Principles of Economics by Alfred Marshall (1890)

Book Four: The Agents of Production: Land, Labour, and Capital and Organization

Chapter 7 The Growth of Wealth

1. In this chapter it is not necessary to distinguish the points of view in which wealth is regarded as the object of consumption and as an agent of production; we are concerned with the growth of wealth simply, and we have no need to emphasize its uses as capital.

The earliest forms of wealth were probably implements for hunting and fishing, and personal ornaments; and, in cold countries, clothing and huts. (1) During this stage the domestication of animals began; but at first they were probably cared for chiefly for their own sake, because they were beautiful, and it was pleasant to have them; they were, like articles of personal ornament, desired because of the immediate gratification to be derived from their possession rather than as a provision against future needs. (2) Gradually the herds of domesticated animals increased; and during the pastoral stage they were at once the pleasure and the pride of their possessors, the outward emblems of social rank, and by far the most important store of wealth accumulated as a provision against future needs.

As numbers thickened and the people settled down to agriculture, cultivated land took the first place in the inventory of wealth; and that part of the value of the land which was due to improvements (among which wells held a conspicuous place) became the chief element of capital, in the narrower sense of the term. Next in importance came houses, domesticated animals, and in some places boats and ships; but the implements of production, whether for use in agriculture or in domestic manufactures, remained for a long time of little value. In some places, however, precious stones and the precious metals in various forms became early a leading object of desire and a recognized means of hoarding wealth; while, to say nothing of the palaces of monarchs, a large part of social wealth in many comparatively rude civilizations took the form of edifices for public purposes, chiefly religious, and of roads and bridges, of canals and irrigation works.

For some thousands of years these remained the chief forms of accumulated wealth. In towns indeed houses and household furniture took the first place, and stocks of the more expensive of raw materials counted for a good deal; but though the inhabitants of the towns had often more wealth per head than those of the country, their total numbers were small; and their aggregate wealth was very much less than that of the country. During all this time the only trade that used very expensive implements was the trade of carrying goods by water: the weaver's looms, the husbandman's ploughs and the blacksmith's anvils were of simple construction and were of little account beside the merchant's ships. But in the eighteenth century England inaugurated the era of expensive implements.

The implements of the English farmer had been rising slowly in value for a long time; but the progress was quickened in the eighteenth century. After a while the use first of water power and then of steam power caused the rapid Substitution of expensive machinery for inexpensive hand tools in one department of production after another. As in earlier times the most expensive implements were ships and in some cases canals for navigation and irrigation, so now they are the means of locomotion in general; — railways. and tramways, canals, docks and ships, telegraph and telephone systems and water-works: even gas-works might almost come under this head, on the ground that a great part of their plant is devoted to distributing the gas. After these come mines and iron and chemical works, ship-building yards, printing-presses, and other large factories full of expensive machinery.

On whichever side we look we find that the progress and diffusion of knowledge are constantly leading to the adoption of new processes and new machinery which economize human effort on condition that some of the effort is spent a good while before the attainment of the ultimate ends to which it is directed. It is not easy to measure this progress exactly, because many modern industries had no counterpart in ancient times. But let us compare the past and present conditions of the four great industries the products of which have not changed their general character: viz. agriculture, the building, the cloth-making, and the carrying trades. In the first two of these hand work still retains an important place: but even in them there is a great development of expensive machinery. Compare for instance the rude implements of an Indian Ryot even of to-day with the equipment of a progressive Lowland farmer; (3) and consider the brick-making, mortar-making, sawing, planing, moulding and slotting machines of a modern builder, his steam cranes and his electric light. And if we turn to the textile trades, or at least to those of them which make the simpler products, we find each operative in early times content with implements the cost of which was equivalent to but a few months of his labour; while in modern times it is estimated that for each man, woman and child employed there is a capital in plant alone of more than £200, or say the equivalent of five years' labour. Again the cost of a steam-ship is perhaps equivalent to the labour for fifteen years or more of those who work her; while a capital of about £1,000,000,000 invested in railways in England and Wales is equivalent to the work for more than twenty years of the 300,000 wage-earners employed on them.

