very friendly manner). This applies above all to his treatment of the taxation of monopolies. In the work mentioned above I have raised some critical objections to this treatment, as found in Seligman’s first edition; somewhat later, but independently of me, Professor Edgeworth has criticized it along the same lines.3 In spite of this consistent criticism, Seligman has corrected his earlier claims only in a single instance, where the error was simply too glaring; otherwise he maintains his arguments intact, without subjecting the objections of his opponents to closer examination, and even attempts to prove his case by means of arithmetical examples and so on, with the result, however, that the parts of his work concerned turn out as good as worthless. Of course, I am here judging Seligman’s conclusions purely in the light of his own assumptions; in what follows, I completely disregard the question as to how far in the case of monopoly taxation, too, the simultaneous changes in the entire national economic system should be taken into account. According to Seligman, the relative incidence of a tax on production where 198

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the taxed commodity is the object of a natural or legal monopoly is subject to the following main rules. In the first place, the elasticity of the demand is decisive: if elasticity is great, so that even a small price rise would lead to a significant drop in sales of the commodity concerned, then in Seligman’s opinion the price rise caused by the tax will be negligible, as the producer will find it advisable to bear more of the tax himself. If, on the other hand, the demand is more stable, then the consumers will be obliged to assume a larger part or even the whole amount of the tax. But with a given elasticity of demand, he continues, the relative incidence is dependent on whether the industry obeys the law of increasing or diminishing returns. If the former is the case, then according to Seligman the producer will again be more inclined to bear a considerable part of the tax himself, since of course his costs increase relatively speaking in proportion to each contraction in his business. But if the latter is the case, so that the costs become relatively higher as his business expands, he will be less afraid of a contraction in his business and will therefore pass on more of the tax to the consumers. Finally, he claims, the actual amount of the tax is also relevant. If it is very small, then according to Seligman the monopolist will not raise prices at all, not only, as might be thought, on account of the inconvenience or additional costs involved in actually changing the price (which of course would be very understandable, particularly since, as we shall see in a moment, the profit that can be realized becomes extraordinarily small in the case of a small tax), but because, even in theory, he earns most in this way. That all these claims are wrong has recently been demonstrated in detail by Professor Edgeworth.4 However, since many readers may find his presentation rather difficult to follow, I want to attempt here to elucidate the subject using somewhat simpler means. The chief cause of these regrettable errors of Seligman’s actually lies in the fact that he has never realized the nature of monopoly profit. Even if he occasionally gives evidence of better judgement, he still generally talks as if the monopolist could compensate himself for the tax imposed on him, at the expense of the consumers, by raising prices. This is incorrect. The monopolist has already arrived at the highest net profit he can possibly obtain—naturally, here I am only talking about a theoretical ideal image of the situation; a price rise, no less than a price cut, would only curtail this profit. The only thing he can achieve by raising his price is a tax saving on account of diminished sales, but even these savings are not actually shifted forward to the consumers; rather, they simply escape the tax treasury. In other words, the sacrifice imposed on the consumers by the price rise occurs to no purpose at all, it is the national economic drawback of an irrational tax form. Bearing these thoughts in mind, it is easy to see that in reality matters must take a quite different course than Seligman, judging merely by first appearances, asserts. 199

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The elasticity of the demand—at least in the simplest case, where both the elasticity and the monopolist’s costs are constant—will have no influence at all on the price rise. The reason for this—as I have attempted to show in the work cited, but which Seligman has misunderstood—is that it has already exerted its full influence before the imposition of the tax, namely, in determining the most advantageous monopoly price. The effect of the entrepreneur’s costs will, in general, even be diametrically opposed to that which Seligman assumes, although here to be sure a terminological ambiguity is also involved. Finally, it is true that the height of the tax will exert an influence on the relative size of the possible tax savings, in that these savings (under the simplest assumptions mentioned) increase or decline in a quadratic ratio to the tax. But as they never become zero, ‘in theory’, i.e. if no ‘economic friction’ has to be taken into account, and where only a single monopoly good is involved, even the smallest tax will always provoke a price rise. All these propositions, and still others of great interest, follow automatically as soon as the problem is subjected to a rational treatment according to the theory of maximums and minimums; they can also easily be proved by means of suitable geometrical diagrams. Naturally, the situation can be elucidated using appropriate numerical examples, even if this is rather more difficult; but then it must be ensured above all that the main condition of the problem— namely, the maximization of the net returns at the most favourable monopoly price—emerges unambiguously from the numerical series selected. Now Seligman has completely overlooked this in his attempt to prove the influence of the elasticity of the demand (p. 275 ff.). He simply assumes that one price or another is the most advantageous for the monopolist, without concerning himself whether this assumption is also compatible with the other data in the problem. He assumes, for example, that a monopolist whose costs come to $2 for each unit of the commodity sold can sell 1,000 units at a price of $5 per unit, and that the resulting net profit of (5-2) x 1,000=$3,000 is the maximum possible. He is at liberty to assume this; but having done so, he is not subsequently free, as he seems to imagine, to dictate over the market at other prices. Rather, in the vicinity of the most advantageous price, sales must necessarily increase and decrease in exact proportion to the decreasing or increasing price (minus cost) of each unit of the commodity; i.e. each rise or cut in the price by 3 cents must diminish or augment commodity sales by precisely ten units, neither more nor less—otherwise the gross price of $5 could not possibly be the most profitable in the circumstances described. Now assuming for simplicity that the elasticity of the demand in the domain of the problem is constant, an extra charge of one dollar would reduce the demand by precisely 333 units, or to 667 units. Seligman’s supposition that such an increase would cause sales to drop to 725, 700 or 675 units, all according to the elasticity of the demand, is therefore, at least assuming constant elasticity, simply impossible; only the final number would be 200

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moderately compatible with his point of departure. In the case of the penultimate figure the most advantageous price would be not $5, but rather $5 1/6, and on the basis of the first number, corresponding to the least elasticity, it would be still higher, so that his conclusions are completely invalidated. If Seligman were to repeat his numerical experiments while observing the necessary condition stated here, he could easily see that in theory, a tax, whether large or small, must always give rise to a price increase, and that with constant costs to the monopolist and constant elasticity of demand, this additional charge always constitutes precisely half the tax. When it comes to Seligman’s second claim, his attempt to demonstrate the influence of varying production costs, it is a rather different matter; indeed, it is most peculiar. Seligman has obviously devoted great care to this proposition. The proof is argued very painstakingly and seemingly very convincingly, partly using diagrams, partly numerical series, which this time are set up quite correctly (p. 208 ff.). But at the end the astonished reader learns via a footnote on p. 212 that Professor Edgeworth and prior to him Cournot have come to completely the opposite conclusion, and that the verdict as to the correctness or incorrectness of their proof must be left to those proficient in higher mathematics. But that does sound rather uncanny. It almost appears that the triumph of truth here depends on a contest between higher and lower mathematics. Fortunately, however, matters are somewhat simpler. For as Professor Edgeworth emphasizes, the concept of diminishing or increasing returns, increasing or diminishing cost, can be understood in two different ways, which do not completely coincide. On the one hand, it can refer only to the current or incremental cost, so that we have an increase in the cost or decrease in the returns if each new increment of produce in itself requires a greater sum of productive resources than the immediately preceding increment, and vice versa. The concept was taken in this sense by Cournot and Edgeworth, and by myself in the argument above. But on the other hand— and this is even the more common practice—it is possible to speak of diminishing or increasing returns when the average cost of the business, per unit of the commodity, rises or falls respectively at each increment. It is in this sense that the word is used by Seligman, at least in general and in any case in the passage under consideration here. Now to be sure, these two different interpretations will mostly lead to the same result—but not without exception. If, for example, in addition to current costs a business also has fixed costs, investment or general operational costs, which are spread over the entire total output when calculating the average production cost of the commodity concerned, then, as can easily be seen, the average cost must decrease as production increases, not just when the actual current costs decrease, but also when they are constant, indeed even, up to a point, when the current costs per unit of the commodity begin to increase. Before this point has been reached, therefore, according to Cournot and Edgeworth, the cost (i.e., the current or incremental cost) would have to be declared constant 201

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or rising, respectively, whereas Seligman would speak of increasing returns and diminishing (average) cost. Seligman’s terminology might be considered to have greater practical relevance, and in several respects at that, but for the problem at issue here, the shifting of a tax on production in the case of a monopoly, precisely the fixed or general costs are without influence and only the incremental cost plays any further role. Seligman has overlooked this, and most of his readers will probably also fail to notice it. However, looking at his concrete examples somewhat more closely, one finds that they are confined to the very tract within which the average and the incremental costs move in opposite directions; in this tract, and only here, do his claims actually hold, but here they do not conflict with the apparently opposite claim made by Cournot and Edgeworth; indeed, the two claims are in full agreement. However, the moment the attempt is made to generalize Seligman’s proposition and apply it outside this tract, as he really does do, it becomes false, whereas the Cournot—Edgeworth theorem retains its validity throughout. Nothing could demonstrate more effectively what intricate conditions are involved here, and what a mistake it is in such cases to reject the tools the symbolic language of mathematics offers us for dealing with complex ratios. From among Seligman’s other arguments, which in general give little occasion for criticism, I want to pick out just one point, which had struck me already in the first edition. What is in question is the direct or indirect taxation of urban real estate, specifically the case where a tax proportional to the rent is imposed on the tenant. Seligman advances several reasons why the standard view that a tax of this kind is shifted to the owner of the house, or of the land (if these are two different people), is incorrect. Then he continues, word for word, ‘Above all, the process here described’—a decline in rents as a result of the tax, because of reduced demand for housing—‘does not imply a shifting of the tax from the occupier to the building owner (or, in exceptional cases, to the landowner). Even though the occupier can evade the tax, he cannot shift it. Evasion, as we know, is quite another thing from shifting. The tax that the occupier pays on his smaller rent will still fall on him. The landlord (or rather the “house-lord”) may enjoy, for the time being, less revenue than before, but the new tax levied on the tenant’—i.e. the tax reduced in proportion to the rent—‘will nevertheless fall on the tenant. A small tax on smaller rent is just as bad as a high tax on high rent.’ This whole passage must be due to an oversight. If the tenant can persuade his landlord to lower the rent and his tax is then also lowered in proportion to the reduced rent, then he has in fact contrived both an evasion of the tax (at the expense of the public treasury) and a shifting of the tax (on to the house owner); but the latter of course exceeds the former in precisely the ratio in which the rent itself generally exceeds the tax on rent. As for the claim that a small tax on smaller rent is just as ‘bad’ as a high tax on high rent, surely most tenants, after all, including Seligman, I assume, would 202

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markedly prefer the first combination to the second, as long as the accommodation is equally comfortable. The observations I have made are not in the least intended to detract from the reputation of a book that, taken all in all, can probably be designated the best treatise to date on the subject concerned and, with relatively few exceptions, a quite masterly achievement. My intention was only to defend the mathematical method of which Seligman has such a low opinion, and to indicate a few points of view on the basis of which a revision of the whole theory on a somewhat deeper theoretical foundation appears desirable. I do not overestimate the theoretical dimension at all, indeed, I am very well aware that the decisive factor in these matters must always remain experience and statistical data. But a theory that is not yet in a position to assess with accuracy the consequences of its own assumptions is neither capable of deriving the full benefit from the facts learned by experience, nor, still less, of indicating the lines along which statistical enquiries might successfully be conducted. Let me return once more to monopoly taxation. If it were, for example, shown by experience that a tax on first-class railway tickets had led the railway company in question to lower ticket prices for both the first-class and the other, untaxed classes of accommodation, then certainly 99 out of 100 economists would declare this result an anomaly, which must be due to completely unknown causes and would therefore be outstandingly well suited to revealing the deep chasm between theory and practice. And yet Edgeworth has shown beyond a shadow of a doubt that in certain circumstances such a result may be the simple consequence of the endeavour to maximize profits that is the fundamental principle of economic theory. Seligman, to be sure, whose ‘sound common sense’ resists the idea that a tax can lower the price of both the taxed and the untaxed commodity, here accuses Edgeworth of a ‘slip’, in other words an error of calculation—naturally without investigating the matter more closely (p. 173). Unfortunately, if it lacks a schooling in mathematics, sound common sense does not always suffice to track the maximization of the functions of two or more independent variables into all their secret hiding places. Uppsala, September 1899

NOTES 1

In order to avoid misunderstandings, let me observe that the assumption that the average level of prices does not change is not absolutely necessary to the validity of the argument, since of course ultimately a change in the value of money will only be of significance to those who receive fixed money incomes or who have interest to pay on money debts. Nonetheless, we retain this assumption, as it both greatly facilitates the understanding of the argument and appears to correspond most closely to the facts.

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2

3 4

As is generally known, in the standard system of price measurement, the socalled index number method, the prices of commodities subject to tariffs or excise duties are given ‘in bond’, i.e. without the addition of the tax. The real price level, however, is composed of the market prices, i.e., the in-bond prices plus the amount of the tariff or excise duty. Now if this real price level remains unchanged, the index number prices must necessarily retreat when indirect taxes are raised, a point that must not be forgotten when assessing price movements in recent decades. Seligman would of course declare, in accordance with his fundamental principles, that this question does not belong in the theory of tax shifting at all, since in this case no taxes at all would flow into the public treasury. However, in theoretical terms the problem is obviously identical, and for the party paying the indirect tax it makes no difference, or at least brings no relief, if the sacrifice imposed on him benefits individual classes instead of the whole society. Economic Journal, 1897. Economic Journal, June 1899.

