A publication of

capital. As capital, however, it would within the year have

replaced itself with a profit; as taxes it is all  consumed, and

nothing is created to replace it. By its consumption as taxes

the country is rendered poorer, by its consumption as

capital, the country would have become richer.

Mr. Spence has next a most excellent idea. The sums

paid as taxes, he allows, might have employed produc-

tive laborers. “But,” says he,

*

 “if we have already pro-

ductive laborers, sufficient for the supply of all our

wants, why increase their number?” This is an argument

the most commodious in the world. It is equally accom-

modated to all times and places. The population of En-

gland and Wales was found, in 1801, to be very nearly

nine millions and a half. In the time of Edward the 1st,

the population of England and Wales was found to be

about two millions and a half. Had Mr. Spence lived in

the days of Edward the 1st, his argument would have

been just as handy as at the present moment. It would

apply as logically to the wilds of Tartary, as to England

and France. Let us observe another of Mr. Spence’s

consistencies. He here tells us, we see, that society ought

to become stationary. We have already productive labor-

ers enough; why increase their number? Yet Mr. Spence

informed us, in a passage which we have already quoted,

that on this increase depended the prosperity of every

country. “A nation,” he told us, “may be said to be in

prosperity, which is progressively advancing in wealth,

where the checks to population are few, and where

employment and subsistence are readily found for all

classes of its inhabitants.”

This is all which I can perceive, that Mr. Spence advances

in the form of direct argument, to prove that the national debt,

and heavy taxes, are a public blessing;

**

 and, if the maxim be

well founded, that the proofs of any proposition ought to be

strong, in proportion as the doctrine is wonderful, great is the

danger that Mr. Spence’s speculations will not have a very

splendid fortune.

***

There is an idea, which he has appended to this

doctrine, which would furnish occasion to a most import-

ant inquiry; were it not of a more extensive nature, than

to admit of being brought within the limits of the present

Tract. “In the time of war,” says Mr. Spence,

****

 “when

the most taxes are paid, the bulk of the population of this

country enjoy greater prosperity than at any other time.”

He adds, “just now, for example, never were the bulk of

the people so prosperous.” As he states this merely as an

JAMES MILL

13

ON THE OVERPRODUCTION AND UNDERCONSUMPTION FALLACIES

* 

Britain Indep. of Commerce, p. 76.

** 

He refers to Lord Lauderdale’s “inquiry into the nature and origin of public wealth.”

His lordship’s arguments, however, are merely those of Mr. Spence extended. They

are drawn from the same source, and applied to the same end. Wherever the above

arguments are conclusive against Mr. Spence, if they are conclusive against him at

all, they are equally so against Lord Lauderdale. It seems therefore unnecessary to

extend the pamphlet by any examination of arguments, which are already refuted.

*** 

Among other accusations which Mr. Spence has brought against Dr. Smith, he

wishes to prove, that, though he dissents from the doctrine of the Economistes, he

yet “virtually admits its truth.” (See p. 41 of Mr. Spence’s pamph. 3rd edit.) “He

asserts,” says Mr. Spence, “that all revenue must be derived from rent of land, profit

of stock, or wages of labor. But in the course of his investigation, he admits, that no

taxes are finally paid by the profit of stock; the employer of capital always shifting

the burden from himself upon the consumer. He allows, too, that taxes cannot

finally fall upon wages, since the wages of the laborer increase in proportion, as the

price of the articles he consumes is augmented by taxation. On what, then, can taxes

fall, but upon the rent of land? If all revenue be necessarily derived from rent,

wages and profit, and the two latter cannot be affected by taxation, Dr. Smith, on

his own premises, admits the truth of the doctrine of the Economistes.” One can

with some difficulty determine what to say of this. It is directly untrue. Dr. Smith is

so far from saying, that no taxes fall ultimately either upon the profit of stock or the

wages of labor, that he explains particularly in what manner taxes do fall upon both.

Mr. Spence, however, certainly did not intend this misrepresentation. He tells us,

that he borrowed the idea from the Edinburgh Review, [Jan. 1803, No. II, p. 445]. It

is probable, that he trusted to this authority, without undergoing the drudgery of

consulting Dr. Smith; (taking the business of instructing the public very easily!) and

the writer in the Review, with the precipitance natural to a reviewer must have

made the assertion at random.