2. As civilization has progressed, man has always been developing new wants, and new and more expensive ways of gratifying them. The rate of progress has sometimes been slow, and occasionally there has even been a great retrograde movement; but now we are moving on at a rapid pace that grows quicker every year; and we cannot guess where it will stop. On every side further openings are sure to offer themselves, all of which will tend to change the character of our social and industrial life, and to enable us to turn to account vast stores of capital in providing new gratifications and new ways of economizing effort by expending it in anticipation of distant wants. There seems to be no good reason for believing that we are anywhere near a stationary state in which there will be no new important wants to be satisfied; in which there will be no more room for profitably investing present effort in providing for the future, and in which the accumulation of wealth will cease to have any reward. The whole history of man shows that his wants expand with the growth of his wealth and knowledge. (4)

And with the growth of openings for the investment of capital there is a constant increase in that surplus of production over the necessaries of life, which gives the power to save. When the arts of production were rude, there was very little surplus, except where a strong ruling race kept the subject masses hard at work on the bare necessaries of life, and where the climate was so mild that those necessaries were small and easily obtained. But every increase in the arts of production, and in the capital accumulated to assist and support labour in future production, increased the surplus out of which more wealth could be accumulated. After a time civilization became possible in temperate and even in cold climates; the increase of material wealth was possible under conditions which did not enervate the worker, and did not therefore destroy the foundations on which it rested. (5) Thus from step to step wealth and knowledge have grown, and with every step the power of saving wealth and extending knowledge has increased.

3. The habit of distinctly realizing the future and providing for it has developed itself slowly and fitfully in the course of man's history. Travellers tell us of tribes who might double their resources and enjoyments without increasing their total labour, if they would only apply a little in advance the means that lie within their power and their knowledge; as, for instance, by fencing in their little plots of vegetables against the intrusion of wild animals.

But even this apathy is perhaps less strange than the wastefulness that is found now among some classes in our own country. Cases are not rare of men who alternate between earning two or three pounds a week and being reduced to the verge of starvation: the utility of a shilling to them when they are in employment is less than that of a penny when they are out of it, and yet they never attempt to make provision for the time of need. (6) At the opposite extreme there are misers, in some of whom the passion for saving borders on insanity; while, even among peasant proprietors and some other classes, we meet not unfrequently with people who carry thrift so far as to stint themselves of necessaries, and to impair their power of future work. Thus they lose every way: they never really enjoy life; while the income. which their stored-up wealth brings them is less than they would have got from the increase of their earning power, if they bad invested in themselves the wealth that they have accumulated in a material form.

In India, and to a less extent in Ireland, we find people who do indeed abstain from immediate enjoyment and save up considerable sums with great self-sacrifice, but spend all their savings in lavish festivities at funerals and marriages. They make intermittent provision for the near future, but scarcely any permanent provision for the distant future: the great engineering works by which their productive resources have been so much increased, have been made chiefly with the capital of the much less self-denying race of Englishmen.

Thus the causes which control the accumulation of wealth differ widely in different countries and different ages. They are not quite the same among any two races, and perhaps not even among any two social classes in the same race. They depend much on social and religious sanctions; and it is remarkable how, when the binding force of custom has been in any degree loosened, differences of personal character will cause neighbours brought up under like conditions to differ from one another more widely and more frequently in their habits of extravagance or thrift than in almost any other respect.

4. The thriftlessness of early times was in a great measure due to the want of security that those who made provision for the future would enjoy it: only those who were already wealthy were strong enough to hold what they had saved; the laborious and self-denying peasant who had heaped up a little store of wealth only to see it taken from him by a stronger hand, was a constant warning to his neighbours to enjoy their pleasure and their rest when they could. The border country between England and Scotland made little progress so long as it was liable to incessant forays; there was very little saving by the French peasants in the eighteenth century when they could escape the plunder of the tax-gatherer only by appearing to be poor, or by Irish cottiers, who, on many estates, even forty years ago, were compelled to follow the same course in order to avoid the landlords' claims of exorbitant rents.

Insecurity of this kind has nearly passed away from the civilized world. But we are still suffering in England from the effects of the Poor-law which ruled at the beginning of last century, and which introduced a new form of insecurity for the working classes. For it arranged that part of their wages should, in effect, be given in the form of poor relief; and that this should be distributed among them in inverse proportion to their industry and thrift and forethought, so that many thought it foolish to make provision for the future. The traditions and instincts which were fostered by that evil experience are even now a great hindrance to the progress of the working classes; and the principle which nominally at least underlies the present Poor-law, that the State should take account only of destitution and not at all of merit, acts in the same direction, though with less force.

