best to protect them. 2 Still more important, they did so in a spirit of laissez-faire, that is to say, on the theory that the best way of promoting economic development and general welfare is to remove fetters from the private-enterprise economy and to leave it alone. This is what will be meant in this book by Economic Liberalism. The reader is requested to keep this definition in mind because the term has acquired a different—in fact almost the opposite—meaning since about 1900 and especially since about 1930: as a supreme, if unintended, compliment, the enemies of the system of private enterprise have thought it wise to appropriate its label. By Political Liberalism, which must be distinguished from economic liberalism as our footnote amply shows, we mean sponsorship of parliamentary government, freedom to vote and extension of the right to vote, freedom of the press, divorce of secular from spiritual government, trial by jury, and so on, including retrenchment and pacific, though not necessarily pacifist, foreign policy. This was the program 3 of the first phase of the French Revolution. A tendency to carry it out eventually asserted itself everywhere. But the rates of speed differed widely as between different countries and so did the combinations of forces and circumstances that were responsible for each step. The rate at which the business class itself was converted to political liberalism also differed widely, and not only as between different countries, but also as between different subgroups of the bourgeoisie. Not even economic liberalism was welcomed everywhere and by the whole business class; political liberalism came to large sectors of it like an undesired child. The adherents of the Spanish Constitution of 1811, who were the first to call themselves liberales, had not the whole bourgeoisie behind them. Neither had the French libéraux of the 1820’s. It was a wing only, which was but semirecognized and received also nonbusiness support from intellectuals and the masses, that forced the pro- gram of political liberalism upon a not-quite-willing majority, though this majority was converted in the end. In England, this shows quite clearly in the way in which first the Whigs and then the Palmerstonians were pushed along by a small group that was known as ‘radical.’ This group, or at least its intellectual core, the Philosophical Radicals, is of particular interest to us because some of the most important English economists belonged to it or sympathized with it. But unlike their successors of a later day, these radicals were 2 The Prussian government of the Stein-Hardenberg era, the Austro-Hungarian government from 1849 to 1859, and the Russian government throughout, are the most striking examples of governments that, though surely autocratic enough, adhered, so far as the principles and tendencies of their economic policy is concerned, to what I am about to call economic liberalism. This may read surprisingly. But the reason why it does so is only that these countries were, at the beginning of the period, so far removed from a state of individual freedom in the economic sphere, and that, in their conditions (especially in the conditions of Russia), progress toward this state had to be so slow that the tendency does not show so spectacularly as it does in England. Perusal of any economic history of Europe and, to some extent, the comments that are to follow in the text will, however, convince the reader. In order to understand the economic literature of the period, this fact is of prime importance. Both Prussian and Russian Smithianism was not just a literary fad indulged in by oppositions: its stronghold was in the conservative bureaucracies. 3 Certain items of it are disputable. For example, men whose right to be called political liberals cannot be denied opposed free public education. Not all liberals sponsored extension of the franchise; some conservatives did. History of economic analysis 372 not at all what we should call radical in matters of economic policy. Some of them, J.S.Mill in particular, visualized indeed a different organization of economic activity for a more or less distant future. For the time being, however, they were economic liberals in the sense defined above, or what we should now call conservatives. Their radicalism found plenty to do in the purely political sphere. Moreover, at the beginning of the period, laissez-faire—and in particular free trade—was not as yet established policy. It was something to be fought for, fresh not stale, and something that was felt to be ‘progressive.’ It attracted the majority of intellectuals instead of disgusting them. Their idea of reform was to clear the economic system of what they regarded as nonessential ‘abuses’ in order to allow laissez-faire to work itself out fully. 