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An example will illustrate this situation. One of the most interesting English
economists of the late eighteenth century, Anderson,
9
boldly asserted that man’s power to
increase the productiveness of his fields was such ‘as to make it keep pace with his
population whatever that might be.’
10

This has been interpreted to spell denial of the law of decreasing returns, Malthus
being the first of Anderson’s critics to misunderstand him in this sense. But Anderson’s
emphasis was not upon the product but upon the productiveness of land. And this,
together with his reference to ‘discoveries’ which occurs in the same passage, should be
sufficient proof that all he was thinking of was what we have just decided to dub
Historical Increasing Returns. In Anderson’s case, it is particularly easy to satisfy
ourselves that his no doubt exaggerated ideas concerning these possibilities were
compatible with the recognition of the law of decreasing returns. Though it is true that he
nowhere mentioned Turgot’s case, it is equally true that he accepted Sir James Steuart’s
case. For he actually invented the ‘Ricardian’ theory of rent which presupposes it.
[(d) Rent of Land.]
We have seen that the explanation of the rent of land was not one of the problems that
attracted attention in the early stages of economic analysis. Cantillon and, after him, the
physiocrats, may be said to have been the first
11
to entertain a distinctive view of the
phenomenon: it simply amounted to the proposition, if we may couch it in terms of a later
time, that land yields rent because it is a scarce factor of production (or even the only
‘original’ one), and that this rent is partly an interest payment on investments made by the
landlord and partly a payment for the ‘natural and indestructible productive powers of the
soil.’ This theory was primitive and not fully articulate but nevertheless superior to many
later speculations. In addition to the merit of saying or implying nothing that is definitely
wrong, it had another one that raises it above triviality: whoever holds this theory thereby


proves his awareness of the fact that productiveness and scarcity, in the case of a costless
factor, are sufficient to account for its yielding a net return so that there is no point in
looking for other explanatory circumstances. But this is precisely what most economists
9
James Anderson (1739–1808) was a Scottish gentleman farmer. His numerous writings are as
important for an appreciation of the course of the corn-law controversy as they are for the history of
economic analysis. The most important ones are: Observations on the Means of exciting a Spirit of
National Industry…(1777); An Enquiry into the Nature of the Corn Laws (1777); and several
essays in his 6 volumes of Recreations in Agriculture, Natural History, Arts, and Miscellaneous
Literature (publ. 1799–1802). He had to an unusual degree what so many economists lack, Vision.
10
Recreations, Vol. IV, p. 374; the passage has been quoted by Cannan, A History of the Theories
of Production and Distribution (3d ed., 1917, p. 145), in order to prove that the law of decreasing
returns was unknown to the agriculturalists of that time. It is of course beyond doubt that they were
thoroughly confused about it and that, since Turgot’s performance had passed unnoticed,
professional and political opinions of the time sometimes read like unalloyed nonsense. But it
should not be asserted without qualification that they actually were unalloyed nonsense or that they
were always vitiated by the ignorance of that law.
11
This disregards the comments that Petty made on the subject—which do not amount to much—
and also something else. Those authors who, like Locke, explained—or ‘justified’—property in
land by labor invested in it might be interpreted to have held a labor theory of rent. Such
attributions are, however, unsafe and I prefer not to stress this point.
History of economic analysis 252
failed to realize, then, and throughout the first half of the nineteenth century.
Accordingly, they engaged in speculations that produced, before the eighteenth
century was out, both the theories of rent that were to prevail during the subsequent
epoch (roughly to the last quarter of the nineteenth century). The one may be associated
with the name of Adam Smith, the other with the name of James Anderson.
A.Smith’s theory of value, which will be discussed in the next chapter, yields the