Insecurity of this kind also is being diminished: the growth of enlightened views as to the duties of the State and of private persons towards the poor, is tending to make it every day more true that those who have helped themselves and endeavoured to provide for their own future will be cared for by society better than the idle and the thoughtless. But the progress in this direction is still slow, and there remains much to be done yet.

5. The growth of a money-economy and of modern habits of business does indeed hinder the accumulation of wealth by putting new temptations in the way of those who are inclined to live extravagantly. In old times if a man wanted a good house to live in he must build it himself; now he finds plenty of good houses to be hired at a rent. Formerly, if he wanted good beer he must have a good brewhouse, now he can buy it more cheaply and better than he could brew it. Now he can borrow books from a library instead of buying them; and he can even furnish his house before he is ready to pay for his furniture. Thus in many ways the modern systems of buying and selling, and lending and borrowing, together with the growth of new wants, lead to new extravagances, and to a subordination of the interests of the future to those of the present.

But on the other hand, a money-economy increases the variety of the uses between which a person can distribute his future expenditure. A person who in a primitive state of society stores up some things against a future need, may find that after all he does not need those things as much as others which he has not stored up: and there are many future wants against which it is impossible to provide directly by storing up goods. But he who has stored up capital from which he derives a money income can buy what he will to meet his needs as they arise. (7)

Again, modern methods of business have brought with them opportunities for the safe investment of capital in such ways as to yield a revenue to persons who have no good opportunity of engaging in any business, — not even in that of agriculture, where the land will under some conditions act as a trustworthy savings-bank. These new opportunities have induced some people who would not otherwise have attempted it to put by something for their own old age. And, what has had a far greater effect on the growth of wealth, it has rendered it far easier for a man to provide a secure income for his wife and children after his death: for, after all, family affection is the main motive of saving.

6. There are indeed some who find an intense pleasure in seeing their hoards of wealth grow up under their hands, with scarcely any thought for the happiness that may be got from its use by themselves or by others. They are prompted partly by the instincts of the chase, by the desire to outstrip their rivals; by the ambition to have shown ability in getting the wealth, and to acquire power and social position by its possession. And sometimes the force of habit, started when they were really in need of money, has given them, by a sort of reflex action, an artificial and unreasoning pleasure in amassing wealth for its own sake. But were it not for the family affections, many who now work hard and save carefully would not exert themselves to do more than secure a comfortable annuity for their own lives; either by purchase from an insurance company, or by arranging to spend every year, after they had retired from work, part of their capital as well as all their income. In the one case they would leave nothing behind them: in the other only provision for that part of their hoped-for old age, from which they had been cut off by death. That men labour and save chiefly for the sake of their families and not for themselves, is shown by the fact that they seldom spend, after they have retired from work, more than the income that comes in from their savings, preferring to leave their stored-up wealth intact for their families; while in this country alone twenty millions a year are saved in the form of insurance policies and are available only after the death of those who save them.

A man can have no stronger stimulus to energy and enterprise than the hope of rising in life, and leaving his family to start from a higher round of the social ladder than that on which he began. It may even give him an over-mastering passion which reduces to insignificance the desire for ease, and for all ordinary pleasures, and sometimes even destroys in him the finer sensibilities and nobler aspirations. But, as is shown by the marvellous growth of wealth in America during the present generation, it makes him a mighty producer and accumulator of riches; unless indeed he is in too great a hurry to grasp the social position which his wealth will give him: for his ambition may then lead him into as great extravagance as could have been induced by an improvident and self-indulgent temperament.

The greatest savings are made by those who have been brought up on narrow means to stern hard work, who have retained their simple habits, in spite of success in business, and who nourish a contempt for showy expenditure and a desire to be found at their death richer than they had been thought to be. This type of character is frequent in the quieter parts of old but vigorous countries, and it was very common among the middle classes in the rural districts of England for more than a generation after the pressure of the great French war and the heavy taxes that lingered in its wake.

7. Next, as to the sources of accumulation. The power to save depends on an excess of income over necessary expenditure; and this is greatest among the wealthy, In this country most of the larger incomes, but only a few of the smaller, are chiefly derived from capital. And, early in the present century, the commercial classes in England had much more saving habits than either the country gentlemen or the working classes. These causes combined to make English economists of the last generation regard savings as made almost exclusively from the profits of capital.