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31 JOHN BATES CLARK, THE DISTRIBUTION OF WEALTH: A THEORY OF WAGES, INTEREST AND PROFITS, and JOHN A.HOBSON, THE ECONOMICS OF DISTRIBUTION New York, Macmillan Co., 1899 and 1900 respectively

Theoretical economics, which was regarded a few decades ago more or less as a curiosity, a species of barren pedantry from the infancy of the science, can in our day, in contrast, congratulate itself on a steadily growing number of active adherents. This is true above all of the Anglo-American literature, but also of Italian, Austrian and Swiss writers, to some extent the French, too; indeed, even in Germany proper, that bastion of the historical school, the modern theoretical orientation has begun to win a degree of attention, even if this attention, so far, is mostly antagonistic. However, gratifying though this activity in the theoretical field is in other ways, it suffers from one substantial deficiency, which is perhaps connected with the manner in which the whole movement arose. As is well known, the foundation of the new theories was laid more or less simultaneously by three highly talented men of science, who were completely independent of one another and came from different countries, namely, C.Menger, Walras and Jevons, and their work has been continued everywhere by equally gifted followers, of whom the best known are probably BöhmBawerk and Marshall; in addition, other scientists, among them the American Clark, mentioned above, appear to have reached similar results independently. Now as a result of these divided origins, what is at bottom precisely the same thing has come to be treated, from the outset, in three or more different manners, using divergent terminologies. Naturally, the best way to achieve the unity and conformity that is desirable would be for the entire body of theory to be summarized in a concise and easily comprehensible account. Originally published in Ekonomisk Tidskrift, 1902.

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However, a summary of this kind is still lacking; the attempt undertaken a few years ago by Pareto, a student of Walras, cannot be described as a complete success, despite the author’s indubitable talents. As things stand at present, the lack of a uniform system has not failed to manifest its sorry consequences; year by year, people wrangle in books and articles about words and formulations, when in reality, as far as I can see, there is no actual difference of opinion, and points that have been cleared up entirely on one side of the Atlantic are still discussed on the other side as if nothing had happened. In their separate ways, the two books that we shall briefly discuss here are both quite striking examples of this unfortunate state of affairs. The less significant of them, though readable and in its way interesting, is Hobson’s work The Economics of Distribution. This book sets out to correct both Marshall’s and Böhm-Bawerk’s principal theses in important respects, and to set forth the author’s own positive results, but it hardly bears witness to any very penetrating study of the writers concerned or any very profound independent thought. As evidence of the former deficiency we may cite the fact that the author dwells at length on criticisms directed against the second edition of Marshall’s Principles, with no regard for the fact that in subsequent editions, these criticisms have been duly answered by Marshall himself, in a fashion that seems to me completely satisfactory. What Hobson objects to is what Marshall calls ‘consumer’s rent’, i.e. the exchange surplus, which is defined by Marshall as the difference between the price that a person gives for a good in reality and the price that he would be willing to pay if need be, if he were unable to acquire it more cheaply. To this Hobson objects that if a person’s total consumption is taken into account, no consumer’s rent or surplus of this kind arises, since in general a person’s entire income is used up in defraying the costs of his consumption, and he cannot give more even if need be. Of course in actual fact, Marshall’s ‘highest acceptable price’ is merely an expression of the consumer’s subjective valuation of the good in question; it therefore presupposes that for him, money has a constant value, which would be the case in reality only if the entire transaction were merely to require an extremely small part of his income, even if he had to disburse the highest acceptable price. On the whole, Mr Hobson does not appear to have a very good grasp of the differential method, borrowed from mathematics, that is used in modern theoretical economics, a method that, with or without the use of symbolic notation, is a necessary tool in mastering all the issues pertaining to this field, as soon as they involve variable quantities. There is no denying that one of the most beautiful propositions within theoretical economics is the thesis of marginal productivity (put forward or more accurately anticipated already by v. Thünen), which seeks to derive the shares in the yield of production that accrue to the different factors of production (land, labour and capital) from the increments of the product that would arise if, keeping the quantities of capital and labour unchanged, more land were added, or keeping the quantities 206

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of land and capital unchanged, more labour were added, and so on. This theory is utterly rejected by Mr Hobson, on the following grounds. Assume— he says—that a certain production process requires certain ‘units’ of labour, land and capital. Now if I remove one unit of labour, the product or its value is diminished by, say, 8 per cent; if I restore this unit and remove one unit of capital instead, the product might be reduced by 10 per cent; and finally, if, from the initial settings, I had removed one unit of land, the reduction in the product might also come to 10 per cent. However, if we now assume that I reduce the productive forces simultaneously by one unit of land, one unit of labour and one unit of capital, then of course if the theory referred to is true the product ought to be reduced by 28 per cent; but this is not what happens; for if the most advantageous proportions of labour, land and capital were already being observed, a one-sided disturbance of these proportions by a reduction in one of the elements of production would necessarily entail a comparatively greater loss of product than if all three were reduced uniformly. Therefore, labour, land and capital cannot possibly be paid according to the law of marginal productivity, since if they were, the employer would save more in wages, rent and interest than he lost in product by reducing the productive forces he employed. This argument may appear plausible, but could equally well be used to prove the exact opposite, namely, that under such circumstances, an employer would gain by increasing the productive forces; the error, as every mathematician will perceive, lies in the author’s failure to realize that the thesis of marginal productivity in its pure form applies solely to infinitely small changes, i.e. its validity in real life is approximate, it is valid in so far as it is possible to regard the changes as being infinitely small. A contradiction of the kind that Hobson believes he sees in it therefore does not exist in this theory; however, as I shall point out with reference to Clark, and have demonstrated in this journal previously, it can be subjected to objections of another kind. The positive proposal for solving the problem of economic distribution that Hobson himself offers hardly deserves to be mentioned. It comes down to a kind of attempt to bring land, labour and capital under a common denominator or a common yardstick, an attempt that is naturally doomed in advance to failure. Incidentally, it does not even seem to have satisfied Hobson himself; for what he ultimately concludes from this attempt is that ‘on account of the complicated nature of the matter, one has to be cautious in one’s conclusions’, a point that can certainly be conceded. The author’s criticism of Böhm-Bawerk’s theory of interest seems to me equally unsuccessful. Certainly, I am not among those that consider BöhmBawerk’s account unassailable in every respect; but against such assertions as the claim that he has ‘altogether misconceived’ the role played by the element of time in production, he surely does not need to be defended. There is probably even less need to demonstrate that Böhm-Bawerk is not, as the 207

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author believes, unaware of the true connection between exchange value, marginal utility and production costs, and when, in this connection, the author reiterates Dietzel’s claim that in reality the theory of marginal utility is nothing but the old doctrine of supply and demand as factors determining prices, I suspect this involves an underestimation of the intelligence of the men who developed the first-mentioned theory. The relation between supply and demand is an excellent recourse when fluctuations in the prices of goods are to be explained; but it obviously fails to provide an answer to the question as to why one good habitually has a higher or lower price than the other. The theory of marginal utility exists precisely in order to answer that question. Clark’s work is far more significant than the above publication. His book has even been hailed by the author’s compatriots as an epoch-making event. This is quite certainly a great exaggeration; the book does not contain anything new, it is not even abreast of modern theory. Wicksteed’s short book, The Co-ordination of the Laws of Distribution, contains in an eighth of the space of Clark’s book an analysis of the same questions that goes considerably further. Nevertheless, Clark is an original thinker; he claims, and probably in the main rightly, to have discovered independently several of the propositions that make up the modern theory of value. However, since this happened as late as the 1880s, his achievement is undeniably of a rather ambiguous kind; after all, even in the best case, it implies a failure to take notice of the available literature, and therefore a waste of intellectual energy, which could have been far better employed in building further on the foundation already laid. It makes a semi-comical impression when the author confesses that it was not until after he had already published several essays on marginal productivity that he became aware of the fact that he had been anticipated in important respects by—v. Thünen. However, throughout Clark’s book, one encounters an acute thinker on and observer of economics, and the book can be read with interest, though without detriment cursorily. What is best about it, in my view, are the practical examples with which he attempts to support and illustrate the theory of marginal productivity, of which, in contrast to Hobson, he is an avowed adherent. Yet Clark himself has hardly got to the bottom of this theory. In order to illustrate it, he has the bright idea of printing side by side (p. 201) two diagrams that appear to be perfectly analogous, each of them consisting of a rectangle with a curve lying above it. In the left-hand diagram, the rectangle represents the share of labour in production, the curve the share of land and capital (these two factors are not strictly distinguished by Clark); this of course corresponds to the manner in which the relationship between wages and rent generally tends to be graphically represented. In the figure on the right, the roles are reversed; here, the rectangle at the bottom represents interest and the curve wages, in other words, the worker or a group of workers 208

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is here conceived of as entrepreneur, and they are imagined as hiring land and capital at a price determined by the marginal productivity. Thus far, all is well and good; but is it also obvious, without further ado, that the rectangle in the one diagram has to be equal to the area bounded by the curve in the other, and vice versa? In other words, are the shares of labour and capital in production the same, no matter whether it is the worker or the capitalist who takes on the role of entrepreneur (in so far as the former case is possible)? Clark has failed even to ask himself this question, still less to answer it; it is to Wicksteed that credit is due for drawing attention to its importance and showing that the necessary condition for answering it in the affirmative is that production is equally rewarding, relatively speaking, whether it is undertaken on a large or a small scale. Clark’s own speculations on the nature of capital and the origin of interest seem to me rather obscure and unfruitful; the distinctive feature of his approach is the view that capital is a kind of entity which, as it were, floats above concrete capital goods, but this reflection does not lead to any very substantial conclusions. The cardinal point in the nature and concept of capital appears to have escaped him, and in his capacity for misunderstanding ‘the brilliant Austrian economist’ {Böhm-Bawerk} he can almost compete with Hobson. Overall, reading Clark’s work one cannot but deplore the fact that so genuine a talent has failed, on the whole, to arrive at clearer and more definite results. Had his book seen the light of day 30 years earlier, it would undoubtedly have been epoch-making, for all its lack of clarity; but now, when all the speculations that the author has succeeded in endowing with firm, tangible form are old acquaintances in our science, it is impossible to regard the work, in essence, as anything but a waste of effort, even if one is gratified by the many excellent details it contains, and by the forceful defence the author provides throughout his book for the legitimacy of theoretical economics.

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32 GEORG FRIEDRICH KNAPP, DIE ST A AT LIC HE THEORIE DES GELDES {THE STATE THEORY OF MONEY} Leipzig, Duncker & Humblot, 1905

A little over a year ago, Professor G.F.Knapp of Strasburg, known as the author of an epoch-making work on the liberation of the peasants in Prussia, and one of the pillars of the German Historical School, surprised the world of economics with a work on the monetary system that in the strictest sense of the word is abstract and theoretical in nature: Die staatliche Theorie des Geldes {The State Theory of Money}. To be sure, there was reason to suspect that he was very well equipped for this kind of writing too, since he is known to have written perceptive studies in mathematical statistics in younger years, which were highly regarded by specialists in the field. However, in the lengthy interim, in conformity with most adherents of the Historical School, Knapp had virtually renounced all theory on principle; that he has now taken so bold a leap into the field of deduction and constructive logic is therefore undeniably a surprise, but, at least for the present writer, a welcome surprise. At the time of writing, Knapp’s work has already been the subject of lengthy and thorough reviews in all the German specialist journals and several foreign ones, and has been criticized or praised all according to the reviewer’s own theoretical standpoint. However, one thing one hardly receives any idea of from all these profoundly serious sequels pro and con is the incomparable stylistic appeal of Knapp’s descriptive art, his masterly didactic exposition, his pleasantly expansive, half solemn, half ironic discourse, spiced throughout with those quiet little satirical sallies that are peculiar to Knapp, and that have doubtless awakened many a happy memory of his unsurpassed lecturing style among his numerous disciples, who by now are spread over the entire globe. One has to have heard and seen Knapp in action to be able fully to appreciate a passage like this (p. 40), referring to those people who because Originally published in Ekonomisk Tidskrift, 1907.

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of practical misgivings wish to deny even the theoretical possibility that paper currency may be real money: Now if the layman, thinking in practical terms, objects that he at least does not want the paper {money} system, he thinks it is dangerous, a menace to the best interests of the general public—he may be right, but then he is leaving the bounds of theory, as indeed he is more than happy to do. For by nature, man is inclined to agitate: in understandable concern for the common weal he desires to devote his efforts to the realization of good ends. Who would wish to oppose him! But this is not the position of the theorist: his role is to pay equal attention to all {monetary} systems, whether good or bad. His prime concern is not to hand out advice, but to explain the essential features. For him, there is a world of difference between the fundamental facts and what is important in practice. He is not inclined to agitate, but to philosophize. He has a liking for the system that is dangerous in practice, precisely because it affords the clearest insight into fundamentals—but to be sure, he takes great care not to recommend a system of this kind. Indeed, he makes no recommendations, what he does is to explain phenomena. He leaves to the agitator action aimed at achieving the best good. Nothing is more common than for the most effective agitator to be the weakest theorist. An additional merit is the proposal of an extensive, completely innovative set of technical terms for the so very diverse phenomena of the monetary world. Admittedly, it is true that all these newly coined terms, mostly derived from the Greek (lytric, hylic, autometallic, papiroplatic, etc.), by their very quantity—an index of them at the end of the book takes up more than two closely printed pages—at times have a rather perplexing effect and throughout require great attention from the reader; nevertheless, on the whole I regard them as a great step forward, since without exception they mark real conceptual distinctions, which are far too often overlooked in the conventional literature on money, but which will not be so easily obliterated having once been fixed in place by a well-chosen technical expression. That it has taken a not insignificant amount of work and considerable discretion in the choice of words to set forth these terms goes without saying. The basic idea of Knapp’s book is to emphasize the purely formal, conventional or ‘proclamatory’ character of money. This is in clear distinction to the ‘metallists’, for whom it is self-evident that only a valuable substance, e.g. a certain quantity of a precious metal, can be a standard of value or a ‘real’ means of payment. To be sure, according to Knapp, the circulation from hand to hand of certain metals or other valuable substances, accepted by weight, is the origin of all monetary 211