result that, under conditions of competition, a costless thing really cannot have a price.
The services of land are costless: A.Smith explained at length that these services are not
to be identified with the services of the capital that may have been invested in the land.
Nevertheless, they fetch a price. Hence ‘the rent of land…considered as the price paid for
the use of land, is naturally a monopoly price’ (Wealth, Book I, ch. 11). If this were true,
rent would have to ‘enter into the composition of the price of commodities’ exactly as do
profit and wages, which A.Smith explicitly denies on the next page. But of course it is
not true: the landed interest is not a single seller and therefore its income cannot be
explained by the theory of monopoly. The poverty of this rent analysis is overlaid by a
plenty of materials and detailed comment that made the eleventh chapter burst the
framework of Book I. Many of these details deserve recording but we must confine
ourselves to three. First, A.Smith placed much emphasis upon the rent of location.
Second, he worked out a theory that was to enter Malthus’ stock in trade, and that kept on
cropping up in the lower strata of the nineteenth-century theory, namely, the theory that
‘Human food seems to be the only produce of land which always and necessarily affords
some rent to the landlord’ (ch. 11, Part II) because, by virtue of the principle of
population, food production is the only kind of production which, as it were, will always
create its own demand—mouths always increasing in response to every increase in the
supply of food.
Though comment is, I trust, superfluous concerning the merits of this proposition, it is
not superfluous to point out that this sort of thing goes far toward justifying the animosity
to theory harbored by institutionalist and historical economists. It is for the same reason
that I mention a third theory (presented in the Conclusion of ch. 11): believing that every
increase in the real wealth of society tends, directly or indirectly, to raise the real rent of
land, he concluded that the class interest of the landowners ‘is strictly and inseparably
connected with the general interest of society’ so that, unlike ‘those who live by profit,’
landowners when speaking from the standpoint of their class interest ‘never can mislead’
the public in its search for measures that promote the general welfare. A truly
unbelievable piece of reasoning—the premiss could be shown to be wrong from material
and argument within the covers of the Wealth, and the conclusion would not follow even

if the premiss were right.
12

As has been stated, we need nothing beyond the productiveness and the scarcity of
land in order to explain why there is such a thing as rent. Neither the fact to be explained
nor the explaining facts have anything to do with decreasing returns. However, the
12
Reasoning such as this indicates certain limitations of a man’s judgment once for all. But we are
also within our rights to suspect such an argument of ideological bias, precisely because of the
obviousness of its faults. Therefore, it is interesting to note that as a matter of fact A.Smith
harbored an ideological bias against the landed interest (see below, ch. 6) so that no explanation
can be derived on this line.
Population, returns, wages, and employment 253
association of rent with decreasing returns, which was to be one of the most
characteristic features of the Ricardian system, was established by Anderson. In his
Observations of 1777 he arrived at the conclusion that the rent of land is a premium paid
for the privilege of cultivating soils that are more fertile than others, and in his Enquiry of
the same year he formulated more precisely the conditions which Cannan stated
established the formula: ‘The rent paid in respect of any particular boll is equal to the
difference between the expense of raising the most expensive boll raised and the expense
of raising that boll,’ explaining fully how the competition among farmers will secure
exactly this amount for the landlord.
13
In a later essay, included in the Recreations (Vol.
V), he presented another aspect of the same idea by saying that rent was a ‘contrivance’
for equalizing the profits on lands of different fertility—an emphasis upon the ‘law of the
average rate of profit’ that makes him a forerunner of Ricardo in still another sense.
Except for the claim that it explained rent, all this was quite correct so far as it went. But
the achievement of anticipating a century’s thought on this subject would have been a
noteworthy one, even if all of it had been wrong.

3. WAGES
1

The most obvious analytic use to which the principle of population can be put is surely
the theory of wages. Many writers—among the leaders, especially Quesnay and Turgot—
might be cited to show how easy it was, starting from an uncritical acceptance of that
principle, to arrive at a minimum-of-existence theory of wages as an equally uncritical
conclusion. Since, moreover, the physiocrat theory of capital—the idea of the avances—
was of a nature to suggest the concept of a ‘wage fund,’ another pillar of Ricardian
economics was thus erected by pre-Smithian writers, mainly French.
But the proposition that wages per head tend toward a minimum-of-existence level
(however defined) is no more a theory of wages than the quantity theory is a theory of
money. Both are propositions about the values certain economic quantities assume in a
state of long-run equilibrium and form part of a comprehensive theory of wages or

13
I fail to understand why the late Professor Cannan, who quoted the passages (op. cit. pp. 371–3)
should have thought it necessary to warn his readers that ‘Anderson’s anticipation of particular
points in the Ricardian theory must not be mistaken for an anticipation of the whole theory.’ It is
true that Ricardo also noticed the Turgot case of decreasing returns. But his reasoning practically
runs in terms of the Steuart case, just as does Anderson’s. Like Anderson, moreover, Ricardo seems
to have thought that there would be no rent if there were no decreasing returns, thus confusing the
latter with scarcity of land. Hence, as far as the theory (to which Cannan specifically refers) is
concerned—and not the diagnosis of the actual conditions of English agriculture or the political
recommendation—I cannot see any difference whatsoever between Anderson and Ricardo. or. for
that matter between Anderson and West.
1
The works on the history of population doctrines all take some account of the history of wage
doctrines as well, but Spengler’s should be particularly mentioned. Facts as well as views the
reader finds in Heckscher and Mantoux. Also, see E.S. Furniss, The Position of the Laborer in a