But even in modern England rent and the earnings of professional men and hired workers are an important source of accumulation: and they have been the chief source of it in all the earlier stages of civilization. (8) Moreover, the middle and especially the professional classes have always denied themselves much in order to invest capital in the education of their children; while a great part of the wages of the working classes is invested in the physical health and strength of their children. The older economists took too little account of the fact that the human faculties are as important a means of production as any other kind of capital; and we may conclude, in opposition to them, that any change in the distribution of wealth which gives more to the wage receivers and less to the capitalists is likely, other things being equal, to hasten the increase of material production, and that it will not perceptibly retard the storing-up of material wealth. Of course other things would not be equal if the change were brought about by violent methods which gave a shock to public security. But a slight and temporary check to the accumulation of material wealth need not necessarily be an evil, even from a purely economic point of view, if, being made quietly and without disturbance, it provided better opportunities for the great mass of the people, increased their efficiency, and developed in them such habits of self-respect as to result in the growth of a much more efficient race of producers in the next generation. For then it might do more in the long-run to promote the growth of even material wealth than great additions to our stock of factories and steam-engines.

A people among whom wealth is well distributed, and who have high ambitions, are likely to accumulate a great deal of public property; and the savings made in this form alone by some well-to-do democracies form no inconsiderable part of the best possessions which our own age has inherited from its predecessors. The growth of the co-operative movement in all its many forms, of building societies, friendly societies, trades-unions, of working men's savings-banks etc., shows that, even so far as the immediate accumulation of material wealth goes, the resources of the country are not, as the older economists assumed, entirely lost when they are spent in paying wages. (9)

8. Having looked at the development of the methods of saving and the accumulation of wealth, we may now return to that analysis of the relations between present and deferred gratifications, which we began from another point of view in our study of Demand. (10)

We there saw that anyone, who has a stock of a commodity which is applicable to several uses, endeavours to distribute it between them all in such a way as to give him the greatest satisfaction. If he thinks he could obtain more satisfaction by transferring some of it from one use to another he will do so. If, therefore, he makes his distribution rightly, he stops in applying it to each several use at such a point that he gets an equal amount of good out of the application that he is only just induced to make of it to each separate use; (in other words, he distributes it between the different uses in such a way that it has the same marginal utility in each).

We saw, further, that the principle remains the same whether all the uses are present, or some are present and others deferred: but that in this latter case some new considerations enter, of which the chief are, firstly, that the deferring of a gratification necessarily introduces some uncertainty as to its ever being enjoyed; and secondly, that, as human nature is constituted, a present gratification is generally, though not always, preferred to a gratification that is expected to be equal to it, and is as certain as anything can be in human life.

A prudent person who thought that he would derive equal gratifications from equal means at all stages of his life, would perhaps endeavour to distribute his means equally over his whole life: and if he thought that there was a danger that his power of earning income at a future date would run short, he would certainly save some of his means for a future date. He would do this not only if he thought that his savings would increase in his hands, but even if he thought they would diminish. He would put by a few fruit and eggs for the winter, because they would then be scarce, though they would not improve by keeping. If he did not see his way to investing his earnings in trade or on loan, so as to derive interest or profits from them, he would follow the example of some of our own forefathers who accumulated small stores of guineas which they carried into the country, when they retired from active life. They reckoned that the extra gratification which they could get by spending a few more guineas while money was coming in fast, would be of less service to them than the comfort which those guineas would buy for them in their old age. The care of the guineas cost them a great deal of trouble; and no doubt they would have been willing to pay some small charge to any one who would have relieved them from the trouble without occasioning them any sort of risk.

We can therefore imagine a state of things in which stored-up wealth could be put to but little good use; in which many persons wanted to make provision for their own future; while but few of those who wanted to borrow goods, were able to offer good security for returning them, or equivalent goods, at a future date. In such a state of things the postponement of, and waiting for enjoyments would be an action that incurred a penalty rather than reaped a reward: by handing over his means to another to be taken care of, a person could only expect to get a sure promise of something less, and not of something more than that which he lent: the rate of interest would be negative. (11)

Such a state of things is conceivable. But it is also conceivable, and almost equally probable, that people may be so anxious to work that they will undergo some penalty as a condition of obtaining leave to work. For, as deferring the consumption of some of his means is a thing which a prudent person would desire on its own account, so doing some work is a desirable object on its own account to a healthy person. Political prisoners, for instance, generally regard it as a favour to be allowed to do a little work. And human nature being what it is, we are justified in speaking of the interest on capital as the reward of the sacrifice involved in the waiting for the enjoyment of material resources, because few people would save much without reward; just as we speak of wages as the reward of labour, because few people would work hard without reward.