4 They were supporters of the new Poor Law and no friends to Chartism, still less to any of the socialist groups that were in existence then. 5 Thus the correlation between the interests and attitudes of the business class and liberalism was anything but perfect. In addition, as we have already observed, it was by no means only its own left wing that pushed the bourgeoisie along. Conservative governments—and not only the autocratic ones, but also the English conservative governments—had a decisive share in the progress toward economic liberalism. Moreover, groups, strata, parties, and attitudes of noncapitalist origin, though they had to yield occasionally, held their own on the whole. The period’s political history bears witness to this. So does its religious history. The period indeed begins and ends with a decade in which indifference or even actively hostile laicism prevailed. But between the Napoleonic Wars and the 1860’s, the Catholic Church experienced a marked revival of activity and power that was paralleled in Protestant countries, especially in England (evangelical movement on the one hand, Oxford movement on the other). Nor do the period’s currents of thought outside the religious sphere fit into any simple schema. Tory democracy put in an appearance. Naïve radicalism—and the philosophical radicals were nothing if not naïve—certainly did interpret all these things as survivals. Only the subsequent period was to show that, when they thought they fought the past, they were really fighting the future. A bird’s-eye view of the intellectual scenery of the period and of some developments in fields of particular interest to the economist will be presented in the next chapter. The rest of this one will be devoted to a survey of the policies of the period. For brevity’s sake, we shall confine ourselves almost entirely to economic policies and to the English paradigm. 4 It is, therefore, understandable that Marx and the Marxists should have professed contempt for bourgeois radicalism—though they transferred their contempt also to the radicalism of a later time—that they should have looked upon it as a sham that was really meant to preserve what it pretended to reconstruct. But understandable though such an opinion is in people who felt themselves to be the competitors of bourgeois radicalism, it is nevertheless quite wrong (1) because radicals and, drawn along by them, simple liberals helped labor to gather in a harvest of considerable value even in the economic field; and (2) because their work in the political field created the conditions under which socialist parties were able to grow to numerical importance. 5 On the Chartist Movement, see the book with this title by M.Hovell (1918). Socio-political backgrounds 373 1. ECONOMIC DEVELOPMENT The liberal intermezzo was everywhere, but most spectacularly in England, associated with an economic development which, so far as we can judge, was unprecedented—all the achievements of the early and middle railroad age. It was easy to attribute that impressive sequence of undeniable successes to the policy of economic liberalism as its main or even only cause. The reader will understand that, however inadequate, this theory was far from being wholly wrong. It cannot reasonably be doubted that, in the historical conditions of that epoch, the removal of fetters from the energies that crowded into business pursuits, together with a policy that guaranteed to the businessman secure enjoyment of success and at the same time made it clear to him that he had no help to expect in case of failure, must in fact have had the energizing influence that was extolled until the argument got stale through repetition. Thus the system kept on justifying itself in the eyes of most contemporaneous observers, even of those who, like J.S.Mill, bore it no love. Such complacent registration of ‘progress’ seems strange to us who look back upon that age from different standpoints and in a different humor and abhor the atmosphere of the hard-driven homes of rising industrialists almost as much as the squalid dwellings of their workmen. But let us remember that much of all that offends us now was in the nature of childhood diseases—some of which were passing even at the time of Marx’s glowing indictments—and that the economic promise, which the system of free enterprise held out to all, was not an empty one: the standard of living of the masses remained low, but it rose steadily almost all the time; ever-growing numbers were absorbed at increasing real wages; the ‘free breakfast table’ of the English free traders was perhaps the least misleading slogan that politicians ever forged. Also, contemporaneous and later critics, both conservative and socialist, have never adequately realized the extent to which the welfare policies of the next period were rendered possible by the developments of the first three quarters of the nineteenth century and by the policies that fostered them. So far as this goes, there is no reason for discounting either the honesty or the competence of the economists of that time, or for voting them victims of ideological delusion. 2. FREE TRADE AND FOREIGN RELATIONS The English advocates of free trade claimed perfect generality for their argument. For them, it was absolute and eternal wisdom for all times and places; he who refused to accept it was a fool or a crook or both. But as has been pointed out many times, England’s individual historical situation in which a free-trade policy was clearly indicated had probably more to do with her conversion than had the element of general truth in the free-trade argument. The hope that a spectacular example would convert other nations also may have played some role. The decisive factors and arguments, however, were quite independent of any such hope. The superiority of England’s industry in 1840 was unchallengeable for the calculable future. And this superiority had everything to gain from cheaper raw materials and foodstuffs. These were no delusions: so satisfied was the nation with what it took to be the results of this policy that criticism was almost silenced until the depression of the eighties. Even that hope did not prove illusory for several decades. Though England remained the only great nation to embrace free trade History of economic analysis 374 wholeheartedly, all the other nations displayed tendencies toward free trade for longer or shorter periods and to a greater or lesser degree. Thus Prussia and then the German Empire, from the Prussian Tariff of 1818 to the Caprivi treaties of 1891–4, moved on a line that never departed very far from free-trade principles. 