System of Nationalism (1920), which work, however, concentrates on the task of bringing out one
particular aspect of the picture and does not aim at presenting the whole; and R.Picard, ‘Etude sur
quelques théories du salaire au XVIII
e
siècle’ in Revue d’histoire des doctrines économiques
(1910).
History of economic analysis 254
money—that is, if we believe in them—but are not the whole of it. No such
comprehensive theory was worked out before A. Smith. But many pre-Smithian
economists contributed fragments. The most important of these contributions was
Child’s, discussed above in Chapter 4. It had nothing to do with the principle of
population. Child, as we know, was a populationist who declared that ‘most nations in the
civilized parts of the world are more or less rich or poor proportionable to the paucity or
plenty of people.’ This paucity or plenty he made dependent upon ‘employment,’ so that
we may interpret him to have meant that the wage rate is determined, on the one hand, by
the demand for labor and, on the other hand, by the supply that this demand calls forth.
This was a good beginning, the more so because Child said nothing about the particular
level at which the forces of demand and supply would fix wages. In particular, he kept
clear of any minimum-of-existence law. Instead, he said that high wage rates are the
consequence and ‘infallible evidence’ of the riches of a country. Davenant went a little
further in his statement that in a poor country interest is high and land and labor cheap.
Also other writers got as far as this. But nowhere do we find more than this until we
reach the minimum-of-existence theorists mentioned above.
This does not mean, of course, that people were not interested in wage questions. On
the contrary, economists debated them eagerly and practically every one of them left us
his opinion about wage policy. But most of these utterances were preanalytic in nature.
They reveal sentiments and evaluations that reflect important aspects of social history and
are a legitimate object for the application of the Marxist theory of ideology, provided that
it be handled without unintelligent dogmatism. For us, however, these sentiments mean
only an additional difficulty of interpretation: we are driven to unraveling elements of

analysis from the various recommendations of our authors—or such reasons as they give
for their normative statements—and in doing so we are in constant danger of mistaking
for an analytic proposition what may have been no more than a profession of sympathies.
Thus Child, though he interpreted high wages as a symptom of wealth, did not proffer
any high-wage theory in the sense that high wages are in themselves a factor that makes
for prosperity. But he was evidently in sympathy with high wages and hence seems to
have held a high-wage theory in this sense. That this was not the case we can see from
the way in which he behaved when confronted with a low-wage argument. He did not
really argue but simply got angry and hurled defiance at the obnoxious doctrine: ‘a
charitable project and well becoming a userer!’ Other authors offer hints at motivating
analytic propositions. Some—including Cary—looked upon high wages as a part in the
mechanism of brisk business and adumbrated the purchasing-power argument. Others
were of the opinion that high real wages are conducive to better performance.
2
But this
did not amount to much. Neither did the reasoning of the low-wage men. Petty’s
argument was that high wages would only encourage sloth and that if wages were
doubled the supply of labor hours would be reduced to half. The most important
argument on this side of the question was, of course, the argument from competition in
international trade. It was because high wages would impair the competitive situation of
the country that Sir James Steuart held that wages ‘should’ be kept at the level of physical
2
For example, Daniel Defoe (c. 1659–1731) in Plan of the English Commerce (1728); B.Franklin,
in his Reflections on the Augmentation of Wages, also distinguished high wages from high cost of
labor per unit of product.

Population, returns, wages, and employment 255
necessities.
3
D.Hume also believed that high wage rates are detrimental to a country’s