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systems; originally, all lytric’ systems (from lytron: means of payment) are ‘autometallic’ or more generally ‘autohylic’ (hyle: substance). But money as such only comes into being when the scales or touchstone used when payments are made are abandoned and the means of payment or means of settling debts sanctioned by the state is instead recognizable by its form and by certain markings, i.e. when it has become ‘morphic’ and ‘cartal’. According to Knapp, the latter term, which he has coined, is crucial to the concept of money; I suppose he does not provide any exhaustive justification for this claim, but that does not really matter since the main point—and in this Knapp seems to me to be absolutely correct—is that as soon as an external form and marking of this kind have become essential to the legal force of the means of payment, then by this very development the substance itself has been displaced, has become a peripheral, secondary matter, and it is then only a distinction of degree, not of kind, if the money thus defined is made of what is known as sterling or what is known as base metal, or, ultimately, consists of a substance that is completely without intrinsic value, has become papiroplatic instead of metalloplatic. This should not be taken to mean that these circumstances lack significance in themselves; on the contrary, they can be of great importance, but not for the money as such, for its essence or means of employment; their significance is merely ‘dromic’, in that they can affect the exchange rate (dromos) of the currency against the precious metals and thereby be a means, though certainly not the only possible means, of establishing a correct relation between it and the value-units used in other countries, to which the power of the domestic legislator does not extend. In its own country, however, the currency itself, with no further ado, is the value-unit or standard of value; the value-unit is not defined physically or technically, but solely historically by linkage to a previous value-unit (‘retro-linkage’), in that the legislator decrees that from a certain date on, a piece of metal, paper or leather with such and such an appearance shall replace in all financial obligations the unit of which these were hitherto composed. Even in the primitive autometallic system, where, that is, the value-unit is established in contrast by means of ‘the physical experiment called weighing’, the purely formal character of the means of payment is manifest, according to Knapp, as soon as the legislator finds cause to authorize the use of one metal instead of another, e.g. silver or gold instead of copper. For this step, in his opinion, means that all lytric credits and debts (i.e. all outstanding accounts that are fixed at a certain quantity of the means of payment) suddenly acquire a new composition. To be sure, they remain at an unchanged level relative to other outstanding accounts, but their magnitude, viewed in isolation, is the same as before in formal terms only; in reality they gradually come to mean something completely different, since of course the two metals do not retain for ever after the value that they had relative to one another at the time of transition. 212

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Oddly enough, Knapp comments here (p. 15) that the only disturbance to private interests resulting from such a change is the effect on those who either produce the precious metals or work them up industrially. For the great ‘neutral’ group, on the other hand, i.e. those members of society who are neither producers nor consumers of precious metals, it is without significance; ‘they now pay their debts in silver instead of in copper, but they also receive what is owed to them in the way of outstanding accounts in silver instead of in copper’. In other words, he seems to have completely forgotten to include the not unimportant groups of citizens who have more accounts owing to them than debts or, conversely, more liabilities than receivables and who therefore cannot possibly occupy a position of neutrality with respect to this change or retro-linkage. It is also a well-known fact that when it changes from one principal metal to another, a state does not necessarily need to declare old debts payable in the new means of payment at a fixed rate of exchange; these debts may instead continue to be paid in the old metals, i.e. in the new metal or coin but at a variable rate, which for the sake of simplicity can be proclaimed annually by the state itself, in accordance with the market price of the metals in question. This more or less in passing; but we shall see that this oversight of Knapp’s is actually of material significance; ultimately, it expands to become a gap in his reasoning that may be said to encompass no less than one half of the problem he has undertaken to elucidate and solve. The only factor of decisive importance for the position and significance of the currency both in its own country and ultimately also in international trade, Knapp finds in its functional treatment by the state. Here, in accordance with the rule bene docet qui bene distinguit {he teaches well who differentiates well}, he makes no less than three, indeed, strictly speaking four categories and subdivisions. First, those payments are differentiated in which the state itself participates, either as the receiving or the giving party; they are denoted by the common name ‘centric’, ‘epicentric’ if payment is made to the state, ‘apocentric’ in the opposite case. Payments between individuals are given the name ‘paracentric’. The quality of epicentricity is fundamental, this property being precisely that which lends the cartal means of payment its status as money; everything else depends on the position of the currency in ‘paracentric’ or ‘apocentric’ respects. For the state’s duty to accept the means of payment it has sanctioned is, by definition, unlimited; any state of affairs to the contrary, Knapp says, can only be due to ‘legislatorial absent-mindedness’. In terms of the duty of the public to accept it, however, the means of payment can be either obligatory or facultative; as an example of the latter kind, Knapp mentions the well-known German Reichskassenscheine, banknotes of small denomination amounting to a total value of 120 million marks, which no one is obliged to accept as payment, but which are nonetheless highly soughtafter in circulation. Obligatory acceptance can, further, apply without restriction to all sums that are to be paid, or else extend only up to a certain 213

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‘critical level’; here we have the customary distinction between principal, or current, coinage and fractional coinage, which Knapp also accepts, although he—quite rightly, it seems to me—regards it as being of subordinate significance; in addition, he prefers to use the expressions current money and fractional money since of course they can both be, and current money often is—papiroplatic. After all, in most countries these days, banknotes are legal tender up to an unrestricted sum, and for some time Austria, for example, also had fractional coinage made of paper. Further, the state may have undertaken to convert or redeem one kind of money, paying out another in exchange; in that case, the former is termed provisional, the latter, like, more generally, all money which the state has no obligation to convert, definitive. The most common example of this is the relation between fractional coins and redeemable bills, on the one hand, and gold coin, on the other hand, but there are many other examples: French five-franc pieces are definitive money, German thalers likewise, by law, though for administrative reasons they are actually provisional, and so on. It can also happen that metal coins are provisional, while notes are definitive, as is presently the case in Austria. According to Knapp, however, all these categories are overshadowed by another, which is far more important, but has hitherto received little attention, and which has to do with apocentric payments (those made by the state). For even though it has to be prepared to accept all forms of money, when making its own payments the state can ‘press’ (force) one specific kind of money upon the payee, while in contrast neglecting to compel acceptance of or even refusing to pay out another kind. This circumstance, which does not need to be prescribed by law or even by statute, but can quite simply be a de facto procedure called forth, for example, by necessity, is utterly crucial, according to Knapp, since the kind of money that is thus enforced now becomes the real standard of value, both within the country and with respect to foreign countries, the ‘valutary money’. All other means of payment, of whatever kind, including fractional coins, Knapp calls accessory. Though still money on the strength of their epicentric power of payment, they are also, unlike valutary money, a kind of good; as such, they necessarily acquire an agio which may be positive or negative (disagio) with respect to the standard of value, the valuta. In the former case—which of course can only occur with metalloplatic coins—they soon disappear from circulation; in the latter case they can continue to do good service as a means of payment, since the negative agio remains latent as long as the right to use them in payment to the state is maintained; but the danger is that if they have previously been issued or continue to be issued in too great a quantity, they can pile up in the public treasuries and thus make it more difficult to preserve the value of what has until then been the valutary money, or oblige the state to change the valuta. For the sake of clarity, we reproduce the following small table, one of many in Knapp’s book: 214

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Of course it may be objected that all these things, or most of them, are well known, and some people may perhaps be willing to see in Knapp’s numerous categories and technical terms merely scholarly pedantry. But wrongly so, in my view. A thoroughly worked out classification is always of great value, both scientific and practical; one merely has to proceed to the applications in order to perceive how great an aid a well-chosen terminology can be in discussing and surely also in understanding complicated phenomena (see, for example, Knapp’s account of the French monetary system in the nineteenth century, in which both gold and silver coins were still both obligatory and definitive, but in spite of this, sometimes one of them was valutary, sometimes the other, and sometimes, e.g. during the Franco-Prussian war, neither of them—only the notes issued by the Bank of France were valutary). That this entire way of thinking, however obvious it may now appear (except to the ‘metallists’), was by no means always so self-evident, is apparent simply from the innumerable mistakes in the area of fiscal practice that Knapp adduces in a benevolently schoolmasterly fashion, alternating in his assessment between ‘completely amateurish’ and, sometimes, ‘insane’, but always stressing in extenuation that ‘by nature man is born a metallist and dies a metallist, and therefore never acquires any insight into our financial system’ (p. 286). Knapp goes on to examine the means of payment that are used in more confined, private circles, e.g. between a bank and its customers. He points out quite rightly that the status of banknotes as a means of payment is not founded exclusively on their being payable in coins recognized by the state. Even if the bank suspends its payments, and even if the state does not enforce a compulsory exchange rate for its notes, for the time being they would continue to be accepted by the public as a means of payment, since of course they could still be used and would even be needed for payments to the bank in question (‘epitrapezic’ payments!). In loose connection with the history of the Bank of Hamburg, he goes on to describe the giro system and poses the question whether the state, too, could make itself the central player in a giro association, in which case the two stages passed through to date in the development of means of payment, the autometallic and the 215

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cartal (money), would be succeeded by a third, the ‘giral’, possibly without the employment of any money or metal at all. Knapp answers this question in the affirmative, both for internal and for international payments; however, without going into his reasons in any further detail, he is unwilling actually to recommend such a system. Yet it is obvious that he finds the idea extremely attractive: he emphasizes that although the ‘hylogenic and ortotypical’ means of payment, hard full-weight coin (das Bargeld), is presently treated as valutary currency in virtually all civilized countries, it is nevertheless increasingly being replaced in general circulation by accessory, more or less ‘autogenic’ means of payment, token coins, banknotes, cheques and giros, and he is of the opinion that the sum of hard coinage that is still forced out into general circulation in Germany and elsewhere, for lack of small notes, could very well be dispensed with in circulation and left deposited in the banks.1 (As is well known, German banking legislation has recently followed his guidance in this case.) Indeed, as he attempts to show further on, even in the banks and for international payments, gold would ultimately be superfluous; it would therefore be possible to dispense with it completely. Although I am of the same opinion as Knapp, as far as his conclusion is concerned, on this point I am nonetheless obliged to distance myself in no uncertain terms from his account, the first 200 pages of which—with the exception of the passage on p. 15 mentioned above—I had otherwise read with unabated interest, indeed admiration. For as soon as the purely metallic foundation of the system of payment is abandoned, it seems to me the question immediately poses itself: how is the value of money, whether in the cartal or the giral system, to be maintained, relative first, to the value-unit used in other countries, and second and above all, relative to goods and services; or as it is often, if somewhat inaccurately, put, the value of money in time and space? The first of these questions Knapp answers in a manner I find unsatisfactory, while the second, oddly enough, he leaves completely unanswered—as far as he is concerned, it simply does not exist. In both cases, the reason is that however independently Knapp otherwise acts, he has still been unable to free himself of the German ‘historicists” habitual cant in rejecting unseen the theories of classical (English!) economics, in place of which, however, they have been incapable of putting anything else or anything better. In this case, what is at issue is the so-called quantity theory of money, which for all its shortcomings is still probably the only possible or conceivable way of explaining the value of money. ‘Happy the man’, exclaims Knapp ironically (p. 228), ‘who is convinced by the quantity theory’; he himself, therefore, does not believe in this happiness, but instead subscribes to a very scantily formulated and on the whole rather unclear so-called business theory. He wants to attempt to show how the high output of gold subsequent to 1850 may have influenced the relative values of gold and silver, and how it came about that in spite of 216

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a sudden tenfold increase in the output of gold, these relative values remained almost unchanged. He supposes that all the new Californian gold was sent to England, where it was changed into English money according to the ‘hylic norm’ prevailing there, 1 oz=£3-17s.-9d. For the most part, he says, it was presented to the bank, which paid the fixed price stated in banknotes. Now, assume that the owners of the gold, having received these banknotes and desiring to lend them out at interest, did not find the English interest rates satisfactory; they therefore turned instead to Germany (which was still on the silver standard at that time), seeking to buy, for example, German government bonds. Now the export of these bonds had the same effect as any other new export from Germany: it raised the German rate of exchange against England somewhat and so raised the price of silver relative to gold. However, the more extensive the market for the attempted foreign investments of these capitalists, the less the effect on the exchange rate, and thus he comes to the highly peculiar conclusion that if the high output of gold during this period was only able to produce a marginal rise in the price of silver, reckoned in gold, this was due to the great commonness at that time of countries on—the silver standard. That this is an utter paradox, embodying the very reverse of the truth, is surely not difficult to show. Knapp does not say explicitly how the English or rather Californian investors he has posited were to set about paying for their foreign holdings; but since they could neither send banknotes nor gold to the foreign country, this being on Knapp’s assumption a silverstandard country, it must apparently have been done by buying up foreign bills of exchange on the English market. However, in the process, of course, first, a deficit would arise in England’s balance of payments to other countries, and second, the English market would not be relieved of its surplus of money in the slightest degree by the transaction referred to; that these two factors combined must cause a sharp fall in the price of English gold, relative to both commodities and silver, is surely clear as day. Further on Knapp himself mentions the well-known fact that at this same time, gold forced its way into the French, bimetallic market, and there displaced silver; it was manifestly this fact, i.e. in reality the commonness of goldstandard countries, that prevented gold from falling. As for the commonness of silver-standard countries, its effect was, in contrast, the very opposite, namely, to make it possible, in spite of everything, to maintain for a number of years a certain price differential between gold and silver; since had there not been any other countries to dispose of silver in, then naturally on the French market, silver would soon have fallen in value relative to goods, and to a parity with gold. We encounter a rather similar kind of oddity when Knapp talks about ‘exodromic management’, i.e. the attempt by governments or central banks to regulate the foreign exchange rate and thereby the international value of money. Knapp first mentions the usual methods employed, the discount 217

