Petty's Place in the History of Economic Theory/3

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The content of Petty's work was more and more restricted by his method as fondness for terms of number, weight, and measure grew upon him. The first group of his writings, therefore, exhibits greater variety of topic than the later ones, and is far more interesting to the student of economic theory. As he passed from the field of taxation, with its fascinating speculative problems, to the descriptive and comparative pamphlets of the second period, economic digressions became fewer and fewer, and he occasionally introduced information of trifling importance for no other apparent reason than that it could be given in numerical terms. In the third group he confined himself almost exclusively to questions of population, and, except in the Quantulumcunque concerning Money, added practically nothing of economic interest to these earlier books. It is, therefore, in the Treatise of Taxes that we must look for Petty's economic ideas. No English book before Hume better deserves the attention of the economist.

Roughly speaking, Restoration finance rather confirmed than introduced fiscal innovations. Pym's exercise was continued in fact, if not in form, by the hereditary and temporary excises granted to the crown; and the most productive parts of the Commonwealth's customs were reenacted, though with significant changes, by the Great Statute. On the negative side, too, the Restoration Parliament recognized what the Long Parliament had accomplished. The Court of Wards and Liveries and the royal rights of purveyance and pre-emption were not revived. But even the accustomed taxes had a new aspect now that they were no longer the exactions of "the usurper," and the addition of the poll tax and the hearth money introduced elements essentially new. Under the circumstances it is not surprising that taxes and contributions should have elicited Petty's first economic tract.

It would lead too far afield to canvass all the comments and suggestions which Petty makes upon the subject of taxation. His general view is clear. People should pay "according to the share and interest they have in the Publick Peace; that is, according to their Estates or Riches: now there are two sorts of Riches, one actual, and the other potential. A man is actually and truly rich according to what he eateth, drinketh, weareth, or any other way really and actually enjoyeth; others are but potentially or imaginatively rich who, though they have power over much, make little use of it; these being rather Stewards and Exchangers for the other sort, than owners for themselves."[1] This idea underlies and shapes all his discussions of taxation. But he makes very different uses of it in the Treatise of Taxes, written in 1662, and in the Verbum Sapienti, written three years later, and he arrives at widely divergent administrative conclusions in consequence. In 1662 he saw no way of distributing the burden of taxation in proportion to the citizens' expenditures save by taxing those expenditures themselves. Accordingly he demanded, in the name of "natural justice," a heavy, if not an exclusive excise. By 1665 he had made distinct progress beyond this naïve administrative notion. Reflection upon Graunt's calculations of the number of people in England had apparently suggested to him—at any rate, he had come to see—that the whole income of the nation could be estimated from the number of the people and their expenditures. The idea proved alluring. He expanded it at once, and returned to it again and again, working it out ingeniously and gliding over its difficulties.

The income of individuals is, of course, less than their expenditure by the amount of their savings; but if that objection occurred to him at all, he probably thought that his distinction between potential and actual riches met it well enough. He therefore considered that expenditure measured income. Now income must flow either from property or from labor. The first step, then, is to determine the amount of expenditure; the second, to ascertain from what sources this expenditure is chiefly met. This done, taxation may be imposed, either directly upon the expenditure or upon the property which makes the expenditure possible, as administrative considerations may dictate. He assumes, accordingly, that the average of annual expenditure in England is £6 13s. 4d. per capita. No ground whatever is assigned for this assumption; and I cannot help suspecting that he reached it by guessing at a total annual expenditure of 40 million pounds and dividing that sum among an assumed population of 6 million people.[2] However that may be, he established to his own satisfaction that the people of England spend 40 million pounds per annum, and are really and actually rich in proportion. He next inquires in what their wealth consists. The lands, houses, cattle, goods, ships, and money of the country are separately valued, giving a total of 250 millions, which is supposed to yield its possessors 6 per cent.; or 15 millions yearly, out of the 40 millions which the community spends. The remaining 25 millions must be due to labor. Now the people who perform this labor are as valuable as would be the fee of lands renting for what they earn; "for, although the Individiums of Mankind be reckoned at about 8 years' purchase, the Species of them is worth as many as Land, being in its nature as perpetual, for ought we know."[3] The people are therefore worth 416⅔ millions as against 250 millions for "the stock of the kingdom."[4]

This enables him to substitute for the exclusive excise which he formerly advocated a system of taxes whereby five-eighths of the amount required shall be levied upon the people and three-eighths upon the stock, land paying 21 per cent. of the whole, personal estates 6 per cent., and so on, in proportion to their several values. When this is done, no man will pay more than he ought or need, "which disproportion is the true and proper Grievance of taxes."

