The Press. — London, England, 1858-01-23 00:00:00

THE Nittrature. The Elements of Political Economy. By Henry Dunning Macleod. London: Long- mans. Ma. MACLEOe3 book has the great merit of stating very clearly the relation of credit to currency, and exposing most satisfactorily the errors on which the Act of 1844 is founded. But as a system of political economy it cannot take a high place among the great works of the present day. It is both defective and redundant. It contracts into the smallest possible space many of the largest questions of that science, and it expands very unduly the questions which the difficult art of bank ing has recently brought to the surface. Moreover, Mr Macleod, though often happy and accurate in his own modes of illustration and statement, has the great defect of exag gerating the inaccuracies of expression, of which great thinkers are so often guilty, into blunders of conception of which there is no reason to suppose them guilty at all ; and while absorbed in delighted contemplation of his own superior precision, to overstate very inadmissibly the real extent of his opponents' errors, and even sometimes to overlook a truth in the looser and more practical state ment which his own formal theorems have omitted to include. The book is sadly diffuse, and somewhat ostentatiously scientific, refer ring to "rigid Baconian inductions" so often and on occasion of such slight discoveries, or improvements on the discoveries of others that we get at last inured to expect but little' result from the large scientific promises held forth to us. Often, however, Mr. Macleod does explain with great clearness and precision what had seldom been so well explained before, though we must say that his assertion in the preface with regard to banking appears to us, after a careful exami nation of his book, as preposterous as it is startling: — I have carefully read (he says) every word that ever was said in Parliament upon it ; innumerable pamphlets ; quantities of articles in newspapers—and I can only say this, that not a single speaker in Parliament, not a single witness before a parliamentary committee, not a single pamphleteer, not a single writer of a newspaper article showed that he had the most distant conception of the ordinary routine business of banking. This sort of language almost condemns itself. It would have led us to form a much lower notion of the book than it at all deserved. Had it been so lonely in its theory, it must have been either a marvel of science or a marvel of folly, and the latter of course is usually more likely to be combined with arro gance than the former. Such, however, is not the case. The best part of the book is not substantially new at all, and is superior to other books only in clearness and precision of statement. The most novel part is not true. On the whole it makes some points clearer than before, and from a too great idolatry of scientific neatness it makes other points more cloudy than before. The two great discoveries which Mr. Mac leod conceives himself to have made are— first, that the law of value is dependent en• tirely and in all cases on the relation of demand to supply, and quite independent of cost of production ; and, secondly, that cur rency (including under that term money, bank notes, bills of exchange, and cheques) is simply the representation of " transferable debt. It would take us far beyond the limits that our space will allow to go fully into the grounds alleged by Mr. • Macleod for these definitions. We believe that the first involves real error, and that the second, though true, when explained, involves no greater novelty than the application of a new general term, not perhaps specially accurate, to an old idea. We will notice each so fur as our limits permit. Mr. Macleod is extremely angry with Ricardo for asserting that " coat of produc tion " ultimately determines value ; nor will he even admit Mr. John Stuart Mill's modifi cation of the theory; that,..while •demand and supply always determine instantaneous values, and even the permanent value of commodities PRESS, JANUARY 23, 1858. that cannot be produced in indefinite num bers, yet, in the case of all which are capable of indefinite multiplication,demand and supply de termine only the temporary value,• the perma nent or limiting value always depending on the cost of production. Mr. Macleod is excessively angry at this as an unscientific statement, and refutes it by attempting to prove that a change in value can depend only on a change in the relation of demand to supply ; cost of produc tion only entering secondarily into the causes of value so far as it affects the supply. This he illustrates in the following way. Sup pose a stocking manufacturer to invent a machine which cheapens the process of stock ing-making. So long as he only offers the same number of stockings for sale as before, he gains theswhole amountof the reduction caused by his invention : the price and value of the stock ings are not changed : the cost of production is altered, but no corresponding alteration takes place in the value. On the other hand, increase or diminish the supply without any change in the cost of production, or increase or diminish the demand without any such change, and immediately the value changes. If then, reasons Mr. Macleod, you may alter the cost of production without altering the value, and may alter the value without altering the cost of production, it is clear the latter cannot be the essential element in the former. There is a very grave error in this reasoning. Mr. Macleod says there can be no change in value in the stockings till the manufacturer, desirous to increase his business, increases the supply of stockings, when, in order to tempt the public to increased consumption, he must lower his price, and so brings down the market price of stockings in the neighbour hood. Mr. Macleod overlooks the fact that competition does not necessarily involve any alteration in the general supply at all, but only an alteration in the relative supplies of the various producers. In the' ease cited the manufacturer would probably lower the price of his stockings in order to absorb the custom from other hands. This would oblige the other competitors to lower their price also, or to abandon their trade. This process might go on till the public had