A publication of

of purchasing is exactly measured by its annual produce,

as it undoubtedly is; the more you increase the annual

produce, the more by that very act you extend the na-

tional market, the power of purchasing and the actual

purchases of the nation.

Whatever be the additional quantity of goods there-

fore which is at any time created in any country, an

additional power of purchasing, exactly equivalent, is at

the same instant created; so that a nation can never be

naturally overstocked either with capital or with com-

modities; as the very operation of capital makes a vent

for its produce. Thus to recur to the example which we

have already analyzed; fresh goods to the amount of

£5,500 were prepared for the market in consequence of

the application of the £5,000 saved by the landholder.

But what then? have we not seen that the annual produce

of the country was increased; that is, the market of the

country widened, to the extent of £5,500, by the very

same operations? Mr. Spence in one place advises his

reader to consider the circumstances of a country in

which all exchange should be in the way of barter, as the

idea of money frequently tends to perplex. If he will

follow his own advice on this occasion, he will easily

perceive how necessarily production creates a market for

produce. When money is laid out of the question, is it not

in reality the different commodities of the country, that

is to say, the different articles of the annual produce,

which are annually exchanged against one another?

Whether these commodities are in great quantities or in

small, that is to say, whether the country is rich or poor, will

not one half of them always balance the other? and is it not

the barter of one half of them with the other which actually

constitutes the annual purchases and sales of the country. Is

it not the one half of the goods of a country which universally

forms the market for the other half, and vice versa? And is

this a market that can ever be overstocked? Or can it

produce the least disorder in the market whether the goods

are in great or in small quantity? 

All that here can ever be requisite is that the goods

should be adapted to one another; that is to say, that every

man who has goods to dispose of should always find all

those different sorts of goods with which he wishes to

supply himself in return. What is the difference when the

goods are in great quantity and when they are in small?

Only this, that in the one case the people are liberally

supplied with goods, in the other that they are scantily;

in the one case that the country is rich, in the other that

it is poor: but in the one case, as well as in the other, the

whole of the goods will be exchanged, the one half

against the other; and the market will always be equal to

the supply. Thus it appears that the demand of a nation

is always equal to the produce of a nation. This indeed

must be so; for what is the demand of a nation? The

demand of a nation is exactly its power of purchasing.

But what is its power of purchasing? The extent undoubt-

edly of its annual produce. The extent of its demand

therefore and the extent of its supply are always exactly

commensurate. Every particle of the annual produce of

a country falls as revenue to somebody. But every indi-

vidual in the nation uniformly makes purchases, or does

what is equivalent to making purchases, with every

farthing’s worth which accrues to him. All that part

which is destined for mere consumption is evidently

employed in purchases. That too which is employed as

capital is not less so. It is either paid as wages to laborers,

who immediately buy with it food and other necessaries,

or it is employed in the purchase of raw materials.

The whole annual produce of the country, therefore,

is employed in making purchases. But as it is the whole

annual produce too which is offered to sale, it is visible

that the one part of it is employed in purchasing the other;

that how great soever that annual produce may be it

always creates a market to itself; and that how great

soever that portion of the annual produce which is des-

tined to administer to reproduction, that is, how great

soever the portion employed as capital, its effects always

are to render the country richer, and its inhabitants more

opulent, but never to confuse or to overload the national

market. I own that nothing appears to me more com-

pletely demonstrative than this reasoning.

*

JAMES MILL

9

ON THE OVERPRODUCTION AND UNDERCONSUMPTION FALLACIES

* 

The attentive reader will perceive that no deduction is made in the preceding

argument for that part of the annual produce which is consumed immediately by the

producer. The motive for this was a desire not to perplex the argument by

qualifying clauses. To notice this particular, at the same time, was entirely

unnecessary, since that part of the annual produce which may be consumed by the

producer, as it increases not the demand in the national market, so neither does it

increase the stock or supply in that market, because it is not carried to market at all.

It is also to be considered that in every country where labor is well divided, and

skillfully applied, the proportion of the produce which the producers immediately

consume is always very small.

