This popular error comes from attending to a small portion only of the consequences that flow from the saving or the spending; all the effects of either, which are out of sight, being out of mind. There is, in the one case, a wearing out of tools, a destruction of material, and a quantity of food and clothing supplied to laborers, which they destroy by use; in the other case, there is a consumption, that is to say, a destruction, of wines, equipages, and furniture. Thus far, the consequence to the national wealth has been much the same; an equivalent quantity of it has been destroyed in both cases. But in the spending, this first stage is also the final stage; that particular amount of the produce of labor has disappeared, and there is nothing left; while, on the contrary, the saving person, during the whole time that the destruction was going on, has had laborers at work repairing it; who are ultimately found to have replaced, with an increase, the equivalent of what has been consumed.
Almost all expenditure being carried on by means of money, the money comes to be looked upon as the main feature in the transaction; and since that does not perish, but only changes hands, people overlook the destruction which takes place in the case of unproductive expenditure. The money being merely transferred, they think the wealth also has only been handed over from the spendthrift to other people. But this is simply confounding money with wealth. The wealth which has been destroyed was not the money, but the wines, equipages, and furniture which the money purchased; and, these having been destroyed without return, society collectively is poorer by the amount. In proportion as any class is improvident or luxurious, the industry of the country takes the direction of producing luxuries for their use; while not only the employment for productive laborers is diminished, but the subsistence and instruments which are the means of such employment do actually exist in smaller quantity.
§ 4. Capital is kept up by Perpetual Reproduction, as shown by the Recovery of Countries from Devastation.
To return to our fundamental theorem. Everything which is produced is consumed—both what is saved and what is said to be spent—and the former quite as rapidly as the latter. All the ordinary forms of language tend to disguise this. When people talk of the ancient wealth of a country, of riches inherited from ancestors, and similar expressions, the idea suggested is, that the riches so transmitted were produced long ago, at the time when they are said to have been first acquired, and that no portion of the capital of the country was produced this year, except as much as may have been this year added to the total amount. The fact is far otherwise. The greater part, in value, of the wealth now existing (in the United States) has been produced by human hands within the last twelve months.
“In the State of Massachusetts it is estimated that the capital, on the average, belonging to each individual does not exceed $600, and that the average annual product per capita is about $200; so that the total capital is the product of only two or three years' labor.”[108]
The land subsists, and the land is almost the only thing that subsists. Everything which is produced perishes, and most things very quickly. Most kinds of capital are not fitted by their nature to be long preserved. Westminster Abbey has lasted many centuries, with occasional repairs; some Grecian sculptures have existed above two thousand years; the Pyramids perhaps double or treble that time. But these were objects devoted to unproductive use. Capital is kept in existence from age to age not by preservation, but by perpetual reproduction; every part of it is used and destroyed, generally very soon after it is produced, but those who consume it are employed meanwhile in producing more. The growth of capital is similar to the growth of population. Every individual who is born, dies, but in each year the number born exceeds the number who die; the population, therefore, always increases, though not one person of those composing it was alive until a very recent date.
This perpetual consumption and reproduction of capital afford the explanation of what has so often excited wonder, the great rapidity with which countries recover from a state of devastation. The possibility of a rapid repair of their disasters mainly depends on whether the country has been depopulated. If its effective population have not been extirpated at the time, and are not starved afterward, then, with the same skill and knowledge which they had before, with their land and its permanent improvements undestroyed, and the more durable buildings probably unimpaired, or only partially injured, they have nearly all the requisites for their former amount of production. If there is as much of food left to them, or of valuables to buy food, as enables them by any amount of privation to remain alive and in working condition, they will, in a short time, have raised as great a produce, and acquired collectively as great wealth and as great a capital, as before, by the mere continuance of that ordinary amount of exertion which they are accustomed to employ in their occupations. Nor does this evince any strength in the principle of saving, in the popular sense of the term, since what takes place is not intentional abstinence, but involuntary privation.
The world has at any given period the power, under existing conditions of production and skill, to create a certain amount of wealth, as represented by the inner rectangle, W. Each increased power of production arising from conquests over Nature's forces, as the use of steam and labor-saving machinery, permits the total wealth to be enlarged, as, in the figure, to rectangle W'. For the production of wealth are required labor, capital, and land; therefore, if the labor and land are not destroyed by war, there need not necessarily be in existence all the previous capital. If there are the necessaries for all, and only sufficient tools to accomplish the work, they will, in a few years, again recreate all the wealth that formerly existed, regain the same position as before, and go on slowly increasing the total wealth just as fast as improvements in the arts of production render it possible.
§ 5. Effects of Defraying Government Expenditure by Loans.
(An application of this truth has been made to the question of raising government supplies for war purposes.) Loans, being drawn from capital (in lieu of taxes, which would generally have been paid from income, and made up in part or altogether by increased economy), must, according to the principles we have laid down, tend to impoverish the country: yet the years in which expenditure of this sort has been on the greatest scale have often been years of great apparent prosperity: the wealth and resources of the country, instead of diminishing, have given every sign of rapid increase during the process, and of greatly expanded dimensions after its close.
During our civil war, at the same time that wealth was being destroyed on an enormous scale, there was a very general feeling that trade was good, and large fortunes were made. At the close of the war a period of speculation and overtrading continued until it was brought to a disastrous close by the panic of 1873. Much of this speculation, however, was due to an inflated paper currency.
We will suppose the most unfavorable case possible: that the whole amount borrowed and destroyed by the Government was abstracted by the lender from a productive employment in which it had actually been invested. The capital, therefore, of the country, is this year diminished by so much. But, unless the amount abstracted is something enormous, there is no reason in the nature of the case why next year the national capital should not be as great as ever. The loan can not have been taken from that portion of the capital of the country which consists of tools, machinery, and buildings. It must have been wholly drawn from the portion employed in paying laborers: and the laborers will suffer accordingly. But if none of them are starved, if their wages can bear such an amount of reduction, or if charity interposes between them and absolute destitution, there is no reason that their labor should produce less in the next year than in the year before. If they produce as much as usual, having been paid less by so many millions sterling, these millions are gained by their employers. The breach made in the capital of the country is thus instantly repaired, but repaired by the privations and often the real misery of the laboring-class.