1 The Anglo-French treaty of 1860 (Cobden-Chevalier Treaty) marked an important if short-lived interruption in the generally protectionist policy of France. It should be observed, however, that on the Continent free-trade or quasi-free-trade policy was never supported by public opinion as strongly as was the case in England: it was imposed by bureaucracies—as in Germany— or by rulers—such as Napoleon III—who were doctrinaire liberals in these matters. Those economists who, like the majority of the French, were free traders elicited little response from the public. In the United States, too, free trade was never popular except with economists and not with all of them. Different national conditions of course amply account for this, and they also enable us to put a more favorable construction on the views of protectionist economists in these countries than ardent free traders were wont to put upon them. The dramatic story of England’s conversion to free trade need not be retold here. But there are two aspects of it that we cannot afford to neglect. First, from a parliamentary point of view the adoption of the free-trade policy stands wholly to the credit of the conservative party. The first effective steps in the direction of free trade were taken before the outbreak of the French Revolution by Lord Shelburne and the younger Pitt. Advance toward it was resumed in the 1820’s by Huskisson. And free trade was (substantially) carried, the most difficult point—removal of the import duties on grains—included, by the conservative government of Sir Robert Peel. Though his cabinet and party foundered on the rocks, it still remains true that a government largely composed of landowners carried a policy that was obviously contrary to their own economic class interests as well as to the economic interests of the class with which they were most closely allied, the farmers. Interpret it as you please, but do not forget to ponder over this most interesting phenomenon of political sociology. The manufacturers and merchants who provided political steam are another matter. The Merchants’ Petition of 1820 must be mentioned because it was drawn up by one of the leading scientific economists of the age, Thomas Tooke. And this is our only opportunity, in a history of analysis to mention the two heroes of the Anti-Corn-Law League, Richard Cobden and John Bright. 2 But, second, free-trade policy means much more than a particular way of dealing with questions of foreign trade. In fact, it could be argued that this is the least important aspect of it and that a man might be a free trader, even if he thinks little of the purely economic case for free trade per se. It is easy to see—to some extent we shall see presently—that free-trade policy is related to other economic policies in such a manner that, for political 1 The fact is somewhat obscured by the moves and countermoves that preceded the conclusion of the Customs Union (Zollverein) of 1834 and by concessions made from time to time to individual protectionist interests. On the whole, however, the policy of the Customs Union and, for the rest of the century, of the Empire is adequately described by the sentence above. Bismarck’s mild protectionism had mainly fiscal reasons. 2 It may seem incongruous, in spite of all I might say, that this book accords but a perfunctory notice to those great names. But there is nothing I can do about it except refer the reader to the two masterly lives that he will peruse with pleasure and profit: the Life of Richard Cobden by Lord Morley and the Life of John Bright by G.M. Trevelyan. Socio-political backgrounds 375 as well as economic reasons, these other policies are difficult to pursue without free- trade policy, and vice versa. In other words, free trade is but an element of a comprehensive system of economic policy and should never be discussed in isolation. Nor is this all. The really important point to make is that this system of economic policy conditions, and is conditioned by, something that is more comprehensive still, namely, a general political and moral attitude or vision that asserts itself in all departments of national and international life and may indeed be linked up with utilitarianism. 3 This attitude, which has come to be called Manchesterism by its enemies, was in fact Cobden’s and Bright’s. Among its many manifestations, colonial and foreign policies are particularly important for us. Colonies used to be acquired for the sole purpose of being ruled and exploited in the interest of the mother country and of keeping other nations from doing the same thing. From the Manchester school standpoint there is not even an economic argument in favor of doing this. Still less is there a political one. Colonies exist for themselves just as do any other countries; they should be self-governing; and they should neither accord to, nor be accorded by, the mother country any particular commercial advantages. Nor did all this remain in the realm of either philosophy or agitation. Some practical progress was made toward the goal. England’s Canadian policy, as out-lined in the Durham