Economics Keynes The Scope and Method of Political Economy

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for the most part recourse was had to the money lender only in circum-
stances of misfortune or special need. Hence the taking of interest natu-
rally presented itself in a different aspect from that in which we are now
wont to regard it. It should, however, be added that while the theory of
the immorality of interest was relatively justified, many of the argu-
ments adduced in support of the theory were as fallacious in reference to
the economic conditions of the Middle Ages or any other period, as they
would be in reference to existing economic conditions. The actual pro-
hibitions of the Church against usurious practices were also in some
cases apparently pushed beyond the point which the circumstances of
the time are likely to have rendered expedient; as, for instance, when
wholesale merchants were forbidden to make a difference between cash
prices and credit prices in their dealings with retail traders; for it seems
clear that in this case credit would usually be taken with the object of
making a trade profit. As a matter of fact, however, the prohibitions
were constantly evaded by means of ingenious legal fictions; and it is
probable that they were seldom really operative except in cases where
they had some practical utility.
The Mercantile System and the doctrines of the Physiocrats have
been shewn by recent historians to have been the natural products of the
times and circumstances in which they respectively arose. The need of
reading particular economic works in the light of contemporary phe-
nomena has also been copiously illustrated by reference to our three
great English economists, Adam Smith, Malthus, and Ricardo. A word
or two may be said here in regard to the last of the three only, whose
doctrinal. sometimes spoken of as pure abstractions, had in reality a
special relation to the facts that came under his observation.
As observed in a previous chapter, the main condition essential to
the correct understanding of Ricardo is the precise determination of the
assumptions upon which his reasoning proceeds. What these assump-
tions are, however, the reader is usually left to his own ingenuity to
The Scope and Method of Political Economy/133
discover. Ricardo himself never explicitly formulated them probably
because they seemed to him in no sense arbitrary abstractions, but patent
facts to which it was unnecessary specially to call attention. The reason
of this is to be found in his personal circumstances, and in the general
economic conditions of his time. His fundamental assumption is the
operation of thoroughgoing uncontrolled competition: and this may, in
the first place, be connected with his position in the City, and on the
Stock Exchange, a market that may he taken as a type of the theoreti-
cally perfect market, where competition is unceasing, and supply and
demand all powerful. Ricardo s personal surroundings are, however,
comparatively unimportant from our present point of view. What is re-
call; of importance is that he wrote at a moment when in the industrial
world itself, so far as internal trade was concerned, the principle of
competition was very active and self-assertive. Old statutes that sought
to regulate industry were giving way before it. No Factory Acts had yet
been passed. Trade combinations of workmen were still illegal. The
industrial revolution of which Adam Smith hardly saw the commence-
ment was in progress; and in the general movement caused by it, the
subtle hindrances to competition which were still in operation were the
more easily overlooked.
Ricardo has frequently been represented as laying down the iron
law that wastes cannot permanently rise above what is sufficient to
provide the bare necessaries of life. He explicitly recognizes, however,
that the natural price of labour, even when estimated in food and nec-
essaries, is not absolutely fixed and constant. It varies, he says, at
different times in the same country, and very materially differs in differ-
ent countries. It essentially depends on the habits and customs of the
people. 176 At the same time, in the course of his reasonings, e.g., in his
treatment of taxes on raw produce, he constantly assumes that the working
classes have so low a standard of effort, that an alteration in the price of
necessaries must very quickly react upon the nominal rate of wages.
This assumption may be taken in connexion with the deterioration in the
state of the working classes at the beginning of the nineteenth century,
a deterioration due mainly to the industrial revolution and the demoral-
izing conditions under which poor relief was administered, supplemented
by the Napoleonic wars and an extraordinary series of bad harvests.
A minor assumption involved in many of Ricardo s reasonings is
that all the agricultural produce consumed in a country is grown in the
country itself. This again was a natural assumption to make at a time
134/John Neville Keynes
when, except in years of scarcity, the importation of wheat was virtually
prohibited. Even had free trade seemed within the range of practical
politics, Ricardo could not have anticipated that the development of the
wheat-producing capacities of North America and India, combined with
the disconcert of cheap and rapid means of transit, would ever bring
about a condition of affairs in which England would import nearly twice
the quantity of wheat and flour that she produced for herself. such a
state of things, even if its possibility were contemplated, would seem so
remote from facts as to make its economic consequences not worth dis-
cussing.
Notes to Chapter IX
A. On the Limits of the Validity of Economic Doctrines.
�1. The relativity of concrete economic doctrines. By some of the
older economists, for example, Senior, political economy was regarded
as a system of doctrines possessing universal validity. The science was
declared to belong to no one nation and to no one country; wages, prof-
its, and other economic phenomena were held to be governed by immu-
table laws comparable to the law of gravitation. De Quincey s eulogy of
Ricardo may serve as an illustration. Previous writers, he says, had
been crushed and overlaid by the enormous weights of facts, details,
and exceptions; Mr Ricardo had deduced, a priori, from the under- [ Pobierz całość w formacie PDF ]

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