foreign trade, though he did not draw the same conclusion; on the contrary, he went on to
say that this disadvantage weighs lightly as compared with ‘the happiness of so many
millions.’
A.Smith’s performance in the field of labor economics
4
is highly characteristic and in
fact a fair sample of his work as a whole. Moreover it acquires additional importance by
virtue of its having been the first fully systematic treatment of the subject. He no doubt
followed the available leads but, scaling off edges here and developing there, he made a
well-rounded whole of it that was qualified to serve, as in fact it did serve, as a basis of
further analysis. First of all, he worked out a comprehensive theory of wages. Borrowing
a natural-law proposition that was widely accepted in his time, namely, that ‘the produce
of labour constitutes the natural recompense or wages of labour,’ he proceeded to explain
how it came to pass that labor has to surrender part of ‘its’ product—meaning the entire
result of the productive process—to landlords and another part to ‘masters.’ Observe that
this indeed posits the fundamental problem of wages but that it does so in a peculiar way:
A.Smith’s argument starts from a pseudo-historic background of a natural state in which,
on the one hand, there are no landlords and no ‘masters’ and in which, on the other hand,
labor is the only scarce factor of production; confusing these two quite different facts, he
reduced the problem of wages at once to the problem of the two other distributive shares
which thereby became ‘deductions from the produce of labour.’ Rent is a deduction from
‘natural’ wages that is motivated not by the productivity of land but by the emergence of
private property in it which tallies nicely with his monopoly theory of rent: some people
monopolize land exactly as they might monopolize air, were it technologically possible to
do so. And profit is another deduction motivated not by the productivity of capital—stock


3
There cannot be any doubt, of course, that many declarations in favor of low wages simply and
naïvely voice class interest and are not the result of any attempt at appraising causes and

consequences in a scientific spirit. Not only did low-wage opinions fit the social structure and the
resulting national spirit of those times, but also whatever low-wage opinions were held were quite
freely uttered because the labor interest was not yet a political factor and intellectuals therefore did
not side with it. So opinions were held with regard to labor—and voiced without inhibitions—that
sometimes recall the opinions held by the Romans with regard to their slaves as voiced, e.g., by
Cato. That the welfare of the laborers, or ‘laboring poor,’ or simply the poor, should have been, by
implication, denied the status of an end in itself—in the economic literature roughly until Beccaria
and Smith—does not necessarily mean what it seems to mean. For such statements also occur with
respect to the merchant class and are only what we should expect in a nationalist civilization. But
opinions could be cited to the effect that workmen ‘should’ be kept poor, and ignorant as well as
poor, that they ‘should’ be strictly disciplined and, in order to facilitate this, kept at work from early
youth and continually, so that they should never know what it is to be at leisure and so on. Such
views, like the opposite ones, naturally tended to reflect themselves in the analytic work emanating
from their sponsors or in the way in which its results are formulated; and if that analytic work is
rudimentary, it becomes still more difficult than it is in the case of elaborate theories, to separate
what for brevity’s sake we may call the logic and the class interest served by that logic. This
political aspect is also important for the topics to be touched upon in sec. 4, which follows.
4
The substance of it is to be found in chs. 8 and 10 of Book I of the Wealth of Nations. But
additional facts and comments are scattered all over the work.
History of economic analysis 256
‘advanced’ to the laborer—but solely by the power of its owners
5
to insist on it, a power
that is much enhanced by the ease with which these owners can combine against the poor
and helpless laborers who ‘must either starve or frighten their masters into an immediate
compliance with their demands.’ The reader should realize both the obvious weaknesses
that this argument presents when considered as a piece of analysis and the appeal it was
bound to have. It foreshadowed, in fact, all the exploitation and bargaining-power
theories of wages that the nineteenth century was to produce, and also suggested the idea

that labor is the ‘residual claimant.’
A.Smith went much further than that, however. Since the laborer cannot live without
the advances of the ‘masters,’ the latter can, strictly speaking, reduce his wages to the
physical minimum of existence. But the masters’ competition for labor will, with
increasing national wealth, force them to ‘break through the natural combination of
masters not to raise wages’ and will raise wage rates above that level for indefinite
periods of time. Accordingly, A. Smith denied vigorously that wages in Great Britain
were anywhere near the minimum-of-existence level or that they fluctuated with the price
of provision as they would have had to do in that case.
6
For practical purposes this
amounts to denying the validity of the physiocrat theory of wages. In principle, however,
A.Smith accepted it. This reconciliation of two apparently contradictory opinions he
achieved by emphasizing not so much the absolute level of the wealth from which the
demand for labor proceeds but ‘its continual increase’—it was not great wealth as such
but increasing wealth which, outstripping increase in population, causes wage rates to rise
in monetary as well as real terms. But wealth that does not increase, however great it may
be, is no guarantee against low wages: the hands will ‘in this case naturally multiply
beyond their employment,’ so that Quesnay would be right in the end. A.Smith also
accepted the wage-fund theory, which he restated in the form that was to be the object of
both elaboration and attack in the nineteenth century. When dealing with the demand for
labor, he stated what reads like a harmless truism: this demand ‘it is evident, cannot
increase but in proportion to the increase in the funds which are destined for the payment
of wages.’ The joker that lurks behind the word ‘destined’ was responsible for many a
headache later on. But A.Smith lightheartedly concluded that the demand for labor, since
it comes either from the income of the well-to-do, who demand personal service, or from
the stock of businessmen, who demand productive services, and since ‘the increase of
revenue and stock is the increase of national wealth,’ will increase with the increase of
wealth, ‘and cannot possibly increase without it.’ There is no more fertile source of error
than apparently trivial premisses.