Whether we regard this as a formulation of the problem of justice in taxation or as an attempt at the comprehensive solution of that problem, it is entitled to high praise. Not before Adam Smith, perhaps, can another discussion of the subject be found so thorough and so well balanced as is Petty's.[5]

Out of his discussion of taxes proceeds his treatment of rent, the "mysterious nature" of which he thinks it well to explain before talking too much about its taxation. There have been intimations that Petty held a "correct" theory of rent.[6] It is well, therefore, to see just what his theory is. It is, first of all, a theory of agricultural rent. Accordingly, he distinguishes between "the natural and genuine Rent of Lands"[7] and their rent in gold or silver, between the "corn rent" and "money rent." The corn rent of agricultural lands, he says, is determined by the excess of their produce over the expenses of their cultivation, those expenses being paid in corn. And the value of this excess, or the money rent, is measured by the amount of silver that a man working a free mine for the same period as the cultivator of the corn land will have left after meeting his expenses with a portion of the silver that he has secured.[8]

Passing over, for the moment, Petty's use of the labor theory of value to explain the equivalence of corn and money rents, let us turn attention to his account of the origin of corn rent. As quoted in the foot-note, it sounds rather imposing and even somewhat Ricardian. But upon examination it is seen to be merely a graphic way of saying that the rent of a farm must be paid out of the excess of its crops over the cost of producing them. That is all the Ricardianism there is in it. If Petty had been, as he was not, the first to make this assertion,[9] his priority would have been due solely to his predecessors' contempt for commonplace. Merely to note that there must be a surplus before rent can be paid, advances the discussion no whit beyond the experience of every man who has contracted to pay rent. Granted the surplus, nothing is plainer than that the cultivator would retain it if he could. "It is," as Ricardo remarks, "one thing to be able to bear a high rent, and another thing actually to pay it."[10] What needs to be explained is not how the cultivator can pay rent, but why he must. Adam Smith observed that, "as soon as the land becomes private property, the landlord demands a share of almost all the produce." But he did not explain why the cultivator accedes to this unwelcome demand, and his explanation of rent was incomplete in consequence. The so-called Ricardian theory of rent supplies this gap by means of the Law of Diminishing Returns. Any theory which does not contain this is something less than Ricardian.

There was probably nothing to suggest diminishing returns to Petty. Mr. Cannan has shown[11] how the notion that additional supplies of food must be secured at increased cost was a natural conclusion from the conditions that preceded and indeed evoked Malthus's Inquiry into the Nature and Progress of Rent. In Petty's time, circumstances were quite otherwise. The year in which he wrote, to be sure, was a time of dearth approaching famine.[12] But no such extreme and continued rise of prices as occurred between 1790 and 1815 had taken place within his recollection. Moreover, his warm friend, Hartlib, had published a book professing to show that by the use of agricultural methods prevailing in Brabant and Flanders all sorts of crops might be enormously increased in England.[13] Petty was by temperament inclined to experiment and to improve. He probably knew, as every land-owner must, that it "don't pay" to spend more than a limited amount per acre on a barley field. But he never looked upon society, as Ricardo was prone to do, as a clock destined to run down by the exhaustion of its stored-up force.[14] If he wanted to use more money to advantage on his patch, he would have tried "Flax, Turnips, Clover grass, Madder, etc.," "so as to advance in value from one to an Hundred," as Hartlib advised.[15] He doubtless believed,[16] just as Hume[17] did, that with social progress a smaller portion of the community would suffice to raise food for the whole. This faith, which has been hitherto abundantly justified by the facts, is, of course, not logically incompatible with that form of the law of diminishing returns which is necessary to explain Ricardian rent.[18] But a man who has such faith is unlikely to hit upon the Ricardian formulation of the law. And Petty did not.

The device which played in Petty's theory of rent the place taken by diminishing returns in Ricardo's is clearly indicated in his calculation of the rent of the counties nearest London. "We would first at hazzard compute the materials for food and covering, which the Shires of Essex, Kent, Surrey, Middlesex and Hertford, next circumjacent to London, did communibus annis produce; and would withal compute the Consumptioners of them living in the said five Shires and London. The which if I found to be more than there were Consumptioners living upon the like scope of other Land, or rather upon so much other Land as bore the like quantity of Provisions, then I say that Provisions must be dearer in the said five Shires than in the other; and within the said Shires cheaper or dearer as the way to London was more or less long, or rather more or less chargeable. For if the said five Shires did really produce as much Commodity as by all endeavour was possible; then what is wanting must be brought from afar, and that which is near advanced in price accordingly; or if the said Shires by greater labour than now is used ... could be fertilized, then will the Rent be as much more advanced as the excess of encrease exceeds that of labour."[19] The hint here given, that the rent of lands depends not upon their differing technical fertility, but upon their proximity to markets, is subsequently developed into one of the mathematical formulæ whose definiteness appealed so strongly to Petty's mind. "Land of the same quantity and quality in England," he says, "is generally worth four or five times as much as in Ireland, and but one-quarter or one-third what it is worth in Holland, because England is four or five times better peopled than Ireland, and but a quarter as well as Holland."[20]