Report, was for the time being the most important step. 4 There were many backslidings, of course. The foreign policy of the period, both at the time of the Holy Alliance and later, cannot be analyzed briefly. So far as England is concerned, we may, however, point to a few facts which, though hardly representative of prevailing practice, do indicate the existence of a tendency that was in accord with the wider implications of free trade. The most important of these facts was the actual practice of the second Peel administration, the one that repealed the Corn Laws: its sober and responsible management of foreign affairs, its refusal to see English interests in whatever happened anywhere on the globe, was an important sign of the times. Another was the adoption of the principle (Canning) to side with nations ‘rightly struggling to be free’ or even, with some reservation in the German case, with nations that strove for national union: nationalism did not have the connotation it later acquired and was an ally, not an enemy, of bourgeois liberalism or else of something to the left of it (Mazzini). Furthermore, though the period witnessed a number of wars, others were prevented by the new attitude: English relations with the United States during the Civil War afford an example. Most important of all, attempts at sowing the seeds of war by arousing a spirit of either aggression or suspicion, which of course continued throughout, were also under criticism throughout: as an example I mention Cobden’s highly characteristic struggle for a better understanding of France and his not less characteristic struggle with Urquhart. 5 In parliament, Gladstone became—and 3 In England, this affiliation was obvious. But it is not necessary—there are other systems of thought that yield the same attitudes. 4 See Charles P.Lucas, ed., Lord Durham’s Report on the Affairs of British North America (1912). Lord Durham (1792–1840) submitted his report in 1839. 5 David Urquhart, a former member of the diplomatic service, founded in 1835 a periodical, the Portfolio, and, later on, foreign-affairs committees that made vigorous propaganda for an activist foreign policy. Cobden subjected to destructive criticism the possible advantages from such a policy, made fun of arrogant and ignorant diplomatists and political busybodies, and on the whole counteracted Urquhart effectively. History of economic analysis 376 remained—the most powerful spokesman of the new attitude which he invested with all the glories of his rhetoric. 6 3. DOMESTIC POLICY AND SOZIALPOLITIK 1 We must remember that conditions differed sufficiently in different countries to produce different policies and also different attitudes on the part of economists even where the guiding principles were the same. Thus the abolition of serfdom in Russia and the agrarian reforms in Germany and Austria—the so-called Liberation of the Peasants— were certainly conceived and car-ried out in the spirit of economic liberalism: the idea of making the peasant the free proprietor of a free holding and of leaving him to his own devices was even surprisingly—and indeed absurdly—radical. But in France this had been done in the Revolution; the land system of England presented for the moment no pressing problems at all; and the agrarian problems of Ireland were of an entirely different nature. Similarly, the regulations that fettered or sheltered the craft guilds and also other sectors of industry had withered away in England before this period; in France it was again the Revolution that had destroyed them; elsewhere they were removed at different times and in some places much more completely than in others: in Prussia, for example, by the Stein-Hardenberg reforms after the battle of Jena. These differences were, however, not a matter of different economic principles, although writers may sometimes have rationalized them in this way. They were merely a matter of different social conditions, of differences in the economic structures that existed in different countries at the beginning of the period. Again, England completely reconstructed her law of joint stock companies. To some extent this was done everywhere, and everywhere the tendency asserted itself to ‘liberalize’ company laws and to reduce public control (until after the crash of 1873 when some of the steps taken were retraced). But the results differed widely. Differences of principle as well as of existing conditions account for the widely different policies we find in such matters as religion, the press, criminal and civil justice, education, and so on, within the same country at different times as well as between different countries. In England, for example, the old civil liberties having been restored after the Napoleonic Wars, it was Catholic emancipation, parliamentary reform—at first a liberal patent, later infringed on by the Disraeli conservatives 2 —and Ireland which 6 Perhaps the best, certainly the most pleasant, way for the reader to satisfy himself as regards this point is a perusal of Lord Morley’s great Gladstone biography (Life of William Ewart Gladstone, 3 vols., 1903). This is also perhaps the best reference to make for the rest of this chapter. 1 As I said before, I prefer a word that everyone understands, even though it is a foreign one, to one that would need explanation. Hence we shall use the word Sozialpolitik throughout. 