The sacrifice of present pleasure for the sake of future, has been called abstinence by economists. But this term has been misunderstood: for the greatest accumulators of wealth are very rich persons, some of whom live in luxury, and certainly do not practise abstinence in that sense of the term in which it is convertible with abstemiousness. What economists meant was that, when a person abstained from consuming anything which he had the power of consuming, with the purpose of increasing his resources in the future, his abstinence from that particular act of consumption increased the accumulation of wealth. Since, however, the term is liable to be misunderstood, we may with advantage avoid its use, and say that the accumulation of wealth is generally the result of a postponement of enjoyment, or of a waiting for it. (12) Or, in other words again, it is dependent on man's prospectiveness; that is, his faculty of realizing the future.

The "demand price" of accumulation, that is, the future pleasure which his surroundings enable a person to obtain by working and waiting for the future, takes many forms: but the substance is always the same. The extra pleasure which a peasant who has built a weatherproof hut derives from its usance, while the snow is drifting into those of his neighbours who have spent less labour on building theirs, is the price earned by his working and waiting. It represents the extra productiveness of efforts wisely spent in providing against distant evils, or for the satisfaction of future wants, as compared with that which would have been derived from an impulsive grasping at immediate satisfactions. Thus it is similar in all fundamental respects to the interest which the retired physician derives from the capital he has lent to a factory or a mine to enable it to improve its machinery; and on account of the numerical definiteness of the form in which it is expressed, we may take that interest to be the type of and to represent the usance of wealth in other forms.

It matters not for our immediate purpose whether the power over the enjoyment for which the person waits, was earned by him directly by labour, which is the original source of nearly all enjoyment; or was acquired by him from others, by exchange or by inheritance, by legitimate trade or by unscrupulous forms of speculation, by spoliation or by fraud: the only points with which we are just now concerned are that the growth of wealth involves in general a deliberate waiting for a pleasure which a person has (rightly or wrongly) the power of commanding in the immediate present, and that his willingness so to wait depends on his habit of vividly realizing the future and providing for it.

9. But let us look more closely at the statement that, as human nature is constituted, an increase in the future pleasure which can be secured by a present given sacrifice will in general increase the amount of present sacrifice that people will make. Suppose, for instance, that villagers have to get timber for building their cottages from the forests; the more distant these are, the smaller will be the return of future comfort got by each day's work in fetching the wood, the less will be their future gain from the wealth accumulated probably by each day's work: and this smallness of the return of future pleasure, to be got at a given present sacrifice, will tend to prevent them from increasing the size of their cottages; and will perhaps diminish on the whole the amount of labour they spend in getting timber. But this rule is not without exception. For, if custom has made them familiar with cottages of only one fashion, the further they are from the woods, and the smaller the usance to be got from the produce of one day's work, the more days' work will they give.

And similarly if a person expects, not to use his wealth himself, but to let it out on interest, the higher the rate of interest the higher his reward for saving. If the rate of interest on sound investments is 4 per cent., and he gives up £100 worth of enjoyment now, he may expect an annuity of £4 worth of enjoyment: but he can expect only £3 worth, if the rate is 3 per cent. And a fall in the rate of interest will generally lower the margin at which a person finds it just not worth while to give up present pleasures for the sake of those future pleasures that are to be secured by saving some of his means. It will therefore generally cause people to consume a little more now, and to make less provision for future enjoyment. But this rule is not without exception.

Sir Josiah Child remarked more than two centuries ago, that in countries in which the rate of interest is high, merchants "when they have gotten great wealth, leave trading" and lend out their money at interest, "the gain thereof being so easy, certain and great; whereas in other countries where interest is at a lower rate, they continue merchants from generation to generation, and enrich themselves and the state." And it is as true now, as it was then, that many men retire from business when they are yet almost in the prime of life, and when their knowledge of men and things might enable them to conduct their business more efficiently than ever. Again, as Sargant has pointed out, if a man has decided to go on working and saving till he has provided a certain income for his old age, or for his family after his death, he will find that he has to save more if the rate of interest is low than if it is high. Suppose, for instance, that he wishes to provide an income of £400 a year on which he may retire from business, or to insure £400 a year for his wife and children after his death: if then then the current rate of interest is 5 per cent., he need only put by £8,000, or insure his life for £8,000; but if it is 4 per cent., he must save £10,000, or insure his life for £10,000.

