A publication of

Wonderful, as after what we have been considering, it

may appear, it is yet certain, that Mr. Spence here objects

to the augmentation of the portion of the annual produce,

which is destined for reproduction. The savings of the

landholders, says he, would be employed as capital. But

why should they not be employed as capital? Because,

says Mr. Spence, expenditure would be lessened.

Well may we here congratulate our author on the

clearness and comprehensiveness of his views. What

then? The corn which we supposed the landowner to

consume upon his agricultural servants and horses,

would not be as completely expended as that which we

supposed him to consume upon his livery servants, his

stud, and his dog kennel? The ploughmen of the country

do not expend as well as the soldiers? There is here a

want of discernment, which in a man, who stands up as

an emphatical teacher in political economy, does hardly

deserve quarter.

*

 Of the two parts of the annual produce,

that which is destined for production and that which is

destined for consumption, the one is as completely ex-

pended as the other, and the part which is destined for

reproduction, is that which is probably all expended in

the shortest time. For the man who intends to make a

profit is in haste to obtain it. But a considerable time may

elapse before a man consume the whole of what he lays

up for mere gratification. He may have in his cellar a

stock of wine to serve him for several years, but the flax

or the wool in his warehouse will probably be all worked

up in the course of one year.

To render the futility of Mr. Spence’s objection still

more clear, we may show him by an analysis of a partic-

ular case in what manner the savings of his land-holders

would contribute not to the worst but to the best effects

in civil society. As this error respecting the importance

of dead consumption is common both to the mercantile

system and to that of the Economistes, and very generally

diffused among the ordinary part of mankind, it is of no

little importance, even at the risk of being thought te-

dious, to endeavour to set it in the strongest light I am

able.

Let us suppose that one of Mr. Spence’s landholders

with a revenue of £10,000, the whole of which he has

been accustomed to spend in the maintenance of a bril-

liant and luxurious establishment, becomes resolved all

at once to cut short his expenditure one half. He has thus

the very first year £5,000 to dispose of. Even Mr. Spence

allows that he will lend, not hoard it. Let us suppose that

he lends it to the linen manufacturer in his neighborhood.

To what use in his hands is it immediately applied? to the

augmentation unquestionably of his business. He goes

directly and buys an additional quantity of flax from the

farmer, he sets to work an additional number of flax-

dressers and spinners, he employs the carpenters, black-

smiths, and other necessary artisans in erecting for him

an additional number of looms, and he hires an additional

number of weavers. In this manner the £10,000 of the

landholder is as completely consumed as ever it was. But

£5,000 of it is consumed in a very different manner. It is

consumed, 1st upon a very different set of people, and

2nd to a very different end. 1. It is consumed upon the

growers, the dressers, the spinners, and weavers of flax,

with the carpenters, blacksmiths, and other artisans

whose labors are subservient to that manufacture, instead

of being expended, as formerly, upon lacqueys and

cooks, and the other artificers of luxury. 2. It is expended

for the sake of reproduction. By means of its expenditure

a property of an equal and more than equal amount is

now called into existence; by its former expenditure

nothing was called into existence. The produce of the

country for this year therefore is greater than it would

otherwise have been by the amount of £5,000, with its

natural profits. If we suppose these profits to be only ten

JAMES MILL

7

ON THE OVERPRODUCTION AND UNDERCONSUMPTION FALLACIES

* 

Here, too, Mr. Spence follows a remarkable part of the system of the original

Economistes.

2

 “Consumption is the measure of reproduction—the more that is

consumed, the more that is produced,” said Mercier de la Riviere, Ordre Essentiel

des Societes Polit. Tom. ii. p. 138. At the time when this system was first invented,

when men had just begun to analyze the operations of society, such a mistake

deserved, perhaps, indulgence. But after the real causes of wealth have been so

clearly evolved by Dr. Smith, after the mysterious process of production has been

so exactly resolved into its first elements, it shows either a very slight acquaintance

with his work, or a woeful inability to trace the consequences of the truths

demonstrated in it, if a man can now adopt the doctrine of the Economistes

respecting consumption. - A late French writer, M. Say, Economie Polit. Liv. v. ch.