2 In England, the running fight for the ultimate enfranchisement of the masses was carried on entirely between upper-class groups: the masses themselves had nothing to do but to stand by and cheer or boo. This interesting phenomenon illustrates well a characteristic difficulty of political interpretation. Tactics had much to do with the attitudes taken by Whigs and Tories: Catholic emancipation ‘drove the Whigs back upon parliamentary reform’ and the Whig parliamentary reform in turn drove the Tories back upon further parliamentary reform. But tactics are not all of it. There is something in Disraeli’s contention that conservatism of his type (Tory democracy) Socio-political backgrounds 377 represents the true interests and feelings of the masses and hence should look to the masses for support. supplied the daily bread of current politics in the noneconomic field. But we are mainly interested in the English 3 Sozialpolitik of that period. English labor legislation developed along three lines. First, there was the factory legislation—protection being, however, substantially confined to women and children. 4 Second, the various acts prohibiting combinations of workmen were repealed in 1824, though complete legalization of trade unions was deferred until 1871 and 1875. Third, a Poor Law Amendment Act was passed in 1834, which is important for us, among other reasons, because it was based on a report written by Edwin Chadwick in collaboration with one of the leading economists of the age, Senior. Two aspects of this act must be carefully distinguished. On the one hand, it greatly improved the administrative machinery of poor relief and stopped a number of practices that would be considered abuses even now. This was almost universally recognized, though some critics found fault with the act’s administrative scheme. In any case, this aspect does not concern us here. On the other hand, the act adopted certain economic principles that do concern us. They were by no means new. In fact, they were as old as the poor-law controversy: the act simply adopted the views of one party to the controversy. That is to say, it confined poor relief to maintenance in the workhouse and prohibited outdoor relief on principle, 5 the idea being that the able-bodied unemployed, who were in distress, should not indeed be left to starve but should be maintained in semipunitive conditions. Interpretation of these policies is an extremely delicate matter. We cannot do much more than visualize the various groups of problems that arise. First of all, these policies must not be considered in isolation. They were part of a system that offered other things to the working class. If we assign its proper weight to the effects on the real wage bill of the free-trade policy and to all that the ‘free-breakfast table’ implies, we shall conceive a wholly different idea of the period’s performance in Sozialpolitik. Second, it is by no means clear how these policies fit in with economic liberalism. As regards the factory legislation, for example, it is as easy to argue that it was part of the logic of economic liberalism as it is to argue that it spelled deviation from this logic. I suggest that, as far as protection for women and children is concerned, we adopt the former opinion. Third, it must not be forgotten that though this type of factory legislation enjoyed some liberal or radical support—Cobden came out strongly on behalf of the children—the bulk of the 3 As the reader might expect, the paternalistic tendencies of the preceding period survived better in some continental countries. But there is something else. In France, before the accession to power of Napoleon III, socialist movements had had little practical effect except that of eliciting violent hostility. But there were nevertheless some writers who visualized with perfect clarity the governmental Sozialpolitik of later times. By far the most eminent of these was Charles Dupont- White (1807–78); see his Essai sur les relations du travail avec le capital (1846) and his L’individu et l’état (1857). Napoleon III and some of his advisers entertained fairly advanced ideas on the subject of social reforms that were to be imposed by authority (socialisme autoritaire, so-cialisme d’état), and some practical measures were actually taken. Dupont-White may be considered the literary exponent of this type of étatisme. 4 A reference must be substituted for information that cannot be presented here: Hutchins and Harrison, A History of Factory Legislation (new ed., 1907). 5 It soon proved impossible to enforce this principle where there was serious resistance. History of economic analysis 378 political forces that carried it was supplied by conservatives (Lord Ashley, seventh Earl of Shaftesbury), who approached this whole range of problems in a quite different spirit. This fact is significant, no matter how we answer the question of compatibility of social legislation with the logic of economic liberalism. Contemporaneous and later critics, German exponents of Sozialpolitik in particular, have accused the English ‘classic’ economists of cold indifference to the fate of labor. The first thing to be said about this is that the indictment reveals a lack of historical sense that is particularly strange in critics associated with the German historical school: the man who disapproved of a ten-hour bill in 1847 might easily be a New Dealer in modern America without our having any right to impugn his consistency. But we can go further. Most ‘classic’ economists supported the factory legislation, McCulloch especially. The repeal of the Combination Acts was vigorously pushed by a member