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rate policy and the gold premium policy used by the bimetallic countries, e.g. France. However, alongside these, as a third method, he sets the procedure of the Austrian central bank, which according to Knapp consists quite simply of buying up English bills of exchange at the current rate and then selling these bills (sometimes at a profit, but most often at a loss) at par (119 gulden to £10 sterling) as soon as the market exchange rate turns unfavourable. However, it is obvious that a regime of this kind is only possible if the value of money on the domestic market is simultaneously regulated in some other way. And of course this is what is done in Austria, both by the state, which alternately puts its paper currency into circulation and withdraws it, and probably also by the banks, although Knapp says nothing about this. In general, as I have said, Knapp wants to have nothing to do with the concept of the value of money relative to goods and services: he obviously considers this concept (or its reverse: the average level of commodity prices) too difficult, or more accurately, impossible to establish independently of all the ‘pantopolitan’ circumstances (circumstances connected with general business activity) affecting commodity prices; moreover, he regards this issue as a matter of no interest to the general public. We have already seen what he says about this when discussing the change from one kind of metallic currency to another. On p. 197 he repeats this still more emphatically: ‘With the exception of the trade in metals’, he writes there, ‘the choice of currency (Währung) for domestic transactions is almost a matter of indifference, since it only has effects of secondary importance, which completely disappear in the general bustle of continual price changes. Every day, thousands of disturbances occur as a result of newly opened roads or canals, customs tariffs, transportation fees, the ordering of new ships and so forth, which modify communications a little, sometimes in one way, sometimes in another—and in the course of time completely change the overall picture. In the midst of this general commotion, each individual seeks his own advantage, and in a thousand cases the various commodity prices sink or rise. However, they still rise only when the seller’s power increases and sink only when the seller’s power declines, and since prices are not expressed in terms of quantities of metal but rather in terms of lytric units (marks, francs, roubles), and since they are paid, in the final instance, in valutary money, the relation between this money and metal is unimportant, as the question of which kind of money is valutary is never at issue’, and so on. And once again he draws attention to the ‘amphitropical’ position of the private economy: ‘one pays out the same kind of money as one takes in’. For my part, I can see nothing in this whole line of reasoning but an attempt to make the best of a bad job. After all, for someone who is so convinced that everything is in a state of flux and nothing can be foreseen with certainty in the economic sphere, all activity aimed at creating order in this domain ought 218

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really to be regarded as futile, since the results would necessarily vanish in the great account of ‘sundries’. However, apparently agreeing with the view that order is worth striving for, Knapp designates ‘the fixed exchange rate as the ultimate goal’ of the theory and practice of monetary economics (chap. 3 §15, heading), but this is probably setting the target far too low. In particular, current price trends, which threaten to completely overthrow all prior claims and all wage agreements, seem to provide palpable evidence that fixed parities between currencies are not enough: regulation, in some fashion or other, of the average level of commodity prices is a task that modern monetary economics can scarcely refuse to tackle. However, these criticisms are directed merely at certain weak points, strictly speaking, certain inconsistencies, in Knapp’s account: there is no very close connection between his general line of thought and the oversights or errors mentioned, even if, as stated, his treatment of the problem of money ultimately only covers one half of this problem. Nor do these shortcomings disturb in any very substantial degree the pleasure we take in the book, of which, as a whole, it can probably be said that in terms both of its content and its form— though most of all its form, its refined dialectical style, the elegance which the brief account given above has only been able to hint at dimly—it is to be counted among the pearls of economics literature.

NOTE 1

Knapp duly satirizes the naïve satisfaction with the existing system as the only correct or completely natural one. Nothing is easier, he says at one point, than to praise ‘the gold currency. It is sound, says sound common sense’.

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33 LUDWIG VON MISES, THEORIE DES GELDES UND DER UMLAUFSMITTEL {THE THEORY OF MONEY AND CREDIT} München and Leipzig: Duncker & Humblot, 19121

A serious book, written with great diligence. Mises eschews the childish superior airs that to my mind spoil so many works by otherwise gifted writers these days; quite the contrary, he is always anxious to pay due respect to the ideas of his predecessors and to make them the foundation for his own thought, in order to press on further in their footsteps—and this is undoubtedly the mark of all truly promising research. Unfortunately, he has not always succeeded in avoiding the danger inherent in this approach: an excessive tendency towards eclecticism and indecision with regard to the issues discussed. As a result, statements that are far too imprecise, that have not been given adequate thought, are not exactly infrequent in his text, nor even are flagrant contradictions. Thus, for example, on pages 170–4 he mentions the view recently maintained by Wagner that the supply side has a permanent predominance over the demand side when it comes to price formation, but finds it ‘decidedly questionable whether this allows the inference of a tendency towards a general raising of prices’ (p. 173). Yet on pp. 180–4, as far as I can see, he adopts this view without reserve, and even attempts to refute the obvious objection that the raised prices would require correspondingly larger cash holdings, which it might be impossible to satisfy with the existing supply of money, by the observation ‘that the very avoidance of unnecessary expenditure forced on individual economies by the rise in prices’ might be ‘more likely’ to lead to ‘a decrease in the amount of money holdings required’— which seems to me a rather speculative idea, to say the least. Similarly, he advances more or less weighty arguments against Wieser’s claim (which in my opinion is completely paradoxical) that the rise in commodity prices is Originally published in Zeitschrift für Volksivirtschaft, Sozialpolitik und Verwaltung, 1914.

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caused by the expansion of the money economy, yet at the same time he expresses the opinion that Wieser has ‘revealed important points in connection with the market and price formation by this argument’ (p. 176). But in other places in his book, the author is very well aware that the actual state of affairs must be the reverse: prices have risen in our day, not because of but in spite of the growth of the money economy, because this growth has been outpaced by gold production and the development of the credit system. On p. 314 he emphasizes (contra myself) the legal distinction between (time) bills and notes: it is ‘incorrect to say’ (which I did not do, incidentally) ‘that when a bank discounts bills, it does nothing but substitute the convenient circulation of notes for the inconvenient circulation of bills’. But on p. 326 he himself stresses that in older times, ‘the circulation of bills was in its externals fairly similar to that of fiduciary media’. On pp. 425–33, to which I will return later, the contradictions pile up, at least apparently, in such a way that it is almost impossible to grasp what the author actually means; admittedly, the subject discussed there is one of the very most difficult questions in monetary theory. Two sections of the work in particular—unfortunately not the best two— seem to me to require more detailed discussion: first, his treatment of the quantity theory, and second, the question of the influence of the banks’ interest rate policy on commodity prices. In his remarks on the first issue, many good observations are unfortunately accompanied by a lack of clarity in his formulation of the problem and in his manner of argument. He presents the arguments that are apt to confirm the validity of the quantity theory very carefully and, to my mind, very convincingly—yet they do not seem to have convinced him. Among other things he accuses the quantity theorists of dealing only with the causes of a change in the equilibrium position of prices, instead of first investigating in a truly scientific manner the conditions for this equilibrium position itself. According to Mises, it would only be possible to do this on the basis of ‘the subjective theory of value’; but what he actually means by this remains very much in the dark, for all his protracted explanations. Yet in my opinion the whole business is quite simple. Assuming a general cash economy, it is obviously the necessary level of cash holdings that limits the demand for money and thereby (indirectly) the level of commodity prices. C. Menger, whom the author quotes in support of his view, seems to me rather illogical on this issue. He claims the quantity and velocity of circulation of money are insufficient to explain the level of prices; rather, it is also necessary to take into account the function of money as a store of value, which causes certain holdings of money always to remain for longer or shorter periods in individual reserves. But these necessary pauses are of course simply the inverse of the velocity of circulation of money; if they are known, or if it can be assumed that, other things being equal, they will maintain the same average magnitude, then that is all that is needed to explain the level of the value of 221

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money or of commodity prices. The fact that a few coins may remain in the till for years is of no importance: it would of course have been quite possible to exchange them periodically for other coins that circulate more rapidly, so that each and every coin acquired the mean velocity of circulation, which is what actually matters. In a fully developed credit economy, in contrast, in my opinion there is no absolutely determinate equilibrium state of prices at all. To take the extreme case, supposing an economy in which each and every payment occurred purely by means of changes entered in the bank books and where the unit in which bank accounts were kept functioned as the sole measure of value, price equilibrium could readily obtain at any level of prices. Thus, the problem Mises claims to have been the ‘first’ to solve is completely non-existent; the only question concerns the reasons for a change in or continued adherence to the established level of prices, this level, incidentally, being completely conventional. In other words, the ‘equilibrium state of prices’ should here be constructed by analogy with the so-called indifferent equilibrium in mechanics; it does not change of its own accord, but nor do any changes it may undergo unleash forces that would necessarily re-establish the earlier state. This brings me to the section of the work (p. 401 ff.) that I personally found the most interesting, since the author here responds directly to my views on the connection between interest rates and prices. Now for a considerable space he appears to endorse these views. According to Mises, too, the main factor in stimulating or circumscribing the demand for credit, and therefore also one of the main causes of changes in the value of money under present conditions, consists in the difference between the ‘natural rate of interest’ or, to put it more simply, between what one can earn or thinks one can earn with cash in hand, and the interest rate actually charged by financial institutions.2 Assuming the ideal banking conditions described above—which naturally could only arise after the abolition of the free minting of gold—this factor would even be the sole regulator of commodity prices. Under present conditions, to be sure, the banks do not have a completely free hand in their interest rate policy: an excessively low bank rate would soon drive prices so high that the banks’ cash holdings would ultimately be put at risk, on account of the expanded demand for metallic currency. However, Mises goes on to claim that ‘it is by no means possible’ for the banks ‘to reduce the rate of interest on loans as much as they like within these’ often very ‘wide limits’. But his counter-evidence, which occupies more than eight pages (425–33), is very hard to follow. The idea he seems to have had in mind initially is that on account of the lowering of the lending rate, the period of production would be progressively lengthened, which according to Böhm-Bawerk’s theory would also lead to a reduction in the natural rate of interest on capital, so that the initial difference between the two interest rates would soon be evened out. If this were really the case, then certainly the upward movement of prices would have to come to a temporary halt, though 222

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this would not prevent the banks from driving prices still higher by a further cut in their lending rate. However, Mises’s claim is probably incorrect. He forgets that in economic equilibrium the period of production actually maintained must always bring the individual entrepreneur the largest possible return on his capital. Even if he can obtain his money at a far cheaper rate of interest, this will not induce him to lengthen his period of production; instead, he will quite calmly pocket the difference as additional profit. But a lower interest rate will certainly encourage him to expand his business; as a result of the ensuing competition among the entrepreneurs wages will be driven up, and this, certainly, would force the entrepreneurs to lengthen the periods of production in question, if commodity prices had remained unchanged at the same time. However, the real capital has undergone no expansion and nor, therefore, have stocks of commodities—indeed, at the lower interest rate they are more likely to have shrunk as a result of a diminished inclination to save and therefore an expansion in consumption on the part of former savers. Consequently, the higher wages must necessarily induce a corresponding rise in commodity prices and the entrepreneurs therefore find themselves in approximately the same position as before, in spite of the higher money wages. Oddly enough, at the end of these extensive but unfortunately very opaque observations, Mises reaches precisely the same conclusion as myself. He says (p. 431 ff.), ‘Finally, they {the banks} necessarily arrive at a point beyond which they cannot go; for ultimately the point must be reached where the further expansion of the circulation of fiduciary media is no longer possible, either because, when metallic money is used, the limit has been reached below which the purchasing power of the money and credit unit cannot sink without the bank being forced to suspend cash payments, or because the lowering of the lending rate has reached the limit set by the technical costs of banking operations, or because the snowballing circulation of fiduciary media3 leads to a fall in the internal objective exchange value of the money and credit unit that surpasses all bounds. Then the bank is forced to cease its endeavours to underbid the natural rate of interest.’ Certainly—but that is exactly my point, except that in my opinion, if it lasts long enough, even a very moderate reduction of the lending rate could very easily engender an enormous rise in prices. So what are we actually arguing about? As a QED, at any rate, the above sentences make most peculiar reading. I do not want to give the impression that all or even most parts of Mises’s book are as encumbered with obscurity or contradictions as those criticized here. On the contrary, as soon as he leaves the dizzy heights of abstract theory and approaches the field of monetary practice, his presentation gains considerably in acuity and calm confidence. What he writes, for example, about the Banking School, Peel’s Act, the gold-premium policy, etc., is in my view among the best accounts one can read of these and similar subjects. In fact, probably nothing more than a final revision of the whole work would 223

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have been required to bring the purely theoretical parts of it to the same level of clarity and internal coherence as the more practical exposition. However, scholarly production is in such a state of frenzied unrest at present that to expect writers to hold back from publication even for nine months (let alone years)4 is probably mere wishful thinking.

NOTES 1 2

3 4

Editor’s note: Page numbers refer to the original German edition. The first English edition appeared in 1934 and an extended English edition in 1953. In my Interest and Prices, I went so far as to declare this factor the sole cause of price movements, since I imagined that increased production of gold would only affect prices indirectly via the bank rate. After all, shipments of gold are mostly entrusted directly to the central banks and this being so, I thought, they cannot fail to lower the prevailing level of the interest rate, which is then the direct cause of a rise in prices. Subsequently I have abandoned this view as too one-sided. The first effect of an augmented production of gold is obviously to increase the demand for goods on the part of gold-producing countries. The influence tending to raise commodity prices from this quarter is therefore immediate, indeed, in certain circumstances it may be so significant that the definitive rise in prices occurs even before the cases of gold arrive in Europe as payment for those commodities, so that no surplus of gold is apparent at all. In the second volume of my Lectures, which will hopefully be out soon, I have attempted to discuss this interesting but difficult point in somewhat greater detail. My italics. Translator’s note: Wicksell is alluding to Horace’s advice to the poet in Ars Poetica.

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34 KARL HELFFERICH, DEUTSCHLANDS VOLKSWOHLSTAND 1888–1913 {GERMANY’S NATIONAL WEALTH 1888–1913} Berlin, Georg Stilke, 6th edn, 1915

On the occasion of the German Emperor’s silver jubilee in 1913, a weighty collection of articles was brought out by a number of German writers, under the title Soziale Kultur und Volkswohlfahrt während der ersten 25 Regierungsjahre Kaiser Wilhelms II {Social Culture and National Welfare in the First 25 Years of the Reign of Kaiser Wilhelm II}. Apart from its general retrospective interest, this work, if I am not mistaken, also had a political purpose. The policies of the German government, which until then had been peaceful and on some occasions had involved making concessions, at least in substance, had aroused increasingly lively opposition in leading circles (sponsored, it was claimed, by the crown prince of Germany); such policies were considered to be incapable of securing for the great German Empire a position in the world commensurate with its population and military power. In opposition to these ‘pessimists’, the aim of this volume was (I presume) to demonstrate the exuberant, indeed, unprecedented growth in all fields to which precisely this peaceful era had led Germany. The important section of the book dealing with Germany’s economy had been entrusted to Dr Karl Helfferich, the well-known economist, who is now Secretary of the Treasury in Germany. It has subsequently been issued separately in several editions, under the above title. Now, during the war, Helfferich’s book has acquired added interest, since it documents, so to speak, the material basis of the formidable demonstration of military power sustained by Germany (and under Germany’s leadership Austria) for more than a year. Apart from the absolute magnitude of the national wealth itself, which is of relatively minor interest in this connection, the figures that one most frequently sees cited from it concern, first, the German national income, which is calculated to be some 43 thousand million marks Originally published in Ekonomisk Tidskrift, 1915.