It is then possible that a continued fall in the rate of interest may be accompanied by a continued increase in the yearly additions to the world's capital. But none the less is it true that a fall in the distant benefits to be got by a given amount of working and waiting for the future does tend on the whole to diminish the provision which people make for the future; or in more modern phrase, that a fall in the rate of interest tends to check the accumulation of wealth. For though with man's growing command over the resources of nature, he may continue to save much even with a low rate of interest; yet while human nature remains as it is every fall in that rate is likely to cause many more people to save less than to save more than they would otherwise have done. (13)

10. The causes which govern the accumulation of wealth and its relation to the rate of interest have so many points of contact with various parts. of economic science, that the study of them cannot easily be brought together in one part of our inquiry. And although in the present Book we are concerned mainly with the side of supply; it has seemed necessary to indicate provisionally here something of the general relations between the demand for and the supply of capital. And we have seen that: —

The accumulation of wealth is governed by a great variety of causes: by custom, by habits of self-control and realizing the future, and above all by the power of family affection. Security is a necessary condition for it, and the progress of knowledge and intelligence furthers it in many ways.

A rise in the rate of interest offered for capital, i.e. in the demand price for saving, tends to increase the volume of saving. For in spite of the fact that a few people who have determined to secure an income of a certain fixed amount for themselves or their family will save less with a high rate of interest than with a low rate, it is a nearly universal rule that a rise in the rate increases the desire to save; and it often increases the power to save, or rather it is often an indication of an increased efficiency of our productive resources: but the older economists went too far in suggesting that a rise of interest (or of profits) at the expense of wages always increased the power of saving: they forgot that from the national point of view the investment of wealth in the child of the working man is as productive as its investment in horses or machinery.

It must however be recollected that the annual investment of wealth is a small part of the already existing stock, and that therefore the stock would not be increased perceptibly in any one year by even a considerable increase in the annual rate of saving.


11. The statistical history of the growth of wealth is singularly poor and misleading. This is partly due to difficulties inherent in any attempt to give a numerical measure of wealth which shall be applicable to different places and times, partly to the absence of systematic attempts to collect the necessary facts. The Government of the United States does indeed ask for returns of every person's property; and though the results thus obtained are not satisfactory, yet they are perhaps the best we have.

Estimates of the wealth of other countries have to be based almost exclusively on estimates of income, which are capitalized at various numbers of years' purchase; this number being chosen with reference (i) to the general rate of interest current at the time, (ii) to the extent to which the income derived from the use of wealth in any particular form is to be credited (a) to the permanent income-yielding power of the wealth itself; and (b) to either the labour spent in applying it, or the using up of the capital itself. This last head is specially important in the case of ironworks which depreciate rapidly, and still more in the case of such mines as are likely to be speedily exhausted; both must be capitalized at only a few years' purchase. On the other hand, the income-yielding power of land is likely to increase; and where that is the case, the income from land has to be capitalized at a great number of years' purchase (which may be regarded as making a negative provision under the head of ii, b).

Land, houses, and live stock are the three forms of wealth which have been in the first rank of importance always and everywhere. But land differs from other things in this, that an increase in its value is often chiefly due to an increase in its scarcity; and is therefore a measure rather of growing wants, than of growing means of meeting wants. Thus the land of the United States in 1880 counted as of about equal value with the land of the United Kingdom, and about half that of France. Its money value was insignificant a hundred years ago; and if the density of population two or three hundred years hence is nearly the same in the United States as in the United Kingdom, the land of the former will then be worth at least twenty times as much as that of the latter.

In the early middle ages the whole value of the land of England was much less than that of the few large-boned but small-sized animals that starved through the winter on it: now, though much of the best land is entered under the heads of houses, railways, etc.; though the live stock is now probably more than ten times as heavy in aggregate weight, and of better quality; and though there is now abundant farming capital of kinds which were then unknown; yet agricultural land is now worth more than three times as much as the farm stock. The few years of the pressure of the great French war nearly doubled the nominal value of the land of England. Since then free trade, improvements in transport, the opening of new countries, and other causes have lowered the nominal value of that part of the land which is devoted to agriculture. And they have made the general purchasing power of money in terms of commodities rise in England relatively to the Continent. Early in the last century 25 fr. would buy more, and especially more of the things needed by the working classes, in France and Germany than £1 would in England. But now the advantage is the other way: and this causes the recent growth of the wealth of France and Germany to appear to be greater relatively to that of England than it really is.