Bearing in mind that, according to Petty's view of the matter,—a view shared by seventeenth century economists generally,—rent is a criterion of prosperity and its rise the surest sign of growing wealth, we can see how his theory that high rents were directly due to dense population explains his advocacy of wholesale schemes of "transplantation" in order to increase the wealth and power of the State. Thus, protesting that the suggestion is but "a jocular and perhaps ridiculous digression, which I desire men to look upon rather as a Dream or Resvery than a rational proposition," he calculates in the Political Arithmetick that, if the people of Ireland and the Highlands of Scotland were all transplanted to England, the resultant rise in rents and in year's purchase would so enrich that kingdom that it could afford to buy the lands and fixtures of its neighbors and to pay the expense of importing their persons and movables. The same idea he elaborated in great detail in the Treatise of Ireland, and he seriously attempted to secure for it the approbation of James II. As a practical proposal, it is preposterous; and the king of course refused to entertain it. But we must consider the circumstances. In the first place, Petty was familiar from his Irish experiences with the idea of deporting a whole population. He doubtless argued that, if a usurper for a mere political reason might transplant all the Irish beyond the Shannon, surely a true king might remove them to England, where, after all, they would be better off than in Connaught, while at the same time they would make his the richest kingdom in Europe. The seventeenth century was less careful of the individual's rights than the nineteenth. In the second place the economics of Petty's proposal are altogether sound. People are wealth. They are, indeed, the chief component of the national capital. The people of Ireland are capital badly situated. Their efficiency will be increased by transplanting them, just as the efficiency of a factory might be by removing it to a better site. The idea is inconsiderate; but, granting Petty's premises, it is by no means absurd.

Petty's theory of value, like his theory of rent, is developed incidentally to the discussion of taxation. It is an uncompromising quantity-of-labor theory. "Let a hundred men work ten years upon Corn, and the same number of men, the same time, upon Silver; I say that the neat proceed of the silver is the price of the whole neat proceed of the Corn, and like parts of one the price of like parts of the other... And this also is the way of pitching the true proportion between the values of Gold and Silver, which many times is set but by popular errour. . . This I say to be the foundation of equallizing and ballancing of values; yet in the superstructures and practices hereupon, I confess there is much variety and intricacy; of which hereafter."[21] The promise in these last words is kept by numerous incidental remarks scattered throughout his writings, pointing out how the superstructure differs from what the foundation would lead us to expect, or, in modern language which scarcely misrepresents Petty 's idea, how market price differs from the normal price of his theory. He says, for example, that "forasmuch as almost all Commodities have their Substitutes or Succedanea, and that almost all uses may be answered several wayes; and for that novelty, surprize, example of Superiours, and opinion of unexaminable defects do adde or take away from the price of things, we must adde these contingent Causes to the permanent Causes abovementioned, in the judicious foresight and computation whereof lies the excellency of a Merchant."[22] Compared with anything that preceded it in England,[23] this analysis marks a great theoretical progress. It cuts loose altogether from the mediaeval notion, current at least as late as Hales' Discourse of the Common Weal,[24] that price is arbitrarily determined by the seller, whose exactions must be persistently checked by law. It at least suggests the difference between normal and market price. It clearly enunciates the theory of normal price that dominated economic thought for more than two hundred years, and bids fair to occupy once more the superior, if no longer the only, seat upon the throne. By combining it as a theory of natural price with Locke's supply-and-demand explanation of value as a theory of market price, it became possible to construct, as, perhaps, without conscious dependence upon Petty, or even upon Locke, Adam Smith did eventually construct, a theory of value so satisfactory that, when amended in some minor prints, John Stuart Mill could pronounce it "complete." Of course, it was not as complete as Mill thought it; but the contribution of its characteristic element is no mean achievement.