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at present (1913), compared with no more than about 23.5 thousand million marks as late as 1896—which would mean it had gone up by no less than 83 per cent, and per capita of the population by 44 per cent, in these 17 years— and second, the concurrent increase in the national wealth, which is calculated by Helfferich to be all of 10 thousand million marks per year in recent years. Of this latter sum, he claims that only about 1 1/2 thousand million marks are to be attributed to the purely ‘automatic’ growth that the value of real property, particularly land, has experienced on account of the rapid increase in population and the raised demand for farmland and building sites this has entailed; all the rest, about 8 1/2 thousand million marks, is therefore to be regarded, he claims, as the current annual savings of the German people. If these figures were even approximately correct, or if they really had the significance with which Helfferich himself and his parrots in all countries seem to want to invest them, one would be almost inescapably bound to concur with the view that it can only have been on account of the vile plots of envious enemies that Germany was drawn into the war; for it seems completely inconceivable that it would have traded so brilliant a course of peaceful expansion for the ‘arduous toil and meagre rewards’ of an international brawl, of its own free will. But alas, all that glitters is not gold: I am afraid the figures cited are probably susceptible of very considerable reduction before they acquire any adequate counterpart in reality. Let us begin with the increase in wealth. In the main, Helfferich employs a dual method in calculating this. First, he estimates the size of the national wealth at various points in time, using as a guide the total declared values of property insured against damage by fire, to which he adds certain separately calculated values for property not subject to fire insurance: land and building sites, railways, ships, etc. Second, he takes as his point of departure the property assessed for wealth tax in Prussia, which he then multiplies by a certain ratio to make it correspond both to untaxed wealth in Prussia and to corresponding wealth in the other German states. At least as far as the increase in wealth is concerned, he finds that the results of these two methods are in leidliche Übereinstimmung’ {tolerable agreement}— however, they do not agree particularly closely except when it comes to the most recent years (1908–11), where the figures happen to coincide exactly. But what is far more remarkable is that Helfferich—in contrast to Flodström, in his well-known study of Swedish national wealth—has made no correction at all for the declining value of money during the period in question (i.e. from 1896 on). Naturally, he is not ignorant of the fact that a correction of this kind ought to be made, but he claims (pp. 121–2) that it would in any case merely be of ‘bescheidener Natur’ [a modest kind] and ‘unable to efface the essential features of the development described’. It is most remarkable that, in spite of being surely one of Germany’s most acute thinkers in the monetary field, Helfferich has not made the least attempt to estimate—I shall not say, the exact amount, which is impossible, but at 226

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least—the order of magnitude of the error thus committed. After all, anybody is bound to make the reflection that since changes in the value of money influence the monetary value of the entire mass of wealth, they must have a far more powerful effect still on the observed, nominal increase in this wealth in the course of a certain, not very extended period. All available information suggests that of all the countries in Europe, Germany is the one that has suffered the highest rises in prices (naturally, we are here talking about the pre-war period). If we therefore take the wellknown Sauerbeck index numbers, which apply most directly to England, as a measure of the declining purchasing power of money, we shall, if anything, have underestimated rather than overestimated the rise in prices that has really occurred in Germany. Now according to Sauerbeck, the general index figure rose in the ratio of 61:80, or by more than 30 per cent, between 1896 and 1911. During the same period, on Helfferich’s account, tax-assessed wealth in Prussia had risen from 63.6 to 104.0 thousand million marks, or by about 40 thousand million marks. However, taking into account the decline in the ‘value of money’, i.e. calculated in terms of the level of prices in 1911, the former amount of wealth would be 30 per cent or nearly 19 thousand million marks greater than its nominal sum, thus leaving only about half of the apparent increase as the real growth of wealth. Applying this to the rest of Helfferich’s argument, the alleged annual expansion of wealth by 10 thousand million marks would likewise be reduced by about a half, and then, further, as Helfferich himself concedes, we should have to subtract from the remainder the ‘automatic’ increase in value produced by rises in the rent of land and building sites (which occur independently of changes in the general price level), before getting down to the amount of the actual savings. On no account do I claim that my calculation of these reductions is exact— naturally, all the data are too uncertain for precision—but it does appear beyond a doubt that the figure given by Helfferich, 8 1/2 thousand million marks, must be much too high. However, Helfferich attempts to shore up this figure in a third way, too, by observing that even so-called visible savings, which are still only a part of the whole, amount to about 5 thousand million marks. Here he counts among ‘visible savings’ the growth of newly issued securities, which is supposed to have come to nearly 3 thousand million marks per year in recent years, and increases in the deposits held by the banks and savings banks, as well as in the capital wealth of workers’ insurance funds, together about 2 thousand million marks. But can it really be correct here simply to add these values? I wonder if it is not the case that a large part of these new stocks, to the extent that they have remained in Germany, are to be found in the vaults of the financial institutions just mentioned, being in part their own assets, acquired in exchange for some of the money deposited in them, and in part security received for loans, a portion of which remains in the banks and is therefore counted among their deposits. And in this connection, do we not also have to 227

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take into account the negative item represented by capital used up in consumption? There can be no doubt that some bank loans, whether issued against pledges or security, are not taken out for the purpose of acquiring fixed capital but instead serve the education of the young in learned and other professions, or even just their support until they reach an age fit for work. Whether compared with the national income quoted, circa 40 thousand million marks, or with the volume of the national wealth itself, which is calculated by Helfferich to be somewhat in excess of 300 thousand million marks, annual savings of 8 1/2 thousand million definitely seem too high. With reference to the first, savings would be equivalent to no less than 20 per cent of total incomes, which is scarcely conceivable; with reference to the second, close to 3 per cent of existing capital wealth. But in a country that mostly employs its capital internally, the expansion of the capital is represented to an overwhelming extent by housing, household equipment and industrial equipment for the new members of the population. That being so, it can hardly be imagined that the expansion of German capital should proceed very much faster than population growth, which in recent years has been around 1.3 per cent per year. According to Helfferich, actual real capital growth has been more than twice as great as population growth, which also appears rather improbable. In his work ‘Finanzielle Kriegsbereitschaft’ {Financial preparedness for war}, which I have discussed in this journal previously, J.Riesser estimates present annual savings in Germany at just 3.7 thousand million marks (p. 43), which is possibly on the low side, but is nonetheless probably closer to the truth than Helfferich’s extravagant figures. Things are probably no better, in reality, when it comes to the great increase that is announced in national income. Helfferich apparently wants to claim here, too, that his numbers substantially correspond to real circumstances, for he makes a great effort to show, in an appendix, that a proportionate part of this income growth has also benefited the working class. But if we subtract from the nominal income increase of 44 per cent (per capita of the population), the (at least) 30 per cent we have just talked about, which corresponds to the decline in the ‘value of money’ or the rise in the price of goods during the same period, then of course there is not so much left. Indeed, as far as the working class is concerned, it seems questionable whether anything at all is left that might indicate that their living conditions are continuing to steadily improve. That a real and considerable improvement of this kind occurred in the latter years of the nineteenth century is probably indisputable; but since then, developments appear to have taken a turn in the opposite direction, not least in Germany. According to Carl v. Tyszka’s well-known study,1 the real wages of German workers have, on the contrary, gone down by nearly 20 per cent in Prussia, calculating from the beginning of the present century! So in actual fact there does not seem to be much reason for Helfferich’s 228

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concluding reflection that the development he has described ‘lässt jedes Herz in Stolz und Freude höher schlagen’ {makes every heart beat with greater pride and joy}. On the other hand, in these circumstances, it is easier to understand the environment of social unrest and tension that has actually prevailed in recent years in Germany, the reflection of which, in foreign policy, found expression in the well-known, much quoted saying, just before the war, lieber ein Ende mit Schrecken als ein Schrecken ohne Ende’ {better to end in terror than suffer terror without end}.

NOTE 1

Löhne und Lebenskosten in Westeuropa im 79. Jahrhundert (Schriften des Vereins für Sozialpolitik, 145, 1914).

229

35 GOETZ BRIEFS, UNTERSUCHUNGEN ZUR KLASSISCHEN NATIONALOKONOMIE, MIT BESONDERER BERÜCKSICHTIGUNG DES PROBLEMS DER DURCHSCHNITTSPROFITRATE {STUDIES IN CLASSICAL ECONOMICS, WITH PARTICULAR ATTENTION TO THE PROBLEM OF THE AVERAGE RATE OF PROFIT} Jena, Gustav Fischer, 1915

In spite of its title, the book deals almost exclusively with English economists, particularly Ricardo; the fact that Germany has also had a classical economist, who quite independently came to almost the same conclusions as the English School—von Thünen—is mentioned nowhere. In his preface, the author states that the goal of ‘modern economies’ is to ‘overcome the Classical School, ‘to go beyond it, break free of it, because as a whole it no longer has any relevance to modern socio-economic problems’, and so on. For him, there is therefore no question of continuing to build, in a spirit of gratitude, on the existing foundations; what is needed is a whole new creation. On what basis is not stated directly, but perhaps it can be guessed from the heavy emphasis the author places on the personal element in production, from his view of profit—and if I have understood him correctly, also of rent, though he is somewhat vaguer on this point—as ‘a reward for services to society’. On p. 151 he claims it is ‘simply incontestable that in the very branches of business where free competition has been Originally published in Weltwirtschaftliches Archiv, vol. 8, 1916.

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established most fully, the personality of the entrepreneur is decisive for the profitability of the enterprise’. If this is to be taken literally—and if it were true—the profit outlook for, e.g., shareholders in a stock corporation, would be very dim; for the competition for those talented managers who alone would be capable of saving the enterprises in question from ruin, would probably mean that the entire profit from the business would be swallowed up by gigantic manager’s commissions, leaving next to nothing for the shareholders. But perhaps these extraordinary talents are also endowed with an abnormally large share of modesty, so that they do not even think of claiming the wages that are their due. It is obvious that written in such a spirit, Briefs’s critique of the Classical School—which of course, in contrast and certainly too one-sidedly, was only interested in the material factors making for profit and rent—cannot exactly be lenient. But from the outset, this critique overshoots all reasonable bounds and ultimately indulges in quarrelsome faultfinding of a kind that really cannot gratify anyone. For example, when Adam Smith wants to convince his readers that profit as such cannot possibly derive from the trouble the capitalist supposedly goes to in conducting his business, he assumes two industrial entrepreneurs who employ the same number of workers at the same wages, but of whom one possesses a stock of raw materials of great value, while the other’s raw materials are almost worthless. It is obvious, says Smith, that the former must draw a far larger annual profit than the latter, even though he probably went to about the same amount of trouble. Is it possible to refute a popular error (an error that is still very popular among entrepreneurs) more simply or more conclusively? Think again! In the author’s opinion, here Adam Smith has committed a ‘poorly concealed petitio principii’ {begging of the question}. The reasons are, first—take a guess!—that ‘in this age of goods and capital credit, raw materials are actually paid for when the goods are thrown into circulation and their value converted into money’. This strange objection is, however, described by Briefs himself as ‘a minor point’. But second, ‘Smith presumes what he is supposed to prove’, namely, that the rate of profit on the capital employed was the same in both cases. But that is not what he was aiming to prove here at all; he assumed it as a generally attested fact. To be sure, it is not exactly true, but it is at any rate somewhat closer to the truth than the reverse claim, that given equal managerial work, the rate of profit is in inverse proportion to the capital employed. Ricardo comes out of it still worse than Smith. I shall leave undecided the question as to whether the author has really misunderstood this great thinker, or perhaps has simply not wanted to understand him; at any rate, his presentation of Ricardo’s doctrine and its supposed consequences is misleading in every respect. When he says at the outset (p. 49) that according to Ricardo, ‘the natural fertility of the land reduces or enlarges wages’, an 231

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uninitiated reader will hardly be able to guess that what is at issue here is only the nominal wage, while the real wage is assumed by Ricardo to be constant, either because it is already at the subsistence level, or because the workers habitually adhere to a certain standard of living by imposing an appropriate limit on their numbers or their rate of increase. In passing, there is no truth at all in the author’s statement (p. 51) that Ricardo made the Malthusian law of population—understood as an unrestricted tendency to propagation on the part of the worker—‘the cornerstone of his stock of premises’. His theory can be carried through equally well irrespective of one’s presuppositions about the number of workers or their increase; and he himself indicated quite clearly to the workers how they could obtain permanently higher wages, so he by no means described such a development as ‘unnatural’—as Briefs claims. Briefs continues (p. 56), ‘if wages, whether expressed in money or corn, cannot sink, then the declining productivity of land as cultivation expands must necessarily be at the expense of profit’. This is quite incorrect. Expressed in money, the gross yield will of course remain the same, even on the worse land, since it was produced by the same amount of labour and must therefore be exchanged for the same quantity of gold;1 in order to depress profits, wages must therefore not only not sink, they must rise, and indeed, according to Ricardo they will do so, because of the higher price of corn. Similarly misleading, and in itself utterly futile, is the question discussed repeatedly and at great length by the author as to whether in Ricardo’s opinion, the growth of capital or population increase should be regarded as the primary motor of national economic development. He finds ‘evidence’ of both conceptions in Ricardo, and even wants to give the latter priority as being more ‘Ricardian’—though only immediately to draw the most outrageous conclusions from it. Now here, the facts of the matter are simply as follows. In principle, i.e. putting his theory on the simplest basis, Ricardo always assumes that the increase of capital is primary; as real wages are to be understood as being both constant and advanced by capital, the number of workers cannot grow unless the free capital that serves to pay their wages has first increased. That is surely as clear as day. But of course Ricardo does concede the possibility that the number of workers may actually increase even when the capital remains constant; though in that case wages must previously have been at any rate somewhat above the bare subsistence level. But, and this is the most important point here, if something of this kind happens, the workers’ real wages will obviously fall and the rate of profit will rise, not, as Briefs claims, sink (!); whether it will rise in proportion to the fall in wages or somewhat less depends on the productivity of the land that is still available for use.2 The author would have done better to spare himself and his readers the cock-and-bull story he repeatedly dishes up, about how (according to Ricardo!) the ‘profit mania’ of capital, tempted by 232