When account is taken of facts of this class, and also of the fact that a fall in the rate of interest increases the number of years' purchase at which any income has to be capitalized, and therefore increases the value of a property which yields a given income; we see that the estimates of national wealth would be very misleading, even if the statistics of income on which they were based were accurate. But still such estimates are not wholly without value.

Sir R. Giffen's Growth of Capital and Mr Chiozza Money's Riches and Poverty contain suggestive discussions on many of the figures in the following table.

Country and Land Houses Farm-Capital Author of £million £million £million Estimate England 1679 (Petty) 144 30 36 1690 (Gregory King) 180 45 25 1812 (Colquhoun) 750 300 143 1885 (Giffen) 1,333 1,700 382 United Kingdom 1812 (Colquhoun) 1,200 400 228 1855 (Edleston) 1,700 550 472 1865 (Giffen) 1,864 1,031 620 1875 — 2,007 1,420 668 1885 — 1,691 2,827 522 1905 (Money) 966 2,827 285 United States 1880 (Census) 2,040 2,000 480 1890 — 1900 — France 1892 (de Foville) 3,000 2,000 400 Italy 1884 (Pantaleoni) 1,160 360

Other Total Wealth

Wealth Wealth per cap.

£million £million £ England 1679 (Petty) 40 250 42 1690 (Gregory King) 70 320 58 1812 (Colquhoun) 653 1,846 180 1885 (Giffen) 3,012 6,427 315 United Kingdom 1812 (Colquhoun) 908 2,736 160 1855 (Edleston) 1,048 3,760 130 1865 (Giffen) 2,598 6,113 200 1875 — 4,453 8,548 260 1885 — 5,897 10,037 270 1905 (Money) 7,326 11,414 265 United States 1880 (Census) 4,208 8,728 175 1890 — 13,200 208 1900 — 18,860 247 France 1892 (de Foville) 4,000 9,400 247 Italy 1884 (Pantaleoni) 1,920 65 But their divergences show the great uncertainty of all such estimates. Mr Money's estimate of the value of land, i.e. agricultural land with farm buildings, is probably too low. Sir R. Giffen estimates the value of public property at £m. 500: and he omits public loans held at home, on the ground that the entries for them would cancel one another, as much being debited under the head of public property as is credited under that of private property. But Mr Money reckons the gross value of public roads, parks, buildings, bridges, sewers, lighting and water works, tramways etc. at £m. 1,650: and, after deducting from this £m. 1,200 for public loans he gets £m. 450 for the net value of public property; and he thus becomes free to count public loans held at home under private property. He estimates the value of foreign stock exchange securities and other foreign property held in the United Kingdom at £m. 1,821. These estimates of wealth are mainly based on estimates of income: and, as regards the statistics of income, attention may be directed to Mr Bowley's instructive analysis in National progress since 1882; and in The Economic Journal for September 1904.

Sir R. Giffen estimates the wealth of the British Empire in 1903 (Statistical Journal, Vol. 66, p. 584) thus:

United Kingdom...... £m. 15,000

Canada......... " 1,350

Australasia......... " 1,100

India......... " 3,000

South Africa...... " 600

Remainder of Empire..." 1,200

A tentative history of changes in the relative wealth of different parts of England has been deduced by Rogers from the assessment of the several counties for the purpose of taxation. Le Vicomte d' Avenel's great work L'Histoire Économique de la Propriété &c. 1200-1800 contains a rich store of materials as to France; and comparative studies of the growth of wealth in France and other nations have been made by Levasseur, Leroy Beaulieu, Neymarck and de Foville.

Mr Crammond, addressing the institute of Bankers in March 1919, estimated the national wealth of the United Kingdom to be £m. 24,000, and the national income to be £m. 3,600. He reckoned the net value of the country's foreign investments to have fallen to £m. 1,600, she having recently sold securities amounting to £m. 1,600; and borrowed another £m. 1,400. On the balance she appeared to be a creditor to the amount of £m. 2,600: but a great part of this amount cannot be reckoned as adequately secured.