**** 

Britain Indep. of Commerce, p. 76.

---

inference from his theory, entirely unsupported by any

reference to facts, and as we have seen that his theory is

extremely erroneous, we might reject the inference with-

out any farther inquiry. But I am desirous of entering my

protest in a manner somewhat more circumstantial

against an opinion demonstratively unfounded, cruel to

the sufferers, and calculated, as far as its influence ex-

tends, to prolong the national calamity of war; an opinion

the more likely, if false, to produce disastrous conse-

quences, because it is entertained by many persons in the

more affluent circumstances of life, for whom it is too

natural to believe, when they themselves are at their ease,

that all the world are in a similar situation. It must have

been from such a consideration as this of the circum-

stances of the poor, from an attentive inquiry founded

upon his own enjoyments, that Mr. Spence must have

learned to assure us, that they are in great prosperity.

Surely, Mr. Cobbett will here take up arms against his

new confederate. There is no point which Mr. Cobbett

has labored with greater industry, and better effect, for

many months, than to prove that the situation of the lower

orders has become much more unfavorable since the

commencement of Mr. Pitt’s career as a minister. I

remember some time ago, though the date I cannot

assign, he presented to us a calculation to prove how

much the price of the quartern loaf had risen upon the

wages of the laborer, and how inadequate his weekly

wages had now become, to afford even bread, (not to

speak of fire, clothing, and lodging, or a day of sickness)

even to a moderate family. To afford evidence upon this

subject, sufficient to compel the assent of such persons

as are resolved to withhold it as long as they possibly can,

a very copious induction of well attested facts would be

requisite. These on such a question could not be very

easily procured; and the inquiry, even if the facts were

ascertained, would extend itself beyond the limits to

which we are at present confined.

We can, however, appeal within a narrow compass to

a few general facts, which afford a strong ground for

inference to the whole subject. One of these, of a most

extraordinary and important nature, is the state of the

poor’s rate. The medium average of the annual expendi-

ture on account of the poor, in the years 1783, 1784, and

1785, was £2,004,238. During the period of peace, which

intervened from this date till the breaking out of the war

in 1793, no general account was taken of the poor’s rate;

and we have, therefore, no complete collection of

facts,by which we can ascertain in what degree it in-

creased during that period. If we may form however, a

conclusion from the general state of the country, in which

wages were continually advancing, while the price of

provisions was stationary, or rather on the decline, we

seem warranted to infer, that it did not increase at all, if

it did not rather decline; at any rate that it did not increase,

but in a very small degree.

We have something indeed much more precise than

this, on which to found our conclusions. In the Returns

from the Parishes inserted in the Work of Sir F. M. Eden,

on the Poor, we have statements of the annual expendi-

ture during that period; and though they are not digested

into tables, or the general results exhibited, a comparison

in a few cases will satisfy the inquirer, that he poor’s rate

was the same, or very nearly the same, in 1785 and 1792.

The case, however, widely altered during the progress of

the war. The attention of the nation had been gradually

more and more attracted to this growing calamity during

some years previous to 1803, when an act of the legisla-

ture was passed, for taking an account of the nature and

amount of the expenditure on the poor. At this time it was

found to amount to the enormous sum of £4,267,965, 9s

2d. In the course of ten years of war, therefore, the poor’s

rate had more than doubled. In nine years, from 1776 to

1785, it had increased only £473,434; in ten years, from

1793 to 1803, it increased £2,263,727.

Does this fact seem to support the strange conclusion

of Mr. Spence, that the people of England are most

prosperous during war? and above all, that they were

never in so prosperous a condition, as they are at this

moment? Does Mr. Spence really know, that the number

of persons in England, who receive parochial charity, is

1,234,768? The whole population, exclusive of military

and convicts, but including the paupers, are 8,872,980.