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the raised prices of corn, flings itself on land of the worst quality, only to destroy the conditions for its own existence. On the other hand, he asks (p. 77 and frequently) why—if the increase of capital is the primary factor—the capitalist class does not prefer to interrupt the accumulation of capital at a point where capital yields a much higher rate of profit, as a result of an overabundance of good land. This question is really too absurd to deserve an answer. People do not save as a class, but as individuals. Worst of all, perhaps, is the passage on p. 71 ff., where the author goes so far as to make the doctrine he is censuring entail a vicious circle. As is well known, Ricardo shows very subtly how the capitalists can partially avoid an impending curtailment of profits by using relatively more fixed capital. At the same time, in consequence, the money price of the products concerned would decline somewhat, though only on the assumption, which Briefs does not mention, that a corresponding increase of the fixed capital in gold production does not occur. The decline of money prices is therefore not even guaranteed, yet Briefs proceeds to draw the most sweeping conclusions from it: ‘The cheapening of some of the means necessary for subsistence,’ he claims, ‘sets off a tendency to increased population; wages rise as a result of the added cultivation of poorer classes of land, and profits sink accordingly; hence, industrial products will be still further cheapened, and the same effect recurs again. Thus, a vicious circle.’ In other words, the measures taken by the capitalists to save a part of their fallen profits would induce a further decline in profits; and the curtailment of the free, circulating capital that obviously goes hand in hand with the enhanced employment of fixed capital, would engender not, as might be thought, a reduction, but rather an increase in the number of workers! The author calls this nonsense ‘the law of the accelerated cycle of development’, and claims to have ‘thought it out as a strict consequence of Ricardo’s premises’. It is at least some relief when he admits that Ricardo ‘did not draw these conclusions’. That I do believe. The author also ponders at great length over the question of to what extent Ricardo recognized the possibility of an absolute ground rent, i.e. a rent that has to be paid on each piece of land taken into use, or rather paid out of each part of the capital. But there can be no doubt about this, either; according to Ricardo, as soon as the scale of productivity evinces serious discontinuity, even the poorest land would pay rent, and by way of exception, this rent would then be an element in the price of corn.3 But it is utterly absurd to believe that there would therefore be no profits at all from this point on. The author finds ‘evidence’ of this view in Ricardo, too; he quotes (p. 189) a few words ({The} Works {of David Ricardo, Esq., M.P., with a Notice of the Life and Writings of the Author by J.R.McCulloch, Esq. London: John Murray, 1846}, 151) where Ricardo says that then ‘no more capital can be profitably employed on the lands’. But of course all Ricardo meant was that all the surplus capital now has to be applied to industry, he certainly did not mean that profits would be reduced to zero. Ricardo’s ensuing remarks, 233

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incidentally, which the author appears not to have noticed, make this meaning fully evident. Similarly wrong-headed is the author’s claim (p. 199) that Ricardo contradicts himself when he says at one point that capital can only be turned to account by living labour, but then undertakes to show in the chapter on machinery how labour can be replaced by inert machines. Are not the machines products of living labour? Does Briefs imagine they grow on trees? Here, incidentally, though unnoticed by the author, lies a point on which Ricardo’s view, like that of the entire English School, was much too onesided. The services of the land are also paid for out of the capital, so that capital is turned to account in part by its investment of valuable natural agents in production. All the greater the error of wanting to place rent and profits on the same level, as Briefs appears to do. Finally, the author also endeavours to decide which of the well-known ‘theories of interest categorized by Böhm-Bawerk might fit Ricardo’. As is generally known, Böhm-Bawerk had classified Ricardo as a ‘colourless’ theorist, though this does not mean much. Briefs, in contrast, decides after an ‘investigation’ that is as interminable as it is utterly worthless (p. 175 ff.)—in favour of Turgot’s fructification theory. Since he has previously concurred with Böhm-Bawerk in calling this theory, which of course was the product only of an error in Turgot’s reasoning, ‘nonsensical’, I am sure this is a most generous decision; though unfortunately, it has nothing to do with reality. Instead, Ricardo’s theory of interest, just as much as BöhmBawerk’s or any genuine theory of interest, is an agio theory, the workers exchange their ‘future goods’, the product of their labour, for the ‘present goods’ of the capitalist, the real wage, because they need the latter more (the case of the capitalist is the reverse). The fact that an agio, namely, the profit on capital, always arises in this process is due simply to the scarcity of capital: it just suffices to advance the actual wages (plus the actual ground rents, monopoly rents, etc.). Otherwise there would be no interest on capital. Ricardo made only occasional comments on the circumstances that impose periodical and finally definitive limits on the size of the capital, and his comments were not completely accurate, either; much remained here for later theorists to do—Senior, Jevons and above all Böhm-Bawerk. But once the scarcity of capital is conceded as a fact, Ricardo’s explanation of interest is complete, in my view; I have never been able to subscribe to Böhm-Bawerk’s disparaging judgement on it. Briefs’s claim (p. 115) that Senior’s abstinence theory has ‘crushed’ Ricardo’s explanation is about as true as all the rest of his criticism. Briefs saves the best till last. On the final page of his book he talks about the attempt made by John Stuart Mill—by ‘using methodological arguments to deny all possibility of a connection between political economy and economic reality’ (!)4—to save Ricardo and the Classical School in general ‘from the mighty blows dealt them by Carlyle, Coleridge, Southey and 234

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Ruskin’. These are fine fellows to refute a Ricardo! To the best of my knowledge, Coleridge and Southey were poets—the latter even Poet Laureate. As for Carlyle and Ruskin, even though they only wrote prose, they too were at any rate more poets than economists. I wonder if this is not perhaps the case with Briefs, too? He could stand comparison with the greatest in terms of creative imagination… In the last few years there has been much talk of the revival of interest in theory among German economists. However, if this work of Briefs’s is to be taken as evidence of that interest, I would rather have good old German historicism, which may have simply discarded all theory, but at least did not attempt to twist it into a caricature, like Briefs. Briefs has dedicated his book to his teacher, Diehl. I wonder how proud Diehl feels of him.

NOTES 1 2

3 4

As is well known, Ricardo assumes for simplicity that a given quantity of gold is always produced by the same quantity of labour. Only on the assumption of a very rapidly declining scale of productivity of the soil would the paradox of a falling rate of profit be possible; then the reduced wages would benefit only the landowners. But this too, becomes impossible, as soon as one takes into consideration the fact that rent is also advanced by capital. On this point, see my Lectures on Political Economy, vol. I, p. 191 ff. [English edition]. Ricardo—and following him, Briefs—states that agricultural products would then sell at a monopoly price, but this is not quite correct, since of course full competition would still obtain between the landowners. In the preceding line, he writes still more narrowly, ‘any direct connection’.

235

36 JOHN STUART MILL, OM FRIHETEN {ON LIBERTY} Translated by H.Öhrvall, second, revised edition, Stockholm, Bonnier, 1917

A few decades ago, the writings of British philosophers were virtually unknown in our country—and perhaps this is still the case (of course, this ignorance was partly due to the fact that until very recently almost no instruction in English was given in our grammar schools). In general, no more was known of Locke and Hume than that they were both empiricists or materialists and had been ‘refuted by Kant’—by his famous demonstration, unhappily since found to be erroneous, that ‘synthetic judgements’ such as mathematical propositions were also possible a priori, without the aid of experience. Bentham, James Mill and Bain were scarcely even known by name, John Stuart Mill was known as an economist, of course, but almost completely unknown as a philosopher; some forty years after publication, his Logic had still not made its way to Uppsala University Library. To be sure, On Liberty was translated into Swedish as early as the 1860s—in Finland (by F.Berndtson)—but I doubt if this rendering found many readers in Sweden, it being rather too unwieldy to appeal to public taste in this country, at least. H.Öhrvall’s new translation, published in 1881, was therefore a real event; it can safely be asserted that within the circle of more or less adult young people (incidentally, a rather limited circle) conventionally known as ‘the Eighties’,1 Mill’s Liberty became the original text and code in which notions we had previously but dimly sensed received clear illumination and binding logical coherence. That the suppression of views and opinions is an evil under all circumstances, even and not least if the suppressed view is false; indeed, what is more, that experiments with ‘new ways of living’ are to be regarded as a gain for the human race and ought to be encouraged instead of mocked or persecuted, provided they are not directly harmful to any other person— all this was rather novel at that time, not merely to the common way of Originally published in Forum, 1917.

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thinking, but even to those who strove to reform it. Even today, there are probably not many people who have fully assimilated Mill’s principles regarding the absolute sovereignty of the individual over his or her own body and soul, his or her individual life, restricted solely by respect for the liberty to which others are equally entitled. It has also become obvious that, however beneficial and necessary it may be from other points of view, the modern development of democracy, in itself, entails a certain risk of a new tyranny over the soul—which Mill himself, incidentally, foresaw and pointed out—a tyranny not less, but more terrible, because it is clothed in the seductive guise of political liberty and equality. A reading of Mill’s book can therefore not be recommended too strongly to all whose word and influence have any significance in greater or lesser circles—or a rereading, if they have already read it, but forgotten it. On the other hand, when it comes to all the applications made by the author himself, it is clear that a text that is now nearly 70 years old cannot be wholly in touch with the demands of life in our modern society. In fact, as the translator emphasizes, a number of reservations are probably called for in this respect, though perhaps as frequently because Mill goes too far in conceding exceptions to the general principle, as because the principle itself is applied too broadly. Thus, for example, when Mill, though here almost in passing, advocates the indirect method of taxation—to which Öhrvall objects with good reason—he does so on the basis of the ignorance of the masses in political things, as one discovers from the more detailed argument in his Political Economy. There Mill writes that if people knew how much they really pay in taxes, they would oppose taxation without regard for the state’s inevitable need of tax revenues. Here, on his view, we therefore have a case of legitimate tutelage exercised by those in power, something Mill is otherwise only willing to urge in dealing with semi-civilized peoples. Obviously these words of his have to be seen against the background of an epoch when public education stood on an extremely weak footing, newspapers adapted to the purchasing power of the masses did not yet exist, and finally, means of communication were relatively underdeveloped in England, too: in a word, when the bulk of the population still had no opportunity to inform itself about and participate in the management of public affairs. I consider it completely out of the question that Mill would persist in this idea if he lived in our time; he would certainly be just as eager as any modern social reformer in urging that everyone must know in detail what he pays in taxes and what he is paying for. On the other hand, I wonder whether the translator does not go too far in his comment on Mill’s proposal that as its sole intervention in the issue of drunkenness, society ought to enact a penalty on a person found intoxicated when he has previously been convicted of an act of violence towards others while under the influence of drink. ‘In Mill’s opinion,’ he 237

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states (p. 165, note), ‘it would evidently be just as legitimate, in these circumstances, to deprive him of the right to procure intoxicating beverages.’ Surely it can hardly be denied that this would be a more intrusive interference in his liberty. But if I am not mistaken, a principle is applicable here which Mill fully acknowledges in another connection, namely, that it is legitimate to prevent, or more correctly, to protect a person from committing out of ignorance—and one can surely add, out of weakness of will—acts that he himself would disapprove of and regret if he thought about them more calmly. (If he does not do so, but instead, perhaps, uses intoxicating drinks in order to pluck up courage to commit an act of violence he has already planned, then he is obviously an inferior individual and extremely dangerous to society, and must be taken into custody by the state for this reason.) In my view, the Bratt system2 stands and falls with the observation that we all have moments in our lives when, like Ulysses passing the Sirens’ cave, we have to have ourselves tied to the mast in order not to be overwhelmed by our desires. However, these are details, even if they are not unimportant. The great fundamental principles of liberty of thought and expression, together with liberty in private life, are elaborated by Mill not merely with the most convincing logic but also with a warmth and enthusiasm that place this little book in the forefront, as it were, of all Mill’s writings. One or two ‘signs of age’ could be noted here, too, I suppose. The argument from the trial of Socrates is probably still as valid as ever, though it may be assumed that on that occasion, as so often since then, it was actually political hatred that had clothed itself in the convenient cloak of zeal for religious orthodoxy. But faced with the reminder Mill adds of ‘the event which took place on Calvary rather more than eighteen hundred years ago’, one simply cannot refrain from a smile, considering the weighty grounds adduced by modern biblical research for concluding that this event ‘never really’ took place— any more than the archaeologists have been able to locate any site named Golgatha—but probably, like so much else in the New Testament (Herod’s banquet, the betrayal by Judas Iscariot, etc., etc.) is merely a Christian libel against Judaism—in all likelihood originally ‘symbolic’ in conception. But of course even as such it constitutes, though in another way, an important reminder of what the loss of the liberty of thought and expression has cost humanity in the course of a couple of millennia. Here one is involuntarily reminded of an even greater thinker than Mill, Baruch Spinoza, who in a single work (the famous Tractatus Theologico-Politicus) combined the two greatest cultural achievements of modern times: the first detailed biblical criticism and the first systematic demand for the liberty of thought and research.

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NOTES 1 2

A loosely associated group of young, socially critical writers and thinkers in the 1880s, who exerted a considerable influence on public debate and subsequent cultural and political developments (translator’s note). A system of state control over private access to alcohol, involving rationing and other restrictions, newly introduced in Sweden at the time of writing (1917) and in force with modifications until 1955 (translator’s note).