This theory of wages was copiously illustrated by all sorts of facts, which is why it
gives the reader the impression of fullness and realism. Critical—and often wise—
comments on the labor legislation and the poor laws of that and earlier times are freely
inserted. And A.Smith’s interest in the concrete phenomena of practical life is responsible
for many analyses of particular questions, one of which may be mentioned. Abstract


5
It is only here, within the theory of wages, that A.Smith adopts this view. Elsewhere he leaves
room for other elements, such as risk and trouble.
6
This seems, however, to have been the prevalent popular opinion. Galiani in his Dialogues (see
below, ch. 6) attributes it to Le Marquis whose role it is to voice popular opinions.
Population, returns, wages, and employment 257
theory reasons about an imaginary wage rate, the counterpart of which in real life is a
structure of widely varying wage rates. In order to make sure that a theory working with a
single rate has any relevance at all to the explanation of real phenomena, we must analyze
the nature of the differences in the wages—and profits—earned in different employments
and places. This is the kind of thing in which A.Smith both delighted and excelled. The
lead had been given by Cantillon. But A. Smith went much more deeply into the matter,
thus creating an important if not exactly exciting chapter of the nineteenth-century
textbook.
4. UNEMPLOYMENT AND THE ‘STATE OF THE POOR’
In principle, medieval society provided a berth for everyone whom it recognized as a
member: its structural design excluded unemployment and destitution. Actually, the
threat of involuntary unemployment was not completely absent. The journeymen who
worked under the masters within the craft guilds were often, and the agricultural laborers
(mercenarii) were always, hired workers whose employment was not guaranteed. But as
a rule neither group had much difficulty in finding jobs. In normal times unemployment
was quantitatively unimportant and confined to individuals who had broken loose from

their environment or had been cast off by it and who in consequence had become
beggars, vagrants, and highwaymen. The highwaymen were treated with brutal yet
ineffective energy; with the other types, the charity enjoined and organized by the
Catholic Church was perfectly able to cope. It is important to keep this pattern in mind
because it formed an attitude toward unemployment and the unemployed that persisted
for centuries after medieval conditions had passed away. Let us remember in particular
that mass unemployment, definitely unconnected with any personal shortcomings of the
unemployed, was unknown to the Middle Ages except as a consequence of social
catastrophes such as devastation by wars, feuds, and plagues.
This changed in and after the fifteenth century. The breaking up of the medieval
world, attended as it was by social upheavals, is in itself sufficient to account for the
widespread suffering and destitution we observe. The agrarian revolution not only
destroyed environments that might have sheltered fugitives from distressed areas but also
caused the landless proletariat to increase more rapidly than did the effective demand for
labor. The resistance to change offered by the organized crafts, while it protected some
elements of the population, made things worse for others. The rising capitalist industry in
the long run absorbed rather than created unemployment. But there were many
bottlenecks that impeded the development of the new opportunities and the flow of labor
into them. Moreover, when the pace of industrial development quickened in the second
half of the eighteenth century, technological unemployment put in an appearance as a
mass phenomenon and frequently overshadowed that long-run effect. This explains why
the rise of the factory system was associated with so much misery: for many years labor
was not attracted to the factories by higher wages and better living conditions, but driven
into them in spite of lower real incomes and worse living conditions. The old protective
regulations broke down not so much under the influence of laissez-faire philosophies as
under the weight of actual or threatening unemployment. For a time, though not
everywhere to the same extent, all barriers to the deteriora-tion of the worker’s lot were
History of economic analysis 258
giving way. Thus it is not difficult to understand the paradox already noticed, namely,
that governments and writers who were enthusiastically populationist never ceased to