Deduct from this the number of paupers, we have

7,638,212. The paupers, therefore, are to the rest of the

population, as one to six nearly. If we suppose, that the

higher and middling classes form but one fourth of the

population, we shall find that nearly every fifth individ-

ual in the laboring classes is a parish pauper. Does this

lamentable and extraordinary fact indicate a state of

prosperity? If we consider that it is the male part of the

population chiefly, that is the earning part and pays the

poor’s rate, it will appear, that the paupers are equal to

nearly one third of the whole male population, including

old men, young men, and children. Mr. Spence will here,

it is probable, launch out into a declamation on the

growing vices of the poor, (this at least is the general

resource) and will to these ascribe the extraordinary

increase of the poor’s rate during the war.

But why should the vices of the poor have increased

so fast during the war? If this is the effect of war, deeply

is its prolongation to be deplored. I know, however, no

facts by which it can be made appear, that the poor are

more vicious than they were in 1785; and as to com-

plaints, these were as strong fifty years ago, as they are

now. If it be said, that the poor’s rate itself is a proof of

the increase in the vices of the poor; this is merely

14

JAMES MILL

ON THE OVERPRODUCTION AND UNDERCONSUMPTION FALLACIES

---

begging the question. It is first making the vices of the

poor account for the poor’s rate, and next the poor’s rate

account for the vices. Besides, how much soever the

growing tendency of vice is to be deplored, its progress

in a whole people is always much slower than what is

here ascribed to it. The comparison too of the wages of

the laborer with the price of provisions, as made by Mr.

Cobbett, in the manner stated above, affords direct evi-

dence on this subject, and leads to the same lamentable

conclusion.There are, unluckily, but few recent state-

ments publicly attested, to which on this subject a writer

can appeal, and I am unwilling to advance any thing

merely on my own experience and observation.

There are, however, some general facts which afford

a fair inference to all other cases. In some papers for

example printed in 1807, by order of the society of

shipowners in Great Britain, I find it stated, that since the

year 1780, the price of provisions has increased

£84.8s.2d. per cent. That wages, however, have in-

creased only £39.7s.1d. per cent. a rate of increase which

is not nearly one half of that of provisions. This account

too of the low rate of wages is the more to be depended

upon, that it was adverse to the conclusion which the ship

owners wanted to establish. Now, though the shipping

trade for a few years has been far from flourishing, it is

only for a few years; and even during them there has been

no diminution in the employment of shipwrights, be-

cause the enormous demand in the king’s yards, and in

the navy, has much more than compensated for any

slackness in the yards of the merchants. We have never

heard complaints, that shipwrights were not as well paid

as any other artificers of a similar description; that their

wages have not risen in a similar, or rather in a superior

proportion. We may, therefore, infer, with abundant as-

surance, that the rate of wages, in proportion to that of

provisions, has in all cases where some peculiar circum-

stances have not created an extraordinary competition

for hands, suffered a similar depression. From all this we

are surely authorized to conclude, that the assertion of

Mr. Spence respecting the prosperous condition of the

people at large, is rash and unwarranted.5

I am unwilling to dwell upon this topic, as I am

sensible, that I expose myself to a very formidable argu-

ment, which we have acquired, in this country, a won-

derful dexterity in wielding against one another, that is,

the  argumentum ad invidiam, (if Mr. Cobbett will for

once pardon the use of a learned phrase) the argument,

not of refutation, but of odium. The opinion which I have

just now ventured to express, and which, if true, it is of

so much importance not only to express but to proclaim,

there are many gentlemen, who will ingeniously refute,

not by attacking the argument, but the author; not by

showing that the opinion is unfounded, but by asserting,

that the author wishes to stir up the poor against the rich.

The two antagonists whom I have more particularly

challenged in this tract, I must, however, deny the honor

of belonging to that illustrious body. If my argument has

not convinced them, they may, if they deem it of suffi-

cient importance, endeavour to refute it; but both of them

seem to be too much fettered by old fashioned prejudices,

to satisfy themselves, that it is the best mode of refuting

an argument to calumniate the arguer.

It might be not useless to those who are the most averse

to hear of the fact, barely to allow themselves for one

moment to suppose it real, and then to ask themselves,

whether it ought to be disguised or to be made known;

whether the fatal cause is more likely to be removed by

concealment or by exposure. That the fact, if real, is a

lamentable one, I suppose will not be doubted; first on

principles of mere humanity, next on those of patriotism.