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abortion 102, 114n14 absolute theory (Seligman) 194 Afzelius, Supreme Court Justice 3, 8 Agardh, C.A. 150 agio 214, 234 agriculture: advances 142–3, 144; Argentina 148, 165n10; Denmark 145; and Home Ownership Movement 140–1, 146, 165n5; labour 165n7; land division 143–5, 157–8, 167n20; monopoly prices 235n3; poverty 144–5; prices 119; productivity 235n2; rents 128; surplus 158; Sweden 139–40, 142, 144–5, 166n14; tariffs 145, 196–7; wages 165n7 amortisation 172, 194 Ansiaux 48 Archimedes 127 Argentina, agriculture 148, 165n10 Aristotle 102 Australia, immigration 129, 160–1 Austria—Hungary 12, 161 Austrian central bank 50, 218 d’Avis, E. 117, 118, 119, 120, 121 balance of payments 26, 49, 64–5 Bankarchiv 73 banknotes 51; central banks 51; convenience 22; convertibility 15, 215; excess 76; money value 49; Riksbank 16, 53, 60–1; Scandinavia25, 72, 73; small denomination 15, 213; Sweden 15, 56–7, 72; uncovered 177, 178; validity 215; Walras 178 banks: Austria 50, 218; Germany 216; interest rates/economic crises 36–7; international 24; money-lending 9–

10; money market control 79; prices 30, 36–7; private funds 15–16; Tjänstemannabanken 10; see also central banks Bastiat, Frédéric 186 Bavaria 96 Beloch, Julius 130 Bentham, Jeremy 4 Berndtson, F. 236 Bertillon 129 bimetallism 12, 13, 16–17, 22, 23 birth control: see population control birth rate: England 131, 167n23; France 106–7, 115n16, 129; Germany 134; Ireland 126; and mortality rates 111n4, 135n5, 159– 60, 162; and politics 134; reductions 159, 162; state control 126–7, 129; Sweden 106–7, 132, 137, 142, 159– 60, 162 Björnson, B.M. 181 Böhm-Bawerk, Eugen von 205; Clark on 209; competition 178; Hobson on 207–8; interest theory 207–8, 222, 234; wages fund theory 42, 183 Bratt system 238, 239n2 Briefs, Goetz: Classical School 231; on Mill 234–5; prices 233; rent/profit 233–4; Untersuchungen zur Klassischen Nationalökonomie 230– 5; wages 232–3 Brock, Fritz H. 44n1, 128 bullion 24–5, 37, 47–8 business theory of money, Knapp 216–17 businessmen, profits 36, 38–9n3; see also entrepreneurs Canada 134, 135n5, 148, 160 cannibalism 99

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INDEX

capital: classical economics 191; durable stocks 17, 38n1; fixed 17, 38n1, 233; interest rates 29, 43, 173, 174, 177–8; and labour 234; living expenses 118; loans 8–11, 29; marginal productivity 6; overabundance 128; population 128; for production 191; productive power 5–6, 127; savings 29; Walras’ theory 180; war-destroyed 55; see also circulating capital capital ventures 7, 29 capitalization theory 194 Carey, Henry Charles 111–12n5, 186 cartels 118 Cassel, G. 62, 63, 65, 76 central banks: Austrian 50, 218; banknotes 51; credit restrictions 49– 50; gold reserves 66, 75; interest rates 69–70n5; Scandinavia 60, 78, 79 Chalmers, Thomas 122 cheques 178 children’s upbringing 128–9 China: currency 13; famine 101; Mongolia 166n14; population 132 Christianity, infanticide 102–3 Cicero, Marcus Tullius 127 circulating capital 123, 173, 174, 221–2 Civil Law Legislation, Standing Committee 3, 4 Clark, John Bates: Böhm-Bawerk 209; The Distribution of Wealth 205–6, 208–9; economic distribution 208– 9; marginal productivity 208–9; value theory 208–9 class 174, 189, 190 classical economics 4, 186–7, 191, 230–1 climate, population 141 coal mining 7 coinage: gold 12–13, 18, 25, 51–2, 71; principal/fractional 214; silver 14, 19–20, 22–3, 175–7; see also minting collectivism 126, 175 colonies 147–8, 196 Commission of Inquiry on Emigration 138, 139 commodity prices: see prices communications, Scandinavia 156–7 communism 172

competition 119, 178–9, 189–91 Comte, Auguste 185 Condorcet, Marie Jean 95 confiscation of land rents 172 consols, selling 70n5 consumer’s rent 206 consumption 118, 120, 122–3, 174, 195–6 contraception 108, 115n17; see also population control costs, current/ incremental 201–2 cotton 148 Cournot, A.A. 201 credit: capital enterprise 29; monetary system 19; prices 35, 48–9, 222; quantity of money 27–8, 74; risk 6– 7; Scandinavian policies 77–8; as societal benefit 78 credit institutions 141 credit restrictions 49–50 currency: acceptance 213–14, 215; Austria—Hungary 12; China 13; fictitious 25; shortage in Sweden 53; see also coinage; money customs unions 24 Davidson, David: bullion 47–8; gold production 18–19; gold quantity/ price rise 43; gold speculation 49; interest rates/prices 40, 43–4; population 129, 133; prices/ productivity 34, 36; value/ purchasing power of money 32–3, 46 death rate: see mortality rates debt payments 213 decolonization 134 demand: elasticity 199, 200–1; gold production 224n2; monopolies 199, 200–1; prices 199, 200, 220–1; and savings 29; and supply 64 democracy 237 Denmark, agriculture 145 depopulation 125–6, 130, 133, 159 deposits, interest rates 78–9 development cycle, accelerated 233 Dickson, Baron 67 Dietzel, Heinrich 166n11, 208 differential method, economics 206 discount rates 50, 65, 66, 78, 218 discounting of bills 10, 177, 221 domestic industry 119, 123 domestic market 14, 122 dromic factors 212

241

INDEX

drunkenness: effects/causes 84, 85–6; Mill 237–8; poverty 86–9; and selfpreservation 85; students 89–90 Drysdale, Dr C. 135n5

exports 119, 151 expropriation 172 extraction industry 132, 149, 166n17

economic booms 28–9, 44n2 economic crises, interest rates 36–7 economics 5; differential method 206; distribution 207–9; German growth 130–1, 161, 225–6; and population 95–6, 137 economics, types: applied 171; classical 4, 186–7, 191, 230–1; harmony 191; Historical School 210; social 171; theoretical 205, 206 Economist, The 53, 58, 59n2, 129 Edgeworth, F.Y. 198, 201, 203 education 127, 138, 156 the Eighties 236, 239n1 Ekonomisk Tidskrift 18, 32, 33, 40, 46, 53, 129, 143, 185 emergency reserves 54 emigration: checks 96; destinations 160– 2; Germany 130; and immigration 167–8n24; from Ireland 102, 126; as population control 97–8, 101–2, 123; remittances 164n3; Sweden 136–40, 154 Emigration Inquiry 136 employment 122 England: birth rate 131, 167n23; friendly societies 167n23; gold reserves 56, 57–8; gold standard 21; interest-taking 5; iron industry 131; service sector 131; silver coins 23; sovereigns 12; value of money 20 England, Bank of 70n5 English language 236 entrepreneurs 194, 197, 231 equality, social 129 equilibrium 26, 121, 222 eugenics 163 Europe: food production 119; population 121–2, 130, 159 exchange rates: compulsory 16; and discount rate 50, 65; exodromic management 217–18; fixed 219; gold 54, 63, 64; Knapp 212, 219; paper money 60; regulating 49–50; states 217–18; Sweden 69n1 exchange surplus 206 exodromic management 217–18

Fahlbeck, Pontus 126 family size 187, 190; see also population control famine 99, 101, 125–6; see also poverty famine-fever 86 Faraday, Michael 127 Federal Reserve Board, US 77–8 Finland, starvation 86 Fisher, Irving 46, 47, 48–9, 52n1 and n4 fixed incomes 17, 33, 118 Flodström 226 food production 119, 148, 151; see also agriculture Forestry School Committee 153 fossil fuels 149, 154 France: bimetallism 22, 23; birth rate 106–7, 115n16, 129; capitalists 128; land division 107; marriage 106, 115n16; monetary system 215; paper shortage 55; population 128, 129– 30, 159, 162; private funds 15, 16 Franco-Prussian war 67 free trade: poverty 94; and tariffs 196– 7; Walras 175, 178, 179 French Canadians 134 friendly societies 167n23 Fröding, Gustaf 144 Gauss, Carl Friedrich 127 Geijer, E.G. 96 Geldzins und Güterpreise (Wicksell) 32, 35, 42, 45n4, 177 George, Henry 172 Germany: banking 216; birth rate/ politics 134; economic growth 130– 1, 161, 225–6; emigration 130; estimations of wealth 226–7, 228–9; foreign competition 119; FrancoPrussian war 67; gold reserves 54, 67, 73; immigration 130; imports 118; mark rate 62, 63; monometallism 22; National Social Union 185; overproduction 117–18; population 130–1; Reichsbank 62, 67, 73; Reichskassenscheine 213; Sauerbeck price index 227; savings 226, 227, 228; unemployment 120; usury law 3, 4; wages 228–9

242

INDEX

Gide, Charles: money value 183; Nationalekonomiens Grunddrag 181–4; wages 182 giro system 13, 216 gold: demonetized 76; exchange value 54, 63, 64; faith in 51, 56, 67, 73; free minting 19–20, 38, 50–1, 77, 78; glut 16, 18, 20; interest rates 14, 27; purchasing power 15, 17, 74; quantity and price rise 43; Riksbank 53, 56, 58, 60–1; speculation 49; value 22–3, 73–4, 217 gold bullion 25, 37 gold coins 12–13, 18, 25, 51–2, 71 gold exchange standard 61, 71 gold monometallism 12, 13–14, 22 gold points 71, 72 gold premium policy 218 gold production: demand 224n2; nationalized 18; new 15, 47; prices 14, 17, 35, 37–8, 40–1, 43, 224n2; seigniorage 46–7, 48, 52n2 gold reserves 17; central banks 66, 75; England 56, 57–8; Germany 54, 67, 73; global 47; gold standard 15; interest rates 66; Sweden 53–7; war 67–8, 75 gold standard 14–15; England 21; Europe 12–13; global 72–3; gold value 217; Helfferich 22; return to 61 Gossen, H.H. 172 grain production 119, 148 Gramme, Zénobe-Théophile 127 harmony economists 191 Hasselrot, C.B. 4 Helfferich, Karl: Deutschlands Volkswohlstand 1888–1913 225–9; future of monetary system 23–4; Das Geld 21–4, 27–8, 30; German economic growth 225–6; German gold reserves 54, 67; German savings 227, 228; German wealth estimations 226–7, 228–9; gold standard 22; interest rates/prices 27– 8; internal market 51; market demand 28–9; minting 20; money’s declining value 226–7; paper currency 24; prices 27–8, 30–1, 227 Herkner, Heinrich 188 Historical School of economics 210 hoarding 60

Hobson, John A.: Böhm-Bawerk 207– 8; The Economics of Distribution 206; marginal productivity 207 Höffding, Harald 186 Höijer, Benjamin 85 Holland: see Netherlands Home Ownership Movement 140–1, 146, 165n5 homelessness 86–7 Hume, David 78 Iceland 155 illegitimacy 105 immigration 95–6, 129–30, 167–8n24 immorality and poverty 130 imports 118, 195, 196 incomes, fixed 17, 33, 118 India: decolonization 134; famine 101; gold exchange standard 61; population 132; rupees 12, 13, 61; silver standard 12, 13 individualism 126, 172, 175 industry: Sweden 149–54; tariffs 148– 9, 196, 198 infanticide 102–3, 104–6, 132 inflation 76, 77 institutions, monetary system 77–8, 79 interest rates: banking 36–7; BöhmBawerk’s theory 207–8, 222, 234; capital 29, 43, 173, 174, 177–8; central bank 69–70n5; in common 77; compound 6; deposits 78–9; economic crises 36–7; gold flows 14, 27; gold reserves 66; loans 27; natural/real 6, 42, 43, 177–8, 222– 3; paper money 66; and prices 27–8, 35–6, 40–1, 43–4, 51, 66, 221, 222– 3; Walras 173, 174 interest-taking 4–5 intermediate trade 5 internal market 14, 51, 122 international monetary system 24, 25, 52, 71 international standard of value 20 inventions 42, 96, 97 Ireland: banknotes 15; birth rate 126; depopulation 125–6, 159; emigration 102, 126; famine/poverty 125–6 iron industry 131 iron ore 150, 151, 153–4, 166n17 Isaiah on war 101 Italy 130, 161

243

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Luther, Martin 103 luxury goods 122, 189 Luzzatti, Luigi 38

Jahrbücher für Nationalökonomie und Statistik 117 Japan 131–2 Jevons, William Stanley 183, 205 Jews: infanticide 102; polygamy 112n11 Kambe, Dr Masao 135n3 Kempe, Dr F. 160, 166n15 Knapp, George Friedrich: Bank of Hamburg 216; business theory of money 216–17; currency for domestic use 218; debt payments 213; exchange rates 212; exodromic management 217–18; fixed exchange rates 219; fractional/ principal coinage 214; German banking 216; monetary systems 210–11, 215; money, nature of 211– 12, 213, 216; payment types 213, 214, 215–16; Die Staatliche Theorie des Geldes 210–19; technical monetary terms 211–12, 214, 215, 216; value-unit of money 212, 216; valutary money 214, 215, 216 labour: agricultural 165n7; and capital 234; machinery 179; population growth 121–2; specialized 146–7; supply 191; value added 128–9, 130; Walras 179 labour division, global 147–8 labour movement 185 land: private ownership 127, 128, 197– 8; rents 172, 173; scarcity 141; state ownership 172–4 land division: agriculture 143–5, 157– 8, 167n20; family size 107, 108, 139; France 107; optimum size for smallholding 144, 157–8, 167n20; Russia 143; Sweden 107, 157–8 language training 156, 236 Lassalle, Ferdinand 183, 194 Latin Monetary Union 12, 71 Leslie, Cliffe 125 liberty, principles 237–8 Linderberg, Fernando: capital 191; classical economics 186–7, 191; Karl Marx og den Historiske Sorialisme 185–92; Malthus 187–9 living conditions, workers’ 87 loans 8–11, 27, 29 logging: see timber industry