of the Benthamite circle (Place 6 ). And the Poor Law Amendment Act, which was almost unanimously supported by economists, has other aspects besides what seems to us harsh treatment of people in distress. At the same time, we must not go too far. The support that ‘classic’ economists gave to this act acquires additional significance from the fact that the theory underlying it tallied well with their general scheme of economic and political thought, their scheme of Natural Liberty. It also tallied well with their views on population and wages. It tallied still better with their almost ludicrous confidence in the ability of individuals to act with energy and rationality, to look after themselves responsibly, to find work, and to save for old age and rainy days. This, of course, is Benthamite sociology, hence bad sociology. On this point, the critics were right, however wrong they were in imputing to the ‘classics’ a defective social conscience. 7 4. GLADSTONIAN FINANCE In the field of fiscal policy, we are more prone than we usually are to give the jockey credit that is really due the horse. P.J.Cambon was an able financier, yet all the reader is likely to know about the finances of the French Revolution is the breakdown of its paper money. 1 F.N.Mollien was a master of the art, but under the conditions of the Napoleonic regime he had no chance to produce ‘great’ fiscal policy 2 —and there are several others 6 On this interesting man, see Graham Wallas’ Life of Francis Place (1898), one of those books that bring past milieus back to life. 7 Nor is it quite true that all the ‘classics’ were liberals in the party sense; Malthus was not a liberal. But most of the others were; and there is some truth in speaking of an ‘alliance’ of ‘classic’ economists with the liberal party. Therefore, by virtue of psychological, though not of logical association, the later decline of political liberalism contributed to the decline of the prestige of ‘classic’ economics. Observe, however, that there is a long way between recognizing this and identifying ‘systems’ and their fortunes with the political humors of the hour. 1 This gives me the opportunity to call the reader’s attention to the important bibliography on the finances of France in the eighteenth century by René Stourm (Bibliographie historique des finances de la France au dix-huitième siècle, 1895). 2 François N.Mollien’s Mémoires d’un ministre du trésor public, 1780–1815 (1845), however, rise in places to the level of scientific analysis. Socio-political backgrounds 379 who deserve our respect though they have left a checkered record. Yet there was one man who not only united high ability with unparalleled opportunity but also knew how to turn budgets into political triumphs and who stands in history as the great-est English financier of economic liberalism, Gladstone. 3 We cannot do better than consider him alone. The greatest feature of Gladstonian finance—the feature that it shares with, and which may be said to define, all ‘great finance’—was that it expressed with ideal adequacy both the whole civilization and the needs of the time, ex visu of the conditions of the country to which it was to apply; or, to put it slightly differently, that it translated a social, political, and economic vision, which was comprehensive as well as historically correct, into the clauses of a set of co-ordinated fiscal measures. This applies both to the measures themselves and to the intuition that bore them, but not to the talk of the day, Gladstone’s own included, which was highly doctrinaire. We are not interested in the details of these measures but only in the principles involved. Let us try to state them. Gladstonian finance was the finance of the system of ‘natural liberty,’ laissez-faire, and free trade. From the social and economic vision that this implies—and which we must now understand historically, irrespective of all general arguments pro and con—the most important thing was to remove fiscal obstructions to private activity. And for this, in turn, it was necessary to keep public expenditure low. Retrenchment was the victorious slogan of the day and was even more popular with radicals—such as Joseph Hume, the ‘sleepless watchdog of finance’—than it was with either Whigs or Tories. Retrenchment means two things. First, it means reduction of the functions of the state to a minimum; this was referred to by later, especially German, critics as the policy of the ‘night- watchman state.’ For instance, within that social vision there is hardly any place for public expenditure on art or science: the way to further art and science—and powerfully furthered they were—is to allow people to earn so that they have the money to buy pictures or to enjoy leisure for research. 