1. A short but suggestive study of the growth of wealth in its early forms, and of the arts of life, is given in Tylor's Anthropology.

2. Bagehot (Economic Studies, pp. 163-5), after quoting the evidence which Galton has collected on the keeping of pet animals by savage tribes, points out that we find here a good illustration of the fact that however careless a savage race may be for the future, it cannot avoid making some provision for it. A bow, a fishing-net, which will do its work well in getting food for to-day, must be of service for many days to come: a horse or a canoe that will carry one well to-day, must be a stored-up source of many future enjoyments. The least provident of barbaric despots may raise a massive pile of buildings, because it is the most palpable proof of his present wealth and power.

3. The farm implements for a first class Ryot family, including six or seven adult males, are a few light ploughs and hoes chiefly of wood, of the total value of about 13 rupees (Sir G. Phear, Aryan Village, p. 233) or the equivalent of their work for about a month; while the value of the machinery alone on a well equipped large modern arable farm amounts to £3 an acre (Equipment of the Farm, edited by J. C. Morton) or say a year's work for each person employed. They include steam engines, trench, subsoil and ordinary ploughs, some to be worked by steam and some by horse power; various grubbers, harrows, rollers, clod-crushers, seed and manure drills, horse hoes, rakes, hay-making, mowing and reaping machines, steam or horse threshing, chaff cutting, turnip cutting, hay-pressing machines and a multitude of others. Meanwhile there is an increasing use of silos and covered yards, and constant improvements in the fittings of the dairy and other farm buildings, all of which give great economy of effort in the long run, but require a larger share of it to be spent in preparing the way for the direct work of the farmer in raising agricultural produce.

4. For instance, improvements which have recently been made in some American cities indicate that by a sufficient outlay of capital each house could be supplied with what it does require, and relieved of what it does not, much more effectively than now, so as to enable a large part of the population to live in towns and yet be free from many of the present evils of town life. The first step is to make under all the streets large tunnels, in which many pipes and wires can be laid side by side, and repaired when they get out of order, without any interruption of the general traffic and without great expense. Motive power, and possibly even heat, might then be generated at great distances from the towns (in some cases in coal-mines), and laid on wherever wanted. Soft water and spring water, and perhaps even sea water and ozonized air, might be laid on in separate pipes to nearly every house; while steam-pipes might be used for giving warmth in winter, and compressed air for lowering the heat of summer; or the heat might be supplied by gas of great heating power laid on in special pipes, while light was derived from gas specially suited for the purpose or from electricity; and every house might be in electric communication with the rest of the town. All unwholesome vapours, including those given off by any domestic fires which were still used, might be carried away by strong draughts through long conduits, to be purified by passing through large furnaces and thence away through huge chimneys into the higher air. To carry out such a scheme in the towns of England would require the outlay of a much larger capital than has been absorbed by our railways. This conjecture as to the ultimate course of town improvement may be wide of the truth; but it serves to indicate one of very many ways in which the experience of the past foreshadows broad openings for investing present effort in providing the means of satisfying our wants in the future.

5. Comp. Appendix A.

6. They "discount" future benefits (comp. Book III, ch. v, section 3) at the rate of many thousands per cent per annum.

7. Comp. III, v, section 2.

8. Comp. Principles of Political Economy, by Richard Jones.

9. It must however be admitted that what passes by the name of public property is often only private wealth borrowed on a mortgage of future public revenue. Municipal gas-works for instance are not generally the results of public accumulations. They were built with wealth saved by private persons, and borrowed on public account.

10. Above, III, v.

11. The suggestion that the rate of interest may conceivably become a negative quantity was discussed by Foxwell in a paper on Some Social Aspects of Banking, read before the Bankers' Institute in January, 1886.

12. Karl Marx and his followers have found much amusement in contemplating the accumulations of wealth which result from the abstinence of Baron Rothschild, which they contrast with the extravagance of a labourer who feeds a family of seven on seven shillings a week; and who, living up to his full income, practises no economic abstinence at all. The argument that it is Waiting rather than Abstinence, which is rewarded by Interest and is a factor of production, was given by Macvane in the Harvard Journal of Economics for July, 1887.

13. See also VI, vi. It may however be observed here that the dependence of the growth of capital on the high estimation of "future goods" appears to have been over-estimated by earlier writers; not under-estimated, as is argued by Prof. Böhm-Bawerk.

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