McCulloch, J.R. 233 machinery, labour 179 Malmöhus County 141 Malthus, Thomas Robert 111n3; competition 189–91; Linderberg on 187–9; population theory 95, 187– 9; savings 122 Malthusianism 95–6, 112n6–7, 134, 232 manufacturing industries 146–9 marginal productivity: capital 6; Clark 208–9; Hobson 206–7; theory of 42; Thünen 206, 208; wages 183, 190 marginal utility theory 208 mark rate 62, 63 market, internal 51, 122 market demand 28–9 marriage: average age at 90; France 106, 115n16; lack of opportunity 90–2, 94; reductions 90, 159; Sweden 106–7 Marshall, Alfred 183, 205, 206 Marx, Karl 183, 185, 191; see also Linderberg men, infanticide 104–5 Menger, C. 205, 221 mercantilism 56, 67 metal trades 213 metallists 211–12 metre, definition 33 Mexico 13 Middle Ages, usury 4–5 Mill, James 172 Mill, John Stuart: Briefs on 234–5; on drunkenness 237–8; equilibrium 120–1; On Liberty 236–9; population control 96, 115n15, 163; taxation 237 minting of coinage, free 12, 13, 19–20, 22, 38, 50–1, 77, 78 Mises, Ludwig von: interest rates/prices 221, 222–3; prices 220–1; quantity theory of money 221–2; Theorie des Geldes und der Umlaufsmittel 220– 4; wages/prices 223 Moll, Governor 61, 62–3, 64, 65, 66, 69n3–5

244

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Moltke, Field Marshal Count 101 monetary system: credit 19; elasticity 41; France 215; future 23–4; institutions 77–8, 79; international 24, 25, 52, 71; Knapp 210–11, 215; regulation 61 monetary unions 24, 25 money: business theory (Knapp) 216– 17; functional 213, 221; metals for 12; nature of 20, 21, 34; quantity theory 27–8, 46–7, 74, 216, 221–2; value-unit 212, 216; see also purchasing power of money money, types (Knapp): autohylic 212; autometallic 212, 216; cartal 212, 216; giral 216; lytric 212; metalloplatic 212; morphic 212; papiroplatic 212, 214; valutary 214, 215, 216 money-lending 8–10 money market control 79 money substitutes 19 money value: Davidson 32–3, 46; declining 17–18, 226–7; England 20; Gide 183; gold/banknote 49; Helfferich 226–7; Knapp 211–12, 213, 216; productivity 38n2; regulated 18, 19, 20, 75; rising 76; Walras 175, 176, 179–80 Mongolia 166n14 monometallism 12, 13–14, 22 monopolies: agriculture 235n3; demand elasticity 199, 200–1; profit 199; taxation 198–9, 202, 203 Montesquieu, Charles de Secondat 92 morality 84–5, 92–3, 159 mortality rates: and birth rates 111n4, 135n5, 159–60, 162; poverty 86; unmarried people 92 National Debt Office 69n2 National Social Union, Germany 185 National Statistics Office 132 natural resources 158, 166n17 Netherlands: bimetallic standard 12, 13; dyke-building 55; population 155; silver guilders 19–20 Nicholson, Joseph Shield 196 Norrbotten County 141 Norrland: agriculture 166n14; birth rate 142; iron ore 150, 153–4; population 141–2, 165n6

Öhrvall, H. 236, 237 Öland 138–40, 144, 164n4 overpopulation: consequences 98–100, 108–9; Malthus 95, 96; and overproduction 124; poverty 95, 112n6; remedies 100–4; Sweden 100; war 101 overproduction 117–18, 124 paper industry 152, 166n16 paper money 24–5, 60, 66, 74, 211 paper shortage 55 Pareto, Vilfredo 178, 206 payment types (Knapp): accessory 214, 216; amphitropical 218; apocentric 213, 214; autogenic 216; centric 213; epicentric 213; epitrapezic 215; hylogenic 216; ortotypical 216; paracentric 213 peat 150, 154 pensioners 17, 118 physiocrats 146, 193, 194 plague 100 Plato 102 politics, and birth rate 134 Politiken 67 polygamy 103, 112n11 population: ageing 139; and capital 128; China 132; climate 141; Davidson 129, 133; economic factor 120–1; Europe 121–2, 130, 159; female surplus 103; France 128, 129–30, 159, 162; Germany 130–1; India 132; Italy 130; Japan 131–2; Netherlands 155; Norrland 141–2, 165n6; Öland 139, 164n4; optimum number 157–8; Russia 131; Scandinavia 155–7 population control: benefits 106, 108, 123, 163, 187, 190; and emigration 97–8, 101–2, 123; infanticide 102– 3, 104–6, 132; international cooperation 133; methods 108, 114n12, 115–l6n17; Mill, J.S. 96, 115n15; poverty 108; state power 126–7, 129; see also Malthus; Malthusianism population density 95–6, 143 population growth: economic development 137; future projections 97–8; and labour 121–2; state encouragement 95–6; Sweden 140– 1, 142, 154–5, 156–8, 163–4; see also birth rate

245

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poverty: agriculture 144–5; and drunkenness 86–9; immorality 130; infanticide 104–5; Ireland 125–6; Japan 131; lack of marriage opportunity 90–2, 94; living conditions 87; mortality 86; overpopulation 95, 112n6; population control 108; religion 88– 9, 94; remedies for 94–5 prices: agriculture 119; banking institutions 30, 36–7; Briefs 233; competition 178–9; credit 35, 48–9, 222; demand elasticity 199, 200, 220–1; discount rates 50; gold production 14, 17, 35, 37–8, 40–1, 43, 224n2; Helfferich 27–8, 30–1, 227; interest rates 27–8, 35–6, 40, 41, 43–4, 51, 66, 221, 222–3; measurement index 204n1; Mises 220–1; and productivity 34, 36, 38– 9n3, 40–2, 119; and profits 42; purchasing power of money 29–30, 31, 32–3; quantity theory 46–7; raw materials 37; recession 37; regulating 26–7; Sauerbeck index 227; Seligman 194; stability 33; supply side 220–1; tax shifting 193, 194–5; taxation 194–5; United States 135n1; and wages 42, 43, 45n4, 223 private management 179 producers, and entrepreneurs 194, 197 production: capital 191; domestic 123; increased yield 29; means of 127–8; surplus 188–9; tax 199; time element 5 production costs 201 productivity: agriculture 235n2; capital 5–6, 127; money value 38n2; and prices 34, 36, 38–9n3, 40–2, 119; wages 41, 42, 183; see also marginal productivity profit: businessmen 36, 38–9n3; declining 233; monopolies 199; and prices 42; productive forces 5; and rent 233–4; Ricardo 233–4; Smith 231 promissory notes 7, 8–9, 10 prostitution 90, 92, 103 protectionists 94 Proudhon, Pierre Joseph 185 public houses 87–8 public morals 84–5, 92–3

purchasing power of money: constant 32; Davidson 32–3, 46; gold 15, 17, 74; paper money 25; prices 29–30, 31, 32–3; regulated 26–7, 46, 51–2 quantity theory of money 27–8, 46–7, 74, 216, 221–2 quarrying industry; see also extraction industry Quarterly Journal of Economics 135n1 raw materials 37, 149, 151–2 recession, price/wage reductions 37 Reichsbank 62, 67, 73 Reichskassenscheine 213 religion 5, 9, 88–9, 90, 194 remittances 164n3 rent: agricultural 128; Briefs 233–4; confiscation 172; consumer’s 206; lands 172, 173; profit 233–4; Ricardo 233; Smith 191; tariffs 197, 198; tax 202–3 returns, increasing 201, 202 Ricardo, David: agriculture as monopoly 235n3; capital/labour 234; fixed capital 233; prices/ interest rates 35; profits 233–4; rent 233; wages 183, 187, 231–2, 235n1 Riesser, J. 73, 228 Riksbank: banknotes 16, 53, 60–1; as central bank 79; discount rate 66; exchange rate 61–3, 64; gold payments 53, 56, 58, 60–1; losses 63; total foreign balance 69n3 Riksdag: Home Ownership Movement 140–1, 146; and Riksbank 79; usury law 3, 6, 9 risk, credit 6–7 Rodbertus, Johann Karl 185–6 rupee 12, 13, 61 Russia 131, 143, 161 Rydberg, Dr V. 112–14n111 Saint-Simon, Claude Henri 185, 186 Sauerbeck price index 227 savings: capital 29; and consumption 120, 122–3; demand 29; domestic market 122; Germany 226, 227, 228; individual 233; Malthus 122 Say, J.B. 96, 179, 183 Scandinavia: banknotes 25, 72, 73; central banks 60, 78, 79;

246

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communications 156–7; credit policy 77–8; monetary institutions 77–8, 79; population 155–7; redemption of banknotes 25, 72, 73; see also individual countries Scania 7, 150 Schiller, J.C.F. von 83 Schulze-Gävernitz 143 Scotland, banknotes 15 securities, sale of 65–6, 70n5 seigniorage 46–7, 48, 52n2 self-help funds 143 self-mutilation 114n12 self-preservation 85 self-restraint 114n12, 116n17 Seligman, Edwin R.A.: absolute theory 194; capitalization or amortisation theory 194; monopolies/taxation 198–9, 202, 203; prices 194; rent/ taxation 202–3; The Shifting and Incidence of Taxation 193–204; on Smith 193; socialistic theory 194; tariffs 196–8; tax shifting 193, 194– 5; taxation, direct/indirect 202; terminology used 194 Seneca, Marcus Annaeus 112n10 service sector 131 sexual moderation 108, 110, 114n12, 116n17 silver 17, 22–3, 76, 217 silver coins 14, 19–20, 22–3, 175–7 silver standard 12, 13, 217 smallholdings 144, 157–8, 167n20 Smith, Adam: money 23; profit 231; rent 191; Seligman on 193; usury 4; wages 186–7 social equality 129 socialism 118, 185, 194 Socrates 155, 238 South Africa 134 ‘Soziale Kultur und Volkswohlfahrt während der ersten 25 Regierungsjahre Kaiser Wilhelms II’ 225 specie, export 72, 73 Spinoza, Baruch 238 state: education 127, 138; exchange rates 217–18; landowning 172–4; population control 126–7, 129; taxation 17–18 state bankruptcy 76 state management 179

stocks, durable 17, 38n1 students 10–11, 89–90 suicide 94 supply and demand 64 supply side, prices 220–1 surplus: agriculture 158; exchange 206 Svenska Dagbladet 62 Sweden: agriculture 139–40, 142, 144– 5, 166n14; banknotes 15, 56–7, 72; birth/death rates 106–7, 132, 137, 142, 159–60, 162; Bratt system 238, 239n2; currency shortage 53; emigration 136–40, 154; exchange rates 69n1; export industry 151; extraction industry 132, 166n17; food production 151; gold reserve 53–7; industry 149–54; land division 107, 157–8; marriage 106– 7; national wealth study 226; natural resources 158, 166n17; overpopulation 100; paper industry 152, 166n16; population growth 140–1, 142, 154–5, 156–8, 163–4; population statistics 164n2; ‘Summary of our Official Statistics’ 151–2; timber industry 132–3, 150, 152–3; translations of economic texts 181, 236; see also Norrland; Öland; Riksbank; Riksdag Swedish Medical Practitioners Association 84 synthetism 172 tariffs: agriculture 145, 196–7; and free trade 196–7; industrial 148–9, 196, 198; protective 196; rent 197, 198; Seligman 196–8; timber 153; United States 166n16; workers 179, 197 tax evasion 202 tax shifting, Seligman 193, 194–5 taxation: abolition 172; bank losses 63; consumption 195–6; direct/indirect 17–18, 202; Mill, J.S. 237; monopolies 198–9, 202, 203; prices 194–5; production 199; rent 202–3; Seligman 202; state 17–18; wages 33–4 Tegnér, Esaias 144–5 temperance 84, 109–10 Temps, Le 59n1 Thünen, J.H. von 183, 206, 208, 230

247

INDEX

timber industry 132–3, 150, 152–3 Tjänstemannabanken (Clerical Bank) 10 trade 147–8; see also free trade; intermediate trade trade cycles 28 Trygger, Ernst 4 Tyszka, Carl von 228 unemployment 119, 120 United States: banknotes 15; European emigrants 160, 161–2; Federal Reserve Board 77–8; grain production 148; prices 135n1; tariffs 166n16 usury: classical economics 4; and interest-taking 4–5; legislation 3–4, 6, 8, 9; religion 5 value, international standard 20 value of money: see money value value theory, Clark 208–9 wage-earners: see workers wage regulation 33 wages: agriculture 165n7; Briefs 232–3; Germany 228–9; Gide 182; iron law of 183, 186; Lassalle 183; marginal productivity 183, 190; Mises 223; money value 17; and prices 42, 43, 45n4, 223; productivity 41, 42, 183; recession 37; Ricardo 183, 187, 231–2, 235n1; Smith 186–7; taxation 33–4; workers 17, 234 wages fund theory 42, 182, 183 Wagner, A. 11n4, 220 Wagner, Reinhold 68 Walker, F.A. 183

Walras, Léon 205; banknotes 178; capital/interest rates 173, 174; capital theory 180; class/ consumption 174; competition 178; Études d’économic appliquée 175– 80; Études d’économie sociale 171– 4; free trade 175, 178, 179; individualism/collectivism 175; interest rates 173, 174; labour 179; money value 175, 176, 179–80; silver coinage 175–7; state ownership of landed property 172– 4; synthetism 172 war: destruction of capital 5 5; gold reserves 67–8, 75; and international monetary agreements 24; overpopulation 101; quarrying industry 55 water power 150 waterways, transportation 150 wealth, immorality 130 wealth distribution 127–8, 171 Webb, Beatrice and Sidney 167n23 Weitling, Wilhelm 185 Wicksteed, Philip H. 208, 209 Wieser, Friedrich von 220, 221 will, collective/individual 126, 175 Wolf, Julius 134 women: infanticide 104–5; suffering 93; surplus 103 wood: see timber industry workers: consumption 118; family size 187, 190; hours worked 190; labour supply 191; living conditions 87; luxury goods 122, 189; solidarity 190; tariffs 179, 197; and wages 17, 234; wages fund theory 182; working conditions 88

248