  1. Writings, i. 91.
  2. Graunt had calculated the population of England in 1662 at 6,440,000. In 1687 Petty thought it to be 7,369,000, as previously noted. See p. 317. In the Political Arithmetick Petty returned to the question of average expenditure, and then (1676) gave some reasons for thinking that £7 per annum "may well enough stand for the Standard of Expense of the whole mass of Mankind" in England. Writings, i. 306.
  3. Writings, i. 108.
  4. Cf. Political Arithmetick, 31, 32; Writings, i. 267. This ingenious calculation has heen brought down to date by Professor J. S. Nicholson, "The Living Capital of the United Kingdom," in Economic Journal, i. 95 (1891).
  5. Certainly nothing to compare with it has been discovered by the researches of F. J. Neumann ("Die Steuer nach der Steuerfahigkeit," in Conrad's Jahrbücher (1880), xxxv. 511-578), Robert Meyer (Die gerechte Besteuerung (1884), 3-21), Hasbach ("Die Entwickelung der Finanzwissenschaft bis auf Adam Smith," in his Untersuchungen über Adam Smith (1891), 240-290), or Ricca-Salerno (Storia delle dottrine finanziarie (1896), 148-210).
  6. E.g., McCulloch's Literature of Political Economy, s. v., Ingram's History of Political Economy, p. 57. Dr. Bevan goes so far as to say (Sir William Petty: A Study, 98) that Petty "would quite agree with Ricardo's definition of rent as the payment for indestructible powers of the soil"!
  7. Political Anatomy of Ireland, 54; Writings, i. 174.
  8. "Suppose a man could with his own hands plant a certain scope of Land with Corn, that is, could Digg, or Plough, Harrow, Weed, Reap, Carry home, Thresh and Winnow so much as the Husbandry of this Land requires; and had withal Seed wherewith to sowe the same. I say, that when this man hath subducted his seed out of the proceed of his Harvest, and also, what he himself hath both eaten and given to others in exchange for clothes, and other Natural necessaries; that the remainder of corn is the natural and true Rent of the Land for that year; and the medium of seven years, or rather of so many years as makes up the Cycle, within which Dearths and Plenties make their revolutions, doth give the ordinary Rent of the Land in corn.
    "But a further, though collaterall question may be, how much English money this Corn or Rent is worth? I answer, so much as the money which another single man can save within the same time, over and above his expence, if he imployed himself wholly to produce and make it; viz., Let another man go travel into a Country where there is Silver, there Dig it, Refine it, bring it to the same place where the other man planted his Corn, Coyne it, &c. the same person, all the while of his working for Silver, gathering also food for his necessary livelihood, and procuring himself covering &c. I say the Silver of the one must be esteemed of equal value with the Corn of the other." Treatise of Taxes, 24-25; Writings, i. 43.
  9. See, for example, Hales' Discourse, 38.
  10. Chapter on "Mr. Malthus's Opinions on Rent" in Ricardo's Principles, p. 559 of 1817 edition.
  11. "The Origin of the Law of Diminishing Returns," in Economic Journal, March, 1892, ii. 53-69, also in his Theories of Production and Distribution (1894), 147-168.
  12. Rogers's History of Agriculture and Prices, v. 213-215.
  13. Legacie of Husbandry, 1655.
  14. I cannot recall whether this comparison was suggested by Mr. Cannan or by Dr. Patten.
  15. Political Arithmetick, 2, 4; Writings, i. 249-251.
  16. Ibid., 33; loc. cit., 267.
  17. "Essay of Commerce," Philosophical Works (1854), iii. 280.
  18. Cf. Commons, Distribution of Wealth, 116-159; Clark in Palgrave's Dictionary, i. 602 a.
  19. Treatise of Taxes, 33; Writings, i. 51, 52. In another part of the same tract (p. 30; Writings, i. 48, 49) he says: "If the Corn which feedeth London or an Army be brought forty miles thither, then the Corn growing within a mile of London, or the quarters of such Army, shall have added unto its natural price, so much as the charge of bringing it thirty-nine miles doth amount unto. ... Hence it comes to pass that Lands intrinsically alike near populous places, such as where the perimeter of the Area that feeds them is great, will not only yield more Rent for these Reasons, but also more years purchase then in remote places, by reason of the pleasure and honour extraordinary of having lands there; for Omne tulit punctum qui miscuit utile dulci."
  20. Political Arithmetick, 67; Writings, i. 286.
  21. Writings, i. 43, 44, Treatise of Taxes.
  22. Writings, i. 90, Treatise of Taxes.
  23. I have only a second-hand acquaintance with the early Italian theories of value, based on Graziani's Storia critica delta teoria del valore in Italia (1889).
  24. Lamond's edition, 42, 43.