worry about how ‘to set the poor to work’ or how to combat ‘idleness.’
1

But the first problem that confronted European governments from the beginning of the
sixteenth century was an administrative one. Everywhere the swelling numbers of
destitute beggars and vagrants outgrew the possibilities of private charity and everywhere
public organization of relief had to take its place. In England, earlier measures were
systemized by the Elizabethan Poor Law of 1601, which definitely established the
compulsory poor rate on a permanent basis. The poor rate was a tax that was levied in
every parish for the maintenance of its own destitute inhabitants. The burden was
considerable and above all very visible. Principles and results were evidently debatable.
Accordingly, amendments were suggested, discussed, and actually enacted in an
unending stream until the advent of modern security legislation. Because of the
importance for the history of economics of the corresponding stream of books,
pamphlets, and articles which for more than three hundred years were to deal with those
problems, we had better note the two main questions at issue. The Elizabethan enactment
had left the administration of the funds raised by the poor rate to honorary local officers
elected for the purpose, a highly inefficient arrangement which was not radically changed
until the Poor Law Amendment Act of 1834; thus the first question was one of central
versus local control. The second question, which is more interesting from our standpoint,
was Outdoor Relief versus Maintenance in a Workhouse. Outdoor relief was the original
method which, owing to a variety of administrative abuses that were only in part inherent
in its principles, elicited the criticisms that brought the workhouse method steadily to the
fore, and thus prepared the ground for its temporary victory in 1834.
2
To repeat,
legislation and administration in the seventeenth and eighteenth centuries did little to
supplement existing systems of unemployment relief by measures for the protection of
the employed with respect to hours, working conditions, and so on (not even in the case
of women and children). In some continental countries we find the beginnings of factory

legislation within our period, in Austria, for instance, under the reign (1781–90) of
Joseph II. But in England there was next to nothing before the (ineffective) Health and
Morals of Apprentices Act of 1802.
3
In another line, however, we may note the Friendly
Society Act of 1793, which mitigated the legislation against corporative action by the
workers.
1
Those conditions have been described numberless times with widely varying degrees of
competence and accuracy. Reference to the works of Heckscher and Mantoux must again suffice
for our purpose.
2
The reader will find a sufficiency of relevant facts in almost any economic history. Three books,
however, should be particularly recommended: E.M.Hampson, The Treatment of Poverty in
Cambridgeshire, 1597–1834 (1934); S. and B.Webb, English Poor Law History (1927–9); and
Dorothy Marshall, The English Poor in the Eighteenth Century (1926). An eighteenth-century
history will be mentioned presently. The outstanding nineteenth-century history is Sir George
Nicholls’ History of the English Poor Law (1854), complemented by his histories of the Irish and
the Scotch Poor Law (1856).
3
See, e.g., B.L.Hutchins and A.Harrison, History of Factory Legislation (1903).

Population, returns, wages, and employment 259
The chief remedies for unemployment consisted in measures intended to foster
manufacturing industry. We shall see later (in ch. 7) that concern about employment
opportunity was one of the chief motives of ‘mercantilist’ policies. In some continental
countries, especially in Germany, protection of the peasant holding was an important
safeguard against pauperization of the industrial workers. And the deficit financing of
continental governments, though not motivated by this purpose, certainly had some
alleviating effects. England came much nearer to balancing her budgets. But some

English writers, though they did not recommend deficits, were more alive to the
possibilities of monetary remedies for unemployment than were their continental
brethren.
4

The late scholastics,
5
like their predecessors, had emphasized the role of charity and
defended the beggar against the rough reactions of the environment. In particular, they
had defended the ‘right to beg.’ But they came to realize that unemployment was growing
beyond the possibilities of private benevolence and therefore entered upon a discussion of
the possibilities offered by legislation and public administration, touching, first
incidentally, later on more systematically, upon problems of causation. This discussion
was taken up by laic writers, mainly the Consultant Administrators, all over Europe. In
Germany, das Armenwesen naturally became a standard subject within the ‘cameralist’
literature. German governments accepted the state’s responsibility for employment and
maintenance as a matter of course. The same principle was repeatedly asserted in
England, for example, by the Berkshire magistrates in 1795. But there is not much to
record for the historian of economic analysis.
6