---

It may be necessary, however, to remark, that a nation

may easily have more than enough of any one commod-

ity, though she can never have more than enough of

commodities in general. The quantity of any one com-

modity may easily be carried beyond its due proportion;

but by that very circumstance is implied that some other

commodity is not provided in sufficient proportion.

What indeed is meant by a commodity’s exceeding the

market? Is it not that there is a portion of it for which

there is nothing that can be had in exchange. But of those

other things then the proportion is too small. A part of

the means of production which had been applied to the

preparation of this superabundant commodity, should

have been applied to the preparation of those other

commodities till the balance between them had been

established. Whenever this balance is properly pre-

served, there can be no superfluity of commodities, none

for which a market will not be ready.

*

 This balance to

the natural order of things has so powerful a tendency to

produce, that it will always be very exactly preserved

where the injudicious tampering of government does not

prevent, or those disorders in the intercourse of the

world, produced by the wars into which the unoffending

part of mankind are plunged, by the folly much more

frequently than by the wisdom of their rulers.

This important, and as it appears demonstrative doc-

trine, affords a view of commerce which ought to be very

consolatory to Mr. Spence. It shows that a nation always

has within itself a market equal to all the commodities of

which it can possibly have to dispose; that its power of

purchasing is always equivalent to its power of produc-

ing, or at least to its actual produce; and that as it never

can be greater, so it never can be less. Foreign commerce,

therefore, is in all cases a matter of expediency rather

than of necessity. The intention of it is not to furnish a

vent for the produce of the industry of the country,

because that industry always furnishes a vent for itself.

The intention of it is to exchange a part of our own

commodities for a part of the commodities which we

prefer to our own of some other nation; to exchange a set

of commodities which it peculiarly suits our country to

produce for a set of commodities which it peculiarly suits

that other country to produce. Its use and advantage is to

promote a better distribution, division and application of

the labor of the country than would otherwise take place,

and by consequence to render it more productive. It

affords us a better, a more convenient and more opulent

supply of commodities than could have been obtained by

the application of our labor within ourselves, exactly in

the same manner as by the free interchange of commod-

ities from province to province within the same country,

its labor is better divided and rendered more productive.

It thus appears of what extraordinary importance to

every community is the augmentation of capital; that is

to say, the augmentation of that part of the annual pro-

duce which is consumed in the way of reproduction. If

we but recall the thought of that important doctrine first

illustrated by Smith, that a progression is necessary in

national affairs to render the circumstances of the great

body of the people in any degree comfortable, our hu-

manity, as well as our patriotism, will become deeply

interested in the doctrine of parsimony. Dr. Smith shows

that even when a country is stationary, the subsistence of

the laboring classes is reduced to the lowest rate which

is consistent with common humanity; that is to say, it is

barely sufficient to enable them to maintain their present

numbers,but not sufficient to enable them in the least

degree to augment them. But if we recollect how much

greater than this are the powers of multiplication in the

species, how natural it is for the average of families to be

more numerous than merely to replace the father and the

mother; we shall see with feelings of commiseration how

wretched must be the circumstances of those families

that are more numerous, and of how many human crea-

tures brought into existence, it must be the miserable fate

to perish through want of subsistence. But if such is the

dismal situation of the great body of the people, when the

national affairs are but stationary, how much more

shocking to our feelings are their circumstances, when

the situation of the country is retrograde.

In this situation the laborer is unable to earn even at a

rate which is sufficient to maintain the number of the

laboring class. Calamity now comes down with a heavier

hand. That class must even be thinned by the dreadful

operation of deficient subsistence. On the other hand,

when the affairs of the country are progressive, the wages

of the laboring class are sufficient not only to maintain

their existing numbers, but to augment them. The reward

10

JAMES MILL

ON THE OVERPRODUCTION AND UNDERCONSUMPTION FALLACIES

* 

What then are we to think of such speculators as Lord Henry Petty, who told the

House of Commons in one of the debates on the appropriation of part of the sinking

fund in his new finance plan, that it was necessary to prevent the national debt from

being paid too fast, lest the country should become overstocked with capital? There

was not an individual in the House who contradicted him.

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