4 Second, retrenchment means rationalization of the remaining func-tions of the state, which among other things implies as small a military establishment as possible. The resulting economic development would in 3 The most spectacular of those triumphs was won by the budget of 1853. The reader will do well to familiarize himself with its main features. He finds these described, in the whole political setting and in all their rhetorical glory, in Lord Morley’s Gladstone biography already referred to. 4 In a well-known passage, Ruskin (see below, ch. 3) upbraided English governments for refusing, unlike continental governments, to spend money for the encouragement of the arts. This is an interesting instance of a type of social criticism that always fails to see a social system as a whole. It was Ruskin’s right to prefer other methods of encouraging art. But it was his duty, as an analyst of social phenomena, to realize that the English method of doing so, even if inadequate, was a method and not just nothing. Independently of this, he should have further recognized that inadequacy of the English method was not obvious from results. This also holds for the sciences and, among others, for economics. If we view results in historical perspective and in particular attach due weight to originality of research, we shall not find it easy to aver with confidence that this social system was less productive of artistic and scientific achievement than is the modern system that uses different and more direct methods. I emphasize this because the principle involved is very important in the field of technical economics: for instance, present-day Keynesians are within their rights, logically, when they aver that the capitalist mechanism that tends to equilibrate ex ante saving and investment is weak and apt to stall; but if they aver that it does not exist, they are simply committing a definite and provable mistake. History of economic analysis 380 addition, so it was believed, make social expenditures largely superfluous. Observe once more that all this, wholly wrong if cast into terms of timeless general principles, did contain a large element of truth for England in 1853. Equally important was it, from the same vision of economic opportunities and mechanisms, to raise the revenue that would still have to be raised in such a way as to deflect economic behavior as little as possible from what it would have been in the absence of all taxation (‘taxation for revenue only’). And since the profit motive and the propensity to save were considered of paramount importance for the economic progress of all classes, this meant in particular that taxation should as little as possible interfere with the net earnings of business. Therefore, so far as direct taxation is concerned, no progression. In principle, if not in practice, Gladstone went even further than this in 1853. The Napoleonic Wars had brought the income tax (in the English sense). It had been abolished promptly when the emergency was over (1816), but had been reintroduced by Peel (1842) in order to make good the deficiency expected from his reductions of import duties. 5 But Gladstone proposed in 1853 to abolish it again in seven years. 6 As regards indirect taxes, the principle of least interference was interpreted by Gladstone to mean that taxation should be concentrated on a few important articles, leaving the rest free. This opinion prevailed throughout against that of Sir George Cornewall Lewis, the Chancellor of the Exchequer during the Crimean War, who preferred a system of numerous duties that would bear lightly on every point touched. 7 Last, but not least, we have the principle of the balanced budget or rather, since debt was to be reduced, the principle that Robert Lowe, one of the Chancellors of the Exchequer of the Gladstonian era, embodied in his definition of a minister of finance: ‘an animal that ought to have a surplus.’ Again, there is no point whatever in criticizing either the policy of balancing the budget or the policy of debt redemption from modern standpoints. Even if we grant all that modern advocates of deficit financing claim, we should admit that in a world bursting with ‘investment opportunities’ neither policy can be set down as unalloyed nonsense. 5 The same policy was adopted by the Wilson administration in 1913. 6 In fact, he kept to this idea throughout. In his electoral manifesto of 1874 he pronounced again in favor of total repeal. The question how far this is consonant with the creed of economic liberalism is difficult. An income tax so high as to change distribution of income substantially certainly is not. This would clearly conflict with the principle of ‘taxation for revenue.’ But an income tax of a few per cent, even if progressive, seems to me to fit the Gladstonian vision better than does the course he actually took. 7 Economically—though perhaps not administratively—Lewis was right, I think. Gladstonian orthodoxy overlooked another point also. It was strongly against taxing ‘necessities.’ In fact, this principle, together with the free-trade policy, was the greatest direct contribution of Gladstonian finance to social welfare (though we must, in order to appraise its total contribution, keep in mind that this direct contribution was not its only one: in addition it did something toward helping into existence the wealth that later proved so easy to tax in the interest of the masses). But this exclusive emphasis on the distinction between ‘necessaries’ and ‘luxuries’ fails to do full justice to the implications of the distinction between commodities that are elastic and commodities that are inelastic in demand. Socio-political backgrounds 381 . extension of the franchise; some conservatives did. History of economic analysis 372 not at all what we should call radical in matters of economic policy. Some of them, J.S.Mill in particular,. Perusal of any economic history of Europe and, to some extent, the comments that are to follow in the text will, however, convince the reader. In order to understand the economic literature of the. bird’s-eye view of the intellectual scenery of the period and of some developments in fields of particular interest to the economist will be presented in the next chapter. The rest of this one