In the first place, a great many writers on the poor laws argued on the explicit or
implicit ‘theory’ that, barring misfortune, and especially sickness, the destitute
unemployed was personally to blame for his fate. In appraising this view, contempt for its
inadequacy as a theory of the social phenomenon to be explained, and indignation at the
callousness of which it may be the symptom, must not blind us to the element of truth in
it which has come to be as much underrated in our own time as it was overrated then. It
was at the basis of the argument of the defenders of the workhouse system and survived,
in various nuances, until 1914. The principles that relief should be confined to
maintenance in the workhouse and that life and labor in the workhouse should be made

less eligible than the least eligible employment may merely

4
The question how far economists of the seventeenth and eighteenth centuries may be credited
with what we should call a monetary theory of employment will be briefly considered in the next
chapter.
5
The tracts by de Soto and de Medina (sixteenth century) mentioned already (see above, ch. 2),
may again serve as examples from a large literature which continued to pour forth, especially in
Spain and Italy, throughout the seventeenth and eighteenth centuries. We confine ourselves to
noticing one of its latest and most successful products, Giovanni Battista Vasco’s (1733–96)
Mémoire sur les causes de la mendicité et sur les moyens de la supprimer, 1790 (republ., with other
works of his, in the Custodi collection). Vasco was a Piedmontese priest who, under the influence
of Turgot and A.Smith, developed into a thoroughgoing ‘liberal’ in the laissez-faire sense.
6
For further information, see especially T.E.Gregory, ‘The Economics of Employment in England,
1660–1713,’ Economica, 1921. There is no equally valuable survey for any other country.
Reference should, however, be made to the interesting article by G.Arias on Ortes’ theory of
unemployment, Giornale degli Economisti, September 1908.
History of economic analysis 260
aim at testing the presence of destitution; actually, however, they were often associated
with punitive intent that can be explained only on the theory in question. In the second
place, writers who went beyond this mentioned a number of factors that were all of them
more or less relevant to the explanation of either unemployment or substandard
conditions among employed workers but without subjecting them to any elaborate
analysis. The most important ones were foreign competition, high rates of interest, taxes
and regulations that hampered enterprise, enclosures, and, mainly in connection with
enclosures, property in land. It is very difficult to tell how much insight any such
statement reveals. To mention one example, Child listed high interest as a cause of
unemployment. But the reason he adduced was not that high interest may restrict

investment but that it facilitates premature retirement from business, which, though not
quite indefensible, looks very much like an analytic blunder. Machinery as a cause of
unemployment (or of low wage rates) was mentioned with increasing frequency as the
eighteenth century wore on. But nobody attempted to develop a theory of the
mechanization of the productive process. On the whole, the opposite view prevailed,
namely, that the introduction of machinery tends to increase employment and to raise
wages. This opinion, already held by Cary, seems to have been shared by A.Smith. In the
third place, during the last quarter of the eighteenth century a tendency asserted itself to
explain unemployment by means of the ‘principle of population.’ The analytic nature of
this line of reasoning can be best conveyed by an analogy. One of the familiar
phenomena we observe in every depression is that producers cannot sell their wares at
prices that will cover cost; hence nothing is easier than to jump at the conclusion that the
root of the trouble is ‘overproduction.’ This is the most primitive of all theories of crises
or depressions. And the most primitive of all theories of unemployment is that people
cannot find work at living wages because there are too many of them. It was almost
always at the bottom of arguments to the effect that more generous provision for the
‘able-bodied poor’ would make matters worse for the working class as a whole, or even
that the poor law as it then stood was breeding poverty by fostering increase in
population.
7
Observe that this theory, as far as there is anything to it at all, ap-plies
equally well to the relief granted to unemployed persons, and to the subsidies that the
poor-law authorities were in the habit of granting to persons employed at less than living
wages. The latter practice was severely criticized on account of the administrative
‘abuses to which it gave rise—it made it possible for local potentates to shift part of their
wage bill on to the poor rate. This is probably the reason nobody produced anything that
could pass for a tolerably adequate theory of wage subsidies. But the fundamental
similarity between unemployment and employment at substandard conditions stood out
all the more clearly. Both entered into the concept of ‘poverty’ or ‘indigence,’ which, as
we know, Quesnay had been the first to explain by overpopulation.


7
Such arguments were freely and effectively used against the legislation proposed by William Pitt
which would have favored large families. The outstanding performance in this discussion was
Jeremy Bentham’s Observations on the Poor Bill…[of] Mr. Pitt (1797), which foreshadowed the
opinion of the ‘classical’ economists of the nineteenth century on what, speaking from their
standpoint, we might describe as the Fallacy of Relief. See Works, vol. VIII.

Population, returns, wages, and employment 261

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