the whole benefit of the lowering of the value due to the saving in' cost of production, and yet no increased' general supply might take place at all. Indeed, so soon as the secret of the inventor was pub lished, this process must take place, from the result of competition. Nor is there any neces sity for any increase in the general supply or general demand at all. The mutual competi tion of the various traders • would effect the whole change, without either any necessary increase in the general supply, or any change in the demand. The cost of production is the natural limiting value, when competition is free, and unlimited increase possible; nor does the • relation of supply and demand necessarily change at all. Mr. Macleod has confounded the variations of supply as between trader and trader which are implied in all competitions, with variations of supply in the general market which may or may not take place at all. • Mr. Macleod's second original thesis is, that currency is the " representation of transfer able debt." He regards gold. and silver coia t l as a " bill of exchange on every member of " the trading community," only differing from other bills of exchange in having an intrinsic value as a commodity apart from its command over the services or commodities of others. Mr. Macleod's definition is very true so far as it suggests the characteristic difference • be tween that which has value only as a buying medium or power and that which has intrinsic and ultimate value. But why, as a matter of verbal criticism, gold- and silver should be said to represent " debt " more than the com modities for which it is exchanged we cannot see. • When we give a guinea for a book, there is no scientific reason why the guinea should be said to represent a debt paid to the book seller, more than why the book should be said to represent the debt paid to the buyer. It is an ordinary exchange. And the distinction is not between a " representation of debt" and a specific commodity, but between that which is primarily valuable for its command over something else and that which is primarily valuable for its own sake. All currency, as 87 currency, whether metallic or paper, has the former kind of .value, as distinguished from commodities which have the latter. It is not at all as a measure of 'debt . that it is distin guished from all things else, but simply as a common measure. This is the only, reason why paper: currency should be built up on bullion, and convertible into bullion, rather than any other commodity; because bullion gives a recognised power over all kinds of vendors, while specific commodities give power over only one class of purchasers, and everyisolated class is liable to vary greatly in number, and in the intensity of their desire to exchange. Hence currency representing any other kind of property is for long periods locked up in that sort of property, while cur rency convertible into bullion may be again converted at pleasure into all sorts. ' Mr. Macleod is so taken up with the perfectly true notion that unless currency is secured on bullion it is not secured as currency at all, that he omits to estimate the valuable additional security which a lien on other property may also give. He ridicules the New York bank system of issuing notes on Government stock, and forgets that the Government stock is not a substitute for convertibility into bullion, in which case the system would be most hurtful, but an additional security over and above the convertibility into bullion. Of course a bank should never he satisfied with having de posited stock in the place of its notes ; it should also secure the convertibility of these notes by keeping sufficient specie' for that purpose. • But it is obvious enough that, as a further security for notes, any lien' on specific and valuable property helps to secure against depreciation, as we have recently seen in New York Mr. Macleod is only so far correct in say ing that bankers have no right both to enjoy their Government stock and to lend its equiva lent in notes, as he would bo in saying the same of bullion. Every banker who issues notes lends a great part of his bullion and lends the notes that represent it also. He has only to look to it that he has enough at all times to meet all his bona-fide liabilities. If stock commanded the general market as gold does, without first needing to be sold, it would be as good a reserve as gold. It does not, and therefore it is only useful as an additional security for ultimate solvency; and for that purpose it is very useful. Mr. Macleod has another error, or tendency to error, in his book. • He speaks of credit as pure addition to capital. Credit involves liability, and all liability is a limitation on capital. - Credit is either an addition to the e f fectiveness of existing capital, or is an- anticipation' of future capital: in either case it - may really increase the dispo sable capital of the present moment, but never without some corresponding limita tion of the present or future caused by the liability. • If A. by his credit is enabled to have the use of B's mouey, it is clear that B cannot generally have the use alit also. If A by• his credit increases his capital of this week at the expense of next week, he cannot use it next week also. • The only exception to this rule is that given by the superior effective ness of clubbed capital and the inferior danger in clubbed liabilities. The banks and the insurance-offices really add to the disposable capital and diminish the risks of liability without increasing capital at all. But this is only a result of the greater certainty gained by estimating risks on an average of many transactions than from a few. It is not due to credit so much as to association. Aiid in all other cases credit limits in one place while it adds in another. Mr. Macleod has not pro perly explained this. In neither of his great novelties is Mr. Macleod particularly happy. In many minor points and explanations his book is of great value. The History of Court Fools. By Dr. Doran. London : Bentley. IF it be true, as we have heard, that the learned author of the work before us makes no pretensions to the character of an historian or a philosopher, it would be harsh, perhaps to measure him by a strict literary standard• Had he indeed been an author of less estab- I I