For what would it indicate? Have we not seen that when a

country is prosperous, the laboring classes of the people are

by necessary consequence in comfortable circumstances?

that when the comforts of the laboring classes have de-

cayed, the prosperity of the country is at least at a stand, a

point from which declension is the consequence, natural

and very difficult to be avoided? Since the subject is then

of so much importance, let us hope that all those whom the

opinion here stated may offend, will exert themselves to

refute it. If they can produce facts but nearly as strong

against it as are stated to prove it, our wishes will forcibly

incline us all to range ourselves of their party.

JAMES MILL

15

ON THE OVERPRODUCTION AND UNDERCONSUMPTION FALLACIES

---

Editor’s Notes

1. Mill, at least implicitly, has in mind the feudal aristocracy

here. His observation does not apply to great inequality of

wealth in a free economy. This is because such inequality is

largely the result precisely of a higher degree of saving on the

part of those who have accumulated the great fortunes.

2. The Physiocrats. 

3. The error of Spence and the modern proponents of this

doctrine is that they do not realize that the production of goods

to be employed reproductively, i. e., capital goods, provides

fully as much employment for capital goods and labor as does

the production of consumers’ goods. If ninety percent of a

nation’s “gross annual produce” is to be employed reproduc-

tively and only ten percent consumed, then of the capital goods

and labor available in the country, ninety percent are employed

in the production of capital goods, and only ten percent in the

production of consumers’ goods. Given these proportions, the

present supply of labor and capital goods is devoted ten percent

to the consumption of one year later, and nine percent to the

consumption of two years later. The latter result follows from

the fact that the capital goods of next year are the product of

ninety percent of today’s capital goods and labor, and are in

turn employed ten percent in the production of the consumers’

goods to be available in two years. By an extension of the same

reasoning, the capital goods and labor of this year are devoted

8.1% to the consumption of three years later, 7.29% to the

consumption of four years later, and so on indefinitely. The

effect of employing a larger proportion of the “gross annual

produce” reproductively is not to lock resources up in purpose-

less production, which does not benefit the consumer, but

merely to delay the consumer’s reaping of the benefit of their

use. And the greater this delay, the greater the benefit derived.

For products produced by ten percent of the resources of a

country which year after year are augmented in respect to

capital goods, and which are the more rapidly augmented the

greater the proportion of resources devoted to the production

of capital goods, must very soon exceed the quantity of

consumers’ goods which could be produced by any greater

proportion of the country’s resources.

4. Continual additions “to that part of the annual produce

which is devoted to reproduction” do not require a constantly

rising  proportion of the produce so expended. A retrograde

state of society does not result from a growth of the “part of the

annual produce which is taken for mere consumption,” but from

a growth in the proportion of the produce so taken. In a

progressing economy, a larger amount of produce will contin-

ually be available for consumption as well as reproduction. This

is Mill’s real meaning, judging from the context.

5. It is grotesque that while war and destruction were (and

are) held to be the causes of prosperity, capitalism has

received the blame for the deterioration of economic condi-

tions in early nineteenth century Britain which was precisely

the result of the almost uninterrupted warfare with France

carried on between 1793 and 1815. The spiritual heirs of

Spence, despite all the evidence of statistics and common

observation, are no better informed on the effects of war than

he was. They persist in the delusion that World War II, for

example, was a period of high prosperity. In actual fact, it

represented a far greater degree of poverty, even in the

United States, which was spared any physical destruction,

than the worst years of the depression which preceded it. In

the depression, some people could not buy a new car, a new

house, or new appliances. In the war, no one could, for the

simple reason that they were not being produced. Despite

the fact that he probably worked longer hours, the average

person could not obtain in any quantity the most common

articles of consumption, from chewing gum and candy bars

to gasoline and tires. Millions more worked, and they

worked longer hours, but the greater part of their output was

consumed on the battlefields. It was not until 1949 that the

country recovered from this “prosperity.”

16

JAMES MILL

ON THE OVERPRODUCTION AND UNDERCONSUMPTION FALLACIES