3. tells a pleasant anecdote of a practical pupil of this doctrine. “I knew,” says he, “a

young man who threw crystal flasks out the window after he had emptied their

contents, on the grounds that it was necessary to encourage manufactures.”

---

per cent, which is surely reasonable, the produce of the

country is thus £5,500 the greater, on account of the very

first year’s saving of the landholder.

*

Another strange perversity of Mr. Spence’s doctrine

here presents itself. It is directly opposed to the very end

which it purposes to promote, consumption. By renounc-

ing Mr. Spence’s plan in the instance we have adduced,

the country would have more to expend to the amount of

£5,500 in the very first year of the new operation of the

£5,000; because it would have more produce to the

amount of £5,500. Mr. Spence will not surely say that a

nation can consume more than it produces; and it is very

odd that he and the other pupils of the same doctrine do

not reflect that consumption is posterior to production,

as it is impossible to consume what is not produced.

Consumption in the necessary order of things is the effect

of production, not production the effect of consumption.

But as every country will infallibly consume to the full

amount of its production, whatever is applied to augment

the annual produce of the country by consequence aug-

ments its annual consumption. The greater therefore the

departure from Mr. Spence’s rules, the more rapid in

every country the increase of consumption will be.

**

There is another idea the explication of which I could

have willingly avoided, because it is more abstruse than

may appear adapted to the greater part of the readers of

a pamphlet, and after all the pains I can take to render it

plain in the narrow space to which I am confined, con-

siderable obscurity may still appear to rest upon it. This

explication however is not only necessary because it

serves to clear away a remaining objection of the

Economistes, but because it exposes the fallacy of certain

notions current in this country, which threaten to have

very extensive practical consequences. The Economistes

and their disciples express great apprehensions lest cap-

ital should increase too fast, lest the production of com-

modities should be too rapid. There is only, say they, a

market for a given quantity of commodities, and if you

increase the supply beyond that quantity you will be

unable to dispose of the surplus.

No proposition however in political economy seems

to be more certain than this which I am going to an-

nounce, how paradoxical soever it may at first sight

appear; and if it be true, none undoubtedly can be deemed

of more importance. The production of commodities

creates, and is the one and universal cause which creates

a market for the commodities produced. Let us but con-

sider what is meant by a market. Is any thing else under-

stood by it than that something is ready to be exchanged

for the commodity which we would dispose of? When

goods are carried to market what is wanted is somebody

to buy. But to buy, one must have wherewithal to pay. It

is obviously therefore the collective means of payment

which exist in the whole nation that constitute the entire

market of the nation. But wherein consist the collective

means of payment of the whole nation? Do they not

consist in its annual produce, in the annual revenue of the

general mass of its inhabitants? But if a nation’s power

8

JAMES MILL

ON THE OVERPRODUCTION AND UNDERCONSUMPTION FALLACIES

* 

Mr. Spence says in a note (p. 24 of his pamphlet, 3rd edition) “There is a singular

vagueness and confusion in the whole of Dr. Smith’s reasoning, relative to the

different effects of prodigality and parsimony upon national wealth. His arguments

seem to be intended to maintain, that fresh capital may be profitably employed, in

manufacturing goods which nobody will buy; for, certainly no purchasers would be

found for the goods brought into existence by the employment of new capital, if all

the members of the society were to convert the greater part of their revenue into

capital.”

3

 This is pretty much as if a follower of the Ptolemaic astronomy should

accuse the reasonings of Sir Isaac Newton of vagueness and confusion, because

they do not tally with the doctrines of cycles and epicycles.

** 

My reader may convince himself by personal inspection that the following passage

is actually to be found in Mr. Spence’s pamphlet (p. 55) “Sir Richard Arkwright, by

his invention and employment of improved machinery, in the spinning of cotton,

annually gained great riches. But would he ever have been wealthy, if he had every

year spent in tea, wine, sugar, etc. destined for his immediate consumption, a sum

equal to, or greater than, the whole of his gain? Surely not. The dullest intellect

must see, that he never could have acquired wealth, by this constant expenditure of

his gains, in articles to be consumed by himself, which, when consumed, left no

relic behind them; however great might have been his gains, and however long he

might have acted on this system. If, then, a private manufacturer cannot acquire

wealth in this way, neither can a manufacturing nation. The cases are precisely

parallel.”

---